Pagoudis v. Keidl, 2020AP225

• Court: United States State Supreme Court of Wisconsin
• Writing for the Court: JILL J. KAROFSKY, J.
• Citation: 2023 WI 27
• Parties: Louis Pagoudis, Hanna Pagoudis, Sead Properties, LLC and Kearns Management, LLC, Plaintiffs-Appellants, v. Marcus Keidl and Russell K. Berg d/b/a Intervest Inspections, Defendants,Amy Keidl a/k/a Amy Jo Weyker, Defendant-Respondent-Petitioner.
• Docket Number: 2020AP225
• Decision Date: 04 April 2023

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2023 WI 27

Louis Pagoudis, Hanna Pagoudis, Sead Properties, LLC and Kearns Management, LLC, Plaintiffs-Appellants,
v.
Marcus Keidl and Russell K. Berg d/b/a Intervest Inspections, Defendants,Amy Keidl a/k/a Amy Jo Weyker, Defendant-Respondent-Petitioner.

No. 2020AP225

Supreme Court of Wisconsin

April 4, 2023

Submitted on Briefs: Oral Argument: September 9, 2022

REVIEW of a decision of the Court of Appeals. Affirmed in part, reversed in part, and cause remanded.

Source of Appeal: Circuit Court, Washington County, L.C. No. 2019CV492) Todd K. Martens Justices Judge

For the defendant-respondent-petitioner, there were briefs filed by Laura Elaine O'Gorman and Schloemer Law Firm, S.C., West Bend. There was an oral argument by Laura Elaine O'Gorman.

For the plaintiffs-appellants, there was a brief filed by Thomas L. Frenn, James R. Shaw, and Frenn Law Offices, Wauwatosa, and James Shaw Law, Brookfield. There was an oral argument by Shawn M. Govern.

An amicus curiae brief was filed by Cori Moore Lamont and Wisconsin Realtors Association, Madison, for Wisconsin Realtors Association.

JILL J. KAROFSKY, J.

¶1 This case involves a residential real estate transaction and a claim that the seller

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misrepresented the condition of the subject property, which has given rise to confusion because three legally distinct entities- -Elias "Louis" Pagoudis, Sead Properties, LLC (Sead LLC), and Kearns Management, LLC (Kearns LLC)--conflated their interests when filing their complaint. This court now endeavors to disentangle those interests and holds that only Sead LLC has sufficiently stated a claim upon which relief can be granted. Pagoudis's and Kearns LLC's claims against Amy Keidl must be dismissed.^[1]

I. BACKGROUND

¶2 We begin by introducing the participants in this real estate dispute. Pagoudis owns and is the sole member of two LLCs: Sead LLC and Kearns LLC.^[2] Together, Pagoudis, Sead LLC, and Kearns LLC are the plaintiffs in this action and Amy and Marcus Keidl, the sellers of a piece of residential real estate (the Property), are the defendants.^[3]

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¶3 We next take a moment to establish which documents we are reviewing. The plaintiffs filed a first amended complaint after Amy Keidl filed a motion to dismiss, but before the circuit court ruled on the motion. With the first amended complaint in play, the circuit court granted Amy Keidl's motion to dismiss in full. The plaintiffs filed a motion for reconsideration while simultaneously filing a second amended complaint.^[4] The circuit court subsequently entered the final order granting Amy Keidl's original motion, necessarily denying the motion for reconsideration. The plaintiffs appealed this final order. As such we treat the first amended complaint, the complaint in place when the court initially granted the motion to dismiss, as the operative complaint.

¶4 Various other documents were submitted to this court either in the record attached to motions or in the appendix to appellate briefing. When reviewing a motion to dismiss, we generally limit the review to the four corners of the complaint. See Andruss v. Divine Savior Healthcare Inc., 2022 WI 27, ¶15, 401 Wis.2d 368, 973 N.W.2d 435. The circuit court considered two warranty deeds attached to Keidl's motion to dismiss under the limited "incorporated-by-reference doctrine." The court of appeals upheld the consideration of the warranty deeds, and the plaintiffs did not appeal that decision. Thus, we also consider

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these two warranty deeds. We do not consider or rely on any other extraneous documents.^[5]

¶5 Now we set out the facts of the purchase and transfer of the Property, as alleged in the first amended complaint and established by the warranty deeds. Pagoudis negotiated the terms of the Property's purchase from the Keidls. During the negotiations, he received a real estate condition report (RECR) signed by Amy Keidl. Pagoudis then signed the offer to purchase, which states that the contract is between the Keidls and Pagoudis "or assigns."

¶6 Sead LLC then executed the negotiated contract for the Property and took title to it. Less than six months later, Sead LLC assigned the Property to Kearns LLC. At the time the complaint was filed, Kearns LLC held title to the Property.

¶7 After purchasing the Property, the plaintiffs discovered defects that Amy Keidl failed to disclose in the RECR. The alleged defects range from water and mildew in the basement, to insect infestations, to an unwanted piano.^[6] The plaintiffs brought this action against the Keidls for breach of contract, common law misrepresentation, and statutory misrepresentation.

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¶8 Amy Keidl filed a motion to dismiss for failure to state a claim upon which relief can be granted pursuant to Wis.Stat. § 802.06(2)(a)6 (2019-20)^[7]. The circuit court dismissed the case in full, deciding that each of the parties lacked standing to pursue their stated claims. The court reasoned that Pagoudis and Kearns LLC have no standing because they were not parties to the original transaction, and Sead LLC has no standing because it transferred the Property before filing the action and thus no longer has an interest in the Property. The court of appeals reversed, holding that at least one of the parties has standing and remanded to the circuit court for further factual development to determine which party or parties have standing under which claims. We now conclude that Pagoudis's and Kearns LLC's claims against Amy Keidl are dismissed without further factual development because both parties failed to state a claim upon which relief may be granted. Sead LLC's claims, however, survive the motion to dismiss, and as a result we remand the case to the circuit court for further proceedings.

II. STANDARD OF REVIEW

¶9 A motion to dismiss is reviewed de novo taking all well-pleaded factual allegations in the complaint as true and drawing reasonable inferences from those facts. Colectivo Coffee Roasters, Inc. v. Soc'y Ins., 2022 WI 36, ¶7, 401 Wis.2d

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660, 974 N.W.2d 442. We do not defer to a complaint's legal conclusions. Id. In determining whether this complaint survives a motion to dismiss, we look to various statutes, which we also interpret de novo. State v. Forrett, 2022 WI 37, ¶5, 401 Wis.2d 678, 974 N.W.2d 422.

III. ANALYSIS

¶10 While the circuit court, the court of appeals, and the parties view the issue in this case as one of standing, we conclude that the question here is really whether each plaintiff, based on the plaintiff's unique interest in the Property, has sufficiently pled any claim upon which relief can be granted pursuant to Wis.Stat. § 802.06(2)(a)6. This case does not raise a question of judicial policy but of the complaint's legal sufficiency. See McConkey v. Van Hollen, 2010 WI 57, ¶15, 326 Wis.2d 1, 783 N.W.2d 855 ("standing in Wisconsin is not a matter of jurisdiction, but of sound judicial policy"). Although there are many reasons that a claim may not survive a motion to dismiss, we limit our review to the narrow issue raised and developed on appeal (though stripped of the guise of standing). As such, we interpret the issue as whether each plaintiff, based on their individual interests in the Property, states a claim upon which relief can be granted.

¶11 We determine that, according to the allegations in the complaint, only Sead LLC has properly stated a claim upon which relief can be granted. We begin by laying out the plaintiffs' collective claims. We then summarize some basic principles of LLC law in order to establish that each plaintiff's claims must

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be analyzed independently. Finally, we address each plaintiff's claims independently and determine that only Sead LLC's claims survive the motion to dismiss.

A. The Claims

¶12 The plaintiffs' five claims fall into two categories: breach of contract and misrepresentation. The plaintiffs' first cause of action alleges breach of contract (warranty). The elements of any breach of contract claim are (1) the existence of a contract between the plaintiff and the defendant; (2) breach of that contract; and (3) damages. Brew City Redev. Grp., LLC v. The Ferchill Grp., 2006 WI.App. 39, ¶11, 289 Wis.2d 795, 714 N.W.2d 582. To prove the existence of a warranty, the elements are: (1) an affirmation of fact; (2) inducement to the buyer; and (3) reliance by the buyer. See Selzer v. Brunsell Bros., Ltd., 2002 WI.App. 232, ¶13, 257 Wis.2d 809, 652 N.W.2d 806. When a warranty is found to be part of a contract, false representations made as part of the warranty are a breach of the contract.

¶13 The plaintiffs' second cause of action is for common law intentional misrepresentation. To establish intentional misrepresentation, the plaintiffs must show: (1) that the defendant made a representation of fact to the plaintiff; (2) the representation was false; (3) the plaintiff believed and relied on the misrepresentation to the plaintiff's detriment; (4) the defendant made the misrepresentation knowingly or recklessly, and (5) the defendant did so intending to deceive

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and induce the plaintiff. Tietsworth v. Harley Davidson, Inc., 2004 WI 32, ¶13, 270 Wis.2d 146, 677 N.W.2d 233.

¶14 The plaintiffs' third cause of action is for common law strict liability misrepresentation. To establish strict liability misrepresentation, the plaintiffs must show: (1) the defendant made a representation of fact to the plaintiff; (2) the representation was false; (3) the plaintiff believed and relied on the misrepresentation to the plaintiff's detriment; (4) the defendant knew or ought to have known that the statement was false; and (5) the defendant had an economic interest in the transaction. Ollerman v. O'Rourke Co. Inc., 94 Wis.2d 17, 25, 288 N.W.2d 95 (1980).

¶15 The plaintiffs' fourth cause of action is misrepresentation under Wis.Stat. §§ 943.20(1)(d) and 895.446.^[8]The elements of this claim are: (1) that the defendant made a...