Petrillo v. Bachenberg

• Decision Date: 29 March 1995
• Citation: 139 N.J. 472,655 A.2d 1354
• Parties: , 63 USLW 2641 Lisa PETRILLO, Plaintiff-Respondent, v. William G. BACHENBERG, Jr.; William G. Bachenberg, Jr., Trustee, "The Trust", a fictitious name; Bachenberg & Bachenberg, Inc., and John A. Matthews, Defendants, and Bruce D. Herrigel, Defendant-Appellant.
• Court: New Jersey Supreme Court

Page 472

139 N.J. 472

655 A.2d 1354, 63 USLW 2641

Lisa PETRILLO, Plaintiff-Respondent, v. William G. BACHENBERG, Jr.; William G. Bachenberg, Jr. Trustee, "The Trust", a fictitious name Bachenberg & Bachenberg, Inc., and John A. Matthews, Defendants and Bruce D. Herrigel, Defendant-Appellant.

Supreme Court of New Jersey.

Argued Sept. 26, 1994.

Decided March 29, 1995.

Robert DeChellis argued the cause, for appellant.

Bertram J. Latzer argued the cause, for respondent.

George W. Canellis argued the cause, for amicus curiae, N.J. State Bar Ass'n (Mr. Canellis, attorney; Raymond A. Noble, on the brief).

The opinion of the Court was delivered by

POLLOCK, J.

The issue is whether under the circumstances of this case the attorney for the seller of real estate owes a duty to a potential buyer. Plaintiff, Lisa Petrillo, alleges that because of the negligence of defendant Bruce Herrigel, an attorney, she received a misleading copy of a percolation-test report that induced her to sign a contract to purchase property. At the close of plaintiff's case, the Law Division concluded that Herrigel did not owe a duty to plaintiff to provide a complete and accurate report. The Appellate Division reversed, 263 N.J.Super. 472, 623 A.2d 272 (1993). It determined that an attorney for a seller has a duty not to provide misleading information to potential buyers who the attorney knows, or should know, will rely on the information. We granted Herrigel's petition for certification, 134 N.J. 566, 636 A.2d 523 (1993), to determine whether he owed such a duty to plaintiff. We now affirm the judgment of the Appellate Division.

-I-

In 1987, Rohrer Construction (Rohrer) owned a 1.3-acre tract of undeveloped land in Union Township, Hunterdon County. Herrigel represented Rohrer in the sale of the property. Rohrer hired Heritage Consulting Engineers (Heritage) to perform percolation tests concerning a contract of sale to Land Resources Corporation Land Resources). Percolation tests reveal, among other things, the suitability of soil for a septic system. Union Township requires two successful percolation tests for municipal approval of a septic system.

In September and October 1987, Heritage provided Rohrer and Herrigel with copies of reports describing two series of percolation tests. The first report, dated September 24, 1987, revealed that of twenty-two tests, only one had been successful. A November 3, 1987, report showed that of eight tests conducted in October, one had been successful.

Rohrer's contract with Land Resources failed. Subsequently, Rohrer listed the property with a local real estate broker, Bachenberg & Bachenberg, Inc. In October 1988, William G. Bachenberg, Jr. (Bachenberg) of Bachenberg & Bachenberg, Inc. asked Herrigel for information concerning the listing. Herrigel told Bachenberg that "he had some perc results," and sent him a two-page document consisting of one page from each of the two Heritage reports. The first page was page one from the September 24, 1987, report; it reflected one successful test and five unsuccessful tests. The second page was culled from the November 3, 1987, report; it listed one successful and one unsuccessful test. Read together, the two pages appear to describe a single series of seven tests, two of which were successful. In fact, the property had passed only two of thirty percolation tests. The document, subsequently described as the "composite report," became part of Bachenberg's sales packet.

Herrigel admits that he possessed both Heritage reports and that he delivered the composite report to Bachenberg. Although Herrigel does not deny that he prepared the composite report, his petition for certification states: "However, there was no evidence given during plaintiff's proofs that Mr. Herrigel had in fact prepared the erroneous two-page report."

Rohrer, which apparently was experiencing financial problems, could not sell the property. In December 1988, Bachenberg and a partner, John Matthews, bought the property at a sheriff's sale for $70,000. In January 1989, Bachenberg discussed with Rohrer the 1987 engineering reports. Rohrer declined to provide those reports to Bachenberg because Bachenberg would not reimburse Rohrer for Heritage's engineering fees.

Bachenberg listed the property for sale at $160,000. In February 1989, Petrillo expressed an interest in purchasing the property to build and operate a child day-care facility. That month, at their first meeting, Bachenberg gave Petrillo a sales packet, which included the composite report.

In June 1989, Petrillo agreed to pay Bachenberg his asking price. Herrigel represented Bachenberg in negotiating the terms of the contract with Petrillo's attorney. Nothing in the record indicates that Herrigel informed Petrillo's attorney of the test results that had been omitted from the composite report. At the insistence of Petrillo's attorney, the contract provided Petrillo with forty-five days to conduct independent soil and water tests, including percolation tests. The contract provided further that Petrillo could rescind if the percolation tests were not satisfactory to her.

In August 1989, Petrillo hired an engineering firm, Canger & Cassera, to conduct soil tests and site planning. Based on the composite report, Canger & Cassera recommended that they start site-planning work simultaneously with the conduct of percolation tests by a sub-contractor, PMK, Ferris & Perricone (PMK). PMK conducted six percolation tests, all of which failed. Consequently, PMK concluded that the site was inadequate for a septic system. Canger & Cassera stopped working on the preliminary site plan. On August 22, 1989, Petrillo notified Bachenberg that the contract was null and void.

In response, Bachenberg contracted with Heritage to design a septic system that would satisfy the municipality. Heritage designed the system, which the Hunterdon County Board of Health approved. Petrillo, however, refused to accept the design, and requested permission to conduct additional percolation tests. Bachenberg denied her request. During the course of their negotiations, Herrigel sent Petrillo the complete copies of the September 24 and November 3 Heritage reports.

The parties could not settle their differences. Bachenberg refused to return Petrillo's $16,000 down payment, claiming that she had breached the contract. Petrillo sued Bachenberg, Matthews, and Herrigel for the return of the down payment and for the costs of her engineering fees. Her complaint alleged claims sounding in breach of contract, fraud, concealment, negligent misrepresentation, and conspiracy.

In the complaint, Petrillo alleged, among other things, that Herrigel's failure to provide the complete Heritage reports violated a duty that he owed to her. She claimed further that the violation had caused her to incur engineering expenses that she would not have incurred if she had known all the facts. Specifically, she contended that if she had known that the property had passed only two of thirty percolation tests, she would not have signed the contract or hired Canger & Cassera and PMK.

At the close of plaintiff's case, the trial court dismissed Petrillo's complaint against Herrigel. The court concluded that Petrillo had not alleged facts sufficient to support a duty extending from Herrigel to her. It stated:

There are no facts dealing with any responsibility or duty that Mr. Herrigel had. He had no knowledge of what Mr. Bachenberg gave, if anything, to Miss Petrillo, and on Miss Petrillo's cross-examination she essentially said she never intended to rely on anything Mr. Herrigel provided or failed to provide and never hired Mr. Herrigel. Mr. Herrigel never gave direct information to her. Mr. Herrigel never refused to answer any questions put to him.

Taking the mechanical function that I must apply, I find that there is no evidence that I have before me dealing with any responsibility or any breach of any duty committed by Mr. Herrigel in this transaction.

The court also dismissed Petrillo's claims against Bachenberg and Matthews for concealment. On the remaining claims, the jury determined in answer to specific interrogatories that Petrillo, based on PMK's unsuccessful percolation-test results, could have terminated her contract with Bachenberg. The jury also found that she had not terminated the contract. Finally, the jury determined that Petrillo had breached the contract by not seeking site-plan approvals after Heritage had designed a suitable septic system, and that Bachenberg was entitled to keep the $16,000 deposit.

The Appellate Division reversed the dismissal of Petrillo's fraud claim against Bachenberg. It also reversed the judgment entered on the verdict against Petrillo because of improper jury instructions regarding her waiver of her right to terminate the contract. Those issues are not before us.

Before us, however, is the Appellate Division's reversal of the dismissal of Petrillo's claims against Herrigel for negligent misrepresentation. The Appellate Division determined that a seller's attorney owes a duty to a non-client buyer "who the attorney knows or should know would rely on the attorney in his or her professional capacity." 263 N.J.Super. at 483, 623 A.2d 272. It stated that "a buyer of real estate has a cause of action against an attorney for the seller who provides misleading information concerning the subject of the transaction." Id. at 487, 623 A.2d 472. The court concluded that a jury could have found that when Herrigel gave Bachenberg the composite report, Herrigel should have known that Bachenberg would provide the report to a prospective purchaser, such as Petrillo, who would rely on the report in deciding whether to purchase the property. Ibid.

-II-

As a claim against an attorney for negligence resulting in economic loss, Petrillo's claim against Herrigel is essentially one for economic negligence. Formerly, the doctrine of privity limited such...