Private Mortg. Inv. V. Hotel and Club Associates

• Citation: 296 F.3d 308
• Decision Date: 19 July 2002
• Docket Number: No. 01-1834.,01-1834.
• Parties: PRIVATE MORTGAGE INVESTMENT SERVICES, INCORPORATED, Plaintiff-Appellee, v. HOTEL AND CLUB ASSOCIATES, INCORPORATED; Andy Hinds, Defendants-Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (4th Circuit)

296 F.3d 308

PRIVATE MORTGAGE INVESTMENT SERVICES, INCORPORATED, Plaintiff-Appellee, v. HOTEL AND CLUB ASSOCIATES, INCORPORATED; Andy Hinds, Defendants-Appellants.

No. 01-1834.

United States Court of Appeals, Fourth Circuit.

Argued April 3, 2002.

Decided July 19, 2002.

ARGUED:

Michael Wallace Tighe, Callison, Tighe & Robinson, L.L.P., Columbia, South Carolina, for Defendants-Appellants. Jeffrey Lawrence Payne, Turner, Padget, Graham & Laney, P.A., Florence, South Carolina, for Plaintiff-Appellee.

ON BRIEF:

Louis H. Lang, Callison, Tighe & Robinson, L.L.P., Columbia, South Carolina, for Defendants-Appellants.

Before WILKINS and MICHAEL, Circuit Judges, and HAMILTON, Senior Circuit Judge.

Affirmed by published opinion. Senior Judge HAMILTON wrote the opinion, in which Judge WILKINS and Judge MICHAEL joined.

OPINION

HAMILTON, Senior Circuit Judge.

The principal question in this appeal is whether South Carolina's highest court would hold a professional appraiser liable to a third party for negligent misrepresentation under South Carolina common law, in the event the third party detrimentally relied upon the professional appraiser's materially inaccurate and negligent appraisal of the "as is" market value of a parcel of real property. Based upon the trend of South Carolina jurisprudence, we answer this question in the affirmative.

I.

The controversy in this case stems from a professional real estate appraisal of a parcel of real property (the Property) located in Darlington County, South Carolina. The Property consists of a nearly three-acre tract of land with a two-story wood frame house built in approximately 1880. On September 5, 1997, Burley Smith (Smith) purchased the Property from Cypress Creek Enterprises, Incorporated (Cypress Creek) for the stated consideration of $389,000. Notably, Smith was a corporate officer of Cypress Creek. Another corporate officer of Cypress Creek, Gerald Wisener (Wisener), executed the transaction documents on behalf of Cypress Creek.

The transaction was owner-financed in part by way of a purchase-money note and mortgage. Specifically, Cypress Creek held a $330,650 purchase-money note and mortgage (the Cypress Creek Note and Mortgage) on the Property.

Just days after the transaction closed, Wisener, on behalf of Cypress Creek, hired the real estate appraisal firm Hotel and Club Associates, Incorporated of Greensboro, North Carolina to appraise the Property in order to assist Cypress Creek in selling the Cypress Creek Note and Mortgage. Hotel and Club Associates, Incorporated specializes in appraising hospitality properties and is owned and operated by Andy Hinds (Hinds).

Hinds agreed to appraise the Property and provide Cypress Creek with "a limited appraisal with summary report including the information, the methods of analysis used, and the conclusions drawn in the valuation process." (J.A. 386). The fact that the appraisal would be a "limited" one signified that Hinds would value the Property using only one or two professionally accepted methods of valuation rather than all three of the professionally accepted methods of valuation. The three accepted methods of valuation are the income approach, the sales comparison approach, and the cost approach. Ultimately, Hinds valued the Property using the income approach and the sales comparison approach.

Hinds completed his limited appraisal and summary report of the Property (the Appraisal Report) on September 19, 1997. In the Appraisal Report, Hinds estimated that the "as is" market value of the Property under both the income approach and the sales comparison approach was $400,000 on September 10, 1997. The Appraisal Report defined "as is" market value as "[a]n estimate of the market value of a property in the condition observed upon inspection and as it physically and legally exists without hypothetical conditions, assumptions, or qualifications as of the date the appraisal is prepared." (J.A. 393). In calculating the "as is" market value of the Property under the income approach and the sales comparison approach, Hinds assumed that the highest and best use of the Property was as a traditional bed and breakfast. Notably, although the Appraisal Report states that approximately $50,000 worth of improvements to the house were needed in order for the Property to operate as a bed and breakfast, the Appraisal Report unequivocally states that the "as is" market value of the Property reflects the market value of the Property without these improvements.

In November 1997, Private Mortgage Investment Services, Incorporated (Private

Mortgage) purchased the Cypress Creek Note and Mortgage from Cypress Creek for $200,000. Private Mortgage also paid a $12,000 commission to the broker who brokered the transaction. In deciding to purchase the Cypress Creek Note and Mortgage, Private Mortgage heavily relied upon the "as is" market value of the Property as stated in the Appraisal Report. Private Mortgage had no expertise with respect to this type of property in Darlington County, South Carolina.

Much to Private Mortgage's disappointment, Smith never made a payment on the Cypress Creek Note and Mortgage. Private Mortgage had no choice but to foreclose on the Property. Private Mortgage acquired the Property at the foreclosure sale for $125,000. In December 1999, Private Mortgage sold the Property on a best efforts basis for $60,000 to a third party, the only party expressing any interest in the Property.

Private Mortgage subsequently brought the present civil action in South Carolina state court against Hotel and Club Associates, Incorporated and Hinds (collectively the Defendants). The complaint alleged two claims — professional negligence and negligent misrepresentation. Only the negligent misrepresentation claim is at issue in this appeal. With respect to that claim, Private Mortgage primarily alleged that the Defendants' appraisal of the "as is" market value of the Property at September 10, 1997, as stated in the Appraisal Report, constituted a negligent misrepresentation.

The Defendants removed the action to the United States District Court for the District of South Carolina on the basis of diversity jurisdiction. 28 U.S.C. § 1332. The case proceeded to trial by a jury on February 27, 2001. At the close of Private Mortgage's evidence, the Defendants moved for judgment as a matter of law with respect to both claims. Fed.R.Civ.P. 50(a). The Defendants, inter alia, sought judgment as a matter of law on the negligent misrepresentation claim on the ground that a professional real estate appraiser's appraisal of the market value of a parcel of real property is not actionable as a negligent misrepresentation under South Carolina common law. The district court granted the motion with respect to the professional negligence claim, but denied it with respect to the negligent misrepresentation claim. At the close of all evidence, the Defendants renewed their motion for judgment as a matter of law with respect to the negligent misrepresentation claim, but the district court again denied the motion. Id.

The jury found in favor of Private Mortgage on the negligent misrepresentation claim, and, although the jury found that Private Mortgage had suffered $57,500 in damages, the jury determined that the Defendants and Private Mortgage were equally at fault in causing such damages. Accordingly, the district court then applied South Carolina's comparative fault rule to reduce the verdict in favor of Private Mortgage to $28,750. The Defendants next renewed their motion for judgment as a matter of law, and alternatively, sought a new trial. Fed.R.Civ.P. 50(b)-(c), 59(a). The district court denied the alternative motions in toto and entered judgment in favor of Private Mortgage for $28,750.

The Defendants noted a timely appeal of the district court's denial of their motion for judgment as a matter of law with respect to Private Mortgage's negligent misrepresentation claim.

II.

We review the district court's denial of the Defendants' motion for judgment as a matter of law de novo, and we must view the evidence in the light most favorable to Private Mortgage as the non-movant. Knussman v. Maryland, 272 F.3d 625, 634 (4th Cir.2001). Judgment as a matter of law is appropriate when there is no legally sufficient evidentiary basis to support the jury's verdict. Fed.R.Civ.P. 50(a)(1).

III.

On appeal, the Defendants contend the district court erred by denying their motion for judgment as a matter of law with respect to Private Mortgage's negligent misrepresentation claim. According to the Defendants, the district court should have granted their motion on the basis that a professional appraiser's appraisal of the "as is" market value of a parcel of real property is not actionable as a negligent misrepresentation under South Carolina common law.¹ We disagree.

As a federal court sitting in diversity, we have an obligation to apply the jurisprudence of South Carolina's highest court, the South Carolina Supreme Court.² Wells v. Liddy, 186 F.3d 505, 527-28 (4th Cir.1999); Liberty Mut. Ins. Co. v. Triangle Indus., Inc., 957 F.2d 1153, 1156 (4th Cir.1992). But in a situation where the South Carolina Supreme Court has spoken neither directly nor indirectly on the particular issue before us, we are called upon to predict how that court would rule if presented with the issue. Id. In so predicting, the South Carolina Court of Appeals' decisions, as the state's intermediate appellate court, "`constitute the next best indicia of what state law is,' although such decisions `may be disregarded if the federal court is convinced by other persuasive data that the highest court of the state would decide otherwise.'" Liberty Mut. Ins. Co., 957 F.2d at 1156 (quoting 19 Charles A. Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice & Procedure § 4507, at 94-95 (1982)). In predicting a ruling by the South Carolina Supreme Court, we may also consider, inter alia:...