Riestenberg v. Broadview Federal Sav. & Loan Co.

• Decision Date: 05 April 1988
• Docket Number: No. 87-3436,87-3436
• Citation: 843 F.2d 1392
• Parties: Unpublished Disposition NOTICE: Sixth Circuit Rule 24(c) states that citation of unpublished dispositions is disfavored except for establishing res judicata, estoppel, or the law of the case and requires service of copies of cited unpublished dispositions of the Sixth Circuit. John M. RIESTENBERG, Plaintiff-Appellant v. BROADVIEW FEDERAL SAVINGS & LOAN CO., Defendant-Appellee
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1392

843 F.2d 1392

Unpublished Disposition

NOTICE: Sixth Circuit Rule 24(c) states that citation of unpublished dispositions is disfavored except for establishing res judicata, estoppel, or the law of the case and requires service of copies of cited unpublished dispositions of the Sixth Circuit.

John M. RIESTENBERG, Plaintiff-Appellant v. BROADVIEW FEDERAL SAVINGS & LOAN CO., Defendant-Appellee

No. 87-3436.

United States Court of Appeals, Sixth Circuit.

April 5, 1988.

Before MERRITT and RYAN, Circuit Judges, and BAILEY BROWN, Senior Circuit Judge.

PER CURIAM

Plaintiff John M. Riestenberg appeals the order of the district court dismissing his diversity action against defendant Broadview Federal Savings & Loan (Broadview). Riestenberg contends that his complaint states a claim for relief under Ohio law in that it alleges that he, as purchaser/borrower, reasonably relied on the representation by lender Broadview that the appraisal conducted by Broadview did or would show that the house he subsequently purchased was worth at least the amount he planned to pay, when Broadview knew or should have known that the home had foundation problems, which rendered the house uninhabitable.

Background

Riestenberg alleged in his complaint as follows: In 1983, Riestenberg applied for a loan secured by a home mortgage at Broadview. Broadview had the home appraised and charged Riestenberg for the appraisal. A loan officer for Broadview told Riestenberg that the appraisal result showed or would show that the house was worth more than the purchase price. Riestenberg was approved for the loan, borrowed the money from Broadview, and bought the house. He made the decisions to buy the home, borrow from Broadview, and make a larger downpayment on the home based, in part, on the representations by Broadview regarding the appraisal. After living in the house for over a year, Riestenberg was forced to move out when the house was condemned because of foundation problems. In 1974, the house next to the one Riestenberg purchased had similar problems, and Broadview, as lender, was involved in litigation between the purchaser/borrower and the seller, and therefore Broadview knew or should have known of the defect at the time it made the representations to Riestenberg.

On May 1, 1985, Riestenberg filed his complaint. Broadview moved for dismissal for failure to state a claim. In this motion, Broadview also alleged that it owed no duty to Riestenberg, that Riestenberg could not have relied on the appraiser's report because he entered into the sales contract and had his own contractor inspect the house before he applied for the loan from Broadview, and that the appraiser's report was confidential and only for Broadview's use regarding the mortgage loan. The district court granted Broadview's motion, holding that the complaint did not allege facts creating a claim for relief under Ohio law. The case was dismissed and Riestenberg appealed.

Standard of Review

The district court addressed Broadview's motion under Federal Rule of Civil Procedure 12(b)(6) only as a motion to dismiss for failure to state a claim upon which relief can be granted, even though the court could have converted the motion to one for summary judgment. ¹ Broadview attached seven exhibits including affidavits and contracts to its motion, and in his response brief, Riestenberg attached his own affidavit, in which he alleged the contents of a deposition. In his supplemental brief in the district court, Riestenberg also referred to Broadview's motion as a motion for summary judgment and the parties' arguments to the district court (and on appeal to this court) go far beyond the allegations of the complaint. Nevertheless, the district court did not refer to any specific arguments or evidence outside the pleading, and expressly stated that it was considering the motion as one for dismissal for failure to state a claim.

The decision to convert the motion and consider matters outside the pleading is within the discretion of the trial court. Even when materials outside the pleadings are filed with the trial court, an appellate court will treat the motion as one to dismiss for failure to state a claim when the order of the trial court indicates the motion was so treated. Reid v. Hughes, 578 F.2d 634, 636 n. 2 (5th Cir.1978); Robinson v. Reed, 566 F.2d 911, 913 n. 1 (5th Cir.1978). Therefore, before the district court and likewise on appeal to this court, matters outside the pleading are not properly considered and all well-pleaded facts must be accepted as true. Whether the complaint states a claim is a question of law and no deference is due to the decision of the district court.

Applicable Law

It is undisputed that Ohio law applies to this case; however, the exact issue of whether a lender is liable in contract or tort to a borrower when the borrower reasonably relies on the appraisal conducted by the lender in making the loan is apparently one of first impression. Because this is a diversity jurisdiction case, under the doctrine of Erie R.R. v. Tompkins, 304 U.S. 64 (1938), the function of the district court and of our court is to apply the law of Ohio as articulated by the Ohio Supreme Court, or as we predict the Ohio Supreme Court would apply the law if the case were before that court. Nature Conservancy v. Machipongo Club, Inc., 579 F.2d 873, 875 (4th Cir.1978).

Intentional and Negligent Misrepresentation

Other jurisdictions have held that an appraiser or lender could be liable to a purchaser/borrower for misrepresentations. See Larsen v. United Federal Savings and Loan Ass'n, 300 N.W.2d 281 (Iowa 1981); Wolther v. Schaarschmidt, 738 P.2d 25 (Colo.Ct.App.1986); Stotlar v. Hester, 92 N.M. 26, 582 P.2d 403 (N.M.Ct.App.), cert. denied 92 N.M. 180, 585 P.2d 324 (1978). See also Behn v. Northeast Appraisal Co., 145 Vt. 101, 483 A.2d 604 (1984). These courts have relied on Restatement (Second) of Torts section 552 (1977) which in part states:

(1) One who, in the course of business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.

(2) Except as stated in Subsection (3), the liability stated in Subsection (1) is limited to loss suffered

(a) by the person or one of the limited group of persons for whose benefit and guidance he intends to supply the information or knows that the recipient intends to supply it; and

(b) through reliance upon it in a transaction that he intends the information to influence or knows that the recipient so intends or in a substantially similar transaction.

The comment to this section explains that the rule "subjects the negligent supplier of misinformation to liability only to those persons for whose benefit and guidance it is supplied.... It is not enough that the maker merely knows of the everpresent possibility of action in reliance upon it, on the part of anyone to whom it may be repeated."

The rationale of the Restatement (S...