Rockrock Grp., LLC v. Value Logic, LLC

• Decision Date: 07 July 2016
• Docket Number: No. 32568–7–III,32568–7–III
• Citation: 380 P.3d 545,194 Wash.App. 904
• Parties: RockRock Group, LLC, a Washington limited liability company, and RussellRock Group, LLC, a Washington limited liability company, Appellants, v. Value Logic, LLC, a Washington limited liability company, Terry Savage and Jane Doe Savage, a married couple, and Jenny Benson and John Doe Benson, a married couple, Respondents and Cross–Appellants, Eric Satchjen, Workland Witherspoon, a domestic professional liability company, Riverbank, a domestic financial institution, Defendants.
• Court: Washington Court of Appeals

194 Wash.App. 904

380 P.3d 545

RockRock Group, LLC, a Washington limited liability company, and RussellRock Group, LLC, a Washington limited liability company, Appellants,

v. Value Logic, LLC, a Washington limited liability company, Terry Savage and Jane Doe Savage, a married couple, and Jenny Benson and John Doe Benson, a married couple, Respondents and Cross–Appellants,Eric Satchjen, Workland Witherspoon, a domestic professional liability company, Riverbank, a domestic financial institution, Defendants.

No. 32568–7–III

Court of Appeals of Washington, Division 3.

FILED July 7, 2016

Marshall Casey, M. Casey Law, PLLC, 1106 N Washington St. Suite B, Spokane, WA, 99201–2205, Counsel for Appellants.

Ross P. White, Attorney at Law, 7609 N Fox Point Dr., Spokane, WA, 99208–6323, Samuel Charles Thilo, Witherspoon Kelley, 422 W Riverside Avenue Suite 1100, Spokane, WA, 99201–0300, Counsel for Respondents/Cross–Appellants.

Lawrence–Berrey, A.C.J.¶ 1 An appraiser's liability for negligent misrepresentation is limited to the person or one of a limited group of persons for whose benefit and guidance he or she intended to supply the appraisal report or knew the recipient intended to supply it. Here, Value Logic appraised two properties and negligently reported the values of those properties to be much greater than their true values. The members of two LLCs relied on the reports. However, the reports were intended only for the benefit and guidance of RiverBank, the lender in the transactions. There was no evidence Value Logic intended to supply the reports for the benefit and guidance of the LLCs or their members. And there was no evidence Value Logic knew RiverBank would supply the reports to the LLCs or their members for their benefit and guidance.

¶ 2 In the published portion of this opinion, we conclude the trial court properly dismissed the LLCs' negligent misrepresentation claims. In the unpublished portion of this opinion, we affirm the trial court's summary dismissal of the LLCs' negligence and Consumer Protection Act (CPA), chapter 19.86 RCW, claims and we decline to address a constitutional argument raised for the first time on appeal.

FACTS

¶ 3 The two appraised properties are a 51-acre property and an adjacent 39-acre property. The properties are located near Airway Heights, Washington. Both properties are vacant, and both are zoned partially rural traditional and partially light industrial.

A. Sundevil initiates purchases

¶ 4 Gregory Jeffreys and his wife Kimberly Jeffreys operated a real estate development company called Sundevil Development, LLC. In mid-2006, Mr. Jeffreys began negotiations to buy the two properties. Mr. Jeffreys contacted Brian Main, a Spokane realtor. Mr. Jeffreys told Mr. Main he had the two properties under purchase, knew someone who wanted to buy them, and the project would turn quickly and not financially expose Mr. Main. Mr. Jeffreys said he would find financing for the purchases and put the documents together, and asked Mr. Main to find investors. Mr. Jeffreys selected RiverBank to finance the purchases.

¶ 5 On September 20, 2006, Sundevil executed a purchase and sale agreement to purchase the 51-acre property for $475,000. On September 25, 2006, Sundevil executed a purchase and sale agreement to purchase the 39-acre property for $300,000.

B. RiverBank retains Value Logic to appraise the properties

¶ 6 In September 2006, RiverBank contacted Value Logic to request a bid to appraise both properties. Value Logic bid $3,000 to appraise the larger property and $2,000 to appraise the smaller property. RiverBank accepted the bids and directed Value Logic to appraise the properties. Value Logic employee Jenny Benson inspected the properties on September 28.

¶ 7 On October 9, 2006, Value Logic sent RiverBank the appraisal for the 51-acre property. Value Logic reported the value of the larger property was $4,500,000, or $2.00 per square foot. On November 16, 2006, Value Logic sent RiverBank the appraisal for the 39-acre property.¹ Value Logic reported the value of the smaller property was $4,250,000, or $2.50 per square foot.

¶ 8 In its appraisal reports, Value Logic stated, “[t]he function of this appraisal is to provide the client [RiverBank], with a value estimate as a basis on which to provide financing and to facilitate a purchase.” Clerk's Papers (CP) at 243, 258. The appraisal reports identified the clients as RiverBank and its employee, Rachel Pulis. The appraisal reports contained the following limitations of use:

Your attention is directed to all the Assumptions and Limiting Conditions on Pages 11 through 13.

....

This report is prepared for the sole use and benefit of the client.... Neither this report, nor any of the information contained herein shall be used or relied upon for any purpose by any person or entity other than the client. The appraiser is not responsible for the unauthorized use of this report.....

Unless otherwise stated, this appraisal report is made expressly subject to the following conditions and stipulations:

1. This appraisal report is considered confidential between the appraiser and the client.

....

13. The liability of [Value Logic] is limited to the client only and only up to the amount of the fee actually received for the assignment. Further, there is no accountability, obligation, or liability to any third party. If this report is placed in the hands of anyone other than the client, the client shall make such party aware of all limiting conditions and assumptions of the assignment and related discussions.

....

17. Without prior written approval from the author, the use of this report is limited to internal decision making and financing. All other uses are expressly prohibited. Reliance on this report by anyone other than the client, [or] for a purpose not set forth above, is prohibited. The author's responsibility is limited to the client.

CP at 237–49, 252–64.

C. Mr. Jeffreys and Mr. Main solicit investors

¶ 9 Mr. Jeffreys and Mr. Main solicited investors to buy memberships in the LLCs. They intended one LLC—RockRock Group, LLC—to purchase an interest in the 51-acre property. They intended another LLC—RussellRock Group, LLC—to purchase an interest in the 39-acre property.

¶ 10 Mr. Jeffreys called John Bart Johnson, who later agreed to be the manager of both LLCs. Mr. Jeffreys told Mr. Johnson he was getting a group of people together to buy some property near Airway Heights. He told Mr. Johnson, “with the appraisals I got,^{[2 ]}we should be able—an idiot could come into these properties and make a quarter million dollars.” CP at 451. Mr. Jeffreys explained he was going to get 10 people to be partners, and he would acquire the land and sell 75 percent to these 10 people, and keep 25 percent for himself. He said he would get the financing. Mr. Jeffreys described the venture as “short-term, get in, buy it, turn around and sell it.” CP at 453.

¶ 11 Mr. Johnson visited the properties with Mr. Jeffreys. Mr. Jeffreys had copies of both appraisal reports with him and showed them to Mr. Johnson.³ Mr. Johnson “look[ed] at an appraisal which was for four-point-some million.” CP at 456. However, Mr. Johnson “didn't [review the appraisal report for details],” but “just saw the bottom line.” CP at 456.

¶ 12 In September 2006, Mr. Main called Kelly Hubbell, who was a friend of his from high school. Ms. Hubbell was a manager at Stan & Hubbs, LLC. Mr. Main asked Ms. Hubbell and other members of Stan & Hubbs to invest in the 51-acre property. Mr. Main pitched the investment to Ms. Hubbell with a prospectus. The prospectus stated the “[e]stimated current value equals $2.00 per sq. ft. minimum equals $4,443,120.” CP at 668. Before the sale closed, Mr. Main told Ms. Hubbell that the appraised price of the 51-acre property was $4,500,000. Ms. Hubbell wrote this appraised value on her prospectus. Ms. Hubbell invested in RockRock, the eventual purchaser of the larger property.

¶ 13 Several weeks before the closing, Mr. Main also called David Largent. Mr. Main told Mr. Largent the appraisal came back, and the 51-acre property was worth what they expected—around $4,000,000. Mr. Largent and his wife both invested in RockRock.

¶ 14 In December 2006, Mr. Jeffreys held a meeting at his home to pitch the sale on the 39-acre property. Many potential investors attended. Mr. Jeffreys said the investors would purchase the parcel at one-half the price and would be able to sell it shortly for a very high profit. Mr. Jeffreys emphasized the 39-acre property was appraised for a very high amount, and the appraisal report verified the property's value. Alan Cummins and Keith Watkins both attended this meeting and both eventually invested in RussellRock, the eventual purchaser of the smaller property.

D. RockRock is formed and buys 75 percent of the 51-acre property

¶ 15 On October 2, Sundevil assigned to Mr. Main 75 percent of its right to purchase the 51-acre property. Mr. Main agreed to pay $1,630,000 for a 75 percent interest in the property. The following day, RockRock was formed. Mr. Main then assigned his purchase right in the property to RockRock. To finance the purchase, RockRock executed promissory notes in favor of RiverBank for $1,025,000, and in favor of Sundevil for $800,000. RockRock's members personally guaranteed the loans, and RockRock executed a deed of trust in favor of RiverBank to secure the loan. The sale closed on November 8.

E. RussellRock is formed and buys 75 percent of the 39-acre property

¶ 16 On November 15, 2006, RussellRock was formed. Sundevil assigned to Mr. Main 75 percent of its right to purchase the 39-acre property. Mr. Main agreed to pay $1,630,000 for a 75 percent interest in this property. Mr. Main assigned his right to RussellRock.

¶ 17 Before signing the loan and personal guaranty documents, some of RussellRock's members asked to see Value Logic's appraisal with the loan documents. In particular, Mr. Cummins called Eric Sachtjen, the closing agent, and asked for a copy of the appraisal ...