Sage v. Blagg Appraisal Co., Ltd.

• Decision Date: 30 April 2009
• Docket Number: No. 1 CA-CV 08-0331.,1 CA-CV 08-0331.
• Citation: Sage v. Blagg Appraisal Co., Ltd., 209 P.3d 169, 221 Ariz. 33 (Ariz. App. 2009)
• Parties: Shari SAGE, a single woman, Plaintiff/Appellant, v. BLAGG APPRAISAL COMPANY, LTD., Defendant/Appellee.
• Court: Arizona Court of Appeals

209 P.3d 169

221 Ariz. 33

Shari SAGE, a single woman, Plaintiff/Appellant, v. BLAGG APPRAISAL COMPANY, LTD., Defendant/Appellee.

No. 1 CA-CV 08-0331.

Court of Appeals of Arizona, Division 1, Department E.

April 30, 2009.

Berk & Moskowitz, P.C. by Kent S. Berk, Daphne J. Reaume, Scottsdale, Attorneys for Plaintiff/Appellant.

Bonnett, Fairbourn, Friedman & Balint, P.C. by Robert J. Spurlock, Phoenix, Attorneys for Defendant/Appellee.

OPINION

JOHNSEN, Judge.

¶ 1 We hold in this case that an appraiser retained by a lender to appraise a home in connection with the granting of a purchase-money mortgage may be liable to the prospective buyer for failure to exercise reasonable care in performing the appraisal.

FACTUAL AND PROCEDURAL HISTORY

¶ 2 Shari Sage made an offer to purchase a Scottsdale home for $605,200. The offer was written on a form Arizona Association of Realtors "Residential Resale Real Estate Purchase Contract" that provided that the buyer's obligation to complete the purchase was "contingent upon an appraisal of the Premises by an appraiser acceptable to the lender for at least the sales price." The contract further provided that Sage would reimburse the cost of the appraisal at closing.

¶ 3 After her offer was accepted, on the advice of the seller's real estate agent, Sage asked her lender, Security Mortgage Company ("Security"), to retain Joseph Blagg of Blagg Appraisal Company, LTD, to perform the appraisal. In the course of performing the appraisal, Blagg spoke to Security representatives but not to Sage. When he finished the appraisal, he submitted it to Security. Sage had signed a form requesting Security to provide her with a copy of the appraisal, which she received prior to closing. The appraisal, dated September 14, 2004, recited the livable area of the home as 2,440 square feet and estimated its market value to be $620,000.

¶ 4 A year and a half after she bought her home, Sage obtained another appraisal in connection with a refinancing. That appraisal stated that the livable area of the home was 1,871 square feet, 569 fewer square feet than stated in the Blagg appraisal.¹ Sage then sued Blagg's company, alleging his appraisal negligently misrepresented the value of her home at the time of her purchase.² Sage alleged that if Blagg's appraisal had calculated the home's value based on the correct amount of livable space, she would have realized the home was then worth less than she had contracted to pay for it and would have exercised her right to cancel the deal.

¶ 5 Blagg moved for summary judgment, arguing he owed Sage no duty of care. Sage filed a cross-motion for partial summary judgment on the issue of duty. Citing Kuehn v. Stanley, 208 Ariz. 124, 91 P.3d 346 (App.2004), and Hoffman v. Greenberg, 159 Ariz. 377, 767 P.2d 725 (App.1988), the superior court ruled that in these circumstances an appraiser owes no duty to a homebuyer and entered summary judgment in favor of Blagg. Sage timely appealed. We have jurisdiction pursuant to Arizona Revised Statutes section 12-2101(B) (2003).

DISCUSSION

A. Standard of Review.

¶ 6 Summary judgment may be granted when "there is no genuine issue as to any material fact and [] the moving party is entitled to a judgment as a matter of law." Ariz. R. Civ. P. 56(c). In reviewing a grant of summary judgment, "we view the facts in the light most favorable to the party against whom judgment was entered." Great Am. Mortgage, Inc. v. Statewide Ins. Co., 189 Ariz. 123, 124, 938 P.2d 1124, 1125 (App. 1997). We determine de novo whether there are any genuine issues of material fact and whether the superior court erred in applying the law. Eller Media Co. v. City of Tucson, 198 Ariz. 127, 130, ¶ 4, 7 P.3d 136, 139 (App. 2000).

B. Negligent Misrepresentation by a Professional in Supplying Information.

¶ 7 We deal here with the duty a professional owes to a third party in supplying information to another for use in a business transaction. The applicable provision of the Restatement (Second) of Torts (1977) ("Restatement") is section 552, which under certain circumstances imposes liability for negligent representation upon "[o]ne who, in the course of his business ... supplies false information for the guidance of others in their business transactions."

¶ 8 In relevant part, Restatement § 552 provides:

(1) One who, in the course of his business, profession or employment ... 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) ... [T]he liability stated in Subsection (1) is limited to loss suffered

(a) by the person or one of a 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....

See St. Joseph's Hosp. & Med. Ctr. v. Reserve Life Ins. Co., 154 Ariz. 307, 742 P.2d 808 (1987) (applying section 552 to insurer's statements to hospital); Van Buren v. Pima Cmty. Coll. Dist. Bd., 113 Ariz. 85, 546 P.2d 821 (1976) (applying section 552 to employer's statement to prospective employee).

¶ 9 In Standard Chartered PLC v. Price Waterhouse, 190 Ariz. 6, 30, 945 P.2d 317, 341 (App.1997), this court applied Restatement § 552 to a third party's claim based on allegedly false information supplied by an accounting firm. In that case a bank sued the accounting firm for damages incurred in a business transaction it entered based on allegedly negligent financial statements prepared by the accounting firm. Id. at 30-31, 945 P.2d at 341-42. Another company had retained the accounting firm to prepare its financial statements; the plaintiff bank alleged it relied to its detriment on the financials when it acquired the company. Id. We held a duty may be created when the maker of a statement knows the recipient "intended to supply the information for the benefit of a limited group or class of persons and [ ] the plaintiff [is] a member of that limited group or class." Id. at 32, 945 P.2d at 343 (citing Restatement § 552(2)(a) and cmt. h).

¶ 10 In the two cases the superior court relied on in this case, Hoffman and Kuehn, this court cited Restatement § 552 in affirming the dismissal of negligent misrepresentation claims brought by third parties against appraisers. Hoffman addressed the duty owed by an appraiser hired by a property owner to appraise vacant land. At the time the owner hired the appraiser, he refused to disclose to him how he intended to use the appraisal. Hoffman, 159 Ariz. at 378-79, 767 P.2d at 726-27. The owner later showed the appraisal to an investor who allegedly relied on it to his detriment in deciding to purchase. Id. at 378, 767 P.2d at 726. Citing section 552, the court held the purchaser was not among the class of persons entitled to rely on the appraisal. Id. at 380, 767 P.2d at 728.

¶ 11 Plaintiffs in Kuehn were a married couple who, like Sage, sued an appraiser retained by a lender in connection with a real property transaction.³ Plaintiffs agreed to pay $282,000 for the property; the appraiser arrived at precisely that number as the property's value. Kuehn, 208 Ariz. at 126, ¶¶ 2, 3, 91 P.3d at 348. As here, the lender provided the plaintiffs with a copy of the report prior to closing. Id. at ¶ 3. Before they received the appraisal, however, the plaintiffs were "already contractually bound" to complete the transaction. Id. at 128, ¶ 13, 91 P.3d at 350. The plaintiffs alleged that after closing, they learned the property was worth only $245,000. Id. at 126, ¶ 3, 91 P.3d at 348.

¶ 12 Citing Restatement § 552, the court affirmed summary judgment in favor of the appraiser. The court concluded the plaintiffs could not establish they relied on the appraisal in purchasing the property, but also observed that they failed to show the appraiser owed them a duty. Id. at 128-29, ¶¶ 13-14, 91 P.3d at 350-51.⁴ In reaching this conclusion, the court noted that the appraisal's stated purpose was "for use by [the lender] for a mortgage finance transaction only" and that it was a "short form" appraisal intended to be "a quick estimate for lending purposes." Id. The court held that because the lender's use of the appraisal was not related to the plaintiffs' use of it, the appraiser did not provide the appraisal "for the guidance of" the plaintiffs as required by Restatement § 552(1). Id. at 129, ¶ 14, 91 P.3d at 351.

¶ 13 On appeal, Blagg relies on Hoffman and, to a larger extent, Kuehn in arguing that the superior court correctly concluded he owed no duty to Sage. Blagg points out that, as in Kuehn, the ostensible purpose of the appraisal he performed was "for use by the lender/client and/or there [sic] assigns for a mortgage finance transaction only." Moreover, in this case, the appraisal even went on to recite, "This report is not intended for any other use." The first page of the appraisal report identified Security as the "Lender/Client," and although Sage ultimately bore the cost of the appraisal, Blagg was paid by the seller, not by Sage.⁵

¶ 14 Important differences between the facts at issue here and those in Kuehn support our decision to re-examine the duty an appraiser owes to a buyer/borrower in a traditional home-purchase transaction. While the plaintiffs in Kuehn were contractually bound before they received the appraisal, Sage's contract expressly empowered her to cancel if the property did not appraise at the purchase price or greater. Moreover, Blagg testified that in preparing his appraisal, he reviewed a copy of Sage's purchase contract (although he denied noticing the provision that granted Sage the right to cancel). Blagg also was aware that Sage had the right to request a...