Savage v. KGE Associates Ltd. Partnership

• Decision Date: 19 March 2003
• Docket Number: No. A02A2317., No. A02A2316
• Citation: 580 S.E.2d 591,260 Ga. App. 770
• Parties: SAVAGE v. KGE ASSOCIATES LIMITED PARTNERSHIP. Lifeshares Group, Inc. et al. v. KGE Associates Limited Partnership.
• Court: Georgia Court of Appeals

580 S.E.2d 591

260 Ga. App. 770

SAVAGE v. KGE ASSOCIATES LIMITED PARTNERSHIP.

Lifeshares Group, Inc. et al. v. KGE Associates Limited Partnership.

Nos. A02A2316, A02A2317.

Court of Appeals of Georgia.

March 19, 2003.

Reconsideration Denied April 8, 2003.

Freeman, Mathis & Gary, LLP, T. Bart Gary, Stuart W. Gray, Atlanta, for appellant (case no. A02A2316).

Patton & Boggs, Mitchell Berger, William E. Slade, Michael T. Wood, King & Spalding, W. Ray Persons, Atlanta, for appellants (case no. A02A2317).

Miller & Martin, Geoffrey H. Cedarholm, Atlanta, for appellee. ADAMS, Judge.

In this case, the seller of commercial property did not disclose to the buyer the presence of a covered-over, nonhazardous dump located on a small part of a 442-acre tract of land. Long after the sale, the buyer brought suit against the seller and related parties. When the trial court denied the defendants' motions for summary judgment, it applied the passive concealment doctrine, an exception to the general rule of caveat emptor, in favor of the buyer. But that doctrine applies only to noncommercial transactions, and the parties did not incorporate any similar protection or relevant representations or warranties in the sales agreement. Accordingly, the defendants are entitled to summary judgment.

In 1988, Farm & Home Life Insurance Company owned a 442-acre tract of zoned-industrial land in Douglas County on which Farm & Home's property manager, Bart Hulsey, operated an illegal open dump consisting of construction waste, land clearing debris, and some household garbage. County and state officials became aware of the dump in March 1988, and the Georgia Department of Natural Resources Environmental Protection Division ("EPD") directed Farm & Home to either remove the materials or bury them beneath two feet of clean earth and provide a vegetative cover. The purpose of the remedial order was to address the threat to human health and the environment resulting from an open dump. Farm & Home buried the materials, and on May 26, 1988, the EPD certified that "the site had been closed in a manner which complie[d] with the minimum requirements of the Solid Waste Management Act and Rules." Estimates of the size of the site range up to 2.3 acres. Documents and records maintained by the EPD and Douglas County regarding the dump and the remediation effort have been continuously available to the public for inspection since 1988.

On June 19, 1989, Farm & Home entered into a contract to sell the property to Buckhead Farms, Inc., and Buckhead later assigned its rights under the contract to KGE Associates Limited Partnership. In Section 10(h) of the agreement, Farm & Home represented that it was not aware of any claim, action, or other proceeding, in progress, pending, or threatened, that would adversely affect consummation of the sale, or any facts which could form the basis of such a claim.¹ During the negotiation of the agreement, Buckhead agreed to drop warranties that provided that Farm & Home was not aware of third parties dumping hazardous waste on the property or aware of any "hazardous or toxic materials, substances or waste" alleged to exist on or below the property.

The agreement also required Farm & Home to execute and deliver at closing an affidavit "as may be required by Purchaser's title company in the form and substance similar to those title affidavits customarily delivered at real estate closings of a similar nature in Douglas County." Five months later at the closing, Farm & Home provided an "Affidavit as to Ownership," signed by Joseph Savage, in which it certified that Farm & Home:

has no knowledge of or information regarding the existence of or presence in or on the Property of any material, radioactive substance or tailings, asbestos, PCB's or any other substance identified by federal, Georgia or local law, ordinance, rule, regulation, order or code as a health or environmental hazard, garbage and/or waste.

Savage did not even read the affidavit before he signed it, and whether he had knowledge of the covered-over dump is disputed.

Finally, the agreement gave the purchaser the right to inspect the property, including the right to conduct soil tests, core drilling, environmental tests, and engineering studies. The purchaser had 90 days for this process, and any failure to object within the 90-day period waived any basis for terminating the agreement.

On November 17, 1989, five days before the scheduled closing, Buckhead and KGE retained CTA Environmental, Inc., an environmental consulting firm, to perform an environmental audit of the property. CTA found evidence of human disturbance and surface-level debris on the property, including stacks of sheetrock, large empty crates, empty 55-gallon drums, metal studs, parts of a truck, about 15 five-gallon drums or pails, disassembled fluorescent light ballasts, tires, urban garbage, parts of three house trailers, two large tanks, burned household garbage, trash, and litter. But it failed to find the covered-over dump. CTA contacted the owner, and the more worrisome items were removed. CTA stated that the remaining visible debris, though unsightly, "pose[d] no obvious, long-term threat of environmental impairment." It also concluded that "[t]here is no evidence of any massive earth moving at any recent time except for [two areas not in issue]." But, CTA cautioned that it could not do a full environmental audit given the limited time it was given to perform its work. It stated, "We must stress that our survey was localized and confined to areas with problems visible from the air or associated with human use areas or structures." And CTA warned that there were areas on the property that "could, theoretically, hide other materials."

At some point, KGE sought an extension of the closing date in order to obtain more time for the environmental audit. In response, someone from Farm & Home allegedly said, "You don't need to waste time on the environmental, you're buying virginal farmland. We have given you the warranty and there is our affidavit to the title company.... Let's move along."

KGE eventually discovered the covered-over dump, and on November 6, 1995, almost six years after it purchased the property, it brought suit against Farm & Home and others who, it contends, had knowledge of the cover-up. Among other things, KGE alleged that it was fraudulently induced to buy the property, and it introduced testimony that a clean-up could cost $1.2 million or more.

KGE settled with some defendants and dropped others; the remaining defendants are Lifeshares Group, Inc. (which owned Farm & Home, managed the property, and participated in the sale); Harry Carneal (executive vice-president of Lifeshares and its subsidiary Farm & Home); and Savage (an officer of Lifeshares who signed the affidavit).² The trial court denied these three defendants' motions for summary judgment and held:

In the instant case, there are questions of material fact as to whether [KGE] exercised due diligence in its inspection of the property prior to the purchase, whether [the property manager's] knowledge of the dumpsite may be imputed to [KGE], the roles of Carneal and Savage in the land sale, whether Defendants knowingly and intentionally concealed the existence of the buried trash, whether the Defendants' representations made to [KGE] regarding the property were false, and whether the value of the property has been diminished by the existence of the dump.³

The court also applied the passive concealment doctrine in favor of KGE. Savage appealed in Case No. A02A2316, and Lifeshares and Carneal appealed in Case No. A02A2317.⁴

1. The three appellants contend the trial court incorrectly applied the passive concealment doctrine to KGE's fraud claim. That doctrine establishes an exception to the general rule of caveat emptor in real estate transactions; however, application of the doctrine has been limited to controversies between residential homeowners and residential builder/sellers, and it does not apply to commercial transactions. See Crotts Enterprises v. John Payne Co., 219 Ga.App. 173, 174(2), 464 S.E.2d 844 (1995); Armstrong Transfer &c. Co. v. Mann Constr., 217 Ga. App. 538, 539(1), 458 S.E.2d 481 (1995); Condon v. Kunse, 208 Ga.App. 856, 858(2), 432 S.E.2d 266 (1993); Toys `R' Us v. Atlanta Economic Dev. Corp., 195 Ga.App. 195, 198(1)(C), 393 S.E.2d 44 (1990). But see Holman v. Ruesken, 246 Ga. 557, 558(2), 272 S.E.2d 292 (1980). Because that doctrine does not apply, Farm & Home did not owe a duty to Buckhead or KGE to disclose known defects in the property.

But even though the trial court applied the wrong legal standard, because our review on appeal is de novo we address the merits of the trial court's denial of the parties' motions for summary judgment. City of Winder v. McDougald, 254 Ga.App. 537, 539(2), 562 S.E.2d 826 (2002). Compare Gwinnett County v. Davis, 268 Ga. 653, 655, 492 S.E.2d 523 (1997) (remand required where trial court relied on wrong legal standard during bench trial).

2. KGE claims that Farm & Home made three wilful misrepresentations, one in the Savage Affidavit, one in Section 10(h) of the agreement, and one in the statement that the land was "virginal farmland." The appellants contend that the agreement's merger clause and the parol evidence rule preclude the claims based on the Savage Affidavit and the virginal farmland comment. They also contend that, properly construed, Section 10(h) of the agreement was true. They argue that KGE also cannot show reliance on the alleged misrepresentations or damages. For the following reasons, we find that KGE's claims based on the three representations must fail.

(a) KGE claims that the Savage Affidavit essentially makes a representation that the property contained "no waste, no garbage-period," that it relied on the affidavit, and that the seller obviously breached that representation. But, under the plain...