Schaaf v. Highfield

• Decision Date: 15 June 1995
• Docket Number: No. 61666-3,61666-3
• Parties: John SCHAAF, a married man dealing in his sole and separate property, Appellant, v. Blaine HIGHFIELD, et ux., selling agent; Paul Olson, et ux., VA appraiser; Richard Butler, present designated broker; and Windermere Realty, a Washington partnership doing business in Silverdale, WA, Respondents.
• Court: Washington Supreme Court

Page 17

127 Wn.2d 17

896 P.2d 665

John SCHAAF, a married man dealing in his sole and separate

property, Appellant, v. Blaine HIGHFIELD, et ux., selling agent; Paul Olson, et

ux., VA appraiser; Richard Butler, present designated

broker; and Windermere Realty, a Washington partnership

doing business in Silverdale, WA, Respondents.

No. 61666-3.

Supreme Court of Washington,

En Banc.

June 15, 1995.

Jack Cyr, Jr., Port Orchard, for appellant

Tracy E. DiGiovanni, Port Orchard, for respondents.

TALMADGE, Justice.

The present case arises out of the sale of a home with a leaky roof in Bremerton. Petitioner Schaaf alleges that an appraiser (Olson) hired by the Veterans Administration (VA) conducted a negligent appraisal of the home and did not reveal the leaky roof to him. The trial court held that a VA appraiser owes no This court granted direct review of the trial court's order on summary judgment dismissing Schaaf's complaint. We hold that a real estate appraiser owes a duty of care to third parties like Schaaf. Because Schaaf did not rely on Olson's appraisal, we affirm the trial court's order on summary judgment.

duty to a prospective purchaser like Schaaf and granted summary judgment to Olson.

ISSUES

1. Does a real estate appraiser owe a duty of care in the preparation of appraisals to third parties who are not in contractual privity with the appraiser?

2. If the answer to the first question is yes, is there an exception for a real estate appraiser whom the VA hires to perform an appraisal of a home?

FACTS

On January 30, 1990, Plaintiff/Appellant John Schaaf purchased a home in Bremerton for $100,000 with a loan guaranteed by the VA. Clerk's Papers, at 2, 4. Schaaf alleges that in September 1990, after a major rainstorm, he discovered water in his basement. He alleges that a leaky roof caused the water to accumulate there, and he paid $2,326.18 to replace a ruined carpet in the recreation room. Clerk's Papers, at 4. From January 1991 until August 1991, Schaaf was on duty in the Persian Gulf during Operation Desert Storm. When he returned, the leaking roof left "heavy water stains down the walls of the hallway entrance and ruining the carpet in the stairway landing and making the new carpet in the recreation room smell badly." Clerk's Papers, at 4-5. Schaaf did not seek recovery for these damages, Clerk's Papers, at 8, but instead sought damages of $2,564 for the reroofing his house, and $11,500 for the lost value of the Schaaf filed a verified complaint on December 18, 1992, in the Kitsap County Superior Court, suing the selling agent, the brokerage firm, the brokers, and Respondent Paul Olson, the VA-hired appraiser who had appraised the house prior to the VA's approval of the loan. Clerk's Papers, at 2. He contended that Olson's appraisal was negligent because it failed to note the defective roof. Clerk's Papers, at 7. Only the claims against Olson have survived. ²

house on resale due to the defective roof. Clerk's Papers, at 8. ¹

On November 17, 1993, Olson filed a motion for summary judgment asking the court to dismiss the complaint as to him. Clerk's Papers, at 19. The trial court granted the motion by a letter dated January 3, 1994. In that letter, the trial court stated, "The authorities, particularly Gay v. Broder, 109 Cal.App.3d 66, 167 Cal.Reptr. [sic ] 123 (1980), support Defendant Olson's position that he owed no duty to Plaintiff." Clerk's Papers, at 81. On January 19, 1994, Schaaf filed a motion for reconsideration. Clerk's Papers, at 82. On February 18, 1994, the trial court entered its order of summary judgment, and subsequently denied the motion for reconsideration on April 4, 1994. Clerk's Papers, at 89, 105. Schaaf filed a notice of appeal directly to this court on May 3, 1994, Clerk's Papers, at 92, and we accepted direct review. RAP 4.2.

ANALYSIS

A. Standard for Review of Summary Judgment

The starting point for analysis of the trial court's decision is a consideration of the standard of review. In analyzing orders on summary judgment, this court has traditionally noted that a moving party under CR 56 bears the initial burden of demonstrating an absence of any genuine issue of material fact and an entitlement to judgment as a matter of law. Young v. Key Pharmaceuticals, Inc., 112 Wash.2d 216, 225, 770 P.2d 182 (1989). Thereafter, the nonmoving party must set forth specific facts evidencing a genuine issue of material fact for trial. In reviewing the evidence, the trial court must consider the evidence and the reasonable inferences therefrom in a light most favorable to the nonmoving party. This court reviews the facts and law with respect to summary judgment de novo. Mountain Park Homeowners Ass'n v. Tydings, 125 Wash.2d 337, 341, 883 P.2d 1383 (1994).

B. Real Estate Appraiser's Duty of Care to Third Parties

Plainly, a real estate appraiser has a duty of care to the person or entity who retained the appraiser. That duty may arise from law if the appraiser is an agent; ³ it may arise from contract if the appraiser is an independent contractor. ⁴ We analyze an appraiser's duty of care to third parties under the framework of the law of negligent misrepresentation. ⁵

"Whether a defendant owes a duty of care to the complaining party is a question of law." Hansen v. Friend, 118 Wash.2d 476, 479, 824 P.2d 483 (1992). Since 1985, Washington has recognized a cause of action for negligent misrepresentation pursuant to Restatement (Second) of Torts § 552 (1977). ⁶ This court in Transamerica Title Ins. Co. v. Johnson, 103 Wash.2d 409, 413, 693 P.2d 697 (1985) cited § 552 with approval, although it did not directly adopt it. Section 552 reads, in pertinent part:

(1) One who, in the course of his 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 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 or in a substantially similar transaction.

Two Court of Appeals decisions considered but did not resolve the question of whether an appraiser owes a duty of care to third persons. In Barnes v. Cornerstone Invs., Inc., 54 Wash.App. 474, 773 P.2d 884, review denied, 113 Wash.2d 1012, 779 P.2d 730 (1989), the court squarely faced the question of whether an appraiser owes a duty of care to a third party. Citing the Restatement (Second) of Torts § 552 (1977) and Washington case law on negligent misrepresentation, and noting that "[n]o Washington case has yet defined to what extent appraisers owe third parties a duty of due care in the preparation and communication of their appraisals", Barnes, at 477, 773 P.2d 884, the court nevertheless did not decide the question. Rather, it held that even if there was a duty of care the appraiser had breached, the plaintiff had not justifiably relied on the appraisal report, precluding liability. Barnes, at 477-78, 773 P.2d 884. In Rubin v. Century 21 Peterman Real Estate, Inc., 71 Wash.App. 189, 857 P.2d 1059 (1993), pursuant to a request by the parties, the court expressly declined to rule on the liability of an appraiser to third parties. Rubin, at 192 n. 6, 857 P.2d 1059.

We conclude that § 552 applies to a real estate appraiser like Olson, who "in the course of his business, profession or employment ... supplies false information for the guidance of others in their business transactions". The crucial consideration here is to what extent this duty of care extends to third parties not in privity with the appraiser. After Transamerica, this court decided several cases that serve to define and limit the duty of care.

In Haberman v. WPPSS, 109 Wash.2d 107, 744 P.2d 1032, 750 P.2d 254 (1987), appeal dismissed sub nom. Wood Dawson Smith & Hellman v. Haberman, 488 U.S. 805, 109 S.Ct. 35, 102 L.Ed.2d 15 (1988), this court for the first time extensively discussed § 552. At issue was the trial court's CR 12(b)(6) dismissal of bondholder claims for alleged negligent misrepresentations of fact against various professionals involved in the construction and financing of the Washington Public Power Supply System (WPPSS) nuclear power plants. The bondholders had alleged they suffered pecuniary loss in reliance on the information from the defendants. Relying on § 552, the court set forth three circumstances in which there would be liability for negligent misrepresentations:

Liability for negligent misrepresentations is thus limited to cases where (1) the defendant has knowledge of the specific injured party's reliance; or (2) the plaintiff is a member of a group that the defendant seeks to influence; or (3) the defendant has special reason to know that some member of a limited group will rely on the information.

Haberman, at 162-63, 744 P.2d 1032.

The Haberman dissent argued that the majority had applied § 552 too broadly, including within its ambit "a limitless and unrestricted class of investors". Haberman, at 188, 744 P.2d 1032 (Pearson, C.J., dissenting). Citing § 552(2)(a), the dissent pointed out that "liability under section 552 is limited to loss suffered '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'." Haberman, at 188, 744 P.2d 1032 (Pearson, C.J., dissenting). Although the Haberman court did not attempt to specify what would...