Sundown, Inc. v. Pearson Real Estate Co.

• Decision Date: 05 July 2000
• Docket Number: No. 99-43.,99-43.
• Citation: 8 P.3d 324
• Parties: SUNDOWN, INC., a Wyoming corporation, Appellant (Plaintiff), v. PEARSON REAL ESTATE COMPANY, INC., a Wyoming corporation, John D. Pearson, Individually, Gold Star Land, a Wyoming Limited Liability Company, and Edward W. Kornkven, Individually, Appellees (Defendants).
• Court: Wyoming Supreme Court

8 P.3d 324

SUNDOWN, INC., a Wyoming corporation, Appellant (Plaintiff), v. PEARSON REAL ESTATE COMPANY, INC., a Wyoming corporation, John D. Pearson, Individually, Gold Star Land, a Wyoming Limited Liability Company, and Edward W. Kornkven, Individually, Appellees (Defendants).

No. 99-43.

Supreme Court of Wyoming.

July 5, 2000.

Representing Appellant: John D. Whitaker, Casper, Wyoming.

Representing Appellees Pearson Real Estate Company, Inc., and John D. Pearson: W.W. Reeves of Reeves & Miller, Casper, Wyoming.

Representing Appellees Gold Star Land, LLC, and Edward W. Kornkven: Stephen K. Gerdes of White & Steele, P.C., Denver, Colorado.

Before LEHMAN, C.J., and THOMAS, MACY,¹ GOLDEN, and HILL, JJ.

GOLDEN, Justice.

Appellant Sundown, Inc. arbitrated a cancellation of its purchase contract of a ranch with seller after it discovered the extent to which two coal surface mining agreements encumbered the ranch. Contending that misrepresentations by the real estate brokers involved in the transaction, Appellees John D. Pearson, principal of Pearson Real Estate Company (Pearson), and Edward W. Kornkven, principal of Gold Star Land, LLC (Kornkven), induced it to execute the purchase contract and alter its existing ranching operations resulting in damages, Sundown brought suit on grounds of fraud and negligent misrepresentation. At the close of its case-in-chief, the trial judge directed a verdict in favor of Pearson and Kornkven. Sundown appeals.

We affirm the trial court's ruling as applied to Pearson but reverse and remand for trial to determine whether Kornkven fraudulently concealed material title exceptions before execution of the contract and caused damages.

ISSUES

Sundown presents these issues for our review:

1. Whether the District Court erred as a matter of law when it concluded that no reasonable jury could find that the Defendants committed fraud or negligent misrepresentation under the facts of this case.

2. Whether the District Court erred as a matter of law when it determined that there were no damages caused by the misrepresentations of the Brokers prior to the delivery of the Arch Agreements to the Buyer.

3. Whether the Defendants breached their duty to take reasonable steps to avoid misrepresenting the property.

4. Whether there was sufficient evidence for the jury to find that Appellee Kornkven owed Plaintiff a duty of utmost good faith, loyalty and confidence which he breached by failing to discover and disclose to the Plaintiff the effect of the Arch Agreements.

Pearson presents these issues for our review:

A. Whether Appellant offered evidence of any misrepresentation from which a reasonable jury could find that Appellee Pearson misrepresented or failed to disclose any material fact under any of the theories plead or pursued by Appellant?

B. Whether Appellant's claims are barred by prior judgment on the same claims in arbitration with Appellee's principal.

Appellee Kornkven does not present separate issues.

FACTS

Marc Nogle, a Casper businessman, owns the Credit Bureau of Casper, its branch offices, and Sundown, Inc., a real estate and ranch holding company consisting of commercial real estate and two ranches with 700 and 2,300 deeded acres respectively. Both ranches have federal and state permits. One ranch is a 300 cow-calf operation, and the other ranch runs 2,800 head of sheep. Sundown was interested in purchasing another ranch in order to consolidate its operations and increase its livestock number. In 1996, Nogle received information from brokers Pearson and Kornkven that the Dana Meadows Ranch in Carbon County, Wyoming, was for sale. The ranch consists of 39,955 deeded acres and over 60,000 acres of non-owned access from government and railroad leases. Pearson provided to Nogle a brochure about the ranch stating that no known mineral rights remained with the seller and describing the grazing restrictions caused by coal mining operations on the ranch. It stated in part:

Over the years, there has been a considerable amount of open pit strip mining done on the Federal, deeded and U.P.R.R. lands in the southern area of the ranch. At the present time (as of December 1995), there are three active mining companies: 1) Arch Minerals; 2) Rosebud Coal Co.; and 3) Cyprus/Shoshone.

The pastures where coal mining has occurred must all be reclaimed according to Wyoming Department of Environmental Quality. The reclamation areas must be totally restored to their original state and therefore it can take years (usually 6-8 years) before livestock are allowed to graze the reclaimed areas. Within the next 1-2 years, some of the reclaimed areas will become available to graze, which will allow the owner to carry more livestock.

The coal being mined in this area is a very high grade coal, but has a lot of overburden (dirt) on top of the coal. Therefore, it is very expensive to mine the coal and the probability for these mines to stay open is not feasible. The coal mines have been beneficial to the ranch because of water development, fencing and improved roads.

Regarding purchase price, the brochure stated that "[t]he seller reserves the right to effectuate a 1031 exchange for all or a portion of the final sales price of the ranch."

The ranch is encumbered by two coal surface mining agreements known as the Arch Agreements executed in 1986 and 1993 for a term of thirty years. The agreements do not specify the number of acres encumbered but list over seven pages of legal descriptions of the affected property. Testimony at trial established that these agreements give Arch exclusive right of control of a majority of the ranch.

Arrangements were made for Nogle to tour the ranch, and Pearson demanded that Kornkven sign a brokerage disclosure statement before the tour. Kornkven did not provide this statement, and Nogle toured the ranch on April 18 and April 21, 1996. On the first trip, Pearson told Nogle that the coal mining operations had benefitted the ranch in a number of ways and were ending in the next couple of years. Nogle toured the ranch and noticed little activity from the coal mining operations. On the second visit, the ranch manager, Casey Palm, showed Nogle a map by Arch Mineral that indicated where the restricted grazing was on the ranch. That map showed that the majority of the mining operations was on adjacent property and indicated that a few isolated areas of the ranch were restricted to grazing. At that time, Nogle claims that the brokers told him that the purchase could be completed through a stock exchange purchase.

A title commitment showing sixty-two title exceptions was delivered to Pearson on March 20, 1996. On April 26, 1996, Pearson gave Kornkven a copy of the title commitment containing potential exceptions of records including the Arch Agreements. Kornkven did not give this information to Nogle.

On April 26, 1996, Kornkven prepared a written offer to purchase the ranch expressing that Sundown, Inc. was buying the property "subject to" title exceptions of record. Kornkven did not discuss this provision with Nogle and had not provided either Nogle or Pearson with a brokerage disclosure statement; however, Nogle claims that Kornkven represented to him that he was working as his agent. Nogle shared confidential information with Kornkven. Kornkven signed a second offer without Nogle's permission on July 29, 1996, and on August 5, 1996, Nogle signed that written offer for Sundown, Inc., to purchase the property subject to title exceptions of record and delivered $50,000.00 in earnest money to Pearson. The offer was rejected, further negotiations ensued, and Pearson faxed a counteroffer to Kornkven from the seller that included an addendum to the counteroffer titled Addendum B-1 which referred to the Arch agreements:

Purchaser is aware and acknowledges by signing this agreement that there is restricted livestock use of the two pastures known as (A) Headquarters Pasture (B) TV Hill Pasture. Due to active coal mining and related reclamation work in these two pastures, Dana Meadows Ranch has restricted livestock grazing use of these two pastures. The Seller shall provide to the Purchaser the written agreement between Dana Meadows Ranch and Arch Mineral stating the terms and conditions of said agreement.

Nogle claims that Kornkven did not show him the Addendum. His claim is supported by the lack of his signature on the Addendum and counteroffer although each had signature lines for Nogle to sign acknowledging that he had seen them. More counteroffers were exchanged in which Nogle stated that he was seeking a stock exchange purchase, and offering $1,700,000.00 for the ranch. These terms were accepted by the seller on August 19, 1996.

Nogle signed the real estate contract for the ranch which contained the following provisions:

X. Condition of Property.

* * *

B. Buyer acknowledges and agrees that, upon execution of this Contract:

1. Buyer is not relying upon any representations of Seller or Seller's Agents or representatives as to any condition which Buyer deems to be material to Buyer's decision to purchase this property;

* * *

XI. Inspections.

* * *

D. Waiver of Defects.

Buyer acknowledges that he has not been denied any opportunity to inspect property. Other than repairs or defects submitted to the Seller in writing pursuant to XI (A), (B), or (C) above, or in the event no repairs or inspections are required by Buyer, Buyer accepts the property in its entirety in "as is, where is" condition without any implied or express warranty by Seller or by any Broker.

* * *

XV. Consents and Acknowledgments.

D. E.W. Kornkven (Broker working with the Buyer) hereby discloses that it is working with the Buyer as Seller's Subagent and will be compensated by Seller. Buyer and Seller consent to that arrangement. Broker has previously delivered to (Buyer)(Seller) a written Real Estate Brokerage Disclosure.²

After the contract was signed, the seller sent the Arch Agreements to Pearson who...