Sw. Non-Profit Hous. Corp. v. Nowak

• Decision Date: 31 March 2014
• Docket Number: 2 CA–CV 2013–0098.,Nos. 2 CA–CV 2013–0069,2 CA–CV 2013–0097,s. 2 CA–CV 2013–0069
• Citation: 234 Ariz. 387,683 Ariz. Adv. Rep. 36,685 Ariz. Adv. Rep. 21,322 P.3d 204
• Parties: SOUTHWEST NON–PROFIT HOUSING CORPORATION, an Arizona Non–Profit Corporation, Plaintiff/Appellant, v. James E. NOWAK, II, Defendant/Appellee. Southwest Non–Profit Housing Corporation, an Arizona Non–Profit Corporation, Plaintiff/Appellant, v. Kathleen Kniffen, dba Kathleen Kniffen Appraisal Service, Defendant/Appellee. Southwest Non–Profit Housing Corporation, an Arizona Non–Profit Corporation, Plaintiff/Appellant, v. John T. Martell, dba John T. Martell & Associates, Defendant/Appellee.
• Court: Arizona Court of Appeals

234 Ariz. 387

322 P.3d 204

683 Ariz. Adv. Rep. 36

685 Ariz. Adv. Rep. 21

SOUTHWEST NON–PROFIT HOUSING CORPORATION, an Arizona Non–Profit Corporation, Plaintiff/Appellant,

v.James E. NOWAK, II, Defendant/Appellee.

Southwest Non–Profit Housing Corporation, an Arizona Non–Profit Corporation, Plaintiff/Appellant,

v.Kathleen Kniffen, dba Kathleen Kniffen Appraisal Service, Defendant/Appellee.

Southwest Non–Profit Housing Corporation, an Arizona Non–Profit Corporation, Plaintiff/Appellant,

v.John T. Martell, dba John T. Martell & Associates, Defendant/Appellee.

Nos. 2 CA–CV 2013–0069, 2 CA–CV 2013–0097, 2 CA–CV 2013–0098.

Court of Appeals of Arizona, Division 2.

March 31, 2014.

William E. Druke, Tucson and Quinn Law, PLLC By Ian D. Quinn, Phoenix, Counsel for Plaintiff/Appellant.

Snell & Wilmer, L.L.P. By Jeffrey Willis and Katherine V. Foss, Tucson and Mary–Christine Sungaila, Pro Hac Vice, Costa Mesa, California, Counsel for Defendant/Appellee Nowak.

Gust Rosenfeld, P.L.C. By Mark L. Collins and Robert M. Savage, Tucson, Counsel for Defendants/Appellees Kniffen and Martell.

OPINION

ESPINOSA, Judge.

¶ 1 In consolidated cases, Appellant Southwest Non–Profit Housing Corporation (Southwest) appeals trial court decisions in favor of three defendant appraisers, James E. Nowak II (Nowak), Kathleen Kniffen (Kniffen), and John T. Martell (Martell), whom Southwest alleged had conducted appraisals negligently, resulting in lost home sales for Southwest. For the following reasons, we affirm.

Factual and Procedural Background

¶ 2 These cases arise from appraisals performed in connection with sales of residential properties. In each case the sale was subject to the property appraising for the contracted sale amount. In all three cases, the appraisals were appreciably lower than the properties' contracted sale prices. As a result, the lender refused to lend the amounts the buyers requested for purchase, and the buyers ultimately canceled the sales.

¶ 3 The seller, Southwest, filed separate complaints against the three appraisers, asserting each had been negligent in performing his or her respective appraisal. Nowak responded to the complaint with a motion to dismiss, and Kniffen and Martell filed motions for summary judgment. All three relied on § 552 of the Restatement (Second) of Torts (1977) (hereinafter Restatement) in denying any liability for negligent misrepresentation. The three motions were granted, and Southwest appealed. The cases were consolidated in this court on Southwest's motion. We have jurisdiction pursuant to A.R.S. §§ 12–120.21(A)(1) and 12–2101(A)(1).

Nowak Appraisal

¶ 4 In reviewing a trial court's decision to grant a motion to dismiss, we assume the truth of the facts asserted in the complaint. Airfreight Exp. Ltd. v. Evergreen Air Ctr., Inc., 215 Ariz. 103, ¶ 2, 158 P.3d 232, 235 (App.2007). Southwest purchased a residence on Desert Aire Drive in Tucson, invested $8,000 in rehabilitating the property, and then listed it for sale. Southwest received three offers for the property and accepted the highest one for $94,000. Southwest then entered into a sales contract with the prospective buyer, who applied for a loan to purchase the property. The lender required an appraisal to underwrite the loan and retained Nowak as the appraiser. Nowak appraised the property's value in June 2012 at $81,000. The lender then refused to fund the loan in the amount requested, and the prospective buyer withdrew from the contract.

¶ 5 Southwest thereafter filed a complaint against Nowak alleging negligent performance of the appraisal. Southwest asserted that Nowak had “breached his duty to all parties to the transaction” thus “caus[ing] the lender to decline to underwrite the loan and effectively cancel[ ] the sale.” Nowak responded with a motion to dismiss, arguing he could not be liable for negligence under § 552 of the Restatement. The trial court granted the motion, ruling as a matter of law that the appraiser had no duty to Southwest. Southwest filed a motion for reconsideration, which the court denied.

Kniffen and Martell Appraisals ¹

¶ 6 In reviewing a trial court's decision to grant summary judgment we view “the evidence and all reasonable inferences therefrom in the light most favorable to the party against whom summary judgment was granted.” Airfreight Exp. Ltd., 215 Ariz. 103, ¶ 2, 158 P.3d at 235. The parties largely agree on the facts underlying these appraisals but dispute their legal effect. In 2012, Southwest entered into a contract to sell a residence on Bayberry Street in Tucson for $170,000, contingent on the buyers obtaining loan approval supported by an appraisal of the property for at least the purchase price.² The lender engaged Kniffen to appraise the property, and she estimated its fair market value as $150,000. Because the appraisal contingency was not satisfied, the prospective buyers attempted to renegotiate the contract. Southwest would not agree to a new contract, and the buyers withdrew from the purchase.

¶ 7 In a similar transaction, Southwest contracted to sell a residence located on Harvester Drive to a prospective buyer for $141,000. Again, the buyer's obligations were contingent upon the property appraising for at least the purchase price. The lender engaged Martell to appraise the Harvester Drive property, and his report appraised its fair market value at $127,000. The prospective buyer consequently exercised his right to cancel the contract.

¶ 8 Southwest brought actions against Kniffen and Martell alleging negligence relating to the appraisals. Both defendants moved for summary judgment, asserting Southwest was not the “intended user of the appraisal[s] and, in any event, took no acts in reliance thereon.” Citing the appraisal certification, Southwest responded that the appraisers knew that “secondary market participants—parties other than the stated intended users—would be supplied [their] appraisal report[s]” and “so long as a party was provided the appraisal report with [the appraisers'] knowledge[,] they are entitled to rely on the same.” The trial court entered summary judgment in favor of Kniffen and Martell.

Discussion

A. Nowak's Motion to Dismiss

¶ 9 Southwest asserts the trial court committed reversible error in dismissing its complaint “on the sole ground that Southwest had executed the sales agreement ‘before the appraisal was commissioned’ ” observing that § 552 of the Restatement imposes liability “when the provider of professional information knows the specific transaction or type of transaction involved and intends to guide and benefit those involved in the transaction.”

¶ 10 We review dismissal of a complaint under Rule 12(b)(6), Ariz. R. Civ. P., de novo. Coleman v. City of Mesa, 230 Ariz. 352, ¶ 7, 284 P.3d 863, 866 (2012). In doing so, we look only to the complaint, assuming the truth of all well-pled factual allegations and indulging all reasonable inferences. Cullen v. Auto–Owners Ins. Co., 218 Ariz. 417, ¶ 7, 189 P.3d 344, 346 (2008). Although we “uphold dismissal only if the plaintiffs would not be entitled to relief under any facts susceptible of proof in the statement of the claim,” Mohave Disposal, Inc. v. City of Kingman, 186 Ariz. 343, 346, 922 P.2d 308, 311 (1996), we may affirm if the dismissal is correct for any reason, Dube v. Likins, 216 Ariz. 406, n. 3, 167 P.3d 93, 104 n. 3 (App.2007). Moreover, “we do not accept as true allegations consisting of conclusions of law, inferences or deductions that are not necessarily implied by well-pleaded facts, unreasonable inferences or unsupported conclusions from such facts, or legal conclusions alleged as facts.” Jeter v. Mayo Clinic Ariz., 211 Ariz. 386, ¶ 4, 121 P.3d 1256, 1259 (App.2005).

¶ 11 To state a claim for relief for negligent misrepresentation, including those presented here—that the defendants were negligent in their appraisals—a plaintiff must allege, among other elements, that he was owed a duty of care by the defendant. See Belen Loan Investors, LLC v. Bradley, 231 Ariz. 448, ¶ 8, 296 P.3d 984, 989 (App.2012). We address de novo the purely legal issue of whether the trial court correctly ruled that Nowak owed Southwest no such duty as a matter of law. Id.

¶ 12 To determine the scope of an appraiser's obligations to third parties we look to Restatement § 552. See Belen Loan Investors, LLC, 231 Ariz. 448, ¶ 10, 296 P.3d at 989. An appraiser has liability for losses 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.” This liability is limited to those transactions “that he intends the information to influence or knows that the recipient so intends.” Restatement § 552(2). The appraiser need not know the specific identity of the third-party recipient when the information is supplied, so long as the appraisal is intended to reach and influence a particular type of individual or class of persons.

¶ 13 Section 552, however, does not open liability to an unlimited class of individuals who are merely “foreseeable.” The appraiser is not liable to all whom “might reasonably be expected sooner or later to have access to the information and foreseeably to take some action in reliance upon it.” Restatement § 552 cmt. h; see also Sage v. Blagg Appraisal Co., 221 Ariz. 33, n. 7, 209 P.3d 169, 174 n. 7 (App.2009) (foreseeability ordinarily creates no duty of care). As the Restatement observes, the “risk of liability to which the supplier subjects himself by undertaking to give the information ... is vitally affected by the number and character of the persons, and particularly the nature and extent of the proposed transaction.” Restatement § 552 cmt. h. This court also has noted “there are good reasons to conclude that a professional who provides information should not owe a duty of care to anyone who happens to receive the information.” Sage, 221 Ariz. 33, n. 9, 209 P.3d at 175 n. 9...