Yazd v. Woodside Homes Corp.

• Decision Date: 25 February 2005
• Docket Number: No. 20030993-CA.,20030993-CA.
• Citation: 109 P.3d 393,2005 UT App 82
• Parties: Ali S. YAZD and Parvin Yousefi, Plaintiffs and Appellants, v. WOODSIDE HOMES CORPORATION, Defendant and Appellee.
• Court: Utah Court of Appeals

109 P.3d 393

2005 UT App 82

Ali S. YAZD and Parvin Yousefi, Plaintiffs and Appellants, v. WOODSIDE HOMES CORPORATION, Defendant and Appellee.

No. 20030993-CA.

Court of Appeals of Utah.

February 25, 2005.

Rehearing Denied April 13, 2005.

J. Bryan Quesenberry and Stephen Quesenberry, Hill Johnson & Schmutz LC, Provo, for Appellants.

Timothy B. Smith and Ronald G. Russell, Parr Waddoups Brown Gee & Loveless, Salt Lake City, for Appellee.

Before BILLINGS, P.J., and GREENWOOD and THORNE, JJ.

OPINION

THORNE, Judge:

¶ 1 Ali Yazd and Parvin Yousefi (the Buyers) appeal from the trial court's grant of summary judgment in favor of Woodside Homes Corporation (Woodside). We reverse.

BACKGROUND

¶ 2 In the early 1990s, Woodside began planning and constructing a subdivision in Lindon, Utah. The subdivision involved three parcels of land, the last of which Woodside purchased from the Church of Jesus Christ of Latter-day saints (the LDS church) in 1992 (the LDS parcel). The LDS church had intended to build a large church building on the property; however, an engineering survey (the Delta report) revealed that the subsurface soil was extremely collapsible — a condition that leads to soil compaction when water is introduced to the soil — to a depth of at least twenty-seven feet. The LDS church, through its sales representative, informed Woodside of the less than ideal subsurface soil conditions, and according to the sales contract, Woodside was to be provided with a copy of the Delta report after the sale.

¶ 3 Prior to purchasing the LDS property, Woodside had performed its own examination of the subsurface soil conditions on the other two parcels involved in its subdivision. The resulting report informed Woodside that subsurface soil in these parcels was collapsible to a depth of approximately two feet. In response, Woodside added provisions to its plan for the removal of topsoil to a depth greater than the average weak soil depth as indicated by their engineering survey. After purchasing the LDS parcel, Woodside chose not to replicate its engineering survey, instead it chose to rely on its existing engineering report¹ without examining the soil on the LDS parcel. Woodside then proceeded with its construction plans.

¶ 4 In 1995, the Buyers entered into a contract with Woodside to purchase a lot within the subdivision and to have a house built upon the lot. Woodside did not disclose to the Buyers the result of either its engineering report or the Delta report. Thus, the Buyers entered into the purchase agreement with no knowledge of the subsurface soil deficiencies. The Buyers' lot was adjacent to the LDS parcel and approximately thirty feet from one of the test holes drilled during the preparation of the Delta report. After closing on the house in September 1995, the Buyers moved in. Soon after, beginning in 1996 and extending into 1997, the Buyers noticed cracks in the foundation, the basement floor, and the driveway. They also noticed that doors throughout the house were no longer square. When they brought these problems to Woodside's attention, Woodside informed them that the cracks, etc., were normal and the result of nothing more than natural settling. Woodside then patched the cracks and assured the Buyers that they had no reason for concern.

¶ 5 The Buyers were placated by Woodside's assurances until 2002, when they put the house up for sale. They soon had a potential purchaser, but a prepurchase inspection of the home revealed that it sat on a sea of collapsible soil. The engineer who performed the inspection, Kenneth Karren, informed the Buyers of the extent of the problem, and the Buyers learned, after engaging the services of another soil engineer, that it would take a great deal of money to repair the house and ensure that the poor subsurface soil caused no additional damage.

¶ 6 Consequently, in April 2002, the Buyers filed suit against Woodside. The Buyers alleged that Woodside's failure to disclose the presence of the collapsible soil was a breach of the contractual warranty and that it amounted to a fraudulent nondisclosure. Pursuant to a motion to compel arbitration, the trial court submitted all of the Buyers' contract claims to arbitration. Following the successful completion of arbitration, Woodside filed for summary judgment on the Buyers' fraud claims. The trial court granted the motion, dismissing the Buyers' complaint after concluding that Woodside had neither real, nor constructive, knowledge of the contents of the Delta report. The Buyers now appeal.

ISSUE AND STANDARD OF REVIEW²

¶ 7 The Buyers argue that the trial court's decision to grant Woodside's motion for summary judgment was incorrect.

In reviewing a grant of summary judgment, we give no deference to the trial court with respect to its legal conclusions. Rather, we make our own determination as to whether the record shows "that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law."

Smith v. Frandsen, 2004 UT 55, ¶ 6, 94 P.3d 919 (citations omitted). Additionally, we view "`the facts in a light most favorable to the losing party below.'" Goodnow v. Sullivan, 2002 UT 21, ¶ 7, 44 P.3d 704 (quoting Blue Cross & Blue Shield v. State, 779 P.2d 634, 636-37 (Utah 1989)).

ANALYSIS

¶ 8 The Buyers assert that during the purchase of their property and the negotiations for the construction of their home, Woodside either fraudulently concealed or fraudulently failed to disclose the presence of collapsible soil under and surrounding their property. The elements required to satisfy these claims are identical. See Smith v. Frandsen, 2004 UT 55, ¶ 12, 94 P.3d 919 (equating the elements of fraudulent concealment with the elements of fraudulent nondisclosure discussed in Hermansen v. Tasulis, 2002 UT 52, ¶ 24, 48 P.3d 235). To establish either claim, the Buyers "`must prove the following three elements: (1) the nondisclosed information is material, (2) the nondisclosed information is known to the party failing to disclose, and (3) there is a legal duty to communicate.'" Frandsen, 2004 UT 55 at ¶ 12, 94 P.3d 919 (quoting Hermansen, 2002 UT 52 at ¶ 24, 48 P.3d 235); see also Mitchell v. Christensen, 2001 UT 80, ¶ 9, 31 P.3d 572.

¶ 9 There is little question that the information contained in the Delta report would have been material to the Buyers in this case. See Hermansen, 2002 UT 52

at ¶ 29, 48 P.3d 235 (defining materiality to be "something which a buyer or seller of ordinary intelligence and prudence would think to be of some importance in determining whether to buy or sell" (emphasis added) (quotations and citation omitted)). The Delta report stated that the subsurface soils found no more than thirty feet from the Buyers' lot were unstable to a depth of nearly thirty feet, and this information was central to the LDS church's decision to sell the property, rather than build on it. Although the report may not have dealt directly with the condition of the soil under the Buyers' lot, we cannot say as a matter of law that the information would not have been of some interest to the Buyers. See id. Consequently, the information in the Delta report is material.

¶ 10 We can say, however, that if Woodside possessed the Delta report, or had knowledge of its content, prior to concluding the sale with the Buyers, it had a duty to disclose the information to the Buyers. "`The issue of whether a duty exists is entirely a question of law to be determined by the court.'" Frandsen, 2004 UT 55 at ¶ 14, 94 P.3d 919 (quoting Ferree v. State, 784 P.2d 149, 151 (Utah 1989)). In Frandsen, the supreme court examined the duty that a developer has "to protect unsophisticated purchasers." Id. at ¶ 16. Relying on existing case law, the court stated that a developer has

"a duty to exercise reasonable care to insure that the subdivided lots are suitable for construction of some type of ordinary, average dwelling house, and he must disclose to his purchaser any condition which he knows or reasonably ought to know makes the subdivided lots unsuitable for such residential building. He has a further duty to disclose, upon inquiry, information he has developed in the course of the subdivision process which is relevant to the suitability of the land for its expected use."

Id. (quoting Loveland v. Orem City Corp., 746 P.2d 763, 769 (Utah 1987)). Applying this standard, the court found that "the law imputes to builders and contractors a high degree of specialized knowledge and expertise with regard to residential construction," expertise normally not possessed by unsophisticated purchasers. Id. at ¶ 18. As part of this specialized knowledge, "builder-contractors are expected to be familiar with conditions in the subsurface of the ground," id. at ¶ 19, and if there is a problem with the subsurface soils, the builder is charged with a duty to disclose.

¶ 11 Woodside argues that through its own efforts it discovered and removed a layer of weak subsurface soils that existed throughout the subdivision and that, through a subsequent engineering inspection, it was assured that no additional problems existed in the subsoil. Woodside, however, misapprehends the scope of its duty in this circumstance. Assuming, as we must for purposes of reviewing a trial court's summary judgment decision, that the Buyers are correct and that Woodside was provided with the Delta report prior to the sale to the Buyers, then our focus is properly upon the Delta report and whether it would have been material to the Buyers' decision to purchase. Having determined that the report would have been material, as it contained information that would have been of some interest to the Buyers in making their decision to buy, see Hermansen, 2002 UT 52

at ¶ 29, 48 P.3d 235, we conclude that Woodside had a duty to disclose the report, or its contents, if Woodside received the report prior to the sale to the Buyers.

¶ 12 Finally, and most...