Yazd v. Woodside Homes Corp.

• Decision Date: 01 September 2006
• Docket Number: No. 20050444.,20050444.
• Citation: 143 P.3d 283,2006 UT 47
• Parties: Ali S. YAZD and Parvin Yousefi, Plaintiffs and Respondents, v. WOODSIDE HOMES CORPORATION, Defendant and Petitioner.
• Court: Utah Supreme Court

143 P.3d 283

2006 UT 47

Ali S. YAZD and Parvin Yousefi, Plaintiffs and Respondents, v. WOODSIDE HOMES CORPORATION, Defendant and Petitioner.

No. 20050444.

Supreme Court of Utah.

September 1, 2006.

Stephen Quesenberry, J. Bryan Quesenberry, Provo, for plaintiffs.

Ronald G. Russell, Timothy B. Smith, Salt Lake City, for defendant.

On Certiorari to the Utah Court of Appeals

NEHRING, Justice:

¶ 1 When Ali Yazd and Parvin Yousefi's Lindon, Utah home sank into the unstable soil upon which it lay, they sued. They claimed that home-seller Woodside Homes fraudulently concealed information contained in a report, the "Delta report," about a deep layer of collapsible soil present on land that Woodside owned adjacent to the Yazd-Yousefi property.

¶ 2 The district court granted Woodside's motion for summary judgment and dismissed the Yazd-Yousefi fraudulent concealment claims. It based its ruling on the undisputed fact that Woodside was unaware of unsuitable soil conditions either on the Yazd-Yousefi land or elsewhere in its development. The court of appeals reversed.

¶ 3 We granted certiorari. We affirm the court of appeals' reversal of summary judgment. However, we reverse the court of appeals' holding that the Delta report was material as a matter of law. We also correct the court of appeals' misapprehension that the materiality of the Delta report is relevant to whether Woodside owed the homeowners a duty to disclose the contents to them. Finally, we hold that a developer-builder may owe his buyer a duty to disclose information known to him about the composition or characteristics of any real property when that information is material to the suitability of the property purchased by the buyer.

BACKGROUND

¶ 4 In the early 1990s, Woodside undertook the development of the Panorama Point subdivision in Lindon, Utah. The subdivision included three parcels of land, the last of which was purchased in 1992 from the Church of Jesus Christ of Latter-day Saints, which we will call the "Church." The Church had intended to construct a large structure on the property. The Church abandoned this plan, however, after the Delta report (named after the firm which compiled it) revealed that an excess of moisture-sensitive collapsible soil made the site unsuitable for the contemplated building. The Delta report did not specifically evaluate the suitability of the site for a single family residence.

¶ 5 The Church agreed to sell the parcel of property to Woodside. According to the sales contract, the Church was to provide a copy of the Delta report to Woodside. Woodside claims it never saw the report.

¶ 6 Before the Yazd-Yousefi home was built, Woodside obtained its own study of the soil conditions on two other parcels that comprised Panorama Point. The Yazd-Yousefi lot was within the area covered by the study. The soil study indicated the presence of collapsible soil to an average depth of approximately two and one-half feet. Accordingly, Woodside formulated a plan to dig out the collapsible soil and reduce the grade of these parcels between six and eight feet. After the work was completed, William Gordon, an engineer, inspected the area at the behest of Woodside and pronounced the soil fit to support a house. In 1995, Mr. Yazd and Ms. Yousefi contracted with Woodside to purchase a lot and build a home in Panorama Point. Woodside did not disclose the contents of the Delta or Woodside's own soil reports to Mr. Yazd or Ms. Yousefi.

¶ 7 Mr. Yazd and Ms. Yousefi moved into their home in September 1995. By 1996, cracks appeared in the foundation and the driveway. Doors would not open or close. Evidence of excessive settling abounded. Mr. Yazd and Ms. Yousefi accepted Woodside's efforts to repair the damage until April 2002 when a prospective purchaser of the home discovered that, owing to the instability of the soil, major repairs would be required to shore-up the house and prevent additional damage.

¶ 8 With this discovery, Mr. Yazd and Ms. Yousefi decided to seek legal relief. They sued Woodside. They alleged that Woodside's failure to disclose the presence of the collapsible soil in the area amounted to a breach of contract and fraudulent nondisclosure. The district court referred the Yazd-Yousefi contract claims to arbitration; these claims do not concern us here. The district court then dismissed the Yazd-Yousefi fraudulent nondisclosure and concealment claims. The district court based its ruling on a determination that Woodside had neither real nor constructive knowledge of the continued presence of collapsible soil on the buyers' lot.

¶ 9 On appeal, the court of appeals reversed and remanded the case to the district court. The court of appeals concluded that the Delta report did contain material information that Woodside had a duty to disclose to the buyers and, since the question of whether Woodside actually had knowledge of the report was in dispute, that summary judgment was improperly granted.

ANALYSIS

¶ 10 In order to prevail on a claim of fraudulent concealment, a plaintiff must prove "(1) that the nondisclosed information is material, (2) that the nondisclosed information is known to the party failing to disclose, and (3) that there is a legal duty to communicate." Mitchell v. Christensen, 2001 UT 80, ¶ 9, 31 P.3d 572. These elements are presented in inverse order of importance. As we will see, this reverse ordering of elements may have led the court of appeals to apply a flawed analytical process that nevertheless yielded the correct result: a reversal of the district court.

I. WOODSIDE'S RELATIONSHIP WITH MR. YAZD AND MS. YOUSEFI CREATED A LEGAL DUTY

¶ 11 We have stated that "[i]t is axiomatic that one may not be liable to another in tort absent a duty." Loveland v. Orem City Corp., 746 P.2d 763, 765 (Utah 1987). Any analysis of a tort claim, then, begins with an inquiry into the existence and scope of the duty owed the plaintiff by the defendant.

¶ 12 The court of appeals, however, began its analysis by examining the materiality of the Delta report following the sequence of elements set out in Mitchell. The court of appeals then wasted little time reaching the conclusion that "[t]here is little question that the information contained in the Delta report would have been material to the Buyers in this case." Yazd v. Woodside Homes Corp., 2005 UT App 82, ¶ 9, 109 P.3d 393.

¶ 13 With its finding of materiality in hand, the court of appeals moved on to the matter of duty. The court appeared to link the materiality of the Delta report to the existence of Woodside's duty when it stated, "We can say, however, that if Woodside possessed the Delta report, or had knowledge of its content, prior to the sale with the Buyers, it had a duty to disclose the information to the Buyers." Id. ¶ 10. It is important that the court of appeals' opinion not be read to suggest that the materiality of the Delta report created Woodside's duty to disclose the contents of the report to Mr. Yazd and Ms. Yousefi. Indeed, materiality becomes an issue only after a legal duty has been established.

¶ 14 The determination of whether a legal duty exists falls to the court. It is a purely legal question, and since in the absence of a duty a plaintiff will not be entitled to a remedy, it is the first question to be answered. See Loveland, 746 P.2d at 766.

¶ 15 From where does a duty arise? To properly answer the duty question, a court must understand that the structure and dynamics of the relationship between the parties gives rise to the duty. "The question of whether a duty exists is a question of law. As always, resolution of this issue begins with an examination of the legal relationships between the parties, followed by an analysis of the duties created by these relationships." Id.

¶ 16 A relationship that is highly attenuated is less likely to be accompanied by a duty than one, for example, in which parties are in privity of contract. Age, knowledge, influence, bargaining power, sophistication, and cognitive ability are but the more prominent among a multitude of life circumstances that a court may consider in analyzing whether a legal duty is owed by one party to another. Where a disparity in one or more of these circumstances distorts the balance between the parties in a relationship to the degree that one party is exposed to unreasonable risk, the law may intervene by creating a duty on the advantaged party to conduct itself in a manner that does not reward exploitation of its advantage.

¶ 17 Legal duty, then, is the product of policy judgments applied to relationships. DeBry v. Valley Mortgage Co., 835 P.2d 1000, 1003-04 (Utah Ct.App.1992) ("Duty is not sacrosanct in itself, but only an expression of the sum total of those considerations of policy which lead the law to say that the particular plaintiff is entitled to protection." (internal quotation marks and brackets omitted)). A person who possesses important, even vital, information of interest to another has no legal duty to communicate the information where no relationship between the parties exists.

¶ 18 An example which illustrates this point is the "special relationship" doctrine in tort law. A person has no legal duty to protect another person from the conduct of a stranger unless the person upon whom a duty is sought to be imposed has a "special relationship" with either the stranger or the potential victim. Rather, "[t]he duty to control another person may arise where a special relationship exists." Wilson v. Valley Mental Health, 969 P.2d 416, 419 (Utah 1998); see also Restatement (Second) of Torts § 315 (1977) (stating that a duty is premised on a special relationship); Higgins v. Salt Lake County, 855 P.2d 231, 236 (Utah 1993) (adopting Restatement position). Here, it is Woodside's status as builder-contractor that gives rise to its legal duty to the home buyers. The communication of material information to Mr. Yazd and Ms. Yousefi is one of the obligations that...