#27149-a-LSW

2015 S.D. 63

IN THE SUPREME COURT

OF THE

STATE OF SOUTH DAKOTA

* * * *

ROGER JOHNSON and 

DOROTHY JOHNSON, Plaintiffs and Appellants,

v.

HAYMAN & ASSOCIATES, INC., 

HAYMAN RESIDENTIAL 

ENGINEERING SERVICES, INC. 

and HAYMAN RESIDENTIAL 

ENGINEERING SERVICES, LLC, Defendants and Appellees.

* * * *

APPEAL FROM THE CIRCUIT COURT OF

THE SEVENTH JUDICIAL CIRCUIT

PENNINGTON COUNTY, SOUTH DAKOTA

* * * *

THE HONORABLE ROBERT A. MANDEL

Judge

* * * *

KYLE L. WIESE of

Gunderson, Palmer, Nelson 

 & Ashmore, LLP

Rapid City, South Dakota Attorneys for plaintiffs 

and appellants. 

JESSICA L. LARSON

GARY D. JENSEN of

Beardsley, Jensen & Von Wald, Prof. LLC

Rapid City, South Dakota Attorneys for defendants 

and appellees.

* * * *

ARGUED FEBRUARY 18, 2015

OPINION FILED 07/15/15
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WILBUR, Justice

[¶1.] Roger and Dorothy Johnson appeal the circuit court’s grant of 

summary judgment in favor of Hayman Residential Engineering Services, Inc. 

(Hayman). The Johnsons sued Hayman on a theory of professional negligence 

because Hayman made an allegedly substandard and inadequate structural 

engineering report on the Johnsons’ home (the Home). The report was prepared for

Fannie Mae, and the Johnsons alleged the report ultimately impacted the value of 

the Home. The circuit court, in granting Hayman’s summary judgment motion, 

held that Hayman owed the Johnsons no duty and, therefore, a professional 

negligence claim could not be established. We affirm.

Facts and Procedural History

[¶2.] In 2008, Fannie Mae foreclosed upon and acquired the Home. The 

Home is located in Rapid City, South Dakota. Fannie Mae, through its 

agent/broker Cathy Brickey, hired Hayman to perform a visual inspection and 

prepare a report outlining any structural problems. The Hayman Report noted 

cracks in the drywall (both walls and ceilings), visible cracks in the foundation wall, 

a low spot in the garage, and several other foundational problems. The Report 

concluded that the “most likely cause of the uplifting is expansive soil under the 

foundation. The expansion is driven by water expansion.” Hayman believed that 

“the key to minimizing further movement in the footing is to keep water from 

collecting” under the foundation. To that end, Hayman made two 

recommendations: (1) ensuring downspouts and grading slope away from the 

foundation at least six feet and (2) installing a French drainage system along the 
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exterior foundation wall that would direct water into a sump pump to remove water 

from the collection area. 

[¶3.] Based on the Report, Fannie Mae made some, but not all, of the

recommended repairs. Repairs included fixing cracked sheetrock, painting, and 

installing the French drainage system. Brickey testified she would not have sold 

the Home without a structural inspection report, and she placed a “hold-don’t show” 

on the Home until the Hayman Report was delivered and the repairs completed. 

Hayman did not have anything to do with the Home or its repairs after the Report 

was provided. Hayman did not select the contractors or design the repair work.

[¶4.] Once repairs were made, Fannie Mae, through Brickey, listed the 

Home for sale. Ronald and Dawn Mason, through their agent Susan Raposa, 

expressed interest in purchasing the Home. Brickey showed Raposa the Home and 

informed Raposa of the repairs recently made. Brickey remembers representing to 

Raposa that repairs were made, based on the Hayman Report, to make the Home

sellable. However, as was made clear by Brickey, “Fannie Mae did not authorize 

the [Hayman R]eport for the purpose of providing [it] to prospective buyers.” The 

Masons decided to purchase the Home from Fannie Mae. Fannie Mae sold the 

Home to the Masons “as-is, where-is” with no warranties, either express or implied, 

with respect to the physical condition of the Home “including the structural 

integrity[,] . . . stability of the soil[,] . . . sufficiency of drainage[,] . . . or any other 

matter affecting the stability, integrity, or condition of the property or 

improvements[.]” The Masons moved into the Home in October 2009.
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[¶5.] The Masons lived in the Home until they sold it to the Johnsons via 

warranty deed in May 2012. The Masons used a realtor other than Raposa to sell 

the Home. It is undisputed that the Johnsons did not see or even know of the 

Hayman Report prior to purchasing the Home. Prior to purchase on February 15, 

2012, the Masons provided the Johnsons with a Seller’s Property Condition 

Disclosure Statement. The Masons noted that there were cracks in the driveway, 

but did not disclose cracks in the Home, cracks in the drywall, previously repaired 

cracks, water leakage in the garage, or other structural problems. The Disclosure 

Statement did not make reference to the Hayman Report.

[¶6.] Prior to purchase but after the Masons gave the Johnsons the 

Disclosure Statement, the Johnsons submitted an offer to the Masons. The offer 

was contingent upon a physical inspection of the Home. The Masons and Johnsons 

entered into a purchase agreement. If the inspection revealed conditions 

unsatisfactory to the Johnsons, they had multiple options, including deeming the 

purchase agreement null and void in its entirety. The Johnsons performed their 

own visual inspection in which Mr. Johnson noticed the French drainage system 

and believed it was installed to alleviate a drainage issue. The Johnsons also hired 

Drew Inspection Services to perform an inspection. The inspection revealed 

significant settling and cracking in the driveway in front of the garage, a negative 

slope of the driveway causing pooling and run-off towards the Home, several major 

cracks in the garage ceiling, cracks in the garage’s sheetrock, and cracks along the 

joints of the Home’s interior wall and ceiling. In addition to Mr. Johnson’s 

inspection and the inspection by Drew Inspection, the realtors for the Masons hired 
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American Technical Services, Inc., to perform an inspection of the Home. American 

Technical Services opined that by extending the drainage area on the west and with 

rerouting water away from the garage and driveway area, it would solve any 

further movement of the garage and driveway. The Johnsons were present when 

the opinion was given. Following the inspections, the Johnsons negotiated a lower 

price and decided to purchase the Home. 

[¶7.] In August 2012, the problems with the Home became more noticeable. 

The Johnsons hired Albertson Engineering to perform another inspection. 

Albertson opined that settling was the cause of the Home’s movement and that the 

settling could create more problems in the future. As part of its review, Albertson 

looked at the Hayman Report from 2009. Albertson concluded the Hayman Report 

contained invalid assumptions regarding the cause of the Home’s movement and a 

geotechnical investigation should have been done before suggesting repairs. 

Albertson further concluded the Hayman Report did not contain the level of due 

diligence that a professional engineer should use to reach the conclusions it did.

[¶8.] Albertson Engineering recommended that Terracon Consultants, Inc.,

perform a residential distress evaluation. Terracon found the soils below the 

foundation of the Home were settling and additional settling remained a concern. 

Terracon recommended additional foundational support with the use of micro piles 

or helical piers. The estimated cost of making all necessary repairs to the Home 

exceeded its value.

[¶9.] The Johnsons filed a professional negligence claim against Hayman. 

Hayman moved for summary judgment against the Johnsons, asserting it did not 
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owe them a duty. The circuit court held a hearing on February 20, 2014. The court 

issued a memorandum decision and an order granting Hayman’s motion for 

summary judgment. The circuit court entered its judgment on June 11, 2014. The 

Johnsons appeal.

[¶10.] The Johnsons raise two issues in this appeal:

1. Whether the circuit court erred when it granted 

Hayman’s motion for summary judgment and concluded 

that Hayman did not owe the Johnsons a duty.

2. Whether reliance is a necessary element of a professional 

negligence claim.

Standard of Review

[¶11.] The standard of review for an appeal from summary judgment is well

established:

We must determine whether the moving party demonstrated the 

absence of any genuine issue of material fact and showed 

entitlement to judgment on the merits as a matter of law. The 

evidence must be viewed most favorably to the nonmoving party 

and reasonable doubts should be resolved against the moving 

party. The nonmoving party, however, must present specific 

facts showing that a genuine, material issue for trial exists. Our 

task on appeal is to determine only whether a genuine issue of 

material fact exists and whether the law was correctly applied. 

If there exists any basis which supports the ruling of the 

[circuit] court, affirmance of a summary judgment is proper.

Brandt v. Cnty. of Pennington, 2013 S.D. 22, ¶ 7, 827 N.W.2d 871, 874 (quoting 

Jacobson v. Leisinger, 2008 S.D. 19, ¶ 24, 746 N.W.2d 739, 745). “The circuit court’s 

conclusions of law are reviewed de novo.” Weitzel v. Sioux Valley Heart Partners, 

2006 S.D. 45, ¶ 16, 714 N.W.2d 884, 891.
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Decision

[¶12.] 1. Whether the circuit court erred when it granted Hayman’s motion 

for summary judgment and concluded that Hayman did not owe 

the Johnsons a duty.

[¶13.] The Johnsons argue Hayman was negligent when it failed to disclose 

certain structural defects and allegedly made incorrect assumptions and diagnoses 

concerning the cause of the Home’s movement. “In order to prevail in a suit based

on negligence, a plaintiff must prove duty, breach of that duty, proximate and 

factual causation, and actual injury.” Hendrix v. Schulte, 2007 S.D. 73, ¶ 7, 736 

N.W.2d 845, 847 (quoting Fisher Sand & Gravel Co. v. S.D. Dep’t of Transp., 1997 

S.D. 8, ¶ 12, 558 N.W.2d 864, 867); see also Lien v. McGladrey & Pullen, 509 

N.W.2d 421, 423 (S.D. 1993). Whether a duty exists depends on the relationship of 

the parties, Braun v. New Hope Twp., 2002 S.D. 67, ¶ 9, 646 N.W.2d 737, 740, and 

public policy considerations, Kirlin v. Halverson, 2008 S.D. 107, ¶ 52, 758 N.W.2d 

436, 453; Fisher v. Kahler, 2002 S.D. 30, ¶ 6, 641 N.W.2d 122, 125. However, the 

lack of a relationship between the parties is not necessarily fatal to the duty 

determination. Mid-W. Elec., Inc. v. DeWild Grant Reckert & Assocs. Co., 500 

N.W.2d 250, 254 (S.D. 1993) (abolishing the privity of contract requirement). This 

is because “[f]oreseeability may also create a duty.” Braun, 2002 S.D. 67, ¶ 9, 646 

N.W.2d at 740; see also Thompson v. Summers, 1997 S.D. 103, ¶ 13, 567 N.W.2d 

387, 392. “Although foreseeability is a question of fact in some contexts, 

foreseeability in defining the boundaries of a duty is always a question of law.” 

Braun, 2002 S.D. 67, ¶ 9, 646 N.W.2d at 740 (quoting Smith v. Lagow Constr. & 

Developing Co., 2002 S.D. 37, ¶ 18, 642 N.W.2d 187, 192). “Foreseeability in the 

‘duty’ sense is different from foreseeability in fact issues bearing on negligence 
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(breach of duty) and causation.” Id. (quoting Smith, 2002 S.D. 37, ¶ 18, 642 N.W.2d

at 192). We, therefore, review the foreseeability determination and, ultimately, the 

duty determination de novo. Janis v. Nash Finch Co., 2010 S.D. 27, ¶ 17, 780 

N.W.2d 497, 503 (citing Small v. McKennan Hosp., 403 N.W.2d 410, 413 (S.D. 

1987)).

[¶14.] The Johnsons argue they were foreseeable plaintiffs because they were 

subsequent purchasers and Hayman knew or should have known Fannie Mae 

would use the Hayman Report to make repairs and sell the Home to the public. 

Hayman counters it owed the Johnsons no duty when it performed a visual 

inspection solely for Fannie Mae’s benefit. Additionally, it was not foreseeable that 

the Johnsons would rely on the Hayman Report and, in fact, the Johnsons did not 

rely on the Hayman Report.

[¶15.] “The risk reasonably to be perceived defines the duty to be obeyed.” Id.

¶ 15, 780 N.W.2d at 502 (quoting Peterson v. Spink Elec. Coop., Inc., 1998 S.D. 60, 

¶ 14, 578 N.W.2d 589, 592). “No one is required to guard against or take measures 

to avert that which a reasonable person under the circumstances would not 

anticipate as likely to happen.” Peterson, 1998 S.D. 60, ¶ 14, 578 N.W.2d at 592 

(quoting Wildeboer v. S.D. Junior Chamber of Commerce, Inc., 1997 S.D. 33, ¶ 18, 

561 N.W.2d 666, 670). Here, based on the circumstances of the case, it was not 

foreseeable to a reasonable person that the Johnsons would be harmed when 

Hayman prepared its Report solely for the benefit of Fannie Mae. Hayman 

performed a visual inspection of the Home and concluded its movement was “most 

likely” caused by uplifting. Fannie Mae made some repairs to the Home, but 
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beyond preparing the Report, Hayman was not involved in those repairs. The 

Masons then purchased the Home “as-is, where-is” from Fannie Mae, disclaiming 

all express and implied warranties. Two and a half years later, the Masons put the 

Home on the market via a different real-estate agent. The Johnsons submitted an 

offer to the Masons to buy the Home and, as an explicit term of the purchase 

agreement, the Johnsons were free to void the agreement if the Home inspection 

was not satisfactory. Both Mr. Johnson and Drew Inspection performed an 

inspection of the Home for the Johnsons. The Johnsons were put on notice that the 

Home had structural problems because Drew Inspection noted cracks in the drywall 

and extra support beams in a subterranean crawlspace. It is undisputed the 

Johnsons did not see or know of the Hayman Report prior to purchasing the Home.1 

Instead of voiding the purchase agreement, the Johnsons used the Home’s problems

to negotiate a lower purchase price. Finally, the Masons sold the Home to the 

Johnsons via warranty deed.2 Based on the facts of the case, it was not reasonably 

foreseeable that the Johnsons would be harmed by Hayman or the Hayman Report.

[¶16.] The Johnsons point us to two cases supporting their position that 

Hayman owed them a duty, Limpert v. Bail, 447 N.W.2d 48 (S.D. 1989) and Brown 

 

1. The Johnsons argue that they “indirectly relied” on the Hayman Report 

because Mr. Johnson saw the French drainage system installed pursuant to 

the Hayman Report. If anything, the presence of the French drain further 

put the Johnsons on notice of potential structural problems. Mr. Johnson’s 

observation of the French drainage system does not serve as reliance on the 

Hayman Report. 

2. We note the Johnsons did not bring suit against the Masons for breach of any 

of the six warranties traditionally associated with a warranty deed. The 

record discloses that the Johnsons considered filing suit against the Masons 

but have yet to do so.
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v. Fowler, 279 N.W.2d 907 (S.D. 1979). In Limpert, we analyzed whether a duty 

was owed to a prospective purchaser when a veterinarian allegedly breached his 

duty to properly test cattle. 447 N.W.2d at 50-52. We explained:

Where one undertakes by contract to perform a certain service 

and is chargeable with the duty of performing the work in a 

reasonably proper and efficient manner, and injury occurs to a 

blameless person, the injured person has a right of action 

directly against the offending contractor which is not based on 

any contractual obligation but rather on the failure of such 

contractor to exercise due care in the performance of his 

assumed obligation.

Id. at 51 (quoting Layman v. Braunschweigische Maschinenbauanstalt, Inc., 343 

N.W.2d 334, 341 (N.D. 1983)). The Johnsons argue, “Just as it was foreseeable to a 

veterinarian that a subsequent purchaser of cattle could be injured if the 

veterinarian failed to adequately discharge his duty, it was foreseeable to Hayman 

that [its] failure to discharge [its] duty to a seller of real property could injure a 

subsequent purchaser of property.”

[¶17.] However, in Limpert, the parties knew that a veterinarian would 

perform work on the cows in anticipation of the sale because it was part of the oral 

agreement. Id. at 49. Here, it is undisputed the Johnsons did not know of or rely

on the Hayman Report, and the Hayman Report was not performed pursuant to a 

contract between Fannie Mae, Hayman, and the Johnsons. In addition, the 

intended beneficiaries of the veterinarian’s services were the original parties to the 

contract, i.e., Limpert and Bail. Id. In this case, Fannie Mae hired Hayman to 

perform a visual inspection for Fannie Mae’s benefit only. While Hayman may have 

been able to anticipate that Fannie Mae requested the Report in anticipation of

making repairs to the Home and, perhaps, eventually selling it to the general 
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public, the Masons—who themselves did not know of the Hayman Report—

purchased the Home “as-is, where-is.” Further, the rule and rationale in Limpert

contemplates a “blameless” person harmed by the conduct of a contractor. See id. at 

51. The Johnsons are not blameless within the meaning of Limpert for six reasons:

(1) the Masons disclosed some (but not all) of the problems with the Home to the 

Johnsons; (2) the Johnsons did their own home inspection before purchasing the 

Home; (3) Drew Inspection also performed an inspection of the Home; (4) Drew’s 

inspection indicated structural problems with the Home; (5) the Johnsons had the 

opportunity to void the purchase agreement pending Drew’s inspection; and (6) the 

Johnsons, with knowledge of the aforementioned facts, still purchased the Home. 

Thus, Limpert is distinguishable from the Johnsons’ case.

[¶18.] In the Brown case, the Browns (the plaintiffs) brought suit against a 

home-construction company for negligent construction. 279 N.W.2d at 908. The 

Browns purchased their home from a previous owner, and the previous owner had 

purchased the newly constructed home from the construction company’s agent. Id. 

After two months of living in their home, the Browns noticed structural problems 

and filed suit against the home-construction company. Id. The circuit court 

granted summary judgment for the construction company citing privity of contract, 

and on appeal, we reversed and remanded. Id. at 909. We concluded the 

construction company owed a duty to the Browns because the Browns were

members of the class of purchasers for whom the house was 

constructed, even if they were not the first purchasers. It is 

certainly foreseeable that such a house will be sold to 

subsequent purchasers, and that any structural defects are as 

certain to harm the subsequent purchaser as the first. 

Foreseeability is enhanced by the fact that the defects came to 
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light within three years after construction and within one year 

after defendants’ unsuccessful attempt to stop the settling.

Id. The Johnsons claim the same rationale applies when an inspection company 

negligently performs a home inspection that impacts a subsequent purchaser. We 

disagree.

[¶19.] Brown is distinguishable from this case because the action was based 

on a builder-vendor’s negligence, not an inspector’s alleged negligence. Hayman 

performed an inspection for the sole benefit of Fannie Mae. Hayman was not 

involved with any of the repairs or the Home’s construction. The policy issue in 

Brown was to prevent “future harm . . . by imposing liability on contractors who 

negligently construct houses.” Id. The same policy rationale does not exist when a 

limited and qualified home inspection is done for the sole benefit of a previous 

owner, especially when the subsequent owner did not rely on the previous home 

inspection and knows or should know of structural defects through the subsequent 

owner’s own inspection. Therefore, Brown is distinguishable.

[¶20.] It was not foreseeable that the Hayman Report would harm the 

Johnsons under the facts of this case. Both Limpert and Brown are distinguishable 

and do not aid the Johnsons in establishing a duty owed by Hayman. Consequently, 

the Johnsons are unable to show Hayman owed them a duty of care. Therefore, we 

hold the Johnsons were unable to make out a prima facie negligence claim, and we 

affirm.

[¶21.] 2. Whether reliance is a necessary element of a professional 

negligence claim.

[¶22.] The Johnsons claim that the circuit court added the element of 

reliance to the Johnsons’ professional negligence claim. The Johnsons argue that
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reliance is not a necessary element of professional negligence and that the circuit 

court’s alleged error is cause for reversal. Hayman counters that this Court has 

specifically included the need to establish reliance in a professional negligence case 

in order to extend liability beyond privity of contract. See Muhlenkort v. Union 

Cnty. Land Trust, 530 N.W.2d 658, 662-663 (S.D. 1995) (finding there must be some 

reliance on the part of the third party to find an abstractor liable in tort to the third 

party); Fisher Sand & Gravel Co., 1997 S.D. 8, ¶ 12, 558 N.W.2d at 867 (noting the 

policy concern in third-party negligence cases is to protect those who rely on the 

actions of others). Additionally, Hayman argues reliance is pivotal to the Johnsons’ 

negligence claim.

[¶23.] First, we note that the circuit court did not add “reliance” as an 

element to the Johnsons’ professional negligence claim. The circuit court’s analysis 

in its memorandum decision cites lack of reliance as an additional reason why 

Hayman did not owe a duty to the Johnsons, i.e., reliance was indicative of, but not 

necessary to, establishing a duty. Second, we discussed reliance in Muhlenkort

when we analyzed whether an abstractor owed a third party a duty of professional 

care. 530 N.W.2d at 662-63. We said, “To establish a duty on the part of the 

defendant, it must be foreseeable that a party would be injured by the defendant’s 

failure to discharge that duty.” Id. at 662. In analyzing foreseeability, we looked at 

the extent of an abstractor’s liability in relation to a third party’s reasonable 

reliance on the part of the professional. Id. We held, “[T]o hold an abstractor liable 

in tort to a third party there must be some reliance on the part of the third party[.]” 

Id. at 663. We followed the Florida Supreme Court’s rationale:
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When an abstract is prepared in the knowledge or under 

conditions in which an abstracter should reasonably expect that 

the employer is to provide it to third persons for purposes of 

inducing those persons to rely on the abstract as evidence of 

title, the abstracter’s contractual duty to perform the service 

skillfully and diligently runs to the benefit of such known third 

parties.

Id. (quoting 1st Am. Title Ins. Co. v. 1st Title Serv. Co. of the Fla. Keys Inc., 457 So.

2d 467, 472 (Fla. 1984)). Thus, we extended an abstractor’s duty of professional 

care to foreseeable third parties who rely on an abstractor’s professional report. Id. 

However, we did not hold that reliance is an element of professional negligence. See 

id. Reliance is helpful in analyzing foreseeability and, thus, duty, but it is not an 

element of a professional negligence claim. See id.; Fisher Sand & Gravel Co., 1997 

S.D. 8, ¶ 12, 558 N.W.2d at 867. The circuit court analyzed reliance and 

foreseeability consistent with this approach.

[¶24.] In this case, Hayman could not reasonably expect a subsequent 

purchaser of the Home to rely on its visual inspection when Fannie Mae hired 

Hayman strictly for its benefit. The Johnsons were not “known” to Hayman, and 

the Hayman Report did not induce the Johnsons to buy the Home. The Johnsons 

were not aware of the Hayman Report prior to purchase, they had their own 

inspection done before they bought the Home, they could have voided the purchase 

agreement pending the results of their own inspection, and they were aware of the 

Home’s structural problems prior to purchase. Hayman could not reasonably expect 

the Report that it prepared solely for the benefit of Fannie Mae to be used (and

which, in fact, was not used) by a subsequent purchaser.
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[¶25.] Lastly, we note reliance is an element of negligent misrepresentation,

see Kahler, 2002 S.D. 30, ¶ 10, 641 N.W.2d at 126, which in some cases, may also be 

asserted in addition to a professional negligence claim. However, negligent 

misrepresentation was not pleaded or argued in this case.3 The two causes of action 

are different and distinct from one another.

Conclusion

[¶26.] Hayman did not owe a professional duty to the Johnsons because they 

did not suffer a foreseeable harm stemming from Hayman’s alleged negligence. 

Consequently, the Johnsons’ professional negligence claim fails for want of a duty. 

We affirm the circuit court’s grant of summary judgment.

[¶27.] GILBERTSON, Chief Justice, and ZINTER, SEVERSON, and KERN, 

Justices, concur.

 

3. In Hayman’s reply brief, Hayman argues the Johnsons’ professional 

negligence claim is actually a mislabeled negligent misrepresentation claim. 

However, as the Johnsons point out, they asserted a professional negligence 

claim, and Hayman cannot dictate the theory upon which the Johnsons make 

their case.