Opinion ID: 2516001
Heading Depth: 1
Heading Rank: 10

Heading: Claims against Defendant BHJ, Inc.

Text: [¶ 51] The Hulses appeal the district court's grant of summary judgment for the defendant BHJ, Inc., a licensed real estate brokerage, for the acts of its agent Amory Hubbard on claims they label negligent misrepresentation and fraud. We take this opportunity to clarify the duties owed by licensed real estate brokers, agents, and salespersons and the causes of action that may arise as a result of an alleged breach of those duties. [¶ 52] The Hulses assert a claim of negligent misrepresentation against defendant BHJ, Inc. citing Restatement (Second) Torts § 552. In Richey v. Patrick , a case involving claims by purchasers of real property against lay sellers, we discussed the tort of negligent misrepresentation as found in the Restatement and stated that in order for there to have been a negligent misrepresentation, the plaintiff must show that [o]ne who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information. Richey, 904 P.2d 798, 802 (Wyo.1995). [¶ 53] In Richey, we found that the sellers had not supplied false information, as required by the claim, because the sellers had not supplied any information to the purchasers. We said, [a] nondisclosure of information cannot support a claim of misrepresentation; since nothing has been represented, an essential element of the claim is missing. Id. at 802 (citing Burman v. Richmond Homes, Ltd., 821 P.2d 913, 919 (Colo.App.1991)). We went on to hold that the crux of the purchasers' complaint was that the sellers should have informed them of a material fact, they owed a duty to do so, and it was this nondisclosure that caused the plaintiff's damage. In Richey, we then clarified that the appropriate claim was one for negligent nondisclosure as found within Restatement (Second) Torts § 551. However, we declined to apply the Restatement section to the plaintiffs' claim because we reasoned that the as is clause contained within the purchase contract signed by the sellers and purchasers placed the risk of discovery of adverse material facts upon purchasers of real estate. Thus, we recognized the relationship between the parties was essentially contractual and held that when a contract places the burden on the purchaser to discover defects, they are barred from seeking relief for negligent nondisclosure. [¶ 54] Likewise, in our recent case of Snyder v. Lovercheck , we addressed as an issue of first impression whether a purchaser of realty could even bring a claim of negligent misrepresentation, a tort action, against a seller when the relationship between the parties arises in contract. Again, we held that the contractual relationship is controlling. When purchasers of realty sign contracts with disclaimers and merger clauses stating that the purchaser is not relying on the representations of the sellers or their agents as to the condition of the property, the contract has allocated the risks of loss resulting from the purchaser's reliance on the seller's representations to the purchaser. In reasoning to our ultimate conclusion, this court had an extended discussion of the distinction between duties arising by tort and those arising by contract. We said: Tort law proceeds from a long historical evolution of externally imposed duties and liabilities. Contract law proceeds from an even longer historical evolution of bargained-for duties and liabilities. The careless and unnecessary blanket confusion of tort and contract would undermine the carefully evolved utility of both. In tort, the legislatures and the courts have set the parameters of social policy and imposed them on individual members of society without their consent. The social policy in the field of contract has been left to the parties themselves to determine, with judicial and legislative intervention tolerated only in the most extreme cases. Where there has been intervention, it has been by the application of well established contract doctrines, most of which focus on threats to the integrity of the bargaining process itself such as fraud or extreme imbalance in bargaining power. Snyder v. Lovercheck, 992 P.2d at 1087. [¶ 55] As illustrated by our holdings in Richey and Snyder, this court continues to value the freedom to contract between sellers and purchasers of realty. We recognize that the parties to the contract may allocate the risks of loss as they so choose. Having done so, absent proof of fraud, we generally allow the unambiguous language found in the parties' contract to control the scope of subsequent litigation. We have been exceedingly reluctant to introduce tort principles into claims that are essentially contract actions. [¶ 56] However, this court's jurisprudence reflects that the inverse rule is likewise valid. Contract principles that govern the parties to a contract are not controlling on claims against nonparty professionals whose duties arise in tort. Our precedent reveals a recognition that tort duties and liabilities imposed by the legislatures and courts are supported by underlying social policies which require the imposition of obligations on a defendant to act reasonably for the protection of a plaintiff. By imposing tort duties, courts and legislatures have externally allocated the risks arising from certain relationships for the protection of the public. Having done so, individual parties are limited in shifting those burdens from the obligor to the obligee by private action. [¶ 57] At this point in time, there can be no doubt that licensed professional real estate agents and brokers are a class of persons on whom the law has imposed affirmative tort duties. Two decades ago this court stated in Hagar v. Mobley : Real estate brokers and salesmen are licensed by the State of Wyoming and required to meet high standards of honesty, integrity, trustworthiness and competency. Theirs is a regulated profession. Failure to satisfy those standards is ground for suspension or revocation of a real estate broker's or salesperson's license. An act licensing real estate agents must be construed in the light of an obvious purpose of protecting the public in the handling of important and valuable transactions relating to real property. As a result, such an agent does not stand in the same shoes of a lay vendor. Such realtors owe the vendee the same duties of integrity owed the public at large. They must be honest, trustworthy and competent. Hagar v. Mobley, 638 P.2d 127, 136 (Wyo.1981) (emphasis added and citation omitted). In Hagar, we cited with approval the reasoning of the Utah Supreme Court reversing the dismissal of a claim against a realtor: In this state, it is apparent that the rule of caveat emptor does not apply to those dealing with a licensed real estate agent. Though not occupying a fiduciary relationship with prospective purchasers, a real estate agent hired by the vendor is expected to be honest, ethical, and competent and is answerable at law for breaches of his or her statutory duty to the public. Hagar, 638 P.2d at 137 (quoting Dugan v. Jones, 615 P.2d 1239, 1248 (Utah 1980)). [¶ 58] Furthermore, we cited with approval the Montana Supreme Court's then recent holding that real estate brokers have, like other professionals, certain standards of care which must be satisfied. We said that the Montana court observed that the failure to maintain those standards of skill, competency, and integrity exposes realtors to, in effect malpractice actions. Hagar, 638 P.2d at 137 (citing McCarty v. Lincoln Green, Inc., 190 Mont. 306, 620 P.2d 1221, 1225 (1980)). This court went on to state that we may exact a high standard of care from realtors and held that the standard of care for realtors may be adopted by the court from a legislative enactment. Id. (citing Distad v. Cubin, 633 P.2d 167 (Wyo.1981)). We reiterated: Realtors, just like doctors, lawyers, engineering consultants, and builders, hold themselves out as professionals; it is their job to know their profession. People rely on and trust them. Failure to comply with either the accepted standards in the field or the standards society is willing to recognize as acceptable, is actionable. Hagar, 638 P.2d at 138. As to the question of damages, we held [t]he liability of real estate agents, brokers and salespersons, as in all actions predicated upon the failure to perform some duty, sounds in tort. In tort cases damages are generally awarded in order to compensate claimants for loss. The measure of damages is the amount which will compensate for all the detriment proximately caused by the breach of duty. Hagar, at 139. [¶ 59] Subsequent to our holding in Hagar, parties have apparently seized on the language within the opinion stating the duty of care as the broker is liable because of material representations of the principal if he repeats them and knows, or reasonably should know, of their falsity. Liability attaches in this context on grounds of negligence, id. at 137, and have asserted claims labeled negligent misrepresentation against both lay sellers and real estate brokers and agents. Negligent misrepresentation and negligent nondisclosure are generic tort actions found within the Restatement (Second) Torts §§ 552 and 551 respectively. These torts have specific elements and, as previously discussed, this court has addressed in various opinions whether to adopt and apply them to claims brought by plaintiffs against sellers of realty and real estate brokers and agents. See Richey v. Patrick, 904 P.2d 798 (Wyo.1995); Snyder v. Lovercheck, 992 P.2d 1079 (Wyo.1999); Sundown, Inc. v. Pearson Real Estate Co., Inc., 8 P.3d 324 (Wyo.2000). We have also addressed the effect of various exculpatory clauses on the above causes of action. At this juncture, we reaffirm all prior holdings and precedent as applied to lay vendors/sellers of real property and their agents or subagents, who are not licensed real estate professionals. [¶ 60] However, notwithstanding any subsequent confusion in formulating, titling, or deciding tort claims against licensed real estate professionals premised upon their duties imposed by statute, it is abundantly clear that Hagar contemplated that the claim was one of professional negligence. This is the holding that we expressly reaffirm by this decision. It is further supported by legislative enactments in 1997 by which the Wyoming Legislature essentially codified the court's holding in Hagar and went further to expand and clarify the duty of care owed by real estate professionals to parties when acting as seller's, buyer's or intermediary agents. See Wyo. Stat. § 33-28-303 (LexisNexis 2001) Seller's agent engaged by seller; Wyo. Stat. § 33-28-304 (LexisNexis 2001) Agent engaged by buyer; Wyo. Stat. Ann. § 33-28-305 (LexisNexis 2001) Intermediary. The Wyoming Legislature in 2000 adopted Wyo. Stat. § 33-28-124 Act, error or omission in the rendering of real estate services, which provides: A cause of action arising from an act, error or omission in the rendering of services provided by a licensee under this act shall be brought within the time limits provided under W.S. 1-3-107. Wyo. Stat. Ann. § 1-3-107 is the statute of limitations for claims of professional negligence. It is applicable to claims arising after the effective date of Wyo. Stat. Ann. § 33-28-124. [9] [¶ 61] As we held in Hagar, the court may adopt from legislative enactment a standard of care for realtors. Id., 638 P.2d at 137. Wyo. Stat. § 33-28-303(c) provides: A broker acting as a seller's agent owes no duty or obligation to the buyer, except that a broker shall disclose to any prospective buyer all adverse material facts actually known by the broker. The adverse material facts may include adverse material facts pertaining to the title and the physical condition of the property, any material defects in the property and any environmental hazards affecting the property which are required by law to be disclosed. The broker acting as a seller's agent shall not perpetuate a material misrepresentation of the seller which the broker knows or should know is false. [10] In Hagar we said that the facts necessary to be disclosed are those that are pivotal to the transaction from the buyer's perspective. Id. at 138 (quoting Tennant v. Lawton, 26 Wash.App. 701, 615 P.2d 1305, 1309-1310 (1980)). [¶ 62] Having hereby outlined what law is applicable to the liability of real estate brokers and salespersons, we note that the claims asserted by the plaintiffs, while labeled negligent misrepresentation, essentially assert a breach of the duty of care owed by real estate professionals to non-client buyers. However, as a reviewing court, we are not fact finders in the first instance. The district court's grant of summary judgment did not address the issue of whether BHJ, Inc.'s agent, Hubbard, exercised such care, skill, and diligence as others who are engaged in the profession would ordinarily exercise under similar circumstances in fulfilling the duties imposed upon him by statute. We, therefore, vacate the district court's grant of summary judgment to BHJ, Inc. on the issue of negligent misrepresentation and remand for a determination under the applicable standard consistent with the law we have herein set out. [¶ 63] The Hulses also appeal the district court's decision on their claims of fraud against BHJ, Inc. The district court held that the disclaimer section of the purchase sales agreement signed by the Hulses, which states they are not relying on any representations by the seller or the seller's agent about the property, acts as a bar to their claim. We recently held in Snyder v. Lovercheck , that such a disclaimer bars a claim for negligent misrepresentation; however, we held that buyers are not precluded, by either merger or disclaimer clauses, from asserting a claim for fraudulent misrepresentation if the misrepresentation occurred prior to execution of the contract. Snyder v. Lovercheck, 992 P.2d 1079, 1086 (Wyo.1999). The district court also premised its grant of summary judgment for defendant BHJ, Inc. on undisputed facts show[ing] that access problems did not result in any loss or damage to Plaintiffs. Reviewing the facts in the light most favorable to the plaintiffs, we would not affirm the district court's judgment on this ground. While the district court may have correctly concluded, as a matter of law, that the loss of the plaintiffs' ranch was proximately caused by their own failure to make mortgage payments to Moore, these are not the only damages alleged by the plaintiffs. Genuine issues of material fact on the issue of damages preclude summary judgment for the defendant on that ground. However, while the district court's decision on these issues was incorrect, it is well established that a district court judgment may be affirmed on any proper legal grounds supported by the record. Bird v. Rozier, 948 P.2d 888, 892 (Wyo.1997). [¶ 64] This court recently held in Richardson v. Hardin , to succeed on a claim of fraudulent misrepresentation, three elements must be established: First, the buyer must prove by clear and convincing evidence that the seller misrepresented a material fact; second, the buyer must establish that he relied upon the misrepresentations in entering into the contract and that such reliance was reasonable; and third, the buyer must demonstrate that he suffered injury as a result of his reliance upon the misrepresentation. Richardson v. Hardin, 5 P.3d 793, 797 (Wyo.2000) (citing Schepps v. Howe, 665 P.2d 504, 508 (Wyo.1983)). With regard to the reasonable reliance element, we recognized that the false representation must occur prior to the execution of the contract because, subsequent to the execution, the parties have the ability and obligation, pursuant to negotiated contract terms and the law, to allocate responsibility to inspect and investigate the property and its condition. Id. Here, as in Richardson, our review of the record discloses that the representations or concealment at issue occurred after the buy/sell contract was executed and the alleged defects could have been discovered through diligent enforcement of the buyer's contract right, or rights available by law, to inspect and investigate. We addressed a similar situation in Schepps, where we held that any misrepresentations made after the buy/sell contract was executed could not be the basis of actionable fraud because, as a matter of law, such misrepresentation could not serve as an inducement to the buyers to enter into the contract. Therefore, on the basis of this alternate ground, we will uphold the district court's grant of summary judgment to the defendant BHJ, Inc. on the plaintiffs' claims of fraud.