Opinion ID: 2640748
Heading Depth: 2
Heading Rank: 3

Heading: The AOAO's Intentional and Negligent Misrepresentation Claims

Text: The AOAO next maintains that the circuit court erred in granting summary judgment in favor of Royal, Lee, and Liu on the AOAO's intentional and negligent misrepresentation claims. [22] The AOAO contends that the circuit court erred in ruling that it lacked standing to bring its misrepresentation claims. The AOAO also asserts that: (1) Royal, Lee, and Liu's pecuniary interest was sufficient to establish a duty; (2) liability is not limited to the source of the misleading information; and (3) the misrepresentation was false and related to an existing condition. (Capitalization in original omitted.) Royal and Lee contend that the AOAO lacks standing to bring its misrepresentation claims. Moreover, Royal and Lee argue, inter alia, that: (1) they did not owe any duty to the AOAO; (2) they did not make any representations to the AOAO nor did they prepare the Compaction Report that allegedly contains a misrepresentation; and (3) there was no justifiable reliance by the AOAO on any alleged misrepresentations. Liu contends that there is no evidence of an alleged misrepresentation by Liu in the entire record. (Capitalization in original omitted.) Inasmuch as every court must determine as a threshold matter whether it has jurisdiction to decide the issues presented, Akinaka v. Disciplinary Bd. of the Hawaii Supreme Court, 91 Hawai`i 51, 55, 979 P.2d 1077, 1081 (1999) (internal quotation marks and citation omitted), we first address Royal's and Lee's contention that the AOAO lacks standing to bring its misrepresentation claims.
The AOAO alleges that it has standing, pursuant to HRS § 514A-93, to bring its misrepresentation claims. The AOAO argues that Royal's and Lee's reliance on Hawaii's Thousand Friends v. Anderson, 70 Haw. 276, 768 P.2d 1293 (1989), at the circuit court level was misplaced in light of the fact that HRS § 514A-93 unequivocally confers to the [AOAO] authority to sue on behalf of `two or more apartment owners as their respective interest may appear[.]' (Second set of brackets in original.) The AOAO claims that this case seeks redress not only for individual injuries but primarily for damage to common areas. HRS § 514A-93 authorizes suit with respect to any cause of action relating to the common elements or more than one apartment. Individual owner participation is not required. Moreover, the AOAO argues that [o]ther jurisdictions authorize associations to sue on behalf of its members for misrepresentation and fraud. (Citations omitted.) Royal and Lee, on the other hand, contend that the AOAO lacks standing to bring its misrepresentation claims, alleging that Hawaii's Thousand Friends presents a virtually identical situation with the circumstances in this case. Moreover, Royal and Lee argue that courts in other jurisdictions have concluded that condominium associations lack standing to sue on behalf of individual condominium owners when the relief requested requires the individual participation of the members in the lawsuit. (Citations omitted.) In Hawaii's Thousand Friends, then-Mayor Frank Fasi directed his administration to embark on a study of available locations in central O`ahu for a city-developed housing project, pursuant to authority granted by the legislature in HRS §§ 359G-4.1 and 46-15.1. 70 Haw. at 278, 768 P.2d at 1296. The study revealed that the Waiola Estate lands were ideal for the proposed housing development. Id. Hawaii's Thousand Friends (HTF), a non-profit corporation, learned of the proposed development through a series of public advertisements that touted the then-City and County of Honolulu Managing Director's efforts in the project. Id. at 279, 768 P.2d at 1296. Thereafter, HTF commenced an investigation into the Waiola Estate project, concerned that the proposed project was to be situated on land that was designated as agricultural in the State Development Plan. Id. at 279, 768 P.2d at 1297. HTF ultimately filed suit, and the State defendants unsuccessfully moved for partial summary judgment based on HTF's lack of standing. Id. at 280, 768 P.2d at 1297. Eventually, the case went to trial on HTF's third amended complaint, wherein it alleged, among other things, that the State defendants had made numerous misrepresentations in the advertisements[.] Id. The jury returned a verdict in favor of HTF in the amount of $482,921. Id. On appeal, the State defendants raised, inter alia, the issue of HTF's standing. Id. at 281, 768 P.2d at 1298. This court held that HTF lacked standing to bring suit, explaining that: HTF allege[d] that some of its members who may qualify for low- and moderate-income housing were misled by the ads and suffered injury thereby. This suit, however, is brought by HTF, the corporation, not by the members of HTF individually. [This court has] in the past recognized suits brought by non-profit organizations on behalf of their membership. In those cases, however, the injury alleged by the organization was suffered by the membership in general. More importantly, the remedy which could be provided to the organization by a favorable judicial decision would also remedy the injury suffered by the members individually. The situation in this case is different. The injury arising out of the misrepresentation is not alleged to have been suffered by the HTF membership in general. Rather, very few of HTF's members were injured in this way. The injury suffered by these few is a very personalized injury. Each member who claims to have been misled would have undertaken different actions upon reliance on the misrepresentation. The resultant injury, therefore, would be different for each person. Moreover, the remedy which could be awarded to the HTF organization would not compensate each of the members who incurred personal damages as a result of [the State] defendants' misrepresentations. Id. at 284-85, 768 P.2d at 1299-1300 (citation omitted). Relying on Hawaii's Thousand Friends, Royal and Lee claim that: Like the injury alleged by the corporation[, i.e., HTF,] in Hawaii['s] Thousand Friends, the injury arising out of the alleged misrepresentations in this case is not alleged to have been suffered by the AOAO's membership in general. The AOAO is asserting its misrepresentation claims on behalf of individual apartment owners, not its membership in general. The alleged resultant injuries are different for each apartment owner. Because the alleged injuries are personalized injuries, the AOAO lacks standing to bring its misrepresentation claims. (Citations omitted.) Royal further asserts that: [T]he AOAO is asserting claims for substantial damages on behalf of individual apartment owners. However, the AOAO will require the participation of the individual apartment owners to pursue its misrepresentation claims. Thus, the participation of individual apartment owners is critical to the AOAO's position, but fatal to the AOAO's assertion of associational standing for the purposes of its misrepresentation claims. Royal and Lee, however, fail to address the AOAO's contention that HRS § 514A-93 statutorily authorizes the AOAO (by its board of directors) to bring its misrepresentation claims on behalf of the individual apartment owners in the circumstances of the instant case. HRS § 514A-93 provided in relevant part: Without limiting the rights of any apartment owner, actions may be brought by the manager or board of directors, in either case in the discretion of the board of directors on behalf of two or more of the apartment owners, as their respective interests may appear, with respect to any cause of action relating to the common elements or more than one apartment. (Emphases added.) Other jurisdictions have interpreted similar provisions as HRS § 514A-93 in determining whether condominium or homeowners associations have standing to bring misrepresentation or fraud claims on behalf of apartment owners or homeowners. In Brickyard Homeowners' Ass'n Management Committee v. Gibbons Realty Co., 668 P.2d 535 (Utah 1983) [hereinafter, Brickyard Homeowners' Ass'n ], the management committee of the Brickyard Homeowners' Association (the management committee) brought suit against the defendants, who designed, constructed, marketed, and sold the Brickyard Condominiums. Id. at 536. The management committee's complaint alleged, inter alia, misrepresentation, claiming that the defendants falsely represented that the glass installation in the atriums in the C units were double pane insulated and that the walkways around reflection ponds and other common areas would be landscaped and fully maintained. Id. The defendants unsuccessfully moved to dismiss the management committee's complaint based on failure to state a claim for relief and for lack of standing and/or capacity to sue. Id. Thereafter, the Utah Supreme Court (the court) granted the defendants' petition for interlocutory appeal. Id. at 536-37. On appeal, the court was faced with interpreting Utah Code Annotated (UCA) § 57-8-33 (1953), which provides in relevant part: Without limiting the rights of any unit owner, actions may be brought by the manager or management committee, in either case in the discretion of the management committee, on behalf of two or more of the unit owners, as their respective interests may appear, with respect to any cause of action relating to the common areas and facilities or more than one unit. Id. at 538 (emphasis added). Preliminarily, the court determined that the management committee's complaint, which was filed on behalf of the members of the Brickyard Homeowners' Association under and by virtue of [UCA] § 57-8-33[,] id. at 540-41 (internal quotation marks and citation omitted), squarely falls within the statutory prescription that action be brought on behalf of two or more unit owners and that it relate to the common areas and facilities or more than one unit. Id. at 541. The court then stated that it must determine whether the management committee has standing to sue on the particular causes of action stated in the complaint, or whether some of the claims have an individual nature which prevents the committee from suing on behalf of the unit owners collectively. Id. at 542. The court concluded that none of the claims made on behalf of the unit owners by the management committee, including the misrepresentation claim, were of such individual nature as to prevent the management committee from suing on behalf of the unit owners collectively, explaining that: [T]he defendants contend that the claim of misrepresentation . . . may not be brought by the management committee inasmuch as the claim is based upon each unit owner's negotiations with [the] defendants, and that individual inquiry is necessary to determine the reliance of each owner on any misrepresentation. We again reiterate that [UCA] § 57-8-33 is without restriction as to the type of action that may be brought by the management committee. Moreover, at this juncture in the lawsuit where only the [management committee's] complaint has been filed, the record affords us no clue as to what means the [management committee] intend[s] to use to prove the alleged misrepresentation and reliance. It is entirely conceivable that the [management committee] intend[s] to show a misrepresentation in a sales brochure or other advertising material which was presented to each of the unit owners when he expressed an interest in purchasing a unit, or by some other means which was common to all purchasers. The [management committee] in [its] brief hint[s] that this will be [its] approach since [it] state[s] that proof of misrepresentation to one owner will be proof to all. In that event, the testimony of all the complaining owners may not be necessary. However, we envision no insurmountable problems in the trial of this case even if the testimony of all the complaining owners is required. The allegations of misrepresentation relate only to the glass windows in the atriums in the C units and to the walkways around the reflection ponds in the common areas. Being so limited, the allegations would not require the testimony of more than a small fraction of the total number of unit owners. What we have just said with regard to the proving of the alleged misrepresentation is also true as to the proof of reliance of each unit owner on the alleged misrepresentation. Id. at 542-43 (emphasis added). Accordingly, the court held that it s[aw] no barrier for the management committee to pursue its action against the defendants on all causes of action[.] Id. at 543. In Sandy Creek Condominium Ass'n v. Stolt & Egner, Inc., 267 Ill.App.3d 291, 204 Ill.Dec. 709, 642 N.E.2d 171 (1994), the Sandy Creek Condominium Association, Inc. (the association) brought suit against the builders of the Sandy Creek Condominium development (the defendants), claiming, among other things, that the defendants committed fraud in making the following misrepresentations knowing them to be false or with reckless disregard of their truth or falsity: (1) the buildings were constructed in compliance with the condominium plans and specifications; and (2) the buildings were constructed in a good and workmanlike manner, free from defects, and in compliance with applicable standards. Id. at 174. At trial, the jury returned a verdict in favor of the association on its fraud claim, awarding $120,000 to the association. Id. at 174. On appeal, the defendants contended that the association lacked standing to bring its fraud claim. Id. at 175. The Illinois Appellate Court disagreed, stating that: The affairs of the [a]ssociation are statutorily controlled by the [Condominium Property] Act [(Act)]. Section 9.1 of the Act specifically states that  the board of managers of a condominium association shall have standing and capacity to act in a representative capacity in relation to matters involving the common elements or more than one unit, on behalf of the unit owners, as their interests may appear.  In its complaint, the [association] alleged that the defendants fraudulently misrepresented to unit owners that the buildings were constructed in substantial compliance with condominium plans and that the buildings were constructed in a good and workmanlike manner and free from defects. Although not all unit owners were affected by the allegedly fraudulent statements of the defendants, the Act statutorily grants the [a]ssociation standing to bring an action if more than one unit is affected. Id. at 175-76 (original brackets and citations omitted) (emphases added); see also Milton Co. v. Council of Unit Owners of Bentley Place Condo., 354 Md. 264, 729 A.2d 981, 983-84, 988-90 (1999) (holding that association had standing to sue for damages based on defects in multiple units, pursuant to Maryland Code Annotated (Md.Code Ann.), Real Prop. § 11-109(d)(4) (1974 & 1996 Repl. Vol.), [23] notwithstanding allegations that damages were unique to individual unit owners, no individual unit owner was named as a party to the suit, and only a few of the 240 unit owners testified at trial); Stony Ridge Hill Condo. Owners Ass'n v. Auerbach, 64 Ohio App.2d 40, 410 N.E.2d 782, 785-86 (1979) (determining that association, on behalf of all unit owners and for each of them, was proper party to bring action for damages for fraudulent misrepresentation pertaining to the common area pursuant to Ohio Revised Code (ORC) § 5311.20, [24] despite the fact that only four of the twenty-four unit owners testified that they sustained damages as a result of the alleged misrepresentations). As previously stated, the AOAO's amended complaint alleged the following with respect to its misrepresentation claims: 12. The representation contained in the []Compaction Report[] that the Newtown Meadows was compacted adequately was false and known by the [D]efendants to be false. 13. Despite the [D]efendants' knowledge, . . . the apartments at the Newtown Meadows were sold to members of the [AOAO] without disclosing the known inadequacies and deficiencies in the compaction of fill materials supporting the building structures of the Newtown Meadows. 14. As a result of the foregoing, among other things, the buildings and foundations at Newtown Meadows have shifted, settled and cracked, causing damage to the buildings and apartments contained therein. On appeal, the AOAO maintains that the present case seeks redress not only for individual injuries but primarily for damages to common areas. Although not entirely clear, it appears that the parties do not dispute that the AOAO's misrepresentation claims relate to the common areas and facilities or more than one unit at Newtown Meadows. As such, the AOAO's misrepresentation claims squarely fall[,] Brickyard Homeowners' Ass'n, 668 P.2d at 541, within the scope of HRS § 514A-93 inasmuch as section 514A-93 plainly stated that actions may be brought on behalf of two or more of the apartment owners . . . with respect to any cause of action relating to the common elements or more than one apartment. Indeed, HRS § 514A-93 is without restriction as to the type of action that may be brought by the board of directors. Moreover, unlike the AOAO's unfair or deceptive acts or practices claims, which are specifically governed by the restrictions contained in HRS § 480-2, the parties do not refer to any statute that would similarly govern the AOAO's misrepresentation claims. Furthermore, even assuming arguendo that not all apartment owners were affected by the alleged misrepresentations, HRS § 514A-93 statutorily authorizes the board of directors to bring an action on behalf of two or more apartment owners. See Sandy Creek Condo. Ass'n, 204 Ill.Dec. 709, 642 N.E.2d at 175-76. Lastly, the authorities relied on by Royal and Lee to support their contention that condominium associations lack standing to sue on behalf of individual apartment owners when the relief requested requires the participation of the individual owners in the lawsuit are distinguishable from the present case. See Mission Hills Condo. Ass'n M-1 v. Corley, 570 F.Supp. 453, 459 (N.D.Ill.1983) (concluding that associations lack standing to bring a claim for damages pursuant to section 4 of the Clayton Act, 15 U.S.C. § 15, because section 4's damage provision expressly restricts suit to any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws and the associations had not been injured in their business or property (internal quotation marks and brackets omitted)); Bds. of Managers of Dunbar Lakes Condos. v. Dunbar Homes, Inc., No. 84C5391, 1985 WL 1379, at  (N.D.Ill. May 15, 1985) (unreported) (concluding that proof of damages to non-common areas requires individual owners to participate without any discussion of section 9.1 of the Illinois Condominium Property Act as applied in Sandy Creek Condominium Ass'n (citation omitted)); Lakeview Townhomes Condo. Ass'n v. E. Fla. Dev. Corp., 454 So.2d 576, 578 (Fla.Dist.Ct.App. 1984) (concluding that a class action by an association . . . will not lie for alleged fraud on its individual members (citations omitted)). Accordingly, we hold that the AOAO has standing to bring its misrepresentation claims in the circumstances of this case. We next address whether the AOAO established reliance on the alleged misrepresentation contained in the Compaction Report, a necessary element to its negligent and intentional misrepresentation claims against Royal, Lee, and Liu.
The AOAO asserts, without any citation to the record, that the Newtown Meadows home purchasers relied on the Building Department's approval of the [P]roject, which was based on the false and misleading Compaction Report. Royal argues that, absent a showing that the AOAO at least received a copy of the Compaction Report prior to the filing of this action or that Royal made representations to the AOAO regarding the soils or the compaction of the fill at [Newtown Meadows], there simply cannot be any reliance on the part of the AOAO. Lee argues that: [T]he AOAO has not alleged reliance upon the alleged misrepresentation. The AOAO's attempt to gloss over its lack of reliance is telling, as the AOAO's claim of negligent misrepresentation cannot be sustained without a showing of reliance. The AOAO alleges only that members of the [AOAO] bought apartments, not that the AOAO, or even its members for that matter, relied upon any alleged misrepresentation. The AOAO does not contend that its members ever saw either report prepared by Geolabs[, i.e., the Grouting Report and the Compaction Report,] prior to purchasing apartments [at Newtown Meadows]. We have previously indicated that: Negligent misrepresentation requires that: (1) false information be supplied as a result of the failure to exercise reasonable care or competence in communicating the information; (2) the person for whose benefit the information is supplied suffered the loss; and (3) the recipient relies upon the misrepresentation. See Kohala Agriculture[ v. Deloitte & Touche, ] 86 Hawai`i [301,] 323, 949 P.2d [141,] 163 [(App. 1997)]; Restatement (Second) of Torts § 552 [(1977)]. Blair v. Ing, 95 Hawai`i 247, 269, 21 P.3d 452, 474 (2001) (emphasis added). This court has set forth the following elements constituting intentional or fraudulent misrepresentation: (1) false representations were made by defendants[;] (2) with knowledge of their falsity (or without knowledge of their truth or falsity)[;] (3) in contemplation of plaintiff's reliance upon these false representations[;] and (4) plaintiff did rely upon them. Shoppe v. Gucci Am., Inc., 94 Hawai`i 368, 386, 14 P.3d 1049, 1067 (2000) (citations omitted) (emphasis added). Here, the AOAO does not point to any evidence in the record that indicates there was any reliance by the AOAO (or its members) on the allegedly false and misleading statement in the Compaction Report that soil compaction was adequate, which, according to the AOAO, is [t]he actual basis of [its] misrepresentation claim[.] Consequently, we conclude that there is no genuine issue of material fact as to whether there was any reliance by the AOAO (or its members) on the alleged misrepresentation in the Compaction Report. Cf. Gouveia v. Citicorp Person-to-Person Fin. Ctr., Inc., 101 N.M. 572, 686 P.2d 262, 268 (N.M.Ct.App.1984) (concluding that issue of material fact existed as to whether purchaser of townhouse relied on listing broker's misrepresentation inasmuch as purchaser's deposition testimony indicated reliance on the misrepresentation). Moreover, to the extent that the AOAO argues that the Building Department's purported reliance on the Compaction Report in approving the Newtown Meadows project may be imputed to it (or its members) in order to permit the AOAO to maintain its misrepresentation claims, we reject such an argument. See Plourde Sand & Gravel Co. v. JGI E., Inc., 154 N.H. 791, 917 A.2d 1250, 1258 (2007) (refusing to expand the elements of negligent misrepresentation to include a scenario where reliance by anyone directly or indirectly involved may be imputed to the plaintiff so as to permit the plaintiff to maintain a negligent misrepresentation claim) (emphasis in original). Furthermore, it should be pointed out that it is not entirely clear from the AOAO's opening brief whether the AOAO is arguing an additional basis for its misrepresentation claims against Liu. According to the AOAO's opening brief, [n]o disclosure was made regarding deficiencies in the construction of the concrete floor slabs, which did not conform to minimum Building Code requirements of the project specifications [for Newtown Meadows]. Ultimately, the Newtown Meadows apartments were sold without disclosure of the serious soil compaction and floor slab deficiencies. Throughout the initial investigation, the Defendants withheld and/or failed to disclose any of the known information regarding the soil compaction deficiencies or the deficient floor slabs. (Emphases added.) Although the AOAO claims that the Defendants withheld information regarding the purportedly deficient floor slabs, it would appear that only Liu, and not Royal or Lee, would be liable for any apparent non-disclosure regarding the deficient floor slabs inasmuch as Liu was the masonry subcontractor that constructed the floor slabs for the Project. In its reply brief, the AOAO asserts, without any citation to the record, that it relied on Liu's misrepresentation that it had completed [its] work satisfactorily. [25] Again, the AOAO does not point to any evidence in the record that indicates that there was any reliance by the AOAO (or its members) on Liu's purported misrepresentation. Nonetheless, relying on Wong v. City & County of Honolulu, 66 Haw. 389, 665 P.2d 157 (1983), the AOAO raises on appeal that the Defendants' destruction of documents[, discussed infra, ] should have precluded summary judgment. (Capitalization altered.) Specifically, the AOAO argues that Defendants should not have been granted summary judgment on [the AOAO's] misrepresentation claim where Defendants' destruction of documents should have created an evidentiary presumption in favor of [the AOAO]. In Wong, a pedestrian was struck by an automobile while attempting to cross an intersection controlled by malfunctioning traffic lights. Id. at 390-91, 665 P.2d at 159. The pedestrian brought suit against the City and County of Honolulu (the City), alleging that the City's negligent failure to properly maintain the traffic signal control box was the legal cause of the accident. Id. at 391, 665 P.2d at 159. Despite informal and formal requests for production of the control box, a private contractor, under the supervision of City employees, subsequently removed and destroyed the control box without the pedestrian's knowledge or consent. Id. Consequently, the trial court imposed a preclusion sanction, whereby the City was estopped from claiming that the malfunctioning traffic lights were caused by anything other than its own negligence, which sanction was upheld on appeal by this court. Id. at 396, 665 P.2d at 162-63. In this case, the destruction of Royal's, Lee's, and Liu's documents at issue occurred prior to the initiation of the instant action. According to Royal, it was discovered subsequent to the initiation of the present action that Royal's records pertaining to Newtown Meadows were either destroyed by termites, rain, or were discarded. Lee's vice-president testified in her deposition that Lee normally keep[s] the records for seven years. Inasmuch as Lee's participation in the construction of Newtown Meadows concluded sometime in the late 1980s, the documents were apparently destroyed prior to the time the AOAO filed its complaint in 1997. And, according to Liu, Liu's records relating to Newtown Meadows were destroyed in a fire in or about 1989. Inasmuch as key to [this court's] holding in Wong was[, inter alia, ] . . . the City's culpability in destroying a piece of potentially critical evidence formally requested in discovery[,] Richardson v. Sport Shinko (Waikiki Corp.), 76 Hawai`i 494, 507, 880 P.2d 169, 182 (1994), yet the destruction of Royal's, Lee's, and Liu's documents at issue occurred prior to the initiation of the instant action, the AOAO's reliance on Wong is without merit. [26] Accordingly, we hold that the circuit court did not err in granting summary judgment in favor of Royal, Lee, and Liu on the AOAO's misrepresentation claims.