Court Opinion

ID: 9897235
Source: CourtListenerOpinion
Date Created: 2023-11-14 19:09:03.564067+00
Date Added: 2024-06-11T09:13:57.664655
License: Public Domain

FILED
                                                                        Oct 31 2023, 8:54 am

                                                                            CLERK
                                                                        Indiana Supreme Court
                                                                           Court of Appeals
                                                                             and Tax Court

ATTORNEY FOR APPELLANTS                                    ATTORNEY FOR APPELLEES
Kevin E. Werner                                            Joseph G. Bombagetti
Crown Point, Indiana                                       Kelly Law Offices LLC
                                                           Schererville, Indiana

                                            IN THE
    COURT OF APPEALS OF INDIANA

Zachary Zitzka and                                         October 31, 2023
Lauren Zitzka,                                             Court of Appeals Case No.
Appellants-Plaintiffs,                                     22A-PL-2867
                                                           Appeal from the
        v.                                                 Lake Superior Court
                                                           The Honorable
William Brogdon and                                        Bruce D. Parent, Judge
Jill Brogdon,                                              Trial Court Cause No.
Appellees-Defendants                                       45D11-1808-PL-265

                                  Opinion by Judge Vaidik
                               Judges Mathias and Pyle concur.

Court of Appeals of Indiana | Opinion 22A-PL-2867 | October 31, 2023                            Page 1 of 12
      Vaidik, Judge.

      Case Summary
[1]   Indiana’s residential real-estate sales-disclosure statutes, found at Indiana Code

      chapter 32-21-5, require sellers of certain residential real estate to complete and

      provide to prospective buyers a form that discloses the condition of key parts of

      the property. Here, Zachary and Lauren Zitzka (“the Buyers”) bought a house

      from William and Jill Brogdon (“the Sellers”). The Buyers later sued the Sellers

      for fraudulent misrepresentation, alleging they had failed to disclose a structural

      problem on their disclosure form. A jury trial was held, and the jury was

      instructed, in part, that the Buyers were required to use reasonable care in

      guarding against fraud, meaning be careful and use good judgment and

      common sense. The jury found for the Sellers, and the trial court ordered the

      Buyers to pay the Sellers’ attorney’s fees.

[2]   The Buyers appeal. Their main argument is that the disclosure statutes

      eliminated the element of reasonable reliance for fraudulent-misrepresentation

      claims based on disclosure forms and that the trial court erred by instructing the

      jury that the Buyers had to act reasonably. They cite our Supreme Court’s

      decision in Johnson v. Wysocki, 990 N.E.2d 456 (Ind. 2013). But in Johnson, the

      Court didn’t hold that the disclosure statutes eliminated the reasonable-reliance

      element. The Court held that the statutes establish a presumption that buyers

      reasonably rely on disclosure forms—a presumption that is rebuttable.

      Therefore, the trial court did not err in instructing the jury, and we affirm the

      Court of Appeals of Indiana | Opinion 22A-PL-2867 | October 31, 2023       Page 2 of 12
      jury’s verdict. We also affirm the fee award as to Zachary, but we reverse it as

      to Lauren.

      Facts and Procedural History
[3]   The Buyers bought the Sellers’ house in 2017. (Lauren was not listed as a buyer

      on the Purchase Agreement and did not sign it, but she was involved in the

      purchasing process and was included on the deed and certain closing

      documents.) The house has a three-season room that was added in 1988. A

      corner of the room had sunk about four inches over the years, causing the floor

      of the room to slope and putting stress on the rest of the room, including the

      windows. The Buyers hoped to convert the room to a four-season room, but

      shortly after closing they were told that an upgrade wasn’t possible because of

      the sloping and that if they wanted a four-season room, they would have to start

      from scratch.

[4]   Several months later, the Buyers sued the Sellers. As relevant to this appeal, the

      Buyers alleged the Sellers made a fraudulent misrepresentation on their

      statutorily required Seller’s Residential Real Estate Sales Disclosure (“the

      Disclosure Form”) when they answered “No” to the question “Are there any

      structural problems with the building?” Appellants’ App. Vol. II p. 43.

      Specifically, the Buyers claimed that the sinking and sloping of the three-season

      room was a “structural problem” that should have been disclosed.

      Court of Appeals of Indiana | Opinion 22A-PL-2867 | October 31, 2023      Page 3 of 12
[5]   A jury trial was held. The Buyers testified that they visited the house three times

      before buying it and had an inspection done but didn’t learn about the sloping

      of the three-season room until after closing. The Buyers also called Doug

      Homeier, an engineer, and James Henry, a contractor, both of whom testified

      about the sloping of the three-season room. On cross-examination, Homeier

      was asked, “[W]hat effects of the sinking were visible to you during your

      inspection that could have been noticed by the average person, if any?” Tr. Vol.

      II p. 235. He answered:

              Looking at the three season’s room from the inside you could
              easily see on the south end there that all the windows were
              skewed. I mean greatly skewed. Visually you could just see the
              floor sank. I think a lay person could easily walk in there and say,
              this thin[g] sank. To me, it was very evident right off the bat that
              that corner had sank.

      Id.

[6]   The Sellers asked the court to give Indiana Model Civil Jury Instruction 3109,

      which addresses the reasonable-reliance element of fraudulent

      misrepresentation, as follows: “Zachary and Lauren Zitzka must use reasonable

      care in guarding against fraud. Reasonable care means being careful and using

      good judgment and common sense.” Appellants’ App. Vol. II p. 63. The Sellers

      argued:

              There’s factual reliance and the right of reliance. Obviously, the
              disclosure form statute gives a buyer a right to rely. But then, that
              still leaves open the question of the fact of reliance and to what
              degree a Plaintiff actually relied and to what degree they were

      Court of Appeals of Indiana | Opinion 22A-PL-2867 | October 31, 2023        Page 4 of 12
        actually able to rely based upon what was there. And that would
        be reasonable care and guarding against fraud, reasonable care,
        good sense, and common judgment.

        For example, if I were to try and sell you my car and clearly
        looked like a jalopy and I tell you that it’s perfect car, that’s an
        act – a position where this applies, your Honor. You still have to
        use common sense.

Tr. Vol. III pp. 35-36. The Buyers’ attorney objected as follows:

        [Model Instruction] 3109 is inappropriate in this case because
        this involves a residential real estate disclosure act violation. In
        [Johnson v. Wysocki, 990 N.E.2d 456 (Ind. 2013)], our Supreme
        Court indicated that in creating a statutory list of things that must
        be disclosed that the general assembly – it represents the general
        assembly’s reasonable presumption of what would otherwise be
        the materiality and the reasonable reliance elements that exist in
        ordinary suits for common law fraudulent misrepresentation.
        Therefore, the element of reliance and the reasonableness of that
        reliance is subsumed within the statute.

                                       *        *       *        *

        I believe that this is an incorrect statement of [] law as it applies
        to Real Estate Disclosure Act claims based on the Supreme
        Court’s decision in Johnson v. Wysocki. I think that this is adding
        an element to my clients’ claims and adding a burden to my
        clients that doesn’t exist under the statute as interrupted [sic] by
        the Supreme Court.

Court of Appeals of Indiana | Opinion 22A-PL-2867 | October 31, 2023            Page 5 of 12
      Id. at 36-37. The trial court overruled the Buyers’ objection, finding that the

      instruction is a correct statement of law, was not covered by other instructions,

      and “fits the facts.” Id. at 36. The court added:

              [T]his is the fourth element that really doesn’t exist but I always
              try to view both of the arguments – that both of you make and
              this is [the Sellers’] case[.] This is what [the Sellers have] been
              arguing from the beginning. I think it fits and so I’m going to
              permit 3109.”

      Id.

[7]   After being instructed and hearing closing arguments, the jury returned a

      general verdict for the Sellers. The Sellers then moved for an award of

      attorney’s fees under Paragraph U of the Purchase Agreement, which provides:

      “Any party to this Agreement who is the prevailing party in any legal or

      equitable proceeding against any other party brought under or with relation to

      the Agreement or transaction shall be additionally entitled to recover court

      costs and reasonable attorney’s fees from the non-prevailing party.” Appellants’

      App. Vol. II p. 40. The trial court granted the motion and ordered the Buyers to

      pay the Sellers $80,770.

[8]   Buyers now appeal.

      Court of Appeals of Indiana | Opinion 22A-PL-2867 | October 31, 2023          Page 6 of 12
       Discussion and Decision
       I. Jury Instruction
[9]    Buyers contend the trial court erred by giving Indiana Model Civil Jury

       Instruction 3109. They argue it “was not a correct statement of law in this

       circumstance.” Appellants’ Br. p. 22. This is a question of law we review de

       novo. Fechtman v. U.S. Steel Corp., 994 N.E.2d 1243, 1247 (Ind. Ct. App. 2013),

       trans. denied.

[10]   Again, Model Instruction 3109 was given as follows: “Zachary and Lauren

       Zitzka must use reasonable care in guarding against fraud. Reasonable care

       means being careful and using good judgment and common sense.” The Buyers

       do not dispute that this instruction is generally appropriate when a jury is

       presented with a fraud claim, the elements of which are: (1) the defendant made

       a representation of past or existing fact; (2) the representation was false; (3) the

       defendant made the representation with knowledge of or reckless disregard for

       the falsity; (4) the plaintiff reasonably relied on the misrepresentation; and (5)

       the plaintiff was harmed by the reliance. Heyser v. Noble Roman’s Inc., 933

       N.E.2d 16, 19 (Ind. Ct. App. 2010), reh’g denied, trans. denied; see also Morgan v.

       Dickelman Ins. Agency, Inc., 202 N.E.3d 454, 465 (Ind. Ct. App. 2022), trans.

       denied. Model Instruction 3109 relates to the fourth element—reasonable

       reliance. But the Buyers argue that the legislature “did away with the reliance

       requirement” for cases where, as here, the fraudulent-misrepresentation claim is

       Court of Appeals of Indiana | Opinion 22A-PL-2867 | October 31, 2023        Page 7 of 12
       based on a residential real-estate sales-disclosure form. Appellants’ Br. p. 22.

       We disagree.

[11]   The residential real-estate sales-disclosure statutes are found in Indiana Code

       chapter 32-21-5 and apply to the sale of “residential real estate that contains not

       more than four (4) residential dwelling units.” Ind. Code § 32-21-5-1(a). A seller

       must complete and provide to a prospective buyer a disclosure form that

       discloses “the known condition of the following: (A) The foundation. (B) The

       mechanical systems. (C) The roof. (D) The structure. (E) The water and sewer

       systems. (F) Additions that may require improvements to the sewage disposal

       system. (G) Other areas that the Indiana real estate commission determines are

       appropriate.” I.C. §§ 32-21-5-7(a)(1), -10(a). The seller may be liable for an

       error, inaccuracy, or omission “within the actual knowledge” of the seller. I.C.

       § 32-21-5-11; Boehringer v. Weber, 2 N.E.3d 807, 812 (Ind. Ct. App. 2014), trans.

       denied.

[12]   In arguing that these statutes eliminated the reliance requirement for fraudulent-

       misrepresentation claims based on a disclosure form, the Buyers cite our

       Supreme Court’s decision in Johnson v. Wysocki, 990 N.E.2d 456 (Ind. 2013).

       They misread that decision. The Johnson Court held that the disclosure statutes

       abrogated the longstanding common-law principle that a buyer of property

       “‘has no right to rely upon the representations of the vendor as to the quality of

       the property, where he has a reasonable opportunity of examining the property

       and judging for himself as to its qualities.’” Id. at 461-66 (quoting Cagney v.

       Cuson, 77 Ind. 494, 497 (1881)). The Court went on to explain that the statutes

       Court of Appeals of Indiana | Opinion 22A-PL-2867 | October 31, 2023       Page 8 of 12
       not only give a buyer the right to rely on the seller’s disclosure form but also

       establish a presumption that the buyer reasonably relied on the form. Id. at 462

       (explaining that “the Disclosure Statutes actually presume reliance for certain

       aspects of a home”), 466 (“[T]he Disclosure Statutes represent the General

       Assembly’s reasonable presumption of what would otherwise be the materiality

       and reasonable reliance elements in an ordinary common law suit for

       fraudulent misrepresentation.”). But the Court didn’t hold that the statutes

       eliminated the reasonable-reliance element. We know this because the Court

       also explained that the presumption of reasonable reliance is rebuttable:

               [W]e would not say that this presumption is irrebuttable. For
               example, if the buyers had an independent inspection that
               disclosed the same faults and the buyers purchased the property
               anyway, that might weigh against a presumption that they
               reasonably relied on the Disclosure Form—or that they viewed
               the condition as material. It would become a question of fact.

       Id. at 466 n.4. So, under Johnson, reasonable reliance is an element of a

       fraudulent-misrepresentation claim based on a disclosure form, and there is a

       statutory presumption of reasonable reliance, but the seller can present evidence

       to rebut the presumption.

[13]   If the Buyers were correct about the effect of the disclosure statutes—if the

       statutes eliminated the reasonable-reliance element for disclosure-form claims—

       then a seller would be strictly liable for failing to disclose a defect even if the

       buyer was fully aware of the precise nature and scope of the defect. In other

       words, a buyer who knows a disclosure form is incorrect but goes through with

       Court of Appeals of Indiana | Opinion 22A-PL-2867 | October 31, 2023         Page 9 of 12
       the sale anyway could later experience buyer’s remorse, file suit based on the

       incorrect form, and prevail. We see nothing in the disclosure statutes or in

       Johnson that establishes such a strict-liability scheme.

[14]   Because reasonable reliance is an element of a fraudulent-misrepresentation

       claim based on a disclosure form, the Buyers’ attorney was wrong when he

       argued to the trial court that giving Model Instruction 3109 would be “adding

       an element to my clients’ claims,” and the court properly gave the instruction.

       This doesn’t mean that Model Instruction 3109 is a complete and accurate

       statement of the law in this area; under Johnson, it is not. What it means is that

       instead of asking the trial court to give no instruction at all on the element of

       reasonable reliance, the Buyers should have argued for the model instruction to

       be modified or supplemented to inform the jury that, in disclosure-form cases,

       reasonable reliance is presumed and the burden is on sellers to rebut that

       presumption. Since the Buyers didn’t make that objection or ask for that relief,

       we cannot say the trial court erred by giving Model Instruction 3109 as written.

       II. Sufficiency of the Evidence
[15]   The Buyers purport to make a separate argument that the jury’s verdict isn’t

       supported by “sufficient evidence.” Appellants’ Br. pp. 15-21. However, their

       argument addresses only the evidence that the Sellers’ disclosure form was

       incorrect. They say nothing about the evidence on the issue of whether they

       reasonably relied on the form, such as the engineer’s testimony that a lay person

       could “easily” see the sloping of the three-season room. Instead, their argument

       Court of Appeals of Indiana | Opinion 22A-PL-2867 | October 31, 2023      Page 10 of 12
       starts from the premise that, under Johnson, reasonable reliance is not an

       element for disclosure-form claims. In other words, their argument assumes that

       the jury shouldn’t have been instructed on reasonable reliance. Indeed, they

       conclude the argument by stating, “The problem here is that the jury had an

       instruction that likely led them astray.” Id. at 21. So the Buyers’ “sufficiency”

       argument is ultimately an argument that the jury was incorrectly instructed

       under Johnson and as a result reached an incorrect verdict. This is simply a

       reframing of the instruction argument, and as we just concluded, the Buyers

       have not demonstrated any instructional error.

       III. Attorney’s Fees
[16]   The Buyers also argue the trial court erred by granting the Sellers’ motion for

       attorney’s fees. Specifically, the Buyers contend the court misinterpreted

       Paragraph U of the Purchase Agreement. The interpretation of contract

       language is a question of law we review de novo. Jenkins v. S. Bend Cmty. Sch.

       Corp., 982 N.E.2d 343, 347 (Ind. Ct. App. 2013), reh’g denied, trans. denied.

[17]   Again, Paragraph U provides: “Any party to this Agreement who is the

       prevailing party in any legal or equitable proceeding against any other party

       brought under or with relation to the Agreement or transaction shall be

       additionally entitled to recover court costs and reasonable attorney’s fees from

       the non-prevailing party.” The Buyers assert that they brought a tort suit based

       on the Disclosure Form, not a contract suit based on the Purchase Agreement,

       and that therefore Paragraph U doesn’t apply. We disagree. The provision

       Court of Appeals of Indiana | Opinion 22A-PL-2867 | October 31, 2023     Page 11 of 12
       applies to “any legal or equitable proceeding . . . brought under or with relation

       to the Agreement or transaction[.]” The Disclosure Form was a key part of the

       overall “transaction,” i.e., the sale of the house, and was expressly referenced in

       the Purchase Agreement. See Appellants’ App. Vol. II p. 38. Therefore, even if

       the Buyers’ suit based on the Disclosure Form wasn’t brought “under or with

       relation to the Agreement,” it was brought “with relation to the . . .

       transaction,” and Paragraph U applies.

[18]   In the alternative, the Buyers argue that the fee award should be against

       Zachary alone, and not Lauren, because Lauren wasn’t listed as a buyer on the

       Purchase Agreement and didn’t sign it. On this point, we agree with the Buyers.

       Because Lauren wasn’t a party to the Purchase Agreement, she isn’t subject to

       its attorney’s fees provision. We therefore reverse the fee award as to Lauren.

[19]   Affirmed in part and reversed in part.

       Mathias, J., and Pyle, J., concur.

       Court of Appeals of Indiana | Opinion 22A-PL-2867 | October 31, 2023     Page 12 of 12