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HomeMy WebLinkAbout01-4259 CivilKEV1N L. EARNEST and MARY R. EARNEST, Husband and wife, Plaintiffs DOUGLAS J. GALE, JR., JACK GAUGHEN, INC., d/b/a JACK GAUGHEN REALTOR ERA,. and JAMES E. GRANDON, Defendants IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA NO. 2001-4259 CIVIL TERM IN RE: DEFENDANTS' PRELIMINARY OBJECTIONS TO PLAINTIFFS' AMENDED COMPLAINT BEFORE BAYLEY, GUIDO, JJ. OPINION AND ORDER OF COURT This matter arises out of a real estate transaction in which, plaintiffs allege, the defendants breached a fiduciary duty and violated the Unfair Trade Practices and Consumer Protection Law (hereinafter "UTCPL"). ~ Defendants have filed preliminary objections in the nature of a demurrer. The parties have briefed and argued their respective positions. This matter is now ready for disposition. DISCUSSION The standard to be applied to preliminary objections in the nature of a demurrer was succinctly stated by our Supreme Court as follows: A demurrer can only be sustained where the complaint is clearly insufficient to establish the pleader' s right to relief. For the purpose of testing the legal sufficiency of the challenged pleading a preliminary objection in the nature of a demurrer admits as true all well-pleaded, material, relevant facts, and every inference fairly deducible from those facts. ~ 73 P.S. § 201-1 et seq. NO. 2001-4259 CIVIL Since the sustaining of a demurrer results in a denial of the pleader's claim or a dismissal of his suit, a preliminary objection in the nature of a demurrer should be sustained only in cases that clearly and without a doubt fail to state a claim for which relief may be granted. County of Allegheny v. Commonwealth, 507 Pa. 360, 372 490 A.2d 402, 408 (1985) (citations omitted). Furthermore, when ruling upon a demurrer, we are limited to a review of the allegations set forth in the complaint. Mellon Bank, N.A.v. Fabinyi, 437 Pa. Super. 559, 650 A.2d 895 (1994). We will summarize the facts as alleged in the complaint. Defendant Douglas J. Gale, Jr. (hereinafter "Gale") is a licensed real estate salesperson employed by defendant Jack Gaughen, Inc. (hereinafter, "Gaughen") and defendant James E. Grandon (hereinafter "Grandon"). Gaughen is a real estate firm for which Grandon is the licensed broker of record. Plaintiffs were in the market for a new home. On September 20, 2000, they executed a "Buyers Agency Contract" with defendants. Gale was the salesperson with whom they worked. Plaintiffs made him aware of their criteria which included, inter alia, a requirement that their new home be "in a quiet location with no interstate, railroads, or other source of disruptive noises".2 Gale eventually showed plaintiffs the home located at 1150 Dry Powder Circle in Hampden Township. It is located in close proximity to the Silver Spring Speedway. Complaint, para. 8. NO. 2001-4259 CIVIL Plaintiffs expressed concerns about the noise generated by the speedway.3 Gale agreed that it was very noisy during racing events. However, he assured them that it was not a concern because the speedway had been sold to developers who planned to build a shopping center on the site.4 Relying on those assurances, the plaintiffs had Gale prepare a contract to purchase the property. Their offer was submitted on January 4, 2001. It was accepted by the sellers on January 24, 2001. It contained the following relevant terms: (1.) A purchase price of $178,500; (2.) Settlement on or before February 23, 2001; and (3.) A liquidated damages clause which limited plaintiffs liability to a forfeiture of their $2,000 down payment in the event of default.5 It did not contain a contingency with regard to the sale of the speedway. On February 10, 2001, several local newspapers reported that the developers were no longer interested in purchasing the speedway. Those news accounts also indicated that the speedway would continue to operate. Plaintiffs were not aware of the articles. Gale was, but said nothing to plaintiffs. Settlement occurred as scheduled on February 23, 2001. Plaintiffs paid the purchase price and more than $11,000 in additional settlement charges. About one month later, on the first day of racing season, it became obvious that the speedway was operational and very noisy. Plaintiffs called Gale to inquire about the sale of the speedway. He replied, "Didn't you read about it in the newspapers?" ~ Gale had shown plaintiffs numerous homes before the one in question. Several homes had been rejected because of unacceptable noise levels. 4 The parties agree that Gale believed the statement to be true at the time he made it. s See Exhibit B to complaint. NO. 2001-4259 CIVIL Defendants' preliminary objections allege the following: (1.) The above facts do not state a cause of action upon which relief may be granted. (2.) The above facts do not state a cause of action under the UTCPL. (3.) No cause of action has been stated against Grandon.6 We disagree with all three propositions. Misrepresentation.7 The Supreme Court recently discussed the torts of negligent misrepresentation and/or intentional misrepresentation as they apply to real estate transactions. See Bortz v. Noon, 556 Pa. 489, 729 A2d 555 (1999). As the Bortz Court stated: Negligent Misrepresentation: Negligent misrepresentation requires proof of: (1) a misrepresentation of a material fact; (2) made under circumstances in which the misrepresenter ought to have known its falsity; (3) with an intent to induce another to act on it; and; (4) which results in injury to a party acting in justifiable reliance on the misrepresentation. See, e.g., Gibbs, 538 Pa. at 210 647 A.2d at 890, citing, Restatement (Second) Torts § 552. [556 Pa. 501] ... the misrepresentation must concern a material fact and the speaker need not know his or her words are untrue, but must have failed to make a reasonable investigation of the truth of these words. Id. Moreover, like any action in negligence, there must be an existence of a duty owed by one party to another. Id. This Court has not specifically recognized this cause of action in the situation of a real estate broker, but the Superior Court has applied a negligence standard in a number of cases. 6 Defendants' preliminary objections also claimed that the complaint did not comply with Pa. Rule of Civil Procedure 1028(a)(3). However, that issue was not briefed and has, therefore, been waived. See Local Rule 210-7. 7 Plaintiffs label the cause of action in Count I as "Breach of Fiduciary Duty." However, "(a) demurrer should not be sustained if there is any doubt as to whether the complaint adequately states a claim for relief under any theory of law." Dauphin Deposit Bank and Trust Co. v. Toyota, 408 Pa. Super. 256, 596 A.2d 845, 847 (1991). NO. 2001-4259 CIVIL Id. at 561. After citing the Superior Court cases referred to and discussing other jurisdictions which have recognized such a cause of action against realtors, the Court declared that "there is no reason to per se omit a real estate broker or its agent from liability for negligence or misrepresentations negligently made". Id at 563. Clearly, Gale believed that the speedway had been sold when he made the statement to plaintiffs. However, it is equally clear that it had not been sold. Under these circumstances, we cannot state with certainty that plaintiffs have failed to state a cause of action for negligent misrepresentation. In discussing intentional misrepresentation the Bortz Court stated: The elements of intentional misrepresentation are as follows: (1) a representation; (2) which is material to the transaction at hand; (3) made falsely, with knowledge of its falsity or recklessness as to whether it is true or false; (4) with the intent of misleading another into relying on it; (5) justifiable reliance on the misrepresentation; and, (6) the resulting injury was proximately caused by the reliance. Gibbs v. Ernst, 538 Pa. 193, 207, 647 A.2d 882, 889 (1994), citing, Restatement (Second) of Torts {} 525 (1977). The tort of intentional nondisclosure has the same elements as intentional misrepresentation "except in the case of intentional non-disclosure, the party intentionally conceals a material fact rather than making an affirmative misrepresentation." Id. We have recognized the tort of intentional misrepresentation and intentional concealment in the context of real estate broker liability to the buyer of residential property. See, e.g., Aiello v. EdSaxe Rea/Estate, Inc., 508 Pa. 553,499 A.2d 282 (1985) (Real estate broker may be liable for intentional misrepresentation). 729 A.2d at 560 (emphasis added). According to the allegations in the complaint, Gale became aware prior to settlement that the speedway had not been sold. Yet, he did not tell his clients, even though he knew the speedway sale had been a critical factor in their decision to purchase the home. Based NO. 2001-4259 CIVIL upon the reasonable inferences deducible from those allegations, we are satisfied that plaintiffs have stated a claim for intentional misrepresentation or nondisclosure. Unfair Trade Practices. The UTCPL makes actionable "fraudulent or deceptive conduct which creates a likelihood of confusion or misunderstanding.''8 The law's underlying purpose is fraud prevention, l, Veinberg v. Sun Company, Inc., 565 Pa. 612, 777 A.2d 442 (2001). Therefore, "(i)n order to state a cause of action under the catchall provision.., a plaintiff must prove the elements of common law fraud." Booze v. Allstate Insurance Company, 750 A.2d 877, 880 (Pa. Super. 2000). Those elements include "a material misrepresentation of an existing fact, scienter, justifiable reliance on the misrepresentation, and damages." Id. The "misrepresentation need not be in the form of a positive assertion but can be a concealment which should have been disclosed". Drapeau v. Joy Technology, 447 Pa. Super. 560, 670 A.2d 165, 171 (1996). Mere silence can also be sufficient to satisfy the misrepresentation element, if there is a duty to speak. Id. In the instant case, Gale's alleged silence regarding the aborted sale of the speedway satisfies the misrepresentation element of fraud. The duty is created by the special circumstances of this case i.e. the existence of the "Buyer Agency Agreement" coupled with the knowledge that the plaintiffs would only purchase a home in a quiet neighborhood. 8 73 P.S. § 201-2(4)(xxi). NO. 2001-4259 CIVIL The other elements of fraud have also been alleged: 1) scienter in that Gale knew of the changed plans regarding the speedway; 2) reliance in that plaintiffs would not have purchased the home had they known of the aborted sale; and 3) harm in that they purchased a home that did not meet their needs.9 Under these circumstances, the plaintiffs have stated a claim for fraud and may proceed under the UTPCL. Claim Against Grandon. Defendant Grandon contends that there was no employer/employee relationship between him and Gale. He alleges that Gale was employed only by defendant Gaughen, a corporation. Since the complaint did not contain sufficient allegations to allow a piercing of the corporate veil, he argues that the case against him should be dismissed. However, there is a fatal flaw to his argument. The complaint specifically alleges that Gale was employed by both Gaughen and Grandon. l0 It further alleges that, at all relevant times, Gale was acting "as an employee and agent of James E. Grandon.''~ Since we are bound to accept as true the allegations in the complaint, Grandon' s demurrer cannot be sustained. 9 While they may have been contractually obligated to buy the home whenever Gale became aware that it no longer met their needs, they could have limited their liability under the contract to $2,000. However, because of their agent's silence, they spent $178,500 plus $11,000 in closing costs for a house that did not meet the requirements specifically conveyed to him. 10 Complaint, para. 2. 11 Complaint, para. 6. NO. 2001-4259 CIVIL ORDER OF COURT AND NOW, this 28TM day of MARCH, 2002, Defendants' Preliminary Objections are DISMISSED. days of receipt of this order. They are directed to file an Answer within twenty (20) By the Court, /s/Edward E. Guido Edward E. Guido, J. Kirstin M. Sweigard, Esquire For the Plaintiffs Paige Macdonald-Matthes, Esquire For the Defendants :sld