Austin v. Ettl

286 P.3d 85, 171 Wash. App. 82

• Court: Court of Appeals of Washington
• Decided: October 2, 2012
• Docket: No. 42256-5-II
• Status: Published

Opinions

Quinn-Brintnall, J.

¶1 Matthew Austin appeals the trial court’s CR 12(b)(6) dismissal of his negligent misrepresentation and unjust enrichment claims against Lance and Mandy Ettl arising from a dispute over the Ettls’ disclosure of potential local improvement districts (LIDs)¹ on the property they sold to Austin.² Austin argues that his negligent misrepresentation claim for damages based on the Ettls’ failure to disclose the cost of the proposed LIDs may proceed based on the independent duty doctrine and that both claims should have survived the Ettls’ CR 12(b)(6) motion. We disagree.

¶2 Although the parties’ confusion over the shifting sands of our Supreme Court’s independent duty doctrine jurisprudence is understandable, we need not be caught up in the quagmire. This case is straightforward. As required by former RCW 64.06.020(1) (2009), the Ettls disclosed that potential LIDs were being considered on the property they sold to Austin. This disclosure contained no false information, and contrary to Austin’s claims, the common law does not impose a duty on a seller to disclose the likely costs of potential encumbrances — particularly when no “special” relationship exists between the parties. Accordingly, we affirm the trial court’s dismissal of Austin’s claims because Austin failed to plead a prima facie case for either negligent misrepresentation or unjust enrichment. In addition, we award the Ettls statutory attorney fees.

FACTS

¶3 On July 19, 2007, Austin executed a real estate purchase and sales agreement (REPSA)³ for the purchase of the Ettls’ Tacoma property. Mutual acceptance of the REPSA occurred on July 30, with a closing date set for August 24. On the closing date, the Ettls provided Austin with a real property transfer disclosure statement (Form 17),⁴ disclosing the two proposed LIDs and their proposed LID numbers, but not the potential costs of each LID assessment. Austin did not request more information about the LIDs, nor did he request to extend the closing date; he signed the closing documents and concluded the purchase. Almost three months later, on November 13, the city of Tacoma approved the LIDs and assessed the LIDs’ costs at over $40,000 against Austin’s property.

¶4 On March 12, 2010, Austin sued the Ettls, alleging that the Ettls’ disclosure of the proposed LIDs on the closing date and their failure to disclose the potential cost of the proposed LIDs amounted to negligent misrepresentation and resulted in unjust enrichment to the Ettls. Austin claimed damages in “the amount of [the LIDs] plus interest as charged by the City of Tacoma.” Clerk’s Papers (CP) at 14.

¶5 The Ettls filed a CR 12(b)(6) motion to dismiss Austin’s suit for failure to state a claim for which relief could be granted, arguing in part that the “economic loss rule” barred Austin’s negligent misrepresentation claim. CP at 20. And in their reply to Austin’s response brief, the Ettls argued that even assuming the asserted facts in Austin’s complaint were true, they met their duty to disclose because (1) they disclosed the LIDs’ potential existence on the seller disclosure form as required by former RCW 64.06.020(1)⁵ and (2) no independent tort duty required them to disclose the potential costs of the proposed LIDs.

¶6 The trial court granted the Ettls’ motion to dismiss, reasoning that under our Supreme Court’s analysis of “the interaction of tort damages . . . with contract damages” in Eastwood v. Horse Harbor Foundation, Inc., 170 Wn.2d 380, 241 P.3d 1256 (2010) (plurality opinion), and Alejandre v. Bull, 159 Wn.2d 674, 153 P.3d 864 (2007), the “economic loss rule” barred Austin’s negligent misrepresentation and unjust enrichment claims. Report of Proceedings at 6-7. Austin appeals.

DISCUSSION

Standard of Review

¶7 We review de novo a trial court’s CR 12(b)(6) dismissal of a cause of action. San Juan County v. No New Gas Tax, 160 Wn.2d 141, 164, 157 P.3d 831 (2007). To prevail, the moving party in a CR 12(b)(6) motion bears the burden to establish “beyond doubt that the claimant can prove no set of facts! ] consistent with the complaint” that would justify recovery. No New Gas Tax, 160 Wn.2d at 164. And although a trial court must consider any hypothetical facts asserted by the complaining party when entertaining a motion to dismiss under CR 12(b)(6), a proffered hypothetical will only “ ‘defeat [ ] a CR 12(b)(6) motion if it is legally sufficient to support [a] plaintiff’s claim.’ ” Bravo v. Dolsen Cos., 125 Wn.2d 745, 750, 888 P.2d 147 (1995) (emphasis added) (quoting Halvorson v. Dahl, 89 Wn.2d 673, 674, 574 P.2d 1190 (1978)).

Negligent Misrepresentation

¶8 Austin argues that the trial court erred in granting the Ettls’ motion to dismiss because the Ettls had an independent duty “to avoid negligent misrepresentation in one’s business transactions by clarifying vague or incomplete disclosures.” Br. of Appellant at 22. Because the common law does not require a seller of real property to disclose the potential cost of proposed encumbrances, this argument fails.

¶9 Washington law recognizes the tort of negligent misrepresentation.⁶ Haberman v. Wash. Pub. Power Supply Sys., 109 Wn.2d 107, 161-62, 744 P.2d 1032, 750 P.2d 254 (1987). A plaintiff claiming negligent misrepresentation

must prove by clear, cogent, and convincing evidence that (1) the defendant supplied information for the guidance of others in their business transactions that was false, (2) the defendant knew or should have known that the information was supplied to guide the plaintiff in his business transactions, (3) the defendant was negligent in obtaining or communicating the false information, (4) the plaintiff relied on the false information, (5) the plaintiff’s reliance was reasonable, and (6) the false information proximately caused the plaintiff damages.

Ross v. Kirner, 162 Wn.2d 493, 499, 172 P.3d 701 (2007). Moreover, “[a]n omission alone cannot constitute negligent misrepresentation, since the plaintiff must justifiably rely on a misrepresentation.” Ross, 162 Wn.2d at 499.

¶10 Here, Austin acknowledged in his complaint that the Ettls disclosed the potential LIDs. CP at 12 (“[The Ettls] waited until the August 24 closing had actually commenced before faxing [Austin] a completed Seller Disclosure Statement (Form 17). For the first time, [the Ettls] disclosed the existence of a Local Improvement District (“LID”) affecting the property.”). Thus, Austin does not actually assert that the Ettls provided him with false information. Instead, he takes issue with the Ettls’ failure to disclose the potential amount of the LIDs, arguing that this omission constituted a negligent misrepresentation. This claim has no legal merit as Washington law does not impose a duty on a seller to disclose not-yet-extant encumbrances, and in any case, Austin’s failure to research the potential costs of the proposed LIDs disclosed by the Ettls was entirely unreasonable.

¶11 In Van Dinter v. Orr, 157 Wn.2d 329, 331, 138 P.3d 608 (2006), our Supreme Court addressed an analogous situation: whether a seller of unimproved real property “had a duty to disclose whether a capital facilities rate could be imposed upon the property if developed.”⁷ In 2001, the Orrs “listed their vacant land for sale, noting that the land had a sewer system available.” Van Dinter, 157 Wn.2d at 331. The Orrs did not disclose that to use the county’s sewer system, building owners were required to pay a monthly capital facilities rate surcharge in addition to the sewer bill. The Van Dinters purchased the vacant land and began constructing an automobile dealership on it. Van Dinter, 157 Wn.2d at 331. After the Van Dinters connected their building to the county’s sewer system, the “county issued a sewer inspection report” and shortly thereafter, the first monthly sewer bill including the monthly capital facilities rate. Van Dinter, 157 Wn.2d at 331. The Van Dinters sued the Orrs, arguing that they negligently misrepresented the property by “failing to disclose that the property was encumbered by the capital facilities rate.” Van Dinter, 157 Wn.2d at 332.

¶12 The trial court “correctly concluded that the capital facility rate does not constitute an encumbrance on property unless the ratepayer fails to pay his or her sewer bill and the county files a lien on the property” and, further, that the “Orrs did not provide false information or misrepresent existing facts” and granted summary judgment to the Orrs. Van Dinter, 157 Wn.2d at 333 (emphasis added). Division Three of this court, in an unpublished decision, disagreed, believing that the Orrs “may, however, have negligently misrepresented the existence of the [capital facilities rate] by not disclosing it” because Washington has adopted the Restatement (Second) of Torts § 551 (1977), “Liability for Nondisclosure.”⁸ Van Dinter v. Orr, noted at 128 Wn. App. 1055, 2005 WL 1796965, at *2, 2005 Wash. App. LEXIS 1887, at *5, rev’d in part, 157 Wn.2d 329. Our Supreme Court rejected this reasoning.

¶13 In its per curiam decision, the Van Dinter court explained,

The duty to disclose in a business transaction arises if imposed by a fiduciary relationship or other similar relationship of trust or confidence or if necessary to prevent a partial or ambiguous statement of facts from being misleading. Colonial Imports [v. Carlton Nw., Inc.], 121 Wn.2d [726,] 731, 853 P.2d 913 [(1993)]. In Colonial Imports, this court endorsed the notion that the duty arises when the facts are peculiarly within the knowledge of one person and could not be readily obtained by the other; or where, by the lack of business experience of one of the parties, the other takes advantage of the situation by remaining silent. Id. at 732. And the court quoted with approval from a Court of Appeals decision suggesting that the duty to disclose arises where there is a quasi-fiduciary relationship, where a special relationship of confidence and trust had developed between the parties, where a party relies on the specialized and superior knowledge of the other party, where a party has a statutory duty to disclose, or where a seller knows a material fact that is not easily discoverable by the buyer. Id. No such special relationship existed between the Van Dinters and the Orrs. The Van Dinters admitted that they knew the sewer system had been recently constructed. They could easily have discovered that if they were to develop the property, a capital facilities rate would apply depending on the type of development.

The Orrs were entitled to dismissal of the negligent misrepresentation claim on summary judgment.

157 Wn.2d at 334.

¶14 This case is on all fours with Van Dinter. Here, as in Van Dinter, the amounts owed on the LIDs would not become an encumbrance absent a ratepayer failing to pay and the county reducing the amount to a lien. More important, at the time Austin purchased the property, the LIDs did not yet exist. Regardless, when a seller discloses potential encumbrances as required by statute, a buyer is not justified in failing to exercise due diligence after receiving the disclosure. Here, after receiving the Form 17, which indicated that two LIDs had been proposed along with their proposed LID numbers,⁹ Austin needed only to contact the city of Tacoma to inquire about the potential cost of the LIDs. This information was easily discoverable¹⁰ by Austin, and in addition, the Ettls (like the Orrs) did not have any kind of special or fiduciary relationship to Austin. Contrary to Austin’s claims, the common law does not require a seller to disclose the potential cost of proposed encumbrances to a buyer with whom they have no special relationship.

¶15 Accordingly, the trial court did not err in granting the Ettls’ CR 12(b)(6) motion to dismiss Austin’s negligent misrepresentation claim.

Unjust Enrichment

¶16 Austin also argues that the trial court should not have dismissed his unjust enrichment claim. Because the Ettls had no duty to disclose the potential costs of the not-yet-extant LIDs, this argument fails as a matter of law.

¶17 “Unjust enrichment is the method of recovery for the value of the benefit retained absent any contractual relationship because notions of fairness and justice require it.” Young v. Young, 164 Wn.2d 477, 484, 191 P.3d 1258 (2008). A claim for unjust enrichment consists of three elements: (1) a plaintiff conferred a benefit upon the defendant, (2) the defendant had knowledge or appreciation of the benefit, and (3) the defendant’s accepting or retaining the benefit without the payment of its value is inequitable under the circumstances of the case. See Young, 164 Wn.2d at 484 (quoting Bailie Commc’ns, Ltd. v. Trend Bus. Sys., Inc., 61 Wn. App. 151, 159-60, 810 P.2d 12, 814 P.2d 699, review denied, 117 Wn.2d 1029 (1991)).

¶18 Here, the Ettls disclosed, as required by former RCW 64.06.020(1), that the property they were selling might become subject to future encumbrances. Further, they provided Austin with the potential LID numbers so that with the merest scintilla of effort he could have researched the potential costs of the LIDs. Neither the seller disclosure statute nor the common law required anything more of the Ettls. Accordingly, there was nothing “inequitable” about the Ettls’ benefitting from Austin’s languid approach to purchasing their home. The trial court did not err in summarily dismissing Austin’s unjust enrichment claim.

Conclusion

¶19 The moving party in a CR 12(b)(6) motion bears the burden of establishing “beyond doubt that the claimant can prove no set of facts, consistent with the complaint,” that would justify recovery. No New Gas Tax, 160 Wn.2d at 164. Here, Austin failed to allege the necessary elements of a negligent misrepresentation claim or unjust enrichment claim in his complaint as the Ettls did not provide him with false information. As a matter of law, the Ettls did not have a duty to disclose the potential price of the not-yet-extant LIDs.

¶20 We affirm the trial court’s dismissal of Austin’s negligent misrepresentation and unjust enrichment claims. Moreover, we grant the Ettls statutory attorney fees and costs pursuant to RAP 18.1 and RCW 4.84.030 and .080(2).¹¹ Although Austin’s claim is not frivolous in light of the contusion created by frequent shifts in Washington’s independent duty doctrine jurisprudence, it is clearly without merit. Courts should not create remedies to protect consumers from their own failure to exercise due diligence and making bad decisions. Buyers, like Austin, must exercise common sense and due diligence to preserve a right to bring a real estate dispute before the court.

Penoyar, J., concurs.

1 An LID is “a financial instrument that provides a long-term payment plan, with relatively low interest rates, which allows property owners to upgrade various infrastructure in their neighborhood. Such improvements may include: permanent street and alley paving; streetlight installation; sanitary sewer extensions; and the undergrounding of overhead utility wires in view-sensitive areas.” Local Improvement Districts (LID), City op Tacoma, http://www.cityoftacoma.org/ Page.aspx?hid=1867 (last visited Sept. 18, 2012).

2 Austin also argues that the trial court inappropriately treated the Ettls’ CR 12(b)(6) motion as a motion for summary judgment. We do not address this claim as our independent review of the record reveals that it is entirely unfounded.

3 The Ettls submitted the REPSA to the trial court in a motion for attorney fees after the trial court ruled on the motion to dismiss. Accordingly, the trial court did not consider the REPSA’s terms as part of the motion to dismiss.

4 Austin did not include the disclosure form in the record on appeal.

5 Former RCW 64.06.020(1) provides,

In a transaction for the sale of improved residential real property, the seller shall, unless the buyer has expressly waived the right to receive the disclosure statement under RCW 64.06.010, or unless the transfer is otherwise exempt under RCW 64.06.010, deliver to the buyer a completed [Form 17] in the following format and that contains, at a minimum, the following information:

I. SELLER’S DISCLOSURES:

. . . :i:H. Are there any pending or existing assessments against the property?

6 We note that the “Form 17” seller disclosure statement statute explicitly states that “[t]he seller disclosure statement shall be for disclosure only, and shall not be considered part of any written agreement between the buyer and seller of residential property.” Former ROW 64.06.020(3). Thus, by the statute’s express terms, a seller disclosure statement is not — contrary to the dissent’s view — part of the real estate contract between the parties and the independent duty doctrine is not implicated. Any claims derived from possible defects in the disclosure such as Austin’s, therefore sound in tort. In the context of disputes over real property contracts, Washington law has long endorsed the proposition that absent extraordinary circumstances, buyers and sellers allocate risk through contracts and, accordingly, aggrieved parties to real estate contracts must seek remedies sounding in contract, not tort. See, e.g., Alejandre, 159 Wn.2d at 687-89. In some instances, however, a party’s actions may negate a contract, thereby making rescission and tort remedies appropriate. Fraud and misrepresentation are two such recognized instances and much of the Supreme Court’s recent discussion of the independent duty doctrine necessarily relies on this long-standing common law jurisprudence. When a buyer defrauds a seller by making material misrepresentations in a contract, the contract itself is defective and this defect nullifies the contract — including possible remedies in the contract itself. See, e.g., Restatement (Second) oe Contracts § 164(1) (1981) (“If a party’s manifestation of assent is induced by either a fraudulent or a material misrepresentation by the other party upon which the recipient is justified in relying, the contract is voidable by the recipient.”). But again, the parties’ REPSA is not at issue here and contract law is not implicated.

7 The capital facilities rate surcharge at issue in Van Dinter worked in a nearly identical fashion to the LIDs at issue in this appeal. In 1999, Spokane County enacted an ordinance authorizing the construction of a sewer system. Van Dinter, 157 Wn.2d at 331. The project was financed by adding a surcharge to sewer customers’ monthly sewer bills for a 20-year period. Van Dinter, 157 Wn.2d at 331.

8 Similar to the Van Dinters’ claims, Austin’s complaint employs language from Restatement § 551, arguing that the Ettls had a duty to “disclose the cost of the LID, which [they] knew would be necessary to prevent [their] partial or ambiguous disclosure of the LID from misleading [Austin].” CP at 13-14. Restatement § 551(2) states that “[o]ne party to a business transaction is under a duty to exercise reasonable care to disclose to the other before the transaction is consummated ... (b) matters known to him that he knows to be necessary to prevent his partial or ambiguous statement of the facts from being misleading.”

9 See “Defendants’ Motion to Dismiss Pursuant to CR 12(b)(6).” CP at 20.

10 The city of Tacoma, for instance, provides contact information for property owners concerned with potential LIDs. See Local Improvement Districts (LID), City of Tacoma, http://www.cityoftacoma.org/Page.aspx?hid=1867 (last visited Sept. 18, 2012). And a top return for a Google search of “City of Tacoma, LID No. 6979” directs the inquirer immediately to the publically available Tacoma City Council Minutes related to one of the two LIDs related to the Austin/Ettl property.

11 The Ettls also request attorney fees pursuant to RCW 4.84.330, which allows parties to receive attorney fees when they are forced to enforce the provisions of a contract that has an attorney fee provision. Although the parties’ REPSA has such a provision, the dispute that is the subject of this appeal involves the Form 17 disclosure statement. As we have previously stated above, this disclosure is not part of the parties’ REPSA. Accordingly, the Ettls are not entitled to attorney fees stemming from the attorney fee provision of the REPSA.