negligence and violation of Unfair Trade Practices as alleged in Counts I and III
must have been brought by November 2009 or early 2010 at the latest to fall
within the six year statute of limitations and any warranty claims as alleged in
Count IV must have been brought by early 2008 at the latest to fall within the
four year statute of limitations period. The plaintiffs have not asserted claims for
which the Law Court has recognized the discovery rule. Because the plaintiffs
6 did not assert Counts I, II, and IV against defendants until August 30, 2010,
outside of the limitations period, those claims are time barred.
B. Fraudulent Concealment
Plaintiffs allege in Count II of their Second Amended Complaint,
encaptioned "Misrepresentation/Fraud," that the defendants "made false
representations of material facts by deliberately failing to use proper materials
and good workmanship and by fraudulently hiding the obvious deficiencies in
the construction of the Fowler house." Pis.' Second Am. Compl. <[ 13. The
defendants "made those representations with knowledge of their falsity or in
reckless disregard of the truth or falsity of them." Id. <[ 14. The defendants did
this "for the purpose of inducing the Plaintiffs to act or to refrain from acting."
Id. <[ 15. The plaintiffs allege that they "justifiably relied upon the false and
material statements to their detriment," Id. <[ 16, and that as a result of
defendants' "fraudulently hiding the deficiencies in the construction of the
Fowler house, the Plaintiffs had no notice of them and were unable to take legal
action until damage to their home caused by those deficiencies manifested,
starting in 2010." Id. <[ 17. 4 In short, plaintiffs contend that the defendants
fraudulently concealed defective construction work from their discovery until
2010, thereby implicating 14 M.R.S.A. § 859. 5 Plaintiffs also assert that genuine
issues of material fact exist regarding the concealment of the defects. Pis.' Obj. to
Defs.' Mot. Summ. J. 9-13.
4 The parties have not raised, nor has the court addressed, whether these allegations in the complaint allege fraud with the requisite specificity of M.R.Civ.P. 9. 5 Section 859 provides: "If a person, liable to any action mentioned, fraudulently conceals the cause thereof from the person entitled thereto ... the action may be commenced at anytime within six years after the person entitled thereto discovers that he has a just cause of action."
7 To successfully state a claim for fraudulent concealment under Maine law
a plaintiff
must establish both a concealment and a fraudulent intent or design to prevent discovery of facts giving rise to [its] cause of action. Furthermore, [it] must show that the defendant had actual knowledge of a fact before the defendant can be charged with an intent or design to conceal it from the plaintiff.
Bangor Water Dist. v. Malcolm Pirnie Eng'g, 534 A.2d 1326, 1329 (Me. 1988)
(citation and quotation marks omitted). "Section 859 requires no less than the
demonstration of the defendant's actual knowledge of the concealed fact and the
fraudulent intent or design of preventing its discovery by the plaintiff." Id.
When the plaintiff alleges a failure to disclose, rising to the level of
misrepresentation, Maine law also requires the plaintiff to prove "active"
concealment of the truth or a specific relationship imposing a duty to disclose.
Fitzgerald v. Gamester, 658 A.2d 1065, 1069 (Me. 1995). '"Active concealment of the
truth' connotes steps taken by a defendant to hide the true state of affairs from
the plaintiff." Kezer v. Mark Stimson Assoc., 1999 ME 184, '[ 23, 742 A. 2d 898, 905.
In Fitzgerald, a seller of real estate did not disclose to the buyer that the well
water was not safe to drink until after the closing, even though the seller knew
the well had been abandoned because of contaminated water and the seller had
been using a neighbor's water source. The seller reconnected the well a few days
before the closing and had the water tested again but it was still unsafe. The
seller did not share this information with the buyer before the closing. 6 The court
held that these were sufficient facts to constitute active concealment. Fitzgerald,
658 A.2d at 1069. In contrast, the Kezer court found that a seller who did not
disclose the fact that a neighbor complained of contaminated well water and that 6 The issue of privity did not exist in Fitzgerald.
8 the Deparbnent of Environmental Protection was testing the area had not
actively concealed any facts from the buyer. Kezer, 1999 ME 84, <[ 25, 742 A.2d at
905.
Fraudulent intent may be established not only by proving that the
defendant desired the plaintiff to rely on the misrepresentation but also by
establishing that the defendant "believes that another is substantially certain to
act in a particular manner as a result of a misrepresentation .... " McKinnon v.
Tibbetts, 440 A.2d 1028, 1030-31 (Me. 1982) (citing Restatement (Second) of Torts§
531, cmt. c). Therefore, a "[d]efendant may be liable for fraud even though he
may not have profited from the representation." Id. at 1030. In Ward v. Glover,
2006 Me. Super. LEXIS 227 (Oct. 25, 2006), the plaintiff, a buyer of a
condominium unit, alleged fraudulent misrepresentation against the
condominium association for statements made regarding needed repairs to the
building fa~ade. This court found it inappropriate to grant summary judgment
in favor of the association on the element of intent, even though the association
had no financial interest in the sale of a unit, because the association could have
been substantially certain that the buyer would act in a particular manner after
hearing the statement made. Ward v. Glover, 2006 Me. Super. LEXIS 227 at, *18-
19.
Furthermore, a defendant is liable to the person or class of persons who he
intends, or expects may, act on the misrepresentation. Restatement (Second) of
Torts§ 531 (1977). In a Pennsylvania case, where a contractor did not install a
grey water sewer line connecting a home with the municipal sewer system as he
was contracted to do but did fill in the hole he dug, did install a "camouflage"
standpipe, and had the system inspected by municipal authorities (subsequent to
9 replacing the fill in violation of the inspection requirements), the court held that
"[ w ]hen fraud creates or conceals a latent defect, transfer of the defective chattel
or realty to an innocent third party should not absolve the wrongdoer from
liability for damages caused by that undiscovered fraud." Woodward v. Dietrich,
548 A.2d 301, 316 (Pa. Super. Ct. 1988). Although there is no Maine case law
precisely on point, this conclusion is the logical implication of Restatement
(Second) of Torts § 531, as illustrated by comment e:
The maker may have reason to expect that his misrepresentation will reach any of a class of persons, although he does not know the identity of the person whom it will reach or indeed of any individual in the class ... The class may include a rather large group, such as potential sellers, buyers, creditors, lenders or investors, or others who may be expected to enter into dealings in reliance upon the misrepresentation. Restatement (Second) of Torts§ 531, cmt. e (1977). 7 Thus, when a defendant has
made statements or actively concealed facts that a subsequent innocent
purchaser of real estate would rely on, the lack of privity between the parties
does not preclude proving the element of intent.
The court may not grant summary judgment if the record reveals material
factual disputes concerning whether the defendants had actual knowledge of the
deficient construction or materials and actively concealed its acts with the intent
to prevent their discovery by the plaintiffs.
7 The plaintiffs have cited to several cases from other jurisdictions to support the proposition in Restatement (Second) of Torts§ 531 and the Woodward case that the lack of privity between a wrongdoer and a subsequent innocent purchaser does not absolve the wrongdoer from liability. See Rhee v. Highland Dev. Corp., 958 A.2d 385 (Md. Ct. Spec. App. 2008); Terlinde v. Neely, 271 S.E.2d 768 (S.C. 1980); Herz v. Thornwood Acres "D," Inc., 381 N.Y.S.2d 761 (1976); Barnhouse v. City of Pinole, 183 Cal. Rptr. 881 (Cal. Ct. App. 1982). The defendants distinguish these cases only on the facts, not the legal propositions therein. Defs. Reply Mem. 4. The Law Court appears to have adopted§ 531 of the Restatement (Second) of Torts in McKinnon v. Tibbets, 440 A.2d 1028 (Me. 1982). Although McKinnon focuses on whether the defendant could have intended reliance when he did not profit from the fraud, the proposition stated in comment c of section 531, the court would likely recognize the entire section.
10 When a plaintiff contends that a genuine issue of material fact concerning the defendant's fraudulent concealment has been generated, the court assesses the facts against the elements of fraud: '(1) the making of a false representation; (2) of a material fact; (3) with knowledge of its falsity or in reckless disregard of whether it is true or false; (4) for purposes of inducing another to act upon it; and (5) justifiable and detrimental reliance by the other.'
Brawn v. Oral Surgery Assoc., 2003 ME 11, err 21, 819 A. 2d 1014, 1026 (quoting
Harkness v. Fitzgerald, 701 A.2d 370, 372 (Me. 1972)). "The party must establish
the facts demonstrating fraudulent misrepresentation or omission by clear and
convincing evidence." North East. Ins. Co. v. Young, 2011 ME 89, err 19, _ A.3d
Defendants argue that plaintiffs' allegations of fraud and
misrepresentation against the defendants are insufficient to allow the tolling of
the general six-year statute of limitations under 14 M.R.S.A. § 859. The
defendants contend that they did not make any false representations of material
facts to the plaintiffs. They also argue that they could not have made false or
reckless statements to induce the plaintiffs to purchase the house as they were
unaware of any defects and they did not have access to home after the Ras family
purchased it. In short, defendants contend that the plaintiffs have not provided
any evidence that would establish their fraud claim under the five-prong test
established in Brawn. Defs.' Memo. Summ. J. 7-8. The court, however, finds
otherwise. The plaintiffs have successfully raised genuine issues of material fact
such that summary judgment is inappropriate on the issue of fraudulent
concealment.
11 1. Actual Knowledge
The defendants state that Mr. Chamberlain was unaware of any alleged
construction defects or water damage in the home prior to receiving notice from
the plaintiffs in June 2010. Defs.' Stat. Mat. Facts
this fact does not provide support. Defendant's Statement of Material Fact,
paragraph 20 cites to paragraph 18 of Mr. Chamberlain's affidavit which says,
"This (June 7, 2010 email from Mr. Murphy] was the first time I was informed by
the Plaintiffs that they believed there were problems with the house, other than
the chimney, at 12 Fowler Farms Road." The affidavit statement indicates that
Mr. Chamberlain was previously unaware that the Plaintiffs had knowledge of
any defects in the house but it does not indicate that Mr. Chamberlain himself
had no knowledge of defects in the construction. Furthermore, the defendants
do not state that Chamberlain Construction had no knowledge of any defects in
the construction of the home. Chamberlain Construction employed a foreman on
the construction site who worked directly with the subcontractors. Pis. Reply
Stat. of Mat. Facts
to that of Chamberlain Construction because the knowledge its foreman obtained
while at the site might be imputed to the corporation.
The plaintiffs assert "[i]n some instances, improper workmanship or
materials were hidden by the builders by finish work or were in areas not easily
accessible or discoverable on inspection by the homeowner or by the Town
Inspector." Pis.' Reply Stat. Mat. Fact
this statement and have in fact admitted it for the purposes of summary
8 The defendants purport to deny this statement of material fact. However, the response given only challenges the statement with regard to Elliot Chamberlain's involvement with the day-to-day operation of the job site, not Bill Reny, the foreman.
12 judgment. Additionally, the plaintiffs assert that "[t]here were apparent
attempts to correct some of the poor workmanship or improper materials by the
original builders .... " 9 Id. 'I[ 17. Again, the defendants have admitted this
statement for the purposes of summary judgment. It is unclear from the
Plaintiffs' Reply Statement of Material Facts whether the term "builders"
includes the defendants or just subcontractors. However, because the defendants
have not objected and because the facts are to be construed in the light most
favorable to the non-moving party, the court understands these statements of
fact to implicate the defendants.
The court finds these two plaintiffs' statements, coupled with the fact that
the defendants have not properly supported their alleged lack of knowledge, are
sufficient to find that the defendants are not entitled to judgment as a matter of
law regarding the defendants' actual knowledge of defects in the construction of
the horne. If the defendants participated in concealing defects with finish work
or made attempts to repair the alleged defects, this is evidence of actual
knowledge. Thus, a genuine issue of material fact has been generated on the
issue of actual knowledge.
9 The full statement of material fact is: "There were apparent attempts to correct some of the poor workmanship or improper materials by the original builders, indicating that the builders knew of problems at the time of construction, but their fixes were blatantly wrong." Pls. Reply Stat. Mat. Facts
13 2. Active Concealment
Whether there was active concealment depends on whether the
defendants' actual knowledge can be proven. The defendants' admission that
improper workmanship or materials were hidden by finish work in areas not
easily accessible or discoverable is evidence of active concealment. Based on the
standard articulated in Fitzgerald and Kezer, the defendants took steps to hide the
true state of affairs (a house constructed without the expected materials and
craftsmanship) from the plaintiffs. The fact that the siding and finish work were
steps that the defendants would have taken anyway to finish the house does not
relieve them of the fact that these steps were also taken to conceal the defects in
the construction of the home. This is similar to the situation in Woodward where
the contractor finished the job by filling in the opening, which he would have
done to complete the job, and by doing so concealed from the homeowner, the
subsequent purchaser, and the municipal inspection authority, the fact that he
did not complete the required work.
The only way to discover the defects in the construction of the home
would have been to remove the siding. This is an action that would have been
unreasonable for the plaintiffs to take, especially when they and their
professional home inspector had no indication from the exterior that there were
latent defects. However, if the defendants prove they had no actual knowledge
of the construction problems then completing the construction would not be
active concealment.
Whether the completion of the home was a step taken to hide the true
state of affairs from the plaintiffs depends entirely on whether the defendants
had actual knowledge of the alleged defects. Because summary judgment is
14 improper on the element of actual knowledge, it is similarly improper on this
element.
3. Fraudulent Intent
The defendants claim that the plaintiffs have failed to prove fraudulent
intent because the defendants received no financial benefit from the transaction
between the Rases and the Murphys and because the defendants did not make
any statements for the purpose of inducing the Murphys' purchase. Defs.' Stat.
Mat. Facts <"1[<"1[ 13, 14. The plaintiffs admit that no statements were made but
allege that the defendants benefitted indirectly from their purchase. Pis. Resp. to
Defs.' Stat. Mat. Facts
privity between themselves and the defendants does not preclude a finding of
fraudulent intent because they are included in the class of people who the
defendants "intended or had reason to expect would act in reliance on their
fraud." Pis.' Obj. to Defs.' Mot. Summ. J. 15-16.
The defendants do not address the standard articulated in section 531 of
the Restatement (Second) of Torts and make no factual assertions that they did
not believe that it was substantially certain that a subsequent purchaser of the
home would act on the representation that the home was properly constructed.
On the other hand, the plaintiffs allege that the amount they paid for the house
was based in part on their belief that the property was of excellent quality inside
and out. Pis.' Reply Stat. Mat. Facts <"1[ 8. That is, they did rely on the defendants'
representation to the Rases, based on the pricing of the home, that the home was
of excellent quality.
To prove fraudulent intent the plaintiffs must establish that they were in
the class of people who the defendants may have expected to rely on a
15 misrepresentation. The plaintiffs may establish this element by demonstrating
that the defendants believed that subsequent purchasers were substantially
certain to act in a particular manner as a result of a misrepresentation. There are
insufficient facts alleged on either side to make a finding of fraudulent intent and
the defendants are not entitled to judgment as a matter of law on this element.
The summary judgment record reveals genuine issues of material fact
with respect to each element of the plaintiffs' claim for fraudulent concealment.
The defendants have failed to establish that the claim must fail and, therefore, are
not entitled to judgment was a matter of law.
III. Personal Liability
The plaintiffs have asserted each count of their complaint against both
Chamberlain Construction and Mr. Chamberlain. The defendants have moved
for summary judgment on all claims with respect to Mr. Chamberlain
individually alleging that he is an improper party because he did not construct
the home in his individual capacity. Defs. Mem. Summ. J. 11-12. The plaintiffs
assert two theories on which Mr. Chamberlain may be held individually liable:
abuse of the corporate form and agency. Pis.' Obj. to Defs.' Mot. Summ. J. 18-19.
The corporate form creates a separate legal entity providing limited
liability to the owners of the corporation. However, courts may disregard the
corporate form when the form has been used to perpetrate fraud or illegality.
State v. Weinschenk, 2005 ME 28, <][ 19, 868 A.2d 200, 207. A court will only "pierce
the corporate veil" if the plaintiff can establish both (1) that the defendant abused
the privilege of the separate corporate form and (2) an unjust or inequitable
result would occur if the corporate form were not disregarded. Id.
16 Corporate officers can be held liable for wrongful conduct even without
piercing the corporate veil. Advanced Constr. Corp. v. Pilecki, 2006 ME 84, <[ 13,
901 A.2d 189, 195. Liability stems from the wrongful act, not from facts that
would suggest piercing the corporate veil. Id. Furthermore, "[i]n an action for
the tortious conduct of an agent, both the agent and the principal can be held
liable." Id. at<[ 16.
The plaintiffs allege that an unjust or inequitable result will occur if the
court does not pierce the corporate veil of Chamberlain Construction because
"the purveyor of fraud will keep the benefit of ill-gotten gains, without discount
for hidden construction defects, and the innocent subsequent purchasers will be
left to pay for them without remedy." Pis.' Obj. to Defs.' Mot. Summ. J. 18-19.
This allegation does not support a finding that the plaintiffs are without remedy
and the plaintiffs have not submitted any statement of material fact indicating
that Chamberlain Construction would not be able to pay any damages that they
may be awarded. Because the plaintiffs fail to meet the second part of the test for
piercing the corporate veil, the court does not need to consider facts supporting
the first part of the test and will not disregard the corporate form.
Whether Mr. Chamberlain has engaged in wrongful conduct and, as an
agent of the corporation, should be held liable for his conduct, is a question of
fact that in this case cannot be decided on summary judgment because there are
genuine issues of material fact as to both defendants' liability for fraudulent
IV. Punitive Damages
In Count V, the Plaintiffs seek punitive damages. Punitive damages may
only be awarded upon a showing of malice. Tuttle v. Raymond, 494 A.2d 1353,
17 1361 (Me. 1985). Malice may be proven by evidence of express malice: that is, ill
will toward a particular individual. Id. It may also be proven by evidence of
implied malice: that is, deliberate conduct that, although not motivated by ill
will, is so outrageous that malice is implied. Id. To establish implied malice
requires more than "reckless disregard of the circumstances." Id. Punitive
damages are only available if the plaintiff is awarded compensatory or actual
damages based on the defendant's tortious conduct. ]olovitz v. Alfa Romeo
Distribs. ofN. Am., 2000 ME 174, <[ 11, 760 A.2d 625, 629.
The plaintiffs do not allege express malice. Instead, they argue that the
fraudulent concealment of the defects in their home, combined with the defects
alleged to exist in the other homes in the neighborhood built by Chamberlain
Construction, is sufficiently outrageous to prove malice. Pis.' Obj. to Defs.' Mot.
Summ. J. 19-20. There are genuine issues of material fact regarding whether
there was fraudulent concealment. Because the fraudulent concealment claim is
inappropriate for resolution on summary judgment, the issue of punitive
damages is similarly inappropriate because it is unknown if there will be an
award for compensatory damages.
CONCLUSION
The Court orders that the Defendants' Motion for Summary Judgment be
GRANTED on Counts I, III, and IV because the plaintiffs claims are barred by the
statute of limitations. The Court orders that the Defendants' Motion for
Summary Judgment is DENIED with respect to both defendants on Counts II
and V because there are genuine issues of material fact and the defendants are
not entitled to judgment as a matter of law.
The entry is:
18 Summary Judgment GRANTED to defendants on Counts I, III, and IV and
DENIED to defendants on Counts II and V.
September 16, 2011 . Wheeler, Justice
I
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