Robinson v. Tripco Investment, Inc.

2000 UT App 200, 21 P.3d 219, 398 Utah Adv. Rep. 26, 2000 Utah App. LEXIS 62, 2000 WL 994191

• Court: Court of Appeals of Utah
• Decided: June 29, 2000
• Docket: 990490-CA
• Status: Published

Opinions

OPINION

BENCH, Judge:

{1 Appellant Michael S. Robinson, as Trustee of the Cardiomed, Inc. Profit Sharing Plan and the Cardiomed, Inc. Money Pension Plan (collectively "Cardiomed"), challenges the trial court's grant of summary judgment in favor of appellees on Car-diomed's claims of negligent misrepresentation and fraud in the sale of an apartment building. Cardiomed asserts: (1) a cause of action for negligent misrepresentation is not precluded by the merger doctrine; and (2) genuine issues of material fact exist, which preclude summary judgment on its fraud claim. We affirm in part and reverse in part.

BACKGROUND

12 Because this is an appeal from a grant of summary judgment, we recite the facts in the light most favorable to the non-moving party.¹ See Glover ex rel. Dyson v. Boy Scouts of Am., 923 P.2d 1383, 1384 (Utah 1996).

1 3 In 1978, Stephen L. Tripp Construction Company (Tripp Construction) built a fifteen-unit apartment building. Tripp Construction acted as the general contractor, and hired subcontractors to perform the actual construction. The building's plans and specifications called for a pan structural support system, but workers were not available to build that type of system. Tripp Construction therefore subcontracted to build a post-tension support system. Cardiomed contends that this type of system was not appropriate for this building.

{4 In February 1992, Cardiomed and Tripeo Investment, Inc. (Tripco) entered into an Earnest Money Sales Agreement in which Tripeo agreed to sell the apartment building to Cardiomed. Stephen L. Tripp, either individually or through entities he controlled, had owned or managed the building for the first five or six years after its construction and for two years immediately preceding its sale to Cardiomed. The Earnest Money Sales Agreement included the following provisions:

B. Inspection. Unless otherwise indicated, Buyer agrees that Buyer is purchasing said property upon Buyer's own examination and judgment and not by reason of any representation made to Buyer by Seller or the Listing or Selling Brokerage as to its condition, size, location, present value, future value, income herefrom or as to its production. Buyer accepts the property in "as is" condition subject to Seller's warranties as outlined in Section 6. In the event Buyer desires any additional inspection, said inspection shall be allowed by Seller but arranged for and payed by Buyer.

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L. Complete - Agreement-No - Oral Agreements. This instrument constitutes the entire agreement between the parties and supercedes and cancels any and all prior negotiations, representations, warranties, understandings or agreements between the parties. There are no oral agreements which modify or affect this agreement. This Agreement cannot be changed except by mutual written agreement of the parties.

15 When Hannes Robinson, the manager of Cardiomed, first inspected the building while being accompanied by Tripp, he observed a sloping of the concrete floor, cracks in the plaster, gaps between the walls and the ceiling, and some ill-fitting doors. Robinson asked Tripp about these noticeable defects, and Tripp represented that the building was strong and free of any structural problems. Tripp also indicated that he was involved in the enginecring and construction of the building, and that it was over-engineered and over-built. Tripp further told Robinson that the building would withstand earthquakes that many other buildings would not. After making these representations, Tripp provided Robinson with an inspection report he had previously obtained, and which did not identify any problems with the support system.²

16 Tripco disputes the facts as stated. Tripco alleges that Tripp represented to Robinson only that Tripp had been told that the building was a strong structure; that "he merely passed along what he had been told by those who worked in this particular construction system." Tripco also denies that Tripp produced an inspection report, arguing instead that it was Robinson who obtained the inspection report.

17 In any event, Cardiomed subsequently purchased the building for $375,000. After the city forced Cardiomed to either repair the building's support structure-at a cost of approximately $165,000-or face condemnation, Cardiomed brought suit against Tripeo alleging breach of warranty and fraud.

18 Tripco filed a motion for summary judgment, arguing that the merger doctrine and lack of evidence respectively defeated those causes of action. In its memorandum in opposition to summary judgment, Car-diomed argued that Tripp negligently misrepresented the condition of the building. In reply, Tripco argued that Cardiomed failed to allege negligent misrepresentation in its original complaint, and thus, should be barred from asserting it. Cardiomed thereupon filed a motion to amend its complaint to allege negligent misrepresentation. The trial court granted Tripeo's motion for summary judgment as to breach of warranty and fraud, but also granted Cardiomed's motion to amend its complaint to allege negligent misrepresentation. - Cardiomed then filed an amended complaint alleging negligent misrepresentation. Tripco again moved for summary judgment, arguing the merger doctrine precluded this claim too, and the trial court granted the motion. This appeal followed.

STANDARD OF REVIEW

T9 A party is entitled to summary judgment only when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. See Utah R. Civ. P. 56(c). "'On an appeal from a grant of summary judgment, we review the trial court's legal conclusions for correctness and grant them no deference." Holmes v. American States Ins. Co.. 2000 UT App 85, ¶ 9, 391 Utah Adv. Rep. 16, 1 P.3d 552 (cita tion omitted).

ANALYSIS

1. Negligent Misrepresentation

110 Cardiomed argues that the trial court erred in granting summary judgment on its negligent misrepresentation claim because "negligent misrepresentation is a species of fraud and is therefore excepted from the merger doctrine." We disagree.

T11 "It is well settled that the merger doctrine applies in Utah." Maynard v. Wharton, 912 P.2d 446, 449 (Utah Ct.App.1996).

"The doctrine of merger ... is applicable when the acts to be performed by the seller in a contract relate only to the delivery of title to the buyer. Execution and delivery of a deed by the seller then usually constitute full performance on his [or her] part, and acceptance of the deed by the buyer manifests his [or her] acceptance of that performance even though the estate conveyed may differ from that promised in the antecedent agreement. Therefore, in such a case, the deed is the final agreement and all prior terms, whether written or verbal, are extinguished and unenforceable."

Id. at 449-50 (omission and alterations in original) (quoting Stubbs v. Hemmert, 567 P.2d 168, 169 (Utah 1977)). However, the doctrine "has four discrete exceptions: (1) mutual mistake in the drafting of the final documents; (2) ambiguity in the final documents; (3) existence of rights collateral to the contract of sale; and (4) fraud in the transaction." Id. at 450. Because Car-diomed urges this court to determine that negligent misrepresentation falls under the "fraud in the transaction" exception, our analysis will focus specifically on that exception.

112 The fraud exception "applies when the party seeking to avoid merger can prove by clear and convincing evidence that the other party committed fraud in the real estate transaction." Id. In order to prevail under the fraud exception, "all the elements of fraud must be established." Secor v. Knight, 716 P.2d 790, 794 (Utah 1986). The elements of fraud in Utah are:

"(1) a representation; (2) concerning a presently existing material fact; (8) which was false; (4) which the representor either (a) knew to be false, or (b) made recklessly, knowing that he [or she} had insufficient knowledge on which to base such representation; (5) for the purpose of inducing the other party to act upon it; (6) that the other party, acting reasonably and in ignorance of its falsity; (7) did in fact rely upon it; (8) and was thereby induced to act; (9) to his [or her] injury and damage."

Maynard, 912 P.2d at 450 (emphasis added) (alterations in original) (quoting Dugan v. Jones, 615 P.2d 1239, 1246 (Utah 1980). Thus, for Cardiomed to prevail under the fraud exception to the merger doctrine, it must necessarily provide clear and convine-ing evidence that any misrepresentations Tripp made about the building were made knowingly or recklessly.

113 The tort of negligent misrepresentation, which Cardiomed argues falls within the fraud exception, carries a lesser mental state, requiring only that the seller act carelessly or negligently. See Price-Orem Inv. v. Rollins, Brown & Gunnell, 713 P.2d 55, 59 & n. 2 (Utah 1986) (stating that "by its very terms, negligent misrepresentation does not require the intentional mental state necessary to establish fraud"). Although fraud and negligent misrepresentation are related, they embody two different states of mind. Thus, "all of the elements of fraud [cannot] be established" through proof of negligent misrepresentation. Secor, 716 P.2d at 794. Therefore, in Utah, negligent misrepresentation does not fall within the discrete fraud exception to the merger doe-trine.³

{114 Although the merger doctrine has been described as " 'an admittedly harsh rule of law,/" Maynard, 912 P.2d at 451 (citation omitted), it applies in Utah because it " 'preserves the integrity of the final doeument of conveyance and encourages the diligence of the parties'" Id. Accordingly, the trial court properly entered the summary judgment precluding Cardiomed from asserting a negligent misrepresentation cause of action.

2. Fraud

{ 15 Cardiomed next contends that the trial court erred in granting summary judgment on its fraud claim, arguing that genuine issues of material fact preclude judgment as a matter of law. In support of its motion for summary judgment, Tripco argued that Cardiomed lacked sufficient evidence to support three of the necessary elements of fraud. Tripco argued: (1) there was no evidence showing that Tripp's statements were false; (2) there was no evidence that Tripp knew his statements were false, or that he made them recklessly, knowing that he had insufficient knowledge on which to base his representations; and (8) Cardiomed did not reasonably rely on Tripp's representations. Although the trial court did not provide any explanation for its ruling, it apparently based the summary judgment on one or more of 'the three elements argued by Tripco. Accordingly, we will analyze those elements.

A. ‘ False Statements

116 Cardiomed argues there was evidence to support Cardiomed's claim that Tripp's statements were false. - "[AJe-cept[ing] the facts and inferences in the light most favorable to [Cardiomed]," we agree. Winegar v. Froerer Corp., 813 P.2d 104, 107 (Utah 1991).

Tripp represented that the building was free of structural defects, that it was over-engineered and over-built, and that it would withstand earthquakes that other buildings would not. However, after Tripeo sold the building to Cardiomed, the building was found to have structural problems, even to the point that the city threatened to condemn it if renovations were not made. Moreover, Reinhardt Bsumek, Cardiomed's expert, inspected the building in 1994 and indicated that the building's construction was negligently performed, and that the building was not safe. Tripco asserts that although the building's structure may have been defective after the sale, Cardiomed cannot demonstrate that the building's structural problems existed at the time of sale to Cardiomed. Although it is true that Bsumek inspected the building after it was sold and he could not determine the exact point in time the structure became unsafe, given the problems Robinson witnessed when he walked through the building prior to the purchase, one could reasonably infer that the building had the structural defects at the time of sale. Thus, a genuine issue of material fact exists as to whether Tripp made false representations regarding the structural integrity of the building.

B. Made Knowingly or Recklessly

118 Cardiomed next argues there was evidence to support its claim that Tripp had knowledge that his statements were false, or that they were made recklessly, knowing that he had insufficient knowledge on which to base his statements. We again agree. Tripp previously had never used this particular support structure in any building he contracted, nor has he subsequently used this support structure in any other building. In addition, the building's plans and specifications called for a different structural support system than the one used. Further, as Tripco admitted in its memorandum in support of summary judgment, "all the actual work, including design and engineering was performed by subcontractors." - In reality, Tripp knew very little about the particular support structure used in the building. Therefore, we determine that a genuine issue of material fact exists as to whether Tripp acted knowingly or recklessly in representing to Robinson that the building was strong and free of structural problems, that it was over-engineered and over-built, and that it would withstand earthquakes that many other buildings would not.

C. - Reasonable Reliance

119 Finally, Cardiomed argues that because "Tripp held himself out as an expert on the building and its construction, . it was reasonable for Cardiomed to rely upon his representations." One of the elements of fraud that a plaintiff must prove is that he or she, "acting reasonably and in ignorance of the statement's falsity, did in fact rely upon the misrepresentation." Conder v. A.L. Williams & Assocs., 739 P.2d 634, 638 (Utah Ct.App.1987). Thus, "not only must there be reliance, but the reliance must be justifiable under the cireumstances." Id. While the question of whether a plaintiff was reasonable in his or her reliance is "usually a matter within the province of the jury, there are instances where courts may conclude that as a matter of law, there was no reasonable reliance." Gold Standard, Inc. v. Getty Oil Co., 915 P.2d 1060, 1067 (Utah 1996) (citation omitted).

%20 To determine whether the reliance was reasonable, the reliance "must be considered with reference to the facts of each case." Conder, 739 P.2d at 638. In general,

a plaintiff may justifiably rely on positive assertions of fact without independent investigation. It is only where, under the cireumstances, the facts should make it apparent to one of his knowledge and intelligence, or he has discovered something which should serve as a warning that he is being deceived, that a plaintiff is required to make his own investigation.

Id. (citations omitted). In addition, " [fJraud as related to purchase of real estate may not be predicated on alleged false statements the truth of which could have been ascertained with reasonable diligence by the party asserting their falsity'" Maack v. Resource Design & Const., Inc, 875 P.2d 570, 577 (Utah Ct.App.1994) (citation omitted).

121 Applying the foregoing legal principles to the facts of this case, we cannot say as a matter of law that Cardiomed was unreasonable in its reliance on Tripp's statements regarding the structural integrity of the building. Viewing the facts in the light most favorable to Cardiomed, they demonstrate that Robinson walked through the building with Tripp before Cardiomed purchased it. Robinson questioned Tripp regarding some problems he observed and Tripp responded that he had been involved in the construction and engineering of the building, and that the building had no structural defects. To support that claim, Tripp then provided Robinson with an inspection report that failed to note any structural problems with the building. Simply stated, because Tripp held himself out as someone with superior knowledge of the building and then lent support to his representations by providing an inspection report, a genuine issue of material fact exists as to whether Car-diomed's reliance was reasonable.

1 22 Accordingly, because there were genuine issues of material fact regarding the three elements of fraud relied upon, summary judgment on that cause of action was improperly granted. -

CONCLUSION

"[ 23 The trial court properly granted summary judgment on Cardiomed's negligent misrepresentation claim because it does not fall within the fraud exception to the merger doctrine. The trial court, however, erred in granting summary judgment on Cardiomed's fraud claim because genuine issues of material fact exist.⁴

24 Affirmed in part, reversed in part and remanded for further proceedings.

25 I CONCUR: NORMAN H. JACKSON, Associate Presiding Judge.

1 . Cardiomed filed a motion to strike portions of appellees' brief, which referred to deposition testimony not made part of the record on appeal. We grant the motion insofar as the information objected to was not before the trial court. See Russell v. Thomson Newspapers, Inc., 842 P.2d 896, 899 n. 3 (Utah 1992) (stating appellate court will "consider deposition material that was actually before the trial court").

2 . The record does not contain the report nor indicate when the inspection was actually performed.

3 . Our dissenting colleague points to other jurisdictions in support of her position that negligent misrepresentation should be an exception to the merger doctrine. However, pursuant to the principles of stare decisis, we are bound to follow Utah law on this point. See State v. Menzies, 889 P.2d 393, 399 n. 3 (Utah 1994). Maynard states that there are only four exceptions to the merger doctrine, and that one of those is fraud. See 912 P.2d at 450. Secor, 716 P.2d at 794, and Dugan, 615 P.2d at 1246, hold that one of the elements of fraud is that the misrepresentation must be made knowingly or recklessly (as opposed to carelessly or negligently). Although we agree with the dissent that negligent misrepresentation is related to fraud, see Atkinson v. IHC Hosps., Inc., 798 P.2d 733, 737 (Utah 1990), the mental state required to establish Utah's fraud exception to the merger doctrine is higher than that required to establish negligent misrepresentation. See Secor, 716 P.2d at 794; Dugan, 615 P.2d at 1246; see also Price-Orem, 713 P.2d at 59 n. 2 (distinguishing mental state required for fraud and negligent misrepresentation).

4 . We have considered the other issues raised by the parties and conclude that they are without merit. Accordingly, we decline to address them. See State v. Carter, 776 P.2d 886, 888 (Utah 1989) (holding that appellate court "need not analyze and address in writing each and every argument, issue, or claim raised and properly before us on appeal"); cf. Reese v. Reese, 1999 UT 75,¶ 8, 984 P.2d 987 (holding that for purposes of certiorari review, court of appeals must the basis for refusing to treat an issue").