Zachary Zitzka v. Bill Brogdon

• Court: Indiana Court of Appeals
• Decided: October 31, 2023
• Docket: 22A-PL-02867
• Status: Published

Opinion

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.”

[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