Opinion
No. 1 CA-CV 14-0078
02-26-2015
BRENT HELMKE and KATHRYN HELMKE, husband and wife, Plaintiffs/Appellees, v. SERVICE FIRST REALTY, LLC, an Arizona limited liability company, Defendant/Appellant.
COUNSEL Neal B. Thomas, Esq., Michael G. Kelley, Esq., Phoenix Counsel for Defendant/Appellant Berry Law Group, PLLC, Phoenix By Christopher J. Berry, Esq. Counsel for Plaintiffs/Appellees
NOTICE: NOT FOR OFFICIAL PUBLICATION. UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE. Appeal from the Superior Court in Maricopa County
No. CV2008-023277
The Honorable Sally Schneider Duncan, Judge
AFFIRMED
COUNSEL Neal B. Thomas, Esq., Michael G. Kelley, Esq., Phoenix
Counsel for Defendant/Appellant
Berry Law Group, PLLC, Phoenix
By Christopher J. Berry, Esq.
Counsel for Plaintiffs/Appellees
MEMORANDUM DECISION
Presiding Judge Samuel A. Thumma delivered the decision of the Court, in which Judge Patricia A. Orozco and Judge Michael J. Brown joined. THUMMA, Judge:
¶1 Service First Realty, LLC, appeals from a judgment entered against it in this real estate malpractice action, claiming the superior court committed reversible error by not giving a requested jury instruction. Finding no error, the judgment is affirmed.
FACTS AND PROCEDURAL HISTORY
¶2 Service First is a real estate agency acting through licensed real estate agent Debbie Cox. Service First, through Cox, acted as seller's agent for KD West Investments, LLC, in selling vacant hillside land in Surprise, Arizona. Cox was involved in successful efforts to subdivide the land into lots. During that work, Cox had contact with civil engineer Jonathon Stansel in late 2005, at a time when there was no access road to the lots. Stansel testified that he told Cox in late 2005 that it would take at least one year to do the work required (including permitting) before any construction on an access road properly could begin. Cox, however, testified to seeing the access road being built five to six months after that meeting with Stansel.
¶3 In early 2007, Brent and Kathryn Helmke contacted Cox to view the lots as a possible homesite. During a site visit, in responding to the Helmkes' questions about the access road, Cox said it was a good road built at substantial cost, although it was not yet complete. Kathryn testified that Cox said "the county wouldn't let us sell these lots up there if this road weren't [sic] built right." The Helmkes later told Cox they were interested in purchasing a lot. When the Helmkes asked Cox whether they should have their own real estate agent, Cox said that was not necessary. The Helmkes then signed agreements whereby Cox simultaneously acted as the buyer's agent for the Helmkes and the seller's agent for KD West.
¶4 When later meeting with the Helmkes, Cox provided written easements in case, as Kathryn testified, they had "any lingering doubts about the road." Kathryn testified Cox assured them "that everything was good about the road" and that the Helmkes "knew everything there was to know about" the road. In March 2007, Cox provided the Helmkes a disclosure affidavit, signed by KD West and notarized by Cox in January 2007, declaring, among other things, that "[t]here is . . . legal access" and "physical access to the Property." After reviewing the affidavit, the Helmkes again expressed concern about access, including whether a two-wheel drive vehicle could operate on the road. Cox then added a handwritten note on the affidavit, which the Helmkes initialed, stating the road was "[c]urrently not traversable by two wheel drive passenger motor vehicle." For reasons not clear from the record, the version of the affidavit recorded in April 2007 does not contain Cox's handwritten note; has a different attachment; has different signature blocks and the Helmkes' signatures are different.
¶5 Through Cox, the Helmkes negotiated and signed a contract to purchase a lot from KD West that was amended several times, including amendments to address the access road. One addendum provided for an extension of time for a final layer to be added to the road with a corresponding escrow retention. Kathryn testified that, before closing, she again asked Cox about the road and Cox again said that the Helmkes knew "everything there is to know about this road." The purchase then closed and the Helmkes applied for a permit to build a home on the lot. Maricopa County, however, denied the application because the road was built without a permit. When the Helmkes were unable to obtain a permit to build a home on the lot, they filed this action against Service First and KD West.
¶6 The Helmkes asserted fiduciary duty and negligence-based claims, alleging Service First (through Cox) misrepresented the status of the road, and failed to disclose material information about the status of the road. After discovery and motion practice, during a seven-day jury trial, Service First requested the jury instruction challenged on appeal (proposed instruction 11), which the superior court declined to give.
The negligence-based claims appeared to evolve over time and were variously referred to as negligent misrepresentation; negligence; professional negligence and commercial negligent misrepresentation. For ease of reference, this decision refers to them as negligence-based claims.
¶7 Service First unsuccessfully moved for judgment as a matter of law and, in doing so, at least arguably raised as an issue proposed instruction 11. The court then instructed the jury on the Helmkes' fiduciary duty and negligence-based claims against Service First. After deliberation, the jury returned a general verdict for the Helmkes for $318,200.47, allocating no fault to the Helmkes; 30 percent fault to KD West and 70 percent fault to Service First. The court denied Service First's motion for new trial, which claimed error in refusing to give proposed instruction 11. After accounting for the fault allocation, the court then entered judgment for the Helmkes and against Service First for $222,740.33. This court has jurisdiction over Service First's timely appeal from the judgment and denial of its motion for a new trial pursuant to the Arizona Constitution, Article 6, Section 9, and Arizona Revised Statutes (A.R.S.) sections 12-2101(A)(5)(a) and -120.21(A)(1) (2015).
Absent material revisions after the relevant dates, statutes and rules cited refer to the current version unless otherwise indicated. It is unclear whether the judgment resolved all claims against all parties, given the Helmkes' claims for attorneys' fees and that KD West was a named defendant and answered the original complaint. The judgment appealed from, however, contains an express Arizona Rule of Civil Procedure 54(b) statement, meaning this court has appellate jurisdiction.
DISCUSSION
I. Proposed Instruction 11.
¶8 Service First argues "[t]his is a simple single-issue appeal," claiming the superior court should "have offered a specific legal instruction . . . as set forth in Aranki v. RKP Investments, 194 Ariz. 206, 979 P.2d 534 (App. 1999)." More specifically, Service First argues it was reversible error for the superior court to not give proposed instruction 11, which read:
Service First Realty is not liable to the [Helmkes] for passing on information without proof that they did so under circumstances suggesting they knew or should have known that any information provided by the sellers might be false.After hearing arguments on the instruction (including the Helmkes' claim that it was an incorrect statement of the law), the superior court did not give proposed instruction 11, relying instead on Revised Arizona Jury Instructions. II. The Superior Court Properly Did Not Give Proposed Instruction 11.
Any need for proposed instruction 11 could "reasonably have been anticipated prior to trial," meaning Service First could be deemed to have waived the issue by failing to request the proposed instruction before trial. Ariz. R. Civ. P. 51(a). The superior court, however, considered the merits of the proposed instruction, and this court similarly does so.
¶9 The superior court has broad discretion when instructing a jury and is required to give a requested instruction only when the instruction (1) is supported by the evidence; (2) is legally correct and (3) addresses an important issue not otherwise covered. Brethauer v. Gen. Motors Corp., 221 Ariz. 192, 198 ¶ 24, 211 P.3d 1176, 1182 (App. 2009). This court considers jury instructions as a whole, see Walters v. First Fed. Sav. & Loan Ass'n of Phoenix, 131 Ariz. 321, 326, 641 P.2d 235, 240 (1982), and reviews the decision not to give proposed instruction 11 for an abuse of discretion, Brethauer, 221 Ariz. at 198 ¶ 24, 211 P.3d at 1182.
A. Proposed Instruction 11 Does Not Properly Apply To A Client's Fiduciary Duty Claim Against That Client's Real Estate Agent.
¶10 Proposed instruction 11 is a close paraphrase of language in Aranki, 194 Ariz. at 208-09 ¶ 9, 979 P.2d at 536-37, the sole authority cited by Service First for the instruction. Aranki, however, addressed a negligent misrepresentation claim by a buyer against a seller's agent, not a client's fiduciary duty claim against the client's agent. Id. at 208-09 ¶¶ 7-12, 979 P.2d at 536-37. Service First offers no authority suggesting that proposed instruction 11 applies to a client's fiduciary duty claim against that client's real estate agent. Indeed, Service First has not cited, and the court has not found, any case applying this language from Aranki to a fiduciary duty claim.
¶11 Apart from this lack of precedent, the standard set forth in proposed instruction 11 is inconsistent with an agent's fiduciary duty to a client. See, e.g., Haymes v. Rogers, 70 Ariz. 257, 259, 219 P.2d 339, 340 (1950) ("A real estate agent owes the duty of utmost good faith and loyalty to his [or her] principal."); Haldiman v. Gosnell Dev. Corp., 155 Ariz. 585, 588, 748 P.2d 1209, 1212 (App. 1987) (noting real estate agents owe "duty of good faith and loyalty to their principal" and "must exercise reasonable due care and diligence to effect a" transaction to the client's "best advantage") (citing cases); Ariz. Admin. Code (A.A.C.) R4-28-1101(A) (real estate agent "owes a fiduciary duty to the client and shall protect and promote the client's interests."). Aranki itself recognized this difference as one of the "important distinctions between the claims" by a buyer against a seller's agent (where no fiduciary duty is owed) and by a buyer against the buyer's agent (where a fiduciary duty is owed). See 194 Ariz. at 210 ¶ 18, 979 P.2d at 538; accord Lombardo v. Albu, 199 Ariz. 97, 100 ¶ 13, 14 P.3d 288, 291 (2000) ("Aranki simply acknowledged the compatibility of the fiduciary duty an agent owes to his client with the duty to deal fairly with all other parties to the transaction."). Consistent with this distinction, the superior court properly instructed the jury that the fiduciary duty owed to the Helmkes required Service First to "protect and promote the clients' interests" and, because an agent "occupies a confidential and fiduciary relationship with the client," Service First is "held to the highest ethical standards of fairness and honesty."
¶12 Having determined proposed instruction 11 does not correctly reflect the fiduciary duty Service First owed the Helmkes, and because Service First does not otherwise challenge the instructions given or the amount of the verdict, the issue becomes whether the evidence relating to the Helmkes' fiduciary duty claim supports the general verdict. The general verdict, which was used without objection, will be upheld so long as there is "evidence on any one count, issue or theory" sufficient to sustain the verdict. Mullin v. Brown, 210 Ariz. 545, 551 ¶ 24, 115 P.3d 139, 145 (App. 2005) (citation omitted). This court "view[s] all facts in the light most favorable to" the Helmkes. Id. at 547 ¶ 2, 115 P.3d at 141.
¶13 As summarized above, the trial evidence is more than sufficient to sustain the fiduciary duty verdict. Among other things, the evidence shows Cox told the Helmkes "that everything was good about the road" and that the Helmkes "knew everything there was to know about" the road, notwithstanding what she had learned about the timing to properly permit and build the road and contrary to the status of the road. Although the jury heard conflicting evidence, the evidence received was sufficient to sustain a finding that these representations were inconsistent with Service First's fiduciary duties. Accordingly, and viewing the evidence in the light most favorable to the Helmkes, the evidence is sufficient to sustain the general verdict based on the fiduciary duty claim. See Mullin, 210 Ariz. at 551 ¶ 24, 115 P.3d at 145. Therefore, and because proposed instruction 11 could not properly apply to the fiduciary duty claim, that claim alone supports the general verdict. See id.
B. The Superior Court Properly Instructed The Jury On The Negligence-Based Claims.
The parties do not argue the economic loss doctrine applies to this claim. See, e.g., Flagstaff Affordable Hous. Ltd. P'ship v. Design Alliance, Inc., 223 Ariz. 320, 321, 323-24, 223 P.3d 664, 665, 667-68 (2010); Apollo Group, Inc. v. Avnet, Inc., 58 F.3d 477, 479-81 (9th Cir. 1995).
¶14 Even if this case did not involve a general verdict independently supported by a fiduciary duty breach, Aranki involved a negligent misrepresentation claim against a real estate agent by a non-client where the duty owed was limited to "fair dealing." 194 Ariz. at 208-09 ¶¶ 7-9, 979 P.2d at 536-37. By contrast, under Aranki, Cox owed a different and higher duty of "full and frank disclosure" to the Helmkes because Cox was their real estate agent (not merely the agent of the other party). See id.; accord A.A.C. R4-28-1101(A) (real estate agent "owes a fiduciary duty to the client and shall protect and promote the client's interests. [Real estate agent] shall also deal fairly with all other parties to a transaction."); Albu, 199 Ariz. at 100 ¶ 15, 14 P.3d at 291 (noting A.A.C. R4-28-1101(A) "is essentially a codification of the common law"). As applied, this distinction is significant for the negligent-based claims in this case.
¶15 The Aranki language Service First relied on in requesting proposed instruction 11 is based on this limited duty of "fair dealing," a standard lower than the "full and frank disclosure" duty applicable here. 194 Ariz. at 208-09 ¶¶ 7-9, 979 P.2d at 536-37. Indeed, in language that includes the concept found in proposed instruction 11, Aranki went to some length to describe the distinction:
The duty of fair dealing does not include investigations to discover defects in the sellers' property. . . Thus, the misrepresentation claim would be proved here only if plaintiffs [the purchasers] could establish that the [seller's brokers and agents] . . . knew or should have known of the defects [in the land] giving rise to this litigation and failed to disclose such information. The sellers' real estate brokers and agents are not liable to the [non-client] buyers for passing along such information without proof that they did so under circumstances suggesting that they knew or should have
known that the information provided by the sellers might be false.Id. at 208-09 ¶ 9, 979 P.2d at 537-38 (emphasis added). Because the language in proposed instruction 11 is limited to a "duty of fair dealing" owed to a non-client, and not the duty of "full and frank disclosure" owed here, it was an incorrect statement of the law for the negligence-based claims made by the Helmkes. As a result, the superior court properly did not give proposed instruction 11. See Durnin v. Karber Air Conditioning Co., 161 Ariz. 416, 419, 778 P.2d 1312, 1315 (App. 1989) (superior court must refuse proposed instructions misstating law where jury would be "misled as to the proper rule of law").
¶16 Finally, even if the "duty of fair dealing" analysis in Aranki applied to the negligence-based claims made by the Helmkes against Service First, the substance of proposed instruction 11 was covered by other instructions given to the jury. The court gave preliminary instructions, jointly proposed by the parties, directing the jury that: (1) to show negligent misrepresentation, the Helmkes had to prove, among other things, that Service First "failed to exercise reasonable care or competence in obtaining or communicating the information" and (2) negligence "is the failure to act as a reasonably careful person would under the circumstances." The final instructions echoed these directives and also directed that, to meet the applicable standard of care, Service First "must exercise that degree of care and skill and learning that would be expected under similar circumstances of a reasonably prudent real estate" agent in Arizona. The jury heard expert testimony about a real estate agent's obligation to give "full, complete, accurate disclosure of important information" in the agent's possession, and that this standard could be breached if an agent affirmatively gave information without knowledge of its truth or that the agent knew was incorrect. Moreover, Service First does not dispute the accuracy of the instructions that were given. Considered as a whole, the instructions given by the superior court adequately set forth the applicable legal standard for the negligence-based claims. See Brethauer, 221 Ariz. at 198 ¶ 24, 211 P.3d at 1182.
Service First also argues it was entitled to judgment as a matter of law because the evidence shows Service First could not be found liable under proposed instruction 11. Having found the superior court did not err in rejecting proposed instruction 11, this court similarly rejects this residual argument.
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CONCLUSION
¶17 Because the superior court did not err, the judgment is affirmed. As the prevailing party, the Helmkes are granted taxable costs on appeal, contingent upon compliance with Arizona Rule of Appellate Procedure 21.