Opinion
No. CV-08-5018651-S
June 29, 2009
MEMORANDUM OF DECISION
This action arises out of a dispute between the plaintiff, a disgruntled buyer of an apartment complex at 76 Sherman Avenue in New Haven (the property), and various parties who played roles in the sale of the building. The plaintiff, Leonard-Anthony Associates, LLC, filed its sixteen-count third amended complaint on February 25, 2009. On February 27, 2009, defendant John LoMonte, a certified appraiser licensed in Connecticut and doing business as John LoMonte Real Estate Appraisers Consultants, moved to strike the counts against him, specifically counts fifteen and sixteen of the third amended complaint which respectively allege intentional misrepresentation and a violation of General Statutes § 42-110 et seq., the Connecticut Unfair Trade Practices Act (CUTPA). On March 30, 2009, the plaintiff filed a memorandum of law in opposition to the motion to strike. The parties presented oral arguments to the court on April 6, 2009.
The following allegations relevant to resolving the motion to strike are drawn from the plaintiff's third amended complaint and are treated as fact for purposes of this decision. In August of 2006, the plaintiff hired Sandra Strickling, a Connecticut realtor employed by Prestige Properties, LLC, to find a residential apartment complex for plaintiff to purchase. Strickling showed the plaintiff the property, which at the time was owned by Sherman Gardens, LLC, managed by Progressive Property Management, LLC, and listed for sale by United Multi-Family Corporation. The plaintiff alleges that each of these parties misrepresented the condition of the building, describing it as a "gut rehab," with "everything new" including a "new roof" when in fact the building had not been renovated or remodeled, and the "new roof" was actually failing and had merely been painted to "look like new" to potential buyers. Allegedly unaware of these circumstances, the plaintiff entered into a contract to purchase the property from Sherman Gardens, LLC, for $2,470,000 in September of 2006 (the agreement).
Pursuant to the agreement — incorporated into the complaint by reference as Exhibit A — the plaintiff had a right to terminate the agreement if an appraisal of the property did not support the agreed-upon purchase price. The third paragraph of the first amendment to the agreement, dated October 27, 2006, provides in part: "With the exception of its receipt of an appraisal of the Property, Buyer has completed its due diligence and waives its rights to terminate the Contract pursuant to Section 9(A) thereof except as set forth herein. Buyer may terminate the Contract if Buyer receives an appraisal of the Property from a certified appraiser licensed by the State of Connecticut on or before 5:00 p.m. eastern time on October 30, 2006, which appraisal finds the value of the Property to be less than ninety percent of the Purchase Price as defined in paragraph 2 of the Contract." The first amendment was executed by facsimile, as permitted by the amendment, by Sherman Gardens, LLC, and Leonard-Anthony Associates, LLC.
The strike through of the phrase "ninety percent of" is in the executed copy of the amendment provided in Exhibit A of the complaint.
On some date shortly before October 23, 2006, and for purposes of appraising the property, LoMonte inspected the property with members of Leonard-Anthony Associates. During the inspection, LoMonte told the members that he had inspected the property ten years earlier, that the property had been substantially improved since that time, and that an appraisal would support the purchase price. LoMonte subsequently produced an appraisal report dated October 23, 2006, in which the appraised value of the property exceeded the purchase price. The plaintiff's realtor relayed this value to the plaintiff prior to October 30, 2006. In reliance upon LoMonte's representations during the inspection and his valuation of the property, the plaintiff closed on the property in December 2006. Additional facts will be set forth as necessary.
DISCUSSION
"The purpose of a motion to strike is to contest . . . the legal sufficiency of the allegations of any complaint . . . to state a claim upon which relief can be granted." (Internal quotation marks omitted.) Fort Trumbull Conservancy, LLC v. Alves, 262 Conn. 480, 498, 815 A.2d 1188 (2003). "A motion to strike challenges the legal sufficiency of a pleading, and, consequently, requires no factual findings by the trial court." (Internal quotation marks omitted.) Bernhard-Thomas Building Systems, LLC v. Dunican, 286 Conn. 548, 552, 944 A.2d 329 (2008). "[I]n determining the sufficiency of a complaint challenged by a defendant's motion to strike, all well-pleaded facts and those facts necessarily implied from the allegations are taken as admitted." Violano v. Fernandez, 280 Conn. 310, 318, 907 A.2d 1188 (2006).
Count Fifteen: Intentional Misrepresentation
The plaintiff alleges in count fifteen of its third amended complaint that LoMonte intentionally misrepresented the condition and value of the property, in collusion with the other defendants, with the intent to induce the plaintiff to purchase the property at an inflated price. LoMonte moves to strike the count on the ground that the plaintiff has failed to allege facts to support any of the elements of an intentional misrepresentation claim. More specifically, the defendant argues that the plaintiff has failed to plead facts that would support the element of reliance, that any reliance was unreasonable as a matter of law, that the plaintiff failed to plead facts to support the element of materiality, and that an appraisal of fair market value is a statement of opinion and not a statement of fact.
The plaintiff counters that it pleaded reliance on LoMonte's verbal statements and written appraisal and that such reliance was reasonable based on the plain language in the first amendment of the agreement, which allowed the plaintiff to terminate the agreement if an appraisal did not support the purchase price. The plaintiff also argues that property valuations made by someone with superior knowledge regarding property value is deemed to satisfy the "statement of fact" element of a fraud claim.
"In contrast to a negligent representation, `[a] fraudulent representation . . . is one that is knowingly untrue, or made without belief in its truth, or recklessly made and for the purpose of inducing action upon it.' Clark v. Haggard, [ 141 Conn. 668, 673, 109 A.2d 358 (1954)] . . . [A]t common law, fraudulent misrepresentation and intentional misrepresentation are the same tort. See, e.g., Williams Ford, Inc. v. Hartford Courant Co., [ 232 Conn. 559, 561, 657 A.2d 212 (1995)] (explaining that plaintiff had alleged `intentional misrepresentation or fraud'); DeLuca v. C.W. Blakeslee Sons, Inc., 174 Conn. 535, 546, 391 A.2d 170 (1978) (using term `intentional misrepresentation' to characterize fraud claim)." Kramer v. Petisi, 285 Conn. 674, 684 n. 9, 940 A.2d 800 (2008). "The essential elements of an action in fraud . . . are: (1) that a false representation was made as a statement of fact; (2) that it was untrue and known to be untrue by the party making it; (3) that it was made to induce the other party to act on it; and (4) that the latter did so act on it to his injury. Miller v. Appleby, 183 Conn. 51, 54-55, 438 A.2d 811 (1981)." Updike, Kelly Spellacy v. Beckett, 269 Conn. 613, 643, 850 A.2d 145 (2004).
The defendant argues that the plaintiff failed to plead facts that would support the element of reliance. This argument conflicts with the facts alleged in the complaint and the agreement as referenced in count fifteen. The plaintiff has alleged that it relied on the defendant's verbal representations regarding the condition of the property made during the inspections, as well as the defendant's ultimate valuation of the property as relayed to it by plaintiff's realtor prior to October 30, 2006, in deciding not to terminate the agreement. (Complaint, count 15, ¶¶ 14-17.) The plaintiff has pleaded facts, which, if proven, are sufficient to support the element of reliance.
The defendant argues that, as a matter of law, the plaintiff could not reasonably have relied on an appraisal made by an appraiser whom the plaintiff did not hire, and that the plaintiff did not hire him to appraise the property. The argument that there was no contract between the parties might support a motion to strike a claim for breach of contract, but a cause of action for intentional misrepresentation or fraud does not require a contract. Paragraph three of the first amendment to the agreement states in relevant part: "Buyer may terminate the Contract if Buyer receives an appraisal of the Property from a certified appraiser licensed by the State of Connecticut on or before 5:00 p.m. eastern time on October 30, 2006 . . ." (Emphasis added.) This general language does not limit the plaintiff's right to terminate the agreement based on an appraisal made by an appraiser with whom it contracted, but rather provides the plaintiff with the option to terminate the contract based on any appraisal by any appraiser, provided that the appraiser is certified and licensed by the State of Connecticut, and that the plaintiff received the appraisal prior to the cited deadline. The plaintiff has pleaded that the defendant is certified and licensed in Connecticut, that it received the defendant's appraisal prior to the deadline, and that it in fact relied on the defendant's appraisal. As a matter of law, in light of the contract terms, pleadings and all inferences drawn from them, a fact finder could decide that the plaintiff's reliance was reasonable. The determinations of whether the plaintiff actually relied on the appraisal, and whether such reliance was reasonable in the context of this dispute, are issues of fact not properly resolved by a motion to strike.
The defendant's argument that no facts are alleged that support the element of materiality because "the plaintiff never had a right to terminate the contract based on the movant's appraisal or the movant's alleged statement at the inspection" is contradicted by the plain language of paragraph three of the first amendment to the agreement. If the defendant's appraisal had produced a value less than the purchase price, it is at least possible that the buyer could have terminated the contract pursuant to the language in the amendment. As such, the defendant's appraisal could have been materially prejudicial, and the plaintiff alleges as much. The allegations are thus sufficient to support the element of materiality.
The defendant also argues that an assessment of fair market value is not a statement of fact, but rather one of opinion, and thus his valuation of the property cannot serve as the basis of the plaintiff's intentional misrepresentation claim. The plaintiff responds by arguing that a false valuation by an expert appraiser is deemed to satisfy the "statement of fact" element of a fraud claim. Neither party cites to any clearly controlling Connecticut authority on the issue.
The defendant does not claim that this argument applies to any of his alleged verbal representations during his inspection of the property, but rather focuses solely on the valuation component as alleged in paragraph twelve of count fifteen.
Connecticut appellate courts have adopted the following governing principle set forth in § 552 of the Restatement Second of Torts (1979): "One who, in the course of his business, profession or employment . . . supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information." (Internal quotation marks omitted.) D'Ulisse-Cupo v. Board of Directors of Notre Dame High School, 202 Conn. 206, 218, 520 A.2d 217 (1987); see Citino v. Redevelopment Agency, 51 Conn.App. 262, 273, 721 A.2d 1197 (1998). Although this principle describes a basis for liability for negligent misrepresentation, there is no reason it should not be equally applicable to a claim of intentional misrepresentation where a party is alleged to have intentionally provided false information instead of merely failing to exercise reasonable care.
"While the general rule is that the expression of an opinion cannot constitute fraud, such rule is not hard and fast, because whether a given representation is an expression of opinion or a statement of fact depends on the circumstances of the particular case." 37 C.J.S. 200, Fraud § 21 (2008). "Where the relation between the parties is such that they do not deal at arm's length, as where the person expressing the opinion has, or professes to have, superior knowledge, the expression of an opinion may constitute fraud." 37 C.J.S. 201, Fraud § 22 (2008). The plaintiff alleges that the defendant, a certified and licensed appraiser of real estate operating in the course of his business, intentionally provided a false valuation of the property to the plaintiff's realtor with the intention of inducing the plaintiff to rely upon the valuation. In this context, a professional appraiser of real property's valuation of property satisfies the "statement of fact" element of a fraud claim.
For the foregoing reasons, the defendant's motion to strike count fifteen is denied.
Count Sixteen: CUTPA Violation
The defendant moves to strike count sixteen on the ground that it is barred by General Statutes § 36a-755(d) and fails to comply with the "cigarette rule." More specifically, the defendant asserts that § 36a-755(d) limits claims against appraisers to parties who have contracted with the appraiser, and also bars all claims except for intentional misrepresentation. The plaintiff argues that a CUTPA claim can be founded on the deception for intentional misrepresentation in § 36a-755(d), and that the defendant's alleged verbal misrepresentations fall outside the scope of the statute. The plaintiff also argues that its claim satisfies the "cigarette rule" because fraud qualifies as "immoral, unethical, and unscrupulous" behavior.
General Statutes § 36a-755 requires any financial institution that charges a mortgage loan applicant a fee for a real estate appraisal to provide the applicant with a copy of the report under certain conditions. Section 36a-755(d) states: "Any person who prepares such appraisal report shall not be liable to any person with whom the preparer has not contracted to make such appraisal report for opinions or facts stated in or omitted from such appraisal report, unless such statement or omission results from intentional misrepresentation." The statute is relevant to the extent that the plaintiff's claim rests on the valuation in the appraisal report, as opposed to the alleged verbal statements which clearly do not fall under the provisions of the statute.
The plain language of the statute limits an appraiser's liability for negligent misrepresentation in an appraisal report, but provides an exception for intentional misrepresentation. The defendant argues that the statute also bars a CUTPA action based on intentional misrepresentation. The court does not read such a limitation into the statute.
Both parties cite to Depamphilis v. Casey, Superior Court, judicial district of Hartford, Docket No. CV 930531526 (May 5, 1995, Berger, J.) (14 Conn. L. Rptr. 232). In Depamphilis, the defendant, a real estate appraiser, provided a report for the plaintiff's mortgage lender that contained several inaccuracies concerning the condition of a home. The plaintiff relied on the report in purchasing the home and subsequently sued the appraiser for breach of contract, negligence, and a violation of CUTPA arising out of the defendant's negligent misrepresentations in the report. In reference to § 36a-755(d), the court stated that "[b]arring `intentional misrepresentation,' the plain language of this subsection provides a statutory defense for an appraiser where no privity of contract exists between it and a complaining party." Id., 14 Conn. L. Rptr 232-33. The court granted the defendant's motion for summary judgment on all counts on the ground that the parties lacked the privity required for the plaintiff to bring suit.
Depamphilis, while somewhat factually similar to this case, is clearly distinct. The plaintiff in this case alleges intentional misrepresentation as the basis of its action, while the plaintiff in Depamphilis sued under a theory of negligence and negligent misrepresentation. If the defendant were alleging negligent misrepresentation, then the rationale of Depamphilis would be applicable here. The plain language of § 36a-755(d), however, and the interpretation of the statute by the court in Depamphilis, supra, clearly provide an exception for claims based on intentional misrepresentation. To the extent that the defendant's alleged CUTPA violation is expressly based on a claim of intentional misrepresentation in the appraisal report, it is not barred by operation of § 36a-755(d).
In determining whether a practice violates CUTPA, Connecticut courts apply the so-called cigarette rule: "(1) [W]hether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise — in other words, it is within at least the penumbra of some common law, statutory, or other established concept of unfairness; (2) whether it is immoral, unethical, oppressive, or unscrupulous; (3) whether it causes substantial injury to consumers, [competitors or other businesspersons] . . . All three criteria do not need to be satisfied to support a finding of unfairness. A practice may be unfair because of the degree to which it meets one of the criteria or because to a lesser extent it meets all three." (Internal quotation marks omitted.) Ventres v. Goodspeed Airport, LLC, 275 Conn. 105, 155, 881 A.2d 937 (2005), cert. denied, 547 U.S. 1111, 126 S.Ct. 1913, 164 L.Ed.2d 664 (2006).
The defendant, in his brief in support of his motion to strike, states that "[w]hile intentional misrepresentation would satisfy the first prong of the cigarette rule . . . the plaintiff has not plead sufficient facts to support an intentional misrepresentation cause of action. Therefore, the plaintiff has failed to allege any factual basis that would support the first prong of the cigarette rule." (Plaintiff's Brief, p. 20.) For the reasons described earlier, the plaintiff has adequately pleaded an intentional misrepresentation cause of action. Intentional misrepresentation, or fraud, is unquestionably a practice that offends public policy. The plaintiff has therefore, as conceded by the defendant, satisfied the first prong of the cigarette rule.
The plaintiff has also satisfied the second and third prongs of the cigarette rule, at least for purposes of this motion. Intentional misrepresentation generally, and as alleged in this instance, meets the "immoral, unethical, oppressive, or unscrupulous" requirement. The plaintiff alleges that the defendant misled it into buying the property for nearly $2.5 million. If the property was in fact worth significantly less, and the plaintiff would not have bought the property but for the defendant's misrepresentations, then the plaintiff suffered substantial injury. The plaintiff bears the burden of proving these allegations, but for purposes of this motion the allegations are treated as admitted fact. The plaintiff has adequately pleaded a cause of action for a violation of CUTPA, and the court therefore denies the defendant's motion to strike count sixteen.
CONCLUSION
For the foregoing reasons, the court denies the defendant's motion to strike counts fifteen and sixteen of the plaintiff's third amended complaint.