Edward Scott Kondrat v. Arnold Servitto ( 2019 )

If this opinion indicates that it is “FOR PUBLICATION,” it is subject to
revision until final publication in the Michigan Appeals Reports.
STATE OF MICHIGAN
COURT OF APPEALS
EDWARD SCOTT KONDRAT, UNPUBLISHED
March 26, 2019
Plaintiff-Appellant,
v No. 341990
Macomb Circuit Court
ARNOLD SERVITTO and ANN MARIE LC No. 2016-003486-ND
SERVITTO,
Defendants-Appellees.
Before: O’BRIEN, P.J., and JANSEN and RONAYNE KRAUSE, JJ.
PER CURIAM.
Plaintiff appeals as of right1 the trial court’s order granting summary disposition to
defendants, Arnold Servitto (Arnold) and Ann Marie Servitto (Ann), in this dispute over the sale
of a home. We reverse and remand.
I. FACTUAL BACKGROUND
Defendants lived at the home at issue for almost 30 years. According to defendants, they
decided to move because of medical issues. According to plaintiff, he wanted to purchase a
home in the same neighborhood as his parents. He initially rejected two or three previous
possible homes due to layout and neighbors before learning about defendants’ home from his
real estate agent. He walked through the home after work in August of 2015 with his son, wife,
and real estate agent, Danielle Guitar. Plaintiff testified that he thought the property appeared
nice and Guitar remarked that the home was “well-maintained.”
Defendants executed a Seller Disclosure Statement (SDS) on August 11, 2015. When
asked if there had been evidence of water in the “Basement/Crawlspace,” defendants answered
1
Plaintiff’s claim of appeal was initially dismissed, but later reinstated. See Kondrat v Servitto,
unpublished order of the Court of Appeals, entered February 21, 2018 (Docket No. 341990).
“No.” Defendants also indicated that there were no leaks in the roof and that the approximate
age of the roof was “5/6 years [sic] including shed.” Furthermore, when asked for “History of
Infestation if any: termites, carpenter ants, etc.,” defendants responded, “No.” The SDS bears
plaintiff’s signature, dated August 31, 2015.
On September 2, 2015, plaintiff and defendants entered into a Purchase Agreement for
the sale of the home at the price of $175,000. This Purchase Agreement incorporated and
adopted by reference the SDS. The closing of the property occurred on October 15, 2015.
Plaintiff testified that the first time he could recall seeing the SDS was at closing,
notwithstanding the date of his signature on the SDS. Prior to the closing, plaintiff had an
inspection performed on the house. The inspector’s report indicated that the roof had no major
system safety or function concerns and was in good condition. Additionally, the report indicated
that there was “[l]imited review due to insulation cover and finished walls” in the basement.
Plaintiff testified that he relied on the inspection report in deciding to purchase and close on the
property.
Upon purchasing the home, plaintiff began removing insulation from walls in the
basement while upgrading the electrical wiring. Throughout this process, plaintiff discovered
approximately fifty mouse carcasses, over thirty mouse poison boxes, mouse traps, and chewed
up peanut baits in plastic baggies. Plaintiff then hired an exterminator and had another
inspection of the home performed.
Meanwhile, Guitar contacted defendant’s real estate agent via e-mail and indicated that
plaintiff had discovered a massive infestation of mice within the walls and that plaintiff was
prepared to seek legal action. Guitar testified that defendant, Arnold Servitto, followed up with
her and at first attempted to disavow knowledge of the infestation but later admitted that he
believed the issue may have originated from a craft project involving acorns that Ann Servitto
had been working on in the basement. No information regarding any type of infestation was
disclosed to Guitar prior to closing on the property.
Arnold testified that defendants replaced the roof five to six years before selling, but it
could have been a little longer than that. When defendants were filling out the SDS with their
realtor, Arnold said that he did not have the paperwork, and the realtor said to give an
approximation. Paperwork from the company that tore off and replaced the roof indicated that
the roof had actually been replaced in 2006. Arnold acknowledged the paperwork and that the
roof was eight to nine years old at the time of closing. Ann testified that defendants gave an
approximation as to the roof age “[b]ecause we really thought it was five to six” years old.
On or about October 21, 2015, plaintiff discovered that defendants made an insurance
claim for water damage to their roof on February 12, 2015, which defendants had not disclosed.
Upon contacting the insurance company, plaintiff was made aware about water on the first floor
coming through the joists and ice damming that came from the second floor to the first floor.
Arnold denied that the insurance claim was regarding the roof and testified that the water
entering the family room down the wall was the result of an ice jam. In addition, the SDS
indicated that there were no roof leaks.
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Plaintiff argues that the trial court erred in granting defendants summary disposition
because plaintiff sufficiently pleaded a cause of action for silent fraud in his first amended
complaint, plaintiff established genuine issues of material fact regarding his reliance on the
seller’s disclosure statement (SDS), and the lower court improperly concluded that fraud claims
required plaintiff to exercise due diligence to discover the fraud. We disagree with plaintiff that
the trial court erred in dismissing plaintiff’s silent fraud claim, but we agree that the trial court
erred in granting defendants summary disposition regarding plaintiff’s claims of fraudulent
misrepresentation and negligent misrepresentation.
II. STANDARD OF REVIEW
A grant or denial of summary disposition is reviewed de novo on the basis of the entire
record to determine if the moving party is entitled to judgment as a matter of law. Maiden v
Rozwood, 461 Mich. 109, 118; 597 NW2d 817 (1999). Because the parties and the trial court
considered evidence outside of the pleadings, the motion is properly treated as having been
brought pursuant to MCR 2.116(C)(10). See Glittenberg v Doughboy Recreational Industries,
Inc, 436 Mich. 673, 680-681; 462 NW2d 348 (1990). When reviewing a motion under MCR
2.116(C)(10), which tests the factual sufficiency of the complaint, this Court considers all
evidence submitted by the parties in the light most favorable to the non-moving party and grants
summary disposition only where the evidence fails to establish a genuine issue regarding any
material fact. Maiden, 461 Mich. at 120. “A genuine issue of material fact exists when the
record, giving the benefit of reasonable doubt to the opposing party, leaves open an issue upon
which reasonable minds might differ.” West v General Motors Corp, 469 Mich. 177, 183; 665
NW2d 468 (2003).
III. SILENT FRAUD
Plaintiff first argues that the trial court erred in dismissing Count I of his first amended
complaint because he sufficiently pleaded a cause of action for silent fraud, notwithstanding the
fact that Count I was labeled as alleging a violation of the Michigan Seller Disclosure Act
(SDA), MCL 565.951 et seq. Plaintiff contends that the trial court improperly relied on the label
rather than the gravamen of the claim. We agree.
“The common-law rule with respect to real estate transactions is caveat emptor,” Latin
for “ ‘let the buyer beware,’ ” e.g. “ ‘[a] doctrine holding that purchasers buy at their own risk.’ ”
Roberts v Saffell, 280 Mich. App. 397, 402 n 1; 760 NW2d 715 (2008), aff’d 483 Mich. 1089
(2009), quoting Black’s Law Dictionary (7th ed). At common law, when the seller of land
surrenders title, possession, and control of the property to the buyer, all of the responsibility for
the land’s condition is also transferred to the buyer. Roberts, 280 Mich. App. at 402. However,
there are two exceptions to this rule for negligence actions related to the sale of real estate. Id.
“First, the seller has a duty to disclose to the buyer any concealed condition known to the seller
that involves an unreasonable danger. Second, after the sale, the seller is liable to those outside
the land for a dangerous condition on the land until the buyer discovers or should have
discovered it.” Id. at 402-403. Michigan courts recognize three theories of fraud as exceptions
to the rule of caveat emptor in real estate sales: “(1) traditional common-law fraud, (2) innocent
misrepresentation, and (3) silent fraud.” Id. at 403.
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Silent fraud “springs from the assertion of a falsehood, and courts have not hesitated to
sustain recoveries where the truth has been suppressed with the intent to defraud.” Roberts, 280
Mich. App. at 403 (citations and quotation marks omitted). There must be a legal or equitable
duty of disclosure for the suppression of such information to constitute silent fraud. Id. at 404.
The SDA requires the seller of property to honestly answer all items required by MCL 565.957,
based on information actually known to the seller at the time that he or she completes the SDS.
MCL 565.956; MCL 565.960. The SDA creates a duty of disclosure regarding these specific
items. MCL 565.954(1); MCL 565.957. To establish silent fraud, the plaintiff must prove more
than the seller was aware of a hidden defect, and failed to disclose it. Id. The plaintiff must
establish a representation by words or actions that was false or misleading, and intended to
deceive the plaintiff. Id. “A misleadingly incomplete response to an inquiry can constitute silent
fraud.” Alfieri v Bertorelli, 295 Mich. App. 189, 193-194; 813 NW2d 772 (2012).
Plaintiff is correct in arguing that courts are obligated to look beyond the labels or names
given by the parties and evaluate the true substance of the pleadings instead. Hurtford v Holmes,
3 Mich. 460, 463 (1855); In re Traub Estate, 354 Mich. 263, 278-279; 92 NW2d 480 (1958);
Jahnke v Allen, 308 Mich. App. 472, 475; 865 NW2d 49 (2014). Indeed, we find that plaintiff has
sufficiently and substantively pleaded a claim for silent fraud. The SDA provides that all
disclosures must be made in “good faith.” Additionally, the SDA defines “good faith” as
“honesty in face in the conduct of the transaction.” MCL 565.960. When pleading fraud, factual
allegations must be stated with particularity. MCR 2.112(B)(1). However, MCR 2.112(B)(2)
provides that “[m]alice, intent, knowledge, and other conditions of mind may be alleged
generally.” MCR 2.112(B)(2). Plaintiff’s allegation that defendants breached their legal duty
under the SDA by failing to disclose the various conditions within the house is tantamount to
saying defendant’s disclosures were made in bad faith, which under the circumstances
necessarily indicates deceitfulness. By reading plaintiff’s complaint as a whole and looking at its
substance, it is clear that plaintiff has satisfied the requirements for pleading silent fraud under
MCR 2.112. Thus, the trial court improperly determined that plaintiff had not stated a claim for
silent fraud.
IV. RELIANCE
Next, plaintiff argues that the trial court erred in dismissing his claims for fraudulent
misrepresentation and negligent misrepresentation because genuine issues of material fact
existed whether he relied on the SDS when deciding to purchase the home. We agree.
Under the SDA, “the Legislature intended to allow for seller liability in a civil action
alleging fraud . . . brought by a purchaser on the basis of misrepresentations or omissions in a
disclosure statement.” Bergen v Baker, 264 Mich. App. 376, 385; 691 NW2d 770 (2004).
“Liability is precluded for errors, inaccuracies, or omissions in a [SDS] that existed when the
statement was delivered, where the seller lacked personal knowledge, and would not have had
personal knowledge by the exercise of ordinary care, of any error, inaccuracy, or omission and
thus proceeds in good faith to deliver the [SDS] to the buyer.” Id., citing MCL 565.955, MCL
565.956, and MCL 565.960. Although an “as is” clause in a purchase agreement generally
imposes upon the buyer any risks regarding the present condition of the property, it will not
preclude a claim of fraud. Clemens v Lesnek, 200 Mich. App. 456, 460; 505 NW2d 283 (1993).
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To establish a claim of fraudulent misrepresentation, or common law fraud, plaintiff must
establish the following:
(1) the defendant made a material representation; (2) the representation was false;
(3) when the representation was made, the defendant knew that it was false, or
made it recklessly, without knowledge of its truth, and as a positive assertion; (4)
the defendant made it with the intention that the plaintiff should act upon it; (5)
the plaintiff acted in reliance upon the representation; and (6) the plaintiff thereby
suffered injury. [Roberts, 280 Mich. App. at 397.]
A plaintiff’s reliance on a misrepresentation must be reasonable. Bergen, 264 Mich. App. at 389.
A claim for negligent misrepresentation requires “ ‘pro[of] that a party justifiably relied to his
detriment on information prepared without reasonable care by one who owed the relying party a
duty of care.’ ” Alfieri, 295 Mich. App. at 194, quoting Unibar Maintenance Servs, Inc v Saigh,
283 Mich. App. 609, 621; 769 NW2d 911 (2009) (citations and quotation marks omitted).
The trial court found that a genuine question of material fact existed whether defendants
materially misrepresented the mouse problem and the age of the roof. Plaintiff argues that the
trial court erred in nevertheless dismissing his claims on the grounds that there was no genuine
question of material fact whether plaintiff reasonably relied on those misrepresentations. We
agree.
Initially, defendants argue that they did not knowingly make any false statements, but we
agree with the trial court that, when viewed in the light most favorable to plaintiff, the trial court
correctly found a question of fact. Circumstantial evidence may be considered to determine
whether genuine issues of material fact exist for summary disposition. Bergen, 264 Mich. App. at
387. “Moreover, questions concerning the state of one’s mind, including intent, motivation, or
knowledge can be proven by circumstantial evidence.” Id.
Both defendants testified that they only ever had one or two mice in the house over the
entire course of their time living there. Arnold testified that they bought mouse poison after
finding mouse droppings but had no subsequent problems. Ann testified, however, that she
routinely set out baits for a majority of the time that defendants lived in the home. Guitar
asserted that Arnold initially denied a mouse problem but then acknowledged that mice may
have been infiltrating the basement as a result of a craft project. Plaintiff testified that he found
dead and decayed mice, feces, burrows, baits and traps throughout the home upon demolition.
Plaintiff testified that there was a pervasive odor upon moving in that he did not initially notice
because defendants had placed air fresheners throughout the house during the prior
walkthroughs. A pest control technician who treated the house concluded that, based on his
experience, the former owners of the home had baited for mice. Plaintiff testified that he
discovered over thirty poison boxes, traps, and peanut baits, in addition to approximately fifty
dead mice. The sheer magnitude of the alleged infestation is powerful circumstantial evidence
that defendants could not have been unaware of the mouse problem. Thus, a question of material
fact exists regarding whether defendants made a material misrepresentation of the mouse
problem.
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Regarding the age of the roof, Arnold testified that it could have been older than the five
to six years indicated on the SDS. Ann testified that they made an approximation of the age, and
thought that their approximation was accurate. However, the documents from the roof tear off
and replacement indicated that the work was done in 2006. Thus, the roof was about nine years
old at the time that defendants completed the SDS. Therefore, the trial court did not err in
determining that a question of fact existed regarding whether defendants made a material
misrepresentation regarding the age of the roof. In contrast, although defendants made an
insurance claim for water damage just months before closing, there is no evidence that there had
ever been any water infiltration into the basement. The SDS specifically inquired into evidence
of water in the “Basement/Crawlspace.” Therefore, it does not appear that defendants made a
material misrepresentation by answering “No” on this disclosure because there was no evidence
of water in the basement before closing.
The primary issue, therefore, is whether the trial court properly determined that “plaintiff
has not established he relied on the [SDS] in purchasing the house.” Plaintiff testified that he
received the SDS when he signed the paperwork at closing. Plaintiff testified that the first time
he remembered reading the SDS was at closing2. Plaintiff testified that he relied on the
inspection, appraisal, and final walkthrough in deciding to proceed with closing and purchasing
the house. Plaintiff relies on the following testimony that he gave to argue that he also relied on
the SDS:
Q. And if in the [SDS] under History of Infestation it was indicated that
there was a mouse infestation in your house, would your wife have ever allowed
you to purchase that home?
A. No.
Q. Would you have ever wanted to purchase that home?
A. No.
Q. And who would have known about this infestation the best prior to the
closing on the home?
A. The home – the homeowners.
In denying plaintiff’s motion for partial reconsideration, the lower court determined that this
testimony did not establish reliance because it was phrased as a hypothetical. However, plaintiff
also testified as follows:
Q. So at closing – you testified the last time you remember the [SDS] was
at closing; correct?
2
As noted, plaintiff’s signature on the SDS is dated August 31, 2015, which is two days before
signing the Purchase Agreement, and over a month before officially closing.
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A. That’s when I remember seeing it, yes.
Q. So can you say you relied on the [SDS] in deciding to purchase the
house?
A. That, and my wife and I liking the house because the school district
and where the house was.
Q. So are you saying you relied on the [SDS] in purchasing that house?
A. Also that my wife liked the house and that I liked the house.
Q. And also the inspection report?
A. And them signing there was nothing wrong with the house, yes.
Although this testimony is not a model of clarity, when plaintiff responded to the question
regarding reliance by saying, “That, and [ . . . ],” it can be reasonably inferred that plaintiff is
referring to the preceding noun in the question, which is the SDS. Thus, although plaintiff
testified that he did not see the SDS until closing, he also indicated that he relied on it in making
his decision to purchase the residence. Furthermore, when plaintiff said that he relied on “them
signing there was nothing wrong with the house,” he is seemingly referring to the defendants’
disclosures in the SDS, rather than the report by the professional inspector.
As noted, at summary disposition, the evidence and any reasonable inferences therefrom
must be viewed in the light most favorable to the non-moving party. Because plaintiff testified
that he relied on the SDS, the trial court erred in determining that he failed to establish reliance.
Plaintiff’s testimony creates a genuine issue of material fact regarding the reliance elements of
his fraudulent misrepresentation and negligent misrepresentation claims. Therefore, the trial
court erred in dismissing these claims on that basis.
V. DUE DILIGENCE
The trial court also opined that fraud-based claims required plaintiff to exercise due
diligence to discover the fraud. The trial court erred.
MCL 565.955(1) provides:
The transferor or his or her agent is not liable for any error, inaccuracy, or
omission in any information delivered pursuant to this act if the error, inaccuracy,
or omission was not within the personal knowledge of the transferor, or was based
entirely on information provided by public agencies or provided by other persons
specified in subsection (3), and ordinary care was exercised in transmitting the
information. It is not a violation of this act if the transferor fails to disclose
information that could be obtained only through inspection or observation of
inaccessible portions of real estate or could be discovered only by a person with
expertise in a science or trade beyond the knowledge of the transferor.
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In dismissing plaintiff’s claims, the court stated:
Furthermore, the mouse problem and the age of the roof were not concealed but
should have been discovered by a reasonably competent inspector. Indeed,
plaintiff testified dead mice started falling when he removed drop-ceiling panels
in the basement and a roofer was able to estimate the age of the roof.
The trial court relied on an unpublished decision,3 which cited Conahan v Fisher, 186
Mich. App. 48; 463 NW2d 118 (1990). In Conahan, the plaintiff buyers sought damages from the
defendant sellers for a termite infestation in a home that the plaintiffs bought “as is.” The
plaintiffs argued that there were genuine issues of material fact regarding the defendants’
knowledge of the termite problem and their duty to disclose it to the plaintiffs. Conahan, 186
Mich. App. at 49. The plaintiffs viewed the home and had a professional inspection done, and
they discovered no termites before the purchase. Id. at 50. However, a termite expert opined
that a competent inspector should have discovered the termites. Id. Because the condition was
not concealed, the defendants had no duty to disclose the termite problem, so this Court affirmed
summary disposition in the defendants’ favor. Id.
Plaintiff relies on another unpublished decision, as well as Titan Ins Co v Hyten, 491
Mich. 547, 557; 817 NW2d 562 (2012), which held:
although the doctrines of actionable fraud, innocent misrepresentation, and silent
fraud each contain separate elements, none of these doctrines requires that the
party asserting fraud prove that the fraud could not have been discovered through
the exercise of reasonable diligence. Stated differently, these doctrines do not
require the party asserting fraud to have performed an investigation of all
assertions and representations made by its contracting partner as a prerequisite to
establishing fraud.
The trial court agreed that under Titan, a party alleging fraud had no duty to investigate the
alleged misrepresentations, but the Titan Court also held that a person could not “ ‘close his eyes
to that which others clearly see.’ ” Titan, 491 Mich. at 562, quoting Keys v Pace, 358 Mich. 74,
84; 99 NW2d 547 (1959). Thus, the trial court determined that Conahan did not violate Titan
because the Conahan Court did not obligate parties alleging fraud to investigate a representation.
Rather, a party that chose to investigate by conducting an inspection will be imputed the
knowledge of what a reasonably competent inspector should have discovered. The court
determined that the record supported the conclusion that plaintiff’s inspector should have
discovered the mouse problem.
We disagree with the analysis of the trial court. Conahan involved a claim of fraudulent
concealment, whereas the instant matter involves a claim of fraudulent misrepresentation. The
holding in Titan that a party claiming fraud need not investigate a representation was extended to
real estate transactions:
3
Unpublished decisions are not binding under the rule of stare decisis. MCR 7.215(C)(1).
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Defendants next rely on the general rule that there cannot be any fraud if
the party allegedly defrauded had the means to determine for him- or herself the
truth of the matter. Although defendants accurately state the general rule, it is not
an absolute. As this Court has explained, that general rule is only applied when
the plaintiffs “were either presented with the information and chose to ignore it or
had some other indication that further inquiry was needed.” Furthermore, it has
long been the rule that, at least when a defrauded party troubled to examine some
extrinsic evidence supporting a false statement, that party owes no duty to the
defrauder to exercise diligence to uncover additional evidence disproving the
defrauder’s representations. [Alfieri, 295 Mich. App. at 194-194 (citations
omitted).]
Plaintiff testified that it would have been impossible for the inspector to discover the defects and
mouse infestation during the initial walkthroughs. Plaintiff explained that defendants had plastic
sheeting covering the walls. Furthermore, the infestation was only discovered after plaintiff
began removing insulation and drywall as part of an electrical upgrade process. The magnitude
of the issue was only discovered once plaintiff hired a second inspector, who instructed him to
cut out large pieces of drywall.
The trial court is correct in holding that plaintiff could not willfully ignore known facts,
but incorrect in concluding that plaintiff was obligated to conduct destructive investigations into
the veracity of defendants’ representations. Whether the defects were reasonably discoverable
upon inspection is irrelevant to plaintiff’s claims for fraudulent misrepresentation and negligent
misrepresentation.
VI. CONCLUSION
We reverse the trial court’s order granting summary disposition in favor of defendants
and remand for further proceedings. We do not retain jurisdiction. Plaintiff, being the prevailing
party, may tax costs. MCR 7.219(A).
/s/ Colleen A. O'Brien
/s/ Kathleen Jansen
/s/ Amy Ronayne Krause
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