BSA Construction LLC v. Jimmie E. Johnson

FILED
May 16 2016, 5:37 am
CLERK
Indiana Supreme Court
Court of Appeals
and Tax Court
ATTORNEY FOR APPELLANT ATTORNEY FOR APPELLEE
G. Jayson Marksberry Anthony S. Ridolfo
Marksberry Law Office, LLC Hackman Hulett LLP
Brownsburg, Indiana Indianapolis, Indiana
IN THE
COURT OF APPEALS OF INDIANA
BSA Construction LLC, May 16, 2016
Appellant-Plaintiff, Court of Appeals Case No.
49A02-1506-CT-749
v. Appeal from the Marion Superior
Court
Jimmie E. Johnson, The Honorable Heather Welch,
Appellee-Defendant Judge
Trial Court Cause No.
49D01-1204-CT-13525
Bailey, Judge.
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Case Summary
[1] BSA Construction, LLC (“BSA”) entered into an agreement to sell residential
real estate to Lilia Lopez (“Lopez”). Lopez obtained financing from Bank of
America (“the Bank”), pending the Bank’s final approval upon appraisal of the
property. The Bank contracted with LandSafe, an appraisal agency, which in
turn retained Jimmie E. Johnson (“Johnson”) to conduct the appraisal. Based
upon Johnson’s appraisal, the Bank refused to extend financing. BSA sued
Johnson, alleging negligence, fraud, and slander of title. Johnson sought
summary judgment on all of BSA’s claims, and the trial court granted the
motion.
[2] BSA now appeals. We affirm.
Issues
[3] BSA raises several issues for our review. We restate these as whether the trial
court erred when it entered summary judgment with respect to BSA’s claims
against Johnson for negligence, fraud, and slander of title.
Facts and Procedural History
[4] BSA is in the business of buying and selling residential real estate. In 2010,
BSA purchased a particular parcel of residential real estate in Indianapolis and
made improvements to the property. BSA then sought to sell the property, and
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set an asking price of $64,900. In June 2011, BSA accepted Lopez’s offer to
purchase the real estate for $60,000, with an earnest money deposit of $500.
[5] Lopez obtained prospective financing for the purchase of the real estate from
the Bank. Pursuant to the financing agreement with Lopez, and within the
scope of the sales contract between Lopez and BSA, the Bank retained
LandSafe to appraise the property, with the understanding that a final financing
agreement would depend upon suitable appraisal results.
[6] LandSafe retained Johnson to perform the appraisal of the property. Johnson
appraised the real estate at a value of $50,000, $10,000 less than the agreed-
upon sale price. As a result of the appraisal, the Bank declined to extend Lopez
financing to purchase the property.
[7] Working with its realtor, BSA appealed the Bank’s decision. The Bank asked
Johnson to review and, if appropriate, revise the appraisal. Johnson revised the
appraisal in certain respects, but left in place his prior valuation of the real
estate. Pursuant to this, the Bank denied BSA’s appeal.
[8] On September 26, 2011, BSA filed suit against Johnson in Hendricks County,
articulating theories of relief based in negligence of a professional to a third
party, fraud, slander of title, and statutory causes of action for deceptive
practices associated with a home loan transaction. Johnson sought a change of
venue, and by the parties’ stipulation the case was transferred to Marion
County on March 14, 2012.
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[9] On September 30, 2014, Johnson filed a motion for summary judgment. BSA
responded to the motion, designating evidentiary materials in support of its
response. Johnson replied and filed a motion to strike numerous items from
BSA’s designated materials. After a hearing on April 23, 2015, on May 27,
2015, the trial court partially granted Johnson’s motion to strike and entered
summary judgment for Johnson and against BSA.1
[10] This appeal ensued.
Discussion and Decision
Standard of Review
[11] BSA appeals the trial court’s entry of summary judgment. On appeal, our
standard of review is the same as the standard applied by the trial court. Hewitt
v. Westfield Washington Sch. Corp., 46 N.E.3d 425, 430 (Ind. 2015). A party
seeking summary judgment “shall designate to the court all parts of pleadings,
depositions, answers to interrogatories, admissions, matters of judicial notice,
and any other matters on which it relies for purposes of the motion,” and a
party in opposition to the motion must do likewise. Ind. Trial Rule 56(C).
[12] In assessing the evidentiary materials, the court must draw all reasonable
inferences in favor of the non-moving party. Williams v. Tharp, 914 N.E.2d 756,
1
The trial court entered summary judgment for Johnson with respect to several statutory claims advanced by
BSA. BSA does not challenge these portions of the judgment on appeal, and we accordingly leave them
undisturbed.
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761 (Ind. 2009). “The judgment sought shall be rendered forthwith if the
designated evidentiary matter shows that there is no genuine issue as to any
material fact and that the moving party is entitled to a judgment as a matter of
law.” Id. Further, a trial court’s entry of summary judgment is clothed with a
presumption of validity upon appeal, and the party challenging the entry of
summary judgment must bear the burden of proving that the trial court erred in
its application of the summary judgment standard. Id. We carefully assess the
trial court’s decision to ensure the appealing party has not been improperly
denied its day in court. McSwane v. Bloomington Hosp. & Healthcare Sys., 916
N.E.2d 906, 909-10 (Ind. 2009). “We will reverse if the law has been
incorrectly applied to the facts. Otherwise, we will affirm a grant of summary
judgment upon any theory supported by evidence in the record.” Woodruff v.
Ind. Family & Social Servs. Admin., 964 N.E.2d 784, 790 (Ind. 2012).
Negligence
[13] BSA’s first contention on appeal is that the trial court erroneously concluded
that Johnson did not owe BSA a duty of care on negligence principles.
Generally, whether a duty exists is a question of law for the court to decide.
Rhodes v. Wright, 805 N.E.2d 382, 386 (Ind. 2004). Determining whether a duty
exists is sometimes dependent upon underlying facts that must be resolved by a
trier of fact. Id. Here, the trial court concluded that BSA had conceded that
Johnson lacked actual knowledge required for a duty to arise. While we agree
that Johnson had no duty of care toward BSA, we reach that conclusion on
different grounds.
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[14] BSA rests its negligence claim in part on its contention that it was a third-party
beneficiary to Johnson’s contract with the Bank. The status of a third-party
beneficiary to a contract can serve as the basis of duty in a negligence action.
Emmons v. Brown, 600 N.E.2d 133, 134 (Ind. Ct. App. 1992). However, “in
Indiana, a professional owes no duty to one with whom he has no contractual
relationship unless the professional has actual knowledge that such third person
will rely on his professional opinion.” Id. at 135. The trial court applied the
rule in Emmons to conclude that, despite BSA’s third-party relationship as to
Johnson and the Bank, Johnson had no actual knowledge that BSA would rely
on his appraisal opinion.
[15] The actual knowledge standard in Emmons is, as the Seventh Circuit Court of
Appeals has observed, the rule announced by then-Chief Judge Cardozo of the
Court of Appeals of New York in Ultramares Corp. v. Touche, 174 N.E. 441
(N.Y. 1931). Decatur Ventures, LLC v. Daniel, 485 F.3d 387, 390 (7th Cir. 2007)
(citing Ultramares, supra). In Ultramares, an accounting firm, Touche, Niven &
Co. (“Touche”) was retained to prepare an audit opinion for Fred Stern & Co,
Inc. (“Stern”). 174 N.E. at 442-43. The information upon which Touche relied
was inaccurate because the balance sheet had been falsified by Stern’s
management. Id. at 443. Touche, relying upon the falsified records, issued an
audit opinion stating that Stern was solvent when Stern was actually insolvent.
Id. After Touche issued the audit opinion, Stern used the opinion to obtain
financing from Ultramares, shortly after which Stern declared bankruptcy. Id.
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[16] Ultramares sued Touche, contending that Touche was negligent in its
preparation of the audit report, and that the negligence was the cause of
Ultramares’s damages because the company relied upon the accuracy of
Touche’s report in making the decision to loan money to Stern. Id. at 442-43.
Ultramares prevailed at trial, and Touche appealed. On appeal, the Court of
Appeals of New York held that Touche had been negligent in preparing the
audit report, but that Touche could not be liable to Ultramares “if there has
been neither reckless misstatement nor insincere profession of opinion, but only
honest blunder.” Id. at 448. Where there had been only negligence—that is,
where there is no “[s]cienter…an indispensable element,” id. at 447—the court
held that Touche’s duty extended only to those parties with whom the
accountants were in privity. Id. at 448. To further extend the duty of care
would, the Ultramares court observed, be “coincident or nearly so with the duty
to refrain from fraud”—or, rather, would blur the distinction between
negligence and fraud. Id. at 447.
[17] The rule in Ultramares has been extended somewhat so that “a professional
owes a duty of care only to his client plus any third party who the professional
knows will see and rely on any opinion he renders.” Decatur, 485 F.3d at 390.
This holding, as the Ultramares Court observed, avoids a situation where
“[n]egligence…will have one standard when viewed in relation to the employer,
and another and at times a stricter standard when viewed in relation to the
public.” 174 N.E. at 448.
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[18] Indiana courts have construed the Ultramares rule quite narrowly. Thus, in
Emmons, this Court concluded that an appraiser owed no duty to a buyer of real
estate whose name appeared multiple times in documents used by the appraiser
to value the home—even where the appraiser’s failure to properly appraise the
property led to the buyers’ incurring costs when the roof of the home failed.
600 N.E.2d at 135-36. This is because, as the Emmons Court noted, the duty
owed by the appraiser was to the FHA for the purpose of underwriting risk to
the FHA and its insurers. Id. at 134-35. And, as the Seventh Circuit observed,
“appraisers expect lenders to use their opinions to protect themselves from
borrowers.” Decatur, 485 F.3d at 390 (emphasis in original). This observation
applies a fortiori to the risk posed to lenders from sellers who, if anything, want
more money from lenders than borrowers do.
[19] BSA argues that it is “self-evident” to licensed real estate professionals that
appraisers like Johnson owe a duty of care to sellers in situations like the one in
this case. (Appellant’s Br. at 20.) To further its point, BSA observes that the
standard purchase agreement form used by realtors in central Indiana includes
the following text: “If buyer obtains an appraisal of the property, this
agreement is contingent upon the property appraising at no less than the agreed
upon purchase price.” (Appellant’s Br. at 21.) Despite this, and despite the
designated evidence that both buyer and seller real estate agents know of this
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contingency, BSA insists that Johnson be held liable to BSA for alleged errors
in the appraisal.2
[20] BSA appears to insist that Johnson be held liable to BSA for a professional
opinion intended to secure the Bank against BSA’s representations to its buyer
and to the Bank concerning the value of the real estate. In an arms-length
transaction like the one here, we cannot conclude that Johnson had any duty to
serve two masters with conflicting interests. Whether Johnson was bound by or
aware of the code of ethics of a professional association, or knew that a poor
appraisal might be associated with the real estate for some period of time, does
not change the fundamental arrangement of the duties at issue here. And,
despite BSA’s suggestions to the contrary, the law determines whether a duty of
care exists—not a non-governmental professional association’s code of ethics.
[21] To reach BSA’s suggested conclusion would be to require that an agent of the
Bank serve instead as an agent of the seller, disrupting the basic purpose of the
Bank’s contract with the appraiser in derogation of basic contract law
principles. We cannot agree with BSA’s proposed result.
[22] Johnson’s duty was to the Bank and as a matter of law cannot—because of the
contradictory interests at issue—have extended to BSA. And because Johnson
2
BSA places great stock in documents issued by the Mid-Indiana Board of Realtors (“MIBOR”) as
establishing a duty of care. Organizations such as MIBOR are not governmental licensing agencies, but
rather are private professional organizations. Whether Johnson, as an associate member of MIBOR, is
subject to any discipline within that organization is a separate question from that of liability in this case.
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had no duty of care toward BSA, BSA had no basis upon which to rely on
Johnson’s opinion.
[23] Accordingly, BSA could not as a matter of law rely upon Johnson’s opinion,
and entry of summary judgment against BSA was not error.
Fraud
[24] BSA also contends that Johnson’s appraisal report amounted to fraud. The
elements of fraud in Indiana are well established:
To prove fraud, a plaintiff must establish the following elements:
(1) a material misrepresentation of past or existing fact which (2)
was untrue, (3) was made with knowledge of or in reckless
ignorance of its falsity, (4) was made with the intent to deceive,
(5) was rightfully relied upon by the complaining party, and (6)
which proximately caused the injury or damage of which the
plaintiff complains.
Angel v. Powelson, 977 N.E.2d 434, 445 (Ind. Ct. App. 2012) (citing, inter alia,
Lawyers Title Ins. Co. v. Pokraka, 595 N.E.2d 244, 249 (Ind. 1992)).
[25] The trial court concluded that, as a matter of law, BSA could not pursue a fraud
claim against Johnson because Johnson’s appraisal was a statement of opinion
rather than of fact. This Court has observed, in the context of appraisals of real
estate, that “[m]ere expressions of opinion cannot be the basis for an action in
fraud; an action in fraud requires misrepresentation of material fact.” Block v.
Lake Mortg. Co., 601 N.E.2d 449, 451 (Ind. Ct. App. 1992). BSA argues,
directing our attention to the holdings of courts in other states, that
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representations of quality or condition should give rise to an action in fraud
when they are asserted as fact. (Appellant’s Br. at 23.)
[26] Even if we were to adopt such a rationale, there nevertheless remains the
problem of reliance. Reliance by its nature requires not merely that a
misstatement was made, but also that the complaining party took some kind of
action in response to the misstatement. BSA took action before the appraisal by
entering into a sales contract with a contract provision that indicated the sale
depended upon financing and, in turn, an appraisal. But BSA directs us to no
detrimental action or change of position on its part after Johnson was retained
to perform the appraisal. Moreover, BSA acknowledges that the risk to the
transaction of an unfavorable appraisal was known to it in advance of
Johnson’s work appraising the real estate. (Appellant’s Br. at 21.)
[27] Nevertheless, BSA insists that it was defrauded, advancing an upside-down
theory of fraud. Rather than fraud resulting from action taken in reliance upon
representations already made, BSA suggests that the purportedly fraudulent
representation may come after reliance—in this case, entering into the sales
agreement—has already occurred. We thus decline to adopt the approach BSA
suggests.
[28] We accordingly conclude that the trial court did not err when it granted
Johnson’s motion for summary judgment as to BSA’s fraud claim.
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Slander of Title
[29] We turn now to BSA’s contention that the trial court erred when it entered
summary judgment as to its slander of title claim.
[30] This state first recognized the tort of slander of title in May v. Anderson, 14 Ind.
App. 251, 42 N.E. 946 (1896). In establishing the cause of action, the May
Court stated that a recovery for slander of title required proof that “statements
were false; that they were made maliciously, and that thereby the completion of
the trade was prevented,” causing the plaintiff damages. May, 42 N.E. at 947.
Crucially, in May, May had stated that he held a lien on real estate Anderson
was attempting to sell, and May’s false claim of a lien prevented the sale; that
is, May made a false statement concerning the existence and nature of
Anderson’s title to the property, not a false statement concerning the property’s
monetary value. Id. In subsequent cases, this Court has reaffirmed that an
actionable claim of slander of title requires proof that “the defendant made
false, malicious statements regarding the plaintiff’s ownership of the land in
question.” Walsh & Kelly, Inc. v. Int’l Contractors, Inc., 943 N.E.2d 394, 398 (Ind.
Ct. App. 2011) (citing Davis v. Sponhauer, 574 N.E.2d 292, 300 (Ind. 1991))
(emphasis added), trans. denied.
[31] Here, BSA has not made an allegation that Johnson impugned BSA’s claim of
title to the real estate. Further, the undisputed facts show that Johnson
concluded that the real estate had a value different from that which BSA sought
to obtain in a sale. This is not, however, the same as making a statement
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concerning the very fact of BSA’s ownership; it is the fact of ownership that the
tort of slander of title protects, not the monetary value per se of the ownership
interest. We accordingly find no error in the trial court’s conclusions
concerning BSA’s claim of slander of title.
Conclusion
[32] The trial court did not err when it granted summary judgment to Johnson on
BSA’s claims for negligence, fraud, and slander of title.
[33] Affirmed.
Bradford, J., and Altice, J., concur.
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