Underwood v. Risman

414 Mass. 96 (1993) 605 N.E.2d 832

MICHAEL UNDERWOOD & others^[1]
vs.
ROBERT RISMAN & others.^[2]

Supreme Judicial Court of Massachusetts, Middlesex.

October 6, 1992. January 8, 1993.

Present: LIACOS, C.J., WILKINS, ABRAMS, NOLAN, LYNCH, O'CONNOR, & GREANEY, JJ.

Daniel J. Gleason (Christopher R. O'Hara with him) for Robert Risman & another.

Edmund P. Daley for Michael Underwood.

Philip E. Murray, Jr. (Paul L. Cummings with him) for John Hutchison.

Robert S. Kutner, for Massachusetts Association of Realtors, amicus curiae, submitted a brief.

Cameron F. Kerry, Richard Mirabito, Robert C. Tommasino & Gerald T. Anglin, for Massachusetts Property Insurance Underwriters Association, amicus curiae, submitted a brief.

LYNCH, J.

The defendant, Robert Risman, appeals from a judgment in which a Superior Court judge ruled that failure to disclose to childless prospective tenants the likelihood of the presence of lead-based paint in a residential dwelling was a wilful and knowing act of deception proscribed by G.L.c. 93A, § 2 (1990 ed.).^[3] The judge ruled that this conduct was causally related to the injuries sustained by the plaintiff which were caused by the ingestion of lead-based paint particles. The plaintiff was awarded damages in the amount of $2,212,925, which included trebled damages, attorney's fees, costs, and prejudgment interest.

Risman also appeals from the grant of summary judgment in favor of the defendant in cross claim, John Hutchison, on Risman's claim for indemnification based on a clause in their purchase and sale agreement for the residence in the underlying action. We granted Risman's application for direct appellate review. We conclude that Risman is not subject to liability under c. 93A for not disclosing the possibility of lead-based paint in a residential dwelling to childless prospective tenants. We reverse the judgment of the Superior Court for the plaintiff; it is, therefore, unnecessary for us to decide the question whether summary judgment was properly granted on the indemnity claim in favor of Hutchison.

The judge heard the case without a jury and made findings of fact and rulings of law. Mass. R. Civ. P. 52, 365 Mass. 816 (1974). Risman was an experienced owner and broker of residential real estate. In May, 1981, Risman purchased the two-family dwelling at 15 Sherman Street in Medford. On July 15, 1981, Sandra Riddick-Underwood and Willie Underwood (Underwoods), a young, childless couple, signed a lease with Risman to rent the second floor apartment at 15 Sherman Street. The lease agreement limited the tenancy to the Underwoods and contained a clause specifically prohibiting children.^[4] The possibility of lead-based paint being present in the apartment was not raised by either Risman or the Underwoods despite both Risman and the Underwoods admitting at trial to a general knowledge that older houses had a higher likelihood of lead-based paint and that lead-based paint ingestion is a health hazard for children.^[5]

The Underwoods moved into 15 Sherman Street on August 1, 1981. Shortly thereafter, on August 25, 1981, Risman entered into a purchase and sale agreement with Hutchison for the sale of the property. The agreement contained a "lead paint clause" which provided that the "buyer will assume the full responsibility" for inspection and deleading of the property. It also stated that Risman made no warranty or representation regarding the level of lead-based paint in the property. Risman conveyed the property by quitclaim deed on September 10, 1981.

In November, 1981, Sandra Riddick-Underwood learned that she was pregnant and inquired of Hutchison whether the apartment contained lead-based paint. Although Hutchison told her that he was unsure, he left three months later for an extended trip to Africa without checking or testing for lead-based paint. The plaintiff was born on April 17, 1982. In August of 1982, Sandra Riddick-Underwood requested an inspection which revealed high levels of lead-based paint in the apartment. The board of health of Medford mailed a notice to the owner, Hutchison, declaring an emergency and ordering remedial action within seven days. Hutchison began the deleading process himself in late August or early September, 1982, continuing it over a period of approximately four months.^[6] The plaintiff and his mother would remain away from the apartment during the actual deleading process, but they would return to sleep in the apartment despite the presence of dust from the deleading process which permeated the air and covered the furniture. In November, 1982, the plaintiff required medical intervention when blood tests revealed a toxic level of lead in his bloodstream. The plaintiff now suffers from hyperactivity and attention deficit disorder. Based on the plaintiff's expert witness testimony, the damages found by the judge before trebling were $100,000 for pain and suffering, and $505,755 for diminished earning capacity.

1. Applicability of c. 93A. Risman contends in part that the judge erred in ruling that nondisclosure of the presence of lead-based paint constituted a violation of c. 93A, § 2, in the circumstances of this case. Further, Risman argues that the nondisclosure here was not material nor causally related to the injury sustained by the plaintiff. We conclude that the facts of this case do not support a material, knowing, and wilful nondisclosure which violated § 2.

There was no appeal from the entry of summary judgment for Risman on the plaintiff's claims arising under G.L.c. 111, § 197 (1990 ed.), the lead-based paint statute. Since Risman did not own the dwelling when a child six years of age resided therein, nor did he own the dwelling when the injury occurred, he was not required by G.L.c. 111, § 197, to disclose to prospective tenants that the residence might contain lead-based paint.

We must determine, therefore, whether any such duty exists under G.L.c. 93A. A duty exists under c. 93A to disclose material facts known to a party at the time of a transaction. action. See Nei v. Burley, 388 Mass. 307, 316-317 (1983); Sheehy v. Lipton Indus., 24 Mass. App. Ct. 188, 195 (1987); Lawton v. Dracousis, 14 Mass. App. Ct. 164, 170 (1982). There is no liability for failing to disclose what a person does not know. Sheehy v. Lipton, Indus., supra at 196. The judge based his ruling that Risman should have disclosed the presence of lead-based paint not on Risman's knowledge, but on his experience in real estate, his testimony that he was aware of the hazards associated with lead-based paint, and his awareness that older houses have a higher likelihood of lead-based paint. Thus, the judge imposed liability because of a suspicion or a likelihood, rather than knowledge. This ruling extends liability for nondisclosure far beyond the principles previously articulated by the appellate courts of this Commonwealth. We have never imposed liability for nondisclosure of a fact not known by the person against whom liability is sought. "The notion of disclosure necessarily implies that the fact in question is known to the person expected to disclose it." Lawton v. Dracousis, supra at 170, quoting Restatement (Second) of Contracts § 161 comment b (1979). Culpability turns on Risman's state of mind at the time of the letting of the apartment. International Fidelity Ins. Co. v. Wilson, 387 Mass. 841, 853-856 (1983). Knowing requires more than negligence. Id. at 854-855. See Linthicum v. Archambault, 379 Mass. 381, 388 (1979); Heller v. Silverbranch Constr. Corp., 376 Mass. 621, 627-628 (1978). It has been suggested that actual knowledge may not be required if such knowledge can be inferred from receipt of a complaint which requires an investigation of the facts. Rice, New Private Remedies for Consumers: The Amendment of Chapter 93A, 54 Mass. L.Q. 307, 319 (1969). Even this suggestion, which goes farther than any of the decided cases, is inapplicable because there was no hint of such a complaint being directed to Risman during the period of his ownership of the locus. Liability will attach when there is a partial disclosure, misrepresentation, or false statement. See York v. Sullivan, 369 Mass. 157, 162 (1975) (unfair or deceptive act to fail to inform prospective tenants of pending application for rent increase); Fraser Eng'g Co. v. Desmond, 26 Mass. App. Ct. 99, 103-104 (1988) (unfair or deceptive act where developer failed to honor his assurance that plaintiff would be paid from insurance proceeds); Homsi v. C.H. Babb Co., 10 Mass. App. Ct. 474, 478 (1980) (seller "made a promise, knowing [it] could not be kept and that the plaintiffs would rely on [the] promise," found to constitute unfair or deceptive act). Nondisclosure is the failure to "disclose to another a fact that [one] knows may justifiably induce the other to act or refrain from acting in a business transaction ... [if one] is under a duty to the other to exercise reasonable care to disclose the matter in question." Restatement (Second) of Torts § 551 (1977). None of these principles results in the imposition of liability on Risman because the factual prerequisites are missing.

As the judge ruled, c. 93A creates new substantive rights and procedural devices to enforce those rights beyond the traditional requirements of tort and contract law. Slaney v. Westwood Auto, Inc., 366 Mass. 688, 693 (1975). Broad as this legislative intent may be, to find a breach of statutory duty arising under c. 93A applicable to the facts of this case would unduly extend the reach of that statute beyond anything suggested by the statutory language or the prior appellate decisions. See McGrath v. Mishara, 386 Mass. 74, 85 (1982).

2. The interpretive regulations. Regulations have been promulgated by the Attorney General under the authority of G.L.c. 93A, § 2, interpreting the provisions of c. 93A. Title 940 Code Mass. Regs. § 3.16 (2) (1986)^[7] provides, in pertinent part, that it is a violation of G.L.c. 93A, § 2, to fail to disclose to a buyer any fact the disclosure of which may have influenced the buyer not to enter into the transaction. At the time 940 Code Mass. Regs. § 3.16 (2) was initially adopted in 1971, G.L.c. 93A did not apply to the landlord-tenant relationship. See G.L.c. 93A, § 1, as amended by St. 1969, c. 814, § 1. After the Legislature amended c. 93A to expand its coverage to apply to such rental agreements, St. 1972, c. 123, the Attorney General promulgated the regulations codified in 940 Code Mass. Regs. § 3.17 (1974). Section 3.17 (1) (b) & (c) applies specifically to disclosure requirements in such situations.^[8]

The parties argue about the applicability of these regulations and whether § 3.16 (2) applies in view of the more specific provisions of § 3.17 (1) (b) & (c). It is not necessary for us to resolve this controversy. Section 3.16 (2) adds little, if anything, to the provisions of the statute itself. The judge apparently reached the same conclusion because, in finding an unfair nondisclosure, he relied primarily on the statute rather than § 3.16 (2). In ruling on the defendant's motion for reconsideration he dismissed the defendant's contention that, because he had complied with 940 Code Mass. Regs. § 3.17 (1) (b) & (c), he could not be liable under G.L.c. 93A, § 2. In so doing the judge stated that "[t]he nondisclosures in this case were unfair and deceptive under c. 93A, § 2. The implementing Regulations cannot sensibly be construed to permit that which the underlying statute forbids." We agree with the latter statement. However, since we have previously concluded that the statute imposes no liability for nondisclosure in the circumstances before us, we do not reach the question whether the more general regulation has any viability in view of the later adopted, more specific, provisions of § 3.17 (1) (b) & (c).

Judgment reversed.

NOTES

[1] Sandra Riddick-Underwood and Willie Underwood. We refer to a single plaintiff.

[2] Risman Real Estate Corp. and John Hutchison. The plaintiff's claims against Hutchison were settled prior to trial and dismissed with prejudice. Risman filed a cross claim against Hutchison for indemnification.

[3] General Laws c. 93A, § 2 (1990 ed.), declares unlawful "unfair or deceptive acts or practices in the conduct of any trade or commerce." Lessees of real property can sustain injury and receive protection within the purview of c. 93A. Leardi v. Brown, 394 Mass. 151, 159 (1985). McGrath v. Mishara, 386 Mass. 74, 86 (1982).

Partial summary judgment had previously been granted for Risman on claims of negligence, breach of implied warranty of habitability, and breach of the covenant of quiet enjoyment.

[4] General Laws c. 151B, § 4 (11) (1990 ed.), provides, with exceptions not pertinent to Risman, that it is unlawful for an owner of real estate to refuse to rent or to lease to anyone with children; thus the judge found the clause to be void.

[5] Sandra Riddick-Underwood, a licensed practical nurse, testified that she knew what the hazards of lead-based paint ingestion were but thought lead-based paint remained only in the inner city "slum areas."

[6] Willie Underwood assisted with the deleading process on at least one occasion.

[7] Section 3.16 (2) of 940 Code Mass. Regs. (1986) states:

"Without limiting the scope of any other rule, regulation or statute, an act or practice is a violation of M.G.L.c. 93A, s. 2 if: ...

"(2) Any person or other legal entity subject to this act fails to disclose to a buyer or prospective buyer any fact, the disclosure of which may have influenced the buyer or prospective buyer not to enter into the transaction...."

[8] Section 3.17 (1) (b) & (c) of 940 Code Mass. Regs. (1986) states:

"(1) Conditions and Maintenance of a Dwelling Unit. It shall be an unfair or deceptive act or practice for an owner to: ...

"(b) Fail, during the terms of the tenancy, after notice is provided in accordance with M.G.L.c. 111, s. 127L, to

"1. remedy a violation of law in a dwelling unit which may endanger or materially impair the health, safety, or well-being of the occupant, or

"2. maintain the dwelling unit in a condition fit for human habitation; provided, however, that said violation of law was not caused by the occupant or others lawfully upon said dwelling unit;

"(c) Fail to disclose to a prospective tenant the existence of any condition amounting to a violation of law within the dwelling unit of which the owner had knowledge or upon reasonable inspection could have acquired such knowledge at the commencement of the tenancy."