Burklund v. Fuehrer

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www.nebraska.gov/apps-courts-epub/
05/25/2018 09:06 AM CDT
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Nebraska Supreme Court A dvance Sheets
299 Nebraska R eports
BURKLUND v. FUEHRER
Cite as 299 Neb. 949
Todd A. Burklund and Shelly M. Burklund,
appellants, v. Brad Fuehrer and Structure
Technologies, LLC, appellees.
___ N.W.2d ___
Filed May 11, 2018. No. S-17-885.
1. Motions to Dismiss: Pleadings: Appeal and Error. An appellate court
reviews a district court’s order granting a motion to dismiss de novo,
accepting all allegations in the complaint as true and drawing all reason-
able inferences in favor of the nonmoving party.
2. Motions to Dismiss: Pleadings. To prevail against a motion to dismiss
for failure to state a claim, a plaintiff must allege sufficient facts to state
a claim to relief that is plausible on its face. In cases in which a plaintiff
does not or cannot allege specific facts showing a necessary element, the
factual allegations, taken as true, are nonetheless plausible if they sug-
gest the existence of the element and raise a reasonable expectation that
discovery will reveal evidence of the element or claim.
3. Actions: Pleadings: Notice. Civil actions are controlled by a liberal
pleading regime; a party is only required to set forth a short and plain
statement of the claim showing that the pleader is entitled to relief and
is not required to plead legal theories or cite appropriate statutes so long
as the pleading gives fair notice of the claims asserted.
4. Actions: Pleadings. The rationale for a liberal notice pleading standard
in civil actions is that when a party has a valid claim, he or she should
recover on it regardless of a failure to perceive the true basis of the
claim at the pleading stage.
Appeal from the District Court for Lancaster County:
Darla S. Ideus, Judge. Reversed and remanded for further
proceedings.
Elizabeth Ryan Cano and John P. Weis, of Wolfe, Snowden,
Hurd, Luers & Ahl, L.L.P., for appellants.
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Nebraska Supreme Court A dvance Sheets
299 Nebraska R eports
BURKLUND v. FUEHRER
Cite as 299 Neb. 949
Brian S. Kruse, of Rembolt Ludtke, L.L.P., for appellees.
Heavican, C.J., Miller-Lerman, Cassel, Stacy, and Funke,
JJ., and R iedmann, Judge, and M artinez, District Judge.
Miller-Lerman, J.
NATURE OF CASE
This appeal arises from a disputed real estate transac-
tion. Appellants, Todd A. Burklund and Shelly M. Burklund,
sought damages for breach of contract, breach of warranty,
and fraudulent misrepresentation after discovering exten-
sive hail damage to the roof of a real property they were
under contract to purchase from appellees, Brad Fuehrer and
Structure Technologies, LLC (the sellers). The district court
for Lancaster County granted the sellers’ joint motion to
dismiss for failure to state a claim and dismissed the sec-
ond amended complaint with prejudice and without leave to
amend based on the “fact” that the damage was reasonably
ascertainable by the Burklunds. The Burklunds appeal. We
reverse the district court’s dismissal and remand the cause for
further proceedings.
FACTS
On August 11, 2016, the Burklunds entered into a real
estate purchase agreement (the Purchase Agreement) with the
sellers for the purchase of real property in Lincoln, Nebraska
(the Property). The Purchase Agreement included a lease-back
provision whereby the Burklunds agreed to lease the Property,
including a building located on the premises, to the sellers for
a period of 1 year, with a 1-year renewal option, in consider-
ation for monthly rent in the amount of $4,000. The Purchase
Agreement included several addendums which were executed
on the same day.
The Burklunds planned to purchase the Property, in
part, to use it as part of a tax-deferred exchange under the
Internal Revenue Code, I.R.C. § 1031 (2006) (i.e., a like-kind
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Nebraska Supreme Court A dvance Sheets
299 Nebraska R eports
BURKLUND v. FUEHRER
Cite as 299 Neb. 949
exchange). In May 2016, the Burklunds had sold a different
property, the proceeds of which sale they placed into escrow to
accomplish the like-kind exchange. To complete the like-kind
exchange, the Burklunds needed to close on a new property no
later than November 1. The Burklunds selected the Property
for that purpose, and arranged for an initial closing date of
October 6. To this end, addendum No. 4 to the Purchase
Agreement provides, in relevant part:
A material part of the consideration for [the Burklunds’]
purchasing the Property is that [the Burklunds] intend[]
to qualify this transaction as part of a tax-deferred
exchange under Section 1031 of the Internal Revenue
Code. . . . No additional expense or liability will be
incurred by the [sellers] as a result of this like-kind
exchange.
On September 29, 2016, the sellers informed the Burklunds,
for the first time, that the roof of the building on the Property
sustained hail damage earlier in the year; that Structure
Technologies, LLC, received $39,000 from an insurance claim
for that hail damage; and that the roof was not repaired. The
hail damage occurred and the insurance claim was resolved
before the parties executed the Purchase Agreement. The
Burklunds requested to delay closing to inspect the roof.
The Burklunds’ subsequent inspections revealed that the
roof had received substantial hail damage. The Burklunds
learned that while they could obtain insurance for the build-
ing, future damage to the roof would not be covered. The
Burklunds alleged that the inability to fully insure the building
would prevent them from renting the Property at an agreed-
upon amount of $4,000 per month.
The Burklunds alleged that in the Purchase Agreement,
the sellers warranted that they had already disclosed to the
Burklunds “all defects that would ‘significantly alter’ the
‘desirability’” of the building. Brief for appellants at 7. The
relevant contract provisions are as follows:
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Nebraska Supreme Court A dvance Sheets
299 Nebraska R eports
BURKLUND v. FUEHRER
Cite as 299 Neb. 949
7. Condition of Property. This Agreement is based
upon the [Burklunds’] inspection or investigation of
[the] Property. [They] agree[] to accept [the] Property
in its present condition, except as provided in this
Agreement. [The sellers] represent[] that to the best of
[their] knowledge, there are no defects in the Property
that (1) are not reasonably ascertainable and which sig-
nificantly affect the desirability or value of the Property,
or (2) which the [sellers have] not disclosed to [their]
Agent in writing.
Addendum No. 1 provides, in relevant part:
1. Due Diligence. Prior to closing [the Burklunds] shall
have the right to conduct any inspections, and/or tests
[they] deem[] necessary . . . . In the event that [they] dis-
cover[] any condition or circumstance with respect to the
[P]roperty which is unacceptable to [them] in [their] sole
discretion, [they] may terminate the Purchase Agreement
at any time.
Following the discovery of the extensive roof damage and
its impact on insurability, the Burklunds asked to proceed with
closing due to the requirements of the like-kind exchange,
but demanded that the sellers either replace the roof with the
insurance funds or escrow the funds for repairs. According to
the second amended complaint, on October 6, 2016, Fuehrer
represented to the Burklunds’ real estate agent that he would
replace the roof. No such action was taken by November 1,
and the closing did not occur. The Burklunds did not ben-
efit from their planned tax-deferred exchange and thereafter
filed suit.
The Burklunds’ initial complaint filed in 2016 against
Fuehrer; Structure Technologies, LLC; and Pamela A. Manske
was dismissed after a hearing on February 14, 2017. The dis-
trict court granted leave to the Burklunds to file an amended
complaint within 20 days. The Burklunds filed a first amended
complaint on March 3. On March 8, the sellers filed a motion to
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Nebraska Supreme Court A dvance Sheets
299 Nebraska R eports
BURKLUND v. FUEHRER
Cite as 299 Neb. 949
dismiss under Neb. Ct. R. Pldg. § 6-1112(b)(6). The Burklunds
then sought leave to file a second amended complaint under
Neb. Ct. R. Pldg. § 6-1115 by stipulation of the parties. The
district court granted leave, and the Burklunds filed a sec-
ond amended complaint on April 20. The second amended
complaint named only Fuehrer and Structure Technologies as
defendants, and the district court dismissed Manske without
prejudice. The second amended complaint alleged breach of
contract, breach of warranty, and fraudulent misrepresentation.
The Purchase Agreement and addendum No. 4 were attached to
the second amended complaint.
The sellers reinitiated their joint motion to dismiss in which
they contended that the second amended complaint should
be dismissed with prejudice for failure to state a claim upon
which relief can be granted. At the hearing on the motion
to dismiss, the district court received additional addendums
executed simultaneously with the Purchase Agreement.
In a July 21, 2017, order, the district court first determined
that the receipt of addendums to the contract that was the sub-
ject of the suit did not convert the motion to a motion for sum-
mary judgment. The district court then sustained the motion
to dismiss with prejudice for failure to state a claim. The
district court reasoned that the Purchase Agreement “clearly
states it is based upon the [Burklunds’] inspection or investi-
gation of the [P]roperty and [the Burklunds] agreed to accept
the [P]roperty in its present condition unless otherwise pro-
vided in the Agreement” and that “the damage was obviously
reasonably ascertainable as a subsequent roof inspection by
[the Burklunds] disclosed the hail damage.” Finally, the dis-
trict court determined that the remedy of damages sought by
the Burklunds was unavailable under the contract because,
according to the district court, the “[Purchase] Agreement
specifically gives [the Burklunds] the option to terminate the
[Purchase] Agreement.”
The Burklunds appeal.
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Nebraska Supreme Court A dvance Sheets
299 Nebraska R eports
BURKLUND v. FUEHRER
Cite as 299 Neb. 949
ASSIGNMENTS OF ERROR
On appeal, the Burklunds claim that the district court erred
when it (1) dismissed the second amended complaint based on
its determination that the complaint failed to state a claim for
fraudulent misrepresentation, breach of contract, and breach of
warranty and (2) determined that rescission is the only rem-
edy available.
STANDARDS OF REVIEW
[1,2] An appellate court reviews a district court’s order
granting a motion to dismiss de novo, accepting all allega-
tions in the complaint as true and drawing all reasonable
inferences in favor of the nonmoving party. Davis v. State,
297 Neb. 955, 902 N.W.2d 165 (2017). To prevail against a
motion to dismiss for failure to state a claim, a plaintiff must
allege sufficient facts to state a claim to relief that is plausible
on its face. Id. In cases in which a plaintiff does not or cannot
allege specific facts showing a necessary element, the factual
allegations, taken as true, are nonetheless plausible if they
suggest the existence of the element and raise a reasonable
expectation that discovery will reveal evidence of the element
or claim. Id.
ANALYSIS
R eview of Orders of Dismissal
The Burklunds claim that the district court erred when it
granted the motion to dismiss with prejudice for failure to state
a claim. When reviewing an order dismissing a complaint, an
appellate court accepts as true all facts which are well pled and
the proper and reasonable inferences of law and fact which
may be drawn therefrom, but not the plaintiff’s conclusions.
Rodriguez v. Catholic Health Initiatives, 297 Neb. 1, 899
N.W.2d 227 (2017). Accordingly, for the purpose of review-
ing the court’s dismissal of the second amended complaint,
the facts that we have set out in this opinion are the facts as
alleged by the Burklunds, which we accept as true.
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Nebraska Supreme Court A dvance Sheets
299 Nebraska R eports
BURKLUND v. FUEHRER
Cite as 299 Neb. 949
[3,4] Nebraska is a notice pleading jurisdiction. Civil actions
are controlled by a liberal pleading regime; a party is only
required to set forth a short and plain statement of the claim
showing that the pleader is entitled to relief and is not required
to plead legal theories or cite appropriate statutes so long
as the pleading gives fair notice of the claims asserted. Id.
The ration­ale for this liberal notice pleading standard in civil
actions is that when a party has a valid claim, he or she should
recover on it regardless of a failure to perceive the true basis
of the claim at the pleading stage. Id.
As we explain below, we determine that the Burklunds’
second amended complaint contains allegations of facts which
are sufficient to state a claim for relief which is plausible
on its face. Accordingly, we reverse the district court’s order
of dismissal.
Breach ofContract, Breach of Warranty,
and Fraudulent Misrepresentation
In their second amended complaint, the Burklunds alleged
breach of contract, fraudulent misrepresentation, and breach of
warranty. The Burklunds’ claims are based on their interpreta-
tion of paragraph 7 of the Purchase Agreement. As set forth
above, paragraph 7 provides, “[The sellers] represent[] that
to the best of [their] knowledge, there are no defects in the
Property that (1) are not reasonably ascertainable and which
significantly affect the desirability or value of the Property, or
(2) which the [sellers have] not disclosed to [their] Agent in
writing.” The Burklunds contend that they are entitled to relief
both because (1) there are defects in the Property which were
not reasonably ascertainable and which significantly affect
the desirability of the Property and (2) the sellers had not
disclosed defects in the Property. Without commenting on
the Burklunds’ reading of paragraph 7, we conclude that the
Burklunds’ claims are plausible.
In its July 21, 2017, order, the district court character-
ized the second amended complaint as admitting the “fact”
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Nebraska Supreme Court A dvance Sheets
299 Nebraska R eports
BURKLUND v. FUEHRER
Cite as 299 Neb. 949
that the roof damage was “reasonably ascertainable” by the
Burklunds because it was ascertained upon subsequent inspec-
tions. Contrary to the district court’s reading of the second
amended complaint, the Burklunds’ allegation that they ulti-
mately ascertained the extent of the roof damage before closing
does not necessarily mean they admitted the defect was “rea-
sonably” ascertainable.
In their second amended complaint, the Burklunds alleged
only that “[t]hrough the course of the [Burklunds’] inspection,
it was determined that the roof had received substantial hail
damage.” The Burklunds further described an “investigation”
into the Property’s insurability following the sellers’ disclo-
sure of unrepaired hail damage and collection on an insurance
claim. The reasonable inferences of the second amended com-
plaint lack any indication of whether these inspections were
the same or beyond what would ordinarily be conducted by a
buyer of commercial property.
The sellers urge us to follow Lucky 7 v. THT Realty, 278
Neb. 997, 775 N.W.2d 671 (2009), a commercial real estate
case with similar facts in which a buyer claimed damages for
fraudulent and negligent misrepresentation after discovering
that an office building’s roof was partially deteriorated in two
sections although areas visible from the ground were recently
replaced. After a bench trial, the evidence showed that a visual
inspection of the weathered and aging roof sections would
have made the buyer aware of the deteriorating condition of
the building. Id. We noted that the record showed that the
buyer routinely examined heating and air-conditioning units
on roofs, so an inspection of this roof did not pose a hardship
and was reasonable under the circumstances for an experienced
purchaser of commercial buildings. Id. In that case, we con-
cluded that a commercial buyer was not justified in forgoing
routine visual real estate inspections and relying on a seller’s
representations about a property.
Although the allegations here resemble many facts devel-
oped after trial in Lucky 7, we lack the facts at this stage
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Nebraska Supreme Court A dvance Sheets
299 Nebraska R eports
BURKLUND v. FUEHRER
Cite as 299 Neb. 949
from which we may draw conclusions about whether the
contract was breached by the sellers. And contrary to the
district court’s apparent “finding,” the second amended com-
plaint does not contain factual allegations from which a court
can determine that the damage to the roof was “reasonably
ascertainable” under paragraph 7 of the Purchase Agreement,
because, as we have noted above, the nature and extent of
the inspections conducted by the Burklunds and the back-
ground on ordinary business practice are not contained within
that pleading.
The centerpiece of the Burklunds’ case is the allegation that
contrary to the truth, the sellers promised that the Property was
free from defects because either the defects were reasonably
ascertainable or the sellers had disclosed the defects, and in
addition, the sellers represented they would repair the roof, but
failed to do so.
As we read the second amended complaint, it contains
allegations of facts which are sufficient to state a claim for
relief under breach of contract or breach of warranty primarily
related to paragraph 7 of the Purchase Agreement. Likewise,
the Burklunds’ claim for fraudulent representation as alleged
is plausible on its face. See InterCall, Inc. v. Egenera, Inc.,
284 Neb. 801, 815, 824 N.W.2d 12, 23 (2012) (“[w]hether a
party’s reliance upon a misrepresentation was reasonable is a
question of fact”). Accordingly, we reverse the district court’s
order of dismissal.
Availability of R emedies
For their second assignment of error, the Burklunds claim
that the district court erred when it determined that even if the
Burklunds were successful on one of their claims, their only
remedy was to terminate the Purchase Agreement. We make
no comment on the correctness of the district court’s conclu-
sions concerning the availability of remedies. Because the
district court incorrectly concluded that the second amended
complaint failed to state a cause of action and its decision is
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Nebraska Supreme Court A dvance Sheets
299 Nebraska R eports
BURKLUND v. FUEHRER
Cite as 299 Neb. 949
reversed, the district court’s reasoning about damages falls
with the order and the consideration of availability of damages
is premature.
CONCLUSION
Accepting the facts in the second amended complaint as
true, we determine that the Burklunds alleged sufficient facts
to state claims which are plausible on their face. Thus, we
determine that the district court erred when it granted the sell-
ers’ motion to dismiss and dismissed the Burklunds’ case. We
reverse the decision of the district court and remand the cause
for further proceedings.
R eversed and remanded for
further proceedings.