Morgan Development, LLC v. Raymond W. Morrow

IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
November 9, 2010 Session
MORGAN DEVELOPMENT, LLC, ET AL. v. RAYMOND W. MORROW, ET
AL.
Appeal from the Circuit Court for Roane County
No. 13484 Russell Simmons, Jr., Judge
No. E2010-00610-COA-R3-CV - Filed February 23, 2011
This appeal involves a failed real estate transaction. Real estate brokers and Raymond
Morrow (“Seller”) entered into an agreement to show an unlisted property. Seller did not
own the property, but he claimed to have the property under contract with the owner. After
the brokers showed the property to Morgan Development and Del Morgan (“Buyers”),
Buyers and Seller entered into an agreement for the sale of the property. The transaction was
never completed because Seller could not deliver marketable title. Buyers initiated a lawsuit
against the brokers along with Seller and the owners of the property, alleging negligent
business representation and fraud. The brokers moved for summary judgment. The trial
court granted summary judgment and dismissed Buyers’ suit against the brokers because the
purchase agreement included a disclaimer. Buyers appeal. We affirm.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court
Affirmed; Case Remanded
J OHN W. M CC LARTY, J., delivered the opinion of the Court, in which H ERSCHEL P. F RANKS,
P.J., and D. M ICHAEL S WINEY, J., joined.
Raymond E. Lacy and Anya R. East, Knoxville, Tennessee, for the appellants, Morgan
Development, LLC and Del Morgan.
Bill W. Petty and Anne Greer, Knoxville, Tennessee, for the appellees, Realty Executives
Associates, George Dykeman, and Steve Fogarty d/b/a Realty Executives Associates,
Northshore Office.
Johnny V. Dunaway, LaFollette, Tennessee, for the appellee, Raymond W. Morrow.1
Charles D. Mounger, Jr., pro se appellee.2
OPINION
I. FACTUAL BACKGROUND
At issue in this matter is a parcel of land consisting of 1, 242 acres (“the Property”)
in Roane County, Tennessee. On January 1, 2005, Seller entered into an Agreement To
Show Unlisted Property (“UPA”) with George “Chip” Dykeman, who worked as a real estate
broker for Realty Executives Associates, Inc. (“REA”). Mr. Dykeman worked as an
independent contractor from REA’s Northshore Office where Steve Fogarty served as the
managing broker (collectively, “Brokers”).
By signing the UPA, Seller represented that he “presently has title to the Property or
has full authority to enter into the Agreement.” According to Brokers, Seller met with Mr.
Dykeman on several occasions about locating investors for the Property. In those meetings,
Seller claimed that he and Eagle Rock Properties, Inc. (“Eagle Rock”) had the Property under
contract with the owner, Charles D. Mounger, Jr.
Pursuant to the UPA, Mr. Dykeman showed the Property to Buyers 3 . After viewing
the Property, Buyers and Seller executed a Lot/Land Purchase Sale Agreement (“PSA”) on
February 18, 2005. Seller made repeated representations that he had a contract to purchase
the Property, and Mr. Dykeman believed that Seller had the authority to sell the Property.
Based on these representations, Buyers agreed to enter the PSA. The actual record owner of
the Property was Katherine N. Mounger. Unbeknownst to Buyers and Brokers, Charles
Mounger was not the sole owner of the Property; Ms. Mounger passed away leaving the
Property to three heirs including Charles Mounger. Buyers claim that they could not
ascertain Seller’s interest in the Property by independent means and that they relied on
Seller’s and Brokers’ representations. Buyers claim that they intended to market the Property
immediately after the sale.4
1
Mr. Morrow did not file a brief for this appeal.
2
Mr. Mounger also did not file a brief for this appeal.
3
Mr. Morgan is sole member and chief manager of Morgan Development, LLC.
4
From the record, it is unclear how the Buyers intended to market the Property if the transaction were
(continued...)
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The transaction failed to close because Seller never acquired rights in the Property.
Thus, Seller could not deliver marketable title for the Property. Thereafter, Buyers filed a
suit against Seller, Eagle Rock, REA, Mr. Dykeman, Mr. Fogarty, Charles D. Mounger, Jr.,
E. Jay Mounger, Katherine Mounger Lasater, and the Estate of Katherine Mounger
(“Mounger Estate”).5 Buyers alleged negligent misrepresentation and fraud against Brokers,
Seller, and Eagle Rock. Brokers then filed a motion for summary judgment for which a
hearing was held in September 2008. After hearing the evidence, the trial court granted
summary judgment in favor of Brokers and dismissed Buyers’ claims. The trial court later
dismissed the claims, without prejudice, against the remaining defendants, Seller and Eagle
Rock. With the entry of dismissal against Seller and Eagle Rock, there was a final and
appealable judgment and Buyers’ appeal ensued. On appeal, Buyers challenged the trial
court’s grant of summary judgment in favor of Brokers.
II. ISSUE
We consolidate and restate the issues raised by Buyers, as follows:
Whether the trial court erred in granting summary judgment in favor of Brokers.
III. STANDARD OF REVIEW
In reviewing a trial court’s grant of a motion for summary judgment, this court must
determine whether the requirements of Tenn. R. Civ. P. 56 have been met. Staples v. CBL
& Assocs., Inc., 15 S.W.3d 83, 88 (Tenn. 2000). Our inquiry involves only a question of law
with no presumption of correctness attached to the trial court’s judgment. Id. Under Tenn.
R. Civ. P. 56.04, “[s]ummary judgment is appropriate when the moving party can show that
there is no genuine issue of material fact and that it is entitled to judgment as a matter of
law.” Hannan v. Alltel Publ’g, 270 S.W.3d 1, 5 (Tenn. 2008) (citing Tenn. R. Civ. P. 56.04;
Byrd v. Hall, 847 S.W.2d 208, 214 (Tenn. 1993)). In Tennessee, the moving party who does
not bear the burden of proof at trial must either:
4
(...continued)
completed.
5
E. Jay Mounger, Katherine Mounger Lasater, and the Mounger Estate (collectively, “Mounger
Defendants”) filed a motion to dismiss Buyers’ claims, alleging that the complaint failed to state a cause of
action. Additionally, in the motion to dismiss, they noted that in a separate lawsuit involving Seller, Eagle
Rock, and the Mounger Defendants, the trial court held that Seller had no contractual relationship concerning
the Property. Soon thereafter, Buyers filed a voluntary non-suit, and the trial court dismissed the Mounger
Defendants by order of voluntary non-suit.
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(1) affirmatively negate an essential element of the nonmoving
party’s claim; or
(2) show that the nonmoving party cannot prove an essential
element of the claim at trial.
Hannan, 270 S.W.3d at 9. A “conclusory assertion” is not enough to shift the burden. Id.
at 5 (quoting Byrd, 847 S.W.2d at 215). It is not enough for the moving party to “cast doubt
on a party’s ability to prove an element at trial.” Hannan, 270 S.W.3d at 8.
Therefore, a properly supported motion for summary judgment demonstrates that there
are no genuine issues of material fact and that the moving party is entitled to a judgment as
a matter of law. See Martin v. Norfolk S. Ry. Co., 271 S.W.3d 76, 83 (Tenn. 2008); see also
Staples, 15 S.W.3d at 88; McCarley v. W. Quality Food Serv., 960 S.W.2d 585, 588 (Tenn.
1998). If the moving party fails to make a properly supported motion, the non-movant’s
burden to produce either supporting affidavits or discovery materials is not triggered, and the
motion for summary judgment fails. See Martin, 271 S.W.3d at 83. If the moving party
makes a properly supported motion, then the non-moving party is required to produce
evidence of specific facts establishing that genuine issues of material fact exist. Id. at 84
(supporting citations omitted).
IV. DISCUSSION
Buyers challenge the trial court’s grant of summary judgment in favor of Brokers.
Buyers contend that Brokers had knowledge of Seller’s lack of rights in the Property thereby
creating a genuine issue of material fact for a factfinder to resolve. Buyers argue that
summary judgment was inappropriate in light of this unresolved issue.
The trial court granted the motion for summary judgment because Brokers “had no
knowledge that [Seller] did not have the authority to sell the subject property. . . .” The trial
court also found that Buyers signed the PSA that included “a disclaimer relating to the
realtors’ obligation to the buyer and the seller.” As a result, the trial court dismissed Buyers’
claims against REA, Mr. Dykeman, and Mr. Fogarty.
The disclaimer that the trial court noted is contained in Paragraph Seven of the PSA.
Paragraph Seven provides:
Disclaimer. It is understood and agreed that the real estate firms and real
estate licensee(s) representing or assisting the Seller or the Buyer are not
parties to their Agreement and do not have or assume liability for the
performance or nonperformance of Seller or Buyer. Buyer and Seller agree
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that the Brokers shall not be responsible for any of the following, but not
limited to, those matters which could have been revealed through a survey,
flood certification, title search or inspection of the Property; for the necessity
or cost of any repairs to the Property, any portion thereof, or any item therein;
for the necessity or cost of any repairs to the Property; for hazardous or toxic
materials; for the tax or legal consequences of this transaction; for the
availability, capability, and/or cost of utilities, sewer, septic, or community
amenities; for applicable boundaries of school districts or other school
information. . .if any of these matters or any matters are of concern to them,
they shall seek independent expert advice relative thereon.
The interpretation of a contract is a matter of law requiring de novo review on appeal.
Guiliano v. Cleo, Inc., 995 S.W.2d 88, 95 (Tenn. 1999). When the language of a contract is
plain and unambiguous, courts “determine the parties’ intention from the four corners of the
contract, interpreting and enforcing [the contract] as written.” Union Realty Co. v. Family
Dollar Stores of Tenn., Inc., 255 S.W.3d 586, 591 (Tenn. Ct. App. 2007) (citing Int’l Flight
Ctr. v. City of Murfreesboro, 45 S.W.3d 565, 570 (Tenn. Ct. App. 2000)). If the language
is clear and unambiguous, “the literal interpretation of the language controls the outcome of
the contract disputes.” Planters Gin Co. v. Fed. Compress & Warehouse Co., 78 S.W.3d
885, 890 (Tenn. 2002). We construe all provisions of a contract in harmony with each other,
“if such construction can be reasonably made, so as to avoid repugnancy between the several
provisions of a single contract.” Rainey v. Stansell, 836 S.W.2d 117, 119 (Tenn. Ct. App.
1992).
Applying those principles to the contract at issue in this case, the language of the PSA
is clear and unambiguous. Under the PSA, Brokers assumed no obligations relating to the
title search. The disclaimer provision outlines that Brokers were not required to ensure the
performance of either party to the transaction. However, Buyers contend that Brokers’ duty
to verify title was separate and independent from Brokers’ duty to verify the existence of a
valid contract establishing Seller’s rights in the Property. While conceding that Brokers did
not have a duty to verify the Property’s title, Buyers assert that Mr. Dykeman, as a real estate
agent, had a duty of due care when making representations regarding Seller’s rights in the
Property. They claim that Seller’s rights in the Property were not a fact readily ascertainable
by a prospective buyer. Buyers cite Haynes v. Cumberland Builders, Inc., 546 S.W.2d 228(Tenn. Ct. App. 1976) in support of their contention. In Haynes, this court held that a real
estate agent for the defendant builder was “under an obligation to use due care in learning
what the actual boundaries of the property were before he made representations concerning
those boundaries.” 546 S.W.2d at 232. Similarly, Buyers argue that Brokers were under a
duty of due care because a title search would not have revealed Seller’s relationship with the
Property. We disagree.
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We reject the argument advanced by Buyers for two key reasons. First, for Buyers’
argument to prevail, we would have to adopt a narrow reading of the PSA’s disclaimer
provision. The disclaimer provision exempts Brokers from liability for the nonperformance
of a party and those “matters which could have been revealed” through a title search. Here,
while a title search would not have revealed Seller’s rights in the Property, Buyers entered
this agreement based on Seller’s promise to perform the delivery of marketable title. By
signing the PSA, Buyers agreed to rely on Seller’s promise to perform and accepted that
Brokers would not be responsible for Seller’s failure to perform. Further, because a title
search would have revealed the true owner was not Seller, Buyers took a gamble by
accepting the terms of the PSA with the knowledge that a title search would not verify
Seller’s interest in the Property. Under the PSA, Brokers were under no legal obligation to
verify the title or Seller’s interest in the title. The disclaimer provision of the PSA evidences
Brokers’ intent to insulate themselves from liability and places the responsibility of
exercising due diligence on the parties to the transaction. To adopt Buyers’ position requires
this court to ignore the clear language of the PSA.
Second, Buyers’ reliance on Haynes is misplaced. In that case, the real estate agent
made representations concerning the boundaries of the property without first learning the
actual boundaries. 546 S.W.2d at 232. The agent worked on behalf of the defendant
contractor, who mistakenly placed the boundary line, and this court held that the defendant
contractor was liable for the agent’s negligent misrepresentations. Id. The facts of the
instant case are distinguishable from Haynes. Unlike Haynes, Buyers signed the PSA which
included a disclaimer of Brokers’ obligation to verify certain characteristics of the Property
including the boundaries and the title. Further, the Haynes court found that it was reasonable
for buyers to rely on the agent’s representations. Id. Here, Buyers’ concession that a title
search would not verify Seller’s rights in the Property begs the question of whether it was
reasonable to rely on the representations that Seller held rights to the Property. A title search
verifies ownership and uncovers any defects with a property’s title. The PSA’s disclaimer
provides that Brokers were not responsible for uncovering any defects concerning the
Property’s title through a title search. Therefore, it follows that Buyer’s reliance on Brokers’
alleged representations about the title, including Seller’s rights in the Property, was not
justifiable. By acknowledging that Brokers were not under any duty to uncover the problems
with the title, Buyers implicitly admit that any reliance on those unsupported representations
was not justifiable.
In cases involving claims of negligent business representations, a plaintiff must
establish:
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One who, in the course of his business, profession or employment, or in any
other transaction in which he has a pecuniary interest, 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.
Restatement (Second) of Torts § 552(1) (1977); see also Robinson v. Omer, 952 S.W.2d 423,
427 (Tenn. 1997). In actions for fraud, a plaintiff must prove four elements: (1) an
intentional misrepresentation of a material fact; (2) knowledge of the representation’s falsity;
(3) an injury caused by reasonable reliance on the representation; and (4) the
misrepresentation involves a past or existing fact. Oak Ridge Precision Indus., Inc. v. First
Tenn. Bank, 835 S.W.2d 25, 28 (Tenn. Ct. App. 1992) (citation omitted). In fraud cases,
nondisclosure can be actionable when a duty to disclose exists and the undisclosed
information is material. Dobbs v. Guenther, 846 S.W.2d 270, 274 (Tenn. Ct. App. 1992).
In the instant case, Brokers’ motion for summary judgment affirmatively negated
essential elements of Buyers’ claims of negligent misrepresentation and fraud. Through Mr.
Dykeman’s deposition and Mr. Fogarty’s affidavit, Brokers demonstrated that they had no
knowledge of Seller’s deficient rights in the Property. In his deposition, Mr. Dykeman
testified that he met with Seller several times about the Property. Mr. Dykeman explained
that he “was told Mr. Mounger was the owner of the [P]roperty and Butch Morrow [Seller]
and Eagle Rock had the [P]roperty tied up under contract.” Mr. Dykeman further stated that
he “did not know anything about the Mounger’s estate or any other interests in the
[P]roperty.” Mr. Fogarty also provided through his affidavit that he was unaware of the
details of the transaction. Mr. Fogarty averred:
That I had no specific knowledge of the transaction between Mr. Morrow
[Seller] and Mr. Morgan until sometime, probably late March or early April of
2005. Chip Dykeman came to me relaying that [Seller] was not returning his
calls and he was having difficult contacting Morrow, and asked me for advice.
As the managing broker for the REA office, Mr. Fogarty handled administrative duties such
as ensuring that all brokers maintained licensure and complied with statutory requirements.
Thus, Mr. Fogarty had no involvement in “the specific day-to-day activities of the
Independent Contractor Real Estate Agents” like Mr. Dykeman.
By showing a lack of knowledge on the part of Mr. Dykeman and Mr. Fogarty,
Brokers made a properly supported motion for summary judgment thereby triggering Buyers’
burden to produce evidence of specific facts establishing that issues of material fact exist.
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Buyers offered the affidavit of Mr. Morgan in their Response to Brokers’ Motion for
Summary Judgment. Although Mr. Morgan’s affidavit provided that Mr. Dykeman made a
representation about Seller’s rights in the Property, his affidavit failed to show why that
representation was actionable under a theory of negligent misrepresentation or fraud.
Viewing the facts in the light most favorable to Buyers, the non-movant, we find that
summary judgment was appropriate in this case. The trial court properly granted summary
judgment in favor of Brokers because Buyers failed to produce proof highlighting facts that
establish the elements of either claim. There is an absence of specific facts that demonstrate
genuine issues of material fact relating to Brokers’ duty and knowledge of Seller’s deficient
rights in the Property. Accordingly, we affirm.
V. CONCLUSION
The trial court’s grant of summary judgment is affirmed. Costs of this appeal are
taxed to the appellants, Morgan Development, LLC and Del Morgan. This case is remanded,
pursuant to applicable law, for collection of costs assessed below.
_________________________________
JOHN W. McCLARTY, JUDGE
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