John Patrick Bullinger, Respondent/cr-appellant v. Diana Yvonne Lilla, Appellant/cr-respondent

THE COURT OF APPEALS OF THE STATE OF WASHINGTON
JOHN PATRICK BULLINGER, a single
man, No. 68446-9-1
Respondent/ DIVISION ONE
Cross-Appellant,
DIANA YVONNE LILLA, a single person UNPUBLISHED OPINION
Appellant/ FILED: March 31, 2014
Cross-Respondent.
Becker, J. — This appeal is from a judgment awarding damages against
the seller of a condominium unit who failed to disclose water intrusion damage
that detracted from the unit's value. The appellant attempts to relitigate matters
already determined by findings of fact entered after a bench trial. Because the
findings of fact are supported by substantial evidence and they in turn support
the conclusions of law, we affirm.
According to unchallenged findings of fact, on July 6, 2009, appellant
Diana Lilla and respondent John Bullinger entered into a purchase and sale
agreement. Lilla agreed to sell Bullinger her condominium, unit 31 of the
Phinney Ridge Condominiums in Seattle. The sale closed on August 13, 2009.
After Bullinger took possession of unit 31, he learned there was extensive water
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damage in the building and a pending study to determine its extent. Bullinger
filed suit against Lilla, alleging negligent misrepresentation, intentional
misrepresentation, and fraudulent concealment. In a bench trial, the court held
Lilla liable on all three causes of action. The court awarded Bullinger $28,700 in
damages and awarded him attorney fees as the prevailing party.
This court reviews the decision of a judge in a bench trial by determining
(1) whether substantial evidence supports the challenged findings of fact and (2)
whether those findings support the conclusions of law. Sunnvside Valley
Irrigation Dist. v. Dickie, 149 Wn.2d 873, 879-80, 73 P.3d 369 (2003).
NEGLIGENT MISREPRESENTATION
To prevail on a claim for negligent misrepresentation, a plaintiff must
prove the following elements by clear, cogent, and convincing evidence: (1) the
defendant supplied information for the guidance of others in their business
transactions that was false; (2) the defendant knew or should have known that
the information was supplied to guide the plaintiff in business transactions; (3)
the defendant was negligent in obtaining or communicating the false information;
(4) the plaintiff relied on the false information supplied by the defendant; (5) the
plaintiff's reliance on the false information supplied by the defendant was justified
(that is, reliance was reasonable under the surrounding circumstances); and (6)
the false information was the proximate cause of damages to the plaintiff. Borish
v. Russell, 155 Wn. App. 892,906, 230 P.3d 646 (2010), review denied, 170
Wn.2d 1024 (2011). Lilla challenges elements 3, 4, and 5.
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Negligence
In Washington, the seller of a condominium unit is required to disclose to
the buyer all defects of which the seller has actual knowledge by filling out form
17. RCW 64.06.020. Lilla prepared and supplied form 17 to Bullinger. Question
1(g) asked whether there was any study, survey project, or notice that would
adversely affect the property. Lilla answered no. She did not disclose an
envelope study that she knew was under way to investigate the nature and
extent of damage resulting from water intrusion in the entire building. The water
intrusion was discovered during the repair of the decks in stack 1. Question 4(f)
asked about structural defects. Lilla disclosed that she was currently repairing
the sliding glass door in her unit, but she did not disclose the water intrusion
problem she knew existed in the entire building. In response to question 6, Lilla
disclosed there were shared common areas. But in response to question 10,
which asked her to disclose "any other existing material defects affecting the
property that a prospective buyer should know about," she did not disclose any of
the information she had about the existing problem with water intrusion or her
knowledge that the entire building would likely have to be re-sided. The trial
court found that these nondisclosures were material.
Lilla contends she was not being negligent when she failed to disclose the
problems in areas of the condominium outside of unit 31 and its deck.
The condominium is composed of one, four-story building that contains 20
units arranged in five vertical "stacks." Lilla owned unit 31. Unit 31 is the third-
floor unit in "Stack 1."
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Before deciding to sell, Lilla became aware of significant rot in her unit's
deck that made it unmarketable. The condominium association hired a company
to inspect Lilla's deck, and they had it repaired. In the course of this activity, Lilla
and the condominium association discovered significant similar damage to the
decks immediately above and below Lilla's. Further investigation showed that
the entire building suffered from water intrusion and that the entire building would
likely have to be re-sided. A study was commissioned by the homeowners'
association to determine the precise extent of damage. This is the pending study
that Bullinger argues Lilla had a duty to disclose to him.
Lilla points out that form 17 begins with a statement that the seller is to
make disclosures about the condition of "the Property." The purchase and sale
agreement identifies "the Property" as "Unit 31 of Phinney Ridge Condominium."
In Lilla's view, a reasonable person would understand the questions on form 17
as relating only to the particular unit being offered for sale.
In a condominium, undivided interests in the common elements are vested
in the unit owners. RCW 64.34.020(10). The trial court's findings establish that
Lilla was well aware the water intrusion problem affected the building as a whole.
Before she sold her unit, Lilla personally took charge of the investigation and
repair work on behalf of the condominium association. "She knew that
uncertainty with regard to the nature and extent of water intrusion had a very
adverse impact on the marketability and value of Unit 31." Finding of Fact 8.
The trial court made a credibility finding adverse to Lilla. "Lilla's claim that she
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thought all issues pertaining to water intrusion had been addressed by the
repairs to Unit 31 and Stack One is not credible." Finding of Fact 11.
Under the circumstances, the water intrusion problem was an existing
material defect affecting Lilla's unit that a prospective buyer should know about.
The trial court's conclusion that Lilla was negligent in communicating the
information on form 17 is supported by the findings, and it establishes the third
element of negligent misrepresentation.
Reliance
Lilla argues it was not reasonable for Bullinger to rely on the disclosures
she made in form 17 even if they were false. She points out that Bullinger knew
the condominium was 25 years old and had relatively low reserves. Also, when
visiting the condominium before making the purchase, Bullinger was told that
water damage in some of the decks had recently been repaired. An inspection
report prepared for Bullinger noted there was some siding missing on the front of
the building. Lilla contends Bullinger, with all of this information, should have
done more investigation.
Lilla cites Jackowski v. Borchelt, 174 Wn.2d 720, 278 P.3d 1100(2012).
In that case, the sellers represented that there was no fill material on their
property, when in fact there was. A summary judgment for the buyers was
reversed, however, on the ground that there were material questions of fact as to
whether the fill material would have been discovered in a reasonable inspection.
Under Jackowski, even when a form 17 contains an error, a buyer's reliance may
be unreasonable where the buyer is put on inquiry notice by facts inconsistent
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with the form 17 disclosures. Lilla contends that even if she misrepresented the
water damage problem, Bullinger's claim fails because he was on inquiry notice
as to that problem.
Unlike in Jackowski, where the existence of a material issue of fact led to
reversal of an order of summary judgment, here the issue of inquiry notice was
litigated and the relevant fact was found against Lilla. Bullinger retained a
property inspector whose inspection revealed no problems with water intrusion.
Bullinger himself "engaged in a diligent lay inspection of the property, and
discovered nothing that did or should have revealed water intrusion problems or
put Bullinger on inquiry notice of such problems." Finding of Fact 12. Lilla fails to
show that finding of fact 12 is unsupported by the evidence. It is also significant
that the purchase and sale agreement gave Bullinger a right of action for
intentional or negligent misrepresentations made in form 17. Lilla was aware that
Bullinger intended to rely on the representations she made in form 17.
"An omission alone cannot constitute negligent misrepresentation, since
the plaintiff must justifiably rely on a misrepresentation." Ross v. Kirner, 162
Wn.2d 493, 499, 172 P.3d 701 (2007). Relying on this rule, Lilla contends
Bullinger's claim must fail because her answers on form 17 were omissions. We
disagree. Lilla represented that the only defect affecting the property that a
prospective buyer should know about was a problem with her sliding door. This
was an affirmative representation, and it was false.
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The trial court's conclusion that Bullinger justifiably relied on the false
information Lilla provided on form 17 establishes the fourth and fifth elements of
the claim of negligent misrepresentation.
INTENTIONAL MISREPRESENTATION
The trial court concluded that Bullinger established the elements of
intentional misrepresentation by clear, cogent, and convincing evidence. Lilla
assigns error to this conclusion.
One of the elements of this claim is that a party made a "representation of
an existing fact." West Coast, Inc. v. Snohomish County, 112 Wn. App. 200,
206, 48 P.3d 997 (2002). In the statement of issues in her opening brief, Lilla
asks whether any of her answers on the form 17 can be a representation of an
existing fact "where the form itself purports only to be a statement of material
facts or material defects within Lilla's actual knowledge?" Her brief fails to
address this issue further with argument or citation to authority, and therefore, we
need not address it. Cowiche Canyon Conservancy v. Boslev, 118 Wn.2d 801,
808-09, 828 P.2d 549 (1992).
Lilla has shown no error in the trial court's decision to hold her liable for
intentional misrepresentation.
FRAUDULENT CONCEALMENT
Failure to disclose a material fact where there is a duty to disclose is
fraudulent. Obde v. Schlemever, 56 Wn.2d 449, 452-56, 353 P.2d 672 (1960). A
seller's duty to speak arises where: (1) the residential dwelling has a concealed
defect; (2) the vendor has knowledge of the defect; (3) the defect presents a
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danger to the property, health, or life of the purchaser; (4) the defect is unknown
to the purchaser; and (5) the defect would not be disclosed by a careful,
reasonable inspection by the purchaser. Aleiandre v. Bull. 159 Wn.2d 674, 689,
153 P.3d 864 (2007). The trial court concluded that Bullinger proved all of these
elements.
Danger to Property, Health, or Life
The third element requires proof that the concealed defect was
dangerous. According to Lilla, "Bullinger presented no evidence that the defects
in the building caused injury to anything other than the building itself."
Appellant's Br. at 33. In so arguing, Lilla is attempting to apply the economic loss
rule as discussed in Stieneke v. Russi, 145 Wn. App. 544, 555-59, 190 P.3d 60(2008), review denied. 165 Wn.2d 1026 (2009). But the economic loss rule has
no application to a fraudulent concealment claim. Stieneke, 145 Wn. App. at
560, citing Aleiandre, 159 Wn.2d at 689. And in any event, the purchase and
sale agreement gave Bullinger a contractual right to assert tort claims that
otherwise would be barred by the economic loss rule. See Conclusion of Law 3.
The record supports the trial court's conclusion that Bullinger proved the
existence of a concealed defect that was dangerous.
Reasonable Inspection
The fifth element requires proof that the concealed defect would not be
discovered by a reasonable inspection. Aleiandre, 159 Wn.2d at 689. The trial
court concluded that "the defects would not have been disclosed and were not
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No. 68446-9-1/9
disclosed by a careful, reasonable inspection of the Condominium and Unit 31."
Conclusion of Law 8. Lilla attacks this conclusion by repeating her argument that
Bullinger did not properly follow up on clues that the building had water intrusion
problems.
The professional inspector's report summary included "Action Items" and
"Consideration Items." Under items for consideration regarding the structure,
item 8 recommended asking the owner for general information about such things
as insurance claims on the property, covenants, the cost of association fees, and
pending lawsuits. This item included the question, "Suggest reading the minutes
from the last meeting?" Lilla contends that Bullinger should have responded to
these comments by demanding to review minutes of the condominium
association meetings. Lilla contends the minutes would have informed Bullinger
about the pending engineering study.
Under items for consideration regarding the exterior, item 6 stated,
"Missing pieces of siding/trim noted at front of complex. Check with CCR." Lilla
contends the notation about the missing siding put Bullinger on notice to make a
specific inquiry about why the siding was missing.
Without more, these notes in the inspection report do not compel a finding
that Bullinger failed to make a careful and reasonable inspection. Lilla fails to
show that a prospective purchaser of a condominium unit has a duty to ask for
and read meeting minutes. She does not explain what Bullinger would have
found if he had followed up on the statement "Check with CCR."
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This is not a case like Douglas v. Visser, 173 Wn. App. 823, 295 P.3d 800(2013), where the buyers were aware of obvious rot and yet failed to make a
reasonable inquiry. Lilla's challenges to the findings and conclusions on her
liability for fraudulent concealment are not supported by the record.
DAMAGE AWARD
The trial court granted judgment to Bullinger for $28,700 in damages
proximately caused by Lilla's fraud, fraudulent concealment, and negligent
misrepresentation. The amount was calculated as the 5 percent share for unit 31
of projected special assessments attributable to the water intrusion problem:
Though the work to repair the Condominium has not been
completed, the Association has employed design professionals who
have completed the inspection of the property and a scope of work
which was released for bids. The Court finds that the current
professionally estimated cost to the Association for completing the
repair work on the Condominium, including the inspections,
engineering, and construction, will result in special assessments
from the Association to the owners. Units 31 's share of these
special assessments is 5%.
... A portion of the assessments will pay for work not
directly related to water intrusion .... However, only a portion of
the special assessments attributable to Unit 31 payable by Bullinger
were proximately caused by Lilla's misrepresentations and
Bullinger can be afforded the benefit of his bargain by awarding him
that amount. Based upon the testimony of Mr. Rudkin, the
projected amount of the special assessment attributable to the
water intrusion problem is approximately $573,300. Bullinger's
share of these projected costs is $28,700.
Findings of Fact 15, 16.
Lilla assigns error to the award of damages. She claims that Bullinger
failed to prove both the fact and amount of damages.
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No. 68446-9-1/11
Bullinger proved at trial that he was damaged by Lilla's nondisclosure but
not precisely how much he was damaged—the amount of damages was left to a
later hearing.
Uncertainty as to the fact of damage is fatal, while uncertainty as to the
amount or quantum of damages is not to be regarded as fatal to a litigant's right
to recover damages. Sund v. Keating, 43 Wn.2d 36, 46, 259 P.2d 1113 (1953).
Bullinger established the fact of damage with certainty. Bullinger believed he
was purchasing a condominium in a building with no known defects. In fact, he
was purchasing a condominium in a building with a known and unremediated
water intrusion problem. The water damage to the building he is now a part
owner of is his damage.
At trial, there were significant questions as to whether insurance would
pay all or a portion of the cost and what the cost would actually be. Under Sund,
uncertainty as to the amount of damages was not fatal. The trial court held a
hearing on this issue and found that there would be special assessments. The
court made a reasonable estimate of the assessment Bullinger would have to
pay to remediate the water intrusion and found that awarding him that amount
would give him the benefit of his bargain.
Lilla argues the amount awarded is speculative because of the pending
insurance claims, which might have paid the entire cost and made it unnecessary
for Bullinger to pay a special assessment. The trial court, however, found that
the projected repair work "will result" in special assessments. The court's
findings, quoted above, defeat Lilla's argument that the amount awarded was
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No. 68446-9-1/12
speculative. Lilla fails to show that the findings are unsupported by the evidence
and instead attempts to relitigate the facts on appeal. And even if it turns out
there is insurance to cover the costs, it does not negate the fact that Bullinger
was damaged at the time of sale by receiving ownership of a property with a
significant concealed defect. The trial court did not err by using the estimated
amount of assessments as the measure of damage.
We conclude the trial court did not relieve Bullinger of the responsibility for
proving the fact and amount of damage.
ATTORNEY CLIENT PRIVILEGE
In his litigation against Lilla, Bullinger was represented by his employer, an
attorney. Bullinger became a member of the board of the condominium
association after he purchased unit 31. The association was represented by
separate counsel.
Lilla attempted to bring in the association as a third-party defendant by
amending her answer shortly before trial. At trial, Lilla attempted to inquire into
conversations Bullinger had with other board members about subpoenas Lilla
was serving. Bullinger objected that answering the questions would potentially
disclose information protected by the privilege he and other board members had
with counsel for the association. The court sustained the objection absent "some
showing that attorney-client privilege may not be involved." Lilla asked the court
to clarify the scope of the excluded testimony. The court asked how the
testimony was relevant to the case. Lilla responded: "Just to the extent that he
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No. 68446-9-1/13
is telling his fellow board members not to cooperate with Ms. Lilla's counsel, I
think, is important for the Court to know that."
The court ruled that the exclusion was based on both the attorney-client
privilege and the failure to demonstrate relevancy:
And you are not to inquire further on this subject matter absent an
appropriate showing that attorney-client privilege is not involved
and that somehow, even if it isn't involved, that this matter is a
relevant subject for inquiry in this action.
On appeal, Lilla makes no argument as to relevancy. She does not
identify any element of any cause of action that would have been affected by
information about Bullinger's conversations with his fellow board members. Her
brief simply requests that if this matter is remanded for retrial, the trial court
should be instructed that the attorney-client privilege has no application to a
conversation between two nonattorneys. Because we are not remanding for
retrial, and there is no showing of relevance or prejudice in any event, we decline
to address Lilla's argument that the attorney-client privilege was an inappropriate
basis for excluding the testimony.
DISMISSAL OF THIRD-PARTY COMPLAINT
Bullinger filed his complaint on January 27, 2010. Trial was set for July
11, 2011. Lilla did not file an answer until March 28, 2011. Eight days later, Lilla
filed an amended answer containing a third-party complaint against the
condominium owners' association. Bullinger filed a motion to strike the third-
party complaint. The trial court granted the motion. Lilla assigns error to this
ruling.
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CR 14(a) is the pertinent rule. It controls when a defendant may bring in a
third party.
When Defendant May Bring in Third Party. At any time
after commencement of the action a defending party, as a third
party plaintiff, may cause a summons and complaint to be served
upon a person not a party to the action who is or may be liable to
him for all or part of the plaintiffs claim against him. The third party
plaintiff need not obtain leave to make the service if he files the
third party complaint not later than 10 days after he serves his
original answer. Otherwise he must obtain leave on motion upon
notice to all parties to the action. The person served with the
summons and third party complaint, hereinafter called the third
party defendant, shall make his defenses to the third party plaintiffs
claim as provided in rule 12 and his counterclaims against the third
party plaintiffand cross claims against other third party defendants
as provided in rule 13. The third party defendant may assert
against the plaintiff any defenses which the third party plaintiff has
to the plaintiffs claim. The third party defendant may also assert
any claim against the plaintiff arising out of the transaction or
occurrence that is the subject matter of the plaintiffs claim against
the third party plaintiff. The plaintiff may assert any claim against
the third party defendant arising out of the transaction or
occurrence that is the subject matter of the plaintiffs claim against
the third party plaintiff, and the third party defendant thereupon
shall assert his defenses as provided in rule 12 and his
counterclaims and cross-claims as provided in rule 13. Any party
may move to strike the third party claim, or for its severance or
separate trial. A third party defendant may proceed under this rule
against any person not a party to the action who is or may be liable
to him for all or part of the claim made in the action against the third
party defendant.
CR 14(a).
The first part of the rule permits a defendant to file a third-party complaint
without leave of court within 10 days of the defendant's answer. Lilla interprets
this section of the rule as providing a defendant with a safe harbor, i.e., an
absolute right to bring in a third-party defendant within 10 days of the answer.
Lilla overlooks the provision stating that "[a]ny party may move to strike the third
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No. 68446-9-1/15
party claim, or for its severance or separate trial." By authorizing a motion to
strike, the rule necessarily contemplates that the trial court may grant such a
motion.
Ordinarily, a defendant's answer is filed early in the litigation. It makes
sense that the rule would not require leave of court to add a third party early in
the litigation, before a trial date is set. It also makes sense that in the unusual
case where the defendant does not file an answer until close to trial, the rule
would give the trial court the power to grant a motion to strike a third-party claim
if the defendant has caused prejudice to other parties by waiting so long to bring
the claim.
Denial of leave to amend under CR 14(a) is within the discretion of the trial
court, subject to review only for abuse of discretion. Purser v. Rahm, 104 Wn.2d
159, 174, 702P.2d 1196 (1985), cert, dismissed, 478 U.S. 1029(1986).
Because a defendant's motion for leave to amend and a plaintiff's motion to
strike both put the issue of the third-party complaint in a similar posture before
the trial court, it is appropriate to apply the same standard of review to the
granting of a motion to strike. Here, the court found that Bullinger would be
substantially prejudiced by the addition of a third party so late in the proceedings.
This was not an abuse of discretion.
ATTORNEY FEES
The trial court found that Bullinger was entitled to attorney fees under the
parties' Condominium Purchase and Sale Agreement, which provided for
prevailing party attorney fees and expenses in any dispute arising out of the
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No. 68446-9-1/16
agreement. The court applied the lodestar method and found that Bullinger's
$55,000 fee request was reasonable. Lilla contends the contract did not provide
a basis for an award of fees because "there was no breach of contract found, and
the damages awarded were based solely on Bullinger's tort claims."
As indicated in conclusion of law 17, the attorney fee provision in the
agreement made an award of fees proper under Brown v. Johnson, 109 Wn.
App. 56, 34 P.3d 1233 (2001). "If an action in tort is based on a contract
containing an attorney fee provision, the prevailing party is entitled to attorney
fees." Brown, 109 Wn. App. at 58. Following Brown, we conclude the trial court
properly granted Bullinger's request for fees and costs under the agreement. By
the same rationale, we conclude that Bullinger should be awarded fees on
appeal, subject to compliance with RAP 18.1.
Affirmed.
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WE CONCUR:
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