Articles Posted in Fraud

Where defendants filed a counterclaim for intentional misrepresentation, but defendants’ allegations all centered around promises that plaintiffs had made to take certain actions in the future and defendants did not allege that plaintiffs had no present intention of performing when the promises were made, dismissal of the intentional misrepresentation claim was affirmed.

In Auxin, LLC v. DW Interests, LLC, No. M2022-01087-COA-R3-CV (Tenn. Ct. App. Jan. 25, 2023), plaintiffs sued defendants asserting various claims related to a real estate development contract. Defendants filed a counter-claim for breach of contract, but also included a claim for intentional misrepresentation. Among other rulings, the trial court dismissed defendants’ intentional misrepresentation claim, which was affirmed on appeal.

To successfully assert an intentional misrepresentation claim, a party must show that the tortfeasor “made a representation of an existing or past fact” that “was false when made.” (internal citation omitted). Here, defendants’ factual allegations all related to statements plaintiffs allegedly made about things they would do in the future. The Court wrote:

Where the attorney for an HOA wrote plaintiff landowner a letter informing him that the HOA considered him to be in violation of certain restrictions, judgment on the pleadings in favor of defendant attorney on plaintiff landowner’s negligent misrepresentation claim was affirmed because there was no allegation that the attorney was providing “information meant to guide [plaintiff] in a business transaction.”

In Burgess v. Bradford Hills HOA, No. M2020-01565-COA-R3-CV, 2023 WL 142392 (Tenn. Ct. App. Jan. 10, 2023), plaintiff owned property in a subdivision. Plaintiff and the HOA had a dispute regarding whether plaintiff had violated restrictions with certain signage and noise-making devices on his property.

Plaintiff filed a pro se suit against the HOA, and he eventually added a claim against the HOA’s attorney for negligent misrepresentation. The negligent misrepresentation claim was based on a letter sent by defendant attorney “reiterat[ing] that the HOA believed the conditions on [plaintiff’s] property violated the [restrictions] and warn[ing] that the HOA would take legal action if he continued to not comply with the rules.” The trial court granted defendant’s motion for judgment on the pleadings on the negligent misrepresentation claim, and the Court of Appeals affirmed.

Where there was material evidence to show that plaintiff met her required due diligence, the jury verdict for plaintiff on her intentional misrepresentation and fraud claim was affirmed. Further, where the fraud was related to the purchase of plaintiff’s home, and the jury awarded plaintiff the amount she paid for the home in compensatory damages, that award was affirmed.

In Hogue v. P&C Investments, Inc., No. M2021-01335-COA-R3-CV, 2022 WL 17175608 (Tenn. Ct. App. Nov. 23, 2022), the issues revolved around plaintiff’s purchase of a home. Although several defendants were named in the suit, the defendant at issue in this appeal was the real estate agent for the LLC that sold the home. He was also the husband of the person who operated the LLC that sold the home, and he “was involved in the process of making improvements and renovations to the property.” While showing the home to plaintiff’s sister and father, defendant was asked about shoe molding that was missing in the basement, and he responded that the owner would be willing to put that in. He also showed the sister and father a new sump pump located in the garage, and he mentioned that a French drain in the back yard was part of what helped take water out of the parking area. According to plaintiff’s sister and father, defendant did not mention anything about the basement flooding. Defendant, on the other hand, testified that he told plaintiff’s sister and father that the house had experienced three water intrusions but that there had been none since the drainage ditch was installed.

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Where plaintiffs claimed intentional misrepresentation based on a warranty deed stating that property being conveyed was free from encumbrances, but a bank held a lien on the property and had recorded a deed of trust eight years before the transaction, plaintiffs’ reliance on the warranty deed was not reasonable.

In Erwin v. Great River Road Supercross, LLC, No. W2019-01005-COA-R3-CV (Tenn. Ct. App. Dec. 1, 2020), plaintiffs purchased real property from defendants in 2008. The warranty deed conveying the property “contained a covenant that the real estate was unencumbered.” The parties eventually got into a dispute regarding personal property that was supposed to be included in the sale, which resulted in plaintiffs paying less than the agreed price and defendants declaring a default and instituting foreclosure proceedings. During the foreclosure, plaintiffs learned that a bank had a pre-existing lien on the property, meaning that the representation in the warranty deed that the property was unencumbered was false.

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Where a foundation repair company was sold a set of products and services to a plaintiff that did not actually work to stabilize her home, and where the company made many misrepresentations about the services and the processes used, the Court of Appeals affirmed an award to plaintiff for fraud.

In Maddox v. Olshan Foundation Repair and Waterproofing Co. of Nashville, L.P., No. M2018-00892-COA-R3-CV (Tenn. Ct. App. Sept. 18, 2019), plaintiff had purchased a home in 2003 that was built on a steep lot. When she began noticing water issues, cracking in the bottom level, and felt the house was tilting, she called defendant foundation repair company. Defendant sent Kevin Hayman to plaintiff’s home, who was identified as a “certified structural technician.” Hayman recommended that plaintiff utilize three systems to stabilize her home: a “Cable Lock system to support the front part of the home’s foundation with pillars,” a Wall Lock system that would anchor the back wall to the ground behind it, and a Water Lock system that would allegedly address the home’s water issues. Each of the systems came with a “lifetime warranty.”

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Where a homebuyer’s inspection of a property put them on notice that there were potential water issues in the garage before closing, the buyer could not later sustain a claim for fraud.

In Fulmer v. Follis, No. W2017-02469-COA-R3-CV (Tenn. Ct. App. Dec. 20, 2018), plaintiffs had previously purchased a home from defendants. On their disclosure forms, defendants had stated that they knew of no drainage issues, and that heavy rain had caused water to come into the garage one time, but that the issue had been repaired. While under contract but before closing, plaintiffs had a home inspection done, which noted “possible rainwater intrusion at the east wall in the garage,” grading issues that might cause drainage problems outside the garage, and a 1×8 board that had been installed for “some unknown reason” on the base of the east garage wall. After the inspection, plaintiffs and defendants continued to communicate through their realtors, with defendants sending pictures after a rain to show that no water had come into the garage, and plaintiffs asking about seeing behind the board. Defendants told plaintiffs that the board was intended to cover an area where they “did not like how the drywall and the garage floor came together” and was “purely cosmetic.” Plaintiffs ultimately did not do any further inspection and closed on the property, but did negotiate for defendants to pay $1,500 more in closing costs “due to the possible rainwater intrusion and grading issue.”

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Showing reliance in a fraud case does not require magic words during a plaintiff’s testimony. In Erwin v. Great River Road Supercross LLC, No. W2017-00150-COA-R3-CV (Tenn. Ct. App. Oct. 19, 2017), plaintiffs sued defendants based on a real estate purchase. Defendants had provided a warranty deed to plaintiffs that “specifically warranted against encumbrances,” but the property was actually subject to a $20,000 mortgage, which was not paid off at the time of closing. As part of this suit, plaintiffs alleged that this misrepresentation constituted fraud.

The trial court found that “[t]here was indeed an intentional misrepresentation made that the real property was unencumbered,” but it held that plaintiffs had not established the required element of reliance. The trial court found that “[o]ne Plaintiff testified that he did not rely on the unencumbered language in the deed when making the decision to purchase the property” and held that the claim failed.

On appeal, the Court of Appeals reversed this decision and remanded the intentional misrepresentation claim for further proceedings. The Court reviewed the plaintiff in question’s testimony, and noted that he stated that the warranty deed specifically said the property was unencumbered, that the property was in fact encumbered by a mortgage, and that he did not know about the mortgage until after the purchase had taken place and he received a foreclosure notice. The Court held:

In Jackson v. CitiMortgage, Inc., No. W2016-00701-COA-R3-CV (Tenn. Ct. App. May 31, 2017), the Tennessee Court of Appeals affirmed summary judgment on an intentional misrepresentation (or fraud) claim where the plaintiffs could not establish that an “explicit promise or representation was made[.]”

During the 2008 recession, plaintiffs defaulted on their mortgage, which was held by defendant. Defendant notified plaintiffs in December 2010 that if the default was not cured, foreclosure proceedings would begin. In 2011, plaintiffs applied for loan modification assistance, but were denied. In March 2014, plaintiffs received a letter from a trustee stating that foreclosure would occur. Plaintiffs hired representation (“Mrs. Mitchell”), and Mrs. Mitchell and one of defendant’s representatives began emailing.

The foreclosure was postponed two times, and then was set for July 29, 2014. Before that date, Mrs. Mitchell and defendant’s representative were again in contact via email. Defendant’s representative told Mrs. Mitchell in an email that the “underwriter has requested some additional information from your client to complete their review file,” and that he would “follow up to confirm receipt or check progress by” the set foreclosure date. Plaintiffs asserted in their complaint that they provided the documents to Mrs. Mitchell and were told by her that defendant had agreed not to foreclose on July 29th. Defendants alleged they never received the documents, and Mrs. Mitchell died before the lawsuit was filed, so plaintiffs’ only evidence of the alleged promise to not foreclose was plaintiff wife’s uncorroborated testimony regarding what Mrs. Mitchell told her. The property was sold at foreclosure as scheduled on July 29, 2014.

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