No Misrepresentation where Plaintiffs Had Access to Information

In Haynes v. Lunsford, No. E2015-01686-COA-R3-CV (Tenn. Ct. App. Feb. 2, 2017), the Tennessee Court of Appeals affirmed summary judgment for a real estate agent and agency on a misrepresentation claim where plaintiffs had access to the same information as defendants.

Plaintiffs contacted defendant real estate agent, who worked for the defendant agency, about buying a log cabin. While looking at MLS with defendant, plaintiffs found the cabin they eventually purchased. Defendant was not the listing agent on this cabin. Defendant and plaintiff visited the cabin together and both felt it looked new and “smelled great.” Plaintiffs had a home inspection done prior to the purchase, which revealed some “common cracks” but did not mention mold. Plaintiffs did not “take any action to make sure the basement was moisture free” before the purchase.

Before the closing, defendant sent plaintiff all the documents in her possession, including the MLS listing, the CRS property report, seller’s disclosure, the home inspection report, and the seller’s warranty deed. The deed showed that a bank was the grantor, which defendant admitted could mean that the property had been involved in a foreclosure. Plaintiffs closed on the cabin and moved in, and five months later they “began smelling a mildew type odor.” Six months after the purchase, an inspector found moisture in a wall, and some months after that, mold spores were found.

Plaintiffs brought suit against defendant real estate agent and the agency she worked for, alleging that “the cabin was presented to them as ‘new’ and ‘just recently built.’” Plaintiffs’ complaint included claims of fraudulent misrepresentation, failure to disclose adverse facts, and violations of the Tennessee Consumer Protection Act. Plaintiffs asserted that “the cabin had a moisture and mold problem about which the defendants knew or should have known,” and that “defendants had a duty to disclose the moisture and mold problems to plaintiffs[.]”

The trial court granted defendants’ motion for summary judgment, finding that there was “no evidence whatsoever that Defendants…were aware of mold being present in this house,” and that “plaintiffs had the same information that [defendants] had about the home.” The Court of Appeals affirmed this ruling.

To prove negligent misrepresentation, a plaintiff must show that a defendant “supplie[d] faulty information meant to guide another in their business transaction,” and that “the defendant fail[ed] to exercise reasonable care in obtaining or communicating information.” (internal citation omitted). To prove intentional misrepresentation, a plaintiff must show that a “false representation was made either knowingly or without belief in its truth or recklessly.” For either claim, “a party does not have a duty to disclose a material fact where ordinary diligence would have revealed the undisclosed fact.” (internal citation and quotation omitted).

Here, plaintiffs claimed that defendants misrepresented that the cabin was “new” or “recently built,” and that she failed to disclose adverse facts about the property. Defendants, however, had provided plaintiffs with all the same information they had regarding the “history, condition, and value of the cabin and the property,” including the deed that revealed the bank as grantor. In affirming summary judgment on the misrepresentation claims, the Court pointed out that in a prior case, the Court of Appeals held “if one who is in possession of material facts, either actually or constructively, proceeds with a purchase of realty, notwithstanding such knowledge, such a person cannot thereafter recover on the basis of fraud, misrepresentation, or concealment of information to which all parties had equal access.” (internal citation omitted). The Court held:

Where the means of information are at hand and equally accessible to both parties so that, with ordinary prudence or diligence they might rely on their own judgment, generally they must be presumed to have done so, or, if they have not informed themselves, they must abide the consequences of their own inattention and carelessness. Buyers cannot maintain that [defendant agent] misrepresented these facts to which they had the same access.

(internal citation and quotation omitted).

Likewise, the Court affirmed summary judgment on plaintiffs’ claim that defendants failed to disclose adverse facts. Tenn. Code Ann. § 62-13-403 requires a real estate agent to “disclose to each party to the transaction any adverse facts of which the licensee has actual notice or knowledge,” and “adverse facts” includes conditions that “have negative impact on the value of the real estate. (Tenn. Code Ann. § 62-13-102(2)). When analyzing whether defendants had breached this duty, the Court noted that “information as to the history and value of the Cabin and the property on which it was located was located in the title report and bank appraisal received and reviewed by buyers,” so that “buyers had the same information as [the agent] on this issue.” Plaintiffs asserted that defendant agent should have known that the cabin had been abandoned and left open, exposing it to elements of nature, as it was common knowledge in the area. The Court rejected this argument, finding that plaintiffs had presented no proof that defendant knew the cabin had been left exposed to the elements, ruling that “[w]hat may be common knowledge in a community does not demonstrate [defendant’s] actual notice or knowledge on this issue.” The Court ultimately held that plaintiffs had not presented any evidence that defendants had knowledge of any adverse facts regarding the property and affirmed summary judgment.

In addition to affirming summary judgment, the Court affirmed the trial court’s refusal to consider new evidence submitted with plaintiffs’ motion to reconsider the summary judgment order. With their Rule 59.04 motion to reconsider, plaintiffs submitted affidavits from a neighbor to the cabin, a city inspector, and an insurance agent. When new evidence is submitted with a Rule 59.04 motion, “the two most important factors [regarding whether it should be considered] are 1) the plaintiffs’ efforts to obtain the evidence to respond initially to the summary judgment motion and 2) the plaintiffs’ explanation for the failure to offer the newly submitted evidence in their initial response to the summary judgment motion.” (internal citation and quotation omitted). Here, the Court held that the evidence submitted with the Rule 59.04 motion “was clearly available at the time the Buyers filed their response to the summary judgment motion. Allowing its use would result in unfair prejudice to the defendants.”

Misrepresentation claims can be difficult to prove, and as this case reminds us, such a claim will be virtually impossible if the plaintiff had access to the information he or she claims was misrepresented. Before taking on a misrepresentation case, be sure to thoroughly investigate what your potential client knew and what information he had in his possession.