IN THE CIRCUIT COURT FOR THE STATE OF OREGON

FOR THE COUNTY OF MULTNOMAH

 

TERRY W. EMMERT,

Plaintiff,

v.

PETER GOFORTH et al.,

Defendants.

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Case No. 9610-07891

MEMORANDUM OF DEFENDANTS GOFORTH AND RICE IN SUPPORT OF MOTION FOR SUMMARY JUDGMENT

 

 

Preliminary Statement

This action arises from plaintiff’s (hereafter, the "Buyer") purchase of a parcel of vacant land in Portland. Apparently, he has incurred significant expense in making the land suitable for his intended use: moving existing apartment buildings onto the land. It now appears and defendants Goforth and Rice (hereafter, the "Sellers") take as true for purposes of this motion that the prior owners, defendants Frank A. Bitar & Associates, had filled the land with "wood, brush, trees and organic soils" which "presented the possibility of organic material decay and a very high potential for large future settlements". (Amended Cmplt.  8.)

In the course of the parties’ negotiations, the Buyer learned, and informed the Sellers, that the land had been filled. The Buyer requested and received additional time to conduct due diligence on account of that fact. Yet he failed to ascertain whether the fill could support his apartments, and now seeks to recover from the Sellers after discovering what was buried in the fill. But the Sellers never knew what was buried in the fill until Buyer told them. As a result, a key element of several of Buyer’s claims is missing: Sellers did not breach any express representations in their contracts with the Buyer.

As a result, the First and Second Claims for Breach of Contract must be dismissed. The Second Claim for Breach of Contract must also be dismissed because the Buyer cannot reasonably be considered an implied third-party beneficiary of the Seller’s contract with their broker, when the obligations between Buyer and Seller are expressly established by contract.

The Third Claim must be dismissed because Oregon courts have rejected attempts to impose extra-contractual duties of disclosure in the context of an arms-length transaction, and even if some sort of extra-contractual duty was established, Seller did not breach it.

Buyer’s Fourth Claim for Relief for fraud (Count I) must be dismissed for the same reasons, and is also barred by the statute of limitations.

Finally, the Fifth Claim for Relief, negligent misrepresentation, fails as a matter of law because the relationship between the buyer and sellers was not a professional or fiduciary one that could support a claim for negligent misrepresentation. If any party was negligent here, it was the Buyer.

Statement of Facts

In or about 1975, the Sellers purchased a piece of land adjacent to the Property on which they conducted a restaurant business. (Goforth & Rice Aff.  3.) For purposes of this motion, Sellers will assume arguendo that they received an August 17, 1976 notice of a public hearing to be conducted by the City of Portland concerning a requested by the former owners of the Property to "legalize and complete an existing landfill". (Goforth & Rice Aff. Ex. 1.) (They cannot recall receiving it and did not attend the public hearing. (Id.  4.)

The documents concerning the hearing, produced by counsel for Buyer, indicate that the northwestern portion of the Property was to be filled; this is not the area where Buyer has been attempting to locate his buildings, because it is separated from the rest of the Property by a sewer line. (Id.  6.) The documents indicate that the southern part of the Property, where Buyer is locating the buildings, may have been filled in 1963. (Id.  7 & Ex. 2, at 3.) The City’s hearing examiner concluded that "[t]he material in the completed portion of the fill is unknown. The applicant proposes that the remaining portion be comprised of broken concrete, sand, gravel and loam." (Id. Ex. 2, at 3.)

While the Sellers do not recall knowing of the proceedings before the City, they do recall seeing a large mound of dirt on the Property, which later disappeared. (Id.  3.) They cannot recall whether the dirt was removed and/or spread about on the Property. (Id.) They never knew, or any reason to know, the character of materials used to fill the Property. (Id.)

In 1988, twelve years after the City proceedings and disappearing mound of dirt, the Sellers purchased the Property from Frank A. Bitar & Associates, in order to provide additional parking for the restaurant and to "square off" their irregularly-shaped lot. (Id.  2.) They had no plans to build on the Property and, indeed, this Property represents the only piece of bare land they have ever acquired. (Id.)

The restaurant business did not expand as anticipated and Sellers determined to sell the Property. (Id.  8.) They executed a listing agreement with CB Commercial on May 1, 1991, in which they "agree[d] to disclose to Broker and to prospective purchasers any and all information which Owner has regarding the condition of the Property * * *". ((Goforth & Rice Aff. Ex. 3, at 2.)

On October 24, 1991, the Buyer and Sellers executed an Earnest Money Agreement prepared by Buyer’s agent, which included the following provisions:

"Seller represents . . . [t]hat he has no notice from any government agency of any violations or knowledge of probable violations of the law relating to the subject property."

"Before signing or accepting this instrument, the person acquiring fee title to the property should check with the appropriate city or county planning department to verify approved uses . . ."

"[Buyer]. . . further acknowledge[s] that I have not received or relied upon any statements made by the seller or the seller’s agents which are not herein expressed" (Goforth & Rice Aff. Ex. 4, at 1.)

Shortly thereafter, the Buyer’s representative "Al" informed Sellers that because the Property had been filled, the Buyer required more time for due diligence. (Goforth & Rice Aff.  9.) Accordingly, the parties executed an Addendum which provided that "Due to land fill of property due diligence may require up to 10 days for due diligence". (Goforth & Rice Aff. Ex. 4, at 3 (emphasis added).)

Thereafter, on or about November 8, 1991, the parties executed a new contract on a different form provided by Seller’s agent, which included the following provisions:

"Seller warrants that Seller has not received nor is Seller aware of any notification from any governmental agency having jurisdiction requiring any work to be done on or affecting the property in order for it to conform to applicable building codes or other statutes or regulations."

"Purchaser shall have 20 days to investigate at Purchasers’ expense the property, its zoning, environmental matters, its value, its condition . . . and its suitability for Purchasers’ intended use."

"Seller hereby warrants that to the best of its knowledge the property and improvements thereon do not violate the applicable building or zoning regulations and that it is unaware of any material defect in the premises or improvements thereon * * *"

"BEFORE SIGNING OR ACCEPTING THIS INSTRUMENT, THE PERSON ACQUIRING FEE TITLE TO THE PROPERTY SHOULD CHECK WITH THE APPROPRIATE CITY OR COUNTY PLANNING DEPARTMENT TO VERIFY APPROPRIATE USES * * *" (Goforth & Rice Aff. Ex. 5, at 1-2.)

An addendum to these materials adds the representation that

"To the best of Seller’s knowledge, the property does not contain, and has not previously contained, any ‘Hazardous Materials’ or underground storage tanks. The site is in compliance with applicable state and federal environmental standards and requirements affecting it; has not received any notices of violation or advisory action by regulatory agencies regarding environmental control matters or permit compliance; no ‘Hazardous Materials’ have been transferred from the property to another location which is not in compliance with applicable environmental laws, regulations, or permit requirements; there are no proceedings, governmental administrative actions, or judicial proceedings pending or contemplated, under any federal, state or local laws regulating the discharge of ‘Hazardous Materials’ into the environment." (Goforth & Rice Aff. Ex. 5, at 5.)

The transaction did not close until March 1993. In connection with the closing, the parties executed a final Real Estate Contract for recording. (Id. Ex. 7, at 1-3.) Both it and the accompanying Memorandum of Land-Sale Contract (Id.Ex 7 at 4-5) omit all of the foregoing representations, including only the warning that:

"THIS INSTRUMENT WILL NOT ALLOW USE OF THE PROPERTY DESCRIBED IN THIS INSTRUMENT IN VIOLATION OF APPLICABLE LAND USE LAWS AND REGULATIONS. BEFORE SIGNING OR ACCEPTING THIS INSTRUMENT, THE PERSON ACQUIRING FEE TITLE TO THE PROPERTY SHOULD CHECK WITH THE APPROPRIATE CITY OR COUNTY PLANNING DEPARTMENT TO VERIFY APPROVED USES". (Id. at 2 & 4.)

These final documents were recorded, and Buyer continues to make payments under the Land-Sale Contract to this day.

On September 20, 1994, Buyer’s attorney wrote to Sellers, stating that "it appears that there was a material defect in the property which was apparently known, or should have been known, to each of you. The Report of Building Inspection dated July 30, 1976 is enclosed for your benefit." (Goforth & Rice Aff. Ex. 8). That "Report of Building Inspection" reveals that the "Bitar Bros." had filled portions of the Property and that the land was "[n]ot approved for support of future structures". (Goforth & Rice Aff. Ex. 9).

On October 17, 1996, Buyer filed this action against the Sellers and others.

Argument

Pursuant to Rule 47C of the Oregon Rules of Civil Procedure, summary judgment shall be "rendered forthwith" where there is "no genuine issue as to any material fact". In this case, as set forth below, Sellers had no knowledge of what had been buried on the Property twenty-five years before they purchased it. The Buyer apparently does not believe them, but "flat disbelief ***. is not an inference that plaintiffs may invoke on summary judgment". Tolbert v. First National Bank, 312 Or 485, 495 (1991) (granting defendant summary judgment on claim it breached contractual duty of good faith and fair dealing). In light of the evidence discussed below, "no objectively reasonable juror could return a verdict" (ORCP 47C) for the Buyer, and summary judgment is therefore appropriate.

I. SUMMARY JUDGMENT MAY PROPERLY BE ENTERED DISMISSING BUYER’S BREACH OF CONTRACT CLAIMS

Buyer’s First Claim for Relief alleges that Sellers made six categories of representations, the breach of which is supposed to support a claim for breach of contract. (Am. Cmplt.  11.) Before discussing each of the claimed misrepresentations, it should be emphasized that there were no oral misrepresentations (Goforth & Rice Aff. 11). Indeed, Buyer represented in writing that he had "not received or relied upon any statements made by the seller or the seller’s agents which are not herein expressed". (Id. Ex. 4 at 1.)

Buyer first alleges that Sellers represented "[t]hat the property was suitable for plaintiff’s intended use". (Am. Cmplt.  11(a).) This assertion is false (Goforth & Rice Aff.  11), and contrary to the written statements in all three contracts. Each of the contracts explicitly (and twice in capital letters) advised that the Buyer was obligated to check with appropriate governmental authorities to verify his proposed use. (Goforth & Rice Aff. Ex. 4, at 1; Ex. 5, at 1-2; & Ex. 7, at 2 & 4.) Moreover, in the first two contracts, the Buyer specifically sought additional time to investigate whether the Property was suitable for his intended use. (Goforth & Rice Aff. Ex. 4, at 2; Ex. 5, at 4.)

Buyer next sets forth a group of four alleged representations relating to whether or not Sellers had notice of violations regarding the property. (Am Cmplt.  11(b), (c), (d) and (f).) The pleading simply repeats contractual representations set forth in the first two agreements (but omitted from the final contract). (See Goforth & Rice Aff. Ex. 4, at 1; Ex. 5, at 2.) Assuming arguendo that such representations still had effect after execution of the final, recorded contract, there is no evidence that they were breached. The property, bare land, was not in violation or probable violation of any government regulations at any time during the contracting process. (Goforth & Rice Aff. 14.)

The Buyer alleges that violations had occurred on the Property more than twelve years before Sellers purchased the property, and more than fifteen years before Sellers entered into a contract with him. (See Am. Cmplt.  8 (omitting dates of alleged violations).) But the only "notice" of such violations the Sellers ever had assuming arguendo that they received it was an August 17, 1976 notice from the City of Portland advising of a hearing on a request by the former owners who had "request[ed] permission to legalize and complete an existing landfill". (Goforth & Rice  4 & Ex. 1.) The Sellers cannot recall receiving such a notice, and did not attend the hearing. (Id.)

The Buyer would apparently interpret his contract with the Sellers to require them to recall a twelve-year-old piece of junk mail from the City, interpret the reference in it to "legalizing" landfills to mean that there had been violations on the Property, and then interpret the contract to require present disclosure of those violations. This construction of the contracts is unreasonable as a matter of law. Parties seek to require disclosure of present violations, not ancient ones.

The final alleged misrepresentation comes from the November 8, 1991 contract, wherein the Sellers represented that "to the best of [their] knowledge", they were "unaware of any material defect in the premises . . .". (Goforth & Rice Aff. Ex. 5, at 2.) Assuming arguendo that the representation survived execution of the Final Land Sale Agreement, there is no evidence that the Sellers were aware of any material defect in the premises.

Buyer’s complaint acknowledges that "[t]he subsurface fill conditions on the Property were not visible" (Am. Cmplt.  7.) All filling was apparently completed a dozen years before the Sellers bought the Property, and the filling that has allegedly caused damages to Buyer was probably completed twenty-five years before Sellers bought the Property. (Goforth & Rice Aff. 4-7.) The Sellers testify that they did not know for sure whether the Property had been filled in the past, and never knew the extent or character of any fill. (Id.  3.) All they ever observed was that at one time, there was a large pile of dirt on the Property, which later disappeared. (Id.)

Significantly, the Hearing Examiner’s 1976 findings state that "[t]he material in the completed portion of the fill is unknown. The applicant proposes that the remaining portion be comprised of broken concrete, sand, gravel and loam". (Goforth & Rice Aff. Ex. 2, at 3.) Given that the formal proceedings before the City did not unearth the nature of the fill, how can the Buyers reasonably expect the Sellers to divine it?

Nor would Sellers, not experienced in soil science and construction (id.  16), have any reason to regard the fact that a Property was filled as a material defect. Buildings are commonly constructed on fill. Buyer, knowing of the fill, requested and received additional time to complete due diligence precisely in order to investigate the effect of the fill on his plans to use the property. This action arises from his failure to conduct an adequate investigation, not from any misrepresentation by plaintiffs.

II. SUMMARY JUDGMENT MAY PROPERLY BE ENTERED DISMISSING BUYER’S BREACH OF GOOD FAITH AND FAIR DEALING CLAIM

Lacking any evidence of the breach of an express representation, Buyer repeatedly invokes obligations that are supposed to be implied in law. But in Gill v. Marquoit, 269 Or 581, 585 (1974), the Supreme Court held that a seller of real property is not required to disclose that the land is not suitable for the purchaser’s intended purpose unless

"(1) the seller knows or has reason to know that the purchaser is buying land for a specific use and that such use is not feasible because of the character of the land; (2) the seller knows or has reason to know that the purchaser does not know of the character of the land rendering it unsuitable; and (3) the purchaser does not have equal opportunities for obtaining information which he may be expected to utilize."

If all three of these conditions are not present, the buyer can have no claim for any implied duty arising from the contractual relationship or otherwise. As set forth below, none of the conditions are present as a matter of law.

(1) Even assuming that the extra costs associated with putting apartments on the land constitute making the use "not feasible" within the meaning of the Gill test, there is no evidence to suggest that sellers could have known that material was buried on the land which could rot and cause the land to settle.

(2) By the time they executed the amendment to the first contract, the Sellers knew that the Buyer knew there was fill on the Property, but no one knew what was in the fill. It defies credulity to suggest that the Sellers knew, or should have known, of the Buyer’s ignorance of the "character of the land making it unsuitable". Until August 1994, both the Buyer and Seller assumed it was suitable.

(3) Plaintiff had "equal opportunity" to discover the nature of the fill, which he was expected to utilize he sought time for due diligence precisely to investigate the effect of the fill on his plans. The only knowledge anyone had until Buyer got an engineering report was knowledge from the public records, and those records were equally accessible to the Buyer. In the eighteen months before this transaction closed, all that Buyer had to do was visit the Building Department, where a warning that the property was "not approved for support of future structures" was available. (Goforth & Rice Aff. Ex. 9.) The Sellers never knew of this or any such warning. (Id.  15.)

Oregon courts have not hesitated to give effect to the "equal opportunity" bar to suit. For example, in Salvas v. McEuen, 75 Or App 21, review denied, 300 Or 332 (1985), the Court of Appeals, following Gill, refused to permit a claim arising when large portions of riverfront property purchased by the plaintiff suddenly eroded away. The wheelchair-bound plaintiff, said the court, "had an adequate opportunity to discover that the property was naturally subject to flooding and erosion". Id. at 25.

III. BUYER’S FRAUD CLAIMS ARE TIME-BARRED

Under ORS 12.110, an action for fraud must be commenced within two years of the discovery of the fraud. Buyer alleges that "[d]uring August 1994, the City questioned [his] plans for footings for his buildings". (Am. Cmplt.  8.) Thereafter, on September 20, 1994, Buyer’s attorney wrote to Sellers stating that "it appears there was a material defect in the property which was apparently known, or should have been known, to each of you. The Report of Building Inspection dated July 30, 1976 is enclosed for your benefit." (Goforth & Rice Aff. Ex. 8). That "Report of Building Inspection" reveals that the "Bitar Bros." had filled portions of the Property and that the land was "[n]ot approved for support of future structures". (Goforth & Rice Aff. Ex. 9).

In short, at some time before September 20, 1994, buyer knew that the City of Portland was going to object to his plans, and also knew that back in 1976, the City had warned that the Property was not approved for future structures. This was sufficient notice for him to engage an attorney to threaten the Sellers.

But Buyer did not file this suit until October 17, 1996, more than two years later. Under these circumstances, there can be no genuine issue of material fact as to application of ORS 12.110. The buyer’s Fourth Claim (Count I as against the Sellers) must be dismissed.

IV. BUYER FAILS TO STATE A CLAIM FOR NEGLIGENT MISREPRESENTATION

As set forth above, there is no evidence of any misrepresentations in this transaction. But even if Sellers were considered negligent in failing somehow to discern what lay buried in their land, and in failing to disclose such information to the Buyer (and they should not be), no claim for negligent misrepresentation can lie as a matter of law.

In 1992, the Oregon Supreme Court considered the question whether negligent misrepresentation claims might be asserted in a suit between parties to a real estate contract. Onita Pacific Corp. v. Trustees of Bronson, 315 Or 149 (1992), review denied, 318 Or 170 (1993). The answer was no. As the Court explained, "in arm’s-length negotiations, economic losses arising from a negligent misrepresentation are not actionable". Id. at 161-62.

The Buyer’s counsel attempts to plead around Onita Pacific by asserting that because sellers were "co-applicants with plaintiff in seeking and obtaining a conditional use permit from the City of Portland for plaintiff’s intended use", sellers "owed a special duty to plaintiff". (Am. Cmplt. 18-19.) That the sellers cooperated with plaintiff in allowing him to seek a zoning change even before the transaction closed (Goforth & Rice Aff. 11) does not change the arms-length nature of their relationship. A contrary rule would open a Pandora’s Box of litigation whenever parties to an arm’s-length contract cooperated in facilitating the transaction.

Conclusion

For the foregoing reasons, Buyer’s complaint against the Sellers should be dismissed.

DATED: April 21, 1997

Ball Janik LLP

By:James L. Buchal, OSB No.92161

Attorneys for Peter Goforth and Robert Rice

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