Saturday, October 17, 2015

Realistic Reliance

Glassford v. Dufresne & Associates, P.C., 2015 VT 77

By Elizabeth Kruska

Mr. and Mrs. Glassford bought a house from D&L Homes By Design (D&L), which appears to be a construction contractor. D&L hired Dufresne to certify that the sewage disposal system on the Glassford’s home site satisfied state law with respect to various permitting requirements. As I understand it, the rule says that a permit gets issued but doesn’t become valid until a wastewater disposal installer or licensed designer certifies that the wastewater system meets the plans and criteria.

In 2005, the Agency of Natural Resources issued a sewage disposal system construction permit for the Glassford site. Several months later, Dufresne certified that, in their professional judgment, the system fit the plans and it passed the performance tests. The Agency, satisfied with this certification, issued a notice indicating the permit conditions were satisfied.

A month or so later—in late December 2005, the Glassfords signed a purchase and sale agreement for the house. They never saw the actual certificate regarding the wastewater disposal permit. They hired a lawyer to help with the closing on the house. That lawyer did a certificate of title and included that the wastewater system was acceptable, as there was a permit and the certification from Dufresne. The closing moved forward and occurred on January 17, 2006.

In February 2006, the sewage system failed. Over two-and-a-half years later, in November 2008, the Glassfords contacted Dufresne to look at the system, since they were the original inspectors. The opinion doesn’t say what happened in the meantime, whether someone else inspected it, or if it got repaired or what happened.

In any case, Dufresne said that the system was installed according to the original design, and thus the certification was appropriate. Dufresne’s position is that the system failed for various reasons, including that the soil on top of the system was inappropriately graded, that the house was too big for the system, that the system couldn’t handle the increased volume as a result of the Glassfords’ in-home-daycare business, and because the Glassfords let their horses walk on the system. This is just me, but that seems like an awful lot to happen to cause a brand new septic system to fail between mid-January and February of the same year. Or maybe the opinion from Dufresne was meant to encompass all the way to November 2008. Unclear.

The Glassfords sued Dufresne under the Consumer Protection Act (CPA) alleging negligent misrepresentation. Both the Glassfords and Dufresene filed for summary judgment, which was granted in Dufresne’s favor in the trial court. The trial court’s reasoning was that the Glassfords never actually saw the wastewater certification, so they could not rely on any alleged misrepresentation. The Glassfords appealed, and SCOV affirms.

SCOV first takes a look at the standard of review when the case involves summary judgment. SCOV reviews summary judgment appeals de novo¸ because the issue on appeal is purely one of application of law. The whole thing about summary judgment is that it’s a decision on the law when there is no genuine issue of material fact between the parties. The parties here had some disagreement about certain facts, but SCOV felt those particular facts weren’t material to deciding the issue under the applicable law.

So, SCOV dusts off and busts out their copy of the Restatement (Second) on Torts and the Consumer Protection Act since that’s what the Glassfords alleged was the applicable law and where the problem lies.

The Glassfords alleged that they suffered an economic loss when the sewage system failed. Their rationale is that they relied on Dufresne’s professional certification that the wastewater system was fine. Their argument is that since Dufresne has a duty to the Agency of Natural Resources to make the appropriate certification, that by extension, as buyers who bought a house where Dufresne inspected the wastewater system, that they have a special relationship with Dufresne.

SCOV examines the Restatement (Second) of Torts to figure out if negligent misrepresentation applies here, and if the Glassfords can recover their economic losses as a result. SCOV finds that under the Restatement that liability only extends to persons for whose benefit and guidance the professional opinion is supplied. This is pretty narrow, and doesn’t include a situation where someone could be liable when it’s reasonably foreseeable that someone might rely on the information.

Under the facts of this case, Dufresne was required to provide the certificate to the Agency of Natural Resources, not to the Glassfords. SCOV finds that the point of the certificate was not for the homebuyer to decide whether or not to make the purchase, just whether the wastewater system complied with the permitted design. Even though a homebuyer might factor in this permit in deciding whether or not to buy a house, this doesn’t create a cause of action between the potential buyer and the person certifying the system.

SCOV moves along and examines another part of the statute to see if there’s a different cause of action under which the Glassfords’ claim might work. SCOV determines that there is no cause of action under the argument that the certification created liability for anyone for whose benefit the duty is created. In other words, just because Dufresne certified that the system fit the permit and the design, doesn’t mean that anybody who came along and might buy the property now gets the ability to sue Dufresne if something goes wrong. SCOV notes that the Glassfords didn’t actually rely on the certification from Dufresne. They never communicated with Dufresne, nor did they even see the certificate. There wasn’t anything in the contract that conditioned their purchase on the correctness of the certification or anything like that.

SCOV notes that there have been some cases where someone could bring such a suit, but that was where the parties were actually in communication with one another about the certification, and where direct reliance on the certification could be demonstrated. SCOV also says that while there’s possibly a public duty by the certifier, that an individual plaintiff still has to show that he or she actually relied on the representation.

SCOV goes on to point out that the Glassfords hired a lawyer (always a good idea). However, that didn’t happen until after they had already signed the purchase and sale agreement for the house, so the sale was going forward no matter what. SCOV decides not to go too far into the concept of an agency relationship created by the attorney, but notes that since they hired a lawyer, who presumably saw the certificate and then gave an opinion that there was a good title—including the wastewater disposal certificate – that the information they had was that there was a good title, which doesn’t create reliance on the contents of the disposal certificate. SCOV just can’t get to the point of agreeing that the Glassfords’ decision to buy the house was based on the contents of the certificate.

You’d think we’re done. You’d be wrong.

SCOV also looks at the CPA claim. The CPA prohibits unfair or deceptive practices in commerce. SCOV rules that the CPA only applies to a “seller, solicitor, or other violator.” SCOV finds that Dufresne isn’t a seller or solicitor, because there is no dispute about that. They also find that Dufresne is not an “other violator.” “Other violator” is included in the statute to expand the possible commercial defendants to those with whom a potential plaintiff doesn’t have privity.

SCOV says that even though the completion of the wastewater system was necessary for D&L to be able to sell the house to the Glassfords, that the certificate itself was unrelated to the sale. The sale wasn’t in any way conditioned on the certificate. Since Dufresne and the Glassfords never had any contact with one another, and Dufresne sent the certification only to the Agency of Natural Resources, no relationship was ever created such that a CPA claim could survive.

So, SCOV affirms.

Justice Robinson dissents. First of all, she thinks that the Glassfords and their attorney did rely on the certificate. Lawyers act as people’s agents. That’s what people hire lawyers for. Under an agency theory, the principal is imputed to know what the lawyer knows. So just because Mr. and Mrs. Glassford didn’t look directly at the certificate, but their lawyer did, they shouldn’t automatically lose.

Justice Robinson also takes issue with the record evidence supporting the case, and whether summary judgment should ever have been granted.

She considers the facts in the record. The Glassfords, in their court case, hired an expert attorney to give an opinion about the work done by the title attorney. The expert found that the title lawyer did what he or she was supposed to do. That person got the records and certificate from the Agency of Natural Resources, and forwarded that information to the seller’s attorney. The title attorney, upon reviewing that the system met the requirements, gave an opinion that title was good and that the sale could proceed.

The problem seems to be that the certification system is specifically meant to ensure that newly-constructed wastewater systems work. Lawyers (generally) aren’t experts in wastewater systems, so in providing an opinion on title, have to rely on the certification made by someone who is an expert. If the certificate isn’t truthful, then the lawyer ends up giving an opinion on title based on information that isn’t correct. It doesn’t make a lot of sense to say that the buyer doesn’t rely on there being an approved wastewater system if they know that it’s been certified. Probably if there wasn’t a certificate, they wouldn’t have bought the place.

So, Justice Robinson is troubled by this and would have reversed the trial court’s granting of summary judgment.

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