Opinion
No. 14-03-01318-CV
Memorandum Opinion filed August 19, 2004.
On Appeal from the 344th District Court, Chambers County, Texas, Trial Court Cause No. 20002-A.
Affirmed in Part, Reversed and Remanded in Part.
Panel consists of Chief Justice HEDGES and Justices FROST and GUZMAN.
MEMORANDUM OPINION
This is a dispute between home buyers and the seller's listing broker concerning alleged misrepresentations by the broker in connection with their purchase of a home. The home buyers appeal summary judgment in favor of the broker on their fraud, breach of warranty, and Deceptive Trade Practices-Consumer Protection Act ("DTPA") claims. We conclude that a fact issue exists only as to the home buyers' fraud claims, and we sever, reverse, and remand those claims. We affirm the summary judgment as to the breach of warranty and DTPA claims.
I. FACTUAL AND PROCEDURAL BACKGROUND
Appellants/plaintiffs Tim and Melinda Alford purchased a home in Baytown, Texas, from Mark and Jamie Neal in October of 1998. Appellee/defendant Daphna Hotchkiss acted as the Neals' real estate broker and listing agent in the sale. The "Seller's Disclosure Notice" indicated present flood insurance coverage, previous flooding into the improvements and onto the property, and water penetration. Notations on the form further explained that the flood insurance was never used, and that sewer lines in the neighborhood backed up twice in January of 1998, prompting the city of Baytown to install check valves on those homes to correct the problem.
Nine days after the Alfords closed on the purchase of the house, it flooded during a rainstorm. According to Tim Alford's affidavit, while neighbors helped remove wet carpeting and furniture from the house, the Alfords learned that the house had flooded previously. The summary-judgment evidence shows that Hotchkiss was the listing agent when the house was sold in 1993, during which time the house had flooded. Hotchkiss later served as the seller's agent in connection with the Neals' sale of the house to the Alfords. Upon learning of the prior incidents of flooding, the Alfords sent the Neals a written demand for mediation under the parties' earnest-money contract. According to Tim Alford's affidavit, the Neals never responded to the mediation demand
The Alfords filed suit against the Neals and Hotchkiss on August 19, 2002, alleging breach of contract, breach of warranty, violations of the DTPA and statutory and common-law fraud. Hotchkiss filed a motion for summary judgment, asserting the following grounds:
(1) Breach of Warranty. Hotchkiss made no warranty to the Alfords; the house is habitable because the Alfords have lived in it for five years; and Hotchkiss was out of the country during the time the Alfords visited, negotiated for, and purchased the home from the Neals.
(2) DTPA. The statute of limitations bars the Alfords' DTPA claims.
(3) Fraud. The Real Estate License Act ("RELA") preempts the Alfords' fraud claims; Hotchkiss disclosed what she knew of the flooding problem in that the Seller's Disclosure Notice clearly indicated the existence of prior flooding; and she could not have made representations to the Alfords because she was out of the country.
After a hearing, the trial court granted Hotchkiss's motion for summary judgment. The trial court's order does not specify the grounds upon which the judgment is based. The trial court also granted Hotchkiss's motion to sever the claims against her from the other claims in the case.
II. ISSUES PRESENTED
On appeal, the Alfords present the following issues for review:
(1) Did the trial court err in granting summary judgment on the Alfords' breach of warranty, DTPA, and fraud claims when Hotchkiss allegedly made representations to the Alfords?
(2) Did the trial court err in granting summary judgment on the Alfords' DTPA claims based on the statute of limitations?
(3) Did the trial court err in granting summary judgment on the Alfords' fraud claims when the RELA does not preempt the fraud claims?
III. STANDARDS OF REVIEW
In reviewing a traditional motion for summary judgment, we take as true all evidence favorable to the non-movant, and we make all reasonable inferences in the non-movant's favor. Dolcefino v. Randolph, 19 S.W.3d 906, 916 (Tex. App.-Houston [14th Dist.] 2000, pet. denied). If the movant's motion and summary-judgment evidence facially establish its right to judgment as a matter of law, the burden shifts to the non-movant to raise a genuine, material fact issue sufficient to defeat summary judgment. Id.
In reviewing a no-evidence motion for summary judgment, we ascertain whether the non-movant produced any evidence of probative force to raise a genuine issue of fact as to the essential elements attacked in the no-evidence motion. Id. We take as true all evidence favorable to the non-movant, and we make all reasonable inferences therefrom in the non-movant's favor. Id. A no-evidence motion for summary judgment must be granted if the party opposing the motion does not respond with competent summary-judgment evidence that raises a genuine issue of material fact. Id. at 917. Because the trial court did not specify the grounds for its ruling, we will affirm if any of the grounds advanced in the motion has merit. See Carr v. Brasher, 776 S.W.2d 567, 569 (Tex. 1989).
IV. ANALYSIS
Did the trial court err in granting summary judgment on the Alfords' breach of warranty, DTPA, and fraud claims?
The Alfords claim the trial court erred in granting summary judgment in favor of Hotchkiss on the breach of warranty, DTPA, and fraud claims because (1) Hotchkiss allegedly forwarded via fax a known misrepresentation in the "Seller's Disclosure Notice" and (2) Hotchkiss had a duty to correct the "Seller's Disclosure Notice" prior to closing under the RELA but chose to remain silent. In addition, the Alfords contend the statute of limitations under the DTPA does not bar their DTPA claims because the statute was tolled while they awaited response from the Neals and Hotchkiss regarding mediation. Finally, the Alfords argue that the RELA does not provide a separate cause of action barring their common-law and statutory fraud claims and that the trial court erred in granting summary judgment as to the fraud claims because Hotchkiss knew of prior flooding and that the house had been treated for wood-boring insects.
1. Breach of Warranty
The Alfords alleged in their first amended original petition that Hotchkiss breached both express and implied warranties by failing to provide the home in a habitable condition. Hotchkiss moved for summary judgment on the grounds that she made no warranty to the Alfords, that the house is habitable because the Alfords have lived in it for five years, and that Hotchkiss was out of the country during the time the Alfords visited, negotiated for, and purchased the home from the Neals and, therefore, Hotchkiss could not have made any warranty.
The Alfords do not address the warranty claim separately in their appellate brief, but rather, rely on alleged statements made or omissions in the "Seller's Disclosure Notice" for the breach of warranty, DTPA, and fraud claims. The summary-judgment evidence does not show an express warranty made by Hotchkiss to the Alfords. The "Seller's Disclosure Notice" states that "it is not a warranty of any kind by seller, seller's agents, or any other agent." Just above the Alfords' signatures, the form contains language reiterating that the notice is "not a warranty of any kind by . . . Seller's Agent. . . ." In addition, Hotchkiss states in her affidavit that she could not have made any oral warranties because she did not speak to the Alfords until after the house was sold and she was not aware of any document that provided for a written warranty. Tim Alford's affidavit does not specifically mention any warranties, implied or express, provided by Hotchkiss. Rather, his affidavit focuses on alleged misrepresentations made by the Neals and Hotchkiss to the Alfords. Finally, the specific implied warranty the Alfords claim here — the implied warranty of habitability — does not extend from a non-builder seller who sells a building to a subsequent purchaser. See Bynum v. Prudential Residential Servs., L.P., 129 S.W.3d 781, 793-94 (Tex. App.-Houston [1st Dist.] 2004, pet. filed) (finding implied warranty did not extend to seller and company hired to assist in sale of home). Therefore, the trial court did not err in granting summary judgment in favor of Hotchkiss on the breach of warranty claim. Accordingly, we overrule that portion of the Alfords' first issue.
2. DTPA Claim
In their second issue, the Alfords allege the trial court erred in granting summary judgment on their DTPA claims based on the statute of limitations. Specifically, the Alfords contend a fact issue exists as to when their DTPA claims accrued. They argue their DTPA claims did not accrue on the date they discovered the flooding problems, but rather after they demanded the Neals and Hotchkiss participate in mediation and the parties failed to respond to their demand
The record indicates that the Alfords filed their original petition on August 19, 2002. The Alfords claim they discovered the flooding problems nine days after the closing date, which was October 9, 1998. Under the DTPA, all actions "must be commenced within two years after the date on which the false, misleading, or deceptive act or practice occurred or within two years after the consumer discovered or in the exercise of reasonable diligence should have discovered the occurrence of the false, misleading, or deceptive act or practice." TEX. BUS. COM. CODE ANN. § 17.565 (Vernon 2002). The Alfords contend this provision does not apply to their DTPA claims because their demand for mediation tolled the limitations period. We need not decide this issue because the evidence in the record does not show that the Alfords even requested mediation of Hotchkiss. The letter requesting mediation, which was presented in the response to Hotchkiss's motion for summary judgment, is addressed only to the Neals. Although Hotchkiss does not dispute she is a party to the mediation clause in the earnest-money contract, no evidence exists to show that the Alfords made a demand for mediation as to Hotchkiss. Therefore, even if it is possible for the statute of limitations to be tolled by a demand for mediation, there is no evidence that the Alfords ever made a demand for mediation upon Hotchkiss. We find that because the Alfords failed to establish tolling of the statute of limitations, their DTPA claims are time-barred. The trial court correctly granted summary judgment as to these claims.
Accordingly, we overrule the Alfords' second issue. 3. Fraud Claims
As part of their first issue, the Alfords also claim the trial court erred in granting summary judgment on their DTPA claims because Hotchkiss allegedly forwarded via fax a known misrepresentation in the "Seller's Disclosure Notice," and Hotchkiss had a duty to correct this notice before the closing but chose to remain silent. Because we have concluded the Alfords' DTPA claims are time-barred under the statute, we need not address these arguments.
In part of their first issue and in their third issue, the Alfords assert the trial court erred in granting summary judgment on their common-law and statutory fraud claims. The Alfords contend Hotchkiss allegedly (1) made representations in the "Seller's Disclosure Notice" when she forwarded the completed form via fax, and (2) did not correct the disclosures on the form prior to closing. In her motion for summary judgment, Hotchkiss argues, among other things, that (1) the RELA preempts the Alfords' fraud claims; (2) Hotchkiss disclosed what she knew of the flooding problem in that the "Seller's Disclosure Notice" clearly indicated the existence of prior flooding; and (3) she could not have made representations to the Alfords because she was out of the country when the Alfords purchased the home, and when the "Seller's Disclosure Notice" was faxed to the Alfords. a. Does the RELA preempt the Alfords' fraud claims?
Hotchkiss emphasizes the fact that she was out of the country when the "Seller's Disclosure Notice" was faxed to the Alfords' agent from Hotchkiss's office on August 31, 1998. Indeed, the summary-judgment evidence shows that Hotchkiss was out of the country from August 22 until September 6, 1998. However, the summary-judgment evidence indicates that Daphna Hotchkiss, Realtors is a sole proprietorship. As such, Hotchkiss is liable for any tort committed by an agent of her firm, despite the fact that she was out of the country. See CU Lloyd's of Tex. v. Hatfield, 126 S.W.3d 679, 684 (Tex. App.-Houston [14th Dist.] 2004, pet. filed) (stating that, under Texas law, a sole proprietorship has no separate legal existence apart from the sole proprietor). Hotchkiss did not contend in her motion for summary judgment that the person who sent the fax from her office was not her agent. Therefore, Hotchkiss's argument that she could not have made a misrepresentation while she was out of the country is not persuasive.
Under their third issue, the Alfords challenge Hotchkiss's assertion in her motion for summary judgment that the Alfords' fraud claims are preempted by the RELA. See TEX. REV. CIV. STAT. ANN. art. 6573a, § 15F (West 2001). In her motion for summary judgment, Hotchkiss argues that the RELA preempts the Alfords' fraud claims based on subsection 15F(d) of the Act, which states that the provisions of section 15F "shall prevail over common law and any other law." See id. § 15F(d). Though subsections of section 15F allude to fraud claims asserted against brokers, parties, and subagents, section 15F does not specifically provide for fraud claims against those persons for their own actions, but rather speaks in terms of their liability for others' actions. See id. § 15F(a)-(c). Hotchkiss relies on subsection 15F(b), which provides that "[a] licensee is not liable for a misrepresentation or a concealment of a material fact made by a party in a real estate transaction unless the licensee knew of the falsity of the misrepresentation or concealment and failed to disclose the licensee's knowledge of the falsity of the misrepresentation or concealment." See id. § 15F(b). In pertinent part, a licensee is defined under the Act as a real estate broker or real estate salesperson. See id. § 15C(m)(3). The term "party" does not include a licensee who represents a party. Id. § 15C(m)(4). Subsection 15F(b) deals with the circumstances under which Hotchkiss could be liable for the Neals' alleged fraud. It does not address Hotchkiss's liability for her own alleged fraud. Because section 15F does not conflict with the Alfords' assertion of fraud claims against Hotchkiss based on her own alleged fraud, subsection 15F(d) has not been triggered. Under the plain meaning of section 15F, this statute does not preempt the Alfords' fraud claims against Hotchkiss for her own alleged misrepresentations and failure to disclose. See Bruce v. Jim Walter Homes, Inc., 943 S.W.2d 121, 122-23 (Tex. App.-San Antonio 1997, writ denied) (stating that a "statute may be interpreted as abrogating a principle of common law only when either the express terms of the statute or its necessary implications clearly indicate such an intent by the legislature"). Therefore, the trial court erred to the extent it granted summary judgment based on the preemption under the RELA.
This section is the former version of current section 1101.805(e)(1)-(2) of the Texas Occupations Code, which became effective June 1, 2003, after this lawsuit was filed. The language of this section is the same except the current version has replaced the word "licensee" with "license holder." The definition of license holder is the same as that of a licensee under the former version. See TEX. OCC. CODE ANN. § 1101.002 (Vernon Pamph. 2004).
b. Did Hotchkiss make a representation in the "Seller's Disclosure Notice?"
In their first amended original petition and in Tim Alford's affidavit, the Alfords claim they were "told" by the Neals and Hotchkiss that the flooding on the property was due to a sewage problem and that the problem had been corrected with the installation of check valves. This language is virtually identical to the statements made in the "Seller's Disclosure Notice" in which the Neals explain that (1) they purchased flood insurance because several houses in other subdivisions had flooding problems, and (2) there had been sewer problems in other homes in the neighborhood that eventually were corrected with the installation of check valves. At the hearing on the motion for summary judgment, the Alfords' attorney stated that the Alfords were basing their fraud claims against Hotchkiss on the fact that she faxed the "Seller's Disclosure Notice" to them. The Alfords make the same argument in their appellate brief. Therefore, our inquiry is limited to any alleged misrepresentations made in the "Seller's Disclosure Notice" and Hotchkiss's potential liability for those misrepresentations.
The "Seller's Disclosure Notice" form contains the following response to the statement "If the answer to any of the conditions in Section 3 is yes, explain (attach additional sheets if necessary)":
[B]ecause several in other suddivisions [sic] got water in houses, so we decided to get flood Insurance [sic], (have never used it), 2 times in January 98 [sic] the sewer lines backed up into the first four houses to the right side at entrance of neighborhood. The week of the 17th of August 98 [sic] the city of Baytown installed check valves on those homes to correct problem.
The transcript from the hearing reads:
The Court: On this issue, counsel, the fraud you are alleging that Ms. Hotchkiss perpetrated in this case, if she did, is by adopting, sending by fax, adopting this disclosure statement for her client?Mr. Russell: Yes. Yes.
The three-page "Seller's Disclosure Notice" was printed by the Texas Association of Realtors, and appears to be substantially similar to the form of the notice in Texas Property Code section 5.008. See TEX. PROP. CODE ANN. § 5.008(b) (Vernon 2004). The first page of the notice provides that it is "[t]o be completed by the Seller," and, just below the space for the property address, in all capital letters, appears the following disclaimer:
THIS NOTICE IS A DISCLOSURE OF SELLER'S KNOWLEDGE OF THE CONDITION OF THE PROPERTY AS OF THE DATE SIGNED BY SELLER AND IS NOT A SUBSTITUTE FOR ANY INSPECTIONS OR WARRANTIES THE PURCHASER MAY WISH TO OBTAIN. IT IS NOT A WARRANTY OF ANY KIND BY SELLER, SELLER'S AGENTS, OR ANY OTHER AGENT.
The pertinent questions on page two of the document are directed to "you (Seller)" and inquire into the condition of the property, including: "Are you (Seller) aware of any of the following conditions?" On the Neals' form, the "yes" boxes are checked for "Present Flood Insurance Coverage," "Previous Flooding: Into the Improvements and Onto the Property," and "Water Penetration." All other boxes are checked "no." The form then requires an explanation for any boxes checked "yes." It is there that the Neals stated that their decision to purchase flood insurance was due to flooding in houses in other subdivisions and that twice in January of 1998, sewer lines backed up into other houses requiring the city of Baytown to install check valves to correct the problem. Page three of the document contains the following notice below the signature lines for the sellers:
NOTICE TO PURCHASER: Listing Broker, Daphna Hotchkiss, Realtors, and Other Broker, ____, advise you that this Seller's Disclosure Notice was completed by Seller, as of the date signed. The Listing Broker and Other Broker have relied on this notice as true and correct and have no reason to believe it to be false or inaccurate. This notice is not a warranty of any kind by Seller, Seller's Agents, or any other Agent. YOU ARE ENCOURAGED TO HAVE AN INSPECTOR OF YOUR CHOICE INSPECT THE PROPERTY PRIOR TO CLOSING.
The question on appeal is not whether the Neals made false representations, but whether Hotchkiss had reason to believe the statements made by the Neals were false or inaccurate. The Alfords contend that because it was on Hotchkiss's letterhead and because the pages indicate at the top that the document was faxed from her office, the document gives the impression of coming from both the Neals and Hotchkiss and, therefore, Hotchkiss is liable for any misrepresentations made in the contents of the document. This court recently held in Sherman v. Elkowitz that a seller's disclosure notice with standard language identical to the one in this case makes clear that the disclosures are by the seller only, not the seller and the broker. See 130 S.W.3d 316, 321 (Tex. App.-Houston [14th Dist.] 2004, no pet.). The Alfords do not direct this court to any authority holding that by placing the form on a broker's letterhead or by transmitting it via fax, the document is transformed from a seller's disclosure to a disclosure by both the seller and the broker. See id. (stating appellants had not cited authority for proposition that, by signing the form, brokers have adopted representations of seller). However, as the court noted in Sherman, under a typical seller's disclosure notice like the one sent to the Alfords, the broker represents that he or she has no reason to believe the disclosure notice to be false or inaccurate. See id. In addition to potential liability for misrepresentation as to this one statement in the "Seller's Disclosure Notice," Hotchkiss, as a listing broker, also had a general duty to disclose known defects to potential purchasers. See Sherman, 130 S.W.3d at 323; Kubinsky v. Van Zandt Realtors, 811 S.W.2d 711, 715 (Tex. App.-Fort Worth 1991, writ denied).
In support of their contention that Hotchkiss knew of prior flooding in the house, the Alfords presented the deposition testimony of David Stephens, who lived in the house at the time the Neals purchased it in 1993. Stephens stated that he spoke with Hotchkiss about whether Mrs. Neal was aware of previous flooding in the home when Mrs. Neal toured the home with Hotchkiss. According to his testimony, Hotchkiss replied that Mrs. Neal was aware of the house's flooding issues because Mrs. Neal had lived in the home as a child and the house flooded at that time. When asked whether he had discussed with Hotchkiss the fact that the water came into the house, he stated that he did not specify where the water was, but mentioned the hallway because both Mrs. Neal and Hotchkiss had noticed the tile curling up. The Alfords also included the deposition testimony of Floyd L. Barron, Jr., the prior owner of the home. Barron testified that the house flooded in 1993, while it was listed for sale through Hotchkiss. He recalled a photograph on the front-page of the Baytown Sun featuring Stephens, with a caption reading "David Stephens of the Abbe Addition measures 6 inches of water from recent rains in his garage and several inches of water inside his house." Barron stated that he spoke with Hotchkiss about the negative effect this newspaper coverage could have on the sale of his home. Although Barron did not view the damage to the house personally, he remembered being told that water had to be mopped out of the house, but the carpet had not gotten wet. Hotchkiss also presented deposition testimony from Barron in which he indicated he met with Hotchkiss to sign the listing agreement for the sale of the house in April of 1993. According to his testimony, at that time, before the June 1993 flood, he told Hotchkiss that there was "seepage into the house on occasion" and that he was of the opinion that the problem "had possibly been fixed" when the city of Baytown "unplugged a big drainage channel."
The Alfords characterize the statements in the "Seller's Disclosure Notice" as false and misleading despite the fact that the boxes checked clearly indicate that the house had sustained prior flooding into the improvements and onto the property in addition to water penetration. The Alfords claim that the explanation misled them as to the history of flooding at the house and the cause of the prior flooding. The explanation does not mention the 1993 flood at the house or its cause, despite the fact that the legislature asked for disclosure of "previous flooding" on the Seller's Disclosure form. See TEX. PROP. CODE ANN. § 5.008(b) (Vernon 2004). In fact, the Neals' narrative explanation does not mention flooding at this particular residence at all, instead it mentions only flooding "in other subdivisions" and in "the first four houses to the right side" at the entrance to the neighborhood. We conclude a fact issue exists with regard to whether the "Seller's Disclosure Notice" provided an accurate explanation of the checked boxes regarding previous flooding into the improvements and onto the property. Furthermore, based on the evidence of Hotchkiss's prior knowledge of flooding at the house, we conclude the summary-judgment evidence raises a genuine issue of fact as to whether Hotchkiss had reason to believe that the sellers' disclosures were inaccurate. These genuine issues of material fact preclude summary judgment as to Hotchkiss's single, allegedly false representation in the disclosure notice and as to her alleged failure to disclose known defects regarding flooding. Therefore, the trial court erred in granting summary judgment in favor of Hotchkiss regarding the Alfords' common-law and statutory fraud claims with regard to prior flooding.
The Alfords also assert that Hotchkiss concealed knowledge of wood-boring insects. Hotchkiss notes in her appellate brief that the Alfords failed to mention the wood-boring insects in their original petition. The first amended original petition does not make specific mention of the wood-boring insects; rather, the claims alleging breach of warranty, DTPA violations, and fraud are general in nature. In the absence of special exceptions requesting a clearer statement of the claims, we liberally construe the Alfords' petition. See City of Houston v. Crabb, 905 S.W.2d 669, 673 (Tex. App.-Houston [14th Dist.] 1995, no writ). Under this liberal construction, we conclude that the Alfords have asserted fraud claims based on Hotchkiss's knowledge of the past treatment for wood-boring insects. Hotchkiss did not attack this ground in her motion for summary judgment. In addition, Hotchkiss admitted in her deposition that the house had been treated for dry-wood termites before the Neals closed on the sale of the house in 1993. The box for previous treatment of termites or other wood-destroying insects was checked "no" on the "Seller's Disclosure Notice." Based on Sherman, a fact issue exists as to whether Hotchkiss knew of the prior treatment for termites, and thus had reason to believe that the representation made by the Neals was false. As a result, the trial court erred in granting summary judgment in favor of Hotchkiss on the Alfords' claims for common-law and statutory fraud as to the evidence of wood-boring insects. Accordingly, we sustain the Alfords' third issue and their first issue as it pertains to fraud only.
IV. CONCLUSION
In conclusion, we affirm the trial court's summary judgment as to the Alfords' breach of warranty and DTPA claims. We conclude that a fact issue exists only as to the Alfords' fraud claims regarding prior flooding and wood-boring insects in the home. Therefore, we sustain the Alfords' first issue as it pertains to fraud as well as the Alfords' third issue, and we sever those claims, reverse the trial court's judgment to this extent, and remand for further proceedings consistent with this opinion.