January 13, 2012
LOUIS PERRI, M.D., PLAINTIFF-APPELLANT/ CROSS-RESPONDENT,
PRESTIGIOUS HOMES, INC., GARY LANSMAN, INDIVIDUALLY,
NEIL LANSMAN, INDIVIDUALLY,
DELAWARE VALLEY REAL ESTATE HOLDINGS, LLC, MASSACHUSETTS STREET PROPERTIES, LLC,
CG LIMITED INVESTORS, LLC,
SCOTT HOMEL, INDIVIDUALLY,
PAUL ROSENBERG, INDIVIDUALLY,
JOEL GREEN, INDIVIDUALLY,
PRUDENTIAL FOX & ROACH REALTORS, KATHLEEN A. CRUSCO A/K/A KATHLEEN A. RUSSO, INDIVIDUALLY, DEFENDANTS-RESPONDENTS/ CROSS-APPELLANTS, AND M & K REALTY, LLC, KAMMERMAN'S ATLANTIC CITY MARINA, JOINTLY, SEVERALLY AND IN THE ALTERNATIVE, DEFENDANTS.
On appeal from Superior Court of New Jersey, Law Division, Atlantic County, Docket No. L-4169-08.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued September 19, 2011
Before Judges Grall and Skillman.
Plaintiff Louis Perri purchased a new home in Atlantic City situated
on a narrow peninsula bordered by Snug Harbor Inlet and Gardner's
Basin. Following the closing, sea water entered his garage on two
occasions and the street numerous times. Alleging failure to disclose
a known flooding condition and a misrepresentation by his real estate
agent that flooding was not
something to worry about, Perri filed a complaint charging the
builder, sellers and brokers with violations of the Consumer Fraud Act
(CFA), common law fraud and conspiracy.*fn1
56:8-1 to -20. Perri appeals from the trial court's entry
of summary judgment in favor of defendants on those claims.*fn2
We affirm because the record does not support either cause of
Perri's property fronts North Massachusetts Avenue, which is a twenty-four-foot-wide public street. There is a bulkhead on the opposite side of the street and about forty-two feet from Perri's house. That bulkhead is the only structure that separates the street and Perri's home from Snug Harbor Inlet. At the rear boundary of Perri's property, which is one hundred feet from the lot's front line, there is another bulkhead adjacent to Gardner's Marina. Perri describes his property as a stone's throw from the inlet and on the basin.
Perri purchased the property from CG Limited Investors, LLC, Delaware Valley Real Estate Holdings, LLC and Massachusetts Street Properties, LLC (collectively defendant sellers). The defendant sellers owned several lots on the street; defendant Prestigious Home, Inc. built the houses to be sold by the defendant sellers. During the period construction was underway, Perri was interested in waterfront property with the capacity to keep a boat and was working with a real estate agent, defendant Kathleen A. Russo of defendant Prudential Fox & Roach Realtors.
Russo first took Perri to this property in March 2005. At that point, the house was framed and roofed. By Perri's account, he visited the property while it was under construction about six times before he signed the contract of sale in August 2005 and another six to eight times before the closing, which took place in March 2006. Defendants contend the visits were much more frequent.
There is some dispute about flood conditions Perri witnessed on his pre-purchase visits. According to defendants, during several visits the street in front of the house had water in it, was impassable or had deep puddles and debris obviously indicative of recent flooding. Defendants' accounts include descriptions of conditions requiring removal of shoes, jumping over puddles and parking away from the house due to water in the street in front of the property. According to Russo, Lisa Kalin, a decorator who worked with Perri and the builder, and Gary Lansman, the office manager for the builder who visited the site several times, there were also water marks in the garage that were visible during Perri's visits. The builder's supervisor recalls an occasion during construction when he and Perri arrived at the street and were forced to leave because it was impassable.
Perri, however, denies seeing any sign of flooding before his signing of the contract and closing. He contends that the day he and the builder's supervisor both drove away from the street because of flooding was after he purchased the house. Otherwise, he asserts he does not recall observing any telltale conditions.
Perri admits knowing that the property was in a flood zone and that he would be required to obtain flood insurance. The contract of sale Perri signed states that use of the property may be limited if it is in a flood zone and that the mortgage lender may require flood insurance.
Perri also knew the house was constructed in accordance with Federal Emergency Management Agency (FEMA) regulations applicable to the flood zone. The home he purchased, like others on the street, is built on a slab, with no habitable space on the ground floor and with "masonry construction." There is no machinery or equipment servicing the house at an elevation lower than 10.82 feet, and the structure at the ground floor includes seven permanent openings within one foot above the adjacent grade. These permanent openings are flood vents designed to allow water flow through the structure. The walls of the front entry leading to the habitable space above is tiled up to about three feet from the floor, and the foyer is at a higher elevation than the garage.
The FEMA elevation certification submitted with Perri's application for flood insurance refers to the ten-foot base flood elevations, the seven flood vents, and the respective elevations of the mechanicals and living space in Perri's house. Perri does not dispute the contents.
There is evidence, which Perri disputes, demonstrating his actual awareness of water entering the ground floor of the structure before he purchased the home. According to Kalin, she and Perri had discussed tiling the foyer walls to prevent water damage and his idea of installing a ramp or lift in the garage to elevate his Corvette and thereby protect it from water damage. Lansman also recalls Perri talking about a lift for the Corvette prior to closing.
Perri denies having any conversation about flooding with anyone other than Russo prior to closing or having any concern about flooding or its impact on his Corvette before he moved into the house. According to Perri and the builder's construction supervisor, they discussed a lift for the Corvette after Perri owned the property. Perri also explains that he viewed the flood insurance as something necessary in the event of a rare catastrophic event and not reason for concern about flooding under less serious conditions.
He claims the builder, sellers and realtors knew about the flooding and did not tell him. He asserts that he would not have purchased the property if they had.
Perri alleges only one affirmative misrepresentation about flooding. It was made by Russo on one of his first visits to the property. The relevant questions asked at deposition and Perri's answers were as follows:
Q. [D]o you specifically know whether you made an inquiry with Kathy Russo when you were there for the first time in the spring of 2005, whether the bay or the three bodies of water or the peninsula, as you described it, could cause any flooding?
A. I'm not certain of an exact conversation concerning - I don't believe there was any information relayed to me that was something to be concerned with, that there was this problem of flooding that would, you know, be an issue with this property.
Q. What I'm interested in, did you specifically make any affirmative inquiries saying hey, should I be concerned about flooding in light of the fact that this home that I may buy is located nearby the water here?
A. And I believe I did. I'm just trying to think exactly what, exactly what the conversation was. I believe I did. And I believe I was assured that there wasn't anything to be concerned with. I'm just trying to give you, three years later, three years plus later, an exact detail of the conversation.
Q. And what is it you believe, assuming you made some inquiry, Kathy Russo did, if anything, to assure you or not assure you?
A. I don't believe there was something to be concerned with.
Q. So you believe Kathy Russo told you there was nothing to be concerned with in terms of potential flooding?
A. I believe so. . . . .
Q. Now, out of [the] visits that you made to the property between August 5, 2005 and just prior to the closing on [March 31, 2006] with Kathy Russo being present with you, was there any discussion between you and Kathy Russo about whether the property or the street is subject to flooding?
A. I don't believe there were. . . . .
Q. Was there any discussion between you and Kathy Russo during those visits between August 5, 2005 and prior to the closing of [March 31, 2006] about flooding or water encroaching from the nearby bay or inlet?
A. No, I don't recall any conversation discussing the flooding as it exists.
Q. At any time prior to the closing on March 31, 2006, was there any discussion from Neil or Gary Lansman to you and Ms. Russo about flooding or water coming into the roadway from the bay?
At his deposition taken in August 2009, Perri was able to identify two occasions when flood water entered the garage and foyer - one in April and one in November 2006.
When reviewing a grant of summary judgment, this court applies the same standard as the trial court. Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998). In this instance, we must give Perri the benefit of all favorable evidence and reasonable inferences and determine whether defendants are entitled to judgment as a matter of law on these claims of common law and consumer fraud. Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 523, 540 (1995). If there is a question of disputed fact that could be reasonably resolved in Perri's favor and would permit him to prevail on one or both claims, we must reverse and remand for trial. Id. at 540.
Perri's claims of common law fraud and violation of the CFA are based on the same factual allegations: 1) Russo's alleged affirmative misrepresentation that flooding was not a cause for concern; 2) defendants' shared failure to disclose the flooding impacting the street; and 3) defendants' shared failure to disclose flooding of the premises. We address the claims based on Russo's alleged misrepresentation and the claims based on nondisclosure separately.
Where a claim of common law fraud is based on affirmative misrepresentation, it requires proof of five elements: "a material misrepresentation by the defendant of a presently existing fact or past fact; knowledge or belief by the defendant of its falsity; an intent that the plaintiff rely on the statement; reasonable reliance by the plaintiff; and resulting damages to the plaintiff." Liberty Mut. Ins. Co. v. Land, 186 N.J. 163, 175 (2006); Gennari v. Weichert Co. Realtors, 148 N.J. 582, 610 (1997). "Misrepresentation and reliance are the hallmarks of any fraud claim, and a fraud cause of action fails without them." Banco Popular N. Am. v. Gandi, 184 N.J. 161, 174 (2005).
In contrast, the CFA is violated when there is a "misrepresentation . . . in connection with the sale or advertisement of . . . real estate, . . . whether or not any person has in fact been misled, deceived or damaged thereby . . . . N.J.S.A. 56:8-2. "One who makes an affirmative misrepresentation is liable [under the CFA] even in the absence of knowledge of the falsity of the misrepresentation, negligence, or the intent to deceive[,]" Gennari, supra, 148 N.J. at 605, but "'[t]he misrepresentation has to be one which is material to the transaction and which is a statement of fact, found to be false, made to induce the buyer to make the purchase.'" Id. at 607 (quoting Gennari v. Weichert Co. Realtors, 288 N.J. Super. 504, 535 (App. Div. 1996)).
With respect to Russo's statement, Perri cannot establish the most basic element of either cause of action - a statement of fact that is false. Viewing Perri's account of his conversation with Russo in the light most favorable to him, Russo said something that left him with the impression that he should not be concerned about flooding. That account does not describe a direct assertion of fact; at best, it indicates an idle comment Russo made conveying her opinion about the seriousness of the problem posed by flooding. See Gennari, supra, 148 N.J. at 607 (differentiating material misrepresentations from "idle comments or mere puffery").
We recognize that to the extent that Perri's account of Russo's statement implies she knew nothing giving reason for concern about flooding, it can be viewed as an assertion that she was not aware of any such facts. See Restatement (Second) of Torts § 525, comment e & f (1977) (discussing implied representations). We also understand that one who has made a statement that is true at the time has a duty to correct it if the speaker later acquires information that makes that statement false or misleading. Restatement, supra, § 551(2)(c). But there is no evidence that flood water extended beyond the street and the uninhabitable ground floor of the residence, and it is undisputed that the house on this property bordered by bodies of sea water was designed and built to withstand floodwater reaching those areas. Thus, there is nothing to show that the implied facts - no reason for the owner of this house to worry about flooding - were false or misleading. Without evidence that the statement was false and made to induce the sale, Perri cannot establish that Russo's statement violated the CFA or amounted to common law fraud.
With respect to common law fraud, there is an additional element that Perri cannot prove on this record - "reasonable reliance." Gennari, supra, 148 N.J. at 610. Perri admits he knew his house was built with no habitable space on the ground floor to comply with FEMA regulations, that he was told he would need flood insurance, and that he obtained flood insurance with a FEMA certificate indicating ten-foot flood elevations. In light of that evidence, no factfinder could conclude he reasonably relied on Russo's vague comment to dismiss any concerns he may have had about water in the street and ground level of the house.
For the foregoing reasons, defendants were properly granted summary judgment on Perri's claims of common law fraud and violation of the CFA to the extent based on what Russo said.
We turn to consider the law relevant to Perri's claims of common law fraud and violation of the CFA based on defendants' failure to disclose additional information about flooding of the property and the street abutting it. "Real estate brokers, agents, and salespersons representing professional sellers of real estate are subject to the provisions of the Consumer Fraud Act." Strawn v. Canuso, 140 N.J. 43, 60 (1995). Their "knowing concealment, suppression, or omission of any material fact with intent that others rely upon such concealment, suppression or omission" is a violation of the CFA. N.J.S.A. 56:8-2. Unlike liability for an affirmative misrepresentation, a failure to disclose is a violation of the CFA only if "made knowingly with the intent to deceive the purchasers." Chattin v. Cape May Greene, Inc., 243 N.J. Super. 590, 602 (App. Div. 1990), aff'd o.b., 124 N.J. 520 (1991).
Under the common law, silence can be fraudulent in circumstances where there is a duty to disclose. Weintraub v. Krobatsch, 64 N.J. 445, 455-56 (1974); see Restatement, supra, § 551 (stating circumstances under which liability for misrepresentation may be based on nondisclosure in connection with a contract). Our courts have imposed that duty where the party's role in a real estate transaction imposes an obligation of fair dealing. Weintraub, supra, 64 N.J. at 449; see Restatement, supra, § 551(2) (stating rules applicable to a "party to a business transaction" under which there is a duty to disclose that may substitute for a representation of the nonexistence of the information withheld).
The Supreme Court has noted that "a seller of real estate or a broker representing the seller would be liable for nondisclosure of on-site defective conditions if those conditions were known to them and unknown and not readily observable by the buyer." Strawn, supra, 140 N.J. at 59. The Court further stated that "a purchaser may establish a common-law claim by showing that the seller's or the broker's nondisclosure of material facts induced the purchaser to buy." Id. at 61 (relying on and discussing Tobin v. Paparone Constr. Co., 137 N.J. Super. 518, 526 (Law Div. 1975), a case in which the seller made "representations as to the character of the surrounding neighborhood" and the trial court held that the seller's "silence" as to the planned construction of a tennis court on the adjacent lot "created a mistaken impression on the part of the purchaser which operated to induce the purchaser to buy" and was "a fraudulent representation").
The common law claim the Court addressed in Strawn was negligence.*fn3 The Court's subsequent decision in Gennari makes it clear that common law fraud requires proof in addition to violation of the duty to disclose - proof that the defendant "acted knowingly and with an intent to deceive"; in Gennari the Court affirmed a judgment in favor of the defendant realtors on a claim of common law fraud because their conduct was not shown to be intentional. 148 N.J. at 610-11.
Perri presents no argument as to how the defendant builder (Prestigious Homes), who neither sold nor marketed the property, could be held liable under the CFA or common law based on nondisclosure related to the sales transaction. Because they were not acting as professional sellers or realtors or involved in the sale, they were entitled to summary judgment for that reason alone. Even presuming that Perri's claims against the defendant builder are based on the allegation of conspiracy to commit common law fraud, there can be no conspiracy if there is no cause of action. Rezem Family Assocs., L.P. v. Borough of Millstone Council, 423 N.J. Super. 103, 122 (2011).
In any event, this record does not support a cause of action for common law fraud or under the CFA based on nondisclosure. To establish either claim, Perri must prove that the defendants knowingly withheld facts that they knew were material to his decision to purchase the property with intent to induce the purchase. See Gennari, supra, 148 N.J. at 610; Strawn, supra, 140 N.J. at 60. A fact is material when it is important to the particular buyer's decision or would be important to the decision of a reasonable buyer. Ji v. Palmer, 333 N.J. Super. 451, 462 (App. Div. 2000).
Here, defendants knew what they saw, which was water in the street and the ground level of the residence. They also knew Perri was aware the home he was purchasing was in a flood zone and built with features designed to accommodate floodwater. A fact finder could not reasonably conclude that defendants were aware of flooding in the street or garage, and that this information would be important to a reasonable buyer who knew what Perri knew about the location and construction of the house.
Because Perri cannot establish the essential elements of either cause of action, we affirm the grant of summary judgment to defendants on both causes of action asserted on the alleged nondisclosure.
Our disposition of this appeal makes it unnecessary to address the following arguments presented by defendants: whether the flooding at issue is an on- or off-site condition; whether Perri's claims are barred by the New Residential Construction Off-Site Conditions Disclosure Act, N.J.S.A. 46:3C-1 to -12, and Nobrega v. Edison Glen Associates, 167 N.J. 520, 533-35 (2001); whether the defendant builder has a viable defense under the New Home Warranty and Builders' Registration Act, N.J.S.A. 46:3B-1 to -20; and whether clauses in the contract of sale bar Perri's claims.*fn4