Rece v. Dominion Homes, 07ap-295 (1-8-2008)

Citation: 2008 Ohio 24Docket: No. 07AP-295.

Court: Ohio Court of Appeals; January 7, 2008; Ohio; State Appellate Court

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Plaintiffs-appellants Clifford and Shannon Rece, along with Christopher and Amanda Endl, appeal the Franklin County Court of Common Pleas' summary judgment in favor of defendant-appellee Valuation Resources, Inc. The court also denied the plaintiffs' request to stay the decision on their claims pending class certification. The plaintiffs filed a class-action complaint alleging that from November 16, 1999, to the present, Dominion Homes, Inc. and Dominion Homes Financial Services, Ltd. (collectively "the Dominion defendants"), along with Valuation Resources, engaged in deceptive practices to induce consumers to purchase homes at inflated prices. They claimed this was done through zero down payment incentives, termed "Nehemiah type grants," and special financing incentives, such as interest rate buy downs, without disclosing these costs to consumers. 

The plaintiffs explained that a "Nehemiah type grant" involved the FHA-required down payment being gifted from a non-profit organization without repayment obligations. They alleged that the Dominion defendants refunded the grant amount and included the cost in the home sale price, misleading consumers about the true market value. Additionally, they accused Valuation Resources of intentionally inflating home appraisals to incorporate the costs of these incentives, further deceiving consumers. 

The plaintiffs raised claims of fraud and negligent misrepresentation, asserting that the defendants made false representations regarding property values and failed to disclose the inclusion of the incentives in the sale price. They also claimed unjust enrichment and violations of Ohio's Predatory Lending Act and common law predatory lending practices against the Dominion defendants. The court ultimately affirmed the lower court's judgment.

Plaintiffs amended their complaint to include claims for monetary damages and rescission under the Ohio Consumer Sales Practices Act (CSPA) and civil conspiracy against the defendants. They sought class certification for individuals who purchased new homes from Dominion Homes, Inc. or its affiliates, financed with a specific type of grant, from November 16, 1999, to the present, estimating a class size of 4,773. The defendants did not oppose the motion for class certification but filed motions to dismiss several claims. The trial court dismissed claims against the Dominion defendants for monetary damages under the CSPA and other related claims. Additionally, the defendants sought summary judgment on claims brought by the Endls and Reces, who countered with a motion to stay proceedings pending the class certification decision. The trial court denied the stay and granted summary judgment against the Endls and Reces, citing a lack of sufficient evidence for trial. On February 15, 2007, the court journalized its decision. Subsequently, plaintiffs voluntarily dismissed their remaining claims against the Dominion defendants and filed an appeal, asserting that the trial court failed to consider the class certification motion before ruling on the merits and that genuine issues of material fact existed for the summary judgment. The court found that the decision on class-action certification is at the trial court's discretion, which can vary based on case circumstances, and noted that premature certification could lead to inefficient use of judicial resources.

In Castillo v. Nationwide Fin. Serv. Inc., it was established that courts may defer class certification until after ruling on a defendant's summary judgment motion, allowing for the dismissal of deficient class actions pre-certification. Similarly, in Smith v. State Teachers Retirement Bd., it was noted that a trial court is not required to decide class certification before addressing the case's merits, as this decision may become moot if the case is resolved favorably for the defendant. In Jung v. Envirotest Syst. Corp., a court found no abuse of discretion when denying a class certification motion as moot after granting summary judgment for the defendant. 

During oral arguments, plaintiffs argued for the necessity of a class certification ruling before the summary judgment to clarify representation issues and allow time for discovery related to potential class members. They referenced Civ.R. 56(F), which permits courts to delay summary judgment if parties require time for discovery. However, the plaintiffs failed to provide affidavit evidence to justify their requests for additional time or guidance on class issues and did not indicate a need for further discovery in the record. The trial court maintained discretion over the timing of class-action proceedings and found that the remaining claims were too fact-specific for class certification. Consequently, the court ruled on the merits of the defendants' summary judgment motions, concluding no genuine issues of material fact existed. The trial court acted within its discretion regarding both the class certification and the motion to stay, leading to the rejection of the plaintiffs’ first assignment of error.

Plaintiffs argue that the trial court improperly granted summary judgment to the defendant, asserting that material factual disputes exist regarding their claims of fraud, negligent misrepresentation, and civil conspiracy. They do not contest the court's decision on their claims for rescission under the CSPA, so those claims will not be addressed. An appellate court independently reviews summary judgment rulings, applying the same standard as the trial court, which requires (1) no genuine issue of material fact, (2) the moving party entitled to judgment as a matter of law, and (3) reasonable minds concluding adversely to the nonmoving party when evidence is viewed favorably for them. The court can only consider specific evidence types as defined in Civ. R. 56(C) and must resolve doubts in favor of the nonmoving party. The burden initially lies with the moving party to show that the nonmoving party cannot prove its case, supported by evidence rather than mere assertions. If the moving party meets this burden, the nonmoving party must then present specific facts indicating a genuine issue for trial.

The elements of fraud include: (a) a material misrepresentation or concealment, (b) made knowingly or with reckless disregard for its truth, (c) intended to induce reliance, (d) justifiable reliance by the victim, and (e) resulting injury. Fraud can occur through nondisclosure if there is a duty to disclose. Negligent misrepresentation involves supplying false information in business transactions without exercising reasonable care, leading to pecuniary loss due to justifiable reliance on that information. Unlike fraud, negligent misrepresentation requires an affirmative false statement and does not apply to omissions.

Defendant's motion for summary judgment on the Endls' claims is supported by depositions from Christopher and Amanda Endl and related exhibits, which detail key events. On January 10, 2003, Amanda Powers (now Endl) entered into a Home Purchase Agreement for a condominium from Dominion Homes, with Christopher signing the following day. They applied for financing through DHFS, where they were informed by a Dominion Homes salesperson of a potential monetary gift from the Nehemiah Corporation to cover the down payment, as well as a "3:2:1 buydown" financing option that involved incrementally increasing interest rates for the first three years of a 30-year mortgage.

The purchase agreement included a "Mortgage Selection Addendum" and a "Zero Down Financing Addendum" referencing both the gifted down payment and the buydown, which the Endls assumed were normal incentives for first-time buyers. Despite being informed they were not obligated to use DHFS for financing, they chose to do so. On January 14, 2003, they executed various documents, including an "Affiliated Business Disclosure" (ABD) that revealed the affiliation between Dominion Homes and DHFS, as well as identifying the defendant as the appraiser/inspector.

The ABD stated that DHFS could require certain service providers, and the Endls acknowledged their understanding of this referral relationship. The "Buydown and Future Payment Disclosure" detailed the mechanics of the 3:2:1 buydown, while the "Servicing Disclosure Statement" included an "Appraisal Disclosure" informing them of their right to receive a copy of the appraisal. After DHFS ordered an appraisal, defendant inspected the property on February 3, 2003, and completed the appraisal report on February 26, 2003. The Endls closed on the home on March 7, 2003, signing multiple documents, including a HUD-1 settlement statement that outlined the gifted down payment and buydown costs.

The HUD-1 included line items for "Nehemiah Credit," "Nehemiah processing fee," and "loan discount." The "Gift Letter" confirmed the Endls received the down payment gift, while the "Buydown Agreement" detailed the buydown terms, noting that Dominion Homes funded the buydown through DHFS. Both Christopher and Amanda testified they did not understand the HUD-1 statement figures related to the gift and loan discount, and although they had the opportunity to ask questions, they did not. They received a copy of the appraisal at closing.

Defendant's motion for summary judgment argues that the Endls cannot substantiate their fraud or negligent misrepresentation claims due to an inability to prove "justifiable reliance." The defendant asserts that there is no evidence showing the Endls relied on the appraisal report prior to agreeing to the purchase price or executing agreements with the Dominion defendants. In Washington Mut. Bank v. Smith, the court examined whether residential property purchasers could hold a real estate appraiser liable for negligent misrepresentation when the appraisal was conducted for a lender's benefit. Although the court acknowledged that the appraiser should foresee potential harm to property buyers from a negligent appraisal, it emphasized that this does not imply blanket liability for all appraisal errors. The court specified that purchasers must demonstrate justifiable reliance on the appraisal to recover damages. Generally, if a buyer signs a purchase contract before the appraisal is completed, proving reliance on the appraisal is challenging. The court recognized that under certain circumstances, particularly for unsophisticated consumers misled by a negligent appraisal, recovery might be possible if reliance can be shown. However, in this case, the appraisers did not provide sufficient evidence, as required under Civ.R. 56(C), to establish that there were no genuine issues regarding the reliance element. Consequently, the court upheld the trial court's summary judgment in favor of the purchasers but noted that evidence showing the purchasers signed the agreement before receiving the appraisal would imply a lack of reliance, which the appraisers failed to demonstrate.

Defendant presents evidence that the Endls executed the purchase agreement prior to receiving the appraisal, which was dated February 26, 2003, after the contract was signed. The Endls admit they did not rely on the appraisal for their purchasing decision, with Christopher acknowledging he never requested it and did not believe it was necessary. He also stated he did not rely on any misrepresentations from the defendant when entering into the contract, and he lacks evidence that the defendant overvalued the home. Amanda similarly confirmed that she did not read the appraisal before closing and did not rely on it for the purchase. This testimony supports the defendant's motion for summary judgment by demonstrating no genuine issue of fact regarding the "justifiable reliance" element of the Endls' fraud and negligent misrepresentation claims. Consequently, the burden shifts to the Endls to show there is a genuine issue for trial by providing specific evidence of reliance on any misrepresentation in the appraisal report. In their response, the Endls claim they did not rely on the written appraisal since it was not yet available, but argue they were collectively defrauded by the defendant and the Dominion defendants for inflating home values to secure FHA financing and down payment grants. They assert reliance on representations regarding the nature of the down payment, the appraisal's accuracy, the appraiser's impartiality, and the home’s price reflecting true market value, leading to negative equity at closing.

The Endls assert that the Dominion defendants' scheme would have failed without the defendant's appraisals, claiming misrepresentation of the home's value as part of a conspiracy with the Dominion defendants. However, their broad allegations do not meet the burden of proof required under Civ. R. 56(E), as they have not provided evidence to show a genuine issue regarding their reliance on the alleged misrepresentation in their fraud and negligent misrepresentation claims. As such, the trial court correctly granted summary judgment in favor of the defendant on these claims.

Regarding the Endls' civil conspiracy claim, it requires proof of an underlying unlawful act. Since the claims for fraud and negligent misrepresentation were dismissed, the conspiracy claim also fails. Thus, the trial court’s summary judgment on this claim is upheld.

In relation to the Reces' claims for fraud and negligent misrepresentation, the defendant supported its summary judgment motion with depositions and affidavits, which revealed that the Reces entered into a Home Purchase Agreement with Dominion Homes on March 2, 2002. They were informed by a Dominion salesperson about a charitable gift program for their down payment and a financing package with an interest rate adjustment. The Reces signed several documents, including a "Mortgage Selection Addendum," which referenced the charitable program and allowed them to seek financing elsewhere. Additionally, they acknowledged receiving disclosures about the financing process, including potential costs and the use of an appraiser associated with the lender. Shannon Rece admitted she likely did not read the acknowledgment prior to signing it.

On April 10, 2002, DHFS commissioned an appraisal from the defendant as part of the loan underwriting for the Reces' home purchase. The property was inspected on April 12, 2002, and the appraisal report was completed by April 19, 2002. The Reces closed on the home on May 28, 2002, signing several documents, including a HUD-1 settlement statement, a "Gift Letter," and a "Buydown Agreement." The HUD-1 included items for "Nehemiah Contract Funds" and a "Processing Fee to Nehemiah," detailing the gifted down payment and related fees. The "Gift Letter" confirmed the Reces received funds from the Nehemiah Corporation, while the "Buydown Agreement" outlined the financial support provided by Dominion Homes for the Reces' mortgage obligations.

During closing, the title officer reviewed the documents with the Reces, who did not ask questions. Clifford, one of the Reces, admitted he did not read the documents and followed the title officer's guidance to sign where indicated. Although he received and glanced at the appraisal, he did not raise any concerns. In its motion for summary judgment, the defendant argued that the Reces could not substantiate claims of fraud or negligent misrepresentation, asserting there was no evidence of any negligent or intentional misrepresentation by the defendant that the Reces relied upon. The defendant noted that the appraisal was completed after the Reces signed the purchase agreement, emphasizing that reliance on it was unjustifiable. 

The defendant referenced the appraisal report's date, Baciu's affidavit confirming it was the sole appraisal conducted, and the ABD, which indicated that the appraisal served DHFS's interests, not the Reces'. Additionally, the Reces admitted in their depositions that they had no direct communication or contractual relationship with the defendant and had not compensated them for the appraisal. Clifford also stated he had no evidence to support claims against the defendant and did not suspect the appraisal was inflated. The defendant's arguments and supporting testimony effectively demonstrated the lack of a genuine issue of fact regarding the Reces' claims of justifiable reliance for fraud and negligent misrepresentation.

The burden of proof shifted to the Reces, as the nonmoving party, to demonstrate specific facts showing a genuine issue for trial regarding the "justifiable reliance" element of their fraud and negligent misrepresentation claims. Their memorandum opposing the defendant's motion for summary judgment mirrored that of the Endls and contained only conclusory allegations that the defendant misrepresented the home's appraisal value as part of a conspiracy with the Dominion defendants, asserting reliance on that misrepresentation in their home purchase. These allegations were deemed insufficient to meet their burden under Civ. R. 56(E). The Reces did not adequately address the defendant's arguments or present evidence to establish a genuine factual issue on the justifiable reliance element of their claims. Consequently, their claims for fraud and negligent misrepresentation were found to fail as a matter of law, leading to the trial court's proper granting of summary judgment for the defendant. Additionally, the court affirmed that summary judgment was appropriately granted on the Reces' civil conspiracy claims, paralleling the rationale applied to the Endls' claims. Both of the plaintiffs' assignments of error were overruled, and the judgment of the Franklin County Court of Common Pleas was affirmed.