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Lindstrom v. Moffett Properties

United States District Court, D. Hawaii

April 5, 2017

THORIN JOHN LINDSTROM and KRISTIN KATHLEEN LINDSTROM, Plaintiffs,
v.
MOFFETT PROPERTIES; WILLIAM B. MOFFETT; and MICHAEL REID, Defendants.

          ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT MICHAEL REID'S MOTION TO DISMISS

          Derrick K. Watson, United States District Judge

         INTRODUCTION

         Plaintiffs Thorin John Lindstrom and Kristin Kathleen Lindstrom allege various state-law claims arising out of their purchase of undeveloped real property from seller Michael Reid and realtor Defendants William B. Moffett and Moffett Properties. The Lindstroms claim that they were unable to build on the property because of grading and fill work that defendants did not disclose.

         Because the Complaint sufficiently states claims against Reid for breach of contract and negligent misrepresentation, the Motion to Dismiss is DENIED IN PART as to those causes of action. For the reasons detailed below, Reid's Motion is GRANTED IN PART with respect to the Lindstroms' claims for breach of warranties, rescission, tortious breach of contract, intentional misrepresentation and/or fraud. The Lindstroms are GRANTED LEAVE TO AMEND only their intentional misrepresentation and/or fraud claims.

         BACKGROUND

         I. Plaintiffs' Complaint

         This case arises from the Lindstroms' purchase of Lot 35 A, located at 108 A Pua Niu Way, Lahaina, Hawaii 96791 (“Property”), from Reid for the sum of $1, 227, 444.25. Complaint ¶ 7. Following an initial offer and counter offer, the Lindstroms and Reid entered into a Purchase Contract for the Property, with the sale closing on April 15, 2014. Complaint ¶¶ 7, 10, Ex. A (2/26/2014 Counter Offer), Dkt. No. 1; Mem. in Supp. of Mot., Declaration of Michael Reid, Ex. A (Purchase Contract), Dkt. No. 23-3. Moffett Properties acted as the real estate broker for both buyer and seller in the transaction under a dual agency agreement. Complaint ¶ 22. Defendant William B. (“Buz”) Moffett, an employee of Defendant Moffett Properties, showed the Lindstroms the Property. Complaint ¶ 8. Non-party George Van Fischer, another employee of Moffett Properties, represented Reid in the sale. See Complaint, Ex. A (Counter Offer); Ex. B (3/7/14 Seller Disclosure), Dkt. No. 1.

         The Lindstroms submitted an offer on February 25, 2014. Reid countered on February 26, 2014. Reid's Counter Offer included an “As Is” Condition Addendum and Seller's Real Property Disclosure Statement. See Counter Offer; Seller Disclosure; Purchase Contract; see also Pls.' Mem. in Opp'n, Ex. A

         (Addendum to Seller Disclosure), Dkt. No. 30-1; Reply, Ex. A (Addendum to Seller Disclosure), Dkt. No. 34-2. The Counter Offer provided that fill existed on the Property and that it was being sold “as is” without warranties. For their part, the Lindstroms allege that-

As part of the contract, Reid provided a Seller's Real Property Disclosure Statement (“Disclosure Statement”) to Plaintiffs pursuant to H.R.S., Chapter 508D, Exhibit B. The Disclosure Statement dated March 7, 2014 stated there was filled land on the Property; however, the Disclosure Statement failed to disclose the extent of the actual grading and fill. Further the Disclosure Statement failed to disclose the grading and fill were substantially in excess of what was permitted by the grading permit (G-RS 2005/202) previously filed with the Maui Building Department.

Complaint ¶ 9.

         According to the Lindstroms, “[a]s an inducement to [them] to purchase the Property, Moffett showed the Property to [the Lindstroms] and deliberately and intentionally failed to disclose a hidden and dangerous defect in and on the Property resulting from the improper grading and fill of the Property.” Complaint ¶ 8. The Lindstroms allege, “[o]n information and belief, [Defendants] knew or should have known of [(1)] the hidden defect on the Property due to the excess and improper grading and fill on the Property[, ]” Complaint ¶ 16, and “[(2)] the failure to conduct the proper soil investigation and the failure to obtain the proper grading permit, as well [as] the grading and fill on the Property without any grading permit or in excess of what the grading permit allowed.” Complaint ¶ 17.

         After closing, the Lindstroms hired Marty Cooper, a Maui architect, to prepare plans and specifications to build a residence on the Property. Complaint ¶ 10. Following the submission of the plans and specifications to the Maui Building Department for a building permit, the Lindstroms' permit application was denied and they were informed, allegedly for the first time, that there was improper grading and fill located on the only feasible building area on the Property. Complaint ¶ 11. The Lindstroms also hired Kenneth Stewart, a geotechnical engineer, who conducted a survey of the Property, and found that no soil investigation was performed as required by the Maui Grading Code. Moreover, according to the Lindstroms, the Maui Public Works Department denied any soil report having been submitted to that department. Complaint ¶ 12.

         The Complaint alleges that excessive and improper grading and fill has resulted in a very high probability of future settlement of the filled soil, as well as a high probability of ground movement due to the lack of proper materials and compaction of the materials used for the fill. The Property accordingly has a value substantially less than the price the Lindstroms paid to Reid based on the defective condition. The Lindstroms claim that the cost to remedy the defective condition is substantial and, even if remedial work is done, it is unknown if the condition could be remedied. Complaint ¶¶ 13-14.

         The Lindstroms filed their Complaint on February 23, 2016, asserting the following causes of action: (1) breach of contract against Reid (Count I); (2) breach of contract and fiduciary duty against Moffett Properties (Count II); (3) breach of express and implied warranties against Reid (Count III); (4) rescission (Count IV); (5) tortious breach of contract against Reid (Count V); (6) intentional and negligent misrepresentation against all Defendants (Count VI); (7) fraud against all Defendants (Count VII); and (8) unfair and deceptive trade practices against Moffett Properties (Count VIII).

         Reid seeks dismissal of the claims brought against him. No other Defendant has joined in Reid's Motion.

         STANDARD OF REVIEW

         Federal Rule of Civil Procedure 12(b)(6) authorizes the Court to dismiss a complaint that fails “to state a claim upon which relief can be granted.” Rule 12(b)(6) is read in conjunction with Rule 8(a), which requires only “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). The Court may dismiss a complaint either because it lacks a cognizable legal theory or because it lacks sufficient factual allegations to support a cognizable legal theory. Balistreri v. Pacifica Police Dep't., 901 F.2d 696, 699 (9th Cir. 1988).

         Pursuant to Ashcroft v. Iqbal, “[t]o survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” 555 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 554, 570 (2007)). “[T]he tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions.” Id. Accordingly, “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. (citing Twombly, 550 U.S. at 555). Rather, “[a] claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. (citing Twombly, 550 U.S. at 556). Factual allegations that only permit the court to infer “the mere possibility of misconduct” do not constitute a short and plain statement of the claim showing that the pleader is entitled to relief, as required by Rule 8(a)(2). Id. at 679.

         A court may consider certain documents attached to a complaint, as well as documents incorporated by reference into a complaint “if the plaintiff refers extensively to the document or the document forms the basis of the plaintiff's claim.” United States v. Ritchie, 342 F.3d 903, 909 (9th Cir. 2003); see also Id. at 908 (A court may “consider certain materials-documents attached to the complaint, documents incorporated by reference in the complaint, or matters of judicial notice-without converting [a Rule 12(b)(6)] motion to dismiss into a motion for summary judgment.”).

         DISCUSSION

         Reid moves to dismiss the claims against him with prejudice. Because the Lindstroms sufficiently state claims for breach of contract (Count I) and negligent misrepresentation (Count VI), the Motion is denied as to those claims. The Motion is granted with respect to Count III (Breach of Express and Implied Warranties), Count IV (Rescission), and Count V (Tortious Breach of Contract)-those claims are dismissed with prejudice. The Lindstroms' claims for intentional misrepresentation (Count VI) and fraud (Count VII) are dismissed with leave to amend, with instructions below.

         I. Count I (Breach of Contract)

         Reid moves to dismiss Count I both because it fails to allege the elements of a breach of contract cause of action and because any such claim is barred as a matter of law by the terms of the Purchase Contract itself. The Court disagrees on both accounts. Because the Lindstroms sufficiently state a claim for breach of contract, the Motion is denied as to Count I.

         A. Count I States A Claim For ...


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