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Lindstrom v. Moffett Properties

United States District Court, D. Hawaii

April 26, 2018



          Derrick K. Watson, United States District Judge.


         The Lindstroms allege that they were unable to build a home at their desired site on a parcel of land purchased from seller Michael Reid because a large amount of “fill” on the property was not adequately disclosed prior to closing. Although it is undisputed that Reid generally disclosed the presence of fill prior to the sale, the Lindstroms allege that he and realtor William Moffett of Moffett Properties knew much more. The Lindstroms assert that they would not have purchased the vacant parcel had Defendants disclosed the magnitude of the fill, based on the information available to them at the time.

         Defendants seek summary judgment on the Lindstroms' claims for breach of contract and misrepresentation. Defendants contend that they satisfied their obligations to the Lindstroms principally because they had no information to provide beyond disclosing the presence of fill-which was, in any event, obvious to a reasonable observer upon visual inspection. Upon careful consideration of the entirety of the record, however, genuine issues of material fact remain with respect to several matters-notably, what information concerning the fill was available to Defendants prior to the sale and what a reasonable observer would have seen upon viewing the parcel. The Court therefore DENIES both Motions for Summary Judgment, as detailed below.


         I. Factual Background

         The Lindstroms purchased Lot 35A, a 1.95-acre parcel of vacant land, from Reid in early 2014. Lot 35A is located at 108A Pua Niu Way, Lahaina, Maui, Hawaii 96791 (the “Property”). Reid acquired the parcel, together with an adjoining one (Units A and B), in April 2013. George Van Fischer, a licensed real estate salesperson and employee of Moffett Properties, represented Reid in the 2013 sale. Decl. of George Van Fischer ¶ 2, Dkt. No. 79-1.

         In January 2014, Reid sold the smaller of the two lots, Unit B, with an existing cottage. Id. On February 18, 2014, Reid entered an Exclusive Right-To-Sell Listing Agreement with Moffett Properties to list the larger vacant parcel, Unit A, for $1, 350, 000. Fischer Decl., Ex. A (Listing Agreement), Dkt. No. 79-2.

         The Lindstroms, who already owned another home in the same Launiupoko subdivision, contacted Defendant William B. (“Buz”) Moffett, after seeing a “For Sale” sign on the lot, and Moffett showed them the Property in February 2014. Decl. of William B. Moffett ¶¶ 2-3, Dkt. No. 79-4. While viewing the Property, Moffett claims that Thorin Lindstrom told him that he wanted to build a home “alongside the ravine on the westernmost end of Property.” Moffett Decl. ¶ 5. When Moffett “pointed out to him the obvious presence of uncompacted, loose fill in that area of the lot which would not allow him to build in that area . . . [Lindstrom's] response to [Moffett's] warning was, ‘you'd be surprised what I can do.'” Moffett Decl. ¶ 5. Lindstrom acknowledges seeing “loose rocks and boulders on the property” but otherwise denies having the conversation described by Moffett. 7/20/17 T. Lindstrom Dep. Tr. at 54, Dkt. No. 75-3; Decl. of Thorin Lindstrom ¶ 11, Dkt. No. 86-1.

         Moffett prepared a Purchase Contract, with a counter-offer for the Property of $1, 000, 000, and a Dual Agency Consent Addendum, [1] which were signed by Thorin Lindstrom on February 25, 2014. Moffett Decl. ¶ 4, Ex. B (Purchase Contract; Dual Agency Agreement). On February 28, 2014, Reid countered at $1, 224, 000, and the Lindstroms accepted on the same date. Reid's counter included an “As Is” Condition Addendum. Moffett Decl. ¶ 4, Ex. C (Counteroffer; “As Is” Addendum).

         On March 7, 2014, Reid provided a Seller's Real Property Disclosure Statement, which required him to disclose all “material facts” concerning the Property. Fischer Decl., Ex. G. (Seller's Disclosure), Dkt. No. 79-3. Fischer assisted Reid in the preparation of the Seller's Disclosure. To do so, the two met at Reid's home and drafted responses to questions on the standard form, based upon information contained in a Preliminary Title Report from Reid's 2013 purchase. Fischer Decl. ¶ 9. According to Reid, when Fischer knew something about the Property that he did not, Reid included that information as well. Decl. of Michael Reid ¶ 9, Dkt. No. 75-2. When Reid and Fischer finished going over all of the questions on the form, Fischer offered to type the answers, physically complete the form, and send it to Reid for his electronic signature via DocuSign, in order to promptly transmit it to the Lindstroms. Reid Decl. ¶ 10.

         The questions on the Seller's Disclosure form asked whether certain conditions were present on the Property and corresponding response boxes were provided to check either “YES, ” “NO, ” “NTMK, ” or “NA.” If the response to a question was “YES, ” Reid was directed to “explain all material facts known to you in Section H.” Of importance here, Reid checked “YES” in response to Question 41, which asked: “Is there filled land on the Property?” He did not include any further explanation in Section H, as directed on the form, or in the attached, typed addendum that included his explanations to the other questions with affirmative responses. See Seller's Disclosure at 2, 5. According to Reid, although it was obvious that there was fill present on the lot due to the loose, large rocks on the perimeter of the northwestern edge of the Property, he did not know “how much fill was on the property nor the nature of the fill beyond the large rocks that were visible. The totality of [Reid's] knowledge was the belief that there was fill present on the property.” Reid Decl. ¶ 11.

         Reid acknowledges that “the addendum to the disclosure does not contain a narrative to accompany [his] ‘yes' answer with respect to fill.” Reid Decl. ¶ 12. He explains the omission as follows:

That was an oversight due exclusively to the fact that there was no additional information to provide beyond identifying that fill was present. Had a narrative been included, it would have simply been that fill is present and I had no additional information to provide as to either the nature of the fill or the extent of the fill. In other words, the “yes” answer to the fill question was all of the information that I had to provide to a prospective buyer.

         Reid Decl. ¶ 12.

         Fischer, however, had additional knowledge regarding the fill. He observed a “substantial amount of fill in the ravine at the western or Makai end of the Property.” Suppl. Fischer Decl. ¶ 5, Dkt. No. 90-8. At his deposition, Fischer estimated that “hundreds if not thousands of yards of fill” were present in that area. 1/17/18 Fischer Dep. Tr. at 82-83, Dkt. No. 86-12. Fischer explained his understanding of the disclosures in the following manner:

If I had observed fill in other areas of the Property, I would have disclosed that condition to Buz Moffett for disclosure to the Plaintiffs. Since I did not observe fill in other areas, I did not discuss with Buz my estimate of the amount of fill that was in the ravine in terms of yards of material as it would have been speculation on my part as no soils studies had been done. Buz and I met on this parcel several times and did discuss at length that there was unstable fill in the western ravine. In these conversations I also shared that the rest of the lot appeared to be solid with many area[s] of solid undisturbed rock exposed.

         Suppl. Fischer Decl. ¶ 5. Fischer also explained that he shared with Moffett that there was fill on the Property and that he understood that Moffett “shared with the Lindstroms that there was fill on the property.” 1/17/18 Fischer Dep. Tr. at 87.

         Moffett forwarded the Seller's Disclosure to Kristin Lindstrom on March 7, 2014. He also discussed the disclosures with the Lindstroms, who did not have any questions “regarding the disclosure of the presence of fill on the Property.” Moffett Decl. ¶ 15. Moffett “assumed that they knew it referred to the loose fill in and near the ravine that we all saw at the early inspections of the Property and that they would consult with [their architect Marty] Cooper regarding fill condition at the Property.” Moffett Decl. ¶ 15. According to Moffett, he asked the Lindstroms “if they planned on having soils studies done, because of the fill on the Property, but they said their contractor said one was not necessary.” Moffett Decl. ¶ 6. When Moffett offered his assistance in providing referrals to geotechnical professionals “to evaluate the soils conditions, ” he claims that the Lindstroms declined, “stating they had their own contacts [to] do such work.” Moffett Decl. ¶ 6. Based upon their responses, Moffett assumed that the Lindstroms “understood that they could not build alongside the western end of the Property because of the loose, uncompacted fill, but that they would perform their due diligence by having the condition inspected.” Moffett Decl. ¶ 7.

         The Lindstroms dispute this version of events. According to Thorin Lindstrom, “Moffett did not warn us to have the fill condition investigated by professionals.” T. Lindstrom Decl. ¶ 11. “Moffett never inquired if we wanted to order a soils study or if we had asked our contractor about one.” T. Lindstrom Decl. ¶ 14. “If Moffett mentioned for us to get a soils study because he was concerned about the fill, Kris and I would not have purchased the lot knowing it would potentially need a large amount of work.” T. Lindstrom Decl. ¶ 11. Kristin Lindstrom likewise denies that Moffett “mentioned the uncompacted loose fill which would not allow building in any areas on the Property.” K. Lindstrom Decl. ¶ 9. She claims that “the only mention of the fill was from Moffett, telling us the property was graded flat and ready to build.” K. Lindstrom Decl. ¶ 11.

         During the inspection period in late February and early March 2014, Moffett assisted the Lindstroms by providing to them and their architect copies of the Farm Site Plan, Farm Plan Unilateral Agreement, CPR documents and condominium map. Moffett. Decl. ¶¶ 9-10. Moffett also helped Marty Cooper, the Lindstroms' architect, by contacting Atom Kasprzycki, the architect of the cottage on Unit B, who previously created CAD files of the farm plans and a topographic map. Moffett. Decl. ¶¶ 11-12. On March 4, 2014, Kasprzycki emailed to Cooper, Moffett, and Kristin Lindstrom, a topographic file and CPR plans in DWG format, the Farm Plan and Approval Letter, and a document described by Kasprzycki as a “Site Study related to developers fill on lot during subdivision development.” Moffett. Decl. ¶ 13, Ex. F (3/4/14 Email). Because neither Moffett nor the Lindstroms possessed the necessary software, they were unable to open or view the attached files. Moffett. Decl. ¶ 13; K. Lindstrom Decl. ¶ 16. Cooper did not review portions of the attached documents, in particular those relating to fill, see 7/27/17 Cooper Dep. Tr. at 36-39, 70-81, Dkt. No 75-5, and in any event, the Lindstroms maintain that he was not retained to perform an investigation of the fill or soil conditions. K. Lindstrom Decl. ¶ 15. Moffett believed that Cooper, “having received the topographic map and site studies on March 4, 2014, would be advising the Lindstroms if further investigations of the fill condition were recommended.” Moffett. Decl. ¶ 13. Cooper, however, did not.

         Prior to closing, the Lindstroms did not inspect the Property. 7/20/17 T. Lindstrom Dep. Tr. at 53-54, Dkt. No. 75-3; T. Lindstrom Decl. ¶ 7 (“We didn't think [inspection] was necessary since we were purchasing an empty lot that was represented as being ready for a house to be built.”). After closing, the Lindstroms were not able to obtain the necessary permits from the County of Maui to build a residence on their desired location on the Property. In November 2014, the Lindstroms “first learned from Rulan Waikiki from the Maui County Planning Department that the Property . . . purchased from Reid had massive amounts of fill up to 35 feet above original grade.” T. Lindstrom Decl. ¶ 16; see also 1/17/18 Rulan Waikiki Dep. Tr. at 19 (explaining that Maui County “rules and regulations specify a maximum building height of 30 feet from natural or finished grade, whichever is lower, ” but that if a planned structure is in excess of 30 feet, the County “cannot approve the building permit application”), Dkt. No. 86-11.

         According to the Lindstroms, they learned that the “massive amount of fill contained uncompacted material, some of which was trash, from Kenneth Stewart, the soils engineer hired by [their] attorney.” However, prior to November 2014, they “were unaware of the massive amounts of fill on the Property . . . and would not have bought the property knowing the land work would have put this house out of budget.” K. Lindstrom Decl. ¶¶ 4-5; see also T. Lindstrom Decl. ¶¶ 4-5, 12 (“The costs of the lot with grading/site work would have been cost prohibitive.”).[2] The Lindstroms sold the Property during the pendency of this litigation. 7/20/17 T. Lindstrom Dep. Tr. at 99.

         II. Procedural Background

         The Lindstroms allege that the Property is unsuitable for their intended purposes, because they could not build a home in their planned location, and that its resulting value is substantially less than what they paid for it. Compl. ¶ 11. Plaintiffs 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 (“UDAP”) against Moffett Properties (Count VIII). Only the claims for breach of contract and negligent misrepresentation remain against Reid following the Court's partial grant of his motion to dismiss.[3]

         Reid and the Moffett Defendants seek summary judgment on all remaining claims. Although the Complaint alleged several bases for the breach of the parties' Purchase Agreement for the sale of the Property and other obligations, the primary focus at the summary judgment stage has been narrowed to Defendants' failure to fully disclose the nature and the extent of the fill on the Property, and whether this amounts to an actionable misrepresentation, a common element essential to the remaining claims.[4]


         Pursuant to Federal Rule of Civil Procedure 56(a), a party is entitled to summary judgment “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” The moving party is entitled to judgment as a matter of law when the nonmoving party fails to make a sufficient showing on an essential element of a claim on which the nonmoving party has the burden of proof. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).


         By checking “YES” in response to Question 41 on the Seller's Disclosure, Reid acknowledged that there was fill on the Property. However, he failed to offer any further explanation or detail, as required by the form. Whether Reid (1) “believed no explanation was necessary because [he] did not know anything [more] about the fill, ” or, alternatively (2) believed that “the document required something by way of explanation and so his not explaining that he had no further relevant facts about the fill was an oversight by him, ” Reid Reply at 6, Dkt. No. 89, his failure to include any further explanation presents an issue of fact as to whether the Seller's Disclosure was complete, “prepared in good faith and with due care.” That is particularly the case because, on the disputed record before the Court, there are material facts “within the knowledge or control of Seller” regarding the fill that were not made known to the Lindstroms prior to the sale. Accordingly, summary judgment with respect to the remaining claims cannot be entered.

         I. Whether the Seller's Disclosure Statement Was Prepared in Good Faith and With Due Care Remains an Issue of Fact Precluding Summary Judgment in Favor of Defendants

         Defendants collectively argue that no cause of action may lie against them for breach of contract or fiduciary duty, intentional or negligent misrepresentation, or for violation of Hawaii Revised Statutes (“HRS”) Chapter 480 because the Seller's Disclosure was prepared in good faith and with due care. See HRS § 508D-9 (“A buyer shall have no cause of action against a seller or seller's agent for, arising out of, or relating to the providing of a disclosure statement when the disclosure statement is prepared in good faith and with due care. For purposes of this section, ‘in good faith and with due care' includes honesty in fact in the investigation, research, and preparation of the disclosure statement[.]”). As detailed below, whether the lack of narrative explanation for the fill disclosure was inadvertent, or because Reid had no further information to provide, or because Defendants assumed that full disclosure had otherwise been made to the Lindstroms, Defendants fail to establish that they are entitled to judgment as a matter of law with respect to the Lindstroms' claims sounding in contract or tort arising from the omission in the Seller's Disclosure.

         A. The Purchase Agreement and ...

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