G. MURRAY SNOW, District Judge.
Currently pending before the Court is Debtor Jake's Granite Supplies, LLC ("Jake's") Appeal from the Arizona Bankruptcy Court's grant of summary judgment, entered October 26, 2009, in favor of Appellees, dismissing Jake's claims for breach of contract, negligent misrepresentation, and promissory estoppel. (Doc. 19, Ex. N). Appellants also seek review of the Bankruptcy Court's Second Amended Final Judgment (Doc. 17, Ex. C), entered January 25, 2010, awarding Appellees attorneys' fees and costs. After reviewing the pleadings and record excerpts submitted for purposes of this appeal, and having determined that oral argument is unnecessary,
Appellant Jake's is an Arizona limited liability company and former owner of a sand and gravel operation near Buckeye, Arizona. Jake's filed a voluntary petition under Chapter 11 of the Bankruptcy Code on June 13, 2005 (the "petition date"). (Doc. 17, Ex. D). In September and October 2003, Jake's entered into three separate contracts to purchase the Quackenbush, Stone, and Dycus parcels. (Doc. 19, Ex. A). Fidelity National Title Insurance Company ("Fidelity") served as the escrow agent for the purchases and issued ALTA Extended Owner's Title Insurance Policies to Jake's for the parcels.
Clay Sourant, Jake's principal, asked General Engineering ("General") to provide an ALTA survey. General contacted Appellees, SNS Civil Consultants, Inc. and Siegfried (collectively referred to as "SNS"), and provided them with a "Commitment for Title Insurance" (the "title commitments") prepared by Fidelity for each of the parcels.
Less than a year and a half later, Appellees John and Vicki Beaver (the "Beavers") filed a claim in Jake's Chapter 11 case that they have title through adverse possession to certain portions of real property previously owned by Jake's. The ALTA/ACSM survey had not revealed the encroachments or visible appropriations that formed the basis of the Beavers' adverse possession claim.
Under 29 U.S.C. § 158(a)(1), the Court has jurisdiction over appeals from "final judgments, orders, and decrees" of bankruptcy judges. The Court reviews a bankruptcy court's grants of summary judgment de novo. In re Raintree Healthcare Corp., 431 F.3d 685, 687 (9th Cir.2005). Summary judgment is to be granted if the pleading and supporting documents, viewed in the light most favorable to the non-moving party, show that there is no genuine issue as to a material fact and moving party is entitled to judgment as a matter of law. FED. R. CIV. P. 56(c). Summary judgment is generally not appropriate in negligence actions. 16 A.R.S. R. CIV. P. 56(c).
Jake's contends that SNS' failure to note the visible appropriations and encroachments on the property forms the basis of a negligent misrepresentation claim. Arizona follows the law of negligent misrepresentation set forth in the Restatement (Second) of Torts § 552(1).
Jake's avers that its "reliance on the Survey's false representations caused it to incur damages because, upon the close of the Escrows, Jake's became the title owner of the parcels subject to the Beavers' encroachments." (Doc. 18). Applying the Restatement to the facts of the instant case, the evidence suggests that Jake's raises material issues of fact. The parties do not dispute that SNS, in the course of its land surveying business, supplied false information for the guidance of others in their business transactions. (Doc. 19, Ex. F). Siegfried, a registered land surveyor, concedes that the survey he sealed failed to comply with ALTA/ACSM standards and that the survey certification was inaccurate. (Id.). Specifically, Siegfried appears to agree with expert Gary Stocker that the survey fails to comply with Paragraph 5f of the ALTA/ACSM standards.
To determine whether a party to a transaction justifiably relied on another party's representations depends on the complaining party's own information and intelligence. St. Joseph's Hosp. & Med. Ctr., 154 Ariz. at 316, 742 P.2d at 817. Jake's representative, Sourant, testified that he did not understand what an ALTA survey was, but recalled requiring an ALTA survey as a condition of the lender. (Doc. 22, Ex. 2). Specifically, when Sourant was asked whether Jake's relied on the survey, he answered in the affirmative and noted, "it was the ALTA survey that we needed in order to be able to close on the
Nevertheless, Jake's did not get everything it contracted for or needed. Jake's contracted for an ALTA survey. It did not get that. Although Sourant may not have understood what the lender and Fidelity understood—that such a survey was necessary, among other things, to sufficiently issue clear title to prevent the type of adverse possession claims that occurred here—because both the lender and Fidelity understood it, there arguably would have been no closing absent an ALTA survey. Jake's did not contract with General to be its escrow agent. It contracted with General to conduct an ALTA survey. "In the absence of circumstances putting a reasonable person on inquiry, a person is justified in relying on a misrepresentation of a material fact without making further inquiry." St. Joseph's Hosp. & Med. Ctr., 154 Ariz. at 316, 742 P.2d at 817 (quoting Citizens Savings & Loan Ass'n. v. Fischer, 214 N.E.2d 612, 616, 67 Ill.App.2d 315, 324 (1966)). A reasonable person in Sourant's position was justified in concluding that the survey met ALTA/ACSM standards. Sourant testified that he read and relied on the survey's banner, declaring it was an "ALTA/ACSM Land Title Survey." (Doc. 19, Ex. K). The facts do not suggest that Sourant, in his capacity as Jake's representative, should have had an understanding of what the precise requirements of an ALTA survey were. Furthermore, given that Siegfried, a registered surveyor, admitted that it would be reasonable for a person looking at the survey to conclude that it was an ALTA survey, a jury could also conclude that it was reasonable for Sourant to do the same. (Doc. 19, Ex. F).
Further, the false certification was material precisely because the survey was a prerequisite to obtaining the ALTA Extended Owner's Policies, which in turn were a condition of the lender. See St. Joseph's Hosp. & Med. Ctr., 154 Ariz. at 316, 742 P.2d at 817 (finding that reliance is justifiable where the misrepresentation is material); see also Prosser and Keeton on Torts § 108 (5th ed. 1984) (reliance exists if substantial weight was given to a representation). A reasonable jury could conclude that a lender would impose such a condition because purchasers of property, and the banks that fund them, generally want to avoid becoming the owners of, or lending money in support of, acquiring property that has faulty title or is otherwise encumbered. Therefore, to say that Jake's relied on the survey in order to close escrow necessarily implies that a faulty ALTA survey was necessary for Jake's to become the title owner of encumbered property. Accordingly, Appellants have set forth a sufficient question of fact as to whether they justifiably relied on
Finally, the record conclusively demonstrates that Jake's suffered pecuniary loss as a result of its reliance on the survey. The Court need look no further than the Bankruptcy Court's January 25, 2010 Second Amended Final Judgment (Doc. 17, Ex. C), affirmed by this Court in a companion order, finding that 10.3 acres of the real property formerly owned by Jake's was adversely possessed, and entering judgement against Jake's in the amount of $300,900.00 with interest thereon at the rate of seven percent (7%) per year as a result of that adverse possession. The amount of the judgment against Jake's is a direct pecuniary loss because it will be deducted from its sale proceeds from the Cemex Transaction. In considering whether Jake's has stated a claim for negligent misrepresentation it is not material that Jake's was insured for that loss by Fidelity. Jake's still incurred the loss.
Accordingly, Jake's has established that there is a genuine issue as to material facts pertaining to its negligent misrepresentation claim against SNS. The Bankruptcy Court erred in granting summary judgment on this claim.
Jake's contends that because it was the intended beneficiary of SNS' contract to perform an ALTA/ACSM survey on the parcels, it can enforce the contract and hold SNS liable for its failure to provide a survey that met the standards. While the record does not indicate the existence of a single contract, whether oral or written, between Jake's and SNS, General's fax and telephone communications with SNS containing the title commitments prepared by Fidelity constitute an offer (Doc. 19, Ex. E), SNS' performance of the ALTA survey constitutes acceptance of the offer (Doc. 19, Ex. G), and consideration was afforded in the form of payment made by Jake's to General, which then paid SNS (Doc. 22, Ex. 9). See Paczosa v. Cartwright Elementary Sch. Dist. No. 83, 222 Ariz. 73, 78, 213 P.3d 222, 227 (Ct.App. 2009) (noting that an enforceable contract requires an offer, acceptance, and consideration).
To establish a breach of contract claim as a third-party beneficiary in Arizona, 1) the contract must indicate an intention to benefit the third-party beneficiary, 2) the contemplated benefit must be both intentional and direct, and 3) it must be clear that the parties intended to recognize the third party as the primary party in interest. Valles v. Pima County, 642 F.Supp.2d 936, 956 (D.Ariz.2009) (citing Norton v. First Fed. Sav., 128 Ariz. 176, 178, 624 P.2d 854, 856 (1981)). In accord with the Restatement, Arizona law establishes that a third party intended beneficiary is found where "recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties," and "the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance." RESTATEMENT (SECOND) OF CONTRACTS § 302 (1982); see also Supplies for Indus., Inc. v. Christensen, 135 Ariz. 107, 109, 659 P.2d 660, 662 (Ct.App.1983).
While the Bankruptcy Court finds that there was a contract between General and SNS, it concludes that Jake's was not a third-party beneficiary of that contract because
The evidence suggests that Jake's has raised material issues of fact as to whether SNS intended to benefit Jake's in supplying the ALTA survey. The fax cover sheets and title commitments which were sent to SNS prior to the survey named Jake's as the purchaser and indicated that Jake's required an ALTA survey to obtain extended coverage from Fidelity. (Doc. 19, Ex. E). Specifically, the fax cover sheet from General to SNS stated the following in its subject line: "ALTA's for Clay Sourant." (Id.) As part of the fax transmittal, SNS also received three separate cover sheets, one preceding each title commitment, which read: "Title report for survey, Quackenbush to Jake's Granite," "Title report for survey, Stone to Jake's Granite," and "Title report for survey, Seller-Dycus, Buyer-Jake's Granite." (Id.). In his deposition, Siegfried agreed that the statements on these fax cover sheets would indicate that there was a sale transaction in which Quackenbush, Stone, and Dycus were the sellers and Jake's was the buyer. (Doc. 19, Ex. F). He further agreed that such title commitments would be issued in connection with escrows relating to transactions of real property. (Id.). Furthermore, the title commitments sent to SNS explicitly named Jake's as the "proposed insured" and indicated that the policy being requested was an ALTA Extended. (Doc. 19, Ex. E). Siegfried further agreed that this notation indicated that Jake's was the buyer of the property and that it wanted to obtain extended coverage for its purchases. (Doc. 19, Ex. F).
Based on the aforementioned facts and the nature of the contract between General and SNS, the fax cover sheets and title commitments are sufficient evidence on which a jury might find that SNS explicitly intended to benefit Jake's by performing the survey. The fact that the survey itself does not make reference to Jake's was not a sufficient basis on which the Bankruptcy Court could conclude that Jake's was not a third-party beneficiary as a matter of law. A genuine issue of material fact exists at to whether Jake's is a third-party beneficiary to the contract between General and SNS, precluding summary judgment in favor of SNS on Jake's breach of contract claim.
To succeed on its promissory estoppel claim, Jake's must prove that 1) SNS made a promise, 2) on which they should have reasonably foreseen that Jake's would rely, and 3) that Jake's did actually rely on the promise to its detriment. See Higginbottom v. State, 203 Ariz. 139, 144, 51 P.3d 972, 977 (Ct.App. 2002). Appellants contend that Jake's was a third-party beneficiary to SNS' promise to perform a survey complying with ALTA/ACSM standards and detrimentally relied on this promise. Jake's promissory estoppel claim can not withstand summary judgment because the representations and certifications on SNS' survey do not qualify as a promise, undermining the first enumerated element of the claim.
Arizona law distinguishes equitable estoppel from promissory estoppel by clarifying, in part, that the latter "generally does not involve a misrepresentation
Chewning v. Palmer, 133 Ariz. 136, 138, 650 P.2d 438, 440 (1982). Here, the ALTA/ACSM survey performed by SNS depicted, albeit imperfectly, the "presently existing" state of the property on July 23, 2004, the date of the survey. SNS' Certification on the survey rested on a statement of present fact, not an express promise to Jake's regarding the future. Because Appellants cannot satisfy the "promise" element of promissory estoppel, the Appellants' promissory estoppel argument must fail, and the Court need not analyze the remaining elements. Accordingly, the Bankruptcy Court's summary judgment finding on Jake's promissory estoppel claim is affirmed.
Jake's next argues that the Bankruptcy Court erred in its award of attorneys' fees to SNS on the negligent misrepresentation claim pursuant to A.R.S. § 12-341.01(A). The court awarded SNS attorneys' fees and costs in the amount of $87,740.29, with interest at the statutory rate of .41% accruing from January 3, 2010. (Doc. 17, Ex. C). The Court will not disturb a bankruptcy court's award of attorney fees unless the bankruptcy court abused its discretion or erroneously applied the law. In re Strand, 375 F.3d 854, 857 (9th Cir.2004) (quoting In re Kord Enters. II, 139 F.3d 684, 686 (9th Cir. 1998)).
In light of the Court's reversal of the Bankruptcy Court's summary judgment findings with respect to Jake's breach of contract and negligent misrepresentation claims, the attorneys' fees award to SNS is vacated and remanded for further proceedings.
For the reasons explained above, the Bankruptcy Court's summary judgment finding on Jake's promissory estoppel claims is affirmed, and summary judgment on the breach of contract and negligent misrepresentation claims are denied. Accordingly,
