BENJAMIN, Justice:
The instant action is before the Court upon the appeal of thirty-three Petitioners from a Rule 12(b)(6) order dismissing their second amended complaint filed against United Bank and Stan and Thelma McQuade, d/b/a McQuade Appraisal Services. The circuit court ruled that Petitioners' claims of fraud in the inducement, negligence, intentional and/or negligent infliction of emotional distress, breach of fiduciary duty, and constructive fraud were time-barred by the two-year statute of limitations. The circuit court also dismissed Petitioners' claim of breach of implied covenant of good faith and fair dealing on the basis that Petitioners failed to allege a breach of contract. Lastly, the circuit court dismissed Petitioners' detrimental reliance claim, finding that it was improper because they seek money damages, and, alternatively, that it was essentially a restatement of their fraud in the inducement claim. Upon review of the parties' arguments, the record before us on appeal, and applicable legal precedent, we affirm in part, and reverse in part, the circuit court's order and remand this case for further proceedings consistent with this Opinion.
This case centers on an alleged fraudulent scheme involving Respondent United Bank and Respondent McQuade Appraisal Services to inflate the value of property in a residential development in Monroe County named Walnut Springs Mountain Reserve ("Walnut Springs") and the circuit court's dismissal of the same pursuant to West Virginia Rule of Civil Procedure 12(b)(6). The Petitioners are all owners of lots in Walnut Springs. Petitioners purchased their respective lots in 2005 and 2006, and United Bank provided the financing. Walnut Springs ultimately failed and was abandoned by the developer, Mountain America, LLC.
This case began with the filing of a civil action on November 30, 2009, by Petitioners Charles J. Evans and Cynthia B. Evans against United Bank. The complaint was amended in July of 2010, to add additional Walnut Springs property owners as plaintiffs and Respondents Stan McQuade and Thelma McQuade, as defendants, individually and doing business as McQuade Appraisal Services (collectively "McQuade").
Petitioners' second amended complaint is based on allegations of bank and appraisal fraud stemming from an allegedly fraudulent transaction occurring in 2005 that led to grossly-inflated lot values at Walnut Springs. Petitioners state that they learned of the fraudulent transaction in late 2009 or early 2010, after serving a subpoena upon McQuade in a companion case against the developers, Monroe County Civil Action No. 09-C-93. Petitioners allege that in 2005, they were told by developers that the property values in Walnut Springs were $50,000 per acre. This value was supposedly justified by an initial transaction in 2005, in which a woman named Chaya Schonberger purchased a 5.88 acre lot for $294,000. This transaction was then used as the "comp" for future appraisals and sales, which appraisals and sales then were used as "comps" for other sales, resulting in a "pyramid" of appraisals and sales all resulting from the Schonberger transaction.
Petitioners allege, however, that the Schonberger transaction never actually occurred. Chaya Schonberger is actually the mother of one of the developers, Dan Schonberger, who according to Petitioners uses multiple aliases, one of which is "Dan Berg."
At the same time as the supposed sale of the 5.88 acre lot, a construction loan was taken out through United Bank with loan officer Leon Cooper. Mr. Cooper had a $300,000.00 limit for which he could solely approve loans. He approved the construction loan for a house to be constructed on a 5.88 acre parcel in the Walnut Springs subdivision. While Chaya Schonberger owned the 5.88 acre lot and the house constructed on it, the lot was never owned by Walnut Springs.
Petitioners allege that United Bank was aware of the fraud since 2005, but continued to finance the development using appraisals supported by the Schonberger transaction. Petitioners state that they were not aware of this fraud until 2009 or 2010, when their counsel reviewed the documents provided pursuant to the above-referenced subpoena in the other civil action. According to Petitioners, this discovery is what led to the filing of the second amended complaint in September of 2010.
In February of 2011, Respondents moved to dismiss the case pursuant to Rule 12(b)(6), asserting that except for the claims of breach of implied covenant of good faith and fair dealing and breach of fiduciary duty, Petitioners' claims are barred by the applicable
This prior tax appeal involved a challenge to the 2007 assessed values of the lots in Walnut Springs by the Monroe County Assessor. The basis of the challenge, which was presented at a February 7, 2007, evidentiary hearing held before, was that the assessments were excessive and unequal, and not based on the true and actual value of the properties. The parties dispute the level of involvement the individual landowners (the Petitioners herein) had in the 2007 litigation. Petitioners assert that the matter was spearheaded by the developers and the Petitioners were involved only insofar as their names were used. Respondents counter that the Petitioner landowners were the primary challengers to the assessments. Over Petitioners' objection, the circuit court took judicial notice of the adjudicative facts of the tax appeal. In Mountain America, LLC, this Court affirmed the circuit court's order that affirmed the assessments. 224 W.Va. 669, 687 S.E.2d 768.
With that ruling in mind, the circuit court found that in the present suit, Petitioners seek to "recover damages from the Defendants on the theory that the Plaintiffs paid more than fair market value for their property because of the alleged wrongful acts of the Defendants." The circuit court then went on to find that Petitioners should have known of their present claims no later than the hearing before the Board of Equalization and Review on February 7, 2007. The circuit court reasoned, essentially, that if Petitioners were challenging the value of their land in 2007, they should have inquired at that time "as to the identity and conduct of the parties involved in the sales of their property, i.e. the Defendants." The circuit court determined that Petitioners instituted their action on November 30, 2009, more than two years later. As such, the circuit court granted Respondents' motions to dismiss with regard to the claims carrying a two-year statute of limitations.
The circuit court then turned to Petitioners' breach of implied covenant of good faith and fair dealing claim, to which a five-year limitation period applies. The circuit court relied on federal case law in holding that without an allegation of breach of contract, Petitioners could not maintain a claim for breach of implied covenant of good faith and fair dealing. Finally, the circuit court ruled that it was without jurisdiction to entertain the detrimental reliance claim because it is an equitable remedy and Petitioners were expressly seeking monetary relief, and that it was essentially a restatement of their fraud in the inducement claims. Petitioners now appeal to this Court.
Rule 12(b)(6) of the West Virginia Rules of Civil Procedure authorizes the filing of a motion requesting dismissal of a claim or counterclaim for "failure to state a claim upon which relief can be granted." W.V.R.C.P. 12(b)(6). "`Appellate review of a circuit court's order granting a motion to dismiss a complaint is de novo.' Syllabus point 2, State ex rel. McGraw v. Scott Runyan Pontiac-Buick, Inc., 194 W.Va. 770, 461 S.E.2d 516 (1995)." Syl. Pt. 1, Longwell v. Bd. of Educ. Of The Cnty. Of Marshall, 213 W.Va. 486, 583 S.E.2d 109 (2003).
"`The trial court, in appraising the sufficiency of a complaint on a Rule 12(b)(6) motion, should not dismiss the complaint unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.' Syllabus, Flowers v. City of Morgantown, W.Va. [166 W.Va. 92], 272 S.E.2d 663 (1980)." Syl.
The Petitioners allege two separate assignments of error with respect to the circuit court's rulings on the issues of judicial notice and statute of limitations barring Petitioners' claims for fraud in the inducement and aiding and abetting fraud in the inducement, negligence, intentional or negligent infliction of emotional distress/tort of outrage, breach of fiduciary duty, and constructive fraud. First, Petitioners allege that the circuit court erred in finding that the statutes of limitation were tolled under the discovery rule until no later than February 7, 2007, and therefore dismissing their claims as time barred, because the Petitioners each alleged in the second amended complaint that they were unaware of the Schonberger fraud until this litigation began due to the Respondents' attempt to conceal it. Second, Petitioners allege that the circuit court erred in taking judicial notice that the Petitioners were involved in the prior tax assessment appeal and finding that they therefore knew, or should have known, that fraud occurred, that Respondents engaged in it, and that their conduct had a causal relationship to their injuries. Because these assignments of error are interdependent, we will address them collectively.
In dismissing some of the Petitioners' claims based upon the statute of limitations, the circuit court first took judicial notice
Petitioners do not dispute that the circuit court had the legal power to take judicial notice of the fact that at least some of the
Respondents assert that the circuit court properly took judicial notice of the adjudicative facts in the tax appeal matter because they are relevant to whether the Petitioners' claims were timely filed. Respondent contend that the circuit court correctly ruled that the discovery rule tolled the statute of limitations to February 7, 2007, because this is the date Petitioners challenged their tax assessments, arguing that they exceeded the fair market value. Respondents maintain that in this action, Petitioner again allege the same point they argued in their 2007 tax appeal — that they paid more than market value for their properties. They assert that Petitioners had the means at that time to determine the fair market value of their properties and should have known their land was overvalued. Respondents assert that Petitioners never explained exactly why it took until their counsel reviewed the appraisal information in 2009 and 2010 to allege fraud.
The only named petitioner in Mountain America, LLC, 224 W.Va. 669, 687 S.E.2d 768, was Mountain America, LLC, the Walnut Springs developers. We noted in the Mountain America, LLC case that, "some four months after the appeal was filed, it is impossible to pick up the court file and determine the name of the Appellants or the tax parcels in question." Id., 224 W.Va. at 677, 687 S.E.2d at 776. We further noted that "[a] review of the record of the hearing before the Board of Equalization reveals the names of at least some of the persons contesting their assessments, but this is insufficient for purposes of West Virginia Rules of Civil Procedure Rule 10." Id. In the tax appeal, this Court's discussion of Mountain America's arguments centered on due process and equal protection.
Id. at 674, 687 S.E.2d at 773. This Court noted that there was no evidence in the record to suggest that the lots in Walnut Springs were excessively valued by the Monroe County Tax Assessor:
Id. at 687, 687 S.E.2d at 786.
This Court noted that the calculated unit price per acre as determined by the Assessor was $29,236.00 and that as an accommodation to the landowners, the Assessor lowered the amount to $26,900.00 by striking the two highest sales and the two lowest sales out of
In short, there was no evidence of record presented to this Court in Mountain America, LLC that the subject properties were overvalued. Mountain America, LLC was about challenging tax assessments and methodology. There were no allegations, or representations, that the landowners overpaid for their properties. They were challenging the increase of assessments from being minimal one year, to being increased exponentially the next. The central component of the case sub judice is that the Petitioners allege they never paid real market value for their properties because the market was fabricated — a fact that was never revealed in the 2007 tax assessment appeals. Petitioners maintain that it was never revealed because the primary perpetrators of the fraud, the developers, were prosecuting the tax appeal. The Petitioners allege that the circuit court mischaracterized the Petitioners' as merely people who are upset that they overpaid for real estate. However, Petitioners now contend that they were defrauded and were induced to buy into a fraudulent real estate scheme.
In syllabus point three of Dunn v. Rockwell, 225 W.Va. 43, 689 S.E.2d 255 (2009), this Court held as follows:
In syllabus point five of Dunn, 225 W.Va. 43, 689 S.E.2d 255, we stated
(Emphasis added). "The `discovery rule' is generally applicable to all torts, unless there is a clear statutory prohibition to its application." Syl. Pt. 2, Dunn, 689 S.E.2d at 258.
In the second amended complaint, the Petitioners allege facts which sufficiently demonstrate that the discovery rule applies. The Petitioners allege that they were unaware until the initiation of this litigation that the fraud had occurred; that the "appraisals contained information which was camouflaged and nearly devoid of identifying information ..."; and that the bank, the appraisers, and Walnut Springs Mountain Reserve could have known of the fraud and
As this Court has previously noted, motions to dismiss under Rule 12(b)(6) are "viewed with disfavor and [should be] rarely granted." John W. Lodge Distributing Co., Inc. v. Texaco, Inc., 161 W.Va. 603, 606, 245 S.E.2d 157, 159 (1978). More specifically, "[t]he trial court should not dismiss a complaint merely because it doubts that the plaintiff will prevail in the action, and whether the plaintiff can prevail is a matter properly determined on the basis of proof and not merely on the pleadings." Id. (citing Wright & Miller, Federal Practice and Procedure: Civil § 1216 (1969)).
Given that under 12(b)(6) the complaint is construed in the light most favorable to the plaintiff, we conclude that the court erroneously imposed the February 7, 2007, date as the point at which Petitioners should have known of their claims. Accordingly, we reverse the circuit court's dismissal of these claims.
Next, Petitioners allege that the circuit court erred in dismissing their claims for breach of the implied covenant of good faith and fair dealing under the conclusion that no such tort cause of action exists under West Virginia law.
Petitioners do not assert that United Bank breached any of those contracts. In dismissing the claim, the circuit court noted that federal courts in West Virginia have held that an implied covenant of good faith and fair dealing does not exist in West Virginia absent a breach of contract claim. See Powell v. Bank of Am., N.A., 842 F.Supp.2d 966, 981 (S.D.W.Va.2012)("The West Virginia Supreme Court of Appeals has declined to recognize an independent claim for a breach of the common law duty of good faith, and has instead held that such a claim sounds in breach of contract.")(Internal citations omitted); see also Wittenberg v. Wells Fargo Bank, N.A., 852 F.Supp.2d 731, 750 (N.D.W.Va.2012)("West Virginia does not recognize a stand-alone cause of action for failure to exercise contractual discretion in good faith. As such, a claim for breach of the implied covenant of good faith and fair dealing can only survive if the borrower pleads an express breach of contract claim.")(Internal citations omitted).
In its order, the circuit court stated that the federal district courts have based this opinion on this Court's logic in Highmark West Virginia, Inc. v. Jamie, 221 W.Va. 487, 492, 655 S.E.2d 509, 514 (2007):
Id. at 492, 655 S.E.2d at 514.
Petitioners allege that in Highmark, the Court ultimately held that the cause of action for breach of the implied covenant of good faith and fair dealing would proceed under the guise of breach of contract since there was already a breach of contract claim which did not contain identical allegations. Id. Petitioners assert that Highmark did not hold that there is no independent cause of action for breach of implied covenant of good faith and fair dealing. Rather, the issue was not addressed definitively one way or the other.
Our federal district court has observed that West Virginia law "implies a covenant of good faith and fair dealing in every contract for purposes of evaluating a party's performance of that contract." Stand Energy Corp. v. Columbia Gas Transmission, 373 F.Supp.2d 631, 644 (S.D.W.Va.2005) (quoting Hoffmaster v. Guiffrida, 630 F.Supp. 1289, 1291 (S.D.W.Va.1986)). However, by the same token, this Court has observed that "[t]he implied covenant of good faith and fair dealing cannot give contracting parties rights which are inconsistent with those set out in the contract." Barn-Chestnut, Inc. v. CFM Dev. Corp., 193 W.Va. 565, 457 S.E.2d 502, 509 (1995). Most recently in Gaddy Engineering Co. v. Bowles Rice McDavid Graff & Love, LLP, 231 W.Va. 577, 587, 746 S.E.2d 568, 578 (2013), this Court reiterated that
Based upon our review of the applicable law, we affirm the circuit court's ruling that the Petitioners' failure to allege a breach of contract was fatal to their claim for a breach of the implied covenant of good faith and fair dealing.
Petitioners lastly assert that the circuit court erred in dismissing the Petitioners' claims for detrimental reliance pursuant to Rule 12(b)(6) for the same reasons that the circuit court erred in dismissing their fraud claim. Petitioners contend that to the extent that the detrimental reliance claim is a restatement of the fraud claim, or another count for fraud, they reassert their arguments against the dismissal of the fraud claim as were argued supra.
In dismissing Petitioners' claim for detrimental reliance, the circuit court found that it lacked jurisdiction because the detrimental reliance claim sounded in equity and Petitioners were not seeking equitable relief, but rather sought to recover monetary damages. See Syl. Pt. 4, Mountain State Coll. v. Holsinger, 230 W.Va. 678, 742 S.E.2d 94 (2013)("A court of equity is without jurisdiction to entertain a suit based on an alleged fraudulent misrepresentation to the prejudice of the complaining party, where the sole relief sought therein is the recovery of damages. In such a case the remedy of the injured party at law is plain, adequate and complete.")
United Bank asserts that Petitioners' argument fails to meet the requirements of Rule 10(c)(7) of the West Virginia Rules of Appellate Procedure because it fails to address the circuit court's first basis for dismissal of the detrimental reliance claim for lack of a proper claim for equitable relief. Therefore, United Bank contends that any alleged error on this ruling should be deemed waived for the purposes of this appeal. Noland v. Virginia Ins. Reciprocal, 224 W.Va. 372, 378, 686 S.E.2d 23, 29 (2009) ("Issues not raised on appeal or merely mentioned in passing are deemed waived.") (citing Tiernan v. Charleston Area Med. Ctr., Inc., 203 W.Va. 135, 140 n. 10, 506 S.E.2d 578, 583 n. 10 (1998)). We agree with United Bank's argument and conclude that Petitioners fail to address the substantive merits of the circuit court's ruling and, thus, the issue has been waived for purposes of appeal. The circuit court's ruling dismissing the Petitioners' detrimental reliance claim is therefore affirmed.
For the foregoing reasons, the circuit court's rulings dismissing Petitioners' claims for breach of implied covenant of good faith and fair dealing and detrimental reliance are affirmed. However, the circuit court's ruling dismissing Petitioners' claims for fraud in the inducement and aiding and abetting fraud in the inducement, negligence, intentional or negligent infliction of emotional distress/tort of outrage, breach of fiduciary duty, civil conspiracy, respondeat superior, and punitive damages is reversed and remanded for further proceedings consistent with this opinion.
Justice KETCHUM concurs in part and dissents in part and reserves the right to filing a separate Opinion.
KETCHUM, Justice, concurring in part and dissenting in part:
I believe that all of Judge Irons' rulings were correct and that the majority erred in reversing the Judge's ruling on the statute of limitations.
Plaintiffs had previously borrowed money to purchase these lots from United Banks. The bank had obtained written valuation appraisals done on the lots in order to justify loaning money to the plaintiffs.
Judge Irons took judicial notice of the valuation hearing held on February 7, 2007. At that time of the Board of Equalization hearing the written appraisals valuing plaintiffs' lots were readily available to the plaintiffs at the bank. Therefore, the statute of limitations began to run on February 7, 2007. Under the discovery rule, the statute of limitations begins to run when the plaintiff knew, or by the exercise of reasonable diligence, should have known of the elements of a possible cause of action. Dunn v. Rockwell, 225 W.Va. 43, 689 S.E.2d 255 (2009). Judge Irons was correct in his statute of limitations ruling, and I would affirm his ruling.
However, I agree with the majority opinion upholding the dismissal of the counts alleging the breach of an implied covenant and fair dealing and the count claiming detrimental reliance.
Furthermore, McQuade alleges that Petitioners Mike and Vivian Hollandsworth, Jan Jerge, James Carroll, Jr., and Jim and Shayna Mackey all purchased their properties before the Schonberger transaction. Because Petitioners' fraud theory begins with the Schonberger transaction, Respondents allege that the fact that these purchases preceded the Schonberger transaction necessarily defeats the claims of these Petitioners. Moreover, they claim that the Mackeys did not finance their purchase through United Bank, but instead used a home equity loan. Therefore, their property was not appraised by McQuade or anyone else, and thus, McQuade could not have committed fraud as to them. To the extent that the circuit court did not address the merits of these arguments below, it is premature for the Court to address them at this juncture. The circuit court will have opportunity to address these arguments on remand and issue a ruling accordingly.
