469 Cnty. Rd. Baldwyn Props., LLC v. Manchester Anika, LLC

469 COUNTY ROAD BALDWYN PROPERTIES, LLC¹ PLAINTIFF v. MANCHESTER ANIKA, LLC DEFENDANT

CIVIL ACTION NO. 1:18-CV-121-SA-DAS

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF MISSISSIPPI ABERDEEN DIVISION

August 13, 2019

MEMORANDUM OPINION

469 County Road Baldwyn Properties, LLC filed its Complaint [1] on June 28, 2018, seeking damages under state law for Manchester Anika, LLC's alleged fraudulent inducement, fraudulent misrepresentation, and fraudulent concealment premising jurisdiction on diversity of citizenship. Presently before the Court is Manchester Anika's Renewed² Motion to Dismiss [19] Under Rule 12(b)(6) of the Federal Rules of Civil Procedure. The issues are fully briefed and ripe for review.

Factual and Procedural Background

On October 4, 2017, Baldwyn Properties entered into a Purchase and Sale Agreement [18-1] with Manchester Anika for the property located at 469 County Road 2878 in Baldwyn, Mississippi. This Agreement provided for a "Due Diligence Period" during which Baldwyn Properties could inspect the condition of the property. If Baldwyn Properties was not satisfied with the condition of the property, Baldwyn Properties had the right to terminate the Agreement prior to the expiration of the Due Diligence Period. The Agreement contained an "As Is" provision that stated the following:

PURCHASER ACKNOWLEDGES THE PURCHASER'S OPPORTUNITY TO INSPECT THE PROPERTY, AND PURCHASER AGREES TO PURCHASE THE PROPERTY ON AN 'AS IS' BASIS. PURCHASER ACKNOWLEDGES AND AGREES THAT EXCEPT AS EXPRESSLY SET FORTH IN THIS

AGREEMENT, THAT NEITHER SELLER NOR ITS AGENTS, CONTRACTORS OR REPRESENTATIVES HAVE MADE ANY REPRESENTATIONS, WARRANTIES, PROMISES, COVENANTS, AGREEMENTS OR GUARANTEES OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, PAST, PRESENT OR FUTURE, OF, AS TO, CONCERNING OR WITH RESPECT TO (A) THE NATURE, QUALITY OR CONDITION OF THE PROPERTY . . .

A large warehouse is located on the property. Baldwyn Properties attempted to inspect the roof of this warehouse during the Due Diligence Period, but Manchester Anika was not able to find a ladder for access to the roof. Baldwyn Properties decided not to return to the property to inspect the roof. Baldwyn Properties allegedly made this decision because of a printed representation that the roof was new and had an extended warranty.

Baldwyn Properties alleges that Manchester Anika represented that the warehouse had "a new roof installed in 2015 with extended warranty through 2027." However, the record reflects that the roof was only restored and was not new. This alleged representation was presented on the realtor's marketing materials for the property. The marketing materials also stated "[the realtor] does not guarantee, warranty or represent [the information's] accuracy. It is the Purchaser's responsibility to independently confirm the accuracy and completeness of the information contained herein".

After expiration of the Due Diligence Period, but before closing, Baldwyn Properties discovered leaks in the roof.³ Because the Due Diligence Period expired and the deposit was no longer recoverable, Baldwyn Properties did not want to terminate the Agreement. Furthermore, Baldwyn Properties alleges that it proceeded with the purchase due in part to its belief that the roof was new and protected by warranty and that the leaks would be minor and inexpensive to repair.

After closing, Baldwyn Properties contacted the company that restored the roof to attempt to repair the leaks under its warranty. The company attempted to repair the roof several times, but theroof continues to leak. The leaks have caused damage to the warehouse and there is a substantial risk of further damage, loss of tenants, and the possibility of having to replace the roof.

Baldwyn Properties asserts multiple claims of fraud under Mississippi law against Manchester Anika: fraudulent misrepresentation, fraudulent inducement, and fraudulent concealment. Manchester Anika now requests dismissal of the claims under Federal Rule of Civil Procedure Rule 12(b)(6) for failure to state a claim upon which relief can be granted.

Legal Standard

In reviewing Manchester Anika's Motion to Dismiss [19], the "court accepts 'all well-pleaded facts as true, viewing them in the light most favorable to the plaintiff.'" Martin K. Eby Constr. Co. v. Dallas Area Rapid Transit, 369 F. 3d 464, 467 (5th Cir. 2004) (quoting Jones v. Greninger, 188 F.3d 322, 324 (5th Cir. 1999)). The purpose of a motion to dismiss under Rule 12(b)(6) is to test the sufficiency of a plaintiff's complaint. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955, 1974, 167 L. Ed. 2d 929 (2007).

In order to survive a 12(b)(6) motion, a complaint must plead "enough facts to state a claim to relief that is plausible on its face." Id. A legally sufficient complaint must establish more than a "sheer possibility" that the plaintiff's claim is true. Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S. Ct. 1937, 1949, 173 L. Ed. 2d 868 (2009). It need not contain detailed factual allegations, but it must go beyond labels, legal conclusions, or formulaic recitations of the elements of a cause of action. Twombly, 550 U.S. at 555, 127 S. Ct. 1955.

Mississippi substantive law applies in this diversity case. Cox v. Wal-Mart Stores East, L.P., 755 F.3d 231, 233 (5th Cir. 2014); see also Wood v. RIH Acquisitions MS II, LLC, 556 F.3d 274, 275 (5th Cir. 2009).

Discussion and Analysis

In Baldwyn Properties' Response [23] to the Renewed Motion to Dismiss [19], Baldwyn Properties argues that Manchester Anika's reliance on the "As Is" provision in the Agreement to excuse its fraudulent representation is insufficient to warrant dismissal. Baldwyn Properties argues that the Agreement is ambiguous and imposes a duty on Manchester Anika to disclose the condition of the roof. Manchester Anika argues that Baldwyn Properties' Amended Complaint [18] must be dismissed for failure to state a claim because the Agreement disclaims any and all warranties regarding the condition of the property, the Agreement is unambiguous, and Baldwyn Properties has not alleged any affirmative acts of fraud.

A. "As Is" Provision

Manchester Anika asserts that the "As Is" provision in the Agreement disclaims any warranties regarding the property's condition, including the condition of the roof. It argues that the Agreement is unambiguous⁴ that the property was being sold "As Is," and therefore, Baldwyn Properties is precluded from maintaining this action. In response, Baldwyn Properties argues that it would be inequitable for the Court to allow Manchester Anika to engage in fraud just because the Agreement contains an "As Is" provision.

The controlling Mississippi case law on "As Is" provisions is Stonecipher v. Kornhaus. Stonecipher v. Kornhaus, 623 So. 2d 955, 964 (Miss. 1993); see also Crase v. Hahn, 754 So. 2d 471, 475 (Miss. Ct. App. 1999). In Stonecipher, the Mississippi Supreme Court held that the plaintiff wasprecluded from maintaining [the action against defendants] because of their agreement to an "As Is" provision. Stonecipher, 623 So. 2d at 964. The Mississippi Court of Appeals has stated that "an 'As Is' clause in a contract exempts a seller from liability pertaining to the condition of the property." Beaumont Homes, LLC v. Colonial/Jordan Properties, LLC, 71 So. 3d 1238, 1240 (Miss. Ct. App. 2011); see also Crase, 754 So. 2d at 475.

However, the Southern District of Mississippi has noted a circumstance that would make an "As Is" clause unenforceable under Mississippi law:

In Mississippi, a seller of property should be able to rely on the mutually agreed upon terms of a contract. Koch v. H & S Dev. Co., 249 Miss. 590, 163 So. 2d 710, 727 (Miss. 1964). Accordingly, the inclusion of an 'as is' provision usually precludes the buyer from maintaining an action based on the defective condition of the property. See Stonecipher v. Kornhaus, 623 So. 2d 955, 963 (Miss. 1993). However, the Southern District of Mississippi has previously recognized the "general rule that an 'as is' provision in a contract for the sale of realty . . . will not serve to preclude a purchaser from bringing an action for [rescission] or for damages if such is based upon the seller's representation or concealment regarding the physical condition of the property." Pitre v. Twelve Oaks Trust U/A 1/4/91, 818 F. Supp. 949, 952 (S.D. Miss. 1993).

Joy v. H & M Builders, Inc., No. 3:08-CV-329, 2009 WL 812259, at *4 (S.D. Miss. Mar. 27, 2009). The Southern District of Mississippi recognized that a buyer is not precluded from maintaining an action that is based on a seller's misrepresentation or concealment just because an "As Is" clause was part of the Agreement. Id.

Given these authorities, the Court finds that Baldwyn Properties is not precluded from maintaining this action despite the Agreement containing the "As Is" provision if Baldwyn Properties sufficiently demonstrated in its pleading that Manchester Anika made a material misrepresentation or concealment regarding the condition of the property. Id.

B. Fraud

As noted, the question now before the Court is whether Baldwyn Properties sufficiently demonstrated in its pleading that Manchester Anika made a misrepresentation or concealment regarding the condition of the property.

In addition to the requirements of Iqbal and Twombly, a plaintiff alleging fraud must also satisfy the heightened pleading standard of Rule (9)(b). FED. R. CIV. P. Rule (9)(b). "In alleging fraud . . . a party must state with particularity the circumstances constituting fraud." Id. What constitutes the particularity will be different with each case, but the standard essentially requires that "the who, what, when, where, and how must be laid out before access to the discovery process is granted." Benchmark Electronics, Inc. v. J.M. Huber Corp., 343 F. 3d 719, 714, 724 (5th Cir. 2003; see also Williams v. WMX Technologies, Inc., 112 F. 3d 175, 178 (5th Cir. 1997). If a...