Larson v. Safeguard Properties, Inc.

379 F.Supp.2d 1149

Erika Jo LARSON and Jerod Larson Plaintiffs, v. SAFEGUARD PROPERTIES, INC., and Chase Manhattan Mortgage Corp., Defendant.

No. 05-1005-WEB.

United States District Court, D. Kansas.

July 13, 2005.

Randall K. Rathbun, Tony L. Atterbury, Depew, Gillen, Rathbun & Mcinteer, LC, Wichita, KS, for Plaintiffs.

Mischa M. Bastin, Armstrong Teasdale LLP, Kansas City, MO, Jeffrey A. Bullins, Holbrook & Osborn, PA, Overland Park, KS, for Defendant.

MEMORANDUM AND ORDER

WESLEY E. BROWN, Senior District Judge.

Now before the Court is Defendants' motion to dismiss under Fed.R.Civ.P. 12(b)(6), failure to state a claim upon which relief can be granted. Plaintiffs are suing for fraud and assert jurisdiction under 28 U.S.C. § 1332.

I. Nature of the Case

The following facts, as alleged in Plaintiffs' complaint, are accepted as true for purposes of this motion. Chase Manhattan Mortgage Corp. (Chase) is the seller of residential property. Plaintiffs inspected property for sale by Chase and entered into a contract to purchase it on May 4, 2004. On that same day, Plaintiffs also signed two addendums to the real estate contract. In Addendum "A", Plaintiffs agreed that they were accepting the house in an "as is" condition and that the seller made no warranties. In the second addendum, Plaintiffs were put on notice that there may be mold on the property, acknowledged that they should use due diligence with experts, and agreed to release Chase and its agents from any liability that resulted from any mold. Chase hired Safeguard Properties Inc. (Safeguard) to conduct repairs prior to closing. Unbeknownst to Plaintiffs, a significant leak occurred in the basement prior to the June 1, 2004 closing date. Contractors hired by Safeguard to clean the carpets informed the owner of the house about the water leak and that it needed to be fixed; however, the owner of the house did not appear worried and said they would sell the property as is. Defendants did not disclose the water leak to Plaintiffs. On June 1, 2004 Plaintiffs closed on the property and subsequently found a significant amount of water and mold in the basement. The mold has rendered the house uninhabitable and has caused medical problems to Erika Jo Larson and her two year old son.

II. Motion to Dismiss Standards

Defendant Safeguard filed a motion to dismiss on February 11, 2005 and has not yet filed a responsive pleading. (Doc. 16). Defendant Chase filed an answer to Plaintiffs' complaint on January 31, 2005 and subsequently filed a motion to dismiss on February 24, 2005. (Doc. 14, 18).

Technically, it is impermissible to file an answer and thereafter file a Rule 12(b)(6) motion to dismiss. See Fed.R.Civ.P. 12(b) (stating that a motion to dismiss under the rule "shall be made before pleading if further pleading is permitted"). However, because Rule 12(h)(2) permits the court to consider `[a] defense of failure to state a claim upon which relief can be granted' within a Rule 12(c) motion for judgment on the pleadings, the court will treat defendant's motion as if it had been submitted under Rule 12(c). The distinction between the two rules is purely one of procedural formality, however. The court will employ the same standard that it uses to analyze a Rule 12(b)(6) motion to dismiss to evaluate a Rule 12(c) motion for judgment on the pleadings.

Swearingen v. Honeywell, Inc., 189 F.Supp.2d 1189, 1193 (D.Kan.2002) (internal quotations and citations omitted); see also Ward v. Utah, 321 F.3d 1263, 1266 (10th Cir.2003).

The two motions are only nominally different; therefore, to avoid confusion, the Court will refer to the motions jointly as one to dismiss under Rule 12(b)(6). Fed.R.Civ.P. 12(b)(6).

"A motion to dismiss is appropriate when the plaintiff can prove no set of facts in support of the claims that would entitle plaintiff to relief." Roman v. Cessna Aircraft Co., 55 F.3d 542, 543 (10th Cir.1995). "The court's function on a Rule 12(b)(6) motion is not to weigh potential evidence that the parties might present at trial, but to assess whether the plaintiff's complaint alone is legally sufficient to state a claim for which relief may be granted." Sutton v. Utah State School for the Deaf & Blind, 173 F.3d 1226, 1236 (10th Cir.1999) quoting Miller v. Glanz, 948 F.2d 1562, 1565 (10th Cir.1991). Furthermore, all well-pleaded factual allegations in the complaint are accepted as true and viewed in the light most favorable to the nonmoving party. Robbins v. Wilkie, 300 F.3d 1208, 1210-1211 (10th Cir.2002).

Generally a Court does not look beyond the face of a complaint when analyzing a Rule 12(b)(6) motion. MacArthur v. San Juan County, 309 F.3d 1216, 1221 (10th Cir.2001).

There are two exceptions to this rule. First, the district court may consider "mere argument" contained in the parties' memoranda concerning a motion to dismiss. Second, it is accepted practice, if a plaintiff does not incorporate by reference or attach a document to its complaint, but the document is referred to in the complaint and is central to the plaintiff's claim, a defendant may submit an indisputably authentic copy to the court to be considered on a motion to dismiss.

Id. (internal quotations and citations omitted).

This lawsuit concerns fraud in connection with the sale of real estate; therefore, the real estate contract and its addendums are documents that are central to Plaintiffs' claim and are referred to in the complaint. (Pl.Ex. A); (Def.Ex. A, B). The Court will consider these documents; however, the Court will not consider Plaintiffs' exhibits B and C as these are not documents referred to in the complaint. (Pl.Ex. B, C).

Plaintiffs' response to Defendants' motion to dismiss refers to numerous facts and a cause of action which were not alleged in the complaint. These are allegations outside of the pleadings and they do not fit within either of the two exceptions; therefore, the Court will neither consider Plaintiffs' recently asserted breach of contract claim nor Plaintiffs' newly alleged facts. MacArthur, 309 F.3d at 1221. Plaintiffs cannot amend their complaint by alleging new facts and claims in their response.

III. Pleading with Particularity

Plaintiffs' complaint alleges that Defendants committed fraud by silence or fraudulent concealment by failing to communicate material facts to Plaintiffs. Burton v. R.J. Reynolds Tobacco Co., 397 F.3d 906 (10th Cir.2005) (under Kansas law, fraudulent concealment and fraud by silence are different names for the same cause of action). Defendants argue that Plaintiffs have failed to plead with particularity in accordance with Rule 9(b) and, their claim should be dismissed. Fed.R.Civ.P. 9(b). Under Kansas law, the elements for a cause of action for fraudulent concealment are:

(1) that defendant had knowledge of material facts which plaintiff did not have and which plaintiff could not have been discovered by the exercise of reasonable diligence; (2) that defendant was under an obligation to communicate the material facts to the plaintiff; (3) that defendant intentionally failed to communicate to plaintiff the material facts; (4) that plaintiff justifiably relied on defendant to communicate the material facts to plaintiff; and (5) that plaintiff sustained damages as a result of defendant's failure to communicate the material facts to the plaintiff.

Miller v. Sloan, Listrom, Eisenbarth, Sloan and Glassman, 978 P.2d 922, 932, 267 Kan. 245, 261 (1999) (citations omitted).

Rule 9(b) states "In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other condition of mind of a person may be averred generally." Fed.R.Civ.P. 9(b). "Rule 9(b) must be read in conjunction with the principles of Rule 8, which calls for pleadings to be simple concise and direct." Schwartz v. Celestial Seasonings, Inc., 124 F.3d 1246, 1252 (10th Cir.1997) (internal quotations and citations omitted).

First, Defendants argue that Plaintiffs' claim fails because it does not specifically identify the individuals who should have disclosed the water leak. Defendants rely on the requirements for fraud for support. "[T]o survive a motion to dismiss, an allegation of fraud must set forth the time, place, and contents of the false representation, the identity of the party making the false statements and the consequences thereof." Indy Lube Invs., L.L.C. v. Wal-Mart Stores, Inc., 199 F.Supp.2d 1114, 1121 (D.Kan.2002). The Court declines to extend this requirement to a case of fraudulent concealment. It would not serve Rule 9(b)'s purposes to compel Plaintiffs to speculate about the specific individual who should have made disclosures of material fact. Sunbird Air Services, Inc. v. Beech Aircraft Corp., 789 F.Supp. 364, 366 (D.Kan.1992) (The requirement of greater specificity is to give defendants notice of the conduct complained of).

Defendants next argue that Plaintiffs' claim is too general because Plaintiffs failed to set forth separately the tortious acts of each defendant. Lillard v. Stockton, 267 F.Supp.2d 1081, 1094 (N.D.Okla., 2003). Paragraph 13 specifically alleges that neither Safeguard nor Chase disclosed to Plaintiffs the material defects in the home. (Compl.¶ 13). The previous paragraphs describe that the defects were the water leak and mold. (Id.¶¶ 10-12). The Court disagrees with Defendants. The allegations give Defendants notice of the alleged wrongdoing and are specific enough to satisfy both Rules 9(b) and 8. Fed.R.Civ.P. 9(b); Fed.R.Civ.P. 8.

Next, Defendants argue that Plaintiffs failed to allege that Defendants had knowledge of the water leak and mold. Rule 9(b) states that knowledge only needs to be averred generally. Fed.R.Civ.P. 9(b). Plaintiffs state in their complaint that Chase was the seller of the house and Safeguard was contracted to do repairs. (Compl.¶¶ 5, 8). Contractors hired by Safeguard discovered the leak and informed the owners of...