Is Michigan Ready to Recognize a Claim for Medical Monitoring?
A series of bills were recently introduced in the Michigan Legislature seeking to modify a number of environmental statutes. Some of the proposed bills simply tweak existing laws. Others are more substantive.
One such bill involves medical monitoring, sometimes referred to as medical surveillance fees. Claims for medical monitoring involve an exposure to a hazardous substance(s). If that exposure could lead to a physical injury sometime later in life, future medical screenings may be required for detection. Claims for medical monitoring were previously considered by the Michigan Supreme Court in Meyerhoff v Turner Construction Company and Henry v Dow Chemical Company. In Meyerhoff, the claim for medical monitoring was treated as an element of damages. In Dow, the court treated it as a negligence cause of action. Regardless of its characterization, the Court rejected the claims in both cases.
The Dow Court stated in no uncertain terms that a negligence cause of action will not support a claim for medical monitoring in Michigan. In doing so, it noted the difference between a possible future injury and an actual present injury. Only a present physical injury will support a negligence claim in this State.
Senate Bill No. 610 would change that. It seeks to create a cause of action for medical monitoring against persons responsible for a release of hazardous substances under Part 201 of the Natural Resources and Environmental Protection Act (“NREPA”). That cause of action would be an exclusive remedy for individuals exposed to hazardous substances but lacking a present injury or disease.
To prevail, a plaintiff would be required to show:
1. They or their biological parents (prior to plaintiff’s birth) were exposed to a hazardous substance(s) at a rate significantly greater that the general population,
2. As a proximate result of the exposure, the plaintiff has suffered an increased risk of contracting a serious disease,
3. That risk makes it medically necessary for the plaintiff to undergo periodic medical monitoring procedures different from individuals with no exposure, and
4. The person liable for the exposure employed five or more full time employees at the time the hazardous substance(s) was released.
If a court awards a plaintiff any costs for medical monitoring, the award must be paid into a court supervised medial monitoring program administered by appropriate health professionals. If any costs are awarded, the court is required to award reasonable attorney fees and other litigation costs to the successful plaintiff.
Michigan Seeks to Implement Inspections of Septic Systems
As I stood in my yard recently watching a technician uncover my septic tank, I thought about the expression “out of sight, out of mind.” It sums up the way most people think about their septic tanks. I was about to receive confirmation that I had unwittingly joined the club.
Possessing a degree in environmental engineering, I know all about the science of septic systems and the need to maintain them. What I did not know was how long it had been since my septic tank was last pumped out. With the kids gone, I figured I had extra time before I needed to do anything. Accurately calculating the bonus time only works however if one remembers the starting date.
When the technician opened the access port, it was apparent my math was off. I had waited too long. Fortunately, there was no damage to my system. The technician pointed out, more than once, how lucky I was to have made an appointment when I did. After a lengthy and well-deserved lecture on the importance of maintaining a septic system, he was off to his next job.
While I dodged a bullet, many people are not so lucky. Poorly maintained septic systems cause a lot of disputes, especially when a real estate transfer is involved. The Michigan Seller’s Disclosure Act requires a seller to disclose information about the condition of their septic system. Just because the toilets flush or the sink drains does not necessarily mean the system is in good working order.
I receive numerous calls seeking advice on malfunctioning septic systems. Many of the callers are home buyers who have viable claims for fraud based on misrepresentations about the condition of the system they just purchased. Others callers are homeowners with claims against contractors for negligently installing or repairing a system.
Despite being blessed with an abundance of lakes and rivers, Michigan is the only state without a statewide regulatory framework for maintaining septic systems. Counties and townships have the right to set standards under the public health code but few do. Only a handful require inspections.There is an effort in Lansing to change that.
Senate Bills 299 and 300 would require establishment of a technical advisory committee to formulate standards and guidance to maintain septic systems. The Bills would also create statewide performance standards and implementation of an inspection system enforcing those standards.
If enacted, SB 299 and 300 would require an owner of an onsite wastewater treatment system (a fancy term for septic tank) to have an inspection performed every five years. Inspections would also be required if a complaint is filed with a local health department, there is a proposed change in use of the system or an application for a construction permit is filed.
After an inspection, the bills require that a report be filed with the State of Michigan. If an inspection reveals the need to have a tank pumped or there is evidence of a system failure, the owner is required to take action to remedy the situation within certain time frames or face the imposition of civil fines.
It is not entirely clear from the bills who needs to keep track of the inspection schedule. The language suggests that the burden falls on the landowner. If that is the case, I will need to step up my game.
Eliminating the use of Tetrachloroethylene (PCE) in dry cleaning
Perchloroethylene, aka tetrachloroethylene, PCE or PERC, is commonly referred to as dry cleaning fluid even though it is widely used in a variety of other products and industries. Michael Faraday, the inventor of the Bunsen burner among other things, discovered PCE.
Before environmental regulation came of age, not a lot of thought was given to the environmental impacts of PCE or proper disposal methods. More than one dry-cleaning client told me it was a good weed killer. Not surprisingly, PCE is a common pollutant. It is present at more than half of the identified Superfund sites. PCE frequently appears as an uninvited guest at sites in concentrations sufficient to cause vapor intrusion concerns.
Technological advancements have resulted in more efficient dry-cleaning machines that use less PCE. There are also more friendly alternatives to PCE on the market. Now, there is a push to ban it altogether. A bill to end the manufacture, sale, and use of PCE was previously introduced in the Michigan Legislature. That bill failed to make it out of committee. An identical bill was recently introduced in the Michigan House of Representatives.
House Bill No. 4083 applies only to the manufacture, sale, and use of PCE for the dry-cleaning industry. Other uses are not affected. Any transition away from PCE will be expensive for dry cleaners especially the small mom and pop shops. The proposed bill provides for the establishment of a fund within the state treasury to assist dry cleaning facilities with securing alternative products.
Subsequent to the introduction of Michigan House Bill No. 4083, the U.S. Environmental Protection Agency(“EPA”) also proposed a ban on consumer use of PCE. A risk assessment performed by the EPA determined PCE presents an unreasonable risk of injury to health or the environment. Such a finding requires EPA to take action to reduce that risk.
In response, EPA has proposed a rule that would prohibit the manufacture, processing and distribution of PCE for all consumer use. The rule would also apply to dry cleaning and spot cleaning operations. The rule would be implemented using a 10-year phaseout period. That period was chosen to take into account the number of dry-cleaning machines currently in use and the life expectancy of those machines.
In addition to the ban on consumer use, the proposed rule restricts (but does prohibit)the manufacturing of PCE. It also would restrict but not ban all industrial and commercial uses. PCE is used in national security applications. It is also used in the manufacture of climate friendly refrigerants considered to be a temporary alternative to chlorofluorocarbons. Permissible uses under the rule would be subject to stricter workplace controls.
Pursuing A Declaratory Judgment of non-liability, Two Different Outcomes
A recent opinion from the Michigan Court of Appeals provides insight into remedies available for companies asked to undertake the performance of corrective action at hazardous waste sites. In CAI Liquidating, Inc. v EGLE, the Plaintiff formerly operated a hazardous waste treatment, storage and disposal facility (“TSD” facility). Most of its assets were acquired by a third party except for the real property on which the facility operated.
A dispute arose with EGLE as to whether some corrective action was required to address contaminants discovered at the property. EGLE sought the imposition of a restrictive covenant on the property. CAI claimed one wasn’t necessary because no release of hazardous waste had occurred.
The parties could not agree on a course of action and Plaintiff filed a court action requesting a declaratory judgment. A declaratory judgment is a legal determination by a court that resolves uncertain legal obligations between parties. A court has jurisdiction to issue a declaratory judgment when an “actual controversy” exists. CAI sought a declaration that EGLE was prohibited from requiring any corrective action where no release of hazardous waste had occurred. EGLE claimed that no controversy existed because no formal order requiring CAI to do anything had ever been issued. The trial court agreed and granted summary disposition in favor of EGLE. CAI appealed.
The Court of Appeals reversed the decision of the trial court. The COA concluded that an actual controversy existed as to whether EGLE could order CAI to perform corrective action where there is no evidence of a release at the facility. The court emphasized the fact EGLE never entered into an agreement with CAI, such as a consent order, requiring it to perform corrective action. Thus, a controversy existed because the parties disputed corrective action for years and a declaratory judgment was necessary to resolve the issue.
The holding in CAI is in stark contrast to a prior published case of the COA, Flanders Industries, Inc. v Michigan. After the DNR (a predecessor to EGLE) sent Flanders a PRP letter,Flanders took action to address paint sludge that had been dumped into Lake Michigan. Flanders tried to obtain declaratory judgment on its cleanup liability but the COA, in reliance on cases interpreting CERCLA, a federal cleanup statute, ultimately held it could not because the DNR had never initiated a cost recovery action against it. The Court believed Flanders’ liability could just as easily be determined after a cost recovery action was filed, therefore, no actual controversy existed. Without the initiation of a cost recovery action, any declaratory judgment would be premature.
The CAI Court acknowledged Flanders but claimed it was distinguishable because it believed EGLE’s actions directing CAI to investigate the property amounted to the initiation of corrective actions proceedings.
Allowing a party to prove their innocence prior to incurring cleanup costs and encouraging prompt cleanups are both laudable goals. The decisions in Flanders and CAI make it one or the other. The Flanders Court noted that federal laws like CERCLA embody a shoot first and ask questions later approach.
Flanders recognized that asking questions first could result in delaying any cleanup for years while the matter works its way through the courts. CAI held that because a potential cleanup was already delayed for years, the plaintiff should be allowed to contest liability. Implicit in that decision is the possibility for even further delays while the litigation plays to a conclusion.
Flanders is a published decision thus, it creates binding precedent. Even though the CAI court noted that fact, it chose not to follow it. Because of that, CAI may just be an aberration and its value may simply be that it illustrates a missing piece of the enforcement equation.
Acquiring Title by a Forged Deed
I recently received an email inquiry from a client. Some of her older friends were questioning whether a“hacker“ could acquire title to someone’s home without their knowledge. She inquired whether that was possible. Unfortunately, it is.
If a person has enough information about another person, they can conceivably create a deed with a forged signature. Local Register of Deeds offices are in the business of filing title work, not evaluating the authenticity of particular documents. Upon filing a forged deed at the Register of Deeds, the deed enters the public record. We rely upon the public record for accurate information for things like real estate transactions and financing. With the prospect of eventually get discovered, forgers tend to attempt to get their money out quickly. Once the forged deed is filed,a hacker may take out a home equity loan or flip the property. The problem tends to be larger with vacant land and rental properties.
A forged deed contains a fraudulent signature. It’s an entirely different beast in the eyes of the law from a deed where the signature and authority to convey the property are procured by fraudulent means. A forged deed is void. Fraudulent conveyances are voidable. In Michigan, a person who falsely makes, alters, forges, or counterfeits a deed is guilty of a felony punishable by imprisonment for not more than 14 years.
While a forged deed doesn’t transfer title, there can be costs incurred to clear title. It can be expensive to fight to reacquire title to property you already paid for. Some title insurance policies cover the risk of someone claiming title based on a forgery.
Fraud alert services are coming of age. These services can be offered by private or public entities. Private services will perform periodic title searches to see if any documents have been recorded on a client’s property. The owner is notified if a deed is filed. Some counties offer free searches through their Register of Deeds. If you are lucky enough to live in a county where this kind of service is offered, use it often.
Finally, keep in mind that in some cases, there can be more than one victim. In addition to the party whose house was fraudulently sold, there may be an unwitting buyer who was pressured or seduced into buying a house that was not for sale. If it sounds too good to be true, or the time frames seem unreasonably short, take a deep breath and look closer.
ZBAs and Appellate Relief in Michigan
A Zoning Board of Appeals (“ZBA”) plays an important role in regulating the development of land. ZBAs interpret zoning ordinances, decide appeals from administrative decisions, and grant variances. A party aggrieved by a decision of a ZBA has the right of appeal to circuit court. A recent decision by the Michigan Supreme Court broadens the class of persons who can appeal decisions to, and from a ZBA.
In Saugatuck Dunes Coastal Alliance v Saugatuck Township, the Plaintiff, a coalition dedicated to the protection and preservation of the local coastal dunes, sought to challenge a decision of the Planning Commission granting approval of a condominium and marina project. The Plaintiff objected to the project claiming it would permanently alter dunes in the area and destroy coastal wetlands.
The Plaintiff appealed the Planning Commission’s approval of the project to the local ZBA. The ZBA ultimately decided that the Plaintiff lacked standing to pursue an appeal. Standing is the right of a person to invoke the power of a tribunal to adjudicate a claimed injury.
Plaintiff appealed the ZBA’s decision to circuit court. The circuit court sided with the ZBA. The case eventually made its way up to the Michigan Supreme Court.
The Court noted that the Michigan Zoning Enabling Act (“MZEA”) requires that a person seeking relief from a decision of a ZBA must be an“aggrieved” person or party. Previous cases had established a requirement that the aggrieved party must establish special damages different from those of others similarly situated property owners. In doing so, the special damage analysis became intertwined with a requirement for property ownership. As Saugatuck Dunes demonstrates, such a requirement can be an effective roadblock to public interest groups pursuing environmental policy objectives.
After reviewing the development of case law requiring ownership of property to pursue appeals to and from a ZBA, the Supreme Court overruled those cases to the extent they require an appealing party to own real property. Such a requirement amounts to an extra-statutory limitation on the term “aggrieved.” The Court stated nowhere in the MZEA is there a requirement limiting the right to appellate relief in zoning decisions to only real property owners. By using the broader phrase person or party aggrieved, the Legislature implicitly rejected the idea that standing is based on proximity to a proposed development.
The Court set forth three criteria necessary to meet the “aggrieved” standard under the MZEA. First, a party must have participated in the challenged decision by taking a position. The court noted participation could be established by submission of a letter or making a public comment at the hearing. Secondly, the party must have a legally protected interest or right that will likely be affected by the challenged decision. Finally, the party must provide evidence of special damages arising from the challenged decision in the form of an injury/burden that is different in kind/degree than others in the local community.
The Court remanded the matter back to the circuit court for reconsideration of the Plaintiff’s arguments in support of standing.
A Prudent Reason to Perform a Survey
A recent decision by the Michigan Court of Appeals in Coosard v Tarrant, –N.W.2d–(2022) provides an interesting example of one court’s application of fraud to a set of disjointed facts.
Plaintiffs purchased a cabin from Defendant. An online listing for the property included a photograph showing a cabin with an attached porch, garage and fence. The listing did not mention the garage specifically. It did state however that all the buildings were included in the sale.
Defendant completed a Seller Disclosure Statement (“SDA”). It indicated: 1) the Defendant had no knowledge of any common features of the property that were shared with adjacent landowners such as fences or driveways, and 2) Defendant was not aware of any encroachments. The SDA did indicate that structural modifications were made using unlicensed contractors and no permits were pulled.
After closing, Plaintiffs discovered that the patio, garage, and fence were located on property belonging to the neighbors. The Defendant’s SDA had disclaimed any knowledge of boundary defects. At trial, the adjacent neighbors testified otherwise. They claimed that on two separate occasions, a family representative had notified Defendant of the encroachment and told him to remove his stuff from their property.
The trial court did not believe the Defendant knowingly lied about the encroachment on the SDA. It awarded summary disposition to the Defendant on the basis that it did not believe the Defendant’s conduct had risen to the level necessary to support a claim of fraud. In doing so, it stated the SDA was a giant red flag that there might be problems with the property.
The COA first addressed whether the dispute could be resolved by simply applying the AS-IS provision contained in the purchase agreement. An AS-IS provision transfers the risk of unknown defects to the buyer. While an AS-IS clause will not transfer the risk to a buyer where the seller has committed fraud, the risk will be transferred when the defect should have been discovered by the buyer but was not. The court claimed that whether the Plaintiffs had the means to discover the encroachment in light of the SDA involved consideration of the other information communicated to, or observed by Plaintiffs.
The photo of the fence in the online listing showed that while it was in good condition, it had been present for enough time to accumulate junk stacked near or against it. The neighbor’s pole barn was located beyond the fence. Tall trees grew between the fence and the pole barn suggesting the fence was the property line. The court noted the property was small and the natural tendency would be to assume that if there was an encroachment, it would have been quickly noticed and acted upon by either a governmental entity and/or person with superior title. The court concluded that because the Plaintiffs had knowledge that: 1) unpermitted modifications were made, 2) the SDA indicated Defendant was not aware of any encroachments, and 3) the garage and fence had been present for some time (based on the trees and junk), it was not unreasonable for the Plaintiffs to expect that the features present in the online photograph were part of the property. Therefore, the court did not believe the Plaintiffs should have discovered the defect.
The court then turned its focus on whether the Defendant committed fraud. It thought the neighbors were neglectful in failing to object to the fence and garage, and that could have reasonably induced Defendant to believe there was no encroachment. The only knowledge of the encroachment given to Defendant was: (1) a note duct-taped to his door, and (2) a single conversation with the neighbors. The court noted both of these communications appeared essentially “out of the blue,” and the evidence suggested they were both highly confrontational and unaccompanied by any supporting evidence. Furthermore, the testimony of the neighbors indicated they were not entirely clear about what they told the Defendant. While it might have been wise for Defendant to investigate the issue after receiving the neighbors’ communications, it would not have been unreasonable for Defendant to dismiss those communications.
Because there is no other evidence suggesting that Defendant was aware of any encroachment, by implication, Defendant did not knowingly commit fraud with the MLS listing. Therefore, the COA held the trial court’s grant of summary disposition in Defendant’s favor was proper.
As an aside, the court identified a potential lifeline for the Plaintiffs. It pointed to the possibility of an adverse possession claim against the neighbors. While the Plaintiffs themselves could not meet the 15-year statutory period to support a claim of adverse possession, under certain circumstances, a party may be able to tack on periods where the property was owned by their predecessors in title. The COA suggested that Plaintiffs look into whether the periods of ownership by Defendant and his predecessor in interest could be used to meet the 15-year period to support a claim for adverse possession.
Lessons learned? Both the trial court and COA were critical of the Plaintiffs and Defendant. They believed this dispute could have easily been avoid. The most prudent course of action for both parties would have been to obtain a survey prior to purchasing the property.
Costs and Attorney Fees Under the Michigan Right to Farm Act
The Right to Farm Act (“RTFA”) was enacted to protect farmers. The Court in Northville Twp v Coyne, 170 Mich App 446 (1988) stated:
The Legislature undoubtedly realized that, as residential and commercial development expands outward from our state’s urban centers and into our agricultural communities, farming operations are often threatened by local zoning ordinances and irate neighbors. It, therefore, enacted the Right to Farm Act to protect farmers from the threat of extinction caused by nuisance suits arising out of alleged violations of local zoning ordinances and other local land use regulations as well as from the threat of private nuisance suits. Id. at 448.
Just how big is the umbrella of protection created by the RTFA? Not as big as one would think.
The RTFA protects farms or farm operations from nuisance suits in two ways. MCL 286.473 provides:
(1) A farm or farm operation shall not be found to be a public or private nuisance if the farm or farm operation alleged to be a nuisance conforms to generally accepted agricultural and management practices according to policy determined by the Michigan commission of agriculture.
(2) A farm or farm operation shall not be found to be a public or private nuisance if the farm or farm operation existed before a change in the land use or occupancy of land within 1 mile of the boundaries of the farm land, and if before that change in land use or occupancy of land, the farm or farm operation would not have been a nuisance.
Further protection is offered by MCL 286.473b. It provides that if a farm or farm operation prevails in any nuisance suit,the farm or farm operation may recover the actual amount of costs and expenses determined by the court to have been reasonably incurred in connection with the defense of the action, together with reasonable attorney fees.
The Court of Appeals considered the breadth of protection offered by MCL 286.473b in Township of Richmond v Rondigo LLC, 2013 WL 951100. It agreed the RTFA shields a farm or farm operation from a nuisance suit if the farm complies with generally accepted agricultural and management practices, GAAMPs for short. The Court then seemed to imply that the only way a farm or farm operation could recover fees under MCL 286.473b is if the farm or farm operation satisfied any applicable GAAMPs. In doing so, it ignored MCL 286.473(2) and any other potential nuisance claim that could be asserted against farmers.
The defendant in Rondigo filed an application for leave to appeal. That application was denied. Justice Markman dissented. He agreed that GAAMP compliant farms or farm operations are immune from characterization as a nuisance.While that is one way to fit under the RTFA umbrella of protection, it’s not the only way.Justice Markman observed that MCL 286.473b states a prevailing farm or farm operation in any nuisance action is entitled to expenses and that there is no language limiting an award of fees and costs to defendants who are GAAMP compliant. He concluded nothing in MCL 286.473(b) suggests that a farm or farm operation that is not compliant with GAAMPs but nonetheless prevails in a nuisance suit is somehow barred from receiving costs.
The benefits offered by the RTFA are even more restrictive when one considers the scope of existing GAAMPs. Some farming activities are not covered by a GAAMP. Drainage is one such area. While there are a couple minor references in the nutrient GAAMP, drainage issues are left to the Drain Code. If a farm or farm operation prevails in a nuisance suit alleging a drainage issue, the holding of Rondigo would bar any recovery of fees or costs. The financial impact of a nuisance suit filed against a farm or farm operation for a drainage issue would appear to not have any different financial impact than one for irrigation water use, which is covered by a GAAMP. If the goal is to protect farmers from the threat of extinction caused by nuisance suits, shouldn’t all nuisance suits be treated the same.
Constitutionality of a Municipal Tree Ordinance
Many municipalities have enacted local tree ordinances that must be taken into consideration prior to new construction. These ordinances are usually permit driven and require approval to remove trees from one’s property. The ordinances typically involve some classification scheme of trees by either size or species. They may also impose obligations to plant replacement trees to offset the trees lost during construction.
The validity of a local tree ordinance was challenged in F.P. Development, LLC v Charter Township of Canton, 16 F.4th 198(2021). F.P Development purchased property adjacent to its existing site for expansion of its operations. Prior to construction, 159 trees were removed from the site. No permit was obtained prior to removal as required by the township’s Forest Preservation and Tree Clearing Ordinance. The Township learned of F.P.Development’s actions and issued a stop work order. After completing an investigation confirming the number of trees that had been removed, the Township gave F.P. Development the option of either planting replacement trees or depositing a rather large sum of money into the Township’s Tree Fund. F.P. Development did neither and filed suit challenging the validity of the Township’s ordinance.
F.P. Development claimed that the Township’s Tree Ordinance constituted a violation of the Takings Clause of the Fifth Amendment. The Takings Clause states that “private property” shall not “be taken for public use, without just compensation.” The district court held that the ordinance did violate the Takings Clause. The Court of Appeals agreed.
The court believed the Township’s effort to justify the detrimental effects of tree removal fell short of the threshold need to avoid a taking. The Township’s had asserted that the permit conditions “could” offset some of the harm caused by tree removal. The court pointed out that was different then asserting the harm “will, or likely to” offset the conditions. To meet constitutional scrutiny, permits issued by the Township needed to bear some relationship to the impact of the proposed development and furthermore, there must be some proportionality in the mitigation requirements. The ordinance’s mitigation requirements were set in stone and did not take into account the actual impact of the removal of the trees. Conclusory assertions of a general impact are not sufficient. There must be some individualized determination of the actual impacts to the site.
The holding in F.P. Development doesn’t appear to be the axe that sends tree ordinances to the mulch pile however. It does mean that governmental entities will have to do a better job of demonstrating how removal of trees causes harm to the surrounding area on an individualized basis. Canton Township used a broad justification to support its ordinance claiming its purpose was to promote an increased quality of life through regulation of trees. In contrast to Canton Township, the tree ordinance for Grand Rapids Michigan provides eleven specific factors that its ordinance is designed to address.
The benefits of trees are well known. The Food and Agriculture Organization of the United Nations has identified numerous benefits associated with the presence of trees such as increased property values, removal of carbon dioxide and improvements to water quality. An ordinance that weaves the known benefits of trees into its statutory framework and applies them to an individual piece of property would appear to address the deficiencies noted by the F.P. Development court.
Fraud in the Sale of Property
Purchasers of real estate frequently claim they were misled about the condition of a property. With the sizzling real estate market, sales are rushed and due diligence is often an afterthought. Purchasers are often surprised to learn that fraud requires something more than a misleading or false statement. The recent case of Plets v Triple L Land Development, LLC shines a light on the elements of an actionable fraud case.
The Plets Plaintiffs owned property that was formerly used for auto repair. Automotive service shops have historically used a variety of hazardous substances that could potentially contaminate the soil and groundwater. Plaintiffs agreed to sell the property to Defendant. The sales contract stated:
“This offer is contingent on … (2) receiving satisfactory evidence the land and soil …is free of contaminants and pollution and proof is provided.
Defendant ultimately purchased the property on a land contract.
Plaintiffs’ environmental consultant had collected soil and groundwater samples. It prepared a Phase II Report indicating the property was contaminated. There was a factual dispute as to whether the Phase II report had been provided to the Defendant. Plaintiffs’ real estate agent claimed she sent a copy of it to the Defendant’s agent. Defendant’s agent denied ever receiving that copy.
After the sale, Defendant sought to transfer the property to another party. The new purchaser performed its own Phase II Environmental Assessment of the property. It also confirmed the presence of contaminants in the soil and groundwater. Based on the new information, the Defendant stop paying the land contract. Plaintiffs sued the Defendant for breach of contract. Defendant counterclaimed and sought to void the land contract on the basis of fraudulent inducement.
The Trial Court granted summary disposition to the Defendant. The Court of Appeals was not convinced that Defendant had established a claim for fraud. It reversed and remanded the case for further proceedings.
To prove fraud, a party must establish six elements: (1) that the opposing party made a material representation; (2) that the representation was false; (3) that when the opposing party made the representation, the opposing party knew that it was false, or made it recklessly, without knowledge of its truth and as a positive assertion; (4) that the opposing party made the representation with the intention that the party would act upon it; (5) that the party acted in reliance upon it; and (6) that party suffered damage.
The COA agreed that the Defendant had established the first three elements of fraud. However, the Defendant was required to prove more than just a false representation. It also had to prove that (1) Plaintiffs made the false representation with the purpose of inducing Defendant to enter into the purchase; and (2) it purchased the property in reliance on Plaintiffs’ false representation.
The COA held that Defendant had failed to provide evidence unequivocally establishing reliance. If Defendant had received a copy of the Phase II Report from the Plaintiffs’ real estate agent, it would be difficult to claim reliance on any contrary representations of the Plaintiffs about the property’s condition. Conversely, if Defendant never received the Phase II Report, it could claim reliance on Plaintiffs’ representation that the property was clean because it had no other way of knowing the property was contaminated. The issue of whether Defendant was justified in relying on Plaintiffs’ representation would have to remain unresolved until it was determined whether the Defendant actually received a copy of the Phase II Report.
Answering the question of whether Defendant received a copy of the Phase II Report was also necessary to determine whether the Plaintiffs’ intended to defraud the Defendant. If the Phase II Report was sent to Defendant’s agent as Plaintiffs’ agent claimed, reasonable minds could conclude that Plaintiffs had no intent to defraud Defendant. On the other hand, because Plaintiffs did not correct Defendant’s misunderstanding about the true condition of the property, reasonable minds could also conclude the opposite.
As illustrated by Plets, it’s not enough to say the seller told me everything was fine but it wasn’t. That’s the beginning of the analysis, not the end. Each and every element of a fraud claim has to be proved. Sometimes, that is easier said than done.