GORDON TABENSKE V KENDILLON CONSTRUCTION CO
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STATE OF MICHIGAN
COURT OF APPEALS
GORDON TABENSKE and WENDY
TABENSKE,
UNPUBLISHED
October 7, 2008
Plaintiffs/Counter DefendantsAppellants,
v
KENDILLON CONSTRUCTION COMPANY,
Defendant/Counter Plaintiff/Third
Party Plaintiff/Cross Defendant,
and
RICHARD A. PETERSEN, JEFFREY R. JAMES,
JERRY P. HAITAIAN, ROB N WOOD HOME
CARE, INC., and SIGNATURE INTERIOR &
DESIGN CONTRACTORS,
Defendants,
and
J.R. JAMES DEVELOPMENT CORPORATION,
Defendant/Cross Plaintiff-Appellee,
and
J.S. TRUDEAU CONCRETE FORMING, INC.,
and NICK KRUSZEWSKI,
Third Party Defendants.
Before: Cavanagh, P.J., and Jansen and Kelly, JJ.
-1-
No. 276442
Oakland Circuit Court
LC No. 2003-049750-CK
PER CURIAM.
Plaintiffs appeal as of right the summary dismissal of their second amended complaint
filed against J.R. James Development Corporation and its president Jeffrey R. James. We affirm
in part, reverse in part, and remand for further proceedings consistent with this opinion.
This lawsuit arises from the fact that the luxury home that plaintiffs had built by
Kendillon Construction Company was built on unsuitable bearing soils which caused it to sink,
resulting in significant structural damage necessitating extensive repairs. Plaintiffs had
purchased the land that the home was situated on from James Development. After plaintiffs’
requests to repair the structural defects were ignored by Kendillon Construction and James
Development, this lawsuit was filed.
Plaintiffs’ first complaint only alleged claims against Kendillon Construction and its sole
shareholder, Richard Petersen. Plaintiffs’ first amended complaint added claims against James
Development and Jeffrey James. On January 29, 2004, plaintiffs’ second amended complaint
was filed and included the following counts against Jeffrey James and James Development:1 (1)
Count I, Failure to Disclose Material, Latent Conditions (referencing the unsuitable soil
conditions); (2) Count II, Fraudulent Misrepresentation/Silent Fraud (referencing the failure to
disclose the unsuitable soil conditions); (3) Count III, Civil Conspiracy to Commit Fraud
(alleging that Kendillon, Petersen, James Development and Jeffrey James conspired to withhold
the known material adverse soil conditions); (4) Count XIV, Negligence—James Development
(alleging the failure to properly develop and prepare the build site), and (5) Count XV,
Negligence—Jeffrey James (alleging the failure to properly develop and prepare the build site).
Plaintiffs’ subsequent attempt to file a third amended complaint was denied.
On June 21, 2004, James Development and Jeffrey James (defendants) filed a motion for
summary disposition pursuant to MCR 2.116(C)(10). Defendants primarily argued that no
representations were made about the condition of the vacant land sold to plaintiffs. In fact, any
warranties or representations about the condition of the property were specifically and expressly
denied in the sales contract through an “as is” clause. Further, plaintiffs had the right to inspect
and perform tests on the property—tests that would have revealed the defective condition.
Therefore, defendants argued, plaintiffs’ fraud claims must fail. Without the fraud claims, the
civil conspiracy to commit fraud claim must fail as well. And, because neither defendant owed
plaintiffs a duty that was separate and distinct from the contractual agreement, the negligence
claims must also be dismissed.
On July 21, 2004, plaintiffs responded to defendants’ motion for summary disposition.
Plaintiffs first denied that they pleaded breach of warranty or fraud in the inducement claims, as
defendants seemed to imply. Then plaintiffs argued that defendants had soil boring test results in
their possession—namely reports authored by CTI Geotechnical, Environmental & Construction
Engineers on March 19, 1998, and February 14, 2000—which indicated that the soil conditions
on Lot 7 were not suitable for construction. Defendants failed to provide those test results to
1
Although the second amended complaint included claims against other defendants, this appeal
only pertains to Jeffrey James and James Development; thus, only those claims are considered
here.
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plaintiffs, although they were requested. Defendants also knew the soils were unsuitable for
building because remediation of unsuitable soils was required with regard to Lot 5 before
construction could begin on that property. Yet, defendants failed to disclose the unsuitable soil
conditions. Plaintiffs argued that, because the “as is” provision only allocated the risk of loss
from conditions unknown to the parties, defendants had an affirmative duty to disclose this
information and the failure to do so constituted silent fraud.
Further, plaintiffs argued, because of the joint venture relationship that existed between
James Development and Kendillon Construction, the misrepresentation Petersen made to
plaintiffs about the lot conditions should be attributed to defendants. Specifically, before
plaintiffs purchased the lot they asked Petersen about the results of the soil boring tests and
Petersen responded that “they didn’t show anything significant.” Thus, plaintiffs argued,
defendants were liable for common-law fraud because of this misrepresentation made by
defendants’ partner in the joint venture. Accordingly, plaintiffs argued, they established that a
genuine issue of material fact existed as to plaintiffs’ fraud claims and defendants’ motion to
dismiss their fraud and civil conspiracy claims should be denied.
With respect to their negligence counts against these defendants, plaintiffs argued that, as
the developers of this residential property, defendants were liable for failing “to exercise the
degree of skill and care ordinarily exercised by other Michigan developers when developing
residential lots adjacent to open and notorious registered wetlands.” Plaintiffs, who were not
experienced in these matters, reasonably relied on defendants’ skill and expertise in the
development of this subdivision, as well as their lot. Accordingly, plaintiffs argued that
defendants’ motion for summary disposition should be denied in total.
On May 6, 2005, the trial court issued its opinion and order granting summary dismissal
with respect to all claims against James Development and Jeffrey James, without oral argument.
First, the court noted that (1) the purchase and sale agreement between plaintiffs and James
Development contained an “as is” provision, (2) the property’s defective condition was capable
of being discovered by plaintiffs upon inspection, and (3) the sale agreement indicated that it did
not “represent or warrant in any way, express or implied, the soil or subsurface conditions for
the” property.
Therefore, the court dismissed plaintiffs’ silent fraud claim—no
misrepresentation was made. And because there was no tort claim, there could be no civil
conspiracy.
The court then turned to the negligence claims and noted that for such claims to be
viable, there must be a relationship outside the existence of the contract. Here, the court held,
“there is nothing presented to indicate Defendants had a duty other than that contained in the
contract between the parties.” The court also addressed defendants’ argument that the doctrine
of caveat emptor bars any liability against defendant. Because plaintiffs failed to address the
argument, the court held that summary disposition was appropriate. Further, though, the court
concluded that summary disposition was proper based on the merits. Citing Christy v Glass, 415
Mich 684; 329 NW2d 748 (1982), the court held that the seller of real estate shifts all
responsibility for the land’s condition to the purchaser. In a footnote the court addressed
plaintiffs’ “partnership/joint venture” argument, holding that “there is nothing produced to
persuade the Court that such a joint venture actually existed.” Thereafter, plaintiffs’ motion for
reconsideration was denied, as were their motions for leave to file a fourth amended complaint
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and for relief from the order dismissing their claims against James Development and Jeffrey
James.2 This appeal followed.
On appeal, plaintiffs first appear to argue that their second amended complaint included a
breach of contract claim against James Development and Jeffrey James that should not have been
dismissed.3 Plaintiffs did not argue that any such claim was asserted in their brief in opposition
to defendants’ motion for summary disposition. The trial court did not consider and decide the
issue whether plaintiffs asserted a breach of contract claim. Therefore, this issue is not preserved
for our review. See Polkton Charter Twp v Pellegrom, 265 Mich App 88, 95; 693 NW2d 170
(2005); Fast Air, Inc v Knight, 235 Mich App 541, 549; 599 NW2d 489 (1999). However,
because this is an issue of law for which all of the necessary facts have been presented, we will
consider this issue. See Steward v Panek, 251 Mich App 546, 554; 652 NW2d 232 (2002).
Plaintiffs argue that Count I sets forth a breach of contract claim. Count I is titled
“Failure to Disclose Material, Latent Conditions.” Because a party’s label is not dispositive of
the cause of action, we turn to the complaint to determine the true gravamen of the claim. See
Klein v Kik, 264 Mich App 682, 686; 692 NW2d 854 (2005). In pertinent part, Count I of
plaintiffs’ second amended complaint contains the following allegations:
18. The relevant “Contract Documents”, as between Kendillon and Development
Company, create a joint venture between Kendillon and Development Company
to sell lots and construct homes in Oak Hills Estate, Farmington Hills, MI.
19. Petersen is the primary agent of Kendillon.
20. James is the primary agent of Development Company.
21. During the signing [sic] both the Purchase and Sale Agreement, dated
November 29, 2000, and the Building Contract, dated August 28, 2000,
Kendillon, Petersen, Development Company and James had an affirmative duty to
disclose to Plaintiffs, at those contract execution conferences, known conditions
which might materially affect Plaintiffs’ [sic] intended use and enjoyment of the
Residence.
22. Petersen & James are personally charged with the actual knowledge that
certain soil conditions could materially affect the structural integrity of any
residential structure which might be built in the Subdivision within which the
Residence was constructed.
2
Although in their claim of appeal plaintiffs appear to state that they are appealing the trial
court’s denial of their motions to file third and fourth amended complaints, no such issues were
identified or presented. See MCR 7.212(C)(5); Caldwell v Chapman, 240 Mich App 124, 132;
610 NW2d 264 (2000). Because plaintiffs’ motions to file third and fourth amended complaints
were, in fact, denied, plaintiffs’ repeated references to the claims made in those documents serve
no useful purpose and have not been considered.
3
In their argument, plaintiffs refer us to their original complaint and first amended complaint but
those complaints were superseded by the second amended complaint. See MCR 2.118(A)(4).
-4-
23. Specifically, prior to the signing both the Purchase and Sale Agreement dated
November 29, 2000, and the Building Contract, dated August 28, 2000,
Kendillon, Development Company, Petersen & James had direct personal
knowledge of certain soil conditions existing within the Subdivision and within
the lot upon which the Residence was to be constructed, which could and would
materially affect the structural integrity of the proposed residential structure to be
built on Lot 7 Oak Hills Estates, Farmington Hills, MI (the Residence), viz: . . . .
[the geotechnical reports authored by CTI are referenced and the findings are
detailed.]
* * *
24. Specifically, during the signing of both the Purchase and Sale Agreement,
dated November 29, 2000, and the Building Contract, dated August 28, 2000,
Kendillon, Petersen, Development Company and James failed to disclose to
Plaintiffs, at those contract execution conferences, the above-mentioned known
conditions which, in fact, materially affected Plaintiffs’ [sic] intended use and
enjoyment of the Residence.
25. As a direct and proximate result of Kendillon, Petersen, Development
Company and James’ failure to disclose to Plaintiffs, at those contract execution
conferences, the above-mentioned known material conditions, Plaintiffs have
suffered, and continue to suffer, substantial structural damage to the Residence.
26. Said substantial structural damage to the Residence, is a direct result of
constructing the Residence upon soil substrates totally unsuitable to sustain and
support the weight of the Residence.
These allegations do not set forth the elements of a breach of contract cause of action,
which include that a contract existed between the parties and that a breach of one or more of the
contractual terms occurred. See Pawlak v Redox Corp, 182 Mich App 758, 765; 453 NW2d 304
(1990). Instead plaintiffs averred that defendants had a duty to disclose the allegedly defective
land conditions during the signing of the contracts at “those contract execution conferences” and
failed to do so. Plaintiffs failed to aver as to how that purported duty to disclose arose, but
simply stated that a duty existed. From the terminology used, however, it appears as though
plaintiffs were attempting to plead a cause of action sounding in fraud. In their motion for
summary disposition, defendants seemed to interpret the allegations as an attempt to plead
breach of warranty or fraud in the inducement claims. But, in their responsive brief, plaintiffs
specifically denied having pleaded those claims.4 In any case, whatever cause of action plaintiffs
were attempting to plead in Count I, a breach of contract cause of action was not pleaded.
Accordingly, this issue is without merit and the trial court properly dismissed this claim.
4
On appeal it appears that plaintiffs are attempting to argue that they alleged and proved a
breach of warranty claim. In their brief in opposition to defendants’ motion for summary
disposition, plaintiffs specifically stated: “Plaintiffs have not pleaded any allegations against
James for Breach of Warranty.” Therefore, we reject this argument on appeal.
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Next, plaintiffs argue that their fraud claims against defendants should not have been
summarily dismissed.5 After review de novo of the trial court’s decision on this motion for
summary disposition, we agree. See Spiek v Dep’t of Transportation, 456 Mich 331, 337; 572
NW2d 201 (1998). A motion for summary disposition under MCR 2.116(C)(10) is properly
granted if, after considering all of the evidence, affidavits, pleadings, and admissions in a light
most favorable to the nonmoving party, it is determined that no factual dispute exists. Rice v
Auto Club Ins Ass’n, 252 Mich App 25, 30-31; 651 NW2d 188 (2002).
We first consider plaintiffs’ silent fraud claim. This claim was premised on the purported
fact that defendants failed to provide the complete soil boring test information, as referenced in
the purchase and sale agreement pertaining to the property, after plaintiffs had requested such
information. In fact, defendants failed to provide the soil boring test information that revealed
that the soil conditions were unsuitable for building. Plaintiffs claimed that without the withheld
information, they were left with the false impression that the property soils were suitable, thereby
perpetrating a fraud on them. Plaintiffs argued that the “as is” provision in the agreement did not
foreclose liability because that provision only allocated the risk of loss from conditions unknown
to the parties, not where the seller fails to disclose known defects. The trial court disagreed and
dismissed plaintiffs’ silent fraud claim. Plaintiffs’ motion for reconsideration was denied.
“Silent fraud” is also known as fraud by nondisclosure or fraudulent concealment. M &
D, Inc v McConkey, 231 Mich App 22, 28; 585 NW2d 33 (1998). An often quoted explanation
of silent fraud is as follows:
A fraud arising from the suppression of the truth is as prejudicial as that which
springs from the assertion of a falsehood, and courts have not hesitated to sustain
recoveries where the truth has been suppressed with the intent to defraud. Thus,
the suppression of a material fact, which a party is duty-bound to disclose, is
equivalent to a false representation and will support an action in fraud. [Lorenzo
v Noel, 206 Mich App 682, 684-685; 522 NW2d 724 (1994) (citations omitted).]
As this Court explained in McConkey, supra, “the touchstone of liability for misdirection or
‘silent fraud’ is that some form of representation has been made and that it was or proved to be
false.” Id. at 30. McConkey continued that “[o]ur review of Michigan Supreme Court precedent
regarding this issue reveals that, in every case, the fraud by nondisclosure was based upon
statements by the vendor that were made in response to a specific inquiry by the purchaser,
which statements were in some way incomplete or misleading.” Id. at 31 (citations omitted).
Here, plaintiffs’ request for the soil boring test information before the sale was
consummated could reasonably be construed as a specific inquiry as to the suitability of the soil
conditions for building. The primary purpose of soil boring tests is to determine the capability of
the soil to support proposed improvements. Defendants allegedly responded with only some of
the soil boring test information and, unbeknownst to plaintiffs, withheld the test information that
5
Plaintiffs also appear to argue that their “negligent misrepresentation” and “bad faith promise”
claims should not have been dismissed. Again, review of plaintiffs’ second amended complaint
reveals that no such claims were ever asserted. They were also not raised, considered, or decided
in the trial court. We decline to address any such arguments here.
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revealed that the soil was unsuitable for building. The act of providing the partial soil boring test
information in response to plaintiffs’ inquiry could be construed as an incomplete or misleading
“statement by the vendor” as to the suitability of the soil. By failing to provide the entire report,
defendants suppressed material facts about the soil conditions and failed to give the true facts
while ostensibly doing so. See Groening v Opsata, 323 Mich 73, 83-84; 34 NW2d 560 (1948).
Although the purchase and sale agreement contained a provision that James Development was
not warranting the soil test results, this fraud claim is not premised on the accuracy of the soil
test results. And, as they have argued, as a consequence of the incomplete and misleading soil
boring test information provided, plaintiffs were left with the distinct impression that the
property contained suitable soils for building. See McConkey, supra at 31-32.
Contrary to the trial court’s holding, the “as is” clause in the purchase and sale agreement
does not preclude a successful fraud claim. As this Court explained in Lorenzo, supra:
“As is” clauses allocate the risk of loss arising from conditions unknown to the
parties. Thus, plaintiff’s mutual mistake claim is therefore barred. “As is”
clauses also transfer the risk of loss where the defect should have reasonably been
discovered upon inspection, but was not. They do not, however, transfer the risk
of loss where “a seller makes fraudulent representations before a purchaser signs a
binding agreement.” [Id. at 687 (citations omitted).]
In this case plaintiffs have consistently claimed that defendants knew about the unsuitable soil
conditions. The evidence of record supports that claim, and includes that the subdivision was
platted in the immediate vicinity of registered wet lands, the concealed soil boring test
information revealed that at least some of the subdivision soils were not suitable for building,
and other lots in their natural state in that subdivision were not suitable to build on either. In
other words, there was no mutual mistake—defendants knew about the unsuitable soil
conditions. And, plaintiffs have consistently claimed that the failure to provide the critical soil
boring tests in response to their request constituted fraud. Because of the fraudulent actions of
James Development and Jeffrey James, plaintiffs were led to believe that the soil conditions were
suitable and, thus, no additional testing of the site was necessary. Again, we conclude that a
genuine issue of material fact exists as to whether silent fraud was committed in this case; thus,
summary disposition on the ground that an “as is” clause was in the contract was improper.
We next consider plaintiffs’ common-law fraud claim. Plaintiffs have argued that James
Development and Kendillon Construction marketed and sold the lots in the subdivision pursuant
to a joint venture agreement. Plaintiffs claimed that, prior to their purchasing the lot, Petersen,
the Kendillon representative, specifically stated that the soil boring tests conducted on lots in the
subdivision showed nothing of significance. Plaintiffs argued that James Development was
bound by that statement which, by virtue of the joint venture agreement, should be attributed to
it.
The elements to establish a common-law fraud claim generally include: (1) the defendant
made a material misrepresentation, (2) that was false, (3) defendant knew it was false or made it
recklessly, without knowledge of its truth, (4) the defendant made the representation intending
that plaintiff act on it, (5) the plaintiff did act in reliance on it, and (6) the plaintiff suffered
damages. McConkey, supra at 27. Here, plaintiffs contend that the false representation in
support of their claim was made by Petersen. In particular, plaintiff Gordon Tabenske testified
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that when he asked Petersen about the results of the soil boring tests that were referred to in the
purchase and sale agreement for the property, Petersen responded that “they didn’t show
anything significant . . . .” Plaintiffs have consistently pleaded and argued that a joint venture
agreement existed between Kendillon Construction and James Development. A copy of the
agreement was appended to many submissions to the trial court and was repeatedly referenced
throughout the lower court proceeding.6 Plaintiffs have also argued that there was other indicia
of a joint venture relationship. However, the trial court did not thoughtfully consider and decide
the issue whether a joint venture relationship existed between Kendillon Construction and James
Development. The determination of whether a joint venture relationship existed impacts the
viability of plaintiffs’ common-law fraud claim against James Development. Therefore, we
remand this matter to the trial court for consideration. We express no opinion as to its merit.
Further, in light of our conclusions regarding plaintiffs’ fraud claims, we reverse the dismissal of
plaintiffs’ civil conspiracy claim.
Next, plaintiffs argue that their negligence claims against Jeffrey James and James
Development should not have been summarily dismissed because, as real estate developers, they
owed plaintiffs duties that were separate and distinct from those arising from the purchase and
sale agreement. Because this issue was not addressed below, we reverse the dismissal of this
claim.
In their second amended complaint, plaintiffs averred that they relied on each defendants’
“developmental expertise as a licensed developer to construct and deliver to plaintiffs the
Property free of workmanship defects with workmanship typical of developmental industry
standards that are expected by contracting parties in a residence of this size and value.”
Plaintiffs have consistently argued that defendants breached their duties as real estate developers,
particularly by failing to properly prepare or plat the build site consistent with defendants’
subdivision requirements and the fact that the property was situated in the immediate vicinity of
registered wetlands.
In their motion for summary disposition, defendants argued that the negligence claim
must be dismissed because they did not owe plaintiffs a duty that was separate and distinct from
their purchase and sale agreement pertaining to the sale of the lot. Defendants did not address
plaintiffs’ claim that, as real estate developers—not just purveyors of land—defendants were
negligent. In dismissing the negligence claims, the trial court held “there is nothing presented to
indicate Defendants had a duty other than that contained in the contract between the parties.”
But the record evidence indicates that defendants were the developers of the subdivision at issue.
Plaintiffs have claimed that they were “licensed.” While we agree with the trial court that the
duty arising from the sale of the property is governed by the caveat emptor doctrine, plaintiffs
have argued that their relationship with defendants as real estate developers gave rise to a
separate and distinct duty. See Christy, supra at 693-694. This claim has not been considered;
therefore, we reverse the dismissal of the negligence claims against defendants but express no
opinion as to their merit.
6
The agreement is titled “amended agreement between J.R. James Development Corporation and
Kendillon Construction Co. regarding Oak Hills Estates Subdivision” and it is dated February
25, 2000.
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Finally, plaintiffs argue that their equitable claims premised on promissory estoppel and
restitution theories were improperly dismissed. However, we have reviewed plaintiffs’ second
amended complaint and conclude that no such claims were asserted. The trial court, in fact, did
not consider and decide these issues because they were not raised. Accordingly, we decline to
consider these issues.
In summary, we reverse the trial court’s summary dismissal of plaintiffs’ fraud, civil
conspiracy to commit fraud, and negligence claims against Jeffrey James and James
Development. We affirm the dismissal of Count I of plaintiffs’ second amended complaint titled
“Failure to Disclose Material, Latent Conditions.”
Affirmed in part, reversed in part, and remanded for further proceedings consistent with
this opinion. We do not retain jurisdiction.
/s/ Mark J. Cavanagh
/s/ Kathleen Jansen
/s/ Kirsten Frank Kelly
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