Flowers v. ERA Unique Real Estate, Inc., 227 F. Supp. 2d 998 (N.D. Ill. 2002)

Rick M. Schoenfield, Kimberlee Massin, Schoenfield & Swartzman, Chicago, IL, for Plaintiff.

Gerald L. Berlin, Chicago, IL, Edward Ian Grossman, Chicago Legal Clinic, Inc., Chicago, IL, Thomas G. Oddo, Collins Law Firm, Naperville, IL, Gregory James Jordan, Jordan & Schmidt, LLC, Chicago, IL, for Defendants.

LEVIN, United States Magistrate Judge.

Defendants ERA Unique Real Estate, Inc. and Shirley Rucker ("Defendants") move to dismiss Count III of Plaintiff's Second Amended Complaint (alleging negligent misrepresentation) for failure to state a claim upon which relief can be granted pursuant to Fed.R.Civ.P.12(b) (6). For the reasons set forth below, the Court denies Defendants' motion to dismiss.

Plaintiff purchased an apartment building located at 4915-4917 South Calumet Avenue in Chicago, Illinois on June 11, 1998 from Defendants George and Lenise Johnson (the "Sellers"). (2nd Am. Complt., Count I ¶¶ 2, 4.) The gravamen of Plaintiff's Second Amended Complaint is that in violation of Section 4852d(a) of the Residential Lead-Based Paint Hazard Act (42 U.S.C. § 4852d(a)) the Sellers, and the Defendants who are the subject of the instant motion, knew that the apartment building contained hazardous lead-based paint, but in contravention of the federal statute and regulatory requirements, they failed to disclose this fact to her. (Id. ¶ 8.) Plaintiff further complains that inter alia the Sellers failed to provide the required lead hazard information pamphlet, permit Plaintiff a ten-day period by which to conduct a risk assessment (or inspect for the presence of lead-based paint hazards) and include a "Lead Warning Statement" in the sales contract. (Id.) Consequently, as a proximate result, Plaintiff was sued by the City of Chicago for building code violations and was required to expend large sums of money for attorneys' fees and to correct building code violations. (Id. ¶ 9.) Moreover, in the future, Plaintiff will be required to expend substantial sums of money to remove and replace lead-based paint from the apartment building, and furthermore, Plaintiff alleges that she has lost and will continue to lose rental income. (Id.)

Specifically, with regard to Count III (negligent misrepresentation), Plaintiff alleges that Defendants (ERA Unique Real Estate, Inc. and Shirley Rucker) knew or should have known that the apartment building at issue in the case contained hazardous lead-based paint. (2nd Am. Complt., Count III ¶ 8.) Plaintiff, therefore, contends that these Defendants had a duty to disclose the existence of lead-based paint to her and consequently, because they carelessly and negligently failed to do so, they are liable for negligent misrepresentation. (Id. ¶¶ 9, 10.)

The purpose of a motion to dismiss is to test the sufficiency of the complaint, and not to decide the complaint's merits. Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990). Courts read complaints liberally and a motion to dismiss will be granted only if "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 2 L. Ed. 2d 80 (1957). In reviewing a motion to dismiss, the district court must treat all well-pleaded allegations as being true and draw all reasonable inferences in the light most favorable to the plaintiff. Henderson v. Sheahan, 196 F.3d 839, 845 (7th Cir.1999), cert. denied, 530 U.S. 1244, 120 S. Ct. 2691, 147 L. Ed. 2d 962 (2000). "The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S. Ct. 1683, 40 L. Ed. 2d 90 (1974).

Defendants move to dismiss Count III of the Second Amended Complaint asserting that Count III does not allege that ERA Unique Real Estate, Inc. and Shirley Rucker knew of the existence of hazardous lead-based paint. (Defs.' Mem. at 3; Defs.' Reply at 2.) Specifically, Defendants request a dismissal order because, even considering notice pleading standards, there is no allegation by Plaintiff that Defendants ERA Unique Real Estate, Inc. and Shirley Rucker had any knowledge that the representations made by the Sellers (George and Lenise Johnson) were false. (Defs.' Reply at 2.) Therefore, Defendants assert that because Plaintiff merely alleges that ERA Unique Real Estate, Inc., and George and Lenise Johnson "knew or should have known" about the existence of the lead-based paint (and does not allege false statement or fraudulent concealment on the part of Defendants), she has failed to state a cause of action for negligent misrepresentation because under Illinois law a realtor does not have a duty to independently substantiate a seller's representations unless the realtor is aware of facts that indicate a representation is false. (Defs.' Mem. at 3-4; Defs.' Reply at 2-3; 2nd Am. Complt., Count III, ¶ 8.)

Plaintiff, on the other hand, contends that the basis of Count III is that Defendants ERA Unique Real Estate, Inc. and Shirley Rucker negligently failed to disclose the latent defect of the hazardous lead-based paint in the apartment building at issue in the case. (Pl.'s Resp. at 1.) Specifically, Plaintiff asserts that Illinois case law recognizes that a seller's real estate broker, or agent can be liable for negligent misrepresentation for failing to disclose a latent defect to the buyer, if the real estate broker or agent knew, or should have known, of the defect. (Id. at 1-2.) Thus, Plaintiff asserts that "knew, or should have known" has always been the standard for negligence. (Id. at 2.) Furthermore, Plaintiff contends that the meaning of "should have known" is "a matter of jury instructions" and not the basis for a motion to dismiss. (Id.) Therefore, Plaintiff asserts that she has satisfied the federal notice pleading requirements and is not subject to the more stringent fact pleading requirements under Illinois state law. (Id. at 1-3.)

Initially: in reality, Defendants do no move to dismiss the Count III allegation that the Defendants "knew" that the subject building contained lead-based paint at the time of the sale concerned. As discussed, Defendants only challenge the portion of Count III which alternatively alleges that the Defendants "should have known" of the building's lead-based paint.

It is undisputed that to state a cause of action for negligent misrepresentation under Illinois law, the complaint must allege a duty to plaintiff, a breach of the duty and injury proximately resulting from such a breach. Harkala v. Wildwood Realty, Inc., 200 Ill.App.3d 447, 456, 146 Ill.Dec. 232, 558 N.E.2d 195 (1990). As Defendants acknowledge, realtors have a duty to disclose material facts under the Real Estate License Act. 225 ILCS 454. Real estate brokers and salespersons occupy a position of trust with respect to purchasers with whom they are negotiating and owe a duty to exercise good faith in their dealing with such purchasers even absent the existence of an agency relationship. Sawyer Realty Group, Inc. v. Jarvis Corp., 89 Ill. 2d 379, 59 Ill.Dec. 905, 432 N.E.2d 849 (1982); Richmond v. Blair, 142 Ill.App.3d 251, 94 Ill.Dec. 564, 488 N.E.2d 563 (1985).

Specifically, the Court finds that a seller's real estate broker, or agent, can be *1001 liable, in Illinois, for negligent misrepresentation for failing to disclose a latent defect to the buyer, if the real estate broker or agent "knew or should have known" of the latent defect.^[1]See Lyons v. Christ Episcopal Church, 71 Ill.App.3d 257, 260, 27 Ill.Dec. 559, 389 N.E.2d 623 (1979).

In view of the foregoing, Defendants' motion to dismiss Count III of the Second Amended Complaint is denied.

[1] Both sides cite Zimmerman v. Northfield Real Estate, Inc., 156 Ill.App.3d 154, 109 Ill. Dec. 541, 510 N.E.2d 409 (1986). However, that case did not, on its facts, involve or address the precise issue involved herein.