THOMAS V. TOBIAS; VEERA J. TOBIAS v. JOHN S. TARTER, INDIVIDUALLY; JOHN S. TARTER, AGENT FOR UNITED COUNTRY REALTY, formally known as UNITED NATIONAL REALTY
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RENDERED: JULY 7, 2000; 10:00 a.m.
NOT TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
NO.
1999-CA-000853-MR
THOMAS V. TOBIAS;
VEERA J. TOBIAS
APPELLANTS
APPEAL FROM ADAIR CIRCUIT COURT
HONORABLE PAUL JONES, JUDGE
ACTION NO. 98-CI-00156
v.
JOHN S. TARTER, INDIVIDUALLY;
JOHN S. TARTER, AGENT FOR
UNITED COUNTRY REALTY, formally
known as UNITED NATIONAL REALTY
APPELLEES
OPINION
AFFIRMING
** ** ** ** **
BEFORE:
BUCKINGHAM, McANULTY, AND TACKETT, JUDGES.
McANULTY, JUDGE:
This is an appeal by Thomas B. Tobias and Vera
J. Tobias from an order of the Adair Circuit Court dismissing
their lawsuit against the appellee John S. Tarter and appellee
United Country Realty (formally known as United National Realty).
The lawsuit was based upon the allegation that Tarter defrauded,
misled, and negligently or intentionally misrepresented certain
realty purchased by the appellants.
The issue in this appeal is
whether the appellants’ circuit court complaint against the
appellees is barred by res judicata because of prior litigation
before the Kentucky Real Estate Commission.
In September 1993, the appellants purchased a home on
Cemetery Spur Road in Adair County.
John Tarter was the selling
agent in the deal, and was employed by United Country Realty.
Subsequent to the purchase, the appellants discovered various
structural defects to the residence.
In August 1995, the
appellants filed a sworn complaint against Tarter with the Real
Estate Commission.
On August 9, 1996, the Real Estate Commission filed an
amended notice of hearing and charges.
The notice stated that
the issues to be heard at the hearing were whether Tarter had
violated KRS 324.160(1)(b), (c), (r), and (s) which prohibit and
punish, respectively, the making of any substantial
misrepresentation, representation or failure to disclose known
defects which substantially affect the value of the property; the
making of any false promises of a character likely to influence,
persuade or induce; any other conduct that constitutes improper,
fraudulent or dishonest dealing; and gross negligence.
The
notice further noted that the appellants alleged that Tarter had
used his relationship with the home inspector and the termite
inspector “to hide defects in the home from complainants.”
In September 1996, a hearing was held before a Real
Estate Commission hearing officer.
At the conclusion of the
appellants’ proof, Tarter moved to have the charges against him
dismissed for lack of evidence.
The hearing officer sustained
the motion on the basis that there was not sufficient evidence
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presented upon which the Real Estate Commission could determine
that Tarter violated any of the statutory provisions referenced
in the August 9, 1996, notice.
On February 10,1997, the hearing
officer issued his findings of fact, conclusions of law, and
recommended order wherein he recommended that all charges against
Tarter be dismissed with prejudice.
The hearing officer also
recommended as a conclusion of law that Tarter had not violated
KRS 324.160(1)(b), (c), (r), or (s).
On March 27, 1997, the Commission issued an order
adopting the recommendation of the hearing officer that all
charges relating to KRS 324.160(1)(c) and (s) be dismissed.
However, the Commission remanded the case “for a determination of
whether [Tarter] has violated KRS 324.160(1)(b) and (r) as it
relates to the sole issue of whether [Tarter] disclosed the
information provided in the termite report regarding rot in the
home purchased by complainant.”
Otherwise, the Commission
substantially adopted the hearing officer’s findings of fact and
conclusions of law, and implicitly adopted the granting of the
directed verdict as to all issues except Tarter’s failure to
disclose the contents of the termite inspection report.
Subsequent to remand, following a hearing, on January
14, 1998, the hearing officer issued his findings of fact,
conclusions of law and recommended order wherein he found that
Tarter had intentionally failed to disclose to the appellants
during a telephone conversation some two weeks prior to closing
that the termite inspection report specifically referred to the
presence of rot damage to the wood of the residence.
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The hearing
officer determined that based upon this, Tarter had not violated
KRS 324.160(1)(b), but had violated KRS 324.160(r) by engaging in
improper and dishonest dealing.
However, the hearing officer
stated that he could not conclude from the record that Tarter
engaged in fraudulent activity, that he made an affirmative
substantial misrepresentation, or that his failure to mention the
rot substantially affected the value of the property.
The
hearing officer recommended that the Commission suspend Tarter’s
license for thirty days and that he be required to pay the
appellant’s restitution of $1,000.00, the cost of repairing the
rotted flooring.
On February 17, 1998, the Real Estate Commission issued
an order accepting the recommendations of the hearing officer
with the exception that the Commission concluded that Tarter had
engaged in fraudulent activity by failing to fully disclose the
contents of the termite report to the appellants.
The Commission
ordered that Tarter’s license be suspended for sixty days and
that he be required to pay restitution of $1,000.00 to the
appellants.
Thereafter, the appellants did not file an appeal of
the Commission’s order pursuant to KRS 13B.140.
On August 11, 1998, the appellants filed a complaint in
Adair Circuit Court against the appellees.
Liability as to
United Country Realty was based solely upon its agency
relationship with Tarter.
The complaint alleged that the
appellees had fraudulently and knowingly failed to disclose
substantial and structural defects in the residence prior to the
closing; that the appellees intentionally misrepresented the
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condition of the residence; that the appellees violated the
express warranty of soundness concerning the construction of the
residence; that the appellees violated the implied warranties of
fitness and merchantability of the residence; or, in the
alternative, the appellees were negligent in their duties owed to
the appellants under the August 20, 1993, purchase agreement in
failing to investigate, discover and disclose certain defects
which existed in the residence.
The complaint sought rescission
of the purchase contract and revocation of the deed or, in the
alternative, compensatory damages for the reduced value of the
property and expenses incurred for repair of the residence.
On August 28, 1998, the appellees filed their answer
and a motion to dismiss on the basis that the circuit court
action was barred by res judicata in that the subject matter of
the complaint had previously been litigated between the parties
before the Real Estate Commission.
On March 10, 1999, the trial
court entered an order granting the motion to dismiss.
This
appeal followed.
The appellants contend that their complaint for damages
in circuit court is not barred by res judicata for issues which
were not fully and finally litigated and adjudicated by the
Estate Commission.
Real
The appellants contend that the majority of
their claims were never fully addressed and adjudicated in the
administrative proceeding, and that the sole focus of the
administrative action was one statutory provision in regard to
one bedroom of floor damages.
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In granting the motion to dismiss, the trial court
considered matters outside the pleadings, specifically, it
considered the litigation before the Real Estate Commission.
When matters outside the pleadings are considered on a motion to
dismiss, the motion must be treated as one for summary judgment.
Ferguson v. Oates, Ky., 314 S.W.2d 518, 521 (1958).
Therefore,
we review the trial court’s dismissal pursuant to applicable
summary judgment standards.
In order to qualify for summary judgment, the movant
must show that there is no genuine issue as to any material fact
and that the moving party is entitled to a judgment as a matter
of law.
CR 56.03.
On appeal, the standard of review of a
summary judgment is whether the trial court correctly found that
there was no genuine issue as to any material fact and that the
moving party was entitled to judgment as a matter of law.
The
record must be viewed in the light most favorable to the party
opposing the motion for summary judgment and all doubts are to be
resolved in his favor.
Steelvest, Inc. v. Scansteel Service
Center, Inc., Ky., 807 S.W.2d 476, 480 (1991).
Summary judgment
should only be used when, as matter of law, it appears that it
would be impossible for the respondent to produce evidence at
trial warranting a judgment in his favor and against the movant.
Id. at 483, (citing
Paintsville Hospital Co. v. Rose, Ky., 683
S.W.2d 255 (1985)).
“Kentucky has for many years followed the rule that the
decisions of administrative agencies acting in a judicial
capacity are entitled to the same res judicata effect as
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judgments of a court.”
Godbey v. University Hospital of Albert
B. Chandler Medical Center, Inc., Ky. App. 975 S.W.2d 104, 105
(1998) (quoting Barnes v. McDowell, 647 F.Supp. 1307, 1310
(E.D.Ky.1986), overruled by same court on other grounds by
Thompson v. McDowell, 661 F.Supp. 498 (E.D.Ky.1987)).
See also
Barnes v. McDowell, 848 F.2d 725 (1988), cert. denied,
1007, 109 S.Ct. 789, 102 L.Ed.2d 789 (1989).
488 U.S.
The fundamental
principle of res judicata is that “[a] final judgment rendered
upon the merits . . . by a court of competent jurisdiction, is
conclusive of causes of action and of facts or issues thereby
litigated, as to the parties and their privies, in all other
actions in the same or any other judicial tribunal of concurrent
jurisdiction.”
BTC Leasing, Inc. v. Martin, Ky. App., 685 S.W.2d
191, 197 (1984) (citing 46 Am.Jur.2d Judgments § 394 (1969)).
“The successful invocation of this doctrine is clearly then
dependent upon the demonstration of each of the elements
contained in the [foregoing] definition, including the existence
of a final judgment rendered upon the merits, an identity of the
subject matter, and an identity of parties.”
Id.
"[T]he
doctrine of res judicata prevents the relitigation of the same
issues in a subsequent appeal and includes every matter belonging
to the subject of the litigation which could have been, as well
as those which were, introduced in support of the contention of
the parties on the first appeal."
Huntzinger v. McCrae, Ky.
App., 818 S.W.2d 613, 615 (1990) (citing Burkett v. Board of
Education of Pulaski County, Ky. App., 558 S.W.2d 626, 627-628
(1977)).
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At issue in this case is whether the elements of res
judicata are met, thereby barring further litigation in circuit
court.
A final order was rendered in the administrative
proceedings, and it is uncontested that the element of identity
of parties is met.1
subject matter.
In dispute is whether there is identity of
This issue is resolved by comparing the issues
decided, or which should have been raised, in the administrative
proceedings with the issues sought to be raised in the circuit
court proceedings.
In their circuit court complaint, the appellants
alleged that (1) the appellees had fraudulently and knowingly
failed to disclose substantial and structural defects in the
residence prior to the closing; (2) that the appellees
intentionally misrepresented the condition of the residence; (3)
that the appellees violated the express warranty of soundness
concerning the construction of the residence; (4) that the
appellees violated the implied warranties of fitness and
merchantability of the residence; or, in the alternative,(5) the
appellees were negligent in their duties owed to the appellants
under the August 20, 1993, purchase agreement in failing to
investigate, discover and disclose certain defects which existed
in the residence.
1
While United Country Realty was not a party to the
administrative proceedings, that does not lead to the conclusion
that there is not identity of parties. United Country’s
liability is premised upon the acts of Tarter and his agency
relationship with United Country. If there is res judicata as to
Tarter, it follows that their is res judicata as to United
Country.
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On June 4, 1996, the Commission filed a notice
scheduling the matter for hearing.
The notice stated that the
issues to be heard at the hearing were whether Tarter had
violated KRS 324.160(1)(b) Making any substantial
misrepresentation, representation or failing to disclose known
defects which substantially affect the value of the property; (c)
Making any false promises of a character likely to influence,
persuade or induce; (r) Any other conduct that constitutes
improper, fraudulent or dishonest dealing; and (s) Gross
negligence.
While we do not have the record of the
administrative proceeding, we accept this as being the intended
scope of those proceedings.
The February 10, 1997, report of the hearing officer
further discloses the issues that were litigated at the September
1996 hearing.
The report notes that “Complainants allege that
Respondent ‘did know or should have known about material defects
that would or could affect the value of the property but failed
to disclose’ them.”
As to specific damages to the residence, the
report notes that
As of the summer of 1994, this residence had
structural damage to the floor in the front
bedroom as a result of water causing rot in
the wooden foundation. The property also had
a serious swag in the living room ceiling,
various cracks in the exterior masonry due to
expansion or settling of the foundation,
“smoky” windows in between the insulated
panes of glass, and some cupping of the
wooden siding. There was water damage as
well to the benches on the rear deck where
they had separated from their supports.
. . .
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[T]he roof was “stick built” (i.e. piece by
piece) as opposed to being constructed with
an engineered truss. As presently
constructed, the roof has inadequate
reinforcement and it will sway. . . . [T]he
exterior foundation had either settled or had
water damage.
. . .
“[T]he roof of the main dwelling had suffered
hail damage, . . . was sagging and needed to
be replaced, or at least repaired as soon as
practical.
Also raised were the appellants’ charges that Tarter
had informed them that Kentucky did not have a state income tax;
that the property was represented as having 163 acres whereas it
had only 152 acres; and that Tarter had failed to disclose or had
misrepresented the results of a termite inspection report.
In comparing the circuit court complaint with the
issues litigated in the administrative proceedings, we are
persuaded that the allegations that Tarter
“fraudulently and
knowingly failed to disclose substantial and structural defects
in the residence prior to the closing”; that Tarter
“intentionally misrepresented the condition of the residence”;
and that the appellees “were negligent in their duties owed to
[the appellants] under the August 20, 1993, purchase agreement in
failing to investigate, discover and disclose certain defects
which existed in the residence” were litigated in the
administrative proceedings, or, alternatively, could have been
litigated therein.
Therefore, res judicata has attached as to
these issues, and the appellants are barred from relitigating
these issues in a circuit court suit.
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The scope of the
administrative proceedings was intended to address all manner of
misrepresentation, fraud, deception, false and misleading
statements, and negligence regarding Tarter’s dealings with the
appellants in his role as the real estate agent in the sale of
the Cemetery Spur Road property.
The trial court properly
determined that res judicata applied as to these issues.
It does not appear, however, that the administrative
proceedings addressed the warranty claims that the appellees
“violated the express warranty of soundness concerning the
construction of the residence” and that the appellees “violated
the implied warranties of fitness and merchantability of the
residence.”
However, we are persuaded that summary judgment was
proper as to these claims, because there is no evidence that
Tarter or United National Realty extended such warranties to the
appellants.
The “Deposit Receipt and Agreement of Sale” dated
August 20, 1993, states that “[i]t is agreed that the buyer has
thoroughly examined the property to be conveyed and relies solely
on his own judgment in making this agreement to purchase, and
that there are no agreements, understandings or representations
made either by seller, broker or broker’s representatives that
are not set forth herein.”
The agreement contains no provision
that the appellees were extending an “express warranty of
soundness” to the appellants.
The contract does state that
“[t]his contract is also conditional that the buyer will be made
aware of all repairs on the dwelling and what the cost will be.
(needed repairs).”
The appellees, however, were not parties to
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the contract, and this provision of the agreement cannot be
construed so as to impose an express warranty upon the appellees.
Moreover, under the doctrine of merger, “all prior statements and
agreements, both written and oral, are merged into the deed and
the parties are bound by that instrument.
Therefore, any express
warranties made by the [sellers] or their agent were merged into
the deed and the [appellees] cannot rely on those representations
for recovery.”
Borden v. Litchford, Ky. App., 619 S.W.2d 715,
717 (1981).
The appellants do not cite us to any authority which
imposes upon a real estate broker or agent an implied warranty of
fitness and merchantability in favor of the buyer.
“[I]n the
sale of a new dwelling by the builder there is an implied
warranty that in its major structural features the dwelling was
constructed in a workmanlike manner and using suitable
materials.”
Crawley v. Terhune, Ky., 437 S.W.2d 743, 745 (1969).
However, this rule does not apply here.
Aside from the exception
carved out in Crawley, “[i]t has long been the rule that in sales
of real property, with limited exceptions, the doctrine of caveat
emptor is applicable.”
Wilson v. Southland Optical Co., Inc.,
Ky. App., 774 S.W.2d 447, 448 (1988).
“[B]reach of warranty is
not a viable theory in a personal injury claim for a product sold
in a defective condition unless there is privity of contract,
except in limited circumstances specified in the [Uniform
Commercial Code].”
Real Estate Marketing, Inc. v. Franz, Ky.,
885 S.W.2d 921, 926 (1994).
There is no privity of contract
between the appellants and the appellees, and this type of
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transaction is not within the limited exceptions provided for in
the Uniform Commercial Code.
See KRS 355.2-318.
There are no
implied warranties applicable to this situation, and summary
judgment as to this issue was proper.
For the foregoing reasons, the order of the Adair
Circuit Court dismissing the appellants’ claims against the
appellees is affirmed.
ALL CONCUR.
BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE:
Joel R. Smith
Jamestown, Kentucky
R. Kent Westberry
Melanie Straw-Boone
Landrum & Shouse
Louisville, Kentucky
David F. McAnelly
Liberty, Kentucky
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