MICHAEL MAZZA et al. v. FEDERAL HOME LOAN MORTGAGE CORP., et al.

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0413-06T10413-06T1

MICHAEL MAZZA and

LAURA MAZZA,

Plaintiffs-Appellants,

v.

FEDERAL HOME LOAN MORTGAGE

CORP.; CENDANT ASSET

SERVICES; REMAX RENOWN

REALTY; ARTHUR MEOLA; and

DANIEL L. MCCARTHY, III,

Defendants-Respondents,

and

K.C. LAUSCH REALTY; JOHN D.

O'CONNELL and MARGARET O'CONNELL;

PETER JUZWIN, Individually and t/a

HOPATCONG HOME INSPECTION and

JUZWIN, INC.,

Defendants.

_______________________________________________________________

 

Submitted September 19, 2007 - Decided November 1, 2007

Before Judges Payne, Sapp-Peterson and Messano.

On appeal from the Superior Court of New Jersey, Law Division, Sussex County, Docket No. L-482-00.

I. Jacob Weingarten, attorney for appellants.

Stern, Lavinthal, Frankenberg & Norgaard, attorneys for respondents Federal Home Loan Mortgage Corp. and Cendant Asset Services (Graham H. Kidner, of the North Carolina bar, admitted pro hac vice, and Mark S. Winter, on the brief).

Zucker, Facher and Zucker, attorneys for respondents ReMax Renown Realty and Arthur Meola (Irwin L. Facher, on the brief).

DeCotiis, Fitzpatrick, Cole & Wisler, attorneys for respondent Daniel L. McCarthy, III (Alex J. Keosky, on the brief).

PER CURIAM

Plaintiffs Michael and Laura Mazza appeal from a series of orders granting summary judgment to defendants Daniel L. McCarthy III, the Federal Home Loan Mortgage Corp. (the FHLMC), Cendant Asset Services (Cendant), and Remax Renown Realty and its agent, Arthur Meola, (collectively, Remax). The dispute arises from plaintiffs' purchase of property located at 121 Leland Trail in Hopatcong (the Property) from the FHLMC in December of 1998. We have considered the arguments plaintiffs raise in light of applicable legal standards and we affirm.

Although the facts surrounding the case are somewhat complicated, they are, in large measure, undisputed. In January 1998, the owners of the Property, John and Margaret O'Connell, entered into a contract of sale with Wolf and Bernadette Schinzel, who were represented by McCarthy, an attorney-at-law. The O'Connell's mortgage loan with the FHLMC was in foreclosure proceedings at the time.

The original contract for sale reduced the price of the home from $127,500 to $116,500 "in order for buyers to take over septic." The Schinzels, however, had the septic system inspected and in his report the inspector indicated, "no malfunction noted." This resulted in an addendum to the contract for sale drafted by McCarthy that included the following language:

Buyers previously had the septic system inspected by their home inspector and find same to be in satisfactory working order. Therefore, the septic system will be accepted in "as is" condition.

The Schinzels moved into the Property before the closing and lived there until June 1998; during that time, they experienced no problem with the septic system.

In the interim, the attorney for the O'Connells, Karen Ermel, wrote to FHLMC's processing agent, Capstead, Inc., urging approval of a "short sale." In her letter, Ermel noted the O'Connells had "experienced substantial, constant problems" with the septic system, and while other systems in the immediate neighborhood had been replaced, their system had not. The request for a "short sale" was denied, but this mattered little because the Schinzels could not obtain mortgage financing and the sale was canceled.

By June 1998, the FHLMC had completed its foreclosure and listed the Property with K.C. Lausch Realty (Lausch), which prepared a "Broker Market Analysis/Price Opinion." That report noted that the "[f]ormer owner" - the O'Connells - "had expressed fear that [the] septic [system] may not pass test."

In July 1998, another contract for the sale of the Property was executed by the FHLMC and prospective purchasers Darryl and Sheila Price. The septic system was again inspected, and the report indicated that the system was in working order, though it noted that "no excavation was undertaken to reveal underground components of the system." The report also suggested "that the top of the septic tank be uncovered to discover exactly what type of tank is present." For reasons unexplained by the record, the Price transaction did not close.

On December 8, 1998, using Remax as their agent, plaintiffs entered into a contract to purchase the Property and retained McCarthy to represent them in that transaction as well as in the sale of their home. The contract required plaintiffs to accept the property "as is" at the time of closing, but permitted plaintiffs to inspect the property and cancel the contract if the inspection revealed "material deficiencies."

Later that month, plaintiffs retained Peter Juzwin, trading as Hopatcong Home Inspection, Juzwin Inc., to test the septic system and furnish a report. Juzwin's report included several opinions regarding the present condition of the system and several caveats regarding its future operational viability. For example, while Juzwin concluded "[t]he system appeared to be adequately serving the disposal needs of this home at the time of inspection," he also noted that since the testing did not include any excavation of the site, "no conclusion as to the type or condition of the underground components of this disposal system can be made at this time." Juzwin noted that since the house had been vacant for several months, "[i]t [was] difficult to recreate normal operational conditions for stress" on the system and he recommended additional tests be performed. Lastly, he noted that the septic system's tank and lid "both show[ed] signs of corrosion" and, given the fact that it was an "older unit," plaintiffs "should not expect unlimited use from th[e] system and should budget for repairs or replacement."

Plaintiff Michael Mazza testified in depositions that he read the report, understood it, and discussed it with McCarthy. They attempted to gain some concessions from the FHLMC regarding repair to the septic tank's lid and the installation of baffles to the system. On December 18, 1998, McCarthy forwarded a letter to the FHLMC's closing attorney requesting these repairs. Although it is not entirely clear from the record, apparently these repairs were made by the FHLMC prior to closing title.

Plaintiff Laura Mazza, who had been a licensed real estate broker, also testified in depositions that she reviewed the report with her husband and was aware of the problems with the septic system. Plaintiffs had experienced a similar problem in selling their own home, were forced to make repairs to the septic system to effectuate the sale, and, therefore, knew that replacement of the septic system tank alone would cost approximately $1800.

Plaintiffs did not provide the Juzwin report to the FHLMC, Cendant, or Remax. They proceeded to close title on the property, and, within a month, experienced problems with the septic system's leach field. Plaintiffs' expert concluded that the system's condition would have made it "virtually inoperable" in December 1998 and plaintiffs obtained various estimates that the total costs of replacement would approximate $30,000.

Plaintiffs initially brought suit against the O'Connells, the FHLMC, Cendant, as property manager for the FHLMC, Lausch, Remax, and Juzwin alleging various theories of breach of contract, breach of the implied covenant of habitability, concealment of material defects, negligence, as well as common law and consumer fraud. They alleged essentially that the O'Connells, the FHLMC, Cendant, and Lausch all had knowledge of the defective condition of the septic system and hid that from them. As to Remax, plaintiffs contended that it owed them a duty to make proper inquiry of the sellers and their agents as to any material defects in the Property and that Remax had failed to do that.

Plaintiffs subsequently amended their complaint to add McCarthy claiming he committed legal malpractice because he owed them a duty to disclose any knowledge he possessed regarding the prior aborted transaction in which he represented the Schinzels. Plaintiffs claimed that if they had known that the prior contract originally included an $11,000 reduction in the sales price of the Property because of the septic system's condition, they would have taken a different course in their own transaction, for example, by ordering further tests or seeking additional concessions from the FHLMC.

Ultimately, plaintiffs settled their claims with the O'Connells, Lausch, and Juzwin. The remaining defendants all moved separately for summary judgment and the orders granting those motions are the subjects of this appeal.

As to the FHLMC and Cendant, the motion judge reasoned that plaintiffs' claims must be dismissed because "there [was] no clear and reliable evidence in the record which supports a finding that either party actually possessed information and/or reports which documented that the septic system was defective." Despite the letter from Ermel and the price opinion report prepared by Lausch, the judge concluded no reasonable jury could find for plaintiffs because the tests performed by the Schinzels were satisfactory, they had reported no problems during their tenancy on the premises, the report to the Prices also determined the system was performing adequately, and plaintiffs' inspector fully advised them of the then-existing problems. It was only in July 1999, after further inspections revealed the need to replace the septic system and leach field, that anyone knew the full extent of the problem.

As to Remax, the judge similarly found a lack of any proof that it had knowledge of the defective condition of the septic system. He also noted that to the extent plaintiffs sought to impose liability against the realtor for allegedly violating N.J.A.C. 11:5-6.4, there was "no relevant case law in New Jersey which imposes liability" under the facts presented. He further found that if plaintiffs' argument was taken to its "logical extreme, the real estate broker could be obligated to arrange for, pay for, and obtain the home inspection report, including a report as to the septic system."

Lastly, as to McCarthy, who testified that he simply had not recalled his earlier dealings with the Property and the Schnizels' contract, the judge noted that he did not find "it [] unreasonable for Mr. McCarthy not to recall that [earlier] transaction." He further reasoned that since the Schinzels' expert had found the system to be satisfactory, and plaintiffs' own expert, whose report raised numerous caveats regarding the septic system's condition, found the system to be operable, even if McCarthy had provided the earlier information to plaintiffs, that "would have reinforced to [plaintiffs] the impression or belief that there was nothing wrong with the septic system," and any claim that plaintiffs would have "asked, requested, or demanded additional testing" of the system was "totally fantastic."

In reviewing a grant of summary judgment, we use the same standard employed by the trial court. Atlantic Mutual Ins. Co. v. Hillside Bottling Co., 387 N.J. Super. 224, 230 (App. Div.), certif. denied, 189 N.J. 104 (2006). We decide first whether there was a genuine issue of material fact; if not, we then decide whether the motion judge's application of the law was correct. Id. at 230-31. We apply the standards articulated by the Supreme Court in Brill v. Guardian Life Ins. Co., 142 N.J. 520, 540 (1995).

[A] determination whether there exists a "genuine issue" of material fact that precludes summary judgment requires the motion judge to consider whether the competent evidential materials presented, when viewed in the light most favorable to the non-moving party, are sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor of the non-moving party.

[Ibid.]

We must assume the non-moving party's version of the facts as true and give that party the benefit of all favorable inferences available in the record. Id. at 536.

Turning first to the FHLMC and Cendant, plaintiffs argue that these defendants knew the contents of Ermel's letter and the Lausch price analysis, thus creating a disputed material fact about their superior knowledge regarding defects in the septic system. Plaintiffs contend that resolution of that disputed issue in their favor would mean that the FHLMC and Cendant were under a duty to disclose the defects in the septic system, and, their failure to do so was a breach of the contract, a breach of the implied covenant of habitability, and demonstrated sufficient proof of fraudulent conduct.

We disagree. First, we note, as defendants point out, the two scraps of evidence plaintiffs rely upon are quite equivocal as to the condition of the septic system and clearly were by themselves insufficient to impute sufficient knowledge of a material defect to either the FHLMC or Cendant. Ermel's letter, while noting the O'Connells "experienced substantial, constant" problems with the system, also noted "the septic system . . . tested as adequate." Similarly, the Lausch report notes that "septic tests will be required," and, "if [the] system fails testing, a mound system will be required." It also noted that although the "[f]ormer owner expressed fear that septic may not pass test," the system actually had been "tested and passed."

We accept plaintiffs' argument that even if the condition of the septic system did not render it totally inoperable, defendants had a duty to disclose defective conditions of the property that are material. As the Supreme Court noted in Strawn v. Canuso, 140 N.J. 43, 65 (1995), the seller's obligation to disclose exists

[I]f the existence of those conditions is of sufficient materiality to affect the habitability, use, or enjoyment of the property and, therefore, render the property substantially less desirable or valuable to the objectively reasonable buyer.

But, as the Court also noted, "Whether a matter not disclosed by such a builder or broker is of such materiality, and unknown and unobservable by the buyer, will depend on the facts of each case." Ibid.

Assuming arguendo that the FHLMC and Cendant actually knew of the two documents and failed to disclose them to plaintiffs, under the facts of this case, the documents revealed no more about the septic system's condition than what plaintiffs themselves actually knew as a result of the Juzwin report - that the system was old, yet operational, had some easily observable problems, and was likely to need repairs or replacement in short order. In sum, even if the information contained in the two documents presented a factual question as to whether a material defect existed, plaintiffs failed to demonstrate in any meaningful way that the knowledge possessed by FHLMC and Cendant was superior to the knowledge they independently possessed.

Plaintiffs' contention that under our holding in Andreychak v. Lent, 257 N.J. Super. 69 (App. Div. 1992), there was sufficient proof as to the FHLMC's and Cendant's breach of the implied covenant of habitability is equally unavailing. In Andreychak, the parties knew the septic system was inoperable when the contract for sale was executed. Id. at 70. They then executed an addendum which obligated the defendant/sellers to bring the system "up to township codes" prior to closing. Ibid. Defendants engaged a contractor to make the necessary repairs or replacement and then produced a certificate from the township certifying the system's compliance with all codes. Ibid. In fact, the work had not been done in a manner that complied with the codes and was entirely deficient. Id. at 70-71. The trial court dismissed the plaintiffs' complaint finding that their acceptance of the deed at closing "terminated any further rights between the parties, [through application of] the rule of 'merger.'" Id. at 72.

We noted first that New Jersey no longer recognized the doctrine of caveat emptor, as applied through the concept of merger, as a basis to relieve a seller who had knowledge of a material defect in the premises of an obligation to disclose that information. Id. at 72-73. We also noted that "an implied warranty of habitability should also apply to the sale of a 'used' home," and "that a properly working septic or sewer system is an item included within the implied warranty of habitability." Id. at 73-74. The defendants argued that they should be absolved from any liability because the plaintiffs had the contractual right to inspect the premises prior to closing. Id. at 74. We rejected this argument noting that "such examination would have been useless," and the plaintiffs justifiably [] relied on the township-issued certificate of compliance." Ibid.

The facts at hand are so significantly different from those presented in Andreychak that we find its reasoning to be inapplicable to this case. There, the parties executed a contract addendum that required the sellers to convey the property with a septic system that was code-compliant. No such contractual obligation existed here. In fact, this contract specifically indicated that the FHLMC was conveying the Property "as is," and that it was not making any "warranties, implied or expressed relating to the condition of the property."

Furthermore, plaintiffs took the opportunity to inspect the septic system and, unlike the inspection in Andreychak, that report accurately revealed its condition. The record reveals that as of the time summary judgment was granted, plaintiffs were occupying the Property, utilizing the septic system with sensible precautions, had made minor repairs, and had not replaced the system. It would seem, therefore, that Juzwin's evaluation was entirely consistent with actual conditions, and that contrary to plaintiffs' assertion, the inspection report, unlike that in Andreychak, was not "useless."

With respect to plaintiffs' claims of fraud and consumer fraud, we find the arguments advanced lack sufficient merit to warrant any further discussion in a written opinion. R. 2:11-3(e)(1)(E). We therefore affirm the grant of summary judgment to the FHLMC and Cendant.

Much of our discussion above also applies equally to plaintiffs' claims against Remax. Plaintiffs did not demonstrate that the realtor had actual knowledge of the Ermel letter, the price opinion report, or any other information that was superior to what plaintiffs themselves already knew. Plaintiffs nevertheless contend that Remax had a regulatory duty to reasonably inquire about the conditions of the Property, that such inquiry would have revealed further information regarding the alleged defective condition of the septic system, and the failure to do so caused plaintiffs' damages.

In this regard, plaintiffs rely upon N.J.A.C. 11:5-6.4(b) which provides,

Every licensee shall make reasonable effort to ascertain all material information concerning the physical condition of every property for which he or she accepts an agency or which he or she is retained to market as a transaction broker . . . .

. . . .

1. A reasonable effort to ascertain material information shall include at least:

i. Inquiries to the seller or seller's agent about any physical conditions that may affect the property; and

ii. A visual inspection of the property to determine if there are any readily observable physical conditions affecting the property.

Plaintiffs contend that Remax never made any inquiries about the physical conditions of the property.

Lausch's agent testified that he never had any discussions with the Remax agent regarding the condition of the septic system and, we gather from the briefs filed, it is conceded that no direct inquiries were made. Despite these undisputed facts, the motion judge concluded that under the circumstances presented, and given the lack of any precedent, the interpretation of the regulation urged by plaintiffs would obligate a broker "to arrange for, pay for and obtain the home inspection report including a report as to the septic system," and he granted summary judgment.

While we disagree with the judge's reasoning in this regard, we nonetheless affirm his decision to grant summary judgment. Home Properties of N.Y. v. Ocino, 341 N.J. Super. 604, 616 (App. Div. 2001). Assuming Remax had actually made inquiry of the FHLMC, Cendant, or Lausch, at most they would have discovered the O'Connells' complaints about the septic system as contained in Ermel's letter and the price opinion report. As we noted above, those documents were equivocal about the condition of the system. Once plaintiffs commissioned Juzwin's inspection and report, they possessed essentially the same information. Therefore, assuming arguendo that Remax violated the regulatory duty it owed to plaintiffs, it resulted in no particular damage because plaintiffs' information was clearly not inferior to that which might have been supplied through any reasonable inquiry made by Remax of the seller or its agents.

Because this conclusion cuts through all of plaintiffs' theories of recovery against Remax, we affirm that grant of summary judgment and turn our attention lastly to plaintiffs' claims against McCarthy. Here, plaintiffs assert that the trial judge erred by concluding that McCarthy's lapse of memory regarding the earlier, aborted Schnizel contract was reasonable because that was essentially a factual question for the jury's determination. Plaintiffs argue that McCarthy had an absolute duty to disclose the facts surrounding the prior transaction, he breached that duty, and plaintiffs suffered damages as a result. Essential to the plaintiffs' damage claim is their assertion that they somehow would have acted differently if they were aware that the first O'Connell-Schnizel contract contained an $11,000 price concession because of the septic system.

We agree with plaintiffs that the motion judge's conclusion that McCarthy's memory lapse was entirely reasonable improperly usurped that issue from the jury's rightful consideration. Whether McCarthy in fact forgot about the transaction, and whether that was reasonable conduct for an attorney, were questions for the fact finder to resolve.

Plaintiffs also contend that the trial judge's conclusion that Michael Mazza's claim - he would have asked for additional testing or otherwise not proceeded to closing if he knew of the Schnizels' contract terms - was "totally fantastic" cannot serve as a basis for granting summary judgment because it, too, invaded the proper province of the jury. However, the judge also determined that had McCarthy turned over all the information he possessed from his file regarding the Schnizel purchase of the Property, it "would have reinforced to [plaintiffs] the impression or belief that there was nothing wrong with the septic system." While the judge's conclusion may have been expressed inartfully, we nevertheless agree with him that any breach of McCarthy's obligations to plaintiffs could not be the legal cause of their damage claims. We find this to be obvious by the actual sequence of events.

Initially we note that plaintiffs' claim against McCarthy rests solely upon the allegations regarding the O'Connell-Schnizel file. In other words, plaintiffs did not demonstrate that McCarthy knew of the Ermel letter or the price option report. Ermel testified she never sent a copy of her letter to McCarthy, and there is nothing in the record to support a finding that McCarthy knew of the contents of Lausch's report. Therefore, plaintiffs' entire case against McCarthy rests upon the contents of his earlier file regarding the aborted transaction.

The first O'Connell-Schnizel contract provided for a price reduction of $11,000 in return for the purchasers' acceptance of all responsibility regarding the septic system. The later contract addendum, negotiated and prepared by McCarthy, fixed the sales price at $125,570 and removed any issue regarding the septic system from the pricing of the Property because Schnizels' inspector found the system to be in "satisfactory working order." Thus, had McCarthy remembered the earlier transaction, and disclosed his file's contents to plaintiffs, they would have had this knowledge while they negotiated their own purchase price for the Property eleven months later, which, as it turned out, was $113,500 or $2,500 less than the original O'Connell-Schnizel contract in which the septic system concession was made.

Plaintiffs then obtained the information contained in Juzwin's report, which, in our mind, placed them in an even better position to evaluate whether they should seek further concessions or order further testing since the report explicitly suggested that option and set forth the reasons why it was appropriate in significant detail. Plaintiffs' and McCarthy's knowledge of the condition of the septic system was now significantly greater than any knowledge they could have otherwise gleaned from all the documents contained in the Schnizel file. Therefore, the fact that plaintiffs lacked any information regarding the earlier transaction could not have been a proximate cause of their claimed damages.

We recognize that an attorney's malpractice need not be the sole proximate cause of a plaintiff's damages in order to be actionable. Conklin v. Hannoch Weisman, 145 N.J. 395, 408 (1996). The breach of a professional duty to the client, however, must nonetheless be a proximate cause of the damages suffered. McGrogan v. Till, 167 N.J. 414, 425 (2001). Under the unique factual circumstances presented here, we must conclude that any negligence on McCarthy's part could not have been a proximate cause of the damages plaintiffs allegedly suffered. We therefore affirm the grant of summary judgment dismissing plaintiffs' claim against McCarthy.

Affirmed.

 

There was testimony in the record that a "short sale" is one in which the mortgagee agrees to release the property from its mortgage even though the closing proceeds are insufficient to satisfy the outstanding balance of the seller's mortgage loan.

After the litigation commenced, in a letter to plaintiffs' counsel, Ermel denied that her clients had ever claimed they had experienced serious problems with the septic system.

We therefore need not reach a conclusion regarding the continued vitality of Andreychak's general proposition that a covenant of implied habitability exists in the sale of a used home between a purchaser and a seller that did not construct the home. We do note, however, that Andreychak has never been cited, nor has the principle been adopted in any other reported decision, and that the Supreme Court specifically left the question open in McDonald v. Mianecki, 79 N.J. 275, 295 n.5 (1979).

(continued)

(continued)

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November 1, 2007