Bayer vs. Pal Newcomb Partners et al
Annotate this CaseBarry Bayer and Sylvia Bayer
Plaintiffs and Appellees
v.
Pal Newcomb Partners, a Partnership
Defendant
and
Pal, Inc., a South Dakota Partnership,
Defendant and Appellant
And
Gale E. Fisher and Pamela J. Fisher,
Plaintiffs
v.
Pal Newcomb Partners, a Partnership
Defendant
and
Three B., Inc.
Defendant and Appellee
[2002 SD 40]
South Dakota Supreme Court
Appeal from the Circuit Court of
The Second Judicial Circuit
Minnehaha County, South Dakota
Hon. Eugene L. Martin, Judge
Arlie Brende
Sioux Falls, South Dakota
Attorneys for plaintiffs and appellees.
David L. Nadolski of
Lynn, Jackson, Shultz & Lebrun
Sioux Falls, South Dakota
Attorney for defendant and appellant.
Considered on Briefs October 2, 2001
Opinion Filed 3/27/2002
GORS, Acting Justice
[¶1.] PAL, Inc., (PAL) appeals a money judgment in favor of Barry and Sylvia Bayer and Three B, Inc. based on negligent misrepresentation. We reverse.
FACTS
[¶3.] River Run was originally farmland owned by the Newcomb family. Development efforts in the 1980’s left the project on the brink of foreclosure by 1992. The project needed an infusion of money. Al Lewis and his brother Paul had money and a history of successful development and a reputation for business acumen. They owned Lewis Square and Lewis Square II on South Minnesota Avenue in Sioux Falls. PAL was incorporated and stood for the initials of Paul and Al Lewis, the sole stockholders. PAL reportedly infused more than $2,000,000 in River Run.
[¶4.] On May 28, 1993, Barry Bayer signed a purchase agreement for nine lots at River Run. On September 28, 1993, title to the lots was taken by Three B, Inc. (Three B), which Bayer had incorporated by his lawyer, Gale Fisher, to develop his investment at River Run. Bayer sold one lot to his mother, Sylvia Bayer, who built a twin home on her lot. Bayer built a twin home on his lot and sold one half of the twin home to his lawyer, Gale Fisher.
[¶5.] River Run did not perform as well as Bayer expected so he, his mother and his lawyer sued PAL for negligence, negligent and fraudulent misrepresentation, constructive fraud, deceit and breach of fiduciary duty. The trial court found for Bayer, his mother and lawyer on negligent misrepresentation and against them on all other claims.
[¶6.] Bayer claimed that PAL made the following misrepresentations:
1. that Gage Brothers was looking for another location;
2. that statements made in the Argus Leader misrepresented River Run;
3. that a strip mall would be developed on the property;
4. that River Run was going to be the next Prairie Tree (implying that an upscale development was planned);
5. that apartments similar to Dakota Dunes would be built at River Run (implying that an upscale development was planned);
6. that a twin home worth $150,000 to $175,000 would be built across the street from Bayer;
7. that Al Lewis was planning to build a mansion at River Run;
8. that most of the trees in the development would remain;
9. that the listing prices in the original literature were higher than the actual selling prices;
10. that this was “another” PAL development, when this was the first PAL development; and
11. that PAL failed to reveal that there had been no interest in River Run when Bayer bought his lots.
ANALYSIS AND DECISION
[¶9.] WHETHER THE TRIAL COURT ERRED IN FINDING THAT PAL MADE NEGLIGENT MISREPRESENTATIONS.
[¶18.] Bayer was not a novice to risk. He had built and managed real estate. Bayer understood the risk involved in developing River Run as well as PAL. Bayer was on equal footing with PAL. Therefore, the exception does not apply and PAL is not liable for representations concerning future events.
EXAMINING THE REPRESENTATIONS[¶19.] Examination of the alleged misrepresentations reveals that they were only made about future events, not past or present facts. In addition, some of the representations could not have been relied on because they were made after Bayer purchased his lots.
Gage Brothers
[¶20.] Bayer claims PAL represented that Gage Brothers was looking for another location. Gage Brothers is a concrete contractor located between River Run and Interstate 29. Despite the benefits of business and industry, a concrete plant is dusty, noisy and unsightly in a residential community. Al Lewis testified that Gage Brothers’ continued presence next to River Run probably hurt the development. The appraisers who testified for both sides also agreed that the continued presence of the Gage Brothers’ plant had a negative effect on the value of property at River Run.
[¶21.] The Gage Brothers situation presents a perfect contrast between representations as to past or present facts and future events. For example, “Gage Brothers moved last year” would be a representation of a past fact. It would be either true or false. Gage Brothers would either have moved or not moved. By further example, “Gage Brothers is moving today” would be a representation of a present fact. It would either be true or false. Gage Brothers would either be moving today or not. By final example, Bayer’s direct testimony that Zea “told me Al Gage had been looking for either another location or that they had been offered a fairly substantial amount of money for their present location” would be a representation that implies that Gage Brothers might move sometime in the future. Not even Gage Brothers knew whether they would actually move or not. Whether Gage Brothers would move in the future was not within PAL’s knowledge or control. Even if Gage Brothers was planning to move, circumstances might change. Negligent or misrepresentations about future events cannot be actionable because the future cannot be foreseen or guaranteed.
[¶22.] However, the trial court did not find any negligent representations concerning the possibility that Gage Brothers might move. Bayer apparently failed to convince the trial court on this issue. Therefore, our decision is not based on the alleged misrepresentation that Gage Brothers might move.
The Argus Leader Article
[¶23.] At the heart of this case is an article which the Sioux Falls Argus Leader ran under the headline “River Run resurrected” on June 13, 1993. The article reported that the developers “hope” to nestle upscale homes near the river creating a neighborhood centered on recreation and beauty. PAL’s real estate agent, Jay Zea, said he “hoped” the need for residential lots, the park-like setting and aggressive sales would “make River Run succeed this time around.” Zea also “envisioned” offices tucked in the trees. The article quotes Zea as follows:
“I think it’s going to bring it upscale.” (emphasis added).
The article closes with the following:
“Zea sees the project as a neighborhood improvement, a chance to help other business on West 12th and a way to take traffic off 41st Street . . . .”(emphasis added).
The article makes it clear that River Run had failed before and the new effort was a rebirth. Reference is made to a two million dollar development with apartments, a strip mall, other stores, offices, a convenience store, hotel and recreation area. Zea also said that most trees would stay in the development. The trial court found that a reasonable reading of the article would be that “hope” meant the development would be successful and would include the items listed in the article.
[¶24.] It is interesting to note that Bayer made the most strident claims for success contained in the article. Speaking for Three B, Bayer said he planned to build homes from 1,900 to 2,500 square feet valued at $220,000 to $260,000. He was quoted as saying:
“I know they’re going to put in a first-class development and to our way of thinking it made sense to start building homes.” (emphasis added).
Bayer indicated he would build a house at River Run and hoped Westward Ho Country Club would let residents drive their carts over to the course for golf or to the clubhouse for dinner. Bayer went on to say:
“We’re looking to that upper-end clientele and people who enjoy golf and enjoy living in a golf course setting.”
Bayer’s quote was repeated twice, once in the article and once in a separate, large, bold block quote. Note the contrast between Zea’s “hopes,” “envisions”, “sees,” “a chance” and “thinks” with Bayer’s definite “I know,” “will build” and “we’re looking.”
[¶25.] The trial court did not find that these statements were false when they were made. In fact, the trial court specifically found “Jay Zea, who was the real estate agent for PAL, testified that there was nothing contained in the article that was an error.” The trial court went on to find that Bayer reasonably relied on the article, including his own statements that he would build $200,000 to $260,000 twin homes.
[¶26.] Bayer could not have relied on the statements made in the Argus Leader article. Bayer bought his lots on May 28, 1993, by signing a purchase agreement. The article appeared on June 13, 1993. Although Bayer now claims he did not actually buy the lots until after the Argus article ran (perhaps when Three B received a warranty deed on September 28, 1993), he clearly thought he owned the lots when the article was published on June 13. The article stated, “Three B. Inc. bought seven residential lots that border Westward Ho’s eighth hole.” The article went on to say that “[t]he company plans to build twin homes that . . . range in price from $200,000 to $260,000, said Barry Bayer . . . . Construction will begin July 15 on the first twin homes . . . . ” (emphasis added). Bayer would not propose to build $200,000 to $260,000 twin homes on lots he had not purchased. The simple fact is that Bayer bought the lots in May and received the deed later in September. The trial court was clearly erroneous when it found that Bayer relied on the Argus Leader article which appeared after he bought his lots.
Other Misrepresentations About Future Events[¶27.] Bayer also claimed that PAL misrepresented the following: that a strip mall would be developed on the property; that River Run was going to be the next Prairie Tree; that apartments similar to Dakota Dunes would be built at River Run; that a twin home worth $150,000 to $175,000 would be built across the street from Bayer; that Al Lewis was planning to build a mansion at River Run; that most of the trees in the development would remain; and that the listing prices in the original literature were higher than the actual selling prices. The trial court also made extensive findings that covenants filed by PAL were not enforced or applied to all of the property in River Run. However, none of the covenants were filed before Bayer bought his lots and thus could not have been relied on by Bayer.
[¶28.] All of the foregoing alleged misrepresentations had to do with the neighborhood being “upscale” with expensive houses or desirable businesses that would enhance the value of Bayer’s home and lots. Instead, lower class businesses, dwellings and apartments left Bayer with lots he could not develop and sell and a house that was overpriced for the neighborhood. All of the representations about upscale development were about future events which did not come to fruition. Bayer is not the only one who took the risk. Paul and Al Lewis risked their money and had lost at least $500,000 at the time of trial because River Run did not meet expectations. Developers take risks. Bayer wanted to be a developer, too. He wanted to develop seven lots along the golf course and make money. However, when he lost money, he did not want to accept the risk. Bayer wanted PAL to not only envision the future but to guarantee it.
Another PAL Development[¶32.] Bayer also claims River Run was represented as “another” PAL development, when this was PAL’s first development. The trial court did not find any negligent representation concerning whether this was “another” PAL development. Therefore, the judgment is not based on the alleged misrepresentation because Bayer failed to convince the trial court.
No Interest in River Run[¶33.] Bayer also claimed that PAL failed to reveal that there had been no interest in River Run when Bayer bought his lots. As noted earlier, Bayer knew this was a failed development that was being resurrected. The Newcombs were his neighbors and he knew that they had been unsuccessful in their efforts to develop River Run in the 1980’s. Bayer was the first to buy land at River Run. The trial court did not find that PAL failed to reveal that there was no one interested in River Run. Therefore, the judgment is not based on the alleged misrepresentation because Bayer failed to convince the trial court.
CONCLUSION[¶34.] The trial court erred as a matter of law when it concluded that present representations as to future events could be the basis for finding negligent misrepresentation. The trial court was also clearly erroneous when it found that Bayer relied on the representations made in the Argus Leader article which was published after Bayer bought his lots. Therefore, we reverse the judgment in favor of Barry Bayer, Sylvia Bayer, and Three B.*
[¶35.] GILBERTSON, Chief Justice, and SABERS, AMUNDSON, and KONENKAMP, Justices, concur.
* The claims of Sylvia Bayer and Three B were derivative of representations made to Barry Bayer, since Barry Bayer was the original purchaser from PAL.
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