Milliken v. Jacono (complete)
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J. E03003/12
2012 PA Super 284
JANET S. MILLIKEN,
:
:
Appellant
:
:
v.
:
KATHLEEN JACONO AND JOSEPH
:
JACONO AND CASCIA CORPORATION, :
TRADING AS RE/MAX TOWN &
:
COUNTRY AND FRAN DAY AND THOMAS :
O’NEILL AND JOHN RESTREPO AND
:
FOX & ROACH LP, TRADING AS
:
PRUDENTIAL FOX & ROACH REALTORS :
IN THE SUPERIOR COURT OF
PENNSYLVANIA
No. 2731 EDA 2010
Appeal from the Order Entered August 9, 2010,
in the Court of Common Pleas of Delaware County
Civil Division at No. 08-15684
BEFORE: FORD ELLIOTT, P.J.E., MUSMANNO, BENDER, DONOHUE,
SHOGAN, LAZARUS, MUNDY, OLSON, WECHT, JJ.
OPINION BY FORD ELLIOTT, P.J.E.:
Filed: December 26, 2012
Janet S. Milliken (“Buyer”) appeals from the order granting summary
judgment in favor of Kathleen and Joseph Jacono (“Sellers”) and their
agents, Fran Day and Thomas O’Neil, employed by the Cascia Corporation,
trading as RE/MAX Town & Country (“Agents”).1 Buyer claims that the trial
court erred in granting Sellers’ and Agents’ motions for summary judgment
on several claims arising from the 2007 sale of a house to Buyer without
1
Buyer’s claims against her own real estate agent, John Restrepo, and his
employer, Fox & Roach LP, trading as Prudential Fox & Roach Realtors, were
settled.
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Sellers or Agents disclosing to Buyer that a murder/suicide of a husband and
wife had occurred in the house in 2006. Finding no error, we affirm.
The trial court set forth the procedural and factual history of this case
as follows:
PROCEDURAL HISTORY
On November 24, 2008, Plaintiff Janet S. Milliken filed a
Complaint against Defendants Kathleen Jacono and Joseph
Jacono (hereinafter the “Jacono Defendants”), as well as the two
real estate firms in the underlying transaction. The Jacono
Defendants were the prior owners and sellers of the property to
the Plaintiff Milliken. Defendants, Cascia Corporation, trading as
Re/Max Town & Country, Fran Day and Thomas O’Neill
(hereinafter, the “Re/Max Defendants”) were the listing agents
that represented the Jacono Defendants for the sale of the
property. Defendants, Fox & Roach, LP, trading as Prudential
Fox & Roach Realtors, John Restrepo (hereinafter “Fox & Roach
Defendants”), represented the Plaintiff in the purchase of the
property as her broker and agent.
Plaintiff’s Complaint alleges fraud and misrepresentation
regarding the sale of the property without disclosing the death of
the individuals who owned the property prior to the Jacono
Defendants owning it. The Complaint sets forth four (4) counts
against the Jacono Defendants: Count I – Breach of Real Estate
Seller Disclosure Law, Count III – Negligent Representation,
Count V – Fraud, and Count VII – violation of the Unfair Trade
Practices and Consumer Protection Law. The Jacono Defendants
filed an Answer with New Matter and Crossclaims on May 18,
2009. On June 10, 2010, the Jacono Defendants filed [motions]
for Summary Judgment, which this Court granted. Plaintiff
appealed.
FACTS
1.
On February 11, 2006, the owner of the property prior to
the
Jacono
Defendants,
Konstantinos
Koumboulis,
allegedly shot his wife and himself at that property.
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2.
The Jacono Defendants purchased the property from the
Koumboulis Estate at a real estate auction on
September 23, 2006.
3.
On May 1, 2007, a Consumer Notice was signed by Plaintiff
Milliken and Mr. Restrepo regarding duties of real estate
professionals which notes that buyer’s agents have a duty
of confidentiality except for the disclosure of known
material defects about the property.
4.
Defendant, Mr. Jacono, spoke with Brian Collins and Judith
Schulder, representatives of the Pennsylvania Real Estate
Commission, who confirmed that the murder/suicide was
not a material defect that needed to be disclosed.
5.
Mr. Jacono’s conversation with Ms. Schulder of the
Pennsylvania
Real
Estate
Commission
was
later
memorialized in electronic correspondence.
6.
After Mr. Jacono’s conversations with the representatives
of the Pennsylvania Real Estate Commission, the Jacono
Defendants entered into a Listing Agreement for sale of
the property with the Re/Max Defendants on June 4, 2007.
7.
After entering into the Listing Agreement with the Jacono
Defendants,
the
Re/Max
Defendants
called
the
Pennsylvania Association of Realtors Legal Hotline and
were told that the murder/suicide was not a material
defect which required disclosure.
8.
The Re/Max Defendants also performed internet research
to confirm these findings and produced an article regarding
disclosure of material defects.
9.
On June 17, 2007, an Agreement of Sale for 12 Pickering
Trail was signed by Plaintiff and the Jacono Defendants.
10.
The Seller Property Disclosure Statement dated June 17,
2007 does not disclose the murder/suicide as a known
material defect.
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11.
The Seller Property Disclosure Statement indicates that the
property was last occupied in March 2006, and that the
Jaconos have owned the property for seven months.
12.
Plaintiff alleges that she was unaware of the
murder/suicide until three weeks after she moved into the
property, allegedly sometime in September 2007.
13.
Plaintiff also alleges that she proceeded with the
transaction under the presumption that there was a
foreclosure involved with the Jacono Defendants’ purchase
of the property.
14.
On June 20, 2007, the Re/Max Defendants mailed the
Thornbury Hunt Owners’ Association Documents to Plaintiff
Milliken which listed Konstantinos Koumboulis as the owner
of the Property.
15.
On
July
6,
2007,
Plaintiff
acknowledgement of receipt of
Owners’ Association Documents.
16.
Despite receiving the Thornbury Hunt Owners’ Association
Documents before closing, Plaintiff did not review them or
investigate Mr. Koumboulis’ ownership.
17.
Plaintiff admits at her deposition that she reviewed the
Title Report from Trident dated July 18, 2007 before
closing.
18.
The Title Report included a statement that this property
was conveyed by the Estate of Kostantinos Koumboulis
and Estate of Georgia Koumboulis to the Jaconos by Deed
dated October 31, 2006 and recorded January 19, 2007.
19.
The Title report, Schedule C, Description and Recital,
states as follows:
Milliken
signed
an
the Thornbury Hunt
Being the same premises which Estate of Kostantinos
Koumboulis and Estate of Georgia Koumboulis,
William C. Mackrides, Esq. and Constantine
Economides, Esq., Co-Administrators of Estates by
Deed dated 10/31/2006 and recorded 1/19/2007 in
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Delaware County in Volume 4008 Page 630
conveyed unto Joseph Jacono and Kathleen M.
Jacono, husband and wife, in fee.
20.
Plaintiff testified that she read the Title Report and
recognized that the Jacono Defendants had purchased the
property from the Koumboulis Estate, but proceeded with
the transaction.
21.
On August 10, 2007, Plaintiff closed on the property for
$610,000,00, but was not present at the closing.
Trial Court Opinion, 4/6/11, at 1-4.2
Buyer raises four issues on appeal:
I.
Whether the trial court erred in granting
summary judgment in favor of Defendants on the
claim of a violation of the Real Estate Disclosure Law
because a material issue of fact existed as to
whether the murder/suicide which occurred in the
home constituted a “material defect” because it had
a significant adverse impact on the value of the
property?
II.
Whether the trial court erred in granting
summary judgment in favor of Defendants on the
fraud claim because a material issue of fact existed
as to whether their intentional concealment and nondisclosure of the murder/suicide led to a viable claim
for fraud?
III. Whether the trial court erred in granting
summary judgment in favor of Defendants on the
claim of negligent misrepresentation because a
material issue of fact existed as to whether Mrs.
Milliken
had
a
viable
claim
for
negligent
misrepresentation?
IV.
Whether the trial court erred in granting
summary judgment in favor of the Defendants on
2
Finally, in her brief, Buyer claims that following her family moving into the
house, various paranormal events have transpired.
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the claim of a violation of the Unfair Trade Practices
and Consumer Protection Law because a material
issue of fact existed as to whether Mrs. Milliken had
a viable claim for common law fraud which would
lead to a claim under the statute?
Buyer’s brief at 4.
We begin by noting that each of Buyer’s claims on appeal relies, first,
upon the existence of a material defect in the property and, second, upon
the failure to reveal, or concealment of, that defect, or some deceptive
conduct connected to that defect. In each instance, Buyer puts forward as
the
offending
defect,
certain
psychological
damage
to
the
property
occasioned by the murder/suicide of Konstantinos and Georgia Koumboulis.
Thus, if the murder/suicide cannot be considered a defect legally, or if the
Sellers were under no legal obligation to reveal this alleged defect, there can
be no liability predicated upon the failure to so inform. Today, we find that
psychological damage to a property cannot be considered a material defect
in the property which must be revealed by the seller to the buyer.
Thus,
each of Buyer’s issues on appeal must fail.
We begin our analysis with our standard and scope of review where a
motion for summary judgment has been granted:
We view the record in the light most favorable to the
nonmoving party, and all doubts as to the existence
of a genuine issue of material fact must be resolved
against the moving party. Only where there is no
genuine issue as to any material fact and it is clear
that the moving party is entitled to a judgment as a
matter of law will summary judgment be entered.
Our scope of review of a trial court's order granting
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or denying summary judgment is plenary, and
standard of review is clear: the trial court's order
be reversed only where it is established that
court committed an error of law or abused
discretion.
our
will
the
its
Alderwoods (Pennsylvania), Inc. v. Duquesne Light Co., 52 A.3d 347,
350 (Pa.Super. 2012), quoting Daley v. A.W. Chesterton, Inc.,
,
Pa.
, 37 A.3d 1175, 1179 (2012).
Appellant argues that the murder/suicide qualifies as a material defect
as that term is defined under the Real Estate Seller Disclosure Law
(“RESDL”):
“Material defect.” A problem with a residential
real property or any portion of it that would have a
significant adverse impact on the value of the
property or that involves an unreasonable risk to
people on the property. The fact that a structural
element, system or subsystem is near, at or beyond
the end of the normal useful life of such a structural
element, system or subsystem is not by itself a
material defect.
68 Pa.C.S.A. § 7102 (in pertinent part).
However, the RESDL actually identifies the particular classes of defect
that must be revealed.
In doing so the RESDL demonstrates that the
Legislature did not intend that sellers be legally required to reveal something
such as psychological damage from a murder/suicide. Looking at the section
pertaining to those mandatory disclosures, we find:
(a)
General rule.--A form of property disclosure
statement that satisfies the requirements of
this chapter shall be promulgated by the State
Real Estate Commission.
Nothing in this
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chapter shall preclude a seller from using a
form of property disclosure statement that
contains additional provisions that require
greater specificity or that call for the disclosure
of the condition or existence of other features
of the property.
(b)
Contents
of
property
disclosure
statement.--The form of property disclosure
statement promulgated by the State Real
Estate Commission shall call for disclosures
with respect to all of the following subjects:
(1)
Seller's expertise in contracting,
engineering, architecture or other
areas related to the construction
and conditions of the property and
its improvements.
(2)
When the property
occupied by the seller.
(3)
Roof.
(4)
Basements and crawl spaces.
(5)
Termites/wood destroying insects,
dry rot and pests.
(6)
Structural problems.
(7)
Additions,
remodeling
and
structural changes to the property.
(8)
Water and
service.
(9)
Plumbing system.
sewage
was
systems
(10) Heating and air conditioning.
(11) Electrical system.
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or
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(12) Other equipment and appliances
included in the sale.
(13) Soils, drainage and boundaries.
(14) Presence of hazardous substances.
(15) Condominiums
and
homeowners associations.
other
(16) Legal issues affecting title or that
would interfere with use and
enjoyment of the property.
68 Pa.C.S.A. § 7304(a) and (b).
An examination of the mandatory disclosures reveals that each deals
with either the actual physical structure of the house, its components, and
the condition of the curtilage (3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13), potential
legal impairments attached to the property (15, 16), and hazardous
substances on the property (14). A requirement that sellers of real estate
reveal that a murder once occurred on the property goes to the reputation of
the property and not its actual physical structure.
Plainly, the Legislature
did not require disclosure of psychological damage to a property.
Buyer
argues that if the Legislature had intended to exclude a murder/suicide as a
material defect it would have done so by express language excluding
psychological damage.
We disagree.
Rather, psychological damage is so
different from the physical and legal defects listed that it is plain that the
Legislature intended not to include it.
Because the Legislature limited
required disclosures to structural matters, legal impairments, and hazardous
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materials, the extension suggested by Buyer would be both unwarranted and
legislative in nature. There are other problems as well.
First, how recent must the murder be that the seller must inform the
buyer?
What if the murder happened 100 years ago?
What if numerous
owners have lived in the house in the interim? In fact, the Buyer here is one
buyer removed from the murder/suicide at issue.
concern.
This raises another
This sort of psychological damage to a house will obviously
decrease over time as the memory of the murder recedes from public
knowledge. Requiring a seller to reveal this information may force the seller
to sell the house under market value and allow the buyer to realize a
windfall when the house is resold 10 years later and memories have faded.
The passage of time has no similar curative effect on structural damage,
legal impairments, or hazardous materials.
Second, how can a monetary value possibly be assigned to the
psychological damage to a house caused by a murder?
The psychological
effect will vary greatly from person to person. There are persons for whom
no amount of money would induce them to live in such a house, while others
may not care at all, or even find it adventurous.
Further, as noted, the
monetary value of such a psychological defect will dissipate with the passage
of time as the memory of the murder recedes.
Third, is this disclosure limited to murder, or must other crimes be
revealed also? A buyer might want to know that a house has been burgled
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five times in the last year because that might indicate that the neighborhood
is dangerous. What about crimes that did not occur on the property itself?
Suppose there had been a number of shootings in the neighborhood.
Further, a buyer might want to know that a child molester lived in the
neighborhood.
The fact that a murder once occurred in a house falls into that
category of homebuyer concerns best left to caveat emptor.3
If
psychological defects must be disclosed then we are not far from requiring
sellers to reveal that a next-door neighbor is loud and obnoxious, or on
some days you can smell a nearby sewage plant, or that the house was built
on an old Indian burial ground.
Indeed, one could identify numerous
psychological problems with any house. Sellers should only be required to
reveal material defects with the actual physical structure of the house, with
legal impairments on the property, and with hazardous materials located
there.
To allow consideration of possible psychological defects opens a
myriad of disclosures that sellers will need to reveal, and starts a descent
down a very slippery slope.
Moreover, an expansion of required seller disclosures from the physical
to the psychological is a massive expansion in the character of disclosure. It
3
Certainly, in the age of the internet the modern home buyer has a powerful
tool to uncover the notorious history of a house or neighborhood.
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requires the seller to warn not only of the physically quantifiable but also of
utterly subjective defects. We find that such a change is one that can only
reside with the Legislature.
In sum, the RESDL does not require the
disclosure of psychological defects such as the murder/suicide at issue here,
and there was no liability under the RESDL for failing to disclose the matter.
The trial court properly granted summary judgment.
Likewise, we find no liability under the other theories alleged in the
Complaint and argued now on appeal. In order to prove fraud the following
elements must be shown: (1) a representation; (2) which is material to the
transaction at hand; (3) made falsely, with knowledge of its falsity or
recklessness as to whether it is true or false; (4) with the intent of
misleading another into relying on it; (5) justifiable reliance on the
misrepresentation; and (6) the resulting injury was proximately caused by
the reliance. Youndt v. First National Bank of Port Allegany, 868 A.2d
539, 545 (Pa.Super. 2005). Moreover,
[i]n real estate transactions, fraud arises when a
seller knowingly makes a misrepresentation,
undertakes a concealment calculated to deceive, or
commits non-privileged failure to disclose. Fraud is
a generic term used to describe anything calculated
to deceive, whether by single act or combination, or
by suppression of truth, or suggestion of what is
false, whether it be by direct falsehood or by
innuendo, by speech or silence, word of mouth, or
look or gesture.
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Id., quoting Blumenstock v. Gibson, 811 A.2d 1029, 1034 (Pa.Super.
2002) (citations and quotation marks omitted), appeal denied, 573 Pa.
714, 828 A.2d 349 (2003).
Sellers cannot be found liable for fraud because they did not conceal or
fail to disclose a material defect in the property. As our analysis under the
RESDL has revealed, Sellers were under no legal obligation to tell Buyer
about
the
murder/suicide.
On
her
part,
Buyer
argues
that
the
murder/suicide was material because she would not have purchased it had
she been aware of the murder/suicide. Buyer also argues that the matter is
material because she had expert testimony that the murder/suicide
diminished the value of the property.
In support, Buyer cites to Reed v. King, 193 Cal. Rptr. 130
(Cal.Ct.App. 1983), and Van Camp v. Bradford, 623 N.E.2d 731 (Ohio Ct.
of Common Pleas 1993), which relies directly on Reed. Reed involved the
sale of a house in which a woman and her four children had been murdered
10 years earlier. Van Camp involved the sale of a house in which a rape
had been committed within the last year, coupled with the fact that
additional rapes had recently been committed in the neighborhood.
finding actionable fraud, Reed adopted a broad meaning of materiality:
In general, a seller of real property has a duty
to disclose: “where the seller knows of facts
materially affecting the value or desirability of the
property which are known or accessible only to him
and also knows that such facts are not known to, or
within the reach of the diligent attention and
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observation of the buyer, the seller is under a duty
to disclose them to the buyer. [Emphasis added;
Citations omitted.]”
Reed, 193 Cal. Rptr. at 131-132 (footnote omitted).
The problem with this analysis is one we alluded to during our
discussion of the RESDL; it changes the measure of materiality from an
objective to a subjective basis. Under Reed, not only must a seller inform a
buyer about objective structural defects or objective legal impairments, but
also wholly subjective problems that might have an impact on the buyer’s
decision.4
This would open the same slippery slope we addressed earlier,
requiring sellers to recite a litany of potential psychological defects.
We
decline to adopt the view of materiality championed by Reed.
While the murder/suicide may have been subjectively material to
Buyer’s decision, we hold that under common law fraud a seller of real
estate is only liable for failing to reveal objective material defects.
Psychological damage to real estate does not constitute a defect that the law
is presently prepared to recognize as material. No action for fraud could be
maintained on this basis and the trial court properly granted summary
judgment.
Next, Buyer raised a claim of negligent misrepresentation.
Negligent misrepresentation requires proof of: (1) a
misrepresentation of a material fact; (2) made under
circumstances in which the misrepresenter ought to
4
Reed has been criticized on this very basis.
889-895.
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See 45 U.Pitt.L.Rev. 877,
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have known its falsity; (3) with an intent to induce
another to act on it; and (4) which results in injury
to a party acting in justifiable reliance on the
misrepresentation.
The elements of negligent
misrepresentation
differ
from
intentional
misrepresentation in that the misrepresentation
must concern a material fact and the speaker need
not know his or her words are untrue, but must have
failed to make a reasonable investigation of the truth
of these words.
Moreover, like any action in
negligence, there must be an existence of a duty
owed by one party to another.
Heritage Surveyors & Engineers, Inc. v. National Penn Bank, 801 A.2d
1248, 1252 (Pa.Super. 2002), (emphasis added) quoting Kramer v. Dunn,
749 A.2d 984, 991 (Pa.Super. 2000) (citations and quotation omitted).
On appeal, Buyer fails to identify any duty owed by Sellers to Buyer,
nor does Buyer describe the legal basis out of which the duty arises. The
Complaint identifies the duty as one to disclose the material defect of the
murder/suicide. However, as our prior discussion has observed, Sellers have
no duty to disclose purely psychological defects and, therefore, no
obligation.
The trial court properly granted summary judgment as to this
count also.
Finally, Buyer argues that Sellers are liable pursuant to the “catch-all”
provision of the Unfair Trade Practices and Consumer Protection Law
(“UTPCPL”):
(xxi) Engaging in any other fraudulent or deceptive
conduct which creates a likelihood of confusion
or of misunderstanding.
73 P.S. § 201-2 (xxi).
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Both the trial court and Buyer cite Skurnowicz v. Lucci, 798 A.2d
788 (Pa.Super. 2002) for the proposition that “[i]n order to establish a
violation of this catchall provision, ‘a plaintiff must prove all of the elements
of common-law fraud.”
Skurnowicz, 798 A.2d at 794, quoting, in part,
Sewak v. Lockhart, 699 A.2d 755, 760 (Pa.Super. 1997).
Recently,
however, a panel of this court recognized that this aspect of the catch-all
provision
had
been
superseded
by
statute.
In
Bennett
v.
A.T.
Masterpiece Homes at Broadsprings, LLC, 40 A.3d 145 (Pa.Super.
2012), the panel concluded that a 1996 (effective February 2, 1997)
amendment to the catch-all provision that added the language “or deceptive
conduct” changed the requirement from proving actual fraud to merely
proving deceptive conduct.
Id. at 150-153.
The panel acknowledged the
existence of post-amendment cases that continued to uphold the prior fraud
requirement, but dismissed them on the basis that those cases relied upon
pre-amendment decisions.
Nonetheless, even with this reduced burden, we find that Buyer cannot
make out a claim under the catch-all provision.
Sellers simply did not
engage in any deceptive conduct. Sellers merely declined to inform Buyer
about a factor of which they were under no obligation to disclose. Buyer had
no supportable cause of action under the UTPCPL and the court properly
granted summary judgment.
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Accordingly, having found that the occurrence of a murder/suicide on a
property does not constitute a material defect to real estate such that a
seller must disclose that fact under theories of liability predicated on the
RESDL, fraud, negligent misrepresentation, and the UTPCPL, we find that the
trial court properly entered summary judgment.
Order granting summary judgment affirmed.
Bender, J. files a Dissenting Opinion which is joined by Mundy and
Wecht, JJ.
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JANET S. MILLIKEN,
:
:
Appellant
:
:
v.
:
KATHLEEN JACONO AND JOSEPH
:
JACONO AND CASCIA CORPORATION, :
TRADING AS RE/MAX TOWN &
:
COUNTRY AND FRAN DAY AND THOMAS :
O’NEILL AND JOHN RESTREPO AND
:
FOX & ROACH LP, TRADING AS
:
PRUDENTIAL FOX & ROACH REALTORS :
IN THE SUPERIOR COURT OF
PENNSYLVANIA
No. 2731 EDA 2010
Appeal from the Order Entered August 9, 2010
in the Court of Common Pleas of Delaware County
Civil Division at No. 08-15684
BEFORE: FORD ELLIOTT, P.J.E., MUSMANNO, BENDER, DONOHUE,
SHOGAN, LAZARUS, MUNDY, OLSON, WECHT, JJ.
DISSENTING OPINION BY BENDER, J.:
I respectfully dissent.
The single certainty that permeates every
aspect of this case is that Janet Milliken, who has now suffered a six-figure
economic loss (and untold aggravation), was destined to discern the
occurrence
of
a
murder/suicide
in
her
new
home
either
before
consummating her purchase or—as fate would have it—afterward. I am not
the first to recognize that “truth will come to light; murder cannot be hid
long.” Reed v. King, 193 Cal. Rptr. 130, 131-32 (Cal. App. 1983) (quoting
SHAKESPEARE, MERCHANT OF VENICE, Act I, Scene II). Nevertheless, the financial
penalty Mrs. Milliken has suffered was entirely avoidable had the sellers from
whom she bought her home merely exercised a little more integrity and a
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little less greed. The Majority’s ruling, which deprives Milliken of any legal
remedy, rewards those sellers and short-circuits the legislative intent of the
Real Estate Seller Disclosure Law (RESDL), 68 Pa.C.S. §§ 7301-7315. Not
surprisingly, it also truncates the ability of homebuyers across this
Commonwealth to avoid potentially catastrophic losses in purchasing a
home.
The RESDL—on its face—does not countenance such an untoward
result,
notwithstanding
the
Majority’s
speculation
about
unproven
consequences in scenarios not before us. In my opinion, the circumstances
of record in this case, considered through the prism of the RESDL and the
causes of action Mrs. Milliken avers, raise questions of fact that must be
resolved at trial.
I acknowledge, as does the Majority, that the RESDL requires
disclosure to the buyer of “any material defects with the property known to
the seller[.]”
62 Pa.C.S. § 7303.
Nevertheless, the Majority attempts to
limit the circumstances subject to disclosure as “material defects” to the
conditions itemized in RESDL section 7304, which directs the State Real
Estate Commission to promulgate “a disclosure statement that satisfies the
requirements of this chapter.”
62 Pa.C.S. § 7304(a).
The statute
enumerates, in subsection (b), specific conditions or forms of impairment to
be included in the disclosure statement. See id. at § 7304(b). Significantly,
however, language limiting the necessity of disclosure to the enumerated
items or circumstances is conspicuously absent—and with good reason; a
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companion provision of the RESDL directs that such a specification shall not
be deemed conclusive of the disclosure obligation under other provisions of
law. Section 7313 elucidates the point in the clearest parlance possible:
§ 7313. Specification of items for disclosure no limitation
on other disclosure obligations
(a) General rule.--The specification of items for disclosure in
this chapter or in any form of property disclosure statement
promulgated by the State Real Estate Commission does not limit
or abridge any obligation for disclosure created by any other
provision of law or that may exist in order to avoid fraud,
misrepresentation or deceit in the transaction.
68 Pa.C.S. § 7313(a) (emphasis added).
Inexplicably, the Majority fails even to acknowledge section 7313,
much less reconcile its obvious effect on the restrictive rule the Majority
Opinion devines from the “specification of items” in section 7304(b). Unlike
the Majority, I find the language of section 7313 dispositive in its apparent
direction that items specified in section 7304(b) do not delimit “any material
defects with the property known to the seller,’ id. at § 7303, and do not
circumscribe grounds for potential liability for non-disclosure.
Indeed,
section 7304 itself allows that “[n]othing in this chapter shall preclude a
seller from using a form of property disclosure statement that contains
additional provisions that require greater specificity or that call for the
disclosure of the condition or existence of other features of the property.”
Id. at § 7304(a).
Accordingly, nothing in the RESDL as a whole prevents
disclosure of circumstances not specified in section 7304(b) or limits
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potential liability for non-disclosure to the circumstances that section does
specify. See 62 Pa.C.S. § 7313.
The more comprehensive scope of liability attendant on these two
sections of the RESDL is, in my estimation, precisely what the legislature
contemplated in the adoption of that Act.
Indeed, even without resort to
sections 7304(a) or 7313, the Residential Real Estate Transfers Law
(RRETL), 68 Pa.C.S. §§ 7101-7103, which provides meaning and context for
the RESDL, renders the legislature’s understanding of the term, “material
defect” unmistakable. Contrary to the Majority’s assertion that the RESDL
requires disclosure of only structural defects on the property, legal
impairments, or hazardous substances, RRETL section 7102 reveals that a
“material defect” is “[a] problem with a residential real property or any
portion of it that would have a significant adverse impact on the value of the
property or that involves an unreasonable risk to people on the property.”
68 Pa.C.S. § 7102.
In this case, the adverse impact of the murder/ suicide on the value of
Milliken’s home is documented in the reports of two expert real estate
appraisers, one of whom opined that the attendant stigma reduced the value
of the property by ten to fifteen percent of its $610,000 sale price, and the
other of whom attested that the value of the home did not exceed $525,000.
To the extent that a reduction of almost $100,000 in value can be deemed a
“significant adverse impact on the value of the property,” the RRETL,
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considered in conjunction with RESDL, mandates that the cause of the
stigma be disclosed. Thus, whereas the Majority would consign the stigma
of murder/suicide to the ethereal realm of “psychological damage,” Majority
Slip Op. at 9, the statute recognizes it for what it is—documented economic
loss—and a “material defect” that must be disclosed.
On this point at least, mine is not a lone voice in the wilderness.
Under substantially identical circumstances, the California Court of Appeals
imposed a duty of disclosure on the seller and upheld the right of the buyer
to recover where the undisclosed fact “materially affect[s] the value or
desirability of the property.”
See Reed, 193 Cal. Rptr. at 131-32.
As a
measure of whether undisclosed information “is of sufficient materiality to
affect the value or desirability of the property,” see id. at 132, the Court
considered three elements: “the gravity of the harm inflicted by nondisclosure; the fairness of imposing a duty of discovery on the buyer as an
alternative to compelling disclosure, and its impact on the stability of
contracts if rescission is permitted,” see id.
Balancing those factors, the
Court found that commission of a multiple murder on the property (albeit
ten years prior to the disputed sale) does vest the seller with a duty of
disclosure. See id.
I find these same elements probative of the extent to which the
murder/suicide in this case amounts to a “material defect,” i.e., “[a] problem
with a residential real property . . . that would have a significant adverse
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impact on the value of the property.” Significantly, the Court in Reed first
acknowledged the same reservations advanced by the Majority in this case.
The paramount argument against [the disclosure of the multiple
murder] is it permits the camel's nose of unrestrained
irrationality admission to the tent.
If such an “irrational”
consideration is permitted as a basis of rescission the stability of
all conveyances will be seriously undermined. Any fact that
might disquiet the enjoyment of some segment of the buying
public may be seized upon by a disgruntled purchaser to void a
bargain.
Id. at 132-133. The Court then dismantled those claims, recognizing that
the uniqueness of the scenario both obviates the potential for abuse and
vitiates the suggestion that caveat emptor should constrain the buyer to
inquire after a home’s history of criminal mortality:
In our view, keeping this genie [i.e., the potential for abuse] in
the bottle is not as difficult a task as these arguments assume.
We do not view a decision allowing Reed to survive a demurrer
in these unusual circumstances as endorsing the materiality of
facts predicating peripheral, insubstantial, or fancied harms.
The murder of innocents is highly unusual in its potential
for so disturbing buyers they may be unable to reside in a home
where it has occurred. This fact may foreseeably deprive a
buyer of the intended use of the purchase. Murder is not such a
common occurrence that buyers should be charged with
anticipating and discovering this disquieting possibility.
Accordingly, the fact is not one for which a duty of inquiry and
discovery can sensibly be imposed upon the buyer.
Id. at 133.
The Court then recognized as well that, contrary to objections that
damage to the public perception of a property, i.e., “psychological damage,’
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see Majority Slip Op. at 9, is not an appropriate subject of compensation,
damage to reputation is in fact cognizable as economic loss:
[The buyer] alleges the fact of the murders has a quantifiable
effect on the market value of the premises. We cannot say this
allegation is inherently wrong and, in the pleading posture of the
case, we assume it to be true.
If information known or
accessible only to the seller has a significant and measureable
effect on market value and, as is alleged here, the seller is
aware of this effect, we see no principled basis for making the
duty to disclose turn upon the character of the information.
Physical usefulness is not and never has been the sole criterion
of valuation. Stamp collections and gold speculation would be
insane activities if utilitarian considerations were the sole
measure of value.
Reputation and history can have a significant effect on the
value of realty.
“George Washington slept here” is worth
something,
however
physically
inconsequential
that
consideration may be. Ill-repute or “bad will” conversely may
depress the value of property.
Id. at 132-33 (citation and footnote omitted, emphasis added).1
Finally, the Court left no doubt that the economic loss attendant upon
a failure to disclose can be recoverable based upon quantified proof of the
loss:
Whether [the buyer] will be able to prove her allegation [that]
the decade-old multiple murder has a significant effect on
market value we cannot determine. If she is able to do so by
1
The Majority’s potential response to this reasoning, that the criminal
history of a property is now discoverable with the aid of the internet, see
Majority Slip Op. at 11, does not bear scrutiny. Various web-based services,
e.g. Reputation.com, allow users to procure the professional “scrubbing” of
internet search results to avoid disclosure of facts not deemed “appropriate”
for public consumption. To the extent that such services are available to
“protect” one’s personal reputation, I see no reason why they might not also
be employed to prevent undesirable disclosures about the history of real
property.
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competent evidence she is entitled to a favorable ruling on the
issues of materiality and duty to disclose. Her demonstration of
objective tangible harm would still the concern that permitting
her to go forward will open the floodgates to rescission on
subjective and idiosyncratic grounds.
Id. at 133-34 (footnote omitted).
Of
course,
the
Court’s
decision
in
Reed
does
not
bind
us.
Nevertheless, its analysis offers a valuable perspective that should cause the
Majority pause in its insistence that pragmatic considerations militate against
the conclusion that damage to the reputation of a property poses a
quantifiable economic loss. As the Court in Reed has amply demonstrated,
the truth is quite the contrary.
Moreover, to the extent that the cause of
loss can be proven by expert testimony, it imposes “significant adverse
impact on the value of the property,” and must be recognized as a “material
defect” under the RESDL. Pursuant to the language of RESDL section 7303,
disclosure of such defects by the seller should be deemed mandatory, and a
seller who fails in this regard should answer for his conduct in damages.
Consistent with this rationale, I would vacate the trial court’s award of
summary judgment and remand this matter for trial.
Majority declines this course, I must respectfully dissent.
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Inasmuch as the
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