Lemad v. Miravista

NOTICE: NOT FOR PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION DOES NOT CREATE
LEGAL PRECEDENT AND MAY NOT BE CITED EXCEPT AS AUTHORIZED.

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE

LEMAD CORPORATION, an Arizona corporation, Plaintiff/Appellant,

v.

MIRAVISTA HOLDINGS, L.L.C., an Arizona limited liability company;
RIO AND RIVER HOLDINGS, L.L.C., an Arizona limited liability
company; BRADLEY D. WILDE, in his sole and separate capacity; and
BRADLEY D. WILDE and JANET P. WILDE, husband and wife,
Defendants/Appellees.

No. 1 CA-CV 12-0619
FILED 09-18-2014

Appeal from the Superior Court in Maricopa County
No. CV2011-008322
The Honorable J. Richard Gama, Judge

AFFIRMED

COUNSEL

Wilenchik & Bartness, PC, Phoenix
By Dennis I. Wilenchik and Tyler Q. Swensen
Counsel for Plaintiff/Appellant

Dickinson Wright, PLLC, Phoenix
By James T. Braselton, Michael S. Rubin and Laura R. Curry
Counsel for Defendants/Appellees
 LEMAD v. MIRAVISTA, et al.
Decision of the Court

MEMORANDUM DECISION

Presiding Judge Kent E. Cattani delivered the decision of the Court, in
which Judge Margaret H. Downie and Judge Michael J. Brown joined.

C A T T A N I, Judge:

¶1 LeMad Corporation (“LeMad”) appeals the superior court’s
judgment dismissing with prejudice its claims against Appellees Miravista
Holdings, L.L.C., (“Miravista”), Rio and River Holdings, L.L.C. (“Rio
Holdings”), Bradley D. Wilde, and Janet P. Wilde. LeMad argues that the
court erred by dismissing its complaint for failure to state a claim and by
denying its motion for new trial or to alter or amend the judgment. For
reasons that follow, we affirm.

FACTS AND PROCEDURAL BACKGROUND

¶2 LeMad owned approximately 21.5 acres, consisting of three
parcels in Tempe, Arizona (the “Property”). LeMad used the Property for
industrial purposes and also leased it for storage and concrete recycling.
The Property was in a redevelopment area that subsequently became part
of the City of Tempe’s Rio Salado Redevelopment District. In 2002, the City
selected Miravista as the primary master planner and developer for the
Redevelopment District, which would ultimately include a new shopping
center and other retail developments.

¶3 In September 2003, the City and Miravista entered into the
City of Tempe Marketplace Redevelopment Agreement. The publically
disclosed Redevelopment Agreement provided that (1) Miravista would
attempt to acquire all property within the redevelopment area through
direct negotiations with the property owners, and if negotiations failed, the
City would seek to acquire the property through eminent domain; (2)
Miravista, as the owner/operator of the condemned property and
improvements, would be solely responsible for all condemnation,
relocation, environmental remediation, maintenance, and development
expenses; (3) Miravista’s obligation to remediate the property within the
redevelopment area would not commence until Miravista obtained title to
all property within the area; and (4) if Miravista were unable to negotiate a
purchase price for property essential to the redevelopment, and if

2
 LEMAD v. MIRAVISTA, et al.
Decision of the Court

condemnation proceedings were not feasible, Miravista and the City would
each have the option of terminating the Redevelopment Agreement.

¶4 In December 2005, fifteen months before LeMad sold the
Property, Bradley Wilde, Miravista’s manager, faxed a memorandum
discussing environmental remediation of LeMad’s property to LeMad’s
legal counsel, Greg Robinson, and attached a copy of Miravista’s
environmental insurance policy underwritten by American International
Group (“AIG”). Wilde’s memorandum provided in pertinent part as
follows:

As promised last Friday, enclosed please find a copy of our
environmental insurance policy — underwritten by AIG. I
understand that Neil Calfee from the City of Tempe had
previously forwarded a copy to Chuck Urban [LeMad’s
President].

The policy provides coverage for the properties to the western
boundary of Mr. Urban’s 22 acre landfill. His property is
NOT covered.

Furthermore, as I had mentioned, the EPA has de-listed (from
the Superfund) essentially all property (but for a small
portion of Mr. Brock’s property which contains a well to
monitor groundwater) north of Rio Salado Parkway SUBJECT
to that property being remediated. Mr. Urban continues then
to be liable to remediate his properties or risk them being
relisted as “Superfund” by the EPA. You may certainly
confirm this understanding with Amanda Stone at ADEQ.

Also, as previously mentioned, there is no federal, state or
local money earmarked at this time for the remediation of Mr.
Urban’s landfills or the issues related thereto, including the
known methane gas condition.

¶5 In May 2007, LeMad sold the Property to Rio Holdings, a
company that Wilde also managed and represented, for $2,327,274 or $2.49
per square foot. The Property had been appraised in 2005 at $3,754,000, or
$4.00 per square foot.

¶6 In July 2009, LeMad’s President, Charles Urban, made a
request under the Freedom of Information Act for the Housing and Urban
Development (“HUD”) application and supporting documents for the
Tempe Marketplace project. HUD provided the requested documentation

3
 LEMAD v. MIRAVISTA, et al.
Decision of the Court

in October 2010. One of the documents provided was a May 2004
memorandum reflecting that the City of Tempe had requested $7,000,000 in
loan funds, with $6,000,000 of the funds committed to environmental
cleanup of the Tempe Marketplace site and $1,000,000 to purchase
insurance from AIG to cover excess remediation costs, as well as long-term
liability insurance against changes in environmental regulations that might
result in loss of use of the covered property. The insurance policy was to
cover the City, the Tempe Marketplace developers and the “current
property owners.”

¶7 In April 2012, citing to Wilde’s 2005 memorandum and the
2004 HUD memorandum, LeMad brought the underlying action against
Appellees for negligent misrepresentation, fraudulent inducement, and
violation of the Arizona Consumer Fraud Act. LeMad claimed specifically
that it was misled regarding the availability of environmental insurance on
the Property. LeMad asserted that it would not have contracted to sell the
Property to Rio and River Holdings for the negotiated price if Wilde had
not misrepresented the availability of monies for environmental
remediation.

¶8 Appellees filed a motion to dismiss under Rule 12(b)(6) of the
Arizona Rules of Civil Procedure, asserting that LeMad’s complaint failed
to state a claim upon which relief could be granted. After considering
LeMad’s response, the superior court granted the motion to dismiss and
made the following findings: (1) Wilde’s alleged misrepresentations in his
memorandum did not support any of the asserted separate actions; (2) “[a]
misrepresentation of law cannot support an actionable fraud claim”; (3)
“[t]he alleged misrepresentations were not made in connection with a
commercial transaction”; and (4) the Arizona Consumer Fraud Act did not
apply to the transaction at issue. The court entered judgment dismissing
with prejudice LeMad’s complaint in its entirety, and the court
subsequently awarded Appellees $24,050 in attorney’s fees and $229 in
costs.

¶9 LeMad filed a motion for new trial or to alter or amend the
judgment, which the superior court denied. The court explained that it had
dismissed the complaint with prejudice because (1) the alleged
misrepresentations were statements concerning legal conclusions; (2)
Wilde’s memorandum was not made in connection with a commercial
transaction; (3) LeMad was not a purchaser; and (4) LeMad did not properly
plead the elements of fraud.

4
 LEMAD v. MIRAVISTA, et al.
Decision of the Court

¶10 LeMad timely appealed. We have jurisdiction under Article
6, Section 9, of the Arizona Constitution and Arizona Revised Statutes
(“A.R.S.”) sections 12-120.21(A)(1) and -2101(A)(1).1

DISCUSSION

I. Dismissal for Failure to State a Claim.

¶11 LeMad contends that the superior court erred by finding that
the complaint failed to state a claim upon which relief could be granted.
LeMad argues in particular that (1) Bradley Wilde misrepresented that
Miravista’s environmental liability insurance policy from AIG did not cover
the Property, and (2) Wilde failed to disclose that environmental liability
coverage was required under the federal loan obtained by the City (the
“Section 108 Loan”). LeMad contends that these misrepresentations (either
affirmative or by omission) led the corporation to sell the Property for less
than market value and thus supported claims for negligent
misrepresentation and fraudulent inducement, as well as consumer fraud.

¶12 We review de novo a dismissal under Rule 12(b)(6) for failure
to state a claim upon which relief can be granted. Coleman v. City of Mesa,
230 Ariz. 352, 355, ¶ 7, 284 P.3d 863, 866 (2012). We will affirm a dismissal
under Rule 12(b)(6) only if the plaintiff “would not be entitled to relief
under any interpretation of the facts susceptible of proof.” Id. at 356, ¶ 8,
284 P.3d at 867 (citation omitted). A complaint must contain “[a] short and
plain statement of the claim showing that the pleader is entitled to relief.”
Ariz. R. Civ. P. 8(a)(2). The purpose of this “notice pleading standard” is to
ensure the opponent receives “fair notice of the nature and basis of the
claim and . . . generally the type of litigation involved.” Cullen v. Auto-
Owners Ins. Co., 218 Ariz. 417, 419, ¶ 6, 189 P.3d 344, 346 (2008) (citation
omitted). Although we assume all well-pleaded factual allegations to be
true and “indulge all reasonable inferences from those facts, [ ] mere
conclusory statements are insufficient.” Coleman, 230 Ariz. at 356, ¶ 9, 284
P.3d at 867. A complaint setting forth legal conclusions, without supporting
factual allegations, does not give the opponent proper notice of the basis
and nature of the claim, and thus does not satisfy Rule 8’s notice pleading
requirement. Cullen, 218 Ariz. at 419, ¶¶ 6–7, 189 P.3d at 346.

1 Absent material revisions after the relevant date, we cite to the
current version of the statute.

5
 LEMAD v. MIRAVISTA, et al.
Decision of the Court

A. Negligent Misrepresentation.

¶13 The complaint alleged that Wilde’s memorandum to LeMad’s
counsel negligently misrepresented the scope of environmental insurance
coverage Miravista had obtained from AIG. But Wilde not only sent the
memorandum describing Miravista’s insurance coverage at the time, he
also enclosed a copy of Miravista’s insurance policy. Wilde’s memorandum
also specifically encouraged LeMad’s counsel to draw his own conclusions
regarding LeMad’s liability for environmental remediation by contacting
someone at the Arizona Department of Environmental Quality (“ADEQ”).
Thus, Wilde’s memorandum’s discussion regarding insurance coverage
and remediation liability cannot be construed to be a misrepresentation, but
rather an explanation of documents and/or information known by or
available to LeMad’s counsel.

¶14 Citing Barnes v. Lopez, 25 Ariz. App. 477, 544 P.2d 694 (1976),
LeMad asserts that Wilde’s alleged misrepresentations were actionable
because they were knowingly misleading. In Barnes, this court upheld a
superior court’s ruling that a seller and brokerage company were liable for
misrepresenting a “condition affecting the property,” i.e., the zoning of a
particular parcel of land in connection with a real estate transaction. Id. at
478, 544 P.2d at 695. But unlike the zoning of the property at issue in Barnes,
the contents of the insurance policy referenced in Wilde’s memorandum
did not relate to a “condition affecting the property,” but rather constituted
a statement of the legal effect of an insurance policy, a copy of which was
provided to LeMad’s counsel. Moreover, Barnes involved an alleged
misrepresentation by a seller, and there is nothing in the decision that
suggests it would also apply to an alleged misrepresentation by a buyer.

¶15 Furthermore, regardless of any alleged inaccuracies in
Wilde’s memorandum, LeMad’s asserted claim of negligent
misrepresentation fails absent an assertion of facts to show that the party
making the representation owed a duty to a party who justifiably relied on
the statement. See Van Buren v. Pima Cmty. Coll. Dist. Bd., 113 Ariz. 85, 87,
546 P.2d 821, 823 (1976) (citing the Restatement (Second) of Torts and noting
that under West v. Soto, 85 Ariz. 255, 336 P.2d 153 (1959), there must be “a
duty owed and a breach of that duty before one may be charged with the
negligent violation of that duty.”).

¶16 Under Section 551(2) of the Restatement (Second) of Torts, a
party to a business transaction is under a duty to exercise reasonable care
to disclose to the other party,

6
 LEMAD v. MIRAVISTA, et al.
Decision of the Court

(a) matters known to him that the other is entitled to know
because of a fiduciary or other similar relation of trust and
confidence between them; and

(b) matters known to him that he knows to be necessary to
prevent his partial or ambiguous statement of the facts
from being misleading; and

(c) subsequently acquired information that he knows will
make untrue or misleading a previous representation that
when made was true or believed to be so; and

(d) the falsity of a representation not made with the
expectation that it would be acted upon, if he
subsequently learns that the other is about to act in
reliance upon it in a transaction with him; and

(e) facts basic to the transaction, if he knows that the other is
about to enter into it under a mistake as to them, and that
the other, because of the relationship between them, the
customs of the trade or other objective circumstances,
would reasonably expect a disclosure of those facts.

See also Van Buren v. Pima Cmty. Coll. Dist. Bd., 113 Ariz. 85, 87, 546 P.2d 821,
823 (1976) (“A claim for relief for negligent misrepresentation is one
governed by the principles of the law of negligence. Thus, there must be a
duty owed and a breach of that duty before one may be charged with the
negligent violation of that duty.”) (citation omitted).

¶17 Here, the complaint referenced Wilde’s memorandum to
LeMad’s counsel, in which Wilde stated his belief that the “[P]roperty is
NOT covered” under the AIG environmental insurance policy attached to
the memorandum. The complaint did not allege, however, any facts from
which a fact-finder could conclude that Wilde owed a duty to LeMad or
that there was a fiduciary or other special relationship between the parties.
Although LeMad suggests that such a duty arose by virtue of the
contractual relationship between the parties, there was no contract in place
until the parties reached an agreement in 2007. The Restatement expressly
disclaims any obligation on the part of a purchaser to educate and inform a
seller about his or her own property. Comment k to Section 551 states:

To a considerable extent, sanctioned by the customs and
mores of the community, superior information and better
business acumen are legitimate advantages, which lead to no

7
 LEMAD v. MIRAVISTA, et al.
Decision of the Court

liability. The defendant may reasonably expect the plaintiff
to make his own investigation, draw his own conclusions and
protect himself; and if the plaintiff is indolent, inexperienced
or ignorant, or his judgment is bad, or he does not have access
to adequate information, the defendant is under no obligation
to make good his deficiencies. This is true, in general, when
it is the buyer of land or chattels who has the better
information and fails to disclose it.

Thus, LeMad has not established any basis for concluding that Wilde or the
other Appellees owed LeMad some type of duty at the time Wilde sent the
memorandum, and LeMad’s negligent misrepresentation claim necessarily
fails.

B. Fraudulent Inducement.

¶18 LeMad contends that the superior court erred by finding that
the corporation did not plead fraud with sufficient particularity and by thus
summarily dismissing the fraudulent inducement claim. A fraud claim
requires proof of the following elements: “(1) a representation; (2) its falsity;
(3) its materiality; (4) the speaker’s knowledge of its falsity or ignorance of
its truth; (5) the speaker’s intent that it be acted upon by the recipient in the
manner reasonably contemplated; (6) the hearer’s ignorance of its falsity,
(7) the hearer’s reliance on its truth; (8) the hearer’s right to rely on it; [and]
(9) the hearer’s consequent and proximate injury.” Comerica Bank v.
Mahmoodi, 224 Ariz. 289, 291–92, ¶ 14, 229 P.3d 1031, 1033–34 (App. 2010).

¶19 Under Rule 9(b) of the Arizona Rules of Civil Procedure, “[i]n
all averments of fraud or mistake, the circumstances constituting fraud or
mistake shall be stated with particularity. Malice, intent, knowledge, and
other condition of mind of a person may be averred generally.” “Magic
language” is not required when pleading fraud, so long as the complaint,
considered as a whole pleads the nine required elements. Hall v. Romero, 141 Ariz. 120, 124, 685 P.2d 757, 761 (App. 1984).

¶20 LeMad’s fraud claim relies primarily on what the corporation
claims was an intentionally incorrect assertion in Wilde’s memorandum
that there was “no federal, state or local money earmarked at this time for
the remediation of Mr. Urban’s landfills.” LeMad claims that the HUD
memorandum contradicts that assertion, but the HUD document does not
reference any communications with Appellees and instead discusses
planned conduct by the City of Tempe, which is not a party in this matter.

8
 LEMAD v. MIRAVISTA, et al.
Decision of the Court

¶21 Furthermore, the HUD memorandum did not reference any
money available to land owners, like LeMad, for environmental
remediation. Although the HUD memorandum stated that the City of
Tempe “has a commitment from American International Group (AIG) to
provide insurance that will eliminate [environmental] liability for the
existing owners,” the HUD memorandum made clear that the City of
Tempe was attempting to obtain a loan that would have to be repaid and
that would be used primarily ($6,000,000) to pay for remediation expenses
and secondarily ($1,000,000) to purchase insurance to cover costs exceeding
$6,000,000. Because the transaction was expressly characterized as a loan,
the HUD memorandum did not describe a fund of “free money” earmarked
to pay for environmental remediation without cost to, for instance, LeMad.

¶22 Moreover, the HUD memorandum must be read in
conjunction with the publically disclosed Redevelopment Agreement,
which made clear that the loan-funded insurance policy would cover
“current property owners” only after they sold their properties to
Miravista. The Redevelopment Agreement specifically provided that
remediation efforts would not begin until Miravista and/or the City
acquired all necessary properties (by direct purchase or through eminent
domain). It further explained that monies to repay the City’s HUD loan
would come from taxes generated by the proposed development, and that
if such taxes were insufficient to repay the loan, the developer would
assume the cost of the loan. The HUD memorandum did not suggest that
there were available funds for “existing owners” to pay to remediate their
properties before the properties were sold or acquired through eminent
domain, and instead specifically stated that the referenced insurance
“provides one of the strongest incentives for cooperation by the landowners
in the redevelopment effort.”

¶23 In this context, the only plausible understanding of the HUD
memorandum’s discussion of insurance for “existing owners” is that the
environmental insurance to be provided would cover the current owners
after their property had been acquired for redevelopment. Property owners
who sell their property may nevertheless be liable for environmental
remediation of the property if the damage occurred prior to the sale of the
property. See 42 U.S.C. § 9607(a) (stating that “any person who at the time
of disposal of any hazardous substance owned or operated any facility at
which such hazardous substances were disposed of” is potentially liable for
remediation costs under the Comprehensive Environmental Response,
Compensation, and Liability Act). Thus, providing coverage to extinguish
ongoing liability for “existing owners” would in fact be a strong incentive
for the property owners to sell their property. Accordingly, the HUD

9
 LEMAD v. MIRAVISTA, et al.
Decision of the Court

memorandum, read in conjunction with the Redevelopment Agreement,
does not support LeMad’s claim of a misrepresentation (either negligent or
fraudulent) by Wilde or the other Appellees regarding the availability of
environmental insurance to pay for remediation expenses incurred by
existing property owners before they sold their properties.

¶24 LeMad’s reliance on Rhoads v. Harvey Publications, Inc., 131
Ariz. 267, 270–71, 640 P.2d 198, 201–02 (App. 1981), is misplaced. In Rhoads,
this court held that, although a misrepresentation of law will not support
an action for fraud, there is an exception if (1) “the party making the
representations is especially skilled in the law and the party to whom the
representations are made is not so skilled,” or (2) “there exists a relation of
trust and confidence between the parties.” 131 Ariz. at 270, 640 P.2d at 201.
Here, LeMad did not allege facts from which either of those conditions
could have been found. Non-lawyer Wilde sent his memorandum to
LeMad’s counsel, and the relationship between the parties was simply that
of a prospective buyer and a prospective seller of real property.
Accordingly, given Wilde’s role in acting on behalf of a potential buyer,
even if LeMad’s complaint had connected the alleged obligations under the
HUD memorandum to conduct by Appellees, LeMad would not be entitled
to relief on this claim.

¶25 Finally, LeMad asserts that the representations at issue “are
no different in effect than a putative buyer of a house truthfully telling the
seller that the buyer’s application for a mortgage sufficient to cover the
seller’s asking price was denied by a particular lender, and then using that
single, truthful ‘fact’ as leverage to get the seller to lower his asking price—
while failing to tell the seller that the buyer had been tentatively approved
for the higher mortgage amount by a different lender.” But LeMad’s
argument that “[s]haring only half the truth in such a fashion is just as much
a fraudulent misrepresentation as an outright lie” ignores the role of the
buyer and seller. A home seller (or a corporation interested in selling land)
is under no obligation to accept an offer from a buyer, and it would be
illogical for a seller to believe it is obligated to sell at a price determined by
one prospective buyer’s ability to obtain funds. If a seller believes his or
her property is worth more than has been offered, there is nothing that
prevents the seller from rejecting an offer and waiting to sell to someone
willing and able to pay the asking price for the property.

¶26 LeMad’s complaint made no assertion that the corporation
was forced to sell the Property to Appellees, and LeMad presumably could
have declined Appellees’ offer and/or sought a higher price from
Appellees or through eminent domain proceedings. Notably, LeMad did

10
 LEMAD v. MIRAVISTA, et al.
Decision of the Court

not assert in the complaint or on appeal that the Property was not subject
to environmental remediation for known conditions on the Property.
Instead, LeMad asserted only that those conditions should not have been
factored into the sales price for the Property, which was, on its face, an
unreasonable assertion. Thus, the superior court did not err by dismissing
LeMad’s fraudulent misrepresentation claim.

C. The Arizona Consumer Fraud Act.

¶27 LeMad contends that the Arizona Consumer Fraud Act,
A.R.S. § 44-1522, not only provides a cause of action against sellers, but also
against purchasers. We conclude otherwise.

¶28 Section 44-1522 provides a private cause of action for
misrepresentations, concealment, or omissions of material fact made “in
connection with the sale or advertisement of merchandise.” Dunlap v.
Jimmy GMC, 136 Ariz. 338, 342, 666 P.2d 83, 87 (App. 1983) (stating that the
Act “provides an injured consumer with an implied private cause of action
against a violator of the act”). “Merchandise” is defined as including real
estate. A.R.S. § 44-1521(5).

¶29 “The clear intent of this provision is to protect unwary buyers
from unscrupulous sellers.” Sutter Home Winery, Inc. v. Vintage Selections,
Ltd., 971 F.2d 401, 407 (9th Cir. 1992). The Act provides a remedy for injured
consumers “to counteract the disproportionate bargaining power often
present in consumer transactions.” Waste Mfg. & Leasing Corp. v. Hambicki, 183 Ariz. 84, 88, 900 P.2d 1220, 1224 (App. 1995). Because LeMad was the
seller, not the purchaser or buyer of the Property, the superior court did not
err by summarily dismissing LeMad’s Consumer Fraud Act claim.

D. Motion for New Trial/Motion to Amend.

¶30 We review the superior court’s denial of a motion for new trial
or to amend a complaint for an abuse of discretion. Pullen v. Pullen, 223
Ariz. 293, 296, ¶ 10, 222 P.3d 909, 912 (App. 2009). The party seeking to
overturn the decision bears the burden of proving that the court abused its
discretion. Id.

¶31 LeMad’s motion for new trial did not detail any evidence or
information the superior court failed to consider. Accordingly, and because
we agree with the superior court’s ruling dismissing LeMad’s complaint,
we conclude that the court did not abuse its discretion by denying LeMad’s
motion for new trial.

11
 LEMAD v. MIRAVISTA, et al.
Decision of the Court

¶32 In seeking leave to amend, LeMad did not provide the
superior court with a copy of a proposed amended pleading and thus failed
to comply with Arizona Rule of Civil Procedure 15(a)(2). Thus, there was
no basis from which the superior court could have assessed whether
permitting amendment would have been futile. See Tumacacori Mission
Land Dev., Ltd. v. Union Pac. R.R. Co., 231 Ariz. 517, 519, ¶ 4, 297 P.3d 923,
925 (App. 2013). Accordingly, the superior court did not abuse its
discretion by denying LeMad’s motion to amend its complaint.

II. Attorney’s Fees & Costs.

¶33 Both parties have requested an award of attorney’s fees on
appeal pursuant to A.R.S. § 12-341.01(A). In an exercise of our discretion,
we award Appellees their reasonable attorney’s fees as the prevailing
parties on appeal upon compliance with ARCAP 21. As the prevailing
parties on appeal, Appellees are also entitled to their costs on appeal upon
compliance with ARCAP 21. LeMad’s request for fees and costs is denied.

CONCLUSION

¶34 For the foregoing reasons, we affirm the superior court’s
dismissal of LeMad’s complaint and its denial of LeMad’s motion for new
trial.

:gsh

12