Preview:

RHEE V. HIGHLAND DEVELOPMENT CORP., et al., NO. 1765, SEPT. 2007 TERM HEADNOTE: FRAUDULENT CONCEALMENT IN SALE OF REAL PROPERTY -- SCOPE OF DUTY NOT TO CONCEAL BY FRAUD A MATERIAL DEFECT IN REAL PROPERTY -EXTENSION OF DUTY TO SECONDARY PURCHASER. During construction of a residential subdivision, the developer/seller appellees found a small, very old cemetery on lot 20. They secretly removed and discarded the headstones and then took steps to hide the presence of the desecrated cemetery on the property, including revising the building envelope for the lot and revising written submissions made to government authorities. They then built a house on lot 20 and sold the property to the initial purchasers, who never knew of the cemetery's presence on the property. The initial purchasers sold the property to the appellants. Years later, the appellants learned, from a person associated with the appellees, that the desecrated cemetery was on their property and that the headstones had been intentionally removed and discarded and other steps had been taken to conceal the presence of the cemetery. The appellants sued the appellees for fraudulent concealment, seeking damages for the difference in value of the property as purchased by them and in its true condition, i.e., with a desecrated cemetery in the yard. The circuit court granted a motion to dismiss on the ground of lack of duty. Held: On the facts alleged, the appellees' duty not to fraudulently conceal the presence of a cemetery on the property extended beyond the initial purchasers, to the appellants as secondary purchasers. In Diamond Point Plaza Ltd. Partnership v. Wells Fargo Bank, the Court of Appeals adopted the principles set forth in sections 531 and 533 of the RESTATEMENT (SECOND) OF TORTS, and held that the maker of a fraudulent misrepresentation owes a duty not only to the one to whom the misrepresentation is made but also to the members of a class of people whom he intends or has reason to expect will act or refrain from acting in reliance upon the misrepresentation. These same principles apply when fraud is by concealment. There were sufficient allegations that the appellants were members of a defined class of people that the appellees would have had reason to expect would justifiably rely upon their fraud in concealing the presence of the cemetery on the property. Judgment reversed.

REPORTED IN THE COURT OF SPECIAL APPEALS OF MARYLAND No. 1765 September Term, 2007

JAMES RHEE, ET AL. v. HIGHLAND DEVELOPMENT CORPORATION, ET AL.

Eyler, De borah S ., * Adk ins, Sally D ., Sharer, J. Frederick (Ret'd, Specially Assigned), JJ.

Opinion by Eyler, Deborah S., J.

Filed: October 7, 2008 * Sally D. Adkins, Asso ciate Judge of the C ourt of Appeals, participated in the hearing and conference of this case w hile an active member of this Court; she participated in the adoption of this opinion as a specially assig ned mem ber of this Court.

In the Circuit Court for Howard County, James and Linda Rhee, the appellants, sued Highland Developm ent Corporation, Richard Demmitt, Fisher Collins & Carter, Inc., and Ronald Carter, the appellees, for fraud. T he Rhees are sub sequent purchasers of a house the appellees built and sold to initial purchasers. The Rhees alleged that, when the appellees originally built and sold the house, they fraudulently concealed, by desecration and other acts of misconduct, the presence of an abandoned cemetery on the p rope rty. The appellees filed a motion to dismiss, which the circuit court granted, with prejudice, on the ground that the appellee s did not o we the R hees a leg al du ty. 1 On appeal, the R hees challe nge the co urt's decision to dismiss the fraud claim, posing two questions for review, which we have consolidated and rephrased:2 Did the circuit court err in granting the appellees' motion to dismiss the appellants' c laim for fra udulent co ncealmen t? For the following reasons, we shall reverse the judgment of the circuit court and remand the case to that court for further proceedings not inconsistent with this opinion.

FACTS AND PROCEEDINGS

The Rhees also sued for civil conspiracy. The court dismissed that count as well. The Rhees have not challenged that decision in this appeal.
2

1

The questions as phrased by the appellants are as follows:

"1. Did the circuit court err in granting Appellees' motions to dismiss Appellants' fraud claims based on its determination that Appellees did not make any misrepresentations directly to Appellants, as subsequent purchasers? "2. Can a fraudulent concealment claim be sustained, regardless of whether the parties have a confidential or fiduciary relationship, if the defendant remains silent regarding a fact that it has taken some affirmative act to suppress or conceal?"

The first amend ed comp laint is the ope rative pleadin g for our p urposes. It contains the follo wing a llegation s of fac t. The Rhees own and live in a sin gle-family ho use at 138 09 Lake side Drive , in Clarksville ("the Property"). The Property is part of Brighton Pines, a residential housing developm ent. It is identified as "Lot 20" in the subdivision plan for Brighton Pines filed in the Howard County Land Reco rds. "In the 198 0's," Highland Development Corporation ("Highland") and Fisher, Carter & Collins ("F CC") o versaw c onstruction of the Brig hton Pine s Develo pment. 3 At all relevant times, Richard Demmitt was president of Highland and Ronald Carter was a princip al in FC C. When the appellees were in the process of developing Brighton Pines, they discovered on the land comprising Lot 20 a small cemetery consisting of more than twenty headstones, many dating to the 1700's. The cemetery, which appeared to have been abandoned, is not depicted in the Howard County Land Records. Demm itt and others acting at his direction removed the headstones so the area no longer was identifiable to the naked eye as a cemetery. Carter then moved the "building restriction lot lin es fo r Lot 20 s o tha t the [ now dese crate d and not visible] cem etery w as included in an are a whe re no co nstructio n was allowe d." Finally, "[i]n order to fraudule ntly conceal that there was a cemetery" on Lot 20, Carter "removed any references to the

3

A more specific date is not alleged. 2

cemetery before the work sheets [necessary for the subdivision approval] were submitted to any State or County agencies. As suc h, nothing in c onnection with the su bdivision is recorded with any . . . agency reflecting the presence of the cemetery" on Lot 20. Lot 20 was s old to the initial purc hase rs as the P rope rty. 4 The initial purchasers never knew that there was a desecra ted cemetery on the P roperty. On March 14, 1991, the initial purchasers sold the Property to the Rhees. When the Rhees purchased the Property, they knew no thing about the desec rated cem etery. Thirteen years later, on May 24, 2004, the Rhees learned there was a desecrated cemetery on the Property from a person who had been involved in developing Brighton Pines.5 According to the Rhees, the appellees' fraudulent concealment of the desecrated cemetery induced th e Rhees to purc hase the P rope rty; and the value of the Property with the desecrated cemetery is "significantly less than it otherwise would be ab sent the cemetery being located thereon." In dismissing the Rhees' fraud claim, the court reasoned: It is clear that with a fraud, whether it be misrepresentation or a concealment claim, there has to be a duty to the particular plaintiff. T here needs to be, certainly, statements made to a particular plaintiff and I think that to extend that beyond to a class of plaintiffs is certainly not appropriate in this case. The Rh ees noted a timely appeal.

The complaint does not identify the "initial purchasers" or disclose when they purchased the Property.
5

4

The first amended complaint does not identify that person by name. 3

DISCUSSION
Contentions The Rhees contend the appellees' d uty, as develop er/sellers of the Property, not to fraudulen tly conceal the presence of the cemetery on the Property extended to them, as subsequent purchasers. They argue that, just as the C ourt of A ppeals held in Diamond Point Plaza Ltd. Partne rship v. Wells Fargo Bank, N.A., 400 Md. 718 (2007), that a defenda nt's duty to refrain fro m fraudu lently misreprese nting a ma terial fact exten ds not only to the other party to the pertinent transaction but also to the people or "class of people" the defendant has "reason to expect" will rely upon the misreprese ntation, a def endant de veloper/selle r's duty to refrain from fraudulen tly concealing a materially adve rse condition of real prop erty also extends beyond the in itial purchase r of the pro perty to the people or "class of people" the defenda nt has "reas on to expe ct" will rely upon the conce alment. The appellees respond first that, in Maryland, an essential element of a cause of action sounding in fraud is the communication, verbal or non-verbal, of a misrepresentation by the defendant to the plaintiff. Here, there was no such communication, and so the fraud claim must fail. They further argue that, if it were otherwise, a developer/seller's liability in fraud would extend to any number of subsequent purchasers of real property with whom the developer/seller had no contact and who did not have an o wnership or possesso ry interest in the property when the acts of fraudulent concealment took place. The appellees further maintain that the presence of the cemetery on the Property was not a material defect affecting

4

valuation, and for that reason they did no t owe any duty to disclose it, either to the initial purchasers or to any subsequent purchasers. Finally, the appellees argue that in any event the Rhees did not suf ficiently plead d amages s o as to state a claim for fraudulent concealm ent. Standard of Review On appeal from a decision to grant a motion to dismiss for failure to state a claim upon which relief can be granted, "`we must determine whether the [opera tive] comp laint, on its face, discloses a legally sufficient cause of action.'" Schisler v. Sta te , 177 Md. App. 731, 742-43 (2007) (qu oting M d. Rule 2-3 22(b)(2); Fioretti v. Md. State Bd. of Dental Exam'rs , 351 Md. 66, 72 (1998)). We "`determine whether the trial court was legally correct, examining solely the sufficiency of the pleading.'" Pendleto n v. State , 398 Md. 447, 459 (2007) (quoting Ricketts v. Ricketts , 393 M d. 479, 492 (2006)). In d oing so, "w e accept all well-pled facts in the complaint, and reasonable inferences drawn from them, in a light most favorable to the no n-mov ing par ty." Spren ger v. P ub. Ser v. Com m'n of Md ., 400 Md. 1, 21 (2007) (quoting Converge Servs. Group v. Curran, 383 Md. 462, 475 (2004)). "W e will only find that dismissal was proper `"if the alleged facts and permissible inferences, so viewed, would, if proven, nonetheless fail to afford relief to the plaintiff."' " Id. (quoting Pendleton, supra , 398 Md. at 459 ).6 Analy sis

The factual allegations made by the Rhees in the first amended complaint are wellpleaded and therefore have been accepted for purposes of appellate review. The appellees emphasize that they vigorously dispute all of the allegations against them. 5

6

In Maryland, the essential elements of a cause of action for fraudulent concealment are: "(1) the defendant owed a duty to the plaintiff to disclose a material fact; (2) the defenda nt failed to disclose that fact; (3) the defendant intended to defraud or deceive the plaintiff; (4) the plaintiff took action in justifiable reliance on the concealment; and (5) the plaintiff suffered damages as a result of the defen dant's c oncea lment." Lloyd v. Gen. Motors Corp ., 397 Md. 108, 138 (2007) (quoting Green v. H&R Block, 355 Md. 488, 52 5 (199 9)). Eac h elem ent mu st be pro ven by cl ear and convin cing ev idence . Md. Envtl. Trust v. Gaynor, 370 M d. 89, 97 (2002 ). In the context of the sale of real p roperty, non-d isclosure of a material fa ct ordinarily is not actiona ble, but frau dulent con cealment o f a material f act is: Non-disc losure is a failure to reveal fac ts. It may exist wh ere there is neither representation nor concealment. Except in a few special types of transactions, such as insurance contracts and transactions between a fiduciary and his ben eficiary, there is no general du ty upon a party to a transaction to disclose facts to the othe r party. To create a cause of action, concealment must have been intentional a nd effective-- the hiding o f a material fact with the attained object of cre ating or co ntinuing a fa lse impress ion as to tha t fact. The affirmative suppression of the truth must have been with intent to deceive. Fegeas v. Sherrill , 218 Md. 472, 476-77 (1958) (internal citations and quotations omitted) (emphasis added ). In discussing the fraudulent concealment of a cause of action, the Court of Appea ls has observed: "Abs ent a fid uciary rela tionship . . . a plaintiff seeking to establish fraudulent concealment must prove that the defendant took affirmative action to conceal the cause of action and that the plaintiff could not have discovered the cause 6

of action des pite the e xercise of reas onable diligenc e and th at . . . the affirmative act on the part of the defend ant must . . . be some ac t intended to exclude suspicion and prevent injury, or there must be a duty on the part of the defendant to disclose such facts, if known." Id. (quoting Frederick Road v. Brown & Sturm , 360 Md. 76, 100 n.14 (2000)) (citations omitted ) (emph asis add ed). In other words, "fraudulent concealment

Download Rhee v. Highland Development.pdf

Maryland Law