Gattis v. McNutt
2013 COA 145
Colo. Ct. App.2013Background
- Sellers (entities/individuals who purchased, repaired, and resold a house built on expansive soils) listed the house using a Colorado Real Estate Commission standard-form Contract to Buy and Sell Real Estate and an attached Seller's Property Disclosure (SPD).
- Sellers had engineering reports describing structural damage from expansive soils and arranged repairs through an entity they controlled, but did not disclose those reports, the repairs-entity relationship, or the expansive-soil problem to the buyers.
- The SPD contained a checkbox question about expansive soils (answered to indicate no actual knowledge) and a general statement written by Sellers that they had "no personal knowledge" because they never lived at the property; the SPD also acknowledged receipt by the buyer but did not bind buyer to its terms.
- Gattis sued years later for nondisclosure tort claims alleging only economic loss from damage caused by expansive soils; Sellers moved to dismiss on economic loss rule grounds but the trial court entered judgment for Gattis on nondisclosure and awarded attorney fees under the contract's fee-shifting clause.
- On appeal, Sellers argued the economic loss rule barred the tort claim because the SPD/form contract governed disclosures; the court of appeals affirmed, holding sellers owe an independent duty to disclose latent defects and the form disclosures did not subsume that duty.
Issues
| Issue | Plaintiff's Argument (Gattis) | Defendant's Argument (Sellers) | Held |
|---|---|---|---|
| Whether the economic loss rule bars a nondisclosure tort claim for latent defects known to the seller | The economic loss rule does not apply because sellers owe an independent common-law duty to disclose known but latent defects; claim is tort-based and independent of contract | The SPD and Form Contract subsume disclosure obligations, so any economic loss claim arises from contract and is barred in tort | Held: Economic loss rule does not bar nondisclosure tort claim; sellers owe independent duty to disclose known latent defects |
| Whether the SPD/form contract displaced the common-law disclosure duty | The SPD/form contract did not limit or negate the common-law duty; plaintiffs could prevail without relying on SPD terms | Sellers: SPD and contract questions/boxes and admonitions show the parties agreed their disclosure obligations were contractual and thus subsumed | Held: Form Contract/SPD did not so subsume or displace the independent duty—it lacked standard-of-care, specific allocation of risks, disclaimers of reliance, or exclusive remedies |
| Whether Gattis was entitled to contractual attorney fees as prevailing party | The tort claim related to the contract (purchase/sale) so the broad fee-shifting clause ("relating to this contract") applies | Sellers: Tort claim is independent of the contract so fee-shifting clause should not apply; alternatively, clause only applies to defaults/remedies | Held: Fee-shifting clause applies broadly to litigation "relating to" the contract; Gattis entitled to fees, including on appeal; remanded to determine appellate fee amount |
| Scope of remedy when contract is a standard-form residential sale | Gattis: permitting tort recovery protects homebuyers from latent defects and aligns with residential policy concerns | Sellers: applying tort claims despite form contracts undermines contractual risk allocation and the economic loss rule | Held: Special policy concerns in residential real estate (buyer vulnerability, seller/repair knowledge disparity, foreseeability of resale) support recognizing an independent tort duty and permitting tort recovery despite standard-form contract |
Key Cases Cited
- Town of Alma v. AZCO Constr., 10 P.3d 1256 (Colo. 2000) (adopts economic loss rule and explains when tort claims are barred absent independent tort duty)
- BRW, Inc. v. Dufficy & Sons, Inc., 99 P.3d 66 (Colo. 2004) (discusses policy rationales underlying economic loss rule and distinguishing tort vs. contractual duties)
- A.C. Excavating v. Yacht Club II Homeowners Ass'n, Inc., 114 P.3d 862 (Colo. 2005) (recognizes independent duty in residential construction context and limits economic loss rule application)
- Cosmopolitan Homes, Inc. v. Weller, 663 P.2d 1041 (Colo. 1983) (protecting homebuyers from latent defects; seller/builder superior knowledge rationale)
- Makoto USA, Inc. v. Russell, 250 P.3d 625 (Colo. App. 2009) (addresses whether a tort claim can be proven without proving breach of contract for economic loss rule analysis)
- Burman v. Richmond Homes Ltd., 821 P.2d 913 (Colo. App. 1991) (duty to disclose facts that equity requires be disclosed; distinguishes latent defects from those a buyer should discover)
- Sperry v. Bolas, 786 P.2d 517 (Colo. App. 1989) (fraudulent misrepresentation in tort may "arise out of" the contract and still be subject to contractual fee-shifting clauses)