Southwest Non-Profit Housing Corporation v. Nowak, Kniffen, Martell
234 Ariz. 387
| Ariz. Ct. App. | 2014Background
- Southwest Non-Profit Housing Corp. bought, rehabbed, and contracted to sell three residential properties; each sale was contingent on lender appraisal at or above the contract price.
- Lenders commissioned appraisals by Nowak, Kniffen, and Martell; each appraisal came in materially below the contract price, lenders refused financing, and buyers withdrew.
- Southwest sued each appraiser for negligence/negligent misrepresentation; Nowak moved to dismiss, Kniffen and Martell moved for summary judgment. Trial courts granted relief for the appraisers; Southwest appealed and cases were consolidated.
- Appraisers relied on Restatement (Second) of Torts § 552 to argue liability is limited to intended recipients or a limited class the appraiser intended to influence.
- Trial courts found (a) Nowak owed no duty to Southwest because the appraisal was commissioned after the sales contract and was intended for the lender, not the seller; (b) Kniffen and Martell owed no duty and Southwest did not justifiably rely on their reports.
- Southwest asserted alternative theories (appraisal-certification language implied broader distribution, Dodd-Frank-based notice to sellers), and argued waiver issues; the courts rejected these arguments as a matter of law.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether an appraiser owes a duty under Restatement §552 to a seller when the appraisal was commissioned for the lender after the sales contract | Southwest: §552 imposes liability when appraiser knows the transaction type and intends to guide beneficiaries; appraiser should owe seller a duty even if contract preceded appraisal | Appraisers: §552 limits liability to persons or a limited class the appraiser intends to influence; seller here was not an intended recipient | Court: No duty as a matter of law — appraisal was for lender after contract; no reasonable inference Nowak intended to influence Southwest |
| Whether appraisal-certification language (¶21) or other contract language made the seller an intended user or created a waiver of tort liability | Southwest: ¶21/¶23 and federal law/course of dealing show appraisals would be supplied to sellers and thus create duties/waiver issues | Appraisers: Engagement was between appraiser and lender only; ¶21 lists permitted recipients and excludes seller; Southwest was not a party and had no right to waive | Court: ¶21 shows appraisers limited distribution; seller was part of a larger foreseeable class, not an intended limited class — no duty and no waiver by Southwest |
| Whether Dodd-Frank (15 U.S.C. §1639e) or federal law imputed knowledge to appraisers that sellers would receive appraisals | Southwest: Dodd-Frank contemplates other interested parties can request appraisal info, so appraisers know sellers will receive reports | Appraisers: §1639e allows certain parties to request appraisal actions but does not require distribution to sellers or create third-party duties | Court: Statute does not impose affirmative distribution duties or third-party duties; argument unpersuasive |
| Whether Southwest justifiably relied on the appraisals (element for negligent misrepresentation) | Southwest: It ultimately sold the properties at lower prices and was aware of appraisal effects; reliance can be inferred | Appraisers: Southwest challenged appraisals, refused to reduce price, sought reconsideration, remarkedet and sold — no evidence Southwest relied on the appraisals to act or refrain from acting | Court: No evidence of reliance; Southwest acted independently (challenged, refused to accept, remarketed) — reliance absent as a matter of law |
Key Cases Cited
- Airfreight Exp. Ltd. v. Evergreen Air Ctr., Inc., 215 Ariz. 103 (App. 2007) (standard for reviewing Rule 12(b)(6) dismissal)
- Cullen v. Auto-Owners Ins. Co., 218 Ariz. 417 (App. 2008) (courts assume truth of well-pled facts and reasonable inferences on dismissal)
- Belen Loan Investors, LLC v. Bradley, 231 Ariz. 448 (App. 2012) (use of Restatement §552 to define appraiser obligations to third parties)
- Sage v. Blagg Appraisal Co., 221 Ariz. 33 (App. 2009) (foreseeability alone ordinarily does not create duty under §552)
- Wingate Land, LLC v. ValueFirst, Inc., 722 S.E.2d 868 (Ga. Ct. App. 2012) (no duty to seller where appraisal performed for lender after sales contracts existed)
- St. Joseph’s Hosp. & Med. Ctr. v. Reserve Life Ins. Co., 154 Ariz. 307 (1987) (analysis of material misrepresentation and reliance)
- Kuehn v. Stanley, 208 Ariz. 124 (App. 2004) (application of Restatement §552 limits on liability)
- Ness v. Western Sec. Life Ins. Co., 174 Ariz. 497 (App. 1993) (no reliance where party did not accept defendant's statements and sought other advice)