JAMES CUMMINGS and wife, CONNIE CUMMINGS v. ROBERT PATTON CARROLL; DHR SALES CORP. d/b/a RE/MAX COMMUNITY BROKERS; DAVID H. ROOS; MARGARET N. SINGER; BERKELEY INVESTORS, LLC; KIM BERKELEY T. DURHAM; GEORGE C. BELL; THORNLEY HOLDINGS, LLC; BROOKE ELIZABETH RUDD-GAGLIE f/k/a BROOK ELIZABETH RUDD; MARGARET RUDD & ASSOCIATES, INC.; and JAMES C. GOODMAN
No. 216A20
IN THE SUPREME COURT OF NORTH CAROLINA
Filed 17 December 2021
2021-NCSC-147
Appeal pursuant to N.C.G.S. § 7A-30(2) from the decision of a divided panel of the Court of Appeals, 270 N.C. App. 204 (2020), affirming, in part, and reversing and remanding, in part, an order entered on 31 July 2018 by Judge Alma L. Hinton in Superior Court, Brunswick County, granting summary judgment in favor of defendants Robert Patton Carroll; DHR Sales Corp. d/b/a Re/Max Community Brokers; Berkeley Investors, LLC; George C. Bell; Brooke Elizabeth Rudd-Gaglie f/k/a Brooke Elizabeth Rudd; Margaret Rudd & Associates, Inc.; and James C. Goodman. On 15 December 2020, the Supreme Court allowed defendants Berkeley Investors’ and Mr. Bell’s petition for discretionary review as to additional issues. Heard in the Supreme Court on 30 August 2021.
Chleborowicz Law Firm, PLLC, by Christopher A. Chleborowicz and Elijah A.T. Huston, for plaintiff-appellees.
Wallace, Morris, Barwick, Landis & Stroud, P.A., by Stuart Stroud and Kimberly Connor Benton for defendants-appellants Brooke Elizabeth Rudd-Gaglie f/k/a Brooke Elizabeth Rudd; Margaret Rudd & Associates, Inc.; and James C. Goodman.
Alexander C. Dale and Ryal W. Tayloe for defendants-appellants George C. Bell and Berkeley Investors, LLC.
Crossley McIntosh Collier Hanley & Edes, PLLC, by Clay Allen Collier, for defendants-appellants Robert Patton Carroll and DHR Sales Corp. d/b/a Re/Max Community Brokers.
¶ 1 This case stems from a dispute surrounding the purchase of an oceanfront beach house located on Oak Island by plaintiffs James Cummings and his wife, Connie Cummings. Several months after closing, plaintiffs discovered the existence of significant structural damage to the house arising from past water intrusion, prompting them to assert claims against defendants for negligence, negligent misrepresentation, fraud, unfair and deceptive trade practices, breach of contract, breach of the implied covenant of good faith and fair dealing, and breach of fiduciary duty. After the conclusion of discovery, the trial court granted defendants’ motions for summary judgment. On appeal, we have been asked to determine if the trial court correctly granted summary judgment with respect to the claims of negligence and fraud against Re/Max and Mr. Carroll, negligent misrepresentation and fraud against Berkeley Investors and Mr. Bell, and breach of fiduciary duty against Rudd & Associates, Ms. Rudd-Gaglie, and Mr. Goodman. After careful consideration of the
record in light of the applicable law, we affirm the decision of the Court of Appeals, in part; reverse the decision of the Court of Appeals, in part; and remand this case to Superior Court, Brunswick County, for a trial on the merits with respect to these claims.
I. Factual Background
A. Substantive Facts
¶ 2 On 15 August 2014, plaintiffs purchased an oceanfront beach house located on Oak Island from Berkeley Investors. Plaintiffs were represented in connection with the transaction by Rudd & Associates, acting through Ms. Rudd-Gaglie and Mr. Goodman. On the other hand, Berkeley Investors was represented by Re/Max, with Mr. Carroll
¶ 3 Berkeley Investors had purchased the house, which had been built in 2003, for use as a short-term rental property.1 Berkeley Investors retained Oak Island Accommodations, Inc., for the purpose of renting, cleaning, and otherwise maintaining the property. According to maintenance records maintained by Oak Island Accommodations, the house had experienced numerous maintenance-related
problems from 2005 through 2014, including water damage to the ceiling, a number of internal water leaks, and mold growth.
¶ 4 On 2 January 2013, Berkeley Investors hired Mr. Carroll for the purpose of listing the house for sale. Subsequently, on 20 January 2013, Berkeley Investors executed a State of North Carolina Residential Property and Owners’ Association Disclosure Statement, which residential property owners are required to provide to prospective buyers in accordance with
Regarding the [house] . . . to your knowledge is there any problem (malfunction or defect) with any of the following:
. . . .
1. FOUNDATION, SLAB, FIREPLACES/CHIMNEYS, FLOORS, WINDOWS (INCLUDING STORM WINDOWS AND SCREENS), DOORS, CEILINGS, INTERIOR AND EXTERIOR WALLS, ATTACHED GARAGE, PATIO, DECK OR OTHER STRUCTURAL COMPONENTS including any modifications to them?
2. ROOF (leakage or other problem)?
3. WATER SEEPAGE, LEAKAGE, DAMPNESS OR STANDING WATER in the basement, crawl space or slab?
. . . .
10. PRESENT INFESTATION, OR DAMAGE FROM PAST INFESTATION OF WOOD DESTROYING INSECTS OR ORGANISMS which has not been repaired?
According to the disclosure statement, if “something happens to the property to make your [d]isclosure [s]tatement incorrect or inaccurate (for example, the roof begins to leak), [the sellers] must promptly give the purchaser a corrected [d]isclosure [s]tatement or correct the problem.”
¶ 5 Mr. Bell and Ms. Durham knew of and had discussed problems relating to water intrusion into the house as early as January 2011, with Mr. Carroll having been included in these discussions as early as 14 October 2013, following his engagement as the listing agent. For example, in a 14 October 2013 e-mail to Ms. Durham and Mr. Carroll, Mr. Bell stated that the owners needed to “trace the source of the water leakage evident on the ceiling” of the guest room and “[f]ix the separated/rotted wood in the guest room level from the water leakage.” In addition, Mr. Bell noted that he had “[f]ound a small plumbing leak in the kitchen” that he had “fixed with tape.”
¶ 6 On 20 January 2014, Mr. Bell sent an e-mail to Ms. Durham that contained a list of repairs that needed to be made to the house and in which he noted that:
[t]here has been a lot of water-intrusion that has come into [the guest-level] ceiling from wind driven rain from above and has stained it badly about 15 feet into the room ceiling. It’s right in the center of the room and seems to originate on the upper level and flow down through the interior column between the doors.
Mr. Bell recommended that the owners “[f]ind and repair the source of this leak that is causing the damage. We’ll need to get a few boards replaced on the columns as
well; they are buckled from the water-intrusion.” In addition, Mr. Bell suggested that the owners
¶ 7 In March 2014, Mr. Carroll enlisted the services of Randy Cribb, a painter who had performed painting work on the house during the preceding year. In addition to painting the living room walls and ceiling, an exterior wall, and the upper and lower decks, Mr. Cribb agreed to repair “cracks” and “cracked caulk” in the ceiling. At some time prior to 24 March 2014, Mr. Cribb sent a text message to Mr. Carroll in which he stated that he was almost finished with the work that he had been engaged to perform, that he “may have found that leak,” and that he “hope[d] that was it.” On the other hand, Mr. Cribb’s deposition testimony indicated that he had not looked behind the walls for the purpose of determining whether any water intrusion had occurred.
¶ 8 In April 2014, plaintiffs contacted Ms. Rudd-Gaglie, with whom they had worked in the past, for the purpose of assisting them in exploring the option of purchasing the house. As a result, Ms. Rudd-Gaglie contacted Mr. Carroll and
arranged for an initial site visit, which she attended with plaintiffs. On 26 June 2014, plaintiffs employed Rudd & Associates to represent them in connection with the purchase of the house by executing an Exclusive Buyer Agency Agreement which provided, among other things, that (1) Rudd & Associates had a duty to “disclos[e] to [plaintiffs] all material facts related to the property or concerning the transaction of which [Rudd & Associates] has actual knowledge” and would “exercise ordinary care, comply with all applicable laws and regulations, and treat all prospective sellers honestly” in the process; (2) plaintiffs were “advised to seek other professional advice in matters of . . . wood-destroying insect infestation, structural soundness, engineering, and other matters pertaining to any proposed transaction”; and (3), although Rudd & Associates “may provide [plaintiffs] the names of providers who claim to perform such services, [plaintiffs] understand[ ] that [it] cannot guarantee the quality of service or level of expertise of any such provider.” The buyer agency agreement also specified that plaintiffs “agree[d] to indemnify and hold [Rudd & Associates] harmless” for any liability arising “either as a result of [plaintiffs’] selection and use of any such provider or [plaintiffs’] election not to have one or more of such services performed.”
¶ 9 On 12 July 2014, plaintiffs made an offer to purchase the house for $1.25 million, which was accepted on behalf of Berkeley Investors by Mr. Bell on 12 July 2014 and by Ms. Durham on 13 July 2014. The Offer to Purchase and Contract
between plaintiffs and Berkeley Investors included a 30-day due diligence period, during which plaintiffs or their agents were entitled to “conduct all desired tests, surveys, appraisals, investigations, examinations and inspections of the Property as [plaintiffs’] deem[ ] appropriate” and specifically provided for the performance of inspections “to determine . . . the presence of unusual drainage conditions or evidence of excessive moisture adversely affecting any improvements on the Property” or “evidence of wood-destroying insects or damage therefrom.” After noting that plaintiffs acknowledged having received and reviewed the disclosure statement, the purchase contract provided that “THE PROPERTY IS BEING SOLD IN ITS CURRENT CONDITION” and that Berkeley Investors had not extended any warranty to plaintiffs in connection with the sale.
¶ 10 Ms. Rudd-Gaglie recommended that plaintiffs employ Jeff Williams, a licensed home inspector, to inspect the house. On 19 July 2014, Mr. Williams conducted his inspection, with Mr. Cummings, Mr. Carroll, Ms. Rudd-Gaglie, and Mr. Goodman, who was the broker-in-charge at Rudd & Associates, in attendance. Mr. Cummings testified during his deposition that, after the conclusion of the inspection, he asked Mr. Carroll if the house was “a good, watertight, sound house?” and that Mr. Carroll had responded by stating that, “if [he] had the money, [he would] buy it.”
performed by indicating that he would, among other things, (1) “[r]eport signs of abnormal or harmful water penetration into the building or signs of abnormal or harmful condensation on building components” and (2) “[p]robe structural components where deterioration is suspected.” On the other hand, the report stated that Mr. Williams would not “[e]nter any area or perform any procedure that may damage the property or its components” and that he would not be required to “[m]ove personal items, panels, furniture, equipment, plant life, soil, snow, ice or debris that obstructs access or visibility” or “inspect[ ] behind furniture, area rugs or areas obstructed from view.” At the end of each section, the report stated that, “[w]hile the inspector makes every effort to find all areas of concern, some areas can go unnoticed” and that “[i]t is recommended that qualified contractors be used in your further inspection or repair issues as it relates to the comments in this inspection report.” In addition, Section 1 of the report, which addressed issues relating to “Roofing,” specifically noted that “[o]ur inspection makes an attempt to find a leak but sometimes cannot.”
¶ 12 In the more structure-specific portions of his report, Mr. Williams noted the existence of numerous problems with the house that needed to be repaired, including: (1) the presence of minor damage to the roof; (2) the need for portions of the exterior walls “to be sealed to keep water and insect[s] from entering the home”; (3) the presence of certain doors that would not close or seal properly; (4) the difficulty of
opening certain sliding doors and windows and the presence of rust stains on some of those fixtures; and (5) the presence of loose drywall tape near the guest-level entryway, a condition that Mr. Williams attributed to a “lack of air movement” and that led him to recommended the installation of a dehumidifier “to remove moisture.” On the other hand, nothing in Mr. Williams’ report suggested that the house had experienced significant water intrusion. In his deposition, Mr. Williams testified that he had not seen any evidence of water intrusion; that, if he had, he “most definitely” would have conducted a moisture test by using an awl to probe the wall and identify spots in which the drywall had been softened by moisture; that no one had made him aware that the house had a history of water intrusion; and that, had he been informed that water intrusion had occurred at the house, he would have either conducted a moisture test or declined to perform the inspection.
¶ 13 On 21 July 2014, Ms. Rudd-Gaglie e-mailed the inspection report to plaintiffs, stating that Mr. Williams had told her that, while the issues that needed to be addressed included “mostly small items,” “the bigger items were the doors and windows.” Ms. Rudd-Gaglie advised plaintiffs to “look over the report” and then call her to “discuss how [plaintiffs] would like to proceed with repairs.” In light of the report, plaintiffs and Berkeley Investors amended the purchase contract to provide that Berkeley Investors would pay $4,500 relating to plaintiffs’ “expenses associated with the purchase of the Property,” with this amount having been intended, according
to Mr. Cummings, to cover the costs of making the repairs that had been identified in Mr. Williams’ report. The sale of the house closed on 15 August 2014.
¶ 14 In November 2014, plaintiffs and various members of their family came to the house for the purpose of celebrating Thanksgiving. At that time, which occurred shortly after a major thunderstorm, plaintiffs observed evidence of significant water intrusion extending approximately fifteen feet into the guest floor ceiling. After cutting away a section of the sheetrock in the wall, Mr. Cummings and his son-in-law discovered the presence of black mold and a large termite nest. Mr. Cummings contacted Ms. Rudd-Gaglie to advise her of this discovery, and she recommended that Mr. Cummings contact Craig Moore, a licensed general contractor, for the purpose of getting him to inspect the house.
¶ 15 On the following morning, Mr. Moore conducted an initial inspection of the house. In his deposition testimony, Mr. Moore stated that, at the time of his initial visit to the house, he had observed that the ocean-side
had shoved newspaper into holes in the wall before caulking over the newspaper-filled holes.
¶ 16 In the aftermath of at least one additional visit to the house, Mr. Moore sent plaintiffs a letter dated 5 December 2014 in which he noted that the house had “many active and substantial leaks, which need to be repaired as quickly as possible”; warned that “[t]he structural integrity of the house is or will be compromised as the combination of active leaks and active termite infestation worsen[s]”; and opined that there appeared to have been some “recent aesthetic repairs made to many of the questionable areas.” According to Mr. Moore, the extensive damage to the house that he had discovered showed that, while the house had not been “properly maintained,” “work had been done to make the house look better.” In addition, Mr. Moore concluded that the “previous damage to the house, wherever it was, was carefully painted and hidden so that the only way to discover that there was an ongoing water-intrusion problem would have been to do extensive intrusion testing into the walls” and opined that anyone performing minor paint and repair work at the house “could [not] have done that work without knowing they were covering up a major problem.”
¶ 17 According to Mr. Moore, the conditions that he observed in the house would not have given someone performing a visual inspection any reason to believe that conducting intrusive testing for the presence of moisture would have been appropriate. On the other hand, Mr. Moore also testified that, had he inspected the
house, he would have identified the moisture intrusion problems given that he had been trained to recognize when cosmetic repairs had been performed. For this reason, Mr. Moore had advised plaintiffs that they should always have a general contractor, rather than a home inspector, perform any needed home inspections. Plaintiffs paid Mr. Moore in excess of $300,000 to repair the damage that the house had sustained.
B. Procedural History
¶ 18 On 2 September 2015, plaintiffs filed a complaint asserting certain claims arising from their purchase of the house. After obtaining leave of court, plaintiffs filed an amended complaint on 12 September 2016 in which they asserted claims for (1) negligence against Re/Max, Mr. Carroll, Rudd & Associates, Ms. Rudd-Gaglie, and Mr. Goodman; (2) negligent misrepresentation against all defendants; (3) breach of fiduciary duty against Rudd & Associates, Ms. Rudd-Gaglie, and Mr. Goodman; (4) unfair and deceptive trade practices, pursuant to
(9) personal liability against Mr. Bell.2 In essence, plaintiffs alleged that defendants had induced them to purchase the house in spite of its damaged condition, with the damage having resulted from, among other things, undisclosed water-intrusion problems and termite infestation, and sought to recover compensatory damages related to the costs that they had incurred in repairing the house, treble damages pursuant to
C. Court of Appeals Decision
¶ 20 In seeking relief from the trial court’s order before the Court of Appeals, plaintiffs argued that the trial court had erred by granting summary judgment in favor of all defendants. After affirming the trial court’s decision to grant summary judgment in defendants’ favor with respect to plaintiffs’ claims for (1) negligence against Rudd & Associates, Ms. Rudd-Gaglie, and Mr. Goodman; (2) negligent misrepresentation against Rudd & Associates, Ms. Rudd-Gaglie, Mr. Goodman, Re/Max, and Mr. Carroll; (3) unfair and deceptive trade practices against Berkeley Investors, Mr. Bell, Re/Max, and Mr. Carroll; (4) breach of contract against Mr. Bell; (5) breach of the implied covenant of good faith and fair dealing against Berkeley Investors and Mr. Bell; and (6) personal liability against Mr. Bell, the Court of Appeals unanimously reversed the trial court’s decision to grant summary judgment in favor of defendants with respect to plaintiffs’ claims for negligent misrepresentation and fraud against Berkeley Investors and Mr. Bell. Cummings v. Carroll, 270 N.C. App. 204, 235 (2020). Finally, although a majority of the Court of Appeals voted to reverse the trial court’s decision to grant summary judgment in favor of defendants with respect to plaintiffs’ claims for (1) negligence against Re/Max and Mr. Carroll; (2) fraud and fraud in the inducement against Re/Max and Mr. Carroll; (3) fraud by concealment against Re/Max and Mr. Carroll; and (4) breach of fiduciary duty against Rudd & Associates, Ms. Rudd-Gaglie, and Mr. Goodman, id., Judge Arrowood dissented from this aspect of his colleagues’ decision. Re/Max, Mr.
Carroll, Rudd & Associates, Ms. Rudd-Gaglie, and Mr. Goodman noted an appeal to this Court from the Court of Appeals’ decision based upon Judge Arrowood’s dissent. This Court allowed a petition for discretionary review with respect to additional issues filed by Berkeley Investors and Mr. Bell on 18 December 2020.3
II. Substantive Legal Analysis
A. Standard of Review
¶ 21 This Court reviews decisions arising from trial court orders granting or denying motions for summary judgment using a de novo standard of review. Dallaire v. Bank of Am., N.A., 367 N.C. 363, 367 (2014). The entry of an order granting summary judgment in favor of a particular party is appropriate when “the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that any party is entitled to a judgment as a matter of law.”
Sadler, 365 N.C. 178, 182 (2011). Although the party seeking the entry of summary judgment in its favor “bears the burden of establishing that there is no triable issue of material fact,” the burden shifts to the nonmoving party to “produce a forecast of evidence demonstrating that the [nonmoving party] will be able to make out at least a prima facie case
B. Economic Loss Rule
¶ 22 As an initial matter, Berkeley Investors and Mr. Bell and Re/Max and Mr. Carroll argue that certain claims that plaintiffs have asserted against them are barred by the economic loss rule.4 In rejecting this contention, the Court of Appeals held that the economic loss rule did not provide any protection against the claims that plaintiffs had asserted against these defendants because none of the conduct that allegedly underlay those claims implicated the terms of the purchase contract between plaintiffs and Berkeley Investors. Cummings, 270 N.C. App. at 219. In addition, the Court of Appeals concluded that Re/Max and Mr. Carroll were not
entitled to claim the protections of the economic loss rule because they lacked privity of contract with plaintiffs. Id. We conclude that the Court of Appeals correctly resolved this issue.
¶ 23 “[T]he economic loss rule bars recovery in tort by a plaintiff against a promisor for his simple failure to perform his contract, even though such failure was due to negligence or lack of skill.” Crescent Univ. City Venture, LLC v. Trussway Mfg., Inc., 376 N.C. 54, 58 (2020) (cleaned up); see also N.C. State Ports Auth. v. Lloyd A. Fry Roofing Co., 294 N.C. 73, 81 (1978) (observing that, “[o]rdinarily, a breach of contract does not give rise to a tort action by the promisee against the promisor”). In such situations, “[i]t is the law of contract and not the law of negligence which defines the obligations and remedies of the parties,” Boone Ford, Inc. v. IME Scheduler, Inc., 262 N.C. App. 169, 174 (2018), with the purpose of the economic loss rule being to prevent “contract law [from] drown[ing] in a sea of tort,” E. River S.S. Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 866 (1986).
¶ 24 Plaintiffs’ remaining claims for negligent misrepresentation and fraud against Berkeley Investors and Mr. Bell and for negligence and fraud against Re/Max and Mr. Carroll center on the alleged failure of those defendants to disclose or adequately repair any defects in the house and upon Berkeley Investors’ alleged misrepresentations concerning the condition of the house. Specifically, plaintiffs allege that the relevant defendants failed to disclose the existence of a long history of
water-intrusion issues at the house and unreasonably relied upon Mr. Cribb’s assurances that he had fully repaired the problem prior to closing. In our view, the Court of Appeals correctly concluded that none of these allegations rely upon the relevant contractual provisions.
¶ 25 According to Berkeley Investors and Mr. Bell and Re/Max and Mr. Carroll, the disclosure statement upon which these claims rely constitutes a part of the purchase contract, so that claims relating to the disclosure statement implicate contractual duties for purposes of the economic loss rule. In support of this assertion, the relevant defendants direct our attention to
¶ 26 A careful examination of Standard Form 2-T reveals, however, that the document in question simply acknowledges that “Buyer has received a signed copy of the N.C. Residential Property and Owners’ Association Disclosure Statement prior to the signing of this offer.” For that reason, the language upon which Berkeley Investors and
owner had complied with its obligation to provide a residential disclosure statement to the purchaser without addressing the substance of the disclosure statement. See
¶ 27 In seeking to persuade us to reach a contrary conclusion, Berkeley Investors and Mr. Bell
[w]hen a plaintiff asserts that the subject matter of a contract has, in its operation or mere existence, caused injury to itself or failed to perform as bargained for, the damages are merely economic, and a purchaser has no right to assert a claim for negligence against the seller . . . for those economic losses under the economic loss rule.
376 N.C. at 62. The principle enunciated in Crescent University City Venture, which involved a claim
361 N.C. at 526–27 (quoting Ragsdale v. Kennedy, 286 N.C. 130, 138 (1974)). On the other hand, “any reliance on the allegedly false representations must be reasonable.” Id. at 527 (citing Johnson v. Owens, 263 N.C. 754, 757 (1965)).
¶ 54 Berkeley Investors, Mr. Bell, Re/Max, and Mr. Carroll argue that they are not
the repaired leak because he justifiably relied on [Mr. Cribb’s] representations that the leak was repaired and believed (also based on months of observation and the findings of other professionals) the leak to be
¶ 55 We are unable, for the reasons set forth above, to accept the validity of any of these arguments. In our view, as the Court of Appeals correctly determined, the record discloses
Oak Island Accommodations showed that water intrusion had occurred at the house in the past, Berkeley Investors, Mr. Bell, Re/Max, and Mr. Carroll insist that the records “also show that each and every issue was addressed and resolved” and that plaintiffs had failed to request that they be provided with the relevant maintenance records in spite of the fact that they knew of their existence. We agree, for the reasons stated below, that none of defendants had a legal duty to obtain the Oak Island Accommodations maintenance records and to provide them to plaintiffs. We also conclude, however, that the existence of these records, coupled with the e-mails exchanged between Mr. Bell, Mr. Carroll, and Ms. Durham concerning water-intrusion problems at the house over the course of nearly a year prior to the closing, provide additional support for our conclusion that the record discloses the existence of a genuine issue of material fact concerning the validity of plaintiffs’ fraud claims given that awareness of the existence of these problems tends to undercut the accuracy of the representations contained in the disclosure statement concerning the condition of the house.
¶ 56 We are not, obviously, holding that these facts compel a finding of liability or that a jury would not be able, depending upon its evaluation of the evidence, to return a verdict in favor of Berkeley Investors, Mr. Bell, Re/Max, and Mr. Carroll or that either sellers or real estate agents owe a fiduciary duty to buyers or to disclose defects that do not exist. Instead, we are simply holding that, in light of the present record,
a reasonable jury could, but was not required, to find in plaintiffs’ favor with respect to these fraud-related claims. As a result, for all of these reasons, we hold that the Court of Appeals correctly held that the trial court had erred by entering summary judgment in defendants’ favor with respect to the fraud claims that plaintiffs had asserted against Berkeley Investors, Mr. Bell, Re/Max, and Mr. Carroll.
F. Inference Running Backwards
¶ 57 Finally, Berkeley Investors and Mr. Bell argue that the Court of Appeals erred in reversing the trial court’s summary judgment order by violating the prohibition against relying upon inferences that “r[a]n backward.” In support of this argument, Berkeley Investors and Mr. Bell direct our attention to our decision in Childress v. Nordman, 238 N.C. 708, 712 (1953), which they claim enunciates a “general rule that mere proof of the existence of a condition or state of facts at a given time does not raise an inference or presumption that the same condition or state of facts existed on a former occasion.” In light of this principle, Berkeley Investors and Mr. Bell argue that the Court of Appeals erred by relying upon Mr. Moore’s testimony, which rested upon an inspection of the house that he conducted three months after the closing, given the absence of any “evidence before the Court of Appeals sufficient to show that [the] representations concerning the [h]ouse’s condition [made by Berkeley Investors and Mr. Bell] were false either when made by them or when acted on by
[plaintiffs]—despite [Mr.] Moore’s opinion . . . that the problems had been ‘going on for quite some time.’ ”
¶ 58 As Berkeley Investors and Mr. Bell have conceded, however, subsequent decisions of this Court and the Court of Appeals have held that the principle articulated in Childress was “not of universal application” and that its application was, instead, dependent
examination of the record that is before us in the present case satisfies us that a reasonable jury could determine, based upon Mr. Moore’s testimony, that the damage that he discovered had been in existence at the time of closing, particularly given the emphasis that Berkeley Investors and Mr. Bell have placed upon Mr. Cribb’s repair work and the absence of any evidence tending to show that any event that might have caused the damage that Mr. Moore observed had occurred between August and November 2014. As a result, we hold that the Court of Appeals did not violate any rule against “inferences running backwards” in partially reversing the trial court’s summary judgment order.
G. Breach of Fiduciary Duty
¶ 59 Finally, in addressing the validity of the Court of Appeals’ determination that the record disclosed the existence of genuine issues of material fact concerning the extent to which Rudd & Associates, Ms. Rudd-Gaglie, and Mr. Goodman breached a fiduciary duty to plaintiffs by (1) failing to procure the Oak Island Accommodations maintenance records on behalf of plaintiffs and (2) hiring Mr. Williams to inspect the house given his failure to conduct intrusive moisture testing, we begin by noting that the relationship between a real estate agent and his or her client is by, definition, one of agency, with the agent owing a fiduciary duty to the buyer in all matters relating to the relevant transaction. See Restatement (Third) of Agency § 8.01 (2006). More specifically:
A real estate agent has the fiduciary duty to exercise reasonable care, skill, and diligence in the transaction of business entrusted to him, and he will be responsible to his principal for any loss resulting from his negligence in failing to do so. The care and skill required is that generally possessed and exercised by persons engaged in the same business. This duty requires the agent to make a full and truthful disclosure to the principal of all facts known to him, or discoverable with reasonable diligence and likely to affect the principal. The principal has the right to rely on his agent’s statements, and is not required to make his own investigation.
Brown, 133 N.C. App. at 54–55 (cleaned up). In the same vein, the North Carolina Real Estate Manual, which is published by the North Carolina Real Estate Commission, notes that real estate agents have a duty to disclose any material facts known to the agent and to “discover and disclose to the principal all material facts about which the agent should reasonably have known.” N.C. Real Est. Manual 209 (Patrick K. Hetrick, Larry A. Outlaw & Patricia A. Moylan, eds., 2013) (emphasis omitted).
¶ 60 In arguing that they did not breach any fiduciary duty that they owed to plaintiffs, Rudd & Associates, Ms. Rudd-Gaglie, and Mr. Goodman claim that the duties that they owed to plaintiffs were “define[d]” by the Exclusive Buyer Agency Agreement, which provided, in pertinent part, that Rudd & Associates, Ms. Rudd-Gaglie, and Mr. Goodman had a duty to “disclos[e] to [plaintiffs]
surveying, wood-destroying insect infestation, structural soundness, engineering, and other matters”; and warned plaintiffs that, while Rudd & Associates, Ms. Rudd-Gaglie, and Mr. Goodman “may provide [plaintiffs] the names of providers who claim to perform such services, [plaintiffs] understand[ ] that [Rudd & Associates, Ms. Rudd-Gaglie, and Mr. Goodman] cannot guarantee the quality of service or level of expertise of any such provider.” Finally, the agency agreement provided that plaintiffs would “indemnify and hold [Rudd & Associates, Ms. Rudd-Gaglie, and Mr. Goodman] harmless” from any claims or liability arising from plaintiffs’ selection of any such service provider or their decision not to have a particular service performed.
¶ 61 As the Court of Appeals correctly held, “a real-estate agent’s fiduciary duty is not prescribed by contract, but is instead imposed by operation of law.” Cummings, 270 N.C. App. at 225. The fiduciary duty that a real estate agent owes to his or her principal arises from the agency relationship itself, Raleigh Real Est. & Tr. Co. v. Adams, 145 N.C. 161 (1907), with the duties that flow from that relationship being dependent upon the level of skill, knowledge, and professional practices in accordance with which real estate professionals generally operate rather than upon the nature of the contractual provisions governing any specific agent-principal relationship. See Restatement (Third) of Agency § 8.08 cmt. c (2006); see also Firemen’s Mut. Ins. Co. v. High Point Sprinkler Co., 266 N.C. 134, 142 (1966) (observing that, when a professional undertakes to represent a principal, he or she “implies that he [or she]
possesses the degree of professional learning, skill and ability which others of that profession ordinarily possess, he [or she] will exercise reasonable care in the use of his [or her] skill and application of his [or her] knowledge to the assignment undertaken, and will exercise his [or her] best judgment in the performance of the undertaking”). Rudd & Associates, Ms. Rudd-Gaglie, and Mr. Goodman have failed to cite any authority for the proposition that a real estate agent may limit or “define” his or her fiduciary duties by contract, and we know of none. As a result, we decline to hold that the extent of the duties that Rudd & Associates, Ms. Rudd-Gaglie, and Mr. Goodman owed to plaintiffs in connection with the transaction that is at issue in this case hinged upon the language of the agency agreement rather than upon general principles of North Carolina agency law.6
¶ 62 As we have already noted, the relevant Real Estate Commission guidelines indicate that a real estate agent is obligated to “discover and disclose” those material facts that “may affect [plaintiffs’] rights and interests or influence [plaintiffs’] decision in the transaction” rather than to simply disclose those of which the agent has “actual knowledge.” N.C. Real Est. Manual 209, 211. In view of the fact that plaintiffs do not contend that Rudd & Associates, Ms. Rudd-Gaglie, or Mr. Goodman had actual
knowledge of the water-intrusion problems that existed at the house, the relevant issue with respect to plaintiffs’ breach of fiduciary duty claim against Rudd & Associates, Ms. Rudd-Gaglie, and Mr. Goodman is whether the record discloses the existence of a genuine issue concerning the extent to which Rudd & Associates, Ms. Rudd-Gaglie, and Mr. Goodman exercised a level of diligence consistent with applicable professional standards. See Brown, 133 N.C. App. at 54.
¶ 63 In attempting to persuade this Court that the record does not contain any evidence tending to suggest that they failed to meet the applicable standard, Rudd & Associates, Ms. Rudd-Gaglie, and Mr. Goodman begin by arguing that plaintiffs failed to adduce evidence tending to show that they had an
information that plaintiffs requested, with plaintiffs having failed to ask them to obtain the relevant maintenance records.
¶ 64 In rejecting these arguments, the Court of Appeals concluded that, since Rudd & Associates, Ms. Rudd-Gaglie, and Mr. Goodman had failed to cite any authority for the proposition that “a real-estate agent’s duty to investigate and disclose is limited, as a matter of law, by the [ ] Real Estate Commission [or] the requests made by the agent’s client,” Cummings, 270 N.C. App. at 226, the record disclosed the existence of a genuine issue of material fact concerning the extent to which Rudd & Associates, Ms. Rudd-Gaglie, and Mr. Goodman had a duty to obtain the Oak Island Accommodations maintenance records and provide them to plaintiffs. In our view, however, the question that the Court of Appeals should have addressed is whether the Oak Island Accommodations maintenance records encompassed material information and, if so, whether Rudd & Associates, Ms. Rudd-Gaglie, and Mr. Goodman had an independent duty to request these records in their exercise of “reasonable diligence.” Brown, 133 N.C. App. at 55.
¶ 65 The only evidence that plaintiffs cite in support of their contention that Rudd & Associates, Ms. Rudd-Gaglie, and Mr. Goodman had an independent duty to obtain the relevant maintenance records is the deposition testimony of Walter LaRoque, a real estate agent who served as an expert witness for Rudd & Associates, Ms. Rudd-Gaglie, and Mr. Goodman. Although Mr. LaRoque acknowledged that the extent to
which particular facts are material can be buyer-specific and that Ms. Rudd-Gaglie had an obligation to conduct an independent investigation into the condition of the property, he never stated that the Oak Island Accommodations maintenance records constituted material information for purposes of this transaction or that Ms. Rudd-Gaglie had an independent duty to request them. On the contrary, while it is clear from an analysis of his deposition testimony that Mr. LaRoque believed that the cost of maintaining the house would be a material fact given the impact that such information would have had upon the viability of the house as rental property, he did not, as best we can ascertain, testify that Ms. Rudd-Gaglie had an affirmative obligation to make an independent request for the relevant maintenance records themselves. In the absence of such evidence, we hold that the record does not reveal the existence of a disputed issue of material fact with respect to this issue and that Rudd & Associates, Ms. Rudd-Gaglie, and Mr. Goodman are entitled to judgment as a matter of law with respect to the issue of whether they breached their fiduciary duty to plaintiffs by failing to obtain the relevant Oak Island Accommodations maintenance records.
¶ 66 Secondly, Rudd & Associates, Ms. Rudd-Gaglie, and Mr. Goodman contend that they fulfilled their fiduciary duty to plaintiffs by recommending that Mr. Williams, who was a licensed home inspector, inspect the house and emphasize that, despite plaintiffs’ contention before the Court of Appeals that the performance of
moisture testing was a “usual and customary” component of a home inspection, Mr. Williams had testified that he only performed intrusive moisture testing when he concluded that it was necessary to do so and that they reasonably relied upon his determination that there was no need for him to conduct such testing in this case.7 In addition, Rudd & Associates,
¶ 67 In rejecting this aspect of the position espoused by Rudd & Associates, Ms. Rudd-Gaglie, and Mr. Goodman, the Court of Appeals pointed to Mr. Moore’s testimony that he would have identified the water-intrusion problem has he inspected the property and the lack of clarity concerning the extent to which the performance of a moisture test was a “usual and customary” component of a home inspection before stating that it was “unable to conclude that [Mr.] Williams’ failure to conduct such a test was unobjectionable.” Cummings, 270 N.C. App. at 226–27. However, the undisputed record evidence tends to show that Rudd & Associates, Ms. Rudd-Gaglie, and Mr. Goodman recommended Mr. Williams on the basis of his expertise in detecting moisture-related problems, that neither Ms. Rudd-Gaglie nor Mr. Goodman were licensed home inspectors or general contractors and did not know what the
components of a proper home inspection would be, and that, at the time of his employment, Mr. Williams was a licensed home inspector, general contractor, and insurance adjuster who had never been subject to any sort of professional discipline. In addition, Mr. Moore corroborated Mr. Williams’ contention that there was no reason, based upon what he had seen while inspecting the house, for the performance of additional moisture testing given that the water damage that the house had sustained was not readily apparent in light of the cosmetic repairs that had been made. As a result of the fact that plaintiffs did not successfully impeach Mr. Williams’ qualifications or demonstrate that Rudd & Associates, Ms. Rudd-Gaglie, or Mr. Goodman had any reason to conclude that Mr. Williams had failed to act in an appropriate manner, the record contains no basis for concluding that Rudd & Associates, Ms. Rudd-Gaglie, or Mr. Goodman failed to exercise “reasonable diligence” in recommending that plaintiffs employ Mr. Williams or in relying upon his expertise.8 See Clouse, 115 N.C. App. at 509 (holding that a real estate agent reasonably relied upon the expert opinion of an independent surveyor). As a result, we hold that the Court of Appeals erred by reversing the trial court’s decision to grant
summary judgment in favor of Rudd & Associates, Ms. Rudd-Gaglie, and Mr. Goodman with respect to this issue.
III. Conclusion
¶ 68 Thus, for the reasons set forth above, we hold that the Court of Appeals correctly determined that the trial court had erred by granting summary judgment in defendants’ favor with respect to plaintiffs’ claims for negligence and fraud against Re/Max and Mr. Carroll and for negligent misrepresentation and fraud against Berkeley Investors and Mr. Bell and that the Court of Appeals erred by reversing the trial court’s decision to grant summary judgment in favor of Rudd & Associates, Ms. Rudd-Gaglie, and Mr. Goodman. As a result, the Court of Appeals’ decision is affirmed, in part, and reversed, in part, with this case being remanded to the Court of Appeals for further remand to Superior Court, Brunswick County, for a trial on the merits with respect to plaintiffs’ remaining claims against Berkeley Investors, Mr. Bell, Re/Max, and Mr. Carroll and for the dismissal of the entirety of their claims against Rudd & Associates, Ms. Rudd-Gaglie, and Mr. Goodman.
AFFIRMED, IN PART; REVERSED, IN PART; AND REMANDED.
CUMMINGS V. CARROLL
Justice BERGER concurring in part and dissenting in part.
¶ 69 I concur with the portion of the majority opinion that reverses the Court of
¶ 70 Summary judgment is appropriate when “there is no genuine issue as to any material fact and . . . any party is entitled to a judgment as a matter of law.” Dallaire v. Bank of Am., N.A., 367 N.C. 363, 367 (2014). To be a “genuine issue” for purposes of summary judgment, an issue must be “maintained by substantial evidence.” Kessing v. Nat’l Mortg. Corp., 278 N.C. 523, 534 (1971).
¶ 71 The duties owed by real estate agents are well settled in this state.
A real estate agent has the fiduciary duty to exercise reasonable care, skill, and diligence in the transaction of business entrusted to him, and he will be responsible to his principal for any loss resulting from his negligence in failing to do so. The care and skill required is that generally possessed and exercised by persons engaged in the same business. This duty requires the agent to make a full and truthful disclosure to the principal of all facts known to him, or discoverable with reasonable diligence and likely to affect the principal.
Brown v. Roth, 133 N.C. App. 52, 54–55 (1999) (cleaned up) (emphasis added).
¶ 72 In addition to the fiduciary duties owed by agents to their principals, real
estate agents also owe duties to third parties. Specifically, “[a] broker has a duty not to conceal from the purchasers any material facts and to make full and open disclosure of all such information.” Johnson v. Beverly-Hanks & Assocs., Inc., 328 N.C. 202, 210 (1991) (citing Spence v. Spaulding & Perkins, Ltd., 82 N.C. App. 665 (1986)). This duty arises from
¶ 73 Here, the majority agrees with plaintiffs’ contention that (1) the adequacy of Cribb’s qualifications and (2) the equivocal nature of his statements to Carroll that
he “may have found the leak” and that he “hope[d] that was it” raise an issue of material fact as to whether Carroll’s belief that the leak had been fixed was reasonable. Cribb’s qualifications, however, have no bearing on the present analysis. Rather, Carroll’s reasonable conclusion that the leak had been fixed was bolstered by the result of plaintiffs’ inspection. That inspection, which was conducted by a licensed contractor just three days after it had rained, revealed no evidence of an ongoing leak.
¶ 74 At some time prior to March 24, 2014, Cribb completed several repairs to the exterior of the home in an effort to fix a leak that had stained the ceiling. On July 12, 2014, plaintiffs made an offer to purchase the subject property. Nearly four months after Cribb’s repairs, plaintiffs commissioned a property inspection to be conducted by a licensed home inspector on July 19, 2014. Despite the rain that occurred three days before the inspection, the inspector found no evidence of an ongoing leak where the stain had previously been. Carroll was present during the inspection and received a copy of the report. It was not until after a major thunderstorm in November 2014 that further evidence of water intrusion emerged. The relevant record evidence, viewed in the light most favorable to plaintiffs, thus demonstrates that Carroll hired a handyman to repair a leak, the handyman conducted repairs,
¶ 75 Under these circumstances alone, it was reasonable for Carroll to believe that
the leak had been remedied. As such, the fact that there had previously been a leak was no longer “material.” See 2019–2020 General Update Course, Student Manual 28 (N.C. Real Est. Comm’n, 2019). Carroll was thus under no duty to disclose this information to plaintiffs. Since plaintiffs have failed to forecast sufficient evidence to show that the sellers’ agents owed a duty, plaintiffs cannot prevail on their negligence claim. For similar reasons, I would also conclude that the sellers’ agents did not commit fraud.
¶ 76 Moreover, the majority expands the duty a seller’s agent owes a purchaser to the functional equivalent of a fiduciary duty. The obligations seller’s agents owe to purchasers are fairly well established. At least they were. The majority opinion seems to suggest a seller’s real estate broker is now a guarantor of the condition of the subject property and faces potential liability for failure to disclose any potential deficiency mentioned by the seller. Inevitably, the expansion of this duty will lead to uncertainty as to the responsibilities of seller’s agent to the seller vis à vis this new duty to the buyer.
Chief Justice NEWBY joins in this opinion.