STATE OF MINNESOTA

IN COURT OF APPEALS

A04-2332

Willmar Unclaimed Freight, Inc.,
Appellant,

vs.

Dawn Holmes,
Respondent,

and

Edina Realty, Inc.,
Respondent,

vs.

Robert L. Larson, et al.,
Third-Party Defendants.

Filed July 19, 2005

Affirmed in part, reversed in part, and remanded

Minge, Judge

Kandiyohi County District Court

File No. CX-03-1365

John E. Mack, Mack & Daby, P.A., 26 Main Street, P.O. Box 302, New London, MN 56273 (for appellant)

Stanford P. Hill, Anne C. Towey, Kelly A. Putney, Bassford Remele, P.A., 33 South Sixth Street, Suite 3800, Minneapolis, MN 55402 (for respondent)

Considered and decided by Halbrooks, Presiding Judge; Lansing, Judge; and Minge, Judge.

U N P U B L I S H E D O P I N I O N

MINGE, Judge

Appellant challenges summary judgment dismissing its claims arising out of damage to a commercial building that respondent’s agent leased to appellant. Because a leasing agent may be reasonably well informed regarding building codes and because the misrepresentation regarding “grandfathering” that the agent allegedly made involved a misrepresentation of law that includes an implied assertion that facts exists to justify that assertion of law, we reverse in part and remand. Because the district court did not err in concluding that respondent had no generalized duty to discover and to disclose to appellant dangerous conditions, we affirm in part.

FACTS

In July 1999, Dawn Holmes inherited property in Willmar, Minnesota, including the property that is the subject of this action. Holmes, who lives in Nevada, entered into an agreement in May 2000 with Dick Arne to manage the property. Arne is a real estate broker who has been licensed to sell real estate since 1976 and is an agent of respondent Edina Realty (Edina).

In 2002, Arne negotiated a commercial lease for a building on the property with appellant Willmar Unclaimed Freight, Inc. (WUF). Glenn Smogoleski, one of the owners of WUF, represented WUF. WUF claims that before the lease was signed, Smogoleski and Arne visited the building and Smogoleski asked Arne about leaks in the roof and whether the building complied with the building code. According to Smogoleski, Arne replied that although the building would not meet the then-current building code, it was “grandfathered in” so that it only had to comply with the code in effect when it was built. Edina states that this building visit occurred after the lease was signed and denies Arne made this statement. A lease dated July 31, 2002, was executed between Holmes and WUF for the period between August 1, 2002, and August 31, 2004. The lease does not mention anything about the condition of the building or compliance with codes. WUF used the building for a furniture-sales business.

On June 24, 2003, the building was damaged in a storm when water leaked through the roof and walls, causing the ceiling to collapse. The material from the ceiling was determined to contain asbestos and much of WUF’s inventory was contaminated. After the storm, a fire marshal and building official inspected the building. They declared the building unfit for commercial use for many reasons, including dangers related to the electrical system, the heating unit, the structural soundness of the second floor, and the inadequacy of the emergency exits and fire extinguishers. The foregoing conditions predated the storm.

In August 2003, WUF brought suit against Edina and Holmes to recover damages arising out of the collapse of the ceiling and contamination of the inventory. Immediately after discovery was completed, Edina moved for summary judgment on WUF’s claims of negligence in leasing the property and misrepresentation inducing WUF to enter the lease. Edina argued that it was entitled to summary judgment both because its agent did not have any duty to inspect the property to discover problems with the building and because WUF did not rely on any statements made by Arne in entering into the lease. After a hearing on these issues, the district court granted Edina’s motion for summary judgment on the following grounds: (1) any representation by Edina about the property’s grandfathered compliance with the building codes was a non-actionable misrepresentation of law; and (2) Edina did not breach any duty to WUF because Edina and Arne, its agent, did not have a duty to inspect the property, discover dangerous conditions, and inform appellant of the conditions. WUF moved to reconsider on the duty to inform issue, objected to the court’s sua sponte raising the defense of non-actionable issue of law, and requested an opportunity to more fully brief and argue that issue. The district court denied WUF’s motion; this appeal follows.

D E C I S I O N

When reviewing summary judgment, an appellate court asks two questions: (1) are there any genuine issues of material fact and (2) did the district court err in its application of the law? State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990). Summary judgment is proper when the evidence in the record, including pleadings, depositions, answers to interrogatories, admissions on file, and affidavits show that there is no genuine issue of material fact and one party is entitled to a judgment as a matter of law. Minn. R. Civ. P. 56.03; DLH, Inc. v. Russ, 566 N.W.2d 60, 69 (Minn. 1997). “On appeal, the reviewing court must view the evidence in the light most favorable to the party against whom judgment was granted.” Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn. 1993). A genuine issue for trial must be established by substantial evidence. D.L.H., 566 N.W.2d at 69-70.

The first issue is whether Arne’s alleged statement that the building was “grandfathered in” was a non-actionable misrepresentation of law. Generally, misrepresentations of law are not actionable. Northernaire Prods., Inc. v. County of Crow Wing, 309 Minn. 386, 388-89, 244 N.W.2d 279, 281 (1976). However, there are two primary exceptions: (a) where the “person misrepresenting the law is learned in the field and has taken advantage of the solicited confidence of the party defrauded,” and (b) where a fiduciary or other similar relationship exists between the parties. Id.at 389, 244 N.W.2d at 281-82.

The rationale for the rule that misrepresentations of law are not actionable is that the law is presumed to be equally within the knowledge of both parties. Miller v. Osterlund, 154 Minn. 495, 496, 191 N.W. 919, 919 (1923). “Ordinary vigilance will disclose the truth or falsehood of representations as to matters of law.” State v. Edwards, 178 Minn. 446, 448, 227 N.W. 495, 495 (1929). “[A]n erroneous statement of the law is regarded as a mere expression of opinion on which the hearer has no right to rely.” Pieh v. Flitton, 170 Minn. 29, 31, 211 N.W. 964, 965 (1927). Situations in which misrepresentations of law occur include a party representing the legal effect of language in a contract, the rights given under a contract, liability on a certificate of stock in a corporation, the legal effect of an endorsement, or the interpretation of a zoning ordinance. Northernaire Prods., 309 Minn. at 388, 244 N.W.2d at 281; Miller, 154 Minn. at 496, 191 N.W. at 919.

A. Mixed Law/Fact

If a misrepresentation of law includes an implied assertion that facts exist to justify that conclusion of law, it is actionable as a misrepresentation of fact. Miller, 154 Minn. at 496, 191 N.W. at 919. The court in Miller held that when a foreign insurance company falsely stated that it had the right to write insurance in Minnesota, this misrepresented factual matters, including that the company had complied with the Minnesota laws and had received proper authority to transact business here. Id. at 497, 191 N.W. at 919. Similarly, the court in Pieh held that where a party selling land represented to the purchasers that they could purchase the land free of a statutory reservation of minerals by the federal government, this included an actionable factual misrepresentation. 170 Minn. at 30-31, 211 N.W. at 964-65. In Simonsen v. BTH Props., this court held that, in connection with the sale of a six-unit apartment building on a lot that was only zoned for a five-unit building, because the representation that the building was in compliance with the law may have included a misrepresentation of fact, summary judgment was improper. 410 N.W.2d 458, 461 (Minn. App. 1987), review denied (Minn. Oct. 21, 26 1987).

The claimed misrepresentation in the present case is the statement allegedly made by Arne that the building was “grandfathered in.” This alleged statement implied that the building could be used regardless of current code requirements, presumably because it met code when it was built. Whether this is the correct meaning of the phrase “grandfathered in” and whether codes allowed for “grandfathering” are legal questions. However, the question of whether this building met the requirements in order to be legally “grandfathered in” is factual. That type of factual misrepresentation was the basis for the Simonsen decision that ruled summary judgment improper. 410 N.W.2d at 461. We conclude that Arne’s alleged statement is a misrepresentation of law that includes an implied assertion that facts exist to justify that assertion of law and that the district court erred to the extent it treated it as entirely a question of law and granted summary judgment.[1]

B. Learned in the Field

The district court also ruled as a matter of law that the alleged statement does not fall into the exception for a misrepresentation of law by a person learned in the field who has taken advantage of the solicited confidence of the person defrauded. Because the parties have raised and addressed this issue on appeal and its resolution may affect subsequent proceedings, we will address this issue. In Northernaire Productions, plaintiffs asked a group of government officials involved with county zoning and planning whether a permit was necessary to hold a rock festival on a certain piece of property. 309 Minn. at 387, 244 N.W.2d at 281. The plaintiff was erroneously told that a permit was not required. Id. The supreme court held that the exception was not applicable because “there was no allegation that the individual defendants took advantage of or personally benefited from plaintiffs’ reliance on their advice.” Id.at 389, 244 N.W.2d at 282. In contrast, the court in Stark v. Equitable Life Assurance Soc’y held that when an insurance agent told an insured that his disability insurance did not apply, it was a misrepresentation by one learned in the field who was taking advantage of the solicited confidence of a person. 205 Minn. 138, 140, 144, 285 N.W. 466, 467, 469 (1939).

Here, the district court stated that there was no evidence that Arne was learned in the subject of building codes. The district court relied on the Northernaire Productions decision, where the misrepresentation about a zoning question was made by the chair of a county board of commissioners, the chair of a planning and zoning commission, and a member of a planning and zoning commission. 309 Minn. at 387, 244 N.W.2d at 281. The supreme court in Northernaire Productions did not examine whether the government officials were learned in their field, but rather found that the exception did not apply because the government officials did not take advantage of or personally benefit from the misrepresentation. Id. at 389, 244 N.W.2d at 282. Unlike those officials, Arne and respondent Edina would benefit from the alleged misrepresentation to WUF because they received a commission for renting the property and fees for managing it.

The evidence on the record shows that Arne has been a licensed real estate broker since 1976 and has taken numerous hours of continuing education. The court in Stark found that an insurance agent was clearly learned in the field of insurance policies. 205 Minn. at 144, 285 N.W. at 469. A real estate broker who has been licensed and working in this occupation since 1976 is likely to have knowledge of building codes and occupancy of buildings that is greater than the general public. In the absence of specific evidence of actual knowledge, such experience and licensure at least creates a genuine issue of fact preventing summary judgment on this issue. This is especially true where this issue was decided sua sponte by the district court and appellant did not have a chance to investigate Arne’s knowledge of building codes.[2]

II.

The next issue is whether Arne and respondent Edina had a general duty to inspect the property, and to discover and inform WUF about dangerous conditions in the building and its lack of compliance with the building codes, even if Arne and Edina did not know of those conditions. WUF cites several bases for this duty. First, WUF argues by analogy to a statutory duty to inform a tenant about “citations.” Minn. Stat. § 504B.195 (2004). However, there is no evidence of any citations being issued in this case. Furthermore, because this section refers to “citations” that a “housing inspector” identifies as important, this section applies to residential leases and not commercial leases. Id.

WUF also urges that there is a duty to inform based on the statute that requires a real estate agent to disclose to a prospective purchaser any material facts about the property of which the agent is aware. Minn. Stat. § 82.22, subd. 8 (2004).[3] However, this statute applies to the purchase as opposed to the lease of property. Id. More importantly, there is no evidence that Arne or Edina knew of any building-code violations on the property or any other material problems with the property. Thus, this statutory duty would not apply to them.

WUF also argues that the Minnesota Supreme Court has determined that landlords may be liable for dangerous conditions on the premises if the landlord should have known of the danger and if the tenant, exercising due care, would not discover the danger. Gradjelick v. Hance, 646 N.W.2d 225, 231 (Minn. 2002). The Gradjelick case is factually distinguishable because the present case involves a commercial rather than a residential lease, and the leasing agent rather than the owner is being sued. Id. The agent will not have the detailed experience with property that is necessary to create a “should have known” standard.

Even if Edina had a duty to discover and disclose dangerous conditions in the building, there is no evidence that Arne or Edina was aware of any of these conditions. WUF gives no reason why an agent leasing commercial property has a duty to inspect the premises for dangerous conditions. We conclude the district court did not err in dismissing the claim that Arne and Edina had a duty to inspect the premises in order to discover dangerous conditions and make a disclosure to WUF.

Affirmed in part, reversed in part, and remanded.

[1] Because it was not the basis for the summary judgment, we reach no conclusion regarding whether appellant reasonably relied on Arne’s alleged statement given the apparent visible problems with the building.

[2] Because of our decision to reverse and remand on this issue, we do not reach the question of whether the court erred when it ruled sua sponte and refused to allow appellant an opportunity to conduct discovery and present additional evidence on the issue of Arne’s and realtor’s knowledge. Such evidence may be presented in any trial on the issue.

[3] This same general duty can by found in Peterson v. Arnellono, 289 Minn. 541, 542, 185 N.W.2d 282, 283-84 (1971) (finding that when a party sold a business location, the party had a duty to disclose warnings of health-code violations).