KEIL v. SCHOLTEN, 48051-1-I (Wash.App. 2-4-2002)

No. 48051-1-I.The Court of Appeals of Washington, Division One.
Filed: February 4, 2002. UNPUBLISHED OPINION.

Appeal from Superior Court of Whatcom County, No. 95-2-01439-5, Hon. Steven J. Mura, January 22, 2001, Judgment or order under review.

Counsel for Appellant(s), David J. Lawyer, Inslee Best Doezie Ryder, P.O. Box C-90016, 777 108th Ave N.E. Ste 1900, Bellevue, WA 98009-9016.

Adam G. Snyder, Inslee Best Doezie Ryder, P.O. Box C-90016, 777 108th Ave N.E. Ste 1900, Bellevue, WA 98009-9016.

David J. Lawyer, Inslee Best Doezie Ryder, P.O. Box C-90016, 777 108th Ave N.E. Ste 1900, Bellevue, WA 98009-9016.

Adam G. Snyder, Inslee Best Doezie Ryder, P.O. Box C-90016, 777 108th Ave N.E. Ste 1900, Bellevue, WA 98009-9016.

David J. Lawyer, Inslee Best Doezie Ryder, P.O. Box C-90016, 777 108th Ave N.E. Ste 1900, Bellevue, WA 98009-9016.

Adam G. Snyder, Inslee Best Doezie Ryder, P.O. Box C-90016, 777 108th Ave N.E. Ste 1900, Bellevue, WA 98009-9016.

David J. Lawyer, Inslee Best Doezie Ryder, P.O. Box C-90016, 777 108th Ave N.E. Ste 1900, Bellevue, WA 98009-9016.

Adam G. Snyder, Inslee Best Doezie Ryder, P.O. Box C-90016, 777 108th Ave N.E. Ste 1900, Bellevue, WA 98009-9016.

David J. Lawyer, Inslee Best Doezie Ryder, P.O. Box C-90016, 777 108th Ave N.E. Ste 1900, Bellevue, WA 98009-9016.

Adam G. Snyder, Inslee Best Doezie Ryder, P.O. Box C-90016, 777 108th Ave N.E. Ste 1900, Bellevue, WA 98009-9016.

David J. Lawyer, Inslee Best Doezie Ryder, P.O. Box C-90016, 777 108th Ave N.E. Ste 1900, Bellevue, WA 98009-9016.

Adam G. Snyder, Inslee Best Doezie Ryder, P.O. Box C-90016, 777 108th Ave N.E. Ste 1900, Bellevue, WA 98009-9016.

David J. Lawyer, Inslee Best Doezie Ryder, P.O. Box C-90016, 777 108th Ave N.E. Ste 1900, Bellevue, WA 98009-9016.

Adam G. Snyder, Inslee Best Doezie Ryder, P.O. Box C-90016, 777 108th Ave N.E. Ste 1900, Bellevue, WA 98009-9016.

David J. Lawyer, Inslee Best Doezie Ryder, P.O. Box C-90016, 777 108th Ave N.E. Ste 1900, Bellevue, WA 98009-9016.

Adam G. Snyder, Inslee Best Doezie Ryder, P.O. Box C-90016, 777 108th Ave N.E. Ste 1900, Bellevue, WA 98009-9016.

David J. Lawyer, Inslee Best Doezie Ryder, P.O. Box C-90016, 777 108th Ave N.E. Ste 1900, Bellevue, WA 98009-9016.

Adam G. Snyder, Inslee Best Doezie Ryder, P.O. Box C-90016, 777 108th Ave N.E. Ste 1900, Bellevue, WA 98009-9016.

Counsel for Respondent(s), William G. Knudsen, Attorney At Law, Bellingham Towers #1340, 119 N. Commercial St., Bellingham, WA 98225.

Mark J. Lee, Langabeer Tull Lee, P.O. Box 1678, 709 Dupont Street, Bellingham, WA 98227-1678.

SCHINDLER, J.

The appellants are purchasers of commercial real estate. The respondents are the title insurance company and the seller’s real estate agent. The appellants claim that they agreed to finance their purchase with a non-recourse note, but because of the respondents’ actions and inactions, they executed a full recourse note. On the first day of trial, the court dismissed appellants’ fraud and negligent misrepresentation claims, finding that they were unable to show injury in fact. The trial court had previously granted summary judgment on the appellants’ claims for unjust enrichment and violation of the Consumer Protection Act (hereinafter `CPA’). We reverse the dismissal for failure to show injury in fact and affirm the summary judgment on the unjust enrichment and CPA claims.

FACTS
The commercial real estate involved in this appeal is located in Lynden, Washington. This property was owned by Robert and Clara Kiel and leased to appellant Duane Scholten, who had a right of first refusal to purchase it. In 1993, when the Kiels decided to sell the property, their real estate agent, respondent Ron Bennett, contacted appellants Dick and Wilminia Vellema, who offered to purchase the property for $2.2 million, consisting of $400,000 cash at closing and a $1.8 million promissory note and deed of trust. The purchase and sale agreement executed in May 1993 between the Kiels and the Vellemas provided that the note would be full recourse.[1] At the same time, the Kiels entered into a commission brokerage agreement with Bennett that provided he would receive a $200,000 commission at the closing of this purchase and sale agreement with the Vellemas.

After the Kiels and the Vellemas had entered into the purchase and sale agreement, Scholten advised Bennett that he would either release his right of first refusal in return for $500,000 or exercise it and purchase the property. Subsequently, the Vellemas formed a joint venture with Scholten and his wife and the other appellants,[2] collectively referred to as `the Scholten Group,’ to purchase the property. Prior to assuming assignment of the Vellemas’ purchase and sale agreement, the members of the Group met with Bennett. According to the Scholten Group, at this meeting they informed Bennett that both the assignment and the closing were subject to the condition that the promissory note be a non-recourse note. They contend that Bennett told them that this was acceptable to the Kiels and that, because of this assurance, the Group did not feel it was necessary to amend the purchase and sale agreement to reflect that the promissory note was non-recourse. The Group executed an addendum to the purchase and sale agreement between the Kiels and the Vellemas under which the Group agreed to become purchasers under the same terms and conditions to which the Vellemas agreed.

An escrow officer of respondent First American Title Insurance Company (hereinafter `FATCO’), Geri Roberts, prepared the closing documents pursuant to written escrow instructions. In June 1993, when the members of the Scholten Group gathered at the Vellemas’ home to sign the documents previously executed by the Kiels, one of the members noticed that the promissory note did not contain non-recourse language. According to the Scholten Group, there were discussions with Bennett and Roberts about how to change the note to include non-recourse language. Roberts suggested that the members sign the note as written and said she would return to her office and either insert the non-recourse language using her typewriter or prepare a new note and have the members sign it. Based on assurances from Bennett and Roberts, the members of the Group signed the note that did not contain non-recourse language.

In July 1993 the Scholten Group met with their attorney. At his request, the new note with the non-recourse language was delivered to him. Neither the Kiels nor the Scholten Group received final closing documents from the escrow agent. The Group sent monthly checks to the Kiels pursuant to the agreement. In 1995, the Group decided that it was no longer economically feasible to retain its investment in the property. Under the assumption that the note was non-recourse, the Group contacted Ms. Kiel to inform her it had decided to forfeit its investment and allow her to foreclose.[3] Mrs. Kiel contacted Bennett and her attorney. Bennett delivered the original note that had been signed and that did not contain the non-recourse languge. Mrs. Kiel instituted a foreclosure action against the Scholten Group and sought judgment of $1.8 million. The Group filed an answer and a third-party complaint against FATCO for negligence and negligent misrepresentation. Mrs. Kiel filed a third-party action against Bennett, but subsequently dismissed all her claims against him.

The Scholten Group amended its third-party complaint to add a claim against Bennett for fraud and negligent misrepresentation, violation of the CPA, and unjust enrichment.

In the underlying action between Mrs. Kiel and the Scholten Group, the trial court ruled that the promissory note as written (without the non-recourse language) was enforceable and entered summary judgment in Mrs. Kiel’s favor for $1.8 million plus interest. The judgment was vacated because Mrs. Kiel and the Group entered a settlement agreement that reinstated the promissory note for its original amount of $1.8 million at the same interest rate, but changed its terms so that interest payments would be made monthly rather than annually. Mrs. Kiel also agreed to extend the due date of the note until December 2001.

In June 2000, the court entered summary judgment in Bennett’s favor on the third-party complaint and dismissed the Scholten Group’s claims against him for fraud, negligent misrepresentation, violation of the CPA, and unjust enrichment.[4] On reconsideration, the court reinstated the negligent misrepresentation and fraud claims, but not the unjust enrichment and CPA claims. The case was set for trial on November 13, 2000. On that date, upon Bennett’s and FATCO’s motion in limine regarding an expert witness, the trial court ruled that the Scholten Group suffered no damages in fact. By order dated December 1, 2000, the court dismissed the Group’s claims against Bennett and FATCO, finding that the Group could not, as a matter of law, prove injury in fact and that its claims therefore failed to state a cause of action.[5]

DISCUSSION Fraud and Misrepresentation
The parties agree that the trial court’s dismissal of the Scholten Group’s fraud and misrepresentation claims should be governed by a CR 12(b)(6) standard. We review the dismissal de novo, accepting the Group’s allegations and any reasonable inferences as true.[6] A dismissal is appropriate only if, beyond a reasonable doubt, it appears that no facts exist to justify recovery.[7]

Both fraud and misrepresentation claims are premature and subject to dismissal if brought before the plaintiff incurs damages.[8] The trial court dismissed the Scholten Group’s fraud and misrepresentation claims because it concluded that the Group failed to prove that it incurred damages. Specifically, the trial court concluded that because the Scholten Group was never called upon to pay the face amount of the promissory note, it suffered no damages as a result of having signed a recourse note rather than a non-recourse note. We disagree.

Accepting the Group’s allegations and reasonable inferences therefrom as true, we cannot say that, beyond a reasonable doubt, no facts exist to show that the Group sustained damages. The record shows that the Scholten Group incurred a loss when it agreed to pay a higher price for the property in exchange for a non-recourse note. The Group’s appraiser submitted a declaration stating that the property had an appraised value of $1.3 million in 1993 when the Group entered the contract to purchase it. He stated that this value would not change regardless of whether the financing was recourse or non-recourse. But, he stated, `[a] buyer would likely pay significantly more, and a seller would demand significantly more, for property if the sale was to be seller financed and include a non-recourse term in a promissory note securing the obligation.’[9] The Group remains liable to pay the $1.8 million note and has been paying interest on a $1.8 million debt. If the Group defaults, its liability will be greater than it would have been under the deal it intended to negotiate in 1993. If the Group pays the note, it will have paid out $1.8 million plus interest, even though in 1995, it had intended to forfeit its $400,000 investment and walk away from the deal under the non-recourse note it thought it had negotiated. Further, the Group incurred attorney fees and costs in connection with Mrs. Kiel’s foreclosure action that it would not have incurred had the note been a non-recourse note. Accordingly, we reverse the trial court’s dismissal of its fraud and misrepresentation claims.[10]

Consumer Protection Act
The Scholten Group brought a claim against Bennett alleging that his actions and inactions violated the CPA.[11] The trial court dismissed this claim on summary judgment on the ground that the `public interest’ element of a CPA claim was not present.

We review a summary judgment de novo and engage in the same inquiry as the trial court.[12] For a summary judgment to be proper, the pleadings, affidavits, depositions, and admissions on file must demonstrate that there is no genuine issue of material fact and that the `moving party is entitled to judgment as a matter of law.’[13]

A plaintiff must prove five elements to establish a CPA violation:

`(1) an unfair or deceptive act or practice,

(2) occurring in trade or commerce,

(3) public interest impact,

(4) injury to plaintiff in his or her business or property and

(5) causation.’[14] To prevail in a private CPA action, a plaintiff must establish all five elements.[15]

At issue here is whether the third element — public interest impact — is present.

`Ordinarily, a breach of a private contract affecting no one but the parties to the contract is not an act or practice affecting the public interest.’[16] The likelihood that other plaintiffs have been or will be injured in exactly the same fashion is what changes a dispute from a private dispute to one that has a public interest impact.[17] Factors to evaluate in determining whether the public interest requirement is met in connection with a private transaction are:

(1) whether the acts were committed in the course of defendant’s business;

(2) whether the defendants advertised to the public;

(3) whether the defendant actively solicited the plaintiff, indicating other potential solicitation of others; and

(4) whether the parties occupied unequal bargaining positions.[18]

`[N]one of these factors is dispositive nor is it necessary that all be present.’[19]

The trial court’s order granting Bennett summary judgment on the Group’s CPA claim states:

there was no unequal bargaining position between Third Party Defendant Ron Bennett and Third Party Plaintiffs, and therefore, as a matter of law, the public interest element required under Third Party Plaintiffs’ Consumer Protection Act claim is absent in this case involving the purchase and sale of real property’.[20]

Because no one factor is dispositive and because it is not necessary that all the factors be present, the trial court’s conclusion that the public interest element was absent solely because one of the foregoing factors was not present is erroneous. The trial court’s decision to grant summary judgment is, however, correct.

As Bennett concedes, the first factor — the alleged acts were committed in the course of his business — is present. Notwithstanding this, we find that there is no genuine issue of fact as to whether the public interest impact element is present.[21] All that can be ascertained from the record is that the Kiels hired Bennett to list their commercial property for sale and that Bennett told Dick Vellema about the listing. There is no evidence in the record about whether Bennett advertised to the public about the listing. There is no evidence that Bennett informed any other potential buyers or solicited anyone else about the listing. Also, this was not the first purchase of real estate by members of the Group. Rather, the record shows that they had engaged in numerous real estate transactions in the past. In sum, we find the evidence insufficient to show the existence of a genuine issue of material fact as to whether Bennett’s actions had a public interest impact. Accordingly, we affirm the trial court’s order granting Bennett summary judgment on the Group’s CPA claim.

Unjust Enrichment
The Scholten Group brought a claim for unjust enrichment against Bennett, on the theory that he was unjustly enriched by the $200,000 commission he was awarded out of the $400,000 the Group paid the Kiels.

The trial court dismissed this claim on summary judgment on the ground that the Scholten Group did not confer any benefit upon Bennett. Reviewing the summary judgment de novo,[22] we conclude that the trial court did not err.

Unjust enrichment is one party’s retention of money or benefits which in justice and equity belong to another.[23] To establish unjust enrichment, a plaintiff must establish three elements: (1) a benefit conferred upon the defendant by the plaintiff, (2) the defendant’s appreciation or knowledge of the benefit, and (3) the defendant’s acceptance or retention of the benefit under circumstances that make it inequitable for the defendant to retain the benefit without the payment of its value.[24] For the doctrine of unjust enrichment to be applicable, the defendant must be the beneficiary of a windfall at the expense of the plaintiff.[25]

The Scholten Group paid the Kiels $400,000 pursuant to the purchase and sale agreement. The Kiels in turn paid Bennett $200,000 pursuant to the commission agreement. Although the Kiels’ separate agreement to pay this commission is referenced in the purchase and sale agreement, the obligation to pay is squarely on the Kiels, not the Group. Bennett’s commission came out of proceeds of the sale that belonged exclusively to the Kiels. The Kiels, not the Scholten Group, therefore, conferred the benefit upon Bennett. Accordingly, the doctrine of unjust enrichment is not applicable because the first element of an unjust enrichment claim — a benefit conferred upon the defendant by the plaintiff — is not present.

We reject the Group’s argument that it should stand in the Kiels’ shoes for purposes of unjust enrichment and is subrogated to the Kiels’ rights to recover Bennett’s commission on the ground of unjust enrichment because, but for Bennett’s fraud and misrepresentations, it would not have paid the $400,000 and no commission funds would have been available. Under the legal fiction of equitable subrogation, a person who pays a debt for which another is primarily responsible is subrogated to the rights and remedies of the other.[26] The facts here do not, however, fit into this rule.

Although the Kiels were primarily responsible for paying Bennett’s commission, the Scholten Group did not pay the commission to Bennett, as required for application of the legal fiction of equitable subrogation. Rather, the Group paid the $400,000 to the Kiels and then the Kiels paid Bennett. Also, because the trial court ruled that Mrs. Kiel was entitled to enforce the promissory note as written, she did not have any grounds for maintaining an unjust enrichment action against Bennett. So, she has no right to recover under an unjust enrichment theory to which the Group can be subrogated.

In sum, the trial court did not err by entering summary judgment on the Group’s unjust enrichment claim.

CONCLUSION
We reverse the trial court’s order dismissing the Scholten Group’s fraud and misrepresentation claims and remand for further proceedings. We affirm the summary judgment dismissing the Group’s CPA and unjust enrichment claims.