Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—Mont. Sup. Ct.: Developer’s unfulfilled assurance of ski-out access did not violate consumer protection law, (Nov 4, 2015)

By Michael Menzhuber, J.D., LL.M.

A district court erred when it imposed liability on a real estate developer for negligent misrepresentation and violation of the Montana Consumer Protection Act (MCPA), the Montana Supreme Court has ruled. As a threshold issue, the Court determined that the developer’s argument about the legal requirements of negligent misrepresentation, which it first raised in a reply brief in support of a motion in lime, was properly preserved for appeal (WLW Realty Partners, LLC v. Continental Partners VIII, LLC, November 3, 2015, Cotter, P.).

Background. Continental Partners VIII, LLC (Continental) purchased a lot from Yellowstone Development, LLC (Yellowstone) for the purpose of developing homes for resale on the lot’s two building pads. The purchase and sale agreement for the lot included an assurance that Yellowstone intended to build ski-in and gravity ski-out access for the homes that were constructed.

William Weidner established WLW Realty Partners LLC (WLW) for the purpose of purchasing one of these homes for his family. His decision to purchase a home was based, in part, on Continental’s representation that Yellowstone would build ski-out access before construction on the home was complete. However, before construction on the ski-out access had begun, Yellowstone filed for bankruptcy protection. The subsequent owners of Yellowstone informed Weidner that ski-out access to his home would not be constructed. Weidner filed a proof of claim in the bankruptcy proceeding for failure to build the ski-out access and the bankruptcy court allowed his claim for the approximate amount of money he spent designing and building a rope tow to serve as his replacement ski access.

WLW then filed an action against Continental in district court that alleged breach of contract, negligent misrepresentation, and violation of the MCPA. The district court dismissed the breach of contract claims but allowed the negligent misrepresentation and MCPA claims to go to trial. During the trial, WLW, for the first time in its response brief to Continental’s motion in limine: (1) conceded that Continental was not responsible for constructing ski-out access; and (2) raised the argument that Continental had misrepresented that the home would have ski-out access.

In its reply, Continental cited several Montana Supreme Court decisions that held that, for a representation to be actionable, it must relate to a past or existing material fact and must have been untrue when made. The district court denied Continental’s motion in limine without addressing the merits of this argument. It subsequently determined that Continental had made material misrepresentations to WLW and entered judgments against Continental for negligent misrepresentation and violations of the MCPA.

On appeal, the Court addressed the dispositive issue of liability, as well as the procedural issue of waiver.

Argument in reply brief. WLW contended that Continental waived its argument about the elements of negligent misrepresentation by waiting until a reply brief in support of a motion in limine to raise the issue for the first time. The Court, however, stated that it would not fault a party for waiting until the reply brief to respond to an argument or evidence that was first raised in a response brief. The Court noted that Continental’s argument about the elements of negligent misrepresentation did not become relevant until after WLW made its concession and raised its new argument in its response brief. Consequently, Continental had not waived its argument on appeal.

Negligent misrepresentation. In finding for WLW, the district court adopted WLW’s conclusion that, in order to establish negligent misrepresentation, it needed to prove that: (1) Continental made a representation as to a material fact; and (2) the representation was untrue. On appeal, the Court found that the district court misstated the elements of negligent misrepresentation because it failed to state that material fact be “past or existing”.

Continental argued that the representation that it made to WLW regarding the building of a ski-out access was a representation of a future event. WLW countered that Continental’s representation about the ski-out access was not a representation of a future event because it was premised upon an existing contractual right to have the ski-out access built. The Court found WLW’s argument unpersuasive because the representation that WLW sued upon was not that Continental falsely represented that a contractual right to ski-out access existed but, rather, that the ski-out access would be built in the future.

The Court also disagreed with the district court’s finding that Continental’s representation regarding the ski-out access was not true. It noted that the fact that Continental’s representation turned out not to be true did not mean that it was untruthful when made. At the time it was made, Continental believe its representation was true because: (1) it had a contractual right to have the ski-out access built by Yellowstone; (2) its architectural plans incorporated a ski room for easy of entry onto the ski-out access; (3) it provided WLW with a map depicting the proposed route of the ski-out access; and (4) it could not have foreseen that Yellowstone would file for bankruptcy protection.

MCPA. The district court determined that Continental violated the MCPA by representing that a ski-out access would be built. In reaching this decision, the district court noted that the MCPA did not require a showing that Continental knew its representation was false.

The Court agreed that the “intention to deceive” was not required for WLW to recover under the MCPA. However, it noted that, like the second element of negligent misrepresentation, in order for a representation to be actionable under the MCPA it must be have been untrue when it was made. The Court concluded Continental’s representation regarding the ski-out access was not untrue when it was made and there was no way the Continental could have anticipated the bankruptcy of Yellowstone.

The case is No. 14-0663.

Attorneys: James H. Goetz and Robert K. Baldwin (Goetz, Baldwin & Geddes, P.C.) for Continental Partners VIII, LLC. Margot B. Ogburn (Ogburn Law Firm, PLLC) and J. Colleen Herrington (BD & H Law Firm, PLLC) for WLW Realty Partners, LLC.

Companies: WLW Realty Partners, LLC; Continental Partners VIII, LLC

Cases: StateUnfairTradePractices MontanaNews