Partial Disclosure Keeps Seller In Lawsuit

In Metropolitant Group v Meridan Industries, Inc., 2010 U.S.Dist. LEXIS 128795 (W.D.N.C. 12/6/10), plaintiff purchased commercial property from defendant. Defendant disclosed there had been a release from a heating oil tank that had been reported to the state but made representations that there were no other hazardous substances at the site.

The facts are slim in the opinion but it appears that after the closing plaintiff discovered presence of asbestos  asbestos and other chemicals at the site. Claiming that defendant had knowledge of these other conditions and intentionally failed to disclose to cause plaintiff to overpay for property, Plaintiff filed lawsuit asserting breach of contract, fraud and unfair trade practices among other claims.

The court said that the plaintiff's pleading that defendant had intentionally made false representations that were reasonably calculated to deceive plaintiff were sufficient to survive motion to dismiss. Court said that plaintiff need not PROVE intent to deceive to survive motion to dismiss. Questions about whether defendant actually perpetrated fraud, if plaintiff was inducted to forego its own investigation and if its reliance on those representations was reasonable were questions for jury, the court held..

The court also found that the complaint satisfied the heightened pleading standard of FRCP 9(b) because the allegations set fortht eh time, place and contents of the false representations along with the benefit gained by the defendant. The court said the complaint identified the particular false representations in the specific contract, that the plaintiff paid an inflated purchase price as a result of the misrepresentation that not only injured the plaintiff but resulted in windfall profit for seller.

Finally, the court rejected the claim that the fraud count was nothing more than a breach of contract. At this stage of the lawsuit, the court said, there complaint contained sufficient allegations that went beyond merely failing to perform contractual obligations.

It will be interesting to see if this case turns out to be a more a matter of buyer's remorse for purchasing a property just before one of the worst economic downturns in history than failure to disclose existence of materat environmental.