The latest installment of our “Home on the Bombing Range” series takes us to Florida at the site of what is now known as the former World War 2 Pinecastle Bombing Range (PBR).
Virgilio v. Ryland Group, Inc., 2012 U.S. App. LEXIS 10094 (11th Cir. 5/18/12) is a class action lawsuit brought by purchasers of homes in the Newport subdivision of Vista Lakes, a residential development in Orlando, Florida. The Newport subdivision was constructed on or adjacent to the PBR which apparently remains laden with unexploded ordinance (UXO), ammunition and other contaminants.
In 1999, defendant Terrabrook Vista Lakes LP (Terrabrook) purchased nearly 1,000 acres of undeveloped land in southeasternOrlando. Terrabrook subdivided the land, constructed streets, installed infrastructure such as water and sewer systems, and graded and compacted each home site. Terrabrook then sold the building lots to The Ryland Group, Inc. (“Ryland”) who built and sold the homes. Ryland also provided financing, title insurance and closing services to home buyers.
Defendants Terrabrook, Newland Communities, LLC (Newland) and Westerra Management, LLC (Westerra) (collectively the “Terrabrook Defendants”) were not involved in the sale or financing of the homes to the individual home buyers. Instead, the Terrabrook Defendants actively marketed the development to the general public through two web sites, newspaper and radio advertisements and billboards. The Terrabrook Defendants also operated the Vista Lakes Welcome Center where prospective residents could review site plans for the entire development and visit the model homes. It appears that the Terrabrook Defendants received a fee of 1.5% of the gross sales price for each lot or home sold in the subdivision.
According to Plaintiffs, Terrabrook was aware the PBR contained UXO when it sold the building lots to Ryland and shared this information with Rylands. However, that the Terrabrook Defendants did not disclose the existence of the PBR when they marketed the development. After the plaintiffs purchased their homes, the existence of the UXO at PBR became public and their homes lost considerable market value.
The plaintiffs initially filed a complaint against Ryland and the Terrabrook Defendants. After the class action was certified, Ryland settled with the plaintiffs for $1.2MM. The plaintiffs then sought damages from the Terrabrook Defendants for failing to disclose their homes were located in proximity to the PBR.
In the first count, the plaintiffs asserted the Terrabrook Defendants had an affirmative duty to disclose the existence of the PBR and had breached this duty. The plaintiffs claimed that under Florida law, sellers of homes who know of facts materially affecting the value of property that are not readily observable and are not known to the buyer have an affirmative duty to disclose the latent conditions to buyers. Although the Terrabrook Defendants were not the sellers of the houses, the Plaintiffs alleged that they were liable as Ryland’s agents.
The district court concluded that Florida’s appellate courts appeared unwilling to extend the seller’s duty to disclose beyond those in a direct contractual relationship with the buyer or beyond those who acted as an agent for the seller. The court said the plaintiffs failed to establish that the Terrabrook Defendants were acting as Ryland’s agents when they marketed the development. The appeals court affirmed, holding that the plaintiffs did not show that Ryland exercised, or had the ability to exercise control over the Terrabrook Defendants that was required for the Terrabrook Defendants to be considered the Ryland’s agents.
The second count involved a claim for unjust enrichment. The plaintiffs said they had conferred a benefit to the Terrabrook Defendants in the form of the fee they received for each home or lot sold by Ryland. The court said that even if the plaintiffs conferred a benefit on the Terrabrook Defendants, the plaintiffs still had not established that the Terrabrook Defendants had a duty to disclose the PBR. In the absence of such a duty, the court said there could not be an unjust enrichment.
The third count involved the Florida Deceptive and Unfair Trade Practices Act (“FDUTPA”). Plaintiffs asserted that the Terrabrook Defendants’ failure to inform Plaintiffs about Pinecastle constituted a “deceptive, misleading, and unfair trade practice. The district court also rejected this claim because of the absence of an affirmative duty of disclosure. The appeals court agreed this claim failed because the alleged duty of disclosure did not exist under Florida law.
The last count was for negligence. The district court had found that because the Plaintiffs were seeking economic damages and that in the absence of a special relationship, a negligence claim could only be maintained for claims for bodily injury or property damage. The court said there was no basis under Florida law for imposing an affirmative duty on a developer to publicly disclose material facts that may negatively affect the economic value of a home that the developer did not build, own or sell.
On appeal, the plaintiffs argued the district court had ignored an earlier Florida Supreme Court that plaintiffs contended suggested a negligent misrepresentation claim could be maintained for economic losses and that there could be a duty of care where a defendant’s conduct created a “foreseeable zone of risk. However, the appeals court concluded that the Florida Supreme Court would not extend such a new duty to entities that had such a tenuous link to the home buyers who sought economic damages. The court was concerned about where the duty would end. Moreover, the court was concerned how an entity like Terrabrook could discharge its duty. The court said that since Terrabrook was not a party to Ryland’s contracts with the buyers, it did not know the identity of the buyers. Thus, the only way the Terrabrook Defendants could discharge their duty of care would be by saturating the market place with the negative information. The court said that under Plaintiffs’ approach, whenever Defendants acquired material information that a buyer’s due diligence would not uncover, defendants would have to disclose it. And even if they disclosed the negative information, they still could be sued for failing to disclose it soon enough or in adequate detail. In the end, the court reasoned, what the plaintiffs were really seeking to impose was not simple negligence but a claim of strict liability. It is unclear if the plaintiffs will now try to test their argument before the Florida Supreme Ct.