Teresa Thompson, Appellant,

This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2018).

STATE OF MINNESOTA
IN COURT OF APPEALS
A18-1110

Teresa Thompson,
Appellant,

vs.

Les Riess, et al.,
Respondents.

Filed February 11, 2019
Affirmed
Ross, Judge

Carlton County District Court
File No. 90-CV-17-1323

James V. F. Dickey, Malcolm P. Terry, Bernick Lifson, P.A., Minneapolis, Minnesota (for
appellant)

Scott A. Witty, Jocelyn E. Bremer, Hanft Fride, P.A., Duluth, Minnesota (for respondents)

Considered and decided by Johnson, Presiding Judge; Ross, Judge; and Smith,
Tracy M., Judge.
U N P U B L I S H E D O P I N I O N
ROSS, Judge
Appellant Teresa Thompson moved into a house she bought from Respondents Les
and Sue Riess and discovered structural damage requiring demolition and repair.
Thompson sued, alleging negligent misrepresentation, fraud, and failure to disclose, among
other claims. The district court dismissed the suit by summary judgment, holding that the
2
Riesses owed no duty of care and that Thompson presented no admissible evidence that
she relied on the Riesses’ alleged misrepresentations or that the Riesses had known about
the defective conditions. Because Thompson has presented no genuine issue of material
fact and the Riesses are entitled to judgment as a matter of law, we affirm.
FACTS
Les and Sue Riess built a house in Cloquet in 1980 and owned it until 2015 when
they opted to sell it to build a smaller home on adjacent property . They completed their
seller’s disclosure statement in March 2015, indicating only minor issues about the home’s
condition. They moved out of the home two months later. Teresa Thompson twice viewed
the home and executed a purchase agreement contingent on an inspection. She co ntracted
Northern Lights Inspection and Thermography to perform the inspection, which occurred
and revealed no significant issues. The parties closed on the purchase the next month, in
December 2015.
After Thompson moved in, she encountered problems. She found that the home had
mice, and a bat was in the living room. She believed that insufficient heat flowed to the
upstairs bedrooms, and ice dams formed on the eaves . Water leaked into an addition
described as a Colorado room. Thompson hired contractors to fix the heating and water
issues, and during their work she discovered significant structural issues.
Removing interior walls revealed extensive frame damage in various parts of the
home. The Colorado room’s studs were rotted. Improperly installed flashing around the
windows and walls had caused water infiltration. The garage’s studs were similarly rotted.
Colonies of carpenter ants had damaged the kitchen and Colorado room walls. Thompson
3
directed her contractors to reconstruct the damaged portions of the home, requiring partial
demolition. During demolition, Thompson says that her contractors found an undamaged
two-by-four structural segment that appeared to be obviously and significantly newer than
the studs around it.
The Riesses, whose new home was built close by, noticed the construction work
being done on the Thompson home. The Riesses visited Thompson, and she showed them
the repairs in progress. Les Riess wrote Thompson a check for $10,000, saying he felt badly
for Thompson’s situation. Thompson never cashed it.
After Thompson completed the rehabilitation project, she hired William Dalin of
North Shore Superior Pest Management to offer an opinion about the pest infestation. Dalin
viewed photographs that Thompson had taken during the project. From some of the images,
Dalin opined that it was “highly unlikely ” that the Riesses had been unaware of the ant
infestation. From other images of bat droppings, a dead field mouse, and a squirrel’s nest,
Dalin did not determine whether the pests were present before the Riesses moved from the
home.
Thompson sued the Riesses, real estate agency SIL Corporation doing business as
ReMax Cloquet, and real estate agent Roger Maki. Her suit rested on six grounds: failure
to disclose, fraudulent inducement to contract, fraud, negligent misrepresentation, breach
of contract, and breach of fiduciary duty. The defendants moved for summary judgment.
Thompson settled her claims against ReMax and Maki. The district court ordered spoliation
sanctions against Thompson for failing to allow inspection or to retain physical evidence
4
of any of the alleged structural damage, and it granted the Riesses’ motion for summary
judgment. This appeal follows.
D E C I S I O N
Thompson raises three issues on appeal. First, she argues that the district court
abused its discretion in ordering spoliation sanctions. Second, she contends that the district
court erred in finding no genuine issues of material fact. Third, she argues that the district
court misapplied the law to her claims in granting summary judgment for the Riesses. Her
arguments fail.
I
We first address Thompson’s argument that the district court abused its discretion
by excluding evidence of the allegedly new, undamaged, two-by-four board as a spoliation
sanction for her failure to retain the evidence or allow for its inspection before disposing
of it. We review a district court’s decision to impose spoliation sanctions for an abuse of
discretion. Miller v. Lankow, 801 N.W.2d 120, 127 (Minn. 2011). “One challenging the
trial court’s choice of a sanction has the difficult burden of convincing an appellate court
that the trial court abused its discretion—a burden which is met only when it is clear that
no reasonable person would agree with the trial court’s assessment of what sanctions are
appropriate.” Patton v. Newmar Corp., 538 N.W.2d 116, 119 (Minn. 1995) (quotation
omitted).
Spoliation occurs when a person fails to preserve property as evidence in pending
or future litigation. Federated Mut. Ins. Co. v. Litchfield Precision Components, Inc., 456
N.W.2d 434, 436 (Minn. 1990). This includes the affirmative destruction of evidence, even
5
destruction done in good faith. Miller, 801 N.W.2d at 127. The duty to preserve evidence
begins when litigation is foreseeable. Id. at 127–28.
Thompson argues that she needed to repair her home, requiring the rehabilitation
project during which all of the faulty structure was destroyed. Although some
circumstances may justify a custodial party ’s disposing of evidence before trial, she must
first give the noncustodial party notice and the opportunity to inspect the evidence. Id. at
129. Thompson maintains that she gave sufficient notice to allow the Riesses to inspect the
discarded material, citing Miller. Thompson does not satisfy the notice requirement
discussed in Miller, where the notice was sufficient to avoid a spoliation sanction. In that
case, the homeowner plaintiff had shown the eventual defendants the damage and met with
them to disclose his potential lawsuit against them. Id. at 124. His attorney sent the m a
letter inviting them to inspect the property. Id. The attorney sent additional letters
informing them of the need to remediate the home and advising them of the date that
construction would co mmence, warning that they needed to contact him immediately if
they wished to inspect the home further. Id. By contrast here, Thompson began demolition
without any notice, never informed the Riesses of any potential claim , and never invited
the Riesses to thoroughly inspect the old structure. We hold that Thompson failed to meet
her obligation to notify the Riesses sufficiently, leaving them with no opportunity to
meaningfully inspect the home before Thompson’s contractor removed or destroyed all
physical evidence of the damaged structure.
The district court did not abuse its discretion by concluding that Thompson’s
spoliation of evidence prejudiced the Riesses by preventing them from defending against
6
Thompson’s legal claims. By the time Thompson sued, the home’s rehabilitation was
complete and all physical evidence of its pre-rehabilitation condition was gone. This
prevented the Riesses from securing any expert assessment of the timing and extent of the
ant infestation or water damage as it might bear on their knowledge of its existence. The
spoliation therefore deprived the Riesses of their opportunity to defend against the
allegation that the damage was such that it could not have escaped their knowledge. The
spoliation similarly impaired their opportunity to develop an informed position as to any
damages Thompson may be entitled to. The spoliation left the Riesses essentially
defenseless against Thompson’s claims.
The district court’s order is imprecise as to the extent of the spoliation sanction, but
we affirm it even if it intends to exclude only Thompson’s photograph of the seemingly
new two-by-four. Thompson reasonably implies that even a lay juror would likely infer
from the photographs that the obviously new, pristine two-by-four must have been placed
long after the erection of the comparatively dark, rotting, surrounding woodwork in the
wall structure. But the photograph does not reveal all the relevant information that an
inspection may have revealed. For example, the photographs do not show whether the
newer wood contains markings from which an investigator might identify its vender or its
approximate date of purchase. These are details that might bear on whether one of
Thompson’s contractors, rather than the Riesses, purchased and installed the two-by-four.
On these facts, we cannot conclude that the district court abused its discretion in
deciding that spoliation occurred, that the spoliation prejudiced the Riesses, or that
excluding the evidence is the appropriate remedy.
7
II
Thompson challenges the district court’s summary judgment for the Riesses. On
appeal from summary judgment, we review de novo whether there are any genuine issues
of material fact. Citizens State Bank Norwood Young Am. v. Brown, 849 N.W.2d 55, 61
(Minn. 2014). We view the evidence in the light most favorable to the party against whom
the district court granted summary judgment. Fabio v. Bellomo, 504 N.W.2d 758, 761
(Minn. 1993). And we will affirm the grant of summary judgment if the undisputed facts
and the disputed facts construed favorably to the nonmoving party establish that the moving
party is entitled to judgment as a matter of law. See Minn. R. Civ. P. 56.01 (2017).
Thompson argues that the district court inappropriately construed disputed facts in
the Riesses’ favor by ignoring the Dalin report in concluding that no evidence shows that
the Riesses knew about the ant infestation when they completed their seller’s disclosure
statement, which did not disclose the infestation. We are not persuaded.
The Dalin report does not constitute evidence that the Riesses knew about the ant
infestation when they made the disclosures or any time before they sold the home. The
evidence establishes that Dalin is a pest-control expert. As such, he can reasonably opine,
as he did, about the types of pests present or previously present in the home, the kind of
noises those pests might make, the activities of those pests, and the visible indicators of
their presence. He therefore reasonably opined that carpenter ants typically emerge in the
spring to forage for food, that when the ants expand their nests in wood a crackling sound
might be heard from within the walls, and that ants deposit what is called “f rass”—a
sawdust-like material —in the interior of the home. But his report does not lead to the
8
reasonable inference that the Riesses actually heard any noises he described or that, on
hearing them, they had the experience or expertise to conclude or even suppose that the
noise evidenced ants within the wall. His conclusory opinion about what the Riesses likely
knew exceeds his stated expertise and the scope of his underlying investigation of
examining several photographs. Construed in the light most favorable to Thompson’s
claims, the report establishes the infestation of ants hidden within the walls—an infestation
that can be inferred by someone knowledgeable enough about the species to interpret the
occasional “frass,” the occasional ants wandering on the floor, and certain noises within
the walls. Nothing in the report or Thompson’s argument supports the notion that
homeowners in general or the Riesses in particular would reach the infestation conclusion
that Dalin’s report deems “likely.” The Dalin report does not create a genuine issue of
material fact.
Thompson also mainta ins that, because the pergola had been improperly installed
by the Riesses’ contractor during a previous remodeling project as it was attached only to
the fascia plate, the district court should have noticed a genuine issue of material fact. But
Thompson offered no evidence from which a fact- finder could reasonably infer that the
Riesses had the expertise to know that the pergola was installed improperly. Even
Thompson’s own pre- purchase inspector—presumably a home-construction expert —
failed to notice the defect. And Thompson became aware of it only when her contractors
removed the siding and brought it to her attention. The existence of this defect, without
more, does not create a fact question as to whether the Riesses knew of it when they sold
the home to Thompson.
9
Thompson likewise maintains that genuine issues of fact exist as to the Riesses’
knowledge of water intrusion in the Colorado room because the Riesses built it as an
addition and had replaced the carpet five times. But the Riesses did disclose water intrusion
in the home. Their disclosure statement reported that, when the snow melted the previous
winter, they found water in the Colorado room. They reported the steps they took to
remediate the water intrusion, stating that they dried out the room and diverted the water
away from the house to the edge of the lot using a plastic pipe. There is no genuine issue
of fact about whether the Riesses knew about water intrusion in the Colorado room—they
undisputedly did.
Thompson argues that, because the Riesses replaced the carpet five times, a jury
could infer that they must have known that damage from the water intrusion was extensive.
We think the step from the evidence to the necessary finding would be speculative. That
the Riesses replaced the carpet five times over the 25- year life of the room does not
reasonably establish either that they replaced the carpet because of water intrusion or, more
relevant here, that the water intrusion resulted in structural damage to the home.
Thompson argues last that the district court ignored evidence that the Riesses knew
that ice dams had formed on the house but failed to disclose extensive water damage
resulting from them. That the roof accumulated ice dams occasionally (or even frequently)
when the Riesses owned the home does not establish that the Riesses knew that the
structure of the home had been compromised by water seepage. L ong-time Minnesota
homeowners are presumably aware of both the potential for ice dams and the various
remedies that are commonly employed to prevent them from causing water seepage. In any
10
event, nothing in the record suggests that knowledge of the mere existence of ice dams
implies knowledge that the ice dams have caused structural damage.
III
Thompson argues that the district court erred in applying the law to each of her
claims. The argument is not convincing.
To establish fraud, Thompson must prove that the Riesses made a false
representation of a past or existing material fact, that the Riesses knew that the
representation was false or did not know whether it was true or false, that the Riesses
intended to induce Thompson to act in reliance on the false representation, that the
representation caused Thompson to rely on it, and that Thompson suffered pecuniar y
damages as a result of the reliance. See V alspar Refinish, Inc. v. Gaylord’s, Inc., 764
N.W.2d 359, 368 (Minn. 2009). District courts evaluate reliance in fraud cases “in the
context of the aggrieved party’s intelligence, experience, and opportunity to investigate the
facts at issue.” Id. at 369. The district court entered summary judgment because Thompson
failed to establish that she relied on the Riesses’ alleged misrepresentations in that she had
the opportunity to inspect the home and hired an inspector to do so before purchasing it.
Thompson argues that the district court applied an incorrect standard to the reliance
element. The district court relied on the supreme court’s holding in Valspar that, “[w]hen
a party conducts an independent factual investigation before it enters into a commercial
transaction, that party cannot later claim that it reasonably relied on the alleged
misrepresentation.” Id. Thompson asserts that the district court applied a commercial-
transaction standard, rather than the rule in Berryman v. Riegert that an independent
11
investigation may suggest but does not establish nonreliance. 175 N.W.2d 438, 443 (Minn.
1970).
Caselaw does not support Thompson’s restrictive characterization of the Valspar
holding. We have characterized the holding in Berryman as an exception to the rule that a
purchaser cannot undergo an independent investigation, rely on it, and later assert she was
misled. Taylor v. Sheehan, 435 N.W.2d 575, 577 (Minn. App. 1989), review denied (Minn.
Apr. 24, 1989). This is consistent with M innesota cases holding that reliance on a
misrepresentation is justified when the relying party has not adequately investigated the
falsity of the representation. See, e.g., Davis v. Re-Trac Mfg. Corp., 149 N.W.2d 37, 39
(Minn. 1967). The Berryman exception applies when a plaintiff makes only a partial or
cursory investigation before the purchase. Id. (citing Berryman, 175 N.W.2d at 443; City
of Coon Rapids v. Suburban Eng’g , Inc., 167 N.W.2d 493, 496 (1969)). Thompson hired
Northern Lights to inspect the home for any defects. She also visited the home twice
herself. She made more than a partial or cursory investigation, precluding the district court
from applying the exception. Thompson failed to establish that she reasonably relied on
the Riesses’ alleged misrepresentations.
To establish negligent misrepresentation, a plaintiff must demonstrate that a duty of
care existed, the defendant supplied false information to the plaintiff, the plaintiff
justifiably relied on the information, and the defendant failed to exercise reasonable care
in communicating the information. Williams v. Smith, 820 N.W.2d 807, 815 (Minn. 2012).
The district court concluded that the Riesses did not owe Thompson a duty of care because
they were engaged in an arm’s-length transaction. See Smith v. Woodwind Homes, Inc.,
12
605 N.W.2d 418, 424 (Minn. App. 2000) (recognizing that when there is an arm’s-length
transaction, no duty is owed for the purpose of a negligent-misrepresentation claim).
Thompson argues that the parties were not engaged in an arm’s-length transaction because
they had a dual-agency relationship with the real estate agent.
Thompson relies on the supreme court’s decision in PMH Properties v. Nichols,
which addressed whether a real estate agent owed a fiduciary duty to a company when he
competed with it. 263 N.W.2d 799, 801 (Minn. 1978). The PMH Properties court reasoned
that, if the real estate agent had an agency relationship with PMH, the relationship would
not constitute an arm’s-length relationship and the agent would owe the company fiduciary
duties. Id. But the reasoning does not apply here; our issue is whether the sellers owed the
buyer a duty, not whether the real estate agent owed the buyer a duty. The agent here
disclosed his dual agency, and there is nothing to suggest that the Riesses and Thompson
engaged in anything beyond an arm’s-length transaction. The district court did not err by
concluding that the Riesses did not owe Thompson a duty bearing on Thompson’s
negligent-misrepresentation claim.
Thompson also argues that the district court misapplied the law on her failure-to-
disclose claim. But she bases her argument on the undisputed findings of fact discussed
above and does not present a challenge to the district court’s application of the law to the
facts. We do not address the argument further.
Affirmed.