Austin v. Miller

Background

The Miller Defendants—Miller and Perotti Real Estate Appraisals, Inc., and Janette C. Miller—moved under Federal Rule of Civil Procedure 12(b)(6) to dismiss the seventh claim in the plaintiffs’ first amended complaint. Rule 12(b)(6) allows a defendant to seek dismissal when the complaint does not allege enough facts to state a legally valid claim.

The seventh claim alleged negligent misrepresentation. The plaintiffs claimed that the Miller Defendants misrepresented that they were providing an unbiased appraisal of the Austins’ house and that the Austins reasonably relied on those representations while trying to obtain a mortgage loan with favorable terms.

Court’s Analysis

Under California law, a negligent-misrepresentation claim requires a plaintiff to allege: (1) a false statement about a past or existing fact; (2) no reasonable grounds for believing the statement was true; (3) an intent to cause reliance; (4) justifiable reliance; and (5) resulting damage.

The court focused on reliance. Although the complaint stated that the Austins reasonably relied on the defendants’ representations, the court found that the complaint did not state or suggest that the Austins believed the appraisal’s representations were true. Instead, the complaint alleged that the Austins were shocked by the report, did not use it, and contacted their broker to request a second appraisal. The court explained that relying on the need for an appraisal is not the same as relying on a statement because the statement was true and accurate.

The court also found it illogical to argue that the Austins relied on misrepresentations in a report prepared after the appraisal had been conducted, because the complaint alleged that the Austins would not have used the Miller Defendants had they known the report would contain misrepresentations.

Ruling

Judge Maxine Chesney granted the Miller Defendants’ motion to dismiss. The court dismissed the plaintiffs’ seventh claim for relief as asserted against the Miller Defendants, without further leave to amend. The court did not address the Miller Defendants’ additional arguments supporting dismissal and vacated the scheduled hearing.