Argued February 18, 2015.
APPEAL FROM THE CIRCUIT COURT OF THE SEVENTH JUDICIAL CIRCUIT PENNINGTON COUNTY, SOUTH DAKOTA. THE HONORABLE ROBERT A. MANDEL, Judge.
KYLE L. WIESE of Gunderson, Palmer, Nelson & Ashmore, LLP, Rapid City, South Dakota, Attorneys for plaintiffs and appellants.
JESSICA L. LARSON, GARY D. JENSEN of Beardsley, Jensen & Von Wald, Prof. LLC, Rapid City, South Dakota, Attorneys for defendants and appellees.
WILBUR, Justice. GILBERTSON, Chief Justice, and ZINTER, SEVERSON, and KERN, Justices, concur.
[¶1] Roger and Dorothy Johnson appeal the circuit court's grant of summary judgment in favor of Hayman Residential Engineering Services, Inc. (Hayman). The Johnsons sued Hayman on a theory of professional negligence because Hayman made an allegedly substandard and inadequate structural engineering report on the Johnsons' home (the Home). The report was prepared for Fannie Mae, and the Johnsons alleged the report ultimately impacted the value of the Home. The circuit court, in granting Hayman's summary judgment motion, held that Hayman owed the Johnsons no duty and, therefore, a professional negligence claim could not be established. We affirm.
Facts and Procedural History
[¶2] In 2008, Fannie Mae foreclosed upon and acquired the Home. The Home is located in Rapid City, South Dakota. Fannie Mae, through its agent/broker Cathy Brickey, hired Hayman to perform a visual inspection and prepare a report outlining any structural problems. The Hayman Report noted cracks in the drywall (both walls and ceilings), visible cracks in the foundation wall, a low spot in the garage, and several other foundational problems. The Report concluded that the " most likely cause of the uplifting is expansive soil under the foundation. The expansion is driven by water expansion." Hayman believed
that " the key to minimizing further movement in the footing is to keep water from collecting" under the foundation. To that end, Hayman made two recommendations: (1) ensuring downspouts and grading slope away from the foundation at least six feet and (2) installing a French drainage system along the exterior foundation wall that would direct water into a sump pump to remove water from the collection area.
[¶3] Based on the Report, Fannie Mae made some, but not all, of the recommended repairs. Repairs included fixing cracked sheetrock, painting, and installing the French drainage system. Brickey testified she would not have sold the Home without a structural inspection report, and she placed a " hold-don't show" on the Home until the Hayman Report was delivered and the repairs completed. Hayman did not have anything to do with the Home or its repairs after the Report was provided. Hayman did not select the contractors or design the repair work.
[¶4] Once repairs were made, Fannie Mae, through Brickey, listed the Home for sale. Ronald and Dawn Mason, through their agent Susan Raposa, expressed interest in purchasing the Home. Brickey showed Raposa the Home and informed Raposa of the repairs recently made. Brickey remembers representing to Raposa that repairs were made, based on the Hayman Report, to make the Home sellable. However, as was made clear by Brickey, " Fannie Mae did not authorize the [Hayman R]eport for the purpose of providing [it] to prospective buyers." The Masons decided to purchase the Home from Fannie Mae. Fannie Mae sold the Home to the Masons " as-is, where-is" with no warranties, either express or implied, with respect to the physical condition of the Home " including the structural integrity[,] . . . stability of the soil[,] . . . sufficiency of drainage[,] . . . or any other matter affecting the stability, integrity, or condition of the property or improvements[.]" The Masons moved into the Home in October 2009.
[¶5] The Masons lived in the Home until they sold it to the Johnsons via warranty deed in May 2012. The Masons used a realtor other than Raposa to sell the Home. It is undisputed that the Johnsons did not see or even know of the Hayman Report prior to purchasing the Home. Prior to purchase on February 15, 2012, the Masons provided the Johnsons with a Seller's Property Condition Disclosure Statement. The Masons noted that there were cracks in the driveway, but did not disclose cracks in the Home, cracks in the drywall, previously repaired cracks, water leakage in the garage, or other structural problems. The Disclosure Statement did not make reference to the Hayman Report.
[¶6] Prior to purchase but after the Masons gave the Johnsons the Disclosure Statement, the Johnsons submitted an offer to the Masons. The offer was contingent upon a physical inspection of the Home. The Masons and Johnsons entered into a purchase agreement. If the inspection revealed conditions unsatisfactory to the Johnsons, they had multiple options, including deeming the purchase agreement null and void in its entirety. The Johnsons performed their own visual inspection in which Mr. Johnson noticed the French drainage system and believed it was installed to alleviate a drainage issue. The Johnsons also hired Drew Inspection Services to perform an inspection. The inspection revealed significant settling and cracking in the driveway in front of the garage, a negative slope of the driveway causing pooling and run-off towards the Home, several major cracks in the garage ceiling, cracks in the garage's sheetrock,
and cracks along the joints of the Home's interior wall and ceiling. In addition to Mr. Johnson's inspection and the inspection by Drew Inspection, the realtors for the Masons hired American Technical Services, Inc., to perform an inspection of the Home. American Technical Services opined that by extending the drainage area on the west and with rerouting water away from the garage and driveway area, it would solve any further movement of the garage and driveway. The Johnsons were present ...