Iowa Court Says Abstract Mistake did not Cause Injury to Buyer
On June 29, 2022, the Iowa Court of Appeals affirmed the dismissal of a negligence lawsuit against a title company. The title company prepared an abstract for a sale of land, but failed to identify a sewer easement. Although the title company made an error, the Court of Appeals held that this mistake was not the proximate cause of the buyer’s alleged injury.
In June 2017, the plaintiff, intending to open a mini-storage business, entered into a purchase agreement to buy property near his home. The agreement provided that the plaintiff was purchasing the property “SUBJECT . . . TO EXISTING EASEMENTS, IF ANY.” The title company prepared an abstract at the request of the seller. The abstract did not show any easements on the property. A couple of weeks later, the parties completed the sale.
The following month, the plaintiff formed a limited liability company (LLC) to operate the storage business. The plaintiff was the only member. He did not quitclaim the property to the LLC until October 2018. While beginning to prepare for construction, the plaintiff learned of a sewage easement on the property. Despite this, the plaintiff continued building and completed the first units in the late summer and early fall of 2018.
In December 2019, the plaintiff brought this lawsuit against the title company alleging negligence and seeking damages. He filed a motion to add the LLC as a plaintiff which the district court granted. The title company filed a motion for summary judgment claiming that it did not owe the LLC a duty of care and that it was not the proximate cause of the plaintiff’s damages. The district court granted the title company’s motion. The plaintiff appealed.
Negligent Misrepresentation: Duty of Care
The Court of Appeals agreed that the title company failed to identify the easement when it should have. However, to be liable for negligence or negligent representation, the title company must have owed a duty of care and it must have caused the plaintiff’s injury.
A business which provides false or inaccurate information can be liable for damages caused by justifiable reliance on the information. Restatement (Second) of Torts § 552(1), (2). However, such a business only owes a duty of care to those the business intended to provide the information and to those who receive the information and rely on it. Id. In this case, the sellers of the property hired the title company to provide the abstract to the plaintiff. At that point, the LLC had not been created. The court held that the title company only owed a duty of care to the seller and the plaintiff. Therefore, it affirmed that district court’s dismissal of the LLC’s claims.
Negligent Misrepresentation: Causation
The court next considered whether the plaintiff suffered damage because of the title company’s conduct. The plaintiff alleged he lost profits because he could not build over the easement and because he could have negotiated a lower sale price if he would have known about the easement.
“The defendant’s conduct is a cause in fact of the plaintiff’s harm if, but-for the defendant’s conduct, that harm would not have occurred.” Garr v. City of Ottumwa, 846 N.W.2d 865, 869 (Iowa 2014).
Here, the LLC owned and operated the storage business, not the plaintiff. An LLC is a distinct entity from its members. Iowa Code § 489.104(1). Therefore, only the LLC would suffer from any alleged lost profits. Additionally, the title company’s mistake was not the cause of the alleged loss in profits. The easement itself prohibited the construction.
Lastly, the plaintiff claimed that because the title company did not disclose the easement, he was not able to renegotiate for a lower sale price. However, the plaintiff agreed to the purchase agreement subject to any existing easements. The court also noted that the plaintiff did not produce sufficient evidence that the sellers would have agreed to a lower price after learning of the easement.
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