Watson v. Owens Cross Roads Water Authority 681 So. 2d 1064

KENNEDY, Justice.

The plaintiffs, Janet Watson and Watson Development Inc., (owned and controlled by Janet Watson), appeal from a summary judgment entered in favor of the defendants, Owens Cross Roads Water Authority (“OCRWA”); Bobby Salmon (OCRWA’s executive director, manager, and operator); and OCRWA’s directors, Wayne Clayton, Lloyd Pinkerton, and Danny Whorton.

A summary judgment is appropriate “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law.” Rule 56(c)(3), Aa.R.Civ.P. Once the moving party makes a prima facie showing that there is no genuine issue of material fact, the burden shifts to the non-moving party to present substantial evidence creating a genuine issue of material fact. Nipper v. Variety Wholesalers, Inc., 638 So.2d 778 (Ala.1994). In reviewing a summary judgment, we must view the evidence in a light most favorable to the nonmoving party. Viewed in that light, the evidence suggests the following facts:

Around July 1993, Watson contacted OCRWA regarding her interest in purchasing, through her corporation, certain real estate in order to develop a subdivision. She spoke with Salmon, who was executive director, manager, and operator of OCRWA, in order to find out if OCRWA had the capacity to provide water services for her contemplated subdivision. Salmon told Watson that OCRWA had more than enough water available to service the contemplated subdivision. Based on Salmon’s statements, Watson purchased the property for the contemplated subdivision on September 8,1993.

Watson specifically asked Salmon about a newspaper article she had read shortly before contacting OCRWA. The article had discussed water shortages in certain Madison County water systems, and it had mentioned OCRWA as one of those systems with shortages. Salmon assured Watson that there would be no problem with the availability of water: Salmon stated that the article was incorrect and that OCRWA had excess water and “had even been selling water to other systems.”

Around July 1993, Watson’s surveyor and her real estate agent contacted OCRWA on behalf of Watson to inquire about OCRWA’s supplying water to the contemplated subdivision. Both the surveyor and the real estate agent had read the newspaper article and were concerned with whether the water was available to service the property. An OCRWA representative assured both of them that OCRWA had sufficient storage to supply the contemplated subdivision with water and that the newspaper article was incorrect. After Watson purchased the property, the surveyor went to the October 7, 1993, OCRWA board meeting, and at that meeting the board promised to supply the water to Watson.

Watson alleges that OCRWA had been on notice since 1989 that it needed more storage facilities and, therefore, she says, OCRWA’s representation to her that it could provide water to the property was false. Watson presented a letter from the Aabama Department of Environmental Management (“ADEM”) to OCRWA dated July 7,1989, in which ADEM stated that-OCRWA’s “future plans should include the construction of an additional storage tank.” Another letter from ADEM to OCRWA, dated September 4, 1991, stated that OCRWA’s storage facilities were “deficient.” That letter also indicated that an employee of OCRWA had told an ADEM employee that OCRWA was making plans to add storage facilities.

The minutes from the OCRWA board meeting on February 4, 1992, indicate that OCRWA knew that it needed additional water storage; specifically, those minutes indi*1066cate that at that meeting the board decided to hire an engineering firm to consider the storage problem. Minutes from the April 7, 1992, board meeting indicate that OCRWA “tabled” the idea of hiring an engineering firm. OCRWA never added extra storage.

The engineer who designed the OCRWA facility testified that the facility was “short on storage” in July 1993 when Watson first contacted OCRWA about providing water services. The engineer testified that the facility had been designed to service 300 customers, but that in July 1993 it was serving 1100 customers and nothing had been done to increase storage capacity.

By December 1993, OCRWA still had not extended water service to the real property in the contemplated subdivision. At a December 7, 1993, OCRWA board meeting, Watson was told that OCRWA did not have the capacity to service her contemplated subdivision. Watson expressed concern and distress about the lack of water service; the board responded by telling her that it would be able to have water service available for the property.

Thereafter, the defendants continued to represent that OCRWA would be able to provide water service for the contemplated subdivision. On March 24, 1994, OCRWA still did not have sufficient water storage capacity to service the contemplated subdivision. On that date Watson sued OCRWA, Salmon, and OCRWA’s directors (Clayton, Pinkerton, and Wharton), alleging fraud, promissory estoppel, negligence, wantonness, and breach of contract arising from OCRWA’s alleged inability to supply water. The trial court entered a summary judgment in favor of the defendants.

In support of their summary judgment, the defendants argue that it was undisputed that OCRWA had an ample water supply and was providing water for other systems. They also argue that Watson could not have justifiably relied on any statements made by OCRWA, because under State regulations Watson, in order to develop her subdivision, had to have an engineer present a proposed water supply plan to the OCRWA board and have the board approve the plan in writing.

We disagree with the defendants’ first argument. The evidence regarding OCRWA’s water supply is disputed. Watson presented substantial evidence that OCRWA lacked sufficient water to supply the contemplated subdivision; therefore, the question whether OCRWA had sufficient water should be determined by the factfinder at trial. The determination of this fact is necessary to all of Watson’s claims against the defendants. We also disagree with the defendants’ argument that Watson could not have justifiably relied on their statements. There is a genuine issue of material fact as to whether Watson could have justifiably relied on the representation; Watson presented substantial evidence that Salmon and the board members managed, controlled, and operated OCRWA and knew whether it had an adequate water supply. We note that Watson is arguing that when she purchased the real estate she was relying on the defendants’ statements that adequate water was available for the contemplated subdivision. Watson was not developing the subdivision when she relied on the statements; rather, she contends that in deciding to buy the property she relied on the statements concerning water availability.

Basically, the defendants argue that Watson had to submit a proposed engineering plan for supplying water to the contemplated subdivision and had to obtain the board’s approval of that plan before she could rely on the statements. When Watson purchased the property, she had not designed the subdivision or its water supply system. She says she relied on the statements in buying the property. The defendants presented no evidence that any State planning regulation required Watson to present a water supply plan before she purchased the property for the contemplated subdivision. We agree with Watson’s analogy: If we accept the defendants’ argument here, then we should hold that, if a buyer of an automobile ultimately could not get a license to operate it, then the buyer could not be found to have justifiably relied upon a misrepresentation that the seller had good title to the car.

*1067Based on the foregoing, we reverse the summary judgment on all claims and remand the case.

REVERSED AND REMANDED.

SHORES, HOUSTON, and BUTTS, JJ., concur.

COOK, J., concurs in the result.

HOOPER, C.J., and MADDOX, J., dissent.

HOOPER, Chief Justice

(dissenting).

In McConico v. Corley, Moncus & Bynum, P.C., 567 So.2d 863 (Ala.1990), this Court stated the elements of fraud: “1) a false representation; 2) regarding a material existing fact; 3) which the plaintiff relies upon; and 4) [damage] proximately caused by the misrepresentation.” 567 So.2d at 864. Under the facts of this case, Janet Watson could not be found to have justifiably relied on statements by the manager or directors of Owens Cross Roads Water Authority indicating that water would be available for the subdivision Watson was developing. This Court wrote in Vance v. Huff, 568 So.2d 745 (Ala.1990):

“This Court has repeatedly held that the right to rely on the representations of others comes with a concomitant duty on the part of plaintiffs to exercise some measure of precaution to safeguard their interests. If the circumstances surrounding the alleged misrepresentations are such that a reasonably prudent person exercising ordinary care would have discovered the facts, the plaintiff is not entitled to recover.”

568 So.2d at 751 (citations omitted).

It is undisputed that Janet Watson and Watson Development Corporation’s agent knew that a subdivision developer is required to present to the water authority’s governing body a plan for supplying water to the subdivision before the authority’s board can decide whether to supply water to the subdivision. Watson Development’s agent Phillip Wilbanks admitted that before Ms. Watson, acting through Watson Development, purchased the property for the subdivision, OCRWA’s manager told Wilbanks that he would be required to obtain the approval of OCRWA’s board for any plan to supply water. “An agent’s knowledge concerning the subject matter of the agency is imputed to the principal.” Wilma Corp. v. Fleming Foods of Alabama, 613 So.2d 359, 366 (Ala.1993). Thus, Wilbanks’s knowledge is imputed to Janet Watson and Watson Development.

The State Health Department’s regulations regarding supplying water to subdivisions require the developer, not the water system, to determine whether a water system can provide water for a subdivision. Regulation § 420-3-l-.42(2) provides that “the developer shall employ an engineer to determine the proper and adequate method of water supply ... for the proposed subdivision.” The regulation also provides that, where a public water system is to be utilized, the developer must submit to the Health Department a letter from the public water system or its consulting engineer. The letter must provide the system’s approval for utilizing the public water system, approval of the plan’s water distribution system, proof that a satisfactory amount of water pressure will be available to the subdivision, and it must assure future acceptance of the subdivision when completed. Regulation 420-3-1-.42(2)(b) and (c). Phillip Wilbanks admitted that he was aware of the regulatory requirements and knew that they applied to the planned subdivision.

The plaintiffs claim that the regulations do not apply in this case because the regulations apply to the development of subdivisions, and Watson Development, they say, had not begun developing a subdivision at the time its agents had their discussions with Bobby Salmon. However, the basis of the plaintiffs’ fraud claims is that the defendants misrepresented that water would be available to service the subdivision and concealed facts that would have allowed the plaintiffs to discover that the Water Authority would be unable to supply water. The plaintiffs knew or should have known that, under the regulations, a subdivision could not be developed until Watson Development employed an engineer to make this determination. Also, the plaintiffs knew or should have known that they would then have to obtain the OCRWA board’s approval of the water distribution plan and *1068•its commitment that OCRWA would accept the subdivision upon its completion.

The plaintiffs could not have justifiably relied upon mere oral representations by an OCRWA employee that the authority could and would supply the proposed subdivision with water. Janet Watson and Wilbanks were experienced in developing real property and in dealing with water systems; it is undisputed that Wilbanks had actual knowledge that OCRWA’s board, and not Bobby Salmon, would be required to decide whether water could and would be supplied. Ray Vandiver, another agent of Janet Watson and Watson Development, was told that OCRWA’s supplying water was contingent on board approval and on engineering studies. Wilbanks undisputedly knew, and Janet Watson knew or should have known, that applicable regulations required Watson Development to employ its own engineer to determine whether water would be available for the proposed subdivision. Both also should have known that the regulations required the developer to present to the board a proposed water distribution plan as a prerequisite to obtaining the board’s commitment to provide water to the subdivision. The plaintiffs failed to exercise ordinary care to safeguard their own interests. The defendants are not to blame for the plaintiffs’ problems. I would affirm the defendants’ summary judgment.

MADDOX, Justice

(dissenting).

This Court, on June 14, 1996, in Stadia Group, Inc. v. Birmingham, Park & Recreation Board, 680 So.2d 1033 (Ala.1996) (no opinion, Rule 53, Ala. R.App. P., affirmance), affirmed a summary judgment for the defendant Birmingham Park and Recreation Board. In Stadia Group, the plaintiff alleged that the Birmingham Park and Recreation Board had misrepresented material facts and that the plaintiff had relied on the misrepresentation to its detriment.

Although the facts of this case and the facts of Stadia Group are different, I do not believe they are so materially different as to compel a different legal result. Therefore, I must respectfully dissent.