IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
January 2015 Term
_______________ FILED
June 16, 2015
released at 3:00 p.m.
No. 14-0291 RORY L. PERRY II, CLERK
SUPREME COURT OF APPEALS
_______________ OF WEST VIRGINIA
CHARLES J. EVANS and CYNTHIA B. EVANS, et al.,
Plaintiffs Below, Petitioners
v.
UNITED BANK, INC., a West Virginia Corporation,
STAN McQUADE, Individually, THELMA McQUADE,
and d/b/a McQUADE APPRAISAL SERVICES
Defendants Below, Respondents
____________________________________________________________
Appeal from the Circuit Court of Monroe County
The Honorable Robert A. Irons, Judge
Civil Action No. 09-C-94
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED
____________________________________________________________
Submitted: March 10, 2015
Filed: June 16, 2015
John H. Bryan, Esq. C. William Davis, Esq.
John H. Bryan, Attorney at Law Richardson & Davis, PLLC
Union, West Virginia Bluefield, West Virginia
Counsel for the Petitioners Counsel for the Respondent
United Bank, Inc.
John T. Jessee, Esq.
LeClairRyan
Roanoke, Virginia
Counsel for Respondents
Stan McQuade and McQuade
Appraisal Services
JUSTICE BENJAMIN delivered the Opinion of the Court.
JUSTICE KETCHUM concurs in part and dissents in part and reserves the right to filing
a separate Opinion.
SYLLABUS BY THE COURT
1. “‘Appellate review of a circuit court’s order granting a motion to
dismiss a complaint is de novo.’ Syllabus point 2, State ex rel. McGraw v. Scott Runyan
Pontiac–Buick, Inc., 194 W.Va. 770, 461 S.E.2d 516 (1995).’” Syl. Pt. 1, Longwell v. Bd.
of Educ. of the Cnty. of Marshall, 213 W.Va. 486, 583 S.E.2d 109 (2003).
2. “‘The trial court, in appraising the sufficiency of a complaint on a
Rule 12(b)(6) motion, should not dismiss the complaint unless it appears beyond doubt
that the plaintiff can prove no set of facts in support of his claim which would entitle him
to relief.’ Syllabus, Flowers v. City of Morgantown, W.Va., 272 S.E.2d 663 (1980).” Syl.
Pt. 2, Sticklen v. Kittle, 168 W.Va. 147, 287 S.E.2d 148 (1981).
3. “‘In tort actions, unless there is a clear statutory prohibition to its
application, under the discovery rule the statute of limitations begins to run when the
plaintiff knows, or by the exercise of reasonable diligence, should know (1) that the
plaintiff has been injured, (2) the identity of the entity who owed the plaintiff a duty to
act with due care, and who may have engaged in conduct that breached that duty, and (3)
that the conduct of that entity has a causal relation to the injury.’ Syllabus Point 4,
Gaither v. City Hosp., Inc., 199 W.Va. 706, 487 S.E.2d 901 (1997).” Syl. Pt. 3, Dunn v.
Rockwell, 225 W.Va. 43, 689 S.E.2d 255 (2009).
i
4. “A five-step analysis should be applied to determine whether a cause of
action is time-barred. First, the court should identify the applicable statute of limitation
for each cause of action. Second, the court (or, if questions of material fact exist, the jury)
should identify when the requisite elements of the cause of action occurred. Third, the
discovery rule should be applied to determine when the statute of limitation began to run
by determining when the plaintiff knew, or by the exercise of reasonable diligence should
have known, of the elements of a possible cause of action, as set forth in Syllabus Point 4
of Gaither v. City Hosp., Inc., 199 W.Va. 706, 487 S.E.2d 901 (1997). Fourth, if the
plaintiff is not entitled to the benefit of the discovery rule, then determine whether the
defendant fraudulently concealed facts that prevented the plaintiff from discovering or
pursuing the cause of action. Whenever a plaintiff is able to show that the defendant
fraudulently concealed facts which prevented the plaintiff from discovering or pursuing
the potential cause of action, the statute of limitation is tolled. And fifth, the court or the
jury should determine if the statute of limitation period was arrested by some other tolling
doctrine. Only the first step is purely a question of law; the resolution of steps two
through five will generally involve questions of material fact that will need to be resolved
by the trier of fact.” Syl. Pt. 5, Dunn v. Rockwell, 225 W.Va. 43, 689 S.E.2d 255 (2009).
5. “The ‘discovery rule’ is generally applicable to all torts, unless there
is a clear statutory prohibition to its application.” Syl. Pt. 2, Dunn v. Rockwell, 225 W.
Va. 43, 689 S.E.2d 258 (2009).
ii
Benjamin, Justice:
The instant action is before the Court upon the appeal of thirty-three
Petitioners from a Rule 12(b)(6) order dismissing their second amended complaint filed
against United Bank and Stan and Thelma McQuade, d/b/a McQuade Appraisal Services.
The circuit court ruled that Petitioners’ claims of fraud in the inducement, negligence,
intentional and/or negligent infliction of emotional distress, breach of fiduciary duty, and
constructive fraud were time-barred by the two-year statute of limitations. The circuit
court also dismissed Petitioners’ claim of breach of implied covenant of good faith and
fair dealing on the basis that Petitioners failed to allege a breach of contract. Lastly, the
circuit court dismissed Petitioners’ detrimental reliance claim, finding that it was
improper because they seek money damages, and, alternatively, that it was essentially a
restatement of their fraud in the inducement claim. Upon review of the parties’
arguments, the record before us on appeal, and applicable legal precedent, we affirm in
part, and reverse in part, the circuit court’s order and remand this case for further
proceedings consistent with this Opinion.
I. FACTUAL AND PROCEDURAL BACKGROUND
This case centers on an alleged fraudulent scheme involving Respondent
United Bank and Respondent McQuade Appraisal Services to inflate the value of
property in a residential development in Monroe County named Walnut Springs
Mountain Reserve (“Walnut Springs”) and the circuit court’s dismissal of the same
1
pursuant to West Virginia Rule of Civil Procedure 12(b)(6). The Petitioners are all
owners of lots in Walnut Springs. Petitioners purchased their respective lots in 2005 and
2006, and United Bank provided the financing. Walnut Springs ultimately failed and was
abandoned by the developer, Mountain America, LLC.1
This case began with the filing of a civil action on November 30, 2009, by
Petitioners Charles J. Evans and Cynthia B. Evans against United Bank. The complaint
was amended in July of 2010, to add additional Walnut Springs property owners as
plaintiffs and Respondents Stan McQuade and Thelma McQuade, as defendants,
individually and doing business as McQuade Appraisal Services (collectively
“McQuade”).2 McQuade was engaged by United Bank to perform the appraisals for the
Petitioners’ lots. In September of 2010, the complaint was amended a second time to add
additional plaintiff property owners, all thirty-three of whom are Petitioners herein.
1
Petitioners state that the two developers of Walnut Springs were Washington,
DC, attorney Jonathan Halperin and Las Vegas developer Dan “Berg” Schonberger.
Walnut Springs, which was advertised in the Washington Post and Farm and Ranch
magazine, was allegedly supposed to include a grand lodge with a restaurant, fitness,
center, game rooms, and meeting rooms; lakes filled with trout and waterfalls; and
underground utilities, none of which came to fruition. The development attracted
potential buyers from the suburbs of Washington, D.C., and elsewhere, looking to invest
in beautiful mountain real estate subdivision properties.
2
The first amended complaint also named two United Bank employees as
defendants, then-vice president Ray Leon Cooper and Joyce Durham. These two
defendants were subsequently dismissed from the suit. Petitioners allege that Mr. Cooper
is currently serving time in federal prison for bank fraud.
2
Specifically, Petitioners alleged the following in their second amended complaint: (1)
fraud in the inducement or aiding and abetting fraud in the inducement; (2) negligence;
(3) civil conspiracy; (4) punitive damages; (5) intentional or negligent infliction of
emotional distress; (6) respondeat superior; (7) breach of implied covenant of good faith
and fair dealing; (8) breach of fiduciary duty; (9) constructive fraud; and (10) detrimental
reliance.3
Petitioners’ second amended complaint is based on allegations of bank and
appraisal fraud stemming from an allegedly fraudulent transaction occurring in 2005 that
led to grossly-inflated lot values at Walnut Springs. Petitioners state that they learned of
the fraudulent transaction in late 2009 or early 2010, after serving a subpoena upon
McQuade in a companion case against the developers, Monroe County Civil Action No.
09-C-93. Petitioners allege that in 2005, they were told by developers that the property
values in Walnut Springs were $50,000 per acre. This value was supposedly justified by
an initial transaction in 2005, in which a woman named Chaya Schonberger purchased a
5.88 acre lot for $294,000. This transaction was then used as the “comp” for future
appraisals and sales, which appraisals and sales then were used as “comps” for other
sales, resulting in a “pyramid” of appraisals and sales all resulting from the Schonberger
transaction.
3
Each count is applicable to United Bank, and all but “breach of implied covenant
of good faith and fair dealing” are applicable to McQuade.
3
Petitioners allege, however, that the Schonberger transaction never actually
occurred. Chaya Schonberger is actually the mother of one of the developers, Dan
Schonberger, who according to Petitioners uses multiple aliases, one of which is “Dan
Berg.”4 Petitioners state that the 5.88 acre lot was never a part of Walnut Springs, a fact
which Petitioners allege was cleverly disguised by McQuade, who appraised it, and
misidentified the deed book and page number to be completely untraceable. Moreover,
while Chaya Schonberger did own the 5.88 acres, there was never a sale of the property
to her for a price of $294,000.00. Rather, she owned the property the entire time, having
purchased it from a third party in 2004 for $99,000.00.5
4
In their second amended complaint, Petitioners allege that Dan Berg, who at the
time was using a fictitious social security number, was born as Daniel Schonberger.
Petitioners contend that he has previously claimed that he was in a car accident and could
not remember his real social security number and name.
5
Petitioners allege that the property was originally 67.5 acres adjoining the
Walnut Springs development and was held in her name from the beginning. In the
developers’ partnership agreement, it notes that the 67.5 acres was owned by Berg and
exempt from the agreement’s “corporate opportunity clause.” Petitioners contend that on
or about October 12, 2004, Chaya Schonberger, by and through her son using a power of
attorney, conveyed two five acre parcels to two individuals, Shoupe and Chamberland,
who were employees of the Walnut Springs development. These sales indicated a per
acre value of $15,000.00 per acre. On May 12, 2005, Chaya Schonberger conveyed her
remaining 57.5 acres into a limited liability company owned by the developers. The deed
from that conveyance excepted 5.88 acres from the conveyance to remain in her name.
At that time the 5.88 acre parcel was designated as “Walnut Springs Mountain Reserve
Phase 1 Lot 1” and was listed in the books as having been a sale of 5.88 acres for the
consideration of $294,000.00.
4
At the same time as the supposed sale of the 5.88 acre lot, a construction
loan was taken out through United Bank with loan officer Leon Cooper. Mr. Cooper had
a $300,000.00 limit for which he could solely approve loans. He approved the
construction loan for a house to be constructed on a 5.88 acre parcel in the Walnut
Springs subdivision. While Chaya Schonberger owned the 5.88 acre lot and the house
constructed on it, the lot was never owned by Walnut Springs.
Petitioners allege that United Bank was aware of the fraud since 2005, but
continued to finance the development using appraisals supported by the Schonberger
transaction. Petitioners state that they were not aware of this fraud until 2009 or 2010,
when their counsel reviewed the documents provided pursuant to the above-referenced
subpoena in the other civil action. According to Petitioners, this discovery is what led to
the filing of the second amended complaint in September of 2010.
In February of 2011, Respondents moved to dismiss the case pursuant to
Rule 12(b)(6), asserting that except for the claims of breach of implied covenant of good
faith and fair dealing and breach of fiduciary duty, Petitioners’ claims are barred by the
applicable two-year statute of limitations. In its February 27, 2014, order granting the
motions to dismiss, the circuit court first addressed United Bank’s request that the circuit
court take judicial notice of the “adjudicative facts” set forth in MBMA, LLC, which was
a matter before the Monroe County Commission sitting as the Board of Equalization and
5
Review, the subsequent appeal of that matter to the circuit court in civil action number
07-C-30, and the ultimate appeal to this Court in Mountain America, LLC, et al. v.
Huffman, 224 W.Va. 669, 687 S.E.2d 768 (2009).
This prior tax appeal involved a challenge to the 2007 assessed values of
the lots in Walnut Springs by the Monroe County Assessor. The basis of the challenge,
which was presented at a February 7, 2007, evidentiary hearing held before, was that the
assessments were excessive and unequal, and not based on the true and actual value of
the properties. The parties dispute the level of involvement the individual landowners
(the Petitioners herein) had in the 2007 litigation. Petitioners assert that the matter was
spear-headed by the developers and the Petitioners were involved only insofar as their
names were used. Respondents counter that the Petitioner landowners were the primary
challengers to the assessments. Over Petitioners’ objection, the circuit court took judicial
notice of the adjudicative facts of the tax appeal. In Mountain America, LLC, this Court
affirmed the circuit court’s order that affirmed the assessments. 224 W.Va. 669, 687
S.E.2d 768.
With that ruling in mind, the circuit court found that in the present suit,
Petitioners seek to “recover damages from the Defendants on the theory that the Plaintiffs
paid more than fair market value for their property because of the alleged wrongful acts
of the Defendants.” The circuit court then went on to find that Petitioners should have
6
known of their present claims no later than the hearing before the Board of Equalization
and Review on February 7, 2007. The circuit court reasoned, essentially, that if
Petitioners were challenging the value of their land in 2007, they should have inquired at
that time “as to the identity and conduct of the parties involved in the sales of their
property, i.e. the Defendants.” The circuit court determined that Petitioners instituted
their action on November 30, 2009, more than two years later. As such, the circuit court
granted Respondents’ motions to dismiss with regard to the claims carrying a two-year
statute of limitations.
The circuit court then turned to Petitioners’ breach of implied covenant of
good faith and fair dealing claim, to which a five-year limitation period applies. The
circuit court relied on federal case law in holding that without an allegation of breach of
contract, Petitioners could not maintain a claim for breach of implied covenant of good
faith and fair dealing. Finally, the circuit court ruled that it was without jurisdiction to
entertain the detrimental reliance claim because it is an equitable remedy and Petitioners
were expressly seeking monetary relief, and that it was essentially a restatement of their
fraud in the inducement claims. Petitioners now appeal to this Court.6
6
On or about March 7, 2014, Petitioners filed a “Motion to Alter or Amend
Judgment, or in the Alternative Motion for Relief from Judgment.” They filed their
appeal to this Court on May 18, 2014. By order entered May 29, 2014, the circuit court
denied Petitioners’ motion.
7
II. STANDARD OF REVIEW
Rule 12(b)(6) of the West Virginia Rules of Civil Procedure authorizes the
filing of a motion requesting dismissal of a claim or counterclaim for “failure to state a
claim upon which relief can be granted.” W.V.R.C.P. 12(b)(6). “‘Appellate review of a
circuit court’s order granting a motion to dismiss a complaint is de novo.’ Syllabus point
2, State ex rel. McGraw v. Scott Runyan Pontiac–Buick, Inc., 194 W.Va. 770, 461 S.E.2d
516 (1995).” Syl. Pt. 1, Longwell v. Bd. of Educ. of the Cnty. of Marshall, 213 W.Va.
486, 583 S.E.2d 109 (2003).
“‘The trial court, in appraising the sufficiency of a complaint on a Rule
12(b)(6) motion, should not dismiss the complaint unless it appears beyond doubt that the
plaintiff can prove no set of facts in support of his claim which would entitle him to
relief.’ Syllabus, Flowers v. City of Morgantown, W.Va., 272 S.E.2d 663 (1980).” Syl. Pt.
2, Sticklen v. Kittle, 168 W.Va. 147, 287 S.E.2d 148 (1981). See also, F.D. Cleckley, R.J.
Davis, L.J. Palmer, Litigation Handbook on West Virginia Rules of Civil Procedure §
12(b)(6) (Juris Pub. 2006).
III. ANALYSIS
A) Judicial Notice/Statute of Limitations
The Petitioners allege two separate assignments of error with respect to the
circuit court’s rulings on the issues of judicial notice and statute of limitations barring
8
Petitioners’ claims for fraud in the inducement and aiding and abetting fraud in the
inducement, negligence, intentional or negligent infliction of emotional distress/tort of
outrage, breach of fiduciary duty, and constructive fraud. First, Petitioners allege that the
circuit court erred in finding that the statutes of limitation were tolled under the discovery
rule until no later than February 7, 2007, and therefore dismissing their claims as time
barred, because the Petitioners each alleged in the second amended complaint that they
were unaware of the Schonberger fraud until this litigation began due to the Respondents’
attempt to conceal it. Second, Petitioners allege that the circuit court erred in taking
judicial notice that the Petitioners were involved in the prior tax assessment appeal and
finding that they therefore knew, or should have known, that fraud occurred, that
Respondents engaged in it, and that their conduct had a causal relationship to their
injuries. Because these assignments of error are interdependent, we will address them
collectively.
In dismissing some of the Petitioners’ claims based upon the statute of
limitations, the circuit court first took judicial notice7 of the adjudicative facts in MBMA,
7
Rule 201 of the West Virginia Rules of Evidence permits courts to take judicial
notice of certain facts. “A judicially noticed fact must be one not subject to reasonable
dispute in that it is either (1) generally known within the territorial jurisdiction of the trial
court or (2) capable of accurate and ready determination by resort to sources whose
accuracy cannot reasonably be questioned.” W. Va. R. Evid. 201(b). Moreover, “a court
may take judicial notice of its own records concerning the same subject matter and
(continued . . .)
9
LLC, et al., the tax appeal matter before the Monroe County Commission sitting as the
Board of Equalization and Review, and the subsequent appeal of that matter to this Court
in Mountain America, LLC v. Huffman, 224 W. Va. 669, 687 S.E.2d 768. The circuit
court held that:
In the Second Amended Complaint, the Plaintiffs allege that
they could not have known of their causes of action until the
institution of the present action because the Defendants
camouflaged information contained in appraisals requested by
United [National Bank] and prepared by the McQuades.
Assuming those allegations to be true, the Court finds that
Plaintiffs, by the exercise of reasonable diligence, should
have known of their claims no later than the date of their
hearing before the Monroe County Board of Equalization and
Review. First, the Plaintiffs claimed before the Board that
their tax assessments exceeded the true and actual value of
their property. Second, the fair market value of Plaintiffs’
property is the basis of Plaintiffs’ claims against Defendants
in this civil action. Third, the Plaintiffs’ were represented by
counsel and retained a certified general real estate appraiser in
connection with their challenges. Fourth, although the
Plaintiffs did not present evidence of the fair market value of
their respective properties at the hearing, the Plaintiffs had the
means to determine the fair market value at that time and
should have known that the land they purchased was
overvalued. Last, knowing that their land was overvalued, a
reasonable person would have inquired as to the identity and
conduct of the parties involved in the sales of their property,
i.e., the Defendants.
Therefore, the Court finds that the statutes of limitation for
Plaintiffs’ claims against Defendants were tolled under the
discovery rule until no later than February 7, 2007.
substantially the same parties.” 1 Franklin D. Cleckley, Handbook on Evidence for West
Virginia Lawyers, § 201.03[3][e] (5th ed. 2012).
10
Petitioners do not dispute that the circuit court had the legal power to take
judicial notice of the fact that at least some of the Petitioners had previously appealed
their tax assessments, and that the developers’ attorneys appealed the case on behalf of
Mountain America, LLC, resulting in an opinion being issued by this Court. However,
the Petitioners dispute that the prior litigation has any relevancy to the allegations in the
action currently sub judice other than the identities of the real estate involved and
possibly some of the Petitioners. Additionally, Petitioners allege that the circuit court
erred in dismissing their claims as time barred because each Petitioner alleged in the
second amended complaint that they were unaware of the Schonberg fraud until this
litigation began because the Respondents attempted to conceal it. They maintain that the
Schonberger fraud was never disclosed, or discovered by any individual during the 2007
tax appeal. Petitioners allege that in 2007, they may have known that they suffered
damage and injury, but they had no idea of the fraud by Respondents. Petitioners
contend that it was not until their counsel came into possession of the appraisals
submitted by McQuade that the details of the fraudulent acts became known.
Respondents assert that the circuit court properly took judicial notice of the
adjudicative facts in the tax appeal matter because they are relevant to whether the
Petitioners’ claims were timely filed. Respondent contend that the circuit court correctly
ruled that the discovery rule tolled the statute of limitations to February 7, 2007, because
11
this is the date Petitioners challenged their tax assessments, arguing that they exceeded
the fair market value. Respondents maintain that in this action, Petitioner again allege the
same point they argued in their 2007 tax appeal - that they paid more than market value
for their properties. They assert that Petitioners had the means at that time to determine
the fair market value of their properties and should have known their land was
overvalued. Respondents assert that Petitioners never explained exactly why it took until
their counsel reviewed the appraisal information in 2009 and 2010 to allege fraud.
The only named petitioner in Mountain America, LLC, 224 W. Va. 669,
687 S.E.2d 768, was Mountain America, LLC, the Walnut Springs developers. We noted
in the Mountain America, LLC case that, “some four months after the appeal was filed, it
is impossible to pick up the court file and determine the name of the Appellants or the tax
parcels in question.” Id., 224 W. Va. at 677, 719 S.E.2d at 776. We further noted that
“[a] review of the record of the hearing before the Board of Equalization reveals the
names of at least some of the persons contesting their assessments, but this is insufficient
for purposes of West Virginia Rules of Civil Procedure Rule 10.” Id. In the tax appeal,
this Court’s discussion of Mountain America’s arguments centered on due process and
equal protection.
Specifically, the Appellants assert that the tax assessments are
excessive and unequal as compared to the 2007 tax
assessments of the property of other taxpayers in Monroe
County, and that the assessments are the result of the
Assessor’s improper and discriminatory methods in violation
of the Appellant’s rights to equal and uniform taxation under
12
the West Virginia Constitution and in violation of the
Appellant’s rights to equal protection of the law under the
United States Constitution.
Id. at 674, 687 S.E.2d at 773. This Court noted that there was no evidence in the record to
suggest that the lots in Walnut Springs were excessively valued by the Monroe County
Tax Assessor:
Mountain America had the burden of proving that the
Assessor’s valuation was excessive, but it did not offer any
evidence of the true and actual value of the residual property.
At the hearing before the County Commission, Mountain
America did not offer an appraiser’s opinion of the value of
its residue, any evidence as to what it paid to purchase this
residue, or any evidence as to the listing price for any of the
unsold residue property.
Id. at 687, 687 S.E.2d at 786.
This Court noted that the calculated unit price per acre as determined by the
Assessor was $29,236.00 and that as an accommodation to the landowners, the Assessor
lowered the amount to $26,900.00 by striking the two highest sales and the two lowest
sales out of the development - which was properly determined by the Assessor to be
based on “market value” and “true and actual value.” Id. at 675, 687 S.E.2d at 774. This
Court found no abuse of the Assessor’s discretion and affirmed the circuit court’s order
affirming the County Commission’s decision upholding the assessment. Id. at 688, 687
S.E.2d at 787.
13
In short, there was no evidence of record presented to this Court in
Mountain America, LLC that the subject properties were overvalued. Mountain America,
LLC was about challenging tax assessments and methodology. There were no allegations,
or representations, that the landowners overpaid for their properties. They were
challenging the increase of assessments from being minimal one year, to being increased
exponentially the next. The central component of the case sub judice is that the
Petitioners allege they never paid real market value for their properties because the
market was fabricated - a fact that was never revealed in the 2007 tax assessment appeals.
Petitioners maintain that it was never revealed because the primary perpetrators of the
fraud, the developers, were prosecuting the tax appeal. The Petitioners allege that the
circuit court mischaracterized the Petitioners’ as merely people who are upset that they
overpaid for real estate. However, Petitioners now contend that they were defrauded and
were induced to buy into a fraudulent real estate scheme.
In syllabus point three of Dunn v. Rockwell, 225 W.Va. 43, 689 S.E.2d 255
(2009), this Court held as follows:
“In tort actions, unless there is a clear statutory prohibition to
its application, under the discovery rule the statute of
limitations begins to run when the plaintiff knows, or by the
exercise of reasonable diligence, should know (1) that the
plaintiff has been injured, (2) the identity of the entity who
owed the plaintiff a duty to act with due care, and who may
have engaged in conduct that breached that duty, and (3) that
the conduct of that entity has a causal relation to the injury.”
Syllabus Point 4, Gaither v. City Hosp., Inc., 199 W.Va. 706,
487 S.E.2d 901 (1997).
14
In syllabus point five of Dunn, 225 W.Va. 43, 689 S.E.2d 255, we stated
A five-step analysis should be applied to determine whether a
cause of action is time-barred. First, the court should identify
the applicable statute of limitation for each cause of action.
Second, the court (or, if questions of material fact exist, the
jury) should identify when the requisite elements of the cause
of action occurred. Third, the discovery rule should be
applied to determine when the statute of limitation began to
run by determining when the plaintiff knew, or by the
exercise of reasonable diligence should have known, of the
elements of a possible cause of action, as set forth in Syllabus
Point 4 of Gaither v. City Hosp., Inc., 199 W.Va. 706, 487
S.E.2d 901 (1997). Fourth, if the plaintiff is not entitled to the
benefit of the discovery rule, then determine whether the
defendant fraudulently concealed facts that prevented the
plaintiff from discovering or pursuing the cause of action.
Whenever a plaintiff is able to show that the defendant
fraudulently concealed facts which prevented the plaintiff
from discovering or pursuing the potential cause of action, the
statute of limitation is tolled. And fifth, the court or the jury
should determine if the statute of limitation period was
arrested by some other tolling doctrine. Only the first step is
purely a question of law; the resolution of steps two through
five will generally involve questions of material fact that will
need to be resolved by the trier of fact.
(Emphasis added). “The ‘discovery rule’ is generally applicable to all torts, unless there
is a clear statutory prohibition to its application.” Syl. Pt. 2, Dunn, 689 S.E.2d 258.
In the second amended complaint, the Petitioners allege facts which
sufficiently demonstrate that the discovery rule applies. The Petitioners allege that they
were unaware until the initiation of this litigation that the fraud had occurred; that the
15
“appraisals contained information which was camouflaged and nearly devoid of
identifying information . . .”; and that the bank, the appraisers, and Walnut Springs
Mountain Reserve could have known of the fraud and misconduct which occurred. The
only issue as a matter of law for the circuit court to decide was what underlying statute
applied. It is undisputed that the underlying statute of limitations for Petitioners’ fraud in
the inducement, negligence, intentional or negligent infliction of emotional distress,
breach of fiduciary duty, and constructive fraud claims is two years.8 Thus, the circuit
court correctly invoked the discovery rule. However, by erroneously taking judicial
notice of the tax appeal matter previously before this Court, it arbitrarily initiated the
statute of limitation for a date which is factually different from the allegations made by
the Petitioners in the second amended complaint.
As this Court has previously noted, motions to dismiss under Rule 12(b)(6)
are “viewed with disfavor and [should be] rarely granted.” John W. Lodge Distributing
Co., Inc. v. Texaco, Inc., 161 W.Va. 603, 606, 245 S.E.2d 157, 159 (1978). More
specifically, “[t]he trial court should not dismiss a complaint merely because it doubts
8
Pursuant to W. Va. Code § 55-2-12, a two-year statute of limitations applies to
Petitioners’ fraud in the inducement claim, negligence, claim, intentional or negligent
infliction of emotional distress claim, breach of fiduciary duty claim, and constructive
fraud claim. Under W. Va. Code § 55-2-6, a five-year statute of limitations applies to a
breach of implied covenant of good faith and fair dealing. As to Petitioners’ detrimental
reliance claim, “our law is clear that there is no statute of limitation for claims seeking
equitable relief.” Dunn, 225 W. Va. at 54, 689 S.E.2d at 266.
16
that the plaintiff will prevail in the action, and whether the plaintiff can prevail is a matter
properly determined on the basis of proof and not merely on the pleadings.” Id. (citing
Wright & Miller, Federal Practice and Procedure: Civil § 1216 (1969)).
Given that under 12(b)(6) the complaint is construed in the light most
favorable to the plaintiff, we conclude that the court erroneously imposed the February 7,
2007, date as the point at which Petitioners should have known of their claims.
Accordingly, we reverse the circuit court’s dismissal of these claims.
B) Breach of Implied Covenant of Good Faith and Fair Dealing
Next, Petitioners allege that the circuit court erred in dismissing their
claims for breach of the implied covenant of good faith and fair dealing under the
conclusion that no such tort cause of action exists under West Virginia law.9 The second
amended complaint alleges that
United Bank, due to its contractual and fiduciary relationship
with the Plaintiffs, owed the Plaintiffs an implied covenant of
good faith and fair dealing. Specifically, this duty arose when
Defendant United Bank accepted the Plaintiffs as
customers/clients and entered into agreements to loan them
money secured by the subject lots in WSMR.
9
The Petitioners’ claim for breach of the implied covenant of good faith and fair
dealing was asserted only against United Bank, not McQuade.
17
Petitioners do not assert that United Bank breached any of those contracts.
In dismissing the claim, the circuit court noted that federal courts in West Virginia have
held that an implied covenant of good faith and fair dealing does not exist in West
Virginia absent a breach of contract claim. See Powell v. Bank of Am., N.A., 842
F.Supp.2d 966, 981 (S.D.W.Va. 2012)(“The West Virginia Supreme Court of Appeals
has declined to recognize an independent claim for a breach of the common law duty of
good faith, and has instead held that such a claim sounds in breach of contract.”)(Internal
citations omitted); see also Wittenberg v. Wells Fargo Bank, N.A., 852 F.Supp.2d 731,
750 (N.D.W.Va. 2012)(“West Virginia does not recognize a stand-alone cause of action
for failure to exercise contractual discretion in good faith. As such, a claim for breach of
the implied covenant of good faith and fair dealing can only survive if the borrower
pleads an express breach of contract claim.”)(Internal citations omitted).
In its order, the circuit court stated that the federal district courts have based
this opinion on this Court’s logic in Highmark West Virginia, Inc. v. Jamie, 221 W. Va.
487, 492, 655 S.E.2d 509, 514 (2007):
In that regard, while we recognize that it has been held that an
implied covenant of good faith and fair dealing does not
provide a cause of action apart from a breach of contract
claim, Stand Energy Corp. v. Columbia Gas Transmission,
373 F.Supp. 2d 631, 644 (S.D.W.Va. 2005), and that “[a]n
implied contract and an express one covering the identical
subject matter cannot exist at the same time,” syl. pt. 3, in
part, Rosenbaum v. Price Construction Company, 117 W. Va.
160, 184 S.E. 261 (1936), the allegations of Count 3
construed in the light favorable to the appellant demonstrate
18
that, while inartfully drafted as a claim upon an implied
covenant, Count 3 is, in reality, a breach of contract claim
covering matters not identical to those specified in Counts 1
and 2.
Id. at 492, 655 S.E.2d at 514.
Petitioners allege that in Highmark, the Court ultimately held that the cause
of action for breach of the implied covenant of good faith and fair dealing would proceed
under the guise of breach of contract since there was already a breach of contract claim
which did not contain identical allegations. Id. Petitioners assert that Highmark did not
hold that there is no independent cause of action for breach of implied covenant of good
faith and fair dealing. Rather, the issue was not addressed definitively one way or the
other.
Our federal district court has observed that West Virginia law “implies a
covenant of good faith and fair dealing in every contract for purposes of evaluating a
party’s performance of that contract.” Stand Energy Corp. v. Columbia Gas
Transmission, 373 F.Supp.2d 631, 644 (S.D.W.Va. 2005) (quoting Hoffmaster v.
Guiffrida, 630 F.Supp. 1289, 1291 (S.D.W.Va. 1986)). However, by the same token, this
Court has observed that “[t]he implied covenant of good faith and fair dealing cannot
give contracting parties rights which are inconsistent with those set out in the contract.”
Barn–Chestnut, Inc. v. CFM Dev. Corp., 193 W.Va. 565, 457 S.E.2d 502, 509 (1995).
19
Most recently in Gaddy Engineering Co. v. Bowles Rice McDavid Graff & Love, LLP,
231 W.Va. 577, 587, 746 S.E.2d 568, 578 (2013), this Court reiterated that
this covenant “does not provide a cause of action apart from a
breach of contract claim.” Highmark West Virginia, Inc. v.
Jamie, 221 W.Va. 487, 492, 655 S.E.2d 509, 514 (2007). It
has been observed “that the West Virginia Supreme Court of
Appeals has declined to recognize an independent claim for a
breach of the common law duty of good faith and has instead
held that such a claim sounds in breach of contract.” Corder
v. Countrywide Home Loans, Inc., No. 2:10-0738, 2011 WL
289343 at *3 (S.D.W.Va.2011) (internal quotation marks and
citation omitted).
Based upon our review of the applicable law, we affirm the circuit court’s
ruling that the Petitioners’ failure to allege a breach of contract was fatal to their claim for
a breach of the implied covenant of good faith and fair dealing.
C) Detrimental Reliance
Petitioners lastly assert that the circuit court erred in dismissing the
Petitioners’ claims for detrimental reliance pursuant to Rule 12(b)(6) for the same reasons
that the circuit court erred in dismissing their fraud claim. Petitioners contend that to the
extent that the detrimental reliance claim is a restatement of the fraud claim, or another
count for fraud, they reassert their arguments against the dismissal of the fraud claim as
were argued supra.
20
In dismissing Petitioners’ claim for detrimental reliance, the circuit court
found that it lacked jurisdiction because the detrimental reliance claim sounded in equity
and Petitioners were not seeking equitable relief, but rather sought to recover monetary
damages. See Syl. Pt. 4, Mountain State Coll. v. Holsinger, 230 W. Va. 678, 742 S.E.2d
94 (2013)(“A court of equity is without jurisdiction to entertain a suit based on an alleged
fraudulent misrepresentation to the prejudice of the complaining party, where the sole
relief sought therein is the recovery of damages. In such a case the remedy of the injured
party at law is plain, adequate and complete.”)10 Additionally, the circuit court found
that:
Plaintiffs’ detrimental reliance claim is essentially a
restatement of their fraud in the inducement claims under
Count One. Accordingly, the Court finds that the Plaintiffs
had an adequate remedy at law, albeit untimely filed, pursuant
to their fraud in the inducement claims and are precluded
from bringing an equitable claim for detrimental reliance.
United Bank asserts that Petitioners’ argument fails to meet the
requirements of Rule 10(c)(7) of the West Virginia Rules of Appellate Procedure because
it fails to address the circuit court’s first basis for dismissal of the detrimental reliance
claim for lack of a proper claim for equitable relief. Therefore, United Bank contends that
any alleged error on this ruling should be deemed waived for the purposes of this appeal.
10
See Syl. Pt. 2, Miller v. Robinson, 171 W. Va. 653, 301 S.E.2d 610 (1983) (“The
procedural distinctions between law and equity have been abolished under Rule 2 of our
Rules of Civil Procedure.”)
21
Noland v. Virginia Ins. Reciprocal, 224 W.Va. 372, 378, 686 S.E.2d 23, 29 (2009)
(“Issues not raised on appeal or merely mentioned in passing are deemed waived.”)
(citing Tiernan v. Charleston Area Med. Ctr., Inc., 203 W.Va. 135, 140 n.10, 506 S.E.2d
578, 583 n.10 (1998)). We agree with United Bank’s argument and conclude that
Petitioners fail to address the substantive merits of the circuit court’s ruling and, thus, the
issue has been waived for purposes of appeal. The circuit court’s ruling dismissing the
Petitioners’ detrimental reliance claim is therefore affirmed.
IV. CONCLUSION
For the foregoing reasons, the circuit court’s rulings dismissing Petitioners’
claims for breach of implied covenant of good faith and fair dealing and detrimental
reliance are affirmed. However, the circuit court’s ruling dismissing Petitioners’ claims
for fraud in the inducement and aiding and abetting fraud in the inducement, negligence,
intentional or negligent infliction of emotional distress/tort of outrage, breach of fiduciary
duty, civil conspiracy, respondeat superior, and punitive damages is reversed and
remanded for further proceedings consistent with this opinion.11
11
Respondent United Bank contends that Petitioners’ brief only substantively
addresses the dismissal of the fraud and breach of the implied covenant of good faith and
fair dealing claims, and that Petitioners present no independent argument pertaining to
the dismissal of their claims for negligence, intentional or negligent infliction of
emotional distress/tort of outrage, breach of fiduciary duty, civil conspiracy and
respondeat superior or their claim for punitive damages. Therefore, United Bank claims
that any error in regard to the circuit court’s ruling as to these claims should be deemed
(continued . . .)
22
Affirmed in part, reversed in part, and remanded.
waived for purposes of this appeal. See Noland v. Virginia Insurance Reciprocal, 224
W.Va. 372, 378, 686 S.E.2d 23, 29 (2009). The Petitioners reply that they challenged the
circuit court’s dismissal of all the tort claims which were dismissed on statute of
limitations grounds and are seeking a reversal of that ruling, in its entirety. While
Petitioners’ brief discusses, at length, the dates surrounding their discovery of the alleged
fraud, we find that they have not relegated their appeal only specifically to the fraudulent
inducement claim. It is clear from the briefing that Petitioners challenge the entirety of
the circuit court’s ruling.
Furthermore, McQuade alleges that Petitioners Mike and Vivian Hollandsworth,
Jan Jerge, James Carroll, Jr., and Jim and Shayna Mackey all purchased their properties
before the Schonberger transaction. Because Petitioners’ fraud theory begins with the
Schonberger transaction, Respondents allege that the fact that these purchases preceded
the Schonberger transaction necessarily defeats the claims of these Petitioners. Moreover,
they claim that the Mackeys did not finance their purchase through United Bank, but
instead used a home equity loan. Therefore, their property was not appraised by
McQuade or anyone else, and thus, McQuade could not have committed fraud as to them.
To the extent that the circuit court did not address the merits of these arguments below, it
is premature for the Court to address them at this juncture. The circuit court will have
opportunity to address these arguments on remand and issue a ruling accordingly.
23