Elm Retirement Center, LP v. Callaway – 11/2/2010

November 18, 2010

Arizona Court of Appeals Division One Holds That Real-Estate Sales Contracts May Disclaim Liability For Representations By Sellers Regarding Square Footage.

First, the Court rejected Elm’s argument that the motion to dismiss should have been converted to a motion for summary judgment.  Although the defendants attached a copy of the purchase agreement to their motion to dismiss, a court may consider a document not included in the complaint if it is “central to the claim.”  The purchase agreement was obviously “central to Elm’s claims” and thus the trial court could consider it in deciding the motion to dismiss. 

Second, the court concluded that the tort claims were time-barred.  Elm’s fraud and negligence claims were subject to three- and two-year limitations periods, respectively, and Elm brought its claims almost four years after the transaction.  Elm argued that the limitations period should be tolled because it alleged in the complaint that it “discovered” the misrepresentation about square footage later.  The Court rejected this argument, reasoning that nothing in the complaint alleged that Elm exercised reasonable diligence to discover the basis of the claims, or that Elm had an adequate excuse for its failure to do so.

Turning to the contract claims, the Court affirmed that the clause quoted above – the “verification provision” – precluded Elm’s claim for breach. At the outset, the Court reasoned that there was no reason that the parties could not agree to limit their remedies and liabilities in the way the verification provision does.  Consequently, the verification provision was an enforceable “disclaimer of liability for any representation by the sellers as to the square footage of the property.”   Because Elm’s contract claims rested on allegations that the sellers misrepresented the square footage, its claims were precluded.

Elm nevertheless contended that it should have been able to introduce extrinsic evidence regarding the meaning of the verification provision because it disputed the provision’s meaning.   Rejecting this argument, the Court held that the language was not “reasonably susceptible” to a different interpretation and merely disagreeing with the contract’s meaning was not sufficient to avoid dismissal. 

Judge Johnsen authored the opinion; Judges Brown and Gemmill concurred.