COURT OF APPEALS DECISION DATED AND RELEASED FEBRUARY 20, 1996 |
NOTICE |
A party may file with the
Supreme Court a petition to review an adverse decision by the Court of
Appeals. See § 808.10 and
Rule 809.62(1), Stats. |
This opinion is subject to
further editing. If published, the
official version will appear in the bound volume of the Official Reports. |
No. 95-1808
STATE
OF WISCONSIN IN COURT OF
APPEALS
DISTRICT III
DAVID KNEER and ELAINE
KNEER,
Plaintiff-Appellants,
v.
JAMES M. SARKAUSKAS
and
KEMPER SECURITIES,
INC.,
Defendants-Respondents.
APPEAL from a judgment
of the circuit court for Oneida County:
MARK A. MANGERSON, Judge. Affirmed.
Before Cane, P.J.,
LaRocque and Myse, JJ.
PER CURIAM. David Kneer and Elaine Kneer appeal a
summary judgment dismissing their complaint against James Sarkauskas, a
securities broker, and Kemper Securities, Inc. The Kneers sued for damages
arising out of alleged negligent misrepresentation, intentional
misrepresentation and negligence with respect to investments the Kneers made in
UBS mortgage trust bonds. The Kneers
argue that because the undisputed facts establish a prima facie case for
misrepresentation and negligence, the trial court erroneously entered summary
judgment of dismissal.[1] They also argue that the Kneers justifiably
relied on Sarkauskas' representation of fact; the trial court erroneously held
that David acted as an agent for Elaine; and that there are material issues of
fact with respect to Sarkauskas' negligence.
We affirm the judgment of dismissal.
The Kneers claim that in
1990 they were induced to purchase bonds in reliance on Sarkauskas' false
written and oral representations that "these bonds would pay monthly
interest for eight years at the rate of 9.85%." On May 10, 1990, David Kneer purchased $500,000 UBS bonds
for his account. Elaine Kneer purchased
$200,000 of the bonds. Three years
later, in May and June of 1993, the bonds were paid off 100 cents on the dollar
and the Kneers had received monthly interest at the rate of 9.5% per annum for
the three years the bonds were held.
The Kneers have no complaints regarding their return on their investment
for the three years that they had the bonds, but would have liked the
investment to continue longer.
At his deposition, David
Kneer testified that he was a college graduate with a degree in business and a
master's degree in management and personnel administration. He had previously owned and operated a car
dealership, as well as other businesses.
He testified that he had several conversations with Sarkauskas about the
investments. The record contains the
following excerpt from David Kneer's deposition:
Q. You know that mortgages
prepay, don't you?
A. Yes.
Q: You know that the UBS was a
trust of mortgages backed by Gennie Mae certificates, didn't you?
A. Yes.
Q. You received confirmation
of that purchase that identified the due date as occurring in June of 2020,
didn't you?
A. Yes.
....
Q. Did you know at the time what a
collateralized mortgage obligation was?
A. I was not that familiar
with—with that instrument. Jim
[Sarkauskas] really explained it to me.
....
Q. Did you ask, Well how is it
possible that if they're thirty-year bonds that they might only go eight years?
A. I didn't question that.
....
Q. You knew that they might be
as short as at least eight years, did you not?
A. Yes.
....
Q. Didn't you also understand
that prepayments could also occur in less than eight years?
A. Well, yes.
When reviewing summary judgment, we apply the
standard set forth in § 802.08(2), Stats., in the same manner as the
circuit court. Kreinz v. NDII
Secs. Corp., 138 Wis.2d 204,
209, 406 N.W.2d 164, 166 (Ct. App. 1987).
Summary judgment is appropriate when material facts are undisputed and
inferences that may be reasonably drawn lead only to one conclusion. Radlein v. Industrial Fire & Cas.
Ins. Co., 117 Wis.2d 605, 609,
345 N.W.2d 874, 877 (1984).
A claim for
misrepresentation can be based upon intent, negligence or strict
responsibility. Gauerke v. Rozga,
112 Wis.2d 271, 277, 332 N.W.2d 804, 807 (1983). Common elements required for any misrepresentation claim
are: (1) the defendant must make a
representation of fact; (2) the representation of fact must be untrue; (3) the
plaintiff must have believed the representation and (4) relied on it to his
detriment. Grube v. Daun,
173 Wis.2d 30, 53-54, 496 N.W.2d 106, 114 (Ct. App. 1992).
The reliance must be
"justifiable." Ritchie
v. Clappier, 109 Wis.2d 399, 404, 326 N.W.2d 131, 134 (Ct. App.
1982). Courts will refuse to grant
relief to one claiming to have been misled by another's statements who
disregard knowledge of their falsity or the opportunity that by the exercise of
ordinary observation he would have discovered their falsity. Id. He may not close his eyes to what is obvious. Id. "If the facts are undisputed, whether the party claiming
fraud was justified in relying on misrepresentation is a question of
law." Id. at 406,
326 N.W.2d at 134.
Here, by Kneer's own
admission, there is no basis from which to find that Kneer justifiably relied
on Sarkauskas' alleged representation that the bonds would not be prepaid in
less than eight years. At deposition,
Kneer conceded that he was aware that prepayment could be made in less than
eight years. We recognize that under a
strict responsibility analysis, the plaintiff is not required before relying
upon the representation of fact to make an independent investigation. Gauerke, 112 Wis.2d at 281-82,
332 N.W.2d at 809. Kneer, however,
testified that he already knew that prepayments could occur in less than eight
years. Because we conclude as a matter
of law that Kneer's claim lacks the essential element of justifiable reliance,
the trial court properly entered summary judgment of dismissal.
Next, the Kneers argue
that David's deposition discloses only what he knew, and not what Elaine knew,
so that the trial court wrongly imputed David's knowledge to Elaine on a theory
of agency. We disagree for two
reasons. First, we observe that the
Kneers have not developed this argument by citation to legal authority. See State v. Gulrud,
140 Wis.2d 721, 730, 412 N.W.2d 139, 142-43 (Ct. App. 1987). Second, the record establishes that the
trial court correctly applied an agency theory.
At her deposition,
Elaine testified that she was a widow and relied upon her son David in making
her investment decision. Elaine's
undisputed testimony establishes an implied agency for the purpose of investigating
an investment opportunity. "Agency
is a consensual, fiduciary relation between two persons, created by law by
which one, the principal, has a right to control the conduct of the agent, and
the agent has a power to affect the legal relations of the
principal." Skrupky v.
Elbert, 189 Wis.2d 31, 43, 526 N.W.2d 264, 269 (Ct. App. 1994) (quoting
Warren A. Seavey, Handbook of the Law of
Agency § 3 at 3 (1964)).
Agency may be express or implied.
Id. To the extent
that the principal specifies minutely the agent's authorities, it is
express. Id. at 44 n.5,
526 N.W.2d at 269 n.5. "But most
authority is created by implication.
... These powers are all implied or inferred from the words used, from
customs and from the relation of the parties." Id.
The trial court was
entitled to conclude as a matter of law that Elaine gave David the authority to
investigate the investment opportunity and to report his findings and make a
recommendation. As a result, his knowledge
of the investment's duration is notice to Elaine. "A person has notice of a fact if his agent has knowledge of
the fact, reason to know it or should know it ... under [the] circumstances ...." Restatement (Second) of
Agency § 9(3) at 45 (1958).
Because Elaine is charged with knowledge of the indeterminate and
potentially abbreviated term of the investment, the element of justifiable
reliance is not satisfied.
The Kneers argue that in
a letter dated May 10, 1990, Sarkauskas stated that the bonds "will pay
monthly interest for 8 years at 9.85%."
This letter thanked Elaine for her $200,000 bond order. It fails to support the element of reliance
because it was written after the order had been placed. Although the letter is evidence supporting
the Kneers' allegation that Sarkauskas made a factual representation, the
letter does not supply proof of the element of justifiable reliance.
Next, the Kneers allege
that Sarkauskas negligently breached his professional duty. A successful negligence claim requires proof
of a duty of care, a breach of that duty, a causal connection between the
breach and the injury. La Chance
v. Thermogas Co., 120 Wis.2d 569, 574, 357 N.W.2d 1, 3 (Ct. App.
1984).
The Kneers argue that
factual issues exist with respect to Sarkauskas' duty and the resulting
injuries. We disagree. To establish a prima facie case for summary
judgment, a moving party, here the defendant, must present evidentiary facts
establishing a defense that would defeat the plaintiff's claim. Grams v. Boss, 97 Wis.2d 332,
338, 294 N.W.2d 473, 477 (1980). Once a
prima facie defense is presented, § 802.08, Stats., places the burden on the opposing party to set forth
specific facts showing that there is a genuine factual issue for trial. Bank of Two Rivers v. Zimmer,
112 Wis.2d 624, 632, 334 N.W.2d 230, 234 (1983).
We conclude that Kneer's
deposition testimony established a prima facie defense. Kneer testified that after investigating the
investment for himself and on behalf of his mother, he knew that the term of
the investment could be less than eight years.
Kneer's testimony provides an affirmative defense to the claim that
Sarkauskas' negligence caused them damages.
Because the Kneers fail to present specific facts to rebut the
affirmative defense, no genuine issue of disputed material fact is raised. The trial court properly entered a summary
judgment of dismissal.
By the Court.—Judgment
affirmed.
This opinion will not be
published. Rule 809.23(1)(b)5, Stats.