Hammer v. Phoenix

                                  IN THE
            ARIZONA COURT OF APPEALS
                             DIVISION ONE


              HAMMER HOMES, LLC, Plaintiff/Appellant,

                                    v.

                 CITY OF PHOENIX, Defendant/Appellee.

                         No. 1 CA-CV 23-0114
                           FILED 12-21-2023


          Appeal from the Superior Court in Maricopa County
                         No. CV2021-019100
              The Honorable John R. Hannah Jr., Judge

                    VACATED AND REMANDED


                               COUNSEL

Conant Law Firm, PLC, Phoenix
By Paul A. Conant
Counsel for Plaintiff/Appellant

Phoenix City Attorney’s Office, Phoenix
By Daniel J. Inglese
Counsel for Defendant/Appellee



                               OPINION

Judge Paul J. McMurdie delivered the Court’s opinion, in which Presiding
Judge D. Steven Williams and Judge Samuel A. Thumma joined.
                          HAMMER v. PHOENIX
                           Opinion of the Court

M c M U R D I E, Judge:

¶1            Plaintiff Hammer Homes LLC (“Hammer”) challenges the
dismissal of its complaint against Defendant, the City of Phoenix (“City”),
alleging negligent misrepresentation about certain land use restrictions.
The superior court ruled that the City owed Hammer no duty to provide
accurate information because the land use stipulations are “provisions of
law as opposed to matters of fact.”

¶2              Because Hammer only asked whether any stipulations
existed—not for legal advice in addressing them—its request was for
factual information. And factual misrepresentation by the City could give
rise to tort liability under the Restatement (Second) of Torts § 552. Thus,
dismissal was inappropriate. We vacate the dismissal order and remand for
further proceedings.

             FACTS AND PROCEDURAL BACKGROUND

¶3           Because Hammer appeals from the dismissal of its complaint,
we state the relevant factual allegations and assume they are true for
purposes of the appeal. Sullivan v. Pulte Home Corp., 

(2013).

¶4              In February 2020, two Hammer representatives met with a
City planner to determine “what zoning and land use
restrictions . . . existed” on property Hammer was considering purchasing.
At that meeting, the planner told Hammer the property “was zoned
properly for [Hammer’s] plans.” The planner also identified a land split
issue but suggested that the issue “could be rectified.” Hammer asked if
there were any other land use or zoning-related stipulations on the
property. The planner told Hammer some were from 2000, but they had
expired.

¶5            About a year later, the City informed Hammer of additional
stipulations from 2017, but Hammer had purchased the property by then.
Based on the new information, Hammer alleged the property was
“undevelopable as planned” and “unsalable for like development.” Thus,
Hammer sued the City, alleging negligent misrepresentation and claiming
more than $2.5 million in lost profits.

¶6           The City moved to dismiss the complaint under Arizona Rule
of Civil Procedure (“Rule”) 12(b)(6). The City argued it did not owe
Hammer a duty of care “arising out of informal meetings with City staff
regarding zoning matters.” Hammer opposed the motion on several


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                           HAMMER v. PHOENIX
                            Opinion of the Court

grounds and contended the City owed a duty of care under Restatement
(Second) of Torts § 552 (1977), which our supreme court first cited in Van
Buren v. Pima Community College District Board, 

 (1976). The
Restatement has been cited in several cases since then. See, e.g., Sage v. Blagg
Appraisal Co., 

, 34–35, ¶ 7 (App. 2009); Standard Chartered PLC v.
Price Waterhouse, 

, 29–30 (App. 1996); Sw. Non-Profit Hous. Corp.
v. Nowak, 

, ¶¶ 12–13 (App. 2014).

¶7              The superior court dismissed the complaint. It concluded that
the Phoenix Zoning Ordinance “frames the legal relationship” between the
parties, noting that § 307(A)(4) allows the City Zoning Administrator to
“‘provide advice’ to applicants and potential applicants for zoning
adjustment action.” It thus determined that Hammer’s “routine, limited
contacts with the City, seeking advice on the development of [Hammer’s]
property, created no legally recognized special relationship that gave rise
to tort liability.”

¶8             The superior court also rejected Hammer’s reliance on
§ 552(3), finding that the “‘public duty to supply . . . information’ . . . extends
only to factual information” and not “the application of municipal
ordinances to a particular piece of property.” The court also noted that the
Phoenix City Code provides a formal process that allows the Zoning
Administrator to interpret the Phoenix Zoning Ordinance to public
members, City departments, and other branches of government and that
Hammer chose not to use that process.

¶9           This appeal followed, and we have jurisdiction under A.R.S.
§ 12-2101(A)(1).

                                 DISCUSSION

¶10            We review the dismissal of a complaint under Rule 12(b)(6) de
novo. CVS Pharmacy, Inc. v. Bostwick, 

, 516, ¶ 10 (2021). We
accept all well-pled facts as true and give Hammer the benefit of all
inferences arising from them. Botma v. Huser, 

 (App.
2002). But courts should not speculate about hypothetical facts that may
entitle plaintiffs to relief, see Cullen v. Auto-Owners Ins. Co., 

 (2008), nor should courts accept as true conclusions of law,
inferences, or deductions that are not necessarily implied by well-pled facts
or that are unreasonable, or legal conclusions alleged as facts, Jeter v. Mayo
Clinic Ariz., 

, 389, ¶ 4 (App. 2005) (citations omitted). We will
affirm the dismissal if Hammer is not entitled to relief under any




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                          HAMMER v. PHOENIX
                           Opinion of the Court

interpretation of the facts susceptible of proof as a matter of law. See
Mesnard v. Campagnolo, 

 (2021).

¶11           Negligence       law       principles     govern       negligent
misrepresentation claims. KB Home Tucson, Inc. v. Charter Oak Fire Ins. Co.,

 (App. 2014). To state a claim, the plaintiff must
allege, among other elements, that the defendant owed a duty of care. Sw.
Non-Profit Hous. Corp., 

. We review de novo whether the
City owed Hammer such a duty. Quiroz v. ALCOA Inc., 

,
563-64, ¶ 7 (2018). A duty is based on “recognized common law special
relationships or relationships created by public policy.” 

.

¶12           Hammer did not allege a special relationship with the City. It
instead contends the City’s duty of care comes from the Restatement
(Second) of Torts § 552. A duty of care can originate in public policy from
Restatement sections consistent with Arizona law. Cal-Am Props. Inc. v.
Edais Eng’g Inc., 

, 82, 83, ¶¶ 14, 17 (2022).

¶13           Section 552(1) provides:

       One who, in the course of his business, profession or
       employment, or in any other transaction in which he has a
       pecuniary interest, supplies false information for the
       guidance of others in their business transactions, is subject to
       liability for pecuniary loss caused to them by their justifiable
       reliance upon the information, if he fails to exercise
       reasonable care or competence in obtaining or
       communicating the information.




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                          HAMMER v. PHOENIX
                           Opinion of the Court

Restatement (Second) of Torts § 552(1).1 Hammer sufficiently alleged the
City had a pecuniary interest “arising from its expectancy of receiving fees”
and that Hammer paid those fees when it received the information from the
City. Yet the superior court found that any duty the City may have owed
“extends only to factual information” and that Hammer was “seeking
advice about . . . legal issues like the application of municipal ordinances to
a particular piece of property.”

¶14           Hammer alleged that it sought information about what
stipulations applied to the property, not legal advice on addressing any
such stipulations. Hammer alleged it met with the City to determine

       whether [it] wished to pay fees . . . necessary to complete a
       proposed residential infill development at the Property,
       purchase the Property, and develop the Property, which
       depended on what zoning and land use restrictions within the
       jurisdiction of the City . . . existed with respect to the
       Property.

It also alleged that it “requested . . . all information regarding any zoning
or land use stipulations or issues affecting the Property that might impact
[Hammer’s] ability to develop the Property as it planned.” And according
to the complaint, other than a resolvable lot split issue, the City planner
confirmed “there were no other . . . land use stipulations applicable to the
Property or the plans.” As a result, nothing in the complaint suggests
Hammer sought legal advice. The gravamen of the complaint was that, in



1      Hammer partly relies on § 552(3) on appeal. That subsection outlines
the potential liability of “one who is under a public duty to give . . .
information,” stating that his or her liability “extends to loss suffered by
any of the class of persons for whose benefit the duty is created, in any of
the transactions in which it is intended to protect them.” It is an exception
to § 552(2), which generally limits liability to loss suffered by (1) the
recipient of the information or (2) “one of a limited group of persons for
whose benefit and guidance [the provider] intends to supply the
information or knows that the recipient intends to supply it.” Restatement
(Second) of Torts § 552(2). Because Hammer received the information, we
need not address § 552(3). Nor do we address whether the Restatement
(Third) of Torts: Liability for Economic Harm (2019) displaces § 552, as the
parties do not raise that issue and it has not been resolved by the Arizona
Supreme Court.



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                          HAMMER v. PHOENIX
                           Opinion of the Court

response to Hammer’s request for factual information, the City failed to
inform Hammer of stipulations on the property.

¶15           The City contends Hammer was seeking legal advice because
“zoning and land use stipulations have the force of law,” citing the Phoenix
Zoning Ordinance. The rule prohibiting liability arising from
misrepresentation of matters of law only applies because “representations
as to matters of law are ordinarily considered to be expressions of opinion”
and “justifiable reliance cannot be had upon mere opinion of another”
absent an exception, such as a special relationship. Waugh v. Lennard, 

 (1949). But Hammer did not request or rely on a legal opinion
about a stipulation; it merely asked whether any existed.

¶16            Whether stipulations exist on a particular parcel of land is a
factual question—either there are stipulations or there are not. See In re
Jake’s Granite Supplies, L.L.C., 

 (D. Ariz. 2010) (genuine
issue of fact where land survey stated that “[t]he premises surveyed have
no known discrepancies, boundary line conflicts, encroachments,
overlapping of improvements, easements or right-of-way except as shown,
and has access to or from a dedicated roadway”). Indeed, the Restatement
considers these very circumstances, defining an exception for
misrepresentations of law that “include[], expressly or by implication,
misrepresentations of fact.” See Restatement (Second) of Torts § 545(1). In
such cases, “the recipient is justified in relying upon the misrepresentation
of fact to the same extent as though it were any other misrepresentation of
fact.” Id. Opining on how an existing stipulation affects land may involve
legal advice, divulging whether stipulations exist does not. Accord In re
Jake’s Granite Supplies, 442 B.R. at 706–07.

¶17           The City also contends that information about “the
stipulations at issue [was] not uniquely in the City’s possession.” But
Hammer’s complaint alleged that it was. This factual dispute cannot be
resolved on a Rule 12(b)(6) motion to dismiss. Coleman v. City of Mesa, 

 (2012).

¶18           The City also cites Valencia Energy Co. v. Arizona Department of
Revenue, 

 (1998), to contend that “the state may not
be estopped due to the casual acts, advice, or instructions issued by
nonsupervisory employees.” Valencia involved an equitable estoppel claim
against the state from acting, not a negligent misrepresentation claim for
money damages. See 

. In any event, the parties dispute whether
the information the City provided at the February 2020 meeting constituted
“casual acts, advice, or instructions.” Hammer alleged that it and the City


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                          HAMMER v. PHOENIX
                           Opinion of the Court

“reasonably expected that the [City] representative . . . would be not only
the correct person to speak on behalf of the City . . . but also that he would
exercise reasonable care and competence in the ascertainment of any
provision to [Hammer] of the information sought.” The dispute and its
legal resolution cannot be resolved in a Rule 12(b)(6) motion.

¶19            The City also contends Hammer should have more formally
requested the information by making a public records request or seeking a
zoning verification letter. The City does not contend Hammer had to do
either of these things; it only contends that more formal avenues “would be
far more likely to give rise to estoppel and, by extension, tort duty.” The
City cites no authority suggesting the duty stated in § 552 only arises if the
recipient of information makes a formal request.

                              CONCLUSION

¶20          We vacate the superior court’s order granting the City’s
motion to dismiss for failure to state a claim and remand for further
proceedings consistent with this opinion. Hammer may recover its taxable
costs incurred on appeal upon compliance with Arizona Rule of Civil
Appellate Procedure 21.




                            AMY M. WOOD • Clerk of the Court
                            FILED: AA




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