In this week's Alabama Law Weekly Update, we bring you a case from the Alabama Supreme Court addressing the evidence a plaintiff must present to prevail on a professional negligence claim against a real estate appraiser.
Riverstone Development Co., Inc. v. Garrett & Associates Appraisals, Inc., No. 1140555, 2015 WL 6443196, October 23, 2015 (Ala. 2015) (negligence claims against real estate appraisers are evaluated under the professional negligence standard).
In 2009, Riverstone Development, Co., Inc. (the “Developer”) owned 170 acres of property abutting Lake Guntersville (the “Property”), which was purchased in 2005 by its predecessor. The Developer primarily used debt financing to develop the Property from 2005 to 2007, and the debt was secured by a mortgage on the Property. No substantive work had been done to develop the Property after June 2007, but the Developer continued to pay interest on the debt until mid-2009, at which time the loan went into default when the bank and the Developer could not agree on renewal terms.
In March 2010, the bank obtained an appraisal of the Property in the amount of $1.7 Million, from an appraiser who had previously appraised the Property in 2007 at $2.115 Million, and again in 2009 at $1.765 Million. In June 2010, the bank hired a new appraisal firm, Garrett & Associates Appraisals, Inc. (the “Appraiser”). The Appraiser valued the Property at $340,000. The bank foreclosed on the Property and purchased the Property at a foreclosure sale for $300,000, leaving a deficit of approximately $1.3 Million on the Developer's loan.
The Developer sued the Appraiser for negligence, wantonness, and conspiracy, and lost on all claims at the trial level. The Circuit Court entered judgment as a matter of law (“JML”) in favor of the Appraiser on the negligence claim and the jury found in favor of the Appraiser on the wantonness and conspiracy claims.
The Developer appealed, claiming that the trial court erred by (i) entering a JML on the negligence claim and (ii) denying a motion for a new trial based on juror misconduct. The Alabama Supreme Court rejected both arguments on appeal and affirmed the trial court's judgment.
First, the negligence claim. Prior to this case, Alabama courts had not yet considered whether the professional negligence rule applied to real estate appraisers. Looking to cases from other jurisdictions, the Alabama Supreme Court applied the rules of professional negligence with respect to the Appraiser. Accordingly, a person asserting a negligence claim against a professional must present expert testimony establishing both a breach of the standard of care and causation. In this case, no such expert testimony was presented by the Developer. The court also rejected the Developer's argument that an exception applied for the expert testimony requirement.
Second, the claim of jury misconduct. The Developer claimed it was entitled to a new trial because one of the jurors failed to acknowledge during voir dire that he had previously been a defendant in a civil lawsuit. However, the Alabama Supreme Court determined that there was no evidence that the Developer was prejudiced by the juror's failure to make a proper response. Even more, the court noted, the Developer's counsel challenged an attempt by the Appraiser's counsel to strike the same juror during the voir dire process.