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Masloskie v Century 21: Fraud Lawsuit Reinstated

South Dakota’s highest court has considered fraud claims brought by a buyer against their real estate professional over representations about the availability of electricity to the property.

Wayne and Sandra Masloskie (“Buyers”) noticed a “For Sale” on a vacant lot.  The Buyers contacted G. Pat Baldwin “(“Salesperson”) of Century 21 American Real Estate, Inc. (“Brokerage”) about their potential interest in the property. 

The Salesperson showed the Buyers the property, and during the showing one of the Buyers asked the Salesperson how electricity would be supplied to the property.  The Salesperson gestured to a power pole on land owned by the United States Forest Service 277 feet away from the property.  The salesperson allegedly claimed that he had discussed the matter with a representative of the utility and was told that it was possible to connect to the pole on the Forest Service land. 

The Buyers purchased the property in 2006, and began to build a home on the property.  During the construction process, they learned that they could not connect to the Forest Service pole and so they incurred substantial expenses connecting the property to an alternate power source.

The Buyers brought a lawsuit against the Salesperson and the Brokerage under a variety of theories over the alleged misrepresentations about the ability to connect to the Forest Service pole.  The trial court dismissed the lawsuit, determining that the three-year statute of limitations for malpractice actions barred the lawsuit.  The Buyers appealed, arguing that the court had applied the wrong statute of limitations.

The Supreme Court of South Dakota reversed the trial court and sent the case back to the lower court for further proceedings.  The malpractice statute relied upon by the trial court stated that actions for “alleged malpractice, error, mistake, or omission” must be brought within three years of the action.  Conversely, the statute of limitations for those seeking relief for fraud must be commenced within six years.  The Buyers argued that the six-year statute of limitations applied to their fraud claims and so the trial court had improperly dismissed the lawsuit citing the three-year statute of limitations.

The court ruled that the six-year statute of limitations applied to fraud claims.  “Malpractice claims” refer to professional misconduct or an unreasonable lack of skill in providing professional services.  The court determined that allegations of fraud and malpractice can arise from the same transaction, and so the malpractice statute of limitations would not apply to fraud claims.  The Buyers’ claims against the Salesperson and Brokerage did not arise from the type of negligence during the representation of a client associated with a malpractice claim; instead, the allegations focused on specific misrepresentations about the availability of electricity for the property.  Since the trial court had applied the wrong statute of limitations to the fraud claims, the court reversed the lower court and sent the case back for further proceedings on the Buyers’ fraud claims.

Masloskie v. Century 21 Am. Real Estate, Inc., 818 N.W.2d 798 (S.D. 2012).