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Pinnacle Great Plains Operating Co., LLC v. 1 Stop Realty, Inc.

United States District Court, D. Idaho

March 16, 2017

PINNACLE GREAT PLAINS OPERATING COMPANY, LLC., an Arkansas Limited Company, Plaintiff,
1 STOP REALTY, INC., a Minnesota corporation, Defendant.


          Edward J. Lodge United States District Judge.

         Pending before the Court in the above entitled matter is Defendant 1 Stop Realty, Inc.'s (1 Stop Realty) Motion for Summary Judgment. (Dkt. 81.) The matter is fully briefed and ripe for this Court's consideration.

         Having fully reviewed the record, the Court finds that the facts and legal arguments are adequately presented in the briefs and record. Accordingly, in the interest of avoiding further delay, and because the Court conclusively finds that the decisional process would not be significantly aided by oral argument, this matter shall be decided on the record before this Court without oral argument.


         The Court generally restates the factual background from the Report and Recommendations, Dkts, 54 and 75. The Court notes that based on settlement agreements that have been entered, the only remaining claims are those between Plaintiff Pinnacle Great Plains Operating Company, LLC (Pinnacle) and Defendant 1 Stop Realty

         This litigation arises from Defendants Wynn Dewsnup Revocable Trust and Wynn Dewsnup's (collectively referred to as “Dewsnups”) October 2011 sale to Pinnacle of a 5, 487-acre parcel of agricultural land near Malta, Idaho, known as “Bridge Farm.” Specifically, Pinnacle claims the Dewsnups and Pinnacle's purported broker, 1 Stop Realty, misrepresented the quality of the groundwater supply for Bridge Farm's irrigation system.

         1 Stop Realty is a Minnesota corporation which holds brokerage licenses and sells and purchases agricultural property. (Dkt. 62-2 at 8, 12.) 1 Stop Realty's officers include President Kirk Swenson, and Vice President Roger Heller. In addition to its officers, 1 Stop Realty employs an office manager, an assistant, and a website technician. It has also three sales associates who work as independent contractors. 1 Stop Realty operates out of two locations. The main office is located in Kasson, Minnesota, and the other office is located in Olivia, Minnesota. Swenson works from the Kasson office; Heller works out of the Olivia office.

         In early 2010, 1 Stop Realty's client, Teays River Investments, LLC, expressed interest in expanding into the northwest United States and sought 1 Stop Realty's services in its search for farmland in which to invest. (Dkt. 62-2 at 20.) Heller discovered Bridge Farm and began preparing paperwork on the property to present to Teays.

         In May of 2010, Heller and Swenson travelled to Idaho to tour Bridge Farm. Afterward, Swenson sent an email informing Teays he had visited Bridge Farm, and recommending moving forward by submitting a letter of intent to purchase the property to the Dewsnups. (Dkt. 64-2 at 16.) In the email, Swenson stated, among other things: Bridge Farm “has really good water with inexpensive pumping cost….Nice deal, good water.” Id. Despite making this statement in his email, Swenson clarified during his recent deposition that, at the time he sent the email, 1 Stop Realty had not yet investigated Bridge Farm's water quality. (Dkt. 62-2 at 23.)

         Throughout 2010, 1 Stop Realty continued to collect more information on Bridge Farm for Teays. In late May of 2010, Garrett Dewsnup emailed Pat Kelgen, Heller's assistant, five pages of Bridge Farm water analysis lab results from the year 2003. (Dkt. 64-2 at 2-7.) Kelgen forwarded the results to Heller who then forwarded them to Swenson. The lab results indicate “possible” and “significant” problems with Bridge Farm's water. Id. Swenson admitted in his deposition that he and Heller had discussed the 2003 lab results in 2010, and concluded that, given the out-dated nature of the reports, Bridge Farm's water quality would need to be re-tested during the due-diligence period prior to Teays' purchase of the farm. (Dkt. 62-2 at 56.)

         Around this same time period, Heller had been in communication with Dewsnup's agronomist, Kyle Carpenter, who had worked on Bridge Farm for several years, to discuss Bridge Farm's soil and water quality. On June 28, 2010, Heller emailed Swenson to inform him about his discussion with Carpenter. Heller reported:

Most of the soils are Genola which is Class IIe irrigated and a good one. Some of the others take more careful management as per the consultant.

(Dkt. 64-2 at 26.)

         Sometime around July of 2010, Swenson gained the impression from Teays that they did not want to move forward with the Bridge Farm purchase for “scalability” reasons (i.e., Teays was interested in a farm bigger than Bridge Farm). (Dkt. 64-2 at 27.) Once Teays lost interest in Bridge Farm, 1 Stop Realty maintains its agents set aside and forgot about the paperwork they had gathered on Bridge Farm.

         On December 29, 2010, Howard Halderman, the President and CEO of Halderman Farm Management Services, emailed several real estate brokers, including 1 Stop Realty's President Swenson, about an investment opportunity for one of its institutional clients- Pinnacle. Specifically, Pinnacle was seeking farmland. The email addressed to Swenson did not directly solicit him or 1 Stop Realty to act as Pinnacle's broker in the potential acquisition of the farmland investment.

         On January 17, 2011, Swenson emailed Halderman to inform him about the Bridge Farm property. In the email, Swenson specified the price of the property and that Teays originally passed on its purchase. On June 16, 2011, Garrett Dewsnup sent 1 Stop Realty a lease proposal from one of the Dewsnup's Bridge Farm tenants. The proposal noted: “the farm has both soil and water borne salt challenges.” (Dkt. 62-2 at 104.) When 1 Stop Realty later forwarded this information to Pinnacle, two pages, including the page which referenced Bridge Farm's “salt challenges, ” were omitted.

         There is no dispute that 1 Stop Realty did not disclose the 2003 water analysis lab results to Pinnacle prior to Pinnacle's purchase of Bridge Farm. Swenson explained during his deposition that Pinnacle did not ask him or anyone else from 1 Stop Realty to verify and reconcile the water rights on Bridge Farm in 2011. (Dkt. 62-2 at 66.) He indicated no advance funds were provided to 1 Stop Realty by Pinnacle to pay for any due diligence items. Id.

         On October 14, 2011, Pinnacle purchased Bridge Farm from the Dewsnups. The Dewsnups' broker in the sale was Robert Jones Realty, Inc. It is unclear from the record who the real estate brokerage representing Pinnacle was at closing on Bridge Farm as the Court could not find the closing statements in the record which would indicate which brokerages received monies from the sale of Bridge Farm from the Dewsnups and Pinnacle.

         It is undisputed that Pinnacle paid a commission or some form of compensation to 1 Stop Realty for its services related to Bridge Farm. Pinnacle claims in this litigation that 1 Stop Realty acted as its broker on the purchase. 1 Stop Realty claims it was not Pinnacle's broker on the purchase but acknowledges it was involved in the Bridge Farm transaction. Swenson testified in his deposition 1 Stop Realty was more of a “facilitator.” It is unclear from the record before the Court exactly what Halderman Farm Management Service's role was in the purchase or if another brokerage was also involved in representing Pinnacle.

         Pinnacle's Second Amended Complaint alleges 1 Stop Realty was its real estate broker in the transaction and it failed to disclose “its knowledge of significant water quality issues on the property.” (Dkt. 35 p.7). The Second Amended Complaint alleges three specific causes of action against 1 Stop Realty. Count IV alleges 1 Stop Realty violated its statutory duties as its real estate broker under the Idaho Real Estate Brokerage Representation Act (Brokerage Act) by failing to disclose and actively concealing adverse material facts. Count 5 alleges 1 Stop Realty's alleged violation of the Brokerage Act was negligence per se. Count VI alleges 1 Stop Realty committed fraud when it allegedly violated the Brokerage Act.

         1 Stop Realty argues that summary judgment should be granted in its favor as the Brokerage Act is unenforceable against 1 Stop Realty because: (1) 1 Stop Realty is not a brokerage as defined in the statute; (2) there is no written broker's agreement as required by the statute creating the requisite relationship; (3) payment of a commission does not create the requisite broker relationship; and (4) no duties were owed to Pinnacle ...

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