Svendsen v. John L. Scott, Inc.
Court of Appeals Division I
State of Washington
Opinion Information Sheet
Docket Number: 41639-1-I
Title of Case: David Svendsen, Respondent/Cross-Appellant
v.
John L. Scott, Inc., Appellant/Cross-Respondent
File Date: 06/28/1999
SOURCE OF APPEAL
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Appeal from Superior Court of King County
Docket No: 96-2-10174-5
Judgment or order under review
Date filed: 11/04/1997
Judge signing: Hon. Jeffrey M. Ramsdell
JUDGES
------
Authored by Marlin J Appelwick
Concurring: Ann L. Ellington
H. Joseph Coleman
COUNSEL OF RECORD
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Counsel for Appellant(s)
Douglas S. Tingvall
Attorney At Law
Ste 450
3380 146th Pl SE
Bellevue, WA 98007
Counsel for Respondent(s)
Charles K. Wiggins
Attorney At Law
241 Madison Ave N
Bainbridge Is, WA 98110
George A. Purdy
Simburg Ketter Sheppard & Purdy P.S.
2525 1st Interstate Ctr
999 3rd Ave.
Seattle, WA 98104-4089
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DAVID E. SVENDSEN, )
) No. 41639-1-I
Respondent, )
) DIVISION ONE
v. )
)
GREGG N. STOCK and RANDI R. ) PUBLISHED OPINION
STOCK, husband and wife, and their )
marital community, )
)
Defendants, )
)
CONNIE EDWARDS; JOHN L. )
SCOTT, INC., )
)
Appellants, )
)
GREENWOOD POINT HOMEOWNERS )
ASSOCIATION, SEATTLE/EASTSIDE )
BUILDING INSPECTIONS, INC.; and )
DAVID M. IRVINE, )
)
Defendants. ) FILED:
APPELWICK, J. - This case arises out of a residential real estate
transaction in which appellant John L. Scott represented the sellers and
respondent David Svendsen was the buyer. In a jury trial, John L. Scott
was found liable for fraudulent concealment and violation of the Consumer
Protection Act (CPA). We hold that substantial evidence supports the
jury's finding that John L. Scott had actual knowledge of an error,
inaccuracy or omission in the seller disclosure form, and that the jury's
damages award was within the range of evidence. We therefore affirm the
fraudulent concealment judgment and damages award. We reverse the trial
court's award of attorney fees and punitive damages under the CPA, however,
because we hold that the seller disclosure statute bars the CPA claim.
FACTS
In October of 1995, David Svendsen purchased a house near Lake
Sammamish from Gregg and Randi Stock. Connie Edwards of John L. Scott,
Inc., was the listing agent representing the Stocks.
Some years before the sale, in 1991 and 1992, the Stocks experienced
flooding on their property as a result of an overflow from a blocked storm
drain on an uphill neighboring lot. In November 1994, the neighbors' drain
again overflowed, but did not flood the Stocks' property on that occasion.
In response to complaints from the Stocks and their neighbors, King County
workers cleared the storm drain in March 1991, January 1992 and November
1994. But, no additional work was done to assure that the drain would not
overflow again.
In August of 1995, the Stocks listed their house for sale with Connie
Edwards of John L. Scott. At that time, the Stocks completed a seller's
disclosure statement (Form 17), as required under RCW 64.06. Question 7A
on the form asks: "Is there any settling, soil, standing water, or drainage
problems on the property?" Mr. Stock testified that he had initially
answered "yes" to this question, but changed his answer to "no" at Edwards'
instruction. Mr. Stock explained to Edwards the history of the flooding
on his property and its origin in the neighbors' yard. He also explained
that King County had come out to clear the drain and the flooding problems
had not recurred since the last time they had done so. Edwards told him he
could change the answer on the form because he was not required to disclose
a past defect that had been corrected. Mr. Stock then asked Edwards to
disclose the flooding problems to any prospective buyer, and to tell the
buyer to call the county if the property flooded as a result of another
clog in the neighbors' drain. Despite Mr. Stock's request, Edwards did not
disclose the drainage problems to Svendsen or his agent.
Form 17 contained the additional question: "Are there any other
material defects affecting this property or its value that a prospective
buyer should know about?" This question was also answered "no."
Trial testimony revealed that Edwards also had independent knowledge
of drainage problems on the neighboring property. According to Mr. Stock,
when he discussed the prior flooding with Edwards, she told him that she
had "seen it." Edwards explained at trial that she had represented the
buyers in a sale of the neighbors' property in the fall of 1994, and
witnessed standing water in the neighbors' backyard from a clogged storm
drain at that time. She testified that the buyers later told her that they
had called the county, and that county workers had come and cleared an
obstruction from the pipe. Edwards relied on the buyers' assurances and
believed that the county had fixed the problem; she did not investigate the
matter further.
On September 25, 1995, Svendsen and the Stocks entered into a purchase
and sale agreement. Svendsen had the home inspected; the inspector did not
note a potential problem with flooding from the neighbors' property.
Soon after Svendsen purchased the property, in November 1995 and
February 1996, the storm drain on the neighboring lot again overflowed,
causing Svendsen's garage and driveway to flood. Once again, King County
cleared out the drain on the neighbors' property.
In the summer of 1997, the county dug up the storm drain on the
neighbors' property and removed two large obstructions from the pipe.
Nonetheless, a King County engineer testified at trial that the drainpipe
could again become blocked by "sticks, logs, basketballs, just about
anything."
Svendsen sued the sellers, the homeowners association, the home
inspector, and John L. Scott. The sellers filed bankruptcy, Svendsen
settled with the homeowners association, and the trial court dismissed the
claims against the inspector on summary judgment. The remaining claims of
fraudulent concealment, negligent misrepresentation, and violation of the
Consumer Protection Act against John L. Scott were tried to a jury. Trial
was held between September 15 and 19, 1997, in King County Superior Court.
The jury found John L. Scott liable for fraudulent concealment and
violation of the Consumer Protection Act, but not for negligent
misrepresentation. The jury also found, in its special verdict form, that
there was an "error, inaccuracy, or omission in the Form 17," and that John
L. Scott had "actual knowledge of the error, inaccuracy, or omission in the
Form 17 at the time of sale." The jury found John L. Scott 95% at fault
and the sellers 5% at fault.
Svendsen's claimed damages included damage to his property and the
cost of cleanup, plus $32,600 for the estimated cost of installing a
gravity flow drainage system on his property. The jury awarded Svendsen
damages of $38,298. The court awarded punitive damages of $6,500 and
attorney fees of $17,500 under the Consumer Protection Act. John L. Scott
appeals and Svendsen cross-appeals.
FRAUDULENT CONCEALMENT CLAIM
A. Substantial Evidence.
John L. Scott argues that the trial court erred in entering judgment
on the fraudulent concealment claim, because substantial evidence does not
support the jury's finding that the seller disclosure statement contained
an error, inaccuracy or omission, and that Edwards had actual knowledge of
the error, inaccuracy or omission. John L. Scott argues that the evidence
showed instead that Edwards reasonably believed the drainage problem had
been corrected.
A finding of fact will not be overturned if it is supported by
substantial evidence. Thorndike v. Hesperian Orchards, Inc., 54 Wn.2d 570,
575, 343 P.2d 183 (1959). Substantial evidence is evidence of a sufficient
quantity to persuade a fair-minded, rational person of the truth of the
declared premise. Bering v. Share, 106 Wn.2d. 212, 220, 721 P.2d 918
(1986).
To uphold John L. Scott's liability for an error, inaccuracy or
omission in the seller disclosure statement, substantial evidence must show
that Edwards had "actual knowledge" of the error, inaccuracy or omission.
See RCW 64.06.050(2). "The requirement of actual knowledge does not
encompass facts which the {broker} should have known." Atherton
Condominium Apartment-Owners Ass'n Bd. of Dirs. v. Blume Dev. Co., 115
Wn.2d 506, 532-33, 799 P.2d 250 (1990).
In addition, to uphold John L. Scott's liability for fraudulent
concealment, substantial evidence must show that Edwards had knowledge of
an existing material defect on the property, not reasonably ascertainable
to the buyer, which she did not disclose. See McRae v. Bolstad, 32 Wn.
App. 173, 176-77, 646 P.2d 771 (1982), aff'd, 101 Wn.2d 161, 676 P.2d 496
(1984); Hughes v. Stusser, 68 Wn.2d 707, 711, 415 P.2d 89 (1966). A broker
cannot be held liable if she reasonably believes that a past defect has
been corrected. Luxon v. Caviezel, 42 Wn. App. 261, 265, 710 P.2d 809
(1985).
Although we view this as a close case, we hold there was sufficient
evidence of Edwards' actual knowledge of an existing drainage problem
affecting the Stocks' property to uphold the fraudulent concealment
verdict. The Stocks told Edwards that the flooding problem on their
property originated on the uphill neighboring lot. Edwards had independent
knowledge of a drainage problem on the neighboring lot in the fall of 1994.
The Stocks exhibited a lack of confidence that the problem was permanently
corrected: they told Edwards that the problem had recurred in the past, and
asked her to disclose it to any future buyers. This evidence was
sufficient for the jury to conclude that Edwards had actual knowledge of
the problem and did not reasonably believe it had been corrected.
If Edwards' advice to the Stocks not to disclose the flooding problem
had been based on information she obtained from King County records, and if
the records indicated that the problem had been corrected, John L. Scott
might have escaped liability. The seller disclosure statute relieves a
broker of liability for an error, inaccuracy, or omission in a real
property transfer disclosure statement, if the disclosure was based on
information provided by public agencies. RCW 64.06.050 (2). Here,
however, the only information Edwards had that the problem might have been
corrected came from the neighbors, who told her that the county had cleared
an obstruction from the pipe in 1994, and from the Stocks themselves, who
told her that the problem had not recurred since the last time the county
cleared the pipe. Edwards made no further inquiry into the matter.
We are persuaded that imposing liability on John L. Scott here is not
unfair. Because of Edwards' interference, Svendsen did not receive notice
of the potential flooding problem. On Edwards' instructions, the sellers
marked "no" to question 7A on Form 17, when they had originally planned to
mark "yes." Edwards failed to follow the sellers' instructions to disclose
the problem to potential buyers. Edwards' actions were based in part on
her independent knowledge of the drainage problem; she therefore had a duty
to be accurate in her assumptions about whether the problem was indeed
corrected.
B. Damages Award.
John L. Scott contests the jury's damages award of $38,298. John L.
Scott argues that Svendsen was not entitled to recover the cost of
installing a gravity drainage system, at an estimated cost of $32,600,
because King County permanently corrected the drainage problem when it
removed two large obstructions from the neighbors' pipe in the summer of
1997.
We will not disturb a jury's damages award unless it is outside the
range of substantial evidence. Wooldridge v. Woolett, 96 Wn.2d 659, 668,
638 P.2d 566 (1981).
Although King County cleared the neighbors' pipe in the summer of
1997, a King County engineer testified that the pipe could plug again. The
pipe has plugged repeatedly in the past, despite periodic clearing. The
gravity drain is designed to prevent flooding on Svendsen's property even
if the neighbors' drain again becomes plugged. This evidence sufficiently
supports the jury's damages award.
CONSUMER PROTECTION ACT CLAIM
John L. Scott argues that the trial court erred in awarding Svendsen
punitive damages and attorney fees under the CPA. John L. Scott contends
that the CPA claim is expressly barred by the seller disclosure statute,
RCW 64.06.060. We agree.
"{T}he question of whether particular actions gave rise to a violation
of the Consumer Protection Act is reviewable as a question of law." Keyes
v. Bollinger, 31 Wn. App. 286, 289, 640 P.2d 1077 (1982).
Washington's Consumer Protection Act provides that "{u}nfair methods
of competition and unfair or deceptive acts or practices in the conduct of
any trade or commerce" are unlawful. RCW 19.86.020. To establish a claim
under the CPA five elements must be proven: "(1) unfair or deceptive act or
practice, (2) occurring in trade or commerce, (3) public interest impact,
(4) injury to plaintiff in his or her business or property and (5)
causation." Hangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co.,
105 Wn.2d 778, 780, 719 P.2d 531 (1986). John L. Scott argues that the
seller disclosure statute precludes Svendsen from establishing the "public
interest impact" element of his CPA claim. The statute expressly provides
that "the practices covered by this chapter are not matters vitally
affecting the public interest for the purpose of applying the consumer
protection act." RCW 64.06.060. This language is echoed in the Senate
Bill Report for the Act: "Violations of this act do not constitute a
violation of the Consumer Protection Act." S. 53-6283, Reg. Legis. Sess. 2
(Wa. 1994).
Svendsen contends, however, that his CPA claim is not barred because it
does not arise out of the seller disclosure statement, but is based,
instead, upon the jury's verdict of fraudulent concealment. He relies on a
separate provision of the seller disclosure statute, which provides that
"nothing in this chapter shall extinguish or impair any rights or remedies
of a buyer of real estate against the seller or against any agent acting
for the seller otherwise existing pursuant to common law, statute or
contract." RCW 64.06.070.
We hold that, under the facts of this case, the fraudulent concealment
verdict is not separable from the Form 17 violation. The seller disclosure
statute establishes an affirmative duty on the part of the seller to
disclose the information requested on Form 17; question 7A specifically
requests disclosure of any drainage problems. See RCW 64.06.020(1).
Moreover, Connie Edwards learned that the Stocks had experienced flooding
on their property, and advised them not to disclose the problem, while she
was assisting them in filling out the form. Had the form been filled out
properly, this lawsuit would not have arisen. In other words, the events
at issue in this lawsuit are "practices covered by {the seller disclosure
statute}." RCW 64.06.060.
Although the seller disclosure statute preserves a buyer's remedies
"otherwise existing pursuant to common law, statute or contract," RCW
64.06.070, it also expressly states that the practices covered by the
statute are not matters affecting the public interest, RCW 64.06.060.
Therefore, we must conclude that Svendsen cannot establish the public
interest impact element of his CPA claim. He is therefore precluded from
recovering punitive damages and attorney fees under the CPA.
The cases that Svendsen cites to support his argument that a broker's
failure to disclose a known material defect in the sale of real property is
a violation of the CPA are distinguishable; all of those cases were decided
before the seller disclosure statute took effect.1 See McRae v. Bolstad,
101 Wn.2d 161, 676 P.2d 496 (1984) (holding real estate agent's failure to
disclose chronic sewage and drainage problems violated CPA); Robinson v.
McReynolds, 52 Wn.
App. 635, 762 P.2d 1166 (1988) (holding real estate agent's failure to
disclose property's lack of income potential violated CPA); Luxon v.
Caviezel, 42 Wn. App. 261, 710 P.2d 809 (1985) (holding listing of house in
multiple listing service as four bedroom house when septic system permit
allowed only two bedrooms violated CPA).
In his cross-appeal, Svendsen argues that the trial court erred in
calculating his attorney fees under the CPA, and that he is entitled to
attorney fees on appeal under the CPA. Because we reverse the CPA
judgment, we decline to consider whether the court erred in calculating
Svendsen's attorney fees. Similarly, Svendsen is not entitled to attorney
fees on appeal.
SUMMARY
We affirm the fraudulent concealment judgment and the jury's damages
award. We reverse the CPA judgment and the court's award of punitive
damages and attorney fees under the CPA. We decline to award attorney fees
on appeal.
AFFIRMED in part, REVERSED in part.
WE CONCUR:
1 The effective date of the residential real property seller disclosure
statute was January 1, 1995. RCW 64.06.900.