Allegations Over Model Form Rejected
Read the full decision: Knutsen v. Dion, No. 2012-294
Vermont’s highest has considered whether a buyer could allege that a REALTOR® association violated the state’s consumer fraud laws when a form it created was used in the buyer’s real estate transaction.
Janet Knutsen (“Buyer”) purchased a home from Leonard and Lorraine Sweetser (“Sellers”). While prior flooding on the property had been disclosed to her, she filed a lawsuit alleging that the flooding problems were far worse than what was disclosed to her. After settling with some of the parties to the lawsuit, her claims against the seller’s brokerage and the Vermont Association of REALTORS® (“Association”) remained.
The Buyer alleged that a model purchase & sale contract form created through templates drafted by the Association caused her damage and violated the state’s consumer fraud act (“Act”). The Buyer’s real estate professional had used the templates to create the purchase contract. The Association makes the form contract templates available to all of its members through its website. The members are free to use the templates as they choose and the Association receives no benefit from the member’s use of the forms.
The Buyer claimed that a pre-suit mediation clause and a limitation of liability clause were so onerous that they violated the Act. The Association made two arguments. First, the Association argued that it had nothing to do with the Buyer’s transaction and so could not have violated the Act. Second, the Association argued that neither of the challenged provisions was deceptive or unfair. The trial court ruled in favor of the association, and the Buyer appealed.
The Supreme Court of Vermont affirmed the ruling in favor of the Association. The court first considered whether a party could be liable under the Act even though it did not participate in the transaction between the parties. In an earlier case, the attorney general had sued a property owner under the Act over harm suffered by consumers when they bought timeshares in a failed development from his agent. In that case, the court determined that third-party derivative liability could be found only if the party had direct participation in the alleged fraud. The court stated that the property owner could be liable under the Act since he had collected the escrow deposits made by consumers for timeshares.
The court ruled that the Association had no direct participation in the Buyer’s transaction and therefore could not be liable under the Act. The Association had no involvement in the drafting of the Buyer’s purchase contract or any role in the transaction. If the Buyer wanted to claim harm under the Act for any of the terms in the purchase contract, she can make those allegations against the real estate professional who recommended the purchase contract to her. But the Association’s role in drafting contract templates did not support an action under the Act, and therefore the court affirmed the trial court’s ruling in favor of the Association.
Knutsen v. Dion, 90 A.3d 866 (Vt. 2013).
Editor’s Note: Special thanks to Tom Heilmann of Heilmann, Ekman & Associates for alerting NAR Legal Affairs to this decision.