Bloor v. Fritz: Broker Liable for Failing to Disclose Meth Lab

A Washington court has considered a salesperson’s duty to disclose the fact that prior tenants had operated a methamphetamine laboratory (“meth lab”) on the property.

Robert Fritz (“Owner”) hired LAM Management, Inc. (“Management Company”) to lease a residential property he owned. Lance Miller (“Salesperson”) was a co-owner of the Management Company and also a licensed real estate professional for LC Realty, Inc. (“Brokerage”).

In 2004, the Management Company leased the property to a group of individuals. Shortly after the tenants took possession, the police raided the property. The police seized a marijuana growing operation as well as meth lab equipment. News of the raid was reported in the local paper, and the Owner’s wife spoke to the police about the raid. The Salesperson also contacted the police to learn about the status of the property and the arrests.

Following the arrests, the Owner decided to sell the property. He painted the property and changed the floor coverings prior to listing the property for sale with the Salesperson. Eddie and Eva Bloor (“Buyers”) eventually purchased the property, with the Salesperson serving as a dual agent in the transaction. The Buyers received a property disclosure statement from the Owner, which stated that the property had never been used as a manufacturing site for illegal drugs. The Salesperson reviewed the disclosure statement with the Buyers, but did not inform them about the police raid on the prior tenants.

Following the closing, the Buyers learned that their house was known as a “drug house”. The Buyers investigated, and learned about the police raid and subsequent arrests. One of the Buyers contacted the county health department. The police had never reported the raid to the health department, and so the department sent representatives to the property to determine if the property was contaminated. The health department determined that the property was not fit for occupancy due to the prior meth lab operations, and closed the property. In addition to being forced to abandon the property, the Buyers also had to leave all of their personal possessions on the property.

The Buyers brought a lawsuit against the Owner, the Salesperson, the Management Company, and the Brokerage. The trial court found that the Owner had negligently misrepresented the condition of the property, and the Salesperson had failed to disclose a material fact and misrepresented its condition, causing a breach of the state’s consumer protection laws. The court awarded the Buyers damages and the Salesperson and the Owner appealed.

The Court of Appeals of Washington affirmed the trial court. The court first considered the Salesperson’s argument that the evidence did not support the trial court’s ruling against him. The Salesperson challenged the evidentiary determination that law enforcement officials told him about the arrest. The trial court had received evidence from both sides about what had occurred, and the trial court had made the factual finding about the evidence. Because a trial court’s rulings will only be overturned if substantial evidence supported a different conclusion, the court rejected these arguments.

Next, the Salesperson argued that he had not made a negligent misrepresentation because he did not know about the illegal drug manufacturing. One of the elements for proving a negligent misrepresentation claim is that the party supplies the other party false information, which in this case was that the property had never been used as a site for illegal drug manufacturing. Because the trial court had determined that the Salesperson had knowledge of the illegal drug manufacturing, the court ruled that the Salesperson had provided false information to the Buyers and so committed a negligent misrepresentation.

Finally, the Salesperson challenged the ruling that he had violated the state’s consumer protection laws. An “unfair trade practice” is a deceptive act or practice which occurs in trade or commerce that impacts a public interest, causes injury to the plaintiff’s business or property, and there is causation between the action and injury. The Salesperson argued that his actions did not impact a public interest because the alleged failure to disclose the drug manufacturing was a private dispute between the parties. However, the court ruled that because the Salesperson had advertised the property and sought buyers for the property, his actions had a public interest impact. Therefore, the court affirmed the jury verdict in favor of the Buyers.

Bloor v. Fritz, 180 P.3d 805 (Wash. Ct. App. 2008).

Advertisement

4:23

Real Estate Today Radio

The Real Estate Today radio show opens doors for buyers and sellers with critical and credible information on the real estate market.

Recognizing Spoof Emails

Learn to spot scam emails made to look like they come from NAR or other real estate organizations.