Lawsuit over Association's Form Contract Rejected

A Vermont court has considered whether a buyer could make allegations against a REALTOR® association over provisions in its model purchase & sale form contract.
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 some of the claims against different parties, 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 (“Form Contract”) based on templates created by the Association caused her damage and violated the state’s consumer fraud laws.  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.

Both parties filed motions seeking judgment in their favor.  The Buyer claimed that a pre-suit mediation clause and a limitation of liability were so onerous that they violated the state’s consumer fraud laws.  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 consumer fraud laws.  Second, the Association argued that neither of the challenged provisions was deceptive or unfair. 
The State of Vermont, Superior Court, Washington Unit, ruled in favor of the Association and rejected the Buyer’s allegations.  The court reviewed the Form Contract.  The contract required both parties to initial every page of the agreement and contained provisions designed to specifically protect the buyer’s interests such as a financing contingency, a property inspection contingency and specific provisions listing the buyer’s rights if the seller defaulted.  The court also noted that the Buyer had an opportunity to have an attorney review the purchase agreement, but declined to do so.

The court examined the two clauses at issue.  The limitation of liability clause limited the liability of real estate brokers for unintentional acts to the greater of $5000 or the broker’s total compensation.  The paragraph did not limit liability for intentional acts.  The mediation clause required the submission of any dispute to mediation prior to filing a lawsuit.  The mediation clause also explained the mediation process, stating it was nonbinding and listing the benefits to the parties.  The Buyer argued that these clauses were deceptive and confusing to consumers.

The court rejected the Buyer’s arguments.  Both clauses were clearly written and not hidden in the agreement, and a reasonable consumer who read the agreement could easily understand the clauses.  The court also noted that the Buyer had initialed every page of the agreement, and it was not unreasonable to expect a consumer to review the agreement for such a major purchase and expect the terms to operate as written.  The court found that the contract terms did not unfairly limit the Buyer’s rights under the state consumer fraud laws nor were they unfair.  Therefore, the court entered judgment in favor of the Association.

Knutsen v. Dion, Doc. No. 342-5-10WNCV (Vt. Super. Ct. Feb. 10, 2012). [Note: This opinion is not published in an official reporter and therefore should not be cited as authority. Please consult counsel before relying on this opinion.]

Editor’s Note: Special thanks to Tom Heilmann of Heilmann, Ekman & Associates for alerting NAR Legal Affairs to this decision.