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Read the full decision: Lerner v. DMB Realty

In Lerner v. DMB Realty, an Arizona court of appeals affirmed that a brokerage’s failure to disclose the presence of a registered sex offender in the neighborhood did not amount to a breach of its fiduciary duties to purchasers.

Jeff and Marissa Currier (“Sellers”) owned a home in an affluent Scottsdale community.  After discovering that their neighbor was a sex offender, Sellers decided to list their house and move.  After the home was listed, Glen and Robynn Lerner (“Buyers”) expressed an interest in the property.  In conversations with Sellers about the home, Buyers informed Sellers that they wanted to live in a safe neighborhood because they had small children.  Buyers also asked Sellers why they were moving, to which Sellers responded that they “wanted to be closer to friends.” 

Buyers and Sellers entered into a dual representation agreement with DMB Realty (“Brokerage”), and Buyers bought the home and moved in.  Six months later, Buyers discovered their neighbor’s status as a registered sex offender.

Buyers sued Sellers and Brokerage.  The count against Brokerage alleged that Brokerage had breached its fiduciary duties to Buyers by failing to disclose the presence of the sex offender, thereby essentially favoring the Sellers’ interests over theirs.

At trial, it was revealed that the dual representation agreement entered into by all parties contained a prominent notice (“Notice”) stating that, pursuant to
Arizona law, neither Sellers nor Brokerage was “obligated to disclose that the Subject Property is or has been …located in the vicinity of a sex offender.”  In addition, the property disclosure statement signed by Buyers contained an almost identical notice on its cover page.  Furthermore, the Arizona statute to which the Notice referred mandates that:  “no criminal, civil or administrative action may be brought against a transferor or lessor of real property or a licensee for failing to disclose that the property is […] located in the vicinity of a sex offender.”  Finally, a section of the purchase agreement titled “Inspection Period” stated that “if the presence of sex offenders in the vicinity […] is a material matter to the Buyer, it must be investigated by the Buyer during the [14 day] inspection period.”  Based on these facts, the trial court dismissed all counts.

Buyers appealed, and the appellate court affirmed dismissal of the breach of fiduciary duty count against Brokerage.  On appeal, Buyers pointed to additional language in the representation agreement that stated that the dual nature of the representation “does not relieve [Brokerage] of any legal obligation to disclose all known facts which materially and adversely affect the consideration to be paid.”  Buyers asserted that the Notice did not amount to a waiver of Brokerage’s fiduciary duty to notify Buyers of the “adverse fact” of the sex offender’s presence, but rather served merely as an informational statement about Arizona law.  Nonetheless, in affirming the trial court’s ruling, the appellate court stated that while a broker’s fiduciary duties are not necessarily diminished by dual representation, such duties may, in fact, be restricted by the terms of a contract.  In short, held the court, the Notice and other language pertaining to sex offender disclosure in the transactional documents should have reasonably alerted Buyers to their need to follow up on the matter on their own, and by signing the representation agreement Buyers had expressly agreed that Brokerage was not liable for a breach of its fiduciary duties for failure to disclosure of the neighborhood sex offender.  

The appellate court reversed dismissal of one count against Sellers: a claim of common-law fraud.  This reversal was based on Buyers’ assertion that Sellers had made overt false statements to Buyers about the safety of the neighborhood and their motivation for selling.  The court held that while the Notice protected defendants from nondisclosure of the sex offender, it did not allow for material misstatements designed to induce a purchase based on false information.  The fraud count against Sellers was remanded to the trial court for further proceedings. 

Lerner v. DMB Realty, LLC, 322 P.3d 909 (Ct. App. 2014).