White v. Meador: Seller's Fraud Allegations against Broker Fail

A Maine federal court has considered whether a seller of a vacation home can successfully allege fraud against a broker when the only remedy sought by the seller was rescission of the purchase agreement between a buyer and seller.

Through a trust in his name, Roger Deimmer White ("Seller") purchased Maine waterfront vacation property in 1989. The seller's broker was Sharon Joyce ("Broker") of Mt. Desert Properties. After building a house on the property and using it as a vacation home for ten years, the Seller decided to sell his home and so he listed his property for sale with the Broker. After the first listing agreement expired without a sale, the Seller took the property off the market for a few months before listing the property again with the Broker, this time at a lower price. After a period of negotiations, Robert Meador ("Buyer") submitted an offer to purchase the property which was accepted by the Seller. The Seller had established the listing price for the property on his own, without consulting the Broker or anyone else.

Following the Seller's acceptance of the purchase agreement, a number of things happened. First, the Buyer contracted for an inspection of the property which revealed the presence of high levels of radon on the property. Second, the mortgage lender for the Buyer also conducted an appraisal of the property, which valued the property at $100,000 higher than the agreed-upon purchase price. Finally, a week before the scheduled closing, the Seller called the Broker and asked her to raise the price of the property by over a million dollars, based on an opinion of a friend concerning the property's value. Despite all of the above, the closing occurred at the agreed-upon sales price.

Following the closing and the payment of the agreed-upon commission to the Broker, the Seller brought a lawsuit against both the Broker and the Buyer seeking to undue (or rescind) the sale of the property based on a variety of allegations, including fraud and unjust enrichment. A magistrate judge allowed one of the allegations against the Broker to proceed to trial, but ruled against the Seller on all of the other allegations against the Broker and on all of the allegations against the Buyer. The Seller appealed.

The United States District Court, District of Maine, affirmed the rulings of the magistrate. The court first considered the fraud allegations made against the Broker. To prove fraud, the Seller would need to show that the Broker made a false representation of material fact with knowledge of the statement's falsity or reckless disregard for the truth, with the purpose of inducing the Seller to act in reliance on the statement, and where the Seller justifiably relied upon the misrepresentation and acted upon it, thereby suffering damage. The Seller claimed that the following alleged statements by the Broker constituted fraud: that home sales in the area of the Seller's property were "dead;" that there had been no home sales in the area over the past twelve months; and that the results of the radon tests would make it hard to sell the property. The court ruled that the radon test results did not constitute a misrepresentation because the statements were made after the parties had signed a purchase agreement, and thus could not have been relied upon by the Seller in deciding to sell the property. Further, the court ruled that since the Seller did not seek damages from the Broker but rather was seeking to rescind the sale of the home, the Seller had no basis to assert a fraud claim against the Broker because she was not a party to the purchase agreement between the Buyer and Seller. Thus, the court ruled in favor of the Broker on the fraud allegations.

Next, the Seller sought to recover the commission paid to the Broker under an unjust enrichment theory. The Seller claimed that the Broker had "unjustly" retained the commission. The Broker argued that because the Broker was party to a written agreement with the Seller, the Seller could not claim unjust enrichment. The court agreed with the Broker, and ruled in favor of the Broker on this allegation.

The Seller next claimed that the Broker breached her statutory duties to him under Maine law. The Seller's allegations listed the various duties that a real estate brokerage in Maine owes to sellers, which include promoting the interests of the seller and advising the seller to seek outside advice for matters outside of the licensee's expertise. The court determined that in order for the Broker to be liable under these allegations, the Seller would need to show that the Broker breached the standard of care that a real estate licensee owes to a seller in Maine. Since expert testimony is necessary to establish the standard of care, the court ruled that it would be necessary to have a trial to determine, in light of the facts presented and the expert testimony, whether the Broker violated the standard of care a real estate licensee in Maine owes to a seller. Thus, these allegations were allowed to proceed to trial.

Next, the court considered whether the Seller could claim punitive damages from the Broker. Punitive damages are only awarded when it is shown by "clear and convincing evidence that the defendants' conduct was motivated by actual ill will, or that the conduct was so outrageous that malice is implied." The court ruled that none of the conduct alleged by the Seller rose to the level allowing for the recovery of punitive damages, and thus ruled in favor of the Broker on these allegations.

Finally, the court reviewed the allegations against the Buyer. The Seller alleged that the Buyer was unjustly enriched through the Buyer's purchase of the Seller's property. Like the Broker, the Buyer stated that the existence of a contract between the Buyer and Seller eliminated the Seller's ability to claim unjust enrichment. The court agreed, and ruled in favor of the Buyer on the Seller's allegations. Thus, the court in favor of the Broker and the Buyer on all of the Seller's allegations except the breach of statutory duty allegations against the Broker, which were allowed to proceed to trial.

White v. Meador, 215 F. Supp. 2d 215 (D. Me. 2002).