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Brokerage firm liable for actual and punitive damages for misrepresenting existence of toxic waste site adjacent to subdivision.
The Missouri Court of Appeals held that a real estate brokerage firm whose agents were aware of, but did not disclose, the presence of a toxic waste site adjacent to a residential subdivision listed for sale with the brokerage firm was liable for fraudulent misrepresentation and actual and punitive damages to the buyers of the subdivision homesites.
The facts showed that the subdivision was adjacent to toxic waste site designated by the state department of national resources. The state agency designated the waste site as a serious threat to public health.
The defendant brokerage firm knew of the adjoining waste site. When potential buyers began inquiring about the reports of a nearby waste site, the brokerage firm's managers held a meeting to discuss how to deal with the inquiries. Apparently on advice of legal counsel, the firm chose to withhold information about the site unless specifically asked about it. Then if asked, agents were instructed to provide a copy of a complicated report of the results of chemical hazard testing at the subdivision and to tell buyers that the report showed that the subdivision received a "clean bill of health."
After several buyers purchased homes in the subdivision, clean up crews arrived in protective clothing designed to prevent contact with the contaminated soil, water
and air. The clean up effort prompted the lawsuits against the brokerage firm.
The appeals court affirmed jury verdicts against the brokerage firm. The brokerage firm asserted an appeal that the agents' representations that the adjoining land was "farmland", "inaccessible", and "could not be developed" were too vague to support a finding of fraudulent misrepresentation. The appeals court distinguished prior cases where representations about future events were determined to be too abstract to support a cause of action for fraud. In this case, the court found that the agents' statements about the adjoining land, when coupled with the firm's actual knowledge of the existence of the waste site, was action calculated to deceive the buyers into a false sense of security.
This case illustrates the extreme dangers of any decision by a real estate brokerage firm to decline to disclose information about a known material fact affecting the value of habitability of real estate, even if that information pertains to property adjoining the property for sale. In affirming the jury's award of punitive damages, the appellate court specifically cited the defendants' "culpable mental state," which was established by proof that the defendants deliberately declined to advise buyers of the adjoining waste site. 921 S.W.2d 104 (Mo.App. 1996).
Please note that the comments and opinions contained herein are not to be construed to be legal advice by the author, Victor O. Schinnerer & Company, Inc., or the CNA/Schinnerer errors and omissions insurance program.
This information is made available to you for your risk management program. No action should be based on this information without appropriate advice from legal counsel and a review of currently applicable statutory and case law.
This article from the Risk Management Reporter, March 1997, was written by Robert D. Butters of the law firm of Arnstein & Lehr, which concentrates in the representation and defense of real estate brokers and agents.
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