Tuesday, December 3, 2013

Mandatory Participation

Knutsen v. Dion, 2013 VT 106

Today’s Ask the SCOV™ letter is inspired by a home-purchase transaction.

Apprehensive Association writes:

Dear SCOV:

If we provide a form for our members’ use, can we be held liable for consumer fraud when our members modify and use that form in a transaction?

Dear Apprehensive:


(At least in this case.)
                                                                        —The SCOV

In reality, though, it’s hard to know what to make of this case.  Essentially, it’s a consumer-fraud case against a non-party (to the underlying transaction), who provided a form to its membership that was eventually turned into the parties’ purchase-and-sale agreement.

Since that description is confusing, let’s try to give it a little context.  The Vermont Association of Realtors, Inc. (VAR) provides a pre-printed, form purchase and sale contract.  Most, if not all, real-estate brokers’ use this form, and it is available on the VAR’s website. The contract has a limitation of liability to the broker’s commission or $5,000, whichever is greater.  The form contract also requires pre-filing mediation. 

In this case, Plaintiff’s broker used this form to prepare the purchase-and-sale agreement for plaintiff’s home.

But, Plaintiff’s home, it turns out, had an inadequately disclosed water-infiltration problem.  So, plaintiff filed suit against a number of parties.  She initially settled with some, and some got booted from the trial court because she filed suit without pre-filing mediation.  Undeterred, plaintiff re-filed, adding VAR as a defendant (along with some others).  The claim against VAR was based on the limited-liability and pre-filing-mediation clauses, which plaintiff alleged were unfair and deceptive. 

Both plaintiff and VAR moved for summary judgment.  VAR won.  The trial court opined: “VAR’s sole connection to this case—drafting the template clauses that [plaintiff] and her buyer’s broker eventually used—cannot support a consumer fraud claim.”  Plaintiff appealed, and her surviving claims were stayed while the SCOV sorted this one out.

To sort this one out, the SCOV applies the same standard as the trial court, which regular readers might recall as the “so what?” standard.  Summary judgment is appropriate only when there is no genuine question of material fact and the party is entitled to judgment as a matter of law.  Evidence is viewed in the light most favorable to the nonmoving party.  There’s a bit more of a discussion here on the standard.  

The only issue on appeal is plaintiff’s consumer-fraud claim against the VAR.  Plaintiff essentially argues that there need not be any actual damage for a consumer-fraud violation, and she takes issue with the “trial court’s observation that plaintiff was not harmed because she had not been deceived by the challenged provisions and because her damages could be satisfied even under the limitation of liability provision.”  Plaintiff argues that the provisions are a “per se” violation and no damages need be shown.   

The SCOV begins by assessing VAR’s liability.  The SCOV notes VAR was not involved in the home-purchase transaction, nor with the brokers’ actions in completing the contract. “VAR’s sole involvement was to post on its website a model purchase and sales contract that could be used by member real estate brokers and was used by plaintiff’s real estate broker.”

Vermont’s Consumer Fraud Act (CFA) prohibits: “[u]nfair methods of competition in commerce, and unfair or deceptive acts or practices in commerce.”  It provides the attorney general or authorized state’s attorney with enforcement powers.  It also provides consumers who are injured or damaged with a private remedy against a “seller, solicitor or other violator.”

The SCOV first considers whether the VAR can be considered an “other violator” under the act.  The SCOV notes that it has previously considered, and rejected, derivative liability under the CFA “absent direct participation in the unfair or deceptive acts, direct aid to the actor, or a principal/agent relationship.”  With this backdrop, the SCOV notes that VAR’s lack of direct involvement in the transaction itself creates a situation where the attorney general would not be able to sustain an action against VAR. 

As the SCOV sees it, plaintiff’s construct envisions a “private attorney general” who can bring a claim whether or not there are actual damages.  The SCOV notes that this would effectively increase the scope of private causes of action beyond the attorney general’s authority.  This, the SCOV posits, is not the intent of the CFA.  Though the remedial scope of the CFA is broad, it is not without limitations.

Here, the VAR’s only involvement was providing a form.  The SCOV notes that if the provisions’ language is deceptive and plaintiff can show damages or injury, then she has a remedy against her broker under the CFA and can otherwise contest the validity of the provisions against any broker that relies on them. 

The SCOV writes: “We can find no case law holding the operator of a web site liable because that site contains forms with contractual provisions that, if used by third parties at their election, may cause violations of the CFA.”  The SCOV also notes that other jurisdictions’ decisions are generally consistent with the some-direct-involvement the SCOV has articulated previously and in this case. 

The SCOV concludes that the trial court properly granted summary judgment because VAR’s only involvement was providing a form for third-party use. 

This is a damned good thing because if plaintiff prevailed, it would probably shut down Internet.  And then where would we watch hilarious videos of dogs talking about food or how to avoid “the doghouse” during the holidays? 

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