Lerner v. DMB Realty – 2/13/2014

February 24, 2014

Arizona Court of Appeals Division One Holds That (1) Buyer Who Unknowingly Purchases Home Next Door To Registered Sex Offender May Pursue A Claim Of Fraud But Not A Claim For Negligent Failure To Disclose Against Seller Of Home Under A.R.S. § 32-2156(A)(3); and (2) The Duties Of A Real Estate Broker May Be Limited By Contract With The Informed Consent Of The Client.

After purchasing a home next door to a registered sex offender, the Lerners filed a lawsuit against the couple who sold them the home (the “Curriers”) and the real estate broker that represented both parties.  The defendants moved to dismiss the lawsuit, arguing that A.R.S. § 32-2156(A)(3) barred the claims.  The statute prohibits a civil suit against a seller or real estate broker for “failing to disclose” that a home is located “in the vicinity of a sex offender.” 

The superior court granted the motion, dismissing the Lerners’ claims of fraud, misrepresentation, and breach of fiduciary duty.  The Learners appealed.

The Court of Appeals affirmed in part and reversed in part.  First addressing the fraud claim, the Court held that this claim against the Curriers was not barred by A.R.S.  § 32-2156(A)(3). The statute prevents a suit against a seller for “failing to disclose” information.  The Lerners’ complaint, however, alleged that the Curriers made a false statement upon which they relied.  Affirmatively making a false statement is not equivalent to failing to disclose information.  “Unlike simple nondisclosure, a party may be liable for acts taken to conceal, mislead or otherwise deceive, even in the absence of a fiduciary, statutory, or other legal duty to disclose.”  Wells Fargo Bank v. Ariz. Laborers, Teamsters and Cement Masons Local No. 395 Pension Trust Fund, 201 Ariz. 474, 483 ¶ 19, 39 P.3d 12, 21 (2002).   

The Curriers also argued that the fraud claim was barred as a matter of law because the Lerners could not prove the alleged false statement was material and that they relied on it.  The Court held that questions about materiality and reasonable reliance are usually for the jury and not the court to decide on a motion to dismiss. 

Next addressing the negligent misrepresentation claim, the Court held that the superior court properly dismissed this claim pursuant to A.R.S.  § 32-2156(A)(3).  The Court construed the claim to assert that the Curriers negligently failed to disclose the presence of the sex offender.  Although certain questions of fact regarding this claim might have otherwise survived a motion to dismiss, the Court held that A.R.S. § 32-2156(A)(3) bars this particular claim.  The Lerners argued that the statute was unconstitutional under the anti-abrogation clause of the Arizona Constitution.  The Court, however, held that the claim is not one rooted in the common law and therefore not protected by the anti-abrogation clause. 

Finally, addressing the breach of fiduciary duty claim brought against the real estate broker, the Court found that the dual representation contract signed by the Lerners explicitly provided that the broker had no obligation to disclose that the home was located in the vicinity of a sex offender pursuant to A.R.S.  § 32-2156(A)(3).  The Court held that with the client’s informed consent and in the absence of fraud, the duties a broker owes it clients may be limited by contract.  The Lerners had entered into such a limited agreement with their broker.   The claim against the broker for breach of fiduciary duty had been properly dismissed. 

Judge Thompson concurred in part and dissented in part from the Court of Appeal’s decision.  He would have affirmed the superior court in full.  With respect to the fraud claim, Judge Thompson reasoned that the “Curriers’ alleged affirmative statement (wanting to move closer to friends) omitted the truth as to the neighbor” and that “[s]anctioning such a claim based on such an omission is contrary to the statute.”

Judge Johnsen authored the opinion, in which Judge Kessler joined; Judge Thompson concurred in part and dissented in part.