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Published: November 23, 2009
Author: Timothy Barber
Last year, the Wisconsin Supreme Court decided in Below v. Norton, [1] that under the economic loss doctrine, homebuyers cannot sue sellers in tort for misrepresentations relating to the sale of the home. The decision (which has now been abrogated by Wis. Stat. § 895.10) did not address whether its holding extended to suing real estate brokers who commit misrepresentations during the course of a home sale. However, the Wisconsin Court of Appeals has now answered that question. In Shister v. Bipin, [2] the Court of Appeals held that the economic loss doctrine does not bar home purchasers from suing the seller’s real estate broker in tort for misrepresentations committed in connection with the sale of a home.
Lawsuit Results After Sellers’ Real Estate Broker Fails to Disclose Negative Information About the Property
In the course of selling their home in Mequon, Wisconsin, Bipin and Ranjan Patel told their real estate broker that they had remodeled their basement without the necessary permits and that as a result, their home was now subject to a tax re-assessment. The broker told the Patels that they should not worry because “we know how to handle this kind of situation.” The Patels sold their home to Alexander Shister for $732,500 in June 2005. While the parties were negotiating, the Patels gave Shister a real estate condition report in which they stated that they had no knowledge of any remodeling done without the requisite permits and that they were not aware of any pending property tax re-assessment.
When the Patels’ home was put up for sale, the Mequon City assessor noticed that the home was listed as having a finished basement while the assessment information indicated that the basement was unfinished. The assessor contacted the Patels in September 2004 and met with their broker the next month to discuss the discrepancy. As a result, the Patels home was re-assessed in April, 2005, before it was sold to Shister, and its accessed value increased by nearly $60,000. After he purchased the home, Shister became aware of the re-assessment, which resulted in $4,408.34 in increased property taxes. He also was forced to pay $2,143.20 to obtain retroactive permits for the basements.
Shister sued both the Patels and their real estate broker for intentional and strict liability misrepresentations as well a violation of the broker’s professional duties. The circuit court dismissed Shister’s claims against the Patels’ broker based on the economic loss doctrine. Shister appealed and the Wisconsin Court of Appeals reversed.
The Economic Loss Doctrine Does Not Shield Real Estate Brokers From Tort Liability
The Court of Appeals ruled that the holding of Below v. Norton did not extend to real estate brokers and agreed with Shister that the economic loss doctrine “does not address or limit the liability of third party professionals who are involved in the real estate transaction, and whose duties and responsibilities to the plaintiff do not arise out of contract.” The Court of Appeals ruled that under the “bright line rule” set forth in earlier cases, the economic doctrine does not apply to tortious conduct when providing services. Also, the Court of Appeals stated that the economic loss doctrine did not apply because Shister did not have a contract with the Patel’s real estate broker.
Real Estate Brokers Owe an Independent Duty to All Parties to Act Honestly and Disclose Negative Information
The Court of Appeals stated that well-settled Wisconsin law provides that real estate brokers can be sued for making negligent or intentional misrepresentations, just as any other type of agent can be sued for tortious conduct. The Court of Appeals noted that Wis. ch. 452 imposes independent duties upon real estate brokers to all parties in a real estate transaction and requires them to act “honestly, fairly and with reasonable skill and care” and to disclose “all material adverse facts.”
Effect of the Decision
The decision in Shister is consistent with Supreme Court case law governing the economic loss doctrine and duties of real estate brokers. As such, it does not significantly expand liability for real estate brokers. However, the portion of the decision that relies on the absence of a contract between the plaintiff and the real estate broker seemingly conflicts with the Wisconsin Supreme Court’s decision in Linden v. Cascade Stone Co., Inc. [3] There, the Wisconsin Supreme Court ruled that the economic loss doctrine prevented a homeowner from suing a subcontractor despite the fact that there was no direct contract between the two parties.
Finally, shortly after Shister was released, a different panel of the Court of Appeals reached an opposite result and held that the economic loss doctrine does apply to prevent a purchaser from suing the seller’s real estate agent in tort despite the lack of a contractual relationship between the purchaser and the seller’s agent and despite the fact that the suit arose from the provision of brokerage services. See Thompson & Sons, Inc. v. Van Gorden. [4] However, Thompon & Sons is an unpublished per curiam opinion and, as such, cannot be cited—even for persuasive authority—under Wisconsin’s new citation rules. Because Shister is not a per curiam decision and because it is recommended for publication, Shister remains the governing authority on this issue of law.
Timothy M. Barber is an attorney at the Madison, Wisconsin law firm Axley Brynelson, LLP. He focuses primarily on appellate practice, commercial litigation and personal injury law. For more information bicycle insurance, please contact Mr. Barber at 608.283.6740 or tbarber@axley.com.
[1] 2008 WI 77, 310 Wis. 2d 713, 751 N.W.2d 351
[2] No. 2008AP2803, slip op. (Wis. Ct. App. Oct. 28, 2009), rec’d for publication
[3] 2005 WI 113, 283 Wis. 2d 606, 699 N.W.2d 189
[4] No 2008AP2428, unpublished per curiam slip op. (Wis. Ct. App., Nov. 3. 2009)
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