McTexLaw McPherson and Associates Real Estate Asset Protection Law Firm Attorney

SPECIAL ALERT

YOU CAN BE LIABLE FOR PASSING ALONG FALSE INFORMATION EVEN IF YOU DON’T KNOW IT’S FALSE

Don’t focus on the particular facts of this case and decide “that’s not me.” Its holding applies to everyone who passes along information in the business arena. That’s every last one of us to varying degrees. The Texas Supremes have reminded us that we cannot do so without being held liable for the information we pass on.

D. B. Interests, Inc., a Texas corporation doing business as “The Homemaker”, hired Barry Keyser as a sales agent, to sell some tracts of real property in Oakbrook, a new subdivision located in Pearland, Brazoria County, Texas. These lots were oversized, and as such carried a premium price. The Brazoria County Drainage District held a drainage easement on the back twenty feet of each lot. All prospective purchasers knew about this drainage easement, but were told by Keyser that the lots could be fenced to the perimeter of the lot, which included the land in the drainage easement. And apparently that’s what Homemaker told Keyser.

In 1994, after the homeowners built their houses and fences, Brazoria County Drainage District sent letters demanding that all fences in the drainage easement area be removed immediately, at the owner’s expense. Not surprisingly, the owners were irate. So, they sued Homemaker, its sole shareholder, Owner Dennis Bailey, and Sales Agent Keyser.

The Homemaker corporation was dismissed due to a technicality. Owner Bailey was dismissed because there was no evidence he told the owners anything. He apparently always used Sales Agent Keyser as his intermediary, and it turned out to be a very wise course of action on his part. This left poor Sales Agent Keyser, and he got pounded hard. The homeowners sought to recover damages for the fences, and the landscaping repairs, and a return of the excess charges paid for the lots. Basically, they wanted a radical re-write of their sales contracts, most importantly with respect to the purchase price. At trial, the homeowners won a judgment against Sales Agent Keyser.

So he appealed, and argued “those weren’t my statements about that easment, they were Owner Bailey’s statements, and/or Homemaker’s statements. I was just repeating them in the normal course of my employment.” The Court of Appeals bought it, but the Texas Supremes put it simply: the Deceptive Trade Practices Act (DTPA) says a consumer may bring a DTPA lawsuit against any person whose false, misleading, or deceptive acts, or other practices listed in the DTPA, are the producing cause of the consumer’s harm. Since Sales Agent Keyser is a “person,” and since he said it, he can be held liable.

Then Sales Agent Keyser argued “it doesn’t matter if they were false, because I didn’t know they were false, and the landowners must prove I knew they were false in order for me to be liable.” And thus said the Texas Supremes:

The DTPA requires that the consumer show that the misrepresentation was false and that the false representation was the producing cause of the consumer’s damages........A consumer is not required to prove intent to make a misrepresentation to recover under the DTPA......Keyser may be held liable under the DTPA even if he did not know that his representations were false or even if he did not intend to deceive anyone.

The Texas Supremes noted that the DTPA didn’t necessarily leave the sales agent to stand alone. It has indemnification provisions allowing the agent to seek monies from any responsible party, such as Owner Bailey or the Homemaker corporation. The problem here is that the homeowners get a judgment against Sales Agent Keyser. Keyser then gets a judgment against Owner Bailey and/or the Homemaker corporation. All parties have to collect their judgments independently.

And if Keyser doesn’t get a judgment against Owner Bailey and/or the Homemaker corporation, or if he does but does not or cannot collect it, and if Keyser can’t satisfy the homeowner’s judgment by himself (which is most likely), then the homeowners are up the creek without a paddle also because they couldn’t get a DTPA judgment against Mr. Deep Pockets owner/corporation. The only person this rule even arguably helps seems to be the owner/employer corporation who doesn’t communicate directly with consumers.

As indicated earlier, the Texas Attorney General weighed in on this controversy. First up in its brief, it characterized the problems created by the court of appeals’ ruling in favor of Sales Agent Keyser:

In apparent fear that countless “innocent” sales clerks will be sued simply for following the instructions of their employers, the court of appeals held that a person who is acting within the course and scope of his employment cannot be held liable for his own misrepresentations, unless he acted knowingly or intentionally.

Then the AG’s office explained their reasoning against that interpretation:

The threat of being held individually liable and fined for making deceptive representations is a deterrent to engaging in deceptive conduct..... An employee who cannot be held personally liable has little incentive to investigate whether a statement is true...The court of appeals’ decision will also encourage unscrupulous business owners to divest themselves of any indicia of responsibility. Rather than appointing themselves officers and directors, they will make relatives, friends or other persons who have no actual involvement with the corporation the officers and directors. By doing so, they will insulate everyone from personal liability–the officers and directors because they have not personally participated in the unlawful conduct, and the sales persons because they are merely employees or agents..... The employee should not be protected at the cost of the true innocent–the consumer. Even if the employee does not have actual knowledge that his representations are false, he is in a better position to ascertain the truth of the representation than the consumer.

And so the moral is, for sales agents or active owners, either don’t say anything or verify everything you say. Better yet, put it all in writing. For owners, it’s don’t communicate directly with consumers, always go through an intermediary. Sound familiar? It does have a “Godfather”-esque quality to it.

While I don’t disagree with the general analysis of the DTPA liability, here’s the one problem I have with this case, which is a technical real estate issue. Typically, by operation of law an easement doesn’t grant the right to place any improvement in the easement premises, unless the written easement document expressly includes that right. Were I buying one of these lots, knowing that, I would obtain a copy of the actual easement (which was most likely provided to the purchasers by the title company anyway), that would have confirmed those rights (or lack thereof) to me. In any event, the easement was recorded in the public record, which is constructive notice to all people.

Why should a seller or its agent be liable because the buyer was just too lazy to read what’s in the chain of title to the land being purchased? I’m not sure the Texas Supremes took this into consideration.

Going further, I would bet the contract of sale included language that there were no representations other than those in writing, etc., and that the written documents contained the entire agreement of the parties. I also would bet that within that contract there was language that the buyer bought the land “as is” and subject to all recorded matters affecting title, which necessarily would include the Brazoria County Drainage District’s easement. In short, I think the conclusion here could have been the same as the Texas Supremes, that the DTPA applies to all, even to agents acting in the course of their employment who do not know the information they are passing on is false, with the added caveat that, notwithstanding the innocent misrepresentation of the agent, that misrepresentation didn’t relieve the buyer of its obligation to review the title to their land independently and come to their own conclusions. The agent’s statements in this case were irrelevant for that reason. The truth was not hidden from the buyers, and the buyers shouldn’t have been let off the hook for not investigating the public record of title to their property.

However I am not, nor will I ever be, a Texas Supreme, and so this is the law of the land. Buyer beware? Not anymore. Seller beware. Document everything, say nothing. And when all else fails, only communicate through a lawyer. It may not be the most efficient or cost effective, but it may just be the safest.

Miller v. Keyser, Case No. 01-0541, Texas Supreme Court, decided November 5, 2002.