Court of Appeals Affirms Dismissal of Statutory and Common Law Claims Arising from Real Estate Transaction

On February 12, 2015, the District of Columbia Court of Appeals decided Sundberg v. TTR Realty, LLC, No. 14-CV-374, slip op. (D.C. Feb. 12, 2015), in which it considered whether the trial court properly dismissed claims for violations of the Consumer Protection Procedures Act (“CPPA”), fraudulent and negligent misrepresentation, and breach of the covenant of good faith and fair dealing. Sundberg, slip op. at 9-23.

By way of background, this case arose from alleged misrepresentations and omissions involving the sale of a residential real property. Id. at 2-3. The plaintiffs purchased the property from an individual who was assisted with the transaction by a realty company and a realtor. Id. at 3. The plaintiffs alleged that, after signing a sales contract for the property, but before title to the property was transferred to them, the defendants “intentionally provided false information and withheld material information from [them] about a construction project that was scheduled to occur at . . . a building across the street from their [property].” Id. They further alleged that the project “diminished the value of their property” and that “they would not have purchased the property, and instead would have breached the [sales] contract . . . had they been truthfully informed of the impending construction project.” Id. The plaintiffs brought suit against the individual who sold the property, the realty company, and the realtor (collectively, the “defendants”) alleging that their misrepresentations or omissions violated the CPPA, constituted the common law torts of fraudulent and negligent misrepresentation, and breached the covenant of good faith and fair dealing. Id. at 3-4. The trial court dismissed all of the plaintiffs’ claims for failure to state a claim upon which relief may be granted, except the CPPA claims against the realty company and the realtor. Id. at 4-7. The plaintiffs filed a motion requesting the trial court to certify the case for an immediate appeal, which the trial court granted. Id. at 7 & n.2.

The Court of Appeals affirmed the trial court’s decisions. It recognized, with respect to the CPPA claim against the defendant-individual, that “the CPPA does not cover all consumer transaction, and instead only covers trade practices arising out of consumer-merchant relationships.” Id. at 10 (quotation marks omitted). The plaintiffs conceded that the defendant-individual “was not a ‘merchant’ under the CPPA because he was not in the business of selling residential properties,” but argued that his “actions were covered by the CPPA because he conspired with and aided and abetted” the defendant-realty company and the defendant-realtor “who indisputably were merchants.” Id. The Court of Appeals rejected the plaintiffs’ argument because, inter alia, “there is no provision in the [CPPA] that either explicitly or implicitly authorizes aider and abettor liability or civil conspiracy liability to be imposed upon a non-merchant.” Id. at 12.

The Court of Appeals further concluded that the plaintiffs failed to establish tort claims for fraudulent or negligent misrepresentation because they could not show that they detrimentally relied on the defendants’ alleged misrepresentations or omissions. Id. at 13-18. The plaintiffs did not allege that they detrimentally relied on any misrepresentations or omissions occurring prior to the time that they signed the sales contract. Id. at 15. Instead, they alleged that they detrimentally relied on misrepresentations or omissions occurring after they signed the contract “because they would not have purchased the property at closing had they been provided with truthful information about the impending construction . . ., and instead would have breached the contract and then been subject to the breach of contract remedies set forth in the sales contract.” Id. The Court of Appeals rejected the plaintiffs’ argument because the argument presumed that the plaintiffs had a “right” to breach the contract. Id. at 15-18. It stated that a party to a contract does not have a common law “right” to breach the contract, and the sales contract in this case did not contain any provision that could be construed as conferring a “right” to breach the contract. Id.

The Court of Appeals also concluded that the plaintiffs failed to establish a claim for breach of the covenant of good faith and fair dealing. Id. at 19-23. It stated that the plaintiffs failed to state a claim because they did not show that the defendants evaded the spirit of the contract, purposefully failed to perform the contract, or interfered with the plaintiffs’ ability to perform the contract. Id. at 20-22. However, it clarified that its conclusion “does not mean . . . that a seller or realtor can never violate the covenant of good faith or fair dealing based on misrepresentations or omissions that occur after the sales contract is signed but before the parties transfer title to the property.” Id. at 22. “To the contrary, had [the defendants] made fraudulent or negligent misrepresentations or omissions concerning the structural conditions of the property . . . , or concerning some other condition explicitly set forth in the sales contract, such misrepresentations or omissions may have given rise to a cause of action for violating the covenant of good faith and fair dealing, even if the misrepresentations or omissions occurred in the time period between the signing of the contract and the transfer of title.” Id.

For general background about tort claims for fraudulent or negligent misrepresentation in the District of Columbia, see Tort Claims and Defenses in the District of Columbia §§ 23-24 (2014).