Shapiro v. Sutherland, a decision from the Court of Appeal of California, addressed disclosure obligations of a relocation company and the prior homeowners. David and Mary Sutherland had lived in their home in Burbank, California for 15 years when Mr. Sutherland’s employer, IBM, relocated him to another state. IBM had a relationship with a relocation company, Prudential Resources Management (“PRM”), and when the Sutherlands were unable to sell their home in a satisfactory manner, PRM stepped in and paid them $349,000 for the house. The Sutherlands executed a deed in which the name of the grantee was left blank. They also signed a stautorily-mandated seller disclosure form, on which they responded “no” to the question “Are you aware of any...neighborhood noise problems or other nuisances?”
Almost a year later, PRM entered into a contract with Barry Shapiro to sell him the property for $250,000. An addendum to the contract stated that PRM is a relocation management service, that it never occupied the house, that Shapiro was buying the property “as is” and that PRM was not making any representations about the property. PRM gave Shapiro a disclosure statement, which it had modified to state that PRM had not occupied the property, and directed him to the Sutherlands’ disclosure statement. PRM filled in Shapiro’s name on the deed from the Sutherlands and the transaction closed.
Shortly after moving into the home, Shapiro claimed he became aware of “loud noise and disturbance problems” caused by the family living next door. He filed a lawsuit against the Sutherlands and PRM, claiming, among other things, fraudulent misrepresentation, fraudulent concealment and negligent misrepresentation. He wanted the contract rescinded and restitution.
Both the Sutherlands and PRM filed motions for summary judgment; the Sutherlands on the grounds that they were “remote sellers and lacked privity with the plaintiff,” and PRM on the grounds that it had not made a misrepresentation and was not aware of the information which Shapiro claimed should have been disclosed. The lower court granted both motions, ruling for the Sutherlands and PRM.
On appeal, Shapiro argued that the Sutherlands had common law and statutory duties to disclose the noise problems. He argued that PRM had a statutory duty to reasonably investigate the facts, which he claimed it breached by simply passing along the Sutherlands’ false disclosure. In California, “where the seller knows of facts materially affecting the value or desirability of the property...and also knows that such facts are not known to, or within the reach of the diligent attention and observation of the buyer, the seller is under a duty to disclose them to the buyer.”
Here, there was evidence that the neighbor family had been “a source of disturbing noises and commotion” over a period of years, with the Sutherlands having called the police a number of times. The court explained that the issue of whether the noise rose to the level of a material fact - a “neighborhood noise problem or other nuisance” - is a matter to be determined by a trial court, and the case was remanded for further proceedings on this issue. If the noise did constitute a material fact, then the Sutherlands had a common law and statutory duty to disclose it. The court also explained that one cannot escape liability if one makes a representation to one person, when one expects that it will be repeated and acted upon by a third party. In this case, even though the Sutherlands did not have direct contractual privity with Shapiro, they knew that PRM would provide their disclosure statement to the ultimate purchaser.
As far as PRM, it had no knowledge of the noise problems, and the court found that it did not have a duty to investigate. The court stated that “whatever burden Prudential had ... was satisfied by its expressed disclaimer (to which plaintiff made no objection), plaintiff’s assumption of the investigation burden and the receipt, review and transmittal of the Sutherlands’ disclosure statement.”
Shapiro v. Sutherland, 64 Cal.App.4th 1534, 76 Cal.Rptr.2d 101 (1998).