A Wisconsin court has evaluated a counterclaim brought by a property owner against a homeowners’ association alleging that the real estate professional who represented the association had provided misleading information to him.
Brooks Letourneau (“Owner”) purchased a vacant lot in Voyager Village in 1999. The recorded covenants for the property required that the Owner pay an annual assessment to the Voyager Village P.O.A. (“Association”). In 2005, the Owner received a mailing advertising that Association members could buy up to four contiguous lots but only pay an assessment for one of the lots. The advertisement was prepared by “Brian Langdon/Northwoods Properties” (“Broker”), who was the Association’s real estate broker and also the Association’s president. A subsequent advertisement prepared by the Broker suggested that owners could obtain up to a 40% discount on the assessment for purchasing an adjoining lot.
The Owner met with one of the Broker’s salespeople to inquire about purchasing additional lots. While there was conflicting testimony about what was discussed during the meeting, the Owner made an offer to purchase three additional lots. The Owner’s offer did not reference the future assessments for the lots that he was seeking to purchase.
Following his purchase, the Owner received a notice from the Association stating that he was responsible for four separate assessments. When he refused to pay the additional assessments, the Association brought a lawsuit for the unpaid amount. The Owner filed a counterclaim against the Association, arguing his purchase of the additional lots was the result of a misrepresentation and constituted a breach of contract. The trial court dismissed the counterclaim, and the Owner appealed.
The Court of Appeals of Wisconsin affirmed the trial court. The court first looked at the misrepresentation claims against the Association. The trial court had ruled that the Owner’s misrepresentation allegations constituted tort claims which are barred by the economic loss doctrine. This doctrine prohibits tort claims arising from a contract between the parties with limited exceptions. The Owner argued that the “fraud in the inducement” exception to this rule should allow his claims to proceed. For this exception to apply, the alleged misrepresentation must be over something extraneous to the transaction.
The court ruled that the additional assessments were central to the agreement between the parties and therefore the economic loss doctrine barred the Owner’s misrepresentation claims. The Owner pursued the additional lots because he believed that he would not have to pay additional assessments for those lots, but he had failed to include anything about his understanding in the contract. Additionally, the covenants requiring the Owner to pay the additional assessments were part of the purchase contract for the additional lots and therefore intertwined with his purchase of the additional lots. The court ruled that his misrepresentation claims were barred by the economic loss doctrine.
Next, the Owner argued that the Association was liable for the alleged misrepresentations of the Broker. In Wisconsin, a state statute specifically establishes that a client is not liable for any misrepresentations made by his/her real estate representative, unless the client knows or should have known about the misrepresentation. The Owner argued that the Association should have known about the Broker’s alleged misrepresentation, since the mailings were sent to all members of the Association and the Broker was the Association’s president. The trial court had ruled that the Broker was an independent contractor, and therefore the Association was not vicariously liable for the actions of the Broker. The court found that the Owner had failed to articulate a cognizable legal argument and therefore affirmed the trial court’s ruling in favor of the Association.
Finally, the court evaluated the Owner’s breach of contract arguments. The Owner argued that the Association had failed to combine the four lots into one assessment. However, the basis for the Owner’s argument were statements allegedly made by the Broker and not contained within the purchase contract. If a contract is unambiguous in its terms, courts will not allow outside evidence to modify the terms of the contract. Since the contract was not ambiguous and even had language specifically barring the use of outside evidence to modify the contract, the court affirmed the lower court’s judgment in favor of the Association and dismissed the Owner’s counterclaim.
Voyager Vill. P.O.A. v. Letourneau, 2012 WI App 73, 342 Wis. 2d 250, 816 N.W.2d 351 (Wis. Ct. App. 2012).