Buyers 35% at Fault for Not Doing Environmental Due Diligence
A Michigan Court of Appeals affirmed a jury’s decision that buyers were 35% at fault for their own damages for failing to obtain an environmental inspection before their purchase even though the jury also found that the seller’s real estate agents negligently misrepresented that the property had been remediated.
In Alfieri v. Bertorelli, Case No. 07-056919-CH (Mich. Ct. App. Oct. 18, 2011), the plaintiffs bought a condominium unit in what had been an old factory. The factory had been contaminated with trichloroethylene (“TCE”). When the factory was converted to condominiums, the owner installed a vapor barrier, but never properly decontaminated the site. The buyers did not conduct any environmental due diligence claiming instead that they believed the site had been cleaned up, in part, on the basis of a newspaper article and a sales brochure prepared by the real estate agents, both of which indicated that the site had been decontaminated. According to the decision, the site turned out to be seriously contaminated.
The buyers sued the real estate agents on theories of silent fraud and negligent misrepresentation. The agents filed motions before trial, after the buyer’s case in chief, and after the trial arguing that they owed no duty to the buyers, that there was insufficient evidence that the buyers relied on their sales brochure, and any reliance was unreasonable because the agents did not make any misrepresentations. The jury found that the agents engaged in negligent misrepresentation. The buyers challenged the trial court’s instruction to the jury that it could apportion negligence to the buyers. The jury apportioned 35% of the buyers’ damages to the buyers. The Michigan Court of Appeals, applying Michigan law, denied all of the motions and affirmed the jury’s verdict.
As to the agents’ motions, the Court of Appeals held that a duty may be imposed on a seller’s agent to disclose newly-acquired information that the agent recognizes rendered a prior affirmative statement by the agent untrue or misleading. Here, the evidence showed that plaintiffs asked the seller’s agent about the condition of the property, the agents represented the property as decontaminated, and the Michigan Department of Environmental Quality advised the agents that the sales brochure was inaccurate and misleading. Once the agents learned that their prior statements were wrong and misleading, they had a duty to tell the buyers the truth.
The agents also argued that there could not be any fraud if the allegedly-defrauded party had the means to determine the truth, namely by conducting their own environmental due diligence. The Court of Appeals agreed with this as a general proposition, but disagreed with applying that principle in this case. The Court of Appeals held:
“Viewing the evidence and all reasonable inferences . . . most favorably to plaintiffs, plaintiffs presented sufficient evidence to establish that they reasonably relied on the sales brochure where numerous sources—including [the agents], the local newspaper, and public “buzz”— indicated that the site had been cleaned up. No further inquiry was necessary. The trial court properly denied . . . defendants’ motions.
The Court of Appeals also held that the trial court properly instructed the jury that it could apportion negligence or fault to the buyers. The Court of Appeals wrote:
“Given the [buyers’] decision not to obtain an environmental inspection and execution of a purchase agreement specifically stating that [the agents] had no knowledge of the property’s environmental condition, we find that, when the evidence is viewed most favorably to defendants, the jury could have found some comparative fault on [buyers] with respect to the negligent misrepresentation claim.”
This case represents another example of the ultimate cost of deciding not to conduct proper environmental due diligence and the need to speak with your environmental lawyer before signing a contract.