§21.4 APPLICATION OF CPA TO REAL ESTATE TRANSACTIONS
Although Hangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co., 105 Wn.2d 778, 719 P.2d 531 (1986), casts some doubt on the precedential value of earlier CPA decisions involving real property, the holdings in such cases are likely to be useful still, as long as they are not viewed as substitutes for applying Hangman 's five-pronged test. The CPA has been applied to real property transactions in a wide range of circumstances. Moreover, there is ample precedent applying federal antitrust law to real estate transactions. See, e.g., U.S. Steel Corp. v. Fortner Enters., Inc., 429 U.S. 610, 97 S.Ct. 861, 51 L.Ed.2d 80 (1977); Fortner Enters., Inc. v. U.S. Steel Corp., 394 U.S. 495, 89 S.Ct. 1252, 22 L.Ed.2d 495 (1969), cert. denied, 406 U.S. 919 (1972); N. P. Ry. Co. v. United States, 356 U.S. 1, 78 S.Ct. 514, 1 L.Ed.2d 495 (1958); United States v. Nat'l Ass'n of Real Estate Bds., 339 U.S. 485, 70 S.Ct. 711, 94 L.Ed. 1007 (1950).
(1) Generally
RCW 19.86.170 exempts actions or transactions permitted by certain regulatory agencies, including the Real Estate Division of the Department of Licensing, from the statute's coverage. However, this exemption is extremely narrow. In re Real Estate Brokerage Antitrust Litig., 95 Wn.2d 297, 622 P.2d 1185 (1980); State v. Tacoma-Pierce County Multiple Listing Serv., 95 Wn.2d 280, 622 P.2d 1190 (1980). The Washington Supreme Court, in Dick v. Attorney General, 83 Wn.2d 684, 521 P.2d 702 (1974), emphasized that a practice is not exempt under RCW 19.86.170 merely because a business or trade is regulated generally by statute. To determine whether an exemption exists, therefore, one must first look to the specific "actions or transactions" being challenged.
As a result of a 1974 amendment to RCW 19.86.170 designed to further narrow its exemption following the Washington Supreme Court's decision in Dick, actions or transactions in most areas, including real estate, must now expressly be permitted by a state or federal regulatory agency to be exempt, rather than merely being not prohibited or not regulated. In re Real Estate Brokerage Antitrust Litig., 95 Wn.2d 297 (broker statute does not permit list backs); Steele v. State ex rel. Gorton, 85 Wn.2d 585, 537 P.2d 782 (1975); Trethewey v. Bancroft-Whitney Co., 13 Wn.App. 353, 534 P.2d 1382 (1975). Mere inaction or failure to act by a regulatory board or commission, such as the Real Estate Commission or the Department of Licensing, does not amount to such permission. In re Real Estate Brokerage Antitrust Litig., 95 Wn.2d at 301. Therefore, real estate brokers are not generally exempt from Chapter 19.86 RCW by virtue of RCW 19.86.170. Id.
Other states have followed this rationale, holding that the consumer protection laws of those jurisdictions apply to persons falling within the jurisdiction of the real estate broker's licensing requirements. See People ex rel. MacFarlane v. Alpert Corp., 660 P.2d 1295 (Colo. Ct. App. 1982); Attorney Gen. v. Diamond Mortgage Co., 414 Mich. 603, 327 N.W.2d 805 (1982). The Diamond Mortgage court ruled that the exemption section of that state's Consumer Protection Act constituted a venue, rather than a jurisdictional, provision, and that the licensing statute regulates certain activities of a real estate broker but does not exclusively regulate conduct that violates the Consumer Protection Act.
It is well established that exemptions from application of the antitrust laws are generally looked upon with disfavor and must be strictly construed. United States v. First City Nat'l Bank of Houston, 386 U.S. 361, 87 S.Ct. 1088, 18 L.Ed.2d 151 (1967); United States v. Philadelphia Nat'l Bank, 374 U.S. 321, 350-51, 83 S.Ct. 1715, 10 L.Ed.2d 915 (1963); Cal. v. Fed. Power Comm'n, 369 U.S. 482, 82 S.Ct. 901, 8 L.Ed.2d 54 (1962). This is particularly true when the exemption sought is of a type generally referred to as the "state-action exemption." Goldfarb v. Va. State Bar, 421 U.S. 773, 778, 95 S.Ct. 2004, 44 L.Ed.2d 572 (1975). In Trethewey, 13 Wn.App. at 361, the court observed that RCW 19.86.170 is the legislative equivalent of the "state action exemption" established on the federal level by the landmark decision of Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943).
| Practice Tip: | In determining whether a cause of action exists under the CPA with regard to a real property transaction, first determine whether the activity in question is specifically permitted by any of the laws or regulations enforced by the Real Estate Division or any other government agency. If no such "exempting provision" is found, apply the Hangman five-pronged test, and then look to pre-Hangman decisions, as well as post-Hangman decisions, involving real estate transactions, for substantive law concerning specific business practices. |
(2) Real estate transactions
Failure by the seller in a real estate transaction to disclose material facts may support a CPA claim even if the circumstances do not establish fraudulent concealment. Nguyen v. Doak Homes, Inc., 140 Wn.App. 726, 734, 167 P.3d 1162 (2007). A real estate agent or broker who knowingly fails to disclose a known material defect in the sale of real property violates the CPA. Svendsen v. Stock, 143 Wn.2d 546, 558, 23 P.3d 455 (2001); Ruebel v. Camano Island Realty, Inc., 140 Wn.App. 1040, No. 58533-9-I, 2007 WL 2823285 (2007) (unpublished opinion; on file with author). Similarly, misrepresentations as to quality and workmanship may also be actionable. Blough v. Shea Homes, Inc., No. 2:12-CV-01493-RSM, 2013 WL 6276450, at *7 (W.D. Wash. Dec. 4, 2013).
The CPA was unsuccessfully invoked by a real estate agent and the broker for whom he worked in an attempt to recover a real estate commission from the seller of a house and the listing broker in Roger Crane & Associates, Inc. v. Felice, 74 Wn.App. 769, 875 P.2d 705 (1994). The agent claimed he was the procuring cause of the sale of the home. Citing the Hangman test, the court held that plaintiff had failed to establish even the first element of a claim—an unfair act or practice—because he could not show that the act in question had "the capacity to deceive a substantial portion of the public." Roger Crane, 74 Wn.App. at 780 (quoting Hangman, 105 Wn.2d at 785). Crane was unable to demonstrate that the listing agreement had the capacity to deceive or that the listing broker was responsible for any confusion or tendency to deceive in the rules and regulations of the Spokane Multiple Listing Service.
The court also rejected a claim under the CPA on facts tangentially related to a real estate sale in Woodhouse v. Re/Max Northwest Realtors, 75 Wn.App. 312, 878 P.2d 464 (1994). The Woodhouses had entered into an agreement with a Re/Max broker to list their home for sale, and a second agreement to list an adjacent vacant lot for sale. Both properties were sold. However, during the process the broker had asked the Woodhouses for loans totaling $44,000, purportedly to assist a young couple needing financial assistance. 75 Wn.App. at 314. When the Woodhouses attempted to collect the loans from the broker, he admitted he did not have the funds and was filing for bankruptcy. Id. The Woodhouses sought relief from Re/Max in an attempt to hold them liable for the broker's conduct, arguing below that Re/Max was responsible under the CPA, under the Washington state Real Estate Brokers and Salespersons Act, Chapter 18.85 RCW, and for negligent supervision. Id. at 315. The trial court granted summary judgment to Re/Max. On appeal, the court held that Chapter 18.85 RCW did not give customers a private cause of action against brokers. Id. at 317. With respect to liability under the CPA, the court could not address the issue as the Woodhouses had failed to provide any analysis in support of their claim. Id. at 316.
In what the court characterized as essentially a private transaction, summary judgment in favor of a property seller and real estate brokerage was upheld at the appellate level against a buyer who sought rescission of the contract, claiming the parties were mutually mistaken in not knowing the property contained wetlands. Scott v. Petett, 63 Wn.App. 50, 816 P.2d 1229 (1991). The buyer alleged that a violation of the Act had occurred because the seller's agent had, among other things, misrepresented the property's suitability for industrial use. Id at 62. Relying on the Hangman analysis, the court held that not only had no unfair or deceptive act or practice been established, but the transaction was essentially a single private dispute between the buyer and the seller, with the brokerage playing only a very limited role. Id.
A claim under the Act relating to a real estate investment was upheld, however, in Schmidt v. Cornerstone Investments, Inc., 115 Wn.2d 148, 795 P.2d 1143 (1990). Defendant C.E. Austin wished to purchase a piece of Burien commercial property that was in bankruptcy. Appraisals of the property placed its value at between $120,000 and $150,000. After the bankruptcy court had authorized the sale for $150,000, but before the actual purchase, Austin obtained an inflated appraisal showing the value as if all required renovations were completed. Schmidt, 115 Wn.2d at 153-54. The appraisal came in at $460,000. After the purchase, the property was resold to Cornerstone, which requested a second-position deed of trust from Pacific Home Equity, Inc. An agent of Pacific approached the...
