The sellers of a former rental property, and the real estate agent who sold it to a family moving from out-of-state, may now regret their failure to disclose the fact that the house had been used for methamphetamine production. A Washington court penalized the parties for their omission, but how did an appellate court interpret the ruling? Read on.
A real estate agent and two sellers who decided not to disclose to a couple of prospective buyers that a former rental house had been used to manufacture methamphetamine may have saved themselves a lot of time and trouble if they had been forthright in the first place.
After a trial court ruled against them on multiple charges including negligence and emotional distress, the defendants appealed. But on April 1, the Court of Appeals of Washington, Division 2 affirmed the lower court’s ruling on all but one of its decisions.
Defendants Robert and Charmaine Fritz rented out their Cowlitz County, Wash. home in 2001, and selected LAM Management Inc. to serve as the property manager. Defendant Lance Miller and Jayson Brudvik, licensed real estate agents with LC Realty, were co-owners and operators of LAM.
The drug discovery
The Cowlitz-Wahkiakum Joint Narcotics Task Force on Jan. 30, 2004 executed a search warrant at the Fritzes’ property and discovered a marijuana growing operation and materials for methamphetamine manufacturing. Two men who had been living there were charged with manufacturing the drugs. The drug bust was featured in an article in the Longview Daily News on Feb. 1, 2004.
After hearing about police activity on the property, Charmaine Fritz contacted several law enforcement agencies and, after speaking with a member of the task force, found out about the arrests and confiscated drugs and drug paraphernalia at the residence. Miller also allegedly contacted law enforcement to learn about situation. LAM responded with eviction proceedings for the tenants, who left the rental home in February or March 2004. The property management company rented the facility out for “a short period of time” but also evicted those tenants in May 2004.
After the Fritzes decided to sell the house, they cleaned it, painted it and replaced floor coverings. A neighbor across the street spoke with Charmaine Fritz, who allegedly made a comment that she and her husband were lucky that the methamphetamine production had only occurred on the back porch, not the interior of the house.
Keeping the contamination quiet
Brudvik showed Eddie and Eva Bloor, who were moving to Washington from Missouri, the Fritzes’ house. Miller served as the agent for both the Bloors and the Fritzes in the transaction. The Bloors made an offer, which the Fritzes accepted. The deal closed in August 2004. As part of the sale, Robert Fritz allegedly filled out a seller’s disclosure statement, but did not disclose that law enforcement had uncovered a marijuana grow operation or a methamphetamine lab on the property.
In September 2004, the Bloors son heard from someone in the community that their home was referred to as the “drug house.” After doing a search online, the Bloors located the local newspaper article about the drug bust. A sergeant with the task force confirmed Eva Bloor’s inquiries about the findings. When Eva Bloor checked with the local health department, a worker there confirmed that the meth lab discovery had not been disclosed to the department, and that it would investigate what measures would need to be taken.
The health department advised the Bloors on Oct. 22, 2004 that the property was contaminated by the methamphetamine production and was not fit for occupancy. They were ordered to leave the residence and not remove any of their personal belongings, due to the risk of cross-contamination. The health department issued an order banning the Bloors from re-entering the house, and found them responsible for the costs associated with remediating the property.
The Bloors stayed with relatives before eventually moving to Spokane. All of their bedding, clothes, furniture and other personal items had to be replaced. The couple sued the Fritzes, Miller, LAM, LC Realty and Cowlitz County. A trial court ruled in favor of the Bloors, awarding them with damages jointly and severally against the defendants for the claims of emotional distress, loss of personal property and income, loss of use of the property and damage to the couple’s credit.
Pay up, and cancel the contract
The court awarded the Bloors $10,000 for punitive damages plus $13,907 for attorney fees against Miller and LC Realty under the Consumer Protection Act. The contract between the Bloors and the Fritzes was ordered to be rescinded, and the sellers were also ordered to pay the buyers’ lender the cost of the purchase price with accrued interest, late fees and foreclosure fees, and the property was to be returned to the Fritzes. Also against the Fritzes, the court gave an award of $18,975 in expenses and, applying a 1.2 multiplier, an award of $125,335 in attorney fees against Miller, the Fritzes and LC Realty. The defendants appealed.
Miller claimed there was a lack of evidence to support a finding that he knew about the meth manufacturing at the house. He testified that when he asked an officer if meth manufacturing had taken place at the residence, the officer said it had not. Conversely, officers who had participated in the search testified that they would not have told someone there was no meth cooking if they had found materials used in a meth lab.
Also, Miller claimed there wasn’t evidence that he knew the Fritzes didn’t disclose to the buyers that the property had been used to manufacture methamphetamine. This argument was quickly dissolved, when the appellate court noted that Miller had testified that he saw Robert Fritz check “no” on the disclosure form next to the question that asked about illegal drug manufacturing at the residence.
In his last attempt to refute the knowledge of meth manufacturing claim, Miller argued that the court shouldn’t have found that his alleged failure to disclose the knowledge of illegal drug production at the home damaged the Bloors by misleading them and deprived them of information they needed to know the property’s true condition. Miller backed up this argument by pointing to the fact that the information about the drug search and subsequent arrests were readily available in the public record.
But again, Miller’s assertions were lacking. The appellate court noted that Eva Bloor had testified that if the Fritzes had told her about the meth lab, she may have changed her mind about buying the house. Furthermore, once the Bloors heard about the drug bust at the property, they investigated the home’s history. The evidence supported the trial court’s ruling, the appellate court said.
The Fritzes also argued against the rescission and damages claims against them. They claimed that rescission was not appropriate because the cost to cure the defect was slight in comparison with the home’s purchase price. The appellate court agreed with the trial court, that rescinding the contract put the buyers as close as possible to the position they would have been in if they had never bought the house.
Differing on the damages award
The appellate court did differ with the trial court’s judgment on one point, however. It agreed that the sellers should pay the $149,000 purchase price, but the Bloors should not have received interest on the sale price because they “would not have had the funds to invest if the purchase had not gone through.” The sellers instead should pay the $149,000 debt with the unpaid interest that was actually accrued, plus penalties and foreclosure costs that the lender assessed against the Bloors.
“After the Fritzes demonstrate that they have paid all these obligations, they are entitled to an order quieting title to the property,” the appellate court said.
The Fritzes tried to claim that the Bloors had damaged their credit through their own “history of poor financial management,” rather than being the result of foreclosure proceedings, loss of income and loss of property that allegedly stemmed from the meth contamination discovery. The evidence presented in court indicated the couple’s credit scores had dropped by about 100 points from July 2004 to April 2006, and since Ed Bloor was unable to use tools that he had stored at the Cowlitz County home for his siding business due to the meth contamination, he had suffered a loss of income. Finding that the Fritzes showed no evidence to rebut the Bloors’ financial witness’ testimony, the appellate court ruled that the trial court’s damages judgment was appropriate.
The litigation expenses the Bloors incurred were next to be scrutinized by the sellers. They contended that the language in the sale and purchase agreement they had with the Bloors entitled the buyers only to statutory costs as described in state law R.C.W. 4.84.010. The agreement noted that the prevailing party if a suit were to occur would be entitled to “reasonable attorney’s fees and expenses.” The appellate court said its duty in interpreting a contract was to determine the parties’ intent. Since the sellers didn’t assign error to the trial court’s judgment that the parties to the agreement intended the term “expenses” to include costs other than those that the state statute defines, the appellate court found the ruling to be proper.
Having found sufficient evidence to support the trial court’s judgment in all but the damages award, the appellate court affirmed the rulings with the exception of the award. That portion of the ruling was remanded for the trial court to enter a new judgment.
Eddie Bloor and Eva Bloor v. Robert A. Fritz and Charmaine A. Fritz, Lance Miller, Allen & Associates, Windermere Real Estate Service Co. and Cowlitz County.