New Appeals Ruling Expands Sellers’ Disclosure Requirements

Arizona long ago abandoned the antiquated policy of “Buyer Beware!” Instead, Arizona law imposes strict disclosure requirements on all sellers – especially sellers of real estate. On June 12, 2012, the Arizona Court of Appeals broadened these disclosure requirements.

In Powers v. Guaranty RV, Inc., 229 Ariz. 555, 278 P.3d 333 (App. 2012), the Court of Appeals held that any misrepresentation, intentional or not, is unlawful, even if the seller simply forwards information from a third-party that happens to be inaccurate.

The Powers case involved the sale of a motorhome. Prior to purchasing the motorhome, the buyer asked the dealer if the motorhome would overheat. The dealer, in turn, e-mailed the engine manufacturer to request confirmation that the engine would not overheat. In response, the manufacturer e-mailed the dealer and provided confirmation that the engine should not overheat, with regard to the specific motorhome being purchased by the buyer. The dealer then forwarded the manufacturer’s e-mail response to the buyer. After receiving the dealer’s response, the buyer closed on the $344,382.00 purchase of the motorhome.

The motorhome overheated during its initial drive off the lot in Oregon to Arizona. As a result, the buyer filed a lawsuit against the dealer for breach of contract and violation of Arizona’s Consumer Fraud Act (the “Act”), amongst other claims.

The Act prohibits the “use of any misrepresentation in connection with the sale of merchandise,” including motorhomes or real estate. The novel aspect of the Powers case is that the seller did not make any specific misrepresentation himself. Instead, the seller simply forwarded a representation made by a third-party – namely, the manufacturer of the motorhome engine.

The Court of Appeals held, however, that “[t]here is no requirement in the Consumer Fraud Act (CFA), that the defendant have knowledge that the misrepresentations are false…” The Court also noted that “it is well settled that a person or entity need not intend to deceive to violate the statute.” Rather, to maintain the private cause of action under the Act, the plaintiff must only show “a false promise or misrepresentation made in connection with the sale or advertisement of merchandise and the hearer’s consequent and proximate injury.” Powers, 278 P.3d at 338. The Court held that the Act “…does not limit liability to the originator of a misrepresentation. Rather, it broadly extends liability to any person who ‘use[s]’ the misrepresentation in connection with the sale of merchandise…’” Id.

Importantly, the Act extends to the sale of real estate. See A.R.S. §44-1521(5). Therefore, following the Powers decision, real estate owners, and arguably their REALTOR®, must confirm the accuracy of all information conveyed to a buyer during the transaction.