By Robert M. Steeg

In this article, Managing Partner, Robert M. Steeg, clarifies Rabalais v. Gray, a new case that was decided by the Louisiana Appellate Court having jurisdiction over Jefferson Parish. The case brings very good news to real estate agents, but sounds a strong note of caution for buyers of real estate.

The Facts

The case is Rabalais v. Gray, and it was decided by the Louisiana Fifth Circuit Court of Appeals on December 16, 2014.

The facts are simple. An elderly couple sold their home. The selling couple had no contact with the buyer. All of the contact on behalf of the sellers was handled through the sellers’ real estate agent.

The home was on Northline Street in Metairie, Louisiana. It had flooded during Hurricane Katrina. The sale price was $950,000.

The buyers were particularly interested in whether the sellers had already received Road Home money for the house. If they had not, the buyers would be eligible to receive that money.

The sellers’ real estate agent told the buyers that Road Home money had not been received on the property. The sellers themselves never spoke to the buyer about this issue.

The real estate agent testified that the wife who was part of the selling couple told the real estate agent that the couple had not received Road Home money with respect to the property. The wife herself could not recall any such conversation, but testified that she might have given such information to the real estate agent.

The husband of the selling couple had in fact received Road Home money for the property. He had not told the wife about this, so she was unaware of the funds received. He never spoke to the real estate agent on this issue.

Needless to say, when the buyers discovered that Road Home money was not available with respect to the property because it had already been received by the sellers, they were quite upset. They had no basis for a lawsuit against the sellers because the availability of Road Home money is not any aspect of the property itself that would be covered under Louisiana law warranties, and because the sellers themselves had not spoken a word about Road Home money to the buyers.

The Lawsuit

So, the buyers sued the real estate agent. The real estate agent defended the suit by pointing to a specific Louisiana statute that relieves a real estate agent from liability if the real estate agent merely passes on to a buyer information that was provided by the seller, where the agent has no knowledge that such information is not accurate. In other words, if the agent is merely a conduit for information from the seller that proves to be inaccurate, the real estate agent is not liable.

This law is Section 3894B of Title 9 of the Louisiana Revised Statutes, which reads as follows:

B. A licensee shall not be liable to a customer for providing false information to the customer if the false information was provided to the licensee by the licensee’s client or client’s agent and the licensee did not have actual knowledge that the information was false.

The buyers attempted to overcome this law through various legal arguments. The court rejected all of those arguments.

First, the buyers argued that Section 3894B did not preclude them from bringing a claim against the real estate agent for “negligent misrepresentation.” The court held that claims against real estate agents for negligent misrepresentation are still viable, but not if the facts of the case fit squarely within the wording of Section 3894B. If the facts fall within the language of Section 3894B, then the real estate agent cannot be liable under the theory of negligent misrepresentation.

Next, the buyers argued that the real estate agent had not proven adequately that the real estate agent did not have “actual knowledge,” that the information supplied by the wife was false. The court held that all of the evidence indicated that the real estate agent was genuinely unaware of anything that would suggest the falsity of the wife’s statements, and that the buyers have not submitted any proof to the contrary.

Last, the buyers argued that the real estate agent had a duty to verify the information provided by the seller wife because the real estate agent knew how important this information was to the buyers. The court declined to read any such duty into the clear language of Section 3894B. The court held, instead, that there are two factual tests under Section 3894B, namely the supplying of false information to the agent and the absence of actual knowledge on the part of the agent, and if those two factual tests are met, the agent simply is not liable.

The Lessons

The results of this case, of course, are limited to its particular facts. The real estate agent had no knowledge whatsoever of the Road Home matter through any sources other than the wife of the selling couple. There was no information in the files of the real estate agent’s company concerning this issue. There was nothing about this issue that was apparent to the real estate agent through its dealings with the property. In other words, the real estate agent truly was a “conduit” for the information, with no independent involvement at all.

The lesson for real estate agents representing sellers is that if they are genuinely and totally a passive “conduit” for information from their clients, they will not be liable if that information proves to be inaccurate. However, real estate agents in this position would be wise to be careful to make sure there is nothing that they knew or “should have known” about the accuracy of the information provided by the sellers, which future claimants might use to challenge the agent’s status as a pure “conduit.”

The lesson for buyers is even simpler. If the real estate agent for the seller tells you something and that information is important to you with respect to your decision about whether or not to buy the property, go beyond the real estate agent and obtain a statement from the seller in writing, preferably included in one of the sale documents executed at the closing.

Filed under: Commercial and Business Litigation, Industry News, Real Estate Litigation
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