Flood Zone FraudA jury recently gave a hefty damages award to homeowners who sued a real estate company for falsely representing that the home they were buying was not located in a flood zone. When the rains came after the homeowners had moved in, the front yard, backyard, and a patio were under three feet of water. The house itself was never flooded. While this was fortunate, it limited the economic damages that a lawsuit would yield, prompting the homeowners to use an unusual legal theory.
The homeowners successfully argued that the realty company had committed fraud. The use of fraud as a cause of action allowed the homeowners to recover noneconomic damages of the kind not commonly awarded in litigation between the buyers and sellers of real estate. In addition to recovering damages for the difference between what they paid for the property and its real value, the homeowners also received a significant award for mental anguish, and an even larger amount as punitive damages.
The company and, in particular, its manager knew about the flooding problem and kept that fact from the home buyers. There was evidence that others who bought nearby property from the same company had battled flooding and had complained about the flooding to the realty company. Moreover, real estate agents testified that sales contracts with prospective buyers for the very property that was in dispute had fallen through when those buyers became aware of the potential for flooding.
The failure to disclose continued in the time after the purchase, when the company manager unsuccessfully tried to get the new homeowners to sign a drainage release, which would have absolved the company of liability for any damage from flooding.
Condemnation Action Dooms Business
When the District of Columbia condemned property on which it planned to construct a municipal office building, the corporation that owned the land received an award compensating it for the property, “including all interest therein.” The quoted phrase was relevant, because the property had been occupied by the owner of a gas station and convenience store business under a franchise agreement with the landowner. Unfortunately for the holder of the franchise, the agreement’s terms heavily favored the landowner insofar as the impact of a condemnation was concerned.
First, in the event of a condemnation, the agreement would terminate 10 days before the effective date of the condemnation. This meant that the agreement ended before the condemnation, leaving the business with no remaining legal interest in the property for which it could receive compensation. Second, the agreement provided that the landowner would receive all of the money awarded in the condemnation proceedings.
Left without a share of the condemnation award for the property itself by the terms of its agreement, the owner of the business argued that, as part of the condemnation action, it nonetheless should receive compensation for the business’s losses, for its goodwill, and for other consequential damages that flowed from the condemnation. The argument failed.
It could have been within the power of the District of Columbia to authorize such an award for nonowners situated on condemned property but, in fact, the relevant statute contained no such provision. As a result, the claim by the business fell under the rule, announced by the United States Supreme Court in a previous case, that “absent a statutory mandate the sovereign must pay only for what it takes, not for opportunities which the owner [or, in this case, franchise holder] may lose.”