Sing v. John L. Scott, Inc.

Madsen, J.

This case arises from transactions between John L. Scott (Scott), a real estate brokerage, its real estate agents, and Peter Sing, a real estate investor and prospective purchaser of real estate listed with Scott. Sing alleged that Scott violated the Consumer Protection Act and a jury found in Sing’s favor. Scott appeals a published Court of Appeals decision affirming the trial court’s denial of Scott’s motion for judgment as a matter of law. We reverse the decision of the Court of Appeals.

STATEMENT OF THE CASE

In July 1987, the Rudds listed their undeveloped Bainbridge Island property with John L. Scott through real estate agent, Jody Prongay. The listing price was $45,000. During the two years which the property was listed, the Rudds had entered into earnest money agreements with four different purchasers, each of whom backed out of the transaction on the basis of feasibility study contingencies contained in the earnest money agreements. Consequently, Prongay stated the Rudds were frustrated with the feasibility study contingency process.

On August 14, 1989, Bob Pennock, a real estate agent for Scott, showed the Rudd property to Peter Sing, a real estate investor. Sing was interested in purchasing the Rudd property and told Pennock he would pay full price, or more, because if trees were cut the property would have a view of Seattle.

Pennock helped Sing create an offer to purchase the property. Sing offered $41,000 with a $500 earnest money agreement and a 45-day contingency period to determine whether the property was suitable for development. On Friday, August 18, Pennock met with Jody Prongay and the Rudds to present Sing’s offer to purchase the property. Prongay prepared a written counteroffer asking for the full purchase price of $45,000, $2,000 earnest money, and a 21-day feasibility study period. The Rudds also wanted to move the closing date from November 30 to August 1.

Later that evening, Pennock took the counteroffer over to Sing. Sing stated that he would sign the counteroffer, but because he was going out of town for the weekend, he preferred to sign the counteroffer on Sunday evening when he returned or on Monday morning. Pennock testified that Sing wanted to wait because it would give him more time on the investigation and feasibility study contingency, since the time limit begins when the agreement is signed by both parties. On Saturday, August 19, Pennock left a written message for Prongay that Sing was out of town for the weekend but that he would “probably” accept the Rudds’ counteroffer Sunday night or Monday morning when he returned. Verbatim Report of Proceedings at 199.

The next day, Sunday, August 20, Scott agent, Maureen Buckley and her husband, Edward, presented a written offer to purchase the Rudd property. They offered $42,000, $500 earnest money, an 11-day feasibility study period and a shorter closing period than Sing’s offer.

Prongay testified that the Rudds preferred the Buckley’s offer because of the shorter feasibility study period and closing time. However, they still wanted full price and, thus, decided to make a counteroffer. Before the Rudds could make their counteroffer to the Buckleys they had to find out if Sing had accepted their previous counteroffer. Accordingly, Prongay called Pennock, who stated that Sing had not come back into town and had not yet signed the counteroffer. Prongay then informed Pennock that the Rudds were withdrawing their counteroffer and instructed him to notify Sing as soon as possible. Pennock called Sing’s home and left a message that the counteroffer had been withdrawn. The Rudds then made a counteroffer of $45,000 that the Buckleys accepted. That evening, at about 7:30, Prongay called Pennock to tell him someone else had purchased the property.

Jody Prongay and Maureen Buckley had known and worked together for many years and Prongay’s desk was adjacent to Buckley’s office. Direct evidence was not presented that Buckley used Sing’s offer to gain an advantage in the transaction. However, Prongay testified that she kept her listing file on her desk and Buckley testified that a couple weeks before she made the offer to purchase the Rudd property, which was also before Sing made his offer, she looked for a plat map of the property in Prongay’s listing file but could not find it. She asked Prongay if she had any maps and Prongay gave her one. Aside from this request, Prongay and Buckley testified they did not discuss the Rudd property, nor did they discuss the terms of the offer and counteroffer between the Rudds and the Sings. Nonetheless, Buckley was aware of the value of potential view properties.¹

The sale closed in September, 1989. In February, 1990, the Buckleys resold the property for $137,500. At the time of trial, the tax assessor’s records estimated the property’s value at $182,520.

Sing sued Scott and the Buckleys, alleging intentional interference with a contract of business expectancy, misrepresentation and violation of the Consumer Protection Act (CPA). At the beginning of trial Sing abandoned the misrepresentation claim. The remainder of the claims were tried before a jury which found by special verdict that: (1) Sing did not have a valid contractual relationship of business expectancy with the probability of future economic benefit; (2) Scott violated the CPA; and (3) Maureen Buckley did not violate the CPA. The jury found Scott caused damages to Sing and awarded him $25,000. Thereafter, Scott’s motion for judgment as a matter of law was denied by the trial judge and judgment was entered against Scott. Sing was awarded an additional $7,500 in treble damages, $50,863.59 in attorneys’ fees and $122.60 in costs.

The Court of Appeals, in a published opinion, affirmed the trial court’s judgment, except as to attorneys’ fees and denied Scott’s motion for reconsideration. See Sing v. John L. Scott, Inc., 83 Wn. App. 55, 920 P.2d 589 (1996). Scott petitioned this court for review and it was granted.

DISCUSSION

When reviewing a trial court’s decision to deny a motion for judgment as a matter of law the appellate court applies the same standard as the trial court. Granting a motion for judgment as a matter of law is appropriate when, viewing the evidence most favorable to the nonmoving party, the court can say, as a matter of law, there is no substantial evidence or reasonable inference to sustain a verdict for the nonmoving party. Industrial Indem. Co. of the NW, Inc. v. Kallevig, 114 Wn.2d 907, 915-16, 792 P.2d 520, 7 A.L.R.5th 1014 (1990); Boeing Co. v. Sierracin Corp., 108 Wn.2d 38, 67, 738 P.2d 665 (1987).

Although the court must draw all favorable inferences that may be reasonably evinced in favor of the nonmoving party, see Douglas v. Freeman, 117 Wn.2d 242, 246, 814 P.2d 1160 (1991), the question of whether a particular conduct gives rise to a CPA violation is reviewable as a question of law. Estate of Hall v. HAPO Fed. Credit Union, 73 Wn. App. 359, 365, 869 P.2d 116 (1994); Sign-O-Lite Signs, Inc. v. DeLaurenti Florists, Inc., 64 Wn. App. 553, 560, 825 P.2d 714 (1992); Keyes v. Bollinger, 31 Wn. App. 286, 289, 640 P.2d 1077 (1982).

Washington’s Consumer Protection Act provides that “[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful.” RCW 19.86.020. The purpose of the CPA is “to protect the public and foster fair and honest competition.” RCW 19.86.920. To establish a claim under the CPA five elements must be proven: (1) an unfair or deceptive act or practice, (2) occurring in trade or commerce, (3) public interest impact, (4) injury to plaintiff in his or her business or property and (5) causation. Hangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co., 105 Wn.2d 778, 784, 719 P.2d 531 (1986).

Scott argues the first element, an unfair or deceptive act or practice, has not been established in this case and we agree. To show a party has engaged in an unfair or deceptive act or practice a “plaintiff need not show that the act in question was intended to deceive, but that the alleged act had the capacity to deceive a substantial portion of the public.”² Hangman, 105 Wn.2d at 785 (emphasis omitted). The purpose of the capacity-to-deceive test is to deter deceptive conduct before injury occurs. Id.

Sing makes two main arguments why Scott’s actions, through its agents, were unfair and deceptive. First, Sing asserts it is unfair for Scott to allow its brokers access to files containing third party purchase offers listed with the agency, and then allow that broker to compete for the purchase of the property with knowledge of another prospective buyer’s offer. Second, Sing argues that Scott had an obligation to obtain for the seller the best purchase price possible and that it failed to do so by not informing the Rudds that Sing was willing to pay the full price or more for the property. Thus, Sing contends, he was not allowed to fairly compete for the property.

In affirming the trial court’s denial of Scott’s motion as a matter of law, the Court of Appeals focused on the first of the two arguments made by Sing. Since the evidence showed that Buckley had access to Prongay’s listing file and looked in it two weeks before she made the offer, the court stated that a jury could infer that Buckley used information from the listing file to gain an unfair advantage over Sing. Sing, 83 Wn. App. at 64. The court noted that although the property had been listed for over two years, just two days after Sing’s offer was made, Buckley presented an offer for slightly more money on terms more in line with those contained in the Rudds’ counteroffer to Sing. Id. Thus, the court found the jury could infer (1) that Buckley had access to the listing file for the Rudd property, (2) that Buckley had seen the Sing offer, and (3) that Buckley had an unfair advantage over Sing because she could craft her offer so it was slightly more appealing than Sing’s offer. Id.

The court pointed out that Scott has no policy prohibiting agents from viewing offers on properties listed with the agency or from using such information to compete for the purchase of the property. Id. This, explained the court, “could be considered an unfair or deceptive practice to the extent that offers by third parties are intended to be confidential.” Id. at 65.

Scott appeals the court’s decision, disputing the conclusion that Scott had a duty to keep Sing’s offer confidential. We agree. Even though Sing was a Scott customer, because John L. Scott was the listing agency, both Prongay and Pennock’s primary fiduciary duty was at all times to the seller.³ As such, they had a duty to obtain for the seller the best possible deal. See Mersky v. Multiple Listing Bureau of Olympia, Inc., 73 Wn.2d 225, 228-29, 437 P.2d 897 (1968). The listing agent may disclose information about an offer to a prospective purchaser to establish a higher price or better terms for the seller. It follows that Sing’s offer to purchase the property could not be confidential. Consequently, the Court of Appeals has created a duty of confidentiality to the buyer which conflicts with the agent’s fiduciary duties to the seller. Additionally, there is no statute prohibiting real estate agents from purchasing property listed with their own agency where another buyer has made an offer. Thus, the fact that the Buckleys may have had knowledge of Sing’s offer before making their own offer does not constitute an unfair or deceptive act or practice.

Next, Sing argues that Scott failed to fulfill its fiduciary duties to the Rudds by not informing them that Sing would pay full price or more for the property. Sing states that Prongay did not attempt to use the two competing offers to maximize the selling price; that is, she did not attempt to create a “bidding war.”

Prongay testified that when two or more offers exist on a property a common technique is to issue simultaneous counteroffers. In other words, when two eager purchasers exist for a property a “bidding war” may ensue. Although there were two eager buyer in this case, Sing states, there is no indication in the record that Prongay advised the Rudds of Sing’s willingness pay full price or more for the property. Sing contends the Rudds were not aware of their opportunity to create a bidding war and potentially get a higher price for their property. Sing argues that Scott had an obligation to disclose this information to the Rudds and, by not doing so, injured Sing by not allowing him to compete for the property.

We disagree that these actions constitute an unfair or deceptive act or practice. Sing never proffered a written offer indicating he would pay the purchase price or more for the property. If this was his intention he could have made a written offer to the Rudds. Instead, Pennock testifies that Sing directed him to offer $41,000 to the Rudds. Additionally, although Sing states that when he viewed the Rudd property he told Pennock he would pay full price or more for the Rudds’ property, Pennock testified that he did not remember such a statement by Sing.

The only information Prongay had was that Sing would “probably” accept the counteroffer when he returned. Both Prongay and Pennock testified that only a signed offer is a legal contract and that it is not uncommon for potential purchasers to say they will purchase a piece of property and then never follow through. In this case, Sing could have signed the counteroffer on Friday and he would have had the property. By waiting, he took a risk of someone else making a better offer that could be accepted by the Rudds.

We cannot say that Scott violated the CPA by not starting a “bidding war” on the property. Although such a tactic is appropriate in some cases, this is a judgment that must be made by the agent and seller depending on the situation at hand. In this case, the property had been on the market for over two years. Four previous offers had fallen through due to feasibility study contingencies. According to Prongay, the sellers expressed wariness of a long contingency period and were anxious to accept a full price offer with a short contingency clause.⁴ Although Sing testified that he told Pennock he might go above asking price, in fact he had not signed the counteroffer nor communicated what price or terms he might be amenable to if a bidding war were initiated.

Moreover, there is no clear evidence in the record indicating what factors were determinative to the Rudds.⁵ Sing’s counsel did not ask Prongay if she told the Rudds that Sing would “probably” sign the counteroffer when he returned and that they may want to consider issuing two simultaneous counteroffers. The burden of production is upon the plaintiff to indicate what information the sellers had when making their decision and their reasons for doing so. They have not met this burden in this case.

Thus, viewing the evidence in the light most favorable to the nonmoving party, we do not find any set of facts which constitute a violation of the Consumer Protection Act. We reverse the decision of the Court of Appeals and find the motion for judgment as a matter of law should be granted. We remand to the trial court for proceedings consistent with this opinion.

Dolliver, Smith, Guy, Johnson, and Sanders, JJ., concur.

1 Just a few weeks prior to the eventual sale of the Rudd property, Buckley had sold property to Sing. On a tour of the properly, Sing told Buckley that with the increasing prices of waterfront property, hilltop properties would become increasingly valuable, especially where trees could he cleared to provide views.

2 The CPA does not define “unfair or deceptive act or practice.”

3 In 1996, the Legislature enacted comprehensive legislation which redefined the duties of real estate brokers. RCW 18.86. The statute provides that where different agents, affiliated with the same broker, represent different parties to the transaction, the broker is a dual agent, whereas each agent solely represents the party with whom they have the relationship. RCW 18.86.020(2). As a dual agent, the broker owes a duty of confidentiality to both the seller and the prospective purchaser, RCW 18.86.060(2)(d), and may take no action “adverse or detrimental to either party’s interest in a transaction.” RCW 18.86.060(2)(a). This legislation, however, was not in effect at the time of this transaction and is only prospective in application. RCW 18.86.900 (“[t]his chapter does not apply to an agency relationship entered into before January 1, 1997”).

4 In Sing’s offer to the Rudds he asked for a 45-day feasibility study contingency period and the Rudds countered with 21 days. The Buckleys’ offer contained a much shorter 11-day period.

5 The Rudds did not testify at the proceedings.