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Falsely Induced “As-Is” Clause Will Not Defeat Statutory Claim of Deceptive Representation

A recent decision by the Court of Appeals examined how Wisconsin’s deceptive representation statute, Wis. Stat. § 100.18(1), applies to “as-is” sales and contractual exculpatory clauses. While sellers may rely on “as-is” language to avoid liability for problems or defects that are discovered down the road, this new decision confirms that, just as with common law claims for misrepresentation, a falsely induced “as is” clause does not preclude liability under section 100.18.

In Fricano v. Bank of America NA, 2015AP20 (recommended for publication), the bank acquired a home in foreclosure. After acquiring the home, the bank’s real estate agent discovered that the property had suffered severe water damage. The real estate agent emailed the bank’s asset manager photos of the damage, which included pooling water and fallen ceilings. The bank’s asset manager said that “quick clean up would save the property from any mold issues.”

However, the remediation and repair was not completed for seven months and the real estate agent found the work to be unsatisfactory. The real estate agent had warned the bank throughout the process that mold could develop, although by the time the remediation was complete and the house was listed, the real estate agent had not seen or smelled any signs of mold. Nevertheless, the house was listed and the plaintiff set up a showing. Her real estate agent took her through the home and noticed discoloration in the basement that looked like mold. Although they noticed mold elsewhere in the basement, they did not see any evidence of mold anywhere else in the home.

The very next day, plaintiff made an offer to purchase the home. She ultimately won a bidding war against thirteen other offers. The bank emailed plaintiff the Bank of America Real Estate Purchase Addendum (Addendum) and the Water Damage, Toxic Mold Environmental Disclosure, Release and Indemnification Agreement (the Agreement). The Addendum and the Agreement contained an “as is” clause, along with a number of disclaimers or exculpatory clauses. These included provisions in which the plaintiff disclaimed any “representations, warranties, promises, covenants, Agreements or guarantees, implied or express, oral or written, with respect to the physical condition or any other aspect of the Property including, but not limited to … water leaks, water damage, mold or any other matter affecting the stability or integrity of the Property.” ¶ 9. The documents advised that:

Mold may have been removed or covered in the course of any cleaning or repairing of the Property…. Seller does not in any way warrant the cleaning, repairs or remediation, or that the Property is free of Mold.… Buyer has not in any way relied upon any representations or warranties of Seller or Seller’s employees, officers, directors, contractors, representatives, broker or agents concerning the past or present existence of Mold or any environmental hazards in or around the Property.

In addition, the documents included a representation that the bank acquired the property by foreclosure and consequently it had “little or no direct knowledge about the condition of the [p]roperty.” ¶ 9 (emphasis added by the court).

Very shortly after purchasing the home, plaintiff discovered the true extent of the water damage and mold. She commenced the action pursuant to Wis. Stat. § 100.18 and alleged that the bank misrepresented the fact that it had “little or no direct knowledge regarding the condition of the [p]roperty” because the bank “had actual knowledge that the property had been flooded and that, as a result, it had been damaged.” The matter proceeded to trial and the jury was instructed about the “as is” clause in the contract:

An ‘as is’ clause does not relieve the defendant, Bank of America, from a duty to disclose a material adverse fact about the property.

Catherine Fricano still has the burden of proof to prove that Bank of America had knowledge of the condition of the property and failed to disclose it. The buyer is entitled to rely upon a statement by the defendant, Bank of America, that it has no knowledge about the property. Bank of America may not use an as-is clause to relieve the bank of its responsibility to disclose conditions about the condition of the property. In these situations, the exculpatory clause still may have evidentiary value for the purpose of showing that no representations were relied upon.

¶ 14. The jury awarded plaintiff $50,000 in compensatory damages. The bank filed post-verdict motions arguing that the Addendum expressly disclaimed plaintiff’s claim about untrue, deceptive, or misleading statements. The trial court denied the motions and the Court of Appeals agreed and affirmed.

Contractual disclaimers, waivers, and “as is” provisions do not relieve a party from liability under Wis. Stat. § 100.18 for making a deceptive statement. “A falsely induced ‘as is’ clause does not preclude liability.”

We can perceive of no reason—and the Bank offers none—why falsely induced “as is” and exculpatory clauses should necessarily bar, as a matter of law, liability for deceptive statements made in violation of Wisconsin’s deceptive trade practices statute.

Here, Fricano identified the Bank’s misrepresentation that it had “little or no direct knowledge regarding the condition of the [p]roperty” in the same document containing the “as is” and other exculpatory provisions. It is this “affirmative representation that constitue[s] a viable WIS. STAT. § 100.18 claim.” Fricano claimed that she relied on this statement in agreeing to disclaim and waive reliance on the Bank’s representations because she was told the Bank had little to no information—which is indisputably false. There is nothing in the “as is” provision, the disclaimers or the waivers that “clearly, unambiguously and unmistakably” informed the buyer that she was not entitled to rely on the representation in the sale contract itself, a representation that induced agreement to precisely those exculpatory provisions.

¶ 24; 26 (internal citations omitted).

Finally, the court also examined whether plaintiff was a “member of the public” for purposes of Wis. Stat. § 100.18. One of the necessary elements of a claim under the statute is that the representation was made to “the public.” A single person may constitute “the public,” but a person is no longer considered “the public” upon the formation of a “particular relationship” with the party making the representation (often when the parties enter into a contract). See ¶ 28, citing K & S Tool & Die Corp., 301 Wis. 2d 109 and Kailin v. Armstrong, 2002 WI App 70, 252 Wis. 2d 676, 643 N.W.2d 132. Because there was “no contract between the parties when the Bank misrepresented its knowledge of the condition of the property,” plaintiff was still a member of the public for purposes of the statute and could proceed on her claim.

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