Opinion ID: 1657171
Heading Depth: 2
Heading Rank: 1

Heading: Does Iowa Code Section 558A.6(1) Require Proof of Fraud?

Text: Iowa Code chapter 558A is Iowa's Real Estate Disclosure Act. It requires persons interested in transferring real estate to deliver a written disclosure statement to prospective buyers. Iowa Code § 558A.2. The disclosure statement must include certain information about the condition and important characteristics and structures on the property as provided in rules adopted by the real estate commission. Id. § 558A.4(1); see, e.g., Iowa Admin. Code r. 193E-14.1(6) (setting forth sample disclosure statement). A person who violates the Act's disclosure requirement is ordinarily liable for the amount of actual damage the buyer suffers. Id. § 558A.6. That said, the Act states [t]he transferor ... shall not be liable for [any] error, inaccuracy, or omission in information required in a disclosure statement, unless that person has actual knowledge of the inaccuracy, or fails to exercise ordinary care in obtaining the information. Id. § 558A.6(1) (emphasis added). Jensen argues the plain language of the above-italicized portion of the statute permits a buyer to recover upon a showing the transferor did not exercise ordinary care in obtaining the information required to be disclosed. He contends this standard is something less than fraud. The Sattlers maintain Jensen did not preserve error. In the alternative, they claim the district court correctly interpreted the statute.
We find no merit in the Sattlers' error preservation claim. Jensen alleged a violation of the statute in his petition. The Sattlers filed a motion for summary judgment and a reply brief in which they repeatedly insisted Jensen had to prove fraud to recover under the statute. It is true the summary judgment record is not a model of clarity. Jensen generally resisted summary judgment, however, and in hindsight it is plain the district court's ruling barred Jensen from introducing evidence to show the Sattlers did not exercise ordinary care in obtaining the information to disclose on the form. Jensen preserved error. See State v. Miller, 229 N.W.2d 762, 768 (Iowa 1975) (if a trial court's ruling is dispositive on the issue of admissibility, it is considered final for purposes of appeal and no further objection is necessary). That Jensen preserved error is apparent from other pretrial filings. The Sattlers filed a motion in limine in which they contended the statute required a showing of fraud. They argued [v]erbal references to a negligence standard would be highly prejudicial, misleading, and confusing to the jury and requested Jensen, his counsel, and the plaintiff's witnesses be admonished not to make any such statements. [2] In a contemporaneously filed pretrial statement Jensen argued the Sattlers can be liable for failure to make accurate disclosures not only for actual knowledge that the conditions exist but also for failing to exercise ordinary care in obtaining the information. 558A.6(1). The district court granted the Sattlers' motion and forbade Jensen from arguing a negligence standard at trial. Error was clearly preserved. See Miller, 229 N.W.2d at 768; see also State v. Wells, 629 N.W.2d 346, 355 (Iowa 2001) (pointing out our concern is what the ruling of the trial court does or purports to do, not the title of the motion or the prayer). Jensen was not required to file a posttrial motion to preserve error as the Sattlers suggest. See Miller, 229 N.W.2d at 768; see also Explore Info. Servs. v. Iowa Ct. Info. Sys., 636 N.W.2d 50, 57 (Iowa 2001) (holding it is necessary to preserve error [with a rule 1.904(2)] motion only when the district court fails to resolve an issue ... properly submitted for adjudication (emphasis in original)).
Jensen argues the plain language of Iowa Code section 558A.6(1) permits a buyer of real estate to recover for damages even if the buyer is unable to prove fraud or that the seller had actual knowledge of the error, inaccuracy, or omission in the disclosure form. Jensen points to the exercise ordinary care in obtaining the information language in the statute, and argues this provision is intended to create a cause of action for negligence. Cf. Knapp v. Simmons, 345 N.W.2d 118, 124 (Iowa 1984) (equating ordinary care with reasonable care). The Sattlers argue the ordinary care language is not synonymous with a negligence standard. They contend that if we were to rule against them a parade of horribles would ensure, permitting buyers to sue sellers whenever they failed to exercise ordinary care in obtaining the information on the disclosure form. They also argue it would be absurd because no one would ever need to prove actual knowledge. In the alternative, the Sattlers claim Iowa Code section 558A.6(1) is intended to apply only to absentee owners so they will make a reasonable investigation into the property they own, not sellers like the Sattlers who had lived in the home for years and had complete knowledge of it. We must read the statute as it is written. See Gannon v. Bd. of Regents, 692 N.W.2d 31, 43 (Iowa 2005); see also Iowa R.App. P. 6.14(6)( m ) (noting it is well established that we find intent in what the legislature said, not what it might have said). The Sattlers' policy arguments are of little help in this case. The scope of the statute is a matter of public policy and therefore within the province of the legislature. PanDa Eng'g v. Eng'g & Land Surveying Examining Bd., 621 N.W.2d 196, 199 (Iowa 2001). The plain and unambiguous language of the statute clearly indicates a seller can be liable for something less than a knowingly inaccurate disclosure, i.e., if the seller fails to exercise ordinary care in obtaining the information to be put on the disclosure form. The Act places a limited affirmative duty upon sellers insofar as they must exercise ordinary care in obtaining the information. Iowa Code § 558A.6(1); see also Leonard A. Bernstein & George F. Magera, Seller Disclosure Laws Gain Popularity, 9 Loy. Consumer L. Rep. 43, 49 n. 57 (1997) (including Iowa's statute among those requiring at least some affirmative investigation). There is nothing in the statute indicating this duty is limited to absentee owners as the Sattlers suggest. For example, one question on the disclosure form is Do you know the zoning classification of the property? Iowa Admin. Code r. 193E-14.1(6). A seller must exercise ordinary care in obtaining this information whether or not the seller lives on the property. This interpretation of the statute is in harmony with the Act's insistence that [a]ll information required by this section and rules adopted by the [real estate] commission shall be disclosed in good faith. Iowa Code § 558A.3(1). Section 558A.3(1) states that good faith includes a reasonable effort ... to ascertain the information. See also id. § 558A.3(2)(b) (using failure to exercise ordinary care language after discussion of good faith duty to amend disclosure statement).
It is true in Sedgwick v. Bowers we stated the court of appeals has held that [the elements of fraud] are required for recovery under an action based on chapter 558A, and we agree. 681 N.W.2d 607, 611 (Iowa 2004) (citing Arthur v. Brick, 565 N.W.2d 623, 625-26 (Iowa Ct.App.1997)). On further examination, we find this statement was inaccurate. In Arthur, the court of appeals was adjudicating a common law fraudulent misrepresentation claim, not a chapter 558A statutory nondisclosure claim. 565 N.W.2d at 625. In any event, Sedgwick is distinguishable from the case at bar because the plaintiff in that case apparently did not bring a claim under the ordinary care prong of the statute. 681 N.W.2d at 612 (holding that the district court's finding that seller had not misrepresented condition of property was not supported by substantial evidence). Sedgwick thus did not squarely address the issue presented here. Therefore our broad language in that case, even if it were valid, is not controlling. See Sager v. Farm Bureau Mut. Ins. Co., 680 N.W.2d 8, 14 (Iowa 2004).
In sum, we hold the district court erred when it held proof of fraud was required for a buyer to recover under the Iowa Real Estate Disclosure Act. It is sufficient if the buyer shows the seller failed to exercise ordinary care in obtaining the information sought on the form. Iowa Code 558A.6(1). The complexity of this case, of course, is that one of the sellers was intimately involved in the construction of the home. We reverse and remand for a trial on Jensen's chapter 558A claim.