Why the Texas Deceptive Trade Practices Act Usually Doesn't Apply to Claims Against Brokers

San Antonio Texas Real Estate Attorney Trey Wilson wrote:

One of the favored and most-powerful weapons in the arsenal of Plaintiff's lawyers is the Texas Deceptive Trade Practices Act ("DTPA"). This statute is modeled on similar ones adopted by other states, and provides valuable protections to consumers against all manner of false, misleading and/or deceptive practices and acts.

In addition to serving as an independent cause of action, the DTPA also implicates categories of damages that can result in significant damages awards against defendants who are found to have acted "knowingly" or "intentionally." Specifically, Section 17.50(b) of the DTPA provides:

(b) In a suit filed under this section, each consumer who prevails may obtain:

(1) the amount of economic damages found by the trier of fact. If the trier of fact finds that the conduct of the defendant was committed knowingly, the consumer may also recover damages for mental anguish, as found by the trier of fact, and the trier of fact may award not more than three times the amount of economic damages; or if the trier of fact finds the conduct was committed intentionally, the consumer may recover damages for mental anguish, as found by the trier of fact, and the trier of fact may award not more than three times the amount of damages for mental anguish and economic damages;

Obviously, given the types of damages provided in Section 17.50(b), plenty of demand letters and Petitions contain allegations that the DTPA has been violated. In fact, it seems like many lawyers use the same "boilerplate" language to implicate the statute's Draconian damages provisions or otherwise make a standard tort or contract case "fit" within the scope of the DTPA.

In our San Antonio real estate law practice, we frequently defend and prosecute real estate professionals who have allegedly violated ethical or legal standards. In those instances where our client is a real estate broker or salesperson in a suit or claim advanced against them, we limit the scope of a Plaintiff's claim by forcing that Plaintiff to demonstrate that he or she is entitled (based on the law and/or facts) to pursue each of the causes of action brought against our client. Where the DTPA is concerned, a Plaintiff is usually limited by Section 17.49(i), of the DTPA, which provides:

(i) Nothing in this subchapter shall apply to a claim against a person licensed as a broker or salesperson under Chapter 1101, Occupations Code, arising from an act or omission by the person while acting as a broker or salesperson. This exemption does not apply to:

(1) an express misrepresentation of a material fact that cannot be characterized as advice, judgment, or opinion;

(2) a failure to disclose information in violation of Section 17.46(b)(24); or

(3) an unconscionable action or course of action that cannot be characterized as advice, judgment, or opinion.

This section serves to exempt from the DTPA virtually all activities of a real estate professional who renders advice, exercises judgment, or offers and opinion the course and scope of his or her activities as a broker or salesperson. Notably, this exemption does not apply where the real estate professional engages in intentional or other unconscionable behaviors or actual fraud. Likewise, a real estate professional who acts as a principal may not be exempted.

Misrepresentations and the DTPA -- Even Unknowingly False Statements Can Lead to Liability

San Antonio Texas Real Estate Attorney Trey Wilson wrote:

As a real estate lawyer in San Antonio, TX, I have always perceived the Texas Deceptive Trade Practices Act ("DTPA") to be a mixed bag -- one of those statutes with equal parts good and bad implications. My belief has been developed over the past decade based upon what I characterize as a "strict liability" interpretation of the DTPA adopted by the Texas Supreme Court and its subordinate Texas state courts.

One would be hard-pressed to argue legitimately against the DTPA's policy purpose:  to protect consumers against false, misleading, and deceptive business practices, unconscionable actions, and breaches of warranty.  However, the DTPA's application in real estate fraud cases has oft' reminded me of the old maxim: "the road to hell paved is with good intentions." 

For better or worse, since at least 2002, Texas courts have  rejected the argument that an individual cannot be held liable under the DTPA when he does not know the falsity of his representations.  Stated differently, the law in Texas provides for strict liability for misrepresentations, as follows:

“[A] DTPA claim does not require that the consumer prove the [defendant] acted knowingly or intentionally. The DTPA requires that the consumer show that the misrepresentation was false and that the false misrepresentation was the producing cause of the consumer's damages. A consumer is not required to prove intent to make a misrepresentation to recover under the DTPA."

Miller v. Keyser, 90 S.W.3d 712, 716 (Tex. 2002)(emphasis added). Moreover, "misrepresentations that may not be actionable under common law fraud may be actionable under the DTPA." Id.

In the context of a typical real estate dispute, DTPA claims are frequently asserted in connection with misrepresentation or failure to disclose (concealment) allegations. These allegations are usually made by a Buyer against the former Seller and/or that Seller's broker-agent. Often the DTPA is thrown-in as a "catch-all" allegation, when the real crux of the Plaintiff's claims sound in fraud or breach of contract. 

I have seen DTPA causes of action filed in cases relating to a given property's: a) suitability for a certain purpose; b)  zoning classification; c) propensity to flood; d) right of access to a water well; e) existence or non-existence of a foundation warranty; and f) access to a public roadway. The underlying representations were made innocently -- without knowledge of their falsehood, and in all of these instances, the Seller-Defendant (or that defendant's broker) asserted some variant of the defensive argument that they did not know that their representations were false at the time that they were made.  Because this defensive theory goes to intent, which is not a necessary element of proof for recovery under the DTPA (or any strict liability claim), it is usually unsuccessful.

Thus, where real estate representations (or misrepresentations) are concerned, a DTPA violation is usually much easier to prove than a fraud claim.  This is so because, in order to prevail on a fraud claim, the Plaintiff must prove that the Defendant knew (or should have known) of the falsehood of their representation at the time that such representation was made.  Proving 'intent to defraud' can be difficult because it requires some evidence of the state of mind or knowledge of the actor. By contrast, simple falsehood (however innocent) is the only showing required by the DTPA, and can usually be proven by circumstantial evidence without inquiry into an actor's knowledge or intent. 

DTPA claims are nebulous; and, thus, tough to defend.  For the Plaintiff they can be tough to prosecute because of various procedural requirements.  This is definitely one area in which having a knowledgeable lawyer can make a huge difference.

NOTE:  Section 17.49(i) of the Texas Business & Commerce Code exempts from the DTPA claims against TREC licensees arising from an act or omission by the person while acting as a broker or salesperson, except for claims arising from

(1)  an express misrepresentation of a material fact that cannot be characterized as advice, judgment, or opinion;

(2)  a failure to disclose information in violation of Section 17.46(b)(24); or

(3)  an unconscionable action or course of action that cannot be characterized as advice, judgment, or opinion.

RECOVERING UNDER THE TEXAS REAL ESTATE RECOVERY TRUST ACCOUNT

San Antonio Texas Real Estate Attorney Trey Wilson wrote:

The statute allowing recovery under the Real Estate Recovery Trust Account is found in Chapter 1101 of the Occupations Code. See generally TEX. OCC. CODE ANN. ch. 1101, subch. M & N (West 2012). The statute states that the Trust Account is maintained "to reimburse aggrieved persons who suffer actual damages" at the hands of a license holder. TEX. OCC. CODE ANN. 1101.601(a) (West 2012).  

Texas appellate courts agree "[t]he purpose of the Account is to `guarantee the fidelity and honesty of the real estate salesman in his dealings with the public and to insure and indemnify any member of the public against damages or injury caused by a violation of the Act.'" Wilson v. Bloys, 169 S.W.3d 364, 366 (Tex. App.-Austin 2005, pet. denied) (quoting State v. Pace, 640 S.W.2d 432, 433 (Tex. App.-Beaumont 1982), aff'd, 650 S.W.2d 64 (Tex. 1983)). The statute requires the claimant to show "that the judgment is based on facts allowing recovery under this subchapter." Id. § 1101.607(1) (West 2012).

Simply put, a person who obtains a judgment for actual damages caused by the misconduct of real estate license holders can, when certain specified statutory conditions are met, obtain reimbursement from the Account if the license holder is unable to pay the judgment. Tex. Occ.Code Ann. § 1101.601.  

To recover under the Act, a person who has an uncollectable judgment against a real estate broker may file a verified claim in the court in which the judgment was rendered and, upon notice to the commission and the judgment debtor, apply for an order directing payment out of the fund. Id.  A hearing is then conducted on the application at which the commission is authorized to appear for the limited purpose of protecting "the fund from spurious or unjust claims...." Id.  At this hearing, the claimant must show, among other things, that its prior judgment is against a licensed real estate broker who caused the claimant's damages while acting as a broker. Id. § 8, part 1(a) and part 3(c). 

NOTE:  TEX. OCC. CODE ANN. § 1101.602 provides that when a license holder is selling property in his own name instead of as an agent for someone else, a claimant may not recover from the Trust Account unless the license holder engages in the following enumerated wrongful conduct:

1101.653(3):  acting in bad faith;

1101.652(a)(3): engaging in misrepresentation, dishonesty, or fraud when selling, buying, trading, or leasing real property in the name of himself, his spouse, or his relatives; 

1101.652(b): See list here;

1101.653(1): engaging in dishonest dealing, fraud, unlawful discrimination, or a deceptive act;

1101.653(2):  making a misrepresentation; or 

1101.653(4):  demonstrating untrustworthiness.