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Broken Promises, Part 2: Nathan v. Long & Foster

Last month, we looked at Station #2, where the Virginia Supreme Court refused to turn a breach of contract allegations into a fraud claim. Contrast that with Nathan, et al. v. Long & Foster, Real Estate, Inc., et al., in which the Circuit Court for the City of Roanoke has allowed a fraud in the inducement claim to go forward.

Geeta Nathan and Santam Singh were looking to buy a home in Roanoke, and worked with Barbara Michelsen, a Long & Foster real estate agent. They signed a Purchase Agreement to buy a home for $260,000, and the agreement listed Michelsen as the selling agent.

Under the Purchase Agreement, Long & Foster and Michelsen hired Donald Field to conduct radon testing of the home. Michelsen told Field to test for radon only on the first floor, and to ignore any readings in the basement. The testing revealed excessive levels of radon for the basement. Field mailed and faxed the results to Long & Foster and Michelsen.

In the meantime, the seller had signed a disclosure statement dated March 25, 2006, checking “yes” beside the question “Has the property been tested for radon gas?” However, Field did not conduct the testing until April 6, 2006. The seller and Michelsen had also signed a radon acknowledgment form that said they had “no knowledge concerning the testing of this property for radon or the presence or absence of radon in this property.”

Before closing, Nathan and Singh asked Michelsen about the radon test results, explaining concerns about radon and that a child would be living in the house. Michelsen assured them that everything was fine, and gave them a copy of the test results for the first floor only. Nathan and Singh closed on the house the same day.

Some time later, Nathan and Singh contacted Field when they were making repairs in the basement, and Field asked them whether the radon problem had been taken care of. Nathan and Singh had further radon testing done, and found elevated levels of radon. Not only did Nathan and Singh have to pay the costs of fixing the radon problem, but their house also diminished in value due to the fact that they would have to disclose the prior radon levels.

Nathan and Singh sued Long & Foster and Michelsen for breach of contract and fraud in the inducement. Long and Foster and Michelsen agreed that the breach of contract claim was properly pled, and Nathan and Singh agreed that they could not state a fraud claim against Long & Foster. That left the issue of whether Nathan and Singh could go after Michelsen for fraud in the inducement.

Michelsen argued that any duty to disclose the radon levels was contractual, not tort-based. She also argued that she complied with her obligations to disclose and was therefore protected by Virginia Code Section 55-523 of the Virginia Residential Property Disclosure Act (“VRPDA”).

Judge Dorsey wasn’t buying either of these arguments. Judge Dorsey found that Michelsen, as a real estate agent first employed by Nathan and Singh to be their agent, had a fiduciary duty that included the duty to disclose a complete set of the radon test results. Unlike the facts in Station #2, this duty was more than a mere contractual duty and could support fraud in the inducement. Judge Dorsey also ruled that because Michelsen and the seller never properly advised Nathan and Singh of the radon issue, Michelsen was not entitled to the protection of the VRPDA.