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This article originally appeared in the DEC/JAN 1998-1999 issue of Washington Law & Politics. It is published here with permission.
Buyer Beware
For a real estate company as successful as John L. Scott, it sure gets sued a lot
BY JENNIFER VOGEL
PHOTOS BY LINNEA LENKUS
Just about every Sunday, David Svendsen - a 59-year-old federal worker - pulls himself out of bed, grabs a stack of flyers, and heads out to a John L. Scott open house to protest what he calls anti-consumer practices. The flyers he hands to potential home buyers outline three court cases in which the real estate company has been cited for violations of the Consumer Protection Act and other misdeeds such as "fraudulent concealment." He kicked off his public information campaign, which has included media attention and some rather large signs on the fence bordering his yard, after winning a case against John L. Scott in which he claimed the company knew about a flooding problem on his property before he bought it, but didn't tell him. Rather than paying the judgment or admitting that its listing agent was wrong, the company appealed. That's when Svendsen headed to the printer.
"John L. Scott has made, I believe, a business decision not to settle these cases, to drag them out for as long as possible," says Svendsen. "They do that because they want the reputation that they are a company that you can't sue -- that it's going to cost you too much time and money to make it worth your while. Well, I'm not going to go with that."
Svendsen has started a landslide of ill will toward the company. He was the focus of an article in the Seattle Post-Intelligencer in June 1998, which characterized John L. Scott as playing hardball with consumers, and appeared on a KVI radio program the same day. His campaign has been so successful, in fact, that he says agents now run out to meet him at open houses, yelling at him and calling him a "terrorist." Svendsen reckons the increased hostility is due to the fact that he's making a dent in John L. Scott's business. He says that at every open house he attends, someone takes his literature and drives away.
The main focus of Svendsen's ire -- the Goliath to Svendsen's David, you could say -- is Douglas Tingvall, John L. Scott's in-house counsel for the past 13 years. At 43, Tingvall is considered a formidable opponent in legal battles, in part because he's had a hand in drafting much of the state's real estate law. Often described with exasperation, he's characterized as a supremely confident attorney who doesn't back down from a fight, especially if he perceives that there is a principle at stake. Tingvall chafes at Svendsen's characterization of his company. "First of all, John L. Scott has not become what we regard as the premier real estate brokerage company in the Pacific Northwest with a 67-year history by winning lawsuits," his baritone voice booms. "We're in a service business and we've become successful by having satisfied clients and customers." A check of consumer complaints at the Washington Attorney General's office shows 47 filings since 1990 (Tingvall says John L. Scott handles somewhere around 30,000 transactions per year), compared to 49 for Windermere and 22 for Coldwell Banker, the other large realtors in the area.
"Our litigation strategy is not to beat up the consumer to the extent that they can't afford to continue," he says. "The strategy is, however, if a claim has no merit and we have exhausted the possibility of a reasonable settlement with the party complaining, then we will stand up for our salesperson and go to the mat, if necessary, to vindicate the salesperson."
A "Nauseatingly Smart" Lawyer
Doors have always swung wide open for Tingvall. fans and detractors alike concede that he's exceptionally intelligent. "He's nauseatingly smart," says his sister, Teri Moore. "I don't remember him ever studying or ever getting anything but 'A's. Life always came fairly easily for Doug." Others say his high IQ
sometimes makes him overconfident and unyielding. As an example, they point to the fact that when asked by the P-I about unfavorable court decisions, Tingvall refused to concede any ground. Instead, he criticized the judges in the cases as ill-informed and overworked.
Richard Manning, a Seattle attorney who has mediated several cases involving Tingvall, says, "I don't think there is a more knowledgeable lawyer about real estate in the state of Washington than Doug Tingvall. He is an absolutely, totally dedicated believer in principle, which means that he doesn't tend to compromise positions." Manning says that while most parties at a mediation tend to give a little ground, even when they believe they're right, in order to "buy peace rather than wage war," Tingvall refuses.
Tingvall sees himself as an innovator in the world of real estate and has taken on an activist's role. He has drafted and pushed for new laws, and teaches agents and advises real estate organizations across the state. Glen Hudson, government affairs director for the Washington Association of Realtors, says, "He's a person we can turn to when we have questions regarding legal issues facing the industry. He has been very responsive." It's simply a matter of being frustrated with inaction, explains Tingvall. "It's true that if I see something I think needs to be done, I'll take it on. ... I like to question things I guess, not just do things the way they've always been done." He's had a hand in drafting and passing laws regarding the handling of earnest money and what sellers have to disclose about their homes during the sales process. And he was a "key mover and shaker," according to Hudson, in getting the Law of Real Estate Agency passed in 1996, one of the most consequential pieces of real estate legislation to come down the pike in a long while. The law clarified the roles and duties of agents in the buyer/seller negotiation process-agents are now presumed to represent the buyer unless otherwise agreed. It also eliminates something called vicarious liability, which means that buyers and sellers can rarely be held liable for the actions of their agents. John Demco, an attorney who represents Windermere, says the law "made it so agents couldn't be second-guessed after the deal. Overall, it's a good consumer law because it defines the relationships so that people have a better understanding of their working relationships. I think it protects the buyer, the seller and the licensees. Anything that brings clarity to a confused world is good for everybody."
But, the law has critics too, who say it's set up to protect agents more than buyers and sellers. David Templeton, a Seattle attorney who's handled his share of real estate cases, says that telling buyers that agents represent them, when their commissions depend on the seller being paid, is misleading. And local attorney Michael Grace, who recently won a case against John L. Scott, says the law contains a passage that frees agents from having to conduct independent inspections or verify the accuracy of statements made by buyers or sellers during the negotiating process, which represents an erosion of "good case law, which provides that there is a duty to verify facts when the agent has reason to know that the facts are crucial to one party. We're getting back to the doctrine of 'buyer beware.'"
A Trio of Lawsuits
Tingvall's doggedness often pays off. He says that only between four and six consumer disputes go to court every year and he wins A fair number of the ones that do-though he sometimes has to appeal all the way to the Supreme Court to find success. Lately, however, his luck hasn't been so good. Three. cases have come up in recent years that John L. Scott has lost, at least so far (one is still on appeal). The details have drawn a lot of attention because it appears that in each instance Tingvall has taken an arch position over a fairly small amount of money. Tingvall defends his actions, saying the cases are about more than money-they're about principle, about being in the right.
One case involved Cora E. Edmonds, a first-time home buyer who was looking -for a home with a dry basement for an office. She was in the process of purchasing a home with a known water leakage problem through John L. Scott, but wanted the leak fixed before closing. She made the sale contingent on the sellers hiring a contractor to fix, the basement and giving her a warranty, which they did. The contractor was unsuccessful in fixing the leak, however, so Edmonds pulled out of the sale at the last minute. Tingvall determined that Edmonds had signed a contract that guaranteed her not a dry basement but a warranty from a contractor. Relying on this legal fine point, he declared her in default and divided her $5,001 earnest money deposit between the sellers and the John L. Scott agents involved. Edmonds sued to get her money back.
The courts sided with Edmonds, ruling that John L. Scott breached its fiduciary duty when it dispersed the earnest money, that its agent hadn't adequately protected Edmonds' interests, and that the company committed two violations of the Consumer Protection Act. Tingvall, who unsuccessfully appealed the case to the Supreme Court, complains that "The court is not supposed to rewrite the contract for the parties and put them in a better position than what they bargained for." He says the case set a negative precedent that will send more earnest money disputes to court. Others say there was no such principle at stake and that the case is an example of John L. Scott's overzealousness-the case involved a mere $5,001 but racked up around $100,000 worth of attorney's fees for Edmonds alone, fees that John L. Scott will now have to pay. When asked whether Windermere Real Estate would have handled the case the same way, Windermere attorney Demco said, "When you look at the result, we would have probably handled it differently. We would not have fought over $5,000 in earnest money. It's probably not the best business decision."
Next came Clay and Mary Heinzen, who sued John L. Scott for failing to disclose known flooding problems at the home they bought in 1995. According to- attorney Grace, who represented the Heinzens, the sellers had been advised by a John L. Scott agent not to tell potential buyers about possible problems with flooding, saying that if it hadn't happened to the sellers themselves, they could claim they didn't have "actual knowledge." "I have no doubt that there are a lot of good and honest and ethical agents at John L. Scott," he says. "These folks just didn't happen to run across one. And John L. Scott's legal policy was basically to deny, deny, deny."
Grace-,says Tingvall argues that the agent had no knowledge of the flooding and so was shielded from liability. The court found that John L. Scott negligently misrepresented the flood risk and ordered the company to pay the couple $192,900. In return for dropping their appeal, John L. Scott actually paid the. couple only $150,000, according to a memo Tingvall sent out after the P-I. story. In that memo, he admits that "it appeared that the listing agent did know more about the problem than what he had told us. The listing agent is no longer associated with John L. Scott."
The Man with the Flyers
Svendsen bought a house through John L. Scott in September 1995. "In November I got a call at work .that my backyard and garage were full of water," he recalls. "Water was coming from a storm sewer in my neighbor's yard, which is slightly uphill." There is a dry well on Svendsen's property that's supposed to catch minor overflows, but it had apparently clogged. Svendsen's car ,and the contents of his garage sustained thousands of dollars worth of damage. Svendsen didn't know it, but his neighbor's drain had clogged at least twice before, when the former owners lived in the house.
He found an attorney and filed suit against the former owners, who filed bankruptcy and told Svendsen that the John L. Scott listing agent had advised them not to mention the flooding on the disclosure form (where a "yes" answer was actually scratched out and initialed by the owners) because it had been a couple of years since the last washout. They say they told the agent to tell potential buyers about the problem, though the agent would say in court that she didn't remember the conversation. Svendsen added John L. Scott to the suit. "We tried to talk to John L. Scott," he says, "and we were given a stiff arm. They didn't want to talk to us. To this day, not one single John L. Scott manager has been out to the property to see what's wrong."
The case went to trial and Tingvall argued that the previous owners believed the problem had been fixed and characterized the periodical .cleaning of the neighbor's pipe as a maintenance issue. The jury ruled in Svendsen's favor and, awarded. him $38,298, in part to install a proper drainage system; the judge tacked on $17,500 for attorney's fees and $6,500 in damages. The court held that John L. Scott had violated consumer protection laws and had committed "fraudulent concealment" in the sale of the house. In fact, Superior Court judge Jeffrey Ramsdell wrote that "Several other published appellate court cases appear to reflect that the defendants have taken a hard-line approach to consumer complaints, requiring the consumer to litigate in order to obtain relief."
Tingvall filed an appeal. "The law is clear in this state," he says, "at least it was until the Svendsen case was decided, which is why we're taking it on appeal. It says that sellers and brokers don't have to disclose past defects that the seller and broker reasonably believe have been corrected. If the law were otherwise, how long would something like that taint a property? I mean, is it enough that it doesn't occur for 10 years? Or would it have to be disclosed after 20 years? Because, let’s face it, if a person discloses a nonexistent defect, it does raise questions in buyers' minds, and the merest shadow of a suspicion about whether a house is predisposed to have a problem has a chilling effect on the marketability of the house and what the sellers will get for the house."
Svendsen and Tingvall have gone back and forth since the decision, but in September, John L. Scott finally offered to pay the judgment in full, in an attempt to curtail Svendsen's media campaign. Svendsen says the offer was too little too late. His attorney, George Purdy, who's taken the appeal on a contingency basis, estimates that attorney's fees will near $80,000 by the time all is said and done. Add to that the two months Svendsen has had to take off from work to attend court and the many hours he's spent at open houses distributing pamphlets, and an amount closer to $200,000 sounds more reasonable to him. Tingvall calls the figure an attempt at extortion," and John L. Scott has since written to Svendsen that "we will not negotiate with you further." It looks like the case is headed for appeals court.
Purdy says the figure is just a negotiating point. "He's entitled to say 'This should not have happened and I shouldn't have to pay one penny, out of my pocket. I shouldn't have missed work and lost all my Sundays trying to inform the public. It will take extra money, John L. Scott, for you to say you're sorry.' This is a corporate decision by John L. Scott," he continues. "They want all lawyers in Seattle to know that if you try to redress a consumer complaint, we're going to make it very expensive for you. Until Svendsen, Heinzen, and Edmonds came along, that had worked very successfully for them. They've made a living off of stiffing consumers."
Or maybe it's as Seattle lawyer Mark Hartwig says, that John L. Scott cares more about perceived principles, setting precedents, and proving they're right than about public relations. "From a legal standpoint, they are very often right," says Hartwig, who represented clients who lost a case opposite Tingvall, "but from a moral standpoint I think they have some problems. Buying a house is a huge undertaking and it's scary." People back out all the time, he says, "but John L. Scott holds people's toes to the fire. They are in it for the bucks and in my opinion take the short-term view of the relationships with potential consumers and consumers they are dealing with. It's a very black-and-white attitude."