Once in a while there’s an appellate court decision that makes you scratch your head, or makes your heart skip a beat. I read an opinion last week that did both. In Sage v. Blagg Appraisal Company, the Arizona Court of Appeals suggests that if you are:
–a professional consultant (you have a license or certificate to practice your profession), and
–you produce a report in writing for a client or customer under a written contract to do so, and
–you have reason to know that someone else might see the report, whether or not this is someone you have met, heard of or even know exists, then if you make an misstatement of fact or draw an incorrect conclusion in that report, as a result of failing to use “reasonable care,” you could be liable to that someone else.
There’s an eye-opener! In this opinion, we’re told that an appraiser performed a bank appraisal for a loan after a purchaser signed a contract to buy a residence. The purchase contract made the sale contingent on there being a sufficiently high valuation of the residence. So, the report was done, the appraisal came in sufficiently high to support the loan, and the transaction closed. And, as we know, the real estate market then collapsed.
The bank was the customer of the appraiser, who did not know and had not met the purchaser. The evidence at the trial court level was that the borrower/purchaser may not even have read the appraisal report, other than the noticing the opinion of value. Some time later, the purchaser decided that the house was no longer worth the purchase price; and in retrospect, she discovered that the opinion of value was based upon an error in the calculation of the square footage – the appraisal was higher than the square footage of the house supported. The purchaser sued the appraiser, and the trial judge dismissed the suit because, he opined, the purchaser was not in the concentric circle of persons who foreseeably would rely upon the opinion of value. In part, the trial judge may have been influenced by the disclaimers in the appraisal – particularly, that no one other than the bank (customer) could rely on the information or expressed opinion of value.
The Court of Appeals has a different view of the significance of those disclaimers – that they are meaningless (they don’t even put another party on inquiry notice) – and the ambit of forseeability (that sense of whom is foreseeable that can be inferred from “circumstances” that the appraiser may or may not be aware of). In this case, the circumstance was the existence of a federal statute that required a lender to share the work product of the appraiser if the borrower asks to see it. (So the appraiser knew that there was some probability that the borrower might ask for a copy, admittedly.) The Court has contradicted a previous (2004) opinion of the other appellate division, called Kuehn v. Stanley, in reaching this conclusion.
I want to be fair in stating that the holding of the Court was explicitly limited to the case where a lender-retained appraiser performs a valuation in connection with a “purchase-money” mortgage sought by a prospective home buyer of the appraised residence; in that instance, the appraiser has a duty of care to the buyer herself in performing his work. Likely the Court panel really did want the decision to govern the behavior of residential appraisers who might be inclined to work too quickly—and, therefore, perhaps too carelessly—in doing a high-volume business in a “hot” residential market. (And, rumor has it, some in the appraisal trade are sanguine about a decision infusing accountability into the appraiser fraternity membership.) But it’s disturbing when logic is applied to marginal cases, achieving a particular result. Those elements of logic migrate, like corpuscles in the capillaries, from the margins to the mainstream, starting with the peculiar little situations that cry out for an equitable outcome, until they affect major legal principles like the reach of the duty of care in negligence cases of statewide significance.
I’m concerned about this opinion because I intend for others to read these blog posts. In fact, I hope someone reads this one, and soon – I don’t pretend that my ego isn’t boosted by attention. But the reason that there are disclaimers on the site where Patrick and I post is because we know from the outset that “one size doesn’t fit all” – so we don’t want anyone taking what we say too seriously about real estate or investments generally having any application to the reader’s own life conditions. But what if someone reads a post, and decides “gee, this guy sounds like he’s on target here,” and conducts herself in a manner suggesting she’s relying on the observations of these posts’ writers. Is my intention to be read enough to create a duty never to state anything incorrectly here?
Honestly, it’s absurd to read blog posts and make important decisions on the basis of untested statements of facts (and their interpretations, aka “spin”) and opinions. But neither Patrick nor I can control what you do, good readers. What if you do act based on something you read here? Are the ‘blogistas’ liable if our conclusions or points of view do not lend to your improved wealth, contentment or enlightenment?
The fortunate circumstance of blogging-authorship is that we who write are not directly compensated by our readers for our ‘Net-musings. But are we treading upon a slippery slope? What happens if an Arizona court later were to say, “well, it was forseeable that a reader might view your experience, evidenced in your posts, as attention- worthy and might find your words reliable enough–and they were damaged for applying your outlook to their particular situations. Really, you do intend for them to be impressed by your knowledge of [what have you], or you wouldn’t blog to begin with, right?” What then? Should professionals stop blogging?
The Sage v. Blagg Appraisal Company decision may be appealed, so there’s no point in delving much into its legal analysis, except to remind you, readers, of two things. One, watch what you write, and use caution in spreading it around, if you are a licensed professional. And two, recall that free advice is worth precisely what you pay for it. (That’s my sense of the value of the majority of blog sites’ and chat rooms’ material.) Bonus: Please go back and read the disclaimers on the right margin of this terraincogito page. We mean them. Really.