TCJL today filed an amicus brief in a matter pending before the Texas Supreme Court regarding a key provision of the 1995 reforms to the Deceptive Trade Practices Act (DTPA).
Khosrow Sadeghian v. David Jaco (No. 20-0285) arises from a sale of residential real estate. The buyer alleges that the seller committed an “unconscionable action or course of action” to the buyer’s detriment under § 17.45(5), Tex. Bus. & Comm. Code (the DTPA). That subsection defines an unconscionable action or course of action as an “act or practice which . . . takes advantage of the lack of knowledge, ability, experience, or capacity of the consumer to a grossly unfair degree.” The buyer contended at trial that a “gross disparity” between the sales price and the appraisal roll value established an unconscionable action under the statute. The jury agreed and found that the buyer suffered $60,000 in economic damages. Under the DTPA’s treble damages provision, the trial court awarded $181,800 in economic damages. Under the DTPA’s attorney’s fee provision, the trial court awarded $125,000 to the buyer’s attorney, as well as an additional $115,000 if the seller appealed the judgment. The trial court also voided the buyer’s note, terminated the seller’s lien on the property, and terminated the deed of trust securing the note. The Dallas Court of Appeals affirmed the judgment.
TCJL’s interest in the case stems from the court of appeals’ decision to let stand a jury finding of unconscionability based on the sales price of the property alone. In 1995 TCJL spearheaded the successful legislative effort to overhaul the DTPA, which had become a general tort cause of action pleaded in just about every case, rather than a consumer protection statute as the Legislature intended. As part of this reform, TCJL advocated for the repeal of an independent basis for a DTPA action a “gross disparity between the consideration paid and the value received” in the consumer transaction. We argued that this “gross disparity” standard was wildly subjective and gave buyers who soured on the bargains they previously made an easy issue to litigate. The Legislature agreed and repealed the “gross disparity” basis for a DPTA action, leaving the current “unconscionable action or course of action” in the statute. This change substantially reduced the volume of baseless DTPA claims.
Khosrow, however, revives the discarded “gross disparity” standard by making it sufficient evidence to support a finding of unconscionability under the DTPA. In this particular case, the buyer bought the home at a price that exceeded its appraised value for property tax purposes. It should go without saying that a tax appraisal has very little to do with the sales price of a home because: (1) appraisal districts use mass appraisal techniques to value residential property; (2) appraised values for tax purposes are a snapshot of value at a particular time under particular market conditions; and (3) there are a lot of other aspects of a home that buyers want and are willing to pay for that are not reflected in a tax appraisal. If the court of appeals’ decision is not reversed, every home sale in which a buyer paid some amount above the tax appraisal might become the subject of a DTPA lawsuit. Simply put, nobody can define “gross disparity” because it is purely in the eye of the beholder.
As we say in our brief:
“Basing a claim of unconscionability on a tax appraisal performed using mass appraisal techniques ignores the plain fact that such an appraisal derives not from an individual assessment of the unique characteristics of the property but from a mathematical model that at best represents a broad estimation of value in a particular area at a particular time under particular market conditions. Appraisal roll values thus provide a snapshot of a moment in time, recognizing that those values are only good for that moment. What seller—or seller’s real estate agent—ever refers to a tax appraisal when determining the sales price of a property? What buyer makes an offer based on that appraisal? The appropriate measure of value in residential real estate transactions, of course, is comparable sales of similarly situated property, but even sales in an area can vary fairly widely depending on the unique characteristics of the property, the inventory of residential real estate in the area, the specific features a buyer might be looking for, or any of a number of other factors. In any event, finding out the appraised value of a residence merely requires going to the appraisal district’s website and entering the address of the property. If a prospective buyer thinks the seller is asking too much for the residence based on the appraised value, he or she can make a suitable counteroffer or walk away.”
The case is at the merits briefing stage.