Deceptive Consumer Sales Act Does Not Apply

Deceptive Consumer Sales ActIn a recent post, we discussed Rainbow Realty Group Inc., v. Carter, in which the Indiana Supreme Court considered whether a particular “rent-to-buy contract” was a land contract or a rental agreement. The court held that the transaction was a rental agreement, notwithstanding language in the contract that the transaction was a purchase and not a lease. Accordingly, the property was subject to the statutory requirement that a dwelling unit subject to a rental agreement must be in clean, safe, habitable condition. Because the house was clearly uninhabitable, Rainbow Realty violated that requirement.

Next, the Court considered the claim of the Carters that Rainbow Realty’s unsuccessful attempt to disclaim the statutory warranty of a safe, clean, habitable dwelling violated the Indiana Deceptive Consumer Sales Act (or “DCSA”), Ind. Code ch. 24‑5‑0.5. In particular, the Carters relied on Ind. Code § 24‑5‑0.5‑3(a)(8)*, which (at the time the rent-to-buy contract was signed) provided that a supplier’s representation that a “consumer transaction involves or does not involve a warranty, a disclaimer of warranties, or other rights, remedies, or obligations, if the representation is false and if the supplier knows or should reasonably know that the representation is false” is a deceptive act actionable under Ind. Code § 24‑5‑0.5‑4(a), which provides a private cause of action for consumers who are the victims of deceptive acts.  The court held that the tenants had no DCSA claim, for no less than three distinct reasons.

First, a false representation that Subsection 3(b)(8) defines a deceptive act as including a false representation that a transaction does or does not involve a warranty only if the supplier (i.e., Rainbow Realty) knows that its representation is false. In this case, the Supreme Court held that Rainbow Realty did not know its representation was false and, therefore, did not commit a deceptive act. Indeed the Supreme Court pointed to the fact that three members of the Court of Appeals agreed that the transaction was a land contract and, therefore, that Rainbow Realty’s representation of the absence of a warranty of habitability was, in fact, true. In essence, the Supreme Court held that no one could have known whether the representation was false until the court held that it was false.

Second, the court pointed out that Subsection 4(a) provides that “[a] person relying upon an uncured or incurable deceptive act may bring an action for damages.” The court held that there was no evidence that the Carters had acted in reliance on Rainbow Realty’s representation of no warranty of habitability and, therefore, they had no claim under Subsection 4(a).

Finally, the Supreme Court noted that Subsection 4(a) “does not apply to a consumer transaction in real property… except for purchases of time shares and camping club memberships.” The court held that the Carters had no cause of action because the rent-to-buy contract was a transaction in real property. It is worth noting that, in addition to the consumer’s right to an action under Subsection 4(a), the Indiana Attorney General has authority to enforce the DCSA under Subsection 4(c).  That subsection does not exclude transactions in real property.

*The statute has since been amended to add a new subsection 3(a), with old subsection 3(a) being renumbered as 3(b). Accordingly, what was Ind. Code § 24‑5‑0.5‑3(a)(8) is now Ind. Code § 24‑5‑0.5‑3(b)(8).