Breach of Fiduciary Duty Claims Denied

Read the full decision - Busch v. Domb

Pennsylvania federal court rules that real estate brokerage did not owe fiduciary duties to seller when acting as a dual agent and so dismissed those claims against brokerage but allowed the other claims to continue.

A homeowner (“Seller”) listed her home for sale with a real estate brokerage (“Broker”). After her home had remained unsold on the market for several months, the Broker advised the Seller to substantially reduce the listing price. The Seller reduced the price from $875,00 to $650,000, with the Broker telling the Seller that the reduction represented the amount of work the property required. The Seller sold her home and the Broker served as a dual agent in the transaction.

Following the sale, the Seller learned that the buyer was a real estate investor (“Investor”) who entered into an agreement to sell the property to another buyer for the original listing price approximately a month after the closing. Additionally, the Seller became aware that the Broker had a longstanding relationship with the Investor and had represented the Investor in the second transaction, thereby earning a second commission.

The Seller filed a lawsuit against the Broker. In her lawsuit, she alleged misrepresentations and omissions against the Broker, including failing to disclose that the Broker had a history of working with the Investor and also advising the Seller that $650,000 was a fair sales price. The Broker filed a motion to dismiss.

The United States District Court for the Eastern District of Pennsylvania dismissed the breach of fiduciary duty allegations but allowed the other claims to proceed. The court looked at the relationship between a real estate professional serving as a dual agent and his/her clients. The court determined that this relationship did not constitute a fiduciary one because it did not have the usual hallmarks of a fiduciary relationship where one party is putting its complete trust into the other party. The court found that state case law supported this conclusion that a disclosed dual agent is not in a fiduciary relationship with his/her clients. Therefore, the court dismissed these allegations against the Broker.

Next, the court considered whether to dismiss the consumer fraud act allegations against the Broker over the Broker’s alleged misrepresentations and omissions. The Broker argued that the economic loss doctrine and the integration clause in the purchase agreement barred these claims. The court rejected both arguments. First, the economic loss doctrine (which bars tort claims that arise from a contract) does not apply to deceptive trade practices claims in the state. Second, the integration clause in the purchase agreement (which barred claims based on representations outside of the purchase agreement) did not apply to the Broker’s statements to the Seller, as the Broker was not a party to the purchase agreement and thus the integration clause did not bar the use of his statements. Therefore, the court dismissed the breach of fiduciary duty claims but allowed the other claims to proceed.

Busch v. Domb , No. CV 17-2012, 2017 WL 6525779 (E.D. Pa. Dec. 21, 2017). [This is a citation to a Westlaw document. Westlaw is a subscription, online legal research service. If an official reporter citation should become available for this case, the citation will be updated to reflect this information.]