Broker Accountable for Affiliate Negligence

Read the full decision: Crumpton v. Grissom

In Crumpton v. Grissom, a Tennessee appellate court found that a managing broker (“Managing Broker”) could be held accountable for the misrepresentations and negligence of an affiliate broker (“Affiliate Broker”), even though the Managing Broker was not personally involved in the transaction.
After closing on a mixed-use property, plaintiff Reid Crumpton (“Buyer”) discovered that a five year non-compete clause in an addendum to the real estate sales contract had been excluded from some signed copies of the contract.  The non-compete clause affected Buyer’s ability to conduct his business on the premises.  Buyer sued Affiliate Broker and Managing Broker, alleging that Affiliate Broker had made misrepresentations and been otherwise negligent in regard to the sales contract, and that Managing Broker had breached her duty to supervise the Affiliate Broker in the transaction. 

The trial court entered summary judgment in favor of Managing Broker, holding that she had no knowledge of the substance or details of the transaction, and that “neither Tennessee statutes nor Tennessee case law suggests that managing brokers’ duty to supervise their affiliates can create liability on the part of the managing broker where the managing broker has no direct involvement with or knowledge of the transaction.”

Buyer appealed the trial court’s ruling, and the appellate court reversed and assessed the costs of the appeal against the Managing Broker.  In its opinion, the appellate court stated that under the Tennessee Real Estate Broker License Act, it is the unambiguous duty of a managing broker to ensure that her subordinate licensees “conduct their business in accordance with appropriate laws, rules, and regulations.”  In this case, held the appellate court, Managing Broker had clearly owed such a duty to Buyer, and had failed to produce any evidence that she had satisfied this duty. 

In short, stated the appellate court, the trial court’s erroneous ruling would, if put into practice, allow managing brokers to avoid their statutory duties “by simply and purposefully remaining ignorant of the substance and details” of a subordinate licensee’s transactions.  

Crumpton v. Grissom, No. E2013-00218-COA-R3-CV, 2013 WL 6835154 (Tenn. Ct. App. Dec. 23, 2013).  [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].