Broker's Statutory Defense Rejected

A California appellate court has considered whether a dual agent could rely upon a statute of limitations for listing brokers when the claims were brought by the broker’s buyer client.

Robert and Denise Costa (“Sellers”) contacted Connie Gidal (“Salesperson”) of William L. Lyon & Associates (“Brokerage”) about listing their home for sale, as the Brokerage had represented them in the purchase of the home.  Ted and Patty Henley (“Buyers”) became interested in purchasing the property, and they entered a buyer’s representation agreement with the Brokerage, meaning the Brokerage and Salesperson were now serving as a dual agent.  The Buyers completed the purchase of the home.

Following their purchase, the Buyers began discovering defects on the property, including problems with water intrusion. The Buyers claimed that the defects had been hidden by the Sellers. The Buyers filed a lawsuit against the Sellers, the Salesperson, and the Brokerage, alleging breach of contract, breach of fiduciary duty, negligence, and negligent misrepresentation.  The Sellers filed a cross-complaint against the Brokerage, seeking comparative indemnification.

The Brokerage sought judgment in its favor, arguing that the statute of limitations and a clause in the buyer’s representation agreement barred the Buyers’ claims.  The trial court ruled in favor of the Buyers and Sellers and allowed the lawsuit to proceed.  The Brokerage appealed.

The California Court of Appeal, Third District, affirmed the rulings of the lower court.  The court first looked at whether the statute of limitations barred the lawsuit against the Brokerage.  California has a statute that requires the licensee representing the seller to conduct a “reasonably competent and diligent visual inspection of the property offered for sale and to disclose all facts materially affecting the value or desirability of the property.”  This statute contains a two-year statute of limitations.  The Brokerage argued that they were protected by the statute, but court disagreed, finding that the statute only applied to licensees representing sellers.  Even though the Brokerage had also represented the Sellers, the claims at issue were made by the Buyers and so the court ruled that these claims were not subject to the statute.

Next, the court looked at language found in the buyer’s representation agreement to see whether that barred the claims made against the Brokerage.  The purchase agreement, a form prepared by the California Association of REALTORS®, contained a clause which limited claims arising from the agreement to two years.  Normally, breach of contract actions in California such as alleged here are subject to a four-year statute of limitations.

The court ruled that the agreement’s two-year limitation was effective, but the two-year period did not start until the Buyers discovered the alleged defects on the property.  Because there was a dispute over when the defects were discovered by the Buyers, the court sent the case back to the lower court for further proceedings on whether the breach of contract claims were barred by the agreement’s two-year limitation.

All of the other claims made against the Broker did not arise from the buyer’s representation agreement and therefore were not barred by the two-year limitation period contained in the agreement.  In addition, the Sellers’ indemnification action was not barred for the same reasons that the Buyers’ claims were allowed to proceed.  Therefore, the court affirmed the trial court’s ruling in favor of the Sellers and Buyers, allowing the lawsuit to continue against the Brokerage.

William L. Lyon & Associates, Inc. v. Superior Court, 139 Cal. Rptr. 3d 670 (Cal. Ct. App. 2012).

Editor’s Note:  The California Association of REALTORS® filed an amicus curiae brief in this case.