Share
New York's highest court has considered whether a real estate licensee violated her fiduciary duty of loyalty to her client when she purchased the client's property after having worked with the client in attempting to sell the property.
Elizabeth M.R. Dubbs ("Seller") placed her cooperative apartment on the market for sale. The property was an "open" listing, meaning that any broker who produced a purchaser was entitled to receive a commission. Avery Chappel-Smith ("Licensee"), a licensed agent, and Judith Durham ("Broker"), a licensed broker, worked for Stribling & Associates ("Brokerage"). Together they attempted to produce a buyer for the Seller's property. The Seller told the Licensee and the Broker that she had wanted to buy the property next door and combine it with her apartment, but since the person next door refused to sell ("Neighbor"), she was forced to sell her apartment. The Licensee and Broker showed the Seller's apartment to several potential purchasers, after which the Licensee decided to make an offer on the property herself.
The Broker presented the offer to the Seller, telling the Seller that she did not owe a commission if the transaction proceeded. The Broker also advised the Seller to make absolutely sure that the Neighbor did not want to sell, which the Seller confirmed. In December 1994, the Seller accepted the Licensee's offer. In the purchase contract, "none" was written in the place for the broker's name and all references to payment of a commission were crossed off. The closing was put off until the Seller could find a new apartment. The Licensee initially helped the Seller locate a new apartment but the Seller eventually used another broker to help her find a new apartment, for which her offer was accepted in March 1995.
The closings for both sales were scheduled for May 30, 1995. Approximately three weeks prior to the closings, the Licensee reached an oral agreement with the Neighbor to purchase her property. The sale between the Licensee and the Neighbor closed on June 5, 1995. The Seller did not learn of this agreement until after the closing, at which time she brought suit against the Brokerage for breaching its fiduciary duty to her. The trial court entered judgment in favor of the Brokerage, and the appellate court affirmed. The Seller appealed.
The Court of Appeals of New York, the state's highest court, affirmed the lower courts. The court stated that in New York, a broker owes a duty of loyalty to its principal. When the broker wants to take a personal interest in the transaction, the broker must disclose to the principal the nature and extent of the broker's interest in the transaction. Looking at this case, the court ruled that the Licensee had fully disclosed to the Seller her intent to purchase the property. Additionally, when the Licensee decided to purchase the property, she stopped representing the Seller and thus the transaction was conducted at "arm's length." Therefore, the Seller had no reason to think that the Licensee was continuing to act as her fiduciary at that point.
The Seller also argued that the Licensee may have known about the Neighbor's intent to sell her apartment prior to May 1995. The court ruled that the Seller had not produced any evidence supporting that argument, and the only evidence for the court to consider was the sworn statement by the Neighbor stating that she had not decided to sell the apartment until early May 1995. The court also rejected the argument that the Licensee used to her advantage information on how the two apartments could be joined, finding that a plan showing how this could be done had been on file at the Brokerage's office since 1991 and was not confidential. Thus, the court affirmed the lower court's judgment in favor of the Brokerage.
Dubbs v. Stribling & Assoc., 96 N.Y.2d 337, 752 N.E.2d 850, 728 N.Y.S.2d 413 (2001).