Giomi v. Fegenbush: Broker Owes Client Accounting for Property Management Services

A Hawaii federal court has considered whether a real estate professional’s management of her client’s rental property purportedly “as a friend” subjected her to the legal duties that a property manager owes to his/her client.

Inmi Fegenbush (“Broker”) represented Richard and Sally Giomi as well as members of their family (collectively, the “Clients”) in various real estate transactions.  Following some of these transactions, the Broker began assisting the Clients in the leasing of the properties.  The Broker found tenants, collected the rent, arranged for maintenance of the properties, and made the mortgage payments for these properties. The parties did not enter into a formal property management agreement.

The Broker deposited the rental income into joint accounts that she held with the Clients, although she admitted that she did occasionally place the funds into her personal account first in order to have immediate access to the funds.  The rent checks were sometimes made out to the Broker, other times to the Clients.

The Broker claims that she made no additional money from providing the property management services, although admitted to sometimes using the funds collected for her personal expenses.  Instead, the Broker asserted that she had provided the property management services gratuitously to the Clients as a friend.  However, one of the Clients produced evidence allegedly showing that the Broker charged a 10% management fee.

The Clients brought a lawsuit claiming that the Broker owed them an accounting for the funds collected and expended during her property management services.  The court considered whether the Clients were entitled to an accounting.

The United States District Court for the District of Hawaii ruled that the Clients were entitled to receive an accounting from the Broker.  If the Broker served as an agent for the Clients, then this fiduciary relationship would require the Broker to account for all funds received and expended on behalf of the Clients.

The court determined that an agency relationship existed between the parties.  Even though there was no written agreement for the Broker’s property management services, the actions of the Broker indicated that the Clients had designated her to serve as their agent.  She performed all of the functions involved in managing the property, and so was serving as the Clients’ agent in the management of their properties.  It was irrelevant whether she was doing this as a friend or even if she was not being compensated; because she was serving as the property manager, she owed the Clients a fiduciary duty.

Because a fiduciary relationship existed, the Broker owed the Clients an accounting of all funds received and expended on their behalf in the management of the properties.  The Broker had not yet provided such an accounting to the Clients, and so the court ordered the Broker to provide an accounting to the Clients for the funds related to her property management services.

Giomi v. Fegenbush, CIV. 11-00292 SOM, 2012 WL 2022297 (D. Haw. June 5, 2012).  [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.]