Lesniak v. Caulder: North Carolina Court Rules in Broker’s Favor, Citing Lack of Damages

Note: This case has not been included in an official reporter and may not be cited as legal authority. Consult with counsel before relying on this decision.

An unreported case decision from the North Carolina Court of Appeals, is a very favorable decision for the real estate licensee, but another court addressing similar issues might not reach the same conclusion.

Lesniak v. Caulder, involved a tract of land containing over 16 acres in Henderson County, North Carolina (the "Tract"), which was listed for sale with a real estate broker at the price of $99,500. William Lesniak, who owned adjacent property, wished to purchase the Tract and contacted the broker. Lesniak told the broker that his relationship with the sellers was poor, and that they probably would not agree to sell if they knew he was the purchaser. The broker suggested that Lesniak make an offer to purchase the Tract through the use of a "straw man", and the broker agreed not to disclose Lesniak’s identity to the sellers.

The broker presented an offer to the sellers from Lesniak’s father-in-law, Charles Town, to purchase the Tract for $85,000. The same day, the broker wisely contacted the North Carolina Real Estate Commission ("NCREC") to ask whether he had an obligation to disclose the purchaser’s true identity to the sellers. The broker then received a counteroffer from the sellers for $92,000. Before telling Lesniak anything, based on the advice he received from the NCREC, the broker told the sellers that Town was Lesniak’s father-in-law. They withdrew their counteroffer and stated that they only would sell to Town for the full price of $99,500. Later the same day, the broker informed Lesniak that he had disclosed Town’s identity to the sellers and that in the future, he would have to reveal any information about Lesniak’s involvement in the purchase to them. Lesniak claimed that the broker did not communicate to him that the sellers would have sold the property to Town for $99,500. The Tract was sold to someone else the following month.

Lesniak sued the broker, who moved for summary judgment, which the trial court granted. On appeal to the North Carolina Court of Appeals, Lesniak claimed breach of fiduciary duty and unfair and deceptive practices by the broker. In its analysis of these claims, the court focused solely on whether Lesniak had suffered injury and damages as a result of the broker’s actions. Lesniak testified that his only loss was any potential appreciation of the Tract which he would have realized had he purchased it. The court held that the loss of potential appreciation was too speculative to constitute sufficient damages, and therefore ruled in favor of the broker.

Note: While the Lesniak decision certainly is a positive result for the broker, it is surprising that the court, in addressing a claim involving a broker’s breach of fiduciary duty, did not analyze the agency relationships present in the situation. It is very likely that another court, faced with similar facts, would focus on the agency relationships and might reach a different conclusion.

State agency statutes, rules and regulations vary considerably, but in general, when there is an agency relationship between a licensee and a consumer, the licensee owes the consumer the traditional fiduciary duties (loyalty, obedience, disclosure, confidentiality, reasonable care and diligence and accounting.) If an agency relationship does not exist, then the licensee would not owe that consumer the fiduciary duties that stem from an agency relationship, and therefore, the licensee would not be liable for breach of fiduciary duties if he did not owe them in the first place.

In many situations, the written agreement between the licensee and the consumer, whether it is a listing agreement or a buyer representation agreement, expressly establishes an agency relationship. However, real estate practitioners should be aware that an agency relationship also may be established by the words, and/or actions of the parties - this is called implied agency or accidental agency. If a court finds that an implied agency relationship existed in a given situation, then that licensee will have owed the consumer all of the duties of an agent - in most states, these are all of the traditional fiduciary duties - even if the implied agency relationship was unintended by the licensee.

It is important to understand that conduct can create an implied agency relationship even if the parties have signed an acknowledgment form which denies the existence of an agency relationship. Implied agency is most likely to occur when the listing broker or a subagent of the seller does not make the proper agency disclosures and works too closely with a buyer customer, resulting in the buyer thinking the licensee is representing him. If a court would find an implied agency relationship between a licensee who represents the seller, and the buyer, that also could raise the issue of whether an undisclosed dual agency situation existed. While in most states, disclosed dual agency is legal, undisclosed dual agency always is illegal. Licensees, especially those who already are representing one party in a transaction, should be careful not to act in ways that might cause other parties to the transaction to think that they are clients and that the licensee is representing them.

Lesniak v. Caulder , 129 N.C. App. 843, 504 S.E.2d 820 (N.C. Ct. App. 1998).