Licensee Liable for Negligent Statement

Read the full decision: Slauson Avenue, LLC v. Thomas Gilleran

California appellate court affirms verdict against real estate professional who the court ruled had misstated a property’s square footage.

A real estate professional (“Licensee”) informed the managing partner (“MP”) of an LLC (“Buyer”) about a property consisting of two residential and two commercial units (“Property”) that was available for sale. The Buyer owned and managed various commercial properties in the same area. The MP signed a dual agency agreement allowing Licensee to represent both the Buyer as well as the property’s owner (“Owner”) during the transaction.

The MP entered into a purchase agreement for the Buyer to acquire the Property. During the Buyer’s due diligence, the Licensee sent the MP information about the Property’s rents. The Licensee also told the MP that the Property had a square footage of 4,500 square feet, which she had measured by pacing off the rooms. The Licensee did not inform the MP how she had calculated the square footage. Based on this information, the MP testified that the Buyer had proceeded with the purchase because it believed the Property’s current rents were under-market based on the property’s size.

Following the purchase, the Buyer learned that the actual square footage was 3,036 square feet. Based on those measurements, the Buyer realized that it could not charge the rents it had expected to collect and demanded that the Owner reduce the purchase price. The Buyer also refused to make the required installment payments that were part of the purchase agreement. Eventually, the Owner foreclosed on the Property and the Buyer filed a lawsuit against the Owner, the Licensee, and the Licensee’s broker (“Broker’). The trial court found that the Licensee had negligently misrepresented the Property’s square footage and the Broker was vicariously liable for the Licensee’s conduct. The court entered a judgment of $571,635 against the Licensee and the Broker, with the award consisting of compensatory damages as well as interest. The Broker appealed.

The California Court of Appeals, Second District, affirmed the trial court. The court considered a number of challenges to the award raised by the Broker. First, the Broker argued that the Buyer’s reliance on the Licensee’s misrepresentation was unreasonable, citing several disclaimers that the Buyer had received stating that the Buyer was responsible for verifying all representations about the Property. The court found that the Broker had failed to address any of the evidence presented at trial about the Buyer’s reliance and therefore forfeited its ability to challenge the court’s ruling with this argument.

Next, the Broker argued that it should not be vicariously liable for the Licensee’s conduct because the Licensee had exceeded the scope of her authority when she provided the square footage to the Buyer. The Broker cited a statute and two out-of-state cases supporting its argument, but failed to develop its argument as to how the trial court erred in this case by finding the Broker vicariously liable for the Licensee’s actions. Thus, the court dismissed this argument as well.

In a cross-appeal, the Buyer argued that the court should have found the Licensee’s negligent misrepresentation to constitute actual fraud. The evidence did not show that the Licensee had intended to induce the Buyer to enter into the purchase agreement when she provided the inaccurate measurements, and therefore the court determined that the Licensee could not be liable for fraud since demonstrating this intent was an element of fraud. Therefore, the court dismissed both appeals and affirmed the trial court’s award to the Buyer.

3405/3407 Slauson Ave., LLC v. Gilleran, No. B265290, 2018 WL 2947925 (Cal. Ct. App. June 12, 2018). [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.]