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A Colorado appeals court has ruled on whether a broker should be denied a commission because the broker breached the fiduciary duties owed to its clients.
A Colorado property was partially held in trust as well as partially owned by certain individuals (collectively, the "Sellers"). In 1993, exclusive listing agreements, which stated that the property was to be marketed as a single property, were signed by the Sellers with Tom Stanger & Company ("Brokerage"). One listing agreement was with an out-of-town group ("Group One") and expired on February 1, 1994; and the other listing agreement was with the remaining Sellers ("Group Two") and expired on February 21, 1994.
On February 17, 1994, Borrasca Land and Development Company ("Buyer") made a full-price offer for the property that expired on February 21, 1994. The Brokerage sent Group One the offer and also sent the offer to Group Two's attorney. The Brokerage informed Group One that it was entitled to receive its commission, regardless of whether the Sellers decided to accept the offer or not. Group One decided to accept the offer. The Brokerage next contacted Group Two, informing them that Group One had accepted the offer and the Brokerage was owed a commission, no matter what Group Two decided to do. Group Two prepared a counteroffer, which the Brokerage informed them it had no duty to present to the Buyer and requested that Group One consent to any counteroffers. The counteroffer was ultimately accepted by the Buyer, but the parties were not able to accomplish necessary zoning changes before the purchase agreement expired and the purchase was never completed. The Buyer then recorded a claim of interest in the property, causing the Sellers to bring an action seeking to quiet title in their favor. The Sellers also asserted other claims against the Buyer in their lawsuit and also breach of contract claims and breach of fiduciary duty claims against the Brokerage. The Brokerage filed a counterclaim for its commission. Among other rulings, the trial court ruled in favor of the Sellers and denied the Brokerage its commission, finding that the Brokerage had breached its fiduciary duties to the Sellers. The Brokerage appealed.
The Colorado Court of Appeals, Division II, affirmed the trial court. The court, looking to both Colorado case law and statutes, found that a listing broker stands in a fiduciary relationship with a seller; has a "fiduciary duty to act with utmost good faith, loyalty, and fidelity in all dealings with the seller;" owes the seller a duty to exercise reasonable care and skill; and has a fiduciary duty inform the seller of any facts which "may reasonably affect the seller's decision." The court further found that a broker's breach of his/her fiduciary duty causes the broker to forfeit his/her entitlement to a commission, even if the breach was of no benefit to the broker.
The Brokerage argued that it only failed to exercise the care and skill required of a broker, a breach of duty which does not result in an outright loss of commission. The court rejected that argument, ruling that the Brokerage had breached its fiduciary duty of loyalty to the Sellers and thus was not entitled to recover a commission. The court found the Brokerage had breached this fiduciary duty in a number of ways. First, the Brokerage had pressured Group One into accepting the offer by telling them that they would have to pay a commission no matter what, and then pressured Group Two by telling them that Group One had accepted the offer. Second, the Brokerage failed to inform Group One that their listing agreement had already expired when the offer was presented to them. Additional evidence before the trial court also revealed that the Brokerage had failed to forward all offers to Group One. All of this led the court to conclude that the Brokerage had breached its fiduciary duty of loyalty to the Sellers, and thus the trial court was affirmed.
The Brokerage also argued that when the listing agreements expired it became a "transaction broker" and so no longer owed the Sellers any fiduciary duties. Colorado's statutes establish non-agency real estate brokerage relationships between brokers and their clients, and the duties owed by a broker are defined by the state's statutes. One type of relationship created in the Colorado statutes is the "transaction-broker" relationship, which is defined as a broker who is not an agent for either party but is instead a broker who assists one or more of the parties with the transaction and does not act as an advocate for any of the parties. The court rejected this argument for a number of reasons. First, one of the listing agreements was still in effect at the time the offer was received. Second, the listing agreements contained a holdover period provision, so the agreements were intended to extend past the listing period in certain situations. Finally, the Brokerage's claims for commission were based on the listing agreements. Thus, the court rejected the Brokerage's contention that it was a transaction broker and affirmed the trial court's denial of the Brokerage's commission.
Mabry v. Tom Stanger Co., 33 P.3d 1206 (Colo. Ct. App. 2001).