ShareA Texas court has considered whether a real estate broker who helped his clients locate investment opportunities breached his fiduciary duty when the broker purchased one of the investment opportunities for his own account.
Peter Sajovich (“Broker”) is a licensed real broker. The Broker owns and operates Austin Advantage, Inc. d/b/a RE/MAX Austin Advantage (“Brokerage”), a real estate brokerage. The Broker also serves as the president of eCounty Foreclosures, Inc. (“eCounty”), an entity used to purchase properties at foreclosure sales. Nicholas Nowak (“Salesperson”) is a licensed real estate salesperson who works for both the Brokerage and eCounty.
Craig Wheeler (“Investor”) was interested in purchasing investment properties in the Austin, Texas area. The Investor entered into a brokerage agreement with the Brokerage. In the agreement, the Investor agreed to work exclusively with the Brokerage, and acknowledged that he understood that the Brokerage would offer the same properties to its other clients.
The Investor also entered into an arrangement with eCounty. eCounty would send the Investor a list of properties for sale at foreclosure auctions. If the Investor was interested, he would let the Broker or Salesperson know his maximum bid amount and would wire the necessary funds (maximum bid amount plus commissions) to the eCounty client account. If the bid was unsuccessful, eCounty would return the money to the Investor, although the investor testified that he simply left money in the eCounty account in order to avoid having to wire money back and forth. The eCounty agreement also informed the Investor that it represented multiple clients and would offer properties to other clients. In addition, the eCounty agreement also disclosed that the Broker may benefit financially from the transactions, in addition to the brokerage fees that might be paid to the Brokerage.
Over a three year period, the Investor purchased three properties through Brokerage/eCounty and bid on others. During this period, the Investor’s agreement with the Brokerage expired and was never renewed by either party, although the Investor testified that he assumed the terms of the agreement remained in place and the Salesperson continued to send MLS listings to the Investor.
In 2006, the Salesperson sent a email about an multi-unit apartment building to the Investor and 20 other clients. No one responded to the email and so the Broker began investigating the acquiring property through eCounty. Eventually, eCounty made an offer for the property that was accepted. The Broker testified that when he made the offer, he was uncertain as to where the closing funds would come from. He did use the eCounty client escrow fund account balance statement to demonstrate to the seller that he had sufficient funds to close, but used the corporate funds of eCounty for the entire purchase, not any client funds.
Meanwhile, the Investor was out of town at the time of the original email sent by the Salesperson. He called the Salesperson a few days later about his interest in the property, and he visited the property the following weekend and then met with the Broker. The Broker proposed a joint venture where the Investor would purchase the property from the Broker and then convert the units into condominiums. The Broker told the Investor that he needed a decision by the next day.
Two days later, the Investor called the Broker and said he was interested in purchasing the property but not as outlined in the joint venture proposal. The Broker told the Investor that it was too late for him to participate because he had presented the opportunity to another client. Ultimately, the Broker held the property and sold it ten months later for a profit.
The Investor filed a lawsuit against the Broker, the Salesperson, the Brokerage, and eCounty alleging breach of contract, breach of fiduciary duty, and fraud. The defendants filed counterclaims against the Investor. The trial court ruled in favor of the defendants and so the defendants dismissed their counterclaims against the Investor. The Investor appealed.
The Court of Appeals of Texas, Austin, affirmed the trial court. The Investor argued that the trial court did not properly analyze his breach of fiduciary duty allegations against the Brokerage, as there were fact issues that needed to be considered by a jury. The Investor argued that the Brokerage breached its fiduciary duty by securing a benefit for itself during the course of the agency relationship. The Investor stated that the use of the escrow statement and failing to disclose all necessary facts to him about the apartment building purchase supported his allegations.
While an agency relationship does impose certain obligations upon the parties, courts also look to all aspects of the relationship to determine whether there has been a breach of fiduciary duty. In this case, the contract between the Brokerage and Investor limited the fiduciary obligations by disclosing to the Investor that the properties may be offered to multiple individuals. Additionally, the property was already under contract before the Investor expressed any interest in purchasing. The court found that the Brokerage had fulfilled its obligations to the Investor, and so affirmed the trial court.
Next, the Investor argued that a jury should also resolve the fact issues surrounding his breach of contract allegations. The court ruled that trial court had properly rejected these allegations because there was no evidence to support his damage claims. The Investor argued that the Broker had made a profit from the sale of the property and so that profit represented the damages he should receive. However, the Investor had also testified that he would have rented out the apartments if he had purchased in order to receive certain tax benefits and so the profit made by the Broker was irrelevant to determine the Investor’s damages. Since the Investor had offered no evidence as to how much of a benefit he would have received from renting out the apartments, the court affirmed the dismissal of the breach of contract allegations.
Wheeler v. Sajovich, No. 03-09-00367, 2010 WL 2540689 (Tex. App. June 23, 2010). [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].