Agency Highlights: 1Q 2019

The agency cases from this quarter address several different agency issues. The first case, an interesting New York decision, the court held that a real estate representative breached her fiduciary duty by submitting her own offer for purchase of a property for which she was hired to represent a buyer.  In a second case, the court concluded that a payment made to a real estate professional by an investor in exchange for settlement and release of claims was not a secret profit or payment at the buyer’s expense. In the last case, the court reaffirmed that expert witnesses are not necessary to establish the scope of a real estate professional’s duties.  

1.Edwards v. Wash, 169 A.D.3d 865, (N.Y. App. Div. 2019)

Real estate representative breached fiduciary duty to buyer client by submitting her own offer for the real property.

A real estate representative and the company she worked for represented a buyer attempting to purchase real property. The buyer brought claims for fraud and breach of fiduciary duty against the real estate representative and company after the representative purchased the desired property for herself, while acting as buyer's real estate representative. The buyer sought summary judgment, presenting evidence that demonstrated that while the real estate representative and company were representing the buyer, the real estate representative negotiated with the seller to purchase the property for herself. The representative’s offer and the buyer’s offer were for the same purchase price; however, the representative offered a down payment of $80,000, while the written offer she submitted for the buyer offered a down payment of $40,000. The real estate representative did not disclose to the buyer that she was interested in purchasing the property or that she had submitted an offer of her own. The real estate representative notified the buyer that the seller had accepted a different offer but failed to disclose that it was her offer. The court denied the buyer’s motion for summary judgment, and the buyer appealed.

The appellate court held that although the real estate representative and company made material omissions of fact and breached their fiduciary duties to the buyer, the buyer failed to establish a legally cognizable interest in the property that would support imposition of a constructive trust on the property. As such, the buyer was not entitled to specific performance to allow the buyer to purchase the property for the offered purchase price. The buyer also failed to establish the real estate representative was motivated solely by disinterested malevolence. Judgment for the real estate representative was affirmed.

2. PLL, LLC v. Carlton Group, Ltd., No. B280854, 2019 WL 1325037 (Cal. Ct. App. Mar. 25, 2019)

Real estate representative did not breach fiduciary duties by accepting payment from investor for settlement of a claim.

A real estate advisory firm agreed to assist a buyer in obtaining investors for a purchase of property. A potential investor was found, but a deal was not concluded. The potential investor then purchased the property without the participation of the buyer and paid a commission to the real estate representative. The buyer alleged breach of fiduciary duty and unjust enrichment and moved for summary judgment.

The trial court found no triable issues of fact remained as to the nature of the agreement and fiduciary relationship between the buyer and real estate advisory firm. Additionally, the trial court determined that a payment made by the investor to the advisory firm was made in exchange for settlement and release of claims against the investor and was therefore not a secret profit or payment at buyer’s expense.  The court granted the advisory firm’s motion for summary judgement for the breach of fiduciary duty and unjust enrichment claims. The buyer appealed. 

The Court of Appeal agreed with the trial court that no triable issues of material fact existed as to whether the real estate advisory firm breached its fiduciary duties. The evidence demonstrated that the payment made by the investor should be categorized as fair compensation and not as a profit or benefit that was unanticipated by buyer. The court concluded that neither the law nor the equities supported a conclusion that the advisory firm breached its fiduciary duties to the buyer by threatening to sue the investor and settling the claim.  Accordingly, the court found that the firm’s compensation was not a benefit that should have gone to the buyer and that acceptance of that payment was not unjust. Judgment for the real estate advisory firm was affirmed. 

3. Ryan v. Real Estate of the Pacific, Inc., No. D072724, 2019 WL 926101 (Cal. Ct. App., Feb. 26, 2019)

Expert testimony not required to prove real estate company performed within the standard of care.

Sellers entered into an agreement with real estate company giving them the exclusive right to sell the property. The real estate company undertook to list, market, and sell the property and provided the sellers with professional guidance and advice throughout the entire process. At the open house showing the property, the sellers’ next-door neighbor advised a representative of the sellers’ real estate company that he planned to remodel his home in a way that would have a significant impact on the sellers’ property. The company did not inform the sellers of their neighbor’s plans, and the property was purchased with no knowledge of these plans. The day after escrow closed, the buyers learned of the remodeling plans and attempted to rescind the purchase contract. The sellers, based in part on the real estate company's advice, refused to rescind the contract. The dispute proceeded to arbitration. After arbitration, the sellers filed a lawsuit alleging negligence, breach of fiduciary duty, and breach of implied covenant of good faith and fair dealing, among other claims. The real estate company moved for summary judgment. The court found that the real estate company satisfied their burden by claiming that all of the sellers’ causes of action were premised on professional negligence and as such expert testimony was required to prove or disprove that the real estate company performed in accordance with the prevailing standard of care. In the absence of such testimony, summary judgment was granted for the company, and the sellers appealed.

The Court of Appeal held that under the common-knowledge rule, an expert witness was not necessary to establish the scope of the company’s duty or a breach of that duty. The court determined that the real estate company possessed material information that impacted the value of the property and it did not need to engage in any investigation to discover that information. Rather, the company chose to remain silent, collect its commission and let the sellers deal with the consequences. Judgment for the real estate company was reversed, and the case was remanded for further proceedings.

Statutes and Regulations

Arizona

Arizona amended statutes related to real estate transfer fees and recording fees. The two-dollar transfer fee is now included in the recording fee rather than in addition to it.  The recording fee is now a flat $30, rather than based on the number of pages in the recorded document. 1

Idaho

An amendment to an Idaho statute expanded the Real Estate Commission’s powers to allow for the assessment of fees and costs incurred in the investigation and prosecution or defense of a licensee or other person.2

New Mexico

New Mexico amended a regulation regarding broker duties by adding language that requires brokers to perform all duties established for brokers by the Real Estate Commission. 3  In addition to the requirement that a broker disclose in writing “any potential conflict of interest”, a broker must disclose the existence of “any other written agreement” that the broker has in the transaction.4 Additionally, a brokers must disclose any written agreement the broker has with a transaction coordinator providing brokerage services related to the transaction. 5

Wyoming

The records-retention statute in Wyoming was amended to decrease the time licensed real estate brokers must keep and maintain records of real estate transactions from seven to two years.6 

Volume of Materials Retrieved

Agency issues were identified sixteen times in eleven cases (see Tables 1, 2). Breach of Fiduciary Duty and Buyer Representation were the most commonly raised issues,. Three Agency statutes and one regulation were retrieved this quarter (see Table 1).


1 Ariz. Rev. Stat. §§ 11-475, -1132 (effective July 1, 2019).
2Idaho Code § 54-2059 (2018)
3 N.M. Code R. § 16.61.19.8 (2019)
4 Id.
5 Id.
6 Wyo. Stat. § 33-28-123 (2019).

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State Law Based Changes

Read a summary of this quarter's additions to the State Law Based Changes.