Agency Highlights: 2Q 2018

In the Agency cases this quarter, the courts considered vicarious liability for another’s actions, based on a variety of different factual scenarios. In one case, the seller was not liable for the actions of an appraiser. In another case, however, the real estate broker was found liable for a significant amount of damages based on the negligence of its licensee. In the final case discussed below, the court examined the extent to which a real estate franchisor could be liable for the acts of a licensee/franchisee.

A. Cases

1. 3405/3407 Slauson Avenue, LLC v. Gillera, n, et al., No. B265290, 2018 WL 2947925 (Cal. Ct. App. June 12, 2018)

Broker was vicariously liable for licensee’s negligence in accurately representing square footage of property to the buyer while acting as dual agent in the transaction.

The buyer purchased four commercial and residential units from the seller. The defendant licensee acted as dual agent for the buyer and seller. The buyer also obtained financing for the transaction from the seller. Before escrow closed, the licensee told the buyer the units totaled 4500 square feet. The licensee determined this stated square footage by pacing the exterior perimeters, and using the same footage for two units that looked the same. After closing, the buyer discovered the units actually totaled 3036 square feet. In light of this discovery, the buyer sought to negotiate a new price, and the seller ultimately foreclosed on the property after the buyer failed to make payments. The buyer brought claims against the licensee and his broker for misrepresentation, constructive fraud, and breach of fiduciary duty. Following a bench trial, the trial court issued a decision against the licensee and broker.

The trial court concluded the licensee was negligent in providing the square feet to the buyer. Although the court believed that the buyer could have acted more diligently to determine the actual square footage before agreeing to purchase the property, the court also decided that the buyer reasonably relied on the licensee’s statements regarding the square footage. The court found that the licensee had a duty to disclose to the buyer how she had determined the property’s square footage, and because the licensee failed to do so, the buyer could believe the footage provided by the licensee. In addition, the trial court held the brokerage vicariously liable for the licensee’s negligence. The court awarded $310,000 in compensatory damages and $261,635.65 in prejudgment interest to the buyer. On appeal, the broker challenged the finding of vicarious liability. According to the appellate court, vicarious liability is established where an agent commits tortious conduct in the course of the relationship of the parties. The appellate court agreed with the trial court that, in this case, the evidence established that the licensee misrepresented the property’s square footage in the course of her employment. The appellate court affirmed the judgment.

2. Tindell v. Murphy, No. C081424, Cal. Rptr. 3d 448 (Cal. Ct. App. Apr. 6, 2018)

Real estate representative and broker not liable where listing and licensee inspection report correctly indicated home was a manufactured home.

The buyers purchased a manufactured home from the seller. The inspection report of the seller’s real representative and listing indicated the home was a manufactured home. At the time of sale, however, the appraiser’s report listed the home as a modular home. When the buyers sought refinancing several years later, the appraisal stated the home was a manufactured home, and refinancing was denied. The buyers sued the seller, real estate company, seller’s representative, the broker, and the appraiser. Buyers claimed that the real estate defendants and seller failed to disclose the manufactured nature of the home and that the licensee breached its fiduciary duty.

The trial court dismissed the breach of fiduciary duty and fraud claims because the inspection report and property listing showed that the home was a manufactured home, and therefore, the buyers could not demonstrate any justifiable reliance. The trial court also entered summary judgment for the appraiser. In this decision, the appellate court considered the appeal from the seller and appraiser. According to the court, the appraiser made the report for the lender, not the buyers, and there was no duty from the appraiser to the buyers. Because the appraiser was not liable, the court found that the seller also could not be vicariously liable for the appraiser. The judgments for the appraiser and seller were affirmed by the appellate court.

3. New Star Realty, Inc. v. Jungang PRI-USA, LLC, No. A18A0777, 2018 WL 3083736 (Ga. Ct. App. June 22, 2018)

Franchisor not vicariously liable for misappropriation of escrow funds by franchisee licensee.

New Star Georgia was a franchisee of New Star Realty, Inc., a residential and commercial real estate and investment business. The owner of New Star Georgia, a licensee, misappropriated escrow funds from a commercial real estate transaction. The victim of the misappropriation sued the franchisor, New Star Realty, under the theory of vicarious liability for the franchisee’s actions. A jury found in favor of the plaintiff and the court entered judgment against the franchisor. The franchisor appealed the judgment.

appellate court found there was no agency relationship between the franchisee and franchisor to hold the franchisor vicariously liable for the licensee’s conduct. Although the franchisor could audit the franchisee, the franchisor had no supervisory control over the franchisee’s day-to-day operations and was not even aware of the escrow account in question. There was no evidence that the franchisor held the franchisee out as an agent. Furthermore, the licensee acted as dual agent for the parties, and therefore, the licensee’s knowledge was imputed to the plaintiff. As a result, the plaintiff knew there was a franchise agreement between the parties, and could not establish that he assumed the parties had an agency relationship. The franchisor was also not directly liable for the licensee’s misconduct. Georgia law does not provide for any legal duty on behalf of a franchisor to third parties in the selection of franchisee owners. The appellate court reversed the judgment.

B. Statutes and Regulations¹

Texas

A recently amended Texas regulation states that alternate and assumed names as well as team names used by license holders must be registered with the Texas Real Estate Commission before they can be used in an advertisement and must also notify the Commission no later than 10 days after they stop using the trade or team name. The regulation also clarifies that team names must end with the word “team” or “group” and cannot mislead or imply that the team offers services independent of the broker².

In addition, a companion Texas regulation relating to disclosures in advertisements states that advertisements cannot contain misleading or deceptive statements and must contain the license holder’s name or team name and that the broker’s name must be at least half the size of the largest contact information for any sales agent, associated broker or team name contained in the ad. When the ad is broadcast via social media or in the form of a text message, required disclosures may be located on a separate page or accessed by a direct link³.

C. Volume of Materials Retrieved

Agency issues were identified 18 times in 12 cases (see Tables 1, 2). Dual Agency, Vicarious Liability, Breach of Fiduciary Duty, Buyer Representation, and Agency: Other issues were each addressed in multiple cases this quarter. Two Agency regulations were retrieved this quarter (see Table 1).

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¹ This second quarter update reviews legislative activity from the following jurisdictions: Alabama, Alaska, Colorado, Connecticut, Delaware, Florida, Hawaii, Louisiana, Maine, Minnesota, Missouri, Nebraska, Nevada, New Hampshire, Oklahoma, Oklahoma, Rhode Island, South Carolina, Tennessee, Texas, and Vermont.

² 22 Tex. Admin. Code § 535.154 (2018)

³22 Tex. Admin. Code § 535.155 (2018)