In this edition, we revisit two cases from earlier this year resulting in significant damage awards occasioned by the real estate professional’s breach of fiduciary duty. Several other recent breach of fiduciary duty cases retrieved this quarter, including one in which the broker was found liable, are also summarized below. In an interesting case from New York, the court held that a real estate professional potentially may be held liable for a personal injury incurred during a property showing if the professional created the hazardous condition.
1. Stone Invest Dakota, LLC v. De Bastos, No. 15-61406, 2015 WL 6997979 (S.D. Fla. Nov. 12, 2015)
A sales associate, who was not hired as an investor’s broker, did not owe a fiduciary duty to the investor.
An investor purchased an investment marketed by a real estate sales associate and his real estate company. According to the investor, the investment was promoted as relating to oil fields, but it was actually a speculative investment in residential studio units for transient housing. Among other claims, the investor alleged breach of fiduciary duty against the licensee. The court found, however, that there was no evidence of a fiduciary relationship between the parties. The investor was a sophisticated company and investor, could review and analyze the investment opportunity, and engaged in an arms-length transaction with the licensee. There was also no statutory duty imposed on the licensee because there is no indication that the investor hired the licensee as a real estate broker. Therefore, the court dismissed the fiduciary duty claim. Of the remaining claims, approximately half were allowed to proceed, and the other half were dismissed for failure to plead with specificity.
2. Stimmel v. Osherow, 113 A.D. 3d 483 (N.Y. App. Div. 2015)
A real estate professional potentially may be held liable for personal injuries incurred by a potential buyer while viewing property if the licensee created the hazardous condition.
The plaintiff tripped and fell on a drapery cord while viewing a property being shown by a real estate broker. The plaintiff sued the sellers, who in turn filed a third-party claim against the real estate broker and her brokerage firm. The trial court granted summary judgment for the broker, holding that the broker did not owe a duty to the plaintiff, and that a real estate broker is generally not responsible for personal injuries incurred during real estate showings if the real estate broker did not have previous knowledge of the hazard. On appeal, however, the court considered whether the broker could be held responsible if she created the hazardous situation. Because there were factual issues regarding the broker’s actions with respect to the drapery cord, the appellate court reversed the summary judgment.
3. Shen v. Gotham Corp. Group, Inc., No. CV 14-07870, 2015 WL 5842274 (C.D. Cal. Oct. 6, 2015)
A broker’s failure to disclose her financial arrangement with an entity she recommended to buyers supported a claim for breach of fiduciary duty.
After purchasing a home, the buyers’ broker recommended a company to handle the design and construction for a remodel of the property. The buyers alleged that the broker made false statements regarding the company’s ability to manage the project and failed to disclose her financial arrangement with the company. The court held that the broker’s alleged failure to disclose her financial arrangement with the recommended company and her alleged participation in a conspiracy to deceive the buyers regarding the company’s capabilities were sufficient to support a claim for breach of fiduciary duty. Likewise, the broker’s alleged concealment of her relationship with the company supported a claim for fraud, so the broker’s motion to dismiss was denied.
4. Aliev v. Courtney, No. D064239, 2015 WL 7455197 (Cal. Ct. App. Nov. 24, 2015)
A buyer’s representative breached his fiduciary duty by using a non-registered brokerage business name and altering a notarized document.
A licensed real estate salesperson without a broker’s license represented the buyer in a real estate transaction. The licensee used his former broker’s name on the paperwork for the transaction, even though the broker business name was not registered with the real estate commission because the broker had passed away. The licensee also altered the trust deed to add himself as a beneficiary after the document had been notarized. The court found that the licensee breached his fiduciary duty to the buyer and ordered disgorgement of the $60,000 commission received for the transaction. The court also ordered the licensee to pay $97,125 for the buyer’s attorneys’ fees. The judgment was affirmed by the appellate court.
5. Gibson v. Bankofier, No. 110201781, A153425, 2015 WL 8330256 (Or. App. Dec. 9, 2015)
A broker did not breach her fiduciary duty by accepting referral fees from an investment sponsor.
A broker assisted the plaintiff trustee’s mother with several real estate transactions in which she sold property and re-invested in other properties to avoid tax consequences. The broker researched various tenant-in-common properties for investment by the plaintiff’s mother, and ultimately received fees from the sponsors of the investments purchased. The trustee sued the broker for elder abuse and negligence. The court found that the broker properly acted as the real estate licensee. The broker merely facilitated a real estate transaction, the plaintiff’s mother received independent information about the investment, and the broker properly received sponsorship fees. There was no special relationship between the broker and the plaintiff’s mother, and the broker did not violate any of her statutory duties. The court granted summary judgment in favor of the broker.
6. Fentisova v. Lefkowitz, No. 11-A-642790-C, 2015 WL 3929682 (Nev. Dist. Ct. Jan. 16, 2015)
A licensee did not participate in a scheme with the property owner to sell property at an inflated price.
A buyer alleged that her real estate licensee made misrepresentations and breached her fiduciary duty while representing her in a transaction. According to the buyer, the licensee misrepresented the value of the property and stated that an appraisal was unnecessary. The buyer claimed the licensee was working with the property owner in a scheme to sell the property at an inflated price, but the jury entered a verdict in favor of the real estate professional.
B. Statutes and Regulations
Hawaii amended its disciplinary statute to state that a broker or salesperson may be disciplined if, when acting on behalf of a seller or purchaser of real estate, the licensee “acts in a manner that prohibits a prospective purchaser or prospective seller of real estate from being able to retain the services” of a real estate broker or salesperson.
Idaho amended a statute to require real estate licensees to ensure that all offers to purchase real property include the dates of all signatures.
Some counties in Illinois maintain a property fraud alert system. A real estate professional may register a client for this service. A licensee cannot be held liable for his or her error in registering a property owner.
Several recently amended regulations implicate agency issues for Virginia licensees. One of the amended regulations clarifies the records that a principal or supervising broker must maintain in his or her files. Financial records for all moneys received, all consent to dual agency and designated agency agreements, and all executed contracts of sale and other executed agreements must be maintained for three years.
With respect to a transaction involving property in which the licensee has an ownership interest, a licensee must disclose in writing to the seller, purchaser, or lessee that he is a licensee and that he, a family member, or firm member has an ownership interest in the property.
Virginia regulations were also amended to include “failing to safeguard the interests of the public” and “engaging in improper, fraudulent or dishonest conduct” as prohibited conduct for licensees. Failing to safeguard the interests of the public includes failing to supervise, failing to retain required documents regarding escrow account disbursals, failing to disburse escrow account funds in accordance with regulations, failing to submit documents in a timely manner, and allowing unsupervised access to a home. Improper fraudulent acts include the signing of documents on behalf of a client without permission and submitting the same earnest money deposit with multiple offers.
Vermont added two sections to its regulations that create a distinction between designated agency firms and non-designated agency firms. A brokerage firm may elect to practice Designated Agency. All other brokerage firms are Non-Designated Agency firms and must disclose this status in all seller and buyer agreements.
Washington amended its statutes to allow real estate licensees to sell “floating on-water residences” without being licensed as a vessel dealer. The term “real estate brokerage services” was amended to include services related to any “interest in a floating home or floating on-water residence.”
The Nebraska Real Estate Commission issued a policy statement regarding Coming Soon Listings, which is a topic of current interest. The state has not issued any statutes or regulations specifically addressing Coming Soon Listings, but existing advertising and unfair trade practices statutes apply. According to the Real Estate Commission policy, coming soon listings are appropriate where a listing agreement has been signed, but the property or property owner is not ready for showings. The following criteria must be met to comply with the governing statutes and regulations: (1) there is an active listing agreement in place; (2) advertising is in the name under which the broker does business; (3) advertising is done with the knowledge and written consent of the property owner; and (4) the listing is in fact coming soon and is not currently being shown or marketed to anyone.
C. Volume of Materials Retrieved
Agency issues were identified 74 times in 53 cases (see Table 1; note that some cases address multiple issues). Breach of Fiduciary Duty, Agency: Other, Buyer Representation, Dual Agency, Vicarious Liability, and Subagency were identified in multiple cases (see Table 2). The number of Agency cases has increased significantly compared to 2014 (see Table 4). Seventeen statutes and twenty-nine regulations addressing Agency issues were retrieved (see Table 1). These items addressed Breach of Fiduciary Duty, Agency Disclosure, Designated Agency, and Agency: Other.
 Vt. Code R. 4.3, 4.4 (2015).