Agency Highlights: 4Q 2018

Two of the Agency cases retrieved this quarter involved claims of vicarious liability whereby the plaintiffs sought to hold real estate brokerages liable for damages caused by its associated real estate representatives. In the first case, the real estate brokerage was not liable for the actions of a former real estate representatives because they had opened their own real estate company and the brokerage held no management role or ownership interests. In the second case, the real estate company’s motion to dismiss the claim of vicarious liability was denied, with the court finding it reasonable to infer that the real estate licensee was acting on behalf of the real estate company.

1. Patel v. Sunvest Realty Corp., No. N18C-01-185 AML, 2018 WL 4961392 (Del. Oct. 15, 2018)

Real estate franchisee’s motion to dismiss claims of vicarious liability denied because questions of fact existed as to a finding of liability.

Investors alleged that real estate broker embezzled funds entrusted to him for the purpose of investing in real property. The allegations arose when Broker defaulted on the investors’ promissory notes and filed for bankruptcy. Broker “employed by”¹ a franchisee of real estate company for the majority of these investments but was no longer working with the company when the investors discovered Broker had not been investing their money in real property as agreed. Investors brought claims of vicarious liability; common law negligence; negligent hiring, retention, and supervision; breach of contract; and fraud against the franchisee and franchisor.

Regarding vicarious liability, the court concluded that it was reasonable to infer that Broker was the employee or representative of defendant real estate company. The defendant Broker acted as a real estate broker, in accordance with the company’s regular business, and Broker worked out of the company’s office, where the investors signed the promissory notes. Because Broker worked at the company as a real estate broker, and the complaint’s allegations permitted a reasonable inference that Broker’s fraud occurred within the scope of his employment, the court held that the complaint adequately pled the company’s vicarious liability for broker’s conduct. Defendant real estate company’s motions to dismiss were denied.

2. White v. Miller, No. M2018-00381-COA-R3-CV, 2018 WL 4847109 (Tenn. Ct. App. Oct. 5, 2018)

Sellers entered into an agreement with Broker for the exclusive right to sell their property. The Broker appointed a licensed real estate agent to act as the designated agent for Sellers. The agreement provided for a commission based on the total sales price and further stated that Sellers consented to Broker receiving compensation from both parties in the event that the buyers property also sold. Upon sales of both properties, commission was received from both parties.

After closing, Sellers filed suit against both the Broker and the real estate agent, alleging the real estate agent acted as an undisclosed representative for the Buyer, violating his fiduciary duty to the Sellers. These claims were based upon the payment of commission by both parties. The trial court ruled in favor of Sellers, finding that both Broker and the real estate agent acted as undisclosed dual agents necessitating forfeiture of commission. On appeal, the court overturned the finding of dual agency, holding that the real estate agent was designated as the Sellers’ representative alone and remanded on the issue of breach of fiduciary duty. On remand, the trial court found no breach of fiduciary duty because the agreement disclosed the fact that payment may be received from both parties. Sellers appealed, with the judgment affirmed.

3. Stroup v. MRM Mgmt., Inc., No. 03-17-00534-CV, 2018 WL 5074692 (Tex. Ct. App. Oct. 18, 2018)

Plaintiff was struck by a car while driving his motorcycle, suffering severe injuries. The driver of the car was a licensed real estate agent. Plaintiff brought suit against the defendant real estate company, alleging that the brokerage was vicariously liable for Plaintiff’s injuries because the licensee was engaged in brokerage activities at the time of the accident.

The real estate company filed for summary judgment, maintaining that it was not vicariously liable, because the real estate representative was acting as an independent contractor. Summary judgment was granted, and Plaintiff appealed. The court on appeal found no evidence that the real estate company and representative shared resources, pooled funds, or jointly made monetary investments. Moreover, the real estate company lacked any control over the manner in which the real estate representative managed her listings or sold properties. Summary judgment affirmed.

B. Statutes and Regulations

California

California amended its real estate disclosure requirements. All disclosures pertaining to the “Real Estate Agency Relationship” include a new section entitled “Seller and Buyer Responsibilities” which clarifies the role of a real estate representative, including whether the real estate representative is acting as a dual agent. The amendment further prohibits a real estate representative acting as a dual agent from sharing “confidential information” from one party with the other party without the express permission of the client. In addition, the amended disclosures include more universally used terms such as “Buyer’s Agent” and “Seller’s Agent,” instead of “Buying Agent” or “Selling Agent.”²

C. Volume of Materials Retrieved

Agency issues were identified 66 times in 51 cases (see Table 1 and Table 2; note that some cases address multiple issues). Breach of Fiduciary Duty, Dual Agency, Agency: Other, Buyer Representation, and Vicarious Liability were the most frequently addressed topics (see Table 2). Seven statutes and seventeen regulations or publications from regulators addressing Agency issues were retrieved (see Table 1). These items addressed Agency Disclosure, Breach of Fiduciary Duty, and Agency: Other.