Agency Highlights: 3Q 2017

The Agency cases discussed below address breach of fiduciary duty and dual agency. In the first case, the court considered whether the licensee’s actions constituted a breach of fiduciary duty. In that case, the licensee was found liable for damages and attorneys’ fees based on the licensee’s failure to fully disclose to the seller the commission he would receive from the sale of the property. In the second case, the court determined that the licensee, who was working with the sellers, did not establish an undisclosed agency relationship with the buyers of the property.

A. Cases

1. Campbell v. Luong, No. 04-16-00460-CV, 2017 WL 3044591 (Tex. Ct. App. July 19, 2017)

Licensee liable for fraud and breach of fiduciary duty after failing to inform seller that he renegotiated with the other party to give himself a larger commission.

The seller of property hired the licensee to list two properties that the seller had purchased, remodeled, and sought to re-sell. The seller and licensee disputed the amount of commission given to the licensee. The closing documents indicated a commission 0.5% higher than agreed to between the seller and licensee. After entering the agreement with the seller, the licensee negotiated 0.5% less commission for the buyer’s representative, and added that amount to his commission.

Following a bench trial, the trial court found that the licensee violated the Deceptive Trade Practices Act, engaged in fraud, and breached his fiduciary duty to the seller. The evidence supported the finding of a misrepresentation by the licensee regarding the commission amount. The court awarded $1,175 in actual damages, $3,525 in treble damages, and $14,000 in attorneys’ fees. The trial court’s award was affirmed on appeal.

2. White v. Miller, No. M2016-00888-COA-R3-CV, 2017 WL 3769409 (Tenn. Ct. App. Ct. Aug. 30, 2017)

Licensee did not act as unauthorized representative for buyers in real estate transaction.

The real estate representative acted as designated agent for the sellers of the property. The sellers entered into an agreement with the buyers under which sellers accepted buyers’ townhouse property as credit toward the purchase of the property. Sellers claim that the licensee acted as an undisclosed representative for the buyers without the sellers’ consent. Sellers asserted claims against the licensee for undisclosed dual agency, breach of fiduciary duty, and violation of the Tennessee Consumer Protection Act (“Act”).

The licensee moved for summary judgment on the grounds that no agency relationship was established between the licensee and the buyers and that there was no injury to the sellers. The trial court granted judgment for the licensee on the Act and breach of fiduciary claims, but found in favor of the sellers on the dual agency claim. The appellate court affirmed summary judgment on the dual agency issue and the Act claim. The court of appeals determined there was no dual agency because there was no agreement indicating the real estate representative was an agent for the buyers. The appellate court remanded the case back to the trial court, however, for further proceedings on the breach of fiduciary duty claim.

B. Statutes and Regulations¹

Oregon

Oregon made a number of changes to its statutes governing real estate licensees and brokers. With respect to trust accounts, the amended statute provides that real estate brokers and licensed real estate property managers may not commingle funds in a client trust account, with the exception of compensation earned in connection with a real estate sale, purchase, or exchange transaction.² Commingling is defined as “the mixing of funds from any source, including personal funds, with trust funds . . . by a licensed real estate property manager or principal real estate broker.³ Licensees do not need to create a trust account when acting only as a courier conveying a check payable to the seller from the purchaser.⁴

The Oregon statutory amendments also address requirements for brokers who associate with other brokers or with property managers. If two or more principal brokers, or a principal broker and property manager, associate with the same business name, the parties must execute a written supervisory agreement that allocates supervisory control and responsibility for all of the associated parties.⁵ A licensed real estate property manager associated with a real estate broker may have an ownership interest in the business through which the broker conducts professional real estate activity, but the property manager may not control or supervise the professional real estate activity of the broker.⁶ Real estate property managers must also have a property management agreement with the owner of rental real estate under their management.⁷

Real estate brokers may create a corporation, LLC, LLP, or other entity for the purpose of receiving compensation, but no licensee may conduct professional real estate activity under that organization.⁸

With respect to licensee discipline, a “persistent course of dealing” by a real estate licensee who violates a statute or rule “constitutes prima facie evidence that an associated real estate licensee had knowledge of the violation by the real estate licensee.”⁹

C. Volume of Materials Retrieved

Agency issues were identified 9 times in 5 cases (see Tables 1, 2). Breach of Fiduciary Duty was the most commonly raised issue, while Dual Agency and Designated Agency issues were also addressed in cases this quarter. Seven Agency statutes were retrieved this quarter (see Table 1).

¹This third quarter update reviews legislative activity from the following jurisdictions: North Carolina and Oregon.

²Or. Rev. Stat. § 696.241 (2017).

³Or. Rev. Stat. § 696.010 (2017).

⁴Or. Rev. Stat. § 696.241 (2017).

⁵Or. Rev. Stat. § 696.310 (2017).

⁶Or. Rev. Stat. § 696.026 (2017).

⁷Or. Rev. Stat. § 696.022 (2017).

⁸Or. Rev. Stat. § 696.290 (2017).

⁹Or. Rev. Stat. § 696, Section 2 (2017).