Issue By: David Blinn

Hiroshi Horiike v. Coldwell Banker Residential Brokerage Co., et al.

Supreme Court of California (November 21, 2016)

In real estate transactions, it is not uncommon for one agent to represent both the buyer and the seller. In such dual agency situations, the agent owes fiduciary obligations to both parties. This case considered the fiduciary obligations of two agents from different offices of the same national broker.

Chris Cortazzo (“Cortazzo”), a salesperson for Coldwell Banker Residential Brokerage (“CB”), listed a property for sale in Malibu in September of 2006. In the listing and on a flier, he stated that the home offered “approximately 15,000 square feet of living areas.” On the other hand, the MLS service that provided public record information stated that the living area was 9,434 square feet. The building permit indicated a single-family home of 9,224 square feet, a guest house of 746 square feet, a garage of 1,080 square feet, and a basement of unspecified area. Cortazzo obtained an offer, and advised the prospective buyer to verify the square footage. When they wanted documentation of this size, he provided them a letter from the architect stating that the size of the “living area” was 15,000 square feet. The deal later fell through when the potential buyers were unable to obtain building plans to verify the size or to get an escrow extension for further investigation.

Cortazzo then changed the square footage in the listing to “0/O.T.” which meant zero square feet and other comments. Plaintiff Hiroshi Horiike (“Horiike”) became interested in the property, and was working with Chizuko Namba, a salesperson in another CB office. Cortazzo gave Horiike a copy of the old flyer saying that the home offered “approximately 15,000 square feet of living areas.” Unlike with the first buyer, he did not advise Horiike to verify the square footage. Horiike made an offer and escrow opened in November. Namba was provided with a copy of the building permit which she sent to Horiike along with other documents.

Both parties signed a confirmation of the real estate agency relationships as required by Civil Code § 2079.17. They also signed a mandated agency disclosure form which described various agency relationships and the duties of agents. The transaction closed. Subsequently, while preparing to do work on the property, Horiike reviewed the building permit and noticed that it contradicted Cortazzo’s representation of approximately 15,000 square feet of living area.

Horiike sued CB and the listing agent, Cortazzo, for intentional and negligent misrepresentation, breach of fiduciary duty, unfair business practices and false advertising. The trial court granted Cortazzo’s motion for nonsuit on the cause of action for breach of fiduciary duty against him, ruling that Cortazzo had no fiduciary duty to Horiike. The jury found that the listing agent had not made a false representation of a material fact, hence there was no misrepresentation. It also found that he did not intentionally fail to disclose an important or material fact to the buyer. The jury also found that CB did not breach its fiduciary duty to Horiike. Horiike appealed.

The Appellate Court found that the motion for nonsuit should have been denied. Because CB had fiduciary duties to the buyer, so then did both of its agents. In short, the Court said that it is a mistake – and a common myth – that when there are two agents from the same company in a dual agency situation, each of them only has fiduciary duties to his/her personal client. They are both the fiduciaries of both.

The Supreme Court affirmed the Court of Appeal’s reversal of nonsuit, agreeing that the agents (and thus their common broker, Coldwell Banker) each owed a fiduciary duty to both the buyer and the seller. Under the law, it is solely on the broker’s behalf that an associate licensee (such as Cortazzo or Namba) is empowered to act in a real estate transaction. This means that the associate licensee does not have an independent agency relationship with the clients of his or her broker, but rather an agency relationship is derived from the agency relationship between the broker and the client. In this case (as often occurs), the buyer and seller consented to be represented by the same broker. Therefore, each of the agents’ obligations of fiduciary duty ran to both the buyer and the seller.

The Court was unpersuaded by CB’s argument that if salespeople owe precisely the same duties as their brokers, then buyers and sellers would not have the benefit of the “undivided loyalty of an exclusive salesperson,” and worse, “[s]alespersons would have a duty to harm their original client by disclosing to the other side confidential information about the client’s motivations or the salesperson’s beliefs.” While the Court found these to be “significant concerns,” they were concerns inherent in dual agency, whether at the salesperson or the broker level.

The Supreme Court affirmed the judgment of the Court of Appeal, reversing the motion for nonsuit.

COMMENT

This case reaffirms that real estate agents from the same brokerage who act as dual agents representing both the Seller and the Buyer in a transaction, owe a fiduciary duty to BOTH parties. By definition, they cannot keep confidential anything from one side that would be of material use to the other. This creates a huge problem for the industry, but the Supreme Court placed the onus for changing this with the Legislature, which had passed statutes allowing for dual agency in the first place.

For a copy of the complete decision, see: Horiike v. Coldwell Banker Supreme Court

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