CALIFORNIA SUPREME COURT CONFIRMS EXPANSIVE
APPLICATION OF FIDUCIARY DUTIES FOR DUAL AGENTS
In a highly anticipated ruling, the California Supreme has upheld an appellate decision ruling that a listing
agent owed a fiduciary duty to a buyer when the buyer and seller were represented by the same brokerage.
FACTS
The Horiike v. Coldwell Banker case has had the
attention of the real estate community for several years
now. However, as a brief recap, Horrike (“the Buyer”)
purchased a Los Angeles property (“the Property”)
in 2007. The seller retained Coldwell Banker to list
the Property. The Buyer was represented by another
Coldwell Banker agent, and the parties agreed to the
dual agency. The two agents worked in different offices,
and had never met prior to the showing of the Property.
During the showing of the Property, the Listing Agent
gave an MLS listing sheet and a copy of a one-page color
flier advertising that the home had 15,000 square feet of
living area. After purchasing, Buyer learned the square
footage was significantly less than 15,000 square feet,
including by discovering a building permit that listed
the square footage of the Property as 11,050 square
feet. Other evidence suggested the square footage was
actually much less.
It is also important to note that the Listing Agent had
provided a prior buyer a written recommendation
to verify the square footage of the Property, but no
such note was provided to the Buyer in the subject
transaction.
PROCEDURAL HISTORY
In light of this information, the Buyer filed suit against
Coldwell Banker and the Listing Agent for negligent
representation, breach of fiduciary duty and other
claims. The Selling Agent was not named in the suit.
The Trial Court determined that the Listing Agent did
not owe a fiduciary duty to the Buyer. As the Buyer
had not named his own agent in the lawsuit, the jury
was instructed that it could only find Coldwell Banker
liable if an agent other than the Listing Agent or Selling
Agent had breached their fiduciary duty to Buyer.
Unsurprisingly, as there were no other agents involved,
the jury found for Coldwell Banker.
The case was then brought to the Court of Appeal,
which reversed the Trial Court’s decision. The Court of
FIDUCIARY DUTIES FOR DUAL
AGENTS (CONTINUED)
Appeals held, in no uncertain language, that the Listing
Agent, as an associate licensee of Coldwell Banker,
owed a fiduciary duty to him equivalent to the fiduciary
duty owed by Coldwell Banker. The Court relied on the
language of Civil Code § 2079.13 to determine that the
“agent” in this transaction was Coldwell Banker, and as
the Listing Agent was an associate licensee of Coldwell
Banker, the Listing Agent owed a fiduciary duty to
Buyer.
SUPREME COURT DECISION
The Supreme Court was tasked with responding to
the narrow question of whether an associate licensee
acting as a listing agent owes a fiduciary duty to a buyer
(ie to disclose all material information related to the
discrepancy in square footage in the advertised vs.
publicly recorded documents).
The Supreme Court affirmed the Court of Appeal
decision, determining that the associate licensee owed
to the Buyer an “equivalent” duty of disclosure under
Civil Code section 2079.13, subdivision (b).
The Court detailed the history of dual agency, both the
statutory provisions and case law. Moreover, the Court
considered the argument that requiring a listing agent to
have a fiduciary duty to a buyer would make it difficult
or impossible to fully represent the interests of their
own client. However, the Court was not convinced,
primarily relying on the statute and Legislative intent.
WHAT DOES THIS MEAN?
This is a significant case. The California Association
of Realtors, Consumer Attorneys of California, The
Civil Justice Association of California and several
other groups submitted Amicus Curiae opinions on
this matter, stressing their respective concerns with the
potential rulings.
The specific concerns from the brokerage community
include the idea that buyers and sellers in an “intrafirm” transaction will lose the undivided loyalty of
their agent, that the pool of properties available to some
buyers would be limited as brokerages may avoid inhouse transactions all together, transaction costs could
increase to off-set additional litigation expenses and
premiums etc. On the other side, consumer advocates
have argued that the idea of a dual transaction is
inherently a conflict of interest and should not be
allowed all together.
The Court acknowledged some of these concerns,
but ultimately held that the Legislature was aware of
the concerns and “undoubtedly understood that the
dual agent‘s loyalty must extend to both parties, and
FIDUCIARY DUTIES FOR DUAL AGENTS
(CONTINUED)
that it cannot bear any fiduciary duty to one party that
requires it to breach its duty to the other party.”
fairly high, and the brokerages will be faced with tough
decisions as to how to treat those transactions.
Frankly, the decision is not surprising to me. The
Courts have consistently found ways to punish dual
agency, and this is just another decision in a line of
decisions that favor the consumer in these transactions.
Although dual agency remains legal, this decision
further increases the risk to brokerages when taking
on a dual agency, to the point where one must wonder
whether brokerages will even consider taking them on
at all.
The potential scenarios are fascinating. It will be very
interesting to see how this plays out over the next few
months, and whether a further appeal will ensue (note,
having this heard by a higher court may be a long shot,
as the court does not have to accept the case). In any
event, one must anticipate extensive lobbying and
changes to the way many brokerages operate.
Before the decision was announced, there were
arguments that the Supreme Court’s affirmation of
the Court of Appeals decision could essentially lead to
the “death” of large brokerages. Specifically, some of
the fear was that large brokerages would disband and
boutique brokerages would form that would exclusively
represent buyers or sellers. The potential for a hundred
plus agent brokerage representing a buyer and seller is
This article originally appeared in the blog for the Law
Offices of Peter N. Brewer on November 22, 2016 —
www.BayAreaRealEstateLawyers.com.
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