Friday, July 18, 2014

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State High Court to Consider Fiduciary Duty in Real Estate Sales

C.A. Said Salesman Owed Obligation to Both Sides Where They Used Same Broker

By KENNETH OFGANG, Staff Writer

The California Supreme Court has agreed to decide whether a real estate salesperson owes the parties to a transaction the same fiduciary duty that a broker does, even when the salesperson is representing one side of the transaction and an employee of the same broker represents the other.

The justices, at their weekly conference Wednesday in San Francisco, agreed to review the April 9 ruling of this district’s Div. Five in Horiike v. Coldwell Banker Residential Brokerage Company (2014) 225 Cal. App. 4th 427.

The Court of Appeal ordered a new trial on Hiroshi Horiike’s breach-of-fiduciary-duty claim against Coldwell Banker Residential Brokerage Company and salesperson Chris Cortazzo. Horiike claims that Cortazzo breached his duty to Horiike, the buyer of a house in Malibu, by significantly overstating the property’s square footage.

Horiike purchased the property in 2007 with the assistance of another Coldwell Banker salesperson. He said that he was unaware of the discrepancy until 2009.

A flyer put out by Cortazzo said the house had “approximately 15,000 square feet of living areas.” Horiike said he relied on the flyer, and on Cortazzo’s oral representation, until 2009, when he reviewed the building permit in preparation for some improvements.

The building permit indicated that the total square footage was 11,050 square feet, including the main residence, guest house, and garage. Horiike’s expert testified at trial that the actual square footage was just under 12,000 square feet, while a defense expert said it was more than 14,000 square feet.

The complaint included causes of action for negligent and intentional misrepresentation, breach of fiduciary duty, unfair business practices, and false advertising. The statutory causes of action for unfair business practices and false advertising were reserved for trial to the court after the other claims were tried to the jury.

Nonsuit Granted

Los Angeles Superior Court Judge John Reid, now retired, granted nonsuit to Cortazzo on the fiduciary-duty claim. He reasoned that Cortazzo did not owe a fiduciary duty to the buyer, only to the seller.

Since the plaintiff stipulated that there was no breach of any such duty on the part of the salesperson representing him, Reid instructed the jury that Coldwell Banker could only be held liable on the fiduciary-duty claim if there was a showing that some agent of the company, other than those representing the buyer and seller, committed a breach.

At the plaintiff’s request, the judge allowed the jury to consider an additional claim, of intentional concealment by both defendants.

By special verdict, the jury found that there was no intentional misrepresentation, that Cortazzo made a false representation of material fact but did so in the reasonable belief that the statement was true, and that there was no concealment by Cortazzo of any material fact that he knew or could have reasonably discovered, and that Coldwell Banker did not breach any material duty.

Reid then ruled that the jury’s findings resolved the statutory claims in favor of the defendants, and later denied the plaintiff’s motion for new trial.

Kriegler’s Opinion

But Justice Sandy Kriegler, writing for the Court of Appeal, said the nonsuit and the jury instructions on breach of fiduciary duty were erroneous and prejudicial.

Coldwell Banker, “as the dual agent of the buyer and the seller,” owed “a fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with either the seller or the buyer,” he explained.

Real estate sales in California, he noted, are regulated by a detailed statutory scheme, which imposes strict duties upon licensed salespeople, and identical duties on their employing brokers.

“Under Civil Code section 2079.13, subdivision (b), the duty that Cortazzo owed to any principal, or to any buyer who was not a principal, was equivalent to the duty owed to that party by [Coldwell Banker],” the justice wrote. “[Coldwell Banker] owed a fiduciary duty to Horiike, and therefore, Cortazzo owed a fiduciary duty to Horiike.”

In other conference action, the justices:

•Left standing a ruling by this district’s Div. Two, in an unpublished opinion, that allows the Los Angeles Community College District to lease the historic Van de Kamps Bakery site located around Fletcher Drive and San Fernando Road in Los Angeles to the Alliance for College-Ready Public Schools, a nonprofit charter school operator.

Los Angeles Superior Court Judge Ann Jones had ruled for the Van de Kamps Coalition, which wants to preserve at least part of the existing complex. She ordered further review of the project and cancellation of the 2009 lease.

LACCD bought the property in 2001, and initially proposed to build a satellite campus, which the Van de Kamps Coalition—which formed to oppose an earlier plan to tear down the historic buildings and build a hardware store—supported. But the college district dropped the plan as the economy soured in the latter part of the last decade.

The Court of Appeal overturned Jones’ ruling, along with an award of more than $127,000 in attorney fees to Van de Kamps Coalition attorney Donald Wright. The panel held that the coalition forfeited its chance to sue by failing to bring a “reverse validation” proceeding within 60 days of the district’s approval of the lease.

The case is Van de Kamps Coalition v. L.A. Community College District, B241970.

•Declined to review a ruling by this district’s Div. Six that overturned a judgment in favor of Ventura County, and granted the paraplegic victim of a motorcycle crash a new trial in Ventura Superior Court.

The plaintiff, Humberto Martinez, was injured when he struck an asphalt berm that was part of a “top-hat” drainage system on county property. He claimed that the county was maintaining a dangerous condition, but a trial judge tossed the case on the ground of design immunity.

The Court of Appeal, however, interpreted the immunity statute, Government Code §830.6, narrowly. In an opinion by Los Angeles Superior Court Judge Joanne O’Donnell, sitting on assignment, it said the county failed to present substantial evidence of a plan or design for the drain system, and that if there was such a plan, there was no evidence that it was approved by someone who had authority to do so.

The case is Martinez v. County of Ventura (2014) 225 Cal. App. 4th 364.

•Agreed to review a series of cases from the Sixth District Court of Appeal, dealing with whether a defendant convicted of a child molestation or child pornography offense may be compelled to waive the right to silence, or the psychotherapist-patient privilege, as a condition of probation under Penal Code §1203.067(b).

In People v. Garcia (2014) 225 Cal. App. 4th 8, the court upheld the conditions, with Justices Nathan Mihara and Franklin Elia in the majority. Justice Adrienne Grover dissented in part, saying the defendant could not be compelled to choose between probation and his Fifth Amendment rights.

In People v. Friday (2014) 225 Cal. App. 4th 8 and People v. Klatt (2014) 225 Cal. App. 4th 906, the court rejected the Fifth Amendment waivers, construed the psychotherapist-patient waiver as being limited to communications between the probationers and their probation officers, and upheld the waivers as so construed. Grover and Justice Manuel Marquez were in the majority in both cases, while Justice Patricia Bammatre-Manoukian dissented and would have upheld both conditions.