Thursday, April 10, 2014
Court of Appeal Overturns Verdict for Broker in Home Sale Case
Salesperson Owes Both Parties Same Fiduciary Duty That Broker Does, Panel Rules
By KENNETH OFGANG, Staff Writer
A real estate salesperson owes the parties to a transaction the same fiduciary duty that his or her broker does, even when the salesperson is representing one side of the transaction and an employee of the same broker represents the other, this district’s Court of Appeal ruled yesterday.
Div. Five 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.
Causes of Action
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.
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 intentionally 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.
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.”
Not Harmless Error
The justice went on to reject the argument that the errors were harmless in light of the jury’s findings on the other claims.
The jury might, Kriegler reasoned, have concluded that Cortazzo knew, but failed to explain, that there were various documents giving different square footages for the property, but that he lacked fraudulent intent. Under such a conclusion, Cortazzo would not be liable for misrepresentation or fraudulent concealment, but could be liable for breach of fiduciary duty.
Kriegler added that the jury reached inconsistent findings on the question of whether Cortazzo misrepresented the square footage, concluding for purposes of the negligence claim that he made a reasonable misrepresentation, but for purposes of the intentional tort claim that he made no misrepresentation at all.
“The jury’s findings that Cortazzo did not provide false information to Horiike, or provided false information that he reasonably believed to be true, and did not intentionally conceal information, does not satisfy his duty to Horiike as a fiduciary,” the justice concluded.
Attorneys on appeal were Victor N. Pippins and David W. Macey for the plaintiff and Neil Gunny of Klinedinst PC for the defendant.
The case is Horiike v. Coldwell Banker Residential Brokerage Company, 14 S.O.S. 1768.
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