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California Supreme Court Weighs In On “Associate Licensee” Duties In Dual Agencies

Dual agencies — where a broker represents both the buyer and seller in a real estate transaction — raise plenty of thorny questions regarding the duties owed.  These questions can become even more difficult when “associate licensees” — salespeople operating under a broker’s license — are involved in the transaction.

A recent decision from the California Supreme Court — Horiike v. Coldwell Banker Residential Brokerage Company — tackled the issue.

The facts

The case arose from the sale of a luxury residence in Malibu.  The seller retained Chris Cortazzo, a salesperson (and, technically, an “associate licensee”) in Coldwell Banker’s Malibu West office, to sell the property.

As he prepared to list the property, Cortazzo obtained public record information from the tax assessor’s office, which stated that the property’s living area was 9,434 square feet, and a copy of the residence’s building permit, which described a residence of 9,224 square feet, in addition to a 746 square foot guest house and a 1,080 square foot garage.

For reasons unknown, when Cortazzo listed the property on the MLS, the listing stated that the property “offers approximately 15,000 square feet of living areas.”  Cortazzo also prepared and distributed a flyer making the same representation about the property’s square footage.  Cortazzo’s square footage number was way off, as shown by the public records he had accessed.

The buyer, Hiroshi Horiike, retained Chizuko Namba, a salesperson in Coldwell Banker’s Beverly Hills office.

At a showing, Cortazzo gave Horiike a copy of the marketing flyer with the inaccurate, inflated square footage number.  Cortazzo also gave Horiike a copy of the building permit, and a form advisory stating that only an appraiser “can reliably confirm square footage….”

Before the transaction closed, Horiike signed several forms:

  • Confirmation Real Estate Agency Relationships, specifying that Coldwell Banker was the agent for both buyer and seller;
  • Disclosure Regarding Real Estate Agency Relationships, which contained the disclosures required by statute for dual agencies; and
  • Disclosure and Consent for Representation of More Than One Buyer of Seller, which further explained the disclosure duties of both brokers and associate licensees operating under the broker.

After the transaction closed, when preparing to do some work on the residence, Horiike reviewed the building permit and noticed that it stated a much lower square footage number than what Cortazzo had represented.  Horiike sued, alleging that both Cortazzo and Coldwell Banker breached their fiduciary duties to him.

Rulings by the trial court and court of appeal

After the close of Horiike’s case at a jury trial, the trial court granted nonsuit to Cortazzo, holding that Cortazzo exclusively represented the seller and owed no fiduciary duties to Horiike.  The trial court also instructed the jury that for it to hold Coldwell Banker liable, it would have to base liability on the actions of an agent other than Cortazzo.  (Horiike had stipulated that Namba was not liable.)

The court of appeal reversed, holding that Cortazzo, as a salesperson working under Coldwell Banker’s license, owed a fiduciary duty to Horiike under Civil Code section 2079.13.

The Supreme Court’s opinion

The Supreme Court affirmed the decision of the court of appeal, holding that Cortazzo owed fiduciary duties to Horiike.

The parties did not dispute that Coldwell Banker, as a dual agent for both the seller and Horiike, owed fiduciary duties to both.

As to Cortazzo, the Court held that under Civil Code section 2079.13, “when an associate licensee represents a brokerage in a real property transaction, his or her duties are the same as those of the brokerage.”  The Court explained that under the statutory scheme, an associate licensee has no power to act except as the representative of his or her broker.  Therefore, the associate licensee owes the parties to a transaction “the same duties as the broker on whose behalf he or she acts.”

Thus, the Court held, when Coldwell Banker agreed to act as a dual agent for both the seller and Horiike, “Cortazzo, as an associate licensee of Coldwell Banker in the transaction, assumed equivalent duties to Horiike.”  Those fiduciary duties included the duty “to learn and disclose to Horiike all material information affecting the value or desirability of the property.”

Lesson

In a dual agency situation, it is not enough to have the parties to the transaction sign forms indicating that they understand the agent represents both sides.  The agents, and any associate licensees (salespeople) operating under the broker’s license, must abide by their fiduciary duties to both sides.

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