HIROSHI HORIIKE, Plaintiff and Appellant, v. COLDWELL BANKER RESIDENTIAL BROKERAGE COMPANY et al., Defendants and Respondents.
No. S218734
Supreme Court of California
Nov. 21, 2016
1 Cal. 5th 1024
Horvitz & Levy, Mitchell C. Tilner, Frederic D. Cohen; The Law Offices of David W. Macey, David W. Macey, Lindsay M. Alter; Higgs, Fletcher & Mack and Victor N. Pippins, Jr., for Plaintiff and Appellant.
Degani & Galston, Katharine J. Galston and Orly Degani for Hughes Marino, Inc., as Amicus Curiae on behalf of Plaintiff and Appellant.
Arbogast Law and David M. Arbogast for Consumer Attorneys of California as Amicus Curiae on behalf of Plaintiff and Appellant.
Klinedinst, Neil Gunny; Greines, Martin, Stein & Richland, Kent L. Richland, Edward L. Xanders and David E. Hackett for Defendants and Respondents.
Arnold & Porter, Jerome B. Falk, Jr., and Steven L. Mayer for CBRE, Inc., Cushman & Wakefield of California, Inc., and NAIOP SoCal as Amici Curiae on behalf of Defendants and Respondents.
June Babiracki Barlow, Neil Kalin and Jenny Li for California Association of Realtors as Amicus Curiae on behalf of Defendants and Respondents.
Reed Smith, Margaret M. Grignon and Tillman J. Breckenridge for Jones Lang LaSalle as Amicus Curiae on behalf of Defendants and Respondents.
Fred J. Hiestand for The Civil Justice Association of California as Amicus Curiae on behalf of Defendants and Respondents.
OPINION
KRUGER, J.—Under California law, a real estate broker may act as a “dual agent” for both the seller and the buyer in a real property transaction, provided both parties consent to the arrangement after full disclosure. (
In this case, a seller retained Coldwell Banker Residential Brokerage Company (Coldwell Banker), a real estate brokerage firm, to list a luxury residence for sale. When a buyer, also represented by Coldwell Banker, made an offer to purchase the property, the parties agreed that Coldwell Banker,
As this case comes to us, it presents a single, narrow question concerning the associate licensee‘s duties to the buyer in the transaction: whether the associate licensee owed to the buyer a duty to learn and disclose all information materially affecting the value or desirability of the property, including the discrepancy between the square footage of the residence‘s living area as advertised and as reflected in publicly recorded documents. It is undisputed that Coldwell Banker owed such a duty to the buyer. We now conclude that the associate licensee, who functioned on Coldwell Banker‘s behalf in the real property transaction, owed to the buyer an “equivalent” duty of disclosure under
I.
A.
Dual agency, as it is practiced today, is a relatively recent development in the real estate industry. For most of the past century, the real estate agents involved in a brokered transaction generally served as exclusive agents of the seller. (See generally Olazábal, Redefining Realtor Relationships and Responsibilities: The Failure of State Regulatory Responses (2003) 40 Harv. J. on Legis. 65, 66, 69–71, 74–75 (hereafter Olazábal); Comment, Dual Agency in Residential Real Estate Brokerage: Conflict of Interest and Interests in Conflict (1982) 12 Golden Gate U. L.Rev. 379, 388–389.) As is true today, sellers typically retained a listing broker that would post their properties on a multiple listing service (MLS), where the properties would be noticed by other “cooperating” agents who would show the properties to potential buyers. (Olazábal, supra, at p. 66.) Until the early 1990s, standard MLS agreements made cooperating agents the subagents of the sellers. (Id. at pp. 73-75.) It was common practice for associate licensees, acting as agents of the listing broker, and for other cooperating brokers and
Judicial decisions had long made clear that real estate agents owed sellers ” ‘the same obligation of undivided service and loyalty that [the law] imposes on a trustee in favor of his beneficiary.’ ” (Batson v. Strehlow (1968) 68 Cal.2d 662, 674, quoting Langford v. Thomas (1926) 200 Cal. 192, 196.) It was not, however, always clear to buyers that the brokers involved in a transaction and their associate licensees were all acting as exclusive agents of the seller. California courts often held that listing agents and cooperating brokers were undisclosed dual agents, who owed fiduciary duties to buyers as well as sellers, based on their conduct in a transaction. (See, e.g., McConnell v. Cowan (1955) 44 Cal.2d 805, 813 [real estate agent who negotiated lease was dual agent rather than mere middleman]; Montoya v. McLeod (1985) 176 Cal.App.3d 57, 64 [licensed salesperson‘s conduct rendered her dual agent]; Walters v. Marler (1978) 83 Cal.App.3d 1, 26 [cooperating broker and its associate licensee owed fiduciary duty to buyer]; Anderson v. Thacher (1946) 76 Cal.App.2d 50, 67 [cooperating broker was agent of buyer based on conduct in transaction].) Courts recognized rescission as a remedy for undisclosed dual agency, even when the plaintiff was not injured, impairing the interest in finality of completed sales. (See, e.g., Vice v. Thacker (1947) 30 Cal.2d 84, 90 [“[W]here an agent has assumed to act in a double capacity, a principal who has no knowledge of such dual representation . . . may avoid the transaction.“].)
In the early 1980s, the agency relationships involved in these transactions became the subject of increasing attention nationwide. (See generally Federal Trade Com., L.A. Regional Off., The Residential Real Estate Brokerage Industry (Dec. 1983) vol. 1, pp. 23-24, 180-188.) In 1986, California became the first of many states to enact legislation addressing the practice of dual agency. (Olazábal, supra, 40 Harv. J. on Legis. at p. 112, fn. 250.) While other statutes later passed in other states took different approaches to the issue, including by creating new forms of agency representation previously unknown at common law (see id. at pp. 74–91), the focus of the California statute is disclosure: The law permits dual agency, provided that real estate agents both inform their clients of the agency relationships involved and obtain the clients’ consent (
The statute specifies certain limitations on the duties of a dual agent: A dual agent may not “disclose to the buyer that the seller is willing to sell the property at a price less than the listing price, without the express written consent of the seller,” nor may the dual agent “disclose to the seller that the buyer is willing to pay a price greater than the offering price, without the express written consent of the buyer.” (
For purposes of these provisions, the statute defines the term “agent” to include a real estate broker licensed under the Real Estate Law (
B.
This case arises from the sale of a luxury residence in Malibu by a family trust. The trust engaged Chris Cortazzo, a salesperson in Coldwell Banker‘s Malibu West office, to sell the property. As Cortazzo prepared to list the property, he 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 single-family residence 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. When Cortazzo listed the property on the MLS in September 2006, however, 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.
In early 2007, a couple working with another Coldwell Banker salesperson made an offer to purchase the property. By a handwritten note in the disclosures he prepared, Cortazzo informed the couple that Coldwell Banker did not “guarantee or warrant” the square footage of the residence, and he advised them “to hire a qualified specialist to verify the square footage.” When the couple requested documentation of the square footage, Cortazzo gave them, through the salesperson, a letter from the architect of the residence stating that “[t]he size of the house, as defined by the current Malibu building department ordinance is approximately 15,000 square feet.” In a cover note, however, Cortazzo again cautioned them that they should “hire a qualified specialist to verify the square footage.” The couple requested an extension of time to inspect the property, which the trust refused to grant. In March, the couple canceled the transaction.
Meanwhile, plaintiff Hiroshi Horiike, a resident of Hong Kong, had been working for several years with Chizuko Namba, a salesperson in Coldwell Banker‘s Beverly Hills office, to find a residential property to buy. In November 2007, Namba arranged for Cortazzo to show the Malibu property to Horiike and accompanied Horiike to the showing. At the showing, Cortazzo gave Horiike the marketing flyer stating the property offered
Before completing the purchase, Horiike signed the two agency disclosure forms required by California law. (See
Horiike also signed a third disclosure form, entitled “Disclosure and Consent for Representation of More Than One Buyer or Seller.” That form explained: “A real estate broker, whether a corporation, partnership or sole proprietorship, (‘Broker‘) may represent more than one buyer or seller provided the Broker has made a disclosure and the principals have given their consent. This multiple representation can occur through an individual licensed as a broker or through different associate licensees acting for the Broker. The associate licensees may be working out of the same or different office locations.[] . . . [] Buyer and Seller understand that broker may represent more than one buyer or seller and even both buyer and seller on the same transaction.” The form described the broker‘s disclosure duties “[i]n the event of dual agency” as follows: “Seller and Buyer agree that: (a) Broker, without the prior written consent of the Buyer, will not disclose to Seller that the Buyer is willing to pay a price greater than the offered price; (b) Broker, without the prior written consent of the Seller, will not disclose to the Buyer that Seller is willing to sell property at a price less than the listing price; and
Cortazzo did not provide Horiike a handwritten note advising him to hire a qualified specialist to verify the square footage of the home, as he had done in the disclosures he provided to the potential buyers in the transaction that was canceled in March 2007. Cortazzo did, however, provide Horiike, through Namba, a copy of the residence‘s building permit and a form advisory stating: “[O]nly an appraiser . . . can reliably confirm square footage . . . . Representations in a Multiple Listing Service, advertisements, and from property tax assessor records are often approximations, or based on inaccurate or incomplete records. . . . Brokers have not verified any such representations. Brokers do not have expertise in this area. If Buyer wants information about the exact square footage . . . Broker recommends that Buyer hire an appraiser or licensed surveyor . . . .” Horiike also signed an advisory stating that “Broker . . . [s]hall not be responsible for verifying square footage.” Horiike purchased the property without further investigating its square footage.
In 2009, when preparing to do work on the property, Horiike reviewed the building permit and noticed that it appeared to contradict Cortazzo‘s representation that the property offered approximately 15,000 square feet of living space. Horiike filed suit against Cortazzo and Coldwell Banker, alleging, among other things, that both defendants had breached their fiduciary duties toward Horiike by “either deliberately misrepresenting the square footage of the living area of the [residence] and failing to act with the utmost care, integrity and honesty as to Horiike and or simply failing to determine the accuracy of the representations they were making as to the living area square footage.”
The case was tried to a jury. After the close of Horiike‘s case, Cortazzo moved for nonsuit on Horiike‘s cause of action for breach of fiduciary duty. The trial court granted the motion, ruling that Cortazzo exclusively represented the seller in the transaction and therefore did not owe a fiduciary duty to Horiike. Because Horiike had also stipulated that he did not seek recovery for breach of fiduciary duty based on Namba‘s conduct, the trial court instructed the jury that, in order to find Coldwell Banker liable for breach of fiduciary duty, the jury had to find that an agent of Coldwell Banker other than Cortazzo or Namba had breached a fiduciary duty to Horiike. The jury returned a special verdict in favor of Coldwell Banker on all causes of action.
We granted defendants’ petition for review.
II.
The sole question before us is whether Cortazzo, as an associate licensee representing Coldwell Banker in the sale of the Malibu residence, owed a duty to Horiike to take certain measures to inform him about the residence‘s square footage: specifically, to investigate and disclose all facts materially affecting the residence‘s value or desirability, regardless of whether such facts could also have been discovered by Horiike or Namba through the exercise of diligent attention and observation. Defendants acknowledge that Coldwell Banker was a dual agent, and, as such, owed this fiduciary duty of disclosure to both Horiike and the trust. But defendants contend that Cortazzo himself exclusively represented the trust and therefore could not have breached any fiduciary duty toward Horiike—who, they assert, was represented exclusively by Namba.
The relationship between Horiike and Cortazzo was governed by a set of agreements whose contents either were specified by the agency relationship disclosure statute or elaborated on the statutory provisions. (See
We believe Horiike has the better reading. By describing an associate licensee‘s duty in a real property transaction as “equivalent to” the duty of the “broker for whom the associate licensee functions,” the provision specifies that when an associate licensee represents a brokerage in a real property transaction, his or her duties are the same as those of the brokerage. If the Legislature had meant to impute the salesperson‘s duties to the broker, not vice versa, it could have drafted the provision to focus on the broker‘s duty rather than the associate licensee‘s—by providing, for instance, “When an associate licensee owes a duty to any principal, or to any buyer or seller who is not a principal, in a real property transaction, the broker for whom the associate licensee functions owes an equivalent duty to that party.”
It is, however, unsurprising that the Legislature focused on the duties of the associate licensee relative to that of the broker, rather than the other way around. Under the law, it is solely on the broker‘s behalf that an associate licensee is empowered to act in a real estate transaction. An associate licensee, by definition, is either “licensed under a broker” or has contracted “to act as the broker‘s agent in connection with acts requiring a real estate license,” and “function[s] under the broker‘s supervision.” (
Under these provisions, an associate licensee has no power to act except as the representative of his or her broker. This means that an associate licensee does not have an independent agency relationship with the clients of his or her broker, but rather an agency relationship that is derived from the agency relationship between the broker and the client. Against that backdrop,
The legislative history of
Defendants point to statements in the legislative record that suggest that the law had been understood as designed simply to ensure that agency relationships are disclosed, rather than to modify them. (See, e.g., Cal. Assn. of Realtors, sponsor of Assem. Bill No. 3349 (1985-1986 Reg. Sess.), statement in support, June 20, 1986, p. 3 [“The bill does not mandate sellers, buyers or real estate brokers to accept or function in any particular agency
As a practical matter, it is unclear how a corporate brokerage like Coldwell Banker would fulfill its fiduciary disclosure duties as a dual agent under the rule that defendants advance. This case perhaps illustrates the point: It is undisputed that Coldwell Banker owed a fiduciary duty to Horiike,
Defendants observe that agency requires consent, and they contend that charging associate licensees with carrying out their brokers’ fiduciary duties in a dual agency transaction imposes unconsented-to dual agency. In their view, Cortazzo and Horiike never agreed to an agency relationship, so only Namba and not Cortazzo could owe fiduciary duties to Horiike. But Cortazzo and Horiike did agree to an agency relationship: Cortazzo, as a salesperson acting under Coldwell Banker‘s corporate license, could not represent any party in the transaction independently of Coldwell Banker, the broker under which he was licensed. (See
III.
Defendants argue that charging associate licensees with the same duties as their brokerages would force salespeople “into dual agency with buyers and sellers whose interests inherently conflict,” requiring them to breach their clients’ confidence and harm their clients’ interests. While we do not gainsay defendants’ concerns about the potential for conflicts of interest in the dual agency context, the narrow disclosure duty at issue in this case creates no such conflict. The fiduciary duty of disclosure that Horiike alleges Cortazzo breached is, in fact, strikingly similar to the nonfiduciary duty of disclosure that Cortazzo would have owed Horiike in any event. Even in the absence of a fiduciary duty to the buyer, listing agents are required to disclose to prospective purchasers all facts materially affecting the value or desirability of a property that a reasonable visual inspection would reveal. (
The primary difference between the disclosure obligations of an exclusive representative of a seller and a dual agent representing the seller
In other cases, a plaintiff‘s allegations may raise more difficult questions about the scope of a real estate salesperson‘s fiduciary duties when functioning as a dual agent in a transaction. Defendants argue that if salespeople owe precisely the same duties as their employers, 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.” These are significant concerns, but they are also concerns inherent in dual agency, whether at the salesperson or the broker level. Although the Legislature was certainly aware of these concerns when it enacted the disclosure statute, it opted not to address them directly. (See Sen. Rules Com., Off. of Sen. Floor Analyses, Analysis of Assem. Bill No. 1034 (1985–1986 Reg. Sess.) as amended Aug. 12, 1986, p. 3 [disclosure statute not intended to address “the fundamental problem in dual agency relationships—potential and sometimes unavoidable conflicts of interest” but is “simply a ‘disclosure’ bill intended to inform the buyers and sellers in a real estate transaction of the possible agency relationships and the duties owed by a realtor under a particular arrangement“]; accord, Sen. Rules Com., Off. of Sen. Floor Analyses, Analysis of Assem. Bill No. 3349 (1985-1986 Reg. Sess.) as amended July 8, 1986, p. 2.) In approving the practice of consented-to dual agency, however, the Legislature undoubtedly understood that the dual agent‘s loyalty must extend to both parties, and that it cannot bear any fiduciary duty to one party that requires it
To the extent there is any uncertainty about the scope of a dual agent‘s fiduciary duties in other contexts, the Legislature certainly could enact defendants’ preferred solution to the problem by, for example, adopting legislation to uncouple associate licensees’ duties from those of the brokers they represent. (See, e.g.,
IV.
Because Cortazzo, as an agent of Coldwell Banker in the transaction, owed Horiike a duty to learn and disclose all facts materially affecting the value or desirability of the property, the trial court erred in granting nonsuit on Horiike‘s breach of fiduciary duty claim against Cortazzo and in instructing the jury that it could not find Coldwell Banker liable for breach of fiduciary duty based on Cortazzo‘s conduct. Accordingly, we affirm the judgment of the Court of Appeal.
Cantil-Sakauye, C. J., Werdegar, J., Chin, J., Corrigan, J., Liu, J., and Cuéllar, J., concurred.