In the much anticipated Horiike v Coldwell Banker Residential Brokerage Company, et al. case (1 Cal. 5th 1024), the California Supreme Court held that, in a dual agency context, an associate agent who represents the seller in a transaction owes the same fiduciary duty to the buyer as the broker owes to the buyer, even if he was retained to represent only the seller. So, in the Horiike case in which both the seller’s agent and the buyer’s agent were Coldwell Banker agents, albeit from different offices, the selling agent owed a duty to the buyer to disclose all facts materially affecting the value or desirability of the property, and therefore failing to disclose a known disparity in records pertaining to the square footage of the property may have been a breach of this duty. It did not matter that the buyer signed a dual agency authorization, as the Court determined that “the associate licensee, who functioned on Coldwell Banker’s behalf in the real property transaction, owed the buyer an ‘equivalent’ duty of disclosure under Civil Code section 2079.13, subdivision (b) [as the brokerage, Coldwell Banker, owed].” The selling agent owed a duty to investigate and disclose all facts materially affecting the value or desirability of the property, regardless of whether such facts were discoverable by the buyer or buyer’s agent through the exercise of diligent observation and attention. To this point, the Supreme Court held: “It is undisputed that Coldwell Banker owed a fiduciary duty to Horiike, including a duty to learn and disclose all information materially affecting the value or desirability of the residence. That duty extended to information known only to [the salesperson] Cortazzo, since a broker is presumed to be aware of the facts known to its salespersons.” (1 Cal. 5th at 1039-40)
In defining “Associate Licensee,” Civil Code § 2079.13, subdivision (b) provides, in pertinent part: “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, that duty is equivalent to the duty owed to that party by the broker for who the associate licensee functions.” (Emphasis added.) In other words, the associate license cannot separate himself or herself from the broker under whom the agent operates. They are tied at the hip, and the associate licensee cannot claim independence to avoid the fiduciary duty of disclosure, as it is the broker’s status, not the agent’s status, that will determine that duty.
Analyzing the legislative history of Civ. Code, § 2079.13, the Court determined that the legislature amended the original draft language of the statute “with the intent of clarifying that ‘the fiduciary duties of real estate broker agents to buyers and sellers also apply to real estate salespersons.’” Furthermore, the Court recognized that a salesperson’s authority to represent either party in a transaction flows solely from their affiliation with the retained broker and therefore the salesperson “stands in the shoes of the brokerage and assumes the broker’s duties.”
The import of the holding in Horiike is yet to be determined. While on its face the ruling would suggest increased duties placed on the individual buyer and seller agents, the Court noted that the fiduciary duty of disclosure alleged by Horiike is “strikingly similar” to the disclosure duties already owed to Horiike, as the buyer, even absent any fiduciary duty. Additionally, Horiike did not seek recovery from his (buyer’s) agent so the impact to buyer agents is not expressly discussed.
The foregoing article was prepared by Richard Rasmussen and Pablo De Leon. Anglin Flewelling Rasmussen Campbell & Trytten LLP (AFRCT) is a full-service law firm, providing legal counsel in most every area encountered by businesses operating in California.