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A. Introduction

From causes of action sounding in breach of contract, to improperly earned commissions, to allegations of violations of real estate specific statutes, buyers and sellers have continued to assert claims against real estate professionals, namely agents and brokers, even against those professionals who did not represent them, but were involved in their respective transactions. While there certainly seemed to be a revolving door of causes of action asserted against real estate professionals this year and in years past, one cause of action appears to have permeated pleadings nationwide: breach of fiduciary duty.

B. Breach of Fiduciary Duty

In order to establish a breach of fiduciary duty claim against a real estate agent or broker, a plaintiff must prove: (1) the existence of a fiduciary relationship, (2) misconduct by the defendant, and (3) damages that directly were caused by that defendant’s misconduct.[1] This cause of action generally is recognized in most jurisdictions.[2] It is well settled that a real estate broker is a fiduciary with a duty of loyalty and an obligation to act in the best interests of his or her principal.[3]

While the existence of a fiduciary relationship with a real estate agent or broker is fairly easy for a Plaintiff to plead and prove, it is the duty owed by real estate professionals to their clients and to the parties on the other end of their transactions that continues to evolve.  More specifically, the scope of the fiduciary duty owed is one that plaintiffs constantly are attempting to expand upon in an effort to push the boundaries upon which to base their claims. Indeed, this year’s cases highlight the continued efforts to expand the scope of the “duty” in the “fiduciary duty” owed by real estate professionals.

C. Relevant Cases from 2018

A February decision from a New York court examined the fiduciary responsibility of an agent to inform the buyer of the agent’s receipt of potential commissions as part of a closing. In Tozzi v Mack, et al.,[4] plaintiff decided to purchase a condominium in February of 2015, and defendants, an agent and the brokerage firm she worked for, were retained to work as plaintiff’s brokers.[5] Shortly after being retained, defendants began negotiating on plaintiff’s behalf with a seller’s agent. Plaintiff eventually instructed defendants that seller’s offer was acceptable and a purchase agreement was entered into in March of 2015.[6] In the purchase agreement, defendants were specifically identified as co-brokers, with the seller agreeing to pay their commissions.[7] Shortly after closing, plaintiff decided he wanted a larger apartment, and defendants commenced negotiations for a larger unit that eventually was agreed upon.[8] A rider to the original purchase agreement then was executed, in which all terms remained the same, except a requirement was added that plaintiff was to pay the difference in cost between the two apartments.[9] The defendant agent did not attend the closing for the new unit, sending an associate from her brokerage firm instead.[10]

After “learning” that a commission was due to defendants for the second transaction, plaintiff filed a lawsuit against defendants, asserting three causes of action: for invalid commission, for breach of fiduciary duty and for unjust enrichment. Defendants moved to dismiss plaintiff’s complaint on the ground that the purchase agreement and rider clearly established that they were entitled to receive a commission in connection with the purchases and that text messages and email communications supported their claim that plaintiff knew they were representing him as his broker.[11] Plaintiff opposed the motion, asserting that defendants were owed no commission at all. Plaintiff argued that he represented himself at the closing for the larger unit and discovered for the first time at that closing defendants were listed as co-brokers on the transaction and were to receive a commission.[12] Plaintiff further argued that he could not have known about the commissions due to defendants in any event, since it was essentially concealed from him, because he received from defendants only the signature pages to the purchase agreement and rider prior to closing, nothing else.[13] Lastly, Plaintiff also maintained that the defendant agent was actually asked to look at apartments not in her professional capacity but only in her personal capacity as plaintiff’s employee (since the Complaint also alleged that, in April 2015, plaintiff’s company hired the defendant agent to be a senior associate administrator, separate and apart from her job as a real estate broker with the defendant brokerage[14]), and that the defendant broker only appeared at the initial closing because plaintiff could not make it.[15]

However, the trial court granted defendants’ motions to dismiss and dismissed the Complaint. Noting that the submission of the purchase agreement and rider provided clear documentary evidence that defendants were entitled to the commissions and breached no fiduciary duty with respect to same, the Court opined that, “while [Plaintiff] may feel that [the defendant agent] took advantage of the situation [by presenting only signature pages of the purchase agreement and rider], that does not state [a] cause[] of action” for breach of fiduciary duty or invalid commission.[16] The Court also reiterated that “[a] party to a contract is not relieved from the contract’s provisions by asserting that he or she failed to read it[.]”[17] While clearly finding it odd that Plaintiff “declined to request to see the entire agreement to buy an apartment worth over $4 million [or its subsequent rider],” the Court found that “had he done so, he would have seen that [Defendants] were listed as co-brokers and entitled to commissions.”[18] As such, the fiduciary duty claims were dismissed.

A more recent decision from New York State Supreme Court required the court to consider the nature and extent of the fiduciary duty owed by a real estate brokerage firm and its agents when the brokerage firm agrees to act as a seller’s listing agent. More specifically, the Court was forced to evaluate whether practical considerations required drawing a distinction between the fiduciary duty owed by an agent on a transaction extended to other agents at the agent’s brokerage firm who had no dealings with the client.

In 106 N. Broadway, LLC v. Lawrence,[19] plaintiff, the owner of a parcel of commercial real estate, entered into an Exclusive Right to Sell/Rent Agreement with the defendant brokerage firm for a six-month period.[20] The agreement specified that all agents at the brokerage firm, other than a named, select few agents, were to be considered “outside brokers.”[21] In August of 2014, plaintiff entered into a land purchase agreement (“LPA”) with a development company to develop a senior living facility on the property it had purchased, with the LPA expressly stating that one of the brokerage firm’s agents, who had specifically been named in the sales agreement, was the broker acting on behalf of the seller.[22] The LPA was subject to specified contingencies, such as zoning and development approvals, and plaintiff alleged that some members of the local community actively opposed the building of the contemplated senior living community, including two people who were at the time both licensed real estate agents employed by the defendant brokerage firm. [23] However, they were not agents listed on the transaction. Following this opposition, the purchaser decided not move forward, and terminated the LPA.[24]

Plaintiff filed suit against the brokerage firm and the two other agents, asserting causes of action for negligence and breach of fiduciary duty, among other things. The two agents moved to dismiss, contending that there was no principal/agent relationship between either of them and plaintiff, that they had no duty toward plaintiff, that even assuming they “injected” themselves into the transaction as plaintiff contended, they did not thereby acquire a duty toward plaintiff, and that the claim for breach of fiduciary duty should be dismissed.[25] Likewise, the brokerage firm also moved to dismiss, contending that, based on the agents’ arguments, nothing in the allegations of the Complaint could establish that it breached a duty to plaintiff, in tort or under the contract.[26]

The Court agreed with the defendants and dismissed the Complaint. In analyzing the breach of fiduciary duty claim against the brokerage firm and its brokers, the Court noted that “it is well settled that a real estate broker is a fiduciary with a duty of loyalty and an obligation to act in the best interests of the principal” and that “[w]here a broker’s interests or loyalties are divided due to a personal stake in the transaction or representation of multiple parties, the broker must disclose to the principal the nature and extent of the broker’s interest in the transaction or the material facts illuminating the broker’s divided loyalties.”[27] Recognizing the sheer volume of agents at brokerage firms in the New York metropolitan market, the Court held that when a real estate brokerage firm is comprised of many individual agents, the duty owed by the agent who represents the client does not apply to those other agents of the brokerage firm who had no involvement in the brokerage’s dealings with the client.[28] Inasmuch as the agreement specifically stated which agents were to be outside agents (i.e., every other agent at the brokerage firm but three agents specifically identified), the Court held that plaintiff was not entitled to expect that any of the firm’s other, non-involved brokers owed a fiduciary duty, that the agent’s alleged actions in opposing the building did not create a fiduciary duty where none existed and that, in essence, there was no greater obligation created than that which any other broker with a different brokerage firm would have toward plaintiff.[29] As such, the Court dismissed plaintiff’s complaint, holding that it failed to state a claim for breach of fiduciary duty.

A recent Connecticut case highlighted another type of fiduciary responsibility that a plaintiff alleged a real estate professional owed, even though asserted unsuccessfully. In Maza v. Montes-Vazquez,[30] plaintiff and her co-worker retained the defendant real estate agent to purchase a property in Waterbury, Connecticut. Plaintiffs alleged that at some point during the lead-up to purchasing the property, the defendant agent advised her to involve a third party in the purchase of the property (though the Court did not state the suggested reason for the third party’s  involvement, such as for lending purposes).[31] Plaintiff allegedly relied on the defendant agent’s advice, and ended up losing the money to the third party, who essentially stole the money after receiving it. Plaintiff filed suit, having allegedly suffered a loss of $49,300 and emotional distress as a result of her reliance on the agent’s advice.[32]  The agent moved to strike the breach of fiduciary duty cause of action as insufficient as a matter of law.[33]

The Connecticut trial court began its analysis by noting that a fiduciary relationship, to the extent one existed, is characterized by “a unique degree of trust and confidence between the parties, one of whom has superior knowledge, skill or expertise and is under a duty to represent the interests of the other.”[34] While plaintiff alleged that the parties had a special relationship in that defendant was advising the plaintiff, that plaintiff relied upon the advice, and took action that caused her to suffer her alleged losses, the Court noted that plaintiff failed to allege any facts showing that the defendant agent in any way advanced her own interests in the dealings she had with the plaintiff or anyone else.[35] Importantly, the Court held that the fact that defendant was the realtor working with plaintiff did not create a special fiduciary relationship that would create liability for all matters involved in the purchase. Refusing to let plaintiff proceed with her claim and granting the motion to strike, the Court summarized that “such a finding [as suggested by plaintiff] would create a new claim for every buyer who was stymied in any way from completing the purchase of a home.”[36]

What did the defendant agent know, and when did he know it? A Texas appellate court analyzed this question in Van Duren v. Chife.[37] There, plaintiffs purchased a home from defendants (which included sellers and their real estate brokers) in 2013.[38] After living in the home for about two years, plaintiffs discovered water in the front entryway of the home.[39] Further investigation revealed wet, rotting wood throughout the structure of the house, and testing for mold was positive.[40] Plaintiffs sued the seller, seller’s real estate broker and his company, asserting claims for negligence and breach of fiduciary duty alleging that the defendant broker knew about the construction defects that caused the water intrusion and concealed those defects.[41] The defendant broker and his firm moved for summary judgment at the trial court level. The court granted the motion dismissing the claims asserted against them. Plaintiffs appealed.[42]

While acknowledging plaintiffs’ argument that the defendant broker had a general obligation to treat all parties to the transaction in a fair manner, and that this obligation was a fiduciary one, the Texas Court of Appeals upheld the trial court’s decision, noting that the broker correctly contended in the lower court arguments that he did not owe a fiduciary duty to plaintiffs in connection with their purchase of the home.[43] Indeed, while recognizing that brokers were required to treat other parties to a transaction fairly, the Court held that this obligation did not make a broker a fiduciary to other parties whom he did not represent.[44] Since the defendant broker was the defendant seller’s agent with respect to the sale of their home, the Court held that this conclusively negated the existence of a fiduciary duty by the defendant broker and required the Court to affirm summary judgment.[45]

Interestingly, the Court in Van Duren also noted that, without evidence that the home was sold for less than it was worth, damages could not be proven, and summary judgment was proper on the fiduciary duty claim at the trial court level.[46] A similar situation presented itself in White v. Miller,[47] where a Tennessee court was asked to opine on whether a breach of fiduciary duty claim could be stated where, despite not securing the sale price the plaintiffs wanted for their home, plaintiffs still made a profit on the sale itself.

In White, plaintiff, the seller, entered into an agreement with a broker for the exclusive right to sell her property.[48] The agreement provided for a commission of six percent of the total sale price payable by seller to the broker.[49] Seller also consented to the broker receiving compensation from both parties (buyer and seller).[50] The broker appointed the defendant, a licensed real estate agent, as the designated agent for seller and after being contacted to inquire about the property, seller referred the inquiring parties to defendant, who negotiated with them on the plaintiff’s behalf and secured an offer to purchase the property.[51] The sale was contingent upon the prospective purchasers’ ability to sell their townhome. While the townhome was not listed for sale at that time, seller, through the defendant, offered to buy the townhome and apply the purchase price as a credit toward the purchase of his property.[52] The prospective purchasers agreed to purchase the property and to sell their townhome to seller, with the proceeds to be applied as a credit toward the sale.[53] Defendant entered into a listing agreement with the buyers for the sale of their property to seller with a commission of a small percentage of the sale price, and then orally agreed to reduce his commission for the sale of the seller’s property.[54] Before closing however, the seller’s property appraised for $25,000 below the agreed-to sale price — buyer’s lender had only approved a loan for up to 80 percent of the appraised value.[55]

After closing, plaintiff/seller filed suit against the defendant, “alleging that, in addition to acting as their agent,” the agent acted as an “undisclosed agent” for the buyer without [plaintiff’s] consent, breaching his fiduciary duty to plaintiff.[56] Defendants moved for summary judgment, alleging that (1) there was no agency relationship between the agent and the sellers; and (2) even if there was, [seller was] not injured and could not prove [she] suffered damages as a result of the relationship.[57] While the court granted summary judgment in favor of defendant on a number of seller’s claims, the court held that defendants did, in fact, act as an undisclosed dual agent, necessitating forfeiture of the commission. The parties appealed. The appellate court initially reversed the grant of summary judgment in favor of seller and remanded the case for further proceedings.[58] On remand, the trial court granted summary judgment in favor of defendants on the breach of fiduciary duty claim holding that not only had defendants properly disclosed potential payment from both parties in the event of a property exchange with seller’s consent, but also that seller failed to establish her entitlement to any damages as a result of any alleged breach of fiduciary duty.[59]  Once again, plaintiff appealed.[60]

The appellate court agreed with the defendant agent, holding that seller was advised of and consented to the broker’s receipt of a commission from both parties, and that, in any event, the agent secured the sale of their property for $25,000 above the appraised value and the purchase of the other property for $25,000 below the approximate value presented in comparable market reports. The Court found that plaintiff suffered no real damage in the transaction, because “[t]he completion of the sale as negotiated by [the agent] was wholly within Seller’s interest…given the comparable market reports.”[61] As such, the Court affirmed the dismissal of the breach of fiduciary duty claim against the agent.

D. Conclusion

As the saying goes, the more things change, the more they stay the same. 2018 served as a year where courts continued to express a willingness to side with real estate agents and brokers when they were alleged to have breached their fiduciary duties to parties on each side of a transaction, and even when they were not the agents of record on those transactions. While this a welcome trend for real estate professionals, only time will tell whether this trend is of the lasting variety, or whether the real estate agent’s liability bubble, like the real estate bubble itself, is about to burst.

[1] See, e.g., McSpedon v. Levine, 158 A.D.3d 618, 621 (2d Dep’t 2018) (citing Daly v. Kochanowicz, 67 A.D.3d 78, 95 (2d Dep’t 2009) (internal citations omitted).

[2] See, e.g., Zhu v. Lam, 426 S.W.3d 333, 339 (Tex. App. 2014) (accord); Roberts v. Lomanto, 112 Cal. App. 4th 1553, 1562, 5 Cal. Rptr. 3d 866, 872 (2003) (accord); Inwood v Stolph, No. CV2011124248, 2013 WL 6243369, at *2 (Ohio Com.Pl. Apr. 02, 2013) (accord).

[3] Douglas Elliman LLC v. Tretter, 84 A.D.3d 446, 448 (1st Dep’t 2011), aff’d, 20 N.Y.3d 875, 979 N.E.2d 1178 (2012) (citing Dubbs v. Stribling & Assoc., 96 N.Y.2d 337, 340 (2001)). See also, e.g., Cousins v. Realty Ventures, Inc., 844 So. 2d 860, 872 (La.App. 5 Cir. 2003) (accord); Schwartz v. Real Estate One, Inc., No. 328727, 2017 WL 378749, at *4 (Mich. Ct. App. Jan. 26, 2017), appeal denied, 901 N.W.2d 871 (2017) (accord).

[4] No. 152499/2017, 2018 WL 902305 (Sup. Ct. Feb. 14, 2018).

[5] Id. at *1.

[6] Id.

[7] Id.

[8] Id.

[9] Id.

[10] Id.

[11] Id. at *2.

[12] Id.

[13] Id.

[14] Id. at *1

[15] Id.

[16] Id. at *3

[17] Id. (citing Martin v Citibank, N.A., 64 A.D.3d 477, 477 (1st Dep’t 2009)).

[18] Id.

[19] 58 Misc. 3d 1231(A) (Sup. Ct. Westchester Cty. 2018).

[20] Id.

[21] Id.

[22] Id.

[23] Id.

[24] Id.

[25] Id.

[26] Id.

[27] Id. (quoting Dubbs v. Stribling & Assocs., 96 N.Y.2d 337, 340 (2001)).

[28] Id (citing Rivkin v. Century 21 Teran Realty LLC, 10 N.Y.3d 344, 356 (2008)) (emphasis added).

[29] Id.

[30] No. UWYCV176033664S, 2018 WL 4390078 (Conn. Super. Ct. Aug. 28, 2018).

[31] Id. at *1.

[32] Id.

[33] Id.

[34] Id. (citing Iacurci v. Sax, 313 Conn. 786, 800 (2014)).

[35] Id.

[36] Id.

[37] No. 01-17-00607-CV, 2018 WL 2246213 (Tex. App. May 17, 2018).

[38] Id. at *1.

[39] Id.

[40] Id.

[41] Id.

[42] Id. at *9-10.

[43] Id.

[44] Id. (citing Kubinsky v. Van Zandt Realtors, 811 S.W.2d 711, 715 (Tex. App. 1991).

[45] Id. at *10.

[46]Id. at *11.

[47] No. M201800381COAR3CV, 2018 WL 4847109 (Tenn. Ct. App. Oct. 5, 2018).

[48] Id. at *1-2.

[49] Id.

[50] Id.

[51] Id.

[52] Id.

[53] Id.

[54] Id.

[55] Id.

[56] Id.

[57] Id.

[58] Id. at *2

[59] Id.

[60] Id.

[61] Id.