California Landmark Case on Dual Agency

Last year, the California Supreme Court accepted the petition for review of a landmark case, Horiike v. Coldwell Banker et. al.. The Court of Appeal held that where a listing agent and a buyer’s agent are both licensed with the same broker, they each owe the same fiduciary duties to both parties to the transaction. Until this decision is reversed, real estate agents need to be aware that when they are representing a party in a dual agency situation (dual agency created by being in the same brokerage) they are also representing the other party.

Facts of the Case

In the Horiike case, Coldwell Banker’s agents represented both the buyer (“Horiike”) and seller in the purchase and sale of a luxury residential property in Malibu, CA. The listing agent marketed the property as being approximately 15,000 square feet by relying on the information from the property’s architect, notwithstanding the MLS provided him with public record information stating the living space of the home was approximately 9,434 square feet. Prior to Horiike’s purchase, a pair of prospective buyers cancelled their purchase agreement after their request for inspection of the living space was denied by the seller. Soon after, the listing agent changed the square footage of the house on MLS to 0 square feet. When Horiike made an offer, he was given a flyer by his agent, which contained the 15,000 square foot representation. Horiike’s agent knew that the square footage of the property had been recorded differently in different documents. Horiike bought the house and discovered that the square footage was significantly less than what was stated in the advertisement. Horiike then filed a complaint alleging breach of fiduciary duty and other counts against Coldwell Banker and the listing agent.
 
The Courts’ Decisions

At trial, Coldwell Banker argued that a seller’s agent should not be a fiduciary to buyers, and could not be held liable to buyers for breach of fiduciary duties arising from the listing agent's conduct, even in a dual agency situation. The trial court accepted that position and held that the listing agent owed no fiduciary duty to Horiike, and the jury found that there was no intentional misrepresentation or concealment by the listing agent.

The Court of Appeal reversed the decision stating that “a broker’s fiduciary duty to his client requires the highest good faith and undivided service and loyalty.” The appellate court essentially ruled that if a broker is the fiduciary to a principal, then both agents in the same brokerage owe fiduciary duties to each other’s client.

The Impact of the Appellate Decision

The decision from the Court of Appeal is bad news for brokers and agents. Generally, an agent owes a fiduciary duty to his or her client, and owes only a duty of good faith and fair dealing to the other party of the transaction. The fiduciary duty of a broker is now imputed to all agents licensed under that broker. Imagine if an agent is under a corporate brokerage with thousands of agents, then arguably that agent’s knowledge needs to be shared with every agent in the entire corporate brokerage. The court ultimately rejected the principle of dual agency by making it difficult to practice without breach. The National Association of Exclusive Buyer Agents (NAEBA), which has been long against the notion of dual agency, filed an amicus curiae on behalf of Horiike before the California Supreme Court. The brief stated that the dual representation is an impossible situation to protect the interest of both seller and buyer, and will only benefit the interest of the brokers.

Nonetheless, the debate of dual agency is ongoing and the upcoming decision from the Supreme Court will be highly anticipated, whatever decision the court makes will have a lasting effect on the California real estate industry.
 
For more information, please refer to case, Horiike v. Coldwell Banker et. al. 225 Cal.App.4th 427 (April 9, 2014).