Dual Agency – a Fiduciary Duty Trap

UPDATE:  On November 21, 2016, the California Supreme Court affirmed the ruling of the Court of Appeal, holding that when an associate licensee owes a duty to any party in a real party transaction, “that duty is equivalent to the duty owed to that party by the broker for whom the associate licensee functions.”  (Citing Civil Code Section 2079.13(b). Horiike v. Coldwell Banker Residential Brokerage Co., S218734.

Does a real estate agent representing the Seller owe a fiduciary duty to a Buyer who is represented by another real estate agent?  The answer is “Yes,” if both agents are employed by the same broker. The Second Appellate District has reaffirmed that real estate agents who act as dual agents – representing both the Seller and the Buyer in a transaction – owe a fiduciary duty to BOTH parties. In a recent case, the Appellate Court emphasized that all salespersons working for a single broker acting in a dual agent capacity owe the same fiduciary duty to all parties in the transaction.

The case, Horiike v. Coldwell Banker Residential Brokerage Co.,(filed 4/9/2014), the salesperson working with the Seller failed to disclose or misstated the actual square footage of the living space to the Buyer, who was represented by a different salesperson. But both salespersons worked for the same broker – Coldwell Banker. The Court of Appeal overturned the trial court’s finding that the salesperson representing the Seller did not owe a fiduciary duty to the Buyer.

Even though each of these individual salespersons are considered by the Broker to be “independent contractors” for tax purposes, they are both employees for purposes of their representation of the parties. As a result, the Broker becomes a dual agent representing both parties.  The Court noted that the push by the real estate industry to treat licensed salespersons as “independent contractors” for tax purposes has “enhanced the misunderstanding of salespersons that they can deal independently in the transaction.”

It has long been recognized that a Broker’s fiduciary duty to his or her client requires “the highest good faith and undivided service and loyalty.” “The broker as a fiduciary has a duty to learn the material facts that may affect the principal’s decision. The agent’s duty to disclose material information to the principal includes the duty to disclose reasonably obtainable material information.” Assilzadeh v. Calif. Federal Bank (2000) 82 Cal.App.4th  399, at 414-415.

In Horiike v. Coldwell Banker, the Court went on to declare that a fiduciary’s failure to share material information with the principal is constructive fraud, and noted that even a careless misstatement may constitute constructive fraud even though there was no fraudulent intent. Once again, the emphasis is on full disclosure by the fiduciary of all material facts which are known – or should be known.

Here, the listing agent and the selling agent both worked for Coldwell Banker, and therefore were to be deemed employees of the broker. The Court emphasized that the licensed salesperson had a fiduciary duty equivalent to the duty of the broker, and in a dual agency situation, the salesperson acting under the broker has the same fiduciary duty to both the Buyer and the Seller as the broker.