The case involved the sale of a luxury home overlooking the Pacific Ocean in Malibu where the square footage was in dispute. The buyer and seller were represented by agents from different Coldwell Banker offices.
Under California law, a broker may act as a dual agent for both the seller and the buyer in a real estate transaction, provided both parties consent to the arrangement after full disclosure that the broker owes a fiduciary duty to both.
What was at dispute in the case was whether that duty extends to “associate licensees,” who are the individual agents/salespeople who operate under that broker’s license. The court ruled 7-0 that it does.
The seller of the home, a family trust, was represented by Chris Cortazzo, a salesman in Coldwell Banker’s Malibu West office whose celebrity clients have included Richard Gere, Ellen DeGeneres, Pamela Anderson and Josh Groban, according to the New York Times.
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The buyer was Hiroshi Horiike, a wealthy Hong Kong resident represented by Chizuko Namba, who was a saleswoman in Coldwell Banker’s Beverly Hills office.
Before advertising the property on the Multiple Listing Service, Cortazzo “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,” the court said in its decision, written by Associate Justice Leondra Kruger. “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.’”
In November 2007, Namba and Cortazzo showed the home to Horiike. “At the showing, Cortazzo gave Horiike the marketing flyer stating the property offered ‘approximately 15,000 square feet of living areas,’ and a Multiple Listing Service listing printout that did not specify the square footage and contained a small-print advisement that ‘Broker/Agent does not guarantee the accuracy of the square footage,’” the court wrote.
After viewing the property and signing the required disclosure documents, Horiike purchased the property. According to news reports, he paid $12.25 million cash in 2007. However, in 2009, “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,” the court wrote.
Horiike sued Cortazzo and Coldwell Banker, alleging, among other things, that they had breached their fiduciary duties toward Horiike. He did not sue his own agent, Namba.
At a trial in 2012, the jury exonerated Cortazzo on various claims including misrepresentation. The judge had already concluded that Cortazzo had no fiduciary duty to Horiike and essentially threw out that cause of action against him. The judge told the jury it could only find Coldwell Banker liable if another agent, not Cortazzo, had breached his or her fiduciary duty to Horiike. The jury found in favor of Coldwell Banker.
The Court of Appeal reversed the trial court’s decision. The Supreme Court affirmed the affirmed appellate court decision. The case now goes back to the trial court to determine whether the defendants violated their fiduciary duty to the buyer.
“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,” the decision said.
What it means is that when agents on both side of a transaction are licensed by the same firm, “the salesperson who is selling owes a fiduciary duty to not only the seller, but also the buyer,” said Frederic Cohen, the plaintiff’s attorney. Cohen thought that was already clear under state law, but Coldwell Banker and the real estate industry disagreed.
Coldwell Banker argued that “each salesperson owes a duty only to the person they are directly working with, not the opposite side.” Coldwell Banker referred requests for comment to the California Association of Realtors, which filed a brief supporting the defendants.
“We think it’s clear that Coldwell Banker owed a duty to both” buyer and seller in the transaction. “What we didn’t agree with is that duty flows back to every single agent in the transaction,” said June Barlow, the association’s general counsel.
Although the Supreme Court disagreed, the association does not think its decision will result in any major changes in the real estate industry. “We were more worried about an unwarranted expansion” of fiduciary duty that essentially would have outlawed dual agency, said June Barlow, an attorney for the association.
California law already requires listing agents to disclose all material facts that affect the value or desirability of a property to all prospective buyers, no matter who represents them. This includes facts such as a murder that occurred on the property or overly hostile neighbors. Listing agents also must do a visual inspection of the property and disclose any defects found to to all buyers.
As for practical impacts of the Supreme Court ruling, Cohen believes that when listing agents owe a fiduciary duty to the buyer, “They have to do more than a cursory inspection.”
He also said these agents “cannot fulfill their duty to disclose information (to buyers) by providing them a blizzard of paper buried in which the information is disclosed.”
Kathleen Pender is a San Francisco Chronicle columnist. Email: firstname.lastname@example.org Twitter: @kathpender