Horiike v. Coldwell Banker | Supreme Court | Chris Cortazzo
Supreme Court ruling could have far-reaching implications for brokerages California Supreme Court ruled buyer and seller agents working for same firm owe fiduciary responsibility to each other’s clients November 21, 2016 05:30PM By Justin Sayles
The California Supreme Court ruled Monday that a real estate brokerage representing both the buyer and seller in a deal owes the same fiduciary responsibilities to each party, potentially setting a significant precedent for how information is shared in so-called “dual-agency transactions.” In a unanimous decision, the court ruled in Horiike v. Coldwell Banker that a when an agent representing a seller is working for the same firm as the agent representing the buyer, they become an “associate licensee” and must properly investigate and disclose all important information related to the transaction.
The case centers on a Chinese millionaire’s 2007 purchase of a Malibu mansion and the manner in which the property’s size was listed. The buyer, Hiroshi Horiike, worked through one Coldwell Banker agent, Chizuko Namba, to purchase the home. The seller was represented by another Coldwell Banker associate — celebrity realtor Chris Cortazzo, who is being sued for $3.3 million in a separate case. After his $12.25 million purchase, Horiike raised issue with the way Cortazzo advertised the property’s square footage, alleging he misrepresented its size by thousands of feet. Horiike eventually sued, losing in a lower court in 2012. However, he emerged victorious in 2014 when the California Second District Court of Appeals ruled that under the state’s Civil Code, Coldwell Banker was operating as a dual agent and owed fiduciary responsibility to Horiike through both of its agents — a decision appealed by the brokerage firm.
Monday’s decision affirms the appeals court’s ruling, creating a “very significant and substantial but not onerous” responsibility for dual-agency brokerages, said attorney Fred Cohen, who represented Horiike before the Supreme Court. “This case makes clear the [selling agent] has to take that duty serious and make sure the buyer goes into the transaction with his or her eyes open,” Cohen said. The dual-agent law and the case’s potential impact The laws the case took into consideration, covered in California Civil Code Section 2079, spell out the responsibility each agent has to the buyer and seller in a transaction.
While a seller’s agent — Cortazzo in this case — owes “[a] fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the seller,” that agent has no fiduciary responsibility to the buyer and must be only “honest and fair” in its dealings with that side. A selling agent must also disclose any issues “known … materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the parties.” The buying agent, in this case Coldwell Banker’s Namba, has a similar fiduciary as it relates to her client, and the same “honest and fair” standard to meet in dealing with the seller.
The Horiike v. Coldwell Banker ruling has the potential to alter the requirements of a company’s fiduciary responsibility when its agents are representing both sides. Coldwell Banker’s attorney in the case, Edward Xanders, admitted as much when he said a ruling against his client would create a “whole new ballgame” for agencies, possibly forcing them to disclose damaging information. It would also apply to commercial brokerages that have dual agent transactions, such as Cushman & Wakefield and CBRE. That potential far-reaching impact drew the attention of the industry — several trade organizations with competing interests at stake in the decision filed briefs with the court.
The California Association of Realtors, a trade group that represents more than 175,000 licensed real estate agents in the state, argued in an amicus brief that a ruling limiting dual-broker transactions would limit a consumer’s choices. Because a buyer working with a broker doesn’t know what property they will ultimately purchase, there’s no way to anticipate whether the seller will be represented by the same firm. “[B]uyers will be restricted in the properties they can explore, and sellers will have a limited pool of buyers,” the association said in a statement. “Allowing all parties to explore buying or selling more properties on the market, not fewer, benefits the consumer.” It’s a view shared by Michael Nourmand, president of Beverly Hills agency Nourmand and Associates, who said in an interview with TRD before the decision was issued that dual agent limitations would be “excessive.” …read more click below