Will the California Supreme Court’s anticipated decision in Hiroshiike v. Coldwell Banker Residential Brokerage Company, significantly impact real estate agency law and the fiduciary duty of real estate agents? 25 states have statutorily eliminated a real estate broker’s ability to serve as a dual agent. While California will not likely follow statutorily, the state’s high court may soon make substantive developments in this area by judicial decision.
Claims against real estate brokers for breach of fiduciary duty have long been a common and significant source of litigation. A study by the National Association of Realtors (NAR) revealed that 3 of the largest jury verdicts against real estate brokers over a recent two year period were for breach of fiduciary duty. Even garden variety non-disclosure cases often include a breach of fiduciary duty claim, alleging the non-disclosure constitutes a breach of fiduciary duty.
Historically, many of the breach of fiduciary duty claims have arisen out of transactions where the broker was acting as a dual agent and certainly dual agency is an inherently risky relationship.
It not surprising that NAR has vigorously lobbied state legislatures to limit the fiduciary duty of a real estate broker. Most of NAR’s recent efforts have been in conjunction with legislative enactments eliminating or modifying traditional dual agency relationships.
California law follows a relatively traditional common law approach in this area and allows brokers to be dual agents, subject to statutory disclosure requirements, with a slightly modified fiduciary duty. However many other states have been moving in a different direction. Florida was one of the first states to, at least nominally, eliminate dual agency by statute. Florida's statute also eliminated the agent's fiduciary duty to both the buyer and seller. At this time, 25 states have followed that statutory pattern in one manner or another.
By enactment of Section 475.278 of the Florida Statutes, Florida ostensibly eliminated dual agency by designating a broker who represents both the buyer and seller as a “Transaction Broker.” Although the statute enumerates a set of duties that the Transaction Broker owes to the buyer and seller, duties which are similar to those comprising the common law fiduciary duty, the actual fiduciary duty is explicitly eliminated.
Although my practice is mostly limited to California, and I have limited exposure to recent Florida case law under this statute, I presume that even though causes of action for negligence and negligent misrepresentation or concealment can still be maintained against a Transaction Broker, the standard of care must be significantly different since the enactment of Fla. Stat. § 475.278, since the broker no longer owes a common law fiduciary duty to the buyer or seller.
Although the Florida statute purports to ban dual agency, in some ways the ban is more a matter of terminology than substance because a broker can still represent both the buyer and seller as a Transaction Broker rather than a dual agent.
The statutory elimination of a broker's fiduciary duty would seem to be a remarkable legislative accomplishment by the brokerage industry and carries the added benefit of purging the sinister phrase “dual agent” from the real estate vernacular. It certainly sounds better to be called a Transaction Broker than a dual agent.
Under the procedure enacted by Florida, all brokers are presumed to be Transaction Brokers, unless he or she takes affirmative action to designate him or herself as a single party broker.
Now that 25 states have followed Florida, the question is whether California will follow. Even though the brokerage industry may have succeeded in characterizing the Florida law as a pro-consumer measure by eliminating the pernicious dual agency, it is doubtful that California will see Transaction Brokers anytime soon, even if they come packaged in a purportedly pro-consumer law.
There may soon be some substantive developments in this area of California law by judicial decision. In 2014, Second District Court of Appeal case involving two Coldwell Banker agents from different offices resulted in a very significant decision on the fiduciary duty of dual agents in Hiroshiike vs. Coldwell Banker Residential Brokerage Company, 225 CA4th 427 (2014). The California Supreme Court has granted review of the Hiroshiike decision. A number of amicus briefs have been filed with the Supreme Court and at least one commentator has already referred to the case as a “landmark decision.” The California Supreme Court’s decision may have a significant impact on real estate agency law and the fiduciary duty of real estate agents. Those who practice in this area of the law should be alert for the Supreme Court’s decision.