On November 21, 2016 the California Supreme Court issued a ruling in Horiike v. Coldwell Banker, holding that a brokerage company in a real estate transaction owed a fiduciary duty to both the purchaser and seller when it represents both parties in the same transaction (328 P.3d 1035).

In 2007, Horiike sought to purchase a residence in Malibu, California. The sellers hired Chirs Cortazzo from Coldwell Banker's Malibu West office as their broker to sell the property. Cortazzo compiled information about the residence's square footage from the public records and from a building permit. When Cortazzo listed the property on the Multiple Listing Service (MLS), he posted a different square footage than what was listed in public records.

Horiike made an offer to purchase the property through Chizuko Namba, another salesperson from Coldwell Banker's Beverly Hills office. Cortazzo gave Horiike a marketing flyer for the property and a MLS printout which contained a disclaimer that the broker did not guarantee the accuracy of the square footage.

Before the purchase was complete, Horiike signed an agency disclosure form titled "Confirmation Real Estate Agency Relationships," as required by California law. This form indicated that Coldwell Banker served as the agent for both the purchaser and the seller.

Horiike also signed a form titled "Disclosure Regarding Real Estate Agency Relationships," containing a statutorily required clause that states a real estate agent may legally be the agent of both the purchaser and seller either directly or through multiple associate licensees. The form states that in such circumstances, the agent then owes a fiduciary duty of utmost care, integrity, honesty, and loyalty in his dealings with either the seller or the purchaser.

A third form describing the broker's disclosure duties states that a dual agent is obligated to disclose to both parties known facts materially affecting the value or desirability of the property. Cortazzo signed both forms on behalf of Coldwell Banker.

As Horiike prepared to renovate the property after the close of escrow, he reviewed the building permit and noticed the differences in the listed square footage from Cortazzo's original representation. In response, Horiike filed suit against Cortazzo and Coldwell Banker claiming each defendant breached their fiduciary duties by either intentionally falsifying the square footage or failing to verify the accuracy of the representations made in the MSL by Cortazzo.

The trial judge held that Cortazzo solely represented the seller, not Horiike, and as a result Cortazzo did not owe a fiduciary duty to Horiike. The trial jury returned a verdict in favor of Coldwell Banker after the judge told the jury that to find Coldwell Banker liable for breach of its fiduciary duty to Horiike, the jury first must find that an agent other than Cortazzo or Namba breached a fiduciary duty to Horiike.

The California Supreme Court reasoned that the only question was whether Cortazzo, as representative and associate licensee of Coldwell Banker, owed a duty to Horiike to inform him about the true square footage of the residence. More specifically, whether Cortazzo or Coldwell Banker had a duty to examine and disclose all of the facts that would materially affect the value or desirability of the residence, even if Horiike or Namba could have discovered these facts through their own due diligence.

The Court determined that Cortazzo, as a salesperson for Coldwell Banker, owed the same duties as the brokerage company itself. When Coldwell Banker contracted to act as a dual agent for Horiike and the seller, Cortazzo, as an associate licensee, assumed the same duties owed by the brokerage company to Horiike. In his role, Cortazzo was responsible for fulfilling Coldwell Banker's fiduciary duties to investigate and report any information that materially affects the property's value or appeal.

This holding expands the 1986 state law that permits and regulates dual agents in real estate transactions and extends the dual fiduciary duty owed to the purchaser and seller to the brokerage company as well. The court also stated the State Legislature has the ability to enact legislation to untangle the fiduciary duties of the agents and associate licensees from the brokerage companies they represent.

This ruling impacts future big brokerage transactions and brokerage companies. Real estate transactions in which one large brokerage company represents both the purchaser and the seller now have a much greater possibility for conflicts of interest or breaches of fiduciary duties. Agents who on behalf of brokerage companies are involved in dual-agent transactions can no longer simply consider their indiviudal client's interests when selling a property or residence. Agents who represent brokerage companies in dual-agent transactions must equally consider the interests of purchasers and sellers.

Large brokerage companies will need to exercise more caution when entering dual-agent relationships in real estate transactions and educate their agents about these enhanced fiduciary obligations. Clients both selling and purchasing real property stand to benefit from this additional protection in transactions.

For additional information on brokerage laws in California, see State Q&A: Real Estate Brokerage Laws and Customs: California.