Dual Agency-Both Agents Owe Same Fiduciary Duty as Broker to Both Seller and Buyer

            In the recent California Supreme Court case of Horiike v. Coldwell Banker Residential Brokerage Company, the court acknowledged the "relatively recent development" of dual agency, and clarified that where a broker lists real property and the broker's associate licensee (i.e., agent) represents the seller, and a different agent of the same broker represents the buyer, both agents owe the same fiduciary duty as the broker to both the seller and the buyer.  This duty requires both agents to learn and disclose all information materially affecting the value or desirability of the property to both the seller and buyer, but not information regarding what a seller would accept, or what a buyer would pay. 

            In Horiike, the seller's agent listed the property at approximately 15,000 sq. ft., and he provided the buyer Horiike with public record information from the tax assessor's office that stated the living area was 9,434 sq. ft., and a copy of the building permit that described the single-family residence as 9,224 sq. ft., a guest house of 746 sq. ft., a garage of 1,080 sq. ft., and a basement of unspecified area. The seller's agent also gave the buyer a small-print advisement that stated "Broker/Agent does not guarantee the accuracy of the square footage."  Horiike signed the two standard agency disclosure forms required by California law, and a third disclosure form entitled "Disclosure and Consent for Representation of More Than One Buyer or Seller."  The seller's agent did not provide Horiike a written notice that he should hire a qualified specialist to verify the square footage of the house, as he had provided to an earlier buyer who cancelled, but he did provide Horiike a form advisory stating "only an appraiser . . . can reliably confirm square footage . . . Representations . . .".

             The trial court ruled that the seller's agent exclusively represented the seller, and therefore did not owe a fiduciary duty to Horiike, and the jury returned a verdict in favor of Coldwell Banker.  The Court of Appeal reversed the judgment on the breach of fiduciary duty claim against the seller's broker and agent concluding that the agent, as a salesperson working under the broker's license, owed a duty to the buyer Horiike "equivalent" to the duty owed to him by the broker. The Supreme Court  affirmed the judgment of the Court of Appeal and remanded the case for a new trial, finding that the seller's agent had a duty to the buyer to disclose the discrepancy between his representations regarding the square feet and the publicly recorded documents, and alert Horiike that the agent's representations were unverified. 

            In other words, in a dual agency, the seller's agent has the same fiduciary duty to the buyer as the broker, and it is an issue for the court or jury to decide if the seller's agent breached that duty.  This case confirms the best practice in a dual agency is to clarify any information and discrepancies regarding the value or desirability of a property, and the both agents should disclose to the buyer all known facts materially affecting the value or desirability that are not known to or reasonably discoverable by the buyer. 

Interplead Disputed Funds

The holder of disputed funds, such as an escrow company holding proceeds of a transaction where the parties dispute who has the legal right to receive the proceeds, may interplead the funds by filing an interpleader complaint in Superior Court under California's Code of Civil Procedure §§ 386-386.6, naming the claimants as defendants, and requesting the attorney's fees and costs incurred to obtain a discharge. In the recent decision of Southern California Gas Company v. Flannery, the appellate court recognized that such fees and costs include those incurred in initiating the interpleader case to obtain a discharge, and also the fees and costs incurred in defending against subsequent motions, writ petitions, and appeals attacking the validity of the interpleader complaint and discharge order.  Because an interpleader complaint may allege that the defendants each claim an interest in some or all the interpleaded funds, defendants have to be careful to not include a general denial in their answer, because by doing so they may deny that they claim an interest in the funds.  In other words, defendants should not deny they are entitled to receive the funds if they want some or all of the funds.  If the defendants want to state a conflicting claim to the funds, they need to include factually specific allegations to legally state such a claim or it may be disregarded.  An interpleader action is a very useful method to obtain the court's determination of who has the right to the funds, while also obtaining the attorney's fees and costs incurred in the action.  Defendants should attempt to settle their rights to such funds as the funds will be the source of any attorney's fees and costs awarded to the plaintiff, and will therefore be reduced to pay the fees and costs.