Horiike v. Coldwell Banker - Dual Agent Liability

The California Civil Code permits an agent to represent both the buyer and seller in a real estate transaction, so long as the agent receives consent from both parties after full disclosure. (Civ. Code, §§ 2079.14, 2079.16.) In this dual agency relationship, the agent owes fiduciary duties to both the buyer and the seller. But what of the salespeople, or “associate licensees” who carry out the transaction on the agent’s behalf? On November 21, 2016, the California Supreme Court held in Horiike v. Coldwell Banker (Nov. 21, 2016, S218734) __ Cal.App.5th __ [2016 Cal.Lexis 9428] (Horiike) that a dual agent’s associate licensee owes an equivalent fiduciary duty of “utmost care, integrity, honesty, and loyalty” to both the buyer and the seller regardless of whom he or she personally represents.

Horiike arose from the sale of a luxury home in Malibu. The seller retained Cortazzo, a Coldwell Banker salesperson to list the property. Cortazzo learned that the property’s living area was approximately 9,200 to 9,400 square feet. However, he listed the property as offering “approximately 15,000 square feet of living areas,” and distributed flyers containing the inflated estimate. Horiike (the plaintiff) engaged another Coldwell Banker salesperson, Namba, to find residential property in Southern California. Namba arranged for Cortazzo to show Horiike the Malibu property. After viewing the property and receiving Cortazzo’s marketing flyer listing the living areas at 15,000 square feet, Horiike agreed to buy the property. Horiike later discovered the discrepancy between Cortazzo’s representations and the actual square footage of the living area. He filed suit for breach of fiduciary duty against both Coldwell Banker and Cortazzo (the defendants).

The trial court granted nonsuit, determining that Cortazzo owed a fiduciary duty to the seller, whom he represented in the transaction, but not to Horiike. The Court of Appeal reversed, holding that based on Civil Code section 2079.13 (“§ 2079.13”), Cortazzo owed equivalent fiduciary duties to both the buyer and the seller due to his position as associate licensee for Coldwell Banker, the dual agent.

The California Supreme Court affirmed, holding that Cortazzo, as the seller’s representative and associate licensee of Coldwell Banker, owed equivalent fiduciary duties to both the buyer and seller in the transaction. Per § 2079.13, an associate licensee’s duty to “any buyer or seller . . . is equivalent to the duty owed to that party by the broker for whom the associate licensee functions.” The defendants argued that by this language, Cortazzo’s fiduciary duty to the seller is imputed to Coldwell Banker, but not the other way around. The court rejected this reading, interpreting the statute to impute Coldwell Banker’s duty to both parties in the transaction to Cortazzo, the associate licensee. The court reasoned that this interpretation is the most natural because the associate licensee has an agency relationship with the broker, not with the broker’s clients. Furthermore, since it is undisputed that a dual agent owes fiduciary duties to both parties in the transaction, it is unclear as a practical matter how a corporate broker such as Coldwell Banker could carry out these duties if its associate licensees were not held to the same standard.

The court acknowledged that conflicts of interest are possible, even probable where a dual agent’s associate licensee purports to represent just one party to a transaction. However, such conflicts are inherent in dual agency situations, which the legislature has chosen to approve.