Court Opinion

ID: 2669357
Source: CourtListenerOpinion
Date Created: 2014-04-09 20:19:04.33081+00
Date Added: 2024-06-11T13:03:13.257473
License: Public Domain

Filed 4/9/14
                           CERTIFIED FOR PUBLICATION

               IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                            SECOND APPELLATE DISTRICT

                                    DIVISION FIVE

HIROSHI HORIIKE,                                 B246606

        Plaintiff and Appellant,                 (Los Angeles County Super. Ct.
                                                  No. SC110477)
        v.

COLDWELL BANKER RESIDENTIAL
BROKERAGE COMPANY et al.,

        Defendants and Respondents.

        APPEAL from a judgment of the Superior Court of Los Angeles County, John H.
Reid, Judge. Reversed and remanded.
        Victor N. Pippins and David W. Macey for Plaintiff and Appellant.
        Klinedinst PC and Neil Gunny for Defendants and Respondents.

                              __________________________
       A broker represented both the buyer and the seller in a real property transaction
through two different salespersons. The buyer brought several claims against the broker
and the salesperson who listed the property for sale, including breach of fiduciary duty.
The trial court granted a nonsuit on the claim for breach of fiduciary duty against the
salesperson on the ground that the salesperson who listed the property did not have a
fiduciary duty to the buyer. The court also instructed the jury that the broker had no
liability for breach of fiduciary duty based on the salesperson’s acts. The jury returned a
verdict in favor of the defense on the remaining causes of action.
       The buyer contends that the salesperson had a fiduciary duty equivalent to the duty
owed by the broker, and the trial court incorrectly granted the nonsuit and erroneously
instructed the jury. We agree. When a broker is the dual agent of both the buyer and the
seller in a real property transaction, the salespersons acting under the broker have the
same fiduciary duty to the buyer and the seller as the broker. The buyer was prejudiced
by the erroneous rulings, because the jury’s findings of fact did not resolve the omitted
issues concerning breach of fiduciary duty. Therefore, we reverse the judgment and
remand for a new trial.

                                          FACTS

       Defendant Chris Cortazzo is a salesperson for defendant Coldwell Banker
Residential Brokerage Company (CB). In 2006, the owners of a residential property in
Malibu engaged Cortazzo to sell their property. The building permit lists the total square
footage of the property as 11,050 square feet, including a single family residence of 9,224
square feet, a guest house of 746 square feet, a garage of 1,080 square feet, and a
basement of unspecified area.
       Cortazzo listed the property for sale on a multiple listing service (MLS) in
September 2006. The listing service provided Cortazzo with public record information
for reference, which stated that the living area of the property was 9,434 square feet. The
listing that Cortazzo created, however, stated the home “offers approximately 15,000

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square feet of living areas.” Cortazzo prepared a flier for the property which stated it
“offers approximately 15,000 square feet of living areas.”
       In March 2007, a couple made an offer to purchase the property. They asked
Cortazzo for verification of the living area square footage. Cortazzo provided a letter
from the architect stating the size of the house under a current Malibu building
department ordinance was approximately 15,000 square feet. Cortazzo suggested the
couple hire a qualified specialist to verify the square footage. The couple requested the
certificate of occupancy and the architectural plans, but no architectural plans were
available. In the real estate transfer disclosure statement, Cortazzo noted from his visual
inspection that adjacent parcels were vacant and subject to development. He repeated his
advice to hire a qualified specialist to verify the square footage of the home, stating that
the broker did not guarantee or warrant the square footage.
       When the couple learned architectural plans were not available, they requested a
six-day extension to inspect the property. The sellers refused to grant the extension and
the couple cancelled the transaction at the end of March 2007. In July 2007, Cortazzo
changed the MLS listing to state that the approximate square footage was “0/O.T.,” by
which he meant zero square feet and other comments.
       Plaintiff Hiroshi Horiike was working with CB salesperson Chizuko Namba to
locate a residential property to purchase. Namba saw Cortazzo’s listing for the Malibu
property and arranged for Cortazzo to show the property to Horiike on November 1,
2007. Cortazzo gave Horiike a copy of the flier stating the property had 15,000 square
feet of living areas. Escrow opened on November 9, 2007. Cortazzo sent a copy of the
building permit to Namba. Namba provided a copy of the permit to Horiike with other
documents.
       The parties to the transaction signed a confirmation of the real estate agency
relationships as required by Civil Code section 2079.17. The document explained that
CB, as the listing agent and the selling agent, was the agent of both the buyer and seller.
Cortazzo signed the document as an associate licensee of the listing agent CB. Namba
signed the document as an associate licensee of the selling agent CB.

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       Horiike also executed a form required under Civil Code section 2079.16 for the
disclosure of three possible real estate agency relationships. First, the form explained the
relationship of a seller’s agent acting under a listing agreement with the seller. The
seller’s agent acts as an agent for the seller only and has a fiduciary duty in dealings with
the seller. The seller’s agent has obligations to both the buyer and the seller to exercise
reasonable skill and care, as well as a duty of fair dealing and good faith, and a “duty to
disclose all facts known to the agent 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 second type of relationship, which is not at issue in this case, involves the
obligations of an agent acting for the buyer only. An agent acting only for a buyer has a
fiduciary duty in dealings with the buyer. A buyer’s agent also has obligations to the
buyer and seller to exercise reasonable care, deal fairly and in good faith, and disclose
material facts.
       The third relationship described was an agent representing both the seller and the
buyer. “A real estate agent, either acting directly or through one or more associate
licensees, can legally be the agent of both the Seller and the Buyer in a transaction, but
only with the knowledge and consent of both the Seller and the Buyer.” An agent in a
dual agency situation has a fiduciary duty to both the seller and the buyer, as well as the
duties to buyer and seller listed in the previous sections.
       Horiike signed the disclosure form as the buyer and Cortazzo signed as an
associate licensee for the agent CB. In the visual inspection disclosure that Cortazzo
provided to Horiike, he noted adjacent vacant lots were subject to building development.
He did not add a handwritten note of advice to hire a qualified specialist to verify the
square footage of the home, as he had in the previous transaction. Horiike completed the
property transaction.
       In preparation for work on the property in 2009, Horiike reviewed the building
permit. He asked Cortazzo to verify that the property had 15,000 square feet of living
areas. Horiike’s expert testified at trial that the living areas of the home totaled 11,964

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square feet. The defense expert testified the home’s living areas totaled 14,186 square
feet.

                           PROCEDURAL BACKGROUND

        On November 23, 2010, Horiike filed a complaint against Cortazzo and CB for
intentional and negligent misrepresentation, breach of fiduciary duty, unfair business
practices in violation of Business and Professions Code section 17200, and false
advertising in violation of Business and Professions Code section 17500. The parties
agreed that the claims based on violations of the Business and Professions Code would be
determined by the court following the jury trial.
        After the presentation of Horiike’s case to the jury, Cortazzo moved for nonsuit on
the cause of action for breach of fiduciary duty against him. The trial court granted the
motion on the ground that Cortazzo had no fiduciary duty to Horiike. Horiike stipulated
that he was not seeking recovery for breach of fiduciary duty based on any action by
Namba. Therefore, the court instructed the jury that in order to find CB liable for breach
of fiduciary duty, the jury had to find some agent of CB other than Namba or Cortazzo
had breached a fiduciary duty to Horiike. The court granted Horiike’s request to submit
an additional cause of action to the jury for intentional concealment against both
defendants.
        The jury returned a special verdict in favor of Cortazzo and CB. The jury found
Cortazzo did not make a false representation of a material fact to Horiike, so there was no
intentional misrepresentation. However, the jury made a contrary finding in considering
the claim for negligent misrepresentation, finding that Cortazzo had made a false
representation of material fact to Horiike. There was no liability for negligent
misrepresentation, because the jury found Cortazzo honestly believed, and had reasonable
grounds for believing, the representation was true when he made it. The jury found no
concealment, because Cortazzo did not intentionally fail to disclose an important or

                                             5
material fact that Horiike did not know and could not reasonably have discovered.
Lastly, the jury found that CB did not breach its fiduciary duty to Horiike.
       The trial court determined the jury’s findings resolved the remaining claims in
favor of Cortazzo and CB. Therefore, on October 30, 2012, the court entered judgment
in favor of Cortazzo and CB. Horiike filed a motion for a new trial on the ground the
verdict was internally inconsistent, which the court denied. Horiike filed a timely notice
of appeal.

                                       DISCUSSION

Standard of Review

       “‘A nonsuit in a jury case or a directed verdict may be granted only when
disregarding conflicting evidence, giving to the plaintiffs’ evidence all the value to which
it is legally entitled, and indulging every legitimate inference which may be drawn from
the evidence in plaintiffs’ favor, it can be said that there is no evidence to support a jury
verdict in their favor. [Citations.]’ [Citation.]” (Hernandez v. Amcord, Inc. (2013) 215
Cal.App.4th 659, 669.)
       “In reviewing a grant of nonsuit, the appellate court evaluates the evidence in the
light most favorable to the plaintiff. [Citation.] The judgment of nonsuit will be affirmed
if a judgment for the defendant is required as a matter of law, after resolving all
presumptions, inferences and doubts in favor of the plaintiff. [Citation.] The review of a
grant of nonsuit is de novo. [Citation.]” (Hernandez v. Amcord, Inc., supra, 215
Cal.App.4th at p. 669.) “‘The existence and scope of duty are legal questions for the
court.’ [Citations.]” (Coldwell Banker Residential Brokerage Co. v. Superior Court
(2004) 117 Cal.App.4th 158, 163.)
       However, “No judgment shall be set aside, or new trial granted, in any cause, on
the ground of misdirection of the jury . . . or for any error as to any matter of procedure,
unless, after an examination of the entire cause, including the evidence, the court shall be

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of the opinion that the error complained of has resulted in a miscarriage of justice.” (Cal.
Const., art. VI, § 13.)

Duty of a Salesperson Acting for a Dual Agent

        Horiike contends that Cortazzo, as an associate licensee of CB, owed a fiduciary
duty to him equivalent to the fiduciary duty owed by CB. We agree.
        The duties of brokers and salespersons in real property transactions are regulated
by a comprehensive statutory scheme. (Civ. Code, § 2079 et seq.) Under this scheme, an
“agent” is a licensed real estate broker “under whose license a listing is executed or an
offer to purchase is obtained.” (Id., § 2079.13, subd. (a).) An “associate licensee” is a
licensed real estate broker or salesperson “who is either licensed under a broker or has
entered into a written contract with a broker to act as the broker’s agent in connection
with acts requiring a real estate license and to function under the broker’s supervision in
the capacity of an associate licensee.” (Id., subd. (b).) “‘Dual agent’ means an agent
acting, either directly or through an associate licensee, as agent for both the seller and the
buyer in a real property transaction.” (Id., subd.(d).)
        “The agent in the real property transaction bears responsibility for his or her
associate licensees who perform as agents of the agent. When an associate licensee owes
a duty to any principal, or to any buyer or seller who is not a principal, in a real property
transaction, that duty is equivalent to the duty owed to that party by the broker for whom
the associate licensee functions.” (Civ. Code, § 2079.13, subd. (b).)
        “[A] broker’s fiduciary duty to his client requires the highest good faith and
undivided service and loyalty. [Citations.]” (Field v. Century 21 Klowden-Forness
Realty (1998) 63 Cal.App.4th 18, 25.) “[A] dual agent has fiduciary duties to both the
buyer and seller.” (Assilzadeh v. California Federal Bank (2000) 82 Cal.App.4th 399,
414.)
        CB acted as the dual agent of the buyer and the seller in this case, as was
confirmed on the disclosure forms provided to Horiike. The disclosure form explicitly

                                              7
stated that a dual agent has a fiduciary duty of utmost care, integrity, honesty, and loyalty
in dealings with either the seller or the buyer. (See Assilzadeh v. California Federal
Bank, supra, 82 Cal.App.4th at p. 414.) Cortazzo executed the forms on behalf of CB as
an associate licensee. Under Civil Code section 2079.13, subdivision (b), the duty that
Cortazzo owed to any principal, or to any buyer who was not a principal, was equivalent
to the duty owed to that party by CB. CB owed a fiduciary duty to Horiike, and
therefore, Cortazzo owed a fiduciary duty to Horiike.
       Miller & Starr explains: “When there is one broker, and there are different
salespersons licensed under the same broker, each salesperson is an employee of the
broker and their actions are the actions of the employing broker. . . . [¶] When one
salesperson obtains the listing and represents the seller, and another salesperson
employed by the same broker represents the buyer, they both act as employees of the
same broker. That broker thereby becomes a dual agent representing both parties.” (2
Miller & Starr, Cal. Real Estate (3d ed. 2011) § 3:12, p. 68, fns. omitted.) Miller & Starr
notes: “Salespersons commonly believe that there is no dual representation if one
salesperson ‘represents’ one party to the transaction and another salesperson employed by
the same broker ‘represents’ another party to the transaction. The real estate industry has
sought to establish salespersons as ‘independent contractors’ for tax purposes (see
§ 3:18), and this concept has enhanced the misunderstanding of salespersons that they can
deal independently in the transaction even though they are negotiating with a different
salesperson employed by the same broker who is representing the other party to the
transaction.” (Id. at pp. 68-69.)
       Cortazzo, as an associate licensee acting on behalf of CB, had the same fiduciary
duty to Horiike as CB. The motion for nonsuit should have been denied and the cause of
action against Cortazzo for breach of fiduciary duty submitted to the jury. The jury was
also incorrectly instructed that CB could not be held liable for breach of fiduciary duty
based on Cortazzo’s actions.
       Cortazzo and CB contend that Horiike cannot show prejudice as a result of the
erroneous rulings, because the jury’s findings on other claims resolve the claim for

                                              8
breach of fiduciary duty in favor of the defense. (Paterno v. State of California (1999) 74
Cal.App.4th 68, 107 [a plaintiff cannot show prejudice based on the elimination of a
proper legal theory if the jury’s verdict on a different theory negates an element of the
omitted theory].) This is incorrect. The jury’s findings that Cortazzo did not provide
false information to Horiike, or provided false information that he reasonably believed to
be true, and did not intentionally conceal information, does not satisfy his duty to Horiike
as a fiduciary.
        “‘[A] broker’s fiduciary duty to his client requires the highest good faith and
undivided service and loyalty. [Citations.] ‘The broker as a fiduciary has a duty to learn
the material facts that may affect the principal’s decision. He is hired for his professional
knowledge and skill; he is expected to perform the necessary research and investigation
in order to know those important matters that will affect the principal’s decision, and he
has a duty to counsel and advise the principal regarding the propriety and ramifications of
the decision. The agent’s duty to disclose material information to the principal includes
the duty to disclose reasonably obtainable material information.’” (Assilzadeh v.
California Federal Bank, supra, 82 Cal.App.4th at pp. 414-415, quoting Field v. Century
21 Klowden-Forness Realty, supra, 63 Cal.App.4th at pp. 25-26.)
        “A fiduciary must tell its principal of all information it possesses that is material
to the principal’s interests. [Citations.] A fiduciary’s failure to share material
information with the principal is constructive fraud, a term of art obviating actual
fraudulent intent. [Citation.]” (Michel v. Palos Verdes Network Group, Inc. (2007) 156
Cal.App.4th 756, 762.)
       “‘Constructive fraud is a unique species of fraud applicable only to a fiduciary or
confidential relationship.’ [Citation.] [¶] . . . Most acts by an agent in breach of his
fiduciary duties constitute constructive fraud. The failure of the fiduciary to disclose a
material fact to his principal which might affect the fiduciary’s motives or the principal’s
decision, which is known (or should be known) to the fiduciary, may constitute
constructive fraud. Also, a careless misstatement may constitute constructive fraud even

                                               9
though there is no fraudulent intent.’ [Citation.]” (Salahutdin v. Valley of California,
Inc. (1994) 24 Cal.App.4th 555, 562.)
       In this case, the jury’s findings do not resolve whether Cortazzo breached his
fiduciary duty to Horiike. A trier of fact could conclude that Cortazzo was aware of
material information that he failed to provide Horiike, even though he did not have a
fraudulent intent. Cortazzo knew the square footage of the property had been measured
and reflected differently in different documents. When a potential purchaser sought to
confirm the square footage, Cortazzo gave handwritten advice to have the square footage
verified by a specialist. He subsequently changed the listing for the property to reflect
that the square footage required explanation. He did not explain to Horiike that
contradictory square footage measurements existed. A trier of fact could conclude that
although Cortazzo did not intentionally conceal the information, Cortazzo breached his
fiduciary duty by failing to communicate all of the material information he knew about
the square footage. He did not even provide the handwritten advice given to other
potential purchasers to hire a specialist to verify the square footage.
       The jury’s verdict did not necessarily decide the cause of action for breach of
fiduciary duty based on Cortazzo’s actions. The jury’s findings are inconsistent on the
threshold issue of whether Cortazzo made a false representation about the square footage
of the living areas. Therefore, we must reverse the judgment and remand for a new trial.

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                                   DISPOSITION

      The judgment is reversed. Appellant Hiroshi Horiike is awarded his costs on
appeal.

             KRIEGLER, J.

We concur:

             TURNER, P. J.

             MOSK, J.

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