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A California Appellate Court Recently held that a Claimant’s Right of Recovery

In Worthington v. Davi, plaintiffs sued their real estate agent for breach of contract, fraud, breach of fiduciary duty and other causes of action.  They alleged that their agent fraudulently induced them to purchase several residential properties from the agent’s other clients.  The transactions wiped out the plaintiffs’ life savings.

The case proceeded to arbitration.  The arbitrator found in favor of the plaintiffs and awarded them $280,000.  When the Worthingtons discovered that the defendant’s assets were insufficient, they filed an application before the DRE from the Recovery Account.  The Commissioner granted part of the application and awarded $50,000 for one of the transactions only.  The Commissioner denied coverage on the other three transactions on the ground that the judgment on these claims was based on breach of the broker’s fiduciary duty rather than “fraud, misrepresentation or deceit,” as required by Business and Professions Code Section 104.71(a).

Plaintiffs filed an application before the trial court asking that the court review their requests relating to the three transactions.  The court granted the application as to two of the three transactions supporting the arbitrator’s findings of fraud.  The court of appeals affirmed, holding that the trial court properly reviewed the arbitrator’s detailed findings of fact in assessing the application for payment.

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