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Broker Compliance Checklist

The California Real Estate Legal Alliance ("CRELA") recently posted the attached Broker Compliance Checklist  prepared by California Compliance Consulting.  We have found this checklist to be quite valuable and encourage CRELA members to review the checklist to ensure compliance.

 

Court Awards Broker Attorney’s Fees Pursuant to the Listing Agreement

In Bardack v. Tomjanovich, a California appellate court recently upheld an award of attorney’s fees to Coldwell Banker pursuant to the express indemnity provision in the listing agreement. In Bardack, plaintiff purchased a home in Pacific Palisades for $6.5 million. The sellers purchased the property several years earlier for $4.25 million. At the time that the sellers purchased the property, they received reports and disclosures indicating that the home had active water leaks. The sellers experienced a water leak in the foyer. Two years later, they experienced another leak in the foyer’s skylight. A year later, they listed their home for sale with Coldwell Banker. The California Association of Realtors’ (“CAR”) listing agreement contained the following provision:

Seller further agrees to indemnify, defend and hold Broker harmless from all claims, disputes, litigation, judgments and attorney’s fees arising from any incorrect information supplied by Seller, or from any material facts that Seller knows but fails to disclose.

Subsequently, plaintiff made an offer to purchase the home for $6.5 million pursuant to a CAR Residential Purchase Agreement (“Agreement”). In the Agreement, the sellers were required to “disclose known material facts and defects affecting the property” to the plaintiff. Unfortunately, the sellers did not disclose to the buyer or Coldwell Banker the reports that they had received at the time they purchased the home, or that the home had active water leaks.

Subsequently, the plaintiff experienced several leaks and sued the sellers for breach of contract, negligence per se, intentional misrepresentation, negligent misrepresentation, concealment, rescission, and negligence for their failure to disclose the water leaks. Plaintiff also sued various inspectors, construction and design professionals. The sellers denied any wrongdoing and filed a cross-complaint against Coldwell Banker for equitable and implied contractual indemnity, alleging that Coldwell Banker was negligent and breached its fiduciary duty to the sellers in connection with their sale.

The matter proceeded to trial. The trials were bifurcated, limiting the first phase of the trial to plaintiff’s claims against the sellers and the sellers’ cross-complaint against Coldwell Banker. The jury found the sellers liable to the plaintiff for intentional misrepresentation, concealment and breach of contract. The jury awarded plaintiff damages of over $2.8 million and punitive damages of $250,000. The jury found Coldwell Banker and the agents were not negligent, nor did they breach any fiduciary duty to the plaintiff.

Coldwell Banker filed a motion for attorney’s fees and costs in the amount of $367,790 pursuant to the indemnity provision in the listing agreement. The trial court awarded Coldwell Banker $348,372. Plaintiff appealed. The appellate court upheld the award finding in an unpublished decision that Coldwell Banker was entitled to their attorney’s fees under the express indemnity provision of the listing agreement.

Please note that this case was not published by the California appellate court. Therefore, it may not be relied upon by the courts. However, it is a good indication as to how the court would interpret CAR’s Listing Agreement.

Question and Answer Regarding Workers’ Compensation Insurance

Question:  Is a broker responsible for providing workers’ compensation insurance for agents, given that agents are independent contractors?

Answer:  Yes.  By law, all employers in California are required to maintain workers’ compensation insurance for their employees for injuries occurring during their employment.  While independent contractors are generally excluded from coverage, the California Labor and Workforce Development Agency has taken the position that a real estate salesperson is nearly always considered an employee for workers’ compensation insurance purposes.  Therefore, it is recommended that brokers obtain workers’ compensation insurance for agents.  If there is a violation of workers’ compensation laws, the penalties can be significant.  The California Labor and Workforce Development Agency can close a business for failing to provide workers’ compensation insurance.

E&O Issues for Broker

Type of Case:  E & O Issues for Broker
Issue:  Can Insurer deny coverage if an E & O policy terminates before a claim is tendered?
Answer:  Yes

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Reliance by Third Party on Broker’s Statements

Type Matter:  Reliance by Third Party on Broker’s Statements
Issue:  Can a Broker create duties to third parties by making statements outside the scope of his/her agency?
Answer:  Probably

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Broker Referral to Vendors

Type of Case:  Broker Referral to Vendors
Issue:  Can a Broker incur liability for negligent referral?
Answer:  Yes
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