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C.A. Says Claim That Real Estate Agents Breached Fiduciary Duties Is Assignable
Opinion Says That Right to Sue May Be Assigned if Plaintiff Seeks Only Damages Related to Pecuniary Interests, Rejecting Analogy to Unassignable Legal Malpractice Assertion
By a MetNews Staff Writer
Div. Three of this district’s Court of Appeal has held, in a case of first impression, that a claim for breach of fiduciary duty by a real estate agent may be assigned to another party under California law if the plaintiff is seeking only damages related to property rights and pecuniary interests.
Finding that the action is not akin to a legal malpractice claim—which is generally unassignable—the court held that a duty owed by a broker is transactional in nature and not like the “highly personalized” relationship between an attorney and client.
The dispute arose after plaintiff Laura Lazar sued real estate brokers Lynette Bishop, Shen Shulz, Sotheby’s International Realty Inc., and Shen Realty Inc. for breach of the fiduciary duty defendants purportedly owed to Lazar’s father, Daniel Gottlieb, in connection with the sale of his Malibu home. The 2019 complaint alleges that Gottlieb assigned his causes of action arising from the listing and sale of the house to Lazar.
Alleged Conspiracy
According to the pleading, Bishop and Shulz—both working for Sotheby’s Malibu brokerage house—conspired to sell Gottlieb’s ocean-view home for less than it was worth. Bishop was the listing agent for Gottlieb and Shulz represented the purchasers of the property.
Neither agent informed Gottlieb that both agents were working out of the same office or that they were acting as “dual agents”—representing both buyer and seller—until after the sale agreement had been executed.
Lazar asserts that Bishop convinced her father to lower the sales price from its original listing, in November 2016, at $4.2 million. Purportedly on Bishop’s advice, the price was reduced to $3.1 million, less than the $3.45 million Gottlieb had paid for the property in 2006.
William and Stephanie Spalding purchased the home at the reduced price, with Shulz representing them.
Lazar claims that the house would have sold for closer to $5.2 million had the agents upheld their fiduciary duties to inform Gottlieb of the dual agency and to sell the house at the highest possible price. She seeks the $157,500 the defendants were paid in commission for the sale, the purported $2.05 million difference between the value of the home and the purchase price, and $12,954 she contends was spent preparing the home for listing.
Summary Judgment
The defendants moved for summary judgment, arguing, among other things, that Lazar lacked standing because “a chose in action for breach of fiduciary duty against a real estate broker/agent is not assignable.” Los Angeles Superior Court Judge Steven J. Kleifield agreed, and judgment was entered against the plaintiff.
Kleifield said: “The nature of the relationship between the principal and the real estate licensee is indeed analogous to that of the relationship between an attorney and client. This relationship includes the highest level of good faith, undivided service and loyalty….As in the case of attorneys, the nature of the relationship distinguishes itself from the typical assignment of a collection case, for example, where parties have engaged in arms-length transactions.”
Plaintiff filed a motion for reconsideration, arguing that her claim was assignable under Civil Code §954, which provides that “[a] thing in action, arising out of the violation of a right of property, or out of an obligation, may be transferred by the owner.” Kleifield denied the motion and awarded the defendants $148,211 in attorney fees.
Presiding Justice Lee Smalley Edmon wrote the opinion, filed Thursday, reversing the judgment. Justice Rashida A. Adams and Los Angeles Superior Court Judge Nicole Bershon, sitting on assignment, joined in the opinion.
Liberalization of Assignment
Edmon said that the enactment of §954 in 1872 had the effect of liberalizing restrictions on the types of actions that may be assigned to a third party and made assignability the rule rather than the exception. She noted that “[a]pplying this rule, courts have consistently found rights of recovery founded in property or pecuniary interests assignable.”
The jurist pointed out that “there are two categories of exceptions to the general rule of assignability.” Under applicable jurisprudence, these two exceptions to assignability apply to highly personalized rights of recovery—such as tort causes of action for personal injury, emotional damage, or reputational damage—and legal malpractice claims.
Turning to Lazar’s claims, she reasoned:
“[P]laintiff sued defendants for breaching their fiduciary duty to Gottlieb by not disclosing the dual agency and not working to obtain the highest possible sale price. It is well established that a real estate broker owes a fiduciary duty to her client….‘A fiduciary must tell its principal of all information it possesses that is material to the principal’s interests….A fiduciary’s failure to share material information with the principal is constructive fraud, a term of art obviating actual fraudulent intent.’ ”
Not Highly Personalized
Continuing, Edmon wrote that “[c]ourts have consistently found that claims for fraud do not involve highly personalized rights of recovery where the fraud is connected to property or something that has a legal existence and value independent of the right to sue for fraud.”
She added:
“Here, plaintiff’s claim is closely tied to real property (the house) and a pecuniary interest in the proceeds from the house’s sale. Plaintiff pled damages attributable only to the commission paid to defendants, the money spent preparing the home for sale, and the amount greater than the sale price that would have been paid had defendants not allegedly breached their fiduciary duty. Plaintiff therefore is not seeking personalized relief, e.g., damages for emotional distress, reputational damage, or physical injuries. On the spectrum of unassignable (highly personalized) and assignable (based in property and pecuniary rights) claims, this fraud claim lands solidly on the side of assignability.”
Unpersuaded by arguments that the case involved the assignment of the defendants’ personal duties under the contract, she remarked:
“The contract itself has already been performed—there are no duties to assign. The assignment here is related to Gottlieb’s right to monetary damages for defendants’ failure to disclose pertinent information in a sales transaction.”
Attorney-Client Analogy
Defendants alternatively argued that the relationship between a real estate broker and a seller is akin to that of an attorney and client and so Lazar’s claim is like one for legal malpractice.
Rejecting that argument, Edmon opined:
“[T]here are significant differences…between the client relationships for attorneys and for real estate brokers. We conclude that such differences do not support excepting breach of fiduciary duty causes of action from assignment….[T]he real estate broker’s relationship to the client centers entirely around a transaction. The broker’s fiduciary duty to the client is thus tied to property and pecuniary interests involved in the transaction. Moreover, the transaction benefits not only the real estate broker’s selling client but also the broker, the buyer, and the buyer’s agent. It is because of the transactional nature of the broker’s service to the client that real estate brokers can act as dual agents.”
She continued:
“In contrast, the attorney-client relationship goes beyond transactional support. The attorney-client relationship is built on legal counsel and advocacy, and often involves more sensitive, confidential matters like criminal defense, family law, or business litigation. The attorney’s service is unattached to property, and wholly bound to the client. As a result, any right to recovery is extremely personal to that client.”
Based on these differences, she declared:
“Because plaintiff’s lawsuit does not seek personalized relief, assignment of the breach of the fiduciary duty cause of action does not raise the policy concerns associated with assignment of a legal malpractice cause of action. And, as this is seemingly the first instance where the assignability of a cause of action for breach of a real estate broker’s fiduciary duty has been raised since section 954’s codification in 1872, we do not have concerns that our ruling will encourage unjustified litigation, generate increased breach of fiduciary duty lawsuits, burden the real estate profession, or promote champerty.”
The case is Lazar v. Bishop, B321752.
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