In September 2013 Daniel Ryan and Patricia Ryan decided to sell their La Jolla beachfront property and engaged Pacific Sotheby’s International Realty to assist. A listing agreement was executing appointing Sotheby’s as exclusive agent for M/M Ryan.
Stuart A. Lautin, Esq.*
It was Sotheby’s obligation in the contract to use its “professional guidance and advice throughout all states and aspects of the listing, marketing and sale” of the property. Sotheby’s, in turn, appointed David Schroedl as its agent.
During an open house hosted by Schroedl, Hany Girgis informed Schroedl that Girgis intended to remodel his adjacent property, which would permanently obstruct Ryans’ westerly ocean view. Girgis further told Schroedl that the construction would have a significant impact on the Ryans’ property, as the construction would move Girgis’ home to within five feet of the common boundary, create a two-story wing overlooking Ryans’ pool, take two years to complete, and require extensive excavation.
Schroedl never informed Ryans of Girgis’ plans.
M/M Ryan sold their property several months later to Ney and Luciana Marinho for $3.86 million. Sotheby’s received almost $100k as a brokerage commission; presumably some portion of that was paid to Schroedl.
Schroedl did not disclose to M/M Marinho the extensive remodeling plans proposed by Girgis, and the likely impact upon the ocean view and privacy of the Property.
M/M Marinho only learned of the neighbor’s plans the day after closing, when the interior decorator engaged by M/M Marinho talked with Girgis. After discovery of this new intel, M/M Marinho immediately attempted to rescind the transaction.
M/M Ryan refused.
M/M Marinho demanded arbitration, where an Award was ultimately entered for them rescinding the transaction and returning the $3.86 million purchase price. The Award also ordered M/M Ryan to pay damages, interest, cost and attorney’s fees in excess of $1 million.
After entry of the arbitration Award, M/M Ryan filed a lawsuit against Sotheby’s and Schroedl to recovery the monies paid by Ryans to M/M Marinho. The basis of the claim was that prior to closing Sotheby’s and Schroedl know of the construction plans, knew of the adverse effect to the Property, and informed neither M/M Ryan nor M/M Marinho.
And due to that failure to disclose, M/M Ryan were substantially damaged through an adverse ruling in the arbitration Award.
Defendants claimed in the litigation that no duty to the Ryans was breached. Defendants argued that all of Ryans’ claims were based on professional negligence, and Ryans failed to offer expert testimony on that point, a requirement of California law. And that since M/M Ryan failed to designate an expert in trial court, they could not establish that Defendants breached a standard of care owing to M/M Ryan.
In opposition, Ryans maintained that expert testimony was not required due to the existence of the arbitration Award. Ryans claimed that to delve into the standards of professional responsibility would be essentially relitigating that issue, which – they claimed – had already been decided in the arbitration.
The trial court granted Defendants’ motion to dismiss the case. Ryans appealed.
Counsel for Ryans urged the appellate Court to waive the normal expert testimony requirement, claiming that any non-expert would have “common knowledge” that Sotheby’s and Schroedl owed and breached fiduciary duties owing to M/M Ryan. And that as a consequence, no special expert is needed to provide evidence of that which everyone already knows.
So goes the “common knowledge” theory.
The appellate Court first determined that M/M Ryan did not argue the “common knowledge” theory in trial court. But good news for them – the appellate Court allowed them to present it for the first time on appeal.
That was the first hint that the appeals Court was inclined to waive the expert witness requirement, finding that if the professional malpractice is obvious, then expert testimony is not required.
From that point, it was a short trip to determine that Sotheby’s and Schroedl had knowledge of matters that required pre-closing disclosure. Instead, they “. . . simply chose to remain silent, collect their commissions, and allow the Ryans to deal with the consequences.”
The judgment rendered by the trial court was reversed. M/M Ryan are entitled to proceed in their claims against Sotheby’s and Schroedl.
See Daniel Ryan v. Real Estate of the Pacific, Inc.; California Court of Appeals, 4th Appellate District, Division One, Case No. D072724; February 26, 2019: http://www.courts.ca.gov/opinions/documents/D072724.PDF.
Lessons Learned / Questions Asked:
1. I believe that a California real estate broker’s and agent’s obligation to disclose material conditions and latent defects is the most stringent in the USA.
2. Although the conclusion reached by the appellate Court may be morally correct, I’m not convinced it is supported by California law. Can it truly be correct that California citizens have “common knowledge” of the professional standards of care that must be discharged by California real estate brokerage licensees? So if we stop a random guy from Escondido driving his 1983 Ranger pickup truck south on I-15 he will be able to aptly describe the fiduciary duties of those licensed by the California Department of Real Estate? Seriously?
3. Look for further appeals. I will too.
* Board Certified, Commercial (1989) and Residential (1988) Real Estate Law,
Texas Board of Legal Specialization
Licensed in the States of Texas and New York
Higier Allen & Lautin, PC
2711 N. Haskell Avenue, Suite 2400
Dallas Texas 75204