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
P: 972.716.1888
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