Archive for month: March, 2014

In Saffie v. Schmeling, et al., Court of Appeals for the State of California, Fourth Appellate District, Case No. E055716, dated March 7, 2014, a buyer of commercial real estate (“Buyer”) appealed, and the Court of Appeals affirmed, the trial court’s ruling in favor of the seller’s broker (“Seller’s Broker”) on claims arising from a statement posted on a multiple listing service (“MLS”) that Buyer contends was false or inaccurate.[1]

In June 2006, Seller’s Broker posted information about an undeveloped commercial parcel on a MLS, including the following statement: “This parcel is in an earthquake study zone but has had a Fault Hazard Investigation completed and has been declared buildable by the investigating licensed geologist. Report available for serious buyers.” (Saffie v. Schmeling, at 3.)

Prior to close of escrow, Seller’s Broker gave Buyer’s Broker a copy of the referenced Fault Hazard Investigation report. The report was dated 1982. Buyer’s Broker provided the report and contemporaneous county letter approving the report to Buyer without reading the report or understanding its purpose. Neither Buyer nor Buyer’s Broker performed any further investigation in relation to geological issues on the property generally, or with respect to the Fault Hazard Investigation report in particular.

After close of escrow, Buyer discovered that the County of Riverside no longer accepted fault hazard reports performed under pre-1994 standards and that his intended use of the property was impracticable due to the investigation requirements now in effect. Buyer then brought a suit for damages in superior court.

Following a bench trial, the trial court decided that Buyer should take nothing on his claims against Seller and Seller’s Broker, but found Buyer’s Broker and his firm liable for breach of fiduciary duty and negligence. Though Buyer’s Broker testified he told buyer to “check out” the report, the trial court found that Buyer’s Broker led Buyer to believe that the report was current and could be relied on as an indication that the property was “ready to build.” (Id. at 4.)

Arguing that the trial court erred in its application of the law to the facts, Buyer appealed the trial court’s judgment only with respect to its finding of no liability as to Seller’s Broker under Civil Code section 1088.[1]

Specifically, Buyer argued that the passage of time between 1982 and 2006 rendered the Fault Hazard Report unreliable and invalid, thus making seller’s broker’s statement in the MLS false or inaccurate and that “any reasonably competent realtor in Southern California” would be aware of the changes to the regulatory landscape that occurred after the 1994 Northridge earthquake, so seller’s broker should have known that the 1982 Fault Hazard Investigation report was outdated. (Id. at 8-9.)

The Court concluded that Buyer’s claim against Seller’s Broker failed to identify anything about Seller’s Broker’s statement itself that was false or inaccurate.  In arriving at this conclusion, it was the Court’s opinion that Seller’s Broker’s statement was not false or misleading because it did not specifically affirm that the geologist performed his investigation in accordance with current Riverside County requirements and the statement did not provide that all necessary approvals had been obtained. Rather, Seller’s Broker’s statements merely “asserted the existence of a Fault Hazard Investigation report, summarized its conclusions, and offered to provide the report to serious buyers.” (Id. at 11) In contrast to Buyer’s arguments, the Court found that “nothing about the passage of time between 1982 and 2006 made seller’s broker’s description of the report or the nature of the report’s conclusions any less true; the omission of the report’s publication date therefore did not render the statement false or inaccurate.” (Id. at 10-11.)

And, the Court reasoned, even if Seller’s Broker’s statement was somehow misleading, any misleading effect was corrected by offering the report itself. “To the extent seller’s broker’s statement in the MLS could be interpreted to imply that the report was recent and therefore likely to have been performed under current standards, that purported inaccuracy was cured by disclosing the report itself during escrow, prior to any possible injury to buyer from lack of information regarding the date of the report.” (Id. at 11.) Thus, “by disclosing a copy of the Fault Hazard Investigation report and associated approval letter during escrow, seller’s broker fully satisfied his duty of ‘honesty, fairness and full disclosure toward all parties.’” (Id. at 7.)

It is notable that in arriving at its decision, the Court of Appeals strictly construed a seller’s broker’s duty to a buyer and narrowly interpreted a seller’s broker’s statement posted on an MLS for purposes of making a determination as to whether a breach of duty occurred. “There is nothing in section 1088, or any other source of law, imposing responsibility on a seller’s broker to ensure that true statements in an MLS are not misconstrued, or to make certain that the buyer and the buyer’s broker perform the appropriate due diligence to evaluate the significance of such true statements for the buyer’s particular purposes.”[2] (Id. at 9.) “Absent anything untrue or inaccurate about the statement seller’s broker actually made in the MLS, seller’s broker is not liable under section 1088.” (Id. at 11.)

Furthermore, the Court concluded that a perceived inaccuracy in a seller’s broker’s statements may be cured by providing a copy of the source document during escrow, prior to any possible injury to buyer from lack of accurate information. Thus, the onus is on the buyer’s broker, as the buyer’s fiduciary, to make sure his or her clients fully investigate information disclosed by the seller to ensure it is information upon which the buyer should rely. A seller’s broker’s duty is simply to make truthful and accurate statements on an MLS.