In what promises to be a landmark case, Debs v. Coldwell Banker, lead counsel for the plaintiff, Jean McCown of Ritchey Fisher Whitman & Klein, believes that she has a strong case. The question which she believes will be resolved by this case is whether or not buyers being represented by the same firm should be disclosed as to possible conflicts of interest. This is a question which could impact the law of agency nationwide.

In this Realty Times Exclusive Interview with editor Blanche Evans, McCown explains her client's position.

B.E.: What do you feel has been the immediate impact of this case?

J.M.: The attention will cause buyers to be more questioning and have some better understanding that dual representation absent consent is a breach of duty by the broker.

B.E.: Agents have been representing buyers this way for decades. Why do you think no one has ever sued before?

J.M.: I have a theory why it hasn't come to court before. When you have competing offers on the same property, people don't recognize that other offers are being made by agents employed by the same broker. You don't have a situation where the damages are as substantial as in this instance. With most offers, one buyer is successful, and if you were the losing buyer, and if your offer wasn't accepted, and you discovered the firm represented the other buyer, you just didn't offer as much. But for this breach of duty, you would have been successful in buying the house. There is an actual breach if two buyers are represented by the same broker. In most instances, they are unhappy, but they don't know they were being represented by the same broker.

B.E.: What makes this a case for the courts?

J.M.: In court, you have to have not only the legal basis for the claim, but how you were harmed by it.

There are some cases, where the broker was found to breach his fiduciary duties even if the client can't show damages, but the broker still had to disgorge his commission.

B.E.: Why it is so hard to show how the buyer was damaged?

J.M.: In our case, it is very clear what the consequence was. The sales representative for the other purchaser interfered. There were five offers presented. My client's offer was second highest. The sellers were going to choose my client's offer because it allowed them to stay in the house 60 days instead of 30. The seller's agent goes to my client's agent and asks whether 60 days is OK, and he said it is not a problem. He was faxing in the other page to change it to 60 days, and the sellers will sign it, and it will be done. While that is happening, the agent for the seller goes to the other agents making offers and says thanks, we are going with my client's offer. The other agent said, "My client will pay more!" and barged into the office where the sellers were sitting and said, "Stop! My client will pay $3 million. The sellers went into consultation with their broker, and said let's have a second round of offers, and my client moved his offer from $2.8 to $3.2 million.

We pled that but for the breach of duty by Coldwell Banker, and their agent's interference, we would have purchased the house for $2.8 million.

B.E.: What was Coldwell Banker's position?

J.M.: They said they still don't have liability, that the agents are free to compete.

B.E.: Did Debs have a signed brokers agreement?

J.M.: He had material presented to him, here is what we will do for you - a disclosure document. An agency relationship does not have to be in writing.

If an agent signs up to represent your interests as a principle, they can't represent someone who is in conflict with your interests without your informed consent.

B.E.: So how was Coldwell representing Debs?

J.M.: It is actual representation even without a signed form. Her (Debs' agent) name was on the (offer) form. It has a box to be checked for who is representing the buyer and whether the buyer is being represented exclusively in the offer document. This box was checked.

B.E.: What is the law of agency?

J.M.: This is not unique to brokers. You can't represent two clients with conflicting interests. It is a fundamental principal of agency. You inform them, and you request their permission. Coldwell Banker should have informed both buyers.

B.E.: I wonder why this wasn't done...

J.M.: You have corporate brokers who are gobbling up smaller brokers. There are literally hundreds of brokers working under the Coldwell Banker license. Some are in other offices and some are here in Palo Alto, in that sense. You could have a practice where a buyer comes to the individual sales representative. You could have a document that says we could represent other buyers, and we request your consent to that, and we will reconfirm.

B.E.: Are you suing Coldwell Banker or Valley of California?

J.M.: Coldwell Banker's name is used as a franchise identity. We know here that the corporate entity is Valley of California, Inc. doing business as Coldwell Banker.

B.E.: But how would a large broker know which salespeople are representing which clients?

J.M.: The principal would apply. They are the licensed broker under the California regulatory scheme. The fact that the sales representatives are different people doesn't matter. They aren't the broker.

B.E.: Did Mr. Debs believe that Coldwell Banker was supposed to be his agent, and that the agent representing him was actually an agent for Coldwell Banker?

J.M.: That is not so - the term agent is also used to refer to sales representatives. Their employer is called Coldwell Banker. On behalf of Coldwell, they represent the buyer. They are an agent for their client as a principal. It is Coldwell Banker who is legally the agent for the buyer.

B.E.: Does the fact that the sales agents are independent contractors make a difference?

J.M.: That person is an employee of the broker and not acting independently that I know of. The buyer knows they are working with someone to help them with a house, and they know they are working with a Coldwell Banker representative.

B.E.: When does the agent/buyer relationship actually begin? Coldwell's defense is that the relationship doesn't begin until the offer is accepted.

J.M.: The agent/principle relationship is formed as soon as the sales representative puts together the offer to present to the seller's broker. There are various cases, but no absolute black and white rule. It depends on the circumstances.

B.E.: Were the two agents involved aware of each other's participation in the bids?

J.M.: That is part of what we will find out in the course of the case.

We don't think that makes any difference. These individual licensees are all acting in the name of Coldwell Banker. Because one is in a different office, that doesn't matter. It is a legal matter. The very same human being (the broker) presented competing offers. Does this make sense that the same person could present two offers on the same piece of property?

B.E.: What could they have done differently?

J.M.: It will be up to the industry to figure out how they will do it. They have to come up with ways to deal with practical issues. If you owe fiduciary duties, there has to be a change of practice, that is what you are obligated to do.

B.E.: What do you think the implications of this case are for the real estate industry?

J.M.: Our focus is what happened here. We think the law supports our contention that this is a breach of duty and interference with an economic opportunity. We are aware that there are interesting implications. That is how common law changes over time. Each case has its own facts, but that is not the focus of our case how the industry will respond. This case has a set of facts, and the courts will deal with it, and there are legal rulings. Sometimes they do change things. We won't know in terms of that until the case moves along. Editor's note: In the interest of fairness, Realty Times contacted the lead counsel for the defense, Mike Davidson, litigation counsel for NRT, Inc. for an interview, but he declined due to his company's no-commentary policy related to ongoing litigation.

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Published: March 6, 2000

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