JUDGEMENTS ONLINE

Below are summaries of recent court cases affecting the real estate industry. For more detail and additional cases, visit "The Letter of the Law," NAR's online legal newsletter.

Supreme Court Rules Broker Not Personally Liable
Suit for Home Inspector Negligence Can Proceed
Length of Employment Affects Independent Contractor Status

Supreme Court Rules Broker Not Personally Liable
In a reversal of a decision by the Ninth Circuit Court of Appeals, the U.S. Supreme Court unanimously ruled that an owner or officer of a real estate corporation isn't personally liable for violations of federal fair housing laws by an agent or employee except under certain circumstances. However, the high court did state that under legal principles of vicarious liability, the corporation itself could be held liable for an employee or agent's actions.

The plaintiffs in the case, a racially mixed couple, alleged that a sales agent for Triad REALTORS® had prevented them from buying a home for allegedly racially discriminatory reasons. The home eventually sold for a price less than that offered by the plaintiffs. The couple sued both the brokerage corporation and the broker/owner of the company personally, alleging fair housing violations. Because the agent’s license was held by the brokerage corporation (permitted in California) rather than the broker individually, the trial court dismissed allegations against the broker as a corporate officer.

The appellate court reversed this ruling, stating that as a corporate officer and sole corporate shareholder, the defendant’s responsibility under Fair Housing laws could not be delegated. However, the Supreme Court upheld the trial court’s finding. The National Association of REALTORS® filed an amicus curiae brief on behalf of the corporation. For a complete summary of the case, click here.


Suit for Home Inspector Negligence Can Proceed
The Supreme Court of Iowa has decided that homeowners who purchased a home with allegedly defective siding can sue the home inspector and the inspection company for failing to spot the problem. The state’s high court reversed the decision of a trial court that a home inspection company did not owe a duty the purchaser since it had been hired by a relocation company working with the purchaser to perform the inspection. The court then sent the case back to the trial court to determine if the purchasers had relied on the inspection report to make their purchasing decision—a condition that would have to be met under state law for the case for negligence to proceed.

Under the sales contract, the purchaser had ten days to have an inspection done. He did not pay for his own separate home inspection but instead inspected the home himself and reviewed the inspection report submitted by the defendants. This report failed to note that the home had a particular brand of wood siding that has been the subject of a class action suit. The inspection company had provided training about how to recognize this siding to some of its inspectors, but not to the one who conducted the inspection. The purchasers had also sued the relocation company and the prior owners of the home, both of whom reached settlements. For a complete summary of the case, click here.

Length of Employment Affects Independent Contractor Status
A federal appellate court has determined that an insurance broker who worked for the same company for 24 years, received all his equipment and supplies from the insurance company, and was told by the company what hours to keep his office open would probably be considered an employee under common law. The broker, Leon Jenkins, had raised the issue when he sued Southern Farm Bureau Casualty for age discrimination when he was dismissed as head of an insurance brokerage in Malvern, Ark. Since only employees have the right to sue for age discrimination, Jenkins stated that he was an employee. A lower court determined that because Jenkins controlled the day-to-day operations of his brokerage, received commissions, and paid self-employment taxes, among other factors, he was an independent contractor. However, the high court found that the trial court had committed an error in composing its list of factors to consider in judging whether Jenkins was an independent contractor or employee. For a complete summary of the case, click here.

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