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Columbus v. Mehner: Salesperson Who Acted as Undisclosed Dual Agent Settles Lawsuit for $200,000

An Alaskan court has considered whether a real estate salesperson breached her duty to her client by acting as an undisclosed dual agent.

Bonnie Mehner ("Salesperson") has worked as a real estate salesperson in Anchorage, Alaska for 27 years and currently works at the Prudential Jack White Company, a real estate brokerage. The Salesperson was the listing agent for a home owned by Frank Brown ("Owner"). The Owner was selling his home because his company was relocating him and the company had a relocation agreement with the Owner.

In July 1999, Joseph Columbus ("Buyer") contacted the Salesperson about property which she had listed for sale. Columbus had been working with Chris McAlpine ("Buyer's Representative") of McAlpine Investments in his search for property, but the Buyer's Representative was out-of-town when the Buyer saw the "for sale" sign containing the Salesperson's name. The Buyer arrived at the property with the Buyer's Representative's business card in hand and told the Salesperson that he was working with the Buyer's Representative. The Salesperson agreed to show the Buyer the property, although she said she didn't usually show homes to other people's clients. After viewing the property, the Buyer stated that he didn't like the location and the Salesperson offered to show him other listings she had available.

The following day, the Buyer viewed the same property again in the company of an architect and the Salesperson also showed him other properties, including the Owner's home. The Salesperson never informed the Buyer that she was the listing agent for at least two of the homes they saw that day. After viewing the Owner's house a second time a few days later and after being told that there were other offers pending for the property, the Buyer decided to make an offer. Because the Buyer's Representative was still out-of-town, he contacted another salesperson in the same office, who helped him prepare an offer and then called the Salesperson to present the offer to her. The offer was well below the original listing price. The Salesperson responded by saying that the offer "would not fly" and was also unhappy that the Buyer was still working with the Buyer's Representative's firm, as she testified that she thought the Buyer had become her client by this point.

The Salesperson then called the Buyer directly. The Buyer testified that she was "very angry, scolding," and told him that she expected to receive both sides of the commission from the sale of the Owner's home. The Buyer testified that he had the impression that to make a successful offer for the Owner's property, he would need to make this offer through the Salesperson. The Salesperson also informed the Buyer that the Owner did not have to negotiate the property's sale price, because his employer would make up any difference between the listing price and the sale price, which was not accurate. The Buyer asked the Salesperson how much he should offer for the property, and he was told that the Salesperson could not give him a specific number but that an acceptable bid would be near the full price. The Salesperson also brought up the signing of a dual agency disclosure form for the first time, which the Buyer signed. The Buyer proceeded to make a full-price offer for the property, which the Owner accepted. Eventually, the Buyer and the Buyer's Representative brought a lawsuit against the Salesperson, claiming that she had breached her fiduciary duty to the Buyer and also intentionally interfered with the contract between the Buyer's Representative's and the Buyer.

Following a bench trial, the trial court ruled in favor of the Buyer and the Buyer's Representative, awarding damages to each party. The court first considered when an agency relationship arose between the Buyer and the Salesperson. The court ruled that the Salesperson became the Buyer's agent when he called her on the second day. The court found three separate legal reasons that supported the finding of an agency relationship: implied agency, based on the Buyer's conduct with the Salesperson, even though he did not realize he was creating an agency relationship; the doctrine of apparent authority, because it would appear to a third party that an agency relationship existed, even though the parties had not acknowledged such a relationship; and equitable estoppel, which is a doctrine that disallowed the Salesperson from now denying an agency relationship existed when she testified earlier that she believed an agency relationship was created when the Buyer called her a second time.

Since the court found that an agency relationship existed, the court next looked to see if the Salesperson breached her fiduciary duties to the Buyer. An agency relationship is a fiduciary relationship (or, one with heightened responsibility) that is created when one person (the agent) represents the interests of another person (the principal) in dealings with others. The court made a long list of breaches of fiduciary duties by the Salesperson. The most serious breaches were the Salesperson's failure to disclose that she was a dual agent, meaning that she was serving as an agent for both sides of the transaction. Because of her failure to disclose this information to the Buyer, he did not know that there was certain information she could not reveal to him and also that the Seller was responsible for compensating her. Thus, the court ruled that the Salesperson had breached her fiduciary duty to the Buyer.

The court also ruled that the Salesperson had violated the Alaskan dual agency disclosure laws. In Alaska, a real estate licensee can only serve as a dual agent after he or she has fully disclosed his or her dual agency status to both parties. The court found that the rationale for this was to help people who were not familiar with a real estate transaction decide whether they were comfortable with the potential conflicts that arise in a dual agency situation. The Salesperson had testified that "it was not practical" to obtain the Buyer's signature on the dual agency disclosure form before showing him every house where she was also listing agent, and waiting until submitting the offer to have the client sign the dual agency disclosure form was the "everyday business" of real estate professionals. The court rejected this argument, stating that the Alaska statute made it clear that a dual agency must be disclosed at the outset. Because of the conflicts that can arise in a dual agency situation, the court stated that the strict terms of the statute must be followed by the licensee to avoid violating the statute. Since the Salesperson did not come close to satisfying the terms of the statute, the court ruled that the dual agency statute was violated by the Salesperson. Based on the Salesperson's breach of her fiduciary duties to the Buyer and her violation of the dual agency disclosure laws, the court ruled that the Buyer was entitled to recover whatever excessive amount he paid for the property. The court determined this amount to be $8,760 and so awarded him that amount.

Next, the court considered whether the Salesperson intentionally interfered with the contract between the Buyer's Representative and the Buyer. To claim intentional interference with a contract, a party must allege that a party knew a valid contract existed between two parties; the other party intended to induce the breach of the contract; the contract was breached because of the other party's conduct; and the breach caused damage. Here, the Salesperson was clearly told by the Buyer of his relationship with the Buyer's Representative. The Salesperson's conduct when the Buyer made an offer through the Buyer's Representative's firm evidenced an intention by the Salesperson to interfere with the relationship and to cause him to make all offers through her. Even though the Salesperson was motivated by her own economic advantage (a defense to these allegations), she could not use this as a defense because her motives were for an improper objective, since she knew of the existing relationship with the Buyer and the Buyer's Representative and still tried to capture the full commission. Thus, the court ruled that the Salesperson intentionally interfered with the contract between the Buyer and the Buyer's Representative, and awarded the Buyer's Representative half of the commission that the Salesperson had received from the transaction, which was $17,520.

Finally, the court considered whether the Salesperson was liable for punitive damages. Punitive damages can be awarded when it is proved that a person's conduct "was outrageous, including acts done with malice or bad motives." The court found that while the Buyer's Representative was not entitled to punitive damages, the Buyer was because the Salesperson had acted solely with her own economic interests in mind and not those of her client. The court scheduled a hearing for a determination on the amount of punitive damages that the Buyer was entitled to receive.

Columbus v. Mehner, No. 3AN-00-9060 CI (Alaska Super. Ct. 2002). [Note: If an official reporter citation becomes available for this case, the citation will be updated to reflect this information].

Editor's Note: Following this decision, the case was settled for $200,000.