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Lane v. Oustalet: Breach of Fiduciary Duty to Not Provide Information to Both Clients

Mississippi’s highest court has affirmed a lower court ruling that dual agent real estate breached her fiduciary duty to her buyer clients when she only gave a copy of termite report to the sellers. Click here to read the earlier decision.

Kathryn and Baxter Lane ("Buyers") were interested in purchasing property owned by A.J.M. Oustalet ("Seller"). The Buyers contacted real estate salesperson, Sherry Owen ("Salesperson") of Alfonso Realty, Inc. ("Brokerage"), about the property. Both parties consented to the Salesperson serving as a dual agent in this transaction. The Sellers disclosed that the property had prior termite damage. The purchase agreement specified that the Seller would provide at closing a termite certificate for the property that stated there were no signs of termite infestation or termite-caused damage on the property. The contract went on to specify that if the inspector found a termite infestation or damage, the Seller would be responsible for correcting any structural damage caused by the termites. The contract also gave the Buyers the ability to cancel the purchase agreement if they found the termite damage unacceptable.

The Salesperson arranged for a termite inspection of the property. The inspector wrote a report ("Report") that described termite damage and recommended the hiring of an expert to determine if repairs were necessary. The inspector delivered the Report to the closing attorney, Jerry Rosetti ("Attorney"). The Attorney's fees were paid by the Buyers to insure that he would represent their interests at the closing. The Attorney reviewed the Report and gave it to the Salesperson, recommending consultation with an expert about the termite damage. The Attorney did not give a copy of the Report to the Buyers.

The Salesperson gave a copy of the Report to the Seller and advised him of the need to have a construction expert evaluate the termite damage. The Seller instructed the Salesperson to take care of the problem. The Salesperson arranged to have a contractor inspect the property, and the contractor informed the Salesperson that he did not see any structural damage on the property. The Salesperson informed the Seller and the Attorney about the contractor’s findings, but not the Buyers.

The closing occurred as scheduled, following which the Buyers hired their own termite company to evaluate the property. They also obtained a copy of the Report at this time. Following the receipt of both termite inspection reports, the Buyers hired two contractors to evaluate the amount of damage the termite infestation had caused. Both contractors estimated that the structural repairs would cost over $35,000. The Buyers filed a lawsuit against the Seller, the Attorney, the Salesperson, and the Brokerage. The trial court ruled in favor of the Seller, the Attorney, the Salesperson, and the Brokerage, and the Buyers appealed. The appellate court partially reversed the trial court, ruling that the Salesperson had breached her fiduciary duty by giving report to only one of her clients but affirmed the rulings of the trial court in favor of the Attorney and the Seller. The Brokerage and the Sellers appealed.

The Supreme Court of Mississippi partially affirmed and partially reversed the rulings of the appellate court. The court first considered the potential liability of the Seller. The appellate court had ruled because the Seller had relied upon the Salesperson, an agent for the Buyers, to give a copy of the Report to the Buyers, the Seller was not liable to the Buyers because a principal is imputed with the knowledge of its agent. However, the court stated that a jury could conclude the Seller had told the Salesperson to give a copy of the Report to the Buyers as his own agent (since the Salesperson was a dual agent), and so the issue would be whether he had reasonably relied upon the Salesperson to transmit the Report to the Buyers. Thus, the court reversed the lower court’s rulings in favor of the Seller and sent the case back to the trial court for consideration by the jury.

Next, the court considered the allegations against the Salesperson. The Salesperson had argued that she had not given the Report to the Buyers because she assumed that the Attorney would give the Report to the Buyers at closing. The court rejected that argument, stating that the Salesperson needed to make sure both of her clients received all significant information in order to help guide them through the course of the transaction. Thus, the court affirmed the appellate court’s ruling that the Salesperson breached her fiduciary duty to the Buyers, and sent the case back to the trial court for a determination on whether this breach caused damage to the Buyers.

Finally, the court considered whether the Attorney was properly dismissed from this lawsuit by the lower courts. The appellate court had ruled that because the Buyers had failed to present expert testimony on the proper standard of care, they had failed to establish that he had not meet the standard of care required by a closing attorney. The Buyers argued that the Attorney’s failure to deliver the Report was not a standard of care issue but rather a standard of conduct which did not require expert testimony because the jury did not need special knowledge or expertise to consider the allegations against the Attorney. The court agreed with the Buyers, ruling that a jury should consider whether the Attorney breached his fiduciary duty or the standard of conduct by failing to give the Buyers a copy of the Report. Thus, the case was sent back to the trial court for a jury to consider the allegations against the Seller, the Salesperson, and the Attorney.

Lane v. Oustalet, 873 So. 2d 92 (Miss. 2004).