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Olsen v. Vail Associates Real Estate, Inc.: Colorado Supreme Court Finds No Breach of fiduciary duties Duty in Dual Agency Case

Following the death of J. Perry Olsen, his ranch was listed for sale on an open listing. Vail Associates Real Estate, Inc., a real estate brokerage, introduced the Olsen children to Magnus Lindholm, who wanted to purchase the property. Lindholm wanted more property than just the Olsen ranch, and he asked Vail Associates to find out whether the only other ranch in the area, the Rickstrew ranch, was available for purchase.

Vail Associates contacted Mr. Rickstrew, who refused to deal with any real estate practitioner, and he negotiated directly with Lindholm. Lindholm agreed to buy the Rickstrew ranch, contingent on his purchase of the Olsen ranch. Soon after the Olsen ranch sale closed, Lindholm closed on the Rickstrew ranch. When the Olsens learned about the Rickstrew transaction and its sale price, they brought suit, claiming breach of fiduciary duty since Vail Associates had not disclosed to them that Lindholm was purchasing the Rickstrew ranch and the purchase price.

The trial court and the court of appeals both had found in favor of the brokers, and the Supreme Court of Colorado also ruled in their favor. As the court observed, the law of agency creates a strict duty of disclosure on the part of a fiduciary, and "a real estate broker or agent must disclose all facts relative to the subject matter of the agency relationship that may be material to the decision the principal is about to make."

The fact that a contract for the Rickstrew ranch had been entered into and the price per acre would have been valuable to the Olsens in their negotiations with Lindholm for the sale of the Olsen ranch. However, while Vail Associates knew that negotiations were taking place, the brokerage was neither aware that a contract had been entered into for the Rickstrew ranch nor aware of the purchase price until after the Olsen ranch sale contract had been signed. Since Vail Associates did not possess this information prior to the signing of the Olsen ranch contract, the court found that they had not withheld material information from the Olsens.

The Olsens also argued that Vail Associates breached its fiduciary duty to them by engaging in undisclosed dual agency. For dual agency to exist, a brokerage must represent both the buyer and the seller in the same transaction. In Colorado, as in most states, disclosed dual agency, which is where the parties know of and consent to the relationship, is legal.

Undisclosed dual agency, where the parties do not know of or consent to the relationship, never is legal. The court found that Vail Associates’ limited contact with Lindholm in connection with the Olsen ranch did not rise to the level of agency representation. Further, even though it was not pertinent to the question of dual agency, because it involved another property, the court observed that the brokerage’s contact with Lindholm regarding the Rickstrew ranch was ministerial and was done in furtherance of the sale of the Olsen ranch, for Vail Associates knew that Lindholm would not purchase the Olsen ranch if he could not also Purchase the Rickstrew ranch.

Finding that Vail Associates had not represented both the Olsen children and Lindholm in the same transaction, the court affirmed the lower courts’ findings that the brokerage did not engage in undisclosed dual agency.

Olsen v. Vail Associates Real Estate, Inc. 935 P.2d 975 (Colo. 1997).