How far does a fiduciary duty or responsibility extend? As a listing agent, it can go pretty far. As this lawsuit amply displays, we are more than "marketers" and have significant responsibilities in working for and with our listing clients. We need to be constantly assessing and evaluating our actions and responsibilities to all of our clients or, we may find ourselves scrutinizing our E&O policy to see what's next.
Negligence Lawsuit over Gas Shutdown Reinstated
An Ohio appellate court has considered whether a real estate broker breached his fiduciary duty by failing to notify an absent owner that the gas company was attempting to contact him about a gas shutdown on the property during winter.
In September 1999, Debra and Andrew Dennewitz (“Owners”) listed a home (“Property”) for sale with Charles Amato (“Salesperson”) of Century 21 Arrow Realty, Inc. (“Brokerage”). A “for sale” sign showing the Brokerage’s name was placed in the front yard of the Property. The Property was vacant from August 1999 until it was sold in May 2000 because the Owners had moved to another town. One of the Owners had called East Ohio Gas NKA Dominion (“Gas Company”) and told them that they wanted to continue gas service on the Property, arranging to have the gas bills sent to his new address. He received and paid these bills from his new address.
In November 1999, one of the Owners visited the Property and discovered a notification that a gas main relocation was about to take place because of nearby road construction. He called the Gas Company and asked them to notify him at his new address of any changes on the Property because he was in the process of selling it. While the Owners continued to periodically visit the Property, they did not come between December 14, 1999 and January 2, 2000.
In November, an employee of the Gas Company also called the Brokerage to notify him of the impending shutdown, leaving a voicemail for the Salesperson and also a message with a secretary about the shutdown. On December 15th, the Gas Company left a notice on the Property that the gas would be turned off the next day. The employee of the Gas Company again called the Salesperson, leaving messages for the Salesperson about the shutdown.
On December 16th, the Gas Company shut down the Property’s gas line. An employee of the Gas Company was told that the Salesperson would meet him at the Property on December 16th, but no one showed up to meet the Gas Company employee. On December 17th, an employee from the Gas Company called the Salesperson and left a message stating that it was “imperative” that someone meet him at the Property. The employee also testified that all of the notices about the gas shutdown had been picked up. The Salesperson and Brokerage denied any knowledge of the gas shutdown.
On January 3, 2000, the Owners learned of the gas shutdown. The Owners made arrangements to have the gas turned on that day. When one of the Owners arrived at the Property, he discovered that the water pipes had burst and there was a pool of water in the basement. The Property sustained damage in excess of $40,000. State Farm Fire & Casualty Company (“Insurance Company”) paid the Owners’ insurance claim after receiving payment of the $250 deductible from the Owners and then it became subrogated to any claims over who was responsible for the damage.
The Insurance Company filed a lawsuit against the Salesperson, Brokerage, and the Gas Company for the damage to the Property. The Gas Company filed a counterclaim and cross claim against the Brokerage. The trial court entered summary judgment in favor of the Salesperson and the Brokerage, but allowed the other actions to proceed to trial. Following a bench trial, the trial court ruled in favor of the Insurance Company. The Insurance Company appealed the dismissal of the allegations against the Brokerage and the Salesperson, and the Gas Company appealed the judgment entered against it.
The Court of Appeals of Ohio, Eighth District, reversed the trial court. The Gas Company argued that the trial court lacked jurisdiction to hear the claims made against it because the Gas Company is regulated by the Public Utilities Commission of Ohio (“Commission”) and all service related-issues need to be brought before the Commission. The trial court had found that since the complaint had a tort claim (negligence), the court could hear this case. The appellate court disagreed and found that the allegations in the complaint focused on service-related issues, meaning these were the exclusive regulatory province of the Commission. Thus, the court reversed the judgment against the Gas Company because the trial court lacked jurisdiction to hear these claims.
Next, the court considered the allegations against the Brokerage and the Salesperson. The trial court had ruled in favor of the Brokerage and the Salesperson because it found that the Salesperson had no duty to notify the Owners of the gas shutdown. The Brokerage and Salesperson further argued that they were not retained to manage the Property, but instead only had the job of finding a purchaser for the Property.
The court found that because the Salesperson had a fiduciary relationship with the Owners, he had a duty to notify the Owners of the gas shutdown if he was aware of the shutdown. In Ohio, a real estate salesperson owes his/her client certain statutory fiduciary duties as well as common law fiduciary duties. Based on the facts alleged in the lawsuit, the court determined that a real estate licensee has a fiduciary duty to use reasonable care and skill during the representation of a client, and so would have a duty to warn the client of any foreseeable damage to the property because this damage would have a material effect on the subject matter of the agency relationship.
The court also found that an individual can assume a duty. Here, the Gas Company had testified that the Salesperson had agreed to meet with them on the property. If the trial court found this fact to be true, the court could rule that the Salesperson had assumed this duty. Thus, the court found that the Insurance Company had alleged facts which could create a legal duty for the Salesperson and so the case was sent back to the trial court for further proceedings.
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If you were the next judge to review this case, how would you rule? Why?
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