In a significant victory for brokers and agents, an award of $60,000 in sanctions against a buyer and her attorney was upheld by the California Court of Appeal.
Plaintiff Joanne Peake purchased a home from the Underwoods, who were represented by a real estate agent, John Ferrell. Two years after close of escrow, she discovered that subfloors had been damaged and not repaired by the sellers. She sued Ferrell for violation of his statutory duties to her under Civil Code Sections 1102 and 2079 and for common law fraud.
Ferrell showed that reports provided to Peake during the inspection period revealed prior damage to the subfloors caused by drainage issues. Although the drainage problem had been repaired, the subfloors had not. Although Ferrell did not call out the subfloor issue in his Agent’s Visual Inspection Checklist, the court found that the reports adequately put her on notice.
After a year of litigation, Ferrell filed a motion to have Peake’s claims dismissed as frivolous and requested sanctions under Code of Civil Procedure Section 128.7. The court dismissed her claims because they did not have any legal or factual merit. The court then awarded Ferrell $60,000 for the cost of defending himself against these meritless claims. Both Peake and her attorney were held liable.
Key to the ruling was diligent efforts by Ferrell’s attorney to convince Peake to drop the case. He had sent eight communications that included the relevant reports and other information showing that Ferrell had met his statutory duties. The Court of Appeal found that Peake and her attorney had plenty of opportunity to withdraw their claims, based on these communications.
It is common practice for parties to “blame the agents” when a transaction sours, just to have another source of settlement funds. Defending these claims is expensive and the agents rarely recover their cost of defense. The Peake case teaches that the agent’s attorney should weigh in early and often with emails and letters showing why the claims are baseless. These communications should demand that the claims be withdrawn or sanctions will be requested. That used to be an idle threat, but after the Peake decision, complaining parties (and their attorneys) will have to weigh whether they will be the ones making the payment at the end of the day.
Peake v. Underwood, Fourth District Court of Appeal D061267, June 25, 2014
For further information, please contact Mark D. Hudak at firstname.lastname@example.org or 650.342.9600