In real estate agency relationships, an agent owes its client, a buyer or seller of property, fiduciary duties, including duties of undivided loyalty, reasonable care, and confidentiality. Due to the increasing number of large brokerage firms, “dual agency” deals have become commonplace. A dual agency occurs when an agent represents the buyer and the seller in the same deal, or, the buyer’s and seller’s agents are employed by the same firm. In New York, dual agency is legal as long as proper disclosure is made. This is the key issue in Goldstein v. Houlihan/Lawrence Inc., Index No. 60767/2018, an important case pending in the Westchester Commercial Division before Justice Linda Jamieson.

In Goldstein, Plaintiffs, which include buyers and sellers, allege that Houlihan Lawrence routinely acts as a dual agent as part of a corporate strategy to grow its market share and, in doing so, fails to disclose its agents’ dual roles.

The Complaint asserted four claims, which Houlihan Lawrence moved to dismiss pursuant to CPLR 3211(a). As discussed below, the Court allowed two of Plaintiffs’ claims to proceed: (i) breach of fiduciary duty based on an alleged failure to disclose the risks of dual agency; and (ii) violation of New York General Business Law § 349, based on alleged deceptive acts and practices. (The Court dismissed Plaintiffs’ claims for violation of Section 443 of the Real Property Law and unjust enrichment.)

Breach of Fiduciary Duty

Houlihan Lawrence sought dismissal of this claim on the grounds that each plaintiff executed the statutory disclosure form demonstrating consent to the firm’s dual agency. In analyzing this claim, Justice Jamieson cited Section 443(4)(a) of the Real Property Law (“Dual Agent”), which states:

“A real estate broker may represent both the buyer and the seller if both the buyer and seller give their informed consent in writing. In such a dual agency situation, the agent will not be able to provide the full range of fiduciary duties to the buyer and seller. The obligations of an agent are also subject to any specific provisions set forth in an agreement between the agent, and the buyer and seller. An agent acting as a dual agent must explain carefully to both the buyer and seller that the agent is acting for the other party as well. The agent should also explain the possible effects of dual representation, including that by consenting to the dual agency relationship the buyer and seller are giving up their right to undivided loyalty. A buyer or seller should carefully consider the possible consequences of a dual agency relationship before agreeing to such representation. A seller or buyer may provide advance informed consent to dual agency by indicating the same on this form.” Id. (emphasis added).

In denying the motion, Justice Jamieson concluded that establishing consent for dual agency requires more than a client’s signature on a form:

“By these very words … it appears that the mere signing of the [statutory disclosure] form is insufficient, and the legislature required more. If the form was all that was necessary, there would be no need for this language, and it would be rendered superfluous.” Id. (emphasis added).

General Business Law § 349

Plaintiffs also asserted a claim under GBL § 349, which is directed at deceptive acts and practices against the consuming public. As the Court noted: “[P]laintiffs … must charge conduct of the defendant that is consumer-oriented, by having a broader impact on consumers at large. Private contract disputes, unique to the parties, for example, would not fall within the ambit of the statute” (quoting Oswego Laborers’ Local 214 Pension Fund v. Marine Midland Bank, N.A., 85 N.Y.2d 20, 24-25 (1995)).

Here, the alleged wrongs are that Plaintiffs were not properly informed of the risks associated with dual agency and the firm’s compensation. In that regard, the Court stated:

“To analyze the ultimate efficacy of each claim, this Court will be called upon to determine what was said and what disclosure[s], if any, were made to each plaintiff during the relationship … with Houlihan Lawrence. Each of these transactions are separate, different people were involved, and undoubtedly different things were said and communicated. While the alleged commonality between these plaintiffs may be alleged non-disclosure, the ultimate resolution of the claims can only be determined by individual analysis of each transaction, and to a certain extent each transaction can be considered unique.” Id.

But above and beyond alleged deceptive conduct itself, the Court ultimately must consider whether conduct has “a broad impact on consumers at large.” And on that point, Justice Jamieson allowed the claim to proceed based on Plaintiffs’ allegations (which, at this early stage, the Court must accept as true) that “the practices of Houlihan Lawrence are pervasive, have and will affect many others, and Houlihan Lawrence has promoted its practices.” The Court qualified this ruling by stating that “if discovery in this matter proves otherwise, [it] will certainly revisit this issue upon the proper application.”

Houlihan Lawrence also argued that GBL § 349 does not apply to real estate transactions or deals involving the amounts of money at issue, but the Court disagreed and held that “real estate transactions are not excluded from the protections of the statute.” Id. (citing Polonestsky v. Better Homes Depot, Inc., 97 N.Y.2d 46 (2001)). The Court also was not prepared to dismiss this claim based on the amount of the commissions but noted that it “will certainly be a factor in determining, at the proper time, whether the transaction was unique.”

Litigation Status: On May 15, 2019, Justice Jamieson appointed a full-time discovery master to hear and report to the Court on all issues of discovery, including pending discovery motions, pursuant to CPLR § 4311.

We will continue to monitor this case and provide updates on new decisions and developments.

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