A recent Utah Supreme Court decision is sending ripples through the state's real estate industry.
At issue is whether real estate agents' unlawful actions can be attributed to their brokers.
The case involves a Wardley real estate agent who fraudulently changed the listing dates of four contracts, unbeknownst to his clients, Leland and Sheri Mascaro.
Arles Hansen was the agent for Wardley, which became part of Coldwell Banker Residential Brokerage in 2001. Hansen and the Mascaros signed the agreements Nov. 15, 1993, with the mutual understanding that the listing would expire the next day.
However, Hansen altered the expiration date of the listings to Nov. 15, 1994, according to court documents.
Some months later the Mascaros entered into a listing with a new agent, Tracy Cannon, principal broker of Cannon Associates Inc.
The Mascaros eventually sold their property, and Cannon received a $115,000 commission for her work as an agent on the sale.
When Wardley learned of the sale, it added Cannon to a previous lawsuit filed against the Mascaros that sought payment of the commission.
A district court judge ruled that Hansen had acted fraudulently. However, the court refused to award attorney's fees to Cannon, which totaled some $80,000 by 1998.
Now nearly 10 years after the original transaction, the Utah Supreme Court has ruled that an appeals court erred in upholding the trial court's decision to not award attorney's fees. Cannon's defense costs amounted to $109,000 as of December, according to Mark Morris, a Salt Lake attorney representing Cannon.
The decision is unsettling for some real estate brokers, who say the illegal actions of their agents now may come back to haunt them.
"Without a doubt what this case does is it says if you're a broker you better darn well be watching your agents like a hawk, because if they commit a crime as a real estate agent you could have knowledge of that crime imputed," said Chris Kyler, director of government affairs and general counsel for the Utah Association of Realtors.
Most of the state's 9,000 practicing real estate agents act as independent contractors and are not considered employees of their brokers, according to Dexter Bell, director of the state's Division of Real Estate.
In fact, Bell said, legislation enacted this year makes it clear that sales agents are not employees of brokers unless there is compelling evidence otherwise.
But he also acknowledges that real estate brokers are trained to supervise and be responsible for their agents.
Morris argues real estate brokers can't have it both ways.
"In terms of imputing knowledge, they (real estate agents) are not an independent contractor," Morris said. "They can sign contracts for the broker. They have the ability to bind the broker. And if they are out there making money for the broker, then if they screw up or if they act fraudulently, then I think they also ought to have the authority to make the broker responsible for those bad acts."
The test, Morris said, comes down to whether a real estate agent is acting within his or her authority and is motivated in part by a reason to benefit the broker.
"In our case, Wardley was going to get a pile of dough," Morris said. "So when (Hansen) falsified that contract, he was acting within the scope of his authority. . . . Wardley was going to get its cut of this $110,000 commission."
Dave Mansell, president of Coldwell Banker Residential Brokerage, said liability is something brokers have always carried.
"The broker should be held liable to the degree he has the ability to control the agent," Mansell said. "But short of sitting in their car and being with them every second, you can't really do that. . . . What it really tells you is there is no way to cover yourself because you can't anticipate every possibility that could go wrong."
Kyler, while acknowledging that justice was ultimately served, said the case presents some fallout for the real estate industry at large.
"I don't disagree that a real estate agent is acting on behalf of the broker and a client in trying to close that deal," he said. "What's very important is this idea of scope of the relationship. Are you doing what you were asked to do or are you doing something outside what you were asked to do? My argument is, once it's a crime, that is outside of what you were asked to do."
Morris disagrees, saying it doesn't matter if no one else at Wardley knew of the fraudulent contract. "Its agent knew," he said.
"What Wardley is saying here is, 'Sorry, we didn't know he was acting fraudulently. We're not responsible,' " Morris said. "If the broker is going to benefit from that crime, then I think the broker needs to share in the responsibility."
For Hansen, in February an application for renewal of his license was denied by the Division of Real Estate. An administrative law judge issued a stay on the order, allowing him to practice until an appeal is heard by Ted Boyer, director of the Utah Department of Commerce.
E-MAIL: danderton@desnews.com