A New York state court is allowing a lawsuit against real estate brokerage Houlihan Lawrence to move forward, saying that establishing informed consent to dual agency requires more than a consumer’s signature on a disclosure form.
Separately, Houlihan Lawrence’s professional liability insurance provider is also seeking a federal court order declaring that the company has no obligation to provide insurance coverage to the brokerage in connection with the dual agency suit.
Houlihan Lawrence owns and operates 30 offices with more than 1,300 agents in New York’s largely affluent Westchester, Putnam and Dutchess counties.
In a lawsuit first filed in July and amended in October, four buyer and seller plaintiffs allege Houlihan Lawrence duped them into double-ended deals where the brokerage represented both buyer and seller. The suit seeks class action status and alleges breach of fiduciary duty, failure to provide statutory disclosure forms in a timely manner, deceptive or unfair sales practices, and unjust enrichment.
Anonymous letters sent to the plaintiffs’ law firm also allege the brokerage pays or paid its agents bonuses for keeping transactions in-house — a tactic that is not unheard of in the real estate industry but that plaintiffs allege encouraged double-sided transactions to boost the firm’s market share for its eventual acquisition by Berkshire Hathaway affiliate HomeServices of America.
The plaintiffs also allege Houlihan Lawrence forged a disclosure form in the firm’s effort to have the dual agency lawsuit dismissed.
In a motion to dismiss the suit filed Oct. 30, attorneys for Houlihan Lawrence argued that since the buyer and seller plaintiffs each signed statutory disclosure forms consenting to Houlihan Lawrence’s dual agency with designated sales agents (i.e. with separate Houlihan Lawrence agents representing buyer and seller), their breach of fiduciary duty claims should be tossed.
But in a ruling earlier this month, the Supreme Court of the State of New York allowed the breach of fiduciary duty and deceptive or unfair sales practices claims to proceed. The ruling didn’t address the alleged agent bonuses or document forgery.
Regarding the breach of fiduciary duty claim, Judge Linda S. Jamieson pointed to state law, which says, “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.”
“By these very words … it appears that the mere signing of the [statutory disclosure] form is insufficient, and the legislature required more,” Jamieson wrote.
In allowing the deceptive sales practices claim to proceed, the court considered whether Houlihan Lawrence’s alleged actions have “a broad impact on consumers at large” as required under New York’s consumer protection statute.
“The allegations made by the plaintiffs, which this Court must accept as true at this stage of the litigation, state that the practices of Houlihan Lawerence are pervasive, have and will affect many others, and Houlihan Lawrence has promoted its practices. Of course, if discovery in this matter proves otherwise, this Court will certainly revisit this issue upon the proper application,” Jamieson wrote.
In an emailed statement, William S. Ohlemeyer, a partner at plaintiffs’ law firm Boies Schiller Flexner LLP, said, “Plaintiffs are pleased the case is moving forward on their claims that Houlihan Lawrence breached its fiduciary duties and violated New York’s consumer protection statute. We’ve alleged, and look forward to proving, that plaintiffs and thousands of similarly situated buyers and sellers were put into dual-agent transactions without their informed consent.”
Claims regarding the seller plaintiffs, siblings Dr. Ellyn Berk and Tony Berk, were dismissed due to a technicality — the complaint did not name the Berks as the administrators of their parents’ estate as required in order for them to sue in regard to estate property. But the court granted them leave to file an amended complaint to fix that issue.
The court also dismissed claims alleging failure to provide statutory disclosure forms in a timely manner and unjust enrichment. The former claim was dismissed because the statute at issue does not give private individuals the right to sue under the law, leaving enforcement to the state attorney general, according to the filing.
“We are pleased that the Supreme Court of the State of New York (Westchester County) has dismissed a proposed class action claim filed by a former client alleging a failure to comply with New York law on dual agency. No class has been established. The decision delineates the controlling legal principles governing client relationships and confirms that the plaintiffs had no right of action under New York law governing dual agency relationships,” Houlihan Lawrence told Inman in an emailed statement.
The unjust enrichment claim did not survive because only the buyer plaintiffs’ claims remained and the plaintiffs asserted that buyers “implicitly” bear the expense of paying brokerage sales commissions because sales prices are “designed to include the commission.”
But the court disagreed, noting that the buyers were not contractually obligated to pay a commission and “it is the sellers who paid the commission,” meaning the brokerage could not be unjustly enriched at the buyers’ expense. The question of who pays brokerage sales commissions is a controversial one in the real estate industry and one that has attracted high-stakes litigation recently.
In separate litigation, Houlihan Lawerence’s professional liability insurance provider Great American Insurance Company (GAIC) filed a lawsuit against the brokerage in February seeking a declaratory judgment that GAIC has no obligation to provide insurance coverage — defense or indemnification — regarding the dual agency suit, because “dishonest, intentionally wrongful and fraudulent conduct committed by the Insured” and “any dispute involving an Insured’s fees, commissions or charges” are excluded from the policy.
Editor’s note: This story has been corrected to note that the Supreme Court of the State of New York is a state court, not the highest court in the state. Inman regrets the error.