Real Estate Recovery Program provides recovery for broker's fiduciary breach if factual findings supporting judgment state conduct constituting deliberate fraud

August 17, 2012
By Justice Steven Vartabedian (Ret.) on August 17, 2012 6:00 AM |

real estate broker.jpgCalifornia Business & Profession Code section 10471 is a "remedial statute intended to protect the public from loss resulting from unsatisfied damage awards against licensed real estate personnel." (Doyle v. Department of Real Estate (1994) 30 Cal.App.4th 893.) It is punitive in the sense that an agent's license is immediately suspended if the state pays from the fund and that license will not be reinstated until the payment is paid back in full. It is limited in that it only applies to an unsatisfied judgment for intentional fraud.

In Worthington v. Davi (G045537, filed August 7, 2012), plaintiffs arbitrated three transactions claiming breach of fiduciary duty and one transaction claiming fraud committed by their real estate broker and others, and received a total award of $280,000. The award was confirmed in a judgment which went unpaid. Plaintiffs applied to the state's Real Estate Commissioner for recovery from the 10471 recovery fund. The Commissioner allowed recovery of $50,000, allowing recovery only on the "fraud" transaction, and disallowing the other three.

Plaintiffs applied to the trial court for an order directing payment of the judgment from the recovery fund as to the remaining three transactions. The trial court ordered payment on two of these three. On these three transactions, the arbitrator did not expressly state the award was for "fraud." The trial court found that in two of these transactions, there was a breach of fiduciary duty resulting from fraudulent transactions. However the remaining fiduciary transaction involved no sufficient stated showing of fraud. Both sides appealed.

The Court of Appeal, Fourth Appellate District, Division Three, affirmed the trial court. Interestingly, both sides misunderstood the standard of review to be novo by the appellate court. Not so, the court preliminarily notes. While the trial court reviews the administrative body's findings de novo, the appellate court will only reverse the judgment of the trial court if it is based on erroneous conclusion of law; the factual determinations are conclusive if they are supported by substantial evidence.

In affirming, the Court of Appeal noted the Legislative scheme calls upon the Commissioner and the trial court to examine the underlying adjudicated facts, not just the titles of the causes of actions and the legal conclusions stated in the judgment. So in looking behind the judgment, the appellate court found no legal error in the rulings of the trial court and that the rulings were supported by substantial evidence.

I find this case to provide some valuable direction to parties trying to collect on these types of judgments. There too is some valuable general advice. Procedurally, make sure you understood the correct "standard of review." Here counsel for both sides agreed on the de novo standard, which proved to be wrong. Substantively, be aware of when substance reigns over form: when is the substance behind a ruling sufficient to carry the day over how it is labeled?

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