Winning Closing Argument Brief for Real Estate Commission Dispute

LAW OFFICES of BROWN & CHARBONNEAU, LLP

420 EXCHANGE, SUITE 270                                                                                                                                       IRVINE, CALIFORNIA 92602                                                                                                                                TELEPHONE 714 505-3000

GREGORY G. BROWN, SBN 132004                                                                                                                       Attorneys for Defendant JANE DOE

SUPERIOR COURT OF THE STATE OF CALIFORNIA                                                                                            FOR THE COUNTY OF ORANGE, CENTRAL JUSTICE CENTER

Defendant JANE DOE hereby submits this Arbitration Closing Brief.

INTRODUCTION

It is undisputed that plaintiff JOHN SMITH (“SMITH”) owed defendant JANE DOE (“JANE DOE”) a fiduciary duty in all of his dealings with JANE DOE as her real estate broker. This fiduciary duty required SMITH to always act in highest good faith and with the utmost care and honesty toward JANE DOE, to never obtain any advantage over JANE DOE, and disclose to JANE DOE any facts within his knowledge material to their relationship.

It is undisputed that between February 1, 2014 and July 26, 2014, SMITH was JANE DOE’s broker, and thus, owed her a fiduciary duty during the entirety of this time period. Focusing on this period alone, and without even considering any of SMITH’s egregious conduct after July 26, 2014, the evidence in this case is overwhelming that SMITH breached his fiduciary duty to JANE DOE, SMITH engaging in multiple acts of constructive fraud, dishonesty and placing of his interests in a commission before the interests of his client.

On May 25, 2014, JANE DOE requested SMITH cancel the subject Sale Listing Agreement. SMITH did not agree to the cancellation of the Sale Listing Agreement.[1] In responding to JANE DOE’s request, SMITH engaged in constructive fraud in breach of his fiduciary duty to JANE DOE by: (1) failing to disclose that he in fact did not agree to cancel the Sale Listing Agreement, (2) failing to make any attempt to clarify that the Sale Listing Agreement was not cancelled despite his knowledge that JANE DOE believed it was and that SMITH was to “end[] up with nothing” from the Sale Listing Agreement despite his efforts, and (3) knowingly misrepresenting his consent to the cancellation by responding to her request to cancel with the reply, “OK.”

On July 14, 2014, wanting to formally cancel the Sale Listing Agreement (and Lease Listing Agreement, JANE DOE asked SMITH if she needed a letter of cancellation, and inquired what the “protocol” was because she did not know. In responding to this request, SMITH again engaged in constructive fraud in breach his fiduciary duty to JANE DOE by: (1) failing to provide any explanation of the procedure to cancel the Sale Listing Agreement, despite being specifically told that she did not understand the procedure, (2) presenting the Cancellation of Listing form as the “proper form,” while failing to disclose that it pertained only to the Lease Listing Agreement, (3) failing to disclose to that he did not agree to cancel the Sale Listing Agreement, and (4) failing to disclose that the Sale Listing Agreement was still in effect despite knowing that JANE DOE believed it was cancelled.

A single breach of fiduciary duty is sufficient to bar a real estate broker’s right to a commission. Any one of SMITH’s multiple breaches of his fiduciary duty to JANE DOE bars any recovery of commission under the Sale Listing Agreement in this action. SMITH’s complete lack of any credibility simply highlights these indisputable claims.

EVIDENCE AT ARBITRATION

         1.    Background

JANE DOE invests in the purchase and leasing of real estate in Orange, County. On very rare occasions, JANE DOE purchases and sells (flips) properties, as she did with the property that is the subject matter of this case.

SMITH was JANE DOE’s exclusive broker, real estate advisor and personal friend for approximately the last 18 years. Over the course of this relationship, JANE DOE purchased and sold over $40 million in property. SMITH incentivized JANE DOE to use his services exclusively by appealing to their friendship, and agreeing to pay JANE DOE 40% (rebate) of all commissions he earned from JANE DOE’s real estate purchases in which he was involved. With respect to sales, SMITH received a 2 – 2.5% commission, SMITH never having represented both sides of a sales transaction with JANE DOE, and thus, always sharing his commission with a cooperating broker.

Due their longstanding relationship, JANE DOE placed the utmost trust and confidence in SMITH, and as such, the parties’ business dealings were very casual. For example, SMITH would present JANE DOE with stacks of documents with tabs or highlights in places where JANE DOE needed to sign, and SMITH would watch JANE DOE sign such documents without reviewing them. Sometimes, SMITH would provide documents for JANE DOE to sign with blank dates, which SMITH would fill out later. SMITH also kept the keys to some of JANE DOE’s properties.Purchase and Listing of 1731 Port Hemley Circle

In April 2013, SMITH represented JANE DOE in the purchase of 1731 Port Hemley Circle, Newport Beach, California (the “Property”). JANE DOE purchased the Property with the intent to sell it quickly and recoup her investment.

On November 6, 2013, SMITH listed the Property for sale on the Multiple Listing Service (“MLS”) at an asking price of $2,450,000. [Exh. 112] As representative of the parties’ casual business relationship, SMITH listed the Property on the MLS and began marketing the Property on November 6, 2013, nearly 3 months before the parties executed a written sale listing agreement. A CAR form Residential Listing Agreement (the “Sale Listing Agreement”) was not executed by SMITH and JANE DOE until February 1, 2014. [Exh. 2]

          2.   JANE DOE’s Request to Cancel the Sale Listing Agreement – May 25, 2014

The Property remained on the market unsold for nearly 7 months. Meanwhile, JANE DOE continued to expend additional funds for staging and upgrades that SMITH stated were necessary to attract a buyer. Displeased with the lack of interest in the Property, JANE DOE decided to take the Property off the market, and requested SMITH cancel the Sale Listing Agreement.

On May 25, 2014, JANE DOE sent an email to SMITH, stating:

“The house has been on the market for almost 7 months… Please take it off the market, release any contract we may have to sell it and remove the sign.”

“…Sorry you worked so long on this one and ended up with nothing, but I guess that’s the way it goes sometimes, some are easy some are difficult.” [Exh. 47 and 102]

On May 25, 2014, SMITH replied to JANE DOE by email, stating:

“OK I have begun the process and will finish it in the next 48 hours…” [Exh. 47 and 102]

In response to JANE DOE’s request to cancel the Sale Listing Agreement, SMITH did not inform JANE DOE that he did not agree to the cancellation, or that he would not carry out the cancellation. SMITH did not object to or seek to clarify JANE DOE’s belief that SMITH was to “ended up with nothing” from the Sale Listing Agreement. SMITH simply responded, “OK.”

Although SMITH did not send JANE DOE a formal cancellation of the Sale Listing Agreement at that time, based their relationship, SMITH’s May 25, 2014 email, and his removal of the MLS sale listing on June 3, 2014 [Exh. 112], JANE DOE believed the Sale Listing Agreement to no longer be in effect, and that SMITH would be providing any necessary formal cancellation papers.

           3.   Lease Listing Agreement

Thereafter, JANE DOE decided to lease the Property, and on June 10, 2014, SMITH listed the Property for lease on the MLS. [Exh. 112] However, SMITH did not send JANE DOE a lease listing agreement prior to the MLS listing. Rather, JANE DOE was sent a CAR form Lease Listing Agreement (the “Lease Listing Agreement”) on June 21, 2014, which SMITH backdated to June 1, 2014 without informing JANE DOE. [Exh. 104] Thereafter, SMITH’s efforts turned to finding a tenant for the Property.

           4.  Cancellation of Sale and Lease Listing Agreements – July 14, 2014

After attempting to lease the Property for about six weeks without success, JANE DOE decided to take the Property off the market all together.

On July 14, 2014, JANE DOE sent an email to SMITH, stating:

“Hemley is not for lease or sell as we discussed previously…Do I need to send you a letter of cancellation? I don’t know the protocol on this…” [Exh. 105 (JANE DOE 18)]

On July 14, 2014, SMITH replied to JANE DOE by email, stating:

“Please find attached the proper form to sign and return to me for my counter signature and delivery back to you.” [Exh. 105 (JANE DOE 17)]

Attached to SMITH’s July 14, 2014 email was a CAR form Cancellation of Listing. [Exh. 105 (JANE DOE 20)] The title of the form made no distinction between cancellation of a sale listing agreement or lease listing agreement, the form simply being titled: “CANCELLATION of LISTING.” [Exh. 105 (JANE DOE 20)]

SMITH did not speak with JANE DOE to explain what the protocol was for cancellation of the Sale Listing Agreement or Lease Listing Agreement. He did not send JANE DOE an email to explain. SMITH’s only response to JANE DOE’s inquiry was to send her the Cancellation of Listing form [Exh. 105 (JANE DOE 20)], which he stated was the “proper form.” [Exh. 105 (JANE DOE 17)]

JANE DOE had been waiting for SMITH to provide any necessary formal papers to cancel the Sale Listing Agreement and was happy to receive the Cancellation of Listing form. JANE DOE did not read the Cancellation of Listing form. Rather, she saw the title “Cancellation of Listing,” the Property address and “no compensation,” and relying on SMITH’s guidance and her complete trust in him, she executed the Cancellation of Listing form believing it was (in response to her request) a formal cancellation of the Sale Listing Agreement and the Lease Listing Agreement. [Exh. 74]

Unbeknownst to JANE DOE, SMITH had prepared the Cancellation of Listing form to provide for cancellation of only the Lease Listing Agreement. SMITH did not inform JANE DOE of this fact. SMITH further did not inform JANE DOE that he did not agree to the cancellation of the Sale Listing Agreement. SMITH executed the Cancellation of Listing on July 15, 2014. [Exh. 74] SMITH did not inform JANE DOE that while the Lease Listing Agreement was now cancelled, the Sale Listing Agreement was still in effect. From that point forward, JANE DOE believed the Sale Listing Agreement to be formally cancelled.

SMITH’s contradictory and even bizarre versions of JANE DOE’s efforts to cancel and his “knowledge” or belief establish that he has absolutely zero credibility whatsoever and that he is willing to say whatever it takes (even the extreme of changing testimony under oath from “yes” to “no” on at least 3 occasions) to advance his position. Throughout the Arbitration, there were numerous examples of SMITH’s completely illogical contractions and stories made in the face of damning evidence against him.

           5.   Breakdown of Parties’ Relationship

Following the execution of the Cancellation of Listing, the working relationship between SMITH and JANE DOE deteriorated further. JANE DOE continued to believe that the Sale Listing Agreement (and Lease Listing Agreement) had been formally cancelled, as further supported by emails received from SMITH. For example, on July 17, 2014, SMITH sent an email to JANE DOE, stating:

“As to Hemley, since June, I have been approached at least 15 times to see if we would still sell the house…And after asking you at least five times and being told that under no circumstances is that house for sale I have backed off those brokers and buyers…”

“…Once you had me remove it for sale in the MLS, it will only be a matter of time before brokers, that are not loyal to me and my long term relationship with you, that they will approach you directly because Don SMITH is not allowed (as directly instructed by his client) to offer them the opportunity to buy Hemley…” [Exh. 76 (SMITH 701)]

On July 26, 2014, after various hostile emails from SMITH, JANE DOE sent an email to SMITH, stating:

“I cannot do business in this way, so yes, I am no long[er] going to do business with you…To make myself perfectly clear, I am no longer your client and you are no longer my realtor…” [Exh. 86 (SMITH 671)]

After receiving JANE DOE’s July 26, 2014 email, SMITH believed that he “absolutely” was still JANE DOE’s broker in some capacity, however, he did not do anything to make it clear to JANE DOE that the Sale Listing Agreement was still in effect. [SMITH Depo, 45:11-46:6; 130:15-131:7; 58:2-10]

On July 28, 2014, SMITH cancelled the lease listing for the Property on the MLS. [Exhibit 112]

           6.   JANE DOE’s Hiring of XYZ Real Estate

On August 8, 2014, JANE DOE entered into a sale listing agreement with a new broker, XYZ Estate, believing both the Sale Listing Agreement and Lease Listing Agreement with SMITH had been cancelled. [Exhibit 95] JANE DOE informed Stephanie Lowe of XYZ Real Estate that her prior listing agreements with SMITH had been cancelled. Prior to entering into sale listing agreement with JANE DOE, Ms. XYZ real estate verified this by checking the status of the Property on the MLS and confirmed that the prior listings had been cancelled or were expired (which also confirms JANE DOE’s understanding). [Exh. 112] Thereafter, XYZ Real Estate listed the Property for sale on the MLS on September 2, 2014. Had JANE DOE believed she was still bound by the Sale Listing Agreement with SMITH, she never would have entered into a contract or listed the Property with another broker.

SMITH learned JANE DOE had hired a new broker on September 2, 2014, SMITH receiving an email alert he had set up on the MLS informing him in real-time of any MLS activity on the Property. However, upon learning of the new listing, SMITH made no effort to contact either JANE DOE or her agents at Villa Real Estate to inquire about the new listing or advise them of his Sale Listing Agreement with JANE DOE. Instead, SMITH allegedly asked a multiple listing secretary at the MLS to change his listing for the Property from “C” (cancelled) to “W” (withdrawn), because he was not permitted to make said change himself. This is completely illogical.

            7.   Sale of the Property

An offer to purchase the Property for $2,160,000 was made on September 17, 2014, and accepted by JANE DOE on September 18, 2014. [Exh. 97] SMITH again made no effort to contact either JANE DOE or her agents at Villa Real Estate to inquire about the new listing or advise them of his Sale Listing Agreement with JANE DOE.

Escrow closed on October 31, 2014. [Exh. 114] Pursuant to the terms of the sale listing agreement and residential purchase agreement, Villa Real Estate received a commission of $43,200 (2%) and the selling broker Re/Max Terra Sol received a commission of $54,000 (2.5%). [Exh. 114, 95, 97] Had JANE DOE believed she was still bound by the Sale Listing Agreement with SMITH, she never would have accepted an offer and entered into a contract to sell the Property.

IT IS UNDISPUTED THAT SMITH OWED JANE DOE A FIDUCARY DUTY AS HER AGENT

A real estate agent has a fiduciary duty consisting of the utmost care, integrity, honesty and loyalty in dealings with the client, real estate agents owing the client the same obligation of undivided service and loyalty owed by trustees to their beneficiaries. Wyatt v. Union Mort. Co. (1979) 24 C3d 773, 782; Warren v. Merrill (2006) 143 CA 4th 96, 109-111; Civ. Code §2079.16.

As fiduciaries, real estate agents must act in the “highest good faith” toward their principals and may not obtain any advantage over the principal in any transaction arising out of the agency relationship. Wyatt v. Union Mort. Co. (1979) 24 C3d 773, 782; Roberts v. Lomanto (2003) 112 CA 4th 1553, 1563. This fiduciary relationship further places upon real estate agents a legal obligation to disclose to their principals all facts within their knowledge that are material to the matter in which they are employed. Bate v. Marsteller (1959) 175 Cal.App.2d 573, 580-581; Ziswasser v. Cole & Cowan, Inc. (1985) 164 Cal.App.3d 417, 421.

SMITH testified that he understood he was acting as JANE DOE’s fiduciary in his dealings with her, and acknowledged his duty to act in the highest good faith, a duty of care and loyalty, and duty to always place JANE DOE’s interests before his own. SMITH further acknowledged duties owed to JANE DOE as set forth in the National Association of Realtors Code of Ethics, including a duty to protect and promote the interests of the client, and a duty to avoid any misrepresentation or concealment of facts pertinent to the transaction.

It is undisputed that SMITH owed JANE DOE a fiduciary duty in all of his dealings with JANE DOE as her real estate broker. It is also undisputed that between February 1, 2014 and July 26, 2014 SMITH was JANE DOE’s broker, and thus, owed her a fiduciary duty during the entirety of this time period.

PLACING HIS OWN INTERESTS ABOVE JANE DOE, SMITH ENGAGED IN CONSTRUCTIVE FRAUD IN BREACH OF HIS FIDUCIARY DUTY, FORFEITING ANY COMMISSION UNDER THE SALE LISTING AGREEMENT

Under agency law, a real estate agent’s breach of fiduciary duty involving intentional disloyalty, bad faith or fraud may forfeit the right to a commission, even for properly performed services. Ziswasser v. Cole & Cowan, Inc. (1985) 164 Cal.App.3d 417, 424-425; Bate v. Marsteller (1959) 175 Cal.App.2d 573, 583; [“If the broker breaches his duty of good faith, he is…precluded from recovering compensation for his services”]; Baird v. Madsen (1943) 57 Cal.App.2d 465, 476 [“It is doubtless true…that a real estate broker…by misconduct, breach of conduct or willful disregard, in a material respect, of an obligation imposed upon him by the law of agency he may forfeit his right to compensation”].

“Any concealment from the principal of material facts known to the agent…may operate to forfeit the right of the agent to compensation for his services.” Baird v. Madsen (1943) 57 Cal.App.2d 465, 476; Bate v. Marsteller (1959) 175 Cal.App.2d 573, 583 [holding brokers not entitled to any commission upon finding of breach of duty of good faith for nondisclosures of fact]. “When the acts of an agent have been questioned by his principal and the fiduciary relationship has been established, the burden is cast upon the agent to prove that he acted with the utmost good faith toward his principal.” Id at 581.

In Bate v. Marsteller, the sellers brought an action to recover damages for alleged fraud in a real estate transaction. The action was based upon the failure of the brokers to fully disclose to the sellers the extent of their involvement with the buyers in the acquisition of the seller’s property. The Court of Appeal affirmed the judgment in favor of the buyers, but reversed the judgment for the brokers, finding that they breached their fiduciary duty to the sellers by not fully disclosing their involvement with the buyer, the Court stating: “The relationship between a broker and his principal is fiduciary in nature…[and] it places upon the broker a legal obligation to disclose to his principal all facts within his knowledge which are material to the matter in connection with which he is employed.” The Court concluded that the brokers were not entitled to a commission for the sale of the property because they had breached their fiduciary duty to the sellers. Bate v. Marsteller (1959) 175 Cal.App.2d 573

“The real estate licensee is held to one standard in dealings with third persons with which he or she has no fiduciary relationship, and to a much higher standard in dealings with the principal.” 2 Miller & Starr, Cal. Real Estate (3d ed.) § 3:46. “In addition to the traditional liability for intentional or actual fraud, a fiduciary is liable to his or her principal for constructive fraud even though the conduct is not actually fraudulent.” Id.

“[C]onstructive fraud comprises any act, omission or concealment involving a breach of legal or equitable duty, trust or confidence which results in damage to another, even though the conduct is not otherwise fraudulent.” Salahutdin v. Valley of California, Inc. (1994) 24 Cal.App.4th 555, 562; 2 Miller & Starr, Cal. Real Estate (2d ed. 1989), §3:20, p. 120-121; Civ. Code §1573(1). If a fiduciary relationship exists, any concealment of material fact is fraud. Byrum v. Brand (1990) 219 Cal.App.3d 926, 937-938; Main v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1997) 67 Cal.App.3d 19, 32.

Unlike actual fraud, constructive fraud does not require an intentional deception, an “intent to deceive” being implied from the failure to disclose. Mary Pickford Co. v. Bayly Bros., Inc. (1939) 12 Cal.2d 501, 525. Further, reasonable reliance is presumed upon a nondisclosure of the fiduciary, absent direct evidence of lack of reliance. Estate of Gump (1991) 1 Cal.App.4th 582, 601.

In Salahutdin, plaintiffs brought an action for negligent misrepresentation against defendant realtor. The trial court found that defendant’s employee breached his fiduciary duty and committed constructive fraud by making false representations to plaintiffs about the property. The Court of Appeal affirmed, finding that the agent knew the size of the property and its ability to be subdivided was critical to plaintiffs’ decision to purchase it, yet he misrepresented that it was more than an acre and could therefore be subdivided and failed to disclose that he had not independently confirmed the accuracy of this information, the Court stating: “The failure of the fiduciary to disclose a material fact to his principal which might affect the fiduciary’s motives or the principal’s decision, which is known (or should be known) to the fiduciary, may constitute constructive fraud.” Salahutdin v. Valley of California, Inc. (1994) 24 Cal.App.4th 555

The evidence is overwhelming that SMITH acted dishonestly, placed his interests in a commission above those of his client, and engaged in constructive fraud in breach of his fiduciary duty to JANE DOE. SMITH’s breach of fiduciary duty bars any recovery of commission under the Sale Listing Agreement.

1. Breach of Fiduciary Duty – May 25, 2014

As evidenced at arbitration, on May 25, 2014, JANE DOE requested SMITH cancel the Sale Listing Agreement. SMITH did not agree to cancel the Sale Listing Agreement. In responding to this request, SMITH engaged in constructive fraud in breach his fiduciary duty to JANE DOE by: (1) failing to disclose that he in fact did not agree to cancel the Sale Listing Agreement, (2) failing to make any attempt to clarify that the Sale Listing Agreement was not canceled despite knowing JANE DOE believed it was, and (3) knowingly misrepresenting his consent to the cancellation by responding to her request to cancel with the reply, “OK.” A single breach of fiduciary duty is sufficient to bar the right to a commission. Ziswasser v. Cole & Cowan, Inc. (1985) 164 Cal.App.3d 417; Baird v. Madsen (1943) 57 Cal.App.2d 465. Any one of SMITH’s breaches of his fiduciary duty to JANE DOE bars any recovery of commission under the Sale Listing Agreement.

                 A.  JANE DOE Requested that SMITH Cancel the Sale Listing Agreement

On May 25, 2014, JANE DOE sent an email to SMITH, requesting SMITH cancel the Sale Listing Agreement:

“The house has been on the market for almost 7 months… Please take it off the market, release any contract we may have to sell it and remove the sign.”

“…Sorry you worked so long on this one and ended up with nothing, but I guess that’s the way it goes sometimes, some are easy some are difficult.” [Exh. 47 and 102]

Less than 2 weeks before this arbitration, SMITH admitted in his deposition that JANE DOE had requested to cancel the Sale Listing Agreement. As read into evidence on the second day of arbitration, SMITH testified under oath that:

Q:        Did Mrs. JANE DOE ever ask you to release her from the listing contract for the sale of Port Hemley?

A:        Yes.

[SMITH Depo, 67:21-23]

Q:        Mr. SMITH, did Mrs. JANE DOE ever ask you to release the contract that you had with her to sell the Port Hemley property?

A:        Yes.

[SMITH Depo, 66:16-22]

Q:        You did understand, though, that there was a point in time where Mrs. JANE DOE was asking you to release her from the contract for the sale of the Port Hemley property?

***

A:        Yes, I can read the e-mail.

[SMITH Depo, 118:13-17]

Prior to the arbitration, SMITH was presented with his deposition transcript, and after an opportunity to review and make any corrections he deemed appropriate, he made no changes and signed the transcript under penalty of perjury on August 17, 2014. However, after giving nearly his entire testimony in the case, and hearing each of the above portions of his deposition read into evidence, just prior to closing arguments SMITH claimed he “realized something was wrong” and made 4 significant and material changes to his deposition testimony. SMITH claimed that JANE DOE and her husband were “intimidating” during his deposition testimony, though no evidence of any complaints of such alleged conduct during the deposition was presented at the Arbitration. It was simply manufactured evidence to try and defeat evidence fatal to his claims. SMITH’s demeanor throughout the Arbitration was anything but that of an individual that could be intimidated by anyone, let alone the JANE DOEs. Indeed, SMITH was confident, if not smug, at all times. If he had truly been “intimidated” in any way at the deposition, either SMITH or his attorney would have spoken up immediately, which never occurred.

3 of the 4 changes concerned the principal issue of whether JANE DOE had asked him to cancel the Sale Listing Agreement, SMITH changing his answer from “yes” to “no” as to each of the above questions. SMITH then signed his transcript, again, under penalty of perjury. Did SMITH not understand the same question 3 times? One of above questions [67:21-23] had even been read once before on the first day of arbitration! No correction was raised at that time.

SMITH has shown a total lack of credibility on this central issue and his testimony cannot be believed. As clearly stated in her May 25, 2014 email, JANE DOE requested SMITH to cancel the Sale Listing Agreement. SMITH’s false testimony to the contrary must be ignored.

                   B.  After JANE DOE Requested SMITH Cancel the Sale Listing Agreement, SMITH               Had a Duty to Inform Her That He Did Not Agree to Cancel

JANE DOE requested SMITH cancel the Sale Listing Agreement on May 25, 2014, and SMITH understood JANE DOE had requested it be cancelled. However, as he testified, SMITH did not agree to cancel the Sale Listing Agreement. If SMITH did not agree, he had a fiduciary duty to inform JANE DOE. If a fiduciary relationship exists, any concealment of material fact is fraud. Byrum v. Brand (1990) 219 Cal.App.3d 926, 937-938. A real estate agent has a fiduciary duty to disclose to their principal all facts within their knowledge that are material to matter in which they are employed. Bate v. Marsteller (1959) 175 Cal.App.2d 573, 580-581. Certainly, an agent’s knowledge that he does not agree (and will not comply) with a request of his principal is a material fact that must be disclosed to the principal. Absolutely nothing prevented SMITH from informing JANE DOE that he did not agree to the cancellation. After JANE DOE requested SMITH to cancel the Sale Listing Agreement, SMITH had a fiduciary duty to speak up and disclose to her that he did not agree to cancel the Sale Listing Agreement. SMITH’s failure to disclose this fact constituted constructive fraud in breach of his fiduciary duty.

Also, as read into evidence at arbitration, SMITH testified at his deposition:

Q:        Did you ever tell Diane JANE DOE that you would not cancel the listing for the sale of Port Hemley?

A:        I don’t recall.

[SMITH Depo, 145:13-146:20]

Q:        Did you ever send an email to Mrs. JANE DOE after 5/25/15 telling her you would not cancel the contract for the sale of the Port Hemley property?

***

A:        No, I don’t recall.

[SMITH Depo, 117:25-118:8]

Then, at arbitration, SMITH first testified, consistent with his deposition testimony, that he did not recall telling or emailing JANE DOE that he did not agree to cancel the Sale Listing Agreement. Later, he again changed his testimony and said he did tell her, but only orally. This is yet another example of SMITH’s willingness to provide false testimony whenever it suits him. Indeed, if SMITH did inform her as claimed, she clearly never would have entered into a contract with XYZ Real Estate (or the contract to sell the Property), JANE DOE simply waiting out the listing term, rather than face being responsible for 2 commissions. If SMITH did inform her as claimed, this arbitration would not be taking place. As JANE DOE testified, SMITH never informed her that he did not agree to cancel the Sale Listing Agreement. SMITH’s failure to disclose constituted constructed fraud in breach of his fiduciary duty. SMITH’s breach of fiduciary duty bars any recovery of commission under the Sale Listing Agreement.

                   C.  JANE DOE’s “Sorry” Made it Clear She Believed the Sale Listing Agreement Was Canceled, and Therefore SMITH Had a Duty to Clarify That it Was Not

If there was any doubt, JANE DOE’s statement, “Sorry you worked so long on this one and ended up with nothing…,” made it clear she believed the Sale Listing Agreement was cancelled. Indeed, the Arbitrator made this same observation in raising the question, “When she says ‘sorry’ is that evidence she thinks it is cancelled?” SMITH dodged answering this question (along with most of the other questions). The answer is that it absolutely is evidence she thought it was cancelled. Based on this statement, SMITH knew or at least reasonably should have known that JANE DOE believed the Sale Listing Agreement was or would be cancelled by SMITH.

Knowing that he did not agree to cancel, SMITH had a duty to disclose this and clarify to JANE DOE that the Sale Listing Agreement was not and would not be cancelled. A real estate agent has a fiduciary duty to disclose to their principal all facts within their knowledge that are material to matter in which they are employed. Bate v. Marsteller (1959) 175 Cal.App.2d 573, 580-581. SMITH failed to disclose his refusal to cancel the Sale Listing Agreement and failed to clarify to JANE DOE that it was not and would not be cancelled. SMITH’s conduct constituted constructive fraud in breach of his fiduciary duty to JANE DOE. SMITH’s breach of fiduciary duty bars any recovery of commission under the Sale Listing Agreement.

                     D.  SMITH Misrepresented His Consent to Cancel the Sale Listing Agreement

On May 25, 2014, SMITH replied to JANE DOE’s request to cancel the Sale Listing Agreement, stating by email:

“OK I have begun the process and will finish it in the next 48 hours…” [Exh. 47 and 102]

JANE DOE requested SMITH cancel the Sale Listing Agreement, and SMITH understood JANE DOE had requested it be cancelled. SMITH responded to JANE DOE’s request to cancel the Sale Listing Agreement, with “OK.” SMITH did not agree to cancel the Sale Listing Agreement. However, his reply to JANE DOE’s request cannot be construed as anything other than an affirmative statement that he did agree.

A real estate agent has a fiduciary duty to act in the highest good faith, and with the utmost care and honesty in dealings with their client. Wyatt v. Union Mort. Co. (1979) 24 C3d 773. SMITH knowingly misrepresented his consent to cancel the Sale Listing Agreement, constituting constructive fraud in breach of his fiduciary duty to JANE DOE. SMITH’s breach of fiduciary duty bars any recovery of commission under the Sale Listing Agreement.

                    E.  SMITH’s Claim that JANE DOE’s Request to “Release Any Contract We May Have to Sell It” Somehow Referred to Contracts With Buyers Has Absolutely No Merit

SMITH claims that he thought JANE DOE’s request that he “release any contract we may have to sell it” somehow referred to pending offers or counter offers on the Property. Again, absolutely illogical.

There was no evidence of even a single pending offer or counter offer on the Property. JANE DOE had not entered into a contract with any buyer. When asked what contract, if any, was in place, SMITH testified he didn’t know. JANE DOE unequivocally requested that SMITH cancel the Sale Listing Agreement, and SMITH admitted he understood JANE DOE had requested the Sale Listing Agreement be cancelled. SMITH’s claim that JANE DOE was referring to some nonexistent contract with a buyer contradicts his own testimony and is completely unsupported by the evidence.

    2.  Breach of Fiduciary Duty – July 14, 2014

On July 14, 2014, wanting to formally cancel the Sale Listing Agreement (and Lease Listing Agreement, JANE DOE asked SMITH if she needed a letter of cancellation, and inquired what the protocol was because she did not know.

Specifically, On July 14, 2014, at 9:00 am, JANE DOE sent an email to SMITH, stating:

“Hemley is not for lease or sell as we discussed previously…Do I need to send you a letter of cancellation? I don’t know the protocol on this…” [Exh. 105 (JANE DOE 18)]

On July 14, 2014, at 4:25 pm, SMITH replied to JANE DOE by email, stating:

“Please find attached the proper form to sign and return to me for my counter signature and delivery back to you.” [Exh. 105 (JANE DOE 17)]

SMITH admits that he was JANE DOE’s broker and owed her a fiduciary duty at this time. In responding to the above request, SMITH engaged in constructive fraud in breach his fiduciary duty to JANE DOE by: (1) failing to provide any explanation of the procedure to cancel the Sale Listing Agreement, despite being specifically told that she did not understand the procedure, (2) presenting the Cancellation of Listing form as the “proper form,” while failing to disclose that it pertained only to the Lease Listing Agreement, (3) failing to disclose to JANE DOE that he did not agree to cancel the Sale Listing Agreement, and (4) failing to disclose that the Sale Listing Agreement was still in effect despite knowing that JANE DOE believed it was cancelled. A single breach of fiduciary duty is sufficient to bar the right to a commission. Ziswasser v. Cole & Cowan, Inc. (1985) 164 Cal.App.3d 417; Baird v. Madsen (1943) 57 Cal.App.2d 465. Any one of SMITH’s breaches of his fiduciary duty to JANE DOE bars any recovery of commission under the Sale Listing Agreement.

                   A.  SMITH Knew JANE DOE Did Not Understand the Protocol for Cancellation of the Sale Listing Agreement, and Therefore Had a Duty to Explain the Protocol

A real estate agent has a fiduciary duty to act in the highest good faith and with the utmost care, avoid any unfair advantage, and disclose to their principal all facts within their knowledge that are material to matter in which they are employed. Wyatt v. Union Mort. Co. (1979) 24 C3d 773; Bate v. Marsteller (1959) 175 Cal.App.2d 573.

As noted by the Arbitrator, “SMITH concedes that once he knew or should have known that JANE DOE didn’t understand, he had an obligation to clarify — that he could not sit on his hands.” SMITH did know that JANE DOE did not understand the formal procedure for cancellation of the Sale Listing Agreement (and Lease Listing Agreement). JANE DOE’s July 14, 2014 email specifically told him so. With this knowledge, SMITH had a fiduciary duty to explain the protocol to JANE DOE and ensure that she understood it, so as to avoid any unfair advantage over her regarding the cancellations.

SMITH did not speak with JANE DOE to explain what the protocol was for cancellation of the Sale Listing Agreement. He did not send JANE DOE an email to explain. SMITH’s only response to JANE DOE’s inquiry was to send her the Cancellation of Listing form, which he stated was the “proper form.” SMITH knew JANE DOE did not understand the procedure for cancellation of the Sale Listing Agreement, and his failure to provide any explanation of the protocol in response to her specific request constituted constructive fraud in breach of his fiduciary duty to JANE DOE.

As read into evidence at arbitration, SMITH testified at his deposition:

Q:        If you go to the next page, you see an e-mail from Mrs. JANE DOE earlier that same day [7/14/14]. She says, “Hemley is not for lease or sale as we discussed previously. Do I need to send you a letter of cancellation? I don’t know the protocol on this.” Did you receive that?

A:        Yes.

Q:        And you understood she was seeking your advice as to the protocol for cancellation of a listing; right?

A:        I don’t know what she was asking.

Q:        Did you send her an e-mail saying, I don’t understand what you’re asking?

A:        No.

[SMITH Depo, 52:11-25]

Q:        But my question to you is, when a customer gives you some type of expression of their desires and you don’t understand it or it’s not clear, is it your practice to inquire to clarify it?

A:        Yes.

[SMITH Depo, 54:11-18]

JANE DOE’s request was perfectly clear. She wanted to cancel the Sale Listing Agreement (and Lease Listing Agreement) and she was asking SMITH what the protocol was because she did not know. SMITH knew, or at the least reasonably should have known that JANE DOE did not understand the protocol. She told him so. However, if for whatever reason SMITH still “did not know what she was asking” as he claims, he had a fiduciary duty to inquire of JANE DOE and find out. He could not just “sit on his hands.” Indeed, as he testified, it was SMITH’s practice in such situations to “inquire to clarify.”

At arbitration, SMITH first testified that he explained the protocol to JANE DOE orally. Then he said, “well, I sent an email that enclosed the form. If SMITH did explain it orally, this would mean that he told JANE DOE something to the effect of, “the protocol is I need to agree to the cancellation of the Sale Listing Agreement, and I do not agree.” If SMITH had done this, JANE DOE would not have entered into another sale listing agreement during the listing period, and this arbitration would not be taking place. SMITH’s testimony has zero credibility. SMITH obviously never explained what the protocol was for cancellation of the Sale Listing Agreement. Given his knowledge that JANE DOE did not understand the protocol, SMITH’s failure to provide an explanation in response to JANE DOE’s specific request was a breach of his fiduciary duty. SMITH’s breach of fiduciary duty bars any recovery of commission under the Sale Listing Agreement.

                    B.  SMITH Knew the Cancellation of Listing Form, Presented as the “Proper Form” Pertained Only to the Lease Listing Agreement, and SMITH Had a Duty to Inform JANE DOE of this Fact

JANE DOE’s July 14, 2014 email was now the second time JANE DOE had asked to cancel the Sale Listing Agreement, SMITH admitting JANE DOE had requested its cancellation back on May 25, 2014. Yet, he knowingly prepared and sent JANE DOE a Cancellation of Listing form providing for cancellation of only the Lease Listing Agreement. SMITH knew from their 18-year relationship that JANE DOE did not scrutinize documents he presented to her for signature. Further, in this specific instance, SMITH knew JANE DOE was relying on him and that she did not know the formal procedure for cancelling their contracts, JANE DOE specifically telling him so.

A real estate agent has a fiduciary duty to act in the highest good faith and with the utmost care, avoid any unfair advantage, and disclose to their principal all facts within their knowledge that are material to matter in which they are employed. Wyatt v. Union Mort. Co. (1979) 24 C3d 773; Bate v. Marsteller (1959) 175 Cal.App.2d 573. If a fiduciary relationship exists, any concealment of material fact is fraud. Byrum v. Brand (1990) 219 Cal.App.3d 926, 937-938. SMITH knew the Cancellation of Listing form did not cancel the Sale Listing Agreement as requested by JANE DOE, and his fiduciary duty to JANE DOE required that he disclose this fact, particularly when presenting it to her for signature as the “proper form” in response to her request. SMITH’s failure to disclose this fact constituted constructive fraud in breach of his fiduciary duty to JANE DOE.   SMITH’s breach of fiduciary duty bars any recovery of commission under the Sale Listing Agreement.

                  C.  SMITH Had a Duty to Inform JANE DOE That He Did Not Agree to Cancel the Sale Listing Agreement

As discussed, this was now the second time JANE DOE had requested cancellation of the Sale Listing Agreement. SMITH still did not agree to cancel the Sale Listing Agreement and still he had a fiduciary duty to speak up and disclose this fact to JANE DOE. A real estate agent has a fiduciary duty to disclose to their principal all facts within their knowledge that are material to matter in which they are employed. Bate v. Marsteller (1959) 175 Cal.App.2d 573, 580-581. If a fiduciary relationship exists, any concealment of material fact is fraud. Byrum v. Brand (1990) 219 Cal.App.3d 926, 937-938. SMITH’s failure to disclose this fact constituted constructive fraud in breach of his fiduciary duty, and bars any recovery of commission under the Sale Listing Agreement.

                   D.  SMITH Had a Duty to Inform JANE DOE that the Sale Listing Agreement Was Still in Effect

SMITH executed the Cancellation of Listing form on July 15, 2014. From that point forward, JANE DOE believed the Sale Listing Agreement to be formally cancelled. SMITH knew or should have known that JANE DOE believed it was cancelled, JANE DOE having apologized back on May 25, 2014 for SMITH having “worked so long on this one and ended up with nothing…” [Exh. 47 and 102] Of course, SMITH knew that the Sale Listing Agreement was still in effect, yet he never disclosed this fact to JANE DOE. SMITH’s fiduciary duty required that he disclose this material fact to JANE DOE. Bate v. Marsteller (1959) 175 Cal.App.2d 573, 580-581. Further, SMITH deliberately led her to continue this false belief in his subsequent emails to JANE DOE with statements like: “Don SMITH is not allowed (as directly instructed by his client) to offer the opportunity to buy Hemley.” [Exh. 76 (SMITH 701)] Knowing that JANE DOE believed the Sale Listing Agreement to be cancelled, SMITH’s failure to disclose to her that it was actually still in effect constituted constructive fraud in breach of his fiduciary duty. SMITH’s breach of fiduciary duty bars any recovery of commission under the Sale Listing Agreement.

                    E.  SMITH’s Claim that JANE DOE Could No Longer Reasonably Rely on Him After Receiving the June 2, 2014 Letter from Pamela Anderson is Irrelevant and Unsupported By the Evidence

SMITH claims that despite being JANE DOE’s broker and fiduciary, she somehow could no longer reasonably rely on him after receiving a June 2, 2014 letter from Pamela Anderson [Exh. 118], an attorney for JANE DOE’s son, containing allegations on behalf of JANE DOE’s son that SMITH had violated the Business & Professions Code in separate dispute with SMITH

JANE DOE’s reliance is irrelevant with respect to SMITH’s constructive fraud. Estate of Gump (1991) 1 Cal.App.4th 582, 601 [reasonable reliance is presumed upon a nondisclosure of a fiduciary]. SMITH admits he was JANE DOE’s fiduciary at this time, and therefore, any one of SMITH’s multiple non-disclosures constituted constructive fraud in breach of his fiduciary duty, irrespective of the nature of her reliance.

Furthermore, JANE DOE entered into 2 more listing agreements with SMITH after receiving the June 2, 2014 letter. [Exh. 90] JANE DOE obviously continued to trust and rely on SMITH, and more importantly, SMITH knew she trusted and relied on him. SMITH’s reliance claim is irrelevant, and regardless, clearly unsupported by the evidence. Again, a completely illogical story late in the Arbitration to combat the evidence as it was mounting against SMITH.

   3.  Breach of Fiduciary Duty – July 26, 2014 to September 18, 2014

Though also egregious, all of SMITH’s conduct after July 26, 2014 could be placed aside. Regardless of whether SMITH owed a fiduciary duty after July 26, 2014, he clearly already breached his fiduciary duty to JANE DOE multiple times before. Any one of SMITH’s breaches of his fiduciary duty to JANE DOE bars any recovery of commission under the Sale Listing Agreement.

                    A.  SMITH Had a Duty to Inform JANE DOE that the Sale Listing Agreement Was Still in Effect

SMITH testified he was still JANE DOE’s broker after July 26, 2014. As read into evidence at arbitration, SMITH testified at his deposition:

Q:        And did you understand that, at least as of July 26^th, she was severing all ties with you?

A:        Yes.

***

Q:        Okay. Did you believe that you were still her broker in some capacity?

A:        Absolutely, yes.

[SMITH Depo, 45:11-46:6]

Q:        So you were still her broker from a technical standpoint in your mind?

A:        Well, yes.

[SMITH Depo, 130:15-131:7]

As JANE DOE’s broker, SMITH owed her a fiduciary duty. Wyatt v. Union Mort. Co. (1979) 24 C3d 773, 782; Warren v. Merrill (2006) 143 CA 4th 96, 109-111; Civ. Code §2079.16.

SMITH testified he last called JANE DOE on July 28, 2014, leaving a voicemail. He acknowledged that he did not inform JANE DOE that the Sale Listing Agreement was still in effect in this voicemail. When asked the reason for not getting in contact with JANE DOE after July 26, 2014, after a very long pause, SMITH answered that he had 5 months to sell it, and thus there was no need to rush and “remind her” of her contractual obligations. SMITH further testified that he didn’t believe her, that she might cool off, and that he might still get to sell the property. As her broker, regardless of his “hopes” to work on the relationship, SMITH had a fiduciary duty to inform JANE DOE that the Sale Listing Agreement was still in effect. In continuing to conceal this fact, he placed his interests in a commission above JANE DOE’s interests, constituting constructive fraud and breach of his fiduciary duty. SMITH’s breach of fiduciary duty bars any recovery of commission under the Sale Listing Agreement.

SMITH learned of JANE DOE’s listing of the Property for sale with Villa Real Estate on September 2, 2014, SMITH receiving an activity alert from the MLS.   However, upon learning of the listing, he admits he did not email JANE DOE, her assistant or her brokers, and did nothing at all to contact Villa Real Estate. SMITH knew that if he contacted JANE DOE or Villa Real Estate on September 2, 2014, JANE DOE would simply wait out the listing period of the Sale Listing Agreement, ending SMITH’s possibility of a commission. SMITH had a fiduciary duty to act with the highest good faith, obtain no advantage over his client, and disclose any and all facts within his knowledge related to the matter. If a fiduciary relationship exists, any concealment of material fact is fraud. Byrum v. Brand (1990) 219 Cal.App.3d 926, 937-938. SMITH breached this duty, engaging in constructive fraud by failing to inform JANE DOE that the Sale Listing Agreement was still in effect, placing his own interests in commission above JANE DOE’s interest.

                      B.  SMITH Had a Duty to Inform JANE DOE that She Could Be Faced With Paying the Same Commission Twice

SMITH knew as of September 2, 2014 that JANE DOE could be faced with paying the same commission to 2 different brokers. As read into evidence at arbitration, SMITH testified at his deposition:

Q:        You knew as of September 2nd, 2014 that your client, Mrs. JANE DOE, was in a situation where she could be paying the same commission to two different brokerage firms; correct?

***

A:        She’s an expert in the contract. She knows exactly what the contract says. I don’t have to tell her again.

Q:        Can I have the question read back, please.

(Record read back by the court reporter.)

A:        Yes.

[SMITH Depo, 133:4-15]

At arbitration, SMITH testified he did not inform JANE DOE that she could pay 2 commissions because he claimed she already knew. Then, just prior to closing arguments, SMITH changed his deposition testimony, changing his answer to the foregoing question from “yes” to “no.” SMITH then signed his transcript, again, under penalty of perjury. SMITH against resorts to providing false testimony. SMITH knew the Sale Listing Agreement was not cancelled. He knew JANE DOE had entered into another sale listing agreement. SMITH is a broker. Regardless of his attempt to change his deposition testimony, SMITH clearly knew JANE DOE was in a situation where she could pay the same commission twice.

SMITH could have easily avoided any risk of JANE DOE paying the same commission twice. Instead, SMITH acted in his own self-interest and failed to disclose this possibility to JANE DOE and continued to conceal the fact that the Sale Listing Agreement had not been formally cancelled. As JANE DOE’s broker, SMITH had a duty to act with the highest good faith, obtain no advantage over his client, and disclose any and all facts within his knowledge related to the matter. By failing to disclose and concealing the foregoing facts, SMITH acted dishonestly, placing his interests in a commission above JANE DOE’s interest, constituting constructive fraud and a breach of SMITH’s fiduciary duty. SMITH’s breach of fiduciary duty bars any recovery of commission under the Sale Listing Agreement.

AFFIRMATIVE DEFENSE – EQUITABLE ESTOPPEL

The doctrine of estoppel is codified in Evidence Code section 623, which states:

“When a party has, by his own statement or conduct, intentionally and deliberately led another to believe a particular thing true and to act upon such belief, he is not, in any litigation arising out of such statement or conduct, permitted to contradict it.”

Four elements must ordinarily be proved to establish an equitable estoppel: (1) the party to be estopped must know the facts, (2) he must intend that his conduct shall be acted upon, or must so act that the party asserting the estoppel had the right to believe that it was so intended, (3) the party asserting the estoppel must be ignorant of the true state of the facts, and (4) he must rely upon the conduct to his injury. DRG/Beverly Hills, Ltd. v. Chopstix Dim Sum Café & Takeout III, Ltd. (1994) 30 Cal.App.4th 54, 59; Insurance Co. of the West v. Haralambos Beverage Co. (1987) 195 Cal.App.3d 1308, 1321.

An estoppel may arise from silence where there is a duty to speak. Spray, Gould & Bowers v. Associated Internat. Ins. Co. (1999) 71 Cal.App.4th 1260, 1268. An estoppel from silence exists where a party with a duty to speak has an opportunity to do so, yet remains silent knowing that the circumstances require him to speak. Id. As discussed above, as fiduciaries of their clients, real estate agents are required to act with the highest good faith, and have a duty to disclose all facts within their knowledge that are material to the matter in which they are employed. Wyatt v. Union Mort. Co. (1979) 24 C3d 773, 782; Bate v. Marsteller (1959) 175 Cal.App.2d 573, 580-581.

SMITH knew that the Sale Listing Agreement had not been formally cancelled, SMITH providing JANE DOE with a cancellation of the Lease Listing Agreement only. SMITH knew that JANE DOE was relying on him and that she did not know the formal procedure for cancelling their contracts, JANE DOE specifically telling SMITH that she did “not know the protocol on this.” SMITH presented the Cancellation of Listing form as the “proper form” to cancel both their contracts, never disclosing in breach of his fiduciary duty that the Sale Listing Agreement was still in effect, and deliberately leading JANE DOE to continue believing that it was cancelled in his subsequent emails to JANE DOE with statements like: “Don SMITH is not allowed (as directly instructed by his client) to offer the opportunity to buy Hemley.”

As her broker from more than 18 years, JANE DOE placed the utmost trust and confidence in SMITH, and believed that the Sale Listing Agreement had been formally cancelled on July 15, 2014. Having no reason to doubt SMITH’s guidance, and thus ignorant of the truth, JANE DOE entered into a listing agreement with Villa Real Estate, ultimately selling the Property and paying commission. Had JANE DOE known the Sale Listing Agreement with SMITH had not been formally cancelled, JANE DOE never would have taken said actions.

The evidence established all of the elements of an affirmative defense of equitable estoppel. SMITH is estopped from claiming that the Sale Listing Agreement was not cancelled, and that he is entitled to any commission under its terms.

AFFIRMATIVE DEFENSE – WAIVER

Waiver is the intentional relinquishment of a known right after knowledge of the facts. Roesch v. De Mota (1944) 24 Cal.2d 563, 572; A.B.C. Distrib. Co. v. Distillers Distrib. Corp. (1957) 154 Cal.App.2d 175, 187 [aggrieved party may waive a breach of contract]. Waiver does not require the actual subjective intent to waive a given right, but rather may be implied through conduct manifesting an intention to waive. Gould v. Corinthian Colleges, Inc. (2011) 192 Cal.App.4th 1176, 1179; Rubin v. Los Angeles Fed. Sav. & Loan Ass’n. (1984) 159 Cal.App.3d 292, 298. Although silence or inaction does not ordinarily amount to consent, it may be taken as consent where the silent party had a duty to speak. Wold v. League of Cross of Archdiocese of San Francisco (1931) 114 Cal.App.474.

When JANE DOE first requested SMITH cancel the Sale Listing Agreement on May 25, 2014, SMITH replied, “OK.” Thereafter, SMITH’s conduct upon presenting the Cancellation of Listing form to JANE DOE indicated that he consented to cancellation of both the Sale Listing Agreement and the Lease Listing Agreement. If SMITH did not agree with cancellation of the Sale Listing Agreement (and was not going to do so) he had a fiduciary duty to disclose this to JANE DOE. When JANE DOE told SMITH that he was no longer her broker, SMITH did not correct JANE DOE or inform her that the Sale Listing Agreement was still in effect. Even after learning of JANE DOE’s listing of the Property for sale with Villa Real Estate, SMITH made no effort to contact either JANE DOE or her agents at Villa Real Estate to inquire about the new listing or advise them of his Sale Listing Agreement with JANE DOE.

SMITH’s conduct can only be interpreted as manifesting the intent to waive any rights under the Sale Listing Agreement, and an implied consent to its cancellation. SMITH’s waiver is a complete bar to Plaintiff’s breach of contract claim.

AFFIRMATIVE DEFENSE – MISTAKE OF FACT

A unilateral mistake of fact occurs when only one party understands the facts to be other than they really are. M.F. Kemper Constr. Co. v. City of Los Angeles (1951) 37 Cal.2d 696, 701. A contract is void, or are may be avoided, on the ground of a unilateral mistake if the non-mistaken party knew or had reason to know of the mistake and obtained an advantage from it. Id; Civ. Code §1689(b)(1); Harris v. Rudin, Richman & Appel (2002) 95 Cal.App.4th 1332, 1339; Balisteri v. Nevada Livestock Production Credit Assn. (1989) 214 Cal.App.3d 635, 640-644.

Here, JANE DOE mistakenly believed that the Sale Listing Agreement was formally cancelled upon the parties’ signing of the Cancellation of Listing form, JANE DOE unaware that the form provided for cancellation of the Lease Listing Agreement only. SMITH clearly knew that the Sale Listing Agreement had not been formally cancelled, SMITH having prepared the Cancellation of Listing form. SMITH knew that JANE DOE was relying on him and that she did not know the formal procedure for cancelling their contracts, JANE DOE specifically telling SMITH that she did “not know the protocol on this.”

SMITH knew of JANE DOE’s mistake of fact, ] JANE DOE having apologized back on May 25, 2014 for SMITH having “worked so long on this one and ended up with nothing…” [Exh. 47 and 102], and JANE DOE never raising the issue again after the parties signed the Cancellation of Listing form. At the latest, SMITH knew or had reason to know of JANE DOE’s mistake on September 2, 2014, when SMITH learned of JANE DOE’s listing of the Property with Villa Real Estate. With knowledge of JANE DOE’s mistake, SMITH failed to disclose that the Sale Listing Agreement had not been formally cancelled, in order to take advantage of JANE DOE’s mistake and assert a commission arising from the subsequent sale of the Property.

The evidence established all of the elements of an affirmative defense for unilateral mistake of fact.

SMITH FAILED TO MITIGATE DAMAGES

A plaintiff has a duty to mitigate his or her damages and “will not be able to recover for any losses which could have been thus avoided.” Shaffer v. Debbas (1993) 17 Cal.App.4th 33, 41; Mayes v. Sturdy Northern Sales, Inc. (1979) 91 Cal.App.3d 69, 85 [a plaintiff may not recover for damages avoidable through ordinary care and reasonable exertion].

SMITH learned of JANE DOE’s listing of the Property for sale with Villa Real Estate, upon receiving an alert from the MLS on September 2, 2014, sixteen days before JANE DOE accepted the offer to purchase the Property. Had SMITH, consistent with his fiduciary duty, disclosed that his Residential Listing Agreement with JANE DOE had not been formally cancelled, JANE DOE would have insisted it be cancelled immediately (or would not have proceeded with the sale until it had been cancelled), and ending any possibility of SMITH’s commission. SMITH failed to mitigate his damages, all of his alleged damages having been completely preventable.

EVEN ASSUMING SMITH WERE ENTITLED TO A COMMISSION, HE WOULD BE ENTITLED TO 2%, NOT 4.5 OF THE SALE PRICE

SMITH alleges damages in the amount of $97,200, which he calculates as 4.5% of the $2,160,000 sale price. SMITH disregards the 2.5% commission that would have been paid (and in this case was paid) to the selling broker (buyer’s broker) from the listing broker’s commission upon the sale pursuant to the terms of the Sale Listing Agreement [Paragraph 4(D)(1)] and any Residential Purchase Agreement [p.8, cooperating broker commission]. Thus, at best, SMITH would be entitled to a commission of $43,200 (2% of the sale price).

The only scenario in which SMITH could be entitled to the full 4.5% commission would be if he represented both JANE DOE and the buyer in the transaction. There was evidence that in 18 years, SMITH never represented both sides of a sales transaction with JANE DOE, and thus, always sharing his commission with a cooperating broker (and receiving 2 – 2.5%). There was no evidence to the contrary. Further, there was evidence that in this transaction, pursuant to the terms of the residential listing agreement with Villa Real Estate and Residential Purchase Agreement, JANE DOE paid a commission of 4.5%, of which $43,200 (2%) was paid to Villa Real Estate and $54,000 (2.5%) was paid to the selling broker Re/Max Terra Sol. [Exh. 114]

As discussed, due to his breach of fiduciary duty, SMITH has forfeited any commission under the Residential Listing Agreement. However, even assuming, arguendo, that SMITH were entitled to a commission, at best he would be entitled to 2%, not 4.5%, of the sale price ($43,200). It would be unconscionable for JANE DOE to be forced to pay the commission twice.

SMITH’S QUANTUM MERUIT CLAIM

SMITH claims that he is entitled to recovery of the reasonable value of the services rendered to JANE DOE under a quantum merit theory, SMITH alleging the reasonable value of said services is $97,200 (4.5% of the $2,160,000 purchase price).

1. SMITH’s Quantum Meruit Claim Fails Entirely

A plaintiff has the burden to prove the value of the services performed in support of a quantum meruit claim. Hocker v. Glover (1931) 113 Cal.App.152, 157. The Sale Listing Agreement provides an amount of a commission to be paid by JANE DOE upon SMITH’s procuring of a sale of the Property. The Residential Listig Agreement is not evidence of the reasonable value of any services rendered by SMITH to JANE DOE. Moreover, while SMITH may have provided services to JANE DOE as a broker, SMITH presented no evidence that these services procured the ultimate sale of the Property. A plaintiff cannot recover the reasonable value of services if there is no evidence of their value. Hocker v. Glover (1931) 113 Cal.App.152, 156. SMITH failed to present any evidence of the reasonable value of any services rendered. SMITH’s quantum meruit claim is subject to nonsuit.

      2.  Affirmative Defense – Unclean Hands

A plaintiff’s claim to recover under a quantum meruit theory is governed by principles of equity. Mains v. City Title Ins. Co. (1949) 34 Cal.2d 580, 586. In accordance with the maxim that no one can take advantage of his or her own wrong, those who seek the aid of equity must come into court in good faith. Samuelson v. Ingraham (1969) 272 Cal.App.2d 804. Any unconscionable conduct that relates to the transaction may give rise to the defense of unclean hands and bar relief. Id; Aguayo v. Amaro (2013) 213 Cal.App.4 1102, 1110 [any conduct that violates conscience, good faith or other equitable standards of conduct is sufficient to invoke the doctrine of unclean hands].

SMITH owed JANE DOE a fiduciary duty in all of his dealings with JANE DOE. As JANE DOE’s fiduciary, SMITH had a duty to act with the highest good faith, obtain no advantage over his client, and disclose any and all facts within his knowledge related to the matter. As discussed above, SMITH breached this fiduciary duty, by acting dishonestly, failing to disclose and concealing material facts constituting constructive fraud, and placing his own interests in a commission above JANE DOE’s interests. In addition to affirmative defenses for equitable estoppel, waiver and mistake of fact as set forth above, SMITH’s quantum meruit claim is barred under the doctrine of unclean hands.

CONCLUSION

Defendant JANE DOE respectfully submits this Arbitration Closing Brief.

DATED: August 28, 2015                                    BROWN & CHARBONNEAU, LLP

By:___________________________________

GREGORY G. BROWN

[1] As the Arbitrator will recall, over the 2 days of testimony, defendant read into evidence 3 separate portions of SMITH’s deposition testimony wherein he was specifically asked if JANE DOE requested he cancel the Sale Listing Agreement. Each time, SMITH answered, without qualification, “Yes.” However, on the eve of closing arguments, and despite having signed his deposition transcript under penalty of perjury, SMITH conveniently “realized something was wrong,” and proceeded to change all his answers to this question to, “No.” Having a willingness to provide false testimony in this case whenever it suits him, SMITH has shown a total lack of credibility on this issue and his testimony simply cannot be believed.