Rhode Island real estate transactions often involve several parties in addition to a buyer and seller. Both the buyer and seller frequently use real estate agents, who, in turn, may be associated with brokerage firms to affect the transaction. Although real estate agents generally owe a fiduciary duty to their clients to act in good faith during transactions, a recent decision by the Rhode Island Supreme Court demonstrates that a brokerage firm associating with the agent may not owe any duty to a client in the event the agent acts in bad faith.
The plaintiff in the recently decided case is a real estate investor from Australia, who hired a real estate agent to assist him in purchasing and managing investment properties in Rhode Island. The agent he hired was associated with a real estate firm that is the defendant in this appeal. In the course of her dealings with the plaintiff, the agent allegedly mismanaged the plaintiff’s assets and properties by securing multiple mortgages on a property without the consent of the plaintiff, and using the money from the mortgages for her own purposes, essentially defrauding the plaintiff of equity in his real estate.
After discovering the actions of the agent, the plaintiff filed a lawsuit in Rhode Island district court against the agent and the brokerage firm and sought damages, alleging that both defendants violated their fiduciary duty to handle his assets in good faith. The plaintiff claimed to rely on the relationship between the agent and the brokerage firm in making a decision to trust the agent to handle his investments. The brokerage firm responded to the allegations by claiming that the agent was an independent contractor of the agency, and that the agency did not owe any duty to the plaintiff or bear any responsibility for the agent’s wrong actions. The district court agreed with the agency’s arguments, finding that the agent’s alleged wrongdoing did not benefit the defendant, and that they owed no special duty to the plaintiff to supervise the agent or prevent any fraudulent actions.