RPLS - Real Property Law Section E-Bulletin

Court Rejects Two Year Statute of Limitations Defense by Residential Real Estate Broker

By Randy Sullivan

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Recently the Court of Appeals denied application of a two year statute of limitations against a residential real estate broker and agent.  The case of William L. Lyon & Associates, Inc. v. Superior Court 204 Cal.App.4th 1294 (2012), involved a real estate agent attempting to rely on a two year statute of limitation defense through a motion for summary judgment.  The defense alleged that a two year statute applied by way of statute and contract, and that the contract statute of limitations also governed the tort claims.

The action was brought by a buyer of residential property against the seller and the dual agent and broker.  The Buyer closed escrow on May 9, 2006.  Just short of three years later, the first amended complaint was filed on May 8, 2009.  It was in the first amended complaint that the broker and agent (collectively Dual Agent) were named as defendants for the first time.  Buyer alleged that the Seller and Dual Agent failed to disclose water intrusion issues, including effloresence, bubbling, blistering, and cracking of the stucco and paint on the house. Buyer further alleged that those issues were covered up with dark brown paint, and that it was when they received photographs from the Seller of photographs used in the virtual tour that they learned that the Dual Agent should have disclosed the cover up of the effloresence.  This was allegedly seen through blow ups of the photographs.

In defense of Buyer’s complaint, the Dual Agent alleged that a statute and contract provided a two year statute of limitations, and that the two year statute governed all of Buyer’s claims.  At issue with respect to Buyer’s claims were: (1) whether Civil Code Section 2079.4 and its two year statute of limitations applied; (2) whether a contractual two year statute of limitations could be enforced; (3) whether delayed discovery applied; (4) whether the contract’s statute of limitations applied to the tort claims; and (5) the applicable statute of limitations for the breach of fiduciary duty claim.

The Court first rejected the position that the two year statute of limitations under C.C. § 2079.4 applied.  The Dual Agent alleged that the statute applied, because it was representing the buyer and the seller, and the statute provides for a two year statute for an agent representing a seller.  The Court, however, swiftly and with little discussion rejected the argument pointing out that it was the Buyer that filed the lawsuit.  The Court denied the argument that the dual agent role of the agent granted it a shorter statute of limitations.   In fact, in the opening remark of the decision, the Court cautioned that this lawsuit “illustrates the perils” of acting as a dual agent.

Next, the Court addressed the question whether the two year statute of limitations clause in the contract was enforceable.  While the Court found that the parties can agree to shorter statutes of limitations, it found that there was a triable issue as to whether this was a secret breach.  The Buyers alleged that they did not find out that the Seller repainted the conditions to cover up the water intrusion issues while the agent was present, until January 2008.  Because the Dual Agent’s alleged failure to perform its duties was not an overt failure or express repudiation, the Court ruled that for purposes of summary judgment, the delayed discovery doctrine could apply.

Additionally, the Court ruled that the tort claims were not governed by the contractual two year statute of limitations, because the claims by the Buyers were based on a common law fiduciary duty owed by the Dual Agent. The negligent and negligent misrepresentation claims were reasonably filed within two years of the discovery of the claim.

The Court briefly addressed the statute of limitations for a breach of fiduciary duty claim.  However, the Court did not add clarity by providing a bright line rule for the statute of limitations against a broker/agent.  The Court first stated that the claim is not a creature of contract, so the two year agreed statute of limitation does not apply.  That much is clear about the Court’s decision based on these circumstances.  The Court then stated that if the gravamen of the action were fraud then it was a 3 year statute, but if not then it would be four years.  Because the complaint was filed within 3 years, the Court did not analyze which statute should apply, but merely concluded the action was timely.

With respect to Seller’s cross-complaint, the Dual Agent argued that it was a disguised indemnity claim, and/or sought derivative damages.  The Court denied the argument, stating the Seller’s claims were based on the Dual Agent’s duties owed to the Seller.  The Dual Agent did not allege that the claims were barred by the statute of limitations, or Civil Code § 2079.4.  Such a defense would clearly have been stronger against the Seller.  As discussed above, the two year statute of limitations for claims against an agent applies to claims by a seller and not the buyer.

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