Victory for Ohio’s Brokers! Ohio Supreme Court overturns vicarious liability ruling

Ohio’s brokers scored a huge win last week when the Ohio Supreme Court reversed an appellate Court decision that made brokers liable as a matter of law for the fraudulent acts of affiliated agents, regardless of whether an agent was acting contrary to the broker’s polices and engaged in such behavior without the broker’s knowledge. In overturning the Court of Appeals, the Supreme Court reaffirmed that under Ohio law the agent must be found to have been acting within the scope of his authority and that this is a question of fact for a jury to decide.

Here’s the history of the case:

A Dayton agent sold several investment properties to an out of state client, becoming partners with the client on some of them. Unbeknownst to her broker, the agent convinced her client that she would handle the rehab, leasing and management of the properties through separate companies she owned. The investor sent the agent approximately $430,000 for this purpose, but the agent never rehabbed or leased the properties. When the investor figured out what was going on, she sued both the agent and broker on several counts, including fraudulent inducement and misrepresentation.

At the conclusion of the trial, the judge instructed the jury that if it found the agent had engaged in fraud, it must find the broker liable. Therefore, the jury was not able to consider whether the broker  knew of the agent’s wrongful conduct or to make a determination as to whether the agent was acting within the scope of her authority. As a result, because the jury found that the agent engaged in fraud, it was forced to find the broker liable as well. (It is noteworthy to mention that not only did the jury question the judge’s instruction during deliberations, but a jury member contacted the broker after the trial and told him that they did not want to find the brokerage liable but had no choice because of this instruction.)

On appeal the broker’s attorney argued that under existing Ohio law the jury should have been instructed to find the broker liable if it found — based on all of the evidence — that the agent was acting within the scope of her duties. Unfortunately the Court of Appeals rejected this argument, ruling that only two facts are relevant: whether the agent’s conduct was done in the name of the broker and whether the broker collected a commission. If those two facts are established, the court held, an agent’s actions are within the scope of the agent’s duties, as a matter of law and therefor the broker is vicariously liable for the acts of the agent. This meant that a jury could not consider any other evidence including evidence that the agent had acted contrary to the broker’s instructions and policies, and that the broker had no knowledge of the agent’s conduct.

The Ohio Supreme Court agreed to review this decision last year. Because of the significance of this case for all Ohio brokers, both OAR and NAR, through their Legal Action Committees, filed briefs in support the broker’s position. In reversing the Court of Appeals decision, the Supreme Court held that the mere fact that the agent acted in the broker’s name and that the broker received a commission is not enough to attach liability to the broker for the acts of an agent. Instead the agent must have been acting within the scope of his/her authority, which the Court said “turns on a multitude of considerations and fact-specific inquiries.” Further, the court held that in cases of intentional wrongdoing such as occurred in this case, a broker can only be found liable for the agent’s actions if the jury finds that the agent engaged in such fraudulent conduct in at least part with the intent to facilitate or promote  the broker’s business.

Because the trial judge did not properly instruct the jury regarding the broker’s liability the Supreme Court remanded the case back to the trial court to determine if this agent was acting within the scope of her duties based on all of the facts of this case and to also determine if the evidence demonstrates that her intent in engaging  in such fraudulent behavior was to further the broker’s business, not just her own.

So although this case isn’t completely over for this broker, Ohio brokers statewide can breathe a sigh of relief, knowing that the mere fact that a commission — no matter how small — was collected by the brokerage, that they aren’t going to be automatically liable when their agent engages in wrongdoing. As broker Rob Ward from Ashland, who serves on the OAR Legal Action Committee stated,  “In my opinion this is one of the most important wins for brokers and OAR in past years that I can remember. This had the potential to negatively change the landscape for lawsuits on brokerages forever.”

OAR wishes to acknowledge the excellent legal work done by the broker’s attorney in this case, Thomas Pyper of Pyper and  Nordstrom, and OAR legal counsel at Baker and Hostetler, Jack Burtch and  Robert Tucker, as well as NAR counsel.

To read the Supreme Court’s decision click here.

By Peg Ritenour, OAR Vice President of Legal Services/Administration

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