Oleg Rivkin v. Century 21 Teran Realty, LLC, et al.

The United States Court of Appeals for the Second
Circuit has certified a question that calls upon us to explore
the scope of the fiduciary duty owed by buyer's agents affiliated
with a real estate brokerage firm when their principals bid on
the same property. We begin with the facts, which are
substantially undisputed.

I.

On May 24 or 25, 2004, Oleg Rivkin, a New Jersey
resident who was in the market for a summer home on Ulster
Heights Lake in Ulster County, contacted Century 21 Teran Realty,
LLC, a real estate brokerage firm located in Woodstock, New York.
Teran is co-owned by Andrew Peck and Chloe Dresser, who are both
licensed real estate brokers (see Real Property Law § 440[1]).

Teran also possesses a broker's license, which allows it to
receive commissions in connection with the purchase and sale of
real estate (see id.; § 440-a). At the time, sixteen
salespersons and four associate brokers worked under Teran's
aegis (see Real Property Law § 440[2],[3]; § 440-a).

Rivkin spoke with Joshua Luborsky, one of Teran's
associate brokers, who told him about lakeside property at 103
Camp Road in Ellenville, which was listed for sale by another
Century 21 franchise for $100,000. Details and pictures of the
property posted by the local multiple listing service were
forwarded to Rivkin by email. The listing indicated that "all
reasonable offers" for this modest cottage on one acre, which
"[sat] right on the lake," should be presented.

On May 25, 2004, Rivkin directed Luborsky to convey a
verbal offer to the listing broker (the seller's agent) to
purchase the Camp Road property for $75,000, and Luborsky
promptly did so. According to Rivkin, until he actually saw the
property, he "couldn't commit to . . . a contract[,] but at the
same time [he] was very concerned that somebody was going to beat
[him] out of [the property]." He authorized the verbal offer "to
keep [his] spot" so that he would not find himself "out of the
loop." Luborsky and Rivkin also arranged to meet at the site on
May 28, 2004, the Friday before the impending Memorial Day
holiday weekend, so that Rivkin might look at the property, with
the expectation that he would make a written offer if it proved
to be as suitable as he believed it to be.

Upon actually viewing the Camp Road property, Rivkin
formed the opinion that "[t]he building . . . was fairly
worthless" and "dilapidated [and] needed to be knocked down"; and
that the "value was entirely in the land [which was] fantastic."
As he later put it, this property "seemed to fit [his]
requirements in every respect."

Rivkin knew that the Camp Road property "had only been
on the market . . . a couple of weeks," but he quizzed Luborsky
about "whether there had been other offers on the property."
According to Rivkin, Luborsky replied that there had been other
offers and, although he was "not aware of the amounts[,] . . .
they were low enough not to have resulted in any counteroffers by
the sellers." Rivkin asked Luborsky if he considered $75,000 to
be "a fair offer," and Luborsky indicated that it was, and that a
counteroffer was likely. Rivkin agreed with Luborsky's
assessment because "[i]n [his] experience there [was] always an
offer and counteroffer process." Further, he claims to have told
Luborsky that he "was willing to go up to the asking price
without any doubt," because "[a]s far as [he] was concerned[,]
the land was worth it."

Rivkin then signed a written binder, offering to
purchase the Camp Road property for $75,000, which Luborsky
forwarded to the listing broker that same day, May 28, 2004.

Rivkin also wrote a check to Teran for $1,500 as a deposit, and
signed an acknowledgment that he had received, read and
understood a form document entitled "Disclosure Regarding Real
Estate Agency Relationship" provided to him by Luborsky. This
document, mandated by and conforming to the requirements of
article 12-A of the Real Property Law, states that the "buyer's
agent acts solely on behalf of the buyer" and has "without
limitation, the following fiduciary duties to the buyer:
reasonable care, undivided loyalty, confidentiality, full
disclosure, obedience and a duty to account" (see also former
Real Property Law § 443[4]).

As it turns out, on May 20, 2004, a few days before
Rivkin first talked to Luborsky, Susanne and Robert Martin, who
were looking to buy vacation or retirement property in Ulster
County, had contacted Dresser, the co-owner of Teran. She told
them about the Camp Road property, and they scheduled an
appointment to meet at the site for an inspection. When Dresser
called the listing broker on May 28, 2004 to arrange for this
viewing, the listing broker let her know that there was an offer
pending (presumably, Rivkin's), and that there might be several
other showings over the holiday weekend. Upon seeing the Camp
Road property, the Martins decided to offer $100,000, the listing
price. On Sunday, May 30, 2004, they signed a written binder for
that amount. Dresser promptly called the listing broker to
advise her of this offer, and forwarded the written binder.

Luborsky contacted the listing broker on Saturday, May
29, 2004 to make sure that she had received Rivkin's written
binder faxed the previous day. The listing broker confirmed that
she had, but "would likely have trouble reaching" the sellers
because they were traveling over the holiday weekend. As a
result, she told Luborsky not to expect a response to Rivkin's
offer any sooner than the following Tuesday, June 1, 2004, and
that the property "might be shown to others over the weekend."

Rivkin says that he called Luborsky on Sunday, May 30 and
Monday, May 31 (Memorial Day), 2004 to inquire about the status
of his offer. Luborsky claims to have told him everything that
he had learned in his Saturday conversation with the listing
broker, and Rivkin acknowledges at least that "at some point . .
. [Luborsky] told [him] that the property had been shown over the
weekend."

According to Rivkin, on June 1, 2004 Luborsky told him
that he had learned from the listing broker that offers had been
received for the Camp Road property over the weekend, but that he
did not know the particulars. Rivkin maintains that he reminded
Luborsky that he wanted the opportunity to raise his $75,000
offer, and was prepared to do so; and that Luborsky assured him
that he would try to find out from the listing broker whether the
sellers were prepared to make a counteroffer, or wanted to
receive "highest and best" final offers from all prospective
purchasers.

At 4:57 PM on June 1, 2004, Rivkin sent Luborsky the
following email:

"What have you heard from the sellers' agent? Anything? I
don't quite understand why it is taking so long to get a
response from them. If they have changed their mind or
don't want to entertain the offer, I would like to know now,
so that I could make an offer on another property."

Sometime late in the afternoon or early evening, Luborsky picked
up a voice-mail message from the listing broker, who informed him
that the sellers had accepted another offer, and so his client
was "out of the running." When Luborsky reported this to Rivkin,
they commiserated about the loss and wondered why the sellers had
not solicited a "highest and best" offer. According to Rivkin,
Luborsky expressed the notion that the listing broker had "acted
inappropriately" by steering the sale to one of its own clients.

At about 11:00 PM on June 1, 2004, Rivkin telephoned
Carol Botnick, one of the sellers, to make sure that the listing
broker had conveyed his $75,000 offer. Botnick, who co-owned the
Camp Road property with her brother-in-law, Seymour Kraver,
confirmed that she had received Rivkin's offer. When he asked
her why there was no counteroffer, she replied that she "had a
better offer" and that Rivkin's offer "was too low," but she
would not tell him what the better offer was. When he asked
"what [it] would . . . take" for him to acquire the property,
she told him to deal with the listing broker, and not to call her
again. Despite this rebuff, Rivkin next telephoned Kraver at
about 11:15 PM, telling him that he "really like[d] the property,
. . . how much the property meant to [him], how much the lake
meant to [him]." Kraver shrugged Rivkin off, telling him that
the decision was "basically" Botnick's to make.

Rivkin claims to have talked to the listing broker at
some point on June 2, 2004, and to have learned from her that the
sellers had received a full-price offer, which they had accepted
orally. According to Rivkin, she made the following statement:

"I don't know if I should be telling you this, but . . . the
full-price offer came from your broker's office." Rivkin also
says that he confronted Luborsky with this information on June 2,
2004, before instructing him to present an offer of $101,000 to
the sellers, contingent only upon a water well inspection. He
sent Luborsky an email confirming this offer at 2:13 PM. That
same day, the listing broker informed Dresser that the sellers
had verbally accepted the Martins' $100,000 offer, and let
Luborsky know that the sellers had rejected Rivkin's $101,000
offer.

After Luborsky informed Rivkin that his $101,000 offer
had been turned down and -- "for the first time" -- that the
offer with which he was competing was contingency-free, Rivkin
responded by email at 7:32 PM, instructing Luborsky to make an
offer of $105,000, with no contingencies. Immediately
thereafter, Rivkin telephoned Kraver to make the $105,000 offer
personally. Kraver told Rivkin that he would consider it, but
again left him with the impression that the decision was his
sister-in-law's.

On June 3, 2004, Rivkin contacted the listing broker
directly to confirm the $105,000 offer, which the sellers
ultimately turned down. He professes to have learned from the
listing broker that Dresser was the buyer's agent for the
successful purchaser, although the listing broker would not
reveal the purchaser's identity. In an email sent to Luborsky at
9:39 PM, Rivkin terminated his relationship with Teran, and asked
for his deposit to be returned. He told Luborsky that he had
just spoken to Kraver, "who did not give [him] any explanation"
for rejecting the $105,000 offer, and that he was "frankly quite
puzzled and not a little disappointed by all of this." He
expressed his suspicion, however, that Peck (who co-owned Teran
with Dresser) was the buyer.

On June 3, 2004, Rivkin's attorneys wrote to Peck,
describing what they characterized as the "rather disturbing
sequence of events [that] has transpired . . ., demonstrating a
blatant breach by [Teran] of its fiduciary duty to . . . Rivkin,
as well as actions evidencing [Teran's] egregious conflict of
interest and self-dealing." Rifkin's attorneys threatened
litigation. On June 6, 2004, Rivkin wrote to the listing broker
to ask for certain documents. He complained that his "offer was
trumped by a full-price, no contingency offer from one of Teran's
principals, in violation of their fiduciary duty to me."

Teran had no system in place for tracking whether its
buyer's agents were representing multiple buyers bidding on the
same property. According to Dresser, until Peck received the
June 3rd letter from Rivkin's attorneys, she had no idea that
Luborsky had made a competing offer for the Camp Road property.

Peck was similarly unaware that Luborsky and Dresser were
representing different buyers bidding on the Camp Road property,
although he stressed that "[i]t is common practice in New York
for buyer's-agents associated with a particular agency to assist
a buyer-client in purchasing a property, while another buyer'sagent
associated with the same agency is doing the same thing."

Later in June 2004, Rivkin brought this suit against
Teran, Peck, Dresser and Luborsky (collectively, "defendants") in
the United States District Court for the Northern District of New
York, seeking damages stemming from the loss of the Camp Road
property, and, as relevant to the certified question, asserting a
claim for breach of fiduciary duty. After discovery, Rivkin
moved for partial summary judgment on the issue of liability, and
defendants moved for summary judgment dismissing the complaint.

On November 17, 2005, the District Court Judge granted
defendants' motion and dismissed the case in an oral decision.
By this time, Rivkin knew that the Martins1 -- not Peck -- had
purchased the Camp Road property. As the Judge analyzed Rivkin's
revised theory of the case, "the gist of the legal issue" was
whether or not there was "a per se rule that under circumstances
like this, two employees of the same agency cannot, absent full
disclosure, represent competing buyers for a piece of property."

Observing that "there [was] not a single case in New York on
these facts that has held that kind of conduct in the real estate
industry violates the law," he "decline[d] to so hold." He also
considered it to be

"probably unnecessary . . . to even reach that issue,
because on the facts, as everybody concedes them, there
simply is no basis whatsoever to associate the harm in the
representation from Luborsky to the harm to [Rivkin] from
losing the property. They were all avenues available had
the sellers of the property wanted to . . . sell him the
property at the price he was willing to pay."

Rivkin appealed to the Second Circuit. Concluding that
the case "turn[ed] on an unsettled question of state law for
which there [was] no direct precedent," the Court stated that
"[t]he issues . . . concern the nature and extent of a
buyer's agent's obligation to avoid or mitigate conflicts of
interest among its principals. It is clear that buyer's
agents owe various fiduciary duties to their clients under
New York's property law.

". . . Although in [Dubbs v Stribling, 96 NY2d 337
(2001)] the New York Court of Appeals made the general
statement that it is well settled that a real estate broker
is a fiduciary with a duty of loyalty and an obligation to
act in the best interests of the principal, Dubbs addressed
the duties of seller's agents rather than buyer's agents.

"Indeed, it appears that no New York case deals with a
buyer's -- rather than a seller's -- agent's duties. The
real estate marketplace may, for various reasons, dictate
different duties for these two kinds of agents. In
addition, even if we were to presume that sellers' and
buyers' agents owe identical fiduciary duties, the facts of
the New York cases that deal with sellers' agents' duties
are materially different from those here: Dubbs, for
example, involved allegations of an improper personal stake
in the transaction, and Sonnenschein [v Douglas Ellinman-
Gibbons & Ives (96 NY2d 369 [2001])] addressed whether a
seller's broker may offer the properties of all of its
principals to a potential customer. Thus, these cases
neither answer the questions in this case nor can be used
with confidence to reasonably predict the answer" (Rivkin v
Century 21 Teran Realty, LLC, 494 F3d 99, 106-107 [2d Cir
2007] [internal quotation marks and citations omitted]).

Further, "causation analysis will turn on the type of disclosure
that New York requires a buyer's agent to make" (id. at 107).
Consequently, the Second Circuit certified the following question
to us: "Did any or all of [defendants] breach a fiduciary duty to
Rivkin by failing to disclose, in any form, [defendants']
representation of a competing buyer for the property Rivkin
sought to buy?" (id. at 108).

II.

"The trend of [real estate agents] representing buyers
began primarily on the west coast in the mid-1980's when states
enacted the first agency disclosure laws making the practice
viable" (Brown, Grohman and Valcarcel, Real Estate Brokerage:

Recent Changes in Relationships and a Proposed Cure, 29 Creighton
L Rev 25, 42 [1995]). New York's agency disclosure statute, Real
Property Law § 443, was originally enacted in 1991 (see L 1991,
ch 726). This legislation sought "to address an issue of
paramount concern to the Secretary of State"; specifically,
although brokers and salespersons were required to make clear
whether they represented the seller -- as was traditionally the
case -- or the buyer in a residential sales transaction, "[t]he
lack of a requirement that the information be provided in writing
and in a uniform manner . . . resulted in uneven disclosure which
too often . . . failed to eliminate confusion on the part of
buyers or sellers as to the loyalties and duties of agents with
whom they [were] dealing" (Bill Jacket, L 1991, ch 726, at 16).

Section 443 mandates disclosure for transactions involving oneto-
four family residential dwellings for sale or lease, but not
condominium or cooperative apartments in a building with more
than four units (id. at 11; Real Property Law § 443[1][f]).

The statute defines a "buyer's agent" as "an agent who
contracts to locate residential real property for a buyer or who
finds a buyer for a property and presents an offer to purchase to
the seller or seller's agent and negotiates on behalf of the
buyer" (Real Property Law § 443 [1][c]). A buyer's agent must
present the buyer with a disclosure form, the terms of which are
statutorily prescribed, "prior to entering into an agreement to
act as the buyer's agent" and generally must "obtain a signed
acknowledgment from the buyer" (Real Property Law § 443[3][c]).

As previously noted, the form declares that the buyer's agent
"acts solely on behalf of the buyer" and has "without limitation,
the following fiduciary duties to the buyer: reasonable care,
undivided loyalty, confidentiality, full disclosure, obedience
and a duty to account" (see also former Real Property Law §
443[4]).2

Rivkin places great weight on the words "solely" and
"undivided" and the phrase "without limitation," arguing, in
effect, that they bespeak the Legislature's determination, or at
least its recognition, that a brokerage firm may not represent
multiple bidders for the same property without disclosure and
consent. We disagree. When the Legislature adopted section 443,
the perceived mantle of "confusion" obscured consumers' awareness
as to whether a real estate broker or salesperson was acting in
the interest of the seller or the buyer or both (i.e., dual
agency) in a particular transaction, not whether a brokerage firm
might represent multiple buyers (or sellers) with competing
interests. Indeed, the disclosure form specifically states that
the fiduciary duty is owed by an individual licensee and not the
firm; that is, section 443 talks in terms of an "agent," defined
as "a person who is licensed as a real estate broker or real
estate sales associate . . . and is acting in a fiduciary
capacity" (see Real Property Law § 443[1][a] [emphasis added]).

The Legislature did not, for example, say "any person, firm,
limited liability company or corporation," as it did when
defining the term "real estate broker" in subdivision (1) of
section 440.

Subdivision 6 of section 443, however, preserves "the
common law of agency with respect to residential real estate
transactions." And in Sonnenschein and Dubbs -- the two cases
prominently mentioned by the Second Circuit -- we explored a real
estate broker's fiduciary duty under the common law with respect
to sellers. Looking to other jurisdictions, we concluded in
Sonnenschein that "[o]nce oral negotiations have commenced
between a seller and a potential purchaser concerning a real
estate transaction, . . . the brokerage firm that produced the
potential purchaser [does not] owe the seller a duty to refrain
from showing the potential purchaser additional properties" (96
NY2d at 372). We considered "this approach to be consistent with
the nature and fundamental requirements of the real estate
marketplace in New York," reasoning that

"a broker cannot be expected to decline a prospective
purchaser's request to see another property listed for sale
with that broker. Any other rule would unreasonably
restrain a broker from simultaneously representing two or
more principals with similar properties for fear of
violating a fiduciary obligation in the event a buyer chose
the property of one principal over that of another.
Similarly such a limitation would frustrate the interests of
sellers, who benefit from the opportunity to market their
properties to as many potential purchasers as possible, as
well as the interests of potential buyers, who often request
exposure to a number of properties in order to select the
one most suitable to their needs and budget" (id. at 376).

In Dubbs, the owners/sellers placed their apartment for sale
on an "open listing," which meant that the sellers would pay a
commission to the broker who located the buyer. The sellers
confided to their real estate agent that, rather than selling the
apartment, they would have preferred to keep it, purchase the
adjacent apartment and combine the two into a single unit, but
that their neighbor refused to sell. The real estate agent
showed the apartment to several prospective buyers. Thereafter,
she made an offer on the apartment herself, and the parties
entered into a written contract for its sale. Prior to closing,
the real estate agent contracted to buy the adjacent apartment
without advising the sellers that it had been placed on the
market.

The sellers commenced an action against their real
estate agent claiming that she had breached her fiduciary duty to
them by failing to let them know that their neighbor's apartment
was for sale. We observed that "[w]here a broker's interests or
loyalties are divided due to a personal stake in the transaction
or representation of multiple parties, the broker must disclose
to the principal the nature and extent of the broker's interest
in the transaction or the material facts illuminating the
broker's divided loyalties" (Dubbs, 96 NY2d at 340). We
determined, however, that the broker/principal relationship and
accompanying fiduciary duty was severed before the agent learned
that the neighbors' apartment was on the market.

Although Dubbs addressed the duty of a seller's agent,
rather than a buyer's agent, our observation in Dubbs that
"[w]here a broker's interests or loyalties are divided due to
[the] representation of multiple parties, the broker must
disclose to the principal . . . the material facts illuminating
the broker's divided loyalties" bears on agency relationships
generally (Dubbs, 96 NY2d at 340; see Restatement [Second] of
Agency § 389 ["Unless otherwise agreed, an agent is subject to a
duty not to deal with his principal as an adverse party in a
transaction connected with his agency without the principal's
knowledge"]). Concomitantly, a buyer's agent must inform the
buyer of the duty of "undivided loyalty [and] full disclosure"
(Real Property Law § 443 [3][c], [4][a]). Simultaneously
representing multiple buyers with respect to the same property is
inconsistent with these duties, absent disclosure and consent.

Further, section 443(4)(a) of the Real Property Law creates an
expectation that a buyer's agent will, in fact, not at one and
the same time take the side of different buyers bidding for the
same property.

That being said, in Sonnenschein we adopted a rule
"consistent with the nature and fundamental requirements of the
real estate marketplace in New York" (96 NY2d at 376). Here,
practical considerations cause us to draw a distinction between
the fiduciary duty owed by the buyer's individual agent and that
owed by the agent's firm. An individual buyer's agent acting on
behalf of multiple clients bidding on the same property cannot
negotiate an optimal purchase price for all of them. The buyers'
interests conflict; the agent's representation is inevitably
compromised. But two buyer's agents simply affiliated with the
same real estate brokerage firm and acting on behalf of different
buyers bidding on the same property generally do not present
comparable risks. There is no incentive for these agents to
represent their clients less than zealously, consistent with
their fiduciary duties under Real Property Law § 443(4)(a) and
common law: they only earn commissions for sales to their own
clients. As a result, in this situation the agents have every
reason to negotiate in their clients' best interest.

As the New York State Association of REALTORS, Inc.

(NYSAR) points out in its amicus brief, in today's real estate
marketplace buyers are routinely represented by buyer's agents,
and real estate licensees are commonly affiliated with megabrokerage
firms featuring multiple licensees and offices.

Indeed, NYSAR avows that numerous brokerage firms in New York
have more than 100 or 200 -- and, in three cases, more than 1,000
-- affiliated licensees. Would-be buyers are very well aware
that they are competing with other potential buyers, including
those represented by other agents affiliated with the firm that
they have retained. As we noted in Sonnenschein when discussing
seller's agents, "[u]nless a broker and principal specifically
agree otherwise, a broker cannot be expected to decline a
prospective purchaser's request to see another property listed
for sale with that broker" (96 NY2d at 376). As a corollary,
unless a real estate brokerage firm and principal specifically
agree otherwise, the firm is not obligated to insure that its
affiliated licensees forego making offers on behalf of other
buyers for property on which the principal has already bid.

Disclosure and consent are not prerequisites to a competing offer
in this circumstance. An individual agent, however, may not
represent multiple buyers bidding on the same property without
making disclosure and obtaining consent.

* * *

http://www.courts.state.ny.us/ctapps/decisions/apr08/68opn08.pdf

Accordingly, the certified question should be answered
in the negative.

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