Agents Switch Brokers During Escrow – Will The New Broker Be Legally Responsible For Any Wrongdoings By The Agents
Posted by: Kenny Tan
January 28, 2012
Topic: Escrow
Every once in a while an issue will come up that involves an agent who decides to leave the present broker and work for another broker.
When that happens, will the new broker or both the new and the old be legally responsible for the wrongdoings committed by the agent in an escrow transaction?
It is the law in California that though agents are treated as independent contractors of the employing brokers for income tax purposes,they are treated as employees for liability purposes. As an employer of an agent, the broker is vicariously liable for any torts committed by the agent which in plain English means that the wrongful act need not have been one that was directly committed by the broker himself, just need to be one committed during the agent's employment with the broker - this is on top of the broker's independent duty to supervise the agent's activities.
It is for this reason that a broker invariably gets named along with the agent in a lawsuit where the agent is sued for a misdeed in a transaction.
But when you have a situation where two brokers are successively involved in a transaction where one might earn a fee while the other might not from the deal or they both agreed to split a fee, how does the law allocate liability between them if they don't have a prior agreement as to risk allocation for that transaction. I've not been able to find any California appellate opinion cases on that issue.
But here's my take on that issue.
If there's an agreement as to allocation of liability between the two brokers, then there's no question that the court will most probably enforce the agreement and allocate liability accordingly.
What if there's no agreement to that effect? As a practical matter, the brokers won't necessarily discuss this ahead of the switch. So no such agreement exists. Besides, such agreement would not bind the nonparties such as the sellers and buyers anyway.
Moreover, remedy for indemnification is always going to be available to allocate responsibility between the parties involved including the two brokers and the agent even if there's no prior agreement.
Also, the sellers and buyers had to have known about the switch because the agent would invariably be corresponding using emails or letters that reference the broker's name.
