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The Grubb Company, Inc v. Department of Real Estate et al

May 4, 2011

THE GRUBB COMPANY, INC., PLAINTIFF AND APPELLANT,
v.
DEPARTMENT OF REAL ESTATE ET AL., DEFENDANTS AND RESPONDENTS.



(Alameda County Super. Ct. No. RG08-364823) Trial Court: Alameda County Superior Court Trial Judge: Hon. Jo-Lynne Q. Lee

The opinion of the court was delivered by: Ruvolo, P. J.

CERTIFIED FOR PUBLICATION

I. INTRODUCTION

An employee of appellant The Grubb Company, Inc. (Grubb), a licensed real estate brokerage, represented both parties in negotiations for the sale of a residence. The sale fell through, and the sellers, against Grubb's advice, declined to return the buyers' deposit. The buyers sued Grubb, several of its employees, and the sellers. The jury found that Grubb and one of its employees had made misrepresentations and breached their fiduciary duty. The jury also found, however, that the buyers had not shown by clear and convincing evidence that Grubb or its employee acted with malice, fraud, or oppression.

The California Real Estate Commissioner (Commissioner) initiated administrative disciplinary proceedings against Grubb under a statute, Business and Professions Code section 10177.5,*fn1 authorizing discipline based a civil judgment against a real estate licensee for misrepresentation, fraud, or deceit in connection with a transaction for which a license is required. After a hearing, an administrative law judge recommended that no discipline be imposed, but the Commissioner rejected the recommendation and imposed discipline. The trial court denied Grubb's petition for a writ of mandate.

On this appeal, Grubb argues that, notwithstanding the terms of the authorizing statute, the Commissioner cannot constitutionally discipline a real estate licensee based on a judgment procured by proof by a preponderance of the evidence rather than on clear and convincing evidence. We agree, and therefore reverse the trial court's order denying the writ.*fn2

II. FACTS AND PROCEDURAL BACKGROUND

A. Events Leading to Underlying Litigation

Otis McGee and Valerie Lewis (collectively Sellers), both members of the State Bar of California, owned a home in Piedmont (the house).*fn3 The house was built in the 1930s, and expanded on the lower level in the 1950s. The expansion work was apparently done in accordance with permits issued by the City of Piedmont (the City), but the City's records were not entirely clear on this point. In 1998, Sellers listed the house for sale, but their effort to sell it was not successful.

When the house was listed for sale in 1998, it was described in the multiple listing service as having 4,200 square feet of living space. This was consistent with an appraisal done at that time, which did not include an enclosed patio on the lower level as part of the living space. In March 2002, however, an inspector from the California State Automobile Association gave Sellers a replacement cost report (the CSAA report) showing that the living area of the house measured 5,234 square feet.

In May 2002, Sellers decided to try again to sell the house. They retained Susanne Paul (Paul), an employee of Grubb, as their listing agent. Paul told Sellers that Metroscan, a private real estate database, showed that the house had only 2,800 square feet, as compared with the 4,200 square feet shown on the 1998 listing. McGee told Paul about the CSAA report. Paul then represented on a flyer that the house had a living area of approximately 5,000 square feet, and Sellers did not take issue with this representation.*fn4

Kaye and Paul Tiao (collectively Buyers) became interested in buying the house, and looked at it several times. Paul explained to Buyers that the square footage shown on the Metroscan report apparently did not include the expanded lower level, and that the 5,000 square foot living area described on the listing was based on documentation provided to Paul by Sellers. Paul also gave Buyers the permit file, Sellers' disclosure statement, and other documents relating to the house.

Buyers asked Paul to represent them, knowing that in doing so, she would be a dual agent for both parties; Paul agreed. On July 10, 2002, Buyers and Sellers entered into a contract (the contract) for the sale of the house at a price of $1.16 million, and Buyers paid a $35,000 deposit into escrow. After the contract was signed, however, a conflict developed between Sellers and Buyers over pest control inspections and repairs. When the parties were unable to resolve their disputes, Buyers requested that they be released from the contract and that their deposit be returned. Sellers declined.

Two senior personnel on Grubb's staff then persuaded Sellers to allow additional inspections. Grubb also lent Sellers $43,000 with which to complete needed termite work so that the house could be put back on the market. On August 28, 2002, Buyers and Sellers agreed on an addendum to the contract. Buyers then procured an appraisal (the Wright appraisal), which valued the house at the contract price, but indicated that its living area was only 2,974 square feet, because the appraiser was not convinced of the legality of the lower level expansion, and therefore did ...


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