When a real estate transaction falls through and a lawsuit results, real estate brokers and salespersons have multiple concerns. One concern is the lawsuit itself. Lawsuits can be very stressful, expensive, and time consuming.
However, another major concern is the possibility that the real estate agent could be reported to the California Department of Real Estate (“DRE”) and face disciplinary repercussions. Addressing this concern, a recent decision of the California Court of Appeals dealt specifically with when the DRE can discipline a real estate agent based on a civil trial judgment.
In The Grubb Company, Inc. v. Department of Real Estate, the Grubb Company acted as a dual agent in a residential real estate purchase and sale in Oakland. The buyers decided to not complete the transaction, but the sellers refused to return the $35,000.00 deposit on a $1.16 million purchase. The buyers sued the sellers and the Grubb Company claiming that they knowingly misrepresented the size of the living space of the property.
The jury decided that the Grubb Company was liable for recklessly or knowingly making a false representation (i.e. liable for fraud). The standard of review for fraud is the “preponderance of the evidence” standard. Preponderance of the evidence is the lowest level of proof in a civil trials and means more likely than not, or that the scales will tip just a bit more than 50/50. As will be seen below, it is important to note that fraud liability in this case was not supported by a “clear and convincing evidence” standard, a higher level of proof than preponderance of the evidence.
After this jury verdict, a deputy real estate commissioner filed an accusation against the Grubb Company based on the civil court ruling. An administrative law judge ruled on this accusation and determined that the Grubb Company’s license should not be suspended. Based on the administrative law judge’s decision, it appeared that the DRE’s accusation was resolved.
Unfortunately, the California Real Estate Commissioner decided not to adopt the administrative law judge’s decision. The Real Estate Commissioner suspended the Grubb Company’s license because California Business and Professions Code §10177.5 authorizes discipline against a real estate licensee based on a civil judgment for misrepresentation, fraud, or deceit. The Grubb Company appealed this suspension.
The California Court of Appeal overturned the license suspension because the suspension violated the broker’s due process right under the California Constitution. California Courts have recognized that, under the California Constitution, the suspension or revocation of a professional license must be based on misconduct proven by clear and convincing evidence. Here, because the jury decision was arrived at based on a lower standard of proof, the Real Estate Commissioner could not suspend the Grubb Company’s license based on the underlying jury decision.
Thus, the California Department of Real Estate, the California Office of Real Estate Appraisers, or any other licensing agency in California cannot simply rely on a civil judgment alone as the basis for discipline unless the civil judgment is based on clear and convincing evidence.
If there is a complaint against your professional real estate license (e.g. real estate salesperson license, real estate broker license, or appraiser license) and you wish to contest the complaint, please contact our firm. We have experience defending real estate professionals in administrative hearings throughout Northern California.