BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Real estate agents routinely receive subpoenas for documents, deposition, or to appear in court, whether for a trial or a hearing. There can be significant risk of liability arising out of a subpoena and therefore, great caution should be given in the handling.
SCENARIO NO. 1: I am a listing agent and the buyer sued the sellers for non-disclosure of a material fact. I received a subpoena from the buyer’s attorney and gave the buyer’s attorney my entire file. The sellers are angry with me because I did not talk to them before producing the documents. Am I at risk?
RESPONSE: You are potentially at risk for producing documents without notification to the sellers. In the State of California, to be conservative and ensure that you protect your client’s rights, it is important to determine whether a Notice to Consumer was issued to all of the parties to the transaction, including the buyers and the sellers before producing documents. If a Notice to Consumer was not issued to your sellers and you provided your entire file, including potentially confidential financial records relating to the sellers (such as a seller net sheet, loan payoff documents, FIRPTA, etc.), you could have liability to the sellers.
SCENARIO NO. 2: I represented the buyers in a real estate transaction. The buyers sued the seller for non-disclosure of a material fact. The buyers issued a subpoena for me to appear at a deposition. I appeared as required, but did not discuss the matter with my manager. I did not have an attorney present representing me. I answered the questions and now I have been sued. Could I have avoided being sued?
RESPONSE: You should have immediately advised your manager regarding the deposition subpoena. Your manager would have addressed this with company counsel and likely would have obtained representation for you at the deposition. If you had been properly prepared and represented by counsel at the deposition, the likelihood of being sued greatly diminishes.
SCENARIO NO. 3: I represented sellers in the sale of their home. They were getting a divorce and therefore the sale was very contentious. I received a subpoena to appear at the divorce hearing to testify with regard to the value of the property. I did not think there was any risk at showing up and I did so. The wife’s attorney cross-examined me with such vigor that I feel my credibility was destroyed. How should I have handled this?
RESPONSE: If you receive a subpoena, even if you think there is little risk, you need to consult with your manager. Further, real estate agents should not testify with regard to value of properties in court. While real estate agents may prepare comparative market analyses and make recommendations regarding sale prices, real estate agents are not licensed appraisers and should not be testifying as to value in court. If they do, it is likely that a good cross-examining attorney can create a serious credibility issue for the agent.
DISCUSSION: Real estate agents generally receive three types of subpoenas, including the following: 1. subpoena for records; 2. subpoena to testify at deposition; or 3. subpoena to appear in court at a hearing or at trial. There are risks in handling all three types of subpoenas.
No matter what type of subpoena an agent receives, the agent should immediately consult with their manager. The manager can then consult with company counsel or BRM to get advice and make an assessment of the risk.
With regard to a document subpoena, before records are produced, an attorney should review the subpoena to ensure that proper notices are provided to all of the parties to the transaction and that documents which are not requested should not be produced. If there are confidential financial records in the document production, they should be carefully addressed by counsel. In addition, counsel should briefly review the underlying lawsuit to determine whether there is any exposure to the agent or brokerage. That exposure should be managed in responding to the subpoena by working with the broker’s attorneys.
Agents are sometimes subpoenaed to testify at a deposition. This is an area of extreme high risk of potential liability. Depositions are an opportunity for the parties’ attorneys to ask the deponent (in this case, agent) any questions they deemed reasonably related to the underlying property or transaction. This can be extremely broad. Talented trial attorneys can manipulate agents’ testimony if agents are not properly prepared or represented by counsel. An agent appearing at a deposition who is not properly prepared and defended by counsel, and who answers questions from attorneys, runs a significant risk of being sued.
Agents are occasionally subpoenaed to testify in court in hearings or at trial. Agents may be called as a percipient witness to testify regarding the underlying transaction or, in some instances, are called to testify as an “expert” with regard to the agent’s opinion of value. As with other forms of subpoenas, agents should immediately consult with their manager and determine whether counsel should be retained to represent them at the hearing. Agents should never testify in court with regard to the value of the property; agents are not licensed appraisers and are not qualified to testify with regard to value.
Many errors and omissions insurance policies include a provision providing that the insurance company will pay attorney’s fees and costs for the handling of a subpoena up to a limit (generally $10,000 to $25,000) without a retention (deductible). Insurance companies understand and appreciate the risk of agents receiving subpoenas and therefore to reduce the risk of potential exposure to liability in the future, most insurance companies will provide this benefit.
PRACTICE TIPS:
- If an agent receives a subpoena, they should immediately provide the subpoena to their manager for review and handling. Do not ignore a subpoena as they do not go away. If an agent ignores a subpoena, the attorney can go to court seeking an order compelling a response and seeking monetary sanctions against the agent in the form of attorney’s fees.
- Upon receipt of a subpoena, managers should immediately consult with company counsel to determine the risk and recommended handling.
- Agents should never produce records, chronologies, notes, summaries, or other documents without consulting with their manager or brokerage legal counsel.
- Agents should never agree to appear at a deposition, trial or any other legal proceeding, whether voluntarily or pursuant to a subpoena, without the approval of their manager or brokerage legal counsel.
- Agents should not testify in court as to value as agents are not qualified to do so.
- When representing divorcing sellers, do not volunteer agree to appear at any legal proceeding without a subpoena at the request of one of the sellers as this may constitute a breach of your fiduciary duty to the other.
- If an agent receives a subpoena, BRM can review it and provide assistance.
WEEKLY PRACTICE TIP: DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip is an attorney-client privileged communication for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management LLP. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.