Last week,
the Ohio Supreme Court reversed the lower court judgments imposing vicarious
liability upon a real estate broker for the fraudulent actions of its real
estate agent without requiring the plaintiff to prove that the agent was acting
within the scope of her agency. Auer
v. Paliath, Slip Opinion No. 2014-Ohio-3632. In Auer, the plaintiff alleged and the jury
found the defendant agent and broker to be liable for fraudulently inducing the
plaintiff to purchase five properties (for which the agent and broker received
sales commissions) and hire the agent’s personal rehabilitation business to
maintain them. The properties were never
maintained as promised and the plaintiff lost her $430K investment. The lower courts concluded that the broker
was vicariously liable as a matter of law because Revised Code § 4735.21 imposed
liability as a matter of law since the agent could not sell the properties
and collect funds without the broker’s consent.
“In essence, the court of appeals’ decision holds that a
broker is always liable as a matter of law for the tortious conduct of rogue
agents whenever the broker receives a portion of the agent’s sales commission.”
The Court rejected this “bright-line rule”
and held that “in order to impose vicarious liability, a jury first has
to make a factual determination that the agent was acting within the scope of
her agency when she committed the torts at issue.”
Whether the agent’s actions were authorized
by the broker is always a factual question to be resolved by a jury. In this case, the agent’s fraud was arguably
to further her rehabilitation business, not to further the business of the
broker. Accordingly, the trial court
should have left it to a jury to decide whether the broker should also be held
liable for the agent’s fraud.
The dissent concluded that the omission of a few words from
the jury instruction was harmless error.
NOTICE: This summary is designed
merely to inform and alert you of recent legal developments. It does not
constitute legal advice and does not apply to any particular situation because
different facts could lead to different results. Information here can change or
be amended without notice. Readers should not act upon this information without
legal advice. If you have any questions about anything you have read, you should
consult with or retain an employment attorney.
