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A Connecticut court has considered whether a real estate licensee breached his fiduciary duty while serving as an escrow agent.
Steven Rocco and Jonathon Gottlieb ("Sellers") entered into a listing agreement with licensed real estate broker Eugene Hayber ("Licensee"). The Licensee marketed the property for sale, and the Sellers received an offer for the property. However, the interested buyers stated that their offer was contingent upon their home being sold. The Sellers agreed to this contingency, and the parties entered into a purchase agreement.
The buyers succeeded in obtaining an offer for their home, and so they forwarded to the Licensee a down payment in the amount of $16,000 ("Funds"). The Licensee had agreed to serve as the escrow agent for the parties. Later, the buyers informed the Sellers that they were unable to perform the purchase contract. Pursuant to the purchase agreement, the Funds were awarded to the Sellers as liquidated damages once the buyers defaulted on the purchase contract. Following the collapse of the sale, the Licensee sent the Sellers an invoice seeking a commission payment in the amount of $12,834. The Sellers never paid this commission amount.
The Sellers' attorney sent a letter to the Licensee requesting the release of the escrowed funds. The Licensee did not release the funds, on the grounds that he was owed a commission for producing a ready, willing, and able buyer for the property. The Licensee also claimed that he did not release the funds because the letter from the attorney demanding release of the escrowed funds was not signed by the Sellers and the buyers, as required by the escrow agreement.
The Sellers filed a complaint with the Connecticut Department of Consumer Protection, Occupational and Professional Licensing Division, Real Estate Commission ("Commission"), against the Licensee. The Commission determined that the Licensee had breached his fiduciary duty by wrongfully withholding the Funds. The Commission ordered the Licensee to turn over the Funds plus interest and also fined the Licensee $2,000. The Licensee appealed the Commission's decision.
The Superior Court of Connecticut affirmed the rulings of the Commission. The court first considered whether the escrow agreement prohibited the turning over of the Funds without the parties’ signatures. Looking at the relevant law, the court found that a writing delivered to the escrow agent by the party's attorney is sufficient to authorize the release of the escrowed funds. The Licensee claimed he could not be certain that the attorney was authorized to request the release of the Funds, but also admitted he had not contacted either of the Sellers to verify if they had authorized the release request. The court also found that the Licensee's fiduciary duty to the Sellers did not require him to demand a formal written request from the Sellers and that it was common practice in Connecticut to release escrowed funds upon receipt of a demand by a party's attorney. Thus, the court affirmed the Commission's rulings, finding that the Licensee had breached his fiduciary duty by refusing to release the Funds to the Sellers.
The court also considered whether the Licensee's commission claims allowed the Licensee to withhold the Funds. While the Licensee had entered into a commission agreement with the Sellers, he was not a party to the escrow agreement and his consent was not required before these funds would be released. Because the Licensee had chosen to act as an escrowee, he was bound to fulfill his obligations as such. Therefore, the Licensee's commission claims did not allow him to withhold the escrowed funds from the Sellers. Thus, the court upheld the Commissions rulings.
Hayber v. Dep't of Consumer Prot., No. CV020513973S, 2004 WL 574662 (Conn. Super. Ct. Mar. 8, 2004). [This is a citation to a Westlaw document. Westlaw is a subscription, online legal research service. If an official reporter citation should become available for this case, the citation will be updated to reflect this information].