Rhode Island Supreme Court Refuses To Hold Real Estate Firm Accountable for Malfeasance by Associated Agent

Rhode Island real estate transactions often involve several parties in addition to a buyer and seller. Both the buyer and seller frequently use real estate agents, who, in turn, may be associated with brokerage firms to affect the transaction. Although real estate agents generally owe a fiduciary duty to their clients to act in good faith during transactions, a recent decision by the Rhode Island Supreme Court demonstrates that a brokerage firm associating with the agent may not owe any duty to a client in the event the agent acts in bad faith.

The plaintiff in the recently decided case is a real estate investor from Australia, who hired a real estate agent to assist him in purchasing and managing investment properties in Rhode Island. The agent he hired was associated with a real estate firm that is the defendant in this appeal. In the course of her dealings with the plaintiff, the agent allegedly mismanaged the plaintiff’s assets and properties by securing multiple mortgages on a property without the consent of the plaintiff, and using the money from the mortgages for her own purposes, essentially defrauding the plaintiff of equity in his real estate.

After discovering the actions of the agent, the plaintiff filed a lawsuit in Rhode Island district court against the agent and the brokerage firm and sought damages, alleging that both defendants violated their fiduciary duty to handle his assets in good faith. The plaintiff claimed to rely on the relationship between the agent and the brokerage firm in making a decision to trust the agent to handle his investments. The brokerage firm responded to the allegations by claiming that the agent was an independent contractor of the agency, and that the agency did not owe any duty to the plaintiff or bear any responsibility for the agent’s wrong actions. The district court agreed with the agency’s arguments, finding that the agent’s alleged wrongdoing did not benefit the defendant, and that they owed no special duty to the plaintiff to supervise the agent or prevent any fraudulent actions.

The plaintiff appealed the decision to the Rhode Island Supreme Court, arguing that the agent was, in fact, an employee of the agency and that the agency was therefore responsible for her actions. Although the defendant maintained that the agent was an independent contractor and not an employee, the court decided the case on broader grounds. Specifically, the court ruled that even if the agent was an employee of the defendant, her alleged wrongdoing was not done in the scope of her employment with the agency, and thus, the agency could not be held accountable for her actions. As a result of the ruling, the plaintiff will be unable to seek damages from the defendant, and he must seek redress through his claims against the agent in her individual capacity

Avoiding Bad Actors in a Rhode Island Real Estate Transaction

This recent case demonstrates that the parties and their representatives in Rhode Island real estate transactions do not always act in good faith, and a trusting buyer or seller may mistakenly believe that an individual or business owes them a duty to prevent fraud when in fact they do not. If you are considering a real estate transaction in Rhode Island, it is best to consult with a knowledgeable Rhode Island real estate attorney to ensure that your assets are being handled diligently, and that any wrongdoing can be adequately addressed by a responsible party. The experienced real estate attorneys with Bilodeau Capalbo can review any agency agreements that you have, and also ensure that your real estate transaction proceeds as intended. Call our offices at 401-300-4055 to enlist the help of a dedicated Rhode Island real estate attorney at Bilodeau Capalbo today.