By: Lyndsey Torp
In reversing summary judgment for defendants, the California Fourth District Court of Appeal recently held that homeowners suing their real estate broker for negligence did not need an expert witness to establish the elements of their causes of action. Ryan v. Real Estate of the Pacific, Inc. (2019) 32 Cal. App. 5th 637. Typically, expert witnesses are required to establish the standard of care in professional negligence cases. But in Ryan, the court of appeal held that the “common knowledge” exception applied despite this general rule, because the conduct required by the particular circumstance of the case was within the common knowledge of a layman. The conduct in question here? The broker’s failure to disclose to his client that the client’s neighbor told him that she planned extensive renovations that would obstruct the client’s property’s ocean views.
Ryan and Patricia Ryan (the Ryans) hired defendant Real Estate of the Pacific, Inc., doing business as Pacific Sotheby’s International Realty (Sotheby’s) and defendant real estate broker to sell their residence in La Jolla, California. During an open house at the residence, a neighbor informed the Ryan’s real estate broker that she planned extensive renovations at her home that would, among other things, permanently obstruct the Ryan’s westerly ocean views and take several years to complete. The real estate broker never informed the Ryans of this, nor the subsequent buyer. The subsequent buyer purchased the property for $3.86 million, and defendants received $96,500 as commission for the sale. The day after escrow closed, the buyers learned of the renovations, and sought to rescind the purchase. Based on advice of defendants, the Ryans refused, and the dispute proceeded to arbitration. The buyer obtained a rescission of the purchase, with the Ryans order to pay damages, interest, and attorneys’ fees and costs in excess of $1 million. The Ryans then sued Sotheby’s and the real estate broker to recover these amounts and damages caused by defendants’ alleged negligence.
Sotheby’s and the defendant real estate broker moved for summary judgment against the Ryans, arguing that the Ryans could not establish the existence of any cause of action without an expert witness. Because the Ryans did not designate an expert witness, defendants argued summary judgment was warranted. The trial court agreed and granted the motion. The court of appeal reversed.
The court of appeal first analyzed whether the Ryans had forfeited certain arguments by failing to raise them with the trial court. At the trial court level, the Ryans opposed summary judgment on the grounds that they did not need expert testimony because the findings of fact and conclusions of law regarding the standard of care in the arbitration with the buyers, and the arbitration award collaterally estopped defendants from relitigating the issue. The trial court rejected this argument, given that defendants were not a party to the arbitration. In their appeal, the Ryans instead advanced the “common knowledge” theory, which states that an expert witness is not needed to establish the standard of care in a professional negligence cause of action when the conduct required by the particular circumstances is within the common knowledge of a layman. The court of appeal found that the common knowledge theory presented a new question of law based upon undisputed facts, and the Ryans could make such an argument for the first time on appeal.
The court of appeal then analyzed the Ryans’ claims, noting that they were contingent on defendants having a duty to share the subject information. At the summary judgment stage, to satisfy their initial burden and shift the burden to the Ryans to prove the existence of a triable issue of material fact, defendants had to show that an expert witness was essential for the Ryans’ claims. To carry that burden, they needed to explain why the lack of an expert witness was fatal to the Ryans’ claims. The court of appeal found that defendants did not meet this burden.
California law does not require an expert witness to prove professional malpractice in all circumstances. One such exception is where the negligence is obvious to a layman. Defendants argued that this was not one of those cases, and instead attempted to limit to their duties to those set forth in California Civil Code section 2079(a), and that their duties of investigation and disclosure, as real estate brokers, were limited to the property being sold. The court of appeal disagreed that these were the real estate broker’s only source of duties. Rather, real estate brokers are subject to duties imposed by regulatory statutes, such as section 2079(a), but also those arising from the general law of agency. The court of appeal explained:
Here, the Ryans’ claims are not contingent on an expansion of the statutorily defined duties of a real estate broker. Instead, their claim is more elementary. If a real estate broker has information that will adversely affect the value of a property he or she is selling, does that broker have a duty to share that information with his or her client? The clear and uncontroversial answer to that question is yes.
The court of appeal concluded that because the Ryans alleged a cause of action for breach of fiduciary duty against defendants, the lack of an expert witness would not be an impediment to proving such a cause of action based upon the allegations in the complaint. In addition, defendants had not shown, for purposes of summary judgment, that an expert witness was necessary to establish the scope of a broker’s duty or a breach of that duty for professional negligence. Defendants possessed material information that impacted the value of the property. They did not need to engage in investigation to discover the information, but rather, they “simply chose to remain silent, collect their commission, and allow the Ryans to deal with the consequences.” The conduct required here was within the common knowledge of a layman. “Put differently, anyone who hired a real estate broker to sell her home, would expect that broker to share information that would adversely impact the value of the home.”
This case is interesting for a few reasons. First, the court of appeal rejected defendants’ forfeiture argument, and considered a new legal argument on appeal. Second, the case navigates an exception to the general rule requiring the designation of an expert to establish the standard of care in professional negligence cases. The conduct at issue here strikes a chord for anyone that has purchased or sold a home. Even so, assessing whether to designate an expert in a particular case requires close scrutiny, given that the wrong call could be fatal to the case.