Carleton v. Tortosa
Citation | 14 Cal.App.4th 745,17 Cal.Rptr.2d 734 |
Decision Date | 25 March 1993 |
Docket Number | No. C013153,C013153 |
Court | California Court of Appeals |
Parties | Ernest CARLETON, Plaintiff and Appellant, v. Mary TORTOSA, Defendant and Respondent. |
DeRonde & DeRonde, and John A. DeRonde, Jr., Fairfield, for plaintiff and appellant.
Murphy, Pearson, Bradley & Feeney, and Mark E. Ellis, Sacramento, for defendant and respondent.
This case presents the question whether a real estate broker had a duty to advise her client that the client's real estate transactions could have adverse tax consequences.
Plaintiff Ernest Carleton, an experienced real estate investor, employed defendant Mary Tortosa, a real estate broker, in the sale of two residential rental properties and the purchase of two residential rental properties. Plaintiff executed listing agreements, real estate disclosure statements, and real estate purchase contracts which advised him that defendant's responsibilities as a broker did not include giving advice on tax consequences of the transactions. After the transactions were completed Plaintiff then brought this professional negligence action, alleging in substance that defendant "failed to exercise reasonable care and skill in undertaking her duties as a broker" by neglecting to warn plaintiff his transactions could have adverse tax consequences and by failing to structure the transactions as tax-deferred exchanges.
plaintiff was informed [14 Cal.App.4th 750] by his accountant that plaintiff incurred a tax liability of approximately $34,000 because the transactions were not structured to qualify as tax-deferred exchanges under Internal Revenue Code section 1031. (26 U.S.C. § 1031; hereafter section 1031.)
Defendant filed a motion for summary judgment on the ground "plaintiff cannot establish duty or breach of duty as a matter of law." The trial court granted the motion, ruling:
Plaintiff appeals from the order and judgment. He claims a real estate broker's duty to exercise reasonable skill and care for the benefit of the client extends to advising the client that a transaction could have adverse tax consequences and recognizing the need for a tax-deferred exchange. According to plaintiff, the use of " 'boilerplate' disclaimers" in the listing agreements, disclosure forms and purchase contracts stating a real estate broker is not responsible for giving tax advice did not relieve defendant of the duty to warn plaintiff that his proposed transactions were in the nature of "an IRC 1031 Delayed Exchange and [to advise plaintiff] to secure the assistance of outside professionals in the event that [defendant] could not competently handle the transaction." (Emphasis omitted.) This is so, he argues, because any contractual provision relieving a real estate broker of the duty to recognize and alert a client to potential tax consequences of a transaction violates public policy.
As we shall explain in the published portion of this opinion, aside from obligations imposed by statute and implementing regulations, a real estate broker's duty is derived from the agreement between the broker and client. In this case, the parties' agreement in effect specified that defendant had no duty to recognize and advise plaintiff regarding the potential tax consequences of his transactions. Contrary to plaintiff's claim, this contractual provision did not violate public policy because the Legislature has determined that sellers and buyers of real estate should obtain tax advice from professionals other than real estate brokers. (Civ.Code, § 2375.) In the unpublished part of this opinion, we reject plaintiff's contention that the trial court erred in ordering plaintiff to pay defendant's attorney fees. Accordingly, we shall affirm the judgment.
Plaintiff is a teacher of high school English and foreign languages with 25 years experience in real estate investing. With the professional assistance of defendant, plaintiff had invested in Winters, California, for five or six years prior to the present transactions.
On April 17, 1990, plaintiff executed an "Exclusive Authorization and Right to Sell" (listing agreement) to sell his property at 1028 Adams in Winters. The property was sold and escrow closed on May 29, 1990.
On April 25, 1990, plaintiff contracted to purchase property at 467 Edwards in Winters. Escrow closed on June 18, 1990.
On June 14, 1990, plaintiff executed a listing agreement to sell his property at 1001 Adams in Winters. The property was sold and escrow closed on August 15, 1990.
On July 5, 1990, plaintiff contracted to purchase property at 1103 Hoover in Winters. Escrow closed on August 28, 1990.
The listing agreements for the sales of the properties at 1028 Adams and 1001 Adams advised plaintiff: For each of the four transactions defendant furnished plaintiff a written "Disclosure Regarding Real Estate Agency Relationships" which advised plaintiff: In addition, for each of the four transactions plaintiff executed a "Real Estate Purchase Contract and Receipt for Deposit" which advised him:
During the course of the transactions, plaintiff asked defendant how many days he had to reinvest the proceeds of the two sales in order to avoid paying capital gains tax. Defendant answered: Plaintiff called his accountant. "[T]he tax lady that does [his] taxes wasn't in, so [he] talked to her assistant, and she said [he had] forty-five days [to reinvest]."
After the transactions were completed, plaintiff's accountant prepared plaintiff's income tax returns and informed him he incurred a capital gains tax liability of approximately $34,000. The transactions failed to qualify as tax-deferred exchanges because they were not conducted through a third party intermediary.
(AARTS Productions, Inc. v. Crocker National Bank, (1986) 179 Cal.App.3d 1061, 1064-1065, 225 Cal.Rptr. 203, citations omitted; see FPI Development, Inc. v. Nakashima, (1991) 231 Cal.App.3d 367, 381-382, 282 Cal.Rptr. 508.)
Plaintiff's complaint alleges defendant was negligent in two respects: in preparing the deposit receipts and structuring the escrows; and in failing to tell plaintiff of defendant's lack of expertise in structuring tax-deferred real estate exchanges and by further failing to advise plaintiff to seek other professional assistance in structuring the transactions.
The issue framed by each theory of liability relates to defendant's failure to inform plaintiff of the tax consequences of his transactions. Plaintiff contends defendant had a duty to "recogniz[e] a tax-free exchange setting" and to "direct[ ] the client to an exchange company if [defendant] did not possess the requisite expertise." (Emphasis omitted.) According to plaintiff, d...
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...263, (N.D.Ill.E.Div., 2000), §§9.501, 9.501.1 Carignan v. Wheeler , 898 A.2d 1011, 153 N.H. 465 (2006), §21.300 Carleton v. Tortosa , 17 Cal.Rptr.2d 734, 14 C.A.4th 745 (Cal.App. 1993), §21.418 Carlsten v. Oscar Gruss & Son, Inc. , 853 A.2d 1191 (R.I., 2004), §2.400 Carnival Corp. v. Stower......
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Table of Cases
...263, (N.D.Ill.E.Div., 2000), §§9.501, 9.501.1 Carignan v. Wheeler , 898 A.2d 1011, 153 N.H. 465 (2006), §21.300 Carleton v. Tortosa , 17 Cal.Rptr.2d 734, 14 C.A.4th 745 (Cal.App. 1993), §21.418 Carlsten v. Oscar Gruss & Son, Inc. , 853 A.2d 1191 (R.I., 2004), §2.400 Carnival Corp. v. Stower......
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