Carleton v. Tortosa

Decision Date25 March 1993
Docket NumberNo. C013153,C013153
Citation14 Cal.App.4th 745,17 Cal.Rptr.2d 734
CourtCalifornia Court of Appeals Court of Appeals
PartiesErnest 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.

SCOTLAND, Associate Justice.

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 was informed 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.)

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.

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: "Defendant Tortosa was in a fiduciary relationship with plaintiff. This relationship was defined by the documents [executed by plaintiff].... [p] These documents evidence the nature of the fiduciary relationship between defendant and plaintiff [which] did not include a separate responsibility on the part of defendant to advise plaintiff Earnest [sic] Carleton on tax matters, but rather, specifically excluded the provision of tax advice from the scope of defendant Tortosa's duty to plaintiff. Plaintiff Carleton was specifically instructed to look to other professionals for tax advice. Thus, defendant Tortosa had no affirmative duty to provide tax advice to plaintiff Carleton or to structure the escrows of the subject transactions in such a way as to reap the greatest tax benefits to him. Such advice is strictly outside the scope of a real estate agent's fiduciary duty to her client."

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.

FACTS

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: "A real estate broker is the person qualified to advise on real estate. If you desire legal or tax advice, consult an appropriate professional." For each of the four transactions defendant furnished plaintiff a written "Disclosure Regarding Real Estate Agency Relationships" which advised plaintiff: "The above duties of the agent in a real estate transaction do not relieve a Seller or a Buyer from the responsibility to protect their [sic ] own interests. You should carefully read all agreements to assure that they adequately express your understanding of the transaction. A real estate agent is a person qualified to advise about real estate. If legal or tax advice is desired, consult a competent professional." In addition, for each of the four transactions plaintiff executed a "Real Estate Purchase Contract and Receipt for Deposit" which advised him: "Legal and Tax Advice: A real estate broker or agent is qualified to advise on real estate. If you require legal or tax advice, consult your attorney or accountant. No representation or recommendations are made by the broker, agents, or employees as to the legal sufficiency, effect, or tax consequences of this document or the transaction relating thereto. These questions are for your attorney and or your accountant."

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: "I don't know.... Ask your tax person." 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.

DISCUSSION
I

"Since a summary judgment motion raises only questions of law regarding the construction and effect of the supporting and opposing papers, we independently review them on appeal, applying the same three-step analysis required of the trial court. ... First, we identify the issues framed by the pleadings since it is these allegations to which the motion must respond by establishing a complete defense or otherwise showing there is no factual basis for relief on any theory reasonably contemplated by the opponent's pleading. ... [p] Second[ ], we determine whether the moving party's showing has established facts which negate the opponent's claim and justify a judgment in movant's favor. ... The motion must stand self-sufficient and cannot succeed because the opposition is weak. ... A party cannot succeed without disproving even those claims on which the opponent would have the burden of proof at trial. ... [p] When a summary judgment motion prima facie justifies a judgment, the third and final step is to determine whether the opposition demonstrates the existence of a triable, material factual issue. ... Counteraffidavits and declarations need not prove the opposition's case; they suffice if they disclose the existence of a triable issue." (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, defendant "at least...

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