KAPLAN v. COLDWELL BANKER RESIDENTIAL AFFILIATES INC (1997)

In this action for real estate fraud, Leon S. Kaplan appeals from a summary judgment granted in favor of Coldwell Banker Residential Affiliates, Inc. (Coldwell Banker).  (Code Civ. Proc., § 437c, subd. (c).)  The trial court ruled there were no triable facts which, if resolved against Coldwell Banker, would render it liable for the acts or omissions of a real estate broker who independently owned and operated a Coldwell Banker franchise.   We affirm.

Facts and Proceedings

Appellant purchased three parcels of agricultural property from Albert La Monte, Jr. and Helen La Monte for approximately $1 million.   He later discovered that the property was not as represented.

Appellant filed suit against the La Montes and their real estate broker, Gerald Adams and Land Marketing Inc., for fraud, misrepresentation, and breach of fiduciary duty.   He also sued his broker, Eric L. Marsh dba Coldwell Banker Citrus Valley Realtors, and salesperson, Philip Davidson, who assisted him in the transaction.

Coldwell Banker was named as a defendant on a respondeat superior theory.   Marsh independently owned and operated his real estate office, Coldwell Banker Citrus Valley Realtors, a Coldwell Banker franchise.   The franchise agreement required Marsh to hold himself out to the public as “an independently owned and operated member of Coldwell Banker residential Affiliates, Inc.” This disclaimer language was printed on Marsh's advertising but much smaller than that touting Coldwell Banker.¹

The first amended complaint alleged that “CBCVR [Marsh] is the franchisee of Coldwell Banker pursuant to an agreement whereby, inter alia, CBCVR may use the name Coldwell Banker, thereby benefiting from Coldwell Banker's goodwill and reputation for expertise and integrity in the field of real estate brokerage;  further, Coldwell Banker receives compensation and has the right to and does exercise control over the conduct of CBCVR.”

Marsh and Davidson were dismissed after Marsh filed for bankruptcy.   Appellant settled with the LaMontes and the listing broker, Gerald Adams and Land Marketing, Inc.

Coldwell Banker, the sole remaining defendant, moved for summary judgment.   (Code Civ. Proc., § 437c.)   The evidence was undisputed that it did not control the day-to-day operation of Marsh's real estate office.   Relying on Cislaw v. Southland Corp. (1992) 4 Cal.App.4th 1284, 6 Cal.Rptr.2d 386, the trial court granted the motion for summary judgment.

Franchisor-Franchisee Relationship

Under the Franchise Investment Law, a franchise agreement confers the right to use a trade name, service mark, or logo pursuant to a marketing plan prescribed by the franchisor.  (Corp.Code, § 31005, subd. (a)(1), (2).)  “[T]he franchisor's interest in the reputation of its entire [marketing] system allows it to exercise certain controls over the enterprise without running the risk of transforming its independent contractor franchise into an agent.”  (Cislaw v. Southland Corp., supra, 4 Cal.App.4th 1284, 1292, 6 Cal.Rptr.2d 386.)

 In determining whether an agency relationship exists between a franchisor and franchisee, the courts focus on the right to control.  (Wickham v. Southland Corp. (1985) 168 Cal.App.3d 49, 59, 213 Cal.Rptr. 825;  Nichols v. Arthur Murray, Inc. (1967) 248 Cal.App.2d 610, 613, 56 Cal.Rptr. 728.)   If the “franchise agreement gives the franchisor the right of complete or substantial control over the franchisee, an agency relationship exists.  [Citation.]  ‘[I]t is the right to control the means and manner in which the result is achieved that is significant in determining whether a principal-agency relationship exists.’  [Citation].”  (Cislaw v. Southland Corp., supra, 4 Cal.App.4th 1284, 1288, 6 Cal.Rptr.2d 386.)

Agency Relationship Between Coldwell Banker and Marsh

 Appellant contends that the alleged agency relationship is a question of fact and may not be decided by summary judgment.   We disagree.   The trial court correctly ruled there were no triable facts to hold Coldwell Banker liable on a respondeat superior theory for Marsh's activities as a real estate broker.  (See 2 Witkin, Summary of Cal. Law (9th ed.   1987) Agency & Employment, § 115, pp. 109-111.)

In Cislaw, a minor purchased clove cigarettes from a 7-Eleven store and died of respiratory failure.   The parents filed suit against Southland Corporation (7-Eleven), the franchisor, based on the theory that the franchise agreement created a principal-agent relationship.   The trial court ruled that the store franchisees were independent contractors and granted summary judgment for Southland.   The Court of Appeal affirmed, holding that a principal-agency relationship exists only when the franchisor retains complete or substantial control over the daily activities of the franchisee's business.  (Id., at p. 1296, 6 Cal.Rptr.2d 386.)

The same principle applies here.   The fact that Coldwell Banker received a royalty based on Marsh's gross receipts did not create an agency relationship.  (Cislaw v. Southland Corp., supra, 4 Cal.App.4th at pp. 1297-1298, 6 Cal.Rptr.2d 386.)   If the law was otherwise, every franchisee who independently owned and operated a franchise would be an agent or employee of the franchisor.

Here it was undisputed that Marsh independently owned and operated the franchise.   Marsh hired and fired employees, set office wages and commissions, and determined his business hours.   The franchise agreement recited that he was an independent contractor and that Coldwell Banker could only terminate for cause.   This was an important factor in determining whether Marsh was an agent or an independent contractor.  (Cislaw v. Southland Corp., supra, 4 Cal.App.4th at pp. 1294-1297, 6 Cal.Rptr.2d 386.)

The franchise agreement further required that Marsh hold his real estate office out as an independently owned and operated business.   Marsh testified that his business cards and office letterhead contained the standard disclosure:  “Independently Owned and Operated Member of Coldwell Banker Residential Affiliates Incorporated.”   The Coldwell Banker logo did not appear on any of the real estate forms or transactional documents used by Marsh.

Appellant, in his opposition papers, admitted that Coldwell Banker “has never represented to plaintiff or done any act to suggest that any defendant named in the instant action was authorized to do any act on behalf of [Coldwell Banker].”   Appellant, a superior court judge, was an experienced investor and had employed real estate brokers in other transactions.   Before purchasing the property, he was involved in the purchase or sale of an office building, some storefront commercial property, five single family residences, an apartment building, and commercial property.

The declarations and deposition testimony indicated that Coldwell Banker did not control or have the right to control Marsh's business activities.   Under the summary judgment statute, the burden shifted to appellant to produce triable facts of an agency relationship.  (Code Civ. Proc., § 437c, subd. (o)(2);  Union Bank v. Superior Court (1995) 31 Cal.App.4th 573, 592-593, 37 Cal.Rptr.2d 653.)   Appellant produced no such evidence.

Appellant asserts that he “went for the sign,” did not notice the disclaimer language, and trusted the Coldwell Banker name and logo.   This does not raise a triable factual issue.   Marsh was the actual broker in the transaction, not Coldwell Banker.   Marsh, not Coldwell Banker, owed appellant a fiduciary duty.   Absent a showing that Coldwell Banker controlled or had the right to control the day-to-day operations of Marsh's office, it was not liable for Marsh's acts or omissions as a real estate broker on a respondeat superior theory.  ( E.g., Cislaw v. Southland Corp., supra, 4 Cal.App.4th 1284, 1290-1292, 6 Cal.Rptr.2d 386;  Weiss v. Chevron, U.S.A., Inc. (1988) 204 Cal.App.3d 1094, 1100, 251 Cal.Rptr. 727.)

Ostensible Agency

 Appellant's ostensible agency argument is also without merit.   Civil Code section 2300 provides:  “An agency is ostensible when the principal intentionally, or by want of ordinary care, causes a third person to believe another to be his agent who is not really employed by him.”  “Liability of the principal for the acts of an ostensible agent rests on the doctrine of ‘estoppel,’ the essential elements of which are representations made by the principal, justifiable reliance by a third party, and a change of position from such reliance resulting in injury.  [Citation.]”  (Preis v. American Indemnity Co. (1990) 220 Cal.App.3d 752, 761, 269 Cal.Rptr. 617.)

Appellant must show that he justifiably relied on representations or actions of Coldwell Banker.  (Ibid.) The ostensible authority of an agent cannot be based solely upon the agent's conduct.  (Lindsay-Field v. Friendly (1995) 36 Cal.App.4th 1728, 1734, 43 Cal.Rptr.2d 71.)   Here there were no triable facts that Coldwell Banker made any representations to appellant.

That leaves the issue as to Coldwell Banker's actions in general.   We must reject the contention that Coldwell Banker's ads, logo, or allowance of the use of the word “member” of Coldwell Banker Residential Affiliates, Inc., rendered it liable for Marsh's business activities in Santa Paula and Fillmore.   The cases cited by appellant (Kuchta v. Allied Builders Corp. (1971) 21 Cal.App.3d 541, 98 Cal.Rptr. 588, Nichols v. Arthur Murray, Inc. (1967) 248 Cal.App.2d 610, 56 Cal.Rptr. 728, and Beck v. Arthur Murray, Inc. (1966) 245 Cal.App.2d 976, 54 Cal.Rptr. 328) are factually distinguishable because in those instances, the franchisor maintained control over the franchisee's day-to-day operations or led the plaintiff to believe that the franchise was part of the same business operation.

Appellant seeks to distinguish the cases on the theory that Coldwell Banker is supplying a fiduciary, as opposed to an ordinary, service.   However, present decisional law does not carve out different rules if the franchisee provides a fiduciary service.   There is no reasonable basis for a different rule if the franchisee provides a fiduciary service.

Conclusion

We understand why appellant, and members of the public generally, might believe that Coldwell Banker “stood behind” Marsh's realty company.   The venerable name, Coldwell Banker, the advertising campaign, and perhaps even the use of the word “member” were and are designed to bring customers into Coldwell Banker franchises.   If appellant, a sophisticated real estate investor and superior court judge, did not give adequate attention to the disclaimer language, and mistakenly believed that Coldwell Banker “stood behind” Marsh, it would seem that an ordinary reasonable person might also think so.   As this opinion demonstrates, absent a “Cislaw” showing, it is the customer who shall bear the damage or loss as a result of the mistake.

The judgment is affirmed.   Each side to bear its own costs on appeal.

EXHIBIT A

FOOTNOTES

1.   We attach hereto as exhibit A page 21 of the Coldwell Banker Identity Manual.

YEGAN, Associate Justice.

STEVEN J. STONE, P.J., and COFFEE, J., concur.