Judges reverse summary judgment for agent, partner

A case involving a Bloomington real estate transaction required the Indiana Court of Appeals to decipher the statutes in question without the aid of previous interpretations because of a lack of previous caselaw interpreting them.

Sheree Demming sued real estate agent Cheryl Underwood and her business partner Kenneth Kinney for breach of fiduciary duty, constructive fraud, and vicarious liability, and she requested the imposition of a constructive trust ordering Underwood and Kinney to convey title of the properties at issue to Demming.

Demming renovated and leased or sold properties in Bloomington and had her eye on two properties near Indiana University’s campus. She had Underwood contact the property owners’ real estate agent many times over the course of several years to see if the owners would be interested in selling, and the two discussed strategies in order for Demming to get the properties. Underwood was to be paid when Demming purchased the properties. When Underwood learned the owner would entertain offers after the death of her husband, instead of informing Demming, Underwood and Kinney submitted an offer and purchased the properties.

The trial court granted summary judgment to Underwood and Kinney on all of the claims, concluding that there were no genuine issues of material fact and no agency relationship existed between Demming and Underwood.

But in Sheree Demming v. Cheryl Underwood and Kenneth Kinney, No. 53A01-1005-PL-252, the Court of Appeals judges found several genuine issues of material fact regarding whether Demming exercised sufficient control over Underwood’s activities to support the existence of an agency relationship and whether Underwood breached a common law fiduciary duty owed to Demming.

On the matter of whether Underwood breached a fiduciary duty owed to Demming under Indiana’s real estate agency statutes, Judge Paul Mathias pointed out that the applicable statutes in Indiana Code Chapter 25-34.1-10 (referred to as the agency chapter) are nearly opaque and there is a dearth of caselaw interpreting them.

The definitions of “customer” and “client” highlight “the perplexities inherent in the Agency Chapter. Section 25-34.1-10-9.5(a)(2) provides that a real estate licensee has an agency relationship with and is representing the person with whom the licensee is working unless the licensee is assisting that person as a customer without compensation. But a customer is someone who is not a client, and client is defined as someone who has entered into an agency relationship with a licensee. Thus, under section 25-34.1-10-9.5(a)(2), a person with whom a licensee is working is a client unless he or she is not a client and is not paying for the licensee’s services,” he wrote.

The trial court concluded Demming was merely a customer, relying on the definition of real estate transaction under Section 25-34.1-10-8, to rule that a “cold call” to find out if a property not on the market could be purchased was not “the sale or lease of any legal or equitable interest in real estate” and was not a “real estate transaction.”

The judges held the fact that the properties weren’t listed for sale at the time Underwood contacted the other real estate agent doesn’t necessarily preclude the conclusion that Underwood was Demming’s agent under the agency chapter. They also held that Underwood breached the fiduciary duties owed to Demming under statute.

The judges ruled that genuine issues of material fact preclude summary judgment on the breach of fiduciary duty and constructive fraud claims and that summary judgment was an “inappropriate vehicle for the trial court to dispose of Demming’s request for the imposition of a constructive trust.” They also reversed summary judgment in favor of Kinney on the claim of vicarious liability and remanded for further proceedings.