Buyers and Sellers Beware – Part 1

Part 1: The Relocation Company “Seller”

Shapiro v. Sutherland (1998) 64 Cal.App.4th 1534

Shapiro v. Sutherland is the seminal case in California involving a Relocation Company’s duties in a residential real estate transaction. In general, a Relocation Company administers the benefits an Employer offers to a Transferring Employee. Often, those benefits include relieving the Transferring Employee of the burdens of selling his or her home and finding a new home in his or her new destination, so the Transferring Employee can get started at the new job as soon as possible.

In the Shapiro case, Prudential served as the relocation company for IBM’s transfer of Mr. Sutherland from California to Washington. Plaintiff Shapiro, who purchased the Sutherlands’ California home, sued the Sutherlands and Prudential for fraudulent misrepresentation and material non-disclosure of a nuisance, specifically, a noisy neighbor. Buyer demanded rescission—an equitable remedy requiring the “Seller” to purchase the home back from the “Buyer.” Prudential had purchased the subject property from the Sutherlands for $349,000 and then ultimately sold it to Shapiro for $250,000 approximately six months later.

Normally, a Relocation Company’s purchase and sale of a Transferring Employee Seller’s home to a Buyer are executed in a 2-step transaction involving 2 Grant Deeds (Deed 1: Transferring Employee Seller to Relocation Company; Deed 2: Relocation Company to Buyer). In essence, a Relocation Company acts as the conduit for the transfer of title, even though the Relocation Company technically is the contracting “Seller” to the ultimate “Buyer.”

Concerning Prudential’s duties as the Relocation Company “Seller,” the court ruled: As the Relocation Company who contracted with Buyer (Shapiro) to sell him the Subject Property formerly owned by the Transferring Employee Seller (Sutherland), (a)the Relocation Company (Prudential) had no duty to investigate the disclosures of the Transferring Employee Seller and/or of his real estate agent; and (b) the Relocation Company satisfied whatever burden it had under Civil Code § 1102, et seq. by (i) its expressed disclaimers and disclosures to Buyer (to which Plaintiffs did not object); and (ii) the Relocation Company’s receipt, review, and transmittal of the Transferring Employee Seller’s disclosure statements and the several other disclosures about errant golf balls to Buyer, the accuracy of which the Relocation Company had no reason to doubt. Shapiro v. Sutherland (1998) 64 Cal.App.4th 1534, 1546-1547.

The Shapiro Court, however, also ruled that the Relocation Company Seller is a necessary party to a Buyer’s Rescission claim. Specifically, a Relocation Company may be required to participate in a rescission remedy in some fashion the court deems “equitable,” “in the event Buyer can prove a case for rescission” against the Transferring Employee Seller. Id. at 1552-1553. As with all equitable remedies, the court has broad equitable powers to fashion a rescission remedy that is fair, and the court can adopt means to avoid a harsh result. Id. at 1551-1553.
In short—Relocation Company Sellers Beware.