A Gordon Rees Scully Mansukhani Boston team consisting of Partner Jay S. Gregory, Senior Counsel Shaun D. Loughlin, and Associate Isabel H. Wilker recently prevailed on a summary judgment that resulted in the dismissal of 40 causes of action filed against GRSM’s client, a real estate brokerage, by five separate property owners. Loughlin, Wilker, and Gregory prepared the briefing, while Loughlin appeared for oral argument.
In 2021, a licensed realtor joined the brokerage as an independent real estate agent. When the realtor joined the brokerage, he advised that he maintained a separate property management business, through which he managed various rental properties, collected rent, and negotiated leases for various “investors.” The brokerage informed the realtor that he could continue operating his property management business separate from his real estate services provided on the brokerage’s behalf.
The plaintiffs were nine separate property owners who owned residential apartment buildings that the realtor managed through his separate company. The plaintiffs alleged that in April 2023, they discovered the realtor engaged in a massive fraudulent scheme whereby he created fictitious tenants to misrepresent to the plaintiffs that units were occupied when they were not, forged the plaintiffs’ signatures on certain other leases, negotiated unapproved, up-front cash payments of rent from tenants, and pocketed rental payments without remitting them to the plaintiffs. The plaintiffs promptly fired the realtor and pressed criminal charges against him. Some of those criminal charges remain pending. The plaintiffs alleged this fraudulent scheme resulted in several hundred thousand dollars’ worth of damage in stolen rental payments.
Separate from this discovery, the brokerage also learned in 2023 that the realtor failed to maintain an active real estate license and unlawfully pocketed money belonging to the brokerage through a real estate transaction unrelated to the plaintiffs’ properties. Because of this, the brokerage terminated its relationship with the realtor.
Shortly after the brokerage terminated the realtor, the plaintiffs filed a lawsuit against the brokerage, generally alleging that the brokerage knew about and actively participated in, and ultimately benefited from, this fraudulent scheme by pocketing rental payments belonging to the plaintiffs. This lawsuit was the first time the brokerage learned of the realtor’s criminal enterprise, as it was not involved in his property management services in any way. The realtor managed five of the nine plaintiffs’ properties while he was affiliated with the brokerage, and those five plaintiffs each asserted eight causes of action against the brokerage: breach of contract, breach of the implied covenant of good faith and fair dealing, fraud, forgery, conversion, breach of fiduciary duty, negligent supervision, and unfair or deceptive business practices pursuant to G.L. c. 93A.
Through discovery, the GRSM team established that the brokerage and the plaintiffs never communicated with one another and never knew of each other’s existence; all dealings with the plaintiffs were solely between them and the realtor. They also established that the brokerage never received rental payments belonging to the plaintiffs by conducting a forensic analysis of the realtor’s bank records to determine where all the absconded rent was directed. Finally, they also discovered that the realtor fraudulently created a bank account in the brokerage’s name, without the brokerage’s knowledge or approval, and utilized that account to funnel stolen funds. The brokerage provided evidence that they never approved the opening of this bank account, and this fraudulent bank account demonstrated that the realtor acted alone in his alleged criminal acts, without the brokerage’s participation. Finally, the brokerage’s owner/manager presented testimony to the scope of the realtor’s agency, indisputably proving that the brokerage had no involvement with the realtor’s separate property management business while affiliated with him.
Given these established facts, GRSM moved for summary judgment on all counts, arguing that the realtor was an agent of the brokerage and his property management services were performed outside the scope of that agency. GRSM also argued that the brokerage did not maintain a contractual relationship with the plaintiffs, nor a fiduciary relationship, given that the brokerage never promised to manage the plaintiffs’ properties.
A Massachusetts Superior Court allowed summary judgment on all counts, dismissing the 40 claims asserted against the brokerage. In allowing that motion, the court found that the realtor acted outside the scope of his agency, such that the brokerage could not legally be held responsible for his actions. The court further found that the brokerage never maintained a contractual relationship with the plaintiffs. Finally, because the plaintiffs could not provide any evidence that the brokerage received the allegedly stolen money, the brokerage could not be liable for fraud, conversion, or unfair or deceptive business practices.
This case demonstrates GRSM’s ability to evaluate the merits of complex litigation from the outset in order to create a focused and efficient discovery plan that sets up a case for a favorable outcome. The GRSM team’s efforts through discovery resulted in the production of evidence that indisputably absolved the client from any legal liability, saving the client significant legal fees and efficiently providing finality in the process.