Implied Contractual and Equitable Indemnity Theories Cannot Undermine American Rule.
Dalton v. Francis, Case No. H033247 (6th Dist. June 26, 2014) (unpublished) involved a buyer lawsuit against seller and dual real estate agents for nondisclosures in connection with a residential sale regarding a dilapidated septic system. The problem was that seller and individual brokers negligently passed on information about the housebeing connected to a public sewer, but with the infirmities originating from broker conduct. Eventually, buyers won the suit and won contractual attorney’s fees of $262,909.50 against sellers. (The corporate brokerage business went bankrupt, so individual brokers were still involved.) However, the lower court also found that the buyers could get total reimbursement from individual brokers for buyers’ fee exposure to sellers based on an implied indemnity theory (likely, implied contractual indemnity). Later, the trial judge determined that seller recapture defense costs in the buyer lawsuit from individual brokers based on the tort of another doctrine.
Sellers appealed, getting some relief on appeal.
The lower court’s determination that the $262,909.50 pro-buyers fee award could not be "passed" through by sellers for reimbursement from the individual brokers. The reasons: (1) implied contractual indemnity--individual brokers were not parties to the listing agreement with sellers (only the bankrupt brokerage business was a party); and (2)equitable indemnity—although brokers were jointly and severally liable with sellers as far as buyers’ damages, this theory could not be used to create a new attorney fee exposure basis under the American Rule, or else the appellate court would be creating a new exception through judicial fiat.
Then, what about sellers being able to recoup defense fees in the suit against individual brokers? Well, the tort of another doctrine did work as an exception to the American Rule and did provide a basis for fee recovery under this doctrine. (Gray v. Don Miller & Associates, Inc., 35 Cal.3d 498, 507 (1984).)
Finally, individual brokers balked at some nonstatutory costs claimed by sellers under the tort of another doctrine. However, the appellate court determined they were proper "damages," in line with what the trial judge found.