Buyer’s Settlement With Agent Barred Seller’s Cross-Claims Against Agent

Summary

In Fennessy v. Altoonian, the California Court of Appeals affirmed that when a real estate agent settles a lawsuit with a buyer in good faith, that settlement can block the seller from pursuing their own cross-claims against the agent—even claims for breach of contract and breach of fiduciary duty. The court ruled that if the seller’s claims are essentially seeking to recover for the same harm the buyer alleged, they are considered “derivative indemnity claims” and are barred by the agent’s good-faith settlement. This decision has significant implications for buyers, sellers and brokers when litigation arises from a purchase and sale transaction.

Background

The case stemmed from a home sale where the buyers, Kathryn and Christopher Fennessy, were told by the seller’s agent, Brook De Vincenzi, that the seller’s mother had died peacefully on the property. After the sale closed, the Fennessys discovered the death was actually a “gruesome, unnatural death by suicide.” They sued both the seller, Ronald Altoonian, and his agent, De Vincenzi, for claims including misrepresentation and failure to disclose.

In response, the seller, Altoonian, filed a cross-complaint against his own agent, De Vincenzi. Altoonian argued that if there was any wrongdoing, the agent was responsible and should have to indemnify him for any damages awarded to the buyers. He also brought direct claims against De Vincenzi for breach of their listing agreement, breach of fiduciary duty, and negligence.

Before trial, the agent, De Vincenzi, settled directly with the buyers. The agent then asked the court for a “good faith settlement determination,” a legal finding that protects a settling defendant from future claims for indemnity or contribution from other co-defendants in the same lawsuit. The trial court granted the motion and dismissed all of the seller’s cross-claims against the agent. The seller appealed that dismissal.

Key Court Findings

The Court of Appeal upheld the trial court’s decision, finding that the good-faith settlement between the agent and the buyers effectively barred all of the seller’s cross-claims against the agent.

The central issue was whether the seller’s claims for breach of contract, breach of fiduciary duty, and negligence were independent claims or simply disguised claims for indemnity. The seller argued they were independent because they arose from the duties the agent owed him under their listing agreement.

The court disagreed, focusing on the substance of the claims rather than their labels. It found that the seller’s claims were all “intertwined with” and derivative of the buyers’ original allegations. The seller’s cross-complaint essentially alleged that if the buyers’ claims of misrepresentation were true, it was because the agent had breached his duties. Therefore, the damages the seller sought were the same damages the buyers were seeking in the main lawsuit. 

Because these claims were, in effect, an attempt to shift responsibility for the buyers’ losses to the agent, they were considered claims for indemnity. Under California law, a good-faith settlement extinguishes such claims from co-defendants.

Key Takeaways for Brokers, Buyers, and Sellers

• For Agents, Brokers and Sellers: A good-faith settlement with a plaintiff (e.g., a buyer) can be a powerful strategic tool during litigation. It not only resolves liability with the plaintiff but can also shield the settling defendant from subsequent cross-claims for indemnity or contribution from a co-defendant, such as the agent’s own seller-client, as was the case here.
• For Sellers: This case serves as a caution. If you are sued alongside your agent and your agent settles, your ability to sue your agent for their role in the transaction may be limited or non-existent. Even direct claims like breach of the listing agreement can be barred if they are based on the same underlying facts and seek to recover for the same harm alleged by the buyer.
• The “Derivative Claim” Doctrine is Critical: Courts will look past the name of a cause of action (e.g., “breach of fiduciary duty”) to its core purpose. If a seller’s claim against their agent is fundamentally an attempt to get the agent to cover the seller’s losses to a buyer, it will likely be treated as an indemnity claim and can be wiped out by a good-faith settlement.
• Settlement Strategy Matters: This ruling highlights the importance of coordinated legal strategies in multi-party real estate litigation. A seller who believes their agent is at fault may need to act strategically before that agent settles independently with the buyer, as that settlement could close the door to recovery.

This decision clarifies the far-reaching impact of a good-faith settlement, emphasizing that it can provide a settling party with total peace from all parties involved in a dispute. For sellers, it also underscores the risk that their legal recourse against their own agent may be foreclosed if their claims are not truly independent of the harm alleged by the third-party plaintiff.