Because a jury did not decide whether a real estate agent was acting within the scope of her agency when she committed fraud, the Ohio Supreme Court sent the case back to the trial court in a decision announced today.

Jamie Paliath began working as a licensed real estate agent for Keller Williams Home Town Realty in 2006. In September 2007, California resident Torri Auer contacted Paliath about a Dayton property and expressed an interest in buying investment properties. After visiting Ohio, Auer purchased a house and a duplex, based partly on information that the properties were worth twice the purchase prices. As the broker, Home Town received a commission from these sales.

Auer and Paliath also created a company, which bought a 12-unit Dayton property in November. Auer then purchased two more multiunit buildings in the city. Paliath told her there were people on a waiting list to rent the spaces, the units could be rehabilitated in about two months, and they could be sold for $90,000 each. Home Town also received commissions from these sales as the broker. Auer went into contract on another property from Paliath in November, from which Home Town earned a commission.

On December 7, 2007, Home Town Realty returned Paliath’s license to the state, and Paliath created her own company to continue working as a real estate salesperson.

By August 2008 very few of the properties Auer had bought were rented, and an investor who evaluated the buildings for Auer told her they were in disrepair and needed work.

Auer filed a lawsuit in October against Paliath, Home Town Realty, and others for fraud in the inducement in the sale of the properties, and other claims.

In March 2012, a jury returned verdicts against Paliath and Home Town and awarded Auer $135,200 in damages for fraudulent inducement on three of the five properties.

Home Town appealed the trial court’s decision to the Second District Court of Appeals. The Second District found no fault in the jury instructions defining “vicarious liability” and “scope of employment.” The appellate court also ruled that Paliath was acting within the scope of her employment when she made the sales on the three properties, so the trial court properly found Home Town to be liable.

Home Town appealed to the Ohio Supreme Court.

In a 5-2 decision authored by Justice Judith L. French, the court held that to impose vicarious liability, a jury first has to make a factual determination that the agent was acting within the scope of her agency when she committed the torts at issue.

“Because the trial court’s instructions precluded the jury from making this scope-of-agency determination, the instructions were erroneous and constituted reversible error,” Justice French wrote. “Accordingly, we vacate the jury verdict and remand this case to the trial court for further proceedings on the issue of Home Town’s liability.”

Justice French found fault with the trial court’s jury instruction because it made scope of agency irrelevant by forcing the jury to impose liability on Home Town without considering scope of agency at all. She also noted that the jury was confused and asked for clarification from the trial court judge.

Likewise, Justice French took issue with the appeals court’s finding that a broker is always liable as a matter of law for the tortious conduct of rogue agents whenever the broker receives a portion of the agent’s sales commission.

“We cannot endorse this bright-line rule,” Justice French wrote. “The fact that a broker eventually received a commission from an agent’s sale does not mean that every action the agent took prior to the sale was within the agent’s scope of authority as a matter of law.”

The majority opinion was joined by Chief Justice Maureen O’Connor and Justices Terrence O’Donnell, Judith Ann Lanzinger, and Sharon L. Kennedy.

Justice Paul E. Pfeifer wrote a dissent that was joined by Justice William M. O’Neill.

In his dissent, Justice Pfeifer agreed with the majority that the jury instructions could have been worded better but “no one sentence of a jury instruction, however, stands alone … and no civil defendant is entitled to a perfect trial,” quoting his dissent in a 2013 Ohio Supreme Court case, Moretz v. Muakkassa.

While the majority focuses on one badly worded sentence, Justice Pfeifer noted that he assumes the jury read the entirety of the jury instructions. When read as a whole, the instructions plainly state that vicarious liability attaches only when the agent is acting within the scope of his of her employment.

“This court is remanding the case for a new trial at which the parties will present the same evidence and the judge will issue the same instructions, with one small unnecessary if helpful addition,” Justice Pfeifer wrote. “So much for judicial economy.”

2013-0459. Auer v. Paliath, Slip Opinion No. 2014-Ohio-3632.

View oral argument video of this case.

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