Introduction
If you’re a real estate broker or investor caught in the aftermath of a failed investment deal, the scenario laid out in this article may feel all too familiar. High-dollar loans, informal broker-investor relationships, reliance on third-party fund control agents, and the painful consequences of project failures can quickly spiral into complex legal battles. Whether you’re defending against indemnity claims, breach of fiduciary duty allegations, or looking to understand how the Statute of Frauds fits into it all—this article offers a detailed, practical roadmap through a real-world case study that mirrors these exact issues.
This in-depth analysis follows a hypothetical dispute between Paul, a seasoned investor, and Dan, a licensed broker, stemming from a $10 million real estate loan that collapsed under regulatory and financial strain. With claims of fraud, wrongful foreclosure, and breach of fiduciary duty at the forefront, the case raises essential legal questions about agency, liability, equitable indemnity, and the enforceability of oral agreements under California’s Statute of Frauds. Whether you’re navigating similar litigation or advising clients in comparable situations, the defenses, tactics, and judicial reasoning explored here provide valuable insights into what works—and what doesn’t—in broker-indemnity disputes.
Plaintiff: Paul, an individual Southern California investor who lends capital to real estate ventures.
Defendant: Dan, a licensed California real estate broker who for years introduced Paul to private investment deals. Paul considered Dan a trusted professional and friend.
Hypothetical Factual Background
In mid-2022, Dan approached Paul with an investment opportunity: a $10 million loan to a company called Sunrise Equity LLC (“Sunrise”), which planned to develop a commercial complex in Merced, California. The loan would be secured by a deed of trust recorded against real property owned by Sunrise. Dan disclosed that he would receive both a $250,000 fee and a 20% share of project profits for arranging the deal.
Dan recommended using Pacific Fund Control Inc. (PFC) to manage loan disbursements. PFC was run by Jorge Salinas, an associate of Dan’s. Paul agreed to the arrangement. The loan documents were executed in October 2022, but Paul did not review them before signing. He transferred the full amount into escrow, which then released funds to PFC.
When the loan matured in late 2023, Sunrise defaulted, claiming that PFC had not properly disbursed the funds and that delays had killed their permits. Dan assured Paul he would handle either a loan extension or foreclosure. In February 2024, Paul acquired the property through a nonjudicial trustee’s sale, with Dan overseeing the process.
By April 2024, Sunrise sued Paul, Dan, PFC, and Salinas, asserting fraud, wrongful foreclosure, breach of contract, and cancellation of instruments. During a bench trial in July 2024, the court found that Dan was acting as Paul’s agent and had designated PFC as Paul’s agent for disbursement. Paul was found vicariously liable for the wrongful acts of both Dan and PFC.
The court set aside the foreclosure, cancelled the loan documents, and restored title to Sunrise. The court ruled that Paul and Dan were joint tortfeasors. Without notifying Paul, Dan settled with Sunrise for $100,000 and did not seek a good faith settlement determination under CCP § 877.6.
Paul was left to face trial alone. In September 2024, a jury returned a verdict against Paul for $9.85 million, plus pre-judgment interest. Paul settled with Sunrise shortly afterward, paying $10.1 million to resolve all claims. Paul then sued Dan for equitable indemnity, implied contractual indemnity, and breach of fiduciary duty.
Dan’s Litigation Strategy and Defenses
Equitable Indemnity
Paul’s claim for equitable indemnity arises from the fact that he was found vicariously liable for Dan’s actions in the underlying Sunrise litigation. However, equitable indemnity is not based on a contract—it’s a doctrine of fairness that allows a party who was only secondarily or vicariously liable to recover from the primarily responsible party. No writing is required because the right arises by operation of law, not agreement.
Dan’s defense strategy centers on the fact that he was not found liable at trial—he settled. Without a judicial finding of comparative fault, Paul may not shift liability under equitable indemnity. Additionally, although Dan didn’t obtain a § 877.6 determination at the time of settlement, he can now seek retroactive good faith settlement approval. A Tech-Bilt motion may bar further indemnity claims if the court finds his $100,000 settlement was made in good faith.
Dan will also emphasize comparative fault. Paul is a sophisticated investor who didn’t read the loan documents, allowed full reliance on Dan, and failed to monitor fund control. The primary cause of Sunrise’s damages may have been PFC’s mismanagement—not Dan’s conduct. These arguments reinforce that equitable indemnity is not appropriate in this context.
Implied Contractual Indemnity
This is the only claim where the Statute of Frauds becomes relevant. Dan may argue that any oral agreement to indemnify Paul for future liabilities related to a $10 million real estate loan must be in writing to be enforceable. He might cite Civil Code § 1624(a)(1) (contracts not performable within one year) or § 1624(a)(2) (promises to answer for the debt of another).
However, this defense is unlikely to prevail. Courts have consistently held that an implied contractual indemnity claim is not subject to the Statute of Frauds where the services at issue were fully or substantially performed, or where the indemnity is implied by law rather than by a specific promise.
In Bay Development, Ltd. v. Superior Court (1990) 50 Cal.3d 1012, the California Supreme Court clarified that implied indemnity claims arise from the relationship between the parties, especially where one party breached a duty arising under a contract—even if the contract itself was not in writing.
Dan’s defense also includes that there was no express or implied agreement where he promised to cover Paul’s losses. Dan served only as a facilitator, not as a manager of Paul’s money or decisions. He can argue that Paul independently agreed to use PFC and that any misconduct by PFC should not be imputed to him. Additionally, Dan can claim that Paul’s own lack of diligence was the proximate cause of the damages.
Breach of Fiduciary Duty
Paul claims Dan breached fiduciary duties owed during the transaction. However, fiduciary duties arise from legal status, not from contract. Dan served as Paul’s real estate broker and agent in the loan transaction. If the court finds Dan exercised discretion or that Paul placed trust in him in a business capacity, fiduciary duties may attach—even without a writing.
Still, Dan can argue he was a real estate broker, not an attorney, investment advisor, or escrow agent. Unless Dan had discretionary authority over Paul’s money, no fiduciary duty exists. The case Michel v. Moore & Associates (2007) 156 Cal.App.4th 756 confirms that brokers are not automatically fiduciaries.
Dan will also assert that Paul voluntarily accepted the terms without asking questions and that his conduct reflects assumption of risk. Dan did not personally mishandle funds or execute the foreclosure. The loss flowed from PFC and Sunrise’s project failure. Sunrise defaulted because it failed to act within city permit timelines—not because of anything Dan did.
If the fiduciary breach claim is brought after 2 years, it may be barred under CCP § 339. Statute of limitations is a viable affirmative defense.
Statute of Frauds as a Tactical Defense
California’s Statute of Frauds, codified at Civil Code § 1624, renders certain agreements unenforceable unless in writing, including agreements that cannot be performed within a year; promises to answer for the debt or default of another; and broker commissions related to real estate. The purpose is to prevent fraud and perjury in disputes involving important transactions, by requiring reliable evidence of the parties’ intent.
Although the Statute of Frauds might appear useful for Dan, it has limited utility in broker-indemnity disputes. It is not a viable defense to equitable indemnity or fiduciary duty claims and rarely defeats implied indemnity claims when the underlying services have been performed.
Dan may still use the Statute of Frauds strategically in early pleadings via demurrers or motions to strike, or during discovery by requesting written agreements. In summary judgment, he may frame Paul’s claims as relying on unenforceable oral agreements. However, this tactic may backfire if the court finds the agreement was substantially performed or the duties arose independent of contract.
Additional General Affirmative Defenses
- Comparative Fault: Paul’s negligence in oversight, document review, and project management.
- Estoppel: Paul’s silence, acceptance of benefits, or ratification of Dan’s actions.
- Waiver: Paul knowingly allowed Dan to handle the process and accepted his conduct.
- Laches: Delayed filing impaired Dan’s ability to defend, especially after records became stale.
- Failure to Mitigate: Paul could’ve limited exposure by restructuring the loan or seeking alternative recovery earlier.
- Offset: Any value Paul gained during temporary title ownership should offset claimed damages.
- No Duty Owed: Dan’s role was limited to brokering, not managing or guaranteeing the transaction.
- Good Faith Settlement Bar (CCP § 877.6): Seek a court determination to block indemnity and contribution claims.
Litigation Tactics for Dan
- Early Motion for Summary Judgment (or Adjudication): Based on no fiduciary duty, no contractual indemnity, and lack of proximate cause.
- Motion for Good Faith Settlement Approval (CCP § 877.6): To cut off Paul’s indemnity claim even post-settlement.
- Request for Admission / Interrogatories: Force Paul to admit he never read the loan documents and approved PFC’s use.
- Expert Witness on Real Estate Broker Duties: Show that Dan’s actions met the industry standard of care.
- Cross-Complaint Against PFC and Salinas: Shift responsibility to actual fund handlers.
Conclusion
In broker-investor disputes like Paul v. Dan, the Statute of Frauds may offer limited utility. It is not a catch-all shield against equitable indemnity or fiduciary duty claims and usually fails to bar implied indemnity claims when services have been performed. Dan should instead focus on stronger defenses like lack of fiduciary duty, comparative fault, absence of proximate cause, and statutory settlement immunity. Through careful procedural strategy, affirmative defenses, and tactical use of statutory tools, Dan may effectively contest liability and reduce potential exposure.
