Myles M. Mattenson
5550 Topanga Canyon Blvd.
Suite 200
Woodland Hills, California 91367
Telephone (818) 313-9060
Facsimile (818) 313-9260
Coin Laundry Brokers: What Level Of Care Do You Owe Your Clients?

      Myles M. Mattenson engages in a general civil and trial practice including litigation and transactional services relating to the coin laundry and dry cleaning industries, franchising, business, purchase and sale of real estate, easements, landlord-tenant, partnership, corporate, insurance bad faith, personal injury, and probate legal matters.

      In providing services to the coin laundry and dry cleaning industries, Mr. Mattenson has represented equipment distributors, coin laundry and dry cleaning business owners confronted with landlord-tenant issues, lease negotiations, sale documentation including agreements, escrow instructions, and security instruments, as well as fraud or misrepresentation controversies between buyers and sellers of such businesses.

      Mr. Mattenson serves as an Arbitrator for the Los Angeles County Superior Court. He is also past chair of the Law Office Management Section of the Los Angeles County Bar Association. Mr. Mattenson received his Bachelor of Science degree (Accounting) in 1964 and his Juris Doctorate degree from Loyola University School of Law in 1967.

      Bi-monthly articles by Mr. Mattenson on legal matters of interest to the business community appear in alternate months in The Journal, a leading coin laundry industry publication of the Coin Laundry Association, and Fabricare, a leading dry cleaning industry publication of the International Fabricare Institute. During the period of May 1995 through September 2002, Mr. Mattenson contributed similar articles to New Era Magazine, a coin laundry and dry cleaning industry publication which ceased publication with the September 2002 issue.

      This website contains copies of Mr. Mattenson's New Era Magazine articles which can be retrieved through a subject or chronological index. The website also contains copies of Mr. Mattenson's Journal and Fabricare articles, which can be retrieved through a chronological index.

      In addition to Mr. Mattenson's trial practice, he has successfully prosecuted and defended appeals on behalf of his clients in various areas of the law. Some of these appellate decisions are contained within his website.

Coin Laundry Brokers: What Level Of Care Do You Owe Your Clients?

So with pen in hand and a cup of coffee close by, you review the Sunday advertisements for coin laundries in the area of your interest.  One advertisement seems particularly appealing, and you resolve to contact the broker first thing Monday morning.  When you reach the broker, he shares with you his expectation of multiple offers by Tuesday afternoon, but since you seem like a nice fellow, he will squeeze you in Monday afternoon for an inspection.

You meet the broker at the coin laundry on Monday afternoon, and, much to your delight, the financial information regarding the coin laundry presented to you by the broker supports the listing price. You note, however, that the equipment belongs in the local museum of science and industry reflecting some early period of equipment evolution.

The broker agrees with your appraisal, notes that his brokerage company is related to an equipment distributor, and hands you a proposed purchase agreement for equipment necessary to outfit the coin laundry.

The broker indicates that he would be pleased to submit an offer on your behalf for the coin laundry so long as, as a condition to closing the transaction, you also agree to sign the equipment purchase order.  You indicate that you would prefer to acquire the coin laundry first, and make decisions with regard to equipment replacement at some other time.  The broker, however, insists that the transactions be tied together.

Any problem?

I would suggest that the broker is acting at his peril and might find himself in the unenviable position of explaining his actions to twelve peers of the realm, commonly known as a jury!

In the above scenario, our broker has a listing agreement with the owner and seller of the coin laundry.  The broker thus owes the seller a fiduciary duty, commonly described in most statutes as the “utmost care, integrity, honesty and loyalty” in such dealings.  By conditioning the broker’s willingness to submit an offer upon the concurrent purchase of equipment, the broker is potentially keeping offers from the seller and can thus hardly be considered acting with such “utmost care, integrity, honesty and loyalty” in dealing with the seller.

In agreeing to represent the buyer as well as the seller, a dual agency situation is created and the broker has the same affirmative obligations to the buyer.  Can it be said that the broker is complying with his fiduciary obligation to the buyer by withholding the offer to purchase until the buyer agrees to buy equipment from the equipment distributor?

Another issue that is raised by this scenario is the potential violation of the Sherman Antitrust Act and Clayton Antitrust Act which prohibits certain forms of exclusive dealings, including tying arrangements.

A tying arrangement involves an agreement, for example, by a seller to sell to the buyer a desired product, only if the buyer also purchases a second, distinct product that is not desired.  Although the broker is not the seller of the coin laundry under the above fact situation, the circumstances may be sufficiently similar so as to constitute a violation of these federal acts.

Assume the equipment distributor foreclosed upon the coin laundry for nonpayment and the broker, employed by a brokerage firm related to the equipment distributor, made the same demand, selling the location on behalf of the equipment distributor as seller.  The likelihood of a violation of these federal acts would be enhanced.

Can the secretiveness with which the seller’s broker is operating cause the broker still further difficulty?  As one California appellate court stated,

“An agent shall make known to his principal every material fact concerning his transaction and the subject matter of his agency that comes to his knowledge or is in his memory in the course of his agency, and if he fails to do so, he is liable in damages to his principal for any injury incurred or loss suffered in consequence of such failure.”

Could it be that the secret profit being obtained in the transaction might have to be disgorged?  Another California appellate court put it this way:

“In any transaction on behalf of his principal, the agent is bound to exercise utmost good faith and honesty . . . . ‘when the acts of an agent have been questioned by his principal and a fiduciary relationship has been established, the burden is cast upon the agent to prove that he acted with the utmost good faith towards his principal . . . and that he make a full disclosure prior to the transaction of all facts relating to the transactions under attack.’

It is an integral part of that rule that, if the agent makes a secret profit from the agency, the principal may recover such profitThe fact that the agent may have paid a fair price for the property, or that the property could not then have been sold for a greater price, are false factors [not relevant] if a full disclosure, prior to sale, is not made.”

In this last case which I have quoted, an agent sold his principal’s property to his wife, without disclosing the fact to the principal.  The wife then resold that property at a profit.

Although such case is not directly analogous, the court’s language suggests that under the right factual scenario, a jury might be permitted to decide whether the broker and equipment distributor engaged in a conspiracy to defraud the seller, require the equipment distributor to disgorge the secret profit of the equipment transaction, and assess punitive damages against both.

The moral of the story?  For the buyer and seller, ask lots of questions with the aid of a knowledgeable attorney.  For the broker, jury instructions will note that the statutes require “utmost care” and not “slight care” in abiding by your fiduciary duty!

[This column is intended to provide general information only  and
is  not intended to provide specific legal advice; if you have  a
specific  question  regarding the  law,  you  should  contact  an
attorney  of your choice.  Suggestions for topics to be discussed
in this column are welcome.]

Reprinted from The Journal 
Myles M. Mattenson © 2004