Plaza Tower v. 300 South Duval Associates, LLC considers whether a real estate broker or a lender has “first dibs” on earnest money deposits held by a property developer. After nearly 80% of planned condominium units failed to close (no doubt a casualty of the 2008 crash), the developer was left holding $2.4M of nonrefundable earnest money deposits. The exclusive listing agreement (“Listing Agreement”) between the developer and the broker plaintiff provided the broker was entitled to 1/3 of retained deposits in the event the units failed to close.
After the developer transferred the deposits to the lender, the broker sued the lender (but not the developer for some reason) asserting claims for conversion and unjust enrichment.
The trial court granted the lenders’ summary judgment motion. It found that the lenders had a prior security interest in the retained deposits and the broker was at most, a general unsecured creditor of the developer. The broker appealed.
The issue on appeal was whether the broker could assert an ownership interest in the retained deposits such that it could state a conversion claim against the lenders.
The Court’s key holding was that the developer’s retained deposits comprised an identifiable fund that could underlie a conversion claim. Two contract sections combined to inform the Court’s ruling.
One contract section provided that the broker’s commission would be “equal to one-third of the amount of the retained deposits.” The Court viewed this as too non-specific since it didn’t earmark a particular fund.
But another contract section did identify a particular fund; it stated that commission advances to the broker would be offset against commissions paid from the retained deposits. As a result, the retained deposits were particular enough to sustain a conversion action. Summary judgment for the developer reversed.
Afterwords: Where a contract provides that a nonbreaching party has rights in a specific, identifiable fund, that party can assert ownership rights to the fund. Absent a particular fund and resulting ownership rights in them, a plaintiff’s conversion claim for theft or dissipation of the fund will fail.