Commercial Real Estate Broker’s Judgment Against Property Owner Upheld Where Owner Negotiated Deal Behind Broker’s Back

In AMA v. Kaplan Realty, Inc., 2015 IL App(1st) 143600, the court looked to the common dictionary definitions of “exclusive” and “refer” as they apply to an exclusive real estate listing agreement to find that a commercial real estate broker could recover unpaid commissions from a property owner who negotiated a property sale without the broker’s knowledge.

Here is the relevant chronology: the plaintiff property owner hired the defendant broker to sell a multi-unit apartment building.  The parties signed an exclusive listing agreement running from January 2009 – January 2010 that required the owner to refer all purchase inquiries to the broker and that provided for a 5% commission on the gross sale price from any buyer during the term of the agreement.

About two months before the agreement expired, the owner started dealing directly with a prospective buyer whom the broker had earlier introduced to the owner. The owner and buyer continued to discuss the details of the purchase through the end of the contractual listing period.  Ultimately, some 18 days after the agreement expired, the owner and buyer signed a $6.75M sales contract for the parcel.  After learning of the sale, the broker recorded a lien for 5% of the sale price.

The plaintiff filed a slander of title suit (arguing that the broker lien clouded property title) and the broker filed a breach of contract counterclaim for his 5% commission.

The trial court entered summary judgment for the broker for nearly $500K and the owner appealed.

Affirming, the First District rejected the owner’s argument that since the broker “knew about” the property’s eventual buyer, the owner complied with the listing contract.  The court noted that the contract required the owner to “immediately refer” any prospect who contacted the owner for any reason and there was no exception for prospects known to the broker.

Looking to the Merriam-Webster’s College Dictionary, 11th edition (“MWCD”) “refer” means “to send or direct for treatment, air or information, or decision.”  Under this definition, the owner was obligated to send anyone who contacted the owner about the property to the broker.  MWCD, p. 1045, 11th ed. 2006.

The court also noted that the listing agreement was an exclusive one.  “Exclusive” in the listing contract context denotes “limiting or limited to possession, control or use by a single individual or group.”  MWCD, p. 436 (11th ed. 2006).  Under this definition, the court found that the subject listing agreement gave the broker the sole right to market the property – even to the exclusion of the owner.

Affirming the money judgment for the broker, the court found that the owner’s sustained pattern of excluding the broker from communications with the buyer and failing to apprise the broker of the owner’s contacts with the buyer supported the trial court’s half-million dollar judgment for the broker.

Afterword:

This case represents a straightforward application of contract interpretation principles to merit what the court believes is a fair result for the broker.  The owner’s pattern of bypassing the broker to contact the buyer directly, coupled with the fact that the purchase contract was signed so soon after the listing agreement terminated was a suspicious factor weighing in favor of upholding the money judgment against the owner.

I’m left wondering why the broker didn’t file suit to foreclose his broker’s lien.  As I’ll write in a future post, the Illinois Commercial Real Estate Broker Lien Act, 770 ILCS 15/1 et seq. (“Broker Act”), arms a commercial broker who secures a buyer (or tenant) but isn’t paid with a strong remedy.  The successful Broker Act plaintiff can recover her attorneys’ fees against the owner or buyer, whatever the case may be. 770 ILCS 15/5, 10, 15.

 

Fired Pittsburgh Law Firm Entitled to Over $500K In Attorneys’ Fees for Pre-Settlement Services (PA Court Rules)

 

A special thanks to Adam Brandolph (Twitter: @brandolph_trib) of the Pittsburgh Tribune-Review for alerting me to this one.

In In re Estate of Schaab, a Pennsylvania court awarded over $500K in legal fees to a law firm that negotiated the settlement of a planned wrongful death suit  on behalf of the parents of a murder victim.  The plaintiffs’ son was a counselor at a Pittsburgh mental hospital and was killed during a patient’s shooting spree in May 2012.

The plaintiffs retained a law firm (the First Firm) under a contingency fee agreement that provided a 35% recovery in the event formal litigation ensued or a 33% recovery if no litigation was filed.  

The First Firm negotiated a $1.5M settlement after mediation with the University of Pittsburgh – the entity that sponsored the psychiatric facility and the plaintiffs’ son’s employer.  The parties documented the $1.5M settlement at the mediation.

After the parties reached the settlement, the First Firm sent a release to the plaintiffs for them to sign.  Before the plaintiffs signed the release, the First Firm agreed to reduce its contingent fee from $500,000 to $350,000 so that the plaintiffs could pay some of the settlement funds to their deceased son’s fiancé. 

The plaintiffs then did an about-face and decided they wanted to sue the shooter’s parents and estate (they previously said they didn’t want to).  The First Firm then referred plaintiffs to their current firm (the “Second Firm”) to sue the shooter’s parents and his estate.  The plaintiffs fired the First Firm and hired the Second Firm.

Plaintiffs finally signed the release in May 2013 – about eight months after the First Firm first presented it to them.  About six months later, plaintiffs received about $1M in settlement funds and the remaining $500,000-plus was put into escrow pending resolution of the fees issue. 

When the Second Firm claimed the right to the entire half a million in fees, the First Firm intervened and claimed the fees belonged to it since the First Firm’s efforts culminated in the $1.5M settlement agreement.

Incredibly, the Second Firm argued that the First Firm wasn’t entitled to any fees since the plaintiffs terminated the First Firm before the settlement was paid.  The Court quickly rejected this argument and held that under Penn. law, where a law firm’s services result in the creation of a fund, that firm is entitled to be paid from the fund. 

Here, the First Firm clearly created the settlement fund in July 2012 when the parties memorialized the $1.5M settlement at mediation.  As a result, it was entitled to a third of the settlement payout  under the contingency fee agreement it reached with the plaintiffs.

The Court held that the Second Firm’s argument that no “recovery” was had while the First Firm was representing the plaintiffs was absurd.  The plaintiffs’ right to receive the funds accrued in July 2012 when the $1.5M settlement agreement was signed. 

The fact that the funds weren’t paid until over a year later was irrelevant.  The plaintiffs received $1.5M from the University based on the skilled services and negotiating acumen of the First Firm. As a result, the Court awarded the First Firm over $500,000 and the remaining funds went to the decedent’s estate.

Afterword: A fair, common sense result.  Where a fired attorney plays a crucial role in consummating a settlement agreement before his termination, he should share in the proceeds; even where the settlement  isn’t paid until after a new lawyer is hired.

 It’s clear the First Firm was the procuring cause of the $1.5M settlement.  The Court properly held that it was unfair to prevent the First Firm from receiving any of the proceeds based solely on the defendant paying the settlement after he fired the First Firm.

See link to opinion here: Judge O’Toole’s Decision