BROKERS ARE AFFORDED GREAT PROTECTION BY NEW YORK COURTS

Breach of Contract, Brokers, Commissions, Implied Contracts, Real Estate Litigation

This post has musings from recent briefing we did representing a broker seeking a commission for a real estate transaction.  In New York, the default rule for real estate brokers is that they earn their commission when they produce a buyer who is “ready, willing and able” to purchase at the terms set by the seller.  This is a default rule because the seller (or lessor) and broker can, and often do, agree on different terms concerning a commission.  Perhaps most common, the seller and broker agree that a commission is only due if and when the seller actually closes on the sale of the property to the buyer produced by the broker – with the broker getting paid at the closing table out of the sale proceeds.

As with many other commercial transactions, disputes arise when the parties do not reach clear, express agreement of terms, preferably in writing.  Assume there is no agreement, the broker markets the property and finds a willing buyer, but the seller changes his mind and does not sell.  A broker can successfully sue for its commission if it proves the broker was the “procuring cause” of the transaction.  One appellate court (in a case we litigated) set the standard for procuring cause, holding the broker’s efforts “must be a direct and proximate link, as distinguished from one that is indirect and remote,” between the introduction of the property and the consummation of the deal.  In other words, a broker must do more than merely introduce a buyer to a property, but the broker does not necessarily have to negotiate the deal’s final terms or attend the closing.

Ordinarily, a buyer that does not retain the broker is not responsible for a seller’s commission.  Where a buyer or lessee retains a broker for a property search or other services relating to the deal, even where the same broker represents the seller, the buyer may have liability concerning the commission.  In many transactions, the broker representing a buyer or lessee will get compensated by the seller or lessor upon the closing of a transaction.  Most times, the seller pays and there is no dispute.  When the broker does not get paid, whether because the purchaser does not protect the broker by ensuring a provision for payment of commission in the contract or decides not to purchase, a dispute can arise.  In addition to the possibly relevant issue of whether the broker was the “procuring cause” of the deal, a court might also examine the purchaser’s conduct.  In cases without an express agreement between a buyer and its broker, New York courts have held that a buyer can still have an enforceable “implied” contract with its broker.

Over fifty years ago in Duross Co. v. Evans, 22 A.D.2d 573, 257 N.Y.S.2d 674 (1st Dep’t 1965), the court recognized an implied contract claim.  The broker found the buyer a suitable parcel, and the buyer authorized the broker to submit an offer that the seller accepted.  The seller issued a contract of sale providing for the seller to pay the commission upon closing, but the buyer refused to sign the contract.  The Court held the broker stated a valid claim that the buyer had an implied agreement to purchase, thus allowing the broker to get paid a commission, and the buyer breached by refusing to enter into the contract.  Another cautionary tale about the importance of a purchaser having a clear written agreement with its broker is found in Williams Real Estate Co. v. Viking Penguin, Inc., 228 A.D.2d 233, 644 N.Y.S.2d 19 (1st Dep’t 1996), the court recognized a broker’s claim that it had an oral exclusive brokerage agreement by which the lessee agreed to protect the broker.  The court upheld a claim that the lessee breached the oral agreement by entering into the lease with a different broker.

FRYDMAN LLC OBTAINS DISMISSAL OF ALL CLAIMS IN CONSTRUCTION DEFECTS ACTION

Construction Defects, Frydman LLC, Nuisance, Real Estate Litigation, Trespass

Frydman LLC recently won a motion for summary judgment dismissing a complaint that raised significant allegations and sought relief that could have cost our clients millions of dollars.  One Frydman LLC’s areas of practice concentration is real estate litigation, and this case involved serious allegations of construction defects and related claims.  In an eighteen page decision, the Court dismissed the claims as meritless and time barred.  The dismissal allows our client to avoid trial and removed claims that, if successful, could have led to millions of dollars of construction costs and damages.

Our clients purchased a five story townhouse in New York City and performed a stunningly beautiful gut renovation.  The demolition left little more than the front façade and floor joists and the home is now modernized and stylish.  Several years after completion of the renovation, their neighbor brought a lawsuit alleging that the work was defective, impermissibly used the party wall between the buildings and undermined the structural integrity of the adjacent building.  The claims included nuisance, trespass, property damage, construction defect and Building Code and Zoning violations.  The relief demanded would have required demolishing and rebuilding much of the home and also unspecified monetary damages.

Obtaining the complete dismissal of all claims necessitated two dispositive motions.  The first tranche of the dismissal occurred on the appeal of our pre-answer motion to dismiss the complaint, which the First Department Appellate Division granted in large part.  The appellate court rendered a written decision upholding a Statutes of Limitations defense and finding many of the claims failed to state a valid cause of action.

We then proceeded with fact discovery in which six subpoenas were served on construction professionals and others, nearly 10,000 pages of documents were exchanged and eight depositions were conducted, including of all parties and the main professionals on the project – the project architect, project engineer, inspecting engineer and general contractor’s project manager.  Frydman LLC successfully obtained an order compelling plaintiff to produce the electronic files of contemporaneous digital photographs plaintiff took of the renovation work, with crucial metadata that provided the dates the photographs were taken.  We successfully defended plaintiff’s barrage of motions – eleven in total, including two motions to the Appellate Division.  Frydman LLC also successfully obtained Court orders repeatedly sanctioning plaintiff for discovery failures and frivolous conduct in the litigation.  .

At the close of discovery, we moved for summary judgment dismissing the remaining claims.  Our motion was supported by eight affidavits, including affidavits from two expert witnesses, extensive deposition testimony and over thirty record exhibits, including the metadata from plaintiff’s own photographs.  Following extensive oral argument, the Court issued its eighteen page decision granting our motion in its entirety and dismissing the complaint with prejudice.  The Court held that we supported our motion with sufficient evidence of a lack of construction defects, a lack of infringement of plaintiff’s rights in the party wall, a lack of code violations and affirmative proof that many of the claims were also time barred.  We are very pleased to secure a total victory for our clients, allowing them piece of mind in their home and vindicating their position all along that the project was 100% compliant and of sound construction.