397 West 12th St.
397 West 12th St. (NYLJ/Rick Kopstein)

A real estate brokerage can proceed with a lawsuit seeking a commission from a couple who backed out of buying an apartment through the firm, then bought another apartment in the same building 18 months later, a unanimous state appeals panel has ruled.

Appellate Division, First Department Justice Rolando Acosta (See Profile) wrote the opinion in SPRE Realty v. Dienst, 651671/13, handed down Tuesday. Acosta noted that the First Department had been inconsistent about the standard for when brokers earn a commission. The opinion adopted the standard that there must be a “direct and proximate link” between the broker and the eventual deal.

Justices Richard Andrias (See Profile), David Saxe (See Profile), Helen Freedman (See Profile) and Paul Feinman (See Profile) joined in the opinion.

The defendants are a married couple, Daniel and Jill Dienst, who retained SPRE Realty, Ltd., a real estate brokerage, in 2006 to help them buy a luxury apartment in Manhattan. SPRE’s principal and founder, Susan Penzner, showed the Diensts several apartments over more than a year.

In October 2007, she informed them about a condominium building then under construction at 397 West 12th St. Penzner introduced the Diensts to the building’s developer, who showed them layouts and renderings for the building. In July 2008, SPRE negotiated a deal for the Diensts to purchase two units in the building, forming a duplex, for $11.5 million. Penzner also searched for an architect who could realize the Diensts’ plans for their new apartment.

In August 2008, however, the Diensts withdrew from the deal, telling Penzner that they had dropped their plan to buy a new home. Penzner kept working with Mrs. Dienst, who was looking for a commercial space for her art and antiques store, and during that time Mrs. Dienst told her that the couple had no further interest in 397 West 12th Street.

Nonetheless, in February 2010, the Diensts bought a different duplex in the building for a much lower price of $6.5 million, which reflected the sharp drop in real estate prices after the financial crisis. They paid no commission to SPRE.

SPRE sued the Diensts in May 2013, alleging that they deliberately concealed their continued interest in the building in order to avoid paying a commission. It brought claims of unjust enrichment and breach of implied contract.

The Diensts moved to dismiss the case, arguing that SPRE was not involved in the final purchase, but Justice Charles Ramos denied the motion. They appealed.

Acosta, in Tuesday’s opinion, wrote that the standard for when brokers earn a commission was created by the Court of Appeals’ 1971 decision in Lane-Real Estate v. Lawlet Corp., 28 NY2d 36.

That decision held that a broker earns a commission when it “produces a buyer who is ready, willing and able to purchase at the terms set by the seller.”

In 1980, the Court of Appeals expanded on that standard in Greene v. Hellman, 51 NY2d 197, 205, holding that a broker need not be the “dominant force” in a deal, but only the “procuring cause.”

The departments of the Appellate Division, Acosta wrote, have used “varying language” in interpreting the standard set by the Court of Appeals.

The First Department, in particular, has described the standard in at least two ways, he said.

In 1985, it ruled in Aegis Prop. Servs. Corp. v. Hotel Empire Corp., 106 AD2d 66, that a broker has earned a commission when it has “brought the parties together in an amicable frame of mind, with an attitude toward each other and toward the transaction in hand which permits their working out the terms of their agreement.”

In multiple more recent decisions, Acosta said, the court has described the standard as being a “direct and proximate link” between the broker and the deal, a phrase found in the Court of Appeals’ Greene decision.

To resolve that ambiguity, Acosta said the department would adopt the “direct and proximate link” standard, which he said was narrower than the “amicable frame of mind” standard.

In the Diensts’ case, Acosta said, there is a question of fact about SPRE’s role in the final purchase.

“Although 18 months passed between the abandonment of the first transaction and the conclusion of the second transaction, whether defendants withdrew from the first transaction in good faith is a question of fact to be decided on the evidence,” he wrote. “The answer will depend on when defendants renewed their interest in 397 West and recommenced negotiations with the developer of the property.”

SPRE is represented by David Frydman and his associate Glen Lenihan. Frydman said he was pleased with the decision.

“As a commercial litigator, I am also appreciative that the First Department has taken this opportunity to engage in an in-depth analysis of a broker’s claim for commissions, clarifying the standard for ‘procuring cause’ and plainly setting out the rules where transactions close without the broker or for arbitrary reasons do not close,” Frydman added in an email. “The decision gives a clear road map to brokers, their clients and practitioners on these core real estate litigation issues affecting thousands of transactions each year.”

The Diensts are represented by Wendy Michael and Keelin Kavanagh, partners at Jacob, Medinger & Finnegan.

Michael said that, though the case had survived the motion to dismiss, “once discovery is over, it will be clear that there is no direct and proximate link between the broker’s efforts in this case and our clients’ purchase 18 months later.”