Scott E. Mollen

Brokerage—Real Estate Broker Entitled to Half Commission Since Efforts Were Critical to Sale

This decision followed a non-jury trial of a breach of contract action arising from a dispute over commissions between two real estate agencies, i.e., a co-brokerage dispute.

Both plaintiff and defendant are licensed real estate brokers. The contract for sale of the subject real property (property) and a co-brokerage agreement (contract) signed by the parties had been entered into evidence. The purchaser of the property (purchaser) testified that he had asked the plaintiff to “find information on the property including the comps, covenants, and restrictions so that he could better evaluate the overall value of the property.” Although he preferred to deal “principal to principal” when purchasing property, principals were unavailable.

The initial contract only named the sellers’ broker as the broker for the transaction. purchaser added the plaintiff to the “broker” paragraph. Purchaser stated that the contract did not close on the original closing date because “no one provided a compensation provision” for the plaintiff. The closing thereafter occurred, but purchaser did not believe that the plaintiff was compensated at the closing. Purchaser testified that if it were not for the plaintiff’s services, “he would not have purchased the property.”

Purchaser asserted that he understood that the sellers’ broker represented the sellers, but he did not understand that the plaintiff also represented the interest of the sellers. Purchaser stated that before the sale, the plaintiff had “actively represented the interest of the Sellers” and that he thought the plaintiff was going to earn her commission from the sellers. Purchaser also testified that he never asked the plaintiff to negotiate on his behalf and that he had inserted the plaintiff into the contract, because there was a written agreement between himself and one of the sellers’ brokers, that the commission would be split.

The plaintiff claimed that she had been the “procuring cause” of the transaction and cited the fact that she was named in the contract and “the universal co-brokerage agreement.” The plaintiff testified that she had “performed investigations as to the surrounding properties” for purchaser, advised him of certain “restrictions and surrounding property values” and had given purchaser a “legally required disclosure and told him that [plaintiff] was a seller’s agent.” She confirmed that she advised purchaser that she would be paid through the sellers even though the sellers had an exclusive brokerage agreement with the defendant. The plaintiff explained that this sale was a “co-broke” and she had made it clear that she expected to make a co-broke commission to some people at the sellers’ broker and she had sent a commission agreement to the sellers’ attorney.

The plaintiff had not negotiated how the property would be paid for or the quality of title and she had not negotiated with purchaser. Rather, she only provided him with information pertaining to property values. She was not involved in the “negotiation of the final price.”

A witness for the sellers’ broker testified that the plaintiff had contacted her to obtain information about the property on the same day that purchaser had contacted her, expressing interest in the property. The sellers’ broker provided the plaintiff with “the listing, surveys, and restrictions but did not engage in negotiations with her” and claimed to have been “surprised” by the plaintiff’s claim for commission.

On redirect, the plaintiff testified that she believed that the sellers’ broker understood that she was working on a “co-broke” basis, since she had been asking for information on the transaction. “She thought it was something that did not need to be discussed.”

The court found that the testimony of the purchaser and the plaintiff was “more credible” than the defense witnesses. The contract specified that:

Broker, Seller and Purchaser each represents and warrants to the other that it has not dealt with any other broker in connection with this sale other than [Seller’s broker] and [plaintiff] and Seller shall pay Broker any commission earned pursuant to a separate agreement between Seller and Broker….

The “separate agreement” referred to was the “universal co-brokerage agreement” which had been signed by representatives of the parties. The document referred to the obligations of the “exclusive broker” as well as the “selling broker.” That agreement did not define the term “selling broker” although the term “seller broker commission” was defined as “…a percentage of the gross sales price of the exclusive property.” It further provided:

The commission payable to the Selling Broker shall be the lessor of the Selling Broker Commission as described in both, or 50 percent of the total commission actually collected by the Exclusive Broker. No commission is due unless and until title passes to a broker procured by the Selling Broker and the commission is collected by the Exclusive Broker.

The defendant argued that the plaintiff had failed to negotiate the “essential terms” of the transaction, had failed to create an “amicable atmosphere in which the negotiations proceeded,” failed to “engage in any activity which required a real estate brokerage license in the State of New York….” and “recovery is barred under RPL §441-c(1)(a).” The defendant emphasized that the plaintiff had never had contact with the sellers since the defendant was the “Exclusive Agent” and the plaintiff did not negotiate the terms of the sale.

Although the defendant cited case law language as to the role of a broker, it had overlooked language that provided:

It was not meant by these cases,…that the broker must of necessity be present and an active participator in the agreement of buyer and seller when the agreement is actually concluded. He must just as effectively produce and create the agreement, though absent when it is completed and taking no part in the arrangement of its final details.

Decisional law holds in order to qualify for commission, a broker need not “in all instances…have been the dominant force in the conduct of the ensuing negotiations or in the completion of the sale. But, however variable the judicial terminology employed to express the requirement that the broker must be the procuring cause, it has long been recognized that there must be a direct and proximate link, as distinguished from one that is indirect and remote, between the bare introduction and the consummation….” Here, the court found that far from a mere “tip-off,” the plaintiff’s services were “extensive and of such nature that [purchaser] would not have consummated the sale without them.” Moreover, purchaser had testified, “the sale would not have taken place.”

The court found that the plaintiff was “the dominant force” in the completion of the sale and the plaintiff and the sellers had an agreement providing for a commission and the plaintiff had been “cut out” at the last minute. The court cited the plaintiff’s written contract with the defendant which “defined its status as a co-broker” and held that the plaintiff had “met its burden.”

The defendant had argued that if the plaintiff was representing the sellers, “its interactions with the prospective purchaser violated the fiduciary duty imposed by RPL §443.” That statute requires a written disclosure and acknowledgement “of the fiduciary status of the Seller’s and Buyer’s agent.” The defendant had argued that “[i]f dual interests are to be served, the disclosure to be effective must lay bare the truth, without ambiguity or reservation,…, since it presupposed that the plaintiff “either represented the purchaser and/or did not safeguard the sellers’ interest.” However, the plaintiff testified that the written disclosure was made.

The court found that the purchaser had “put the purchaser in touch with the property’s exclusive broker because only the exclusive broker was permitted to contact the seller.” Since the plaintiff was “contractually bound not to contact the Seller,” it was not established that the plaintiff “represented another’s interest.” The court concluded that the “[plaintiff’s] interactions with [purchaser] were for the benefit of the Seller and the ultimate transaction of sale bares witness to her labors on the Sellers’ exclusive behalf.” Thus, the court held that the plaintiff was entitled to compensation, as the “procuring cause of the successful sale” of the property and she was entitled to one half of the broker’s commission as provided by the contract between the parties.

Comment: A seller may say to a purchaser, “I need more money because I will be paying a significant brokerage commission.” Then such seller may try to negotiate and even litigate with the brokers to get them to reduce their commission. As this case illustrates, the brokers themselves may fight over a co-brokerage obligation. A clear written agreement with respect to the commission will minimize the likelihood of litigation.

Saunders Ventures v. Morrow, Sup. Ct., Suffolk Co., Case No. 033638/2011, decided Feb. 20, 2018, Hudson, J.

Partition—Surrogate Court—Proceeding Dismissed for Lack of Subject Matter Jurisdiction—Majority Owners of Real Property Were Not Directly Interested in the Estate’s Administration

A respondent moved in the Surrogate’s Court (court) to dismiss a petition pursuant to CPLR 3211(a) and (2) and subsection (4) for lack of subject matter jurisdiction, on the grounds that “there is a prior action pending for the same relief in another court.” Alternatively, the movant sought to transfer the subject case to the Supreme Court, Queens County.

The movant alleged that the proceeding sought the partition of six parcels of real property. The subject estate’s interest in five of the six properties, is “16.66 percent each and in the sixth property the estate’s interest is 33.33 percent.” Although a petitioner’s opposition memorandum stated that the petitioner commenced “this action to partition six properties located in Maspeth, New York,” the court found that the subject proceeding was “not a proceeding to partition real property.” The petition’s caption and wherefore clause stated that the proceeding was “‘for leave’ to commence a partition action pursuant to Article 19 of the Surrogate’s Court Procedure Act.” The petition also sought an order that “the court ‘exercise jurisdiction over the Partition Action’ pursuant to SCPA §201[3].”

The court denied the motion to dismiss pursuant to CPLR §3211(a)(4). Although a partition action was pending in the Supreme Court, Queens County involving the same properties, the court found that the “same cause of action is not pending here.” The court denied the motion to dismiss pursuant to CPLR §3211(a)(2) for lack of subject matter jurisdiction “because a proceeding for permission to commence a partition action under SCPA §1901 is within the exclusive jurisdiction of the Surrogate’s Court.” However, since all parties had “operated under the assumption that this was,…, a partition action, in the interest of judicial economy,” the court addressed “the issue of whether this court has the subject matter jurisdiction to permit the commencement of an action for partition in the Surrogate’s Court.” The court noted that “[t]he subject matter jurisdiction of the Surrogate’s Court has,…been ‘steadily expanding’….”

The court further explained:

The Surrogate’s Court’s subject matter jurisdiction originates in the New York State Constitution which provides the court’s power extends “over all actions and proceedings relating to the affairs of decedents, probate of wills, administration of estates and actions and proceedings arising thereunder or pertaining thereto”…. The Surrogate’s Court Procedure Act legislatively codifies this grant of jurisdiction and states the Surrogate’s Court’s has “all the jurisdiction conferred upon it by the Constitution and all other authority and jurisdiction now or hereafter conferred upon the court by any general or special statute or provision of law, including this act”…. Indeed this court’s powers are so broad that, “‘for the Surrogate’s Court to decline jurisdiction, it should be abundantly clear that the matter in controversy in no way affects the affairs of a decedent or the administration of his estate’”…. The Surrogate’s Court powers to fulfill its jurisdictional mandate are “full and complete general jurisdiction in law and in equity to administer justice”…. Moreover, so long as the Surrogate’s Court has subject matter jurisdiction over a controversy, its powers are equal to that of the Supreme Court…. Based upon this broad definition of this court’s subject matter jurisdiction, an action for partition, would, at least conceptually, fall within this court’s constitutional and statutory mandate….

However, the Surrogate’s Court subject matter jurisdiction is “not unlimited” and unlike “courts with general jurisdiction, like the New York State Supreme Court where subject matter is ‘presumed,’ in a court of limited jurisdiction, like the Surrogate’s Court, subject matter jurisdiction must be specifically demonstrated when challenged….”

The court further noted that disputes “between living persons independent of a decedent’s estate are not matters which this court may resolve….” and “[d]etermination of what subjects are related to the ‘affairs of decedents’ or are disputes between living persons is not resolvable through ‘bright-line demarcation’….” Thus, subject matter jurisdiction of the Surrogate’s Court will not be determined “solely on the rigid concept of this court’s competence to adjudicate a matter. Rather, whether a matter concerns the ‘affairs of a decedent’ would appear to require a qualitative decision that it is appropriate for the Surrogate’s Court address a disputed issue under the presented circumstances.”

Case law does not hold that “the Surrogate’s Court has the blanket authority to adjudicate a partition action in every instance where a decedent’s estate is a co-tenant-in-common in real property….” Such rule would mean that an estate which owns merely “a minuscule interest in real property could commence a partition action in this court despite there being a near immaterial relation to the decedent’s affairs.” Moreover, in a partition action, a court must allow “creditors against all the parties’ partitioned shares to be joined…and, even where not joined, to consider and provide for creditors’ liens in its interlocutory judgment….”

One court had “determined under the circumstances presented before it,” it was “eminently reasonable and proper” to transfer a partition action to the Surrogate’s Court. However, in that case, the only two parties to the partition action were “the sole distributees and legatees of the decedent and were the only parties interested in the property at issue.” Moreover, since the real property had been “owned by an inter vivos trust, resolution of the jurisdictional issues turned almost exclusively on the court’s expansive jurisdiction over trusts….” In the subject case, the other co-tenants, who were the majority owners of the disputed real property, were “not legatees under the decedent’s will nor are they parties directly interested in the administration of his estate.” Thus, the court held that “the expedient resolution of remaining estate matters does not appear to be the manifest priority for the parties involved in the subject litigation” and dismissed the proceeding for lack of subject matter jurisdiction.

In the Matter of the Estate of Parisi, Surrogate’s Ct., Queens Co., Case No. 2017-1071/A, decided Feb. 6, 2018, Kelly, J.


Landlord-Tenant—Succession—Income Affidavit Is Not Conclusive Evidence

A trial court denied a petition to annul a determination by the NYC Dep’t of Housing Preservation and Development (HPD), which had denied the petitioner’s claim for succession rights to the subject apartment and dismissed the subject Art. 78 proceeding. The Appellate Division (court) affirmed.

The petitioner cited his inclusion on his father’s income affidavits which had been submitted to HPD. The court explained, however, that such income affidavits do not “establish his entitlement to succession rights as a matter of law….” HPD was “entitled to consider the lack of objective documentary evidence supporting petitioner’s claim…and the fact that petitioner provided an address other than the subject apartment as his place of residence on a tax return filed during the relevant time period.” The court further stated that “[t]he fact that the housing company changed its records and billings, accepted petitioner’s rent checks for several years, and entered into a transfer agreement is unavailing, as ‘estoppel cannot be invoked against a governmental agency to prevent it from discharging its statutory duties’….” HPD had never issued a lease, and the petitioner’s payment of rent “did not legitimatize his occupation of the apartment….”

Moreover, “the transfer agreement did not constitute an approval of his succession rights, and the agreement specifically stated that it was subject to HPD regulations.” The court also rejected the petitioner’s assertion that “HPD should have challenged the housing company’s transfer of his tenancy” pursuant to “28 RCNY 3-18, and not pursuant to 28 RCNY 3-02(p), since no written lease was involved.”

Comment: Adam Leitman Bailey, counsel to the landlord, stated that this decision illustrates that “income affidavits are not necessarily ‘decisive’ with respect to a succession claim.”

In re Jian Min Lei v. New York City Department of Housing Preservation and Development, App. Div., 1st Dept., Index No. 157409/15, decided Feb. 15, 2018. Sweeny, J.P., Manzanet-Daniels, Gische, Kahn, Oing, JJ. All concur.


Scott E. Mollen is a partner at Herrick, Feinstein.