Opinion
011601-08.
Decided May 12, 2010.
Theodore S. Steingut, Esq., Plaintiff's Counsel.
Steven L. Levitt, P.C., Defendant's Counsel.
This matter is before the Court for decision on 1) the motion filed by Defendants-Counterclaim Plaintiffs ("Defendants") Cooper Advisory Services, Inc.("Cooper") and Gary Cooper ("Gary") on March 1, 2010 and 2) the motion filed by Plaintiff Distinctive Ventures LLC ("Distinctive" or "Plaintiff") on March 4, 2010, both of which were submitted on March 26, 2010. For the reasons set forth below, the Court 1) denies Defendants' motion for an order pursuant to CPLR § 3212 granting them summary judgment dismissing the Amended Complaint; and 2) grants Plaintiff's motion for an Order pursuant to CPLR § 3212 and Real Property Law § 442-e(3) granting summary judgment to Plaintiff to the extent that the Court a) grants Plaintiff summary judgment in the amount of $350,000, representing the amount of commissions paid by it, as well as a penalty in the amount of $7,500; and b) dismisses Defendants' counterclaims.
BACKGROUND
A. Relief Sought
Defendants move for an Order, pursuant to CPLR § 3212, granting summary judgment to Defendants dismissing the causes of action asserted against them in the Amended Complaint.
Plaintiff moves for an Order, pursuant to CPLR § 3212, 1) granting summary judgment in favor of Plaintiff on the first cause of action in the Amended Complaint, in which Plaintiff seeks to recover commissions paid to Defendant Cooper; and 2) dismissing Defendants' counterclaims.
B. The Parties' History
The history and underlying facts of this action were set forth in a prior decision dated January 26, 2009 issued by the Honorable Leonard B. Austin ("Prior Decision") and, accordingly, will not be set forth again in detail here. That Prior Decision (Ex. F to Ds' motion) addressed Plaintiff's motion for summary judgment and Defendant Cooper's cross-motion for partial summary judgment with respect to the original Complaint, which contained the caption Distinctive Ventures LLC v. Cooper Advisory Services, Inc., Index Number 11601-08. In the Prior Decision, the Court 1) denied Plaintiff's motion for summary judgment on the first cause of action in which Distinctive alleged that it overpaid commissions to Cooper and Cooper refused to refund those excess commissions; 2) granted Plaintiff's motion for summary judgment on the second cause of action in which Plaintiff sought a declaration regarding Cooper's entitlement to commissions on unconsummated sales and held that Cooper was entitled to "4% of the liquidated damages procured by Distinctive if a sale failed to close on account of the purchaser's default and its full commission if a sale failed to close owing to Distinctive's fault" (Prior Decision at pp. 9-10); 3) denied Defendant's motion to dismiss the first cause of action;
4) granted Plaintiff's motion to dismiss the third and fourth counterclaims sounding in unjust enrichment; and 5) denied Plaintiff's motion to dismiss the remaining counterclaims. The essential allegations are as follows:
Distinctive, as the developer of a cooperative project known as the Panoramic Project in Montauk ("Project"), entered into an exclusive agreement ("Agreement") with Cooper, of which Gary was the President, to, inter alia, market the cooperative units being built there. Distinctive initially sought to recover a portion of the commission payments it had advanced to Cooper pursuant to that Agreement, alleging that Cooper was not entitled to them because the required number of unit sales had not closed. Distinctive also sought to limit Cooper's commissions on units that had gone to contract but never closed. In response, Cooper asserted counterclaims 1) to retain all of the commissions on the theory that they were non-refundable, 2) to recover additional commissions which, it alleged, would have been earned but for Distinctive's alleged mismanagement of the Project, and 3) to recover its commission on Distinctive's purchase of the property which, it alleged, it sacrificed in exchange for its exclusive agreement with Distinctive to market the Project.
Following the issuance of the Prior Decision, Distinctive learned that Cooper was not a licensed real estate broker at all pertinent times and, accordingly, filed an Amended Complaint which included a cause of action to recover all commission payments paid pursuant to Real Property Law § 442-e(3) as well as dismissal of Cooper's counterclaims pursuant to Real Property Law § 442-d. In answering the Amended Complaint (Ex. G to Ds' motion), the Defendants maintained that a real estate broker's license was not required because the Agreement was primarily for consultation and that, in any event, Gary's individual real estate broker's license sufficed. The Defendants continued to advance their five (5) counterclaims for breach of contract (first and second), unjust enrichment, quantum meruit and fraud in the inducement.
C. The Parties' Positions
Distinctive seeks 1) summary judgment refunding all of the commissions paid to Cooper, in quadruple, pursuant to Real Property Law § 442-e(3), and 2) dismissal of Cooper's counterclaims pursuant to Real Property Law § 442-d.
The Defendants seek dismissal of the Amended Complaint pursuant to CPLR § 3212. RULING OF THE COURT
A. Summary Judgment Standards
To grant summary judgment, the court must find that there are no material, triable issues of fact, that the movant has established his cause of action or defense sufficiently to warrant the court, as a matter of law, directing judgment in his favor, and that the proof tendered is in admissible form. Menekou v. Crean, 222 AD2d 418, 419-420 (2d Dept 1995). If the movant tenders sufficient admissible evidence to show that there are no material issues of fact, the burden then shifts to the opponent to produce admissible proof establishing a material issue of fact. Id. at 420. Summary judgment is a drastic remedy that should not be granted where there is any doubt regarding the existence of a triable issue of fact. Id.
B. Licensing Requirements
A real estate broker's license is required to recover compensation for services rendered in the buying, selling, exchanging, leasing, renting or negotiating a loan upon any real estate. Real Property Law § 442-d. See Mavco Realty Corp. v. M. Slayton Real Estate, Inc. , 38 AD3d 726, 727 (2d Dept. 2007); Gerstein v. 532 Broad Hollow Road Co., 75 AD2d 292 (1st Dept. 1980). In addition, pursuant to Real Property Law § 442-e, any person or company which "receive[s] any sum of money as commission, compensation or profit by or as a consequence of his violation of [Real Property Law § 447-d] shall . . . be liable [for] a penalty of not less than the amount of the sum of money received by him . . . and not more than four times the sum so received . . . as may be determined by the court . . ."
The purpose of the licensing requirement under the Real Property Law is to protect the public from inept, inexperienced, or dishonest persons who might perpetrate or aid in the perpetration of fraud. Kavian v. Vernah Homes Co. , 19 AD3d 649 (2d Dept. 2005), citing Galbreath-Ruffin Corp. v. 40th 3rd Corp., 19 NY2d 354, 362-363 (1967); Kreuter v. Tsucalas, 287 AD2d 50, 54 (2d Dept. 2001). Where the dominant feature of the transaction at issue is the transfer of real property, one who does not have a real estate broker's license is barred from collecting a fee for endeavors in the nature of brokerage services. Panarello v. Segalla , 6 AD3d 515 , 516 (2d Dept. 2004), app. dism., 4 NY3d 739 (2004), app. den., 6 NY3d 706 (2006).
Pursuant to RPL § 440(1), a real estate broker is defined as:
any person, firm, limited liability company or corporation, who, for another and for a fee, commission or other valuable consideration, lists for sale, sells, at auction or otherwise, exchanges, buys or rents, or offers or attempts to negotiate a sale, at auction or otherwise, exchange, purchase or rental of an estate or interest in real estate, or collects or offers or attempts to collect rent for the use of real estate, or negotiates or offers or attempts to negotiate, a loan secured or to be secured by a mortgage, other than a residential mortgage loan . . .
Because Real Estate Property Law § 442-e is penal, it must be strictly construed so as not to encompass every situation in which an interest in real estate may be part of the transaction. Eaton Associates v. Highland Broadcasting Corp., 81 AD2d 603, 604 (2d Dept. 1981). If an item of real estate, or an interest in real estate, is a mere incident or incidental feature of the transaction, RPL § 442-d should not apply. Sorice v. DuBois, 25 AD2d 521 (1st Dept. 1966), citing Dodge v. Richmond, 5 AD2d 593, 595 (1st Dept. 1958). If, however, real estate is the principal element involved in the transaction, a broker must have a license and may not avoid this requirement by characterizing the transaction in a different way, e.g. by referring to the services as originating or introducing. Sorice 25 AD2d at 521, citing Baird v. Krancer, 138 Misc. 360, 362 (Sup. Ct., NY Cty. 1930).
C. Consequences of Failure to Possess the Required License
Real Property Law § 442-d bars an action to recover a real estate brokerage commission when the plaintiff-real estate broker corporation, at the time its services were rendered, was not a licensed real estate broker, even though the president of the plaintiff corporation was licensed in New York State. Philip Mehler Realty, Inc. v. Kayser, 176 AD2d 104 (1st Dept. 1991), app. dism., 79 NY2d 977 (1992), reh. den., 79 NY2d 1041 (1992) (plaintiff-corporation may not maintain action for commission where plaintiff did not allege, or provide proof, that it was licensed). Nevertheless, where the procuring of a license is merely for the purpose of raising revenue, acts performed without securing a license may be valid. Benjamin v. Koeppel, 85 NY2d 549, 553 (1995).
D. Applicable Contract Principles and Provisions
When the parties set down their agreement in a clear, complete document, their writing should be enforced according to its terms. Henrich v. Phazar Antenna Corp. , 33 AD3d 864 (2d Dept. 2006). A contract will be interpreted in accordance with the intent of the parties as expressed in the language of the agreement. Greenfield v. Philles Records, Inc., 98 NY2d 562, 569 (2002). The best evidence of what parties to a written agreement intend is what they say in their writing. Id. at 569, quoting Slamow v. Del Col, 79 NY2d 1016, 1018 (1992). A written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms. South Road Assoc., LLC v. International Business Machines Corp., 4 NY3d 272, 277 (2005); WWW Assoc., Inc. v. Giacontieri, 77 NY2d 157, 162 (1990). The interpretation of an unambiguous contract provision is a matter for the court. Greenfield v. Philles Records, Inc., 98 NY2d at 569; WWW Assoc., Inc. v. Giacontieri, 77 NY2d at 162.
A court should not, under the guise of contract interpretation, imply a term which the parties themselves failed to insert or otherwise rewrite the contract. Aivaliotis v. Continental Broker-Dealer Corp. , 30 AD3d 446, 447 (2d Dept. 2006), citing Lui v. Park Ridge at Terryville Ass'n, Inc., 196 AD2d 579 (2d Dept. 1993), quoting Mitchell v. Mitchell, 82 AD2d 849 (2d Dept. 1981).
The Agreement, dated June 1, 2007 (Ex. A to Ds' motion,) provides that Cooper and Distinctive "have agreed that Cooper will provide consulting and brokerage services to [Distinctive] relating to the sale of cond-op units . . . at the Project." Paragraph 1 of the Agreement provides:
Consulting Services: Cooper shall consult with [Distinctive] in connection with its dealings with (i) other consultants relating to the Project; (ii) other brokers, marketing and sales agencies, and advertising and public relations agencies, in connection with marketing the Project; (iii) lenders and investors in connection with financing the Project; and (iv) transaction attorneys. In addition, Cooper will engage, as independent contractors, Gary Cooper, Laura Mastandrea ("Mastandrea") and Ed Bruhl ("Bruhl"), to provide the consulting services, and Cooper will pay salaries to such independent contractors from the brokerage fees due to Cooper when earned."
Paragraph 3 of the Agreement provides:
Brokerage Services: Cooper shall have an "exclusive right to sell" Units in the Project and Cooper shall perform the following services:
(a) List the Units for sale at the sales prices listed in the Offering Plan or amendments thereto accepted for filing by the Attorney General;
(b) Conduct all showings and present all offers to [Distinctive]; and
(c) Maintain, and provide to [Distinctive] upon request, a list of all prospective purchasers to whom the Project has been shown or who have expressed interest.
Cooper shall be the exclusive broker for the Project, . . . Notwithstanding the foregoing, in the event that no contract for the sale of a Unit has been entered into by the date which is six (6) months after the date of this Agreement, then [Distinctive] shall have the right to engage a co-exclusive broker for the Project."
With respect to compensation, paragraphs 2(a) and (b) of the Agreement provide in pertinent part:
Weekly-Draw Against Future Commissions: Laura Mastandrea will receive a $500.00 per week draw against future commissions from [Distinctive]. The total paid to Laura as a draw will be deducted from the first and second closing commissions paid to Cooper . . .
Cooper shall receive a one time, non-refundable advance of $50,000 from [Distinctive] upon signing this agreement. Said sum shall be reimbursed to [Distinctive] as a deduction from the first brokerage commission payable to Cooper from the first sale at the closing.
Paragraph 4 of the Agreement required Distinctive to pay all expenses of brokerage services directly, including 1) costs of building out and furnishing an on-site sales office,
2) equipment and operating costs of the sales office, 3) marketing/advertising costs, 4) print advertisements and web-based advertisement, and 5) sales promotions/events.
Paragraph 5(a) provides that "if there is no co-broker, [Distinctive] shall pay Cooper 4% of the gross sales price of each Unit at closing." Under paragraph 5(b), if there is a co-broker, "[Distinctive] shall pay 2.5% of the gross sales price of each Unit to each of Cooper and the co-broker at closing (for a total of 5%)." Pursuant to paragraph 5(c), if 12 Units are under contract within four months of the Agreement, Distinctive shall pay Cooper a bonus in the amount of $250,000 payable in full upon the closing of the twelfth (12th) Unit and additional bonuses will be negotiated by the parties in good faith as the Project progresses.
Pursuant to paragraph 5(d) of the Agreement, if a signed contract was terminated due to the seller's default, Distinctive remained obligated to pay the commission with respect to the transaction. If, however, the signed contract was terminated due to the purchaser's default, Distinctive was required to pay commissions at the rate set forth based upon the liquidated damages, if any, collected by the seller pursuant to the contract, and payment would be made to Cooper only when and if Distinctive received payment. In addition, in the event the Agreement was terminated or expired prior to its scheduled expiration date, Distinctive was obligated to pay commissions with respect to prospective purchasers with whom Cooper or any co-broker dealt who contracted to purchase a Unit within six (6) months after such expiration.
Under paragraph 7 of the Agreement, with limited exceptions, Distinctive covenanted not to 1) employ or engage any real estate brokers or realtors other than Cooper with respect to sales of Units in the Project; 2) fail to refer all inquiries from prospective purchases, other brokers, realtors or otherwise to Cooper; or 3) convey, transfer or otherwise remove from the market, without Cooper's written consent, any of 21 specified units.
Paragraph 9(d) of the Agreement provided:
[Distinctive] and Cooper agree that [Distinctive] shall be identified on all promotional material as the exclusive marketing and sales agent for the Project and, at Cooper's option, Cooper or Gary Cooper personally shall be identified as the exclusive broker engaged by [Distinctive] for the Project.
Pursuant to paragraph 6, Distinctive was permitted to terminate the Agreement on 10 days written notice to Cooper in the event of 1) abandonment or suspension of the Project, or
2) gross negligence, fraud, willful misconduct or any material breach by Cooper of its obligations, provided that Cooper received a written notice to cure and 5 days to cure any material breach. In contrast, Cooper had the right to cancel on 30 days written notice to Distinctive, or if Distinctive failed to pay any commission when due. Annual interest of 12% was imposed on outstanding commissions.
E. Defendants' Prior Position
In this action, Cooper consistently characterized the Agreement as a brokerage agreement. In its original Answer (Ex. D to Ds' motion), Cooper Advisory Services alleged that "Defendant/Counterclaimant Cooper and Plaintiff/Counterclaimant Defendant Distinctive Ventures . . . entered into an Agreement dated June 1, 2007, pursuant to which Defendant/Counterclaimant Cooper would serve as the exclusive real estate broker [emphasis added] in connection with the sale of certain cooperative units at a project located in Montauk, New York known as the Panoramic Project" (Answer at ¶ 14).
Furthermore, in support of Cooper's prior motion to vacate the default judgment against it, Gary provided an Affidavit dated July 30, 2008 (P's Ex. 10 in support of motion) in which he affirmed that "the Defenses and Counterclaims alleged by Defendant/Counterclaimant Cooper in this action all arise from the terms of an Exclusive Brokerage Agreement (hereinafter referred to as the "Agreement") dated June 1, 2007 between the parties of this action, and/or from an earlier oral agreement between Cooper and Distinctive, commencing in or about the summer of 2006" (Gary Aff. at ¶ 5) and that "[p]ursuant to those Agreements, the Defendant/Counterclaimant Cooper would serve as the exclusive real estate broker in connection with the sale of certain cooperative units at a project located in Montauk, New York known as the Panoramic Project (hereinafter referred to as the "Project")" (Gary Aff. at ¶ 6).
Similarly, Gary Cooper provided an Affidavit in Opposition to Distinctive's prior summary judgment motion and in support of Cooper's motion (P's Ex. 11 in support of motion) in which he affirmed that "[t]he Counterclaims seek damages in an amount to be determined by this Court: a) for commissions which Defendant/Counterclaimant Cooper Advisory earned pursuant to the terms and conditions of an Exclusive Brokerage Agreement between the parties dated June 1, 2007, and amended by Rider dated September 20, 2007 . . ." (Gary Aff. in Opp./Support at ¶ 8).
The Court may consider Defendants' prior position that the Agreement did involve brokerage services in deciding the instant motion. See, e.g., Payne v. 100 Motor Parkway Associates, LLC , 45 AD3d 550, 554 (2d Dept. 2007) (affidavit that was inconsistent with deposition testimony raised only a feigned factual issue designed to avoid the consequences of earlier admissions); see also D'Avilar v. Cerebral Palsy Association of New York State , 63 AD3d 776 , 777 (2d Dept. 2009) (affidavit submitted by plaintiff failed to raise triable issue of fact as it contradicted her earlier admission and was clearly designed to avoid consequences of those admissions).
F. Application of these Principles to this Action
An examination of the Agreement and other relevant information leads the Court to conclude that the primary, if not sole, purpose of the parties' relationship and their Agreement was to facilitate the sale of units. Accordingly, Real Property law § 442-d clearly applies.
Moreover, the Agreement was indisputably between Cooper and Distinctive and, therefore, Cooper was required to possess a real estate broker's license. Gary's individual brokerage license does not enable Cooper to retain or collect commissions. See Sharon Ava Co., Inc. v. Olympic Tower Associates, 259 AD2d 315 (1st Dept. 1999); Philip Mehler Realty, Inc. v. Kayser, supra.
Galbreath-Ruffin Corp. v. 40th 3rd Corp., 19 NY2d 354, 362-363 (1967), cited supra, on which Cooper relies, is readily distinguishable. In Galbreath-Ruffin, the plaintiff was a licensed brokerage corporation at all times when services were rendered to the defendant, and was affiliated with another properly licensed brokerage corporation. Both of the individuals who provided brokerage serves on behalf of the plaintiff corporation were also licensed brokers. One of those individuals, the plaintiff's vice president, was only licensed to provide brokerage services on behalf of plaintiff's affiliate and technically should not have provided brokerage services on behalf of the plaintiff until he procured an additional license by paying the fee. In holding that his recovery was not barred under the Real Property Law, the court noted that the lack of a license was purely a revenue matter and that because he already had been approved to act as a broker contemporaneously the license would have been issued pro forma. Id. at 363-364. By contrast, the contracting party here (Cooper) lacked a license.
The Court is unpersuaded by Defendants' argument that the Agreement was not a brokerage agreement, in light of their contrary positions in the past in the instant litigation. Accordingly, Cooper's lack of a license not only preclude its recovery of commissions under Real Property Law § 442-d, it also entitles Distinctive to recover commissions paid up to four times that amount in the Court's discretion under Real Property Law § 442-e(3).
Finally, the commissions sought cannot be recovered on alternate theories, including unjust enrichment, quantum merit and fraud, because unlicensed persons cannot evade the licensing requirements by invoking equitable remedies to recover in tort rather than in contract. Coldwell Banker Mid Plaza Real Estate Inc. v. Guindi, supra, at 4, citing Kennedy v. Huntington Hartford, 31 AD2d 616 (1st Dept. 1968). See also Melius v. Breslin , 46 AD3d 524 , 527 (2d Dept. 2007), app. den.,10 NY3d 715 (2008), rearg. den.,11 NY3d 771 (2008) (plaintiff involved in illegal and unenforceable kickback scheme may not pursue claim based on unjust enrichment). Thus, dismissal of the defendants' counterclaims is warranted.
Distinctive has provided copies of checks (P's Exhibit 6 in support of motion) from 2007 and 2008, payable to Cooper, totaling $350,000 in support of its allegation that it paid commissions in that sum. In light of the foregoing, the Court grants Distinctive's motion for summary judgment in the amount of $350,000. Moreover, although a penalty is mandated, the Court has discretion to determine the amount of that penalty. In its discretion, the Court orders defendant to pay plaintiff a penalty of $7,500. See Rodolitz Organization v. Secondary Mortgage Resources, Inc., 175 AD2d 277 (2d Dept. 1997) (affirming trial court's award of summary judgment to plaintiff for over $300,000 in commissions paid to unlicensed broker, and imposition of $7,500 penalty). The Court declines, however, to impose quadruple damages as it views the amount of the commissions plus the penalty as appropriate compensation to plaintiff.
All matters not decided herein are hereby denied.
This constitutes the decision and order of the Court.
Submit judgment on notice.