Opinion
No. 99 Civ. 0812
September 16, 2002
OPINION ORDER
A. Gary Fieger brought this contract and quantum meruit action against Pitney Bowes Credit Corp. ("Pitney Bowes") and its subsidiaries, Pitney Bowes Real Estate Financing Corporation ("PREFCO") and PREFCO XXII Limited Partnership ("PREFCO XXII"). Fieger alleges that defendants owe him a commission for his services in arranging PREFCO XXII's purchase and leaseback of a corporate headquarters located in Stamford, Connecticut. Fieger's contract claim against PREFCO XXII has been dismissed, see Fieger v. Pitney Bowes Credit Corp., 251 F.3d 386 (2d Cir. 2001), and defendants now move for summary judgment in their favor dismissing the remainder of his claims. They contend that New York law prohibits Fieger from recovering any fee because he agreed to split the real estate broker's commission that he now seeks with Union Bank of Switzerland ("UBS"), an unlicensed broker. See N.Y. Real Property Law §§ 440, 440-a, 442, and 442-d. Familiarity with the prior decision of this Court, see Fieger v. Pitney Bowes Credit Corp., No. 99 Civ. 0812 (S.D.N.Y. July 19, 2000), and that of the Court of Appeals for the Second Circuit, see Fieger, 251 F.3d at 386, is assumed. For the reasons set forth below, defendants' motion is granted, and the case is dismissed in its entirety.
Although the motion is made on behalf of Pitney Bowes and PREFCO alone, the Court construes it as made on behalf of PREFCO XXII as well, since the Court of Appeals for the Second Circuit did not dismiss plaintiffs quantum meruit claims against PREFCO XXII see id. at 393, the defendants seek dismissal of the entire complaint (Def.'s Br. at 14), and Fieger himself construes the motion as made on behalf of all defendants.
BACKGROUND
I. Negotiation and Consummation of the Sale-Leaseback Transaction
In 1994, the Swiss Bank Corporation ("SBC") began to search for investors who might be interested in buying its partially completed American headquarters in Stamford, Connecticut and then leasing that property back to SBC.
Fieger, a self-described financial advisor/consultant who claims to be well-connected at SBC, first learned of the Stamford project in 1995 from SBC officials and his Swiss business associate, " Karl Steiner Holding Corporation ("Steiner"). (Fieger Aff. dated January 14, 2000 ("Fieger Aff.") at 2.) SBC officials informed him at that time that SBC had decided to pursue a sale and leaseback and also gave him an idea "of the terms and structure . . . it would find acceptable." (Fieger Aff. at 2-3.)
In September 1996, SBC sent requests for proposals ("RFPs") to several potential real estate investors to determine their interest in the Stamford property. (Def.'s Renewed Rule 56.1 Statement ¶ 10.) No deal was struck as a result of this solicitation, but Michael J. Naughton, vice president of real estate programs at defendant PREFCO, a real estate investor and financier, contacted SBC to discuss the transaction and confirmed PREFCO's interest in acting as both an equity source and an advisor. (Def.'s Renewed Rule 56.1 Statement ¶ 11.)
In late 1996, Fieger, who had received the September RFP, began discussions with Peter Haidorfer of UBS concerning their firms "working together in financing transactions" of the type that "UBS was seeking for its investing clients," including SBC's Stamford property transaction. (Fieger Aff. at 3, Ex. 1; Fieger Dep. at 126-27.) While Fieger was a licensed real estate broker in New York (but not Connecticut), there is no evidence in the record that UBS or any of its employees were so licensed or that they were licensed or regularly engaged in the real estate brokerage business in another state. (Def.'s Renewed Rule 56.1 Statement ¶¶ 2, 13.)
In January 1997, UBS presented Fieger — who was believed to be acquainted with individuals at SBC — with a draft proposal for the principal terms of a sale and leaseback of the Stamford property. (Fieger Aff. Ex. 2.) Fieger understood UBS's draft proposal to be, as UBS had described it to him, a "`starting point' that might be acceptable to [UBS's] investor clients." (Fieger Aff. at 4.) Fieger also states that, at UBS's request, he proceeded to "ascertain the details of the leaseback terms that would be acceptable to SBC" as well as "additional information regarding the project," all "so that UBS might definitively quote a rate of return to its `client.'" (Fieger Aff. at 4, Ex. 3.)
On April 8, 1997, Fieger updated Steiner on his "negotiations" with UBS and SBC. (1st Callagy Aff. Ex. G.) Fieger explained to Steiner that the prospective buyer's purchase price that UBS had quoted to him "includes their fee and costs of closing" and that he intended "to increase the financing costs by about .15-.20%." (1st Callagy Aff. Ex. G.) Doing that, he told Steiner, "will give us a fee of about $3,600,000 to $4,000,000." (1st Callagy Aff. Ex. G.)
Also in early April, UBS revealed to Fieger that its previously anonymous "client" was Pitney Bowes and outlined for Fieger "the parameters of the deal [Pitney Bowes] would be interested in making" with SBC. (Fieger Aff. at 4.) At Fieger's suggestion, UBS revealed to Pitney Bowes the identity of SBC, and forwarded details of the Stamford project and "preliminary credit information on [SBC]." (Fieger Aff. at 4, Ex. 5.) Also at Fieger's suggestion, UBS suggested to Pitney Bowes that it supply a formal written proposal for the contemplated transaction. (Fieger Aff at 4.) UBS explained to Pitney Bowes that its written proposal would then be submitted to SBC through Fieger's contacts there for consideration as a negotiated transaction." (Fieger Aff. Ex. 5.) On April 14, Fieger forwarded to UBS a copy of the RFP he had received from SBC in September 1996 so that Pitney Bowes could better formulate its written proposal. (Fieger Aff. at 4, Ex. 6.) Fieger returned to SBC and informed it that he had "an investor" that was interested in making a negotiated deal on terms that Fieger outlined in a memorandum. (Fieger Aff. at 4, Ex. 4.)
PREFCO sent a written proposal to UBS on April 22, which UBS forwarded to Fieger via a letter dated April 23. (Fieger Aff. at 4-5, Exs. 7-8.) UBS explained to Fieger in its forwarding letter that "the economics" of PREFCO's proposal "conform to the parameters which you have previously identified to us." (Fieger Aff. Ex. 8.) UBS also recited its understanding that Fieger would be submitting the proposal through "appropriate channels" within SBC and its acknowledgment that Fieger desired to keep UBS's role "`in the background'" on account of unspecified "`political sensitivities.'" (Fieger Aff. Ex. 8.) Finally, UBS expressed to Fieger how
we also understand that in the event a financing is consummated involving, among others, Pitney and Swiss Bank or their respective affiliates, UBS will be paid on the closing date an advisory/arranging fee of 1% of so-called `PREFCO Cost' out of the financing. (For your information, this advisory/arranging fee has already been included among the items intended to be paid out of the 2% Transaction Fee assumed by Pitney in the attached financing proposal.)
(Fieger Aff. Ex. 8.)
After reading the April 23 letter, Fieger told UBS that PREFCO's assumption of a 2% fee would be inadequate to provide for his "share of the fee." (Fieger Aff. at 5.) According to Fieger, UBS responded by informing him "that it would arrange to have the Transaction Fee which [PREFCO] was assuming increased to 2½% and that 1½% (not 1%) would be shared equally between UBS and myself." (Fieger Aff. at 5.)
By fax on April 29, UBS instructed Pitney Bowes to address its revised proposal to "two gentlemen" named Steiner and Fieger and then forward it to UBS. (Ren. Callagy Aff Ex. Q.) Pitney Bowes did that, and, by letter on April 29, UBS forwarded PREFCO's revised proposal — which included "2.5% for transaction fees" — to Fieger. (Fieger Aff. Ex. 9.) PREFCO's covering letter to Fieger and Steiner, signed by Michael Naughton, explained that the underlying proposal was for a purchase price of $180 million and "fees and expenses of 2.5%." (Fieger Aff. at 5, Ex. 9.) PREFCO expressed to Fieger and Steiner its belief that that amount of fees would be "sufficient to cover all of the expenses associated with closing the proposed transaction." (Fieger Aff. Ex. 9.) Other than this letter, Fieger never communicated with anyone at Pitney Bowes or PREFCO regarding any fees to be paid in connection with the SBC transaction. (Def.'s Renewed Rule 56.1 Statement ¶ 21; Fieger Dep. at 480; Naughton Dep. at 128.)
UBS's April 29 forwarding letter to Fieger was similar in many respects to the forwarding letter that it had sent to him on April 23. (Fieger Aff. Ex. 9.) This time, however, the letter referred to UBS as being an "equity placement agent with Pitney" and as having "a possible UBS debt placement role." (Fieger Aff. Ex. 9.) Moreover, the April 29 letter appears to have reflected a change in understanding with respect to fees. It read as follows:
we also understand that in the event a financing is consummated involving, among others, Pitney and Swiss Bank or their respective affiliates, UBS will be paid on the closing date an placement/arranging fee of .75% of so-called "PREFCO Cost" out of the financing. (For your information, this advisory/arranging fee as well as the Fieger Associates Inc. advisory fee not to exceed .75% have already been included among the items intended to be paid out of the 2.5% Transaction Fee assumed by Pitney in the attached financing proposal.)
(Fieger Aff. Ex. 9.) Finally, unlike the April 23 letter, the April 29 letter included a signature line for both UBS and Fieger. (Fieger Aff. Ex. 9; Fieger Dep. at 322.) Both Mark Adiletta of UBS and Fieger signed the document. (Ren. Callagy Aff. Ex. K; Fieger Dep. at 322.)
During depositions in this action, UBS's Mark Adiletta could not recall the April 29 letter agreement or any discussion with either Fieger or the defendants regarding fees. (Adiletta Dep. at 105-12.) UBS's Peter Haidorfer testified that there had indeed been an "income splitting" fee agreement between Fieger and UBS, but he could not remember when that agreement was negotiated, whether it was in writing, or what its terms were. (Haidorfer Dep. at 103, 127-28.) Fieger himself testified that when he signed the April 29 letter from UBS, he agreed with its terms, including its provision for fees. (Fieger Dep. at 321-23.) Citing to that letter, Fieger has averred that the "total fees payable to UBS and the plaintiff was 1½% out of the 2½% Transaction Fees; which 1½% UBS and the plaintiff agreed to share." (Pl.'s Original Rule 56.1 Statement ¶ 16.) Fieger has also pointed to hearsay indicating that, as he puts it, Pitney Bowes "was aware that UBS might have a fee splitting arrangement with [him]." (Pl.'s Original Rule 56.1 Statement ¶ 17 (citing Fieger Aff. Ex. 16).)
Fieger mailed the revised PREFCO proposal — with his commentary on its terms and other terms that he thought still needed to be "negotiated" — to the chief financial officer of SBC on April 30. (Fieger Aff. Ex. 10.) On May 6, PREFCO assured that same SBC officer that it "and its advisors" had authorized Fieger, "in his capacity as real estate consultant," to submit its proposal to SBC. (Fieger Aff. Ex. 11.)
PREFCO's proposal expired by its own terms on May 15, 1997. (Fieger Aff. Ex. 9 at 5, Ex. 10 at 2; Fieger Dep. at 470.) SBC did not act on it. See Fieger, 251 F.3d at 390.
According to SBC documents submitted as evidence by Fieger, SBC had by May 15, 1997 already begun to contemplate the issuance of a second RFP in June to several prospective investors in the Stamford Property, including Pitney Bowes. (Fieger Aff. at 8, Exs. 12-14.) While one of these SBC documents refers to Fieger as "advisor" to Pitney Bowes (Fieger Aff. Ex. 12), another indicates that SBC's Michael Lagana was prepared to give a "lengthy and rather terse" response to a May 19 letter from Fieger, but was told by another SBC employee that, for some reason left unexplained by that employee, "Fieger MUST be included in the RFP process." (Fieger Aff. at 9, Ex. 15.) Yet another document indicates that SBC spoke directly with Pitney Bowes on May 19, and told Pitney Bowes that Fieger was not SBC's advisor, that "if Fieger [was] to receive an incremental fee, he should earn it by adding some real value," and that SBC intended "to review [the Pitney Bowes] proposal in the context of [SBC's] equity bid process, including distribution of the solicitation materials in early June." (Fieger Aff. Ex. 16.)
On June 3, 1997, Fieger wrote to PREFCO. (Fieger Aff. Ex. 17.) He informed the company that on May 29, his associate Steiner had spoken to a member of the executive board of SBC (Switzerland) in Zurich. (Fieger Aff. Ex. 17.) That SBC executive had told Steiner that he was aware that Fieger had presented the April 29 PREFCO proposal to SBC and had also "expressed continued interest in the Sale and Leaseback Proposal of Pitney Bowes." (Fieger Aff. Ex. 17.) The executive had also told Steiner that Fieger should expect to receive an RFP from SBC in the near future. (Fieger Aff. Ex. 17.) Fieger informed PREFCO that he would make that RFP available to PREFCO once he received it, though Fieger knew through a recent conversation with UBS — referenced in Fieger's letter — that PREFCO was expecting to receive the RFP from SBC directly. (Fieger Aff. Ex. 17; Fieger Dep. at 470; Buergler Dep. at 49-50.)
A few days later, Fieger had a telephone conversation with Michael Naughton at PREFCO. (Fieger Aff. at 10.) According to Fieger, Naughton "expressed his pleasure that SBC had `continued interest' in [PREFCO's] April 29 proposal and that he looked forward to [Fieger] sending him the RFP when [he] received it." (Fieger Aff. at 10.) This was the first and last time Fieger ever spoke to Naughton. (Fieger Dep. at 480.)
In late June, Merrill Lynch, Inc., acting on behalf of SBC, sent confidentiality agreements covering the upcoming RFP to several prospective investors and their advisors. (Def.'s Renewed Rule 56.1 Statement ¶ 24.) Both Pitney Bowes and Fieger received those agreements on June 25. (1st Callagy Aff. Ex. N; Fieger Aff. Ex. 20.) The agreement sent to Fieger referred to him as "advisor" to Pitney Bowes; shortly thereafter, however, Merrill Lynch sent Fieger a revised agreement that would have permitted him to present the RFP to investors other than Pitney Bowes. (Fieger Aff. at 11, Ex. 22.) Fieger chose to sign the first confidentiality agreement that he received because, as he explained to Merrill Lynch, he was "Advisor to Pitney Bowes" and "did not intend to act as Advisor to other investors." (Fieger Aff. at 11, Ex. 22.) After returning the confidentiality agreements to Merrill Lynch, Pitney Bowes and Fieger both received copies of the RFP. (Pl.'s Renewed Rule 56.1 Statement ¶ 24; Fieger Aff. Ex. 23 at 2.)
On June 30, "in accordance with [his] letter of June 3," Fieger forwarded a copy of the RFP and his confidentiality agreement — which referred to him as Pitney Bowes's "advisor" — to PREFCO. (Fieger Aff. at 11, Ex. 21.) Fieger expressed his opinion that PREFCO's "offer of April 29th 1997 which [he had] transmitted on [PREFCO's] behalf" was "a very competitive and aggressive bid" that "should prevail at the end of the day." (Fieger Aff. Ex. 21.)
On July 15, PREFCO responded to SBC's June REP by submitting a second proposal. (Ren. Callagy Aff. Ex. Y.) This proposal contained terms that were not included in the April 29 proposal, including renewal terms, early buyout options, termination values, terms and conditions of future financing, and closing costs. (Def.'s Renewed Rule 56.1 Statement ¶ 26.) There is no evidence in the record that Fieger was involved in the preparation of this proposal or in any of the subsequent communications and negotiations between SBC and defendants.
Three days later, on July 18, PREFCO responded to Fieger's letters of June 3 and June 30. (Fieger Aff. at 12, Ex. 23.) PREECO explained to Fieger that his and UBS's attempt to arrange a privately negotiated transaction had been unsuccessful and that PREFCO, like other prospective real estate investors, had received an REP directly from Merrill Lynch in June. (Fieger Aff. Ex. 23.) The main purpose of the letter, however, was to make clear to Fieger
that PREECO has not engaged you or your company to represent it in connection with this proposed transaction. Our only interest in dealing with you in April was in connection with a privately negotiated transaction, based on our understanding that you had special business connections with SBC and the Project. PREECO has very broad experience in bidding on and negotiating sale-leaseback transactions and has no need for a broker or financial advisor in this regard.
Therefore, we request that you desist from any further communications with any person involved in this transaction, including without limitation SBC or Merrill Lynch, to the effect that you in any way represent PREECO or are acting as an advisor to PREFCO.
(Fieger Aff. Ex. 23.)
On August 8, 1997, Merrill Lynch notifed Pitney Bowes that SBC had decided to pursue further discussions with Pitney Bowes concerning its response to the REP. (1st Callagy Aff. Ex. P.) On September 5, SBC and PREFCO executed a letter of intent. (1st Callagy Aff. Ex. Q.)
On September 18, Fieger responded to PREECO's July 18 "desist" letter, which he claimed to have read "with amazement." (Fieger Aff. at 12.) He characterized PREFCO's letter as "an attempt to deprive [him] of compensation" that ignored the services he had provided. (Fieger Aff. Ex. 24.) Fieger insisted that "the pending [SBC] transaction grew out of, and was a continuum of [PREFCO's] first proposal and of the interest we had elicited in [PREFCO] in this advantageous transaction." (Fieger Aff. Ex. 24.) Moreover, he said that his June 3 letter had made PREFCO "well aware . . . [of the fact that] that SBC had a `continued interest' in the Pitney Bowes acquisition" and that Fieger would be forwarding to PREFCO SBC's June RFP. (Fieger Aff. Ex. 24.) Accordingly, Fieger laid claim to a .75% fee. (Fieger Aff. Ex. 24.)
SBC and PREFCO XXII — a special purpose, wholly owned subsidiary of PREFCO — closed on the sale and leaseback in December 1997. No one, however, has paid Fieger a fee.
II. Procedural History
Fieger, a citizen of New York, commenced this suit in New York Supreme Court, New York County, on January 6, 1999. On February 3, 1999, defendants — all citizens of the Constitution State — removed the action to this Court on the basis of diversity of citizenship.
Fieger alleged in the complaint that defendants breached a contractual obligation to pay him a $1.365 million fee, representing .75% of the $182 million PREFCO XXII ultimately paid to acquire the SBC Stamford property. He further alleged a quantum meruit claim on the ground that he had rendered services to defendants with the expectation of compensation, the reasonable value of which was $1.82 million, or 1% of the purchase price of the SBC property.
On December 17, 1999, defendants moved pursuant to Fed.R.Civ.P. 56 for summary judgment in their favor on the grounds that (1) under Connecticut law, Fieger was not licensed to broker real estate transactions in Connecticut, (2) the fee agreement he alleged did not meet the requirements of Connecticut law, (3) regardless of whether Connecticut or New York law applied, he was not the procuring cause of the transaction, and (4) assuming that New York law applied, Fieger had agreed illegally to split a real estate commission with an unlicensed person, i.e., UBS. On July 19, 2000, this Court granted defendants' motion. The Court determined that pursuant to New York's choice of law rules, Connecticut law applied, and that since Fieger was not a licensed real estate broker in Connecticut, he could not recover any fee arising out of the sale of real estate in that state. As a result, the Court did not reach defendants' fee-splitting argument, which is premised on the application of New York law.
Fieger appealed. The United States Court of Appeals for the Second Circuit disagreed with this Court's choice of law analysis. See Fieger, 251 F.3d at 393-97. While it agreed that Fieger's contract claim against PREFCO XXII was governed and barred by the Connecticut real estate broker licensing law, see id. at 393, 398-402, it held that all of his other claims were governed by New York law, see id. at 393-97, and that material issues of fact precluded it from finding as a matter of law that Fieger was not the procuring cause of the SBC sale and leaseback transaction, see id. at 402-04. The court remanded Fieger's quantum meruit claims against all defendants and his contract claims against Pitney Bowes and PREFCO. See id. at 404.
Invoking New York law and Fed.R.Civ.P. 56, defendants now renew their fee-splitting defense, which neither this Court nor the Court of Appeals has addressed.
DISCUSSION
This is a motion for summary judgment on an affirmative defense. Summary judgment will be granted "only when the moving party demonstrates that `there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.'" Allen v. Coughlin, 64 F.3d 77, 79 (2d Cir. 1995) (quoting Fed.R.Civ.P. 56(c)). In determining whether a genuine dispute remains as to a material fact, the court must resolve all ambiguities, and draw all reasonable inferences, against the moving party. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587-88 (1986).
I. Waiver of the Fee-Splitting Defense
Fieger argues that defendants waived their fee-splitting defense because they did not plead the affirmative defense of illegality in their answer to the complaint. (Ren. Callagy Aff. Ex. B.) While it is true that defendants did not plead that defense, they did contend in their first summary judgment motion that Fieger's alleged fee splitting with UBS was illegal and barred recovery. (Ren. Callagy Aff. Ex. C. at 24 n. 6, Ex. E. at 10 n. 6.) Fieger did not respond to the argument in his opposition to that motion (Ren. Callagy Aff. Ex. D), and this Court did not address the question because it granted summary judgment on other grounds. See Fieger v. Pitney Bowes Credit Corporation, No. 99 Civ. 0812 (S.D.N.Y. July 19, 2000).
Rule 8(c) of the Federal Rules of Civil Procedure provides that certain affirmatives defenses — including illegality — shall be set forth in the answer to the complaint. See United States ex rel. Maritime Admin. v. Continental Illinois Nat. Bank Trust Co., 889 F.2d 1248, 1253 (2d Cir. 1989). As a general matter, failure to plead an affirmative defense results in waiver of the defense and its exclusion from the case. See id. (citing Satchell v. Dilworth, 745 F.2d 781, 784 (2d Cir. 1984)). "Nevertheless, numerous courts have held that absent prejudice to the plaintiff, a defendant may raise an affirmative defense in a motion for summary judgment for the first time." Devito v. Pension Plan of Local 819 I.B.T. Pension Fund, 975 F. Supp. 258, 263 (S.D.N.Y. 1997) (brackets and quotation marks omitted). Moreover, courts have also held that under both federal and New York law, it is not absolutely necessary to plead the illegality of a contract which is also contrary to public policy."United States v. Krieger, 773 F. Supp. 580, 583 (S.D.N.Y. 1991); see also Kidder, Peabody Co. v. JAG Int'l Acceptance Group, No. 94 Civ. 4725, 1999 WL 11553 (S.D.N.Y. Jan 13, 1999); Meyers v. Suffin, 203 N.Y.S. 103, 104 (1st Dep't 1924).
In this case, defendants raised the issue of illegal fee-splitting in their original summary judgment motion, and Fieger has not demonstrated how he will be prejudiced if the Court considers it on this renewed motion even though it was not pled as an affirmative defense in the answer. For those reasons, and because the fee-splitting alleged by defendants is contrary to the public policy of the State of New York, the Court will allow defendants to present the defense.
II. The Fee-Splitting Defense
There are callings in life that "are so inveterate and basic, so elementary and innocent, that they must be left open to all alike, whether virtuous or vicious." Roman v. Lobe, 243 N.Y. 51, 54, 152 N.E. 461 (1926) (Cardozo, J.). Real estate brokering, like lawyering and doctoring, is not such a calling. See id. By statute in the State of New York, a real estate broker must be licensed. See N.Y. Real Property Law § 440-a; see also Eaton Assocs. v. Highland Broadcasting Corp., 81 A.D.2d 603, 603, 437 N.Y.S.2d 715 (2d Dep't 1981)., Absent such a license, recovery for the rendering of real estate brokerage services is barred in both state and federal courts. See N.Y. Real Property Law § 442-d; American Prop. Consultants, Ltd. v. Walden Lisle Assocs. Ltd. P'ship, No. 95 Civ. 329, 1997 WL 394617, at *7 (S.D.N.Y. July 14, 1997).
In order to "strengthen" section 440-a's license requirement, section 442 of N.Y. Real Property Law further prohibits what it refers to as "splitting commissions." J.L. Holding Co. v. Reis, 240 N.Y. 424, 148 N.E. 623 (1925). Specifically, section 442 provides that no licensed "real estate broker shall pay any part of a fee, commission, or other compensation received by the broker to any [unlicensed] person for any service, help, or aid rendered . . . in buying, selling, exchanging, leasing, renting or negotiating a loan upon any real estate" unless that person is "a duly licensed real estate broker or a person regularly engaged in the real estate brokerage business in a state outside of New York."
The purpose of these statutory regulations is both "to protect dealers from unlicensed persons acting as brokers and to protect the public from inept, inexperienced persons" acting as brokers. Eaton Assocs., 81 A.D.2d at 604; see also Roman, 243 N.Y. at 54-55; J.L. Holding Co., 240 N.Y. at 427. Accordingly, courts have construed them to preclude even a licensed New York real estate broker — such as Fieger — from collecting a real estate brokerage commission if he has agreed to split the commission with an unlicensed co-broker who aided him. See Meltzer v. Crescent Leaseholds, Ltd., 442 F.2d 293, 294 (2d Cir. 1971), aff'g 315 F. Supp. 142, 146 (S.D.N.Y. 1970); Weniger v. Union Ctr. Plaza Assocs., 387 F. Supp. 849, 858 (S.D.N.Y. 1974) ("such denial best effectuates the purposes of § 442"); Small v. Marchese, 413 N.Y.S.2d 808, 809, 98 Misc.2d 295 (1st Dep't 1978); Kennedy v. Huntington Hartford, 31 A.D.2d 616, 295 N.Y.S.2d 751 (1st Dep't 1968);Meyers, 203 N.Y.S. at 104. Moreover, because alternative recovery in quantum meruit would differ little, if at all, from the amount provided in the unenforceable contract, related quantum meruit claims cannot be maintained either. See American Prop. Consultants, 1997 WL 394617, at *10; Kennedy, 31 A.D.2d at 616. Although this rule "might in some cases preclude recovery by a broker even though he or his unlicensed co-broker had been instrumental in successfully bringing about the consummation of a real estate transaction of mutual benefit to the parties," it must nevertheless be enforced because "New York law on the subject is unequivocal and is given full force and effect by New York state courts."Meltzer, 315 F. Supp. at 150; see also Fieger, 251 F.3d at 401 n. 5 (enforcing "possibly perverse" consequences of Connecticut licensing requirement).
The defendants in this case contend that there is no genuine issue of material fact precluding the Court from finding that Fieger — who, as noted, is a licensed New York real estate broker — and UBS — which is not — entered into an illegal agreement to split a real estate broker's commission to be received from defendants. They urge that Fieger's fee-splitting agreement with UBS prevents him from recovering on either contract or quantum meruit theories for any services that he performed in furtherance of his promise to secure for defendants a privately negotiated transaction with SBC, the promise that was supposedly memorialized in the April 29, 1997 letters between Fieger, UBS, and defendants. See Fieger, 251 F.3d at 392. This Court agrees.
There is, in fact, no dispute that neither UBS nor its employees were licensed or regularly engaged in the real estate brokerage business in New York or elsewhere. (Def.'s Renewed Rule 56.1 Statement ¶ 13.)Cf. Roberts v. H. Gin Realty Corp., 547 N.Y.S.2d 527, 528, 145 Misc.2d 618 (N.Y.Sup.Ct. 1989); Weinstein v. Berry, 88 N.Y.S.2d 152, 153 (N.Y.Sup.Ct. 1949). Rather, Fieger's current litigation position is that, contrary to the testimony of UBS (Haidorfer Dep. at 103, 127-28), he never agreed to split the PREFCO fee with UBS. In order to take this position, Fieger has abandoned his contrary (1) deposition testimony (Fieger Dep. at 321-23, 126-27), (2) affidavit testimony (Fieger Aff. at 5), and (3) prior litigation position (Pl.'s Original Rule 56.1 Statement ¶¶ 16-17). Moreover, Fieger has failed to replace his discarded evidence with any new evidence tending to support his reoriented position — not even a "revised" affidavit. Rather, Fieger points to other witnesses' failure to remember the details of the agreement as conclusive evidence that the agreement never existed. (Pl.'s Renewed Rule 56.1 Statement ¶¶ 9-12.) That evidence, however, does not put in genuine dispute whether UBS and Fieger agreed to split between them the 1.5% fee to be paid by PREFCO. That agreement is a fact which no reasonable factfinder could deny given the uncontradicted testimony of not only UBS, but Fieger himself.
Fieger argues that even if there were a fee-splitting agreement between him and UBS, it was not an illegal fee-splitting agreement. Fieger is correct that not "every situation in which an interest in real estate may be part of the transaction" is covered by the New York broker licensing rules. Eaton Assocs., 81 A.D.2d at 604. Those rules do not apply, for instance, when "a transfer of realty is only an incident in the selling of a going business." J. I. Kislak, Inc. v. Carol Mgmt. Corp., 7 A.D.2d 428, 430, 184 N.Y.S.2d 315 (1st Dep't 1959) (citing Weingast v. Rialto Pastry Shop, Inc., 243 N.Y. 113, 117, 152 N.E. 693 (1926)). Moreover, even when real estate is the "dominant feature" of the transaction, id., the rules do not apply if the real estate brokerage services rendered by the unlicensed (or licensed, but fee-splitting) person are an "incidental feature" of his or her contractual responsibilities. Eaton Assocs., 81 A.D.2d at 604; see also Gerstein v. 532 Broad Hollow Road Co., 75 A.D.2d 292, 296-97, 429 N.Y.S.2d 195 (1st Dep't 1980).
Here, it cannot be gainsaid that real estate was a dominant part of the sale-leaseback allegedly arranged by Fieger and UBS; Fieger's argument is that none of the services supposedly rendered by him or UBS were real estate brokerage services, or at least that those that were real estate brokerage services were only an "incidental" feature of his responsibilities. In New York, a "real estate broker" is defined, in relevant part, as
any person . . . who, for another and for a fee, commission or other valuable consideration, lists for sale, sells, . . . exchanges, buys or rents, or offers or attempts to negotiate a sale, . . . exchange, purchase or rental of an estate or interest in real estate, . . . or negotiates or offers or attempts to negotiate, a loan secured or to be secured by a mortgage.
N.Y. Real Property Law § 440(1); see also N.Y. Real Property Law § 442. "He is an agent who, for a commission or brokerage fee, bargains or carries on negotiations in behalf of his principal as an intermediary between the latter and third persons in transacting business relative to the acquisition of real property." Gerstein, 75 A.D.2d at 296 (quotation omitted). In determining whether a person has engaged in real estate brokering or some other kind of service, courts look to the nature of the services provided and disregard the labels chosen by the parties.See First Wall Street Capital Corp. v. International Prop. Corp., No. 97 Civ. 0702, 1998 WL 823619, at *6 (S.D.N.Y. Nov. 25, 1998); American Prop. Consultants, 1997 WL 394617, at *7 n. 12; Levinson v. Genesse Assocs., 172 A.D.2d 400, 401, 568 N.Y.S.2d 780 (1st Dep't 1991); Baird v. Krancer, 246 N.Y.S. 85, 138 Misc. 360, 363 (N.Y.Sup.Ct. 1930).
Reading the record in the light most favorable to Fieger — the non-moving party — he performed the following services: (1) after SBC advised him of its Stamford project, he presented that opportunity to UBS for presentation by UBS to its clients (Fieger Aff. at 2-3); (2) upon receiving a "starting point" draft proposal for the project from UBS, Fieger ascertained for UBS the "details of the leaseback terms that would be acceptable to SBC" as well as "additional information" regarding the project (Fieger Aff. at 4, Ex. 3); (3) when UBS revealed that its client was Pitney Bowes, Fieger supplied a copy of SBC's September 1996 RFP and suggested that UBS ask Pitney Bowes to draft a written proposal for a "negotiated transaction" to be submitted through him to SBC (Fieger Aff. at 4, Exs. 5, 6); (4) Fieger relayed from UBS to SBC the parameters of a deal that "an investor" was interested in making (Fieger Aff. at 4, Ex. 4); and (5) upon receiving PREFCO's written proposal via UBS, Fieger submitted it to SBC (Fieger Aff. Ex. 10).
In other words, as the Second Circuit phrased it, Fieger "seeks recompense for his services in introducing defendants to a property and helping them negotiate a deal with the property owner." Fieger, 251 F.3d at 402. Because Fieger's services were an "attempt to negotiate" a sale and leaseback of real property, and because there is no evidence that he performed other services such that his broker services were an incidental feature of his contractual responsibilities, he was, as a matter of New York law, acting as a real estate broker. See American Prop. Consultants, 1997 WL 394617, at *7 ("The services that plaintiff alleges it rendered, introducing a potential buyer to a seller and assisting that buyer in consummating the sale, are those that have traditionally been defined as brokerage services and constitute the services of a `real estate broker' as defined by [section 440].").
With respect to the services performed by UBS, the Court will again view contested evidence in the light most favorable to Fieger. According to Fieger, (1) he and UBS had "dialogues" concerning the Stamford project; (2) UBS supplied him with the "starting point" draft proposal; (3) UBS asked Fieger to "ascertain the details of the leaseback terms that would be acceptable" to the seller as well as "additional information regarding the project," information that would enable UBS to "definitively quote a rate of return" to its client (Fieger Aff. at 4, Ex. 3); (4) UBS relayed to Fieger the "parameters of the deal" that Pitney Bowes had expressed interest in (Fieger Aff. at 4); (5) UBS delivered to Pitney Bowes the identity of SBC, details of the Stamford project, a copy of the September 1996 RFP, and "preliminary credit information on [SBC]" (Fieger Aff. at 4, Exs. 5-6); and (6) UBS forwarded to Fieger the resulting formal proposal from PREFCO on April 23 and April 29, 1997 (Fieger Aff. at 4-5, Ex. 8). Together with Fieger, then, UBS allegedly introduced the buyer to the seller and assisted the buyer in consummating the sale. In the absence of evidence indicating that this activity was merely incidental to other contractual responsibilities, there is no genuine issue of material fact that UBS acted as a real estate broker see N.Y. Real Property Law § 440(1), or at least rendered aid or help to Fieger's real estate brokering, see N.Y. Real Property Law § 442.
To be sure, Fieger contends that he and UBS — or at least UBS — were merely finding real estate business for their client, but not "acting as a broker in doing the business" that they found. P.W. Chapman Co. v. Cornelius, 39 F.2d 555, 556 (2d Cir. 1930) (citingKnauss v. Gottfried Krueger Brewing Co., 142 N.Y. 70, 36 N.E. 867 (1894)); see also Stout v. William Kennelly, Inc., 218 A.D. 385, 388 (2d Dep't 1926). In P.W. Chapman, for instance, the court allowed an unlicensed but apparently well-connected plaintiff to recover a commission he had earned by supplying the defendant with information regarding a piece of property the sale of which the defendant ultimately helped finance. See 39 F.2d at 556. And, in Stout, the court allowed an unlicensed plaintiff to recover half the commission earned by the auctioneer in a real estate auction even though the payment was consideration for the plaintiffs having helped the defendant obtain the job as auctioneer. See 218 A.D. at 386. These cases provide no succor for Fieger, however, because neither the information-supplier in P.W. Chapman nor the employment-finder in Stout participated in the actual negotiation of the underlying real estate transaction as Fieger and UBS did here. See P.W. Chapman, 39 F.3d at 556; Stout, 218 A.D. at 388. Thus, in those cases, neither licensed brokers nor the public were even theoretically exposed to the perils of unlicensed real estate brokering perceived by the law of New York.
Finally, relying formalistically on Atlas v. Wood, 226 N.Y.S.2d 43, 46, 33 Misc.2d 543 (N.Y.Sup.Ct. 1962), Fieger contends that the April 29 agreement is not illegal because it merely designated the transaction fees allegedly assumed by PREFCO as the "source" of the funds to be divided between him and UBS. In Atlas, the court rejected a fee splitting defense where the defendant broker had agreed to pay the plaintiff $10,000 if the plaintiff bought a shopping center and allowed the defendant to broker the leases to the tenants of the shopping center; the $10,000 was to be paid to the plaintiff "`out of commissions earned [by the defendant] under the various leases to be made to the various tenants'" of the shopping center. Id. at 46. Given that there was no evidence that the unlicensed plaintiff was to be paid for helping broker the leases, the court held that the language quoted from the contract "merely referred to the source of the funds which the defendant anticipated using to pay his obligation rather than that there was an agreement between the parties to split commissions." Id. Properly understood, then, Fieger's "source" argument is really no different than his argument that neither he nor UBS were acting as real estate brokers when they arranged the SBC deal. The Court has already rejected that argument.
One small matter remains. Although the presence of illegal fee-splitting bars alternative quantum meruit claims, see American Prop. Consultants, 1997 WL 394617, at *10, Fieger has asserted quantum meruit claims not only as an alternative to his unenforceable contract claims, but also in the first instance, as claims arising from services that he allegedly provided separate and apart from his improper attempt to co-broker a privately negotiated transaction with UBS. Only services performed in furtherance of that attempt — not any subsequent, unrelated services — are tainted by the agreement between Fieger and UBS. Fieger asserts, in particular, that UBS dropped out of the picture after the expiration of PREFCO's April 29, 1997 proposal, at which point, "as acknowledged financial advisor to" Pitney Bowes, he "independently pursued" the opportunity presented by SBC's June 1997 RFP.
Although allowing Fieger to proceed with quantum meruit claims arising out of such untainted services would not undermine New York's policy against unlicensed real estate brokering, summary judgment on these quantum meruit claims is nevertheless appropriate for a separate reason. In order to establish a quantum meruit claim to a commission, a broker must demonstrate that the "sale was effected through his agency as the procuring cause." Fieger, 251 F.3d at 403 (quoting R.B. Ventures, Ltd. v. Shane, 112 F.3d 54, 60 (2d Cir. 1997)). Here, however, there is no issue of fact that the only service that Fieger provided after the expiration of PREFCO's April 29 proposal was to forward a copy of the June RFP — which Fieger knew PREFCO would be receiving directly from SBC — to PREFCO. (Fieger Aff. at 10-11, Exs. 17, 21; Fieger Dep. at 470; Buergler Dep. at 49-50.) Viewed separate and apart from the services that he had previously provided in conjunction with UBS (rather than an as a continuation of those services, see id. at 403-04; R.B. Ventures, 112 F.3d at 60), no reasonable factfinder could conclude that this act, standing alone, was the procuring cause of the ultimate transaction between SBC and PREFCO XXII. See Greene v. Hellman, 51 N.Y.2d 197, 206, 412 N.E.2d 1301 (1980); Helmsley Spear, Inc. v. 150 Broadway N.Y. Assocs., L.P., 251 A.D.2d 185, 185-86, 674 N.Y.S.2d 660 (1st Dep't 1998); Provost v. St. Francis Commandery Hall Ass'n of Schenedtady, N.Y., Inc., 118 A.D.2d 922, 923, 499 N.Y.S.2d 489 (3d Dep't 1986); Briggs v. Rector, 88 A.D.2d 778, 779, 451 N.Y.S.2d 520 (4th Dep't 1982).
CONCLUSION
For the reasons set forth above, defendants' motion for summary judgment is granted. The Clerk of Court is directed to enter judgment accordingly.