Opinion
300025RTS/2005.
Decided January 3, 2006.
Law Office of Russ M. Nazrisho, Staten Island, NY, Counsel for Plaintiff.
Edward A. Wiener, Esq., New York, NY, Counsel for Defendants.
Plaintiffs, Talk of the Millennium, Inc. and David Vain, commenced this action against the defendants, Peter Sierra and Connie Sierra, alleging that the defendants failed to pay a real estate brokerage commission. The matter was commenced in Supreme Court, Richmond County and transferred to Civil Court pursuant to CPLR 325(d) by order of Judge Giacobbe dated June 24, 2005.
The file reveals that after commencing this action, the plaintiffs filed with the Richmond County Clerk a "Notice of Pendency" against the defendants' real property located at 125 Winant Avenue, Staten Island, New York in order to secure payment of the real estate broker's commission claimed due in this matter. The notice of pendency was dated on April 25, 2005 the same date of the summons and complaint. The plaintiffs' filing of the notice of pendency with the County Clerk on April 26, 2005 necessitated the defendants seeking an order to show cause to cancel the lis pendens of record. A hearing on the issue was held before Judge Giacobbe and resulted in an order dated May 6, 2005 canceling the notice of pendency. Judge Giacobbe made a finding that plaintiffs' complaint is for breach of contract and it is not one that seeks a judgment which would "affect the title to, or possession, use or enjoyment of, real property" as required by CPLR 6501 as a basis for filing a notice of pendency.
Currently before the Court is plaintiffs' motion to dismiss the counterclaims and defenses of the defendants. Defendants have asserted two counterclaims; one alleges that the plaintiffs have violated the Federal Debt Collection Practice Act (FDCPA) and the second alleges that the plaintiffs improperly filed the notice of pendency. Plaintiffs also seek to dismiss two affirmative defenses of the defendants, one alleging a failure of documentary evidence while the second asserts the equitable defense of unclean hands. The defendants have opposed the motion by filing a cross-motion seeking dismissal of the complaint.
LEGAL ISSUES PRESENTED:
A. The Legality of the Notice of Pendency.
Judge Giacobbe correctly determined that the plaintiffs were not entitled to file a notice of pendency in this action. What troubles the Court is that the plaintiffs somehow thought they could record such a document against the defendants' real property. However, as a licensed real estate broker defendants are charged with a certain level of expertise and training. Real estate brokers in New York are regulated by the Department of State (Real Property Law 12-A). They are required to have a certain amount of training, pass a written examination and attend continuing education programs to retain their licenses.
This being the situation, the plaintiffs and their counsel, should have been aware that there is no statutory authority giving real estate brokers the right to file a lis pendens in regard to the sale of residential real estate. Real Property Law 294-b specifically limits the rights of a broker who alleges he or she has produced a buyer, ready, willing and able to purchase the premises listed with the broker and has been denied a commission. The statute states a broker "may file an affidavit of entitlement to commission for completed brokerage services in the office of the recording officer of any county in which any of the real property is situated" (RPL 294-b(1)). The statute sets forth what information must be included in the affidavit and further provides: "Recording of such affidavit shall not invalidate any transfer of real property or lease thereof. Such affidavit shall not be deemed to create a lien and shall be discharged one year after filing" (RPL 204-b(2)). In fact, the clerk is to note upon the broker's affidavit that "such notice does not constitute a lien nor shall it invalidate any transfer or lease" (RPL 294-b(3)). It should also be pointed out that real estate brokerage contracts are not mentioned as a type of contract that may be recorded as an executory contract pursuant to RPL 294 (see also 75A NY Jur 2d Lis Pendens 27). Case law has consistently held that a lis pendens is not proper in an action for the recovery of a real estate broker's commission ( Salahuddin v. Benjamin, 42 AD2d 522 (1973)). Yet plaintiffs herein did not file an RPL 294-b affidavit; they filed a lis pendens.
The legislature has permitted real estate brokers to file a lien in certain situations, specifically, when the broker is claiming a commission is due from negotiating a lease for a term in excess of three years on property to be used for "other than residential purposes" (Lien Law 2). The fact that the legislature has limited the use of a lis pendens to this specific situation further supports the conclusion that no lien is available to a broker in regard to the sale of residential real estate.
It is not too much to expect that the plaintiffs, who holds themselves out as licensed, trained professionals should be aware of this basic tenet of the real estate brokerage industry. As such, it is clear that not only is defendants' counterclaim not dismissed, the defendants are entitled to a judgment on that issue with a trial to take place solely to determine the amount of damages the defendants suffered by the plaintiffs wrongfully encumbering, even temporarily, defendants' title. The plaintiffs' actions of filing a notice of pendency constitute a tort. The Supreme Court found such a filing baseless. It does not matter whether the tort is called "slander of title," "tortious interference with the right of contract," or "abuse of process" ( Felske v. Bernstein, 173 AD2d 677). The actions of the plaintiffs were wrongful and designed to force the defendants to pay a broker's commission to which the plaintiff's entitlement was in dispute. The sole purpose of the filing of the lis pendens was to compel the defendants to pay the plaintiffs or risk losing the purchaser.
Plaintiffs' motion to dismiss defendants' second counterclaim alleging an improper filing of the notice of pendency is denied. Defendants' cross-motion for summary judgment on this cause of action is granted on the issue of liability. The matter will be set down for a trial on the issue of the damages suffered by the defendants as a result of the plaintiffs' actions.
B. Does the FDCPA Apply?
Defendants have raised as a defense that the federal Fair Debt Collection Practices Act ( 15USC 1692(g)) applies to the situation since David Vain is claiming that a debt is owed to a third party, in this case, plaintiff Talk of the Millennium Realty, Inc. Plaintiffs allege that the federal statute does not apply since David Vain is a licensed broker for Talk of the Millennium. A search of the Department of State, Division of Licensing Records, shows that Talk of the Millennium Realty, Inc. is the licensee with David Vain being designated as a person to represent the licensee. The records of the Department of State Division of Corporations lists David Vain as the "Chairman or Chief Executive Officer" of Talk of the Millennium Realty, Inc.
The Staten Island Multiple Listing Service Listing Agreement for the Sale of Property which plaintiff corporation alleges is the agreement between it and the defendants has the name "Talk of the Millennium" hand written in as the name of the "realtor" and it is signed by a listing salesperson, Joseph Shikhman. David Vain is not a party to the agreement, nor is he disclosed anywhere in the agreement as a principal of the plaintiff corporation. It should be pointed out that the listing does not set forth the entire name of the plaintiff. "Realty, Inc.," is left off the name of the "realtor." Not listing the entire name of the licensee may be a deceptive practice under General Business Law 349 in that the seller signing the agreement has no way of determining from the face of the document if he or she is contracting with a corporation, a partnership or a corporation or individual "doing business as" the named plaintiff. The correct categorization of the plaintiff gives rise to certain defenses and is an essential element of a plaintiff's prima facie case.
Although defendants' counterclaim is quite creative, a review of the federal law reveals that this theory is not applicable since excluded from the definition of "debt collector" in the statute is "any officer or employee of a creditor while, in the name of the creditor, collecting debts for such creditor" ( 15 USCA 1692(a)(6)(A)). Vain, a licensed representative of the plaintiff and its chief executive officer, can attempt to collect debts for the corporate plaintiff. Other than being named as a party there is no showing that he violated the FDCPA by filing this action.
On the other hand, it is also clear that plaintiff Vain is not a proper party to the action. If there was any agreement it was between Talk of the Millennium Realty, Inc. and the defendants. Vain has no standing to participate in this litigation. Therefore defendants' motion to dismiss the complaint by Vain should be granted.
Plaintiffs' application to dismiss the counterclaim based on violation of the Fair Debt Collection Practices Act is granted. The transaction is not subject to that act.
Defendants' motion to dismiss Vain as a plaintiff is granted; he is not a proper party.
C. The Defense of Documentary Evidence
Defendants have raised as an affirmative defense that the plaintiffs have not established by documentary evidence that they are entitled to the broker's commission. Plaintiffs have moved to dismiss this defense. The parties are seeking to decide by motion what are the essential factual issues of this case; that is, the license status of the plaintiff and its salespersons, the facts and circumstances surrounding the execution of the listing agreement, and whether the plaintiffs produced a buyer ready, willing and able to purchase the premises on the terms and conditions being offered by the defendants so that a commission has been earned. It should be pointed out that plaintiffs have not provided any evidence that the listing salesperson was licensed at the time he allegedly took the listing; a fatal defect to recovery on plaintiff's claim.
Plaintiffs' motion to dismiss this affirmative defense is denied. These issues raise questions of fact to be decided at trial.
On the other hand, it is clear that the evidence establishes that the claim of the plaintiffs is totally without merit. Plaintiffs argue that the listing agreement created an "exclusive right to sell" relationship between the parties. The listing agreement defines this agency relationship as one which provides "that if you, as owner of the property find a buyer for your house, or if another broker finds a buyer, you must pay the agreed commission to the present broker." The intent of this clause is to guarantee that the listing broker is not deprived of earning a commission by the actions of the home owner and that the broker be given the opportunity to perform the services for which it was hired.
The language of the clause and the agreement contemplate that the broker will be compensated during the "term of the agreement" and for a period of sixty days after the termination of the agreement if the property is sold to a "buyer introduced to the property during the term of the agreement." The plaintiffs' case fails because the buyer of the property was not "introduced to the property during the term of the agreement." The evidence established that the buyer of the property was a neighbor of the defendants who entered into a handwritten "binder" agreement on January 10, 2005, one month before the listing agreement was signed on February 8, 2005. Therefore the buyers were neither "introduced to the property" during the term of the agreement nor through the efforts of the plaintiffs.
We still live in a society where in order to be paid you must either perform the work you agreed to perform, or be prevented from doing the work by the actions of the defendants; neither is the case here. Plaintiffs did nothing to bring about the sale. Plaintiffs did not produce a ready, willing and able buyer nor were their actions the procuring cause of the sale. In fact, plaintiffs' actions sought to prevent the sale. Plaintiffs seek to capitalize on the efforts of the defendants. Had the neighbors come along and signed the binder after the date of the listing agreement or even waited until after the listing expired, plaintiffs might have a viable claim under the terms of the agreement. This did not occur so the claim must fail.
Plaintiffs' complaint is dismissed on the merits.
D. The Defense of "Unclean Hands."
Defendants have raised as a defense the equitable doctrine of "unclean hands." Defendants believe that the unclean hands of the plaintiffs arise from the fact that the salesperson employed by the corporate plaintiff was told of the pre-existing binder with the defendants' neighbor and misrepresented the listing agreement and its legal effects to the defendants in order to induce them to sign the document. This equitable defense should not be dismissed since the circumstances surrounding the signing of the document are a question of fact.
There are, however, other compelling examples of the plaintiffs' "unclean hands" that arise from the plaintiffs' listing agreement. First, as mentioned above, the correct name of Talk of the Millennium Realty Inc. is not disclosed in the document. Second, paragraph 10 of the document requires that "the merits of any dispute arising under or in connection with this agreement shall be determined before an arbitrator in the County of New York, State of New York. . . ." Plaintiffs have totally ignored this requirement of the agreement and have commenced an action in Civil Court. Why include an arbitration clause in an agreement which the plaintiffs prepared and then ignore it? The Court must wonder why the arbitration clause refers the matter to New York County and not Richmond County. Is this a mistake or a deliberate attempt to make it more difficult for sellers to participate in the arbitration process?
Third, Real Property Law 443 requires that a listing agent provide to a seller a disclosure form regarding the real estate agency relationship "prior to" entering into a listing agreement with the seller and shall obtain a signed acknowledgment from the seller (RPL 443(3)(a)). There are exceptions to this requirement, but none of them apply to these facts. The statute does not provide any penalty for the failure of the broker to complete the disclosure form in the manner required by the legislation. However, in order for the law to make any sense and for it to serve its purpose, there must be some consequence attendant to the failure of the broker to comply. Clearly the failure to comply with this statute, would subject the licensee to disciplinary action by the Department of State as set forth in RPL: 441-c ( RE/MAX All-Pro Realty v. New York State Department of State, 292 AD2d 831 (2002)).
A more logical penalty would be to create a presumption that the failure to comply with the disclosure law would serve as a basis to deny a broker a commission when there is a non-compliance with the statute. An argument can be made that a broker seeking a commission should have to affirmatively plead compliance with this requirement or explain why the statute is not applicable in order to collect a commission claimed due. It makes no sense to permit the broker to collect a commission when the broker cannot prove compliance with a disclosure statute designed to protect the public. Plaintiffs have neither pleaded nor proven compliance with the statute. In fact, it appears that they have totally ignored it. Even if the Court were to permit this to be corrected at trial and allow the plaintiff to conform the pleadings to the proof, the failure to plead compliance is prima facie evidence of "unclean hands" in the transaction which defeats any motion to dismiss that as an affirmative defense.
CONCLUSION:
Plaintiffs' motion to dismiss defendants' second counterclaim and affirmative defenses are denied on the merits as their request for summary judgment. The motion to dismiss plaintiffs' first counterclaim is granted.
Defendants' cross-motion is granted to the extent of awarding the defendants' a judgment arising from the plaintiffs' baseless recording of a notice of pendency against plaintiffs' real property. Defendants' motion to dismiss plaintiffs' complaint is granted.
The matter will be set down for a trial on the issue of the damages sustained by the defendants arising from the improper recording of the lis pendens.
The trial will take place on Monday, January 30, 2006 at 2:00 PM at the Courthouse, 927 Castleton Avenue, Staten Island, New York.
The foregoing constitutes the decision and order of the Court.