NY Court of Appeals–November 2012

The Court of Appeals (NY) has been busy dealing with issues pertinent to real estate lawyers. Yesterday, I discussed American Bldg. Supply Corp. v Petrocelli Group, Inc., decided November 19, which changes the rules that have governed insurance brokers and policyholders for a very long time.  That decision stands alongside a series of decisions that real estate lawyers should note.

J. D’Addario & Co., Inc. v Embassy Indus., Inc. (2012 NY Slip Op 07850) addressed a claim by a seller of real estate to receive interest on an escrow deposit and held that an agreement that the seller may retain the down payment as liquidated damages precludes any claim for further compensation–including interest.

Douglas Elliman LLC v Tretter (2012 NY Slip Op 07846) is a claim by a broker for the commission claimed under an exclusive-right-to-sell agreement. The buyer met the broker at the open house for the subject apartment. A different prospect made an offer of $1.5MM, which was accepted, but the buyer continued to work with the broker, viewing some dozen apartments. The $1.5MM offer fell through and the buyer, through the same broker, tendered a bid of $1.4MM, which was accepted. Seller resisted paying the 5% commission on the ground that the broker had become a dual agent, thereby infecting the entire relationship with disloyalty. The Supreme Court agreed, finding a triable issue as to the broker’s dual agency status. The Appellate Division reversed, but granted leave to appeal. The Court of Appeals affirmed the Appellate Division’s decision in a memorandum opinion, observing

The parties here did not — although free to do so — “specifically agree” that Douglas Elliman was required to “decline a prospective purchaser’s request to see another property” (Sonnenschein, 96 NY2d at 376). As a result, Lockwood had “no duty to refrain” from offering other properties to the buyers (id. at 375). A contrary holding would “unreasonably restrain” brokers from cultivating potential clients at open houses for their principals (id. at 376). 

The sad part is that more than four years after the closing, the $70,000 commission remained unpaid. The game seems hardly worth the cost, which no doubt is why the Seller resisted payment.

Jade Realty LLC v Citigroup Commercial Mtge. Trust 2005-EMG 2012 NY Slip Op 07847), also decided November 19, dealt with the payment of a “yield maintenance amount” in connection with pre-paying a mortgage. The note was inartistically drafted, tying the payment to calculations that turned on the “date of default.” Since there was no default, the borrower claimed, there could be no amount payable under the clause. The court enforced the document literally as written. Judge Smith filed a stinging dissent, but seems to have missed a point that the Court mentioned but did not emphasize: the holder of the note never requested reformation. Judge Smith’s points are undoubtedly pertinent to a claim for that relief.

Rounding out the Court’s busy day was East Midtown Plaza Hous. Co. v Cuomo, in which the ongoing saga of a Mitchell-Lama project and its privatization took yet another turn, but one that may signal an impending lawsuitdammerung. There have been several votes of the Tenant-Cooperators as to whether to privatize the project or remain a limited-profit housing cooperative. If votes are counted on the basis of the number of shares, then the privatization plan had enough vote to prevail. If the count is based on the number of apartments, then the plan lacked the needed votes. The courts already held, based on the plain language of the certificate of incorporation, that voting is per apartment, not per share. The Attorney General had been enjoined from accepting a plan of cooperative ownership. or amending the extant plan, unless its adoption had been approved by a majority of the apartments in the project.

The developers than concocted a scheme under which the rights of the tenant shareholders would be amended without any transfer of the pertinent shares taking place. Since there was no sale of realty interests, there was no basis for applying the Martin Act and therefore no approval of the Department of Law was required.

You have to ask whether the developer’s counsel was able to keep a straight face during this argument. It did not succeed: the Martin Act has enough reach to address real estate monkeyshines of every sort.

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