getting emotional (litigious!) over commission on $44 million Manhattan townhouse

it’s a mad, mad, mad, mad world
The Manhattan residential real estate business is such a wonderful spectator sport because it has everything: big numbers! huge egos! drama queens (and drama kings, and drama knaves)! (Not to mention: spectacular lofts, apartments and townhouses!!) We also have a media environment in which the NY Times and Wall Street Journal fight it out at the top of the "news" food chain, with more gossip-y stuff than you can shake a stick at on the pages of the Observer, NY Post and NY Magazine, even before descending to the all-comers drollery (and trollery) of the Curbed readership.

All of this is being fed by Public Relations staffers working for sellers, buyers, celebrities, developers, firms, Big Hair people, and agents (note to Manhattan Loft Guy self: pinch the pennies enough to afford that Howard Rubinstein retainer).

hissing and suing
The big cats track the big dollars, and when they are not happy …. When there’s "news" to be reported, and quotes to be given, fur flies. And quaint notions of professionalism, ethical responsibilities, discretion and following the rules can be tossed to the wayside from the high road of Publicity. (It seems that unlike "publicity", all "Publicity" is deemed Good.) We saw this pretty starkly in the meow-fest in Christine Haughney’s August 3 piece in The Appraisal feature of the New York Times, But What Did You Do for Me Today, Developers Ask Brokers.

But I want to focus on the fact scenario behind another case of Manhattan real estate Big Dollars, and the relationships trashed in their wake. That would be the commission dispute involving the sale of the Duke-Siemans mansion (no mere "townhouse", that) on Fifth Avenue at 82nd Street, which had been offered at $50 million and sold at $44 million, making it the fourth biggest townhouse sale in Manhattan real estate. I saw the story in the Wall Street Journal on-line on August 3 (Broker Sues on Slim Deal), but you might have seen it first … anywhere. It was in The Real Deal, Crains or Curbed (all linking to the Journal), but I found no mention of it in the Times, even after a search.

I will lay out the facts from the lawsuit, as reported in the Journal, then step back and analyze the normal rules that apply in these situations. Caution: because I do not have all the facts about this lawsuit, I do not know how (or whether) the normal rules apply, so just use this as an information guide on how these things ‘work’.

$880,000 worth of ‘facts’, as alleged in the complaint as reported in the Journal:

 
I do not assume that the July 16 contract date is necessarily correct, as BHS has no direct knowledge of it (the other dates are either public record [the closing] or known to BHS). But the sequence is pretty clearly alleged to be:

1. BHS introduction of buyer to seller within the exclusive period (just barely, but still…)
2. expiration of exclusive
3. contract (and closed sale) very soon after expiration of exclusive

Seems as though it should be pretty simple to establish whether BHS is owed a commission. Seems that it should be pretty simple to just read the contract. (BHS has; the Wall Street Journal has not, unless it is an exhibit to the complaint.) With $880,000 at stake, "seems" is a wiggle word.

rules … you mean there are rules?
The standard exclusive listing agreement of all REBNY firms has a clause that directly addresses this situation. The language that Corcoran uses in a townhouse exclusive is below, with some critical stuff in bold:

If it is in the exclusive between the seller and BHS, there may be some pesky fact questions as to whether the players knew who they were dealing with in the critical July 14 conversation described by the Journal this way:

If the standard REBNY clause is in the exclusive agreement between the seller and BHS and if BHS knew that it was dealing with the buyer (not just the agent), there is the critical fact question of whether BHS protected itself, as provided in the standard clause.

simple is as simple does
If there is such a clause in the BHS listing agreement, did BHS send a Six Names List within 3 days? If BHS did, is the buyer’s name on the list? Those are two simple fact questions.

Here is another simple fact question that may lead to a complex legal question: did the buyer or his agent "inspect the premises" before the exclusive agreement expired?

If the answer to all three questions is YES, then the firm is likely to win and the evident scenario is that the seller is playing hardball to squeeze $880,000 out of BHS.

If the third answer is NO, simple contract principles would appear to apply simply: no commission is due under the contract.

If the answer to either of the first two questions is NO, then BHS has no rights to a commission under the exclusive listing agreement. Whether BHS would have any commission rights under a different legal theory if they did not avail themselves of this simple contract procedure would depend on clever legal theories. In my civilian opinion, any firm seeking commission for a deal that they did not protect themselves on is likely to lose, but that would be for the lawyers and judges of the word to figure out.

If the buyer’s agent’s name is on the list (not the buyer himself), things get dicey, but more promising for the listing firm. (I have sent a Six Names List before, with a "name" like "Agent Mary Jones client who visited on ___", but I can’t guarantee that this was a sufficient ID.)

the complaint may be a curtained window in a dark loft
Good agents learn to read between the lines (and photos) on a listing, to ‘see’ what is not there and to ‘know’ what it means. It is really not so difficult to figure out there is (a) no view and (b) probably little light in a loft that has enthusiastic babble about many things but is silent about light and views, and in which the beautiful photos feature beautiful window treatments that are closed. Obviously, if what is outside the windows were a selling point, that would be mentioned or shown by a professional sales agent hired to sell the loft.

Do you see what is missing from the Journal’s recital of this factual scenario? The Journal does not report that the BHS complaint alleged that (a) buyer or agent "inspected" the townhouse in the exclusive period, or that (b) BHS sent a Six Names List by July 18, or that (c) the name of buyer or agent was on the Six Names List. Maybe the Journal reporter did not report these things because — although they are in the complaint — he did not deem them significant. Or maybe these "facts" are not in the complaint.

The article reads as though the Journal article had access to the complaint, so I am inclined to believe that the missing facts are missing because they are not facts.

The Journal notes that BHS declined to comment about the lawsuit for the article. If they ever comment, saying something like "we had a contract and did everything necessary to earn a fee", that general statement is consistent with the missing facts being actual facts. If they comment only about how "these bad people conspired to cheat us", they will not sound confident about their contract remedies.

some timing is a red herring
No matter what actually happened, the contract and closing were done in rocket time. BHS might use the very compressed schedule as evidence that the seller sought to screw them, but I don’t think that is the only logical or necessary conclusion. Under their scenario, seller must have heard from buyer before the exclusive agreement expired, and "intentionally, maliciously and tortiously" delayed negotiation until after the exclusive. The proof they offer is the fact that a $44mm deal got done in a week (using the first BHS contact with the agent on July 14, to the closing on July 21). Yes, the actual facts are whatever the actual facts are, but that does not look like a slam dunk argument to me.

Doing a $44mm deal in 7 days seems ridiculously fast to me, but that is the maximum length these parties may have taken. What if the real timing was only 5 days? Still ridiculously short, but in the word of ridiculously expensive lawyers, doing a deal in 5 days is only marginally more challenging than doing a deal in 7 days. I am sure there are corporate transactions in the billions that are much more complicated than buying a house that have been done in a week.

BHS may simply not know whether the timing worked more like this: buyer agent and seller talk directly for the first time on July 16, lawyers get to work on contract immediately, close on July 21. Is that really so much less likely to have occurred than that the first buyer and seller contact was 48 hours earlier?

big cats, sharks, and being in the news
Residential real estate firms and agents like to think of themselves (ourselves) as sophisticated players who regularly handle "multi-million dollar transactions" with highly sophisticated clients. But even the biggest of the big cats in our business in Manhattan are pikers compared to a guy like the seller of this mansion, let alone the buyer.

If BHS really did get screwed out of this $880,000 commission, they have every right to be publicly mad about it and to take all legal steps to recover what they are owed. But if that is the case, a "no comment" is not helpful to their image once the lawsuit becomes a major story. I just don’t understand why their story line is not "we followed the rules; this guy is cheating" if they actually have a simple case under the listing agreement. They run the risk of sounding like whiners and — among people who know how this should have been done if they have a good case — look like losers because either (a) they failed at PR, even though having a strong case, or (b) are suing a (former) client after not protecting themselves under a contract because it is "just not fair".

Personally, if I were going to publicly fight with a (former) client, I would want to put the best possible PR case forward.

On the current public record, this looks more like a firm taking a shot at a difficult legal case than a slam dunk. Maybe BHS figures that everyone settles a lawsuit sooner or later, so it is worth it to them to make an investment in their own lawyers to show (a) we can’t be pushed around (even when we don’t have a case!), and (b) we can inflict some pain (legal fees) on a client who treated us badly (even when we don’t have a case!), and (c) we won’t go away unless you spend a ridiculous amount of money defending the case or pay us some money for "emotional distress" (even when we don’t have a case!).

Maybe. But unless I had a slam dunk contract remedy, I personally would be reluctant to throw my lawyers at a guy who spends much more than I do in legal fees every day.

Maybe they have a good legal claim and a bad public relations approach. That is certainly a much better problem to have than the more obvious scenario.

I sure hope the Real Estate Industrial Complex in Manhattan pays enough attention to this dispute that we find out how it ends.

© Sandy Mattingly 2010