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The Curran Group II, L.L.C. v. Massimo

A-1117-04T1 (N.J. Super. App. Div. 2006) (Unpublished)

CONSUMER FRAUD; BROKERS — Even though a real estate broker may engage in self-dealing, where none of the broker’s actions are in the context of representations, misrepresentations or omissions of critical fact designed to induce the sale of real estate, the brokre’s actions, though possibly unconscionable and providing a basis for economic damages, do not subject the broker to liability under the Consumer Fraud Act.

A father and son owned a real estate development company whose business approach was to “acquire[] land, obtain[] the requisite development approvals, and sell[] the approved parcel to builders or developers.” A time came when they acquired three large parcels and then sought to obtain development approvals. In that process, they realized that they needed an additional means of access to the parcels and this realization led to their relationship with a real estate broker. It engaged the broker to locate property that could be used for this access. Two particular lots were identified and the broker contacted the owners of those lots to discuss the terms of the sale. Negotiations took place, but several months later, the real estate broker negotiated the sale of those two lots to his own uncle and, in fact, acted as a broker in that transaction. Eventually, the developer’s uncle obtained development approvals and resold the two parcels at a significant profit.

The real estate development company sued the broker, alleging that the broker had misrepresented to it the course of the negotiations and the inclination of the owners of those two lots to sell the properties. The lower court agreed that the misrepresentation had taken place.

In response to the law suit by the real estate development company, the real estate broker counterclaimed for commissions founded on separate agreements. The broker alleged that he was entitled to a commission for the sale of two other parcels. In that regard, the lower court found that the broker’s “first claim for commissions required sales to identified entities,” and the parcels in question were “sold to entities other than those identified in the agreement. Therefore, [the lower court] held that no commissions were due.”

The broker made a second claim that there was an agreement between the real estate development company and himself requiring payment of commissions to a corporation owned by the real estate broker, “who would in turn share the commissions with [the real estate development company].” The lower court found that such an agreement was illegal “because a broker is prohibited by statute from sharing commissions with unlicensed persons.” Therefore, the lower court held that the agreement was unenforceable. The real estate broker appealed, arguing that the lower court had erred in its factual finding, and in fact, had overstepped its role as factfinder. The Appellate Division rejected this contention because no jury trial took place and the lower court was, in fact, “the finder of fact.” This gave the lower court the right to elicit additional information from critical witnesses concerning” central issues in the case.

The lower court dismissed the real estate development company’s consumer fraud claim. In the appeal, the real estate development company contended that the lower court mistakenly believed that the Consumer Fraud Act (CFA) did not apply to real estate transactions. According to the Court, “it is now well-settled that real estate brokers and real estate agents are subject to the provisions of the CFA.” On the other hand, “CFA remedies should be invoked against the real estate broker only when the broker has committed an unlawful practice as defined by the CFA to further or induce the sale of real estate.” In this case, the real estate development company and the broker “entered an agreement whereby [the broker] agreed to attempt to negotiate the acquisition of parcels of property for use in the [real estate development company’s] real estate development project. As such, [the real estate broker] owed a duty to the [real estate development company] to advance [its] interests. He did not do so. None of his actions, however, were in the context of representations, misrepresentations or omissions of critical facts designed to induce a sale of real estate. Rather, [the real estate broker] engaged in self-dealing for the benefit of a relative and himself. His actions may [have been] unconscionable and those actions provide[d] a basis for economic damages for breach of his fiduciary duty. His actions [did] not, however, subject him to CFA liability.”

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