Case Law Summaries

The Levey Companies, Inc. v. Odd-Job Acquisition Corp.

• Opinion Date: May 31, 2000
• Real Property Law
• E-Mail

BROKERS; COMMISSIONS—A broker’s customer may be directly liable for unpaid commissions to a sub-broker or co-broker under an exclusive brokerage agreement.

A New Jersey real estate broker, not licensed in New York, entered into an agreement with a retailer to be its sole and exclusive agent to procure, introduce and/or negotiate, on the retailer’s behalf, with respect to properties in New York, New Jersey, Connecticut, and Pennsylvania for lease or purchase by the retailer. The broker alleged that the tenant breached its obligation under the exclusive brokerage agreement by failing to pay commissions on the lease or purchase of property in several states, including New York. New York properties were presented to the tenant by the broker’s co-brokers. In particular, the broker asserted that it used a particular New York broker to fulfill its “multi-state responsibilities” under the commission agreement. It alleged that the tenant understood that the New York broker would be utilized in connection with the broker’s activities, and that the New Jersey broker was joined by the New York broker. The lower court dismissed the claims of the New York broker, apparently because there was no allegation that the New York broker had a sub-brokerage agreement with the New Jersey broker, or that the New York broker was a party referred to in the exclusive brokerage agreement. On appeal, the New York broker argued that because the exclusive brokerage agreement contemplated the use of co-brokers to act in states where the contracting broker was not licensed, the New York broker was a sub-agent and, in that capacity, had standing to sue the retailer. Further, it argued that the lower court should have given it an opportunity to engage in discovery and prove that it was a third-party beneficiary of the exclusive brokerage agreement and that the lower court erred in dismissing its claim for quantum meruit. The Appellate Division rejected the argument that if the New York broker had no standing to recover on the basis of the exclusive brokerage agreement, then it would be able to sustain a claim “on an implied-in-law contract to prevent unjust enrichment.” To the Court, the New York broker certainly could not recover on a quantum meruit basis for breach of an exclusive right to negotiate for sales or leases. “Any such right could have no basis other than an express contract.” Aside from the contractual obligation, a broker would generally have no expectation that a tenant or a buyer would pay brokerage commissions given that the industry practice is otherwise. The Court, however, did believe that the New York broker should have been able to prove that it was either an agent or a third-party beneficiary because “that seems to us the just result.” The Court recognized that the exclusive brokerage agreement covered the state of New York even though the contracting broker was not licensed there. Therefore, it adopted “a construction that [made] the agreement enforceable and not illusory.” To the Court, the exclusive brokerage agreement would not be illusory if it could be interpreted to permit a New York broker, selected by the New Jersey broker, to act under the agreement and to enforce it according to its terms. Therefore, the New York broker would have standing to sue under the exclusive brokerage agreement if the tenant intended the New York broker to be a third-party beneficiary or if the tenant authorized the New Jersey broker to designate the co-brokers who would then be intended third-party beneficiaries. Further, the Court held that the New York broker also had standing to sue the tenant on the agreement if the tenant implicitly authorized the New Jersey broker to appoint a co-agent to act on its behalf in the jurisdictions where the New Jersey broker was not a licensed broker and the New Jersey broker exercised that authority by selecting the New York broker. For all those reasons, the Appellate Division remanded the matter to the lower court for a determination as to the intentions of the tenant and the nature of the relationship between the New Jersey broker and the New York broker.

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