Broker fights for commission on expired listing

Law of the Land

By Inman News Feed
Add Comment Add Comment | Comments: 0 | Posted Jun. 3, 2010

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Law of the Land

Tara-Nicholle Nelson
Inman News

Real estate broker Newman signed a contract with Grommet to list for sale Grommet's property known as the Gray Rocks Ranch ("the ranch"), which was located near land owned by the Wyoming National Guard. Newman had represented Grommet on around 21 real estate transactions over a number of years, including Grommet's original purchase of the ranch. Newman agreed to list the ranch for sale for $4.9 million at an 8 percent commission.

After pulling it off the market for a while, Grommet re-listed the ranch for sale at $7.3 million, then revised the listing agreement with Newman under an exclusive listing agreement that set the list price for the ranch at $7.7 million at a 6 percent commission.

Under the agreement, Newman would receive a $75,000 bonus if he sold the ranch for full price. Newman invested "considerable" money advertising the property for sale, and showed it to multiple prospects.

The Wyoming National Guard expressed an interest in purchasing the property while it was listed at $7.3 million and requested funds from the state Legislature to do so. Newman contacted them, for Grommet, and informed them of the increased list price, and the WNG expressed that it wanted to buy the property at full price and was waiting to see if it received the funds from the Legislature. The WNG had the property appraised, and Newman had multiple communications with the WNG, Grommet and others to execute the sale.

Newman's listing agreement expired in February 2006 -- before the sale was consummated. Grommet and Newman had been unable to meet to sign a new agreement, but Grommet verbally directed Newman to continue working to help the WNG get the funds they needed to buy the ranch. Newman continued working with the WNG, legislators and the governor to help the WNG get the appropriation.

On March 9, 2006, the state Legislature approved a $10 million appropriation for the WNG to buy the ranch. In mid-to-late March, Grommet met with two other real estate brokers and signed a 4 percent commission listing agreement. The brokers agreed that if the WNG bought the ranch, the fee would be split 50/50; if anyone else bought it, they would split the fee 75/25 in favor of the selling broker.

On March 26, Grommet sent Newman a letter terminating the listing. Grommet informed Newman he could still work as the selling broker (representing WNG or another buyer) on the property, which Newman declined to do because he believed it would comprise a conflict of interest.

The purchase closed less than two weeks after Newman was terminated, and a 4 percent commission was paid to the new brokers.

Newman filed suit to recover a 6 percent commission. At trial, the district court ruled in his favor, awarding Newman $537,000 plus pre- and post-judgment interest, but declining to award him attorneys' fees. Newman appealed, seeking attorneys' fees, and Grommet appealed the lower court's award to Newman.

On appeal, Newman's award was upheld, and the Wyoming Supreme Court also ordered Grommet to pay Newman's attorney fees.

The state's highest court rejected Grommet's argument that the second listing agreement was invalid because it lacked the brokerage disclosure statement as required under Wyo. Stat. Ann. § 33-28-306. Because the initial listing agreement contained the disclosure and the second agreement was expressly an extension of the original agreement, the high court upheld the district court's finding that the second agreement was valid.

Similarly, the court affirmed the lower court's ruling that Grommet verbally extended the listing agreement from the time it expired on Feb. 26 through Newman's March 30 receipt of Grommet's termination letter, as evidenced by the substance of the termination letter to Newman (among other things), which acknowledged Newman's work after the expiration.

The listing agreement between Newman and Grommet included language providing that if someone to whom the property was shown during the listing period purchased the property within 180 days following the listing's expiration, Newman would be entitled to a commission unless another broker "earned" the commission for the sale pursuant to another listing agreement. The court rejected Newman's agreement that the new brokers failed to "earn" the commission by failing to act as the procuring cause of the buyer, but also rejected Grommet's claim that hiring the second broker exempted him from having to pay Newman an earned commission.

However, the Wyoming Supreme Court affirmed the lower court's decision that Grommet's termination of Newman was in bad faith, given their long-term relationship of trust; the investment of time and money into the transaction by Newman; the fact that Newman was the procuring cause of the WNG as buyers and facilitated the legislative appropriation of funds; the fact that the reasons Grommet stated for terminating Newman were clearly (to the court's mind) untrue; and the fact that Grommet increased his net profit on the transaction by $1 million by firing Newman.

WNG staffers testified that they believed Newman was the real estate broker on the transaction through the entire deal.

Because Grommet's behavior violated community standards of fairness and reasonableness, the lower court's ruling that Grommet had acted in bad faith in terminating Newman was upheld on appeal, as was Newman's commission award.

However, the Wyoming Supreme Court overruled the lower court's finding that Newman was not entitled to attorneys' fees because Grommet had not violated the contract, but only an implied covenant of good faith and fair-dealing. Because Newman's actions fit within the definitions of "selling" the ranch, "earning" the commission and being the "procuring cause" of the eventual buyer of the property, the high court found that "by the terms of the contract (listing agreement), Newman is entitled to a reasonable attorneys' fees award." The matter was remanded to the lower court to determine the appropriate amount of Newman's fee award.

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