599 B.R. 751
Bankr. S.D.N.Y.2019Background
- Debtor Scott Kerner contracted Urban Compass as exclusive broker to sell his condominium; contract provided 4% commission (3% if sold to Khagans).
- Compass procured buyers (the Khagans) and a purchase contract was signed for $1,918,000; closing was scheduled for Dec. 22, 2017.
- Kerner filed bankruptcy before closing, attempted to use the Khagan contract as a stalking-horse bid without their consent; court found Kerner breached and terminated the Khagan contract, ordering return of the deposit.
- Case converted to chapter 7; Compass filed a brokerage-commission claim (effectively $57,540 after the 3% reduction).
- Trustee negotiated a stipulation to allow Compass’s claim for $40,000 and moved for approval under Rule 9019; Debtor moved to expunge the claim entirely.
- The court granted the Trustee’s 9019 motion, approving the $40,000 settlement, and denied the Debtor’s motion to expunge.
Issues
| Issue | Plaintiff's Argument (Debtor) | Defendant's Argument (Trustee/Compass) | Held |
|---|---|---|---|
| Whether the Trustee's stipulation to allow Compass's claim for $40,000 should be approved under Rule 9019 | Stipulation overpays Compass; Compass was not procuring cause and never closed the sale, so claim should be expunged | Settlement is reasonable: reduces claim, avoids costly litigation, Trustee exercised business judgment | Approved: Court applies business-judgment/9019 standard and finds settlement fair and reasonable |
| Whether Debtor has standing to object to Compass's claim | Debtor challenges claim regardless of standing | Trustee shows estate will have surplus after administrative expenses, so Debtor is a party in interest | Debtor has standing because a surplus likely exists |
| Whether Compass's proof of claim is prima facie valid and whether Debtor rebutted it | Debtor contends commission not earned because sale didn’t close and Compass wasn’t procuring cause | Compass produced brokerage agreement and the Khagan contract showing it produced a ready, willing, able buyer; law supports broker commission absent a contrary agreement | Compass’s claim survives: Debtor failed to meet initial burden to overcome prima facie validity |
| Whether broker commission may be recoverable despite non‑closing when seller caused failure to close | Debtor argues non‑closing defeats commission | Compass argues commission may be due if seller caused the failure; brokerage agreement did not condition payment on consummation | Court agrees Compass could be entitled to commission; seller’s breach or responsibility for failure to close supports recovery |
Key Cases Cited
- Myers v. Martin (In re Martin), 91 F.3d 389 (3d Cir. 1996) (settlements in bankruptcy favored)
- Protective Committee for Independent Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414 (U.S. 1968) (court must be informed of probabilities of success when approving settlements)
- Motorola, Inc. v. Official Committee of Unsecured Creditors (In re Iridium Operating LLC), 478 F.3d 452 (2d Cir. 2007) (factors for approving bankruptcy settlements)
- Lane–The Real Estate Department Store, Inc. v. Lawlet Corp., 28 N.Y.2d 36 (N.Y. 1971) (broker earns commission when producing ready, willing, able buyer)
- Bank of New York Mellon Trust Co. v. Morgan Stanley Mortgage Capital, Inc., 821 F.3d 297 (2d Cir. 2016) (contract interpretation principles)
- Stonehill Capital v. Bank of the West, 28 N.Y.3d 439 (N.Y. 2016) (brokerage/contract principles)
- In re Allegheny Intern., Inc., 954 F.2d 167 (3d Cir. 1992) (shifting burdens for claim objections)