WESTSIDE ESTATE AGENCY, INC., Plаintiff and Appellant, v. JAMES RANDALL et al., Defendants and Respondents.
No. B268455
Second Dist., Div. Two.
Dec. 1, 2016.
5 Cal. App. 5th 317
Freedman + Taitelman, Michael A. Taitelman and Bradley H. Kreshek for Plaintiff and Appellant.
OPINION
HOFFSTADT, J.—We are all familiar with the phrase, “caveat emptor“: Buyer beware. This case deals with its less renowned cousin, “caveat sectorem“: Broker beware. California‘s statute of frauds declares invalid any “agreement authorizing or employing an agent, broker, or any other person to purchase or sell rеal estate” unless that agreement is in writing and signed by the broker‘s client. (
FACTS AND PROCEDURAL BACKGROUND
I. Facts
We draw the facts set forth below from the allegations in the operative first amended complaint (FAC), which we assume to be true for purposes of evaluating the demurrer on appeal before us now. (Coker v. JPMorgan Chase Bank, N.A. (2016) 62 Cal.4th 667, 671.)
In early 2014, defendants James and Eleanor Randall (the Randalls) told their longtime friend and business acquaintance Stephen Shapiro (Shapiro) that they were looking to buy a home in Los Angeles. Shapiro was a licensed real estate broker and the principal of plaintiff Wеstside Estate Agency, Inc. (Westside). Shapiro agreed to represent them, but their agreement was never put in writing.
In October 2014, Shapiro identified a potential property for the Randalls to buy—namely, a $65 million estate in the Bel Air neighborhood of Los Angeles. The listing for the property included an offer by the seller‘s broker “to pay” “to the buyer‘s broker” “a cooperating broker‘s fee” of 2 percent of the sale price. The Randalls asked Shapiro to apply any broker‘s fee Westside
Three months later, in February 2015, the Randalls made a $47 million offer on the property with Meaglia acting as their broker. Escrow closed a month later for a final purchase price of $46.25 million, $1.25 million more than the Randalls’ final November 2014 offer. Mеaglia applied the $925,000 cooperating broker‘s fee against the purchase price.
II. Procedural History
In April 2015, Westside sued the Randalls and Meaglia (collectively, defendants). In the FAC, Westside sued the Randalls for breach of an implied contract and sued Meaglia for intentional interference with an implied contract.3 Westside prayed for compensatory damages of $925,000, the same amount as the broker‘s fee Meaglia eventually collected.
Defendants demurred to the FAC.
The trial court sustained the demurrer as to both counts, without leave to amend as to the Randalls and with leave to amend as to Meaglia. The court reasoned that Westside was trying to collect a broker‘s commission from the Randalls without any written agreement evidencing the broker-client relationship, that this claim fell “squarely within” the statute of frauds, fell outside any of the exceptions to the statute, and that any unwritten agreement was consequently unenforceable as a matter of law. Given the absence of any enforceable contract, the court went on to rule, Meaglia could not hаve
Westside subsequently dismissed its case against Meaglia, and the trial court entered a final judgment dismissing the FAC against all defendants.
Westside filed this timely appeal.
DISCUSSION
Westside challenges the trial court‘s dismissal of its breach of implied contract claim and its denial of leave to amend. In assessing whether a demurrer was properly sustained, we independently ask “‘whether the [operative] complаint states facts sufficient to constitute a cause of action.‘” (Loeffler v. Target Corp. (2014) 58 Cal.4th 1081, 1100, quoting City of Dinuba v. County of Tulare (2007) 41 Cal.4th 859, 865; see also Lee v. Hanley (2015) 61 Cal.4th 1225, 1230 [de novo review].) In answering this question, we “‘assume the truth of the complaint‘s properly pleaded or implied factual allegations.‘” (Loeffler, at p. 1100, quoting Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081.) A demurrer may be sustained when an alleged contract falls “within the statute of frauds and does not comply with its requirements.” (Parker v. Solomon (1959) 171 Cal.App.2d 125, 136; see Deeter v. Angus (1986) 179 Cal.App.3d 241, 247-248.) In assessing whether leave to amend was properly denied, we review for an abuse of discretion by asking “‘whether there is a reasonable possibility that the defect can be cured by amendment.‘” (Loeffler, at p. 1100.)
I. Sustaining the Demurrer
The statute of frаuds declares several types of agreements “invalid” unless “they, or some note or memorandum thereof, are in writing and subscribed by the party to be charged or by the party‘s agent.” (
The portion of the statute of frauds applicable here can apply to licensed brokers and anyone else who aids and assists them or who otherwise engages in acts covered by the statute. (
Once the statute of frauds applies, its bar against relief is absolute and applies no matter how the unhappy broker styles his or her claim to recover compensation or a commission. (Phillippe, supra, 43 Cal.3d at pp. 1263-1264 [generally no recovery on a theory of quantum meruit, unjust enrichment or equitable estoppel]; Beazell v. Schrader (1963) 59 Cal.2d 577, 582 (Beazell) [same, as to quantum meruit].) Were the bar not absolute, the bar would be easily evaded, and the “primary purpose” for making such contracts subject to the statute of frauds—to serve as a “consumеr protection” mechanism “to protect real estate sellers and purchasers from the assertion of false claims by brokers for commissions“—would go unserved. (Phillippe, at pp. 1257, 1266; Estate of Stephens (2002) 28 Cal.4th 665, 679 (dis. opn. of Kennard, J.) [“the statute of frauds avoids the likelihood that permitting oral proof of such transactions would encourage fraudulent claims by swindlers gambling that they can glibly persuade a jury to enforce a nonexistent oral agreement“]; see generally Estate of Duke (2015) 61 Cal.4th 871, 889.)
The courts have also recognized three narrow exceptions in which the statute of frauds will not be deemed to bar a broker‘s action to recover compensation or a commission from his or her principal, even where there is no written agreement for such.
First, an agent has a limited right to estop his or her principal from asserting the statute of frauds to “prevent either unconscionable injury or unjust enrichment,” although the scope of this right depends on the identity of the agent suing for a commissiоn. (Tenzer v. Superscope, Inc. (1985) 39 Cal.3d 18, 27.) If the agent is offering to buy or sell real estate, he or she may assert estoppel only if the principal has engaged in “actual fraud.” (Phillippe, supra, 43 Cal.3d at p. 1270.) Our Supreme Court has defined “actual fraud” as when (1) the principal has told the agent that their agreement for a commission was in writing when it was not, or (2) the principal has told the agent to cancel “an otherwise valid written contract” for exchange of the property while concurrently making an oral promise to the agent to still pay the commission, but then reneges on that promise. (Id. at pp. 1260, fn. 8; cf. id. at p. 1270 [principal‘s oral promise to execute a writing in the future not fraud].) But if the agent is performing some other service covered by the statute of frauds, then the agent may assert estoppel whether or not the principal engaged in “actual fraud.” (See Tenzer, at p. 27.) Because, under California law, only licensed brokers may offer to buy or sell real estate (
Second, a broker may effectively recover his or her commission if (1) the broker‘s principal and the other party have executed a written and binding agreement for the purchase of real estate, (2) the written agreement specifies that the broker will receive a commission, and (3) the broker‘s principal cancels the written agreement. In that instance, the broker may sue the principal for the damages equaling the lost commission on one of two alternate but reinforcing theories: (1) the principal has breached an “implied[] promise[] to complete the transaction so that the broker [could] recover the commission” (Chan v. Tsang (1991) 1 Cal.App.4th 1578, 1583 (Chan); Super 7 Motel Associates v. Wang (1993) 16 Cal.App.4th 541, 547); or (2) the broker is the third party beneficiary of the written agreement between the principal and the other party to the real estate transaction (Donnellan v. Rocks (1972) 22 Cal.App.3d 925, 930–932 (Donnellan); Chan, at p. 1583). (See generally Herman v. Savage (1936) 17 Cal.App.2d 238, 243–244 [awarding relief in these circumstances]; Traxler v. Katz (1931) 116 Cal.App. 226, 230-231 [same].) In either case, the broker is entitled to relief because the principal has by its own actions tried to avoid its obligation to the broker. (Watson v. Aced (1957) 156 Cal.App.2d 87, 92 [“‘[w]here a party to a contract prevents the fulfillment of a condition precedent or its performance by the adverse party, he cannot rely on such condition to defeat his liability‘“]; see generally Moore v. Borgfeldt (1929) 96 Cal.App. 306, 313 (Moore) [“[i]t is equally the policy of the law to protect a broker who has been so employed or authorized [to buy or sell property], and who, in good faith, has acted“].) One of the predicates for this exception—the еxistence of a binding, written contract for the purchase of property—dovetails
Lastly, a broker may sue to collect a commission based on an unwritten agreement if the principal subsequently ratifies that agreement in writing. (Coulter v. Howard (1927) 203 Cal. 17, 23.)
Westside offers five arguments why the statute of frauds does not bar its claim for the $925,000 commission on the sale of the Bel Air estate. None of them hаs merit.
First, Westside seeks to recast the nature of its role and the nature of its claim in order to fit within the cases, explained above, holding that the statute of frauds does not apply to brokers who do something other than help with the purchase or sale of real estate and does not apply to disputes between brokers to divide a commission. (See Owen, supra, 115 Cal.App.2d at pp. 25-26; Phillippe, supra, 43 Cal.3d at pp. 1255–1256; Goossen, supra, 185 Cal.App.2d at p. 819.) However, the allegations set forth in the FAC foreclose this attempt at revisionism. As the basis for its claim against the Randalls, Westside expressly alleged in its FAC that “the Randalls engaged [Shapiro and Westside] to find them a residence to purchase.” It is hard to see how this is anything but, in the words of the statute of frauds, “[a]n agreement authorizing or employing a[] . . . broker . . . to purchase . . . real estate.” (
Second, Westside makes an argument that only Schrödinger‘s cat could appreciate when it simultaneously and paradoxically insists that it is and that it is not invoking the doctrine of equitable estoppel.4 However, we need not delve into this irreconcilable dichotomy because even if Westside is relying on the doctrine, it is unavailable. Westside is a licensed broker, and this forecloses its reasonable reliance on an unwritten contract unless its principal committed actual fraud. (Phillippe, supra, 43 Cal.3d at pp. 1260, fn. 8, 1270.) Westside has not alleged any actual fraud, and the fаcts it has alleged do not
Third, Westside tries to align itself with the exception for brokers who are permitted to recover when their principals enter into a written, binding real estate рurchase contract that contemplates a commission for the broker, thereby obligating their principals to fulfill their implied promise to complete that transaction or their duty to pay the broker as a third party beneficiary. (See Chan, supra, 1 Cal.App.4th at p. 1583; Donnellan, supra, 22 Cal.App.3d at pp. 930-932.) However, the entitlement to relief in these cases is premised on a necessary factual predicate—namely, a written, binding real estate purchase contract between the principal and the other party. (Chan, at p. 1583; Donnellan, at pp. 930–932.) That predicate is missing here. The Randalls never agrеed to the two conditions in the seller‘s counteroffer to the Randalls’ November 24, 2014 offer, and certainly never signed any written purchase agreement with the sellers while Shapiro was still their broker. These cases simply do not apply.
Fourth, Westside urges that its claim against the Randalls is not for the breach of an unwritten contract for a commission (which would be subject to the statute of frauds), but is instead for the breach of an implied-in-fact contract resulting in damages for the disruption of its expectation of a commission (which Westside argues is not subject to the statute). We reject this “semantic sleight-of-hand.” (Phillippe, supra, 43 Cal.3d at p. 1256.) To be sure, a contract may be written, oral or inferred from the parties’ conduct (the last being called an “implied-in-fact” contract).5 (See
Lastly, Westside argues that the statute of frauds does not apply because it is not seeking to collect its commission from the Randalls, but instead from the seller of the Bel Air estate because the initial listing indicated that the buyer‘s “cooperating broker‘s fee” was to come from the seller‘s broker. We reject this argument for several reasons. If we accept this argument at face value, Westside‘s lawsuit would have to be dismissed because Westside is suing the wrong party: The Randalls are not the seller‘s broker. Even if we assume that the commission Westside seeks was supposed to originate with the seller‘s broker and be passed through the Randalls to Westside, there is still no written agreement between the Randalls and Westside and nothing in the plain language of the statute of frauds indicates that its applicability turns on where the money for a commission came from originally. Accepting Westside‘s argument would also create a mile-wide exception to the statute of frauds: The commissions paid to both parties’ brokers “generally” originate with the seller (Chan, supra, 1 Cal.App.4th at p. 1583), so if all it took to evade the statute of frauds was saying that the funds had to come frоm the seller, the statute would be inapplicable in nearly every case brought by a buyer‘s broker.
For all these reasons, we conclude that the trial court was correct in ruling that the statute of frauds applies to Westside‘s claim.
B. Is there a writing that satisfies the requirements of the statute of frauds?
If an agreement is subject to the statute of frauds, the broker seeking to collect its commission must produce a “contract[] . . . or some note or memorandum thereof . . . in writing and subscribed by the party to be charged or by the party‘s agent.” (
The FAC alleges no written agreement between Westside and the Randalls meeting these requirements.
As such, the trial court properly ruled that Westside‘s claim for its commission is subject to—and barred by—the statute of frauds.
II. Reasonable Possibility of Amendment
Westside argues that the trial court abused its discretion in denying leave to amend its claim against the Randalls because Westside can allege that the October 24, 2014, and November 24, 2014 offers it made to the sellers on the Bel Air estate as well as other unspecified e-mails and writings constitute written agreements sufficient to satisfy the requirements of the statute of frauds. We disagree for two reasons.
First, and as explained above, it is not enough that the October and November 2014 offers or the other writings mention Westside‘s entitlement to a commission. (Barcelon, supra, 263 Cal.App.2d at pp. 526-527.) To be sufficient, they must set forth the fact that Westside is the Randalls’ agent or
Second, and even if Westside сan credibly allege that the two written offers or other writings do contain the required verbiage, Westside is not entitled to the commission because it is not the procuring cause of the sale that ultimately went through. (Brea v. McGlashan (1934) 3 Cal.App.2d 454, 465 [“the rule is that if an agent (or broker) is the inducing or procuring cause of the contract, he is entitled to the commission“]; Sessions v. Pacific Improvement Co. (1922) 57 Cal.App. 1, 17.) “““A broker is the ‘procuring cause’ of a real estate transaction if he finds a purchaser [or seller] who is ready, willing, and able to buy [or sell] the property on the terms stated and he obtains a valid contract obligating the purchaser [or seller] on these terms.““” (Phillippe, supra, 43 Cal.3d at p. 1263, fn. 11.) This rule applies even when multiple brokers are involved: “[I]t is not enough that [a] broker contributes indirectly or incidentally to the sale by imparting information which tends to arouse interest. [The broker seeking to collect the commission] must set in motion a chain of events, which, without break in their continuity, cause the buyer and seller to come to terms as the proximate result of his peculiar activities.” (Sessions, at p. 17.) Although the question of procuring cause is often a question of fact, it is а question of law when the facts are undisputed. (Brea, at pp. 465-466; cf. Rose v. Hunter (1957) 155 Cal.App.2d 319, 323.)
Here, the facts alleged in the FAC establish that Westside was not the procuring cause of the Randalls’ subsequent purchase of the Bel Air estate in the spring of 2015. To be sure, Westside has alleged that Shapiro found the Bel Air estate, invested his time in making multiple offers and counteroffers, and even “worked . . . through the night to finalize the terms” of a purchase agreement. But it is also undisputed that the sellers rejected the Randalls’ October 24, 2014, and November 24, 2014 offers by making counteroffers; that Meaglia took over the negotiations for some period of time; and that the Randalls eventually purchased the Bel Air estate on different terms than those they offered through Shapiro—namely, for $1.25 million more than the November 24, 2014 offer (an amount that does not even correspond with Meaglia‘s willingness to credit his $925,000 commission toward the purchase price).
Over a century ago, the Court of Appeal held: “Merely putting a prospective purchaser on the track of property which is on the market will not suffice to entitle the brokеr to the commission contracted for, and even though a broker opens negotiations for the sale of the property, he will not be entitled
DISPOSITION
The judgment is affirmed. The Randalls are entitled to their costs on appeal.
Boren, P. J., and Chavez, J., concurred.