There was no DD for January 1, a holiday which the Editor celebrated at the Rose Parade

Thanks to Howard Lax, who sent in this case. Howard made some comments, but since he wasn't the Reporter, I'm going to include his comments in a separate post. They differ from mine, and are more critical of the result.

Daily Development for Thursday, January 24, 2002

By: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
prandolph@cctr.umkc.edu

BROKERS; COMMISSIONS; UNJUST ENRICHMENT: Where landlord's broker has reached a commission splitting agreement with a tenant's broker and has successfully completed a lease deal prior to a judicial determination that the landlord had no commission liability to its broker due that broker's malfeasance, the tenant's broker is entitled to a recover from the landlord under an unjust enrichment theory.

Reisenfeld & Co. v. The Network Group, Inc., (6th Cir. 1/18/02)

http://www.michbar.org/opinions/home.html?/opinions/us_appeals/2002/011802/13618.html

BSI was interested in selling, subletting or leasing vacant K Mart stores. It entered into an agreement with The Network Group to carry out this process in a certain region. With respect to one store location, Network dealt with Reisenfeld, a broker representing Dick's Sporting Goods, relating to the sublease of the store to Dick's. Reisenfeld's commission agreement with Network was that Reisenfeld would receive $1 per square foot if a deal was concluded with Dick's. Dick's did complete the deal, and Reisenfeld's commission share would have been $163,000.

In the meantime, however, it was disclosed that the principle of Network had deal dishonestly with BSI. This party was convicted of criminal behavior, and a court ordered Network to disgorge all commissions paid to it by BSI and relieved BSI of any further liability to Network for unpaid commissions.

The result was that Reisenfeld was out in the cold, since there was no commission to split, unless it could collect from Network, which was appearing very much like a dry well.

Reisenfeld brought suit against Network and BSI. With respect to BSI, Network argued that language in the sublease agreement with Dick's acknowledging that a commission would be paid to Network, and stating that Reisenfeld would participate in that commission, made Reisenfeld a third party beneficiary of the sublease.

The court rejected this argument, construing the sublease language as a simple statement limiting the commission liability of both parties by implementing disclosure of all brokerage relationships. The intent of the clause was to confer benefits upon each of the parties to the sublease, but not to confer any benefit upon Reisenfeld.

Reisenfeld made another argument as well, however. It stated that under the law of restitution (unjust enrichment), a party is liable to pay the value of a benefit conferred when it is aware that another party is providing that benefit and it accepts the benefit. Reisenfeld argued that it fit this description, and the court agreed. BSI argued that Reisenfeld had a duty to demonstrate that BSI was guilty of some inequitable conduct to justify imposing the burden of restitution. The court disagreed. It acknowledged that some cases in other jurisdiction might require evidence of inequitable conduct in these cases, but that in Ohio, the operative jurisdiction, the only requirement was receipt of a benefit where the party receiving the benefit knows that a third party is responsible for the benefit and accepts the benefit under circumstances in which it would be unjust to retain the benefit without paying for it.

Here, the injustice in BSI's keeping the benefit, the court concluded, was manifest, since it never had to pay anything to Network and it was completely aware that Reisenfeld, innocent of the wrongdoing of Network, was laboring to produce the sublease benefit.

The court noted, however, that the degree of compensation was not determined by the commission agreement between Network and Reisenfeld, and remanded for a determination of the amount of unjust enrichment.

Editor's Comment 1: Is it possible that the unjust enrichment would exceed the commission agreement price? Unlikely, since this would not be "just" treatment of Reisenfeld, which expected at a maximum the agreed amount.

Is it possible that the unjust enrichment will be less than the commission agreement price? Absolutely. In fact, if it is determined that a reason that BSI was alleviated of commission obligations to Network was that it had suffered losses due to Network's activities, it may be unjust to require BSI to pay here. The Network fraud, however, came in other deals, and the court does not appear to be focussing on those deals. In any event, the real rationale for denying the commission appears to be that there was a breach of the broker's duties of loyalty and honesty.

Editor's Comment 2: In the Editor's experience, lawyers often miss the restitution claim, at least early in the analysis of a problem. There often is a vein to be exploited in this area.

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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