DR Legal News: Legal Case Studies July 2017

Legal Case Studies

Research and analysis by Lisa Harms Hartzler, Sorling Northrup Attorneys

Broker established cause of action to recover commission

In CS Empire Realty, LLC v. Hussain, 2017 NY Slip Op 04096 (May 24, 2017), the plaintiff broker and defendant sellers entered into a commission agreement to sell property in Jackson Heights, Queens, New York. The agreement provided that a $320,000 commission was due and payable to the broker at closing of the transaction. In less than three weeks, the sellers had signed a contract for sale to be closed on December 30, 2013. However, no closing occurred. In March of 2015, the sellers advised the broker that the sale would be cancelled. The sellers settled with the buyer and agreed to pay a $2 million cancellation fee. When the broker demanded payment of its commission, the seller refused to pay. The broker then sued the seller to recover its commission pursuant to the commission agreement. The seller moved for dismissal of the suit under the terms of the commission agreement, claiming no commission was owed because the sale had been cancelled and no closing had occurred.

Although the general rule is that a real estate broker will be deemed to have earned his commission when he produces a purchaser who is ready, willing, and able to purchase at the terms set by the seller, “the parties to a brokerage agreement are free to add whatever conditions they may wish to their agreement, including a condition that the contract of sale actually be consummated before the broker is deemed to have earned his commission.” However, if the seller is responsible for the failure to perform the condition, he may be liable to pay the commission. In this case, the broker alleged that the sellers wrongfully prevented completion of the deal because they found new buyers willing to pay a higher purchase price. This allegation of seller’s liability, which the sellers could not refute completely, was sufficient to withstand the sellers’ motion to dismiss the case and allowed it to move forward.

Property owner violated Fair Housing Act by refusing to rent to family with transgender parent

In Smith v. Avanti, --F.Supp.3d – (D. Colorado, April 5, 2017), the defendant owned two townhomes and two other single dwellings on one property. She rented one townhome to a couple without children and advertised the other for rent on Craigslist. The plaintiff, a transgender woman, was married to another woman. They had two children. Plaintiff corresponded by email with the defendant, disclosed her family situation, and visited the property with her family. Defendant subsequently refused to rent the townhouse to plaintiff. She stated in emails that the other renters were concerned about the children and “noise,” the defendant and her husband wanted to keep a “low profile” in the community, and the plaintiff’s “unique relationship” would jeopardize that low profile.

The plaintiff sued the defendant under the federal Fair Housing Act (FHA) and the Colorado Anti-Discrimination Act alleging discrimination on the basis of sex and familial status. The federal district court first found that an exception for renting or selling single family dwellings under the FHA was inapplicable because the defendant owned more than four dwellings at the time. In addition, the defendant’s emails constituted “statements” covered by the FHA. The court then held that discrimination against women like the plaintiff and her wife “for failure to conform to stereotype norms concerning to or with whom a woman should be attracted, should marry, and/or should have children is discrimination on the basis of sex under the FHA.” The court also held that the defendant’s refusal to rent to the plaintiff was based on her preference to rent the townhouse to someone without children and constituted a violation of the FHA on the basis of the plaintiff’s family status. Finally, the court made similar rulings under the Colorado statute and granted summary judgment in favor of the plaintiff on all counts.

U.S. Supreme Court limits venue choice in patent cases

In TC Heartland LLC v. Kraft Foods Grp. Brands LLC, 197 L.Ed.2d 816 (S.Ct., May 22, 2017), Kraft sued TC Heartland, a corporation organized under Indiana law and headquartered in Indiana, in a federal court in Delaware, claiming infringement of patents on flavored drink mixes. TC Heartland was not registered to do business in Delaware and had no meaningful local presence there except for shipping its products into the state. The federal patent statute contained a specific provision governing where a patent infringement suit may be brought. That section limited venue to “where the defendant resides”; however, the lower court applied a general venue provision in a different section, which allowed suit in any jurisdiction in which a court could have personal jurisdiction over a defendant. This broad interpretation allowed suits to be brought in jurisdictions friendlier to the plaintiff and more difficult and expensive for the defendant to defend. The Supreme Court reversed the lower court and definitively held that only the narrower venue provision applied under the patent law, which required suit to be brought against a domestic corporation only in the defendant’s state of incorporation. In this case, that would be Indiana.

Allegation of ADA violation for website access dismissed

In Robles v. Dominos Pizza LLC, (Central District Cal., March 20, 2017), the Plaintiff alleged that Domino’s Pizza violated the Americans with Disabilities Act of 1990 (“ADA”) because it failed to design, construct, maintain, and operate its website and mobile application to be fully accessible to and independently usable by blind or visually-impaired people. Plaintiff contended that Domino’s website did not permit a user to complete purchases using the screen-reading software called Job Access With Speech (“JAWS”), that its mobile application did not permit him to access menus and applications on his iPhone using a “VoiceOver” software program, and that neither the website nor the mobile app complied with version 2.0 of W3C’s Web Content Accessibility Guidelines (WCAG).

The court noted that the Department of Justice was charged by Congress to issue regulations clarifying how places of public accommodation must meet their statutory obligations of providing access to the public under the comprehensive ADA. The DOJ issued a Notice of Proposed Rulemaking in 2010, stating that “the Internet has been governed by a variety of voluntary standards or structures developed through nonprofit organizations using multinational collaborative efforts,” including the guidelines issued by W3C, but a “clear requirement” providing the disability community consistent access to websites “does not exist.” Since 2010, the DOJ has issued no final rules on access to Web sites.

The court concluded that requiring Domino’s to comply with WCAG 2.0 Guidelines without any meaningful guidance by the DOJ “flies in the face of due process.” The court dismissed the case.

Appellate decision requiring corporations to be represented by attorneys at administrative hearings was vacated by Supreme Court

The July 2014 Legal Case Studies reported that the First District Appellate Court invalidated an administrative decision in part because only an attorney can represent a corporation at an administrative hearing and in that case, a non-attorney had appeared on behalf of a real estate company at a building code violations hearing. On appeal, the Illinois Supreme Court held that the person who had appeared at the hearing did not have authority to represent the property owner in any capacity, so whether he was an attorney or not was irrelevant. Consequently, “any statements or holdings by the appellate court with respect to whether laypersons may represent corporations in proceedings before the Department without violating the prohibition against the unauthorized practice of law were wholly advisory.” The Court vacated those portions of the appellate court opinion addressing that question, which is again an unresolved issue. Stone St. Partners, LLC v. City of Chicago Dep’t of Admin Hearings, 2017 IL 117720 at P27.

“As is” clause in sales contract for commercial property was modified by other provisions

In Kuykendall v. Schneidewind, 2017 IL App (5th) 160013, the plaintiff signed a contract to purchase commercial property leased to a Dollar General store. Prior to closing, the seller delivered to plaintiff an estoppel certificate from Dollar General certifying that as of June 27, 2014, the seller was not in default of its obligations under the lease. The sale closed on July 16; on July 17 the seller received a letter from Dollar General complaining about the poor condition of the parking lot. Over the next two weeks, the seller received three more certified letters asserting the need for maintenance or repairs to a drainage ditch, exterior lighting, portions of the roof, parking lot and loading zone. In each letter, Dollar General claimed that failure to repair within 30 days would constitute a breach of the lease.

Beginning on August 28, Dollar General sent four more certified letters, this time to the plaintiff buyer, who made repairs at a cost of over $8,900. When the plaintiff and the seller could not agree on who was responsible for the expense of repairs, plaintiff sued, alleging fraud, breach of contract and violation of the Consumer Fraud Act. The defendant seller moved to dismiss the suit on the basis that a “sold as is” clause in the contract was an affirmative matter that defeated the allegations of the plaintiff’s complaint. The contract did contain a clause stating that the property “being sold is not new and neither the Seller nor Seller’s agent warrant the condition of the property, which is sold in its present ‘AS IS’ condition.”

However, the court noted that “a contract must be construed as a whole, viewing each provision in light of the others” and that the intent of the parties cannot be determined by any one provision standing by itself. The court would not construe the “as is” provision in isolation. Thus, the many other provisions in the contract delineating the seller’s duties, warranties, and covenants had to be considered. For example, the seller warranted to keep the property in good condition until closing, to deliver documents that were true and correct, to reveal, as required by law, all known defects of a material nature of which the seller was aware, and to deliver an estoppel certificate from the tenant. Considering the agreement as a whole, the court found the “as is” provision to be subject to exceptions, limitations, and potential conflicts. It could not be an affirmative matter that would preclude the plaintiff from alleging that he acted in reliance upon the accuracy of the various disclosures and the seller’s covenant to warranty the tenant’s estoppel certificate. The court reversed the trial court’s dismissing the plaintiff’s complaint and remanded it for further proceedings.

House owned by three siblings may be sold by Bankruptcy Trustee to pay sister’s debts

In Ford v. Duggan, Bk. No. 15‑11389‑BAH (D. N.H., May 12, 2017), a bankruptcy trustee asked the court for permission to sell a single-family home owned by three siblings, Kathleen, James and William, as tenants in common. The siblings inherited the 100-year old house in New Hampshire from their late mother. It was appraised at around $325,000. James lived in the house but was unemployed and had little income. The city had taken title for unpaid taxes and water and sewer charges totaling over $37,000 accruing since 2011. Kathleen was the debtor in bankruptcy. Her only asset was her one-third interest in the New Hampshire house.

When the bankruptcy trustee requested a sale of the house, James and William objected as co-owners. However, the federal bankruptcy code permits the trustee to sell both the bankruptcy estate’s interest and a co-owner’s interest in property if four conditions are satisfied: (1) a partition in kind of the property is impracticable; (2) sale of the bankruptcy estate’s undivided interest would realize significantly less than the sale of such property free of the interests of the co-owners; (3) the benefit to the estate outweighs the detriment, if any, to the co-owners; and (4) the property is not used in the production, transmission, or distribution for sale of electric energy or of natural or synthetic gas for heat, light, or power.

It was clear that a partition of the house property was impracticable, that there was no market for Kathleen’s one-third interest in the property, and that the property was not used to produce electricity or gas. The only issue was whether the benefit to the bankruptcy estate outweighed the detriment to the co-owners. The estate would benefit greatly from a sale, as it would yield sufficient funds to pay all of the claims against Kathleen and provide some surplus for her. The detriment to James, however, would be significant. He would be evicted from the only home he ever knew, had no income to pay rent elsewhere, and would suffer emotionally from losing the family home. The court, however, decided that James was likely to lose the house anyway in light of the city’s action to recoup taxes and fees. Further, James would realize net proceeds from the sale that would enable him to find alternative housing. The court approved the sale.

One other issue decided in the case was that costs and fees associated with the sale, including a broker’s commission, must be deducted from the proceeds prior to any distribution to the co-owners.