Sonnenschein v. Elliman-Gibbons & Ives

OPINION OF THE COURT Rosenberger, J. P. The question presented by this case is whether a real estate broker breaches its fiduciary duty to the seller by showing other sellers’ apartments to a prospective purchaser. We conclude that a broker is entitled to show multiple sellers’ properties to the same prospective buyer, absent any restriction to the contrary in the agreement between broker and seller. In the summer of 1990, plaintiffs Irving and Martha Sonnenschein listed their Manhattan condominium apartment for sale with a real estate broker, Phyllis Koch Real Estate (Koch). The original asking price was $975,000. Koch solicited the services of a cooperating broker, defendant Douglas Elliman-Gibbons & Ives (DEGI), to find a buyer. The cooperating broker would receive half of Koch’s 5% fee, namely, a 2.5% commission. In December 1990, Suzanne Turkewitz, a DEGI broker, told the Sonnenscheins that she had a potential buyer, Steve and Jennie Tam. However, the Tams were only willing to pay $820,000. At that time, the Manhattan real estate market was a “buyer’s market”: real estate prices were falling. Thus, plaintiffs were willing to consider this lower-priced offer. Turkewitz also wanted a 4% commission, rather than having to share Koch’s 5% commission. Accordingly, plaintiffs and DEGI executed a brokerage agreement (drafted by Mr. Sonnenschein, an experienced real estate lawyer) which set forth DEGI’s entitlement to a 4% commission in the event that a contract was signed between the Sonnenscheins and “the prospective buyer (Dr. and Mrs. Tam) whom we [DEGI] have brought to the broker with whom you listed this apartment [246] [Koch]Though an oral agreement was reached to sell the apartment to the Tams for $820,000, no contract was ever signed. In the meantime, defendant Patricia Cliff, another DEGI broker, had entered into an agreement with David and Elizabeth Roderick in August 1989, which gave DEGI the exclusive right to sell their apartment. The Rodericks’ apartment was located in the Sonnenscheins’ building. Plaintiffs acknowledge that the Rodericks’ property was superior in some respects; it was slightly larger and had a better view. Cliff showed the Rodericks’ apartment to the Tams in December 1990. The asking price was then $995,000. The Tams submitted a bid and on December 27, 1990, the Rodericks agreed to sell for $838,000. The transaction closed shortly thereafter. Plaintiffs ultimately sold their apartment to another buyer on July 8, 1991, for $790,000. When they learned that they had lost the Tams to a competing seller represented by DEGI, plaintiffs commenced this action against DEGI and Cliff. Plaintiffs alleged that a principal-agent relationship had existed between them and defendants, and that defendants had breached their duty of loyalty to plaintiffs in order to obtain a higher commission on the Roderick sale. Defendants moved for summary judgment to dismiss the complaint on the grounds that they did not owe plaintiffs any fiduciary duty because they were merely cooperating brokers who represented the buyer. Plaintiffs, on the other hand, argued that the 4% commission agreement between DEGI and plaintiffs made DEGI their agent. The IAS Court denied defendants’ motion for summary judgment because it found that DEGI was acting as plaintiffs’ agent, and that factual issues existed regarding defendants’ knowledge and intent to induce the Tams to buy the Rodericks’ apartment rather than the Sonnenscheins’. The court recognized that brokers normally represent multiple sellers who have apartments in the same price range and are therefore competitors in the real estate market. “Nor would this Court hold that a buyer’s interest in an apartment would preclude a salesperson from showing that buyer other apartments. Such a situation is, however, markedly different from the instant situation in which an oral agreement on plaintiffs’ apartment had been reached.” Inducing the buyer to breach that oral agreement would be a breach of fiduciary duty by the broker, the IAS Court concluded. Before trial, plaintiffs stipulated that their damages would be $52,000, consisting of the $30,000 price differential between [247] the Tams’ offer and the eventual sale price, plus maintenance and mortgage payments. There was no discussion of prejudgment interest. The court denied defendants’ motion for a directed verdict at the conclusion of plaintiffs’ case. The jury found for plaintiffs on the sole question presented to them, namely whether “defendants knowingly and intentionally acted to sabotage the proposed sale of the Sonnenschein apartment to the Tams.” Defendants’ motion to set aside the verdict was denied. The court ruled that, although there was no direct evidence that Cliff was aware of the proposed transaction between plaintiffs and the Tams, a rational jury could have concluded from circumstantial evidence that Cliff learned of the pending sale from Turkewitz and used that information as leverage to expedite the negotiations with the Rodericks. The clerk thereupon entered judgment for plaintiffs in the amount of $52,000, plus $33,657.53 in preverdict interest. However, the court vacated the award of preverdict interest because the plaintiffs had not provided for it in the stipulation of damages. Plaintiffs now appeal from the denial of preverdict interest, and defendants appeal from the denial of their motion for summary judgment, motion for a directed verdict and motion to set aside the verdict. Summary judgment should have been granted to defendants. The dissent correctly notes that the IAS Court erred in finding as a matter of law that DEGI acted as plaintiffs’ broker. Whether a fiduciary relationship existed between the parties was a question of fact which could have been submitted to the jury. However, the appropriate remedy is to grant defendants’ motion for summary judgment, rather than order a new trial, because plaintiffs’ theory of liability is flawed. Even assuming, as plaintiffs contend, that they had a fiduciary relationship with DEGI and that DEGI’s brokers knowingly derailed the Sonnenschein sale in favor of the Roderick sale, these facts do not support a cause of action for breach of fiduciary duty. It has long been the common-law rule that a real estate broker can represent more than one seller or lessor at a time, and can show multiple properties to the same buyer, without breaching its fiduciary duty (Anon Realty Assocs. v Simmons Stanley, Ltd., NYLJ, June 9, 1993, at 26, col 2; Coldwell Banker Commercial Group v Camelback Off. Park, 156 Ariz 226, 751 P2d 542; Annotation, Right of Real Estate Broker to List Competing Properties of Different Owners, 71 ALR 699). The few cases from other jurisdictions that have considered the issue all agree on this point. “It is not to be expected that, [248] if an intending purchaser is dissatisfied with one piéce of property which he has for sale, the broker will decline to show him other pieces of property” (Lemon v Macklem, 157 Mich 475, 478, 122 NW 77, 78). McEvoy v Ginsberg (345 Mass 733, 189 NE2d 546) held that the broker did not breach his duty of loyalty to the would-be lessor by suggesting to the prospective lessee that it consider leasing a different property which was also represented by the broker. “[I]n the absence of a special restrictive contract, a real estate broker is free to offer the properties of all his principals to a prospective customer” (id., 345 Mass, at 737, 189 NE2d, at 547). Had Mr. Sonnenschein, an experienced real estate attorney, wished to include such a restriction in the commission agreement with DEGI, he could have done so. Indeed, as the IAS Court recognized in the instant case, the opposite rule would render it impossible for brokers to do business. The fiduciary rules against dual agency, which bar a broker’s simultaneous representation of seller and buyer unless both parties consent, cannot be extended to bar simultaneous representation of several sellers who are rivals for the same customer (Foley v Mathias, 211 Iowa 160, 162, 233 NW 106, 107). “Otherwise a real estate agent could only have on his list of lands for sale one farm at a time, or would not be allowed to sell his own lands, without first advising one of his patrons of his purpose and interest in other tracts” (Gaty v Sack, 19 Mo App 470, 475). We find this reasoning highly persuasive. In support of its denial of summary judgment, the IAS Court created an exception to this common-law rule: as soon as there is an oral agreement between the first seller (the Sonnenscheins) and the prospective buyer, the broker cannot show the buyer other sellers’ properties with the intent to induce the buyer to “breach the oral agreement.” No authority was cited for this proposition. As is well known, a contract for the sale of real property is not valid unless it is in writing (General Obligations Law § 5-703 [1]). Where then is the breach? If there was no contract, there can have been no wrongful interference with it (Herman & Beinin v Greenhaus, 258 AD2d 260, 261, lv denied 1999 NY App Div LEXIS 5217; Dickstein v Del Labs., 145 AD2d 408, 409, lv denied 73 NY2d 709). We would be proposing an unworkable rule if we held that at some point during oral negotiations, the broker becomes precluded from showing other properties to the buyer. Real estate negotiations are often characterized by a series of tenta [249] tive oral agreements between the parties. The parties are nonetheless free to decide against entering into the sale, until the final terms are reduced to writing. The very purpose of the Statute of Frauds, as applied to real estate sales, is to distinguish these provisional “agreements to agree” from the final, binding contract (see, Fox Co. v Kaufman Org., 74 NY2d 136, 140 [“(t)he purpose of Statutes of Frauds is to avoid fraud by preventing the enforcement of contracts that were never in fact made”]). It would be unfair to hold that such an oral agreement imposes greater burdens on the broker than on either of the parties; the buyer would be free to find another seller, but the broker would not be free to suggest any alternative properties on his list. Accordingly, the judgment of the Supreme Court, New York County (Edward Lehner, J.), entered March 18, 1999, in favor of plaintiffs and against defendants in the principal amount of $52,000, and bringing up for review an order of the same court (Emily Goodman, J.), entered October 23, 1997, denying defendants’ motion to dismiss the complaint, and an order of the same court (Edward Lehner, J.), entered September 11, 1998, denying defendants’ motion for a directed verdict or to set aside the verdict, should be reversed, on the law, without costs, defendants’ motion for summary judgment granted, and the complaint dismissed. The Clerk is directed to enter judgment in favor of defendants dismissing the complaint. Plaintiffs’ appeal from the order, same court (Edward Lehner, J.), entered November 20, 1998, granting defendants’ motion to vacate the award of preverdict interest, should be dismissed, without costs, as academic, and their appeal from the order of the same court and Justice, entered on or about March 12, 1999, denying their motion deemed to be one to reargue the order of November 20, 1998, should be dismissed, without costs, as nonappealable.