Rokosz v Belmont Watkins Realty Corp.
Annotate this CaseDecided on October 13, 2004
Civil Court, New York County
SHRAGE ROKOSZ, Plaintiff,
against
BELMONT WATKINS REALTY CORP., Defendant.
00187/03
Analisa Torres, J.
In this action for damages, plaintiff, Shrage Rokosz, seeks to recover a brokerage commission in connection with the leasing of real property owned by defendant, Belmont Watkins Realty Corp.
I conducted a bench trial over several days commencing March 7, 2003. Shrage Rokosz testified on his own behalf. Defendant called Israel Israel, Harry Shapiro, Steven Lorenzo, Myles Mahoney and Shrage Rokosz.
Following are my findings of fact and conclusions of law.
FACTS
Shrage Rokosz is an attorney admitted to practice in the State of New York and a licensed real estate broker.
Israel Israel is a businessman with substantial experience in New York City commercial real estate. His formal education consists of three years of Israeli military school from ages sixteen to nineteen.
Belmont Watkins Realty Corp. is the owner of the real property located at 73-33 Belmont Avenue in Brooklyn. The corporation purchased the premises in 1998. At that time, Israel owned a fifty percent interest in Belmont. The other half was owned by Phyllis Rokosz, Shrage Rokosz's mother. Shrage Rokosz served as president of Belmont.
The Rokosz and Israel families participated together in many real estate deals. They were close personal friends. Israel has known Shrage Rokosz since Rokosz was a boy. Israel trusted Rokosz, based upon their twenty-five year relationship.
Harry Shapiro is an attorney and licensed real estate broker. He incorporated Belmont in 1998 and was its designated agent for service of process. Shapiro represented the corporation at the closing of the purchase of 73-33 Belmont Avenue.
During law school, Shrage Rokosz was an unpaid intern at Shapiro's law firm. Shapiro testified that during the internship, Rokosz dedicated himself to his personal real estate business instead of the firm's legal work. The internship ended in the winter of 1999. There is no evidence that Rokosz performed legal services for Belmont while working at Shapiro's firm.
In 1999, Phyllis Rokosz sold her interest in Belmont to Israel Israel and his wife, Joyce Israel. Shrage Rokosz prepared the contracts which memorialized the transaction. The documents were executed at the home of Phyllis Rokosz and her husband, Isiah Rokosz. Shrage [*2]Rokosz was paid a few thousand dollars and the parties went to a restaurant. Upon the sale, Rokosz resigned as president of Belmont.
Israel testified that he believed that Rokosz had provided legal representation to both Phyllis Rokosz and the Israels. Rokosz stated that he represented his parents. Rokosz was not admitted to practice, however, until months after the sale was consummated.
Rent-A-Center, Inc. is in the business of renting household furniture and electronic equipment on a monthly basis.
In August 2000, Steven Lorenzo, a salesperson with Friedland Realty, Inc., identified the building at 73-33 Belmont Avenue as a potential site for Rent-A-Center. Lorenzo consulted a tax map and found that Shapiro was listed as owner. On August 8, 2000, Lorenzo phoned Shapiro and indicated Rent-A-Center's interest in the premises. Shapiro told Lorenzo that he was not the owner but that he wanted to participate in the brokerage commission.
On the same day, Lorenzo faxed two documents addressed to "Harold" Shapiro at Shapiro's Manhattan law office address. The first document, transmitted at 11:32 a.m., is a letter referring to Lorenzo's phone conversation with Shapiro and summarizing Rent-A-Center's general requirements with respect to square footage, location and physical amenities. In the letter, Lorenzo asks Shapiro to "contact your client with respect to the site on Belmont Avenue." The second document, faxed at 2:56 p.m., proposes specific lease terms, including a $100,000 annual rent and a six percent brokerage commission to be shared by Friedland and Shapiro. In that writing, Lorenzo asks Shapiro to "review the following proposal and advise."
Lorenzo testified that he made handwritten notes on a photocopy of the second document faxed to Shapiro. In three places where the name "Harold" appears, Lorenzo crossed out "Harold" and substituted "Harry". In the paragraph labeled "Commission", Lorenzo circled in red ink the sentence "Co-broke with Harold Shapiro under separate agreement" and drew an arrow pointing to another handwritten circle which contains "20%". Lorenzo also crossed out the $100,000 annual rent and substituted $107,500. Lorenzo stated that he did not know when he wrote the notes, but that "[it] could have been a conference that [Lorenzo] was having with Myles [his co-worker]. It could have been while Mr. Shapiro was speaking."
Shapiro stated that after receiving the faxed lease proposal, he "immediately" contacted Shrage Rokosz, believing that Rokosz was the owner, the son of the owner or the manager of the premises. Shapiro was not aware that Phyllis Rokosz had sold her interest in Belmont to the Israels. Shapiro gave Lorenzo Rokosz's name and phone number. Shapiro believed that putting Lorenzo in touch with Shrage Rokosz was tantamount to putting Lorenzo in touch with Belmont. Shapiro also felt that it was imperative that Lorenzo fully disclose to Belmont Shapiro's role as co-broker. Shapiro testified:
As far as I knew [Shrage Rokosz] was an owner or the son of an owner. I put them together and that was it, and I disclosed my involvement because I believe Mr. Lorenzo sent a similar fax with my paper as the co-broker the very next day or on that same day. So as far as I was concerned Belmont Watkins Corp. had full disclosure of my involvement as a co-broker because on that day, on the day following my conversation with Mr. Lorenzo the corporation received a similar, identical letter in which my name as co-broker was disclosed.
Lorenzo testified that: (1) at the direction of Shapiro; (2) believing that Rokosz was the [*3]owner of the premises; and (3) prior to speaking with Rokosz, Lorenzo faxed to Rokosz, on August 9, 2000, a "revised" lease proposal. The document is addressed to Rokosz at "Belmont Watkins Realty" and proposes an initial annual rent of $107,500. The paragraph entitled "Commission" provides that the landlord is to pay a six percent commission to Friedland, a portion of which is to be shared with Shapiro. The document does not identify Rokosz as a broker and does not state that Rokosz will participate in the brokerage fee.
On August 10, 2000, after sending the fax, Lorenzo phoned Rokosz and Rokosz identified himself as Belmont's "exclusive broker."
On August 13, 2000, Rokosz phoned Israel and stated that another broker had contacted Rokosz concerning a prospective tenant. Rokosz asked to serve as Belmont's exclusive broker. Israel agreed. At trial, Rokosz admitted that during his conversation with Israel, Rokosz: (1) did not identify any other broker by name; (2) did not show Israel the August 9, 2000 fax from Lorenzo; and (3) did not inform Israel of Shapiro's involvement in the deal. Israel's testimony establishes: (1) that Rokosz never advised Israel that Rokosz had already held himself out as Belmont's exclusive broker and (2) that Rokosz never mentioned that the other broker requested a six percent commission.
Rokosz proposed charging Belmont a ten percent brokerage fee. Israel agreed. On August 15, 2000, Rokosz faxed to Israel a draft agreement on letterhead which reads "SHRAGE ROKOSZ Attorney at Law." The contract provides that Rokosz shall receive "10% of the first 5 years['] gross annual rent under the lease . . .". Israel signed the agreement as president of Belmont. Below Rokosz's signature are the words "Shrage Rokosz/Attorney-Broker."
Israel testified that when he executed the contract, he believed that Rokosz was acting as Belmont's attorney and broker.
On August 16, 2000, the Israels, Rokosz, Myles Mahoney, a broker with Friedland, and representatives of Rent-A-Center, met at the premises. They discussed the terms of the lease, including the work that Rent-A-Center expected Belmont to perform. Myles Mahoney testified that at that meeting he believed that Rokosz was "the landlord for the premises."
After August 24, 2000, Israel consulted Gamill Engineering with respect to the landlord's work. Gamill estimated that the job would cost $150,000 to $160,000 to complete. Israel calculated that the work plus Rokosz's fee would total $210,000, constituting approximately two years' rent under the proposed lease. Israel called Rokosz and complained about the ten percent commission.
On September 10, 2000, Rokosz, Israel and Myles Mahoney met at a Brooklyn gas station. During the conversation, Israel first learned that Shapiro was to receive a cut of the brokerage fee. Israel became irate. Shapiro and Israel spoke by cell phone. Israel told Rokosz and Shapiro that he would not go through with the deal, unless the commission were reduced. Shapiro withdrew from the transaction. Israel testified that "as a result of all [the] conversations during this meeting", the participants agreed that Freidland and Rokosz would split a seven percent commission.
Israel directed Rokosz to prepare a new contract and to fax it to Aaron Stein, Esq., for Stein's review. On September 12, 2000, Rokosz sent a letter agreement to Stein proposing a seven percent commission for the first five years' gross annual rent. On September 13, 2000, Israel phoned Rokosz and objected to several provisions, including the timing of the payment and [*4]certain penalties. The parties never executed the contract.
Rent-A-Center signed a lease for the premises on September 12, 2000; Israel signed on September 18, 2000. The lease is dated as of September 27, 2000.
Rokosz now seeks to enforce the August 15, 2000 brokerage agreement.
LAW
In New York, it is well settled that a real estate broker is an agent and a fiduciary "with a duty of loyalty and an obligation to act in the best interests of the principal." M.R. Dubbs v. Stribling & Assoc, 96 NY2d 337, 340 (2001)(citations omitted). A broker has a duty to promptly disclose to the principal all material information he may possess or obtain concerning the transaction in which he is engaged, so that the principal may take steps to protect his interests. Coldwell Banker Residential Real Estate v. Berner, 202 AD2d 949, 952 (3d Dept 1994); Klein v. Twentieth Century-Fox Intl. Corp. 201 Misc 132, 134 (Sup Ct, New York County 1951), affd 279 AD 989.
The failure to disclose such information constitutes a breach of the duty of loyalty. A disloyal agent forfeits the right to compensation. Lamdin v. Broadway Surface Adv. Corp., 272 NY 133, 138 (1936); TPL Assoc v. Helmsley-Spear, Inc., 146 AD2d 468, 471 (1st Dept 1989).
DISCUSSION
Unlike Rokosz, Israel, Shapiro, Lorenzo and Mahoney were credible witnesses. Rokosz averted his eyes, perspired, fidgeted and hesitated throughout his testimony.
The evidence adduced at trial establishes that Rokosz mislead key players in the Rent-A-Center lease deal.[FN1] His dissimulation was under way by August 10, 2000, when Rokosz, in his first conversation with Lorenzo, falsely claimed to be Belmont's exclusive broker. This misrepresentation subjects Rokosz to discipline under Real Property Law § 441-c and violates the New York State Real Estate Board Guide to Professional Conduct and the Real Estate Board of New York Code of Ethics and Professional Practices.[FN2] See website of the New York State Department of State, Division of Licensing Services, at www.doc.state.ny.us and website of Real Estate Board of New York, Code of Ethics and Professional Practices § VI (B)(1), at www.rebny.com.
On August 13, 2000, Rokosz's prevarication continued, when he induced Israel to enter into the exclusive brokerage arrangement, by withholding from Israel critical information which would have influenced Israel's overall assessment of the proposed lease and, specifically, [*5]Rokosz's request for a ten percent brokerage fee. Had Rokosz disclosed all he knew about the transaction, Israel would have learned that Rokosz was not the procuring cause of the Rent-A-Center deal. Rokosz had not located the tenant and had not negotiated the lease terms. Instead, Rokosz had mistakenly received an offer clearly intended for Belmont. Then, unbeknownst to Israel, Rokosz posed as Belmont's broker and insinuated himself into the transaction. Had Israel known the full story, he, presumably, would not have agreed to pay Rokosz any commission, let alone a whopping ten percent.
Had Rokosz turned over Lorenzo's August 9, 2000 fax, Israel would have learned of Shapiro's role as co-broker, affording Israel the opportunity to question Shapiro about his knowledge of the transaction, including Shapiro's firm belief: (1) that Rokosz was a principal of Belmont and (2) that Lorenzo had disclosed to Belmont Shapiro's participation in the deal. Upon inspection of the document, Israel would have drawn the obvious conclusion that the lease proposal was aimed at Belmont, because: (1) the document is addressed to Rokosz at "Belmont Watkins Realty", as opposed to Rokosz at his business and (2) only Friedland and Shapiro, not Rokosz, are mentioned as brokers. Israel would have also learned that Friedland proposed a six percent brokerage fee.
Israel's actions at the Brooklyn gas station also demonstrate that knowledge of Shapiro's involvement would have affected Israel's decision to sign the August 15, 2000 contract. As a direct result of Shapiro's conversation with Israel, Shapiro withdrew from the transaction. Israel then extracted from Rokosz and Mahoney a reduction in the commission, from ten percent to seven percent. Shapiro's expulsion or retreat from the deal was one of the factors which lead to a drop in the brokerage fee, because, according to Israel's testimony, the lower commission resulted from "all [the] conversations during this meeting." Had Israel also known that Freidland originally proposed a six percent brokerage fee, Israel, presumably, would have insisted upon a six percent, not a seven percent, fee.
Rokosz contends that he earned a commission by negotiating with Lorenzo an increase in rent from $100,000 to $107,500 per year. The higher figure amounts to a shift of the $7,500 real estate tax burden from landlord to tenant.
I reject Rokosz's claim that he orchestrated the increase, because the $107,500 amount was already contained in the first document Lorenzo faxed to Rokosz, before the pair had ever spoken. Moreover, at trial, Lorenzo did not attribute the climb in rent to Rokosz. Lorenzo stated that the $107,500 figure may have arisen during a conversation with Mahoney or Shapiro.
In addition, Lorenzo's handwritten notes on a copy of the second document faxed to Shapiro support the conclusion that Shapiro, not Rokosz, proposed the $107,500 rent, because several contemporaneous notations concern Shapiro's name and the terms of his compensation. Clearly, these personal matters are more likely to have been raised by Shapiro, not Rokosz. Also, Shapiro, a broker and attorney, would have had easy access to public records which list the annual real estate taxes for the premises.
CONCLUSION
Rokosz, by holding himself out as Belmont's exclusive broker without first formalizing the relationship with Israel, voluntarily undertook the duties ordinarily imposed upon an agent [*6]acting for a principal, including the duty of loyal service. Rokosz was subject to that duty as he endeavored to gain Israel's favor and the obligation continued once Israel signed the brokerage contract.
Although Rokosz assumed the mantel of fiduciary, he failed to discharge his duties honorably. First, Rokosz intercepted an offer that was intended for Belmont. Then, he lied about his relationship to the corporation. Next, Rokosz claimed undeserved credit for negotiating the rent increase. Finally, Rokosz concealed from Belmont crucial information in order to inveigle Israel's agreement to a ten percent commission.
The August 15, 2000 contract is the product of trickery and betrayal. It was void ab initio and shall not be enforced. Nor is there a basis for awarding Rokosz a portion of the seven percent brokerage fee discussed at the September 10, 2000 meeting. All compensation was forfeited by Rokosz's disloyalty.
The Clerk is directed to enter judgment dismissing the complaint.
This constitutes the decision and order of the court.
Dated: October 13, 2004__________________
J.C.C.
Footnotes
Footnote 1:In addition to Lorenzo and Israel, Rokosz may have deceived Shapiro. Shapiro testified that after speaking with Rokosz on August 8, 2000, Shapiro, who was well aware of Rokosz's real estate business, believed that Rokosz was acting as principal of Belmont, not broker. It is not clear whether Rokosz stated to Shapiro that he was a principal or whether Shapiro merely assumed so.
Footnote 2:There is no evidence that Rokosz is a member of REBNY. The REBNY Code of Ethics and Professional Conduct is cited only as an example of ethical standards embraced by real estate brokers in this local voluntary membership organization.
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