CTM Consulting Servs., Inc. v Wateredge E. Inc.

[*1] CTM Consulting Servs., Inc. v Wateredge E. Inc. 2008 NY Slip Op 52083(U) [21 Misc 3d 1117(A)] Decided on September 29, 2008 Supreme Court, Nassau County Austin, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on September 29, 2008
Supreme Court, Nassau County

CTM Consulting Services, Inc., Plaintiff,

against

Wateredge East Inc. d/b/a FOWKES BUILDERS and MAIDSTONE PROPERTIES, LLC, Defendants.



20573-07



COUNSEL FOR PLAINTIFF

Weinberg, Gross & Pergament, LLP

400 Garden City Plaza, Suite 403

Garden City, New York 11530

COUNSEL FOR DEFENDANT

Certilman, Balin, Adler & Hyman, LLP

90 Merrick Avenue, 9th Floor

East Meadow, New York 11554

Leonard B. Austin, J.

Defendants move pursuant to CPLR 3211 (a)(7) or for summary judgment 3212 to dismiss the complaint.

Plaintiff cross-moves for leave to amend the complaint pursuant to CPLR 3025(b).

BACKGROUND[*2]

This is an action for damages arising out of a written consulting agreement dated July 15, 2007 pursuant to which Plaintiff agreed to advise Defendants "with respect to the solicitation and procurement of funding for 71 Maidstone Lane, East Hampton, New York for a term of 120 days." The scope of services to be provided included:

A.collaboration with client management to establish criteria for funding transactions which meet client's financial objectives;

B.identification of persons and organizations capable of satisfying client's funding requirements;

C.arrangement and coordination of introductions between client management and funding source management, their agents and/or other intermediary consultants;

D.assistance in negotiation of the terms of funding transactions which arise from introductions arranged by the consultants.

Plaintiff alleges that, as a result of its efforts, Defendant Maidstone Properties LLC, the nominee for Wateredge East Inc. d/b/a Fowkes Builders secured a construction loan in the principal sum of $5,202,000 from Patriot National Bank on September 25, 2007 thereby entitling it to a commission in the sum of $78,030, in accordance with the compensation provision of the parties agreement which provides that:

[i]n the event the Consultants procure(s) commitment(s) for the funding from a Funding Source(s), on terms and conditions acceptable to the Client, then the Consultant shall have earned a Transaction Fee(s) in the amount of one percent (1.50%) of the funding proceeds delivered to the Client under said commitment(s). The Transaction Fee(s) shall be paid on a pro rata basis as the funding proceeds are received by the Client.

Defendants having refused to pay the subject commission, Plaintiff commenced this action alleging causes of action for breach of contract, recovery of attorney's fees and unjust enrichment.

It is undisputed that Plaintiff was neither a licensed real estate broker, sales person or mortgage broker at the time of the activities that purportedly generated the claim to a commission, nor at the time the transaction at issue was consummated. Defendants, therefore, argue that, because Plaintiff was not a licensed real estate broker, it is precluded by the strictures of Real Property Law § 442-d from recovery. Plaintiff counters that the services it rendered are not the type of services contemplated by the statute in that its role was solely to identify and introduce potential lenders, capable of satisfying their funding requirements to Defendants. Defendants themselves negotiated the terms of the loan with the lender. Plaintiff further asserts that the goal

sought to be achieved by the licensing statute would not be promoted by extending the [*3]statute's reach to encompass the services it was hired to perform [FN1].

DISCUSSION

A.Summary Judgment

It is well established that a license as a real estate broker or salesperson is required of a person who seeks compensation for services rendered in buying, selling, exchanging, leasing, renting or negotiating a loan upon real estate. Real Property Law § 442-d; Bendell v. De Dominicis, 251 NY 305, 308 (1929); and Mavco Realty Corp. v. M. Slayton Real Estate, Inc., 38 AD3d 726, 727 (2nd Dept. 2007). Section 440 of the Real Property Law defines "real estate broker" to include:

any person, firm, limited liability company or corporation, who, for another and for a fee, commission or other valuable consideration, lists for sale, sells, at auction or otherwise, exchanges, buys or rents, or offers or attempts to negotiate a sale, at auction or otherwise, exchange, purchase or rental of an estate or interest in real estate, or collects or offers or attempts to collect rent for the use of real estate, or negotiates or offers or attempts to negotiate, a loan secured or to be secured by a mortgage, other than a residential mortgage loan.

A broker is an agent, who for commission or brokerage fee, bargains or carries on negotiations on behalf of his principal as intermediary between the latter and third persons in transacting business relative to the sale or purchase of any form of property. BAII Banking Corp. v UPG, Inc., 985 F.2d 685, 700 (2nd Cir. 1993), An action for a broker's commission cannot be maintained by a corporation if no allegation is made that the corporation is or was licensed, notwithstanding the fact that a real estate broker's license was held by its president. Sharon Ava & Co., Inc. v Olympic

Tower Assoc., 259 AD2d 315, 316 (1st Dept. 1999). Real Property Law § 442-d provides, in relevant part, as follows:

No person, copartnership, limited liability company or corporation shall bring or maintain an action in any court of this state for the recovery of compensation for services rendered, in any place in which this article is applicable, in the buying, selling, exchanging, leasing, renting or negotiating a loan upon any real estate without alleging and proving that such person was a duly licensed real estate broker or real estate salesman on the date when the alleged cause of action arose.

The structures of § 442-d are mandatory. Without allegation and proof that the real estate broker or salesman was licensed, the complaint to recover a commission must be dismissed. M.K.D. Capital Corp. v. Miller, 170 Misc 2d 1002, 1004 (Sup. Ct. NY Co. 1996).

Due to the penal nature of the statute, it must be strictly construed and not be made applicable to every situation in which an interest in real estate may be part of the transaction. Reiter v. Greenberg, 21 NY2d 388, 391-392 (1968); Kreuter v. Tsucalas, [*4]287 AD2d 50, 54 (2nd Dept. 2001); Matter of Wertlieb, 165 AD2d 644, 647 (1st Dept. 1991); and Eaton Assoc. v. Highland Broadcasting Corp., 81 AD2d 603, 604 (2nd Dept. 1981). If an item of real estate is an incidental feature of the transaction at issue,§442-d does not apply. Where, however, real estate is the principal element involved in the transaction, a broker must have a license and cannot evade its necessity by characterizing its services as that of a finder, intermediary or middleman. Sorice v.

DuBois, 25 AD2d 521 (1st Dept. 1966); Berg v Wilpon, 180 Misc 2d 956, 957 (Sup. Ct. Richmond Co. 1999), aff'd., 271 AD2d 629 (2nd Dept. 2000).

Viewing the evidence in the light most favorable to Plaintiff, and affording it the benefit of every favorable inference (Aberbach v Biomedical Tissue Services, Ltd., 48 AD3d 716 [2nd Dept. 2008]); the question of whether the services rendered by Plaintiff under the agreement herein fall within the ambit of § 442-d is a factual issue which cannot be determined on the papers before the Court inasmuch as the exact nature of the services rendered by Plaintiff with respect to the transaction at issue is unclear.

Plaintiff alleges that it was not required to be licensed as either a real estate or mortgage broker since it played no part in negotiating the loan herein, and merely procured a prospective lender with whom Defendants themselves successfully negotiated the loan terms. Defendants counter that a first mortgage on premises in East Hampton was the dominant or principal feature of the transaction for which Plaintiff seeks to be compensated. Plaintiff was, therefore, according to Defendants required to plead that it possessed a real estate broker's license.

While the Court is cognizant of the fact that assistance in negotiating the terms of funding falls within the scope of services to be performed by Plaintiff under the parties' agreement, (Real Property Law § 442-d), Plaintiff contends that no such services were performed. According to Plaintiff, under the circumstances of this relationship and transaction, neither licensed real estate brokers nor the public were even theoretically exposed to the perils of the kind of unlicensed real estate brokering which the statute seeks to prevent. Where a plaintiff does not negotiate for a loan, his right to compensation will not be defeated by the statute. See, Transaction Advisory Services, LLC v. Silver Bar Holding, LLC, 38 AD3d 241 (1st Dept. 2007) (An investment advisory service, hired to find investors to participate in a real estate purchase, did not, by virtue of finding such an investor, become a real estate broker subject to the licensing requirement of § 442-d).

Rather than as a broker, Plaintiff characterizes itself as a well-known and respected consultant in the financial services industry which acted as a finder with respect to the financing for Defendants' project. A finder is one who finds, interests, introduces and brings parties together for a business transaction that the parties themselves negotiate and consummate. Northeast General Corp. v. Wellington Advertising, Inc., 82 NY2d 158, 162-63 (1993), For a finder to recover under the typical finder's agreement, there must be a causal relation between the introduction of the parties and the ultimate conclusion of the transaction. Simon v. Electrospace Corp., 28 NY2d 136, 142 (1971); and Gregory v. Universal Certificate Group LLC, 32 AD3d 777, 778 (1st Dept. 2006). Unlike a broker, a finder has no duty to bring the parties to an agreement, but instead acts as one who is hired to bring two or more parties together. When they meet, the parties do their own negotiating [*5]and make their own bargain. BAII Banking Corp. v UPG, Inc., supra at 700. A person who simply calls the attention of a lending agency to a prospective piece of financing, and over a period of six months supplies the agency with all desired information regarding the property for the purchasing of which financing is contemplated, does not come within the terms of a statute defining a real estate broker as one who negotiates, or offers or attempts to negotiate, a loan secured or to be secured by a mortgage or other encumbrance upon the transfer of real estate. P.W. Chapman & Co. v Cornelius, 39 F.2d 555, 556 (2nd Cir. 1930). Inasmuch as the exact nature of Plaintiff's role in the transaction at issue cannot be determined on the papers before the Court, the Defendants' motion to dismiss the complaint pursuant to CPLR 3211(a)(7) or CPLR 3212 must be denied at the juncture.

B.Leave to Amend

While amendment of a pleading should be freely granted (CPLR 3025[b]), it may be denied where the proposed amended cause of action plainly lacks merit. Lucido v. Mancuso, 49 AD3d 220, 221-22 (2nd Dept. 2008). Here, the proposed amendment, to reflect the fact that one of Plaintiff's officer/shareholders is a licensed real estate broker, plainly lacks merit as it would not serve to save the claims asserted on behalf of Plaintiff corporation, which is not itself a licensed real estate broker, if it is found that Plaintiff's activities fall within the ambit of §442-d. Sharon Ava & Co., Inc. v Olympic Tower Assoc., supra at 316.

Accordingly, it is,

ORDERED, that Defendants' motion for dismissal of the complaint or summary judgment is denied; and it is further,

ORDERED, that Plaintiff's motion for leave to amend the complaint is denied; and it is further,

ORDERED, that counsel are directed to appear for a preliminary conference on October 29, 2008 at 9:30 a.m.

This constitutes the decision and Order of the Court.

Dated: Mineola, NY_____________________________

September 29, 2008Hon. Leonard B. Austin, J.S.C. Footnotes

Footnote 1:The animating purpose of the statute is to protect the public from inept, inexperienced or dishonest persons who might perpetrate or aid in perpetration of a fraud. Kavian v Vernah Homes Co., 19 AD3d 649, 650 (2nd Dept. 2005); and Dodge v Richmond, 5 AD2d 593, 594 (1st Dept. 1958).