Dai v Noa
Annotate this CaseDecided on December 27, 2017
Civil Court of the City of New York, Richmond County
Christopher Dai, Esq., Claimant,
against
Nahro Noa, Defendant. CHRISTOPHER DAI, ESQ., Claimant, DANIEL RICHLAND, ESQ, Defendant. CHRISTOPHER DAI, ESQ., Claimant, CHRISTOPHER WHITE, Defendant. DANIEL RICHLAND, ESQ. Claimant, CHRISTOPHER DAI, ESQ., Defendant.
CHRISTOPHER DAI, ESQ., Claimant, ,
against
DANIEL RICHLAND, ESQ, Defendant.
CHRISTOPHER DAI, ESQ., Claimant, ,
against
CHRISTOPHER WHITE, Defendant.
DANIEL RICHLAND, ESQ. Claimant, ,
against
CHRISTOPHER DAI, ESQ., Defendant.
SCR No.267/17
Attorney for Claimant
Vincent Gallo Esq.
706 Forest Avenue
Staten Island, New York 10310
Defendants : Self Represented
Philip S. Straniere, J.
Fiorello:Hey, wait, wait. What does this say here, this thing here?
Driftwood:Oh that? Oh, that's the usual clause that's in every contract. That justsays, uh, it says, uh, if any of the parties participating in this contract are shown notbe in their right mind, the entire agreement is automatically nullified.
Fiorello:Well I don't know
Driftwood:It's all right. That's, that's in every contract. That's, that's what theycall a sanity clause.
Fiorello:Ha-ha-ha-ha- ha! You can't fool me. There ain't no Sanity Clause.
This exchange from the movie, "A Night at the Opera, "between Fiorello (Chico Marx) and Otis B. Driftwood (Groucho Marx) is known as the "contract scene." Because it deals with two "agents" negotiating an agreement on behalf of their respective clients, it may be instructive as to some of the issues in this case, which involves a real estate contract and the authority of real estate salespersons to act on behalf of their clients.
Background:
Claimant, Christopher Dai, Esq., as the attorney for the buyer, Christopher White, commenced this stakeholder action in day small claims court, against the defendants, Nahro Noa, Daniel Richland, Esq., and Christopher White, asking the court to issue an order as to how a deposit claimant was holding in his attorney's trust account should be disbursed.
Defendant Richland the attorney for the seller, Nahro Noa, asserted a counterclaim against Dai seeking to have his legal fee paid for having an order to show cause prepared to stop the foreclosure sale scheduled before the closing took place from the funds being held by Dai. A trial was held on November 9, 2017. Claimant was represented by counsel. All other parties appeared without counsel. It should be noted that claimant and defendant Richland are attorneys-at-law admitted to practice in New York.
Claimant testified that he represented defendant White regarding the purchase of 90 Robert Lane, Staten Island, New York from defendant Noa. The contract of sale, prepared by Richland, consistent with the practice in Richmond County, contains an incomplete date of "July 2015." The signature block on the copy of the contract placed into evidence by the claimant is undated, and appears to have original signatures, while the copy produced by Richland has the date "8.27.17" under Noa's signature.
The contract provided for a purchase price of $240,000.00 with the purchaser White posting a $5,000.00 deposit to be held in escrow by seller's attorney, defendant Richland.
It is conceded that the property was in foreclosure at the time the contract was negotiated and signed [U.S. Bank National Association v Noa et al, Supreme Court, Richmond County Index #130293/13] and that the transaction was to be structured as a [*2]"short sale" which required the approval of all the lenders with mortgages recorded against the property [Rider to Contract paragraph 10 & 11]. The documents indicate that in addition to the first lien which was being foreclosed, there was a second mortgage, both of which required each lender to agree to the short sale.
According to paragraph 15 of the contract, closing of title was initially scheduled for September 15, 2015. Because of the complications with the transaction the closing date was adjourned several times. Eventually, a closing was scheduled for May 31, 2016 as a HUD-1 was prepared by defendant Richland as the settlement agent listing that as the "settlement date." The HUD-1 showed a purchase price of $272,000.00 and not the original contract price of $240,000.00. The transaction did not close on the initial contract date, nor on any of the proposed adjourn dates, nor on the HUD-1 settlement date. Among the problems that had to be addressed in addition to lender approval of a short sale, was the need to address in excess of $7,000.00 in open home owner's association dues which had been reduced to a lien against the property in 2011, open water/sewer charges, and unpaid real property taxes.
On August 24, 2016, claimant, by email, informed defendant Richland that defendant White had elected to terminate the contract, as was his right under its terms. Richland acknowledged receipt of the termination notice and on August 29, 2016 informed claimant that the seller had consented to accept the cancelation of the contract and to refund the $5,000.00 to Dai to be held in escrow. It is unclear as to exactly when the $5,000.00 was sent to claimant, but it appears that it was sent on or about September 12, 2016.
Also on September 12, 2016, Richland notified Dai that the real estate broker for White had consented to have White pay Richland $2,500.00 for preparing an order to show cause to stay the foreclosure sale scheduled for July 21, 2016. Richland's partner, Michal Falkowski, Esq., prepared the pleadings for the order to show cause. Richland testified that the order to show cause was never served because when he notified the lender by letter he intended to file, it voluntarily adjourned the sale. No time sheets were produced to verify the amount of time taken to prepare the pleadings, nor was Richland & Falkowski's hourly rate disclosed.
Richland testified that White's broker Curtis Mason, from Robert DeFalco Realty (DeFalco), consented to having White pay the fee. Richland agreed that he never had any written consent from White or Dai to be paid for those services. White at the trial denied authorizing any such payment. Richland acknowledged that he never spoke directly to White to have the payment approved nor did he seek the consent from claimant as White's attorney. Mason was not called as a witness.
Because claimant received the claim letter from Richland, seeking payment for preparing the unfiled order to show cause, Dai refused to release the $5,000.00 being held in escrow and commenced this stakeholder action to have the court determine to whom payment of the funds should be made.
Issues Presented
Does the New York State Disclosure Form for Buyer and Seller Create a Principal -Agency Relationship?
Richland alleges that Curtis Mason, as the buyer's broker, had the authority to bind White to the fee agreement. Richland produced a photocopy only of the signature page of the agency agreement required in real estate transactions by Real Property Law (RPL) §443. The original document was not produced. The signature page is signed by White and lists Mason from DeFalco as the "buyer's agent." According to the contract of sale there is a second broker involved, Island Advantage Realty. Presumably it was the seller's agent and is the listing broker. There is no evidence as what were the terms of each broker's contractual relationship with their respective clients.
The form disclosure agreement in question is set forth in RPL §443 and is generally a two-page document. The court questioned Richland why he only produced the signature page and was told that was all the broker, presumably Mason, forwarded to him. Why the buyer's broker was communicating directly with the seller's lawyer is not explained. The court will not presume that Richland only produced the second page of the disclosure because he concluded that as the court had reached age 70, the age of "constitutional senility" for judges, he could get away with only submitting only part of the document. Or that he knew that the courthouse has not had a librarian for several years, and perhaps the statutes were not up-to-date. Unfortunately for Richland, through the magic of the internet, the court was able to review the statute in its most recent form where the details of the agreement are set forth.
RPL §443(1)(c) states a "'buyer's agent' means an agent who contracts to locate residential real property for a buyer or who finds a buyer for a property and presents an offer to purchase to the seller or seller's agent and negotiates on behalf of the buyer."
The statute also sets forth the mandated language of the disclosure form. The role of the "buyer's agent" in the transaction is described as follows:
A buyer's agent is an agent who is engaged by a buyer to represent the buyer's interests. The buyer's agent does this by negotiating the purchase price of a home at a price and on terms acceptable to the buyer. A buyer's agent has, without limitation, the following fiduciary duties to the buyer: reasonable care, undivided loyalty,confidentiality, full disclosure, obedience and duty to account. A buyer's agent does not represent the interests of the seller. The obligations of a buyer's agent are also subject to any specific provisions set forth in an agreement between the agent and the buyer. In dealings with the seller, a buyer's agent should (a) exercise reasonable skill and care in performance of the agent's duties; (b) deal honestly, fairly and in good faith; and (c) disclose all facts known to the agent affecting the buyer's ability and/or willingness to perform a contract to acquire seller's property that are not inconsistent with the agent's fiduciary duties to the buyer.
RPL §443(3)(c) describes the procedure the buyer's agent is to follow in order to have complied with the statute. It provides:
A buyer's agent shall provide the disclosure form to the buyer prior to enteringinto an agreement to act as the buyer's agent and shall obtain a signed [*3]acknowledgment for the buyer . A buyer's agent shall provide the form to the seller, the seller's agent,..at the time of the first substantive contact with the seller and shall obtain a signed acknowledgment from the seller, or the listing agent,
Based on the language of this section of the statute, Mason should have been able to produce a complete copy of the disclosure document he had with White along with proof it was acknowledged by the seller or the listing agent. No such signed acknowledgment has been produced. The statute also implies that the buyer's agent should have some other agreement with the buyer setting forth the services to be provided. This agreement, if one even exists, likewise has not been produced. It should be noted that the copy of the signature page produced is undated. This makes it impossible to determine if Mason was in compliance with the timeline in the statute.
Claimant asserts that nothing in the language of the statute authorized Mason, as the buyer's broker, to obligate the buyer to terms outside those set forth in the contract of sale. And that for the buyer to be compensating the seller's attorney for legal work is beyond any acceptable practice common among real estate lawyers, that such a plan would have to be fully disclosed at the time made, reviewed by the buyer's attorney and reduced to writing. It should not be raised six-weeks after the legal work was allegedly done.
Richland argues that agreeing to compensate seller's attorney to prepare the order to show cause to stay the foreclosure sale, fits into a liberal reading of the statute as to what was in the buyer's interest because it was undertaken to enable the buyer to complete the sale. Richland apparently is choosing to rely on the standard of practice from Anatevka, where "an agreement is an agreement" and once you shake hands on it and share a bottle of schnapps, you are bound to the terms. Unfortunately, dealings such as those between Tevya and Lazar Wolf which are described in "Fiddler on the Roof," generally are not enforceable in court.
Undercutting any argument of the defendant is the fact that the Disclosure Form required to be filed in real estate principal agent transactions has in large, bold, capitalized print at the top left: "THIS IS NOT A CONTRACT." Richland is seeking to have the court ignore this statutory mandate and find a contract exists. Perhaps this caveat is why the real estate agent failed to provide defendant Richland with both pages? And because the document is undated, the court cannot determine if perhaps it was signed by the parties on "opposite day" as declared by Squidward in "SpongeBob SquarePants." In that case, it might be binding because opposite day would make it into a contract.
So, if the document is not a contract, how can it create any rights and obligations between the buyer and the real estate agent? It cannot. And because this is a statutorily mandated form, no oral modifications may be made. Any agreement in contravention or in addition to it must be in writing and signed by the parties. The form and statute both contemplate that there was some other agreement between each broker and the buyer or seller as to the scope of the services to be rendered to their respective client. No party has produced any written agreement between White and Mason as to what services Mason would provide to White and although licensed real estate salespersons and brokers may collect a commission without having a written agreement in that regard [General [*4]Obligations Law(GOL) §5-701], to have the authority to bind a buyer, such as White, to expend money in the extraordinary manner as for legal services rendered by the seller's attorney, such an agreement would have to be in writing. In fact, a power of attorney may have been the proper way to achieve that purpose. No power of attorney has been produced. The requirements for a valid power of attorney are set forth in General Obligations Law Title 15.
There was no agreement between White and Mason authorizing Mason to consent to the compensation from White's funds held by claimant for Richland for preparing the order to show cause. Richland has no claim for such services and claimant has no obligation to release any monies from the funds being held in escrow for that purpose absent a specific written direction by White, as claimant's client to do so.
Are There Ethical Implications Arising from the Facts?
The facts of this case trigger an additional inquiry. Why is Richland, the seller's attorney, negotiating to provide services allegedly for the buyer's benefit, when the buyer is represented by counsel? The testimony reveals that claimant, as White's attorney, was totally unaware of any such agreement until he received the bill and a demand for payment from Richland, on September 12, 2016, two weeks after the contract was terminated.
Part 1200 establishes the Rules of Professional Conduct which are to be followed by attorneys admitted to practice in New York. Rule 4.2 "Communication With Person Represented By Counsel" provides:
In representing a client, a lawyer shall not communicate or cause another to communicate about the subject or the representation with a party the lawyer knows to be represented by another lawyer in the matter, unless the lawyer has prior consent of the other lawyer or is authorized to do so by law.
As early as July 2015, when Richland prepared the contract of sale and forwarded it to claimant, Richland was aware that White was being represented by the claimant. There is no indication that between that date and September 2016, when the transaction was terminated, that claimant was ever relieved as counsel by White or that claimant ever consented in writing to allow Richland to negotiate directly with White.
Based on the foregoing it must be concluded that Richland has no valid claim for legal fees incurred for preparing the order to show cause in July 2016 from the monies being held in escrow by claimant. He may have a cause of action against his client, whom he was representing and had the most to gain by having the foreclosure sale stopped so that the contract with White could proceed to closing if possible. Or he might have a claim against the real estate brokers who according to the HUD-1 were to earn a $12,000.00 commission and had a vested interest in getting the transaction to the closing of title and therefore had the most to lose should the sale not close.
Analysis of the HUD-1 prepared by Richland, as the settlement agent, creates another issue. The $12,000.00 brokers commission disclosed as $6,000.00 on line 701 and $6,000.00 on line 702, shows payment only to Island Advantage Realty. Is that a typographical error or was DeFalco Realty no longer involved in the transaction? If DeFalco was no longer involved, then certainly any authority Mason may have had would have ended.
This issue, like the increase in the sale price to $272,000.00 on the HUD-1 is not explained. If the sale price was really $272,000.00 were the brokers limiting their fee to the $12,000.00 which was 5% of the $240,000.00 or was the $272,000.00 HUD-1 number being inflated for some other purpose? Is it not a violation of federal law to submit an inaccurate HUD-1 and is not the settlement agent, Richland, usually held responsible for such discrepancies?
There are letters from the two mortgagees on the property submitted as exhibits with the order to show cause. The one from the first lender, Rushmore Loan Management Services, dated July 15, 2016, indicates that it would accept $240,000.00 in full settlement of Noa's note and mortgage obligation, which as of January 13, 2016 exceeded $307,000.00. The second letter, from CitiMortgage, dated July 7, 2016, acknowledges that it would accept $6,105.80 in full settlement of Noa's obligation. However, it required that the sale price of the property be $272,000.00. Where CitiMortgage got the idea that was the sale price is not disclosed, especially since White's lender appraised the property at $260,000.00.
Attached as an exhibit to the order to show cause prepared by Richland's partner is the title report from Jewett Abstract. A part of the report is the coverage sheet. It shows a fee policy to be issued for $240,000.00, the purchase price, and a mortgage policy of $228,000.00. These figures are consistent with the mortgage commitment issued to White from LDWholesale on January 18, 2016.
The numbers Richland disclosed on the HUD-1 do not comply with those set forth in the documentation attached to the order to show cause. The $272,000.00 listed as the purchase price seems to be the amount the property would have to sell for in order to deal with all the seller's financial obligations. It exceeds the contract sale price and the new lender's appraisal.
The issue of the ethical implications of this transaction is not before the court, but needed to be addressed to determine the basis of Richland's claim that he could be compensated by the buyer without discussing the issue with the buyer's attorney and getting consent in advance to do so.
Conclusion:
Judgment for claimant as a stakeholder. Claimant is entitled to disburse the $5,000.00 being held in escrow to his client, White, or in a manner as instructed by White. Neither defendant Richland nor defendant Noa have any claim to the monies.
It is therefore ordered that the claimant is directed to disburse the monies being held in escrow as per agreement with his client without any claims from the parties to this litigation and claimant is released from any liability to these defendants.
Exhibits, if any, will be available at the office of the clerk of the court thirty days after receipt of a copy of this decision.
The foregoing constitutes the decision and order of the court.
"ROSEBUD"
Dated: December 27, 2017
Staten Island, NY
HON. PHILIP S. STRANIERE
Judge, Civil Court
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