The Supreme Court of New York County recently issued a decision in the case of Miron v. Eberli. This case is a wonderful educational tool for our purposes – illustrating basic tenants of contract interpretation and the often convoluted logic a court may follow. However, even more significantly, the case illustrates the important of following the different ‘hats’ the parties may wear and how that can significantly alter the outcome of the case. In breach of contract actions, highly technical “technicalities” matter!
Background of the Case
Defendant Bruno Eberli was a wealthy individual who sought to purchase or rent an apartment for his daughter Christina to live in. To assist him in finding a suitable property he employed a broker named Mr. Getman from plaintiff Miron Properties. Eberli signed a contract with Miron. The agreement said that Miron would act as a broker to Eberli for the purpose of assisting in the location and renting/purchasing of an apartment/property. It further stated that if Eberli wound up renting/purchasing or subletting at any of the properties listed below, he would pay a commission of six percent to Miron. One of the stated locations was at 200-210 East 65th Street – and the subject property (the relevant one to this case) was located at Unit 42N of this location.
Getman showed many properties to Eberli, but he did not show the subject property, because of the misapprehension that the property was not available for sale. However, without Eberli’s help, Getman was able to find out the property was in fact for sale and talked to the owner.
In June, 2011, a company called Juno, LLC (“Juno”) was formed for the sole purpose of purchasing the subject property. Eberli’s daughter was the sole owner of Juno, and Eberli and his wife were the two co-managing members of the LLC. [LLC’s are often formed by the wealthy for the purchase of real estate to serve as a shield from various forms of personal liability, e.g. a tort judgment.] Juno bought the property for approximately $5 Million.
Miron demanded payment of the commission under the contract and Eberli refused (the commission would have been $300,000) and this lawsuit ensued for breach of contract.
The court divided its analysis into two major parts. First it explored the contention that Getman & Miron “didn’t do anything” under the contract to justify their payment. They did not in fact show the subject property or do much in the way of direct action to facilitate its purchase. The court focused on brokerage agreements. In general the New York rule is that a broker must bring the “buyer and seller to an agreement” to be eligible for commission. Here, Getman clearly didn’t do that. However the rule is, as always, subject to clear contract language that contradicts it – after all the parties are always free to come to whatever agreement they wish. There is a sub-area of brokerage contracts called ‘exclusivity deals.’ In this form of deal, the broker has exclusive rights to sell certain property and if the buyer purchases this property, however this comes about, the broker is entitled to commission. This, the court ruled, was a case where the specific listing of the subject property in the contract made this contract an exclusivity-type deal. Thus, at least on the surface, Miron was entitled to the commission.
However, there was a second part of the analysis, where the ‘hats’ came in. The contract stated that if Mr. Eberli purchased the property, he owed the commission. In technical point of fact, Juno LLC purchased the property! Even though Mr. Eberli may have been the driving force behind Juno, Juno operated for the benefit of his daughter, the funds which Juno used probably came from the Eberli family fortune, etc. the hat he was wearing was as a manager of a corporation. Thus, legally, the corporation, not the individual, purchased the property! The specific language of the contract thus cut against the plaintiff and no breach actually occurred in the opinion of the court.
The actual wording of a contract as well as the various hats or legal fictions worn by parties to it are of crucial significance – please don’t hesitate to contact our office for a consultation.