Find legal case studies of interest to real estate professionals
Research and analysis by Lisa Harms Hartzler, Sorling Northrup Attorneys
Real estate agent won copyright infringement suit against property owner
In Adams v. Agrusa, 693 Fed. Appx. 563 (9th Cir. 2017), a federal appellate court affirmed the district court’s 2016 decision in favor of the plaintiff. The case involved a California real estate agent (plaintiff) who entered into a Residential Listing Agreement with the defendant owner, a real estate investment company. The plaintiff took and published twenty photographs of the property on a Multiple Listing System. Each photo contained a copyright symbol. The agent also claimed that the defendant had acknowledged his copyright interest in email correspondence. A few weeks later, the defendant owner cancelled the listing agreement and thereafter published five of the photos on its own company website. In two of the photos, the plaintiff’s copyright symbol had been removed.
The plaintiff agent, appearing pro se, won a default judgment against the defendant, who did not appear or file anything on its behalf. The district court found that a default judgment was appropriate under certain factors: (1) the plaintiff had no other means of recourse against the defendant; (2) the plaintiff adequately established that he owned a valid copyright and that the defendant had willfully violated it; (3) the plaintiff requested statutory damages of $25,000, which was not so large that a default judgment would be disfavored; (4) given defendant’s refusal to participate in the suit, there was little possibility of a dispute as to the facts; and (5) there was no evidence that the defendant’s failure to appear was due to any excusable neglect. However, the court awarded plaintiff only $2,000 in damages, even though the standard amount could range from $750 to as high as $150,000 for willful infringement. Because the plaintiff presented no estimate of how much the defendant profited from the infringement, how much revenue was lost by plaintiff, or the value of the copyright in the photographs, the court reasoned that $2,000 was sufficient, as it was more than twice the minimum amount allowed and was adequate to serve the purpose of deterrence.
Broker not entitled to commission for procuring bona fide purchaser when lessee exercised right of first refusal
In Pollack v. Quick Quality Rests, Inc., Superior Court of New Jersey, No. A196715T2 (Oct. 26, 2017, App. Division), an appellate court in New Jersey determined whether a tenant exercising a right of first refusal was obligated to pay a commission to a third-party broker that had secured a prospective buyer. The plaintiff broker asserted a number of reasons why he was owed a commission, but the court rejected all of the broker’s arguments.
In this case, the sellers in 1994 entered into a twenty-two-year commercial lease with the defendant lessee in a shopping center. The lease contained a right of first refusal in favor of the lessee to buy the shopping center. It required sellers to present lessee with a copy of any bona fide purchase contract plus any additional terms. It granted lessee a limited opportunity to exercise the right to purchase the property under the same terms. The parties also warranted to each other that neither had dealt or negotiated with any real estate broker or salesman in connection with the lease. The plaintiff in this case was a licensed real estate broker who was introduced to the shopping center owner (seller). During discussions, the seller emphasized that any commission paid would have to come from the purchaser. Plaintiff broker did find a buyer, Levin Properties, who agreed orally to pay a commission of 1.5% of the purchase price.
Levin and the seller signed a contract for $14,500,000 contingent on the right of first refusal contained in the defendant’s lease. The purchase contract identified plaintiff as the broker and provided that the “purchaser shall pay a real estate commission to Broker pursuant to a separate agreement.” Levin sent the plaintiff broker an unsigned commission agreement that required Levin’s signature before becoming effective. Levin never signed the agreement. When the purchase contract was presented to the defendant lessee, Levin’s and plaintiff’s names were redacted and no commission agreement was included or provided to defendant. Defendant lessee exercised its right of first refusal and purchased the property. No commission was paid to the plaintiff broker, who filed suit to recover it.
The court held that the plaintiff broker could not recover a commission as a third-party beneficiary. The deciding factor under this theory is what the parties intended. The seller and Levin may have intended the plaintiff broker to benefit from the contract they signed, but that contract did not bind the defendant lessee to the separate commission agreement. The purchase contract presented to the defendant referred to a separate commission agreement but did not include it, redacted the names of Levin and the plaintiff, and those names were never disclosed to the defendant. Further, the 1994 lease expressly excluded brokerage commissions. Consequently, even though the defendant had to accept the same terms contained in the bona fide third-party offer, the court concluded that the defendant could not have intended the plaintiff to receive a direct benefit from the final contract between the seller and itself.
The court also found that the plaintiff had no breach of contract claim against the defendant. Plaintiff broker “deliberately relinquished the right to seek a commission from the sellers and negotiated with Levin to receive a commission, while aware of defendant’s right of first refusal. The contract provided to defendant did not define plaintiff as a broker, nor was any commission agreement incorporated therein.” Although a holder of the right of first refusal must accept the terms and conditions of a third-party offer if the contract is unambiguous, here the wording in the Levin contract requiring purchaser to pay a commission to an unnamed broker pursuant to a separate agreement not incorporated into the contract was ambiguous and created no inference that defendant was obligated to pay the plaintiff’s commission.
The plaintiff also accused the defendant of violating the covenant of good faith and fair dealing implied in any contract. “The covenant requires that parties to a contract refrain from doing anything which will have the effect of destroying or injuring the right of the other party to receive the benefits of the contract.” A party who claims a breach of this covenant must prove “bad motive or intention.” The court held that the defendant did not act in bad faith when it did not pay a commission because it did not know of plaintiff’s existence or involvement. Plaintiff was not listed on the disclosed contract and the seller never revealed his identity.
Whether owner of parking lot had duty to repair pothole causing plaintiff’s injury was a question of fact for the jury
In Barrett v. FA Group, LLC, 2017 IL App (1st) 170168, the plaintiff was injured when she fell walking across a parking lot. She claimed she stepped in a pothole, where her heel was caught in loose asphalt, causing her to lunge forward and fall. The defendant owner argued that the plaintiff’s suit was not actionable because it fell within the “de minimus” rule. That rule provides that “if a defect is such that a reasonably prudent person would not anticipate some danger to persons walking upon it, it is considered de minimus and not actionable.” This rule has been applied to municipalities and subsequently extended to private owners and possessors of land. Although there is no strict mathematical standard and each case is determined on its own facts, “Illinois courts have found that liability generally attaches for sidewalk defects approaching two inches in height.” The de minimus rule generally precludes negligence claims on lesser defects, absent aggravating circumstances.
The appellate court in this case found that the depth of the parking lot pothole had to be between one-half inch, as the defendant argued, and two inches, which was the height of the plaintiff’s heel, making it fall within the de minimus rule, absent any aggravating circumstances. Unlike the sidewalk cases producing the de minimus rule, however, the plaintiff did not allege that the height difference between the interior of the hole and the lot surface caused her fall. She alleged that her shoe became stuck in either broken pavement or broken asphalt within the pothole and that the injury occurred at night in a dimly-lit parking lot. Consequently, the court could not say that the defect was so minor as to be considered de minimus as a matter of law, making summary judgment for the defendant wrong. The court held that whether the property owner had a duty to repair the pothole turned on whether it was reasonably foreseeable that an injury would occur under these circumstances. Whether such a duty existed required considering (1) the reasonable foreseeability of the injury; (2) the likelihood of the injury; (3) the magnitude of the burden of guarding against the injury; and (4) the consequences of placing that burden on the defendant. The court decided that such questions could not be answered as a matter of law. They presented questions of fact to be decided in the trial court. Summary judgment in favor of the defendant was reversed.
Oil operator’s assignment of all rights failed to reserve royalties
In Ramsey Herndon LLC v. Whiteside, 2017 IL 121668, the Illinois Supreme Court presented a primer on conveyances of rights to oil, gas, and mineral reserves in deciding whether an oil operator had conveyed all of its interests or reserved any right to receive royalties. The Court explained that when a landowner discovers that its property contains oil, gas, or minerals, it typically enters into a lease with an operator to occupy the land to extract the oil, gas, or minerals. The operator’s interest is called a “working interest.” This interest bears all of the expenses associated with extracting the resources. The landowner retains the right to a portion of whatever oil, gas, or minerals the operator extracts. The landowner’s interest is called a “royalty interest.” When the operator extracts resources, it compensates the landowner in an amount agreed to under the lease.
An operator needing partners to finance its business can divide its working interest into pieces and lease those pieces to the partners. Like in the initial deal with the landowner, the operator may retain a portion of whatever oil, gas, or minerals the partners extract. This retention is called an “overriding royalty interest” or an “override.” The partners who extract resources must pay both the original landowner for its royalty interest and the initial operator for its override.
In Ramsey Herndon, the plaintiff (the initial operator) obtained the right to develop oil and gas reserves from landowners in Macon County, Illinois. The plaintiff assigned 75% of its working interest to three other parties and reserved an override. Two years later, the plaintiff and the three other partners each granted to the defendant all of their right, title and interest in and to the oil, gas and mineral leases. In a subsequent paragraph of the assignment, the defendant agreed to be bound by and assume each assignor’s obligations and rights and to bear a proportionate share of royalty interests, overriding royalty interests, and other payments measured by production.
The plaintiff claimed that the language regarding overriding royalty interests in the subsequent paragraph required the defendant to pay the overrides to plaintiff. The court disagreed and found that the granting clause of the instrument unambiguously conveyed all of the plaintiff’s interest in the subject property to defendant, which included any overrides the plaintiff may have had. That the instrument referred to overriding royalty interests to be paid did not mean that they had to be paid to plaintiff. The defendant assumed all of plaintiff’s rights and, therefore, theoretically owed the override to itself. If the plaintiff intended to keep an override it should have explicitly reserved the interest to itself when it assigned its right, title and interest to defendant.