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Current Developments in the Commercial Divisions of the
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Posted: May 22, 2014

Broker Entitled to Commission When it has Direct and Proximate Link to the Transaction

On May 20, 2014, the First Department issued a decision in SPRE Realty, Ltd. v. Dienst, 2014 NY Slip Op. 03642, clarifying “the standard by which a broker may be found to have been the ‘procuring cause’ of a real estate transaction.”

In SPRE Realty, the plaintiff real estate broker sued the defendants alleging breach of implied contract and unjust enrichment because the defendants refused to pay a buyer’s broker commission. The trial court denied the defendants’ motion to dismiss. The First Department affirmed, explaining:

In this appeal, we must determine whether plaintiff broker has alleged facts sufficient to establish its entitlement to a commission on the sale of real estate, where it expended significant effort locating an apartment for buyers who abandoned the transaction and purchased another apartment in the same building 18 months later. In addition, we take this opportunity to clarify the standard by which a broker may be found to have been the “procuring cause” of a real estate transaction.

. . .

In the absence of an agreement to the contrary, a real estate broker will be deemed to have earned his commission when he or she; produces a buyer who is ready, willing and able to purchase at the terms set by the seller. A broker does not earn a commission merely by calling the property to the attention of the buyer. But this does not mean that the broker must have been the dominant force in the conduct of the ensuing negotiations or in the completion of the sale. Rather, the broker must be the procuring cause of the transaction, meaning that there must be a direct and proximate link, as distinguished from one that is indirect and remote, between the introduction by the broker and the consummation of the transaction.

The Departments of the Appellate Division, this Court being no exception, have applied varying language in elaborating on that standard. For example, the three other Departments have stated that if a broker does not participate in the negotiations, he must at least show that he created an amicable atmosphere in which negotiations went forward or that he generated a chain of circumstances which proximately led to the sale.

Although this Department has cited, and even quoted from, cases that have used the phrase “amicable atmosphere,” we have not gone so far as to adopt that specific standard. However, this Court has suggested that a broker can be the procuring cause if he or she brought the parties together in an amicable frame of mind, with an attitude toward each other and toward the transaction in hand which permits their working out the terms of their agreement. The use of th[is] language . . . appears to be an aberration in this Department, though, because we have more frequently and recently applied the “direct and proximate link” test.

The Court of Appeals has not sanctioned the “amicable atmosphere” or “amicable frame of mind” language. It has, however, affirmed without opinion a finding that a broker was the procuring cause where it generated a chain of circumstances which proximately led to a lease transaction. In any event, the Court has stated that however variable the judicial terminology employed to express the requirement that the broker must be the procuring cause, it has long been recognized that there must be a direct and proximate link, as distinguished from one that is indirect and remote, between the bare introduction and the consummation.

We regard the “amicable atmosphere” and “amicable frame of mind” standards as somewhat broader and more amorphous than the requirement of a “direct and proximate link,” or even a requirement that the broker “generated a chain of circumstances which proximately led” to a transaction’s consummation. Although courts have attempted to harmonize the continued use of the “amicable” phrases discussed above with Court of Appeals precedent articulating the “direct and proximate link” standard, the former phrases are not precise enough terms by which to determine whether a broker is the procuring cause of a transaction. Reliance on the creation of an “amicable atmosphere in which negotiations went forward” seems to ignore the proximity element of the “direct and proximate link” test. Furthermore, we think that this continued deviation from the standard set forth by the Court of Appeals . . . has led to some confusion. Yet litigants, and the bar, deserve a greater level of certainty.

Therefore, in order to reduce the confusion that has arisen from the more nebulous terminology heretofore employed by the Departments of the Appellate Division, we reiterate that the “direct and proximate link” standard . . . governs determinations of circumstances under which a broker constitutes a procuring cause within the First Department. This standard requires something beyond a broker’s mere creation of an “amicable atmosphere” or an “amicable frame of mind” that might have led to the ultimate transaction. At the same time, a broker need not negotiate the transaction’s final terms or be present at the closing.

(Internal quotations and citations omitted) (emphasis added).  The First Department went on to agree with the trial court that the plaintiff had adequately met the “direct and proximate link” standard.

This decision provides useful clarity–although no bright-line rule–on what a broker must do to be entitled to a commission.

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