Dalton Inv., Inc. v. Nooney Co.: Bank's Prior Recorded Lien Trumps Commercial Broker's Lien

A Missouri court decided whether a validly recorded bank lien has priority over a broker's lien under the Missouri Commercial Real Estate Brokers Lien Act ("Act").

In 1989, Nooney Company ("Owner") purchased a strip mall. At the time of purchase, the Owner gave NationsBank, N.A. ("Bank") a first Deed of Trust on the property, and later modified the Deed of Trust (collectively, "Secured Loan") to reflect additional funds lent to the Owner. The Secured Loan was validly recorded with the St. Louis County Recorder of Deeds ("Recorder").

In 1992, the Owner entered into an exclusive listing agreement with Dalton Investments, Inc., a real estate broker, ("Broker") in connection with its properties. Eventually, the Owner entered into an agreement to sell the strip mall for an amount substantially less than the Secured Loan amount. At closing, the Bank released its Deed of Trust in exchange for the sale proceeds. Following the closing, the Broker filed a "Notice of Brokers' Lien" with the Recorder of Deeds, pursuant to the Act. The Bank placed the disputed funds into an escrow account. The Broker then filed a lawsuit against the Owner, seeking to enforce its lien claim and also alleging breach of contract. The Bank filed a motion to intervene and a counterclaim, claiming that it was entitled to the money being held in the escrow account. The trial court ruled in favor of the Broker on the Bank's counterclaim, and the Bank appealed.

The Missouri Court of Appeals, Eastern District, reversed the trial court, and ruled for the Bank. The court first considered the Act. The statute provides commercial real estate brokers a lien on commercial real estate for the amount of compensation contracted for by the parties. To enforce the lien, a broker must record its lien and then file a lawsuit seeking to enforce the lien within six months of the date of recording. The Act states that prior recorded liens or mortgages have priority over a broker's lien. The Act also provides escrow accounts to be established when a dispute arises over the sales proceeds, with these funds being held in an escrow account until a court determines the rightful owner.

Here, the Broker argued that because the Bank released its lien prior to closing, the Broker's lien was superior to the Bank's claims for the money in the escrow account. The court rejected this argument. It looked at the section of the Act addressing escrow accounts, which states that "[t]he requirement to establish an escrow account...shall not be cause for any party to refuse to close a transaction." The court found that the Bank was required to release its lien in order to set up the escrow account. The court ruled that the Bank did not lose its security interest in the escrowed money simply by following the Act. Since the Bank's lien was superior to the Broker's lien under the Act, the court also awarded the Bank the money being held in the escrow account. The court also ruled that the Broker could continue its breach of contract lawsuit against the Owners. However, the Act would not help the Broker recover its commission.

Dalton Inv., Inc. v. Nooney Co., 10 S.W.3d 590 (Mo. Ct. App. 2000).