Failure to Register Firm Caused Breach

California court affirms ruling that broker breached contract with consultant by not registering firm with state’s real estate commission and the contract breach caused the consultant damages.

An individual (“Consultant”) operated a consulting company named Wired Real Estate Group (“Company”) that helps business entities create “co-location” sites that provide the hardware infrastructure to the internet.  Some of the transactions involved services that required a real estate license.  Because the Consultant only had a salesperson’s license, the Company entered into an arrangement with a licensed broker (“Broker”) who would assist on transactions where a license was required and the Broker would receive a commission from those transactions. 

Most of the Company’s business involved consulting advice about co-location centers.  The Company was paid hourly for these services and these services did not require a real estate license.  The Consultant sent reports to the Broker outlining the Company’s current activities, but there was disagreement about how much information was given to the Broker.  The Broker claimed that he attempted to register the firm with the state’s real estate commission (“Commission”) at the outset of the relationship.

The Company had difficulty collecting payments in two transactions because the Broker had failed to properly file the brokerage registration paperwork for the Company with the Commission.  In one of the transactions, the Company had to bring a lawsuit and the other entity raised the Company’s unlicensed status as a defense, arguing that the Company could not collect a commission.  The Company settled the lawsuit for half the amount the Consultant believed the Company should have received, partly because the licensing status of the Company weakened the Company’s claims. 

After the settlement, the Consultant filed a separate lawsuit against the Broker, alleging that the Broker had breached his agreement by failing to properly register the Company with the Commission.  The Broker filed a cross complaint against the Consultant, arguing that the Broker should have received additional commissions.  The trial court ruled in favor of the Consultant, and awarded him the entire amount that he had sought from the other company in the first lawsuit.  The Broker appealed.

The California Court of Appeal, First District, partially affirmed the trial court but sent the case back to the lower court to re-evaluate the damages.  The Broker argued that his agreement with the Company only required him to maintain his license status as a broker; it did not require him to register the Company with the Commission. 

The appellate court affirmed the trial court’s rejection of the Broker’s argument.  While the contract between the Company and the Broker was ambiguous, the clear purpose of the agreement was to have a system where the Broker could collect commissions from transactions where a real estate license was required and so the Broker needed to register the Company.  Indeed, the Broker’s conduct showed he understood those were the terms, as he had attempted to register the Company with the Commission at the outset of the agreement.  Thus, the court affirmed the ruling that the Broker had breached his agreement with the Company. 

However, the court found that the evidence did not support the damage award to the Consultant.  The only evidence in support of the award was the Consultant’s testimony, but the trial court had not examined whether the evidence supported his testimony.  The court agreed that the evidence showed that the Consultant had suffered damages because the licensing status of the Company had weakened the lawsuit against the other entity, but the trial court had not properly assessed the actual damages suffered.  Therefore, the court sent the case back to the lower court to recalculate the damages awarded to the Consultant.

Thompson v. Asimos, 212 Cal. Rptr. 3d 158 (Cal. Ct. App. 2016).

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