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A federal court has considered whether New York law barred a licensed real estate broker from collecting compensation due to a fee-splitting arrangement between the broker and an unlicensed entity.
In 1994, the Swiss Bank Corporation ("Owner") began seeking investors who would be willing to purchase its Connecticut headquarters and then lease the space back to the Owner. A. Gary Fieger ("Broker") learned of the Owner's plans from a Swiss business associate. The Broker received a "request for proposals" ("RFP") sent out by the Owner, and began discussions with the Union Bank of Switzerland ("Bank") about working together to find investors for the Owner's property. While the Broker held a valid New York real estate brokerage license, the Bank did not have a real estate license.
In 1997, the Broker contacted the Owner to find out the terms it was seeking from investors. The Bank revealed the identity of a potential investor to the Broker, the Pitney Bowes Credit Corporation ("Investor"). After learning the identity of the Investor, the Broker suggested to the Bank that it make the Investor's identity known to the Owner and that the Investor make a formal written proposal.
The Investor submitted a proposal to the Bank, which the Bank forwarded to the Broker. The Bank informed the Broker that it planned for the Broker and the Bank to split part of the financing fee it was charging to the Investor. The Broker asked the Bank to increase the financing fee in order to increase the amount of commission the two parties would split. Eventually, the Bank forwarded to the Broker a new proposal, setting forth the higher fees sought by the Broker and listing the amounts that each would receive. The Broker forwarded this proposal to the Owner in April 1997, but the Owner did not take any action on the proposal and it expired by its terms.
Shortly thereafter, the Owner issued a second RFP. Both the Broker and the Investor received the second RFP from the Owner. Accompanying the second RFP was a confidentiality agreement related to the contents of the second RFP. The confidentiality agreement described the Broker as "advisor" to the Investor. The Broker signed the confidentiality agreement and returned it to the Owner.
In July 1997, the Investor presented a second offer directly to the Owner, with no involvement by the Broker. The Investor also sent a letter to the Bank and the Broker, stating that their attempts to arrange a successful transaction had failed and now the Investor was negotiating directly with the Owner. The letter also requested that the Broker "desist from any further communications with any person involved in this transaction." The Broker responded with a letter stating that the Investor's letter was an attempt by the Investor to deprive the Broker of his earned commission. Eventually, the Owner and the Investor closed the transaction, and no fee was paid to the Broker.
The Broker filed a lawsuit, alleging that he was owed a commission from the sale of the Owner's property to the Investor. The case had a complicated procedural history, with a federal appellate court ruling that the Broker was unable to seek a commission from the Investor because he was not properly licensed in Connecticut (location of the headquarters), but the appellate court sent the other claims made by the Broker back to the trial court and directed the trial court to apply New York law to the remaining claims. Eventually, the trial court ruled that New York law barred from claiming a commission or any other compensation because the Broker had entered into an illegal fee splitting arrangement with the Bank. The Broker appealed.
The United States Court of Appeals for the Second Circuit affirmed the rulings of the trial court in an unpublished opinion. The court adopted the reasoning used by the trial court. In its opinion, the trial court had reviewed New York law, finding that New York law bars the splitting of commissions. New York law precludes a real estate licensee from collecting any part of a commission if the licensee has agreed to split the commission with an unlicensed individual.
In order to avoid these doctrines, the Broker argued that the payments were not an illegal fee-splitting arrangement because no real estate brokerage services were provided by the Broker or the Bank. Alternatively, the Broker argued that any brokerage services provided were incidental to his involvement in the transaction and thus his claims were not barred by New York law.
Looking at the Broker's involvement in this transaction and New York's definition of brokerage services, the court rejected this argument. The Broker's services for which he sought a fee involved introducing the Investor to the property and then assisting the Investor in the negotiation process. The court found that those activities constituted classic brokerage services and since these activities were the extent of the Broker's involvement in this transaction, the court rejected the Broker's arguments that he was not engaged in brokerage services. The court also found that the Bank's activities essentially constituted introducing the buyer to the seller, and so also constituted brokerage-type services. Thus, the court ruled that New York law barred the Broker's claims.
Fieger v. Pitney Bowes Credit Corp., No. 02-9142, 2003 WL 21523204 (2d Cir. July 7, 2003), aff'g, No. 99 CIV. 0812, 2002 WL 21082955 (S.D.N.Y. Sept. 17, 2002). [Note: This opinion was not published in an official reporter and therefore should not be cited as authority. Please consult counsel before relying on this opinion.]