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A federal appellate court has considered whether a broker was required to show that he was the procuring cause of lease in order to recover a commission.
In March 2001, Gaedeke Holding ("Owner") retained Grub & Ellis/Centennial, Inc. ("Brokerage") to acquire tenants for an office tower it owned. The Brokerage assigned Barry Smith ("Broker") to the Owner's project. The agreement between the Owner and the Brokerage allowed the Brokerage to recover a commission for all leases entered into during the term of the agreement and also allowed the Brokerage to recover a commission for leases signed after the termination so long as, within ninety days of termination, the "negotiations continue or resume leading to the execution of a lease with any person or entity" with whom the Brokerage had negotiations.
In October 2001, Bridgestone ("Tenant") contacted the Owner about possibly leasing space in the office tower. The Owner referred the Tenant to the Brokerage. Following the initial contact, the Owner and the Tenant continued to have direct negotiations, but the Owner kept the Broker involved in the discussions. In December 2001, the Broker left the Brokerage.
In January 2002, the Owner notified the Brokerage of its intent to terminate their agreement, with such termination becoming effective in 30 days. Eventually, the Tenant signed a lease with the Owner for space in the office tower on September 6, 2002. The Owner refused to pay the Brokerage a commission from the leasing transaction. The Brokerage filed a lawsuit against the Owner, claiming that the negotiations which had led to the successful leasing transaction had occurred within ninety days of termination and so the Brokerage was entitled to a commission. The trial court ruled in favor of the Owner, and the Brokerage appealed.
The United States Court of Appeals for the Sixth Circuit reversed the trial court and sent the case back to the trial court for further proceedings. The trial court had rejected the Brokerage's commission claims because the Brokerage had not demonstrated that it was the "procuring cause" of the lease. Because the trial court believed Tennessee law required the Brokerage to make such a showing before recovering a commission, the trial court had not considered the Brokerage's other arguments and instead had ruled in favor of the Owner.
The Brokerage argued that it had a contractual entitlement to a commission, and Tennessee law did not require the Brokerage to prove that it was the procuring cause. The court agreed with the Brokerage. Looking at the relevant case law, the court found that cases involving procuring cause usually involved non-contractual commission claims, unlike the Brokerage's contractual claims in this case. There was no procuring cause requirement in the listing agreement, and so the court determined that the trial court had improperly created such a requirement. Therefore, the court sent the case back to the trial court for a determination whether the Brokerage had a contractual right to recover its commission.
Grubb & Ellis/Centennial, Inc., v. Gaedeke Holdings, Ltd., 401 F.3d 770 (6th Cir. 2005).