McKinney v. City of Newport: Salesperson Denied Commissions

A Kentucky appellate court has considered whether a salesperson could collect commissions from sales of properties by sellers to a different buyer.

Neyer Properties (“Developer”) created a redevelopment plan for a neighborhood in the City of Newport, Kentucky (“City”). The City supported the Developer’s plan, and so the Developer contacted Jim McCord (“Salesperson”) of RE/MAX Affiliates (“RE/MAX”) to begin negotiations with the owners of the 105-120 homes located in the area so that the Developer could acquire these properties. The Salesperson reached agreements with approximately 90 of the owners, and the Developer entered into contingent purchase agreements with those 90 owners. Following his negotiations with the owners, the Salesperson had no further involvement with the project and even left the area for a period.

The City and the Developer executed a “development agreement”, and the City formally declared the area a “blighted community”, pursuant to the state statute allowing the City to take property via its power of eminent domain. Due to delays in the process for acquiring the land such as lawsuits filed by some of the owners, the Developer’s purchase contracts with the property owners eventually all expired.

Shortly after the expiration of the purchase contracts, the City began contacting the owners to determine if they were still interested in selling their homes at the price negotiated by the Salesperson. The survey found that 87% of the owners were still interested in selling at that price. The City then entered into agreements with 81 of the owners. The City also released the Developer from its prior agreement with the City and entered into an agreement with another developer. The new developer paid the Developer between $10 and $12 million for its acquisition costs in planning the project. The City eventually acquired all of the properties in the area.

Following the City’s initial acquisition of the properties, the Salesperson sent letters to the City and the Developer, seeking commissions from the transactions. When he did not receive any payments, the Salesperson commenced litigation against the City, the Developer, and also the new developer. The trial court ruled against the Salesperson, and he appealed.

The Commonwealth of Kentucky Court of Appeals affirmed the trial court. The court considered whether the Salesperson was the procuring cause of the property sales to the City. In Kentucky, a real estate broker is entitled to a commission when the broker is the “cause originating a series of events which without break in their continuity result in the accomplishment of the prime object of the employment of the agent, which, as stated, is the procurement of a purchaser ready, willing, and able to buy the land on the principal’s terms.” A break in the chain of events will eliminate a broker’s procuring cause claims.

Applying those standards to these facts, the court ruled that the Salesperson was not the procuring cause. First, the court stated the fact that the Salesperson worked on behalf of the buyer did not change the application of the procuring cause rule. However, the court found a break in the chain of events because the City had entered into new contracts with the owners and the Salesperson did not have a role in negotiating these contracts, as the Developer no longer had a role in the acquisition process. Also, the City had not been a party to the original brokerage agreement between the Developer and the Brokerage. Thus, the court affirmed the ruling in favor of the City, the Developer, and the new developer.

McKinney v. City of Newport, No. 2006-CA-001045-MR, 2006-CA-001167-MR, 2006-CA-001208-MR 2007 WL 2811954 (Ky. Ct. App. Sept. 28, 2007). [This is a citation to a Westlaw document. Westlaw is a subscription, online legal research service. If an official reporter citation should become available for this case, the citation will be updated to reflect this information].

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