Panarello v. Segalla: Consultant Not Entitled to Fee from Sale of Country Club

A New York court has considered whether an unlicensed consultant could recover a fee from a contract involving the sale of a country club.

John Segalla (“Seller”) entered into an agreement with Frank Vinchiarello (“Consultant”) wherein the Consultant would use his best efforts to secure a buyer for Segalla Country Club (“Club”) in return for a percentage of the sales price. The Club was part of 700 acres the Seller was interested in selling. The Consultant did not hold a real estate license.

The Consultant contacted Dan Panarello (“Salesperson”), a licensed real estate salesperson, to see if he had any clients who may be interested in purchasing the Club. The Salesperson introduced the Consultant to Frank Zarro (“Buyer”), who was interested in purchasing the Club as well as the surrounding land. The Consultant in turn introduced the Buyer and the Seller. The Buyer and Seller entered into an agreement for the Buyer to purchase 640 acres which included the Club, with the Consultant and Salesperson to split a flat fee of $500,000. At closing, the Seller withheld payment of the flat fee, and the Salesperson brought a lawsuit against the Seller and the Consultant for recovery of his portion of the fee. As part of this lawsuit, the Consultant brought a cross claim against the Seller for breach of contract, seeking to recover the $500,000. The trial court entered judgment on the cross claim in favor of the Salesperson for $500,000, and the Seller appealed this ruling.

The Supreme Court of New York, Appellate Division, Second Department, reversed the trial court’s ruling. The issue before the court was whether or not the dominate feature of this transaction was the sale of real estate. If real estate was the dominant feature of the transaction, then the Consultant was required to have a real estate license in order to recover a fee “for endeavors in the nature of brokerage services”. New York law defines a real estate broker as one who “lists for sale, sells…exchanges, buys or rents, or offers or attempts to negotiate a sale…or interest in real estate”. The trial court had ruled that real estate was not the dominant feature of the sale, and so had allowed the Consultant to recover the fee under the breach of contract allegations.

The court disagreed with the trial court’s conclusion. First, the court found that the Club constituted only 170 acres of the 640 acres the Buyer purchased. None of the purchase documents apportioned any part of the purchase price for the Club nor did the purchase documents indicate that a business was being purchased, even thought the purchase documents requested such information. The “business plan” developed by the Consultant as well the purchase documents defined the transaction purely in terms of the real estate being transferred and its development potential. Finally, the court found that the testimony of the consultant revealed that the negotiations between the parties had focused entirely on the real estate being transferred, not the nature of the Club’s business. Based on all of this evidence, the court concluded that the dominant feature of the transaction was real estate. Since the Consultant engaged in activities which required a real estate license, he was not entitled to recover a fee for his services. Thus, the court reversed the trial court’s ruling.

Panarello v. Segalla, 775 N.Y.S.2d 360 (N.Y. App. Div. 2004).