Filed 5/29/13 Business Advisors v. Chicago Title Ins. CA4/1
California
Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or
relying on opinions not certified for publication or ordered published, except
as specified by rule 8.1115(b). This
opinion has not been certified for publication or ordered published for
purposes of rule 8.1115.
COURT
OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION
ONE
STATE
OF CALIFORNIA
BUSINESS ADVISORS, INC.,
Plaintiff and Appellant,
v.
CHICAGO TITLE INSURANCE
COMPANY,
Defendant and Appellant.
D058320
(Super. Ct.
No.
37-2009-00093824-CU-BC-CTL)
APPEALS
from orders of the Superior Court
of
County, Ronald L. Styn, Judge.
Reversed and remanded with directions to enter judgment.
David A.
Kay for Plaintiff and Appellant.
Douglas W.
Stern; Fidelity National Law Group and Jacky Po-Hong Wang for Defendant and
Appellant.
I.
INTRODUCTION
Business
Advisors, Inc. (Business Advisors), a real estate brokerage, filed a complaint
against Chicago Title Insurance Company (Chicago Title) alleging that Chicago
Title breached an escrow agreement as
to which Business Advisors was a third party beneficiary. Among other defenses, Chicago Title contended
that Business Advisors was statutorily barred from maintaining this action
because it had permitted its associate, Jacques Bouzoubaa, to perform
unlicensed real estate brokerage services on its behalf, related to the
transaction subject to the escrow.
name="_ftnref1" title="">[1]
The principal issue that we must
decide in this appeal is whether Business Advisors's lawsuit constitutes an
action seeking to recover compensation for the performance of real estate
brokerage services. Business Advisors
contends that it is seeking merely to recover monies owed to it pursuant to the
escrow agreement, and that it is not
seeking to enforce a separate commission
agreement pursuant to which the monies were placed into escrow. Chicago Title maintains that Business
Advisors's suit is one to recover compensation for real estate brokerage
services, noting that the escrow agreement states that the payment to be made
pursuant to the agreement is for a "real estate brokerage
commission." We agree with Chicago
Title that the suit is an action seeking to recover compensation for the
performance of real estate brokerage services.
For reasons that we explain in the body of this opinion, we hold that
this conclusion mandates that we direct the trial court to enter judgment as a
matter of law for Chicago Title.
II.
FACTUAL AND
PROCEDURAL BACKGROUND
A.
In July 2009, Business Advisors
filed a complaint against Chicago Title raising a single cause of action for
breach of contract. In that breach of
contract claim, Business Advisors alleged that it was a third party beneficiary
to a May 18, 2005 escrow agreement (Escrow Agreement) pursuant to which Chicago
Title agreed to act as an escrow holder for a transaction between Safari
Investments, L.P. ("Seller") and MaNiPe, LLC
("Buyer"). Although not
specifically referenced in the complaint, it is undisputed that the transaction
involved the sale of real estate and stock related to a business called Aztec
Appliance ("Aztec Appliance transaction" or "the
transaction"). Business Advisors
further alleged that "[u]nder the terms of the Escrow Agreement, a real
estate brokerage commission was to be paid to [Business Advisors] in the amount
of [$300,000] upon the close of escrow" and that Chicago Title
"breached the Escrow Agreement by failing to make payment to [Business
Advisors] when and as due under the Escrow Agreement."
B.
At a jury trial, Chicago Title did
not dispute that it had paid the $300,000 commission specified in the Escrow
Agreement to Bouzoubaa rather than to Business Advisors. However, Chicago Title offered several
defenses to Business Advisors's breach of contract claim, including that
Business Advisors was statutorily precluded from recovering a commission
pertaining to the Aztec Appliance transaction because Bouzoubaa had performed
unlicensed real estate brokerage services on Business Advisors's behalf related
to that transaction. As discussed in greater
detail in parts III.C.2. and III.C.3, post,
Chicago Title presented overwhelming evidence at trial establishing this
defense. Specifically, undisputed
evidence established that Bouzoubaa did not have a real estate license,
George Newman, knew that Bouzoubaa was unlicensed, and that Bouzoubaa performed
numerous actions relating to the transaction for which a real estate license
was required.
After the close of evidence,
Chicago Title filed a motion for a directed verdict on the ground that the
evidence pertaining to Bouzoubaa's unlicensed real estate brokerage activities
provided a complete defense to Business Advisors's lawsuit. The trial court took Chicago Title's motion
under submission. The jury subsequently
returned a special verdict finding that Bouzoubaa had not performed any acts for which a real estate broker's license was
required. The jury also found that
Business Advisors was a third party beneficiary of the Escrow Agreement, that
the Escrow Agreement had not been modified to permit the commission to be paid
to Bouzoubaa, that Bouzoubaa had not acted as an agent of Business Advisors
with authority to modify the commission payment instruction in the Escrow
Agreement, and that Chicago Title had breached the Escrow Agreement. The jury awarded Business Advisors $120,000
in damages.
title="">[4]
C.
After the jury returned its verdict
and the parties submitted further briefing, the trial court issued a tentative
ruling granting Chicago Title's motion for a directed verdict, which the court
treated as a motion for judgment notwithstanding the verdict (JNOV). In its tentative ruling, the trial court
cited the applicable statutory law defining real estate brokerage activities
and stated that uncontradicted evidence offered at trial demonstrated as a
matter of law that Bouzoubaa had performed unlicensed real estate brokerage
services. In support of its
determination, the court noted that Bouzoubaa had entered into a nondisclosure
agreement with the Buyer, drafted and signed a commission agreement with the
Buyer, assisted in drafting a consulting agreement related to the transaction,
received numerous documents relevant to the transaction from the buyer and
seller, received the Buyer's earnest money and deposited that money into
escrow, and "discussed issues and negotiations with [the seller's]
attorney."
The trial court also concluded that
Bouzoubaa's actions were imputed to Business Advisors as a matter of law, in
light of evidence that Bouzoubaa had worked for Business Advisors for many
years, had an office at Business Advisors's place of business, and used
Business Advisors's forms and letterhead.
In the alternative, the court concluded that Business Advisors could not
prevail on the ground that it was "justifiably ignorant" of
Bouzoubaa's unlicensed real estate brokerage activities. (Preach
v. Monter Rainbow (1993) 12 Cal.App.4th 1441, 1458 (
In support of this conclusion, the court noted that Newman had worked
with Bouzoubaa for several years, had previously urged Bouzoubaa to obtain a
real estate license, knew that the Aztec Appliance transaction was proceeding,
and had met with the Buyer and Bouzoubaa to discuss problems related to the
transaction. Finally, the trial court
rejected Business Advisors's argument that Chicago Title should be equitably
estopped from raising its illegality defense.
After issuing its tentative ruling,
the trial court heard oral argument on Chicago Title's motion for JNOV.
jury had not been asked any questions on the special verdict form concerning
whether Newman was justifiably ignorant of Bouzoubaa's activities. The court then stated, "[T]he argument that
there are these additional factual issues that should have gone to the jury I
do find a little troublesome . . . ." The court requested supplemental briefing
from the parties with respect to this issue.
That same day, Chicago Title filed
a notice of intent to move for a new
trial. In the notice, Chicago Title
asserted that the trial court should grant a new trial on a number of grounds,
including "[i]nsufficiency of the evidence to justify the verdict." Chicago Title stated that its motion was based
on its motion for a directed verdict/JNOV, among other materials, and that it
did not intend to submit additional moving papers in support of its motion for
new trial.
Chicago Title subsequently
submitted a supplemental brief in
which it argued that Business Advisors's knowledge of Bouzoubaa's actions was
imputed to Business Advisors as a matter of law in light of Bouzoubaa's
employment relationship with Business Advisors.
In the alternative, Chicago Title argued that there was no evidence from
which a reasonable jury could find that Business Advisors was justifiably
ignorant of Bouzoubaa's actions. In this
regard, Chicago Title argued in part:
"No rational trier of fact
could conclude that Newman was 'justifiably
ignorant' of the fact that the transaction had been put together by someone
not licensed. Newman did not do it. At a minimum, he chose to be 'gleefully
ignorant,' happy to see the transaction progress, unwilling to inquire how it
was able to do so. Abdication of
responsibility is not 'justified ignorance.' "
Business Advisors filed a brief in
which it acknowledged that the trial court's tentative ruling granting the
motion for JNOV was based on "uncontroverted evidence" that Bouzoubaa
had performed unlicensed broker related services in the course of the Aztec
Appliance transaction. However, Business
Advisors argued that the jury could have chosen to give little or no weight to
the uncontroverted evidence. Business
Advisors also argued that whether Bouzoubaa was its employee could not be
determined as a matter of law, and that the court's tentative JNOV ruling
improperly relied on findings of fact that the jury had not made.
On August 9, 2010, the court issued
a sua sponte ruling denying the motion for JNOV. In its ruling, the court stated:
"The court, after rereading
the Preach case, and the papers filed
by the attorneys, sua sponte changes its ruling on the JNOV and denies the
motion. The court is satisfied that its
analysis was more like a motion for new trial, rather than a JNOV. The issues regarding knowledge should have
been submitted to the jury and the court was in error by, in effect, making
factual findings on these issues. The
jury could have decided not to believe any of the testimony of Mr. Bouzoubaa,
Mr. Jennings [the Seller's attorney], and the Buyer [Matthew Gordon]."
After further briefing, the court
held a hearing on the motion for a new trial.
At the hearing, the court stated, "I believe this may be the first
motion for new trial I've granted, but I think the evidence was such that I
have no alternative. I think it would be
clear error for me not to. I am going to
grant the motion." The court then
issued a formal ruling granting the motion for new trial, which was nearly
identical to the court's tentative ruling granting the motion for JNOV
described above.
title="">[7]
D.
The
appeals
Chicago Title timely appealed the August 9 order
denying its motion for JNOV. Business
Advisors timely appealed the trial court's order granting Chicago Title's
motion for new trial. Chicago Title
timely filed a cross-appeal of the order granting its motion for new trial.
III.
DISCUSSION
The trial court erred in denying Chicago Title's motion for JNOV
Chicago
Title claims that the trial court erred in denying its motion for JNOV.
A.
for JNOV
A trial court must grant a
motion for JNOV whenever a motion for a directed verdict for the aggrieved
party should have been granted. (Code
Civ. Proc., § 629.) " ' "[T]he power of the
court to direct a verdict is absolutely the same as the power of the court to
grant a nonsuit." [Citation.] "A motion for a directed verdict 'is in
the nature of a demurrer to the evidence, and is governed by practically the
same rules, and concedes as true the evidence on behalf of the adverse party,
with all fair and reasonable inferences to be deduced therefrom.' " [Citation.]'
[Citation.]" (
186 Cal.App.4th 1059, 1072.)
Ordinarily,
when reviewing a ruling on a motion for JNOV, "an appellate court will use
the same standard the trial court uses in ruling on the motion, by determining
whether it appears from the record, viewed most favorably to the party securing
the verdict, that any substantial evidence supports the verdict. ' " 'If there is any substantial
evidence, or reasonable inferences to be drawn therefrom in support of the
verdict, the motion should be denied.'
[Citations.]"
[Citation.]'
[Citation.]" (
63 Cal.App.4th 280, 284.)
B.
1. Relevant
statutory scheme
"California
has a strict regulatory scheme [for real estate brokers] triggered by even de
minimis brokerage services." (
Daniels & Associates (N.D. Ca. 1994) 863 F.Supp. 1109, 1118; see
also Consul Ltd. v. Solide Enterprises,
Inc. (9th Cir. 1986) 802 F.2d 1143, 1151, fn. 8 ["de
minimis brokerage activity in California . . . bar[s] recovery under California
law"].)
Section 10130 prohibits individuals
from acting as real estate brokers without proper licensure and provides in
relevant part: "It is unlawful for
any person to engage in the business of, act in the capacity of, advertise as,
or assume to act as a real estate broker . . . within this
state without first obtaining a real estate license from the department . . .
."
Section 10131 defines a real estate
broker in relevant part as follows:
"[A] person who, for a
compensation or in expectation of a compensation, regardless of the form or
time of payment, does or negotiates to do one or more of the following acts for
another or others:
Sells or offers to sell, buys or offers to buy, solicits prospective sellers or
purchasers of, solicits or obtains listings of, or negotiates the purchase,
sale or exchange of real property or a business opportunity." (Fn. omitted.)
Section 10136 prohibits a person
from maintaining an action for the collection of compensation for the
performance of real estate brokerage activities without proving that he is duly
licensed:
"No person engaged in the
business or acting in the capacity of a real estate broker or a real estate
salesman within this State shall bring or maintain any action in the courts of
this State for the collection of compensation for the performance of any of the
acts mentioned in this article without alleging and proving that he was a duly
licensed real estate broker or real estate salesman at the time the alleged
cause of action arose."
Section 10137 provides that a real
estate broker may not compensate an unlicensed person to perform acts for which
a license is required.
"It is unlawful for any
licensed real estate broker to employ or compensate, directly or indirectly,
any person for performing any of the acts within the scope of this chapter who
is not a licensed real estate broker, or a real estate salesman licensed under
the broker employing or compensating him . . . ; provided,
however, that a licensed real estate broker may pay a commission to a broker of
another state."
Section 10138 criminalizes the
paying of a real estate brokerage commission to anyone other than a licensed
real estate broker as follows:
"It is a misdemeanor,
punishable by a fine of not exceeding one hundred dollars ($100) for each
offense, for any person, whether obligor, escrowholder or otherwise, to pay or
deliver to anyone a compensation for performing any of the acts within the
scope of this chapter, who is not known to be or who does not present evidence
to such payor that he is a regularly licensed real estate broker at the time
such compensation is earned."
Section 10139 makes it a crime for
any person to act as a real estate broker or real estate salesperson without a
license.
2.
California
courts have repeatedly held that the public policy embodied in California's
real estate licensing statutes precludes a party from utilizing the judiciary
to recover compensation for acts made illegal by this statutory scheme. (See, e.g, Preach, supra, 12 Cal.App.4th at p. 1454, quoting
739, 740 ["one may not recover upon a contract for services rendered in
the commission of acts which are malum prohibitum, 'this upon the ground of an
enlightened public policy' "]; In
re Guardianship of Prieto's Estate (1966) 243 Cal.App.2d 79, 85-86 (
the evidence shows that the plaintiff in substance seeks to enforce an illegal
contract or recover compensation for an illegal act, the court has both the power
and duty to ascertain the true facts in order that it may not unwittingly lend
its assistance to the consummation or encouragement of
public policy forbids' [citation]"]; Wise
v. Radis (1925) 74 Cal.App. 765, 775 -776 ["No principle of
law is better settled than that a party to . . . an illegal transaction cannot
come into a court of law and ask it . . . to enforce rights arising out of the
illegal transaction"].)
More
specifically, California courts have concluded that a real estate broker cannot
prevail in an action to recover compensation related to a real estate
transaction, if an unlicensed person performed acts requiring a real estate
license on behalf of the broker related to such transaction. (Preach, supra, 12 Cal.App.4th at pp.
1455-1456; Prieto's Estate, supra,
243 Cal.App.2d at p. 86 ["The assumed services in effecting the subject
lease being the product of the joint effort of both respondents, the illegality
attendant upon [the unlicensed individual's] participation, because he was not
a licensed broker, invalidates the whole transaction, and forecloses recovery
by either of them"]; Haas v. Greenwald (1925) 196 Cal. 236, 247,
aff'd (1927) 275 U.S. 490 [trial court properly sustained demurrer to broker's
suit to recover compensation based upon agreement calling for real estate
brokerage services of both broker and unlicensed individual];
249, 253 (Firpo) [concluding
trial court erred in overruling demurrer to broker's action to recover
commission and stating "[i]t is therefore manifest from the various
provisions of the act that the law charges the employer with knowledge of the
fact whether his salesman has or has not a license and contemplates that no
business can be conducted by a broker through a salesman acting in his behalf
until a license is procured by [the salesman]"].)
In
1446, the plaintiff broker (Preach) brought a lawsuit against defendants to
recover a real estate commission.
Defendants moved for summary judgment on the ground that the agreement
was unenforceable due to Preach's agreement to pay one-third of his commission
to an unlicensed person (Singer), who engaged in activities for which a
broker's license was required related to the underlying transaction. (Ibid.) The trial court granted defendants' motion
for summary judgment. (
On appeal, Preach contended that
even if Singer had performed acts for which a broker's license was required,
these activities were not relevant to the enforceability of the defendants'
agreement to pay a commission to Preach.
with Singer was separate from his agreement with defendants." (Preach,
supra, 12 Cal.App.4th at p. 1455.)
The Preach court rejected this
argument, reasoning:
"[Preach] cannot insulate
his agreement with defendants from the Business and Professions Code's
proscription against brokers sharing their commissions with unlicensed persons
who perform acts for which a license is required by the artifice of making one
agreement with Singer and another with defendants. There would be no deterrent to a real estate
broker employing unlicensed persons if the only consequence was that the
unlicensed person would not be paid by the broker but the broker would receive
his or her full fee.
"The purpose of the real
estate licensing statutes is to protect the public from the perils incident to
dealing with incompetent or untrustworthy real estate practitioners. [Citations.]
This purpose would not be served by adopting the theory of [Preach] and
the California Association of Realtors that regardless of the unenforceability
of his contract with Singer, [Preach's] contract with defendants was
unaffected." (Ibid.)
C.
In its
opening brief, Chicago Title maintains that the trial court erred in denying
its motion for JNOV in which Chicago Title contended that Business Advisors was
statutorily barred from prevailing on its breach of contract claim because
Business Advisors's suit was one seeking to recover compensation for the
performance of unlicensed real estate brokerage services. Chicago Title argues that the undisputed
evidence presented at trial demonstrated as a matter of law both that Bouzoubaa
performed acts related to the Aztec Appliance transaction for which a real
estate license was required, and that Business Advisors was not justifiably
ignorant of Bouzoubaa's acts.
In its combined respondent's and
cross-appellant's opening brief, Business Advisors contends that the trial
court properly denied the motion for JNOV because evidence pertaining to
Bouzoubaa's acts with respect to the Aztec Appliance transaction is irrelevant
to Business Advisors's action to enforce the Escrow Agreement.
first.
1.
Business Advisors's lawsuit is an action to recover compensation for
real
estate
brokerage services
Business Advisors's complaint
against Chicago Title states that Business Advisors seeks to recover for the
breach of the Escrow Agreement mandating payment of a "real estate
brokerage commission." The
complaint alleges in relevant part:
"Under the terms of the
Escrow Agreement, a real estate brokerage
commission was to be paid to [Business Advisors] in the amount
of . . . [$300,000] upon the close of escrow, which
occurred on or about July 29, 2005.
[¶] . . . On or about July 29, 2005, Chicago Title . .
. breached the Escrow Agreement by failing to make payment to [Business
Advisors] when and as due under the Escrow Agreement."
Further,
the Escrow Agreement expressly provides that the Buyer is to pay Business
Advisors "a real estate brokerage commission" through escrow. The Escrow Agreement provides in relevant
part:
"Upon the Close of Escrow
and through the Escrow, Buyer shall pay a real
estate brokerage commission to [Business Advisors] in the amount of
[$300,000] pursuant to written commission agreement executed by Buyer on April
29, 2005 with respect to this transaction in accordance with Buyer's separate
agreement with said broker(s) . . . ."
In its reply brief, Business
Advisors acknowledges that the "commission agreement is . . . the source
of the required payment to Business Advisors." We agree, and that is precisely the point. Business Advisors's suit to recover the
aforementioned "required payment" is a suit to recover the real
estate brokerage commission provided for in the commission agreement. Accordingly, it is clear that Business
Advisors "in substance" seeks to recover compensation for real estate
brokerage services. (
Business
Advisors raises several arguments in support of its claim that its action is
not one seeking to recover compensation for the performance of real estate
brokerage services. Business Advisors's
primary argument in support of this contention is that this case is analogous
to Denning v. Taber (1945) 70
Cal.App.2d 253 (Denning) and its
progeny. In Denning, the Court of Appeal concluded that a plaintiff was not
precluded from maintaining an action for an accounting of the property of a
terminated partnership that the plaintiff had conducted with the defendant
without a required license. (
court held, "Conceding that the saloon business was conducted illegally
because a partnership license was not procured in the names of both partners as
required by law, we are satisfied that the plaintiff is nevertheless entitled
to maintain this suit for an accounting of assets because it does not
necessarily involve the legality of the partnership agreement to conduct the .
. . saloon but depends upon the oral agreement to divide the property equally
which was made by the parties after the voluntary termination of the business
without the aid of court." (
In reaching this conclusion, the
obtain a partnership license would generally preclude a court, on public policy
grounds, from determining issues between the partners regarding the ownership
and division of the business. (
257.) However, the Denning court stated that it would apply an "exception to the
general rule" precluding such a suit when the business "has been
completely terminated and one of the parties subsequently expressly agrees to
divide in a specified manner the assets in his possession." (Ibid.) The Denning
court explained that this exception is grounded in the following reasoning:
"When the illegal
transaction has been consummated, when no court has been called upon to give
aid to it, when the proceeds of the sale have been actually received, and
received in that which the law recognizes as having had value, and when they
have been carried to the credit of the plaintiffs, the case is different. The court is there not asked to enforce an
illegal contract. The plaintiffs do not
require the aid of any illegal transaction to establish their case. It is enough that the defendants have in hand
a thing of value that belongs to them. . . .
"[¶] . . . [¶]
"[T]he source from which
that property was derived becomes immaterial and the construction of the
legality of the defunct contract is unnecessary. Under such circumstances it may not be said
courts are aiding or encouraging the execution or fulfillment of illegal contracts. A court is not expected to trace the source
of property beyond the issues necessar[il]y involved, merely to determine
whether it is tainted with illegality so as to punish the parties for violation
of the law. . . ." (
In contrast, in this case, the
illegal transaction has not been
consummated, and the trial court is
being called upon to give aid to the transaction. Further, Business Advisors's suit does
source of property." (
259.) Instead, the source of the
property—a commission agreement mandating payment of a real estate brokerage
commission—is plain on the face of the Escrow Agreement, as is reflected in
Business's Advisors's complaint and its brief in this court. (Compare with ibid. [doctrine mandating that courts refuse to give aid to illegal
transaction is limited or else "courts
would often be required to assume the impossible burden of determining just how
serious or remote the taint may be"].) In short, neither Denning, nor any of the cases following Denning that Business Advisors cites in its brief, support the
conclusion that permitting Business Advisors to maintain this action is
permissible.
Business Advisors also raises a
series of arguments in support of its contention that the prohibition against a
broker recovering a real estate commission based on the performance of
unlicensed brokerage activities should not be applied when the defendant is an
pay a commission. We acknowledge that
the context in which this case arises is unusual.
"The rule in license cases
is most frequently applied to those situations where a firm or person required
to be licensed fails to secure a license and sues a third person for services
rendered or material furnished. In such
event the unlicensed firm or person cannot recover because to do so would be to
defeat the very purpose of the licensing statute." (Norwood
v. Judd (1949) 93 Cal.App.2d 276, 283 (Norwood).)
Notwithstanding the unusual
circumstances under which this case arises, judicial doctrines that preclude a
party from recovering for unlicensed services are based on the notion that a
compensation for an illegal act. (See Prieto's
Estate, supra, 243 Cal.App.2d at
pp. 85-86.) These doctrines are
"part of the general rule that he who comes into equity must come with
clean hands." (Norwood, supra, 93 Cal.App.2d at p. 283.) Thus, it is the gravamen of the
of defendant, that is the critical
factor in determining whether an action is potentially barred by a licensing
statutory scheme. We disagree with
Business Advisors's contention that the purpose of California's real estate
licensing scheme would not be furthered by barring its recovery in this case
because, according to Business Advisors, "There is no showing here that
the rule barring the payment of an illegal commission was intended to assist an
escrow company that paid the wrong person."
Numerous California cases have
explained that, " 'The purpose of the licensing
requirement is to protect the public from the perils incident to dealing with
incompetent or untrustworthy real estate
practitioners.' [Citation.]" (Greenlake
Capital, LLC v. Bingo Investments, LLC (2010) 185 Cal.App.4th 731, 736
(Greenlake Capital, LLC).) That purpose is furthered by mandating that a
real estate commission is "forfeited . . . if [an unlicensed person] has
played any role in negotiating the transaction, no matter how
slight." (Ibid.)
A broker's willingness to allow an
unlicensed person to conduct real estate brokerage activities on its behalf
will be deterred by precluding the broker from recovering a commission related
to such activities, regardless of whether the broker seeks recovery from the
obligor or an escrow company. Therefore,
to the extent that Business Advisors knowingly permitted Bouzoubaa to conduct
unlicensed real estate brokerage services with respect to the Aztec Appliance
transaction (a matter that we consider in parts III.C.2. and III.C.3.,
receiving a commission based on the performance of such services, is fully
consistent with the purpose of the statute.
Business Advisors also contends
that precluding its recovery in this action would "[e]stablish[] a new
rule requiring escrow companies to research the legality of contracts used to
place money into escrow," a result that Business Advisors maintains would
be "unfair and disastrous for the escrow industry." This argument is unpersuasive because
precluding recovery by Business Advisors would not establish a
determine the legality of contracts used to place money into escrow. Rather, an escrow company has a narrow
statutorily prescribed duty not to "deliver to anyone a compensation for
performing any of the acts within the scope of this chapter, who is not known
to be or who does not present evidence to such payor that he is a regularly
licensed real estate broker at the time such compensation is earned." (§ 10138.)
contract pursuant to which monies are placed in escrow, an escrow company may
assert as a defense that the licensing
scheme at issue forbids a plaintiff from recovering a real estate commission
that has been placed into escrow.
Finally, Business Advisors
cursorily
title="">[12] argues that Chicago Title would be unjustly
enriched if it were to prevail in this action. We are not persuaded. Business Advisors's main contention in
support of this argument is that Chicago Title violated section 10138 by paying
a commission to Bouzoubaa, an individual who lacked a real estate license. The trial court persuasively rejected this argument
in its order granting Chicago Title's motion for new trial:
"In this case [Business
Advisors] was in a better position than Chicago Title to prevent Mr. Bouzoubaa
from performing these services.
[Business Advisors] allowed Bouzoubaa to perform the services and
planned to pay him if the deal closed.
While Chicago Title allowed Bouzoubaa to be paid directly, Bouzoubaa
would have been paid something in any event because [Business Advisors]
concedes that it would have paid Bouzoubaa $90,000. . . . Whether the commission is paid to Business
Advisors or directly to Bouzoubaa, public policy would be violated.[
"Chicago Title argues it
was merely negligent in failing to ascertain whether or not Mr. Bouzoubaa had a
broker's license. Chicago Title only had
contact with Mr. Bouzoubaa and Chicago Title relied on Mr. Bouzoubaa as the
broker and followed his instruction, agreed to by the Buyer, in changing the
payee of the commission to Bouzoubaa instead of [Business Advisors].
"On the other hand, Bouzoubaa
had worked for [Business Advisors] for years and Mr. Newman was aware of what
Bouzoubaa was doing in numerous transactions.
There [also] was evidence of Bouzoubaa receiving portions of commissions
in other transactions . . . ."
We agree with the trial court's determination that,
"Mr. Newman's actions of allowing Mr. Bouzoubaa to commit illegal
activities on behalf of [Business Advisors] are more culpable that Chicago
Title's failure to ascertain the license status of Mr. Bouzoubaa."
Courts have concluded that the
doctrine of unjust enrichment does not apply to require even the person who
received services from a broker to pay a commission that is illegal under
statutory law. (See, e.g.,
Associates (1989) 211 Cal.App.3d 723, 739 ["[The broker] lastly
contends that [the recipient of the broker's services] will be unjustly
enriched if the contract is not enforced.
However, this court cannot 'resort to equitable considerations in
defiance' of the mandate of the Legislature"].) An escrow holder is enriched to a far lesser
extent than the recipient of the broker's services. For example, in this case, Chicago Title was
not enriched by its failure to pay Business Advisors its commission, since it
is undisputed that it paid the commission to Bouzoubaa.
Accordingly, we conclude that the
doctrine of unjust enrichment does not apply to permit recovery by Business
Advisors as against Chicago Title.
2.
The evidence presented at trial demonstrated as a matter of law that
Bouzoubaa
performed acts for which a real estate license is required
Chicago Title contends that the
evidence presented at trial demonstrated as a matter of law that Bouzoubaa
engaged in real estate brokerage activities for which a license is required. We agree.
As noted in
part III.C.1., ante, California law
is clear that if a person "takes any part in the negotiations,
broker." (Abrams v. Guston (1952) 110 Cal.App.2d 556, 557-558, italics
added.) For example, in
broker (Preach) entered into an agreement with an attorney (Singer) to share a
potential commission that Preach might receive in connection with the sale or
lease of certain real property owned by defendants. The Preach
court concluded that the following evidence demonstrated as a matter of law
that Singer had acted as a real estate broker with respect to the negotiations
to lease the property:
"On June 11, 1985, Singer
met with Gray [a representative of Preach's client] in
Singer's office. Singer did not invite
Gray, or know that Gray was coming. Singer understood that Gray's
purpose in coming was to inform Singer of the status of the negotiations with
Home Club [the prospective lessee of the property]. Gray told Singer that they were still
'haggling back and forth on' the terms of the lease. Gray related what had been agreed to and that
to which he intended to agree. He told
Singer the areas in which they were having a problem reaching an agreement,
including 'Israeli inflation.' Gray also consulted Singer about the rental
rate being negotiated for the property and the tax effect of a future sale of
the property. Singer agreed to talk to
Thompson [an employee of Home Club] about waiving a provision for several
months of free rent. Singer relayed this information to Thompson. Gray asked Singer to
call Thompson 'and attempt to help him [Gray] out.' Singer did so.
testified that he 'was paving the way for Dudley [Gray]
to call Thompson and letting Thompson know in effect what the concerns or what
the areas of concern were and what the areas of concern were not.' In his declaration, however, Singer claims
that he 'did no more than relay a message as to the areas that Gray
wanted to discuss.'
"[¶] . . . . [¶]
"Also
on June 11, 1985, Singer wrote to McNulty [president and chief executive
officer of Home Club], informing him that Gray had
noticed in Home Club's annual statement that Home Club leased property with
rental payments based on specified percentages of gross sales, against a
monthly minimum, and that Gray was 'extremely interested
in putting together a deal on the terms which were discussed as $6.75 net, with
a fifteen-year term with 3 five-year options.
The only sticking point is going to be setting up some kind of a
contingency to provide for runaway inflation.'
Singer told McNulty that he had advised Gray to
contact Thompson to set up a meeting to close the deal." (Preach,
supra, at pp. 1448-1449.)
The
June 11, 1985, meeting with Gray and Singer's subsequent
communications with Thompson and McNulty are undisputed facts that leave no
room for a reasonable difference of opinion:
Singer continued to communicate with and advise Gray,
McNulty, and Thompson about the substance of their negotiations, after having
introduced them. Singer's participation
in the negotiations was conduct which constitutes activities beyond the
permissible scope of a finder." (
1452.)
In this case, the uncontradicted
evidence pertaining to Bouzoubaa's unlicensed real estate brokerage activities
during the 18-month period that he worked on the Aztec Appliance transaction
far exceeded the three contacts that the Preach
court concluded established as a matter of law that Singer had acted as a real
estate broker. As the trial court
summarized in both its tentative order granting the motion for JNOV and its
final order granting the motion for new trial:
Bouzoubaa entered into a nondisclosure agreement with the Buyer, drafted
and signed a commission agreement with the Buyer, assisted in drafting a
consulting agreement related to the transaction, received numerous documents
relevant to the transaction from the buyer and seller, received the Buyer's
earnest money and deposited that money into escrow, and "discussed issues
and negotiations with [the] sellers' attorney."
We would
add to the trial court's summary of the evidence that representatives of both
the Buyer and the Seller described extensive negotiations concerning the
transaction in which Bouzoubaa participated.
For example, Matthew Gordon, the Buyer's president, testified that
Bouzoubaa helped prepare a letter of intent for the purchase as well as other
documents pertaining to the transaction.
The Seller's attorney, John Douglass Jennings, Jr., testified that
Bouzoubaa was "intimately involved in the transaction," and that
Bouzoubaa "engaged in discussion of the issues and negotiations,"
with people in Jennings's office. Gordon
and Jennings both testified that they considered Bouzoubaa to be acting as a
real estate broker in the transaction.
In addition,
testimony concerning Bouzoubaa's brokerage activities, including an e-mail from
Gordon instructing Bouzoubaa to "[d]raw up a letter of intent with the
basic deal points," a counter letter of intent from Jennings addressed to
Bouzoubaa and Gordon, and a letter from Jennings address to Bouzoubaa and
Gordon describing "discuss[ions] . . .
with . . . Bouzoubaa" concerning a "communication
from Mr. Bouzoubaa" related to the transaction. Newman testified that he had never seen any
of these documents.
name="_ftnref17" title="">[17]
Further, although Chicago Title
devoted the bulk of its opening brief to cataloging evidence relevant to
proving that Bouzoubaa engaged in real estate brokerage activities, Business
Advisors presents no separate legal argument on appeal in support of the
contention that a reasonable jury could find that Bouzoubaa did not take
"any part in the negotiations, no matter how slight,"
so as not to come within the scope of California's real estate licensing
scheme. (Preach, supra, 12 Cal.App.4th at p. 1452.)
Advisors does state, without citation to the record, that Newman testified that
any "broker-like functions"
under Newman's direct supervision.
(Italics added.) Such testimony
would only strengthen the case for a JNOV, since although a
perform real estate brokerage services while under the employ of a real estate
broker (§ 10132), it is undisputed that Bouzoubaa did not hold a real estate sales license during the time he worked on
the Aztec Appliance transaction. Thus,
any "broker-like functions" that Bouzoubaa performed, supervised or
not, were impermissible.
In sum, we conclude that the
evidence presented at trial demonstrated as a matter of law that Bouzoubaa
performed acts for which a real estate license is required.
3. The
evidence presented at trial demonstrated as a matter of law that
Business Advisors was
not justifiably ignorant of Bouzoubaa's performance
of acts for which a real
estate license is required
Chicago Title contends that the
trial court erred in concluding that the evidence presented at trial raised a
question of fact as to whether Business Advisors was justifiably ignorant of
Bouzoubaa's unlicensed actions.
name="_ftnref19" title="">[19] We agree.
In
court described the commission sharing agreement at issue in that case as
follows:
"[Preach] learned from
Singer that Home Club was looking for potential store sites. Plaintiff told Singer that he had spoken to
the owner of the
regarding selling or leasing that property to Home Club. Plaintiff asked Singer to provide an
introduction to Home Club in connection with the [defendant's] property. Because Singer had access to the 'top people
in the Home Club operation,' plaintiff agreed to pay Singer one-third of any
commission plaintiff received if Home Club leased the [defendant's] property,
'or any other property.' " (
The Court of Appeal rejected
Preach's claim that Singer's unlicensed real estate activities were irrelevant
to Preach's attempt to enforce the commission agreement merely because Preach's
agreement with Singer was separate from his commission agreement with the
defendant. (Preach, supra, 12 Cal.App.4th at p. 1455; see pt. III.A.2.,
Further, the Preach court
concluded that Singer's activities would be imputed to Preach if the defendants
were able to establish the existence of a "joint venture" between
Singer and Preach. (Preach, supra, at p. 1457.)
However, the Preach court
stated that if Preach had been "justifiably
ignorant" of Singer's unlicensed real estate brokerage activities, then
Singer's activities could not serve as the basis for denying Preach recovery of
his commission. (Id. at p. 1458.) The
knowledge of the actions that the Preach
court concluded established as a matter of law that Singer had conducted
unlicensed real estate brokerage activities.
(Id. at p. 1449.)
With respect to the issue of
justifiable ignorance, the Preach
court stated:
"If . . . the
trier of fact concludes that [Preach] was justifiably ignorant of
Singer's unlawful activities [citations], then he would not be in pari delicto and no public policy
would be furthered by denying [Preach] the relief he seeks in which case the
commission agreement should be upheld."
(Preach, supra, 12 Cal.App.4th
at p.1458.)
The
evidence that the Preach court
concluded demonstrated a triable issue of fact with respect to the question of
justifiable ignorance is entirely unlike the undisputed evidence presented at
trial in this case. Preach entered into
an agreement pertaining to a single transaction with Singer because Singer had
access to the " 'top people' " of a company that was a prospective
tenant for Preach's client. (
1446-1447.) The Court of Appeal
concluded that Singer's three contacts (a meeting, a telephone call, and a
letter) with others involved in the transaction, all of which occurred within
the period of approximately a single day,
activities as a matter of law. (
Singer's unlicensed activities. (Id. at p.
1449.) The agreement between
Preach and Singer was that they would share a commission pertaining to a
supra, 12 Cal.App.4th at pp. 1446-1447.)
In this case, in contrast, the
undisputed evidence presented at trial established that Bouzoubaa had worked
closely with Newman for approximately 12
years. Newman acknowledged at trial
that Bouzoubaa had a desk a few feet outside Newman's office, Bouzoubaa had a
key to Business Advisors's offices, Bouzoubaa identified himself as Business
Advisors's associate, Bouzoubaa received faxes and telephone calls at Business
Advisors's offices, and Bouzoubaa used Business Advisors's letterhead. Newman also testified at trial that he had
repeatedly urged Bouzoubaa to obtain a real estate license.
specific real estate brokerage activities that Singer engaged in related to the
transaction, all of which occurred on or about a single day, the evidence in this case demonstrated that Newman
worked with Bouzoubaa on the Aztec Appliance transaction over an
primary person moving the transaction forward during this lengthy period, he
attended numerous meetings with Bouzoubaa and the parties related to the
transaction, and he recalled having seen a letter of intent addressed to
Bouzoubaa pertaining to the transaction.
Newman also testified that he intended to pay Bouzoubaa $90,000 for his
work on the transaction.
Assuming,
without deciding, that there could conceivably be circumstances under which a
broker would be justified in not
knowing about the unlicensed activities of someone acting on its behalf,
reasonable jury could find that Business Advisors was ignorant of the extensive
real estate brokerage activities undertaken by Bouzoubaa on Business Advisors's
behalf, much less justifiably ignorant
of them.
title="">[23]
Accordingly, we conclude that the
trial court erred in determining that the evidence presented at trial raised a
question of fact as to whether Business Advisors was justifiably ignorant of Bouzoubaa's unlicensed real estate
brokerage actions, and that this question should have been submitted to the
jury.
4. Chicago Title was entitled to JNOV on its illegality defense
We concluded above that Business
Advisors's lawsuit is an action to recover compensation for real estate
brokerage services. (See pt. III.C.1.,
We have also concluded that the evidence presented at trial demonstrated
as a matter of law both that Business Advisors's associate performed unlicensed
real estate brokerage activities on its behalf (see pt. III.C.2.,
not justifiably ignorant of the
associate's performance of these unlicensed activities. (See pt. III.C.3., ante.) Under these
circumstances, the trial court erred in denying Chicago Title's motion for
JNOV.
IV.
DISPOSITION
The trial court's August 9, 2010 order denying Chicago
Title's motion for JNOV is reversed. The
matter is remanded to the trial court with directions to grant Chicago Title's
motion for JNOV and to enter judgment in favor of Chicago Title. Business Advisors's appeal of the court's
order granting a new trial and Chicago Title's cross-appeal of the order
granting a new trial are dismissed as moot.
Chicago Title is entitled to
recover its costs on appeal.
AARON, J.
WE CONCUR:
HALLER,
Acting P. J.
McDONALD,
J.
name="_ftn1" title="">[1] Chicago
Title raised other defenses to the suit, including that the escrow agreement
had been modified so as to permit payment to Bouzoubaa, rather than to Business
Advisors. These other defenses are not
relevant to this appeal.
Title filed a cross-complaint against Bouzoubaa as well as MaNiPe, LLC
(Manipe), and Manipe's president, Matthew Gordon, in which it sought
contribution and indemnification for Business Advisors's claim. Prior to a jury trial of the underlying
complaint, the trial court severed trial of the cross-complaint. The claims raised in the cross-complaint are
not at issue in this appeal.
