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Remsen Partners, Ltd. v. Stephen A. Goldberg Co.

May 25, 2000

REMSEN PARTNERS, LTD., APPELLANTS,
V.
THE STEPHEN A. GOLDBERG CO.
AND
STEPHEN A. GOLDBERG, APPELLEES.



Before Wagner, Chief Judge, Ruiz, Associate Judge, and Belson, Senior Judge.

The opinion of the court was delivered by: Belson, Senior Judge

On Certification from the United States Court of Appeals for the District of Columbia Circuit

(Argued October 14, 1999

This opinion deals with some of the consequences of performing real estate brokerage services without the license required by the District of Columbia Real Estate Licensure Act of 1982, D.C. Code §§ 45-1921, et seq. (the Brokerage Act). The United States Court of Appeals for the District of Columbia Circuit has certified to this court the following question: *fn1

Where a party has performed brokerage services covered by the District of Columbia Brokerage Act's prohibition of use of the District's courts for recovery of compensation, D.C. Code § 45-1926(c), under what circumstances will the District of Columbia courts order the party performing the services to disgorge compensation already paid? Stephen A. Goldberg, Co., et al. v. Remsen Partners, Ltd., 335 U.S. App. D.C. 154, 160, 170 F.3d 191,197 (1999).

In introducing the question, the Circuit observed, "we do not see how [appellee] Goldberg can be entitled to recoup past payments by virtue of the Brokerage Act except under a view that recovery is completely automatic. Yet, as District law has allowed automatic recovery under comparable (albeit readily distinguished) statutes, we are uncertain what course the District will take." Id. We consolidated our consideration of the certified question with an appeal of a judgment of the Superior Court which was based in part on the conclusion that there was no entitlement to recover fees for brokerage services paid to an unlicensed corporation. Marmac Inv. Co., Inc., et al. v. Robert N. Wolpe, et al., No. 97-CV-2016. The cases were argued jointly. Having considered the merits of the appeals, we sua sponte vacate the order of consolidation, and decide the cases by separate opinions [today].

We set forth below the details of our answer to the question posed by the Circuit. The sum of our holding is that recovery of real estate brokerage fees paid to an unlicensed person for completed services is not automatic. *fn2

I.

We will paraphrase the Circuit's concise statement of the facts. Pursuant to a 1992 Letter Agreement, the Stephen A. Goldberg Company ("the Goldberg Company" or "Goldberg") retained Remsen Partners, Ltd. ("Remsen"), a New York based financial consulting services corporation, to serve as financial advisor to the company. The goal was to arrange a $122 million "securitized" financing of various Maryland and Virginia apartment complexes managed by the Goldberg Company and owned by limited partnerships controlled by Stephen Goldberg. Securitized financing was described as a method of raising money by creating marketable securities from an income-producing asset. Here the parties used a mortgage loan as the asset, transferred the loan to a trust fund, and then sold ownership interests in the trust fund to investors. In consideration for Remsen's services, the Goldberg Company agreed to pay Remsen a closing fee amounting to one-percent of the principal amount of the financing, contingent on completion of the refinancing, as well as an annual consulting fee, which was to be paid in quarterly installments for the outstanding term of the investment. The financing was successfully completed in January of 1993. The Goldberg Company made the agreed post-closing payments until sometime in 1994, when it stopped making payments on most of the fees incurred after closing. However, it continued to make payment on the closing fees and on the first year consulting fees until January of 1997.

In November 1996 the Goldberg Company filed a complaint against Remsen in the Superior Court of the District of Columbia, seeking a declaratory judgment that the parties' agreement was void and unenforceable because Remsen was not licensed as a real estate broker, as required by the Brokerage Act. Goldberg also sought damages and rescission of the parties' agreement for alleged fraud and misrepresentation. Remsen had the case removed to federal court based on diversity. It also filed a counterclaim against the Goldberg Company and a third party complaint against Stephen Goldberg, alleging breach of contract by both of them. The district court granted summary judgment for the Goldberg Company, holding that the agreement was unenforceable and void because the Brokerage Act was applicable to the transaction. As the court found the Letter Agreement unenforceable, it deemed it unnecessary to reach the merits of Remsen's counterclaim. In addition, the district court, basing its ruling entirely on the violation of the Brokerage Act, ordered Remsen to return all the money that was paid it by the Goldberg Company under the Letter Agreement ($1,078,045).

II.

Remsen appealed the District Court's judgment to the United States Court of Appeals for the District of Columbia Circuit. That court affirmed the finding that the Letter Agreement was unenforceable because it was entered in violation of the Brokerage Act. Goldberg, supra, 335 U.S. App. D.C. at 156, 170 F.3d at 193. Before the U.S. District Court and the Circuit, Remsen argued that the services it had provided Goldberg were not the services of a real estate broker under the Brokerage Act. The Circuit disagreed, pointing out that the statute includes among real estate brokers anyone who "negotiates a loan secured by a mortgage, deed of trust, or other encumbrance on real property . . . ." D.C. Code § 45-1926 (b)(1)(B). It concluded that the Brokerage Act covered Remsen's activities. Goldberg, supra, 335 U.S. App. D.C. at 158, 170 F.3d at 195-96.

In doing so, the Circuit noted that Remsen was not in a position to maintain an action against Goldberg for the award of any fees to which it claimed entitlement under the Letter Agreement. Id. The sections of the Brokerage Act then in force which barred such an action were D.C. Code § 45-1926 (a) and (c). Subsection (a) stated: *fn3

It shall be unlawful for any person to engage in conduct, advertise, or hold himself or herself out as engaging in the business of a real estate broker . . . unless that person holds a valid license as a real estate broker . . . .

Subsection (c) barred "any action in the courts of the District for the collection of compensation for their services performed in that [real estate] broker capacity." Thus, it is quite clear that under the Brokerage Act Remsen could not recover any unpaid portion of its fee by an action in the courts of the ...


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