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CB Richard Ellisrealestate Services, Inc. v. Spitz

June 19, 2008


Appeal from the Superior Court of the District of Columbia (CA-7596-03) (Hon. Natalia Combs Greene, Trial Judge).

The opinion of the court was delivered by: Fisher, Associate Judge

Argued May 9, 2006

Before GLICKMAN, KRAMER, and FISHER, Associate Judges.

The central issue in this appeal is whether CB Richard Ellis Real Estate Services, Inc., is precluded from recovering any fees for services rendered to appellees in connection with a complex real estate transaction. Holding that D.C. Code § 42-1705 (2001) barred any recovery in contract, quasi-contract, or tort because there was no written listing agreement for sale of the property,*fn1 the Superior Court granted summary judgment in favor of defendants/appellees. We conclude that there are genuine issues of material fact and remand for further proceedings consistent with this opinion.

I. Factual Background*fn2

Appellant CB Richard Ellis Real Estate Services, Inc., formerly known as Insignia/ESG, Inc., is a commercial real estate services company operating in the District of Columbia and elsewhere. Appellant represents that its Washington office "specializes in procuring debt and equity financing for commercial real estate projects."Appellees are individual real estate developers and their respective limited liability companies. The three primary developers, Christian Spitz, Walter Rector, and Fred Merrill, Jr., formed 1899 Pennsylvania Avenue, LLC ("1899 LLC") for the purpose of acquiring and redeveloping the office building located at 1899 Pennsylvania Avenue, N.W. (the "Property"). In this opinion, we will refer to appellant as "Insignia" and to appellees as "1899 LLC," the "Developers," or, when appropriate, by their individual names.

A. The Goal of Replacing Expensive Debt

In January 2001, Insignia brokered the purchase of the Property, acting on behalf of 1899 LLC.*fn3 Throughout 2001 and 2002, the Developers successfully renovated the Property into an upscale office building and secured tenants. However, the purchase and renovations left significant expensive debt which the Developers sought to replace through refinancing or recapitalization. In the fall of 2002, the Developers asked Insignia to assist them in this effort. According to Insignia, the Developers explicitly stated that they did not want to sell the Property because they hoped to continue earning income and fees from it and to avoid paying capital gains tax.

Turning to the task, Insignia began gathering market and project information to present in an Offering Memorandum that would be used to attract potential investors or lenders. Insignia completed an "initial draft" of the Offering Memorandum near the end of 2002. In essence, this draft was an informal compilation of the "nuts and bolts," including the "financial analysis" and the "sale and lease comps," that outlined the "financial picture for the property." Sometime in December 2002 or January 2003 Insignia paused in its work while the Developers negotiated a lease with Wilmer, Cutler & Pickering.

Around January 2003, Insignia resumed work on the Offering Memorandum. At this point, a "complete revision" of the initial draft was "necessary" and Insignia went to work revising, updating, and changing entire sections. Specifically, the sponsorship and financial sections were "completely redone" and a "large portion of the executive summary" was changed. Meanwhile, Insignia continued to "run[] multiple financial scenarios for the 1899 group, Mr. Rector specifically, to show them possible . . . financing scenarios." This work was performed from January to April 2003. Although it is unclear when Insignia officially completed the Offering Memorandum, it did e-mail Rector a nearly final version on March 3, 2003. The various versions of the Offering Memorandum, prepared by Insignia and approved by the Developers, expressly contemplated recapitalization or refinancing, not a sale of the Property.

B. Did the Parties Reach an Agreement?

Meanwhile, the Developers and Insignia began negotiating the terms of an agreement that would govern their relationship. The first draft of the engagement letter is dated October 17, 2002. This draft discusses a "recapitalization" but does not mention a "sale." Throughout October 2002, the parties exchanged drafts of this engagement letter. Although each sequential draft contains changes, the fundamental purpose of the collaboration -- to achieve "recapitalization" of the Property -- seems to remain the same.

Insignia and the Developers met again on January 7, 2003, "to reach agreement on the terms and conditions of [Insignia's] engagement with 1899 [LLC]." According to Insignia, Rector "conduct[ed] the discussion on behalf of [1899 LLC]" and the parties reached an agreement on the terms dealing with "any carve-outs," "the services provided," "the fees associated with those services," "the duration of the agreement," and "compensation." By the conclusion of the meeting, "everybody said that we are satisfied with those fee amounts and that the next step would be to put it into a document." Insignia claims that these terms "were memorialized in the agreement that was executed by Walt Rector."

During early February 2003, the parties exchanged different versions of the draft engagement letter. The version at issue here is dated February 13, 2003, and was transmitted by Insignia to the Developers on February 20, 2003 (the "February 20th Letter"). Under its terms, the Developers would "exclusively engage[] Insignia to identify, structure and negotiate the recapitalization of the above-referenced Property." Insignia would "promptly commence and diligently prosecute obtaining required financing . . . ."The letter mentioned a permanent loan, mezzanine financing, or joint venture equity as potential options, and 1899 LLC would "authorize[] Insignia to offer the Property for such financing[.]" It also included a formula for paying Insignia "for all efforts, including all analysis, recommendations, marketing support and any other required consultation by Insignia professionals . . . [provided] financing is obtained . . . ."*fn4 On the other hand, "[i]f [1899 LLC] chooses not to enter into an Agreement for the refinancing of the Property, [1899 LLC] will not owe Insignia any compensation whatsoever for our services hereunder."

The February 20th Letter did not mention a sale of the property. In fact, the words "purchase," "sale," "buyer," and "seller" do not appear in any portion of the letter. Although Spitz and Insignia had discussed a group known as WestWind*fn5 a week earlier, the February 20th Letter did not list WestWind as a "carve-out" from the formula for compensating Insignia.*fn6 Rather, the letter was silent with regard to any potential transaction with WestWind.

The parties dispute whether they agreed to the terms of the February 20th Letter. Insignia never signed the document, but claims to have advised the Developers that it "fully agreed and assented to the terms set forth [therein]" when it e-mailed the letter to them on February 20, 2003. Although Rector signed the letter and faxed it back to Insignia on that same day, he stated in a cover memo that "[m]y execution and delivery to you is contingent upon your receipt of this engagement letter signed by [Spitz]." Rector concluded his cover memo with the exhortation, "Let's go get this job done." Insignia claims that Spitz orally acknowledged that the parties had reached an agreement on multiple occasions between February 20th and March 5th, but concedes that he never actually signed the February 20th Letter.*fn7

C. What About WestWind?

On either March 4th or March 5th, Spitz telephoned Insignia to discuss the fact that he expected to receive a proposal from WestWind.*fn8 According to Insignia, Spitz "indicated . . . that he wanted to discuss our fee as related to WestWind" and "suggest[ed] that he was going to break our contract." In response, and "in anticipation of him breaking our contract," Insignia suggested they could "somehow negotiate or compromise to a reduced fee in order to make the transaction fly with ...

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