DEATH AND TAXES
A Federal appellate court has decided to let a jury decide whether a real estate broker breached its duty, if any, to disclose to a client the existence of a special tax district.
A Company hired Broker to help it locate a new headquarters. The parties entered into an exclusive listing agreement where the Broker would identify possible sites and review each to make sure that the site accomplished the Company’s objectives. One of the stated objections for the Broker was to “understand local government concerns”.
The Broker eventually presented the Company fifteen possible locations, and the Company selected a particular site based on the Broker’s recommendation. After the selection of the site, the parties began working out the details of the purchase. One of the groups that had an ownership interest in the property sought to have the area surrounding the property designated as a special taxing district which would impose an increased sales tax on all transactions in order to fund road improvements. The Broker learned about the proposed taxing district prior to closing, but did not inform the Company. The transaction eventually closed.
Following the closing, the tax district was created. The Company did not believe that the increased sales tax had any impact on it, because its sales were made by a mobile sales force. However, the Company learned that this was not correct and that it did have to pay sales taxes on all of the Salespeople’s transactions. Because of this increased tax, the Company relocated its headquarters outside of the taxing district.
The Company brought a lawsuit against the Broker on a variety of legal grounds. The Company argued that the Broker had a duty to disclose the existence of the special taxing district. The trial court ruled that the Broker did not have a duty to disclose the taxing district because it was not a material fact requiring disclosure nor did the contract impose a duty on the Broker to disclose the existence of the taxing district. The Company appealed.
The United States Court of Appeal for the Eighth Circuit reversed the trial court and sent the case back to the lower court for further proceedings. The court first looked at breach of contract allegations to see whether the representation agreement created a duty for the Broker to disclose the tax district. The representation agreement contained “objectives” for the Broker which included investigating economic incentives and tax rates for the prospective properties, but the contract language was ambiguous about whether the Broker had an actual duty to undertake these tasks. Because of the ambiguity, the court ruled that this fact issue needed to be resolved by a jury and so sent the case back to the trial court.
The court next considered misrepresentation and rescission allegations. For both sets of allegations, the Company would need to show the existence of the special property taxing district was a material fact requiring disclosure. The trial court had ruled it was not a material fact to the Company because it had not believed it was required to pay sales tax for its sales force’s transactions. While the court agreed this was a relevant consideration, the court ruled that a jury needed to determine whether this fact was material to the Company. Thus, these allegations were also returned to the lower court.
The court next considered negligence and breach of fiduciary duty allegations. For breach of fiduciary duty allegations, the question of whether the Broker had a duty to disclose the taxing question was a fact question that needed to be resolved by the jury. Similarly, the negligence allegations required a determination of whether the Brokerage exercised “reasonable care, in handling the Company’s business”. Arguably, the failure to disclose the tax district was not an exercise of reasonable care. Therefore, the court returned the case to the lower court for further proceedings.
Based on summary from NAR of Lafarge North America, Inc. v. Discovery Group, LLC 574 F.3d 973 (8th Cir. 2009).
-Dan Posternock
***The information included in this newsletter is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls, letters and electronic mail. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.
At McDowell – Riga – Posternock, PC, our attorneys specialize in getting you the answers you need: for yourself, your business, and your family.
Thursday, March 25, 2010
A FUNNY THING HAPPENED ON THE WAY TO THE CONTRACT
A FUNNY THING HAPPENED ON THE WAY TO THE CONTRACT
(a) The First Call
A week or so ago I received a call from someone asking me to send a letter to a realtor “terminating” whatever relationship they may have had. She explained that she and her husband were unhappy with the service they were receiving, and, particularly incensed with what they perceived as a lack of assistance in acquiring a specific property. They wanted to make an offer but lacked confidence that it would be timely made thereby leaving them behind another interested buyer. They wished to make an offer through another realtor.
After getting permission to preserve my professional relationship with the first realtor by advising her of the “nasty gram” she was about to receive, I sent the letter. I also spoke with the new realtor to alert her that while I saw no problem with her making the offer on behalf of her new clients that, in my opinion, a commission fight may be in her future. We both agreed that such an issue would not occur unless her new clients’ offer was accepted over the other possible buyer. She decided to approach it with an “I’ll cross that bridge when I get to it” philosophy.
A week or so later I was on the phone with the new realtor about another transaction, so I inquired as to the status of the matter. She told me that her clients didn’t get the property. Apparently the sellers chose the other offer.
(b) The Second Call
Another week went by before I got a call from the husband of the woman who first called me. He tells me that he’s found out that he and his wife’s offer was for significantly more money with a quicker closing date. He was perplexed as to why he and his wife aren’t the ones buying the home. Did I say perplexed? Livid might be the better word. He wanted blood from realtor #1.
In short, this is what I was told.
1. Mr. & Mrs. made an offer to purchase their home many months ago. Before doing so, they acknowledged the dual agency relationship with the realtor. Their offer was rejected.
2. Mr. & Mrs. continued to look for other homes but always kept their eyes on this one. They would occasionally get updates from the realtor, but, more often than not, they would be the instigator of the communications. In retrospect, they were most bothered by the fact that they weren’t informed about price reductions along the way.
3. The first round of the recent “competing” offers occurred close in time, maybe the same day. Mr. & Mrs. offer was better than the other possible buyers.
4. The other possible buyer then counter-offered at a price curiously close and just above their offer. It was accepted and contracts were promptly prepared and signed.
5. The next day, while the parties were still under attorney review, Mr. & Mrs. made another offer, at a substantially better price with a quicker closing date. In all other respects the offers were comparable.
6. One of the two sellers initialed her receipt or acceptance on the offer sheet. The other was out of town. Its unknown if she returned during the attorney review period.
7. The sellers intend to sell the property to the buyer who offered less money and a later closing date.
Now for some questions
What, if any, affect did the “termination” letter have? Mr. & Mrs. changed from a “client” (person with whom the REALTOR® or REALTOR’S® firm has an agency or legally recognized non-agency relationship) to a “customer” (party to a real estate transaction who received information, services, or benefits but has no contractual relationship with the REALTOR®) Code of Ethics and Standards of Practice of NAR, Article 1, Standard 1-2. We note, however, that a REALTOR’S® obligation of absolute fidelity to its client’s interest does not relieve the licensee from the obligation of dealing fairly with all parties N.J.A.C. 11:56.4(a).
Was Mr. & Mrs. last offer a back-up offer? No, the term “back-up offer” means a written and signed offer to purchase an interest in real estate which is received by a licensee at a time when a previously executed contract pertaining to the same interest in real estate is pending and in effect, having survived attorney review if it was subject to such review. N.J.A.C. 11:5-6.4(b)1. In our example, the contract had not survived attorney review.
What should have been done with Mr. & Mrs. last offer? Offers obtained while previously executed contract is still pending attorney review must be presented in the normal course (24 hours after receipt). N.J.A.C. 11:5-6.4(h)(g)and (f)1.ii We also note that it is required standard practice for a listing broker to continue to submit the seller all offers and counter-offers until closing unless the sell has waived this obligation in writing. Standard of Practice 1-7; N.J.A.C. 11:5-6.4(h)(g)and(f)1.ii
Should the realtor have recommended the seller get legal counsel? We think so. REALTORS® shall recommend that sellers obtain the advice of legal counsel prior to acceptance of a subsequent offer except where the acceptance is contingent on the termination of the pre-existing purchase contract. Code of Ethics and Standards of Practice of the NAR, Article 1, Standard 1-7. Furthermore, it is the duty of a licensee to recommend that legal counsel be obtained whenever the interest of any party to a transaction seems to require it. N.J.A.C. 11:5-6.4(h)3(i)
(c) The Third Call…hasn’t come in yet.
#1 This is one-sided information, none of which has been verified. I use it only for illustration purposes in this article.
-Dan Posternock
***The information included in this newsletter is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls, letters and electronic mail. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.
(a) The First Call
A week or so ago I received a call from someone asking me to send a letter to a realtor “terminating” whatever relationship they may have had. She explained that she and her husband were unhappy with the service they were receiving, and, particularly incensed with what they perceived as a lack of assistance in acquiring a specific property. They wanted to make an offer but lacked confidence that it would be timely made thereby leaving them behind another interested buyer. They wished to make an offer through another realtor.
After getting permission to preserve my professional relationship with the first realtor by advising her of the “nasty gram” she was about to receive, I sent the letter. I also spoke with the new realtor to alert her that while I saw no problem with her making the offer on behalf of her new clients that, in my opinion, a commission fight may be in her future. We both agreed that such an issue would not occur unless her new clients’ offer was accepted over the other possible buyer. She decided to approach it with an “I’ll cross that bridge when I get to it” philosophy.
A week or so later I was on the phone with the new realtor about another transaction, so I inquired as to the status of the matter. She told me that her clients didn’t get the property. Apparently the sellers chose the other offer.
(b) The Second Call
Another week went by before I got a call from the husband of the woman who first called me. He tells me that he’s found out that he and his wife’s offer was for significantly more money with a quicker closing date. He was perplexed as to why he and his wife aren’t the ones buying the home. Did I say perplexed? Livid might be the better word. He wanted blood from realtor #1.
In short, this is what I was told.
1. Mr. & Mrs. made an offer to purchase their home many months ago. Before doing so, they acknowledged the dual agency relationship with the realtor. Their offer was rejected.
2. Mr. & Mrs. continued to look for other homes but always kept their eyes on this one. They would occasionally get updates from the realtor, but, more often than not, they would be the instigator of the communications. In retrospect, they were most bothered by the fact that they weren’t informed about price reductions along the way.
3. The first round of the recent “competing” offers occurred close in time, maybe the same day. Mr. & Mrs. offer was better than the other possible buyers.
4. The other possible buyer then counter-offered at a price curiously close and just above their offer. It was accepted and contracts were promptly prepared and signed.
5. The next day, while the parties were still under attorney review, Mr. & Mrs. made another offer, at a substantially better price with a quicker closing date. In all other respects the offers were comparable.
6. One of the two sellers initialed her receipt or acceptance on the offer sheet. The other was out of town. Its unknown if she returned during the attorney review period.
7. The sellers intend to sell the property to the buyer who offered less money and a later closing date.
Now for some questions
What, if any, affect did the “termination” letter have? Mr. & Mrs. changed from a “client” (person with whom the REALTOR® or REALTOR’S® firm has an agency or legally recognized non-agency relationship) to a “customer” (party to a real estate transaction who received information, services, or benefits but has no contractual relationship with the REALTOR®) Code of Ethics and Standards of Practice of NAR, Article 1, Standard 1-2. We note, however, that a REALTOR’S® obligation of absolute fidelity to its client’s interest does not relieve the licensee from the obligation of dealing fairly with all parties N.J.A.C. 11:56.4(a).
Was Mr. & Mrs. last offer a back-up offer? No, the term “back-up offer” means a written and signed offer to purchase an interest in real estate which is received by a licensee at a time when a previously executed contract pertaining to the same interest in real estate is pending and in effect, having survived attorney review if it was subject to such review. N.J.A.C. 11:5-6.4(b)1. In our example, the contract had not survived attorney review.
What should have been done with Mr. & Mrs. last offer? Offers obtained while previously executed contract is still pending attorney review must be presented in the normal course (24 hours after receipt). N.J.A.C. 11:5-6.4(h)(g)and (f)1.ii We also note that it is required standard practice for a listing broker to continue to submit the seller all offers and counter-offers until closing unless the sell has waived this obligation in writing. Standard of Practice 1-7; N.J.A.C. 11:5-6.4(h)(g)and(f)1.ii
Should the realtor have recommended the seller get legal counsel? We think so. REALTORS® shall recommend that sellers obtain the advice of legal counsel prior to acceptance of a subsequent offer except where the acceptance is contingent on the termination of the pre-existing purchase contract. Code of Ethics and Standards of Practice of the NAR, Article 1, Standard 1-7. Furthermore, it is the duty of a licensee to recommend that legal counsel be obtained whenever the interest of any party to a transaction seems to require it. N.J.A.C. 11:5-6.4(h)3(i)
(c) The Third Call…hasn’t come in yet.
#1 This is one-sided information, none of which has been verified. I use it only for illustration purposes in this article.
-Dan Posternock
***The information included in this newsletter is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls, letters and electronic mail. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.
Tuesday, March 16, 2010
Friday, March 5, 2010
Dan Posternock appointed as Corporate Counsel to AmCorp Leasing Consultants
The Law Offices of Barron and Posternock are pleased to announce that partner Daniel Posternock has been selected as national legal counsel to AmCorp Management and AmCorp Leasing Consultants. AmCorp helps businesses locate unknown operating capital through its expense analysis services such as lease auditing, cost segregation and property tax, utility and telecom audits. Mr. Posternock will counsel AmCorp's team through settlement negotiations and oversee claims and claims counsel across the nation.
Dan was selected to speak at AmCorp's 2010 Business Builders Conference, an intensive three day training conference devoted to sharing the most effective and profitable business practices, held in Maimi, FL, February 24th thru 26th.
Dan was selected to speak at AmCorp's 2010 Business Builders Conference, an intensive three day training conference devoted to sharing the most effective and profitable business practices, held in Maimi, FL, February 24th thru 26th.
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