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Ballou v. Master Properties No. 6: Broker Awarded Compensatory and Punative Damages Against Vendor for Fraud

In Ballou v. Master Properties No. 6, the California Court of Appeal addressed a broker's allegations of fraud against a seller of real estate. The court reversed an order for new trial on damages, affirmed the finding of fraud, and affirmed the award of a $138,000 commission and $2 million in punitive damages.

Traweek was the president of Traweek Investment Company (TIC). Master Properties No. 6 (MP6), acting through TIC, purchased an apartment building for over $4 million and paid TIC a commission. Three months later, the building was back on the market with an asking price of $5.7 million. At trial, Traweek testified about an "entrepreneurial theory" for the sale of the building. Traweek contended that there was a net price which the partners were willing to accept, and that any amount over that net price was to go to the broker.

Ballou, a licensed broker, contended she was never told the selling price was a net price, but rather that she was promised a commission at a certain flat percentage. Ballou's company eventually found a buyer, Sobel, who was willing to pay $5.4 million with $1.3 million down in cash. One of Ballou's agents, Codron, testified that she met with King, a TIC employee, regarding the commission. King told Codron there was a problem with the deal because TIC promised its limited partners a guaranteed amount on their investment, which left only $100,000 for the commission. Codron was told there were no other brokers. Traweek later told Ballou the commission would have to be cut to $50,000, as this was all that was available. Traweek also insisted then that there were no other brokers who would be paid a commission. Ballou later learned that TIC itself was given a $222,000 commission. She sued Traweek, TIC, and MP6, alleging breach of contract and fraud. A jury found for Ballou, awarded her $138,000 in compensatory damages and $2 million in punitive damages. Defendants were granted a new trial on the issue of damages. Ballou appealed the grant of new trial and the defendants cross-appealed.

The Court refuted defendants' argument that the evidence did not show misrepresentation. The defendants also alleged that any misrepresentation was immaterial and, in any event, the plaintiffs were not damaged. The defendants claimed they never denied TIC was taking a commission, but merely stated there were no "outside" brokers taking a commission. Ballou testified that when she asked Traweek about the existence of other brokers, he told her "We wouldn't want to take it from you and give it to someone else." The court found that this is exactly what happened, and that every dollar cut from Ballou went to Traweek and TIC. The court concluded that the record contained several such misrepresentations and supported the conclusion that the defendants engaged in a campaign of calculated deception. The court found the misrepresentation was material, as Ballou would not have taken the reductions had she known other commissions were being paid. Further, the plaintiffs were damaged as they went from $324,000 to $50,000.

The Court also addressed the level of damages awarded. The court noted that a jury had the right to determine what a fair price for the plaintiff's services would have been. The court concluded that an equal division of the total commission ($275,000) was equitable. Further, this amount was reasonable in light of the plaintiffs' claim that they were initially promised a certain commission percentage. While the defendants did not challenge the award of punitive damages as excessive, the court noted that under the circumstances, the $2 million award was not disproportionate. Thus, both damages awards were affirmed.

Ballou v. Master Properties No. 6, 189 Cal. App. 3d 65, 234 Cal. Rptr. 264 (Cal. Ct. App. 1987).