A New York court has considered whether a real estate broker for a developer breached his fiduciary duty when he steered customer away from lots owned by the developer but were not part of the broker’s listing agreement.
Reiser, Inc. (“Developer”) developed a subdivision. The Developer entered into a listing agreement with real estate brokerage company Roberts Real Estate (“Broker”) to market six of the lots in the subdivision as well as sell the Developer’s principals own home. The Broker successfully located buyers for two of the six lots as well as the principal’s home. However, the Developer refused to pay the Broker a commission from the sales and instead filed a lawsuit against the Broker alleging misrepresentation, breach of contract, and breach of fiduciary duty. The Broker counterclaimed for breach of contract. The Broker filed a motion seeking judgment in its favor on all issues, and the trial court denied the motion. The Broker appealed.
The New York Supreme Court, Appellate Division, Third Department, modified the decision of the trial court. The court considered the first allegations made by the Developer, which were that the Broker fraudulently induced the Developer into listing his properties with the Broker by telling the Developer that the Broker had previously marketed the properties in another nearby development, which was untrue. The Developer claims that it detrimentally relied upon this alleged fraudulent misrepresentation and so should be allowed to rescind (or cancel) the listing agreement. The court found there were sufficient facts alleged to allow these allegations to proceed, and so the court affirmed the trial court’s ruling as far as the subdivision listing agreement. However, the court found that the fraudulent inducement allegations did not involve the residential listing agreement, and so the court entered judgment in favor of the Broker on those allegations.
Next, the court considered the breach of contract allegations made by both parties. The court found that the listing agreements were clear in their terms, and so the Broker was contractually entitled to a commission under both listing agreements. Therefore, the court rejected the Developer’s breach of contract allegations. The court entered judgment in favor of the Broker on the residential listing agreement, but stated that it would be premature to enter judgment on the subdivision listing agreement because of the unresolved factual issues in the fraudulent inducement allegations.
Finally, the court considered the Developer’s breach of fiduciary duty allegations. The Developer alleged that when customers expressed interest in other subdivision properties owned by the Developer but not listed with the Broker, the Broker would steer the customers toward the properties which were part of the Broker’s listing agreement. The Developer alleged that this was a breach of the Broker’s duty of loyalty to the Developer, since the Developer owned those parcels as well and stood to benefit from their sale. The court rejected the Developer’s argument, finding that the Developer chose not to list those properties with the Broker and so the Broker had no obligation to steer customers towards those properties. The court analogized it to a situation where two brokers are each given a portion of a development to market and there is no obligation for one broker to send customers over to inspect the other broker’s properties. The court found that the Developer’s allegations failed to allege a breach of fiduciary duty, and so the court ruled in favor of the Broker on these allegations as well.
Reiser, Inc., v. Roberts Real Estate, 739 N.Y.S.2d 753 (N.Y. App. Div. 2002).