From Massachusetts Lawyers Weekly
Suit claims client was misleading on exclusivity of contract
Ruling sends a message
A finance broker could pursue an unfair trade practices claim based on allegations that a former client misled it as to the exclusivity of its contract to secure funding for a property development, the Appeals Court has ruled in reversing summary judgment.
In 2018, plaintiff Boston Capital Funding entered into an agreement with defendant BEK Winchester Winning Farm. On its face, the agreement appeared to grant Boston Capital exclusive authorization to act on BEK’s behalf in procuring equity for the client’s development project.
Unbeknownst to the plaintiff, BEK previously had entered into an agreement with another broker to procure financing for the project. When the other broker produced the required financing shortly ahead of a critical deadline, BEK informed the plaintiff that its services were no longer required.
The plaintiff sued BEK for breach of contract and violation of Chapter 93A, but Superior Court Judge Cathleen E. Campbell granted the defendant’s motion for summary judgment as to both claims.
On review, a three-judge panel of the Appeals Court concluded that the purported exclusivity agreement was not binding due to the absence of consideration, meaning that the plaintiff could not establish breach of contract.
However, the panel departed from the lower court’s decision by concluding that the plaintiff had a viable Chapter 93A claim.
“[O]n BCF’s c. 93A claim, where there is evidence from which one could conclude that BEK enticed BCF to work on its behalf by intentionally misrepresenting the exclusivity of BCF’s authorization, summary judgment should not have entered,” Judge Andrew M. D’Angelo wrote for the unanimous panel.
The 15-page decision is Boston Capital Funding, LLC v. BEK Winchester Winning Farm LLC, Lawyers Weekly No. 11-121-23.
Alarm bells for brokers?
Plaintiff’s counsel Shannon F. Slaughter of Andover said the decision sends a message to the brokerage community in terms of what brokers need to include in their contracts.
“My client entered into an engagement agreement,” Slaughter said in explaining the plaintiff’s contract claim. “They were ‘engaged’ to do something, so in that sense it was implied that there was an obligation on my client’s part to perform brokerage services.”
Slaughter believes her client has a compelling case for unfair trade practices.
“Certainly, we’re pleased [with the result] on the 93A count. If there ever was a 93A cause of action, this is certainly it,” she said. “My client was promised exclusivity right from the get-go. It is in the contract. My client never would have moved forward with the agreement had [the company] been told the true arrangement that [BEK and BEK principal Eric M. Katz] had with the other broker.”
Slaughter added that she feels confident in her client’s case for treble damages under Chapter 93A.
“[With the defendant] knowing that there was an alternate arrangement for raising equity, also on an exclusive basis, and telling that other party just days after signing this agreement with my client to ‘put the pedal to the metal’ on raising funding — I don’t see how that can’t be a willful and knowing violation of the statute,” she says.
“Sometimes courts are willing to ‘push the envelope’ on expanding the relationship between commercial parties. They’ve absolutely done that here.”
David R. Suny, a Boston real estate and litigation attorney, said the case provides a good example of how courts may view business relationships.
“Sometimes courts are willing to push the envelope on expanding the relationship between commercial parties,” Suny said. “They’ve absolutely done that here.”
According to Suny, the ruling has broad implications for the brokerage community at large.
“Anyone who engages in exclusive rights contracts — which of course happen all the time in residential real estate and with commercial leasing and sale brokerage agreements — must be careful with the language they use,” Suny said. “If you’re the broker, you have to make sure the language creates a promise in order for it to be a binding contract.”
Andrew P. Botti, a business litigator in Andover, said the decision on the plaintiff’s contract claim turned on the fundamental distinction between unilateral and bilateral agreements.
“The court found the [plaintiff’s agreement] to be a unilateral promise rather than a contract supported by consideration,” Botti said.
On the other hand, Botti said he viewed the case as a “close call” because the purported consideration given by the first broker did not seem much different from what was promised by the plaintiff.
“This case makes a very fine distinction as to what constitutes adequate consideration and what doesn’t,” Botti said.
Botti did agree that there was sufficient evidence for the plaintiff’s 93A claim to survive summary judgment.
“93A is a very powerful and positive tool when it comes to certain business transactions and what can be construed as ‘unfair’ and ‘misleading,’” Botti said. “In this case, the finance company was performing work for the developer in terms of attempting to get financing and was under the impression that it was the exclusive company doing so when it wasn’t. When you see the word ‘exclusive’ in your contract, if you’re a lay person — and even if you are an experienced businessperson — you’re going to think, ‘That means me and nobody else.’”
Defendant BEK is represented by Boston attorney Richard Joyce, who did not respond to a request for comment.
Bait and switch?
According to court records, on April 4, 2017, BEK contracted with Newmark Real Estate of Massachusetts to procure financing for a project to develop land in Winchester. Under an agreement with the seller of the land, BEK was required to provide proof of financing by April 12, 2018. That deadline would later be extended by several months.
Under BEK’s contract with Newmark, the defendant granted the broker “the exclusive right to arrange Commercial Financing” for 18 months, with Newmark agreeing to “use its commercially diligent efforts to procure Commercial Financing from any Referral Source.” Under the agreement, BEK agreed to pay Newmark a $200,000 fee upon its successful procurement of financing.
Newmark was unable to arrange the necessary financing for the project by the beginning of April 2018. In light of the approaching deadline, BEK looked for alternate brokers to meet its financing needs.
On April 30, 2018, BEK entered into an “Engagement Agreement” under which the defendant granted Boston Capital “exclusive authorization to act on [BEK’s] behalf in the procurement of Equity for” the Winchester project. Under the agreement, BEK paid Boston Capital a $2,500 retainer and promised the broker 3 percent of any equity funding secured for the project.
With contract in hand, Boston Capital worked to procure equity for the defendant’s project, in the process allegedly foregoing other business opportunities.
On June 3, 2018, BEK sent Boston Capital an “offering document” that noted that Newmark had also been granted the right to procure equity for the project.
Boston Capital Funding, LLC v. BEK Winchester Winning Farm, LLC
THE ISSUE: Could a finance broker pursue an unfair trade practices claim based on allegations that a former client misled it as to the exclusivity of its contract to secure funding for a Winchester property development?
DECISION: Yes (Appeals Court)
LAWYERS: Shannon F. Slaughter of Dalton & Finegold, Andover (plaintiff)
Richard Joyce and Marshall F. Newman, of Newman & Newman, Boston (defense)
However, Boston Capital’s Kevin Hearn allegedly failed to read the portion of the document referencing the brokerage agreement with Newmark.
On June 18, 2018, Newmark procured $4 million in financing for the Winchester project. The following day, BEK sent an email informing Boston Capital that its services were no longer needed and requesting that the broker return its $2,500 retainer.
Boston Capital responded by suing BEK and BEK’s principal, Katz. The Superior Court suit included claims for breach of contract and violation of G.L.c. 93A. The parties submitted cross motions for summary judgment.
Campbell granted the defendant’s motion for summary judgment as to both breach of contract and unfair trade practices.
Chapter 93A claim revived
In affirming the dismissal of Boston Capital’s contract claim, D’Angelo wrote that, notwithstanding the “exclusive authorization” language in the parties’ engagement agreement, the contract merely constituted a revocable offer under which BEK promised to pay Boston Capital a commission if it procured equity for the project.
Because BEK was permitted to revoke its offer before Boston Capital procured any equity, the judge wrote, the defendant had no liability for breach of contract.
“The issue presented turns on the distinction between unilateral and bilateral contracts …,” D’Angelo wrote. “With respect to an offer for a unilateral contract, the offeree must perform an act to form a binding contract, and the act operates as the manifestation of mutual assent and consideration. Until the offeree performs the act, thereby providing mutual assent and consideration, the offeror may revoke the offer at any time.”
He explained that the mere statement that an offeree has the exclusive right to perform does not alter the revocable nature of an offer for a unilateral contract.
“To make the exclusivity binding, the parties must enter into a bilateral contract whereby the offeree makes a promise,” D’Angelo wrote.
The plaintiff argued that its “promise” in the engagement agreement came by virtue of the contract’s authorization for Boston Capital to share BEK’s financial information in its efforts to secure equity funding.
D’Angelo wrote that any such authority was insufficient to show a promise to act for purposes of forming a binding contract.
“BCF was a passive recipient of that authorization; BCF did not affirmatively promise that it would share BEK’s personal and business financial information with a proposed equity participant,” D’Angelo wrote. “In these circumstances, BCF had to perform the act (i.e., procure the equity) to form a binding contract.”
On the other hand, the panel found that there was a sufficient showing by the plaintiff that BEK engaged in intentional misrepresentation for purposes of allowing Boston Capital’s Chapter 93A claim to proceed to trial.
“[I]nstead of being upfront about the circumstances and disclosing that BCF was in a race with Newmark, BEK enticed BCF to work on BEK’s behalf by signing an agreement misrepresenting that BCF had ‘exclusive authorization’ to act on BEK’s behalf in procuring equity for the project,” D’Angelo wrote. “Relying on BEK’s misrepresentation, BCF forwent other opportunities and exerted efforts to procure equity for the project. These facts, if proven at trial, could support a judgment of liability on BCF’s c. 93A claim.”