Sanowicz v. Bacal

Opinion

INTRODUCTION

Plaintiff Hillel Sanowicz (Sanowicz) and defendant Ben Bacal (Bocal) are licensed real estate salespersons. Sanowicz alleges that he and Bacal agreed to share commissions earned by either of them on certain sales of real property, but that Bacal breached that agreement. Sanowicz sued both Bacal and Sotheby’s International Realty, Inc. (Sotheby’s), dismissing the latter shortly after filing suit. This appeal is from the judgment entered by the trial court sustaining without leave to amend Bacal’s general demurrer to Sanowicz’s first amended complaint. We hold that two licensed real estate agents may agree to share commissions earned under the circumstances we describe in this opinion. Thus, we reverse, determining that leave should be granted to amend on remand if Sanowicz can do so in a manner consistent with the legal principles discussed.

PROCEDURAL AND FACTUAL BACKGROUND

On September 13, 2012, Sanowicz, a licensed California real estate agent,^[2] filed his complaint against Sotheby’s, a licensed California real estate broker,

Sanowicz further alleged that Bacal falsely represented to him that Bacal was not continuing to work on the Sarbonne project even though Bacal “was going into escrow on Sarbonne the very next day” after he made that claim. Sanowicz alleged that Sarbonne was sold by Sotheby’s and Bacal (as broker and agent respectively) for approximately $14 million, with escrow closing on July 16, 2012. This was within two years of the date of the original contract between Sanowicz and Bacal to share commissions on the sale of this property.

In June 2012, prior to the sale of Sarbonne, Sanowicz asked Bacal to disclose what “joint projects” he continued to work on and “to document his prior arrangements with Sanowicz on the sharing of commissions.” In response, Bacal identified “a few projects and represented he was not working on others.” Based on these discussions, Sanowicz and Bacal entered into compensation-sharing agreements on still other projects.^[3] Sanowicz claims in his complaint that there are additional property transactions on which Bacal has earned commissions which are subject to the commission-sharing agreements but which Bacal has concealed from Sanowicz, with the result that Bacal owes Sanowicz additional commission income.

Sanowicz seeks one-half of the $210,000 agent’s commission Bacal received on the sale of Sarbonne, with interest. In addition, Sanowicz seeks one-half of the commissions earned on other sales made as required by their joint venture agreements.

The first amended complaint contained six causes of action: (1) for breach of fiduciary duty based on Bacal allegedly inducing Sanowicz to move from JBN to KW on the promise to share contacts and commissions and based on their partnership and “joint enterprise” arrangements; (2) for fraud for making the representations that induced Sanowicz to move to KW and to lull Sanowicz into not demanding that they enter into a new joint venture agreement “that addressed the move to Sotheby’s”; (3) for negligent misrepresentation; (4) for breach of contract to pay the half of commissions earned under their agreement on the Sarbonne transaction; (5) for conversion of the half of the commission earned by Bacal on the sale of Sarbonne which Sanowicz contends is due to him by reason of their commission-sharing agreement; and (6) for money had and received.

Bacal’s principal legal contention was that Business and Professions Code section 10137,^[5] which provides that it is unlawful for a real estate agent to accept compensation from any person other than the real estate broker under whom he or she is licensed, makes illegal the agreements alleged between Sanowicz and Bacal. On this premise, Bacal contended that all of Sanowicz’s claims for relief were barred by statute and could not survive the general demurrer, nor could the complaint be amended to state a valid claim for relief.

In addition to filing a legal memorandum in opposition, Sanowicz’s counsel filed his own declaration, to which were attached evidentiary materials. Bacal filed objections, generally challenging admission of any factual matters not the proper subject of judicial notice; he also objected to specified portions of the declaration and its attachments.

On October 3, 2013, the trial court issued its ruling by minute order which stated:

“The Demurrer filed by Defendant Ben Bacal to the First Amended Complaint is sustained without leave to amend.

“Under Business and Professions Code section 10137, a licensed real estate salesperson cannot contract in his/her own name, nor accept compensation from an [sic] person other than the broker under whom he/she is licensed. (See Grand v. Griesinger (1958) 160 Cal.App.2d 397 , 406 [ 325 P.2d 475 ].)

“Defendant’s Motion to Strike is moot.

“The case is ordered dismissed with prejudice.”

Plaintiff timely appeals from the judgment. A court order sustaining a demurrer without leave to amend is required to state “the specific ground or grounds upon which [its] decision or order is based.” (Code Civ. Proc., § 472d; see Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97 , 111 [ 55 Cal.Rptr.3d 621 ].) When a trial court sustains a demurrer without leave to amend in general terms, we must assume that the court ruled only on the general demurrer and not on the special demurrer. (Briscoe v. Reader’s Digest Association, Inc. (1971) 4 Cal.3d 529 , 544 [ 93 Cal.Rptr. 866 , 483 P.2d 34 ], overruled on other grounds in Gates v. Discovery

Sanowicz contends that this statute does not apply under the factual circumstances alleged in the first amended complaint because the commission-sharing arrangements between him and Bacal were merely agreements between two properly licensed agents working for the same broker “as agents for [that broker].”^[7] Sanowicz further contends that several of these arrangements were in writing, while others were oral. Thus, he argues that the statutory provision mandating that commissions be paid to brokers does not bar payments pursuant to commission-sharing arrangements once the broker has received the commission.^[8]

Bacal’s contrary contention, accepted by the trial court, is that section 10137 mandates that the broker be a party to every commission transaction and that the absence of the broker’s signature on the commission-sharing agreements in the record is fatal. Implicit in the ruling below is that agreements among agents to share commissions are illegal if not in writing and signed by the supervising broker.

Sanowicz relies on the statutory language, which on its face does not preclude the written or oral commission-sharing arrangements he alleges he and Bacal made. Bacal’s rejoinder is premised on the second paragraph of section 10137, which clearly forbids a real estate agent from paying to, or accepting any compensation from, any person other than a broker, as well as on the third paragraph of that section which makes it unlawful for any agent to pay any compensation to any other person “except through the broker

Grand v. Griesinger, supra, 160 Cal.App.2d 397 , explains the broker-agent relationship in the following terms. “The entire statutory scheme [(including § 10177, subd. (h))] requires the broker ... to supervise the activities of his salesmen [(real estate agents)]. . . .” (Id. at p. 406.) “It is evident that brokers and [agents] belong in distinctly different categories and ... the broker, because of his superior knowledge, experience and proven stability is authorized to deal with the public, contract with its members and collect money from them; the salesman, on the other hand, is strictly the agent of the broker. He cannot contract in his own name [citations], nor accept compensation from any person other than the broker under whom he is licensed; it is a misdemeanor for anyone ... to pay or deliver to anyone other than the broker compensation for services within the scope of the act. (§ 10138.)” (Id. at p. 406, italics added; accord, Schaffter v. Creative Capital Leasing Group, LLC (2008) 166 Cal.App.4th 745 , 757 [ 83 Cal.Rptr.3d 19 ].)

Sanowicz does not dispute the nature of the broker-client relationship and the need for written contracts in that relationship, or the restrictions on persons to whom the commissions on real estate transactions are paid— initially. Instead, Sanowicz distinguishes the application of these statutes and the cases upon which Bacal relies for his contention, arguing that “the core premise of the demurrer was without merit.” Thus Sanowicz argues that Bacal misinterprets the scope of section 10137, instead contending that section 10137 does not apply to commission-sharing arrangements in and among the licensed broker and any licensed agents working for that broker, or between licensed real estate agents themselves — so long as the restrictions on the manner of payment are maintained. In support of his contention Sanowicz argues, “it is undisputed that at all relevant times, both parties were licensed real estate agents”; they were both working for a licensed broker (KW) when they entered into the agreements at issue; the work for which Sanowicz seeks to implement that commission-sharing agreement was made while he was working at KW; and there is nothing in section 10137 that makes their agreement illegal. Sanowicz further contends that section 10137 only requires that the payment be made “through the broker under whom [the agent] is at the time licensed.”^[9]

These restrictions, while broad, are not as encompassing as Bacal contends. Thus, (1) a broker may share a commission with the unlicensed principal in the transaction because the principal is not performing acts for which a real estate license is required (Williams v. Kinsey (1946) 74 Cal.App.2d 583 , 592-593 [ 169 P.2d 487 ]); (2) when an unlicensed person performs both activities that require a license and activities that do not require a license, he or she may recover for the latter if that portion of the contract is severable and there is separate legal consideration for the severed portion of the agreement (see Mailand v. Burckle (1978) 20 Cal.3d 367 , 384 [ 143 Cal.Rptr. 1 , 572 P.2d 1142 ] [franchise agreement severed; potential for recovery on severed portion acknowledged]); and (3) the statute of frauds does not bar recovery by an agent of commissions due him or her based on an oral contract (Civ. Code, § 1624, subd. (a)(4) [by exclusion]; Gorham v. Heiman (1891) 90 Cal. 346 , 358 [ 27 P. 289 ]; Iusi v. Chase, supra, 169 Cal.App.2d at p. 86).^[10]

Bacal relies on three key circumstances in support of his contention: (1) the absence of the broker’s signature on the commission sharing writings (exhibits A and B to the first amended complaint); (2) the absence from the first amended complaint of an allegation that the broker had approved the purported agreements between the agents to share commissions; and (3) Grand v. Griesinger, supra, 160 Cal.App.2d 397 , which he contends states that only a broker may sue for real estate commissions.

Bacal errs in his underlying premise. The gravamen of Sanowicz’s complaint is not a suit to collect the commission due to the broker. Instead, Sanowicz is suing to collect a portion of the commissions already paid to the broker; it is based on the allegation that the commissions already have been paid to the broker KW that Sanowicz seeks to enforce the commission-sharing arrangements which he alleges he had made with Bacal (with the knowledge and consent of KW). Sanowicz also alleges that the commission on the Sarbonne sale has already been paid to Sotheby’s. He is suing to collect “his portion” of commission already paid to brokers based on the

Neither party has cited a case which addresses the application of section 10137 to the sharing of commissions among real estate agents, nor has the court’s independent research located a case directly on point.^[12]

We turn to examine the statute itself. In doing so, we note that if its language is clear and unambiguous there is no need for judicial construction. “[W]e are guided by the well-established principle that our function is to ‘ascertain the intent of the lawmakers so as to effectuate the purpose of the law.’ [Citation.] We determine such intent by first focusing on the words used by the Legislature, giving them their ordinary meaning. [Citation.]” (California School Employees Assn. v. Governing Board (1994) 8 Cal.4th 333 , 338 [ 33 Cal.Rptr.2d 109 , 878 P.2d 1321 ].)

In this case, the plain meaning of the statute at issue^[13] is clear, as is the scope of actions that the statute is intended to address. They are exactly those subjects clearly set out in the statute — nothing more and nothing less. As relevant to this matter, the statute addresses the rules on payment of compensation by brokers to agents — and by agents. It closely limits these activities, but it does not forbid them entirely. In stating that an agent may

As the Legislature did not forbid commission-sharing arrangements between agents (or between brokers, or between brokers and agents), there is no support for the general demurrer argument upon which Bacal prevailed below.

Cause of action for conversion

Sanowicz also addresses the separate theory which Bacal advanced below as to why the fifth cause of action, for conversion, was defective for reasons independent of section 10137. He may be doing this based on the circumstance, noted above, that we may affirm on any basis, even one not considered below.

As pied by Sanowicz, this claim incorporates by reference all of the preceding 48 paragraphs of the complaint.^[15] Sanowicz then alleges that defendants have “absconded with or diverted funds in the amount of $210,000 to themselves . . . and [have] taken joint venture assets . . . [and] have converted one-half of the $210,000, or $105,000 that properly belong[ed] [to Sanowicz] ... to themselves.”

To establish a viable cause of action for conversion, Sanowicz must establish an actual interference with his ownership or right of possession of property. (Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal.App.3d 593 , 610 [ 176 Cal.Rptr. 824 ].) To do that he must have “either ownership and the right of possession or actual possession [of the property] at the time of the alleged conversion thereof.” (General Motors Acceptance Corp. v. Dallas (1926) 198 Cal. 365 , 370 [ 245 P. 184 ].) “[A] mere contractual right of payment, without more, will not suffice” to support a claim for conversion. (Farmers Ins. Exchange v. Zerin (1997) 53 Cal.App.4th 445 , 452 [ 61 Cal.Rptr.2d 707 ].)