Court of Appeals Affirms Judgment Awarding Damages for Breach of Implied-in-Fact Contract for Broker’s Services
On March 7, 2013, the District of Columbia Court of Appeals decided Steuart Investment Co. v. Meyer Group, Ltd., Nos. 11-CV-20 & 11-CV-346, slip op. (D.C. Mar. 7, 2013) in which it considered a case arising from a dispute over a commission claimed by a commercial real estate broker (the “plaintiff-broker”) for assisting a landlord (the “defendant-landlord”) with negotiating a long-term, multi-million-dollar lease agreement between the defendant-landlord and a tenant. Id. at 1-2.
In the proceedings below, the trial court ruled, inter alia, that the plaintiff-broker and the defendant-landlord were parties to an implied-in-fact contract (i.e., a contract that was not expressly stated but that could be inferred from the parties’ conduct). Id. at 8-9, 11. It further ruled that, pursuant to the implied-in-fact contract, the plaintiff-broker was entitled to receive for its services a commission of three percent of the aggregate amount of the lease agreement, exclusive of rent escalations. Id. at 8-9. The trial court awarded damages to the plaintiff-broker accordingly. Id. However, it denied the plaintiff-broker’s request for prejudgment interest. Id.
Both parties appealed the trial court’s judgment. The defendant-landlord challenged, inter alia, the trial court’s ruling that the parties were bound by an implied-in-fact contract. Id. at 2. The plaintiff-broker challenged the trial court’s rulings not to include rent escalations in determining the aggregate amount of the lease agreement, and not to award prejudgment interest. Id.
The Court of Appeals affirmed the trial court’s judgment. First, the Court of Appeals affirmed the trial court’s ruling that the parties had an implied-in-fact contract requiring the defendant-landlord to pay a three-percent commission to the plaintiff-broker. Id. at 10-22. It explained that, to establish the existence of an implied in fact contract for a broker’s services, a broker must show (1) “that the services were carried out under such circumstances as to give the recipient reason to understand that the services were rendered for the recipient and not for some other person,” (2) “the existence of such circumstances as to put the recipient on notice that the services were not rendered gratuitously,” and (3) “the services were beneficial to the recipient.” Id. at 11 (internal quotation marks omitted). The Court of Appeals found that each of the aforementioned elements was fulfilled because, respectively, (1) there was written correspondence providing “concrete proof” that the defendant-landlord understood that the plaintiff-broker was negotiating the lease agreement with “every expectation” that the defendant-landlord would pay a three-percent commission and “everyone knew such an arrangement was standard practice in the industry,” id. at 12-17, (2) the plaintiff-broker repeatedly asserted in written correspondence to the defendant-landlord that its services were being provided with the expectation of receiving a three-percent commission and this expectation was consistent with standard industry practice, id. at 17-20, and (3) the defendant-landlord benefited from the plaintiff-broker’s services as demonstrated by, inter alia, evidence that the plaintiff-broker assisted with drafting the lease agreement, acted as an intermediary between the defendant-landlord and the tenant, etc., id. at 20-22.
Second, the Court of Appeals affirmed the trial court’s ruling that rent escalations should not be included in determining the aggregate amount of the lease agreement and thus the amount of the commission. Id. at 22-27. It explained that the implied-in-fact contract was ambiguous as to whether rent escalations would be included and thus the trial court was required to make a factual finding (based on extrinsic evidence) regarding the intent of the parties. Id. at 25-26. The trial court made such a finding and specifically concluded that the defendant-landlord did not contemplate that rent escalations would be included in determining the aggregate amount of the lease agreement. Id. at 26. It based that finding on, inter alia, evidence that in a prior transaction between the parties involving another lease agreement rent escalations were excluded. Id. at 25. The Court of Appeals concluded that the trial court’s factual finding was adequately supported by the evidence. Id. at 26-27.
Third, the Court of Appeals affirmed the trial court’s ruling that the plaintiff-broker was not entitled to an award of prejudgment interest. Id. at 27-31. It explained that the D.C. Code “requires the award of prejudgment interest if (1) the action is one to recover a liquidated debt, and (2) interest is payable on that debt by contract or by law or usage.” Id. at 27 (internal quotation marks omitted; citing, inter alia, D.C. Code § 15-108 (2001)). It further explained that “[a] liquidated debt is one which at the time it arose was an easily ascertainable sum certain.” Id. (ellipse and internal quotation marks omitted). Applying these principles, the Court of Appeals ruled that the plaintiff-broker was not entitled to prejudgment interest for two reasons: (1) the commission was not easily ascertainable (and thus was not a “liquidated debt”) as there was a legitimate dispute between the parties over whether the aggregate value of the lease agreement included rent escalations; and (2) there was no evidence that the defendant-landlord owed prejudgment interest on the alleged liquidated debt pursuant to agreement or as a matter of practice in the real estate industry. Id. at 28-30.
To view the Court of Appeals’ opinion, click here.