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The Unlicensed Real Estate Broker in New York: Beware
The U.S. District Court for the Northern District of New York recently determined that because New York prohibits unlicensed real estate brokers from pursuing payment in its courts for services rendered, a plaintiff who performed real estate work for a client who then did not pay had no standing to sue. In addition, the plaintiff was not able to use the doctrine of quantum meruit to make an end-run around the state's prohibition on its courts' providing assistance to unlicensed real estate brokers. Howard Carr Cos. v. Cumberland Farms, 2019 U.S. Dist. LEXIS 24895. The case highlights the pitfalls of attempting to broker a commercial real estate deal without an official license from the state. When things don't work out just as agreed, the “broker” will often be left without recourse against a client who has made different plans.
Cut Out of a Deal?
Plaintiff Howard Carr Companies, Inc. (“the Howard Group” or “plaintiff”) is a commercial real estate broker in Albany, NY. It is not licensed as such in the State of New York, however. In June of 2013 the plaintiff entered into an agreement with defendant convenience store chain Cumberland Farms, Inc., and defendant commercial real estate developer First Hartford. The Howard Group agreed to scout out potential locations for development of future Cumberland Farms outposts. This it did, according to its complaint, by finding 126 potential locations that satisfied the defendants' stated criteria. The defendants then opened or made plans to open Cumberland Farms operations in at least ten of the 126 locations identified by the Howard Group, the plaintiff claimed. However, the plaintiff received none of the approximate $1 million it thought it was owed for its efforts on behalf of the defendants.
The defendants removed the suit to federal court and then sought dismissal under Federal Rule of Civil Procedure 12(b)(6). Before considering the merits of the motion, the court noted that “[w]hen ruling on a motion to dismiss [under section 12(b)(6)] the court must accept as true all of the factual allegations contained in the complaint and draw all reasonable inferences in the non-movant's favor.” Faiaz v. Colgate Univ., 64 F.Supp. 3d 336, 344 (N.D.N.Y. 2014).
Without a Contract, Should Plaintiff Recover in Quantum Meruit?
For the defendants' first argument in favor of dismissal, they noted that they had never entered into an agreement with the plaintiff with identifiable parameters, so any claim for breach of contract must fail. The plaintiff countered that it was not pursuing a claim for breach of a real estate commission contract, but instead sought recovery in quantum meruit for the reasonable value of the services it rendered to the defendants — i.e., its identification of 126 possible locations for Cumberland Farms stores.
To establish a claim for quantum meruit under New York law, a plaintiff must prove four elements. These are: “(1) the performance of services in good faith, (2) the acceptance of the services by the person to whom they are rendered, (3) an expectation of compensation therefor, and (4) the reasonable value of the services.” Mid-Hudson Catskill Rural Migrant Ministry Inc. v. Fine Host Corp., 418 F.3d 168 175 (2d Cir. 2005) (citation omitted).
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