- Harris v. Scarcelli et al. Case No. 15-2189, United States Court of Appeals for the First Circuit (August 19, 2016)
- The First Circuit affirmed summary judgment ruling of lower courts against a real estate broker who failed to demonstrate that he was entitled by contract or in equity under the Bankruptcy Code to a broker's commission in connection with a debtor's sale of its real estate assets. Based on the unambiguous terms of the relevant agreement, the First Circuit found that the appellant was not entitled to a commission as a claim under 11 U.S.C. Section 501 or by exercise of the bankruptcy court's equitable authority under Section 105.
- Procedural context:
- The matter was taken by the First Circuit on appeal from the United States District Court of Appeals, District of Maine's affirming the summary judgment ruling of the bankruptcy court in favor of the debtor and against the appellant real estate broker.
- Prior to the bankruptcy filing, in March 2011, the debtor limited partnership Oak Knoll Associates, L.P. (the "Debtor") had entered into a listing agreement (the "Agreement") with the broker-appellant Robert Harris ("Harris") to sell the Debtor's apartment building assets. per the Agreement, Harris would earn a commission if the property sold during the isx-month term. Harris was also entitled to a commission if an offer were accepted within six months of the termination of the initial six-month term resulting in a sale. The term would be automatically renewed if negotiations continued after the term until concluded. Harris eventually identified a buyer within the six-month term of the Agreement; however, that transaction never closed and negotiations did not continue such that the term of the Agreement would renew automatically. The Debtor's partners' relationship fractured and eventually, on March 18, 2013, the partnership filed for bankruptcy relief. Harris filed a proof of claim for the broker's fee he believed himself entitled to under the Agreement. The property eventually sold out of the Debtor's bankruptcy to the same party with whom Harris had been negotiating prepetition. The Debtor did not pay Harris any commission. The Debtor moved for and was granted summary judgment against Harris, a judgment that was affirmed by the District Court before Harris appealed to the First Circuit. In reviewing the appeal based on the summary judgment standard, the First Circuit found no material factual issue in dispute, even when reviewing the facts in a light most favorable to Harris. While Harris argued that he was entitled to his commission under the Agreement for the acceptance of the offer within the extended term of the Agreement, the First Circuit, based on a holistic reading of the Agreement, held that it was clear from numerous provisions of the Agreement that the commission was only earned upon a closing on a sale of the property, not merely acceptance of an offer. Thus Harris was not entitled to his commission as a claim under Section 501. Similarly, the First Circuit found no equitable basis under Section 105 for the payment of the commission. The court found that Harris failed to articulate any identifiable right from which the bankruptcy court could exercise its equitable authority under Section 105 because the Harris failed to demonstrate that he satisfied the requirements for equitable relief under the state law on which he was relying for his commission.
- Jeffery R. Howard, Chief Judge Juan R. Torruellla, Circuit Judge David J. Barron, Circuit Judge
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