Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-98-07022/USCOURTS-caDC-98-07022-0/pdf.json

Parties Involved:
Stephen A. Goldberg
Appellee
Remsen Partners, LTD
Appellant
The Stephen A. Goldberg, Co.
Appellee

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued January 19, 1999 Decided March 26, 1999

No. 98-7022

The Stephen A. Goldberg, Co., and

Stephen A. Goldberg,

Appellees

v.

Remsen Partners, Ltd.,

Appellant

Appeal from the United States District Court

for the District of Columbia

(No. 96cv02742)

George R. Clark argued the cause and filed the briefs for

appellant.

Paul A. Kaplan argued the cause for appellees. With him

on the brief was James W. Gladstone.

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Before: Edwards, Chief Judge, Williams, Circuit Judge

and Buckley, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge Williams.

Williams, Circuit Judge: Pursuant to a 1992 Letter Agreement, the Stephen A. Goldberg Company ("the Goldberg

Company" or the "Company") retained Remsen, a New Yorkbased financial consulting services corporation, to serve as a

financial advisor to the Company. The goal was to arrange a

$122 million "securitized" refinancing of various Maryland

and Virginia apartment complexes managed by the Goldberg

Company and owned by limited partnerships controlled by

Stephen Goldberg. According to the record securitized financing is a method of raising money by creating marketable

securities from an income-producing asset. See also Steven

L. Schwarcz, The Alchemy of Asset Securitization, 1 Stan.

J.L. Bus. & Fin. 133, 133 n.1 (1994). Here the parties used a

mortgage loan as the asset, transferred the loan to a trust

fund, and then sold ownership interests in the trust fund to

investors. In consideration for Remsen's services, the

Goldberg Company agreed to pay Remsen a one-percent

contingent fee on completion of the financing, as well as

various post-closing consulting fees.

The financing was successfully completed in January of

1993. The Goldberg Company made the agreed payments

until sometime in 1994. It then stopped making payments on

the balance of the post-closing fees, although it continued to

make them on the closing fees and on the first-year consulting fees until January 1997.

In November 1996 the Goldberg Company filed this complaint against Remsen in the Superior Court of the District of

Columbia, seeking a declaratory judgment that the parties'

agreement was void and unenforceable because Remsen was

not licensed as a real estate broker, as required by the

District of Columbia Real Estate Licensure Act of 1982, D.C.

Code ss 45-1921, et seq. (the "Brokerage Act"). The

Goldberg Company also sought damages and rescission of the

parties' agreement for alleged fraud and misrepresentation.

Remsen removed the case to the United States district court

on the basis of diversity. It also filed a counterclaim against

the Goldberg Company and a third party complaint against

Stephen Goldberg, alleging breach of contract by both of

them. The district court granted summary judgment for the

Goldberg Company, holding that the agreement was unenforceable and void because the Brokerage Act was applicable

to the transaction. Since the district court held that the

Letter Agreement was void and unenforceable, it did not

reach the merits of Remsen's counterclaim. The district

court also, entirely on the basis of the Brokerage Act violation, ordered Remsen to return all the money that the

Company had paid under the Letter Agreement ($1,078,045).

We affirm the district court's holding that the agreement

was not enforceable. On the issue of recovery, we find

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ourselves in enough doubt about the course of District of

Columbia law that we certify the question to its Court of

Appeals.

* * *

The Brokerage Act imposes a licensing requirement on

those engaging in real estate brokerage activities. D.C. Code

s 45-1926(a). Individuals conducting real estate brokerage

services without licenses may not "bring or maintain any

action in the courts of the District for the collection of

compensation" for any such services. Id. s 45-1926(c). At

the time of this transaction Remsen was not licensed as a real

estate broker under the Act, and the Goldberg Company

contends that this renders the Letter Agreement void and

unenforceable.

Remsen's first argument on appeal is that as applied in this

case the Brokerage Act violates the commerce clause. But

since Remsen never argued that question before the district

court, we decline to hear it for the first time on appeal. See

Boehner v. Anderson, 30 F.3d 156, 162 (D.C. Cir. 1994).

Remsen also contends that New York rather than D.C. law

governs the enforcement of the agreement, and that under

New York law Remsen was not required to be licensed as a

real estate broker to perform the services required by the

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Agreement. Finally, Remsen insists that even if we find D.C.

law applies to this transaction, its services should not be

construed as "brokerage" services under that law.

In resolving the conflict of laws issue the district court

found that Remsen's activities were illegal under both New

York and D.C. law, so that there was a "false conflict." Thus

it applied D.C. law. Remsen contests the "false conflict"

analysis. New York real estate licensure law, Remsen contends, does not cover the kind of services rendered by

Remsen. We do not decide the issue, since we hold that even

if the conflict is not false, D.C. law would apply.

In a diversity case a federal court follows the choice-of-law

rules of the jurisdiction in which it sits. Gray v. Grain

Dealers Mutual Ins. Co., 871 F.2d 1128, 1129 (D.C. Cir. 1989).

The District states that (in the absence of an effective choice

of law by the parties1) it uses "a constructive blending" of the

"governmental interest analysis" and the "most significant

relationship test," the latter as expressed in the Restatement

(Second) of Conflict of Laws s 188 (1988). Hercules & Co.,

Ltd. v. Shama Restaurant Corp., 566 A.2d 31, 41 n.18 (D.C.

1989); see also Ideal Electronic Security Co. v. Int'l Fidelity

Ins. Co., 129 F.3d 143, 148 (D.C. Cir. 1997) (stating that

District applies s 188 for contracts cases). But the Restatement itself notes that for certain types of contracts, including

those for services (as here), "it is considered possible to state

with respect to each that ... a particular contact plays an

especially important role." Restatement, Ch. 8, Topic 1, Title

B, "Introductory Note." There does not appear to be an

established hierarchy in the application of these concepts.

See Kermit Roosevelt III, "The Myth of Choice of Law:

Rethinking Conflicts," 98 Mich. L. Rev. ___, ___ (1999) (noting "dizzying number of factors" made relevant by Restatement with little hint as to their relative weight). In any

event, for the reasons developed below we find the results

somewhat inconclusive by all methods, and ultimately follow a

__________

1 Remsen invokes a later loan agreement with a choice of law

clause, but of course this does not govern the earlier Letter

Agreement in dispute here.

method the District has used to break a tie between its own

law and that of another jurisdiction--namely the efficiency of

using its own.

For the validity of a service contract, the Restatement

assigns presumptive weight to the place where the services

are to be rendered, see Restatement s 196, reasoning that

this is most likely both to accord with the assumptions of the

parties and to allow control by the state with the greatest

interest. But this factor does not point with certainty. Several Remsen employees spent weeks in the District gathering

data and dealing with other professionals working on the

transaction, but Remsen also reviewed and analyzed the data

in New York.

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The five factors named in s 188 as determinants of a

"significant relationship" are: (1) the place of contracting; (2)

the place of negotiation; (3) the place of performance; (4) the

location of the contract's subject matter; and (5) the domicile,

residence, nationality, place of incorporation and place of

business of the parties. Id. s 188. Place of performance

(#3) we have already discussed.

The other factors--taken without any prioritization--do

little to help. One, the place of negotiation (#2), points to the

District. The subject matter of the contract (#4), real property in Virginia and Maryland, points to neither New York

nor the District, and neither party is urging the application of

the laws of Virginia or Maryland. The place of contracting

(#1) is uncertain. It is undisputed that Goldberg signed the

agreement in the District, while Remsen signed it in New

York. But the parties disagree as to where the last signature--the last act necessary to make the agreement binding--occurred. In any event, under the Restatement the

place of contracting standing alone is typically viewed as

rather insignificant, especially when it was fortuitous. Id.

s 188, cmt. e; Finance America Corp. v. Moyler, 494 A.2d

926, 929 (D.C. 1985). And the parties' places of business are

divided: while the Goldberg Company is a District corporation and Mr. Goldberg maintains his office in the District,

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Remsen is a Delaware corporation with offices in New York

but operating around the country.

In s 188, the Restatement itself states that where place of

negotiation and performance coincide, that place should generally control, s 188(3), noting in the comment that the state

with those contacts "will usually be the state that has the

greatest interest in the determination of issues arising under

the contract." Id. cmt. f. As we've said, the place of

negotiation points to the District, and the place of performance is equivocal. The District, however, inquires independently into which jurisdiction has the greatest interest in the

subject. See, e.g., District of Columbia Insurance Guaranty

Association v. Blair, 565 A.2d 564, 568 (D.C. 1989); Hercules

& Co., 566 A.2d at 41 n.18; Kaiser-Georgetown Community

Health Plan, Inc. v. Stutsman, 491 A.2d 502, 509 (D.C. Cir.

1985); Fowler v. A & A Co., 262 A.2d 344, 348 (D.C. 1970).

Here, the purpose of the brokerage statutes in both New

York and the District is to protect those who enter into

agreement with unlicensed real estate brokers. See Galbreath-Ruffin Corp. v. 40th & 3rd Corp., 19 N.Y.2d 354, 362-

63 (1967); D.C. Code s 45-1921. We have assumed that

District law (if applicable) covers this transaction and New

York law (if applicable) does not; if true, this presumably

reflects a judgment by the District that interests in such

protection outweigh the various costs (administration, denial

of recovery for services as to which protection was completely

unnecessary, etc.), and a New York judgment that the balance falls the other way. It is not apparent how New York's

hypothesized preference for non-regulation is any less frustrated by subjecting this transaction (with its activities divided roughly equally between the District and New York) to

District law than the District's interest in protection is

thwarted by application of New York law.2 Given this stand-

__________

2 The above analysis makes the assumption that legislation is

intended to advance the public interest. On the more somber

public choice view of the world, the phrasing is different: the two

jurisdictions' differing outcomes would be ascribed to differences in

the political power brought to bear by the prospective winners and

losers under the alternative rules. The ultimate conclusion would

off, we think that the District would most probably apply its

own rule. See Kaiser-Georgetown, 491 A.2d at 509 n.10

(observing that when the interests of both jurisdictions are

equally weighty, efficiency concerns tilt the balance in favor

of applying the law of the forum state, presumably because

the forum courts have more experience with their own law).

Under the assumption that District law applies, Remsen

first argues that its services here are not the services of a

real estate broker under the District's Brokerage Act, stressing especially the securitization aspect of the transaction.

The statute includes among real estate brokers anyone who

"negotiates a loan secured by a mortgage, deed of trust, or

other encumbrance on real property." D.C. Code

s 45-1926(b)(1)(B). Because the refinancing funds ultimately

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came from the buyers of the securities (interests in the trust

holding the mortgage), Remsen says this is inapplicable. But

that fact does little to undermine the proposition that a

mortgage was indisputably a component of the transaction.

Remsen has made no claim that the services can be disaggregated in some way that would allow it to recover for services

that are truly distinct from brokering the mortgage, so we

need not address that possibility.

Remsen also argues that it was only an "advisor." The

trouble is that Remsen's activities look very much like those

of a broker. It introduced the Goldberg Company to the

investment bank that ultimately provided the funds for the

refinancing of the properties, participated actively in the

negotiations between the investment bank and the Goldberg

Company over the terms of the transaction, and received

payment for its services based on the amount of the loan. All

of these efforts culminated in a loan to the Goldberg Company that was secured by a mortgage on its apartment properties. In all this the case is quite similar to RDP Development

Corp. v. Schwartz, 657 A.2d 301, 305-07 (D.C. 1995), where,

despite a party's identification of its role as that of "consultant," the court found that its participation in negotiations for

__________

in essence be the same--that either choice will cause roughly

equivalent frustration of one or the other of the two polities.

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lease of property and receipt of a commission based on the

lease's value were the services of a real estate broker under

the statute.

Remsen's final statutory theory is that one who negotiates

a mortgage can be included in the Act's definition of a real

estate broker only if the transaction included a transfer of

real estate (apart from such as might be thought to inhere in

creation of the mortgage itself). Although the D.C. statute is

indeed confusing, its structure precludes Remsen's argument.

The licensure provision itself contains a definition of who is a

real estate broker:

For the purposes of this chapter, a person will be

performing as a real estate broker if:

(A) The person accepts a fee, commission, or other

valuable consideration for exchanging, buying, selling,

renting, or leasing real estate or businesses;

(B) The person negotiates a loan secured by a mortgage, deed of trust, or other encumbrance on real

property or a business; or

C The person is engaged in any activity specified

by s 45-1922(12).

D.C. Code s 45-1926(b)(1). Remsen rests its case on one of

the provisions cross-referenced in subsection (C) above:

(12) The term "real estate broker" means any person,

firm, association, partnership ... which:

(A) For a fee, commission, or other valuable consideration, lists for sale, or sells, exchanges, purchases,

rents, or leases real property. A real estate broker

may collect or offer to collect rent or income for the

use of real estate, or negotiate a loan secured by a

mortgage, deed of trust, or other encumbrance upon

the transfer of real estate.

Id. s 45-1922(12) (emphasis added). The emphasized language of this subsection presumably could not include a

mortgage unaccompanied by a real estate transfer (apart

from creation of the mortgage).

But s 45-1922(12) is just one of three clauses defining the

coverage of s 45-1926(b). And s 45-1926(b)(1)(B), which

covers those who negotiate a loan secured by a mortgage,

conspicuously lacks the qualifying language. Thus the statute covers Remsen's activities.

There remains the issue of the remedy. The statute itself

bars "any action in the courts of the District for the collection

of compensation for any services performed in that [real

estate broker] capacity." D.C. Code s 45-1926(c). So Remsen cannot recover unpaid portions of its fee. But the district

court also ordered Remsen to pay back to the Goldberg

Company the portion of the fee already collected.

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But we are most uncertain whether the District would

allow recovery of fees already paid to Remsen, in the absence

of evidence that Goldberg in any way failed to receive the

services contracted for, or some other lack of equity. It is

true that District courts have often allowed restitution for

money paid to unlicensed persons when such persons are

required by law to have occupational or business licenses.

See Truitt v. Miller, 407 A.2d 1073, 1079 (D.C. 1979); Miller

v. Peoples Contractors, Ltd., 257 A.2d 476, 476-77 (D.C. 1969);

Rubin v. Douglas, 59 A.2d 690, 691 (D.C. 1948). But in all

such circumstances, the courts have found in statutory language or legislative history reasons that indicate that fulfillment of the purpose of the law called for allowing recoupment. See Rubin v. Douglas, 59 A.2d at 691. In Rubin, the

statute that explicitly prohibited the unlicensed practice of

healing arts also provided criminal sanctions for violators;

indeed the defendant had pleaded guilty to criminal charges

based on the prohibition. 59 A.2d at 691. At least in part

moved by the statute's extremely zealous hostility to such

unauthorized practice, the court found that allowing recoupment would be appropriate. Id. And both Miller and Truitt

involved a regulation that "prohibited" any advance payments

to an unlicensed contractor under a home improvement contract. See Truitt, 407 A.2d at 1078; Miller, 257 A.2d at 477.

The court held in both cases that allowing the unlicensed

contractor to retain advance payments would be in direct

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contravention of the regulation. See Truitt, 407 A.2d at 1079;

Miller, 237 A.2d at 477.

Here the statutory language explicitly bars unlicensed brokers from bringing actions for recovery, but is silent as to

whether individuals in the plaintiffs' position are entitled to

recover money already paid. As a general principle, more is

required to impel a court to action than to convince it to leave

matters where they are. As Justice Cardozo wrote while on

the New York Court of Appeals:

The law may at times refuse to aid a wrongdoer in

getting that which good conscience permits him to receive; it will not for that reason aid another in taking

away from him that which good conscience entitles him

to retain.

Schank v. Schuchman, 212 N.Y. 352, 359, 106 N.E. 127, 129

(1914). This seems appropriate, as use of the courts generates costs for society.

It is thus not surprising to find that other jurisdictions

generally reject any automatic recovery rule. See "Recovery

Back of Money Paid to Unlicensed Person Required by Law

to Have Occupational License or Permit to Make Contract,"

74 A.L.R.3d 637 s 2 (1977 & 1998 Supp.). A recent Maryland

decision, quoting Cardozo, reasons that the case for recovery

of amounts paid is a function "of the strength of the public

policy involved together with the degree of violation of that

policy under the facts of the case." Citaramanis v. Hallowell, 613 A.2d 964, 971-72 (Md. 1992).

The purpose of the statute of course is to protect the public

from "incompetence, fraud, and deception in real estate transactions." RDP Development Corp., 657 A.2d at 304. The

statute's explicit remedy has a strong tendency to achieve this

goal--in the prophylactic sense of creating a sharp incentive

to register. It seems doubtful if many will willfully launch

themselves into real estate brokering without a license when

they face complete inability to sue to enforce their contracts.

The only obvious exception would be fly-by-night outfits from

whom affirmative recovery would in any event be unlikely.

Here, although there are undeveloped claims of fraud and

misrepresentation (which may independently justify a recovery by Goldberg as a matter of contract law), the summary

judgment record contains no evidence supporting recovery

other than the Brokerage Act violation itself. Nor, of course,

is there any indication that Goldberg is an unsophisticated

investor of the sort the statute was evidently intended to

protect. Accordingly, we do not see how Goldberg can be

entitled to recoup past payments by virtue of the Brokerage

Act except under a view that recovery is completely automatic. Yet, as District law has allowed automatic recovery under

comparable (albeit readily distingushed) statutes, we are uncertain what course the District will take. We note that an

unpublished Superior Court decision, Marmac Investment

Co. v. Wolpe, No. 96-2858 (D.C. Superior Court, Nov. 24,

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1997), not citable to us under our rule, D.C. Cir. Rule 28(c);

see also D.C. Court of Appeals Rule 28(h) (which our rule

makes pertinent), has rejected automatic recoupment and is

now on appeal. See Marmac, appeal No. 97cv2016 pending.

Accordingly, we certify to the District of Columbia Court of

Appeals the question:

Where a party has performed brokerage services covered by the District of Columbia Brokerage Act's prohibition of use of the District's courts for recovery of

compensation, D.C. Code s 45-1926(c), under what circumstances will the District of Columbia courts order the

party performing the services to disgorge compensation

already paid?

This court's opinion, together with copies of the briefs

submitted on appeal, are transmitted herewith to the District

of Columbia Court of Appeals.

* * *

We affirm the district court's decision that Remsen's services are covered by the District Brokerage Statute and that

Remsen is barred from enforcing the Letter Agreement. On

receipt of a response to the certified question, this court will

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address the issue of the return to the Goldberg Company of

fees already paid.

So ordered.

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