Court Opinion

ID: 5335616
Source: CourtListenerOpinion
Date Created: 2022-01-08 05:33:13.456343+00
Date Added: 2024-06-11T08:29:29.742529
License: Public Domain

Townley, J. (dissenting).
This action is brought by the plaintiffs, a firm of real estate brokers, against the defendant as a trustee ex maleficio, to impose a trust on the proceeds of a judgment procured by the defendant against the New York Trust Company.
Defendant was a duly licensed real estate salesman in the employ of the plaintiffs prior to March 26, 1929. Under his contract of employment, he was entitled to fifty per cent of the commissions resulting from the business which he brought in and negotiated to a successful conclusion. During the period of his employment, defendant Barrett heard of possible business involving property which the New York Trust Company as stockholder of Seven Forty-one Fifth Avenue Corporation wished to lease. The plaintiff partnership was employed by the corporation and the trust company as real estate brokers but not as exclusive brokers. Barrett, having found the business, conducted negotiations on behalf of plaintiffs. One Max Natanson was produced as a proposed purchaser and negotiations had reached a point at which the parties had come to a substantial agreement on all matters except the amount of free rent wh ch the trust company was to have in the building to be erected upon the leased premises. As to that Natanson had indicated his willingness to meet the terms of the trust company.
Owing to a quarrel about another transaction not related to the matter at bar, the defendant, on the 25th of March, 1929, stated to the plaintiffs that he wanted to end his service, and he wished that plaintiffs would sign an agreement waiving any rights in any commission arising out of the sale of the New York Trust Company lease. Plaintiffs refused to sign any such waiver. On the next day, March twenty-sixth, defendant resigned from plaintiffs’ employ without any agreement as to his rights in pending business - of the partnership. Defendant thereafter obtained a license as *591a real estate broker in his own name and continued the negotiations. The trust company and the corporation closed with Natanson but later repudiated the contract.
In May, 1929, defendant instituted an action for his commission. He brought that action and recovered judgment on his own behalf as having been employed by the Seven Forty-one Fifth Avenue Corporation and the New York Trust Company. On the record at bar, the trial court did not find that either the corporation or the trust company had formally discharged plaintiffs as their brokers or had re-employed Barrett specifically in this transaction after his resignation. There is a finding that Barrett willfully concealed from plaintiffs his actions in relation to the trust company lease, after leaving plaintiffs’ employ, until approximately one month prior to the trial at which his right to commissions was litigated.
In the litigation for commissions, the jury must have found that Barrett was specially hired as broker after his resignation. The jury found that Barrett had earned the commission and brought in a verdict which, with interest, amounted to nearly $80,000. This judgment was affirmed by the Appellate Division (239 App. Div. 899). While an application for leave to appeal to the Court of Appeals was pending, Barrett settled for $66,913.37. Attorney’s fees of more than $26,000 were ordered paid and a sum more than sufficient to cover any claim made by the plaintiffs was ordered deposited with the city chamberlain. The issue on the trial of this action was to determine the ownership of this balance.
Defendant claims ownership of the whole amount. The reasoning by which this claim is supported may be stated as follows: An employee on resigning from his employment, in the absence of any contract to the contrary, may make use of all the information which he has acquired during the term of his employment, exclusive of trade secrets. (Scott & Co., Inc., v. Scott, 186 App. Div. 518.) After the termination of his employment, he owes no duty to refrain from competing with his former employer as to any business in the employer’s office which was still in such a stage of completion that a favorable result, from the point of view of the employer, might fairly be described as no more than a reasonable possibility or probability. The happy conclusion of negotiations between Natanson and the New York Trust Company, the defendant goes on to argue, was no more than a reasonable expectation and was, therefore, not an asset of his employer’s firm for which he was required to account after exploiting it. In short, Barrett claims that after his voluntary resignation, in the absence of a finding of bad faith charging him with having deliberately left the employ so as to gain the fruits of these negotiations, he was permitted freely to compete *592with his former employer on the very business which he had been previously negotiating for the employer and to keep the entire proceeds of such exploitation to himself.
The cases relied upon by the defendant to support this position are principally Stem v. Warren (227 N. Y. 538); Stearns v. Blevins (262 Mass. 577; 160 N. E. 417); Lafferty v. Lafferty (174 Penn. St. 536; 34 A. 203) and numerous other cases of similar import. It is sufficient for our purposes to discuss the situation stated in Stem v. Warren (supra). In that case two firms of architects had agreed to become partners in soliciting business for the development of Grand Central Station and its adjacent properties. These joint enterprisers knew that the New York Central railroad was considering building the Biltmore Hotel. One of the coadventurers named Reed prepared plans which substantially were ultimately used in the erection of that building. Before any final decision to erect the building was made, Reed died. The other firm which had been associated with Reed’s firm then entered into negotiations to procure the contract for erecting the hotel for itself. It succeeded in procuring this contract and the Biltmore Hotel was erected. In an action for an accounting of the profits, the Court of Appeals held that the defendant firm was under a duty to account only for its use of the plans and was under no duty to account for the profits arising out of the actual erecting of the building. The court reasoned that at the time of the dissolution of the joint venture by the death of Reed, no contract had been awarded and the joint venturers had no asset in the sense of any proprietary interest in the contract. The court said that the most that the joint venture had was a reasonable expectation of getting a contract sometime in the future and that such an expectation was not an asset for which one of the parties to the joint venture must account.
The distinction between the situation presented in Stem v. Warren (supra) and that presented by the case at bar is this: In the former case no contract existed. In the case at bar a contract of employment of the plaintiffs as brokers had actually been entered into. It is true that it was not an exclusive contract, but it was a contract which was part of the current business of the plaintiff partnership.
Under the conditions affecting Barrett’s employment by the plaintiffs, even though considered strictly from the standpoint of employer and employee, Barrett could not on the termination of his employment continue negotiations with respect to matters with which he had become acquainted in the office of the plaintiffs without assuming as to them an obligation similar to the obligation imposed by law upon one joint venturer as to business and profits resulting from the continued negotiations of any phase of the joint *593venture. Whatever result might be reached in a case involving the voluntary resignation of a clerk on a small salary, certainly in the case of an employee whose compensation is based on one-half the commissions earned, the analogy to a joint venture is so close as to make reasonable the application of such equitable principles as were enforced by the Court of Appeals in Meinhard v. Salmon (249 N. Y. 458).
Barrett made his contract under which he agreed to share fifty per cent with Byrne & Bowman on all contacts which he made which resulted in a real estate closing while in their employ. He did not pretend to be an independent real estate broker. He became an employee of a well-established firm which presumably gave him a status in his negotiations which he would not have had otherwise. When he left his employment the contract with the trust company was an asset of the plaintiffs’ firm. It is no answer to assert the non-exclusive brokerage of plaintiffs as justification.. It is true any one else might have competed for this commission, but this defendant continued his connection with it charged with an obligation which he could not avoid by the simple expedient of terminating his employment. When he competed, he was not a newcomer. He was simply carrying to conclusion what the court has found to be one continuous negotiation. It seems too clear to necessitate further argument that by his actions in this case, Barrett took advantage of his position and attempted to misappropriate the proceeds of business which he had previously brought to the plaintiffs in the course of his duty as employee to solicit business. Accordingly, the judgment in so far as appealed from by the defendant should be affirmed.
On the cross-appeal, plaintiffs contend that they are entitled to one-half of the total amount of the judgment recovered for brokerage commissions after deducting reasonable counsel fees. They say (1) that the plaintiffs’ recovery cannot be lessened by the fact that the defendant undertook to settle the judgment which he had recovered for an amount less than its face value without plaintiffs’ consent, and (2) that plaintiffs’ recovery cannot be lessened by any payment to counsel over and above reasonable counsel fees.
The judgment against the New York Trust Company as above stated was settled for $66,913.37. Plaintiffs were not party to, nor did they consent to, this settlement. In order to consummate it without their consent, defendant agreed to deposit in court one-half of the original judgment. Upon this condition defendant was given leave to settle and compromise the action. The attorneys’ fees were fixed at Special Term on the basis of the reasonable value of the services. That order was affirmed by this court (240 App. Div. *594870). We deem any further question of the reasonableness of the fees as an attempt to relitigate an already adjudicated question.
Barrett recovered judgment against the New York Trust Company on instructions to the jury which necessitated a finding that he had been re-employed as the sole broker by the New York Trust Company. Byrne and Bowman were not parties to that action and were not bound by the facts necessarily found to support the judgment. They have, however, adopted the judgment to the extent of claiming a one-half interest. We think that whether there was or was not a rehiring by the New York Trust Company, plaintiffs are entitled to an accounting for one-half the proceeds in accordance with their original contract with Barrett. We also think plaintiffs are bound by the settlement which Barrett entered into with the New York Trust Company.
Barrett’s position in this litigation may be analyzed as that of an attorney-in-fact empowered by the plaintiffs to conduct a suit for them, a suit, incidentally, in which he had a half interest. In view of the fact that Barrett had ceased to be an employee at the time he closed the. deal, he might also be regarded as in the legal status of a joint venturer with the plaintiffs. In that view when he prosecuted the action, his position would be that of a managing partner in the venture and he would have an agency coupled with an interest in the proceeds to prosecute the judgment to a successful termination. If, however, Barrett’s position in this litigation be deemed to be that of an employee wrongfully appropriating his employer’s assets, the conduct of the plaintiffs in not interfering in the law suit until after its successful conclusion must be interpreted as a ratification of Barrett’s authority to prosecute their claim on their behalf as attorney-in-fact. Under that theory, also, Barrett’s status in relation to the plaintiffs is that of an agent with an interest.
The only question that arises is whether plaintiffs were warranted in terminating the agency. It seems to us that in view of the fact that Barrett had a fifty per cent interest in the recovery, his authority to conduct the suit according to the dictates of his business judgment could not be revoked without an offer on Byrne and Bowman’s part to secure to Barrett as much as he would have received by the reasonable settlement which he entered into. Byrne and Bowman might be willing to gamble on the result of an appeal to the Court of Appeals as to their half of the judgment. They were not privileged, however, to compel Barrett similarly to speculate with his share of the judgment. In short, an agency coupled with an interest cannot under familiar principles be terminated without securing the agent’s interest. No such offer was made to Barrett. He was not asked to leave the prosecution of the final appeal to *595Byrne and Bowman on condition that he would be paid approximately $33,000, less bis share of the counsel fees to date. On the contrary, Byrne and Bowman took the wholly untenable position of saying, “You settle at your peril and must pay us half of the original judgment.” • This the plaintiffs could not do and they are bound by the settlement which was without any question a reasonable one.
We find that the plaintiffs are not entitled to any further interest on the amount deposited with the chamberlain than that allowed by him. We also find that by the judgment at Special Term plaintiffs have been allowed the precise amount due them under the settlement as modified by proper counsel fees.
The judgment should be in all respects affirmed, without costs.
Merrell, J., concurs.
Judgment reversed, with costs to the defendant, and complaint dismissed, with costs. Appeal from order entered August 24,1933, as resettled by an order entered September 15, 1933, dismissed. Order dated November 21,- 1933, affirmed.
Settle order on notice reversing findings inconsistent with this determination, and containing such new findings of fact proved upon the trial as are necessary to sustain the judgment hereby awarded.