Frey v. Fraser Yachts, C-B

• Citation: 29 F.3d 1153
• Decision Date: 15 July 1994
• Docket Number: No. 93-3698,C-B,93-3698
• Parties: Bruce J. FREY, Plaintiff-Appellant, v. FRASER YACHTS; David Fraser, Inc.; Budel, Inc.;ench Investments, Inc.; Carnor, Inc.; and Norman McCarvill, Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 1153

29 F.3d 1153

Bruce J. FREY, Plaintiff-Appellant, v. FRASER YACHTS; David Fraser, Inc.; Budel, Inc.; C-Bench Investments, Inc.; Carnor, Inc.; and Norman McCarvill, Defendants-Appellees.

No. 93-3698.

United States Court of Appeals, Seventh Circuit.

Argued May 10, 1994.

Decided July 15, 1994.

William E. Rattner (argued), Jay Erens, Adam M. Kingsley, Hopkins & Sutter, Chicago, IL, for plaintiff-appellant.

Donald J. Moran (argued), Cynthia M. Baruck, Pedersen & Houpt, Chicago, IL, for Fraser Yachts, Inc., David Fraser, Inc., Carnor, Inc., Budel, Inc., C-Bench Investments, Inc.

Sheldon Davidson, Donald J. Moran, Cynthia M. Baruck, Pedersen & Houpt, Chicago, IL, for Norman McCarvill.

Before ESCHBACH, EASTERBROOK, and KANNE, Circuit Judges.

ESCHBACH, Circuit Judge.

Is a yacht broker entitled to keep his commission from the seller when, on the eve of closing but after execution of the purchase agreement, the seller discovers that the broker is to receive a commission from the buyer as well? The defendants think so, but we disagree. For the reasons below, we reverse the district court's order of summary judgment for the defendants and remand for further proceedings consistent with this opinion.

Plaintiff Bruce Frey is a Chicago real estate developer who wanted to sell his 127-foot high-speed motor yacht, the Dale R II. ¹ In pursuit of a buyer in what must be a rather limited market, in January 1987 Frey engaged defendant Fraser Yachts, a Florida partnership, to sell his yacht. Fraser Yachts' Norman McCarvill ² was to act as Frey's broker. The brokerage agreement was limited to six months, although the parties continued their relationship until Frey ultimately sold the Dale R II in November 1989.

On September 27, 1989, McCarvill faxed Frey an offer for the Dale R II from Mr. and Mrs. Donald Flynn. The Flynns offered Frey $5.5 million in cash, plus their 72-foot Hatteras motor yacht, the "Battered Bull," in trade. In a letter to McCarvill in which he twice referred to the Flynns as "your clients," Frey rejected the Flynns' offer. Although Frey was reluctant to take another boat in trade, at McCarvill's urging he did make a counter-offer of $5.7 million in cash plus the Battered Bull. The Flynns split the difference and offered $5.6 million plus the Battered Bull. Frey accepted their counter-offer on October 13, 1989. Frey and McCarvill then agreed that Frey would pay McCarvill and Fraser Yachts a $400,000 commission on the cash portion of the deal and pay the remainder of McCarvill's commission when Frey sold the Battered Bull. Unbeknownst to Frey at the time, McCarvill also represented the Flynns and stood to receive a commission from them as well.

After these preliminary negotiations, Frey hired Benton Strauss, a Chicago attorney, to assist with the sale of the Dale R II. Strauss was given the power to sign and execute all documents necessary to the sale of the Dale R II, although Frey instructed Strauss not to negotiate or discuss price or commissions with any of the parties. Frey also hired Paul Amend, a boat inspector, to inspect and appraise the Battered Bull. Amend testified in deposition that Frey told him that McCarvill was "the broker offering [the Battered Bull] in trade," although Frey disputes this.

On November 1, 1989, after Frey and the Flynns signed their purchase agreement, Herman Jeffer, the Flynns' attorney, sent the Flynns a letter explaining that they would owe Fraser Yachts a $100,000 commission. Jeffer sent Strauss a copy of this letter on November 2, 1989, and a draft of the closing statement a few days prior to the November 7, 1989 closing date. The closing statement also mentioned the Flynns' $100,000 commission to Fraser Yachts. Frey did not personally receive these two documents until after the closing.

On November 7, 1989, the parties closed the deal. At the closing, Frey states that for the first time he heard Jeffer ask Flynn if he (Jeffer) should give McCarvill his commission check. A bit puzzled by Jeffer's reference to a commission check, after the closing Frey telephoned Strauss. Strauss informed Frey that he had received the documents mentioning the commission, but did not communicate their contents to Frey because of Frey's earlier instructions.

As a result of McCarvill's undisclosed dual agency, Frey sued Fraser Yachts ³ and McCarvill for breach of their fiduciary duty, for an accounting from the defendants, and for misrepresentation. The district court had jurisdiction over Frey's complaint pursuant to 28 U.S.C. Sec. 1332(a) (diversity jurisdiction). After cross-motions for summary judgment, the district court granted summary judgment on the breach of fiduciary duty claim and the accounting claim to defendants. ⁴ The district court reasoned that because Strauss knew of Fraser Yachts' $100,000 commission from the two documents Jeffer sent Strauss, Frey as Strauss's principal could also be imputed with knowledge of McCarvill's dual agency. Therefore, the district court concluded that Frey knew of the dual agency prior to closing the transaction. We have jurisdiction over this appeal under 28 U.S.C. Sec. 1291.

We review the district court's grant of summary judgment de novo. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). In our review of the record, we must draw all inferences in a light most favorable to the non-movant. Griffin v. Thomas, 929 F.2d 1210, 1212 (7th Cir.1991) (citations omitted). If we find a genuine issue as to any fact which might affect the outcome of the case, summary judgment will have been inappropriate and we will reverse. Id. ⁵

It is black letter law that as Frey's broker and fiduciary, McCarvill owed Frey a duty of loyalty. Moehling v. W.E. O'Neil Constr. Co., 20 Ill.2d 255, 170 N.E.2d 100, 107 (1960); Young v. Field, 548 So.2d 784, 786 (Fla.Dist.Ct.App.1989). Perhaps the most important component of this duty of loyalty is a broker's "legal obligation to inform [his principal] with fairness, promptness and completeness concerning all facts within his knowledge which are, or may be, material to the situation in connection with his employment." Kline v. Pyms Suchman Real Estate Co., 303 So.2d 401, 404 (Fla.Dist.Ct.App.1974) (emphasis added), cert. denied, 314 So.2d 588 (Fla.1975); see also Jeffrey Allen Indus., Inc. v. Sheldon F. Good & Co., 153 Ill.App.3d 120, 106 Ill.Dec. 313, 315, 505 N.E.2d 1104, 1106 (1987). It is axiomatic, then, that a broker cannot act as the representative for both buyer and seller in the same transaction unless both parties are fully aware of such dual representation and consent to it. See Young, 548 So.2d at 786 (citing Stinson v. Teelin Real Estate, Inc., 370 So.2d 1205 (Fla.Dist.Ct.App.1979)); see also Quest v. Barge, 41 So.2d 158, 160 (Fla.1949) ("There may be instances ... where one may be agent of the two contracting parties; but this can occur only upon the fullest disclosure by the agent of this fact, and the fullest comprehension of it by those contracting through the medium of such agent."); Panorama of Homes, Inc. v. Catholic Foreign Mission Soc., 84 Ill.App.3d 142, 39 Ill.Dec. 513, 519, 404 N.E.2d 1104, 1110 (1980). If a broker fails to disclose his dual representation and obtain the respective parties' consents, he forfeits his commission. See Stinson, 370 So.2d at 1206; Duffy v. Setchell, 38 Ill.App.3d 146, 347 N.E.2d 218, 222 (1976).

Notwithstanding an agent's strict duty to his principal, the defendants argue that if a principal manifests knowledge of and consents to an agent's conflict of interest, the agent need not disclose his conflicts of interest to him. See Quest, 41 So.2d at 160. Quoting The American Law Institute's Restatement of Agency, the Florida Supreme Court stated:

"An agent who acts for adverse principals in a transaction is subject to a duty to act with fairness to each, and to disclose to each all facts which he knows or should know would reasonably affect the judgment of each in permitting such dual agency, except as to a principal who had manifested that he knows of such facts or that he does not care to know of them."

. . . . .

"One employed as agent violates no duty to the principal by acting for another party to the transaction if he makes a full disclosure of all relevant facts which he knows or should know, or if the principal otherwise knows of them and acquiesces in the agent's conduct."

Id. (Emphasis supplied.) ⁶ The defendants allege both that Frey manifested knowledge of McCarvill's dual agency and that Frey had imputed knowledge of and implicitly consented to McCarvill's dual agency prior to closing. ⁷

As evidence of Frey's actual knowledge, the defendants cite a litany of facts, only two of which have any apparent relevance. They first point to Frey's letter to McCarvill in which he twice referred to the Flynns as "your clients." The district court inferred from Frey's use of the phrase "your clients" that Frey knew McCarvill represented the Flynns. However, in his deposition Frey testified that he merely meant that the Flynns were the buyers, not that McCarvill represented them. There are many possible inferences one could draw from Frey's description of the Flynns as McCarvill's "clients," and although a jury might question Frey's choice of words, the inference most favorable to Frey is that he was merely referring to the individuals McCarvill had produced as potential buyers. Therefore, Frey's letter does not conclusively prove that Frey had actual knowledge of McCarvill's dual representation. Moreover, even if we agreed that Frey's use of the phrase "your clients" suggested that he knew McCarvill represented the Flynns in this particular transaction, there is nothing in the record to show that McCarvill explained all the relevant details of his dual representation, including the commission the Flynns were to pay, how long he had represented them, or any other information prior to...