All Points Traders, Inc. v. Barrington Associates, Nos. B032751

• Court: California Court of Appeals
• Writing for the Court: ARABIAN; KLEIN, P.J., and DANIELSON
• Citation: 211 Cal.App.3d 723,259 Cal.Rptr. 780
• Parties: ALL POINTS TRADERS, INC., Petitioner and Appellant, v. BARRINGTON ASSOCIATES, Respondent. Civ.
• Decision Date: 21 June 1989
• Docket Number: Nos. B032751,B034590

Page 780

259 Cal.Rptr. 780 211 Cal.App.3d 723 ALL POINTS TRADERS, INC., Petitioner and Appellant,
v.
BARRINGTON ASSOCIATES, Respondent. Civ. Nos. B032751, B034590. Court of Appeal, Second District, Division 3, California. June 21, 1989.
Review Denied Sept. 7, 1989.

[211 Cal.App.3d 726] Nagler & Schneider, Marc E. Rohatiner, Beverly Hills, for petitioner and appellant.

McCambridge, Deixler & Marmaro, Bert H. Deixler, Shinaan S. Krakowsky, Los Angeles, for respondent.

John K. Van De Kamp, Atty. Gen. and Arthur C. De Goede, Asst. Atty. Gen., as amicus curiae upon request of the Court of Appeal, for Real Estate Com'r.

William M. Pfeiffer and Steven A. Sokol, Los Angeles, as amicus curiae upon request of the Court of Appeal, for California Ass'n of Realtors.

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INTRODUCTION

ARABIAN, Associate Justice.

This appeal raises the issue of whether an investment banking firm which specializes in mergers and acquisitions must possess a real estate broker's license when negotiating the sale of a business opportunity offered by a corporation seeking to transfer all of its stock to a prospective buyer. We hold that they must so possess.

FACTUAL AND PROCEDURAL BACKGROUND

Petitioner and appellant All Points Traders, Inc., d/b/a Sprink, Inc. (All Points), is a California corporation whose sole shareholders prior to the sale of its common stock were William F. Holbrook, Dollie R. Holbrook, James W. Holbrook and Anne Holbrook. The corporation supplies pipe fittings, couplings and valves to the fire protection industry. Respondent Barrington Associates (Barrington), a California general partnership, [211 Cal.App.3d 727] is an investmentbanking firm which specializes in mergers and acquisitions. None of its partners was a licensed real estate broker during the pertinent period.

About May 1986, James Holbrook met with James Freedman, a principal of Barrington. Their discussions led to a contract between All Points and Barrington which provided Barrington with the exclusive right to assist All Points in the sale of its "assets and/or common stock." Pursuant to the contract, Barrington agreed to "exercise [its] best efforts to sell the Company, or find an investor, on terms and conditions satisfactory to [All Points]." Barrington was to generate, screen and follow up on all leads, provide information about All Points to qualified buyers, prepare a corporate profile of All Points and assist in negotiations.

Ultimately, All Points itself located the purchaser of the business, although Barrington identified other prospective purchasers and handled initial negotiations with some of them. The sale included a transfer of All Points' common stock, payment of various consulting fees to the principals of All Points, and a lease with an option to purchase the land upon which the business was located.

On March 27, 1987, Barrington initiated binding arbitration before the American Arbitration Association, claiming a commission pursuant to its written agreement with All Points. All Points resisted Barrington's claim on a number of grounds, including Barrington's failure to possess a real estate broker's license. On November 25, 1987, the arbitrator awarded Barrington its claimed commission in the amount of $227,800.00, interest on a portion thereof and reasonable attorneys' fees.

All Points filed a petition and motion to vacate the arbitration award. The trial court denied the petition and confirmed the arbitration award. All Points appealed from the subsequent judgment. Thereafter, All Points filed a motion for a new trial, vacation of the judgment and reconsideration of the order confirming the award. The trial court denied All Points's motion and All Points appealed from the order of denial. The two appeals were consolidated.

CONTENTIONS

All Points contends that Barrington's failure to be licensed as a real estate broker as required by Business and Professions Code section 10131 ¹ renders [211 Cal.App.3d 728] the brokerage agreement void and illegal, and therefore the arbitration award must be vacated.

Barrington contends (1) it was not required to be licensed as a real estate broker because the licensing requirement does not apply to the sale of corporate stock, and (2) failure to confirm the arbitration award would result in All Points being unjustly enriched.

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DISCUSSION

1. The Business Opportunity Licensing Requirement And its History

Originally, the licensing requirement for business opportunity transactions was distinct from that for real estate transactions. Some 52 years ago, the California Legislature enacted legislation requiring any person acting as a business opportunity broker or salesman to possess such a license. (Stats.1937, ch. 785, pp. 2235, 2245, §§ 1, 14.) This requirement was codified in the Business and Professions Code in 1943 as a separate chapter of the Real Estate Law (section 10250, et seq.) entitled "Business Opportunity Regulations," under the Department of Investment, Real Estate Division (former section 10000, et seq.). (Stats.1943, ch. 127, p. 844, § 1.) From its inception, the business opportunity licensing requirement did not exempt incorporated businesses. ²

In practice many business opportunity licensees also possessed a real estate broker's license. Nevertheless, confusion arose as to whether a business opportunity broker's license, a real estate broker's license or both were required, when a business opportunity transaction involved real estate. (Rev. of 1965 Code Leg. (Cont.Educ. of Bar, 1985) p. 14.) To simplify and clarify the law, the Legislature in 1965 merged the real estate and business opportunity licenses under the supervision of the Department of Real Estate. (Stats.1965, ch. 172, p. 1133; ibid.) Thereafter, one who negotiated the sale of a business opportunity fell within the definition of a "real estate broker" ( § 10131), and was required to have a real estate license ( § 10130). ³ This historical background establishes that the definition of a "business[211 Cal.App.3d 729] opportunity" does not necessarily include real property, but that it may.

Subdivision (a) of section 10131 currently provides:

"A real estate broker within the meaning of this part is a person who, for a compensation or in expectation of a compensation, regardless of the form or time of payment, does or negotiates to do one or more of the following acts for another or others:

"(a) Sells or offers to sell, buys or offers to buy, solicits prospective sellers or purchasers of, solicits or obtains listings of, or negotiates the purchase, sale or exchange of real property or a business opportunity." (Emphasis added.)

Section 10030 defines a "business opportunity": "As used in this part, the words 'business opportunity' shall include the sale or lease of the business and goodwill of an existing business enterprise or opportunity."

Real estate licensees must meet experience and training qualifications ( § 10150.6) and may be required to provide proof of honesty and truthfulness ( § 10153). (See Buckley v. Savage (1960) 184 Cal.App.2d 18, 7 Cal.Rptr. 328, cert. denied 366 U.S. 910, 81 S.Ct. 1086, 6 L.Ed.2d 235.) The applicant must pass a written examination to demonstrate knowledge of English and arithmetical computation common to real estate and business opportunity practices, and an understanding of "the principles of real estate and business opportunity conveyancing, ... the principles of business and land economics and appraisals, ... the principles of real estate and business opportunity practice and the canons of business ethics pertaining thereto," as well as the regulations of the Real Estate Commissioner. ( § 10153.) The purpose of these

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licensing requirements is to protect the public from incompetent or untrustworthy practitioners. (See Schantz v. Ellsworth (1971) 19 Cal.App.3d 289, 292-293, 96 Cal.Rptr. 783.)

Without a required license, a person acting as a real estate broker as defined is unable to enforce a contract to seek recovery of any earned commission in a court of law. (Sections 10130, 10136.) ⁴

2. The Definition of "Business Opportunity"

Until the current controversy, there has been little discussion over the meaning of "business opportunity" and the type of transaction requiring a [211 Cal.App.3d 730] license. ⁵ The few reported California opinions which concern the licensing requirements of the person who negotiates the sale of an incorporated business do not address the issue of the business opportunity licensing requirement, but rather the concomitant question of the need for a securities broker's license, often in addition to the business opportunity or real estate broker's license. In these cases, the acknowledged business opportunities or real estate transactions, which resulted in the transfer of corporate stock, concerned a building (Owen v. Off (1951) 36 Cal.2d 751, 227 P.2d 457), ⁶ a broadcasting company and its radio station (Stoll v. Mallory (1959) 173 Cal.App.2d 694, 343 P.2d 970), ⁷ a resort and marina business (Weber v. Jorgensen (1971) 16 Cal.App.3d 74, 93 Cal.Rptr. 668), ⁸ a mortgage company (Lyons v. Stevenson (1977) 65

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Cal.App.3d 595, 135 Cal.Rptr. [211 Cal.App.3d 731] 457) ⁹ and a mortuary (Nationwide Investment Corp. v. California Funeral Service, Inc. (1974) 40 Cal.App.3d 494, 114 Cal.Rptr. 77).

Only Nationwide Investment Corp. v. California Funeral Service, Inc., supra, 40 Cal.App.3d 494, 114 Cal.Rptr. 77, presented a situation similar to the one here. The Nationwide court described the case as "atypical" in that plaintiff "Nationwide [sought] a commission for successfully negotiating the sale of a business to defendant although not licensed as a real estate broker or as a securities broker." (Id., at p. 499, 114 Cal.Rptr. 77.) However, the Nationwide court did not address the real estate licensing issue but held that Nationwide, an investment company which negotiated the purchase of all the shares of a mortuary on...