Coldwell Banker & Co. v. Karlock, 81-1446

Citation686 F.2d 596
Decision Date17 August 1982
Docket NumberNo. 81-1446,81-1446
PartiesCOLDWELL BANKER & COMPANY, et al., Plaintiffs-Appellees, v. Merlin KARLOCK, Defendant-Appellant.
CourtUnited States Courts of Appeals. United States Court of Appeals (7th Circuit)

Daniel E. Johnson, Baker & Daniels, Indianapolis, Ind., for defendant-appellant.

James M. Klineman, Klineman, Rose, Wolf & Wallack, Indianapolis, Ind., for plaintiffs-appellees.

Before CUMMINGS, Chief Judge, and SPRECHER * and POSNER, Circuit Judges.

CUMMINGS, Chief Judge.

This is a suit to collect a real estate broker's commission owed in connection with the sale of a 21,693 acre farm in northwestern Indiana. The district court granted summary judgment for the plaintiffs, and we affirm.

I

The plaintiffs are Coldwell Banker & Company, a large real estate brokerage firm, and its wholly owned subsidiary Coldwell Banker Commercial Brokerage Company (hereinafter collectively referred to as "Coldwell"). Both are California corporations whose principal offices are in California. At all times relevant to this case, Coldwell was licensed as a real estate broker in Illinois and Indiana; it maintained offices in Illinois but not in Indiana.

The defendant, Merlin Karlock, is a resident of Bourbonnais, Illinois. Karlock is a successful businessman who has engaged in a number of banking, farming, and real estate development projects. In the spring of 1979, Karlock was the owner of approximately 21,693 acres of land in northwestern Indiana, commonly known as the Karlock Ranch.

On May 24, 1979, Karlock met with James McGrath, a real estate broker with Coldwell, to discuss a possible sale of the Karlock Ranch through Coldwell. After the meeting the two took a brief tour of the Ranch. McGrath was an experienced real estate broker who was licensed in Illinois but not in Indiana. In early July of 1979, Karlock visited the office of the Indiana Real Estate Commission in Indianapolis. There he discovered that although Coldwell was a licensed real estate broker in Indiana, McGrath was not. Nevertheless, Karlock continued to do business with McGrath and others representing Coldwell.

By an agreement dated May 29, 1979, Karlock granted Coldwell the exclusive right to sell the Karlock Ranch for the period June 1, 1979, to September 1, 1979. Karlock agreed to pay Coldwell a 6% commission if:

(1) A purchaser is procured (whether by Broker, or the undersigned Seller, or anyone else) who is ready, willing and able to purchase said property at the price and on the terms above stated ($3600 per acre or $80,000,000 cash), or on any other price and terms agreeable to the undersigned Seller; or (2) Any contract for the sale of said property is entered into by the undersigned Seller.... App. 55.

The agreement further provided that if, within ninety days after the expiration of the listing agreement, the Ranch were sold to any person to whom Coldwell had submitted the property, Karlock would still be obligated to pay the broker's commission. Id. Finally, Coldwell agreed to "use its best efforts to effect a sale of (the Ranch)" in consideration of the exclusive right to sell the property. Id. The agreement was executed at Coldwell's Chicago office by Karlock and Michael Tomasz, a Coldwell employee licensed as a real estate broker in both Illinois and Indiana.

After the listing agreement was executed, McGrath received a tip from Coldwell's Los Angeles office that Prudential Insurance Company of America might be interested in purchasing the Karlock Ranch. McGrath contacted Mark Wilkinson, Prudential's vice president for real estate operations, and arranged for him to see the property. On June 14, 1979, McGrath, Karlock, Wilkinson, and Leslie Horsager, Prudential's Indiana real estate manager, spent approximately five hours touring the Ranch. The attributes of the property were discussed, but there were no negotiations as to the terms of any proposed sale.

On June 21, 1979, Horsager telephoned McGrath and informed him that Prudential was interested in the Ranch at a price of approximately $1,700 per acre. At McGrath's request, Horsager confirmed the conversation with a letter of the same date. On June 27, 1979, McGrath communicated Prudential's interest in the Ranch to Karlock. Karlock stated that he was willing to discuss the matter with Horsager personally, but that he wanted no Coldwell personnel present. McGrath and his superior, Robert S. Jackson, agreed to this, and McGrath arranged for Karlock and Horsager to meet in Lafayette, Indiana, on July 2, 1979. Thereafter, all negotiations for the sale of the Ranch were handled by Karlock alone. When Coldwell later requested to participate in the negotiations, Karlock refused.

On July 31, 1979, Coldwell and Karlock executed two supplements to the listing agreement, extending the original agreement until November 1, 1979, and changing the broker's commission from a flat 6% of purchase price to a sliding scale running from 3% to 6% depending on the selling price per acre. These supplements were executed in Illinois.

In September of 1979 Karlock and Horsager agreed to the terms of the sale. Karlock then informed McGrath that an agreement with Prudential had been reached. On October 8, 1979, at Prudential's regional office in Cincinnati, Ohio, Karlock and Prudential executed an agreement granting Prudential an option to purchase the Karlock Ranch on or before December 31, 1979. On November 29, 1979, Prudential exercised the option in a letter sent from J. W. Pancoast, Prudential's regional vice president in Cincinnati, to Karlock at his office in Momence, Illinois. A formal agreement for the sale of the property was executed by Karlock and Pancoast on December 7, 1979. The final purchase price was $39,590,000 or $1,825 per acre. The closing was held on January 9, 1980, in Indianapolis. Coldwell's agents were excluded from all these transactions.

On January 9, 1980, the date of the closing, Coldwell filed this lawsuit in the Superior Court of Marion County, Indiana, at Indianapolis. The case was removed to federal court where Coldwell filed an amended complaint on March 10, 1980. Count I alleged that Coldwell was entitled to a commission of over $1 million in connection with the sale of the Karlock Ranch. Count II alleged that Karlock's failure to pay the commission when due was in bad faith, that Karlock was profiting from the delay, and that he should be liable for damages resulting from the delay. In his answer, Karlock asserted a number of affirmative defenses and counterclaimed against Coldwell for breach of its obligations under the exclusive listing agreement.

The district court granted summary judgment for Coldwell on Count I of its complaint and on Karlock's counterclaim. The court also allowed Coldwell its attorney's fees in accordance with the terms of the exclusive listing agreement. Karlock appeals these rulings. 1

II

Karlock's first affirmative defense below was that Coldwell is not entitled to collect a brokerage commission on the sale of the Karlock Ranch because Coldwell's activities in connection with the sale were performed by persons who were not licensed as real estate brokers in Indiana. Indiana, like many states, has a so-called closed-door statute that bars recovery of a real estate brokerage commission by an unlicensed broker. During the period relevant to this case, the Indiana statute read as follows:

Sec. 9. In all actions for the collection of a commission or other compensation for the sale of real estate and filed in the courts of this state after October 1, 1949, it shall be alleged and proved therein that at the time the cause of action arose the party seeking relief was a duly licensed real estate broker or real estate salesman of the state of Indiana.

Ind.Acts 1949, c. 44, § 8 (current version at Ind.Code § 25-34.1-6-2 (1981 Cumulative Supplement)).

It is true that McGrath, the Coldwell broker who negotiated the listing agreement with Karlock and who produced Prudential as a purchaser, held no Indiana broker's license. It is also true that the Karlock Ranch is located in Indiana. Karlock argues that under the Indiana statute these facts bar Coldwell from recovering a commission on the sale of the Karlock Ranch. The district court rejected this defense, however, finding that the exclusive listing agreement was a contract for personal services rather than a real estate contract. The court determined that such an agreement should be governed by Illinois law, under which McGrath's lack of an Indiana real estate broker's license is irrelevant. We agree. 2

A real estate brokerage contract is generally characterized as a contract for personal services rather than a contract conveying an interest in land. See, e.g., Richland Development Co. v. Staples, 295 F.2d 122, 125 (5th Cir. 1961); Aritex Land Co. v. Arnold, 16 Ariz.App. 547, 494 P.2d 747, 748 (1972); In re Stoddard's Estate, 60 Wash.2d 263, 373 P.2d 116, 118 (1962); Annot., 159 A.L.R. 266, 267 (1945). As such it must be interpreted according to principles of contract law. The course of dealings between Coldwell and Karlock, however, involved contracts with several states. Because the parties did not specify in the contract which state's law was to govern, it is necessary for the court to make that determination. 3 A federal court sitting in diversity must apply the choice-of-law rules of the forum state. Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). Our inquiry is, therefore, governed by the Indiana choice-of-law rules applied to contract disputes. 4

In W. H. Barber Co. v. Hughes, 223 Ind. 570, 63 N.E.2d 417 (1945), the Indiana Supreme Court stated that a contract is governed by the law of the state where it is made, and that a contract is deemed made in the state where the last act necessary to make it a binding agreement occurs. In the same opinion, however, the...

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