Flamingo Realty, Inc. v. Midwest Development, Inc.

• Decision Date: 10 August 1994
• Docket Number: No. 23544,23544
• Citation: 110 Nev. 984,879 P.2d 69
• Parties: FLAMINGO REALTY, INC., a Nevada Corporation; and Terry Fields, Individually and in Her Capacity as an Agent of Flamingo Realty, Inc., Appellants, v. MIDWEST DEVELOPMENT, INC., a Nevada Corporation; Torosan, Inc., a Nevada Corporation; Pius Reiger; and Leroy Hilt, Respondents.
• Court: Nevada Supreme Court

Page 69

879 P.2d 69

110 Nev. 984

FLAMINGO REALTY, INC., a Nevada Corporation; and Terry Fields, Individually and in Her Capacity as an Agent of Flamingo Realty, Inc., Appellants, v. MIDWEST DEVELOPMENT, INC., a Nevada Corporation; Torosan Inc., a Nevada Corporation; Pius Reiger; and Leroy Hilt, Respondents.

No. 23544.

Supreme Court of Nevada.

Aug. 10, 1994.

K. Michael Leavitt, Jason G. Langess and David Rivers, Las Vegas, for appellants.

Cherry, Bailus & Kelesis, Las Vegas, for respondents Midwest, Reiger and Hilt.

Edward R.J. Kane, Las Vegas, for respondent Torosan.

OPINION

STEFFEN, Judge:

THE FACTS

Respondent Midwest Development, Inc. ("Midwest") owned a 45-acre parcel of real property situated in Las Vegas. Respondents Pius Reiger and Leroy Hilt were the principal shareholders of Midwest. In May of 1990, Midwest decided to sell the parcel for a net price of $5,250,000.00. Appellant Terry Fields ¹ approached Midwest in early September of 1990 and offered to provide a "ready, willing, and able" purchaser of the subject property. Thereafter, Midwest executed in favor of Fields a nonexclusive listing agreement that recited a "list price" of $5,750,000.00 and a realtor's commission of 8.75%. The list price, less the commission, would have netted approximately $5,250,000.00 to Midwest.

Fields immediately delivered to Midwest a purchase offer of $5,750,000.00 from Bodysonic, a Nevada corporation whose primary shareholder and officer was a Japanese businessman by the name of Kyota Yamada. However, Bodysonic's purchase offer was contingent upon the "approval of a joint venture/partnership agreement by and between the buyer and seller." After intensive negotiations, the parties were unable to reach an agreement regarding the joint venture and Yamada returned to Japan without closing the sale. The listing agreement, which was executed on September 7, 1990, terminated by its own terms on September 20, 1990.

In late 1990, Bodysonic submitted a second purchase offer in the amount of $5,325,000.00. Fields had continuously worked with Yamada in preparing the offer and finding an unrelated joint venturer to aid in developing the property. Bodysonic's offer contained a provision stating that Midwest would be responsible for paying Fields' commission. Midwest delivered a counteroffer to Bodysonic specifying the $5,325,000.00 as a net price ² and omitting the paragraph relating to Fields' commission. By the parties' own admissions, the only impediment to closing the transaction was Fields' commission.

Midwest ultimately sold the property to respondent Torosan, Inc., ("Torosan") for $5,300,000.00, and Torosan immediately resold the property to Bodysonic for $5,325,000.00. When Fields learned of the latter sale, she demanded that Midwest pay her a commission. Midwest refused, prompting Fields to file a complaint against Midwest, its principals, and Torosan for fraud, fraudulent conveyance, and breach of contract. Torosan responded by filing a counterclaim against Fields for its attorney's fees and the costs of defending a "frivolous and/or meritless lawsuit."

After a bench trial, the district court found that Fields had failed to prove the necessary elements of her claims, and awarded Torosan attorney's fees and costs as damages on its counterclaim. The court also found that Fields had failed to produce a "ready, willing, and able" purchaser according to the terms of the expired listing agreement. Despite the foregoing, the court did find that Fields had been the procuring cause of the ultimate sale and that she was entitled to compensation. Because there was insufficient evidence in the record to determine the amount to award Fields, the court reopened the trial for the limited purpose of determining the reasonable value of Fields' services.

Fields' expert, Ron Reiss, testified that the customary value of Fields' services was somewhere between 8 and 10 percent of a property's selling price. Reiss buttressed his testimony with significant evidence of similar listings and transactions. However, his opinion was based upon his belief that Fields had complied with the terms of a standard, percentage-based listing agreement. Respondents' expert witness, Shirley Rappaport, conceded that real estate commissions are normally determined as a percentage of the selling price. Rappaport nevertheless analyzed Fields' "experience, income, the quality and quantity of services performed, duration of the services and other factors" and concluded that Fields' compensation could be calculated by reference to an hourly wage. The district court accepted Rappaport's evidence and determined that "Fields devoted at least 40 hours per week for a period of six months for $92,304.00, and at least 20 hours per week for two months for $15,384.00, or a total of $107,688.00."

DISCUSSION

Fields raises four assignments of error on appeal: (1) the court used an inappropriate measure of damages under quantum meruit; (2) the court erred in finding insufficient evidence of fraud; (3) the court erred in awarding attorney's fees and costs to Torosan; and (4) the court erred in refusing to pass Torosan's costs through Fields and to the nonprevailing defendants Midwest, Reiger and Hilt.

1. The appropriate measure of damages under quantum meruit

A district court is given wide discretion in calculating an award of damages and an award will not be disturbed on appeal absent an abuse of discretion. Parsons Drilling, Inc. v. Polar Resources Co., 98 Nev. 374, 377, 649 P.2d 1360, 1363 (1982). In the instant case, the parties recognize that the proper measure of damages under a quantum meruit theory of recovery is the "reasonable value of [the] services." Morrow v. Barger, 103 Nev. 247, 252, 737 P.2d 1153, 1156 (1987). Unfortunately, the parties disagree on the best method of measuring the "reasonable value" of Fields' services.

In Florey v. Sinkey, 77 Nev. 275, 362 P.2d 271 (1961), the respondent was the "procuring cause" of a sale of mining property. Based upon an implied agreement that the sellers would pay the respondent "the reasonable value of his services," the trial court awarded the respondent 10% of the sale proceeds. In affirming the award, we concluded that "the sum found to be due ... as compensation for his services, under the established custom of the mining locality, became the reasonable value of such services." Id. at 279, 362 P.2d at 273. Thus, we have previously recognized the applicability of "established customs" when determining the "reasonable value" of a real estate agent's services. We are persuaded that the standard used in Florey should have been utilized in the instant case, thereby compensating Fields based upon the customary method and rate of compensation in the real estate industry. See also Needs v. Hebener, 118 Idaho 438, 797 P.2d 146, 151-52 (Idaho Ct.App.1990) (the reasonable value of services is determined by the nature of the work and the customary rate of pay for such work in the community).

The district court abused its discretion when it expressly refused deference to the manner in which real estate agents are customarily paid. ³ Both experts testified that I was looking at something other than a commission which I have never really done before, and it's really not that normal in the real estate business, but this is the only way I could see that I could equate an income or something reasonable instead of giving a commission is basing on maybe what they had done before or what a good commercial salesperson could make or does make and equate it to hours.

real estate agents are not customarily paid an hourly wage. In fact, Rappaport testified as follows concerning the hourly wage schematic she presented to the court:

To compound the error, Fields was unable to estimate the number of hours she worked on the sale and the district court simply estimated the hours Fields "could have worked," and multiplied those hours by an arbitrary hourly rate.

Having concluded that the trial court erred in fixing Fields' compensation, it becomes necessary to determine the value of Fields' services based upon the customary methods of compensating real estate professionals. The primary source for resolving this issue is the original listing agreement between Fields and Midwest. The district court found that the parties agreed to a "net listing" of $5,250,000.00. Substantial evidence of record supports the district court's finding. The original agreement is an important part of our analysis because a real estate agent who is the "procuring" or "inducing" cause of a sale, is entitled to the agreed commission, irrespective of who makes the actual sale or supplies the terms thereof. Schneider v. Biglieri, 94 Nev. 426, 427, 581 P.2d 8, 9 (1978) (citing Bartsas Realty, Inc. v. Leverton, 82 Nev. 6, 409 P.2d 627 (1966)); see also Herrman v. Blase, 77 Nev. 127, 133, 359 P.2d 745, 748 (1961) (the agreed compensation may become the amount of quantum meruit ).

We also conclude from the record that the compensation agreed to by both parties was within the customary practice for establishing a reasonable commission in the real estate industry. Although both experts testified that the percentage-based commission is prevalent in the industry, Fields' own expert testified that "net listings" are common as well. Unfortunately, in fashioning a transaction through Torosan to Bodysonic without provision for a commission to Fields, Midwest foreclosed the propriety of using Midwest's net listing requirement as a fair measure of the reasonable value of Fields' services. Fields originally presented to Midwest an offer to purchase from Bodysonic for $5,750,000.00 with an agreed commission of 8.75% of the selling price. Although the parties were unable to resolve certain impediments to that sale, Bodysonic thereafter offered to purchase the property for $5,325,000.00 with the proviso that Midwest pay Fields her commission. Rather than arranging for...