Harris v. Scarcelli (In re Oak Knoll Assocs., L.P.)

Decision Date19 August 2016
Docket NumberNo. 15-2189,15-2189
Citation835 F.3d 24
Parties In re: Oak Knoll Associates, L.P., Debtor Robert Harris, Appellant, v. Rosa Scarcelli and Oak Knoll Associates, L.P., Appellees.
CourtU.S. Court of Appeals — First Circuit

James F. Molleur , with whom Molleur Law Office was on brief, for appellant.

Daniel L. Cummings , with whom Norman, Hanson & DeTroy, LLC was on brief, for appellee Rosa Scarcelli.

Before Howard, Chief Judge, Torruella and Barron, Circuit Judges.

HOWARD, Chief Judge.

Appellant Robert Harris seeks to recover a real estate broker's commission that he claims is owed to him by Appellees Rosa Scarcelli and Oak Knoll Associates, L.P. (collectively, Oak Knoll). Concluding on these facts that Oak Knoll is not contractually obligated to pay Harris a commission and that Harris has failed to identify a basis upon which he would be entitled to equitable relief, we affirm the grant of summary judgment in favor of Oak Knoll.

I. Background

Oak Knoll Associates, L.P., is a limited partnership whose general partners at all relevant times consisted of Pamela Gleichman and Rosa Scarcelli. This case began when the partnership sought to sell some apartment buildings that it owned in Norwalk, Connecticut. To that end, Oak Knoll enlisted the services of Robert Harris, a real estate broker.

The parties accordingly entered into an agreement dated May 16, 2011 (“the listing agreement”). The listing agreement was to remain in effect for six months and outlined two scenarios under which Oak Knoll would be obligated to pay Harris a commission for his services.1 First, Harris could earn a commission if the property were to be sold during the six-month term of the listing agreement. Second, Harris could earn a commission if an offer to purchase or lease the property were to be accepted during the six-month term or within six months of the termination of the listing agreement (and if the accepted offer in fact resulted in a sale). The listing agreement also provided that if negotiations continued after the six-month term, the listing agreement would be automatically renewed until the conclusion of those negotiations. A rider to the listing agreement, in turn, provided that Harris's commission for selling the property would be 4.8 percent.

Harris subsequently located a potential buyer, Navarino Capital Management, LLC (“Navarino”). On October 11, 2011, Navarino and Oak Knoll executed a purchase and sale agreement (2011 P&S”), whereby Navarino agreed to purchase the property from Oak Knoll for $6,300,000. The deal gave Navarino 45 days to inspect the property and allowed Navarino to terminate the deal for a number of reasons not relevant for present purposes.

In November 2011, Navarino requested and received the first in a series of extensions to the inspection period. Navarino had discovered that the property was subject to a number of restrictive covenants that Oak Knoll had agreed to at the behest of the Connecticut Housing Finance Authority when Oak Knoll first purchased the property in 1988. On February 24, 2012, Navarino wrote to Oak Knoll, offering to purchase the property at a reduced price in light of those covenants.

Oak Knoll did not accept this revised offer. Instead, intra-partnership disputes spilled into federal court: on February 28, 2012, Scarcelli sued Gleichman in United States District Court for the District of Maine. Scarcelli obtained a default judgment against Gleichman and the district court in turn issued a permanent injunction in Scarcelli's favor. See Scarcelli v. Gleichman, No. 2:12–CV–72–GZS, 2012 WL 1965681 (D. Me. May 31, 2012). Among other things, the injunction forbade Gleichman from entering into a contract to sell the property without Scarcelli's prior written consent. See id. at *4.

Harris, in turn, was kept apprised of these developments. On June 25, 2012, Scarcelli's attorney emailed Harris to inform him that Scarcelli would seek contempt sanctions against Gleichman or any third party who—knowing of the district court's injunction—acted in violation of that injunction. The record is silent as to what transpired over the following months, save for the fact that on November 13, 2012, Harris sent an invoice to Gleichman demanding payment for his services, and some months after that recorded a lien against the property for a broker's commission.

The story picks up again on March 18, 2013, when the partnership filed for Chapter 11 bankruptcy in United States Bankruptcy Court for the District of Maine. Within days, Navarino demanded the return of its escrow deposit from Oak Knoll. On April 1, 2013, the partnership filed an application to retain Harris as a real estate broker, and on June 18, 2013, Harris filed a proof of claim for his brokerage services.2

Although the retention application had not yet been approved, on August 21, 2013, the partnership's counsel sent Harris an email telling Harris to “get us a contract for the $6,275,000.” That same day, Harris informed Navarino that Oak Knoll was amenable to selling the property for that amount.

Then, on August 28, 2013, Scarcelli filed an objection to the application to retain Harris. The bankruptcy court held a hearing on the application on September 4, 2013. At the conclusion thereof, the court granted the application, provided that Oak Knoll file a revised proposed order reflecting certain changes. However, such a proposed order was never filed and the bankruptcy court thus never approved the retention application. In October 2013, the partnership's counsel withdrew the still-pending retention application with the court's approval. That same month, Navarino and Oak Knoll Associates executed a new purchase and sale agreement. This second agreement eventually resulted in the successful sale of Oak Knoll's apartment buildings.

But although Navarino got the property and Oak Knoll got its money, Harris received nothing for his efforts. Oak Knoll never paid him. Unsurprisingly, Harris pursued claims against both the partnership and Scarcelli in federal bankruptcy court, seeking the commission that he believed he was owed. Eventually, Oak Knoll moved for summary judgment, arguing that there was no material dispute of fact and that Harris was—as a matter of law—not owed a commission. Following oral argument, the bankruptcy court granted the motion and denied Harris's claims.

The bankruptcy court's decision, in turn, was appealed to United States District Court for the District of Maine, which affirmed the grant of summary of judgment. This appeal timely followed.

II. Standard of Review

[T]he legal standards traditionally applicable to motions for summary judgment apply [ ] without change in bankruptcy proceedings.” Daniels v. Agin, 736 F.3d 70, 78 (1st Cir. 2013). Thus, summary judgment is proper “if no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law.” Soto–Rios v. Banco Popular de P.R., 662 F.3d 112, 115 (1st Cir. 2011). The evidence, of course, must be viewed in the light most favorable to the nonmoving party (in this case Harris) and all reasonable inferences must be taken in that party's favor. See In re Varrasso, 37 F.3d 760, 763 (1st Cir. 1994).

We review, in turn, a bankruptcy court's grant of summary judgment de novo. See Soto–Rios, 662 F.3d at 115.3 And although the bankruptcy court's decision was first reviewed by the district court, we review the bankruptcy court's decision as if on a clean slate. See id.

III. Discussion

In seeking to recover his unpaid commission, Harris invokes two provisions of the Bankruptcy Code.4 First, he cites 11 U.S.C. § 501, arguing that he is owed a commission under the terms of his contract with Oak Knoll. Second, Harris argues that he is entitled to it as a form of equitable relief under 11 U.S.C. § 105(a). We consider each theory of recovery in turn, explaining why each one fails as a matter of law in light of the undisputed facts of this case.

A. Proof of Claim

Harris filed a proof of claim for his unpaid commission pursuant to 11 U.S.C. § 501. The Bankruptcy Code, in turn, provides that when, as here, a party objects to such a claim, the bankruptcy court is to hold a hearing, and must thereafter allow the claim unless (in addition to other exceptions not presently relevant) the claim “is unenforceable against the debtor and property of the debtor, under any agreement or applicable law for a reason other than because such claim is contingent or unmatured....” Id.§ 502(b)(1). The ultimate validity of such a claim is determined with reference to state law. See Raleigh v. Ill. Dep't of Revenue, 530 U.S. 15, 20, 120 S.Ct. 1951, 147 L.Ed.2d 13 (2000) (“The ‘basic federal rule’ in bankruptcy is that state law governs the substance of claims....”). Here, the parties agree that we must look to Connecticut law to determine whether Harris is entitled to his commission.

In Connecticut, a broker's right “to recover a commission depends upon the terms of [his] employment contract with the seller.” Revere Real Estate, Inc. v. Cerato, 186 Conn. 74, 438 A.2d 1202, 1204 (1982). Thus, while a broker can earn a commission merely by procuring a ready, willing, and able buyer, see Menard v. Coronet Motel, Inc., 152 Conn. 710, 207 A.2d 378, 379 (1965), the parties can “make the broker's right to a commission dependent on specific conditions, such as the consummation of the transaction and full performance of the sales contract.” Revere Real Estate, 438 A.2d at 1205.

With this in mind, we turn to the listing agreement, which provides, in relevant part, as follows5 :

In order protect AGENT should the property known as Oak Knoll Apartments ... (the “PROPERTY”) is sold within six (6) months from the date hereof, to sell the property for $7,000,000.00 or any such price as the OWNER may subsequently agree upon, agree to pay AGENT the commission set forth below. All parties to this agreement also agree that all communications and agreements, whether written oral, will be transmitted through AGENT.
OWNER
...

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