Long & Foster Real Estate v. Nrt Mid-Atlantic

• Decision Date: 11 February 2005
• Docket Number: No. CIV.A. 1:04CV1323.,CIV.A. 1:04CV1323.
• Court: U.S. District Court — Eastern District of Virginia
• Parties: LONG & FOSTER REAL ESTATE, INC., Plaintiff, v. NRT MID-ATLANTIC, INC., Defendant.

357 F.Supp.2d 911

LONG & FOSTER REAL ESTATE, INC., Plaintiff, v. NRT MID-ATLANTIC, INC., Defendant.

No. CIV.A. 1:04CV1323.

United States District Court, E.D. Virginia, Alexandria Division.

February 11, 2005.

Brien Anthony Roche, Johnson & Roche, McLean, VA, for Plaintiff.

Robert C. Gill, Slavit & Gill, Washington, DC, for Defendant.

MEMORANDUM OPINION

ELLIS, District Judge.

A threshold motion to dismiss filed by the defendant in this breach of contract action presents the following questions:

(i) whether assignments executed in favor of the plaintiff real estate broker by 58 of its individual real estate agents, of contract claims for commissions that the agents have against the defendant real estate broker, are valid under the Virginia Code and the Virginia Real Estate Regulations;

(ii) whether the plaintiff can assert and aggregate all of its assigned claims against the defendant in a single action in this forum under the Federal Rules of Civil Procedure; and

(iii) whether the assignments by the individual real estate agents to the plaintiff were "improperly or collusively made" to obtain federal jurisdiction, in violation of 28 U.S.C. § 1359.

Because the answers to these questions, respectively, are (i) yes, (ii) yes, and (iii) no, defendant's motion to dismiss must be denied.

I.¹

Plaintiff, Long & Foster Real Estate, Inc. (Long & Foster), and defendant, NRT Mid-Atlantic, Inc. (NRT), are both real estate brokerage firms operating in the Northeast United States. Specifically, Long & Foster is a licensed Virginia corporation with offices in Fairfax, Virginia, while NRT, trading as Coldwell Banker Residential Brokerage, Inc., is a Maryland corporation with its principal place of business in New Jersey. NRT is also the owner and operator of a third real estate brokerage firm — Pardoe & Graham, Pardoe Realty and/or Pardoe ERA (Pardoe) — which, like Long & Foster, is licensed to perform real estate services in Virginia.

As is customary in the real estate industry, brokerage firms typically enter into written, and sometimes oral, independent contractor agreements with individual real estate agents. These individual agents then perform real estate services on behalf of the brokerage firm in return for a portion of the commissions earned in connection with real estate sales. In this regard, brokerage firms typically receive a 4 to 6 percent commission on each completed real estate transaction, while the participating individual real estate agent then receives a portion of this commission in accordance with his or her independent contractor agreement with the brokerage firm. And, the amount paid by the brokerage firm to a particular agent for a particular transaction often varies depending on the agent's experience or other factors.

The record reflects that in 2002, Pardoe was a party to such oral and written independent contractor agreements with various individual real estate agents. At some point in 2002 or 2003, 58 of these individual real estate agents became dissatisfied with Pardoe and made the collective decision to seek alternative employment. At the time they terminated their employment relationships with Pardoe, these 58 individual agents were allegedly entitled to certain sums from Pardoe in connection with the sale of 150 residential homes. Each of these sales appears to have arisen from a different contract of sale, entered into by different sellers, with different buyers, for different sales prices, with different conditions, and with closings on different dates.²

It is undisputed that Pardoe paid the 58 individual agents a portion of the commissions to which they were entitled with respect to these 150 real estate transactions. Yet, additional amounts allegedly owed to the agents for these transactions under their respective independent contractor agreements were withheld by Pardoe. It is these additional amounts that are the subject of the assignments in issue here. And, although it is not entirely clear from the current record, these disputed amounts, totaling $423,484.09, appear to fall into three general categories, namely (i) an alleged 6 percent deduction applied by Pardoe to the total broker's commission that it received in connection with each transaction, prior to calculating the participating agent's share of that commission, (ii) an additional 25 percent deduction applied by Pardoe to the participating agent's calculated share of the total broker's commission in each transaction, presumably as a result of the departure of the 58 individual agents from Pardoe's employment, and (iii) miscellaneous costs claimed by the participating agents.

After terminating their relationships with Pardoe, the 58 individual real estate agents became associated with Long & Foster. This employment transition was a negotiated arrangement between Long & Foster and all 58 agents as a group, rather than with each agent individually. And, in the course of this negotiation process, the agents apparently requested that Long & Foster reimburse them the precise amounts they believed they were still due from Pardoe in connection with the 150 disputed real estate transactions. Long & Foster complied with the agents' request in this regard, in part to induce the agents to join Long & Foster. Thus, on some unknown date in 2002 or 2003, Long & Foster reimbursed the 58 agents the exact amount — one hundred cents on the dollar — that each agent believed he or she was due from Pardoe. In return for the reimbursements, the agents agreed to assign their respective contract claims against Pardoe to Long & Foster, in the event Long & Foster wished to pursue the claims in an attempt to recover some or all of the funds reimbursed to the agents. Thus, each agent executed a written assignment in favor of Long & Foster of his or her contract claims against Pardoe. In so doing, the agents retained no residual interest in the assigned claims. Indeed, it was agreed between the parties that in the event Long & Foster was unable to recover any amount from Pardoe on the assigned claims, the agents would still have no obligation to return any of the funds to Long & Foster; instead, it was agreed that Long & Foster was "out" that amount regardless of the outcome of any subsequent litigation against Pardoe.

In January 2004, Long & Foster, relying on the assignments, filed a breach of contract action in Fairfax County Circuit Court against NRT, the current owner and operator of Pardoe. The 58 individual real estate agents were named as additional plaintiffs. See Long & Foster Real Estate, et al. v. NRT Mid-Atlantic, Inc., Law No. 220116 (Va.Cir.Ct.2004). NRT promptly moved to dismiss the state action on the ground that the asserted claims did not "arise out of the same transaction or occurrence," as required for joinder under § 8.01-272 of the Virginia Code³ and Rule 1:4(k) of the Rules of the Supreme Court of Virginia.⁴ Following a hearing on May 7, 2004, the Circuit Court judge granted NRT's motion to dismiss, concluding that the action indeed asserted claims arising out of more than 150 separate transactions, in violation of Virginia's procedural rules. The Circuit Court judge therefore dismissed all but one of the alleged claims, allowing only the first claim of the first named individual agent to proceed in that action. It appears from the record that Long & Foster later nonsuited this remaining claim. See Va.Code § 8.01-380.

Thereafter, on November 1, 2004, Long & Foster — proceeding alone this time — filed the instant federal action against NRT on the basis of diversity of citizenship, relying on the same assignments and alleging the same contract claims that it had previously asserted in the state action. Specifically, Long & Foster now seeks to recover $423,484.09 from NRT, the exact amount Long & Foster paid to the individual agents as reimbursement for the amounts allegedly owed by Pardoe under the agents' respective independent contractor agreements. NRT filed a threshold motion to dismiss the action pursuant to Rules 12(b)(1), 20 and 21, Fed.R.Civ.P., arguing that the claims asserted by Long & Foster are, in reality, 150 separate and unrelated claims that have been improperly joined in a single federal action through various invalid assignments executed in favor of Long & Foster. The parties have presented both written and oral argument with respect to the issues raised in NRT's motion to dismiss and the matter is now ripe for disposition.

II.

The starting point in the analysis requires a determination of the validity under Virginia law⁵ of the assignments executed by the individual agents in favor of Long & Foster, for if these assignments were invalid from the outset, as NRT contends, then Long & Foster would have no contract claims to assert against NRT in this instance and the individual agents would remain the true owners of the claims.⁶ It is therefore necessary to determine, as a threshold matter, whether the agents' assignments to Long & Foster of their respective contract claims against their former brokerage firm were valid assignments under Virginia law.

Virginia law expressly allows the assignment of a typical contract claim. Indeed, Virginia Code § 8.01-26 provides that "those causes of action for damage to real or personal property, whether such damage be direct or indirect, and causes of action ex contractu are assignable." Va Code § 8.01-26 (emphasis added). Thus, while torts and other claims for purely personal wrongs fall outside the scope of this provision,⁷ ordinary breach of contract claims, such as those alleged here, are clearly assignable under the Virginia statute.⁸

Yet, this does not end the analysis, as NRT contends that the assignments were nonetheless prohibited under the Virginia Real Estate Regulations governing the receipt of improper brokerage commissions by real estate agents. The specific provision relied on by NRT in this regard is set forth at § 135-20-280 of Title 18...