Stephen A. Goldberg Co. v. Remsen Partners, Ltd.

• Decision Date: 26 March 1999
• Docket Number: No. 98-7022,98-7022
• Parties: THE STEPHEN A. GOLDBERG CO., and Stephen A. Goldberg, Appellees, v. REMSEN PARTNERS, LTD., Appellant.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 191

170 F.3d 191

335 U.S.App.D.C. 154

THE STEPHEN A. GOLDBERG CO., and Stephen A. Goldberg, Appellees, v. REMSEN PARTNERS, LTD., Appellant.

No. 98-7022.

United States Court of Appeals, District of Columbia Circuit.

Argued Jan. 19, 1999.

Decided March 26, 1999.

Appeal from the United States District Court for the District of Columbia (No. 96cv02742).

George R. Clark argued the cause and filed the briefs for appellant.

Paul A. Kaplan argued the cause for appellees. With him on the brief was James W. Gladstone.

Before: EDWARDS, Chief Judge, WILLIAMS, Circuit Judge and BUCKLEY, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge STEPHEN F. WILLIAMS.

STEPHEN F. WILLIAMS, Circuit Judge:

Pursuant to a 1992 Letter Agreement, the Stephen A. Goldberg Company ("the Goldberg Company" or the "Company") retained Remsen, a New York-based financial consulting services corporation, to serve as a financial advisor to the Company. The goal was to arrange a $122 million "securitized" refinancing of various Maryland and Virginia apartment complexes managed by the Goldberg Company and owned by limited partnerships controlled by Stephen Goldberg. According to the record securitized financing is a method of raising money by creating marketable securities from an income-producing asset. See also Steven L. Schwarcz, The Alchemy of Asset Securitization, 1 Stan. J.L. Bus. & Fin. 133, 133 n.1 (1994). Here the parties used a mortgage loan as the asset, transferred the loan to a trust fund, and then sold ownership interests in the trust fund to investors. In consideration for Remsen's services, the Goldberg Company agreed to pay Remsen a one-percent contingent fee on completion of the financing, as well as various post-closing consulting fees.

The financing was successfully completed in January of 1993. The Goldberg Company made the agreed payments until sometime in 1994. It then stopped making payments on the balance of the post-closing fees, although it continued to make them on the closing fees and on the first-year consulting fees until January 1997.

In November 1996 the Goldberg Company filed this complaint against Remsen in the Superior Court of the District of Columbia, seeking a declaratory judgment that the parties' agreement was void and unenforceable because Remsen was not licensed as a real estate broker, as required by the District of Columbia Real Estate Licensure Act of 1982, D.C.Code §§ 45-1921, et seq. (the "Brokerage Act"). The Goldberg Company also sought damages and rescission of the parties' agreement for alleged fraud and misrepresentation. Remsen removed the case to the United States district court on the basis of diversity. It also filed a counterclaim against the Goldberg Company and a third party complaint against Stephen Goldberg, alleging breach of contract by both of them. The district court granted summary judgment for the Goldberg Company, holding that the agreement was unenforceable and void because the Brokerage Act was applicable to the transaction. Since the district court held that the Letter Agreement was void and unenforceable, it did not reach the merits of Remsen's counterclaim. The district court also, entirely on the basis of the Brokerage Act violation, ordered Remsen to return all the money that the Company had paid under the Letter Agreement ($1,078,045).

We affirm the district court's holding that the agreement was not enforceable. On the issue of recovery, we find ourselves in enough doubt about the course of District of Columbia law that we certify the question to its Court of Appeals.

* * *

The Brokerage Act imposes a licensing requirement on those engaging in real estate brokerage activities. D.C.Code § 45-1926(a). Individuals conducting real estate brokerage services without licenses may not "bring or maintain any action in the courts of the District for the collection of compensation" for any such services. Id. § 45-1926(c). At the time of this transaction Remsen was not licensed as a real estate broker under the Act, and the Goldberg Company contends that this renders the Letter Agreement void and unenforceable.

Remsen's first argument on appeal is that as applied in this case the Brokerage Act violates the commerce clause. But since Remsen never argued that question before the district court, we decline to hear it for the first time on appeal. See Boehner v. Anderson, 30 F.3d 156, 162 (D.C.Cir.1994). Remsen also contends that New York rather than D.C. law governs the enforcement of the agreement, and that under New York law Remsen was not required to be licensed as a real estate broker to perform the services required by the Agreement. Finally, Remsen insists that even if we find D.C. law applies to this transaction, its services should not be construed as "brokerage" services under that law.

In resolving the conflict of laws issue the district court found that Remsen's activities were illegal under both New York and D.C. law, so that there was a "false conflict." Thus it applied D.C. law. Remsen contests the "false conflict" analysis. New York real estate licensure law, Remsen contends, does not cover the kind of services rendered by Remsen. We do not decide the issue, since we hold that even if the conflict is not false, D.C. law would apply.

In a diversity case a federal court follows the choice-of-law rules of the jurisdiction in which it sits. Gray v. Grain Dealers Mutual Ins. Co., 871 F.2d 1128, 1129 (D.C.Cir.1989). The District states that (in the absence of an effective choice of law by the parties ¹) it uses "a constructive blending" of the "governmental interest analysis" and the "most significant relationship test," the latter as expressed in the Restatement (Second) of Conflict of Laws § 188 (1988). Hercules & Co., Ltd. v. Shama Restaurant Corp., 566 A.2d 31, 41 n. 18 (D.C.1989); see also Ideal Electronic Security Co. v. Int'l Fidelity Ins. Co., 129 F.3d 143, 148 (D.C.Cir.1997) (stating that District applies § 188 for contracts cases). But the Restatement itself notes that for certain types of contracts, including those for services (as here), "it is considered possible to state with respect to each that ... a particular contact plays an especially important role." Restatement, Ch. 8, Topic 1, Title B, "Introductory Note." There does not appear to be an established hierarchy in the application of these concepts. See Kermit Roosevelt III, "The Myth of Choice of Law: Rethinking Conflicts," 98 Mich. L.Rev. ___, ___ (1999) (noting "dizzying number of factors" made relevant by Restatement with little hint as to their relative weight). In any event, for the reasons developed below we find the results somewhat inconclusive by all methods, and ultimately follow a method the District has used to break a tie between its own law and that of another jurisdiction--namely the efficiency of using its own.

For the validity of a service contract, the Restatement assigns presumptive weight to the place where the services are to be rendered, see Restatement § 196, reasoning that this is most likely both to accord with the assumptions of the parties and to allow control by the state with the greatest interest. But this factor does not point with certainty. Several Remsen employees spent weeks in the District gathering data and dealing with other professionals working on the transaction, but Remsen also reviewed and analyzed the data in New York.

The five factors named in § 188 as determinants of a "significant relationship" are: (1) the place of contracting; (2) the place of negotiation; (3) the place of performance; (4) the location of the contract's subject matter; and (5) the domicile, residence, nationality, place of incorporation and place of business of the parties. Id. § 188. Place of performance (#3) we have already discussed.

The other factors--taken without any prioritization--do little to help. One, the place of negotiation (#2), points to the District. The subject matter of the contract (#4), real property in Virginia and Maryland, points to neither New York nor the District, and neither party is urging the application of the laws of Virginia or Maryland. The place of contracting (#1) is uncertain. It is undisputed that Goldberg signed the agreement in the District, while Remsen signed it in New York. But the parties disagree as to where the last signature--the last act necessary to make the agreement binding--occurred. In any event, under the Restatement the place of contracting standing alone is typically viewed as rather insignificant, especially when it was fortuitous. Id. § 188, cmt. e; Finance America Corp. v. Moyler, 494 A.2d 926, 929 (D.C.1985). And the parties' places of business are divided: while the Goldberg Company is a District corporation and Mr. Goldberg maintains his office in the District, Remsen is a Delaware corporation with offices in New York but operating around the country.

In § 188, the Restatement itself states that where place of negotiation and performance coincide, that place should generally control, § 188(3), noting in the comment that the state with those contacts "will usually be the state that has the greatest interest in the determination of issues arising under the contract." Id. cmt. f. As we've said, the place of negotiation points to the District, and the place of performance is equivocal. The District, however, inquires independently into which jurisdiction has the greatest interest in the subject. See, e.g., District of Columbia Insurance Guaranty Association v. Blair, 565 A.2d 564, 568 (D.C.App.1989); Hercules & Co., 566 A.2d at 41 n. 18; Kaiser-Georgetown Community Health Plan, Inc. v. Stutsman, 491 A.2d 502, 509 (D.C.App.1985); Fowler v. A & A Co., 262 A.2d 344, 348 (D.C.1970). Here, the purpose of the brokerage statutes in both New York and the District is to protect those who enter into agreement with unlicensed real estate brokers. See Galbreath-Ruffin Corp. v. 40th & 3rd Corp., 19 N.Y.2d...