The First Circuit was unable to help a real estate broker cheated out of his commission, because the first listing agreement had expired and the second was never formally approved by the bankruptcy court.
Before bankruptcy, a broker found a buyer who signed a contract that never closed. Once in bankruptcy, the debtor filed an application to approve retaining the same broker. Before the approval hearing and at the debtor’s request, the broker contacted the same prospective buyer and conveyed a new offer. At the hearing, the bankruptcy court granted the retention application, but the debtor’s lawyer never submitted an order.
Eventually, the debtor withdrew the retention application with the court’s permission. Within a month, the debtor signed the same buyer to a contract that eventually closed.
The broker filed a claim for his commission, but the bankruptcy court denied the claim. The district court affirmed, leading to the opinion on Aug. 19 by Chief Circuit Judge Jeffrey R. Howard.
The circuit court analyzed the pre-bankruptcy brokerage agreement and concluded that the broker was not entitled to a commission under state law even had there been no bankruptcy, given the amount of time that elapsed after the original brokerage agreement expired in the absence of negotiations with the buyer.
The broker contended that he nonetheless had the right to a commission under Section 105(a), which allows the court to enter “any order” that is “necessary or appropriate to carry out the provisions of” the Bankruptcy Code. Chief Judge Howard said that section may be invoked under First Circuit precedent “‘only if’” an equitable remedy is “‘necessary to preserve an identifiable right conferred elsewhere in the Bankruptcy Code.’”
Judge Howard said the broker waived the equity argument because he did not raise it below.
Otherwise, the appeals court did not analyze whether the broker had any enforceable legal or equitable rights arising from the retention application that the bankruptcy court never formally approved with an order.
Judge Howard conceded that “some may find this result unfair.” He said that others “may be especially troubled” because the sale produced enough cash to pay creditors in full, with a surplus for the debtor’s owners. The court, he said, was not delegated to opine on whether the debtor was “deserving of opprobrium.” Instead, he said, the court’s assignment was decide whether summary judgment was proper.
One wonders whether the broker would have seen a better result if his lawyer had raised other issues on appeal. In terms of precedent for brokers under similar circumstances in the future, the outcome might be different because other issues could be raised.