Wednesday, July 2, 2014

Commissions! Commissions!! COMMISSIONS!!!

So. My 50th Counsel’s Corner article. Seems appropriate that this article should be about that which is nearest and dearest to the hearts of my readers . . . commissions!

James Murphy was licensed as a Texas real estate broker. He sued Reed Williams (not a licensee) for a brokerage commission regarding the sale of five tracts of property in the Frisco Medical Center subdivision.

Murphy was working with the Sellers in 2010 to secure financing for their Frisco Medical Center properties. When Murphy learned that the Sellers might consider marketing the properties, he approached Jim Williams to request authority to serve as their broker.

Reed Williams was a Vice President of the general partner entity of the various Sellers. Jim Williams (Reed’s father) was the President of one of the Sellers, and was the individual who initially discussed an exclusive listing agreement with Murphy.

Murphy was given limited authority to market the properties, but only to one prospect. Either that prospect or an affiliate of the prospect then contacted Healthcare Realty Trust to present the purchase opportunity. Healthcare was not approved as a prospective buyer, and James Murphy had no authority to consent to the delivery of information from the prospect or affiliate to Healthcare.

Evidently Healthcare then approached representatives of the Sellers directly including Reed Williams, and the target parcels were sold to Healthcare at the end of 2010. For $133 million. Since no commissions were paid to James Murphy, Murphy sued Reed Williams and others for various claims including tortious interference with contract or contractual expectation.

James Murphy likely felt that he prepared or delivered the information and materials that ultimately found their way to the purchaser, and at least in part may have induced the purchaser to close the deal. And consequently, absent Murphy’s actions, the target properties may not have been sold.

The Collin County trial court, concluding that Williams had the better case, entered a Judgment for the Reed Williams. James Murphy appealed.

On appeal Murphy contended that Reed Williams acted as an unlicensed broker and interfered with Murphy’s expectation to receive a commission. Reed Williams defended the claim by stating that his limited actions in the deal did not constitute brokerage activities.

The first part of Texas law regarding brokerage is clear. A person may not recover a commission unless that person is a licensed broker, the agreement is in writing and the agreement is signed by the person obligated to make the payment.

The second part of Texas law is more obscure. Brokers are allowed by law to sue each other for “. . . interference with business relationships.” See Texas Occupations Code 1101.806(a)(2):

The facts in this case establish that Reed Williams was not acting as a broker. Even James Murphy admitted as much in his pleadings. As such, the Court of Appeals had little trouble finding that Murphy was not entitled to a judgment against Reed Williams.

And why did this case get my attention? Because James Murphy and his lawyers cleverly used an obscure portion of Texas law and coupled it with a novel theory that one does not have to hold a brokerage license in Texas to act as a broker. As by analogy one does not have to hold a driver’s permit to drive an 18-wheel truck, or hold a pilot’s license to fly a helicopter.

All of those actions require licenses and permits to do them lawfully, but even without a license or permit one who is flying a plane is still, well, flying the plane.

So, Murphy and his lawyer constructed an argument that if Williams’ actions constituted brokerage, then his license status was irrelevant and Murphy should be able to sue one who acts as a broker (licensed or not) and interferes with business relationships. That, so the argument goes, was the purpose of Section 1101.806(a)(2).

Regardless of licensure status, James Murphy was unable to show that Reed Williams was acting as a broker. So, the Court of Appeals did not need to delve further. Judgment affirmed for Reed Williams. See Murphy v. Williams; Cause No. 05-12-1730-CV; Court of Appeals of Texas, Fifth District, Dallas Division; May 5, 2014.


This case may be appealed to the Supreme Court of Texas. Stay tuned.

Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.