Gray•Duffy Recovers More Than $1 Million for Client in a Breach of Contract Lawsuit

August 2012

Overview

Kevin Park of Gray•Duffy’s Encino office recovered more than $1 million for the firm’s commercial real estate broker client in a breach of contract lawsuit involving a long-term lease to a high school.

Discussion

On December 1, 2006, commercial real estate broker Jeffrey K. Hitz was retained by Alta Investment Company (consisting of two family trusts) to locate a tenant for a building in Westlake Village owned by Alta. Oaks Christian High School owns the contiguous property where its campus is located. A closely-held corporation, Condor Pacific, controlled by Alta occupied a small portion of the office building. The industry standard listing agreement between Mr. Hitz and Alta provided that the plaintiff was the exclusive agent of Alta, and no matter who procured the tenant, Mr. Hitz was entitled to a commission.

In March of 2007, the plaintiff contacted Oaks Christian High School to begin negotiations to use the building as a middle school. It was alleged that prior to that date the school owners would only consider purchasing the property, and never enter a long-term commercial lease, because of its attendant expense. Also, Alta informed the school owners that it would never sell the property, only lease it, for the benefit of the sole beneficiary of the trusts.

During the trial, the chief financial officer of the school testified that Mr. Hitz “rekindled” the school’s interest in the property. Their financial condition had improved, and they were willing to discuss a long-term lease, although a purchase of the property was their original goal. In April 2007, Mr. Hitz created a letter of intent, drafted lease documents, and sent the documents to his client Alta for consideration. Alta, through the grantor of the trust, told Mr. Hitz not to negotiate with the school, because they had a pre-existing relationship which cancelled any right of Mr. Hitz to a commission on the lease. At the same time, the school considered bringing in their own agent, thus forcing Mr. Hitz to split his commission, which would then be “kicked back” to the school because the agent’s children attended the school.

In late April 2007, Alta, allegedly through advice of counsel (although not in evidence at trial), told Mr. Hitz that he was not eligible for a commission because the language of the listing agreement stated that the school was excluded from the commission. In an apparent effort to make up for breaching that contract, Alta contracted with Mr. Hitz again, this time for the purchase of a building for former tenant Condor Pacific, who were required to move when the high school took over the building. This agreement was also an exclusive listing agreement on an industry standard contract. Mr. Hitz refused to agree that he was not entitled to a commission on the school lease, negotiations broke down, Alta refused to include Mr. Hitz in the negotiations on the new building, and the grantor of the two trusts who controlled Alta took over exclusive negotiations and told Mr. Hitz he would receive no fees from either transaction.

Mr. Hitz contended at trial that he was entitled to a commission of approximately $600,000 on the school lease, and that the school was not excluded under the listing agreement. With regard to the purchase of the second property, Alta paid Mr. Hitz his commission four weeks before trial began. During trial, the defendant contended that the school was excluded from the listing agreement because representatives of the trusts told Mr. Hitz that the school was “off limits”. The trial judge commented that he found it interesting that Alta would give Mr. Hitz an exclusive agreement, and that he found their perfect tenant, and then told him to stay away from them.

Judge Russell Kussman found that the school was not an excluded party in the listing agreement. He further found that Alta and its partners breached the listing agreement by refusing to have the plaintiff negotiate the terms of the lease with the school. The final judgment of $1,174,156 includes $597,732 commission, $236,308 interest, $331,616 attorney’s fees, and $6,500 costs. The defendants have filed an appeal of the judgment.

Please Note: This article is necessarily general in nature and is not a substitute for legal advice with respect to any particular case. Readers should consult with an attorney before taking any action affecting their interests.