Atlantic Richfield Co. v. Sybert

Liss, J., delivered the opinion of the Court. ⁷⁶ This appeal arises out of a declaration filed by Sybert, Sybert and Nippard, the appellees herein, all of whom are attorneys at law duly qualified to practice their profession in the State of Maryland, against the appellant, Atlantic Richfield Company (hereinafter Arco), a Pennsylvania corporation duly qualified to do business in the State of Maryland. The suit, filed in the Circuit Court for Howard County, alleged a claim for real estate commissions arising out of the negotiation of a contract of sale between Arco and Belvoir Terminals Corporation, a wholly owned subsidiary of the Citadel Corporation, a client of Mr. Nippard. The transaction involved the sale of certain real estate and facilities owned by Arco in Virginia to Citadel’s subsidiary corporation at a price in excess of three million dollars and a claim for real estate commissions in the amount of $312,500. By appropriate motion on behalf of the appellant the case was removed from Howard County to the Circuit Court for Carroll County and was tried, without the intervention of a jury, before Judge Donald J. Gilmore.

At the conclusion of the case Judge Gilmore awarded a judgment in favor of the appellees in the amount of $312,500 and it is from this judgment that this appeal was seasonably filed. The facts in this case are in some particulars undisputed and in others, hotly contested. In order to understand the complex legal issues in dispute between the parties it is necessary to state the facts rather fully. In 1972 Arco had an option to purchase certain real estate situated in Howard County, Maryland (hereinafter the "Schultz property”) on which it planned to install certain storage facilities in connection with a pipeline terminal to be constructed on the property.

Arco’s plans to exercise its option were subject to its ability to secure a special exception and variance from the Howard County Board of Appeals which would substantially increase the permissible storage capacity of the terminal to be constructed on the property. Cornelius F. Sybert, Jr. was employed by Arco to secure the necessary variance and special exception from the Howard County Board of Appeals. Sybert, with the assis ⁷⁷ tance of George Tracy, an employee of Arco, presented Arco’s case to the Board of Appeals which denied the variance and special exception. An appeal was thereupon taken to the Circuit Court for Howard County by certain of the protestants, who appeared in the proceedings before the Board.

The action of the Board was revised. A further appeal was then noted to this Court and was still pending at the time of the initiation of the instant proceedings. Mr. Tracy and Mr. Leonard Berkowitz, another employee of Arco, had maintained liaison throughout the proceedings involving the "Schultz property” with Mr. Sybert. Before a final disposition of the appeal to this Court, Tracy advised Sybert that Arco was uncertain whether it would actually develop the "Schultz property” even if it received final approval for the variance and special exception.

Mr. Nippard, in the interim, had been contacted by Roger Koehneke, a vice president of Citadel Corporation, for the purpose of securing a parcel of land in Howard County suitably zoned for tank farm use. Nippard was to represent Citadel in securing the necessary approvals for the establishment of storage facilities to be operated in conjunction with a pipeline terminal. Nippard engaged the services of Ellsworth lager, a local real estate dealer, to locate an appropriate site. lager did in fact locate a suitable piece of real estate owned by Contee Sand and Gravel Company, situated on the same pipeline which traversed the "Schultz property” on which Arco had an option and tentative zoning approval. Because Arco had indicated its uncertainty as to the future of the "Schultz property”, Sybert and Nippard arranged for a meeting between Tracy and Koehneke to discuss their mutual interests.

Before the meeting between Tracy and Koehneke began, Sybert and Nippard met privately with Tracy to discuss the question of compensation to be paid to Sybert and Nippard in the event the meeting between Tracy and Koehneke resulted in the sale of the "Schultz property” by Arco to Citadel. In the course of that meeting Tracy advised Sybert and Nippard that in the event Arco was unwilling to sell the "Schultz property” to Citadel, ⁷⁸ Arco owned and was offering for sale two other properties which might be suitable for Citadel’s needs, i.e., properties located on Key Highway in Baltimore City and Fort Belvoir, Virginia. Tracy discussed with Sybert and Nippard several alternative possibilities involving these properties such as the possibility of a lease or joint venture but it was finally agreed upon, according to Sybert and Nippard, that in the event of a sale of any of the properties that Arco would pay the "usual” or "customary” commission. Tracy’s recollection of the discussion with Sybert and Nippard was that he did attend a meeting at appellees’ offices sometime in October of 1974 to discuss the "Schultz property” and that at that meeting he mentioned that appellant’s Belvoir Terminal and Key Highway Terminal in Baltimore might be available for sale in the near future.

Tracy explained that the "Schultz property,” Belvoir Terminal and Key Highway Terminal were interrelated for appellant’s total distribution picture and the ultimate outcome of the "Schultz property” would have a bearing on the availability of either or both the other properties. Tracy admitted meeting privately with Sybert and Nippard before meeting the Citadel representative but stated that commissions were not discussed as a form of compensation for the appellees. He testified he never agreed to pay brokerage commissions for any possible sale of Belvoir Terminal and that he did not have any authority involving any aspect of the sale of Belvoir Terminal or any other surplus real estate owned by appellant. George Tracy’s title in Arco’s corporate structure was "Real Estate Manager, Special Projects” and he was required to report directly to one of Arco’s vice presidents who was designated as "Manager of the Distribution Department.” Arco’s corporate procedure to place property owned by it on the market for disposition was to transfer the transaction to another individual in the "Manager of Distribution” department named Richard Erdlitz.

Some time after Tracy’s meeting with Koehneke (as arranged by Sybert and Nippard), Mr. Tracy wrote a letter to Sybert, with a copy to Mr. Erdlitz, in which he stated that the "Schultz property” had an uncertain future with Arco. The letter further stated: ⁷⁹ As I did advise you and Mr. Koehneke, our marine terminal at Key Highway and Lawrence St., Baltimore, Md., and the pipeline terminal at Belvoir, Virginia will both be put on the market shortly. If Citadel is interested in either of these facilities as an alternate to building their own, I suggest you contact Mr. Richard Erdlitz, Manager of our Commercial Properties Department, 1500 Market Street, Philadelphia, Penna., 19101- phone (215) 557-3270, for further information. Sybert communicated the information in this letter to Nippard, who, on November 19, 1974, called Mr. Erdlitz in Philadelphia and advised him of his prior conversations with Tracy and that Citadel Corporation was interested in the Belvoir property.

Erdlitz advised Nippard that a brochure on that property was being prepared and as soon as the brochure was ready it would be sent to Nippard. Shortly thereafter Nippard received from Erdlitz a brochure entitled "Pipeline Terminal for Sale,” which Nippard forwarded to Koehneke of Citadel by letter dated January 24, 1975. Citadel’s counsel, Alan D. Keiler, then called Erdlitz and after negotiations between Erdlitz and Keiler the parties executed a contract of sale for the Belvoir property for 3.125 million dollars. Sybert became aware that the parties were proceeding to settlement and called Erdlitz to remind him of his claim for commissions.

Erdlitz promptly denied any commissions were due. The suit for commissions then was filed and the trial judge made the following findings of fact and law: (a) Mr. Tracy, "Real Estate Manager Special Projects” was clothed with at least apparent authority to enter into the Agreement testified to by Messrs. Sybert and Nippard. (b) A valid and enforceable contract was agreed to by the parties in this action.

(c) In accordance with the testimony of Mr. lager the rate of compensation agreed upon ⁸⁰ by the parties was ten percent (10%) of the purchase price. (d) The sale of the Belvoir property by Arco to Belvoir Terminals Corporation satisfied the condition of the Contract and entitled the Appellees to the compensation agreed upon. Appellant raises six issues to be determined by this appeal: I. Did the trial court err in finding the existence of a brokerage agreement between appellees, attorneys, and appellant, their client? A. Did appellees meet their burden of proving their cause of action by clear and convincing evidence, or even by a preponderance of the evidence?

B. Did the trial court err in finding that George Tracy, an employee of appellant, had apparent authority to bind appellant to the alleged brokerage agreement?

II

Was the alleged brokerage agreement null and void because appellees failed to fully disclose to appellant, or even to George Tracy, the potential pitfalls of their dual representation of appellant and Citadel Corporation and also failed to obtain any informed consent?

III

Did appellees meet their burden of proving that they were the procuring cause of the sale of appellant’s Belvoir Terminal?

IV

Was the applicable choice of law in this case either the law of Virginia or the law of the District of Columbia, rather than the law of Maryland? V. Could appellees recover a brokerage commission under Maryland law when appellees were not licensed real estate brokers? ⁸¹ VI. Did appellees meet their burden of proving that there was a customary and usual brokerage commission and that any such commission was certain, uniform and notorious? I. A., I. B., II and V. Appellant initially contends that the appellees failed to overcome their burden of proving their case by clear, satisfactory and convincing evidence.

This standard, if applicable, is more onerous than the usual standard of proof imposed upon a plaintiff, i.e., the burden of proof by a preponderance of the evidence. 1 In support of this contention appellant cites the following cases: Iula v. Grampa, 257 Md. 370 , 263 A.2d 548 (1970); Cook v. Hollyday, 185 Md. 656 , 45 A.2d 761 (1946); In re Williams, 180 Md. 689 , 23 A.2d 7 (1941); Baker v. Otto, 180 Md. 53 , 22 A.2d 924 (1941); Crest Investment Trust, Inc. v. Comstock, 23 Md. App. 280 , 327 A.2d 891 (1974). After reviewing these cases, however, we find that they are factually inapposite with the case at bar. In each of these cases the attorney-client relationship was attacked on the basis that there had been fraudulent conduct or undue influence on the part of the attorney. Under these circumstances the Court of Appeals and this Court has held that the transactions were at least prima facie invalid and that the burden was on the attorney to establish by the clearest and most satisfactory evidence that the transaction was fully understood and fair in all respects.

In the case at bar, there is not the slightest suggestion of fraud or undue influence by the appellees. We conclude the burden of proof on the plaintiffs in this case is that usually imposed on a plaintiff — to prove his case by a preponderance of the evidence. ⁸² Appellees were required to prove by a preponderance of the evidence that a brokerage agreement was entered into between appellees and appellants on the basis: (1) of the alleged agreement between Tracy and the appellees; (2) that Tracy had actual or apparent authority to enter into such an agreement on behalf of the appellant; (3) that appellees were the procuring cause of the sale; (4) that there was a customary and usual brokerage commission in Maryland in 1974 and 1975 for the sale of improved industrial property; and (5) that said customary and usual commissions were certain, uniform and notorious. As to the first and third of these issues it is clear from the record that Sybert and Nippard both testified expressly that Tracy agreed that the appellant would pay the customary and usual brokerage commissions if Nippard’s client was successful in buying the excess property appellant had for sale. Furthermore, there was evidence that prior to the meeting on October 16, 1974 (between Sybert, Nippard and Tracy) neither Tracy, Erdlitz (Tracy’s superior) nor any other Arco official had heard of the Citadel Corporation.

Tracy’s letter to Sybert with a copy to Erdlitz (which we have previously quoted), clearly indicated that Sybert and Nippard were representing Citadel and that Citadel was interested in the Key Highway and Fort Belvoir properties. When Nippard called Erdlitz, he advised Erdlitz of his prior conversation with Tracy and the current interest of Citadel in the Belvoir property. Erdlitz promised Nippard that as soon as it was ready he would send a brochure to Nippard giving all the details of the Belvoir offer. As a follow-up to Nippard’s phone call, Erdlitz sent a handwritten memorandum to his assistant, Grady B. Law, identifying "Sybert, Sybert, etc.” as a prospect for the Belvoir pipe terminal property.

Nippard did in fact receive the brochure and forwarded it to Koehneke of the Citadel Corporation. It was in reaction to Nippard’s action that Alan D. Keiler, counsel for Citadel, communicated with Erdlitz and began negotiations for the purchase of the Belvoir property. This resulted in a contract of sale with Belvoir Terminals, a newly created alter ego of Citadel, for the full asking price of $3,125,000. ⁸³ Moreover, it is conceded by the appellant that prior to the October 16, 1974 conference in Sybert’s office, Arco had no knowledge of Citadel and Citadel’s interest in the Belvoir property resulted from the meeting. Arco’s basis for the final refusal to pay commissions to Sybert and Nippard was expressed in Arco’s letter to Sybert wherein it was stated, "you are not a real estate broker and were never employed by this company to act as a real estate broker in any transaction.” From this language it is clear to us that Arco was relying on the provisions of Maryland Code (1957, 1979 Repl.

Vol., 1981 Cum. Supp.) Article 56, § 212 (which defines the business of a real estate broker) and § 217 (which proscribes carrying on such business unless licensed to do so). The appellees make no contention that they were licensed real estate brokers. Appellant, however, has entirely overlooked the effect of Article 56, § 212 (f) (6), which states: (f) Exceptions. — The terms "real estate broker” and "real estate salesman” do not include: (6) Attorneys at law who are not regularly engaged in the real estate business and who do not hold themselves out by sign, advertisement or otherwise as offering to the general public the services authorized by this subtitle to be performed by real estate brokers.

It is clear from the record that there was sufficient evidence from which the trial court could find either an express or implied contract between the parties regarding the appellee’s right to be paid commissions for their services in securing a purchaser for the Belvoir property. Therefore, the fact that none of the attorneys were licensed real estate brokers would not operate so as to deny them the right to their compensation since they clearly fell within the exception expressed in Section 212 (f) (6) of Article 56. The trial court in its findings of fact concluded that Tracy was clothed with at least apparent authority to enter into ⁸⁴ the agreement as contended by Sybert and Nippard. We define "apparent authority” in Miller v. Mueller, 28 Md. App. 141 , 343 A.2d 922 (1975), as follows: Apparent authority may arise when the actions of the principal, reasonably interpreted, cause a third person to believe in good faith that the principal consents to the acts of the agent.

Apparent authority also may arise when the principal knowingly permits the agent to act in a certain manner as if he were authorized. The action or manifestation of authority giving rise to the reliance must be that of the principal, and the reliance by the third person on the action or manifestation of authority must be reasonable. [Citations omitted]. [ 28 Md. App. at 148 ], See also Fuller v. Horvath, 42 Md. App. 671