By Glen Hansen

In Venturi & Company LLC v. Pacific Malibu Development Corporation (April 10, 2009) 172 Cal.App.4th 1417, the California Court of Appeal for the Second Appellate District held that a trial court erred in granting summary judgment and entirely dismissing a plaintiff’s claim for payment for services rendered to a development company because the plaintiff was not licensed as a real estate broker. Plaintiff may be able to recover some payment since a portion of the services provided by plaintiff were not exclusively those of a real estate broker. But the dispute could have been avoided if plaintiff had properly been licensed as a real estate broker.

Appellant Venturi & Company LLC (“Venturi”) and respondents Pacific Malibu Development Corporation and Hermitage Estates (collectively, “Pacific Malibu”) entered into a contract involving development of a high-end resort on undeveloped property on the Bahamian island of Little Exuma.  Under the contract, Venturi agreed to serve as a financial advisor and find financing for the Little Exuma project through a private placement of equity, preferred stock, debt securities, or a combination of those financial instruments. Pacific Malibu agreed to compensate Venturi with two possible fees. First, Pacific Malibu promised upon “completion of a placement” to pay Venturi a “monthly advisory fee” of $ 30,000 for at least three months “at the close of any such placement.” Second, Pacific Malibu promised to pay a “success fee” to Venturi “promptly upon consummation of any placement of securities.”  The amount of the success fee depended on Venturi’s role in the consummated placement. If Venturi either introduced Pacific Malibu to the party who provided financing, or participated in “active negotiations” with that party, Pacific Malibu promised to pay Venturi a success fee equal to 5 percent of the placement’s proceeds. If, on the other hand, Venturi neither identified the party providing financing nor negotiated the financing, then Pacific Malibu owed Venturi only 1 percent of the placement’s proceeds. Although Venturi contacted more than sixty potential sources of financing for the project, Pacific Malibu did not receive financing from any source that Venturi had identified. When Pacific Malibu obtained financing from another source that Venturi had no part in securing, Venturi claimed the contract’s provision for a success fee entitled Venturi to compensation.  Pacific Malibu refused to pay, and Venturi filed this action.

The trial court granted Pacific Malibu’s motion for summary judgment on the ground that Venturi provided the services of a real estate broker by soliciting financing for the Little Exuma project without a broker’s license. Under Business and Professions Code section 10136, only a licensed real estate broker may receive compensation for real estate brokerage services. However, the Court of Appeal reversed.

The Court of Appeal held that, while Venturi could not receive compensation for providing real estate broker services to Pacific Malibu, the trial court erred in denying Venturi compensation to the extent Venturi’s services were not those of a real estate broker. The court used the definition of a “real estate broker” in Business and Professions Code section 10131 as the guide to determining what services were those of a real estate broker, and what were not. Some of the services Venturi agreed to provide under its contract with Pacific Malibu could constitute those of a real estate broker, included finding possible sources of financing for the Little Exuma project, and helping to negotiate the placement of financing instruments. The contract also called for Venturi to provide services different from a real estate broker. For example, Venturi agreed to review the project’s costs and financial requirements, to help Pacific Malibu prepare information materials and documents related to financing the project, to help formulate a marketing strategy to secure financing, and to provide mutually agreed-upon financial advice and investment banking services. Furthermore, Venturi was not involved in arranging or negotiating the eventual source of financing, and so it may still be entitled to a “success fee” under the contract.  Thus, triable issues existed involving the extent to which Venturi provided either unlicensed broker services or, alternatively, nonbroker services for which it did not need a license.

Venturi then tried to argue that it was entitled to compensation for all services it provided to Pacific Malibu since one of Venturi’s managers obtained a real estate sales license eight months after the contract was entered into, but before Pacific Malibu allegedly breached the contract. The court rejected that argument. The Venturi manager only had a “sales” license and not the required “broker” license; and the broker whom the Venturi manager worked for was not a party to the real estate contract, which is required for broker compensation. Thus, the dispute may have been avoidable if the real estate broker, rather than the Venturi sales agent, had initially signed the contract.

Glen C. Hansen is a senior associate at Abbott & Kindermann, LLP. For questions relating to this article or any other California land use, real estate, environmental and/or planning issues contact Abbott & Kindermann, LLP at (916) 456-9595.

The information presented in this article should not be construed to be formal legal advice by Abbott & Kindermann, LLP, nor the formation of a lawyer/client relationship. Because of the changing nature of this area of the law and the importance of individual facts, readers are encouraged to seek independent counsel for advice regarding their individual legal issues.