Court revives real estate advisor’s equity pay claim

Although a consultant failed to present sufficient evidence of a contract for ongoing real estate advisory services, the 4th U.S. Circuit Court of Appeals held that summary judgment was premature for the consultant’s quantum meruit claim.

The consultant alleged that he was entitled to an equity share in return for extensive advisory services based on a handshake deal with the property owner. The district court granted the owner summary judgment on all claims.

U.S. Circuit Judge DeAndrea Gist Benjamin agreed that the consultant “proffered no evidence of his oral acceptance of [the owner’s] offer,” and affirmed the dismissal of their contract and promissory estoppel claims.

However, Benjamin said “a reasonable factfinder could find that [the consultant] performed supplemental advisory services ‘under some understanding or expectation of both parties that compensation’ — here some form of equity — ‘was to be made.’”

Joined by Chief Judge Albert Diaz and Judge G. Steven Agee, Benjamin reversed and remanded the case for a determination of damages if the consultant prevailed on their quantum meruit claim in 3074 Centreville LLC v. M.A. Cohen & Co. Inc. (VLW 025-2-149).

“We have a strong case that we look forward to presenting at trial,” the consultant’s counsel, Gabe Doble of Dovel Luner in Santa Monica, California, said. Attorneys for the owner did not respond to a request for comment.

A handshake deal

Michael Cohen, a former real estate lawyer turned broker and advisor, provided services to assist Mark Webber with securing financing for a commercial real estate venture in Herndon based on a handshake deal.

Although they agreed that Cohen was paid a commission for loan brokerage services related to purchasing the property, the parties diverged on whether Webber engaged Cohen to provide any additional services in return for a 20% equity stake in the venture.

Webber acknowledged seeking and receiving non-brokerage advice from Cohen but denied that those were advisory services. After Webber sued Cohen for a declaratory judgment that no contract existed, Cohen countersued for breach of contract, promissory estoppel and quantum meruit.

Cohen appealed when the district court granted Webber’s motion for summary judgment in its entirety.

No acceptance

The parties agreed that California law applied, under which a valid contract requires a meeting of the minds on all material points.

“‘[A] term may be “material” in one of two ways: It may be a necessary term, without which there can be no contract; or, it may be an important term that affects the value of the bargain,’” Benjamin explained, citing Facebook, Inc. v. Pac. Nw. Software, Inc.

“‘Obviously, omission of the former [but not the latter] would render the contract a nullity,’” the judge added.

Cohen argued that a binding oral agreement was formed in April 2017, then modified in November 2017, and the parties’ “words, writings, and conduct” continually affirmed the agreement.

Benjamin disagreed.

“Even viewed in the light most favorable to Cohen, there was no meeting of the minds in April — or at any other time — as is necessary to form a binding oral contract,” the judge found, adding that Webber’s email to Cohen and Michaels contradicted any claim otherwise.

“As the district court correctly noted, that Webber needed to know whether Michaels and Cohen desired to ‘move forward with becoming a partner’ makes clear that Webber did not understand a binding partnership agreement with Cohen to have arisen from their April conversation,” Benjamin said.

Under an objective standard, the judge said Webber’s email was an outward manifestation of the lack of mutual assent, and therefore “merely an offer.”

Here, Cohen proffered no evidence of his oral acceptance of Webber’s offer.

“Instead, the record shows that two months later, Cohen sent Webber the first of many redlines with significant changes to the structure of the agreement, division of interests and Cohen’s obligations,” Benjamin pointed out.

Thus, the judge said any reasonable jury would interpret Cohen’s response as a rejection of Webber’s offer and find no September or November 2017 contract.

“And because Cohen and Webber did not ‘agree on the material terms’ in April 2017, Cohen’s argument that ‘the initial agreement remains binding and a rejected writing is a nullity’ is irrelevant,” she wrote.

No contract or breach

Cohen’s consideration for the equity interest was unclear.

“By his own account, Cohen understood from their April 2017 conversation that his work to close financing for the Herndon property was his consideration,” Benjamin said, noting that Webber’s draft agreement required Cohen to perform unspecified future work without additional payment.

“Whether as consideration Cohen was obligated to continue advising Webber without payment after closing Herndon is necessary information to determining whether a breach occurred,” the judge opined. (emphasis added)

And because the scope of Cohen’s duties under the purported contract was unclear, any alleged 2017 contract would be unenforceable.

“Thus, a reasonable trier of fact could not find the existence of a contract, let alone a breach, regardless of Cohen’s testimony to the contrary,” Benjamin held.

Promissory estoppel

Benajamin said that a party’s “‘misguided belief or guileless action in relying on a statement on which no reasonable person would rely is not justifiable reliance,” looking to Aceves v. U.S. Bank, N.A.

“‘If the conduct of the plaintiffs in light of his own intelligence, and information was manifestly unreasonable…he will be denied a recovery,’” the Aceves court held.

Whereas Webber’s alleged undocumented promises to provide some indeterminate amount and form of equity was not a promise clear and unambiguous in its terms, Benjamin said no court could determine the scope of the parties’ duties to each other from the “limited and contradictory evidence proffered here.”

“Any reliance by Cohen, an experienced and successful real estate advisor with substantial legal training was ‘manifestly unreasonable,’ not ‘justifiable reliance,’” she said. “On these facts, not genuinely in dispute, a reasonable trier of fact could not find promissory estoppel.”

Quantum meruit

Citing Zakk v. Diesel, Benjamin rejected Webber’s argument that Cohen’s quantum meruit claim was time-barred.

The Zakk court held that where services were provided with the understanding that payment would occur after their termination or some other contingency, the statute of limitations would begin to run after such date.

“Although Cohen is attempting to recover for some services he provided more than two years before filing, a reasonable jury could fairly conclude that Cohen’s services were a part of a general, ongoing real estate advisory service for Webber’s businesses for which he expected to be fairly compensated down the line,” Benjamin wrote.

In this case, Benjamin found that part of Cohen’s advisory value “stemmed from his on-call availability to advise them on various miscellaneous real estate-related matters.”

“At least for clients that weren’t Webber, Cohen generally charged a monthly retainer for his advisory services without an itemized list of discrete services performed,” she pointed out. “Cohen initially provided his advisory services based on the promise of partnership in the Herndon SCIF venture to be realized once he secured financing.”

“And as the parties began to negotiate anew in 2017, Cohen continued to provide his services under the expectation that their partnership would be made official at a future date,” the judge said, adding that the statute of limitations began to run after the final date of Cohen’s services.

In quantum meruit cases, the reasonable value of services is the value of the benefit received.

“Courts may, but are not required to, ‘consider the price agreed upon by the parties “as a criterion in ascertaining the reasonable value of services performed,”’” Benjamin noted, citing Watson v. Wood Dimension, Inc.

Despite challenging Cohen’s knowledge of the precise dates and time spent advising him, Webber never denied that Cohen made himself available 24-7.

And given Cohen’s separate rates for advisory and success fees, the judge said a reasonable factfinder could find that he performed supplemental advisory services under some understanding or expectation of both parties that compensation was to be made in equity.

“A reasonable trier of fact could also find that Webber received the benefit of Cohen’s advisory services without payment, such that he was unjustly enriched by the transaction,” Benjamin concluded.

Having found summary judgment to be premature on Cohen’s quantum meruit claim, the judge remanded the case to determine the extent of any unjust enrichment and to quantify the proper amount, if any, should the claim prevail.