Big Bucks at Stake in Suit Over Fee : Litigation: The industry is watching legal proceedings in which Lee & Associates claims it was denied its $9-million commission for selling Fluor Corp. property.
Ronald Reagan was a little more than halfway through his presidency when the case of Lee & Associates vs. Trammel Crow Co. was filed in Orange County Superior Court. Twenty-two volumes of pleadings later--a stack almost as tall as a person--the case is about to come to trial.
Ordinarily, disputes over brokers’ commissions aren’t very sexy stuff. This one, however, involves some big bucks and some bigger names; a lot of people are watching as it meanders through the courts toward a preliminary hearing Monday that is expected to be the last hearing before trial later in the summer.
The names involved are Fluor Corp., one of the nation’s largest construction and engineering firms, and Trammell Crow Inc., the nation’s largest commercial developer. They are being sued by Lee & Associates, a medium-size, local commercial real estate brokerage that wants a cool $64 million for a business deal gone bad.
Fluor, says Lee, let Trammell Crow cheat the brokerage out of a big commission. Lee, retorts Trammell Crow, is trying to get itself an absurdly large sum of money for horning in on a deal it had little to do with. Not surprisingly, Trammell Crow is countersuing Lee.
But that’s not the only reason the industry is watching: A lot of brokers and property owners think the case may furnish some clues on how the courts will resolve similar disputes between brokers and their clients.
They may have call to use what they learn: As more brokers chase fewer deals in a real estate market gone limp, these kinds of disputes are likely to become more common.
None of the companies involved would discuss the case, and U.S. Circuit Judge Marvin G. Weeks has asked lawyers for all the parties not to comment either.
But based on thousands of pages of pleadings, depositions and hearings, here is a closer look at the case and the legal issues:
It all started in the summer of 1985 when Fluor Corp., which had been dabbling in the mining business, saw its investment go sour. The company was in financial straits and quietly trying to sell its flashy corporate headquarters building in Irvine.
Brokers from Lee & Associates approached Trammell Crow about buying the building and 100 acres for $310 million. Trammell Crow teamed up with a Boston real estate investor with deep pockets and bought the property.
Lee said Fluor and Trammell had agreed to a $9-million commission on the sale. But Fluor said it was Trammell Crow’s responsibility to pay the commission, and Trammell Crow offered Lee a much smaller amount. Lee filed suit in November, 1985, demanding the $9 million and $55 million in punitive damages.
After Monday’s hearing a judge will have to determine whether Lee had a valid contract with its clients. Later it will be up to a jury to decide whether Lee should get a commission and, if so, how much.
In fact, $9 million--or 3% of the price--is an extraordinarily generous commission on a deal of that size, brokers say. The customary 3% is usually reduced as the price increases, brokers say, and for a deal this size they would expect a commission of around 1%, or $3 million. Lee says it deserved the big commission because of the difficulty of selling the property in the absolute secrecy demanded by Fluor.
Fluor had been a Lee & Associates client for several years in August, 1984, when Fluor asked Lee to help sell its headquarters building. Lee would later produce as evidence an Aug. 8 letter that describes two other transactions but doesn’t specifically mention the headquarters.
Instead the letter, as Trammell Crow’s lawyers would point out, says “other sales of Fluor property” are “to be negotiated with Fluor.” Lee says it was understood that the letter referred to the headquarters building.
On Aug. 16, 1984, Lee brokers met secretly with Trammell Crow executives and offered them the headquarters building, which Fluor would then lease back from the buyer, and 122 empty acres nearby. The price was $310 million; $300 million for Fluor, $9 million for Lee and $1 million for closing costs.
A few days later, Lee sent a letter to Trammell Crow that Lee says confirms that the brokerage was to be paid a $9-million commission. Shortly afterward Trammell Crow executive William Lane Jr. said he wanted to negotiate directly with Fluor and asked the brokerage to step aside. According to Lee, Lane promised to protect the brokerage’s interests, as the Lee letter had asked him to do.
Trammell Crow, on the other hand, says the letter it got from Lee is so vague it doesn’t even specify the size of the commission. In fact, Trammell Crow asserts that it never promised Lee a commission at all.
Lane and other Trammell Crow executives then paid themselves $5 million for negotiating the deal, according to Lee’s court filings. Altogether, Lane received $1.5 million and four other Trammell Crow executives were paid another $3.5 million.
Lane offered Lee $2.5 million, which Lee calls an attempt to “extort” its agreement to the deal. When Lee refused, its lawyers say, Lane and his partners took a “stonewall position” and “threatened in bad faith to make any litigation brought by Lee last for five years or more. . . .”
Not so, says Trammell Crow. Lee’s complaint is “based on no more than an alleged oral promise to pay a $9-million brokerage commission,” say its lawyers, who contend that Lee can’t produce proof of the oral promise or a piece of paper that would stand as a contract.
The sale went through, and Trammell Crow bought the property with Winthrop Securities Co. Inc. Winthrop owns the headquarters and has sold off chunks of it to investors.
As the suit has worn on, the charges have become more rancorous.
Trammell Crow says Lee tried to “coerce a settlement” by threatening to drag out the suit. Lee says the big commission is justified by the “difficulty of justifying the purchase price required by Fluor” and says it was “saving (Fluor) at a time of impending financial disaster. . . .”
Meanwhile, lawsuits over commissions seem to be getting more common in the real estate industry. A Superior Court jury in Los Angeles awarded a broker $30 million in punitive damages in March on top of a judge’s earlier award of $16.6 million in commissions. The broker said he had been cheated out of $12 million when he signed Security Pacific National Bank to a long-term lease worth $500,000 in a downtown Los Angeles office building called Beaudry Center I.
When broker Greenwood & Co. Real Estate Inc. won its case against the building’s former and present owners, the former owner declared bankruptcy. The case sent shock waves through the city’s real estate community. The case is on appeal.
And two other cases have popped up in the last few years:
* A judge last year awarded Lee & Associates $400,000 after Lee sued giant Coldwell Banker for not sharing a $600,000 commission from a lease deal on which both brokers had worked.
* A Newport Beach broker named Malcolm Waitt won $2.8 million in commissions and damages in 1988 from a Superior Court jury after suing Pacific Lighting Corp. of Los Angeles for reneging on an agreement to pay him hundreds of thousands of dollars in commissions on a San Diego County land deal.
