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Court: Broker must pay back commission

Jennifer Nelson
January 1, 2008
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A broker who breaches his fiduciary duty to disclose material information to a client loses the right to collect a commission for his services, the Indiana Supreme Court ruled today.

The high court unanimously reversed a trial court decision finding that although a broker breached his fiduciary duty to his client, his commission shouldn't be revoked and be repaid to his client.

In Tonda Beth Nichols v. Rex David Minnick and R. David Minnick Inc. d/b/a Commercial Properties, No. 53S01-0711-CV-515, Nichols sued Minnick for a $22,500 commission on the sale of a gentleman's club and bar she owned in Bedford to James Blickensdorf. Nichols hired Minnick as her real estate broker to sell the club and signed a preprinted real estate listing agreement giving Minnick the exclusive right to sell the property with a 10 percent commission on the sale price.

Minnick showed the property to only one potential buyer, Blickensdorf, who made an offer of $225,000, which Nichols accepted. The agreement called for a $25,000 cash down payment and a five-year installment note for $175,000. The agreement also stated Blickensdorf would pay Minnick's $22,500 commission.

After Blickensdorf took over the club, he had financial problems. Without Nichols' knowledge, Minnick advanced money to Blickensdorf. He had also given Blickensdorf money for the cash down payment on the club. After Blickensdorf paid off the club in full to Nichols, he transferred the shares of the club to Richards Properties Inc., which was partly owned by Minnick.

After Minnick filed a lawsuit against Nichols for failing to convey the parking lot next to the club, which she still owned, Nichols discovered Minnick had given money to Blickensdorf for the down payment and to help keep the club afloat.

Nichols sued Minnick for his commission, claiming he used Blickensdorf as a straw man to purchase the club and he breached his fiduciary duty to her by failing to disclose those loans. The trial court ruled Minnick breached his fiduciary duty, but disgorgement of his commission wasn't an appropriate remedy because Nichols didn't prove she suffered monetary damages.

The trial court also found the breach was not serious because Nichols had reason to know of a relationship between the two men based on the purchase agreement in which Blickensdorf stated he would pay Minnick's commission. The Indiana Court of Appeals affirmed the trial court decision. The Supreme Court granted transfer because the trial court applied the wrong legal standard to the case.

Minnick argued Nichols shouldn't receive tort damages or restitution, which are remedies for the breach of duty to disclose material information, because Nichols didn't suffer a loss from the sale because she received the total purchase price. The Supreme Court agreed with the trial court, which found Nichols didn't prove she suffered any monetary loss as a result of Minnick's actions. However, the trial court erred when it concluded disgorgement wasn't required, wrote Justice Theodore Boehm.

Disgorgement may be the only available remedy for someone because harm to the principal is difficult to prove, and it removes the temptation for an agent to act in a way that breaches the fiduciary duty in hope no harm will happen to the principal or the principal will be unable to prove the harm in litigation. The disgorgement rule facilitates the principal's trust on which a fiduciary relationship is grounded, the justice wrote.

The trial court's conclusion was inconsistent in that although Minnick breached his fiduciary duty to Nichols, the breach was not a serious violation that requires him to repay his commission. Disgorgement is required, although it may be of little consequence, Justice Boehm wrote. Minnick received a $22,500 note from Blickensdorf instead of a monetary payment. Equity requires that Minnick transfer to Nichols what he wrongfully obtained, which in this case is the note and any payments he received toward that debt, plus interest at the statutory rate 8 percent per annum.

"If Blickensdorf's note proves to be uncollectible, that merely reflects the fact that Minnick did not benefit from his breach, and restitution is not meaningful," he wrote.
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  1. Too many attorneys take their position as a license to intimidate and threaten non attorneys in person and by mail. Did find it ironic that a reader moved to comment twice on this article could not complete a paragraph without resorting to insulting name calling (rethuglican) as a substitute for reasoned discussion. Some people will never get the point this action should have made.

  2. People have heard of Magna Carta, and not the Provisions of Oxford & Westminster. Not that anybody really cares. Today, it might be considered ethnic or racial bias to talk about the "Anglo Saxon common law." I don't even see the word English in the blurb above. Anyhow speaking of Edward I-- he was famously intolerant of diversity himself viz the Edict of Expulsion 1290. So all he did too like making parliament a permanent institution-- that all must be discredited. 100 years from now such commemorations will be in the dustbin of history.

  3. Oops, I meant discipline, not disciple. Interesting that those words share such a close relationship. We attorneys are to be disciples of the law, being disciplined to serve the law and its source, the constitutions. Do that, and the goals of Magna Carta are advanced. Do that not and Magna Carta is usurped. Do that not and you should be disciplined. Do that and you should be counted a good disciple. My experiences, once again, do not reveal a process that is adhering to the due process ideals of Magna Carta. Just the opposite, in fact. Braveheart's dying rebel (for a great cause) yell comes to mind.

  4. It is not a sign of the times that many Ind licensed attorneys (I am not) would fear writing what I wrote below, even if they had experiences to back it up. Let's take a minute to thank God for the brave Baron's who risked death by torture to tell the government that it was in the wrong. Today is a career ruination that whistleblowers risk. That is often brought on by denial of licenses or disciple for those who dare speak truth to power. Magna Carta says truth rules power, power too often claims that truth matters not, only Power. Fight such power for the good of our constitutional republics. If we lose them we have only bureaucratic tyranny to pass onto our children. Government attorneys, of all lawyers, should best realize this and work to see our patrimony preserved. I am now a government attorney (once again) in Kansas, and respecting the rule of law is my passion, first and foremost.

  5. I have dealt with more than a few I-465 moat-protected government attorneys and even judges who just cannot seem to wrap their heads around the core of this 800 year old document. I guess monarchial privileges and powers corrupt still ..... from an academic website on this fantastic "treaty" between the King and the people ... "Enduring Principles of Liberty Magna Carta was written by a group of 13th-century barons to protect their rights and property against a tyrannical king. There are two principles expressed in Magna Carta that resonate to this day: "No freeman shall be taken, imprisoned, disseised, outlawed, banished, or in any way destroyed, nor will We proceed against or prosecute him, except by the lawful judgment of his peers or by the law of the land." "To no one will We sell, to no one will We deny or delay, right or justice." Inspiration for Americans During the American Revolution, Magna Carta served to inspire and justify action in liberty’s defense. The colonists believed they were entitled to the same rights as Englishmen, rights guaranteed in Magna Carta. They embedded those rights into the laws of their states and later into the Constitution and Bill of Rights. The Fifth Amendment to the Constitution ("no person shall . . . be deprived of life, liberty, or property, without due process of law.") is a direct descendent of Magna Carta's guarantee of proceedings according to the "law of the land." http://www.archives.gov/exhibits/featured_documents/magna_carta/

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