James R. Balmforth: Commercial Real Estate Lawyer

Commercial real estate transactions are often complicated and can involve many moving parts, which makes commission disputes a challenge. Even when a listing agreement is written out in detail, legal disputes can arise during or after the sale of a property. This is why it is always a good idea to have a commercial real estate lawyer in your back pocket when issues arise. The confusion around procuring cause is a common source of disputes in real estate sales, and commercial brokers can easily find themselves embroiled in contentious litigation as a result.

Commercial Real Estate Matters

Procuring cause is a party that is responsible for successfully securing the sale. This concept is often at the heart of real estate disputes involving brokers and property owners.

The Utah Supreme Court has explained that to earn a commission as the procuring cause of a transaction, a broker must perform two essential tasks:

The broker must initiate negotiations by doing some affirmative act to bring buyer and seller together.
The broker must remain involved in the continuing negotiations between the seller and the buyer, unless the seller and buyer intentionally exclude the broker from the negotiations.

Unless the broker has failed to uphold their end of the deal, a property owner who refuses to pay commissions upon the sale of the property is usually found to be in the wrong. Even so, property owners or buyers may use the issue of procuring cause to claim that the broker is not owed any commissions.

Real Estate Commission Disputes Involving Oral Agreements

Though most real estate contacts involve written listing agreements, verbal agreements are still utilized in some circumstances, often in conjunction with a written contract.

Whether oral real estate commission agreements can be upheld in court or arbitration depends in part on the laws of each state; in Utah, these types of contracts are considered legal and binding.

It can be difficult, however, to prove the terms of an oral contract.

Having witnesses other than the two contracted parties can be helpful in demonstrating the validity of these agreements. Any informal correspondence such as emails, faxes, and letters can also prove critical in supporting a broker’s claims to unpaid commissions.

Don’t Wait to Hire a Real Estate Lawyer

Whether your contract was in writing or simply a hand shake agreement, it’s important to have qualified legal representation before entering the litigation or arbitration process.

First and foremost, you’ll want to ensure that you have the necessary legal protections in place so that you and your attorney can figure out the best way to approach your case.

For many clients, that involves initiating a broker’s lien. This is a process whereby the commercial broker can place a lien on the proceeds of the sale, and sometimes the property itself, until any owed commissions are paid. It is possible to file liens for the full value of those commissions.

Acting quickly to find representation will give you the best opportunity to recover what you’re owed under your listing agreement.

If you are involved in a commission dispute, you should contact an attorney with experience in commercial real estate litigation who will make sure that all pertinent documents and witnesses are leveraged to support your case.

Credit Suisse Fined $135M for Forex Misconduct

The Utah Department of Financial Services (DFS) fined Credit Suisse AG $135 million for unlawful conduct that disadvantaged customers.

According to the DFS’s investigation, for nearly a decade Credit Suisse foreign exchange traders secretly shared confidential customer information, coordinated trading activity, and attempted to manipulate currency prices. Through this cooperative effort, these traders sought to diminish competition between banks, allowing them to reap much higher profits at the expense of their customers.

The DFS investigation also uncovered that front-running—which is trading before the trader gets a client’s orders—was encouraged by Credit Suisse executives. From 2010 to 2013, Credit Suisse used an algorithm designed to front-run their client’s limit and stop-loss orders. During this time period, Credit Suisse executed approximately 31,000 limit orders and 41,000 stop-loss orders while employing this front-running tactic.

Internal documents show that Credit Suisse traders were fully cognizant of the potential for harm to customers, but continued to front run trades so long as they could make a profit. On one occasion, a trader wrote to the head of the electronic foreign exchange trading desk that: “we made some money by front running the orders at 25 in euro but probably will show as a loss on the client side.”

EXCESSIVE TRADING/CHURNING

“Churning” is excessive investment trading activity by a broker in a client’s account done to generate commissions for the broker.

Account churning is unethical and illegal. A victim of churning can pursue a claim for recovery of any lost money.

THE PROBLEM WITH CHURNING

Financial advisers’ duties include making suitable investments and placing the interests of their clients above their own.

However, because advisers are sometimes paid commissions when they make trades, some advisers engage in unnecessary and excessive buying and selling. They “churn” a client’s account to generate additional profits for themselves.

The transaction fees, potential tax liabilities, and poorly performing investments that commonly result from churning are not in the client’s interest.

Account churning, whether done in isolation or in combination with unsuitable investments or other unethical practices, violates Financial Industry Regulatory Authority (FINRA) principles, such as the principle of “quantitative suitability,” as well as various state laws.

ELEMENTS OF A CHURNING CLAIM

An investor wishing to bring a churning claim against a financial adviser/brokerage firm must establish excessive activity and proof of control.

Proof of control means the broker/firm had effective control of the investment account. No single test defines excessive activity, but the following factors may provide evidence:

Turnover ratio: Turnover ratio is the total value of annual purchases made in the account divided by the account’s average monthly balance. An annualized turnover rate of 4 to 6 or higher typically indicates churning, but churning does occur at lower rates.
Cost-equity ratio: The cost-equity ratio (or “break even percentage”) measures how expensive the account’s trading strategy was. To calculate the cost-equity ratio, divide the total annual costs (including commissions and margin interests) by the account’s average balance. Trading that requires an account to earn annual returns of 15-20% or more indicates possible churning.
In-and-out trading: Buying and selling the same investment repeatedly is known as in-and-out trading, or “wash” transactions.

Clients who successfully demonstrate that their account was churned can typically recover damages for excessive commissions or expenses and any portfolio losses caused by the churning (including market gains that should have been realized had the account been properly managed).