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April 19, 2006

Broker?s Right to Receive Commission on Sale of Business Assets

INDIANA CASELAW UPDATE

Stephen E. Arthur


Broker’s Right to Receive Commission on Sale of Business Assets

A broker must hold a real estate license in order to receive a commission from the sale of business assets that include an interest in real estate. Broker agreements that violate this principle are void and unenforceable. GDC Environmental Services, Inc. v. Ransbottom Landfill, 750 N.E.2d 1254 (Ind.Ct.App. 2000). But, what about a broker agreement that excludes real estate from the business assets that are subject to sale? This issue was addressed recently in Koressel v. Forster, 2005 WL 3312556 (Ind.Ct.App. 2005).

Koressel granted Forster, a business broker, a one year exclusive contract to list and broker the sale of the business assets of Premier Electric. The contract expressly provided that real estate was not an asset included in the proposed sale. The contract provided that a minimum commission would be paid to the broker in the event the seller breached thef contract.

Forster performed a number of broker tasks to facilitate a sale of the business to a prospective buyer. That sale eventually did not close, in part, because the purchaser concluded that he could not trust the seller. During the course of the failed transaction, the seller terminated Forster on grounds that Forster did not have a real estate license. Despite some references to real estate in the Listing Agreement, the Court of Appeals determined that real estate was not an asset subject to sale. Thus, even though the broker did not have a real estate license, the contract was valid and the broker could pursue a claim for unpaid commissions.


Appellate Jurisdiction to accept Interlocutory Appeal

An appeal from an interlocutory order is not allowed unless specific authority is granted by the Indiana Constitution, statutes or the Indiana rules of court. Appellate Rule 14(A) authorizes an interlocutory appeal “as a matter of right” following certain types of orders outlined in that rule. Failure to take an interlocutory appeal, when authorized by Appellate Rule 14(A), results in a waiver of that issue. In addition, Appellate Rule 14(B) authorizes an interlocutory appeal when a trial court certifies its order and the Court of Appeals accepts jurisdiction over the appeal. Unless the conditions outlined in Appellate Rule 14 are satisfied, the Court of Appeals, generally, will not have jurisdiction to decide an interlocutory appeal.

In Moser v. Moser, 2005 WL 3303945 (Ind.Ct.App. 2005), a son and his family lived on a farm owned by the son’s parents. The son managed and operated the farm believing that the parents would eventually convey the farm to him. The son commenced a lawsuit to require the parents to convey the property to be held in trust until the father’s death. The parents counterclaimed for unpaid rents and requested immediate possession of the real property. The trial court found sufficient merit in the son’s claim of promissory estoppel to deny the parent’s motion for immediate possession. The parents filed an interlocutory appeal under Appellate Rule 14(A)(4). The Court of Appeals rejected the appeal because Appellate Rule 14(A)(4) only authorizes an appeal of orders that compel a sale or delivery of the possession of real property. Section 14(A) does not allow an appeal when such relief has been denied.

In Daimler Chrysler Corporation v. Yaeger, 2005 WL 3304132 (Ind. 2005), the trial court denied a motion to dismiss and compel arbitration. Daimler commenced an appeal without first seeking certification of the interlocutory order as required by Appellate Rule 14(B). The Court of Appeals accepted the appeal, despite Daimler’s failure to comply with Appellate Rule 14(B), on grounds that an appellate court may retain jurisdiction under Appellate Rule 66(B). The Supreme Court granted transfer and dismissed the appeal.

The Supreme Court noted that a trial court’s denial of a motion to dismiss and compel arbitration does not qualify for an interlocutory appeal under Appellate Rule 14(A). Rather, certification and acceptance are required under Appellate Rule 14(B). The court rejected Indiana cases recognizing appellate jurisdiction outside the dictates of Appellate Rule 14, and approved the statement in INB National Bank v. 1st Source Bank, 567 N.E.2d 1200, 1202 (Ind.Ct.App. 1991) that “[Rule 66(B)] should not be interpreted as an alternative authorization to litigants to initiate interlocutory appeals apart from, or in addition to, the authorization provided by [Rule 14].”


Enforcement of Covenants not to Compete; Blue Pencil Doctrine

Covenants not to compete are in restraint of trade and must be reasonable with respect to the legitimate interests of the employer, restrictions on the employee, and the public interest. The employer must assert a legitimate interest that may be protected by the covenant. If asserted, the court must determine whether the scope of the agreement is reasonable in terms of time, geography, and types of activity prohibited. The employer must establish that the former employee has gained a unique competitive advantage or ability to harm the employer. The ultimate determination of whether a covenant-not-to-compete is reasonable is a question of law.

In Sharvelle v. Magnante, 836 N.E.2d 432 (Ind.Ct.App. 2005), Dr. Magnante, an ophthalmologist, commenced a declaratory judgment action challenging a non-competition and non-solicitation agreement with the Lafayette Eye Center (“LEC”). The trial court granted summary judgment in favor of Dr. Magnante.

The Court of Appeals affirmed summary judgment regarding the overbroad non-competition covenant because it prevented Dr. Magnante from practicing “health care of every nature and kind,” and because LEC had failed to prove that the restriction was reasonable and necessary. The court declined to “blue-pencil” the covenant in order to delete all unreasonable provisions.

If a covenant is clearly divisible into parts, and some parts are reasonable while others are unreasonable, a court may enforce the reasonable portions only. Under this process, known as “blue-penciling,” a court strikes unreasonable provisions from the covenant. When applying the blue pencil, a court must not add terms that were not originally part of the agreement. Rather, “unreasonable restraints are rendered reasonable by scratching out any offensive clauses to give effect to the parties’ intentions.” 836 N.E.2d at 432 (case citations omitted)

A different result was reached as to the non-solicitation covenant. Finding that the covenant could be blue-penciled and made reasonable in scope by deleting improper words, the Court of Appeals reversed summary judgment on that issue.


Marital Communications Privilege

The martial communications privilege under Ind. Code 34-46-3-1(4) prevents a court from compelling a spouse to testify about confidential marital communications. However, the privilege does not prevent a spouse from voluntarily testifying about such communications, even over the objection of the other spouse. An excellent discussion of the history and evolution of this privilege is set forth in the recent case of Glover v. State, 836 N.E.2d 414 (Ind. 2005).

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Stephen Arthur (sarthur@h-mlaw.com) is a partner with Harrison & Moberly, LLP, in Indianapolis, concentrating his practice in commercial and business litigation. Mr. Arthur is a former law clerk to the Indiana Supreme Court and the author of the Indiana Civil Trial Practice and Indiana Procedural Forms volumes of West Publishing’s Indiana Practice series. The opinions and analysis expressed in this column are those of the author.

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