By: Thomas S. Tripodianos Published: September 2015

Is Individual Entitled to a Finder's Fee where the Ultimate Transaction only came about through the Intervention of a Third Party?

Question.        Is individual entitled to a finder’s fee where the ultimate transaction only came about through the intervention of a third party?

Answer. No.

In May 2007, Chairman, then chairman of Promoter, became aware that a Building was for sale. In June 2007, Promoter submitted the winning bid for the opportunity to purchase the Building. Promoter, however, never intended to purchase the Building on its own, nor did it have the means to do so. Rather, Promoter's intent was to win the bid and then procure investors to purchase the Building. In July 2007, Chairman was introduced to Investor by a mutual friend. Chairman proposed that Buyer Investor Group  participate in the purchase of the Building, for which there was a letter of intent in place contemplating a $348 million purchase price. In exchange for the right to participate in this deal, Promoter proposed being paid an $8 million finder's fee. Investor advised Promoter that this was unreasonable and rejected the offer. Promoter then proposed a finder's fee equal to 1 percent of the purchase price (i.e., approximately $3.5 million). Investor again rejected the offer. Investor was not interested in investing in real estate deals as a minority or passive partner and wanted to take the lead on any investment deals. Further, Investor was not willing to agree upon the amount of a finder's fee until an agreement to purchase the Building was in place. A final proposed version of a finder's fee agreement, dated August 6, 2007 — which was never agreed to and never signed — provides:

[Promoter has referred in the facilitation of the acquisition by [Buyer Investor Group of the fee simple interest in [the Building from [the seller which opportunity [Buyer Investor Group acknowledges is directly the result of the introduction by [Promoter. [Promoter shall receive and [Buyer Investor Group agree to pay, a referral fee later than date of the closing of [Buyer Investor Group' acquisition of [the Building ("Fee"). Fee shall be deemed fully earned and payable without setoff of any kind only if closing occurs and upon closing of title. [Buyer Investor Group agree[ to provide [Promoter with [7 days prior written notice of the contemplated date of closing of said acquisition. The Fee shall be [$2 million.

In January 2008, the proposed deal for Buyer Investor Group to purchase the Building fell through when the seller terminated negotiations. Promoter and Buyer Investor Group had no further discussions about the Building.

In January 2010, non-party Real Estate Investor, a real estate investor and developer unaffiliated with Promoter, came to Buyer Investor Group with an unsolicited proposed transaction involving the Building. Promoter had no involvement in this proposal, which never reached fruition.

In January 2011, three years after the initial proposed deal fell apart, Realtor, a real estate, due diligence professional unaffiliated with Promoter, approached Buyer Investor Group with a new proposed deal involving the Building.

Realtor explains that she was the principal of her own real estate due diligence firm (Realtor Associates, Inc.), was never employed or retained by Promoter, and does not even recall meeting or speaking with anyone associated with Promoter. Rather, in July 2007, Realtor states she was retained by Buyer Investor Group to perform due diligence on materials provided by the seller of the Building. In January 2010, she explains, she was retained by Real Estate Investor to provide due diligence in connection with his proposed deal. Realtor avers that the 2007 due diligence performed by Promoter "was of no use whatsoever in 2010." Realtor further explains that in January 2011, a minority owner in the Building, called Realtor to inform her of tax issues preventing him from remaining on as a partner in the Building. Upon learning this information, Realtor says she called Investor about the Building. Realtor further explains that she had actually closed Realtor Associates back in August 2010 and was no longer providing due diligence services. However, remembering Investor's prior interest in the Building, she made the call.

As a result of Realtor' call, Buyer Investor Group again commenced negotiations to purchase the Building, and, this time, a sale contract was entered into on February 10, 2011. Promoter had no involvement in the 2011 negotiations. The sale price was $250 million, plus $39 million in tenant improvements, $60 million less than the proposed deal in 2007. The sale closed on April 15, 2011.

Promoter seeks to recover a fee related to the 2011 sale of the Building.

When analyzing claims for a fee allegedly earned in connection with the sale of real estate, one must distinguish between a finder and a broker, as each are entitled to a fee under difference circumstances. The finder is required to introduce and bring the parties together, without any obligation or power to negotiate the transaction, in order to earn the finders fee. While a broker performs that same introduction task, the broker must ordinarily also bring the parties to an agreement. A finder has far less involvement in the ultimate transaction quantitatively and qualitatively, and thus has significantly fewer and different responsibilities to the hiring client. Often, for example, the finder may accomplish work in as little as two phone calls.

The parties here do not dispute that Promoter was a finder and not a broker, nor do the parties dispute that for Promoter to be entitled to a finders fee, it must have brought the sale of the Building to Buyer Investor Group. It is further undisputed that in 2007, Promoter brought the opportunity to purchase the building to Buyer Investor Group. Hence, the question here is not whether the quantum of work performed by Promoter was sufficient to merit a finders fee — it clearly was. Rather, the relevant inquiry is whether the introduction Promoter made in 2007 entitles it to a finders fee for the sale that occurred in 2011, after the 2007 negotiations fell through and after the prospect of the 2011 deal was brought to Buyer Investor Group in a manner wholly uncaused by anything reasonably attributable to Promoter. The question is causation.

To establish causation on a finders fee claim, it is well settled that merely establishing but for causation is insufficient. Rather, there must be some continuing connection between Promoters initial efforts and the transaction that came about.

There is no bright-line rule setting forth what constitutes the requisite continuing connection, nor is there a definitive, minimal amount of time elapsed that would preclude establishing such causation. On the contrary, these are ordinarily questions of fact.

Promoter was unconnected to Realtor due diligence and Promoter had no continuous involvement. No reasonable finder of fact could conclude otherwise. For these reasons, Buyer Investor Group are not obligated to pay a finders fee.

Whether Promoter was a but for cause of the 2011 sale is not dispositive. Nonetheless, in the absence of any involvement after January 2008, no reasonable finder of fact could conclude that a continuing connection exists. To satisfy this element, at a minimum, some meaningful aspect of the prospective deal attributable to Promoter must bridge the gap between the original introduction and the eventual deal. No such nexus exists here.

To the extent anyone can be said to be the link between the 2007 and 2011 negotiations, no one fits this bill more than Realtor, whose repeated involvement is more akin to the continual presence that ordinarily warrants a finders fee. Promoter had nothing to do with Realtor involvement. The mere fact that Realtor was involved both in 2007 and 2011 does not vicariously create involvement on the part of Promoter. All subsequent iterations of a prior, unconsummated deal will necessarily share some commonalities with the original deal. A Promoter can always point to something or someone involved in the first deal to claim a continuing connection. The only sensible way to find that common elements establish a continuing connection is for that similar variable to have a nexus to Promoter. That is not the case with Realtor, nor is any other aspect of the 2011 deal attributable to Promoter in this way.

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