HARRIS v. SCARCELLI et al

Filing 11

ORDER on 1 Bankruptcy Appeal By JUDGE JON D. LEVY. (jgw)

UNITED STATES DISTRICT COURT
DISTRICT OF MAINE
ROBERT HARRIS,
Appellant,
v.
ROSA SCARCELLI, and
OAK KNOLL ASSOCIATES LP,
Appellees,

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2:15-cv-00071-JDL

ORDER ON BANKRUPTCY APPEAL
Robert Harris appeals from the Judgment and Memorandum of Decision (ECF
No. 1-3; ECF No. 1-4) entered on February 2, 2015, by the United States Bankruptcy
Court for the District of Maine (the “Bankruptcy Court”) in which the Bankruptcy
Court granted the Motion for Summary Judgment filed by the appellee, Rosa Scarcelli,
as consented to by the Debtor, Oak Knoll Associates LP (“Oak Knoll”). Harris filed a
notice of appeal to the United States Bankruptcy Appellate Panel for the First Circuit
on February 5, 2015. Scarcelli elected to have the District Court hear the appeal and
on February 19, 2015, the Bankruptcy Appellate Panel for the First Circuit issued an
order transferring the appeal to the District Court, which has jurisdiction over this
matter pursuant to 28 U.S.C.A. § 158(a)(1) (2015).
I. FACTUAL BACKGROUND
At all times relevant to this case, Scarcelli and her mother, Pamela Gleichman,
were general partners of Oak Knoll, with Gleichman serving as managing partner.
ECF No. 1-4 at 2. In 1988, Oak Knoll purchased several low-income apartment

buildings located at 554 Connecticut Avenue, Norwalk, Connecticut (the “Property”).
App. 583; ECF No. 1-4 at 2.

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The purchase was made with a loan from the

Connecticut Housing Finance Agency (“CHFA”) which was evidenced by a promissory
note and secured by a mortgage on the Property. Id. A condition of the loan required
Oak Knoll to agree to certain restrictive covenants concerning the Property, including
rent restrictions and prohibitions on the pre-payment or assignment of the mortgage.
ECF No. 6 at 10; App. 584.
On May 17, 2011, Harris and Oak Knoll signed a Non-Exclusive Agency Sale
Agreement (the “Listing Agreement”), which was to remain in effect for six months.
App. 636-37.

The following provision of the Listing Agreement, governing the

payment of the brokerage commission, is at the heart of this dispute:
OWNER agrees that if the property is sold during the term of this
Agreement to a Purchaser, procured by Agent during the term of this
Agreement as outlined above, OWNER will pay AGENT a commission
per Schedule A attached. Should negotiations continue after the six (6)
month period the OWNER agree [sic] to automatically extend this
agreement and its terms until such [sic] as the negotiations are
completed.
The commission shall be due and payable by certified check in full
upon the closing of title (or lease execution). If, during the term hereof,
or within six (6) months from the termination of this Agreement, should
there be an acceptance of an offer to purchase/lease from the
PURCHASER, OWNER agrees to pay the AGENT a commission as per
this AGREEMENT.
This Agreement shall become effective immediately and shall
remain in effect six (6) months from the date hereof.
App. 636 (emphasis added).

The parties’ appeal briefs and the Bankruptcy Court’s memorandum of decision are cited by
reference to their CM/ECF numbers. Other documents that appear in the appeal record are cited as
“App. ___.”
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By October 2011, Harris had located a potential buyer, Navarino Capital
Management, LLC (“Navarino”), which signed a purchase and sale agreement for the
Property with Oak Knoll on October 11, 2011 (the “2011 P&S”). App. 1036-51. The
2011 P&S stated a purchase price of $6,300,000, with Navarino tendering an earnest
money deposit of $300,000 to an escrow agent. Id. at 1037. Under the agreement,
Navarino had 45 days to inspect the Property (the “Inspection Period”) and could
terminate the agreement “for any reason or no reason” by delivering a notice of
termination to Oak Knoll prior to the end of the Inspection Period. Id. at 1039.
Section 2.3 of the 2011 P&S required Oak Knoll to convey the Property “free and clear
of liens and encumbrances” at the closing, subject to certain specified exceptions
which were identified in § 2.1 as “Permitted Exceptions.” App. 1038. Any liens and
encumbrances not specifically identified in Article II were deemed to be “nonPermitted Exceptions.” Id. In the event that Navarino discovered any non-Permitted
Exceptions during the Inspection Period, then, pursuant to § 2.1, Oak Knoll could
elect not to cure them, at which point Navarino could either terminate the 2011 P&S
or proceed with the purchase of the Property at the agreed-upon price. Id.
On November 11, 2011, Navarino requested the first of a series of extensions
of the Inspection Period because it discovered that 20 apartments at the Property
were subject to rent restrictions imposed by the CHFA.

App. 1132.

The rent

restrictions constituted non-Permitted Exceptions under § 2.1 of the 2011 P&S. App.
1038, 1132. Oak Knoll agreed to the extension, and to multiple extensions thereafter,

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while Navarino completed its due diligence and Oak Knoll attempted to remove the
rent restrictions. See App. 1138-39.
On February 24, 2012, Navarino wrote to Oak Knoll, indicating that it was
“willing to allow the inspection period to terminate” and proposed two scenarios in
which it would be willing to purchase the Property at a reduced price in light of the
rent restrictions. App. 658-59. Before Oak Knoll responded in writing or agreed to
either offer, disagreements between Gleichman and Scarcelli over the direction of
Oak Knoll’s business escalated into litigation. On March 16, 2012, Scarcelli filed an
amended complaint in the United States District Court for the District of Maine,
seeking, among other things, an order enjoining Gleichman from entering into any
contract for the sale of the Property without Scarcelli’s consent. App. 660-70. The
District Court entered a default judgment granting the requested injunction on May
31, 2012. App. 681-87. Approximately one month later, Scarcelli’s attorney wrote to
Harris threatening to seek contempt sanctions against him if he continued to market
the Property for sale without making required disclosures to Scarcelli. App. 693.
On March 18, 2013, Oak Knoll filed for bankruptcy protection under Chapter
11 of the Bankruptcy Code, 11 U.S.C.A. § 1101, et seq. (2015) (the “Bankruptcy Code”).
App. 588. Shortly thereafter, on March 21, 2013, Navarino requested the return of
its earnest money deposit. App. 734. Then, on April 1, 2013, Oak Knoll filed an
application with the Bankruptcy Court to retain Harris as its broker to sell the
Property, App. 739-51.

The application was never formally acted upon by the

Bankruptcy Court, and Oak Knoll withdrew the application six months later, on

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October 2, 2013, App. 13. During the interim period, in June, Harris filed a proof of
claim for his brokerage services, App. 379-80, to which both Oak Knoll and Scarcelli
objected, App. 370-76.
Notwithstanding its objection to Harris’ proof of claim, in August 2013, Oak
Knoll, through its attorney, instructed Harris to pursue a second purchase and sale
agreement with Navarino reflecting a purchase price of $6,275,000. App. 831. Harris
then contacted Navarino with the terms stated by Oak Knoll, and requested that
Navarino provide him with an updated Letter of Intent if the terms were acceptable.
App. 938.
In mid-October 2013, about two weeks after Oak Knoll withdrew its
application with the Bankruptcy Court to retain Harris as a broker, Navarino and
Oak Knoll executed a second purchase and sale agreement (the “2013 P&S”). App.
589, 880-99.

This new agreement formed the basis of Oak Knoll’s plan of

reorganization, filed with the Bankruptcy Court on November 25, 2013. See App.
589-90; 864-99. Although the CHFA initially objected to the plan and sale of the
Property, App. 182-329, Oak Knoll ultimately resolved those objections and an
amended plan was filed on March 31, 2014, App. 38. That plan was subsequently
confirmed and a sale of the Property to Navarino closed in July 2014. App. 590. No
commission was paid to Harris.
II. STANDARD OF REVIEW
A District Court reviews a Bankruptcy Court’s grant of summary judgment de
novo. Rothrock v. Turner, 2010 WL 2267226, at *2 (D. Me. June 2, 2010). The

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standard for summary judgment in an adversarial bankruptcy proceeding is the same
as that provided for by Federal Rule of Civil Procedure 56. In re Colarusso, 382 F.3d
51, 58 (1st Cir. 2004); Fed. R. Bankr. P. 7056 (specifying that Fed. R. Civ. P. 56 applies
in adversarial bankruptcy proceedings).

When deciding a motion for summary

judgment, the court construes the record in the light most favorable to the nonmoving party. In re Varrasso, 37 F.3d 760, 763 (1st Cir. 1994). The court must affirm
the Bankruptcy Court’s decision if no genuine issue of material fact exists, and if
Scarcelli has successfully demonstrated that she is entitled to judgment as a matter
of law. Fed. R. Civ. P. 56(a).
III. LEGAL ANALYSIS
A.

Issues Related to the 2011 Purchase and Sale Agreement
There is no dispute over the language contained in the 2011 P&S, or the fact

that Oak Knoll and Navarino executed the 2011 P&S within the term of the Listing
Agreement. ECF No. 6 at 25; App. 584-85. What the parties do dispute is Harris’
contention that the 2011 P&S triggered Oak Knoll’s obligation under the Listing
Agreement to pay him a broker’s commission. ECF No. 6 at 24. The parties also
dispute whether it was necessary for Oak Knoll and Navarino to consummate the
transaction with a closing, and whether, by signing the 2011 P&S, Navarino
established itself as ready, willing, and able to purchase the Property. Id. at 27-28
(citing Vincent Metro, LLC v. Ginsberg, 139 Conn. App. 632 (2012)).
The Bankruptcy Court ruled that Harris was not owed a commission because,
first, “[t]he Listing Agreement specifically requires a closing and one did not occur by

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May 17, 2011[,]” ECF No. 1-4 at 8; second, Navarino was not a ready, willing, and
able buyer of the Property during the time frame of the 2011 P&S in light of the
CHFA’s refusal to permit the sale on terms that were agreeable to both parties, id.;
and, third, the failure of the 2011 P&S was not caused by either party’s unilateral
nonperformance, but rather, by the CHFA’s refusal to agree to terms for the sale to
which both Oak Knoll and Navarino could agree, id. at 10. In this appeal, Harris
contends that the Bankruptcy Court “conflated the concepts of offer and acceptance
and performance under the [2011 P&S],” ECF No. 6 at 25, and that its conclusion is
“baffling” since Navarino ultimately purchased the Property three years later under
“substantially identical terms[,]” id. at 28.
For the reasons discussed below, I conclude, as did the Bankruptcy Court, that
Harris is not entitled to a commission.
1. A Closing Was Required
Harris contends that his commission was earned when Oak Knoll and
Navarino executed the 2011 P&S. ECF No. 6 at 24. For support, he cites the
paragraph of the Listing Agreement which provides that if, during the term of the
agreement or within six months of its termination, “should there be an acceptance of
an offer to purchase/lease from the PURCHASER, OWNER agrees to pay the AGENT
a commission as per this AGREEMENT.” Id. (quoting App. 636). Harris argues
further that the reference to the commission being “due and payable by certified check
in full upon the closing of title (or lease execution)” was intended merely to establish
the timing and method of payment of the commission, and not to determine whether

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a commission was actually due. Id. at 25. The Bankruptcy Court ruled that the
Listing Agreement “specifically require[d] a closing and one did not occur by May 17,
2011.” ECF No. 1-4 at 8. I agree with this conclusion.
The crux of the matter is this: The Listing Agreement explicitly required that
the property be “sold during the term of this Agreement,” to a purchaser procured by
Harris, in which case the commission was “due and payable by certified check in full
upon the closing of title (or lease execution).” App. 636. Because the Property was
not “sold” during the term of the Listing Agreement, no commission was earned.
Contrary to Harris’ argument, this conclusion is not affected by the Listing
Agreement’s additional provision, that “[i]f, during the term hereof, or within six (6)
months from the termination of this Agreement, should there be an acceptance of an
offer to purchase/lease from the PURCHASER, OWNER agrees to pay the AGENT a
commission as per this AGREEMENT.” Id. (emphasis added). This provision is
plainly wedded to the Listing Agreement’s requirement that the property be “sold” to
a purchaser procured by Harris, with the commission “due and payable by certified
check in full upon the closing of title (or lease execution).”

Id.

Thus, Harris’

contention that he was due a commission as of Oak Knoll’s acceptance of the 2011
P&S is not, in the Listing Agreement’s parlance, “per this Agreement.”
2. Navarino Was Not a Ready, Willing, and Able Purchaser
Even if a sale of the Property were not required for Harris to receive a
commission, his claim would still fail because the Listing Agreement also obligated
him to procure a ready, willing, and able purchaser. Yet, as the Bankruptcy Court

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determined, the 2011 P&S was drafted so that Navarino’s readiness and willingness
to purchase the Property could not be conclusively determined until it had completed
the Inspection Period to its satisfaction. See App. 1039 (§ 3.2, 2011 P&S).
Additionally, § 2.3 of the 2011 P&S required Oak Knoll to convey the Property
to Navarino “free and clear of liens and encumbrances” at the closing, subject to
certain specified exceptions. App. 1038.

Under § 2.1, if Navarino discovered any

encumbrances on the Property that were not specifically permitted under Article II,
Oak Knoll could opt not to cure them. Id. If Oak Knoll opted not to cure the
encumbrances, then Navarino’s options were to either: 1) terminate the 2011 P&S, or
2) proceed with the sale with the encumbrances in place at the original purchase price.
Id. The first option is essentially what took place during the Inspection Period.
Navarino discovered the CHFA rent restrictions, which were non-Permitted
Exceptions under § 2.1, and wrote to Oak Knoll on January 24, 2012, requesting an
extension of the Inspection Period and stating that “Oak [Knoll] has not disclosed
how it will get a release of the [rent] restrictions that encumber the subject property.”
App. 657. By the time Navarino sent its February 24, 2012, letter, Oak Knoll still
had not cured the encumbrances, and so Navarino offered to purchase the Property
subject to the rent restrictions, but at a lower purchase price. App. 658-59. Oak Knoll
did not respond to Navarino’s offer because of the ensuing litigation between
Gleichman and Scarcelli, and Navarino ultimately chose to recoup its earnest money
deposit approximately one year later. App. 734 (March 21, 2013, letter to escrow
agent requesting return of $300,000 earnest money deposit and stating that “it is

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clear that the Seller is unable to convey the property and get a release of the CHFA
mortgage which encumbers the property . . . .”).
Under Connecticut law, a real estate broker is entitled to a commission only
when “he produces a buyer who is ready, willing, and able to purchase on the terms
prescribed by the seller.” Menard v. Coronet Motel, Inc., 152 Conn. 710, 711 (1965)
(emphasis added); see also Vincent Metro, 139 Conn. App. at 639; Urbanksi v.
Halperin, 30 Conn. Supp. 575, 578 (1973). Here, Navarino was not a ready, willing,
and able purchaser on the terms prescribed by Oak Knoll because it never expressed
its willingness or readiness to purchase the Property at the original purchase price
stated in the 2011 P&S, with the rent restrictions in place. See App. 658-59.2
B.

Continuing Negotiations
Harris also argues that he is entitled to a commission for his efforts prior to

the signing of the 2013 P&S on the theory that the Listing Agreement “automatically
renewed under its own terms every six months as long as negotiations between the
parties continued.”

ECF No. 6 at 32 (citing App. 636).

He contends that the

Bankruptcy Court’s judgment should be reversed and remanded for an evidentiary
hearing because the record contains disputed facts which would establish that he “did
not abandon his efforts” after the termination of the 2011 P&S and “continued

Although § 2.1 required that termination of the 2011 P&S take the form of a written notice from
Navarino to Oak Knoll, there is no evidence that Navarino provided such notice. Nevertheless, the
2011 P&S may be considered terminated pursuant to § 6.1, which provides that, in the event that
Navarino failed to close on the transaction, Oak Knoll could terminate the agreement and return
Navarino’s earnest money deposit, with both parties being released from all further obligations. See
App. 1038, 1045-46. The return of Navarino’s earnest money deposit and the absence of any
subsequent dispute between Oak Knoll and Navarino regarding their respective obligations under the
2011 P&S is strong evidence that the agreement was terminated.
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negotiating and communicating with [Navarino] at least until the time the Retention
Application was withdrawn” on October 2, 2013. ECF No. 6 at 32-33; App. 13.
The appeal record contains one instance of Harris communicating with
Navarino on Oak Knoll’s behalf after the termination of the 2011 P&S—Harris’
August 21, 2013, email to Navarino in which he relayed Oak Knoll’s proposal for a
sale of the Property for $6,275,000. App. 938. However, by the time that Harris sent
this email, the Listing Agreement had been expired for approximately five months,
as of the termination of the 2011 P&S upon Navarino’s request for its earnest money
deposit in March 2013. App. 734. Harris’ contention that the Listing Agreement
automatically extended every six months is misplaced. The automatic extension to
which he refers only applied in the event that ongoing negotiations extended beyond
the Listing Agreement’s six month term. App. 636. Here, there is no evidence in the
record of such ongoing negotiations.

Thus, Harris cannot claim a commission

pursuant to the Listing Agreement.
Even if the Listing Agreement had not expired, whatever authority Harris
enjoyed to negotiate on behalf of Oak Knoll under the Listing Agreement was lost
when Oak Knoll filed its Chapter 11 petition in March 2013. Thereafter, Harris was
required to get approval from the Bankruptcy Court before he could negotiate on Oak
Knoll’s behalf and accrue any post-petition rights to a commission. In re Pollock, 22
B.R. 673, 675 (Bankr. Mass. 1982) (“the general rule is well established, both in the
[Bankruptcy] statute and the case law, that in order to be paid for post-petition
services to an estate in bankruptcy, the claiming party must first have received court

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approval prior to the performance of any service.”). Here, the Bankruptcy Court did
not grant the necessary approval,3 and retroactive approval is frowned upon absent
extraordinary circumstances which Harris has not argued. In re Jarvis, 169 B.R. 276,
277 (Bankr. D. R.I. 1994).
Therefore, even if it is assumed that Harris continued negotiating on Oak
Knoll’s behalf in connection with the 2013 P&S, those negotiations do not provide a
basis upon which he is owed a commission.
C.

Equitable Relief
Finally, Harris contends that he is entitled to an allowed claim under § 105 of

the Bankruptcy Code, arguing that he continued to negotiate a price at Oak Knoll’s
explicit direction even after the bankruptcy petition date. ECF No. 6 at 35. He also
claims, more generally, that “[t]his deal would not exist but for [Harris’] brokerage
services over four years or more[.]” Id. (emphasis in original).
The Bankruptcy Court denied Harris’ equitable claim, holding that its
authority to grant equitable relief under § 105 extended only where necessary “to
preserve an identifiable right conferred elsewhere in the Bankruptcy Code.” ECF No.
1-4 at 11 (quoting In re Jamo, 283 F.3d 392, 403 (1st Cir. 2002)). Here, the court
concluded, “[n]either Connecticut law nor the [Bankruptcy] Code confers the right for

Although the Bankruptcy Court at first orally approved an application to employ Harris at a
hearing held on September 4, 2013, the court conditioned its approval on the requirement that Harris
apply with the court for a payment of any commission. On October 2, 2013, the Bankruptcy Court
permitted Oak Knoll to withdraw the application. In doing so, the Bankruptcy Court noted that it had
never formally approved Oak Knoll’s application and stated that the withdrawal of the application to
retain Harris was appropriate. Audio Transcript of Bankruptcy Court Status Conference at 1:30, In
re: Oak Knoll Associates, L.P., Case No. 13-20205, ECF No. 82.
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Harris to receive a commission under these facts[.]” Id. I agree with and adopt this
conclusion.
IV. CONCLUSION
For the reasons stated, the judgment of the Bankruptcy Court is AFFIRMED.
SO ORDERED.
This 18th day of September, 2015.
/s/ Jon D. Levy
U.S. District Judge

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