Demmie Balauro Acosta

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re 	) Bankruptcy Case
) No. 09-32339DM
DEMMIE BALAURO ACOSTA, 	)
) Consolidated for
) Administration Only
Debtor. 	) with Case No. 09-32340DM
___________________________________) Chapter 11
MEMORANDUM DECISION REGARDING PAYMENT OF
REAL ESTATE BROKER’S COMMISSIONS
I. 	Introduction
Debtor Demmie B. Acosta (“Debtor”), Marcus & Millichap Real
Estate Investment Services, Inc. (“M&M”), Mark A. Mason (“Mason”)
and John M. Antonini (“Antonini”) have asked the court to allow
payment in full of real estate commissions in connection with
Debtor’s sales of real property on 17th Street (“17th Street
Property”) and 18th Street (“18th Street Property”; together “the
Properties”) in San Francisco even though the court authorized
broker, M&M, did not comply with this court’s order prohibiting it
from representing both the seller (Debtor) and any buyer of the
Properties. 	For the reasons explained below, the court will allow
payment of one-half of the commissions due on the sales of each of
the Properties, and subordinate the other half until creditors of
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Signed and Filed: May 24, 2011
________________________________________
DENNIS MONTALI
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
May 25, 2011
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 09-32339 Doc# 516 Filed: 05/24/11 Entered: 05/25/11 15:10:08 Page 1 of
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these affiliated debtors have been paid in full. 1
II. 	Discussion 2
On March 11, 2011, the court signed and on March 14, entered
an Order Authorizing Employment Of Broker (“Employment Order”)
regarding the Properties. 	That order specifically recited that
the Debtor is authorized
. . . to employ [M&M] as Real Estate Broker (“Broker”) to
list and sell or lease the Debtor’s [Properties] . . . .
The order was submitted by Debtor’s counsel and the court added
the following:
Broker may not represent buyer in connection with the listing
authorized by this order. 	See 11 U.S.C. § 327(a). 3
As part of the Debtor’s application to obtain the Employment
Order, Mason submitted a declaration wherein he recited that he
was a real estate agent at M&M, that he described as “Broker”. 	He
then recited that he understood Debtor desired to retain Broker to
1 M&M, in response to an invitation from the court, suggested
by letter of May 16, 2011, that all commissions be paid other than
one-half of its share (described as the “house side”) of the two
commissions otherwise payable to M&M and thereafter to be shared
between Mason and Antonini. 	The court rejects that suggestion for
the reasons explained in the text.
2 The following discussion constitutes the court's findings
of fact and conclusions of law. 	Fed. R. Bankr. P. 7052(a).
3 Section 327(a) of the Bankruptcy Code provides as follows:
Except as otherwise provided in this section, the
trustee, with the court’s approval, may employ one or more
attorneys, accountants, appraisers, auctioneers, or other
professional persons, that do not hold or represent an
interest adverse to the estate, and that are disinterested
persons, to represent or assist the trustee in carrying out
the trustee’s duties under this title.
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perform the specific brokerage services. 4
Notwithstanding the limitation on M&M’s employment as
Debtor’s broker, Antonini, another agent employed by M&M,
represented Paul Kraaijvanger as purchaser of the Properties.
Antonini and Mason exchanged offers and counter-offers on the 18th
Street Property.
At a hearing on April 22, 2011, the court considered the 18th
Street Property sale. 	It noted that Mason and Antonini were both
agents with M&M and that therefore M&M had violated the Employment
Order. Nevertheless it approved the sale, but directed that the
real estate commission claimed by M&M would be withheld pending
further order. 	The court entered an order on May 10, 2011,
approving the sale of the 18th Street Property (Docket No. 502).
At a hearing on May 13, 2011, the court orally approved the
sale of the 17th Street Property to Mr. Kraaijvanger; as of the
date of this Memorandum Decision, no order authorizing that sale
has been submitted.
Thereafter, Debtor filed a request for payment of the
commission due on the 18th Street Property sale. 	M&M filed a
Memorandum of Points and Authorities and a supporting declaration
of Mason with reference to the commissions due on both Properties.
The issues are identical and the court thus treats all papers as
relevant to the commissions due on both sales.
In support of the requests, counsel for M&M offered a
declaration of Mason wherein he recites his twenty-two years
4 The declaration also noted that M&M had been employed in
connection with Debtor’s efforts to sell three other properties in
the San Francisco bay area.
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experience as a real estate agent and claims to have believed that
the reference to “Broker” in the Employment Order referred only to
him personally, and not to M&M. 	This statement is contrary to
Mason’s previous declaration and the court is not prepared to
write it off as a “layperson’s mistake” as counsel for M&M has
suggested. 	Antonini independently filed a declaration describing
how he and Mason are fellow agents at the same broker, that they
work independently of each other as separate agents, and that the
18th Street Property transaction was strictly arms-length and
subject to extensive and vigorous negotiations. 	Antonini did not
say whether he knew or did not know of the court’s prohibition
against dual representation by M&M, so the court makes no finding
in that regard.
M&M did not file a declaration of any responsible officer or
licensed broker, but did file a memorandum conceding that an error
had been made and that M&M should not have represented both buyer
and seller. 	It adds that “this confusion will not happen again”,
an important assurance given that M&M is the listing broker on
other properties Debtor owns.
Despite the conflicted representation by the two agents at
the same brokerage, the following facts are undisputed: the
efforts of M&M, Mason and Antonini benefitted the estate (assuming
the two sales close). 	The prices were fair and reasonable.
Further, Mason and Antonini acted in good faith. 	There is no hint
of fraud or collusion. 	But M&M did not oversee its obligations as
the listing broker and make sure its agents complied with the
Employment Order in order to avoid the obvious conflict of
interest addressed in section 327(a) and in the Employment Order.
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Finally, Debtor’s counsel may not have known specifically
that Antonini was employed by M&M but because he played a
significant role in bringing the sales of the Properties before
the court, he should have noticed that the underlying agreement
for the sale of the 18th Street Property did not identify a
separate brokerage representing the buyer and he should have
appreciated the distinction between the role of the broker of
record and the role of the participating agents and either sought
relief from the Employment Order or otherwise avoided the
awkwardness of the court having to intervene to enforce its
Employment Order.
California allows dual agency but it does not prohibit a
seller or buyer from requiring that there be no dual agency in
connection with a particular listing. 	While M&M is a prominent
and respected real estate brokerage and perhaps is the best
situated in San Francisco to handle sales such as these, it had
the option of declining the engagement if it felt that a
prohibition on dual agency was not appropriate. 	The court’s
order, by citing § 327(a) of the Bankruptcy Code, effectively
prohibited dual agency; that prohibition was neglected by all who
should have known better, leaving the court itself forced to
insist on compliance with its order.
Throughout this case Debtor has contended that she is solvent
and hopes to pay her creditors in full. 	That is a worthwhile
goal, and indeed may come to pass. 	But it may not. 	Because the
court views the provisions of section 327(a) of the Bankruptcy
Code as part of the implementation of the fiduciary duties a
Chapter 11 debtor has to her creditors, it will use its discretion
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and limit M&M’s fees at present (therefore the fees to be shared
with Mason and Antonini) to what they would have received if a
private seller had insisted upon a prohibition against dual
agency. 	In other words, had M&M complied with the Employment
Order, it would have likely shared one-half of the 5% commission
payable on each of the two sales with another broker. 	Thus, the
court will authorize M&M to be paid a commission of 2-1/2% of the
selling price if and when each of the two sales close. 	Rather
than tell M&M that it must forfeit a portion of the “house side,”
the court prefers to let M&M deal with its own agents and to share
with them the allowed commissions as it determines. 	The court
will not engage in evaluating the relative responsibilities of
M&M, Mason and Antonini for the problems that have arisen. 	That
is their problem, not the court’s or the Debtor’s.
If Debtor is able to pay her creditors in full, then the need
to invoke the fiduciary rules of the bankruptcy law is less
critical, and Debtor will be free to pay conflicted real estate
professionals then as she has sought to do now. 	The court will
not disallow the remaining one-half of the two real estate
commissions on the sales, but simply subordinate them such that
they may be paid to M&M (and shared as M&M determines) if and when
creditors have been paid in full.
III. 	Conclusion
Counsel for Debtor should submit a form of order directing
payment of one-half of the reserved commission on the 18th Street
Property to M&M upon close of escrow, with the remaining half to
be treated as proceeds of sale subject to existing liens, and
providing further that if and when creditors are paid in full in
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this case, Debtor should pay an amount equal to the other one-half
commission to M&M. 	In connection with the order to be presented
in connection with 17th Street Property, the same provisions for
payment of the real estate commission should be included in the
form of order.
**END OF MEMORANDUM DECISION**
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SERVICE LIST
John M. Antonini
Marcus & Millichap
750 Battery Street, Fifth Floor
San Francisco, CA 94111
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