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Harris v. ScArcelli

United States District Court, D. Maine

September 18, 2015

ROBERT HARRIS, Appellant,
v.
ROSA SCARCELLI, and OAK KNOLL ASSOCIATES LP, Appellees,

ORDER ON BANKRUPTCY APPEAL

Jon D. Levy U.S. District Judge

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.[1] 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).

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 “non-Permitted 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, 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 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 ...


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