The Real Deal New York

Jungreis, Malone gear up for appeal in commission feud

Dispute centers on confidential info for $68.5 million sale

December 23, 2011 10:46AM
By Leigh Kamping-Carder

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From left: Rosewood Realty Group President Aaron Jungreis, Georgia Malone & Co. President Georgia Malone and 308-340 West 49th Street

The stage is set for the latest phase of a longstanding dispute between off-market sales broker Georgia Malone, founder of an eponymous brokerage, and rival Aaron Jungreis, president and co-founder of Rosewood Realty Group, over commissions from the sale of a 13-property portfolio on West 49th Street between Eighth and Ninth avenues.

In 2008, Malone, whose clients backed out of a $70 million deal to buy the properties, accused Jungreis of using confidential information leaked by her clients to secure a $68.5 million sale of the buildings, which include 255 apartment units and six stores.

The New York Supreme Court dismissed the claims against Jungreis in 2009, and an appeals court upheld that ruling. But in the fall, Malone took her case to the state’s highest court, the New York State Court of Appeals, where she filed a brief Nov. 16. Jungreis must respond to her brief by Jan. 13.

Aside from being a bitter feud between two of New York’s noted commercial brokers, the case represents a chance for the high court to clarify the standards for unjust enrichment — a legal claim that obligates one party to compensate another if “equity and good conscience” demand it, even if no contract exists between them, sources said.

According to court documents, Malone represented CenterRock Realty — an LLC backed by real estate investor Ralph Rieder and his son, Elie — which agreed to buy the properties in December 2007. CenterRock’s contract provided Malone with a 1.25 percent, or $875,000, commission, and included a nondisclosure provision, court documents say.

However, Malone claimed that during an extended due diligence period, the Rieders passed confidential materials to Jungreis in exchange for $150,000. Jungreis then allegedly handed over the materials to the ultimate purchaser, the Orbach Group and the Rieders withdrew their offer.

Orbach, a Fort Lee, N.J.-based property management firm, apparently closed the deal without a due diligence period, leading Malone to believe they relied on her materials. At the time, Jungreis boasted to the New York Post that it took only 11 days to put the contract together. A real estate attorney who represented the Rieders in the sale also represented Orbach, city records show.

For his part, Jungreis denied that he had passed on the information and said he knew about the deal because of his relationship with the sellers. “It’s an absolutely baseless lawsuit,” he told The Real Deal. He declined to comment further.


Malone
sued Jungreis in July 2008, claiming he had benefitted improperly from her work. In the same suit, she accused the Rieders of breach of contract, among other claims. She asked for more than $3.6 million in damages, plus interest.

But New York Supreme Court Justice Eileen Bransten dismissed the claims against Jungreis and the Rieders, although she kept CenterRock in the suit.

Then, in a split 3-2 decision in July, the appellate division affirmed the ruling dismissing Jungreis (but reinstated some claims against the Rieders). The majority essentially found that, even if Jungreis had benefitted from Malone’s work, their relationship was too distant to hold him liable.

The two appellate division judges who dissented found that Jungreis should be on the hook if he knew the confidential information was obtained improperly.

Now, Malone’s attorneys are hoping the Court of Appeals sides with the two dissenting judges. Such a ruling would affect other cases where a broker benefits from a competitor by taking information necessary to make a deal, said Malone’s attorney, Jeffrey Metz of Adam Leitman Bailey PC.

“This broker, my client, really got the short end of the stick, and equity demands that there be a remedy for the wrong that was committed upon the company,” Metz said.

For real estate attorneys, the case presents an opportunity for the high court to weigh in on what constitutes an unjust enrichment claim. “Since the majority and the dissent grappled with the standards necessary to maintain an unjust enrichment claim, I anticipate that the Court of Appeals will shed further light on this issue when it hears this case,” said Andrea Lawrence, an attorney with Epstein Becker & Green who is not involved in the case.

Malone declined to comment, citing the early stages of the appeal proceedings.

The Rieders, who are not participating in the current appeal, could not immediately be reached for comment, and their attorney did not return a call seeking comment.

This is not the only lawsuit stemming from the sale of the West 49th Street property, which changed hands again in March.

The seller’s broker, Debrah Lee Charatan, sued Jungreis soon after the deal closed, alleging he made a side deal with her client that effectively cut $500,000 from her commission.

Charatan, the head of a namesake brokerage and the wife of real estate scion Robert Durst, alleged that Jungreis promised her he would only take a commission from the buyer. The suit was settled in January 2009, according to court records.

Additional reporting by Guelda Voien 

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