United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued January 19, 1999 Decided March 26, 1999
No. 98-7022
The Stephen A. Goldberg, Co., and
Stephen A. Goldberg,
Appellees
v.
Remsen Partners, Ltd.,
Appellant
Appeal from the United States District Court
for the District of Columbia
(No. 96cv02742)
George R. Clark argued the cause and filed the briefs for
appellant.
Paul A. Kaplan argued the cause for appellees. With him
on the brief was James W. Gladstone.
Before: Edwards, Chief Judge, Williams, Circuit Judge
and Buckley, Senior Circuit Judge.
Opinion for the Court filed by Circuit Judge Williams.
Williams, Circuit Judge: Pursuant to a 1992 Letter Agree-
ment, the Stephen A. Goldberg Company ("the Goldberg
Company" or the "Company") retained Remsen, a New York-
based financial consulting services corporation, to serve as a
financial advisor to the Company. The goal was to arrange a
$122 million "securitized" refinancing of various Maryland
and Virginia apartment complexes managed by the Goldberg
Company and owned by limited partnerships controlled by
Stephen Goldberg. According to the record securitized fi-
nancing is a method of raising money by creating marketable
securities from an income-producing asset. See also Steven
L. Schwarcz, The Alchemy of Asset Securitization, 1 Stan.
J.L. Bus. & Fin. 133, 133 n.1 (1994). Here the parties used a
mortgage loan as the asset, transferred the loan to a trust
fund, and then sold ownership interests in the trust fund to
investors. In consideration for Remsen's services, the
Goldberg Company agreed to pay Remsen a one-percent
contingent fee on completion of the financing, as well as
various post-closing consulting fees.
The financing was successfully completed in January of
1993. The Goldberg Company made the agreed payments
until sometime in 1994. It then stopped making payments on
the balance of the post-closing fees, although it continued to
make them on the closing fees and on the first-year consult-
ing fees until January 1997.
In November 1996 the Goldberg Company filed this com-
plaint against Remsen in the Superior Court of the District of
Columbia, seeking a declaratory judgment that the parties'
agreement was void and unenforceable because Remsen was
not licensed as a real estate broker, as required by the
District of Columbia Real Estate Licensure Act of 1982, D.C.
Code ss 45-1921, et seq. (the "Brokerage Act"). The
Goldberg Company also sought damages and rescission of the
parties' agreement for alleged fraud and misrepresentation.
Remsen removed the case to the United States district court
on the basis of diversity. It also filed a counterclaim against
the Goldberg Company and a third party complaint against
Stephen Goldberg, alleging breach of contract by both of
them. The district court granted summary judgment for the
Goldberg Company, holding that the agreement was unen-
forceable and void because the Brokerage Act was applicable
to the transaction. Since the district court held that the
Letter Agreement was void and unenforceable, it did not
reach the merits of Remsen's counterclaim. The district
court also, entirely on the basis of the Brokerage Act viola-
tion, ordered Remsen to return all the money that the
Company had paid under the Letter Agreement ($1,078,045).
We affirm the district court's holding that the agreement
was not enforceable. On the issue of recovery, we find
ourselves in enough doubt about the course of District of
Columbia law that we certify the question to its Court of
Appeals.
* * *
The Brokerage Act imposes a licensing requirement on
those engaging in real estate brokerage activities. D.C. Code
s 45-1926(a). Individuals conducting real estate brokerage
services without licenses may not "bring or maintain any
action in the courts of the District for the collection of
compensation" for any such services. Id. s 45-1926(c). At
the time of this transaction Remsen was not licensed as a real
estate broker under the Act, and the Goldberg Company
contends that this renders the Letter Agreement void and
unenforceable.
Remsen's first argument on appeal is that as applied in this
case the Brokerage Act violates the commerce clause. But
since Remsen never argued that question before the district
court, we decline to hear it for the first time on appeal. See
Boehner v. Anderson, 30 F.3d 156, 162 (D.C. Cir. 1994).
Remsen also contends that New York rather than D.C. law
governs the enforcement of the agreement, and that under
New York law Remsen was not required to be licensed as a
real estate broker to perform the services required by the
Agreement. Finally, Remsen insists that even if we find D.C.
law applies to this transaction, its services should not be
construed as "brokerage" services under that law.
In resolving the conflict of laws issue the district court
found that Remsen's activities were illegal under both New
York and D.C. law, so that there was a "false conflict." Thus
it applied D.C. law. Remsen contests the "false conflict"
analysis. New York real estate licensure law, Remsen con-
tends, does not cover the kind of services rendered by
Remsen. We do not decide the issue, since we hold that even
if the conflict is not false, D.C. law would apply.
In a diversity case a federal court follows the choice-of-law
rules of the jurisdiction in which it sits. Gray v. Grain
Dealers Mutual Ins. Co., 871 F.2d 1128, 1129 (D.C. Cir. 1989).
The District states that (in the absence of an effective choice
of law by the parties1) it uses "a constructive blending" of the
"governmental interest analysis" and the "most significant
relationship test," the latter as expressed in the Restatement
(Second) of Conflict of Laws s 188 (1988). Hercules & Co.,
Ltd. v. Shama Restaurant Corp., 566 A.2d 31, 41 n.18 (D.C.
1989); see also Ideal Electronic Security Co. v. Int'l Fidelity
Ins. Co., 129 F.3d 143, 148 (D.C. Cir. 1997) (stating that
District applies s 188 for contracts cases). But the Restate-
ment itself notes that for certain types of contracts, including
those for services (as here), "it is considered possible to state
with respect to each that ... a particular contact plays an
especially important role." Restatement, Ch. 8, Topic 1, Title
B, "Introductory Note." There does not appear to be an
established hierarchy in the application of these concepts.
See Kermit Roosevelt III, "The Myth of Choice of Law:
Rethinking Conflicts," 98 Mich. L. Rev. ___, ___ (1999) (not-
ing "dizzying number of factors" made relevant by Restate-
ment with little hint as to their relative weight). In any
event, for the reasons developed below we find the results
somewhat inconclusive by all methods, and ultimately follow a
__________
1 Remsen invokes a later loan agreement with a choice of law
clause, but of course this does not govern the earlier Letter
Agreement in dispute here.
method the District has used to break a tie between its own
law and that of another jurisdiction--namely the efficiency of
using its own.
For the validity of a service contract, the Restatement
assigns presumptive weight to the place where the services
are to be rendered, see Restatement s 196, reasoning that
this is most likely both to accord with the assumptions of the
parties and to allow control by the state with the greatest
interest. But this factor does not point with certainty. Sev-
eral Remsen employees spent weeks in the District gathering
data and dealing with other professionals working on the
transaction, but Remsen also reviewed and analyzed the data
in New York.
The five factors named in s 188 as determinants of a
"significant relationship" are: (1) the place of contracting; (2)
the place of negotiation; (3) the place of performance; (4) the
location of the contract's subject matter; and (5) the domicile,
residence, nationality, place of incorporation and place of
business of the parties. Id. s 188. Place of performance
(#3) we have already discussed.
The other factors--taken without any prioritization--do
little to help. One, the place of negotiation (#2), points to the
District. The subject matter of the contract (#4), real prop-
erty in Virginia and Maryland, points to neither New York
nor the District, and neither party is urging the application of
the laws of Virginia or Maryland. The place of contracting
(#1) is uncertain. It is undisputed that Goldberg signed the
agreement in the District, while Remsen signed it in New
York. But the parties disagree as to where the last signa-
ture--the last act necessary to make the agreement bind-
ing--occurred. In any event, under the Restatement the
place of contracting standing alone is typically viewed as
rather insignificant, especially when it was fortuitous. Id.
s 188, cmt. e; Finance America Corp. v. Moyler, 494 A.2d
926, 929 (D.C. 1985). And the parties' places of business are
divided: while the Goldberg Company is a District corpora-
tion and Mr. Goldberg maintains his office in the District,
Remsen is a Delaware corporation with offices in New York
but operating around the country.
In s 188, the Restatement itself states that where place of
negotiation and performance coincide, that place should gen-
erally control, s 188(3), noting in the comment that the state
with those contacts "will usually be the state that has the
greatest interest in the determination of issues arising under
the contract." Id. cmt. f. As we've said, the place of
negotiation points to the District, and the place of perfor-
mance is equivocal. The District, however, inquires indepen-
dently into which jurisdiction has the greatest interest in the
subject. See, e.g., District of Columbia Insurance Guaranty
Association v. Blair, 565 A.2d 564, 568 (D.C. 1989); Hercules
& Co., 566 A.2d at 41 n.18; Kaiser-Georgetown Community
Health Plan, Inc. v. Stutsman, 491 A.2d 502, 509 (D.C. Cir.
1985); Fowler v. A & A Co., 262 A.2d 344, 348 (D.C. 1970).
Here, the purpose of the brokerage statutes in both New
York and the District is to protect those who enter into
agreement with unlicensed real estate brokers. See Gal-
breath-Ruffin Corp. v. 40th & 3rd Corp., 19 N.Y.2d 354, 362-
63 (1967); D.C. Code s 45-1921. We have assumed that
District law (if applicable) covers this transaction and New
York law (if applicable) does not; if true, this presumably
reflects a judgment by the District that interests in such
protection outweigh the various costs (administration, denial
of recovery for services as to which protection was completely
unnecessary, etc.), and a New York judgment that the bal-
ance falls the other way. It is not apparent how New York's
hypothesized preference for non-regulation is any less frus-
trated by subjecting this transaction (with its activities divid-
ed roughly equally between the District and New York) to
District law than the District's interest in protection is
thwarted by application of New York law.2 Given this stand-
__________
2 The above analysis makes the assumption that legislation is
intended to advance the public interest. On the more somber
public choice view of the world, the phrasing is different: the two
jurisdictions' differing outcomes would be ascribed to differences in
the political power brought to bear by the prospective winners and
losers under the alternative rules. The ultimate conclusion would
off, we think that the District would most probably apply its
own rule. See Kaiser-Georgetown, 491 A.2d at 509 n.10
(observing that when the interests of both jurisdictions are
equally weighty, efficiency concerns tilt the balance in favor
of applying the law of the forum state, presumably because
the forum courts have more experience with their own law).
Under the assumption that District law applies, Remsen
first argues that its services here are not the services of a
real estate broker under the District's Brokerage Act, stress-
ing especially the securitization aspect of the transaction.
The statute includes among real estate brokers anyone who
"negotiates a loan secured by a mortgage, deed of trust, or
other encumbrance on real property." D.C. Code
s 45-1926(b)(1)(B). Because the refinancing funds ultimately
came from the buyers of the securities (interests in the trust
holding the mortgage), Remsen says this is inapplicable. But
that fact does little to undermine the proposition that a
mortgage was indisputably a component of the transaction.
Remsen has made no claim that the services can be disaggre-
gated in some way that would allow it to recover for services
that are truly distinct from brokering the mortgage, so we
need not address that possibility.
Remsen also argues that it was only an "advisor." The
trouble is that Remsen's activities look very much like those
of a broker. It introduced the Goldberg Company to the
investment bank that ultimately provided the funds for the
refinancing of the properties, participated actively in the
negotiations between the investment bank and the Goldberg
Company over the terms of the transaction, and received
payment for its services based on the amount of the loan. All
of these efforts culminated in a loan to the Goldberg Compa-
ny that was secured by a mortgage on its apartment proper-
ties. In all this the case is quite similar to RDP Development
Corp. v. Schwartz, 657 A.2d 301, 305-07 (D.C. 1995), where,
despite a party's identification of its role as that of "consul-
tant," the court found that its participation in negotiations for
__________
in essence be the same--that either choice will cause roughly
equivalent frustration of one or the other of the two polities.
lease of property and receipt of a commission based on the
lease's value were the services of a real estate broker under
the statute.
Remsen's final statutory theory is that one who negotiates
a mortgage can be included in the Act's definition of a real
estate broker only if the transaction included a transfer of
real estate (apart from such as might be thought to inhere in
creation of the mortgage itself). Although the D.C. statute is
indeed confusing, its structure precludes Remsen's argument.
The licensure provision itself contains a definition of who is a
real estate broker:
For the purposes of this chapter, a person will be
performing as a real estate broker if:
(A) The person accepts a fee, commission, or other
valuable consideration for exchanging, buying, selling,
renting, or leasing real estate or businesses;
(B) The person negotiates a loan secured by a mort-
gage, deed of trust, or other encumbrance on real
property or a business; or
C The person is engaged in any activity specified
by s 45-1922(12).
D.C. Code s 45-1926(b)(1). Remsen rests its case on one of
the provisions cross-referenced in subsection (C) above:
(12) The term "real estate broker" means any person,
firm, association, partnership ... which:
(A) For a fee, commission, or other valuable consid-
eration, lists for sale, or sells, exchanges, purchases,
rents, or leases real property. A real estate broker
may collect or offer to collect rent or income for the
use of real estate, or negotiate a loan secured by a
mortgage, deed of trust, or other encumbrance upon
the transfer of real estate.
Id. s 45-1922(12) (emphasis added). The emphasized lan-
guage of this subsection presumably could not include a
mortgage unaccompanied by a real estate transfer (apart
from creation of the mortgage).
But s 45-1922(12) is just one of three clauses defining the
coverage of s 45-1926(b). And s 45-1926(b)(1)(B), which
covers those who negotiate a loan secured by a mortgage,
conspicuously lacks the qualifying language. Thus the stat-
ute covers Remsen's activities.
There remains the issue of the remedy. The statute itself
bars "any action in the courts of the District for the collection
of compensation for any services performed in that [real
estate broker] capacity." D.C. Code s 45-1926(c). So Rem-
sen cannot recover unpaid portions of its fee. But the district
court also ordered Remsen to pay back to the Goldberg
Company the portion of the fee already collected.
But we are most uncertain whether the District would
allow recovery of fees already paid to Remsen, in the absence
of evidence that Goldberg in any way failed to receive the
services contracted for, or some other lack of equity. It is
true that District courts have often allowed restitution for
money paid to unlicensed persons when such persons are
required by law to have occupational or business licenses.
See Truitt v. Miller, 407 A.2d 1073, 1079 (D.C. 1979); Miller
v. Peoples Contractors, Ltd., 257 A.2d 476, 476-77 (D.C. 1969);
Rubin v. Douglas, 59 A.2d 690, 691 (D.C. 1948). But in all
such circumstances, the courts have found in statutory lan-
guage or legislative history reasons that indicate that fulfill-
ment of the purpose of the law called for allowing recoup-
ment. See Rubin v. Douglas, 59 A.2d at 691. In Rubin, the
statute that explicitly prohibited the unlicensed practice of
healing arts also provided criminal sanctions for violators;
indeed the defendant had pleaded guilty to criminal charges
based on the prohibition. 59 A.2d at 691. At least in part
moved by the statute's extremely zealous hostility to such
unauthorized practice, the court found that allowing recoup-
ment would be appropriate. Id. And both Miller and Truitt
involved a regulation that "prohibited" any advance payments
to an unlicensed contractor under a home improvement con-
tract. See Truitt, 407 A.2d at 1078; Miller, 257 A.2d at 477.
The court held in both cases that allowing the unlicensed
contractor to retain advance payments would be in direct
contravention of the regulation. See Truitt, 407 A.2d at 1079;
Miller, 237 A.2d at 477.
Here the statutory language explicitly bars unlicensed bro-
kers from bringing actions for recovery, but is silent as to
whether individuals in the plaintiffs' position are entitled to
recover money already paid. As a general principle, more is
required to impel a court to action than to convince it to leave
matters where they are. As Justice Cardozo wrote while on
the New York Court of Appeals:
The law may at times refuse to aid a wrongdoer in
getting that which good conscience permits him to re-
ceive; it will not for that reason aid another in taking
away from him that which good conscience entitles him
to retain.
Schank v. Schuchman, 212 N.Y. 352, 359, 106 N.E. 127, 129
(1914). This seems appropriate, as use of the courts gener-
ates costs for society.
It is thus not surprising to find that other jurisdictions
generally reject any automatic recovery rule. See "Recovery
Back of Money Paid to Unlicensed Person Required by Law
to Have Occupational License or Permit to Make Contract,"
74 A.L.R.3d 637 s 2 (1977 & 1998 Supp.). A recent Maryland
decision, quoting Cardozo, reasons that the case for recovery
of amounts paid is a function "of the strength of the public
policy involved together with the degree of violation of that
policy under the facts of the case." Citaramanis v. Hallo-
well, 613 A.2d 964, 971-72 (Md. 1992).
The purpose of the statute of course is to protect the public
from "incompetence, fraud, and deception in real estate trans-
actions." RDP Development Corp., 657 A.2d at 304. The
statute's explicit remedy has a strong tendency to achieve this
goal--in the prophylactic sense of creating a sharp incentive
to register. It seems doubtful if many will willfully launch
themselves into real estate brokering without a license when
they face complete inability to sue to enforce their contracts.
The only obvious exception would be fly-by-night outfits from
whom affirmative recovery would in any event be unlikely.
Here, although there are undeveloped claims of fraud and
misrepresentation (which may independently justify a recov-
ery by Goldberg as a matter of contract law), the summary
judgment record contains no evidence supporting recovery
other than the Brokerage Act violation itself. Nor, of course,
is there any indication that Goldberg is an unsophisticated
investor of the sort the statute was evidently intended to
protect. Accordingly, we do not see how Goldberg can be
entitled to recoup past payments by virtue of the Brokerage
Act except under a view that recovery is completely automat-
ic. Yet, as District law has allowed automatic recovery under
comparable (albeit readily distingushed) statutes, we are un-
certain what course the District will take. We note that an
unpublished Superior Court decision, Marmac Investment
Co. v. Wolpe, No. 96-2858 (D.C. Superior Court, Nov. 24,
1997), not citable to us under our rule, D.C. Cir. Rule 28(c);
see also D.C. Court of Appeals Rule 28(h) (which our rule
makes pertinent), has rejected automatic recoupment and is
now on appeal. See Marmac, appeal No. 97cv2016 pending.
Accordingly, we certify to the District of Columbia Court of
Appeals the question:
Where a party has performed brokerage services cov-
ered by the District of Columbia Brokerage Act's prohi-
bition of use of the District's courts for recovery of
compensation, D.C. Code s 45-1926(c), under what cir-
cumstances will the District of Columbia courts order the
party performing the services to disgorge compensation
already paid?
This court's opinion, together with copies of the briefs
submitted on appeal, are transmitted herewith to the District
of Columbia Court of Appeals.
* * *
We affirm the district court's decision that Remsen's ser-
vices are covered by the District Brokerage Statute and that
Remsen is barred from enforcing the Letter Agreement. On
receipt of a response to the certified question, this court will
address the issue of the return to the Goldberg Company of
fees already paid.
So ordered.