Legal Update 2020
Instructor: John Henderson
REAL ESTATE TEAM
License Law Blocks Trustee's Reach for Team Leader Commissions
Rainsdon v. Win Realty, LLLP, 65 Bankr. Ct. Dec. 182; 2018 Bankr. LEXIS 1414 (2018)
United States Bankruptcy Court for the District of Idaho
Facts: Two real estate agents were members of a real estate team operating within a brokerage firm. An agreement between the team leader and the agents provided for a commission split between them. The agents were separately responsible for paying an annual commission “cap” to the broker- age firm. Commissions for the agents’ real estate transactions were paid directly to the brokerage firm, which withheld a percentage toward the cap amounts and disbursed the remainder in accordance with the contractual split between the agents and the team leader. The agents filed for bankruptcy protection and were ordered to turn over the commissions they earned from twelve real estate transactions that closed after the filing, because the funds were part of the bankruptcy estate. The Bankruptcy trustee then sought additional commissions from the twelve transactions that were paid to the brokerage firm and distributed to the team leader. The brokerage firm and team leader moved for summary judgment.
Issue: Were the commissions paid to the brokerage firm and distributed to the team leader part of the agents’ (debtors’) bankruptcy estate?
Held: No. Judgment for the brokerage and team leader. The entire commission belonged to the brokerage firm and not to the debtors individually as the sales associates. The debtors and the team leader were entitled only to those portions they contractually earned. As such, the amounts the brokerage firm received and paid to the team leader were not part of debtors’ bankruptcy estate and could not be re- covered by the trustee. This conclusion is supported by the real estate license law which prohibits fee split- ting with unlicensed persons [Idaho Code § 54- 2054(2)]; requires real estate purchase and sale commissions to be paid through a broker; and prohibits sales associates from accepting compensation for the performance of any acts requiring a real estate license from any person except the real estate broker with whom they are licensed, with certain exceptions [Idaho Code §54-2054(9)]. The debtor sales agents had no property interest in the commission amounts distributed by the brokerage to the team leader.