The Real News
RELAW, APC
December, 2016
Coordinated International Law Enforcement Action Taken Against Cyber Criminal Network "Avalanche"

Cyber crime is a major issue in the real estate industry today.  In particular, the use of "phishing" to misdirect funds in real estate transactions and the subsequent movement of those funds out of the United States through money mules has resulted in millions of dollars in losses.  More often than not the criminals are not prosecuted and the funds are not recovered.

Many factors are to blame for the low prosecution in this area.  This is because catching cyber criminals is no small task.  Indeed, efforts to stop these cyber criminals take years of investigating, engineering and coordination.  This is evident by the recent international law enforcement action taken against the cyber crime network known as Avalanche.  On November 30, authorities in several European countries coordinated the arrest of five individuals thought to be actively involved in running the Avalanche network.  According to reports, the investigation into the crime network took 4 years and involved efforts of prosecutors and investigators from 30 countries.

According to the press release put out on the matter by Europol, the European Union's law enforcement agency, "the Avalanche network was used as a delivery platform to launch and manage mass global malware attacks and money mule recruiting campaigns.... [C]riminal groups have been using the Avalanche infrastructure since 2009 for conducting malware, phishing and spam activities. They sent more than 1 million e-mails with damaging attachments or links every week to unsuspecting victims."  According to the US Department of Justice, monetary losses as a result of Avalanche's malware attacks are likely in the hundreds of millions of dollars worldwide.

The day after the arrests, the United States Computer Emergency Readiness Team (US-Cert) put out an alert which provides information and resources for people wanting to know more about Avalanche.  The alert describes the scope and breadth of malware used by Avalanche and provides links to free scanning programs so companies and individuals can check to see if their computers are infected.  The US-Cert alert can be accessed at https://www.us-cert.gov/ncas/alerts/TA16-336A.

This enforcement development is thus a welcome action for victims of cyber criminals.  It is not, however, a solution to the cyber theft threat.  This network may be down but cyber crime is not gone.  As such, real estate professionals need to continue to act diligently to protect their computers and their electronic communications in order to minimize their risk of falling victim to cyber theft.

Case of the Month
Westside Estate Agency, Inc. v. James Randall, et al.

In legalese, the term "statute of frauds" refers to the requirement that certain kinds of contracts be memorialized in writing, signed by the party to be bound by the contract, with sufficient content to evidence the contract.  One such type of contract that must be in writing pursuant to California Civil Code section 1624(a)(4) is any "agreement authorizing or employing an agent, broker, or any other person to purchase or sell real estate" (i.e., a commission agreement).  At issue in this case was a $925,000 commission claimed by a brokerage but not evidenced by a written agreement with the consumer.

The facts of the case, as detailed by the court, indicate that in early 2014, James and Eleanor Randall ("Buyers") told their long-time friend and real estate broker Stephen Shapiro ("Broker") that they were looking to buy a home in Los Angeles.  Broker agreed to represent them in locating such a home but no written agreement was entered into between Buyers and Broker.

In October 2014, Broker located a multi-million-dollar estate in Bel Air for Buyers.  The listing for the property offered a 2% cooperating broker commission.  During the negotiation process for the offer, Buyers asked Broker, their friend, to apply the cooperating commission toward their purchase price, effectively waiving any commission.  Broker refused.  A $45 million offer was prepared by Broker and presented nonetheless.  After significant negotiations and Buyers consultation with their attorney, Broker was instructed by Buyers to "cancel [the] offer" because the Buyers were "turned off on [the property]."

Three months later, in February 2015, the Buyers made a $47 million offer on the property with their attorney acting as their broker. Escrow closed a month later for a final purchase price of $46.25 million, $1.25 million more than the offer made through Broker a few months earlier. The Buyer's attorney applied the $925,000 cooperating broker's fee against the purchase price.

As a result, the Broker (through his brokerage) sued the Buyers for breach of an implied contract and sued their attorney for intentional interference with an implied contract.  At the pleading stage, Buyers defended the suit on the grounds that they were not bound to pay a commission to Broker because there was no written agreement to pay a commission as required by the statute of frauds.  The trial court agreed and dismissed the case without trial, reasoning that such a commission agreement was "squarely within" the statute of frauds, fell outside any of the exceptions to the statute, and that any unwritten agreement was consequently unenforceable as a matter of law. Given the absence of any enforceable contract, the court went on to rule that the attorney for the Buyers could not have interfered with a valid contract as a matter of law.

The Broker appealed making 5 separate arguments as to why the statue of fraud did not apply to this case.  The appellate court summarily rejected all of these arguments and upheld the ruling of the trial court.  In summing up its decision the appellate court wrote:

"Over a century ago, the Court of Appeal held: 'Merely putting a prospective purchaser on the track of property which is on the market will not suffice to entitle the broker to the commission contracted for, and even though a broker opens negotiations for the sale of the property, he will not be entitled to a commission if he finally fails in his efforts, without fault or interference of the owner, to induce a prospective purchaser to buy or make an offer to buy, notwithstanding that the owner may subsequently, either personally or through the instrumentality of other brokers, sell the same property to the same individual at the price and upon the terms for which the property was originally for sale.' (Cone v. Keil (1912) 18 Cal.App. 675, 679-680.) This holding is just as valid today, and renders futile any amendment by [Broker]."

To add insult to Broker's injury, the appellate court ordered Broker to pay the Buyers' costs for the appeal.  Broker could have avoided this loss by obtaining an executed buyer's representation agreement from his "friends" when they first started discussing the potential property acquisition.

Santa Monica Sets New Standards for Energy Efficient Building

For years, legislators and officials in California have made it a goal to reduce the energy footprint of new construction.  To this end, the state has championed the concept of zero net energy (ZNE) building.  The idea of a ZNE property is that it produces as much energy as it consumes over the course of a year.  To obtain ZNE a project needs to be designed with high levels of energy efficiency and must also produce its own energy, often through solar photovoltaic panels on the property's roof, which use energy from the sun to generate electricity cleanly and quietly.

A major step in making ZNE the standard in residential and commercial building was put into place in 2008 when the California Public Utilities Commission (CPUC) adopted a statewide Long Term Energy Efficiency Strategic Plan.  Under the plan, building standards will be slowly changed to require all new residential construction to achieve ZNE by 2020 and all new commercial construction to achieve ZNE by 2030.

Last month, in an effort to implement the CPUC's plan and in accordance with the City's historical efforts to be green, the Santa Monica City Council adopted an ordinance to ZNE building in all single family home constructions which would go into effect in 2017.  The ordinance would also require a 10% reduction in energy consumption in all commercial construction in the City.  In public comments about the new standards, the mayor of Santa Monica applauded the new ordinance.  Santa Monica's ordinance is the first to set a ZNE standard in any municipality but considering the state's long term plan on this issue, it will likely not be the last such ordinance passed.



Upcoming Speaking Engagements


Wednesday, January 11, 2016 - Ventura County Escrow Association Dinner Meeting

Saturday, January 21, 2016 - Escrow Business Forum for the Escrow Training Institute; 
Link for ETI class info: 
 
For inquiries or questions about any of these events, please email [email protected].

 

 

Jennifer Felten, Esq., Principal & Editor
(805) 265-1031
[email protected] 
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