Crawford v. McNulty: Court Upholds NAR's Arbitration Rules

A Massachusetts court recently considered a challenge to an arbitration award stemming from a commission dispute.

George Crawford and Buyer's Choice Realty ("Challengers") had a dispute with Paul McNulty and Ann Blackham & Company REALTORS®("Commission Recipients") over a commission from the sale of a house. Both parties are members of the Greater Boston REALTOR®Board ("Board") and so the commission dispute was sent to arbitration, pursuant to the rules adopted by the Board and based on those set forth in the NATIONAL ASSOCIATION OF REALTORS®("NAR") Code of Ethics and Arbitration Manual. Notably, the Challengers claimed in the arbitration that they were entitled to the cooperating portion of the commission as procuring cause of the sale based on their relationship with and service to the buyers prior to the time the buyers had contracted with the Commission Recipients, acting as a buyer’s broker. The dispute was arbitrated pursuant to Standard of Practice 17-4(2), which provides for arbitration of disputes under such circumstances despite the absence of a contractual relationship between the parties to the dispute. The Board awarded the commission to the Commission Recipients. The Challengers filed a lawsuit, seeking to overturn the arbitration award. In response, the Commission Recipients filed a counterclaim against the Challengers (on which, the court has yet to rule).

The Commonwealth of Massachusetts Superior Court, Middlesex County, rejected the Challengers' allegations. The court first considered the Challengers' allegations that the NAR arbitration rules represent an attempt by the national, state, and local associations to inhibit the ability of buyer's representatives to collect commissions. The court rejected this argument. Article 17 generally describes the types of disputes REALTOR®members have a duty to arbitrate, and Standard of Practice 17-4(2) specifically describes the types of arbitrable non-contractual disputes, including commission disputes. After reviewing these rules, the court ruled that the parties were required to submit their commission dispute to arbitration by virtue of their membership in the Board.

The Challengers next claimed that Article 17 only required the arbitration of those disputes listed in the Board's arbitration procedures, and the Board's procedures only required the arbitration of contractual disputes. The court rejected this argument, stating that the Challengers were misreading Article 17, which describes the substance of what matters are required for arbitration and only leaves to the local associations the procedural mechanism for implementing these rules.

The court also ruled that the Challengers had failed to make any objections to the arbitration procedure at any time prior to the entry of the arbitration award. Under Massachusetts law, one of the requirements for challenging an arbitration award in court is that the challenger must show that there was no agreement to arbitrate and also that the challenging party objected to the arbitration during the proceedings. Even though the Challengers failed to make an objection on the record, the Challengers claimed that they had implicitly objected to the arbitration because they had not signed the Board's form signifying their agreement to arbitrate. The court rejected this argument, ruling that an actual objection must be made. The court ruled that if party contends that there is no arbitration agreement, this must be raised immediately, before the parties put all of their efforts into an arbitration proceeding.

The court also rejected the Challengers' objections to the qualifications of the arbitration panel and also the fact that part of the Commission Recipients’ legal fees were partially paid by NAR and the Board. Therefore, the court ruled in favor of the Commission Recipients on all of the allegations made by the Challengers.

Crawford v. McNulty, No. 99-0860 (Mass. Super. Ct. Aug. 14, 2000). [Note: This opinion was not published in an official reporter and therefore should not be cited as authority. Please consult counsel before relying on this opinion.]

Editor’s Note: NAR's Legal Action Committee contributed financial support to the Commission Recipients' defense of the arbitration proceedings and process.