A New York appellate court has considered whether a commission dispute should be sent to a REALTOR® association arbitration or to a jury for resolution.
Barbara Faraone ("Owner") owned a parcel of land that she decided to sell in late 2003. Allegedly, the Owner entered into an oral listing agreement with real estate brokerage Land Man Realty, Inc. ("Land Man"), allowing Land Man to offer the property for a limited period of time with the understanding that she would eventually list the property with a friend of hers at Weichert REALTORS® Northeast Group ("Weichert"). During that limited time, Land Man introduced Capital District Enterprises, LLC ("Buyer") to the property, but the Buyer did not make an offer.
In September 2004, the Owner had not sold her property. She entered into an exclusive listing agreement with Weichert, and Land Man began sending letters to both the Owner and Weichert, claiming to be entitled to a commission if the Buyer purchased the property. The Buyer purchased the property in August 2006 and the Seller paid a commission to Weichert.
Land Man filed a lawsuit against the Seller, seeking payment of its commission, arguing it was the procuring cause of the sale. The Owner then filed a third-party action against Weichert, arguing that Weichert had a duty to protect the Owner from Land Man's claims. The trial court ruled that Weichert had no fiduciary duty to protect the Owner from Land Man's claim, and the appellate court affirmed.
Land Man filed a second lawsuit against Weichert, claiming payment of the whole commission as procuring cause of the sale or, alternatively, the cooperative commission that Weichert had offered in the multiple listing service ("MLS"). Weichert argued that Article 17 of NAR's Code of Ethics required the parties to arbitrate the commission dispute and also sought judgment in its favor on Land Man's commission claims. The trial court ruled that the dispute was not subject to arbitration, but allowed Land Man's claim for the cooperative commission to proceed.
The State of New York Supreme Court, Appellate Division, affirmed the trial court. The court first considered whether the parties had a duty to arbitrate the dispute. Article 17 of the NAR Code of Ethics provides that REALTORS® will arbitrate through the REALTOR® association all "contractual or non-contractual disputes as defined in Standard of Practice 17-4...arising out of their relationship as REALTORS®". The court found that none of the five situations described in SOP 17-4 applied to Land Man's allegations and the parties did not have a contractual relationship. Therefore, the court ruled that Article 17 did not bar Land Man's lawsuit.
Next, the court considered whether Land Man could claim the cooperative commission offered by Weichert through the MLS as unjust enrichment. An unjust enrichment claim must show that another party was enriched at the other party's expense and the enriched party retained the money. The MLS rules stated that a listing broker has a duty to compensate any cooperating broker who was the procuring cause of the sale. Because Land Man could argue that he was the procuring cause, the court ruled that these allegations alleged an unjust enrichment claim because Weichert had received and retained the cooperative commission amount. Therefore, the court allowed Land Man's lawsuit for the cooperative commission to continue to trial.
Finally, the court considered Land Man's breach of contract claim. Land Man claimed to be a third-party beneficiary to the listing agreement between the Owner and Weichert. Looking at the listing agreement, the court found that there was language in the listing agreement specifying that cooperative commissions would be paid in certain instances. Therefore, the court ruled it is possible that Land Man could claim to be a third-party beneficiary to the contract and so allowed these claims to proceed to the jury.
Land Man Realty, Inc. v. Weichert, Inc., 941 N.Y.S. 2nd 801 (N.Y. App. Div. 2012)