A Connecticut court has considered whether a lawsuit involving a commission dispute between two REALTORS® should be stayed and sent to the local REALTOR® association for arbitration.
Sotheby’s International Realty (“Listing Broker”) served as a listing broker for a property located in Greenwich, Connecticut. The Listing Broker placed the property into the Greenwich Multiple Listing Service (“MLS”), offering a cooperative commission to other participants who produced a buyer for the property.
Meanwhile, real estate firm The Relocation Group (“Relocation”) entered into a representation agreement with Amy Kauffman (“Buyer”) on October 19, 2010. The agreement expired on June 30, 2011.
On August 19, 2011, the Buyer entered into a new representation agreement with the Listing Broker. A week later, the Buyer entered into an agreement to purchase the Greenwich property, directing the entire commission to the Listing Broker. Prior to closing, Relocation filed a broker’s lien on the property, claiming that it was entitled to its portion of the commission for producing a buyer for the property. The Listing Broker also filed a broker’s lien claiming the entire commission, and the commission from the sale of the property was placed into escrow at the closing, as required by the state’s broker lien law.
Thereafter, the Listing Broker filed a lawsuit seeking a judicial determination over who was entitled to receive the cooperative commission from the sale of the property. Two months after the Listing Broker filed the lawsuit, Relocation filed a motion seeking to compel arbitration and stay the lawsuit, arguing that both parties’ membership in the Greenwich Association of REALTORS® (“Association”) and NAR required them to arbitrate the dispute. The court considered the motion to compel arbitration.
The Connecticut Superior Court, Judicial District of Stamford/Norwalk, ordered the parties to arbitrate the commission dispute and stayed the lawsuit in the interim. The court first looked at Article 17 of NAR’s Code of Ethics (“Code”), which requires REALTORS® to arbitrate certain monetary and nonmonetary disputes with other members “arising out of a real estate transaction”. The Association had a similar provision in its bylaws. Relocation argued that their membership in the Association required them to arbitrate their dispute.
The Listing Broker asserted that the question before the court was whether the broker’s lien filed by Relocation was valid, and this was a question of law for the court to decide. The Listing Broker also argued that there was no agreement between the parties to arbitrate the dispute, and further Relocation had waived its ability to compel arbitration because it had participated in two depositions.
The court rejected the Listing Broker’s arguments. Connecticut law requires that matter be sent to arbitration if the parties had agreed to do so, since Connecticut favors arbitration of disputes. The court found that both the Code and the Association’s bylaws required members to arbitrate real estate commission disputes with other members. As a member of the Association, the Listing was “bound to adhere to these regulations” and arbitrate the dispute.
The court also rebuffed the assertion that the filing of the broker’s lien negated the duty to arbitrate, as the court ruled that this statute applies if there is no written agreement between the parties. Here, both parties had a duty to arbitrate the dispute through their membership in the Association and the broker lien law did not affect the court’s ability to compel arbitration.
Finally, the court determined that Relocation had not waived its right to seek arbitration of the dispute. While Relocation had taken two depositions in the case, it had sought to compel arbitration shortly after answering the lawsuit and there was no evidence that it had explicitly waived its right to arbitration. Therefore, the court stayed the lawsuit and sent the dispute to the Association for arbitration.
Sotheby's Int'l Realty, Inc. v. Relocation Group, LLC, FSTCV116011784S, 2012 WL 1511375 (Conn. Super. Ct. Apr. 4, 2012). [Note: This opinion is 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: Following the arbitration award to Relocation, the Listing Broker filed a lawsuit in federal court seeking to overturn the result of the arbitration. NAR, through its Legal Action Committee, has agreed to provide support to Relocation in its effort to uphold the Association’s arbitration proceeding.