The Land Man Realty, Inc. v. Weichert, Inc.: Cooperating Broker’s Commission Lawsuit Advances

A New York appellate court has considered whether a commission dispute should be sent to 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. Click here to read a summary of the earlier decision.

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 court considered Weichert’s arguments.

The State of New York Supreme Court, County of Saratoga, rejected Weichert’s arbitration argument and Land Man’s claim for the entire commission, but did allow Land Man’s claim for a cooperative commission to move forward. 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 determined that Land Man and Weichert did not have a contractual relationship and so Article 17 did not apply. 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. 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 could proceed and so rejected Weichert’s motion for judgment in its favor. Therefore, the court allowed Land Man’s lawsuit for the cooperative commission to continue to trial.

The Land Man Realty, Inc. v. Weichert, Inc., No. 2010-192 (N.Y. Sup. Ct.- Cty. of Saratoga Sept. 28, 2011). [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.]