Winter Park Real Estate & Investments, Inc. v. Anderson: Claims Not Subject to REALTOR® Arbitration

A Colorado appellate court has considered whether a brokerage and a former salesperson were required to arbitrate a dispute pursuant to the NAR Code of Ethics (“Code”).

Winter Park Real Estate and Investments, Inc., d/b/a Century 21 Winter Park Real Estate (“Brokerage”) and its president, Michael Ray (“President”), filed a lawsuit against Marilyn Anderson (“Salesperson”), a former salesperson associated with the Brokerage. The Brokerage alleged in the lawsuit that the Salesperson had encouraged a client to allow a listing to lapse so the Salesperson could purchase the property for herself without paying the commission. Prior to filing the lawsuit, the Brokerage had filed an ethics complaint with the Colorado Association of REALTORS® against the Salesperson but withdrew the complaint prior to the hearing. The Brokerage also sought to arbitrate contract-based claims with the Salesperson, based on an arbitration provision contained in the independent contractor agreement between the parties.

The Salesperson ignored the requests for arbitration, and so the Brokerage filed a lawsuit against her. The lawsuit alleged breach of contract, breach of good faith and fair dealing, breach of loyalty, and tort claims of interference with contractual relations, and defamation. The Brokerage sought to compel arbitration of the contract-based claims with the Salesperson based on the clause in the independent contractor agreement, and they requested a trial for the tort-based claims. The Salesperson argued that the arbitration should be conducted pursuant to Article 17 of the Code, claiming that the independent contractor agreement’s arbitration clause did not apply to these claims. The trial court agreed with the Salesperson, ordering the parties to arbitrate the dispute pursuant to the Code and dismissing the lawsuit for lack of jurisdiction. The Brokerage appealed.

The Colorado Court of Appeals reversed the trial court and sent the case back to the lower court for further proceedings. The Brokerage argued that the trial court should have ordered the contract claims to arbitration, based on the arbitration clause in the independent contractor agreement between the parties, and also the court should have retained jurisdiction over the President’s tort claim. The court first considered whether the arbitration should occur under the provisions of the Code or the parties’ independent contractor agreement.

The court determined that the arbitration clause in the independent contractor governed this case, not the arbitration provisions in the Code. In relevant part, the arbitration clause stated that “upon written request [by either party]…whether made before or after institutions of any legal proceedings, any action, dispute, claim or controversy of any kind in any way arising out of or pertaining to this Contract…shall be resolved by binding arbitration”. Based on this language, the court determined that the parties intended this arbitration clause to govern any disputes between them.

The court also determined that Article 17 of the Code did not apply to this dispute. In relevant part, Article 17 states that “[i]n the event of a contractual dispute…between REALTORS® (principals) associated with different firms” (emphasis added), REALTORS® are required to submit the dispute to their association for arbitration. While all of the parties were REALTORS®, the court found that the mandatory arbitration provisions only apply when the dispute involves members of different firms, not members of the same firm. NAR’s Code of Ethics and Arbitration Manual provides that arbitrations between members of the same can only proceed when there is a written agreement between the parties to arbitrate the dispute. Because the Brokerage and the Salesperson were members of the same firm and they did not agree to arbitrate the dispute with their REALTOR® association, the court found that Article 17 did not apply to these contractual claims.

The remaining issue for the court to decide was which claims should be sent to arbitration and which the trial court should retain jurisdiction over. The court ruled that all of the Brokerage’s claims should go to arbitration because the clause in the contract covered all claims. Because the President was not a party to the independent contractor agreement, his defamation claims were not subject to arbitration and so the trial court would retain jurisdiction over those claims. Thus, the court reversed the trial court, ordering the parties to arbitrate the Brokerage’s claims against the Salesperson but retaining jurisdiction over the President’s arbitration claims.

Winter Park Real Estate & Investments, Inc. v. Anderson, 160 P.3d 399 (Colo. Ct. App. 2007).

Editor’s note: Special thanks to Richard Clark, general counsel for the Colorado Association of REALTORS®, for alerting NAR Legal Affairs about this decision.

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