Arbitration between individuals

Can a REALTOR® avoid arbitration through a lawsuit brought by his company?

This case study from the NAR Ethics and Arbitration Manual concerns Article 17: "In the event of contractual disputes or specific non-contractual disputes as defined in Standard of Practice 17-4 between REALTORS® associated with different firms, arising out of their relationship as REALTORS®, the REALTORS® shall submit the dispute to arbitration in accordance with the regulations of their Board or Boards rather than litigate the matter.

In the event clients of REALTORS® wish to arbitrate contractual disputes arising out of real estate transactions, REALTORS® shall arbitrate those disputes in accordance with the regulations of their Board, provided the clients agree to be bound by the decision. (Amended 1/97)"

REALTORS® A and B, principals in different firms, were both members of the same board. A disagreement arose between them concerning entitlement to a commission in a real estate transaction. After initial efforts to resolve the dispute proved fruitless, REALTOR® A filed a request for arbitration with the board that was reviewed by the Grievance Committee, which concluded that an arbitrable issue existed. Instead of agreeing to arbitration through the board, REALTOR® B filed a lawsuit against REALTOR® A. Receiving notice of the suit, REALTOR® A filed a charge with the board alleging REALTOR® B had violated Article 17 of the code.

REALTOR® B, in his presentation to the board of directors indicated that, in his opinion, he was not subject to any ethics charge, since it was his corporation, and not REALTOR® B individually, that had filed suit against the corporation of REALTOR® A, not against REALTOR® A himself.

REALTOR® A told the board of directors that immediately upon occurrence of the dispute, he had suggested to REALTOR® B that the matter be arbitrated by the board, and REALTOR® B said he would think about it. REALTOR® A then proceeded to file his request for arbitration with the board. However, REALTOR® B did not respond to the arbitration notice and, shortly thereafter, REALTOR® A received notice of the suit filed by REALTOR® B’s corporation against the corporation of REALTOR® A. He said he then called REALTOR® B and again discussed the obligation of Article 17 with him. However, REALTOR® B advised him that his corporation was not subject to the requirements of the code and stated his intent to pursue the litigation.

REALTOR® B acknowledged that the facts as related by REALTOR® A were correct and that his corporation had filed suit upon the advice of the corporation’s legal counsel. REALTOR® B said that membership in a board of REALTORS® is individual and that personal responsibility disappears when a matter of corporate business is involved. He pointed out he was not the only principal or officer in his corporation and that the decision to file litigation was not made by him alone, but by all the corporate officers.

How do you think the hearing panel ruled?

Ruling: The board of directors, in reaching its decision, did not agree with REALTOR® B's position. The directors' decision noted that the single, mandatory membership requirement in a board of REALTORS® requiring all principals, partners, and corporate officers to be REALTOR® members if any single principal in a real estate firm is a REALTOR® member, has, as its purpose, the assurance of a total commitment by all the principals in the firm to the Code of Ethics. This total commitment covers the conduct and activities of all persons affiliated with the REALTOR'®s firm whether a sole proprietorship, partnership, or corporation. REALTOR® B was advised to withdraw the litigation and submit to arbitration by a date certain or his membership in the board would be terminated. REALTOR® B accepted the decision, withdrew the suit against REALTOR® A, and submitted to arbitration.

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