When two brokers in an association of Realtors® have a contractual dispute regarding commissions, arbitration is mandatory.

 NRT Mid-Atlantic, Inc., trading as O’Conor, Piper & Flynn/ERA, listed a commercial property for sale, and placed the listing in the Multiple Listing Service, offering to pay a 4% cooperating broker’s commission to any member of the MLS, whether subagent or buyer’s agent, who was the procuring cause of the sale of the property.

 An agent for Innovative Properties contended he was the procuring cause of the sale, arguing that he had told the purchaser of the availability of the property. The listing broker disagreed, and when the sale closed, the listing broker received the entire commission.

Rather than file a claim for arbitration through Anne Arundel County Association of Realtors®, Innovative filed suit against the listing broker in the Circuit Court for Anne Arundel County, asserting three alternative legal theories: unjust enrichment, tortious interference with business relations, and conspiracy. In each count of the suit, Innovative claimed compensatory damages in the amount of $32,000, which would have been 4% of the sale price.

O’Conor, Piper & Flynn/ERA responded to the suit by filing a motion to stay the court case and compel arbitration. Innovative responded that arbitration was not required because its claims were based on tort theories and, therefore, were not contractual disputes. The circuit court judge agreed with Innovative and declined to order arbitration. O’Conor, Piper & Flynn/ERA then appealed to the Court of Special Appeals.

The Court of Special Appeals ruled that Innovative’s claims were subject to the agreement to arbitrate all contractual disputes even though the law suit was based upon tort theories. 

The Court noted that the bylaws of the Association of Realtors® include an agreement to arbitrate certain disputes:

“In this case, the Association’s By-laws provide, in Article VII, entitled ‘Professional Standards and Arbitration,’ at section 2, that it is the duty of Association members to abide by, inter alia, the Manual, ‘including the duty to arbitrate controversies arising out of real estate transactions as specified by Article 17 of the Code of Ethics [and Standards of Practice ('Code')] and as further defined and in accordance with the procedures set forth in the Code of Ethics and Arbitration Manual of this association . . . .

Article 17 of the Code provides, in pertinent part:

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."

After reviewing each of the claims asserted by Innovative, the Court concluded that the offer of compensation to a cooperating broker that the listing broker had published through the MLS was an essential element of each claim. The Court stated:

“In its amended complaint, Innovative alleges that it was the procuring cause of the sale of the Property and therefore was entitled to the 4% sales commission. That allegation is the foundation for its tort claims. The only basis on which Innovative would be entitled to the 4% sales commission, however, is if by performance it had accepted OPF’s offer to pay the 4% commission, i.e., if a unilateral contract was formed between OPF and Innovative.  Thus, the dispute between Innovative and OPF is at its heart a dispute over whether a contract was formed between the two. As stated above, a dispute between parties over whether they entered into a contract is a contractual dispute.

 The plain meaning of the phrase ‘contractual dispute’ in the arbitration agreement set forth in Article 17 of the Code encompasses the dispute in this case, which is in essence whether Innovative was entitled to the 4% sales commission offered by OPF.  The provisions in the Manual lend further support for that interpretation. Notwithstanding that the claims stated by Innovative sound in tort, the dispute between the parties is contractual - - and the tort claims cannot be litigated unless the parties’ contractual dispute is resolved.”

 Because the claims revolved around a contractual dispute, the circuit court should have granted the motion to stay the court proceedings and granted the petition to compel arbitration.

 NRT Mid-Atlantic, Inc., et al., t/a O’Connor, Piper & Flynn/ERA v. Innovative Properties, Inc., No. 951, September Term 2001, in the Court of Special Appeals of Maryland, filed May 6, 2002.

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