California Real Estate Arbitration Hearings – Attorney Steve’s “Commission College”
You feel you were the “procuring cause” on a deal and entitled to be earn a real estate commission. The selling agent doesn’t see it that way and you want to file a complaint with your local board of realtors and get your commission. What happens at these board arbitrations? Do you have a right to have a real estate lawyer represent you? Should you be represented? What is the general process they follow? What if I don’t like the arbitrators decision can I appeal? Let’s take a look at these questions.
Overview of a real estate board arbitration hearing
So let’s assume a broker is accusing you of interfering with their real estate listing (okay, let’s call it “stealing their client”) to make it easier to understand (ex. failure to honor Article 16-2 of the Realtor Code of Ethics). Let’s say listing broker #1 had the deal, sat on their hands for a few months, then the seller cancelled with agent #1 and found you (agent #2). You had no idea of the previous arrangement (mainly because the seller did not tell you anything about it, and the property was not listed in the MLS), and so you take the listing, diligently price and market the property, and now salesperson #1 wants to take your commission that you worked for. You say “no way, this is unfair, I did all the work” and a board hearing ensues at your local real estate association. Under this scenario, a few things might happen:
1. Real Estate broker #1 files a board arbitration at your local realtor association.
2. Agent #1 may also file a CalBRE complaint, which could lead to an investigation and possible real estate accusation.
3. The real estate firm also files a code of ethics complaint with your local association (seeking to have you fined, or booted off the MLS for example).
NOTE: read this blog to learn why you need to vigorously fight real estate code of ethics violation allegations.
4. If the dispute involves a consumer a party may send you a letter asking you to agree to CAR mediation (California Association of Realtors).
These are some of the most common things that could happen in a real estate commission dispute in California. This of course can create many different headaches and things you have to deal with, all to try to fight for your commission. Welcome to Attorney Steve’s Commission College!
Attorney Steve explains “procuring cause” factors
VIDEO: Since many board disputes involve MONEY (i.e. “commission disputes”), a review of the procuring cause factors may come in handy. Of course, there are other popular disputes such as “interfering with exclusive agency” or interfering with contracts. Since we are one of the bests real estate lawyers in California, you should SUBSCRIBE to our youtube channel for business, real estate and intellectual property law updates. We are up over a quarter million page views and growing fast! Thank you all for your support!! Just click in the Red “V” for Victory!!
Filing the arbitration
The arbitration must be filed within 180 days of the transaction closing (or execution of a lease) or when knowledge of the facts of a dispute arise. Some people ask if a broker can just “sandbag” wait 180 days, and then file suit against another broker. If you do this, the other broker would most likely have 180 days from the date they received service of the lawsuit (summons and complaint) to file for arbitration (this would most likely require a motion to compel arbitration if you cannot get the other party to agree.” This issue is addressed in the C.A.R. arbitration manual:
“Still another common question is whether a Realtor® (often a cooperating broker with an arguably-arbitrable claim) can thwart the process by remaining silent for one hundred eighty (180) days and then bringing a lawsuit against another Realtor® (often the listing broker). As noted previously, arbitration requests must be filed within one hundred eighty (180) days after the closing of the transaction, if any, or within one hundred eighty (180) days after the facts constituting the arbitrable matter could have been known in the exercise of reasonable diligence, whichever is later. Realtors® cannot reasonably be expected to request arbitration in circumstances where they have no reason to know that a dispute with another broker or firm even exists. Under these circumstances, a listing broker with no prior knowledge of a dispute would have one hundred eighty (180) days from receipt of notice of a lawsuit to invoke arbitration with the other broker.
Are there types of disputes that are NOT appropriate for a board arbitration?
Yes. Cases that are TOO COMPLEX for a board to hear should not be heard. In addition, according to the C.A.R. arbitration manual:
“Non-Arbitrable Issues that Can be Mediated as a Matter of Local Determination As stated above, an arbitrable issue includes a contractual question arising out of a transaction between parties to a contract, in addition to certain specified non-contractual issues set forth in Standard of Practice 17-4. Arbitration proceedings should be limited to these issues, and Boards of Realtors® should not arbitrate other types of claims. Examples of non-arbitrable issues include: tortious interference with business relationships | tortious interference with a contractual relationship | economic duress | intentional infliction of emotional distress | other tort claims, such as libel/slander | employment claims, other than commission disputes | fraud/misrepresentation claims | property claims, both real and personal.”
General real estate board arbitration hearing process.
This is the hearing in front of your local realtor association (assume a dispute between two real estate agents or brokers).
This process will generally involve the following:
a. A complaint filed by the first listing agent #1. They will normally pay the filing fee (ex. $500), and this will kickstart the process.
b. Broker or agent #2 has a chance to respond, and file a counter complaint if deemed necessary
c. A hearing is set in front of a panel of arbitrators (usually made up of volunteers from the association, and possibly members of the professional standards committee).
d. Parties should each prepare their case (arguments and defenses), gather documents and witnesses to be submitted as evidence in the case and rehears/prepare the case. This will involve a significant time investment to do it right.
e. The hearing is held in front of a panel of [hopefully] neutral arbitrators. Both sides get an opening statement (keep it to about 5 minutes and limit it to what the case is about and what the evidence will show), and a chance to put on their evidence, and “cross-examine” each others witnesses, then make a closing statement (basically stating what the evidence proved).
f. The hearing is usually tape recorded (if not, you should ask for it to be recorded and get the consent of all parties in writing). You may need this audit tape if you have to appeal on due process grounds, or need to later go to court to vacate an arbitrators award of judgement based on certain limited grounds.
g. The decision is handed down, signed by the members of the arbitrator panel.
Tip: Parties to the real estate board arbitration should realize that in most cases an arbitration award will not include punitive damages, attorney’s fees, or interest (unless a contract between the parties specifically provides for this).
h. You will have a right to appeal the decision (possibly also requiring a $500 challenge fee) and the appeal will be limited to issues of defective procedure and violation of due process rights, unfair bias or “prejudice” (ex. a failure to allow you to present your evidence, or overt corruption in the hearing process, failure to recuse biased panel arbitrators, improper ex parte communications etc.).
i. If all is lost on appeal, grounds might exist to appeal the final award to a Superior Court (via writ of mandamus), where an aggrieved party can seek to set aside the decision of the arbitrator.
Attorney Steve Tip: This is the general process, and YES, you are allowed to have a real estate attorney represent you at the hearing, and on appeal (even though the ethics or professional standards committee representative may inform you to the contrary. Our arbitration lawyers can represent you. When big commissions are on the line (ex. $10-$100,000 or more) having an attorney makes good sense. If you believe hiring an attorney is not warranted, at least watch our video on how to succeed in small claims court. This will give you an idea of how to prepare for your case and present your case to the Realtor board.
Bonus materials: Click on the picture above to watch our video on top 5 reasons to hire a real estate lawyer to represent you in board arbitrations over commission disputes. Make sure to Click on the “RED V” in the corner to subscribe to FREE legal updates. Thank you for your support of our real estate law channel!
Am I allowed to be represented by a lawyer at a commission arbitration in front of the local real estate association?
Yes. As mentioned above, in many cases this is a good idea to make sure you get your points “on the record” and preserve your issues for appeal, if necessary. Sometimes real estate agents and brokers can get nervous and forget to bring up, or focus on their most important legal points, and this could severely cripple your case at all levels.
Important tip to preserve your rights on appeal as these courts can be Kangaroo courts
Make sure you get a court reporter in the hearing and transcribe the hearing. If you have to appeal your at a later date for a “judicial review” you need to have something to show about the manifest injustice that went on, or the board that grossly exceeded its powers. Many boards will destroy their audio tape after they make a final decision, and this will make a judicial review harder to pull off (remember, in a judicial review, a great burden is put upon the litigant to overturn the arbitration award.
The court reporter is authorized by the code and may cost you a thousand or two depending upon the length of the hearing. According to the C.A.R. arbitration and ethics manual
“The Board shall, and any party (may/may not), at his own expense, have a court reporter present at the hearing, or may record* the proceeding, and, if transcribed, shall present a copy to the board and other parties. If a party purchases a copy of the Board’s official recording and subsequently has it transcribed at his own expense, that party must provide a copy of the transcript to the Board at no cost. After the Board has received a copy of the transcript (made from the Board’s official recording), the Board shall make copies of the transcript available to any other party subject to their payment of the Board’s duplication costs”
What are the top five reasons to have a real estate lawyer represent you in a commission dispute or ethics hearing?
Here are the top 5 reasons for having a lawyer represent you in the board arbitration.
1. Real estate commission disputes can also involve ethics complaints and BRE complaints. You will want to create a solid timeline and consistent story so that you properly defend your license in any and all settings. The other party will be on the attack, and this is not something that should be taken lightly.
2. You need to properly gather ALL relevant evidence and witnesses, and make sure that you are properly preparing all witnesses (i.e. some prior role playing getting prepared for the tough questions that will arise). A good trained lawyer knows how to ask the tough questions that are likely to arise in your case. Failure to prepare you key witnesses could be the difference between winning and losing.
3. The arbitration process is confusing and hectic. If you represent yourself, you are basically wearing TWO HATS. One of witness trying to make sure your side of the story is told, and the other that of attorney making sure the procedure is fair, proper objections are made, and that you are getting a fair chance to “make the record” and introduce all your evidence in the event you have to appeal the case to the board, or possibly to Superior Court. This is not as easy as it might seem from the outset and the pressure of the hearing will quickly confront you and put you under pressure.
4. It may be easier for you to tell your story if an attorney is guiding your questioning, instead of you just rambling on trying to tell your story, while getting cut off by arbitrators who may try to interrupt you and disrupt your flow of evidence which can weaken your presentation.
5. If the process is not fair, your real estate attorney can make this objection at the end of the hearing. One thing you might be asked at the end of the hearing is “do you feel this hearing was fair and did you have a chance to present all your evidence?” You may be caught off guard by this questions, and while you may feel that there was something wrong with the hearing, being that you don’t want to ruffle any feathers before a decision is reached, or you just plain feel intimidated, this answer may be used against you subject to the conditions in your case, and having counsel can help you protect and preserve your legal rights.
What do I do if the decision goes against me and I want to file an appeal?
If you have exhausted your administrative remedies at the board level (hearing and appeals process) and you still are not happy with the decision, you should have your case reviewed to see if you have grounds to set aside the arbitrators final decision. Keep in mind, at all stages of the process you have the ability to reach out to the other party and try to settle for less or by making some other type of deal. However, if you want to appeal, this is a good time to get a broker litigation attorney involved to see if you have any grounds to vacate the arbitrator’s final judgment.
What if I believe the entire board of directors is unfairly bias or prejudiced against me and don’t believe the review or appeal process will be fair?
Sometimes it happens that you lose your underlying case and want to appeal. So you file the appeal, but then the local real estate association sends you another list of board of directors who will consider your review/appeal, but you still believe that even the people on this list will not be fair, unbiased and free of prejudice?
Can I vacate the arbitrators award in Civil Superior Court?
This is a possibility. Many people falsely believe that an arbitrators final ruling is 100% final. This is not always true and there are some recognized legal grounds where a California Superior Court has set aside an arbitrators final judgement or award. Some of the recognized grounds are as follows (and can be found in CCP 1285-1287.6):
1. Refused reasonable requests for postponement or denials of request for continuances
2. Board exceeded its powers (granting relief that is not warranted or is illegal – ex. demanding payment of a commission be made directly to a salesperson and not the brokerage or awarding punitive damages or issuing injunctions, awarding attorney fees, etc.)
3. Failure to allow / hear relevant admissible evidence
4. Process is the product of fraud or corruption
5. Evidence of bias or impartiality (ill-advised jokes, rudeness)
6. Improper ex parte communications with parties or their counsel
7. Allowing “trial by ambush”
8. Making award arbitrarily and capriciously based on a total lack of evidence
These are just some of the grounds that have been used by other litigants and they may not work in all cases. There may also be other grounds not listed above. Fill out the contact form below to discuss with one of our real estate attorneys. Keep in mind, the Cali Courts will have to see something “eye opening” to vacate an arbitrator’s award. Here is one case I found that may help illustrate that.
So deferential are the courts to the arbitrator’s power to fashion appropriate remedies, that as with other questions of arbitrators having exceeded their powers, the award will be upheld unless it is “so utterly irrational that it amounts to an arbitrary remaking of the contract between the parties.”
See Advanced Micro Devices, Inc. v. Intel Corp., 9 Cal. 4th 362, 376–377, 36 Cal. Rptr. 2d 581, 885 P.2d 994 (1994); Morris v. Zuckerman, 69 Cal. 2d 686, 690–691, 72 Cal. Rptr. 880, 446 P.2d 1000 (1968); Tate v. Saratoga Savings & Loan Assn., 216 Cal. App. 3d 843, 855, 265 Cal. Rptr. 440 (6th Dist. 1989)
C.A.R. noted grounds for setting aside real estate arbitration awards
According to the 2015 C.A.R. CODE OF ETHICS AND ARBITRATION MANUAL, Courts will normally enforce the arbitrator’s award, but they do list some grounds where this may not be the case:
A. the award was procured by corruption, fraud or other undue means;
B. there was corruption of any of the arbitrators;
C. the rights of a party were substantially prejudiced by misconduct of a neutral arbitrator;
D. the arbitrators exceeded their powers affecting the merits of the case;
E. the rights of a party were substantially prejudiced because the arbitrators failed to postpone a hearing upon sufficient cause shown, failed to hear all material evidence or failed to provide full due process to the parties;
F. an arbitrator failed to disqualify himself/herself, upon receipt of a timely request, if a judge would have been required to disqualify himself/herself if the matter had been heard in court
These should not be seen as an exclusive list and there can be other grounds to justify a Court of law to vacate the award of the mediation or arbitration panel.
The Duty of Confidentiality under Realtor Code of Ethics 14.2
One important thing to keep in mind when you are involved in a real estate board arbitration is the “duty of confidentiality.” A real estate salesperson or broker should not disseminate or disclose details of the the arbitration or mediation proceeding to other persons. Here is what the rule of ethics says:
“Standard of Practice 14-2 REALTORS® shall not make any unauthorized disclosure or dissemination of the allegations, findings, or decision developed in connection with an ethics hearing or appeal or in connection with an arbitration hearing or procedural review.”
So what happens if you want to file a motion to vacate the arbitrator’s award in Superior Court (ex. in Los Angeles Superior Court or San Francisco Superior Court)? Will such a filing violate the duty of confidentiality? Probably not. Here is a passage from the arbitration manual that describes the exceptions to the confidentiality requirement under this section. Here is what the arbitration manual says on this point:
Unauthorized disclosure relates to tribunal members and to parties and includes any report or publication under any circumstances not established in this Manual. The following are circumstances where disclosure by a party to an ethics and/or arbitration proceeding is authorized:
(1) Where the dissemination of the decision to individuals who have some knowledge of the proceeding might vindicate a member’s professional reputation.
(2) Where there is a civil proceeding (including proceedings before the state real estate licensing authority or any other state or federal regulatory or administrative agency) involving the same facts and circumstances which gave rise to the proceeding before the Board.
(3) Where providing the decision of an arbitration hearing panel to an association of Realtors® or to an MLS will enable that entity to correct records of sales or lease transactions or other historical records.
100-day rule for filing lawsuit to vacate arbitrator’s award in California
In general, in regard to some cases (but not all) in California dealing with seeking to vacate an arbitrator’s award, section 1288 may apply.
“A petition to confirm an award shall be served and filed not later than four years after the date of service of a signed copy of the award on the petitioner. A petition to vacate an award or to correct an award shall be served and filed not later than 100 days after the date of the service of a signed copy of the award on the petitioner.”
This lays down what appears to be a pretty firm and rigid 100 day rule to challenge the arbitration award, but the question is whether this applies to real estate board arbitration cases (which typically only give you 15 days to respond by seeking judicial review).
As noted in Miller v. Silver, No. G030054, 2003 WL 264758, at *2 (Cal. Ct. App. Feb. 10, 2003) the Court stated:
“Cal. Civil Code Section 1288 provides 100 days in which to serve and file a petition to vacate an award after a copy of the signed award has been served on the petitioner. “ ‘The requirement that a petitioner challenge an award within the 100-day limit “places a burden upon those who would attack the award to act promptly or acquiesce in its enforcement.” (Louise Gardens of Encino Homeowners’ Assn., Inc. v. Truck Ins. Exchange, Inc. (2000) 82 Cal.App.4th 648, 659, 98 Cal.Rptr.2d 378.) Strict enforcement of the statutory limitation imposed by section 1288 furthers the purpose of nonjudicial arbitration, which is to expeditiously resolve disputes. (Knass v. Blue Cross of California (1991) 228 Cal.App.3d 390, 395, 279 Cal.Rptr. 124.).”
However, there MIGHT be some circumstances where this one hundred day statute of limitations is “tolled” (or extended). For example, California Civil Code Section 1288.8 indicates that if you are appealing an arbitration award with the real estate board, you might get extra time to file the motion to vacate the award:
1288.8. If an application is made to the arbitrators for correction of the award, the date of the service of the award for the purposes of this article shall be deemed to be whichever of the following dates is the earlier: (a) The date of service upon the petitioner of a signed copy of the correction of the award or of the denial of the application. (b) The date that such application is deemed to be denied under Section 1284.
We are satisfied the time limit imposed by section 1288 required the superior court to dismiss defendants’ petition absent an excuse sufficient to justify their default. (Davis v. Calaway (1975) 48 Cal.App.3d 309, 311, 121 Cal.Rptr. 570; DeMello v. Souza (1973) 36 Cal.App.3d 79, 84, 111 Cal.Rptr. 274.) Defendants contend their delay was justified and that equitable tolling should apply to the period of time during which they sought collateral relief in the district court. We are not persuaded.
Equitable tolling typically is applied to toll the limitations period for commencing various types of actions when more than one avenue of relief is available to an injured person. (Addison v. State of California (1978) 21 Cal.3d 313, 315-317, 146 Cal.Rptr. 224, 578 P.2d 941; Garabedian v. Skochko (1991) 232 Cal.App.3d 836, 845, 283 Cal.Rptr. 802; Collier v. City of Pasadena (1983) 142 Cal.App.3d 917, 923, 191 Cal.Rptr. 681.) The cases cited by defendants do not support their contention that equitable tolling is available when a party opts to collaterally attack a binding arbitration award in a different forum. The only case that even comes close involved a nonbinding arbitration award where the award was “advisory only” and conceivably could remain in “judicial limbo” forever unless one of several noted contingencies occurred. (Shepherd v. Greene (1986) 185 Cal.App.3d 989, 993-994, 230 Cal.Rptr. 233.) There, the court explained that “twin notions of impracticability and futility toll[ed] the running of the 100-day period” to protect both parties’ rights. (Id. at p. 993, 230 Cal.Rptr. 233, fn. omitted.) Such reasoning does not apply to binding arbitration awards. In other more analogous situations, equitable relief requires exceptional circumstances that are extrinsic to the aggrieved party. (Humes v. Margil Ventures, Inc. (1985) 174 Cal.App.3d 486, 499, 220 Cal.Rptr. 186; DeMello v. Souza, supra, 36 Cal.App.3d at p. 85, 111 Cal.Rptr. 274.) Defendants’ reasons for ignoring the procedural time limit are not extrinsic. We see no plausible justification for their decision to delay filing the petition to vacate until after the district court issued its order. The district court’s favorable ruling was not a prerequisite to defendants arguing in the superior court that the arbitrator exceeded his jurisdiction.
What does the National Association of Realtors say about the time limits to initial a judicial review of an arbitrator’s award?
“A non-prevailing party must request procedural review within 20 days after the award has been served on the parties. If Directors confirm an award, the non-prevailing party has an additional 15 days to file legal challenge to the award. If no notice of legal challenge is received by a Board, funds held in escrow are released to the prevailing party. If notice is received, the funds remain in escrow, pending determination of the matter by a court.
(b) If an award has been rendered, the non-prevailing party must, within ten (10) days following transmittal of the award, either (1) pay the award to the party(ies) named in the award or (2) deposit the funds with the Professional Standards Administrator to be held in an escrow or trust account maintained for this purpose. Failure to satisfy the award or to deposit the funds in the escrow or trust account within this time period may be considered a violation of a membership duty and may subject the member to disciplinary action at the discretion of the Board of Directors. (Revised 05/15).After fifteen (15) days from the transmittal of the Directors’ decision, if written notice of a suit challenging the validity of the arbitration award has not been received by the Board, the funds shall be released from the escrow or trust account
The non-prevailing party shall also have the same twenty (20) days following transmittal of the award to notify the Professional Standards Administrator that a legal challenge to the validity of the award has been initiated. (Revised 05/15). If no such procedural review is requested, the award becomes.
What is a “show cause hearing”
The “show cause” hearing panel may choose to:(1) take no action,(2) impose suspension of the non-prevailing party’s association and/or MLS membership,or(3) set forth a payment plan, including interest on the award paid to the prevailing party. Any modifications to the payment schedule or interest added to the amount due does not constitute a modification of the award. Once an award is final, the prevailing party retains the right to have the award judicially confirmed. C.A.R. “show cause” proceedings are independent of and may run concurrently with judicial confirmation and enforcement of the award. Any suspension of membership imposed by the “show cause” hearing panel will not be enforced until judicial proceedings have concluded or, if no court action is filed, until one hundred one (101) days after the award is finalized.
Is it unethical to appeal a California board arbitration decision?
“Every Board may expect every decision it renders as a result of a grievance or arbitration proceeding to be evaluated by the Courts under the five E’s – Equality, Economy, Expedition, Evidence and Equity – to determine if it satisfies due process. The Board has no power or capacity to constitute itself a “court of last resort.” But, if a Board can satisfy a court that its decision has satisfied the five E’s, the court will let the decision on the merits stand.”
“It is this ultimate right which courts of law reserve to review the decisions of private judicial systems that foreclose Boards of REALTORS® from any form of interference with or any effort to inhibit the exercise of that right. Thus, a Board may not, even in an arbitration matter, foreclose a REALTOR® who believes he has been denied due process in the course of a hearing or arbitration from seeking judicial review. Notwithstanding the obligation to arbitration and to abide by the award in arbitration imposed by Article 14 of the Code, no REALTOR® should be held to have violated the Code by insisting on judicial review. Sanctioning a member for seeking judicial review of a Board decision would be perceived, beyond question, as an effort to oust the jurisdiction of the courts to deny the protection of the law, and as an irresponsible and unreasonable exercise of Association power.”
Contact a real estate arbitration law firm
We can help you evaluate your legal exposure in regard to Realtor Code of Ethics violations, the risk of BRE audits and investigations (i.e. license discipline exposure and risk of suspension or revocation of the real estate license), and evaluate your chances of success in the underlying board arbitration. Sometimes the issue comes down to “procuring cause” and right to the commission. We offer flexible legal fees and tenacious legal representation. Call us at (877) 276-5084 to speak to an arbitration lawyer.
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