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Island Realty v. Caton

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


August 31, 2010

ISLAND REALTY, A CORPORATION OF THE STATE OF NEW JERSEY, PLAINTIFF-RESPONDENT,
v.
LEWIS CATON, DEFENDANT-APPELLANT, AND GEORGE R. BROOM, JR., DEFENDANT.

On appeal from Superior Court of New Jersey, Law Division, Ocean County, Docket No. L-3811-08.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued April 14, 2010

Before Judges Sapp-Peterson and Espinosa.

After a dispute arose regarding the commission on a sale of real estate, plaintiff Island Realty instituted this action and refused to participate in arbitration. Its former employee, defendant Lewis Caton, filed a motion to compel arbitration and stay the litigation pending the outcome of the arbitration in favor of arbitration, and appeals from the denial of that motion. We reverse.

Plaintiff, Island Realty, is a real estate broker. Defendant, Lewis Caton, worked for Island Realty as a licensed real estate salesman from December 2000 until May 19, 2008. The underlying dispute arises from a commission earned on the sale of real estate that closed after Caton left plaintiff's employ. Plaintiff claimed that it was due one-half of the commission earned on the sale and that Caton took files and listing agreements with him. Plaintiff claimed that defendant, George Broome, the owner of Re/Max Barnegat, aided and encouraged Caton to commit these acts.

In 2004, while Caton was still working at Island Realty, Caton and Island Realty entered into a "Termination Agreement" that governed what percent of commissions from sales and listings he would be entitled to upon leaving the company. In part, the agreement set forth the criteria for Caton's entitlement to receive any or all of the commission, received by Island Realty, where he produced a prospective purchaser prior to his termination. The agreement provided that, in the event a contract of sale was not executed by all parties until after his termination, he was not entitled to receive any commission. The agreement did not establish any criteria for Island Realty's entitlement to a commission for a transaction in which the contract was executed by Caton after his termination.

Caton left Island Realty in May 2008 to work at Re/Max Barnegat, which was owned by defendant George Broome. Shortly before he left Island Realty, Caton secured an offer to purchase property in Surf City for $1.5 million (the McCarthy offer). No contract of sale was executed before he left plaintiff's employ. Negotiations continued thereafter and the property sold for $1,520.000 in June 2008.

All the parties to this litigation were members of the Ocean County Board of Realtors (OCBR). Upon joining the OCBR, each agreed to be subject to the Code of Ethics and Standards of Practice of the National Association of Realtors (Code of Ethics). Article 17 of the Code of Ethics includes the following requirement for the arbitration of disputes:

In the event of contractual disputes or specific non-contractual disputes as defined in Standard of Practice 17-4 between REALTORS® (principals) associated with different firms, arising out of their relationship as REALTORS®, the REALTORS® shall submit the dispute to arbitration . . . rather than litigate the matter. [(Emphasis added).]

Standard of Practice 17-4 identifies the following as a specific non-contractual dispute that is subject to arbitration pursuant to Article 17:

1) Where a listing broker has compensated a cooperating broker and another cooperating broker subsequently claims to be the procuring cause of the sale or lease.

When it became apparent that plaintiff claimed it was entitled to a portion of the commission earned on this sale, defendant George Broome filed a Request and Agreement to Arbitrate with the OCBR. On October 8, 2008, the OCBR sent Island Realty a copy of Broome's request along with forms necessary to participate in the arbitration. The letter noted that "failure to respond to this request for information . . . [is] considered a violation of Article 17 of the Code of Ethics." By letter dated October 23, 2008, Richard Shackleton, counsel for and part owner of Island Realty, replied, stating that plaintiff refused to participate in arbitration because the dispute involved a violation of tort law which it was not required to arbitrate.

On November 3, 2008, Island Realty filed a complaint against both Caton and Broome. The first count of the complaint alleges that, while serving as a licensed real estate agent for Island Realty, defendant Caton secured a $1.5 million offer from Kevin and Gloria McCarthy to purchase certain property in Surf City. The count further alleges that Caton left Island Realty nine days later; that negotiations for the property continued thereafter, and that the McCarthys purchased the property for $1,520,000. Based upon these facts, plaintiff demanded judgment in the amount of $38,000, its claimed share of the commission on the sale. Although the count also alleged that Caton took "a number of files . . . [and] listing agreements which belonged to Island Realty[,]" plaintiff sought no additional damages based upon those allegations in the first count. The second count alleged that Caton maliciously interfered with Island Realty's economic advantage, again alluding to the allegation that Caton unlawfully took listing agreements with him that were secured while he was a salesman for plaintiff. The third count alleged that Caton and Broome interfered with plaintiff's contractual and economic relationships by "laying claim to a $38,000 commission to which they knew they were not entitled" and seeking arbitration of that dispute. The fourth count demanded punitive damages based upon the sole allegation: "The actions of the Defendants in intentionally attempting to interfere with Plaintiff's economic advantage were intention [sic] wrongful acts subjecting the Defendants to punitive damages." The fifth and sixth counts alleged that Caton's actions in terminating his agency relationship and taking listing agreements with him constituted a breach "of his agency relationship" and of the implied covenant of good faith and fair dealing, respectively.

Caton filed a motion to compel arbitration of these claims and to stay the litigation pending the outcome. Island Realty opposed the motion and cross-moved to enjoin defendants from "participating in any arbitration concerning claims for commission as set forth in Count 1 of the Complaint."

The trial court denied defendants' motion to stay and granted plaintiff's motion to enjoin defendants from participating in an arbitration for the real estate commissions. The trial court found that the arbitration provision here was narrow and did not provide for the award of punitive damages. The court also viewed the public policy underlying the Punitive Damages Act, N.J.S.A. 2A:15-5.9 To -5.17 (PDA), as comparable to that of remedial statutes, specifically the Law Against Discrimination, N.J.S.A. 10:5-1 to -49, and Consumer Fraud Act, N.J.S.A. 56:8-1 to -135. The court viewed the right to punitive damages as a statutory right and stated that, pursuant to Garfinkel v. Morristown Obstetrics & Gynecology Associates, P.A., 168 N.J. 124, 132 (2001), the waiver of a statutory right must be clear and explicit to be included in an arbitration clause. The court concluded that the arbitration provision in the Code of Ethics did not include such a waiver of a right to punitive damages. The court also concluded that plaintiff's claims involving taking of the files were not within the scope of the agreement, and therefore, not arbitrable. As a result, the court concluded that the claims should not be bifurcated for disposition but rather, all claims would be tried in court.

On May 7, 2009, defendant Caton filed a motion for leave to appeal the interlocutory order. Broome did not appeal. The New Jersey Association of Realtors (NJAR) moved to intervene or in the alternative to appear as amicus curiae and submit a brief and participate in oral argument on appeal. On June 9, 2009, this court denied the application for leave to appeal and denied NJAR's motion as moot. Caton moved for leave to appeal to the Supreme Court. The Supreme Court granted Caton's motion for leave to appeal, remanded the matter to this court for disposition on the merits, and denied NJAR's motion to intervene but allowed it to participate as amicus curiae on remand. Caton moved to stay the trial court proceedings in light of the appeal, which the trial court granted.

In this appeal, Caton raises the following issues:

POINT I.

ARBITRATION OF COUNT ONE IS REQUIRED BY THE ARBITRATION AGREEMENT.

POINT II.

ALTERNATIVELY IF NOT ALL CLAIMS ALLEGED ARE ARBITRABLE, NONETHELESS, COUNT ONE WHICH IS A REAL ESTATE COMMISSION DISPUTE MUST BE ARBITRATED WITH THE REMAINDER OF THE LITIGATION STAYED UNTIL THE ARBITRATION BEFORE THE OCEAN COUNTY BOARD OF REALTORS HAS CONCLUDED.

POINT III.

MEMBERSHIP IN A TRADE ASSOCIATION DOES NOT CONSTITUTE A CONTRACT OF ADHESION.

After reviewing the record, including the arbitration provisions in the Code of Ethics and the complaint, the briefs and argument of counsel, we are satisfied that there is no impediment to the arbitration of all the claims asserted by plaintiff in the complaint.

Arbitration affords "an effective, expedient, and fair resolution of disputes" that is favored by our courts. Fawzy v. Fawzy, 199 N.J. 456, 470 (2009); Martindale v. Sandvik, Inc., 173 N.J. 76, 84-85 (2002); Curtis v. Cellco P'ship, 413 N.J. Super. 26, 34 (App. Div.), certif. denied, ____ N.J. ____ (2010). "Because of the favored status afforded to arbitration, '[a]n agreement to arbitrate should be read liberally in favor of arbitration.'" Griffin v. Burlington Volkswagen, Inc., 411 N.J. Super. 515, 518 (App. Div. 2010) (quoting Garfinkel, supra, 168 N.J. at 132). A "presumption of arbitrability" applies so that "an order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute." EPIX Holdings Corp. v. Marsh & McLennan Cos., 410 N.J. Super. 453, 471 (App. Div. 2009).

Article 17 of the Code of Ethics required all realtors to submit all contractual disputes and specific non-contractual disputes "arising out of their relationship as REALTORS®" to arbitration.

The heart of the dispute here is plaintiff's contested claim to one-half of the commission earned on the McCarthy transaction. That dispute falls squarely within the purview of the non-contractual dispute specified in Standard of Practice 17-4:

1) Where a listing broker has compensated a cooperating broker and another cooperating broker subsequently claims to be the procuring cause of the sale or lease.

Therefore, the parties are required to submit this dispute to arbitration rather than to litigate the issue.

Although not conceding that the commission dispute must be arbitrated pursuant to the Code of Ethics,*fn1 plaintiff's primary argument is that the commission dispute cannot be arbitrated because the complaint alleges additional claims, including a claim for punitive damages, that are not subject to arbitration. This argument rests upon an unduly narrow interpretation of the claims that plaintiff, as a member of the OCBR, has agreed to arbitrate rather than litigate. Although Standard of Practice 17-4 defines one type of "non-contractual dispute" for which arbitration is mandatory, that Standard does not define the scope of the arbitration agreement. The scope of matters to be arbitrated is set forth in far more expansive language, i.e., contractual disputes and specific non-contractual disputes "arising out of their relationship as REALTORS®." The fact that the arbitration provision refers to contractual disputes and specific, non-contractual disputes does not give a party license to avoid arbitration by labeling its claim as a tort or some other cause of action.

The use of terms such as "arising out of their relationship as REALTORS®" reflects a "an 'extremely broad' agreement to arbitrate any dispute relating in any way to the contract." Curtis, supra, 413 N.J. Super. at 38; Griffin, supra, 411 N.J. Super. at 518-19; see also EPIX Holdings, supra, 410 N.J. Super. at 472 ("an arbitration clause applying to disputes 'arising out of the agreement' includes 'any dispute between the contracting parties that is in any way connected with their contract.'"); Angrisani v. Financial Tech. Ventures, L.P., 402 N.J. Super. 138, 149 (App. Div. 2008).

Such expansive arbitration provision language has been construed "to require arbitration of statutory claims such as alleged civil rights violations and common law torts." Griffin, supra, 411 N.J. Super. at 520. In Griffin, we reviewed the application of such expansive language to: torts such as breach of fiduciary duty, negligent misrepresentation, and fraud in EPIX Holdings, supra, 410 N.J. Super. at 461, 468-75; and fraud and civil conspiracy in Alfano v. BDO Seidman, LLP., 393 N.J. Super. 560, 575-77 (App. Div. 2007). Griffin, supra, 411 N.J. Super. at 520. Similarly, in Curtis, supra, 413 N.J. Super. at 35, we reviewed the application of expansive arbitration clauses to statutory claims asserted under: the Family Leave Act, N.J.S.A. 34:11B-1 to -16, Martindale, supra, 173 N.J. at 81-83; the Civil Rights Act, N.J.S.A. 10:6-1 to -2, EPIX Holdings, supra, 410 N.J. Super. at 468-75; the CFA, Gras v. Assocs. First Capital Corp., 346 N.J. Super. 42, 52-54 (App. Div. 2001), certif. denied, 171 N.J. 445 (2002); the Racketeer Influenced and Corrupt Organizations Act, N.J.S.A. 2C:41-1 to -6.2, Caruso v. Ravenswood Developers, Inc., 337 N.J. Super. 499, 508 (App. Div. 2001); the Law Against Discrimination, N.J.S.A. 10:5-1 to -49, Young v. Prudential Ins. Co. [of Am.], 297 N.J. Super. 605, 608-09 (App. Div.)[, certif. denied, 149 N.J. 408 (1997)]; and the Conscientious Employee Protection Act, N.J.S.A. 34:19-1 to -14, Singer v. Commodities Corp., 292 N.J. Super. 391, 405-07 (App. Div. 1996).

Cf. Couri v. Gardner, 173 N.J. 328, 339-340 (2002) (In determining whether N.J.S.A. 2A:53A-27 required an affidavit of merit in cases where breach of contract and claims other than malpractice is alleged, the Court stated, "It is not the label placed on the action that is pivotal but the nature of the legal inquiry.").

In Griffin, we applied the following criteria to determine that the plaintiff's claims for false arrest, false imprisonment, and malicious prosecution were subject to arbitration:

[F]or a tort claim to be subject to arbitration under a broad arbitration clause, it must raise some issue the resolution of which requires reference to or construction of some portion of the parties' contract. Where, however, a tort claim is independent of the contract terms and does not require reference to the underlying contract, arbitration is not compelled. [Griffin, supra, 411 N.J. Super. at 520 (quoting Estate of Athon v. Conseco Fin. Servicing Corp., 88 S.W.3d 26, 30 (Mo. Ct. App. 2002)).]

See also EPIX Holdings, supra, 410 N.J. Super. at 475 (requiring arbitration under expansive arbitration clause because plaintiff could not "maintain its claim for damages without reference to, and reliance upon, the underlying contract").

A review of the complaint here shows that each of the counts alleges a claim that will require plaintiff to refer to and rely upon its contract with Caton and/or its relationship with Broome and RE/Max as realtors:

As noted earlier, the first count of the complaint asserts plaintiff's demand for one-half of the sales commission on the McCarthy transaction, a commission dispute that must be submitted to arbitration pursuant to Standard 17-4.

Since realtor-associates are explicitly included within the description of realtors in the Code of Ethics, all contractual disputes between plaintiff and Caton arising out of their relationship as realtors was required to be submitted to arbitration. The second count alleged that Caton maliciously interfered with Island Realty's economic advantage, alluding to the allegation that Caton unlawfully took listing agreements with him which were secured while he was a salesman for plaintiff. The third count alleged that Caton and Broome interfered with plaintiff's contractual and economic relationships by "laying claim to a $38,000 commission to which they knew they were not entitled" and seeking arbitration of that dispute. The claim against Broome in the third count is no more than the re-casting of the commission dispute alleged in the first count, plainly subject to arbitration, as a tort. Although the second and third counts allege a tort, interference with economic advantage, plaintiff would of necessity have to submit proof of the contract between Island Realty and Caton and its relationship with Broome as realtors to prove those claims, thus bringing them within the ambit of the arbitration provision. See Griffin, supra, 411 N.J. Super. at 520; EPIX Holdings, supra, 410 N.J. Super. at 475.

The fifth and sixth counts alleged that Caton's actions in terminating his agency relationship and taking listing agreements with him constituted breaches of the "agency relationship" and of the implied covenant of good faith and fair dealing, respectively. Because each of these allegations are firmly rooted in plaintiff's contractual relationship with Caton, these claims are also subject to mandatory arbitration pursuant to the Code of Ethics.

Applying the "presumption of arbitrability" here, and recognizing plaintiff's need to rely upon its contractual relationship with Caton and its relationship with Broom as realtors, it cannot be "said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers" the claims asserted in these counts. See EPIX Holdings, supra, 410 N.J. Super. at 471. Therefore, an order to arbitrate these claims should not have been denied. See ibid.

The fact that plaintiff added a claim for punitive damages in the fourth count does not thwart the application of the arbitration provision to these claims. First of all, the limitation on damages in the applicable arbitration provisions is found in Standard 17-4(1), which addresses the amount in dispute and the amount of any potential award in commission disputes to "the amount paid to the respondent by the listing broker and any amount credited or paid to a party to the transaction at the direction of the respondent." There is no similar language that limits the amount of the award in the broader category of contractual disputes "arising out of their relationship as REALTORS®." In the absence of language limiting the right to recover punitive damages in the arbitration provision, it would appear that such damages could be included in an arbitration award if plaintiff's claims of interference with economic advantage could provide a basis for such an award. See N.J.S.A. 2A:23B-21(a) ("An arbitrator may award punitive damages or other exemplary relief if such an award is authorized by law in a civil action involving the same claim and the evidence produced at the hearing justifies the award in accordance with the legal standards otherwise applicable to the claim."). See also Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 115 S.Ct. 1212, 131 L.Ed. 2d 76 (1995); Estate of Ruszala v. Brookdale Living Communities, Inc., ___ N.J. Super. ____, ____ (App. Div. 2010) (finding certain provisions, including "the outright preclusion of punitive damages" to be "substantively unconscionable," the court struck those provisions and remanded to arbitration).

There are also no "rights" afforded by the PDA that pose an impediment to the arbitration of this claim. Contrary to the conclusion by the trial court that the PDA is a remedial statute akin to the LAD, by its own terms the PDA did not create any new claim for punitive damages that was not available under the law of this State. N.J.S.A. 2A:15-5.15. Therefore, unlike the statutory right to a jury trial expressly granted to plaintiffs who pursue a LAD claim, see Garfinkel, supra, 168 N.J. at 130-31; Curtis, supra, 413 N.J. Super. at 36; the arbitration of a claim for punitive damages does not deprive plaintiff of any statutory right expressly granted to plaintiffs who assert a claim for punitive damages.

Although not germane to our decision, we also note our disagreement with the trial court's conclusion as to the viability of plaintiff's claim for punitive damages. Punitive damages may be awarded only if the plaintiff proves, by clear and convincing evidence, that the harm suffered was the result of the defendant's acts or omissions, and such acts or omissions were actuated by actual malice or accompanied by wanton and willful disregard of persons who foreseeably might be harmed by those acts or omissions. This burden of proof may not be satisfied by proof of any degree of negligence including gross negligence. [N.J.S.A. 2A:15-5.12(a) (emphasis added).]

Therefore, a claim for punitive damages requires "circumstances of aggravation and outrage, beyond the simple commission of a tort[.]" Pavlova v. Mint Management Corp., 375 N.J. Super. 397, 404-05 (App. Div.), certif. denied, 184 N.J. 211 (2005). In Pavlova, we reversed the trial court's denial of a motion to dismiss a claim for punitive damages where the plaintiff failed to allege actual malice or conduct that was "blatantly egregious, deliberate conduct that was practically certain to cause both imminent and serious harm." Id. at 407. In addition, a party is only entitled to punitive damages if he has, in fact, been harmed and awarded compensatory damages. N.J.S.A. 2A:15-5.13(e). The allegation here, that defendants "intentionally attempt[ed] to interfere with Plaintiff's economic advantage" falls short of alleging either malicious conduct that meets that standard and or that plaintiff suffered any actual damages as a result of this attempt. Such allegations of malice and damages are necessary for a viable claim for punitive damages. See Pavlova, supra, 375 N.J. Super. at 407; see also Allendorf v. Kaiserman Enters., 266 N.J. Super. 662, 675-76 (App. Div. 1993). Therefore, the mere allegation of a demand for punitive damages here cannot eviscerate the agreement to arbitrate disputes arising from the parties' relationships as realtors.

The order denying defendant's motion is reversed. We direct the parties to arbitrate all claims alleged in the complaint in accord with the Code of Ethics and stay the litigation pending the outcome of the arbitration.


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