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Island Realty v. Caton

August 31, 2010


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

Per curiam.


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 ...

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