Understanding the Agent/Broker’s Obligation to Mediate/Arbitrate

Keith B. DunnaganWe routinely get questions from agents and brokers regarding whether they can be compelled to participate in mediation or arbitration. Today, we look at the leading case of Nguyen v. Tran and how the court resolved that initial issue. In the second installment on this topic we will look at the exceptions to contractual arbitration requirements and the contractual obligations to participate.

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Understanding the Agent/Broker’s Obligation to Mediate/Arbitrate

By: D. Keith B. Dunnagan, Esq.

Photo of gavel and scaleThe scenario goes like this – Buyer purchases a residential property and moves in immediately. Soon thereafter, the joy of home ownership fades as the realities of home ownership begins to set. Suddenly the once enchanted homeowner is enraged because the roof is leaking, the floor is sloping, and nobody mentioned that river flowing through the crawlspace and to make matters worse the contractor just quoted them $95,000 to repair it all. Where is that money going to come from to pay these repairs? That is when the lawyer letter is received demanding the seller, the listing agent/broker, and the cooperating agent/broker to participate in mediation. We have all heard the stories – but is really required. Do the agents/brokers have to participate?

The leading case on this issue is Nguyen v. Tran, 157 Cal.App.4th 1032 (2007). In this case buyers sued the sellers and both the cooperating and listing broker for not disclosing that the guesthouse was built without necessary permits. In the RPA the buyer and seller had agreed to arbitrate disputes between themselves arising out of the RPA. The RPA goes on to say that the “Buyer and Seller agree to mediate and arbitrate disputes or claims involving either or both Brokers…provided either or both Brokers shall have agreed to such mediation or arbitration prior to, or within a reasonable time after, the dispute or claim is presented to Brokers.” The RPA expressly gave the Brokers the right to opt-in to the mediation as non-signatories to the RPA.

In this case, the cooperating Broker sought to compel the listing broker’s participation in arbitration and the listing broker refused. In seeking to compel the arbitration the cooperating Broker asserted that a non-signatory could be compelled to participate in arbitration under the Westra case when the “nonsignatory and one of the parties to the agreement have a preexisting agency relationship that makes it equitable to impose the duty to arbitrate on either of them”. The Nguyen court distinguished the case from Westra on two grounds. First, in the Westra case the broker acted as a dual agent in the transaction. Second, the purchase agreement in Westra had specific language that the broker(s) and parties would submit to arbitration. However, in the Nguyen case, each party was represented by a separate broker and there was no contractual language or exception to bring a non-signatory into the arbitration of the parties.

More complicating was that neither party to the contract brought the motion to compel the arbitration, but rather the cooperating broker brought the motion to seek to compel the listing brokers participation in the arbitration. The Nguyen court noted that the cooperating broker could have been compelled to arbitrate under the Westra decision by their client, the buyer. But that a non-signatory (the cooperating broker) to the contract could not compel another non-signatory (listing broker) to arbitrate. The brokers were free to enter into an agreement to arbitrate and because the brokers did not enter into an agreement; they could not compel each other to participate in arbitration.

The key to take away from the Nguyen decision is that, brokers who are not parties to the RPA, cannot compel each other to participate in mediation. However, the Nguyen case does not contemplate the scenario where a buyer or seller seek to compel the participation of their agent in arbitration. Can a client or a party to a transaction force the broker to participate in mediation or arbitration? The answer is – it depends! In the second installment of this article we will examine when, as a broker, you may be compelled to participate in mediation or arbitration.

The attorneys of BPE Law Group, PC. have been advising our clients on real estate, business and estate planning issues for over 20 years and have assisted numerous clients in business and real estate matters and have represented and advised brokers on their professional obligations as well as consumers on their rights. If you have questions concerning legal matters, give us a call at (916) 966-2260 or e-mail Keith at kbdunnagan@bpelaw.com. Our flat fee consult for new clients may get you the answers you need for the questions you have.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are facing a legal issue of any kind, get competent legal advice in your State immediately so that you can determine your best options.