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Island Realty v. Caton

A-1171-09T2 (N.J. Super. App. Div. 2010) (Unpublished)

BROKERS; COMMISSIONS; ARBITRATION — Where an arbitration agreement, such as is common with real estate brokerage boards, is extremely broad, and lacks clear language limiting the right to recover punitive damages in an arbitration, such damages could be included in the award for a broker’s claim for interference with economic advantage if the facts provided a basis for such an award.

For eight years, a real estate salesman worked for a broker. They had a termination agreement providing that where a contract of sale was not executed by all parties until after the salesperson’s termination, he was not entitled to receive any commission. The agreement did not establish any criteria for a commission for a transaction where a contract was obtained by the salesperson after his termination.

Shortly before he left the broker, the salesman secured an offer for the purchase a $1,500,000 property. The contract of sale was not executed before he left. Negotiations continued, and the property was sold for $1,520,000. This led to a dispute over the commission for this sale that closed after the salesman left the broker. The broker claimed that it was due one-half of the commission on the sale and sued the salesman. The broker also claimed that the salesman maliciously interfered with the broker’s economic advantage, taking files and listing agreements with him. It also sought punitive damages.

All litigants were members of a trade association and were subject to a Code of Ethics that required disputes between members were to be submitted to arbitration. The salesman had filed a request and agreement to arbitrate with the board, and filed a motion to compel arbitration of the litigated claims. The lower court found that the arbitration provision was narrow and did not provide for the award of punitive damages. The court viewed the right to punitive damages as a statutory right to litigate in court, and that the right had to be clearly waived to fall within the scope of the agreement. Similarly, the court found the salesman’s taking of files to be outside the agreement. As a result, the court held that all claims would be tried in court.

The salesman appealed, and the Appellate Division reversed, finding no impediment to the arbitration of all claims asserted by the broker in its complaint. It found the Code of Ethics required all parties to submit contractual disputes and specific non-contractual disputes arising from their relationship as real estate brokers and salespersons to arbitration. The Court interpreted this agreement to be extremely broad and certainly encompassing the chief claim by the broker to one-half of the commission on the sale. It found the other claims would require the broker to refer to, and rely upon, its contract with the salesman. It also held that in the absence of clear language limiting the right to recover punitive damages in the arbitration provision, such damages could be included in an arbitration award if the broker’s claim of interference with economic advantage provided a basis for the award. Additionally, the Court held the broker failed to plead necessary conduct sufficient to recover punitive damages in either forum.

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