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Courts Can Rarely Overturn a Real Estate Arbitration Decision

Updated on February 4, 2015

Courts Don't Have Much Discretion Over Arbitrators

Judges can overturn an arbitrator’s award of a real estate brokerage fee only if they can prove the award violates the law, a federal appeals court ruled recently.

Instead, courts must give great deference to decisions by arbitrators.

The dispute arose between the listing broker and the buyer’s representative over a property sold in Greenwich, Connecticut.

Sotheby’s International Realty, the listing broker, offered a cooperative commission to Multiple Listing Service participants who could produce a buyer.

Real estate firm The Relocation Group signed a buyer’s representation agreement with Amy Kauffman, the buyer, that would expire on June 30, 2011.

After the first agreement expired, the buyer entered into a buyer’s representation agreement with the listing broker on Aug. 19, 2011. The buyer signed a contract to purchase the Greenwich property a week later. She assigned the entire commission to Sotheby’s.

Before the sale closed, The Relocation Group filed for a lien on the property to secure a portion of the commission. The firm succeeded in getting the dispute submitted to arbitration by arguing that it was required by the Greenwich Association of Realtors and the National Association of Realtors.

The arbitration panel said the commission should be split evenly between Sotheby’s and The Relocation Group.

Sotheby’s filed a lawsuit in federal court to get the arbitration decision overturned. The trial court ruled Sotheby’s should get the entire commission, saying the arbitration panel’s decision showed a manifest disregard of the law. The Relocation Group appealed.

The Second Circuit U.S. Court of Appeals reversed the trial court and reinstated the arbitration decision to split the commission.

The appeals court said the courts can overturn an arbitration decision if the arbitrators knew they were ignoring a clear and unambiguous law or at least erred in applying the law to the facts of the situation.

In the Sotheby’s decision, there was no manifest disregard of the law, the appeals court said.
The case is Sotheby's Int'l Realty, Inc. v. Relocation Grp., LLC, No. 14-253-CV, 2015 WL 64265 (2d Cir. Jan. 6, 2015).

Arbitration can be a better choice than courts for resolving real estate commission disputes.
Arbitration can be a better choice than courts for resolving real estate commission disputes.

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