What are some of the important considerations for the REALTOR® who is contemplating a procuring cause dispute?
REALTORS® contemplating procuring cause disputes should be aware that the points to consider tend to divide themselves into procedural and substantive matters.
A REALTOR®'s right to arbitrate arises out of Article 17 of the Code of Ethics which states:
In the event of a contractual dispute between REALTORS® associated with different firms, arising out of their relationship as REALTORS®, the REALTORS® shall submit the dispute to arbitration in accordance with the regulations of their Board or Boards rather than litigate the matter. [emphasis added]
Many, but not all, procuring cause disputes are arbitrable pursuant to Article 17. Procuring cause disputes between a REALTOR® and a non-REALTOR® are not subject to mandatory arbitration. For example, an unhappy REALTOR® broker who perceives that he was a procuring cause (the "Complainant Selling Broker"), might file a complaint against the listing broker. The listing broker may have already paid another selling broker (the "Paid Selling Broker") who is not a member of the Board. The dispute between the Complainant Selling Broker and the listing broker is subject to mandatory arbitration. Unless the Paid Selling Broker consents to arbitration, any potential dispute between the listing broker and the Paid Selling Broker is not subject to arbitration. The listing broker who pays a non-REALTOR® a cooperating commission is exposed to the possibility of paying a cooperating commission twice: once initially to the Paid Selling Broker and again to the Complainant Selling Broker. To avoid this problem, listing brokers should consider paying cooperating commissions to non-REALTOR® selling brokers only after the non-REALTOR® has consented to future REALTOR® arbitration, if it becomes necessary.
A similar problem arises when a seller pays a selling broker directly. Depending upon the facts of the case, there may have been no contract formed between the listing broker and the Paid Selling Broker. Again, Complainant Selling Broker may feel that he was the procuring cause. If the Complainant Selling Broker brings an arbitration against the listing broker, she may be unable to compel an arbitration with the Paid Selling Broker (regardless of whether the Paid Selling Broker was a REALTOR®) because of the lack of a "contractual dispute" between the listing broker and the Paid Selling Broker.
Requests for arbitration must be filed within 180 days after the closing of the transaction, if any, or within 180 days after the facts constituting the arbitrable matter could have been known in the exercise of reasonable diligence, whichever is later. (See Section 31, Part 5 of the Code of Ethics.) The vast majority of procuring cause disputes must be initiated within 180 days after the closing.
The Code defines procuring cause as ". . . the uninterrupted series of causal events which results in the successful transaction." The Code of Ethics goes out of its way to make it clear that procuring cause disputes must be decided on a case-by-case basis, without reference to predetermined "rules of thumb." The Code states:
Many REALTORS®, executive officers, lawyers, and others have tried, albeit unsuccessfully, to develop a single, comprehensive template that could be used in all procuring cause disputes to determine entitlement to the sought after award without the need for comprehensive analysis of all relevant details of the underlying transactions. Such efforts, while well intentioned, were doomed to failure in view of the fact that there is no "typical" real estate transaction any more than there is "typical" real estate or a "typical" REALTOR®.
The Code goes on to state "'Rules of Thumb', prior decisions by other panels in other matters and other predeterminants are to be disregarded."
Nevertheless, the Code does advise members of arbitration panels to consider, among other things, the answers to the following questions:
- Who first introduced the ultimate purchaser or tenant to the property?
- When was the first introduction made?
- How was the first introduction made?
- Did the original introduction of the purchaser or tenant to the property start an uninterrupted series of events leading to the sale (or to any other intended objective of the transaction) or was the series of events hindered or interrupted in any way?
- If there was an interruption or break in the original series of events, how was it caused, and by whom?
- Did the broker making the initial introduction to the property maintain contact with the purchaser or tenant or could the broker's inaction have reasonably been viewed by the buyer or tenant as the broker having withdrawn from the transaction?
- Did the broker making the initial introduction to the property engage in conduct, (or fail to take some action) which caused the purchaser or tenant to choose to utilize the services of another broker?
- Was there interference in the series of events from any outside or intervening cause or party?
- What were the brokers' relationships with respect to the seller, the purchaser, the listing broker, and any other cooperating brokers involved in the transaction?
- What offers (if any) of cooperation and compensation were extended to cooperating brokers acting as subagents, buyer's brokers, or to brokers acting in any other capacity?
- If an offer of cooperation and compensation was made, how was it communicated?
- If the cooperating broker(s) were subagents, was there a faithful exercise of agency on their party or was there any breach or failure to meet the duties owed to a principal?
- If the cooperating broker(s) were buyer agents or were acting in a non-agency capacity, were their actions in accordance with the terms and conditions of the listing broker's offer of cooperation and compensation (if any)?
- If more than one cooperating broker was involved, was either (or both) aware of the other's role in the transaction?
- If more than one cooperating broker was involved, how and when did the second cooperating broker enter the transaction?
- If more than one cooperating broker was involved, was the second cooperating broker aware of any prior introduction of the purchaser to the property by the listing broker or by another cooperating broker?
- Was the entry of any cooperating broker into the transaction an intrusion into an existing relationship between the purchaser and another broker, or was it the result of abandonment or estrangement of the purchaser, or was it at the request of the purchaser?
- Did the cooperating broker (or second cooperating broker) initiate a separate series of events, unrelated to and not dependent on any other broker's efforts, which led to the successful transaction?
Informed by the above, and familiar with the other rules contained in the Code, the REALTOR® will be well prepared to evaluate the bringing of, or the defense of, a procuring cause claim.
Jonathan A. Goodman is a shareholder with Frascona, Joiner, Goodman and Greenstein, P.C., a Colorado law firm.   His practice areas include Real Estate, Brokerage Law, Contracts, Land Use, Leasing, Real Estate Title, Association Law, Business Law, and Finance. He can be reached at contact Jonathan Goodman.
A version of this article appeared in the Colorado REALTOR® News, the monthly publication of the Colorado Association of REALTORS®.
Disclaimer -- Content is general information only. Information is not provided as advice for a specific matter, nor does its publication create an attorney-client relationship. Laws vary from one state to another. For legal advice on a specific matter, consult an attorney.