YOUNG,
Sotheby's International Realty, Inc. ("Sotheby's") brings this suit against The Relocation Group, LLC ("The Relocation Group") and its part owner, Peter Rosato (collectively, the "Defendants"), seeking vacatur of an award issued by a panel of arbitrators to The Relocation Group following a dispute over the commission on a sale of property. Specifically, Sotheby's contends that because The Relocation Group did not have an in-force representation agreement with the buyer of the property at the time of the sale, and because Sotheby's did have a valid representation agreement and listing agreement with the buyer and seller, respectively, The Relocation Group cannot bring an action to recover a commission under Connecticut General Statutes section 20-325a ("Section 20-325a" or the "statute"), which sets forth the requirements necessary to bring such an action. The Relocation Group has filed a cross-motion to confirm the arbitration award. The questions to be resolved here are (1) whether The Relocation Group complied with Section 20-325a, even though its buyer representation agreement had expired; and (2) if not, whether the panel of arbitrators granted the award in manifest disregard of the law.
On September 13, 2012, Sotheby's filed a verified petition to vacate an arbitration award in the District of Connecticut. Verified Pet. Vacate Arbitration Award ("Sotheby's Pet."), ECF No. 1. The Relocation Group cross-moved for an order to confirm the arbitration award on October 31, 2012, appending to its motion a memorandum of law in support.
Sotheby's and The Relocation Group offer real estate brokerage services and count themselves as members of two real estate trade associations, the Greenwich Association of Realtors (the "GAR") and the National Association of Realtors (the "NAR"). See Sotheby's Pet. ¶ 9. Pursuant to an arrangement between Sotheby's and Maria Allwin ("Allwin"), the owner of a property located at 65 Upper Cross Road in Greenwich, Connecticut (the "Upper Cross Property"), Sotheby's listed the Upper Cross Property for sale on the Greenwich Multiple Listing Service (the "GMLS"). See id. ¶ 10; Sotheby's Int'l Realty, Inc. v. Relocation Group, LLC, No. FSTCV116011784S, 2012 WL 1511375, at *1 (Conn.Super.Ct. Apr. 4, 2012) (Jennings, J.). The listing agreement set out, among other things, Sotheby's commitment to give 2.5 percent of the sales price (the "buyer-side commission") to any cooperating broker that may represent the eventual purchaser of the Upper Cross Property. See Sotheby's Pet. ¶ 11.
On October 19, 2010, The Relocation Group entered into an agreement with Amy Kauffman ("Kauffman") to serve as Kauffman's exclusive brokerage representative for any real estate transactions in the Greenwich area in which she might engage as a buyer. See id. ¶ 13; Sotheby's Pet., Ex. A, Exclusive Agency Right Represent Buyer Tenant Authorization ("Relocation Grp.'s Exclusive Buyer Representation Agreement"), ECF No. 1-2. This buyer representation agreement was originally set to be in effect from October 10, 2010, until December 31, 2010, but a manual revision to the agreement apparently extended the term of The Relocation Group's representation to June 30, 2011. See Sotheby's Pet. ¶ 13; Relocation Grp.'s Exclusive Buyer Representation Agreement § III, at 1. As is customary, the agreement included a provision that imposed upon Kauffman an obligation to pay to The Relocation Group a professional service fee — in this case, five percent of the purchase price — in the event that, during the course of The Relocation Group's representation, she entered into a contract to purchase, or was introduced to a property she subsequently leased to which she eventually obtained title. See Relocation Grp.'s Exclusive Buyer Representation Agreement § VII(1)(a), (c)(i)-(iii), at 2. The provision, however, contained an additional clause providing that "no fee will be due and payable ... if [Kauffman] sign[s] an exclusive agreement or authorization with another real estate broker after the expiration of this Authorization." Id. § VII(1)(c)(iii), at 2.
On August 19, 2011, Sotheby's negotiated its own exclusive buyer representation
Around August 26, 2011, Allwin agreed to sell the Upper Cross Property to Kauffman for $16,000,000 and memorialized the deal in a residential real estate sales agreement (the "Sales Agreement"), which was signed by both parties. Sotheby's Pet. ¶ 15; Sotheby's Pet., Ex. C, Fairfield Cnty. Bar Ass'n Residential Real Estate Sales Agreement ("Sales Agreement"), ECF No. 1-4. Sotheby's name was listed alone in the Sales Agreement as the broker responsible for negotiating the sale of the Upper Cross Property. Sotheby's Pet. ¶ 15; Sales Agreement ¶ 9.
On September 16, 2011, The Relocation Group gave notice of its intent to claim a $400,000 broker's lien on the Upper Cross Property — representing 2.5 percent of the property's gross sales price — because, it alleged, it was the procuring cause of the sale of the Upper Cross Property and was therefore due the buyer-side commission for its efforts. See Sotheby's Pet. ¶ 16; Sotheby's Pet., Ex. D, Notice Intent Claim Lien Real Estate Broker Pursuant C.G.S. § 20-325a(r), ECF No. 1-5. Just five days later, Sotheby's provided notice of its own intent to claim a broker's lien of $720,000 on the Upper Cross Property — representing 4.5 percent of the property's gross sales price — for the full commission, given its allegedly exclusive representation of both the buyer and the seller. See Sotheby's Pet. ¶ 17; Sotheby's Pet., Ex. E, Notice & Claim Broker's Lien, ECF No. 1-6.
Kauffman fulfilled her commitment to purchase the Upper Cross Property on October 12, 2011, but because the broker's liens had not yet been released, the parties could not finalize the sale. Sotheby's Pet. ¶¶ 18-19. As a result, Allwin paid Sotheby's a commission for its representation of her in the sale of the Upper Cross Property, but placed the amount reserved for the buyer-side commission into an escrow account (which could be released only after the rights of the parties had been determined definitively). Id. ¶ 20. On or about October 18, 2011, Sotheby's initiated an interpleader action in the Connecticut Superior Court (the "Superior Court"), seeking the release of the buyer-side commission funds held in escrow. Id. ¶ 20 n. 1; see also Rosato Aff., Ex. A, Compl. Interpleader, ECF No. 19-1. Around March 23, 2012, the Defendants filed an arbitration action against Sotheby's and its CEO, after previously requesting that the Superior Court compel arbitration and seeking the buyer-side commission under a procuring-cause theory. Sotheby's Pet. ¶ 21; see also Sotheby's, 2012 WL 1511375, at *4. The Superior Court stayed the case on April 4, 2012, ruling that the GAR's bylaws and the NAR's bylaws and Code of Ethics compelled arbitration of the parties' dispute. See Sotheby's Pet. SI 20 n. 1; Sotheby's, 2012 WL 1511375, at *7-8.
Arbitral awards, and the process by which they are generated, are due significant deference by the judiciary. Porzig v. Dresdner, Kleinwort, Benson, N. Am. LLC, 497 F.3d 133, 138 (2d Cir.2007). A petition to vacate "is not an occasion for de novo review of an arbitral award." Wallace v. Buttar, 378 F.3d 182, 189 (2d Cir.2004). Thus, a court is duty-bound to grant a motion to confirm an arbitration award so long as there exists "a barely colorable justification for the outcome reached," even if the court itself would have come to an alternative conclusion had it been given the opportunity to pass judgment on the matter in the first instance. Parnell v. Tremont Capital Mgmt. Corp., 280 Fed.Appx. 76, 76 (2d Cir.2008) (quoting Landy Michaels Realty Corp. v. Local 32B-32J, Serv. Emps. Int'l Union, AFL-CIO, 954 F.2d 794, 797 (2d Cir.1992)) (internal quotation marks omitted).
The Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 1-16, however, sets forth four grounds upon which a federal court, prompted by any party to an arbitration, may overturn an arbitral award.
Section 20-325a establishes a series of preconditions that a broker must fulfill before she can bring an action to recover a commission arising out of a real estate transaction. The two provisions most relevant to the present inquiry are subsections (b) and (d) of the statute.
Id. Subsection (d), however, carves out an exception whereby a broker need not comply strictly with these requirements:
Id. § 20-325a(d). In other words, a broker who would otherwise be prohibited from launching a recovery action is nevertheless permitted to bring such an action if "(1) there has been substantial compliance with the requirements relevant to the transaction; and (2) the facts and circumstances of [the] case would make it inequitable to deny recovery." Location Realty, Inc. v. Colaccino, 287 Conn. 706, 719, 949 A.2d 1189 (2008).
Before the Court can answer whether The Relocation Group complied
The Relocation Group misses a crucial distinction between those cases and
Here, The Relocation Group's claim for recovery of a commission from the sale of the Upper Cross Property is derived entirely from the listing agreement posted by Sotheby's on the GMLS. See Sotheby's, 2012 WL 1511375, at *2 ("[The Relocation Group] has not filed its complaint in interpleader, but the Escrow Agreement between the parties recites in the fourth `whereas' clause that both [Sotheby's] and [The Relocation Group] are each claiming entitlement to the `buy side' commission of 2.5% of the [$16 million] purchase price.... This indicates to the court that [The Relocation Group] is not seeking the 5% commission specified in its `buy side' agreement with the purchaser ..., but is claiming the 2.5% commission offered by [Sotheby's] in its GMLS listing to the `cooperating broker' in a sale." (fourth alteration in original) (emphases added)). As a result, it cannot circumvent the requirements of Section 20-325a.
Having determined that Section 20-325a governs The Relocation Group's commission-recovery action, this Court now turns to the question of whether The Relocation Group complied, either strictly or substantially, with Section 20-325a. All told, it strictly complied with all but one of the enumerated prerequisites listed in Section 20-325a: subsection (b)(4), which mandates that a licensed broker's contract or authorization to represent an individual in a real estate transaction "contain the conditions of such contract or authorization." Conn. Gen.Stat. § 20-325a(b)(4). In confession, this memorandum acknowledges that the text of subsection (b)(4) facially requires only the existence of a written representation agreement that simply "contains" the conditions of such representation.
With regard to the instant dispute, The Relocation Group's term of authorization lapsed on June 30, 2011, nearly two months before Sotheby's entered into its exclusive buyer representation agreement with the Kauffmans. Compare Sotheby's Pet. ¶ 13, with id. ¶ 14. Moreover, The Relocation Group's buyer representation agreement explicitly waived the right to collect a fee if Kauffman contracted exclusively with another broker outside of The Relocation Group's authorized term. Relocation Grp.'s Exclusive Buyer Representation Agreement § VII(1)(c)(iii), at 2 ("[N]o fee will be due and payable ... if [Kauffman] sign[s] an exclusive agreement or authorization with another real estate broker after the expiration of this Authorization."). Barring a second extension of or a modification to the expiration date found within The Relocation Group's agreement with Kauffman, The Relocation Group cannot state a rightful claim to a commission.
The Relocation Group can take no asylum in the substantial-compliance exception inscribed in subsection (d) of Section 20-325a, either. Even if this Court were to treat The Relocation Group as nevertheless in substantial compliance with Section 20-325a, The Relocation Group must show that a denial of recovery would be inequitable. See Location Realty, 287 Conn, at 719, 949 A.2d 1189. The inability to collect a commission when the underlying contract giving rights to such collection is no longer in effect hardly rises to the level of inequity needed to trigger the exceedingly limited exception embedded in subsection (d).
In determining whether an arbitrator acted in manifest disregard of the law, courts are directed to answer the following three questions: (1) whether the purportedly disregarded law was "clear, and in fact explicitly applicable to the matter before the arbitrators"; (2) whether the law was "in fact improperly applied, leading to an erroneous outcome"; and (3) whether the arbitrator subjectively "kn[ew] of [the law's] existence, and its applicability to the problem before him." Duferco, 333 F.3d at 390.
The first and second of the aforementioned inquiries are simple enough to resolve rather quickly. As mentioned above, see supra section II.B, Section 20-325a governs the instant commission-recovery dispute. As to its scope of coverage, the statute was quite clear, yet the Panel, through its own fault or otherwise, appears to have ignored it. The fact that The Relocation Group neither strictly nor substantially complied with subsection (b)(4) of Section 20-325a makes readily evident that the Panel in fact improperly applied the statute, which led to the erroneous grant of an arbitral award to The Relocation Group.
The only question remaining, then, is whether the Panel knew of Section 20-325a's existence and its applicability to the matter between Sotheby's and The Relocation Group. Knowledge of the governing law on the part of an arbitrator is not to be assumed; rather, the Second Circuit has observed that the party seeking vacatur of an arbitral award must "communicate — either by written submission or orally — to the arbitrators that the [governing law] mandated ... an award [in her favor]." DiRussa v. Dean Witter Reynolds Inc., 121 F.3d 818, 823 (2d Cir.1997) (emphasis omitted). On numerous occasions during the course of the arbitration, Sotheby's counsel and witnesses reminded the Panel of the import of Section 20-325a and the necessity of having a valid buyer representation agreement before one could bring a commission-recovery action under the statute.
For the foregoing reasons, this Court GRANTS Sotheby's verified petition to vacate the Panel's arbitration award, ECF No. 1, and DENIES The Relocation Group's cross-motion to confirm the arbitration award, ECF No. 17.
9 U.S.C. § 10(a)(1-4).
In support of its first argument, The Relocation Group claims that subsection (b) of Section 20-325a pertains only to actions brought by licensed brokers in court. Id. Admittedly, subsection (a) of the statute bars unlicensed brokers from "commenc[ing] or bring[ing] any action in any court [in Connecticut]." Conn. Gen.Stat. § 20-325a(a) (emphasis added). Such restrictive language, however, is not present in subsection (b). See id. § 20-325a(b) ("No person, licensed under the provisions of this chapter, shall commence or bring any action with respect to any acts done or services rendered...."). The jurisprudence of other courts having occasion to wrestle with subsections (a) and (b) suggests that the particular terms used in these provisions dictate their respective scopes. See, e.g., Fieger v. Pitney Bowes Credit Corp., 251 F.3d 386, 400 (2d Cir.2001) (acknowledging the linguistic — and, by extension, legal — dissimilarities that distinguish subsection (a) from subsection (b)); Wilder Grp., Inc. v. Byers, No. CV94 0536062, 1995 WL 127877, at *7 (Conn.Super.Ct. Mar. 14, 1995) (Sheldon, J.) ("Unlike subsection (b), subsection (a) contains no language specifically suggesting that its scope is limited to listing agreements between brokers and property sellers. To the contrary, it expressly bars any suit to recover a commission by any person not licensed under Chapter 392 for any act done or service rendered for which a valid Connecticut real estate license is required.... Indeed, in the absence of qualifying language in the statute, subsection (a) must be read to bar fee-recovery lawsuits for unlicensed brokerage activity of every kind and description for which a valid Connecticut broker's license is required. This, then, is necessarily broad enough to include the unlicensed rendering of services as a non-listing co-broker, finding a buyer for another broker's listed property.").
In support of its second argument, The Relocation Group points to the NAR's rules, which state that arbitral awards "shall not be subject to review or appeal" and that "[n]otwithstanding the foregoing, a party may appeal to the Board of Directors only on the basis of alleged irregularity(ies) of the proceeding as may have deprived the party of fundamental due process," NAR Rules 5. Defs.' Reply 13-14. Privately agreed-upon terms, however, cannot function to deprive a district court of its authority under the FAA to assess the propriety of an arbitral award. See Rollins, Inc. v. Black, 167 Fed.Appx. 798, 799 n. 1 (11th Cir.2006) (per curiam) ("A `binding, final, and non-appealable' arbitral award does not mean the award cannot be reviewed. It simply means the parties have agreed to relinquish their right to appeal the merits of their dispute; it does not mean the parties relinquish their right to appeal an award resulting from an arbitrator's abuse of authority, bias, or manifest disregard of the law.").
A little legislative history goes a long way toward clarifying the meaning behind Section 20-325a. To understand why, one need only look to subsection (b)(7) of the statute. As stated above, the text of this provision presently reads as follows: "To satisfy the requirements of this subsection any contract or authorization shall ... (7) be signed by the person or persons for whom the acts were done or services rendered or by an agent authorized to act on behalf of such person or persons...." Conn. Gen.Stat. § 20-325a(b)(7). Prior to the amendments of 1994, however, the provision was codified at subsection (b)(5) and read: "To satisfy the requirements of this subsection any ... contract or authorization shall ... (5) be signed by the owner or an agent authorized to act on behalf of the owner...." 1993 Conn. Legis. Serv. sec. 1, § 20-325a(b)(5). By itself, the change in form hardly seems meaningful. The Public Act Summaries, produced by Connecticut's Office of Legislative Research, do the work of revealing the genuine intent of the Connecticut General Assembly in revising the text, however:
1994 Conn. Pub. Act Summaries (emphasis added), available at http://search.cga.state.ct.us/dtsearch.asp?cmd=getdoc&DocId=14011&Index=I%3a:*zindex*1994&Hit-Count=0&hits=&hc=0&req=&Item=1751. In this way, the most recently modified version of subsection (b)(7) not only acknowledges the importance of broker-buyer arrangements to the real estate transactional system, but also confirms that broker-buyer arrangements are clearly contemplated in Section 20-325a's commission-recovery scheme.
