Duty and Privilege to Arbitrate
Arbitration is not unique to organized real estate. Several other groups of professionals as well as companies and individuals use arbitration to resolve their disputes. When a real estate licensee joins a local association, he or she is entitled to the rights and benefits of REALTOR® membership. However, he or she is also bound by the obligations of membership, such as agreeing to abide by the Code of Ethics. Article 17 of the Code of Ethics is one of the cornerstones of organized real estate and it contains the REALTOR® obligation to use arbitration to resolve disputes.
While only REALTORS® are bound to abide by the Code of Ethics, real estate licensees who participate in the MLS also agree to abide by the MLS rules and regulations. The California Model MLS Rules, which most MLS's in California use, require participants and subscribers to arbitrate disputes that arise from listings on the MLS. Therefore, even if a real estate licensee is not a member of the local association, he or she may nonetheless be obligated to arbitration by being a participant or subscriber in a MLS.
Arbitration by its nature is contractual. That is, parties to arbitration agreed through some type of contract to be obligated to arbitration. In addition, parties may agree to arbitrate disputes either before or after the dispute arises. In California, arbitration agreements must generally be in writing to be enforceable. A local association member's written agreement to arbitrate exists by virtue of:
- the signed membership application;
- the agreement to abide by the Association’s bylaws; and
- the agreement to abide by the Code of Ethics, specifically, Article 17.
While the agreement to arbitrate exists when an individual joins the Association, this agreement is repeated on the arbitration complaint and response forms. However, refusing to sign an arbitration complaint or response does not alter the existing arbitration agreement. If a member fails to sign either form, the obligation to arbitrate still exists.
Members also agree to arbitrate disputes with their clients, provided the client agrees to binding arbitration using the Association. Because a member's client has not previously agreed to arbitrate, the client's agreement to arbitrate is contained in the client of member arbitration complaint form (Form PA-1). This form also binds the client to comply with the arbitration award. Therefore, unlike a member, a client must complete and sign Form PA-1 in order to be bound by arbitration using the Association facilities.
Although Association membership is individual, many firms operate their real estate business under a corporation or other business entity. Sometimes, members attempt to use the corporation as a shield to avoid their arbitration responsibilities. However, the membership application provided by C.A.R. and Section 42(a) of the California Code of Ethics and Arbitration Manual states that the member binds him or herself and the corporation for which he or she acts to arbitration. Furthermore, the California Model Bylaws also contain a similar section making this clear. Even so, an association may find it helpful to request that a member submit a corporate resolution specifically authorizing the member to bind the corporation to arbitration. Preferably, this should be done at the time of the arbitration complaint or response is filed, but it may be done at any time prior to the arbitration.
Often, members enter into separate agreements (such as in the listing agreement or a buyers' broker agreement) to arbitrate a dispute somewhere other than at the Association. This is perfectly legal and ethical and the Association should treat this agreement as superseding any agreement the member may have to arbitrate the particular dispute at the association.
Sometimes a member will attempt to bypass the arbitration process by filing a civil lawsuit against another member. If a member does this, the respondent member can request the court to compel arbitration at the local association in accordance with the arbitration agreement. However, if the respondent member fails to request the court to compel arbitration and responds to the civil lawsuit, the parties are effectively waiving their right and obligation to arbitration at the local association. Furthermore, neither member is in violation of Article 17.