Last week a California appellate court weighed in on one of the significant issues regarding commission-sharing arrangements between agents. The decision (Sanowicz v. Bacal, Second Appellate District, Feb. 26, 2015) will affect both agents and brokers who find themselves involved with disputes about commission-sharing arrangements between agents.
Earlier (August 18, 2014) we noted that commission-sharing arrangements between agents have become increasingly prevalent as more and more real estate “teams” are formed. Generally, the formation of teams includes commission-sharing arrangements. When teams disband, and sometimes while they are still intact, disputes may arise regarding these arrangements. Brokers usually don’t want to be judge and jury in such matters. Realtor® associations may not be inclined to arbitrate. Whether or not agents can turn to the courts was the issue at hand in Sanowicz v. Bacal.
The two agents met in the course of a real estate transaction. Although that transaction did not close, Bacal suggested to Sanowicz that they form a “joint venture” in which they would jointly work on real estate transactions. Sanowicz left his company and joined Bacal at a Keller Williams franchise (KW) where the two of them entered into various agreements — both oral and written — whereby they would share commissions in various transactions; and they did actually share commissions in some. On Oct. 11, 2010, “while both were at KW, they entered into a written agreement… to equally divide any commissions earned on the sale of [a certain property identified as Sarbonne] if it were to sell within two years.
Bacal left KW (for Sotheby’s) in the spring of 2012. Sanowicz later alleged that Bacal did so in order to be able to consummate the sale of Sarbonne without Sanowicz’s knowledge. Sanowicz alleged that as late as June, 2012, Bacal represented to him that there was nothing going on with Sarbonne. Sarbonne closed escrow on July 16, 2012 for approximately $14 million. After the split with the broker, Bacal received $210,000 agent’s commission for the sale. None of it went to Sanowicz.
Sanowicz filed suit for his portion of the Sarbonne commission, as well as for commissions he contended were owed from other transactions. Among the causes of action was breach of contract.
Bacal filed demurrers (essentially, motions to dismiss) “asserting the same defects were present in each of the causes of action.” His principal argument was that “…Business and Professions Code section 10137, which provides that it is unlawful for a real estate agent to accept compensation from any person other than the real estate broker under whom he or she is licensed, makes illegal the agreements alleged between Sanowicz and Bacal. On this premise, Bacal contended that all of Sanowicz’s claims for relief were barred by statute and could not survive the general demurrer nor could the complaint be amended to state a valid claim for relief.”
In short, and more colloquially, Bacal argued that the agreements between Sanowicz and him were invalid, because they violated the real estate law (sections of the Business and Professions Code). If they were invalid, no lawsuit could compel that they be enforced.
The trial court agreed. It wrote that, under the Business and Professions Code, “a licensed real estate salesperson cannot contract in his/her own name, nor accept compensation from an (sic) person other than the broker under whom he/she is licensed.” The trial court granted the demurrer and denied Sanowicz permission to try to amend it.
Sanowicz appealed. The Appellate Court agreed with him and disagreed with the trial court. The Appellate Court wrote: “Bacal errs in his underlying premise. The gravamen [substance] of Sanowicz’s complaint is not a suit to collect the commission due to the broker. Instead, Sanowicz is suing to collect a portion of the commissions already paid to the broker.” “He is suing to collect ‘his portion’ of commission already paid to brokers based on the commission sharing arrangement he and Bacal made…”
The trial court’s order was overturned, and Sanowicz is given permission to amend his complaint consistent with the principles discussed in the Appellate Court decision.
This ruling currently clears the way for California lawsuits between agents and based on their commission sharing agreements. It’s no great news for brokers, because brokers will inevitably be dragged into such suits. Moreover, this probably isn’t the last we have heard of Sanowicz v. Bacal. It seems quite likely that this issue will wind up on appeal before the California Supreme Court. Of one thing we can be sure: Before it’s all over — even now — the legal fees will far exceed the amounts of the commissions in dispute.
Written by Bob Hunt on Monday, for www.RealtyTimes.com Copyright © 2015 Realty Times All Rights Reserved.