In Nguyen v. Tran, (— Cal.Rptr.3d —, 2007 WL 4284896, Cal.App. 4 Dist., Dec. 7, 2007), a California Court of Appeal considered an attempt by “cooperating” brokers, who had represented property buyers in a real estate transaction, to compel their former clients as well as the “listing” brokers, who represented the sellers, to submit to arbitration to resolve a dispute that arose following the transaction.
The court ruled that the cooperating brokers could compel arbitration from the buyers, pursuant to the terms of the sale; but the cooperating brokers could not compel the listing brokers to arbitration because they did not sign the agreement and had no contractual relationship with the cooperating brokers.
In 2003, Thap-Nhut Van Nguyen and Cathy Nguyen (“Buyers”) purchased property from Chi Shu Yeh and Horng Tao Yeh (“Sellers”). Representing the buyers in the transaction were brokers Larry Hung Tran and Transciti Mortgage and Realty (“Cooperating Brokers”). Representing the sellers were brokers Gary Lee and High Ten Partners, Inc. (“Listing Brokers”)
The Buyers later sued the Sellers, the Cooperating Brokers and the Listing Brokers for fraud and breach of contract, for failing to disclose that a guest house on the property had been built without proper permits. The Cooperating Brokers petitioned to compel all the parties to submit to arbitration, based on a clause in the purchase agreement between the Buyers and Sellers providing that disputes arising from the transaction be settled through arbitration. Both the Buyers and Sellers initialed the section, indicating they agreed to the provision. The brokers did not initial it, and no space was provided for them to do so. The trial court denied the petition, ruling that the Cooperating Brokers failed to establish that they were entitled to enforce the arbitration provision in the agreement between the Buyers and Sellers. The Cooperating Brokers appealed.
Arbitration is a process designed as a more expedient and economical way of resolving disputes than through the civil courts. It may be invoked only if all the parties have agreed to it, and does not extend to those who are not parties to an arbitration agreement, the court said. Therefore, “only parties to an arbitration contract may enforce it or be required to arbitrate.”
The agreement in this case expressly stated that “buyer and seller agree to mediate and arbitrate disputes or claims involving either or both brokers, provided either or both brokers shall have agreed to such mediation or arbitration.” A plain reading of that, the court said, shows that the Buyers and Sellers agreed to let either or both sets of brokers to decide whether to arbitrate claims against them. As such, the Cooperating Brokers had the right to compel the Buyers to arbitration.
However, the Listing Brokers did not sign the agreement, and were therefore not bound by the arbitration clause, the court said. The Cooperating Brokers cited no authority to support their claim that one nonsignatory party has the right to invoke an arbitration clause against another nonsignatory party, the court said. “We see no basis to create another exception to the general rule that an arbitration provision cannot be enforced to compel a nonsignatory to arbitrate.”
The trial court ruling was therefore affirmed in part and reversed in part. Its ruling was reversed with respect to the Buyers, who could be compelled to arbitration; but affirmed with respect to the Listing Brokers, who could not.