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Hackman v. Dickerson Realtors

August 31, 2007

GREGORY HACKMAN D/B/A GREGORY HACKMAN RELATORS, AND GREGORY HACKMAN REALTORS, INC., AN ILLINOIS CORPORATION PLAINTIFFS,
v.
DICKERSON REALTORS, INC., AN ILLINOIS CORPORATION D/B/A DICKERSON-NEIMAN REALTORS, WHITEHEAD, INC., AN ILLINOIS CORPORATION D/B/A WHITEHEAD REALTORS, PREMIER REAL ESTATE BROKERAGE SERVICES, INC., AN ILLINOIS CORPORATION D/B/A COLDWELL BANKER PREMIER, CENTURY 21 COUNTRY NORTH, INC. , AN ILLINOIS CORPORATION D/B/A CENTURY 21 COUNTRY NORTH, R. CROSBY, INCORPORATED, AN ILLINOIS CORPORATION D/B/A PRUDENTIAL CROSBY REALTORS, MCKISKI-LEWIS, INC., AN ILLINOIS CORPORATION D/B/A TOM ) MCKISKI REALTORS, LORI REAVIS, RAY YOUNG, MICHAEL DUNN, DONNA SHIPLER N/K/A DONNA KITZMAN, MELISSA SMITH, JESSICA LICARY, DIANE PARVIN, ROCKFORD ASSOCIATION OF REALTORS, AND ILLINOIS ASSOCIATION OF ) REALTORS, DEFENDANTS.



The opinion of the court was delivered by: Elaine E. Bucklo United States District Judge

MEMORANDUM OPINION AND ORDER

Plaintiffs Gregory Hackman d/b/a Gregory Hackman Realtors and Gregory Hackman Realtors, Inc. (collectively "Hackman")*fn1 have brought this multi-count complaint against several defendants, generally alleging that these defendants who, like Hackman, are all involved in the real estate market in Rockford, Illinois, collectively shut Hackman out of the Rockford real estate market to retaliate against him for charging a lower commission rate than other realtors. Some of these defendants have answered Hackman's complaint, while others have brought motions to dismiss various counts of the complaint or for a more definite statement of certain counts. Defendants Diane Parvin ("Parvin") and Century 21 Country North, Inc. ("Century 21") have also brought motions to compel arbitration and stay the present proceedings.*fn2 These motions are resolved as discussed below.

I.

Hackman's complaint alleges that from 1991 to 2005, Gregory Hackman, a natural person, was the sole proprietor of Gregory Hackman Realtors. (Compl. ¶ 5.) Since late 2005, Gregory Hackman has been the president and owner of Gregory Hackman Realtors, Inc. (Id.) Other defendants are residential realtor businesses or individual licensed real estate agents. (Id. at ¶¶ 6-18.) In addition, defendant Illinois Association of Relators ("IAR") is an organization headquartered in Springfield, Illinois, that "serves as the governing body to enforce the regulations in the code of ethics promulgated by the National Association of Realtors," "serves to resolve disputes between licensed Realtors over alleged violations of the NAR regulations," and, "in proper circumstances, accepts the transfer of local disputes and disciplinary actions." (Id. at ¶ 20.) Similarly, defendant Rockford Association of Realtors ("RAAR") is an organization headquartered in Rockford, Illinois, that, in addition to engaging in education and other programs related to the real estate industry, "enforces the regulations in the code of ethics promulgated by the National Association of Realtors, and serves to resolve disputes between licensed Realtors over alleged violations of the NAR regulations." (Id. at ¶ 19.)

Hackman's complaint alleges that his dispute with the defendants began in 2000, when he opened a new office and decided that he would charge a 5% brokerage fee/commission for new clients. (Id. at ¶ 21.) This figure is significant because the Multiple Listings Service ("MLS") rules require the selling agent to share the commission equally with the buyer's agent so that other brokers in the Rockford area acting as buyer's agents in transactions in which Hackman was the seller would receive a commission lower than the normal commission of 6 to 7%. (Id. at ¶¶ 23-24.) For this reason, Hackman alleges, defendants Dickerson Realtors, Inc. ("Dickerson"), Whitehead, Inc. ("Whitehead"), Century 21, Premier Real Estate Brokerage Services, Inc., d/b/a Coldwell Banker Premier ("Coldwell"), R. Crosby, Inc. d/b/a Prudential Crosby Realtors ("Prudential"), and McKiski-Lewis, Inc. ("McKiski") entered into an agreement to "retaliate against [Hackman] in every facet of his business." (Id. at ¶ 25.) Hackman alleges that their retaliatory actions included refusing to present offers on their own listings from potential purchasers represented by Hackman, and disparaging Hackman to discourage their seller clients from accepting offers from his purchasing clients. (Id.) He further alleges that Dickerson ordered all but one of its offices not to allow Hackman agents to set up showings of Dickerson-listed properties (Id. at ¶ 27), and that Coldwell and Dickerson filed false ethics complaints against him. (Id. at ¶ 30.) Hackman alleges that these activities caused him lost sales commissions and smeared his reputation, resulting in lost past business and future prospects. (Id. at ¶ 36.) Hackman's claims include claims against Dickerson, Whitehead, Century 21, Coldwell, Prudential, McKiski and RAAR for violation of the Sherman Act, 15 U.S.C. § 1 & 2 and the Illinois Antitrust Act, 740 ILL. COMP. STAT. 10/1, et seq. (Counts I and II); a claim for a temporary injunction against RAAR and IAR to prevent them from conducting an ethics hearing originally scheduled for December 5, 2006 (Count III);*fn3 a request for a declaration of rights and a permanent injunction against RAAR and IAR concerning the same ethics hearing (Count IV); a claim for defamation against Dickerson, Lori Reavis ("Reavis"), Ray Young ("Young"), Prudential, Jessica Licary ("Licary"), Whitehead, Coldwell, Century 21 and McKiski (Count V); and a claim for tortious interference with business expectancy against Dickerson, Michael Dunn ("Dunn"), Reavis, Melissa Smith ("Smith"), Young, Whitehead, Coldwell, Donna Shipler ("Shipler"), Prudential, Licary, Century 21, Parvin and McKiski (Count VI).

II. Parvin's Motion to Compel Arbitration

I first address Parvin's motion to compel arbitration under the FAA. Parvin contends that Hackman's claim against her for tortious interference with contract, Count VI of his complaint, is subject to an enforceable arbitration agreement Hackman made as a member of RAAR. While not denying that his membership in RAAR included an agreement to arbitrate, Hackman contends that Count VI is not subject to the arbitration agreement.

In her original motion for arbitration Parvin contended that I should order arbitration under the Federal Arbitration Act, 9 U.S.C. § 1 et seq. ("FAA") (2007). However, after I ordered supplemental briefing on certain issues related to her motion, Parvin changed her position and now asserts that arbitration was mandated by the Illinois Arbitration Act. The FAA only applies to contracts that "evidenc[e] a transaction involving commerce." 9 U.S.C. § 2. The Supreme Court has interpreted the term "involving commerce" as "the functional equivalent of the more familiar term 'affecting commerce'-words of art that ordinarily signal the broadest permissible exercise of Congress' Commerce Clause power." Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 56 (2003) (citing Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 273-74 (1995)).

In Cecala v. Moore, 982 F. Supp. 609 (N.D. Ill. 1997), the district court concluded that because the arbitration agreement at issue was part of a contract between two Illinois parties entered into in Illinois, and because the contract concerned a local real estate transaction, it did not implicate interstate commerce and therefore did not trigger the FAA. Id. at 611-12. Relying on Cecala, Parvin contends that because Count VI concerns a single real estate transaction between local parties, it does not implicate interstate commerce and therefore does not trigger the FAA. I disagree. Count VI of Hackman's complaint contains an allegation that Parvin, an agent of Century 21, violated the MLS agreement with Hackman and interfered with his business expectancy with a client by falsely telling Hackman that a property was not available for his client to see. The nature of the dispute is not the relevant question for purposes of the FAA, however, but rather the nature of the contract requiring arbitration. See 9 U.S.C. § 2. The arbitration agreement that Parvin wishes to invoke is contained in the bylaws of the RAAR, to which Hackman and Parvin both belong.

While neither party has presented much information concerning the RAAR and its bylaws, it appears that RAAR is a local Illinois real estate association. A local real estate association formed by realtors who participate in real estate transactions, even if local, does "affect commerce" under the meaning of the Commerce Clause. The Supreme Court has previously suggested that the activities of real estate brokers affect interstate commerce because the financing of real estate purchases involves multi-state lending institutions, mortgages are insured under federal programs involving interstate transfers of premiums and settlements, mortgage obligations are traded as financial instruments in an interstate secondary mortgage market, and required title insurance is furnished by interstate corporations. See McLain v. Real Estate Bd. of New Orleans, Inc., 444 U.S. 232, 245 (1980) (finding a sufficient basis for petitioners to proceed to trial on claim that defendant real estate brokers had violated Sherman Act by engaging in price-fixing of brokerage commissions on sale of residential property). Other courts have also concluded that businesses "engaged in real estate markets" have at least a minimal effect in interstate commerce. See United States v. Leslie, 103 F.3d 1093, 1102 (2d Cir. 1997). Therefore, I conclude that the bylaws of the RAAR do affect commerce under the meaning of the Commerce Clause, and therefore are subject to the provisions of the FAA.

Applying the requirements of the FAA, I must determine whether Hackman had a duty to arbitrate his claims against Parvin. Under the FAA, a party "aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition . . . for an order directing that such arbitration proceed in the manner provided for in such agreement."

9 U.S.C. § 4. "[I]f the parties have an arbitration agreement and the asserted claims are within its scope," the district court must grant the motion to compel arbitration. Sharif v. Wellness Int'l Network, Ltd., 376 F.3d 720, 726 (7th Cir. 2004) (citing Kiefer Specialty Flooring, Inc. v. Tarkett, Inc., 174 F.3d 907, 909 (7th Cir. 1999)). I must grant Parvin's request to arbitrate "unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute." Kiefer, 174 F.3d at 909 (quoting United Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582-83 (1960)).

Whether a particular issue is subject to arbitration is a matter of contract interpretation. Kiefer, 174 F.3d at 909 (citation omitted). I must rely on state contract law governing the formation of contracts. James v. McDonald's Corp., 417 F.3d 672, 677 (7th Cir. 2005) (citing First Options of Chicago Inc. v. Kaplan, 514 U.S. 938, 944 (1995)). The parties contend that Illinois law should apply to interpret this contract, since all the parties to this case are residents of Illinois and the RAAR was entered into in Illinois. No matter the provenance of the other documents referred to in the relevant sections of the RAAR bylaws, including the "Code of Ethics and Arbitration Manual," because they are incorporated by reference into the RAAR bylaws I must also interpret them as part of this contract under Illinois law. See T.H.E. Ins. Co. v. Chicago Fireworks Mfg. Co., 311 Ill. App. 3d 73, 78, 243 Ill. Dec. 879, 884, 724 N.E.2d 188, 193 (Ill. App. Ct. 1999).*fn4

Interpreting the meaning of the RAAR bylaws and the incorporated documents (collectively the "contract") under Illinois law, I must first determine whether the language of the contract is ambiguous. See Quake Const., Inc. v. American Airlines, Inc., 141 Ill.2d 281, 288, 152 Ill. Dec. 308, 312, 565 N.E.2d 990, 994 (1990) (citations omitted). If the language is not ambiguous I may determine the meaning of the contract solely from the writing itself. Id. If the terms of the contract are ambiguous or capable of more than one interpretation, then I may examine parol evidence to ascertain the parties' intent. See id.

Here, the unambiguous language of the RAAR bylaws is clear that the parties have agreed to arbitrate; the parties do not dispute the existence of such an agreement. Section 2 of Article VII of the RAAR's bylaws provides:

It shall be the duty and responsibility of every REALTOR(r) Member of this Association to . . . arbitrate controversies arising out of real estate transactions as specified by Article 17 of the Code of Ethics [of the NATIONAL ASSOCIATION OF REALTORS(r)], and as further defined and in accordance with the procedures set forth in the Code of Ethics and Arbitration Manual of this Association as from time to time amended. (Parvin Mot. to Compel Arbitration Ex. A at 1.) Article 17 of the National Association of Realtors ("NAR") Code of Ethics ("Code of Ethics") provides:

In the event of contractual disputes or specific non-contractual disputes as defined in Standard of Practice 17-4 between REALTORS(r) (principals) associated with different firms, arising out of their relationship as REALTORS(r), the REALTORS(r) shall submit the dispute to arbitration in accordance with the regulations of their Board or Boards rather than litigate the matter. (Parvin Mot. to Compel Arbitration Ex. B, Art. 17.) These provisions make clear that the parties have agreed to arbitrate controversies as specified by the Code of Ethics and as further defined and in accordance with procedures in the "Code of Ethics and Arbitration Manual."

Second, I must determine whether the claims Hackman asserts against Parvin in Count VI are within the scope of the arbitration agreement. Sharif, 376 F.3d at 726 (citation omitted). The unambiguous language of the Code of Ethics as incorporated into the RAAR bylaws is that the parties agreed to submit to arbitration "contractual disputes" and certain non-contractual disputes between realtors arising out of their relationship as realtors. None of the parties assert that any of the specific non-contractual disputes identified in the NAR Standards of Practice apply to Hackman's claims, and by the plain language of the Standards of Practice they do not, so I must only determine whether Hackman's claims against Parvin are "contractual disputes" under the meaning of Article 17. The plain language of the contract does not define "contractual dispute," and this term is ambiguous. One plausible interpretation is that the term refers to a dispute between realtors about a contract between those realtors. Another potential interpretation is that it refers to a dispute between realtors about a contract between one of the realtors and a third party.

The RAAR bylaws indicate that the duty to arbitrate is limited and defined by the procedures set forth in the "Code of Ethics and Arbitration Manual." Parvin presents a section of that document entitled "Suggested Factors for Consideration by a Hearing Panel in Arbitration" (attached as Exhibit A to her supplemental reply) that she contends defines "contractual dispute" as referring to one of four types of contracts.*fn5 The "Suggested Factors" document to which Parvin refers lists four types of contracts that "come into play" in real estate transactions: (1) the listing contract between the seller and the listing broker; (2) the contract between the listing broker and cooperating brokers; (3) the purchase contract between the seller and the buyer; and (4) a buyer-broker agreement between the purchaser and a broker. (Def.'s Supp. Reply Ex. A at 2-3.) It then explains that there are "hazards in formation and afterward" to each of these contracts, certain difficulties may be arise, and states that "[t]here are several methods by which contractual questions (or 'issues' or 'disputes') are resolved," including arbitration. (Id. at 4.) Finally, the "Suggested Factors" document states:

Boards and Associations of REALTORS(r) provide arbitration to resolve contractual issues and questions . . . that arise between members, between members and their clients, and, in some cases, between parties to a transaction brought about through the efforts of REALTORS(r). Disputes arising out of any of the four above-referenced c o n t r a c tual relationships may be arbitrated. . . . (Id.) This language does not allow the conclusion that the term "contractual dispute" in Article 17 could refer to a dispute between realtors relating to a contract between one of those realtors and a third party; this document only contemplates disputes between parties to a contract about that contract. Because this language makes the contract unambiguous, I need not consider any parol evidence.

Based on this interpretation of the arbitration agreement, I need determine whether Count VI is a claim against Parvin concerning a dispute about a contract between her and Hackman. In Count VI Hackman brings what he identifies as a tortious interference with business expectancy claim against Parvin and other defendants. In that count his only specific allegations against Parvin are:

On August 10, 2006, PARVIN, an agent of CENTURY 21, misrepresented the status of a property (saying it was unavailable) in order to prevent HACKMAN from presenting an offer.

The MLS computer system did not reflect that the property was unavailable. The sellers previously confirmed availability of the property with HACKMAN'S clients directly.

PARVIN's actions violated MLS rules, and, although HACKMAN was eventually able to present the offer, PARVIN's actions resulted in HACKMAN's clients not making the purchase. (Compl. at ¶ 91.) Hackman also generally alleges that he "had valid business relationships, and the expectancy of the completion of those relationships" with clients and that defendants "intentionally interfered with said business relationships by ingratiating themselves with said clients, and making derogatory statements about HACKMAN until the client left HACKMAN and went to the Defendants' offices." (Id. at ¶¶ 91, 96.)

Hackman contends that Count VI is a tort claim and as such is not a contractual dispute subject to arbitration. Parvin responds that although Count VI is a self-described tort claim, it is really a contract claim between Hackman and Parvin for a violation of the rules of the Multiple Listing Service, which is connected to the parties' agreement as members of RAAR. I agree that, to the extent Hackman is bringing a claim against Parvin for a violation of the MLS rules, such a claim is governed by the arbitration agreement. Article XVIII of the RAAR bylaws provides that the RAAR shall maintain the MLS for the use of its members, and that the MLS is governed by the RAAR bylaws. (Parvin Mot. to Compel Arbitration Ex. A at 1.) No matter how Hackman defines his own claim, disputes between realtors concerning violations of the MLS rules are "contractual disputes" under Article XVII. Therefore, they are subject to arbitration.

However, Hackman's general allegations in paragraphs 91 and 96 of his complaint that defendants, including Parvin, interfered with his valid business relationships with potential clients by making derogatory statements about Hackman is not a claim concerning a contract between Hackman and defendants, but a tort claim that defendants intentionally interfered with Hackman's prospective economic advantage. See, e.g., Fellhauer v. City of Geneva, 142 Ill.2d 495, 512, 154 Ill. Dec. 649, 656-57, 568 N.E.2d 870, 877-78 (1991) (citations omitted). This claim in no way falls under the arbitration agreement. Because it can be said with "positive assurance" that the parties' arbitration agreement is "not susceptible of an interpretation that covers" this aspect of Count VI, it is not subject to arbitration. See Kiefer, 174 F.3d at 909 (citation omitted).*fn6

Given that I find that one aspect of Hackman's claims against Parvin is subject to arbitration, but that I find other of his claims in this litigation are not, it is within my discretion to decide whether to stay the whole of the litigation or to allow the remainder of Hackman's claims to proceed. Volkswagen of Am., Inc. v. SUD's of Peoria, Inc., 474 F.3d 966, 970-72 (7th Cir. 2007) (citations omitted). The Seventh Circuit has explained that where one claim is arbitrable, the remaining claims should be stayed as well where the arbitration may shed light on remaining issues, or where allowing both the arbitration and the case to proceed simultaneously runs the risk of inconsistent verdicts. Id. at 972 (citing Morrie Mages & Shirlee Mages Found. v. Thrifty Corp., 916 F.2d 402 (7th Cir. 1996); AgGrow Oils, L.L.C. v. Nat'l Union Fire Ins. Co. of Pittsburgh, 242 F.3d 777 (8th Cir. 2001)). Here, the arbitrable claim, whether Parvin violated the MLS rules by misrepresenting the status of a property, is tangentially related to Hackman's allegations under the Sherman Act that defendants agreed to boycott Hackman, although this specific allegation is not a part of the Sherman Act claim and Parvin herself is not a defendant to that claim. Hackman's claim against Parvin for violating the MLS rules and tortiously interfering with his business expectancy is a discrete claim that involves no other parties, particularly since Century 21 is now dismissed from this litigation. Further, staying the entire matter would cause the "tail to wag the dog" and would not aid in the most effective resolution of the claims in this case. See Volkswagen of ...


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