In the case McAvoy v. Hilbert, the plaintiffs, Randall and Trudy McAvoy, listed their business and the buildings that contained it for sale with the defendant, Dail Hilbert, a real estate broker who screwed up the paperwork. As a result, the McAvoys got sued — not by the folks that bought it from them, but by the folks that bought it from the buyers. The McAvoys said they should be able to sue Hilbert for malpractice.

Hilbert said his listing agreement with the plaintiff included an arbitration clause and that the McAvoys can’t sue him; rather, the matter should be taken to an arbitrator.

In the case McAvoy v. Hilbert, the plaintiffs, Randall and Trudy McAvoy, listed their business and the buildings that contained it for sale with the defendant, Dail Hilbert, a real estate broker who screwed up the paperwork. As a result, the McAvoys got sued — not by the folks that bought it from them, but by the folks that bought it from the buyers. The McAvoys said they should be able to sue Hilbert for malpractice.

Hilbert said his listing agreement with the plaintiff included an arbitration clause and that the McAvoys can’t sue him; rather, the matter should be taken to an arbitrator.

Analysis: The business listing agreement signed by the plaintiffs and the defendant did contain an arbitration clause, but the clause was not formatted in accordance with Section 1298 of the California Code of Civil Procedure, which requires that to be enforceable, arbitration clauses in real estate transaction contracts between an agent and client must include a separate heading and be initialed by both parties and be set out in at least 10 point bold type or contrasting red print in at least an 8 point type.

In this case, the parties’ agreement had none of these formatting characteristics. The defendant claimed that because the agreement was in essence an agreement to list a business for sale, rather than an agreement to list real property for sale, that Section 1298 didn’t apply and the plaintiffs should be compelled to arbitrate, rather than litigate, the matter.

Ruling: For the plaintiff. The court found that the listing agreement was a business listing agreement, but because it was inclusive of an agreement regarding the brokerage of a real estate transaction, Section 1298 was applicable. The lower court’s decision that the plaintiffs could not be compelled to arbitrate the matter, given the nonconformity of the arbitration clause to the Section 1298 format requirements, was upheld.

Based on the California Court of Appeal decision in McAvoy, et al v. Hilbert, et al.

Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com.

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