Even If Oral Listing Agreements Are Generally Forbidden, The Court Adds That The Receipt Of Confidential Information And A Fiduciary Relationship Support The Result.
Plaintiff Kalo sued defendant Alam for breach of an oral listing agreement to sell real property, fraud, and breach of fiduciary duty. Kalo alleged that Alam, who was originally retained as his agent under a written listing agreement, allowed the written agreement to be cancelled, only to later agree to purchase property from Kalo. Alam then flipped the property to a buyer, taking a large profit for himself. The parties apparently agreed that Alam disclosed he would resell the property after buying it. However, Kalo alleged that Alam did not disclose he would make a "huge profit." Alam moved to compel arbitration, and the arbitrator determined that Kalo was entitled to the undisclosed profits based on the agency relationship and the fiduciary duties that arose from that relationship. The superior court confirmed the award as a judgment, and the Court of Appeal affirmed the judgment. Kalo v. Alam, G053377 (4/3 8/2/17) (Moore, Aronson, Ikola) (unpublished).
Alam argued that the statute of frauds required a written listing agreement, particularly because Alam was only an agent, not a broker. Alam also argued that the arbitrator exceeded his powers in finding an oral listing agreement, because the parties agreed no such agreement existed. The Court of Appeal, however, brushed aside those arguments, because a mistake of law or fact is not a basis for vacating an arbitration award.
When courts refuse to review on the merits, they often still put forward an argument that the losing party was fairly treated. Such was the case here, for the Court explained that the oral listing agreement could be supported by Kalo's imparting of confidential information as would create a fiduciary duty to treat Kalo fairly, and not take an undisclosed profit. As for Alam's argument that an oral listing agreement could not be used to force arbitration, because there was no evidence it contained an agreement to arbitrate, ahem, Alam was the one who moved to compel arbitration under the terms of the listing agreement.
COMMENT: In California, parties to an arbitration may agree that legal errors an excess of arbitral authority that is reviewable by the courts. Cable Connection, Inc. v. DIRECTV, Inc., 44 Cal.4th 1334, 1361 (2008). Here, the cancelled listing agreement provided that the arbitrator "shall render an award in accordance with substantive California Law." But such language is not enough to require appellate review on the merits. Such language only identifies the forum law. If you want to create review of an arbitration award on the merits, you need to draft clear and precise language. And, this only works to expand the scope of review in California state court, not in federal court.
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