In the recent case of Focus Point Properties, LLC/Kantor v. Johnson/Oak Acres Trust, No 1CA-CV 12-0766 (Ariz. Ct. App. June 6, 2014) the Arizona Court of Appeals addressed whether a broker had the right to maintain a lawsuit for a real estate commission when the broker violated Arizona law by not timely disclosing to the ADRE that he violated a prior consent order.  The Court determined that the violation did not preclude the commission claim.

37704158The Case Facts: In 2009, a property owner (Oak Acres Trust-Johnson, as trustee) listed a commercial property in Apache Junction with the broker (Focus Point Properties-Kantor as salesperson) for saleor lease. In January 2010, after months of work coordinating the rehabilitation of the property, and during the term of the listing agreement, the broker procured a tenant. The owner subsequently signed a lease with the tenant without informing the broker.

In February 2010, the broker sent the owner an invoice for the lease commission of $2,720 and in response the owner canceled the listing agreement. The broker then demanded the full commission of $140,000 based on the liquidated damages provision in the listing agreement and the owner refused to pay. As a result, the broker filed a law suit in the Maricopa County Superior Court for the commission and the owner filed a variety of counterclaims including breach of fiduciary duty.

Two days before trial, the owner filed a motion to dismiss and vacate the trial based on the salesperson’s real estate license history. Specifically, a 2006 Arizona Department of Real Estate (ADRE) consent order placed the salesperson under a two-year provisional license due to failing to timely disclose two DUI convictions.  Pursuant to the consent order, the salesperson was required to abstain from alcohol and submit to random testing. Within that provisional license timeframe, in 2008, the salesperson was convicted of another DUI offense but did not report it to the ADRE until 2011. In 2012, the salesperson voluntarily surrendered his real estate license.

The owner argued that if the salesperson had properly disclosed his DUI conviction, he would not have had a real estate license at the time he provided services to the owner. Therefore, the owner argued that the broker was not entitled to a commission. The Superior Court denied the owner’s motion to dismiss because the salesperson was licensed at the time he provided the services and reasoned that the act that may have affected his license was not relevant. The case proceeded to trial and the jury found in favor of the broker, awarding the full commission, interest, court costs, and $39,000 in attorney’s fees. The owner appealed the trial court’s decision.

The Court’s Decision: The issue for the Court was whether a broker has standing under A.R.S.§32-2152(A) to maintain a lawsuit for a real estate commission when there was evidence that the broker violated Arizona law by not timely disclosing to the ADRE that he violated a prior consent order. The Court held that the violation did not preclude the broker’s claim because the determination whether to suspend or revoke a real estate license is to be left to the Real Estate Commissioner. The court’s responsibility under A.R.S. §32-2152(A) is to determine whether the salesperson had a current license at the time the services were performed. The Court of Appeals stated that “[a]lthough § 32-2152(A) required the determination of whether the salesperson was a ‘qualified’ licensed salesperson at the time the claim for compensation arose, the more specific provision (§ 32-2153) detailing when and by whom a license should be suspended or revoked is controlling as to that issue.”

However, the Court found also that the trustee of the trust (Johnson) was not personally liable to pay the commission to the broker. Despite some ambiguity as the trustee’s signature, the listing agreement provided that the parties to the agreement were the “Owner and Broker” and it was undisputed that the owner was the trust.

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This article is of a general nature and may not be updated or revised for accuracy as statutory or case law changes following the date of first publication. Further, this article reflects only the opinion of the author, is not intended as definitive legal advice and you should not act upon it without seeking independent legal counsel.