Class-action Suit on Document Fees Proceeds

California Court of Appeals; Shrestha v. NRT Incorporated, 2005

August 1, 2005

A California appellate court has ruled that a buyer who had to pay a document preparation fee to a brokerage may proceed with a class-action suit against the company and its parent.

The buyer, Rajeev Shrestha, signed a standard purchase agreement that required payment of a “document compliance fee” to the corporation at the close of escrow. The buyer questioned the fee, but the salesperson refused to remove it. The fee was part of the brokerage’s standard purchase contract.

The buyer sued the brokerage and parent corporation, claiming the fee was an unlawful business practice. Under California law, a party bringing such a suit must allege that the public is likely to be deceived by the business practice. In addition, the buyer sought to have the lawsuit certified as a class-action suit covering all California residents who had bought real estate since October 1998 and been charged the fee by the corporation. A court certifies a class-action suit only when there’s a common issue that applies to everyone in the class, and the representative adequately represents the class.

Although the trial court found no basis for a class-action suit, the appeals court decided the corporation’s policy of collecting the document fee in addition to a commission could serve as the basis for a class-action suit because the designated class included only individuals who had paid the document preparation fee. The two fees could amount to double billing without adequate disclosure, the appeals court said. Those facts created a common issue that justified a class-action suit.

Commission Express suit dropped

Court of Appeals of Ohio Commission Express National Inc. v. Realty One, 2005

An Ohio appellate court has partially reversed a trial court’s decision that a real estate brokerage didn’t have to pay a portion of a salesperson’s commission directly to a commission advance company.

In the original suit, Commission Express, which provides real estate salespeople with immediate payments against future commissions, sued a brokerage when the brokerage refused to pay a portion of a commission directly to the company at closing. The trial court ruled in favor of the brokerage based on a state law that prohibits a broker from paying a fee or commission to any third-party creditor of a licensee.

When Commission Express appealed, the appeals court ruled that if the company had purchased an account receivable from the licensee, the brokerage wouldn’t have been prohibited from paying commissions directly to Commission Express as an assignee. However, if the advance had been in the form of a secured loan, Commission Express would have been a third-party creditor and prohibited from receiving direct commission payments from the brokerage. To define Commission Express’ role in the transaction, the appeals court sent the case back to the trial court. Following that decision, however, Commission Express dropped the lawsuit, leaving the issue unresolved.

Editor’s note: NAR contributed financial support to the broker in this case.

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