Can a real estate broker or agent who is not a member of an association that has ethics rules be held accountable to the rules or standards of that association? In some situations, "yes," according to a recent ruling by California's Second Appellate District Court of Appeal. Interestingly, the case (Stevenson Real Estate Services v. CB Richard Ellis Real Estate Services, et. al.) comes from the commercial real estate sector. It gets a little complicated, but the underlying issues are straightforward.

In 2001, Vision Entertainment (Vision) asked Stevenson Real Estate Services (Stevenson) to represent it in finding a suitable property to lease. The search took some time, but in March of 2002 a promising property was presented to Vision. Vision was prepared to make an offer, but first had to obtain consent from another company, Deluxe Media Services (Deluxe), which was in the process of acquiring Vision. The property was acceptable to Deluxe, but before a lease could be negotiated, Deluxe's parent organization demanded that negotiations be conducted by its own representative, Insignia Financial Group (Insignia). (I told you it was a little complicated.)

Stevenson subsequently advised Insignia that Stevenson had procured the interest of Vision/Deluxe in the property, and that it objected to "Insignia's insertion into the relationship between Stevenson and Vision and/or Deluxe." Moreover, Stevenson advised Insignia that "its conduct violated the Rules of Professional Conduct (Rules) of the American Industrial Real Estate Association (Association), which applied to the property because it was listed for lease with Association member C.B. Richard Ellis."

Not surprisingly, Insignia was unmoved by this objection and completed the lease negotiations on behalf of Vision/Deluxe. A lawsuit ensued. Stevenson's complaint alleged intentional interference with prospective economic advantage.

In order to make such a civil complaint stick, the appellate court noted, six elements must be shown: (1) that there was an economic relationship between the plaintiff and a third party that carried a probability of future economic benefit to the plaintiff, (2) that the defendant knew of the relationship, (3) that there were intentional acts by the defendant designed to disrupt the relationship, (4) that there was a disruption of the relationship, (5) that the defendant's acts caused economic harm to the plaintiff, and (6) that the defendant's conduct was "'wrongful' by some measure beyond the fact of the interference itself."

Given the facts, there was not much to dispute about the first five. As to the sixth, the trial court found in favor of the defendant's argument that "a violation of the Association's Rules would not suffice to constitute wrongful conduct." The court granted judgment in favor of the defendant -- in essence dismissing the suit -- and denied permission to the plaintiff to amend the complaint.

The Appellate Court disagreed, vacating the trial court judgment and giving the plaintiff an opportunity to amend its complaint.

In its discussion the Appellate Court noted that earlier decisions as to the wrongfulness of economic interference had relied on opinions regarding "industry standards," "bad business," and what was or was not ethical. These had been seen as too nebulous, and having the potential for stifling competition. But it did not see the same problem with a trade association's written rules.

While cautioning that such rules must not be designed to hamper competition, the Court concluded that "in certain circumstances, a violation of well-defined, established rules or standards of a trade association or profession may constitute the type of wrongful conduct that will support a cause of action for intentional interference with prospective economic advantage."

The Stevenson case arose in the commercial real estate arena, but it's a fair bet that those in the residential sector will be studying it as well.

Published: October 13, 2006

Use of this article without permission is a violation of federal copyright laws.

Bob Hunt is a former director of the National Association of Realtors and is author of the recently published book, "Real Estate the Ethical Way." A graduate of Princeton with a master's degree from UCLA in philosophy, Hunt has served as a U.S. Marine, Realtor association president in South Orange County, and director of the California Association of Realtors, and is an award-winning Realtor. Contact Bob at .