619 DOS 09

STATE OF NEW YORK

DEPARTMENT OF STATE

OFFICE OF ADMINISTRATIVE HEARINGS

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In the Matter of the Complaint of

DEPARTMENT OF STATE

DIVISION OF LICENSING SERVICES,

                                                Complainant,                                      

                        -against-                                                                                  DECISION

JONATHAN R. MILLER,

CHARLOTTE A. GUERNSEY, and

GATE HOUSE REALTY, INC.

                                                Respondents.

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            The above noted matter came on for hearing before the undersigned, Roger Schneier, on December 15, 2008 and May 14, 2009 at the office of the Department of State located at 123 William Street, New York, New York.

            The respondents were represented by Howard W. Goldson, Esq., Goldson, Nolan, Connolly, Nasis & Dornfeld, PC.

            The complainant was represented by David Mossberg, Esq.

COMPLAINT

            The complaint alleges that: The respondents failed to deliver required agency relationship disclosure statements and wrongfully acted as dual agents; respondent Miller engaged in improper self-dealing, breached the fiduciary duties owed to a client, and wrongfully made a claim for a commission with a party other than the Real Estate Broker with whom he was licensed; and respondent Guernsey failed to adequately supervise respondent Miller.

FINDINGS OF FACT

            1) Notices of hearing together with copies of the complaint were served on the respondents by certified mail and an amended complaint was served on Mr. Goldson by regular mail (State’s Ex. 1).

            2) Charlotte Anne Guernsey is, and at all times hereinafter mentioned was, a duly licensed Real Estate Broker representing Gate House Realty Inc. (hereinafter “Gate House”) at 492 Main Street, P.O. Box 416, Beacon, New York 12508 (State’s Ex. 2).

            3) Since May 8, 2007 Jonathan R. Miller has been duly licensed as a Real Estate Broker representing Joncar Realty Inc. at 452 Main Street, Beacon, New York 12508 (State’s Ex. 2). As stipulated to by the parties, at all times hereinafter mentioned he was licensed as a Real Estate Salesperson in association with Gate House.

            4) In the summer of 2004 Mr. Miller approached Lawrence Kalkstein , a real estate investor and former attorney at law with whom the respondents had had previous business dealings, and advised him of the availability of a parcel of land of approximately 123 acres in the City of Beacon known as Hidden Brooke which was owned by the Ursuline Provincialate, Eastern Province of the United State’s, Inc. (hereinafter “the Ursulines”), and which was being offered for sale. Mr. Miller wished to work with Mr. Kalkstein to purchase and develop the land, with Mr. Miller to receive a part of the land of about two acres on which there is a chapel (hereinafter “the chapel property”) which Mr. Miller desired to convert into a residence for himself.

            5) Mr. Miller had previously learned of the availability of Hidden Brooke and had spoken with an Ursuline nun about it. He had expressed an interest in the chapel property and she had referred him to the Ursuline’s attorney, Richard Kane. Mr. Kane advised Mr. Miller that he could not subdivide off the chapel property but that if Mr. Miller could produce a buyer interested in the entire parcel he would be happy to entertain an offer, and he gave Gate House and Mr. Miller an open listing.

            6) On September 27, 2004 Preshrock offered to purchase Hidden Brooke for $2,000,000.00. Mr. Miller is listed on the offer, which is on a Gate House form, as both the listing and selling agent (State’s Ex. 5).

            7) At no time did the respondents provide either Mr. Kalkstein or the Ursulines with an agency relationship disclosure statement. However before entering into a contract to purchase Hidden Brooke Mr. Kalkstein was aware that the Ursulines and Gate House had entered into a brokerage agreement which provided that any commission would be paid by the buyer (Resp. Ex. B). Both Mr. Kalkstein and Mr. Kane understood that the respondents were acting as dual agents.

            8) In or about October2004 the Ursulines and Preshrock entered into a contract providing for the sale and purchase of Hidden Brooke for $2,000,000.00 and for the payment of a brokerage commission by Preshrock to Gate House (Resp. Ex. A). It was Preshrock’s intention to subdivide the property into between 60 and 75 units for re-sale.

            9) On January 25, 2005 Pamela Kalkstein, the wife of Lawrence Kalkstein, acting as President of Preshrock Corp. (hereinafter “Preshrock”), the real estate investment corporation in which the Kalksteins owned all of the stock, and Mr. Miller, acting as an individual, entered into a “Property Transfer Agreement,” negotiated and prepared by Gate House’s attorney at the instance and with the consent of Ms. Guernsey, wherein it was stated that Preshrock was in the process of negotiating the purchase of Hidden Brooke, that Mr. Miller was instrumental in introducing Preshrock to the Ursulines, that the Ursulines had requested Mr. Miller and Gate House to execute a brokerage agreement stating that there is no commission to be paid by the Ursulines, and that Preshrock had agreed to transfer the chapel portion of Hidden Brooke, consisting of the chapel and a minimum of two acres surrounding that building, to Mr. Miller as an inducement for him and Gate House to eliminate any seller’s commission. The agreement further provided that prior to transfer of title to him Mr. Miller would be granted possession of the chapel and surrounding land pending subdivision approval. Pursuant to that agreement Preshrock was to enter into an exclusive listing agreement with Gate House providing for the payment of a commission of 5% on all sales of Hidden Brooke property (State’s Ex. 3). So far as Mr. Kalkstein was concerned the purpose of the agreement was to facilitate the transaction so as to avoid having to pay a cash commission before there were any re-sales. Ms. Guernsey insisted on the transaction being negotiated and the agreement being drafted by her attorney as she recognized that the transaction was unusual and complicated. It was her understanding that Mr. Miller was entering into the agreement as Gate House’s agent and she consented to the agreement to assure that Mr. Miller would be compensated for his work in the underlying transaction. In an early draft the agreement included Gate House as a party to the agreement (Resp. Ex. D), but that was changed at Mr. Kalkstein’s instance.

            10) Title to Hidden Brooke was transferred to Preshrock in February 2005 and maps and plans for subdivision of the property, which show the chapel property to be a minimum of 1,700 feet from any of the proposed lots (Resp. Ex. E), were filed. However, because it did not wish to have the property developed, the City of Beacon conducted public meetings about the possible re-zoning of the property, and on September 27, 2007 Preshrock entered into a contract to sell so much of the property as is in the City of Beacon, which includes the chapel but not the approximately 20 acres which are in the town of Fishkill, to the city for $2,050,000.00 (Resp. Ex. C).

            11) On or about July 19, 2007 Mr. Miller, acting as an individual and on the advice of legal counsel, filed a notice of claim in the matter of Jonathan Miller v Preshrock Corp. and City of Beacon, in which he sought specific performance of the transfer agreement, a declaratory judgement with respect to his rights under that agreement, and monetary damages from the City of Beacon in the amount of $1,500,000 due to its alleged interference with his contractual relations with Preshrock arising out of the City of Beacon having contracted with Preshrock to purchase Hidden Brooke (State’s Ex. 6). However, no law suit having been commenced, that notice of claim was withdrawn by Mr. Miller, acting through Daniel J. Bloom, Esq., on March 27, 2008 (State’s Ex. 7). Mr. Miller, however, continues to assert a claim to the chapel property, as the other respondents assert a claim for a commission on the sale to the City of Beacon.

            12) Preshrock sold Hidden Brooke to the City of Beacon but failed to pay any commission to Gate House, and Ms. Guernsey and Gate House a proceeding to compel arbitration which was dismissed as they were not parties to the property transfer agreement which provided for arbitration.

            13) The City of Beacon commenced an action to evict Mr. Miller from the chapel property, of which he took possession in accordance with the property transfer agreement at the time that Preshrock took title, and to which he has made certain repairs and in which he sleeps on occasion, and Mr. Miller is defending his asserted right to the property on the basis of that agreement with Preshrock, which agreed to indemnify the city.

            14) On or about April 22, 2009 Gate House and Mr. Miller brought suit against, among other parties, Preshrock and the City of Beacon seeking, inter alia, transfer of title to the chapel property to Mr. Miller, monetary damages arising out of the loss of commissions on the sale of subdivided lots, and Mr. Miller’s financial losses with regards to the chapel property (State’s Ex. 11).

            15) A certificate of dissolution of Preshrock signed by Mr. and Mrs. Kalkstein on February 2, 2009 was filed on February 12, 2009.

OPINION AND CONCLUSIONS OF LAW

            I- Pursuant to Real Property Law (RPL) §443 a Real Estate Broker or Salesperson must provide an agency relationship disclosure form to the seller of “residential real property” prior to entering into the listing, and to a potential buyer at the time of the first substantive contact with that buyer. The respondents did not provide such forms to either the seller or the buyer. However, “residential real property” is defined as “real property improved by a one-to-four family dwelling used or occupied, or intended to be used or occupied, wholly or partly, as the home or residence of one or more persons....,” and the property in question herein does not include such a dwelling. There is a chapel which Mr. Miller hopes to convert to residential use, and which to some extent he has since used for such purpose, but at the time of the transactions which provide the basis for the complaint it had not yet been converted to residential use. Therefore, the property was not “improved by a one-to-four family dwelling.” The mere intent to use the chapel as a dwelling after making alterations to make it suitable for that purpose but without it already being designed for such use is not enough to bring it under the statute. In other words, to fall under the statute the structure must meet two conditions: It must already be a one-to-four family dwelling, and it must be used or occupied or intended to be used or occupied as such. If it is not already a one-to-four family dwelling future intent is of no import. Therefore, and considering the fact that both the seller and buyer were fully aware that the respondents were acting as dual agents, the charges that the respondents violated RPL §443 by failing to deliver disclosure statements and by acting as dual agents without having delivered such statements should be, and are, dismissed.

            II- From the very inception of the transaction the parties, who were either represented by legal counsel or, in the case of Preshrock, by a person who was trained as and had previously been an attorney and who was one of the two owners of the corporation, were aware that Mr. Miller was interested in obtaining the chapel property for his own use and that his interest in obtaining that property was what motivated him to become involved with it, and there is no evidence that either the seller or the buyer has complained about that interest. In fact, it appears that Mr. Miller’s desire to obtain the property was entirely in the interest of the parties. The Ursulines did not want to pay a commission on the sale and Preshrock wanted to defer any cash payments to the respondents until after it had subdivided Hidden Brooke and begun to sell off lots. The chapel property was a minimum of 1,700 feet from any of the proposed lots, and, therefore, it does not appear that its conveyance to Mr. Miller would in anyway lessen the value of the property to Preshrock. Therefore, taking into consideration that Mr. Miller’s interest in the chapel property was always fully disclosed, that his entering into a contract to take title to that property from Preshrock facilitated a transaction in which the Ursulines did not have to pay a brokerage commission, and that the structuring of the transaction as it was relieved Preshrock of the need to expend cash prior to selling the property, I find that Mr. Miller did not engage in improper self dealing, and the charge that he did is dismissed.

            III- RPL §442-a provides that a Real Estate Salesperson may not receive or demand compensation of any kind from any person other than the licensed Real Estate Broker with whom he is associated for any service rendered or work done by the salesperson in selling real property. It is clear that in his notice of claim against the City of Beacon and in his participation along with Gate House in the current lawsuit against Preshrock and the City of Beacon Mr. Miller has made such a demand. However his conduct must be evaluated in light of the fact that he acted as he did only on the advice of legal counsel who, as was abundantly demonstrated in the testimony, were aware of the statute, and with the full knowledge and consent of Ms. Guernsey, who also relied on the advice of legal counsel and believed that what was being done was for the purpose of fulfilling Gate House’s obligation to compensate Mr. Miller. In essence, Mr. Miller had already been compensated when, with the direct participation of Gate House’s attorney, the property transfer agreement was executed and then Mr. Miller was given possession of the chapel property. In conception what happened was really no different than would be the case were a salesperson to be given his commission in the form of a promissory note signed by a client who then defaults on payment and thereby necessitates the bringing of an action by the salesperson to collect on the note. Therefore, I find that Mr. Miller should not be found to have made an improper demand for a commission in violation of RPL §442-a and, therefore, that the charge that he did so is dismissed.

            IV- Ms. Guernsey and Gate House are charged with having failed to properly supervise Mr. Miller. The evidence, however, establishes that Ms. Guernsey was extremely involved in the transaction and allowed him to do as he did on the advice of legal counsel. In any case, since all of the charges of misconduct by Mr. Miller which provide the basis for the charge of failure to supervise are being dismissed that charge should also be dismissed.

DETERMINATION

            WHEREFORE, IT IS HEREBY DETERMINED THAT the complaint is dismissed.

                                                                                   Roger Schneier

Administrative Law Judge

Dated: June 1, 2009