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593 DOS 09

 

STATE OF NEW YORK

DEPARTMENT OF STATE

OFFICE OF ADMINISTRATIVE HEARINGS

----------------------------------------X

 

In the Matter of the Complaint of

 

DEPARTMENT OF STATE

DIVISION OF LICENSING SERVICES,

 

                     Complainant,                    DECISION

 

          -against-

 

CHRISTINE A. ORLANDO and HERITAGE

PROPERTY SERVICES, INC.,

 

                     Respondents.

 

----------------------------------------X

 

     The above matter was heard by the undersigned, Scott NeJame, on July 9, 2008 at the office of the Department of State located at 333 East Washington Street, Syracuse, New York.

 

     The respondents were represented by Michael Longstreet, Esq., 313 Montgomery Street, Syracuse, New York 13202.

 

     The complainant was represented by Senior Attorney Linda D. Cleary, Esq.

 

COMPLAINTS

 

     The complaint alleges that the respondents, licensed real estate brokers: failed to properly manage a property for their principal, including obtaining an improper and unacceptable kitchen floor repair; failed to follow their principal’s instructions regarding the handling of money for the property management; without their principal’s permission, retained tenant deposits and then deposited those monies in their business account; failed to cooperate with a Department of State investigation; and charged their principal for costs associated with their (respondents’) response to and compliance with complainant’s investigation.

 

FINDINGS OF FACT

 

     1) The notice of hearing and a copy of the complaint were served on the respondents at their last known business address by certified mail posted on March 14, 2008. That mailing was returned by the Postal Service containing a new address for the respondents on Metropolitan Park Drive in Liverpool. The complainant re-served the respondents with the notice of hearing and complaint by certified mail at the Liverpool address. That mailing was delivered by the Postal Service on March 29, 2008 (State’s Ex. 1).

 

     2) Respondent Christine A. Orlando (“respondent Orlando”) is licensed as an individual real estate broker for the period of May 23, 2006 to May 23, 2010. She was licensed as a corporate real estate broker representing Heritage Property Services Inc. (“respondent Heritage”) at 710 Kirkpatrick Street, Syracuse, New York for the period of August 18, 2006 through August 17, 2008 (State’s Ex. 2).

 

     3) On February 27, 2007, Wayne Elsmore and Angelo Orlando, the then husband of respondent Orlando, manager and one of the main contact persons for respondent Heritage, executed a management agreement for respondent Heritage to manage the following five Syracuse properties owned by Mr. Elsmore’s company, Precious Property Management, LLC: 236 North Midler Avenue, 130 Liberty Street, 125 Dewey Avenue, 332 Apple Street, and 417 Richmond Avenue (State’s Ex. 5). The agreement was effective beginning March 1, 2007 and continued until either party terminated the other, upon thirty days notice. The agreement required respondent Heritage to, among other things, collect rents, perform credit checks, check references of prospective tenants, perform inspections of the properties, keep the properties in good repair and perform reasonable tenant repairs (using their own employees when feasible), perform painting jobs after providing a quote to Mr. Elsmore and obtaining his consent (Mr. Elsmore could select a different contractor), perform extensive repairs and renovations after providing an estimate for the work, place all monies from tenants in a particular bank account at HSBC Bank in Syracuse, and provide monthly statements. In return, respondent Heritage would receive a 10% management fee of the gross monthly income and a $300 “placement fee” for each apartment rented (State’s Ex. 5).

 

     4) The management agreement provided that the landlord must place security deposits in an interest-bearing account and could not be commingled with other funds. The agreement also stated that respondent Heritage maintained an account at an HSBC Bank in Buffalo for security deposits (State’s Ex. 5).

 

     5) Although not clear when, but on or prior to March 31, 2008 and April 30, 2008, respondent Heritage received a $515 and $425 security deposit for apartment #3 at the North Midler Avenue property and apartment #2 at the Liberty Street property, respectively. Respondent Heritage deposited those two security deposits in their security account at HSBC Bank.

 

     6) On April 3, 2007, Angelo Orlando passed away. Beginning in or about May 2007, Mr. Elsmore had concerns about respondent Heritage’s management of his properties, notably, that authorized repairs to the properties were not made for over a month and repairs that were made to the properties were not adequate or satisfactory. In person and by email, Mr. Elsmore addressed his concerns to respondent Heritage employees, namely, Jamie Rathbun and/or “Pam” (potentially, Pamela Valletta, a real estate salesperson who was associated with Heritage at the time). He was not given a satisfactory explanation and his concerns were not resolved.

 

     7) By email sent on June 18, 2007 (State’s Ex. 12), Mr. Elsmore terminated the services of Heritage, effective immediately, due, in part, to his dissatisfaction with the following work done at the North Midler Avenue property: the painting of all walls and trim in apartment #2 was done without first providing a quote (See Invoice #1753 in State’s Ex. 17); the flooring work done in apartment #2 was completed without first providing an estimate (this reference could be to the removal and replacement of the kitchen floor with tile (See Invoice #1842 in State’s Ex. 17) or to the refinishing of the wood floors in that apartment (See State’s Ex. 20)); and the plumbing modification in the basement for apartment #3 was done without Mr. Elsmore’s consent (i.e., running hot water to the opposite side of the basement) (See State’s Ex. 20). In that email, Mr. Elsmore demanded that the respondents cease all management activities, that the keys be returned, that accountings be provided, that all monies held on behalf of the owner be surrendered to the owner, and that the owner be reimbursed for losses sustained. Mr. Elsmore stated that he would provide a complete list of “indiscretions” to respondent Heritage (State’ Ex. 12).

 

     8) On June 21, 2007, Mr. Elsmore sent a letter to respondent Orlando in which he described, in detail, five complaints he had with respondent Heritage’s management of his North Midler Avenue property, along with photographs, and demands for reimbursement (State’s Ex. 6; See also, State’s Ex. 11; Invoice ##1646 and 1753 in State’s Ex. 17). The respondents did not respond or otherwise attempt to amicably resolve Mr. Elsmore’s complaint.

 

     9) By letters dated June 22 and 25, 2007 to respondent Orlando, Mr. Elsmore described specifically his complaints regarding respondent Heritage’s management of the properties at 417 Richmond Avenue, 130 Liberty Street, and 332 Apply Street, and he demanded reimbursement (State’s Ex. 7 and 8). The respondents did not respond or otherwise attempt to amicably resolve Mr. Elsmore’s complaint.

 

     10) On or around June 25, 2007, respondent Heritage sent Mr. Elsmore an email, stating simply, “Dear Customer: Your invoice is attached. Thank you for your business - we appreciate it very much. Sincerely, Heritage Property Services, Inc.” (State’s Ex. 10). In response and by email dated July 2, 2007 to Jamie Rathbun, Mr. Elsmore, in part, demanded that respondent Heritage not remove any monies from its account to pay its invoices until all disputes were settled (State’s Ex. 10). He further requested respondent Orlando to contact him to “understand my concerns and to reach a settlement prior to my seeking relief in another forum.” There is no evidence that the respondents contacted Mr. Elsmore to negotiate a resolution or otherwise resolve his complaints. Respondent Heritage continued to remove monies from its account held for Mr. Elsmore’s properties to pay its invoices.

 

     11) On or about June 29, 2007, respondent Heritage sent Mr. Elsmore a one page summary of three invoices totaling $1,489.20 that it claimed Mr. Elsmore owed, and for which it paid itself (State’s Ex. 13; See also State’s Ex. 17).

 

     12) Although it was confusing and not made clear why it was done in this manner, on June 29, 2007, respondent Heritage paid itself $500 toward its Invoice #1806, which had an initial balance of $2409.46 Footnote (State’s Ex. 20). On July 11 and 16, 2007, respondent Heritage withdrew the two security deposits it had in its security account and deposited them into its operating account so that it would have enough money in its operating account to pay the balance of that invoice (State’s Ex. 17). On July 24, 2007, respondent Heritage paid itself $1,000 more towards this invoice, leaving a balance of $909.46 (See State’s Ex. 17). Respondent Heritage paid itself this $909.46 balance in November 2007 (see below).

 

     13) In or about mid-August 2007, the respondents sent Mr. Elsmore a portion of its bank statement and a one page accounting statement for the period of June 30, 2007 to July 31, 2007 (State’s Ex. 10). The respondents did not offer evidence at the hearing establishing that they sent more than a partial bank or accounting statement to Mr. Elsmore.

 

     14) On or after August 31, 2007, Heritage sent Mr. Elsmore a one page reconciliation statement which showed an unexplained balance owed to Mr. Elsmore of $228.46 along with a one page bank statement showing the ending balance in its operating account (State’s Ex. 14).

 

     15) On or about November 27, 2007, respondent Orlando sent Mr. Elsmore a letter along with a $235.56 check made payable to him (State’s Ex. 15). The check represented the remaining amount the respondents held in its bank account for Mr. Elsmore’s properties ($1,168.98), less the remaining amount Mr. Elsmore allegedly owed respondent Heritage for Invoice #1806 ($909.45), and less the cost of respondents having mailed its answer to the complainant in response to Mr. Elsmore’s complaint (State’s Ex. 15). Mr. Elsmore did not cash the check.

 

     16) On or about November 30, 2007, respondent Orlando closed respondent Heritage’s brokerage and transferred its management accounts to another broker.

 

     17) On or about March 25, 2008, respondent Orlando mailed Mr. Elsmore another $235.56 check, which he did not cash (State’s Ex. 16).

 

     18) At the hearing, respondent Orlando testified that Angelo Orlando and Paul Mandelis owned respondent Heritage, a property management business, and that respondent Orlando was not involved with and did not operate the business either before or after Angelo passed away. Because of Orlando’s passing and out of respect, the employees of respondent Heritage did not involve respondent Orlando in the brokerage’s operations. The only time respondent Orlando became involved with the brokerage was when Mr. Elsmore filed his complaint with the complainant. Respondent Orlando did not have any personal or first hand knowledge of respondent Heritage’s management of Mr. Elsmore’s properties, she gained her knowledge only after Mr. Elsmore filed his complaint and only from speaking with respondent Heritage’s employees. Therefore, the tribunal accords little weight to her testimony about what she was told by respondent Heritage’s employees on how they managed Mr. Elsmore’s properties and how they handled his complaints.

 

OPINION AND CONCLUSIONS OF LAW

 

     I- As the party which initiated the hearing, the burden is on the complainant to prove, by substantial evidence, the truth of the charges set forth in the complaint. State Administrative Procedure Act §306(1). Substantial evidence “means such relevant proof as a reasonable mind may accept as adequate to support a conclusion or ultimate fact... More than seeming or imaginary, it is less than a preponderance of the evidence, overwhelming evidence or evidence beyond a reasonable doubt (citations omitted).” 300 Gramatan Avenue Associates v. State Div. of Human Rights, 45 NY2d 176, 408 NYS2d 54, 56-57 (1978); Tutuianu v. New York State, 22 AD3d 503, 802 NYS2d 465 (2nd Dept. 2005). “The question...is whether a ‘conclusion or ultimate fact may be extracted reasonably--probatively and logically’” City of Utica Board of Water Supply v. New York State Health Department, 96 AD2d 719, 465 NYS2d 365, 366 (1983), quoting 300 Gramatan Avenue Associates, supra, 408 NYS2d at 57.

 

     II- The Department of State retains jurisdiction to conduct this proceeding even though respondent Heritage’s license has expired. Albert Mendel & Sons, Inc. v. NYS Department of Agriculture and Markets, 90 AD2d 567, 455 NYS2d 867 (3rd Dept. 1982); Main Sugar of Montezuma, Inc. v. Wickham, 37 AD2d 381, 325 NYS2d 858 (3rd Dept. 1971). Respondent Heritage may renew its license anytime before August 17, 2010 merely by submitting an application and the applicable fee. Real Property Law §441(2).

 

     III- In their management of Mr. Elsmore’s properties, the respondents served in the capacity of agent for Mr. Elsmore, their principal. The relationship of agent and principal is fiduciary in nature, "...founded on trust or confidence reposed by one person in the integrity and fidelity of another." Mobil Oil Corp. v. Rubenfeld, 72 Misc.2d 392, 339 NYS2d 623, 632 (NY Civil Ct. 1972), aff’d 77 Misc.2d 962, 357 NYS2d 589, rev’d on other grounds 48 AD2d 428, 370 NYS2d 943; Wende C. v. United Methodist Church, 6 AD3d 1047, 776 NYS2d 390 (4th Dept. 2004). Included in the fundamental duties of such a fiduciary are reasonable care, confidentiality, good faith, undivided loyalty, obedience, duty to account, and full and fair disclosure. Real Property Law §443; 19 NYCRR §175.2; L.A. Grant Realty, Inc. v. Cuomo, 58 AD2d 251, 396 NYS2d 524 (4th Dept. 1977); Precision Glass Tinting, Inc. v. Long, 293 AD2d 594, 740 NYS2d 138 (2nd Dept. 2002); Re/Max All-Pro Realty, Inc. v. New York State Dept. of State, 292 AD2d 831, 739 NYS2d 321 (4th Dept. 2002) (quoting Stevens, Inc. v. Kings Vil. Corp., 234 AD2d 287, 288, 650 NYS2d 307 (2nd Dept. 1996)). Such duties are imposed upon real estate licensees by license law, rules and regulations, contract law, the principles of the law of agency, and tort law. The object of these rigorous standards of performance is to secure fidelity from the agent to the principal and to insure the transaction of the business of the agency to the best advantage of the principal. Department of State v. Short Term Housing, 31 DOS 90, conf'd. sub nom Short Term Housing v. Department of State, 176 AD2d 619, 575 NYS2d 61 (1991); Department of State v. Goldstein, 7 DOS 87, conf'd. Sub nom Goldstein v. Department of State, 144 AD2d 463, 533 NYS2d 1002 (2nd Dept. 1988); see also, Coldwell Banker Residential Real Estate v. Berner, 202 AD2d 949, 609 NYS2d 948 (3rd Dept. 1994).

 

     Respondent Heritage breached its fiduciary duties of reasonable care, good faith, obedience, and duty to account to Mr. Elsmore and thereby demonstrated untrustworthiness and incompetence in violation of Real Property Law §441-c.

 

     Mr. Elsmore testified at the hearing and I found his testimony to be credible. On the other hand, respondent Orlando was not personally involved with respondent Heritage’s management of Mr. Elsmore’s properties or with the handling of his complaints. The only time that respondent Orlando became involved was in September 2007, when Mr. Elsmore filed his complaint with the Department of State, which was long after the crux of the dispute arose between the parties.

 

     At the hearing, the respondents did not produce any of the individuals who worked at the brokerage and who were responsible for managing Mr. Elsmore’s properties, namely, Jamie or Pam. Nor did the respondents allege that they attempted to but were unable to locate or produce respondent Heritage’s employees so that the tribunal could understand what respondent Heritage did in response to the concerns raised by Mr. Elsmore. What little information the respondents did offer failed to establish that they effectively addressed Mr. Elsmore’s concerns about its management or that it made any serious attempt to discuss or negotiate a resolution. For example, in May 2007, Mr. Elsmore went to respondent Heritage’s office to discuss his concerns and he reiterated those concerns via email. There is no evidence that anyone from respondent Heritage met with or adequately addressed his issues. When Mr. Elsmore terminated Heritage, no one from Heritage met or spoke with Mr. Elsmore about the problems with the kitchen floor renovation or other repair/renovation work in order to agree on an amount that Mr. Elsmore should have to pay. In fact, when Mr. Elsmore went to respondent Heritage’s office to retrieve his keys, a maintenance manager for respondent Heritage followed Mr. Elsmore “down the stairs ranting and raving, calling me a slumlord, this and that, out in the parking lot.” (Hearing transcript, p. 107). The only thing that respondent Heritage did was to simply calculate how much money it believed Mr. Elsmore owed it and how much money it had taken in from its management of the properties, and made certain that there was enough money left in its operating account to pay itself before refunding money to Mr. Elsmore.

 

     In sum, the respondents offered little to the tribunal that disputed the complainant’s claims of misconduct. Even though Mr. Elsmore may have visited his properties and observed some or most of the work being done, that does not establish that he was satisfied with the end product. Clearly, he was not satisfied because he sent specific emails to Heritage and filed a complaint with the Department of State. Respondent Heritage breached the terms of its management agreement, performed unsatisfactory work on the properties and failed to address the express concerns of its principal.

 

     Respondent Heritage mismanaged Mr. Elsmore’s properties in the following ways:

 

1. Respondent Heritage failed to address, properly or otherwise, the concerns Mr. Elsmore raised regarding the billing of and quality of workmanship of the improvements or repairs made to the properties (State’s Ex. 6-8, 12);

 

2. Respondent Heritage failed to make any adjustments to any of the bills it submitted to Mr. Elsmore that he disputed (See State’s Ex. 6-8);

 

3. The $187.26 bill for plumbing work–running hot water to the opposite side of the basement for apartment #3 at the North Midler Avenue property–that respondent Heritage billed Mr. Elsmore was an extensive repair or renovation for which respondent Heritage was required but failed to provide an estimate for the completed work (State’s Ex. 6 and 20). Further, the work was not done in an acceptable workmanlike manner and was unsatisfactory to Mr. Elsmore;

 

4. The $1,940.15 bill for refinishing hardwood floors at apartment #2 at the North Midler Avenue property was an extensive repair or renovation for which respondent Heritage was required but failed to provide an estimate for the completed work (State’s Ex. 6 and 20). Further, the work was not done in an acceptable workmanlike manner and was unsatisfactory to Mr. Elsmore;

 

5. Respondent Heritage had tile installed on the kitchen floor in apartment #2 in the North Midler Avenue property (See State’s Ex. 6) which was not done in an acceptable workmanlike manner and was unsatisfactory to Mr. Elsmore;

 

6. Respondent Heritage billed Mr. Elsmore $600 for painting work in apartment #2 in the North Midler Avenue property without first providing him with a quote pursuant to paragraph #5 of the management agreement (State’s Ex. 5, 6 and 17). Further, the work was not done in an acceptable workmanlike manner and was unsatisfactory to Mr. Elsmore;

 

7. There was a discrepancy in the management fee charged by respondent Heritage for the month of April 2007 that was not corrected(State’s Ex. 6; Invoice #1646 in State’s Ex. 17); and

 

8. Respondent Heritage failed to address, resolve or make adjustments for the rest of Mr. Elsmore’s complaints identified in his June 22 and 25, 2007 letters to it (State’s Ex. 7 and 8).

 

Based on the foregoing, respondent Heritage breached its fiduciary duties of reasonable care, good faith, obedience, and duty to account to Mr. Elsmore and thereby demonstrated untrustworthiness and incompetence in violation of Real Property Law §441-c.

 

     At the hearing, the complainant offered into evidence documents that the respondents submitted to it in response to Mr. Elsmore’s complaint (State’s Ex. 17). However, the respondents had never sent those documents, particularly as a complete package, to Mr. Elsmore (Hearing transcript, pp. 72-73). Those documents establish, in part, that work was done on the apartments and bills were generated and paid, but they do not address the quality of work that was done and the failure of respondent Heritage to provide estimates before commencing work. No one with personal knowledge testified regarding those documents and the two statements contained therein are of little value since the authors thereof did not appear at the hearing and were not able to be cross-examined.

 

     IV- The complaint alleges that the respondents failed to follow client instructions regarding the handling of monies related to property management functions for which they were retained. Part of its duties to properly manage Mr. Elsmore’s properties and to follow Mr. Elsmore’s instructions regarding the handling of monies, is respondent Heritage’s duty to provide a full and accurate accounting to Mr. Elsmore. The record establishes that respondent Heritage failed to so provide him with an adequate and complete accounting (State’s Ex. 12). Respondent Heritage thereby breached its duty to account and demonstrated untrustworthiness in violation of Real Property Law §441-c.

 

     The allegation that the respondents failed to follow Mr. Elsmore’s instructions regarding terminating their services immediately, failing to freeze their accounts, and improperly removing money from their business account, is dismissed. The management agreement expressly required the parties to give thirty days written notice of termination and it permitted respondent Heritage to return monies to the owner “when bank reconciliation is completed.” (State’s Ex 5).

 

     V- A real estate broker has the fiduciary duty of handling its clients’ funds with the utmost scrupulousness, and must take extreme care to assure that the rights of the lawful owners of those funds will not be jeopardized. Department of State v. Mittleberg, 61 DOS 86, conf’d sub nom Milleberg v. Shaffer, 141 AD2d 645, 529 NYS2d 545 (2nd Dept. 1988). That duty is implemented through 19 NYCRR §175.1, which forbids the commingling of brokers’ and clients’ funds and requires that client funds be maintained in a separate, special bank account to be used exclusively for that purpose. The purpose of that regulation “is to assure that the rights of the lawful owners of escrow funds are not jeopardized by an agent's mismanagement of funds entrusted to the agent's care.” Division of Licensing Services v. Pozzanghera, 141 DOS 93 (1993). Further, General Obligations Law §7-103 prohibits the commingling of a lease security deposit and operates to protect the tenant against misappropriation by the landlord of the funds deposited.

 

     In this case, after being terminated, respondent Heritage improperly retained the two security deposits it held as security to pay their final bill to Mr. Elsmore (State’s Ex. 20). On July 11 and 16, 2008, respondent Heritage moved the two security deposits from its escrow account into its operating account (State’s Ex. 17; Resp.’s Ex. A). Respondent Heritage then converted those monies as payment for what it believed Mr. Elsmore owed.

 

     Those security deposits were not the property of either respondent Heritage or Mr. Elsmore and respondent Heritage had no right to retain or convert those funds to its own use. The respondent’s insinuation that the tenant who paid one of those security deposits was evicted after respondent Heritage was terminated, was neither proved nor did it justify respondent Heritage in helping itself to those funds. As such, respondent Heritage demonstrated serious untrustworthiness in violation of Real Property Law §441-c.

 

     VI- The charge that the respondents failed to cooperate with a Department of State investigation is dismissed inasmuch as there is insufficient evidence establishing this charge.

 

     VII- The $235.56 check that the respondents sent to Mr. Elsmore on November 27, 2007 had been reduced by $23.95, which was the amount that the respondents paid to mail their paperwork to the Department of State in response to Mr. Elsmore’s complaint. The respondents had absolutely no authority to charge Mr. Elsmore for sending documents in response to a Department of State inquiry. The only conceivable clause in the management agreement that the respondents could rely on as authority is paragraph #19, which permits respondent Heritage to collect legal fees if legal proceedings are instituted and the case is found in respondent Heritage’s favor (State’s Ex. 5). Since nothing close to that occurred in this case, the respondents’ retention of that $23.95 is a demonstration of untrustworthiness in violation of Real Property Law §441-c.

 

     VIII- Where a broker has received money to which she is not entitled, she may be required to return it, together with interest, as a condition of retention of her license. Donati v. Shaffer, 83 NY2d 828, 611 NYS2d 495 (1994); Kostika v. Cuomo, 41 NY2d 673, 394 NYS2d 862 (1977); Zelik v. Secretary of State, 168 AD2d 215, 562 NYS2d 101 (1st Dept. 1990); Edelstein v. Department of State, 16 AD2d 764, 227 NYS2d 987 (1st Dept. 1962). The respondents will be required to refund the two security deposits it converted ($940.50), the $23.95 charge it retained, and the remaining balance it withheld after it reconciled the account ($235.56) (with the understanding that this $235.56 amount may not be the accurate or full amount it owes Mr. Elsmore). Since Mr. Elsmore terminated the respondents’ services on June 18, 2007, the respondents should have reconciled the accounts within thirty days pursuant to the management agreement (July 18, 2007) and should have, at a minimum, paid these amounts to Mr. Elsmore at that time. The other amounts that Mr. Elsmore claims respondents owe him are civil damages and cannot be assessed or imposed by this tribunal.

 

     IX- Being an artificial entity created by law, respondent Heritage can only act through it officers, agents, and employees, and it is, therefore, bound by the knowledge acquired by and is responsible for the acts committed by its representative broker, respondent Orlando, within the actual or apparent scope of her authority. Roberts Real Estate, Inc. v. Department of State, 80 NY2d 116, 589 NYS2d 392 (1992); A-1 Realty Corporation v. State Division of Human Rights, 35 AD2d 843, 318 NYS2d 120 (2nd Dept. 1970); Real Property Law §442-c. Real Property Law §442-c provides that “No violation of a provision of this article by a real estate salesman or employee of a real estate broker shall be deemed to be cause for the revocation or suspension of the license of the broker, unless it shall appear that the broker had actual knowledge of such violation or retains the benefits, profits or proceeds of a transaction wrongfully negotiated by his salesman or employee after notice of the salesman's or employee's misconduct.” In Roberts, the Court of Appeals held the following:

 

We hold that the purposes and limitations of the relevant statute can best be effectuated and harmonized by allowing a corporate broker to be charged with ‘actual knowledge’ only when its principals, i.e., representative brokers, directors or officers have actual knowledge of the pertinent violation or misrepresentation.

 

The Department, for the purposes of this case and to secure an authoritative judicial interpretation, has proceeded on the basis-there is no contrary proof in the record-that none of Roberts Inc.'s individual brokers, officers or supervisory management personnel knew that the wells were contaminated with methane gas. Because we conclude that Real Property Law §442-c restricts the authority of the Department from revoking or suspending brokers' licenses absent actual knowledge, the suspension in this case of a corporate broker's license for acts and knowledge of only its salesperson employees is not authorized and that determination was correctly annulled by the Appellate Division. However, the absence of “actual knowledge” does not insulate real estate brokers from disciplinary measures less severe than license suspension or revocation for misconduct (see, Real Property Law §441-c[1]; §442-c). Thus, a remand for consideration of an appropriate lesser sanction, if any, based on demonstrated untrustworthiness or incompetency, is necessary. 589 NYS2d at 395-396.

 

     In Roberts, even though it was not established that the representative brokers had personal knowledge of their salespersons’ wrongful conduct, they were held liable for the salespersons’ misconduct and the case was remanded for the imposition of a sanction less severe than a revocation or suspension.

 

     In this case, respondent Orlando is liable for the violations of respondent Heritage’s employees even though she did not have personal knowledge of their misconduct.

 

     X- In assessing what sanction to impose against the respondents, I have considered that, of the 28 owners and 300 units respondent Heritage managed, Mr. Elsmore was the only complaint that it received. Although it could be argued that respondent Orlando retained the benefits, profits or proceeds of a transaction wrongfully negotiated by respondent Heritage’s employees after she received notice of their misconduct, I find that respondent Orlando attempted to pay what she believed to be the balance of the proceeds over to Mr. Elsmore after the accounts were reconciled (albeit four months after it should have been paid). Therefore, I conclude that a suspension or revocation of respondent Orlando’s licenses is not permissible under these circumstances. Footnote

 

     However, the respondents should understand that the violations they committed were serious and that the initial complaints made by Mr. Elsmore should not have been taken loosely, as I believe they were. Finally, although not pled in the complaint Footnote , by failing to at any time supervise the activities of her brokerage, which by law she was required to do (19 NYCRR §175.21), respondent Orlando committed serious misconduct by availing her license to respondent Heritage’s salespersons and employees.

 

DETERMINATION

 

     WHEREFORE, IT IS HEREBY DETERMINED THAT respondents Christine A. Orlando and Heritage Property Services, Inc. mismanaged their principal’s properties, breached their fiduciary duties of reasonable care, good faith, obedience, and duty to account to their principal, and demonstrated untrustworthiness in violation of Real Property Law §441-c. Accordingly, pursuant to Real Property Law §441-c, they shall pay a fine of $3,000 to the Department of State on or before June 30, 2009, and should they fail to pay the fine by that date, their licenses as real estate brokers, UID ##3OR1127180 and 35OR1119143, shall be suspended for a period commencing on July 1, 2009 and terminating three months after the receipt by the Department of State, by certified mail, of their license certificates and pocket cards. Upon payment of the fine or termination of the suspension in lieu thereof, the respondents’ licenses shall be further suspended until they submit proof satisfactory to the Department of State that they have refunded the sum of $1,200.01 plus interest at the legal rate for judgments (currently 9% per year) from July 18, 2007 to Wayne Elsmore. Respondents are directed to send a certified check or money order for the fine payable to “Secretary of State” and proof of payment in full of the ordered restitution, or their license certificates and pocket cards, by certified mail, to Norma Rosario, Department of State, Division of Licensing Services, Alfred E. Smith Building, 80 South Swan Street, 10th Floor, Albany, NY 12201.

 

 

 

 

 

                                          Scott NeJame

                                    Administrative Law Judge

 

Dated: May 27, 2009