1384 DOS 08
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, DECISION
-against-
RUSSELL T. DICKSON, and
NOSELLERCOSTS.COM INC.,
Respondents.
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The above matter was heard by the undersigned, Scott NeJame, on April 7, 2008 at the office of the Department of State located at One Commerce Plaza, Albany, New York.
Respondent Russell T. Dickson (“respondent Dickson”) appeared and was advised of his right to be represented by an attorney. He understood that and chose to represent himself, but stated that he did not represent the other two respondents (Nosellercosts.com Inc. and WWW.DicksonRealty.com). No attorney or other representative appeared for the respondent Nosellercosts.com Inc.
The complainant was represented by Senior Attorney Robert Leslie, Esq.
COMPLAINT
The complaint alleges that the respondents: breached fiduciary duties to their principals by obtaining James and Ginny Carlisle’s (“the Carlisles”) names on a termination of listing agreement; demonstrated untrustworthiness and incompetency by utilizing a termination of listing agreement; conducted their brokerage business under unlicensed names; breached fiduciary duties and demonstrated untrustworthiness and incompetency by refusing to release the Carlisles from their listing agreement; demanded and retained an unearned commission; and failed to cooperate with a Department of State investigation.
FINDINGS OF FACT
1) On February 6, 2008, the complainant served the notice of hearing and copy of the complaint on all respondents (Russel T. Dickson, Nosellercosts.com Inc., and WWW.DicksonRealty.com) by certified mail to their last known business address, and one certified mailing was made to respondent Dickson’s home address. The mailing to respondent Dickson’s home address was delivered on or about February 13, 2008. No evidence was presented regarding the results of the mailing to the respondents’ business address. On February 19, 2008, the complainant served respondents Nosellercosts.com Inc. and WWW.DicksonRealty.com with the notice of hearing and complaint at a post office address in Broadalbin, although it is not clear how the complainant learned of this address. No evidence was presented regarding the results of that service. On or about March 11, 2008, the complainant served the notice of hearing and complaint on respondents Nosellercosts.com Inc. and WWW.DicksonRealty.com by regular mail to the same post office address. No evidence was presented regarding the results of that mailing (State’s Ex. 1).
2) Respondent Dickson was licensed as a real estate broker doing business under the trade name WWW.DicksonRealty.com for the period of August 18, 2003 to August 18, 2009. However, on January 2, 2008, respondent Dickson resigned his position as real estate broker for WWW.DicksonRealty.com and returned his pocket card to the complainant. He was issued an additional corporate real estate broker’s license representing Nosellercosts.com Inc. for the period of March 13, 2006 to March 13, 2008. However, on or about December 13, 2007, respondent Dickson cancelled this license and returned his pocket card to the complainant (State’s Ex. 2).
3) The tribunal takes official notice of its prior determinations and finds that it issued a decision dated July 12, 2007 (DLS v. Dickson, 1416 DOS 07 (2007)) wherein the following statement of fact was made: “At some point after he received his corporate broker’s license, respondent Dickson applied to amend and received an amended license to represent Nosellercost.com. Inc. rather than Nosellercosts.com.”
4) In or about late March 2007, James and Ginny Carlisle listed their property located at 106 Princeton Street, Amsterdam, New York (“the property”) with Nosellercost.com Inc. for the period from March 29, 2007 to September 29, 2007 (State’s Ex. 4). Ginny Carlisle was a licensed real estate broker associated with the respondents at the time. At or about the same time they signed the listing agreement, the Carlisles also signed a “termination of listing agreement” form in which they agreed, in part, that if they terminated the services of the broker and/or withdrew the property from the market during the period of the listing agreement, they would pay the broker a fee of $250 per hour or a flat fee of $3,000, whichever is greater. The fee is for “labor, services, advertising and other necessary expenses incurred by BROKER with respect to the proposed transfer of title of subject property.” On the termination of listing agreement, the broker’s name is set forth as “NOSELLERCOST.COM” (State’s Ex. 5).
5) Both the listing agreement and termination of listing agreement forms were signed by Ginny Carlisle as the sales agent for Nosellercost.com Inc./Nosellercost.com (State’s Ex. 4 and 5).
6) On May 27, 2007, respondent Dickson sent Ginny Carlisle an email in which he stated that a prospective buyer, Donna, was not proceeding with the purchase of the property because of what was told to her by the home inspector. Respondent Dickson gave Ginny Carlisle two options for continuing the listing agreement, the first being that the Carlisles would reduce their listing price, make all repairs pursuant to the home inspector’s report, and designate an agent in the office to take control over all aspects of the listing. The other option was, “You handle all aspects of marketing, selling, advertising, and negotiating your home without nosellercost.com corporation (as Jim has relayed he wanted to do) and no penalty will be attatched by our office.” (State’s Ex. 6).
7) In a responsive email of May 28, 2007, Ginny Carlisle stated, “Russ, After careful consideration I have decided to accept your offer to unconditionally release our home without penalty.” (State’s Ex. 7).
8) By unconditional release dated May 31, 2007, the Carlisles and respondent Dickson, as “Authorized Broker of NOSELLERCOST.COM INC,” unconditionally released and discharged each other from “any and all liability, contractual listing terms associated of said property arising out of said listing agreement pertaining to the sale and marketing of said property described above.” (State’s Ex. 8). On the same day, the Carlisles tendered a check in the amount of $3,000 to NOSELLERCOST.COM INC (State’s Ex. 9).
9) In or about mid-July 2007, the Carlisles filed a complaint with the Department of State against respondent Dickson alleging that the only way they could be released from the listing agreement was to pay him $3,000. Ginny Carlisle had understood from respondent Dickson’s May 27, 2007 email, that if she accepted his offer of an unconditional release, the Carlisles would not be responsible to pay any fee to respondent Dickson. She argued that even if the $3,000 payment demanded by him was legitimate, she was entitled to 52% of it because she was the listing agent on the property and that was the percentage of commission she always received throughout her association with respondent Dickson’s brokerage (State’s Ex. 3).
10) The Carlisles commenced a small claims action against respondent Dickson in the Gloversville City Court seeking the $3,000 they paid to him to obtain a release from the listing. By decision dated September 10, 2007, City Court Judge Vincent DeSantis (“Judge DeSantis”) dismissed the Carlisles’ claim (Resp.’s Ex. A).
11) Respondent Dickson did not testify at the hearing. He did submit into evidence three documents representing the amount of work that he and his office expended on behalf of the Carlisles as well as the advertisements placed (Resp.’s Ex. B, C and D). On one of the exhibits was a summary of hours spent by the respondents on the property, the total of which was 23.45 hours (Resp.’s Ex. B).
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 Dickson’s licenses have 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 Dickson may renew his broker’s licenses anytime before August 18, 2011 (trade name brokerage) or March 13, 2010 (corporate brokerage) merely by submitting an application and the applicable fee. Real Property Law §441(2).
III- Being an artificial entity created by law, a corporation 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 within the actual or apparent scope of his 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. Thus, respondent Nosellercost.com Inc. is bound by the acts of its licensed representative, respondent Dickson. Respondent WWW.DicksonRealty.com is not a separate entity from respondent Dickson because it is respondent Dickson’s trade name. It is clear in this case that respondent Dickson had personal knowledge of the transaction involving the Carlisles.
IV- The complainant’s complaint alleges that the respondents’ use of the “termination of listing agreement” permitted the respondents to charge an unearned fee, was a breach of fiduciary duties to their principal, and was a demonstration of incompetency and untrustworthiness. There are a few principles of law that are relevant here as well as some salient facts.
The claiming of an unearned commission is a demonstration of untrustworthiness. Division of Licensing Services v. Loffredo, 83 DOS 95 (1995), conf'd. sub nom Loffredo v. Treadwell, 235 AD2d 541, 653 NYS2d 33 (2nd Dept. 1997).
It is also well known New York law that, with respect to brokerage agreements, “...the right of the principal to terminate [the broker’s] authority is absolute and unrestricted, except only that he may not do it in bad faith, and as a mere device to escape the payment of the broker’s commissions.” Sibbald v. Bethlehem Iron Co., 83 NY 378, 384 (1881); Aegis Property Services Corp. v. Hotel Empire Corp., 106 AD2d 66, 484 NYS2d 555 (1st Dept. 1985); Timeless Realty Corp. v. Connecticut Diversified Holdings LLC, 11 Misc.3d 1078(A), 819 NYS2d 852 (NY Sup. Ct. 2006).
Although a real estate broker and a seller have the right to vary their agreement for the payment of a commission (See Liggett Realtors, Inc. v. Gresham, 38 AD3d 214, 831 NYS2d 59 (1st Dept. 2007)), that right is not absolute. Importantly, “Brokers’ fees must represent charges for actual services...the issue is, was the payment in fact exacted as a special premium of the type condemned, or was it received in payment of some legitimate service?” Gold v. Lomenzo, 29 NY2d 468, 329 NYS2d 805, 813 (1972). Further, a broker who charges fees in excess of professional norms, absent a showing of unique or unusual services offered above and beyond those services normally rendered by a real estate broker, is guilty of demonstrating untrustworthiness in violation of Real Property Law §441-c. Gold, 329 NYS2d at 814. See also, Department of State v. Hecht Group Corp., 4 DOS APP 02 (2002). Also, a broker cannot utilize a contract that is unconscionable, one that is “so grossly unreasonable as to be unenforcible because of an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.” King v. Fox, 7 NY3d 181, 818 NYS2d 833, 840 (2006).
In this case, the respondents’ termination of listing agreement authorized the respondents, in the event their principals terminated the listing agreement early, to collect a $3,000 flat fee or a $250 per hour fee for services rendered, whichever is greater. If the respondents so desired, they could do little to no work for their principals and then collect at least a $3,000 fee from them when they terminated after becoming disgusted with the broker’s lack of effort. While this may not have happened here, the potential for such abuse is written into the agreement. Furthermore, a $250 per hour fee that the respondents would collect for services rendered, such as listing the property for sale in the multiple listing service or placing advertisements for the property in newspapers or magazines, is an excessive fee. Therefore, I conclude that the termination of listing agreement used by the respondents is excessive, unconscionable and not in-and-of itself related to legitimate services. The respondents’ use of such an agreement is a demonstration of untrustworthiness in violation of Real Property Law §441-c.
Because respondent Dickson did not testify at the hearing, I accept the complainant’s submission of evidence establishing that the only way the Carlisles were going to be released from their listing agreement was to pay the respondents the $3,000 termination fee. The respondents’ collection and retention of that fee was a demonstration of untrustworthiness and incompetency in violation of Real Property Law §441-c.
Additionally, the respondents’ demand for the $3,000 fee was particularly egregious for at least two reasons. The first is that respondent Dickson tried to command Ginny Carlisle into agreeing to change the listing agreement to terms that were very unfavorable to her and her husband. In other words, for them to continue listing their home with respondents, they would have to reduce the listing price, make repairs to the property according to the inspection report and designate a new agent to take full control of all aspects of marketing, showing, and negotiating the sale of the property. Clearly, those terms were very unfair to the Carlisles and forced them to accept respondent Dickson’s second option, terminating the listing.
Second, since respondent Dickson was forcing the Carlisles to terminate their listing, he appeared to offer them the ability to terminate without paying a fee (State’s Ex. 6). Ultimately, that was not his intention.
It is noted that the Carlisles’ small claims action against respondent Dickson is not binding upon this tribunal and has no collateral estoppel effect in this proceeding. See, NY City Civ. Ct. Act §1808; Gregory Street Pub v. State Liquor Authority, 258 AD2d 937, 685 NYS2d 355 (4th Dept. 1999). There is not the required identity of issues (the complainant’s proceeding seeks to discipline the respondents while the Carlisles sought to obtain a refund) and the Department of State did not have a full and fair opportunity to litigate the issue. Respondent Dickson even commented during cross examination that Mrs. Carlisle didn’t appear at the small claims hearing (Hearing transcript, p. 57).
Moreover, the small claims court judge did not even have respondent Dickson’s email of May 27, 2007 before him at the trial or when he issued his decision. In his decision, Judge DeSantis stated that respondent Dickson made a “verbal offer” of there being “no penalty” if the listing was terminated. Judge DeSantis went on to state that the parties interpreted respondent Dickson’s verbal offer differently and that the Carlisles failed to present clear and unequivocal evidence of the “verbal” modification. Since he found that there was insufficient evidence that the termination of listing agreement had been modified by the parties, he dismissed the plaintiffs’ case (Resp.’s Ex. A).
In this proceeding, State’s Exhibit 6 makes it very clear that respondent Dickson did make a written offer to release the Carlisles without any penalty. Ginny Carlisle responded to respondent Dickson’s email the next day agreeing to his offer (State’s Ex. 7). Contrary to the proof that was before Judge DeSantis, there was a written modification of the termination of listing agreement.
In the end, respondent Dickson gave the Carlisles two self-serving options, either continue the listing on his terms only or terminate the listing and pay the $3,000 fee. Either way, respondent Dickson’s actions were self-serving and not in the best interest of his principals.
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 good faith, undivided loyalty, obedience, and full and fair disclosure. 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). Included with these duties is the respondents’ obligation to use reasonable care and skill in acting for their principal. Restatement (Second) of Agency §379.
By giving the Carlisles no feasible opportunity to continue their listing and then reneging on his agreement to release them “without penalty,” the respondents violated their fiduciary duties of good faith, undivided loyalty, obedience, and reasonable care and skill to his principals.
V- The complainant’s complaint alleges that the respondents conducted brokerage business under the unlicensed names of “Nosellercost.com, Inc.” and “nosellercost.com.”
Pursuant to Real Property Law §440-a, no person or corporation may engage in the business of real estate brokerage without being licensed to do so. A real estate broker who or which wishes to conduct brokerage business under a name other than that on his/her/its license must apply for a license under that new name. Real Property Law §441(1)(a); Division of Licensing Services v. Dorfman, 112 DOS 99 (1999).
In the paperwork used and advertisements placed by the respondents, the name that appears predominantly is NoSellerCost.com or NoSellerCost!com (State’s Ex. 5 and 8; Resp.’s Ex. B-D).
“Pleadings may be amended to conform to the proof at any time, provided that no prejudice is shown (citations omitted).” Miles v. City of New York, 251 AD2d 667, 676 NYS2d 485 (2nd Dept. 1998), lv. denied 92 NY2d 818, 684 NYS2d 489; Cerio v. New York City Transit Authority, 228 AD2d 676, 645 NYS2d 822 (2nd Dept. 1996); Dougherty v. Dougherty, 256 Ad2d 714, 680 NYS2d 759 (3rd Dept. 1998); Ford v. Martino, 281 Ad2d 587, 722 NYS2d 574 (2nd Dept. 2001) (pleadings may be amended either before or after judgment, absent prejudice or surprise).
I am, sua sponte, amending the pleadings to conform them to the proof, charging the respondents with using the unlicensed name NoSellerCost!com in addition to NoSellerCost.com. There is no prejudice or surprise to the respondents because respondent Dickson offered many of the documents into evidence that contained the unlicensed name of NoSellerCost!com (Resp.’s Ex. B-D).
By advertising or holding themselves out as NoSellerCost.com and NoSellerCost!com, the respondents violated Real Property Law §440-a and demonstrated incompetency as real estate brokers.
VI- The complainant’s allegation that the respondents failed to cooperate with a Department of State investigation is dismissed inasmuch as there is insufficient evidence in the record supporting this charge.
VII- Where a broker or salesperson has received money to which he is not entitled, he may be required to return it, together with interest, as a condition of retention of his 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 $3,000 fee they collected from the Carlisles.
VIII- In assessing what penalty to impose against the respondents, I have taken into consideration this tribunal’s previous decision against the respondents (DLS v. Dickson, 1416 DOS 07 (2007)), in which the respondents were found to have conducted business under an unlicensed name and refused to release their principals from a listing agreement unless they paid them a $3,000 fee. Since the respondents have not been licensed by the Department of State for at least the last nine months and they have not applied to renew their licenses, a suspension of their licenses will not likely deter them from future misconduct.
DETERMINATION
WHEREFORE IT IS HEREBY DETERMINED THAT the respondents have violated Real Property Law §440-a, demanded and retained an unearned fee, breached their fiduciary duties of good faith, undivided loyalty, obedience, and reasonable care and skill to their principals, and demonstrated incompetency and untrustworthiness in violation of Real Property Law §441-c. Accordingly, pursuant to Real Property Law §441-c, their licenses as real estate brokers are deemed revoked, effective immediately. Should they ever re-apply for a license as a real estate broker or salesperson, no action shall be taken on such application until they shall have produced proof satisfactory to the Department of State that they have refunded to James and Ginny Carlisle the sum of $3,000 plus interest at the legal rate for judgments (currently 9%) from May 31, 2007.
Scott NeJame
Administrative Law Judge
Dated: October 21, 2008