DEPARTMENT OF STATE

OFFICE OF THE SECRETARY OF STATE

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In the Matter of

SCOTT BERNSTEIN,

                                    Appellant,

                                                                                                DECISION ON APPLICATION

                        -against-                                                          FOR STAY AND APPEAL

                                                                                                            14 DOS APP 09

DEPARTMENT OF STATE

   DIVISION OF LICENSING SERVICES,

                                    Respondent.

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            By decision dated December 23, 2008 (1570 DOS 08), Administrative Law Judge Scott NeJame (the “ALJ”) determined that SCOTT BERNSTEIN (“Appellant”), a licensed private investigator, failed to provide an advance statement of services and charges to a prospective client, and improperly billed that prospective client for services that were never rendered. The ALJ determined that Appellant violated 19 NYCRR §173.1 and General Business Law §79(1)(d) and demonstrated untrustworthiness and incompetence, and revoked Appellant’s license. The ALJ also denied Appellant’s license renewal application.

            Appellant has appealed the ALJ’s Decision to the Secretary of State. Appellant has also requested a stay pending appeal. Appellant submitted a “Request for a Stay and Memorandum of Appeal” to the Secretary of State. Division of Licensing Services (“DLS”) submitted a “Memorandum of Law in Opposition of Appeal” and Appellant submitted a “Request for a Stay and Memorandum of Law in Reply.”

BACKGROUND

            The proceeding below (1570 DOS 08) dealt with (1) a disciplinary proceeding against Appellant relating to Appellant’s dealings with a prospective client (Mr. Knoeffler) and (2) the proposed denial of Appellant’s license renewal application for the 2006-2008 licensing period. Two prior disciplinary proceedings against Appellant are relevant to this matter, and a discussion of those prior disciplinary proceedings will be included herein.

The First Disciplinary Proceeding

            DLS commenced the first disciplinary proceeding against Appellant (the “First Disciplinary Proceeding”) in or about 1998. In a decision dated June 9, 1998, Appellant was found guilty of using a contract that did not include the statement “This business is licensed by the New York Department of State, Division of Licensing Services” in violation of 19 NYCRR §170.12(b), and Appellant was fined $500.00 (165 DOS 98, State’s Ex. 3).

Appellant’s License Renewal Application

            On or about January 19, 2006, Appellant filed an application for renewal of his license for the April 7, 2006 to April 6, 2008 period. By filing a timely application for renewal, Appellant was permitted by operation of law to continue to act as a private investigator pending a decision by DLS to grant or deny his application. See State Administrative Procedure Act §401(2).

The Second Disciplinary Proceeding

            In March 2006, while Appellant’s license renewal application was pending, DLS commenced a second disciplinary proceeding (the “Second Disciplinary Proceeding”) against Appellant. In a decision dated August 15, 2006 (527 DOS 06, State’s Ex. 4), Appellant was found guilty of demonstrating untrustworthiness in five instances, and was fined $5,000.00. The acts demonstrating untrustworthiness that were involved in the Second Disciplinary Proceeding included a conviction in California on a charge of impersonating an officer, two convictions in New York State on charges of criminal impersonation, one conviction in New York State on a charge of criminal mischief in the 4^th degree, and one instance in which Appellant billed a client (Ms. Burris) for preparing for, traveling to, and attending a meeting with DLS to discuss a number of matters including, but not limited to, a complaint filed by Ms. Burris against Appellant (527 DOS 06, at pp. 2-3). DLS appealed the ALJ’s decision in the Second Disciplinary Proceeding to the Secretary of State, arguing that the more severe sanction of license revocation should have been imposed. The Secretary of State affirmed the ALJ’s determination (01 DOS APP 07, State’s Ex. 5).

Proposed Denial of Appellant’s License Renewal Application

            By letter dated March 14, 2007, DLS advised Appellant that the Department of State proposed to deny Appellant’s license renewal application, citing the following as the reason for the proposed denial:

“[Appellant’s] criminal record and history of disciplinary proceedings with the Department of State, together with the facts ands circumstances attendant to [Appellant’s] criminal convictions and disciplinary infractions demonstrate a lack of the requisite good character, fitness and competence for licensure” (DLS letter to Appellant dated March 14, 2007, Attachment A to Complaint, State’s Ex. 1).

            By letter dated April 11, 2007, Appellant, through his attorney, requested an administrative hearing on the proposed denial.

The Third Disciplinary Proceeding

            The matters heard below by the ALJ included a third disciplinary proceeding (the “Third Disciplinary Proceeding”) against Appellant. The Third Disciplinary Proceeding involves charges that Appellant failed to provide a prospective client (Mr. Knoeffler) with a written statement of services and charges in violation of 19 NYCRR §173.1, that Appellant sent Mr. Knoeffler invoices for services that were never rendered, and that Appellant threatened Mr. Knoeffler with civil and/or criminal prosecution if the invoices were not paid.

Notices of Hearing / Hearing before the ALJ

            On June 22, 2007, DLS served Appellant with (1) a notice of hearing on the denial of Appellant’s license renewal application and (2) a notice of hearing on the Third Disciplinary Proceeding against Appellant. The two hearings were scheduled to be heard together. Following several adjournments, including one requested by Appellant’s attorney, the joint hearing was held before the ALJ on March 25, 2008.

Appellant’s Motion to Dismiss

            Appellant requested the ALJ to dismiss the Third Disciplinary Proceeding on the basis of res judicata, collateral estoppel and/or laches, and submitted a written Notice of Motion and voluminous papers in support of that motion to the ALJ. DLS submitted a “Memorandum of Law in Opposition to Motion to Dismiss and Preliminary Closing Argument” dated April 24, 2008, and Appellant submitted a “Memorandum of Law and Closing Statement” dated May 13, 2008.

            By Decision dated December 23, 2008 (1570 DOS 08), the ALJ granted, in part, Appellant’s motion to dismiss the Third Disciplinary Proceeding. Specifically, the ALJ dismissed those paragraphs in the complaint (paragraphs 10 to 21) that included allegations relating to the matters that were resolved in the Second Disciplinary Proceeding. In dismissing those paragraphs, the ALJ ruled that re-litigation of those allegations is barred by the doctrines of res judicata and collateral estoppel. However, the ALJ denied the remainder of Appellant’s motion to dismiss, including that part of Appellant’s motion that sought to dismiss the allegations relating to the Knoeffler matter on the basis of laches.

ALJ’s Determination on the Merits

            The ALJ determined that Appellant, in his interactions with Mr. Knoeffler, violated 19 NYCRR § 173.1 and General Business Law § 79(1)(d), and demonstrated incompetence and untrustworthiness. Indeed, the ALJ found that Appellant’s actions “can only be described as predatory” and that Appellant demonstrated “extreme untrustworthiness” (1570 DOS 08, at p. 10). Pursuant to General Business Law § 79, the ALJ revoked Appellant’s license as a private investigator, effective immediately. The ALJ also denied Appellant’s application for license renewal (see 1570 DOS 08).

APPLICATION FOR STAY

            Following the issuance of a decision by an ALJ, and pending an appeal therefrom, any party may file a written application for a stay pending determination of the appeal (see 19 NYCRR § 400.2(l)). That application must be “based upon evidence contained in the record” (19 NYCRR § 400.2(l)). In rendering a decision on a stay, the Secretary of State may also reach a decision on the merits of the appeal (see 19 NYCRR § 400.2(l)). Appellant has requested a stay pending appeal. As the full record on appeal is before the Secretary of State at this time, a decision on the stay and merits of the appeal will be rendered herein.

FINDINGS OF FACT

            Upon consideration of the record on appeal, it is determined that the Findings of Fact as found by the ALJ (1570 DOS 08, pp. 2-6, paragraphs 1-23) are accurate and are hereby incorporated as the factual findings of the Department of State on appeal. 

OPINION19 NYCRR §173.1(a) provides that no licensed private investigator shall undertake to perform any services on behalf of a client unless such licensee shall have delivered to the client a written statement, signed by the licensee, which shall set forth the specific service or services to be performed and the charge or fee therefor. 19 NYCRR §173.1(b) provides that a licensee is not required to deliver such a statement if the client and the licensee have entered into an agreement in writing, setting forth the services to be rendered and the fee or charge therefor.

            Here, the ALJ determined that Appellant attempted to collect payments from a Mr. Paul Knoeffler for private investigative services for which (1) no prior written statement of services and charges, signed by Appellant, had been provided and (2) no contract had been executed. More specifically, the ALJ found that:

•          Mr. Knoeffler contacted Appellant to inquire about the possibility of Appellant attending a trial in which Mr. Knoeffler was involved, and to observe the trial as an unbiased witness;

•          Appellant faxed a proposed contract to Mr. Knoeffler;

•          the proposed contract was not signed by Appellant;

•          the proposed contract was never accepted or signed by Mr. Knoeffler;

•          shortly after Mr. Knoeffler received the unsigned contract, he informed Appellant that Appellant’s services were not desired (Transcript, at 53);

•          shortly thereafter, Appellant sent Mr. Knoeffler an invoice for $856.25 (State’s Ex. 12);

•          the invoice included a declaration that a failure to pay would result in civil and criminal legal actions (Id.); and

•          when Mr. Knoeffler did not pay the first invoice, Appellant sent a second invoice seeking payment of $1,506.62 (State’s Ex. 13).

            The ALJ’s findings are supported by substantial evidence in the record. The record also shows that Appellant was licensed as a private investigator throughout the time period within which these events occurred (State’s Ex. 8). The ALJ determined that Appellant’s actions were “predatory,” violated 19 NYCRR § 173.1 and General Business Law § 79(1)(d), and demonstrated incompetency and “extreme untrustworthiness” (see 1570 DOS 08, at p. 10). The Department of State agrees.

            The Department of State also agrees that penalty imposed by the ALJ – revocation of Appellant’s license – was appropriate.

            The purpose of licensing and comprehensively regulating the activities of private investigators is to protect the public from those that unwatched or unchecked would be in a position to cause great harm to innocent members of the community because of the nature of their work (see Schauder v. Weiss, 88 NYS2d 317, aff’d 276 AD 967 (2d Dept 1950)). Appellant used his position to seek payment of a large sum of money from a member of the public, and to threaten that person with civil and criminal legal action if that sum was not paid. Appellant did so despite the fact that he did not present Mr. Knoeffler with the prior signed statement of services and charges to which he (Mr. Knoeffler) was entitled as a matter of law, despite the fact that Appellant did not enter into a written contract with Mr. Knoeffler, and despite the fact that Mr. Knoeffler declined Appellant’s services.

            “The purpose of [19 NYCRR § 173.1] is to establish the legal right of a client to clearly understand the work scope and costs of the employment of the licensee. That understanding should be exact, and without the required statement of services the client may not be aware of and/or able to hold the licensee to the performance of all of the licensee's obligations” (Division of Licensing Services v. Hertz, 326 DOS 97, at p. 3, citations omitted).

            Requiring a licensee to provide either a written and signed statement of services and charges, or to obtain a written and signed contract, before undertaking to provide any services also serves several other important purposes. This requirement assures that the prospective client will know the costs for the services to be rendered, and that the licensee (by his or her signature on the statement of fees and services or on the contact) will be bound by the costs as disclosed, before any services are actually rendered. This, in turn, allows the prospective client to make an informed decision to hire, or not hire, the licensee before any services are rendered (and, necessarily, before and charges are incurred).

            In this case, Appellant failed to provide the required written and signed statement of services and charges, and then attempted to deprive Mr. Knoeffler of the very protections the regulation was designed to provide. Appellant faxed a form contract to Mr. Knoeffler on May 12, 2004. It should be noted that the form contract faxed to Mr. Knoeffler did not satisfy 19 NYCRR § 173.1 for a number of reasons, including the fact that it was not signed by Appellant. However, the form contract (or, more precisely, the cover sheet used to fax the form contract to Mr. Knoeffler) did accomplish at least part of the goal sought to be achieved by § 173.1: it disclosed to Mr. Knoeffler that Appellant was requesting payment of $504.50, and indicated that “this must be returned immediately to secure [Appellant’s] presence in court tonight.” Upon receiving this information, Mr. Knoeffler attempted to exercise one of the fundamental rights §173.1 seeks to protect, i.e., his right to decide not to hire the licensee. However, Appellant did not accept Mr. Knoeffler’s exercise of that right, as he was required to do. To the contrary, on June 2, 2004, Appellant elected to send Mr. Knoeffler a bill demanding payment of $856.25 and including the threat that “if payment is not received in full within 15 days net, this office will proceed with civil and criminal prosecution.”

            Appellant was prohibited from undertaking to provide any services to Mr. Knoeffler until he (Appellant) provided the written and signed statement of services and charges or obtained a written and signed contract. No such statement was ever provided, and no such contract was ever executed. Yet Appellant’s bill purported to charge $81.25 for “consultations.”

            The largest single component of this bill was a $500.00 “cancellation” fee for the May 12 court hearing. Because of his failure to comply with §173.1, Appellant was never in a position where he could legally undertake to appear in court for Mr. Knoeffler or to provide any other service to Mr. Knoeffler. Clearly, Appellant cannot demand a fee for “cancelling” services that he was not legally permitted to render.

            The June 2, 2004 bill also includes a $275.00 charge for “skip trace - collection investigations.” There is nothing in the record that provides any explanation of or justification for this charge.

            On December 12, 2004, Appellant elected to send another bill to Mr. Knoeffler, in the amount of $1,506.62. There is nothing in the record that provides and explanation or justification for this bill or for the dramatic increase in the amount of this bill over the $856.25 demanded in the June 2, 2004 bill.

            It has been held that “the failure to provide the statement [required by 19 NYCRR §173.1] is a demonstration of untrustworthiness and incompetency” (Division of Licensing Services v. Hertz, 326 DOS 97, at p. 3, citations omitted). That failure, coupled with at least two attempts to bill the prospective client for services that were never rendered (and, indeed, which never could have been legally rendered), under the circumstances presented in this case, is a demonstration of extreme untrustworthiness.

            In light of such actions, the penalty of license revocation is neither harsh, excessive, nor shocking to one’s sense of fairness or proportionality. This is particularly true when Appellant’s entire disciplinary history is considered. Thus, the ALJ’s finding that Appellant violated 19 NYCRR § 173.1 and General Business Law § 79(1)(d) and demonstrated incompetence and untrustworthiness, and the ALJ’s revocation of Appellant’s license, are hereby confirmed.

Res Judicata and Collateral Estoppel

            In his submissions to the ALJ, the Appellant expressly disavowed any claim that the proceeding relating to the Knoeffler matter was barred by res judicata or collateral estoppel. However, on this appeal and in his application for a stay pending appeal, Appellant has reversed course, and now argues that all charges arising from the Knoeffler matter should have been precluded by the doctrines of res judicata and collateral estoppel.

            Appellant cites the well known proposition that a final judgment on the merits is binding upon the parties not only as to those matters actually litigated in the first suit but also as to those matters which might have been litigated in the first suit but were not. Essentially, Appellant argues that:

•          the Second Disciplinary Proceeding (527 DOS 06) involved violations of 19 NYCRR § 173.1 and General Business Law § 79(1)(d), which are the same regulatory and statutory provisions considered in the Third Disciplinary Proceeding;

•          the facts underlying the Third Disciplinary Proceeding (viz., the failure to provide a signed statement of services and charges to Mr. Knoeffler and the improper billing of Mr. Knoeffler) were known to DLS at the time it commenced and prosecuted the Second Disciplinary Proceeding (see Appellant’s Memorandum of Appeal, at p. 14);

•          therefore, DLS could have added charged relating to the Knoeffler matter to the complaint in the Secondary Disciplinary Proceeding, and, if DLS had done so, charges relating to the Knoeffler matter might have been litigated in the Second Disciplinary Proceeding;

•          the ALJ’s decision in the Second Disciplinary Proceeding is now final and binding; and

•          since the Second Disciplinary Proceeding resulted in a fine, and not revocation, the Department of State is barred from revoking Appellant’s license in the Third Disciplinary Proceeding.

            Res judicata and collateral estoppel, however, are not so broad, nor so simple. The doctrine of res judicata does not bar a claim merely because it “might have been” joined with, and litigated with, another claim. The doctrine of res judicata applies only were a second action or proceeding is based on the same “transaction or series of transactions” that was involved in the prior action or proceeding. “This State has adopted the transactional analysis approach in deciding res judicata issues” (O’Brien v. City of Syracuse, 54 N.Y.2d 353, 357 (1981), citation omitted). Under this approach, “once a claim is brought to a final conclusion, all other claims arising out of the same transaction or series of transactions are barred, even if based upon different theories or if seeking a different remedy” (Id.). However, in this State, separate and distinct instances of illegal activity, involving different persons and occurring at a different times and places, may be charged and brought in separate and distinct proceedings, even where each proceeding is based on the same statutory or regulatory provisions.

            The “transaction or series of transactions” considered in the Third Disciplinary Proceeding included Appellant’s failure to provide a prospective client (Mr. Knoeffler) with a signed statement of services and charges, Appellant’s billing Mr. Knoeffler for services that were never rendered, Appellant’s threat to subject Mr. Knoeffler to civil and criminal prosecution if that bill was not paid, and Appellant’s billing Mr. Knoeffler a second time, for almost double the amount of the original bill (State’s Ex. 1, Complaint, at paragraphs 22-25). Clearly, the “transaction or series of transactions” involved in the Third Disciplinary Proceeding was in no way related to any “transaction or series of transactions” addressed in the Second Disciplinary Proceeding or in any other prior proceeding against Appellant. Therefore, the Third Disciplinary Proceeding is not precluded by res judicata.

             Appellant’s collateral estoppel argument also fails. “The doctrine of collateral estoppel, a narrower species of res judicata, precludes a party from relitigating in a subsequent action or proceeding an issue clearly raised in a prior action or proceeding and decided against that party or those in privity, whether or not the tribunals or causes of action are the same” (Ryan v. NY Tel. Co., 62 NY2d 494, 500 [1984]). For collateral estoppel to apply, the issue to be decided in the second action or proceeding

            “must have been material to the first action or proceeding and essential to the decision rendered therein . . . and it must be to the point actually to be determined in the second action or proceeding such that ‘a different judgment in the second would destroy or impair rights or interests established by the first’ ” (Id., at 500-501, citations omitted).

The issue of Appellant’s guilt or innocence on the charges related to the Knoeffler matter was, quite simply, not raised or decided in the Second Disciplinary Proceeding or in any other prior action or proceeding. The determination in the Third Disciplinary Proceeding that Appellant was guilty of those charges is in no way inconsistent with the determination made in the Second Disciplinary Proceeding on in any other prior action or proceeding, and the determination made in the Third Disciplinary Proceeding did not “destroy or impair” any “rights or interests” established by the Second Disciplinary Proceeding or by any other prior action or proceeding. Therefore, the Third Disciplinary Proceeding is not precluded by the doctrine of collateral estoppel.

            Appellant puts great weight upon, and quotes extensively from, Matter of Doherty v. Cuomo, 76 A.D.2d 14 (4^th Dept., 1980). However, Appellant’s reliance on Doherty is misplaced.

            In Doherty, a licensed real estate broker was charged in two separate disciplinary proceedings with violating applicable statutory and regulatory provisions by employing two specific individuals (Richard Barnes and Anthony Wigington) to collect rents despite knowing that the individuals were neither licensed as real estate salesmen nor holders of temporary rent collector’s permits. In the initial proceeding, Mr. Doherty was charged with knowingly employing Barnes and Wigington to collect rents from tenants in buildings owned by two of Mr. Doherty’s clients (John Campbell and Mary King). Mr. Doherty was found guilty, and his license was revoked. Mr. Doherty challenged the determination in an Article 78 proceeding. While that Article 78 proceeding was pending, the Department of State commenced the second disciplinary proceeding, in which Mr. Doherty was charged with knowingly employing Barnes and Wigington to collect rents from tenants in buildings owned by another client of Mr. Doherty’s (Dr. Richard Schlessinger). Once again, Mr. Doherty was found guilty and, once again, his license was revoked. Thereafter, the Appellant Division affirmed the findings in the first disciplinary proceeding, but directed that the penalty be reduced from revocation to a six month suspension and a $200 fine. Mr. Doherty then challenged the validity of the revocation ordered in the second disciplinary proceeding.

            Mr. Doherty was not guilty of three separate and distinct violations (i.e., he was not guilty of knowingly employing Barnes and Wigington to collect rents to collect rents from tenants in buildings owned by Campbell, and knowingly employing Barnes and Wigington to collect rents to collect rents from tenants in buildings owned by King, and knowingly employing Barnes and Wigington to collect rents to collect rents from tenants in buildings owned by Schlessinger). Rather, Mr. Doherty was guilty of a single violation: knowingly employing the unlicensed Barnes and Wigington to collect rents. The Appellant Division held that the single violation was the “transaction” that was common to both disciplinary proceedings, and that evidence that Mr. Doherty’s unlicensed employees collected rents from buildings owned by three separate clients was evidence of a single violation, not evidence of three separate violations::

“The central question raised on this appeal is whether the respondent Secretary of State, after he once claimed and determined that the petitioner demonstrated his ‘untrustworthiness’ based on violations of the Real Property Law for hiring unlicensed persons to collect rents and punished him for that offense, is precluded under the principle of res judicata from later making the same claim for the same specific act based on different evidence” (76 A.D.2d at 17, emphasis added).

“As can readily be seen, the two proceedings brought by [the Secretary of State] against [Mr. Doherty] are nearly identical. . . . Most importantly, the act of misconduct, i.e., the claim or ‘transaction’, which predicates the charges against [Mr. Doherty] in both proceedings is the same – the hiring of the unlicensed Barnes and Wigington to collect rents. Although the clients for whom these men collected rents were different in the various proceedings, the prohibited act of hiring these employees is the single act or ‘transaction’ which precipitated all of the unlawful collections” (76 A.D.2d at 20, emphasis added).

“It is clear that [the Secretary of State’s] determination in the first proceeding could have been based on proof related to one or all of [Mr. Doherty’s] clients” (76 A.D.2d at 20).

            The Appellate Division held that the second disciplinary proceeding against Mr. Doherty was barred by the doctrine of res judicata because the second proceeding related to the same “transaction” (i.e., the employment of the unlicensed rent collectors, Barnes and Wigington) that was decided in the first proceeding.

            In contrast, with regard to Ms. Burris and Mr. Knoeffler, Appellant was charged with, and found guilty of, two entirely separate and distinct violations. While there is a slight similarity between the Burris matter and the Knoeffler matter, in that in both cases Appellant issued improper invoices, the facts involved in the Burris matter and the evidence necessary to prove those facts are entirely separate and distinct from the facts involved in the Knoeffler matter and the evidence necessary to prove those facts. Indeed, the Burris matter and the Knoeffler matter have no facts in common (other than the fact the Appellant was the wrongdoer in both matters). The mere fact that Burris matter and the Knoeffler matter both involved, to some degree, improper billing practices does not make the Burris matter and the Knoeffler matter part of a single transaction or series of transactions.

            Appellant quotes, with emphasis added, the following excerpt from Matter of Doherty in support of his res judicata argument:

“However, the fact that the second action contains new evidence involving a different client of the petitioner does not sufficiently distinguish the claim of the respondent in this case from its claim in the prior proceeding so as to preclude application of the doctrine of res judicata” (76 A.D.2d, at 21).

However, this passage simply reflects the Appellant Division’s view that (1) Mr. Doherty was guilty of a single violation (knowingly employing unlicensed rent collectors), and (2) evidence that the unlicensed rent collectors collected rent from client A, and from client B, and from client C was simply evidence of the same violation, and not evidence of three separate and distinct violations. Despite Appellant’s assertions to the contrary, Matter of Doherty is clearly distinguishable from the instant proceeding. Evidence relating to the Knoeffler matter is not “new evidence involving a different client” relating to the Burris matter; it is evidence relating to an entirely separate, distinct and independent violation.

            Appellant is charged in the Third Disciplinary Proceeding with violating the same statutory and regulatory provisions (General Business Law § 79(1)(d) and 19 NYCRR § 173.1) that he had been found to have violated in the Second Disciplinary Proceeding. However, the two proceedings are based upon different acts, occurring at a different times, and involving different members of the public and different sets of circumstances. Thus, it was not

improper for Respondent to pursue the Knoeffler matter through a separate and independent disciplinary proceeding. As the acts of misconduct predicating the charges brought against Appellant herein and those at issue in the prior proceeding were not the same and were not related to the same series of events or transaction, res judicata and collateral estoppel provide Appellant no relief now.

Laches

            Next, Appellant argues that litigation of the Knoeffler matter should be barred by the doctrine of laches. Appellant asserts that “the passage of time (3 years from the date of the event to the date that this proceeding was initiated, more than 3 years and 10 months from the date of the event to the date of the Hearing),. . . has significantly and irreparably handicapped this Appellant in preparing a defense” (Appellant’s Request For Stay and Memorandum of Appeal, at p. 24).

            The time period between the initial complaint from the public and the resulting commencement of a formal disciplinary proceeding is not per se improper or unreasonable. There is no statutory requirement or case law which demands that a formal complaint be issued by DLS within three years of its initial receipt of a complaint from a member of the public. However, “laches and limitations are not the same. Limitations involve the fixed statutory periods within which actions must be brought, while laches signifies a delay independent of statute (Saratoga County Chamber of Commerce v. Pataki, 100 N.Y.2d 801, 816 [2003], citations omitted).

            Laches provides an affirmative defense that must be proven by its proponent. To establish latches as an enforceable bar to a proceeding, Appellant must demonstrate that DLS unreasonably delayed or was negligent in bringing the action herein and that the delay resulted in actual prejudice to the Appellant. “We have defined laches as an equitable bar, based on a lengthy neglect or omission to assert a right and the resulting prejudice to an adverse party (citations omitted). The mere lapse of time, without a showing of prejudice, will not sustain a defense of laches” (Id., emphasis added). A party asserting laches as a defense must demonstrate that the delay in bringing the case has significantly and irreparably handicapped that party’s ability to present a defense (see Reid v Axelrod, 164 AD2d 973, 559 NYS2d 417 [1990];

Gillette v NYS Liquor Authority, 149 AD2d 927, 540 NYS2d 61 [1989]).

            As Appellant chose not to testify at the hearing in this matter, the only matter in the record that purportedly supports Appellant’s claim of prejudice is the following statement in Appellant’s “Affidavit in Support of Respondent” submitted in support of Appellant’s motion to dismiss:

“My memory of the events which relate to this particular charge are greatly diminished by the passage of time. My knowledge of the underlying events is no longer fresh, nor can I recall specific details of conversations with Paul Knoeffler” (Appellant’s “Affidavit in Support of Respondent” dated March 24, 2008, paragraph 28, at p. 7).

            Although Appellant asserts that his memory faded with the passage of time, there is no evidence that the three year lapse of time imposed an unreasonable burden on Appellant’s capacity for recollection of this matter.

            Appellant was made aware of Mr. Knoeffler’s allegations in mid-2004, shortly after those allegations were filed with DLS and long before the formal commencement of the Third Disciplinary Proceeding in 2007. On July 8, 2004, Appellant submitted a two page, single-spaced letter to DLS responding in detail to Mr. Knoeffler’s assertions. That letter, which is attached as an exhibit to Appellant’s “Affidavit in Support of Respondent” (the same document in which Appellant now claims to have a diminished memory of his conversations with Mr. Knoeffler), contains a detailed account of Appellant’s version of those conversations, as well as the following assertions:

“I notified [Mr. Knoeffler] that I would be billing him for a full day [sic] work as he did not honor his verbal agreement with this office. He became belligerent and started threatening my office that he would fully investigate and report us. Well that set up several red flags so this office looked into Mr. Knoeffler ourselves. I spoke with his neighbor . . . I also spoke with others. . . .

“Based on [Mr. Knoeffler’s] complaint to your office, I have forwarded this onto [sic] my attorney . . . I was advised this is outright slander and we will prove our case in civil court looking for our FULL cancellation fee and punitive damages.”

            Thus, this is not a matter where Appellant had casual conversations with a prospective client a number of years ago, and has no special reason to recall those conversations at this time. To the contrary, those conversations were so extraordinary (setting up “red flags”) that Appellant felt it necessary to conduct his own investigation of Mr. Knoeffler. The events that followed those conversations, and Appellant’s initial billing of Mr. Knoeffler, were likewise sufficiently extraordinary as to be expected to make a lasting impression on Appellant: Mr. Knoeffler filed a formal written complaint against Appellant with DLS; Appellant was made aware of that complaint; Appellant provided a detailed written response to the complaint, including a detailed statement of very events which he now claims to have faded in his memory; Appellant referred the matter to his attorney; and Appellant and his attorney were actively considering suing Mr. Knoeffler for slander.

            As the ALJ indicated in his Decision,

“given that [Appellant] has been a private investigator since 1991, it is very difficult to believe that he, who is retained to conduct investigations and surveillance, prepare and submit reports, and testify at trials years later about his interaction with clients and details of his reports, cannot recall details of his own transaction with a potential client against whom he has made repeated demands for a fee” (1570 DOS 08, at p. 9).

            The Department of State agrees, and adds that Appellant’s claim of diminished memory is all the more incredible when one considers (1) that Mr. Knoeffler was not merely a “potential client against whom [Appellant] has made repeated demands for a fee,” but was also a potential client who was actively investigated by Appellant and who filed a complaint against Appellant, and (2) that Appellant created a substantially contemporaneous written record (viz., his July 8, 2004 letter to DLS) of his version of the events in question. Appellant’s self-serving assertion that his memory of his interactions with Mr. Knoeffler is no longer “fresh” falls far short of satisfying his burden of establishing that DLS’s delay in bringing formal charges has significantly and irreparably handicapped Appellant in his ability to present a defense. Thus, it is determined that consideration of the Knoeffler matter is not barred by the doctrine of laches.

Due Process

            At the conclusion of DLS’s case in chief, Appellant’s counsel submitted a lengthy written motion to dismiss all charges. The ALJ indicated that he would reserve decision on the motion to dismiss, and granted DLS permission to file a written response to the motion within 30 days after receipt of the transcript (Transcript at 85, 87). Appellant’s counsel then stated that he “would like to adjourn and have the court decide the motion and then reconvene depending on what [Appellant would] need to present when the motion is decided” (Id. at 89). The ALJ declined to adjourn the hearing, and made a determination to reserve decision on the motion and to continue with the hearing (Id. at 91).

            Appellant asserts that he was deprived of due process of law because (1) the ALJ declined to adjourn the hearing until he decided the motion to dismiss and (2) the ALJ “refused to limit [DLS’s] examination of the Appellant to only the Knoeffler matter” (Appellant’s Memorandum of Law, at p. 19).

            The rules of motion practice in administrative proceedings promulgated by the Department of State pursuant to the State Administrative Procedure Act provide that, following a motion to dismiss made at the conclusion of DLS’s direct case, the ALJ may make a determination: “(1) granting the motion; (2) denying the motion and continuing the hearing; or (3) reserving decision on the motion and continuing the hearing” (19 NYCRR § 400.6; see State Administrative Procedure Act § 301(3)). Therefore, the ALJ’s determination to reserve decision on the motion and to continue with the hearing was perfectly in keeping with the established procedures. Further, by reason of 19 NYCRR § 400.6, Appellant and Appellant’s counsel knew, or should have known, that unless the motion to dismiss was granted in its entirety by the ALJ at the hearing, the hearing would continue, and Appellant would be required then and there to present any defense he may have. Appellant’s argument that he was denied due process because the ALJ declined to adjourn the hearing is without merit.

            Appellant’s argument that he was denied due process because the ALJ’s “refused” to limit the scope of DLS’s examination of Appellant is also without merit. Appellant cites the hearing transcript at page 92, lines 14-25, in support of the assertion that the ALJ “refused to limit [DLS’s] examination of the Appellant to only the Knoeffler matter.” The record, however, belies Appellant’s claim. The portion of the transcript cited by Appellant immediately follows the point where Appellant was sworn in to testify, and reads as follows:

[Counsel for Appellant]: Now, I just want to make sure that I understand you on this. [Appellant is] just being presented solely for the purpose of the Knoeffler complaint, which is the new matter, pending your determination of the motion papers concerning the old matter.

            [Counsel for DLS]: I would object to that, your Honor.

[ALJ NeJame]: Right, I’m reserving on your whole motion. So, in a sense, I think you can address, I would say, everything here. . .

Appellant fails to cite (and, apparently, would ask the Department of State to fail to consider), the continuation of the ALJ’s response to Appellant’s counsel’s question:

. . . I mean, obviously you know what I received and didn’t receive in evidence at this point regarding the criminal arrests and convictions. So it’s probably fair to say that the issues regarding matters that were considered by Judge Schneier [in the Second Disciplinary Proceeding] are not going to be before me and that they are contained in this complaint.

[Counsel for DLS]: Other than the conclusions of same, your Honor.

[ALJ NeJame]: Right, the decisions themselves. The previous disciplinary action that was taken against [Appellant] are relevant for the purpose, in the event that there is a finding of misconduct, they are relevant for me determining a sanction to be imposed.

I’m just looking at the complaint. Paragraphs number six through pretty much 21 are just referencing prior criminal actions against him and prior disciplinary proceedings against him.

[Counsel for DLS]: Which are entirely relevant to the issue of renewal application, your Honor. In any normal renewal application case, prior disciplinary history is considered.

[ALJ NeJame]: Well, first of all, I’ll make the determination whether the renewal is covered by Judge Schneier’s decision [in the Second Disciplinary Proceeding]. And then secondarily, I’ll make a determination whether I can consider the prior convictions and disciplinary action in his renewal. I’m not so sure that I can consider that, but in the event that I can, I will.

(Transcript, at 92-94, emphasis added.)

            At that point, counsel for Appellant requested a second recess to consult with Appellant. Following that recess, Appellant rested without testifying (Transcript, at 94). 

            The ALJ’s statement regarding what he “received and didn’t receive . . . regarding the criminal arrests and convictions” is a reference to his prior rulings, where he permitted DLS to introduce (without objection by Appellant) a copy of Judge Schneier’s decision in the Second Disciplinary Proceeding (State’s Ex. 4, see Transcript at 25), but refused to allow DLS to introduce a certificate of disposition, a sentencing commitment, an indictment, and police reports relating to three of the criminal convictions that had already been considered by Judge Schneier in the Second Disciplinary Proceeding (Transcript, at 42-45). The ALJ later reminded counsel for Appellant that “obviously you know that I barred the state from putting in evidence regarding the further issues regarding those convictions” (Transcript, at 85), and counsel for Appellant acknowledged “I’m aware of that, your Honor” (Id.). The ALJ also very clearly indicated, at several points during the hearing, that he would not permit a relitigation of the matters covered by Judge Schneier’s decision in the Second Disciplinary Proceeding.

            Thus, the ALJ clearly, consistently and correctly took the position that he would not permit re-litigation of the prior disciplinary proceeding, that he would not permit new evidence relating to the criminal activities that were the subject of the prior disciplinary proceeding, and that, while he would permit evidence of the determinations made in the prior disciplinary proceedings, he would consider Appellant’s disciplinary history only for the purpose of determining the penalty to be imposed in the new disciplinary proceeding (the Knoeffler matter) if he found that violations occurred in the Knoeffler matter.

            In light of the foregoing, had the Appellant elected to testify, it inconceivable that the ALJ would have suddenly changed course and permitted DLS to cross examine Appellant regarding the details of his criminal convictions. Appellant’s assertion that the ALJ “refused to limit” DLS, and Appellant’s implicit assertion that he did not testify out of fear that the ALJ might permit DLS to probe unfettered into the details of his criminal convictions, are unfounded.

            Appellant cites several cases for the proposition that a failure to grant an adjournment must warrant a remand in this instance. However, the diversity between this matter and the cases cited by Appellant is stark and meaningful.

            First, Appellant cites the following passage from Matter of United Deli Corp. v. New York State Liquor Authority, 2007 N.Y. Slip Op. 50096(U) (Supreme Court, Kings County, 2007):

“In light of a petitioner’s right to put forth a defense and the potential consequences of losing such a hearing [to revoke a license], courts have found the failure to adjourn such a hearing to be arbitrary, capricious and without a rational basis when there appears to be a reasonable basis for such an adjournment and the agency fails to articulate a countervailing reason to deny an adjournment . . .”

The United Deli Corp. case involved a hearing before the Liquor Authority to revoke a beer license issued to United Deli Corp. The sole principal and officer of the respondent corporation (Mr. Omar) did not appear at a hearing, but did send another person (Mr. Ali) to represent the corporation at the hearing. However, the Liquor Authority refused to allow Mr. Ali to participate because he did not have written authority to appear on behalf of the corporation. Instead, a plea of “no contest” was entered on behalf of the corporation and, ultimately, the Liquor Authority revoked the corporation’s license. The corporation challenged the revocation in an Article 78 proceeding. The Supreme Court granted the petition and remanded the matter to the Liquor Authority for a new hearing, noting that neither Mr. Omar nor Mr. Ali were attorneys, and that when Mr. Ali appeared at the hearing but failed to produce written authorization to represent the corporation, the “reasonable course of action . . . would have been to adjourn the matter for Mr. Ali to obtain the proper written authorization, for Mr. Omar to appear himself, or for an appearance by another duly authorized representative on behalf of United Deli” (2007 N.Y. Slip Op. 50096(U), at 2). The Court also took note that “the proceedings had not been adjourned previously, there seemed to be no indication that Mr. Ali could not obtain such authorization if afforded a reasonable opportunity, and it does not appear that either Mr. Ali or Mr. Omar were attempting to delay the proceedings” (Id.).

            In contrast, the Appellant in this matter was by no means deprived of an opportunity to present a defense. He was present and represented by counsel throughout the entire hearing. Appellant had every opportunity to present his defense – he and his counsel simply elected to rest their case without Appellant’s testimony. Appellant was also afforded the opportunity to submit written arguments to the ALJ after the hearing, and Appellant did so. Further, this matter had already been adjourned a number of times, and a further adjournment would have served no purpose other than to delay resolution of this matter.

            Next, Appellant cites Messina v. Bellmore Fire District Commission, 242 A.D.2d 631 (2^nd Dept. 1997) for the proposition that a hearing should be adjourned where necessary “in order to protect the rights of a party.” Yet in Messina, the petitioner (Mr. Messina) was the subject of an ongoing criminal investigation relating to the same matter involved in the administrative proceeding. Mr. Messina’s attorney requested an adjournment of the administrative hearing based on Mr. Messina’s reluctance to testify in an administrative forum during the pendency of a criminal investigation (242 A.D.2d at 632-633). The Appellate Division ruled that the matter should be remanded to the administrative forum for a new hearing because “the petitioner was unnecessarily placed in a position of either foregoing his right to testify before the [administrative forum], on the one hand, or facing the possibility of having his testimony in that forum used against him in the course of the criminal prosecution with which he was threatened” (242 A.D.2d at 633).

            In contrast, the Appellant in this matter was not facing criminal prosecution. He already pled guilty to the criminal charges in question, and he faced no possibility that his testimony at the hearing before the ALJ could be used against him in any criminal proceeding. His right against self incrimination was not at risk. Here, the most significant risk to Appellant presented by his electing to testify was the possibility that on cross-examination, DLS might attempt to ask questions about the details of his past convictions. Yet even if that happened, his counsel’s objections to such questions almost certainly would have been sustained, for the reasons previously discussed. Further, even if such questions were asked and objections to such questions were overruled, Appellant’s responses would have been ultimately weighed or disregarded by the ALJ after ruling upon Appellant’s motion to dismiss.

            In this matter, all parties were present and prepared to proceed at the hearing. No unexpected evidence or testimony had been introduced. Appellant had every opportunity to testify and, indeed, had been sworn in for that purpose. Appellant had no reasonable concern that DLS would have been permitted to cross examine him with regard to the details of his crimes, and, in any event, in the extremely unlikely event that he would have been required to respond to questions about the details of his crimes, his testimony could not have been used against him in any criminal proceeding. Further, the hearing below was before an administrative law judge, an experienced attorney, and not before a jury; if Appellant had testified, and if he had been cross examined on the details of his crimes, and if he had been required to respond to those questions, and if the ALJ’s subsequent decision on the motion to dismiss ultimately made all or any part of any such testimony irrelevant, the ALJ would have been able to discount and disregard the irrelevant testimony in rendering his decision on the merits. To grant an adjournment under such circumstances would serve no purpose other than (1) to delay resolution of this matter and (2) to provide Appellant the benefit of a virtual dress-rehearsal of the DLS’s case-in-chief, along with an extended period of time within which to cultivate and amend his litigation strategy and re-work and re-develop his direct case based upon the evidence and testimony presented by DLS, all of which would have been significantly prejudicial to DLS.

            Appellant’s claim that he was denied due process of law is without merit.

The Denial of Appellant’s Renewal Application

            Appellant contests the ALJ’s denial of Appellant’s application for renewal of his private investigator’s license for the period of April 2006 through April 2008.

            Appellant’s license as last issued by DLS was for the period of time extending from April 8, 2004 through April 7, 2006 (State’s Ex. 8). That license was scheduled to expire on April 7, 2006 (State’s Ex. 8). Appellant filed a renewal application for that license on February 15, 2006 (State’s Ex. 2). By operation of law, Appellant’s timely filing of that renewal application extended the effect of his 2004-2006 license until the issuance of a final administrative determination on his renewal application or the order of a summary suspension by the Department of State (State Administrative Procedure Act § 401(2)).

            Initially, DLS neither granted nor denied Appellant’s renewal application. DLS sought revocation of Appellant’s license through the Second Disciplinary Proceeding which was conducted in 2006. The ultimate result of the Second Disciplinary Proceeding was the payment of a fine by Appellant (State’s Ex. 4). DLS then issued its letter advising Appellant that DLS proposed to deny the license renewal application, and Appellant requested a hearing.

            Appellant argues that, because DLS’s original proposal to deny Appellant’s renewal application was based upon matters that had been fully adjudicated in prior disciplinary hearings and resolved by the payment of fines by Appellant (see State’s Ex.’s 3 and 4), the ALJ’s denial of Appellant’s renewal application was in error.

            The ALJ expressly agreed with Appellant’s argument that Appellant “cannot be punished a second time, i.e., . . . his renewal application [cannot be denied], based on the same conduct that underlaid Judge Schneier’s decision [in the Second Disciplinary Proceeding]” (1570 DOS 08, at p. 6). The Department of State agrees with that ruling (see Matter of Johnson, 821 DOS 06). However, as the ALJ correctly pointed out,

“the Knoeffler matter is a new and different transaction which forms a separate basis for disciplining [Appellant]. If [Appellant] is found to have violated the law regarding the Knoeffler matter, the tribunal may revoke or suspend [Appellant’s] license, as well as deny his renewal application” (Id., at pp. 6-7).

            The ALJ found that Appellant’s actions concerning the “new and different” Knoeffler matter “clearly demonstrate a lack of honesty, good character and integrity” (1570 DOS 08, at p. 11). The ALJ also noted that even though Appellant had the burden of showing that he had the honesty, good character and integrity required to be licensed as a private investigator, he “did not offer any evidence to the tribunal that established these elements required for licensure” (Id.). Therefore, based on Appellant’s actions with regard to the Knoeffler matter, and Appellant’s failure to submit any evidence establishing his honesty, good character and integrity, the ALJ determined that Appellant failed to meet his burden of proving that he has the honesty, good character and integrity required to be licensed (Id.), and denied Appellant’s renewal application (1570 DOS 08, at p. 12).

            Appellant contends that this denial of his renewal application was improper, as the determination of the ALJ with regard to the Knoeffler matter was not within the contemplation of DLS in October of 2006, when it initially proposed to deny Appellant’s application for renewal. This contention, however, is based on the incorrect assumption that the ALJ could not deny Appellant’s renewal application unless the ALJ first determined that DLS’s original reasons for proposing to deny that application were meritorious. Appellant’s contention also disregards the duty of an ALJ to impose an appropriate and reasonable penalty for violations found after a hearing on disciplinary charges.

            The authorization of the Secretary of State to impose the penalty of license revocation is intended to protect the public, to punish individual bad actors within the licensed professions, and to generally control the conduct of the profession through the gentle yet powerful influence of law and the administrative process. In fashioning an appropriate penalty for violations found as the result of a disciplinary hearing, an ALJ is charged with considering the nature of the violations found and, in addition, may consider the disciplinary history of the respondent that is the subject of the disciplinary hearing. Thus, General Business Law § 79 expressly conveys to the Secretary of State the authority to revoke the license or application of a private investigator upon proof “that the applicant or licensee has violated any of the provisions of [Article 7] or the rules and regulations promulgated hereunder; [or] that the applicant or licensee has demonstrated incompetence or untrustworthiness in his actions.”

            Here, the ALJ correctly determined that Appellant, by his actions related to the Knoeffler matter, violated 19 NYCRR § 173.1 and General Business Law § 79(1)(d). The ALJ also correctly determined, upon consideration of the violations found, the egregious, fraudulent, and cavalier nature of Appellant’s conduct with regard to the Knoeffler matter, and the fact that Appellant had been found guilty of other violations in other proceedings, that revocation of Appellant’s license was appropriate. However, to give meaningful effect to the ALJ’s proper and appropriate determination that Appellant should lose his license to act as a private investigator, two actions were necessary: (1) revocation of Appellant’s holdover license; and (2) denial of his pending application for renewal. Both actions were also reasonable under the circumstances.

            The imposition of this penalty (revocation of the holdover license and denial of the renewal application) should not be confused with a determination that the original grounds cited by DLS for the proposed denial of Appellant’s renewal application were upheld. The decision clearly shows that the ALJ did not affirm those grounds (1570 DOS 08, at p. 6); rather, the ALJ denied Appellant’s renewal application because (1) Appellant’s actions with regard to the new Knoeffler matter demonstrated that Appellant lacked the honesty, good character and integrity required for licensure, (2) Appellant failed to meet his burden of showing that he had the qualities required for licensure, and (3) the properly and appropriately directed revocation of Appellant’s holdover license would have been rendered meaningless if Appellant’s renewal application had not also been denied. By his Decision, the ALJ avoided the absurd result of revoking the holdover 2004-2006 license, but then giving effect to the 2006-2008 license by granting the renewal application, and leaving DLS to consider the Knoeffler matter in determining whether to grant or deny the next renewal application to be submitted by Appellant for the years 2008-2010. Thus, the denial of Appellant’s renewal application was reasonable, appropriate, and in accordance with the law.

            The Department of State has reviewed the arguments in Appellant’s “Sur Reply in Support of Appeal” dated March 19, 2009, and finds them to be without merit. The Department of State also notes that there is no authority in the applicable regulations for submission of any such “Sur Reply” and that Appellant was not granted leave to submit a “Sur Reply.” The Department of State does not condone submission of such unauthorized papers by any party.

DETERMINATION

            Based on the foregoing, the decision and order of the ALJ (1570 DOS 08) is hereby confirmed in its entirety. Appellant’s request for a stay is denied.

So ordered on April ___, 2009.

                                                                        __________________________________________

                                                                                    Daniel E. Shapiro

                                                                                    First Deputy Secretary of State