102 DOS 93
Issued: September 9, 1993
STATE OF NEW YORK
DEPARTMENT OF STATE
----------------------------------------X
DIVISION OF LICENSING SERVICES,
Complainant,
-against- DECISION
JUDITH EISENHAUER,
Real Estate Broker,
Respondent.
----------------------------------------X
Administrative Law Tribunal
270 Broadway, New York, N.Y. 10007.
Held: December 16, 1992; May 18, 1993
Before: Felix Neals, Administrative Law Judge.
-----------------------------------
The respondent, Ms. Judith Eisenhauer, 698 Yonkers Avenue, Yonkers, N.Y. 10704, was represented by Jeff Frydman, Esq., and Andrew M. Romano, Esq., 20 South Broadway, Yonkers, N.Y. 10710.
The Division of Licensing Services was represented by Timothy J. Mahar, Esq., 162 Washington Avenue, Albany, N.Y. 12231.
ISSUE
This proceeding was brought pursuant to the provisions of Real Property Law, §441-c, the State Administrative Procedure Act, Article 3, and 19 New York Codes, Rules and Regulations (NYCRR), Part 400, to determine if the respondent demonstrated untrustworthiness and incompetence. The specific allegations are that when licensed as a real estate salesperson, the respondent: (1) Engaged in unlicensed brokerage activities by acting as a real estate broker in the sale of real property, in violation of the provisions of Real Property Law, §440-a; and (2) demanded and accepted a brokerage fee from a person other than the licensed real estate broker with whom the respondent was associated, a violation of the provisions of Real Property Law, §442-a.
FACTS
The records of the Department of State show that the respondent was licensed as follows:
(1) From January 7, 1988, to April 12, 1989, as a real estate salesperson associated with Marie Carlson Real Estate Inc.
(2) From April 12, 1989, to May 16, 1989, as a real estate salesperson associated with Ann Dowling.
(3) From May 16, 1989, to June 6, 1989, as an associate real estate broker associated with D'Amato & Eisenberg Inc.
(4) From June 6, 1989, to August 24, 1989, as an associate real estate broker associated with Ann Dowling.
Currently, the respondent is licensed as a real estate broker engaged in business under the trade name Eisenhauer Real Estate.
The dispute in this case concerns the sale of real property, 786 North Broadway, Yonkers, N.Y., by the Estate of Emma Jane McCallum to Messrs. Nicholas Bruno and Thomas Como, partners, on May 12, 1989. The paramount issues are: (1) Whether the respondent negotiated the sale of the real property by acting as a real estate broker while licensed as a real estate salesperson, and (2) if the respondent demanded and accepted on her own behalf a brokerage fee from the seller of the property.
Sometime prior to April 12, 1989, Ms. Eisenhauer was contacted by Mr. Nicholas Bruno, a friend, who asked her to find the telephone number of a Leo Anderson, Esq., the attorney for the Estate of Emma Jane McCallum. Ms. Eisenhauer did so. Mr. Bruno contacted Mr. Anderson regarding the estate property that was for sale; and, at a time not specified in the record, Mr. Bruno and Ms. Eisenhauer examined parcels of property referred to Mr. Bruno by Mr. Anderson.
On or about April 12, 1989, the day on which Ms. Eisenhauer became associated with Ann Dowling real estate, Mr. Anderson asked Ms. Eisenhauer to contact a potential buyer of the property and to secure the property (which was uninhabited and previously vandalized). By April 15, 1989, Ms. Eisenhauer: had secured the property; had successfully negotiated a sale of the property to the partnership of Bruno and Como; and had given the sales information to Mr. Anderson who drafted a contract of sale. That contract contains a revised clause which states that the contracting parties agree that Ms. Eisenhauer is the broker who brought about the sale and that the seller would pay the brokerage commission.
On April 16, 1989, Ms. Eisenhauer made a "purchase memorandum" of the transaction on an Ann Dowling form. The sales agreement was signed on April 17, 1989, by the buyers and received by Mr. Anderson on April 24, 1989, fully executed by the administrator of the McCallum estate. A closing was scheduled for May 12, 1989.
Marie Carlson Real Estate Inc. learned fortuitously of the pending sale, and on or about April 27, 1989, the real estate broker demanded a commission in the amount of $4,500 from the seller (estate) through Mr. Anderson. The attorney for Marie Carlson Real Estate also wrote to Mr. Anderson on April 27, 1989, and on behalf of the brokerage firm, made the same demand for a commission based on the assertion that when Ms. Eisenhauer was employed as a real estate agent by the estate, she was associated with Marie Carlson Real Estate Inc. as a real estate salesperson. Mr. G. Carlson, representative broker of Marie Carlson Real Estate, Inc., testified that although the McCallum property had not ever been listed with the brokerage firm, he believed that Ms. Eisenhauer was involved in the sales transaction prior to her termination on April 11, 1989.
In a letter dated May 10, 1989, Mr. Anderson advised Marie Carlson Real Estate Inc., its attorney, and Ms. Eisenhauer that the brokerage fee would be placed into court for a determination as to "which of the claimants is entitled thereto." Mr. Anderson further stated in the letter as follows:
In addition to dealing directly with potential buyers who contacted me, I dealt exclusively with Judith Eisenhauer and my dealings with her continued down to the date I accepted a down payment from the buyers she produced, Nicholas Bruno and Thomas Como....All of the information which I have is that on April 11, 1989 the said Judith Eisenhauer severed her relat ionship (sic) with your client and went with Ann Dowling Real Estate. My dealings continued with her as the real estate sales person....My opinion, based upon the facts known by me and my intent at the time, was and is, that the said Judith Eisenhauer is the person entitled to the agreed commission of 6%.
The sales transaction was completed on May 12, 1989. The commission dispute continued until a settlement was negotiated between and among the various attorneys representing the McCallum estate (Mr. Anderson), Marie Carlson Real Estate Inc. (Murray Woodrow, Esq.), and Ms. Eisenhauer (John Romano, Esq.). As a result of the settlement, the seller paid a commission of $3,070 by check payable to Ms. Eisenhauer and a commission of $1,250 by check payable to Marie Carlson Real Estate Inc. Both checks were dated June 26, 1989. Both Ms. Eisenhauer and Marie Carlson Real Estate Inc. executed releases in favor of the McCallum estate. Ms. Eisenhauer testified that she negotiated the sale of the property as an agent of the seller and as a salesperson associated with Ann Dowling who was aware of the transaction and who waived the broker's right to any part of the fee in June 1989 because of the controversy involving Marie Carlson Real Estate Inc. and the trouble it caused Ms. Eisenhauer.
Ms. Ann Dowling's testimony contradicts that of Ms. Eisenhauer and was essentially as follows. Ms. Eisenhauer did not bring any real estate listings to the brokerage firm on April 12, 1989, the date of employment. Ms. Dowling knew very little about the McCallum transaction except that at the beginning of the employment, Ms. Eisenhauer mentioned that she was going to receive a commission for a purchase of property by a friend of hers, Mr. Bruno; and since the brokerage firm had not been involved in the transaction, Ms. Dowling told Ms. Eisenhauer to keep the entire commission whenever the deal was finalized. At a time not set forth in the record, Ms. Eisenhauer told Ms. Dowling that Marie Carlson Real Estate Inc. claimed a part of the commission. It was in December 1992, after her termination on August 24, 1989, with the agency when Ms. Eisenhauer first told Ms. Dowling that a commission of $3,070 had been paid. Ms. Dowling denied: having seen either the commission check in June 1989 or the Ann Dowling purchase memorandum form completed and dated April 16, 1989, by Ms. Eisenhauer; and having been offered a portion of the commission in June 1989 by Ms. Eisenhauer. Ms. Dowling asserted that she, as a broker, was not involved in the sales transaction of the McCallum property and did not demand or receive any part of the brokerage commission paid by the sellers to Ms. Eisenhauer.
The testimony of Ms. Eisenhauer also differs from that of Mr. Scott Amaral, an investigator from the Division of Licensing Services. Mr. Amaral testified that during his investigation of the matter in dispute, he interviewed both Mr. Anderson and Ms. Dowling. Concerning the interview of October 29, 1992, with Ms. Dowling, the investigator stated:
Ms. Dowling's recollection of the transaction was very vague because it happened a couple of years ago. And she said she did not recall all of the specifics, but she said to the best of he recollection, the case had transpired without any brokerages being involved, but that Marie Carlson Real Estate felt that they were entitled to a commission because Judith Eisenhauer had been involved in it in some way, knew the parties, or whatever the reason was. Marie Carlson felt they were entitled to a commission. It was a matter of a commission dispute between Marie Carlson Real Estate and Judith Eisenhauer. She said that she did not demand payment for any brokerage services, because her brokerage had not done any work relating to the negotiations. (Trans. pp. 68, 69).
Mr. Amaral was questioned about his interview with Mr. Anderson on January 9, 1990:
Q. Mr. Amaral, I believe you testified that Mr. Anderson told you that Judith Eisenhauer, during part of the negotiations, was still associated with the Marie Carlson agency?
A. Yes, he said that in the beginning -- what he said was that during the course of the negotiations, there came a point when he knew that she was associated with Marie Carlson Real Estate on one day, and a few days later she advised him that she had left the firm and was now associated with Ann Dowling. (Trans. p. 76).
The credible testimony and documentary evidence establish the following facts: Sometime prior to April 11, 1989, while licensed as a real estate salesperson with Marie Carlson Real Estate Inc., Ms. Eisenhauer was employed by Ms. Anderson to represent the seller, the estate of Emma Jane McCallum, in the sale of property located at 786 North Broadway, Yonkers. Ms. Eisenhauer did not disclose the fact of that employment to either Marie Carlson Real Estate Inc. (the brokerage firm with whom she was associated as a real estate salesperson at the time she was employed by the seller) or to Ann Dowling (the broker with whom Ms. Eisenhauer became associated as a real estate salesperson as of April 12, 1989). Consequently, Ms. Eisenhauer negotiated the transaction on behalf of the seller, successfully obtained purchasers for the property by May 12, 1989, and on June 26, 1989, she received a brokerage commission of $3,070 in her own name for her services rendered on her own behalf and without the supervision of a licensed real estate broker.
Marie Carlson Real Estate Inc. demanded and received a brokerage fee of $1,250 for the transaction of sale of property between the Estate of Emma Jane McCallum and the buyers. Marie Carlson Real Estate Inc. did not participate or render any services in the transaction on behalf of any party; the claim of the broker for a commission was based entirely on the services rendered in the transaction by Ms. Eisenhauer.
The real estate broker, Ann Dowling, was not involved in, did not make a claim for a commission, and did not receive a fee in the sale of the McCallum property.
OPINION
Sometime prior to April 11, 1989, Ms. Eisenhauer was employed as the agent of the seller to effectuate a sale of the McCallum property. The respondent admitted and the conduct of the parties demonstrate: the creation of the agency relationship between the seller (as principal) and the respondent (as agent); and the accomplishment of the agency purpose, the sale of the McCallum property, by the respondent on behalf of the principal.
In achieving the agency purpose, Ms. Eisenhauer performed on behalf of the seller for a fee activities prescribed by the provisions of Real Property Law, §440, to be performed either by a licensed real estate broker or by a licensed real estate salesperson associated with and on behalf of a licensed real estate broker.
Real Property Law, §440-a, proscribes that a person shall not "...engage in or follow the business or occupation of, or hold himself or itself out or act temporarily or otherwise as a real estate broker or real estate salesman in this state without first procuring a license therefor..." A real estate salesperson by definition is a person "...associated with a licensed real estate broker..." and permitted to perform the activities prescribed in §§440(1) and 440(3) "...for and in behalf of such real estate broker..." (Real Property Law, §440[3]). A real estate salesperson is prohibited from engaging in activities prescribed in the provisions of Real Property Law, §440, unless associated with and under the supervision of a licensed real estate broker. (Real Property Law, §§440-a, 440[3]. This means on a practical level that a licensed real estate salesperson: Must be associated with and supervised by a licensed real estate broker when engaging in activities described in the provisions of Real Property Law, §440-a (Real Property Law, §441[1][d]; 19 NYCRR, §175.21[a]); is prohibited from acting as or holding himself out as a real estate broker prior to licensure as a broker (Real Property Law, §440-a; Department of State v Testa, 60 DOS 90 (1990)]; obtains all clients, receives all deposits of money from clients; and conducts all real estate business on behalf of and subject to the control and supervision of the sponsoring licensed real estate broker. (Department of State v Strout Realty Inc., 20 DOS 88 [1988]; Department of State v. Eksteen, 49 DOS 88 [1988]); and for any real estate brokerage services rendered by the salesperson, is forbidden from receiving or demanding compensation of any kind from any person who is not the sponsoring broker. (Real Property Law, §442-a).
In violation of the licensing law and regulation, the respondent conducted the activities of the McCallum/Bruno-Como real estate transaction without the knowledge of the broker, Marie Carlson Real Estate Inc., and independently of the scope of the respondent's association with either broker, Marie Carlson Real Estate Inc. or Ann Carlson. As an agent of the seller in the sale of the McCallum property, the respondent carried on the business of a real estate broker for her own direct benefit.
The respondent argues that at the time she received the brokerage fee, she was a duly licensed real estate broker. That argument is without legal merit: The respondent was a real estate salesperson when she performed the real estate brokerage services as an agent of the seller. A real estate broker who is not so licensed when the real estate services are rendered engages in unlicensed activities, is guilty of a misdemeanor, and is not entitled to
compensation for those services. (Cf. Calhoun v Banner, 254 NY 325 [1930]). All the negotiations, all the services rendered through which the respondent produced buyers for the McCallum property occurred prior to the date the respondent was licensed as a real estate broker. Consequently, the respondent's unlicensed activity was the procuring cause of the results achieved by the respondent.
As a result of the illegal act, the legal prohibitions preventing the respondent from receiving a commission are tertiary: (1) Not being properly licensed at the time the brokerage services were rendered, the respondent is prohibited from receiving any money, fee, commission or thing of value for performing on behalf of the seller any activity required to be licensed by the Department of State (Real Property Law, §442-a); Department of State v Bernier, 141 DOS 92 [1992]). (2) Being licensed as a real estate salesperson associated with a licensed real estate broker at the time the brokerage services were performed, the respondent is prohibited from receiving or demanding a fee from any person other than the sponsoring broker for rendering such services (Real Property Law, §442-a). And (3) the respondent is not entitled to a commission resulting from an act committed in violation of law. (Edelstein v Department of State, 16 AD2d 764, 227 NYS2d 987 [1st Dept. 1962]).
The legality of the respondent's act also taints the claim of the real estate broker Maire Carlson Real Estate Inc., for compensation from the seller for the services rendered by the respondent in the sale of the McCallum property. The claim of the broker is dilemmatic: The real estate broker is prohibited both from collecting and retaining a commission from the seller for any known illegal activity of the respondent as an associated salesperson (Real Property Law, §442-c) and from extracting from the seller a fee which is not reasonably related to any legitimate service actually performed by the broker on behalf of the seller in the real estate transaction. (Gold v Lomenzo, 29 NY2d 468, 329 NYS2d 805 [1972]; Department of State v Big Ben Realty Corp., 40 DOS 88 [1988]).
The evidence establishes that while licensed as a real estate salesperson and while acting independently of the scope of an association with or the supervision of a licensed real estate broker: The respondent performed for others for a fee activities prescribed in the provisions of Real Property Law, §440-a; and (2) the respondent collected and retained in her own behalf a brokerage commission from the seller, a person other than a licensed real estate broker with whom the respondent was associated as a licensed real estate salesperson.
The real estate brokers, Marie Carlson Real Estate Inc. and Ann Carlson, were not named as parties in this action.
CONCLUSIONS OF LAW
1. When licensed as a real estate salesperson, the respondent engaged in unlicensed activities, in violation of the provisions of the Real Property Law, §§440-a and 440(3).
2. For the performance of unlicensed real estate activities when licensed as a real estate salesperson, the respondent received a brokerage commission from a person other than the licensed real estate broker with whom the respondent was associated, a violation of the provisions of Real Property Law, §442-a.
3. The wrongful conduct of the respondent, a real estate licensee, resulted in money being improperly received and retained by the licensee, therefore, both a penalty of restitution and reasonable conditions upon reinstatement to licensure may be imposed. (Kostika v Cuomo, 42 NY2d 673, 394 NYS2d 862 [1977]; Beirne v Paterson, 86 AD 947, 448 NYS2d 594 [3rd Dept. 1982]).
DETERMINATION
IT IS DETERMINED, according to the foregoing and pursuant to the provisions of Real Property Law, §441-c, that the respondent, Ms. Judith Eisenhauer, real estate broker, has demonstrated untrustworthiness and incompetence, and all licenses issued to the respondent pursuant to the provisions of Real Property Law, Article 12-A, are suspended for a three-month duration of time beginning November 1, 1993, and ending January 31, 1994.
IT IS FURTHER DETERMINED, according to the foregoing and pursuant to RPL, §441-c, that all licenses issued to the respondent pursuant to the provisions of Real Property Law, Article 12-A, be suspended indefinitely beginning February 1, 1994, and shall continue until such time as the respondent shall present proof satisfactory to the Division of Licensing Services that the respondent has refunded to the Estate of Emma Jane McCallum the sum of $3,070, plus interest from June 26, 1989, at 9% per annum, the current legal rate for judgments.
From the testimony and evidence presented at the hearing, the above findings of fact, opinion, conclusions of law, and determination
are made, and the adoption of this decision is recommended.
Felix Neals
Administrative Law Judge
Concur and So Ordered on: GAIL S. SHAFFER
9/9/93 Secretary of State
By:
James N. Baldwin Executive Deputy Secretary of State