STATE OF NEW YORK
DEPARTMENT OF STATE
OFFICE OF ADMINISTRATIVE HEARINGS
7 DOS 00
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DIVISION OF LICENSING SERVICES,
Complainant,
-against-
FLAGSHIP MARKETING GROUP INC.,
Real Estate Broker,
HUGH A. BERGER,
Representative Real Estate Broker,
FLAGLER REALTY & MARKETING INC.,
Real Estate Broker,
HUGH A. BERGER,
Representative Real Estate Broker,
HOAINHAN M. TRUONG,
Real Estate Salesperson,
DECISION
PREFERRED WORLDWIDE REALTY SERVICES LTD.,
Real Estate Broker,
HUGH A. BERGER,
Representative Real Estate Broker,
INTERNATIONAL POINT OF SALES INC.,
Real Estate Broker,
HUGH A. BERGER,
Representative Real Estate Broker,
Respondents,
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ADMINISTRATIVE LAW TRIBUNAL
123 William Street, New York, NY 10038
Held: August 17, 1999
Felix Neals, Supervising Administrative Law Judge
___________________________________
The respondents, Flagship Marketing Group Inc., International Point of Sales Inc., and Messrs. Hugh A. Berger and Hoainhan M. Truong, 108-18 Queens Boulevard, 9th Floor, Forest Hills, NY 11375, and Flagler Realty & Marketing Inc., 2075 86th Street, 2nd Floor, Brooklyn, NY 11201, and Preferred Worldwide Realty Services Ltd., 16 Charles Place, 2nd Floor, Huntington Station, NY 11746, did not appear and were not represented.
The complainant, the Division of Licensing Services, was represented by Laurence J. Soronen, Esq., Litigation Counsel, 84 Holland Avenue, Albany, NY 12208.
ISSUES
This action was brought under the provisions of Real Property Law, §441-e, State Administrative Procedure Act, Articles 3 and 4, and 19 New York Codes Rules and Regulations, §400, to determine if the respondents engaged in fraud and fraudulent business practices and demonstrated untrustworthiness and incompetence. The State charges the following violations:
A. The respondents, Flagship Marketing Group Inc., corporate real estate broker, and Hugh A. Berger, representative real estate broker, availed the corporate real estate broker license to Mr. Hoainhan M. Truong, an associated real estate salesperson.
B. The respondent, Mr. Hoainhan M. Truong, a licensed real estate salesperson: (1) was an officer and a stockholder of voting shares of and operated a licensed real estate brokerage with which and while associated as a licensed real estate salesperson, in violation of Real Property Law, §441-b(2), and 19 New York Codes, Rules and Regulations, §175.22; (2) illegally demanded and retained commissions, in violation of Real Property Law, §442-a.
C. The respondents, Messrs. Hugh A. Berger and Mr. Hoainhan M. Truong: (1) employed unlicensed persons to engage in regulated real estate activity, in violation of Real Property Law, §442-c; (2) paid part of commissions to unlicensed persons for performing regulated real estate activity, in violation of Real Property Law, §442; (3) engaged in illegal sales of subdivided lands; and (4) failed to cooperate with a Division of Licensing Services' investigation, in violation of Real Property Law, §§442-e(5) ad 442-j.
SUMMARY OF THE EVIDENCE
Evidence submitted includes the following:
A. EXHIBITS.
1. Pleadings that consist of the notice of hearing, the complaint, exhibits that note the licensure history of the respondents, and four domestic return receipts of the United States Postal Service that denote the delivery of certified mail.
2. Consumer complaint from fifteen individuals to the Division of Licensing Services.
3. Letters dated December 7, 1998, to respondents demanding respondents' appearance and production of business records and three, domestic return receipts of the United States Postal Service indicating delivery of certified mail.
4. Letter dated December 17, 1998, from Mr. Hoainhan M. Truong in response to Division of Licensing Services' letter of December 7, 1998.
5. Five letters dated January 19, 1998, sent by certified mail by the Division of Licensing Services to Hugh Berger, all returned by the United States Postal Service with the notation "unclaimed."
6. Two letters dated February 5, 1999, sent by certified mail by the Division of Licensing Services to Mr. Hoainhan M. Truong, both returned by the United States Postal Service with the notation "forwarded."
7. Subpoena duces tecum from the Division of Licensing Services to Republic National Bank of New York and its reply of copies of corporate banking resolutions and business signature cards of Flagship Marketing Group Inc.
8. Subpoena duces tecum from the Division of Licensing Services to Bell Atlantic and its response of a copy of the telephone number and billing number for Flagship Marketing Group Inc.
9. Ten advertisements that appeared during April, May, and July 1997 in the Chinese newspaper "Daily World."
10. Three packets of information on letterhead of "Palm Coast represented by Flagship Marketing Group Inc." entitled "Employee Information Form", "Teaching Outline for Orientation Class", and "Management Standard."
11. Copies of two negotiated checks of Flagship Marketing Group Inc.
12. Seven contracts for purchase of undeveloped land from Palm Coast Holdings, Inc.
13. Lease agreement Flagship Marketing Group Inc. as tenant.
14. Business card Flagship Marketing Group Inc.
15. Letter dated August 27, 1998, from Palm Coast Holdings Inc. to Ms. Duqiong Xiao.
16. Letter dated November 5, 1997, from Brattlof Realty Group Inc. to Ms. Duqiong Xiao with attachments of comparative market analysis for lots, Palm Coast map of 82 lots, two tax notices from Flagler County Taxing Authorities.
17. Copies of three checks Flagship Marketing Group Inc. to Ms. Duqiong Xiao and Mr. Kai Cui.
B. WITNESSES. Mr. Vito Abate, Senior License Investigator, Division of Licensing Services, testified regarding his investigation of the respondents.
The complaining witness, Ms. Duqiong Xiao, testified regarding her employment with Flagship Marketing Group Inc. and purchase of land from Palm Coast Holdings Inc. The other complaining witnesses, Mr. Daiqian Liu, Ms. Dongyuan Cao, Mr. Guanghao Fan, Ms. Kani Zhao, and Mr. Kai Cui testified concerning their purchase of land from Palm Coast Holdings Inc.
PROCEDURAL ACTION
Ms. Julie Tay, interpreter, was duly sworn to translate the proceeding for the complaining witnesses that did not speak fluently the English language.
FACTS
By the substantial evidence, I find the following facts:
Flagship Marketing Group Inc. was licensed as a corporate real estate broker for the term September 24, 1996, through September 24, 1998, with Mr. Hugh A. Berger licensed as the representative real estate broker, at 108-18 Queens Boulevard, 9th Floor, Forest Hills, NY 11375.
Mr. Hoainhan M. Truong was licensed was a real estate salesperson for the term October 17, 1997, through October 17, 1999, associated with Flagship Marketing Group Inc. at 108-18 Queens Boulevard, 9th Floor, Forest Hills, NY 11375.
On September 24, 1998, the date on which the corporate real estate license of Flagship Marketing Group Inc. lapsed, both the representative real estate broker license of Mr. Berger and the real estate salesperson license of Mr. Truong also lapsed.
Flagler Realty & Marketing Inc. was licensed as a corporate real estate broker for the term February 13, 1997, through February 13, 1999, with Mr. Hugh A. Berger as the licensed representative real estate broker, at 2075 86th Street, 2nd Floor, Brooklyn, NY 11201.
Preferred Worldwide Realty Services Inc. is licensed as a corporate real estate broker for the term January 12, 1998, through January 12, 2000, with Mr. Hugh A. Berger as the licensed representative real estate broker, at 16 Charles Place, 2nd Floor, Huntington Station, NY 11746.
International Point of Sales Inc. is licensed as a corporate real estate broker for the term May 18, 1998, through May 18, 2000 with Mr. Hugh A. Berger as the licensed representative real estate broker, at 108-18 Queens Boulevard, 9th Floor, Forest Hills, NY 11375.
Mr. Hoainhan M. Truong: on July 11, 1996, as president of Flagship Marketing Group Inc., executed a corporate resolution and signed business signature cards to open a checking account at Republic National Bank of New York; on July 12, 1996, representing Flagship Marketing Group Inc., executed a lease agreement for office space at 108-18 Queens Boulevard, 9th Floor, Forest Hills, NY 11375; on January 10, 1997, as president of Flagship Marketing Group Inc., opened a special checking account at Republic National Bank of New York.
In the duration of time from April through July 1997, on behalf of Flagship Marketing Group Inc., Mr. Truong placed at least ten advertisements in the Chinese newspaper, Daily World. The advertisements essentially stated that a big american company seeking to expand the Asian market was offering high salary, good benefit package, and free training to persons who were of Chinese ancestry living in New York.
In April 1997, Ms. Duqiong Xiao and her husband, Mr. Kai Cui, went to Flagship Marketing Group Inc. at 108-18 Queens Boulevard, 9th Floor, Forest Hills, NY 11375, and were interviewed by Mr. Hoainhan M. Truong. Mr. Truong told them that they would be trained to sell land located in Florida to Chinese people living in New York and that, because he, Hoainhan M. Truong, was a licensed real estate broker, they were not required by law to be licensed as salespersons.
Ms. Duqiong Xiao and Mr. Kai Cui attended training classes at Flagship Marketing Group Inc. for four nights, from 6 PM to 8 PM. Mr. Truong then had them list the names of friends and relatives whom were to be invited to sales presentations on Saturday and Sundays as potential purchasers of Floridian land.
After being told by Mr. Truong that if they wanted to work at Flagship Marketing Group Inc., they would have to set a good example for others by purchasing Floridian property. In New York on April 13, 1997, Ms. Xiao and Mr. Cui executed a contract to buy two parcels of undeveloped, Floridian land for $20,600 and for $17,900 from Palm Coast Holdings Inc. On April 14, 1997, Ms. Xiao and Mr. Cui went to the Flagship Marketing Group Inc. office and asked to cancel the two contracts. Mr. Truong stated that if they wanted to cancel the contracts, Mr. Cui could not work at Flagship Marketing Group Inc. Ms. Xiao and Mr. Cui decided not to cancel the contracts.
The two contracts were accepted and approved by the seller, Palm Coast Holdings Inc., in Florida on April 21, 1997. Both contracts: state that the purchaser had inspected the land prior to purchase (the purchasers did not see the land until after the purchase); provide that the salesperson/broker is the acting agent, employee, independent contractor or representative of the seller (in a letter dated August 27, 1998, to Ms. Xiao, Palm Coast Holdings Inc. states, "Mr. Truong, through Flagship Marketing Group Inc., does represent Palm Coast Holdings and the lot he sold to you was from Palm Coast Holdings' lot inventory."); allows for a ten-day cancellation; and provides that the contracts are governed by the laws of Florida.
Subsequent to purchase of the lots, Ms. Xiao had the land appraised through a comparative marketing analysis. The lots were valued as follows: the lot purchased for $20,600 was valued at $6,200; and the lot purchased for $17,900 was valued at $8,900. The Flagler County Taxing Authority valued the properties at $8,500 and $5,100.
On May 4, 1997, while employed by Flagship Marketing Group Inc., Ms. Xiao and Mr. Cui sold two, Floridian lots to Mr. Guanghao Fan, who also started to work as a salesperson for Flagship Marketing Group Inc.
On May 19, 1997, Mr. Truong paid $1,326 and $250 to Ms. Xiao and Mr. Cui as commissions on their purchase of the two, Floridian lots.
The other complaining witnesses purchased Floridian lots from Palm Coast Holdings through employees of Flagship Marketing Group Inc.: Ms. Kani Zhao on April 13, 1997; Mr. Daiqian Liu on May 4, 1997; Ms. Dongyan Cao on April 6, 1997. Not any purchaser inspected the land prior to purchase.
Each executed contract for the purchase of vacant land is identical as to preprinted form. Each contract provides for a deed and mortgage after the purchaser's down payment; price, payment terms, date, and purchaser name are different.
The evidence fails to disclose: (1) what, if any, contractual relationship existed between and among Flagship Marketing Group Inc., Palm Coast Holdings Inc., and Mr. Hoainhan M. Truong; (2) what amount of, if any, commissions were paid to Flagship Marketing Group Inc. or to Mr. Hoainhan M. Truong by Palm Coast Holdings Inc. as compensation for sales of Floridian land to any of the complaining witnesses; and (3) if Mr. Truong knew the market value of the Floridian lots sold to any of the complaining witnesses.
In the duration of time from September 24, 1996, to September 24, 1998, when licensed as the representative real estate broker of Flagship Marketing Group Inc., Mr. Hugh A. Berger was not present in the brokerage office and did not manage, control or participate in the corporate real estate brokerage business.
On December 7, 1998, the Division of Licensing Services mailed by certified mail a request to each of the respondents to appear before the agency with specified corporate documents. Each request was delivered to the respondents on December 9, 1998. The respondents did not appear and did not produce the corporate records requested.
In letters dated and mailed by certified mail on January 19, 1999, each respondent was instructed by the Division of Licensing Services to appear before the agency at a specified time and place and to provide specified information regarding corporate officers, personnel, shareholders, bank accounts, training documents, and newspaper advertisements. The letter addressed to Mr. Hugh A. Berger and Flagship Marketing Group Inc. was delivered; all other letters were returned by the United States Postal Service with the notation "unclaimed."
On February 5, 1999, the Division of Licensing Services sent a letter by certified mail requesting Mr. Hoainhan M. Truong and Flagship Marketing Group Inc. to appear before the agency at a specified time and place and to provide specified information regarding corporate officers, personnel, shareholders, bank accounts, training documents, and newspaper advertisements. That letter was returned by the United States Postal Service with the notation "forwarded."
The respondents did not respond to the Division of Licensing Services' requests of January 19 and February 5, 1999.
On June 9, 1999, by certified mail the Division of Licensing Services sent a copy of the notice of hearing and a copy of the complaint: (1) to Mr. Hoainhan M. Truong and Flagship Marketing Group Inc., 108-18 Queens Boulevard, 9th Floor, Forest Hills, NY 11375, that was delivered on June 11, 1999, fifty-seven days before the scheduled hearing date; to Hugh A. Berger, Flagship Marketing Group Inc., 108-18 Queens Boulevard, 9th Floor, Forest Hills, NY 11375, delivered on June 11, 1999, fifty-seven days before the scheduled hearing date; to Hugh A. Berger, Flagler Realty & Marketing Inc., 2075 86th Street, 2nd Floor, Brooklyn, NY 11201, delivered on June 14, 1999, fifty-four days before the scheduled hearing date; to Hugh A. Berger, International Point of Sales Inc., 108-18 Queens Boulevard, 9th Floor, Forest Hills, NY 11375, delivered on June 12, 1999, fifty-six days before the scheduled hearing date.
Although named in the caption of the action as respondents, the complaint did not charge Flagler Realty & Marketing Inc., Preferred Worldwide Realty Services Ltd., and International Point of Sales Inc. with any violation of law.
OPINION
The State offered the only evidence admitted at the hearing. The evidence admitted is not impugned by any direct evidence or by any legitimate inference, is not improbable, and is not surprising or suspicious. Accordingly, the evidence is conclusive.
Not being currently licensed by the Division of Licensing Services to engage in regulated, real estate activities, the failure of the respondents, Flagship Marketing Group Inc. and Messrs. Hugh A. Berger and Hoainhan M. Truong to appear or to be represented at the hearing raises preliminarily two, jurisdictional issues. First, is the tribunal empowered to conduct a quasi-judicial, disciplinary proceeding that involves a party who is not currently a licensee of the Department of State? Second, does the tribunal have the authority to conduct a quasi-judicial, administrative hearing to determine a party's trustworthiness and competence where the party does not appear and is not represented at the hearing?
Subject matter jurisdiction is statutorily conferred and cannot be acquired, lost, waived or extended except by a legislative action. Personal jurisdiction is obtained through the proper service of process.
A quasi-judicial, administrative, law tribunal of the Department of State retains jurisdiction over and may hold a disciplinary hearing under the provisions of Real Property Law, Article 12-A, to determine allegations made against a party who is not a licensee of the Department of State at the time of the hearing if the disciplinary proceeding was timely commenced; that is, when properly served with a copy of the notice of hearing and the complaint, the party served: (1) was licensed to engage in regulated, real estate activities; or (2) was an applicant for either a license or for the renewal of a license to engage in regulated, real estate activities; or (3) was eligible to automatically renew the prior license under the two-year, limitation provision of Real Property Law, §441(2), which provides that any license granted under the provisions of Real Property Law, Article 12-A, may be renewed on the application of the holder made within two years from the date of expiration of the previously issued license.
The service of a notice of hearing and of a complaint in a quasi-judicial, administrative proceeding brought under the provisions of Real Property Law, Article 12-A, must conform with provisions of Real Property Law, §441-e(2), State Administrative Procedure Act, §301(2), and 19 New York Codes, Rules and regulations, §400.4(a), that require the following: (1) Every adjudicatory proceeding that may result in a determination to revoke or to suspend a license or to fine or to reprimand a licensee must be commenced by the service of a written notice of hearing and a statement of charges. (2) The notice of hearing shall include (a) a statement of the time, place, date, and purpose of the hearing and of the legal authority and jurisdiction that governs the hearing, and (b) reference to the particular sections of the statutes and rules involved, where possible. (3) The statement of charges shall consist of plain and concise statements that sufficiently apprise the party charged and the Administrative Law Judge of the alleged unlawful activity. (4) The party charged with unlawful conduct must be served personally, or by certified mail, or in a manner authorized by the Civil Practice Law and Rules, with a copy of the written notice and statement of charges at the party's last known business address at least 10 days before the scheduled hearing date.
Delivery by certified mail at least fifty-four days before the scheduled hearing date of a copy of the pleadings to each respondent at the respondent's business address last known to the Division of Licensing Services creates the presumption that the pleadings were properly mailed, delivered, and received by the respondents. The presumption of proper mailing and receipt is not rebutted by evidence sufficient to prove the nonexistence of the facts assumed; therefore, the presumptive facts are found to exist. The service of process complies with the due-process requirements of Real Property Law, §441-e(2), State Administrative Procedure Act, §301(2), and 19 New York Codes, Rules and Regulations, §400.4(a).
Under the provisions of Real Property Law, Article 12A, the tribunal possesses the authority to determine the allegations made in the complaint against Flagship Marketing Group Inc., Mr. Hugh A. Berger, and Mr. Hoainhan M. Truong: (1) each was licensed to engage in real estate brokerage activity when the alleged, unlawful conduct occurred and when the disciplinary proceeding was commenced by the proper service of a copy of the notice of hearing and a copy of the complaint; and (2) during the two-year duration of time beginning September 24, 1998, through September 23, 2000, which includes August 17, 1999, the date on which the disciplinary hearing was held, those parties are eligible to automatically apply to renew the prior licenses (Real Property Law, §441[2]). In addition, Mr. Hugh A. Berger is currently licensed under Real Property Law, Article 12-A, as the representative real estate broker of International Point of Sales Inc., for the term May 18, 1998, to May 18, 2000.
Real Property Law: (1) prescribes that before engaging in the practice of real estate brokerage activity regulated by Real Property Law, Article 12-A, a person or entity must be licensed either as a real estate broker or as a real estate salesperson, unless statutorily exempted (§440-a); (2) defines a real estate broker as any person who (a) for another (b) and for a fee, commission or other valuable consideration (c) lists for sale, sells, exchanges, buys or rents or offers or attempts to negotiate a sale, exchange purchase or rental of an interest in real estate (§440[1]); (3) prohibits a licensed real estate broker from employing or associating an unlicensed salesperson to engage in regulated, real estate activity (§442-c).
Law permits a licensed real estate salesperson to perform regulated, real estate activities as an agent of and under the supervision of a licensed real estate broker in a licensed real estate office (Real Property Law, §§440[3], 440-a, 441[1][d]; 19 New York Codes, Rules and Regulations, §§175.20, 175.21; Department of State v Stout Realty Inc., 20 DOS 88 [1988]; Department of State v Eksteen, 49 DOS 88 [1988]). Concomitantly, law forbids an associated, licensed real estate salesperson from engaging in a regulated, real estate business for the salesperson's own, direct interest or benefit (Real Property Law, §440-a; Department of State v Eksteen, supra; cf. 19 New York Codes, Rules and Regulations, §175.20[a]). This means on a practical level that a real estate salesperson: must be associated with a licensed real estate broker before engaging in activities described in the provisions of Real Property Law, §440 (Real Property Law, §442-b); 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); is forbidden from conducting real estate brokerage activities in any place not indicated in the license of the sponsoring broker (Department of State v Testa, 23 DOS 90 [1990]); obtains all clients and real estate business on behalf of and subject to the control and supervision of the sponsoring broker; and in all advertisements, including business cards and stationery, is required to give an honest and accurate representation of agency, status, and associate standings.
A licensed real estate salesperson is prohibited both from owning, directly or indirectly or singly or jointly, any shares of voting stock in and from being an officer of any licensed real estate brokerage corporation with which the salesperson is associated (Real Property Law, §441-b[2]; New York Codes, Rules and regulations, §175.22). The purpose of the prohibition "...is to avoid the anomaly of a salesperson...being in the position to supervise his or her own brokerage activities." Division of Licensing Services v Knobel, 135 DOS 93 (1993).
When licensed as a real estate salesperson associated with Flagship Marketing Group Inc., Mr. Hoainhan M. Truong's behavior fits the conduct outlawed by licensing law and regulations:
First, representing Flagship Marketing Group Inc., he executed the lease of the premises in which the principal business offices of the corporate real estate broker were located.
Second, he managed and controlled the operations of Flagship Marketing Group Inc., including the hiring, training, supervision of and payment of commissions to salespersons who were not licensed to engage in regulated real estate activity. The proscription against the hiring of unlicensed salespersons applies only to a licensed real estate broker (Real Property Law, §442-c).
Third, he maintained and operated the business and financial affairs of Flagship Marketing Group Inc. as a corporate officer, president, and as signator on the business and trust bank accounts.
Fourth, he listed himself as president in advertisements, on business cards, and on stationery of Flagship Marketing Group Inc.
The evidential proof that Mr. Truong acted as a real estate broker while associated as a licensed real estate salesperson with Flagship Marketing Group Inc. is dihedral: The evidence also proves:
First, the representative real estate broker failed to supervise the regulated, real estate activities both of the salesperson and of the real estate brokerage business. Both a statute (Real Property Law, §441[1][d] and a regulation (19 New York Codes, Rules and Regulations, §175.21) impose on a real estate broker (on the representative real estate broker of a corporate real estate broker) an affirmative duty to supervise regulated, real estate activities of an associated, real estate salesperson and to supervise the general, real estate brokerage business conducted by the broker (Friedman v Paterson, 89 AD2d 701, 453 NYS2d 819 [3rd Dept. 1982], affirmed 58 NY2d 727, 458 NYS2d 546). A real estate broker's supervision of an associated, real estate salesperson as mandated by law consists of "...regular, frequent and consistent personal guidance, instruction, oversight and superintendence by the real estate broker with respect to the general real estate brokerage business conducted by the broker, and all matters relating thereto." 19 New York Codes, Rules and Regulations, §175.21(a).
Second, the representative real estate broker availed the corporate broker license to Mr. Truong, an associated real estate salesperson. The real estate brokerage office was leased, managed, maintained, controlled and operated by the salesperson without the direct supervision of the representative real estate broker as required by law; and the salesperson conducted the business of a real estate broker in the real estate brokerage office for the salesperson's own benefit (Division of Licensing Services v Trident Realty Co., 23 DOS 88 [1988]).
In availing the corporate real estate broker license, Mr. Hugh A. Berger, the representative real estate broker, engaged in fraud. In conducting the business of the corporate real estate broker when associated and licensed as a real estate salesperson, Mr. Hoainhan M. Truong engaged in fraud. Both acts: resulted in the deliberate, unlicensed practice of regulated, real estate activity; with intent to deceive others by misrepresenting either directly or indirectly that the associated salesperson was a licensed real estate broker; reliance on that misrepresentation by others who performed as unlicensed salespersons in contravention of the licensing law (Young v Keith, 492 NY2d 489 [3rd Dept. 1985]; Department of State v Entes, 11 DOS 87 [1987]); Division of Licensing Services v Pozzanghera, et al., 141 DOS 93 [1993]).
Having engaged in fraud in regulated, real estate activities, both Mr. Berger, as representative real estate broker, and Mr. Truong, as associated, real estate salesperson, necessarily engaged in fraudulent business practices. Fraudulent practices in the regulation of commercial activity include acts characterized as dishonest and misleading. Since the purpose of such restrictions on commercial activity is to afford the consuming public expanded protection from deceptive and misleading fraud, the application is not limited to instances of intentional fraud in the traditional sense, and proof of an intent to defraud is not essential (Allstate Ins. Co. v Foschio, 93 AD2d 328, 462 NYS2d 44 [2nd Dept. 1983]; Department of State v Voelker, 31 DOS 87 [1987]). Any deceptive act or practice in the conduct of any business, trade or commerce or in the furnishing of any service in the State of New York is unlawful (General Business Law, §349[a]).
The Division of Licensing Services' requests for information about corporate officers, personnel, shareholders, bank accounts, training documents, and newspaper advertisements sent by certified mail to Flagship Marketing Group Inc. and Messrs. Hugh A. Berger and Hoainhan M. Truong at the address last known to the Division of Licensing Services comply with due process principles that each party be afforded a fair notice and a meaningful opportunity to protect his interests (Sharkey v Thurston, 268 NY 123 [1935]; Stuart v Palmer, 74 NY 183 [1893]).
In failing to comply with the State's request for business and corporate records, to and of which, as officers of the corporate real estate broker, they had access and control, Messrs. Hugh A. Berger and Hoainhan M. Truong failed to cooperate with a Division of Licensing Services' investigation, a violation of Real Property Law, §§442-e(5) and 442-j. Real Property Law, §442-e(5) authorizes the secretary of state to investigate any violation of the licensing law or to investigate the business, business practices and business methods of any person, firm or corporation applying for or holding a license as a real estate broker or salesperson and obligates applicants and licensees on request of the secretary of state to supply such information as may be required concerning business, business practices or business methods, or proposed business practices or methods. Under Real Property Law, §442-j, the Division of Licensing Services is a delegatee of the power authorized in §442-e(5).
The State's charge that the respondents, Flagship Marketing Group Inc., Mr. Hugh A. Berger, and Hoainhan M. Truong, engaged in illegal sales of subdivided land is not founded in fact. Real Property Law, Article 9-A, applies to subdivided land sold or leased or offered for sale or lease on an installment plan (Real Property Law, §337[1]).
The State does not specifically allege and the substantial evidence does not prove any other illegality, including fraud, misstate, undue influence or duress.
The requisite elements of fraud, representation of existing fact, falsity, scienter, deception, and injury, were not proved. Mutual mistake is not at issue. Unilateral mistake, strongly linked to concepts both of negligence and of fraud, is not proved. Conscious ignorance or negligence is not sufficient to prove mistake.
Undue influence is tantamount to a species of cheating. Pressure, regardless of how severe is not undue influence.
Duress requires proof of both a wrongful threat and the effect of precluding the exercise of a party's free will. The purchasers of the Floridian property were not precluded from exercising free will.
In addition to the absence of illegality, fraud, mistake, duress or undue influence or duress in the purchases of the Floridian lots, each contract is plain, clear and explicit in its terms, and unambiguous; therefore, even if each purchase agreement is improvident and an obvious disadvantage to one of the parties, that does not affect the validity of the contract; the tribunal may not, because of equitable considerations, either: (1) obviate objections that might have been foreseen and guarded against; or (2) resort to considerations of circumstances, to situation of the parties, or to the subject matter an the agreement that existed when a contract was executed.
The evidence is insufficient to prove either that Mr. Truong was a stockholder of voting shares of Flagship Marketing Group Inc., a violation of Real Property Law, §441-b(2), and 19 New York Codes, Rules and Regulations, §175.22, or that Mr. Truong illegally demanded and retained commissions in violation of Real Property Law, §442-a.
Mr. Berger, the representative real estate broker, is required by law to be an officer of the corporate real estate broker (Real Property Law, §441-b[2]). In the conduct of the corporate, real estate brokerage business, the representative real estate broker is an agent and corporate officer responsible for ensuring that the licensed activities of the corporate real estate broker are conducted in compliance with licensing law, rules and regulations (Department of State v Strout Realty Inc., 20 DOS 88 [1988]). In addition, the representative real estate broker is liable for his participation in or authorization of any illegal act (Department of State v J. R. Valino Your Realty Inc., 19 DOS 90 [1990]; Department of State v Facey Home Sales Inc., 21 DOS 90 [1990]) and is vicariously liable for a wrongful act of an associated, real estate salesperson when it is proved by substantial evidence either: (1) that the representative real estate broker had actual knowledge of the wrongdoing; or (2) that after notice of the wrongful act, he retained the benefits, profits or proceeds resulting from the salesperson's misconduct (Real Property Law, §442-c).
The corporate licensee, Flagship Marketing Group Inc., being an artificial entity created by law, can only act through, is bound by the knowledge acquired by law, and is responsible for the acts committed by its officers, agents, and employees within the actual or apparent scope of their authority or employment. The representative real estate broker's availing of the corporate real estate broker license is a cognitional act of a corporate office for which he is responsible and liable and for which the corporate broker is vicariously liable (Division of Licensing Services v Florida Connection Inc., 51 DOS 93 [1993]).
The evidential record fails to establish that the representative real estate broker either: (1) had actual knowledge of the illegal acts of the real estate salesperson in hiring of and paying commissions to unlicensed persons; or (2) that after notice of the wrongful acts, retained the benefits, profits or proceeds that resulted from the salesperson's misconduct (Real Property Law, §442-c; Division of Licensing Services v Roberts Real Estate Inc., 51 DOS 90 [1990], modified and confirmed Roberts Real Estate Inc. et al. v New York State Department of State, 171 AD2d 217, 575 NYS2d 945 [3rd Dept. 1991]).
The State's demand for restitution to the complaining witnesses by the respondents is denied. First, the funds sought in restitution were received by Palm Coast Holdings Inc., an entity not named or charged in the complaint. Second, the funds sought in restitution both were not received within the scope of authority of an agency relationship between the buyers and the respondents; neither Mr. Truong nor Flagship Marketing Group Inc. was a party to the purchase agreements between the buyers and Palm Coast Holdings Inc.; substantial evidence does not prove an agency relationship between any purchaser (as principal) and Flagship Marketing Group Inc. (as agent) in the purchase of Floridian land from Palm Coast Holdings Inc. Third, the substantial evidence does not prove that the respondents' wrongful behavior was the proximate cause of injury to the buyers in the purchase of the Floridian land; and fourth, funds sought in restitution are not in the possession or control of the respondents (Connell v Hayden, 83 AD2d 30, 443, NYS2d 383, 402 [AD2d Dept. 1980]; Division of Licensing Services v Facey Home Sales Inc., supra).
CONCLUSIONS OF LAW
Based on the foregoing findings of fact and opinion, I conclude:
1. The respondents, Flagship Marketing Group Inc., Mr. Hugh A. Berger, and Mr. Hoainhan M. Truong, engaged in fraud and fraudulent business practices and demonstrated incompetence and untrustworthiness in that:
(A) Mr. Hugh A. Berger, as representative real estate broker: (1) availed the corporate real estate broker license to an associated, real estate salesperson, Mr. Hoainhan M. Truong (the allegations of failing to properly supervise the associate, real estate salesperson and of the permitting and authorizing the associated, real estate salesperson to act as a real estate broker, violations of Real Property Law, §§440-a and 441[1][d], and 19 New York Codes, Rules and Regulations, §175.21, are elements of and are lesser offenses necessarily included in the charge of availing); and (2) failed to cooperate with a Division of Licensing Services' investigation, a violation of Real Property Law, §442-e(5).
(B) Flagship Marketing Group Inc., corporate real estate broker, is vicariously liable for the wrongful acts of the representative real estate broker.
(C) Mr. Hoainhan M. Truong, when licensed as a real estate salesperson associated with Flagship Marketing Group Inc.: (1) engaged in regulated, real estate activities as a corporate real estate broker, a violation of Real Property Law, §440-a; (2) was an officer of the corporate real estate broker, a violation of Real Property Law, §441-b(2), and 19 New York Codes, Rules and Regulations, §175.22; and (3) failed to cooperate with a Division of Licensing Services' investigation, a violation of Real Property Law, §442-e(5).
The alleged violations of Real Property Law, §442-c, employment of unlicensed persons, and of Real Property Law, §442, payment of part of the commissions for real estate services by unlicensed persons, apply only to real estate brokers - not to real estate salespersons. However, the aiding and abetting of the employment of and the payment of commissions by Mr. Truong to unlicensed persons for performing regulated, real estate activity is a demonstration of untrustworthiness.
2. The State failed to prove by substantial evidence the following charges:
(A) Flagship Marketing Group Inc. and Mr. Hugh A. Berger (1) employed unlicensed persons to engage in regulated, real estate activity in violation of Real Property Law, §440-a and 442-c, and (2) paid part of commissions to unlicensed persons for performing regulated, real estate services, in violation of Real Property Law, §442.
(B) Mr. Hoainhan M. Truong, as a licensed, real estate salesperson associated with Flagship Marketing Group Inc., (1) owned voting shares of the corporate real estate broker, and (2) illegally demanded and retained commissions in violation of Real Property Law, §442-a.
ORDER
Based on the foregoing findings of fact, opinion, and conclusions of law and under the provisions of Real Property Law, §441-c:
I ORDER that the license issued to Mr. Hugh A. Berger as representative real estate broker of International Point of Sales Inc. for the term May 18, 1998, through May 18, 2000, is revoked effective immediately.
I FURTHER ORDER under the provisions of Real Property Law, §441-c(2), that within five (5) days of receipt of a copy of this decision, Mr. Hugh A. Berger delivers in person or by certified mail to Ms. Usha Barat, Customer Service Unit, Department of State, Division of Licensing Services, 84 Holland Avenue, Albany, NY 12208, (a) all licenses and pocket cards issued to him under the provisions of Real Property Law, Article 12-A, as representative real estate broker of International Point of Sales Inc. for the term May 18, 1998, through May 18, 2000, or (b) alternatively, files an affidavit in form prescribed by the Division of Licensing Services if the failure to return all licenses and pocket cards is due either to the documents' loss or destruction.
I FURTHER ORDER the respondent, Flagship Marketing Group Inc., to pay a fine of three thousand ($3,000) dollars by certified check or money order made payable to the New York State, Department of State. The payment of the fine shall be sent to Ms. Usha Barat, Customer Service Unit, Department of State, Division of Licensing Services, 84 Holland Avenue, Albany, NY 12208.
I FURTHER ORDER that if the respondent, Flagship Marketing Group Inc., fails to pay the fine assessed, any application by Flagship Marketing Group Inc. for licensure under provisions of Real Property Law, Article 12-A, shall not be considered until it complies fully with this order.
I FURTHER ORDER the respondent, Mr. Hugh A. Berger, to pay a fine of three thousand ($3,000) dollars by certified check or money order made payable to the New York State, Department of State. The payment of the fine shall be sent to Ms. Usha Barat, Customer Service Unit, Department of State, Division of Licensing Services, 84 Holland Avenue, Albany, NY 12208.
I FURTHER ORDER that if the respondent, Mr. Hugh A. Berger, fails to pay the fine assessed, any application by Mr. Hugh A. Berger for licensure under provisions of Real Property Law, Article 12-A, shall not be considered until he complies fully with this order.
I FURTHER ORDER the respondent Mr. Hoainhan M. Truong to pay a fine of five thousand ($5,000) dollars by certified check or money order made payable to the New York State, Department of State. The payment of the fine shall be sent to Ms. Usha Barat, Customer Service Unit, Department of State, Division of Licensing Services, 84 Holland Avenue, Albany, NY 12208.
I FURTHER ORDER that if the respondent, Mr. Hoainhan M. Truong, fails to pay the fine assessed, any application by Mr. Hoainhan M. Truong for licensure under provisions of Real Property Law, Article 12-A, shall not be considered until he complies fully with this order.
I FURTHER ORDER that the following allegations of the complainant not proved by substantial evidence are dismissed: violations of Real Property Law, Article 9-A, against Flagship Marketing Group Inc., Mr. Hugh A. Berger, and Mr. Hoainhan M. Truong; violations of Real Property Law, §§440-a, 442, and 442-c, against Flagship Marketing Group Inc., and Mr. Hugh A. Berger; violations of Real Property Law, §442-a, against Mr. Hoainhan M. Truong.
I FURTHER ORDER under the provisions of Real Property Law, §441-c(2), that a copy of this decision be served personally or by certified mail: to each respondent addressed to each respondent's principal place of business last known to the Division of Licensing Services; and to each complainant.
SO ORDERED: February 2, 2000
Felix Neals
Supervising Administrative Law Judge