November 1, 2011
NEW JERSEY REAL ESTATE COMMISSION, COMPLAINANT-RESPONDENT,
PETER PETRIDIS, LICENSED NEW JERSEY REAL ESTATE SALESPERSON AND MARGARET STEADMAN, FORMERLY KNOWN AS MARGARET SCHWABE, LICENSED NEW JERSEY REAL ESTATE BROKER-SALESPERSON, RESPONDENTS-APPELLANTS.
On appeal from the New Jersey Real Estate Commission, Department of Banking and Insurance, Docket No. ATL-09-031.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted October 12, 2011
Before Judges Carchman, Baxter and Nugent.
Peter Petridis, a licensed real estate salesperson, and his supervisor Margaret Steadman, a licensed real estate broker/salesperson, appeal from a February 1, 2011 final agency decision and order of the New Jersey Real Estate Commission (Commission). The order in question suspended their respective licenses due to their violation of portions of the New Jersey Real Estate Brokers and Salesperson Act (Act), N.J.S.A. 45:15-1 to -29.5, and applicable regulations. Because the Commission's findings of fact are supported by the record, and the penalties imposed by the Commission were neither arbitrary nor capricious, we affirm.
Petridis and Steadman were licensed realtors employed by Prudential Fox & Roach Realtors (Prudential), located in Brigantine. In October 2006, Osprey Estates, L.L.C. (Osprey) signed a listing agreement with Prudential designating Prudential as its exclusive agent for the sale of building lots and homes in an Osprey development on West Riverside Drive in Atlantic City. Petridis was designated as the listing agent and Steadman was Prudential's broker/salesperson on the Osprey listing agreement. The listing agreement permitted Prudential to act as a disclosed dual agent if the opportunity arose.
On November 17, 2007, Petridis prepared an offer on behalf of Richard Vizzi to purchase one of the Osprey properties. Vizzi was an investor who had been Petridis's client for many years prior to the signing of the November 17, 2007 offer. On November 26, 2007, Osprey and Vizzi executed an agreement of sale under which Vizzi agreed to purchase the property for the sum of $440,000, with a 4% sales commission due to Prudential. The closing was scheduled to take place no later than December 31, 2007; however, on that date, the parties executed an agreement extending the settlement date to January 18, 2008. The closing occurred as scheduled on the latter date.
On January 1, 2008, before the Osprey/Vizzi transaction closed, Petridis met with an individual named Yishai Kedar, who expressed interest in purchasing a property in the Osprey development. At the time, all of the constructed Osprey homes were under contract, and Kedar was unwilling to wait five to six months for a home to be constructed. He expressed interest in buying the property on West Riverside Drive that was under contract to Vizzi.
Petridis never told Osprey of Kedar's interest in purchasing a property. Instead, he contacted Vizzi to determine if he would be interested in selling the property to Kedar. Vizzi expressed an interest in doing so.
In early January 2008, Petridis and Steadman discussed how to proceed, in light of the fact that Vizzi would be contracting to sell the property to Kedar before he, Vizzi, took title. Petridis and Steadman reached the following conclusions: they had no duty to disclose to Osprey Kedar's interest in purchasing the property that Vizzi had agreed to purchase from Osprey; Vizzi was entitled to sign a contract agreeing to sell the property to Kedar, even though at the time of execution of any contract, Vizzi would be merely an "equitable owner" without legal title; the agreement of sale between Vizzi and Kedar need not reveal that Vizzi did not yet have legal title; and Petridis and Steadman could act as dual agents in the Vizzi/Kedar transaction.
Consequently, on January 7, 2008, before the Osprey/Vizzi transaction closed, and before Vizzi actually owned the property, Petridis prepared a contract of sale for the subject property with Kedar agreeing to purchase the property from Vizzi for the sum of $575,000. The contract identified Vizzi as the seller, but did not disclose that Vizzi did not hold title to the property. Neither did either Petridis or Steadman notify Osprey, or its managing partner, Daniel Sawicki, of Kedar's interest in an Osprey Estates property. Nor did either of them notify Osprey of the contemplated Vizzi/Kedar transaction prior to the closing of the transaction. Because no other real estate broker was involved in either the Osprey/Vizzi or the Vizzi/Kedar sales, Prudential and Petridis received commissions on the two sales of the same property, in the amounts of $17,600 on the first transaction, and $14,300 on the second.
Upon learning of the two transactions, and realizing that neither Petridis nor Steadman had advised Osprey of the second transaction, Sawicki filed a complaint with the Commission, charging Petridis and Steadman with unethical practices and violations of the Act. After a preliminary investigation, the Commission filed a complaint against the two, followed by a hearing on May 11, 2010, during which Sawicki, Petridis and Steadman testified, along with Glen Flores, an investigator employed by the Commission.
On February 1, 2011, the Commission issued its final order, accompanied by a thirty-three page decision setting forth the Commission's findings of fact and conclusions of law. In relevant part, the Commission reached the following conclusions:
1. Respondent Petridis is in violation of N.J.S.A. 45:15-17(a), making a substantial misrepresentation, in that he prepared a contract of sale naming Richard Vizzi as the seller of [the property] when he knew that Vizzi had not yet taken title to the premises; and
2. Respondent Petridis is in violation of N.J.S.A. 45:15-17(e), incompetency, in that he prepared a contract of sale naming Richard Vizzi as the seller of [the property] when he knew that Vizzi had not yet taken title to the premises and failed to include a contingency in the contract regarding closing of title on the first transaction (Osprey/Vizz[i]);
3. Respondent Petridis is in violation of N.J.A.C. 11:5-6.4(a) and N.J.S.A. 45:15-17(t) by failing to deal fairly with all parties and by placing his own interest above that of this principal as set forth above; and
4. Respondent[s] Petridis and Steadman are in violation of N.J.S.A. 45:15-17(e) [by engaging in] conduct demonstrating unworthiness, bad faith and dishonesty and 45:15-17(t) for failing to inform Sawicki and Osprey Estates of the Kedar offer on [the property] and of the Vizzi/Kedar transaction; and
5. Respondents Petridis and Steadman are in violation of N.J.A.C. 11:5-6.9(b) and N.J.S.A. 45:15-17(t) (2 counts) in that they failed to obtain separate written informed consents to disclosed dual agency on the Osprey/Vizzi transaction; and
6. Respondent Steadman is in violation of N.J.A.C. 11:5-4.5 (2 counts) in that as branch office manager of Prudential . . . she failed to properly supervise the actions of respondent Petridis and failed to properly oversee the Osprey/Vizzi and Vizzi/Kedar transactions.
In sum, the Commission concluded that Petridis and Steadman violated portions of the Act and the implementing regulations by: failing to strictly comply with the principles governing fiduciary relationships; performing incompetently; and misrepresenting the status of a party to a real estate transaction. The Commission also concluded that Steadman failed to properly supervise the activities of Petridis. For these violations, the final order suspended Petridis's salesperson's license for two months; downgraded Steadman's broker/salesperson's license to a salesperson's license for four months; imposed a $5000 fine on both Petridis and Steadman; required that they complete a thirty-hour remedial course within one year; and placed them on probation for a period of one year after their respective licenses were to be reinstated.
On appeal, in their joint brief, Petridis and Steadman raise the following claims:
I. THE NEW JERSEY REAL ESTATE COMMISSION'S CONCLUSIONS OF LAW ARE ENTITLED ONLY TO LIMITED DEFERENCE AND THEIR FINDINGS OF FACT MUST BE SUPPORTED BY SUBSTANTIAL EVIDENCE.
II. THE NJREC IGNORED UNDISPUTED EVIDENCE IN THE FORM OF CERTIFICATIONS AND THEREFORE, THEIR [SIC] FINDINGS OF FACT ARE NOT SUPPORTED BY SUBSTANTIAL EVIDENCE.
III. MR. PETRIDIS' FAILURE TO IDENTIFY MR. VIZZI AS AN EQUITABLE OWNER IN THE CONTRACT OF SALE WITH MR. KEDAR WAS A MISTAKE, NOT A MISREPRESENTATION.
IV. MR. PETRIDIS DID NOT VIOLATE ANY PRINCIPLES GOVERNING FIDUCIARY RELATIONSHIPS.
IV. APPELLANTS/RESPONDENTS' FAILURE TO INFORM MR. SAWICKI AND OSPREY ESTATES OF MR. KEDAR'S INTEREST IN THE SUBJECT PROPERTY AND MR. PETRIDIS' FAILURE TO IDENTIFY MR. VIZZI AS AN EQUITABLE OWNER IN THE CONTRACT OF SALE WERE NOT DEMONSTRATIVE OF INCOMPETENCY.
VI. THE PENALTIES IMPOSED AGAINST MR. PETRIDIS AND MS. STEADMAN ARE NOT COMMENSURATE WITH THEIR FAILURE TO OBTAIN THE EXECUTION OF THE DISCLOSED DUAL AGENCY FORMS.
A portion of the Act, N.J.S.A. 45:15-17, vests the Commission with the authority to investigate the actions of real estate brokers, broker-salespersons, salespersons, and referral agents who violate its terms. In such instances, the Commission may place the licensee on probation, suspend or revoke his or her license or impose monetary sanctions. The following conduct entitles the Commission to take disciplinary action against a licensee:
(a) Making any false promises or any substantial misrepresentation; . . . (e) Any conduct which demonstrates unworthiness, incompetency, bad faith or dishonesty. . . . or (t) The violation of any of the provisions of [N.J.S.A. 45:15-1 to -29.5] or of the administrative rules adopted by the [C]ommission[.] [N.J.S.A. 45:15-17.]
An appellate court will not upset the ultimate determination of an agency such as the Commission unless the agency action is arbitrary, capricious or unreasonable, or violative of legislative policies expressed or implied in the act governing the agency. Campbell v. Dep't of Civil Serv., 39 N.J. 556, 562 (1963). On appeal, our role is limited to the evaluation of three factors:
(1) whether the agency action violates the enabling act's express or implied legislative policies; (2) whether there is substantial evidence in the record to support the findings upon which the agency based application of legislative policies; and (3) whether, in applying the legislative policies to the facts, the agency clearly erred by reaching a conclusion that could not reasonably have been made upon a showing of the relevant factors. [Public Serv. Elec. & Gas Co. v. N.J. Dep't of Envtl. Prot., 101 N.J. 95, 103 (1985).]
Although an administrative agency's interpretation of its own enabling statute and regulations is not binding on us, we are obliged to afford the agency's interpretation "considerable weight," and we will ordinarily defer to that interpretation unless the agency's interpretation was "plainly unreasonable" or contrary to statutory authorization. In re Election Law Enforcement Comm'n Advisory Opinion No. 01-2008, 201 N.J. 254, 262 (2010) (citation and internal quotation marks omitted).
Moreover, we will not weigh the evidence anew, redetermine the credibility of witnesses, draw inferences and conclusions from the evidence, or resolve conflicts in the evidence so long as the agency's determinations find support in the record. In re Taylor, 158 N.J. 644, 659 (1999).
Although appellants' Points I through V are framed as five separate arguments, all five challenge the validity of the Commission's findings of fact and its conclusion that Petridis and Steadman engaged in acts constituting misrepresentation, incompetency and breach of their fiduciary duties. We will analyze appellants' first five points collectively.
We turn first to the Commission's finding that by failing to insert a provision in the Vizzi/Kedar agreement of sale reflecting that Vizzi did not have legal title to the property at the time he agreed to sell it to Kedar, and possessed merely an equitable interest, Petridis and Steadman engaged in acts of misrepresentation within the meaning of N.J.S.A. 45:15-17(a). Notably, both Petridis and Steadman conceded in their testimony before the Commission that they were obliged to insert such language into the Vizzi/Kedar documents, but insisted that their failure to do so had not misled Kedar because Kedar was aware that Vizzi did not yet hold legal title. Petridis and Steadman point to a certification from Kedar to that effect, and maintain that the Commission ignored the Kedar certification when it found that both of them had engaged in conduct constituting misrepresentation. We do not agree.
The statute of frauds, N.J.S.A. 25:1-11(a), specifies that contracts for the sale of real property must be in writing. Oral modifications are ineffective when intended to modify the terms of a real estate contract. Ibid. For that reason, any oral statements by Petridis advising Kedar of Vizzi's equitable interest, as opposed to legal title, would have been of no legal effect. In light of the provisions of the statute of frauds, the contract documents stand alone and represent the four corners of any real estate transaction. Here, the contract documents Petridis prepared misrepresented Vizzi's status, by failing to disclose that he held merely an equitable interest. The Commission found that Petridis and Steadman had engaged in conduct constituting a misrepresentation:
[T]he documents [related] to the . . . transaction [become] the permanent record . . . which [is] used by the parties and outside interests, such as mortgage lenders and title agencies to make substantial financial and legal determinations. Thus, it is of paramount importance that those documents accurately reflect the parameters of the real estate transaction and the legal status of the parties to the deal.
Because the Commission's findings on misrepresentation, as defined by N.J.S.A. 45:15-17(a), are supported by substantial and credible evidence in the record, we affirm. See Election Law Enforcement Comm'n, supra, 201 N.J. at 262.
N.J.S.A. 45:15-17(e) authorizes the Commission to sanction a licensed real estate professional who engages in "[a]ny conduct which demonstrates . . . incompetency[.]" Moreover, branch managers are required to supervise the professional conduct of the office's licensees. N.J.A.C. 11:5-4.2, 4.5. The Commission determined that the conduct of Petridis and Steadman constituted incompetency because they failed to obtain written consent to act as dual agents; failed to identify Vizzi in the contract of sale; and failed to inform Osprey of Kedar's interest in the development.
At the hearing, defendants admitted they failed to obtain written consent to dual agency from the parties to the Osprey/Vizzi and Vizzi/Kedar transactions and that the contract of sale "should have," but did not identify Vizzi as an equitable owner. Petridis testified:
Q: Regarding the Exhibit for the contract between Vizzi and Kedar . . . [w]here in this document does it say that Vizzi does not own the property?
A: It was not in this document, we had discussions.
Q: . . . Mr. Vizzi did not have full title to the property; right, but that situation is nowhere disclosed in that document; is it?
A: Yes. I did not mention that Mr. Vizzi was an equitable owner.
That is correct.
Q: Mr. Petridis, you have been doing this for a lot of years . . . contracts on real estate have to be in writing; don't they?
A: Yes, ma'am.
Q: Wouldn't it be fair to say that any verbal representations are super[s]eded by the written Contract of Sale in the document transaction?
Additionally, during her testimony Steadman admitted:
It [was] my responsibility as the broker manager to make sure that, th[e] language [regarding Vizzi as an equitable owner] was in the contract.
Pete and I discussed it, [but] it didn't make it into the contract, I will accept responsibility for that.
Because they hold themselves out as specialists, real estate licensees are obliged to exercise "reasonable skill, care and diligence" in the execution of real estate documents. Sullivan v. Jefferson, 167 N.J. Super. 282, 286-87 (App. Div. 1979). We have explained the importance of real estate professionals exercising a high degree of care:
The contract for the sale of real estate is the most important document in a real estate sale or exchange, because under it and by it the respective rights and duties of the parties are fixed and it controls all of the proceedings subsequent to it, including the final consummation of the transaction. [Maple Hill Farms, Inc. v. N.J. Real Estate Comm'n, 67 N.J. Super. 223, 231 (App. Div. 1961) (citation and internal quotation marks omitted).]
Additionally, when a licensed broker or salesperson acts as a dual agent representing both the seller and the buyer in a real estate transaction, such licensee is required to obtain the written informed consent of the parties. N.J.A.C. 11:5-6.9(b).
Petridis and Steadman both recognized these principles at the hearing when they conceded that they should have identified Vizzi as merely an equitable owner and that written disclosures to dual agency should have been procured, but were not. In assessing defendants' conduct and cumulative "oversights," the Commission determined these errors taken together did not demonstrate bad faith, but nonetheless fell below the level of competence expected of a licensed real estate professional. In light of Petridis's and Steadman's acknowledgment of their breach of the applicable standards, and the well-reasoned conclusions of the Commission, we have no cause to disturb the Commission's finding that Petridis's and Steadman's errors and serious misjudgments demonstrated "incompetence" in the real estate profession.
C. Breach of Fiduciary Obligations
A real estate professional is obliged to ensure that the interests of his or her principal are paramount, and must place the interests of the principal ahead of his or her own. The Commission's rules obligate licensees to strictly comply with the laws of agency and the principles governing fiduciary relationships. In accepting employment as an agent, the licensee pledges himself to protect and promote, as he would his own, the interests of the client or principal he has undertaken to represent; this obligation of absolute fidelity to the client's or principal's interests is primary but does not relieve the licensee from the obligation of dealing fairly with all parties to the transaction. [N.J.A.C. 11:5-6.4(a).]
Once a fiduciary relationship has been established, the licensee owes a duty of "absolute fidelity and good faith" to the principal and is duty bound to "disclose . . . all the facts within [the licensee's] knowledge which [are] material to the business for which [the licensee is] employed." Silverman v. Bresnahan, 35 N.J. Super. 390, 395 (App. Div. 1955).
Here, the record amply supports the Commission's finding that Petridis and Steadman were not adequately loyal to the interests of their client Osprey. As listing agent for the entire Osprey subdivision, Petridis was obliged to sell the subdivided properties at the highest price, and that obligation remained in place throughout the Vizzi/Kedar transaction. Yet, despite that obligation, Petridis and Steadman concealed from Osprey Kedar's interest in purchasing one of the subdivided properties, by arranging for Vizzi to "flip" his property to Kedar. In so doing, Petridis denied his client Osprey the opportunity to make a sale to Kedar. Petridis earned two commissions by concealing from Osprey the Vizzi/Kedar transaction, thereby disserving Osprey's interest and benefiting Petridis at Osprey's expense. Such conduct supports the Commission's finding that the two licensees breached their fiduciary obligation to Osprey.
Petridis and Steadman urge us to reverse the Commission's findings on that subject. They point to a provision of the listing agreement with Osprey, paragraph 19, which relieves them of the obligation of presenting any "back-up" offers to Osprey once Osprey has agreed to sell the property to a purchaser. Paragraph 19 provides:
All offers will be made through the Broker or their Listing Agent. All offers received by the Broker will be presented to the Seller unless the Seller has already entered into an Agreement of Sale for the same home or lot.
We do not view paragraph 19 as having any bearing on the precise issue the Commission addressed when it concluded that Petridis and Steadman breached their fiduciary obligations to Osprey. Notwithstanding paragraph 19, Petridis and Steadman were bound by their fiduciary obligations to disclose "all the facts" within their knowledge that were "material" to their business relationship with Osprey. Silverman, supra, 35 N.J. Super. at 395. Certainly, it was "material" to Osprey's business interests that Kedar, a potential buyer, desired to purchase a property in Osprey's development, and that Kedar was actively pursuing a property to which Osprey still held legal title.
We see nothing in paragraph 19 that in any way relieved Petridis or Steadman of their duty to disclose to Osprey Kedar's interest in purchasing a property at the Osprey development. The listing agreement with Osprey obligated Petridis and Steadman to afford Osprey the maximum opportunity to make a sale and the opportunity to derive the maximum profit from all potential transactions. By hiding the Vizzi/Kedar sale from Osprey, Petridis and Steadman reserved all of the profit from that transaction for themselves, depriving their principal of the opportunity to derive a benefit from the prospective buyer, Kedar.
Thus, even if Petridis and Steadman were not required to present Osprey with "back-up" offers on the particular property once an agreement with Vizzi was reached, Petridis and Steadman breached their fiduciary duties by failing to convey material facts to their principal and by placing their own interests above Osprey's. The Commission's findings on this subject were supported by substantial and credible evidence in the record, and we have been presented with no meritorious basis upon which to disturb the Commission's finding that Petridis and Steadman breached their fiduciary obligations to Osprey.
In Point VI, Petridis and Steadman argue that the penalties imposed were excessive and unwarranted. Specifically, they assert that in light of "the totality of the findings," the penalties imposed against them were "far too harsh based upon the analytical and conclusory errors of law and of fact that were made." We disagree.
When considering the appropriate penalty to be imposed, the Commission must consider: (1) the licensee's good or bad faith;
(2) the licensee's ability to pay a financial penalty; (3) the amount of profit earned from wrongful activity; (4) the extent of any injury to the public; (5) the duration of the wrongful activity; (6) the existence of any criminal actions; and (7) the existence of any prior violations. Kimmelman v. Henkels & McCoy, Inc., 108 N.J. 123, 137-39 (1987).
In assessing the penalty, the Commission recognized that: Petridis and Steadman "did not demonstrate bad faith," but rather a lack of competence; neither of them had previously violated the Commission's rules; and neither one had any "criminal actions pending against them." Nonetheless, the Commission observed that neither Petridis nor Steadman had submitted evidence of an inability to pay the sanction; they had together earned an additional $14,300 in commission through the Vizzi/Kedar transaction under circumstances that were improper; and they had significantly harmed the public welfare as licensees by misrepresenting the status of the seller, by breaching their fiduciary obligations to their principal and by failing to carry out their duties with the degree of competence expected of licensees.
The penalties imposed here are consistent with other disciplinary actions by the Commission. See N.J. Real Estate Comm'n v. Azeglio, Final Order of Determination, Docket No. GLO-08-034 (August 6, 2010) (revoking salesperson's license for five years and imposing $5000 fine for his failure to disclose material facts to a real estate transaction and deal fairly with all parties); N.J. Real Estate Comm'n v. DeCou, Final Order of Determination, Docket No. BUR-L-034 (July 21, 2008) (suspending license for one year and imposing $5000 monetary fine where the licensee breached her fiduciary duties to the principal); N.J. Real Estate Comm'n v. Parikh, Final Order of Determination, Docket No. MID-07-012 (November 26, 2007) (imposing $5000 fine and thirty hours of educational training for the licensee's incompetence and failure to supervise).
After carefully reviewing the record in light of appellants' arguments in Point VI, we are satisfied that the Commission properly analyzed each of the seven Kimmelman factors and reached a fair result. The burden on a licensee to disturb the choice of sanction is a substantial one. We will not set aside the punishment unless it is arbitrary or capricious, In re Scioscia, 216 N.J. Super. 644, 660, certif. denied, 107 N.J. 652 (1987), or the penalty shocks one's "sense of fairness," In re Herrmann, 192 N.J. 19, 28-29 (2007) (citation and internal quotation marks omitted). In light of the serious violations both licensees committed, the sanctions imposed are neither disproportionate nor shocking.
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