ALJDEC decisions subject to certification as final: to edec on

19F-080-REL · Department of Real Estate · 2019-05-14

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: April 16, 2019 APPEARANCES: James G. Nuth III, appeared, representing himself. Assistant Attorney General Deian Ousounov represented the Arizona Department of Real Estate. ADMINISTRATIVE LAW JUDGE: Kay A. Abramsohn _____________________________________________________________________ FINDINGS OF FACT 1. On June 21, 2012, the Arizona Department of Real Estate (“Department”) issued real estate broker license No. BR521667000 to James G. Nuth III (“Respondent Nuth”). Respondent Nuth’s license is set to expire on June 30, 2020.[1] 2. On November 9, 2009, the Department issued real estate limited liability license No. LC634213000 to eXp Realty LLC (“EXP”). The EXP license is set to expire on June 30, 2020. 3. At all times relevant to the underlying facts occurring in 2018, Respondent Nuth was the designated broker of EXP.[2] 4. On March 12, 2019, the Department issued to Respondent a Notice of Hearing and Complaint regarding determined violations and, as discipline, assessing a $400.00 penalty to Respondent Nuth. 5. The following facts are relevant in this matter: a. Jennifer Wehner, a licensed real estate broker since November 12, 2008 [License No. BR545357000], is an associate broker with EXP. b. At all times relevant to the underlying facts occurring in 2018, Respondent Nuth was Ms. Wehner’s supervising broker.[3] c. On July 1, 2018, the Department received a complaint that Ms. Wehner was “consistently” using non-compliant “open house” and “for sale” signage.[4] The complainant specifically noted that, “[a]s the designated broker for REMAX Fine Properties” Ms. Wehner had been “disciplined on several occasions to ensure her signage was compliant.”[5] d. At the time of the complaint and during the investigation, the Department’s investigator found that Ms. Wehner’s signage and listings prominently displayed “The Wehner Group” in the largest letters and the EXP designated brokerage name much less prominently in much smaller letters.[6] e. The Department’s investigator reviewed online information and physically visited multiple homes listed with Ms. Wehner or The Wehner Group.[7] f. After being apprised by the Department of the complaint,[8] on July 28, 2018, Respondent Nuth notified Ms. Wehner regarding the complaint and included therewith copies of an applicable administrative rule and relevant portions of the EXP Policy and Procedure Manual.[9] Respondent Nuth advised Ms. Wehner that her signage did not appropriately display the EXP brokerage name in a “clear and prominent manner.” Respondent Nuth further advised as corrective measures: Please remove any all signs of this nature from any and all properties, and replace with approved signs which meet the guidelines outlined within 30 days of this notice. Be sure to submit your sign design prior to placement to both [email redacted] for Company Brand approval AND to me, YOUR Designated Broker, [f]or approval of State Compliance.

g. Shortly thereafter, Respondent Nuth alerted the Department’s investigator to his actions and further advising that Ms. Wehner had agreed to comply within one week.[10] h. Subsequently, Respondent Nuth did approve a corrected design of Ms. Wehner’s signage; the Department indicated at hearing that the new signage had been observed and was in compliance with Arizona Administrative Code (“A.A.C.”) R4-28-502.[11] i. Regarding advertising, the EXP policies and procedures indicated that signage was to be “designed or expressly approved in writing by [EXP]” and that “custom sign designs need to be submitted to [email redacted] for approval.”[12] 6. At hearing, the Department indicated that Ms. Wehner had come to an Accelerated Settlement Agreement with the Department regarding advertising violations, had been assessed a $2,500.00 penalty, and had been required to take some real estate classes. 7. At the hearing, Respondent Nuth argued that these circumstances did not merit discipline on his license because he had acted appropriately and promptly to require Ms. Wehner to correct the signage once it was brought to his attention that her signage was not in compliance with the administrative rule and the EXP policies and procedures. 8. Respondent Nuth demonstrated that Ms. Wehner had agreed, in writing, to abide by all applicable laws and regulations including the local, state and federal laws and rules relating to real estate transactions and real estate transactions and real estate service businesses and, further “to abide by all the rules of ethical conduct” of the national realty association and that her “advertising and promotion must be completely factual and ethical.”[13] Respondent Nuth demonstrated that Ms. Wehner had agreed, in writing, to abide by the EXP policies and procedures and he demonstrated that she had certified, in fact, she was in compliance with the EXP policies and procedures when she was making arrangements to come to the brokerage in March of 2018.[14]

9. Respondent Nuth indicated that EXP also had a managing broker, and now has two managing brokers, and that they had shared management duties. The EXP policies and procedures called for signage to be approved through the EXP marketing department; such a fact is an indication that EXP had procedures in place to assure that the signage used by EXP associates was in compliance with laws and rules. 10. Respondent Nuth indicated that Ms. Wehner had not obtained approval for her [non-compliant] signage and that, if she had brought that particular design to the brokerage, the design would not have been approved. 11. With his written answer to the Notice of Hearing and Complaint, Respondent Nuth provided a copy of a 2014 article on the Arizona Association of REALTORS site, in which the Commissioner and the Association’s Executive Officer provided guidance regarding the advertising rules given the new emphasis on online advertising. In that posting, the quantification of “clear and prominent” identification of the employing broker was described as “‘readily noticeable,’ which may related to size or position.” The guidance further indicates that, as to “team advertising it must be clear that the team is a part of the employing brokerage with an example stating as follows: For example, placing ‘the (Team Name) Team’ at the top of the page in large letters with a much smaller brokerage symbol somewhat below is not sufficient.

Given that the existing, and standard, method for advertising of a particular piece of property is, and primarily had always been, the signage posted at the location of the property, the guidance contained in the article would appear to have come from the existing standards of practice in the real estate industry. 12. Respondent Nuth agreed that it was his responsibility to supervise all the agents, but noted that it would not be physically possible to ensure that none of them do anything wrong. Respondent further argued that he viewed his job and duty to supervise as ensuring that policies and procedures are in place, that all associated agents have access to them, have reviewed them, and are aware of them, and giving the associated agents all the tools to be able to comply with the policies and procedures and, then, if he finds out that an associate is not in compliance, to take immediate action to correct the situation. 13. At hearing, the Department argued that because they did not have any information of Respondent Nuth or EXP actually enforcing its policy to assure that all associates are following the EXP policy, that Respondent Nuth’s “supervision” remains in question. The Department indicated that it agreed that Respondent Nuth took the right approach with the email to Ms. Wehner (and the approval of new signage) “after the fact” but argued that the Department did not have any information on how Respondent Nuth or EXP enforces its advertising policy (cf., “before the fact”) or punishes non-compliant associates. Finally, the Department argued that it took into account Respondent Nuth’s after- the-fact actions, in mitigation, when it reduced the possible penalty of $1,000.00 to $400.00, and the Department requested that the assessed penalty be upheld. CONCLUSIONS OF LAW 1. This matter is within the jurisdiction of the Commissioner of the Arizona Department of Real Estate pursuant to Arizona Revised Statutes (“A.R.S.”) Title 32, Chapter 20. The Department regulates all persons engaged in the business of, or acting in the capacity of, a real estate broker or salesperson, and to enforce all laws and rules relating to real estate. 2. Pursuant to A.R.S. § 32-2153(A)(3), the Commissioner may suspend, revoke or deny issuance of a license, may issue a letter of concern, may issue a provisional license, or may deny renewal of a license if it appears that the licensee, during the five preceding years, has disregarded or violated any of the applicable real estate laws or rules adopted by the Commissioner. 3. A.A.C. R4-28-502 is one of the “advertising” rules adopted by the Commissioner.[15] Regarding any particular piece of property, A.A.C. R4-28-502(E) requires that sales persons and brokers ensure that any advertising “clearly and prominently” identifies the employing broker’s legal or “dba” name as stated on the broker’s license certificate. Likewise, A.A.C. R4-28-502(G) indicates that the designated broker must supervise “all advertising” for real estate services. 4. Pursuant to A.R.S. § 32-2160.01, the Commissioner has discretionary authority to assess civil penalties up to one thousand dollars ($1,000.00) for each violation of the applicable laws and rules. 5. A.A.C. R4-28-502(E) requires that both sales persons and brokers are required to ensure that any advertising “clearly and prominently” identifies the employing broker’s legal or “dba” name as stated on the broker’s license certificate. While this can be seen as equal responsibility, given the undisputed information in the hearing record that Ms. Wehner “consistently” violated the signage provisions and had been disciplined for it in the past at a time when she was a designated broker, along with the current documented violation of non- compliant signage, the Administrative Law Judge concludes that, under these facts, Ms. Wehner caused the violation and, for that reason, her actions should not be imputed to Respondent Nuth as to a violation of A.A.C. R4-28-502(E). The more appropriate concern is whether Respondent Nuth was in violation of any supervisory requirements.

6. A.A.C. R4-28-502(G) requires that a designated broker “supervise” all advertising. The EXP policies and procedures clearly designate that all associates of EXP are required to abide by the EXP policies, which would include the advertising policies. Regarding advertising, the EXP policies and procedures indicated that signage was to be “designed or expressly approved in writing by [EXP]” and that “custom sign designs need to be submitted to [email redacted] for approval.” The hearing record evidences that Ms. Wehner failed to follow the EXP policies and, hence, the administrative rule. The hearing record evidences that, once he was informed of the non-compliant signage, Respondent Nuth took appropriate action to “ensure” compliance with the advertising rule. 7. The Department agreed that Respondent Nuth took the right approach with the email to Ms. Wehner (and the approval of new signage) “after the fact” but argued that the Department did not have any information on how Respondent Nuth or EXP enforces the EXP advertising policy (cf., “before the fact”) or punishes non-compliant associates. The Department appears to be relying on a “general” characterization of the term “supervision.” If the Department was relying on any particular rule as to exactly how “supervision” is required to be done, or should have been done, in all cases as to all rules, the Department provided no citation of such a rule to the hearing record. Additionally, it must be noted that this case was not brought with regard to the EXP license and any alleged failure to “supervise” as to all associates’ advertising. 8. A.A.C. R4-28-502 does not mandate any particular method of “supervision” of the advertising; the rule calls for “ensuring” that the advertising identifies the broker’s legal name “clearly and prominently.” Based on this hearing record and the undisputed facts, the Administrative Law Judge concludes that, regarding his responsibilities to supervise the associates, as well as his A.A.C. R4- 28-502(G) responsibilities as the designated broker, Respondent Nuth appropriately supervised Ms. Wehner’s advertising and took the action that a reasonable person would expect of a supervisor in notifying Ms. Wehner of the specific situation and requiring corrective action on her part within a specific time period. 9. The Department is authorized to impose a civil penalty up to $1000.00 per violation of the applicable statutes and regulations, and in this matter, the Department had noticed a penalty of $400.00 to Respondent Nuth. However, based on the hearing record, the Administrative Law Judge concludes that no penalty is warranted.

RECOMMENDED ORDER IT IS ORDERED that Respondent Nuth’s appeal is granted and no disciplinary action is taken against License No. BR521667000. In the event of certification of the Administrative Law Judge Decision by the Director of the Office of Administrative Hearings, the effective date of the Order shall be five days from the date of the certification. Done this day, May 14, 2019.

/s/ Kay A. Abramsohn Administrative Law Judge

Transmitted electronically to:

Judy Lowe, Commissioner Arizona Department of Real Estate ----------------------- [1] See Department Exhibit 2. [2] Respondent Nuth was the designated broker from April 3, 2013 until sometime in March of 2019. [3] At hearing, Respondent Nuth indicate that there were approximately 700 agents associated with the brokerage. [4] See Exhibit 4. [5] Neither party provided any additional information regarding the alleged prior discipline of Ms. Wehner regarding non-compliant signage; however, the Department did not dispute the information contained in the complaint regarding alleged prior discipline for past signage violations by Ms. Wehner. [6] See Exhibit 8. [7] While it is clear the photograph was taken on July 13, 2018, the date of the online search (i.e., the printout) was marred by the holepunch. See Exhibit 5. [8] The hearing record does not provide a date on which Respondent Nuth was notified of the public complaint; however, it would have been at some point after the Department’s investigator took the photographs of the non- compliant signs (which was on July 13, 2018). [9] See Exhibit 6. [10] See Exhibit 7. [11] See Exhibit 9. [12] See Exhibit B, written answer (advertising information from page 13-14 of EXP policies and procedures). [13] See Exhibit A, EXP Independent Contractors Agreement, paragraphs 15 and 18. [14] See Exhibit A, EXP Independent Contractors Agreement (Addendum C). At hearing, Respondent Nuth indicated that Ms. Wehner had signed these documents (the parties having agreed that she could transfer her license) right before she transferred her license. The process that must be undertaken to “transfer” a license was not discussed at hearing. [15] The most recent amendment was effective on March 5, 2005.

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Office of Administrative Hearings 1740 West Adams Street, Lower Level Phoenix, Arizona 85007 (602) 542-9826