ALJDEC decisions subject to certification as final

22F-444-REL · Department of Real Estate · 2022-10-07

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

In the Matter of the Real Estate Activities of:

ELLE JOE INVESTMENTS CORP., holder of Entity License No. CO511261000,

and

ANNE POWLAS, an unlicensed individual,

Petitioners.

No. 22F-444-REL

ADMINISTRATIVE LAW JUDGE DECISION

HEARING: August 30, 2022

APPEARANCES: Anne Powlas represented herself and Elle Joe Investments Corp. Assistant Attorney General Lynette Evans represented the Arizona Department of Real Estate (“Department”).

ADMINISTRATIVE LAW JUDGE: Kay A. Abramsohn

_____________________________________________________________________

FINDINGS OF FACT

Since July 7, 1998, Petitioner Elle Joe Investments Corporation (“EJIC”) held Real Estate Corporation License CO511612000; the license is set to expire on November 20, 2022.

Petitioner Anne Powlas (“Powlas”) and her husband purchased the business entity. EJIC was incorporated on January 11, 2018. Powlas is now the only Director and CEO of EJIC. Powlas intended to be the silent partner and money manager; at that time, her daughter had planned to become a licensed real estate agent. Powlas’ husband passed away unexpectedly in March of 2019.

EJIC hired Elisabeth Johnson (“Broker”), License BR520716000, as a real estate broker in September of 2019.

On March 22, 2022, Kenneth Sichi contacted the Department, filing a complaint regarding EJIC’s business practices. Mr. Sichi indicated that he and his companies had property management agreements with Noble Realty (“Noble”) since sometime in 2019 but had recently given their 30-day notice to terminate their business relationship. Mr. Sichi noted that he was contacted by Bankruptcy Court regarding filing a claim as to monies owed to them from Noble but further noted that he had not received the prior month’s rental report and, essentially, did not know how much he and his companies were due. Ms. Sichi raised multiple concerns about unauthorized rental practices of his companies’ homes, and actions that were taken in the absence of his knowledge or approval, causing him to have to overpay management fees.

During its investigation, the Department issued a subpoena to Broker to produce certain and specified records on March 21, 2022.

During its investigation, the Department contacted Mr. Sichi. Mr. Sichi indicated that EJIC managed approximately 30 properties for him and that Powlas was the primary person who worked in the office and assisted clients. Ms. Sichi indicated that Broker had told him that she worked from home and did not handle the day-to-day brokerage operations or EJIC services.

As a part of its investigation, the Department’s Investigator Linda Bevins conducted an unannounced audit at EJIC on March 14, 2022. At that time, Powlas was in the office and cooperated fully with the audit; Broker Johnson was not in the office. The Department requested of Powlas that she provide records asking for them to be provided by March 23, 2022.

On examination of the available records, Ms. Bevins found that multiple issues existed. Among the issues found:

Sales transaction records were not maintained at the EJIC office location;

The entity license on display at the EJIC office reflected the prior dba name of Wickenburg Realty and Property Management, which was no longer a licensed entity;

The Broker’s license on display had expired on November 30, 2020;

The client trust account numbers on file with the Department did not match the account numbers of the trust account bank statements examined during the audit;

Broker had failed to provide to the Department the required notices upon opening and closing client trust accounts;

EJIC bank accounts opened in February 2022 that held client funds were not designated as trust accounts;

Client trust account records were insufficient to perform an independent reconciliation to confirm that the accounts were in balance;

Tenant ledgers and other property management records contained incorrect information;

EJIC property management agreements did not include clauses/provisions regarding “owner reserve” requirements or “assignment” or the agreements;

Powlas, an unlicensed person, had executed both residential and commercial lease agreements;

Broker had failed to supervise activities of the unlicensed person; and,

Broker had failed to supervise/perform activities of EJIC for which a license was required.

After the completed audit, the Department’s Enforcement & Compliance personnel determined it was appropriate to take action against the Broker, the entity EJIC, and Powlas.

On May 26, 2022, the Department issued a Cease and Desist Order and Notice or Right to Request Hearing (“Cease and Desist Order”) to Broker, EJIC, and Powlas. The Department ordered:

[T]hat, with the exception of the activities set forth in Addendum A (A), [Broker, EJIC and Powlas] immediately cease and desist from engaging in any real estate activity including sales, listing, rental and/or leasing activity as defined by A.R.S. §32-2101 et seq. and property management activity, including the collection or rents, as defined in A.R.S. § 32-2171 et seq., in any capacity whatsoever, directly or indirectly, within the State of Arizona, without first demonstrating full compliance with all applicable laws and rules and until such time as this Cease and Desist Order is Vacated by the Commissioner.

Broker timely appealed, requesting a hearing and informal settlement conference.

EJIC and Powlas timely appealed, requesting an appeal, an informal settlement conference, and the opportunity to pursue licensure and continuing education.

On August 29, 2022, the day before the noticed administrative hearing, the Department entered into a settlement agreement with Broker and vacated the Cease and Desist Order against Broker. In the Department’s notice to the Tribunal, the Department indicated that the administrative hearing would proceed only against EJIC and Powlas.

At hearing, Powlas argued that settlement with Broker just before the hearing had hindered the presentation of her case as she had planned to call Broker as a witness with regard to Broker’s actions and directions to her. Powlas argued that only since the investigation did she learn that Broker had not operated EJIC pursuant to the applicable rules and laws.

At hearing, the Department indicated that it had serious concerns regarding Powlas having performed activities that Broker had been responsible to perform, such as maintaining sales records, maintaining and balancing trust accounts, and maintaining current licensures (the entity and Broker).

The Department argued that the day to day operations at EJIC were conducted by Powlas, that Broker had been responsible to supervise any unlicensed personnel at EJIC, and that multiple records demonstrated that Powlas, instead of Broker, had executed records on behalf of EJIC. The Department noted that Broker had been responsible to review documents, and the EJIC actions taken, and either sign or initial her review/approval.

As to a particular commercial rental agreement, Ms. Bevins had noted in the Audit Report that Powlas had executed the agreement. However, at hearing, Powlas testified that Broker had executed the agreement and, post-hearing, provided a copy of the document demonstrating that Broker had, in fact, executed that agreement. Post-hearing, the Department acknowledged that Comment 36 in the Audit had been inaccurate.

Powlas argued that the Cease and Desist Order had been unnecessary because once Mr. Sichi had cancelled the management agreement, EJIC had had 35 days to return/provide all his documents and he had filed the complaint only 2 days later.

At hearing, Powlas walked through actions she took, from the time Broker was hired and at the direction of Broker, to conduct operations at EJIC. Powlas demonstrated the Broker’s directions to her through text messages.

Particularly, Powlas noted that in January 2020, Broker directed the use of, and provided new lease forms and move-out forms. Powlas noted that, in November of 2019, Broker had indicated to use the AAR lease forma; however, the form was not provided to EJIC at that time.

In November 2019, Broker directed Powlas to attend and take care of move-outs. Powlas refused to do a move-out on a weekend when the office was closed.

In December of 2019, Powlas attempted to research the duties of a broker; at hearing, she indicated that she began to believe that Broker was asking her to do things that were the Broker’s responsibility.

In April and May of 2020, Broker was directing Powlas to complete transaction paperwork by gathering the requisite signatures.

In September of 2020, Broker directed Powlas as to leasing activities and directed her to sign Line 317, specifically indicating that Powlas could sign Line 317 and did not need to be licensed because Powlas was the property manager. In February 2022, Broker was still directing Powlas to sign Line 317.

Once hired in 2019, Broker provided copies of her license and the EJIC license, updated as to Broker. In November of 2020, Broker emailed a “license” to Powlas to be posted at the office.

In May of 2021, EJIC obtained a new trade name, i.e., Noble Realty. However, Broker did not follow up on providing a new certificate to be posted at the office; at hearing, Powlas testified that she did not know why Broker had not done so.

Overall, Powlas indicated that she had to pressure Broker to come to the office and that, after COVID, Broker rarely came to the office. Powlas testified that she “harassed” Broker about coming into the office and in June 2021, Broker sent Powlas “pictures” of herself and directed Powlas to print one of the pictures, show the picture to clients, and tell clients she had a cold or sore throat.

Once the audit and investigation began, Powlas indicated that she was calling on Broker for assistance and for cooperation, but the relationship quickly deteriorated and Broker would yell at her and became hostile. In April of 2022, Powlas testified that she told Broker to put in her 30-day notice, whereupon Broker hung up on her and then began texting her about being owed money.

Since the Audit, Powlas completed her pre-licensure education in July 2022, passed the examination taken on July 22, 2022 and, on August 4, 2022, was licensed by the Department as a Real Estate Salesperson.

On June 27, 2022, the Department issued its Notice of Hearing. The Department’s positions as to violations at issue in this matter were:

EJIC violated A.R.S. § 32-2128 by failing to display current licenses in the EJIC office.

EJIC violated A.A.C. R4-28-303(E)(11) by failing to provide the Department with requisite notice, within ten (10) days, of the opening or closing of client trust accounts.

EJIC violated A.R.S. § 32-2151(B)(2) by failing to maintain accurate client ledgers on a monthly basis.

EJIC violated A.R.S. § 32-2174(A) by failing to maintain client funds in bank accounts properly identified as trust accounts.

EJIC violated A.R.S. § 32-2153(A)(3) disregarded applicable statutes and rules adopted by the Commissioner.

Powlas violated A.R.S. § 32-2153(B)(6) by engaging in activity requiring real estate licensure without holding a license issued by the Department.

At hearing, the Department argued that the hearing record provided grounds in support of the Department’s issuance of the Cease and Desist Order to have EJIC immediately shut its operations and to have Powlas discontinue any unlicensed action at EJIC. The Department acknowledged that, since the audit and investigation, Powlas now realizes and understands that the Broker’s directions to her, as to performing acts for which licensure is required, were inappropriate. The Department requested the Cease and Desist Order be affirmed and that the EJIC license be revoked; the Department seeks no penalty or fine as to EJIC or Powlas.

At hearing, Powlas argued that EJIC hired Broker to perform the requisite duties and responsibilities of a licensed real estate broker and had expected Broker’s compliance with applicable laws and rules. Powlas acknowledged that she had been ignorant of the specific laws but had not intended to perform any acts in violation of the real estate laws. Powlas requested that the Cease and Desist Order be dismissed for the reason that Broker failed to give EJIC sound and appropriate guidance in operating EJIC.

CONCLUSIONS OF LAW

The Department bears the responsibility to protect the public through its enforcement of licensing statutes. This matter lies within its jurisdiction.

The Department bears the burden of proof to establish cause to discipline Respondent’s license and any factors in aggravation of any penalty to be imposed by a preponderance of the evidence. “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.” A preponderance of the evidence is “[t]he greater weight of the evidence, not necessarily established by the greater number of witnesses testifying to a fact but by evidence that has the most convincing force; superior evidentiary weight that, though not sufficient to free the mind wholly from all reasonable doubt, is still sufficient to incline a fair and impartial mind to one side of the issue rather than the other.”

A.R.S. § 32-2153 provides as follows:

Grounds for denial, suspension or revocation of licenses . . .

A. The commissioner may suspend or revoke a license . . . issued under this chapter if it appears that the holder . . . , within five years immediately preceding, in the performance of or attempt to perform any acts authorized by the license or by this chapter, has:

...

3. Disregarded or violated any of the provisions of this chapter or any rules adopted by the commissioner.

A.R.S. § 32-2153(B)(6) provides that the Commissioner may suspend or revoke a license, deny the issuance of a license, issue a letter of concern to a licensee, issue a provisional license or deny the renewal or the right of renewal of a license issued under this chapter if it appears that the holder or applicant has:

Engaged in the business of a real estate broker, cemetery broker or membership camping broker or real estate, cemetery or membership camping salesperson without holding a license as prescribed in this chapter.

The hearing record established that EJIC performed acts and conduct, as investigated, that were violative of A.R.S. §§ 32-2128, 32-2151(B)(2), 32-2174(A) and Arizona Administrative Code (“A.A.C.”) R4-28-303(E). These EJIC acts and conduct were, thus, violations of A.R.S. 32-2153(A)(3), in disregard of applicable laws and rules adopted by the Commissioner. The Department has established cause to discipline EJIC’s real estate licensure under A.R.S. § 32-2153(A).

The hearing record established that Powlas performed acts, as an unlicensed person, that required licensure by the Department; these actions took place prior to March 22, 2022. In mitigation of the circumstances, the hearing record further established that EJIC and Powlas took appropriate action after EJIC received Mr. Sichi’s termination notice; by the time the Department issued its Cease and Desist Order on May 26, 2022, EJIC and Powlas had completed the return of Mr. Sichi’s property.

The Department is charged with protecting the public and consumers who deal with licensees. The Department’s concern in this case is understandable in that, under the administration and/or supervision of Broker, EJIC had failed to operate in a manner that was in compliance with multiple applicable laws and rules. There was concern about possible misrepresentation of monies held by EJIC and for whom and for what purpose the monies were held. Additionally, Broker’s failures as to EJIC in failing to accurately self-audit left the Department in a precarious position regarding its ability to protect the public. Mr. Sichi’s complaint and the ensuing departmental audit demonstrated multiple issues, resulting in the Department’s reasonable concern as to whether Broker and EJIC were regulatable.

Based on the hearing record, the Administrative Law Judge concludes that the Department’s Cease and Desist Order was appropriately issued.

The Administrative Law Judge concludes that, given the specific circumstances of this case and intervening equities, the Department should consider vacating the Cease and Desist Order and (a) impose discipline in the form of a suspension of EJIC’s licensure as a disciplinary action for EJIC’s demonstrated failures and (b) impose a corrective action time period during which EJIC is required to demonstrate compliance with the laws for which failures were documented.

RECOMMENDED ORDER

IT IS ORDERED the Cease and Desist Order as to Petitioners Elle Joe Investments Corporation and Anne Powlas is vacated;

IT IS FURTHER ORDERED that Petitioner Elle Joe Investments Corporation License No. CO511612000 is suspended for 30 days, during which time Elle Joe Investments Corporation is required to demonstrate compliance with A.R.S. §§ 32-2128, 32-2151(B)(2), 32-2174(A) and Arizona Administrative Code (“A.A.C.”) R4-28-303(E) regarding the following: display of all current licenses in the Elle Joe Investment Corporations’ office; providing the Department and clients with requisite notice, within ten (10) days, of the opening of new properly identified client trust accounts; and demonstrating creation and maintenance of current client ledgers.

IT IS FURTHER ORDERED in the event such compliance is not so demonstrated to the satisfaction of the Department, the Elle Joe Investments Corporation License No. CO511612000 should be revoked.

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, October 7, 2022.

/s/ Kay Abramsohn

Administrative Law Judge

Transmitted electronically to:

Louis Dettorre, Commissioner

Arizona Department of Real Estate

100 N. 15th Avenue, Suite 201

Phoenix, Arizona 85007

Attn:

[email redacted]

[email redacted]

[email redacted]

[email redacted]

Elle Joe Investment Corporation

ATTN: Anne Powlas, Director

626 W. Wickenburg Way

Wickenburg, AZ 85390

Anne Powlas

510 W. El Tecalote Dr.

Wickenburg, AZ 85390

[email redacted]

Lynette Evans, Esq.

Assistant Attorney General

[email redacted]

By Miranda Alvarez

Legal Secretary