ALJDEC

98A-H1954-REL · Department of Real Estate · 1998-08-18

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

On August 18, 1998 at 9:00 a.m. a hearing was held to determine if the Respondent had violated provisions of A.R.S. §§32-2153, 32-2173 & 32- 2175. Assistant Attorney General Michael Denious appeared on behalf of the Arizona Department of Real Estate (the “Department”). The Respondents failed to appear. The record was kept open until approximately 2:30 p.m. to allow for the appearance of the Respondents or the receipt of any information which would constitute good cause for the Respondents’ absence or delay. No such information was received from or on behalf of the Respondents. This disciplinary hearing was scheduled for August 18 & 19, 1998. However, this hearing concluded on August 18, 1998. Accordingly, the August 19, 1998 hearing date was vacated.

FINDINGS OF FACT

1. The Respondents failed to appear for the hearing scheduled on August 18, 1998, at 9:00 a.m. at the Office of Administrative Hearings located at 1700 West Washington Street, Suite 602, Phoenix, Arizona. The Notice of Hearing correctly states the date, time and place of this hearing. The Notice of Hearing was sent by certified mail to the Respondents at their last known addresses (as stated in the Notice of Hearing received by the Office of Administrative Hearings). The undersigned Administrative Law Judge finds that the Respondents were properly noticed for this disciplinary hearing.

2. Paramount Realty, Inc. ("Paramount") was licensed as a corporate real estate broker in the state of Arizona at all times material to this case. Paramount's license expired on March 31, 1997. See State’s Supplemental Exhibit (filed August 20, 1998). Paramount currently does not have a valid corporate real estate license. Id.

3. John E. Kereny ("Kereny") was licensed as a real estate broker in the state of Arizona at all times material to this case. Kereny was the designated broker for Paramount. Kereny's real estate broker's license expired on March 31, 1997. See State’s Exhibit A. Kereny currently does not have a valid real estate broker's license.

4. Milton Sky ("Sky") was the owner and president of Paramount at all times material to this case. Sky was originally issued a real estate salesperson's license on November 13, 1985. On or about July 3, 1990, a Consent Order (No. H-1310 (RES)) was entered by the Department against Sky for trust account violations. See State's Exhibit B. Sky's real estate salesperson's license was ordered revoked for a period of five years from July 3, 1990 through July 2, 1995. Id.

5. The aforementioned Consent Order further stated that Paramount could remain in business only under certain circumstances including that Sky would have no authority to deposit or withdraw funds from or be a signatory on any real estate trust account. Id. Sky's real estate salesperson's license has not been reinstated.

6. On or about December 17, 1991, Lorraine B. Costa ("Costa") entered into a written property management agreement with Paramount to manage her property located at 3031 North Civic Center Plaza, Unit #232, Scottsdale, Arizona. See State's Exhibit D1. Costa and Paramount agreed that Paramount would collect rent each month, and then promptly issue Costa a monthly account statement and a check for the rental proceeds. Id.

7. Costa testified (telephonically) that she did not receive a check for rental proceeds for the months of January, February, March and April of 1996. Costa also testified that she did not always receive a timely monthly account statement for the aforementioned months.

8. Costa testified that she repeatedly telephoned Sky about the missing rental proceeds checks and account statements from January to April of 1996. Costa testified that Sky would always reply that the check was in the mail. Eventually, Sky failed to return Costa's telephone calls. Costa testified that Sky did claim that no proceeds were owed for January of 1996 because a refrigerator had to be replaced at the rental property. However, Costa testified that the refrigerator was a used refrigerator worth less than one month's rental proceeds.

9. On or about May 17, 1996, Costa sent a letter to Paramount canceling their property management agreement. See State's Exhibit D4. On or about May 21, 1996, Costa filed a complaint with the Department against Paramount. See State's Exhibit D. Shortly thereafter, Kereny telephoned Costa promising restitution for the missed monthly rental proceeds checks and the security deposit. Costa testified that Kereny stated that he only recently became aware of the problems at Paramount. Kereny also told Costa that he mistakenly relied on Sky to properly manage Paramount.

10. Costa testified that she still has not received the monthly rental proceeds for February, March and April of 1996. Furthermore, the security deposit was never returned to her. Costa calculated that Paramount owes her approximately $1,339.25. See State's Exhibit D5. Costa further testified that she still has not received a monthly statement for the months of January, February, March and April of 1996. The undersigned Administrative Law Judge finds that the rental payments for February, March and April of 1996 were made to Paramount by the tenant residing at the rental property. See State's Exhibit I.

11. James B. Bleakley ("Bleakley") and Paramount entered into a property management agreement to manage Bleakley's property located at 14807 N. 35th Place, Phoenix, Arizona. Bleakley testified (telephonically) that he did not receive his monthly rental proceeds and monthly statements on a timely basis. Bleakley further testified that the rental property was poorly managed. On or about November 21, 1995, Bleakley sent a certified letter to Paramount canceling their property management agreement and demanding payment of the July, September, October and November (1995) rental proceeds. Bleakley testified that Sky refused to accept the letter.

12. On or about January 16, 1996, Bleakley wrote a letter to Kereny demanding return of the rental property's security deposit and three months' rental proceeds. See State's Exhibit F2 (attachment). On or about June 23, 1996, Bleakley wrote another letter to Kereny once again demanding payment of the security deposit and two months’ rental proceeds (plus an additional amount for a running account balance). See State's Exhibit F2. Bleakley testified that he never received the requested amount that was owed to him. 13. On or about October 22, 1996, Bleakley received a civil judgment in Justice Court against Paramount in the amount of $2,016.96. See State's Exhibit F4. Bleakley stated that Kereny testified against Paramount at this trial. Bleakley testified that this judgment still has not been satisfied.

14. In early 1991, Glen C. Higgens ("Higgens") entered into a property management agreement with Paramount to manage his property located at 5903 W. Townley, Glendale, Arizona. Higgens testified (telephonically) that he became dissatisfied with Paramount in late 1995 because his monthly rental proceeds and account statements were arriving about three months late.

15. On or about April 23, 1996, Higgens sent a letter to Sky complaining that he had not received statements or rental proceeds for the months of January, February, March and April of 1996. See State's Exhibit G2. Mr. Higgens testified that Sky did not respond to this letter.

16. On or about May 21, 1996, Higgens sent a second letter to Sky stating that Paramount was now five months behind in providing monthly rental proceeds and statements. See State's Exhibit G3. On June 10, 1996, Higgens sent a third letter to Sky terminating the property management agreement. See State's Exhibit G5.

17. Higgens testified that Kereny called him on June 23, 1996. Higgens testified that Kereny stated that he only recently had become aware of problems at Paramount. At Kereny's request, Higgens sent a letter by registered mail to Kereny itemizing the amounts owing on the rental property. See State's Exhibit G6. This letter was returned because Kereny “refused receipt.” See State's Exhibit G7.

18. On or about July 23, 1996, Kereny sent a letter to Paramount's customers (including Higgens) stating that 18 separate property owners had not received proceed checks or account statements over several months. See State’s Exhibit G8. In this letter, Kereny accused Sky of embezzling over $25,000.00 from Paramount's trust account. Id. Kereny also urged the 18 property owners to file a lawsuit against Sky. Id.

19. Higgens testified that he never did receive the rental proceeds for January through June of 1996. Higgens calculated that $2,575.96 was owed to him from Paramount. See State’s Exhibit G6. The undersigned ALJ finds that the rental payments for January through June of 1996 were paid to Paramount by the tenant of the rental property. See State's Exhibit G9.

20. Tim Alvine is the Department's Investigator. Mr. Alvine testified that he received this case from Investigator Dan Rupp in early 1998. Mr. Alvine testified that he served subpoenas on Kereny and Sky for documents pertaining to the Higgens, Costa and Bleakley complaints. See State's Exhibits 3 & 4. Mr. Alvine testified that he served Kereny's son with a subpoena in late January of 1998. See State’s Exhibit 3. Mr. Alvine testified that Kereny telephoned him and said that Sky had these documents. Mr. Alvine testified that Kereny told him that Sky had locked Kereny out of the Paramount office.

21. Tim Alvine testified that he personally served a subpoena on Sky for the aforementioned documents in March of 1998. See State's Exhibit 4. Mr. Alvine testified that Sky told him that Kereny had the documents. Sky further stated that he destroyed documents pertaining to the aforementioned complaints that were over five years old. The subpoena only pertained to documents during the years of 1995 and 1996. Id. Investigator Alvine testified that he never did receive the documents itemized in the subpoenas served on Kereny and Sky.

22. Tim Alvine also testified that he reviewed transcripts or notes from interviews between Investigator Rupp and Kereny. Mr. Alvine testified that Kereny told Rupp that his involvement with Paramount was minor. Kereny told Rupp that he only signed checks for Paramount and that he received $500.00 per month. Kereny also told Investigator Rupp that Sky was the person who managed Paramount on a day to day basis.

23. Tim Alvine testified that other individuals also filed complaints against Paramount because they did not receive monthly rental proceeds or account statements. See State's Exhibits H, E, C. It should be noted that the undersigned ALJ only admits into evidence the actual complaints of these individuals (Exhibits H, E & C). The undersigned Administrative Law Judge does not admit into evidence the remaining exhibits pertaining to these individuals because of hearsay and foundation issues.

24. Assistant Attorney General Michael Denious requested that Kereny be fined $5,000.00 and that Paramount be fined the maximum penalty allowed under the law.

25. The undersigned Administrative Law Judge finds that Kereny’s only interest in Paramount was the receipt of the nominal $500.00 monthly fee. The undersigned Administrative Law Judge further finds that Kereny failed to properly and reasonably supervise the activities of Sky and to properly assume the responsibility for the acts of Sky within the course of Sky’s employment.

26. The undersigned Administrative Law Judge further finds that Kereny acted unreasonably in supervising Sky and in dealing with Higgens, Costa and Bleakley (the “Complainants”). The undersigned Administrative Law Judge finds that Kereny breached his fiduciary duty to the Complainants and failed to deal fairly with the Complainants by failing to correct their problems with Paramount.

27. The undersigned Administrative Law Judge further finds that both Kereny and Paramount failed within a reasonable time to account for or remit the proceeds and statements owed to the Complainants.

28. The undersigned Administrative Law Judge finds that Paramount violated the conditions and terms of Consent Order No. H-1310 (RES) because Sky deposited and withdrew funds from Paramount’s trust account.

29. The undersigned Administrative Law Judge finds that Paramount, through the actions or omissions of Sky and/or Kereny, failed or refused upon demand to produce documents in its possession concerning real estate activities or transactions involving Paramount and the Complainants (for inspection by the Commissioner or the Commissioner’s representative). The undersigned Administrative Law Judge further finds that Paramount, through the actions or omissions of Kereny and/or Sky failed to maintain a complete record of each transaction involving Paramount and the Complainants.

30. The undersigned Administrative Law Judge finds that Paramount, through the actions or omissions of Sky and/or Kereny failed to keep all financial records pertaining to the Complainants for at least three years from the date of execution.

31. The undersigned Administrative Law Judge finds that Paramount failed to provide a final reimbursement of amounts owing to the Complainants and a final accounting regarding the financial status of the Complainants’ rental properties upon termination of the property rental agreements.

CONCLUSIONS OF LAW

1. The Department has jurisdiction over the Respondent and the subject matter of this case pursuant to A.R.S. §32-2108, et seq.

2. The Department has the burden of proof, and the standard of proof on all issues is by a preponderance of the evidence. Culpepper v. State, 187 Ariz. 431, 930 P.2d 508 (App. 1996). A "preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not." Morris K. Udall, Arizona Law of Evidence, §5 (1960). It "is evidence which is of greater weight or more convincing than the evidence which is offered in opposition to it; that is, evidence which as a whole shows that the fact sought to be proved is more probable than not." Black's Law Dictionary, 1182 (6th ed. 1990).

3. The Respondents have failed to appear and present evidence supporting their positions.

4. The undersigned Administrative Law Judge finds that the preponderance of the evidence shows that Respondents Kereny and Paramount have violated provisions of Title 32, Chapter 20 of the Arizona Revised Statutes within the meaning of A.R.S. §32-2153(A)(3).

5. The undersigned Administrative Law Judge finds that the preponderance of the evidence shows that the Respondent Kereny has violated Arizona Administrative Code R4-28-303(G) as set forth in Findings of Fact #25.

6. The undersigned Administrative Law Judge finds that the preponderance of the evidence shows that Respondent Kereny has violated Arizona Administrative Code R4-28-303(H) as set forth in Findings of Fact #25.

7. The undersigned Administrative Law Judge finds that the preponderance of the evidence shows that Respondent Kereny has violated Arizona Administrative Code R4-28-1101(A) as set forth in Findings of Fact #26.

8. The undersigned Administrative Law Judge finds that the preponderance of the evidence shows that Respondent Kereny has violated A.R.S. §32- 2153(A)(9) as set forth in Findings of Fact #27.

9. The undersigned Administrative Law Judge finds that the preponderance of the evidence shows that Respondent Kereny has violated A.R.S. §32- 2153(A)(21) as set forth in Findings of Fact #25 & 26.

10. The undersigned Administrative Law Judge finds that the preponderance of the evidence shows that Respondent Kereny has violated A.R.S. §32- 2153(A)(22) as set forth in Findings of Fact #26.

11. The undersigned Administrative Law Judge finds that the preponderance of the evidence shows that Respondent Paramount has violated A.R.S. §32- 2153(A)(9) as set forth in Findings of Fact #27.

12. The undersigned Administrative Law Judge finds that the preponderance of the evidence shows that Respondent Paramount has violated A.R.S. §32- 2153(A)(17) as set forth in Findings of Fact #29.

13. The undersigned Administrative Law Judge finds that the preponderance of the evidence shows that Respondent Paramount has violated A.R.S. §32- 2153(A)(18) as set forth in Findings of Fact #29.

14. The undersigned Administrative Law Judge finds that the preponderance of the evidence shows that Respondent Paramount has violated A.R.S. §32- 2153(A)(24) as set forth in Findings of Fact #28.

15. The undersigned Administrative Law Judge finds that the preponderance of the evidence shows that Respondent Paramount has violated A.R.S. §32- 2153(B)(9) as set forth in Findings of Fact #28.

16. The undersigned Administrative Law Judge finds that the preponderance of the evidence shows that Respondent Paramount has violated A.R.S. §32- 2173(C) as set forth in Findings of Fact #31.

17. The undersigned Administrative Law Judge finds that the preponderance of the evidence shows that Respondent Paramount has violated A.R.S. §32- 2175(B) as set forth in Findings of Fact #30.

18. The undersigned Administrative Law Judge finds that the preponderance of the evidence shows that grounds exist to impose a civil penalty against the Respondents not to exceed $1,000.00 per violation of Title 32, Chapter of the Arizona Revised Statutes.

19. The undersigned Administrative Law Judge finds that Respondent Kereny has committed six (6) violations pursuant to A.R.S. §§32- 2153(A)(3),(A)(9),(A)(21),(A)(22), A.A.C. R4-28-303(G),(H) and A.A.C. R4-28- 1101(A). Therefore, the civil penalty may not exceed $6,000.00 pursuant to A.R.S. §32-2160.01(A).

20. The undersigned Administrative Law Judge finds that Respondent Paramount Realty Inc. has committed eight (8) violations pursuant to A.R.S.§§32153(A)(3),(A)(9),(A)(17), (A)(18),(A)(24), A.R.S. §32-2153(B)(9), A.R.S. §32-2173(C), A.R.S. §32- 2175(B). Therefore, the civil penalty may not exceed $8,000.00 pursuant to A.R.S. §32-2160.01(A).

RECOMMENDED DECISION

In view of the foregoing, the undersigned Administrative Law Judge recommends that Respondent Kereny be assessed a $5,000.00 civil penalty. The undersigned Administrative Law Judge further recommends that Respondent Paramount Realty, Inc. be assessed an $8,000.00 civil penalty. The civil penalty shall be paid by money order or cashier’s check made payable to the Arizona Department of Real Estate and is due on or before the date that this Order becomes final.

The undersigned Administrative Law Judge further recommends that the aforementioned violations should be considered as grounds for denying future applications by Paramount and Kereny for corporate or broker or salesperson’s real estate licenses.

Done this day, August 24, 1998.

_________________________________ Casey J. Newcomb Administrative Law Judge

Original transmitted by mail this ____ day of August, 1998, to:

Mr. Jerry Holt, Commissioner Department of Real Estate 2910 North 44th Street, Ste. 100 ATTN: Bonnie Hollon Phoenix, AZ 85018

By _______________________________

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Office of Administrative Hearings 1700 West Washington, Suite 602 Phoenix, Arizona 85007 (602) 542-9826