ARETTA L. WEST v. KENTUCKY REAL ESTATE COMMISSION AND DANIEL A. CLARK, JR.
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RENDERED: MAY 2, 2003; 10:00 a.m.
NOT TO BE PUBLISHED
Commonwealth Of Kentucky
Court of Appeals
NO. 2001-CA-001905-MR
ARETTA L. WEST
APPELLANT
APPEAL FROM DAVIESS CIRCUIT COURT
HONORABLE THOMAS O. CASTLEN, JUDGE
ACTION NO. 00-CI-00449
v.
KENTUCKY REAL ESTATE COMMISSION
AND DANIEL A. CLARK, JR.
APPELLEES
OPINION
REVERSING AND REMANDING
** ** ** ** **
BEFORE:
DYCHE, JOHNSON, AND SCHRODER, JUDGES.
SCHRODER, JUDGE.
This is an appeal from an order of the Daviess
Circuit Court affirming an order of the Kentucky Real Estate
Commission (“KREC”) disciplining appellant for failing to fully
disclose to a client information about a property transaction in
which she had an interest and ordering her to pay restitution
therefor.
From our review of the record and the applicable law,
we adjudge that the KREC’s finding of a violation of the
disclosure statute (KRS 324.160(1)(e) and (q)) was not supported
by substantial evidence.
Hence, we reverse and remand.
Appellant, Aretta West, is a licensed real estate
broker and auctioneer in Owensboro.
On April 11, 1998, West
entered into a real estate listing agreement with her cousin,
Herman Bowlds, for the sale of a piece of property he owned in
Hardinsburg.
This was a six-month listing set to expire on
October 11, 1998, with a stated commission of 6% and listing
price of $79,900.
By July 31, 1998, despite West’s efforts, the
property had not sold and was not generating much interest.
Consequently, West and Bowlds entered into a written agreement
to auction the property on September 5, 1998.
Pursuant to the
auction agreement, which did not have a reserve, West was to
advertise, promote, and conduct the auction for which she would
be compensated a 10% buyer’s premium, which was 10% of the sale
price to be paid by the buyer.
However, the listing agreement
was not rescinded but remained in full force until terminated by
its own provisions on October 11, 1998.
On the day before the auction, September 4, 1998,
Bowlds was in an automobile accident and was hospitalized.
However, since the auction had already been advertised, it was
conducted as planned on September 5, 1998.
the auction was $57,200.
The highest bid at
Nevertheless, Bowlds declined to sell
at that price on that date because he wanted to gross $65,000.
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Sometime prior to the auction, Bowlds made an offer on
a home in Owensboro subject to the sale of his property on
September 5, 1998.
However, because Bowlds had been in the
hospital after the auction, the woman who owned the Owensboro
house allowed Bowlds more time to obtain funds to buy the house.
By the end of September, Bowlds urgently needed to sell his
property in order to not lose the opportunity to buy the
Owensboro home.
Accordingly, West began actively marketing the
property again under the listing agreement.
On September 21,
1998, appellee, Daniel Clark, contacted West and learned the
listing price was $65,000.
At the hearing, Clark testified that
between September 21 and October 8, 1998, he twice verbally
offered to purchase the property for $50,000 and West responded
that Bowlds would probably accept $55,000.
On October 8, 1998,
Clark again approached West about the property and West informed
Clark of some of Bowlds’ circumstances, including Bowlds’ fastdeclining health and his need for proceeds from the sale to
purchase his next home.
Later that same day, Clark made a
written offer to purchase the property for $55,000.
The requested closing date in the offer was
November 10, 1998.
However, Bowlds needed to move sooner than
that to be near his doctors and could not wait until that date
to close on the Owensboro property.
Consequently, Bowlds and
West agreed to an arrangement whereby West would purchase the
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property from Bowlds for $50,000, the amount Bowlds needed to
close on the Owensboro property, and West would then sell the
property to Clark for $55,000, keeping the $5,000 difference for
her commissions from the listing and auction agreements.
Relative to this arrangement, Bowlds stated the following in his
affidavit:
I told her you purchase my home at Rough
River for $50,000 so I can purchase the
other home. Since the contract is for
$55,000 that will give you the buyers
premium and expenses of the auction and
still give me $50,000.
On the basis of this arrangement, Bowlds accepted
Clark’s offer to purchase the property for $55,000.
Under the
“Further Conditions” provision of the offer/purchase contract,
was the following language:
“In the event the property has to
be conveyed to Aretta West prior to this closing, Aretta West
Broker/Realtor/Auctioneer will honor this Purchase Agreement.”
West testified that she also told Clark that she may need to
purchase the property prior to the closing date because Bowlds
needed the sale proceeds prior to that time.
Contemporaneous
with the preparation of the purchase contract on October 8,
1998, West provided Clark with an agency disclosure form which
indicated that West, with West Realty & Auction, had a family
relationship with the seller and that she was the agent of both
the buyer and the seller in the transaction.
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On October 14, 1998, West purchased the property from
Bowlds for $50,000.
The closing statement for this transaction
did not reflect that West was paid any commission.
On November 11, 1998, West deeded the subject property
to Clark.
On November 12, 1998, when Clark was recording the
deed at the courthouse, he decided to look at the property’s
history in the deed books.
In so doing, he learned for the
first time that Bowlds had sold the property to West for only
$50,000.
Clark assumed that West bought the property from
Bowlds in order to make a $5,000 profit from the sale to Clark.
As a result of his discovery, Clark filed a complaint against
West with the KREC claiming that he was entitled to the $5,000
difference in the price paid by West and the price he paid.
The KREC charged West with violating KRS 324.160(1)(e)
and (q).
On October 26, 1999, a full evidentiary hearing was
conducted.
Based on evidence from that hearing, the hearing
officer found that West violated KRS 324.160(1)(e) by not fully
disclosing she was acting for more than one party in the
transaction.
The hearing officer also found that West violated
KRS 324.160(1)(q) by failing to act in a fiduciary manner as
required by 201 KAR 11:121 Section 1(4).
Specifically, the
hearing officer found that West improperly failed to disclose to
Clark how much West actually paid for the property and the fact
that Clark would be paying $5,000 more than what West paid.
-5-
The
KREC thereafter adopted in full the hearing officer’s findings
and recommendations, suspending West’s license for a period of
thirty (30) days and ordering her to pay restitution to Clark in
the amount of $5,000.
West appealed to the Daviess Circuit
Court which upheld the KREC’s decision.
This appeal by West
followed.
When an administrative agency acts within its
jurisdiction, judicial review is limited to a determination of
whether the agency’s action was arbitrary.
Burch v. Taylor Drug
Store, Inc., Ky. App., 965 S.W.2d 830 (1998); Commonwealth,
Department of Public Safety v. Glasscock, Ky., 415 S.W.2d 106
(1966).
An agency’s ruling is considered arbitrary:
where the
agency exceeded its statutory powers; the party affected by the
administrative order was not afforded procedural due process; or
the agency’s action was not supported by substantial evidence.
Kentucky Board of Nursing v. Ward, Ky. App., 890 S.W.2d 641
(1994).
West first argues that the KREC's finding that she
violated KRS 324.160(1)(e) was not supported by the evidence.
KRS 324.160(1)(e) provided in 1998:
(1) The commission may suspend or revoke
any license or levy fines not to exceed five
hundred dollars ($500), or both, and place
any licensee on probation for a period of up
to twelve (12) months or require successful
completion of academic credit hours in real
estate courses from an accredited or
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approved real estate school or issue a
formal reprimand or order a licensee to pay
restitution in an amount to be determined by
the commission after a hearing, as a
condition of continued licensure, for any of
the following causes:
(e) Acting for more than one (1) party in a
transaction without the knowledge of all
parties for whom the licensee acts;
1. A real estate licensee shall not
directly or indirectly buy property
listed with him or her nor acquire an
interest therein without making his or
her true position clearly known in
writing on the sales contract or offer
to purchase;
2. Before a real estate licensee buys,
sells, or receives compensation for
property in which the licensee owns an
interest, the licensee shall disclose
any interest in the property to all
parties to the transaction;
As stated earlier, West executed a disclosure form
stating that she was the agent for both the buyer and the seller
in the transaction.
Further, the language in the purchase
contract specifically acknowledged the possibility that West
might buy the subject property and sell it to Clark.
Even the
hearing officer found that West told Clark that she might
actually purchase the property from Bowlds prior to the
November 10 closing date so that Bowlds could sooner have access
to the sale proceeds and that “Clark understood this arrangement
and voiced no objection.”
KREC asserts that while West may have told Clark that
she might be first purchasing Bowlds’ property, she never told
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Clark that she was in fact purchasing the property.
However, it
is undisputed that Clark knew that West did indeed purchase the
property from Bowlds, and the deed to Clark clearly indicated
that was the case.
There was no allegation or evidence that
West was attempting to misrepresent or hide the fact that she
had bought the subject property and was transferring it to
Clark.
From our review of the record, we do not believe there
was substantial evidence to support the KREC’s finding that West
violated KRS 324.160(1)(e).
The evidence established that West
made it clearly known to Clark in the purchase agreement that
she might be purchasing the property from Bowlds before
conveying it to Clark and also verbally disclosed this fact to
Clark.
The evidence further established that at the time the
property was conveyed to Clark, Clark was aware of West’s
interest in the property in that West was the individual
transferring the property to him.
KRS 324.160(1)(e)2. only
requires that the licensee disclose an interest in the property
to the buyer and, from our reading, does not further require the
licensee to disclose what she paid for the property.
West next argues that the evidence did not support the
finding that she violated KRS 324.160(1)(q).
KRS 324.160(1)(q)
provided in 1998 that a real estate licensee could be
disciplined (license suspended or revoked, fined, or restitution
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ordered) for “[v]iolating any of the provisions in this chapter
or any lawful order, rule, or administrative regulation made or
issued under the provisions of this chapter.”
In particular,
the hearing officer found that West violated 201 KAR 11:121
Section 1(4) which in 1998 stated that it is improper conduct
for a licensee to “fail to act in accordance with a fiduciary
standard toward his client.”
The hearing officer essentially
found that West violated her fiduciary duty to Clark when she
failed to disclose to him that she purchased the subject
property for $50,000.
At the hearing, West testified, in keeping with
Bowlds’ affidavit, that the $5,000 difference in what Bowlds
sold the property to her for and what Clark paid her for the
property constituted her commissions under the listing and
auction agreements.
However, the hearing officer found this
testimony to not be credible, which was within the hearing
officer’s exclusive province as factfinder.
Energy Regulatory
Commission v. Kentucky Power Co., Ky. App., 605 S.W.2d 46
(1980).
The hearing officer found that the $5,000 difference
constituted a profit from the sale of the property and not a
commission.
What troubles us with regard to this finding is
that the evidence established that West was legally entitled to
a commission for her sale of the property, which was not
disputed by the hearing officer or the KREC on appeal.
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Moreover, contrary to the hearing officer’s legal conclusion, we
believe that West was likewise legally entitled to the
commission under the auction agreement with Bowlds.
Although,
as pointed out by the hearing officer, the 10% buyer’s premium
in the auction agreement was to be paid by the buyer in the
event of a sale and no sale occurred, Bowlds did get a
legitimate bid on the house for $57,200, which Bowlds rejected.
Thus, despite the fact that a sale did not result from the
auction, West fully performed her duties under the agreement by
finding a willing buyer.
See Neel v. Wagner-Shuck Realty Co.,
Ky. App., 576 S.W.2d 246 (1978).
Accordingly, West was legally
entitled to commissions of well over the $5,000 difference in
the sale price of the subject property.
The question is, did West have a fiduciary duty to
disclose to Clark what her commission was with regard to her
agreements with Bowlds and specifically justify to Clark the
$5,000 difference in the sale price of the property as her
commission from Bowlds?
We do not think so.
We would note that
nothing in KRS 324.160(1)(e) or (q) specifically provides how a
commission must be paid or characterized in a real estate
transaction.
Nor is there any requirement in that statute that
a licensee must disclose to a buyer the amount of commission
being paid by the seller.
The fact is that Bowlds legally owed
West more than $5,000 in commissions and, pursuant to his
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arrangement with West, Bowlds did essentially sell the property
for $55,000 since the consideration from West to Bowlds was not
simply $50,000, but was additionally a waiver of the 6%
commission on the listing agreement and the 10% commission on
the auction agreement, as well as her promise to immediately pay
cash for the property.
Hence, West did not misrepresent the
fact that Bowlds would not take less than $55,000 for the
property.
Although the arrangement was unconventional, we do
not believe it constituted a breach of fiduciary duty to Clark.
While we can see how Clark might have mistakenly believed that
West’s motive was to make a $5,000 profit on the sale, that was
simply not the case since she was legally entitled to be
compensated for her services.
Accordingly, we adjudge that the
KREC’s finding of a violation of KRS 324.160(1)(q) was not
supported by substantial evidence.
Given our decision above, West’s final argument
challenging the constitutionality of KRS 324.160(1) is moot.
For the reasons stated above, the judgment of the Daviess
Circuit Court is reversed and this matter is remanded for
further proceedings consistent with this opinion.
ALL CONCUR.
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BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE:
Glenn E. Acree
Lexington, Kentucky
Geraldine Lee B. Harris
Louisville, Kentucky
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