Court Reverses Ohio Real Estate Commission

In a recent decision, a Franklin County Court of Common Pleas Judge reversed the Ohio Real Estate Commission decision to revoke the real estate salesperson license of Tony V. Sekulovski. The Court found the Commission’s decision violated Mr. Sekulovski’s due process rights and the Commission’s interpretation of license law statutes was contrary to law.

The Commission alleged that Mr. Sekulovski failed to comply with the requirements set forth in Ohio’s commercial cooperation statute, which permits out of state licensees to practice in Ohio provided certain requirements are met, including entering into a commercial cooperation agreement with an Ohio broker.

At the time of the allegations, 2013-2014, Mr. Sekulovski maintained an inactive Ohio real estate salesperson license and an active broker license in the state of Arizona. Generally, the Commission alleged that because Mr. Sekulovski maintained an Ohio inactive salesperson license and had an office in Ohio, he was not eligible to practice under the commercial cooperation statute. Although the Commission notified Mr. Sekulovski that he had violated on or more requirements of R.C. 4735.022(A), the commercial cooperation statute) the Commission did not notify Mr. Sekulovski which of the seven requirements the Commission believed he violated.

Specifically, R.C. 4735.022 provides in part as follows:

(A) An out-of-state commercial broker, for a fee, commission, or other valuable consideration, or in the expectation, or upon the promise of receiving or collecting a fee, commission, or other valuable consideration, may perform those acts that require a license under this chapter, with respect to commercial real estate, provided that the out-of-state commercial broker does all of the following:

(1) Works in cooperation with an Ohio real estate broker who holds a valid, active license issued under this chapter;

(2) Enters into a written agreement with the Ohio broker described in division (A)(1) of this section that includes the terms of cooperation and compensation and a statement that the out-of-state commercial broker and its agents will agree to adhere to the laws of Ohio;

(3) Furnishes the Ohio broker described in division (A)(1) of this section with a copy of the out-of-state commercial broker’s current certificate of good standing from any jurisdiction where the out-of-state commercial broker maintains an active real estate license;

(4) Files an irrevocable written consent with the Ohio broker described in division (A)(1) of this section that legal actions arising out of the conduct of the out-of-state commercial broker or its agents may be commenced against the out-of-state commercial broker in the court of proper jurisdiction of any county in Ohio where the cause of action arises or where the plaintiff resides;

(5) Includes the name of the Ohio broker described in division (A)(1) of this section on all advertising in accordance with section 4735.16 of the Revised Code;

(6) Deposits all escrow funds, security deposits, and other money received by either the out-of-state commercial broker or Ohio broker described in division (A)(1) of this section in trust or special accounts maintained by the Ohio broker;

(7) Deposits all documentation required by this section and records and documents related to the transaction with the Ohio broker described in division (A)(1) of this section. The Ohio broker described in division (A)(1) of this section shall retain the documentation that is provided by the out-of-state commercial broker as required under division (A)(7) of this section, and the records and documents related to a transaction, for a period of three years after the date the documentation is provided, or the transaction occurred, as appropriate. (emphasis added).

At Mr. Sekulovski’s administrative hearing, the Commission argued that he violated paragraph (3) which required Mr. Sekulovski to furnish a certificate of good standing from Arizona and paragraph (6) which required Mr. Sekulovski’s commission to be placed in the cooperating Ohio broker’s trust account. The Commission also argued generally that because Mr. Sekulovski was not a “resident” of the state of Arizona, he was not eligible to practice in Ohio under the commercial cooperation statute.

Due Process of Law

The Court found that even though the Commission notified Mr. Sekulovski that he had allegedly violated R.C. 4735.022, the Commission failed to cite the law directly involved (i.e. which of the seven requirements he violated). In its failure, Mr. Sekulovski was not provided any advance notice that the Commission intended to allege at hearing his residency, the certificate of good standing, or escrow requirements. The Court found this lack of notice denied Mr. Sekulovski fundamental fairness and the opportunity to prepare a defense to the Commission’s charges. Rather the Court notes the Commission, who takes months or years to investigate wrongdoing, took a “shot gun” conclusory approach in providing its notice of alleged violations [1]. In conclusion, the Court vacated the Commission’s order revoking Mr. Sekulovski’s license, because of the Commission’s violation of Mr. Sekulovski’s constitutional rights to due process of law.

[1] The Commission initiated its investigation in 2013, and did not bring charges until April of 2017, taking roughly 4 years to complete its investigation.

Notwithstanding the Court’s reversal, the Court went on to specifically address the issues the Commission advanced at hearing (i.e. the residency requirement, the certificate of good standing and the escrow requirements).

The Residency Requirement

As discussed above, the Commission argued that because Mr. Sekulovski was not a resident of Arizona, he was not eligible to act as an out of state commercial broker in Ohio. The Court looked R.C. 4735.01(S) which defines an out of state commercial broker as any person, partnership, association, limited liability company, limited lability partnership or corporation that is licensed to do business as a real estate broker in any jurisdiction other than Ohio.  The Court noted that the definition is clear and unambiguous.  The definition does not address residency, rather just requires the person to maintain licensure in another state.  The Court found that the Commission’s imposition of a residency requirement on Mr. Sekulovski was contrary to law. In short, the Court concluded that because Mr. Sekulovski was licensed to do business as a real estate broker in Arizona, he was eligible to act in Ohio as an out of state commercial broker.

The Certificate of Good Standing

Next, the Commission argued that Mr. Sekulovski failed to submit a “Certificate of Good Standing” from Arizona to the Ohio broker. Mr. Sekulovski testified at hearing that Arizona does not issue a “Certificate of Good Standing” and officials in Arizona told him to print a page from the website showing his Arizona license was current with no disciplinary actions. The Court noted that no one, not even the Commission, ever disputed that Mr. Sekulovski was a licensed broker in good standing in Arizona. The Court concluded that Mr. Sekulovski cannot be disciplined for failing to produce a document that did not exist, and thus the Commission’s decision was contrary to law.

The Escrow Account

Last the Commission charged Mr. Sekulovski with failing to direct his commission for deposit in the Ohio broker’s trust account.  In support the Commission pointed 4735.022(A)(6) which requires the out of state broker to deposit all escrow funds, security deposits and other money received by the out of state broker or Ohio broker in the Ohio broker’s trust account.  The Commission reasoned that Mr. Sekulovski’s commission fell within the “other money received” portion of the statute and thus was required to be placed in the Ohio broker’s trust account.

The Court rejected the Commission’s interpretation of the statute, holding that had the legislature intended fees and commissions to be placed in the broker’s trust account, it would have explicitly used those terms in the statute. The Court reasoned that commissions are paid at closing, so because the transaction is concluded, there would be no logical reason to place a commission in a trust account. Furthermore, commissions are paid when they are earned, so at closing they are not moneys belonging to others but moneys belonging to the licensee.  The Court also noted that the Commission did not advance a single reason why fees or commissions have to be placed in trust.  In conclusion the Court found that the Commission’s interpretation is contrary to law.

Conclusion

The Court reversed the Commission on both procedural and substantive grounds. Procedurally the Court found that the Commission violated Mr. Sekulovski’s constitutional due process rights when it failed to give him specific notice of the sections of law he allegedly violated, thereby denying him a fair opportunity to defend himself at hearing.  Substantially, the Court found that the Commission’s interpretation of three portions of the commercial cooperation statute to be contrary to law.  The Court reversed the Commission’s order and remanded the case to the Commission for reversal of all charges against Mr. Sekulovski.