Broker Cannot Reapply for License Until Judgement Is Paid by S

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New York State Association of REALTORS® A risk management tool for LEGALLINES New York’s REALTORS® THIRD QUARTER 2013 Broker cannot reapply for license until judgement is paid By S. Anthony Gatto, Esq., NYSAR Legal Counsel

The matter of New York State Department issued a check for $1,775. The check was DOS interviewed an employee of Furth, of State (DOS) vs. Willie Sowell and Sowell issued by SHRC and drawn from a Capital Yossi Ehrenfeld, about the check for Homes and Rental Corp. addressed issuing One account with insufficient funds. $1,775 issued by Sowell and drawn on checks where the account had insufficient the Capital One account. During the funds and failing to cooperate with a DOS SHRC and Sowell claim that a number of interview, Ehrenfeld affirmed to the DOS investigation. Willie Sowell was a corpo- checks from the Capital One account had investigator that Sowell asked him to “fill rate broker with Sowell Homes and Rental been stolen and he did not issue out the check information Corp. (SHRC). A consumer, John Furth the check in question. Whether such as the amount, date, pay filed a complaint against Sowell and SHRC Sowell was claiming the check New York News to the order, etc.” to ensure all for issuing a check where the account had was one of those allegedly stolen the information was correct. insufficient funds. is not clear from the decision. The employee then witnessed Sowell was asked for his bank statements to Sowell use a signature stamp to sign the SHRC acted as a property manager for units support his claim that checks were stolen. check in question. owned by Furth. SHRC collected rents and Sowell failed to provide the bank statements security for a new tenant through an indi- and claimed they were all destroyed during In its decision, the DOS found that Sowell vidual named “Ben” employed by SRHC. Hurricane Irene (which took place three and SHRC did not cooperate with the in- “Ben” secured a tenant and collected three months after the request was made by DOS). vestigation and demonstrated untrustwor- months’ rent in cash. SHRC stated they Sowell also attempted to avoid providing the thiness. It was also found that Sowell and refused to collect a broker’s fee because the statements because DOS “needs to explain SHRC would not be reissued a real estate tenant was paying too much for the rental. why you need the bank account” and instead license until the $1,775 plus 9-percent inter- In all, “Ben” collected three months of rent. stated “as I told you before I will tell you est from April 12, 2011 be paid to Furth as Furth claims that SHRC failed to turn over again I will send a copy of the transaction well as a $500 fine to the DOS. monies collected by SHRC and instead not my account.” Suffolk County court rules proof of agreement required for commission By S. Anthony Gatto, Esq., NYSAR Legal Counsel

In the County Court of New York, Suffolk entered into a contract and ultimately closed listed the property for lease from 2003 County, the case of Fire Island Real Estate on the 500 Bayberry property. FIRE claims through 2007. According to FIRE, in May (FIRE) v. Coldwell Banker Residential Bro- entitlement to the entire commission or in the 2007, the owners completed a ‘sales registry’ kerage (CBR) and Mitchell Levy (Levy) was alternative, 50 percent of the commission as and FIRE marketed the property for sale decided. The issue presented to the court the cooperating brokerage. CBR alleges that from May 2007 through September 2007 was whether FIRE had an enforceable listing they were in fact the listing broker pursuant to showing the property 21 times. Of those agreement with the owners of the property a written listing agreement with the owners. 21 times, FIRE alleges to have shown the located at 500 Bayberry or were entitled to CBR further alleges that if FIRE was the listing property to the purchaser four times, the the cooperating compensation as the pro- broker, their sole remedy would be against the first being in September 2007. FIRE claims curing cause of the transaction. owners and not CBR (it also alleges that FIRE the purchaser entered their office with cop- has no claim against Mitchell Levy, the listing ies of the FIRE website listing in her hands. In the complaint, FIRE alleges that in May agent and a licensee of CBR). FIRE stated that the purchaser made an offer 2007 it was the listing broker for 500 Bayberry. of $465,000 but the owner did not return FIRE alleges that they introduced the purchaser FIRE claims that in 2003, the owners ap- any of FIRE’s calls for 10 days. FIRE has to the property and as a result, the purchaser proached FIRE to lease the property. FIRE See Agreement, page 2 PAGE 2

DOS suspends salesperson’s license for improper listing By S. Anthony Gatto, Esq., NYSAR Legal Counsel

Donna Boek was a licensed real estate sales- would provide a deed to Charboneau when Boek submitted a letter from Dennis J. person associated with Prudential in North the property sold and unfortunately, the DeStefano, Monette’s attorney. DeStefano Syracuse. On December 3, 2008, Boek sent property was rented before it was sold so no indicated that his office represented Monette an agency disclosure form via email to Randy deed was ever given to Monette. only with regard with his attempt to sell or Charboneau to act as the landlord’s agent lease the property and he had no personal for a property in Granby, Oswego County. Boek testified that she was working under knowledge of the Monette and Charboneau Charboneau was not in town at the time of the premise that the deed was coming relationship or Charboneau’s attempt to sell the email and returned the signed agency dis- and this is the only time she has ever done or lease the property. Any other information closure form on December 8, 2008. Despite something like this since she always asks for provided by DeStefano was “second hand” Charboneau not being in town, Boek received a deed when she lists a property for sale or and not based on any personal knowledge. the listing through her broker on December rent. Boek admitted that she knew Monette 5, 2008 to sell or lease the property. was the owner when she listed it, but did not Boek admitted repeatedly that she knew seek Monette’s authority to list and market Charboneau was not the owner, that Monette On January 27, 2009, Lisa Stevens, a tenant the property. Furthermore, Boek claims she wanted nothing to do with the property, and represented by Jeffrey Tonkin associated with relied on the statement of the referring agent that despite this knowledge, she went ahead Century 21 Galloway Realty, executed a one- (Stacey DiLauro) from Prudential that the and attempted to sell or lease the property. year lease for the Granby property. Stevens deed was coming. See Listing, page 3 had prepaid the entire year of rent plus a $500 security deposit for a total payment of $6,500. Agreement continued from page 1 Unbeknownst to Stevens, Charboneau did not own the property at the time and had no authority to act in the place of the owner. no proof they ever submitted an offer to the the transaction, adding that the agent from owner. FIRE also admitted that they work FIRE was disinterested in the property and On July 14, 2009, Stevens was visited by on “open” listings in the community and was showing the purchaser other properties, David Hastings, the director of the Oswego they recall seeing the CBR sign on the lawn not 500 Bayberry. County Real Property Tax Services. Accord- of 500 Bayberry. ing to Hastings, Charboneau never owned FIRE provided a number of documents to the property and it was owned by Michael The purchaser testified that she did visit the support their claim of being the listing agent. Monette. Monette had failed to pay the taxes FIRE office, but did not have a copy of the FIRE produced a “Sales Registry” that listed on the property for almost three years. As a FIRE website listing in her hand. The pur- the owner’s names and the asking price of result of Monette’s delinquent taxes, Oswego chaser also testified that no one from FIRE $525,000. The space for the commission County foreclosed on the property after pro- ever showed her the property and the first amount was left blank. This document ap- viding notice in October 2008 and January 16, time she saw it she was on her own. The peared to be an internal document and was 2009. The county was deeded the property on purchaser asked to be shown the property, not a listing agreement as it did not create any March 18, 2009. The property was scheduled but was told by a FIRE agent the house would obligations of FIRE to act for the owners and to be sold at auction on October 3, 2009. Ste- not pass inspection and was considered a it was not signed by the owners. At no time vens obtained a letter from Hastings outlining tear-down. The purchaser recalls seeing the did FIRE produce any document authorizing the ownership status of the property. CBR sign on the property. The purchaser them to act as a listing agent for the property. asked FIRE to submit an offer of $450,000. Stevens contacted Charboneau after meeting The purchaser attempted to follow up on her In its decision, the court relies on the with Hastings outlining the back tax issue as offer with FIRE, but none of the purchaser’s purchaser’s testimony and discredits the well as Charboneau not owning the property calls were returned. After 10 days had passed testimony of FIRE’s witnesses. The burden and demanding the return of her monies. with no return call from FIRE, the purchaser of proving the existence of a contract and Charboneau refused to return any of the contacted CBR directly and spoke to Levy. its performance is on the party suing for monies to Stevens. Boek testified that she CBR submitted the purchaser’s offer to the damages for its breach. The court found was told the property was owned by Mike owner and eventually the parties agreed to that FIRE failed to plead and prove its Monette, and that Monette gave possession a purchase price of $475,000. The property direct case by a fair preponderance of the of the property to Randy Charboneau so was inspected and passed with a minor ad- evidence. The complaint was dismissed and that Randy could fix the property up and justment in price. The purchaser repeatedly FIRE was not entitled to any commission or sell it or rent it. Boek was told that Monette stated that FIRE had nothing to do with fee for the 500 Bayberry transaction. PAGE 3

Nevada high court finds homeowner’s wind turbine to be a nuisance

Nevada’s highest court has considered values as well as the character of the neigh- was testimony at the trial court that living whether to uphold an injunction prevent- borhood. Based on those findings, the trial next to a wind turbine did not bother people ing the construction of a wind turbine in a court declared the wind turbine a nuisance in certain instances. Therefore, wind turbines residential subdivision. because it would interfere with the other aren’t nuisances-at-law in Nevada; instead, residents of the subdivision’s whether Sowers’s wind turbine Rick Sowers (Sowers) communicated to his enjoyment of their property. constituted a nuisance-in-fact neighbors in the Forest Hills Subdivision The trial court granted the in- National Case would be determined by weigh- (subdivision) that he planned to build a wind junction request, and Sowers ing the surrounding factors. turbine on his property. Sowers’s neighbors appealed this ruling. Ann and Karl Hall (neighbors) joined the The court upheld the perma- subdivision in filing a lawsuit seeking an The Supreme Court of Nevada affirmed the nent injunction. When evaluating whether injunction preventing the construction of the permanent injunction. The court reviewed a condition constitutes a nuisance, the wind turbine because it presented a nuisance. the requirements for the finding of a nui- court must balance the competing interest sance. A nuisance is something “which of landowners. The main complaints about During the injunction hearing, the trial is injurious to health, or indecent and of- the wind turbine were its likely noise, the court heard testimony that the subdivision fensive to the senses, or an obstruction to impact it would have on the neighborhood was a very quiet place. The judge visited a the free use of property, so as to interfere aesthetics, the “shadow flicker” caused by the comparable wind turbine to view the pos- with the comfortable enjoyment of life and turbine, and also the price impact on home sible effects a wind turbine could have and property.” There are different kinds of nui- values. The evidence showed that this was a he visited the subdivision itself. A resident sances; a “nuisance-at-law” is one that will quiet neighborhood and that the wind tur- of the subdivision, who was also a real estate always be determined to be nuisance, while bine would substantially impact the neigh- broker, provided testimony that the wind a “nuisance-in-fact” is one that becomes a borhood, not only because of its noise and turbine would negatively impact property nuisance based on the circumstances and size, but also the negative financial impact values in the subdivision if it was built. case-by-case analysis of the facts. it would have on the properties. Therefore, the court upheld the permanent injunction The trial court made the following factual The court determined that wind turbines barring Sowers from building the wind tur- determinations: the subdivision had pan- do not constitute a nuisance-at-law. Local bine in the subdivision because the factual oramic views; the subdivision was a very building codes allow for the building of wind evidence supported the finding that this quiet neighborhood; and the wind turbine turbines and the state has a policy of favoring wind turbine constituted a nuisance-in-fact. would cause a negative impact on property renewable energy sources. Additionally, there Sowers v. Forest Hills Subdiv., 294 P.3d 427 (Nev. 2013). Editor’s Note: Reprinted with permission NYSAR Radio from The Letter of the Law, ©National As- sociation of REALTORS®. Listen. Call. Learn In the case of Acquino v. Ballester heard Listing continued from page 2 Get answers to your legal questions. before the Civil Court of the City of New York, Richmond County, the issue of illegal September 3 Fair Housing rentals by real estate licensees is discussed. By doing so, Boek caused a potential loss of The issue began when Mary Beth Acquino one year’s rent for Stevens. There is also no was rented an apartment by the landlord, September 17 NYSAR Fall Business Meetings Preview evidence that Boek made any attempt in con- Gilbert Ballester. tacting Monette. The DOS found that Boek had violated Real Property Law §443(3)(b) October 8 NYSAR Fall BusinessInEditor’s June 2011,Meetings Note: Acquino Reprinted Recap leased with a permissionbasement for failing to have an agency disclosure form apartmentfrom The Letter from of Ballester the Law ,to ©National be occupied As- signed at the time of first substantive contact. onsociation July 15, of 2011.REALTORS Acquino®. paid a security October 22 Recent Court and DOS Decisions Boek was also found to be in violation of 19 deposit of $1,400, monthly rent of $1,200 NYCRR §175.10 by offering a property for and a $1,400 fee to a broker for locating the sale or lease without the owner’s permission. property. In June 2012, Acquino learned All shows start at 10 a.m. Visit NYSAR.com for more information. As a result of the violations, Boek had her licensed suspended for one month. PAGE 4

NYSAR Legal Hotline call report second quarter 2013

HOTLINE ISSUES

COMMISSION

LICENSE LAW

11% FAIR HOUSING

CONTRACT 31% 10% DISCLOSURE

2% AGENCY

DOS

REFERRALS 19% 5% ARBITRATION

CODE OF ETHICS 1% 1% 1% 5% 11% BOARD/ASSOCIATION 1% 2% MLS

OTHER HOTLINE ISSUE

ISSUES COMMISSION 141 11% LICENSE LAW 130 10% FAIR HOUSING 31 2% CONTRACT 257 19% DISCLOSURE 139 11% AGENCY 71 5% DOS 30 2% REFERRALS 10 1% ARBITRATION 18 1% CODE OF ETHICS 18 1% BOARD/ASSOCIATION 8 1% MLS 63 5% OTHER HOTLINE ISSUE 402 31%

TOTAL ISSUES ……….…… 1,318

The NYSAR Legal Hotline is available to members by calling 518-436-9727 Monday through Friday from 9 a.m. to 3 p.m. PAGE 5 Federal court upholds copyright infringement injunction

A federal appellate court has considered claims arising from the alleged copyright bring a lawsuit for copyright infringement, whether a trial court properly entered an infringement. The trial court entered a a party must have ownership over the work injunction barring a website from using preliminary injunction barring the website and also must have registered the copyright copyrighted MLS photographs. operator from using MRIS’s copyrighted pho- with the U.S. Copyright Office. tographs. The website operator Metropolitan Regional Information System, brought a counterclaim against The court determined that MRIS Inc. (MRIS) operates a multiple listing ser- MRIS and the National Associa- National Case had properly obtained the copy- vice in the mid-Atlantic region. Real estate tion of REALTORS®, which the right for the photographs found brokers that participate in the MLS execute trial court dismissed entirely, but in its database and so rejected the a subscription agreement that allows them allowed the website to file a new argument by the website operator. to share their listing information with other complaint on some of the allegations (which In order to submit photographs to MRIS’s da- participants as well as view the information it has done). The website appealed the trial tabase, MRIS participants “irrevocably assign” submitted by the other participants. The court’s entry of an injunction prohibiting its all of their rights to the photographs to MRIS. participants agree to assign all copyrights use of MRIS’s photographs. While MRIS had registered its compilation with to MRIS for the photographs included in the U.S. Copyright Office, it had not listed the each listing that the broker uploads to the The United States Court of Appeals for name of each author who had created the com- MLS database. the Fourth Circuit upheld the trial court’s ponent works included in the compilation. The injunction. The website operator made two courts are split on whether a copyright holder is American Home Realty Network, Inc. (web- arguments for why MRIS could not claim required to identify the authors of component site operator) operates a website known as copyright protection for the photographs on works in its registration documents. Some “NeighborCity.com” (website). The website the website and thus was not entitled to an courts find this is a requirement, while other purports to offer a national real estate search injunction: first, when MRIS had registered courts have ruled that this is not required so and provides rankings of real estate profes- its copyright for its database, it had failed long as the copyright holder has acquired the sionals. The data displayed on the website to properly register each individual author rights of the component works. The court ruled comes from a variety of sources including of the photographs; and second, MRIS that because MRIS had acquired the rights to real estate professionals and public records. does not possess copyright interests in the the photographs (or component works), it did If the website provides a lead to a real estate photographs because its electronic agree- not need to list the authors of the photographs professional, the website receives compensa- ment with its subscribers failed to transfer when registering its compilation with the tion when the lead results in a sale. those rights. Before reviewing the website copyright office and so rejected this argument operator’s arguments, the court noted that by the website operator. MRIS has copyrighted its database compila- the website operator was not questioning tion with U.S. Copyright Office. MRIS reg- the ability of MRIS to copyright its database Next, the court ruled that MRIS had ob- isters its copyright ownership every quarter and if the website operator had raised this tained a valid assignment of the copyrights through filings with the Copyright Office, argument, the court stated it would have in the photographs from the participants. in accordance with the provisions for regis- rejected this argument. The website operator argued that MRIS used tering a copyright for automated databases. an electronic agreement to its terms use that MRIS displays a copyright ownership mark The court looked at the requirements for did not satisfy the requirements of the Copy- on all photographs within the database and registering a compilation like the MRIS da- right Act because the electronic agreement on its website pages. tabase for copyright protection. A compila- did not operate as an assignment of rights tion qualifies for copyright protection as an for the Copyright Act. MRIS argued that The website contained listing information and “original work of authorship,” even though it an electronic signature satisfies the terms photographs from the MRIS database. The is composed of pre-existing materials, when of the U.S. Copyright Act, as e-signatures website operator had not obtained a license it has selected, coordinated or arranged these constitute a legal signature. or permission from MRIS for the posting materials in such a way that it constitutes of this information on the website. When an original work. The author of a compila- The Copyright Act requires a written and MRIS requested removal of this information, tion made of up of individual copyrightable signed assignment of rights in order for the the website operator offered to enter into a works does not need to own the copyright assignment to be valid. While the Copyright licensing agreement with MRIS, but did not for each individual work; in that case, the Act does not define what constitutes a writ- stop its practice of using MRIS’s information. author would only be able to distribute and ing and a signature, Congress had made it register the collective work. However, noth- clear through the E-Sign Act that electronic MRIS rejected this offer and filed a lawsuit ing bars the author from obtaining rights in alleging copyright infringement and other the individual component works. In order to See Copyright, page 9 PAGE 6 Federal dismisses antitrust counterclaim against MRIS

A Maryland federal court has considered allegations, based on a section of the federal fraud in registering its copyrights and so allegations, including antitrust allegations, Lanham Act. This section prohibits a party this made its litigation a “sham,” but the against NAR and a Maryland-based multiple from placing a false or misleading fact in court rejected this argument as there were listing service made in a counterclaim. commercial advertising that misrepresents no facts to support the argument. The some aspect of his or her goods, services or court further rejected the notion that this Metropolitan Regional Information System, commercial activities. was “sham” litigation, since the court had Inc. (MRIS) operates a multiple listing ser- already entered a preliminary injunction vice in the mid-Atlantic region. In 2012, The court found that the website operator in favor of MRIS. MRIS brought a copyright infringement had failed to plead facts that could support lawsuit against the American Home Realty the false advertising claim and so the court After finding that there was Noer-Pen- Network, Inc. (website operator), which dismissed this count with prejudice. The nington immunity for NAR and MRIS, operates a website known as “Neighbor- website operator claimed MRIS had made the court rejected the website operator’s City.com” (website) that purports to offer false statements during its promotion of antitrust claims. The website operator had a national real estate search and provides the copyright program, and also claimed not produced any other evidence of an rankings of real estate professionals. The that NAR had made other unidentified false agreement between the parties to support trial court entered a preliminary injunction statements. However, a Lanham Act viola- its antitrust conspiracy allegations, other barring the website operator from using tion cannot be based on opinions, but rather than their efforts to enforce the copyrights MRIS’s copyrighted information. requires statements about facts. MRIS’s that were immune from antitrust scrutiny statements about its copyright program were because of the Noer-Pennington doctrine. Following the issuing of the preliminary merely legal opinions. Further, there is no While the court stated that it had “serious injunction, the website operator answered evidence that the statements were made in reservations about [the website operator’s] MRIS’s complaint and filed a counterclaim commercial advertisements, another Lan- ability to set forth a cognizable” antitrust against MRIS, adding the National Associa- ham Act requirement. Thus, the court ruled complaint, the court dismissed the anti- tion of REALTORS® (NAR) to the counter- that the website operator had failed to plead trust allegations, but did allow the website claim. The counterclaim contained a wide a false advertising claim. operator to file an amended claim if it array of state and federal claims including chooses to do so. antitrust allegations. Next, the court looked at the antitrust allegations. The website operator claimed The court also dismissed the website op- The core theory advanced in the counter- that NAR and MRIS conspired to bring this erator’s state law unfair completion claims, claim was that: MRIS created a copyright “sham” lawsuit, basing these allegations finding these arguments were premised on program to register and obtain “sham” on similar cease-and-desist letters that the grounds similar to those that the court had copyrights for its compilation of MLS list- website operator had received from MLS’s already rejected, but allowed the website op- ings; cooperatively worked to deny licenses around the country as well as meetings erator to re-file these claims at a later date if for MLS data to the website operator; made between NAR and MLS representatives it chooses to do so. The court dismissed the false statements about the website operator; about the website. NAR and MRIS argued remainder of the website operator’s claims and passed anticompetitive rules designed that they had Noer-Pennington antitrust with prejudice, as the court noted that it to drive innovators like the website operator immunity. Noer-Pennington is a doctrine would be “futile” for the website operator out of business. The MRIS copyright pro- that allows parties to work together free of to attempt to fix the deficiencies identified gram was created by the MLS in 2005, and antitrust scrutiny to create laws, regula- in those allegations. was a two-part guidance paper designed to tion or collaborate on litigation, even if this help multiple listing services “administer, would create a restraint or monopoly, so long Metro. Reg’l Info. Sys. v. Am. Home Re- secure and enhance the value of real estate as the parties are acting in good faith and not alty Network, 12-CV-00954-AW, 2013 WL listing content.” MRIS and NAR filed mo- taking the actions merely to interfere with 2477260 (D. Md. June 10, 2013). [This is a tions to dismiss the counterclaim. the business of another. citation to a Westlaw document. Westlaw is a subscription, online legal research service. The United States District Court for the The court found that NAR and MRIS are If an official reporter citation should become District of Maryland, Southern Division, entitled to Noer-Pennington antitrust available for this case, the citation will be dismissed the website operator’s entire immunity. Copyright litigation like the updated to reflect this information]. counterclaim, although the court did give MRIS lawsuit, where the parties have a the website operator the option of re-filing mutual interest, falls within the Noer- Editor’s Note: Reprinted with permission some of the allegations in a new complaint. Pennington doctrine. The website op- from The Letter of the Law, ©National As- The court first looked at the false advertising erator claimed that MRIS had committed sociation of REALTORS®. PAGE 7 U.S. Supreme Court rules for property owner in takings case

The Supreme Court of the United States has deeding the remainder to the district via a was irrelevant that no property was actually considered whether a property owner could conservation easement. The second option taken by the district; instead, there is judicial claim an unconstitutional taking when a would allow the owner to proceed with his doctrine that states that the government may water district denied his permit to develop proposed development plan if he agreed not deny a benefit when a person exercises the property because he did not follow their to hire contractors to make improvements his/her individual rights. suggestions for permit approval. to district-owned land several miles away. Because the owner rejected both options, In earlier cases, the court has found that the Coy Koontz Jr. (owner) owned a 14.9-acre the district denied his request for a permit. Fifth Amendment “Takings Clause” in the undeveloped property that was bordered on U.S. Constitution protects property owners one side by a major highway and on another The owner believed that the district’s re- from exorbitant demands by the government by a large ditch and power lines. Most of quirements for approval were excessive in when property owners are seeking permits for the property was categorized as wetlands, light of the possible environmental impact property development. The court has created but the northern portion of the property of his proposed development. He filed a a test to evaluate conditions imposed by the drained well. lawsuit claiming that the district’s actions government to determine if there is a “nexus” amounted to a taking without just com- of “rough proportionality” between the In 1994, the owner submitted a plan to the pensation. The lower courts found that the property demands as a condition of approval St. Johns River Water Management District district’s actions had amounted to a taking and the potential social costs of the proposed (district) to develop the 3.7-acre northern because their proposed remedy lacked a development. Thus, the government can re- section of the property, proposing to give connection to the potential impact of the quire an owner to pay for the impact of his/ the district a conservation easement over owner’s development. The Florida Supreme her project, but can’t make demands beyond the remainder of the property. Florida re- Court reversed that ruling, finding that the remedies for the identified harms. quires that all development projects receive district did not approve the owner’s applica- a permit, and entities like the district can tion on the condition that he take actions First, the court looked at the Florida Su- impose conditions on the project to assure mandated by the district; instead, the ap- preme Court’s determination that because that the project will not be harmful to water plication was denied because he refused to no land was taken from the owner, the owner resources. In addition, the district can also make concessions to the district’s requests. was not entitled to compensation. The court ask the applicant to fund an offsite project The state high court also determined that found that it is possible that a land owner to mitigate any harms resulting from the ap- there is a difference when the government could receive compensation for a permit plicant’s project, although it will not require only requires the payment of money, as op- denial when excessive conditions burden- the applicant to undertake any offsite work. posed to requiring the transfer of land. The ing a constitutional right are imposed. Since owner appealed. the owner had made his claims under state The district responded to the owner, stat- law, the court sent the case back to the state ing that it would approve the develop- The Supreme Court of the United States re- courts for a determination whether Florida ment plan only if he agreed to one of two versed the Florida Supreme Court, and sent law entitled the owner to compensation for options. The first option would allow the the case back to the lower courts for further these potential constitutional violations. owner to develop one acre of his property, proceedings. The court first stated that it See Takings, page 9

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Visit NYSAR.com for air times and details. PAGE 8 DOS publishes Indiana Court: Clause protects rental firm 2Q 2013 ALJ decisions The Department of State, Division of An Indiana court has considered whether a when recommending the family to the owner. Licensing Services (DOS) receives com- contract clause in a property management The trial entered judgment in favor of the plaints about real estate licensees. The agreement protected a leasing firm from li- owner against the family, but ruled for A.M. DOS investigates the complaints and if ability when it failed to adequately disclose on the claims against it. The owner appealed. they are found to have merit, a licensee information about a prospective tenant to may be subject to a hearing before an ad- the owner. The Court of Appeals of Indiana affirmed ministrative law judge (ALJ) to determine the trial court rulings. The owners claimed whether the licensee violated any law, Robert and Judy Geller (owners) had to relo- that they would not have entered into the rule, regulation or other duty expected of cate from their house in Westfield, Indiana, lease with the family if A.M. had accurately a licensee. due to a new job opportunity in 2006. The disclosed the contents of the credit report. owners listed the house for sale, but when it Indiana law requires licensees to disclose The following citations refer to DOS deci- did not sell, they began exploring leasing the known adverse material facts to their clients, sions before an administrative law judge. property. The owners had noticed signs for and the trial had ruled that A.M. had failed Each decision provides a brief descrip- A.M. Rentals, Inc. (A.M.) in the area, and so to disclose known adverse material facts to tion regarding the subject matter of the they contacted and eventually entered into a the owners, but A.M. was protected by a violation(s) being heard before the admin- “Lease and Management Agreement” (agree- clause in the agreement. istrative law judge. ment) with the company in October 2006. Neither party actually signed the agreement, The court affirmed the lower court ruling that NYSAR is providing this information to but both parties acknowledged that they had an exculpatory clause in the agreement pro- REALTORS® in an effort to better educate accepted its terms. tected A.M. from liability. The clause stated our members as to what constitutes a viola- that A.M. “shall not be liable to owner for any tion, and how to avoid having a complaint A.M. eventually located prospective tenants error in judgment, nor for any good faith act filed against you. Full copies of the deci- in March 2007. The prospective tenants were or omission in its performance or attempted sions are available in the Legal Resources the family of Kurt and Holly Kinney (fam- performance of its duties or obligations under section of NYSAR.com via the court and ily). The family submitted an application to this agreement.” Based on testimony from the DOS decisions link. rent the house, and a representative of A.M. owners and the A.M. representative, the trial discussed the application and a credit report court had concluded that the A.M. representa- The following are the second quarter 2013 with the owners. A.M.’s representative told tive had acted in good faith. Since the parties decisions: the owners that the family’s employment had allocated their risks via contract and A.M. and residential information checked out. met the terms of the clause, the court ruled that • 174 DOS 13 denial of license The representative noted that the credit the exculpatory clause protected A.M. report showed that the family had filed for • 177 DOS 13 untrustworthiness, failure bankruptcy several years before, but said The owners argued that the clause was contrary to cooperate they were “clean” since the bankruptcy filing. to public policy, since the exculpatory clause altered A.M.’s statutory disclosure responsi- • 178 DOS 13 agency disclosure, offering The parties entered into a three-year lease, bilities. The court determined that because the property for sale without owner, untrustwor- and everything went smoothly for the first statute in question did not prohibit such clauses thiness few months. However, the family eventu- and the fact that the owners were sophisticated ally stopped paying the rent and had to in financial matters, public policy did not bar • 190 DOS 13 revocation of license be evicted from the property. The owners the enforcement of the agreement’s exculpatory learned that the family’s credit report had clause and so affirmed the ruling by the trial • 200 DOS 13 unearned commission, fail in fact contained a “High Risk Fraud Alert” court in favor of A.M. to satisfy judgment, failure to cooperate on it, and the credit report had noted that the family had $30,000 in outstanding debts. One judge dissented, arguing that the exculpa- • 229 DOS 13 denial of license tory clause violated the state’s public policy. The owners filed a lawsuit seeking the unpaid • 234 DOS 13 denial of license lease amounts as well as the remainder of the Geller v. Kinney, 980 N.E.2d 390 (Ind. Ct. rent payments from the family. The owners App. 2012). • 245 DOS 13 denial of license also made allegations against A.M., alleging that they had breached the agreement by fail- Editor’s Note: Reprinted with permission ing to investigate the credit-worthiness of the from The Letter of the Law, ©National As- family and also failed to exercise due diligence sociation of REALTORS®. PAGE 9 NAR adopts changes to MLS Policy Statement 7.57

PLEASE NOTE, WITH THE EXCEPTION A. The changes became effective upon ap- their listings on it? OF PUBLIC FACING WEBSITES, MLSs proval by the NAR Board of Directors on OPERATING IN NEW YORK ARE PRO- May 18, 2013. A. No. MLS Policy Statement 7.85, Owner- HIBITED FROM TAKING ADVANTAGE ship of Listing and Listing Content, makes OF THE CHANGES TO THE POLICY. Q. Are MLSs required to establish public- clear that decisions on where participants’ ANY MLS IMPLEMENTING THE PRO- facing websites? listings are displayed are determined by each HIBITED CHANGES MAY NOT BE listing participant. ELIGIBLE FOR COVERAGE UNDER THE A. No. Establishment of public-facing web- NAR ERRORS AND OMISSIONS INSUR- sites remains a matter of local determination. Q. If an MLS operates a public-facing website ANCE POLICY. that displays participants’ listings, and a Q. If an MLS operates a public-facing web- particular participant chooses not to display During the 2013 National Association of site, must it display participants’ listings? some or all of their listings on that website, REALTORS® Midyear Meetings in Wash- can the costs of establishing, maintaining, ington, DC, revisions to MLS Policy State- A. No. Display of participants’ listings on and promoting that website be included in ment 7.57—Categorization of MLS Services, an MLS’s public-facing website is a matter that participant’s MLS dues, fees, or charges? Information and Products recommended of local determination. by the Multiple Listing Issues and Policies A. Yes. With the recently approved change Committee were approved. These changes Q. If an MLS operates a public-facing web- to the policy, MLSs may, as a matter of local include an added ability, where permitted site, can participants be required to display See MLS Policy, page 10 by law, for REALTOR® association-owned Copyright continued from page 5 multiple listing services to charge basic dues, Takings continued from page 7 fees, and charges for services, information, signatures should be treated in the same way and products that were previously identified Second, the court looked at whether the as physical signatures. While the E-Sign Act as “optional” by NAR. There are also changes Takings Clause was not triggered when does contain some limitations (wills, adop- about public-facing MLS websites. the district only required the owner to pay tion papers, and similar documents can treat money for offsite projects, rather than give e-signatures differently), none of the listed The following answers several common up any land. The court rejected this argu- exclusions are relevant to copyright assign- questions about these changes. ment, finding that it was irrelevant that ments nor does the E-Sign Act list copyright no actual property was being taken by the Q. How do the changes to MLS Policy assignments as an exception. Since Congress government; instead, the proper analysis is Statement 7.57 adopted by the NAR Board intended e-signatures to be treated the same whether the demands made by the govern- of Directors at the 2013 Midyear Meetings as physical signatures and no other statute ment are in proportion to potential harms affect MLSs? barred the use of e-signatures in the assign- arising from the proposed development. The ments of copyrights, the court determined court also found that exempting monetary A. (THIS IS NOT PERMITTED IN NEW that MRIS had obtained valid copyright as- demands from the Takings Clause could YORK) The changes to the policy accomplish signments from its participants. Therefore, create a loophole to circumvent the Fifth two things. First, where permitted by law and the court upheld the injunction barring the Amendment protections. Thus, the case was subject to certain requirements and limita- website operator from using MRIS’s photo- sent back to the state courts to determine tions necessary to comply with antitrust laws, graphs in its database without its consent. whether a taking had occurred requiring MLSs may now include the cost of services, the owner to receive compensation from information, and/or products, which were Metro. Reg’l Info. Sys., Inc. v. Am. Home the district. previously categorized as exclusively “op- Realty Network, Inc., No. 12-2102, 2013 WL tional,” in basic MLS dues, fees, and charges. 3722365 (4th Cir. July 17, 2013). [This is a Koontz v. St. Johns River Water Mgmt. Dist., citation to a Westlaw document. Westlaw is 133 S. Ct. 2586 (U.S. 2013). Second, the policy now expressly provides a subscription, online legal research service. that MLSs may include the cost of estab- If an official reporter citation should become Editor’s Note: NAR filed an amicus curiae lishing, maintaining, and promoting their available for this case, the citation will be brief in support of the owner advocating a public-facing websites in MLS dues, fees, updated to reflect this information]. position similar to that which the Supreme and charges. Court adopted. Reprinted with permission Editor’s Note: Reprinted with permission from The Letter of the Law, ©National As- from The Letter of the Law, ©National As- Q. When did the changes to the policy be- ® sociation of REALTORS . ® come effective? sociation of REALTORS . PAGE 10

to understand why the policy requires the infor- • The MLS or its shareholder(s) is not the MLS Policy continued from page 9 mation, services and products included in the seller, lessor or licensor of the information, basic service to be “substantially related to the service, or product (i.e. the information, determination, include those costs in the purpose and function of MLS.” The policy has service, or product is sourced from an in- dues, fees, and charges of all MLS partici- been structured, in part, to avoid running afoul dependent third party). pants and subscribers. of antitrust laws. Antitrust laws disfavor tying arrangements due to their anticompetitive na- • The MLS does not make a profit or receive Q. If an MLS operates a public-facing web- ture. Tying is when a party selling one product a commission or rebate based on the sale, site, can the costs of establishing, maintain- does so on the condition that the buyer also lease or license that exceeds the operational ing, and promoting that website be included purchase a second product or service. Tying costs of providing the information, service in the dues, fees, and charges to participants is a per se violation of antitrust laws, and once or product. who primarily or exclusively represent buy- a plaintiff establishes the requisite elements, ers? Is the same true for appraisers partici- an illegal tying arrangement is found. The Does that mean MLSs cannot purchase, for pating in MLS? first element of a tying violation is that there example, lockboxes and keys, programmers, are two separate products or services. If this software, etc., and then sell or lease them A. Yes. Please refer to the answer to the element cannot be established, a plaintiff loses to participants and subscribers as part of a question above. It should be kept in mind his or her claim. Therefore, any information, basic package of services, information and that because MLSs may charge on this basis services, or products included in the MLS’s products? does not mean they must do so. basic services must be substantially related to the purpose and function of MLS, so the MLS A. No. Take, for example, an MLS that Q. Can MLSs now include the costs of has a strong argument that the information, includes lockboxes as part of the MLS’s lockbox equipment (e.g. lockboxes, keys, services and products are part of one product basic service. The MLS may purchase a programmers, fobs, software, etc.) in MLS or service, rather than two, thereby avoiding a lockbox and then sell or lease the lockbox dues, fees and charges? tying arrangement altogether. to participants and subscribers as part of the MLS’s basic service, provided that the MLS A. (THIS IS NOT PERMITTED IN NEW The ultimate determiner of what “substan- does not mark up the cost of the lockbox or YORK) Yes. Pursuant to the amended tially related” means is a federal court judge. receive a profit, commission or rebate from policy, an MLS may include the costs of lock- There is no definition of “substantially the sale of the lockbox to the participant or box equipment where (a) permitted by law, related,” and no case law addressing this subscriber. The MLS cannot seek to receive and (b) provided the MLS does not receive issue. Consequently, MLSs need to be real- an economic benefit from the sale of the an economic benefit from the arrangement. istic about the purpose of MLS and include lockbox, and may only recoup any opera- in their basic “package” only information, tional costs associated with providing the Q. Can other services, information or prod- products, and services substantially related lockbox as a basic service of the MLS. ucts be included in MLS basic dues, fees or to the MLS’s purpose. In addition to the list charges? included in the policy, an MLS may also Q. Assume (as discussed in the previous consider what is included as part of the question) that an MLS sells or leases ser- A. (THIS IS NOT PERMITTED IN NEW MLS’s vendor’s package. This will not nec- vices, information and products (including YORK) Yes. Other services, information essarily be determinative, but may provide lockboxes) and includes the cost in the MLS and products may be categorized as “basic,” MLSs with another helpful tool in their dues, fees or charges. If the MLS assesses provided they are substantially related to evaluation of what is “substantially related.” dues, fees or charges to cover the costs of, for the purpose and function of the MLS. For MLSs should keep in mind that when the example, lockbox equipment, but not every guidance, the policy provides a number of information, services, or products get too participant or subscriber uses lockboxes, the examples of these types of services, informa- far afield from being substantially related revenues the MLS collects may exceed the tion or products, but the list is not intended to an MLS, the single product argument operational costs of providing lockboxes. to be exhaustive. becomes diluted, and the MLS may risk What steps can MLSs take to avoid realizing violating anti-trust laws. an economic benefit from the arrangement? Q. How is “substantially related to the purpose and function of MLS” defined? Are Q. The revised policy now permits “optional A. (THIS IS NOT PERMITTED IN NEW there specific factors MLSs should consider services” to be included in MLS dues, fees YORK) An MLS could use historical data in determining whether information, ser- and charges, where permitted by law (THIS concerning the percentage of participants vices, and products are “substantially related IS NOT PERMITTED IN NEW YORK), and subscribers that buy or lease lockboxes to the purpose and function of MLS?” provided that the MLS does not receive an and build into the basic MLS dues, fees or “economic benefit” from the arrangement. charges, the cost of providing the lockboxes A. (THIS IS NOT PERMITTED IN NEW Pursuant to the Policy, the following two based on this historical percentage. The MLS YORK) As a threshold matter, it is important conditions must be satisfied: could also consider building in a small buffer PAGE 11 to provide for anticipated increased usage ments, the majority of federal circuits have Q. May MLSs in the First and Eighth Circuits now that the lockboxes are included as a adopted a fifth element requiring plaintiffs to continue to provide lockbox equipment to basic service. Once this change is imple- establish that the seller of the tying product participants and subscribers? mented, the MLS may want to do an annual (here, MLS access) has an economic interest assessment to adjust, as needed, the built-in in the tying product (for example, a lock- A. Yes, but only as an optional service. lockbox charge based on the actual use of the box). If a plaintiff fails to establish this fifth participants and subscribers. element, which is known as the economic Q. Does the policy impact whether associa- interest element, the tying claim will fail. tions of REALTORS® may include the costs Q. Is there a definition or explanation of of lockbox equipment and other optional what constitutes “operational costs?” Are While a majority of states have included products and services in the basic member- there specific criteria or factors for MLSs the economic interest element into a per se ship dues REALTORS® pay? to consider in determining the operational tying violation, the United States Court of costs? Appeals for the Second Circuit has expressly A. As of May 2013, the relevant policy ad- rejected the inclusion of the economic inter- dressing associations of REALTORS® (as A. (THIS IS NOT PERMITTED IN NEW est element. As a result, MLSs operating distinguished from MLSs that are com- YORK) There is no definition of what consti- in the Second Circuit (Connecticut, New mittees or wholly owned subsidiaries of tutes “operational costs,” but an MLS should York, and Vermont) have been excluded associations) is Official Interpretation No. use its best educated judgment of what its from being able to take advantage of the 32 of Article I, Section 2 of the NAR Bylaws, operational costs are to provide the product policy change. In addition, while the First which expressly prohibits including the costs or service to its participants and subscribers. and the Eighth Circuits have not expressly of optional services or activities in board/ Factors could include, but are not limited to, rejected the inclusion of the economic association dues. In some cases, lockbox the cost of time and labor, shipping costs to interest element, there are no circuit court equipment is offered as an association ser- receive or send the products, and any costs cases in these two jurisdictions expressly vice (as distinguished from an MLS service). charged to the MLS by the vendor. adopting inclusion of the economic interest While the issues related to financing lockbox element as a requirement of a per se tying equipment are essentially the same, whether Q. The answers above condition the ability violation. Therefore, MLSs operating in the it is available as an association service or an of MLSs to include the costs of services, First Circuit (Maine, Massachusetts, New MLS service, the controlling policies are dif- information or products not ordinarily con- Hampshire, Puerto Rico, and Rhode Island) ferent. It is anticipated Official Interpretation sidered “substantially related to the purpose and in the Eighth Circuit (Arkansas, Iowa, No. 32 will be reviewed later this year. and function of MLS” in the basic dues, fees, Minnesota, Missouri, Nebraska, North and charges, but only where permitted by Dakota, and South Dakota) have also been Editor’s Note: These questions and answers law. What are the states where this is not excluded from implementing this change to are advisory in nature, have not been re- legally permissible, and why? the policy. This information was current as of viewed or approved by the Board of Directors May 2013, and may be updated in the future of the National Association of REALTORS®, A. There are four basic elements of a per se to reflect any changes to the law in this area and may be updated from time to time. tying violation. In addition to these four ele- or in these states.

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