The High Road: Broker allegedly breaches clients’ trust

Real estate brokers have a statutory obligation to keep client information confidential.  Failing to do so is a violation of New York Property Law and can lead to license forfeiture.

A broker with the commercial brokerage Grubb & Ellis was accused in a complaint to the state Division of Licensing Services this month with having acted “in an untrustworthy and incompetent manner by reason of his unauthorized disclosure of client information.”

After wrestling with myself, I have decided to withhold his name (though it is a matter of public record), so let’s call him Mason Leicester.

The 45-page complaint alleges that Leicester had a press release issued in which he at least overstated his role in the $3 million auction of an unused Queens industrial building.  It also alleges that he identified the sellers despite their ownership through a limited liability corporation.

For their part, the owners contend in the complaint that he ignored their explicit instructions to respect their privacy, provided information about them to a third party without their informed consent and used the information to his personal advantage.

The presumed advantage: Enhance his reputation, thereby build his business and consequently increase his income.

Leicester originally had received the exclusive right to market and sell the old building for six months but failed to do so.  The owners then terminated the Grubb & Ellis contract and retained the Tranzon auction firm to dispose of the place.  Said the complaint:

Mr. [Leicester] negotiated to receive a share of Tranzon’s commission, although what, if anything, he did to facilitate the sale is unclear.

Although the broker approached Tranzon President Joshua Olshin about issuing a joint press release, according to the complaint, the executive demurred without first obtaining the approval of the owners, a married couple.  An e-mail response from one of the sellers made their position clear:

We do not want to have a press release distributed.  Please make SURE [the broker] understands that thoroughly.

Olshin then wrote to the sellers to underscore his understanding of their wishes.  He related that

after you asked we do not do a release I had a very long conversation with both [Mason] and his PR person making your concerns clear and defending [your] position.

The complaint states that Grubb & Ellis subsequently had a press release distributed with the sellers’ names (one of them misspelled and printed that way) to some 37 general-interest news media such as the Wall Street Journal and specialized ones such as Real Estate Weekly.

Noting that it is “well-settled that a real estate broker is a fiduciary with a duty of loyalty and an obligation to act in the best interests of the principal,” the complaint maintains that Leicester “callously” disregarded his clients’ instructions and appropriated their confidences for his own gain.  In so doing, the complaint alleges, “he disregarded his fiduciary duty.”

In response to a letter in December from the owner’s attorney, Jesse Strauss of Kurzon Strauss, Grubb & Ellis Assistant General Counsel James S. Fenton wrote that “we sincerely apologize” and that “we are genuinely sorry that your clients are upset.”

Fenton declared that “we disagree with many of the conclusions stated in your letter” and acknowledged that the owners had not returned the firm’s telephone calls.  He continued:

There is no basis for your assertion that anything done by Grubb & Ellis or its representatives in connection with the transaction or the issuance of the press release violated any real estate licensing laws, regulations or ethical standards.

Because ownerships of the LLC were matters of public record, he argued, the press released contained no confidential information.  Why, then, the repeated phone calls to the sellers?  And how can an unreturned telephone call imply permission to proceed?

In the letter the seller’s attorney, Fenton  declined the owners’ request to make a charitable contribution on their behalf as their sole recompense.  “We intend to make no offer other than offer to apologize,” he declared.

State officials frequently wield only a little stick when it comes to punishing offending real estate brokers.  But perhaps they’ll agree with me, based on my reading of the complaing, that Leicester and Grubb & Ellis were at fault.  Either way, the lessons highlighted by this dispute ought to be crystal clear to real estate brokers of both residential and commercial properties.

The lessons: Brokers have no choice but to keep confidential what their clients want to be kept private.  Moreover, brokerage firms have an obligation to adhere to the same laws as their agents and also to ensure that agents comply with the law.

If a client asks a broker to break the law–for example, by withholding information from buyers about a property’s material defects–then the broker has two choices: Make every attempt to educate the client and change his or her mind, or quit.

Without our honor, what do we have beyond bigger bank accounts?  Is more income worth moral, ethical or legal abuse?

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Malcolm Carter
Licensed Associate Real Estate Broker
Senior Vice President
Charles Rutenberg Realty
127 E. 56th Street
New York, NY 10022

M: 347-886-0248
F: 347-438-3201

Malcolm@ServiceYouCanTrust.com
Web site

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