LEGAL CORNER: Discrimination Cases from Newsday’s ‘LI Divided’ Finally Making Their Way Through the System

It has been over two years, Nov. 17, 2019, since Newsday published its comprehensive and devastating investigative report entitled “Long Island Divided” [see https://bit.ly/3yq9Elz]. The article sent shock waves through the entire real estate industry. Newsday’s article became the catalyst that launched a major movement, led by state and local governmental officials and agencies, such as the New York State Department of State Division of Licensing Services and the New York State Division of Human Rights, to combat all forms of discrimination in the real estate industry and to prosecute those licensees found to be violating federal, state and local human rights and anti-discrimination laws.

Cases Are Finally Making Their Way Through the System

The DLS (and DHR) quickly began filing complaints and initiating investigations against many of the licensees soon after the Newsday article was published, which continued into early 2020. Among a variety of reasons, including likely delays due to the COVID-19 pandemic, these cases are just beginning to be resolved. Recent DLS decisions of note issued by Administrative Law Judges include DLS v. Abarca (Nov. 22, 2021) [see https://on.ny.gov/3EJZrCu]; DLS v. Vicquery (Aug. 30, 2021) [see https://on.ny.gov/3IB7OTn]; and DLS v. O’Brien (Oct. 22, 2021) [https://on.ny.gov/3pCo91i]. These ALJ decisions provide critically important information for real estate licensees when it comes to discriminatory behavior, such as disparate treatment and racial steering, and the legal requirements and duties of the real estate agents with respect to same.

Recent Decisions: Abarca, O’Brien & Vicquery

In Abarca, the ALJ found that the real estate licensee engaged “…in unlawful discriminatory practices proscribed by federal, state or local law” and also decided that the licensee “…engaged in conduct demonstrating untrustworthiness and/or incompetency in violation of Real Property Law (“RPL”) §441-c and 19 NYCRR §175.17 (b).” Based on the evidence provided at the hearing, which consisted primarily of the findings contained in the Newsday article, the ALJ revoked the licensee’s real estate license for engaging in unlawful racial steering and disparate treatment.

In O’Brien and Vicquery, the ALJs reached different conclusions. In both the Vicquery and Abarca decisions, the ALJs held that the evidence presented at the hearings, which came primarily from the Newsday article, did not establish by “substantial evidence” that the agents engaged in illegal steering. However, the ALJ in O’Brien found that the agent mentioning the makeup of the schools and demographics of the area was an act of “incompetence” and the agent was fined $500. In O’Brien, the ALJ did not believe that the agent’s actions rose to the level that warranted suspension or revocation.

Allegations of Racial Steering in Abarca

In Abarca, the ALJ, relying on the evidence presented in the Newsday article, explained that the agent provided the minority tester with specific information on the demographic make-up of certain areas and also provided the minority tester with specific information regarding the quality and ratings of the schools. The agent, however, did not do so with the white tester. Instead, the agent provided the white tester with non-specific demographic information and directed the white tester to a website to research information on the quality of schools. Ultimately, the ALJ, relying on the testimony offered by the real estate licensee coupled with the findings in the Newsday report, found that the licensee unlawfully engaged in racial steering.

Disparate Treatment in Abarca

In Abarca, the DLS also alleged that the real estate licensee “…engaged in disparate treatment of the minority and white testers by refusing to provide the minority tester with any home tours unless he signed a buyer’s agreement with the respondent and not requiring that the white tester sign a buyer’s agreement.” According to Abaca, “[d]isparate treatment, or adverse treatment, is when a person ‘treats some people less favorably than others because of their membership in a protected class.’”

Again, relying primarily on the evidence presented in the Newsday article, the ALJ found that the agent agreed to show multiple homes to the white tester without requiring the white tester to sign an exclusive buyer agency agreement. However, when it came to the minority tester, the agent refused to show any homes unless he and his wife signed the buyer agency agreement. In addition to the findings presented in the Newsday article, the ALJ found that the licensee’s testimony was not credible, and ultimately determined that the agent acted in an “incompetent and untrustworthy” manner in violation of RPL §441 (b).

Continuing Education Requirements: An Additional Accompanying Charge

It is important to note that the DLS has the right to request proof from a licensee, in connection with any complaint that is filed, that the licensee has completed the requisite 22.5 hours of continuing education for any two-year period prior to the agent’s renewal date. In this case, the licensee did not provide the correct proof of continuing education, as some of the courses were for a period after the renewal date.

‘Incompetent’ and ‘Untrustworthy’ Standards Under New York’s RPL

In these cases, the ALJs point out that in order “[t]o qualify for a real estate agent’s license, the respondent must be both trustworthy and competent in order ‘to safeguard the interests of the public [emphasis added].’” [See Real Property Law § 441 (b) at https://on.ny.gov/3lSMiQb]. Often these terms are taken to mean the same thing and are used interchangeably, however, it is important to note that each of these terms have different meanings when it comes to a licensee’s activities.

In O’Brien, the ALJ explains that “‘[u]ntrustworthiness’ involves an act done with ‘bad faith’ [and]…is akin to violation of a professional norm and contemplates such bad faith as would cast doubt on one’s character and fitness to act as a broker [or salesperson].’” The ALJ further explains that an act of “untrustworthiness” involves more than being negligent. On the other hand, the ALJ explains that “‘[i]ncompetence’…is generally understood among the learned professions to involve an act done with a ‘lack of skill or knowledge necessary to practice the profession.” These concepts are evaluated on a case by case basis, as is evident in these recent decisions.

Discrimination Prohibited: Presumed to Be Untrustworthiness and a Violation Of the NAR Code of Ethics

Section 175.17 (b) of the Department of State’s Regulations provides that “No real estate broker or salesperson shall engage in an unlawful discriminatory practice, as proscribed by any federal, state or local law applicable to the activities of real estate licensees in New York State.” In the event a licensee is found to have engaged in unlawful discrimination, such behavior “…shall be presumptive evidence of untrustworthiness and will subject such licensee to discipline, including a proceeding for revocation.” Under Section 441-c of the RPL, the Department of State may revoke or suspend a licensee’s license, or may issue a fine up to $1,000.

The ALJ in O’Brien also points out that acts of “untrustworthiness” are violations of the National Association of Realtors’ Code of Ethics, particularly Article 10. Citing an article published by NAR, the ALJ points out that “…if an agent expresses his or her own positive or negative views about certain communities or schools, the purpose of which is to direct a buyer either towards or away from a community, then that agent may be stating a housing preference based on race or familial status or religion. These would be violations of the Fair Housing Act and of the Realtors Code of Ethics.”

The Burden of Proof is on the DLS: Substantial Evidence Standard

Since it is the DLS that files a complaint, the burden is on the DLS to prove, by substantial evidence, the charges set forth in the complaint. The ALJ in Abarca explains that “[s]ubstantial evidence ‘means such relevant proof as a reasonable mind may accept as adequate to support a conclusion or ultimate fact… [m]ore than seeming or imaginary, it is less than a preponderance of the evidence, overwhelming evidence or evidence beyond a reasonable doubt….”

In O’Brien, the ALJ further explains that substantial evidence is “…evidence that has ‘such quality and quantity as to generate conviction in and persuade a fair and detached fact finder that…a conclusion or ultimate fact may be extracted reasonably, probatively and logically.’ ‘Substantial evidence does not rise from bare surmise, conjecture, speculation or rumor.’[See Geisler v. State at https://bit.ly/3rUpwLI]”.

Newsday Article: Hearsay Evidence is Admissible but is More Needed?

In Abarca, the DLS’s evidence consisted primarily of the Newsday article and the videos. The ALJ explained that although the Newsday article contained “hearsay” evidence, “[i]t is well established that hearsay evidence is permitted in an administrative proceeding and, under certain circumstances, may constitute an agency’s entire case.” The ALJ, however, pointed out that hearsay evidence must be relevant, probative, and reliable. Relying on the evidence presented in the Newsday article, such as a specific timeline of events, voicemails, evidence relating to the agent not showing homes to the minority tester, evidence relating to the agent requiring that the minority tester sign a buyer agency agreement before showing a home and not requiring the white tester to do the same, the ALJ held that all of this evidence “…is not only relevant, but it is probative as it relates to the issue of disparate treatment and is reliable as it is corroborated by sworn testimony and documentary evidence presented at the hearing.” Ultimately, the ALJ found that the substantial evidence existed warranting revocation of the agent’s license.

In contrast, the ALJs in both the O’Brien and Vicquery cases found that while the evidence presented in the Newsday article was enough to allow the DLS to file the initial complaint, the DLS failed to proffer “substantial” evidence at the hearing. In O’Brien, the ALJ indicated that the DLS relied solely on the newspaper’s findings without submitting additional corroborating evidence from a more reliable source. The ALJ wrote, “[t]he newspaper is neither a government document nor such other document typical rules of evidence, even flexible ones, customarily find reliable. For sure, reliance on the newspaper article was sufficient at the pleading stage, it was not however at the hearing stage.”

In the Vicquery decision, the ALJ points out that while the Newsday article contained “…hearsay statements claiming the respondent and Ms. Gillin provided particular listings to the testers…the listings themselves were never introduced and the testers, who have actual knowledge of the listings, were not called to testify.” The actual testers were also not interviewed as part of DLS investigation. Therefore, relying solely on the hearsay evidence presented in the Newsday report is not sufficient and does not satisfy the “substantial evidence” standard.

What More Can We Expect?

The cases are slowly but surely making their way through the system and it is important to keep a close eye on all of the DLS decisions as they are issued. These decisions and investigations will not only affect the licensees targeted in the Newsday investigation, but will certainly affect all licensees. As is evident from these recent decisions, the outcomes of each case will be very fact specific. One important issue to keep in mind is that having legal counsel represent a licensee in connection with any hearing is recommended. In many of these decisions, when a licensee elects not to be represented by counsel, the decision is not favorable for the respondent.