Leonard v. State Ex Rel. South Dakota Real Estate Commission

#25619-rev & rem-JKK

2010 S.D. 97

IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA

* * * *

ROBERT LEONARD, Plaintiff and Appellee,

v.

STATE OF SOUTH DAKOTA, ex rel
SOUTH DAKOTA REAL ESTATE
COMMISSION, Defendant and Appellant.

* * * *

APPEAL FROM THE CIRCUIT COURT OF
THE SEVENTH JUDICIAL CIRCUIT
PENNINGTON COUNTY, SOUTH DAKOTA

* * * *

HONORABLE A. PETER FULLER
Judge

* * * *

HEATHER M. LAMMERS BOGARD of
Costello, Porter, Hill,
Heisterkamp, Bushnell & Carpenter, LLP Attorneys for plaintiff
Rapid City, South Dakota and appellee.

LINDSEY RITER-RAPP
ROBERT C. RITER, JR. of
Riter, Rogers, Wattier & Northrup, LLP Attorneys for defendant
Pierre, South Dakota and appellant.

* * * *

ARGUED ON NOVEMBER 16, 2010

OPINION FILED 12/15/10
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KONENKAMP, Justice

[¶1.] Does the assignment of a real estate purchase agreement to a new

buyer require the broker to obtain a new agency agreement along with its required

disclosures under SDCL 36-21A-130? The South Dakota Real Estate Commission

ruled that a real estate agent committed unprofessional conduct when he failed to

execute a new written agency agreement with the new buyer he represented. On

appeal, we conclude that because there was no written agency agreement between

the parties sufficient to satisfy SDCL 36-21A-130, the Commission’s decision was

correct. The circuit court’s ruling to the contrary is reversed.

Background

[¶2.] In June 2004, Walter D. Miller hired Garry Neiderworder of Rapid

Realty to represent him in the sale of ranch land in Meade County, South Dakota.

Neiderworder became both the listing agent and broker. Russell Engesser wanted

to purchase Miller’s land and entered into an agency agreement with Robert

Leonard, also of Rapid Realty. Because Leonard and Neiderworder were both

affiliated with Rapid Realty and represented the seller (Miller) and the buyer

(Engesser), Engesser and Leonard signed an addendum to the agency agreement,

creating a limited agency relationship. On that same day, Engesser offered to

purchase Miller’s land for $900,000, contingent on the sale of Engesser’s land.

Miller countered with a request for $930,000, but accepted Engesser’s contingency.

Engesser accepted Miller’s counteroffer, and they signed a purchase agreement,

reflecting a sale price of $930,000. The agreement also noted a backup purchase

offer from Bill Gikling for $933,750.

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[¶3.] Ultimately, Engesser was unable to sell his land. On learning this,

Leonard mentioned the land transaction to Daniel Wolken, who expressed an

interest. Leonard gave Wolken a map of the property. Wolken and his partners,

Scott Grimsrud and Norman Rieger (both now deceased), considered purchasing the

land through their company, Western Dakota Land, LLC. Leonard arranged a

meeting with Engesser, Wolken, and Grimsrud to discuss Western Dakota’s options

in light of Gikling’s backup offer. At this meeting, the parties agreed that to effect

the sale without triggering the backup offer, Engesser, in exchange for $25,000,

would assign his right to purchase the property under the purchase agreement to

Wolken and his partners. The assignment provided,

I, Russell H. Engesser, the undersigned, for one dollar and other
good and valuable consideration, assign all of my interest in and
to two certain Purchase Agreements dated June 17th, 2004
between Miller, Seller/Engesser, Buyer, and dated September
10th, 2004 between Hackens, Seller/Engesser, Buyer. Along
with all of the rights, privileges, and obligations set forth therein
to.

The executed assignment names Scott A. Grimsrud, Daniel L. Wolken, and Norman

L. Rieger as assignees.

[¶4.] Following the assignment, Leonard gave Wolken copies of certain

restrictive covenants on the property. Wolken questioned Leonard and

Neiderworder on the legal ramifications of the covenants. According to Wolken,

Leonard and Neiderworder represented that the covenants would not restrict

Western Dakota’s ultimate purchase of the property or hamper them from using

and developing the property after the purchase. The parties closed on the sale in

October 2004. Some time later, Western Dakota decided to sell the property by

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auction. But it came to light that the map Leonard gave Wolken was incorrect in

several respects, and the covenants were more restrictive than Leonard and

Neiderworder previously represented. To remove these difficulties, the restricted

two hundred and forty acres were withdrawn, and the remaining acres were sold.

[¶5.] Western Dakota, Wolken, and Grimsrud filed a complaint with the

South Dakota Real Estate Commission against Leonard and Neiderworder for their

representations on the sale of the land, in particular the covenants on the two

hundred and forty acres. In addition to the issues raised by Wolken and Grimsrud,

the Commission charged that Leonard had violated certain statutory obligations

when he failed to execute a new agency agreement with Wolken after Engesser

assigned his right to purchase the property to Wolken.

[¶6.] Both Wolken and Leonard appeared at the administrative hearing.

Although he considered Leonard his agent, Wolken testified that Leonard never

explained the nature of their relationship or discussed any potential conflicts,

considering that Neiderworder represented the seller. Leonard testified that he

became Wolken’s agent when Engesser assigned the purchase agreement to

Wolken. Leonard asserted that the assignment of the purchase agreement

transferred to Wolken Leonard’s agreement with Engesser, and therefore, satisfied

the requirement to execute a written agency agreement under SDCL 36-21A-130.

[¶7.] The hearing examiner issued a proposed decision, which the

Commission adopted, finding by clear and convincing evidence that Leonard

committed unprofessional conduct under SDCL 36-21A-71 when he failed to execute

a written agency agreement with Wolken as required by SDCL 36-21A-130.

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Neiderworder was exonerated. Leonard received a two-month license suspension,

which was held in abeyance on the condition that he successfully complete six hours

of training and a three-hour ethics course, and pay assessed costs of $6,176.99 and a

$1,000 monetary penalty.

[¶8.] In Leonard’s appeal, the circuit court concluded that the Commission

erred as a matter of law when it held that Leonard was required to execute a new

agency agreement with Wolken after the assignment of Engesser’s purchase

agreement. To the court, the assignment of the purchase agreement included the

agency agreement between Engesser and Leonard, and therefore, Leonard

committed no unprofessional conduct. Now, the Commission appeals. *

Analysis and Decision

[¶9.] The purchase agreement assignment provided that Engesser

“assign[ed] all of [his] interest in and to” his purchase agreement and “all of the

rights, privileges, and obligations set forth therein to.” The purchase agreement

refers to the agency agreement. Aside from disputing whether this document

accomplished an assignment of the agency agreement, the Commission further

claims that because SDCL 36-21A-130 mandates that an agency agreement be in

* Standard of Review: “We review agency decisions the same as the circuit
court; there is no presumption that the circuit court’s decision was correct.”
In re Montana-Dakota Util. Co., 2007 S.D. 104, ¶ 6, 740 N.W.2d 873, 876
(citing U.S. West Commc’n, Inc. v. Pub. Util. Comm’n, 505 N.W.2d 115, 122-
23 (S.D. 1993) (citing Northwestern Bell v. Pub. Util. Comm’n, 467 N.W.2d
468, 469 (S.D. 1991))). Our review is controlled by SDCL 1-26-36. We must
“give great weight to the findings of the agency and reverse only when those
findings are clearly erroneous in light of the entire record.” Williams v. S.D.
Dep’t of Ag., 2010 S.D. 19, ¶ 5, 779 N.W.2d 397, 400 (citation omitted).
(continued . . .)

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writing and be signed by all the parties to the transaction, Leonard was required to

obtain a separate written agency agreement bearing Wolken’s signature.

[¶10.] Leonard responds that the language of the assignment between

Engesser and Wolken clearly and unambiguously assigned the agency agreement

between Engesser and Leonard: the purchase agreement referred to the agency

agreement, and the assignment transferred all the “rights, privileges, or

obligations” of the purchase agreement. Leonard also relies on Wolken’s past

experience in buying property and asserts that Wolken understood the nature of his

agency relationship with Leonard.

[¶11.] SDCL 36-21A-130 requires that any agency agreement, whether

between a broker and a seller, lessor, buyer, or tenant, “be in writing[.]” The

writing “shall contain the proper legal description, the price and terms, the date of

authorization, the expiration date, the type of agency relationship established,

compensation to be paid, . . . and the signature of all parties.” Id. The agreement

“shall provide a clear and complete explanation of the broker’s representation of the

interests of the seller . . . or buyer. . . . If the broker represents more than one party

in a transaction, the agreement shall state how the representation may be altered.”

Id.

[¶12.] The mandates of SDCL 36-21A-130 are intended to protect the

consumer and ensure that consumers are specifically informed of and accept the

__________________
(. . . continued)
Questions of law, such as contract and statutory interpretation, however, are
reviewed de novo. U.S. West Commc’n, Inc., 505 N.W.2d at 122.

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nature of the agency relationship. There is no language in the purchase agreement

assignment specifically addressing its effect on the agency agreement between

Leonard and Engesser. While the assignment transfers to Wolken all Engesser’s

“rights, privileges, and obligations” in the purchase agreement, nothing in the

agreement satisfies Leonard’s professional obligations under SDCL 36-21A-130.

Realtors cannot delegate to their clients, by way of assignment or otherwise, their

professional duty to properly inform their clients by “clear and complete

explanation” their “representation of the interests of the seller . . . or buyer[.]” See

SDCL 36-21A-130. This obligation is all the more fundamental here because

Leonard’s firm represented both the buyer and the seller. Furthermore, the

assignment of the purchase agreement did not satisfy Leonard’s obligation under

SDCL 36-21A-130 to execute an agency agreement “in writing,” which agreement

“shall contain . . . the signature of all parties[.]” Under SDCL 36-21A-71, a violation

of any provision of SDCL Chapter 36-21A is unprofessional conduct. Because

Leonard violated SDCL 36-21A-130, the circuit court erred in overruling the

Commission.

[¶13.] We next examine the costs assessed and penalty imposed against

Leonard. SDCL 1-26-29.1 allows the Commission to “assess all or part of its actual

expenses for the proceeding against the licensee[.]” The Commission assessed costs

of $6,176.99 and a penalty of $1,000. In support of its claim that Leonard should be

assessed its entire costs, the Commission submitted the following itemized bill:

2/11/09 6/19/09 8/17/09 8/21/09
Jim Robbennolt – Riter Law Firm 855.00 2058.50 2,162.00 5,075.50
Riter Law Firm
Jim Robbennolt Service of complaint &
notice of hearing

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Capital Reporting Court Reporting 476.00 476.00
Services services
Jim Robbennolt Witness fees and
mileage
5,551.50

The Commission, in its brief to this Court, asserts that the witness fees and mileage

should have included a cost of $625.49, which would bring the total to $6,176.99.

[¶14.] Leonard challenges the Commission’s assessment because the

Commission failed to itemize what actual expenses relate to the case against him

alone. Because the administrative action before the Commission was against both

Leonard and Neiderworder, Leonard claims that the assessment should be

remanded to the Commission with directions to apportion the expenses and

eliminate those attributable to Neiderworder.

[¶15.] While we think that straight apportionment may not be the proper

method for assessing costs, the assessment must reflect the Commission’s “actual

expenses for the proceeding against the licensee[.]” Id. Based on the itemization

provided by the Commission, and the fact that the matter included proceedings

against Neiderworder, the record is insufficient to determine if Leonard was

assessed the Commission’s actual expenses related to him. We remand to the

Commission to ascertain the actual expenses related to the proceeding against

Leonard.

[¶16.] Leonard lastly argues that the $1,000 fine is unreasonable because (1)

Wolken’s complaint to the Commission did not assert that Leonard failed to execute

a written agency agreement (the Commission was the first to bring up that issue in

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its formal complaint), and (2) no harm resulted to Wolken as a result of his failure

to execute a written agency agreement.

[¶17.] That the Commission was the first to assert the issue of Leonard’s

failure to execute a written agency agreement is of no consequence. If the

Commission believes that “a licensee . . . has engaged or is engaging in conduct

constituting grounds for disciplinary action” it may file a complaint with the

executive director of the Commission. ARSD 20:69:05:01. Moreover, SDCL 36-21A-

68 authorizes the Commission to impose a monetary penalty not to exceed $2,500.

We cannot say the Commission abused its discretion when it imposed a $1,000

penalty against Leonard. And the question whether harm resulted from Leonard’s

violation is not germane to whether he violated his professional responsibilities.

The question of harm goes more to the degree of discipline.

[¶18.] Reversed and remanded.

[¶19.] GILBERTSON, Chief Justice, and ZINTER, MEIERHENRY and

SEVERSON, Justices, concur.

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