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Discipline of agent who defrauded clients & skipped hearing upheld

Default findings entered following a disciplinary hearing were appropriate given the licensee's absence, an Illinois appellate court held May 13. The court upheld a suspension and fine against a real estate licensee who defrauded rental-seeking clients and then skipped his disciplinary hearing. The court ruled that the state licensing agency did not violate the licensee's due process rights by proceeding with a hearing and imposing discipline in his absence.

(Shaw v. Illinois Department of Financial and Professional Regulation)

The Department filed administrative complaints against Shaw and his real estate brokerage in 2013, alleging that the he had entered into predatory rental-finding agreements with clients that did not meet the information standards set by Department regulations. The agreements included such information as a detailed description of the services being contracted for and descriptions of the rental units, but then failed to adequately provide the contracted services, and denied refunds to clients for whom Shaw had not performed adequate services.

The clients preyed-on by Shaw were those who had difficulty finding rentals due to bad credit, criminal history, or past evictions. Additionally, the Department alleged that Shaw and another licensee held themselves out as managing brokers of the company, a status beyond their actual licensure.

During the disciplinary proceedings that followed, three different attorneys represented the defendants. At one point, one of the attorneys ceased representation of all but one party, Anne Shaw, who entered into a consent order with the Department and agreed to testify against her compatriots, while the other defendants continued on.

Jack Shaw and his counsel, which by now was solely Shaw Legal Services, failed to appear for an administrative hearing in March 2016. Present was one of the former attorneys for the defendants, who claimed that Shaw had later retained him to represent Shaw alone.

However, the attorney, realizing that his former representation of all of the disciplinary defendants would create a conflict of interest, stated that he could not represent Shaw at the hearing unless the other licensee defendant, a broker named Robert Sher, agreed to waive the conflict. That did not happen at the hearing, and so the attorney left.

Shaw’s failure to appear was then entered as a default. The administrative law judge hearing the case found that Shaw failed to provide his clients with most of the information required in rental-finding agreements under Department regulations, that in so doing he attempted to deceive clients, that he improperly denied refunds when the brokerage failed to find apartments for those clients, that he had acted against the best interests of his clients, and that he had failed to cooperate with board investigators.

The Department’s director suspended both Shaw and his brokerage’s licenses for three years, fining him and the brokerage each $18,000, and denying an application that Shaw had filed for a managing broker’s license.

Shaw appealed, arguing that the administrative judge had been wrong to issue a default after he skipped his administrative hearing, saying that he had no reasonable way to know that the lawyer he had attempted to retain and who had left the hearing would not represent him. He also argued that the Department had improperly issued a double fine by fining both him and the brokerage, which he owned, and that the fines against him were unreasonable when compared with those of his co-defendants.

A state circuit court upheld the findings of the administrative judge but agreed with Shaw that the Department’s fine were unreasonably harsh, noting that Sher, the last co-defendant, had received only a single $5,000 penalty. Both Shaw and the Department appealed to a state Court of Appeals for the 1st District, which ruled in favor of the Department.

Regarding Shaw’s argument that the lower court improperly made default findings, the Court of Appeals found that the Department had not committed a due process violation. Shaw had an opportunity to participate at the hearing, noted Judge Margaret McBride, writing for the court, but he simply chose not to show up.

Although the attorney Shaw claimed to have hired had seemingly backed out of that representation at the hearing, Judge McBride pointed out both that “there is no constitutional right to be adequately represented by counsel in a civil matter or an administrative hearing,” and that Shaw, himself, should have been present, where he could have advocated for himself or asked for a postponement.

Regarding the fines imposed on Shaw, the court held that the original $18,000 fines were not unreasonable. Judge McBride noted that the other disciplinary defendants in the case were more cooperative than Shaw and stood to benefit less from the unprofessional actions at issue in the case, behavior that reasonably merited lesser penalties.