RICO action for disciplinary action against against Karl F. Lingenfelder, dba Kala Properties—REC-2001-33-L and 16 other case numbers
reprinted courtesy HIREC Bulletin September 2006
RICO petitioned the Commission for disciplinary action against Respondent, alleging he violated the statutes and rules while acting as managing agent between September 2000 and January of 2001 for at least 17 owners of apartment units in a Maui condominium property regime. RICO alleged that Respondent modified the language of one paragraph of the property management contracts with many of the apartment owners without their written consent. RICO further alleged that Respondent issued six checks for rental revenue that were not honored because of insufficient funds. RICO also said the management contracts provided that unit owners could terminate their contract upon 30 days written notice but must honor reservations made by Respondent for a period of 90 days from the date of termination. RICO asserted that between December 8 and December 13, 2000, the unit owners sent letters to the Respondent terminating their contracts. Respondent claimed to have received the letters on December 29, 2000, although they should have been received before that date. Despite the unit owners’ objections, Respondent pronounced the terminate date of the contracts to be January 28, 2001. RICO alleged that the management contracts provided that monthly payments were to be made to the unit owners and mailed no later than the 10th day of each month. Many of the unit owners did not receive monthly payments or account statements in November and December 2000 and in January 2001 although their units were being rented during those time periods. Despite the unit owners’ demands, Respondent did not send them an accounting of the financial transactions concerning their units until February 2001. Many unit owners disputed the accounting the Respondent provided to them and believed the Respondent owed them money. RICO said that for many years, the unit owners had established and used a toll-free number and a local phone number (which had their physical location inside the resident manager’s office). They also used an Internet Web site and the condominium’s trade name to promote and facilitate short-term rentals of their units. Over the years, the unit owners had built a substantial amount of goodwill and repeat business through the use of the phone numbers, Web site, and trade name. They also allowed Respondent to use the toll-free phone number, local number, Internet Web site, and condominium trade name to facilitate the rental of their units. RICO asserted that after the management contracts were terminated, it was discovered that Respondent had caused the telephone numbers to be diverted to another physical location. It was also discovered that Respondent had closed down the Web site and created new Web sites using the condominium’s trade name. Despite the unit owners’ demands, Respondent refused to return the toll-free number and the local phone number to the unit owners. He also refused to relinquish his use of the condominium’s trade name. On March 30, 2001, owners of eight units in the condominium filed a lawsuit against Respondent for money owed under their contracts and for the return of the toll-free phone number, local phone number, and Internet Web site. The owners also sought to stop the Respondent’s use of the condominium’s trade name. The matter was submitted to arbitration. The arbitrator found that Respondent failed to provide a full and complete accounting of the result of operations as required by the contract and HRS §467-14. The arbitrator awarded damages in various amounts to the eight unit owners. The arbitrator also found that Respondent breached his duty of good faith and fair dealing under the contracts and committed the tort of conversion by wrongfully misappropriating the condominium’s 800 numbers, Web site, and trade name for his own use. The arbitrator ordered Respondent to turn over to the unit owners the toll free phone number, the local phone number, and the Internet Web site and the condominium trade name. He awarded damages to four of the unit owners for this misappropriation. The arbitration award was confirmed as a final judgment in the Second Circuit Court, State of Hawaii, on June 5, 2002.
RICO found that Respondent’s conduct violated the following provisions of the statutes and administrative rules: HAR §16-99-3(u) (the licensee shall not add to or modify the terms of an instrument previously signed or initiated by a party to a transaction without written consent of all the parties); HRS §467-14(8) (conduct constituting dishonest dealings); (7) (failing within a reasonable time to account for any moneys belonging to others which may be in the possession or under the control of the licensee); and HRS §436B-19(9) (conduct contrary to recognized standards of ethics, to wit: Code of Ethics and Standards of Practice of the National Association of Realtors, Article 1.)
On April 3, 2006, the Hearings Officer submitted her Findings of Fact, Conclusions of Law and Recommended Order to the Commission. The Commission heard oral arguments from both parties on May 26. Upon review of the proceeding, including Respondent’s written exceptions, the Commission concluded that the exceptions did not warrant a modification or reversal of the Hearings Officer’s findings of fact and conclusions of law. The Commission adopted the Hearings Officer’s proposed decision as its Final Order and found the Respondent violated HRS §§467-14(8), 436B19(9), and HAR §16-99-3. The Commission dismissed the charge that Respondent violated HRS §467-14(7). The Commission ordered that Respondent’s real estate broker’s license be suspended for two years, that he pay a $3,000 fine, and that he complete an education course or courses to be determined by the Commission.
reprinted courtesy HIREC Bulletin September 2006
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