More than 40 former AllPro Realty agents are suing the defunct Salt Lake City real estate brokerage and its principals to recover $1.5 million in damages including $500,000 in alleged unpaid commissions, according to court documents obtained by the Daily Herald.

After 13 years of operations, AllPro, one of Utah's largest brokerages, went out of business in October, hit hard by the housing slump, a severe credit crunch and mounting lawsuits over unpaid commissions. The company, which had five branch offices including a 127-agent office in Lehi, cited an inability to maintain its operating costs and lease obligations resulting from declining revenues from weak home sales. At its height, the company had as many as 14 branches and 800-plus agents statewide.

In a lawsuit filed Friday with the Third District Court in Salt Lake City, AllPro President Douglas Bates and several associate brokers including Jeremy Lyman, were accused of conspiring to defraud the agents by falsifying computer statements to hide the fact that the commission checks haven't been issued, and diverting the funds for their personal use.

They were accused of circulating e-mails in May that claimed the agents' commission checks were being paid within three days of receipt by AllPro. But when questioned by several agents about the missing payments, the defendants claimed that their checks were being held up due to paperwork issues.

One month before AllPro announced it was going bust, Bates allegedly told several agents that the company wasn't going under and that they should keep their listings with the company. Bates also allegedly had several agents sign stock purchase agreements to divert $4,000 in commissions to American PX Corp., which the suit alleges is a bogus entity.

Both Bates and Lyman didn't return calls for comment.

SL Realtors Board blamed

Also named as defendant in the suit is the Salt Lake Board of Realtors. The board, which stripped Bates of his membership last week, was accused of failing to investigate and take timely action against him despite getting numerous complaints earlier this year that the agents weren't being paid.

"Rather than take such ethics complaints seriously, the board told the agents that Bates, Lyman and AllPro were important members of the board, [and] said the board had no responsibility to make a broker pay its commissions," according to the lawsuit.

Instead, the board allegedly used agents' dues to send Lyman on a free vacation to Mexico as a reward for being a valuable member, the suit alleged. Lyman resigned as a board director in October after the company announced it was going out of business.

"If the board had acted on the complaints it received instead of telling the agents they could not file any complaints for stolen commissions, one or more of the agents would not have had their commissions stolen," the suit said.

Jillinda Bowers, president of the Salt Lake Board of Realtors, declined to comment on the lawsuit.

She said she couldn't comment on why Bates was dismissed from the board last week, but said it was unrelated to his failure to pay commissions.

"Basically the Division of Real Estate is looking at Bates and once we know what the division has to say, they'll move forward with their recommendations," she said. "The commissions are a contract between an agent and broker, and when there's a failure to follow through, it becomes a civil matter."

But Clay Stuki, the plaintiffs' attorney, said the board had a "legal obligation through their code of ethics to require members to deal honestly with each other."

"They should have removed Bates as a member several months ago when they started getting complaints that he was stealing commissions from agents," Stuki said. He said Bates ran a Ponzi scheme in which he took money from recent commissions to pay off other agents' commissions.

"But when the real estate market slowed down, and there weren't as many new commissions to pay for what's owed, that's when the Ponzi scheme came unglued," Stuki said. The agents' claims ranged between $3,000 and $50,000.

"There may be as many as 100 agents that were burned by Bates," Stuki said. "Because state laws have put brokers in a position of authority over agents, and agents are forced to trust that their principal broker is ethical, the broker has important fiduciary duty to the agent and can't hide behind the corporate structure in trying to avoid those duties."

Leesha Lattin, one of the 40-plus agents suing AllPro, says she is owed about $2,600 in commissions.

"I don't know what prompted the board to strip Bates of his membership, but they could have prevented the scope of damage had they acted earlier this year," she said. "We want our money back. But even if we don't get all our money back, we hope some kind of bylaw or legislation can be introduced to protect the agents from crooked brokers."

Laws to protect agents mulled

The Division of Real Estate will hold a disciplinary hearing against Bates to determine if there's any violation of real estate licensing laws and if any action should be taken.

Because of the magnitude of alleged damage sustained by AllPro agents, Mark Steinagel, director of the Division of Real Estate said the state agency is considering laws that may offer more protection to real estate agents, and better define the fiduciary responsibilities that agents and brokers have to each other.

"Our laws are set up to protect the public, and not so much to protect one licensee from another," he said. "We don't want to change the policy of broker responsibility, because the broker typically has significantly more experience and can oversee less knowledgeable and less financially stable agents, and that helps to protect the public. But obviously brokers can also do wrong things."

Under current state laws, all real estate commissions earned by an agent must first be paid to the principal broker with whom the agent is affiliated. "We can look at softening the law so that the checks are cut directly to the agent from the title company --a repository of all transaction funds -- instead of the broker," Steinagel said.

The Division, under current laws, is prohibited from investigating or adjudicating contractual disputes.

"But once a court of law has adjudicated on the dispute, we should be able to use that information to discipline the licensee by either fining them, revoking or suspending their license," Steinagel said. "That is going to be in a draft bill that the division and the real estate industry will propose in the upcoming state Legislature [session]."