STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF PROFESSIONAL )

REGULATION, FLORIDA REAL )

ESTATE COMMISSION, )

)

Petitioner, )

)

vs. ) CASE NO. 81-2809

) CENTURY 21 LLOYDS OF LAUDERDALE, ) INC., and DONALD REDA, )

)

Respondents. )

)

RECOMMENDED ORDER

Pursuant to notice, a formal hearing was held before the Division of Administrative Hearings by its duly designated Hearing Officer, DONALD R. ALEXANDER, on August 31, 1982 in Fort Lauderdale, Florida.

APPEARANCES

For Petitioner: Michael J. Cohen, Esquire

Suite 101, Kristin Building

2715 East Oakland Park Boulevard Fort Lauderdale, Florida 33306

For Respondent: No appearances by Respondents.

By administrative complaint dated September 30, 1981, Petitioner, Department of Professional Regulation, Board of Real Estate, has charged that Respondents, Century 21 Lloyds of Lauderdale, Inc. and Donald J. Reda, have violated Subsections 475.25(1)(b) and (d), Florida Statutes, for which disciplinary action against their real estate brokers' licenses should be taken. In summary, it is charged (1) that a client of Respondents entered into a lease agreement for an apartment negotiated by an associate of Century 21 and gave a

$500 security deposit to the firm to be held as a security/damage deposit; that two weeks prior to the expiration of the lease, Reda informed the client that the escrow account was devoid of funds and that he would not receive his deposit; that the deposit has not yet been refunded; and by reason of this, Respondents have violated the foregoing statutes; and (2) in February, 1981, a contract was negotiated by an associate of Century 21 whereby a client agreed to purchase a condominium in Pompano Beach, Florida, and paid the firm $4,750 to be held in escrow as a deposit; that at the closing in May, 1981, Respondents failed to deliver that deposit thereby requiring the client to pay an additional

$4,750 at the closing; that Respondents have still failed to deliver said funds; and that Respondents are accordingly guilty of violating the foregoing statutes.

Respondents disputed the allegations in the complaint and requested a formal hearing pursuant to the provisions of Subsection 120.57(1), Florida Statutes. The matter was forwarded by Petitioner to the Division of Administrative Hearings on November 10, 1981, with a request that a Hearing Officer be assigned to conduct a hearing. By Notice of Hearing dated December 18, 1981, the final hearing was scheduled for January 25, 1982, in Fort Lauderdale, Florida. At the request of Petitioner, the matter was rescheduled to March 31, 1982, at the same location. The matter was again rescheduled at the request of Petitioner to August 31, 1982, in Fort Lauderdale, Florida.

Respondent Reda filed a pleading styled Motion to Dismiss on November 6, 1981. The Motion was denied by Order dated November 20, 1981.

At the final hearing, Petitioner offered Exhibits 1-11; all were received into evidence. Exhibits 2 and 11 are the depositions of Donald J. Reda and Donald S. Rose.

The transcript of hearing was filed on September 9, 1982. Proposed findings of fact and conclusions of law were filed by Petitioner on September 9, 1982 and have been considered by the undersigned in the preparation of this order. Proposed findings not included in this order were considered irrelevant to the issues, immaterial to the results reached, or not supported by competent and substantial evidence.

The issue herein is whether Respondents' corporate real estate broker and real estate broker licenses should be revoked or suspended, or whether other disciplinary action should be taken for the alleged violations set forth in the administrative complaint.

Based upon all the evidence, the following findings of fact are determined: FINDINGS OF FACT

1. At all times relevant hereto, Respondent, Donald J. Reda, held real estate broker license number 0072382 issued by Petitioner, Department of Professional Regulation, Florida Real Estate Commission. Respondent, Century 21 Lloyds of Lauderdale, Inc., held corporate real estate broker license number 0210412 also issued by Petitioner. When thee events herein occurred, the firm operated at 3100 East Oakland Park Boulevard, Fort Lauderdale, Florida. Reda served in the capacity of active broker for the firm.

   
   

2. On or about January 3, 1981, Samuel T. Izenstein as lessee agreed to lease the premises at Apartment 2-D at Embassy Towers I, 2701 North Ocean Boulevard, Fort Lauderdale, Florida for the period commencing on January 15, 1981 and ending April 14, 1981. The lease was negotiated by Martha Diviano, an associate of Respondents' firm. Under the terms of the lease, Izenstein gave a

   $500 security/damage deposit in the form of a check made payable to Lloyds of Lauderdale, Inc. to be held in trust and subject to refund at the end of the lease.

   
   

3. On or about April 1, 1981, or approximately two weeks prior to the expiration of the lease, Izenstein was informed by Reda that the Lloyds of Lauderdale escrow account was devoid of funds, and that Izenstein would not receive a refund of his deposit. On the same date, the realty firm closed its doors to business.

4. Although the refund was due and payable on April 15, 1981 when the lease expired, Izenstein had not received any portion of his refund when the administrative complaint was issued.

   
   

5. On February 11, 1981, Walter and Mary Gallant entered into a contract to purchase Unit 429 at Barcelona Condominium North, 2575 Cypress Road, Pompano Beach, Florida. The contract was negotiated by an associate of Respondents' firm. Under the terms of the contract, the Gallants paid Respondents an earnest money deposit of $4,750 to be held in trust on account of the transaction.

   
   

6. Although the Gallant transaction closed at a later undisclosed date, Respondents failed to account or deliver to the Gallants the escrowed money. The deposit had not been repaid when the administrative complaint was issued.

   
   

7. Lloyds of Lauderdale, Inc. opened its offices in April, 1979. Ownership in the business was divided equally between Reda and Donald Lloyd, a licensed real estate salesman. Lloyd and Reda had previously been associated with another real estate firm in Fort Lauderdale.

   
   

8. When Lloyds of Lauderdale first began operation, Reda acted as a silent partner since he was fully committed to another real estate firm in a selling and teaching capacity. However, he did review the books of the business on a monthly basis. Both Reda and Lloyd were authorized to write checks on the firm's trust account.

   
   

9. Lloyds of Lauderdale later acquired a Century 21 franchise for $7,000. Lloyd paid $4,000 towards the purchase of the franchise while Reda invested an additional $14,000 into the business to cover the remainder of the franchise cost, and to provide additional operating funds.

   
   

10. Because of a decline in business with the other firm, Reda began taking an active role with Lloyds of Lauderdale in September, 1980. In order to bring in additional operating capital, Reda and Lloyd sold a one-third share of the firm to a salesman-associate for $10,000.

    
    

11. In October, 1980, Lloyd required heart surgery and left the business as an active partner. However, he continued to retain his one-third ownership of the firm.

    
    

12. While reconciling the trust account bank statement on or about March 27, 1981, Reda discovered a shortage in the firm's trust account. Upon further inquiry with the local bank in which the account was held, Reda learned that the shortage exceeded $15,000. The bank's records disclosed that on February 18, 1981, Lloyd had written two checks on the trust account for $11,903.12 and

    $2,500.00 made payable to Brewer's Care Center, and that on March 18, he had transferred funds of $399.66 and $799.32 to his own account. The sum of these transactions equalled the shortage in the trust account.

    
    

13. Checks on the firm's trust account were numbered sequentially. Without telling Reda, Lloyd had previously taken several checks out of the middle of the checkbook. Therefore, Reda did not notice the missing checks until the shortage occurred.

    
    

14. Brewer's Care Center, Inc. was a brainstorm of Lloyd and involved an effort by him to obtain a nursing home certificate of need from the State of Georgia. The corporation was formed by Lloyd in early 1980, and shared office space with Respondents. Although no formal agreement was entered into with

    Respondents, Brewer's was supposed to share expenses, including one-half of all overhead expenses incurred by both entities. Reda was active for a short period of time in Brewer's Care Center, and assisted in the efforts to secure a certificate of need.

    
    

15. Because of the eventual failure to obtain the certificate, Brewer realized no income and did not pay its share of expenses to Respondents. Therefore, Reda, who was authorized to sign checks on Brewer's account, withdrew an undisclosed amount of money from Brewer's bank account to cover a part of its expenses. Reda claims that he was authorized to write the checks, and all were written with the knowledge and consent of Lloyd.

    
    

16. Lloyds of Lauderdale faced financial difficulty in December, 1980. As a result of this, and large medical bills incurred from his operation, Lloyd attempted to sell his share of the realty firm beginning that month. He was unsuccessful.

    
    

17. In late March, 1981, the real estate firm made a decision to close its doors because of a lack of operating capital. This occurred just after it was discovered that Lloyd had secretly withdrawn more than $15,000 from its trust account.

    
    

18. After discovering the shortage, Reda immediately filed a complaint against Lloyd with the Department in Tallahassee. He also contacted the local Florida Real Estate Commission office in Fort Lauderdale to obtain advice as to how to disbursed the remaining trust funds. He did so because there were insufficient funds to cover all pending closings. The Fort Lauderdale office would would not advise him as to what steps should be taken. He then contacted a Department attorney in the Tallahassee office who offered no definitive advice. Reda later reported the shortage to the Fort Lauderdale police. He also attempted to meet with a local circuit judge to obtain Court "intervention" in the matter but was apparently unsuccessful since he was not represented by counsel. He then contacted an attorney in North Miami who advised him to begin paying all claims, including commissions, out of closing until the funds were depleted. Reda did so, and exhausted all funds in the first closing. Other clients were obviously not paid. Reda's wife received a partial commission of

    $1,357 on the single transaction that he closed. It should be noted that Reda ignored earlier advice given by Lloyd's attorney that he should only disburse funds to his clients, and to withhold payment of any commissions due and owing to other persons.

    
    

    CONCLUSIONS OF LAW

    
    

19. The Division of Administrative Hearings has jurisdiction of the subject matter and the parties thereto pursuant to Subsection 120.57(1), Florida Statutes.

    
    

20. Respondents are charged with two violations of Subsection 475.25(1)(d), Florida Statutes, by failing to account and deliver moneys belonging to Izenstein and the Gallants, and with two violations of Subsection 475.25(1)(b), Florida Statutes, by being guilty of "fraud, dishonest dealing by trick, scheme or device, or breach of trust in a business transaction," which conduct arose out of the same transactions. According to the administrative complaint, the charges rest upon the premise that "Reda was and is responsible and liable for the acts, doings and/or omissions of Lloyds of Lauderdale and of his associates."

21. As clarified by counsel during the course of the hearing, Petitioner does not allege that Respondents misappropriated any funds, or had prior knowledge that an associate did so; instead, it contends that although Respondent Reda was in doubt as to how to disburse the escrow funds, he failed to utilize one of the three escape procedures provided for in Subsection 475.25(1)(d)1-3, supra. It also asserts that he made an "error in judgment" by disbursing a sales commission to his wife rather than paying that money directly to his clients.

    
    

22. Subsection 475.25(1)(e), supra, provides in pertinent part:

    
    

    1. . . .if the licensee, in good faith, entertains doubt as to what person is entitled to the accounting and delivery of the escrowed property. . .the licensee shall promptly notify the board of such doubts and shall promptly:

       1. Request the board issue an escrow disbursement order determining who is entitled to the escrowed property; or

       2. With the consent of all parties, submit the matter to arbitration; or

       3. By interpleader or otherwise, seek adjudication of the matter by a court.

          
          

          Here Respondent Reda partially satisfied the terms of the statute by promptly notifying the Commission of his dilemma. However, he apparently received no definitive advice nor was he told to seek an escrow disbursement order.

          Nonetheless, Reda, as a licensed broker, should have known that only through resorting to one of the three statutory escape procedures could he avoid disciplinary action. Accordingly, it is concluded that Respondents are guilty of having violated Subsection 475.25(1)(d) by failing to follow one of the procedures for clarifying the manner in which to disburse escrowed funds. 1/

          
          

23. The remaining charges involve contentions that Respondents were guilty of ". . .fraud, dishonest dealing by trick, scheme or device, or breach of trust in a business transaction. . ." in their dealings with Izenstein and the Gallants. But in order to impute guilt to the active broker for the acts of his associates, it must be affirmatively shown that Reda had prior knowledge of the dishonest acts, and either ratified those acts or did nothing to prevent them, or was so negligent in supervising his associates as to be culpably negligent in the conduct of his affairs. Such a showing was not made. Accordingly, the charges that Respondents violated Subsection 475.25(4)(b) should be dismissed.

    
    

24. In determining an appropriate penalty, it must be remembered that Respondents were victims of the concealed acts of a trusted associate, who appears to be the real culprit in this matter. Respondent Reda did not attempt to hide the shortage, but immediately contacted the Commission seeking advice and to register a complaint. His only omission in this affair was a failure to pursue one of the three remedies prescribed by law to determine in what manner to disburse his remaining trust funds. Under the circumstances, a public reprimand is a sufficient penalty.

RECOMMENDATION

Based on the foregoing findings of fact and conclusions of law, it is

RECOMMENDED that Respondents be found guilty of violating Subsection 475.25(1)(d), Florida Statutes, and that each be given a public reprimand. It is further

RECOMMENDED that the portion of the administrative complaint alleging that Respondents violated Subsection 475.25(1)(b), Florida Statutes, be DISMISSED.

DONE and ENTERED this 21st day of September, 1982, in Tallahassee, Florida.

DONALD R. ALEXANDER

Hearing Officer

Division of Administrative Hearings The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32301

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 21st day of September, 1982.

ENDNOTE

1/ The administrative complaint is marginally sufficient to have apprised Respondents of the nature of this charge. Nowhere in the complaint are the escape procedures, or the failure of Respondents to utilize the same, referred to. However, reference in the complaint to Subsection 475.25(1)(d), taken with Respondents' failure to complain, constitute sufficient notice in the case at bar. It is suggested that greater specificity and clarity be used in future complaints to avoid potential due process problems.

COPIES FURNISHED:

Michael J. Cohen, Esquire Suite 101, Kristin Building

2715 East Oakland Park Boulevard Fort Lauderdale, Florida 33306

Mr. Donald J. Reda Post Office Box 11282

Fort Lauderdale, Florida 33301

Frederick H. Wilsen, Esquire Department of Professional

Regulation, Legal Services Post Office Box 1900 Orlando, Florida 32802

Docket for Case No: 81-002809

Orders for Case No: 81-002809