STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF PROFESSIONAL ) REGULATION, CONSTRUCTION ) INDUSTRY LICENSING BOARD, )

)

Petitioner, )

vs. ) CASE NO. 83-687

)

SARAH R. HUNTER, )

)

Respondent. )

)

RECOMMENDED ORDER

This case was heard pursuant to notice on August 23, 1983, in Fort Myers, Florida, by Stephen F. Dean, assigned Hearing Officer of the Division of Administrative Hearings. This case was presented upon an Administrative Complaint filed by the Petitioner, Department of Professional Regulation, Construction Industry Licensing Board, the first count of which alleges that the Respondent, Sarah R. Hunter, violated Section 489.129(1)(h), Florida Statutes, by diverting funds received for completion of a house of Ludon and Donna Williams, and violated Section 489.129(1)(k), Florida Statutes, by abandoning said project without notification and without just cause; and the second count of which alleges that the Respondent violated Section 489.129(1)(h), Florida Statutes, by diverting $2,000 paid as a down payment on a contract for a total of $38,500 for the construction of a house for Marsha Montgomery. The Respondent filed a timely request for an administrative hearing, and the matter was referred to the Division of Administrative Hearings to conduct a formal hearing pursuant to the provisions of Section 120.57, Florida Statutes.

APPEARANCES

For Petitioner: Douglas A. Shropshire, Esquire

Department of Professional Regulation

130 North Monroe Street Tallahassee, Florida 32301

For Respondent Thomas Brondstetter, Esquire

Post Office Box 2258

Fort Myers, Florida 32902 ISSUES

The following issues of fact and law were considered:

1. Is the Respondent guilty of violating Section 489.129(1)(k), Florida Statutes, by abandoning the Williams' contract as alleged in Count I of the Administrative Complaint?

2. Is the Respondent guilty of violating Section 489.129(1)(h), Florida Statutes, by diverting funds on both the Williams' and Montgomery's contracts as alleged in both counts of the Administrative Complaint?

Both parties submitted posthearing findings of fact, which were read and considered. Those findings not incorporated herein are found to be either subordinate, cumulative, immaterial, unnecessary, or not supported by the evidence.

FINDINGS OF FACT

1. The Respondent, Sarah R. Hunter, is licensed as a certified residential contractor and holds license number CR C004453.

   
   

2. At the time of the events which are the basis of the Administrative Complaint, the Respondent was the qualifying agent of Hunter Homes, Incorporated, a Florida corporation (Hunter Homes).

   
   

3. Hunter Homes entered into a contract with Ludon and Donna Williams to build them a house for $31,550. The Williams placed $31,550 in escrow, and the escrow agent paid to Hunter Homes a total of $31,040 before September 25, 1979.

   
   

4. Hunter Homes contracted in April 1979 to build a house for Marsha Montgomery for $38,500. On August 2, 1979, Montgomery paid to Hunter Homes a total of $1600 down on the contract.

   
   

5. The Respondent's husband, Robert Hunter, was the president and chief operating officer of Hunter Homes. He was responsible for the financial aspects of the corporate business, and the Respondent was responsible for design of the structures and sales. The Respondent held the office of secretary in the corporation and worked daily in the company's offices.

   
   

6. Hunter Homes had built homes in the Fort Myers area for a number of years and was a reputable home building corporation. It began selling its homes faster than it could build them. Because of the delay in construction time and inflationary increases in construction costs, Hunter Homes began to lose money on its sales.

   
   

7. Mr. Hunter kept this information from the Respondent and instructed the office staff, under threat of being fired, not to advise his wife about the financial status of the company. The office staff kept this information a secret from the Respondent until Mr. Hunter was hospitalized with a serious heart condition. At that point, the clerk in charge of keeping the books had to tell the Respondent about the situation because the corporation could not meet its payroll.

   
   

8. In mid-August of 1979, when the Respondent became aware of the financial situation, she contacted the local building official and the companies through which Hunter Homes had obtained financing to discuss the financial situation of the corporation and what should be done to protect the persons who had contract to have houses built. The Respondent did not know the exact state of the corporation's finances until after completion of a survey by the auditors of one of the corporation's mortgage lenders.

   
   

9. Hunter Homes' problem was primarily that of cash flow and being able to manage current liabilities until the transactions were closed on several houses which were almost complete. The Respondent was almost able to obtain an

   agreement which could have permitted the corporation to continue in business. However, one of the materialmen would not agree to the plan and commend an action on its liens, which caused the rest of the creditors to rush to protect their interests. This forced Hunter Homes out of business.

   
   

10. The local building official testified concerning the actions of the Respondent with regard to his office and the creditors. After she became aware of the financial problem, the Respondent did all she could to protect all of the creditors of Hunter Homes. After Hunter Homes closed, the building official hired the Respondent because of her skills as a draftsman and her knowledge of construction.

    
    

11. Within two to three weeks of the date that Montgomery paid her down payment, Hunter Homes went out of business and never had the opportunity to begin construction of her own home. The corporation was unable to repay Montgomery's down payment.

    
    

12. Because Hunter Homes went out of business, the Williams home was not completed. The windowsills, toilets and lavatories, a sliding glass door, a garage door, a stove and dishwasher, and the carpet were not installed in the home. The driveway had not been poured, and the sod had not been laid. The Williams obtained a default judgment in the amount of $17,025.91 against Hunter Homes. However, the amount of this judgment exceeded the reasonable cost of those things required to finish the house and required under the construction contract.

    
    

13. On September 25, 1979, the Williams paid the final draw on their house to the Respondent. Hunter Homes closed its doors on September 26, 1979.

    
    

    CONCLUSIONS OF LAW

    
    

14. The Construction Industry Licensing Board has authority under Chapter 489, Florida Statutes, to discipline its registrants and licensees. This Recommended Order is entered pursuant to the authority of Section 120.57, Florida Statutes.

    
    

15. The Petitioner charges the Respondent with one count of abandonment of a construction project and two counts of diverting funds contrary to the provisions of Section 489.129(1)(h) and (k), Florida Statutes, which provides for the discipline of a licensee who is found guilty of:

    
    

    (h) Diversion of funds or property received for prosecution or completion of a specified construction project or operation when as a result of the diversion the contractor is or will be unable to fulfill the terms of his obligation or contract.

    * * *

    (k) Abandonment of a construction project in which the contractor is engaged or under contract as a contractor. A project is to be considered abandoned after 90 days if the contractor terminates said project without notification to the prospective owner and without just cause.

    Subsection 489.129(1)(h), Florida Statutes, requires proof of two acts to establish a violation: (a) there must be a diversion, and (b) the contractor must be unable to complete the project because of that diversion. The Petitioner has the burden to prove a diversion and establish a casual relationship between the diversion and the inability of the contractor to complete the job.

    
    

16. Although there is evidence that the contract could not be completed, there is no evidence that there was a diversion of funds. Presumably, this is to be inferred because the house was not finished, however, the wording of the statute precludes such an inference. The diversion must be proven independently and then casually connected to the inability to complete the project.

    
    

17. Further, the evidence indicates that the corporation failed because, as in the case of the Williams house, there was a substantial delay between the sale of the house and its construction, during which the construction costs increased dramatically. If the costs of construction increased over the life of the contract, then it is possible that the job was not completed due to the increased costs as opposed to a diversion of funds. Therefore, with regard to the Williams contract, a violation of Section 489.129(1)(h), Florida Statutes, is not proven.

    
    

18. With regard to the charge of diversion on the Montgomery contract, the evidence is clear that the corporation failed to complete the contract because it went out of business. The contract did not require that the down payment be placed in escrow. Once paid to the corporation, it became subject to claims of other creditors. Therefore, the inability of the corporation to return the money does not prove a diversion, and the failure to complete the project was not casually connected to a diversion. The allegation that the Respondent violated Section 489.129(h), Florida Statutes, is not proven.

    
    

19. Regarding the allegation of abandonment, the issue is whether the inability to complete the project because of financial failure is just cause for abandonment. When a company is out of business, it cannot perform work. This is neither just nor unjust but a matter of harsh reality. Therefore, the issue becomes a question of why the company went out of business, or did it go out of business "justly." In the instant case, there is no evidence of fraudulent or "unjust" practices. The statute does not purport to punish inept business conduct. If this is its intent, it is not clear on the face of the statute. Because it is a statute which is penal in nature, it must be construed strictly against the agency. The Respondent is not guilty of violation of Section 489.129(1)(k), Florida Statutes.

RECOMMENDATION

Having found the Respondent not guilty of violating Section 489.129(1)(h) and (k), Florida Statutes, as alleged in Counts I and II of the Administrative Complaint, it is recommended that the charges against the Respondent, Sarah R. Hunter, be dismissed.

DONE and RECOMMENDED this 24th day of October, 1983, in Tallahassee, Leon County, Florida.

STEPHEN F. DEAN, 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 24th day of October, 1983.

COPIES FURNISHED:

Douglas A. Shropshire, Esquire Department of Professional

Regulation

130 North Monroe Street Tallahassee, Florida 32301

Thomas Brondstetter, Esquire Post Office Box 2258

Fort Myers, Florida 32902

Frederick Roche, Secretary Department of Professional

Regulation

130 North Monroe Street Tallahassee, Florida 32301

James Linnan, Executive Director Construction Industry Licensing

Board

Post Office Box 2 Jacksonville, Florida 32202

Docket for Case No: 83-000687

Orders for Case No: 83-000687