STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF PROFESSIONAL ) REGULATION, DIVISION OF ) REAL ESTATE, )

)

Petitioner, )

)

vs. ) CASE NO. 86-2602

)

JOHN E. KNOWLES, )

)

Respondent. )

)

RECOMMENDED ORDER

Consistent with the Order Granting Continuance and Rescheduling Hearing, dated December 8, 1986, a hearing was held in this case before Arnold H. Pollock, a Hearing Officer with the Division of Administrative Hearings in West Palm Beach, Florida on January 29, 1987. The issue for consideration was whether Respondent's license as a registered real estate broker in the State of Florida should be disciplined because of the alleged misconduct outlined in the Administrative Complaint filed herein.

APPEARANCES

For Petitioner: Arthur R. Shell, Jr., Esquire

Department of Professional Regulation Division of Real Estate

400 West Robinson Street Orlando, Florida 32801

For Respondent: John E. Knowles, pro se

755 Huff Road

West Palm Beach, Florida 33415 BACKGROUND INFORMATION

On April 8, 1986, Fred Roche, Secretary of the Department of Professional Regulation filed an Administrative Complaint in this case alleging in two Counts several violations of Section 475.25, Florida Statutes. Specifically, Respondent is alleged to have been guilty of fraud, misrepresentation, concealment, false promises, false pretenses, dishonest dealing by trick, scheme or device, culpable negligence and breach of trust in a business transaction; of failing to account for and deliver a rental deposit; and of failing to maintain a security deposit in his brokerage trust account until disbursement was properly authorized. On July 5, 1986, the Respondent executed an Election of Rights form in which he disputed the allegations of fact contained in the Administrative Complaint and requested a formal hearing. Thereafter, the file was forwarded to the Division of Administrative Hearings for the appointment of a Hearing Officer and the under signed originally set the case for hearing on November 6, 1986. However, on the basis of Petitioner's Motion for Continuance,

the November 6, 1986, hearing was cancelled and rescheduled for December 5, 1986. Before this hearing could be held, however, Respondent moved to continue to secure legal counsel and on December 8, 1986, the undersigned granted the continuance, rescheduling the hearing for January 29, 1987, with the proviso that no further continuances to secure counsel would be granted.

Sometime during the week prior to the hearing, an attorney purporting to represent the Respondent contacted the undersigned by telephone indicating that he had just been consulted by Respondent with a view toward representation, but that his schedule prevented him from appearing in this case as scheduled. This attorney was advised that Mr. Knowles had been given ample opportunity to secure counsel but had waited to the eleventh hour to do so and that the continuance would not be granted. On the day of hearing, Mr. Knowles appeared somewhat late for the hearing indicating his counsel would come at a later time but authorized the commencement of the hearing without the presence of his counsel. Therefore, the hearing was held as scheduled.

At the hearing, Petitioner presented the testimony of Charles M. Bradwell, Delores Crouse, and Thomas Boulson, all partners with the Respondent in the apartments and the transaction which forms the basis for Count One; Gary B. Sellari, a Certified Public Accountant; Thor Soderholm, the individual who sold the apartments to Respondent and his partnership; and James M. VanSleet, Respondent's partner in the apartment house involved in Count Two. Petitioner also introduced Petitioner's Exhibits 1 through 6.

Respondent testified in his own behalf and presented Respondent's Exhibits A through E.

Neither party submitted Proposed Findings of Fact.

FINDINGS OF FACT

1. At all times pertinent to the allegations contained in this Administrative Complaint, the Respondent was licensed as a registered real estate broker in the State of Florida.

   
   

2. In the early part of 1982, Respondent entered into a partnership agreement for the purchase and operation of the Cleveland Street Apartments with several individuals including Mr. Bradwell, Mr. Boulson, Mr. Crouse, and Mr. Tafton (sp). Respondent was to be managing partner because of his status as a real estate broker responsible for the operation of the facility and the payment of all expenses including taxes. Periodically, the Respondent would notify the other partners of the status of their investment. This generally indicated a negative cash flow and required additional contributions from the partners in order to meet the expenses incurred in the operation. Specifically, among the obligations to be paid were county real estate taxes for the years 1983 and 1984.

   
   

3. In response to Respondent's notification to the partners of the taxes due, each partner periodically forwarded his pro rata share of the expenses, including taxes, to the Respondent with the anticipation that these expenses would be met and the taxes would be paid.

   
   

4. As it happened, however, when Mr. Boulson, one of the partners, went to the Palm Beach County Court House at some time in 1985 to inquire as to what the taxes for that year would be, he was advised that the 1983 and 1984 real property taxes on the property had not been paid and were delinquent. This came

   as a complete surprise to him, and he and the other partners were required to contribute additional funds to pay both the 1983 and 1984 property taxes and the interest accrued thereon.

   
   

5. Respondent admits that he did not pay the 1983 and 1984 taxes as they were due. He contends, however, that because of the fact that the apartment was operated with a negative cash flow, and because of the fact that the other partners repeatedly made their makeup contributions after the fact and slowly, he was forced to advance the money for other expenses as far as he could and utilized the money when paid by the other partners for taxes, to make up the other expense shortfall that he could not or did not make. Respondent contends that if the other partners had paid their assessments in a timely fashion, the other bills could have been paid on time and it would not have been necessary for him to utilize the money contributed for tax payments for the payment of these other expenses. This argument is without merit. The accountant's testimony clearly shows that sufficient money was paid in by the partners to pay the expenses and that the inflow/outflow was in balance, assuming the taxes had been paid on time as required.

   
   

6. The evidence is overwhelming that Respondent was derelict in his responses to his partners and in his availability to them when they attempted to contact him regarding apartment business. In addition, Mr. Sonderholm, the individual from whom Respondent and the other partners bought the property, and who held a purchase money mortgage on it, indicates that for the first year, Respondent faithfully made the mortgage payments on time. However, thereafter, he began to be delinquent in the payments and on at least five occasions, issued checks in payment of the monthly mortgage payment which were returned dishonored for non-sufficient funds. Each of these checks was in an amount in excess of two thousand dollars.

   
   

7. Toward the end of the relationship, in August, 1985, Respondent submitted his last property operating statement to the partners which showed a net operating loss in excess of $800.00 for the period covered, along with a request that that sum be forwarded to Respondent for reimbursement of expenses. By the admission of Mr. Bradwell, this money was not paid to the Respondent because it was extremely difficult to contact him and repeated efforts by phone, mail, and in person at his office were unsuccessful. By this time, however, the property was being managed for the partnership by a different management agent and after Respondent stopped handling the property for the partnership, he was no longer furnished any statements regarding the partnership operations though he was officially still a partner. This was because, according to Mr. Bradwell, it was impossible to reach Respondent and no one knew where he was. There is, however, a letter from Mrs. Crouse, dated in October, 1985, which is addressed to Respondent at his address of record which he received. There is also evidence to indicate that other letters sent to him at this address by certified mail were returned undelivered. These letters were not offered into evidence, however, and there is no way to know if the nondelivery was due to an inadequate address or whether Respondent refused delivery.

   
   

8. Respondent was not furnished tax form K-1 for his share of the partnership for 1985 in early 1986 because the other partners felt, after consultation with their attorney, that his unavailability, coupled with his failure to properly manage the funds of the partnership and his alleged misapplication thereof was sufficient to deprive him of his partnership interest.

9. There is no evidence to indicate that Respondent failed to make 1985 tax payments as required.

   
   

10. In 1984, Respondent entered into a partnership with James M. VanSleet to purchase and operate an apartment building in Lake Worth, Florida. Because Respondent was in the real estate brokerage business and operated a property management concern, he was given, as a part of his partnership function, the tasks of manager and rental agent for the building. This arrangement was, however, a partnership rather than a broker-client relationship.

    
    

11. In his capacity as rental agent in May, 1984, Respondent rented a unit in the building to Anthony Grieco and received a check from Mr. Grieco in the amount of $900.00 which represented a $500.00 security deposit and the first month's rent in advance. Mr. Grieco occupied the premises until May, 1985 and upon moving out, requested that his security deposit be refunded. He was advised by the Respondent that an inspection was necessary and that if the inspection revealed no damage, the deposit would be refunded. Several days later, he was notified that the inspection was satisfactory and that the $500.00 would be refunded, however, repeated contacts both by Mr. Grieco and his father, as well as others on his behalf, failed to result in return of the deposit which has not been returned as of the date of hearing.

    
    

12. In his efforts to secure the return of the deposit, Mr. Grieco was subjected to numerous delaying tactics such as being required to call back week after week because the refund check was not ready; a failure of Respondent to return calls left for him; and references to the other partner, Mr. VanSleet as the source of refund. Notwithstanding the fact that the $500.00 security deposit has not been returned to Mr. Grieco, there is no evidence as to what was done with it or whether it was misappropriated to Respondent's own use as alleged in the Administrative Complaint.

    
    

13. Toward the end of 1985, Mr. VanSleet turned the operation of this building over to another rental agent. At that time, he had received several requests for the return of deposits which had been paid to Respondent and which Respondent had failed to reimburse. Mr. VanSleet's practice was to allow the tenant to remain an extra month in the unit without rent rather than pay back the cash deposit.

    
    

    CONCLUSIONS OF LAW

    
    

14. The Division of Administrative Hearings has jurisdiction over the parties and subject matter in this case. Section 120.57(1), Florida Statutes.

    
    

15. With regard to Count One, the Division of Real Estate alleges that by failing to pay the taxes on the Cleveland Street Apartments for 1983 and 1984, monies for which he had received from the other partners for payment; by misappropriating the money for his own use and benefit without the prior knowledge and consent of the other partners; by issuing checks for mortgage payments which were dishonored due to insufficient funds; and by abandoning the partnership without submitting a final accounting and delivery of all monies received and disbursed to the other partners, Respondent is guilty of fraud, misrepresentation, concealment, false promises, false pretenses, dishonest dealing by trick, scheme or device, culpable negligence and breach of trust in a business transaction in violation of Subsection 475.25(1)(b), Florida Statutes. This provision permits discipline of a license holder's license for this misconduct.

16. The evidence is clear that Respondent did, in fact, solicit funds from the other partners for the payment of taxes on the Cleveland Street Apartments in 1983 and 9184 and that he thereafter failed to pay these taxes as it was his responsibility to do. The fact that he utilized this money for the payment of other expenses, while not justifying his failure to pay the taxes, does nonetheless defeat the allegation that he misappropriated the money for his own use and benefit. There is no evidence that Respondent profited by his misconduct.

    
    

17. The evidence is equally clear that Respondent did, nonetheless, issue certain checks to the mortgage holder on these apartments as it was his responsibility to do as the managing partner and that several of these checks were dishonored. The evidence also reflects that the checks were subsequently redeemed by Respondent but this subsequent redemption does not justify the dishonor of the checks when issued. Consequently, he is guilty of this misconduct as alleged.

    
    

18. It is also alleged that Respondent abandoned the partnership without having submitted a final accounting and without delivery of all money received and disbursed. In this regard, the partners hired a certified public accountant to conduct an audit of the property and the accounts pertaining thereto. It was the conclusion of this accountant that the income received from the partners was disbursed as alleged; that the costs and receipts balanced themselves out. This presupposed, however, the property taxes for 1983 and 1984 had been paid by the Respondent as he indicated. In his analysis, the accountant had to rely upon information furnished to him by the parties and not on the actual business entries or checks involved. Since it is clear that Respondent did not pay the 1983 and 1984 taxes as alleged, it can be concluded he failed to provide an appropriate accounting and delivery of monies received and disbursed and his claim that he was unable to pay the taxes due to the requirement to pay other expenses is unconvincing.

    
    

19. Taken together, it is not proven that Respondent is guilty of fraud, dishonest dealing by trick, scheme or device, or culpable negligence, but he is guilty of misrepresentation, false promises, false pretenses, and breach of trust in a business transaction in violation of the statute.

    
    

20. In Count Two, Petitioner alleges that the failure of the Respondent to return the $500.00 security deposit to Mr. Grieco and his alleged misappropriation of the money for his own use and benefit constitutes a violation of Section 475.25(1)(bb) as alleged above. The evidence does not clearly show what Respondent did with the $500.00 in question. It is clear that he did not either return it to Mr. Grieco or transfer it to Mr. VanSleet when he terminated the relationship between them and he did not explain where it went. From the above, it can be concluded that it was misappropriated to his own use and benefit and it is also concluded that by failing to deliver the money to either Grieco or VanSleet, he is guilty of having failed to account for and deliver a rental deposit in violation of Subsection 475.25(1)(d), Florida Statutes.

    
    

21. There is, however, no evidence to show what has been done with the money and it well may be that the money may still remain in Respondent's trust account. Therefore, the Petitioner has failed to prove that the Respondent has failed to maintain the $500.00 in his brokerage trust account and he is hereby found not guilty of that allegation.

22. Having concluded that Respondent is guilty of several of the violations alleged in the Administrative Complaint, the question then remains as to what action is appropriate in discipline of his license.

    
    

23. The practice of the real estate profession is one that requires demonstration of the highest standards of fiduciary care and personal integrity. Individuals dealing with a real estate broker are, perforce, required to place great faith and credit in the broker's ability and honesty and the customer's financial and emotional well being rest squarely in the hands of the licensed professional.

    
    

24. Respondent has failed, by virtue of the misconduct shown here, to uphold these high standards; and therefore a suspension of his license is warranted.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of Law, it is, therefore:

RECOMMENDED that Respondent's license as a registered real estate broker in Florida be suspended for a period of two years; that he be required to demonstrate to the satisfaction of the Division of Real Estate his continuing education in the ethics of the real estate profession; and that he pay an administrative fine of $2,500.00.

RECOMMENDED this 16th day of March, 1987, at Tallahassee, Florida.

ARNOLD H. POLLOCK, Hearing Officer Division of Administrative Hearings The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 16th day of March, 1987.

COPIES FURNISHED:

Harold Huff, Executive Director Division of Real Estate

Post Office Box 1900 Orlando, Florida 32802

Van Poole, Secretary

Department of Professional Regulation

130 North Monroe Street Tallahassee, Florida 32301

Arthur R. Shell, Jr., Esquire Division of Real Estate

Post Office Box 1900 Orlando, Florida 32801

John E. Knowles 755 Huff Road

West Palm Beach, Florida 33415

=================================================================

AGENCY FINAL ORDER

=================================================================

STATE OF FLORIDA

DEPARTMENT OF PROFESSIONAL REGULATION FLORIDA REAL ESTATE COMMISSION

DEPARTMENT OF PROFESSIONAL REGULATION, DIVISION OF REAL ESTATE,

Petitioner,

vs. CASE NO. 0063548

0067389

JOHN E. KNOWLES DOAH NO. 86-2602

Respondent.

/

FINAL ORDER

The Florida Real Estate Commission heard this case on April 14, 1987 to issue a Final Order.

Hearing Officer Arnold H. Pollock of the Division of Administrative Hearings presided over a formal hearing on January 29, 1957. On March 16, 1987, he issued a Recommended Order, which is adopted by the Florida Real Estate Commission as to all Findings of Fact and Conclusions of Law. A copy of this Recommended Order is attached hereto as Exhibit A and made a part hereof.

However, as to the Recommendation, the Florida Real Estate Commission ORDERS that the Respondent pay an administrative fine in the amount of $2500; and if said fine is not paid within 30 days from filing date, then the real estate license of Respondent is revoked. Further, no ethics course need be taken by Respondent.

This Order shall be effective 30 days from date of filing with the Clerk of the Department of Professional Regulation. This Order shall be appealable to the District Court of Appeal within 30 days from filing date.

DONE AND ORDERED this 14th day of October 1987 in Orlando, Florida.

Harold R. Huff, Director Florida Real Estate Commission

CERTIFICATE OF SERVICE

I HEREBY CERTIFY that a true copy of the foregoing was sent by U.S. Mail to: John E. Knowles, 755 Huff Road, West Palm Beach, Fl 33415; to Hearing Officer Arnold Pollock, Division of Administrative Hearings, 2009 Apalachee Parkway, Tallahassee, Fl 32301; and to Arthur Shell Jr., Esq., DPR, P.O. Box 1900, Orlando, Fl 32802, this 24th day of April, 1987.

Harold R. Huff

================================================================= AMENDED AGENCY FINAL ORDER

=================================================================

STATE OF FLORIDA

DEPARTMENT OF PROFESSIONAL REGULATION FLORIDA REAL ESTATE COMMISSION

DEPARTMENT OF PROFESSIONAL REGULATION, DIVISION OF REAL ESTATE,

Petitioner,

vs. CASE NO. 0063548

0067389

JOHN E. KNOWLES DOAH NO. 86-2602

Respondent.

/

AMENDED FINAL ORDER

The Florida Real Estate Commission heard this case on April 14, 1987 to issue a Final Order.

Hearing Officer Arnold H. Pollock of the Division of Administrative Hearings presided over a formal hearing on January 29, 1957. On March 16, 1987, he issued a Recommended Order, which is adopted by the Florida Real Estate Commission as to all Findings of Fact and Conclusions of Law. A copy of this Recommended Order is attached hereto as Exhibit A and made a part hereof.

However, as to the Recommendation, the Florida Real Estate Commission ORDERS that the Respondent's license be suspended for two years and that Respondent pay an Administrative fine in the amount of $2500; and if said fine is not paid with in 30 days from filing date, then the real estate license of Respondent is revoked. Further, no ethics course need be taken by Respondent.

This Order shall be effective 30 days from date of filing with the Clerk of the Department of Professional Regulation. This Order shall be appealable to the District Court of Appeal within 30 days from filing date.

DONE AND ORDERED this 14th day of April 1987 in Orlando, Florida.

Harold R. Huff, Director Florida Real Estate Commission

CERTIFICATE OF SERVICE

I HEREBY CERTIFY that a true copy of the foregoing was sent by U.S. Mail to: John E. Knowles, 755 Huff Road, West Palm Beach, Fl 33415; to Hearing Officer Arnold Pollock, Division of Administrative Hearings, 2009 Apalachee Parkway, Tallahassee, Fl 32301; and to Arthur Shell Jr., Esquire, DPR, P.O. Box 1900, Orlando, Fl 32802, this 18th day of May, 1987.

Harold R. Huff

Docket for Case No: 86-002602

Orders for Case No: 86-002602