STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF PROFESSIONAL )

REGULATION, DIVISION OF )

REAL ESTATE, )

)

Petitioner, )

)

vs. ) CASE NO. 89-2013

)

MICHAEL H. DIFFLEY, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, the above-styled matter was heard before the Division of Administrative Hearings by its duly designated Hearing Officer, Daniel M. Kilbride, on September 6, 1989 in Orlando, Florida. The following appearances were entered:

APPEARANCES

For Petitioner: James H. Gillis, Esquire

Senior Attorney

Department of Professional Regulation, Division of Real Estate-Legal Section

400 West Robinson Street Orlando, Florida 32802

For Respondent: Kenneth M. Meer, Esquire

423 Country Club Drive Winter Park, Florida 32789

STATEMENT OF THE ISSUES

Whether the Respondent is guilty of fraud in violation of Section 475.25(1)(b), Florida Statutes.

Whether the Respondent is guilty of having failed to account and deliver trust funds in violation of Section 475.25(1)(d), Florida Statutes.

Whether the Respondent is guilty of having failed to immediately place upon receipt deposits received in trust and to maintain said trust funds in the real estate brokerage trust account until disbursement thereof was properly authorized in violation of Section 475.25(1)(k), Florida Statutes.

Whether the Respondent is guilty of having failed to make available to the Petitioner or its authorized representative all bank statements for all escrow accounts including cancel led checks, all check books and pending contracts and all documents pertaining to all escrow accounts and for having failed to make

available such books and accounts to the Petitioner or its authorized representative at a reasonable time during regular business hours, as required by Rule 21V-14.012, Florida Administrative Code, and therefore in violation of Section 475.25(1)(e), Florida Statutes.

Whether the Respondent is guilty of having failed or refused to appear at the time and place designated on the Subpoena Duces Tecum, served October 10, 1988, with respect to an official investigation of alleged violations of Chapter 475, Florida Statutes, in violation of Section 475.42(1)(h), Florida Statutes, and Section 475.25(1)(e), Florida Statutes.

PRELIMINARY STATEMENT

Respondent is a licensed real estate broker. Charged by Petitioner in a Administrative Complaint with five counts of violations of Chapter 475, Florida Statutes, the Respondent requested a formal administrative hearing. This proceeding followed.

At the hearing, Petitioner presented the testimony of three witnesses, including Respondent. The parties stipulated to the admission of Petitioner's Exhibits 1-26 in evidence. Respondent offered the testimony of Respondent and two composite exhibits in evidence. The parties also stipulated to the admission of certain facts in evidence which have been incorporated in the findings of fact in this order, as set forth in Findings of Fact numbered 1-27, below.

At the hearing the Respondent's attorney offered a qualified waiver of the Respondent's Fifth Amendment right to remain silent (if called as a witness in his own defense, Respondent is subject to cross-examination only on matters within the scope of the direct examination). After argument, the Hearing Officer ruled that a witness called to testify before an agency has a constitutional right to assert the privilege against self-incrimination if his testimony may subject him to administrative sanctions or criminal prosecution. State ex rel. Vining vs. Florida Real Estate Commission, 281 So.2d 487(Fla. 1973);and see: Lurie vs. Florida Board of Dentistry, 288 So.2d

223 (Fla. 1973). Over objection, the Hearing Officer also ruled that the privilege not to give self-incriminating testimony can be waived, but if the Respondent chooses to be sworn as a witness he is subject to examination as any other witness. See: Fla. R. Crim.P. 3.250 and former Sec. 918.09, Florida Statutes; Sec. 90.601, Florida Statutes. Respondent acknowledged on the record that he understood the privilege and voluntarily waived it. Petitioner then called Respondent as an adverse witness and the witness was sworn and gave his testimony.. Sec. 90.608(2), Florida Statutes. See also: Zabrani vs. Riveson, 495 So.2d 1195 (Fla. 3d DCA 1986).

Both parties requested the opportunity to file their proposed recommended orders within 20 days of the filing of the transcript. The transcript of the proceedings was filed with the Clerk of the Division on December 14, 1989.

Petitioner and Respondent filed their proposed findings on December 18, 1989 and December 29, 1989, respectively. The parties' proposals have been considered and have been incorporated where appropriate. Specific rulings are addressed in the Appendix attached to this order.

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

FINDINGS OF FACT

1. Petitioner is a state government licensing and regulatory agency charged with the responsibility and duty to prosecute Administrative Complaints pursuant to the laws of the State of Florida, in particular Section 20.30, Florida Statutes, Chapters 120,455 and 475, Florida Statutes, and the rules promulgated pursuant thereto.

   
   

2. Respondent is now and was at all times material hereto a licensed real estate broker in the State of Florida having been issued license number 0125817 in accordance with Chapter 475, Florida Statutes.

   
   

3. The last license issued to the Respondent was as a broker with a business address of 1605 Main Street. Suite 810, Sarasota, Florida 34236 and a home address of 3409 Prudence Drive, Sarasota, Florida 34235.

   
   

4. From on or about November, 1984 to on or about May, 1988, the Respondent was employed by the Boathouse on Longboat, Ltd., a Florida limited partnership, to sell condominium boat storage berths for the limited partnership in which Respondent was a limited partner.

   
   

5. On April 15, 1988, Harold Kornhaus, made a offer to purchase a storage space in the amount of $19,500.00.

   
   

6. The offer by Harold Kornhaus was not for a specific size storage berth but the berth was to be a specific size.

   
   

7. An agent of the Respondent named Michael Tewksbury took the offer from Harold Kornhaus and stated he was obligated to present the offer to the Respondent.

   
   

8. The Kornhaus offer was delivered to the Respondent who never presented it to the general partner, Barry R. Lewis.

   
   

9. The Respondent changed the Kornhaus offer by changing the first page and indicating another seller, named Currier but otherwise left all other pages as drawn by Tewksbury.

   
   

10. The Respondent represented individual limited partners at the expense of the partnership entity by having one of the limited partners, Currier, purchase a storage space at a reduced amount and then reselling that space at a profit to a purchaser, Kornhaus. The Respondent and /or his agent Tewksbury handled the transaction, and received a commission.

    
    

11. In another transaction involving the Huntsman to Bradt contract written on April 28, 1988, the Respondent wrote an escrow check at closing on April 28, for $1,950.00, which check was dishonored due to insufficient funds on account.

    
    

12. Herbert Jacobs, chairman of Ajax Paving Industries, Inc., of Florida, a renter of space at the Boathouse of Longboat, decided to buy a storage space for his company. The Respondent arranged to sell a storage space to William Pettibon, who was a limited partner. The contract selling William Pettibon a storage space was written on February 1, 1988, for storage space #2325. On April 1, 1988, the Respondent arranged to sell Pettibon's unit #2325 to Herbert Jacobs, chairman of Ajax Paving Industries, Inc.

13. On April 28, 1988, the limited partnership records show the bank balance in the Respondent's escrow account should have been $44,436 when in fact there was a negative balance of $1,120.82.

    
    

14. Naples Federal Savings and Loan Association loaned approximately

    $987,500.00 to the limited partnership.

    
    

15. One of the conditions of the loan was that Respondent's escrow account pertaining to all sales contracts, deposits, etc., for the limited partnership be placed with Naples Federal.

    
    

16. On February 26, 1987, Respondent wrote a letter to William T. Kirtley, attorney for the limited partnership, and stated that the total balance in the Boathouse escrow account was $82, 109.85.

    
    

17. The Respondent could not make a proper accounting of his escrow account on that date, and misrepresented to Mr. Kirtley that he had in excess of

    $80,000 in his escrow account.

    
    

18. On December 22, 1987, the Respondent wrote check No. 151 from the escrow account to Mr. Edward Lerian "Larry" Ay, Jr., in the amount of $11,500.

    
    

19. Mr. Ay was a contracted buyer of a boat storage unit and had made a personal loan to the Respondent in the amount of $10,000 in December, 1986.

    
    

20. The $11,500 check from the Respondent to Mr. Ay was repayment of the loan, plus $1,500 in interest.

    
    

21. Mr. Ay thought that he was loaning money to the Boathouse of Longboat, Ltd., the limited partnership, but such was not the case. The Respondent had no valid reason for writing Mr. Ay a check from the escrow account. The Respondent did not have the prior consent of the general partner for either the loan or the use of escrowed funds.

    
    

22. On October 27, 1987, Respondent wrote two checks from the escrow account to David Buyher in respective amounts of $5,317.50 and $187.50.

    
    

23. The checks represented repayment of a loan, with interest, made to Respondent by Buyher in 1986. Respondent was without authority to use escrow funds for said purposes.

    
    

24. On February 26, 1988, the Respondent wrote check number 203 from the limited partnership escrow account in the amount of $616.73 to the "Mountain Chalet" in Snowmass Village, Colorado. The funds were used for the personal lodging and other services of the Respondent and was done without authority.

    
    

25. On March 28, 1988, Respondent wrote check No. 236 in the amount of

    $10,873.11 to himself.

    
    

26. On April 28, 1988 Respondent wrote check No. 258 in the amount of

    $14,600 also to himself.

    
    

27. The two checks referred to above were used to obtain cashiers checks to be used at real estate closings.

    
    

28. Respondent was fired as the real estate broker for the Boathouse of Longboat, Ltd., in May, 1988.

29. In August and September, 1988, during Petitioner's investigation, several appointments were made with the Respondent to review the Respondent's escrow account which appointments the Respondent cancelled. On the day of the fifth appointment, the Respondent called and cancelled. The Respondent stated he would not permit the account to be reviewed without a subpoena.

    
    

30. On or about October 10, 1988, the Respondent was served with a Subpoena Duces Tecum commanding him to produce for inspection and copying at 1605 Main Street, Suite 810, Sarasota, Florida 34236 on October 10, 1988, at 10:00 a.m., for the Department of Professional Regulation "all bank statements for all escrow accounts including cancelled checks from September 1, 1987 to the present time. All checks books and pending contracts and all other documents appertaining to all escrow accounts."

    
    

31. Respondent did not comply with the Subpoena Duces Tecum on October 10, 1988.

    
    

32. On or about October 14, 1988, a Subpoena Duces Tecum was properly served on Thomas E. Finley, First Vice President or the Custodian of Records, Naples Federal Savings and Loan Association, 5801 Pelican Bay Boulevard, Naples, Florida 33941-3004 commanding that such Custodian of Records appear at the Petitioner's Office of Investigative Services on October 18, 1988, at 11:00 a.m., and have with him "all bank statements and checks from June 1, 1987, through June 30, 1988, appertaining to the escrow account of Michael

    H. Diffley, account number 1600070019531."

    
    

33. Naples Federal Savings and Loan Association provided the May 31, 1988, statement of Respondent's aforementioned account.

    
    

    CONCLUSIONS OF LAW

    
    

34. The Division of Administrative Hearings has jurisdiction over the subject matter of this proceeding, and the parties thereto, pursuant to subsection 120.57(1), Florida Statutes.

    
    

35. Subsection 475.25(1), Florida Statutes (1987), provides in pertinent part as follows:

    
    

    1. The Commission . . . may place a licensee, certified appraiser, registrant, or permittee on probation; may suspend a license, certification, registration, or permit for a period not to exceed ten (10) years, may revoke a license, certification, registration, or permit, may impose a fine not to exceed $10,000 for count or separate offense; and may issue a reprimand, and any or all of the foregoing, if it finds that

       the licensee, certified appraiser, registrant, permittee, or applicant:

       * * *

       (b) Has been guilty of fraud . . .

       * * *

       (d) Has failed to account and deliver to any person, including a licensee under this Chapter, at the time which has been agreed

       upon or is required by the law, or in the absence of a fixed time, upon demand of such person entitled to such accounting and delivery any personal property such as money,

       fund, deposit, check, draft, abstract of title, mortgage, conveyance, lease, or other document or thing of value, including a share of a real estate commission, or any secret legal profit, or divisible share or portion thereof, which has come into his hands and which is not his property or which he is not in law or equity entitled to retain under the circumstances . (or)

       * * *

       (k) Has failed, if a broker, to immediately place, upon receipt, any money, fund, deposit, check, or draft entrusted to him by any person dealing with him as a broker in escrow with a Title Company, Banking Institution, or Savings & Loan Association located and doing business in this state, or to deposit such funds in a trust or escrow account maintained by him with some bank or savings & loan association located in this estate, wherein the funds shall be kept

       until disbursement thereof is properly associated

       
       

36. Petitioner has the burden of proving by clear and convincing evidence all essential allegations made against the Respondent. See Ferris v. Turlington, 510 So.2d 292 (Fla. 1987).

    
    

37. The evidence viewed as to Count I of the Administrative Complaint has been measured against the required elements for the violation charged, i.e., fraud. Those elements include a material misrepresentation and detrimental reliance. "Damage" which is an element of civil fraud is immaterial to the guilt of the licensee as the Petitioner is relieved from proving damages by Subsection 475.25(1)(b), Florida Statutes.

    
    

38. The Petitioner is required to show in regard to Counts II & III, that the Respondent was a real estate broker, that he was maintaining trust funds in a real estate brokerage escrow account, that such funds were entrusted to him by a person dealing with him as a broker, that he had a demand made upon him by the person entitled to such accounting and delivery for an accounting and delivery of the trust funds and that he wrongfully failed to do so. In addition, the Petitioner has been required to show that the Respondent failed to maintain said trust funds until disbursement thereof was properly authorized.

    
    

39. Regarding Count IV the Petitioner is required to show by clear and convincing evidence that the Respondent maintained a real estate brokerage escrow account into which real estate deposits and other funds were placed and withdrawn, and that Respondent failed to make available such books and accounts to the Petitioner or its authorized representative at the reasonable time at regular business hours.

    
    

40. In regard to Count V of the Administrative Complaint the Petitioner is required to show that the Respondent failed or refused to appear at a time and place designated by a subpoena issued with respect to a violation,

    Chapter 475, Florida Statutes, and properly served on the Respondent, in response to which Respondent failed to act in accord with such subpoena.

    
    

41. Taking into account the above requirements the Petitioner has established by clear and convincing evidence the allegations of Counts I, II, III, IV and V of the Administrative Complaint. These violations were established by the Respondent having represented to Barry R. Lewis that he would act as the real estate agent for the sale of condominium boat storage berths for the Boathouse on Longboat, Ltd. Thereafter, while the Respondent was so employed he acted contrary to the interest of his employer by directing potential purchasers to purchase boat storage berths from the individual limited partners of the partnership rather than from the partnership itself. From this activity the Respondent received real estate commissions.

    
    

42. The Respondent was required by law to maintain trust funds in his real estate escrow account. On several occasions, he withdrew such funds for his personal use and benefit, allowing the escrow account to exist in a negative balance. On occasion, he caused checks to be returned for non- sufficient funds on account.

    
    

43. When the partnership's original lender became insolvent, Naples Federal Savings & Loan agreed to loan approximately $1,000,000 to the limited partnership. In response to one of the conditions of the new loan, the Respondent received a demand to account for and deliver all escrowed funds and supporting records for deposit with the new lender. During such time, the Respondent misrepresented to the attorney for the limited partnership the balance in the escrow account.

    
    

44. Petitioner has also established by clear and convincing evidence the allegations contained in Count III that the Respondent used trust funds from his escrow account to pay principal and interest on personal loans made to him under false pretenses. The Respondent admittedly failed to obtain consent to use trust funds for his personal needs, such as lodging at the Mountain Chalet in Snowmass Village, Colorado.

    
    

45. The Petitioner also established by clear and convincing evidence the allegations of Counts IV and V of the administrative complaint by showing that the Respondent (1) had escrow accounts at Naples Federal Savings & Loan Association by obtaining partial records of such accounts from the institution,

    1. had failed to supply such supporting books and records for his real estate brokerage escrow accounts to the Petitioner's authorized representative at a reasonable time and during regular business hours; and, (3) by showing that the Respondent failed or refused to appear at a time and place designated in a lawfully issued and served subpoena with respect to a violation of Chapter 475, Florida Statutes.

       
       

46. Rule 21V-24.001, Florida Administrative Code, contains the disciplinary guidelines for Chapter 475, Florida Statutes, and provides in pertinent part as follows:

    
    

    1. The minimum penalty for all the below listed sections is a reprimand and/or a fine up to $1,000 per count

    . . . the maximum penalty are as listed:

    (h) 475.25(1) (b) - up to 5 years suspension or revocation.

    (j) 475.25(1) (d) - up to 5 years suspension.

    (k) 475.25(1) (e) - up to 8 years suspension or revocation.

    (q) 475.25(1) (k) - up to 2 years suspension.

    (ee) 475.42(1)(h) - up to 5 years suspension.

    
    

47. Respondent did not articulate any mitigating factors which would require deviation from these guidelines.

RECOMMENDATION

Based upon the foregoing Findings of Fact and Conclusions of Law, it

is

RECOMMENDED that the Department of Professional Regulation, Florida

Real Estate Commission, enter a Final Order which finds as follows:

1. Respondent Michael H. Diffley guilty of fraud, violating the provisions of Subsection 475.25(1)(b), Florida Statutes, as alleged in Count I of the Administrative Complaint;

2. Respondent Michael H. Diffley guilty of having failed to account and deliver funds, violating the provisions of Subsection 475.25(1)(d), Florida Statutes.

3. Respondent Michael H. Diffley guilty of having failed to maintain funds in trust, violating the provisions of Subsection 475.25(1)(k), Florida Statutes;

4. Respondent Michael H. Diffley guilty of violating the provisions of Rule

   21V-14.012, Florida Administrative Code, for having failed to preserve and make available to the Department account records kept in accord with good accounting prac- tices, and therefore guilty of violating Subsection 475.25(1)(e), Florida Statutes; and

5. Respondent Michael H. Diffley guilty of having violated Subsection 475.42(1)(h), Florida Statutes, by having failed to appear at the time and place required by subpoena,

and therefore violated Subsection 475.25(1)(e), Florida Statutes.

It is further recommended that the Final Order entered by the Florida Real Estate Commission revoke the Respondent's real estate license for the above- stated violations of Chapter 475, Florida Statutes.

It is further recommended that the Final Order entered by the Florida Real Estate Commission impose an administrative fine in the amount of $1,000 for each of five (5) counts of the Administrative Complaint for a total administrative

fine in the amount of $5,000 to be paid within thirty (30) days of the Final Order of the Florida Real Estate Commission.

DONE AND ENTERED this 8th day of January, 1990, in Tallahassee, Leon County, Florida.

DANIEL M. KILBRIDE

Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904)488-9675

Filed with the Clerk of the Division of Administrative Hearings this 8th day of January, 1990.

APPENDIX

The following constitutes my specific rulings, in accordance with section 120.59, Florida Statutes, on findings of fact submitted by the parties.

Proposed Findings of Fact submitted by the Petitioner:

Paragraphs 1 through 39- accepted in substance, except for paragraph 5 which is rejected as unnecessary and paragraph 31 which is in the nature of argument.

Proposed Findings of Fact submitted by the Respondent: Paragraphs 1 and 2 - rejected as argumentative.

COPIES FURNISHED:

James H. Gillis, Esquire Senior Attorney

Department of Professional Regulation

Post Office Box 1900 Orlando, FL 32302

Kenneth M. Meer, Esquire

423 Country Club Drive Winter Park, FL 32789

Darlene F. Keller Division Director

Department of Professional Regulation

Division of Real Estate

400 West Robinson Street Post Office Box 1900 Orlando, FL 32802

Kenneth E. Easley General Counsel

Department of Professional Regulation

Northwood Centre

1940 North Monroe Street Suite 60

Tallahassee, FL 32399-0792

Docket for Case No: 89-002013

Orders for Case No: 89-002013