STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
DEPARTMENT OF PROFESSIONAL REGULATION, ) DIVISION OF REAL ESTATE, )
)
Petitioner, )
)
vs. ) CASE NO. 90-4438*
)
LESLIE G. SIMMONDS and )
G. SIMMONDS REALTY, INC., )
)
Respondents. )
)
RECOMMENDED ORDER
Pursuant to notice, final hearing in the above-styled case was held in Orlando, Florida, on July 26, 1990, before Robert E. Meale, Hearing Officer of the Division of Administrative Hearings.
APPEARANCES
The parties were represented at the hearing as follows: For Petitioner: Attorney James H. Gillis
Division of Real Estate Florida Real Estate Commission
400 West Robinson Street Orlando, Florida 32801-1772
Fcr Respondents: Attorney Thomas V. Infantino
Infantino and Berman Post Office Drawer 30
Winter Park, Florida 32790-0030 STATEMENT OF THE ISSUE
The issues in this case include whether Respondents are guilty of having failed to maintain trust funds in a proper account until disbursement was authorized, in violation of Section 475.25(1)(k), Florida Statutes; failed to produce trust account records for inspection, in violation of Rule 21V-14.012, Florida Administrative Code; committed fraud, misrepresentation, concealment, false promises, false pretenses, dishonest dealing by trick, scheme or device, culpable negligence, or breach of trust in a business transaction, in violation of Section 475.25(1)(b), Florida Statutes; failed to account and deliver deposit trust funds, in violation of Section 475.25(1)(d), Florida Statutes; and, if so, the appropriate penalty.
PRELIMINARY STATEMENT
By a 20-count Administrative Complaint dated June 21, 1990, Petitioner made numerous allegations against Respondents. Counts I, II, VII, VIII, XIII, XIV, XVII, and XVIII allege culpable negligence or breach of trust, in violation of Section 475.25(1)(b), Florida Statutes. Counts I and II allege that an audit by Petitioner on February 6, 1990, revealed a trust account shortage of about
$2897.73 for which Respondents had no explanation. Further, Respondents failed to respond to a request for copies of pending sales contracts pertaining to
$7000 of deposit funds. Counts VII and VIII, which add allegations of fraud, allege that the Respondents used all or part of $10,000 missing from the trust account for personal use without the knowledge of the parties. Counts XIII, XIV, XVII, and XVIII allege that Respondents failed to pursue arbitration in order to resolve a dispute over an earnest money deposit that they held.
Counts III, IV, IX, and X allege that Respondents failed to maintain their trust funds until disbursement was authorized, in violation of Section 475.25(1)(k), Florida Statutes. Counts III and IV allege the same facts as Count I. Counts IX and X allege the same facts as Count VII.
Counts XV, XVI, XIX, and XX allege that Respondents failed to account and deliver trust account funds, in violation of Section 475.25(1)(d), Florida Statutes. Counts XV and XVI allege the same facts as Count XIII. Counts XIX and XX allege the same facts as Count XVII.
Counts V, VI, XI, and XII allege that Respondents failed to produce trust account records for inspection, in violation of Rule 21V-14.012, Florida Administrative Code, and thus Section 475.25(1)(e), Florida Statutes.
By Order of Emergency Suspension of Real Estate License dated July 6, 1990, Petitioner immediately suspended the licenses of Respondents, who reguested a formal hearing.
At the hearing, Petitioner and Respondents each called the same two witnesses, Respondent and Petitioner's investigator who audited Respondents' records. Petitioner offered into evidence 24 exhibits, and Respondents offered five exhibits. All exhibits were admitted into evidence, except Respondents' first four exhibits. The parties filed proposed recommended orders. Treatment of the proposed findings is detailed in the appendix.
FINDINGS OF FACT
Respondent (all references to Respondent are to Respondent Simmonds) is a licensed real estate broker in the State of Florida holding license numbers 0404486 and 0245930. His most current licenses are as a broker, c/o the corporate Respondent. He has been licensed about six years in Florida.
The corporate Respondent (all references to the corporate Respondent are to Respondent L. G. Simmonds Realty, Inc.) is a corporation registered as a real estate broker in the State of Florida holding license number 0245825.
At all material times, Respondent was licensed and operating as a qualifying broker and officer of the corporate Respondent. He is the sole shareholder of the corporate Respondent and the only broker employed by the corporate Respondent.
Respondents were brokers in three sales transactions in which they received competing claims for earnest money deposits that they held in trust. The three contracts are the sale from Durant to Durant by contract dated February 13, 1987, and amended December 7, 1987; the sale from Dyer to James by contract dated August 27, 1988; and the sale from Kollar and Nilands Bar & Package, Inc. to Hamilton by contract dated October 11, 1988.
Each of the three contracts is on a standard printed form. Each contract requires the corporate Respondent to hold the earnest money deposit in escrow and disburse it at closing, at which time the corporate Respondent earns its commission. Each contract provides that the corporate Respondent may interplead the funds in circuit court in the event of a dispute and further provides that the corporate Respondent shall comply with Chapter 475, Florida Statutes.
The Durant contract provides for the corporate Respondent to hold a
$1000 earnest money deposit. A dispute between the parties to the Durant contract arose, and Respondent contacted the Florida Real Estate Commission for advice.
By letter dated November 22, 1988, Respondent informed the Florida Real Estate Commission of a demand by the seller for the deposit because the buyer had failed to follow through on his mortgage application. The letter states that Respondent is convinced that the seller is entitled to the deposit and that Respondent intends to pursue interpleader.
By Notice dated February 2, 1989, the Florida Real Estate Commission informed Respondents that it could not issue an Escrow Disbursement Order because of the unenforceability of certain contractual language. Referring to Rule 21V-10.32, the letter advised Respondents that, within 30 days of receipt of the letter, they must pursue arbitration, with the consent of all parties, or a judicial adjudication, such as through interpleader.
At some point, Respondents obtained an application for arbitration and sent it to the parties. By letter dated June 12, 1989, Respondents informed the Florida Real Estate Commission that they had sent an arbitration contract on March 21, 1989, to the seller, who had not yet responded to the request to arbitrate.
Subsequently, Respondents retained counsel at their expense to discuss interpleading the funds in circuit court. Counsel advised them that the relatively modest sum involved, as a practical matter, precluded the judicial remedy because the attorneys' fees would exceed the amount in dispute.
Eventually, the parties to the Durant contract settled their dispute, and Respondents disbursed the funds pursuant to the parties' stipulation. There is no evidence of a complaint about Respondents' handling of the earnest money deposits, nor is there any evidence that Respondent failed to account or deliver the deposit to any person as required by law.
The Dyer contract also involved an earnest money deposit of $1000, which was later increased by addendum to a total of $3000. The Dyer contract, which also failed to close, provides for the corporate Respondent to hold the earnest money deposit.
By letter dated March 2, 1989, Respondents informed the Florida Real Estate Commission that, as of the same day, they had received conflicting demands for the earnest money deposit.
By Notice dated August 28, 1989, the Florida Real Estate Commission informed Respondents that it could not issue an Escrow Disbursement Order because of factual disputes that the Commission is not empowered to resolve. The Notice states that Respondents must "immediately" choose one of the remaining alternatives--arbitration or interpleader in circuit court.
By letter dated September 8, 1989, Respondents informed the Florida Real Estate Commission that they would seek help through the Arbitration Society of Florida, Inc. It is unclear whether Respondents sent an arbitration application to the parties in the Dyer contract, but no arbitration ensued.
The parties to the Dyer contract resolved their dispute in March, 1990, and Respondents disbursed the funds pursuant to the parties' stipulation. There is no evidence of a complaint about Respondents' handling of the earnest money deposits, nor is there any evidence that Respondents failed to account or deliver the deposit to any person as required by law.
The Kollar contract resulted in the receipt by the corporate Respondent of an earnest money deposit of $10,000. This contract also failed to close.
By letter dated January 19, 1989, Respondents informed the Florida Real Estate Commission of conflicting demands received the same day. The Commission issued an Escrow Disbursement Order on August 16, 1989, with which Respondents promptly complied. There is no evidence of a complaint about Respondents' handling of the earnest money deposit, nor is there any evidence that Respondents failed to account or deliver the deposit to any person as required by law.
On January 30, 1990, Petitioner's investigator visited Respondents' office pursuant to a complaint that never provided any basis for disciplinary action. Respondent said that he was ill and asked her to reschedule the visit. They agreed to reset it for February 6, 1990.
On February 6, 1990, Petitioner's investigator met Respondent at his office and asked for copies of all pending contracts, bank statements, deposit slips, cancelled checks, and similar materials so that she could reconcile the trust account.
Respondent supplied her with all of these materials except for the cancelled checks, which he said were at the accountant's office. Respondent gave the investigator access to his office copier so that she could copy whatever she needed. She apparently copied various documents, but failed to copy the pending contracts.
From February, 1988, through February, 1990, Respondents held 6-10 earnest money deposits. On February 6, Respondents had only three pending contracts for which they held deposits. These were the Dyer contract and two unidentified contracts with $3500 and $500 earnest money deposits. Respondents did not handle other trust funds, such as property management funds.
Petitioner's investigator determined that the trust account was short
$2897.73. She found pending contracts indicating that Respondents should be holding a total of $7000 in earnest money deposits, but she found a bank balance of only $4102.27, which included a deposit of $1392.26 made on February 5.
Respondents' trust account has been short previously. For example, in August, 1989, the Dyer, Durant, and Kollar contracts, which were still outstanding, generated a trust account liability of $14,000, but the account balance was as low as $700.
Respondent admits that he improperly removed funds from the trust account, without the parties' knowledge, to apply toward personal medical expenses that he had incurred. In the fall of 1989, he deposited into the trust account proceeds from a loan he had recently received. However, he removed additional trust funds when he later incurred more medical expenses. By February 6, Respondent knew that the trust account was short, but evidently did not know precisely by how much. His repeated vagueness concerning the specifics of trust account withdrawals and deposits from August, 1989, through February, 1990, discredits his testimony that he never withdrew more than the amounts of pending commissions, which were unearned in any event when withdrawn by Respondent.
On February 7, Respondent deposited $2897.73 into the trust account to eliminate the deficiency found by Petitioner's investigator. During the following week, the investigator returned to Respondents' office. She requested Respondent to produce the same documents that she had examined previously, but Respondent refused on the grounds that he had already produced all the documents once and he was seeking legal counsel. The investigator contacted Respondent a couple more times concerning the requested documents, but Respondent continued to refuse to cooperate.
Petitioner next tried to compel the production of the requested documents by service of an administrative subpoena. By subpoena duces tecum issued February 19, 1990, and served February 21, 1990, Petitioner demanded that Respondents produce, on February 26, 1990:
All current pending sales contracts, on L. G. Simmonds Realty Escrow Account #144100004792 all bank deposit slips from 2/1/88-2/1/90, the check book for account #14410004792.
Upon receipt of the subpoena, Respondent contacted his attorney, who prepared a petition to invalidate subpoena, which was served by mail on February 25, 1990, and received by Petitioner on February 28, 1990. The basic objections are that the subpoena is "unreasonably broad in scope and/or requires the production of irrelevant material" and that Respondents are entitled to know what complaint is being investigated prior to producing the information.
Petitioner issued another administrative subpoena on March 12, 1990, which was served upon Respondents on March 26, 1990, and requested, by March 30, 1990:
On L. G. Simmonds Realty Escrow Account #14410004792: All sales contracts for which
L. G. Simmonds Realty, Inc. is holding escrow deposits, the 1/90 and 2/90 bank statements, cancelled checks, number 177 through 270.
On March 29, 1990, Respondents' attorney served the same objections to the petition, and Petitioner received the objections on April 4, 1990.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction of the parties and the subject matter. Section 120.57(1). (All references to Sections are to Florida Statutes. All references to Rules are to the Florida Administrative Code.)
The Florida Real Estate Commission is responsible for disciplining real estate brokers. Section 475.25.
Section 475.25(1) provides that the Commission may revoke or suspend a license, place a licensee on probation, impose an administrative fine for not more than $1000 per count or separate offense, and issue a reprimand if it finds that a broker has failed to maintain funds in an escrow account until disbursement is authorized, in violation of Section 475.25(1)(k); has been guilty of fraud, misrepresentation, concealment, false pretenses, dishonest dealing by trick, scheme or device, culpable negligence or breach of trust in any business transaction, in violation of Section 475.25(1)(b); has failed to account or deliver to any person deposit funds, in violation of Section 475.25(1)(d); or has violated any other provision of Chapter 475 or applicable rules, in violation of Section 475.25(1)(e).
Petitioner must prove the material allegations by clear and convincing evidence. Ferris v. Turlington, 510 So.2d 292 (Fla. 1987)
Rule 21V-10.032 requires that a broker receiving conflicting demands for an earnest money deposit shall notify the Florida Real Estate Commission in writing, within five working days of the "last party's demand," and institute one of the statutory procedures set forth within Section 475.25(1)(d) within 30 days after the last demand. A broker with a "good faith doubt as to who is entitled to an earnest money deposit" must notify the Commission in writing, within 15 working days from the closing date, and institute one of the statutory procedures within 30 days after the closing date.
Section 475.25(1)(d) penalizes a broker who "[has failed to account or deliver to any person," when required by law, various types of property, including earnest money deposits.
Section 475.25(1)(d) also establishes "escape procedures" by which a broker confronted with conflicting claims or good faith doubts about entitlement of earnest money deposits may ensure that no administrative complaint may be filed against him as a result of the dispute. To use such an "escape procedure," a broker shall "promptly notify the [Florida Real Estate C]ommission" and shall "promptly" request an escrow disbursement order from the Commission, submit the matter to arbitration if the parties consent, or seek a judicial adjudication by interpleader or otherwise.
Petitioner has failed to prove by the requisite standard of proof that Respondents failed to account or deliver to any person, when required by law, the earnest money deposit relating to the Durant, Dyer, and Kollar contracts. There is no proof as to which parties were entitled to what, except for the Kollar contract where Respondent complied with the Commission's determination of
the parties' ownership rights. There is no proof that any party to these three contracts complained, or had cause to complain, about Respondent's handling of the earnest money deposits and conflicting claims to these funds.
Absent any evidence whatsoever of Respondents' failure to account or deliver the three earnest money deposits, it would be an unfair interpretation of the "escape procedures" that equated a broker's failure to one such procedure with a failure to account or deliver escrow funds. The "escape procedures" operate as a "safe harbor" for the prudent broker who wishes to avoid the possibility of disciplinary action arising out of his handling of competing claims for an earnest money deposit that he holds. If a broker unwisely chooses to ignore this protection, he is not necessarily guilty of failing to account and deliver deposit funds in violation of Section 475.25(1)(d), nor is there any statutory presumption that he is so guilty.
The failure to use an available "escape procedure" may, under the appropriate facts, represent evidence of a failure to account or deliver funds or even of incompetence, but, on the facts of this case at least, does not establish a failure to account or deliver funds. Respondents' failure to use an "escape procedure" merely left them vulnerable to disciplinary action if they in fact failed to account or deliver escrow funds during a dispute when it was later determined that a party had earlier been entitled to all or part of the money. The mandatory language of Rule 21V-10.032 should be read as establishing the requirements for brokers using an "escape procedure," not as making the failure to use such a procedure tantamount with failing to account or deliver.
Petitioner has proven by the requisite standard that Respondents failed to maintain trust funds until disbursement was authorized. Respondent admits that he took trust funds and applied them for personal uses when the withdrawal of the funds was not authorized. Even if Respondent withdrew only those funds that would have represented his commission, the money had not yet been earned and might never have been earned, especially if the seller proved to be in default.
It is difficult to determine from the record the number of separate incidents involving improper disbursement of trust funds. At minimum, there were two such incidents--one before Respondent received the loan proceeds and one after. The same two incidents also constitute a breach of trust in a business transaction, although a penalty should be assessed only one time for a violation of law, even though the same incident may have simultaneously violated several provisions of Chapter 475 or applicable rules.
43. Rule 21V-14.012(1) requies:
A broker who receives a deposit such as defined herein shall preserve and make available to the Department [of Professional Regulation], or its authorized representative, all deposit slips and statements of account rendered by the bank or trust company . . ., in which said deposit is placed, together with all agreements between the parties respecting the transaction, particularly the deposit, and all contracts,
agreements, instructions and directions . . . .
All such books and accounts shall be
subject to inspection by the Department or its authorized representatives at all
reasonable times during regular business hours.
Petitioner has proven by the requisite standard that Respondents failed to produce all books and accounts upon request by Petitioner. There is no evidence that Petitioner was harassing Respondents. The initial office visit uncovered a trust account shortage. Although there was evidence that it was quickly satisfied, Petitioner had a right to determine whether Respondents were properly maintaining the trust account over a period of time.
Respondents' failure to comply with the requirement that they allow Petitioner to inspect office records does not turn on the scope of the administrative subpoenas or timeliness of their service on Respondents. Nor does the failure to comply involve the timeliness or validity of the petitions to invalidate the subpoenas. The subpoena is merely an enforcement mechanism. Nothing in the law requires Petitioner to resort to the issuance of a subpoena in order to establish a basis for prosecuting a licensee under the rule requiring that books and accounts be subject to inspection by Petitioner during regular office hours. There is no dispute that Respondents denied Petitioner access to the books and records. It is clear that the request to inspect was entirely appropriate, and the time and manner of the proposed inspection was reasonable.
In considering appropriate penalties, the corporate Respondent's argument for limiting the penalties to Respondent is rejected. It is axiomatic that a corporation must act through its agents. This case represents an especially unappealing vehicle for limited corporate liability for disciplinary violations because Respondent is the sole shareholder and broker of the corporate Respondent. To fail to penalize the corporate Respondent would severely limit the efficacy of the penalties imposed upon Respondent.
Rule 21V-24.001(3)(1) provides that the range of penalties for the failure to maintain funds in an escrow account until disbursement is authorized is "a minimum of a 90 day suspension and $1000 fine up to revocation." Rule 21V-24.001(1) notes that these ranges are for a single count, and multiple counts of a single violation may result in a higher penalty.
Rule 21V-24.001(3)(f)(and (x), which is the same) provides that the range of penalties for violating any order or rule of the Commission is up to eight years' suspension or revocation.
Rule 21V-24.001(2)(a) provides that the Florida Real Estate Commission may, in addition to other penalties, place a licensee on probation and, among other things, require a broker to file escrow account status reports with the Commission, or its designated representative, on such intervals as it may prescribe.
Rule 21V-24.001(4) identifies various aggravating and mitigating circumstances that justify deviations from the recommended penalty ranges. In mitigation, it does not appear that Respondents have been previously disciplined or any member of the public was harmed by the trust account withdrawals. There is also some evidence that a significant period of suspension or substantial fine would cause financial hardship. The number of counts, which is by rule an aggravating circumstance, is misleading in this case. The 20 counts are really
10 identical counts against each Respondent, and the corporate Respondent acted only through Respondent. Many of the ten counts are repetitious. In essence,
each Respondent has been proven guilty of two incidents of trust-account shortages and one, somewhat prolonged incident of failure to allow Petitioner to inspect business records.
In the final analysis, the severity of the trust- account offenses is slight for such an offense, although unauthorized withdrawals from trust accounts are never trivial matters. Evidently, no one has lost any money from Respondents' trust account. The severity of the failure to allow Petitioner access to business records to which Petitioner was indisputably entitled to access is moderated by the fact that Respondent intially allowed the investigator full access to what was immediately available.
Petitioner requests in its proposed recommended order that the Commission issue a final order revoking Respondents' licenses. Respondents request in its proposed recommended order that the Commission issue a final order finding corporate Respondent not guilty and reprimand Respondent, placing his license on three years' probation, requiring him to complete 60 hours post- licensure education, imposing an administrative fine of $5000, requiring him to appear before the Commission prior to the termination of probation, and requiring him to certify annually that he has not opened an escrow account during the period of probation.
Based on the foregoing, it is hereby
RECOMMENDED that the Florida Real Estate Commission enter a final order reprimanding Respondents; imposing on each Respondent an administrative fine of
$3000 (for a total from the two Respondents of $6000); requiring Respondent to complete an approved 60-hour course; suspending the licenses of both Respondents for a period of six months, commencing retroactive to when their licenses were revoked pursuant to the emergency order; placing both licenses on probation for a period of three years commencing the conclusion of the suspension; and requiring, during the period of suspension, that Respondents provide the Florida Real Estate Commission, or its signated representative, with escrow account status reports at such intervals as the Commission shall require.
DONE and ORDERED this 9th day of October, 1990, in Tallahassee, Florida.
ROBERT E. MEALE
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 9th day of October, 1990.
APPENDIX TO RECOMMENDED ORDER, CASE NO. 90-4438
Treatment Accorded Proposed Findings of Petitioner 1-7: adopted.
8: rejected as subordinate.
9-10 (first sentence): adopted.
10 (second and third sentences): rejected as unsupported by the greater weight of the evidence. In fact, Respondent supplied the investigator with copies of the contracts on February 6, but refused subsequent requests to produce them. He indicated that he wanted to obtain advice of counsel.
11: rejected as subordinate. In addition, the implication that files of the Division of Real Estate were the sole source of information regarding the contracts is rejected as unsupported by the greater weight of the evidence. The investigator found in the EDO files of the Division of Real Estate a copy of the Dyer contract, which, as noted in the recommended order, was one of the three contracts generating the escrow account liability that the investigator calculated on February 6. Although she saw the other two contracts (in order to generate the liability), she never received copies of them, even through the final hearing.
12-19: adopted or adopted in substance.
20-21 (with respect to each paragraph, first sentence and first clause of second sentence): adopted.
20-21 (with respect to each paragraph, remainder): rejected as irrelevant. 22: adopted.
23: rejected as irrelevant. 24-27 and 30-33: adopted.
28 and 34: rejected as unsupported by the greater weight of the evidence and unnecessary.
29: rejected as unsupported by the greater weight of the evidence.
Treatment Accorded Proposed Findings of Respondents 1-12: adopted or adopted in substance.
13: rejected as subordinate.
14-15: adopted.
16 and 19: rejected as unsupported by the greater weight of the evidence and legal argument.
17: rejected as unsupported by the greater weight of the evidence. 18: adopted.
20: rejected as irrelevant. 21: rejected as subordinate. 22: adopted.
23-24 and 26-27: rejected as recitation of testimony.
25: rejected as unsupported by the greater weight of the evidence. 28-33 (first clause of second sentence): adopted.
33 (second clause of second sentence): rejected as unsupported by the greater weight of the evidence and legal argument.
33 (remainder): adopted.
34-35: except as to the fact of the issuance of the subpoena and petition to invalidate, rejected as unnecessary.
36: rejected as unclear. Respondent gave the investigator a chance to see the three pending contracts generating the February 6 trust account liability, but never gave her copies of any of them when she later discovered that she had failed to copy them. She found a copy of the Dyer contract in the EDO file, but she never received copies of the other two contracts, even at the final hearing. The last sentence is rejected as unnecessary. The determination in the
recommended order on this point was not dependent upon Respondents' handling of the subpoenas, but on their handling of repeated and reasonable requests for relevant information.
37: rejected as irrelevant. 38: adopted.
39: rejected as unnecessary.
40-43: adopted or adopted in substance. 44: adopted.
45: rejected as unnecessary.
46-49: adopted or adopted in substance.
COPIES FURNISHED:
Attorney Thomas V. Infantino Infantino and Berman
Post Office Drawer 30
Winter Park, Florida 32790-0030
Darlene F. Keller Division Director Division of Real Estate
400 West Robinson Street Post Office Box 1900 Orlando, Florida 32801
Attorney James H. Gillis Division of Real Estate Florida Real Estate Commission
400 W. Robinson St.
Orlando, Florida 32801-1772
Kenneth E. Easley General Counsel
Department of Professional Regulation 1940 North Monroe Street
Tallahassee, Florida 32399-0792
*Previously assigned DOAH Case No. 90-4319 closed as a duplicate.
| Issue Date | Proceedings |
|---|---|
| Oct. 09, 1990 | Recommended Order (hearing held , 2013). CASE CLOSED. |
| Issue Date | Document | Summary |
|---|---|---|
| Dec. 04, 1990 | Agency Final Order | |
| Oct. 09, 1990 | Recommended Order | $6000 fine, 6-month and escrow status reports for real estate broker's trust account shortages and refusal to comply with subpeona |
