STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF BUSINESS AND )

PROFESSIONAL REGULATION, )

DIVISION OF REAL ESTATE, )

)

Petitioner, )

)

vs. ) CASE NO. 94-4164

)

KEVIN ROY NEWTON, )

)

Respondent. )

)

RECOMMENDED ORDER

A formal hearing was conducted in this proceeding before Daniel Manry, a duly designated Hearing Officer of the Division of Administrative Hearings, on January 10, 1995, in Orlando, Florida. Petitioner, its witnesses, and the court reporter attended the hearing in Orlando. The undersigned participated by video conference from Tallahassee, Florida. Respondent did not appear at the formal hearing, was not represented by counsel, and submitted no evidence.

APPEARANCES

For Petitioner: Steven W. Johnson, Esquire

Senior Attorney

Department of Professional Regulation Division of Real Estate

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

For Respondent: No Appearance

STATEMENT OF THE ISSUE

The issues for determination in this proceeding are whether Respondent violated Sections 475.426(1)(a) and 475.25(1)(a), (b), and (e), Florida Statutes, 1/ by: acting as a broker; failing to deposit money in escrow; committing fraud, deceit, or dishonesty; and, if so, what, if any, penalty should be imposed.

PRELIMINARY STATEMENT

Petitioner filed an Administrative Complaint against Respondent on May 19, 1994. Respondent timely requested a formal hearing.

At the formal hearing, Petitioner presented the testimony of: Mr. Paul Chandler, the complainant, and Mr. Al Shevy, Petitioner's investigator.

Petitioner submitted four exhibits for admission in evidence. Petitioner's Exhibit 1 is a copy of a franchise agreement between Respondent and Mr.

Chandler. Petitioner's Exhibit 2 is a copy of checks Mr. Chandler gave to Respondent in the aggregate amount of $225,000. Petitioner's Exhibit 3 is a copy of a consulting agreement between Mr. Chandler and Respondent.

Petitioner's Exhibit 4 is a copy of Respondent's licensure file. Petitioner's exhibits were admitted in evidence without objection. Respondent did not appear at the formal hearing and did not present any evidence.

A transcript of the formal hearing was not requested by either party.

Petitioner timely filed its proposed recommended order ("PRO") on January 23, 1995. Respondent did not file a PRO. Proposed findings of fact in Petitioner's PRO are accepted in this Recommended Order.

FINDINGS OF FACT

1. Petitioner is the governmental agency responsible for issuing licenses to practice real estate and for regulating licensees on behalf of the state. Respondent is a licensed real estate sales person under license number 0585127.

   
   

2. In September, 1992, Respondent's real estate license had lapsed. It was renewed on October 22, 1992. The last license issued to Respondent was issued as a sales person at 457 Loma Bonita Drive, Davenport, Florida.

   
   

3. Respondent is a British citizen doing business in Florida. Respondent owns 50 percent of the outstanding stock of Newbay Florida Associates ("Newbay") and Newbay Properties of Central Florida, Inc ("Newbay Properties"). Mr. Paul Chandler is a British citizen confined to a wheelchair by osteogenesis imperfecta, a bone disease.

   
   

4. Mr. Chandler was injured in an automobile accident by a drunken driver in 1989. As a result, Mr. Chandler was awarded a jury verdict of $600,000.

   
   

5. From the net proceeds of the jury verdict, Mr. Chandler purchased four houses in Florida from Respondent. The houses were for Mr. Chandler and members of his family who have disabilities similar to Mr. Chandler's. 2/

   
   

6. Mr. Chandler paid the remainder of his jury award, approximately

   $225,000, to Respondent to purchase a furniture franchise. The franchise was to be operated as Flamingo Interiors, Inc. ("Flamingo"), in Kissimmee, Florida.

   
   

7. In September, 1992, Respondent and Mr. Chandler negotiated and executed a Franchise Rights Agreement (the "agreement"). The agreement identifies Mr. Chandler as the "franchisee" but otherwise conceals material facts and contains misrepresentations, false promises, false pretenses, and amounts to dishonest dealing by trick, scheme, or device. The agreement illustrates Respondent's fraud and breach of trust in a business transaction.

   
   

8. The agreement contains the name "NEWBAY FLORIDA ASSOCIATES" across the top of the front page of the document. However, the agreement identifies the "franchisor" as Flamingo Interiors of Wells, Somerset, England.

   
   

9. The agreement requires Flamingo Interiors to perform numerous obligations. The obligations include: setting up a retail store; providing all necessary training, licensing, qualifications, visas, and inventory; conveying an exclusive area of operation within an "eight (8) miles radius from the Newbay office;" and establishing the location and size of the retail store at the discretion of Newbay.

10. The agreement represents that Newbay owns 25 percent of the outstanding stock in Flamingo Interiors. However, the agreement conceals Flamingo Interiors' place of formation, organization, and current status, and conceals Newbay's authority, or lack of authority, to bind Flamingo Interiors to the obligations of the franchisor in the agreement.

    
    

11. Respondent is the only signatory to the agreement other than Mr. Chandler. Respondent signed the agreement on behalf of Newbay. No one from Flamingo Interiors is a signatory to the agreement.

    
    

12. The purchase price under the agreement requires Mr. Chandler to deposit

    $45,000 upon execution of the agreement. The balance of $180,000 is to be paid by December 31, 1992.

    
    

13. Mr. Chandler paid the $225,000 required under the agreement in three checks made payable to "Newbay Clients Account." Respondent represented that the amounts paid by Mr. Chandler would be held in the escrow account of Newbay Properties until the obligations of the franchisor were completed in accordance with the terms of the agreement. All negotiations were conducted in the offices of Newbay Properties.

    
    

14. Newbay Properties had no escrow account. Respondent failed to place the $225,000 paid to him by Mr. Chandler into any escrow account.

    
    

15. The obligations of the franchisor were never satisfied, in whole or in part. Neither Respondent, Newbay, nor Flamingo Interiors made any attempt to obtain performance of the obligations of the franchisor.

    
    

16. After repeated efforts and requests by Mr. Chandler, Respondent failed to account for or return Mr. Chandler's money. Respondent never explained his failure to return the money deposited with Respondent by Mr. Chandler.

    
    

    CONCLUSIONS OF LAW

    
    

17. The Division of Administrative Hearings has jurisdiction over the subject matter of this proceeding and the parties thereto. The parties were duly noticed for the formal hearing.

    
    

18. Petitioner has the burden of proof in this proceeding. Petitioner must show by clear and convincing evidence that Respondent committed the acts alleged in the Administrative Complaint and the reasonableness of any penalty to be imposed. Ferris v. Turlington, 510 So.2d 292 (Fla. 1987).

    
    

19. The charges against Respondent are contained in three counts in the Administrative Complaint. The first count charges Respondent with fraud, misrepresentation, or breach of trust within the meaning of Section 475.25(1)(b). The second count charges Respondent with failure to place deposit checks in escrow in violation of Sections 475.25(1)(k) and 475.25(1)(e). The third count charges Respondent with operating as a broker without a valid broker's license in violation of Sections 475.42(1)(a) and 475.25(1)(e).

1. Failure To Place Deposits In Escrow And Acting As A Broker

   
   

   1. Petitioner failed to show that Respondent is guilty of the charges in the second and third counts of the Administrative Complaint. The sale of franchise rights is not the sale of real estate.

   2. Petitioner recommends dismissal of the charge that Respondent violated Sections 475.25(1)(k) and 475.25(1)(e) by failing to place funds in escrow because Respondent was not acting as an agent in a real estate transaction. For the same reason, Respondent did not violate Sections 475.42(1)(a) and 475.25(1)(e) by acting as a broker without a valid broker's license.

      
      

2. Fraud, Misrepresentation, And Breach Of Trust

   
   

   1. Petitioner showed by clear and convincing evidence that Respondent violated Section 475.25(1)(b). Respondent induced Mr. Chandler to invest

      $225,000 with Respondent by fraud; misrepresentation; concealment; false promises; dishonest dealing by trick, scheme, or device; and by breach of trust in a business transaction.

      
      

   2. Respondent concealed Newbay's authority to act on behalf of the franchisor. Respondent misrepresented the business transaction to Mr. Chandler. Respondent made false promises on behalf of himself, Newbay, and Flamingo Interiors. Respondent dealt dishonestly with Mr. Chandler and used a trick, scheme, or device to induce Mr. Chandler to entrust substantial funds to Respondent. Respondent breached the trust of Mr. Chandler in connection with a business transaction and committed fraud.

   
   

3. Penalty

1. Section 475.25 authorizes Petitioner to revoke Respondent's license. See also, Florida Administrative Code Rule 21V-24.001. Revocation of a license under Section 475.25 should be aimed at the dishonest and unscrupulous. Cf. Dryer v. Florida Real Estate Commission, 370 So.2d 95, 100 (Fla. 4th DCA 1979); Brod v. Jernigan, 188 So.2d 575, 581 (Fla. 2d DCA 1966); Rivard v. McCoy, 212 So.2d 672, 674-676 (Fla. 1st DCA 1968). Respondent was dishonest and unscrupulous in his dealings with Mr. Chandler.

   
   

2. The amount of money Mr. Chandler paid to Respondent was significant. The harm to Mr. Chandler was egregious. Respondent has not made restitution and has made no attempt at restitution.

RECOMMENDATION

Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Petitioner enter a Final Order finding Respondent not

guilty of violating Sections 475.25(1)(k), 475.25(1)(e), and 475.42(1)(a); guilty of violating Section 475.25(1)(b); and revoking Respondent's real estate sales license.

RECOMMENDED this 8th day of February, 1995, in Tallahassee, Florida.

DANIEL S. MANRY

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 February 1995.

ENDNOTES

1/ All section references are to Florida Statutes (1993) unless otherwise stated.

2/ The purchase of the four houses from Respondent is not part of the allegations in the Administrative Complaint. However, it illustrates an established association between Mr. Chandler and Respondent that forms, at least in part, the basis for Mr. Chandler's trust of Respondent in a business transaction.

COPIES FURNISHED:

Darlene S. Keller, Division Director Division of Real Estate

Department of Professional Regulation

400 West Robinson Street Post Office Box 1900 Orlando, Florida 32802-1900

Jack McRay, Esquire General Counsel

Department of Professional Regulation 1940 North Monroe Street

Tallahassee, Florida 32399-0792

Steven W. Johnson, Esquire Senior Attorney

Department of Business and Professional Regulation

Division of Real Estate Legal Section - Suite N308

Hurston Building, North Tower

400 West Robinson Street Orlando, Florida 32801-1772

T.G. Pollard, Esquire Avenue South

64 High Street Wells, Somerset England

BA 2RS

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions to this Recommended Order. All agencies allow each party at least 10 days in which to submit written exceptions. Some agencies allow a larger period within which to submit written exceptions. You should contact the agency that will issue the final order in this case concerning agency rules on the deadline for filing exceptions to this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the final order in this case.

Docket for Case No: 94-004164

Orders for Case No: 94-004164