vs. ) CASE NO. 77-1262
) P. D. NO. 3191 STORE REALTY CORPORATION, ROBERT )
PEPPER and DONALD E. MORTON, )
Respondents. )
Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, K. N. Ayers, held a public hearing in the above styled case on April 20 and 21, 1978, at Coral Gables, Florida.
For Petitioner: Louis B. Guttmann, III, Esquire
For Respondents Myron J. Rayvis, Esquire Store Realty Richard Donovan, Esquire Corporation and 8821 Southwest 69th Street Robert Pepper: Miami, Florida 33156
For Respondent I. Richard Jacobs, Esquire Donald E. Morton: 300 Roberts Building
By Administrative Complaint filed May 20, 1977, the Florida Real Estate Commission (FREC) seeks to revoke, suspend or otherwise discipline the registration of Respondents as corporate broker and active firm member brokers of Store Realty Corporation. As grounds therefor, it is alleged that Respondents, by and through their salesmen, made false representation in telephone sales solicitation to induce the purchase of lots in a tract of land being sold by Respondents known as Holly-by-the-Sea; that the Respondents conspired with their salesmen to engage in such misrepresentations; and that by reason of such conduct and practices have shown that they are so incompetent, negligent, dishonest and untruthful that money, property, transactions and rights of investors may not safely be entrusted to them. Specific allegations of false statements made include statements to prospective buyers that:
On April 15, 1977, the Commission conducted a hearing on a Petition for Emergency Suspension filed April 8, 1977, on allegations very similar to those heard at the instant proceedings. By Emergency Suspension Order entered May 4, 1977, the Commission suspended the registration of the Respondents and subsequently forwarded their request for hearing to the Division of Administrative Hearings on July 19, 1977.
Thereafter, on August 29, 1977, Respondents moved for a continuance of the hearing scheduled to commence September 8, 1977, and the hearing was rescheduled to commence October 14, 1977.
On October 5, 1977, Respondents again requested a continuance of the hearing and this was granted sine die with Respondents waiving their right to a hearing within 90 days following the emergency suspension of their licenses.
Further continuances of hearings scheduled to commence January 13, 1978, and March 22, 1978, were granted with Respondents again waiving their rights to speedy hearing.
At the hearing which was held April 20 and 21, 1978, the parties stipulated that Respondents are registered with FREC as alleged. Thereafter, 15 witnesses were called by Petitioner, 5 witnesses, 2 of whom had been called by Petitioner, were called by Respondents and 25 exhibits were offered into evidence.
Objection to the admissibility of Exhibit 1 was sustained and ruling on objections to Exhibits 23 and 24 was reserved at the hearing. Exhibits 23 and
24 are now admitted into evidence. Exhibits 8 through 20 are depositions of out-of-state witnesses, Exhibit 3(a), (b) and (c) is transcript of emergency
revocation proceedings and all have been read and considered. From all evidence presented, the following is submitted.
Respondent, Store Realty Corporation (Store), a wholly owned subsidiary of Terra Investment Corporation (Terra) is a registered corporate real estate broker. Respondents Robert Pepper is president of Store, Donald Morton is a
vice-president of Store and, at all times here involved, both were registered real estate brokers and Active Firm Members of Store.
Terra entered into a brokerage agreement on December 8, 1975 (Exhibit 24), with Holly-by-the-Sea (Holly), a joint venture, which gave Terra exclusive right of sale of the land development project known as Holly-by-the-Sea. Holly is not a corporate entity and the project consists of a 4,000 acre tract located midway between Gulf Breeze and Ft. Walton Beach, bounded on the South by the Intracoastal Waterway and on the North by the eastern portion of Pensacola Bay.
Store has been engaged in the sale of undeveloped land since its incorporation in 1970, and has generally conducted its operations by telephone sales solicitation to potential out-of-state buyers. During the period between its incorporation and the termination of its operations in 1977, Store has employed some 500 to 600 salesmen.
In addition to being subject to Chapter 475, Florida Statutes, store, in selling undeveloped land, is regulated by the Division of Land Sales and Condominiums of the Department of Business Regulation of the State of Florida (Land Sales). Land Sales reviews all material proposed for use in selling undeveloped land and, upon approval, assigns an A.D. number. Using or mailing material not approved by Land Sales subjects violators to penalty of having its permit to sell undeveloped land revoked.
Terra employed Store to conduct the sales of Holly property and, since the property was sold on a Contract for Deed with monthly payments, to maintain the records of payments and process delinquent accounts. Other brokers, viz, Urban Development and Sales (Urban), DKW Corporation and Land Masters all located at an address different from Store were also employed to sell Holly property. None of these brokers was owned or controlled by Store, but promotional material on Holly was provided to them by Store.
All material to prospective purchasers was mailed by Store and signed contracts were returned to Store who disbursed commissions to these other brokers who in turn paid their salesmen. No evidence was submitted that any non-A.D. approved material was mailed to any prospective purchaser.
Ira Cohen was employed by Urban as a telephone salesman from April 1976, until the end of January, 1977, when Urban ceased operations. He solicited sales of Holly property from mid-1977, until Urban closed. He then applied for a similar job at Store, and was interviewed by Respondent Morton who asked Cohen to recite the pitch he would use to sell Holly property. When Cohen did so he was told by Morton that some of the material recited was not A.D. approved and could not be used. Cohen agreed to use approved material and was tentatively employed.
Respondent Morton was the day supervisor at Store and his brother, Byron Morton, was night supervisor. Two telephone rooms were provided at Store with 16 phone booths in each room and a desk for the supervisor near the center of each room provided with capability to monitor the conversations of the salesmen. Only one supervisor was present for both rooms. In each booth was posted the A.D. approved pitch and drive script.
The first evening Cohen was to begin work he asked Byron Morton if he could use certain non-A.D. approved material Donald Morton had previously told him he could not use. Byron communicated this information to Donald who contacted Pepper and obtained permission to fire Cohen. This was accomplished
early that evening. The following morning Cohen returned to the Store office and contacted Willard Natof, a vice president of Terra and Store, to reapply for a job. At this tine Cohen pleaded for a job and Natof called in Donald Morton to ask if he could properly train and supervise Cohen so Cohen could be hired.
Cohen promised to follow the approved script and was employed.
For the first week, Cohen made front calls which are the initial contact with a prospective buyer to ask if he is interested in receiving material on the investment aspects of Holly property. Those who indicate interest are sent various A.D. approved literature on the project and a sales contract. After the customer has had time to receive this material the drive call is made in which the hard sell is presented. There is an A.D. approved script for both front and drive calls.
During his tenure at Urban, Cohen obtained two or three scripts which were not A.D. approved. These scripts included statements that Monsanto and St. Regis were going to expand into the area, that the recreation park at Holly contained 5 tennis courts, that the land adjacent to Holly was unavailable for development, that the rising costs of land in the vicinity made Holly an excellent investment for the development of multifamily units, that an access channel to the Gulf had been approved, there was a new shopping mall in the near vicinity, there were two recreation beaches attached to the project, that paved roads run throughout the project, and that an investor could surely resell his property at a profit in the near future.
As a matter of fact, Monsanto and St. Regis have installations within
35 miles of Holly but neither has any planned expansion in the vicinity of Holly, two tennis courts were constructed, the only paved roads are near the entrance to the project, one recreation beach is available, a new and excellent shopping mall is located some 13.5 miles distant, the county approved a bond issue to provide an access channel at Navarre Beach but no permit for such construction will be granted by the State or federal government, Land Sales will not approve a script that contains specific statements respecting resale of the property at a profit, and no county zoning has been established for the Holly tract.
All of the scripts, both approved and unapproved, contained the information that the buyer could rescind his contract at any time within 90 days and his money would be refunded; that he had 6 months within which to visit the site and, if he was not satisfied with his purchase when seen, he could rescind his contract and his money would be refunded; and that, upon a visit to Holly, he would be provided with motel accommodations for two nights as well as transportation to view Holly and the surrounding area.
While using the material in a non-A.D. approved script, Cohen contacted Arthur Lord, an NBC executive from Texas who entered into a contract for deed. Thereafter, Lord with an NBC television crew prepared a documentary on the various misrepresentations that had been made with refutation of the access channel at Navarre Pass from the U. S. Corps of Engineers, refutation of Monsanto and St. Regis expansions from each of these companies, and on site camera coverage of the project. This documentary, and excerpts therefrom, received national exposure, both in the Today Show and other national news shows on or about March 1, 1977. Thereafter, Lord cancelled his contract to purchase and his $60 initial payment was refunded.
Immediately thereafter, Store was investigated by Land Sales, FREC, F.B.I., and the Consumer Affairs Division of the Florida Attorney General's office. When Store learned of Cohen's misrepresentation, Cohen was fired.
Due to the adverse publicity generated by the TV exposure, Store ceased operations involving the sale of Holly land prior to the emergency suspension complaint and the brokerage agreement to sell Holly property has been rescinded. Store is still maintaining the payment records for the land that was sold.
At all times here involved, numerous sales meetings were held by Store officers and brokers who stressed the importance of using only A.D. approved material. All material mailed by Store to prospective buyers was A.D. approved. Such A.D. approved material included a colored brochure showing pictorially the location of Holly with respect to the communities in the area, military bases, recreational facilities and distances to larger southeastern United States cities; a copy of a newspaper clipping saying the County had approved a bond issue to open Navarre Pass; copy of a newspaper article about the opening of the Santa Rosa Mall; a copy of a newspaper article about the part of Florida between Pensacola and Jacksonville; a public offering statement filed by Holly; pictorial highlights of scenes at Holly; a property report with notice of disclaimer by interstate land sales registration, HUD; a copy of newspaper article regarding Florida growth; a copy of a newspaper article regarding the Panhandle of Florida; and sample Contracts for Deed.
Land Sales investigators visited Store, and other so engaged, at frequent intervals to observe the operation and to see that only authorized material was being used. During the six months immediately preceding the sale to Lord and the resulting TV exposure, the investigators found only one other incidence of unauthorized material at Store or heard any unauthorized comments made in phone conversations. This was made by Arthur Levy, a salesman who had come to Store from urban the same time as Cohen. When the Land Sales investigator told the supervisor about Levy's use of unauthorized material, Levy was fired. At the hearing Levy acknowledged that he had been told he would be fired if unauthorized material was used in his sales presentation and that he had attended sales meetings where all salesmen present were told they would be fired if non-A.D. approved material was used.
All witnesses who testified regarding their purchase of Holly lots and who gave notice of cancellation were refunded payments they had made. Some of these received a refund after they had visited the property and exchanged lots even though the contract did not provide for refund after that time.
Nine depositions were admitted of persons buying lots at Holly upon telephone representation. Sharp was contacted by a salesman not working for Store and induced to buy upon the representation that the land could be resold at a profit. He had made one payment when he saw the Today show, and cancelled his contract. His money was refunded.
Winebarger also bought a lot upon the representation of a salesman not working for Store that the land could be sold at a profit. He signed his contract with the intent to cancel the contract within 90 days if he could not resell at a profit. When he cancelled his money was refunded.
Clements had no dealings with a Store salesman. He bought upon the representation that the property would appreciate in value and received no information that would lead him to suspect fraud. He considered the information
received regarding Holly property to be fairer than that received from any other interstate land sales company who had contacted him.
Perkins bought a lot upon the representation that he could sell the land for more than he paid and that Monsanto was expanding into the area. After visiting the property he exchanged his lot for another, made one additional payment before he cancelled the contract and received a refund of his payments.
DuPont and wife were told Monsanto was expanding, bought a lot for investment purposes, inspected the property, exchanged lots and, prior to seeing the TV program, thought they had made a good investment. After seeing the TV program they cancelled their contract and received a refund.
Beaudoin bought a lot upon representations that Monsanto, St. Regis and Westinghouse were coming into the area and that it was a good investment. He too, visited the property, exchanged lots, and, after seeing the TV program cancelled his contract and received a refund. He had previously bought land in other developments in Florida.
Pyle was told that the canal was going through at Navarre pass which convinced him the property would be a good investment. When he cancelled his contract his money was refunded.
Helsel bought upon the representation that the canal was going through. He visited the site after the TV exposure and like what he saw. He contacted the Department of Business Regulations and was told Navarre Pass was not going through. He then went back to Holly, cancelled his contract and his payments were refunded.
For several years prior to Store ceasing operations, bulletin boards at Store held memos advising the salesmen to use only A.D. approved material in their pitches and that failure to do so would result in them being fired.
Monitoring equipment was available in Respondent Pepper's office in addition to that available to the supervisor who was on duty at all times sales were being made.
Officers at Store as well as many of the salesmen considered Holly to be the best property they had ever had in their inventory to sell by telephone solicitation.
No evidence was presented that any salesman told a prospective customer that Bankers Life Insurance Company held a mortgage on Holly. However, when Store ceased selling Holly property the records were given to Magna Corp. which is owned by Bankers Life. The Holly representative at the site works for Magna.
Store's Director of Customer Services who contacts delinquent buyers of Holly property very rarely received any complaints that they had been induced to buy by misrepresentation or by a salesman's use of material not in an approved script. The thrust of their complaints with delinquency was personal financial problems in making the payments.
All salesmen who testified were told by Respondents to use only the material contained in the approved script. The primary function of the supervisor was to be available in case a prospective buyer started asking questions the answers to which were not contained in material that had received
A.D. approval and to stop the salesmen from responding even if the response was true.
No evidence was presented that prospective buyers were told no blacks were buying land. Some buyers were told there were few blacks in the area and no evidence was presented that this was not true.
Those buyers who bought for investment purposes and visited the site considered they had made a good investment prior to seeing or learning of the TV program on Holly.
CONCLUSIONS OF LAW
By virtue of the false statements made by salesmen of the various organizations selling Holly property, Respondents are here charged with misrepresentation, fraud, trick, scheme or device and breach of trust in a business transaction in violation of Section 475.25(1)(a), Florida Statutes; with conspiring with the salesmen to engage in such misconduct in violation of Section 475.25(1)(a) and (d) and Section 475.42(1)(f), Florida Statutes; and by such conduct have shown themselves to be so incompetent, negligent, dishonest or untruthful that the money, property, transactions and rights of investors or those with whom they may sustain a confidential relationship may not safely be entrusted to them in violation of Section 475.25(3), Florida Statutes.
Section 475.25, Florida Statutes, provides in pertinent part:
The registration of a registrant may be suspended for a period of not exceeding two years, or until compliance with a lawful order imposed in the final order of suspension, or both, upon a finding of facts showing that
the registrant has:
Been guilty of fraud, misrepresentation, concealment, false promises, false pretenses, dishonest dealings, trick, scheme or device, culpable negligence, or breach of trust in a business transaction. . . .
* * *
(d) Violated any of the provisions of this chapter, or nay lawful order, rule or regula- tion made or issued under the provisions of this chapter. . . .
* * *
(3) The registration of a registrant may be revoked if the registrant shall be
found guilty of a course of conduct or practices which show that he is so incompetent, negligent, dishonest or untruthful that the money, property, transactions and rights of investors or those with whom he may sustain
a confidential relation, may not safely be entrusted to him.
Section 475.42(1)(f), Florida Statutes, provides:
No person shall be guilty of any conduct
or practices set forth in Section 475.25(1)(a), (b), (c), or (f).
Just what this last quoted ambiguous statutory provision means need not be delved into at this time. It is clear, however, that all of the allegations made against Respondents concern violations of Section 475.25(1)(a), Florida Statutes, with respect to misrepresentations and the other statutory provisions above quoted related back to this provision.
With respect to the charge that Respondents conspired with their salesmen to violate Section 475.25(1)(a) it is first noted that there was no direct evidence of any such conspiracy. Proof of conspiracy may be either direct or circumstantial or both. However, the rule as to the sufficiency of circumstantial evidence is the same as in other criminal cases, and to sustain a conviction the inferences which may reasonably be drawn from the proof must not only be consistent with guilt, but inconsistent with every reasonable hypothesis of innocence. Where the evidence is purely circumstantial, the links in the chain must be clearly proven, and taken together must point not merely to the possibility or the probability of guilt, but to the moral certainty of guilt. 6 Fla. Jur. Section 17 CONSPIRACY.
The circumstantial evidence was that on occasion salesmen used unauthorized scripts or made statements that were not contained in the A.D. approved material. This was contrary to posted instructions and in violation of instructions given at sales meetings by Respondents. Accordingly, the facts presented here do not even point to the probability of a conspiracy let alone the moral certainty that a conspiracy existed between Respondents and their salesmen.
The allegations that untruthful statements were made regarding zoning changes to allow multifamily dwelling was proven only insofar as such statements may have been made that the zoning was being changed. The evidence was unrebutted that no zoning had been established in Santa Rosa County and any type structure could be erected on the land at Holly unless otherwise controlled by deed restrictions.
Here nine witnesses who had purchased Holly property testified by deposition and the gist of their testimony is noted above. Numerous salesmen testified and only two, Cohen and Levy, admitted the use of unauthorized material in their pitches and both of these salesmen were fired by Respondents.
There was no evidence that Cohen obtained an unauthorized script while working at Store. He identified two of the three unauthorized scripts in his possession as having come from Urban and was not sure of the origin of the third.
Although Store was lead broker, acted as repository for all contracts obtained on lots at Holly, mailed out all literature to prospective purchasers, and serviced all contracts after they were entered into, this does not make Store the employer and broker for the salesmen at Urban, DKW and Landmasters and thereby responsible for any misrepresentations these salesmen may have made. These brokers were cooperating brokers and, as such, were themselves responsible for their salesmen.
On the other hand, the fact that misrepresentations were made by salesmen working for Store raises the question of negligence on the part of Store in not exercising closer supervision over these salesmen. In the alternative, the issue is raised whether the practice of using unauthorized material was sufficiently prevalent at Store that Respondents knew or should have known the practice existed and by failing to take more drastic steps to stop this practice, in fact condoned the use of unauthorized material. Here the direct evidence fails to establish this knowledge and the circumstantial evidence barely reaches the level of moral certainty required to sustain a finding of guilt. This circumstantial evidence was that the building containing the telephone salesmen was locked and Land Sales investigators were admitted only upon showing their identification, and on or prior to their admission to the building, the telephone operator admitting them sounded the warning that Land Sales investigators were coming in, thus giving time to stop the use of any unauthorized material if such was going on. Cohen's testimony that he heard other salesmen talking about increases in the value of the land, about the industries coming into the area, about the canal to be dug, and about a price increase in the land being offered was unrebutted although his credibility was attacked.
Since A.D. approved material showed Monsanto, St. Regis and Westinghouse were within 35 miles of Holly, that the County has approved a bond issue to dredge an access channel at Navarre Beach, and that Northwest Florida was growing rapidly, a reference to this material by salesmen to prospective buyers could lead the prospect to recall the salesman had made the misrepresentations alleged when, in fact, he had not done so.
Cohen was the principal, if not only salesman who implicated Respondents in the allegation that misrepresentations were made and he was initially fired when he tried, for the second time that day, to get permission to use unauthorized material in his pitch. On the other hand, Cohen believed that many of those unauthorized statements were true and this belief could well have stemmed from the A.D. approved material plus what he overheard or was told while working at Urban.
This is hardly the classic case of ripping off unsuspecting out-of- state purchasers of Florida land. Not one of the buyers who here testified cancelled his contract when he visited the site and was shown what he had contracted to purchase. Some exchanged lots, which, according to their contracts, removed their right to a refund if they subsequently cancelled. Yet all of those who did subsequently cancel their contracts received refunds from Store.
The evidence here submitted showed at most sporadic violations of Section 475.25(1)(a) by salesmen employed at Store and does not reach the status of the course of conduct proscribed by Section 475.25(3).
Respondents' registrations have been suspended pursuant to the Emergency Suspension Order for a year. The maximum punishment for which a violation of Section 475.25(1)(a) authorizes is two years suspension. The maximum punishment authorized should be imposed only in a proper case and upon sufficient cause. Reid v. Florida Real Estate Commission, 188 So.2d 846 (Fla. 2nd DCA 1966). From the facts presented, this is not a flagrant case. But for the national TV coverage brought on as a result of the solicitation of an NBC executive, it is doubtful that the extensive investigations and Administrative Complaint filed in this case would have occurred.
From the foregoing it is concluded that Respondents, Store Realty, Robert Pepper and Donald Morton, violated the provisions of Section 475.25(1)(a), Florida Statutes, and that they were not in violation of the other provisions of the Real Estate License Law as alleged. It is, therefore,
RECOMMENDED that the registration of Store Realty as a corporate broker and of Robert Pepper and Donald Morton as brokers be suspended for one year with the suspension to start on the date of the Emergency Suspension Order of May 4, 1978.
DONE and ENTERED this 8th day of June, 1978, in Tallahassee, Florida.
K. N. AYERS Hearing Officer
Myron J. Rayvis, Esquire 8821 S. W. 69th Court Miami, Florida 33125
Louis B. Guttmann, III, Esquire
