STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF PROFESSIONAL ) REGULATION, CONSTRUCTION ) INDUSTRY LICENSING BOARD, )

)

Petitioner, )

)

vs. ) CASE NO. 84-0284

)

JOHN R. GARDNER, )

)

Respondent. )

)

RECOMMENDED ORDER

A final hearing was held in this case on April 17, 1984, in Shalimar, Florida. The issue is whether the Construction Industry Licensing Board should discipline respondent John R,. Gardner for allegedly diverting funds received for a specific construction project so as to be unable to fulfill the terms of the construction contract in violation of Section 489.129(1)(h), Florida Statutes (1983) 1/

APPEARANCES

For Petitioner: Douglas A. Shropshire, Esquire

Tallahassee, Florida

For Respondent: Dana C. Matthews, Esquire

Destin, Florida FINDINGS OF FACT 2/

1. Respondent John R. Gardner (Gardner) was licensed as a general contractor by the Construction Industry Licensing Board under License Number CG C0113819, both at the time of the final hearing and throughout 1981.

   
   

2. Sometime in 1980 or 1981, Gardner conceived the idea of a real estate development to be built on 52 acres of land in Jacksonville, Florida. Although Gardner had been a successful licensed general contractor for many years (and had been associated with the construction business even longer), this was his first (and, as it turned out, last) real estate development project.

   
   

3. Gardner obtained the assistance of numerous other persons to assemble a development package. Part of it called for building patio homes in the development. To meet financing requirements, it was decided to form a limited partnership called Belle Rive, Ltd. (BRL). It was also decided to call the development Belle Rive. The general partner in BRL was Centaworld Development Corporation (Centaworld), a corporation in the contracting business of which Gardner was president, principal owner, and sole qualifying agent. Centaworld was to be the actual builder of the development.

4. A model patio home was built, and Barbara Kelly, Centaworld vice- president, was stationed in the model to greet customers and sell the patio homes. In March or April 1981, Sigmund Lowenthal and his wife, a retired couple, visited the model home, were given a tour by Kelly, and discussed the purchase of a patio house. No deal was made.

   
   

5. About one week later, on or about April 9, 1981, the Lowenthals made a second visit. They again met with Kelly. A Purchase Agreement for the construction and purchase of a patio home was signed by the Lowenthals, as buyers, and BRL, as seller, represented by its general partner, Centaworld, by Kelly as vice-president.

   
   

6. At the same time the contract was signed, Lowenthal gave Kelly a check for $6,500 as a deposit on the Purchase Agreement. The check was made payable to BRL and was duly endorsed and cashed by the payee.

   
   

7. The Purchase Agreement expressly provided that the Lowenthals' full

   $6,500 deposit was to be refunded if they did not sell their existing house within 120 days of signing the agreement.

   
   

8. During the next 120 days, several financial and operational disasters culminated in BRL's inability to fulfill the refund terms:

   
   

   1. Around the time Sigmund Lowenthal signed the contract, the prime interest rate stated increasing sharply. The interest rate on the overall multimillion-dollar development loan for BRL was tied by the lender bank to the prime rate. As the prime rate went up, monthly debt service by BRL on the development loan increased beyond BRL's ability to pay said debt service. As a result, the lender required BRL to make a $100,000 payment into an interest- bearing escrow account.

      
      

   2. Centaworld's mortgage lender providing construction and permanent loans began refusing to close loans and pay out the 15 percent retainage until all plumbing was operational. Previously, the lender only required that plumbing lines be run to the lot line. Gardner believes that change was designed to delay the closing beyond the 120-day period within which the lender was obligated to roll the construction loan over into permanent financing at the same interest rate and without any requirement for prepayment of interest.

      
      

   3. BRL then ran into difficulties attempting to complete the sewer lines within the development. To satisfy the private utility company involved, BRL had to reinstall 2,000 feet of sewer line. Rushing to complete the reinstallation in time to salvage the financial stability of the development, Centaworld's subcontractor reinstalled 500 of the 2,000 feet of sewer lines in a way that still was unacceptable to the utility company, sinking BRL.

      
      

      In short, Gardner's first and only venture into development of ray real estate was a financial disaster.

      
      

9. Gardner had expected that the $6,500 to repay Sigmund Lowenthal would be available, if necessary, from normal cash flow of the development. But things had so deteriorated that BRL did not have $6,500 to give to the Lowenthals in the event a refund became necessary. In large part, the Lowenthals' $6,500 was spent on aspects of the development not related to the Lowenthals' patio house, such as landscaping the development to make it attractive to potential buyers.

10. While BRL was beyond hope, Gardner still had a chance to escape BRL with Centaworld and his own finances partially intact. Acting on the advice of his banker, Gardner sold BRL's assets and, he believes, liabilities to Walker- Wind Harbor Partnership on August 7, 1981.

    
    

11. About this time, the 120-day contingency period under the Lowenthal Purchase Agreement ran, and the Lowenthals were not able to sell their house. Lowenthal approached Gardner, who referred him to Walker. Walker agreed to build the Lowenthals' home under the Purchase Agreement, but refused to give them credit for the $6,500 deposit. When Lowenthal returned to Gardner, Gardner told him neither he nor BRL had any money to refund. Harsh words were exchanged, and Lowenthal promised to go to the Construction Industry Licensing Board and other authorities on charges of fraud.

    
    

12. On or about October 1, 1981, BRL and Gardner gave Sigmund Lowenthal a promissory note for the $6,500. By its terms, this note "represents the deposit paid under" the Purchase Agreement, "covers said deposit," and renders the Purchase Agreement "null and void." The purpose of this language was to terminate all BRL's obligations under the Purchase Agreement other than the obligation to return the deposit.

    
    

13. The note was not paid on maturity January 19, 1982, and Gardner sent a letter to Lowenthal and his attorney on March 19, 1982, attaching a signed renewal promissory note dated January 19, 1982.

    
    

14. The renewal note was not paid on maturity July 19, 1982, and Gardner requested another extension because he still could not pay it. Lowenthal sued Gardner on the note and obtained a default $6,500 judgment against Gardner. As of the hearing in this matter, Lowenthal had received no payments at all regarding the $6,500 judgment.

    
    

    CONCLUSIONS OF LAW

    
    

15. Section 489.129(1)(h), Florida Statutes (1983), provides:

    
    

    1. The board may revoke, suspend, or deny the issuance or renewal of the certificate or registration of a contractor and impose an administrative fine not to exceed $5,000, place a contractor on probation, or reprimand or censure a contractor if the contractor, or if the business entity or any general partner, officer, director, trustee, or member of a business entity for which the contractor is a qualifying agent, is found guilty of any of the following acts:

       * * *

       (h) Diversion of funds or property received for prosecution or completion of a specified construction project or operation when as a result of the diversion the contractor is or will be unable to fulfill the terms of his obligation or contract.

       
       

16. The evidence establishes that BRL received the Lowenthals' $6,500 deposit for construction of the Lowenthals' patio home. Nothing in the Purchase Agreement suggests that it was to be used for anything else. BRL deposited the

    money in its general operating account and used it mostly for "sprucing up" the overall Belle Rive development to make it attractive to prospective buyers of lots and homes in the development. Due to the events not within BRL's complete control, the development failed financially and BRL was unable to return the Lowenthals' $6,500 deposit as it was obligated to do under the Purchase Agreement.

    
    

17. Under these facts, the first question is whether Gardner can be disciplined under 489.129(1)(h). During the pertinent part of the sequence of events established by the evidence: (1) Gardner was a certified general contractor engaging in contracting business through Centaworld and was the president, principal owner, and sole qualifying agent of Centaworld; (2) Centaworld was the general partner of BRL; (3) BRL was established to satisfy requirements for financing and was in the business of contracting to construct residences, such as the Lowenthals'; and (4) Centaworld was qualified for and responsible for all construction contracts entered into by BRL.

18. Section 489.105(3)(a), (4), and (5), and 489.119(2), Florida Statutes

(1983), provide:

[489.105]:

1. "Contractor" means the person who is qualified for and responsible for the entire project contracted for and means, except as exempted in this act, the person who, for compensation, undertakes to, submits a bid to, or does himself or by others construct, repair, alter, remodel, add to, subtract from, or improve any building or structure, including related improvements to real estate, for others or for resale to others. Contractors are subdivided into two divisions, Division I, consisting of those contractors defined in paragraphs (a)-(c), and Division II, consisting of those contractors defined in paragraphs (d)-(m):

   1. "General contractor" means a contractor whose services are unlimited as to the type of work which he may do, except as provided in this act.

      * * *

2. "Qualifying agent" means a person who possesses the requisite skill, knowledge, and experience, and has the responsibility, to supervise, direct, manage, and control the contracting activities of the business entity with which he is connected; who has the responsibility to supervise, direct, manage, and control construction activities on a job for which he has obtained the building permit; and whose technical and personal qualifications have been determined by investigation and examination as provided in this act, as attested by the department.

3. "Contracting" means, except as exempted in this act, engaging in business as contractor.

[489.119]:

(2) If the applicant proposes to engage in contracting as a partnership, corporation, business trust, or other legal entity, the applicant shall apply through a qualifying agent; the application shall state the name of the partnership and of its partners, the name of the corporation and of its officers and directors, the name of the business trust and its trustees, or the name of such other legal entity and its members; and the applicant shall furnish evidence of statutory compliance if a fictitious name is used.

Such application shall also show that the qualifying agent is legally qualified to act for the business organization in all matters connected with its contracting business and that he has authority to supervise construction undertaken by such business organization. The registration or certification, when issued upon application of a business organization, shall be in the name of the qualifying agent, and the name of the business organization shall be noted thereon. If there is a change in any information that is required to be stated on the application, the business organization shall, within 10 days after such change occurs, mail the correct information to the department.

Under these statutes, Gardner, acting for BRL, can be disciplined for a violation of 489.129(1)(h).

1. BRL conveyed all its property and assigned all its contracts, including the Lowenthals', to Walker Wind Harbor Partnership on August 7, 1981. But the Lowenthals did not agree to release BRL from liability, and the agreement between BRL and the Walker partnership cannot by itself relieve BRL of its obligations to the Lowenthals. Likewise, the BRL-Walker agreement does not protect Gardner from discipline under 489.129(1)(h).

   
   

2. Finally, BRL's and Gardner's October 19, 1981, promissory note "represents the deposit paid" under the Purchase Agreement between BRL and the Lowenthals, renders the Purchase Agreement "null and void," and "covers said deposit." But for purposes of 489.129(1)(h), the promissory note does not "fulfill the terms of" the Purchase Agreement regardless what its effect might be under the law of contracts. Rather, for purposes of 489.129(1)(h), the promissory note stands in lieu of the Purchase Agreement, and the terms of the Purchase Agreement are not "fulfilled" except by payment of the promissory note.

   
   

3. In accordance with the foregoing, it is concluded that Gardner has subjected himself to discipline under Section 489.129(1)(h), Florida Statutes (1983). He is responsible for the diversion of a large part of the Lowenthals' deposit from the construction of the patio home they had under contract. Had BRL not diverted the money, it (or at least a large part of it) would have been available to fulfill the deposit refund term of the Purchase Agreement.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that the Construction Industry Licensing Board enter a final order imposing the following discipline for respondent John R. Gardner's violation of Section 489.129(1)(h), Florida Statutes (1983):

1. Payment by respondent of a $500 administrative fine within thirty (30) days from entry of final order; and

   
   

2. Indefinite suspension of respondent's license, effective six months from entry of final order with the suspension to be lifted upon respondent's satisfaction of the Lowenthals' judgment.

DONE AND ENTERED this 27th day of June 1984 in Tallahassee, Florida.

J. LAWRENCE JOHNSTON Hearing Officer

Division of Administrative Hearings The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 27th day of June 1984.

ENDNOTES

1/ This is Count Two of the Administrative Complaint. Counts One and Three of the Administrative Complaint were voluntarily dismissed with prejudice and, in any event, were not established by the evidence.

2/ All proposed findings of fact have been considered and, except to the extent reflected in these Findings of Fact, are rejected as either not proved by competent substantial evidence, contrary to facts proved by the other party, or irrelevant.

COPIES FURNISHED:

Douglas A. Shropshire, Esquire Department of Professional Regulation

130 North Monroe Street Tallahassee, Florida 32301

Dana C. Matthews, Esquire

385 Highway 98 East, Suite 10 Destine, Florida 32541

James Linnan, Executive Director Construction Industry Licensing Board Department of Professional Regulation Post Office Box 2

Jacksonville, Florida 32202

Fred M. Roche, Secretary

Department of Professional Regulation

130 North Monroe Street Tallahassee, Florida 32301

Docket for Case No: 84-000284

Orders for Case No: 84-000284