STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF PROFESSIONAL )

REGULATION, DIVISION OF )

REAL ESTATE, )

)

Petitioner, )

)

vs. ) Case No. 85-2914

)

STEVEN R. HALL and J. )

ARNOLD AUSLEY, t/a AUSLEY )

PROPERTIES, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, this cause came on for formal hearing before P. Michael Ruff, duly designated Hearing Officer, on March 11, 1986, in Tallahassee, Florida. The appearances were as follows:

APPEARANCES

For Petitioner: James R. Mitchell, Esquire

Department of Professional Regulation Division of Real Estate

400 West Roberts Street Orlando, Florida 32802

For Respondent: Steven R. Hall, pro se

9140 Gulfside Drive

Jacksonville, Florida 32216

This cause arose upon the filing of an Administrative Complaint on August 20, 1985, whereby the Petitioner, the Department of Professional Regulation, has charged that the Respondent, Mr. Hall, violated subsection 475.25(1)(b), (d) and (k), Florida Statutes and 475.42(1)(b), Florida Statutes, consequently also allegedly violating subsection 475.25(1)(e), Florida Statutes.

In essence it is alleged that Respondent Hall, in arranging a contract between his clients, the buyers, and the seller of a certain piece of real estate, received from the purchasers named in that contract a $2,000 deposit. Instead of placing the deposit with his broker in his broker's escrow account or his own escrow account, it is alleged that the Respondent utilized that deposit for his own benefit without the prior knowledge and consent of the purchasers. Thereafter the purchasers allegedly made demands upon the Respondent for return of the $2,000 deposit which the Respondent failed to honor.

The Respondent disputed the charges and availed himself of his right of Section 120.57(1), Florida Statutes hearing which was convened on the above date. At the hearing the Petitioner called Kishor Patel, J. Arnold Ausley and Charles Johnson as witnesses. Petitioner's exhibits one through seven were received into evidence. The Respondent, Steven R. Hall, testified on his own behalf and Respondent's exhibits one through four were received into evidence. Exhibits five and six offered by Respondent were marked for identification, but not received.

Mr. J. Arnold Ausley was initially named as a Respondent in the complaint. During the course of the proceeding, however, Mr. Ausley elected not to dispute the allegations of material fact and accordingly requested a Section 120.57(2), Florida Statutes informal proceeding. Thus this proceeding, as to Mr.

Ausley only, was dismissed and jurisdiction relinquished to the Petitioner. The parties elected to file Proposed Findings of Fact and Conclusions of Law which have been treated herein and are again ruled upon with specific reference in the appendix attached hereto and incorporated by reference herein.

The issue concerns whether Respondent Hall committed the misconduct alleged concerning the receipt, use and disbursement of the subject $2,000; if so, whether those acts or omissions constituted violation of the statutory authority he is charged with violating and what, if any, penalty is warranted.

FINDINGS OF FACT

1. The Respondent, Steven Hall, at all times pertinent hereto, was a licensed real estate salesman and broker. Upon February 15, 1984, he became licensed as a broker. The Respondent was registered with and employed by J. Arnold Ausley Realty from March 31, 1983 to February 15, 1984. J. Arnold

   Ausley was a licensed real estate broker and operated as Ausley Properties during times pertinent hereto.

   
   

2. The Petitioner is an agency of the State of Florida charged with regulating the licensure and practice of realtors in the State of Florida and enforcing the practice standards for realtors embodied in Chapter 475, Florida Statutes.

   
   

3. On February 4, 1984, the Respondent, in his capacity as a licensed salesman for Ausley Properties, arranged a contract between Champak Bhoja and Kishor Patel, as purchasers of a certain piece of real estate owned by one John D. Gilbert. In connection with that contract the Respondent obtained a $2,000 check as a deposit from Mr. Patel. At Mr. Patel's request the Respondent held this check without negotiating it awaiting Patel's instruction that sufficient funds were on deposit to honor the check. The Respondent waited four weeks and received no such instructions from Mr. Patel. The Respondent therefore contacted Patel, who was in Nebraska at the time, to tell him that he felt legally obligated to deposit the check. The check was deposited and was returned for insufficient funds.

   
   

4. On March 19, 1984, Mr. Patel gave the Respondent a replacement check in the amount of $2,000. Mr. Hall asked Mr. Patel to make the check out to him since he had in the meantime become a broker and wanted credit for this transaction in his own business. He also informed Mr. Patel that he would need to use the money for his own personal expenses, in the nature of a "loan." Mr. Patel, however, made the check out to the "Ausley Properties Escrow Account." The Respondent and Mr. Patel had been involved in other business ventures together during the course of which Mr. Patel had already lent the Respondent, on different occasions, a total of approximately $4,000. This course of dealing was continued in the present instance, from the Respondent's viewpoint, when the Respondent informed Mr. Patel that he needed the $2,000 for personal expense purposes and would pay it back as a loan. He believed Mr. Patel assented to that arrangement at the time.

   
   

5. The sales contract at issue ultimately failed to be consummated due to Mr. Pate1 and Mr. Bhoja not meeting the required contingency regarding debt financing. Approximately fifteen days after the contract's closing date passed, Mr. Patel made a demand upon the Respondent for the return of the $2,000 deposit. The Respondent failed to return it at that time but assured Mr. Patel that he would repay the money and needed more time to obtain the necessary funds.

   
   

6. The Respondent had not deposited the check in the Ausley Properties Escrow Account because such an account did not exist, although the Respondent had urged Mr. Ausley on a number of occasions to set up such an account. The Respondent rather cashed the $2,000 check and used the proceeds for his own benefit, as he had informed Patel he would do. He used the money to meet certain operating expenses and personal expenses, being in severe financial straits at the time. Pate1 knew he was experiencing financial difficulties and had lent him the previously mentioned $4,000 to help him with operating expenses and personal expenses during the pendency of the closing of their various other real estate ventures.

   
   

7. The Respondent informed Patel he would use the subject

   $2,000 for similar purposes, however, the record does not clearly reflect that Patel consented to this, as opposed to his intent that the money be placed in an account as his deposit of consideration for the contract. His testimony to this latter effect is borne out by the fact that in spite of the Respondent's request that the check be made out to him personally, instead Patel made it out to the "Ausley Properties Escrow Account." That account did not exist but the method of drafting the check reveals his intent that the money was to be used as a deposit.

   
   

8. In any event the Respondent made no misrepresentation to Mr. Patel as to what he intended to do with the money, but at the same time he did not deposit it in an appropriate account to be held as a deposit toward the purchase of the property involved in the sales contract. Patel made numerous demands for the money and each time Respondent acknowledged this and the other debt to Patel and promised to pay. He ultimately began paying back a small portion of the indebtedness to each of his creditors starting out at a rate of $10 per month. Ultimately, the Respondent paid the entire $2,000 predicated on receipt of his 1985 income tax return.

   
   

   CONCLUSIONS OF LAW

   
   

9. The Division of Administrative Hearings has jurisdiction over the parties to and the gubject matter of this proceeding. Section 120.57(1), Florida Statutes (1985).

   
   

10. Section 475.25(1), Florida Statutes, authorizes the Petitioner to suspend a license for a period not exceeding ten years, revoke a license or impose an administrative fine not

    exceeding $1,000 for each count or separate offense, issue a reprimand, or any of the foregoing, if it finds that licensee has:

    
    

    (b) ". . . been guilty of fraud, misrepresentation, concealment, false promises, false pretenses, dishonest dealing by trick, scheme or device, culpable negligence, or breach of trust in a business transaction

    
    

    * * *

    
    

    1. has failed to account or deliver to any person...at the time which has been agreed upon or is required by law, or in the absence of a fixed time, upon demand of the person entitled to such accounting,...any personal property such as money...deposit...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...

       
       

    2. has violated any of the provisions of this Chapter...

    * * *

    
    

    (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 and 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 and loan association located and doing business in this State, wherein the funds shall be kept until disbursement thereof is properly authorized, or has failed, if a salesman, to immediately place with his registered employer any money, fund deposit, check or draft entrusted to him by any person dealing with him as agent of his registered employer."

    
    

11. The above findings of fact and the underlying evidence of record demonstrate that the Respondent informed Mr. Pate1 that he intended to make personal use of the $2,000 sum obtained from Mr. Patel as a deposit on the pertinent sales contract. This was in accordance with the previous course of dealing between the Respondent and Patel involving Patel lending the Respondent various sums of money at different times. Pate1 acknowledged this prior course of dealing which corroborates Respondent's testimony in establishing that indeed the Respondent informed Patel of the personal use he intended to make of the subject $2,000 as well. It therefore cannot be concluded that the Respondent dishonestly or fraudulently represented his intended disposition of the $2,000. It was simply not established that in the obtaining and disposing of the $2,000 deposit that the Respondent made any representation that he knew to be false. He candidly informed Patel that he intended to make personal use of the funds because of his dire financial situation, at the same time assuring Pate1 he would repay him. A key element in establishing fraudulent or deceitful conduct is the element of intent and knowledge of falsity of any promise or misrepresentation made during the commission of any fraudulent act. The intent of the alleged perpetrator of a fraud is a key element in proving fraudulent or deceitful acts and such intent has not been proven in this case. Although the Respondent did misuse the funds, he did not obtain them nor dispose of them in a fraudulent, false or deceitful

    manner. A fraudulent misrepresentation must be one made with the representor's knowledge of the falsity and with his purpose being to deceive

    the representee. See Mizell v. Upchurch, 46 Florida 443, 35 So.9, (1903); Tampa Farm Service, Inc. v. Cargill, Inc., 356 So. 2nd 347 (Fla. 2nd DCA, 1978); Hamlen v. Fairchild Industries, Inc., (Fla. 1st DCA, 1982) 413 So. 2nd 800; and Shee-Con, Inc. v. Al Seim Appraisal Service, Inc., 427 So. 2nd 311 (Fla. 5th DCA, 1983).

12. It is true however that Mr. Patel, for his part, intended that the money may be placed on deposit in an escrow account for disbursement at closing of the real property transaction involved. This intent by Mr. Pate1 is borne out by his testimony at hearing corroborated by the fact that, in spite of the Respondent's request that he make the check out personally to the Respondent, the check was made out by Patel to the Ausley Properties Escrow Account. It is irrelevant that an Ausley Properties Escrow Account did not exist at the time. The fact remains that the payee of the check depicted on its face shows that it was intended to be a deposit and that the buyer, Mr. Patel, did not intend it to be a personal loan to the Respondent in spite of any belief the Respondent had to that effect. The buyer thus entrusted these funds to the Respondent to be a deposit in support of his purchase of the subject property and the Respondent should have known the funds were entrusted to him for that purpose because even the second $2,000 check rendered by Mr. Patel indicated on its face that it was payable to an escrow account. The Respondent's use for his own purposes of this money, although it did not constitute fraudulent conduct for the reasons delineated above, did constitute breach of trust in a business transaction and culpable negligence and to that extent the Respondent has violated subsection (l)(b), quoted above.

    
    

13. It has also been established that the Respondent, by virtue of his personal use of these funds, which the payor of the funds intended to be an escrowed deposit, has failed to account for or deliver the funds to that person entitled to the funds upon demand. This is so because the funds were not repaid to Mr. Patel when the transaction failed to close and Mr. Patel became legally entitled to return of the $2,000 deposit. Inasmuch as Respondent was a licensed broker at the time he received the second $2,000 check he wrongfully failed to place those funds in his escrow account. This is wholly aside from the fact that the Respondent should have deposited the first check received with his employing broker's escrow account which was before the Respondent became a licensed broker. He should have arranged for such an escrow even though his broker did not maintain such an account. The Hearing Officer understands, however, that the buyer informed the Respondent that the $2,000 check would not be valid for a short period of time in that the funds to cover it were not on deposit. Thus the delay in deposit of the first-check has been sufficiently explained. In any event, the fact remains clearly established, that the Respondent failed to deposit the second $2,000 check in an appropriate escrow account pending resolution of the transaction

    between Patel and the seller. Thus he has violated subsections (l)(d), (e) and (k) quoted above.

    
    

14. The Respondent has also been charged with violating subsection 475.42(1)(b), Florida Statutes in that he is alleged to have operated as a broker while licensed as a salesman or operated as a salesman for a person not registered as his employing broker. Subsequent to the hearing, however, the Petitioner elected to dismiss this charge in that the Respondent was licensed as a broker himself when the subject events occurred. This charge has thus not been proven and should be dismissed.

    
    

15. The burden of proof in this case lies with the Petitioner and since this action is penal in nature involving the possible suspension or revocation of the Respondent's license that burden of proof must be sustained by clear and convincing evidence. Balino v. Department of Health and Rehabilitative Services, 348 So. 2nd 349 (Era. 1st DCA, 1977); State Ex Rel Vining v. Florida Real Estate Commission, 281 So. 2nd 165 (Florida 1973). In a proceeding which may result in loss of a valuable professional license "the critical matters in issue must be shown by evidence which is indubitably as 'substantial'

    as the consequences." Bowling v. Department of Insurance, 394 So. 2nd 165 (Fla. 1st DCA, 1981). In the particulars delineated above the Petitioner has sustained that burden, but has not sustained its burden regarding the proof of fraudulent, dishonest and false conduct or representations referenced in subsection(l)(b), quoted above.

    
    

16. The Respondent has not been the subject of disciplinary action before this instance in his tenure as a licensed realtor. The Hearing Officer is impressed with the candor and underlying honest character exhibited by the Respondent. The Respondent was in a dire financial circumstance at the time he used the funds for his own purposes. It is noteworthy that the Respondent, in an effort to honestly explain his precarious situation to Mr. Patel, the buyer, openly revealed to him that he would use the funds for his personal use, but would repay them in a short period of-time when he became able to do so. This rather unusual and negligent course of conduct for a realtor situated as the Respondent is more easily understood in view of the fact that the Respondent and Mr. Patel had had a prior course of dealing involving Pate1 lending the Respondent money related to their other real estate ventures. Although the Respondent violated the other legal

    provisions set forth above by failing to properly account and deliver the money in a timely fashion, when Mr. Patel became entitled to have it returned, and by his failing to properly escrow and account for the funds it is also noteworthy that the Respondent always openly acknowledged that he should return the money and did not do so because of financial inability, rather than any design on his part to permanently convert the funds to his own use.

    
    

17. The Hearing Officer is impressed by the Respondent's obvious remorse and contrition concerning this episode and considering the totality of the evidence of record and the above findings of fact concludes that the severe penalty of a lengthy Suspension or revocation is clearly not warranted in this case. Pearl v. Florida Board of Real Estate, 394 So 2d 189 at 192 (Fla. 3rd DCA 1981).

RECOMMENDATION

Having considered the foregoing findings of fact, conclusions of law, the evidence of record and the candor and demeanor of the witnesses, it is therefore

RECOMMENDED that a final order be entered by the Petitioner finding that the Respondent has violated Section 475.25(1)(b),(d,)(e) and (k) only to the extent delineated in the above conclusions of law and that his real estate broker's license be subjected to a six months suspension.

DONE and ORDERED this 1st day of August, 1986 in Tallahassee, Florida.

P. MICHAEL RUFF, Hearing Officer Division of Administrative Hearings The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32399

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 1st day of August, 1986.

COPIES FURNISHED:

James R. Mitchell, Esquire Division of Real Estate Post Office Box 1900 Orlando, Florida 32802

Steven R. Hall

8880 Old Kings Hwy., Apt. 30-W Jacksonville, Florida 32217

Michael Sheahan, Esquire Two South Orange Avenue Orlando, Florida 32801

Fred Roche, Secretary Department of Professional

Regulation

130 North Monroe Street Tallahassee, Florida 32301

Wings Slocum Benton, Esquire General Counsel

Department of Professional Regulation

130 North Monroe Street Tallahassee, Florida 32301

Mr. Harold Huff Executive Director

Florida Rea1 Estate Commission

400 W. Robinson Street

P. O. Box 1900 Orlando, Florida 32802

APPENDIX

Petitioner's Proposed Findings of Fact:

1. Accepted

2. Accepted

3. Accepted

4. Accepted

5. Accepted

6. Accepted

7. Rejected, although the evidence establishes that Patel intended the funds to be escrowed.

8. Accepted

9. Accepted

10. Accepted

11. Accepted

12. Accepted

13. Accepted

14. Accepted

15. Rejected as not comporting with the charges in the Administrative Complaint.

Respondent's Proposed Findings of Fact:*

1. Accepted

2. Accepted

3. Accepted

4. Accepted

5. Accepted, but irrelevant to the charges.

6. Accepted

7. Accepted

8. Accepted as to the first sentence only. The second

   sentence concerning Patel's response is not clearly supported by record evidence.

9. Accepted

10. Accepted

11. Accepted

* Although Respondent is proposed findings are accepted, some are inculpatory, some are not material and some support the conclusion that no fraudulent conduct was committed.

Docket for Case No: 85-002914

Orders for Case No: 85-002914