STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF PROFESSIONAL ) REGULATION, DIVISION OF ) REAL ESTATE, )

)

Petitioner, )

)

vs. ) CASE NO. 86-0897

)

MICHAEL LEON THOMAS, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, the above matter was heard before the Division of Administrative Hearings by its duly designated Hearing Officer, Donald R. Alexander, on January 14, 1987, in Fort Lauderdale, Florida.

APPEARANCES

For Petitioner: James H. Gillis, Esquire

Post Office Box 1900 Orlando, Florida 32802

For Respondent: Ross P. Beckerman, Esquire

4601 Sheridan Street, Suite 320

Hollywood, Florida 33021 BACKGROUND

In a lengthy administrative complaint filed on February 11, 1986, petitioner, Department of Professional Regulation, Division of Real Estate, has charged that respondent, Michael Leon Thomas, licensed as a real estate salesman, had violated Subsections 475.25(1)(a) and (b) and 475.42(1)(b), Florida Statutes (1985). 1/ As amended at final hearing, it is generally alleged that in May and July, 1982, one Waler B. Duke, Jr., formerly a licensed broker, and acting as a purchaser-trustee, entered into two contracts to purchase real property in Broward County, Florida for $83,000 and $188,000, respectively; that in October and November, 1982, the transactions closed; that between May and November, 1982, Duke and Thomas, who were partners in a joint venture and land trust, solicited and obtained seventeen investors in the land trust at $10,000 per share to purchase the same two parcels of property; that Duke, on behalf of Thomas, represented to the investors that the price of said parcels was $318,506 (rather than $271,000), that the property was suitable for rezoning (when actually this was untrue without the acquisition of other adjoining property), that the cash needed to close was $133,516 (when actually the cash needed was only $86,000), that Duke and Thomas were to receive only a 6 percent commission on the transactions from the sellers (when in fact Duke and Thomas converted $47,500 of the trust funds to their own use) and that all trust monies were to he placed in a trust account (which they were not). It is

further alleged that after certain investors demanded a return of their monies, including their pro rata share of the converted $47,500, respondents refused to return the same. For this Thomas is charged with violating Subsections 475.25(1)(a) and (b) and 475.42(1)(b), Florida Statutes (1985)(Counts III and VI). All other counts were dismissed.

Respondent disputed the above allegations and requested a formal hearing pursuant to Subsection 120.57(1), Florida Statutes (Supp. 1986). The matter was referred to the Division of Administrative Hearings by petitioner on March 17, 1986, with the request that a Hearing Officer be assigned to conduct a formal hearing. By notice of hearing dated April 16, 1986, the final hearing was scheduled on September 17-19, 1986, in Fort Lauderdale, Florida. At the request of petitioner it was rescheduled to January 14, 1987, at the same location.

Respondent's ore tenus motion at final hearing for a continuance was denied.

At final hearing, petitioner presented the testimony of Kathleen D. Ireland, Joseph De Bellas, H. James Stadelman and respondent and offered petitioner's exhibits 1-4 and 7-10. All were received into evidence.

Respondent testified on his own behalf and presented the testimony of Reginald

1. Mattox.

   
   

   The transcript of hearing was filed on January 30, 1987. Proposed findings of fact and conclusions of law were due no later than February 14, 1987. None were timely filed.

   
   

   The issue is whether respondent's real estate salesman license should be disciplined for the reasons set forth in Counts III and VI of the administrative complaint.

   
   

   Based upon all of the evidence, the following findings of fact are determined:

   
   

   FINDINGS OF FACT

   
   

   1. At all times relevant hereto, respondent, Michael Leon Thomas (Thomas), held real estate salesman license number 00088326 issued by petitioner, Department of Professional Regulation, Division of Real Estate (Division). He has been licensed by petitioner since at least 1981. When the events herein occurred, Thomas was registered as a salesman with Mike Lally Real Estate Company, Inc., a firm in Miami, Florida. Presently, Thomas is associated with Captain Realty, Inc. in Dania, Florida.

      
      

   2. Thomas is a full-time airline captain with a major air carrier. When not flying, he has successfully pursued a second career in real estate investments. On occasion, these endeavors have involved other airline personnel with whom he works. The complaint herein relates too one such investment endeavor involving a retired flight attendant (and her brother) who felt she did not receive all monies due on a $10,000 investment made in 1982.

      
      

   3. The origins of this story go back to the late spring or early summer of 1982 when one Waler B. Duke, Jr. (Duke), also an airline captain and then a business partner of Thomas in a corporation, signed a contract, as trustee, to purchase two small but valuable parcels of property at the corner of I-95 and Stirling Road in Dania, Florida. Thomas, who has an eye for a good investment, had initially spotted the property and, with the foresight of a clairvoyant, realized that after rezoning and certain improvements, the property could be turned over for a handsome profit. According to the contracts received in

      evidence as petitioner's exhibits 3 and 4, Duke, as trustee for a "Florida Limited Partnership to he formed," agreed to pay a total of $271,000 for the two parcels. The closings were to be held that fall, and eventually took place on October 19 and November 23, 1982.

      
      

   4. Like other entrepreneurs, Duke and Thomas needed capital to complete the deal. To acquire such capital, Duke and Thomas contacted various acquaintances who they thought would be interested in making a good return on an investment. One of the persons contacted by Duke was Kathleen Ireland (then Kathleen De Bellas). At that time Ireland was a non-practicing lawyer and an active flight attendant for the same airline for which Thomas worked. However, Ireland and Thomas did not know each other. With other potential investors, Ireland attended a meeting hosted by Duke in September, 1982 explaining the fundamentals of the deal. Thomas was not present at that meeting, and was unaware of the representations made by Duke to Ireland. In addition to Duke's pitch, Ireland received from him an unsigned copy of a trust agreement and various other documents concerning the matter, including a proposal containing a pro forma statement.

      
      

   5. The Duke-Thomas investment was set up in the form of a limited partnership (known as Stirling 95 Land Trust) with Thomas-Duke Enterprises, Inc. (TDI) acting as the general partner, (presumably to shield Duke's and Thomas' personal liability), and the investors assuming the role of limited partners. Each share required an investment of $10,000.

      
      

   6. After she had reviewed the material given to her by Duke, Ireland decided to make an investment, and with her brother Joseph, she committed

      $10,000 to the project, which represented a one-seventeenth interest in the partnership. Ireland thereafter received two copies of the "trustee and joint venture agreement," one of which she signed and returned to Duke. Other investors in the venture included at least one lawyer, an array of airline pilots, and a property manager. In all, Duke and Thomas collected $155,000 in investment capital.

      
      

   7. Just exactly what Duke said to Ireland at the meeting in September, 1982 is not of record since Duke did not testify at final hearing, and the record contains only hearsay declarations concerning these statements. However, paragraph 2.3 of the trustee agreement provided that Duke and Thomas would receive a 6 percent sales commission from the transaction, while the pro forma statement reflected the partnership would acquire the property at a cost basis of $4.00 per square foot, or a total cost of $318,506. This was approximately

      $47,500 more than Duke would actually pay to acquire the property under the two outstanding contracts. It is this latter amount that eventually piqued the curiosity of Ireland, and resulted in her filing a complaint with the Division of Real Estate and a lawsuit against Thomas in Broward County circuit court.

      
      

   8. What Thomas did in this case was no different than his actions on numerous other prior and subsequent deals. Because he had used his expertise in locating the property, and putting together the deal, Thomas "stepped-up" or increased the cost of the property for the limited partnership to $4.00 per square foot in order to realize an entrepreneurial fee for himself and Duke. This was a common practice in limited partnership arrangements. The fee was paid to Thomas and Duke by separate checks, was not labeled as a commission, and was not intended to be one. Indeed, their fee ($47,500) was compensation for their expertise. The only problem was Ireland claimed Duke did not disclose this fee to her prior to her investment, and she now contends she is entitled to one-seventeenth of this amount. But, even if the nondisclosure contention is

      true, Thomas did not authorize Duke to omit this information when he explained the deal to potential investors in September, 1982. As to the investors obtained by Thomas, they are all pleased, and were aware of the markup. In the words of one investor who testified at final hearing, Thomas was entitled to this fee for putting together the deal and allowing small investors like him to participate in such a fine investment. It is noteworthy that of all the investors, only Ireland was dissatisfied.

      
      

   9. After learning of the $47,500, Ireland contacted Thomas and requested an accounting. She told him she was unaware of the fee, and that she needed the true cost of the property to compute her cost basis for tax purposes. 2/ But her real concern was her failure to get a pro rata cut of the entrepreneurial fee. After his explanation did not satisfy her, Thomas asked the trustee's attorney to have an accountant prepare an "explanation and reconciliation" of funds he received from the Stirling 95 Land Trust. An unsigned draft copy of a report was sent to her on February 29, 1984. The accountant who purportedly prepared the report was not at final hearing, and the contents of such report are clearly hearsay and are deemed to be unreliable.

      
      

   10. In 1984, Thomas bowed out of the limited partnership because of Ireland's complaints. The partnership has continued, however, and the property was sold in December, 1985 for $11.00 per square foot, or almost a 200 percent return for the investors. This was a higher return than was forecast in the pro forma statement. When Thomas learned of Ireland's dissatisfaction in 1983 or early 1984, he offered to return her $10,000, as well as the one-seventeenth of the markup on the fee. Not wanting to give up a good return on her investment, Ireland declined the offer and is now pursuing the matter in circuit court.

       
       

       CONCLUSIONS OF LAW

       
       

   11. The Division of Administrative Hearings has jurisdiction of the subject matter and the parties thereto pursuant to Subsection 120.57(1), Florida Statutes (Supp. 1986).

       
       

   12. As amended at final hearing, respondent is charged with fraud, misrepresentation, concealment, false promises, false pretenses, dishonest dealing by trick, scheme or device, culpable negligence and breach of trust in a business transaction in violation of Subsection 475.25(1)(b), Florida Statutes (1985)(Count VI) and with having operated as a real estate salesman for a person not registered as his employer as proscribed by Subsections 475.25(1)(a) and 475.42(1)(b), Florida Statutes (1985)(Count VI). Both charges stem from the Ireland complaint. In more simple terms, the Division is alleging that Thomas received monies ($23,000) from the trust without the consent of its members, and by doing so, committed fraud et al within the meaning of Subsection 475.25(1)(b), Florida Statutes (1985). It is also alleged that this payment of funds came from someone other than his registered real estate broker and therefore violated Subsection 475.42(1)(b), Florida Statutes (1985) which also constitutes a violation of Subsection 475.25(1)(a), Florida Statutes (1985).

       
       

   13. In order to commit fraud, misrepresentation and the host of other statutory violations cited in Subsection 475.25(1)(b), a licensee must have the requisite knowledge and intent that his actions are unlawful and improper. Morris v. Department of Professional Regulation, 474 So2d 841 (Fla. 5th DCA 1985). Here there was no knowledge on the part of Thomas that his partner (Duke) had failed to disclose the entrepreneurial fee to an investor (Ireland) until after the property closings were held. Further, there was no intent on Thomas' part to deceive any investor since he assumed that all investors were

       aware of his fee. Neither did petitioner assert, or prove, that there was some type of agency relationship between the two, so that Duke's actions could be imputed to Thomas. Pinon v. International Harvester Company, 390 So2d 154 (Fla. 3rd DCA 1980). Moreover, even if such a relationship existed, there was no authorization given by Thomas to Duke to make a misrepresentation to Ireland.

       Once he learned of Ireland's dissatisfaction, Thomas promptly offered to refund her investment and pro rata share of the fee, but she declined for her own reasons. Since no intent or knowledge to commit the cited violations have been shown, the charge in Count III should be dismissed. Morris, supra.

       
       

   14. Thomas is also charged with violating Subsection 475.42(1)(b), Florida Statutes (1985), which provides as follows:

(b) No person licensed as a salesman shall operate as a salesman for any person not registered as his employer.

Under petitioner's theory, by having accepted a "commission" on the two closings from one other than his registered broker, Thomas violated the foregoing statute. But this improperly assumes that the entrepreneurial fee was a "commission" on the sales. The more credible and persuasive evidence is that the fee was compensation for Thomas' expertise, and does not fall within the purview of the above statute. Therefore, the charge in Count VI must fail.

RECOMMENDATION

Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that Counts III and VI of the administrative complaint filed

against respondent be DISMISSED, with prejudice.

DONE AND ORDERED this 24th day of February, 1987, in Tallahassee, Leon County, Florida.

DONALD R. ALEXANDER

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 24th day of February, 1987.

ENDNOTES

1/ The complaint also named Walter B. Duke, Jr., Walter B. Duke, III and Pembroke Management, Inc. as respondents. All three voluntarily surrendered their licenses for revocation and were accordingly dismissed as parties to this proceeding.

2/ An accountant could clarify this latter concern, since Ireland's cost basis is exactly what she invested in the partnership -- $10,000. What the partnership paid for the property has nothing to do with her basis for tax purposes.

COPIES FURNISHED:

James H. Gillis, Esquire Post Office Box 1900 Orlando, Florida 32802

Ross P. Beckerman, Esquire 4601 Sheridan Street

Suite 320

Hollywood, Florida 33021

Harold R. Huff, Director Division of Real Estate Post Office Box 1900 Orlando, Florida 32802

Docket for Case No: 86-000897

Orders for Case No: 86-000897