STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
DEPARTMENT OF PROFESSIONAL ) REGULATION, FLORIDA REAL )
ESTATE COMMISSION, )
)
Petitioner, )
)
vs. ) CASE NO. 87-0228
)
KEITH ELLIS, )
)
Respondent. )
)
RECOMMENDED ORDER
Pursuant to notice this cause came on for formal hearing before P. Michael Ruff, duly designated Hearing Officer, on June 29, 1987, in Pensacola, Florida. The appearances were as follows:
APPEARANCES
For Respondent: Danny L. Kepner, Esquire
SHELL, FLEMING, DAVIS & MENGE
Seventh Floor, Seville Tower Post Office Box 1831 Pensacola, Florida 32598
For Petitioner: Arthur R. Shell, Jr., Esquire
Senior Attorney Division of Real Estate
400 West Robinson Post Office Box 1900
Orlando, Florida 32801
This cause arose upon an administrative complaint filed by the Petitioner, wherein it is alleged that the Respondent is guilty of 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 alleged violation of Subsection 475.25(1)(b), Florida Statutes. The Respondent allegedly agreed to pay one Robert Tegenkamp a $25,000 profit upon a $25,000 investment by him in a single-family, residential, subdivision development, consisting of eight lots, of which the Respondent was the initiating developer and lot purchaser. After obtaining the $25,000 investment from Mr. Tegenkamp in his real estate development scheme, the Respondent allegedly failed to repay that $25,000 investment and the $25,000 profit promised thereon. He is also reputed to have conveyed to certain third parties a lot in which the investor had been given a "security interest." Based upon that conveyance and the alleged failure to repay the subject funds, the Respondent has been charged with the various elements of misconduct referenced above.
The cause came on for hearing as noticed. At the hearing, the Petitioner presented three exhibits which were admitted into evidence and the Respondent presented Exhibits A-G which were admitted into evidence. The Petitioner presented five witnesses and the Respondent presented his own testimony. At the conclusion of the proceedings, the parties requested a month in which to submit proposed findings of fact and conclusions of law. Near the end of that extended briefing schedule, the transcript being delayed, the parties requested additional time to submit proposed findings of fact and conclusions of law, which was granted. Ultimately, only the Respondent submitted proposed findings of fact and conclusions of law, which have been addressed herein and are treated once again in the appendix attached and incorporated by reference herein. The requirements of Rule 28-5.402, Florida Administrative Code, were waived.
The issue to be resolved in this proceeding concerns whether the Respondent committed the conduct alleged in the factual allegations of the administrative complaint and, if so, whether that constitutes the violations of Section 475.25(1)(b), Florida Statutes, charged in the complaint.
FINDINGS OF FACT
The Petitioner is an agency of the State of Florida charged with enforcing the licensure and real estate brokerage and sales practice standards embodied in Chapter 475, Florida Statutes. The Respondent is a licensed real estate broker, licensed under that chapter.
The Respondent, Keith Ellis, while engaged in the business of real estate development, entered into a contract whereby he would purchase a parcel of land adjacent to U.S. Highway 90, the "Scenic Highway," in Pensacola, Florida. That agreement was entered into in February, 1985, with the Respondent's purpose being to commence development of the property, consisting of eight residential lots, into a single-family residential subdivision.
Mr. Ellis, in embarking upon his development plan, after entering into the contract for purchase of the subject lots, found that he lacked capital necessary to finance construction of certain infrastructure for the subdivision. He sought additional funding and ultimately was referred to Robert Tegenkamp as a potential investor. He entered into discussions with Mr. Tegenkamp and ultimately the two agreed that Tegenkamp would invest $25,000 in the project.
In return, as consideration, Mr. Ellis agreed to repay the $25,000 investment to Tegenkamp within six months. He also agreed to pay Tegenkamp a $25,000 profit within twelve months. He prepared a written agreement to that effect, executed March 1, 1985. The Respondent also proposed to give Mr. Tegenkamp an option on one lot, Lot Number 8, in the planned subdivision, as further consideration for Tegenkamp investing the necessary capital. This option was executed February 28, 1985.
The subdivision totaled eight lots, all of equal value, as established by the opinion of the Respondent himself, who is experienced in appraising real estate, and by M. Eugene Presley, a licensed M.A.I. appraiser. It was the intent of both Ellis and Tegenkamp, at the time of the signing of the agreement, that Ellis would seek to sell all the eight lots, including the lot on which Tegenkamp held an option. Both those parties also understood that Tegenkamp could not be repaid unless the lots were sold. Tegenkamp had no desire to take title to any lot in the subdivision and understood from the outset that he would be entitled to Lot 8, (or any lot), only if Ellis was otherwise unable to repay him. The Respondent arbitrarily chose to indicate Lot 8 on the option contract, but Tegenkamp had no special desire to acquire any interest in that particular
lot. The true intent of the parties was simply that Tegenkamp have an option on a lot in the subdivision to secure him, in the event the debt was not repaid by Ellis. In view of the fact that the value of each lot was identical, it did not matter to Tegenkamp on which lot he had an "option," or other form of security interest. He never expected to get title to a lot and was never told that he would, by the Respondent or any other person. The Respondent has always acknowledged that he owes the money in question to Mr. Tegenkamp and that he was obligated under the "option" to convey one of the lots to Tegenkamp, if he could not repay him.
Ellis borrowed the funds for acquisition of the property, and for coverage of most development costs, from the First National Bank of Escambia County. Before the agreements between Ellis and Tegenkamp were signed, he told Mr. Tegenkamp, who also did his banking business at the same bank, of the bank's involvement in financing the project. The Respondent suggested that Tegenkamp contact the loan officers involved to reveal his interest in the project. This Tegenkamp failed to do, nor did he ever record his option agreement. Consequently, the bank acquired a first priority lien on the eight lots by the execution and recording of the mortgage from Ellis to the bank, for financing the purchase, installation of the infrastructure and payment of other development costs.
When Mr. Ellis obtained the $25,000 capital from Mr. Tegenkamp, he proceeded with his development plans. He negotiated a sale of all the lots in the subdivision to Ray Lemon, a general contractor. On May 10, 1985, he entered into a written sales contract with Mr. Lemon as to all eight lots. This contract required Ellis to proceed to complete all improvements, such as paving and drainage provisions, as well as to obtain approval of the plat of the subdivision by the City of Pensacola. Mr. Ellis informed Mr. Tegenkamp of this agreement with Mr. Lemon. Thereafter, on May 28, 1985, Mr. Ellis closed the loan with First National Bank of Escambia County, giving that bank a first priority mortgage lien on the entire subdivision. Shortly thereafter, the plat of the subdivision was accepted by the City of Pensacola.
Most of the improvements installed by Ellis were complete by late July, 1985. Mr. Lemon then indicated to Ellis that he was having financial difficulties and needed to delay the closing of his purchase of the eight lots. If Lemon had been able to complete his planned purchase of all eight lots on time, Mr. Ellis could have paid Tegenkamp the agreed upon $50,000 and still netted about $10,000 profit himself. In any event, shortly after Ellis learned of the delayed Lemon closing, he was approached by Dr. and Mrs. Tousignant, who were interested in purchasing Lots 7 and 8. Dr. Tousignant owned a neighboring parcel of property and wanted to preserve his view of Escambia Bay by acquiring ownership of Lots 7 and 8. The Respondent obtained Mr. Lemon's approval to sell Lots 7 and 8 to the Tousignants and also informed Mr. Tegenkamp of the proposed sale to the Dr. and his wife, as Mr. Tegenkamp himself admitted.
Mr. Tegenkamp approved of Ellis selling the lots in question, and on August 25, 1985, Ellis entered into a written agreement to sell Lots 7 and 8 to the Tousignants. The sale was closed on September 17, 1985, but did not produce enough money for Ellis to pay off Tegenkamp. Tegenkamp had not demanded payment at this time anyway and the final time limit for repayment had not elapsed.
Thereafter, Ray Lemon encountered more financial problems and for several months was unable to close the planned purchase of the remaining six lots. Eventually, Lots 3, 4, 5 and 6 were sold to Ray Lemon and K. C. Hembree. These closings took place between January and March, 1986. The sales did not
produce enough funds to pay off Tegenkamp because of development expenses which had to be covered, mortgage release amounts and interest attributable to each lot, which had to be paid to the bank holding the first mortgage.
The Respondent thus retained ownership of only Lots 1 and 2 by the end of March, 1986. His ownership of these two lots was subject to the first mortgage to the bank, the principal balance of which remained at approximately
$20,600. That mortgage was subsequently assigned to Ray Lemon who had payed off the bank. Lemon now holds that mortgage. The Respondent has attempted, without success, to sell the remaining two lots. Because of economic conditions prevailing, the value of each of the two remaining lots declined from an estimated $59,000 in March, 1985, to about $50,000 by April, 1986.
Because Ellis did not timely pay the $25,000 required by the original agreement, Mr. Tegenkamp retained an attorney to represent him in seeking repayment. Attorney Miles Davis entered into various discussions with Ellis from November, 1985 through April, 1986. In December, 1985, Ellis had proposed to Davis that he deliver to Tegenkamp a quit claim deed conveying his interest in Lot 1 to Tegenkamp. Ellis could not give a warranty deed because title was then encumbered by the above-mentioned mortgage held by Lemon, as assignee of the bank, and because of a potential claim of lien by the paving contractor for
$7,000 to $8,000. The contractor since failed to pursue and perfect his claim of lien. In February, 1986, Attorney Davis wrote to Ellis expressing a willingness to accept a quit claim deed on behalf of Tegenkamp.
In April, 1986, Ellis delivered the quit claim deed to Davis, conveying his interest in Lot 1 to Tegenkamp. It was recorded in the public records of Escambia County. Davis then filed a civil suit against Ellis in May, 1986, on behalf of Tegenkamp. The parties since arrived at a settlement of that litigation whereby Tegenkamp is to receive approximately $25,000 and Lot 1 will be re-conveyed to Ellis.
Tegenkamp's attorney, Miles Davis, testified that Ellis never denied owing the money to his client and every indication was that the Respondent was trying to sell the property as soon as possible to pay his obligation to Tegenkamp. Mr. Tegenkamp himself testified and acknowledged that the Respondent was not trying to take advantage of him, but was simply "someone who had gotten himself into a bad deal."
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction of the subject matter of and the parties to this proceeding. Section 120.57(1), Florida Statutes.
The Petitioner has alleged that the Respondent committed acts constituting 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 Section 475.25(1)(b), Florida Statutes.
Four of the offenses with which the Respondent is charged, require an inquiry into the state of the Respondent's mind or his intent at the outset of his dealings with Mr. Tegenkamp. Fraud, misrepresentation, false promises and false pretenses all focus attention on the intent of the offending party at the beginning of a relationship with a person who is allegedly victimized. Fraud and misrepresentation require a false statement concerning a material fact,
which the representor knew or should have known was false, with the intention, and effect, of inducing the other party or promisee to act to his detriment.
See Board of Public Instruction v. Everett W. Martin & Son, Inc., 97 So.2d 21 (Fla. 1957); Biscayne Boulevard Properties, Inc. v. Graham, 65 So.2d 858 (Fla. 1953); Byer v. Florida Real Estate Commission, 380 So.2d 511 (Fla. 3rd DCA 1980).
The offense of false promise and false pretense carries the same connotation of intent to defraud by falsehood on the part of the offender. A promise that is merely unfulfilled, however, is not necessarily a false promise which would justify disciplinary action against the real estate broker who makes it. See Brod v. Jernigan, 188 So.2d 575, 579 (Fla. 2d DCA 1966); Stoler v. Metropolitan Life Insurance Co., 287 So.2d 694 (Fla. 3rd DCA 1974); Byer v. Florida Real Estate Commission, supra. Scienter is part of the offense, meaning that there must be guilty knowledge or intent to defraud or mislead at the time the promise is made and contemporaneous with it. Brod, supra.
In the case at hand, the Respondent made no false representations of fact to Tegenkamp to induce him to invest his $25,000. Thus, neither fraud nor misrepresentation was present at the inception of the parties dealings with each other. Although it might be argued that Ellis represented that Lot Number 8 would eventually belong to Tegenkamp, there is no question, in view of the record evidence and the above findings of fact, that Tegenkamp knew that Ellis intended to sell all eight lots in the subdivision, including Lot Number 8. Mr. Tegenkamp never wanted ownership of any of the lots, he just wanted to be paid. Ellis had six months to repay the original investment, even if he had sold Lot 8 in the first month. It was understood from the beginning by Tegenkamp and the Respondent that Lot 8 and the other seven lots were to be sold to third party purchasers. The only interest Tegenkamp had in the lot was a sort of security interest to secure the repayment of his invested funds and the profit promised to him which, in any event, was subordinate to the bank's first mortgage on the property.
There was a broken promise: the $25,000 was not repaid within six months and a second broken promise, since the $25,000 promised "profit" was not repaid at the end of a year. The third unfulfilled promise consisted of the fact that Lot 8 was no longer available for Ellis to transfer to Tegenkamp when payment of the two $25,000 installments became due and past due. There is no evidence, concerning the first two broken promises, that Ellis intended, from the inception of their dealing, to take Tegenkamp's money and refuse to repay him as obligated. The development project, as found above, encountered financial and other difficulties. Although Ellis did not manage to repay the money timely and may not have properly managed his financial dealings, his failure to repay the money was not premeditated or intended at the time he first entered into his agreement with Tegenkamp and promised to repay the money invested, plus the $25,000 profit.
The third broken promise mentioned above does not constitute a false pretense or promise either, because no evidence establishes that Ellis ever intended to deprive the investor of his security. It just happened that, by sheer circumstance, Lot 8 was desirable to the Tousignants. There is no evidence that Ellis had any prior dealings or plans concerning them before his dealing with Tegenkamp, and the Tousignants' realtor, Bernice McKeen, never brought those parties together until August, 1985. Moreover the evidence clearly establishes that each of the eight lots had essentially the same value and the interchanging of Lot 1 for Lot 8 as security for Tegenkamp's funds, does not constitute a material change in the Ellis-Tegenkamp arrangement to
Tegenkamp's detriment, particularly since Tegenkamp never had any desire to own any of the lots. Finally, the fact that Lot 1, which Ellis ultimately deeded to Tegenkamp, was encumbered by the construction loan and real estate purchase mortgage as a first priority lien, is without legal consequence in view of two undisputed facts. First, it is without controversy that, had Tegenkamp recorded his "option" contract or notified the bank involved that he claimed an interest in Lot 8, the bank would have required him to subordinate his interest to its first mortgage, otherwise it would not have lent Ellis the money and the deal between the two would never have been consummated at all. Thus, Tegenkamp would have been no better off than he was when Ellis quitclaimed Lot 1 to him in April, 1986. Secondly, Ellis had not been able to sell the last two lots, from which the profit was to be obtained. Ellis made continuous, but futile efforts to sell the two lots and his failure in that regard cannot be attributed to some devious or nefarious intent at the outset of his dealings with Tegenkamp. Thus, there has been established no basis in law or fact to find the Respondent guilty of any fraud, misrepresentation, false promises or false pretenses.
Concerning the issue of "concealment," the Petitioner maintains that the Respondent concealed from Tegenkamp the fact that he had sold Lot 8. Mr. Tegenkamp admitted, however, in his testimony, that Mr. Ellis had reported to him that he had a purchaser for the lot and Tegenkamp was pleased. He did not object to the sale and did not demand payment of any of his money upon closing. He never instructed Ellis not to sell the lot. There was, thus, no "concealment" as the statute contemplates. It requires nothing more of a real estate broker than an honest, open and fair relationship with his client, such as is normally expected of any businessman of sound integrity. Rivard v. McCoy,
212 So.2d 672, 674 (Fla. 1st DCA 1968). In fact, Ellis was performing exactly as Tegenkamp expected he would, that is, to use his best efforts to sell the lots in question. There simply was no proof of any concealment.
Concerning the issue of "dishonest dealing" a like conclusion must be reached. Based upon the above findings of fact and the evidence of record and for similar reasons as concluded regarding the offenses mentioned above, there has been shown to be no basis for concluding that Ellis was dishonest in any of his dealings with Tegenkamp nor that he was involved in any manner of trick, scheme or device designed to cheat Tegenkamp out of his money. Tegenkamp himself admitted that he did not think Ellis was trying to take advantage of him; he just "got himself into a bad deal." In summary, all of the offenses mentioned in these conclusions of law thus far have not been proven in light of the fact that there is no proof that Ellis had any dishonest, fraudulent motives in inducing Tegenkamp to invest his money and in promising the repayment of it, plus the profit.
"Culpable negligence" has been defined in Section 782.07, Florida Statutes, the provision defining the elements of the crime of manslaughter:
"There is nothing mystical about culpability. It comprehends blame, censure or some aspect of erratic conduct... [O]ne's conduct must reveal a reckless disregard or indifference for the life, safety or rights of those exposed to its effects, or it must show an indifference to consequences regardless of who is affected." Fulton v. State, 108 So.2d 473, 475 (Fla. 1959).
In the case at bar, the Respondent was not shown to have conducted himself recklessly, or indifferently concerning the rights of the investor. In fact, he acted throughout the relationship with Tegenkamp with an eye toward his obligation to that investor and ultimately settled matters with him. Although Tegenkamp filed suit against the Respondent, the fact remains that the Respondent voluntarily entered into a settlement favorable to Tegenkamp. It has not been shown that he behaved in any sufficiently nefarious manner to justify censure and which amounted to "culpable negligence." At most, it has been shown that the Respondent exercised flawed judgment. It has not been demonstrated that he disregarded or was recklessly indifferent to the rights of Mr.
Tegenkamp. See Glaab vs. Caudill, 236 So.2d 180 (Fla. 2nd DCA 1970) and Carraway vs. Revell, 116 So.2d 16 (Fla. 1959), conformed to 123 So.2d 400 (Fla.
1st DCA 1959).
Concerning the issue of "breach of trust," although it might be argued that Ellis received the $25,000 from Tegenkamp in trust, in the capacity of a real estate broker, and failed to return the funds on a timely basis, the facts here do not fit that scenario. In fact, the Petitioner has not charged the Respondent with the offense involving the receipt by a broker of funds in a trust capacity, which offense is treated at Section 475.25(1)(d) and (k). Rather, the Respondent is charged more generally with the offense of "breach of trust in a business transaction." In fact, there is no clear and convincing evidence of record which reveals that he received any funds in trust, but rather, he received Tegenkamp's money as a fellow entrepreneur, hoping, along with his investor, to use that initial capital to make a profit for both. Although the option contract concerning Lot 8 refers to the Respondent as "broker," the actual context and circumstances of that arrangement do not establish an actual or constructive trust relationship.
The totality of the evidence reveals that the relationship between Tegenkamp and the Respondent was really one of entrepreneur and investor or co- investor and that, although that option contract might refer to the Respondent as a broker, the relationship between the two individuals was not one of real estate broker and client. Obviously, the Respondent was not selling Lot 8 to Tegenkamp, nor was he representing Tegenkamp as the seller of the lot to someone else or as purchaser. Tegenkamp clearly never contemplated in his own mind that he would ever have any sort of ownership interest in that lot. This was an investment arrangement between the two gentlemen and never a real estate broker- client arrangement. There has been no showing that the Respondent received any funds in his fiduciary capacity as a real estate broker. Even had a non- substantive, technical violation of the statute occurred, there was no dishonest or unscrupulous conduct involved which deserves punishment. See Rivard v. McCoy, supra.
Further, although it might be argued that when the lots were sold, Ellis should have taken the proceeds of the sales into trust to insure payment of his obligation to Tegenkamp, there is no basis in law or fact for imposing that obligation on him. He had a duty to act in good faith toward Tegenkamp as his investor, but there is no ground for making him a fiduciary as to the proceeds of the lot sales. The law does not impose on a real estate broker some extraordinary fiduciary duty in an investment or business transaction situation, simply because he happens to be also a real estate broker. Here, he was an entrepreneur or co-investor along with Tegenkamp in an investment deal, he was not functioning as Tegenkamp's broker or the seller's broker in a real estate sale and purchase transaction.
In fact, the broker here, the Respondent, was the purchaser of the real estate involved; he simply was not functioning in his representative, fiduciary capacity. For example, when a broker borrows money from a bank on a mortgage loan, he does not thereby become a trustee for the bank as to those funds, or as to the mortgaged property. He has a contractual obligation to the bank to repay the funds with interest, as any mortgagor does, but he is not a fiduciary for those funds merely because he happens to be a real estate broker. That same analysis applies to the situation at bar and it has not been established that Ellis acted in any fiduciary capacity as to the proceeds of these sales and cannot be guilty of "breach of trust in a business transaction."
The Second District Court of Appeal has provided guidance as to the manner in which Chapter 475 was intended to be used in the discipline of real estate brokers:
"It should be aimed at the dishonest and unscrupulous operator, one who cheats, swindles or defrauds the general public in handling real estate transactions." Florida Real Estate Commission v. McGregor, 254 So.2d 566, 568 (Fla. 2nd DCA 1971)
It must be concluded, in view of the above findings of fact and the totality of the evidence of record, that the Respondent has not acted dishonestly or unscrupulously or engaged in other of the nefarious acts with which he has been charged. In penal proceedings such as this, where a valuable professional license of the accused is potentially subject to revocation or other substantial penalty, the statutes under which he is charged, which have been held to be penal in nature, must be strictly construed in his favor. Davis v. Department of Professional Regulation, 457 So.2d 1074 (Fla. 1st DCA 1984). Before a professional license and the concomitant right to practice a livelihood can be subjected to revocation, suspension or other substantial penalty, the agency's proof justifying such penalties must be clear and convincing in showing substantial causes justifying revocation or forfeiture of the license. Ferris
v. Turlington, 12 FLW 393, 394 (Fla. S.Ct. July 16, 1987). Here, that burden has not been met; indeed, the Petitioner has not demonstrated even by a preponderance of the evidence that the Respondent was guilty of any of the above discussed wrongful conduct when he embarked upon his business relationship with Mr. Tegenkamp. That relationship ended in a civil dispute concerning the repayment of the money, and potential security for repayment. Such civil matters involving determination of contractual rights have no business being employed as a basis for disciplinary proceedings against one civil litigant's professional license. Fleischman vs. Department of Professional Regulation, 441 So.2d 1121 (Fla. 3rd DCA 1983).
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 the Administrative Complaint be DISMISSED in its entirety.
DONE and ENTERED this 22nd day of February, 1988, in Tallahassee, Florida.
P. MICHAEL RUFF 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 22nd day of February, 1988.
APPENDIX TO RECOMMENDED ORDER, CASE NO. 87-0228
Petitioner's Proposed Findings of Fact:
The Petitioner filed no proposed findings of facts.
Respondent's Proposed Findings of Fact: 1-41 Accepted.
COPIES FURNISHED:
Danny L. Kepner
SHELL, FLEMING, DAVIS & MENGE
Seventh Floor, Seville Tower Post Office Box 1831 Pensacola, Florida 32598
Arthur R. Shell, Jr., Esquire Senior Attorney
Division of Real Estate
400 West Robinson Post Office Box 1900
Orlando, Florida 32801
William O'Neil General Counsel
Department of Professional Regulation
130 North Monroe Street Tallahassee, Florida 32399
Darlene F. Keller Executive Director Division of Real Estate
400 West Robinson Street Orlando, Florida 32801
| Issue Date | Proceedings |
|---|---|
| Mar. 22, 1988 | Recommended Order (hearing held , 2013). CASE CLOSED. |
| Issue Date | Document | Summary |
|---|---|---|
| May 17, 1988 | Agency Final Order | |
| Mar. 22, 1988 | Recommended Order | Breach of trust not proven: Licensee did not act as broker. Fraud, deceit etc. not proven: specific intent not shown. |
