STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

PATRICIA ANN WILCOX, )

)

Petitioner, )

)

vs. ) CASE NO. 91-1507F

)

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

)

Respondents. )

)

FINAL ORDER

A hearing was held in this case in Ft. Myers, Florida on June 6, 1991, before Arnold H. Pollock, a Hearing Officer with the Division of Administrative Hearings.

APPEARANCES

For Petitioner: Suzanne D. Lanier, Esquire

Gillette, Richman & Kowalski, P.A. 5801 Pelican Bay Boulevard, Suite 405

Naples, Florida 33963-2740

For Respondent: Steven W. Johnson, Esquire

Department of Professional Regulation Division of Real Estate

400 West Robinson Street, Suite N-308A Post Office Box 1900

Orlando, Florida 32802 STATEMENT OF THE ISSUES

The issue for consideration in this matter is whether the Petitioner is entitled to reimbursement of attorney's fees and costs as a result of the initiation of disciplinary action against her by the Respondent, Division of Real Estate.

PRELIMINARY STATEMENT

The original Administrative Complaint filed in the basic case herein, alleging misconduct by Ms. Wilcox, was dismissed by Final Order of the Florida Real Estate Commission on January 15, 1991 after formal Section 120.57(1) hearing. Thereafter, on March 4, 1991, Ms. Wilcox' counsel moved for an award of attorney's fees and costs alleging that the Department's prosecution of the case against her client was unjustified and inappropriate, and forwarded the motion for fees and costs to Hearing Officer Joyous D. Parrish who had heard the original disciplinary action filed under DOAH case number 90-3588. After the Department's response, by Notice of Hearing dated March 25, 1991, Hearing

Officer Donald R. Alexander, to whom the matter had been transferred in the interim, set the case for hearing in Ft. Myers on June 6, 1991, at which time the case was heard by the undersigned in place of H.O. Alexander.

At the hearing, Petitioner testified in her own behalf and presented the testimony of her husband, Robert A. Wilcox, a real estate appraiser. She also presented the testimony by deposition of Frank A. Krohe, vice president of Goldome Savings Bank in St. Petersburg, and Jane Selph, Goldome's operations manager for residential lending in Florida. Petitioner also introduced Petitioner's Exhibits 1 through 4, the latter two of which are the transcripts of the depositions of Mr. Krohe and Ms. Selph.

Respondent presented the testimony of John E. Harris, an investigator with the Department, and Clyde H. Ward, the owner of the property in question.

Respondent also introduced Respondent's Exhibits A through E.

A transcript was not provided. Subsequent to the hearing, counsel for the Respondents submitted a Proposed Order which included Proposed Findings of Fact. Counsel for Petitioner did not submit Proposed Findings of Fact but did submit a closing argument in writing which was carefully considered in the preparation of this Final Order. The Respondent's proposed findings have been ruled upon in the Appendix to this Order.

FINDINGS OF FACT

1. At all times pertinent to the allegations contained herein, the Respondent, Division of Real Estate, was the state agency responsible for the licensing and regulation of real estate professionals in Florida. Petitioner was a licensed real estate salesperson in Florida whose license was listed with Horizon Appraisal Service, Inc. in Ft. Myers.

   
   

2. In October, 1989, Clyde H. Ward applied to Goldome Realty Credit Corporation for a $40,000.00 fixed rate mortgage on his property located in Ft. Myers. On October 5, 1989, Goldome sent Mr. Ward a commitment letter for a mortgage initially described as a 30 year fixed rate mortgage, but which was, five days later, amended to a 15 year fixed rate mortgage at 10%, conditioned upon, among other things, a satisfactory appraisal.

   
   

3. Consistent therewith, Goldome thereafter contacted its regular appraiser in the area, Horizon Appraisal Service, Inc., and requested that an appraisal of the property be accomplished. Horizon assigned the Petitioner, Ms. Wilcox, to conduct the appraisal. The original first page of her report indicated the property was a manufactured house with a crawl space, not situated on a slab. In reality, however, as was noted on the amended first page of the report, as of October 9, 1989, the property was not a manufactured house and was situated on a concrete slab without a crawl space. Goldome denied a fixed rate mortgage to Mr. and Mrs. Ward but offered them a one year adjustable rate mortgage. The Wards accepted this change under protest.

   
   

4. A formal denial of the fixed rate mortgage was sent to the Wards on December 18, 1989 by a form which indicated that their application for the fixed rate mortgage had been denied for (1) inadequate collateral, and (2) "we do not grant credit to any applicant on the terms and conditions you request." The "inadequate collateral" basis for denial noted, however, that a mortgage had been offered, accepted and closed with the Wards under an adjustable rate bank loan.

5. On February 16, 1990, Mr. Ward wrote to Goldome expressing his concern over the denial of the fixed rate loan and the basis for denial. In response to Mr. Ward's letter, on March 7, 1990, Mr. Krohe, Goldome's vice president for residential lending, wrote to Mr. Ward and clearly stated that Goldome's denial of the fixed rate mortgage was based on several areas in the appraisal that caused concern. Mr. Krohe specifically pointed out that the fact that the property was described in the appraisal as being a "mobile home" was not the only reason for denial. In his testimony, Mr. Krohe cited several other reasons for denial. One was that the appraiser indicated that the predominant value of homes in the neighborhood was $35,000.00 and Mr. Ward's application was for a mortgage in excess of that. It is Goldome's policy typically to not make a loan in excess of the predominant value since there would be no way to sell the loan in the secondary market.

   
   

6. In addition, comments on the appraisal indicated that homes in the area were a mixture of mobile homes and small CBS or frame houses located on paved and graveled roads, and the homes in the neighborhood reflected average maintenance. The zoning classification for the property was MH-3, which permits mobile home use on the property. Further, the room sizes and layout was indicated as "fair to average" and the appraiser pointed out an incurable functional problem with the room layout. This problem related to the fact that the only full bathroom in the house was located between the master bathroom and the second bedroom and could be reached only through one of those rooms. Further, the appraiser indicated there were no recent sales similar to the subject property in the neighborhood and those sales which were comparable were noted to have superior construction and functional utility.

   
   

7. Mr. Krohe pointed out that not one of those concerns by itself necessarily would have caused the fixed rate mortgage applied for to be declined. He notes, however, that underwriting is not a science, and all of those reasons combined caused the underwriter to decline the loan.

   
   

8. Notwithstanding his receipt of this letter, Mr. Ward filed a complaint with the Division of Real Estate which was referred to Investigator John Harris for inquiry in March, 1990. During the course of his investigation, Mr. Harris spoke only with the Petitioner, Ms. Wilcox, and with Mr. Ward. On or about March 22, 1990, he met with Petitioner at her place of business, Horizon Appraisal Service. During the course of that interview, Ms. Wilcox admitted she had made a mistake on the first page of the appraisal report whereon the property w as described as a manufactured home situated on a crawl space without a slab. She indicated she had corrected the form as soon as she found out about the mistake, occasioned not by a written description but by check marks to pre- printed descriptions which were to be marked if appropriate. The work was done by typewriter, not by pen.

   
   

9. Mr. Harris also interviewed Mr. Ward, but did not interview anyone else during his entire investigation even though Ms. Wilcox pointed out that information she had from Ms. Selph and Mr. Krohe indicated that the declination of the loan was not primarily based on this erroneous information. In fact, Ms. Wilcox requested that Mr. Harris contact both Selph and Krohe to verify this but he chose not to do so, relying instead on the information provided to him by Mr. Ward and the March 7, 1990 letter from Krohe to Ward which he interpreted as indicating the denial was based on the description of the property as a "mobile home." That letter does not so indicate, however, and clearly shows that any such classification was not the sole basis for denial of the loan.

10. Notwithstanding this, Mr. Harris considered the fact that Ms. Wilcox admitted to making the mistake as tantamount to an admission of culpable negligence and he recommended that action be taken against her.

    
    

11. Thereafter, the matter was referred to a probable cause panel of the Real Estate Commission which, on May 15, 1990, considered the allegations against Ms. Wilcox and, after a review of the file and a presentation by a counsel to the Board, found probable cause. Review of the transcript of the probable cause panel as it relates to Ms. Wilcox reveals that even there, the case was inaccurately described to the panel by its counsel who claims that, "the loan was rejected on the basis of the appraisal which incorrectly described the structure as a manufactured house with a crawl space and no slab." Counsel completely omitted any mention of any of the other bases for denial which were described by Mr. Krohe in his deposition of which the Department was notified but declined to attend, and which could have been determined by an appropriate investigation into the matter. The discussion by the panel members, as documented in the transcript of its meeting, in no way related to the particulars of the alleged misconduct but instead concerned itself primarily with the status of the appraiser. In short, it is clear that the probable cause panel's finding of probable cause was based only on its review of the completely inadequate investigation by Mr. Harris and the slanted comments of the panel's counsel.

    
    

12. Nonetheless, an Administrative Complaint was filed against the Petitioner which alleged culpable negligence, breach of trust and misrepresentation and concealment. Prior to the hearing, the Board dismissed the allegation of misrepresentation and concealment.

    
    

13. A hearing was conducted on the remaining counts on October 11, 1990 in Ft. Myers before H.O. Parrish. In her Recommended Order dated December 12, 1990, Ms. Parrish concluded that the Department had failed to establish the Respondent committed any misconduct; that Ms. Wilcox had accurately described and evaluated the home within customary ranges; and that the lender verified the reasons for denial of the requested mortgage were not related to the typographical errors pertaining to the type of home, the crawl space, and the slab. Ms. Parrish thereafter recommended a Final Order be entered by the Commission dismissing the Administrative Complaint and such an Order was entered.

    
    

14. By Motion dated March 4, 1991, Petitioner's counsel sought reimbursement for the Petitioner of attorney's fees and costs relating to her defense against the allegations made against her in the Administrative Complaint. Respondent has stipulated that the amount claimed for the original representation is reasonable as to both hours claimed and fee per hour. It claims, however, that fees and costs are not reimbursable here because, (1), Petitioner is not a small business entity, and (2), the Division had probable cause to initiate the Administrative Complaint. Petitioner has also submitted an additional affidavit, subsequent to the hearing, in which she claims 7.1 additional hours, at $110.00 per hour, for services rendered subsequent to the final hearing in the original action.

    
    

15. Petitioner claims to be an independent contractor to Horizon Appraisal Service, Inc.. She works strictly on commission. She has a desk at the Horizon office and keeps almost all her business information there. She has no other office. She cannot do appraisals for other brokers because she can work for only one broker at a time. She claims to be licensed as an appraiser in Florida but the licensure information on file with the Department of Professional

    Regulation as of September 4, 1990, reflects she is licensed only as a real estate salesman.

    
    

16. By affidavit dated December 6, 1985, and attached to the Independent Contractor Agreement of equal date, Petitioner outlines her working conditions with Horizon. She pays all her own license fees and dues; she is responsible for her own auto and transportation expenses; she pays all her client development costs without reimbursement; she is not required to maintain any set working hours; she takes vacations when she pleases; she is not required to meet any quotas; she receives no minimum salary, sick pay or other fringe benefits; she pays her own income and FICA taxes; and the association with the broker may be terminated by either party at any time.

    
    

17. Under the terms of the Agreement referenced above, Petitioner is to get 45% of the fee charged by Horizon for the appraisal done by her. Any lawsuits for the collection of appraisal fees must be maintained only in the name of the Broker, however, since the appraiser is considered to be a subagent. Though the appraiser may conduct the actual appraisal, the Agreement requires that these completed appraisals be submitted to the broker for review, and Mr. Krohe, of Goldome, indicated that his institution would accept only appraisals signed by the broker, not the appraiser.

    
    

18. The agreement also stipulates that all clients brought in by the appraiser will result in an additional 10% fee split, and will remain clients of the broker upon termination of the agreement. Notwithstanding the appraiser can take vacations when desired and work when she pleases, she must, however, notify the broker a minimum of two weeks in advance of vacation time and call in on days when she will not be available. The appraiser agrees to a five day turnaround on appraisals, may not solicit listings for the transfer of property other than owned by her, and, significantly, may perform her services only for this broker, Horizon Appraisal Services, Inc.,

    
    

    CONCLUSIONS OF LAW

    
    

19. The Division of Administrative Hearings has jurisdiction over the parties and the subject matter in this case. Section 120.57(1), Florida Statutes.

    
    

20. Petitioner seeks an award of attorney's fees and costs relative to her successful defense against the allegations of misconduct filed against her by the Division. She claims this reimbursement under the terms of Section 57.111(3)(d), Florida Statutes, which provide that the term, "small business party" shall mean:

    
    

    A sole proprietor of an unincorporated busi- ness including a professional practice, who is domiciled in this state, and whose busi- ness or professional practice has, at the time the action is initiated by a state agency, not more than 25 full-time employees or a net worth of not more than $2 million, including personal and business investments.

    
    

21. The burden of proof is on the Petitioner to prove that she is a small business party, that she prevailed in the action under consideration, and that that action was initiated by a state agency. Once that burden is met, the burden shifts to the state agency to establish that its actions were

    substantially justified or that circumstances exist which would make the award unjust. Gentele v. Department of Professional Regulation, Board of Optometry, 513 So.2d 672 (Fla. 1st DCA 1987).

    
    

22. The parties have stipulated that the Petitioner prevailed in the underlying proceeding and that that proceeding was initiated by the Department. The Department has also stipulated that the fee charged and the hours claimed were both reasonable. The only question remaining is whether Petitioner qualifies as a small business party, and whether the Department's actions were substantially justified.

    
    

23. The evidence shows that Petitioner was working with Horizon as an appraiser. Her license qualifies her as a real estate salesman but this is sufficient qualification to do appraisal work. She does not receive a salary but, instead, receives a commission of 45% of the fee received from clients provided by the broker, with an additional 10% if the client was brought in by her. Though she pays her own taxes and receives no reimbursement for expenses of doing business, she is not free to take work from any other broker, and is not completely free to set her own working conditions. Though she claimed to be able to work her own hours and vacation when she chooses, she must, by the terms of her agreement, notify Horizon of her intended vacation times two weeks in advance and must call in when she is not going to come to work. Clearly, the purpose of the former requirement is to allow Horizon to apportion its work load and, impliedly, to approve or veto Petitioner's plans.

    
    

24. Further, Ms. Selph made it very clear that her organization would not accept an appraisal signed by Petitioner alone. Horizon is on Goldome's list of approved appraisers, not Petitioner, and the only acceptable signature on a Horizon appraisal report would be that of Chester McKay, (presumably a Horizon official). Petitioner has not been through Goldome's approval process. The only reason Goldome accepted Petitioner's report was that it was countersigned by Mr. McKay.

    
    

25. Petitioner was a salesman in the office of Horizon Appraisal Service, Inc., a broker. Under the provisions of Section 475.01(2), Florida Statutes, the terms, "employ', "employment", "employer" and "employee" mean:

    
    

    ... when used in [that] chapter and in rules adopted pursuant thereto to describe the re- lationship between a broker and a salesman, include an independent contractor relationship between a broker and a salesman when such relationship is intended by and established between a broker and a salesman....

    
    

26. This interpretation is founded upon, among other things, the fact that the broker is responsible, not only financially but legally, for the authorized actions of the salesman. Therefore, though described as an independent contractor relationship, in fact an employment relationship is shown to exist here.

    
    

27. In the instant case, the evidence clearly establishes too many ties that bind between the Petitioner and Horizon. She was not truly independent since Horizon exercised substantial control over her activities. Therefore, she cannot be considered to be a small business party within the parameters of the statute.

28. That having been established, it is not necessary to treat the other portion of the equation. The burden did not shift to the Department to show that its actions were substantially justified. Had it done so, however, it is clear that Petitioner would have prevailed. The investigation conducted by the Department's investigator was, indeed, insufficient. He relied solely on an admission of the Petitioner that she had made an error and construed that simple admission to equate to culpable negligence without even attempting to check with Goldome's personnel to determine the true reason for the denial of Mr. ward's application. He claimed at hearing to have considered Mr. Krohe's March 7, 1990 letter, but the fact remains that letter clearly indicated the Petitioner's mistake had little effect on the denial. A simple call to either Krohe or Selph would have clarified the situation, but none was made, giving this investigation the appearance more of an attempt to establish guilt than an unbiased inquiry into the facts. To be sure, the Department's enforcement role is to protect the public from dishonest and incompetent practitioners. However, the regulated practitioner must be able to rely upon his agency to conduct an impartial and open-minded inquiry into allegations of his misconduct. His career and livelihood rests on the integrity of the system and the power of that system must not be used in a cavalier manner.

    
    

29. In addition, the probable cause panel could have, by a simple expenditure of effort to contact Krohe or Selph, which had been suggested to a Department representative previously, determined a true picture of the situation. Instead, the panel examined the slanted report of investigation discussed above, and heard an inaccurate characterization of Petitioner's actions by its own counsel. Its subsequent determination of probable cause was, therefore, faulty and the subsequent filing of the Administrative Complaint, unjustified.

    
    

30. Nonetheless, since the evidence does not support a conclusion that Petitioner is a small business party as defined by the enabling statute, she does not qualify for reimbursement for attorney's fees and costs.

ORDERED

It is, therefore ordered that Petitioner's Motion for Attorney's Fees and Costs is hereby denied.

ORDERED this 8th day of July, 1991, in Tallahassee, Florida.

ARNOLD H. POLLOCK, Hearing Officer Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 8th day of July, 1991.

APPENDIX TO FINAL ORDER, CASE NO. 91-1507F

The following constitutes my specific rulings pursuant to Section 120.59(2), Florida Statutes, on all of the Proposed Findings of Fact submitted by the parties to this case.

FOR THE PETITIONER:

None submitted

FOR THE RESPONDENT:

1. - 4. Accepted and incorporated herein.

   1. Accepted and incorporated herein.

   2. & 7. Accepted and incorporated herein.

8. & 9. Accepted.

10. & 11. Accepted and incorporated herein in substance.

1. & 13. Accepted and incorporated herein.

   1. Accepted and incorporated herein.

   2. Accepted and incorporated herein.

   3. Rejected as a misinterpretation of the letter in question.

   4. Accepted and incorporated herein.

   5. Accepted but not a proper Finding of Fact.

   6. - 21. Accepted and incorporated herein.

22. Rejected.

COPIES FURNISHED:

Suzanne D. Lanier, Esquire Gillette, Richman & Kowalski, P.A. 5801 Pelican Bay Blvd.

Suite 405

Naples, Florida 33963

Steven W. Johnson, Esquire DPR - Division of Real Estate

400 W. Robinson Street Suite N-308A

Post Office Box 1900 Orlando, Florida 32802

John McRay General Counsel

Department of Professional Regulation

1940 North Monroe Street Tallahassee, Florida 32399-0792

Darlene F. Keller Division Director Division of Real Estate

400 W. Robinson Street Post Office Box 1900 Orlando, Florida 32802

NOTICE OF RIGHT TO JUDICIAL REVIEW

A PARTY WHO IS ADVERSELY AFFECTED BY THIS FINAL ORDER IS ENTITLED TO JUDICIAL REVIEW PURSUANT TO SECTION 120.68, FLORIDA STATUTES. REVIEW PROCEEDINGS ARE GOVERNED BY THE FLORIDA RULES OF APPELLATE PROCEDURE. SUCH PROCEEDINGS ARE COMMENCED BY FILING ONE COPY OF A NOTICE OF APPEAL WITH THE AGENCY CLERK OF THE DIVISION OF ADMINISTRATIVE HEARINGS AND A SECOND COPY, ACCOMPANIED BY FILING FEES PRESCRIBED BY LAW, WITH THE DISTRICT COURT OF APPEAL, FIRST DISTRICT, OR WITH THE DISTRICT COURT OF APPEAL IN THE APPELLATE DISTRICT WHERE THE PARTY RESIDES. THE NOTICE OF APPEAL MUST BE FILED WITHIN 30 DAYS OF RENDITION OF THE ORDER TO BE REVIEWED.

Docket for Case No: 91-001507F

Orders for Case No: 91-001507F