STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

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

)

Petitioner, )

)

vs. ) CASE NO. 92-0192

)

)

WILLIE POWELL, )

)

Respondent. )

)

RECOMMENDED ORDER

This matter was heard by William R. Dorsey, Jr., the Hearing Officer appointed by the Division of Administrative Hearings, on Thursday, May 21, 1992, in Miami, Florida.

APPEARANCES

For Petitioner: Theodore R. Gay, Esquire

Department of Professional Regulation

Suite N-607

401 Northwest 2nd Avenue Miami, Florida 33128

For Respondent: Harold M. Braxton, Esquire

Suite 400, One Datran Center 9100 South Dadeland Boulevard Miami, Florida 33156

STATEMENT OF THE ISSUES

The issue is whether Mr. Powell should be disciplined for irregularities in the handling of an escrow deposit by a real estate firm for which he was the qualifying broker.

PRELIMINARY STATEMENT

At the hearing, the Department presented the testimony of three witnesses, Guillermo Castillo, Horace B. Miller, and Sidney B. Miller, and offered 14 exhibits, all of which were received in evidence. Mr. Powell presented the testimony of one witness, James Williams, and presented one exhibit, which was received in evidence. The time for filing proposed recommended orders was extended because counsel for Mr. Powell had failed to receive his copy of the transcript from the court reporter. The parties have filed proposed recommended orders, and rulings on proposed findings of fact are made in the appendix to this Recommended Order.

FINDINGS OF FACT

1. The Respondent, Willie Powell, was at all relevant times a licensed real estate broker in the State of Florida, holding license number 0070494.

   
   

2. Mr. Powell was the sole qualifying broker of Future Investments & Development II Co., Inc., trading as ERA Thompkins and Saunders Realty Company (hereafter, T & S), 2734 N.W. 183rd Street, Suite 206, Miami, Florida 33056.

   
   

3. On or about November 12, 1990, Guillermo Castillo, a licensed real estate broker for Emerald Enterprises, Inc., received a listing agreement from Horace B. Miller to sell residential property (a duplex) owned by Miller located at 2331 N.W. 103rd Street, Miami, Florida. The property was listed with the Multiple Listing Service.

   
   

4. On or about February 27 or 28, 1991, Mr. Castillo received a telephone call from Willie J. Thompkins of T & S saying he wanted to show the Miller property to a prospective buyer. On or about February 28, 1991, Mr. Castillo received through the mail slot at his office a written offer from George R. Howell of Dorchester, Massachusetts, to buy the Miller property, with a business card of Jerry Saunders of T & S.

   
   

5. On or about March 6, 1991, Guillermo Castillo met with Horace Miller to review the Howell offer. At Miller's request, Castillo made some changes to the contract to reflect that Miller was selling the duplex in "as is" condition. Miller signed the contract and initialed the changes, and Mr. Castillo signed the contract on behalf of Emerald Enterprises, and called Willie J. Thompkins to tell him the contract had been signed. The next day, Mr. Castillo went to the office of T & S and dropped off the contract for the buyer to consider the seller's changes.

   
   

6. A day or two later, a representative of T & S telephoned Guillermo Castillo and told Mr. Castillo that the buyer had accepted the seller's changes to the contract; Mr. Castillo then notified Miller. Mr. Castillo later received from T & S the signed contract with Mr. Miller's changes initialed by Mr. Howell. The contract was also signed by Mr. Thompkins of T & S. The contract called for a $1,000 deposit to be held in escrow by T & S (Exhibit 5, Paragraph IIa).

   
   

7. Guillermo Castillo contacted T & S to check on the progress of the sale. He learned that J.P. Mortgage was handling the buyer's mortgage loan application. Castillo contacted J.P. Mortgage and was told that the loan was proceeding normally. After the contractual closing date of April 29, 1991, had passed without the closing taking place, Castillo contracted J.P. Mortgage again, but was told that they were no longer processing the loan. Castillo requested that J.P. Mortgage send him a letter to that effect, and he received a letter dated May 2, 1991, stating that J.P. Mortgage was withdrawing as the lender because the buyer failed to return the mortgage loan application. Castillo informed Horace Miller of the situation and Miller instructed Castillo to write to T & S making a claim to the buyer's deposit under the contract of sale.

   
   

8. On May 4, 1991, Castillo sent a letter to T & S claiming the deposit for the seller. Paragraph Q of the contract provided for the seller to retain the buyer's deposit as liquidated damages if the buyer failed to perform the contract.

9. On or about May 9, 1991, Guillermo Castillo received from Mr. Thompkins, the manger of T & S, a letter dated May 1, 1991, but postmarked May 6, 1991, ". . . requesting that the . . . file be cancelled" due to

   ". . . communication problems with . . . Mr. Howell," and citing unsuccessful attempts to contact Howell by telephone and by mail. When Castillo received that letter he contacted T & S to point out the seriousness of the matter and to press for forfeiture of the buyer's deposit. On May 9, 1991, Castillo received a telefax from Mr. Thompkins of T & S stating that the Howell deposit check had been returned for insufficient funds and attaching a copy of the returned check. Prior to his receipt of this telefax, Castillo had not taken any independent steps to verify whether T & S had actually received the Howell deposit. He had relied on the contract, which had been executed by a licensed salesman and believed he did not require further verification that the escrow deposit had been made.

   
   

10. Neither Mr. Castillo nor Mr. Miller dealt with the Respondent, Mr. Powell, at any time concerning the sale of the Miller property.

    
    

11. T & S received George Howell's $1,000 deposit in the form of a check on March 4, 1991, drawn on a Massachusetts bank and deposited it in its account with First Union National Bank which was used as the escrow account, account number 15462242336, on March 5, 1991. The check was charged back to the account twice, on March 11, 1991, and on March 26, 1991. Mr. Powell was a signatory on that escrow account.

    
    

12. After Guillermo Castillo received the May 9, 1991, telefax, he notified Horace Miller. Mr. Miller had not taken any steps on his own to verify whether T & S had received the deposit because he had confidence in his broker to let him know right away if there were any problems with the sale.

    
    

13. By May 9, 1991, Horace Miller had already incurred expenses preparing the property for closing, and had lost rent by terminating a tenancy in the property. Because the transaction never closed, Mr. Miller sustained financial damage, some of which he might have avoided if he had been notified earlier of the buyer's dishonored escrow deposit check.

    
    

14. On or about May 28, 1991, Miller filed a complaint with the Department of Professional Regulation, which Sidney Miller investigated. He found that the person introduced to him during his investigation at T & S as Willie Powell was not actually the Respondent.

    
    

15. In March 1991, Mr. Powell had not seen the bank statements for the T & S escrow account for several months, and had not signed the written monthly escrow account reconciliation statement for the month of October 1990 or for any subsequent month. Mr. Powell was serving as the qualifying broker of T & S for a salary of $75 per month and no commissions. He was not active in the management of the firm. He would come to the office of T & S approximately three days per week to check files and sign listing agreements, and he would call in to see if there were any problems, messages or documents to sign. He essentially loaned his brokers' license to those who operated T & S as an accommodation because he had known the Thompkins family for 25 years.

    
    

16. Mr. Powell argues in his proposed order that "the adequacy of [Mr. Powell's] monthly reconciliations were impeded by frauds perpetrated upon him by persons at [T & S]" (PRO at page 9, paragraph 5). It is obvious that there were problems at T & S, since a person there misrepresented himself to the

    Department's investigator as Mr. Powell. The full extent of the misconduct there is unclear. There is no proof in this record that salespersons at T & S had fabricated escrow account statements for Mr. Powell. Had Mr. Powell proven that he performed monthly reconciliations with what turned out to be falsified records of T & S, his argument might be well taken. The record, unfortunately, shows that no reconciliations were done. Had Mr. Powell done them, the problem here should have been uncovered.

    
    

    CONCLUSIONS OF LAW

    
    

17. Petitioner is the regulatory agency which prosecutes administrative complaints pursuant to Section 20.30, Florida Statutes, Chapters 120, 455, and 475, Florida Statutes, and the rules implementing them.

    
    

18. Florida has long imposed a high standard of ethical conduct upon real estate brokers. See, e.g., Zichlin v. Dill, 157 Fla. 96, 25 So.2d 4 (Fla. 1946), where the Florida Supreme Court stated:

    
    

    The broker in Florida occupies a status under the law with recognized privileges and responsibilities. The broker in this state belongs to a privileged class and enjoys a monopoly to engage in a lucrative

    business. . . .

    The state, therefore, has prescribed a high standard of qualifications and by the same law granted a form of monopoly and in so doing the old rule of caveat emptor is cast aside. Those dealing with a licensed broker may naturally assume that he possesses the requisites of an honest, ethical man. 25 So.2d at 4-5.

    
    

    Similarly, in Ahern v. Florida Real Estate Commission, 149 Fla. 706, 6 So.2d 857, 858 (Fla. 1942), the Court said that ". . . the real estate broker is now the confidant of the public in much the same manner as the lawyer and the banker. His relation to the public exacts the highest degree of trust and confidence. "

    
    

19. A broker owes a fiduciary duty to his principal, which includes the duty to ". . . disclose to his principal all facts within his knowledge which may be material in connection with his employment." Santaniello v. Department of Professional Regulation, Board of Real Estate, 432 So.2d 84 (Fla. 2nd DCA 1983) at 85. Such disclosure is to be made ". . . with fairness, promptness, and completeness. . . " Chisman v. Moylan, 105 So.2d 186 (Fla. 2nd DCA 1958) at

189. A buyer's failure to pay the deposit called for in the contract is material and must be disclosed. Prall v. Corum, 403 So.2d 991 (Fla. 2nd DCA 1981).

1. In this case, T & S, whose principal under the sales contract was th seller, Mr. Miller, had a duty to promptly deposit the escrow deposit check, and to disclose to Horace Miller that George Howell's deposit check had been dishonored twice for insufficient funds, particularly since by the terms of paragraph IIa of the contract, the failure to make required escrow deposits would appear to render the contract "null and void." From the very inception of the Howell/Miller contract, paragraph IIa of the contract made T & S accountable to Miller as escrow agent to hold in escrow Howell's $1,000 deposit in order to secure Howell's performance of the contract. The duty was not to hold uncashed a check for $1,000, but to hold $1,000.

2. The testimony of both Guillermo Castillo and Horace Miller reflect that they relied or trusted that T & S, by honoring its fiduciary duties to Horace Miller, would promptly pass on to them any pertinent information. T & S breached that trust by failing to notify Horace Miller that the Howell deposit check had been returned for insufficient funds on March 11 and March 26, 1991.

   
   

3. The central question here is the extent to which the violations by T & S are the responsibility of Mr. Powell as T & S's individual qualifying broker. Mr. Powell did not actively participate in the conduct which gave rise to the violations.

   
   

4. In Dreyer v. Florida Real Estate Commission, 370 So.2d 95 (Fla. 4th DCA 1979), disciplinary action against the qualifying broker was sustained even though the broker was found to be no more than a "passive participant" in the misconduct. The court reasoned that the broker had a duty to supervise persons working under the authority of his registration. Because the misconduct involved the failure of the real estate firm to make deposits into its firm escrow account for an extended period (more than a year), the broker was on constructive notice of the violations. Here, the failure was to perform escrow account reconciliations, and the omission to act is a sufficient basis for the imposition of discipline.

   
   

5. Shortly after the time of the Howell/Miller transaction, Mr. Powell knew or should have known that Howell's $1,000 deposit check had been returned for insufficient funds and that funds entrusted to T & S were not being handled and accounted for properly. Mr. Powell had a duty as the qualifying broker to review and sign written monthly escrow account reconciliation statements under Rule 21V-14.012(2) and (3), Florida Administrative Code, which states:

   
   

   21V-14.012 Broker's Records.

   
   

   1. A broker shall cause to be made at least monthly written statement comparing the broker's balance(s) of all trust accounts. The broker's trust liability is hereby defined as the sum total of all deposits received, pending and being held by the broker at any point in time. The minimum information to be included in the monthly statement-reconciliation shall be the date the reconciliation was undertaken, the date used to reconcile the balances, the name of the bank(s), the name(s) of the account(s), the account number(s), the account balance(s) and date(s), deposits in transit, outstanding checks identified by date and check number, and any other items necessary to reconcile the bank account balance(s) with the balance per the broker's checkbook(s) and other trust account books and records disclosing the date of receipt and the source of the funds. The broker shall review, sign and date the monthly statement-reconciliation.

   2. Whenever the trust liability and the bank balances do not agree, the reconciliation shall contain a description or explanation for the difference(s) and any corrective action taken reference shortages or overages of funds in the account(s). Whenever a trust bank account record reflects a service charge or fee for a non-sufficient check being returned or whenever an account has a negative balance, the reconciliation

      shall disclose the cause(s) of the returned check or negative balance and the corrective action taken.

      
      

6. Had Mr. Powell made the comparison of trust liability to escrow account bank balance required for the reconciliation statement for the month of March 1991, the Howell/Miller contract would have produced a $1,000 shortage which he then would have researched and had to explain in the reconciliation statement. Once the broker had determined that the shortage had been caused by dishonoring of Mr. Howell's escrow deposit check, notification to the seller could have been given, if it had not been given already when the check was first dishonored.

   
   

7. The written monthly escrow account reconciliation statements give the public confidence that funds entrusted to a licensed real estate brokerage business licensed by the State of Florida will be handled and accounted for properly. In March 1991, because of his failure to make those reconciliation statements, Mr. Powell should have known that members of the public such as Horace Miller who dealt with T & S were being exposed to an increased risk of loss because funds entrusted to T & S were not being handled properly. This omission by Mr. Powell to act also may be characterized as culpable negligence in a business transaction in violation of Section 475.25(1)(b), Florida Statutes, which is the statute alleged in Count I of the Administrative Complaint as the statute violated.

   
   

8. Mr. Powell has not been accused of something not charged in the Administrative Complaint. See Sternberg v. Department of Professional Regulation, 465 So.2d 1324, 1325 (Fla. 1st DCA 1985). Although a more specific charge might have been made against Mr. Powell (the violation of Section 475.25(1)(l), Florida Statutes, and implementing Rule 21V-14.012(2), Florida Administrative Code), this does not prohibit the comission from charging Mr. Powell with culpable negligence arising from his neglect of the duty to perform monthly trust account reconciliations, which is negligence per se. Cf. McNease

   v. Bone, 448 So.2d 1160 (Fla. 1st DCA 1984) (failure to use form for termite inspection required by HRS rules is negligence).

   
   

9. Count II of the Administrative Complaint alleges a violation of Section 475.25(1)(d), Florida Statutes, which provides, in pertinent part, as follows:

   
   

   475.25 Discipline.--

   (1) The commission may deny an application for licensure, registration, or permit, or renewal thereof; may place a licensee, registrant, or permittee on probation; may suspend a license, registration, or permit for a period not exceeding 10 years; may revoke a license, registration, or permit; may impose an administrative fine not to exceed $1,000 for each count or separate offense; and may issue a reprimand, and any or all of the foregoing, if it finds that the licensee, registrant, permittee, or applicant:

   (d) Has failed to account or deliver to any

   person, . . . at the time which has been agreed upon or is required by law . . . any personal property such as money, "

   
   

10. Mr. Powell is guilty of an omission to act, not of active misconduct. Mr. Powell is not guilty of a violation of Section 475.25(1)(d), Florida

    Statutes, for he never received the $1,000 deposit and cannot be held liable for not paying over to Mr. Howell what Mr. Powell never received. Ramsey v.

    Department of Professional Regulation, 574 So.2d 291 (Fla. 5th DCA 1991). Failure to give timely notice that an escrow deposit check has been dishonored is not a failure to account for and deliver escrow funds because he received no funds.

    
    

11. Pursuant to Section 475.25(1), Florida Statutes, and Rule 21V- 24.001(1)(c), Florida Administrative Code, the Commission's Penalty Guidelines, disciplinary action by the Florida Real Estate Commission may impose an administrative fine not to exceed $1,000 per violation; and suspension of license for up to five years.

RECOMMENDATION

Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED that a final order be issued finding Willie Powell guilty of violating Section 475.25(1)(b), Florida Statutes, finding him not guilty of violating Section 475.25(1)(d), Florida Statutes, and taking the following disciplinary action against him:

1. Issuance of a reprimand.

   
   

2. Imposition of an administrative fine in the amount of $1,000 to be paid within 30 days of the date of the final order adopting the recommended order.

   
   

3. Placement of the license of Mr. Powell on probation for a period of one year beginning on the date of the final order and providing that during that period he shall provide satisfactory evidence to the Florida Department of Professional Regulation, Division of Real Estate, Legal Section, Hurston Building, North Tower, Suite N-308, 400 West Robinson Street, Orlando, Florida 32801-1772, of having completion a 30-hour postlicensure education course in real estate brokerage management, in addition to any other education required of him to remain current and active as a real estate broker in the State of Florida, and that he be required to submit to the Commission during that year his monthly trust account reconciliations. Cf. Rule 21V-24.002(3)(i), Florida Administrative Code, on penalties for violation of Rule 21V-14.012(2), Florida Administrative Code.

DONE AND ENTERED in Tallahassee, Leon County, Florida, this 16th day of July 1992.

WILLIAM R. DORSEY, JR.

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 day of July 1992.

APPENDIX TO RECOMMENDED ORDER IN CASE NO. 92-0192

Rulings on Findings proposed by the Commission:

1. Adopted in Findings 1 and 2.

2. Adopted in Finding 2.

3. Adopted in Finding 3.

4. Adopted in Finding 4.

5. Adopted in Finding 5.

6. Adopted in Finding 6.

7. Adopted in Findings 7 and 8.

8. Adopted in Finding 9.

9. Adopted in Finding 12.

10. Adopted in Finding 13.

11. Adopted in Finding 11.

12. Adopted in Finding 15.

Rulings on Findings proposed by Mr. Powell:

1. Adopted in Finding 1 with the exception of the license number.

2. Adopted in Finding 3.

3. Adopted in Finding 2.

4. Adopted in Finding 4.

5. Rejected as unnecessary.

6. Adopted in Finding 5.

7. Adopted in Finding 4.

8. Adopted in Finding 6.

9. Generally adopted in Finding 6.

10. Implicit in Finding 10.

11. Adopted in Finding 6.

12. Adopted in Finding 6.

13. Adopted in Findings 7 and 8.

14. Adopted in Finding 9.

15. Adopted in Finding 10.

16. Rejected as subordinate to Finding 10.

17. Adopted in Finding 13.

18. Rejected as unnecessary, the reconciliation was not one done shortly following the month of March reconciling the account for March 1991. It was done during the investigation conducted by Mr. Miller and took place between approximately June 20 and July 10, 1991.

19. Adopted in Finding 15.

20. Rejected as unnecessary.

21. Adopted in Finding 14.

22. Rejected as unnecessary, or subordinate to Finding 10.

23. Rejected as unnecessary.

24. Rejected as unnecessary.

COPIES FURNISHED:

Theodore R. Gay, Esquire Department of Professional

Regulation Suite N-607

401 Northwest 2nd Avenue Miami, Florida 33128

Harold M. Braxton, Esquire Suite 400, One Datran Center 9100 South Dadeland Boulevard Miami, Florida 33156

Darlene F. Keller Division Director Division of Real Estate

Department of Professional Regulation

400 West Robinson Street Post Office Box 1900 Orlando, Florida 32801

Jack McRay General Counsel

Department of Professional Regulation

1940 North Monroe Street Suite 60

Tallahassee, Florida 32399-0792

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS:

All parties have the right to submit written exceptions to this Recommended Order. All agencies allow each party at least 10 days in which to submit written exceptions. Some agencies allow a larger period within which to submit written exceptions. You should contact the agency that will issue the final order in this case concerning agency rules on the deadline for filing exceptions to this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the final order in this case.

Docket for Case No: 92-000192

Orders for Case No: 92-000192