vs.
Respondent.
) Case No. 03-0053PL
Pursuant to notice, a final hearing was held in this case on March 7, 2003, in Orlando, Florida, before William R. Pfeiffer, a designated Administrative Law Judge of the Division of Administrative Hearings (DOAH).
For Petitioner: Christopher J. DeCosta, Esquire
For Respondent: Victor L. Chapman, Esquire
Barrett, Chapman & Ruta, P.A.
The issues in this matter are whether the Department of Business and Professional Regulation, Division of Real Estate (Petitioner) proved that Derek Welling (Respondent) is guilty of fraud, misrepresentation, concealment, false promises, false pretenses, dishonest dealing by trick, scheme or device, culpable negligence, or breach of trust in any business transaction in violation of Subsection 475.25(1)(b), Florida Statutes; and whether Petitioner proved that Respondent is guilty of failing to account and deliver funds in violation of Subsection 475.25(1)(d)1, Florida Statutes; and if so, what is the appropriate discipline?
Petitioner, in its Amended Administrative Complaint, alleged that Respondent violated Subsection 475.25(1)(b) and is guilty of fraud, misrepresentation, concealment, false promises, false pretenses, dishonest dealing by trick, scheme, or device, culpable negligence, or a breach of trust in a business transaction, and violated Subsection 475.25(1)(d)1 and is guilty of failing to account for and deliver funds.
Respondent denied the allegations and timely requested a formal hearing, which was held on March 7, 2003. At hearing, Petitioner presented no live testimony, but introduced five
exhibits, including the deposition testimony of John Hamlyn, Michael Hart, and Collin Glass.
Respondent testified and introduced three exhibits. The Transcript of the hearing was filed on March 31, 2003. The parties timely filed their respective Proposed Recommended Orders, which were duly considered.
Petitioner is the state agency charged with the responsibility and duty to prosecute administrative complaints pursuant to Section 20.165 and Chapters 120, 455, and 475, Florida Statutes.
Respondent is a licensed realtor and has been at all times material hereto, having been issued license number 0582890 under Chapter 475, Florida Statutes.
In 1989, Respondent founded UK Realty, a real estate brokerage firm, with his son-in-law, Russell Christner. From 1989 thru the summer of 1996, Respondent primarily served as UK Realty's international sales representative while Mr. Christner served as its qualified broker. Respondent traveled to various trade shows primarily in Europe and encouraged customers to purchase rental properties in the central Florida area.
In 1991, Respondent and Mr. Christner formed a short- term rental property management company known as Connoisseur
Homes, Inc. (Connoisseur) to manage the rental properties of UK Realty's domestic and international clients.
In 1993, Respondent and Christner sold a one-third interest in Connoisseur to Mr. Graham Greene, who immediately became president of Connoisseur and served as its day-to-day operations manager. Although Respondent maintained a one-third ownership in Connoisseur, he remained the company's international sales associate. Respondent was generally not involved in the day-to-day management and operations of Connoisseur and had little personal knowledge of the factual circumstances surrounding the client complaints that form the basis of Petitioner's allegations.
Each of the allegations levied against Respondent in Petitioner's Amended Administrative Complaint involves complaints filed by property owners relating to contract services with Connoisseur. There is no evidence in the record that any of the property owners was dissatisfied with the services of Respondent or Connoisseur prior to the summer/fall of 1996.
Hart Property
In 1994, Michael Hart, a resident of England, engaged the services of UK Realty and purchased a rental home property in Davenport, Florida. Mr. Hart was referred to Mr. Richard Wilkes, a representative of Connoisseur, to manage his property.
On May 17, 1995, Mr. Hart contracted with Connoisseur to provide rental management services. Mr. Hart placed an initial deposit with Connoisseur to purchase various items and maintained a
$1000 balance in an escrow account to pay the annual taxes and monthly expenses associated with the management of the property.
Pursuant to his contract with Connoisseur, Mr. Hart received periodic statements from Connoisseur detailing all moneys collected from tenants, escrow balances, and any other activity in his account.
According to the statements Mr. Hart received, Connoisseur booked nine persons to stay in his property between October of 1996 and January of 1997. While Connoisseur received approximately $9,844.60 for these rentals, Mr. Hart received none of the rental proceeds.
On or about January 3, 1997, Mr. Hart received notice from the Polk County tax collector indicating that the "tourist development tax" associated with his property was delinquent for the months of September, October, and November of 1996. In addition, the letter indicated that Connoisseur made a payment to Polk County for September 1996 that was returned for insufficient funds. Shortly thereafter, Mr. Hart was advised that the cable and electricity to the property had been disconnected for non-payment.
Glass Property
In May 1993, Mr. Colin Glass purchased a rental home in Davenport, Florida, and contracted with Connoisseur to manage the property. Pursuant to the contract, Connoisseur agreed to advertise and list the property, manage the reservations and timely pay the rental property's expenses. Mr. Glass agreed to receive $500.00 for each week that the property was rented minus a cleaning fee.
Pursuant to the contract, Mr. Glass placed a $1000 deposit with Connoisseur to pay the initial maintenance costs associated with the property. Thereafter, Mr. Glass received periodic statements from Connoisseur detailing the funds received, occupancy, and expenses paid to manage his property.
The statement for the month ending November 30, 1996, indicates that Connoisseur collected $5,290.00 in rental proceeds from tenants who rented the property between August of 1996 and January of 1997 and paid $110 for cleaning services on November 8 and 21, 1996.
In November, 1996, Mr. Glass requested a detailed accounting from Connoisseur regarding his property. On December 6, 1996, Mr. Glass received a written letter on Connoisseur stationary, signed by Kelleen Newman, a Connoisseur employee responsible for preparing accounting statements during the relevant period. The letter advised Mr. Glass that
Connoisseur owed Mr. Glass approximately $1,750.00 for payments received pursuant to bookings under the names Beaumont and Tullet. To date, Mr. Glass has not received the rental proceeds.
In addition, Connoisseur failed to pay the property tax bill associated with the Glass property as required by the management contract, and it became delinquent.
Hamlyn Property
On September 22, 1993, John Hamlyn purchased a home in Davenport, Florida. Five months later, on February 22, 1994, Mr. Hamlyn hired Connoisseur to manage his rental property. Pursuant to the contract, Connoisseur agreed to advertise and rent the property, manage the collections, and pay the operational expenses. Mr. Hamlyn placed a $500.00 deposit with Connoisseur to perform the contract and was required to maintain that balance in the account. In November of 1995, Respondent and Connoisseur increased the required escrow balance to
$1000.00.
In January of 1997, immediately following the demise of Connoisseur, Mr. Hamlyn maintained an escrow account with Connoisseur. Mr. Hamlyn did not receive an accounting of the escrowed funds or a refund of the balance.
The evidence is undisputed that Mr. Hart, Mr. Glass, and Mr. Hamlyn each delivered funds in trust to Connoisseur which were not accounted for or returned.
The evidence is undisputed that Connoisseur, in 1996, received rental proceeds as agents on behalf of Mr. Hart and Mr. Glass, which were not remitted to the owners.
The evidence is undisputed that Connoisseur, in 1996, failed to pay certain utility bills and tax bills as required in its contracts with Mr. Hart and Mr. Glass.
Connoisseur's Collapse
Connoisseur's operational and financial failure surfaced on September 13, 1996, when Mr. Green, the company's co-owner and day-to-day operations manager, without notice, resigned as President of Connoisseur and formed a competing property management company. To make matters worse, within days, Mr. Green hired key staff away from Connoisseur including Richard Stanton, Connoisseur's office manager, accountant and licensed real estate broker, as well as Dyer Scott, the company's book-keeper. Shortly thereafter, Mr. Green's new company was operational and selectively securing new management agreements with Connoisseur's client list.
In response, Respondent immediately evaluated Connoisseur's financial and operational status and attempted to manage its problems. Respondent advised all of Connoisseur's
homeowners of the company's status, including the departure of the key operational owner and employees, but tried to assure them that the company was headed in the right direction. In fact, in a news update dated October 15, 1996, Respondent advised all of the clients, including Mr. Hart, Mr. Glass, and Mr. Hamlyn of the following:
Upon investigation we were appalled to find that most of our homeowners are waiting on payments and upon further investigation we found that in many cases payment had never been collected from the tour operator. This situation is being corrected immediately and manual invoices are being prepared for collection . . .
I'm happy to say that approximately
$200,000 in back bookings will be properly allocated to our homeowners this month.
Connoisseur did not recover. Within two months, 150 of Connoisseur's 270 homeowners cancelled their management contract with Connoisseur and on January 1, 1997, Respondent sold his interest in Connoisseur to Richard Wilkes and received a total of $15,000.00.
Respondent experienced complete financial loss as a result of the demise of Connoisseur. His home was foreclosed and his vehicle was repossessed.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties and the subject matter herein. Sections 120.57(1) and 455.225(5), Florida Statutes.
It is well established that license revocations and disciplinary proceedings, including Subsection 475.25(1)(b), Florida Statutes, are penal in nature. Munch v. Department of Professional Regulation, Division of Real Estate, 592 So. 2d 1136, 1143 (Fla. 1st DCA 1992). As such, Petitioner must prove the allegations in the Amended Administrative Complaint by clear and convincing evidence. Department of Banking and Finance v. Osborne Stern and Co., 670 So. 2d 932 (Fla. 1996); Ferris v. Turlington, 510 So. 2d 292 (Fla. 1987).
Section 475.01, Florida Statutes, specifically defines the activities of a real estate licensee.
As used in this part:
"Broker" means a person who, for another, and for a compensation or valuable consideration directly or indirectly paid or promised, expressly or impliedly, or with an intent to collect or receive a compensation or valuable consideration therefor, appraises, auctions, sells, exchanges, buys, rents, or offers, attempts or agrees to appraise, auction, or negotiate the sale, exchange, purchase, or rental of business enterprises or business opportunities or any real property or any interest in or concerning the same, including mineral rights or leases, or who advertises or holds out to the public by any oral or printed solicitation or representation that she or he is engaged in the business of appraising, auctioning, buying, selling, exchanging, leasing, or renting business enterprises or business opportunities or real property of others or interests therein, including mineral rights, or who takes any part in the procuring of sellers, purchasers, lessors,
or lessees of business enterprises or business opportunities or the real property of another, or leases, or interest therein, including mineral rights, or who directs or assists in the procuring of prospects or in the negotiation or closing of any transaction which does, or is calculated to, result in a sale, exchange, or leasing thereof, and who receives, expects, or is promised any compensation or valuable consideration, directly or indirectly therefore; and all persons who advertise rental property information or lists. A broker renders a professional service and is a professional within the meaning of s.
95.11(4)(a). Where the term "appraise" or "appraising" appears in the definition of the term "broker," it specifically excludes those appraisal services which must be performed only by a state-licensed or state- certified appraiser, and those appraisal services which may be performed by a registered assistant appraiser as defined in part II. The term "broker" also includes any person who is a general partner, officer, or director of a partnership or corporation which acts as a broker. The term "broker" also includes any person or entity who undertakes to list or sell one or more timeshare periods per year in one or more timeshare plans on behalf of any number of persons, except as provided in ss.
475.011 and 721.20.
Count I in the Amended Administrative Complaint
alleges:
Based upon the foregoing, Respondent, Derek Welling, is guilty of fraud, misrepresentation, concealment, false premises, false pretenses, dishonest dealing by trick, scheme or device, culpable negligence, or breach of trust in any business transaction in violation of Fla.
Stat. Section 475.25(1)(b).
Pursuant to Subsection 475.25(1)(b), Florida Statutes, the Real Estate Commission may deny, revoke, suspend, or otherwise discipline a licensee if it finds that the licensee:
Has been guilty of fraud, misrepresentation, concealment, false promises, false pretenses, dishonest dealing by trick, scheme, or device, culpable negligence, or breach of trust in any business transaction in this state or any other state, nation, or territory; has violated a duty imposed upon her or him by law or by the terms of a listing contract, written, oral, express, or implied, in a real estate transaction; has aided, assisted, or conspired with any other person engaged in any such misconduct and in furtherance thereof; or has formed an intent, design, or scheme to engage in any such misconduct and committed an overt act in furtherance of such intent, design, or scheme. It is immaterial to the guilt of the licensee that the victim or intended victim of the misconduct has sustained no damage or loss; that the damage or loss has been settled and paid after discovery of the misconduct; or that such victim or intended victim was a customer or a person in confidential relation with the licensee or was an identified member of the general public.
In addition, the Commission may discipline a real estate licensee for violating the above section in his or her own personal business affairs. La Rossa v. Department of Bus. & Prof. Reg., 474 So. 2d 322, 324 (Fla. 3d DCA 1985).
Petitioner failed to prove by clear and convincing evidence that Respondent violated Subsection 475.25(1)(b), Florida Statutes, as alleged in Count I of the Amended
Administrative Complaint. First, Petitioner presented insufficient evidence that Respondent committed a breach of trust in any business transaction. Second, the evidence presented by Petitioner does not prove that Respondent's actions were fraudulent, dishonest or culpably negligent.
To the contrary, the evidence indicates that Respondent acted in an honest and forthright manner. Respondent and Connoisseur suffered immediate operational and irreparable financial failure when the managing co-owner, Mr. Green, without notice, systematically resigned, started a competing business, hired away key staff and siphoned away select clients. Upon notice of Connoisseur's problems, Respondent made a reasonable, honest and good-faith effort to notify the clients, stabilize the company and ameliorate any losses by the rental property owners.
Petitioner further asserts that Respondent is culpably negligent by recklessly failing to administer his affairs in a manner that he knew or should have known would cause harm to Connoisseur's clients. Petitioner argues that Respondent lacked diligence in his affairs because he was unaware of the day-to- day operations and had little first-hand knowledge of the specific facts in the Administrative Complaint.
Considering the evidence, Petitioner's arguments lack merit. Respondent served as the international sales associate
for Connoisseur. Petitioner presented no evidence that Respondent acted unreasonably with respect to his business affairs or that Respondent negligently ignored information or failed to adequately inquire about the condition of the company. Moreover, there is no evidence that Connoisseur ever experienced any complaints or financial problems prior to late 1996. The record plainly shows that Respondent was not apprised of any risk or harm to Connoisseur's clients or advised of any problems or complaints related to the company until Mr. Green fled the company. Respondent's actions were not culpable negligence.
Count II of the Amended Administrative Complaint alleges:
Based upon the foregoing, Respondent, Derek Welling, is guilty of failure to account or deliver funds in violation of Fla. Stat.
Section 475.25(1)(d)1.
Subsection 475.25(1)(d)(1), Florida Statutes, provides that a real estate licensee may be disciplined if he:
[h]as failed to account or deliver to any person, including a licensee under this chapter, 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 and delivery, any personal property such as money, fund, deposit, check, draft, abstract of title, mortgage, conveyance, lease or other document or thing of value, including a share of a real estate commission, or any secret or illegal profit, or any devisable share or portion thereof, 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.
Subsection 475.25(1)(d)(1), Florida Statutes, is penal in nature and must be strictly construed in favor of the person sought to be penalized. Fleischman v. Department of Professional Regulation, 441 So. 2d 1121, 1123 (Fla. 3d DCA 1983). "[T]he reach of subsection (d) is confined to unjustified refusals to account for or return property received in trust or "escrow" by a real estate licensee in his professional capacity." Id.
Petitioner did not demonstrate by clear and convincing evidence that Respondent violated Subsection 475.25(1)(d)(1), Florida Statutes. As noted above, while it is clear that the rental property owners, upon request, did not receive an appropriate accounting or return of escrow proceeds, the company had already collapsed under the management of Mr. Green. Respondent was not acting in the capacity as a professional real estate licensee when he notified the rental property owners of the crisis. The evidence did not demonstrate that Respondent received any "trust" or "escrow" funds in his professional capacity as a real estate licensee or that he violated Subsection 475.25(1)(d)(1), Florida Statutes, for any alleged failure to account for or deliver those funds. See Fleischman, supra.
Finally, the evidence presented at the hearing and as alleged in paragraph 10 of the Amended Administrative Complaint indicates that Connoisseur was engaged in the management of short-term rental properties regulated by the Division of Hotels under Chapter 509, Florida Statutes. In fact, Petitioner was notified by co-owner Christner, albeit awkwardly, that Connoisseur was providing the contractual management services to rental property owners pursuant to Chapter 509, Florida Statutes.
It is clear that Section 475.011(11), Florida Statutes, specifically provides that the licensure and discipline of a real estate licensee does not apply to:
(11) Any person, partnership, corporation, or other legal entity which, for another and for compensation or other valuable consideration, rents or advertises for rent, for transient occupancy, any public lodging establishment licensed under chapter 509.
While Respondent provided no conclusive physical evidence establishing that each short-term rental home was, in fact, licensed under Chapter 509, Florida Statutes, the evidence demonstrates that Connoisseur provided management of short-term rentals and did not engage in real estate transactions contemplated by Subsection 475.25(1)(d)(1), Florida Statutes. The evidence does not establish that Respondent was a party to those contracts individually or that he acted in any capacity as
a real estate professional on behalf of Connoisseur in connection with the performance of the contracts. "[V]iolations of mere contractual rights are the concerns only of the courts, and may not be enforced by disciplinary action undertaken by a regulatory agency . . ." Fleischman, 441 So. 2d at 1122-1123.
RECOMMENDED that the Amended Administrative Complaint filed against Respondent in this matter be dismissed.
DONE AND ORDERED this 3rd day of July, 2003, in Tallahassee, Leon County, Florida.
WILLIAM R. PFEIFFER
Filed with the Clerk of the Division of Administrative Hearings this 3rd day of July, 2003.
Victor L. Chapman, Esquire Barrett, Chapman & Ruta, P.A.
Christopher J. DeCosta, Esquire Department of Business and
Hardy L. Roberts, III, General Counsel Department of Business and
Nancy P. Campiglia, Acting Director Department of Business and
15 days from the date of this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the Final Order in this case.
