ALJDEC

01A-020-REL · Department of Real Estate · 2001-09-11

STATE OF ARIZONA IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: August 20, 2001 APPEARANCES: Petitioners : Teresa Foster, Attorney at Law, represented Carolyn Graybeal and Ken Plein; Carolyn Graybeal and Ken Plein each testified on their own behalf, respectively; Witness Douglas Plein. State : Janet Gustafson, Assistant Attorney General, represented the Arizona Board of Real Estate Examiners; Witness William Patena. ADMINISTRATIVE LAW JUDGE: Gary B. Strickland _____________________________________________________________________ This is a proceeding commenced by the Arizona State Department of Real Estate (“Department”), as authorized by Arizona Revised Statutes (“A.R.S.”) Title 32, Chapter 20, Article 3 and Title 41, Chapter 6, Article 10, to impose disciplinary sanction against Respondents Kenneth Plein and Carolyn Graybeal (hereafter also, “the broker” and “the salesperson”, respectively), the former holding a broker’s license issued by the Department and the latter a salesperson’s license. Having heard the testimony of the witnesses and having read and considered the entire record,[1] Administrative Law Judge (“ALJ”) Gary B. Strickland submits this Recommended Decision and Order to the Executive Director of the Department.

FINDINGS OF FACT PROCEDURAL BACKGROUND 1. Complaint No. 01A-020-REL has been filed against the salesperson's license of Carolyn M. Graybeal alleging that Ms. Graybeal had made a false statement on her renewal license application in violation of A.R.S. ( 32-2153 and further alleging that Ms. Graybeal had been negligent in connection with a real estate sales transaction involving homeowner sellers Patenas. The complaint contained allegations of conduct that is susceptible to discipline under the governing statute and the Commissioner’s Rules. This is a consumer generated complaint. 2. Complaint No. 01A-081-REL has been filed against the broker's license of Kenneth J. Plein alleging that he had failed to exercise reasonable supervision over his salesperson (Graybeal) in the Patena sales transaction, all in violation of A.R.S. ( 32-2153 and the Commissioner’s Rules that have been promulgated at Title 4, Chapter 28 of the Arizona Administrative Code. 3. On or about February 22, 1999, a Judgment (the “Judgment”) was entered against Plein and Graybeal, Respondents herein, as well as other defendants therein, in William Patena v. Plein Enterprises, Maricopa County Superior Court No. CV97-00931, awarding plaintiffs the sums of $200. as and for a claim in negligent misrepresentation, $635. for breach of contract, $1,000. for breach of fiduciary duty, and $13,165. for negligence. The plaintiffs were further awarded attorney’s fees of $17,410., together with $2,082.50 costs.[2] 4. The Defendants in the Superior Court case appealed the jury verdict.[3]On or about February 29, 2000, in Patena v. Plein Enterprises dba Tri-Star Realty, et al., No. CA-Complainant 99-0219, the Court of Appeals, Division One, entered its Memorandum Decision affirming the Judgment.[4] 5. On or about May 16, 2000, the Court of Appeals, Division One, entered an Order in Patena v. Plein Enterprises, et al., No. CA-Complainant 99-0219, denying appellant Plein Enterprises’ Motion for Partial Reconsideration regarding Attorney Fee Awards and further granting Appellees additional attorney’s fees of $6,377.[5] 6. After a thorough review of the entire trial court record, the Court of Appeals had concluded that “. . . it was Tri-Star’s breach of the listing agreement by its failure to stay abreast of the status of the Patena/Pease escrow, and the ensuing delay in the sale of the Patenas’ 59th Drive house that resulted in the Patenas’ losses . . . [t]he evidence supports the finding in favor of the Patenas.”[6] 7. On March 4, 1999, the Defendants’ attorney notified the Department’s Commissioner that a judgment had been entered against the Defendants.[7] 8. On or about June 20, 2000, William and Linda Patena filed a complaint with the Department of Real Estate requesting investigation of the facts underlying their successful lawsuit against Respondents herein.[8] 9. After an investigation undertaken by the Department, A Notice of Hearing and Complaint was issued on July 2, 2001 wherein was set forth by the Department allegations of Respondent Plein’s violations of the governing statute and administrative rules. The Department had previously issued Respondent Graybeal a Notice of Hearing and Complaint on or about May 24, 2001. 10. Separate hearings were scheduled at the Office of Administrative Hearings in Phoenix. Upon motion and by order dated July 3, 2001, the above two matters were consolidated and a hearing was held on August 20, 2001. 11. In both complaints, the Department has sought to suspend, revoke or deny the renewal of licenses and to impose a civil penalty.

RELEVANT FACTS THE ALLEGED ACTS AND OMISSIONS OF RESPONDENTS PLEIN AND GRAYBEAL CONSTITUTING VIOLATION AS EXPLICATED BY THE WITNESSES

A. Facts Pertaining to Both Graybeal and Plein 12. On or about March 19, 1996, Plein was issued an original real estate broker's license in the State of Arizona. Plein is the “designated broker” for Plein Enterprises, Inc., dba Tri-Star Realty (the "Corporation"). 13. The Corporation has employed Carolyn Graybeal as a real estate salesperson. 14. On or about August 10, 1995, Graybeal was issued an original real estate salesperson's license in the State of Arizona. That license expired on August 31, 2001. 15. On April 9, 1996, Complainants William and Linda Patena executed a written Contract to purchase a new home from a third-party not involved either in the Superior Court litigation or this administrative hearing. 16. The Patenas, thereafter, entered into a Listing Agreement with Tri-Star Realty on April 10, 1996 to facilitate the sale of their then current home.[9] Carolyn Graybeal was assigned as the Tri-Star agent for the transaction. 17. Plein/Graybeal did not represent the Patenas in the purchase of their new home. 18. The Contract for the sale of the Patena home that is the subject of this hearing was executed by signature of the parties, Seller Patenas and Buyer Pease, on June 10, 1996. Performance by the Patenas of the terms of the agreement was expressly conditioned on Pease qualifying for a new first loan and an appraisal of the property for an amount at least equal to the sales price.[10] The agreement identified the Buyer as "pre-approved".[11] 19. At one point, the lender advised all parties that Pease was pre- qualified. The lender contacted both Ms. Patena and salesperson Graybeal in July 1996 advising each that everything was "okay".[12] 20. Mr. Patena testified at the hearing that his wife had called Royal Mortgage Bank "a number of times" to inquire about the status of the Pease application. However, Ms. Patena previously testified at the trial that she had spoken with Royal Mortgage Bank once (the first or second week of July) during which conversation she was advised that "things were moving along".[13] 21. At one point, Graybeal had been told by Royal Mortgage Bank that the loan was approved. The bank representative had further led Graybeal to believe that it would be possible to close two weeks early because of the anticipated approval.[14] 22. In late July 1996, the house was appraised at an amount inadequate to support the loan desired. Therefore, loan approval was decreased to 75% loan-to-value (“LTV”). Accordingly, the parties unsuccessfully met with a new lender on or about August 3, 1996 to attempt to salvage the deal.[15] The original loan application was canceled by Royal Mortgage Bank on August 8, 2001.[16] Thereafter, on August 27, 1996, Royal Mortgage Bank gave prospective purchaser Pease written explanation of the lending transaction.[17] 23. Tri-Star agents Bob Couden and Carolyn Graybeal met with Mr. and Ms. Patena on or before August 3, 1996 to discuss other financing alternatives proposed by the lenders. At that conference, it was proposed that the Patenas carry back between 5 and 15% of the purchase price for a short period (one to two years) in order to close the transaction. The Patenas declined the proposal. 24. Under the Mutual Listings System (“MLS”), pending sales are automatically reflected as "sold" after the close of escrow date.[18] If the property falls out of escrow, the parties must execute cancellation of escrow instructions and thereby instruct the broker to remove the property from the MLS.[19] Patenas' expert at the Superior Court trial, Mr. Jones, acknowledged that in order to take the listing off the MLS system, MLS would require a written document such as the cancellation of the escrow.[20] The Patena escrow had not been cancelled.[21]

B. Facts Specific to Graybeal 25. The Department acknowledges that it received notice of the judgment entered against Graybeal prior to Graybeal having submitted her application for renewal. 26. On August 27, 1999, Carolyn Graybeal submitted an Application for License Renewal (Form LI-243)[22] to the Department of Real Estate whereon in answer to the following question set forth by the Department, Respondent Graybeal responded in the negative without qualification: Have you had any adverse decision or judgment entered against you by a court of competent jurisdiction in this or any other state involving fraud, dishonesty or moral turpitude, or arising out of the conduct of any business in real estate, cemetery property, time-share intervals or membership camping campgrounds? A.R.S. ' 32-2108(C).

27. Graybeal admits she did not respond to the above question accurately. 28. In an effort to mitigate her responsibility for having improperly and falsely responded to the question put forward to her, Graybeal notes that she had been and then was suffering from cancer in 1999, around the time that she was preparing her application; the applicant had undergone surgical procedure, followed by radiation. Physically and emotionally, this was an extremely difficult time for the applicant. 29. Additionally, Graybeal testified that, upon reflection, she had misread the Department’s renewal application question. She believed that the question was eliciting response concerning whether a judgment had been entered against her for "fraud, dishonesty or moral turpitude."[23] 30. Further, Graybeal was in the process of changing Real Estate companies in August of 1999; admittedly, she had hurried through the questionnaire. 31. Respondent Graybeal was aware at the time that she completed the application that her attorney had previously forwarded notice of the Judgment to the Department in March of 1999. 32. After the Patena complaint had been filed with the Department, a Department Investigator forwarded a certified letter to Graybeal on October 16, 2000 at the agent’s address of record requesting Graybeal to submit to the Department a written statement not later than October 25, 2000 regarding the allegations contained within the complaint. Although the return receipt reflects that Graybeal’s employer had accepted the letter on October 17, 2000, Graybeal did not respond until January 12, 2001.[24]

C. Facts Specific to Plein 33. No direct allegations were asserted against the Corporation (Plein Enterprises, Inc. dba Tri-Star Realty), or Plein individually (the “designated broker”), in the civil law suit. The Corporation was sued as the “employing broker” and Plein was sued as the “designated broker.” The jury was instructed as follows regarding the broker's liability for its agent's actions:

In this case, the defendants, Plein Enterprises Inc. dba Tri- Star Realty, and the real estate broker are responsible for the actions of their agents, including Carol Graybeal.[25]

34. Plein has held his broker's license for 17 years, having been issued his original license on or about March 18, 1986. The license expires on March 30, 2002.[26] Plein currently supervises approximately 100 agents. Plein is the President and controlling shareholder of Plein Enterprises, Inc.[27] 35. This is the first formal complaint filed by the Department against Plein. As the Department noted at the hearing, Plein has been the subject of two previous investigative actions by the Department (C91-0178 and C91-0396), one of which investigation resulted in administrative “warning.” 36. On or about August 26, 2001, Plein, as designated [supervising] broker for Graybeal, signed Graybeal’s application for renewal of her salesperson’s license. This application contained the false response to question 5, as set forth in paragraph 25 above.[28] 37. Plein testified that he had spoken with Graybeal and another licensee under Plein’s control on a “half dozen occasions” about the Patena/Pease transaction in an effort to keep abreast of developments. Further, Plein testified that he maintained a log for the Patena file and that he had been aware of the progress of the transaction at all times. Additionally, Plein testified that he had obtained approval from Royal Bank Mortgage of the transaction.[29] 38. After review of the trial court record, the Court of Appeals has determined that Tri-Star had not kept abreast of the status of the Patena/Pease escrow and had, therefore, not taken action to avoid the Patenas’ resulting losses.[30]The Court concluded that Tri-Star had failed to proceed with additional necessary marketing in an effort to locate an alternative buyer. Further, the Court of Appeals determined that Tri-Star had breached its “ongoing fiduciary duty to maintain an accurate MLS listing in order to avoid negatively impacting the sale of the [Patenas’] house.”[31] 39. Plein testified at the administrative hearing that every agent employed by his company is subjected to a rigorous new agent training program. Graybeal was required to undergo the training regimen that has been implemented by Tri-Star. 40. The general manager of the Corporation (Doug Plein) holds a 16 week class two days a week for all new agents. The class covers various things that were not taught during the State's 90 hour licensing class including how to obtain a listing, comparative marketing analysis (CMA), how to write purchase contracts, the necessity of and the means to treat client's fairly, and effective communication with clients. 41. In addition to the new agent training course, Plein provides regular memoranda to his agents advising them of newly enacted laws, regulations and industry standards. He also holds a weekly sales meeting attended by all of the agents. 42. Upon hire, all new agents are assigned a "mentor," an agent employed by the Corporation who has at least five years experience. Graybeal was assigned to agent Bob Couden (who had 14 to 15 years experience at the time relevant herein). 43. Couden assisted Graybeal in the preparation of the CMA, obtaining the Listing Agreement from the Patenas, presenting the Contract to the Patenas, touring the property with other agents from the Corporation, and, finally, meeting with the Patenas after the lender had modified the LTV ratio. 44. In an effort to supervise his agents thoroughly and effectively, Plein sets aside time early every morning to review all files and to review and initial Listing Agreements, Purchase Contracts, and other documents related to a particular transaction. 45. Plein personally reviewed and approved the underlying Patena documents, including the Listing Agreement, the Purchase Contract and the MLS Data Form.[32] 46. No evidence was presented at the hearing supporting the proposition that Plein personally failed to properly supervise an agent. Patena admitted that he did not have personal knowledge concerning Plein’s supervision of his agents. 47. Mr. Patena’s complaint resides in his belief that Plein "didn't care" about the transaction; he based this belief on his understanding that his wife ostensibly had called Plein a number of times, to which calls the broker failed to respond. 48. At trial, however, Ms. Patena specifically admitted that she did not call Tri-Star to complain of the course of events; she was under the impression that Graybeal (the agent) was “keeping up” on the progress of the sale of her house.[33] 49. Concerning the MLS problem that had occurred after the transaction had fallen through, Linda Patena testified at trial that she had contacted Tri-Star (the Corporation); the witness stated that she "talked to whoever answered the phone, a receptionist or an agent. One time at Tri-Star [she] left a message on Carolyn Graybeal's answering machine."[34] Ms. Patena has not testified in either the trial or at the administrative hearing[35] that she had contacted Plein or had requested at any time that Plein call her. 50. Complainant Patena testified that when Patena first attempted to recover the Judgment he and his wife had gained against Plein’s company, the check submitted to Patena by Plein was returned for insufficient funds. This failure caused Patena to incur additional attorney’s fees.

APPLICABLE STATUTES § 32-2124. Qualifications of licensees

A. Except as otherwise provided in this chapter, the commissioner shall require proof, through the application or otherwise, as the commissioner deems advisable with due regard to the interests of the public, as to the honesty, truthfulness, good character and competency of the applicant, and shall require that the applicant has:

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§ 32-2153. Grounds for denial, suspension or revocation of licenses; issuance of a provisional license; retention of jurisdiction by commissioner; definition

A. The commissioner may suspend or revoke a license, deny the issuance of a license, issue a provisional license or deny the renewal or the right of renewal of a license issued under the provisions of this chapter if it appears that the holder or applicant, within five years immediately preceding, in the performance of or attempt to perform any acts authorized by the license or by this chapter, has:

1. Pursued a course of misrepresentation or made false promises, either directly or through others, whether acting in the role of a licensee or a principal in a transaction.

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3. Disregarded or violated any of the provisions of this chapter or any rules adopted by the commissioner.

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21. As a licensed broker, failed to exercise reasonable supervision over the activities of salespersons, associate brokers or others under the broker's employ or failed to exercise reasonable supervision and control over the activities for which a license is required of a corporation, limited liability company or partnership on behalf of which the broker acts as designated broker under section 32-2125.

22. Demonstrated negligence in performing any act for which a license is required.

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B. The commissioner may suspend or revoke a license, deny the issuance of a license, issue a provisional license or deny the renewal or the right of renewal of a license issued under the provisions of this chapter when it appears that the holder or applicant therefor has:

1. Procured or attempted to procure a license under the provisions of this chapter for himself or another by fraud, misrepresentation or deceit, or by filing an original or renewal application which is false or misleading.

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3. Made any substantial misrepresentation.

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7. Not shown that the holder or applicant is a person of honesty, truthfulness and good character.

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10. Violated any federal or state law, regulation or rule that relates to real estate or securities or that involves forgery, theft, extortion, fraud, substantial misrepresentation, dishonest dealings or violence against another person or failure to deal fairly with any party to a transaction that materially and adversely affected the transaction. . . .

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§ 32-2157. Commissioner action requiring commissioner to present respondent with written complaint and notice; summary suspension; hearing

A. Except as provided in subsection B of this section, before suspending, revoking or denying the renewal or the right of renewal of any license, or issuing any order prohibiting the sale or lease of property or the sale of cemetery lots or membership camping contracts as provided by this chapter, the commissioner shall present the licensee, owner, operator, agent or subdivider with written notice of the charges filed against the person, or reasons for prohibiting the sale or lease, and shall afford the person an opportunity for a hearing pursuant to title 41, chapter 6, article 10.

B. If the commissioner finds that the public health, safety or welfare imperatively requires emergency action, and incorporates a finding to that effect in the commissioner's order, summary suspension of a license or sales may be ordered. Grounds for issuance of an order of summary suspension include the violation of any of the provisions of section 32-2153, subsection B and the termination of a license pursuant to section 32-2188, subsection H. A licensee, owner, operator, agent or subdivider may request a hearing pursuant to title 41, chapter 6, article 10. A summary suspension shall be deemed to be final if a request for a hearing is not received within thirty days as provided by section 41-1092.03.

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CONCLUSIONS OF LAW 1. The Department has authority to impose disciplinary sanctions against Plein and Graybeal, each the holder of a license issued by the Department.[36] 2. The sanctions that may be imposed for proven violation(s) include revocation of a license issued by the Department, or suspension, or lesser penalties in lieu of or in addition thereto.[37] 3. The burden of proof generally at an administrative hearing falls to the party asserting a claim, right or entitlement or seeking to impose a penalty.[38] Further, the standard of proof is that of the “preponderance of the evidence”.[39] Proof by a preponderance means that the evidence is sufficient to persuade the finder of fact that the proposition is “…more likely true than not.”[40] The evidence taken as a whole must convince the decision maker that the party who bears the overall burden of persuasion is more probably correct on the issue(s) in dispute. 4. In this proceeding, the Department has the burden of establishing that disciplinary sanctions should be imposed against Mr. Plein and/or Ms. Graybeal, as well as the nature and extent of the sanctions. 5. The underlying purpose of a Department of Real Estate oversight commission is to protect the public interest.[41] 6. The Arizona state legislature has directed that statutes be liberally construed in an effort to effect their objects and promote justice.[42] Statutes wherein penalty may be imposed pursuant to application thereof, such as that found at Title 32, Chapter 20, are to be construed according to the fair import of their terms.[43] Technical words and phrases are to be construed according to their peculiar and appropriate meaning. 7. The Department has rightfully asserted the findings of the prior Judgment in these proceedings.[44] Plein and Graybeal are prohibited from relitigating in this administrative forum the findings of the trial and appellate courts on the factual issues presented there.[45]The Commissioner could not have joined this disciplinary action in the civil court proceedings. Plein and Graybeal had every incentive to defend themselves in that proceeding. Further, the procedural safeguards afforded the Respondents herein are comparable to those that were afforded them by the civil proceedings. And, due process considerations, such as proper notice and the right to confront witnesses and present evidence, have been preserved in this administrative forum. 8. The Rules that have been adopted by the Commissioner in an effort to implement the Department’s statutorily delegated responsibilities and authority have the force and effect of law.[46]

A. Legal Conclusions Relative to Graybeal 9. The Department has alleged in paragraph 23 of the complaint that Graybeal failed to report the Judgment as required under R4-28-301(F). Graybeal argues that Department's Exhibit N, however, confirms that Graybeal did report the Judgment to the Department. Insofar as the issue presented concerns whether Graybeal misrepresented on her application, whether Graybeal was or was not aware that her attorney had informed the Department of the Judgment is not controlling. 10. On March 4, 1999, Graybeal's attorney notified the Department of the Entry of Judgment pursuant to R-28-301(C)(2). Graybeal identifies the following reasons for her not revealing the prior Judgment on her application: (1) when Graybeal signed her August 26, 1999 renewal application, she knew that her attorney had already advised the Department of the entry of Judgment; further advisory was unnecessary; (2) Graybeal testified that she did not disclose this Judgment on the application because she did not understand the question; (3) Graybeal had been undergoing medical problems at the time the application was submitted inhibiting her ability to think clearly;[47] and (4) Graybeal did not believe that the Judgment involved "fraud, dishonesty or moral turpitude."

11. Ms. Graybeal's argument is not well taken. Graybeal’s application, specifically her response to question 5 thereon, was false and misleading. No attempt to sidestep responsibility therefor will deny the reality. Whether the Department was aware of the entry of Judgment is irrelevant. Graybeal’s responsibility was to respond truthfully to the question as the question was posed to her as applicant. The question itself did not require exegetical skill in order to interpret its meaning. Any ambiguity in the question was created by the applicant’s parsing of the language, inferentially in an effort to avoid disclosure. This act constitutes a violation of A.R.S. (( 32-2153(B)(1) and (7). By filing a false or misleading application, Graybeal has demonstrated that she is not a person of truthfulness and, therefore, is lacking in character. 12. Graybeal’s (1) failure to stay abreast of the Patena/Pease escrow and to advise the Patenas of the status thereof, (2) failure to continue to market the Patenas’ home, and (3) failure to correct Tri-Star’s MLS listing, constitute a breach of fiduciary duty for which Graybeal is susceptible to discipline under A.A.C. R4-28-1101(A). 13. Graybeal’s failure to timely notify the Patenas of the material fact that Royal Mortgage Bank would not approve the Pease loan constitutes a breach of fiduciary duty that Graybeal owed to the Patenas, all in violation of A.R.S. (( 32-2153(B)(3) and (10) and A.A.C. R4-28-1101(B). 14. Graybeal’s acts and omissions in the Patena transaction constitute negligence in violation of A.R.S. ( 32-2153(A)(22). 15. Graybeal failed to perform expeditiously as is required of a licensee (1) by failing to follow-up and ensure that Pease had placed the necessary loan documentation in escrow within 15 days of executing the contract, (2) by failing to notify the Patenas that Pease would not be approved for the expected loan, although Graybeal had been informed by the bank of the denial on July 19, 1996, and (3) by failing to continue to market the Patena property.

B. Legal Conclusions Relative to Plein 16. The Department has alleged that Plein failed to properly supervise his agent in violation of A.R.S. ( 32-2153(A). The Department appears to base its claim solely on the entry of the civil judgment. However, the standards in a civil action and the standards under the Department's regulations differ. At trial in Superior Court, the jury was instructed that, as a matter of law, Plein and the Corporation were responsible for the actions of their agents, including Graybeal, under the doctrine of respondeat superior.[48] Conversely, according to Plein, it must be observed that the standard under the Department's regulations is more onerous for the Department. The pertinent regulation, R4-28-302, includes two sections that are interpreted by Plein as distinctive one from the other.[49] Under Subsection I, the "employing broker" (the Corporation, Plein Enterprises, Inc. dba Tri-Star Realty) is responsible for the acts of all salespersons. Under Subsection H, the "designated broker" is not responsible for all acts of its salespersons. On the contrary, the designated broker is only "responsible for supervising the associate brokers, salespersons . . . ." 17. According to counsel, to find Plein in violation of R4-28-302, the Department may not simply look to the civil judgment, which held (under a different standard) Plein responsible for all acts of his agent (Graybeal). It must, instead, show that he failed by act and omission to supervise his agent. 18. Reliable and substantial evidence has not been submitted at the hearing of this matter indicative that Plein generally failed to properly supervise his agent, Graybeal.[50] Plein’s testimony concerning his efforts to prepare sales employees through the new agent training program, and then the follow-up mentor program, along with his demonstrated active supervision of the Patena transaction went unrebutted. 19. On the other hand, Department’s witness William Patena admitted at the administrative hearing that he did not have any personal knowledge regarding Plein's supervision of this agent; instead, Patena based his complaint on his belief that his wife had called Plein numerous times and had not, in turn, received responses from Plein. In contrast, Ms. Patena's sworn testimony at trial was that she had never called Plein.[51] 20. There was little evidence offered at the administrative hearing to show that Plein failed to properly supervise this agent in any particular.[52] However, taking the findings of the jury in the trial court matter in conjunction with the testimony of Mr. Plein concerning his active supervisory role over his agents generally and this agent specifically during the Patena transaction, violation of A.R.S. ( 32-2153(A)(21) has been proven. At least by inference, it has been demonstrated that Plein failed his supervisory responsibilities. Further, it is implicit that an employee agent’s failure denotes some accountability attributable to the employer, especially when the employee agent acts with the knowledge of the employer. By admission, Graybeal acted with Plein’s knowledge at least with respect to the Royal Bank Mortgage[53] and the submission of her renewal application. 21. Counsel’s attempt to relieve Plein of accountability through a construction of R4-28-302(H) and (I) that would identify Plein as the “designated” broker in contradistinction from the “employing” broker for purposes of discipline is strained. According to counsel’s argument, it is required that there be a direct demonstration of negligence, or breach of fiduciary duty, or a showing of lack of expedition, on the part of Plein personally in order to invoke an act of discipline against his license. 22. While the Department has not addressed this argument, it is evident that counsel’s distinction as applied to these facts is based upon unclear authority. Counsel has not explained why Plein, owner of the employing company, may not be identified as the “employing” broker for purposes of the regulation. It is noted that the enabling legislation does make the distinction.[54] However, the regulations do not further define the distinction; and certainly not as the distinction might impact disciplinary considerations is there presented clear explication. A fair and reasonable application of the terms as they would commonly be used under the enabling statute is employed here,[55] all in an effort to effect the clear objects of the statute. It would be irrational to infer that the legislature would have contemplated insulating one identified as an “employing broker” from discipline absent a demonstration of failure of supervision. That concern apparently is addressed by the regulation.[56] Plein, as the President and controlling shareholder of the Corporation, may not escape disciplinary culpability by hiding behind such a thin shield.[57] 23. It is determined that Plein was both the “employing broker” and the “designated broker” during the transaction at issue for purpose of an application of the regulation’s requirements.[58] 24. Accordingly, Plein, as “employing broker,” is held responsible for the proven acts and omissions of Graybeal in the Pease/Patena transaction; a transaction that occurred within the course and scope of Graybeal’s employment with Tri-Star/Plein. Plein, as “designated broker,” likewise is held responsible for his failure to effectually supervise Graybeal in her undertaking of the Patena sale and in her submission of a false and misleading application of renewal of her salesperson license.

25. Therefore, Grounds exist for the discipline of Plein’s license.

APPROPRIATE DISCIPLINE 26. The Department ought to give due consideration to public perception. The Department has as its ultimate obligation the protection of the public; it should not make allowance for a disregard of professional rules that go to the very essence of that trust necessary to qualitative real estate transaction practice. 27. The discipline of a professional certificate, whether it be revocation, suspension, or a lesser penalty, is a sanction that should not be lightly imposed. Elements of mitigation and aggravation, if any, ought to be considered in the deliberations. 28. A careful review of the totality and preponderance of the evidence presented at the hearing of this petition supports the denial of the renewal of Carolyn M. Graybeal’s Real Estate Salesperson’s license (the license having expired on August 31, 2001)[59] for a period of two (2) years (i.e., through August 31, 2003). Additionally, The Department should assess Ms. Graybeal a civil penaly of $1,000. This is an appropriate disciplinary sanction.[60] 29. A careful review of the totality and preponderance of the evidence presented at the hearing of this complaint supports the suspension of the Real Estate Broker’s license held by Kenneth Plein for a period of ninety (90) days. Additionally, the Department should assess Mr. Plein a civil penalty of $1,000.[61] This is an appropriate disciplinary sanction. 30. “An administrative penalty is excessive only if it is so ‘disproportionate to the offense as to shock one’s sense of fairness’.”[62] Neither of these penalties is excessive under the facts as they have been presented and as comprehended by the rules.

RECOMMENDED ORDER IT IS RECOMMENDED that the Commissioner of the Department of Real Estate deny a renewal of the Real Estate Salesperson license of Carolyn M. Graybeal for a period of two (2) years (i.e., through August 31, 2003). Additionally, the Department should assess Ms. Graybeal a civil penalty of $1,000. IT IS RECOMMENDED that the Commissioner of the Department suspend the Real Estate Broker’s license of Kenneth Plein for a period of ninety (90) days, commencing on the effective date of the Commissioner’s Order. Additionally, the Department should assess Mr. Plein a civil penalty of $1,000.

Done this day, September 25, 2001. OFFICE OF ADMINISTRATIVE HEARINGS

________________________________ Gary B. Strickland Administrative Law Judge

. . .

Original transmitted by mail this ____ day of ____________, 2001, to:

Department of Real Estate Jerry Holt, Commissioner Att’n: Gloria Konya 2910 North 44th Street, Suite 100 Phoenix, AZ 85018

By ___________________________ ----------------------- [1] The parties stipulated that the official record consists of that record having been electronically recorded by the Office of Administrative Hearings of the testimony and argument set forth by the parties’ witnesses and their representatives, respectively, along with the exhibits that were offered at the hearing and documentation in the Department’s case file. [2] Hearing Exhibit H; Respondent Plein Answer at (1; Respondent Graybeal Answer at (4. [3] Hearing Exhibit I; Respondent Plein Answer at (1; Respondent Graybeal Answer at (5. [4] Hearing Exhibit J; Respondent Plein Answer at (1; Respondent Graybeal Answer at (6. [5] Hearing Exhibit K; Respondent Plein Answer at (1; Respondent Graybeal Answer at (7. [6] Hearing Exhibit J at p. 7. [7] Hearing Exhibit N. [8] Hearing Exhibit F. Such notice is required by A.A.C. R4-28-301(C)(2). [9] Hearing Exhibits 1 and 2. [10] Hearing Exhibit 3, lines 52 and 76. [11] Hearing Exhibit 3. [12] See Exhibit 4, Transcript Volume IV, page 34-35, and 91 ("TR. IV, 54, 91") and TR. V, 76. [13] See Exhibit 4, TR. V, p. 76. [14] See Exhibit 4, TR. IV, at 91. [15] See Exhibit 4, TR. III at 49. [16] Exhibit 5. [17] Exhibit 7. [18] TR. V at 130 and 131. [19] TR. V, 131. [20] TR. II at 25. [21] TR. II at 25-26. [22] Hearing Exhibit A. [23] The Patena lawsuit involved allegations of breach of contract, breach of fiduciary duty, negligence and negligent misrepresentation). [24] Hearing Exhibits B, D, and M. [25] See TR V at pp. 141-142. [26] Hearing Exhibit C; Plein Answer, (1. [27] Hearing Exhibit E. [28] Hearing Exhibit A. [29] Plein Answer, (7. [30] Hearing Exhibit J at 7-10. [31] Id. [32] See Exhibits 2 and 3. [33] See TR V at p. 77. [34] See TR V at pp. 69-70. [35] Ms. Patena did not testify at this administrative hearing. [36] A.R.S. ( 32-2153(A). [37] Id. [38] Culpepper v. Arizona Board of Nursing, 187 Ariz. 431, 930 P.2d 508 (App. 1997); See also Ariz. Admin. Code R2-19-119 (B). [39] Smith v. Arizona Department of Transportation, 146 Ariz. 430, 706 P.2d 756 (App. 1985); See also Ariz. Admin. Code R2-19-119 (A). [40] In re Arnold and Baker Farms, 177 B.R. 648, 654 (9th Cir. BAP (Ariz.) 1994). See also, J. Livermore, R. Bartels, & A. Hameroff, LAW OF EVIDENCE ( 301.1(4th ed. 2000) (One party bears the overall burden of persuasion on each fact material to the party’s claims and defenses. Further, the party with the burden of persuasion on a particular fact is required to satisfy the burden of production of enough qualitative evidence sufficient to support a finding of the existence of the fact, following a reasonable person standard.) [41] A.R.S. ( 41-2102 and A.R.S. Title 32, Chapter 20. [42] A.R.S. ( 1-201(B); See also Siler v. Az. Dept of Real Estate, 193 Arizx. 374, 972 P.2d 1010(App. 1986) (Laws governing the sale of real estate are to be liberally interpreted to protect the public.). [43] A.R.S. ( 1-201(C). [44] Wetzel v. Az. Dept. of Real Estate, 151 Ariz. 330, 727 P.2d 825, 829 (App. 1986) (under the Restatement (Second) of Judgments ( 29, comment b (1982), the Department properly invoked the doctrine of offensive collateral estoppel in a disciplinary action against a licensee who had been determined unfit for the practice of law after the question of fitness had been fully litigated). [45] Nevertheless, in an effort to make a complete record, the Administrative Law Judge allowed Plein and Graybeal every opportunity to distinguish the facts as they were presented in the trial, to which the Department was not party under the relevant pleadings, from the disciplinary proceedings to which Plein and Graybeal have been caused to respond under the applicable standards. [46] Red Carpet-Barry & Associates v. Apex Associates, 130 Ariz. 302, 304, 635 P.2d 1224, 1226 (App. 1981). [47] See Findings of Fact paras. 28-30. [48] See Findings of Fact, para. 33. [49] A.A.C. R4-28-302 reads, in pertinent part: H. The designated broker shall: 1. Be responsible for supervising the associate brokers, salespersons and employees of the employing broker within the course of their employment;

*** I. The employing broker shall be responsible for: 1. The acts of all associate brokers, salespersons, and other employees acting within the course of their employment; and 2. Supervising the associate brokers, salespersons, and employees of the employing broker within the course of their employment. [50] There is, however, one issue wherein Plein’s failure to supervise is evident under the testimony and evidence produced; that is Plein’s failure to supervise Graybeal in the submission of her application for the renewal of her salesperson’s license, an application containing falsehood that was signed by Plein in his supervising broker capacity. In that capacity, Plein knew or should have know of the falsity contained within Graybeal’s response to question 5. [51] See Findings of Fact, para. 48. [52] See note 50 above. [53] See Findings of Fact 37. [54] A.R.S. ( 32-2101(20) and (23):

20. "Designated broker" means the natural person who is licensed as a broker under this chapter and who is either:

(a) Designated to act on behalf of an employing real estate, cemetery or membership camping entity.

(b) Doing business as a sole proprietor.

23. "Employing broker" means a person who is licensed or is required to be licensed as a:

(a) Broker entity pursuant to section 32-2125, subsection A.

(b) Sole proprietorship if the sole proprietor is a broker licensed pursuant to this chapter. [55] See NORMAN J. SINGER, STATUTES AND STATUTORY CONSTRUCTION ( 46.01 (vol. 2A, 2000 Revision). [56] A.A.C. R4-28-302(I)(1). [57] Without examining the nuances of corporation law analysis, it appears that Plein Enterprises, Inc. functions as the alter ego of Plein. Therefore, Plein should bear corporate disciplinary liability. [58] The Department, having failed to explain its position on the distinction that Petitioner Plein seeks to make, and having failed to prove that Plein failed his supervisory responsibilities, has made difficult an application of the statute and regulations to this set of facts. [59] See Finding of Fact 14. [60] There is concern for the demeanor that this licensee manifested at the hearing of this matter. Ms. Graybeal appears oblivious to the responsibility owed by her to these clients and the harm inflicted upon them by her acts and omissions in her negligent handling of this transaction. [61] If the Plein penalty be regarded as less severe in comparison to that accorded Graybeal (an unsound inference), the disparity, if any there be, is justified by a recognition that Plein’s violations are founded generally in omission and degree rather than in commission. [62] Culpepper, supra, 187 Ariz. at 438, 930 P.2d at 515, citing Schillerstrom v. State, 180 Ariz. 468, 471, 885 P.2d 156, 159 (App. 1994) (professional board sanction (revocation) of chiropractor’s license not found to be so disproportionate to the offense as to shock one’s conscience); Bear v. Nicholls, 142 Ariz. 560, 563, 691 P.2d 326, 329 (App. 1984) .

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Office of Administrative Hearings 1400 West Washington, Suite 101 Phoenix, Arizona 85007 (602) 542-9826