ALJDEC decisions subject to certification as final

08F-DI-180-REL · Department of Real Estate · 2008-03-03

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING DATES: January 16 and 17, 2008, beginning at 9:00 a.m. on both dates; February 7, 2008 at 9:00 a.m.; February 13, 2008 at 1:30 p.m. APPEARANCES: The Arizona Department of Real Estate appeared through Alyse C. Meislik, Esq., Kelly LaPrade, Esq., and Erin O. Gallagher, Esq., Assistant Attorneys General; Respondent Donald E. Boyle appeared through Brian L. Eastin, Esq., Platt and Westby, P.C. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky _____________________________________________________________________

The parties presented evidence and made argument about whether Respondent Mr. Boyle violated the laws governing licensed real estate brokers that were charged in the Notice of Hearing and, if so, the appropriate penalty that should be imposed on Respondent’s license. Based on the entire record and applicable law, the Administrative Law Judge makes the following Findings of Fact, Conclusions of Law, and Recommended Order to the Commissioner of the Arizona Department of Real Estate. FINDINGS OF FACT Background 1. On August 17, 2004, the Arizona Department of Real Estate (“the Department”) issued broker’s license BR018909000 to Mr. Boyle. Between August 17, 2004 and October 6, 2004, Mr. Boyle was a self-employed broker. 2. Between October 6, 2004 and August 31, 2006, Mr. Boyle was the designated broker for Arizona High Performance Realty, LLC (“AHPR”). The Department had issued brokerage License No. LC556341000 to AHPR on October 6, 2007. After Mr. Boyle resigned as AHPR’s designated broker, AHPR’s license became inactive. AHPR’s license expired on October 31, 2006. 3. Russell Bosworth was the owner of AHPR. On September 17, 2002, the Department had issued real estate salesperson License No. SA536222000 to Mr. Bosworth. 4. Patricia Cantu was Mr. Bosworth’s executive assistant at AHPR. On April 4, 2006, the Department issued real estate salesperson License No. SA5741790000 to Ms. Cantu. Before that date, Ms. Cantu was unlicensed. 5. From September 8, 2006 until the time of the hearing in this matter, Mr. Boyle has been employed as an associate broker at Liberty Properties & Associates, Inc. His broker’s license is due to expire on August 31, 2008. 6. On October 26, 2007, the Department in Case No. 07F-DI-241 entered a Cease and Desist Order against AHPR and Mr. Bosworth, based on, among other things, his actions as an unlicensed broker in acquiring property management clients before AHPR acquired its brokerage license and hired Mr. Boyle as designated broker, closure of AHPR without statutory notice to property owners, commingling personal funds with client trust funds, converting client trust funds to his own and Ms. Cantu’s personal use, failing to remit $380,552.65 to ninety former clients, and failing to provide financial documents related to AHPR’s business. Among other statutory violations, the Department charged Mr. Bosworth with fraud or dishonest dealings, in violation of A.R.S. § 32-2153(B)(5). Mr. Bosworth did not request a hearing on the charges in the Department’s Cease and Desist Order and it became final. 7. On December 11, 2007, the Department and Ms. Cantu entered into a Consent Order in Case No. 08f-DI-179-REL, which resolved charged statutory violations based on her receipt of commissions from real estate sales before she was licensed. 8. In late 2007, the Department also issued a Complaint against Mr. Boyle’s broker’s license, based on the same events on which the Cease and Desist Order against Mr. Bosworth’s salesperson’s license and AHPR’s brokerage license and the consent order against Ms. Cantu’s real estate salesperson’s license. Mr. Boyle timely requested a hearing. 9. The Department referred the matter to the Office of Administrative Hearings and issued a Complaint and Notice of Hearing. At the beginning of the hearing subsequently held, the Department modified the Complaint and Notice of Hearing to delete some factual allegations and charged statutory violations. At issue at the hearing were the Departments charges against Mr. Boyle of violations of A.R.S. §§ 32-2151; 32-2151.01(A) and (B); 32-2153(A)(3), (9), (11), (15), (21), and (22); 32-2153(B)(8); and 32-2173(B)(1), (C)(1), (C)(2), (C)(3), and (C)(4), which the Department asserted as grounds to impose a civil penalty not to exceed $1,000.00 per violation under A.R.S. § 32-2160.01. 10. The Department presented the testimony of its Assistant Commissioner over Licensing, Professional Education, and Auditing, Janet Blair, auditor Jay Montoya, Manager of Real Estate Investigations David Lewis, and AHPR former property management clients Gloria Rogers and Kristen Pollard and had admitted into evidence 35 exhibits, including some with numerous subparts. Mr. Boyle presented the testimony of AHPR’s former bookkeeper, Dyna Layne Larson, and AHPR’s former licensed salesperson, Robert Jason Rush, testified on his own behalf, and had admitted into evidence 34 exhibits. Additional Hearing Evidence The Events Leading to Mr. Bosworth’s Closure of AHPR and the Department’s Audit

11. Mr. Boyle was over 70 years old at the hearing. He was first licensed as a real estate salesperson in 1956, when he was living in Sacramento, California. He was a realtor three years before he allowed the California license to expire. He next applied for a real estate salesperson license after he moved to Phoenix, Arizona in 1964 or 1965. After the Arizona license was issued, Mr. Boyle allowed the license to expire when he moved back to California for five years. 12. After Mr. Boyle moved back to Arizona, he reapplied for a real estate salesperson’s license. Mr. Boyle had held the most recently granted Arizona salesperson’s license more than twenty years. 13. When Mr. Boyle became AHPR’s designated broker, he had no experience in property management. At hearing, he called himself a “baby broker.” Although AHPR offered its clients property management services, Mr. Boyle had never taken a course in property management. 14. When he started AHPR, Mr. Bosworth had several years experience in property management. He had worked at his brother Mark Bosworth’s brokerage, Home America, which specialized in property management. Mr. Boyle, Mr. Rush, and Ms. Larson all described Mr. Bosworth as “charismatic.” 15. Mr. Boyle testified that he relied upon the experience of Mr. Bosworth in managing and overseeing AHPR’s property management business. 16. According to the Department’s records, on September 30, 2004, Mr. Bosworth’s salesperson’s license had expired. On October 26, 2004, Mr. Bosworth filed a late renewal to active status at brokerage Continental Residential Investments, LLC, and the license went inactive on December 17, 2004. On January 10, 2005, Mr. Bosworth informed the Department that his employing brokerage was AHPR. 17. In late 2004, Shelly Amick made a complaint to the Department about a property management agreement that she had made with Mr. Bosworth, with was assigned to investigator Henry Sosa. 18. On January 18, 2005, Mr. Boyle as AHPR’s designated broker wrote a letter to Mr. Sosa, explaining that Mr. Bosworth had not known that he could not execute a lease purchase agreement on behalf of AHPR while his license was still with another broker. Mr. Boyle told Mr. Sosa that AHPR and Ms. Amick had agreed to cancel the lease purchase contract, with a partial refund of rent to Ms. Amick. 19. In the January 18, 2005 letter, Mr. Boyle also informed Mr. Sosa that, in addition to being the designated broker at AHPR, he managed its operations. His responsibilities included exercising control and supervision over all AHPR employees, reviewing all transactions to ensure proper disclosure, “manag[ing] the handling of trust funds,” managing the use of unlicensed assistants by a salesperson, overseeing the delegation of authority to act on his behalf, and “establish[ing] a system for monitoring compliance with policies, rules, procedures, and systems.” 20. AHPR did not have a trust account for deposit of monies generated by real estate sales. Instead, it used title companies’ escrow accounts for deposits. The title companies issued commission checks to AHPR on the close of escrow. 21. AHPR did have an operating account for deposit of sales commissions and fees from its property management clients and payment of operating expenses and employee commissions and salaries. 22. AHPR also had a trust account for deposit of funds from its property management clients. 23. Between October 6, 2004 and August 31, 2006, Mr. Boyle never had access to complete account information on AHPR’s operating account or property management trust fund accounts. He was not a signatory on AHPR’s property management trust account. He never was able to perform regular monthly reconciliations for either the operating or the property management trust accounts. 24. Mr. Boyle did have some access to documentation of completed real estate sales transactions. Mr. Boyle, Ms. Larson, and Mr. Rush all testified that everyone who worked at AHPR was under Mr. Bosworth’s control and, on Mr. Bosworth’s instruction, refused to provide information to Mr. Boyle. 25. Mr. Boyle testified that, from the time he became AHPR’s designated broker, its financial records were “a mess.” At first, Mr. Bosworth’s sister, Emily, was AHPR’s bookkeeper. But Emily “had trouble with everything.” AHPR did not use any accounting computer software; all accounts were kept “with pen and paper.” 26. Mr. Boyle testified that he first started becoming concerned in early 2006, when he realized that he would not be able to complete the Department’s required Broker Supervision and Control Audit Declaration (“the Audit Declaration”) when it was time to renew his broker’s license in August 2006. 27. In early 2006, Mr. Bosworth hired Ty Brewster to implement the YARDI software system. Although Mr. Brewster was not an accountant, Mr. Boyle believed that he had some computer expertise. 28. On February 8, 2006, Mr. Boyle sent notes to Mr. Bosworth and Mr. Brewster, requesting their help in obtaining information for the Audit Declaration. Neither Mr. Bosworth nor Mr. Brewster responded to Mr. Boyle’s request. 29. On March 26, 2006, Mr. Boyle sent a two-page memorandum to Mr. Bosworth, with a copy to Mr. Brewster, again requesting their help in ensuring that he could avow on the Audit Declaration that only licensed persons received compensation relating to real estate sales, that he as designated broker received all payments made in connection with real estate sales transactions, that the property management trust account records included a disbursement journal and client ledger for each transaction, and that trust account journals and client ledgers were reconciled with bank statements each month. Mr. Boyle closed the memorandum, “I need to have access to the trust account or trust accounts in order to be able to complete the declaration. I will appreciate your immediate cooperation with this request.” Neither Mr. Bosworth nor Mr. Brewster ever cooperated with or even responded to Mr. Boyle’s requests. 30. On March 28, 2006, Mr. Boyle received a note from Mr. Bosworth, that Mr. Brewster was handling all AHPR accounts and that Mr. Boyle should ask Mr. Brewster for “a copy of what you need.” Mr. Bosworth promised to “personally make sure you have what you need.” Mr. Boyle noted on the bottom that he “[would] get with Kevin (new controller) in the next days to obtain continuing access to the trust account(s).” On April 17, 2006, Mr. Boyle noted that “Mike (not Kevin) quit after two days.” 31. Mr. Boyle testified that Mr. Bosworth had hired Mike Fletcher to be controller. After he had been authorized as a signatory to AHPR’s accounts, he quit. Mr. Boyle did not know whether Mr. Fletcher’s signature had ever been added to AHPR’s bank’s list of authorized signatories. 32. On April 23, 2006, Mr. Boyle sent another two-page memorandum to Mr. Bosworth, again reminding him that the Audit Declaration required information on the property management trust fund account and compensation paid to unlicensed employees. Mr. Bosworth did not respond to the memorandum. 33. On May 8, 2006, Mr. Boyle sent himself an e-mail, reminding himself to check whether the computer records showed the amount that should be in every property management client’s account, the amounts that had been improperly disbursed, and that amount of the shortage. Mr. Boyle never obtained this information. 34. Mr. Boyle testified that, by this time, he was becoming suspicious about Mr. Bosworth’s activities. Mr. Bosworth’s delay in getting information to him did not appear reasonable. Mr. Brewster had “dropped a couple of hints that everything might not be okay” and had “indicated that Mr. Bosworth might be a problem.” But Mr. Boyle testified that he had no actual knowledge of any problem. 35. Mr. Boyle testified that he later learned that Mr. Bosworth had offered Mr. Brewster an ownership interest in AHPR. But he did not know about it in April and May of 2006. 36. On May 30, 2006, Mr. Boyle sent an e-mail to Mr. Bosworth and Mr. Brewster, reminding them of a meeting scheduled for lunchtime to “do some serious talking.” 37. Mr. Boyle testified that, at the meeting, Mr. Bosworth presented a typewritten list of 21 “Concern’s with Ty’s Performance,” including some owners being paid twice for rent and problems with his knowledge of YARDI, which he handed to Mr. Brewster and Mr. Boyle at the lunch. Mr. Boyle testified that Mr. Bosworth also accused Mr. Brewster of having taken money that was missing from the safe. Mr. Boyle testified that he had no knowledge of any of deficiencies that Mr. Bosworth found in Mr. Brewster’s performance. 38. Mr. Boyle testified that Mr. Bosworth was “inconsolable” and fired Mr. Brewster at the lunch meeting on May 31, 2006. The loss was important because Mr. Bosworth had removed the one person who should have been a conduit of information to Mr. Boyle. Mr. Boyle testified that Mr. Bosworth “still was not interested in providing any information.” 39. Mr. Boyle testified that Mr. Bosworth had hired Ms. Larson shortly before he fired Mr. Brewster. However, Ms. Larson reported to Mr. Bosworth, not Mr. Boyle. When Mr. Bosworth finally allowed Ms. Larson to provide information to Mr. Boyle, it was “close to the end of business.” 40. Ms. Larson testified that she worked various part-time bookkeeping jobs in 2006, including at AHPR. When she started in mid-May 2006, YARDI was operational. YARDI is an excellent system for deposits and receivables, but did not include a checkbook. The checkbook needed to be integrated to YARDI, but was not. 41. Ms. Larson testified that, when she started working at AHPR, she did not know that the property management trust account should not be used to pay operating expenses. If she had known, she would have gone to Mr. Boyle and refused to make payments. 42. On June 2, 2006, Mr. Boyle sent Mr. Bosworth another memorandum, which made various suggestions, again requested information on the trust account, and noted that, “[s]ince we shall not be meeting the deadline I set of June 24th, I want you to know that August 31st will be here soon, and that is the new deadline not set by me, but by [the Department].” Mr. Bosworth did not respond to the e-mail. 43. On June 13, 2006, Mr. Boyle sent an e-mail to Mr. Bosworth regarding “What is going on?” Mr. Boyle expressed frustration at Mr. Bosworth’s failure to respond to his requests for information. Mr. Boyle stated his belief that “we need to sit down with [Ms. Larson] in her office, and, first, see exactly where we are financially and, second, plan exactly how we are going to solve the problems. We need to do that now if not yesterday.” 44. Mr. Boyle testified that, beginning in June 2006, property management clients had started complaining that they were not receiving rents and that AHPR was not taking care of their properties. But he still did not know for sure that there was anything awry. He recalled feeling a lot of frustration and urgency, but still did not know that anything was wrong. 45. On June 14, 2006, Mr. Bosworth responded to Mr. Boyle’s June 13, 2006 e-mail, assuring Mr. Boyle that he was serious about making a “big turnaround” but that he was “not clear on if I can make the meeting Wednesday as I am wearing a lot of hats right now and I am doing whatever I have to do to keep this company running as we pull this out.” Mr. Bosworth told Mr. Boyle to “[b]e sure that [Ms. Larson] has a clear list of what you are wanting from her so she can compile those reports for us when we meet.” Mr. Bosworth counseled patience because “[t]here is a lot of information we are putting together and sometime that takes time.” 46. On June 15, 2006, Mr. Boyle sent Ms. Larson a memorandum, requesting trust account balance, shortage, and activity and operating account balance and activity, as well as general information about the accounts and office practice. 47. Mr. Boyle testified that Mr. Bosworth had Ms. Larson “doing other things” so she did not get to his request for information quickly. 48. On June 23, 2006, attorney James B. Connor sent an e-mail to Mr. Boyle regarding AHPR’s failure to provide a listing agreement signed by each property owner or an accounting of rents received on behalf of his client Flan Fleischer. Mr. Connor concluded his e-mail by informing Mr. Boyle that “the [Department’s] website indicates that Bosworth has 3 open complaints pending against him and you have 1 open complaint. I am experienced to know that not all complaints filed with the [Department] have merit.” 49. On June 27, 2006, Mr. Boyle responded that Mr. Bosworth had told him that he had spoken with Mr. Connor and “reached a mutual understanding” regarding Mr. Fleischer’s complaint. 50. On June 27, 2006, Mr. Connor responded to Mr. Boyle’s e-mail, in relevant part as follows: I presume your email is not intended as a joke on your part. This late in the day, I am in a pretty foul mood for many reasons, including the spin I received from Bosworth during our conversation yesterday.

Just so you know, Russ Bosworth assured me that by no later than the end of business today he would have provided a complete accounting of the net rents due to the landlords, along with checks for the applicable amounts. I have heard nothing, so I have no alternative but to assume he has no intention of fulfilling his oral commitment made to me yesterday. The continued retention of funds is beyond my understanding.

I cannot emphasize enough how striking the actions of you and Bosworth are – not only in light of the statutory and regulatory provisions which govern real estate brokers and agents, but also pursuant to the applicable Arizona laws governing the relationships of agents in general. Specifically, the failure to act in accordance with the standards of care and fiduciary duties, makes you susceptible to severe sanctions from [the Department], as well as punitive damages, along with other remedies.

To restate my prior position, [AHPR] has not been engaged by anyone – Fleischer, Scott or Pederson – connected with the ownership of these homes. I have received no explanation as to how you represented yourselves as agents on behalf of the owners, nor how you have continued to retain and accumulate rental income.

I have already dictated my letter to the [Department], to be sent tomorrow. . . .

51. On June 28, 2006, the Department received Mr. Connor’s letter of complaint against Mr. Bosworth, Mr. Boyle, and AHPR, which alleged that Mr. Fleisher, along with Americo Pederson and Ruth Ann and Timothy Scott had acquired an equitable interest is certain real properties through the services of AHPR employee Charles LaPose. Subsequent to closing on the purchase, without any of the equitable owners executing any agreement with AHPR, Mr. Bosworth had procured tenants and collected rents. 52. Jason Rush is a licensed salesperson who worked for AHPR in real estate sales and property management from June or July 2005 until it was shut down in August 2006. Mr. Rush testified that Mr. Bosworth had “side agreements” with Mr. Fleischer, Mr. Pederson, Mr. and Mrs. Scott, Lauren Corson, and Mr. and Mrs. Crawford. Mr. Rush believed that Mr. Bosworth had purchased various properties in partnership with these AHPR clients. Mr. Rush also believed that Mr. Bosworth was a partner in his executive assistant Ms. Cantu’s purchase of certain properties. 53. Mr. Rush testified that he believed that Mr. LaPose facilitated these partnership transactions by arranging loans for the purchases. Mr. LaPose was not a licensed salesperson but an “investor.” Mr. Rush had seen the facsimiles and interactions among Mr. Bosworth, Mr. LaPose, Mr. Fleischer, Mr. Pederson, Mr. and Mrs. Scott, Mr. Corson, and Mr. and Ms. Crawford. Their partnership relationship was “open and notorious.” Mr. Bosworth and AHPR did not deal with these clients at “arms length.” 54. Mr. Boyle testified that Mr. Bosworth told him that he had signed a property management agreement with AHPR as an equitable owner of four or five properties he had bought in partnership with certain AHPR clients. Mr. Boyle testified that he never found anything to contradict Mr. Boyle’s representations. 55. Mr. Boyle had admitted into evidence several additional e- mails that he sent to Mr. Connor regarding the Fleisher complaint, as well as his letter to the Department dated October 20, 2006 explaining the transaction. He was trying to get Mr. Connor to agree to an amount owed before cutting a check. After sending the documentation to Mr. Connor to establish the amounts of rents owed, however, he testified that Mr. Connor never replied. 56. Mr. Rush described Mr. Bosworth’s character as “underhanded and shady” and testified that Mr. Bosworth was “not forthright with information to clients or employees.” Mr. Bosworth “did not do things in an over-the-table manner.” Mr. Rush testified that he did not come to this opinion of Mr. Bosworth until after he had closed AHPR down. If Mr. Rush had known about Mr. Bosworth earlier, the knowledge would have hindered Mr. Rush’s association with AHPR. 57. Mr. Rush admitted on cross-examination that he did not have any employment agreement with AHPR. There were no written policies or procedures at AHPR. He did not have many interactions with Mr. Boyle, whom he knew was AHPR’s designated broker, but saw Mr. Boyle regularly at the office. Mr. Boyle did review Mr. Rush’s real estate sales contracts, as required by statute. 58. On August 2, 2006, Ms. Larson gave Mr. Boyle a printout for the operational period from July 1, 2006 to August 2, 2006. The printout showed a total of $53,000.00 in transfers from the trust account to the operational account and a total of $47,206.90 in “owner draws” from the operational account for questionable expenses. 59. Ms. Larson testified that, when she showed the printout to Mr. Boyle, he told her that transfers were not allowed from the trust account into the operating account. Mr. Boyle started making “lots of phone calls” in response to her disclosure. 60. Ms. Larson testified that Mr. Boyle requested that she go further back in time to reconcile the trust and operating accounts. She was unable to comply with this request before Mr. Bosworth shut down AHPR. She was never able to provide any reconciliation of the trust account. 61. Mr. Boyle testified that he felt panic when he saw Ms. Larson’s reconciliation of the operating account. He knew that the transfers from the property management trust account was illegal. He also knew that Mr. Bosworth had taken money from the operating account for personal expenses. 62. Mr. Boyle testified that he attempted to discuss Ms. Larson’s reconciliation with Mr. Bosworth, but he “made himself unavailable.” Mr. Boyle testified that he realized for the first time that, for all the time that Mr. Bosworth had been evading Mr. Boyle’s requests for information, he had been covering up his own illegal activities. 63. On August 8, 2006, Mr. Boyle sent Mr. Bosworth an e-mail on the subject of “You!” Mr. Boyle told Mr. Bosworth that, “[g]iven our present circumstances, it is especially disappointing and disheartening not to see or hear from you. After all, you are supposed to be our leader.” Mr. Boyle also told Mr. Bosworth that he had been scheduled for a renewal class for his broker’s license, but he had postponed the class. 64. Mr. Boyle testified that, at some point, Ms. Bosworth admitted to having taken money from the property management trust account. Mr. Bosworth proposed to solve the shortage by merging AHPR with his brother Mark’s property management company Home America. Mark Bosworth would provide money to cover shortages in AHPR’s trust account. AHPR’s employees were invited to a meeting at a hotel with Home America’s employees. However, the merger was not discussed at the meeting. 65. Mr. Boyle testified that, about this time, he made a list of questions to facilitate the merger of AHPR and Home America, including when the AHPR trust account would be closed, how the tenant deposits and owner reserves would be replaced, and who would pay the tenant deposits and owner reserves for AHPR property management clients who elected not to transfer their accounts to Home America. 66. Mr. Boyle testified that he stayed late at AHPR’s office on August 11, 2006, which was a Friday, hoping for an opportunity to talk to Mr. Bosworth. On August 12, 2006 at approximately 9:00 a.m., he received a telephone call from Candace, who worked in AHPR’s office, that “everything was gone” from AHPR’s office. Mr. Boyle went down to the office and found that only his desk, chair, and the sales listing files were still in the office. Mr. Boyle testified that, sometime the night of August 11 or early morning of August 12, 2006, Russ Bosworth and his “helpers” had moved everything out of the office. 67. Mr. Boyle testified that he was “shocked” because he had not authorized removal of AHPR’s office furniture, computers, and property management files. He knows that the Department’s regulations require licensees to provide notice of a move before it is accomplished. 68. On August 12, 2006, Mr. Boyle sent an e-mail to the Department’s auditor Mr. Montoya, informing him that Mr. Bosworth had said that, due to “financial problems,” Mr. Bosworth had said that he was transferring ownership of AHPR’s property management division to Home America. 69. Mr. Boyle told Mr. Montoya that everything had been removed from AHPR’s office except the real estate sales files, which Mr. Boyle had taken to his home for safekeeping. Mr. Boyle testified at the hearing that AHPR was about to be evicted for nonpayment of rent, which he did not know about until August 12, 2008. Mr. Boyle noted in his e-mail to Mr. Montoya that the removal of files would affect the audit that Mr. Montoya had scheduled for August 15, 2006 at 8:00 a.m. 70. Mr. Boyle testified that he had been under the impression that AHPR kept electronic backup of its property management files. However, Mr. Bosworth had removed all the computers from AHPR’s office. 71. Mr. Boyle testified that Mark Bosworth tried to be helpful. Mark Bosworth informed him that the property management files were in a mini-storage facility across the street from Home America’s office. Mark Bosworth also allowed Mr. Boyle to use an area in Home America’s office for a few days, where Mr. Boyle “took calls from irate owners.” Mr. Boyle testified that he believes that he found the property management files on the afternoon of Tuesday, August 15, 2006. 72. Mr. Montoya told Mr. Boyle that, even though AHPR’s office had been closed down, Mr. Montoya would still present himself at AHPR’s office of record at the time on the date scheduled for the audit. Mr. Boyle met Mr. Montoya at AHPR’s former office. Mr. Montoya instructed Mr. Boyle to take the real estate sales files from his home to Mr. Montoya’s office. Mr. Boyle then brought 5 banker’s boxes of real estate sales files and AHPR employment records to Mr. Montoya’s office on the afternoon of August 15, 2006. 73. On August 20, 2006, Mr. Boyle informed the Department of AHPR’s new address, at Home America’s office. 74. Mr. Boyle testified that, after he informed the Department that he had found AHPR’s property management files, Ms. Blair instructed him to bring the files to her office. Mr. Boyle testified that he delivered the property management files to Ms. Blair’s office on August 25, 2006. The files were never returned to him. 75. On August 31, 2006, Mr. Boyle informed Mr. Bosworth that he had resigned his position as AHPR’s designated broker, effective immediately. Mr. Boyle informed Mr. Bosworth that “[b]y your flagrant disregard for the laws of the State of Arizona, the rules and regulations of the Arizona Department of Real Estate, the rights and well being of all who have been hurt by your actions, you have demonstrated a degree of dishonesty and greed that I have not previously encountered in a fellow human being.” The Results of the Department’s Audit 76. The Department’s Auditor Mr. Montoya testified that he first heard about AHPR on July 6, 2006, when the Department’s Investigation Division requested an audit after receiving a complaint. At that time, he contacted AHPR’s designated broker Mr. Boyle and scheduled an audit for August 15-18, 2006. 77. On August 18, 2006, Mr. Montoya prepared his Audit/Inspection Report. Under the Comments and Violations section, Mr. Montoya wrote: Russell Bosworth absconded with property management and bank records on 8/11/06. Broker took the sales files and employment files to his own residence on 8/12/06. The auditor found the licensed location abandoned (ARS 32-2126(A)). The entity, broker and some affiliated licensees are being referred for administration action concerning the violations noted in this audit/inspection report.

78. Based on the absence of records and abandonment of the address of records, Mr. Montoya found that AHPR and Mr. Boyle had violated numerous statutes. He also found that Ms. Cantu had received commissions while she was unlicensed, that there were no employment contracts for Ty Brewster and Michael Fletcher, who were unlicensed signatories with access to the trust account. The only item for which Mr. Montoya’s report found compliance was that Mr. Boyle had maintained complete records of all real estate sales transactions. 79. Mr. Montoya testified that the documents included a letter signed by Mr. Bosworth, apparently to qualify Ms. Cantu for a loan with a lender, dated July 18, 2005, which stated that she received “a base salary of $36,000 per year and a 10% commission on all homes closed at escrow.” Mr. Bosworth’s handwritten notations on at least 6 commission checks showed that Ms. Cantu had received 10% of the sales commissions before she was licensed in April 2006. On each commission check, Mr. Boyle was shown as receiving $300.00 of the commission. Mr. Montoya testified that, under the Department’s statutes, only brokers can sign commission checks. Mr. Boyle should have known that Ms. Cantu was being paid commissions. 80. Mr. Boyle testified that he was not aware of Ms. Cantu’s receipt of commissions because she and Mr. Bosworth hid it from him. 81. Mr. Montoya also pointed out files for real estate purchases by Mr. Pederson, Mr. and Mrs. Scott, Ms. Cantu, and Mr. Bosworth, in which checks for earnest monies had been drawn on AHPR’s trust account or operating account. There was nothing in the file to indicate that AHPR had ever been reimbursed for the earnest money from the person who purchased the property. Mr. Montoya testified that it is fraud for a broker to loan a purchaser money to purchase property. Mr. Boyle as designated broker should have known of these payments because he is required to review the sales files. He was also required to manage the trust account. 82. Mr. Montoya testified that a designated broker is required to review and initial sales files within 5 days of closing. Mr. Boyle did not initial all the files included in the five banker’s boxes within 5 days of closing. 83. Mr. Boyle testified that he did review and initial many of the files within five days. He believes that the documents showing that monies had been paid from the AHPR trust and operating accounts for property sales had been added after his review or withheld at the time of the review. The AHPR Property Management Clients’ Complaints 84. Mr. Lewis was the manager of the Department’s Investigations Division on June 26, 2006. He first became familiar with Mr. Boyle on June 26, 2006, when investigator Mr. Sosa left the Department’s employ and Mr. Lewis had to reassign Mr. Sosa’s cases. At that time, there were two pending complaints against Mr. Bosworth, Mr. Boyle, and AHPR. 85. Ms. Blair or Mr. Montoya told Mr. Lewis that AHPR had shut down in mid-August 2006. Mr. Lewis testified that “auditing looks at internal matters; investigations focus on harm to the consumer.” 86. Mr. Lewis testified that he believed, after the closure of AHPR, that Mr. Boyle cooperated with the Department “to the best of his ability.” After AHPR’s closure, the Department’s investigator Felix Cervantes asked Mr. Boyle for a list of AHPR’s property management clients, and Mr. Boyle provided such a list. Mr. Lewis testified that there was a concern, since the owners probably did not even know the names of their tenants, and did not know that no one was collecting rents or overseeing the properties on their behalf. 87. On August 22, 2006, Mr. Cervantes on behalf of the Department sent approximately 170 letters to property owners whom Mr. Boyle had identified as current property management clients of AHPR, informing them that AHPR had closed its office and advising them to contact their tenants regarding monthly payments and to obtain leases and to take other affirmative steps to manage their properties. 88. At about the same time, Home America sent a form letter to many of AHPR’s former clients, soliciting their business. 89. Mr. Lewis testified that, after Mr. Cervantes’ August 22, 2006 letter was sent out, the Department started receiving telephone calls and complaints from owners of properties that had been managed by AHPR. None of the owners had received any notice of AHPR’s closure, copies of leases, keys, accountings, or payment of rent, reserves, deposits, and other monies owed. The Department received 32 or 33 written and documented complaints, claiming losses that appeared accurate based on available information from the property management documents that Mr. Boyle had provided. 90. On October 25, 2006, Mr. Boyle responded to the property owners’ complaints against AHPR, in relevant part as follows: I was aware of the shortage in the Trust Account, and had no doubt that Russell Bosworth, the only person whose signature was authorized on the account, was the cause of the shortage. Assuming that the average rent was $1,000.00, and the tenant deposits also averaged $1,000.00, and the maintenance reserve was $350.00, the average loss for a property owner who had one house under management was about $2,350.00.

My ability to investigate this matter is compromised by my lack of access to Russell Bosworth, and the files and records, and the fact that this is a criminal matter. To the extent that I can be of assistance to the [Department] or any other governmental agency, I will make myself available.

I have read each of the initial 27 complaints, and the additional 5 complaints. Of the 27 complaints, I recall having spoken to Kristin Pollard, Steven Cesio, Edward Hoke, Ricardo Delucchi, Susan Close, Cheryl Weisenberg, Jeffrey Langston, Lewis Weiland, and Qiwei Xiao. Of the 5 complaints I recall having spoken to just Ralph Van Bruggen. Most of the complaints appear to have merit, although some seem to be factually inaccurate.

91. Mr. Bosworth testified that, due to Mr. Bosworth’s actions in excluding him for the property management side of AHPR’s business and the Department’s failure to return the property management files to him, he could not give property owners keys and garage openers or lease agreements. He testified that he did return some keys when he was working at the temporary AHPR office at Home America and that some of the files he gave the Department had keys and garage openers in them. 92. Mr. Lewis testified that designated brokers are expected to notify the Department immediately of shortages in the property management trust fund. He is currently advising a lady who is a designated broker in Tucson in the process of shutting down her brokerage’s property management trust account, due to a few thousand dollars that the owner took. He wishes that Mr. Boyle had done the same thing and alerted the Department to Mr. Bosworth’s conversion of AHPR monies held in trust for property management clients. 93. Mr. Lewis testified that the Department eventually heard from or 94 property owners who were former clients of AHPR. Eventually, the Department sent out blank Unsworn Declarations under Penalty of Perjury to all property owners, which requested the owner to disclose whether AHPR had provided notice of its closure, tenant rental agreements, keys and other personal property, a final accounting, or remission of funds due. The Unsworn Declarations also requested owners to estimate the amount of monies owed by AHPR, including renters’ security deposits, rent, and “other.” The Department over Mr. Boyle’s objection had admitted into evidence a spreadsheet based on the returned Unsworn Declarations, which showed that the owners felt that AHPR owed them a total of $400,530.15. 94. The Department presented the testimony of former AHPR property management clients Gloria Rogers and Kristen Pollard. Both testified credibly to lack of notice, AHPR’s failure to provide copies of leases or keys, and the loss of deposits and rental income. Ms. Rogers had sued both Mr. Bosworth and Mr. Boyle in Tolleson Justice Court, but agreed to dismiss her claim against Mr. Boyle after he agreed to testify against Mr. Bosworth. 95. Ms. Blair testified that none of the property management files that she received from Mr. Boyle had any keys or personal property in them. 96. Mr. Boyle testified on rebuttal that the keys and remotes were kept key cabinets separate from the files containing documents, which he also had turned over to the Department. Additional Evidence 97. Ms. Blair testified that a real estate sales or property management company cannot operate without a designated broker. The broker is required to manage and supervise the brokerage’s employees. Although an unlicensed person may work in a brokerage, he or she cannot receive compensation for activities that require a license, such as real estate sales commissions. 98. Ms. Blair testified that a property management trust account is for the deposit of rent, reserves, and security and other amounts held in trust on behalf of the owners who contracted with the brokerage to manage their properties. Monies cannot be legally loaned or converted from the trust account. Property management brokers are required to keep a ledger for each property that they lease on behalf of an owner. The designated broker should have access to and control the trust account. 99. Ms. Blair testified that, usually, a real estate sales brokerage uses a title company for closing escrows and does not maintain a trust account for that purpose. 100. Ms. Blair testified that brokers are required to maintain records for the trust account for 3 years and for the sales for 5 years. 101. Ms. Blair testified that title companies disburse commissions directly to the brokerage. The broker is expected to dispense commissions to licensees based on agreement or upon closure of a sale. The designated broker is responsible for overseeing distribution of commissions. 102. Ms. Blair testified that, if a property management company shuts down, it is required to give notice and provide a reconciled account to its clients within 30 days and to pay all amounts owed within 90 days. It is required to return all keys and personal property to clients immediately upon closing. 103. Ms. Blair testified that property management is a very specialized area of real estate. The Department frowns on brokers learning on the job. Instead, inexperienced brokers are expected to become associate brokers to obtain experience or to take continuing education in areas in which they lack experience. Ms. Blair pointed out A.A.C. R4-28-1101(H), which provides in relevant part: A . . . broker shall not undertake to provide professional services concerning a type of property or service that is outside the . . . broker’s field of competence without engaging the assistance of a person who is competent to provide those services, unless the . . . broker’s lack of expertise is first disclosed to the client in writing and the client subsequently employs the . . . broker.

Ms. Blair testified that there is no evidence that Mr. Boyle ever disclosed his lack of property management expertise to AHPR’s clients. 104. Mr. Boyle testified that he had requested the services of a consultant to help him understand the declaration that he would be required to make when he renewed his broker’s license as early as March 2006. The consultant came to his office and went through the form and gave him advice on the declarations that he would be required to make. He had also purchased the manual that the Department requires to be kept at real estate sales or property management offices. 105. Mr. Boyle admitted that he never took any classes on property management approved by the Department. Instead, he relied upon Mr. Bosworth’s expertise. 106. Mr. Boyle admitted that he did not give the Department Ms. Larson’s August 2, 2006 reconciliation of the operating account, which showed improper transfers from the property management trust account, because, after Mr. Bosworth closed AHPR on August 12, 2006, he felt that everything was out in the open. Before August 12, 2006, he thought that the merger with Home America would resolve shortages in the trust account. APPLICABLE LAW 1. A.R.S. § 32-2151 provides in relevant part: A. [A]ny licensed real estate broker who does not immediately place all funds entrusted to the broker, in the broker’s capacity as a real estate broker, in a neutral escrow depository in this state shall upon receipt place all such funds in a trust fund account in a federally insured or guaranteed account in a depository located in this state. . . .

B. The following minimum requirements apply to each broker’s trust fund account:

1. The broker shall make deposits to trust fund accounts by deposit slips. Receipts or other documentation shall identify each transaction, the date and the amount of each deposit and the names of parties involved in the transaction represented by the deposit and monies shall be used only for the purpose for which the monies were deposited.

2. The broker shall retain a complete record of all monies received in connection with a real estate transaction in the main or branch office of the designated broker . . . . A broker’s records should be kept according to generally accepted accounting principles and shall include a properly descriptive receipts and disbursement journal and client ledger. The broker shall keep any computerized records in a manner allowing reconstruction in the event of destruction of electronic data. The broker shall maintain a trust fund account bank reconciliation and client ledger balance on a monthly basis and shall remove any interest earned on a trust fund account at least once very twelve months. A broker shall not permit advance payment of monies belonging to others to be deposited in the broker’s personal account or to be commingled with personal monies. . . .

2. A.R.S. § 32-2151.01 provides in relevant part: A. Each licensed employing broker shall keep records of all real estate . . . transactions handled by or through the broker . . . . The records required by this section shall include copies of earnest money receipts, confirming that the earnest money has been handled in accordance with the transaction, closing statements showing all receipts, disbursements and adjustments, [and] sales contracts . . . . The records shall be open at all reasonable times for inspection by the commissioner or the commissioner’s representative for a period of at least five years from the date of the termination of the transaction . . . . The records shall be kept in the employing broker’s principal office . . . or at an off-site storage location in this state if the broker provides prior written notification of the street address of the off-site storage location to the department.

B. Except as provided by § 32-2174, subsection C, a broker shall not grant any person authority to withdraw monies from the broker’s trust fund account unless that person is a licensee under that broker’s license. . . . .

G. The designated broker shall review each listing agreement, purchase or nonresidential lease agreement or similar instrument within five days of the date of execution by placing the broker’s initials and the date of review on the instrument on the same page as the signatures of the parties. . . .

H. The broker shall retain all real estate purchase and nonresidential lease contracts and employment agreements, or copies of these documents, in the employing broker’s principal office or licensed branch office or at an off-site storage location in this state if the broker provides prior written notification of the street address of the off-site storage location to the department.

3. A.R.S. § 32-3173, relating to “property management agreements,” provides in relevant part: B. Immediately on termination of a property management agreement, the property management firm shall provide the owner with:

1. All originals or other copies of all rental agreements or related documents in the property management firm’s possession for current and previous tenants. These documents shall include any applications, property inventories, leases, pet permits, default notices, lease amendments or addenda in the property management firm’s possession. The broker is not required to keep copies of residential rental lease agreements or related rental lease documents after termination of the property management agreements. . . . .

C. On termination of the property management agreement the property management firm shall provide the owner with a final accounting of the property’s financial status that includes at a minimum:

1. Within five days, a list of all tenant security obligations.

2. Within thirty-five days, reimbursement for all monies remaining in the property accounts maintained by the property management firm, except for monies needed for unpaid obligations incurred during the term of the property management agreement.

3. Within seventy-five days, a final accounts receivable and payable list.

4. Within seventy-five days, a final bank account reconciliation.

4. A.R.S. § 32-2174(C) provides: The designated broker for a property management firm may authorize either a licensee or an unlicensed natural person in the direct employ of the broker to transfer monies or to be a signatory on the property management firm’s trust accounts. If the person who is designated to sign on behalf of the designated property management broker is an unlicensed person, that person shall be a bona fide officer, member, principal or employee of the property management firm. . . .

5. Pursuant to its statutory authority, the Department has promulgated A.A.C. R4-28-302, “Employing Broker’s License,” in relevant part as follows: J. A broker shall not employ a salesperson or associate broker and allow the salesperson or associate broker to establish and carry on a brokerage business if the broker’s only interest is the receipt of a fee for the use of the license and the broker does not exercise supervision over the salesperson or associate broker.

K. Change of designated broker. . . . .

3. The employing broker whose designated broker has resigned or been removed shall cease conducting business until the employing broker has complied with subsection (K)(4).

4. An employing broker whose designated broker has resigned or been removed may continue business without interruption if the incoming designated broker on the same as, or the next business day following, the departure or removal of the outgoing designated broker [notifies the Department by completing and submitting a Change Form].

6. A.A.C. R4-28-1103, relating to “Broker Supervision and Control,” provides in relevant part: A. An employing broker and a designated broker shall exercise reasonable supervision and control over the activities of brokers, salespersons, and others in the employ of the broker. Reasonable supervision and control includes the establishment and enforcement of written policies, procedures and systems to:

1. Review and manage:

a. Transactions requiring a salesperson’s or broker’s license . . . . . . . .

2. Manage: . . . .

b. Handling of trust funds; and

c. Use of unlicensed assistants by a salesperson or broker; . . . .

B. A designated broker shall establish a system for monitoring compliance with statutes, rules, and the employing broker’s policies, procedures, and systems.

C. A designated broker shall supervise associate brokers, salespersons, and employees of the employing broker and shall exercise reasonable supervision and control over activities by the employing broker for which a license is required. . . . .

E. A designated broker may use the services of employees to assist in administering the provisions of this Section but shall not relinquish overall responsibility for supervision and control of the acts of the employing broker’s employees.

F. A designated broker who, upon learning of a violation of real estate statutes or rules by a salesperson or associate broker under the broker’s supervision, immediately reports the violation to the Department is not subject to disciplinary action by the Department for failure to supervise the salesperson or broker.

7. A.R.S. § 32-2153 provides in relevant part: A. The commissioner may suspend or revoke a license, deny issuance of a license, issue a letter of concern to a licensee, 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 immediate preceding, in the performance of or attempt to perform any acts authorized by the license or by this chapter has: . . . .

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

9. Failed, within a reasonable time, to account for or to remit any monies [or] to surrender to the rightful owner any documents or other valuable property coming into the licensee’s possession and that belongs to others . . . . . . . .

11. Induced any party to a contract to break the contract for the purpose of substituting a new contract with the same or a different principal, if the substitution is motivated by the personal gain of the licensee. . . . .

15. Failed to keep an escrow or trust account or other record of funds deposited with the licensee relating to a real estate transaction. . . . .

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 § 32-2125.

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

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

8. Demonstrated incompetence to perform any duty or requirement of a licensee under or arising from this chapter. For the purposes of this paragraph, “incompetence” means a lack of basic knowledge or skill appropriate to the type of license the person holds or a failure to appreciate the probable consequences of the licensee’s action or inaction. . . . .

8. A.R.S. § 32-2160.01(A) allows the Commissioner to assess civil penalties, in relevant part: Any licensee who is subject to the jurisdiction of the department and who has violated any provision of this chapter or any rule or order adopted or issued by the commissioner . . . may be assessed a civil penalty by the commissioner, after a hearing, in an amount not exceed one thousand dollars for each infraction.

CONCLUSIONS OF LAW 1. This matter lies within the Commissioner’s jurisdiction.[1] 2. The Department bears the burden of proof and must establish cause to penalize Mr. Boyle’s broker’s license by a preponderance of the evidence.[2] Mr. Boyle bears the burden to establish affirmative defenses by the same evidentiary standard.[3] “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”[4] A preponderance of the evidence is “[t]he greater weight of the evidence, not necessarily established by the greater number of witnesses testifying to a fact but by evidence that has the most convincing force; superior evidentiary weight that, though not sufficient to free the mind wholly from all reasonable doubt, is still sufficient to incline a fair and impartial mind to one side of the issue rather than the other.”[5] 3. Mr. Boyle has established that Mr. Bosworth prevented him from having any access to the property management trust account or from having any knowledge or access to AHPR’s dealings with property management clients. Mr. Boyle has also established that Mr. Bosworth concealed transfers from the operating and trust accounts to pay earnest monies for some sales transactions and Ms. Cantu’s admitted receipt of real estate commissions before she was licensed. 4. Persons who have been issued licenses by state agencies are presumed to know the law.[6] “As a matter of public policy, all persons are charged with knowledge of law pertaining to their transactions . . . .”[7] Because licensees are presumed to know the law’s requirements, a mistake as to such requirements does not excuse licensees’ failure to meet them.[8] Mr. Boyle’s professed inability to follow the law applicable to licensed real estate brokers does not excuse his failure to comply with the law or to notify the Department of his inability due to Mr. Bosworth’s repeated failure to cooperate. 5. In early 2005, Mr. Boyle acknowledged his statutory responsibilities as a designated broker to oversee AHPR’s operations following the Amick complaint. He admitted at the hearing that he had no idea what Mr. Bosworth was doing with the trust account between October 6, 2004 and August 2, 2006, when Ms. Larson provided a reconciliation of the operating account for July 2006, that showed substantial transfers from the trust account and substantial payments to Mr. Bosworth. Mr. Boyle was the only one who was in the position to uncover or limit the effects of Mr. Bosworth’s fraud, before the fraud would have been exposed to the Department in any event by Mr. Boyle’s inability to make the Audit Declaration required to renew his broker’s license. Mr. Bosworth could not have continued to operate AHPR without Mr. Boyle as designated broker. Yet, for over fifteen months, Mr. Boyle acquiesced to Mr. Bosworth’s continued refusal to provide any of the information that would have allowed Mr. Boyle to perform his statutory duties, to fulfill his statutory responsibilities, or to uncover Mr. Bosworth’s fraud upon AHPR’s clients. Even after Ms. Larson informed him that Mr. Bosworth had converted client funds to his own use, Mr. Boyle hoped that all would be made right by a Home America bailout. Even when he knew of Mr. Bosworth’s fraud, Mr. Boyle did not alert the Department. 6. A broker’s wishful thinking and willful ignorance are not defenses under A.A.C. R4-28-1103(F). At the very latest, in early 2006, when Mr. Boyle started becoming nervous about his utter failure to provide any meaningful oversight of AHPR’s property management and real estate sales operations or to obtain and monitor the information that he knew would be required in the Audit Declaration, he should have notified the Department. 7. The Department therefore has established that Mr. Boyle violated A.R.S. § 32-2151(A) and (B) by failing to exercise any control whatsoever over AHPR’s property management trust fund or to “maintain a trust fund account bank reconciliation and client ledger basis on a monthly basis.” 8. The Department also has established that Mr. Boyle violated A.R.S. § 32-2151.01(A) by failing to keep control over any records relating to AHPR’s property management business and by failing to keep control over complete records relating to real estate sales transactions involving Mr. Bosworth and his partners in equity (or inequity, from the viewpoint of AHPR’s property management clients), including Mr. Pederson, Mr. and Mrs. Scott, and Ms. Cantu. 9. Mr. Boyle has established that Mr. Fletcher and Mr. Brewster were bona fide employees of AHPR, even though they were not licensees. The Administrative Law Judge has not been cited to or found any statute or regulation that requires a formal written employment contract. Because Mr. Fletcher and Mr. Brewster could be authorized signatories on the property management account under A.R.S. § 32-2174(C), the Department has not established that Mr. Boyle violated A.R.S. § 32- 2151.01(B). 10. The Department has established that Mr. Boyle violated A.R.S. § 32- 2173(B)(1), (C)(1), (C)(2), (C)(3), and (C)(4) by failing to provide to AHPR’s property management clients rental agreements and related documents, lists of tenant security obligations, reimbursement of any monies remaining in the property account, final accounts receivable and payable, or a final bank reconciliation. 11. The Department therefore has established cause to sanction Mr. Boyle’s broker’s license under A.R.S. § 32-2153(A)(3), (9), (15), (21), and (22). 12. Mr. Boyle admitted that he delayed notifying the Department of Mr. Bosworth’s fraud because he hoped that most of the property management client’s would transfer their accounts to Home America, which would allow the converted client funds to be replenished. The Department therefore has established cause to sanction Mr. Boyle’s broker’s license under A.R.S. § 32-2153(A)(11). 13. Mr. Boyle credibly testified to his shock and chagrin when he finally realized that Mr. Bosworth was converting AHPR property management clients’ monies held in the trust fund to his own use. But Mr. Boyle’s continued trust in Mr. Bosworth’s honesty, despite the absolute dearth of objective evidence to support that belief and some evidence that should have undermined it, demonstrates incompetence. The Department therefore also has established cause to suspend or revoke Mr. Boyle’s broker’s license under A.R.S. § 32-2153(B)(8). 14. The Department also has established cause to assess a civil penalty. With respect to the amount of the penalty, Mr. Boyle’s failure to exercise any meaningful oversight over Mr. Bosworth and the employees that he hired allowed a systemic failure to occur at AHPR, especially in the property management side of its operations, which allowed approximately 100 clients to be defrauded of tens of thousands of dollars. Because Mr. Boyle’s statutory violations all involved omission, rather than commission or intentional misconduct, the Administrative Law Judge recommends a civil penalty in the maximum amount for each proven statutory violation, rather than each failure to act that constituted a statutory violation, for a total of $7,000.00. RECOMMENDED ORDER Based on the foregoing, it is recommended that the Commissioner of the Department revoke broker’s license No. BR018909000, previously issued to Donald E. Boyle. It is further recommended that the Commissioner impose a civil penalty against Mr. Boyle’s broker’s license No. BR018909000 in the total amount of $7,000.00. Done this day, March 3, 2008.

______________________________________ Diane Mihalsky Administrative Law Judge

Original transmitted by mail this ____ day of March, 2008, to:

Department of Real Estate Samuel P. Wercinski, Commissioner 2910 North 44th Street, Suite 100 Phoenix, AZ 85018

By _______________________ ----------------------- [1] See A.R.S. §§ 32-2108(A) and 32-2153. [2] See A.R.S. § 41-1092.07(G)(2); A.A.C. R2-19-119; see also Vazanno v. Superior Court, 74 Ariz. 369, 372, 249 P.2d 837 (1952). [3] See A.A.C. R2-19-119(2). [4] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [5] Black’s Law Dictionary at page 1220 (8th ed. 1999). [6] See Lugo v. Moore, 11 Ariz. App. 85, 90, 462 P.2d 102, 107 (1969). In that case, the Court of Appeals noted:

Lugo urges that the Department is estopped to deny the validity of the transfer to him. We cannot agree. He is presumed to know the law. There is an indication in the record that the 1967 Act had been distributed to him as a license holder prior to the time in question. It is possible that knowledgeable advice was not given to him in connection with the new law because it had been in effect such a short period of time. Unfortunately he was bound by the law, new though it was.

Id.; accord Conway v. State Consolidated Publishing Co., 57 Ariz. 162, 171, 112 P.2d 218 (1941). [7] Turner v. State Employees Retirement System, 485 So. 2d 765 (Ala. App. 1986). [8] See Newman v. Fidelity Savings and Loan Ass’n, 14 Ariz. 354, 359, 128 P. 53 (1912).

-----------------------

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