ALJDEC decisions subject to certification as final

14F-DI-242-REL · Department of Real Estate · 2015-05-12

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: April 22, 2015 APPEARANCES: Respondent Terri Leahy Kline was represented by Robert Bass. The Arizona Department of Real Estate was represented by Assistant Attorney General Lynette Evans. ADMINISTRATIVE LAW JUDGE: Tammy L. Eigenheer _____________________________________________________________________ FINDINGS OF FACT 1. The Arizona Department of Real Estate (the “Department”) is the duly constituted authority for licensing and regulating the practice of real estate in the State of Arizona. 2. On July 17, 1989, the Department issued real estate broker’s license number BR008058000 to Terri Leahy Kline. That two-year provisional license will expire on December 31, 2015. 3. On September 2, 1993, the Department issued real estate entity license number PA101831000 to London Bridge Realty doing business as United Country London Bridge Realty (“London Bridge”). That license will expire on December 31, 2015. 4. Ms. Kline is and was, at all times pertinent to this matter, the designated broker for London Bridge. 5. On December 19, 2012, Department staff conducted an on-site audit of Ms. Kline and London Bridge. The audit period was from December 1, 2011, through May 31, 2012. 6. The audit found that Ms. Kline failed to retain a complete record of all money received in accordance with generally accepted accounting principles and failed to ensure that journals and clients ledgers were in balance, resulting in a shortage of $27,716.57. 7. On February 25, 2014, Ms. Kline entered into a Consent Order with the Department. 8. The terms of the Consent Order included the following: a. Ms. Kline would pay a civil penalty of $2,000.00 at the time the Consent Order was executed; b. Ms. Kline would attend six hours of approved continuing education classes; c. Ms. Kline would post a surety bond; d. Ms. Kline would make all affected trust accounts whole within 60 days of the effective date of the Consent Order and provide acceptable proof that the trust accounts were made whole to the Department’s Compliance Officer within 75 days of the effective date of the Consent Order; e. Ms. Kline would return a separate, sworn statement that any monies deposited by Ms. Kline to replenish the shortages in the property management trust accounts became client trust monies and that Ms. Kline, her heirs and/or legal representatives waive and relinquish any right or claim to the monies; f. Ms. Kline would submit a Property Management trust account reconciliation for each Property Management trust account to the Department Compliance Officer on or before the 15th day of the close of the previous month; g. Ms. Kline would provide quarterly statements including a list of all owners and tenants; bank statements for all trust accounts; signature cards; detailed reconciliation reports for each trust account; owner and tenant ledgers; check book registers; list of voided checks; and security deposit liability report. 9. On March 3, 2014, Connie Johnson, Compliance Officer for Department, sent a letter to Ms. Kline setting out the requirements of the Consent Order. 10. In March 2014, Ms. Kline made a $5,000.00 deposit to the trust account. 11. In May 2014, Ms. Kline made a $9,619.17 deposit to the trust account. 12. On June 4, 2014, Ms. Kline submitted her first Quarterly Declaration. The Department auditors reviewed the information and determined that Ms. Kline submitted inadequate documentation to perform an independent reconciliation of the subject Trust Accounts. Ms. Kline submitted reconciliations on the Department’s approved form; however they were incorrectly completed and lacked proper supporting documentation. Specifically, Ms. Kline reported the May 2014 deposit, but did not submit a dated deposit slip and/or a May 2014 bank statement showing the deposit was credited to the trust account. 13. Ms. Kline testified at the hearing that she had been doing property management since 1989 and had not had any complaints or issues until the software program she used began malfunctioning. Ms. Kline stated that her employee who handled her books for her had medical issues that were unknown to her. On or about March 31, 2010, the employee had a stroke at which time it was discovered that she had had nine strokes. Ms. Kline testified that between the software issues and her employee’s health issues that caused errors in her accounting, the trust accounts were not properly funded. Ms. Kline testified that she had hired an outside accountant to review her accounts, but the accountant quit because of issues with the software program. Ms. Kline then hired Kathy Spigner Chalmers, an accountant, to review her accounts and get them in order. 14. Ms. Kline testified that during the time the first Quarterly Declaration was due, her two brothers were extremely ill and one of them passed away within days of her submission. Ms. Kline admitted she had difficulty communicating with Ms. Johnson regarding the requirements of the Consent Order and accepted responsibility for those issues because of her state of mind. 15. At hearing, Ms. Spigner Chalmers acknowledged that she had made an error on the Property Management Trust Account Reconciliations dated June 5, 2014, and that the Trust Account had not been made whole. Ms. Spigner Chalmers stated that at the time she prepared the document, she believed them to be accurate. Ms. Kline stated that she would deposit any funds necessary to make the trust account whole. CONCLUSIONS OF LAW 1. Pursuant to A.R.S. Title 32, Chapter 20, the Department has the authority and duty to regulate all persons engaged in the business of, or acting in the capacity of, a real estate broker or salesperson, and to enforce all statutes, rules, and regulations relating to real estate. Because this matter is disciplinary in nature, the Department bears the burden of proof. The standard of proof on all issues is by a preponderance of the evidence. See A.A.C. R2-19-119. 2. A preponderance of the evidence is “such proof as convinces the trier of fact that the contention is more probably true than not.” MORRIS K. UDALL, Arizona Law of Evidence § 5 (1960). It is “[e]vidence which is of greater weight or more convincing than the evidence which is offered in opposition to it; that is, evidence which as a whole shows that the fact sought to be proved is more probable than not.” Black’s Law Dictionary 1182 (6th ed. 1990). 3. Pursuant to A.R.S. §32-2153(A)(24), the Commissioner may suspend or revoke a license if the licensee violated any condition or term of a commissioner’s order. The evidence of record established that Ms. Kline failed to make the trust accounts whole and failed to submit the information required under the Consent Order. Therefore, the preponderance of the evidence establishes that Ms. Kline violated A.R.S. § 32-2153(A)(24). 4. Pursuant to A.R.S. § 32-2153(A)(3), the Commissioner may suspend or revoke a license if the licensee has “disregarded or violated any of the provisions of this chapter or any rules adopted by the commissioner.” Based on the above-found violation of the provisions of Title 32, Chapter 20 of the Arizona Revised Statutes, Ms. Kline also violated A.R.S. § 32-2153(A)(3). 5. Pursuant to A.R.S. § 32-2160.01, the Department may impose a civil penalty not to exceed $1,000.00 per violation for each violation of Title 32, Chapter 20. 6. The Administrative Law Judge concludes that the Department met its burden of proving by a preponderance of the evidence that grounds exist to discipline Ms. Kline’s real estate broker’s license. However, the Administrative Law Judge concludes based on the specific circumstances present in this matter, that revocation of Ms. Kline’s real estate broker’s license is not appropriate. ORDER Based on the foregoing, it is recommended that on the effective date of the Order entered in this matter, Ms. Kline’s real estate broker’s license shall be suspended until she provides acceptable proof to the Department’s Compliance Officer that the trust accounts were made whole. It is further recommended that Ms. Kline be issued a two-year provisional real estate broker’s license after she provides acceptable proof that the trust accounts were made whole to the Department’s Compliance Officer. In the event of certification of the Administrative Law Judge Decision by the Director of the Office of Administrative Hearings, the effective date of the Order will be five (5) days from the date of that certification. Done this day, May 12, 2015.

/s/ Tammy L. Eigenheer Administrative Law Judge

Transmitted electronically to:

Judy Lowe, Commissioner Arizona Department of Real Estate -----------------------

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