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17F-DI-278-REL · Department of Real Estate · 2018-02-06

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

In the Matter of the Real Estate No. 17F-DI-278-REL Salesperson's License of:

KELLEY, SARAH, holder of license number SA641882000, ADMINISTRATIVE LAW JUDGE DECISION Respondent.

HEARING: January 29, 2018, at 1:00 p.m. APPEARANCES: The Arizona Department of Real Estate (“the Department”) was represented by Ryan Krench, Esq., Assistant Attorney General; Sarah Kelley (“Respondent”) appeared on her own behalf. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky _____________________________________________________________________

FINDINGS OF FACT 1. The Department’s Notice of Hearing and Complaint charged grounds suspend or revoke Respondent’s real estate salesperson’s license under A.R.S. §§ 32- 2153(A)(3), 32-2153(B)(1), 32-2153(B)(7), and 32-2153(C) and A.A.C. R4-28-301(F) and R4-28-303(D). 2. An evidentiary hearing was held before the Office of Administrative Hearings, an independent state agency, on Respondent’s appeal of the Department’s intended revocation of her real estate salesperson’s license. The Department presented the testimony of its Investigator Jim Ledwith and submitted fourteen exhibits. Respondent testified on her own behalf. The parties presented evidence and testimony to establish the facts set forth below. 3. On or about September 10, 2012, the Department initially granted real estate salesperson’s License Number SA641882000 to Respondent. That license is due to expire on September 30, 2018.1 4. On or about November 9, 2016, Respondent completed a questionnaire that

was designed to gauge her continued fitness to continue to be a real estate salesperson

See the Department’s Exhibit 1.

Office of Administrative Hearings 1400 West Washington, Suite 101 Phoenix, Arizona 85007 (602) 542-9826 with her license renewal application. Respondent answered “no” to the following questions on the questionnaire about whether she had experienced certain events, as follows: 7. Had any judgment or order entered against you by ANY court arising out of the conduct of any business in real estate, cemetery property, timeshare intervals, or membership categories? .... 11. Held, or do you hold ownership interest of 10% or more to exercise control in any business, corporation, partnership, or limited liability company that you would have had to answer “yes” to any of the above questions?2

5. The Department later learned that on or about August 22, 2016, judgment was entered against Respondent and her husband and AZ Cash Flips, LLC, jointly and

severally, in Kimberly S. Stewart’s civil action against them in Pinal County Superior

Court Case No. CV201401610 in the amount of $75,340.00 and $12,765.76 for Ms.

Stewart’s attorney’s fees.3

6. According to the Arizona Corporation Commission’s records, Respondent and

Ms. Stewart are named as members/managers for AZ Cash Flips LLC.4

7. The Department submitted the complaint in Pinal County Superior Court Case

No. CV201401610, which Ms. Stewart had initially filed against Respondent, her

husband, and Thunder Trail Investments, LLC.5 The complaint alleged that Ms. Stewart and Respondent were partners in AZ Cash Flips, LLC and that Respondent had failed to comply with AZ Cash Flips, LLC’s operating agreement. The complaint also alleged that Ms. Stewart, through AZ Cash Flips, LLC, received title to the subject property by way of a quitclaim deed executed by Respondent. 8. Mr. Ledwith testified that Respondent’s execution of the quitclaim deed and partnership in a real estate investment company constituted real estate activities that were subject to regulation by the Department.

The Department’s Exhibit 2. See the Department’s Exhibit 3. See the Department’s Exhibit 4. See the Department’s Exhibit 5. 9. The Department submitted an order granting partial summary judgment on Grace Bermudes’ complaint in Maricopa County Superior Court Case No. CV 2015- 092243 against Platinum Properties LLC, Thunder Trail Investments, LLC, 5K Ranch, Inc., Respondent and her husband, and others.6 10. The Department submitted Ms. Bermudes’ motion for partial summary judgment in Maricopa County Superior Court Case No.CV 2015-092243. According to the motion, Respondent as the agent, member, and manager of Thunder Trail Investments LLC entered into a business relationship involving real estate with Ms. Bermudes and accepted $40,000 from Ms. Bermudes, which Respondent never repaid.7 11. According to the Arizona Corporation Commission’s records, Respondent is the statutory agent and member of Thunder Trail Investments, LLC.8 12. According to the Nevada Secretary of State’s records, Respondent is the president of 5K Ranch, Inc.9 13. The Department submitted Ms. Bermudes’ complaint in Maricopa County Superior Court Case No. CV 2015-092243, which alleged that Ms. Bermudes and Respondent signed an operating agreement to form Platinum Properties, LLC, to purchase, improve and resell real estate in Arizona and that Respondent engaged in self-dealing and misrepresentation.10 14. The Department submitted the final judgment in Maricopa County Superior Court Case No. CV 2015-092243 against Respondent, and Respondent’s various real estate entities, jointly and severally, in the amount of more than $165,000.00, plus attorney’s fees and costs.11 15. The Department submitted Mr. Ledwith’s May 2, 2017 letter to Respondent, informing her that the Department had initiated a complaint against her for failing to

See the Department’s Exhibit 6. 7 See the Department’s Exhibit 7. See the Department’s Exhibit 8. See the Department’s Exhibit 9. See the Department’s Exhibit 10. See the Department’s Exhibit 11. report adverse civil court judgments within ten days and requesting that she provide a written, signed, statement concerning her knowledge of the issue.12 16. On or about May 19, 2017, Respondent submitted a response that provided in relevant part as follows: Unfortunately, at the time of these matters I was out of resources financially to fight these cases and had to assume the judgments. They were partnership agreements that I was in personally, I was not acting as an agent for myself nor the partners. I ended up being the person to take the fall because I was unable to hire somebody to fight my case, this was a result of my husband losing his job and I didn’t have the finances to retain an attorney. Both cases are being negotiated outside of court at this time to come to a resolution. I did send in a letter to the Department of Real Estate but it was not a certified letter which in hindsight would have been the better option.13

17. Mr. Ledwith testified that the Department had no record of receiving a letter from Respondent notifying it of the two civil judgments against her. 18. Respondent testified that the civil judgments were obtained by people with whom she started doing business before she was licensed. Respondent testified that she obtained a real estate salesperson’s license because she thought it was the right thing to do and that the Department found her to be a responsible person of good character. Respondent testified that both lawsuits involved the sale of buildings and that the buildings could not have been sold without the two plaintiffs’ consent. 19. Respondent testified that she got sick and could not afford to pay an attorney to defend the lawsuits. She got tired and does not believe that she was in the wrong. She had a personal relationship with both plaintiffs and they both had stayed at her house. Respondent testified that she would look into whether she could still appeal the judgments. 20. Respondent testified that if she had known that she could amend the disclosure on her license renewal, she would have. Respondent testified that she sent

See the Department’s Exhibit 12. The Department’s Exhibit 13. a letter to the Department after the first judgment was entered and that she believes she mentioned the second case in that letter. 21. When the Department asked if any other judgments had been entered against her, Respondent answered, “no.” 22. The Department submitted a Judgment on Entry of Default in Pinal County Superior Court Case No. CV2015-02288 that was entered in favor of Atlas 2005, LLC against Respondent and others, including 5K Ranch, Inc., on January 11, 2017.14 The amount of the judgment against Respondent was $68,052.01. 23. Respondent insisted that she had never seen the judgment and that someone had told her it had been vacated. Respondent stated that her attorney was leaving the firm and told her no further action would be taken. Respondent testified that the lawsuit involved Sterling Title failing to record deeds that she had paid it to record. Respondent insisted that she was a good person. 24. Respondent acknowledged that she was a 50% owner of AZ Cash Flips, LLC, a 90 or 95% owner of Thunder Trail Investments, LLC, and the 100% owner of 5K Ranch, LLC. CONCLUSIONS OF LAW 1. This matter lies within the Department’s jurisdiction. 2. The Department bears the burden of proof to establish cause to revoke or suspend Respondent’s real estate salesperson’s license by a preponderance of the evidence.15 Respondent bears the burden to establish affirmative defenses and factors in mitigation of the amount of the penalty by the same evidentiary standard.16 3. “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”17 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

14 See the Department’s Exhibit 14. See A.R.S. § 41-1092.07(G)(2); A.A.C. R2-19-119(A) and (B)(1); see also Vazanno v. Superior Court, 74 Ariz. 369, 372, 249 P.2d 837 (1952). See A.A.C. R2-19-119(B)(2). Morris K. Udall, ARIZONA LAW OF EVIDENCE § 5 (1960). doubt, is still sufficient to incline a fair and impartial mind to one side of the issue rather than the other.”18 4. When Respondent renewed her real estate salesperson’s license, she was required to disclose on the application any “[o]rder, judgment, or adverse decision entered against the applicant involving fraud or dishonesty, or involving the conduct of any business or transaction in real estate, cemetery property, time-share intervals, membership camping contracts, or campgrounds.”19 The Department established that Respondent did not disclose the August 2016 judgment in Pinal County Superior Court Case No. CV201401610 or the September 2016 judgment in Maricopa County Superior Court Case No. CV 2015-092243 on her November 2016 renewal application.. 5. A.R.S. § 32-2153(C) provides that “[a] judgment based on a court's finding or stipulation of fraud by a licensee following a trial on the merits or a criminal conviction of a licensee that results in a payment from the real estate recovery fund is prima facie evidence of a violation and grounds for discipline under this section.” Therefore, Respondent’s failure to disclose the two judgments on her November 2016 application to renew her license was false or misleading, furnishing additional cause to revoke her suspend her license under A.R.S. § 32-2153(B)(1) and (B)(7).20 6. A.A.C. R4-28-301(F) and A.A.C. R4-28-303(D) required Respondent to disclose to the Department within ten days any change in the information that she provided to the Department to become licensed, including any judgments subsequent to his licensure.21

BLACK’S LAW DICTIONARY at page 1220 (8th ed. 1999). A.A.C. R4-28-301(A)(1)(b). A.R.S. § 32-2153(B)(1) and (B)(7) provides in relevant part as follows: 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 the right of renewal of a license issued under this chapter when it appears that the holder or applicant has: 1. Procured or attempted to procure a license under this chapter for the holder or applicant or another by fraud, misrepresentation or deceit, or by filing an original or renewal application which is false or misleading. .... 7. Not shown that the holder or applicant is a person of honesty, truthfulness and good character. A.A.C. R4-28-301(F) provides in relevant part as follows: Each salesperson, broker, school owner, director, administrator, and instructor shall, within 10 days of each occurrence, notify the Commissioner in writing of any change in information provided under The Department established that Respondent did not disclose the judgments in Pinal County Superior Court Case No. CV201401610 and Maricopa County Superior Court Case No. CV 2015-092243 within ten days of their entry, or at any time before the Department learned of the judgments from the complaint in this matter. 7. Everyone is presumed to know the law.22 “As a matter of public policy, all persons are charged with knowledge of law pertaining to their transactions . . . .”23 Because everyone is presumed to know the law’s requirements, a mistake as to such requirements does not excuse failure to meet them.24 Neither A.A.C. R4-28-301(F) nor A.A.C. R4-28-303(D) requires any intent. 8. Because Respondent was required to disclose the adverse judgments that were entered against her within ten days of the date of his judgments, August 22, 2016, and September 27, 2016, the Department established Respondent violated the Department’s regulations. Cause therefore exists under A.R.S. § 32-2153(A)(3) to discipline Respondent’s real estate salesperson’s license. 25

subsection (A)(1)(a) through (d) and provide documentation listed in subsection (A)(2).

A.A.C. R4-28-303(D) provides in relevant part as follows:

A salesperson or broker shall notify the Department in writing within 10 days of any change in the individual’s personal information or qualifications. The salesperson or broker shall include in the notice the individual’s name, signature, license number, and: 1. If disclosing information required under R4-28-301, such as a criminal conviction, adverse judgment, denial or restriction of or disciplinary action against a professional or occupational license, or recovery fund payment on the person’s behalf, a written statement providing detailed information and, upon request by the Department, the supporting documentation identified in R4-28-301(A)(2) . . . . See Conway v. State Consolidated Publishing Co., 57 Ariz. 162, 171, 112 P.2d 218 (1941). Turner v. State Employees Retirement System, 485 So. 2d 765 (Ala. App. 1986). See Newman v. Fidelity Savings and Loan Ass’n, 14 Ariz. 354, 359, 128 P. 53 (1912). A.R.S. § 32-2153(A)(3) provides in relevant part as follows: A. 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 the right of renewal of a license issued under 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: .... 9. The Arizona legislature created the Department “to protect the public health, safety and welfare by regulating the sale of real estate . . . .”26 Respondent’s failure to take any responsibility for the judgments that have been entered against her show that at this time, she cannot be regulated. RECOMMENDED ORDER Based on the foregoing, IT IS ORDERED that on the effective date of the order entered in this matter, Respondent Sarah Kelley’s Real Estate Salesperson’s License No. SA641882000 shall be revoked. 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 days from the date of that certification. Done this day, February 7, 2018.

/s/ Diane Mihalsky Administrative Law Judge

Transmitted electronically to:

Judy Lowe, Commissioner Arizona Department of Real Estate

3. Disregarded or violated any of the provisions of this chapter or any rules adopted by the commissioner. Laws 1992, Ch. 14, § 3.