ALJDEC decisions subject to certification as final

19F-BD008-BNK · Arizona Department of Financial Institutions · 2019-10-28

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: July 17 and 18, 2019 APPEARANCES: Paul M. Levine, Esq. for Respondent; Eric Schwarz, Esq. and Lynette Evans, Esq. for the Department of Financial Institutions ADMINISTRATIVE LAW JUDGE: Thomas Shedden FINDINGS OF FACT On April 11, 2019, Arizona Department of Financial Institutions (the “Department”) issued a “Notice of Hearing and Complaint to Revoke Mortgage Broker License of AmeriCapital Mortgage & Investments, LLC.” The Notice of Hearing set the matter for hearing beginning on May 29, 2019. The matter was continued and the hearing was conducted on July 17 and 18, 2019. AmeriCapital holds license 0905819 that was originally issued by the Department on September 5, 2003. Amy Winski is the responsible individual and owner of the LLC. Brian Winski is Ms. Winski’s husband and was an employee of AmeriCapital from 2003 through January 30, 2015. AmeriCapital presented Ms. Winski’s testimony and that of attorney Michael Reeves who represented AmeriCapital in the “Helal” lawsuit, the judgment of which is at issue in this matter. The Department presented the testimony of Mr. Richard Fergus, a senior examiner, who was the Examiner-in-Charge of the Department’s 2018/19 examination of AmeriCapital. As pertinent to this matter, the Department also conducted examinations of AmeriCapital in 2011 and 2015. The Department alleges that Ms. Winski made material misstatements or suppressed or withheld information in applications to renew AmeriCapital’s license in “MU1” filings, in financial statements, and in documents provided to the Department during examinations; that AmeriCapital misstated its equity because it did not report judgments against it as liabilities on its balance sheet; that AmeriCapital is insolvent; that while acting in the course of the mortgage business as an employee of AmeriCapital, Mr. Winski had a judgment involving fraud, deceit or misrepresentation entered against him and he has been shown not to be a person of honesty truthfulness and good character; and that Ms. Winski has been shown not to be a person of honesty, truthfulness and good character. Based on these allegations, the Department charged that that Ms. Winski violated Ariz. Rev. Stat. sections 6-905(A)(2), (A)(8) and (C); that Mr. Winski violated sections 6-905(A)(2), (A)(6), and (C); and that AmeriCapital violated section 6-905(A)(1).[1] The Department alleges that many or all of Ms. Winski’s misstatements were made in the course of the mortgage business and resulted in information being concealed from the Department. As such, it also charged Ms. Winski with violating Ariz. Rev. Stat. section 6-909(L), which if proven would also be a violation of sections 6-905(A)(3) and (C). During the hearing, the Department withdrew an allegation that AmeriCapital violated section 6-905(A)(4). The Department is requesting that AmeriCapital’s license be revoked. Ms. Winski conceded that some violations had occurred, but she denies that these are as severe or pervasive as the Department alleges. She argues that the violations that do exist do not justify revocation and that the Department is precluded from bringing many of these charges based on principles of equity. The Department’s 2018/19 examination and Report Between October 9, 2018 and February 12, 2019, the Department conducted the examination of AmeriCapital that gave rise to the allegations in this matter (the “2018/19 examination”). Mr. Fergus was the Examiner-in-Charge. Mr. Fergus had reviewed the Department’s 2011 and 2015 e-Examination Reports for AmeriCapital before he began the examination of AmeriCapital. There were no consumer complaints against AmeriCapital during the period covered by the 2018/19 examination. On February 27, 2019, Mr. Fergus, as the “Examiner-in-Charge”, and Ms. Gabriela Macias, as the “Division Manager Mortgage Lending,” signed the Department’s Report for the 2018/19 examination (“the 2018/19 Report”). Although the examination was concluded at an exit meeting on February 12, 2019, the Report was not sent to AmeriCapital until May 9, 2019, which was days after the Report was signed. AmeriCapital did not receive the Report until after the Department issued the Complaint against it. Mr. Fergus is not a CPA, he did not receive any formal or classroom training to become an examiner or an examiner in charge, and he had received no training regarding the statutes or legal aspects of the examination. The 2018/19 Report was the first report for a mortgage broker that Mr. Fergus had prepared since 2005. During the 2018/19 examination, AmeriCapital and Ms. Winski complied with all the Department’s requests for information. According to Mr. Fergus, typically, the business of a mortgage broker is to take mortgage or loan applications for individuals or entities, work with the lender to get approval, have the lender fund the loan, and then receive compensation for brokering the loan to a lender. At the hearing, Mr. Fergus acknowledged that the Department had not followed all the statutes and policies applicable to investigations or examinations. These failures included: (1) not sending the 2018/19 Report to AmeriCapital for it to review and prepare a response; (2) not providing AmeriCapital with a copy of the Report within 30 working days after the examination was complete; (3) not providing AmeriCapital an opportunity to correct any of the Department’s alleged deficiencies; and (4) not providing AmeriCapital with an update on the status of the examination at least once every month. Mr. Fergus explained that he forgot to provide AmeriCapital with the required monthly updates. The purpose of the exit meeting is to review the findings with the licensee and have discussions before the Report is finalized so that the licensee knows what will appear on the Report. However, Mr. Fergus acknowledged that during the exit meeting, he did not discuss with Ms. Winski several of the issues for which the Department is alleging violations on the part of Ms. Winski. The Grunberg judgment against AmeriCapital On January 25, 2011, a final civil judgment was entered against AmeriCapital in the amount of $70,670.77 (the “Grunberg judgment”). During the 2011 examination of AmeriCapital, Ms. Winski answered “yes” to the question of whether it had been involved in any litigation since the last examination or since its license was issued. Ms. Winski wrote that “There was a dispute between our company and our previous landlord, which resulted in a lawsuit. In the event that we are required to pay any additional amounts more than we have already paid, we will do so. Therefore, no effect on financial condition is anticipated.” Ms. Winski’s testimony was to the effect that this was a disclosure of the Grunberg judgment. As of June 28, 2019, accrued interest had raised AmeriCapital’s debt for the Grunberg judgment to $179,368.03. At the hearing, Ms. Winski acknowledged that as of July 18, 2019, AmeriCapital had not paid the Grunberg judgment and that it had never made any attempt to pay. When asked why AmeriCapital has not paid this judgment, Ms. Winski answered “I honestly don’t know.” But Ms. Winski acknowledged her belief that AmeriCapital likely would not have been able to pay the Grunberg judgment when it was issued on January 25, 2011, and that she did not know whether AmeriCapital would have been able to pay that debt as of January 25, 2012. Ms. Winski testified that the Grunberg judgment did not have any effect on AmeriCapital’s operations, but considering that it has not paid the judgment, this statement is of little probative value. The Helal Judgment against AmeriCapital In 2010, Aziz and Teresa Helal were seeking to refinance property they owned. On March 31, 2011, the Helals filed suit against AmeriCapital, Ms. Winski, Mr. Winski, Cadillac Properties LLC, Star 1 Investments LLC, and other individuals and entities alleging breach of fiduciary duties, interference with contractual relations, tortious interference with business expectancy, fraud, negligent misrepresentation, consumer fraud, and aiding and abetting. The superior court entered an Under Advisement Verdict on October 15, 2015, and a Supplement/Amended Verdict and Final Judgment on February 5, 2014. (Collectively, the “Helal judgment.”) The superior court found that the Helals and the Defendants had entered into a borrower-broker relationship and that Mr. Winski had committed a breach of fiduciary duty; that Mr. Winski, AmeriCapital and Star 1 had committed interference with contractual relations; and that Mr. Winski, AmeriCapital and Star 1had committed tortious interference with business expectancy. The court found that the Helals had not proven any of the other alleged torts. The court did not impose any liability against Ms. Winski for her independent conduct, but it found that Mr. Winski acted on behalf of the marital community. The court found that Mr. Winski’s behavior was egregious, outrageous, and conducted with an evil mind, and consequently, the court imposed punitive damages. The court awarded the Helals compensatory damages of $233,000 and punitive damages of $150,000, which were assessed against Mr. Winski, AmeriCapital, and Star 1, jointly and severally. As set forth in more detail below, the Arizona Court of Appeals affirmed the superior court’s ruling that Mr. Winski committed a breach of fiduciary duty in dealing with the Helals, which occurred while he was an employee of AmeriCapital. At the hearing, Ms. Winski acknowledged that as of July 18, 2019, AmeriCapital had not paid the Helal judgment and that it had never made any attempt to pay that judgment. When asked why AmeriCapital has not paid this judgment, Ms. Winski testified “I don’t know.” Ms. Winski has however also taken the position that AmeriCapital owes the Helals only 1% of the judgment, whereas through the “Cadillac judgment” the Helals owe AmeriCapital substantially more than that. Ms. Winski testified that AmeriCapital disclosed the Helal judgment during the 2015 examination and that the examiner never asked for any additional documents regarding the case. Ms. Winski asserts that there was no attempt to withhold any information regarding either the Grunberg or Helal judgments and that she offered to make all the records regarding the Helal case available to Mr. Fergus during the Department’s 2018/19 examination. Ms. Winski asked Mr. Fergus if she needed to get him any other information concerning the Helal case. Ms. Winski testified that Mr. Fergus told her that he would let her know, but he never did. Mr. Fergus testified that he told Ms. Winski that she needed to ask an examiner who was conducting an examination of another of her businesses. The Cadillac judgment held by AmeriCapital Cadillac Properties LLC was one of the defendants in the Helals’ lawsuit against AmeriCapital and the Winskis. Cadillac Properties LLC obtained a judgment against the Helals in Pima County Superior Court (“the Cadillac judgment”) in the amount $242,500. Cadillac assigned that judgment to AmeriCapital on September 20, 2013. As of May 4, 2018, the sum due was $341,072.10. The Department’s 2011 e-Examination Report Between July 8 and August 3, 2011, the Department conducted an e- Examination of AmeriCapital. The Department’s Report is in evidence as Exhibit F. The 2011 Report was signed by Tammy Seto, “Examiner-in-Charge” and by Robert D. Charlton, “Assistant Superintendent of Financial Institutions.” In its 2011 Report, the Department concluded that AmeriCapital had not committed any violations of statute and that it was solvent. During the 2011 examination, AmeriCapital answered “yes” to the question of whether it had been involved in any litigation since the last examination or since its license was issued. AmeriCapital explained that “There was a dispute between our company and our previous landlord, which resulted in a lawsuit. In the event that we are required to pay any additional amounts more than we have already paid, we will do so. Therefore, no effect on financial condition is anticipated.” (Underscore added.) This disclosure was in reference to the lawsuit that led to the Grunberg judgment being entered against AmeriCapital. As discussed below, the Department alleges that during the 2011 examination, Ms. Winski should have disclosed that the Helals had filed their lawsuit, but failed to do so. The Department’s 2015 e-Examination Report On January 25, 2015, the Department conducted an e-Examination of AmeriCapital. The Department’s Report is in evidence as Exhibit D. The 2015 Report was signed by Michael Contreras, “Examiner-in-Charge” and by Robert D. Charlton, “Assistant Superintendent Financial Services Division.” In its 2015 Report, the Department concluded that AmeriCapital was solvent and that it had committed three statutory violations, none of which are related to the Department’s allegations in this matter. During the 2015 examination, the examiner (Mr. Contreras) informed Ms. Winski of the deficiencies he noted and AmeriCapital was allowed to make corrections. During the 2015 examination, AmeriCapital answered “yes” to the question whether it had been involved in any litigation since the last examination. Ms. Winski testified that AmeriCapital was disclosing the Helal judgment. As discussed below, during the 2015 examination, Ms. Winski submitted to the Department a Responsible Individual Questionnaire on behalf of AmeriCapital; the Department alleges that the questionnaire contained a material misrepresentation because it did not disclose that the Helal judgment had been entered against Mr. Winski. Allegations that Ms. Winski made misrepresentations or suppressed or withheld information The Department alleges that Ms. Winski submitted numerous documents to the Department in which she made material misstatements or suppressed or withheld information in violation of Ariz. Rev. Stat. section 6-905(A)(8) and (C). These include a. Allegations that Ms. Winski made material misstatements on license renewal applications and MU1 filings by reporting that AmeriCapital had no unpaid judgments against it; b. Allegations that Ms. Winski made material misstatements on financial statements and regarding AmeriCapital’s equity; c. Allegations that Ms. Winski made material misstatements regarding AmeriCapital’s liability for the Helal judgment; d. Allegation that Ms. Winski made a material misrepresentation during the 2011 examination by failing to report that the Helals had filed suit; e. Allegation that Ms. Winski made a material misstatement during the 2011 examination when she committed to pay the Grunberg judgment; f. Allegation that Ms. Winski made a material misstatement during the 2015 examination by failing to report that the Helal judgment had been entered against Mr. Winski. The Department also alleges that in the documents at issue, Ms. Winski misrepresented or concealed essential or material facts in the course of the mortgage broker business, in violation of Ariz. Rev. Stat. section 6- 909(L), which would also be violations of sections 6-905(A)(3) and (C). Allegations that Ms. Winski made material misstatements on license renewal applications and MU1 filings by reporting that AmeriCapital had no unpaid judgments against it The Department participates in the Nationwide Multistate Licensing System & Registry (“NMLS”), and all Arizona-licensed mortgage brokers are required to submit filings to the Department through NMLS. As pertinent to this matter, AmeriCapital filed license renewal applications, financial statements, and MU1s through the NMLS. These filings included Ms. Winski’s affirmations or attestations that the information was true and accurate. The annual renewal applications and MU1 filings each have a “Question J” that asks: “Does the entity have any unsatisfied judgments or liens against it?” On eight license renewal applications that Ms. Winski filed for AmeriCapital covering years 2012 through 2019, Ms. Winski answered “no” to Question J. Ms. Winski also answered “no” to Question J in MU1 filings submitted on February 12, 2014, January 5, 2017, and March 9, 2017. At the hearing, Ms. Winski acknowledged that these “no” answers were not true and that because the Grunberg and Helal judgments were unsatisfied, she should have answered “yes” in each case. According to Ms. Winski, she thought she had to disclose only unsatisfied judgments that had occurred during the prior year, not all unsatisfied judgments. Ms. Winski argues that because she had disclosed to the Department the Grunberg and Helal judgments, there could not have been any intent to deceive when she falsely reported that AmeriCapital had no unsatisfied judgments. The Department in its Complaint did not charge Ms. Winski for the alleged misrepresentations that occurred in the 2019 renewal application, and alleges violations for only the seven other renewal applications and the three MU1s. Allegations that Ms. Winski made material misstatements on financial statements and regarding AmeriCapital’s equity In the years 2011 through 2018, AmeriCapital filed annual financial statements that included a calculation of AmeriCapital’s total equity. During the Department’s 2018/19 examination of AmeriCapital, it provided the Department with an additional financial statement that included a calculation of the total equity. At the hearing, Ms. Winski acknowledged that she did not include either the Grunberg or Helal judgment on any of those financial statements. Mr. Fergus testified that he had spoken to a CPA working for the Department who informed him that generally accepted accounting principles or GAAP requires that all unsatisfied civil judgments be included in financial statements as either assets or liabilities.[2] During the 2018/19 examination, Mr. Fergus never told Ms. Winski that he was of the opinion that the financial statements were deficient because these did not include the judgments. Ms. Winski acknowledged that she did not know whether GAAP requires disclosure of judgments on financial statements. Ms. Winski also testified that prior to the 2018/19 examination, the Department had not told her that the judgments should be included on a financial statement. If she would have been told that judgments should have been included on the financial statements, she would have done so. According to Ms. Winski, NMLS does not have a suggested format or form for submitting a financial statement, and that AmeriCapital uses QuickBooks to prepare its financial statements. To Ms. Winski’s recollection, QuickBooks did not include a place to enter judgments in the financial statements she prepared. Through its Complaint, the Department alleged violations of statute for only the four financial statements Ms. Winski submitted in years 2014 to 2017 and the statement she submitted in August 2018. The Department is not alleging AmeriCapital or Ms. Winski failed to follow GAAP. Allegations that Ms. Winski made material misstatements regarding AmeriCapital’s liability for the Helal judgment During the Department’s 2018/19 examination of AmeriCapital, Ms. Winski provided the Department with signed statements showing that AmeriCapital was responsible for only 1% of the monetary judgment in the Helal case. Ms. Winski wrote that AmeriCapital only owed the Helals 1% of the Helal judgment, rather than 100%, because Michael Reeves, her attorney in that lawsuit, told her that AmeriCapital was responsible for only 1%. Mr. Reeves has been practicing law in Arizona since 1986. He has tried more cases than he has counted, he has arbitrated matters through the American Arbitration Association, and he has served as an Arbitrator. His experience includes cases involving fraud, negligent misrepresentation, deceit, breach of fiduciary duty, interference with contractual relations, interference with business expectancy and consumer fraud. Mr. Reeves testified that the Helal judgment was not clear and that the traditional form of judgment was not signed in the Helal case. Mr. Reeves confirmed that he had advised Ms. Winski that AmeriCapital was only liable for 1% of the Helal Judgment, and he confirmed that this was still his opinion as of the hearing date. Mr. Fergus acknowledged that during the 2018/19 examination, he never asked Ms. Winski why she was of the opinion that AmeriCapital had only a 1% liability for the Helal judgment and that he had never contacted Mr. Reeves to discuss his opinion to that effect.[3] The Department argues that Mr. Reeves and Ms. Winski are wrong, and therefore that Ms. Winski’s statements in violation of Ariz. Rev. Stat. sections 6-905(A)(8) & (C), and 6-909(L). Allegation that Ms. Winski made a material misrepresentation during the 2011 examination by failing to report that the Helals had filed suit During the 2011 examination, AmeriCapital disclosed the Grunberg litigation, but not that the Helals’ had filed their lawsuit. Because the Helal lawsuit was filed and served on March 31, 2011, the Department alleges that Ms. Winski was obligated to disclose that lawsuit during the 2011 examination, but instead she concealed its existence. During its 2015 examination, the Department did not find that AmeriCapital had committed a violation during the 2011 examination by not listing the Helal litigation. Allegation that Ms. Winski made a material misstatement during the 2011 examination when she committed to pay the Grunberg judgment When Ms. Winski disclosed the Grunberg matter during the 2011 examination, she informed the Department that AmeriCapital would pay Grunberg any monies they were required to pay. At the hearing, Ms. Winski acknowledged that it never made any attempt to pay the Grunberg judgment. The Department argues that the promise to pay was therefore a material misstatement. Allegation that Ms. Winski made a material misstatement during the 2015 examination by failing to report that the Helal judgment had been entered against Mr. Winski During the 2015 examination, Ms. Winski submitted to the Department a Responsible Individual Questionnaire dated January 20, 2015. Ms. Winski answered “No” to Question 17, which asks: “Have you … or [an] employee had a final judgment entered against same in a civil action upon grounds of fraud, deceit or misrepresentation (6-905.A.6.)?” The Helal judgment was final against Mr. Winski as of February 5, 2014. Mr. Winski was an employee of AmeriCapital on January 20, 2015 when Ms. Winski filed the Questionnaire. The Department argues that this shows that Ms. Winski should have answered “yes” to Question 17, and that her failure to do so violated sections 6-905(A)(8) and (C), and 6-909(L). Ms. Winski testified however that she had disclosed to the Department’s examiner the Helal judgment during the 2015 examination. Whether AmeriCapital is solvent The Superintendent may suspend or revoke a mortgage broker’s license if the Superintendent finds that the licensee “[i]s insolvent as defined in [Ariz. Rev. Stat. section] 47-1201.” Ariz. Rev. Stat. § 6-905(A)(1). As defined in Ariz. Rev. Stat. section 47-1201(B)(23)(b), “insolvent” means: “Being unable to pay debts as they become due.” As defined in section 47-1201(B)(23)(c), “insolvent” means: “Being insolvent within the meaning of federal bankruptcy law.” Ms. Winski testified that prior to her receipt of the complaint in this matter the Department had never told her that AmeriCapital did not meet the financial responsibility or net worth requirements required by statute. She stated that if she would have been told, she would have made the corrections necessary, including making monetary contributions to AmeriCapital to increase its net worth, and that she had the financial resources to make the contribution if necessary. Whether AmeriCapital is able to pay its bills as they come due Ms. Winski acknowledged that AmeriCapital has not paid the either the Grunberg or Helal judgments, which were final as of January 25, 2011 and February 5, 2014, respectively. During the hearing, Ms. Winski could not provide an explanation as to why AmeriCapital had not paid the Grunberg and Helal judgments, although she did take the position that AmeriCapital was responsible for only 1% of the Helal judgment, which is less than the Cadillac judgment against the Helals. The Department argues that the only reasonable explanation for AmeriCapital’s failure to pay those debts is that AmeriCapital has been unable to do so. The Department believes that this conclusion is bolstered by Ms. Winski’s acknowledgments that AmeriCapital was likely not able to pay the Grunberg judgment when it was entered in 2011 and that she did not know whether AmeriCapital would have been able to pay that debt as of January 25, 2012, and because AmeriCapital has not originated a loan since 2015. Consequently, the Department argues that the evidence shows that AmeriCapital is insolvent as defined in Ariz. Rev. Stat. section 47- 1201(B)(23)(b) because it is unable to pay its debts as they come due. Whether AmeriCapital is insolvent within the meaning of federal bankruptcy law As defined in Ariz. Rev. Stat. section 47-1201(B)(23)(c), insolvent means “Being insolvent within the meaning of federal bankruptcy law.” Mr. Fergus testified that when an entity’s liabilities exceed its assets (i.e., negative total equity), that constitutes being insolvent within the meaning of federal bankruptcy law, but he did not provide any explanation as to why he was of this opinion. AmeriCapital did not refute his testimony, but the Department did not provide any legal citations or other authority to support the testimony. Mr. Fergus testified as to his opinion that AmeriCapital’s financial statement showing that as of August 31, 2018, it had equity of $149,431.57 was in error because it did not include as liabilities either the Grunberg or Helal judgments, which he asserts is required under GAAP. Mr. Fergus also was of the opinion that AmeriCapital should have reported the Cadillac judgment as an asset in its statements. Mr. Fergus testified that when the three judgments are properly accounted for, as of August 31, 2018, AmeriCapital’s equity was a negative $39,462.15. Mr. Fergus reached this conclusion by subtracting from $149,431.57 (the total equity figure reported on the August 31, 2018 financial statement) the outstanding balances of the Grunberg and Helal judgments and adding the outstanding balance of the Cadillac judgment. In reaching this conclusion, Mr. Fergus considered AmeriCapital to be 100% liable for the Helal judgment, and he acknowledged that if AmeriCapital was only 1% responsible for that judgment, it would not be insolvent under his calculations. Mr. Fergus acknowledged that he did not account for interest that had accrued on the Grunberg and Cadillac judgments. The Department asserts that even if this interest was to be considered, AmeriCapital would still have a negative equity. The Department concludes that as of August 31, 2018, AmeriCapital was insolvent as defined in Ariz. Rev. Stat. section 47-1201(B)(23)(c) because as of that date AmeriCapital was insolvent within the meaning of federal bankruptcy law. Allegations related to Mr. Winski The Helal lawsuit was filed on March 31, 2011, and the final judgment was entered on February 5, 2014. Mr. Winski was an AmeriCapital employee from 2003 until January 30, 2015. The superior court in the Helal case found that the Helals and Mr. Winski had “entered into a borrower-broker relationship” and that Mr. Winski had committed the tort of breach of fiduciary duty against the Helals. On December 15, 2015, the Arizona Court of Appeals issued a decision in the Helal case which affirmed the trial court’s decision in its entirety, including the finding that Mr. Winski was acting as the Helals’ mortgage broker. In its decision, the Court of Appeals made the following findings: Although the parties presented conflicting evidence at trial, the trial court found that the Winskis defrauded the Helals by intentionally leading them on while working separately with M&I to buy the Helals’ properties’ promissory notes and deeds of trust. *** By the end of the day, she told [the Helals] that Mr. Winski, a mortgage broker with Americapital, was interested in being their broker. *** A fiduciary relationship exists between a broker and his client, and the broker owes his client the utmost good faith as a result of that relationship. *** Here, Mr. Winski was the Helals’ broker and a fiduciary relationship existed between the Helals and him. The record shows that the Helals trusted Mr. Winski and believed that he would act for their benefit. *** Consequently, Mr. Winski’s actions were improper as to motive and means. He knew the Helals’ situation and took full advantage of it to benefit himself and his company.” *** Here, Mr. Winski committed outrageous conduct with the requisite evil mind that supports the punitive damages award. The record shows that Mr. Winski consciously disregarded the Helals’ rights under the settlement agreement with M&I. Instead of looking for potential investors for the Helals to help them refinance their loans, Mr. Winski was working with M&I to purchase the notes directly from the bank for his own benefit. *** Even though Mr. Winski knew that his action was contrary to the Helals’ interests, he continued to act in the same manner in deliberate contravention to the Helals’ rights.

Moreover, the record shows that Mr. Winski had a motive to defraud the Helals to secure benefits for him and his company.... Mr. Winski repeatedly asked the Helals for information – personal information regarding themselves and their properties – under the guise that potential investors wanted that information. ... Although Mr. Winski claimed that he did not know about the second settlement agreement and knew only that the first settlement agreement expired on December 22, on January 3, he proceeded to ask the Helals for more information – once again under the guise that he had a potential investor for them. *** Consequently, because the record supports the trial court’s finding that Mr. Winski’s actions were outrageous and conducted with an evil mind, the court did not err in awarding the Helals punitive damages.

Exhibit 28 (Underscoring added; citations and internal quotations omitted.)

The Department alleges that because the superior court and appeals court found that Mr. Winski breached his fiduciary duty to the Helals, he has violated Ariz. Rev. Stat. section 6-605(A)(6) and that the courts’ findings show that he is not a person of honesty, truthfulness and good character in violation of section 6-905(A)(2). AmeriCapital argues to the effect that because the Helal court found that the Helals did not prove the torts of fraud, negligent misrepresentation or consumer fraud, the judgment against Mr. Winski does not fall within section 6-905(A)(6). The Department notes that despite the superior court’s decision on those three allegations, the Court of Appeals specifically used the word fraud to describe Mr. Winski’s conduct toward the Helals. The Department argues that the Court of Appeals was certainly aware that Mr. Winski had not been found liable for the tort of fraud in the Helal case, and yet that Court nevertheless described Mr. Winski’s actions in terms of fraud. Whether Ms. Winski is a person of honesty, truthfulness and good character The Department argues that Ms. Winski has engaged in a years-long pattern of concealment, misrepresentation, misstatements, suppression and withholding regarding information she has provided to the Department in the course of the mortgage broker business. The Department also notes that Ms. Winski had committed to pay the Helal judgment, but failed to do so. As such, the Department alleges that Ms. Winski has shown that she is not a person of honesty, truthfulness and good character. CONCLUSIONS OF LAW The Department bears the burden of persuasion. Ariz. Rev. Stat. § 41- 1092.07(G)(2). At an administrative hearing, unless otherwise provided by law, the party asserting a claim, right, entitlement, or affirmative defense has the burden of proof, and the standard of proof on all issues in this matter is that of a preponderance of the evidence. Ariz. Admin. Code § R2-19-119. A preponderance of the evidence is: The 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.

Black’s Law Dictionary 1373 (10th ed. 2014). An Administrative Law Judge Decision must be based on evidence that is substantial, reliable and probative. Ariz. Rev. Stat. § 41-1092.07(F). “Substantial evidence is evidence which would permit a reasonable person to” conclude that the proposed finding should be substantiated. See Sierra Club – Grand Canyon Chapter v. Ariz. Corp. Comm’n, 237 Ariz. 568, ¶ 22, 354 P.3d 1127 (2015 App.)(citing In re Estate of Pouser, 193 Ariz. 574, 579, ¶ 13, 975 P.2d 704 (1999). Although hearsay can be admitted at an administrative hearing, the Decision may not be based on unreliable hearsay. A sufficient foundation must be provided before hearsay can be considered reliable. “Reliable hearsay must be of the kind reasonable persons rely upon in serious matters.” Plowman v. Ariz. State Liquor Bd., 152 Ariz. 331, 337, 752 P.2d 222, 228 (App. 1986)(citation omitted). Ariz. Rev. Stat section 6-905 shows in part: A. The superintendent may deny a license to a person or suspend or revoke a license if the superintendent finds that an applicant or licensee: 1. Is insolvent as defined in section 47-1201. 2. Has shown that he is not a person of honesty, truthfulness and good character. 3. Has violated any applicable law, rule or order. 4. Refuses to permit an examination by the superintendent of the licensee's books and affairs or refuses or fails, within a reasonable time, to furnish any information or make any report that may be required by the superintendent. ***** 6. Has had a final judgment entered against him in a civil action upon grounds of fraud, deceit or misrepresentation and the conduct on which the judgment is based indicates that it would be contrary to the interest of the public to permit such person to be licensed or to control or manage a licensee. ***** 8. Has made a material misstatement or suppressed or withheld information on the application for a license or any document required to be filed with the superintendent. **** C. If a licensee is other than a natural person, it is sufficient cause for the suspension or revocation of the license if an officer, director, member, partner, trustee, employee, while acting in the course of the mortgage broker business, or person entitled to vote more than twenty per cent of the outstanding voting shares of the licensed corporation, partnership, association or trust has acted or failed to act in the same manner as would be cause for suspending or revoking a license of the party as an individual….

(Underscoring added.)

“A mortgage broker shall not make a false promise or misrepresentation or conceal an essential or material fact in the course of the mortgage broker business.” Ariz. Rev Stat. § 6-909(L). “Every official report of the department is prima facie evidence of the facts therein stated in any action or proceeding wherein the superintendent is a party.” Ariz. Rev Stat. § 6-129(D). Insolvent means “(b) Being unable to pay debts as they become due; or (c) Being insolvent within the meaning of federal bankruptcy law.” Ariz. Rev Stat. § 47-1201(B)(23). “Every mortgage broker shall observe generally accepted accounting principles and practices.” Ariz. Rev Stat. § 6-906(B). Ariz. Rev. Stat. section 41-1009 provides in part: *** D. An agency that conducts an inspection shall give a copy of the inspection report to the regulated person or on-site representative of the regulated person either: *** 2. Notwithstanding any other state law, within thirty working days after the inspection. *** J. At least once every month after the commencement of the inspection, an agency shall provide a regulated person with an update on the status of any agency action resulting from an inspection of the regulated person. An agency is not required to provide an update after the regulated person is notified that no agency action will result from the agency inspection or after the completion of agency action resulting from the agency inspection. *** P. Failure of an agency, board or commission employee to comply with this section: *** 2. Shall be considered by the judge and administrative law judge as grounds for reduction of any fine or civil penalty.

Statutes should be interpreted to provide a fair and sensible result. Gutierrez v. Industrial Commission of Arizona; see also State v. McFall, 103 Ariz. 234, 238, 439 P.2d 805, 809 (1968) ("Courts will not place an absurd and unreasonable construction on statutes."). Each word, phrase, clause, and sentence of a statute or rule must be given meaning so that no part will be void, inert, redundant, or trivial. See Deer Valley, v. Houser, 214 Ariz. 293, 296, 152 P.3d 490, 493 (2007). The tribunal may disregard self-serving testimony. See e.g., State v. Medrano, 185 Ariz. 192, 914 P.2d 225 (1996). The tribunal is not required to accept evidence even if it is not contradicted. Gaveck v. State Board of Podiatry, 222 Ariz. 433, 215 P.3d 1114 (App. 2009). A client has a right to rely on the advice of her attorney. Lietz v. Primock, 84 Ariz. 273, 327 P.2d 288 (1958). License holders are expected to know the law. See Lugo v. Moore, 11 Ariz. App. 85, 90, 462 P.2d 102, 107 (1969). “[E]stoppel may apply against the state only when the public interest will not be unduly damaged and when its application will not substantially and adversely affect the exercise of government powers.” Valencia Energy Co. v. Arizona Dept. of Revenue, 191 Ariz. 565, 578, 959 P.2d 1256, 1269 (1998). The allegations that Ms. Winski made material misstatements or suppressed or withheld information Allegations that Ms. Winski made material misstatements on license renewal applications and MU1 filings by reporting that AmeriCapital had no unpaid judgments against it Ms. Winski acknowledged that she falsely reported that AmeriCapital had no unpaid judgments against it in the eight license renewal applications and three MU1 filings. Question J on those documents is straightforward and Ms. Winski’s justifications for failing to provide truthful answers is not persuasive. Even though the examiners in 2011 and 2015 presumably knew that AmeriCapital had not paid the judgments in those years, AmeriCapital was obligated to provide truthful answers in subsequent filings with the Department, which obligation is heightened by the expectation is that AmeriCapital would pay its debts. The preponderance of the evidence shows that by answering “no” to the question of whether AmeriCapital had any unpaid judgments against it, Ms. Winski violated Ariz. Rev. Stat. sections 6-905(A)(8) and (C). The Department alleges that these documents were filed in the course of the mortgage business and that Ms. Winski has also violated Ariz. Rev. Stat. section 6-909(L), which if true would be a violation of sections 6- 905(A)(3) and (C). The Administrative Law Judge does not agree that these documents were filed in the course of the mortgage business as that term is used in the statute. Under the Department’s reading, section 6-905(A)(8) would be unnecessary (or void or trivial) because any violation of it would also be a violation of section 6-909(L). The more sensible reading is that the two statutes are designed to address two different things: the licensee’s interactions and filings with the Department (6-905(A)(8)) and the licensee’s business dealings with the public (6-909(L)). That section 6-909(L) also prohibits making false promises, further indicates that the legislature is addressing interactions between the licensee and the public, and not documents filed with it. This reading of the statute is also consistent with Mr. Fergus’s definition related to the meaning of mortgage business. Because the Department has not proven by a preponderance of the evidence that any of Ms. Winski’s alleged material misstatements occurred in the course of the mortgage broker business, it has not proven that she violated 6-909(L). Allegations that Ms. Winski made material misstatements on financial statements and regarding AmeriCapital’s equity 29. There is no dispute that AmeriCapital did not report as liabilities the Grunberg and Helal judgments. 30. Mr. Fergus testified that under GAAP, AmeriCapital was required to report the judgments on its financial statements. But Mr. Fergus acknowledged that he is not a CPA and that he was relying on what someone else told him. 31. The Department presented no other evidence or legal authority to support Mr. Fergus’s testimony on this point and the Department did not show that Mr. Fergus has the requisite education, experience or training to provide a reliable opinion regarding GAAP. Considering the serious nature of this matter in which the Department seeks to revoke AmeriCapital’s license, there is insufficient foundation for Mr. Fergus’s testimony on this issue to be considered reliable and the Department has not presented substantial evidence showing that a violation occurred. Moreover, there is evidence to show that the judgments did not have to be reported on the financial statements at issue in that AmeriCapital had not reported these judgments on its balance sheets at the times of the 2011 and 2015 examinations. Presumably, those examiners were aware that the judgments had not been reported on the financial statements and yet the Department’s Reports did not show that AmeriCapital had committed a violation. Those Reports are prima facie evidence of the truth of the information therein, and those Reports weigh against finding that the failure to include the judgments on the financial statements was a violation. Allegations that Ms. Winski made material misstatements regarding AmeriCapital’s liability for the Helal judgment When Ms. Winski reported that AmeriCapital was liable for only 1% of the Helal judgment she was relying on the advice of its attorney, Mr. Reeves. Mr. Reeves appeared and affirmed his opinion that AmeriCapital was only responsible for 1%. The Department argues that Mr. Reeves and by extension Ms. Winski are wrong. Ms. Winski was justified in relying on Mr. Reeves’s opinion, and so regardless of whether that opinion was correct, the facts do not support a finding that Ms. Winski’s statement were violations of Ariz. Rev. Stat. sections 6-605(A)(8) or (C), or 6-909(L). Allegation that Ms. Winski made a material misrepresentation during the 2011 examination by failing to report that the Helals had filed suit Although there is no evidence to show that Ms. Winski reported that the Helal litigation during the 2011 examination, during the 2015 examination, the Department was aware of the judgment against AmeriCapital and Mr. Winski, but did not find that AmeriCapital had committed a violation in 2011. The reasonable assumption is that in 2015, the Department did not consider the failure to report the Helal judgment to be a “material misstatement” or that Ms. Winski was suppressing information. The Department has not proven AmeriCapital’s failure to list the Helal litigation during the 2011 examination is now a violation of Ariz. Rev. Stat. sections 6-605(A)(8) or (C), or 6-909(L). Allegation that Ms. Winski made a material misstatement during the 2011 examination when she committed to pay the Grunberg judgment During the 2011 examination Ms. Winski reported to the Department that AmeriCapital would pay whatever it was required to as a result of the Grunberg judgment. Ms. Winski acknowledged that AmeriCapital has not done so and she provided no justification for that failure. The preponderance of the evidence shows that Ms. Winski made a material misstatement during the 2011 examination by falsely stating that AmeriCapital would pay the Grunberg judgment, which is a violation of Ariz. Rev. Stat. sections 6-905(A)(8) and (C). Allegation that Ms. Winski made a material misstatement during the 2015 examination by failing to report that the Helal judgment had been entered against Mr. Winski Ms. Winski provided testimony that during the 2015 examination, she informed the examiners of the Helal judgment and that they did not require her to provide more information than she did. The Department notes that in a Questionnaire Ms. Winski submitted in the course of the 2015 examination, she answered to the effect that there had been no judgments entered against her or any employees. Considering that during the 2015 examination, the Department was made aware of the Helal judgment, there is insufficient evidence to conclude that by submitting the Questionnaire Ms. Winski violated Ariz. Rev. Stat. sections 6-605(A)(8) or (C), or 6-909(L). The allegation that AmeriCapital is insolvent Unable to pay bills when due Ms. Winski acknowledged that AmeriCapital has not paid either the Grunberg or the Helal judgment and she offered no valid justification for that failure. Ms. Winski argues that it has not been proven that AmeriCapital cannot pay the judgments, and asserts that if, at some point, the Grunberg judgment needs to be satisfied, AmeriCapital will address the issue accordingly. Ms. Winski acknowledged however that when the Grunberg judgment was entered, AmeriCapital could not have paid it. Consequently, AmeriCapital was insolvent at that time. The Department argues that the only reason AmeriCapital would not have paid the judgments is that it could not pay. The Department’s argument is not persuasive for the simple reason that AmeriCapital may not have paid the judgments because Ms. Winski does not want to do so. Consequently, the Department has not shown that AmeriCapital is currently unable to pay its bills when due. This conclusion however necessitates a finding that Ms. Winski is a person of bad character because she has willingly chosen not to pay AmeriCapital’s debts. As such, the Department has not proven by a preponderance of the evidence that AmeriCapital cannot pay its bills when due and has not proven that AmeriCapital has violated Ariz. Rev. Stat. section 6-605(A)(1). The Bankruptcy definition of insolvent Mr. Fergus testified to the effect that under the bankruptcy laws, an entity is insolvent if its liabilities exceed its assets. Mr. Fergus testified that AmeriCapital is insolvent under this definition if the Grunberg and Helal judgments are considered to be liabilities and the Cadillac judgment is considered to be an asset, which in his opinion was required by GAAP. Mr. Fergus had acknowledged however that he is not a CPA and that he had not received any training on the laws applicable to the legal aspects of mortgage broker examinations. The Department provided no evidence, legal authority, or legal argument showing that Mr. Fergus’s testimony as to the definition of insolvency under the bankruptcy law was correct. In addition, as set out above, there is insufficient foundation to conclude that Mr. Fergus has sufficient education, training or experience to render a reliable opinion regarding GAAP. As such, the Department has not presented substantial evidence that AmeriCapital is insolvent under the bankruptcy laws and has not proven that AmeriCapital has violated Ariz. Rev. Stat. section 6-605(A)(1). The allegations that Mr. Winski has violated subsection (A)(6) and that he is a not a person of honesty, truthfulness and good character The Department argues to the effect that a judgment of breach of fiduciary duty is per se a judgment on grounds of fraud, deceit or misrepresentation. AmeriCapital argues that the judgment against Mr. Winski does not fall with subsection (A)(6) because the superior court found that he did not commit the torts of fraud, negligent misrepresentation, or consumer fraud. It is not necessary however to determine whether a breach of fiduciary duty is necessarily a judgment on grounds of fraud, deceit or misrepresentation because the appeals court’s decision shows that Mr. Winski asked the Helals for information “under guise” that he needed the information for potential investors. In other words, the judgment against Mr. Winski involved the use of deceit and therefore falls within subsection (A)(6). Moreover, as the Department pointed out, the appeals court specifically noted that the Winskis’ dealings with the Helals involved fraudulent conduct. Mr. Winski’s conduct during the Helal matter is conduct showing that “it would be contrary to the interest of the public to permit such person to be licensed.” Consequently, the preponderance of the evidence shows that Mr. Winski has violated Ariz. Rev. Stat. section 6-905(A)(6) and (C). This same information also shows that Mr. Winski is not person of honesty, truthfulness or good character in violation of Ariz. Rev. Stat. section 6- 905(A)(2) and (C). The Allegation that Ms. Winski has not shown that she is a person of honesty, truthfulness and good character. The Department alleges that Ms. Winski has engaged in a pattern of filing with the Department documents that contain material misstatements or that suppress or withhold information, including a false promise to pay the Grunberg judgment, and as such, the evidence shows that she is not a person of honesty, truthfulness or good character. AmeriCapital argues to the effect that the only violations are Ms. Winski’s answers to Question J on the renewal applications and MU1s, and that these were the result of Ms. Winski not understanding what was being asked of her. Ms. Winski’s self-serving testimony on this point is unavailing because the Question J is simple and clear in what it asks. AmeriCapital also notes that the superior court in the Helal matter found that the Helals found no independent wrong-doing on Ms. Winski’s part. But in making that finding the court noted that she was protected by the corporate veil. And the court did find that AmeriCapital committed the torts of interference with contractual relations and tortious interference with business expectancy. As set out above, the evidence of record shows that AmeriCapital has chosen not to pay the Grunberg or Helal judgments even though it appears to have the ability to do so. This conclusion is bolstered by the fact that Ms. Winski testified that she could provide sufficient capital to show a positive equity if these judgments were treated as liabilities on the balance sheet. This failure to pay the judgments is a sign of bad character on Ms. Winski’s part. The preponderance of the evidence shows that Ms. Winski is not a person of honesty, truthfulness and good character in violation of Ariz. Rev. Stat. section 6-905(A)(2) and (C). Conclusion The preponderance of the evidence shows that Ms. Winski has committed violations of Ariz. Rev. Stat. sections 6-905(2), (A)(8) and (C), and that while an employee of AmeriCapital, Mr. Winski committed violations of sections 6-905(A)(2), (A)(6) and (C). Considering the facts and circumstances of this matter, including that Ms. Winski has been found not to be a person of honesty, truthfulness and good character and the nature of Mr. Winski’s and AmeriCapital’s involvement in the Helal matter, the Department’s request that AmeriCapital’s license be revoked is justified. RECOMMENDED ORDER IT IS ORDERED that AmeriCapital Mortgage & Investments, LLC’s license number 0905819 is 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 is five days after the date of that certification. Done this day, October 28, 2019.

/s/ Thomas Shedden Thomas Shedden Administrative Law Judge

Transmitted electronically to:

Keith A. Schraad, Interim Director Arizona Department of Financial Institutions ----------------------- [1] Ariz. Rev. Stat. section 6-905(A) sets out acts for which a licensee can be disciplined. For cases such as this one where the licensee is an LLC, section 6-905(C) provides that the license is subject to discipline for the acts of its owner and in some circumstances, its employees. [2] “Every mortgage broker shall observe generally accepted accounting principles and practices.” Ariz. Rev. Stat.§ 6-906(B). [3] There is no information in the record showing that any of the Department’s attorneys had contacted Mr. Reeves to discuss the issue.

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Office of Administrative Hearings 1740 West Adams Street, Lower Level Phoenix, Arizona 85007 (602) 542-9826