ALJDEC decisions subject to certification as final

21F-043-REL · Department of Real Estate · 2021-03-15

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

In the Matter of the Real Estate Activities of:

William Slaughter, holder of license number BR536271000,

and

Clients First Realty, LLC, holder of entity license number LC574980000,

Respondents

No. 21F-043-REL

ADMINISTRATIVE LAW JUDGE

DECISION

HEARING: February 23, 2021

APPEARANCES: William Slaughter for Respondents; Holly Wan, Esq. for the Department of Real Estate

ADMINISTRATIVE LAW JUDGE: Thomas Shedden

FINDINGS OF FACT

On October 26, 2020, the Arizona Department of Real Estate (“Department”) issued a Notice of Hearing and Complaint setting the above-captioned matter for hearing on December 18, 2020 at the Office of Administrative Hearings in Phoenix, Arizona. The matter was continued and the hearing was conducted on February 23, 2021.

The Notice of Hearing provides that hearing was being held to determine whether grounds exist to revoke Respondents William Slaughter’s and Clients First Realty LLC’s licenses.

Mr. Slaughter appeared and testified for Respondents. The Department presented the testimony of senior auditor Melanie Martinez.

Mr. Slaughter holds license number BR536271000. Clients First holds entity license number LC574980000.

Mr. Slaughter is Clients First’s sole member/manager and its designated broker.

After receiving a consumer complaint, Ms. Martinez conducted an electronic audit of Respondents. The Audit Report, dated August 5, 2020, is in evidence as Exhibit 9.

The facts are not in dispute and Mr. Slaughter admitted to violations of Ariz. Rev. Stat. sections 32-1153(A)(17), (A)(21), (A)(22) and (B)(1), and Ariz. Admin. Code section R4-28-1103. The Department also alleges that he violated sections 32-2151.01(A) and 32-2153(A)(18), which Mr. Slaughter does not dispute he violated.

Key findings of the audit are that (1) Respondents’ had been providing property management services without the proper systems and supervision; (2) Respondents had failed to return to a property-management client $5500 when requested; (3) Mr. Slaughter failed to provide proper supervision over the activities for which a license is required; (4) Mr. Slaughter failed to submit all the documentation and information requested during the audit; and (5) Mr. Slaughter filed a false or misleading application for licensure when he submitted a December 2019 Broker Audit Declaration.

On April 24, 2020, the Department received a complaint alleging that Respondents had been hired in 2016 to manage property for Wendy and Nathan Harrison and that after the Harrisons terminated the agreement, Respondents did not return to them $5500 that should have been deposited in Respondents’ trust account.

Through a letter dated May 5, 2020, the Department informed Mr. Slaughter that it would be conducting an electronic broker review audit based on the allegations raised in the Harrisons’ complaint. The letter directed Mr. Slaughter to provide certain documents and to explain why Respondents had been engaged in property management without having disclosed that information in Mr. Slaughter’s most recent Broker Audit Declaration. Mr. Slaughter was informed that he had to provide the required information no later than May 15, 2020.

Mr. Slaughter provided the Department with some, but not all, the documents and information that it had requested.

Through correspondence received on May 18, 2020, Mr. Slaughter acknowledged that although Clients First was not a property management company, Respondents had been providing property management services for the Harrisons, that the Harrisons had stated valid concerns, and Respondents’ did owe them $5500, which he intended to repay on May 25, 2020. Mr. Slaughter acknowledged that he had failed to uphold the integrity of the real estate industry and that he had failed to follow the applicable regulations.

Through the May 18th correspondence and others, Mr. Slaughter explained that he had experienced health issues and computer problems that were hindering Respondents ability to fully respond to the audit requests.

On May 19, 2020, Respondents did return to the Harrisons the $5500.

In June and July 2020, the Department made additional requests for information and records from Respondents. Respondents provided some of the requested information but did not fully comply with the Department’s requests,

Through a letter dated July 20, 2020, the Department informed Mr. Slaughter that this would be his last opportunity to provide the required information on “cooperative” basis and that the information had to be provided by July 27, 2020.

Mr. Slaughter responded on July 27, 2020, but did not provide all the required information.

Through a letter dated July 29, 2020, Ms. Martinez provided Mr. Slaughter with a copy of the Preliminary Audit Report. She also informed Mr. Slaughter that the Department had found evidence that he had violated sections 32-1153(A)(17), (A)(21), (A)(22) and (B)(1), and section R4-28-1103, and she summarized that evidence.

In an August 3, 2020 letter, Mr. Slaughter acknowledged that the Preliminary Audit Report was an “accurate summation of what occurred” during the pertinent times. Mr. Slaughter also admitted to violations of sections 32-1153(A)(17), (A)(21), (A)(22) and (B)(1), and Ariz. Admin. Code section R4-28-1103.

In the letter of August 3rd, Mr. Slaughter acknowledged that Respondent was not set up to do property management and did not have the proper systems in place.

Through the letter of August 3rd and other correspondence, Mr. Slaughter wrote that he was over 70 and in failing health; his health problems began in late 2018; the conditions were debilitating and caused him to reduce the size of Clients First, which consisted of about 100 salespeople; his health issues led to a bankruptcy that was discharged in May 2020; he had agreed to manage the Harrisons’ property on a short term basis, but that relationship did not end as quickly as had been planned; and complying with the audit requests was difficult because of his health, computer problems, problems accessing banking records, and because some files had been moved as Clients First closed and other files had been transferred to the brokerages to which its salespeople went.

On August 13, 2020, the Department issued to Respondents a Cease and Desist Order setting out the findings from its Audit Report, finding that Respondents had violated various statutes, and ordering Respondents to cease and desist from engaging in any actions without first coming into compliance with the law.

Respondents did not appeal or request a hearing to contest the Cease and Desist Order.

As of the hearing date, Mr. Slaughter had not provided the Department with all the requested records and information. Because Respondent did not provide the Department with complete records, Ms. Martinez did not have sufficient information to fully assess Respondents’ compliance with the applicable statutes and rules.

As a property manager, Mr. Slaughter was required to keep the money he received in trust and was prohibited from comingling that money.

On December 31, 2019, Mr. Slaughter filed a Broker Audit Declaration in which he provided false or misleading statements in that he answered “Not Applicable” to the questions related to property management, whereas Respondent was engaging in property management at that time.

At the hearing, Ms. Martinez testified consistently with the information in her Audit Report and provided her opinion that Respondents’ license should be revoked because (1) Respondents did not keep and maintain all required records; (2) Respondents failed or refused to provide the Department with all documents that they were requested to produce; (3) they comingled money that should have been held in trust; (4) that they could not produce the $5500 when the Harrisons requested its return, suggests conversion; (5) Mr. Slaughter submitted a false Broker Audit Declaration; and (6) Respondents’ communication with the Department was lacking.

Mr. Slaughter acknowledged that Ms. Martinez’s findings were accurate.

Mr. Slaughter acknowledged that he had committed the alleged violations but he asserted that there was no intent to defraud or harm the public.

Mr. Slaughter testified that he was managing the Harrisons’ property as a favor, which he should not have done, but he did not actually consider it to be property management, for which reason he did not keep the required documentation.

Mr. Slaughter testified that the closing Clients First’s office, computer problems, banking problems, and health issues hindered his ability to respond during the audit.

Mr. Slaughter testified that Respondents had completed about 10,000 transactions without other incident.

The Department requests that Respondent’s licenses be revoked for the reasons Ms. Martinez testified to.

Mr. Slaughter asks that rather than revoking his license the Department assess against him a civil penalty and if necessary make him work under supervision.

Mr. Slaughter testified that Clients First has been slated to be closed since 2018, and accepts the Department’s decision to revoke that license.

CONCLUSIONS OF LAW

The Department bears the burden of persuasion. Ariz. Rev. Stat. § 41-1092.07(G)(2).

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).

Mr. Slaughter submitted a false Broker Audit Declaration when he failed to disclose that Respondents were engaging in property management activities, which is a violation of Ariz. Rev. Stat. section 32-2153(B)(1).

Mr. Slaughter failed to produce records and information that Respondent was required to maintain when the Department requested production, which is a violation of section 32-2153(A)(17).

Mr. Slaughter failed to maintain records related to Respondents’ property management activity, which is a violation of sections 32-2151.01 and 32-2153(A)(18).

Respondent provided property management services without having in place the required systems and supervision, which is a violation of section 32-2153(A)(21) and Ariz. Admin. Code section R4-28-1103.

Mr. Slaughter’s violations are also violations of sections 32-2153(A)(3)(disregard of statutes or rules) and (A)(22)(demonstrating negligence in performing any act for which a license is required).

Because the audit showed that Mr. Slaughter was acting in violation of statute and rule, the Department had authority to issue to Respondent the Cease and Desist Order. See Ariz. Rev. Stat. § 32-2154.

Because Mr. Slaughter has violated the Department’s statutes and rules, the Department has authority to revoke Respondents’ licenses.

Mr. Slaughter takes responsibility for his failures, and points to external issues that hindered his ability to respond timely to some of the Department’s requests, which are mitigating factors.

Nevertheless, Mr. Slaughter’s violations are severe, and include the submission of the false Broker Audit Declaration and the failure to properly safeguard the Harrisons’ money, and the preponderance of the evidence supports the Department’s decision to revoke Respondents’ licenses.

RECOMMENDED ORDER

IT IS ORDERED that William Slaughter’s license number BR536271000 is revoked;

IT IS FURTHER ORDERED that Clients First Realty LLC’s entity license number LC574980000 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.

-54864001

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-137160-45720000Done this day, March 15, 2021.

/s/ Thomas Shedden

Thomas Shedden

Administrative Law Judge

Transmitted electronically to:

Judy Lowe, Commissioner

Arizona Department of Real Estate

-54864001

001

-137160-45720000