00-000598 Department Of Business And Professional Regulation, Division Of Florida Land Sales, Condominiums, And Mobile Homes vs. John Scales Status: Closed Recommended Order on Wednesday, February 14, 2001.

Summary: Respondent, as broker, failed to prevent the president of the brokerage firm from using funds in the escrow account to pay operating expenses. Suspension and $5,000 civil penalty.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF BUSINESS AND )

PROFESSIONAL REGULATION, )

DIVISION OF FLORIDA LAND SALES, )

CONDOMINIUMS, AND MOBILE HOMES, )

)

Petitioner, )

)

vs. ) Case No. 00-0598

)

JOHN SCALES, )

)

Respondent. )

________________________________)

RECOMMENDED ORDER

Pursuant to notice, a formal hearing was held in this case

on October 16, 2000, by video teleconference with connecting

sites in Fort Lauderdale and Tallahassee, Florida, before

Errol H. Powell, a designated Administrative Law Judge of the

Division of Administrative Hearings.

APPEARANCES

For Petitioner: Janis Sue Richardson, Esquire

Department of Business and

Professional Regulation

1940 North Monroe Street, Suite 60

Tallahassee, Florida 32399-2202

For Respondent: Tracy J. Sumner, Esquire

1307 Leewood Drive

Tallahassee, Florida 32312

STATEMENT OF THE ISSUE

Whether Respondent committed the offenses set forth in the

Notice to Show Cause and, if so, what action should be taken.

PRELIMINARY STATEMENT

On December 22, 1999, the Department of Business and

Professional Regulation, Division of Florida Land Sales,

Condominiums, and Mobile Homes (Petitioner), filed a Notice to

Show Cause against John Scales (Respondent). Petitioner charged

Respondent with violating Subsection 326.002(1), Florida

Statutes, by failing to maintain a consumer's funds in his escrow

account until disbursement of the funds, in violation of

Subsection 326.005(1), Florida Statutes. Respondent filed a

response to the Notice to Show Cause and requested a hearing. On

February 3, 2000, this matter was referred to the Division of

Administrative Hearings.

Subsequently, Petitioner filed a motion to admit into

evidence the facts contained in its Pre-Hearing Statement. A

telephone conference was held and certain facts and documents

were agreed-upon for admission into evidence, but the parties

were unable to agree upon facts relating to the role that one

witness played in the alleged violation. That limited factual

issue was reserved for an evidentiary hearing. By Order dated

October 17, 2000, the following facts, contained in Petitioner's

Pre-Hearing Statement, were admitted into evidence: facts

numbered (1); (2); (3); (5); (6); (7), except for the word

" Dettman"; (8); (9); (10); (11); (13); (14); (16); (18); and

(21). Additionally, the said Order admitted into evidence

Respondent's Admissions and the deposition testimony of Warren

Scott.

At the hearing on the limited factual issue, Petitioner was

granted leave to amend the Notice to Show Cause to reflect that

the date of the escrow deposit was April 5, 1999. Petitioner

presented the testimony of two witnesses and entered 34 exhibits

(Petitioner's Exhibits numbered 1-9, 10a-10q, 12, 13, 15a-15c,

16, and 17) into evidence. Petitioner's Exhibit numbered 14 was

withdrawn. Respondent testified in his own behalf, presented the

testimony of one witness, and entered two exhibits (Respondent's

Exhibits numbered 1-2) into evidence. Respondent was permitted

to late-file one exhibit (Respondent's Exhibit numbered 4).

Judicial recognition was taken of Chapter 326, Florida Statutes;

Rule 61B-60, Florida Administrative Code; and the Final Order in

Department of Business and Professional Regulation, Division of

Florida Land Sales, Condominiums, and Mobile Homes vs. Lorraine

A. Woods , Docket No. YS97173 (June 17, 1998) and the Amended

Final Order in Department of Business and Professional

Regulation, Division of Florida Land Sales, Condominiums, and

Mobile Homes vs. Lorraine A. Woods , Docket No. YS97173

(September 30, 1999).

Petitioner was permitted to object to Respondent's Exhibit

numbered 3 subsequent to the filing of the late-filed Exhibit.

Respondent objected to the said Exhibit, but it was admitted over

Respondent's objections by Order dated November 28, 2000.

A transcript of the hearing was ordered. At the request of

the parties, the time for filing post-hearing submissions was set

for more than ten days following the filing of the transcript, or

the ruling on Petitioner's objections to Respondent's Exhibit

numbered 3, whichever occured last. The Transcript, consisting

of one volume, was filed on November 7, 2000. The ruling on

Petitioner's objections was issued on November 28, 2000. The

parties timely filed their post-hearing submissions, which were

considered in the preparation of this Recommended Order.

FINDINGS OF FACT

1. Petitioner is the state agency charged with regulating

yacht and ship brokers and salespersons pursuant to Chapter 326,

Florida Statutes.

2. At all times material hereto, Respondent was a licensed

yacht and ship broker salesman. He has been licensed since 1990.

In December 1990, Respondent was issued license number 1322, as a

yacht and ship broker salesman for Seafarer Brokerage, Inc.

(Seafarer). In October 1998, he renewed his license, which had

an expiration date of October 28, 2000.

3. On July 31, 1997, Lorraine Woods, the President of

Seafarer, wrote to Peter Butler, section head of the yacht and

ship section of the Department of Business and Professional

Regulation, notifying him that Respondent was the broker of

record for Seafarer. Ms. Woods' license had been suspended, and

Respondent knew that her license had been suspended prior to his

becoming broker of record for Seafarer.

4. As the broker of record, Respondent knew that he was

solely responsible for safeguarding the money of all clients in

the brokerage's escrow account.

5. Respondent did not know the details involving the

suspension of Ms. Woods' license. He was not aware that

Ms. Woods had abused the control of Seafarer's escrow account for

her own benefit by taking client funds from the escrow account to

pay for Seafarer's operating expenses.

6. Mr. Butler was very concerned with the abuse of

Seafarer's escrow account committed by Ms. Woods. He demanded

assurance from Respondent that Ms. Woods would not have access to

the escrow account, and Respondent provided that assurance.

7. On August 4, 1997, Respondent wrote to Mr. Butler

confirming that he (Respondent) was the broker of record for

Seafarer. In his written communication, Respondent confirmed

certain details of the escrow account of Seafarer, including that

he was broker of record and that the account was located at First

Union National Bank of Florida, with the address and account

number listed. Moreover, Respondent indicated that, as of

July 30, 1997, he became the sole signatory on the account.

8. Respondent personally provided the signatory card,

showing that he was the sole signatory on the account, to the

bank. Even though the bank did not have a record of such a

signatory card, the undersigned is persuaded that Respondent's

testimony is credible and that he provided the signatory card to

the bank.

9. Even though Respondent was the broker of record for

Seafarer, Respondent looked upon Ms. Woods as the employer and

himself as the employee, resulting in an employer-employee

relationship. Seafarer consisted of two persons, Respondent and

Ms. Woods. If Respondent was u navailable for a situation in

which a check had to be written and executed, he would prepare a

blank check with his signature on it and give it to Ms. Woods.

She continued to maintain the business records. Ms. Woods

maintained all the operating and escrow records, checks, and bank

statements in a locked drawer for which she had the only key;

Respondent did not have free and unobstructed access to these

documents even though he was Seafarer's broker of record.

Respondent and Ms. Woods continued this proce dure for over a year

without incident.

10. On April 2, 1999, Warren Scott made an offer on a 1974

CAL2-46, a 46-foot yacht, with Seafarer. He placed a $6,000.00

deposit on the yacht. Mr. Scott's dealings, regarding the yacht,

were with Ms. Woods. He h ad dealt with Seafarer and Ms. Woods on

a prior occasion, had made a deposit, and had his deposit

refunded. As a result, Mr. Scott felt comfortable dealing with

Seafarer and Ms. Woods even though he had not purchased a yacht

from Seafarer.

11. On April 5 , 1999, Mr. Scott's check was deposited in

Seafarer's escrow account.

12. On April 5, 1999, check numbered 1144, made payable to

cash for $4,305.00, bearing Respondent's signature was written.

The check bore the notation at the bottom left corner at the

"FOR" space: "CAL2-46 (illegible) Enterprises." This check

cleared Seafarer's escrow account on April 7, 1999, leaving a

balance of $2,512.34.

13. Respondent had signed the check and left it for

Ms. Woods to fill-in the details. The check was signed by

Respondent in March 1999 for a closing that was taking place at

the end of March, but the check was not used at the closing in

March. Ms. Woods had written the check to pay the rent for

Seafarer. Even though Respondent had signed the check, the

undersigned is persuaded that he did not know that Ms. Woods

was going to use the check for a purpose other than for what it

was written.

14. On April 27, 1999, Respondent signed a check for

$100.00, payable to Complete Yacht Service for engine repair to

the CAL2-46. This check cleared Seafarer's escrow account on

April 30, 1999, leaving a balance of $5,796.36.

15. After a sea trial and survey, Mr. Scott wrote to

Ms. Woods on April 30, 1999, indicating that he had decided not

to purchase the 1974 CAL2-46 pursuant to their arrangement of

April 2, 1999.

16. On May 3, 1999, Mr. Scott again wrote to Ms. Woods that

his offer to purchase the 1974 CAL2-46 for $55,000.00 in the

conditional acceptance of vessel agreement, dated April 29, 1999,

was expiring on May 3, 199 9, at 9:00 p.m.

17. Mr. Scott went to Seafarer on May 4, 1999, to obtain a

refund of his deposit from Ms. Woods. Respondent informed him

that Ms. Woods was out and that they would have to wait for her

return, which was going to be in about an hour.

18. Mr. Scott was unable to wait. He left Fort Lauderdale,

returning to Nevada, with the understanding that his deposit,

less $100.00 for the engine survey, would be returned to him.

Mr. Scott expected the monies within a week to ten days.

19. On May 5, 199 9, a deposit of $4,700.00 was made to

Seafarer's escrow account, leaving a balance of $9,136.36.

20. On May 5, 1999, Seafarer's escrow account contained

sufficient monies to give Mr. Scott a full refund of his deposit,

less the $100.00.

21. Respondent left for a vacation to the United Kingdom on

May 17, 1999, with his return on June 15, 1999. Prior to his

leaving, Respondent signed two blank checks, numbered 1153 and

1154, from Seafarer's escrow account. The checks were written

for an upcoming business transaction during his absence,

regarding a closing and Respondent's commission on the closing.

22. On May 18, 1999, Seafarer's escrow account balance fell

to $5,192.21, after three checks cleared the account. Two of the

three checks, signed by Respondent, were payable to Seafarer in

the amount of $1,360.00 for "comm.-37'Irwin."

23. During May 1999, checks totaling $6,900.00, which were

signed by Respondent, cleared Seafarer's escrow account.

24. Mr. Scott made several telephone calls to Seafarer

regarding the return of his deposit. Each time Mr. Scott spoke

with Ms. Woods and he was not provided with a satisfactory

response from her.

25. On June 16, 1999, Mr. Scott received a check, check

numbered 1153, for $5,900.00 from Seafarer. He also received a

telephone call that same day from Ms. Woods requesting him not to

deposit the check until the end of the month; Mr. Scott agreed.

26. Respondent was not aware that check numbered 1153 was

going to be used to refund Mr. Scott's deposit. Respondent was

unaware that the check was used for a purpose other than for what

it was intended.

27. On June 17, 1999, check numbered 1154, made payable to

Seafarer for $1,000.00 for "petty cash" cleared Seafarer's escrow

account. The check was used by Ms. Woods to pay Seafarer's

telephone and utility bills.

28. Respondent was unaware that check numbered 1154 was

going to be used for a purpose other than for what it was

written.

29. When Respondent returned from his vacation, he was

contacted by Mr. Scott who advised Respondent of the problem with

the return of his refund. Respondent checked the bank statements

for Seafarer's escrow account and discovered that Ms. Woods had

not used the checks for their intended purpose and that she had

used funds from the escrow account for improper purposes.

30. On June 25, 1999, Mr. Scott deposited the check that he

received from Seafarer.

31. The check, payable to Mr. Scott, was posted to

Seafarer's escrow account on June 29, 1999, leaving a negative

balance of $2,667.22.

32. For 67 days, between April 5, 1999, when Mr. Scott's

deposit of $6,000.00 was deposited in Seafarer's escrow account,

and June 29, 1999, the date Mr. Scott's refund of $5,900.00

cleared, Seafarer's escrow account did not have sufficient funds

to pay the refund. The period between May 5, 1999, and May 17,

1999, was the only time period, during the 67-day period, that

Seafarer's escrow account had sufficient funds to pay the refund.

33. Mr. Scott indicates that his refund was received in his

account in July 1999. Respondent remained with Seafarer long

enough to ensure that Mr. Scott received his refund.

34. On July 8, 1999, Respondent notified Mr. Butler that he

was no longer the broker for Seafarer.

35. Respondent has no prior disciplinary action.

CONCLUSIONS OF LAW

36. The Division of Administrative Hearings has

jurisdiction over the subject matter of this proceeding and the

parties thereto pursuant to Section 120.569 and Subsection

120.57(1), Florida Statutes.

37. License revocation proceedings are penal in nature.

The burden of proof is on the Petitioner to establish by clear

and convincing evidence the truthfulness of the allegations in

the Notice to Show Cause. Department of Banking and Finance,

Division of Securities and Investor Protection v. Osborne Stern

and Company , 670 So. 2d 932 (Fla. 1996); Ferris v. Turlington ,

510 So. 2d 292 (Fla. 1987).

38. A licensee is charged with knowing the practice act

that governs his/her license. Wallen v. Florida Department of

Professional Regulation, Division of Real Estate , 568 So. 2d 975

(Fla. 3d DCA 1990).

39. Section 326.002, Florida Statutes (1997), provides in

pertinent part:

As used in ss. 326.001-326.006, the term:

(1) "Broker" means a person who, for or in

expectation of compensation: sells, offers,

or negotiates to sell; buys, offers, or

negotiates to buy; solicits or obtains

listings of; or negotiates the purchase,

sale, or exchange of, yachts for other

persons.

40. Regarding escrow deposits, Section 326.005, Florida

Statutes (1997), provides in pertinent part:

(1) A broker shall place any funds received

pursuant to a transaction into a trust

account in a savings and loan association,

bank, trust company, or other financial

institution located in this state having a

net worth in excess of $5 million until he or

she disburses such funds. A separate record

shall be maintained of all such moneys

received and the disposition thereof.

41. Rule 61B-60.006, Florida Administrative Code, provides

in pertinent part:

(2) A broker holding the license of a

salesman shall make all trust account

deposits and withdrawals of monies involved

in a transaction brokered by the salesman.

Any salesman who receives any deposit shall

immediately deliver the same to the broker

under whom he is licensed as a salesman.

(3) Within 3 working days of receipt of

funds pursuant to a purchase contract, all

funds received by a broker or salesman in

connection with the sale, exchange, or

purchase of a yacht shall be deposited in the

broker's trust account and shall remain in

the account until the funds are disbursed

pursuant to the provisions of the contract or

controlling statute. . . No personal or

operating funds shall be deposited or

intermingled with any funds held in trust,

and monies deposited into the account shall

not be used to pay operating expenses.

(4) A broker shall maintain books and

records of receipts, deposits and withdrawals

of trust account funds in accordance with

generally accepted accounting principles.

42. Petitioner demonstrated that Respondent violated

Subsections 326.002(1) and 326.005(1), Florida Statutes (1997).

As broker for Seafarer, Respondent was responsible for the

actions of all persons in the operation of the brokerage and for

customers' funds. He was responsible for safeguarding customers'

funds deposited in Seafarer's escrow account and for

appropriately disbursing the funds. The arrangement between

Respondent and Ms. Woods prevented Respondent from carrying out

his duties as a broker. For all practical purposes, Ms. Woods

continued to maintain her control over the brokerage.

43. Moreover, Respondent failed to ensure that Mr. Scott's

deposit was safe and secure. Mr. Scott's refund should have been

returned to him when he requested it. However, the refund could

not be made to Mr. Scott because insufficient funds were in the

escrow account due to the funds being used to pay the operating

expenses of Seafarer. The responsibility was Respondent's to

prevent escrow monies from being used for operating expenses.

Respondent failed to carry-out his responsibility.

44. As to penalty, a civil penalty may be imposed not to

exceed $10,000.00. Section 326.006, Florida Statutes (1997).

Additionally, Respondent's license may be suspended or revoked.

Section 326.006, Florida Statutes (1997), and Rule 61B-60.008,

Florida Administrative Code.

45. Petitioner suggests revocation of Respondent's license

and imposition of a $5,000.00 civil penalty. Revocation of

Respondent's license is too severe a penalty under the

circumstances of the instant case. Respondent has been licensed

for ten years. He has no prior disciplinary action against him.

Even though the arrangement that Respondent had with Ms. Woods

was improper, Ms. Woods had given him no reason to believe that

she would use the blank checks for purposes other than that for

what they were intended. Respondent was not aware of the details

of the suspension of Ms. Woods license, which was using escrow

funds for Seafarer's operating expenses.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of

Law, it is

RECOMMENDED that the Department of Business and Professional

Regulation, Division of Florida Land Sales, Condominiums, and

Mobile Homes, enter a final order:

1. Sustaining the Notice to Show Cause and finding that

John Scales violated Subsections 326.002(1) and 326.005(1),

Florida Statutes (1997).

2. Suspending Respondent's license for three years.

3. Imposing a civil penalty of $5,000.00.

DONE AND ENTERED this 14th day of February, 2001, in

Tallahassee, Leon County, Florida.

___________________________________

ERROL H. POWELL

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

[phone] SUNCOM 278-9675

Fax Filing [phone]

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 14th day of February, 2001.

COPIES FURNISHED:

Janis Sue Richardson, Esquire

Department of Business and

Professional Regulation

1940 North Monroe Street, Suite 60

Tallahassee, Florida 32399-2202

Tracy J. Sumner, Esquire

1307 Leewood Drive

Tallahassee, Florida 32312

Ross Fleetwood, Director

Division of Florida Land Sales,

Condominiums, and Mobile Homes

Department of Business and

Professional Regulation

1940 North Monroe Street

Tallahassee, Florida 32399-0792

Barbara D. Auger, General Counsel

Department of Business and

Professional Regulation

1940 North Monroe Street

Tallahassee, Florida 32399-0792

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within 15

days from the date of this recommended order. Any exceptions to

this recommended order should be filed with the agency that will

issue the final order in this case.