04-004449PL Department Of Business And Professional Regulation, Division Of Real Estate vs. David L. Rhoten, Ii Status: Closed Recommended Order on Thursday, June 23, 2005.

Summary: Recommend a one-year suspension and a $3,000 fine for failing to maintain escrow funds, failing to timely invoice an escrow settlement procedure, and failing to personally review monthly escrow account reconciliations.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF BUSINESS AND )

PROFESSIONAL REGULATION, )

DIVISION OF REAL ESTATE, )

)

Petitioner, )

)

vs. ) Case No. 04 - 4449PL

)

DAVID L. RHOTEN, II, )

)

Respondent. )

________ ______________________)

RECOMMENDED ORDER

Robert E. Meale, Administrative Law Judge of the Division

of Administrative Hearings, conducted the final hearing in West

Palm Beach, Florida, on March 2, 2005.

APPEARANCES

For Petitioner: Juana Carstarphen Wa tkins

Department of Business and

Professional Regulation

Hurston Building, North Tower

Suite N801

400 West Robinson Street

Orlando, Florida 32801

For Respondent: Gary J. Nagle

14255 U.S. Highway 1, Suite 223

Juno Beach, Florid a 33408

STATEMENT OF THE ISSUE

The issue is whether Respondent failed to maintain his

trust account properly, failed to examine and sign monthly

reconciliation statements for his trust account, and failed to

respond appropriately to disputes concerning escrow deposits

that he held. If so, an additional issue is the penalty to be

imposed.

PRELIMINARY STATEMENT

By Administrative Complaint filed May 24, 2001, Petitioner

alleged that Respondent was a licensed real estate broker of

record for Castles By The Sea. The Administrative Complaint

alleges that Respondent was the only signatory on the Castles

escrow account.

The Administrative Complaint alleges that, on or about

August 31, 2000, Castles negotiated a sales contract between

Advanced Builders Corpora tion, as seller, and Michael Arnston,

as buyer. The contract allegedly stated that Castles received

the earnest money deposit of $42,800 and provided a closing date

of October 1, 2000. On September 11, 2000, the buyer's attorney

wrote a letter to the sel ler, with a copy to an employee of

Respondent, withdrawing the offer to purchaser and demanding the

return of the earnest money deposit. Three days later, the

seller's attorney wrote a letter to the buyer, with a copy to

Castles, demanding the escrow mone y deposit.

Respondent admits all of the above - stated allegations, but

he denies the allegation that he failed to notify Petitioner of

the dispute over the escrow money deposit.

Based on the above - stated allegations, Count I of the

Administrative Complain t alleges that, in violation of Florida

Administrative Code Rule 61J2 - 10.032(1)(a) and, thus, Section

475.25(1)(e), Florida Statutes, Respondent is guilty of failing

to provide written notification to the Florida Real Estate

Commission, within 15 days of t he last demand, of the procedure

to resolve disputes over escrow funds and institute one of the

settlement procedures described in Section 475.25(1)(d)1,

Florida Statutes, within 30 days after entertaining doubt as to

which party is entitled to the money i n the Arnston transaction.

Based on the above - stated allegations, Count II of the

Administrative Complaint alleges that, in violation of Florida

Administrative Code Rule 61J2 - 10.032(1)(b) and, thus Section

475.25(1)(e), Florida Statutes, Respondent is gui lty of failing

to provide written notification to the Florida Real Estate

Commission, within 15 days of entertaining doubt as to which

party is entitled to the money, of the procedure to resolve

disputes over escrow funds and invoke one of the procedures

d escribed in Section 475.25(1)(d)1, Florida Statutes, within 30

days after entertaining doubt as to which party is entitled to

the money in the Arnston transaction.

The Administrative Complaint alleges that Petitioner

conducted an audit of Castles' records on November 16, 2000.

Respondent admits this allegation, but denies the next two

allegations, which are that the audit revealed a shortage of

about $1,288,597 and Castles failed to maintain the required

escrow account records.

Count III alleges that, in violation of Section

475.25(1)(k), Florida Statutes, Respondent is guilty of failing

to maintain trust funds in an escrow account or other proper

depositary until disbursement is properly authorized.

Count IV alleges that, in violation of Section

475.25( 1)(b), Florida Statutes, Respondent is guilty of culpable

negligence or a breach of trust in any business transaction.

Count V alleges that, in violation of Florida

Administrative Code Rule 61J2 - 14.012(2) and (3) and, thus,

Section 475.25(1)(e), Florida S tatutes, Respondent is guilty of

failing to prepare monthly the required written reconciliation

of the escrow account.

The Administrative Complaint alleges that, on or about

March 26, 2000, Castles negotiated a sales contract between

Jacqueline Bardach, as seller, and Stephen and Claire Sims, as

buyers. The contract allegedly stated that Castles received the

earnest money deposit of $10,000 and that the buyers would

deposit another $20,000 within ten days after the effective date

of the contract.

The Ad ministrative Complaint alleges that, on May 2, 2000,

a Castles agent notified the seller in writing that the buyers

were unable to obtain financing and requested a release of the

escrow deposit. In response, the sellers' attorney wrote a

letter on May 8, 2000, to the Castles agent suggesting

alternative financing sources. Ten days later, a new attorney

for the sellers filed a formal written demand for the earnest

money deposit with the Castles agent. On July 20, 2000, the

sellers' attorney sent a demand for the escrow money to

Respondent.

Respondent admits the allegations set forth in the

preceding paragraph, but he denies the next allegation in the

Administrative Complaint, which is that he failed to notify

Petitioner of the dispute over the escrow mone y deposit.

Count VI alleges that, in violation of Section

475.25(1)(d)1, Florida Statutes, Respondent is guilty of failing

to account for or deliver funds.

Count VII, alleges that, in violation of Florida

Administrative Code Rule 61J2 - 10.032(1)(a) and, t hus, Section

475.25(1)(e), Florida Statutes, Respondent is guilty of failing

to provide written notification to the Florida Real Estate

Commission, within 15 days of the last demand, of the procedure

to resolve disputes over escrow funds and institute one of the

settlement procedures described in Section 475.25(1)(d)1,

Florida Statutes, within 30 days after entertaining doubt as to

which party is entitled to the money.

On November 19, 2003, the Florida Real Estate Commission

entered a Final Order revoking Respondent's license. The Final

Order noted that Petitioner had agreed to strike paragraphs 6 - 12

and 15 and to dismiss Counts I, II, and V - VII of the

Administrative Complaint. (Presumably, this agreement was

conditioned upon the imposition of discipline on the remaining

allegations.) The Final Order recited that the November 16,

2000, audit revealed a shortage of about $658,000 and found

Respondent guilty of Counts III and IV, which are failing to

maintain trust funds and culpable negligence or breach of trust.

In aggravation, the Final Order found that the shortage was due

to theft that went undetected for a period of time, Respondent

failed to supervise his bookkeeper, Respondent failed to take

corrective action with his bookkeeper after learning that the

bookkeeping was substandard, about $400,000 of the shortage was

not attributed to checks written to the bookkeeper, and

Respondent had received prior complaints from clients. The

facts contained in the Final Order are contained in the present

record o nly to the extent that they have been introduced by

testimony, exhibits, or stipulations.

On October 29, 2004, based on Petitioner's "confession of

error," the First District Court of Appeal reversed and remanded

the case. The mandate followed on Novembe r 16, 2004. On

December 2, 2004, Petitioner re - transmitted the file to the

Division of Administrative Hearings for a hearing.

At the hearing, Petitioner called three witnesses and

offered into evidence six exhibits: Petitioner Exhibits 1, 3,

5 - 7, and 12 . Respondent called no witnesses and offered into

evidence four exhibits: Respondent Exhibits 1 - 4. All exhibits

were admitted except Respondent Exhibit 4.

The Administrative Law Judge ordered Petitioner to allow

Respondent an opportunity, at any reas onable time during the

three weeks immediately following the hearing, to examine

Petitioner's case database, due to insufficiencies in

Petitioner's index of final orders, and inform the

Administrative Law Judge of any need to reopen the record based

on any information discovered by the examination of the

database. The Administrative Law Judge also gave Respondent ten

days immediately following the hearing to respond to the past

discipline shown in Petitioner Exhibit 3. Except as noted

below, nothing was f iled after the hearing.

The Administrative Law Judge gave Petitioner four weeks

immediately following the hearing within which to depose

Jacqueline Bardach. Petitioner never took her deposition.

The court reporter filed the transcript on March 15, 200 5.

Respondent filed his proposed recommended order on April 26,

2005, but Petitioner filed, on the prior day, a motion for

extension of time, to which Respondent objected. The

Administrative Law Judge granted Petitioner's motion and gave

Petitioner until May 16, 2005, within which to file a proposed

recommended order. In the same Order, the Administrative Law

Judge gave Respondent an additional week to file a reply.

On May 16, 2005, Petitioner filed a Second Motion for

Extension of Time for Filing Propo sed Recommended Order. On

May 19, 2005, Respondent filed his Response in Opposition to a

Second Extension of Time. Petitioner eventually filed its

proposed recommended order on May 27, 2005, and Respondent filed

a response on June 3, 2005.

FINDINGS OF FA CT

1. Since 1994, Respondent has been a licensed real estate

broker, at all times serving as the broker of record for Castles

By The Sea (Castles).

2. The Arnston transaction involves a contract dated

August 30, 2000, in which Michael Arnston is the buye r, Advanced

Builders is the seller, and Castles is the real estate broker.

The contract contains a financing contingency that gives

Mr. Arnston 20 days to obtain financing, acknowledges that

Mr. Arnston has paid $42,800 in earnest money to Castles, calls

for a closing on October 1, 2000, and provides Advanced Builders

with 30 days from post - closing notice to cure any title defects.

3. As pleaded by Petitioner and admitted by Respondent, on

September 11, 2000, Mr. Arnston's attorney wrote a letter to

Advan ced Builders, with a copy to Jennifer McCrary, who is an

employee of Respondent. In the letter, Mr. Arnston's attorney

withdrew Mr. Arnston's offer to purchase and demanded the return

of his earnest money. The stated reason is that the offer was

never ac cepted by the owners of record, who were Michael Mucha,

as owner of a two - thirds interest in the property, and Carolyn

Kline, as owner of a one - third interest in the property.

Although Mr. Mucha signed the contract, apparently in an

individual capacity, M s. Kline never signed the contract.

4. As pleaded by Petitioner and admitted by Respondent, on

September 14, 2000, Advanced Builder's attorney wrote a letter

to Mr. Arnston's attorney stating that Ms. Kline was a

beneficial owner of Advanced Builders, Ms. Kline had authorized

Advanced Builders to enter into the Arnston contract, and

Ms. Kline, Advanced Builders, and Mr. Mucha were prepared to

convey good title to Mr. Arnston at closingeating the

September 11 letter as an anticipatory breach, the Septe mber 14

letter, a copy of which was furnished Castles, demands the

$42,800 earnest money deposit.

5. As pleaded by Petitioner and admitted by Respondent, on

September 25, 2000, Mr. Arnston filed a complaint with

Petitioner concerning Respondent's handling of the earnest money

deposit. This complaint led to the office audit in 2000

described below.

6. The Sims transaction involves a contract dated

March 26, 2000, in which Stephen and Claire Sims are the buyer,

Jacqueline Bardach is the seller, and Castles is the real estate

broker. The contract contains a financing contingency that runs

through closing, defines the contingency in part as the buyers'

ability to acquire 75 percent financing, acknowledges that the

Simses have paid $10,000 in earnest money to Castles, calls for

the Simses to pay Castles an additional $20,000 in earnest money

within 10 days, and calls for a closing within 90 days.

7. As pleaded by Petitioner and admitted by Respondent, on

May 2, 2000, Stephanie McCauley, an agent of Castles, w rote

Ms. Bardach and informed her that the Simses had been unable to

acquire the 75 percent financing and were withdrawing from the

contract and requesting the return of their earnest money.

8. As pleaded by Petitioner and admitted by Respondent, on

May 8, 2000, Ms. Bardach's attorney wrote Ms. McCauley and the

other broker at Castles, with a copy to the Simses, and stated

that the cancelation of the contract and release of the escrow

money was premature. In the letter, the attorney informed

Castles and the Simses of alternative financing sources for 75

percent of the contract price consisting of a lender for 60

percent and the seller holding a purchase money note and

mortgage for the remaining 15 percent. On May 18, 2000,

Ms. Bardach's attorney wrote a nother letter to Ms. McCauley and

the other Castles broker formally declaring a default on the

part of the Simses for their failure to exercise due diligence

to obtain financing and demanding the $30,000 in earnest money.

The letter offers Castles the opt ion of interpleader in circuit

court. On July 20, 2000, Ms. Bardach's attorney wrote a letter

to Respondent stating that Castles had taken no action since his

letter of May 18 and authorizing him to submit the dispute to

circuit court or the Florida Real Estate Commission.

9. On November 29, 2000, Petitioner received a complaint

from Ms. Bardach concerning Castle's handling of the earnest

money deposit.

10. Since early 1996, Respondent had employed Chris

McMahel as a comptroller/bookkeeper in his real estate office.

Prior to employing Ms. McMahel, who was a licensed real estate

salesperson, Respondent had been acquainted with her from her

employment in an ERA office in Boynton Beach and as the

executive vice - president of the local Board of Realtors. A t the

time of the events described below, Ms. McMahel had had 20

years' experience in real estate.

11. Each month while employed by Respondent, Ms. McMahel,

who had placed her real estate license with Castles, prepared

the reconciliation statements for th e Castles escrow account.

For some time prior to the events described below, Respondent

was not signing these reconciliation statements. With

Respondent's consent, and presumably at his direction,

Ms. McMahel stamped the monthly statements with Responden t's

facsimile signature. Ms. McMahel had similar authority to stamp

Respondent's facsimile signature on trust account checks, and

she routinely exercised this authority. The last monthly

reconciliation statement that Respondent saw was for July 2000.

12. Petitioner's investigator had conducted an office

audit in August 1999 and had met with Ms. McMahel. Although the

investigator had found the real estate records poorly kept, he

did not find anything in violation of applicable law and did not

attempt to communicate directly with Respondent about the audit

or the audit findings. The investigator's findings and actions

were identical with respect to the 1998 audit.

13. On October 23 or 24, 2000, Respondent received a

telephone call from a title insurance company informing him that

a Castles trust account check in the amount of $54,000 had

failed to clear. Respondent called Ms. McMahel, who assured him

that there had been some sort of mistake and she would call the

bank to clear up the problem. Ms. McMahe l later called

Respondent back and told him that she had given the title

insurance company a new check. However, this check also failed

to clear.

14. Upon learning that the second check had failed to

clear, Respondent immediately approached Ms. McMahel a nd told

her to produce the books and records. She did so, and

Respondent found that the books and records were in disarray.

Respondent demanded an explanation from Ms. McMahel, but she

remained silent and offered no excuse.

15. Respondent also contacted SunTrust, which held the

trust funds, and confirmed that the account balance was

insufficient to pay the trust account check. Upon learning of

this shortage, Respondent contacted a representative of the

Division of Real Estate and was told to document th e problem and

deposit sufficient money into the account as soon as possible.

Respondent immediately borrowed $50,000 from a friend and

deposited it into the trust account, so that the twice -

dishonored check could be paid.

16. The next day, Respondent wen t to Ms. McMahel's home to

discuss the matter, but found that she had fled. Neither

Respondent nor Petitioner was able to find her subsequently.

Respondent formally fired Ms. McMahel at this time.

17. Eventually, Respondent pieced together much of what

had happened. The ultimate shortage in the trust account was

about $658,000. Ms. McMahel had paid herself, as payee on

numerous trust account checks, almost $400,000. She had used

additional trust account funds to pay off her obligations, such

as credit card debts, although it is unclear if these fraudulent

transactions account for the remaining $258,000.

18. By October 30, 2000, Respondent sold 25 percent of

Castles, which he owned, for $250,000, and he deposited the sale

proceeds into the trust accoun t. Still needing over $350,000 to

eliminate the shortfall, Respondent offered for sale the

remaining interest in Castles. At the same time, Respondent

decided not to file a police report against Ms. McMahel because

he believed that such an action would r educe the price for which

he could sell the company. Pending the sale of Castles,

Respondent borrowed $200,000 personally and deposited this money

into the trust account to pay off outstanding trust account

liabilities.

19. In late November 2000, Respond ent found a buyer for

Castles. Following a closing in January 2001, Respondent

deposited sufficient funds into the trust account to eliminate

any shortage. Respondent continued to work with Castles for a

month after the closing, at which time the new own ers fired him.

20. Respondent filed a police report in April or May 2001.

However, the Delray Police Department, with which Respondent

filed the complaint, never found Ms. McMahel. Respondent never

filed suit against Ms. McMahel or SunTrust.

21. At t he time of these events, Castles was closing 35 - 50

sales per month. With respect to contracts for which Castles

held the escrow money, all closings took place as scheduled

without delays, and no one lost any money due to the theft from

Respondent's trust account.

CONCLUSIONS OF LAW

22. The Division of Administrative Hearings has

jurisdiction over the subject matter. §§ 120.569 and 120.57(1),

Fla. Stat. (2005).

23. Section 475.25, Florida Statutes, provides in part:

(1) The commission may deny an appl ication

for licensure, registration, or permit, or

renewal thereof; may place a licensee,

registrant, or permittee on probation; may

suspend a license, registration, or permit

for a period not exceeding 10 years; may

revoke a license, registration, or perm it;

may impose an administrative fine not to

exceed $1,000 for each count or separate

offense; and may issue a reprimand, and any

or all of the foregoing, if it finds that

the licensee, registrant, permittee, or

applicant:

* * *

(b) Has been guilty of fraud,

misrepresentation, concealment, false

promises, false pretenses, dishonest dealing

by trick, scheme, or device, culpable

negligence, or breach of trust in any

business transaction in this state or any

other state, nation , or territory; has

violated a duty imposed upon her or him by

law or by the terms of a listing contract,

written, oral, express, or implied, in a

real estate transaction; has aided,

assisted, or conspired with any other person

engaged in any such miscondu ct and in

furtherance thereof; or has formed an

intent, design, or scheme to engage in any

such misconduct and committed an overt act

in furtherance of such intent, design, or

scheme. It is immaterial to the guilt of

the licensee that the victim or intend ed

victim of the misconduct has sustained no

damage or loss; that the damage or loss has

been settled and paid after discovery of the

misconduct; or that such victim or intended

victim was a customer or a person in

confidential relation with the licensee o r

was an identified member of the general

public.

* * *

(d)1. Has failed to account or deliver to

any person, including a licensee under this

chapter, at the time which has been agreed

upon or is required by law or, in the absence

of a fixed time, upon demand of the person

entitled to such accounting and delivery, any

personal property such as money, fund,

deposit, check, draft, abstract of title,

mortgage, conveyance, lease, or other

document or thing of value, including a share

of a real estate commission if a civil

judgment relating to the practice of the

licensee's profession has been obtained

against the licensee and said judgment has

not been satisfied in accordance with the

terms of the judgment within a reasonable

tim e, or any secret or illegal profit, or any

divisible share or portion thereof, which has

come into the licensee's hands and which is

not the licensee's property or which the

licensee is not in law or equity entitled to

retain under the circumstances. Howe ver, if

the licensee, in good faith, entertains doubt

as to what person is entitled to the

accounting and delivery of the escrowed

property, or if conflicting demands have been

made upon the licensee for the escrowed

property, which property she or he stil l

maintains in her or his escrow or trust

account, the licensee shall promptly notify

the commission of such doubts or conflicting

demands and shall promptly:

a. Request that the commission issue

an escrow disbursement order determining who

is en titled to the escrowed property;

b. With the consent of all parties,

submit the matter to arbitration;

c. By interpleader or otherwise,

seek adjudication of the matter by a court;

or

d. With the written consent of all

parties, submit the matter to mediation. The

department may conduct mediation or may

contract with public or private entities for

mediation services. However, the mediation

process must be successfully completed within

90 days following the last demand or the

li censee shall promptly employ one of the

other escape procedures contained in this

section. Payment for mediation will be as

agreed to in writing by the parties. The

department may adopt rules to implement this

section.

If the licensee promptly employs one of the

escape procedures contained herein and abides

by the order or judgment resulting therefrom,

no administrative complaint may be filed

against the licensee for failure to account

for, deliver, or maintain the escrowed

property. Under certain circ umstances, which

the commission shall set forth by rule, a

licensee may disburse property from the

licensee's escrow account without notifying

the commission or employing one of the

procedures listed in sub - subparagraphs a. - d.

If the buyer of a residential condominium

unit delivers to a licensee written notice of

the buyer's intent to cancel the contract for

sale and purchase, as authorized by

s. 718.503, or if the buyer of real property

in good faith fails to satisfy the terms in

the financing clause of a contract for sale

and purchase, the licensee may return the

escrowed property to the purchaser without

notifying the commission or initiating any of

the procedures listed in sub - subparagraphs

a. - d.

* * *

(e) Has violated a ny of the provisions of

this chapter or any lawful order or rule made

or issued under the provisions of this

chapter or chapter 455.

* * *

(k) Has failed, if a broker, to

immediately place, upon receipt, any money,

fund, de posit, check, or draft entrusted to

her or him by any person dealing with her or

him as a broker in escrow with a title

company, banking institution, credit union,

or savings and loan association located and

doing business in this state, or to deposit

such funds in a trust or escrow account

maintained by her or him with some bank,

credit union, or savings and loan association

located and doing business in this state,

wherein the funds shall be kept until

disbursement thereof is properly authorized;

or has f ailed, if a sales associate, to

immediately place with her or his registered

employer any money, fund, deposit, check, or

draft entrusted to her or him by any person

dealing with her or him as agent of the

registered employer. The commission shall

establi sh rules to provide for records to be

maintained by the broker and the manner in

which such deposits shall be made. A broker

may place and maintain up to $5,000 of

personal or brokerage funds in the broker's

property management escrow account and up to

$1 ,000 of personal or brokerage funds in the

broker's sales escrow account. A broker

shall be provided a reasonable amount of time

to correct escrow errors if there is no

shortage of funds and such errors pose no

significant threat to economically harm the

public. It is the intent of the Legislature

that, in the event of legal proceedings

concerning a broker's escrow account, the

disbursement of escrowed funds not be delayed

due to any dispute over the personal or

brokerage funds that may be present in the

escrow account.

24. Florida Administrative Code Rule 61J2 - 10.032 provides

in part:

(1)(a) A real estate broker, upon receiving

conflicting demands for any trust funds

being maintained in the broker’s escrow

account, must provide written notification

to the Commission within 15 business days of

the last party’s demand and the broker must

institute one of the settlement procedures

as set forth in Section 475.25(1)(d)1.,

Florida Statutes, within 30 business days

after the last demand.

(b) A broker, who has a good faith doubt

as to whom is entitled to any trust funds

held in the broker’s escrow account, must

provide written notification to the

Commission within 15 business days after

having such doubt and must institute one of

the settlement procedures as set forth in

Section 475.25(1)(d)1., Florida Statutes,

within 30 business days after having such

doubt. The determination of good faith

doubt is based upon the facts of each case

brought before the Commission.

25. Florida Administrative Code Rule 61J2 - 14.012 provides

in part:

(2) Once monthly, a broker shall cause to

be made a written statement comparing the

broker’s total liability with the reconciled

bank balance(s) of all trust accounts. The

broker’s trust liability is defined as the

sum total of a ll deposits received, pending

and being held by the broker at any point in

time. The minimum information to be

included in the monthly statement -

reconciliation shall be the date the

reconciliation was undertaken, the date used

to reconcile the balances, t he name of the

bank(s), the name(s) of the account(s), the

account number(s), the account balance(s)

and date(s), deposits in transit,

outstanding checks identified by date

and check number, an itemized list of the

broker’s trust liability, and any other

i tems necessary to reconcile the bank

account balance(s) with the balance per the

broker’s checkbook(s) and other trust

account books and records disclosing the

date of receipt and the source of the funds.

The broker shall review, sign and date the

monthly statement - reconciliation.

(3) Whenever the trust liability and the

bank balances do not agree, the

reconciliation shall contain a description

or explanation for the difference(s) and any

corrective action taken in reference to

shortages or overages of fun ds in the

account(s). Whenever a trust bank account

record reflects a service charge or fee for

a non - sufficient check being returned or

whenever an account has a negative balance,

the reconciliation shall disclose the

cause(s) of the returned check or ne gative

balance and the corrective action taken.

26. Petitioner must prove the material allegations by

clear and convincing evidence. Department of Banking and

Finance v. Osborne Stern and Company, Inc. , 670 So. 2d 932 (Fla.

1996) and Ferris v. Turlingto n , 510 So. 2d 292 (Fla. 1987).

27. In the Arnston and Sims transactions, Respondent

failed to avail himself of one of the settlement procedures set

forth by law. However, the first sentence of Section

475.25(1)(d)1, Florida Statutes, requires Respondent to deliver

the escrowed property only at the time agreed upon by the

parties. On this important point, the Arnston and Sims

transactions are distinguishable.

28. The Arnston transaction was to close on October 1,

2000. Mr. Arnston's attorney demanded a return of the earnest

money two weeks prior to the scheduled closing date, and

Mr. Arnston filed a complaint with Petitioner one week prior to

the scheduled closing date. The agreed - upon time for the

delivery of the earnest money had not yet arrived becau se the

time for Advanced Builders to convey good title to Mr. Arnston

had not yet arrived. Mr. Arnston's objection to the identity of

the seller in the contract, as compared to the record

titleholder, was premature and possibly would prove groundless,

as Advanced Builders could obtain good title by the time of the

closing. Also, Mr. Arnston, not Advanced Builders, breached the

contract by failing to give the seller the required notice and

30 days to cure any claimed title defect. Gaylis v. Caminis ,

445 S o. 2d 1063 (Fla. 3d DCA 1984) (per curiam).

29. Under the facts of the Arnston transaction, Respondent

was thus not required, as of the time of the premature demand

and premature complaint, to deliver the escrow money to anyone,

so he could decline to i nvoke one of the settlement procedures

without subjecting himself to discipline.

30. The Sims transaction presents a different situation.

The Simses tried to exercise the financing contingency, which

ran through closing, about 30 days into the 90 - day per iod

between the date of contract and the date of closing. The

suggestion of Ms. Bardach's attorney that the Simses obtain a 60

percent first mortgage and 15 percent second, purchase money

mortgage presented a materially different alternative -- two

mortgage s totaling 75 percent -- to the condition to which the

Simses had agreed -- one mortgage of 75 percent. However, the

attorney accurately characterized as premature the attempt of

the Simses to use the financing contingency to cancel the

contract. On these fa cts, Respondent could not avail himself of

the last sentence of Section 475.25(1)(d)1, Florida Statutes, to

ignore Ms. Bardach's claim to the earnest money because at least

a fact question existed as to the "good faith" of the Simses.

Also, the demand of Ms. Bardach's lawyer by letter dated

July 20, 2000, and the complaint of Ms. Bardach were not

premature because the transaction should have closed by the end

of June 2000. Given the time that elapsed between the lawyer's

letter and the seller's complaint, it is apparent that

Respondent did not timely invoke one of the settlement

procedures.

31. Under the facts of the Sims transaction, Respondent

violated Section 475.25(1)(d)1, Florida Statutes, and Florida

Administrative Code Rule 61J2 - 10.032(1)(a).

32. With respect to the theft of trust funds, Respondent

did not steal these funds or assist Ms. McMahel in the theft of

these funds. The question under Section 475.25(1)(b), Florida

Statutes, is thus whether Respondent is guilty of culpable

negligence in his handling of his trust funds, including his

supervision of Ms. McMahel. In hindsight, Respondent's trust in

Ms. McMahel was misplaced, but substantial facts justified this

trust at the time. Ms. McMahel had occupied for many years

positions of responsibi lity and trust in the local real estate

industry, and she had worked for Respondent, without incident,

for four years. However, but for Respondent's delegation to

Ms. McMahel of important duties in completing monthly

reconciliation statements and signing trust account checks,

Ms. McMahel could not have stolen the money.

33. By rule, as discussed below, Respondent was required

to examine and sign each reconciliation statement, so this

issue, which also falls within the discussion of culpable

negligence, is better covered in the discussion of the rule that

explicitly addresses monthly reconciliation statements.

However, proving culpable negligence in supervision is greatly

facilitated by evidence of what Respondent reasonably should

have done as compared to what Respondent did do in supervising

Ms. McMahel. Cf . Ganter v. Department of Insurance , 620 So. 2d

202 (Fla. 1st DCA 1993). The present record contains no such

evidence and does not establish any violation of Section

475.25(1)(b), Florida Statutes.

34 . The $658,000 shortfall in trust funds violates Section

475.25(1)(k), Florida Statutes, which requires the maintenance

of trust funds until disbursement is authorized. Two

alternatives require this result. In contrast to Section

475.25(1)(b), Florida S tatutes, Section 475.25(1)(k), Florida

Statutes, does not require intent or culpable neglect on the

part of the licensee for a violation to occur. The statute

imposes strict liability upon licensees when it comes to

maintaining trust funds. Cf . Camejo v. Department of Business

and Professional Regulation , 812 So. 2d 583 (Fla. 3d DCA 2002)

(per curiam) (strict liability imposed in disciplinary case

against general contractor whose licensed was used to pull

building permits, but who did not personally perfo rm any of the

work).

35. In the alternative, if some personal act or omission

were required as a condition for a violation of Section

475.25(1)(k), Florida Statutes, Petitioner has proved sufficient

acts and omissions. Although insufficient to establis h culpable

negligence, Respondent's delegation of important duties to

Ms. McMahel allowed her to steal money from the trust account

and prevented earlier detection of her defalcation. Imposing

discipline upon Respondent on these facts would therefore not be

the equivalent of imposing discipline upon a licensee when the

nonpayment of a trust check is outside of his or her control,

such as in the case of a bank error or unanticipated bank

failure.

36. Lastly, Respondent's failure to personally examine and

s ign the monthly reconciliation statements violates Florida

Administrative Code Rule 61J2 - 14.012(2), which clearly allows

the broker to delegate the duty of preparing the statement, but,

by negative implication, clearly requires the broker personally

to exa mine and sign each statement. Respondent did not do so,

at least during the crucial months leading up to the failure of

his trust account.

37. Petitioner has therefore proved the violations alleged

in Count III (Section 475.25(1)(k), Florida Statutes), C ount V

(Florida Administrative Code Rule 61J2 - 14.012(2) and, thus,

Section 475.25(1)(e), Florida Statutes), and Count VII (Florida

Administrative Code Rule 61J2 - 10.032(1)(a) and, thus, Section

475.25(1)(e), Florida Statutes). Counts I and II involve the

A rnston transaction, for which the proof was insufficient.

Count IV raises culpable negligence and breach of trust, for

which the proof was absent or insufficient. Count VI is

duplicative of Count V, to the extent that Count VI is

restricted to Respondent 's failure to invoke one of the

settlement procedures. To the extent that Count VI raises the

issue of a failure to pay out the escrow money, the record fails

to establish all of the elements of this offense, including who

was entitled to the escrow money and whether Respondent ever

paid it out to anyone.

38. Florida Administrative Code Rule 61J2 - 24.001(3)(l)

provides that the penalty range for a violation of Section

475.25(1)(k), Florida Statutes, is a 90 - day suspension and $1000

fine to revocation. F lorida Administrative Code Rule

61J2 - 24.001(3)(f) provides that the penalty range for a

violation of Section 475.25(1)(e), Florida Statutes, is an

eight - year suspension to revocation with a $1000 fine.

Respondent contends that Florida Administrative Code Rule

61J2 - 24.002(2)(ff) provides for a sharply reduced penalty for a

violation of Florida Administrative Code Rule 61J2 - 14.012(2),

when a trust account has not been properly reconciled, but this

provision applies only when the trust account balances, so it is

inapplicable to this case.

39. The main aggravating factor is the size of the

shortfall in Respondent's trust account. The main mitigating

factors are that Respondent did not personally take the money,

Respondent immediately alerted Petitioner to t he theft, and

Respondent promptly restored the money that was needed

immediately and, in short order, restored all of the money, even

though it required the sale of his business. Petitioner seeks

revocation, but this is too harsh a penalty, in part becaus e it

fails to differentiate between the more responsible licensee,

such as Respondent, who works hard to restore trust funds after

a theft, and the unscrupulous licensee, who never undertakes the

effort.

RECOMMENDATION

It is

RECOMMENDED that the Florid a Real Estate Commission enter a

final order finding Respondent guilty of one violation of

Section 475.25(1)(k), Florida Statutes; one violation of Section

475.25(1)(e), Florida Statutes, by virtue of a violation of

Florida Administrative Code Rule 61J2 - 14 .012(2); and one

violation of Section 475.25(1)(e), Florida Statutes, by virtue

of a violation of Florida Administrative Code Rule

61J2 - 10.032(1)(a); and imposing a penalty of one year's

suspension and a fine of $3000.

DONE AND ENTERED this 23rd day of J une, 2005, in

Tallahassee, Leon County, Florida.

S

___________________________________

ROBERT E. MEALE

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399 - 3060

(850) 488 - 9675 SUNCOM 278 - 9 675

Fax Filing (850) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 23rd day of June, 2005.

COPIES FURNISHED:

Juaan Carstarphen Watkins, Acting Director

Division of Real Estate

Department of Business and

Professional Regulation

Hurston Building, North Tower

Suite N801

400 West Robinson Street

Orlando, Florida 32801

Leon Biegalski, General Counsel

Department of Business and

Professional Regulation

1940 North Monroe Street

Tallahassee, Florida 32399 - 2202

Gary J. Nagle, Esquire

14255 U.S. Highway 1, Suite 223

Juno Beach, Florida 33408

NOTICE OF RIGHT TO SUBMIT E XCEPTIONS

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.