09-005522 Department Of Business And Professional Regulation, Construction Industry Licensing Board vs. Stuart C. Winston, D/B/A Back Bay Homes Status: Closed Recommended Order on Monday, July 12, 2010.

Summary: Contractor who rew $84,655 in loan procees and did no work is guilty of mismanagement, misconduct, abandonment, and subject to fine of $3000 and $61,747.72 restitution.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF BUSINESS AND )

PROFESSIONAL REGULATION, )

CONSTRUCTION INDUSTRY LICENSING )

BOARD, )

)

Petitioner, )

)

vs. ) Case No. 09-5522

)

STUART C. WINSTON, d/b/a BACK BAY HOMES, )

)

) )

Respondent.

)

RECOMMENDED ORDER

Administrative Law Judge (ALJ) Carolyn S. Holifield

conducted the final hearing of this case for the Division of

Administrative Hearings (DOAH) on January 5, 2010, in Fort

Myers, Florida.

APPEARANCES

For Petitioner: Sorin Ardelean, Esquire

Department of Business and

Professional Regulation

1940 North Monroe Street

Tallahassee, Florida 32399-2202

For Respondent: Darrin R. Schutt, Esquire

Seeman & Schutt, P.A.

1322 Southeast 46th Lane

Cape Coral, Florida 33904

STATEMENT OF THE ISSUE

The issue is whether Respondent violated Subsections

489.129(1)(g)2., (j), and (m), Florida Statutes (2005), 1 by

allegedly engaging in financial mismanagement or misconduct in

the practice of contracting that causes financial harm to a

customer, abandoning a construction project, or committing

misconduct or incompetence in the practice of contracting.

PRELIMINARY STATEMENT

On or about December 11, 2008, Petitioner filed an

Administrative Complaint against Respondent. Respondent

requested an administrative hearing. Petitioner referred the

matter to DOAH to conduct the hearing.

At the hearing, Petitioner offered the testimony of two

witnesses and submitted 14 exhibits for admission into evidence.

Respondent testified, called one additional witness, and

submitted 20 exhibits for admission into evidence.

The identity of the witnesses and exhibits, and any

attendant rulings, are reported in the Transcript of the hearing

filed with DOAH on January 25, 2010. Petitioner and Respondent

timely filed their respective Proposed Recommended Orders (PROs)

on February 12, 2010. Pursuant to Subsection 120.57(1)(a), DOAH

transferred this matter to ALJ Daniel Manry to write the

Recommended Order based on the existing record due to the

retirement of ALJ Carolyn S. Holifield.

FINDINGS OF FACT

1. Petitioner is the state agency responsible for

regulating the practice of contracting in the state. Respondent

is licensed in the state as a certified general contractor

pursuant to license number CGC59204. Respondent is the

qualifier of South West Florida Development Corporation (South

West) doing business as Back Bay Homes (Back Bay).

2. On February 7, 2006, Respondent executed a contract

with Gail and Gary Veith to build a residential home on a vacant

lot located at 3218 Southwest 11th Place, Cape Coral, Florida.

The contract price was $276,983.00 (the initial contract). The

initial contract provided for the construction of a sea wall at

a cost of $17,257.00 in addition to the contract price of

$276,983.00.

3. On February 7, 2006, Respondent entered into a second

contract with Mr. and Mrs. Veith. The only difference between

the initial and second contracts was the contract price of each

contract. The second contract price was $289,686.00, excluding

the sea wall cost of $17,257.00.

4. Mr. and Mrs. Veith secured payment of the construction

project with a construction loan from Market Street Mortgage

Corporation (Market Street) in the original approximate amount

of $412,000.00. The total loan amount was intended to be

sufficient to cover the second contract price of $289,686.00 and

the amount contracted by Mr. and Mrs. Veith for acquisition of

the vacant lot (construction site), which was $128,000.00. 2

5. Clear and convincing evidence shows that Respondent

engaged in financial mismanagement or misconduct in the practice

of contracting that caused financial harm to his customers in

violation of Subsection 489.129(1)(g)2. Clear and convincing

evidence also shows that Respondent committed incompetence and

mismanagement in the practice of contracting.

6. The percentage of completion of the residence, which

was zero, was less than the percentage of the contract price

paid to Respondent, which was 29 percent. Respondent received

approximately $84,655.00 in construction loan proceeds from

Market Street in two draws. Market Street paid the first draw at

closing on May 5, 2006, in the amount of $42,901.20 and paid the

second draw to Respondent on June 26, 2006, in the amount of

$41,754.00. However, Respondent never commenced construction of

the residence.

7. Respondent reported a profit of $48,637.72 on the Veith

property and completed only the sea wall at a cost of

$17,257.00. Respondent paid the cost of the sea wall and other

expenses on the Veith property to keep the net profit at

$48,637.72. Other expenses included $420.00 for surveys, $34.34

for blue prints, $1,707.75 for plan drafts, $350.00 for septic

engineering, and $3,138.19 for construction loan interest.

8. Respondent was not entitled by the terms of the

contract to retain the funds paid to Respondent by Market

Street. The loan agreement provided that draws were to be made

at the discretion of Market Street based on work completed and

materials incorporated into improvements.

9. Respondent never commenced construction of the

residence. Respondent did not obtain permits for the job.

10. Mr. Winston testified that when Market Street

transferred a single, lump sum deposit to his company in the

amount of $41,754.00 on June 26, 2006, he did not know that he

was appropriating funds he was not entitled to under the

contract. When that testimony is weighed against evidence that

the work Mr. Winston had performed was limited to a sea wall

costing only $17,257.00, the testimony is persuasive evidence to

the trier of fact that Respondent engaged in mismanagement. 3

11. Respondent billed Market Street for payment of the sea

wall when Respondent completed the sea wall. However, the draw

schedule in the loan documents does not provide a draw payment

for the sea wall.

12. Respondent stopped paying construction interest that

Respondent was obligated to pay under the terms of the

construction loan. Thereafter, Mr. and Mrs. Veith paid

construction interest of approximately $13,800.00.

13. Clear and convincing evidence shows that Respondent

abandoned the construction project within the meaning of

Subsection 489.129(1)(j). Respondent failed to perform any work

on the residence for 90 consecutive days without just cause.

14. Respondent did not notify Mr. and Mrs. Veith that

Respondent had abandoned the project. Rather, Mr. and Mrs.

Veith started receiving requests for payment of construction

loan interest.

15. Respondent failed to conduct any construction activity

on the project site for more than 90 consecutive days. On

May 13, 2008, Mr. and Mrs. Veith received notice that their loan

had been assigned from Market Street to Gulf Coast Bank & Trust

Company (Gulf Coast). Gulf Coast sent Mr. and Mrs. Veith

repeated demands for payment of the construction loan principal

and interest.

16. Mr. and Mrs. Veith entered into a transaction

identified in the record as a "short sale" in which they sold

the construction site, which they originally purchased for

$128,000.00, for $20,000.00. The $20,000.00 sale proceeds were

paid to Gulf Coast.

17. Mr. and Mrs. Veith have been financially unable to

make payments to Gulf Coast. They remain liable for the full

amount of the loan, including delinquent principal and interest.

18. Mr. and Mrs. Veith brought a civil action against

Respondent. They were unable to sustain the action because they

could not afford the attorney fees.

19. Petitioner incurred investigative costs in this matter

of $204.26. The investigative costs do not include attorney

time.

CONCLUSIONS OF LAW

20. DOAH has jurisdiction over the parties and subject

matter of this proceeding. §§ 120.569 and 120.57, Fla. Stat.

(2009). DOAH provided the parties with adequate notice of the

final hearing.

21. Petitioner has the burden of proof in this proceeding.

Petitioner must show by clear and convincing evidence that

Respondent committed the acts alleged in the Administrative

Complaint and the reasonableness of any proposed penalty.

§ 120.57(1)(h), Fla. Stat. (2009); Department of Banking and

Finance v. Osborne Stern and Co. , 670 So. 2d 932 (Fla. 1996);

Ferris v. Turlington , 510 So. 2d. 292 (Fla. 1987).

22. Petitioner satisfied its burden of proof. For reasons

stated in the Findings of Fact and incorporated herein by

reference, Petitioner showed by clear and convincing evidence

that Respondent violated Subsections 489.129(1)(g)2., (j),

and (m).

23. Respondent's reliance on Hunter v. Department of

Professional Regulation , 458 So. 2d 842 (Fla. 2d DCA 1984), is

misplaced. The application of the holding in Hunter to this

proceeding, if any, has been superseded by subsequent

legislative enactment in 1991 in Subsection 489.129(1)(k). 4

24. Respondent's defense in this proceeding seems to be

that the lender and Mr. and Mrs. Veith did not do their jobs in

shepherding the construction loan proceeds. Perhaps, but the

issue in this proceeding is whether Respondent did his job by

complying with his professional licensing requirements. The

evidence is clear and convincing that Respondent failed to do

so.

25. Florida Administrative Code Rules 61G4-17.001, 17.002,

and 17.003 authorize Petitioner to consider certain aggravating

or mitigating factors in determining the appropriate penalty in

this case. There is no evidence of any prior discipline against

Respondent's license.

26. Petitioner proposes a fine of $1,500.00 for the

violation of Subsection 489.129(1)(g)2., a fine of $500.00 for

the violation of Subsection 489.129(1)(j), and a fine of

$1,000.00 for the violation of Subsection 489.129(1)(m).

Petitioner also proposes that Respondent pay Mr. and Mrs. Veith

restitution in the amount of $61,747.72. 5 In addition,

Petitioner proposes that Respondent be required to pay the costs

of investigation and prosecution in the amount of $204.26. The

proposed fines, penalties, restitution, and recovery of costs

are reasonable under the circumstances evidenced in this

proceeding. 6

RECOMMENDATION

Based on the foregoing findings of fact and conclusions of

law, it is

RECOMMENDED that Petitioner enter a final order finding

that Respondent is guilty of the violations alleged in the

Administrative Complaint; imposing the fines enumerated in

paragraph 24 of this Recommended Order; requiring Respondent to

pay investigative costs in the amount of $204.26; and requiring

Respondent to make full restitution to Mr. and Mrs. Veith in the

amount of $61,747.72.

DONE AND ENTERED this 12th day of July, 2010, in

Tallahassee, Leon County, Florida.

S

DANIEL MANRY

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 12th day of July, 2010.

ENDNOTES

1/ References to subsections, sections, and chapters are to

Florida Statutes (2005), unless otherwise stated.

2/ The total of $289,686.00 and $128.000.00 is $417,686.00,

rather than $412,000.00. The record does not explain how the

loan proceeds of $412,000.00 were sufficient to cover the sum of

the second contract price and lot cost.

3/ Sometime before receiving the second draw in the amount of

$41,754.00 on June 26, 2006, Respondent billed Market Street for

completion of the sea wall in the amount $11,500 ( See

Respondent's PRO at page 11, paragraph 13). Instead of

receiving $11,500.00 from Market Street, Respondent received

$41,754.00 and never asked why. Respondent's testimony

concerning the business climate and the inaccessibility of

Mr. and Mrs. Veith is less than credible and persuasive.

4/ The subsection has been subsequently renumbered.

5/ Petitioner's PRO at page 19, paragraph 4, calculates

restitution in the amount of $61,747.72 as $84,655.00 reduced

by: $17,257.00 (seawall); $3,138.19 (construction loan

interest); $420.00 (surveys); $34.34 (blueprints); $1,707.75

(drafting); and $350.00 (septic tank engineering).

6/ Mr. and Mrs. Veith paid $13,800.00 in construction interest

out of their pocket, which the evidence shows was the

responsibility of Respondent ( See paragraph 12, supra ). In

addition, Mr. and Mrs. Veith suffered a loss of $108,000.00 on

the short sale to Gulf Coast ( See paragraph 16, supra ).

Petitioner does not include the $13,800.00 or the $108,000.00

amounts in the amount of restitution requested for reasons

unknown to the fact finder, and the ALJ does not include either

amounts in the recommended restitution.

COPIES FURNISHED :

G.W. Harrell, Executive Director

Construction Industry Licensing Board

Department of Business and

Professional Regulation

1940 North Monroe Street

Tallahassee, Florida 32399-0792

Reginald Dixon, General Counsel

Department of Business and

Professional Regulation

1940 North Monroe Street

Tallahassee, Florida 32399-2202

Sorin Ardelean, Esquire

Department of Business and

Professional Regulation

1940 North Monroe Street

Tallahassee, Florida 32399-2202

Darrin R. Schutt, Esquire

Seeman & Schutt, P.A.

1322 Southeast 46th Lane, Suite 202

Cape Coral, Florida 33904

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.