SC Administrative Law Court Decisions

This matter is before me pursuant to S.C. Code Ann. § 1-23-600(D) (Supp. 1996) of the Administrative Procedures Act ("APA") upon appeal from a Final Order of the South Carolina Department of Labor, Licensing, and Regulation - Real Estate Commission ("Commission"), in which the Commission revoked Appellant's real estate broker's license and issued him an administrative sanction of Five Thousand Dollars ($5,000.00) in a Final Order dated September 17, 1997. The Commission found that Appellant had violated the terms of his probation set forth in its February 10, 1997 Order; specifically, that Appellant had failed to make timely restitution to two former clients, and that he had failed to transfer escrow money he received in a real estate transaction to his independent escrow agent. Additionally, the Commission found that Appellant had violated the real estate laws by issuing a check which was not honored by his bank upon presentment. Appellant appealed the Final Order of the Commission by filing a Notice of Appeal. Briefs were filed in support of and in response to the appeal. Oral arguments were heard on February 11, 1998. Upon consideration of the record, applicable law, and counsel's arguments, the Order of the Commission is affirmed.

Appellant, a licensed real estate broker and broker in charge of Realty Associates in Ladson, South Carolina, appeared at a disciplinary hearing before the Commission on January 15, 1997 to answer charges contained in a complaint that had been served upon him by the Commission. Appellant was charged with violating the real estate laws of South Carolina; specifically, S.C. Code Ann. §§ 40-57-170(A)(4), (11), (13), and (18) (1986 and Supp. 1996), and S.C. Code Regs. 105-19(c), 105-21(B), and 105-26 (1976 and Supp. 1996). Appellant appeared with counsel, and after some testimony was taken, he and his counsel entered into an agreement with the Commission. The terms of the agreement were subsequently reduced to writing in an Order of the Commission dated February 10, 1997. That Order made conclusions of law which found that Appellant had violated S.C. Code Ann. §§ 40-57-170(A)(4), (11), (13), and (18) (1986 and Supp. 1996), and S.C. Code Regs. 105-19(c), 105-21(B), and 105-26 (1976 and Supp. 1996). Further, the Order revoked Appellant's real estate broker's license and imposed upon him an administrative sanction of Five Thousand Dollars ($5,000.00). The Order stayed imposition of the revocation and sanction immediately, however, for a period of three years. The stay was conditioned upon Appellant making restitution to the two former clients on or before July 15, 1997, that Appellant have all earnest money transactions handled by an independent escrow agent, and that he commit no further violations of the real estate laws and regulations. The Order was served upon Appellant on February 25, 1997. Appellant did not appeal the Order.

On July 18, 1997, Appellant was served with a formal complaint and notice of a hearing before the Commission. The complaint alleged that Appellant had failed to make restitution to either of his two former clients by the July 15, 1997 deadline, and that he had failed to use his independent escrow agent to handle an earnest money deposit as required by his agreement with the Commission. Additionally, the complaint alleged that Appellant had committed other violations of the real estate laws when he issued a check on May 19, 1997, drawn upon his business account, to cover an earnest money deposit in a real estate transaction, which was not honored by the bank due to insufficient funds in his account.

On August 20, 1997, a hearing was held before the Commission regarding the issues set forth in the formal complaint. Appellant at that time moved that the hearing be postponed or the complaint be dismissed because he had not been served with discovery materials he requested from the Commission prior to the hearing. The Commission denied that motion and the hearing was conducted. At the conclusion of the hearing, the Commission determined based upon clear and convincing evidence, that the Appellant had violated the terms of his prior agreement, and that he had violated the real estate laws and regulations as alleged in the formal complaint. Pursuant to these findings, the Commission ordered that Appellant's license be revoked and that he be issued an administrative sanction of Five Thousand Dollars ($5,000.00). The Commission's Order was reduced to writing on September 17, 1997, and was personally served upon Appellant.

Appellant appealed the Board's Final Order on several grounds, to the Administrative Law Judge Division and timely filed a Notice of Appeal. Briefs were filed by both parties and oral arguments were heard before this tribunal on February 11, 1998.

Respondent presented eleven issues on appeal of the Board's Order:

I. Did the Respondent fail to properly serve the Commission's February 10, 1997 Order upon the Appellant?

II. Did the Respondent fail to properly provide prehearing discovery to the Respondent prior to the August 20, 1997 hearing?

III. Was the Respondent properly notified of charges prior to the hearing?

IV. Did Respondent fail to properly provide a list of witnesses to be called prior to the August 20, 1997 hearing?

V. Was Respondent prohibited from conducting a disciplinary hearing against Appellant because of his pending bankruptcy proceedings?

VI. Was Appellant denied equal protection under the law by Respondent?

VII. Did Respondent violate due process of law, SCRCP 45, or the Fourth Amendment of the United States Constitution?

VIII. Was the Commission's February 10, 1997 Order a proper Order?

IX. Was Appellant's attorney ineffective in his representations of Appellant in the January 1997 Commission hearing?

X. Did the Commission err in finding that the money involved in the real estate transaction involving the Wares was earnest money, and therefore should have been deposited with the Appellant's independent escrow agent?

XI. Did the Commission err in finding that the check issued by Appellant was dishonored when presented to his bank?

Did the Respondent fail to properly serve the Commission's February 10, 1997 Order upon the Appellant (Issue I), and Was the Commission's February 10, 1997 Order a proper Order (Issue VIII)?

Appellant argues in his brief that Respondent failed to properly serve him with a copy of the Commission's Order, and that the Order was improper because it failed to state that it was a Consent Order. Neither of these arguments are meritorious. First, Appellant was served with a copy of the Commission's February 10, 1997 Order via certified mail, return receipt requested. By Appellant's own admission, the Order was received by his secretary at his office. Notice via certified mail, return receipt requested to the last known address of a party is the proper method of service pursuant to the APA and the Real Estate laws of South Carolina. See, S.C. Code Ann. § 1-23-320 (Supp. 1996), S.C. Code Ann. § 40-57-180 (Supp. 1996), and SCRCP Rule 5(b)(1). Additionally, the fact that the Commission's February 1997 Order merely states "Order" as its heading is an insufficient ground for appeal. The Order is clear in its meaning, and sets forth that its terms are the result of negotiations by Appellant, his attorney, and Respondent.

Did the Respondent fail to properly provide prehearing discovery to the Respondent prior to the August 20, 1997 hearing (Issue II), Was the Respondent properly notified of charges prior to the hearing (Issue III), Did Respondent fail to properly provide a list of witnesses to be called prior to the August 20, 1997 hearing (Issue IV), Was Appellant denied equal protection under the law by Respondent (Issue VI), and Did Respondent violate due process of law, SCRCP 45, or the Fourth Amendment of the United States Constitution (Issue VII)?

Appellant's arguments in Issues II - IV, and Issues VI and VII all revolve around an argument that he was denied due process of law because the Respondent failed to provide prehearing discovery, including a witness list, to Appellant prior to his hearing; that he was not properly notified of the charges against him; and that he was not served with a copy of the subpoena of his bank records issued by the Respondent. Additionally, Appellant contends that his due process rights were violated by the Respondent's failure to grant him an extension of time to pay restitution. I find all of these arguments unpersuasive.

Respondent has not promulgated or adopted any specific regulatory provisions addressing discovery. In the absence of an applicable agency rule or regulation permitting discovery in a contested case, parties may engage in discovery only to the extent allowed under the APA. While contested case litigants are entitled to fundamental due process considerations, there is no constitutional right to prehearing discovery in administrative cases. Miner v. Atlass, 363 U.S. 641 (1960). The APA does however, provide for discovery in contested case hearings. In Ross v. Medical University of South Carolina, 492 S.E.2d 62 (1997), the South Carolina Supreme Court held that "any party to a contested case proceeding may depose witnesses in accordance with the provisions which apply in civil actions. [S.C. Code Ann.] § 1-23-320(c). In addition, the agency hearing the contested case has the power to issue subpoenas for the attendance of witnesses and production of records. [S.C. Code Ann.] § 1-23-320(d)." 492 S.E.2d at 69. Therefore, the power to order discovery other than the taking of depositions in a contested case hearing is vested in a hearing tribunal under the APA. See David E. Shipley, South Carolina Administrative Law, 5-58 (2d ed. 1989). Furthermore, the discovery provisions vested with the agency are not mandatory, but rather discretionary. The refusal to order the kind of discovery requested by Appellant is not error unless the Board's action is arbitrary, capricious, and an abuse of discretion. "It is well settled that 'the scope and conduct of discovery are within the sound discretion of the trial court ... and that after (the) . . . final agency order, review is confined to determining if that discretion has been abused . . . .'" Palmetto Alliance, Inc. v. South Carolina Pub. Service Comm'n, 282 S.C. 430, 436, 319 S.E.2d 695, 698 (1984), quoting Marroquin-Manriquez v. I.N.S., 699 F.2d 129 (3d Cir. 1983). A reviewing court may reverse the decision of an agency only if substantial rights of the appellant have been prejudiced because the administrative findings are in violation of statutory provisions. S.C. Code Ann. § 1-23-380(e) (Supp. 1996); Ross v. Medical University of South Carolina, supra.

In this case, Appellant was provided proper notice of the charges against him and of the date, time and place the charges were to be heard, in accordance with S.C. Code Ann. § 40-57-180 (Supp. 1996). Appellant was personally served on July 18, 1997 with a copy of the Notice of Hearing and Charges. The charges listed in that notice were the only charges for which the Commission received evidence at the hearing on August 20, 1997, and it was only to those charges that the Commission made findings and conclusions.

As to the issue of discovery, Respondent mailed to Appellant a copy of all documents it intended to introduce into the hearing, including a list of its witnesses, with a Certificate of Service on August 14, 1997 to the last known address of the Appellant. Therefore, Respondent provided prehearing discovery materials to Appellant prior to his hearing. See SCRCP 5(b)(1); S.C. Code Ann. § 1-23-320 (Supp. 1996); NCNB v. Floyd, 303 S.C. 261, 399 S.E.2d 794 (Ct. App. 1990) (mailing of documents to a person's last known address constitutes sufficient notice). Furthermore, Appellant was well aware of the contents of his bank records and provided numerous explanations to the Commission as to the meaning of different entries. The record is replete with examples of how Appellant was able to vigorously cross-examine the government witnesses and attack the meaning and intent of certain documents admitted by Respondent.

Moreover, at the beginning of the agency hearing Appellant objected to the hearing going forward because the Respondent had failed to comply with his discovery request. The Respondent held that if the Appellant had any objection to the introduction of evidence used in violation of his discovery request, he should make his objection when that evidence was offered by the agency. The Respondent could not cite any instance of a contemporaneous objection to the admission of evidence in violation of his discovery request. A party's failure to object to the admission of evidence at the time it is offered waives his right to object to the admission of such evidence on appeal. See Ramos v. Hawley, 316 S.C. 534, 451 S.E.2d 27 (Ct. App. 1994); Ball v. Canadian American Express Co., Inc., 314 S.C. 272, 442 S.E.2d 620 (Ct. App. 1994).

Addressing the subpoena issue, Appellant argues that Respondent's failure to provide him with a copy of the subpoenas issued by the Commission for Respondent's bank records, deliberately violated a July 23, 1997 Order of Administrative Law Judge Alison Lee, SCRCP 45, and his due process rights. The records subpoenaed were Appellant's own bank records. Furthermore, although Respondent did not provide copies of the subpoenas to Appellant, it did notify Appellant of its intent to obtain the records. Appellant was requested, by letter, to provide to the Commission copies of his bank records, and informed in that same letter that his failure to do so would result in the Commission obtaining the records by subpoena. Appellant did not provide those records to Respondent, who then subpoenaed them. In addition, after the Respondent originally sought the above bank records, the Appellant petitioned the ALJD to have the Respondent held in Contempt of Court. The Appellant argued that "the Respondent [was] again attempting to obtain the bank records without having first served him with a copy of the complaint against him." Judge Lee likewise held the following:

[T]his assertion is without merit. At the hearing on the motion to quash, on July 18, 1997, the Respondent's counsel personally served the Petitioner with a copy of a Complaint detailing certain charges against him, as well as a notice of a hearing scheduled before the Real Estate Commission on August 20, 1997. Furthermore, following the issuance of the Order quashing the subpoena on July 23, the Respondent first sought to obtain the bank records directly from the Petitioner prior to issuing a subpoena to NationsBank. I find that the Petitioner has been afforded due process in this instance and that the Respondent's actions are not in contempt of the Order of July 23, 1997.

Appellant knew his bank records were being sought by the Commission, and at his hearing he vigorously defended himself against the allegations, and presented testimony as to the meaning of the entries in the records. Irrespective of whether the South Carolina Rules of Civil Procedure apply in administrative board proceedings, Appellant still must demonstrate that the Board's failure to provide him with a copy of the subpoenas substantially prejudiced him in his ability to represent himself. Ross v. Medical Univ. of South Carolina, supra. There is insufficient evidence to find that Appellant was substantially prejudiced by not receiving copies of the subpoenas issued by the Commission.

Finally, addressing the issue of Respondent's failure to grant him an extension of time to pay restitution, as set forth above the Appellant's February 10, 1997 revocation of Appellant's real estate broker's license and the Five Thousand Dollars ($5,000.00) administrative sanction were stayed, in part, upon the condition that the Appellant make restitution to two clients on or before July 15, 1997. Before and at the hearing into this matter, the Appellant sought an extension of time to make that restitution. However, by the time of the hearing into this matter, the appellant had paid the restitution to both clients. Therefore, the Respondent obviously found the need to grant the Appellant an extension of time to pay restitution was a moot issue. The Respondent then determined to hear the issue of whether or not the Appellant improperly failed to comply with Respondent's previous Order requiring the Appellant to pay restitution. The Appellant contends that the Respondent's failure to rule upon his request for an extension of time and declaring the issue moot, led him to believe that the issue of timeliness of the restitution was not a relevant issue for the proceeding. That assumption is simply not supported by the record. In fact, in ruling that the need for an extension of time to pay was moot, the Respondent held that it would specifically consider whether or not the Appellant timely complied with the Respondent's Order.

Was Respondent prohibited from conducting a disciplinary hearing against the Appellant because of his pending bankruptcy proceedings (Issue V)?

Appellant contends that he was under the protection of the United States Bankruptcy Court at the time of the hearing in August 20, 1997, and that this should have stayed the Commission from taking against him. I disagree. Although the filing of a bankruptcy petition does act to stay some proceedings against a petitioner, the filing of such a petition does not operate as an automatic stay in actions that are a "commencement or continuation of an action or proceeding by a governmental unit to enforce such governmental unit's police or regulatory power." 11 U.S.C.§ 362(b)(4) (Supp. 1996). The legislative history of § 362(b)(4) of the Bankruptcy Act reveals that "where a governmental unit is suing a debtor to prevent or stop a violation of fraud, environmental protection, consumer protection, safety, or similar police or regulatory law, or attempting to fix damages for violation of such law, the action or proceeding is not stayed under the automatic stay." H.R. Rep. 595, 95^th Cong., 1^st Sess. 342-43 (1997). Here, the Commission, a state government entity charged with enforcing the real estate statutes and regulations of South Carolina, was seeking to enforce its regulatory power against Appellant for infractions of the real estate laws. Clearly, this hearing fell under the exception to the automatic stay imposed upon actions against petitioners in bankruptcy.

Was Appellant's attorney ineffective in his representations of Appellant in the January 1997 hearing before the Commission (Issue IX)?

Appellant argues in his brief that the attorney who represented him at the Commission hearing in January 1997, from which the Commission's February 10, 1997 Order was generated, was ineffective, and that the ineffective representation therefore constituted grounds for reversal of the Board's August 20, 1997 Order. This argument is without merit. First, Appellant provides no evidence to support his assertions that his representation during the January 1997 Commission hearing was ineffective. More important, Appellant failed to make any allegation of error in the January 1997 Commission hearing or the resultant February 10, 1997 Order within the statutorily prescribed time frame. Under the APA, S.C. Code Ann. § 1-23-380, Appellant had thirty days from the date of service of the Commission's February 10, 1997 Order to file an appeal. Appellant was served with a copy of the Order on February 25, 1997. "Service of the notice of intent to appeal is a jurisdictional requirement, and this tribunal has no authority to extend or expand the time in which the notice of intent to appeal must be served." Mears v. Mears, 287 S.C. 168, 337 S.E.2d 206 (1985). His failure to timely file an appeal of that Order now acts as a waiver of his right to allege any error in that proceeding.

Did the Commission err in finding that the money involved in the real estate transaction involving the Wares was earnest money and therefore should have been deposited with Appellant's independent escrow agent (Issue X), and Did the Commission err in finding that the check issued by Appellant was dishonored when presented to his bank (Issue XI)?

Issues X and XI presented by Appellant in his brief involve allegations that insufficient evidence existed to permit the Commission to make the findings it did. However, after reviewing the transcript in this matter, I find that there was sufficient evidence on the whole record to support the Commission's conclusions.

A reviewing court may not overturn an agency's decision unless that decision is "clearly erroneous in view of reliable, probative and substantial evidence on the whole record." S.C. Code Ann. § 1-23-380(A)(6)(e) (Supp. 1996). Substantial evidence is "such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." Midlands Utility, Inc. v. S.C. Dept of Health and Environmental Control, 298 S.C. 66, 69, 378 S.E.2d 256, 258 (1989). In applying this standard of review, an appellate court may not substitute its judgment for that of the agency concerning the weight of the evidence on questions of fact, even if there is room for a difference of intelligent opinion as to the weight that could be afforded that evidence. See, e.g., Toussaint v. State Board of Medical Examiners, 303 S.C. 316, 400 S.E.2d 488 (1991). The decision of an administrative agency can be reversed only if the administrative findings are clearly erroneous in view of the substantial evidence on the whole record. Lark v. Bi-Lo, Inc., 276 S.C. 130, 276 S.E.2d 304 (1981).

In applying the law to the evidence in this case, I find that substantial evidence does exist to support the Commission's findings that the money the Wares gave to Appellant was earnest money that should have been placed with the independent escrow agent. Furthermore, I find substantial evidence exists to support the Commission's finding that Appellant's check was initially dishonored by the bank upon presentment because Appellant's account did not contain sufficient funds to cover the amount of the check.

Based upon all of the above, Appellant has failed to meet the burden of establishing grounds for reversal or remand of the Board's decision. Therefore the Board's Order, dated September 17, 1998 is affirmed.

AND IT IS SO ORDERED.

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Ralph K. Anderson, III

Administrative Law Judge

Columbia, South Carolina

March 25, 1998