SC Administrative Law Court Decisions

This matter is before me pursuant to S.C. Code Ann. § 1-23-600(D) (Supp. 1998) of the Administrative Procedures Act (APA) upon appeal from a Final Order of the South Carolina Department of Labor, Licensing, and Regulation, State Board of Architectural Examiners (Board), dated December 2, 1999, in which the Board found that the Appellant had violated S. C. Code Ann. § 40-1-110 (f) (Supp. 1998), in that he had committed certain unprofessional acts in his capacity as an architect.

The Appellant is a licensed architect in South Carolina. This action was formally commenced on December 8, 1998, by a Notice of Charges and of Hearing issued by the Board in response to a complaint received by the Board pursuant to S.C. Code Ann. § 40-3-120 (Supp. 1998). The Board alleged: (1) that a corporation in which the Appellant was an officer and shareholder, the Spartina Group, Inc. (Spartina), contracted with Glenn R. Albrecht and his wife (the Albrechts) to design and construct the Albrechts' residence without having a valid South Carolina Contractor's license; (2) that Spartina wrongfully failed to pay subcontractors, which resulted in the filing of several mechanic's liens; and (3) that the Albrechts were forced to pay the subcontractors and have not been reimbursed. The Board alleged that the Appellant, in his capacity as president of Spartina, knew or should have known of this wrongful conduct by Spartina.

On March 24, 1999, a hearing was held before the Board. In an Order dated April 29, 1999, the Board concluded that the Appellant had committed unprofessional acts and imposed certain sanctions, including: (1) a public reprimand; (2) imposition of a fine of $1,000.00 payable within thirty days of the service of the Order upon him; (3) payment of the costs of the investigation and prosecution of the case, as estimated by the administrative staff, in the amount of $2025.00, within thirty days of the service of the Order upon him; and (4) placing the Appellant's license in a probationary status for a period of one year.

The Appellant appealed the Board's decision to the Administrative Law Judge Division (ALJD). On October 21, 1999, The Honorable John D. Geathers, Administrative Law Judge, issued an Order of Remand holding that the Respondent's Order lacked "specific findings of fact and detailed explanation to support its conclusion that Appellant committed an unprofessional act" and remanding the case to the Board for reconsideration of the record and the basis for its conclusions. On December 2, 1999, the Board issued an Order on Remand in this matter. The Appellant again filed an appeal with the Clerk of the Administrative Law Division on January 3, 2000. The appeal was heard on July 13, 2000.

Upon consideration of the record, applicable law, and counsels' arguments, the Order of the Board is reversed.

This case is before the ALJD as an appeal of an agency action. As such, the ALJD sits in an appellate capacity under the Administrative Procedures Act, rather than as an independent finder of fact. S.C. Code Ann. § 1-23-380(A)(6) governs the reasons an appellate body may reverse or modify an agency decision. That section states:

The court may reverse or modify the decision if substantial rights of the appellant have been prejudiced because the administrative findings, inferences, conclusions or decisions are:

(a) in violation of constitutional or statutory provisions;

(b) in excess of the statutory authority of the agency;

(c) made upon unlawful procedure;

(d) affected by other error of law;

(e) clearly erroneous in view of the reliable, probative and substantial evidence on the whole record; or

(f) arbitrary or capricious or characterized by abuse of discretion or clearly unwarranted exercise of discretion.

S.C. Code Ann. § 1-23-380(A)(6) (1986 and Supp. 1998).

A decision is supported by "substantial evidence" when the record as a whole allows reasonable minds to reach the same conclusion reached by the agency. Bilton v. Best Western Royal Motor Lodge, 282 S.C. 634, 321 S.E. 2d 63 (Ct. App. 1984). The well-settled case law in this state has also interpreted the rule to mean that a decision will not be set aside simply because reasonable minds may differ on the judgment. Lark v. Bi-Lo, 276 S.C. 130, 276 S.E. 2d 304 (1981). The fact that the record, when considered as a whole, presents the possibility of drawing two inconsistent conclusions from the evidence does not prevent the agency's finding from being supported by substantial evidence. Waters v. South Carolina Land Resources Conservation Comm'n, 321 S.C. 219, 467 S.E. 2d 913 (1996).

In applying the substantial evidence rule, the factual findings of the administrative agency are presumed to be correct. Rodney v. Michelin Tire Co., 320 S.C. 515, 466 S.E. 2d 357 (1996), citing Kearse v. State Health and Human Services Finance Comm'n, 318 S.C. 198, 456 S.E. 2d 892 (1995). Furthermore, the reviewing court is prohibited from substituting its judgment for that of the agency as to the weight of the evidence on questions of fact. Grant v. South Carolina Coastal Council, 319 S.C. 348, 461 S.E. 2d 388 (1995), citing Gibson v. Florence Country Club, 282 S.C. 384, 318 S.E. 2d 365 (1984). Finally, the party challenging an agency action has the burden of proving convincingly that the agency's decision is unsupported by substantial evidence. Waters v. South Carolina Land Resources Conservation Comm'n, 321 S.C. 219, 467 S.E. 2d 913 (1996), citing Hamm v. AT&T, 302 S.C. 210, 394 S.E. 2d 842 (1994).

At issue in this case is whether Appellant violated the professional standards of architecture. Here, the Board concluded that the Appellant violated S.C. Code Ann. § 40-1-110 (f) (Supp. 1998) because he "committed a dishonorable, unethical, or unprofessional act that is likely to deceive, defraud, or harm the public." In determining that the Appellant violated Section 40-1-110 (f), the Board found that the Appellant "knew or should have known of the activities of Spartina during the construction of the Albrechts' home." The Board based that finding upon the fact that the Appellant:

1. Incorporated Spartina;

2. Was a shareholder of Spartina, and Spartina's Articles of Incorporation vested the managerial functions of the company in its shareholders;

3. Served as President of Spartina;

4. Executed a "Letter of Agreement" which referenced both the construction phase of the project as well as the design phase;

5. Referred to Spartina as a team; and

6. Signed a corporate check that was returned for insufficient funds.

The Appellant was a shareholder and president of Spartina and was also listed as the incorporator of Spartina. The Albrechts contracted with Spartina for the Appellant to design their home. Afterwards, the Albrechts contracted with Spartina for the construction of their home. Based upon the evidence presented at the original hearing, the Board determined that the Appellant committed unprofessional conduct by failing to:

1. Make efforts to pay the Albrechts' subcontractors;

2. Reimburse the Albrechts after the Albrechts payed debts owed by Spartina to subcontractors ; and

3. Make efforts to correct the actions of the company which harmed the Albrechts.

However, Spartina was incorporated as a statutory close corporation under the laws of the State of South Carolina. One of the hallmarks of the statutory close corporation is that the statutory framework allows the corporation to ignore various corporate formalities. ⁽¹⁾ The authors of a South Carolina treatise on corporate law state, "[t]he shareholders of a Statutory Close Corporation are permitted to operate the corporation like a partnership." Cleveland, Burkhard, Adams and McWilliams, South Carolina Corporate Practice Manual, S.C. Bar at 2-4 (1989). Therefore, pursuant to the laws governing close corporations, the shareholders of Spartina managed the corporation as a partnership.

Though the corporation may have functioned as a "team," the roles within the corporation were well-defined. The uncontradicted evidence in the record reveals that Spartina was incorporated to operate two distinct businesses: an architectural and design business and a residential home building business. There were three shareholders of Spartina and each shareholder had separate responsibilities. The Appellant oversaw the architectural and design portion of the business. The other two shareholders oversaw the construction side of the business, one of whom also oversaw the overall financial side of the business.

The Appellant performed architectural and design services for clients who also could elect to contract with Spartina for the construction of their home. However, the Appellant's services were discretely limited to architectural and design services. Nevertheless, the Appellant's services as an architect did overlap into the construction of the Albrechts' home. Architecture is more than merely the designing of projects. It often involves the coordination of consultants and the oversight of construction. Though an architect may be inextricably involved with the construction phase of a project, an architect is not necessarily responsible for the actions of contractors. There is no evidence in the record that the Appellant either personally or on behalf of Spartina contracted with the Albrechts for the construction of their home. In fact, the evidence in the record reveals that the Appellant fulfilled all of his requisites of the "Letter of Agreement" with the Albrechts in a professional manner. Furthermore, the Appellant's mere reference to Spartina as a "team" did not establish that he was personally involved in the construction of the Albrechts' home.

S.C. Code § 40-1-110 (1)(f) (Supp. 1998) provides "[a] board may cancel, fine, suspend, revoke, or restrict the authorization to practice of an individual who . . . has committed a dishonorable, unethical, or unprofessional act that is likely to deceive, defraud, or harm the public." (emphasis added). All of the Appellant's acts of the which the Board found were "dishonorable, unethical, or unprofessional" related to the actions of the Spartina corporation involving the construction of the Albrechts' home. However, the substantial evidence did not establish that the Appellant was personally involved in or responsible for the construction of the Albrechts' home. ⁽²⁾ Moreover, the mere fact that the Appellant was a shareholder and president of Spartina, a close corporation, did not establish that the Appellant "knew or should have known" of Spartina's failure to pay the subcontractors of the Albrechts' home.

As explained above, this tribunal's review of the evidence supporting the Board's decision is limited. However, this deferential standard of review does not mean that the Court will accept an administrative agency's decision at face value without requiring the agency to explain its reasoning. Porter v. South Carolina Public Service Comm'n, 333 S.C. 12, 507 S.E.2d 328 (S.C. 1998). In this case, the substantial evidence does not establish that the Appellant "knew or should have known of the activities of the Spartina Group" concerning the construction aspects of the corporation's business.

The remaining issue is whether the Appellant committed unprofessional conduct by issuing a $5,000.00 check which was returned to the Albrechts for insufficient funds. He signed a corporate check reimbursing the Albrechts for money Spartina held in escrow pursuant to the construction contract.

While the Appellant was president of Spartina, the unrefuted record shows that his duties did not include the financial oversight of the corporation. The record shows that he did not direct that the dishonored check be drafted. He only signed the check because the officer who normally signed checks was not present. Moreover, before signing the check, the Appellant asked the bookkeeper if there was money in the account to cover the check and he was assured that there were sufficient funds. Furthermore, the check was signed in August 1997. However, the Appellant left Spartina on September 4, 1997, and the check subsequently "bounced" on September 10, 1997.

The act of dishonoring a check occurs not when the check is signed but when the remittance of the check is refused. S.C. Code Ann. § 36-3-507(1) (1976). Though the Appellant was the president of the corporation when he signed the check, he was not an officer or employee of Spartina when the check was returned. The evidence did not establish that on the date the Appellant signed the check that the bank account did not have sufficient monies to cover the check. Thus, after the Appellant resigned from Spartina, the actions of the remaining officers could have resulted in the subsequent dishonor of the Albrechts' check. Accordingly, the Appellant was left with the determination of whether to personally reimburse the Albrechts for a dishonored corporate check though he had no control over whether Spartina ultimately honored the check. The Appellant's failure to reimburse the Albrechts for the dishonored corporate check was not "dishonorable, unethical, or unprofessional" under these circumstances.

The Board's decision to sanction the Appellant is not supported by the reliable, probative and substantial evidence in the whole record of the case. Furthermore, the Board's decision is affected by other error of law. Therefore, the decision of the Board is hereby REVERSED.

AND IT IS SO ORDERED.

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Ralph King Anderson, III

Administrative Law Judge

January 9, 2001

Columbia, South Carolina

1. S.C. Code Ann. § 33-18-210 (1990) allows the corporation to eliminate the requirement of a board of directors. Under S.C. Code Ann. § 33-18-220 (1990), the corporation need not adopt bylaws. Also, S.C. Code Ann. § 33-18-230 (1990) sets forth that the corporation need not hold an annual meeting.

2. The record does not contain the contract for the construction of the Albrechts' home. Therefore, there is no evidence explaining the Appellant's contractual relationship toward the Albrechts in the construction of their home.