SC Administrative Law Court Decisions

The South Carolina Manufactured Housing Board (Board) received allegations that Homes America, Inc (Homes), Chauncy D. Graham (Graham), and John F. Mishoe (Mishoe) (collectively Appellants) had violated S.C. Code Ann.§ §40-29-50(10) and (11) (Supp. 2001). In its role as prosecutor, the South Carolina Department of Labor, Licensing, and Regulation (LLR) presented witnesses and documentary evidence to the Board seeking to prove the violations. At the conclusion of LLR's case, the Appellants moved for a "directed verdict" on the ground that LLR failed to meet its burden of proof. The Board denied the motion. The Appellant's then rested their case without presenting any evidence. After deliberations, the Board found the Appellants in violation of S.C. Code Ann.§ §40-29-50(10) and (11) (Supp. 2001). ⁽¹⁾

The Appellants argue that the Board erred in finding a violation of S.C. Code Ann. § 40-29-150(10) since LLR "failed to present evidence sufficient to carry its burden of proof on the issue of fraudulent methods or practices." In a similar manner, the Appellants argue that the Board erred in finding a violation of S.C. Code Ann. § 40-29-150(11) since LLR "failed to present evidence sufficient to carry its burden of proof on the issue of unfair deceptive acts or practices." Further, and in all events, the Appellants argue that the Board's findings of violations of S.C. Code Ann. § 40-29-150(10) and § 40-29-150(11) are in error since the Board applied the wrong standard of proof to each alleged violation. I disagree with the Appellants on the latter issue but agree on both of the former issues.

A. Standard of Review

On appeal from a decision of the Board, the ALJ must decide the matter pursuant to § 1-23-380(A)(6) (Supp. 2001). See S.C. Code Ann. § 1-23-380(B) (Supp. 2001) (where an ALJ is directed to conduct a review "in the same manner prescribed in [§ 1-23-380](A)."). Section 1-23-380(A)(6) establishes the following:

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.

In the instant case, while not explicitly stated, the thrust of the Appellants' argument is that the Board's findings of violations of § 40-29-150(10) and § 40-29-150(11) are in error for two reasons. First, the findings are "made upon unlawful procedure" in that the Board failed to apply the proper standard of proof. Second, the findings are in error since they are "clearly erroneous in view of the reliable, probative and substantial evidence on the whole record."

B. Unlawful Procedure & Standard of Proof

1. Standard of Proof

In weighing the evidence to decide what facts have been proven, the Board is required to apply the proper standard of proof. See 73A C.J.S. Public Administrative Law and Procedure § 130 ("In an adjudicatory proceeding, the claimant must adduce sufficient evidence as to the existence of essential facts to the point of sustaining its burden of proof that such facts are as claimed."). While the typical standard of proof in administrative matters is "preponderance of evidence," the standard of proof for fraud is "clear and convincing." Anonymous (M-156-90) v. State Board of Medical Examiners, 329 S.C. 371,496 S.E. 2d 17 (1998) ("Absent an allegation of fraud or a statute or a court rule requiring a higher standard, the standard of proof in administrative hearings is generally a preponderance of the evidence." (Emphasis added)). Therefore, the Board has a duty to apply the "clear and convincing" standard of proof if the charge imposed involves an "allegation of fraud." If LLR had the requirement of proving an allegation of fraud, the Board would have erred in its duties to properly weigh the evidence since the Board applied a "preponderance of evidence" standard. Thus, the issue becomes one of deciding whether the alleged violations of § 40-29-150(10) or § 40-29-150(11) require proving fraud and thereby invoking the standard of proof of clear and convincing evidence.

2. LLR's Need to Prove Fraud

Section 40-29-150(10) allows the imposition of sanctions for "employment of fraudulent devices, methods, or practices in connection with compliance with the requirements of [Chapter 29, Uniform Standards Code for Manufactured Housing Act]." In a similar fashion, § 49-29-150(11) allows sanctions for "having used unfair methods of competition or unfair deceptive acts or practices."

The phrases "fraudulent devices, methods, or practices" and "unfair deceptive acts or practices" are not unique. Indeed, virtually identical language can be found in other parts of the South Carolina Code of Laws. For example, § 56-15-350 dealing with licenses for motor vehicle dealers imposes sanctions if a dealer has "[e]mployed fraudulent devices, methods, or practices." Further, § 39-5-20 of the South Carolina Unfair Trade Practices Act (UTPA) declares as illegal "unfair or deceptive acts or practices in the conduct of any trade or commerce." In fact, in both the motor vehicle law and in UTPA, the General Assembly instructed courts to construe the statutes "guided by" the federal statute of the Federal Trade Commission Act at 15 U.S.C. § 45. Thus, the two phrases are creatures of statutory origin, not intended as restatements of the common law doctrine of fraud or deceit. That precise view has been succinctly expressed as follows:

The first issue on appeal is whether the plaintiff must prove the elements of common law deceit in order to establish a violation of the Act. We hold that the common law elements of deceit need not be proved. The Act provides that:

Unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful.

§ 39-5-20(a), Code of Laws of South Carolina, 1976.

* * *

We hold that the Act creates new substantive rights by making unlawful conduct which was not actionable under the common law. Accordingly, proof of common law fraud is not required to establish a violation of the Act."

State ex rel. McLeod v. C & L Corp., Inc., 280 S.C. 519, 313 S.E.2d 334 S.C.App. Feb 24, 1984, abrogated on other grounds by Murphy v. Owens-Corning Fiberglas Corp., 346 S.C. 37, 550 S.E.2d 589 (Ct. App. 2001) rehearing denied (Aug 24, 2001), certiorari granted (Jan 24, 2002). See also Inman v. Ken Hyatt Chrysler Plymouth, Inc., 294 S.C. 240, 363 S.E.2d 691 (1988) ("Proof of common law fraud is not required to establish a UTPA violation. State ex rel. McLeod v. C & L Corp., 280 S.C. 519, 313 S.E.2d 334 (1984). There is no need to show that a representation was intended to deceive but only that it had the capacity to do so. Id.").

Indeed, the norm is that the use of such phrases as "fraudulent devices, methods, or practices" and "unfair deceptive acts or practices" signal the lack of a need to establish the common law factors of fraud. Rather, those phrases look to proof that an act was false or that the act has the tendency to mislead the ignorant, unthinking, and credulous:

The term "fraudulent or deceptive practices" when used in the context of restricting commercial activity is intended to be construed to afford consumers expanded protection from deceptive and misleading fraud, and the application is ordinarily not limited to instances of intentional fraud in the traditional sense. The term "false, misleading, or deceptive act or practice" means any conduct which is either false or which has the capacity or tendency to mislead or deceive the ignorant, unthinking, and credulous.

21 C.J.S. Credit Reporting Agencies § 33

Accordingly, the Board did not have before it an "allegation of fraud" and did not have a duty to employ a standard of proof of clear and convincing. Thus, the Board was correct in relying upon a standard of proof of the preponderance of evidence.

C. Substantial Evidence

Since the proper standard of proof is the preponderance of evidence standard, the issue becomes deciding if the Board had evidence before it sufficient to support its decision finding violations of §§ 40-29-150(10) and 40-29-150(11).

1. Applicable Law

An ALJ "will not substitute [the ALJ's] judgment for that of the [Board] as to the weight of the evidence on questions of fact." S.C. Code Ann. § 1-23-380(A)(6) (Supp. 2001). Thus, once a factual determination is made by the Board, the ALJ cannot re-weigh the evidence in an attempt to come to an independent conclusion on the factual dispute. Rather, the ALJ will rely upon the Board's factual determinations unless those determinations are "clearly erroneous in view of the reliable, probative, and substantial evidence on the whole record." S.C. Code Ann. § 1-23- 380(A)(6)(e) (Supp. 2001). Thus, the analysis is one of identifying the factual determinations made and then deciding if the determinations on the record as a whole can be viewed as supported by substantial evidence.

In determining if substantial evidence supports the Board's factual determinations, the ALJ does not look for "a mere scintilla of evidence nor evidence viewed blindly from one side, but [rather looks for] evidence which, when considering the record as a whole, would allow reasonable minds to reach the conclusion that the agency reached." Palmetto Alliance, Inc. v. South Carolina Pub. Serv. Comm'n, 282 S.C. 430, 432, 319 S.E.2d 695, 696 (1984). Accordingly, if such evidence is present, the factual determinations will not be overturned.

2. Facts Found by the Board

In each of the three orders on appeal, the Board found that actions of the Appellants deceived Conseco into making a loan that Conseco would not have otherwise made. For example, as to Mishoe:

The Board finds further that by intentionally misrepresenting the value of the trade-in and misleading the lender for the sole purpose of securing a loan for Mr. Boyleston, the Respondent has violated the Board's Practice Act.

The same is true as to Graham:

Based upon the evidence presented, the Board finds that the Respondent intentionally misrepresented the trade-in value of the 1972 Saratoga to satisfy the lender's requirement for a down payment. If the Respondent had not been able to show that Mr. Boyleston had a trade-in with sufficient value to satisfy the lender's down payment requirement, it is unlikely the Respondent would have made the sale.

Finally, as to Homes itself:

[T]he only reason for reflecting the trade-in allowance of $8,000.00 on the financing documents was to satisfy Conseco's down payment requirement. Without the trade-in or a cash down payment from Mr. Boyleston, it is very unlikely that the Respondent would have made the sale.

Under the record of this case, no substantial evidence supports the Board's finding of Appellants' "misleading the lender for the sole purpose of securing a loan for Mr. Boyleston" or that "Respondent intentionally misrepresented the trade-in value of the 1972 Saratoga to satisfy the lender's requirement for a down payment," or that "the only reason for reflecting the trade-in allowance of $8,000.00 on the financing documents was to satisfy Conseco's down payment requirement." In short, the Board's finding that the Appellants made a misrepresentation and the Board's finding that the misrepresentation was made to meet Conseco's down payment requirements are "clearly erroneous in view of the reliable, probative, and substantial evidence on the whole record."

a. Lack of Substantial Evidence of Misrepresentation

No substantial evidence shows that a misrepresentation was made to Conseco on the value of the 1972 Saratoga. The testimony from the LLR investigator establishes that he relied upon a number of documents in his investigation. Those documents were before the Board as Complaint's numbers 1 through 8 with Complaint's number 4 being the Bill of Sale of the 1972 Saratoga to Bryan Boyleston. Further, the investigator testified that all of the documents were obtained from Homes' file. After the investigator's testimony specifically addressed the documents identified as Complaint's numbers 1 through 4, the following testimony was given:

• What amount was paid for that according to the Bill of Sale?

• I also got a copy of the Bill of Sale where this home was sold by Shirley Singletary to Bryan S. Boyleston. It lists the price of the vehicle as zero, less trade-in zero, taxable total as zero.

• Okay, thank you very much. Does it appear that the documents were sent to Conseco? (Emphasis added)

• Yes, they were. (Emphasis added)

• Did you have occasion to look into the trade-in allowance further?

• Yes, I did. I subpoenaed the entire time (sic) from Conseco, and these same documents were in the file at Conseco. (Emphasis added). (ROA p. 32 ln. 15 to p. 33 ln. 3)

Thus, the evidence before the Board establishes that Conseco had the Bill of Sale for the 1972 Saratoga in its file and that the Bill of Sale showed the 1972 Saratoga was sold to Bryan S. Boyleston for a zero sales price. With such information, Conseco knew the 1972 Saratoga had a sales price on June 1, 2000 of zero. Therefore, no meaningful basis existed upon which the Board could conclude that Conseco was deceived as to the value of the 1972 Saratoga since one cannot be deceived by what one already knows.. Accordingly, the Board's findings are clearly erroneous since reasonable minds would not have been able to find that Conseco was deceived since Conseco knew the "value" of the Saratoga.

In addition, the evidence before the Board establishes that the Appellants listed the 1972 Saratoga as granting Boyleston an "allowance" of $8,000 but did not list the trade-in as having a value of $8,000. Commonly understood business practices teach that the allowance given on a trade-in may have as much to do with the selling price of the item being purchased as with the real value of the trade-in. Clearly, Conseco, a sophisticated corporate lender, would have been aware of such practices and thus would not be deceived by a listing showing an "allowance" of $8,000. Thus, again, reasonable minds would not have been able to find Conseco was deceived.

b. Lack of Substantial Evidence of Down Payment Requirements

Second, not only does the record lack substantial evidence of deceit, but also the evidence fails to show that Conseco made a loan which it otherwise would not have made. For the Board to make a finding that the alleged deception was made "to satisfy the lender's requirement for a down payment," the Board must have had evidence of Conseco's requirements for down payments.

Here, no evidence establishes the down payment requirements of Conseco since no employee of Conseco testified at the hearing. As a result, the Board had no direct knowledge of what Conseco's lending requirements were and had no direct knowledge of the required down payment for the specific circumstances of a customer with Boyleston's credit status. Rather, the only evidence touching on a down payment requirement is a letter from Conseco to Homes stating the following:

This notice is to inform you that, based on the information available to us, the above request appears to be consistent with our current Conseco Finance credit underwriting guidelines for the product, and is, on that basis, approved for purchase. Final figures must meet standard advance guidelines. Credit Condition: Primary Residence Only. Must Verify Income. If Trade-In applies, Must verify trade-in value.

The letter does not establish Conseco's down payment requirement. Indeed, the letter is silent on one's obligation to make a down payment. Instead of setting down payment demands, the letter warns the potential borrower that the loan still needs final approval. Final approval awaits "final figures" and those figures must meet "standard advance guidelines." Clearly, those guidelines are within Conseco's control and those guidelines were not presented to the Board as evidence. Hence, the Board had no evidence of down payment requirements.

Finally, since Conseco issued the loan and since Conseco knew the value of the 1972 Saratoga, reasonable minds would find that Conseco determined under the "standard advance guidelines" that the "final figures" warranted making the loan. The fact that the "Credit Condition" states "if trade-in applies, must verify trade-in value" simply means that Conseco must become aware of the trade-in value. Under the record in this case, Conseco was in fact aware of the trade-in value due to the Bill of Sale in its file. Therefore, Conseco's issuance of the loan while knowing the trade-in had a value of zero gives no information on what Conseco required as a down payment. Indeed, if any information can be inferred it is that Conseco had no down payment requirement. Thus, the Board's finding that the misrepresentation was made to meet Conseco's down payment requirements are "clearly erroneous in view of the reliable, probative, and substantial evidence on the whole record."

Accordingly, when considered as a whole, the Board's findings are "clearly erroneous in view of the reliable, probative, and substantial evidence on the whole record" since reasonable minds could not have come to the conclusions reached by the Board. Thus, under the record presented here, substantial evidence does not exist to support the Board's findings that Appellants violated S.C. Code Ann.§ §40-29-50(10) and (11) (Supp. 2001). Thus, each of the three Board' Orders on Remand of January 25, 2002 are REVERSED. ⁽²⁾

AND IT IS SO ORDERED

______________________

RAY N. STEVENS

Administrative Law Judge

Dated: September 27, 2002

Columbia, South Carolina

1. While not a necessary factor in deciding this matter, for completeness, one should note that the procedural posture of this case is that the current appeal is the second appeal of this matter to the ALJD. Initially, Judge Scott heard the appeals and found the Board's orders inadequate for a proper appellate review, and, as a result, he remanded the matter to the Board. Without taking additional evidence, the Board issued new decisions and those decisions were again appealed to the ALJD. Thus, the matter after remand is now before the ALJD. Further, since the issues and facts all arise from a common set of events, the three cases were consolidated for appeal.

2. The case before the Board (and thus the case before me on appeal) sought only to prove that deceitful practices were directed toward Conseco, the lender. Based on the record on appeal, that case was simply not proven. Whether deceitful practices were carried out so as to victimize any other person was not argued before the Board and thus is not before me on appeal. Therefore, no other decision is made in this appeal except that LLR failed to prove that Conseco was the victim of "fraudulent devices, methods, or practices" or "unfair deceptive acts or practices."