ORDERS:
ORDER
I. Statement Of The Case
The Real Estate Commission issued a Notice of Charges seeking to discipline Carolyn S. Bair (Bair)
on February 15, 1996. The charges related to Bair's conduct in two separate contexts; the
management of a rental property owned by Dr. and Mrs. Duncan (Duncan) and the rental of this
same property to Mr. and Mrs. John R. Fenton (Fenton). The Notice of Charges alleged that Bair's
conduct in these two cases violated S.C. Code Ann. § 40-57-170(A)(4) and (11) (Supp. 1996) and
Regulation 105-21(B)(2) of the Rules and Regulations of the Commission. A hearing before the
Board of the Real Estate Commission (Board) on March 20, 1996 resulted in a written Order of
April 17, 1996 finding Bair in violation of S.C. Code Ann. § 40-57-170(A)(4) (Supp. 1996), but
failing to find Bair in violation of S.C. Code Ann. § 40-57-170(A)(11) (Supp. 1996) or Regulation
105-21(B)(2).
The Board concluded Bair violated S.C. Code Ann. § 40-57-170(A)(4) (Supp. 1996) by engaging
"in conduct in a real estate transaction which demonstrates bad faith, dishonesty, untrustworthiness,
or incompetency in a manner as to endanger the interests of the public." The Board imposed a
public reprimand and a $500 fine, and required Bair to refund any remaining rental deposit held in
the Fenton matter. Bair appealed the Board's Order to the Administrative Law Judge Division
(ALJD) pursuant to S.C. Code Ann. § 40-57-220 (Supp. 1996). A hearing was held before the
ALJD on December 19, 1996, pursuant to S.C. Code Ann. § 1-23-600(D) (Supp. 1996) and § 1-23-380(B) (Supp. 1996). On April 10, 1997, the ALJD issued an Order remanding the case for
rehearing before the Board due to insufficient findings of fact supporting the allegations. The Board
was directed "to make specific findings of fact sufficient to allow appellate review" with regard to
both the Duncan and Fenton matters.
The Board met on May 14, 1997 to review the testimony and exhibits from the original March 20,
1996 hearing in compliance with the Order of remand issued by the ALJD. On May 30, 1997, the
Board issued its Order containing expanded findings of fact, similar conclusions of law, and
imposing identical penalties as those found in the original Order of April 17, 1996. Bair appealed
the Board's decision, and the case was heard on appeal before the ALJD on December 8, 1997.
After a careful review of the Board's May 30, 1997 Order, and taking all other relevant matters
presented to this tribunal into consideration, the Board's decision is reversed.
II. Issue On Appeal
Does either an error of law or a lack of substantial evidence undermine the Board's decision finding
Bair in violation of S.C. Code Ann. § 40-57-170(A)(4) for conduct exhibiting "bad faith,
dishonesty, untrustworthiness, or incompetency in a manner as to endanger the interest of the
public?"
III. Law and Analysis
A. Scope of Review
An ALJ must examine the facts found in order to determine whether the Board had substantial
evidence upon which to base its findings of fact, and the ALJ must examine the law to determine
whether the Board applied the correct law. S.C. Code Ann. § 1-23-380(B) and § 1-23-380(A)(6)
(Supp. 1997). As to the fact finding review, the standard applied by the ALJ is to affirm fact
finding supported by substantial evidence. Lark v. Bi-Lo, Inc., 276 S.C. 130, 276 S.E.2d 304
(1981). However, after having gleaned the substantial evidence from the record, the agency's
findings of facts may be reversed or modified where those findings are clearly erroneous in view
of the reliable, probative and substantial evidence in the record. Burdge v. State Bd. of Medical
Examiners, 304 S.C. 42, 403 S.E.2d 114 (1991). As to the law applied, the standard used by the
ALJ is to reverse the agency decision only when the decision is based upon an error of law. Roper
Hosp. v. Clemons, ___ S.C. ___, 484 S.E.2d 598 (Ct. App. 1997).
In the appellate process, both the factual and legal review require sufficiently drawn findings. The
facts found must be sufficiently detailed to enable the appellate body to determine whether the
findings are supported by the evidence and whether the law has been properly applied to those
findings. Hill v. Jones, 255 S.C. 219, 178 S.E.2d 142 (1970). The appellate review is hampered
by implicit findings of fact since such facts are devoid of the detail required to determine if the
findings are supported by the evidence or to decide if the law has been properly applied to those
findings. Able Communications, Inc. v. South Carolina Public Service Comm'n, 290 S.C. 409,
351 S.E.2d 151 (1986). Further, any material fact in dispute cannot be decided by implicit fact
finding but, rather, must be addressed by specific, express findings of fact. Aristizabal v.
Woodside-Division of Dan River, 268 S.C. 366, 234 S.E.2d 21 (1977).
B. Application of Law To Facts
1. Duncan Matter
Bair wrote a check to State Farm for $445.55 representing an insurance premium for Teresa, who
is both Duncan's daughter and an employee of Bair. Teresa lived in the Duncan unit during the
time it was not rented and lived with Bair when the unit was rented. At the hearing, the testimony
from the Board's investigator was that Bair debited the Duncan account for $445.55 "without
authorization from the owners." Tr. p. 8 line 18. Clearly, the crux of the allegation and the dispute
the Board was required to address was whether Bair had permission to make the charge.
a. Evidence of No Permission
The sole witness for the Board was the investigator. The investigator presented no evidence of a
lack of authorization. Rather, the only testimony against Bair is the investigator's unsubstantiated
and uncoroborrated answer of yes to the question of "[a]nd it's the allegation of Mr. and Mrs.
Duncan that this is an improper charge." Tr. p. 11, lines 21 - 23. Agreeing with such a question
is a far cry from evidence demonstrating a lack of permission.
b. Evidence of Permission
On the other side of the issue, the evidence of permission is substantial. Certainly when the
evidence of permission is placed along side the evidence of no permission, the Board's findings are
clearly erroneous in view of the reliable, probative and substantial evidence in the record. In fact,
contrary to the failure of evidence on the lack of permission view, the testimony presents evidence
that Bair had permission to pay personal expenses of Teresa from the rental funds.
First, it is undisputed that the reason for the payment of the insurance premium was that "Teresa
had told [Bair] to make a check payable to State Farm which [Bair] did." Tr. p. 10, lines 21 -22.
Again, the investigator testified "Mrs. Bair told me that Teresa told her to pay this, which she did
not question, and she paid it." Tr. p. 11, lines 19 -20. In other words, Bair derived no personal
benefit from the payment but was merely paying a bill as directed by the daughter of the owner of
the rental unit.
Second, Bair's payment of a bill in accordance with Teresa's direction was not unfounded and,
under the evidence of this record, more likely, was expected. In the rental agreement, Duncan
contractually included Teresa as the party to exercise "Management" of the Duncan unit. See
Exhibit 3, Item 14. Under the hand written alteration to the portion of the contract identified as
"Management," Teresa assumed the duties of "maintenance, periodic replacement of air
conditioning filters, light bulb replacement, and numerous minor tasks and duties." Such a
responsibility allowed Teresa to notify Bair to make expenditures from the account. As a party to
the agreement, Bair would have known and recognized the authority granted to Teresa.
Accordingly, Bair's paying a bill at the request of Teresa would not be prohibited, and the mere fact
of a payment by Bair, without more, does not provide any, let alone substantial, evidence of bad
faith.(1)
Third, the record establishes that Teresa lived in the rental unit and "other bills, specifically light
bills, [were] paid for this unit out of the rental money of Dr. and Mrs. Duncan." Tr. p. 12, lines 20
through Tr. p. 13, lines 1 - 6. In other words, Bair commonly paid personal bills for Teresa with
those personal bills charged to the rental account. Again, the payment and charge are not prohibited
as long as Bair had permission. The mere fact of the continuing monthly practice of paying
personal expenses, all for the benefit of Teresa, is substantial evidence of permission.
Substantiation of the routine payment of personal expenses is shown in the Rental Management
Statement. From January 1, 1995 through August 1, 1995, the Rental Statement shows the unit was
rented only twice. Yet, during that seven month period, extensive electricity and telephone bills
were paid for Teresa's personal use. For example, despite rentals only during one week in April
and one week in July, telephone bills were paid for May and June and electricity bills were paid for
June. The evidence confirms that Teresa lived in the unit when not rented. Accordingly, the record
confirms other payments of bills by Bair for Teresa.
c. Board's Factual Finding Concerning Permission
Bair's argument is that she had permission to make the personal payments. Does substantial
evidence demonstrate Bair did not have permission? In the ALJ Order of April 10, 1997, the Board
was asked for specific findings of fact concerning this unresolved factual issue. Without such
specificity, the Board's decision rests on implicit findings of fact concerning Bair's lack of
permission to write the insurance check and Duncan's lack of knowledge concerning past non-rental
payments by Bair. The May 30, 1997 Order of the Board does not provide the requested specific
findings of fact, and thus once again relies on implicit factual determinations to support its
conclusion that Bair acted in bad faith.(2) As mentioned earlier, implicit fact finding is inappropriate
for a critically disputed fact. Aristizabal v. Woodside-Division of Dan River, 268 S.C. 366, 234
S.E.2d 21 (1977). Having failed a second time to supply a factual finding on whether Bair had
permission, the conclusion must be reached that the Board is unable to find specific facts supporting
a lack of permission. Accordingly, as to the Duncan matter, the substantial evidence of this record
does not establish that Bair engaged in conduct in a real estate transaction which demonstrates bad
faith, dishonesty, untrustworthiness, or incompetency.
2. Fenton Matter
The Board found that Bair and the Fentons entered into a rental contract for a unit in the St.
Andrews Commons for July 22, 1995 to July 29, 1995, at a rate of $850.00 plus tax. Bair received
a deposit on the unit of $308.00 from the Fentons as provided in the contract. The rental agreement
required the Fentons to cancel the reservation 30 days in advance or else forfeit their deposit. In
addition, the signed agreement contained the following provision:
3. Sometimes due to events uncontrollable by us, the location designated in your
reservation may be subject to change. We reserve the right to make this change. In
the rare event this should happen, EVERY EFFORT WILL BE MADE TO PROVIDE
THE GUEST(S) WITH COMPARABLE ACCOMMODATIONS. (Emphasis in
original).
On July 20, 1995, Bair received notice from the owners of the St. Andrews Commons unit that it
was no longer on the rental market effective immediately.(3) That same day, Bair notified the Fentons
by phone that the St. Andrews Commons unit was not available and offered an alternative unit in
Tanglewood. The Fentons agreed to the change. Upon their arrival in Hilton Head, the Fentons
were notified that, due to water damage, the Tanglewood unit was unrentable. An employee of Bair
then offered several alternative rental units. After inspection, the Fentons considered these units
unacceptable and rejected them. The Fentons subsequently contacted another realtor and were able
to find a suitable rental unit for their stay at Hilton Head.
While in Hilton Head, the Fentons requested the return of their $308.00 deposit from Bair. Bair
refused, citing the 30-day cancellation requirement. The Fentons, after returning to their home in
Kentucky, filed a complaint with the South Carolina Real Estate Commission on or about August
6, 1995. Upon receiving a copy of this complaint, Bair subsequently refunded $250.00 of the
$308.00 deposit by mail (retaining $50 as a cancellation fee and offering no explanation for the
remaining $8 withheld).
Based on Bair's initial refusal to refund the Fenton's deposit, and her continuing refusal to refund
the $58, the Board concluded Bair violated S.C. Code Ann. § 40-57-170(A)(4) by engaging "in
conduct in a real estate transaction which demonstrates bad faith, dishonesty, untrustworthiness, or
incompetency in a manner as to endanger the interest of the public."
a. Substantial Evidence
As stated in the ALJ Order of April 10, 1997, the issue in dispute is not Bair's retention of the
deposit, but rather whether the Fentons canceled their reservation. Since the facts as to cancellation
were in dispute, the Board had an obligation to issue findings of fact addressing the issue. There
was evidence in the record indicating Bair was in the process of locating additional alternative
rental units when the Fentons secured a unit with another realtor. The question the Board failed to
address in its initial order of March 20, 1996 was whether the Fenton's effectively canceled the
rental contract with Bair by securing a rental unit with another realtor (thus forfeiting their deposit
with Bair) or whether Bair breached the rental agreement by failing to offer comparable alternatives.
The ALJ Order of April 10, 1997 requested specific findings of fact addressing the question of
cancellation on remand.
The Board's May 30, 1997 Order addresses the issue of cancellation by stating that the Fenton's
"did not have the privilege of invoking the cancellation clause as they were only notified by
Respondent [Bair] of the unavailability of the unit two days prior to their expected arrival in Hilton
Head." The Board fails, however, to state whether the Fenton's actions in seeking an alternative
realtor and securing alternative accommodations constituted cancellation of the rental agreement
with Bair. For example, were the Fentons justified in their actions due to Bair's failure to offer
"comparable accommodations" when the St. Andrews Commons and Tanglewood units became
unavailable. In addition, was the unavailability of these two units caused by an "uncontrollable
event" as required by the rental agreement?(4)
The omission of findings of fact addressing these questions forces one to deduce implicit findings
of fact in order to reach the Board's conclusion that Bair acted in bad faith. Where critical facts are
unanswered but are only implied, the appellate body must improperly speculate on whether the
evidence sufficiently supports the implicit findings of fact. Aristizabal v. Woodside-Division of
Dan River, 268 S.C. 366, 234 S.E.2d 21 (1977). Again, having failed a second time to supply a
factual finding as directed, the conclusion must be reached that Bair did not breach the contract but
was in fact acting in good faith in trying to obtain proper accommodations for the Fentons.
Accordingly, as to the Fenton matter, under the substantial evidence of this record, Bair has not
engaged in conduct in a real estate transaction which demonstrates bad faith, dishonesty,
untrustworthiness, or incompetency.
b. Error of Law
Further, and in any event, the Fenton matter is essentially a contractual dispute on whether the
deposit must be forfeited. As shown by the record, Bair's view is not without support and at a
minimum is one reached through a reasoned analysis of the events surrounding the rental. Bad faith
must at least demonstrate some intent to do wrong. Borbely v Nationwide Mut. Ins. Co. 547 F.
Supp. 959 ( Dist. Ct. NJ 1981). As a matter of law, a party's position that is reached after employing
a reasoned analysis devoid of an intent to do wrong to another cannot be deemed an act of bad faith.
See Gardner v Aetna Casualty & Surety Co. 841 F2d 82 (4th Cir. 1988) (no bad-faith cause of
action was shown where harm resulted to a physician after his insurance carrier settled a malpractice
claim within policy limits, even without the doctor's consent, where the record demonstrated the
decision of the insurance company was a product of reasoned good faith). Accordingly, the
Board's conclusion that the Fenton matter demonstrates Bair's bad faith is a conclusion premised
on an error of law since bad faith is not shown where a party reasonably relies upon a negotiated
arms-length contract containing a forfeiture provision. Such an error of law is a valid ground by
itself to reverse the Board's decision. Roper Hosp. v. Clemons, ___ S.C. ___, 484 S.E.2d 598 (Ct.
App. 1997).
IV. Conclusion
In both the Duncan and Fenton matters, the Board's findings of fact are not supported by substantial
evidence. In addition, the ALJ, acting in its appellate function, is asked to rely upon implicit
findings of fact to find Bair acted in bad faith in violation of S.C. Code Ann. § 40-57-170(A)(4).
Such implicit findings are not sufficiently detailed to enable the appellate body to determine
whether the findings are supported by the evidence or whether the law has been properly applied.
In the ALJ Order of April 10, 1997, the Board's lack of substantial evidence was detailed and
specific findings of fact were requested in support of the Board's decision. In light of the lack of
substantial evidence in the record, in light of the Board's inability to meet the requirements of the
previous ALJ order, and in light of the error of law in applying the legal requirements of bad faith
in the Fenton matter, the Board's May 30, 1997 Order is reversed.
AND IT IS SO ORDERED.
RAY N. STEVENS
Administrative Law Judge
March 4th, 1998
Columbia, South Carolina
1. Bad faith at least requires a state of mind in which one operates with some motive or
intent to do wrong. Borbely v Nationwide Mut. Ins. Co. 547 F. Supp. 959 ( Dist. Ct. NJ 1981).
Likewise, the "[t]erm 'bad faith' is not simply bad judgment or negligence, but rather it implies
the conscious doing of a wrong because of dishonest purpose or moral obliquity; it is different
from the negative idea of negligence in that it contemplates a state of mind affirmatively
operating with furtive design or ill will."See Black's Law Dictionary 139 (6th ed. 1990).
2. The "new" findings of fact in the Board's May 30th Order relate to Bair's failure to
adequately record the insurance check on Duncan's account. While this speaks to Bair's
negligence in keeping proper records, it does not in itself rise to the level of "bad faith" conduct.
See Black's Law Dictionary 139 (6th ed. 1990).
3. Coincidentally, this unit is the one described in the Duncan Matter. As mentioned
earlier, Bair received a letter from Duncan on July 20, 1995 terminating the rental management
agreement for the St. Andrews Commons unit. The record in the Duncan matter does not
indicate Bair had any prior knowledge or notice that Duncan was contemplating termination of
the management agreement.
4. Both of these questions were posed in the original Order of April 10, 1997. |
