Arneson v. Fox

Decision Date13 February 1980
CourtCalifornia Court of Appeals Court of Appeals
PartiesRichard Wendell ARNESON, Jr., Plaintiff and Appellant, v. REAL ESTATE COMMISSIONER, Respondent. Civ. 18556.

Seltzer, Caplan, Wilkins & McMahon and Jeffrey L. Mason, San Diego, for plaintiff and appellant.

George Deukmejian, Atty. Gen., Edmond B. Mamer, Deputy Atty. Gen., Arthur C. DeGoede, Asst. Atty. Gen. and Phillip D. Brady, Deputy Atty. Gen., for respondent.

WIENER, Associate Justice.

Richard Wendell Arneson, Jr. (Arneson) appeals from a judgment denying his petition for a peremptory writ of mandate to compel the Commissioner of Real Estate (Commissioner) to set aside his decision revoking Arneson's real estate broker's license. The Commissioner acted pursuant to Business and Professions Code sections 10177, subdivision (b), and 490, 1 which authorize discipline where a licensee has been convicted 2 following a plea of nolo contendere to a felony or a crime involving moral turpitude and the crime is substantially related to the qualifications, functions or duties of the profession for which the license was issued. Arneson had been convicted of conspiracy (18 U.S.C. § 371) in the federal court following his plea of nolo contendere (18 U.S.C., Federal Rules of Crim. Procedure, rule 11 subd. (a)).

Arneson attacks the constitutionality of the statute contending that application of section 10177, subdivision (b), to a case involving a federal nolo plea violates the supremacy clause (U. S. Const., art. VI) and the use of a conviction based upon a nolo plea standing alone to justify revocation of a license denies the licensee due process of law. We hold the statute is constitutional. We also decide section 10177, subdivision (b), as it relates to nolo pleas, creates a rebuttable presumption permitting the nolo plea and the conviction based thereon to be used as prima facie evidence that the licensee committed the acts described in the information or indictment (Evid.Code, § 602), placing on the licensee the burden of proof to establish by a preponderance of the evidence the non-existence of the presumed facts. 3 (Evid.Code, §§ 605, 606.) In the present case, however, because of the hearing officer's failure to exercise his discretion in weighing the evidence relating to Arneson's explanation of his nolo plea and his sole reliance on the felony conviction to revoke Arneson's license we conclude Arneson was denied a fair trial. We reverse the judgment with instructions to the court to remand the case for further administrative hearing.

Factual and Procedural Background

On December 6, 1976, the Commissioner filed an Accusation charging Arneson with having violated section 10177, subdivision (b), arising from Arneson's conviction of conspiracy on his plea of nolo contendere. After administrative proceedings the Commissioner issued his decision revoking Arneson's real estate broker's license but allowing him a restricted license ( § 10156.5). In addition to the findings, including the fact of the nolo plea and a conviction of a felony involving moral turpitude, the decision provided that "(t)he conviction . . . stemmed from the filing of fraudulent reports of earnings with the United States Securities and Exchange Commission by U.S. Financial, a corporation engaged in real estate development, construction and financing. Respondent (Arneson) was not an officer or director of U.S. Financial and he did not play a major role in the business affairs of the corporation. He was, however, a willing instrument of the officers of the corporation who made its policies and directed its affairs."

The events leading up to the December 30, 1974 indictment of Arneson and others involve the wheeling and dealing of U.S. Financial during its highflying years of 1969 through 1973 when it was a listed public company primarily engaged in the real estate business. The machinations of its operations necessary to perpetuate the continuing and blatant fraud on the public are revealed in the 138-page, 66-count indictment in which certain of the officers of U.S. Financial were named as principals and other persons, including Arneson, were named as co-conspirators. The allegations of the indictment spell out the techniques that were used through several wholly-owned subsidiaries to falsely state the income of U.S. Financial, thereby increasing the value of its traded stock. The basic scam used for the fraudulent production of earnings was to create the illusion that U.S. Financial had actually sold large parcels of developed or partially developed real estate at a profit when in fact the sales had not occurred. Strawmen or shell corporations created and financed by U.S. Financial were used as purchasers to legitimize what were truly paper transactions.

Arneson, who was not an employee of U.S. Financial or any of its subsidiaries was a real estate broker involved in the sales of properties which were improperly used to book profits.

Section 10177, Subdivision (b), Does Not Violate the Supremacy Clause of the U.S. Constitution

Where state legislation frustrates the full effectiveness of federal law, the state legislation is invalid under the supremacy clause of the United States Constitution. (Grimes v. Hoschler (1974) 12 Cal.3d 305, 311, 115 Cal.Rptr. 625, 525 P.2d 65.) Arneson asserts the use, under section 10177, subdivision (b), of a federal nolo plea and conviction thereon, violates this principle for it deters the entering of nolo pleas, thereby interfering with one of the means by which the federal government disposes of criminal cases. Presumably, faced with the additional threat of state administrative discipline, defendants in federal criminal cases will be less inclined to plead nolo.

The federal policy ostensibly furnishing incentive for the nolo plea to which Arneson refers is set out in rule 11(e)(6) of the Federal Rules of Criminal Procedure which provides in part:

"Except as otherwise provided in this paragraph, evidence of . . . a plea of nolo contendere . . . is not admissible in any civil or criminal proceeding against the person who made the plea . . .."

and rule 410 of the Federal Rules of Evidence (28 U.S.C.), which states:

"Except as otherwise provided in this rule, evidence of . . . a plea of nolo contendere . . . is not admissible in any civil or criminal proceeding against the person who made the plea . . .."

Implicit in this argument is the assumption that within the federal system itself not only the nolo plea but the conviction based upon the plea will not be used as the basis for additional penalties in a subsequent proceeding. This premise is unsupported for in several areas within the federal system the contrary occurs. A conviction based upon a nolo plea may be used to justify deportation (Tseung Chu v. Cornell (9th Cir. 1957) 247 F.2d 929; see also Ruis-Rubio v. Immigration & Naturalization Service (9th Cir. 1967) 380 F.2d 29), to satisfy a "conviction per se" statute (United States v. One Lot of Eighteen Firearms (D.C.1971) 325 F.Supp. 1326 (ex-felon in possession of a gun in violation of 18 U.S.C., § 921)) or to revoke, under 21 U.S.C., § 824, a federal license necessary to manufacture or distribute a controlled substance where the registrant (licensee) had been convicted of a felony. (Sokoloff v. Saxbe (2d Cir. 1974) 501 F.2d 571; Noell v. Bensinger (5th Cir. 1978) 586 F.2d 554.)

Where the conviction based upon the nolo plea is used in another proceeding, in apparent compliance with rule 11(e)(6), Federal Rules of Criminal Procedure, the federal courts reflect a policy which recognizes the reality that a nolo plea may not truly be insulated from subsequent events. Although there may indeed be a federal policy which will not permit the subsequent use of the Plea, there is no such policy which prevents the use of the Conviction based on the plea. 4 Where the same result is permitted in the state system, the purpose and effectiveness of the federal law is not impeded. Section 10177, subdivision (b), does not violate the supremacy clause.

The Proper Use of a Conviction Following a Nolo Plea Under Section 10177, Subdivision (b), Does Not Violate a Real Estate Licensee's Right to Due Process of Law Under the State and Federal Constitutions

The right to practice a profession is a fundamental right protected by the due process clause of the State and Federal Constitutions. (5 Witkin, Summary of Cal. Law (8th ed. 1974) Constitutional Law, § 273, p. 3563; Brecheen v. Riley (1921) 187 Cal. 121, 124-125, 200 P. 1042.) A person may be barred from practicing a lawful profession only for reasons relating to his fitness or competence to practice that profession. (Newland v. Board of Governors (1977) 19 Cal.3d 705, 711, 139 Cal.Rptr. 620, 566 P.2d 254.) The power of a state to deny or revoke a vocational license cannot be applied arbitrarily. The exercise of the power must bear a direct and rational relationship to the individual's fitness to engage in the particular vocation involved. (See, e. g., Hallinan v. Committee of Bar Examiners (1966) 65 Cal.2d 447, 55 Cal.Rptr. 228, 421 P.2d 76; Morrison v. State Board of Education (1969) 1 Cal.3d 214, 82 Cal.Rptr. 175, 461 P.2d 375; and Perrine v. Municipal Court (1971) 5 Cal.3d 656, 97 Cal.Rptr. 320, 488 P.2d 648.)

Since 1943 when section 10177, subdivision (b), was first enacted and pursuant to all subsequent amendments, the real estate commissioner has had the power to commence disciplinary proceedings involving any real estate licensee who had been convicted of a felony. (Stats.1943, ch. 127, p. 842, § 1.) Evidence of a conviction based on a guilty plea is admissible to establish the fact that the licensee had committed the crime to which he had entered his plea pursuant to his implicit admission of every element contained in the offense charged. 5 (See Supp.Cal. Mandamus (March 1979) § 5.31, pp. 40-41.) It...

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