California Real Estate Loans, Inc. v. Wallace

• Decision Date: 29 September 1993
• Docket Number: No. A059552,A059552
• Citation: 23 Cal.Rptr.2d 462,18 Cal.App.4th 1575
• Court: California Court of Appeals Court of Appeals
• Parties: CALIFORNIA REAL ESTATE LOANS, INC., Plaintiff and Appellant, v. Clark WALLACE, as Real Estate Commissioner, etc., Defendant and Respondent.

Page 462

23 Cal.Rptr.2d 462

18 Cal.App.4th 1575

CALIFORNIA REAL ESTATE LOANS, INC., Plaintiff and Appellant, v. Clark WALLACE, as Real Estate Commissioner, etc., Defendant and Respondent.

No. A059552.

Court of Appeal, First District, Division 1, California.

Sept. 29, 1993.

Certified for Partial Publication ^*.

Rehearing Denied Oct. 29, 1993.

Review Denied Dec. 30, 1993.

James H. Seymour, Palo Alto, for plaintiff and appellant.

Daniel E. Lungren, Atty. Gen., Randall P. Borcherding, Deputy Atty. Gen., San Francisco, for defendant and respondent.

STRANKMAN, Presiding Judge.

California Real Estate Loans, Inc. (CREL), a California corporation, appeals from a judgment denying a petition for writ of mandate, in which it challenged the revocation of its real estate broker's license by the Real Estate Commissioner (the Commissioner). The revocation was based on a determination by the Commissioner that a civil judgment had been entered against CREL based on fraud, misrepresentation, or deceit within the meaning of Business and Professions Code section 10177.5. ¹

In that portion of this opinion certified for publication, we consider CREL's argument that the Commissioner's action violated section 10179, which in some circumstances requires "guilty knowledge" by a broker before the broker can be disciplined for the wrongful acts of its agents. We hold that section 10179 does not create an exception to the unconditional language of section 10177.5; therefore, a broker against whom a judgment has been obtained may be disciplined pursuant to section 10177.5 even if its liability in that action was vicarious. We also hold that the three-year statute of limitations for an accusation based on section 10177.5 begins to run on the date of final judgment against the licensee.

I. Factual and Procedural Background

In 1981 CREL was licensed as a corporate real estate broker and acted primarily as a residential real estate loan broker. Glen E. Russell was an officer and shareholder of CREL, as well as its employee; he was a licensed real estate salesperson. Russell was contacted by Judith Smith, a real estate salesperson employed by First Marin Realty, Inc. (First Marin), to arrange a second mortgage for the purchase of a home by her client, Steven Reiner. Despite Russell's assurances to Reiner that the loan would be approved and funded by the close of escrow, it was not. Eventually, when the loan was approved, the interest rate was higher than that quoted by Russell.

Reiner sued Russell, CREL, Smith, and First Marin for fraud and breach of contract. After a court trial, judgment was entered in favor of Reiner and against all four defendants; plaintiff was awarded general damages, punitive damages, the refund of the real estate loan commission paid CREL and Russell, and attorney fees. Division Three of this court vacated the fee award and remanded for an apportionment of the punitive damages, but otherwise affirmed the judgment. The remittitur was issued May 24, 1988.

The Department of Real Estate filed an accusation against Russell, CREL, Smith, and First Marin on December 12, 1989, alleging that cause for license suspension or revocation existed pursuant to section 10177.5. Smith and Russell stipulated to discipline without a hearing. An administrative hearing was held on the accusation against CREL and First Marin. The administrative law judge issued a proposed decision finding that the judgment against CREL clearly was based on fraud, misrepresentation, or deceit under section 10177.5; it revoked CREL's license with the right to apply for a restricted license pursuant to section 10156.5. The accusation against First Marin was dismissed.

The proposed decision was adopted as the decision of the Commissioner, except for one condition against CREL. The Commissioner granted CREL's request for reconsideration. Upon reconsideration, however, the Commissioner ordered that no good cause had been shown to modify or reduce the disciplinary action.

CREL petitioned for a writ of mandate directing the Commissioner to vacate his decision and dismiss the accusation. After examining the administrative record and considering the arguments and authorities submitted by counsel for the parties, the court denied the petition, and judgment was entered against CREL. This appeal followed.

II. Standard of Review

A trial court reviewing the administrative decision of the Commissioner to revoke the license of a real estate broker or salesperson must exercise its independent judgment on the evidence underlying that decision and determine whether the Commissioner's findings are supported by the weight of the evidence. (Vaill v. Edmonds (1991) 4 Cal.App.4th 247, 257-258, 6 Cal.Rptr.2d 1; Madrid v. Department of Real Estate (1984) 152 Cal.App.3d 454, 458, 199 Cal.Rptr. 520; see Strumsky v. San Diego County Employees Retirement Assn. (1974) 11 Cal.3d 28, 44-45, 112 Cal.Rptr. 805, 520 P.2d 29; Bixby v. Pierno (1971) 4 Cal.3d 130, 144-147, 93 Cal.Rptr. 234, 481 P.2d 242.) The reviewing court then must determine whether the trial court's factual findings concerning the truth of the accusations or alleged violations are supported by substantial evidence. (Vaill v. Edmonds, supra, at p. 258, 6 Cal.Rptr.2d 1; Realty Projects, Inc. v. Smith (1973) 32 Cal.App.3d 204, 213, fn. 13, 108 Cal.Rptr. 71.)

A different rule applies when the issue is the nature of the penalty imposed. A court will not disturb the decision of the Commissioner on the penalty unless the licensee demonstrates an abuse of discretion. Neither a trial court nor an appellate court is free to substitute its discretion for that of an administrative agency concerning the degree of punishment imposed. (Barber v. State Personnel Bd. (1976) 18 Cal.3d 395, 404, 134 Cal.Rptr. 206, 556 P.2d 306; Schmitt v. City of Rialto (1985) 164 Cal.App.3d 494, 500-501, 210 Cal.Rptr. 788.)

III. "Guilty Knowledge" Requirement of Section 10179

There are numerous statutory grounds upon which the Commissioner is permitted to discipline a licensee. (See §§ 10176, 10176.5, 10177, 10177.1, 10177.2, 10177.4, 10177.5, 10178; 2 Miller & Starr, Cal. Real Estate (2d ed.1989) § 4:46, pp. 312-323.) The accusation against CREL was based on section 10177.5, which states: "When a final judgment is obtained in a civil action against any real estate licensee upon grounds of fraud, misrepresentation, or deceit with reference to any transaction for which a license is required ..., the commissioner may ... suspend or revoke the license of such real estate licensee."

The Commissioner concluded that the underlying judgment against CREL clearly satisfied the requirements of section 10177.5. Although the judgment itself did not mention fraud, misrepresentation, or deceit, the trial court's statement of decision in that action and this court's unpublished opinion affirming the judgment confirm the Commissioner's conclusion. The trial court found that Russell and CREL, as licensed loan brokers and agents, had a fiduciary duty to the plaintiff which they breached in several ways; it then listed instances of Russell's misrepresentation of, or failure to disclose, material facts, in reckless disregard of plaintiff's rights. When this court affirmed, it held that the evidence of "multiple instances of malfeasance" by Russell supported the finding that Russell and CREL breached their fiduciary duty.

Such a breach of fiduciary duty constitutes constructive fraud (see Civ.Code, § 1573; Barrett v. Bank of America (1986) 183 Cal.App.3d 1362, 1369, 229 Cal.Rptr. 16), and CREL does not claim otherwise. Instead, CREL focuses on the apparent basis for its own liability under that judgment. Because both courts in that action described misconduct only by Russell, CREL reasons that its liability necessarily resulted from the doctrine of respondeat superior. It is settled that for purposes of liability to third parties for torts, a real estate salesperson is the agent of the broker who employs him or her. The broker is liable as a matter of law for all damages caused to third persons by the tortious acts of the salesperson committed within the course and scope of employment. (2 Miller & Starr, Cal. Real Estate, supra, § 3:11, p. 72 and cases there cited; see, e.g., Alhino v. Starr (1980) 112 Cal.App.3d 158, 173-174, 169 Cal.Rptr. 136; Gipson v. Davis Realty Co. (1963) 215 Cal.App.2d 190, 201-203, 30 Cal.Rptr. 253.) ²

CREL argues that a broker may not be disciplined under section 10177.5 when its liability in the underlying action was vicarious. CREL's argument is based on section 10179, which provides in pertinent part: "No violation of any of the provisions of this part ... by any real estate salesman or employee of any licensed real estate broker shall cause the revocation or suspension of the license of the employer of the salesman or employee unless it appears upon a hearing by the commissioner that the employer had guilty knowledge of such violation." CREL argues that since there was no evidence that it had "guilty knowledge" of Russell's misconduct, revocation of its license violated section 10179. ³ The Commissioner replies that CREL misconstrues the operation of sections 10177.5 and 10179.

Several principles are pertinent to our consideration of the relationship between sections 10177.5 and 10179. The fundamental goal of statutory construction is to ascertain the intent of the Legislature to effectuate the purpose of the law. To determine that intent, we must look first to the statutory language itself, giving the words their usual and ordinary meaning. (People v. Hull (1991) 1 Cal.4th 266, 271, 2 Cal.Rptr.2d 526, 820 P.2d 1036.) We are not authorized to insert qualifying provisions and exceptions which have not been included by the Legislature, and may not rewrite a statute to conform to an intention which does not appear in the statutory language. (Napa Valley Wine Train, Inc. v. Public Utilities Com. (1990) 50 Cal.3d 370, 381, 267...