Gottschalk v. South Dakota State Real Estate Commission, 12065

• Decision Date: 12 April 1978
• Docket Number: No. 12065,12065
• Citation: 264 N.W.2d 905
• Parties: Oliver A. GOTTSCHALK, Appellant, v. SOUTH DAKOTA STATE REAL ESTATE COMMISSION, Respondent.
• Court: South Dakota Supreme Court

Page 905

264 N.W.2d 905

Oliver A. GOTTSCHALK, Appellant, v. SOUTH DAKOTA STATE REAL ESTATE COMMISSION, Respondent.

No. 12065.

Supreme Court of South Dakota.

April 12, 1978.

Lewayne M. Erickson, Brookings, for appellant.

William J. Srstka, Jr. of Duncan, Olinger & Srstka, Pierre, for respondent.

ZASTROW, Justice.

The appellant, Oliver Gottschalk (Gottschalk), a licensed real estate broker, was charged with unprofessional conduct, and a hearing on those allegations was held before the South Dakota Real Estate Commission (Commission) on September 4, 1975. The Commission entered its findings of fact and conclusions of law and decision and order on September 11, 1975, finding Gottschalk guilty of unprofessional conduct and revoking his South Dakota real estate license.

Gottschalk appealed the Commission's order to the circuit court under the Administrative Procedures Act, SDCL, Ch. 1-26. The circuit court upheld the Commission's decision. The appellant seeks review of the circuit court's decision. We affirm.

FACTS

A disciplinary action had been brought against Gottschalk following a complaint by H. O. Lund of Brookings. The hearing on that complaint, held on February 5 and April 29, 1971, involved the sale of Lund's home by Gottschalk on December 15, 1970. Lund had received a check from the Gottschalk trust account which was dishonored upon presentation to the bank. During the course of that hearing, evidence was produced which showed forty-nine overdrafts on Gottschalk's trust account between January 1, 1970 and December 30, 1970. Based upon the findings, Gottschalk's license was suspended for six months, beginning May 6, 1971.

The complaint which led to the present revocation involves the purchase of a home by Mrs. Thelma Nelson in 1969. After the death of her husband, Mrs. Nelson decided to move to Brookings. After Gottschalk had shown her several homes, she signed a purchase agreement on June 28, 1969. She made a down payment of $1,500, but advised Gottschalk that it was her desire to use the proceeds of her husband's life insurance to pay the full purchase price of the house and not to assume the mortgage. The transaction was closed on August 15, 1969, and Mrs. Nelson delivered a check for $17,042.57 to Gottschalk.

Several months later, she received a notice of delinquent mortgage payments from Prudential Insurance Company. When Mrs. Nelson discussed the matter with Gottschalk, he assured her that Prudential had made some mistake. Later, she received a similar notice and similar assurances from Gottschalk. In August of 1971, a representative of Prudential visited Mrs. Nelson and advised her she was five months behind in her house payments. Mrs. Nelson advised the representative that she had paid cash for the home. When the Prudential representative confronted Gottschalk he admitted that he had been in financial difficulties and had used the money to pay personal debts. Gottschalk explained that he had attempted to cover up the conversion by making monthly payments until his financial situation made it impossible.

A complaint was made to the Commission by the Prudential representative. The disciplinary proceedings were initiated in November 1971; however, due to the appellant's institution of various court challenges, ¹ the hearing was delayed until September 1975.

ISSUES

The appellant raises three issues in his appeal: (1) Is the pending action barred by the doctrine of res judicata; (2) Did the prior knowledge and pecuniary interest of the members of the Commission deny appellant due process of law; and (3) Did the combination of the functions of Commission members deny the appellant due process of law.

RES JUDICATA

The question of the applicability of the doctrine of res judicata in an administrative hearing is one of first impression in this state. Most modern authorities have applied the doctrine to contested administrative proceedings. Davis, Administrative Law (5th Ed., 1973, 1976 Supp.), Ch. 21. It appears that the rationale for the doctrine of res judicata is equally applicable to contested administrative hearings as it is to judicial proceedings. The United States Supreme Court has adopted a similar posture in United States v. Utah Constr. & Min. Co., 1966, 384 U.S. 394, 86 S.Ct. 1545, 16 L.Ed.2d 642, wherein it is stated:

"When an administrative agency is acting in a judicial capacity and resolves disputed issues of fact properly before it which the parties have had an adequate opportunity to litigate, the courts have not hesitated to apply res judicata to enforce repose. Sunshine Anthracite Coal Co. v. Adkins, 310 U.S. 381, 60 S.Ct. 907, 84 L.Ed. 1263; Hanover Bank v. United States, 285 F.2d 455, 152 Ct.Cl. 391; Fairmont Aluminum Co. v. Commissioner of Internal Revenue, 222 F.2d 622 (4 Cir.); Seatrain Lines, Inc. v. Pennsylvania R. Co., 207 F.2d 255 (3 Cir). See also Goldstein v. Doft, 236 F.Supp. 730 (D.C.), aff'd 353 F.2d 484 (2 Cir.), cert. den., 383 U.S. 960, 86 S.Ct. 1226, 16 L.Ed.2d 302, where collateral estoppel was applied to prevent relitigation of factual disputes resolved by an arbitrator.

"In the present case the Board was acting in a judicial capacity when it considered the * * * claims, the factual disputes resolved were clearly relevant to issues properly before it, and both parties had a full and fair opportunity to argue their version of the facts and an opportunity to seek court review of any adverse findings. There is, therefore, neither need nor justification, for a second evidentiary hearing on these matters already resolved as between these two parties."

See also 2 Am.Jur.2d, Administrative Law, § 496, et seq.

The doctrine of res judicata as applied to court judgments has been defined by this court.

"First, a final judgment or decree of a court of competent jurisdiction upon the merits is a bar to any future action between the same parties or their privies upon the same cause of action so long as it remains unreversed; and, second, a point which was actually and directly in issue in a former action and was there judicially passed upon and determined by a domestic court of competent jurisdiction cannot be drawn in question in any future action between the same parties or their privies whether the cause of action in the two actions be identical or different. * * * Under the first rule the res which is judicata is the cause of action. Under the second, the res which may be judicata is the particular issue or fact common to both actions." Keith v. Willers Truck Service, 1936, 64 S.D. 274 at 276, 266 N.W. 256 at 257-258.

This court further explained the two principles of res judicata in Golden v. Oahe Enterprises, Inc., 1976, S.D., 240 N.W.2d 102:

"For purposes of res judicata, a cause of action is comprised of the facts which establish the right a party seeks to enforce through litigation. * * * A test employed by the Eighth Circuit Court of Appeals for the determination of whether a cause of action is the same for purposes of applying the res judicata doctrine is ' "whether the wrong for which redress is sought is the same for both actions." ' * * * A judgment which bars a second action upon the same claim extends not only to every matter offered and received to sustain or defeat the claim or demand but also to all other admissible matters which might have been offered for the same purpose. * * * If, however, the second action is based upon a different claim or demand, the prior judgment precludes further consideration only of those issues which were actually litigated and determined. * * * "

The second principle of res judicata described in the Keith v. Willers Truck Service, supra, and Golden v. Oahe Enterprises, Inc., supra, cases, is quite often identified as "collateral estoppel." See 37 Words and Phrases, Res Judicata, 1978 Supp., pp. 121-122; 7A Words and Phrases, Collateral Estoppel, pp. 212-213.

The appellant desires to apply "res judicata" since that doctrine would bar any issue which could have been litigated to sustain the claim of misuse of funds. However, a review of the facts and proceedings in the hearings leads to the conclusion that this is an issue of "collateral estoppel," not "res judicata." See Davis, Administrative Law Treatise (1958 Ed.) § 1804.

The "claim" in the 1971 proceeding involved the "misuse of trust funds" in the Northwestern National Bank trust account. Based upon the evidence presented, the Commission found that Gottschalk had issued forty-nine trust account checks which resulted in overdrafts; that he had failed to maintain complete and adequate records which rendered it impossible to verify the source and use of trust account funds. The Commission also found that Gottschalk had failed to properly deposit and remit trust monies paid to him, and that he had withdrawn trust funds before the closing of a transaction, thereby using trust funds for uses other than the specific transaction which were their source. The Commission did not find any conversion of funds. This is supported by the testimony of the three clients of appellant called by the Commission. Each testified that trust account checks issued to them had been returned for insufficient funds, but in each instance, the check had been honored within a matter of hours or days.

The "claim" in the 1975 proceeding involved Gottschalk's admitted "conversion for personal use" of $17,000 paid by Mrs. Nelson in 1969. Those funds had been deposited in a second trust account maintained by Gottschalk at the First National Bank. This second trust account was unknown to the Commission until its existence was mentioned by Gottschalk's attorney as an explanation for the source of some deposits to the Northwestern trust account. A subsequent audit of the First National trust account for the year 1970 ² had shown only seven deposits and no overdrafts. Although it was also characterized by insufficient records, there was no evidence of irregularity in the use of that account...