Meligan v. Dept. of Revenue and Regulation, No. 23715.

CourtSupreme Court of South Dakota
Writing for the CourtSabers
Citation2006 SD 26,712 N.W.2d 12
PartiesRaymond E. MELIGAN, Plaintiff and Appellee, v. DEPARTMENT OF REVENUE AND REGULATION, Defendant and Appellant.
Decision Date15 March 2006
Docket NumberNo. 23715.

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712 N.W.2d 12
2006 SD 26
Raymond E. MELIGAN, Plaintiff and Appellee,
v.
DEPARTMENT OF REVENUE AND REGULATION, Defendant and Appellant.
No. 23715.
Supreme Court of South Dakota.
Argued January 10, 2006.
Decided March 15, 2006.

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COPYRIGHT MATERIAL OMITTED

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John L. Brown of Riter, Rogers, Wattier & Brown, Pierre, South Dakota, Attorneys for plaintiff and appellee.

Lawrence E. Long, Attorney General, Diane Best, Grant Gormley, Assistant Attorneys General, Pierre, South Dakota, Attorneys for defendant and appellant.

SABERS, Justice.


[¶ 1.] The Department of Revenue and Regulation (Department) found that appraiser Raymond Meligan (Meligan) made eleven different errors and omissions in an appraisal which constituted violations of the Uniform Standards of Professional Appraisal Practice (USPAP). Meligan appealed to the circuit court. On review, the circuit court held that the Department's findings were either clearly erroneous or irrelevant and did not justify sanctions. Department appeals. We affirm in part and reverse in part and remand to allow the Department to determine appropriate sanctions for only those violations that have support in the record.

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Facts

[¶ 2.] Meligan is a state certified general appraiser who has been in the private appraisal business for almost twenty years. In March 2002, Meligan was retained by America's Moneyline, Inc. to appraise property located at 3005 Karen Court, Pierre, Hughes County, South Dakota.

[¶ 3.] Bob Tinker (Tinker) owned the property and sought to refinance through America's Moneyline.1 The building on the Tinker property is a 1930's barn that had been moved from Sully County, South Dakota. Tinker obtained building and special use permits to remodel the barn and convert it into a year-round bed and breakfast. The barn was remodeled to include five bedrooms and five bathrooms. It has three floors, but the third floor was not finished. Tinker advertised the property as "Horse Feathers Bed and Breakfast."2 He sought the refinancing in order to construct a six-car garage.

[¶ 4.] On March 29, 2002, Meligan appraised the Tinker property. Initially, Meligan did an appraisal that included the value of the six-car garage as finished. However, America's Moneyline informed Meligan that it could not make a loan on an "as will be" basis. Meligan later removed the value of the garage from the appraisal.

[¶ 5.] America's Moneyline hired Kay Swanhorst (Swanhorst), an appraiser from Aberdeen, to conduct a second appraisal of the Tinker property in an effort to determine the accuracy of Meligan's appraisal.3 However, Tinker decided not to proceed with the loan because he was unable to obtain the interest rate he desired. When Swanhorst arrived at the Tinker property, he informed her that an appraisal was unnecessary. Swanhorst conducted a field appraisal despite Tinker's comments, but never inspected the interior of the building.

[¶ 6.] Swanhorst concluded that Meligan's appraisal contained numerous errors. She filed a complaint against Meligan with the Appraiser Certification Program. The complaint alleged that Meligan's appraisal had been misleading, misrepresentative, and fraudulent.

[¶ 7.] The Department assigned the complaint to Ken Simpson (Simpson), who performed a desk review of the Meligan appraisal. Simpson found the appraisal to be incompetent and misleading. He claimed that Meligan violated the USPAP4 by:

(1) Failing to disclose in the appraisal that the Tinker property had been used as a bed and breakfast,

(2) Failing to disclose that the property was a 1930's barn moved to the site and extensively remodeled,

(3) Failing to disclose in the primary report that the Tinker barn is a three-story structure,

(4) Failing to include an intended user provision in the appraisal,

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(5) Failing to discuss that Comparable 3 was not a sale,

(6) Listing an inaccurate address for Comparable 3,

(7) Listing an inaccurate date of sale for Comparable 2,

(8) Failing to properly certify the appraisal,

(9) Failing to include a provision in the appraisal that identified the scope of the work,

(10) Failing to include highest and best use analysis, and

(11) Failing to include support for a land value opinion.

Although Simpson identified a total of eleven violations, his opinion was based primarily upon the alleged failure to discuss the potential use as a bed and breakfast and the failure to disclose that the Tinker property consisted of an old barn that had been remodeled. Neither Simpson nor the Department claimed that Meligan was inaccurate in terms of his ultimate valuation of the Tinker property.5 The Department sent Meligan notice of its intent to suspend his state certified general appraiser license for ninety days and impose a fine in the amount of five hundred dollars. Additionally, the Department required Meligan to successfully complete an approved appraisal course.

[¶ 8.] Meligan requested an administrative hearing after settlement negotiations with the Board were unsuccessful. At the hearing, Simpson testified as an expert witness on behalf of the Board. His testimony primarily concerned the eleven alleged violations he found in his initial examination of Meligan's appraisal.

[¶ 9.] Meligan testified that although he made some of the alleged errors and omissions, they were merely technical violations that had no effect on the ultimate valuation of the property. He further testified that the Tinker property had been used primarily as a residence and that its highest and best use was as a residence. According to Meligan, a bed and breakfast is a residence under state law and a license to operate a bed and breakfast is non-transferable. Therefore, Meligan believed it would have been misleading had he portrayed the Tinker property as having additional value beyond that of a residence.

[¶ 10.] Tinker also testified at the hearing. He testified that he lived in the building and had been living there for three to four years. One of Tinker's assistants had also been living in the building. Occasionally, Tinker would house hunters, or allow state officers to conduct meetings on the premises. However, the Tinker property is seldom used as a bed and breakfast during the "off season."

[¶ 11.] The administrative law judge (ALJ) found that Meligan's appraisal was fundamentally flawed for the reasons put forth by Simpson. Additionally, the ALJ made a finding that Simpson was credible and persuasive and that Meligan was not credible. Finally, the ALJ recommended that Meligan's appraiser license be suspended for ninety days, that he pay a fine of five hundred dollars, and that he successfully complete an approved appraisal course.6 The Board adopted the ALJ's decision in its entirety.

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[¶ 12.] Meligan appealed the Board's decision to the circuit court. The circuit court issued a memorandum decision and its own findings of fact and conclusions of law. It found that several of the ALJ's findings of fact were clearly erroneous. The court noted that although Meligan admitted to several violations of USPAP, those violations were minor and had no effect on Meligan's valuation. Moreover, the court found that the penalty the Board imposed was disproportionately severe in light of the fact that nobody had been harmed by the appraisal. Ultimately, the court held that the Department's suspension was an abuse of discretion.

Standard of Review

[¶ 13.] "When a circuit court has reviewed an administrative agency's decision, we review the agency's decision unaided by any presumption that the circuit court's decision was correct." Kassube v. Dakota Logging, 2005 SD 102, ¶ 25, 705 N.W.2d 461, 465. SDCL 1-26-36 requires that we give great weight to the agency's factual findings and inferences. In re Klein, 2003 SD 119, ¶ 6, 670 N.W.2d 367, 368. Consequently, we will not set those findings or inferences aside unless they are clearly erroneous. Id. "The test is whether after reviewing all the evidence we are left with a definite and firm conviction that a mistake has been made." Kurtz v. SCI, 1998 SD 37, ¶ 9, 576 N.W.2d 878. However, if an agency makes factual determinations on the basis of documentary evidence, those determinations are reviewed de novo. Haynes v. McKie Ford, 2004 SD 99, ¶ 14, 686 N.W.2d 657, 661 (citing Watertown Coop. Elevator Ass'n v. State Dept. of Revenue, 2001 SD 56, ¶ 10, 627 N.W.2d 167, 171).

[¶ 14.] "In matters concerning the revocation of a professional license, we determine that the appropriate standard of proof to be utilized by an agency is clear and convincing evidence." In re Setliff, 2002 SD 58, ¶ 13, 645 N.W.2d 601, 605. That standard "lies somewhere between the rule in ordinary civil cases and requirements of our criminal procedure, that is, it must be more than mere preponderance but not beyond a reasonable doubt." Id. (additional citations and internal quotations omitted).

Decision7

[¶ 15.] We consider each of the claimed errors in reviewing the Department's determination that Meligan's appraisal was incompetent.

1. Failure to disclose that the Tinker property had potential use as a bed and breakfast.

[¶ 16.] Section 306 of the Fannie Mae Appraisal Guidelines requires an appraiser to provide an adequate description of the mixed-use characteristics of a subject property in the appraisal report. Section 306 provides in part:

Although we will purchase or securitize mortgages that are secured by properties that have a business use in addition to their residential use—such as property with space set aside for a day care facility, a beauty or barber shop, a doctor's office, a small neighborhood grocery or specialty store, etc.—we have special eligibility criteria for them.

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Therefore, the appraiser must provide an adequate description of the mixed use characteristics of the subject property in the appraisal report[.]

The Fannie Mae guidelines are supplemental standards which must be met in order to...

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6 practice notes
  • Tucek v. Dept. of Social Services, No. 24444.
    • United States
    • Supreme Court of South Dakota
    • 17 Octubre 2007
    ...Huber v. Dep't of Public Safety, 2006 SD 96, ¶ 10, 724 N.W.2d 175, 178 (quoting Meligan v. Dep't of Revenue & Regulation, 2006 SD 26, ¶ 13, 712 N.W.2d 12, 17 (quoting Kassube v. Dakota Logging, 2005 SD 102, ¶ 25, 705 N.W.2d 461, 465)). "The Department's factual findings and credibi......
  • Huber v. Department of Public Safety, No. 24004.
    • United States
    • Supreme Court of South Dakota
    • 1 Noviembre 2006
    ...decision unaided by any presumption that the circuit court's decision was correct." Meligan v. Dept. of Revenue and Regulation, 2006 SD 26, ¶ 13, 712 N.W.2d 12, 17 (quoting Kassube, 2005 SD 102, ¶ 25, 705 N.W.2d at 465). "The Department's factual findings and credibility determina......
  • Peterson v. Evangelical Lutheran Good Samaritan Soc'y, No. 26214.
    • United States
    • Supreme Court of South Dakota
    • 27 Junio 2012
    ...v. S.D. State Banking Comm'n, 2008 S.D. 12, ¶ 10, 745 N.W.2d 674, 676;Meligan v. Dep't of Revenue and Regulation, 2006 S.D. 26, ¶ 13, 712 N.W.2d 12, 17;Thomas v. Custer State Hosp., 511 N.W.2d 576, 579 (S.D.1994). [¶ 14.] Thus, SDCL 1–26–37 does not necessarily preclude de novo review of ap......
  • First National Bank v. South Dakota State Banking Commission, No. 24911.
    • United States
    • Supreme Court of South Dakota
    • 15 Julio 2009
    ...the agency's decision unaided by any presumption that the circuit court's decision was correct.'" Meligan v. Dept. of Rev. and Reg., 2006 SD 26, ¶ 13, 712 N.W.2d 12, 17 (quoting Kassube v. Dakota Logging, 2005 SD 102, ¶ 25, 705 N.W.2d 461, 465). The Commission's findings of fact are re......
  • Request a trial to view additional results
6 cases
  • Tucek v. Dept. of Social Services, No. 24444.
    • United States
    • Supreme Court of South Dakota
    • 17 Octubre 2007
    ...Huber v. Dep't of Public Safety, 2006 SD 96, ¶ 10, 724 N.W.2d 175, 178 (quoting Meligan v. Dep't of Revenue & Regulation, 2006 SD 26, ¶ 13, 712 N.W.2d 12, 17 (quoting Kassube v. Dakota Logging, 2005 SD 102, ¶ 25, 705 N.W.2d 461, 465)). "The Department's factual findings and credibi......
  • Huber v. Department of Public Safety, No. 24004.
    • United States
    • Supreme Court of South Dakota
    • 1 Noviembre 2006
    ...decision unaided by any presumption that the circuit court's decision was correct." Meligan v. Dept. of Revenue and Regulation, 2006 SD 26, ¶ 13, 712 N.W.2d 12, 17 (quoting Kassube, 2005 SD 102, ¶ 25, 705 N.W.2d at 465). "The Department's factual findings and credibility determina......
  • Peterson v. Evangelical Lutheran Good Samaritan Soc'y, No. 26214.
    • United States
    • Supreme Court of South Dakota
    • 27 Junio 2012
    ...v. S.D. State Banking Comm'n, 2008 S.D. 12, ¶ 10, 745 N.W.2d 674, 676;Meligan v. Dep't of Revenue and Regulation, 2006 S.D. 26, ¶ 13, 712 N.W.2d 12, 17;Thomas v. Custer State Hosp., 511 N.W.2d 576, 579 (S.D.1994). [¶ 14.] Thus, SDCL 1–26–37 does not necessarily preclude de novo review of ap......
  • First National Bank v. South Dakota State Banking Commission, No. 24911.
    • United States
    • Supreme Court of South Dakota
    • 15 Julio 2009
    ...the agency's decision unaided by any presumption that the circuit court's decision was correct.'" Meligan v. Dept. of Rev. and Reg., 2006 SD 26, ¶ 13, 712 N.W.2d 12, 17 (quoting Kassube v. Dakota Logging, 2005 SD 102, ¶ 25, 705 N.W.2d 461, 465). The Commission's findings of fact are re......
  • Request a trial to view additional results

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