Mississippi Real Estate Comm'n v. McCaughan

• Decision Date: 02 November 2004
• Docket Number: No. 2003-CC-01153-COA.,2003-CC-01153-COA.
• Parties: MISSISSIPPI REAL ESTATE COMMISSION, Appellant v. Sarah Marie McCAUGHAN, Broker, Appellee.
• Court: Mississippi Court of Appeals

900 So.2d 1169

MISSISSIPPI REAL ESTATE COMMISSION, Appellant v. Sarah Marie McCAUGHAN, Broker, Appellee.

No. 2003-CC-01153-COA.

Court of Appeals of Mississippi.

November 2, 2004.

Rehearing Denied February 8, 2005.

Certiorari Denied May 5, 2005.

John L. Maxey, Charles Richard Saltzman, Jackson, attorneys for appellant.

Stanley T. Ingram, Jackson, attorney for appellee.

EN BANC.

CHANDLER, J., for the Court.

¶ 1. The Mississippi Real Estate Commission suspended Sara McCaughan's real estate broker's license for six months. McCaughan appealed, and the Rankin County Circuit Court overturned that order, finding that McCaughan was not given proper notice of the allegation and that the evidence did not support the suspension of her license. The Mississippi Real Estate Commission appeals, raising the following issues:

I. WHETHER THE CIRCUIT COURT ABUSED ITS DISCRETION IN FINDING THAT THE MISSISSIPPI REAL ESTATE COMMISSION FAILED TO PROVIDE ADEQUATE NOTICE ON THE ALLEGATION OF FAILURE TO SUPERVISE

II. WHETHER THE CIRCUIT COURT COMMITTED REVERSIBLE ERROR IN CONCLUDING THAT THE RECORD IN THIS CASE LACKED SUBSTANTIAL EVIDENCE TO SUPPORT THE REAL ESTATE COMMISSION'S DECISION TO SUSPEND MCCAUGHAN'S REAL ESTATE BROKER LICENSE

¶ 2. Finding that Sara McCaughan received proper due process, and also finding that the Mississippi Real Estate Commission's decision to suspend Sara McCaughan's license was based on substantial evidence, we reverse the decision of the circuit court and reinstate the order of the Commission.

FACTS

¶ 3. In August 2000, Susan Burton listed Leigh White and Gene Edward Rump's property, with a listing price of $197,500. The buyers made an offer on the property through Billy Lanthrip, a real estate agent who was hired by Sara McCaughan, a real estate broker. After all counteroffers, the parties agreed to a selling price in the amount of $170,000, and they agreed to a closing date of May 15, 2001.

¶ 4. On May 10, 2001, Lanthrip received a call from Scott Word, the buyer, advising him that there was a problem with an old debt that would prevent Word from qualifying for the mortgage. Word informed him that he had worked out a deal with BankPlus to pay $1,600 and remove the debt. The debt would be paid by increasing the purchase price and making the adjustments to the closing costs so that the sellers and buyers were netting the same amount of money. Lanthrip testified that he called the loan originator the next day, and advised him that he would write an addendum to the original contract. The addendum raised the selling price from $170,000 to $171,750, in order to pay the debt.

¶ 5. The closing was scheduled to take place in two sessions. Rump was at the first scheduled closing. A problem arose from the contract written by Billy Lanthrip with reference to the prepaid items. An "X" had been written over the "B" and an "S" written in. The sellers never initialed this change, but the buyers had initialed it. The closing attorney stated that the sellers do not usually pay the prepaid escrow items. Since the sellers had not initialed the item, the closing attorney said the contract was not valid. Lanthrip stated that Susan Burton was aware of the change and advised him that she would get the sellers to initial the change and send him a copy. Burton never sent Lanthrip a copy, even though he requested the copy several times from her.

¶ 6. In the second portion of the closing, scheduled at 4 p.m., Rump gave his wife, Leigh White, power of attorney to sign the settlement statement because he was unable to return at 4 p.m. Upset about having to pay the pre-paid closing costs and wary of signing a handwritten addendum, Lanthrip was unable to obtain White's signature on the addendum. After failing to obtain the signature of the sellers, Lanthrip wrote at the bottom of the addendum, "Sellers at closing refuse to sign." ¶ 7. Both realtors accepted reduced commissions in order to consummate the closing. Rump and White demanded payment of $506.02 as reimbursement for pre-paid interest they paid at the closing. McCaughan brought the matter to the attention of Susan Burton's husband, who agreed to "take care of the matter." After that point, nothing was heard, and on September 25, 2001, Leigh White filed her complaint with the Mississippi Real Estate Commission (MREC).

¶ 8. On April 3, 2002, the MREC cited Susan Burton, Sara McCaughan, and Billy Lanthrip with violations of the Mississippi Real Estate Brokers License Act of 1954. McCaughan was cited in her relation as the supervision broker for Lanthrip. Specifically, their violations were stated in Mississippi Code Annotated § 73-35-21(1)(a) and (m) (Rev.2000):

(a) Making any substantial misrepresentation in connection with a real estate transaction;

(m) Any act or conduct, whether of the same or a different character than hereinabove specified, which constitutes or demonstrates bad faith, incompetency or untrustworthiness or dishonest, fraudulent or improper dealing.

The MREC also charged the parties with violations of the Rules and Regulations of the Commission:

IV.B.5. No licensee shall represent to a lender or any other interested party, either verbally or through the preparation of a false sales contract, an amount in excess of the true and actual selling price.

IV.E.2.g.5. "Reasonable skill, care and diligence"—the agent must perform all duties with the care and diligence which may be reasonably expected of someone undertaking such duties.

¶ 9. After conducting a hearing, the Commission found Burton and McCaughan guilty of all the violations for which they had been accused. Lanthrip, who allowed his license to lapse without renewal, received no disciplinary action, but the MREC stated that it will review the complaint and the order before permitting Lanthrip to sit for the licensing examination should he wish to become licensed again. Burton was suspended from the practice of real estate for six months, followed by a probationary period of another six months. McCaughan was suspended from the practice of real estate for a period of six months and ordered to complete eight additional hours of continuing education. Her continuing education was to be completed during the time of her suspension.

¶ 10. McCaughan appealed the decision of the MREC to the Rankin County Circuit Court. The circuit court judge reversed the administrative order by concluding that the MREC's actions were arbitrary and capricious. He held that McCaughan was not provided with proper or adequate notice of the Commission's allegation of failure to supervise because the MREC failed to allege any supervisory misconduct in its complaint against McCaughan. The judge went on to find that neither McCaughan nor Lanthrip appeared to be guilty of any inappropriate action. This finding was based on the fact that the lending institution was informed by Lanthrip on no less than three occasions of the change in contract price. More importantly, according to the circuit court, it was the duty of the seller's agent, and not the duty of Lanthrip or McCaughan, to keep her clients informed. Based on the evidence, the judge stated that he could make no findings of bad faith or substantial misrepresentation.

ANALYSIS

STANDARD OF REVIEW

¶ 11. In reviewing an administrative agency's findings of fact, this court's authority, as well as that of the circuit court, is limited by the arbitrary and capricious standard of review. Mississippi Real Estate Comm'n v. Hennessee, 672 So.2d 1209, 1217 (Miss.1996). A court's review of a commission's disciplinary action is limited to a determination as to whether or not the commission's action is (1) supported by substantial evidence, (2) arbitrary or capricious, (3) beyond the power of the administrative agency to make, or (4) violated some statutory or constitutional right of the complaining party. McDerment v. Mississippi Real Estate Comm'n, 748 So.2d 114, 118(¶9) (Miss.1999) (citations omitted). Deference is given to only an administrative board's knowledge within its own area of expertise, or afforded to an administrative agency's "construction of its own rules and regulations." Id.

¶ 12. Because the licensure statutes and regulations at issue are penal, the MREC is required to prove its case by clear and convincing evidence. The statutes and regulations at issue must be strictly construed in favor of McCaughan. McFadden v. Mississippi State Bd. of Medical Licensure, 735 So.2d 145, 152 (¶ 24) (Miss.1999); Hogan v. Mississippi Bd. of Nursing, 457 So.2d 931, 934 (Miss.1984).

I. DID THE TRIAL COURT ABUSE ITS DISCRETION IN FINDING THAT SARA MCCAUGHAN WAS DENIED DUE PROCESS OF THE LAW?

(A) Did Sara McCaughan Receive Adequate Notice of the Allegation of Her Failure to Supervise?

¶ 13. McCaughan argues that since nowhere in the original complaint was she charged with failure to supervise, she was left to speculate as to what went wrong. McCaughan argues that she was denied due process because she was unable to understand what violations she was charged with, leading to a defense that was "nothing more than a shotgun approach attempt to a very generalized complaint." This position is inconsistent with the defense she prepared at the hearing and the specificity of the complaint she received.

¶ 14. At the hearing before the Commission, McCaughan's attorney stated, "For the benefit of the Commission, Sara McCaughan is here today as the responsible broker. I want to make sure that is clarified." McCaughan's initial response to the complaint and her testimony before the Commission both demonstrate that she was well aware of her duty as the responsible broker and of the possible sanctions that could be imposed should she be cited for the failure to supervise, and she prepared her defense accordingly. In her testimony before the Board, she outlined the extensive application and interview procedure she goes through with every applicant who desires to be a salesperson...