Opinion
C082971
11-20-2019
CHAD C. MARTIN, Plaintiff and Appellant, v. WAYNE S. BELL, as Real Estate Commissioner, etc., Defendant and Respondent.
NOT TO BE PUBLISHED California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 34-2016-80002297-CU-WM-GDS)
Business and Professions Code section 10177.5 allows the state Real Estate Commissioner (the Commissioner) to revoke a real estate agent's license when a civil judgment has been entered against the licensee based on fraud, misrepresentation, or deceit in connection to a transaction that required a real estate license. Relying on this statute, the Commissioner revoked Appellant Chad C. Martin's real estate license based on an earlier 2010 judgment that found Martin had committed fraud and violated his fiduciary duty to four of his former clients.
Undesignated statutory references are to the Business and Professions Code.
On appeal, Martin contends the Commissioner erred in finding section 10177.5 applicable. Although he concedes he committed fraud against his former clients, as was found in the 2010 case, he claims it was not committed in connection with an act that required a real estate license. He also contends he was not adequately apprised in advance that his license could be revoked, and objects that the trial court's affirmance of the Commissioner's decision was based on a misunderstanding of the 2010 case. We reject Martin's contentions and affirm the judgment.
BACKGROUND
The underlying facts on this appeal are undisputed. Martin became a licensed real estate agent in 1999. Starting in 2005, he began representing Brian and Karen Haena in several real estate transactions, each of which involved Martin recommending that the Haenas invest in a particular promissory note, and then investing in and servicing the note on the Haenas' behalf. Shortly after, Martin similarly began representing Murray and Joanne White as they too sought to invest in promissory notes. By early 2007, Martin represented both the Haenas and Whites in one or more investments involving promissory notes secured by real estate.
In June of 2007, Martin e-mailed Brian Haena, Murray White, and others on an address list labeled "Chad's Business" that he wished to sell certain promissory notes that he owned. Martin characterized the notes as high-paying investments that should be a "no-brainer." He added that though he "hate[d] to give up the security," he "need[ed] to look at this as an opportunity to introduce you all to the availability for great returns out there." Martin signed his e-mail as "Chad Martin, Broker, California Gold Real Estate."
After the Haenas and Whites responded they might be interested, Martin encouraged both to invest in a promissory note he held that was secured by a small housing development. We refer to this note as the "Svensek Note," based on the name of the borrower, Frank Svensek.
To facilitate the sale, Martin made a variety of misrepresentations about the Svensek Note. In one e-mail, for example, Martin described the real property associated with the note as "12 townhomes to be built" with "4 . . . nearly complete[]," though the note was in fact secured by eight empty townhome lots. In a later e-mail, Martin claimed that "the borrowers have been solid for the past couple of years," and added that the note has "been solid for me, and could become an even more profitable project very soon." But Martin declined to mention that Svensek had already defaulted on payments owed to a more senior lender. He also neglected to disclose that his own note had already been modified twice to allow Svensek more time to pay.
As he had with past notes in which the Haenas and Whites had invested, Martin offered to manage the Svensek Note on their behalf if they agreed to invest. He wrote that "[m]onthly invoices and statements as well as annual tax forms will be handled through my office." He also added that "[a]ny legal complications shall be addressed by us, so you as the investor won[']t have to deal with such items."
Following these representations, the Haenas agreed to invest $100,000 in the Svensek Note. The Whites agreed to invest in the remaining $143,000. Martin in return transferred his $243,000 interest in the Svensek Note to the Haenas and Whites, and agreed to continue servicing the note going forward in exchange for a fee. To that end, the Haenas and Whites both entered into an agreement with Martin titled "Investor Service Agreement." Under the agreement, Martin—who was labeled as "Broker"—would handle "all acts necessary for the processing, collection and enforcement of" the Svensek Note on behalf of the Haenas and Whites. In exchange for this service, Martin would charge a "2% per annum fee" on the payments made on the note.
About four months after the Haenas and Whites purchased the note, Svensek defaulted on the interest payments due under the note. Shortly after, a lender with higher priority than the Haenas and Whites foreclosed on the property secured by the note, and at a trustee sale, the lender successfully bid for the property by offering the amount he was owed. The Haenas' and Whites' interest in the property was extinguished in the process.
Based on these events, the Haenas and Whites filed suit against Martin, alleging, among other things, that Martin committed fraud and breached his fiduciary obligations. (Haena et al. v. Svensek, Martin et al. (Super. Ct. Sacramento County, 2010, No. 34-2008-00014849) (Haena v. Martin).) A trial court agreed. In a 2010 decision, the court found Martin had committed fraud and breached his fiduciary duty to the Haenas and Whites. It also found the Haenas and Whites had proved this fraud by clear and convincing evidence. Following an appeal, we affirmed the judgment in an unpublished decision. (Haena et al. v. Martin (Jan. 12, 2015, C066180) [nonpub. opn.].)
One month after the trial court issued its decision in Haena v. Martin, a deputy real estate commissioner (deputy commissioner) with the California Department of Real Estate filed an accusation against Martin. The accusation, as later amended, alleged among other things that the court in Haena v. Martin had entered judgment against Martin "based on grounds of fraud, misrepresentation, or deceit with reference to a transaction for which a real estate license [wa]s required." Because of this judgment, the deputy commissioner alleged, Martin's real estate license should be suspended or revoked as allowed under section 10177.5.
Following a hearing, an administrative law judge (ALJ) issued a proposed decision recommending that Martin's real estate license be revoked. But considering Martin's prior clean record, the ALJ further recommended that Martin be issued a restricted license that would allow him to continue to act as a real estate agent under the supervision of another licensed broker.
The Commissioner, however, rejected the ALJ's proposed decision. He found Martin's lack of remorse and lack of effort to repay his victims—together with other admitted violations concerning the mismanagement of trust funds and failure to make required disclosures—showed Martin should not continue to hold a real estate license. The Commissioner revoked Martin's license, and later denied Martin's petition for reconsideration.
Martin afterward filed a petition for administrative writ of mandate seeking an order reinstating his license. Following briefing and a hearing, the trial court denied Martin's petition.
Martin now files this appeal in which he raises three general arguments. First, he contends the Commissioner erred in finding section 10177.5 applicable. According to Martin, section 10177.5 is inapplicable because he was not acting in the capacity of a real estate broker at the time he defrauded his clients; rather, he was only acting in his personal capacity while selling his personal property. Second, he argues the court below misread the Haena v. Martin judgment. Specifically, he claims it erred in concluding the Haena v. Martin judgment was based on a finding that Martin acted in the capacity of a real estate broker at the time he defrauded the Haenas and Whites. Finally, he contends he did not receive sufficient notice that an adverse judgment in the Haena v. Martin case could be used against him in a later license revocation proceeding.
STANDARD OF REVIEW
A trial court ruling on a petition for writ of mandate following a license revocation must exercise its independent judgment in its review of the facts and the law. (Drummey v. State Board of Funeral Directors & Embalmers (1939) 13 Cal.2d 75, 84.) An appellate court, on the other hand, reviews the trial court's factual findings for substantial evidence, and reviews the trial court's legal conclusions de novo. (Robbins v. Davi (2009) 175 Cal.App.4th 118, 124.)
DISCUSSION
I
Applicability of Section 10177.5
Martin's principal argument is that the Commissioner erred in finding section 10177.5 applicable. Section 10177.5 provides: "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 under this division, the commissioner may, after hearing in accordance with the provisions of this part relating to hearings, suspend or revoke the license of such real estate licensee." Although Martin concedes the prior judgment against him was based on grounds of fraud, misrepresentation, or deceit, he contends this misconduct was not committed "with reference to" a transaction that required a real estate license.
In addressing this contention, we must first consider what transactions require a real estate license. According to Martin, we should look to section 10131 to answer this question. That statute explains that a real estate broker is someone who engages in certain specific transactions. For example, a real estate broker includes someone who sells a house on another's behalf for compensation. (§ 10131, subd. (a).) In Martin's view, section 10131 defines all those transactions that require a real estate license. The Attorney General counters we should instead look to section 10130, a statute making it unlawful "to engage in the business of, act in the capacity of, advertise as, or assume to act as a real estate broker or a real estate salesperson within this state without first obtaining a real estate license."
We agree that section 10130 is the relevant statute describing the types of transactions for which a license is required within the meaning of section 10177.5. It is true that a person must have a license to engage in the acts described in section 10131. But "pursuant to section 10130, a license is required not only to act as a real estate broker, but also to assume to act as a broker." (Booth v. Robinson (1983) 147 Cal.App.3d 371, 379 (Booth).) As the Booth case demonstrates, section 10130 sweeps somewhat broader than section 10131 in describing those acts that require a real estate license. Per section 10130, a person requires a license not only when "act[ing] in the capacity of" a real estate broker, but also when "engag[ing] in the business of, . . . advertis[ing] as, or assum[ing] to act as a real estate broker or a real estate salesperson."
Having found that section 10130 delineates the type of transactions requiring a license, we now consider whether Martin—in his admittedly fraudulent dealings with the Haenas and Whites—committed an action described in section 10130. We find he did.
Section 10130, among other things, requires a person to have a license before acting in the capacity of a real estate broker. Section 10131 then describes when a person is acting in the capacity of a real estate broker. Among other things, it explains that a real estate broker includes someone who—for compensation or in expectation of compensation—negotiates to "perform services for . . . note owners in connection with loans secured directly or collaterally by liens on real property." (§ 10131, subd. (d).) And that is precisely what Martin did in his dealings on the Svensek Note.
The Svensek transaction involved several components. It involved Martin selling his interest in the Svensek Note and it also involved him agreeing to service the note going forward. As the court in the Haenas v. Martin litigation found, Martin's agreeing to service the note on behalf of the Haenas and Whites was an "integral component" of the transaction. To that end, the Haenas and Whites each entered into an agreement with Martin titled "Investor Service Agreement," under which Martin—who was labeled as "Broker"—would handle "all acts necessary for the processing, collection and enforcement of" the Svensek Note on the Haenas' and Whites' behalf. In exchange for this service, Martin would charge a "2% per annum fee" on the payments made on the note.
In entering into this agreement, Martin plainly engaged in an activity that required a broker's license. (See §§ 10130, 10131, subd. (d).) He agreed to perform services for the Haenas and Whites, in anticipation of compensation, in connection with their ownership of a promissory note that was secured by a lien on the Svensek property. And as Martin admits, he also committed fraud against the Haenas and Whites in connection with this transaction. To persuade the Haenas and Whites on the Svensek deal, for example, Martin boasted "the borrowers have been solid for the past couple of years," even though he knew that Svensek had already defaulted on payments owed to a more senior lender, and even though he had already modified his own note twice to allow Svensek more time to pay. Taken together, we find these facts sufficient to show that Martin's admitted fraud was committed "with reference to" a transaction that required a license.
In his briefing, Martin never quite addresses the Investor Service Agreement. He instead focuses on the sale of the Svensek Note with little discussion of the agreement—which is to say, he considers only half of the relevant transaction. As to the sale of the Svensek Note, Martin claims his misconduct did not concern a transaction requiring a real estate license because (1) he only sold his own property and (2) he did not receive compensation for the transaction. He cites in support cases finding that a person does not act as a broker unless acting for compensation on another's behalf. (See, e.g., Stout v. Edmonds (1986) 180 Cal.App.3d 66, 69.) But again, a person requires a license not only when acting as a broker, but also when assuming to act as a broker. (§ 10130; Booth, supra, 147 Cal.App.3d at p. 379.) A simple example demonstrates the distinction. Suppose a broker induces a client to provide money for the alleged purpose of buying the client real estate, when in reality the broker only intended to defraud the client and take his or her money. On those facts, the broker is not acting on his client's behalf; he is acting on his own behalf. Yet we would still say he was at the very least assuming to act as a broker, and thus was engaging in an act for which a license was required. (See § 10130; Booth, supra, 147 Cal.App.3d at p. 379.)
In any event, we need not consider whether Martin assumed to act as a broker because we find he did in fact act as a broker. Although Martin claims he neither acted for compensation nor on another's behalf, neither point is true with respect to the Investor Service Agreement. Under that agreement, Martin would provide services concerning the Haenas' and Martins' property, not his own, and he would receive compensation for these services.
Because we find Martin's agreement to provide services under the Investor Service Agreement enough to show he engaged in conduct that required a real estate license, we need not consider whether Martin's sale of the Svensek Note itself also required a license. --------
II
The Trial Court's Reading of the Haena v. Martin Judgment
Martin next argues the court below erred in finding the Haena v. Martin judgment was "based on the finding that [Martin] acted in the capacity of a real estate broker, for which a real estate license is required, when [he] defrauded the Haenas and Whites." This argument largely echoes his first claim. As before, he concedes the court in Haena v. Martin found he committed fraud, but he claims it did not find he committed this fraud in his capacity as a broker. We find the lower court's understanding of the Haena v. Martin judgment was correct.
In its decision, the court in Haena v. Martin was clear that Martin acted as an agent for the Haenas and Whites at the time of the Svensek transaction, and that all parties "clearly anticipated that [Martin] would continue to act as their agent to service the new Svensek Note, interact with Svensek, and collect and hold funds on the [Haenas' and Whites'] behalf."
The court was also clear that Martin's having a broker's license was an integral part of the Svensek transaction. This was not a case, the court explained, where a broker's license was merely "ancillary to the transaction." In reaching this conclusion, the court distinguished cases—like Horning v. Shilberg (2005) 130 Cal.App.4th 197 (Horning)—where a real estate broker sold real estate but, because the property was his own, was not found to have acted in the capacity of a broker. In Horning, the court wrote that "a person acts as a [real estate] broker only if he or she is acting (1) for compensation and (2) on behalf of someone else"; and it added that neither of these two features are present when a broker is purchasing (or selling) property on his or her own behalf. (Id. at p. 204.) In that event, the Horning court explained, the fact that the broker has a real estate license is " 'ancillary,' " and the transaction is not one for which a broker's license is required. (Ibid.)
Although Martin claimed in the Haena v. Martin litigation, as he does here, that his real estate license was merely ancillary to the Svensek transaction under the reasoning of Horning and similar cases, the court disagreed and found him to be different from the brokers in those cases. In contrast to those brokers—brokers who were found not to have acted in their capacity as brokers—the court characterized Martin as a real estate broker who did act in his capacity of an agent rather than on his own behalf. It also found that Martin anticipated to be compensated as a result of these acts, as provided in the Investor Service Agreement. Based on these facts, the court found that Martin committed fraud against the Haenas and Whites while acting in his capacity as their agent. And it found the Haenas and Whites had proved this fraud "by clear and convincing evidence."
On this record, the trial court did not err in finding the Haena v. Martin judgment was based on the finding that Martin acted in the capacity of a real estate broker when he defrauded the Haenas and Whites. It is true the court in Haena v. Martin did not use precisely those words—that is, although it repeatedly noted that Martin acted in the capacity of an agent when he defrauded the Haenas and Whites, it did not specifically say that he acted in the capacity of a real estate agent when he did so. But the court's decision—and particularly its effort to distinguish Horning, supra, 130 Cal.App.4th 197—clearly reflected its belief that Martin acted in the capacity of a real estate agent when he defrauded the Haenas and Whites.
III
Adequate Notice
Martin's final claim is that his due process rights were violated because he did not receive sufficient notice that an adverse judgment in the Haena v. Martin case could be used against him in a later license revocation proceeding. He reasons that although the Haena v. Martin case clearly involved allegations of fraud, it did not involve fraud with reference to a transaction that required a real estate license. As a result, he claims, he had no reason to believe that a decision in that case could later be the basis for the revocation of his license under section 10177.5.
Martin's claim here is largely a replay of his earlier arguments. He acknowledges the Haena v. Martin case concerned his committing fraud, but here as before, he claims it was not "with reference to" a transaction that required a broker's license.
We again disagree. The Haena v. Martin case plainly involved allegations that Martin had committed fraud with reference to a transaction that required a real estate license. The Haenas and Whites' complaint, for example, alleged that Martin was a real estate broker; that Martin solicited them to invest in a promissory note he held that was secured by a real estate development; that to persuade them to invest, Martin misrepresented various material facts; and that based on these misrepresentations, the Haenas and Whites purchased Martin's interest in the promissory note and entered into an agreement with Martin under which Martin would service the note.
Martin's own arguments in that litigation, moreover, demonstrated that he understood the allegations against him included claims he committed fraud in connection to a transaction that required a license. To counter the Haenas and Whites' allegations, for example, Martin repeatedly argued that the Svensek transaction was not one that required a real estate license. In support of this argument, he cited Horning, supra, 130 Cal.App.4th 197—a case that found, as discussed above, that "a person acts as a [real estate] broker only if he or she is acting (1) for compensation and (2) on behalf of someone else." (Id. at p. 204.) Based on this language, Martin argued that the Haenas and Whites' claims failed, as he was not acting as a real estate agent within the meaning of section 10131 at the time of the Svensek transaction. The court in Haena v. White, however, disagreed, as did this court on appeal. Given that Martin specifically argued in the Haena v. Martin litigation—without success—that the Haenas and Whites' claims failed because his actions on the Svensek Note were not made in his capacity as a real estate broker, it is difficult to accept Martin's current contention that he did not realize he was being sued for actions he committed in his capacity as a real estate broker.
Considering these facts, we agree with the trial court that Martin had sufficient notice that a judgment against him in the Haena v. Martin case could result in later revocation of his license. This is particularly true as Martin, as a licensed broker, was "deemed to know" the law governing real estate contracts (Rosenbaum v. Rosenbaum (1967) 257 Cal.App.2d 193, 198); and that law includes those statutes, like section 10177.5, providing for disciplinary action for violations of real estate regulations.
DISPOSITION
The judgment is affirmed. The Commissioner is entitled to recover costs on appeal. (Cal. Rules of Court, rule 8.278(a)(1) & (2).)
/s/_________
BLEASE, Acting P. J. We concur: /s/_________
MAURO, J. /s/_________
DUARTE, J.