Opinion
No. 213 C.D. 2011
01-12-2012
NorthStar Mortgage, LLC, Paul Fenelle and Leonardo D'Elia, Owners, Duane Beers and Michael Gilbert, Petitioners v. Department of Banking, Bureau of Compliance, Investigation and Licensing, Respondent
BEFORE: HONORABLE BERNARD L. McGINLEY, Judge HONORABLE RENÉE COHN JUBELIRER, Judge HONORABLE ROCHELLE S. FRIEDMAN, Senior Judge
OPINION NOT REPORTED
MEMORANDUM OPINION BY JUDGE COHN JUBELIRER
NorthStar Mortgage, LLC (NorthStar), Paul Fenelle and Leonardo D'Elia (Owners), Duane Beers and Michael Gilbert (Employees) (hereinafter collectively referred to as "Petitioners") petition for review of an Order of the Secretary of Banking (Department): (1) revoking NorthStar's first mortgage broker's license and its corresponding branch office license; (2) prohibiting Owners and Employees from engaging in the first mortgage loan business in Pennsylvania; and (3) imposing monetary penalties against Owners and Employees. Petitioners argue that the Secretary failed to apply the correct legal standard of proof; the evidence presented failed to reach the legal standard of clear and convincing evidence; and they did not receive appropriate due process.
NorthStar was licensed by the Department as a first mortgage broker pursuant to the Mortgage Bankers and Brokers and Consumer Equity Protection Act (Act). (Final Determination and Order (Final Determination), January 14, 2011, at 2.) The Department began an investigation of NorthStar which resulted in separate Orders to Show Cause being issued against Petitioners between January 29, 2007 and March 19, 2007. (Final Determination at 3.) The Orders to Show Cause alleged that Petitioners violated Section 313(a)(5) and (14) of the Act, 63 P.S. § 456.313(a)(5), (14). (Final Determination at 3.) Petitioners filed Answers to their respective Orders to Show Cause between May 2, 2007 and May 18, 2007. (Final Determination at 4.) A Hearing Officer was appointed by the Secretary of Banking (Secretary) in accordance with the General Rules of Administrative Practice and Procedure (GRAPP), 1 Pa. Code §§ 31.1 - 35.251. (Final Determination at 3.) Upon motion by the Department's Bureau of Compliance, Investigation and Licensing (Bureau), the Hearing Officer consolidated the Orders to Show Cause under one docket number on May 18, 2007. (Final Determination at 4.)
Act of December 22, 1989, P.L. 687, added by, Act of June 25, 2001, P.L. 621, 63 P.S. §§ 456.101-456.102, 456.501-456.524, 456.3101. Sections 301-318 of the Act, 63 P.S. §§ 456.301-456.318, pertaining to licensure, were repealed and replaced by the Act of July 8, 2008, P.L. 796, effective November 5, 2008, known as the Mortgage Licensing Act, 7 Pa. C.S. §§ 6101-6154. The penalties imposed herein by the Department were based on the repealed Sections of the Act which were in effect at the time of the alleged violations.
Orders to Show Cause were also issued against other NorthStar employees who are not included in this appeal.
Section 313(a)(5) permitted the Department to impose sanctions if a licensee "[e]ngaged in dishonest, fraudulent or illegal practices or conduct in a business or unfair or unethical practices or conduct in connection with the mortgage business." 63 P.S. § 456.313(a)(5). Section 313(a)(14) permitted the Department to impose sanctions if a licensee "[d]emonstrated negligence or incompetence in performing an act for which the licensee is required to hold a license" under the Act. 63 P.S. § 456.313(a)(14). The provisions of Section 313(a)(5) and (14) are now found at Section 6139(a)(3) and (10) of the Mortgage Licensing Act, 7 Pa. C.S. § 6139(a)(3), 10.
On November 6, 2007, the Bureau filed a Motion to Suspend License Pending Full Hearing on License Revocation and to Refuse to Renew (Motion to Suspend), in which the Bureau requested permission to suspend and refuse to renew NorthStar's mortgage broker's license pending a full hearing and final decision on the allegations in the Orders to Show Cause. (Final Determination at 4.) Hearings on the Bureau's Motion to Suspend were conducted by the Hearing Officer on January 4, 24, and 25, 2008. (Final Determination at 4.) The Hearing Officer issued a Proposed Report and Final Order on May 19, 2008, recommending that the Bureau's Motion to Suspend be granted. (Final Determination at 4-5.) NorthStar did not contest the findings contained in the May 19, 2008 Proposed Report. (Final Determination at 5.) The Secretary signed a Final Order adopting the Hearing Officer's Proposed Report and Final Order suspending NorthStar's first mortgage broker license and corresponding branch office license, and directing the Department to refuse to renew NorthStar's license. (Final Determination at 5.)
On February 13, 2008, the Bureau filed an Amended Order to Show Cause against Employee Gilbert, which further detailed the charges against him and incorporated, by reference, most paragraphs contained in the original Order to Show Cause. (Final Determination at 4.) Employee Gilbert filed an Answer to the Amended Order to Show Cause on March 13, 2008. (Final Determination at 4.)
A full hearing on the Orders to Show Cause took place over eight days between April 17, 2008 and May 2, 2008. (Final Determination at 5.) The Hearing Officer issued a Proposed Report and Final Order (Proposed Report) on December 22, 2009. (Final Determination at 5.) Therein, the Hearing Officer held that sufficient evidence existed to prove that Petitioners, along with other employees, committed negligent, dishonest, fraudulent, and unethical practices or conduct in violation of Section 313(a)(5) and (14) of the Act. (Final Determination at 5.) The Hearing Officer proposed that Petitioners should all be fined and prohibited from engaging in the first mortgage loan business. (Final Determination at 5.) Petitioners filed Exceptions and briefs in support thereof to the Hearing Officer's Proposed Report and the Bureau filed a reply brief. (Final Determination at 6.)
Counsel for Northstar and Owners withdrew on April 9, 2008. (Final Determination at 5.) Owners appeared for a majority of the hearing dates and proceeded pro se. (Final Determination at 5 n.3.) Employee Beers appeared for a single day and also proceeded pro se. (Final Determination at 5.) Counsel for Employee Gilbert only appeared on April 30, 2008 and Employee Gilbert did not appear in person for any of the hearing dates. (Final Determination at 5.)
Upon review, the Secretary: (1) granted, in part, and denied, in part, Petitioners' Exceptions; (2) adopted the Hearing Officer's proposed findings of fact that were found to be supported by credible testimony and evidence; (3) made additional independent findings of fact; (4) made independent conclusions of law; (5) revoked NorthStar's first mortgage broker's license and its corresponding branch office license; (6) prohibited Owners and Employees from engaging in the first mortgage loan business in Pennsylvania; and (7) imposed monetary penalties against Petitioners. (Final Determination at 6-106.) This appeal followed.
This Court's scope of "review of an agency adjudication is limited to determining whether the necessary findings of fact were supported by substantial evidence, whether errors of law were made, or whether constitutional rights were violated." Pennsylvania Bankers Association v. Pennsylvania Department of Banking, 981 A.2d 975, 985 (Pa. Cmwlth. 2009). "Substantial evidence is such relevant evidence that a reasonable mind might accept as adequate to support a conclusion." Id. "An abuse of discretion occurs where the findings of fact are not supported by substantial evidence." Id.
Before this Court, Petitioners argue that they were not afforded minimum due process by the Hearing Officer or the Secretary. Petitioners contend that the Hearing Officer recognized that the Orders to Show Cause were deficient; however, the Secretary, upon review, erroneously found that the Orders to Show Cause met the minimum standards of due process. Petitioners contend that the fact that they answered the Orders to Show Cause and presented a defense does not mean that the Orders to Show Cause met the minimum standards. Petitioners contend that their due process rights were violated by the Department's failure to prepare appropriate charging documents.
We have reordered Petitioners' arguments.
Pursuant to Section 35.14 of the GRAPP, an agency may commence an action against a person under statutory authority by issuing "an order to show cause setting forth the grounds for the action." 1 Pa. Code § 35.14. The order to show cause must "contain a statement of the particulars and matters" of the proceeding, "which shall be deemed to be tentative and for the purpose of framing issues for consideration and decision by the agency in the proceeding." Id. In Gombach v. Department of State, Bureau of Commissions, Elections & Legislation, 692 A.2d 1127 (Pa. Cmwlth. 1997), this Court explained the fundamental requirements of due process.
The right to due process is equally applicable to administrative agencies as it is to judicial proceedings. The fundamental requirements of due process are notice and an opportunity to be heard at a meaningful time and in a meaningful manner. Procedural due process requires that the individual be given adequate information with which to prepare a defense. For notice to be adequate, it must at the very least contain a sufficient listing and explanation of any charges against the individual.Gombach, 692 A.2d at 1129-30 (citations omitted). See also First National Bank of Pike County v. Department of Banking, and Bank of Matamoras, 300 A.2d 823, 825 (Pa. Cmwlth. 1973) (The essential elements of due process in administrative proceedings are "notice and [the] opportunity to be heard and to defend in an orderly proceeding adapted to the nature of the case before a tribunal" with jurisdiction over the matter.).
While the Hearing Officer noted some deficiencies in the form and content of the Orders to Show Cause, the Hearing Officer did not find that the Orders failed to provide Petitioners with notice, an opportunity to be heard, or that the Petitioners were not given adequate information with which to prepare a defense. (See Proposed Report, December 22, 2009, at 105-06 n.20, Reproduced Record (R.R.) at 214a-15a.) The Secretary denied Petitioners' Exception to the Hearing Officer's Proposed Report finding that the Orders to Show Cause did meet the minimum standards of due process. (Final Determination at 75-77.) The Secretary determined that, while the Orders to Show Cause were not ideally drafted, the Orders provided Petitioners with a tentative framing of the issues. (Final Determination at 76.) The Secretary determined further that, throughout the proceedings, Petitioners continuously received information regarding the Bureau's allegations, which provided Petitioners with the ability to prepare a defense. (Final Determination at 77.) Accordingly, the Secretary found that the Orders to Show Cause and the subsequent proceedings provided Petitioners with sufficient notice of the Bureau's allegations and claims prior to the hearings. (Final Determination at 77.)
Upon review, we agree with the Secretary that the Orders to Show Cause met the minimum standards of due process. The Orders to Show Cause comply with Section 35.14 of the GRAPP by setting forth the grounds for the action and by providing a tentative framing of the issues upon which the Bureau's action was based. (Orders to Show Cause, January 29, 2007, March 15, 2007, February 13, 2008, R.R. at 16a-57a, 100a-03a.) This Court recognizes, as did the Hearing Officer and Secretary, that the Orders to Show Cause are not in the usual form with separate "counts" or "charging paragraphs." However, the Orders to Show Cause do contain: (1) the authority for the Bureau's action against Petitioners; (2) details of the parties involved; (3) general allegations of Petitioners' conduct with regard to the time frame involved; (4) specific and separate paragraphs for each of the individually named borrowers who had mortgage business dealings with and were harmed by Petitioners' actions; (5) specific and separate allegations of the violations of the Act by Petitioners; and (6) specific allegations seeking monetary penalties and other relief. Thus, the Orders to Show Cause provided adequate information in order for Petitioners to prepare a defense. (Orders to Show Cause, January 29, 2007, March 15, 2007, February 13, 2008, R.R. at 16a-57a, 100a-03a.) We note that Petitioners do not dispute the Secretary's determination that they continuously received information regarding the Bureau's allegations, which provided Petitioners with the ability to prepare a defense. Therefore, we conclude that the Secretary properly denied Petitioners' Exception.
Next, Petitioners argue that the Hearing Officer and the Secretary did not apply the appropriate legal standard. Petitioners contend that, since the allegations made against them by the Bureau sound in fraud and specifically forgery, the standard of clear and convincing evidence should have been applied in these proceedings and not the preponderance of the evidence standard. Alternatively, if the appropriate legal standard was utilized, Petitioners argue that the evidence proffered by the Bureau did not reach the legal standard of clear and convincing evidence.
This Court has explained the different legal standards:
The standard or burden of proof in a particular type of proceeding is based upon the level of concern regarding the degree of accuracy in the factual findings made by the trier of fact. In re Winship, 397 U.S. 358 [] (1970). The traditional "preponderance of the evidence" standard allows parties-usually engaged in a civil dispute best settled by monetary compensation-to share equally the risk in proving their claims and affirmative defenses. Any other standard expresses a preference for one side's interests. Cases in which one party has accused another of a civil wrong with more severe implications, such as fraud, require proof by clear and convincing evidence. Finally, in a criminal case, almost the entire risk of error is placed upon the state which is required to prove the guilt of the accused beyond a reasonable doubt.
In civil actions, the preponderance of the evidence standard generally is used except in certain situations that require clear and convincing evidence, which is reserved for cases "where particularly important individual interests or rights are at stake," Herman & MacLean v. Huddleston, 459 U.S. 375, 389 [] (1983); such as in hearings to terminate parental rights, In re B.N.M., 856 A.2d 847 (Pa. Super. 2004); involuntary commitment proceedings, In re S.B., 777 A.2d 454 (Pa. Super. 2000); civil fraud, Donahue v. Workers' Compensation Appeal Board (Philadelphia Gas Works), 856 A.2d 230 (Pa. Cmwlth.
2004); Pare v. Wyeth, Inc., 870 A.2d 378 (Pa. Super. 2005); public figure defamation, Weaver v. Lancaster Newspapers, Inc., 875 A.2d 1093 (Pa. Super. 2005); and reinstatement of a license to practice law, In re Greenberg, 561 Pa. 154, 749 A.2d 434 (2000). Not only is that standard used for those that have the burden, but it is also used to establish certain affirmative defenses. Webb v. Commonwealth, Department of Transportation, Bureau of Motor Vehicles, 870 A.2d 968 (Pa. Cmwlth. 2005). Imposition of even severe civil sanctions that do not implicate such individual constitutional interests has been permitted after proof by a preponderance of the evidence. Herman & MacLean, 459 U.S. at 389 []; see also U.S. v. Regan, 232 U.S. 37, 48-49 [] (1914) (proof by a preponderance of the evidence suffices in civil suits involving proof of acts that expose a party to a criminal prosecution). However, some states have held that the imposition of an administrative fine is penal in nature and requires the application of the clear and convincing evidence standard. See Department of Banking and Finance v. Osborne Stern, 670 So. 2d 932 (Fla. 1996).Suber v. Pennsylvania Commission on Crime and Delinquency, 885 A.2d 678, 681-82 (Pa. Cmwlth. 2005). See also Snell v. Commonwealth, State Examining Board, 490 Pa. 277, 281, 416 A.2d 468, 470 (1980) (quoting Carlson v. Sherwood, 416 Pa. 286, 287, 206 A.2d 19, 20 (1965) ("[F]raud or intent to defraud is never presumed, and must be proved by 'evidence that is clear, precise and convincing.'")).
"Clear and convincing evidence" is the highest burden in our civil law and requires that the fact-finder be able to "come to clear conviction, without hesitancy, of the truth of the precise fact in issue." Lessner v. Rubinson, 527 Pa. 393, 400, 592 A.2d 678, 681 (1991). To meet that standard, it necessarily means that the witnesses must be found to be credible, that the facts to which they have testified are remembered distinctly, and that their testimony is so clear, direct, weighty, and convincing as to enable either a judge or jury to come to a clear conviction, without hesitancy, of the truth of the precise facts in issue. Jones v. Prudential Property and Casualty Insurance Co., 856 A.2d 838 (Pa. Super. 2004).
Like civil actions, the normal burden of proof for most administrative actions is the preponderance of the evidence standard.
The Secretary determined that the Hearing Officer was aware of and knew the correct legal standard with respect to any claims related to fraud or forgery when she disposed of the Motion in Limine Regarding the Applicable Burden of Proof. (Final Determination at 77-78.) The Secretary found that the Hearing Officer specifically stated that "'any charges against the [Petitioners] relating to allegations of fraud and/or forgery . . . shall be proved by the [Bureau] by evidence that is clear, precise and convincing." (Final Determination at 78.) The Hearing Officer ordered that the standard of proof for all other claims and charges would remain a preponderance of the evidence. (Final Determination at 78.) The Secretary further determined that the Hearing Officer actually applied the correct clear and convincing standard throughout the Proposed Report, as evidenced by the reference to that standard by the Hearing Officer several times when discussing the Bureau's evidence. (Final Determination at 78-79.) Upon review of the Hearing Officer's Proposed Report, we agree with the Secretary's determination. See, e.g., Proposed Report at 114, R.R. at 223a (there is "clear and convincing evidence to support the conclusion that the Respondent whose name is linked to documentation in the file was responsible for or assisted and/or consented to the wrongdoing"); Proposed Report at 120, R.R. at 229a (similar statement).
We now turn to Petitioners' general contention that the evidence proffered by the Bureau did not meet the clear and convincing standard of proof. In support of the Orders to Show Cause, the Bureau presented the testimony of: (1) Brian Crossland, a senior investigator for the Bureau; (2) Eric Kerchner, a detective with the Monroe County District Attorney's Office; (3) Trooper Sandra Miller, a "questioned documents examiner" with the Pennsylvania State Police Crime Lab, who was qualified as an expert; (4) Sergeant Gerhard Wendt, the supervisor of the questioned documents section of the Harrisburg State Police Crime Lab, who was qualified as an expert; (5) Joseph Ferrari, a non-depository financial institution examiner for the Department; and (6) several borrowers. The Bureau also presented documentary evidence, including reports from the State Police Crime Lab and documents that the Bureau alleged contained non-genuine signatures.
"Questioned documents examination is an examination of a document that has any information on it that is visible, partially visible or invisible; documents are examined for a variety of reasons, including, handwriting comparisons, alterations, counterfeits, etc." (Final Determination at 12.)
The parties stipulated to Trooper Miller's expert qualifications as a questioned documents examiner at the January 25, 2008 hearing before the Hearing Officer. (Notes of Testimony (N.T.), January 25, 2008 at 9, R.R. at 243a.)
The parties stipulated to Sergeant Wendt's expert qualifications as a questioned documents examiner at the January 24, 2008 hearing before the Hearing Officer. (N.T., January 24, 2008 at 272, Supplemental Reproduced Record (S.R.R.) at 1811b.)
Petitioners first take issue with the testimony of Brian Crossland, who testified on behalf of the Bureau as to the details of his investigation of Petitioners. Petitioners argue that Crossland's investigation was flawed because only thirty-nine of the fifty borrowers contacted responded to the investigator, and there was no explanation by Crossland as to what occurred with the eleven missing borrowers. Petitioners argue further that the methods and process utilized by Crossland and other members of the investigative team were improper. Petitioners contend that the borrowers testified that Crossland informed them of the nature of the investigation before meeting with them and then Crossland denied that he did so, which calls into question Crossland's credibility. Petitioners contend further that Crossland's conduct was not in accordance with the Pennsylvania State Police procedures manual. Petitioners contend that the Bureau presented entirely circumstantial evidence and that the Bureau's evidence was weak, at best.
The foregoing arguments by Petitioners go to the weight and credibility of the evidence. It is well settled that, while a hearing officer accepts evidence and makes a recommendation, it is the agency head that is the ultimate finder of fact and arbiter of witness credibility. See Section 185 of the GRAPP, 1 Pa. Code § 35.185 (Agency head may appoint a "presiding officer" to preside at a hearing "[w]hen evidence is to be taken in a proceeding."); Dowler v. Public School Employes' Retirement Board, 620 A.2d 639, 641 (Pa. Cmwlth. 1993) (The agency head is the fact finder under 1 Pa. Code § 35.185 and not the hearing examiner.). As noted herein, this Court's scope of review is limited and we cannot usurp, on appeal, the function of the Secretary as the fact finder. As such, we cannot reweigh the evidence in favor of Petitioners or make new credibility determinations.
Pursuant to Section 206 of The Adminstrative Code of 1929, Act of April 9, 1929, P.L. 177, as amended, 71 P.S. § 66, the Secretary of Banking is the head of the Department of Banking.
Next, Petitioners argue that because the Bureau called only a "handful" of borrowers to testify and relied solely on documentary evidence with respect to other borrowers, the Secretary erred by finding in favor of the Bureau and against Petitioners on all claims of fraud and forgery. Petitioners contend that the Bureau's experts neither could definitively state that the allegedly forged signatures were not those of the at-issue borrower nor could those witnesses state who allegedly forged the signatures. Petitioners argue that the process of obtaining and closing a loan involved a multitude of persons besides Petitioners and there was insufficient evidence to prove who actually created a forged signature. Therefore, Petitioners argue, the Bureau's evidence against them was purely circumstantial.
Petitioners also argue that evidence was inferred from the testimony of non-experts. However, this contention is disingenuous given the Petitioners' stipulation as to the Bureau's experts' qualifications at the January 2008 hearings before the Hearing Officer.
As pointed out by the Secretary, the Bureau's expert witnesses testified that there were different categories of signature manipulations found in documents contained in NorthStar's files. (Final Determination at 91.) Those categories were: (1) "simulated" signature "meaning that someone was making a signature appear as someone else's"; (2) "'common source' signatures, meaning an original signature was photocopied from one common source to another"; and (3) "'detach, assembly and copying,' meaning a document has been cut apart and put back together again or two pieces of a document have been put together to form a new document." (Final Determination at 91.) The Secretary deemed these types of signatures "Non-Genuine Signatures." (Final Determination at 91.) The Secretary concluded that "the Bureau did not need to provide evidence that proves with absolute percent certainty that signatures were forged." (Final Determination at 93.) The Secretary determined that the "Bureau only needed to provide such evidence that a fact finder could conclude by clear and convincing evidence that the signatures were Non-Genuine Signatures." (Final Determination 91.) Upon review of the evidence presented, the Secretary found, with few exceptions that in the cases where the borrower did not testify, the Bureau clearly and convincingly, through documentary and testimonial evidence, established that there were one or more Non-Genuine Signatures in thirty-five of the borrowers' files. (Final Determination at 95.) The Secretary's finding is supported by the record.
Crossland testified that the Department seized boxes of loan files from NorthStar's offices. (Final Determination at 11; N.T., January 24, 2008 at 62, S.R.R. at 1601b.) Crossland reviewed each of the seized loan files and identified irregularities with respect to signatures appearing on various loan documents. (Final Determination at 11; N.T., January 24, 2008 at 48-226, S.R.R. at 1587b-1765b.) Crossland forwarded the documents that contained the irregular signatures to the Pennsylvania State Police Crime Lab "for a forensic Alteration/Obliteration Exam/Deciphermen Analysis and Integral Parts Matching" to determine if the signatures appearing on the loan documents were the normal genuine signatures of the borrowers. (Final Determination at 13-65; N.T., April 17, 2008 at 59, R.R. at 359a.) Both Trooper Miller and Sergeant Wendt testified in detail with respect to each document they reviewed, that they examined the questionable signatures/documents and concluded that the signatures were not genuine because the signatures were either from a common source, simulated, or produced by detaching, assemblying and copying the signatures. (Final Determination at 13-65; N.T., January 24, 2008 at 272-317, S.R.R. at 1811b-1856b; January 25, 2008 at 10-65, R.R. at 244a-57a; April 29, 2008, R.R. at 547a-90a.)
A review of the testimony by Crossland, Trooper Miller, and Sergeant Wendt reveals that they each, clearly and convincingly, testified as to the facts and as to their conclusions with regard to the documentary evidence they examined for irregularities and for Non-Genuine Signatures. (See N.T., January 24, 2008 at 48-226, 272-317, S.R.R. at 1587b-1765b, 1811b-1856b; January 25, 2008 at 10-65, R.R. at 244a-57a; April 17, 2008, R.R. at 343a-77a; April 18, 2008, S.R.R. at 1863b-1945b; April 23, 2008, R.R. at 407a-75a; April 25, 2008, R.R. at 488a-546a; April 29, 2008, R.R. at 547a-90a; April 30, 2008, R.R. at 591a-634a; May 2, 2008, R.R. at 637a-715a.) The Secretary accepted the Bureau's witnesses' testimony in making his findings of fact and conclusion that the Bureau presented clear and convincing evidence that thirty-five borrower files contained one or more Non-Genuine Signatures. Accordingly, the Secretary did not err by finding in favor of the Bureau and against Petitioners on the claims of fraud and forgery.
The Secretary found that the Bureau did not meet its burden regarding seven borrowers. (Final Determination at 97.)
The Secretary also found that the findings of fact as to Petitioners' conduct were clearly established at the hearings by credible evidence and affirmed the findings of the Hearing Officer that Petitioners committed acts that were fraudulent, dishonest, unethical, negligent, and/or incompetent. (Final Determination at 97.) The Secretary found that "the Bureau presented clear and convincing evidence to establish that NorthStar permitted a pattern and practice among its employees of using Non-Genuine Signatures on loan documents." (Final Determination at 97.) The Secretary specifically cited Owner Fenelle's testimony wherein he essentially admitted that he, NorthStar, and its employees acted in a dishonest, unethical, or incompetent manner. (Final Determination at 97.) A review of the cited testimony reveals that Owner Fenelle testified that he was responsible for the actions of his employees and his employees' disorganization led to cutting and pasting where information or a signature was missing. (Final Determination at 98; N.T., May 2, 2008 at 192-98, R.R. at 685a-87a.) As such, the Secretary properly found that Owners were "responsible for all loan files that contained Non-Genuine Signatures." (Final Determination at 99.)
We note that Petitioners do not challenge the Secretary's finding that Owners "Fenelle and D'Elia acted in a negligent and incompetent manner by permitting [Keith] Buchanan[, who was employed by Northstar as a loan officer, and] a convicted felon for offenses involving mortgage loan documents, to continue to work at Northstar without the proper oversight or measures to monitor his actions." (Final Determination at 99.) --------
The Secretary rejected Petitioners' contention that the evidence was insufficient to prove that they were directly responsible for the Non-Genuine Signatures contained within the borrower files that they worked on. The Secretary recognized that the record did "not directly support a specific finding as to which [Petitioner] actually created the Non-Genuine Signatures." (Final Determination at 102.) However, the Secretary found that the Bureau presented clear and convincing evidence that the individual Petitioners worked as either loan originators or loan processors on the borrower files at issue and that NorthStar only had six to seven employees at all relevant times. (Final Determination at 102.) The Secretary determined that: (1) "[t]he evidence established that loan originators take the information from the borrower for purposes of the loan and prepare the information to be sent to the lender;" (2) "[l]oan processors assist the loan originator in preparing the loan package;" and (3) "[t]herefore, a loan originator and loan processor are both responsible for the documentation in the borrower's loan files." (Final Determination at 102.) Finally, the Secretary specifically found that: (1) "the established facts and the reasonable inferences that may be made thereon, that [Petitioners] as loan originators and loan processors knew of and consented to the use of Non-Genuine Signatures, even if they did not create the Non-Genuine Signatures themselves;" (2) "[t]he Findings of Fact reflect that multiple loan files per [Petitioner] contained Non-Genuine Signatures demonstrating a pattern or practice at NorthStar of fraudulent, dishonest and unethical conduct by its owners and employees;" and (3) "given the responsibilities of [Petitioners], the use of the Non-Genuine Signatures to obtain loans for borrowers instead of obtaining proper signatures, also demonstrates negligence and incompetence and is not the proper conduct of the mortgage loan business." (Final Determination at 102-03.) The Secretary's findings are supported by the record. (See N.T., January 4, 2008 at 144-46, 158-61, S.R.R. at 1272b-1274b; April 17, 2008 at 55-56, 75-77, 81-84, 97-100, 106-10, 115-16, R.R. at 358a, 363a, 364a-65a, 368a-69a, 371a-73a; April 25, 2008 at 179-88, 196, R.R. at 533a-35a, 537a; April 29, 2008 at 67-70, 88-89, 91-94, 107-10, 129, R.R. at 565a-66a, 570a, 571a-72a, 575a-76a, 580a; April 30, 2008 at 16-17, 45, 55-58, 75-77, 81-84, 113-18, 124, R.R. at 595a, 602a, 605a-06a, 610a-12a, 618a-21a; May 2, 2008 at 202-03, 268, R.R. at 688a, 704a.)
Next, Petitioners argue that the Hearing Officer and the Secretary erred by drawing an adverse inference from Employee Gilbert's decision not to testify. Petitioners contend that the record clearly shows that Employee Gilbert's decision was a tactical one made by his counsel because the evidence presented against Employee Gilbert was woefully deficient.
As pointed out by the Secretary, there is precedent that "[a] party's failure to testify in a civil proceeding can give rise to an inference of fact that the party's testimony would have been adverse or unfavorable to him." Scott v. Bureau of Driver Licensing, 567 Pa. 631, 642, 790 A.2d 291, 298 (2002). However, in this case the Bureau presented clear and convincing evidence proving that the individual Petitioners, working either as loan originators or loan processors, were responsible for the Non-Genuine Signatures contained within the borrower files. Therefore, drawing an adverse inference was not necessary for there to be sufficient evidence to support the findings.
Next, Petitioners argue that their due process rights were violated by the Bureau's failure to provide them with exculpatory information. Petitioners contend that the Bureau engaged in prosecutorial misconduct by failing to notify them that exculpatory information existed with respect to one borrower, John Vanic. Petitioners aver that Mr. Vanic issued a letter directly to the Department indicating that the documents in question were, in actuality, signed by him. Petitioners contend that, despite having this letter six months prior to the hearings, the Bureau neither provided this exculpatory information nor did the Bureau seek to withdraw the claims against Petitioners regarding Mr. Vanic.
In their brief, Petitioners fail to acknowledge that the Secretary determined that Mr. Vanic's letter was in Petitioners' possession over four months prior to the start of the hearings in this matter. (Final Determination at 86.) In addition, Petitioners listed Mr. Vanic as a witness; however, Mr. Vanic was not called to testify during the hearings. (Final Determination at 86.) The Secretary correctly observed that Petitioners could have introduced the letter through Mr. Vanic's testimony. (Final Determination at 86.) In addition, the Secretary determined that, after cross- examining the Bureau's investigator regarding Mr. Vanic's letter, Employee Gilbert's counsel did not seek to enter the letter into evidence and Owner Fenelle failed to lay a proper foundation when he sought to submit the letter into evidence. (Final Determination at 86-87; N.T., April 30, 2008 at 131-37, R.R. at 623a-24a; May 2, 2008 at 9, R.R. at 639a.) Moreover, the Secretary specifically found that the Bureau did not meet its burden regarding the allegations concerning Mr. Vanic. (Final Determination at 97.) Therefore, because Petitioners were aware of the "exculpatory information" and since the allegations regarding Mr. Vanic were not sustained, we will not sustain Petitioners' contentions of prosecutorial misconduct and denial of due process rights.
Finally, Petitioners contend that the Secretary erroneously found against Employee Gilbert with respect to two borrowers after the Secretary determined that the Hearing Officer erred by admitting the affidavits of these two borrowers into the record. Petitioners contend that, without the affidavits or the borrowers' sworn testimony, there was no clear and convincing evidence to support the claims against Petitioners with regard to these two borrowers. Petitioners argue that, given the lack of support for the claims, the Secretary should have found in favor of Petitioners. We disagree.
Again, Petitioners do not acknowledge the full extent of the Secretary's determination in this matter. While the Secretary did find that the affidavits of the two borrowers should not have been entered into evidence, the Secretary declined to adopt the Hearing Officer's findings of fact that were based upon the affidavits. (Final Determination at 85.) The Secretary specifically adopted the Hearing Officer's findings of fact based on other evidence submitted into the record by the Bureau, which established that the borrowers' files contained Non-Genuine Signatures. (Final Determination at 85.) Based on this other evidence, the Secretary found that Employee Gilbert worked on those borrowers' files and was, therefore, responsible for the documentation in those files. (Final Determination at 103; N.T., April 17, 2008 at 55-56, 75-77, 115-16, R.R. at 358a, 363a, 373a; April 29, 2008 at 67-70, 107-10, R.R. at 565a-66a, 575a-76a; April 30, 2008 at 119-21, R.R. at 621a.)
Accordingly, the Secretary's Order is affirmed.
/s/ _________
RENÉE COHN JUBELIRER, Judge ORDER
NOW, January 12, 2012, the Order of the Secretary of Banking entered in the above-captioned matter is AFFIRMED.
/s/ _________
RENÉE COHN JUBELIRER, Judge