Berchock v. Coun. Real Estate App.

Full title: Catherine Berchock, appellant, v. Council On Real Estate Appraisers…

Court: Superior Court of Delaware, New Castle County

Date published: Apr 26, 2001

C.A. No. 00A-10-004-CG (Del. Super. Ct. Apr. 26, 2001)

Opinion

C.A. No. 00A-10-004-CG

Date Submitted: March 12, 2001

Date Decided: April 26, 2001

ON APPEAL FROM THE COUNCIL OF REAL ESTATE APPRAISERS. AFFIRMED.

J. Brendon O'Neill, Attorney for Appellant.

James J. Hanley, Attorney for Appellee.

Goldstein, J.

OPINION ORDER

This is an appeal by Catherine Berchock, a licensed real estate appraiser, from a decision of the Council on Real Estate Appraisers (hereinafter, "Council"), which determined that Berchock had violated certain professional regulations and imposed sanctions upon Berchock.

On September 22, 1997, Berchock was hired to appraise a residential property located at 2 Patricia Circle in Bear, Delaware. Berchock prepared a written appraisal report dated September 27, 1997, which estimated the market value of the property to be $155,000.

On May 3, 2000, the State filed a Complaint with the Council, alleging that Berchock violated certain provisions of the Uniform Standards of Professional Appraisal Practice (USPAP) in her appraisal of 2 Patricia Circle. Specifically, the Complaint alleged that Berchock violated:

a. USPAP Standard Rule 1-4(b)(iii) that states that in developing a real property appraisal, an appraiser must observe the following appraisal guidelines to collect, verify, analyze and reconcile such comparable sales data adequately identified and described, as are available to indicate a value conclusion:

1. By failing to consider information concerning the property located at 102 Dasher in Whethersfield in reaching the market value of 2 Patricia Circle.

2. By failing to give weight to comparable #3 located at #78 Buena Vista Drive in the Meadows subdivision with the other comparables in reaching the market value of 2 Patricia Circle.

3. By using comparables from outside of Whethersfield in markets not comparable to the houses in Whethersfield and to the residence at 2 Patricia Circle.

b. USPAP Standard Rule 1-1(b) that states that in developing a real property appraisal, an appraiser must not commit a substantial error of omission or commission that significantly affects an appraisal.

1. By choosing two comparables from the Hawks Nest development because the location in Hawks Nest is superior to Whethersfield and by failing to make an adjustment for a seller's concession for comparable number 2.

2. By using only four bedroom home sales in the appraisal of a three bedroom residence when information concerning a number of three bedroom home sales in the immediate area were available.

3. By making a number of adjustments in the appraisal all of which supported a higher value conclusion including an upward adjustment for comparable #2 or 4, for inferior condition in comparison with 2 Patricia Circle.

The Complaint requested that the Council impose discipline for Berchock's violations of 29 Del. C. § 2938(8) for wilfully disregarding Council Regulation 7.01.¹

1 Council regulation 7.01 requires that, "in performing the acts and services of a state licensed or state certified real property appraiser, every appraiser trainee, state licensed and state certified real property appraiser shall comply with those appraisal practice standards known as the "Uniform Standards of Professional Appraisal Practice' and any subsequent amendments thereto. . . ."

On July 18, 2000, the Council held a hearing to consider the Complaint against Berchock. At the Council hearing, the State called three witnesses. Samuel L. Nickerson, an investigator with the Division of Professional Regulation, testified that he conducted an investigation into the complaint against Berchock. Nickerson testified that he reviewed the appraisal of 2 Patricia Circle, which included comparable sales used for the appraisal, as well as other comparables which were included but were not used in the appraisal. Nickerson testified that the subject of the appraisal is located in a development called Whethersfield. The first two comparables Berchock used in the appraisal were from a development called Hawks Nest. Nickerson testified he had visited both developments and that the properties in Hawks Nest had larger, wooded lots, that the homes were larger, of better construction with stone fronts and some brick fronts, and were in a more "upscale community."

Charles Brown also testified on behalf of the State. Brown stated that he was a real estate appraiser and a professional member of the Council "assigned as the contact person for this case." Brown testified that he had reviewed, and was familiar with, the comparables Berchock used in her appraisal. Brown agreed that the two comparables from Hawks Nest were quite a bit larger than the subject property. Brown also pointed out that all four comparables used by Berchock were four-bedroom homes while 2 Patricia Circle was a three-bedroom home. Brown opined that the market segments for three- and four-bedroom homes "can be completely different market segments."

Brown questioned why no three-bedroom homes were used in the appraisal, although Berchock included some three bedroom comparables that she did not use. Brown noted that two of the comparables excluded by Berchock were foreclosure sales. Brown pointed out that the properties, although foreclosures, were marketed with a broker.

Brown testified that, as to comparable number two in the appraisal, Berchock did not adjust the sale price to account for $4,900 in settlement help provided by the seller. Brown explained that omitting the settlement help resulted in a higher valuation conclusion for the subject property.

Brown also testified that one of the comparables Berchock omitted was 102 Dasher Avenue in Whethersfield, a four-bedroom house that was a pending sale that had not yet closed. Berchock, however, did use one pending sale in her appraisal of the subject property as the fourth comparable.

When asked whether he would have done anything different in the appraisal for 2 Patricia Circle, Brown testified:

I would have considered — I would have given even more consideration than it looks like she gave to three-bedroom home sales in the area, either within the area or within the surrounding neighborhoods. It seems like she completely eliminated that market segment from the analysis.

Further, comparable Sale No. 3 that was used, it appears to require — to have required the least amount of adjustments. The best sales are those sales that require the fewest adjustments. And, although it looks like that sale required less adjustment than either Sale 1 or 2, it doesn't look like that was given any real weight in the final value conclusion. The adjusted value indicated on the appraisal for Sale No. 3 was 132,300, $132,300, but it really doesn't look like that was factored into the final value conclusion of $155,000.

Brown stated that he knew of no explanation for the omission.

The State called John V. Hawkins, Jr., who purchased 2 Patricia Circle in 1997, as its final witness. Hawkins testified that he lived in 2 Patricia from October 1997 until approximately two weeks before the hearing, when he sold the property for $141,900. Hawkins stated that he provided $4,000 in settlement help to the buyer, resulting in a true sale price of $137,900. Hawkins testified that he purchased the house in 1997 in a private sale for $155,000. Hawkins stated that he was given a sale price by the seller of $155,000 in August 1997. Hawkins testified that the seller ordered the appraisal by Berchock, which was provided to him on September 23, 1997.

Berchock testified on her own behalf at the Council hearing. Berchock considered each of the six specific acts or omissions alleged in the Complaint one by one and explained her actions regarding those acts to the Council. Specifically, Berchock testified that she considered 102 Dasher and included it in her "backup." However, at the time of the appraisal, Berchock testified that there was no way to determine its value because it was an active listing. Berchock testified that she used comparable number three in her appraisal, but gave it very little weight and that she used an additional comparable to attempt to establish its value. Berchock also stated that the Whethersfield development lacked comparables. Therefore, Berchock went outside the development and that all the comparables listed were in the same area.

Berchock admitted that she did not adjust one of her comparables for a seller's concession, but stated that she did not know of a rule that required such an adjustment. Berchock testified that she did not make adjustments based on the number of bedrooms; rather she made adjustments on the basis of the square footage of the house. Finally, Berchock explained that she upgraded the value of the subject property because it was a model home. Berchock testified that she did not use certain comparables because they were located too far away from 2 Patricia Circle and that others were sales over a year old and she did not believe the USPAP permitted their use. Berchock also recalled Nickerson and Brown as witnesses and questioned them as to their review of the appraisal.

On September 19, 2000, the Council issued its decision. The Council concluded that Berchock had violated USPAP Standard Rules 1-4(b)(i) and 1-i(b) in her preparation of the appraisal for 2 Patricia Circle, and thus, wilfully violated Council regulation 7.01. As sanction, the Council placed Berchock on probation pursuant to 24 Del. C. § 2939(3)c for one year or until she completed fifteen hours of USPAP training and fifteen hours of a course specific to the comparable sales approach. The Council did not prevent Berchock from practicing her profession during the probationary period. Berchock has now appealed the Council's decision to this Court.

A decision of the Council is reviewable to this Court upon appeal by the practitioner. 24 Del. C. § 2940(b). However, no standard of review of a Council decision is specified by statute. Nor is the appeal of a decision by the Council pursuant to disciplinary proceedings covered by the Administrative Procedures Act since the Board is not a listed agency in the Act. See 29 Del. C. § 10161. Accordingly, this Court will employ the standard tests for reviewing administrative agency, quasi-judicial decisions, that is, whether the agency's ruling is supported by substantial evidence and is free from legal error. Stoltz Management Co., Inc. v. Consumer Affairs Bd, Del. Supr., 616 A.2d 1205, 1208 (1992) (citations omitted).

Berchock's first ground in support of her appeal is that the State's two and a half year delay in filing its Complaint with the Council substantially prejudiced her so that prosecution of the Complaint should have been barred under the doctrine of laches. As a result, Berchock claims that the Council committed an error of law by permitting the case to go forward. The State responds that Berchock is barred from presenting this issue on appeal because she did not present the issue before the Council at the July 18, 2000. The State also argues that, even if the Court were to consider the issue, Berchock has not met her burden to prove that the delay was unreasonable and that she was prejudiced by the delay.

Under the waiver rule, issues or arguments that are not raised to an administrative agency cannot be considered by a reviewing court. Down Under, Ltd v. Alcoholic Beverage Control Comm'n, Del. Super., 576 A.2d 675, 677 (1989) (citations omitted.) Down Under explained that the waiver rule "furthers the goal of permitting agencies to apply their specialized expertise, correct their own errors, and discourage litigants from preserving issues for appeal." Id. (citations omitted.) However, the rule is not absolute as it does not apply to constitutional issues that were not presented to an administrative agency. Id. (citing Califano v. Sanders, 430 U.S. 99 (1977)).

There is no evidence in the record that Berchock presented the issue of the State's delay in bringing its Complaint against her to the Council. Nor does Berchock argue that the issue is one of constitutional dimension. As a result, the Court must find that Berchock is barred from raising the issue of the State's delay in her appeal.

Second, Berchock claims that the Board committed an error of law by calling Charles Brown, a Council member, as an expert witness. As a result, Berchock argues that the Council deprived her a hearing before a non-biased tribunal and "overstepped the bounds of fair play." In response, the State contends that Berchock has failed to demonstrate any specific factual grounds to support her allegation of bias.

Twenty-four Del. C. § 2938 provides that all complaints filed with the Council shall be received and investigated in accordance with 29 Del. C. § 8807(h).² Section 8807(h) sets forth the procedure for the investigation of those complaints by the Division of Professional Regulation. Specifically, § 8807(h)(6) provides:

2 The actual code provision cited in 24 Del. C. § 2938 is 29 Del. C. § 8810(h). However, 29 Del. C. § 8810(h) states only that, "The Division of Purchasing shall assume such other powers, duties and functions as the Secretary may assign which are not otherwise inconsistent with the laws of this State." Because this provision has nothing to do with the Council on Real Estate Appraisers or the investigation of complaints, the Court assumes that the language is a typographical error and that the "§ 8810(h)" is meant to read "§ 8807(h)," which does, in fact, deal with the procedure for addressing complaints against licensees of certain boards, commissions, and agencies.

At the board, agency, or commission's next regularly scheduled meeting, it may assign a board member to assist the Division with the investigation of the complaint. The board member shall maintain strict confidentiality of the facts of the investigation and shall not discuss any issue of fact or law of the investigation with any other board member or the public. In addition, if a hearing is held, the investigating board member shall excuse himself or herself as a board member but may otherwise assist in the presentation of the complaint before the board.

Brown testified at the hearing that he had been assigned as the contact person for Berchock's case. The Council, in its written decision, noted that Brown served as the member of the Council designated under 29 Del. C. § 8807(h)(6) to assist with the investigation and presentation of the complaint.

Berchock argues that Brown, by testifying at the Board hearing, exceeded the scope of assisting with the presentation of the complaint to the Council as allowed by the statute. Berchock points out that this Court has previously held that administrative agencies permitted by law to hold hearings "must not only be unbiased but must also avoid any appearance of bias." Ocasio v. Carver's Lawn Landscape, Del. Super., C.A. No. 99A-11-011, Del Pesco, J. (June 13, 2000), Letter Op. at 3 (quoting Quaker Hill v. Saville, Del. Super., 523 A.2d 947, 966 (1987), aff'd, Del. Supr., 531 A.2d 201 (1987)). Therefore, it is necessary to determine whether Brown exceeded the scope of his role to "otherwise assist with the presentation of the complaint" by testifying before the Council so as to create an appearance of bias.

Upon review of the language of 24 Del. C. § 8807(h) and Brown's testimony before the Council, the Court cannot find that Brown's appearance before the Council constituted bias or the appearance of bias. Although Brown is a member of the Council, Berchock does not claim that Brown did not comply with the requirements set forth in § 8807(h) that Brown "maintain strict confidentiality of the facts of the investigation and shall not discuss any issue of fact or law of the investigation with any other board member or the public." The record indicates that Brown excused himself as a Council member for purposes of the investigation.

The transcript shows that Brown testified before the Board about his findings in assisting with the investigation of the complaint against Berchock, not, as Berchock contends, to tell "his fellow Council members that Ms. Berchock was guilty." The Court cannot find that Brown's appearance before the Board, given the language of § 8807(h) permitting him to assist in the investigation of the complaint and its presentation to the Council, in and of itself, created the appearance of bias so as to constitute legal error by the Council.

Third, Berchock argues that the Council's findings were legally erroneous because the Board did not find that Berchock's actions constituted wilfulness as required by 24 Del. C. § 2938(8) and that the Council's decision is not based upon substantial evidence in the record. Berchock argues that the record does not contain sufficient evidence to fairly and reasonably conclude that Berchock intended to violate the USPAP standard rules. As a result, Berchock argues, the Council could not conclude that Berchock wilfully violated those rules.

Twenty-four Del. C. § 2938 provides that the Council may investigate a complaint against, and discipline, a state certified or licensed real estate appraiser for certain acts or omissions listed in the statute, including "wilfully disregarding or violating any of the provisions of this subchapter or the regulations of the Council for the administration enforcement of the provisions of this subchapter." 29 Del. C. § 2938(8). In its written determination, the Council made the following findings of fact:

The Council finds that the respondent did not attempt to verify the sales used in the comparables. It would have been reasonable not to use distress sales as comparables but the status should have been confirmed or at least an attempt made. Respondent also considered neither active listings nor the current market conditions. The Board was not persuaded that the methodology that rejects the number of bedrooms as a factor is appropriate since the markets for 3 and 4 bedroom homes are very different. Respondent omitted sales that were over 1 year old even though those transactions are permitted by USPAP though they do require an explanation.

The Council concluded that Berchock wilfully violated USPAP Standard Rules 1-4(b)(iii) and 1-1(b) in her appraisal of 2 Patricia Circle. In support of its conclusion, the Council stated:

The Council concludes that respondent has committed substantial errors that have significantly affected the appraisal by choosing comparables that were not the most appropriate under the circumstances. Different comparables might have resulted in a more accurate opinion of value. Her opinion was tainted by her desire to justify the price on the contract rather than to reach an objective opinion of value. It did not appear to the Council that attempts to obtain or confirm information were made when necessary, which is in violation of Standards Rule 1.1(b). The appraisal does not comply with Standards Rule 1.4(b)(iii) in the verification and analysis of the comparable sales data. The properties that might have been more appropriate as comparables were not considered because information from builders was not readily available. Furthermore, older sales were rejected under the misinformed belief that they would violate the USPAP.

The Council recognizes that sometimes judgment calls are made but its impression is that judgment calls in this case were made in such a way to arrive at a estimate of value that justified a sales contract.

As Berchock notes, the word, "wilfulness," as it pertains to this statute, is not defined in Title 24 or Title 29 of the Delaware Code. Both parties agree upon the definition of "willfulness" as set forth in Black's Law Dictionary, fourth edition: "[p]roceeding from a conscious motion of the will; voluntary . . . Intending the result which actually comes to pass; designed; intentional; not accidental or involuntary." Black's Law Dictionary 1773 (4^th ed. 1957). However, the parties disagree on whether Berchock's actions constitute willfulness based upon this definition.

Berchock argues that the correct interpretation of § 2938 requires a finding that she actually intended to violate the USPAP provisions in order to find that she wilfully violated them. The State, on the other hand, contends that, "the willfulness element does not concern whether she intended to violate the [USPAP] provisions. This would be a question of her motivation. Rather, willfulness concerns whether she intentionally did those things that the council found that she did." The State cites State Bd. of Nurse Examiners v. Rafferty, Pa. Supr., 499 A.2d 289 (1985), in support of its argument.

Rafferty defined "wilful" as it pertained to § 14(3) of the Professional Nursing Law, as "an intentional, designed act and one without justifiable excuse." Id. at 292 (quoting Leukhardt v. State Bd. of Nurse Examiners, 403 A.2d 645 (1979)). Rafferty held that the court below erred in holding that, "the Board must prove a specific intent to violate the Act or its rules and regulations in order to establish a wilful violation." Such a holding disregards that very purpose of the Board of insuring "safe nursing services for the citizens of the Commonwealth." Id.(quoting 49 Pa. Code § 21.3) (Emphasis in original.))

Other jurisdictions have interpreted the wilfulness requirement similarly. Nuger v. State Ins. Comm'r, Md., 207 A.2d 619 (1965), interpreted provisions of a statute dealing with the qualifications of parties to engage in the insurance business in Maryland. Specifically, Nuger considered the requirements for finding that an insurance broker, broker's solicitor, agent or solicitor, licensed in State, "has wilfully violated any of the insurance laws of this State, or has wilfully misrepresented any policies of insurance, or has dealt unjustly with or wilfully deceived, or dealt fraudulently with any insurance company or with any citizen of this State in regard to any insurance policy. . . ." Id. at 622. Nuger found that the term, "wilful violation," in context of the language quoted above, "clearly means an intentional act of omission commission" and that "'wilfulness' and 'negligence' are not synonymous terms." Id. at 625. (Citations omitted.)

The Court finds, based upon the definition of "wilfulness" set forth above, and the interpretation of similar statutory language in Rafferty and Nuger, supra, that Berchock's interpretation of 24 Del. C. § 2938 is incorrect. The Court finds that, in order to conclude that an appraiser has wilfully disregarded or violated provisions of the USPAP rules, as Berchock was charged, there must be evidence in the record to support a finding that the appraiser intended to commit the act or omission that, in turn, violated the rules. A finding of mere negligence would not be sufficient.

The Court finds that the Board, albeit not in the most straightforward manner, determined that Berchock wilfully violated the USPAP provisions. Initially, as set forth above, the Council determined that Berchock chose certain comparables that were inappropriate and disregarded other comparables that were suitable, thereby violating USPAP Rules 1.4(b)(iii) and 1.1(b). The Council then determined that Berchock's opinion as to the appraisal for 2 Patricia Circle, "was tainted by her desire to justify the price on the contract rather than to reach an objective opinion of value." The Council further stated, "[t]he Council recognizes that sometimes judgment calls are made but its impression is that judgment calls in this case were made in such a way to arrive at an estimate of value that justified a sales contract."

Berchock does not argue that there is not substantial evidence in the record to support the Council's findings that Berchock improperly omitted or included certain comparables so as to violate the standard rules. The Court finds that the record also contains substantial evidence to support its conclusion that Berchock intentionally violated the USPAP rules in order to justify the price on the contract rather than to reach an objective opinion of value. Specifically, Berchock, although claiming that she was unbiased in her appraisal, admitted that she tried to find sales in the area to support the contract price for 2 Patricia Circle.³ As a result, the Court cannot find that the Board erred as a matter of law in its determination that Berchock violated USPAP standard rules.

3 Specifically, the transcript provides:
MS. MORRISON (Council member): But, I mean — I guess, then, you know if the price is X you can choose — maybe I'm ahead of myself But, I mean, I think that you can pretty much justify any price at some point.
BERCHOCK: Correct.
MORRISON: So it's truly not an appraisal on that house based on no information. It is based on trying to come to a number?
BERCHOCK: A conclusion.
MORRISON: That has already been given to you.

BERCHOCK: You have a contract that has a sales price. You are trying to establish that there is sales in the area that support it.

Finally, Berchock argues that the grounds for the Council's finding of wilfulness were not adequately set forth in the Complaint. Berchock notes that the Complaint against her set forth specific allegations, outlined above, as the grounds for the alleged violations of Rule 1.4(b)(iii). Berchock argues that the Council erred because it did not find that Berchock violated Rule 1.4(b)(iii) as a result of any of the grounds alleged in the Complaint. Rather, the Council found her guilty of charges not specified in the Complaint. Because Berchock was never given notice that the uncharged acts could be grounds for the Council to find a violation by Berchock, the Council committed legal error.

In response, the State argues that the Council did not commit legal error by covering issues at the hearing and making findings in its decision concerning matters not expressly pleaded in the Complaint. The State admits that the Council's findings, "do not mirror the specific allegations in the complaint." However, the State argues that the scope of the notice provided to Berchock by the Complaint was sufficient.

As set forth above, the waiver rule is not absolute as it does not apply to constitutional issues that are not presented to an administrative agency. Down Under, 576 A.2d at 677 (citing Califano v. Sanders, 430 U.S. 99 (1977)). Therefore, the Court may review the issue of whether the Council provided Berchock with due process of law by providing her with constitutionally adequate notice of the charges against her. In an administrative proceeding, due process is satisfied where the party to loss of property is afforded notice in a "meaningful manner." Formosa Plastics Corp. v. Wilson, Del. Supr., 504 A.2d 1083, 1089 (1986). More specifically:

To be effective, the notice must be such that the individual to whom it is directed knows what professional violations are in issue. This does not mean that a complaint issued by an administrative board must satisfy the pleading rules of this Court. Nor does this mean that the complaint and the ultimate holding of the Board must mesh with precision. A complaint is sufficient if a reasonable person reading it knows what conduct and alleged professional responsibilities are at issue. Where this standard has been met due process is preserved since the party before the Board has an adequate opportunity to prepare a defense.

Cain v. Delaware State Board of Accountancy, Del. Super., C.A. 89A-JA-9, Taylor, J. (Oct. 3, 1989). Order at 8 (citing Mullane v. Hanover Bank Trust Co., 339 U.S. 306, 3 14-15 (1950)).

Again, as set forth in detail above, the Complaint against Berchock outlined six very specific allegations of acts or omissions by Berchock concerning the comparables she used to arrive at her assessment of 2 Patricia Circle. The State provided notice that it wished to have the Council invoke discipline pursuant to 24 Del. C. § 2928(8) for Berchock's wilful violation of Council Regulation 7.01 regarding the USPAP.

Upon review of the Complaint, the transcript of the Council hearing, and the Council's decision, the Court cannot find that the State failed to provide Berchock with such inadequate notice of the allegations against her that she was deprived of due process of law. Although, as noted above, the Council did not make specific findings in its decision as to each of the six acts or omissions outlined in the Complaint, its findings encompassed those acts. The Complaint satisfied constitutional due process in that it notified Berchock that she was charged with wilfully violating certain provisions of the USPAP through six instance of specific behavior and that the State wished to have the Council impose sanctions due to Berchock's violations. The record indicates that Berchock had sufficient opportunity to prepare her defense to those charges. As a result, the Court finds that the State's notice to Berchock met the minimum requirements of due process. To the extent that Berchock argues that the Complaint was otherwise defective or that the Board improperly questioned Berchock at the hearing, the Court finds that Berchock waived those issues by failing to present them before the Board.

Therefore, for the foregoing reasons, the decision of the Council of Real Estate Appraisers is hereby AFFIRMED.

IT IS SO ORDERED.