Opinion
G056145
11-21-2019
TONJA LYNN DEMOFF, Petitioner and Appellant, v. WAYNE J. BELL, as Real Estate Commissioner of the State of California, et. al., Respondents.
Ray and Bishop, Fredrick M. Ray and Lindsay M. Johnson for Petitioner and Appellant. Xavier Becerra, Attorney General, Diane S. Shaw, Senior Assistant Attorney General, Brian D. Wesley and Van-Dzung V. Nguyen, Deputy Attorneys General for Respondents.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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. 30-2016-00893938) OPINION Appeal from a judgment of the Superior Court of Orange County, Geoffrey T. Glass, Judge. Reversed and remanded. Ray and Bishop, Fredrick M. Ray and Lindsay M. Johnson for Petitioner and Appellant. Xavier Becerra, Attorney General, Diane S. Shaw, Senior Assistant Attorney General, Brian D. Wesley and Van-Dzung V. Nguyen, Deputy Attorneys General for Respondents.
In 2008, Kemery Blair-Yeakel (also referred to as Kemery Day) filed a lawsuit against real estate broker Tonja Lynn Demoff, alleging she was the victim of three fraudulent real estate transactions. Day prevailed at trial and she was awarded $903,625 in damages plus attorney fees and costs against Demoff and several of her business entities. After Demoff failed to pay the judgment, Day filed an application with the Bureau of Real Estate of the State of California (BRE) for compensation. The BRE administers a fund called the Consumer Recovery Account (CRA), which provides money to judgment creditors defrauded by real estate licensees unable to pay judgments. The fund's procedures and requirements for payment are outlined in Business and Professions Code section 10470 et seq., and title 10 of the California Code of Regulations section 3100 et seq. The BRE's decision to pay a third party creditor from the CRA triggers an automatic suspension of the judgment debtor's real estate license, which can be reinstated if the debt is paid back to the fund with interest. (§ 10471.)
At the time, BRE was headed by Wayne J. Bell, Real Estate Commissioner for the State of California (the Commissioner). We will refer to Bell and the BRE collectively, and in the singular as BRE unless the context requires otherwise.
All further statutory references are to the Business and Professions Code, unless otherwise indicated.
When the BRE paid Day, it suspended Demoff's license to practice real estate. She petitioned for a writ of mandate from the Orange County Superior Court, seeking to invalidate the CRA payment and the disciplinary action. After holding a trial and independently reviewing the administrative record, the court denied the petition. In this appeal, Demoff maintains the trial court abused its discretion by applying the wrong burden of proof, making evidentiary rulings contrary to facts in the record, and reaching erroneous legal conclusions. Specifically, she raises the following arguments: (1) Day did not properly serve the application for CRA funds; (2) payment was not warranted because the unsatisfied judgment needed to be based on fraud arising from activities involving a real estate license; (3) the Commissioner exceeded his authority by granting Day's second application after denying the first one; (4) Demoff's license could not be suspended unless there was clear and convincing evidence of fraud; and (5) the Commissioner's ruling should have included detailed findings of fact and legal conclusions.
We conclude only the fourth contention has merit, and the court's use of an incorrect standard of proof requires us to reverse the judgment with directions to set aside the order denying Demoff's petition. We remand the matter for a new hearing because there must be clear and convincing evidence of fraud to suspend Demoff's real estate license. This higher burden of proof can be satisfied by either of the following two methods: (1) it is evident from the face of the judgment that there was a prior finding, by clear and convincing evidence, of fraud related to the license (such as when punitive damages were awarded or the jury makes a special finding); or (2) the reviewing trial court determines the documents submitted by the parties established fraud by clear and convincing evidence.
FACTS
I. Background Facts & Prior Appeals
In 1997, Demoff obtained her license to practice real estate in California. In 2008, Day filed a lawsuit alleging she had been defrauded by Demoff with respect to several real estate deals. (Kemery Day et al. v. Tonja Demoff et al. (Super. Ct. Orange County, 2008, No. 30-2008-00103768.) The following year, the trial court entered a $1.2 million dollar default judgment against Demoff (and her two corporations). In 2011, we reversed this judgment and remanded the case for trial. (Day v. Demoff (May 25, 2011, G043227) [nonpub. opn.] (Day I).)
Three years later, Day prevailed on all her causes of action at a bench trial and the court awarded her $1,123,197.62. We affirmed this judgment in Day v. Demoff (Dec. 10, 2014, G049293) [nonpub. opn.] (Day II).
The following year, Day submitted a CRA application (BRE File No. R-5414, hereafter, "Second Application"). Day sought $1,421,074 from the CRA. Two years later, in August 2016, the BRE granted the application and paid Day $242,929 "against the real estate broker license of" Demoff.
This was actually Day's second application to the BRE. Her first application (BRE File No. R-4510), was based on the September 2, 2009, default judgment ("First Application"). The BRE denied the First Application in December 2014, after we issued our opinion (Day I, supra, G043227) reversing the default judgment.
In November 2016, the BRE sent Demoff a notice of suspension, stating the suspension would be lifted upon payment of the $242,929 plus interest at the rate of 10 percent per year. Demoff filed a petition for writ of mandate in the Orange County Superior Court, seeking to invalidate the CRA payment to Day and the automatic license suspension. The trial court denied her petition, and this appeal concerns Demoff's challenge to this ruling.
II. Petition for Writ of Mandate
In November 2017, the trial court considered the administrative record, which the parties stipulated would be augmented with additional evidence supplied by Demoff. After hearing oral argument, the court took the matter under submission.
The court issued a minute order with a statement of decision, denying the petition. It reached the following conclusions:
"The court applied its independent judgment in its de novo review of the administrative record. 'The statutory scheme regarding the Recovery Account specifically states the trial court independently reviews the evidence without being bound by the findings made by the Commissioner.' [Citation.] [Section] 10472.1, [subdivision] (b) states that 'The claimant shall be entitled to de novo review of the merits of the application as contained in the administrative record.' For the reasons stated below, the court applied the 'preponderance of the evidence' burden of proof.
"To set the scene . . . Day got a judgment against . . . Demoff. [D]ay then applied to get paid from the BRE recovery fund . . . . [D]ay tried to serve the application on . . . Demoff by mail[, she] did not respond to the application[,] and the Commissioner of the [BRE] paid . . . [D]ay out of the [CRA]. The Commissioner then demanded reimbursement from . . . Demoff and suspended her real estate license until that was done. [D]emoff seeks to reverse the Commissioner's decision to pay . . . Day from the [CRA] and reverse the decision suspending her license.
"Both parties agreed that the following are the controverted issues to be addressed in the statement of decision:
"Issue 1: Improper service of application in Case R-5414 .
"The two issues regarding service, according to . . . Demoff, are:
"—The address to which . . . Day sent her application was incorrect, and,
"—[D]ay did not receive actual notice of the application.
"As to the first issue, [s]ection 10471.1 . . . requires that the application be sent by certified mail addressed to . . . Demoff at the latest business or residence address on file with the department. [¶] The BRE records listed . . . Demoff's address as '6621 E. Pacific Coast Highway, Suite 140, Long Beach, CA 90803.' [Day] sent her application in this matter to 'Q&A Realty Group Inc., Tonja Demoff, 6621 Pacific Coast Hwy #140, Long Beach, CA 90803.' [¶] It is the lack of the letter 'E.' that concerns . . . Demoff. The court is not as concerned as she. [¶] The statutory scheme in this matter does not require strict compliance. California Code of Regulations, Title 10, Regulation 3102, for instance, recognizes that an application may be deficient, but still 'substantially complete.' Thus, the court concludes that the legislature did not intend that the address be exactly as listed in the BRE.
"[D]emoff, however, is entitled to the benefits and protections under the general statutes regarding service. If she had shown that the lack of the 'E.' on the address violated her due process, she would prevail. She did not convince the court of that. [¶] . . . [T]he correct suite number or floor number is not fatal. [Citations.] [¶] The question becomes, then, whether E. Pacific Coast Highway is different than plain old vanilla Pacific Coast Highway? The court finds it is not and that the street address is substantially compliant. There was no evidence of a 'W.' Coast Highway in that zip code, that the United States Postal Service could not properly deliver mail to that area without the 'E.', that addresses in that area do not regularly use Pacific Coast Highway (no 'E.') in their addresses, or that there is, anywhere in Long Beach, a '6621 West Pacific Coast Highway' which might confuse a mail carrier.
"As to the second issue, there is a declaration in the record from Ms. Novak, the owner of . . . Demoff's employer, that . . . Novak never received any package addressed to . . . Demoff and containing the application and attachments. This is insufficient to show that the package was not delivered.
"Issue 2: The Commissioner of the BRE did not proceed as required by law and in excess of authority in paying the recovery account application and suspending the license of petitioner.
"The present claim for payment from the recovery account is not . . . Day's first in this matter. She had made another claim, designated R-4510. That claim involved the same judgment, the same claims, and the same parties. The Commissioner informed . . . Day of the insufficiencies in her application. [D]ay did not address those insufficiencies and did not seek review in [s]uperior [c]ourt. Instead, she simply filed a new claim. The Commissioner recognized this as peculiar, but accepted the new application. [¶] [D]emoff complains that . . . Day has only one chance to make a claim and if she fails to pursue it timely, or abandons it, she is not entitled to bring another claim. She relies upon [section] 14072. This section provides a time frame for the review of the denial of a claim on the merits. The Commissioner found . . . Day's earlier claim incomplete and premature. [¶] Provided that the second claim is timely, the court finds nothing in the Business and Professions Code related to recovery account claims that prevents a claimant from dismissing her claim and pursuing it later, so long as there are no findings on the merits, which would have preclusive effect.
"Issue 3: The service provision of [section] 10471 .1 violate[s the] due process of petitioner.
"[D]emoff argues that the use of certified mail, without regular mail back-up, violates her due process. [Section] 10471.1 requires personal service, certified mail, or publication in certain instances. [¶] Due process is a flexible concept. (Rodriguez v. Department of Real Estate (1996) 51 Cal.App.4th 1289.) In the Rodriguez case, the court found that the statutory provision for the automatic suspension of a real estate license on a payment from the [CRA] does not deprive the licensee of due process. The court's analysis specifically included the right to notice provided by the statute. [¶] The court finds that the service and notice provisions of the statute provide adequate due process protection.
"Issue 4: Commissioner used the wrong standard of proof.
"The standard of proof used by the Commissioner is irrelevant, since this court reviewed the matter de novo.
"Issue 5: The underlying judgment did not arise out of acts requiring a license.
"[D]emoff argues that the underlying judgment obtained by . . . Day, although it may have been obtained against her based upon her fraud, misrepresentation, or deceit, did not arise out of transactions 'for which a real estate license was required' as stated in [section] 10471. [¶] The court's statement of decision in the underlying matter of Day v. Demoff unequivocally states that . . . Demoff was acting as . . . Day's real estate agent in [two of the] real estate transactions [litigated in the lawsuit]. The court also found liability based upon . . . Demoff's fiduciary relationship as a 'wealth coach,' as a business partner, and as a managing member of TDCO, LLC. [¶] All of these ventures were based upon real estate transactions where . . . Demoff would get a commission as the licensed broker, or where she would get special compensation as defined by [section] 10131. [D]emoff and . . . Day entered into a commission agreement in which . . . Demoff promised to share her commissions with . . . Day. Since . . . Demoff earned those commissions through her license, this satisfies the requirements of [section] 10471. [¶] While this court understands the argument that the $49,000 and $200,000 loans/investments in TDCO arose from a business arrangement in which . . . Demoff was a principal and acting on her own behalf, the statement of decision makes clear that part of the loan arrangement was that . . . Day would get commission splits in return for those loans/investments. Those commissions require a license, satisfying the code. [¶] The fact that . . . Demoff also owed duties to . . . Day based upon other relationships with . . . Day (as managing agent, 'wealth consultant,' and joint venturer) does not vitiate the statutory basis for the recovery account. It is not practical or possible in this case to segregate those damages caused specifically by the misuse of the license from other causes.
"Issue 6: Commissioner failed to investigate application in R-5414
"[D]emoff argues that the Commissioner was biased against her by allowing . . . Day to make the second application. [Day] also argues that the Commissioner should have denied . . . Day's application because, had the Commissioner investigated the claim, the Commissioner would have discovered that . . . Day had lied in her responses to two questions. [¶] As suggested above, opening a second claim number does not prove an improper bias by the Commissioner. The first claim was premature and the second claim was timely. The statutory scheme is not intended to be neutral; it is to assist in enforcing the judgments against licensees.
"The rest of the argument is based upon three fallacies: [¶] One, while the Commissioner has the ability to investigate the claim, [(§ 10471.4)], there is no statutory obligation to verify every assertion by the claimant. The statutes governing the [CRA] does not prescribe the scope and depth of the investigation required before paying a claim. [¶] Two, there is insufficient evidence from which the court can conclude that had the Commissioner investigated, he would have found the inconsistencies that . . . Demoff highlights. [¶] Third, the inconsistencies in the application do not negate the application. [D]emoff claims that . . . Day incorrectly stated that . . . Novak did not know the whereabouts of . . . Demoff in May 2015. [N]ovak declares that she never said that. Neither this court nor that Commissioner took live testimony, so neither can comment upon the credibility of the witnesses. There was no evidence that . . . Novak knew where . . . Demoff lived or worked. [¶] [D]emoff also argues that . . . Day lied when she said that she was diligently pursuing collection of the judgment and relies on a statement from an attorney who apparently tried to settle the matter. Again, credibility is not discernible from the written materials. Further, negotiating to settle a judgment is not a requisite to diligently pursuing collection of the judgment. [¶] So, even if the Commissioner had discerned the allegedly false statements, the Commissioner would have been justified in paying the judgment from the recovery account.
"Burden of Proof [¶] This court used the preponderance of evidence standard in evaluating the evidence in this de novo review. [D]emoff, in a slightly different context, urges that the burden should be 'clear and convincing.' [¶] It is well recognized that the California Constitution requires clear and convincing evidence before disciplining a professional by suspension of her license. [¶] Under [section] 10177.5, the Commissioner may impose discipline based on a final judgment 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, but only when the plaintiff in the civil action proved fraud, misrepresentation, or deceit by clear and convincing evidence. [Citation.] [¶] In this case, however, the Commissioner was not disciplining . . . Demoff; he was simply suspending the license until the recovery account is paid off.
"[Section] 10471 is a remedial statute intended to protect the public from loss resulting from unsatisfied damage awards against licensed real estate personnel. Remedial statutes are to be construed to promote their purposes and protect persons within their purview. The statute will be construed when its meaning is doubtful so as to suppress the mischief at which it is directed, to advance or extend the remedy provided, and to bring within the scope of the law every case, which comes clearly within its spirit and policy. (Worthington v. Davi (2012) 208 Cal.App.4th 263.) [¶] The Court of Appeal decided Worthington after Grubb and presumably knew of it. It is clear from the recitation of facts in Worthington that neither the arbitrator, the Commissioner, nor the trial court used the clear and convincing standard. There is no language in the opinion that the burden to be applied in a recovery account action should have been clear and convincing. [¶] This court concludes that when the Commissioner seeks to discipline a license holder under [section] 10471, the underlying fraud must be found by clear and convincing evidence. In remedial statutes, such as those governing the recovery account, the burden is preponderance of the evidence. The Commissioner is not suspending her license as discipline for the fraud, but for the failure to pay the judgment. [¶] Although the Worthington court recognized a punitive aspect to the [CRA] statutes in footnote 5 of the opinion, the court did not go as far as to characterize the license suspension as discipline. [¶] There is some support for this position in the case of Owen v. Sands (2009) 176 Cal.App.4th 985. In that case, a contractor challenged a citation and argued that his citation proceeding was equivalent to a disciplinary proceeding that could result in suspension or revocation of his license because if he failed to pay the fines his license would be suspended or revoked by operation of law. The contractor argued that the administrative law judge should have used a clear and convincing standard. The appellate court disagreed and found that the appropriate standard was preponderance of the evidence."
The trial court's comparison of the Worthington case to "Grubb" refers to The Grubb Co., Inc. v. Department of Real Estate (2011) 194 Cal.App.4th 1494, 1504-1505 (Grubb).
DISCUSSION
I. Standard of Review
"On an appellate review of the trial court's decision granting or denying a recovery from the [CRA], the reviewing court merely determines whether there is substantial evidence to support the conclusion of the trial court. The reviewing court applies a substantial evidence test, not de novo review, and will sustain the trial court's decision if its express and implicit findings are supported by substantial evidence, whether or not the reviewing court believes different findings of fact would be more reasonable from the evidence produced at trial. This is so even if the evidence is undisputed but susceptible of more than one inference." (2 Miller & Starr, Cal. Real Estate (4th ed. 2019) § 4:51, fns. omitted (Miller & Starr); Worthington v. Davi (2012) 208 Cal.App.4th 263, 283 (Worthington); Booth v. Robinson (1983) 147 Cal.App.3d 371, 377.)
II. CRA Application Process
Before addressing the issues raised on appeal, it is helpful to review the CRA application process and requirements for payments. The procedures and requirements are set forth in sections 10471 through 10481, and the California Code of Regulations, title 10, section 3100 et seq.
"The purpose of the Consumer Recovery Account of the Real Estate Fund is to 'protect the public against loss resulting from misrepresentation and a breach of fiduciary duty by real estate brokers who are unable to respond to damage awards.' It is designed to raise the standards of the real estate profession by requiring its members to deal fairly and ethically with their clients, and this objective is accomplished by compensating innocent members of the public who are victimized by dishonest licensees. Because its purpose is remedial, it should be given a liberal construction to accomplish its objectives." (2 Miller & Starr, supra, § 4:46, fns. omitted.)
"The Account serves as a trust fund for compensation to any aggrieved person who obtains a final judgment in any court against any licensee on grounds of fraud, misrepresentation, deceit, or conversion of trust funds, with reference to any transaction that required a license. It is available whether the licensee is a licensed real estate broker or a licensed salesperson." (2 Miller & Starr, supra, § 4:46, fns. omitted.)
Within one year of obtaining a final fraud judgment against a licensee, the injured person seeking to recover CRA funds must file a verified application with the Department of Real Estate and use the form provided by the Commissioner. (2 Miller & Starr, supra, § 4:50.) Section 10471, subdivisions (a) through (f), list the specific criteria for payment. The application must include the following: (1) proof of service of the notice an application on the judgment debtor; (2) copies of the final judgment and if the matter was appealed, any appellate decision and the remittitur; (3) the original pleadings; (4) briefs filed before and after trial; (5) lists describing discovery efforts and copies of demurrers; (6) documents relating to the original transaction; (7) statements regarding the basis for damages; (8) names of witnesses and co-defendants; (9) efforts taken to collect the judgment and tax ramifications of the unpaid debt; and (10) any bankruptcy proceedings. (Ibid.) The injured person can submit less information if the BRE determines what was provided was sufficient to determine the requirements for payment. (Cal. Code Regs., tit. 10, §§ 3101, subd. (b), 3102, subd. (q).)
The CRA application contains a special notice that informs the licensee that his or her license will be automatically suspended if payment is made from the CRA, and the license will not be reinstated until the CRA is reimbursed. The judgment debtor intending to contest payment has 30 days to file a written response to the Commissioner, "setting forth in detail the factual and legal bases upon which he or she believes the application should be denied." (Cal. Code Regs., tit. 10, § 3106, subd. (a); see § 10471.1, subds. (a), (d), (e).) The judgment debtor also has the right to be represented by counsel when making this argument. (Cal. Code Regs., tit. 10, § 3103, subd. (b).)
Neither the statute nor regulation mentions whether the judgment debtor has a right to a formal hearing before the Commissioner. One appellate court has determined a judgment debtor is not entitled to a full evidentiary hearing before the Commissioner. (Rodriguez v. Department of Real Estate (1996) 51 Cal.App.4th 1289, 1292, 1299 (Rodriguez) ["It does not appear that a formal hearing would add significantly to the integrity of the administrative process"].)
"[T]he statute contemplates three levels of due process protection before a broker may lose his or her license. Only a judgment creditor with a final judgment is eligible for payment from the recovery account. [Citation.] Thus, a broker is afforded the full procedural safeguards in a court of law before judgment is obtained. The statute also provides for those protections that were allowed to [the judgment debtor] in the administrative process—the right to notice and an opportunity to submit written argument before the Commissioner ruled on [the victim's] claim for payment. Finally, a broker has the right to challenge an adverse decision by traditional mandate. Taken together, these procedures are sufficient to protect real estate brokers without imposing additional requirements at the administrative level. [Citations.] After all, due process 'insists upon the opportunity for a fair trial, not a multiplicity of such opportunities.' [Citation.]" (Rodriguez, supra, 51 Cal.App.4th. at p. 1298.)
If the Commissioner determines the application "fails to comply substantially with the requirements of [s]ection 10471 or with the requirements of a regulation adopted by the Commissioner . . . the Commissioner shall, within 15 days after receipt of the application, mail an itemized list of deficiencies to the claimant." (§ 10471.2, subd. (a).) On the other hand, once the Commissioner determines the application is "substantially complete" (§ 10471.2, subd. (b)), the commission must render a ruling on the application within 90 days. (§ 10471.3.)
The Commissioner can accept, deny, or offer a settlement for less than the amount claimed. (§ 10471.3, subd. (b).) "When the Commissioner decides to pay the claim, a copy of the decision must be sent to the licensee/debtor with a notice of the payment that informs the debtor that his or her license will be suspended and cannot be reinstated until the [CRA] is reimbursed the amount of the payment plus interest at the prevailing legal rate. The notice also must state that the debtor may petition the court to review the suspension within 30 days after receipt of the notice." (2 Miller & Starr, supra, § 4:50, fn. omitted.)
The CRA statutory procedures provide the judgment debtor has a right to a formal hearing if he or she files a petition for writ of mandamus in superior court. (§§ 10471.5, subd. (c) [right to petition], 10473.1 [judgment debtor may defend action against recovery account and have recourse to all appropriate means of defense and review, including examination of witnesses]; Rodriguez, supra, 51 Cal.App.4th at p. 1296 [recognizing right to full evidentiary hearing in superior court upon filing petition for writ of mandate].)
III. Lack of Service
Section 10471.1 and California Code of Regulations, title 10, section 3101 (Regulation 3101) both state the CRA claimant must include in the application proof it was served on the judgment debtor. Demoff asserts Day failed to comply with proper service requirements, which should have precluded the Commissioner from rendering a decision on her CRA application. She asserts the faulty service meant the application was not "substantially complete" as required by section 10471.3. Additionally, Demoff asserts the defective service created a due process violation because her lack of notice about the pending action "hindered her ability to meaningfully defend herself." We conclude both contentions lack merit.
Section 10471.1 provides, "The claimant shall serve a copy of the notice prescribed in subdivision (e) together with a copy of the application upon the judgment debtor by personal service, by certified mail, or by publication, as set forth in subdivision (b)." (§ 10471.1, subd. (a).) Subdivision (b) of section 10471.1 instructs on when it is appropriate to serve the application by certified mail versus by publication. "If the judgment debtor holds an unexpired and unrevoked license issued by the bureau, service of the notice and a copy of the application may be made by certified mail addressed to the judgment debtor at the latest business or residence address on file with the bureau. If the judgment debtor does not hold an unexpired and unrevoked license . . . and personal service cannot be effected through the exercise of reasonable diligence, the claimant shall serve the judgment debtor by . . . publication . . . in a newspaper of general circulation." (Italics added.)
Demoff seizes on the italicized phrase above, reading it to mean an application will not be "substantially complete" unless the judgment debtor's proof of service lists the exact same address as the one "on file with the bureau." (§ 10471.1, subd. (b).) In this case, there was evidence the address "on file" with the BRE was 6621 E. Pacific Coast Highway #140, but Day's proof of service showed she sent her application by certified mail to Demoff at 6621 Pacific Coast Highway #140. She asserts the lack of the letter "E." before Pacific Coast Highway on the proof of service was grounds for the BRE to reject the application.
The trial court rejected this argument on the following two grounds: (1) the statutory scheme does not require strict compliance; and (2) Demoff failed to prove the lack of the letter "E." resulted in a due process violation. This was correct.
Although section 10471.1, subdivision (b), provides the application should be sent to the judgment creditor at the latest address on file, the statute does not mandate it is the "only" possible address. The statute, when read in combination with the real estate Commissioner's regulations regarding CRA applications, permits the BRE to consider any application it determines is in substantial compliance. Specifically, Regulation 3101, subdivision (b)(1), authorizes the BRE to use its expertise when deciding whether "what has been submitted is sufficient for [the BRE] to make a determination whether the application qualifies for payment from [CRA]." The regulations specify an application will be "'substantially complete'" as long as there is proof the judgment debtor was served with the notice and application. (Cal. Code Regs., tit. 10, § 3102, subd. (a) (Regulation 3102).) The regulations do not require the judgment creditor to utilize a specific address.
Regulation 3101, subdivision (a), describes the application process as follows: "An application for payment from the [CRA] shall be made on a form prescribed by the [BRE], shall contain the items specified by [s]ection 10471[, subdivision (c),] . . . and shall contain all of the information specified in [s]ection 3102, except as provided in subdivision (b) of this section." (Italics added.)
Subdivision (b) of Regulation 3101 permits claimants to submit less than all of the required documentation if the BRE determines the information provided was sufficient to make a determination about payment from the CRA. (Cal. Code Regs., tit. 10, § 3101, subd. (b).) Accordingly, in some instances all the "items specified" in section 10471 may not be absolutely required before the Commissioner considers the application. Such was the case here. As mentioned, Regulation 3102 provides the CRA application is substantially complete if it contains "[p]roof that the judgment debtor was served with the Notice and Application." (Regulation 3102, subd. (a).) The record amply supports the conclusion the application contained "proof" Day served Demoff with the notice and application using the correct address. Although the letter "E." was missing from the proof of service, it was included in the mailing label used on the package as well as the post office's card used for certified mail. It appears there was a typographical error on the proof of service because it did not reflect that the package's postal label showed it was mailed to 6621 East Pacific Coast Highway.
"The claimant may submit with the application less than all of the information defined by [Regulation 3102] of these regulations as constituting a substantially complete application if the claimant believes that the information submitted with the application is sufficient for the [BRE] to determine whether the application qualifies under [s]ections 10470 through 10481 . . . for payment from the [CRA]. However, an application will not be deemed substantially complete within the meaning of [Regulation 3102] . . . unless: [¶] (1) The [BRE] determines that what has been submitted is sufficient for it to make a determination whether the application qualifies for payment from [CRA] and so notifies the claimant as provided in [s]ection 3105 of these regulations; or [¶] (2) The application and supporting information meet all of the requirements specified in [Regulation 3102]." (Cal. Code Regs., tit. 10, § 3101, subd. (b).)
"Except as provided in [s]ection 3101 of these regulations, an application for payment from the [CRA] is 'substantially complete' within the meaning of [s]ection 10471.2[, subdivision (b),] . . . if it contains all of the documents and information enumerated below: [¶] (a) Proof that the judgment debtor was served with the Notice and Application." (Regulation 3102.)
Moreover, the post office tracking record shows there were two attempts to deliver Day's package of documents to the address. On July 31, 2015, the postal worker left a notice and wrote in the tracking log, "no authorized recipient available." (Capitalization omitted.) On Monday morning, August 17, 2015, the postal worker noted, "[b]usiness [c]losed." Based on this record, it was reasonable for the BRE to conclude there was sufficient "proof" Day served Demoff with the notice and application at her last known address.
Demoff presented evidence the BRE discovered the missing letter "E" on the proof of service and acknowledged it was a problem, but "continued with the application without an amended proof of service." She is referring to an e-mail Adriana Badilas sent (from the Department of Real Estate) to Day asking her to amend the proof of service so that it contained Demoff's correct address, as shown on the "delivery receipt." In her argument, Demoff failed to mention that later that same day, Day replied to Badilas' e-mail, stating she attached a copy of a mailing label and post office's certified mail card, both showing the notice/application were sent to the correct address. We can infer the BRE accepted Day's new evidence in place of an amended proof of service, and reasonably continued with the application. Demoff does not suggest why the BRE could not rely on the actual mailing label and post office certified mail delivery receipt.
We also reject Demoff's assertion the typographical error on the proof of service shows there was a violation of Demoff's due process rights. The superior court gave Demoff an opportunity to present evidence and be heard at the trial on her writ petition. It permitted Demoff to augment the administrative record with additional evidence and included this information in its de novo review of the case. We find it telling that despite being given the opportunity to present proof on the issue, Demoff failed to augment the record with evidence suggesting the postal service would not have been able to deliver mail to her business if the "E." had been missing from the package's label. Her assertion in the appellate briefing that Day used an "incorrect address," and/or one "inconsistent" with the one on file with BRE, is not supported by any evidence. There was no reason to suspect the mail carrier was confused about the location of the Demoff's business or that a different business existed at 6621 West Pacific Coast Highway.
In conclusion, substantial evidence supports the trial court's finding the BRE had authority to consider Day's CRA's application because there was evidence Day sent the package (containing notice and the application) by certified mail to Demoff's most recent address. There was no evidence supporting her claim of a due process violation. The statute/regulations requiring service of the notice and application by certified mail to Demoff's most recent address on file with the BRE satisfied due process "because it was reasonably calculated to provide the licensee with notice" of the proceedings. (Miller Family Home v. Department of Social Services (1997) 57 Cal.App.4th 488, 492 [court held proof of actual notice not required, affirming revocation of group home licensee where statute required only service of notice by certified mail and agency's accusation was returned undelivered].)
IV. Collateral Estoppel
Demoff asserts the doctrine of collateral estoppel precluded Day from litigating the Second Application. Alternatively, she argues section 10472 gives victims only one chance to make a claim. She concludes that because Day abandoned the First Application, and failed to appeal, she should not have been permitted to file the Second Application.
With respect to the collateral estoppel argument, Demoff asserts the BRE investigated Day's First Application and notified her "via a [d]eficiency [l]etter, that she had until December 5, 2014, to remediate her request or the denial would be finalized." Demoff maintains Day's failure to withdraw her application or respond to the letter resulted in a denial of her application on the merits. Not so. The doctrine of collateral estoppel requires evidence the previous proceeding was terminated with a final judgment on the merits. (Castillo v. City of Los Angeles (2001) 92 Cal.App.4th 477, 482-483 (Castillo) [administrative decision final and on merits "because it followed a 'full hearing' in which '"the substance of the claim [was] tried and determined'""].)
The BRE's written decision denying Day's First Application stated the "primary reason" for its decision was Day's failure to provide additional documentation, making it incomplete. Specifically, the deficiency letter, dated November 10, 2010, asked Day to provide copies of "transaction documents" and "any documents/exhibits submitted to the [c]ourt in support of claimant's allegations against judgment debtors, but not provided to the [BRE]. In addition, the letter asked Day to provide a statement about whether she intended to have the debt determined nondischargeable in bankruptcy proceedings.
It cannot be overlooked that during this same period Demoff's two appeals were before this court and sought reversal of the trial court's orders denying two motions to set aside the default judgment. (Day I, supra, G043227.) In May 2011, this court reversed the default judgment. (Ibid.) Our reversal nullified the judgment, and we remanded the matter. Thereafter, it took several years for the BRE to send a final written denial of the First Application (the written ruling was dated December 2014, and mailed to the parties in January 2015).
We conclude the BRE did not deny Day's First Application on the merits, i.e., it did not decide if Day's default judgment against the licensee qualified for payment from the fund. The evidence showed the BRE denied the application because it was incomplete. In addition to the missing documents outlined in the deficiency letter, there was no longer a final judgment. As stated, the doctrine of collateral estoppel requires a final judgment on the merits. (Castillo, supra, 92 Cal.App.4th at pp. 482-483.)
Alternatively, Demoff argues section 10472 "is unequivocal" in stating the rule that the victim's failure to appeal the Commissioner's decision precludes a second application. Section 10472 says no such thing. It simply describes the procedure giving denied claimants six months to seek review of the Commissioner's decision. (Ibid.)
Demoff fails to appreciate Day did not refile the same application with the BRE. Day's First Application referenced a nullified $1,254,242 default judgment. (Day I, supra, G043227.) The Second Application related to an entirely different judgment, awarding Day $1,123,197 in damages because she prevailed on all her causes of action at trial. We found nothing in section 10472 precluding Day from filing a new CRA application after obtaining a final judgment against Demoff.
Moreover, we conclude the BRE's decision to consider the Second Application fulfilled the underlying legislative polices of the CRA. The purpose of paying funds from the CRA is to "raise the standards of the real estate profession" by requiring licensees to conduct themselves ethically and fairly. As explained in our prior opinion, the court entered the default judgment after Demoff's counsel repeatedly sought continuances of the trial, and then failed to appear on the date set for trial. (Day I, supra, G043227.) Demoff refused to discharge the lawyer despite being cautioned by the trial court the case needed to go to trial. (Ibid.) Frustrated by "the defense shenanigans in this case and in particular with [Demoff's counsel's] unprofessional behavior" the trial court struck the answer, entered defaults, and set a default prove-up hearing. (Ibid.) Although we reversed this ruling as being in excess of the trial court's authority, Demoff's appellate victory cannot be attributed to her ethical or fair conduct. The legislative objectives of the CRA Program would not be served by adopting Demoff's interpretation of section 10472, or her theory Day was limited to one application based on a technically deficient default judgment. We applaud the BRE for appropriately construing the statutes/regulations governing the CRA and achieving its remedial purpose.
V. Standard of Proof
Demoff maintains the BRE's payment from the CRA and the resulting suspension of her license was a disciplinary action, which required proof of fraud by "clear and convincing evidence" and not by a "preponderance of the evidence" standard for a civil fraud claim. She raises the following contention: "The minimal investigation conducted by [the BRE] in this matter failed to meet [the clear and convincing evidence] standard. To support [the BRE's] failure, and justify the action, [the] superior court impermissibly lowered the burden placed on [the BRE] to a 'preponderance of the evidence.' [Citation.] Such an action violated [Demoff's] due process rights."
The trial court agreed with BRE's argument that the statutes governing payment from the CRA are remedial, requiring a lower standard of proof. We conclude labeling the CRA program as remedial does not change the fact the statutory scheme has a severe disciplinary component effecting a fundamental vested right, and thus, requiring a higher standard of proof.
"'Except as otherwise provided by law, the burden of proof requires proof by a preponderance of the evidence.' [Citation.] In determining the proper standard of proof to apply in administrative license revocation proceedings, courts have drawn a distinction between professional licenses such as those held by doctors [citation], lawyers [citation], and real estate brokers [citation] on the one hand, and nonprofessional or occupational licenses such as those held by food processors [citation], and vehicle salespersons [citation], on the other hand. In proceedings to revoke professional licenses, the decision makers apply the clear and convincing evidence standard of proof, while in proceedings to revoke nonprofessional or occupational licenses, the decision makers apply the preponderance of the evidence standard of proof." (Imports Performance v. Department of Consumer Affairs, Bureau of Automotive Repair (2011) 201 Cal.App.4th 911, 916 (Imports Performance).)
"The 'sharp distinction between professional licenses, on the one hand, and . . . nonprofessional licenses, on the other, supports the distinction in the standards of proof applicable in proceedings to revoke these two different types of licenses. Because a professional license represents the licensee's fulfillment of extensive educational, training and testing requirements, the licensee has an extremely strong interest in retaining the license that he or she has expended so much effort in obtaining. It makes sense to require that a higher standard of proof be met in a proceeding to revoke or suspend such a license." (Imports Performance, supra, 201 Cal.App.4th at p. 916.)
Case authority also recognizes a distinction between license suspension and revocation proceedings from other citation proceedings. For example, in Owen v. Sands (2009) 176 Cal.App.4th 985, 988-989 (Owen), the Registrar of Contractors (Registrar) ordered a licensed contractor to pay civil penalties and compensation to a homeowner due to defective work performed on a private residence. The issue on appeal was whether the clear and convincing evidence standard that courts applied in license suspension and revocation proceedings (doctor, attorney, and real estate licenses) also applied in a contractor's citation proceeding. (Id. at p. 989.) The court first examined the line of cases applying the clear and convincing evidence standard of proof. (Id. at pp. 991-992.) "'[W]e often have recognized that an individual, having obtained the license required to engage in a particular profession or vocation, has a "fundamental vested right" to continue in that activity. [Citations.] [¶] A licensee, having obtained such a fundamental vested right, is entitled to certain procedural protections greater than those accorded an applicant. For example, this court repeatedly has held, with exceptions not pertinent here, that the "independent judgment" standard of review must be applied [in the trial court] to an administrative decision that substantially affects such a fundamental vested right. [Citations.]' [Citation.] 'Similarly, it has been held that procedural due process of law requires a regulatory board or agency to prove the allegations of an accusation filed against a licensee by clear and convincing evidence rather than merely by a preponderance of the evidence. [Citations.]" (Id. at pp. 991-992, citing Hughes v. Board of Architectural Examiners (1998) 17 Cal.4th 763, 788-789.)
The court next turned to case authority considering the appropriate trial court standard of review with respect to citation proceedings (because of the lack of authority regarding the Registrar's standard of review). (Owen, supra, 176 Cal.App.4th at p. 992.) In cases where the "'only sanction imposed is a fine—not revocation, suspension, or restriction of the petitioner's license—no fundamental vested right is implicated and the trial court is not authorized to exercise independent judgment on the evidence.'" (Ibid., citing Handyman Connection of Sacramento, Inc. v. Sands (2004) 123 Cal.App.4th 867, 880.)
Based on the Supreme Court's determination that application of the independent judgment standard of review and the clear and convincing evidence standard of proof depended on the nature of the fundamental vested property right, the court in Owen concluded "that, because the citation hearing on review could only result in civil penalties or correction orders, and could not have resulted in orders suspending, limiting, or revoking [the contractor's] license, the preponderance of the evidence rather than the clear and convincing evidence standard of proof applied." (Owen, supra, 176 Cal.App.4th at p. 992.)
The court in Owen rejected the contractor's argument the citation hearing was "nonetheless a 'disciplinary hearing'" because the relevant statutes were codified in an article of the Business and Professions Code entitled 'Disciplinary Proceedings'" and the citation was a type of discipline. (Owen, supra, 176 Cal.App.4th at p. 993.) It determined "the procedural safeguards the due process clause requires in an administrative proceeding" is not determined solely on whether "the proceeding is 'disciplinary' . . . [i]nstead, the necessary procedural safeguards are determined through a balancing test, which includes assessing the weight of '"the private interest that will be affected by the official action."' [Citation.]" (Ibid.) It concluded, "Licensed contractors cited for violations and subject only to sanctions such as correction orders or monetary penalties are not entitled to the same procedural safeguards afforded to contractors who face restriction, suspension, or revocation of their licenses." (Ibid.)
The court also rejected the contractor's argument "that his citation proceeding was equivalent to a disciplinary proceeding that could result in suspension or revocation of his license because if he fail[ed] to pay the fines and penalties assessed by the Registrar his license w[ould] be suspended or revoked by operation of law. [Citation.]" (Owen, supra, 176 Cal.App.4th at p. 993, fn. omitted.) The court reached the following conclusion: "That the Registrar can enforce the correction orders and penalties in this manner does not change the fact that the greatest sanction that could be imposed in the citation proceeding itself was a fine or penalty, not suspension or revocation of his license. Critically, [the contractor] does not argue that the fines and penalties imposed were so burdensome as to be tantamount to a suspension or revocation of his license." (Id. at pp. 993-994, fn. omitted.) The Registrar's citation imposed $1,600 in civil penalties and its "order of correction" awarded the homeowner $7,880.79. (Id. at p. 989.)
Here, the BRE asserts the statute is purely remedial and cannot be considered disciplinary. It is true the CRA statutory scheme is located in a different chapter from Chapter 3, Article 3's "Disciplinary Actions." (See 10175 et seq.) Chapter 6, titled "Revenue," which immediately precedes the CRA-related statutes, concerns the maintenance of, and payments to, the Real Estate Fund, which makes contributions to the CRA. Chapter 6.5, titled "Real Estate Recovery Program," contains all the provisions relevant to the CRA, and is what its title suggests, a plan of action designed to accomplish several legislative goals. Specifically, there is a compensation component created to protect members of the public victimized by dishonest licensees as well as a disciplinary component designed to accomplish two different objectives. First, suspension of the wrongdoer's license serves as an effective punishment for those in the real estate profession not dealing fairly and ethically with their clients. As stated earlier, the overall purpose of the CRA is to help raise the standards of the real estate profession. Second, requiring the licensee to replenish the CRA "plus interest at the prevailing legal rate" provides a strong incentive to restore funds to the CRA to be used for other victims. (§ 10475.) This debt is not dischargeable in bankruptcy and must be repaid to lift the suspension. (Ibid.) When the judgment is large, as in this case, the license suspension may become permanent.
Section 10175 provides, "Upon grounds provided in this article and the other articles of this chapter, the license of any real estate licensee may be revoked or suspended in accordance with the provisions of this part relating to hearings."
Alternatively, the suspension may become permanent if the Commissioner decides to pursue additional disciplinary proceedings. Section 10481 provides, "Nothing in this chapter limits the authority of the commissioner to take disciplinary action against any licensee for a violation of the Real Estate Law, or of Chapter 1 (commencing with Section 11000) of Part 2, or of the rules and regulations of the Commissioner; nor shall the repayment in full of all obligations to the [CRA] by any licensee nullify or modify the effect of any other disciplinary proceeding brought pursuant to the Real Estate Law."
In any event, as noted in Owen, the statutory title of the administrative procedure does not determine the necessary level of due process safeguards. In this case, the statutory provisions relating to the CRA program contain many of the notice and due process provisions typically seen in other administrative disciplinary proceedings. Specifically, the licensee is afforded notice (§§ 10471, subd. (e), 10471.1), and an opportunity to defend an action against the BRE (§ 10473.1). After the Commissioner's final decision, the licensee must be notified of the amount of payment and the automatic license suspension. (§§ 10471.5, 10475.) The statute specifically requires the Commissioner to notify the licensee of the right to seek judicial review of the license suspension by petitioning the superior court for a writ of mandamus. (§ 10471.5.) We conclude the CRA program is a hybrid of remedial and disciplinary provisions, and because the proceedings implicate a fundamental vested right, the Commissioner and reviewing trial court must apply a clear and convincing standard of proof.
The BRE asserts the CRA program is not disciplinary because the license suspension was automatic and can be reinstated without the Commissioner's involvement. It maintains the Commissioner's only task was to determine if the criteria for a CRA payment was satisfied, which does not require an adjudicative or discretionary act. It suggests the task was entirely administrative, a matter of checking off the documents required by statute (§ 10471, subd. (c)(1)-(6)) to be part of the application.
This assertion goes to the heart of Demoff's due process concerns. Indeed, the question we must decide is "whether the Legislature can constitutionally authorize the imposition of professional discipline based only on clear and convincing evidence that a civil judgment was entered against the professional for license-related misconduct, without requiring that the judgment itself have been based on clear and convincing evidence." (Grubb, supra, 194 Cal.App.4th at pp. 1504-1505.) In short, we conclude the answer is no. Demoff's due process rights were violated when the trial court used the preponderance of the evidence standard in evaluating the evidence in its de novo review of the Commissioner's decision.
The legal analysis in the Grubb case is instructive. In that case, a licensed real estate brokerage firm, The Grubb Company, Inc. (the Brokerage), was sued after one of its employees represented both parties in a real estate deal and refused to return the buyers' deposit after the sale fell through. (Grubb, supra, 194 Cal.App.4th at p. 1496.) The jury determined the Brokerage made misrepresentations and breached its fiduciary duty, but it also concluded the buyers had failed to prove by clear and convincing evidence that the Brokerage or its employee acted with malice, fraud, or oppression. (Ibid.)
Thereafter, the California Real Estate Commissioner (Commissioner) initiated administrative disciplinary proceedings against the Brokerage under section 10177.5. (Grubb, supra, 194 Cal.App.4th at p. 1497.) That section provides the following: "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." (§ 10177.5) "By its terms, section 10177.5 permits the Commissioner to discipline a real estate licensee based solely on the entry of a judgment against the licensee for fraud, misrepresentation, or deceit in a real estate transaction, without reference to the facts underlying that judgment." (Grubb, supra, 194 Cal.App.4th at p. 1502.)
In Grubb, the administrative law judge recommended no discipline, but the Commissioner suspended the Brokerage's license for 30 days and permitted it to pay a fine in lieu of suspension. (Grubb, supra, 194 Cal.App.4th at p. 1501.) The court explained that in rejecting the recommendation, the Commissioner "acknowledged that discipline against a professional licensee must be based on clear and convincing evidence, but concluded that under section 10177.5, the only fact that must be proven by clear and convincing evidence is the existence of a judgment based on fraud, misrepresentation, or deceit in reference to a transaction for which a license is required. (Ibid.) The trial court agreed and denied the Brokerage's petition for a writ of mandate. (Ibid.)
The appellate court in the Grubb case stated, "The main legal issue presented by this appeal is whether the application of section 10177.5 to the particular circumstances of this case violates the principle that, under the California Constitution, the suspension or revocation of a professional license must be based on misconduct proven by clear and convincing evidence. [Citation.]" (Grubb, supra, 194 Cal.App.4th at p. 1502.) The parties did not dispute the jury's special verdicts in the underlying litigation clearly indicated the jury found fraud by a preponderance of the evidence, and expressly declined to impose punitive damages (which would have required clear and convincing evidence of malice, oppression, or fraud). (Id. at pp. 1502-1503.) Under these circumstances, the Brokerage asserted any discipline imposed under section 10177.5 violated the Brokerage's due process right to proof by clear and convincing evidence.
The court offered the following analysis, "While the Commissioner's ruling was based on principles of collateral estoppel, we agree with [the Brokerage] that collateral estoppel does not apply when the factual finding in the prior proceeding was arrived at based on a lower standard of proof than the one required in the subsequent proceeding. [Citation.] Indeed, [many Supreme Court and appellate court decisions] . . . stress that professional licensees' due process rights require that proof of misconduct be by clear and convincing evidence. [Citations.] This conclusion is also consistent with application of the doctrine of collateral estoppel in other contexts, such as where a civil judgment based on a finding by a preponderance of the evidence is not collateral estoppel in a subsequent criminal matter. [Citation.]" (Grubb, supra, 194 Cal.App.4th at pp. 1503-1504.)
The court rejected the Commissioner's argument that "'if the elements of fraud have been proved in the civil action, collateral estoppel principles bar the licensee from attempting to relitigate those facts at the administrative proceeding. [Citations.]' [Citations.]" (Grubb, supra, 194 Cal.App.4th at p. 1504.) It noted the Commissioner was relying on two inapt cases; the first discussed outdated case authority and the second involved a fraud judgment based on clear and convincing evidence because the jury awarded punitive damages against the realtor. (Ibid.) "Thus, in that [second] case, the court's reliance on the fact of that judgment alone subsequently to impose discipline was consistent with both due process and the doctrine of collateral estoppel." (Ibid.)
The court offered the following analysis: "[E]ven if collateral estoppel could apply in the context of an earlier judgment based on a quantum of proof lower than that required in the subsequent proceeding, this does not answer the due process question [the Brokerage] raises. Thus, the real question here is not whether collateral estoppel applies, but whether the Legislature can constitutionally authorize the imposition of professional discipline based only on clear and convincing evidence that a civil judgment has been entered against the professional for license-related misconduct, without requiring that the judgment itself have been based on clear and convincing evidence. [¶] In the attorney licensing and disciplinary context, it is settled law that findings made by a preponderance of the evidence in civil cases cannot be given binding effect, because clear and convincing evidence is required. [Citation.] [¶] The Commissioner has not articulated a principled reason why a different rule should apply in real estate discipline proceedings. Instead, he argues that if we adopt [the Brokerage's] position, section 10177.5 would be nullified. We acknowledge that we are obligated to construe a statute in such a way as to uphold its constitutionality, if the interpretation is consistent with the statutory language and purpose. [Citation.] This result can be achieved here, however, and section 10177.5's utility preserved, by interpreting section 10177.5 to provide that the Commissioner may impose discipline based on 'a final judgment . . . 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,' but only when the plaintiff in the civil action proved fraud, misrepresentation, or deceit by clear and convincing evidence. Thus, for example, if the jury in the present case had entered a verdict for punitive damages against [the Brokerage], section 10177.5 would have applied . . . . [Citation.] [¶] In sum, we conclude that the limiting construction proposed above is necessary in order to harmonize section 10177.5 with constitutional due process principles that were not well settled at the time of the statute's original enactment in 1945. Because the proceedings in this case did not comport with the constitutionally mandated construction of the requirements of section 10177.5, we agree with [the Brokerage] that the trial court erred in denying its petition for writ of mandate." (Grubb, supra, 194 Cal.App.4th at pp. 1504-1505.)
This legal analysis is applicable in our consideration of the CRA program. We can find only a few minor distinctions between sections 10177.5 and 10471, but none make a difference to the underlying due process legal analysis of what is required before a license can be suspended. For example, we appreciate each statute permits different parties to initiate BRE proceedings (the Commissioner initiates a § 10177.5 hearing, and the fraud victim files a petition under § 10471). The BRE suggests a victim seeking compensation should not have the same burden as a Commissioner engaging in a disciplinary proceeding. We would agree if the victim were merely seeking compensation. However, the Legislature incorporated into the CRA program a disciplinary component, so that the victim's application significantly impacts a fundamental vested right. We cannot ignore that when a victim's application is successful, the judgment debtor's license is suspended without any further hearings or disciplinary proceedings. There is no second chance to afford the licensee his or her due process rights. Thus, due to the disciplinary component of the CRA program, the victim is unfortunately burdened with the same standard of proof as the Commissioner pursuing a section 10177.5 disciplinary action. We cannot legally justify a lesser standard of proof based on who initiates the disciplinary proceedings.
Because the standard of proof in a civil fraud action is preponderance of the evidence (unless there is a special finding supporting an award of punitive damages) we recognize our ruling may require some victims to take additional steps before the end of their civil trials or arbitration proceedings to secure special findings regarding the fraud/misrepresentation claims. We do not believe this additional burden should be required to receive payment from the CRA. However, it is up to the Legislature to decide if the statute should be changed to permit payment using a preponderance of the evidence burden of proof, but revoke the license using a clear and convincing evidence burden of proof.
Section 10471 differs from section 10177.5 in that it permits payment/discipline for more than just a final civil judgment, and extends payment to victims who have obtained final arbitration awards and criminal restitution orders against malfeasant real estate licensees and brokers. Given this broader scope of possible judgments and orders, the statute requires the applicant to provide in addition to a copy of the judgment, "[a] detailed narrative statement of the facts in explanation of the allegations of the complaint upon which the underlying judgment is based." (§ 10471, subd. (c)(4).) Unlike a section 10177.5 hearing, a section 10471 hearing requires the Commissioner review more than the fraud judgment. The section 10471 hearing involves a longer and more fact-intensive hearing. This is because the Commissioner must also decide whether the victim meets the qualifications for payment, i.e., what efforts were made to collect the judgment, the victim's relationship to licensee, and if victim "prosecuted conscientiously and in good faith" the underlying action. (§ 10471, subd. (c)(5).) The Commissioner may need to dig deeper into the facts underlying the judgment to determine whether the judgment creditor qualified for funds by considering if there was license-related misconduct covered by the statute.
Despite the differences, what cannot be ignored is that both statutes contemplate suspension of a real estate license due to license-related misconduct. As determined in the Grubb case, the Legislature cannot constitutionally authorize the imposition of professional discipline for fraud based on the preponderance of the evidence standard of proof. The Grubb court upheld the constitutionality of section 10177.5 by construing the statute to require clear and convincing evidence that a civil judgment was entered for license-related misconduct (such as when punitive damages have been awarded). (Grubb, supra, 194 Cal.App.4th at pp. 1504-1505.) The license cannot be revoked when fraud was established in a civil trial only by the preponderance of the evidence. This same analysis is equally applicable to section 10471 proceedings.
We construe section 10471 to uphold its constitutionality, holding the Commissioner and the reviewing trial court may only impose discipline if the victim could prove fraud, misrepresentation, or deceit by clear and convincing evidence. As noted in the Grubb case, this can be accomplished by the victim's civil judgment or arbitration award including an award of punitive damages. (Grubb, supra, 194 Cal.App.4th at pp. 1504-1505.) Moreover, because the Commissioner (and reviewing trial court) considering a CRA petition also possess documents and a narrative relating to the underlying license-related misconduct, the Commissioner (and court) are in the unique position to evaluate the documents and determine if there was clear and convincing evidence of fraud, misrepresentation, or deceit.
Because in this case the trial court applied a lower standard of proof (preponderance of the evidence) the ruling must be reversed. We remand the matter for independent review using a clear and convincing evidence standard of proof.
VI. Evidence of License-Related Misconduct
Demoff asserts that applying the standard of proof used by the trial court, there was not a preponderance of the evidence her fraudulent transactions required her real estate license. Because we have remanded the case for a new hearing, applying the correct standard of proof, we need not address this contention. The trial court must determine if there was clear and convincing evidence Demoff's final judgment of fraud arose "directly out of any transaction in which [Demoff] . . . performed acts for which a real estate license . . . was required . . . ." (§ 10471, subd. (a).)
VII. Standard of Review of Petition for Writ of Mandate
Demoff maintains the Commissioner abused his discretion in failing to issue a written decision with detailed factual findings and legal conclusions. Specifically, she complains, "no factual findings were produced or procedural steps explained as to why the amount was imposed." She explains this was prejudicial error because "without a decision setting forth the facts and calculations contemplated" her right to challenge the decision by filing a petition for a writ of mandate "was futile." She asserts the error was compounded when the trial court "was forced to articulate the factual findings for [BRE]" and cure the BRE's defective written decision. She notes the court supplied its own rationale for discipline, improperly relied on hypotheticals, and engaged in speculation.
To support this contention, Demoff relies on a single case concerning an administrative agency's decision to grant a land variance. (Topanga Assn. for a Scenic Community v. County of Los Angeles (1974) 11 Cal.3d 506.) That court determined administrative agencies granting zoning variances "must render findings to support their ultimate rulings [and] . . . that when called upon to scrutinize a grant of a variance, a reviewing court must determine whether substantial evidence supports the findings of the administrative board and whether the findings support the board's action." (Id. at pp. 509-510, italics added.) This case is inapplicable because when the trial court's review is limited to determining whether the findings are supported by substantial evidence, "the administrative decision neither involves nor substantially affects a fundamental vested right[.]" (Wences v. City of Los Angeles (2009) 177 Cal.App.4th 305, 313.)
The Commissioner's suspension of a real estate license concerned a vested fundamental right requiring the trial court to exercise its independent judgment on the evidence presented in the administrative hearing. (Bixby v. Pierno (1971) 4 Cal.3d 130, 143 (Bixby); Code Civ. Proc., § 1094.5, subd. (c).) "By carefully scrutinizing administrative decisions which substantially affect vested, fundamental rights, the courts of California have undertaken to protect such rights, and particularly the right to practice one's trade or profession, from untoward intrusions by the massive apparatus of government. If the decision of an administrative agency will substantially affect such a right, the trial court not only examines the administrative record for errors of law but also exercises its independent judgment upon the evidence disclosed in a limited trial de novo." (Ibid., fn. omitted.)
"The trial court must exercise its independent judgment upon the weight of the evidence produced or which could not, in the exercise of reasonable diligence, have been produced before the administrative agency and any evidence which might have been improperly excluded by the administrative agency. [Citations.]" (Bixby, supra, 4 Cal.3d at p. 143, fn. 10.)
In the case before us, the trial court correctly applied a de novo review standard when considering the Commissioner's ruling. Under this standard, any of the administrative agencies factual and legal findings are irrelevant. Indeed, the trial court permitted Demoff to submit evidence and argument regarding the viability of the application and payment amount. The court then exercised its independent judgment and issued a statement of decision making factual and legal conclusions before denying the petition. Demoff mischaracterizes the court's independent judgment as a misguided effort to fix the BRE's factually defective written decision.
We conclude the court's statement of decision properly reflected its factual findings and conclusions of law. The record does not support Demoff's assertion the trial court's ruling was based on speculation and unfounded hypotheticals. She does not provide any legal analysis or record citations to support her theory the CRA payment amount was improperly calculated or too speculative. (Badie v. Bank of America (1998) 67 Cal.App.4th 779, 784-785 [appellant must present reasoned argument or waived]; Kim v. Sumitomo Bank (1993) 17 Cal.App.4th 974, 979.) As noted earlier in this opinion, the only error we found in the statement of decision was a legal one, application of a lower standard of proof (preponderance of the evidence rather than clear and convincing proof of license-related fraud).
DISPOSITION
The judgment is reversed with directions to set aside the order denying Demoff's petition for administrative mandamus and remanded for a new hearing applying the appropriate standard of proof. Appellant shall recover her costs on appeal.
O'LEARY, P. J. WE CONCUR: BEDSWORTH, J. GOETHALS, J.