Opinion
No. A04-1095.
Filed February 22, 2005.
Appeal from the Minnesota Department of Commerce, File No. 3-1005-15699-2.
Randall D.B. Tigue, Randall Tigue Law Office, P.A., (for relators Hendrie Cutler Grant and Cutler Mortgage Company).
Mike Hatch, Attorney General, Karen D. Olson, Assistant Attorney General, (for respondent Commissioner).
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2004).
UNPUBLISHED OPINION
Relators appeal the suspension of their real estate sales and mortgage originator licenses by the Minnesota Department of Commerce, asserting that (1) the notice of disciplinary action violated procedural due process; (2) the Minnesota Department of Commerce erroneously considered conduct underlying a temporary injunction rather than the fact of the injunction itself; and (3) the sanction of suspension was disproportionate to the misconduct. We affirm.
FACTS
Relators Hendrie Cutler Grant and Cutler Mortgage Company (collectively Grant) were alleged to have engaged in the practice of "equity stripping." This practice targets homeowners with substantial equity in their homes who are facing foreclosure. After representing to the homeowner that refinancing the mortgage debt would allow the homeowner to keep the home, Grant allegedly would pay off the homeowner's mortgage and take title to the property. Grant allegedly would then lease the property back to the homeowner with an option to repurchase the property under terms so burdensome as to assure the homeowner's default and eviction.
Based on these allegations, the Minnesota Attorney General brought an action against Grant in district court and sought a temporary injunction against Grant. Finding a continuing danger from the practice of equity stripping, the district court issued a temporary injunction on December 24, 2003. The injunction order limited Grant from taking certain actions against a homeowner's property in foreclosure proceedings. It also barred Grant from taking or acquiring interests in such property and evicting homeowners from such property. An accompanying memorandum, which the district court expressly incorporated into the injunction order, recited factual details about Grant's equity stripping practices.
After the temporary injunction was issued, the Minnesota Department of Commerce (the department) summarily suspended Grant's real estate sales and mortgage originator licenses, pending a hearing before an administrative law judge (ALJ).
At the hearing before the ALJ, the parties stipulated to the admission of the entire December 24, 2003 injunction order. No other evidence was taken. The ALJ recommended that "the Commissioner of Commerce take disciplinary action against the real estate sales license of Hendrie Cutler Grant and the residential mortgage originator's license of Cutler Mortgage Company." The department adopted the findings of fact, conclusions, and recommendation of the ALJ and suspended the licenses until Grant establishes that he is no longer enjoined from engaging in real estate practices. This certiorari appeal followed.
Due to a tape recorder malfunction, no record is available of the parties' statements at this hearing. But in its findings of fact, conclusions, and recommendation, the ALJ expressly found that Grant "stipulated to [the] admission of the injunction order." On appeal, the parties and the ALJ have furthermore agreed, in accordance with Minn. R. Civ. App. P. 110.04, that "[t]he only evidence submitted to the [ALJ] . . . was a copy of the [injunction order]."
DECISION
We undertake review of an administrative agency decision with deference to the agency's expertise. In re Excess Surplus Status of Blue Cross Blue Shield of Minn., 624 N.W.2d 264, 278 (Minn. 2001). We will not modify or reverse an agency decision unless the agency committed an error of law, made arbitrary and capricious findings or conclusions, or otherwise took action not supported by the record. Minn. Stat. § 14.69 (2002); HealthPartners, Inc. v. Bernstein, 655 N.W.2d 357, 360 (Minn. App. 2003), review denied (Minn. Mar. 26, 2003).
I.
Grant asserts a violation of his constitutional right to procedural due process. Grant claims that, in the department's notice of action against the licenses, the only stated basis for disciplinary action is the injunction itself. Thus, Grant argues, he had no notice that the department would take disciplinary action based on the conduct underlying the injunction, rather than the fact of the injunction itself. Whether an administrative agency has provided sufficient notice in accordance with the requirements of procedural due process is a legal issue, which we review de novo. Resolution Revoking License No. 000337 West Side Pawn, 587 N.W.2d 521, 522 (Minn.App. 1998), review denied (Minn. Mar. 30, 1999).
The department initially counters Grant's argument on procedural grounds. It contends that, because Grant conceded that he was subject to disciplinary action, Grant waived the right to challenge on appeal the constitutional sufficiency of the notice given. But because an administrative agency lacks authority to decide constitutional issues, such issues may be raised for the first time on appeal from an administrative decision. Seemann v. Little Crow Trucking, 412 N.W.2d 422, 425 (Minn.App. 1987). Thus, consideration of Grant's due process challenge on its merits is proper.
Procedural due process is guaranteed by the state and federal constitutions. When a protected interest is subject to government action, the administrative agency must provide reasonable notice and an opportunity to be heard. Programmed Land, Inc. v. O'Connor, 633 N.W.2d 517, 528 (Minn. 2001). Commercial licenses are a protected interest subject to the protections of procedural due process. See Pomrenke v. Comm'r of Commerce, 677 N.W.2d 85, 91 (Minn.App. 2004) (recognizing individual has property interest in holding mortgage originator license), review denied (Minn. May 26, 2004); see generally Greene v. McElroy, 360 U.S. 474, 492, 79 S. Ct. 1400, 1411 (1959) (noting that individual has protected property interest in holding private employment and following chosen profession).
Grant's procedural due process arguments are limited to whether the department provided adequate notice. In Schulte v. Transp. Unlimited, Inc., the Minnesota Supreme Court reasoned that the primary function of notice is to inform a party of how government action affects that party's interests. 354 N.W.2d 830, 834 (Minn. 1984). As a result, the Schulte court concluded that the critical factor in assessing whether notice is constitutionally sufficient is whether a party had notice of the interest at stake. Id. at 834-35; see also Plocher v. Comm'r of Pub. Safety, 681 N.W.2d 698, 705 (Minn.App. 2004) (evaluating adequacies of notice by considering whether notice communicates interest at stake and is not actively misleading); Comm'r of Natural Res. v. Nicollet County Pub. Water/Wetlands Hearings Unit, 633 N.W.2d 25, 30 (Minn.App. 2001) (same), review denied (Minn. Nov. 13, 2001). Rather than employing a technical or uniform standard, the test for adequacy of notice varies according to the facts and circumstances of each case. In re Application of Christenson, 417 N.W.2d 607, 611-12 (Minn. 1987); Nicollet County Hearings Unit, 633 N.W.2d at 29. Notice is inadequate when the consequences of government action are not foreseeable. See, e.g., In re Metro Siding Inc., 624 N.W.2d 303, 308-09 (Minn.App. 2001) (finding inadequate notice when partition was not disclosed as potential remedy in mechanics' lien action); In re Grafstrom, 490 N.W.2d 632, 636-37 (Minn. App. 1992) (finding inadequate notice when more severe outcome was not plainly disclosed in civil commitment action).
If a party knows or has reason to know of the adverse consequences of government action, then the notice meets the requirements of procedural due process. Nicollet County Hearings Unit, 633 N.W.2d at 31. For example, when a party did not receive direct notice of an action involving a wetland on his property, but that party participated in the action and actively opposed government intervention, there was sufficient notice. Id. at 30-31. Similarly, when an employee received notice that her unemployment benefits would be terminated, and the notice added that the issue of unemployment misconduct would be litigated, there was sufficient notice to satisfy the requirements of procedural due process. Seemann, 412 N.W.2d at 425-26.
The notice that Grant received from the department provided in relevant part:
Having been enjoined from engaging in or continuing any conduct or practice involving any aspect of the real estate business, Grant has subjected his license to discipline pursuant to Minn. Stat. § 82.27, subd. 1(c) (2002). . . .
Having been enjoined by the [district court], Cutler Mortgage has subjected its license to discipline pursuant to Minn. Stat. § 58.12, subd. 1(a) and (b)(2)(vii) (2002).
With respect to these charges, the notice recites substantial portions of the December 24 injunction order, including the district court's description of Grant's equity stripping activities.
Relating to real estate sales licenses, Minn. Stat. § 82.27, subd. 1 (2002), which was cited in the notice, provides in part:
This statute has since been renumbered, without other changes, as Minn. Stat. § 82.35 (2004). See 2004 Minn. Laws ch. 203, art. 2, § 61.
The commissioner may by order deny, suspend or revoke any license . . . if the commissioner finds (1) that the order is in the public interest, and (2) that the [licensee]: . . .
(c) is permanently or temporarily enjoined by any court of competent jurisdiction from engaging in or continuing any conduct or practice involving any aspect of the real estate business[.]
Section 58.12, subdivision 1, which also was cited in the notice, similarly provides in relevant part:
(a) The commissioner may by order take any or all of the following actions: . . .
(2) deny, suspend, or revoke a residential mortgage originator . . . license[.]
(b) In order to take the action in paragraph (a), the commissioner must find:
(1) that the order is in the public interest; and
(2) that the [licensee] has: . . .
(vii) . . . been the subject of . . . [an] injunction order or order barring involvement in an industry or profession[.]
Minn. Stat. § 58.12, subd. 1 (2002). These statutes plainly state that, when a licensee is subject to discipline as a result of an injunction, the consequences may include the revocation or suspension of the license. By incorporating these statutes, the notice from the department properly informed Grant of the interest at stake. Thus, the notice at issue here meets the requirements of procedural due process.
Grant argues principally that, because the only stated basis for the disciplinary action is the injunction itself, he did not have notice that the department would consider conduct underlying the injunction. Grant's argument is unpersuasive for several reasons.
When Grant received notice from the department that he was subject to disciplinary action, the notice recited the conduct underlying the injunction. Grant did not object to the notice on this basis. At the hearing before the ALJ, Grant did not seek a stipulation to the fact of the injunction alone, nor did he avail himself of the opportunity to contest the facts stated in the injunction order. Rather, Grant stipulated to the entire injunction order, including the memorandum explaining in detail the conduct giving rise to the injunction. On this record, it is evident that Grant had ample reason to know that the conduct underlying the injunction would be at issue. Cf. Nicollet County Hearings Unit, 633 N.W.2d at 30-31 (finding sufficient notice when party actively litigated against proposed government action).
Even if the department improperly proceeded on the basis of conduct underlying the injunction, such action does not render the notice unconstitutional. Regardless of whether the department proceeded on the basis of the injunction alone or on the basis of fraudulent equity stripping activities, the relevant statutes provide for the same potential sanctions. See Minn. Stat. §§ 58.12, subd. 1(a), (b)(2)(viii) (prescribing penalties for licensee engaging in misrepresentation or deceit); 82.27, subd. 1(b) (prescribing penalties for licensee engaging in deceptive or dishonest practices). Procedural due process is satisfied as long as Grant was informed of the potential consequences and had reason to know of the interest at stake. See Grafstrom, 490 N.W.2d at 636-37 (finding violation of procedural due process when notice does not plainly disclose potential for more severe sanctions). Because Grant was informed of the potential consequences of the department's action and was given an opportunity to participate in the proceeding and challenge the basis for the disciplinary action, the requirements of procedural due process were satisfied.
II.
Grant claims that, because the stated basis for the disciplinary action is the injunction, the department erred by considering the conduct underlying the injunction. In a challenge to an administrative agency's authority to consider particular facts, our review is limited to determining whether the administrative agency's reliance on those facts was arbitrary and capricious. In re Max Schwartzman Sons, Inc., 670 N.W.2d 746, 753 (Minn.App. 2003). An administrative agency's actions are not arbitrary and capricious provided the administrative agency articulates a rational relationship between the facts relied on and the final conclusion. Blue Cross Blue Shield of Minn., 624 N.W.2d at 277.
The authority of an administrative agency to consider evidence in a contested hearing is governed by Minn. Stat. § 14.60, subd. 1 (2002), which provides: "In contested cases agencies may admit and give probative effect to evidence which possesses probative value commonly accepted by reasonable prudent persons in the conduct of their affairs. . . . They may exclude incompetent, irrelevant, immaterial and repetitious evidence." This provision allows an administrative agency to consider evidence that may not necessarily be admissible under ordinary courtroom rules of evidence. Padilla v. Minn. State Bd. of Med. Exam'rs, 382 N.W.2d 876, 882 (Minn.App. 1986), review denied (Minn. Apr. 24, 1986); cf. Hagen v. Civil Serv. Bd., 282 Minn. 296, 300, 164 N.W.2d 629, 632 (1969) (reaching same result in administrative proceeding not controlled by Minn. Stat. § 14.60). Nevertheless, courtroom rules may inform whether an administrative agency may reasonably accept certain evidence. See State ex rel. Indep. Sch. Dist. No. 276 v. Dep't of Educ., 256 N.W.2d 619, 627 (Minn. 1977) (noting that administrative decision cannot be based entirely on inadmissible hearsay).
The issue presented here is extremely narrow and arises only when an administrative agency takes disciplinary action against a party because the party is subject to an injunction. In this circumstance, the question before us is whether the conduct underlying the injunction is rationally related to the disciplinary action.
In Shuck v. Sec. Exch. Comm'n, a securities dealer allegedly lacked sufficient assets to cover his liabilities to his clients, thereby violating the net deposit requirements of the Securities and Exchange Act. 264 F.2d 358, 359 n. 4 (D.C. Cir. 1958). In district court, the Securities and Exchange Commission (SEC) obtained a preliminary injunction barring the securities dealer from further transactions until the net deposit requirements were satisfied. Id. at 359-60. In a subsequent administrative action by the SEC against the dealer's license, the basis for discipline was the preliminary injunction. Id. at 362. During the proceeding, the SEC considered the conduct underlying the injunction, noting that the dealer did not contest the basis for the injunction. Id. at 360, 362. In affirming the revocation of the dealer's license, the Shuck court observed that the dealer's conduct was essential to determining an appropriate sanction. Id. at 362-63. Although Shuck is not precedential for us, its reasoning is persuasive here.
It is both reasonable and prudent for the department to consider the conduct underlying the injunction when evaluating the public interest and the severity of the sanction. See Minn. Stat. §§ 58.12, subd. 1(b)(1), 82.27, subd. 1 (requiring finding that action is in the public interest); Shuck, 264 F.2d at 362-63 (relying on underlying conduct to determine public interest and severity of sanction). If the conduct underlying the injunction were not available for consideration, the department would be deprived of the facts necessary to establish a rational relationship between a licensee's misconduct and the appropriate sanction. Should the department fail to consider the conduct underlying the injunction, it would risk imposing a sanction that is arbitrary and capricious. Thus, giving deference to the department's expertise, it was not arbitrary and capricious for the department to consider the conduct underlying the injunction.
Grant advances a preclusion theory, arguing that the findings in the injunction order cannot be conclusively relied on in a subsequent proceeding. Grant correctly observes that, when findings are made in a preliminary injunction order, those findings are not binding on any subsequent forum. Univ. of Tex. v. Camenisch, 451 U.S. 390, 395, 101 S. Ct. 1830, 1834 (1981); Mesabi Iron Co. v. Reserve Mining Co., 270 F.2d 567, 570 (8th Cir. 1959). But the findings in a preliminary injunction order still may be persuasive in a subsequent forum. If a party has an opportunity to contest the findings in a temporary injunction order but does not do so, then a subsequent forum may adopt those findings. See, e.g., Guillermety v. Sec'y of Educ., 241 F. Supp. 2d 727, 732 (E.D. Mich. 2002) (adopting unchallenged findings from preliminary injunction in order for summary judgment); United States v. City of Chicago, 395 F. Supp. 329, 340-41 (N.D. Ill. 1975) (adopting unchallenged findings from preliminary injunction in declaratory judgment), aff'd mem., 525 F.2d 695 (7th Cir. 1975).
Rather than contest the findings in the injunction order, Grant stipulated to the entire injunction order, including the facts recited in the memorandum. Without any evidence to the contrary, the department reasonably adopted the findings in the injunction order. As a result, Grant's preclusion argument is without merit.
III.
Grant also contests the sanction imposed by the department, asserting that suspension of the licenses improperly exaggerates the nature of the misconduct. He argues in part that, because the preliminary injunction only restrains certain elements of real estate practice, suspension of the licenses is an excessive sanction. Because "the assessment of penalties and sanctions by an administrative agency is not a factual finding but a discretionary grant of power," we review administrative sanctions for a clear abuse of discretion. In re License of Haugen, 278 N.W.2d 75, 80 n. 10 (Minn. 1979).
When an administrative sanction is reviewed for a clear abuse of discretion, the severity of the sanction must be proportionate to the seriousness of the violation. In re Ins. Licenses of Kane, 473 N.W.2d 869, 877-78 (Minn.App. 1991), review denied (Minn. Sept. 25, 1991). On review, we consider whether the administrative agency has expressly evaluated relevant factors, which may include the seriousness of past misconduct, the risk to the public from future misconduct, and the deterrent effect to be achieved. In re Revocation of Family Child Care License of Burke, 666 N.W.2d 724, 726 (Minn.App. 2003); In re License of Henry Youth Hockey Ass'n, 511 N.W.2d 452, 457 (Minn.App. 1994), aff'd as modified, 559 N.W.2d 410 (Minn. 1994).
In determining the sanction against Grant, the department carefully considered several factors. It noted that the district court granted a temporary injunction, a remedy that requires a high threshold of proof. Relying on the findings for the injunction order, the department cited several homeowners' allegations of equity stripping. It further characterized the practice as "repugnant" and noted the need for an immediate deterrent for the purpose of protecting other homeowners in Minnesota. Because the department carefully weighed these factors, the department did not clearly abuse its discretion by suspending the licenses until Grant is no longer enjoined from engaging in the enumerated real estate practices.