OAH 16-1005-21331-2
STATE OF
OFFICE OF ADMINISTRATIVE HEARINGS
FOR THE DEPARTMENT OF COMMERCE
|
In the Matter of the Real Estate Closing Agent License and Notary Public Commission of Donald Leverne Walthall |
ORDER
GRANTING PARTIAL SUMMARY DISPOSITION
|
This matter came before Administrative Law Judge Manuel J. Cervantes (ALJ) on a Motion of the Minnesota Department of Commerce (Department or DOC) for Summary Disposition, filed September 7, 2010. No response to the motion was received on behalf of Donald Leverne Walthall (Respondent). The motion record closed on September 21, 2010, when the period for filing a response lapsed.
Christopher M. Kaisershot, Assistant Attorney General, represents the Department. Bobby Joe Champion, Esq., represents the Respondent.
STATEMENT OF ISSUE
The issue in this case is whether the Department may subject Respondent to discipline and sanctions for violations of Minn. Stat. chs. 45 and 58, for conduct described in detail below.
Based upon all of the files, records, and proceedings herein, and for
the reasons detailed in the Memorandum below,
IT IS HEREBY ORDERED THAT:
1.
The
Department’s Motion for Summary Disposition is GRANTED to the extent that the
Respondent is collaterally estopped from contesting the factual basis for
imposing discipline arising out of his convictions for fraud, racketeering, and
the imposition of a civil judgment.
2.
The
hearing in this matter, scheduled for Wednesday, October 27, 2010, is limited
to addressing what sanctions are appropriate in accordance with the analysis
set out in the Memorandum below.
Dated: October 8, 2010
s/Manuel J. Cervantes
|
MANUEL J. CERVANTES Administrative Law Judge |
MEMORANDUM
I.
Jurisdiction
The Administrative Law Judge and the Commissioner of
Commerce have jurisdiction pursuant to Minn. Stat. §§ 14.57, 45.027, subds. 6
and 7; 58.12, subd. 2; and 82.35, subd. 1.[1] Respondent was given notice of this matter
and the Department of Commerce has complied with all relevant procedural
requirements. The ALJ and the
Commissioner have authority to consider the issues set out in the Notice and
Order for Prehearing Conference filed May 20, 2010.
II.
Contention
of the Department
The Department has brought this action alleging that the
Respondent has violated
In Count I of the Department’s Notice and Order for
Prehearing Conference, it states that the Respondent conspired with others and
participated in a “straw borrower” mortgage fraud scheme involving numerous
residential property transactions.
Moreover, the Respondent received kickbacks and other economic benefits
in conjunction with these transactions, while causing substantial economic harm
to the public. Respondent pled guilty to
Felony Racketeering for his participation in the scheme. Finally, Count I alleges that Respondent
violated standards of conduct, engaged in fraudulent, coercive, deceptive, or
dishonest acts, and otherwise engaged in acts that demonstrate
untrustworthiness, financial irresponsibility, or incompetence.[2]
Count II states Respondent participated in false,
deceptive, and misleading statements and representations concerning his intended
residence, income, assets, and/or liabilities in residential loan transactions
in conjunction with the purchase of a number of residences. Shortly after he purchased them, the
Respondent “flipped” these properties by selling them at a substantial markup. Moreover, the Respondent received kickbacks
and other economic benefits in conjunction with these transactions, while
causing substantial economic harm to the public. In 2008, Respondent was convicted of eight
counts of Felony Theft by Swindle based on these deceptive mortgage loan
applications and fraudulent transactions.
Finally, Count II alleges that Respondent violated standards of conduct,
engaged in fraudulent, coercive, deceptive, or dishonest acts, and otherwise
engaged in acts that demonstrate untrustworthiness, financial irresponsibility,
or incompetence.[3]
Count III states Respondent participated in false,
deceptive, and misleading statements and representations concerning Cartlidge’s
intended residence, income, assets, and/or liabilities in conjunction with a
second mortgage taken against the property.
Respondent has failed to satisfy the money judgment obtained against him
by the lender. Finally, Count III alleges
that Respondent violated standards of conduct, engaged in fraudulent, coercive,
deceptive, or dishonest acts, and otherwise engaged in acts that demonstrate
untrustworthiness, financial irresponsibility, or incompetence.[4]
The Department contends that the conduct leading to Respondent’s
convictions on Felony Racketeering, Felony Theft by Swindle, and the entry of a
civil monetary judgment against the Respondent constitute the same underlying conduct
resulting in violations of a mortgage originator’s professional standards and
Pursuant to the ALJ’s Scheduling Order of July 12,
2010, replies to any dispositive motions were to be filed by September 21,
2010.[5] The Respondent has not filed any reply to the
Department’s motion for summary disposition.
III.
Background Summary
In 1998, the Legislature enacted the Minnesota
Residential Originator and Servicer Licensing Act (“the Act”), legislation that
regulates the practice of originating residential mortgages. Under the Act, residential mortgage
originators (also known as mortgage brokers) must either be directly licensed
by the Department or covered by a specific statutory exemption.[6]
The Act imposes upon those who are directly licensed,
and those who are otherwise exempt from licensure, certain standards of
professional conduct. These professional
standards extend to matters that relate directly to residential mortgage
origination and other volitional non-mortgage related acts.[7]
The
Department seeks to impose administrative discipline on the Respondent for
violations of statute and rule, “including debarment … or the imposition of
civil penalties.”[8] On May 20, 2010, the Department filed a
Notice and Order for Prehearing Conference setting this matter on before the
ALJ.
On September
7, 2010, the Department moved for summary disposition. No response was received from the Respondent
by the deadline established for a reply.
The ALJ is proceeding without a response from Respondent.
IV.
Summary Disposition Standard
Summary
disposition is the administrative equivalent of summary judgment. Summary disposition is appropriate where
there is no genuine issue as to any material fact and one party is entitled to
judgment as a matter of law.[9] The Office of Administrative Hearings has
generally followed the summary judgment standards developed by state and
federal courts when considering motions for summary disposition.[10] A genuine issue is one that is not a sham or
frivolous. A material fact is a fact
whose resolution will affect the outcome or result of the case.[11]
The moving party has the initial burden of showing
the absence of a genuine issue concerning any material fact. To successfully resist a motion for summary
judgment, the non-moving party must show that there are specific facts in
dispute which have a bearing on the outcome of the case.[12] The nonmoving party must establish the
existence of a genuine issue of material fact by substantial evidence; general
averments are not enough to meet the nonmoving party’s burden under Minn. R.
Civ. P. 56.05.[13] The evidence presented to defeat a summary
judgment motion, however, need not be in a form that would be admissible at
trial.[14]
When considering a motion for summary judgment, the
Court must view the facts in the light most favorable to the non-moving party.[15] All doubts and factual inferences must be
resolved against the moving party.[16] If reasonable minds could differ as to the
import of the evidence, judgment as a matter of law should not be granted.[17]
V.
Undisputed Facts
On December 22, 2004, the Department issued the Respondent
a Real Estate Closer license. That
license expired on June 30, 2008. Also,
effective December 22, 2004, the State granted Respondent a commission of
Notary Public, which expired on February 1, 2009.[18]
At all times relevant to the issues set out in the
Notice and Order for Prehearing Conference, Respondent owned and operated Universal
Mortgage, Inc. (UMI), which had been licensed as a mortgage originator from
January 10, 2003 through October 31, 2007. Respondent, individually, was not required to be
licensed as a mortgage originator because he was employed by UMI as its branch
owner, but he was still subject to all other provisions of Minn. Stat. ch. 58.[19]
Between June 2005 and November 2005, Respondent purchased
eight residential real estate properties whereby he paid an inflated purchase price
and received a “kickback” from the seller.[20] In order to make these purchases, the Respondent
obtained loans by fraudulently misstating his financial condition. The fraudulent loans resulted in the theft of
money equal to the amount of the respective loans. The loan total for the eight fraudulent
purchases equaled $1,357,000.[21] Respondent received a kickback ranging from
$22,500 to $44,000 on each purchase from the seller out of the loan proceeds.[22] Shortly thereafter, Respondent resold (“flipped”)
the properties at a further inflated price to a “straw borrower” as part of a
mortgage fraud scheme.[23]
On December 6, 2007, the Respondent was charged in
Hennepin County District Court with one count of Felony Racketeering and 4
counts of Felony Theft by Swindle.[24] Count 1 of the complaint alleged that the
Respondent, while associated with UMI, conspired with another
and
intentionally conducted or participated in the affairs of the enterprise by
participating in a pattern of criminal activity, namely, theft by swindle; and
intentionally participated in a pattern of criminal activity and knowingly invested
any proceeds derived from the conduct, or any proceeds derived from the
investment or use of those proceeds, in an enterprise or in real property.[25]
On August 19, 2008, the Respondent entered a plea of
guilty to the Racketeering charge. The
four remaining Theft by Swindle counts were dismissed.[26]
On January 15, 2008, the Respondent was charged with eight
counts of Felony Theft by Swindle.[27] Each count reflected a mortgage lending
transaction that the Respondent was involved in, wherein the Respondent made
false statements to obtain a mortgage loan. On July 16, 2008, the Respondent was tried before
Hennepin County District Court Judge Mark Wernick on eight counts of Theft by
Swindle over $35,000. Respondent was
convicted of all eight counts. Judge
Wernick found that the Respondent received a payment, described as a “kickback,”
ranging from $12,500 to $40,000 as part of each transaction.[28]
In his Verdict and Memorandum, the judge identified the Respondent as being the buyer
and loan officer on eight residential property transactions resulting in the
nine felony convictions.[29] On November 3, 2008, the Respondent was
sentenced on all convictions, specifically, on eight counts of Theft by Swindle
and one count of Racketeering. The
Respondent was committed to the Commissioner of Corrections for 74 months.[30]
On July 27, 2007, Ollie Cartlidge purchased a
residential property located in
VI.
Analysis
As a mortgage originator exempt from licensure, the
Respondent was obligated to adhere to the standards of the Act. Among these standards, Minn. Stat. § 58.12,
subd. 1(a), states in pertinent part:
The commissioner may
by order take any or all of the following actions:
(1)
bar a person from engaging in residential mortgage origination or servicing;
(2)
deny, suspend, or revoke a residential mortgage originator or a servicer
license;
(3)
censure a licensee;
(4)
impose a civil penalty as provided for in section 45.027, subdivision 6; or
(5)
revoke an exemption or certificate of exemption.
(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
residential mortgage originator, servicer, applicant, or other person, an
officer, director, partner, employee, or agent or any person occupying a
similar status or performing similar functions, or a person in control of the
originator, servicer, applicant, or other person has:
(I)
violated any provision of this chapter or rule or order under this chapter;
* * *
(iv)
violated a standard of conduct or engaged in a fraudulent, coercive, deceptive,
or dishonest act or practice, whether or not the act or practice involves the
residential mortgage lending business;
(v)
engaged in an act or practice, whether or not the act or practice involves the
business of making a residential mortgage loan, that demonstrates
untrustworthiness, financial irresponsibility, or incompetence;
(vi)
pled guilty, with or without explicitly admitting guilt, pled nolo contender,
or been convicted of a felony, gross misdemeanor, or a misdemeanor involving
moral turpitude.
To apply collateral estoppel, the current issue must
be identical to one in a prior adjudication, where there is a final judgment on
the merits. The estopped party must have
been a party or in privity with a party to the prior adjudication. The estopped party must have been given a
full and fair opportunity to be heard on the adjudicated issue.[32]
The issue on which estoppel is to be applied must have been necessary and
essential to the prior adjudication.[33]
The Respondent was a party to the racketeering and
theft by swindle criminal complaints. He
voluntarily pled guilty to the racketeering charge on August 19, 2008.
The Respondent actively defended himself at trial against
the eight counts of theft by swindle contained in the second criminal complaint. The burden of proof in the criminal
proceeding, beyond a reasonable doubt, is higher than the burden of proof in
this proceeding. The Respondent was
afforded a full opportunity to defend himself and to present his case in that
proceeding. On July 16, 2008, the State
prevailed on all eight counts. The
Respondent did not appeal his convictions and the judgment of conviction is
final for purposes of collateral estoppel.
The professional standards of conduct applicable to
mortgage originators require the Respondent to refrain from engaging in any
acts or practices which demonstrate that he is untrustworthy, financially
irresponsible, or otherwise incompetent or unqualified to act under the
authority granted by the Commissioner.[34] Respondent, as the mortgage broker,
stood in a position of trust and confidence and bore a fiduciary relationship towards
the lenders to whom he submitted fraudulent loan applications. The Respondent utilized his position as CEO
of UMI to accomplish that acts of fraud described above.[35]
The facts underlying the Respondent’s convictions for
racketeering and theft by swindle, referenced in Counts I and II above, constitute
sufficient grounds to impose discipline under Minn. Stat. § 58.12, subd.
1(b)(2):
(i)
violation of any
provision of this chapter,
* * *
(iv) engaged
in a fraudulent, coercive, deceptive, or dishonest act or practice, whether or
not the act or practice involves the residential mortgage lending business, and
(v)
engaged in an
act or practice, whether or not the act or practice involves the business of
making a residential mortgage loan, that demonstrates untrustworthiness,
financial irresponsibility, or incompetence).
The
facts underlying the monetary judgment against the Respondent in the
above-referenced Count III, above fall within all of the foregoing statutory
provisions, except Minn. Stat. § 58.12, subd. 1(b)(2)(vi). The factual background of the monetary
judgment and Respondent’s criminal convictions falls squarely within the Act. The ALJ concludes that the Respondent’s
convictions of Felony Racketeering and Felony Theft by Swindle constitute violations
Minn. Stat. § 58.12, subd. 1(a)(2)(vi), as they involve crimes of moral
turpitude.[36]
Under the foregoing analysis, the Respondent is
estopped from disputing the underlying facts of his convictions and civil
monetary judgment. The Department need
not prove any additional facts beyond the criminal convictions and the entry of
the civil monetary judgment, in order to impose administrative discipline. The application of collateral estoppel would
not work an injustice on Respondent in this case.[37] But these conclusions alone do not resolve all
the issues in this proceeding. The
Respondent was convicted of violations of
In this matter, however, there is no difference in the
conduct for which sanctions against the Respondent are being sought, since the
fraudulent conduct that formed the basis of the Respondent’s convictions/monetary
judgment is similarly prohibited by the mortgage originator professional
standards.
There is a clear difference in the consequences, however,
between the criminal conviction/civil judgment and this proceeding. The Respondent is entitled to make argument
and introduce evidence regarding the mitigation of any proposed sanctions,
including debarment and the amount of civil penalties ultimately imposed, since
those issues were not specifically addressed by the Department in their request
for summary disposition. The issue
regarding the level of sanctions was not collaterally estopped by Respondent’s
convictions or judgment.[39]
VII.
Summary
The
Respondent is subject to administrative discipline from the DOC because his conduct,
both criminal and civil (regarding the Cartlidge transaction), violated the Act
while he worked as a mortgage originator.
The Department has shown that the Respondent’s
convictions support the imposition of discipline under Minn. Stat. § 58.12.[40] The Respondent has not demonstrated that any genuine
issue of material fact exists to dispute that discipline is appropriate.
The lack of material issues of fact only relates to
the issues regarding the alleged violations.
The Respondent will have the opportunity to present evidence regarding
the propriety of the sanctions to be imposed for the violations, if he so
desires. The hearing scheduled for Wednesday,
October 27, 2010, is limited to providing the Respondent an opportunity to submit
any mitigating factors to determine what sanctions are appropriate in light of
the established violations of the Act.
M. J. C.
[1] Statutes are cited to the 2008 Edition.
[2] Minn. Stat. §§ 45.027, subd. 7(a)(4); 58.12, subd. 1(b)(2)(iv), (v),
and (vi); 58.13, subd. 1(19); 82.35, subd. 1(b), (f), and (h); and 359.12. See
also, Pomrenke v. Commissioner of Commerce, 677 N.W.2d 85, 90-91 (Minn. Ct.
App. 2004) (acts committed by a mortgage originator who is exempt from
licensure requirement provide the commissioner with jurisdiction to impose
civil penalties and bar that individual from the field.)
[3] Minn. Stat. §§ 45.027, subd. 7(a)(4); 58.12, subd. 1(b)(2)(iv), (v),
and (vi); 58.13, subd. 1(19); 82.35, subd. 1(b), (f), and (h); and 359.12. See
also, Pomrenke, supra.
[4] Minn. Stat. §§ 45.027, subd. 7(a)(4); 58.12, subd. 1(b)(2)(iv), (v),
and (vi); 58.13, subd. 1(19); 82.35, subd. 1(b), (f), and (h); and 359.12. See
also, Pomrenke , supra.
[5] The original deadline of September 17, 2010 was modified by email, sent on September 8, 2010.
[6] See,
[7] See,
[8]
Notice and Order for Prehearing Conference at 1.
[9] Sauter v. Sauter, 70 N.W.2d 351, 353 (
[10]
See
[11] Illinois Farmers Insurance Co. v. Tapemark
Co., 273 N.W.2d 630, 634 (
[12] Thiele v. Stich, 425 N.W.2d 580, 583 (
[13]
[14]
Carlisle, 437 N.W.2d at 715 (citing Celotex Corp. v. Catrett, 477
[15] Ostendorf v. Kenyon,
347 N.W.2d 834 (
[16] See, e.g., Celotex, 477
[17] Anderson v. Liberty Lobby, Inc., 477
[18] M. Boyer Aff., Senior Investigator, Dept. of
Commerce (Boyer Aff.), at 1. The
Department has not presented any issues regarding the Notary Commission in this
Motion.
[19]
[20] Kaisershot Aff., Ex. A., at 1-7.
[21]
[22]
[23] Boyer Aff., at 2.
[24]
Kaisershot Aff.,
[25]
[26]
[27]
[28]
[29] Ex.
A., at 4-17.
[30]
[31] Boyer Aff., at 19; Ex. 59.
[32] Ill. Farmers Ins. Co. v. Reed, 662
N.W.2d 529, 531 (
[33] Hauser v. Mealey, 263 N.W.2d 803, 808 (
[34] Minn. Stat. §§ 45.027, subd.
7(a)(4).
[35] Ex. A., at 1-7.
[36] Moral turpitude is not
defined in the statute, but Black’s Law Dictionary, pp. 1008-09 (6th ed. 1990)
(citations omitted), defines it as follows: The act of baseness, vileness, or
depravity in private and social duties which man owes his fellow man, or to
society in general, contrary to accepted and customary rule of right and duty
between man and man. Act or behavior
that gravely violates moral sentiment or accepted moral standards of community
and is a morally culpable quality held to be present in some criminal offenses
as distinguished from others.
[37] Johnson v. Consolidate Freightways, Inc., 420
N.W.2d 608, 613-14 (
[38] ITMO the Disciplinary Hearing Relating to
Michael Alan Kveene, License No. 10639, OAH Docket No. 12-2402-10724-2 (ALJ
Order Granting Partial Summary Disposition issued November 1, 1996) (relying on
ITMO the Matter of the Teaching License
of Falgren, 545 N.W.2d 901, 905-06 (Minn. 1996)).
[39] The Department asserted that
no hearing was required regarding sanctions absent some demonstration of
material facts regarding the sanctions to be imposed. Department Motion, at 9. There was no showing made by the Department
that any particular sanction was appropriate, thus the matter must be set on
for hearing to provide the Respondent an opportunity to offer any available
mitigating factors. Falgren v. State, Bd. of Teaching, 545 N.W.2d 901, 905 (
[40] See
also, Minn. Stat. §§ 82.35, subd.1 and 359.12.