Donna Bobo v. State of Tennessee Real Estate Commission

IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
March 20, 2014 Session
DONNA BOBO v. STATE OF TENNESSEE REAL ESTATE COMMISSION
Appeal from the Chancery Court for Davidson County
No. 12595II Carol L. McCoy, Chancellor
No. M2013-02037-COA-R3-CV - Filed May 5, 2014
This is an appeal from an administrative decision permanently revoking a real estate broker’s
license. The Chancery Court reversed the decision of the administrative panel, finding that
the decision was not based on substantial and material evidence, that the procedure utilized
violated both statutory and constitutional principles, and that the administrative panel
demonstrated “evident partiality.” We reverse the decision of the Chancery Court and
reinstate the decision of the administrative panel. Reversed and remanded.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Reversed
and Remanded
J. S TEVEN S TAFFORD, J., delivered the opinion of the Court, in which D AVID R. F ARMER, J.,
and H OLLY M. K IRBY, J., joined.
Robert E. Cooper, Jr., Attorney General and Reporter; Joseph F. Whalen, Acting Solicitor
General; Nicholas G. Barca, Assistant Attorney General, for the appellant, State of Tennessee
Real Estate Commission.
Kim G. Sims, Memphis, Tennessee, for the appellee, Donna Bobo.
OPINION
Background
In 2007, as a licensed real estate broker, Petitioner/Appellee Donna Bobo represented
Shalah Smith in Ms. Smith’s $60,000.00 purchase of a string of rental properties located on
Dungreen Avenue in Memphis, Tennessee (“the property” or “the subject property”). Ms.
Smith hired Ms. Bobo and her property-management company, East Coast Properties, LLC,
to manage the property.1 Ms. Smith subsequently ran into financial difficulties and was
facing foreclosure on the property. In May of 2008, Ms. Smith contacted Ms. Bobo, seeking
her advice concerning options for the property. Ms. Bobo advised Ms. Smith either that the
property could be foreclosed, that Ms. Smith could enter into a short sale, or that Ms. Smith
could quitclaim the property to Global Investment Services, LLP (“Global”), a limited
liability partnership consisting of Ms. Bobo and Rick Horton formed for the purpose of
holding property. Ms. Bobo and Ms. Smith drafted two Letters of Agreement and an
Addendum (together “the contract”), which were based on a form contract supplied by Ms.
Bobo. On May 29, 2008, Ms. Smith signed the contract on her own behalf, and Ms. Bobo
signed on behalf of Global. As part of the contract, Ms. Smith quitclaimed the property to
Global for $10.00. Global agreed to collect rent from the tenants, maintain the rental
property, and pay the mortgages on the property each month on behalf of Ms. Smith. The
mortgages remained in Ms. Smith’s name. The contract provided that if Global “for any
reason refuses to make the agreed scheduled monthly payments” on the mortgages, it “will
sell, release, remise, quit claim, and convey” the property back to Ms. Smith “within 30-60
days.” The contract further stated that the parties were “fully aware that [Global] is acting
as the principal owner in this transaction and plans to make, if possible, an unconscionable
profit with this property.”
Global failed to timely make the mortgage payments on the property. On at least one
occasion, in April of 2011, Mr. Horton misappropriated rents for his own purposes, rather
than paying the mortgage. Accordingly, Ms. Smith received a notice that the property was
in default and that formal foreclosure proceedings would commence May 3, 2011. Ms. Smith
apparently believed that this non-payment was a triggering event under the contract upon
which Ms. Smith could demand return of the property. Accordingly, Ms. Smith demanded
that Global return the property to her within thirty to sixty days, but Global dissolved and Ms.
Bobo allegedly refused to return the property.
Dissatisfied with Ms. Bobo’s response, Ms. Smith filed an unverified complaint with
the Respondent/Appellant State of Tennessee Real Estate Commission (“Real Estate
Commission”) on approximately August 31, 2007.2 Ms. Bobo responded to the allegations
1
Ms. Smith is herself a licenced real estate agent, but lives and works out-of-state.
2
The original complaint filed by Ms. Smith was not entered as an exhibit in the contested
hearing and is not contained in the record on appeal.
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in the complaint with a sworn Answer dated June 11, 2011.3 Based on the allegations in the
complaint, on December 21, 2011, the Real Estate Commission issued a Notice of Hearing
and Charges against Ms. Bobo. A contested case hearing was scheduled for January 12,
2012. Ms. Smith was to testify by telephone. Ms. Bobo filed a motion for a continuance,
which was granted. Ms. Bobo then filed a Motion to Dismiss, which was denied after the
Administrative Law Judge (“ALJ”) determined that material issues of fact should be decided
by the Real Estate Commission. The Real Estate Commission issued an Amended Notice of
Charges and Hearing on January 31, 2012. Ms. Bobo filed another Motion to Dismiss on
February 7, 2012, notifying the Real Estate Commission that Ms. Smith “did not wish to go
forward with this matter [because] the parties have reached an agreement.” Ms. Bobo
attached to the motion a letter from Ms. Smith indicating that she would not be available to
testify at the contested hearing and that her issues with Ms. Bobo had been resolved. The
hearing occurred one day later, on February 7, 2012, but Ms. Smith did not testify. Instead,
Eve Maxwell, Executive Director of the Real Estate Commission, testified as to the licensure
history of Ms. Bobo, as well as her receipt of Ms. Smith’s complaint and subsequent
investigation. E-mails between Ms. Smith and Ms. Bobo, as well as Ms. Bobo’s Answer to
the unverified complaint were entered as substantive evidence in the hearing. Ms. Maxwell
testified that during the events in question, Ms. Bobo was duly licensed as a real estate broker
in the State of Tennessee.
Ms. Bobo was also called to testify by the Real Estate Commission. Ms. Bobo denied
that she was acting as a real estate licensee at any time during the events at issue in the
Notice of Charges. However, Ms. Bobo admitted that she had entered into an agreement to
purchase, for little-to-no consideration, the subject property from Ms. Smith at a time when
she was representing Ms. Smith as a property manager. Further, Ms. Bobo admitted that, at
all times relevant to the allegations in the Notice of Charges, she maintained a Tennessee real
estate broker’s license. Ms. Bobo testified that she presented Ms. Smith with several options,
including attempting to sell the property, foreclosure, and quitclaiming the property to
Global. According to Ms. Bobo, Ms. Smith determined that it was in her best interest to
quitclaim the property to Ms. Bobo and her business partner. Accordingly, Ms. Smith would
avoid a foreclosure on her credit record and the current tenants could remain in their homes.
According to Ms. Bobo, Ms. Smith declined to attempt to sell the property because the value
of the property was less than the indebtedness at that time.
Ms. Bobo also admitted that Global had failed to pay the mortgage on the property,
but denied that its failure to do so was willful or attributable to her. Instead, Ms. Bobo
testified that her business partner had misappropriated Global’s funds without her
3
Ms. Bobo did not appear to be represented by counsel with regard to the drafting of her Answer
to Ms. Smith’s complaint.
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knowledge, causing Global to fall behind on the mortgage and the property to go in to
default. Ms. Bobo testified, however, that Global later made the scheduled payments and had
made all payments since then. Further, the mortgage holder had not initiated proceedings to
foreclose on the property. At the time of the hearing, the property was still ostensibly owned
by Global, despite the fact that the entity had been administratively dissolved by the State of
Tennessee.
Ms. Bobo admitted, however, that despite the demand for the return of the property
pursuant to the contract, Global had not quitclaimed the property back to Ms. Smith. Instead,
Bobo testified that Ms. Smith desired to include additional terms and conditions on the
return. In addition, Ms. Bobo admitted in her Answer that Mr. Horton refused to return the
property to Ms. Smith for “free.” Accordingly, Ms. Bobo and Global refused to return the
property within thirty to sixty days of Ms. Smith’s demand. Regardless, Ms. Bobo also
testified that she and Ms. Smith had reached an agreement regarding the property and that
she understood that Ms. Smith no longer wanted to prosecute her complaint with the Real
Estate Commission. Although Global had been administratively dissolved, Ms. Bobo
admitted that, at the time of the hearing, either she or Global still retained ownership of the
subject property, as the property had still not been returned to Ms. Smith.
As a result of the hearing, the Commission found that Ms. Bobo had violated several
provisions of the Tennessee Real Estate Broker License Act (“Real Estate Broker Act”). The
Commission assessed against Ms. Bobo $2,160.00 in hearing costs, a $5,000.00 civil penalty,
and permanently revoked her broker’s license.
Ms. Bobo petitioned the Chancery Court for judicial review. By Memorandum and
Order dated August 2, 2013, the Chancery Court ruled in favor of Ms. Bobo, concluding that
the Commission had not proceeded in compliance with the provisions of the Real Estate
Broker Act and the Uniform Administrative Procedures Act (“UAPA”), that the
Commission’s decision was not supported by substantial and material evidence, that the
hearing violated Ms. Bobo’s due-process rights, and that the Commission had not acted
impartially. Specifically, the trial court ruled that the complaint against Ms. Bobo was not
verified, as required by Tennessee Code Annotated Section 62-13-312, discussed infra.
Further, the trial court noted that Ms. Bobo was found guilty of violating a different statutory
provision than the one she was initially charged with violating. Third, the trial court ruled
that the Commission improperly relied on hearsay testimony from Ms. Smith, which the court
did not consider “substantial and material evidence.” The trial court also ruled that given the
severity of the depravation, i.e., permanently losing her real estate license, due process
required Ms. Bobo be given the opportunity to cross-examine Ms. Smith in court. The trial
court further ruled that the Commission improperly considered an offer of settlement made
by the Real Estate Commission prior to the hearing. The court finally ruled that this
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consideration called into question the Real Estate Commission’s impartiality. The Real Estate
Commission appeals.
II. Issues Presented
The Real Estate Commission raises the following issues, which are taken from its brief:
1. Did the chancery court err in ruling that a verified
complaint is required before the Real Estate Commission
can convene a contested case, when, pursuant to Tenn.
Code Ann. § 62-13-312(a), the [Real Estate] Commission
may hold a contested case hearing upon its own motion?
2. Did the chancery court err in ruling that the
Commission’s notice of hearing and charges was
inadequate, even though it quoted the statutory
provisions that Donna Bobo was charged with violating?
3. Did the chancery court err in ruling that the [Real Estate]
Commission’s decision was not supported by substantial
and material evidence, when (A) the [Real Estate]
Commission’s findings were based on the non-hearsay
testimony and documentation of Eve Maxwell and the
corroborating testimony and documentation of Ms. Bobo
and (B) the findings show that Ms. Bobo made
substantial and willful misrepresentations to Shalah
Smith, that her conduct constituted improper dealing, and
that she was not loyal to the interests of Ms. Smith, all in
violation of Tenn. Code Ann. §§ 62-13-312(b)
and-404(2) ?
4. Did the chancery court err in ruling that the [Real Estate]
Commission’s decision violated Ms. Bobo’s due-process
rights because the complainant did not testify at the
hearing, even though Ms. Bobo was present at the
hearing, was represented by counsel, had the ability to
subpoena witnesses, and herself corroborated the
evidence supporting the [Real Estate] Commission’s
decision?
5. Did the chancery court err in ruling that the [Real Estate]
Commission did not act impartiality at the hearing
because a member of the Commission mentioned a
previous consent order, when the Commission must
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perform multiple roles as an administrative agency?
Standard of Review
This Court, as well as the trial court, reviews the Real Estate Commission’s decision
under the narrowly defined standard of review contained in the UAPA, Tenn. Code Ann. §
4-5-322(h), rather than under the broad standard of review used in other civil appeals. Davis
v. Shelby Cnty. Sheriff’s Dept., 278 S.W.3d 256, 264 (Tenn. 2009). Specifically, that statute
provides that:
The court may affirm the decision of the agency or remand the
case for further proceedings. The court may reverse or modify
the decision if the rights of the petitioner have been prejudiced
because the administrative findings, inferences, conclusions or
decisions are:
(1) In violation of constitutional or statutory provisions;
(2) In excess of the statutory authority of the agency;
(3) Made upon unlawful procedure;
(4) Arbitrary or capricious or characterized by abuse of
discretion or clearly unwarranted exercise of discretion; or
(5)(A) Unsupported by evidence that is both substantial and
material in the light of the entire record.
(B) In determining the substantiality of evidence, the court shall
take into account whatever in the record fairly detracts from its
weight, but the court shall not substitute its judgment for that of
the agency as to the weight of the evidence on questions of fact.
Tenn. Code Ann. § 4-5-322(h).
A reviewing court should generally defer to an administrative agency’s decision when
it is acting within its area of specialized knowledge, experience, and expertise. Williamette
Indus., Inc. v. Tennessee Assessment Appeals Comm’n, 11 S.W.3d 142, 146 (Tenn. Ct.
App. 1999) (citing Wayne Cnty. v. Tennessee Solid Waste Disposal Control Bd, 756 S.W.2d
274, 279 (Tenn. Ct. App.1988)). This Court reviews the factual findings of the Commission
under the limited provisions of Tennessee Code Annotated Section 4-5-322, and we review
matters of law de novo with no presumption of correctness. Davis, 278 S.W.3d at 264 (citing
Tenn. R. App. P. 13(d); Cumulus Broad. Inc. v. Shim, 226 S.W.3d 366, 373 (Tenn. 2007)).
Analysis
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Initiation of Proceedings
In its first issue, the Real Estate Commission argues that the Chancery Court erred in
ruling that a verified complaint is required before the Real Estate Commission can convene
a contested case. This issue concerns the interpretation of a statute. In determining the
proper interpretation to be given to a statute, we must employ the rules of statutory
construction. The Tennessee Supreme Court recently reiterated the “familiar rules,” stating:
Our role is to determine legislative intent and to effectuate
legislative purpose. [Lee Med., Inc. v. Beecher, 312 S.W.3d
515, 526 (Tenn. 2010)]; In re Estate of Tanner, 295 S.W.3d
610, 613 (Tenn. 2009). The text of the statute is of primary
importance, and the words must be given their natural and
ordinary meaning in the context in which they appear and in
light of the statute’s general purpose. See Lee Med., Inc., 312
S.W.3d at 526; Hayes v. Gibson Cnty., 288 S.W.3d 334, 337
(Tenn. 2009); Waldschmidt v. Reassure Am. Life Ins. Co., 271
S.W.3d 173, 176 (Tenn. 2008). When the language of the statute
is clear and unambiguous, courts look no farther to ascertain its
meaning. See Lee Med., Inc., 312 S.W.3d at 527; Green v.
Green, 293 S.W.3d 493, 507 (Tenn. 2009). When necessary to
resolve a statutory ambiguity or conflict, courts may consider
matters beyond the statutory text, including public policy,
historical facts relevant to the enactment of the statute, the
background and purpose of the statute, and the entire statutory
scheme. Lee Med., Inc., 312 S.W.3d at 527–28. However, these
non-codified external sources “cannot provide a basis for
departing from clear codified statutory provisions.” Id. at 528.
Mills v. Fulmarque, 360 S.W.3d 362, 368 (Tenn. 2012). Accordingly, absent ambiguity, we
are to apply the plain language of the statute.
Tennessee Code Annotated Section 62-13-312 authorizes the Real Estate Commission
to investigate possible violations of the Real Estate Broker Act and hold disciplinary
hearings:
The commission may, upon its own motion, and shall, upon the
verified complaint in writing of any person setting forth a cause
of action under this section, ascertain the facts and, if warranted,
hold a hearing for reprimand or for the suspension or revocation
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of a license.
Tenn. Code Ann. § 62-13-312(a). Accordingly, the above statute provides two methods for
instituting an investigation and convening a contested case. First, the Real Estate
Commission “shall” investigate the facts upon the submission of a verified complaint. Tenn.
Code Ann. § 62-13-312(a). The use of the word “shall” in a statute is generally construed as
being mandatory rather than discretionary. JJ & TK Corp. v. Bd. of Comm’rs, 149 S.W.3d
628, 631 (Tenn. Ct. App. 2004). Accordingly, if a verified complaint is submitted, the Real
Estate Commission is under a statutory duty to investigate the claims made therein, and to
hold a contested hearing, if warranted. However, that is not the only procedure available to
initiate investigation by the Real Estate Commission. Second, the Real Estate Commission
“may” investigate facts and hold a contested hearing “upon its own motion.” Tenn. Code
Ann. § 62-13-312(a). It is well-settled that the use of the word “may” in a statute generally
connotes “discretion or permission and will not be treated as a word of command.” Steppach
v. Thomas, 346 S.W.3d 488 (Tenn. Ct. App. 2011) (citing Williams v. McMinn County, 209
Tenn. 236, 352 S.W.2d 430, 433 (Tenn. 1961)); see also Bd. of County Commr’s of Shelby
County v. Taylor, No. 93-1490-I, 1994 WL 420922, at *4 (Tenn. Ct. App. Aug. 12, 1994)
(holding that “a provision couched in permissive terms is generally regarded as directory or
discretionary” and “[t]his is true of the word ‘may’”). Accordingly, the Real Estate
Commission has discretion to instigate an investigation and convene a contested hearing, if
it determines, in its discretion, that such action is warranted. Thus, a verified complaint is not
a condition precedent to an investigation and contested hearing by the Real Estate
Commission. Instead, the Real Estate Commission may investigate and convene a hearing
in its own discretion.
Here, Ms. Smith filed an unverified complaint with the Real Estate Commission.
Because the complaint was unverified, the Real Estate Commission was not required to
investigate the facts alleged in the complaint. However, nothing in Tennessee Code
Annotated Section 62-13-312(a) prevents the Real Estate Commission from exercising its
discretion to investigate the facts and convene a contested hearing. Accordingly, the Real
Estate Commission did not exceed its authority in doing so in this case.
Notice of Charges
The Real Estate Commission next argues that the trial court erred in holding that Ms.
Bobo did not have adequate notice of the charges against her because the Notice of Charges
contained the incorrect statute. Again, we agree with the Real Estate Commission.
“In context of administrative hearing process, basic due process requires notice
reasonably calculated under all circumstances to apprise interested parties of claims of
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opposing parties.” McClellan v. Board of Regents of State University, 921 S.W.2d 684, 688
(Tenn.1996) (citing Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 314, 70
S. Ct. 652, 657, 94 L. Ed. 865 (1950)). “The purpose of due process requirements is to notify
the individual in advance in order to allow adequate preparation and reduce surprise.”
McClellan, 921 S.W.2d 688 (citing Memphis Light, Gas & Water Division v. Craft, 436
U.S. 1, 14, 98 S. Ct. 1554, 1562–63, 56 L. Ed. 2d 30 (1978). The UAPA provides specific
requirements with regard to a contested hearing. Tennessee Code Annotated Section 4-5-307
states:
(a) In a contested case, all parties shall be afforded an
opportunity for hearing after reasonable notice.
(b) In all proceedings the notice shall include:
(1) A statement of the time, place, nature of the hearing, and the
right to be represented by counsel;
(2) A statement of the legal authority and jurisdiction under
which the hearing is to be held, including a reference to the
particular sections of the statutes and rules involved; and
(3) A short and plain statement of the matters asserted. If the
agency or other party is unable to state the matters in detail at
the time the notice is served, the initial notice may be limited to
a statement of the issues involved. Thereafter, upon timely,
written application a more definite and detailed statement shall
be furnished ten (10) days prior to the time set for the hearing.
(Emphasis added).
Here, the Chancery Court ruled that the Notice of Charges at issue did not contain “a
reference to the particular sections of the statutes and rules involved.” See Tenn. Code Ann.
§ 4-5-307(b)(2). Specifically, the Notice of Charges contained in the record states that:
1. It is alleged that [Ms. Bobo’s] acts and conduct, as set
out in the foregoing “Allegations of Fact”, constitute
violation(s) of Tenn. Code Ann. § 62-13-104(b)(7)(B), the
relevant portion of which reads as follows:
(b) The commission shall have the power to
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refuse a license for cause or to suspend or revoke
a license where it has been obtained by false
representation, or by fraudulent act or conduct, or
where a license[e], in performing or attempting to
perform any of the acts mentioned herein is found
guilty of:
(1) Making any substantial and willful
misrepresentation.
(2) Making any promise of a character likely
to influence, persuade or induce any person to
enter into any contract or agreement when the
licensee could not or did not intend to keep such
a promise;
[* * *]
(14) Violating any provision of the Act or any
rules promulgated thereunder.
[* * *]
(20) Any conduct, whether the same or a
different character from that hereinbefore
specified, which constitutes improper, fraudulent
or dishonest dealings.
(Emphasis added). The notice mistakenly cited Tennessee Code Annotated Section
62-13-104(b)(7)(B) when it should have cited Tennessee Code Annotated Section
62-13-312(b). However, the text of the proper statute was contained in the Notice of
Charges; only the citation was incorrect. While the Real Estate Commission later amended
the Notice of Charges, the citation was not corrected. Only during the deliberations of the
Real Estate Commission did counsel note that the Notice of Charges contained a “typo”
regarding the correct statutory citation.
Ms. Bobo argues that because the Notice of Charges did not contain the correct
citation to the governing statute that it did not include “a reference to the particular sections
of the statutes and rules involved.” Tenn. Code Ann. § 4-5-307(b)(2). Without strictly
complying with the notice statute, Ms. Bobo argues that she was not afforded appropriate
notice of the charges against her.
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We respectfully disagree. The parties cite no cases in which this Court has considered
a typographical error in connection with a notice of charges. From our research, however, we
have found several cases from other jurisdictions in which courts have held that similar
typographical errors were harmless. See, e.g, Oliver v. Babcock, No. 2:12-CV-2831 KJN P,
2014 WL 29666, at *4 (E.D. Cal. Jan. 3, 2014) (holding that a typographical error
concerning the date of an incident in a notice was harmless); In re Freedom
Communications Holdings, Inc., 472 B.R. 257, 259 (Bankr. D. Del. 2012) (holding that
typographical error in a bankruptcy notice did not invalidate the notice, as “the notice was
reasonably calculated to apprise [a creditor] of both [the debtor’s] bankruptcy and the claims
bar date”); Flahiff v. Cooper, No. CIVA 09-CV-02593-BNB, 2010 WL 1372405, at *4
(D.Colo. April 5, 2010) (holding that the misspelling of the respondent’s name in a notice
of charges did not violate the respondent’s due process rights).
Further, we note that Ms. Bobo has not alleged that she did not receive actual notice
of the charges against her or that the Notice of Charges was inadequate in any way other than
the typographical error regarding the statutory citation. Here, the governing statute was set
forth verbatim in the Notice of Charges. In addition, from our review of the relevant statutes,
Tennessee Code Annotated Section 62-13-104(b)(7)(B) and Tennessee Code Annotated
Section 62-13-312(b) contain largely identical provisions regarding what acts constitute
violations of the Real Estate Broker Act.4 Thus, the Notice of Charges contained “a reference
4
Tennessee Code Annotated Section 62-13-104(b)(7)(B) provides, in pertinent part:
The commission has the power to refuse a license for cause or to suspend
or revoke a license where it has been obtained by false representation or by
fraudulent act or conduct, or where a licensee, in performing or attempting
to perform any of the acts mentioned in this section, is found guilty of:
(i) Making any substantial and willful misrepresentation;
(ii) Making any promise of a character likely to influence, persuade or
induce any person to enter into any contract or agreement when the licensee
could not or did not intend to keep the promise;
* * *
(xiii) Any conduct, whether of the same or of a different character from that
specified in this subdivision (b)(7)(B), that constitutes improper, fraudulent
or dishonest dealing.
This statute applies to licensed agents performing vacation lodging services, rather than real estate brokers,
such as Ms. Bobo. Tennessee Code Annotated Section 62-13-312(b), the applicable statute for real estate
(continue.....)
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to the particular sections of the statutes and rules involved” because the particular sections
of the statutes were fully laid out, save the citation, in the Notice of Charges. Tenn. Code
Ann. § 4-5-307(b)(2). Nothing in the record suggests that Ms. Bobo ever objected to the
Notice of Charges or sought a “more definite and detailed statement” pursuant to Tennessee
Code Annotated Section 62-13-312(b)(3).
Finally, we note that both this Court and the Chancery Court are constrained by the
following language of the UAPA: “No agency decision pursuant to a hearing in a contested
case shall be reversed, remanded or modified by the reviewing court unless for errors that
affect the merits of such decision.” Tenn. Code Ann. § 4-5-307(i). This Court in Daley v.
University of Tennessee at Memphis, 880 S.W.2d 693, 93 Ed. Law Rep. 1056 (Tenn. Ct.
App. March 18, 1994), cited the above provision to hold that when a deviation from the strict
requirements regarding a notice of charges is “only a technicality,” which does not affect the
merits of the underlying decision, the deviation is not reversible error. Id. at 695–96.
(....continue)
brokers and agents, provides, in relevant part:
The commission shall have the power to refuse a license for cause or to
suspend or revoke a license where it has been obtained by false
representation or by fraudulent act or conduct, or where a licensee, in
performing or attempting to perform any of the acts mentioned herein, is
found guilty of:
(1) Making any substantial and willful misrepresentation;
(2) Making any promise of a character likely to influence, persuade or
induce any person to enter into any contract or agreement when the licensee
could not or did not intend to keep the promise;
* * *
(14) Violating any provision of this chapter, any rule duly promulgated and
adopted under this chapter or the terms of any lawful order entered by the
commission;
* * *
(20) Any conduct, whether of the same or a different character from that
specified in this subsection (b), that constitutes improper, fraudulent or
dishonest dealing; . . . .
Accordingly, with regard to the substantive portions of the two statutes, only Tennessee Code Annotated
Section 62-13-312(b)(14) is different.
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Likewise in this case, the typographical error concerning the statutory citation is “only a
technicality,” and there is no suggestion that this slight deviation from Tennessee Code
Annotated Section 4-5-307(b)(2) affected the merits of the Real Estate Commission’s
decision.
Hearsay
The Real Estate Commission’s next two issues concern the trial court’s determination
that the Real Estate Commission’s reliance on the hearsay statements of Ms. Smith meant
both that the Real Estate Commission’s decision was not supported by substantial and
material evidence, and that Ms. Bobo’s alleged inability to confront Ms. Smith violated her
due process rights. We begin first with the Chancery Court’s determination that the Real
Estate Commission’s decision was not based on substantial and material evidence.
As previously discussed, the UAPA provides that an agency decision may be reversed
or modified if the decision is “[u]nsupported by evidence that is both substantial and material
in the light of the entire record.” Tenn. Code Ann. § 4-5-322(h)(5)(A). Substantial and
material evidence is “‘such relevant evidence as a reasonable mind might accept to support
a rational conclusion and such as to furnish a reasonably sound basis for the action under
consideration.’” Macon v. Shelby Cnty. Gov’t Civil Serv. Merit Bd., 309 S.W.3d 504, 508
(Tenn. Ct. App. 2009) (quoting Pruitt v. City of Memphis, No. W2004-01771-COA-R3-CV,
2005 WL 2043542, at *7 (Tenn. Ct. App. Aug. 24, 2005)). It is “‘something less than a
preponderance of the evidence, but more than a scintilla or glimmer.’” Id. at 508 (quoting
Wayne Cnty. v. Tenn. Solid Waste Disposal Control Bd., 756 S.W.2d 274, 280 (Tenn. Ct.
App. 1988)).
The UAPA’s narrow standard of review for an administrative body’s factual
determinations “suggests that, unlike other civil appeals, the courts should be less confident
that their judgment is preferable to that of the agency.” Wayne Cnty., 756 S.W.2d at 279.
This Court cannot displace the agency’s judgment as to the weight of the evidence even
where there is evidence that could support a different result. Id. As this court has previously
said:
“Although hearsay is admissible in administrative hearings,
uncorroborated hearsay does not constitute substantial and
material evidence.” Estate of Milton v. Comm’r, Tenn. Dep’t
of Employment Sec., No. 03A01-9710-CH-00449, 1998 WL
282919, at *2 (Tenn. Ct. App. May 19, 1998). Thus, “hearsay
testimony and documents may be used, if properly qualified for
admission, to corroborate other testimony of the wrongful acts
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of the claimant, but not as the sole evidence of his or her
wrongful acts.” Johnson v. Neel, No. 86-150-II, 1986 WL
14039, at *3 (Tenn. Ct. App. Dec.12, 1986).
Green, 2007 WL 1731726, at *5. Hearsay has traditionally been viewed with skepticism in
our legal system because it is unreliable and unchallengeable:
By definition, hearsay involves an out-of-court statement used
in court to prove the truth of the matter asserted in the
out-of-court statement. The primary concern is that the trier of
fact will not be able to hear cross-examination of the declarant,
who made the out-of-court hearsay statement. In addition, the
hearsay declarant’s statement is presented to the trier of fact, but
the declarant often is not present and therefore not subject to the
oath to tell the truth. Another concern is that, since the trier of
fact will not be able to observe the demeanor of the declarant, it
will be difficult to assess the accuracy of the declarant’s
statement.
Neil P. Cohen et al., Tennessee Law of Evidence § 8.01[3][a] (5th ed. 2005) (footnote
omitted). Recognized exceptions to the ban on hearsay exist where the hearsay statements
“bear sufficient indicia of reliability and trustworthiness to warrant admission.” State v.
Henry, 33 S.W.3d 797, 801 (Tenn. 2000). Accordingly, hearsay evidence may be used as
substantive evidence of alleged wrongful acts; however, hearsay evidence must be
corroborated by other competent evidence.
In this case, the Real Estate Commission called as its first witness Ms. Maxwell, who
is an employee of the Real Estate Commission. Ms. Maxwell testified to the complaint that
she received from Ms. Smith regarding the allegations at issue in this case. However, Ms.
Smith’s complaint was neither read into the record, nor submitted as an exhibit at the hearing.
Ms. Maxwell also testified, over objection, to statements made by both Ms. Smith and Ms.
Bobo in e-mails between the two, in which Ms. Smith sought return of the subject property
and Ms. Bobo agreed to work toward a resolution. Ms. Maxwell further testified to her
subsequent investigation of Ms. Bobo’s licensure status, as well as the legal status of both
Global and the subject property. According to Ms. Maxwell, despite Ms. Bobo’s assurances
via e-mail that she needed only one week to “make this right the easy way,” at the time of the
hearing, nearly a year later, the property had still not been returned to Ms. Smith. Ms. Bobo
objected to Ms. Maxwell’s testimony as hearsay. The ALJ appeared to rule that this hearsay
was admissible as an admission by a party opponent. See Tenn. R. Evid. 803(1.2) (noting that
“[a] statement offered against a party that is . . . the party’s own statement” does not
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constitute hearsay). In the Chancery Court, Ms. Bobo again argued that Ms. Maxwell’s
statements were largely based on hearsay and that, as such, the Real Estate Commission had
no substantial and material evidence on which to base its decision. The Chancery Court
agreed and held that “[a]bsent corroboration of Ms. Maxwell’s testimony by Ms. Smith, the
record lacks substantial evidence of wrongdoing by Ms. Bobo.”
On appeal, the Real Estate Commission argues, however, that Ms. Bobo’s own
admissions may be considered corroborating evidence of Ms. Smith’s allegations. We agree.
In this case, Ms. Bobo admitted the substance of the relevant allegations against her. We will
not tax the length of this Opinion with citations to each factual allegation and a reference to
Ms. Bobo’s corresponding corroborating testimony. Suffice it to say, we have thoroughly
reviewed the record on appeal and we are convinced that the relevant allegations in the
Notice of Charges were admitted by Ms. Bobo or corroborated by Ms. Maxwell’s own
independent investigation.
Ms. Bobo did not deny that she was licensed as a real estate broker during the events
at issue in this case. Further, Ms. Bobo admitted that prior to the transaction wherein her
company acquired the subject property, she served as the real estate broker for Ms. Smith
with regard to Ms. Smith’s purchase of the subject property. Ms. Smith did not reside in
Tennessee. As such, subsequent to the purchase of the subject property, Ms. Bobo admitted
that Ms. Smith hired Ms. Bobo as the property manager for the property, a position Ms. Bobo
held until Global acquired the property. Despite this purported position of trust, Ms. Bobo
admitted that when Ms. Smith informed Ms. Bobo of her financial difficulties, Ms. Bobo
suggested, among other avenues of relief, that Ms. Smith quitclaim the subject property to
Ms. Bobo and her partner, for little-to-no-consideration. In her Answer to the Notice of
Charges, Ms. Bobo stated that in acquiring the subject property, Global “took all of [Ms.
Smith’s] liability,” including “extensive and expensive repairs, bad tenants, mortgages, city
and county taxes, [and] hazard insurance.” Ms. Bobo also stated that Ms. Smith fully
understood the terms of the Real Estate Broker Act and was free to seek legal counsel.
However, Ms. Bobo later admitted in her hearing testimony that despite the “sale” of the
property, Ms. Smith remained the only party liable on the mortgage, while Global retained
the subject property and all the rental income generated by the property. Ms. Bobo asserted
that Ms. Smith was well aware that she would remain liable on the mortgage at the time Ms.
Smith transferred the property to Global. This assertion was supported by documentation in
the record, in which Ms. Smith acknowledged that she would remain the sole debtor on the
mortgages. Also according to Ms. Bobo, Global agreed to pay a total of $10.00 for the
subject property, which were worth approximately $60,000.00 at the time they were
purchased by Ms. Smith, with Ms. Bobo’s help, and approximately $10,000.00 to $15,000.00
at the time the property was transferred to Global. Further, while Ms. Bobo first contended
that both Ms. Smith and Ms. Bobo generated the contract used for the sale, Ms. Bobo later
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admitted that she had used “a contract that she [i.e., Ms. Bobo] had.”
Ms. Bobo also admitted that after Global acquired the property, Global, through the
actions of Mr. Horton, missed at least two scheduled payments on the property, which
allowed the property to go into default in April of 2011. Although the payments were later
made and the creditor never initiated formal foreclosure proceedings, Ms. Bobo admitted that
scheduled payments on the property were late approximately 95% to 99% of the time.
Regardless, when Ms. Smith received notice that the property was going to go into default,
she sought return of the property pursuant to the terms of the contract. Ms. Bobo, however,
did not timely return the property. Although Ms. Bobo denied that the return provision of the
contract was triggered by the default in the contested hearing, prior to the hearing, Ms. Bobo
did not appear to deny that Ms. Smith was entitled to a return on the property. Instead, Ms.
Bobo testified that the delay in returning the property was based on conflicts between Mr.
Horton and Ms. Smith, and their failure to come to a “meeting of the minds” regarding return
of the property. Specifically, in her answer to the Notice of Charges, Ms. Bobo stated that
Mr. Horton did not want to “just give up the propert[y] for free” despite the fact that Global
had paid little to no consideration to Ms. Smith for the property in the first place.
Ms. Bobo denied that her actions in any way contributed to the default of the subject
property. Instead, Ms. Bobo asserted that the default was due to the misappropriation of Mr.
Horton, which she neither knew of, nor acquiesced in. Because there was no countervailing
proof in the record, we must agree with Ms. Bobo’s assertion. However, the Real Estate
Commission did not appear to base its decision to sanction Ms. Bobo on the events that led
to the mortgage default of the property. Instead, the Real Estate Commission considered the
transaction in which Global acquired the property and the conflict of interest between Ms.
Bobo’s fiduciary duty as a property manager for Ms. Smith and her interest in the transaction.
The Commission further considered Global’s continuing failure to make timely payments on
the property, and Ms. Bobo’s actions in refusing to return the property to Ms. Smith, despite
her request for its return pursuant to the contract. According to Commissioner Austin
McMullen:
I think that the testimony we heard, the proof that we
heard, established that [Ms. Bobo] was acting as an agent for
[Ms. Smith] at the time of the management agreement between
East Coast Properties, LLC, and [Ms. Smith]. And during that
time [Ms. Bobo] negotiated a contract with [Ms. Smith] to
transfer these properties over, which included a promise that she
could quit claim the properties back on request if the mortgage
wasn’t paid. [Ms. Bobo] knew at that time that she couldn’t do
that on her own because she had an agreement for a partnership
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that said that she couldn’t do that without getting her partner’s
signature on it. Ultimately, the loans—there were defaults, the
loans were not paid. [Ms. Smith] asked for the money back—
excuse me—asked for the property to be quit claimed back. That
never happened.
And so to me, it looks like [Ms. Bobo] breached her duty
of loyalty set forth in the statute, and also to negotiate a price of
$10 for these properties when the testimony was they were
worth at least $10,000 to $15,000 and that they had been bought,
I think, a year before at $60,000, is just really hard to believe
somebody would do that, and I think that the respondent did
breach her duty of loyalty.
Commissioner Wendall Alexander further explained:
Here’s a lady that’s been a broker, been a principal broker,
owned her own companies, been with . . . other folks . . . .
Surely to goodness in 12 years or however long she’s been
licensed, of the people whose hands she passed through, she
would have picked up a little something about representing and
not taking advantage of folks. Willful.
The money part doesn’t bother me about what she’s tried
to make on a profit, but when you ask and you convince
somebody that’s not familiar with basic Tennessee law and other
things, quit claim your property, and not tell them —or if you
did tell them, and you can conceivably, ma’am, with a set of
licenses that represents the public—this Commission is here to
protect the public, not to protect you as a licensee. We’re here
to protect the people that we represent.
Your obligation was to protect your client, who was the
woman you sold these houses to. You sold them to her. You
come back and you let them quit claim them. You let her be
liable for the mortgage when go into a short sale. . . .
Accordingly, any hearsay evidence that was submitted through the testimony of Ms.
Maxwell was fully corroborated by Ms. Bobo, either through her own testimony or her
Answer to the Notice of Charges.
The Notice of Charges charged Ms. Bobo with violating several provisions of the Real
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Estate Broker Act. First, as previously discussed, Ms. Bobo was charged with violating
Tennessee Code Annotated Section 62-13-312(b), which provides, in relevant part:
The commission shall have the power to refuse a license for
cause or to suspend or revoke a license where it has been
obtained by false representation or by fraudulent act or conduct,
or where a licensee, in performing or attempting to perform any
of the acts mentioned herein, is found guilty of:
(1) Making any substantial and willful misrepresentation;
(2) Making any promise of a character likely to influence,
persuade or induce any person to enter into any contract or
agreement when the licensee could not or did not intend to keep
the promise;
* * *
(14) Violating any provision of this chapter, any rule duly
promulgated and adopted under this chapter or the terms of any
lawful order entered by the commission;
* * *
(20) Any conduct, whether of the same or a different character
from that specified in this subsection (b), that constitutes
improper, fraudulent or dishonest dealing; . . . .
The Real Estate Commission apparently found that Ms. Bobo had violated the above
provisions in inducing Ms. Smith to enter into an admittedly “unconscionable” contract in
which Ms. Smith was paid little-to-no consideration for property she owned and she
remained the only party to the mortgage, while Ms. Bobo and Global gained a substantial
benefit. Further, the Real Estate Commission found that Ms. Bobo committed a willful
misrepresentation and dishonest dealing in promising to return the subject property to Ms.
Smith within thirty to sixty days if scheduled payments were not made and then subsequently
refusing to do so, until the eve of trial.5 While some of the Commissioners appeared to
disagree that Global was required by the terms of the contract to return the property for
5
Even though Ms. Bobo testified that she had agreed prior to the contested hearing to return the
property, at the time of the hearing, she had still not done so.
-18-
simple non-payment or late payment, a majority of the Real Estate Commission concluded
that the language in the contract between Global and Ms. Smith, required the return of the
property under these circumstances. The contract specifically provides that:
If . . . the buyer for any reason refuses to make the agreed
scheduled monthly payments on the said loan or for any reason
in the future decide[s] it is not in their best interest to continue
to make monthly payments it is agreed that Global [] will sell,
release, remise, quit claim, and convey to [Ms.] Smith all right,
title and interest within 30-60 days.
The majority of the Real Estate Commission based its decision on the requirement that
Global make “scheduled” payments on the mortgage, which the Commissioners construed
as requiring timely payment. Because Ms. Smith admitted that Global failed to make timely
payments on the loan the majority of the time, and at one point, allowed the mortgage on the
property to default, which Ms. Bobo admitted placed Ms. Smith in a “vulnerable position,”
the Real Estate Commission’s decision that her action in refusing to timely return the
property was a violation of the Real Estate Act is based upon substantial and material
evidence.
The Real Estate Commission also found that Ms. Bobo violated the Real Estate
Broker Act by breaching her duty of loyalty to Ms. Smith in purchasing the subject property
when Ms. Smith was in a vulnerable position. As set forth in the Real Estate Commission’s
final order, Ms. Bobo was charged with violating Tennessee Code Annotated Section 62-13-
404, which provides, in pertinent part:
Any licensee who acts as an agent in a transaction regulated by
this chapter owes to the licensee’s client in that transaction the
following duties, to:
* * *
(2) Be loyal to the interests of the client. A licensee must place
the interests of the client before all others in negotiation of a
transaction and in other activities, except where the loyalty duty
would violate licensee’s duties to a customer under § 62-13-402
or a licensee’s duties to another client in a dual agency; . . . .
Here, the Real Estate Commission unanimously voted that Ms. Bobo was not loyal to the
interests of Ms. Smith, who remained her client. As previously discussed, Ms. Bobo admitted
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that she: (1) suggested that Ms. Smith sell her property to Ms. Bobo for little to no
consideration; (2) provided the contract upon which the transaction was based: (3) gained
legal title of the property, which was worth far more than the consideration agreed to be paid;
(4) was expected to make an unconscionable profit on the transaction; and (4) refused to
return the property when Ms. Smith sought its return pursuant to the contract. As set forth
in Commissioner McMullen’s statements above, the Real Estate Commission concluded that
these actions were taken in violation to Ms. Bobo’s duty of loyalty to Ms. Smith. From our
review of the record, substantial and material evidence, specifically Ms. Bobo’s own
admissions, as well as the contract between Ms. Bobo and Ms. Smith, the terms of which
were undisputed, support the Real Estate Commission’s decision on this issue.
Further, we decline to accept Ms. Bobo’s argument that she may not be found to have
breached the Real Estate Broker Act in this transaction because she was acting as a purchaser
rather than an agent in this transaction. It is undisputed that Ms. Bobo served both as a real
estate broker and a property manager for Ms. Smith prior to the events at issue. Indeed, Ms.
Bobo admitted that she was the property manager for Ms. Smith with regard to the subject
property at the time Global acquired the property. The fact that Ms. Bobo decided to
purchase the property did not absolve Ms. Bobo of her duty to Ms. Smith. In a similar case,
Bell v. Gailey, 37 Tenn. App. 17, 260 S.W.2d 300 (Tenn. Ct. App. 1952), the broker
“switch[ed] his position from that of a confidential agent to that of a purchaser.” Id. at 303.
The Court held that the broker still owed a duty to the seller, notwithstanding the “switch.”
Equity will not tolerate such a deal. As the Chancellor
pointed out, it is not possible, and we may add, it is not
necessary, to determine just when the defendant switched from
his status of real estate broker to that of purchaser. There is no
question but what on both occasions, he was consulted by the
complainant in his capacity as a broker and that in that capacity
he undertook to advise her about the loan and later about the
sale of the property. There was thus established a confidential
relationship which amounted to a trust, and such a relationship
once assumed continues until discharged either by operation of
law, by an order of a tribunal having the requisite jurisdiction,
or pursuant to a valid agreement of the parties in interest who
are fully competent to contract and fully conversant with all the
facts and with their respective rights and duties.
Id. (citing Wilson v. Hayes, 29 Tenn. App. 49, 193 S.W.2d 107 (Tenn. Ct. App. 1945)).
Accordingly, despite the fact that Ms. Bobo was the purchaser of the real estate in this
transaction, she was still required to act in accordance with the Real Estate Broker Act.
-20-
Likewise, any agreement that Ms. Bobo and Ms. Smith may have entered into prior to the
contested hearing has no bearing on whether Ms. Bobo violated the Real Estate Broker Act.
Due Process
The Real Estate Commission next argues that the Real Estate Commission’s
consideration of hearsay evidence did not violate Ms. Bobo’s due process rights. As
discussed by this Court in Martin v. Sizemore, 78 S.W.3d 249 (Tenn. Ct. App. 2001):
The threshold consideration with regard to any
procedural due process claim is whether the plaintiff has a
liberty or property interest that is entitled to protection under
U.S. Const. amend. XIV, § 1 and Tenn. Const. art. I, § 8. Rowe
v. Board of Educ., 938 S.W.2d 351, 354 (Tenn.1996);
Armstrong v. Department of Veterans Affairs, 959 S.W.2d at
597–98. To qualify for constitutional protection, a property
interest must be more than a “unilateral expectation” or an
“abstract need or desire.” It must be a “legitimate claim of
entitlement” created and defined by “existing rules or
understandings that stem from an independent source such as
state law.” Board of Regents v. Roth, 408 U.S. 564, 577, 92
S. Ct. 2701, 2709, 33 L. Ed. 2d 548 (1972); Rowe v. Board of
Educ., 938 S.W.2d at 354; Eye Clinic, P.C. v. Jackson-
Madison County Gen. Hosp., 986 S.W.2d at 578.
* * *
A professional license, issued by a State, which can be
suspended or revoked only upon a showing of cause is a
constitutionally protectable property interest because the holder
of the license has a clear expectation that he or she will be able
to continue to hold the license absent proof of culpable conduct.
Barry v. Barchi, 443 U.S. 55, 64 & n. 11, 99 S. Ct. 2642, 2649
& n. 11, 61 L. Ed. 2d 365 (1979). Our courts have already
recognized that the practice of medicine, dentistry, and
chiropractic, as well as working as a licensed pest control
operator, are protectable interests in property. Estrin v. Moss,
221 Tenn. 657, 674, 430 S.W.2d 345, 352 (1968) (pest control
operators); Prosterman v. Board of Dental Exam’rs, 168 Tenn.
16, 22, 73 S.W.2d 687, 690 (1934) (practice of dentistry); State
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Bd. of Med. Exam’rs v. Friedman, 150 Tenn. 152, 166, 263
S.W. 75, 79 (1924) (practice of medicine); Janeway v. State Bd.
of Chiropractic Exam’rs, 33 Tenn.App. 280, 286, 231 S.W.2d
584, 587 (1950) (practice of chiropractic).
Martin v. Sizemore, 78 S.W.3d at 262–63. There is no dispute in this case that Ms. Bobo’s
interest in continuing to practice in Tennessee as a licensed real estate broker is a property
interest entitled to procedural due process protection under the Due Process Clause of the
Fourteenth Amendment and the Tennessee Constitution art. I, § 8. Accordingly, Ms. Bobo
was entitled to the protections of procedural due process.
As explained by this Court:
Procedural due process does not require perfect,
error-free governmental decision-making. Mackey v. Montrym,
443 U.S. 1, 13, 99 S. Ct. 2612, 2618, 61 L. Ed. 2d 321 (1979);
Eye Clinic, P.C. v. Jackson-Madison County Gen. Hosp., 986
S.W.2d at 578. It does, however, require affording persons like
[Ms. Bobo] a relatively level playing field in a contested case
hearing. The state should not be permitted to maintain such an
unfair strategic advantage that a pall is cast over the fairness of
the proceeding. In re Detention of Kortte, 317 Ill.App.3d 111,
250 Ill. Dec. 514, 738 N.E.2d 983, 986 (2000). Thus, due process
demands a fair trial before a neutral or unbiased decision-maker.
Bracy v. Gramley, 520 U.S. 899, 904–05, 117 S. Ct. 1793, 1797,
138 L. Ed. 2d 97 (1997); Withrow v. Larkin, 421 U.S. 35, 46, 95
S. Ct. 1456, 1464, 43 L. Ed. 2d 712 (1975); Ogrodowczyk v.
Tennessee Bd. for Licensing Health Care Facilities, 886
S.W.2d 246, 252–53 (Tenn. Ct. App. 1994) (Cantrell, J.,
concurring); 2 Kenneth C. Davis & Richard J. Pierce, Jr.,
Administrative Law Treatise § 9.8 (3d ed. 1994)
(“Administrative Law Treatise”). It also demands an appearance
of fairness and the absence of probability of outside influence on
the adjudication. Utica Packing Co. v. Block, 781 F.2d 71,
77–78 (6th Cir.1986).
Martin, 78 S.W.3d at 264. The UAPA also contains specific provisions with regard to notice
in administrative proceedings. See Tenn. Code Ann. §4-5-307(a) (discussed in detail, supra).
Accordingly, the Martin Court held that due process in administrative proceedings requires:
(1) “adequate notice” of the proceedings pursuant to the UAPA; (2) “an opportunity for a
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hearing at a meaningful time and in a meaningful manner[;]” and (3) “an opportunity to
obtain judicial review of the board’s or agency’s decision.” Martin, 78 S.W.3d at 267
(citations omitted).
In this case, other than the allegation concerning the Notice of Charges, considered
supra, there is no allegation that Ms. Bobo did not have adequate notice of the proceedings
or that she had no opportunity to obtain judicial review. Instead, Ms. Bobo argues that she
was not afforded an opportunity for a hearing in a meaningful manner because she was not
allowed to confront Ms. Smith as a witness against her. In Patterson v. Hunt, 682 S.W.2d
508 (Tenn. Ct. App.1984), the petitioners made a similar argument regarding their inability
to confront the witnesses against them. Id. at 516. The Court of Appeals, however, affirmed
the administrative body’s finding, ruling that because the petitioners: (1) admitted that the
allegations were true; (2) were allowed a hearing, and (3) were allowed to present evidence
in their defense, though they chose not to exercise this right, the petitioners’ due process
rights were not violated. Id. at 516–17.
Similarly in this case, as previously discussed, Ms. Bobo admitted the relevant factual
allegations against her. She only took issue with the conclusions to be drawn from those
facts. See Allen v. City of Greensboro, 452 F.2d 489, 490 (4th Cir. 1971) (noting that
confronting a witness “is of little help” to a party who would corroborate the witness’s
statement). Ms. Bobo was also given adequate notice of the hearing date and the allegations
against her. Further, from our review of the record, it was Ms. Bobo who submitted evidence
to the Real Estate Commission that Ms. Smith would not testify at the hearing. Indeed,
counsel for Ms. Bobo filed a pretrial Motion to Dismiss the Notice of Charges on the basis
that Ms. Smith no longer wanted to pursue the matter or testify.6 Accordingly, Ms. Bobo had
notice prior to the hearing that Ms. Smith would not testify. However, Ms. Bobo took no
action to continue the hearing or force Ms. Smith to testify. In her brief, Ms. Bobo asserts
that the trial court was correct in finding that her due process rights were violated by the Real
Estate Commission’s failure to call Ms. Smith as a witness because it was the Real Estate
Commission’s burden to prove that Ms. Bobo violated the Real Estate Broker Act. According
to Ms. Bobo, the Real Estate Commission’s failure to call a complaining witness was fatal
to its case. We respectfully disagree. The Real Estate Commission called Ms. Bobo as a
witness in its case-in-chief. As previously discussed, Ms. Bobo admitted the relevant factual
6
In her brief, Ms. Bobo states that she “went to the hearing under the belief that she would be
able to cross-examine [Ms.] Smith her accuser.” However, the record shows that Ms. Bobo filed both a
pretrial motion implying that Ms. Smith would not testify and renewed this motion at the start of the
contested hearing, arguing that the case should be dismissed because Ms. Smith “would be unavailable
for testimony.” Accordingly, Ms. Bobo’s assertion that she had no notice that Ms. Smith would not
testify until she arrived for the hearing is patently false.
-23-
allegations against her. Thus, the Real Estate Commission met its burden to show, by
competent evidence, that Ms. Bobo violated the Real Estate Broker Act. Accordingly, if Ms.
Bobo wished to rebut those charges, she was under the obligation to present her own
evidence for that purpose. In a somewhat similar case, Wright v. Tenn. Bd. Of Examiners
in Psychology, No. M2003-01654-COA-R3-CV, 2004 WL 3008881 (Tenn. Ct. App. Dec.
28, 2004), perm. app. denied, (June 27, 2005), the Court of Appeals upheld an agency’s
decision to sanction a psychologist despite the fact that the complaining witness declined to
testify at the contested hearing. Id. at *7. Instead, the defendant psychologist largely
admitted the factual allegations against him. Id. at *2, *8. The Court held that such
admissions were competent evidence to meet the agency’s burden of production and
persuasion. Id. at *8. Finally, Ms. Bobo was allowed to present evidence and witnesses on
her behalf, though she chose to call no witnesses. Under these circumstances, like in
Patterson, there was no violation of Ms. Bobo’s due process rights. Patterson, 682 S.W.2d
at 516–17.7
Consent Order
The Real Estate Commission next argues that the Chancery Court erred in finding that
the Real Estate Commission acted improperly, and with evident partiality, in considering a
consent order that Ms. Bobo refused to agree to prior to the contested hearing. It is
undisputed that the Real Estate Commission offered a settlement to Ms. Bobo in which her
license was to be suspended for twelve months and Ms. Bobo was to pay a civil penalty of
$5,000.00. Ms. Bobo, however, never signed the consent order. Ms. Bobo argued in the
Chancery Court and on appeal that the Real Estate Commission’s consideration of Ms.
Bobo’s refusal to agree to the consent order “demonstrated a serious lack of impartiality” on
the part of the Real Estate Commission.
7
Although it is not argued in her brief to this Court, we note that Ms. Bobo made an additional
argument in the Chancery Court that the Real Estate Commission was not entitled to permanently revoke her
real estate license without expert testimony to indicate that she breached the professional standard of care,
citing Martin v. Sizemore, 78 S.W.3d 249 (Tenn. Ct. App. 2001). In Martin, the Court of Appeals held when
the “issues in the administrative proceeding require establishing the applicable standards of professional
conduct and determining whether particular conduct fell below these standards,” expert testimony is required
to be introduced by the Real Estate Commission to meet its burden to suspend or revoke a professional
license. Id. at 271. The Court further held, however, that when the grounds for disciplinary action do not
involve deviations from the professional standard of care, no expert testimony is required. See id. at 268
(noting that some grounds for disciplinary action “involve conduct and issues easily understood by persons
who are not themselves” members of the subject profession). In an abundance of caution, we have considered
the grounds at issue in this case and conclude that they “involve conduct and issues easily understood by
persons who are not themselves” real estate brokers. Accordingly, the Real Estate Commission was not
required to introduce expert testimony to support its allegations in this case.
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In the first instance, we note that when a Commissioner questioned Ms. Bobo and Ms.
Maxwell concerning the proposed consent order, Ms. Bobo, through her counsel, failed to
object to the consideration of this evidence, nor did Ms. Bobo seek a limiting instruction
preventing the Real Estate Commission from considering this evidence with regard to the
penalty it imposed. A party claiming that evidence has erroneously been admitted may not
predicate error on the ruling unless “a timely objection or motion to strike appears of record,”
stating the specific ground. Tenn. R. Evid. 103(a)(1). Further, “[n]othing in [Tennessee Rule
of Appellate Procedure 36] shall be construed as requiring relief be granted to a party
responsible for an error or who failed to take whatever action was reasonably available to
prevent or nullify the harmful effect of an error.” Tenn. R.App. P. 36(a). “It is well-settled
that the failure to raise a contemporaneous objection to the admission of evidence at the time
the evidence is introduced at trial results in waiver of the particular issue on appeal.”
McGarity v. Jerrolds, No. W2013-00250-COA-R3-CV, 2013 WL 4675934, at 3 (Tenn. Ct.
App. Aug. 27, 2013), perm. app. denied (Feb. 24, 2014). “A party who invites or waives
error, or who fails to take reasonable steps to cure an error, is not entitled to relief on appeal.”
State Dept. of Children’s Services v. V.N., 279 S.W.3d 306, 319 (Tenn. Ct. App. 2008)
(citing Grandstaff v. Hawks, 36 S.W.3d 482, 488 (Tenn. Ct. App. 2000) (citations omitted)).
Nothing in the record suggests that Ms. Bobo made any objection or motion to strike the
evidence regarding the consent order. Accordingly, any argument that this evidence was
wrongly admitted or considered is waived.
Further, we conclude that the Real Estate’s Commission’s knowledge and
consideration of this consent order does not demonstrate “a serious lack of impartiality” on
the part of the Real Estate Commission. First, we note that the UAPA encourages
administrative agencies, such as the Real Estate Commission, to attempt to resolve matters
informally. Tennessee Code Annotated Section 4-5-105 provides:
Except to the extent precluded by another provision of law,
informal settlement of matters that may make unnecessary more
elaborate proceedings under this chapter is encouraged.
Agencies may establish specific procedures for attempting and
executing informal settlement of matters. This section does not
require any party or other person to settle a matter pursuant to
informal procedures.
The Chancery Court held that the “Commissioners demonstrated a serious lack of
impartiality at the time of the hearing, having already evaluated the claim and authorized a
resolution of the matter.” Respectfully, we disagree. Tennessee Code Annotated Section 4-5-
105 clearly authorizes, and in fact encourages, administrative agencies to offer consent orders
to respondents in order to facilitate the resolution of investigations without the time and
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expense of a contested hearing. Thus, the fact that the Commission had previously
“authorized a resolution of the matter” through the use of a consent order is not sufficient to
conclude that the Real Estate Commission lacked impartiality.
Further, the Real Estate Commission’s knowledge and consideration of the terms of
the consent order, which evidence was not objected to, does not mandate recusal of the panel
members of the Real Estate Commission. The Real Estate Commission, like other
administrative agencies, must serve multiple roles. Recently, the Tennessee Supreme Court
considered the “overlapping” roles of administrative agencies in Moncier v. Board of
Professional Responsibility, 406 S.W.3d 139 (Tenn. 2013). In Moncier, the defendant
attorney argued that the Board of Professional Responsibility (“the Board”) erred in denying
his recusal motions, which were based on the defendant attorney’s multiple lawsuits filed
against the Board and its Chief Disciplinary Counsel. Id. at 159. The defendant attorney
argued that his recusal motions were governed by the recusal rules applicable to judges. The
Tennessee Supreme Court disagreed, citing the multiple roles that an administrative agency
must fill. According to the Court:
Unlike a judicial system, in which investigative,
prosecutorial, and adjudicative functions are separate, some
overlapping of these functions is inherent in administrative
agencies, like the Board. See Withrow v. Larkin, 421 U.S. 35,
54–55, 95 S. Ct. 1456, 43 L. Ed. 2d 712 (1975) (discussing the
overlapping investigatory and adjudicatory functions
administrative agencies may perform); Heyne, 380 S.W.3d at
735 (discussing the overlapping functions performed by school
boards in Tennessee). The Board simply is not a judicial system;
thus, a Board member is not an officer of a judicial system.
Moncier, 406 S.W.3d at 159.
The Tennessee Supreme Court further ruled that although it could choose to apply the
judicial recusal rules to recusal of administrative panels, it declined to do so. The Court
concluded that neither constitutional mandates nor practical considerations weighed in favor
of applying the strict judicial recusal rules to the recusal of administrative panel members:
[N]o constitutional principle mandates their application
to administrative adjudicators. See, e.g., Petrowski v. Norwich
Free Acad., 199 Conn. 231, 506 A.2d 139, 142–43 (1986) (“The
applicable due process standards for disqualification of
administrative adjudicators do not rise to the heights of those
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prescribed for judicial disqualification.”); John L. Gedid, ALJ
Ethics: Conundrums, Dilemmas, and Paradoxes, 11 Widener J.
Pub.L. 33, 53 (2002) (“Courts deciding due process claims have
recognized that due process does not require the same standard
for Article III judges and ALJs because their status, role, and
functions are different. The avoidance of the appearance of bias
standard is particularly unsuitable in administrative
proceedings.”). Indeed, as the Connecticut Supreme Court has
aptly explained, many practical considerations weigh against
doing so.
The canons of judicial ethics go far toward
cloistering those who become judges, the ultimate
arbiters of constitutional and statutory rights, from
all extraneous influences that could even remotely
be deemed to affect their decisions. Such a
rarefied atmosphere of impartiality cannot
practically be achieved where the persons acting
as administrative adjudicators, whose decisions
are normally subject to judicial review, often have
other employment or associations in the
community they serve. It would be difficult to
find competent people willing to serve, commonly
without recompense, upon the numerous boards
and commissions in this state if any connection
with such agencies, however remotely related to
the matters they are called upon to decide, were
deemed to disqualify them. Neither the federal
courts nor this court require a standard so difficult
to implement as a prerequisite of due process of
law for administrative adjudication.
Petrowski, 506 A.2d at 143; see also V-1 Oil Co. v. Dep’t of
Envtl. Quality, 939 P.2d 1192, 1200 (Utah 1997) (“The
paralysis of basic governmental functions and the overwhelming
expense caused by imposition of an uncompromising judicial
model of complete structured independence of the adjudicator
would have disastrous consequences for many essential
governmental programs and functions.”).
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Moncier, 406 S.W.3d at 160–61. Thus, the Tennessee Supreme Court held that strict judicial
recusal rules are inapplicable in administrative proceedings.
The Court recognized, however, that a respondent in an administrative proceeding has
the right to a “meaningful hearing” and that, consequently, the respondent is entitled to “a
fair trial before a fair tribunal.” Id. at 161. Accordingly, the Court held that recusal is
sometimes an appropriate remedy in an administrative proceeding, but that the rules
applicable to disqualification in an administrative hearing are more exacting than in the
judicial setting due to the multiple roles filled by the administrative agency. Id. at 161–62.
As the Court explained:
This does not mean, however, that a [panel] member is
never subject to disqualification. A basic requirement of due
process is a fair trial before a fair tribunal, and this principle
applies to administrative adjudicators as well as to courts.
Withrow, 421 U.S. at 46–47, 95 S. Ct. 1456; Gibson v. Berryhill,
411 U.S. 564, 579, 93 S. Ct. 1689, 36 L. Ed. 2d 488 (1973);
Heyne, 380 S.W.3d at 734–35 (explaining that for an
administrative hearing “to be ‘meaningful’ in the constitutional
sense, it must employ a decision-maker or decision-makers who
are unbiased”); Cooper v. Williamson Cnty. Bd. of Educ., 803
S.W.2d 200, 202 (Tenn .1990) (“It is axiomatic that due process
requires the opportunity of the party charged to be heard at a
meaningful time and in a meaningful manner, before an
impartial tribunal.”).
For purposes of constitutional due process, however,
administrative adjudicators are afforded a presumption of
honesty and integrity. See Withrow, 421 U.S. at 47, 95 S. Ct.
1456. This presumption may be overcome by showing that an
administrative adjudicator has a pecuniary interest in the
outcome of the proceeding, or has been the target of personal
abuse or criticism from the party before him, id., or has a
conflict of interest, see Gibson, 411 U.S. at 578–79, 93 S. Ct.
1689. This presumption may also be overcome by showing that
the “probability of actual bias” in a particular case on the part of
the administrative decision-maker is “too high to be
constitutionally tolerable.” Withrow, 421 U.S. at 47, 95 S. Ct.
1456. The burden of establishing a disqualifying interest rests on
the party seeking disqualification. Schweiker v. McClure, 456
U.S. 188, 196, 102 S. Ct. 1665, 72 L. Ed. 2d 1 (1982).
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When an assertion of bias is premised solely on an
administrative adjudicator’s exercise of both investigative and
adjudicative functions, the party making the contention must
show that, “under a realistic appraisal of psychological
tendencies and human weakness, conferring investigative and
adjudicative powers on the same individuals poses such a risk of
actual bias or prejudgment that the practice must be forbidden
if the guarantee of due process is to be adequately
implemented.” Withrow, 421 U.S. at 47, 95 S. Ct. 1456. “[A]ny
form of function combination, occurring alone and without other
exacerbating biasing influences, is very unlikely to run afoul of
procedural due process.” Martin v. Sizemore, 78 S.W.3d 249,
265 (Tenn. Ct. App. 2001). As the Court of Appeals explained
in Martin:
A combination of prosecutorial and
adjudicative functions is the most problematic
combination for procedural due process purposes.
A prosecutor, by definition, is a partisan advocate
for a particular position or point of view. The role
is inconsistent with the objectivity expected of
administrative decision-makers. Accordingly, to
permit an advocate for one party to act as the legal
advisor for the decision-maker creates a
substantial risk that the advice given to the
decision-maker will be skewed. However, the risk
of bias becomes intolerably high only when the
prosecutor serves as the decision-maker’s advisor
in the same or a related proceeding.
78 S.W.3d at 265 (internal citations omitted); see also Heyne,
380 S.W.3d at 735 (holding in a school disciplinary proceeding
that a school official’s dual role of prosecutor and
decision-maker did not without more rise to the level of a
violation of due process); see also People v. Varallo, 913 P.2d
1, 5 (Colo. 1996) (collecting cases that apply this principle in the
attorney disciplinary context); Goldstein v. Comm. on Practice
of the Supreme Court, 297 Mont. 493, 498–501, 995 P.2d 923
(2000) (same); cf. Marshall v. Jerrico, Inc., 446 U.S. 238, 250,
100 S. Ct. 1610, 64 L. Ed. 2d 182 (1980) (“[T]he strict
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requirements of neutrality cannot be the same for administrative
prosecutors as for judges, whose duty it is to make the final
decision and whose impartiality serves as the ultimate guarantee
of a fair and meaningful proceeding in our constitutional
regime.”).
Moncier, 406 S.W.3d at 161–62.
Here, the Real Estate Commission is tasked with multiple functions, among them, the
task of promulgating and adopting rules and regulations, see Tenn. Code Ann. § 62-13-
203(a), the task of investigating complaints made to the Real Estate Commission, see Tenn.
Code Ann. § 62-13-203(a), the task of authorizing the informal settlement of matters under
its investigation, see Tenn. Code Ann. § 4-5-105, the task of granting real estate broker
licenses, see Tenn. Code Ann. § 62-13-312(b), and the task of holding hearings to determine
whether an individual has violated provisions of the Real Estate Broker Act, and what
sanctions should be imposed for that violation. See Tenn. Code Ann. §62-13-312(a), (b). As
we perceive it, Ms. Bobo is arguing that the Real Estate Commission was biased because it
questioned her, without objection, regarding the previous consent order offered to her. As
previously discussed, the Real Estate Commission was fully authorized to act in that capacity
by the UAPA. See Tenn. Code Ann. § 4-5-105. Thus, Ms. Bobo is essentially arguing that
the Real Estate Commission was biased by information it learned in performing both its
investigative and adjudicative functions.
First, we note that the information related to the consent order was fully admitted by
Ms. Bobo, during the hearing, without objection. Thus, there is no indication that the Real
Estate Commission was privy to any extrajudicial information, that it then relied on in
considering Ms. Bobo’s culpability. Even under the more stringent judicial review standard,
not every bias, partiality, or prejudice requires recusal: “To disqualify, prejudice must be of
a personal character, directed at the litigant, ‘must stem from an extrajudicial source and
result in an opinion on the merits on some basis other than what the judge learned from . .
. participation in the case.’” Alley v. State, 882 S.W.2d 810, 821 (Tenn. Crim. App. 1994)
(quoting State ex rel. Wesolich v. Goeke, 794 S.W.2d 692, 697 (Mo. Ct. App. 1990)
(emphasis added)). There is simply no indication in the record that the Real Estate
Commission’s decision was based upon anything other than the evidence presented at the
contested case hearing. Further, in her brief, Ms. Bobo also takes issue with Commissioner
Alexander’s action in “personally scold[ing]” Ms. Bobo with regard to her actions in this
case, as set forth in full context above. According to Ms. Bobo, this action demonstrates that
Commissioner Alexander “was biased or prejudice[d] against Ms. Bobo, and, therefore,
could not set aside his personal bias and conduct a fair hearing in a fair manner.” Again,
nothing in the record indicates that Commissioner Alexander’s remarks were prompted by
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extrajudicial information, rather than evidence properly introduced at the hearing. Thus,
Commissioner Alexander’s remarks are insufficient to support a conclusion that either he or
any of the other Commissioners were biased against Ms. Bobo.
Further, as noted by the Tennessee Supreme Court, “[A]ny form of function
combination, occurring alone and without other exacerbating biasing influences, is very
unlikely to run afoul of procedural due process.” Moncier, 406 S.W.3d at 161 (quoting
Martin, 78 S.W.3d at 265). In this case, Ms. Bobo’s assertions regarding bias largely stem
from the Real Estate Commission’s dual functions as an investigator and adjudicator. Ms.
Bobo has not shown that any of the Commissioners have a pecuniary interest in the outcome
of the proceeding, have a conflict of interest with Ms. Bobo, or have been the target of
personal abuse or criticism from Ms. Bobo. Moncier, 406 S.W.3d at 162. Under these
circumstances, and considering the record as a whole, we must conclude that the “probability
of actual bias” is not “too high to be constitutionally tolerable.” Id. (quoting Withrow, 421
U.S. at 47, 95 S. Ct. 1456). Accordingly, the Chancery Court erred in finding that the Real
Estate Commission “demonstrated a serious lack of impartiality.”
Conclusion
Based on the foregoing, we conclude that the Chancery Court erred in reversing the
decision of the Real Estate Commission. Instead, we hold that the Real Estate Commission:
complied with applicable constitutional and statutory provisions and that its decision was:
(1) made upon lawful procedure; (2) neither arbitrary nor capricious or characterized by an
abuse of discretion; and (3) supported by substantial and material evidence. Tenn. Code Ann.
§ 4-5-322(h). Accordingly, we reverse the decision of the Davidson County Chancery Court
and affirm the decision of the State of Tennessee Real Estate Commission. This cause is
remanded to the trial court for all further proceedings as are necessary and are consistent with
this Opinion. Costs of this appeal are assessed to Appellee Donna Bobo, for which execution
may issue, if necessary.
_________________________________
J. STEVEN STAFFORD, JUDGE
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