Arneson v. Fox

621 P.2d 817, 28 Cal. 3d 440, 170 Cal. Rptr. 778, 1980 Cal. LEXIS 227

• Court: California Supreme Court
• Decided: December 1, 1980
• Docket: L.A. 31259
• Status: Published

Opinions

Opinion

RICHARDSON, J.

What are the administrative consequences to a real estate licensee who is convicted of a felony following his plea of nolo contendere? We will conclude that a conviction following such a plea may serve as the basis for administrative discipline, so long as the underlying offense bears a substantial relationship to the qualifications, functions or duties of the licensed business or profession.

Appellant Richard Wendell Arneson, Jr., is licensed by the California Department of Real Estate as a real estate broker. Except for the single conviction under scrutiny here, he has no other criminal convictions or disciplinary record since he was first licensed in 1964. On November 3, 1975, appellant was convicted in federal district court, following a plea of nolo contendere, of conspiracy (18 U.S.C. § 371), a felony. On December 6, 1976, because of his conviction, respondent commissioner filed an accusation against appellant seeking to impose discipline upon him.

Administrative hearings were held, and respondent commissioner found that appellant’s federal conviction is “a felony and a crime involving moral turpitude” (see Bus. & Prof. Code, § 10177, subd. (b)) which “is substantially related to the qualifications, functions, or duties” of a real estate licensee (see id., § 490). (All further statutory references are to the Business and Professions Code, unless otherwise indicated.) Respondent also found “by way of mitigation, aggravation or explanation,” the following facts regarding appellant’s conviction:

“The conviction... stemmed from the filing of fraudulent reports of earnings with the United States Securities and Exchange Commission by U.S. Financial, a corporation engaged in real estate development, construction and financing. [Appellant] was not an officer or director of U. S. Financial and he did not play a major role in the business affairs of the corporation. He was, however, a willing instrument of the officers of the corporation who made its policies and directed its affairs. [¶] [Appellant] was placed on probation for three years and sentenced to serve six months in jail as a result of the conviction, but the term of confinement was subsequently reduced to four months. [¶] [Appellant] has been a real estate licensee since 1964. He has no record of prior disciplinary action or criminal conviction. He is presently a partner in a real estate investment and management firm in San Diego from which he derives his main source of income. He is married and is the sole support of his wife and two minor children.”

On the basis of the foregoing findings, the commissioner ordered appellant’s real estate license revoked, subject to appellant’s right to apply for a restricted license pursuant to section 10156.5, and to seek reinstatement pursuant to Government Code section 11522. Thereafter, appellant brought a mandate proceeding in superior court (Code Civ. Proc., § 1094.5) to review the commissioner’s decision. The court, following its review of the administrative record, rejected appellant’s various contentions and denied mandate. This appeal followed.

1. Relevant Statutory Provisions

Under rule 11(e)(6) of the federal Rules of Criminal Procedure (18 U.S.C.A.), “evidence of.. .a plea of nolo contendere,.. .is not admissible in any civil or criminal proceeding against the person who made the plea....” (Italics added.) In parallel fashion, Penal Code section 1016, subdivision 3, referring to nolo contendere pleas, provides in pertinent part that “The legal effect of such a plea shall be the same as that of a plea of guilty, but the plea and any admissions required by the court during any inquiry it makes as to the voluntariness of and factual basis for the plea may not be used against the defendant as an admission in any civil suit based upon or growing out of the act upon which the criminal prosecution is based.” (Italics added.)

Although appellant contends that federal rule 11(e)(6) would by its terms bar administrative consideration of a nolo contendere plea, or a conviction based upon that plea, he cites no supporting cases. The rule applies only to subsequent “civil or criminal proceedings,” not to administrative hearings. In Cartwright v. Board of Chiropractic Examiners (1976) 16 Cal.3d 762 [129 Cal.Rptr. 462, 548 P.2d 1134], a similar administrative disciplinary proceeding, we recently construed similar wording of the foregoing section 1016, supra, as follows: “This provision makes a plea of nolo contendere equivalent to a guilty plea merely for the purpose of the criminal proceeding. Although it expressly forbids subsequent use of the plea as an admission of guilt in certain civil suits, it does not purport to deal with the effect to be given in a collateral proceeding to a conviction based on the plea and instead leaves such effect open to determination under applicable case law.” (16 Cal.3d at p. 772, italics added.) Similarly, federal rule 11(e)(6) does not purport to deal with, or enjoin, the use of nolo convictions in collateral administrative proceedings, but impliedly leaves that matter to the laws of the respective states. In the absence of any controlling federal authority on the subject, sound policy suggests that we should construe the federal rule in a manner consistent with our prior interpretation of a similarly worded state law.

In California, prior to legislative clarification of the matter, much litigation arose concerning the propriety of using a nolo contendere plea and subsequent conviction as the basis for administrative discipline. (See Cartwright v. Board of Chiropractic Examiners, supra, 16 Cal.3d 762, 768-774.) With respect to real estate licensees, however, the issue has been resolved by section 10177, subdivision (b), which provides in pertinent part that “The commissioner may suspend or revoke the license of any real estate licensee,... who has.... (b) Entered a plea of guilty or nolo contendere to, or been found guilty of, or been convicted of, a felony or a crime involving moral turpitude,...” (Italics added.) This section permits imposition of administrative discipline by reason of a nolo contendere plea to, or conviction of, any felony offense whether or not it involves moral turpitude. (See Morris v. Board of Medical Examiners (1964) 230 Cal.App.2d 704, 710 [41 Cal.Rptr. 351, 12 A.L.R.]; Watkins v. Real Estate Commissioner (1960) 182 Cal.App.2d 397, 398-400 [6 Cal.Rtpr. 191].) Section 490 imposes one further requirement applicable to all business and professional licensing boards, namely, that “A board may suspend or revoke a license on the ground that the licensee has been convicted of a crime, if the crime is substantially related to the qualifications, functions, or duties of the business or profession for which the license was issued,...” (See Pieri v. Fox (1979) 96 Cal.App.3d 802, 805-809 [158 Cal.Rptr. 256]; Brandt v. Fox (1979) 90 Cal.App.3d 737, 748-749 [153 Cal.Rptr. 683].)

Bearing in mind the foregoing, statutory guidelines, we turn to appellant’s various contentions.

2. Propriety of Administrative Discipline Based Upon Conviction Following Nolo Contendere Plea

Appellant acknowledges that, pursuant to section 10177, subdivision (b), the Legislature has authorized the commissioner to impose discipline based upon convictions following nolo contendere pleas (hereafter referred to as nolo convictions). Yet appellant urges that principles of public policy and constitutional law combine to mandate us to construe the section in a manner which would require the agency to reexamine independently the facts which underlie a nolo conviction, thereby permitting the licensee to relitigate before the administrative body the issue of his guilt previously resolved in the criminal court. We disagree.

a. Policy considerations. Appellant emphasizes that there are many potential reasons why an accused might enter a nolo plea, such as a desire to avoid adverse publicity, the complexity or expense of defense, the unavailability of crucial evidence, or an aversion to the revelation of evidence prior to civil litigation, for tactical reasons. (See Estate of McGowan (1973) 35 Cal.App.3d 611, 618 [111 Cal.Rptr. 39]; Note, Use of the Nolo Contendere Plea in Subsequent Contexts (1971) 44 So.Cal. L.Rev. 737, 752-753.) Thus, as appellant contends, the nolo plea might have been induced by factors collateral to the issue of guilt. As we recently stated in Cartwright v. Board of Chiropractic Examiners, supra, 16 Cal.3d 762, 773, “when the conviction is based on a nolo contendere plea, its reliability as an indicator of actual guilt is substantially reduced, both because of the defendant’s reservations about admitting guilt for all purposes and because the willingness of the district attorney to agree to and the court to approve the plea tends to indicate weakness in the available proof of guilt.” (Fns. omitted.)

Yet in Cartwright we did not purport to preclude administrative reliance upon nolo convictions where such reliance is statutorily authorized. In Cartwright, the applicable provision (an initiative measure) permitted suspension or revocation of a chiropractor’s license for “conviction of a crime involving moral turpitude.” No reference was made in the provision to nolo convictions. We first observed that the California courts had adopted the minority view that the use of nolo convictions as the basis for administrative penalty was improper. (16 Cal.3d at pp. 770-771; see In re Hollinan (1954) 43 Cal.2d 243, 247 [272 P.2d 768]; Kirby v. Alcoholic Bev. etc. App. Bd. (1969) 3 Cal.App.3d 209, 219-220 [83 Cal.Rptr. 89].) We next noted, however, that the Legislature had “selectively amended” several statutes to allow consideration of nolo convictions as a ground for administrative discipline. (16 Cal.3d at pp. 771-772.) We concluded that, in the absence of such express legislative authority, a nolo conviction is an unreliable indicator of guilt and should not be considered in imposing discipline. (Id., at pp. 772-774.) Significantly, in the concluding sentence in Cartwright, we stressed that “Any inclusion of such [nolo] convictions as a basis for discipline... should be based... on a legislative determination that such pleas and convictions are sufficiently reliable indicators of guilt to warrant disciplinary measures for the protection of the public.” (Id., at p. 774, italics added; see also, Birnbaum v. Lackner (1978) 82 Cal.App.3d 284, 287 [147 Cal.Rptr. 93].)

Cartwright thus represents our recognition that the Legislature might reasonably determine “that doctors, lawyers and other professional persons not escape administrative sanctions through use of the nolo contendere plea....” (44 Ops.Cal.Atty.Gen. (1964) 163, 165.)

The Legislature having made the specific determination in section 10177, subdivision (b), contemplated in Cartwright, by expressly authorizing the commissioner to suspend or revoke a real estate license following entry of a nolo plea or conviction of a felony or a crime involving moral turpitude, it follows that considerations of general policy expressed in Cartwright would not bar reliance upon appellant’s conviction in this case. (Accord, see Note, The Nolo Contendere Plea: Uncertainty Surrounding its Collateral Effects in California (1975) 3 Western St.U. L.Rev. 92, 105; Note, Nolo Contendere—Its Use and Effect (1964) 52 Cal.L.Rev. 408, 418, 422.)

b. Constitutional considerations. Appellant next contends that section 10177, subdivision (b), is unconstitutional as a violation of due process principles. In appellant’s view, due process requires that licensees suffering nolo convictions be afforded the opportunity to relitigate the issue of their guilt, given the asserted unreliability of the nolo conviction as an indicator of guilt. We have already observed, however, that section 10177, subdivision (b), represents “a legislative determination that such [nolo] pleas and convictions are sufficiently reliable indicators of guilt....” (Cartwright, supra, at p. 774.) Thus, appellant’s premise of unreliability cannot stand. The Legislature reasonably might have concluded that a nolo conviction represents a sufficiently strong indicator of guilt to warrant discipline of a licensee without necessitating any administrative relitigation of the underlying charges. Indeed, in many cases such as that herein presented, the evidence necessary to reestablish the criminal charges may be wholly unavailable to the administrative officials. Accordingly, a strong majority of the courts in this and other states have considered nolo convictions as conclusive evidence of guilt for the purpose of imposing administrative discipline. (Annot., 89 A.L.R.2d 540, 606.) No cases have been cited to us which have reached a different conclusion on constitutional grounds.

It is true, as appellant observes, that “a statute can constitutionally bar a person from practicing a lawful profession only for reasons related to his fitness or competence to practice that profession.” (Newland v. Board of Governors (1977) 19 Cal.3d 705, 711, fn. omitted [139 Cal.Rptr. 620, 566 P.2d 254]; see Cartwright, supra, at p. 767.) Yet, as previously noted, that requirement is fully satisfied statutorily by section 490, which requires a showing that the offense bears a substantial relationship “to the qualifications, functions, or duties” of any licensed business or profession.

In Perrine v. Municipal Court (1971) 5 Cal.3d 656, 663 [97 Cal.Rptr. 320, 488 P.2d 648], we expressed much the same principle, commenting that “an ordinance regulating the right to engage in a lawful occupation or business must bear a rational relationship to a valid governmental purpose. [Citations.] Accordingly, standards for excluding persons from engaging in such commercial activities must bear some reasonable relation to their qualifications to engage in those activities.”

So long as there exists the requisite substantial relationship mandated by section 490, due process principles are satisfied. We conclude that section 10177, subdivision (b), read in conjunction with section 490, meets due process requirements and we perceive no additional constitutional mandate which would compel the board to relitigate the issue of guilt. (For recent cases applying the substantial relationship requirement and involving real estate licenses, see Gold v. Fox (1979) 98 Cal.App.3d 167 [159 Cal.Rptr. 864] [license properly revoked following licensee’s guilty plea and conviction of possessing marijuana for sale]; Pieri v. Fox, supra, 96 Cal.App.3d 802 [license improperly denied following conviction of making false statement to obtain unemployment benefits]; Brandt v. Fox, supra, 90 Cal.App.3d 737 [license improperly denied following conviction of distribution of cocaine].)

The licensee, of course, should be permitted to introduce evidence of extenuating circumstances by way of mitigation or explanation, as well as any evidence of rehabilitation. (See Brandt, supra, at p. 747; § 482.) Yet, as recently expressed, an inquiry into the circumstances surrounding the offense “should not form the basis of impeaching a prior conviction.” (Matanky v. Board of Medical Examiners (1978) 79 Cal.App.3d 293, 302 [144 Cal.Rptr. 826].) In the present case, petitioner was given the opportunity of reviewing the circumstances of his offense as well as his efforts toward rehabilitation. No relevant mitigating evidence was refused consideration, although appellant properly was not permitted to impeach his conviction by explaining the “true” reasons for his nolo contendere plea. Regardless of the various motives which may have impelled the plea, the conviction which was based thereon stands as conclusive evidence of appellant’s guilt of the offense charged. To hold otherwise would impose upon administrative boards extensive, time-consuming hearings aimed at relitigating criminal charges which had culminated in final judgments of conviction.

Appellant makes the additional argument, however, that section 10177, subdivision (b), improperly vests uncontrolled discretion in the commissioner. The commissioner’s discretion, however, is tempered by the requirement of section 490, and circumscribed by the availability of judicial review which also protects against the arbitrary or capricious exercise of the commissioner’s discretion. (See Bixby v. Pierno (1971) 4 Cal.3d 130, 146 [93 Cal.Rptr. 234, 481 P.2d 242].) As a final safeguard, the Legislature has recently required administrative boards to develop written “criteria” to assist in determining whether the requisite special relationship exists to permit discipline. (See §§ 481, 482.) Such criteria were adopted in 1978 (see Cal. Admin. Code, tit. 10, §§ 2910-2912), subsequent to the administrative hearings in this case. Although these criteria were not available to appellant at the time of his hearings, he fails to suggest how he may have been prejudiced thereby. Nothing contained in these criteria would afford a basis for excusing or mitigating his conduct, or reducing his punishment. Indeed, the criteria specifically provide that discipline is appropriate where the offense involves fraud or deceit, or constitutes a conspiracy to commit such acts. Appellant’s offense likewise involved such misconduct.

We detect no violation of appellant’s constitutional rights in his disciplinary proceedings.

3. Existence of Substantial Relationship

We turn next to appellant’s further contention that his nolo conviction was insufficient to furnish the requisite reasonable or substantial relationship to the qualifications, functions or duties of his profession.

Appellant was convicted of conspiracy, a federal offense. (18 U.S.C. § 371.) The judgment recites that the conspiracy conviction was “as charged in Count 1 in the Indictment in 66 Counts.... ” The indictment was introduced as an exhibit at the administrative hearing and by reason of appellant’s nolo plea, all facts alleged therein stand admitted. (Lott v. United States (1961) 367 U.S. 421, 426 [6 L.Ed.2d 940, 943-944, 81 S.Ct. 1563]; United States v. Heller (6th Cir. 1978) 579 F.2d 990, 998.) Therefore, the indictment may be considered by us in evaluating the nature of the offense for which appellant stands convicted. (Matanky v. Board of Medical Examiners, supra, 79 Cal.App.3d 293, 302; Tseung Chu v. Cornell (9th Cir. 1957) 247 F.2d 929, 935-936.) The indictment accused appellant and others of “willfully and knowingly” conspiring to commit various specified offenses in violation of a variety of federal statutes (15 U.S.C. §§ 77q, 77x, 78m, 78o(d), 78ff(a); 17 C.F.R. §§ 240.13a-1, 240.15d-1, 249.310; 18 U.S.C. §§ 215, 1014, 1341, 1343, 2314) by assisting in the creation of a false and inflated financial picture of U.S. Financial, a corporation engaged in real estate development.

Specifically, the indictment charges that appellant aided and abetted the fraud by his active and knowing participation in land sales to strawmen or shell corporations, for the purpose of generating the false impression that U.S. Financial was realizing large profits from these sales. Although appellant was neither an employee nor officer of U.S. Financial, it was alleged that he agreed to become an owner or operator of various shell corporations which supposedly purchased property from U.S. Financial in arm’s length transactions, using funds provided by U.S. Financial or its officers for payment of the purchase price. An important aim of the conspiracy was to promote the sale of U.S. Financial stock at substantially higher prices which were reflective of the apparently successful and profitable land sales.

It is apparent from a reading of the indictment that the charges against appellant bore a reasonable and substantial relationship to the qualifications, functions or duties of his profession as real estate broker. These charges included wilful participation in dummy land sales transactions which were entered into for illegal and fraudulent purposes. Similar offenses involving dishonest or fraudulent conduct frequently have been held to constitute grounds for administrative discipline. (In re Hallinan (1957) 48 Cal.2d 52, 55-56 [307 P.2d 1]; Gold v. Fox, supra, 98 Cal.App.3d 167, 176-177 [real estate broker]; Matanky v. Board of Medical Examiners, supra, 79 Cal.App.3d 293, 305-306; Ring v. Smith (1970) 5 Cal.App.3d 197, 205 [85 Cal.Rptr. 227] [real estate broker]; Rhoades v. Savage (1963) 219 Cal.App.2d 294, 299-300 [32 Cal.Rptr. 885] [real estate broker].) Ring involved a real estate broker who suffered a nolo conviction for conduct which included misrepresentations in the sale of securities. The Ring court said “One of the purposes of the governing legislation [§ 10177, subd. (b)] is to insure, as far as possible, that real estate brokers and salesmen will be honest, truthful and of good reputation. [Citation.] By making the above representations appellants manifestly demonstrated a lack of integrity.” (P. 205.)

At the administrative hearing, appellant and his counsel were permitted to testify regarding the circumstances which surrounded appellant’s offense. Appellant acknowledged that the transactions conducted by the officers of U.S. Financial constituted security fraud, because these transactions were made for the purpose of misrepresenting the company’s profits which then were reflected in its financial statements. Appellant, however, argued that the record lacked any evidence of his own improper intent. As characterized by his counsel “It would come down to a question as to whether [appellant] realized that he was helping in something that was illegal.” Notwithstanding his conviction, he attempted to introduce evidence which would raise doubt as to his guilt of the federal offense. As we have previously noted, this he may not do.

Appellant continues to assert that administrative discipline would be improper in the absence of any positive proof of his wrongful intent beyond the indictment and nolo conviction themselves. Yet as we have seen, the nolo conviction stands as conclusive proof of appellant’s guilt of the specific offense charged in the indictment. No extrinsic independent evidence thereof need be introduced. Nor is appellant permitted to impeach that conviction. (Matanky, supra, at p. 302.) We conclude that the record amply supports the commissioner’s finding that appellant’s offense bore a substantial relationship to the qualifications, functions or duties of his profession.

4. Adequacy of Findings

Appellant next complains that the trial court, following its review of the administrative record, failed to enter adequate findings in support of its judgment denying mandate. However, the court expressly incorporated by reference certain additional findings of the commissioner and concluded that they were supported by the weight of the evidence. The incorporated findings stated, among other things, that appellant is a licensed real estate broker; that he was convicted of conspiracy following his nolo contendere plea; that the offense is a felony and a crime which not only involved moral turpitude but was substantially related to appellant’s qualifications, duties and functions; and that appellant was a “willing instrument” of U.S. Financial’s officers in helping them create a false impression of the company’s earnings. As we have seen, these findings were fully supported by the indictment and judgment of conviction.

Although appellant suggests that the trial court should have entered its own findings rather than incorporate those of the commissioner, the objection is overly technical and unsupported by any authority. No reason appears why a trial court in making its findings cannot incorporate by reference, as its own, the findings made by an administrative board, if the intent to incorporate is clearly expressed.

Similarly unavailing is appellant’s reliance upon rule 232(e) of the California Rules of Court. This rule prohibits findings which “refer merely to the truth or falsity of allegations contained in the pleadings.” (Italics added.) The reason for the rule is clear. A trier of fact’s adoption of the pleadings of one of the litigants may leave considerable doubt as to the exact basis of the trier’s findings. Thus, pleadings are often cast in much more general, and sometimes even conflicting, terms than will be appropriate for the court’s ultimate findings. No such doubts are presented here. In any event, any error in failing to enter more specific findings would be necessarily harmless, because the evidence in this case would have required similarly adverse findings as a matter of law. (See, e.g., Space Properties, Inc. v. Tool Research Co. (1962) 203 Cal.App.2d 819, 829-830 [22 Cal.Rptr. 166]; 6 Witkin, Cal. Procedure (1971) Appeal, § 307, at p. 4289 and cases therein cited.)

The judgment is affirmed.

Tobriner, J., Mosk, J., Clark, J., and Manuel, J., concurred.