July 23, 2019

Colorado Court of Appeals: Real Estate Broker Properly Disciplined by Commission for Conversion of HOA Funds

The Colorado Court of Appeals issued its opinion in In re Disciplinary Action Against the Real Estate Broker’s License of Bernard McConnell v. Colorado Real Estate Commission on Thursday, September 24, 2015.

Real Estate Commission Discipline.

In 2010 and 2011, while serving as president of the Pinecliff Homeowners Association (HOA), McDonnell wrote four checks totaling $10,000 on the HOA’s account payable to himself or his business. When the treasurer discovered one of these checks, McDonnell claimed he had written the check by mistake and repaid the HOA. When the treasurer’s term ended, McDonnell took custody of the HOA’s accounting records and refused to appoint a new treasurer.

The next year, an HOA board member called for a meeting to discuss accounting issues. McDonnell declined to attend and resigned. He then deposited the remaining $8,000 he had withdrawn for non-HOA purposes into the HOA bank account.

When the HOA board discovered the checks, they reported McDonnell to the police and the Colorado Real Estate Commission (Commission). No criminal charges were filed, but the Commission opened an investigation. The Commission charged McDonnell with four violations of the Colorado Real Estate Broker License Law. McDonnell appealed the Commission’s order sanctioning him on some of those counts.

The Court of Appeals first rejected McDonnell’s contention that the Commission did not have authority to sanction him for conduct that does not involve “selling, exchanging, buying, renting or leasing” real estate. The Court cited numerous provisions that allow the Commission to sanction a broker’s improper conduct outside of the real estate context, particularly when it speaks to the broker’s honesty, dignity, or moral character.

The Court also rejected McDonnell’s argument that CRS § 12-61-113(1)(g) (providing for sanctions for failure to properly account for funds) only applies to a licensee’s conduct involving real estate matters. The plain language of the section is clearly broader and not so limited.

McDonnell argued that CRS § 13-16-113(1)(g.5) (providing for discipline for conversion of funds of others and diverting funds of others without authorization) applies only to real estate transactions and that, even if it applies, his conduct was not conversion because he always intended to return the money. The Court disagreed, again holding that the section applies to more than just real estate transactions. Moreover, the Commission’s conclusion that McDonnell took the funds from the HOA without authorization and used them was amply supported in the record.

The Court further rejected McDonnell’s argument that CRS § 12-61-113(1)(t) (providing for discipline for any other conduct that constitutes dishonest dealing) only applies in the real estate context. It also rejected his argument that his actions did not rise to the level of dishonest dealing. Although “dishonest dealing” is not defined in Colorado statute or case Law, a court can determine the meaning of an undefined phrase of common usage by ascertaining its usual and ordinary meaning. Here, McDonnell’s misrepresentations and misappropriations demonstrate the ordinary meaning of a dishonest act.

The Court agreed with McDonnell that he could not be disciplined under CRS § 12-61-113(1)(n) (providing for discipline for incompetency or endangerment to the public). The administrative rule implementing this section provides an exhaustive list of grounds for unworthiness or incompetence, none of which were done by McDonnell and none of which apply outside of the real estate context. Accordingly, the Court affirmed the Commission’s conclusions as to three of the four counts, along with the Commission’s sanctions.

Summary and full case available here, courtesy of The Colorado Lawyer.

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