Richard Wendell ARNESON, Jr., Plaintiff and Appellant, v. REAL ESTATE COMMISSIONER, Respondent.
Richard Wendell Arneson, Jr. (Arneson) appeals from a judgment denying his petition for a peremptory writ of mandate to compel the Commissioner of Real Estate (Commissioner) to set aside his decision revoking Arneson's real estate broker's license. The Commissioner acted pursuant to Business and Professions Code sections 10177, subdivision (b), and 490,1 which authorize discipline where a licensee has been convicted2 following a plea of nolo contendere to a felony or a crime involving moral turpitude and the crime is substantially related to the qualifications, functions or duties of the profession for which the license was issued. Arneson had been convicted of conspiracy (18 U.S.C. s 371) in the federal court following his plea of nolo contendere (18 U.S.C., Federal Rules of Crim. Procedure, rule 11 subd. (a)).
Arneson attacks the constitutionality of the statute contending that application of section 10177, subdivision (b), to a case involving a federal nolo plea violates the supremacy clause (U. S. Const., art. VI) and the use of a conviction based upon a nolo plea standing alone to justify revocation of a license denies the licensee due process of law. We hold the statute is constitutional. We also decide section 10177, subdivision (b), as it relates to nolo pleas, creates a rebuttable presumption permitting the nolo plea and the conviction based thereon to be used as prima facie evidence that the licensee committed the acts described in the information or indictment (Evid.Code, s 602), placing on the licensee the burden of proof to establish by a preponderance of the evidence the non-existence of the presumed facts.3 (Evid.Code, ss 605, 606.) In the present case, however, because of the hearing officer's failure to exercise his discretion in weighing the evidence relating to Arneson's explanation of his nolo plea and his sole reliance on the felony conviction to revoke Arneson's license we conclude Arneson was denied a fair trial. We reverse the judgment with instructions to the court to remand the case for further administrative hearing.
Factual and Procedural Background
On December 6, 1976, the Commissioner filed an Accusation charging Arneson with having violated section 10177, subdivision (b), arising from Arneson's conviction of conspiracy on his plea of nolo contendere. After administrative proceedings the Commissioner issued his decision revoking Arneson's real estate broker's license but allowing him a restricted license (s 10156.5). In addition to the findings, including the fact of the nolo plea and a conviction of a felony involving moral turpitude, the decision provided that “(t)he 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. Respondent (Arneson) 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.”
The events leading up to the December 30, 1974 indictment of Arneson and others involve the wheeling and dealing of U.S. Financial during its highflying years of 1969 through 1973 when it was a listed public company primarily engaged in the real estate business. The machinations of its operations necessary to perpetuate the continuing and blatant fraud on the public are revealed in the 138-page, 66-count indictment in which certain of the officers of U.S. Financial were named as principals and other persons, including Arneson, were named as co-conspirators. The allegations of the indictment spell out the techniques that were used through several wholly-owned subsidiaries to falsely state the income of U.S. Financial, thereby increasing the value of its traded stock. The basic scam used for the fraudulent production of earnings was to create the illusion that U.S. Financial had actually sold large parcels of developed or partially developed real estate at a profit when in fact the sales had not occurred. Strawmen or shell corporations created and financed by U.S. Financial were used as purchasers to legitimize what were truly paper transactions.
Arneson, who was not an employee of U.S. Financial or any of its subsidiaries, was a real estate broker involved in the sales of properties which were improperly used to book profits.
Section 10177, Subdivision (b), Does Not Violate the Supremacy Clause of the U.S. Constitution
Where state legislation frustrates the full effectiveness of federal law, the state legislation is invalid under the supremacy clause of the United States Constitution. (Grimes v. Hoschler (1974) 12 Cal.3d 305, 311, 115 Cal.Rptr. 625, 525 P.2d 65.) Arneson asserts the use, under section 10177, subdivision (b), of a federal nolo plea and conviction thereon, violates this principle for it deters the entering of nolo pleas, thereby interfering with one of the means by which the federal government disposes of criminal cases. Presumably, faced with the additional threat of state administrative discipline, defendants in federal criminal cases will be less inclined to plead nolo.
The federal policy ostensibly furnishing incentive for the nolo plea to which Arneson refers is set out in rule 11(e)(6) of the Federal Rules of Criminal Procedure which provides in part:
“Except as otherwise provided in this paragraph, evidence of . . . a plea of nolo contendere . . . is not admissible in any civil or criminal proceeding against the person who made the plea . . ..”
and rule 410 of the Federal Rules of Evidence (28 U.S.C.), which states:
“Except as otherwise provided in this rule, evidence of . . . a plea of nolo contendere . . . is not admissible in any civil or criminal proceeding against the person who made the plea . . ..”
Implicit in this argument is the assumption that within the federal system itself not only the nolo plea but the conviction based upon the plea will not be used as the basis for additional penalties in a subsequent proceeding. This premise is unsupported for in several areas within the federal system the contrary occurs. A conviction based upon a nolo plea may be used to justify deportation (Tseung Chu v. Cornell (9th Cir. 1957) 247 F.2d 929; see also Ruis-Rubio v. Immigration & Naturalization Service (9th Cir. 1967) 380 F.2d 29), to satisfy a “conviction per se” statute (United States v. One Lot of Eighteen Firearms (D.C.1971) 325 F.Supp. 1326 (ex-felon in possession of a gun in violation of 18 U.S.C., s 921)) or to revoke, under 21 U.S.C., s 824, a federal license necessary to manufacture or distribute a controlled substance where the registrant (licensee) had been convicted of a felony. (Sokoloff v. Saxbe (2d Cir. 1974) 501 F.2d 571; Noell v. Bensinger (5th Cir. 1978) 586 F.2d 554.)
Where the conviction based upon the nolo plea is used in another proceeding, in apparent compliance with rule 11(e)(6), Federal Rules of Criminal Procedure, the federal courts reflect a policy which recognizes the reality that a nolo plea may not truly be insulated from subsequent events. Although there may indeed be a federal policy which will not permit the subsequent use of the Plea, there is no such policy which prevents the use of the Conviction based on the plea.4 Where the same result is permitted in the state system, the purpose and effectiveness of the federal law is not impeded. Section 10177, subdivision (b), does not violate the supremacy clause.
The Proper Use of a Conviction Following a Nolo Plea Under Section 10177, Subdivision (b), Does Not Violate a Real Estate Licensee's Right to Due Process of Law Under the State and Federal Constitutions
The right to practice a profession is a fundamental right protected by the due process clause of the State and Federal Constitutions. (5 Witkin, Summary of Cal. Law (8th ed. 1974) Constitutional Law, s 273, p. 3563; Brecheen v. Riley (1921) 187 Cal. 121, 124-125, 200 P. 1042.) A person may be barred from practicing a lawful profession only for reasons relating to his fitness or competence to practice that profession. (Newland v. Board of Governors (1977) 19 Cal.3d 705, 711, 139 Cal.Rptr. 620, 566 P.2d 254.) The power of a state to deny or revoke a vocational license cannot be applied arbitrarily. The exercise of the power must bear a direct and rational relationship to the individual's fitness to engage in the particular vocation involved. (See, e. g., Hallinan v. Committee of Bar Examiners (1966) 65 Cal.2d 447, 55 Cal.Rptr. 228, 421 P.2d 76; Morrison v. State Board of Education (1969) 1 Cal.3d 214, 82 Cal.Rptr. 175, 461 P.2d 375; and Perrine v. Municipal Court (1971) 5 Cal.3d 656, 97 Cal.Rptr. 320, 488 P.2d 648.)
Since 1943 when section 10177, subdivision (b), was first enacted and pursuant to all subsequent amendments, the real estate commissioner has had the power to commence disciplinary proceedings involving any real estate licensee who had been convicted of a felony. (Stats.1943, ch. 127, p. 842, s 1.) Evidence of a conviction based on a guilty plea is admissible to establish the fact that the licensee had committed the crime to which he had entered his plea pursuant to his implicit admission of every element contained in the offense charged.5 (See Supp.Cal. Mandamus (March 1979) s 5.31, pp. 40-41.) It was not until 1953 in response to Caminetti v. Imperial Mut. L. Ins. Co. (1943) 59 Cal.App.2d 476, 139 P.2d 681, that the Legislature amended section 10177, subdivision (b), to include a conviction following a plea of nolo contendere to a felony or to a crime involving moral turpitude as a basis for discipline.
In Caminetti, the officers of an insurance company entered a nolo contendere plea and were convicted in federal court of a charge of defrauding the United States. In proceedings under the Insurance Code, the commissioner attempted to introduce the federal conviction as conclusive evidence of fraud justifying the seizure of the company's assets. The court ruled the conviction inadmissible since it was based on the nolo contendere plea.6 The nolo contendere plea was held to be an arrangement between the defendant and the court to expedite the criminal proceedings; thus the conviction obtained on the plea “. . . by reason of the agreement underlying it, must in all good conscience, fairness and equity be held to be a conviction for the limited and agreed purposes of that proceeding . . . and for no other purpose.” (Caminetti, supra, at p. 492, 139 P.2d at p. 690.) The Caminetti court refused to distinguish between the plea of nolo and the conviction based on the plea. A similar result followed in a State Bar proceeding in In re Hallinan, supra, 43 Cal.2d 243, 247, 272 P.2d 768, which prompted the Legislature to make wholesale amendments to the Business and Professions Code involving the legal profession, dentists, pharmacists, accountants, nurses, veterinarians and physical therapists. (See Kirby v. Alcoholic Bev. etc. App. Bd. (1969) 3 Cal.App.3d 209, 220, 83 Cal.Rptr. 89; Cartwright v. Board of Chiropractic Examiners, supra, 16 Cal.3d 762, 769-774, 129 Cal.Rptr. 462, 548 P.2d 1134.)
At first blush it thus appears the Legislature attempted to equate a plea of nolo contendere to a felony under section 10177, subdivision (b), with either a guilty plea or a finding of guilty after trial. To treat them as identical, however, ignores not only the policy underlying the purpose for the enactment of the nolo plea, but also Evidence Code section 1300, which provides that evidence of a final judgment adjudging a person guilty of a felony is admissible when relevant in a civil action unless the judgment was based on a plea of nolo contendere. It is generally recognized that Penal Code section 1016, subdivision (3), was enacted in response to Teitelbaum Furs, Inc. v. Dominion Ins. Co., Ltd., supra, 58 Cal.2d 601, 25 Cal.Rptr. 559, 375 P.2d 439. (See, e. g., Comment, Nolo Contendere Its Use and Effect, Supra, 52 Cal.L.Rev. 408, 409; Comment, The Nolo Contendere Plea: Uncertainty Surrounding Its Collateral Effects in California (1975) 3 West.St.L.Rev. 92, 93.) There the court held a civil litigant is collaterally estopped from relitigating an issue previously found against him after a criminal trial. Any issue necessarily decided in the criminal prosecution is conclusively determined as to the parties if the issue is involved in a subsequent civil action.
In dictum, the Teitelbaum court also discussed the inapplicability of the doctrine of collateral estoppel where the conviction is based on a guilty plea. It pointed out that although in a subsequent civil trial the plea of guilty is admissible as an admission against interest, it cannot be treated as conclusive of the issues involved for there has not previously been a full presentation of the case. “Consideration of fairness to civil litigants and regard for the expeditious administration of criminal justice (citations) combine to prohibit the application of collateral estoppel against a party who, having pleaded guilty to a criminal charge, seeks for the first time to litigate his cause in a civil action.” (Id. at pp. 605-606, 25 Cal.Rptr. at p. 561, 375 P.2d at p. 441.) Thus before the nolo plea was allowed in state courts a criminal defendant faced with related civil proceedings had an unhappy choice. He could go through the expensive process of a criminal trial and if convicted, the conviction would conclusively and adversely determine the issues involved in the civil matter. Of course, if acquitted, because of the difference in the burdens of proof in a civil and criminal case, the acquittal would be of no evidentiary benefit to him. He could also plead guilty recognizing the impact his admission would have on the trier of fact in the civil case. To avoid this perhaps justifiable Catch-22 facing defendants in criminal cases, the Legislature enacted Penal Code section 1016, subdivision (3), which would avoid the perceived disastrous civil consequences to a defendant consistent with the goals of the penal system, concurrently expediting the administration of criminal justice. Basically, the civil consequences of criminal acts would be deferred to the civil forum to allow each party his day in court. The distinction between the nolo and guilty pleas was reinforced two years later when Evidence Code section 1300 was enacted (Stats.1965, ch. 299, s 1300.)7
The distinction drawn in Teitelbaum between the collateral effect of a conviction after trial and a conviction following a guilty plea is equally applicable in the administrative context. Similarly, the distinction between a nolo and guilty plea must be recognized to satisfy the legislative intent reflected in sections 10177, subdivision (b), Penal Code section 1016, subdivision (3), and Evidence Code section 1300.
The number of possible factual situations facing an administrative law judge in disciplinary proceedings involving real estate licensees or others, although not infinite, borders on the immeasurable. The Legislature, aware of the administrative burden of regulatory agencies to effectively discipline errant licensees and the nexus between a conviction based on a nolo plea and the commission of the underlying act(s), authorized the regulatory agency to impose discipline based on a conviction following a nolo plea. Within this continuum of possible cases, there may be those in which the licensee may fail to appear at the hearing or after appearing will devote his energies to evidence relating to his rehabilitation in mitigation of discipline. Other cases may include the unusual situation such as the one presented here where the licensee vigorously asserts his innocence and attempts to explain away his plea of nolo. Because of the unique characteristics of the nolo plea, we conclude that only by treating section 10177, subdivision (b), as creating a rebuttable presumption designed to implement the public policy of expediting the functions of those charged with regulating vocational or professional licensees can the plea be used in disciplinary proceedings. The competing interests are thus reconciled within constitutional limitations proper deference is given to the legislatively determined reliability of a nolo plea as an indication of guilt, the legislatively created and judicially recognized distinction between the nolo pleas is preserved, and the licensee is not denied due process of law.
In an administrative hearing, a guilty plea is admissible evidence to be weighed along with and against all other evidence presented at the hearing to determine whether the licensee has by his actions shown himself to be unfit to continue practicing in the real estate profession. If the hearing officer finds by a preponderance of the evidence, including evidence of the guilty plea, that suspension or revocation of the license is warranted, he may recommend such action to the Commissioner and the Commissioner may so act, subject to judicial review for abuse of discretion. However, if the proceeding has been triggered by a conviction following a nolo plea, the certified records of the indictment or information, the nolo plea, and the conviction based upon the nolo plea may be introduced as prima facie evidence that the licensee committed the acts described in the documents (Evid.Code, s 602), thereby transferring to the licensee the burden of establishing the nonexistence of the presumed facts (Evid.Code, s 606). This presumption is not evidence (Evid.Code, s 600, subd.(a)), and if the licensee presents evidence at the hearing sufficient to rebut it, the fact of the conviction may no longer be considered in determining the truth or falsity of the allegations.
In further balancing of the interests involved, we conclude the burden placed on the licensee under such circumstances should be proof, by a preponderance of the evidence, of the nonexistence of the presumed facts.
When we test this approach on a practical basis not only in the present case but in hypothetical cases within the continuum described, we conclude the presumption created does not place an undue burden on the agency or the individual involved. It merely assures the licensee and the public that the hearing officer in the first instance and the court thereafter will have sufficiently reliable information to properly exercise discretion in the weighing process necessary to reach a fair decision.
The Hearing Officer's Failure To Exercise His Discretion In Weighing The Evidence Requires Reversal For Future Administrative Hearing
Plaintiff's petition for writ of mandate required the trial court to exercise its independent judgment on the evidence. (Code Civ.Proc., s 1094.5, subds. (b), (c).) The court adopted the Commissioner's findings of fact and conclusions of law.8 These findings were that (1) Arneson was a real estate broker, (2) he was convicted of conspiracy in the federal court on his plea of nolo contendere, and (3) conspiracy was a felony and a crime involving moral turpitude, and the crime was substantially related to the qualifications, duties, and functions of a real estate licensee within the meaning of section 490. The findings also stated by way of “mitigation, aggravation or explanation” Arneson was a “willing instrument of the officers of the corporation (U.S. Financial) who made its policies and directed its affairs.”
The administrative hearing was brief. The Commissioner, subject to examining Arneson, rested his case after he introduced the indictment, Arneson's nolo plea, and the conviction. Counsel for Arneson made an opening statement to satisfy the dual purpose of furnishing the hearing officer an overview of the facts plus introducing evidence in narrative form of Arneson's limited involvement in U.S. Financial's affairs. Arneson's direct testimony confirmed and buttressed his counsel's explanation and furnished additional information relating to his proper handling and accounting for millions of dollars of real property and cash.
The confusion as to the evidentiary significance of the conviction based on the nolo plea is apparent from the record. At different times, the hearing officer said: “The conviction points in one direction. It points towards guilty. You have painted a picture here that points in the exact opposite direction,” and “Based on what you tell me, no aiding or abetting took place, at least none of a criminal nature,” and “(Y)ou haven't said anything that would indicate that the respondent was implicated in any of these transactions, and if he was not, why was a plea of nolo contendere entered?”
When Arneson tried to respond to these inquiries by introducing a written explanation as to why he had pleaded nolo, the evidence was rejected as irrelevant. During cross-examination when counsel for the Commissioner was trying to probe into the underlying facts set out in the indictment to deal with Arneson's theory of defense, the hearing officer declined to recess to permit Arneson to review the indictment, stating: “I think we have spent more time than we should on this case. It's now ten after three. We've been going since 1:30. I don't know how much further we're going to go, and I would like to wind it up as soon as possible.” When reminded that the time estimate was two to three hours, the hearing officer said: “Listening to the evidence here at this time, it seems to me it's a substantial overestimate.” On another occasion when asked to recess so he might look at the indictment, he commented: “No, counsel, I'm not going to do that at this time. We have spent two hours, and I'm not going to sit down and go through the indictment. I'm going to confine your questions to the area that is relevant at this point.”
The comments made by the hearing officer, his rejection of the explanation underlying Arneson's nolo plea, and his statement that a two-hour hearing was an excessive time estimate to resolve the factual questions presented in the indictment all point to the hearing officer's determination that nothing further was required as a basis for imposition of discipline other than the nolo plea and the conviction based on the plea. The Attorney General in this appeal makes the same argument. The finding that Arneson was a willing instrument of the officers of U.S. Financial was drawn only by inference from the conviction and was treated as a conclusive presumption, for no other evidence was presented on this question.
We conclude in the exercise of discretion, not only must the hearing officer decide the weight to be given to a conviction (Arenstein v. California State Bd. of Pharmacy, Supra, 265 Cal.App.2d 179, 190, 71 Cal.Rptr. 357), but where the conviction is based on a plea of nolo contendere, he must decide whether the underlying acts constituting the crime were actually committed. In those cases where a licensee asserts his innocence after a prima facie case against him has been made, he is entitled to a full hearing to guarantee him the panoply of legal protection to which he is entitled in protecting his right to practice his profession. (Yakov v. Board of Medical Examiners (1968) 68 Cal.2d 67, 75, 64 Cal.Rptr. 785, 435 P.2d 553.) “Due process” are more than buzz words. To be meaningful they must be energized from the theoretical to the practical through well-prepared lawyers and patient triers of fact. Where, as here, the Commissioner failed to exercise his discretion in the manner required by law, Arneson is entitled to a new hearing.
The judgment denying the petition for writ of mandate is reversed. The court is instructed to remand for further administrative proceedings consistent with this opinion.
1. All references are to the Business and Professions Code unless otherwise specified. Section 10177, subdivision (b), provides in pertinent part:“The commissioner may suspend or revoke the license of any real estate licensee . . . who has done any of the following:“. . .“(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, . . .”Section 490 provides in pertinent part:“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, . . .”
2. We are aware the language in section 10177, subdivision (b), could possibly be construed to allow the Commissioner, in exercising his discretion, to suspend or revoke a license based on the entry of a nolo plea to a crime of the required nature, even if thereafter the plea was rejected and the licensee acquitted at trial. Unlike other sections involving the nolo plea as a basis for discipline, the Legislature did not, in section 10177, subdivision (b), specifically refer to the conviction following the plea as the basis for discipline. (See, e. g., s 1679 (dentists) (“a conviction following a plea of nolo contendere”); s 2383 (physicians) (same); s 2661 (physical therapists) (same); s 2765 (nurses) (same); s 4354 (pharmacists) (same); s 4883 (veterinarians) (same); s 5106 (accountants) (same); s 6101 (attorneys) (“a conviction after a plea of nolo contendere”).) We do not reach the effect of such an interpretation, for Arneson's plea was accepted and a conviction was entered thereon. It was the conviction upon which the Commissioner acted.
3. We note in five of the statutes referred to in fn. 2, Supra, (i. e., ss 1679, 2383, 4354, 5106, 6101), the Legislature has expressly provided for the evidentiary effect of a record of conviction introduced at a disciplinary proceeding. Our holding is limited to actions under section 10177, subdivision (b), where no such legislative intent has been stated. We distinguish Furnish v. Board of Medical Examiners (1957) 149 Cal.App.2d 326, 308 P.2d 924, 309 P.2d 493, urged by the Commissioner as authority for the proposition that a federal nolo conviction by itself is a sufficient basis for disciplinary action, on similar grounds.
4. In this regard, the federal courts have chosen to follow the so-called “majority rule,” which views the nolo plea as a device designed to prevent private parties from using admissions in criminal cases as a basis for civil suits, but not to insulate the pleader from the adverse effects normally incident to a person's being labeled “convicted,” including the potential for civil administrative punishment. While it has been persuasively argued that the intention of the California Legislature, as evidenced by its various enactments and amendments regarding the nolo plea (discussed Infra ), was to follow this majority viewpoint (see, e. g., Comment, Nolo Contendere Its Use and Effect (1964) 52 Cal.L.Rev. 408), our Supreme Court has consistently ruled that absent explicit legislative mandate to the contrary, neither a nolo plea nor the resulting conviction may be used to impose administrative penalties under a statute that prescribes such sanctions following “convictions.” (Cartwright v. Board of Chiropractic Examiners (1976) 16 Cal.3d 762, 129 Cal.Rptr. 462, 548 P.2d 1134; In re Hallinan (1954) 43 Cal.2d 243, 272 P.2d 768.)
5. The guilty plea is admissible in a subsequent civil proceeding on the independent ground that it is an admission against interest (Evid. Code, s 1220). It does not, however, for the purposes of the later civil action, conclusively prove the commission of the acts alleged in the underlying information or indictment. (Teitelbaum Furs, Inc. v. Dominion Ins. Co., Ltd. (1962) 58 Cal.2d 601, 605, 25 Cal.Rptr. 559, 375 P.2d 439.) The weight and significance given the plea in determining whether or not to suspend or revoke a professional license is for the hearing officer (and, in an independent judgment case under Code Civ.Proc., s 1094.5, the trial court) to decide. (Arenstein v. California State Bd. of Pharmacy (1968) 265 Cal.App.2d 179, 191, 71 Cal.Rptr. 357.) Certainly, in a subsequent civil proceeding, under either the majority or minority view of the use of the conviction following a nolo plea (see fn. 3, Supra ), the same right to litigate the issues underlying a conviction had without trial should inure to the nolo pleader as it does to one who has pleaded guilty.
6. A plea of nolo contendere in the state courts was not permitted until the enactment in 1963 of Penal Code section 1016, subdivision (3). (Stats.1963, ch. 2128, p. 4418, s 1.)
7. Although these policy considerations could arguably be deemed irrelevant to the instant case on the grounds that a disciplinary proceeding is not a civil action, this distinction is too tenuous as the basis for a meaningful rationale.
8. Although we do not address whether the findings in this case were in violation of rule 232(e) precluding findings which merely refer to the truth or falsity of allegations contained in the pleadings (see Martin v. Baker (1974) 43 Cal.App.3d 1049, 118 Cal.Rptr. 238), our preference would be for the court to make its own findings to assure its independent judgment on the weight of the evidence and to guarantee that our attention will be properly focused. (Cont.Ed.Bar.Cal.Admin. Mandamus 1979 Supp., Procedure and Practice, s 15.26, p. 281.)
WIENER, Associate Justice.
COLOGNE, Acting P. J., and STANIFORTH, J., concur.