12/19/67 CLARENCE K. LUNDBORG, v. DIRECTOR OF THE DEPARTMENT
[Editor's note: footnotes (if any) trail the opinion]
[1] DISTRICT COURT OF APPEAL OF CALIFORNIA, FIRST APPELLATE
DISTRICT, DIVISION TWO
[2] CLARENCE K. LUNDBORG, Plaintiff and Respondent,
v.
[3] DIRECTOR OF THE DEPARTMENT OF PROFESSIONAL AND VOCATIONAL
[4] STANDARDS, Defendant and Appellant
[5] Civ. No. 24536
[6] 64 Cal. Rptr. 650, 257 Cal. App. 2d 141
[7] December 19, 1967
[8] APPEAL from a judgment of the Superior Court of the City and
County of San Francisco. Joseph Karesh, Judge.
[9] Appellant's Petition for a Hearing by the Supreme Court was
Denied February 14, 1968.
BLUE BOOK CITATION FORM: 1967.CA.1353 (http://www.versuslaw.com)
[10] APPELLATE PANEL:
[11] Taylor, J. Shoemaker, P. J., and Agee, J., concurred.
[12] STATEMENT OF THE CASE
[13] Proceeding in mandamus to set aside an order of the Director of
the State Department of Professional and Vocational Standards revoking a
private investigator's license.
[14] DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE TAYLOR
[15] This is an appeal by the Director of the State Department of
Professional and Vocational Standards, hereafter Director, from a
judgment ordering that a writ of mandate be issued to set aside his
order revoking the private investigator's license of Clarence K.
Lundborg, hereafter Lundborg. The Director contends that the superior
court erred in ruling that a prior civil judgment against Lundborg was
not res judicata as to the revocation and that, in any event, the trial
court erred in failing to remand the matter to the administrative agency
for reconsideration.
[16] The Bureau of Private Investigators and Adjusters (hereafter
Bureau), a division of the Department of Professional and Vocational
Standards (hereafter Department), is a statewide administrative agency
created by statute (Bus. & Prof. Code, § 7500, et seq.) having no
constitutionally conferred adjudicatory powers, and its decision is
subject to an independent weighing of the supporting evidence by the
trial court pursuant to section 1094.5 of the Code of Civil Procedure
(Sears, Roebuck & Co. v. Walls, 178 Cal. App. 2d 284, 288 [2 Cal. Rptr.
847]; Moran v. Board of Medical Examiners, 32 Cal. 2d 301, 308 [196 P.2d
20]).
[17] The facts are as follows. On July 28, 1964, the Bureau filed an
accusation charging that Lundborg had committed an act constituting
dishonesty or fraud in violation of sections 7551 and 7528, subdivision
(b), of the Business and Professions Code*fn1 (hereafter Code). On July
8, 1965, a hearing on the accusation*fn2 was held before a hearing
officer of the Office of Administrative Procedure, acting on behalf of
the Director, pursuant to section 11500, et seq. of the Government Code,
as provided for by sections 7530.5 and 7550 of the Code. At the hearing,
it was established that Lundborg had been licensed as a private
investigator since February 1951, with the most recent renewal of his
license occurring on March 7, 1962.
[18] Mrs. Marjorie Opal Flannery (hereafter Marjorie) testified that
in 1960 and 1961, she was known as Marjorie Walbrecht and was dating Mr.
Lundborg. In October 1960 they discussed marriage and decided they did
not need two homes. Accordingly, she sold her home in Redwood City,
moved some of her furniture into Lundborg's home, and moved into an
apartment. After Marjorie decided to invest the proceeds of the sale of
her home in a duplex, on advice of her attorney, Lundborg indicated that
an investment in his school for private detectives, the Lundborg
Institute, would be a better investment. He showed her the pamphlets and
brochures of the school, as well as its new location in larger quarters
in the Masonic Building on Van Ness, and explained that he needed the
money for the expansion. He indicated that the Institute was then doing
very well and had a branch in Redwood City as well as another out of
state.
[19] Thereafter, against the advice of her own attorney, Marjorie
sold the duplex and transferred $ 5,000 of the proceeds to Lundborg's
account. He wished the transaction to be a loan and executed a
promissory note to her for $ 5,000. Subsequently, she ordered some
stereo equipment for Lundborg's use in his Institute. However, when he
indicated he was more in need of $ 830 cash, she cancelled the order
for the stereo equipment and gave him the $ 830. In February 1961 she
gave him $ 150 he needed to make his child support payments. By this
time, the relationship had cooled and they ceased to see each other
after February 1961. After Lundborg's bankruptcy in January 1962, she
sued Lundborg on his promissory note for $ 5,000 in a civil action in
San Mateo County and went bankrupt herself.
[20] At the conclusion of her testimony, the Attorney General offered
into evidence a certified copy of the complaint, findings of fact,
conclusions of law, and final judgment filed March 20, 1963, in the San
Mateo action, wherein the court found that Lundborg had obtained the
sums from Marjorie by false representations and false pretenses and
entered a judgment in her favor for $ 7,908, of which $ 5,830
represented the moneys she had loaned him.*fn3
[21] Lundborg did not object to the admission of these documents in
the administrative hearing. During the ensuing discussion of their
significance, the hearing officer expressed his "feeling" that he was "a
little inclined to think" that the doctrine of res judicata barred
Lundborg from contesting the allegation that he had committed an act of
dishonesty or fraud. Lundborg's attorney (not the same counsel now
representing him), agreed that the hearing officer was bound by the
judgment, announced his intention to limit his case to facts in
mitigation of the offense, and stated that his conversations with the
Attorney General indicated that the hearing officer was bound by the
final civil judgment. The hearing officer's subsequent remarks (set
forth in full below)*fn4 indicate that the remainder of the hearing was
conducted on this basis.
[22] Lundborg offered testimony concerning his school and his
relationship with Marjorie, which substantially corroborated her
testimony except that he had not seriously mentioned marriage to her as
he was not in a financial position to do so after his divorce. In
response to a question from the hearing officer, Lundborg indicated he
had paid $ 460 to the attorney on the San Mateo judgment and was
negotiating a settlement pending the outcome of the administrative
hearing.
[23] On July 19, 1965, the Director issued a decision ordering the
revocation of Lundborg's license as of August 16, 1965. Thereafter,
Lundborg filed his petition for a writ of mandate pursuant to section
1094.5 of the Code of Civil Procedure. The court, in considering oral
and written evidence on the matter, including the transcript of the
administrative hearing, exercised its right to independently reweigh the
evidence, and held that the Director had prejudicially abused his
discretion and acted in excess of his jurisdiction in proceeding on the
basis that the civil judgment obtained by Marjorie was res judicata. The
court found that Lundborg had not committed an act of dishonesty or
fraud as his relationship to Marjorie was personal, social and in
contemplation of marriage. Thus, the court issued its peremptory writ of
mandate setting aside the Director's decision ordering the revocation of
Lundborg's license, and this appeal ensued.
[24] We turn to the major question on appeal, namely, the propriety
of the ruling that the hearing officer erred in concluding that in the
license revocation proceedings, the doctrines of res judicata and
collateral estoppel applied to the prior civil judgment.
[25] On this appeal, as in the proceedings below, both parties
discuss at great length the doctrine of res judicata and its corollary,
collateral estoppel, as enunciated in Bernhard v. Bank of America, 19
Cal. 2d 807, 810 [122 P.2d 892], and Teitelbaum Furs, Inc. v. Dominion
Ins. Co., Ltd., 58 Cal. 2d 601, 604 [25 Cal. Rptr. 559, 375 P.2d 439],
and the limitations on the application of the Bernhard decision
discussed by the late Brainerd Currie, 9 Stanford Law Review, 281. While
we have been duly enlightened by this discussion of counsel on both
sides, we, like the learned trial court, have not found it fruitful or
helpful to the resolution of the instant case.
[26] We think that the trial court properly ruled that the doctrines
of res judicata and collateral estoppel cannot be invoked as a
determination of the efficacy of the charge in the present hearing. It
has long been established that exoneration in a prior civil action or
acquittal in a criminal proceeding is not res judicata in subsequent
administrative license proceedings (Saxton v. State Board of Education,
137 Cal. App. 167, 170 [29 P.2d 873]; Bold v. Board of Medical
Examiners, 135 Cal. App. 29 [26 P.2d 707]). While the considerations
here are somewhat different, the cited cases nevertheless recognize the
general proposition that these doctrines do not fit into the purpose of
license revocation proceedings (Ready v. Grady, 243 Cal. App. 2d 113,
116 [52 Cal. Rptr. 303]).
[27] Our view is confirmed by Title v. Immigration & Naturalization
Service (9th Cir. 1963) 322 F.2d 21, which held that a prior
denaturalization proceeding was not res judicata of the fact of the
petitioner's Communist Party affiliation in a subsequent deportation
proceeding. Although the holding was in part based on differential proof
requirements of such membership in the statutes applicable to the
respective proceedings, the court's general reasoning is sound and
pertains here. The court stated that the doctrine of collateral estoppel
should not have been invoked as, in effect, it deprived the petitioner
of the hearing guaranteed him in the deportation procedure, and
continued at page 24: "We recognize that the purpose of the doctrines of
res judicata and collateral estoppel is to preclude the relitigation of
issues previously determined between the same parties and that the
application of the doctrines in many cases will have the practical
effect of preventing the party against whom the issue was determined
from again presenting evidence on that issue. We merely hold that
Congress has evinced its intention that an alien have a right to present
evidence at a hearing held for the purpose of determining his
deportability." (Italics added.)
[28] Similarly here, the hearing officer's application of the
doctrine and his limited consideration of the evidence deprived Lundborg
of the full and fair hearing required by the statute. Although license
revocation is not a criminal sanction, it is in the nature of a penalty
in that it deprives the subject of the right to practice his profession.
Precisely because of the seriousness of the loss of livelihood, the
scope of the hearing and the trial court review for proceedings of this
kind is exceedingly broad (Bernstein v. Board of Medical Examiners, 204
Cal. App. 2d 378, 385 [22 Cal. Rptr. 419]; Moran v. Board of Medical
Examiners, 32 Cal. 2d 301, 302 [196 P.2d 20]).
[29] The Director, however, argues that the revocation of Lundborg's
license on the basis of the prior civil judgment is authorized by
sections 7528, subdivision (b), and 7551, subdivision (l) of the Code.
(See fn. 1.) He points out that the statutes, as originally enacted in
1947 (Stats. 1947, § 7551, subd. (e), the predecessor of § 7553.2)
provided for disciplinary action against licensed private investigators
who commit "any act in the course of the licensee's business
constituting dishonesty or fraud" and that in 1949, the statute was
amended by the addition of a section providing for disciplinary action
against any private investigator who commits an act which is a ground
for denial of an application for license under that chapter, and that
under section 7528, subdivision (b), "any act constituting dishonesty or
fraud" is a ground for such denial.
[30] He contends that by this addition, the Legislature clearly
intended the enlargement of disciplinary authority to encompass
fraudulent acts committed outside the licensee's business. He contends
further that such authority is essential to the object of the act which
is to insure beyond question the integrity, professional and otherwise,
of private investigators whose business necessarily depends on a certain
amount of clandestine activity and whose duties at times are similar to
those of law enforcement officers. He argues that to fully protect the
public, he must have the power to discipline licensees who do not adhere
to the highest standards of conduct in all of their relationships. He
concludes that the dishonesty or fraud required need not be sufficient
to support a criminal conviction (Wayne v. Bureau of Private
Investigators & Adjusters, 201 Cal. App. 2d 427, 430 [20 Cal. Rptr.
194]) and that a prior civil judgment is a sufficient basis for the
revocation of a license (Denny v. Watson, 114 Cal. App. 2d 491 [250 P.2d
692]; Murrill v. State Board of Accountancy, 97 Cal. App. 2d 709 [218
P.2d 569]).
[31] The authorities cited, however, do not support the Director's
position. In Denny v. Watson, supra (a revocation proceeding involving
the State Board of Real Estate Examiners), the applicable statute
relating to the licensing of real estate brokers (Bus. & Prof. Code, §
10177.5), specifically provided that the commissioner may, after a
hearing, suspend or revoke the license of any licensee whenever a final
judgment is obtained in a civil action against him on grounds of fraud,
misrepresentation or deceit with reference to any transaction for which
a license is required. The statute here in question does not provide
that a civil judgment based on fraud is a ground for revocation or
suspension, nor does it so limit the acts of dishonesty or fraud to
transactions within the business licensed.
[32] Murrill v. State Board of Accountancy, supra, is likewise of no
help to the Director as it involved a statute providing that a
revocation of an accountant's license could be based on a prior
conviction of any crime, an essential element of which was dishonesty,
deceit or fraud. Certainly, if the Legislature had intended a prior
civil judgment to be of such effect in the case of private
investigators, it would have specifically so provided. (See also
Richards v. Gordon, 254 Cal. App. 2d 735 [62 Cal. Rptr. 466].)
[33] We note that blanket descriptive provisions in licensing
statutes, similar to that in the instant case relating to acts outside
the licensee's business, have been severely criticized in recent years
(18 Stan.L.Rev. 640, and 14 Stan.L.Rev. 533, 536-539.)5 Such blanket
provisions are distinguishable from those where the Legislature has
specifically prescribed acts of dishonesty or fraud in the licensee's
business as a basis of discipline.6 Also to be distinguished are those
cases where the hearing officer's application of collateral estoppel in
making a determination of fraud can be based on a clear statutory
provision, as in Denny, Murrill and Richards. We conclude that where a
statute encompasses conduct outside the licensee's business, and makes
no reference to the effect of a prior civil or criminal judgment, the
hearing officer should carefully weigh all pertinent facts and
circumstances, both in the determination of the nature and significance
of the alleged misconduct and in its bearing on the fitness of the
licensee to carry on his business or profession. The record here
indicates that all of the evidence was considered solely on the issue of
mitigation.
[34] Since the Director, in the exercise of his discretion, has given
only limited application to the facts surrounding Lundborg's
relationship with Marjorie, he has committed an error of law and has not
conducted a proper hearing. Thus, the matter must be remanded to him for
a rehearing (Kramer v. State Board of Accountancy, 200 Cal. App. 2d 163,
176-177 [19 Cal. Rptr. 226]; National Auto & Cas. Ins. Co. v. Downey, 98
Cal. App. 2d 586 [220 P.2d 962]; Cooper v. State Board of Medical
Examiners, 35 Cal. 2d 242 [217 P.2d 630, 18 A.L.R.2d 593]). The judgment
is reversed with directions to the trial court to remand the proceeding
to the Director for a rehearing and redetermination of what discipline,
if any, should be imposed in the light of this opinion. Respondent is
given his costs on appeal.
[35] CASE RESOLUTION
[36] Reversed with directions. Judgment for plaintiff reversed with
directions.
***** BEGIN FOOTNOTEHERE *****
[37] *fn1 Section 7551, subdivision (l) provides, so far as
pertinent, that the Director may suspend or revoke a license if the
licensee has committed any act that would be grounds for denial of an
application for a license. Section 7528, subdivision (b) lists as one of
the grounds for denial of a license the commission of "any act
constituting dishonesty or fraud."
[38] *fn2 The accusation as originally filed also charged an act
constituting dishonesty or fraud in the course of Lundborg's business as
a private investigator pursuant to section 7553.2 of the Code. At the
inception of the hearing, it was made clear that the accusation was
based solely on an act occurring outside the business.
[39] *fn3 Although Lundborg had been adjudicated bankrupt, Marjorie's
claim against him was preserved by section 17 of the Bankruptcy Act,
which prohibits the discharge in bankruptcy of obligations incurred by
"false pretenses or false representations" (11 U.S.C.A. § 35, subd. (a),
subpar. (2)).
[40] *fn4 "Hearing Officer: I would never cut off the respondent from
offering evidence in mitigation. After all, there is a vast difference
from a reprimand to a revocation or some form of probationary orders or
anything else, even assuming he would be guilty. But I was inclined to
think I'm stuck on this. I don't like to -- I'm stuck with them.
[41] "Mr. Walston: I think it is true, Mr. Hearing Officer. I think
it should also be pointed out that while the respondent does have the
opportunity to have mitigation, I don't think this mitigation should be
admissible actually to impeach the findings there were false
misrepresentations.
[42] "Hearing Officer: No. But the mitigation is to the measure of
discipline, if any, to be imposed. He can get on the stand and give his
version, and certainly I'm bound by the judgment. If it colors it in any
way favorably in his light, I don't have to revoke his license, if you
want me to put it that crudely. I didn't say I was going to, anyhow, but
it's a kind of hard thing to do, but I think he is entitled, under the
Administrative Procedure Act, to present anything by way of mitigation
if it indirectly or collaterally affects the judgment. Well, so what? So
be it."
[43] *fn5 As another perceptive critic has pointed out, good
character is undoubtedly desirable in everyone, whether under license or
not. But to expose everyone's occupational future to some official's
appraisal of his moral soundness is quite another thing, and should not
be permitted unless it has a distinct relevance to the subject matter of
the license (W. Gellhorn, Individual Freedom and Government Restraints,
ch. 3, The Right to Make a Living, p. 129.)
[44] *fn6 For example, in Taylor v. Bureau of Private Investigators,
128 Cal. App. 2d 219, this court affirmed the temporary suspension of
the license of a private investigator where section 7551, subdivision
(e) then permitted suspension or revocation of a licensee who
"[committed] any act in the course of the licensee's business
constituting dishonesty or fraud" and where the licensee had stated that
he was representing the insurance company concerned when, in fact, he
was representing the party adverse to the interests of the company.
Wayne v. Bureau of Private Investigators & Adjusters, 201 Cal. App. 2d
427 [20 Cal. Rptr. 194], and Denny v. Watson, supra, also involved
similar kinds of deception practiced in the course of the particular
business licensed.
***** END FOOTNOTEHERE *****
[Editor's note: Illustrations from the original opinion, if any, are
available in the print version]
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19671219
1967.CA.1353