CEO 95-28 -- October 13, 1995

CONFLICT OF INTEREST

COUNTY PROPERTY APPRAISER LICENSED AS

CERTIFIED APPRAISER SIGNING PRIVATE REAL ESTATE

APPRAISALS PREPARED BY REGISTERED APPRAISER

To: J. Hal Chewning, Jr., Dixie County Property Appraiser (Cross City)

SUMMARY:

A prohibited conflict of interest exists where a county property appraiser signs real estate appraisals prepared by a registered appraiser, in his private capacity as a certified residential appraiser, concerning property located in the county. Under Section 112.313(7)(a), Florida Statutes, the county property appraiser would hold a contractual relationship with the clients for whom the appraisals are prepared. Under Florida law, property appraisal is a regulated field, a licensed or certified appraiser's review and signature are indispensable to the issuance of appraisals by registered appraisers, and registered appraisers are held to be acting under the supervision of the licensed or certified appraisers who review and sign their work. CEO's 88-1, 80-29, and 76-21 are referenced.

QUESTION:

Does a prohibited conflict of interest exist under Section 112.313(7)(a), Florida Statutes, where a county property appraiser signs real estate appraisals done by a registered appraiser, in his private capacity as a certified residential appraiser, concerning property located in the county?

Your question is answered in the affirmative.

By your letter of inquiry and additional information provided to our staff, we are advised that you serve as Property Appraiser of Dixie County, having been appointed by the Governor on May 1, 1995 due to the retirement of your predecessor. In addition, you advise that your wife is the owner and sole proprietor of Chewning Realty & Appraisal Services (hereinafter "Business"). Further, you advise that the Business engages in real estate brokerage and the private appraisal of real estate in Dixie County and surrounding counties, with the brokerage aspects of the Business being operated under your wife's real estate broker's license, your broker's license having been placed by you in an inactive status with the Division of Real Estate immediately after your appointment as Property Appraiser.

In addition, you advise that you also are licensed as a certified residential appraiser, and that this certification "is active and assigned to [the Business]." In regard to this certification and related matters we are advised as follows:

[You] have been licensed as a certified residential appraiser for approximately 4 1/2 years. [Y]ou have been licensed as a real estate broker/appraiser since 1984. When the new certification law became effective, [you] immediately completed the necessary schooling and became licensed as a certified residential appraiser.

[Your] wife is a licensed real estate broker and registered appraiser. Under the current law, after a person is licensed as a registered appraiser, he or she must work under the supervision of a certified appraiser for two years before being eligible to take the examination for certified appraiser. Thus, each appraisal prepared by a registered appraiser must be signed by a certified appraiser. It is not necessary for the supervisory appraiser to visit the site or have any involvement with the preparation of the appraisal. The standard form contains a space where the supervisory appraiser states that he either did or did not visit the site. [Your] wife has been a registered appraiser for approximately one year and, thus, it is necessary that all appraisals prepared by her be signed by a certified appraiser.

In regard to your relationship with the Business and related matters, we are advised:

The [Business] was operated under [your] real estate broker['s] license but, because [you were] City Manager of Cross City, [you] played no part in the operation of said business and it always was operated by [your] wife who also had a real estate broker license. The only reason the [B]usiness was operated under [your] broker['s] license was because [you] obtained [your] license before [your] wife [obtained hers]. [You] have never received any money or payment from the operation of [the Business]. The only act [you] performed in connection with the operation of the [B]usiness was the ministerial act of signing appraisals prepared by [your] wife because she was not yet qualified as a certified appraiser.

[The Business] is a sole proprietorship owned by [your wife]. [Your] only interest is in the real property on which the [B]usiness is located.

[You have] no interest in the business, [your] only interest is in the real property on which the [B]usiness is located.

[Your] residential appraiser certification is active and assigned to [the Business]. [You] hold no office or position [in the Business,] beyond the fact that [your] appraiser's certification is attached or assigned to the business owned by [your] wife.

Clients hire and/or retain the [B]usiness as an entity. [Your wife] is the only broker/appraiser hired and/or retained. [You have] separated [yourself] from the [B]usiness completely, the only exception being the ministerial act of signing appraisals that are done by [your] wife . . . It is [your] practice to sign blind copies[,] checking only for compliance with standards.

As of May 1, 1995, [your] name has been removed from [the Business'] letterhead, office signs, and any and all advertising for the [B]usiness. The [B]usiness documents state that [your wife] is the broker/owner and appraiser of record.

In regard to the "assignment" of your certification to the Business referred to in the written information submitted to us, we are advised, via a telephone conversation between an attorney acting in your behalf and our staff, that you receive no money, pay, or other consideration for the "assignment," and that, in reality, the "assignment" consists of your gratuitously signing off on your wife's appraisals.

In regard to any possible overlap between your public duties as Property Appraiser and the operations of the Business, we are advised:

[You and your wife] live in a small community and [you do], on occasion, meet [your] wife's customers on the street, or even in the courthouse when they are conducting their personal business. No interaction occurs [between you and your wife's clients] as pertaining to the private business between [your wife] and her brokerage/appraisal clients.

No disputes of any kind are pending [between any clients of the Business and the Property Appraiser's Office]. It is possible that both [you, in your public capacity,] and [your wife, in her private business capacity,] may deal with the same people on some occasions, but when a client hires an independent fee appraiser for whatever reason, that appraisal when completed and delivered to the client, it is his or her personal property and it's [sic] contents cannot be revealed except by the client who owns the appraisal unless express permission is granted. Therefore, [you], as Dixie County Property Appraiser, would have no knowledge of the private business of [your wife's] firm or any other appraisal firm for that matter.

[You] would not have occasion to scrutinize or review an appraisal signed off on by [yourself in your private capacity,] in [your] official capacity as Dixie County Property Appraiser. When [you] signed off on an appraisal generated by [your] wife's [B]usiness, [you] reviewed the mechanism's [sic] of the process used to arrive at a value. The basis for review is to ensure compliance with the URAR Standards not to second guess the conclusions reached by the appraiser completing the report.

The [P]roperty [A]ppraiser has no public duty regarding private appraisals because private appraisals are private. Private appraisals could possibly become an issue for the [C]ounty [P]roperty [A]ppraiser only if a property owner commissioned a private appraisal for the purpose of contesting the [C]ounty [P]roperty [A]ppraiser's value for tax purposes. From a personal and ethical standpoint, [you] would not allow the private work of [your] wife or her firm to become an issue if a valuation were contested. If this were to come up, [you] would take the steps necessary to ensure that the public trust is not violated and that both sides of the issue are fully heard by a recognized, uninterested party.

A client of the [B]usiness may have occasion to visit the [P]roperty [A]ppraiser's office if [he] or she is a property owner in Dixie County. It is not necessary to visit the [P]roperty [A]ppraiser's office in order to file for homestead exemption or agricultural classification. These may be applied for through the mail, but it is possible that a person who has been a client of the [B]usiness may visit the [P]roperty {A]ppraiser's office in person.

Further, you advise that clients of the Business would not be "regulated" by the Property Appraiser's Office, beyond merely being property owners in the County whose property, along with all other property in the County, is valued by the County Property Appraiser.

Section 112.313(7)(a), Florida Statutes, provides:

CONFLICTING EMPLOYMENT OR CONTRACTUAL RELATIONSHIP.--No public officer or employee of an agency shall have or hold any employment or contractual relationship with any business entity or any agency which is subject to the regulation of, or is doing business with, an agency of which he is an officer or employee . . .; nor shall an officer or employee of an agency have or hold any employment or contractual relationship that will create a continuing or frequently recurring conflict between his private interests and the performance of his public duties, or that would impede the full and faithful discharge of his public duties.

This first part of this statute would prohibit your holding employment or a contractual relationship with a business entity that is subject to the regulation of, or that is doing business with, the Dixie County Property Appraiser's Office. The second part of this statute would prohibit your holding any employment or contractual relationship, regardless of whether or not it is with a business entity that is regulated by or that is doing business with the Property Appraiser's Office, if the employment or contractual relationship would create a continuing or frequently recurring conflict between your private interests and the performance of your public duties or would impede the full and faithful discharge of your public duties.

In CEO 88-1, we found that a prohibited conflict of interest would be created under the second part of Section 112.313(7)(a) were employees of a county property appraiser to engage in private real estate appraisals of property located in the county, reasoning that appraisals of property in the county could be used as a basis for challenging the property appraiser's official appraisal and reasoning that the employees would be tempted to privately use information gained by reason of their public positions and not available to the general public. Therefore, following our reasoning set forth in CEO 88-1, we find that a prohibited conflict of interest exists under the second part of Section 112.313(7)(a), where you review and sign, in your capacity as a certified appraiser, appraisals written by your wife in her capacity as a registered appraiser, concerning property located in the Dixie County.

In making this finding, we are not unaware that, unlike the situation underlying CEO 88-1 in which there was no issue as to whether the employees of the property appraiser held employment or a contractual relationship, as the employees were "employed" or held "private employment in appraising property located in the County," your situation presents the issue of whether you hold any "employment" or any "contractual relationship" by virtue of your role in relation to appraisals done by your wife, as the holding of employment or a contractual relationship is an essential element of Section 112.313(7)(a), without the existence of which a violation of the statute will not exist.

We previously have construed the holding of employment to necessarily involve pay or other tangible compensation. See, for example, CEO 76-21 and CEO 80-29. Under your scenario, you are not receiving pay or other tangible compensation in exchange for your signing off on your wife's appraisals, other than that which might be said to flow from the general financial gain to your household occasioned by your wife's acquisition of income via her appraisal business. In addition, we have, by necessity, adopted the substantive law of contract in our construction of the meaning of the term "contractual relationship." Further, a contract is generally defined as

[a]n agreement between two or more persons which creates an obligation to do or not to do a particular thing. Its essentials are competent parties, subject matter, a legal consideration, mutuality of agreement, and mutuality of obligation. [Citations omitted, emphasis supplied.] [Black's Law Dictionary, Fifth Edition (1979), at 291, 292.]

While your wife certainly has employment with the Business and while she has a contractual relationship with its appraisal customers, her contractual status with the Business and its customers does not preclude your also having a contractual relationship with those same customers. The existence of a contractual relationship between you and the appraisal clients is based upon the reasoning of Florida's substantive caselaw of contract dealing with regulated occupations or professions, Florida's substantive statutory law regulating appraisers, and administrative rules promulgated thereunder--law and regulation which refines and supersedes the general definition of "contract" set forth above.

In making our determination of the existence of a contractual relationship between you and the appraisal clients, we acknowledge that we are aware of no controlling caselaw that specifically holds that a certified appraiser such as yourself, acting in a supervisory role over a registered appraiser, has a contractual relationship with clients who purchase appraisals from the registered appraiser's business, where the certified appraiser does not interact face-to-face with the clients, does not make express agreements with the clients, and is not paid for his professional services by the clients or by the registered appraiser. Nevertheless, we are persuaded that our determination of the existence of a contractual relationship between you and the clients is based upon sound reasoning flowing from statutory law concerning appraisers, administrative rules promulgated thereunder, and caselaw concerning regulated occupations or professions.

To begin with, we note that Chapter 475, Part II, Florida Statutes, titled "Appraisers," provides in part:

'Appraisal' or 'appraisal services' means the services provided by certified, licensed, or registered appraisers . . . . [Section 475.611(1)(a), Florida Statutes.]

'Certified residential appraiser' means a person who is certified by the department as qualified to issue appraisal reports for residential real property of one to four residential units, without regard to transaction value or complexity, or real property as may be authorized by federal regulation. [Section 475.611(1)(h), Florida Statutes.]

'Registered appraiser' means a person who is registered with the department as qualified to perform appraisal services under the supervision of a licensed or certified appraiser. [Section 475.611(1)(l), Florida Statutes.] [Emphasis supplied.]

In addition, Chapter 61J1-7, Florida Administrative Code, a portion of the rules of the Florida Real Estate Appraisal Board, provides in part:

61J1-7.006 Signatures on appraisal Report. Whenever a registered appraiser signs an appraisal report, the registered appraiser's primary or secondary supervising licensed or certified appraiser(s) must also sign the appraisal report. (annotations omitted.)

61J1-7.007 Employment of Registered Appraisers.

(1) A person who is a registered appraiser shall perform appraisal services under the supervision of one licensed or certified appraiser who will be designated as the primary supervisor. The primary supervisor may also designate additional licensed or certified appraisers as secondary supervisors. The secondary supervisors(s) must be affiliated with the same firm or business as the primary supervisor and either the primary or secondary supervisor must have the same business address as the registered appraiser. The registered appraiser must notify the Department of Business and Professional Regulation of the name and address of the designated primary and secondary supervisor, if any, for whom the registered appraiser will preform [sic] appraisal services. The registered appraiser must also notify the Department of Business and Professional Regulation within ten (10) days of the registered appraiser and primary supervisor terminating their relationship. Termination of the relationship with the primary supervisor will automatically terminate the relationship with the secondary supervisor(s). . . .

(2) A registered appraiser may not receive payment directly from the recipient of the appraisal report, unless the primary supervising licensed or certified appraiser is aware of and agrees to the payment arrangement. (annotations omitted.)

From the statutes and rules concerning appraisers, including those set forth above, it is apparent that property appraisal is a regulated endeavor under Florida law and that a registered appraiser cannot legally ply his or her trade outside of the supervision of a licensed or certified appraiser such as you. Thus, because a supervising appraiser's licensure and participation are essential to the production of appraisals through a registered appraiser under Florida's regulatory scheme for appraisers, your situation is analogous to that found by the State's Third District Court of Appeal to support a contractual cause of action against an insurance agent under whose licensure a client's or customer's insurance business was conducted. See Patek v. Associated Insurance Underwriters, Inc., 160 So. 2d 721 (Fla. 3rd DCA 1964), in which the court reversed a directed verdict in favor of an individual defendant (insurance agent) under a breach of contract cause of action and remanded the case for a new trial as to the contractual liability of the insurance agent personally to the plaintiff (a purchaser of insurance). In the original trial of that matter, the insurance agency (corporation) also was sued in contract and the jury returned a verdict in favor of the plaintiff. The court's opinion in Patek reads in part:

Byron Patek filed an action in the circuit court against Associated Insurance Underwriters, Inc. and Peter J. Kelly for damages for breach of contract to supply certain marine insurance. On trial of the case before a jury[,] the plaintiff won a verdict against the defendant corporation for $19,500, and a verdict was directed in favor of the defendant Kelly. This appeal by the plaintiff involves the latter ruling. The appellant contends the question of Kelly's liability, like that of the corporation, should have been presented to the jury because the licensed agency held by Kelly was the basis for the transaction of the business, with the result that the corporation was acting under and as agent of the agency holder, Kelly.

Kelly was a duly licensed lines agent under the Florida Insurance Code, Chapter 626, Fla. Stat., F.S.A. He chose to exercise his agency through the corporation, of which he was a member and officer. The corporation was not, and under the statute could not be so licensed as agent. * * * * * We must agree with the contention of the appellant that the liability for which the corporation was held could extend to Kelly individually, because Section 626.0111(3) appears to place responsibility on such an agent with respect to business transacted by a solicitor under his license. [Emphasis supplied.]

Therefore, based upon Patek, and the nature of the State's appraiser licensure scheme, which requires a registered appraiser to work under the supervision of a licensed appraiser or a certified appraiser, we find that a certified appraiser who supervises a registered appraiser has a contractual relationship with persons who purchase appraisals from the registered appraiser. For purposes of the existence of a contractual relationship, we do not see any material difference between insurance transacted under one's license and an appraisal issued under one's license or certification.

Additionally, the language of rule 61J1-7.007(2), conditioning a registered appraiser's receipt of payment directly from the recipient of an appraisal report upon the supervising licensed or certified appraiser's agreement to the payment arrangement, supports the view that supervising appraisers, such as yourself, are at least impliedly involved in the contract with the appraisal client.

Further, we emphasize that our finding of the existence of a contractual relationship has nothing at all to do with the fact that you happen to be married to the registered appraiser whose appraisals you review and certify. Under substantive law, your contractual relationship with the clients is grounded in your participation in the appraisal process and, thus, facts or issues such as whether you are married to the registered appraiser, whether you benefit vicariously from her financial success, or whether marriage, per se, is a contractual relationship are all irrelevant to our analysis of the existence of a contractual relationship on your part.

In addition, we caution you that any actual use or disclosure by you of information gained by reason of your official position and not available to the general public, for the private benefit of the Business or any other private person or entity, would violate Sections 112.313(8) and 112.313(6), Florida Statutes, which provide respectively:

DISCLOSURE OR USE OF CERTAIN INFORMATION.--No public officer, employee of an agency, or local government attorney shall disclose or use information not available to members of the general public and gained by reason of his official position for his personal gain or benefit or for the personal gain or benefit of any other person or business entity.

MISUSE OF PUBLIC POSITION.--No public officer, employee of an agency, or local government attorney shall corruptly use or attempt to use his official position or any property or resource which may be within his trust, or perform his official duties, to secure a special privilege, benefit, or exemption for himself or others. This section shall not be construed to conflict with s. 104.31.

For purposes of this provision, the term "corruptly" is defined as follows:

'Corruptly' means done with a wrongful intent and for the purpose of obtaining, or compensating or receiving compensation for, any benefit resulting from some act or omission of a public servant which is inconsistent with the proper performance of his public duties. [Section 112.312(9), Florida Statutes.]

Accordingly, we find that a prohibited conflict of interests exists under Section 112.313(7)(a), Florida Statutes, where you sign off on appraisals prepared by a registered appraiser concerning property located in your county.

ORDERED by the State of Florida Commission on Ethics meeting in public session on October 12, 1995, and RENDERED this 13th day of October, 1995.

__________________________

William J. Rish

Chairman