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06/27/89 J.P. Schermerhorn Et Al., v. the Department of

June 27, 1989

J.P. SCHERMERHORN ET AL., PLAINTIFFS-APPELLANTS

v.

THE DEPARTMENT OF REGISTRATION & EDUCATION ET AL., DEFENDANTS-APPELLEES



APPELLATE COURT OF ILLINOIS, FIRST DISTRICT, SECOND DIVISION

542 N.E.2d 42, 185 Ill. App. 3d 883, 134 Ill. Dec. 42 1989.IL.998

Appeal from the Circuit Court of Cook County; the Hon. Sophia Hall, Judge, presiding.

APPELLATE Judges:

JUSTICE SCARIANO delivered the opinion of the court. HARTMAN and DiVITO, JJ., concur.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE SCARIANO

The Illinois Department of Registration and Education (Department) found plaintiffs guilty of commingling funds held in a property management trust for the benefit of others, fined them $2,500, and placed their real estate licenses on probation for two years for having contravened certain provisions of the Real Estate License Act of 1983 (Ill. Rev. Stat. 1983, ch. 111, par. 5801 et seq.). On administrative review, the circuit court affirmed. Plaintiff now appeals, and the issue on review is whether the decision of the Illinois Department of Registration and Education was against the manifest weight of the evidence.

The Department brought a two-count complaint against plaintiffs alleging that they had violated section 18(e)(12)(Ill. Rev. Stat. 1983, ch. 111, par. 5818(e)(12)) and requested the State Real Estate Administration and Disciplinary Board (Board) that the real estate broker's licenses of John P. Schermerhorn and the corporate real estate license of J.P. Schermerhorn & Co. (the company) be suspended, revoked, or that other appropriate discipline be imposed. The charges were (1) that plaintiffs had commingled funds held in a property management trust for the benefit of others, and (2) that plaintiffs refused to rent an apartment to a prospective tenant because he was black. The Board issued findings of fact and Conclusions of law, finding plaintiffs guilty of the commingling charge, but not guilty of the second charge. Plaintiffs have been represented throughout all of these proceedings by attorney Ross Welch.

Gilbert Lynn, chief audit supervisor for the Department, audited the books of plaintiff company and discovered that $75,000 had been withdrawn from the company's property management account and placed in a commercial paper investment in the name of J.P. Schermerhorn & Co. The company offered property management services to its customers and maintained a management account wherein monies collected in the course of rendering those services were deposited and held in trust. Lynn's audit further revealed that by taking funds from its property management account and investing them in commercial paper in the company's name, such investment had earned approximately $33,000 in interest from 1980 through 1983. Plaintiffs deposited the interest so earned into the company's operating account and credited it as interest income; the commercial paper investment was recorded as cash in its property management account.

In response to Lynn's inquiry as to whether their clients had consented that plaintiffs purchase investments with their money and retain the interest earned, plaintiffs produced a letter, which they claimed had been sent to the affected clients and which they also claimed constituted their clients' assent that the company retain as its own the interest earned by the management account:

"As we discussed for the real estate tax reserve account we will maintain a minimum amount each month to have on hand the total amount of taxes when they are due and payable through John Luecker.

The bank has informed us that they are in a position to purchase commercial papers for these large reserves and the interest to be credited to our account. This information is to let you know that the interest earned by us will be used by us to maintain this account at all times . . .."

According to this letter, Lynn testified, the interest earned on the investment should have been deposited into the company's tax account for property management customers and not in the company's operating account.

Further, after the Department requested plaintiffs to furnish a clear and accurate breakdown of the ownership of the $75,000, plaintiffs sent the Department an affidavit stating that, notwithstanding the contents of the letters they sent to their clients, the $75,000 belonged entirely to Ross Welch, one of the property management account owners and the attorney for plaintiffs in this case. The affidavit further stated that Welch had consented to the company's use of his money. But when Lynn interviewed Welch regarding the contents of plaintiffs' affidavit, Welch had no recollection of having granted such consent. Welch later informed Lynn that any interest earned on his money was insignificant. Plaintiff J.P. Schermerhorn testified at the hearing that his attorney, Welch, owned the money taken from the property management account to purchase the commercial paper in the company name and had given his oral consent to its use.

The Board found, and the circuit court affirmed, that this arrangement constituted a commingling of funds for the reason that J.P. Schermerhorn & Co. received interest income on money it did not own, that the persons whose money was invested were deprived of its use, and that plaintiffs meanwhile received the benefits of the interest income from ...


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