Department of Housing & Community Development v. Hoffman

KRAUSER, Judge. Arthur Hoffman, appellee, was employed as an real estate appraiser by the Maryland Department of Housing and Community Development (“the Department”), appellant. That employment ended when the Department learned from a recent decision of this Court, Hoffman v. Stamper, 155 Md. App. 247 , 843 A.2d 153 (2004) (Hoffman I), 1 that Hoffman had participated in a “flipping” 2 scheme, before he joined the Department. The scheme involved fraud and conspiracy to defraud, as well as violations of the Consumer Protection Act 3 and “ethical codes and uniform standards governing appraisers.” Id. at 301 n. 13, 843 A.2d 153 .

To be more specific, he was judicially found to have violated the former by materially misrepresenting in his appraisals the value of what were falsely claimed by his co-conspirators to be “rehabbed” properties and the latter by knowingly destroying records of appraisals. Challenging his termination on several different grounds, 4 appellee filed an administrative appeal. When his discharge ⁷¹⁹ was upheld by an administrative law judge (“ALJ”) of the Office of Administrative Hearings, he petitioned the circuit court for judicial review. But, in doing so, he did not dispute any of the ALJ’s findings of fact, nor did he question whether his misconduct warranted termination.

Instead, he confined his attack to one issue: the timeliness of the Department’s actions. The Department, Hoffman asserted, had failed to discharge him within thirty days of having “acquire[d] knowledge” of his misconduct, as mandated by Md.Code (1993, 2004 Repl.Vol.), § ll-106(b) of the State Personnel and Pensions Article, and that delay had rendered his discharge unlawful. The circuit court agreed, reversed the decision of the OAH on that ground, and remanded this case to that office, for it to determine whether Hoffman was “entitled to any pay or benefits he may have lost” as a result of his termination. The Department appealed that decision, asking us to resolve the question of whether it acted within the statutorily-mandated thirty days.

We conclude that it did and therefore reverse the judgment of the circuit court. FACTS The facts are not in dispute. They show that Hoffman was employed as an appraiser in the private sector when he applied for the position of Real Property Review Appraiser II with the Department. In early 1998, Hoffman was interviewed for that position by a panel consisting of L. Paul Hickin, Stanley Sanders, and Jeffrey Goldman, all of whom later served as Hoffman’s supervisors at some point during his employment.

At that time, no civil suit had been filed against ⁷²⁰ Hoffman or any of his co-defendants for any work he had performed in the private sector. Hoffman disclosed to the interviewing panel that he and several others were under investigation for “questionable real estate practices.” But he did not divulge the nature of the allegations, and assured the three-membered panel that his appraisals were “honest,” leaving at least one member of the panel to later confess that he suspected no wrong-doing because of “how easy it is [for an appraiser] to make an honest mistake.” The panel recommended to Earl De Maris, who was, at that time, the Department’s Director of the Division of Credit Assurance, that Hoffman be hired. In making that recommendation, it advised De Maris that Hoffman was being investigated for “questionable real estate practices,” but, at the same time, assured De Maris that Hoffman had not been charged with any misconduct. After the Department’s Deputy Secretary, Raymond Skinner, and Director of Employee Services and Human Resources, Rodney J. Wiesinger, approved Hoffman’s hire, his employment with the Department began on March 25, 1998.

Hoffman’s duties included appraising residential properties reclaimed by the Department from low-income owners who had defaulted on mortgages financed through the Department’s Real Estate Owned unit. In August of 1998, Hoffman and several others were sued in the Circuit Court for Baltimore City for fraud, conspiracy to defraud, and violations of the Consumer Protection Act. Hoffman and his co-defendants were essentially accused of acquiring inexpensive, dilapidated residential properties, misleading prospective buyers into believing they were purchasing “rehabbed” houses, or, at least, houses that would be completely renovated by the time of settlement, misrepresenting the appraised value of the properties, and then selling the properties to those buyers at highly inflated prices. Hoffman I, 155 Md.App. at 268 , 843 A.2d 153 .

After settlement, the buyers were left with properties that were “either uninhabitable or in ⁷²¹ seriously decayed condition, and [were] worth far less than the mortgage loan[s] taken to buy [them].” Id. The specific role Hoffman played in this scheme was critical to its success. The scheme involved obtaining Federal Housing Administration-backed (“FHA”) loans for the buyers. To obtain an FHA loan to purchase property, an FHA-approved appraiser — in this instance, Hoffman — had to inspect the property, and the appraised value had to reflect at least the purchase price of the property on which the loan was extended.

Id. at 278 , 843 A.2d 153 . Hoffman valued each property for the purchase price or $500 above it. Id. at 279 , 843 A.2d 153 . To reach what were inflated values, he used false information furnished by his co-defendants “concealing] that the information in fact was tainted and unreliable.” Id. at 300 , 843 A.2d 153 .

The values Hoffman arrived at for five of the eight properties at issue in Hoffman I “greatly exceeded even the highest possible value ranges.” Id. at 301 , 843 A.2d 153 . After the suit was filed, Hoffman told his supervisor, L. Paul Hickin, that he was the subject of a lawsuit, but did not disclose to Hickin that the suit involved allegations of intentional acts of wrongdoing, that is, fraud and conspiracy to commit fraud. Although Hoffman did mention the suit to others in the Department, he “didn’t go into details” and thus left his listeners with either little understanding of what was involved or with the assumption that it was “an errors and omissions problem.” 5 In 1999, Hoffman’s “questionable real estate practices” came to the attention of George Eaton, who succeeded De Maris as Director of the Division of Credit Assurance, the unit in which Hoffman served as an appraiser. Eaton believed, as others did, that the case against Hoffman involved “some possible discrepancies in [Hoffman’s] appraisals.” Given that appraising is “not an exact science,” Eaton “thought it was a negligence issue.” He nonetheless checked the status of ⁷²² Hoffman’s license and found that it was current.

He also informed the Department Secretary, Deputy Secretary, and Principal Counsel of Hoffman’s situation. They, in turn, advised him to tell Hoffman to keep them informed. In 2000, Hoffman told Eaton and Jeffrey Goldman, who was Hoffman’s direct supervisor at the time, that he had been found not guilty of the allegations against him, though the record contains no evidence, other than his testimony, 6 that criminal charges had ever been contemplated, much less brought. Later that year, Hoffman informed Eaton that he was involved in a lawsuit.

Assuming that the suit involved negligence issues, Eaton asked Hoffman to keep him apprised of its progress, but, to be on the safe side, once again reviewed the status of Hoffman’s license and found that it was current. The next year, in 2001, Hoffman told Eaton that his errors and omissions insurance policy 7 would cover the lawsuit, thereby confirming the prevailing misimpression that his legal troubles were related to issues of negligence. That year, Hoffman also told Goldman that a civil suit had been brought against him, although, as before, he did not provide any details. In January of 2002, after a jury in the Circuit Court for Baltimore City found Hoffman and his co-defendants liable for fraud, conspiracy to defraud, and violations of the Maryland Consumer Protection Act, and entered a judgment against ⁷²³ them in the amount of $3.2 million, 8 Hoffman informed Goldman that he had lost the lawsuit, but “[h]e did not advise,” as the ALJ observed, “anyone in DHCD management” of the loss.

Once again, Hoffman was short on specifics, but he did inform Goldman he intended to file an appeal. On February 27, 2004, this Court issued a decision in Hoffman 1 9 155 Md.App. 247 , 843 A.2d 153 . Holding that the circuit court had erred in granting the defendants’ motions for judgment on the plaintiffs’ punitive damage claim and in granting attorneys’ fees, the Court vacated the lower court’s judgment solely as to those two issues. Id. at 344-46 , 843 A.2d 153 .

Otherwise, it affirmed, in all respects, the judgments entered by the circuit court, which totaled $1.4 million in compensatory damages. In rendering its decision, the Court determined that “[t]he evidence was sufficient to support the jury’s finding, under a clear and convincing evidence standard, that Hoffman entered into a conspiracy ... to defraud the buyers,” id. at 301 , 843 A.2d 153 ; that “Hoffman admitted destroying the records [pertaining to his appraisals] and knowing, when he did so, that his conduct was in violation of the ethical codes and uniform standards governing appraisers,” id. at 301 n. 13, 843 A.2d 153 ; that “[t]he evidence also supported a finding of fraud against Hoffman independently,” id. at 309 , 843 A.2d 153 ; and that “the evidence was sufficient to support a reasonable finding that Hoffman engaged in unfair and deceptive trade practices in making material misrepresentations about value in the appraisals,” id. at 314 , 843 A.2d 153 . ⁷²⁴ Two days later, on March 1, 2004, an article appeared in The Daily Record, a Maryland legal newspaper, discussing this Court’s decision in Hoffman I . After reading the article and then the opinion itself, Eaton was, as the ALJ observed, “shocked because the facts surrounding the lawsuit were different than [Hoffman] had informed him.” On March 3, 2004, Eaton brought the opinion to the attention of Department Secretary Victor L. Hoskins and Deputy Secretary Shawn Karimian. He also met with Wiesinger that day and recommended that Hoffman be fired. 10 Wiesinger launched an investigation into Hoffman’s misconduct.

After interviewing Eaton, Goldman, Sanders, Hoffman’s past and present immediate supervisors, and Hoffman himself, Wiesinger recommended to Deputy Secretary Karimian that Hoffman be discharged. That recommendation was thereafter approved by Secretary Hoskins. On March 19, 2004, Wiesinger advised Hoffman by letter that his employment would be terminated effective April 2, 2004. Although Hoffman had a satisfactory performance record, the Department could not ignore that Hoffman had been found to have engaged in fraud and deceit in the preparation of appraisals and had knowingly destroyed appraisal records.

Fearing that Hoffman’s continued employment would undermine the Department’s credibility and expose it to future litigation, the Department discharged him. Hoffman subsequently appealed his termination to the Office of Administrative Hearings (“OAH”). On October 15, 2004, an evidentiary hearing before an ALJ was held. After rejecting Hoffman’s claims that the termination was untimely and that he had not received adequate notice of his termination, the ALJ found that Hoffman had been properly terminated for “[b]eing guilty of conduct that has brought or, if ⁷²⁵ publicized, would bring the State into disrepute,” COMAR 17.04.05.04B(3); “[ejngaging in conduct involving dishonesty, fraud, deceit, misrepresentation, or illegality,” COMAR 17.04.05.04B(8); and “[c]ommitting another act, not previously specified, when there is a connection between the employee’s activities and an identifiable detriment to the State,” COMAR 17.04.05.04B(15).

In so finding, the ALJ explained: I find that the Department has met its burden of proof, pursuant to COMAR 17.04.05.04B(3), to establish that the Employee engaged in conduct “that has brought or, if publicized, would bring the State into disrepute.” The Court of Special Appeals’ decision upholding the finding against the Employee as an appraiser for fraud and conspiracy to defraud, and violations of the Maryland Consumer Protection Act would bring the State into disrepute if he was to continue working for the State in the capacity of an appraiser. I further find that the Department has met its burden of proof to establish that the Employee engaged in “conduct involving dishonesty, fraud, deceit, misrepresentation, or illegality,” pursuant to B(8). The Court of Special Appeals’ decision affirmed the Circuit Court’s finding that the Employee was involved in the fraudulent residential property scheme. I also find that the Department has met its burden to establish that the Employee committed an act, not previously specified, “when there is a connection between the employee’s activities and an identifiable detriment to the State,” pursuant to B(15).

The destruction of appraisal records, as Mr. Eaton explained, not only constituted an ethical violation, but for a State-employed appraiser calls into question the