Case Number: BS166610 Hearing Date: June 12, 2018 Dept: 85

Sarkis Sharky Klian v. Dave Jones, BS 166610

Tentative decision on petition for writ of mandate: denied

Petitioner Sarkis Sharky Klian (“Klian”) seeks a writ of mandate compelling Respondent Dave Jones, in his official capacity as Insurance Commissioner of the State of California (“Commissioner”) to set aside the his September 1, 2016 order.

The court has read and considered the moving papers, opposition, and reply, and renders the following tentative decision.

A. Statement of the Case

1. Petition

Petitioner Klian commenced this proceeding on January 5, 2017. The verified Petition alleges in pertinent part as follows.

Klian has been a licensed bail agent since 1993. Prior to the Accusation, he had never been the subject of a complaint or any disciplinary action.

Klian, Lexington National Insurance Corporation (“Lexington”), and Stroobant Insurance Services, Inc. (“Stroobant”) were parties to a Bail Bond Underwriting Agreement (“Agreement”). Under the Agreement, Lexington was the surety, Stroobant the “Supervising Producer,” and Klian the “Producer.” On the Agreement’s effective date, January 19, 2005, Klian began issuing bail bonds in Lexington’s name under the terms of the Agreement.

Pursuant to the Agreement, Stroobant provided numbered, blank bonds to Klian and Klian would then issue those bonds to arrestees. Approximately twice per month, Klian would submit to Stroobant certain reports known as Agent Execution Reports which contained information on every bond Klian issued during the relevant reporting period, including the bond number, the date the bond was issued, the name of the arrestee, the amount of the bond, the amount of the bond premium to be paid to Stroobant, and the amount to be paid into Klian’s indemnity fund, also known as a Buildup Fund (“BUF”). Along with these reports, Klian would submit to Stroobant payment of the percentage due Stroobant and Lexington.

In 2010, Klian signed on as an agent with Accredited Debt Insurance Company (“Accredited”), in addition to his role as Producer for Lexington and Stroobant. This signing soured his relationship with Lexington and Stroobant.

In April 2010, the Vice-Presidents (“VP”) of Stroobant and Lexington came unannounced to Klian’s office and demanded to see all of Lexington’s bonds in Klian’s possession. Klian produced all of the Lexington bonds in his possession. Following this meeting, Stroobant and Lexington accused Klian of failing to report the issuance and pay premiums on 65 individual bonds from 2009. Four years later, this conduct became the basis of their complaint to the Department of Insurance (“Department”).

On March 2, 2015, the Department filed a formal Accusation. The Office of Administrative Hearings (“OAH”) held a hearing on the matter on May 25 and 26, 2016. On June 8, 2016, the Administrative Law Judge (“ALJ”) issued a proposed decision revoking all of Klian’s licenses and licensing rights. In part, the ALJ noted that though Stroobant destroyed the Agent Execution Reports, Klian “did not have copies of those records, either.” The Commissioner adopted the ALJ’s proposed decision. Klian filed a petition for reconsideration, and the Commissioner denied this petition on November 16, 2016.

Klian alleges that the Commissioner committed a prejudicial abuse of discretion when he impermissible shifted the burden of proof to Klian to prove that he had not committed the acts alleged in the Accusation. Klein also alleges that the Commissioner’s decision is not supported by its findings as Klein had enjoyed a 23-year history of licensure with no history of license discipline and the Commissioner made no finding that Klian had engaged in any conduct that was detrimental to the people he served as a bail agent. Finally, Klein alleges that the Commissioner’s findings are not supported by the weight of the evidence.

B. Standard of Review

CCP section 1094.5 is the administrative mandamus provision which structures the procedure for judicial review of adjudicatory decisions rendered by administrative agencies. Topanga Ass’n for a Scenic Community v. County of Los Angeles, (“Topanga”) (1974) 11 Cal.3d 506, 514-15.

CCP section 1094.5 does not in its face specify which cases are subject to independent review, leaving that issue to the courts. Fukuda v. City of Angels, (“Fukuda”) (1999) 20 Cal.4th 805, 811. In cases reviewing decisions which affect a vested, fundamental right the trial court exercises independent judgment on the evidence. Bixby v. Pierno, (“Bixby”) (1971) 4 Cal.3d 130, 143. See CCP §1094.5(c). A trial court reviewing an administrative decision that imposes discipline on a professional licensee must exercise its independent judgment based on the evidence before it. Sulla v. Board of Registered Nursing, (2012) 205 Cal.App.4th 1195, 1200.

Under the independent judgment test, “the trial court not only examines the administrative record for errors of law but also exercises its independent judgment upon the evidence disclosed in a limited trial de novo.” Bixby, supra, 4 Cal.3d at 143. The court must draw its own reasonable inferences from the evidence and make its own credibility determinations. Morrison v. Housing Authority of the City of Los Angeles Board of Cmrs., (2003) 107 Cal.App.4th 860, 868. In short, the court substitutes its judgment for the agency’s regarding the basic facts of what happened, when, why, and the credibility of witnesses. Guymon v. Board of Accountancy, (1976) 55 Cal.App.3d 1010, 1013-16.

However, “[i]n exercising its independent judgment, a trial court must afford a strong presumption of correctness concerning the administrative findings, and the party challenging the administrative decision bears the burden of convincing the court that the administrative findings are contrary to the weight of the evidence.” Fukuda, supra, 20 Cal.4th at 817. Unless it can be demonstrated by petitioner that the agency’s actions are not grounded upon any reasonable basis in law or any substantial basis in fact, the courts should not interfere with the agency’s discretion or substitute their wisdom for that of the agency. Bixby, supra, 4 Cal.3d 130, 150-151; Bank of America v. State Water Resources Control Board, (1974) 42 Cal.App.3d 198, 208.

The agency’s decision must be based on a preponderance of the evidence presented at the hearing. Board of Medical Quality Assurance v. Superior Court, (1977) 73 Cal.App.3d 860, 862. The hearing officer is only required to issue findings that give enough explanation so that parties may determine whether, and upon what basis, to review the decision. Topanga, supra, 11 Cal.3d 506, 514-15. Implicit in section 1094.5 is a requirement that the agency set forth findings to bridge the analytic gap between the raw evidence and ultimate decision or order. Id. at 515.

An agency is presumed to have regularly performed its official duties (Ev. Code §664), and the petitioner therefore has the burden of proof. Steele v. Los Angeles County Civil Service Commission, (1958) 166 Cal.App.2d 129, 137. “[T]he burden of proof falls upon the party attacking the administrative decision to demonstrate wherein the proceedings were unfair, in excess of jurisdiction or showed prejudicial abuse of discretion. Alford v. Pierno, (1972) 27 Cal.App.3d 682, 691.

The propriety of a penalty imposed by an administrative agency is a matter in the discretion of the agency, and its decision may not be disturbed unless there has been a manifest abuse of discretion. Lake v. Civil Service Commission, (“Lake”) (1975) 47 Cal.App.3d 224, 228. Neither an appellate court nor a trial court is free to substitute its discretion for that of the administrative agency concerning the degree of punishment imposed. Nightingale v. State Personnel Board, (“Nightingale”)(1972) 7 Cal.3d 507, 515. The policy consideration underlying such allocation of authority is the expertise of the administrative agency in determining penalty questions. Cadilla v. Board of Medical Examiners, (“Cadilla”) (1972) 26 Cal.App.3d 961.

C. Governing Law

The Commissioner may suspend or revoke any permanent license on any grounds on which he may deny an application. Ins. Code[1] §§ 1738, 1807. Reasons for denying an application include (1) the granting of the license will be against public interest (§1668(b)), (2) the licensee lacks integrity (§1668(e)), (3) the licensee has previously engaged in a fraudulent practice or act or has conducted any business in a dishonest manner (§1668(i)), (4) the licensee has shown incompetency or untrustworthiness in the conduct of any business, or has by commission of a wrongful act or practice in the course of any business exposed the public or those dealing with him to the danger of loss (§1668(j)), (5) the licensee has failed to perform a duty expressly enjoined upon him by the Insurance Code or has committed an act forbidden by the Insurance Code (§1668(l)), (6) the licensee does not understand the obligations and duties of bail (§1805(c)), and (7) the licensee is not a fit and proper person for licensure (§1805(h)).

These “provisions of the Insurance Code were not designed to punish the errant licensee but to insure that the privileges granted under the license were not exercised in derogation of the public interest, and to keep the regulated activity clean and wholesome.” Ready v. Grady, (“Ready”) (1966) 243 Cal.App.2d 113, 117.

D. Statement of Facts

1. Background

The Commission issued Klian a license on April 5, 1993. AR 547. The license qualified Klian to transact bail. Id. Klian’s license, over the course of 23 years, has no disciplinary history. AR See 693.

From 1996 or 1997 to January 2013, Klian conducted business under the fictitious name “Sharky’s Bail Bonds.” AR 547-48. In 2013, Klian began conducting business under a new fictitious business name, SK Bail Bond. AR 548.

2. The Agreement

On January 19, 2005, Lexington, Stroobant, and Klian entered into the Agreement. AR 96. The Agreement designates Lexington as a surety, Stroobant as a “Supervising Producer,” and Klian as a “Producer.” Id. Under the Agreement, Lexington and Stroobant authorized Klian to act as a bail licensee of Lexington for the purposes of soliciting and writing bail bonds. Id.

Section 4 of the Agreement requires Klian to “keep complete records … of all business written by or through him for the Company” and to have these records “open at all times to [Lexington] and [Stroobant].” AR 96.

Section 5 of the Agreement requires Klian to report to Stroobant twice a month on all bonds posted during the applicable reporting period. AR 96. The Agreement requires that the reports “show, among other things, the risks assumed, premiums collected, collateral received and returned, forfeitures incurred, claims paid, [and] bonds discharged.” Id.

Exhibit “A” to the Agreement provides compensation information. AR 105. The Agreement states that Klian shall pay Stroobant the greater of (1) 11% of the face amount of the Bond or (2) $50, plus $5 per bond. AR 105.[2]

The Agreement also contained an indemnity provision requiring Klian to deposit one percent of the face amount of the bond into a “build up” or “BUF” account. AR 98. The purpose of the BUF account was as an indemnity fund for Klian’s duties to indemnify Lexington and Stroobant for any liability for any bond issued by Klian. AR 97 (§9). This occurs usually when a bond has been forfeited by the criminal court. AR 253. The Agreement states in pertinent part: “In the event that [Klian] shall at any time default in any of his undertakings as in this Agreement set forth, then [Lexington] or [Stroobant] shall have the right to draw from [Klian’s] Indemnity Fund whatever sum may be necessary to indemnify and save harmless [Lexington] and [Stroobant] from the consequences of such default.” AR 98.

3. Bail Bond Practice

Stroobant’s general bail bond practice with agents, including Klian, was as follow. Stroobant would give agents an inventory of blank bonds forms. AR 371-72. The agents had an authorization limit of the amount for which they could write a bond. AR 372. The agent would issue bonds to arrestees using these blank bond forms. AR 372. As long as they wrote within the authorized limit, the agent did not have to notify Stroobant when issuing the bond. AR 373. Each bond is numbered. AR 372.

The agent would then fill out the detachable bottom of the bond form — a slip of paper known as an “Execution Report” (“ER”). AR 372. The ER had the bond number, bond amount, arrestee’s name, court information, and power of attorney. AR 372, 56 (slip example).

The premium charged by the agent to the arrestee is 10% of the face amount of the bond. AR 375. Per the Agreement, the agent receives the greater of 11% of “the face amount of the bond” or $50, plus $5 per bond. AR 105. The remaining amount goes to Stroobant and to the agent’s BUF account. AR 375-76. The majority of the time the agent delivered his or her premium and BUF account payment to Stroobant in cash. AR 419. Stroobant sents the premium to Lexington and billed Lexington its own costs. AR 376.

Periodically, the agent would fill out an “Agent Execution Reports” (“AER”) listing the bond number, the date the bond was issued, the name of the arrestee, the amount of the bond, the amount of the bond premium, and the BUF amount. AR 213, 420-21. The agent would deliver his premium payments, ERs, and AERs to Stroobant on a biweekly or monthly basis. AR 140, 373, 392, 475. Stroobant would provide the agent with blank bonds to replace the issued ones. AR 374. Stroobant would record the bonds in its computer and print out a report for the surety, Lexington. AR 375, 406; see AR 135.

California law requires the maintenance of BUFs. AR 153, 376. Each agent has its own BUF. AR 377. Every time that an agent makes a AER, the agent is required to make a payment into his or her BUF. Id. Stroobant makes the payment to Lexington. Id.

4. The Audit

The parties operated under the Agreement until mid-2010. AR 473. One morning in April 2010, Frank Stroobant (“F. Stroobant”), Vice President of Stroobant, and Randy Parton (“Parton”), Lexington’s Senior Vice President, visited Klian’s office to perform an audit of Klian’s business books. AR 386, 563. There is conflicting testimony as to the outcome of the meeting.

According to F. Stroobant and Parton, they had identified 65 bonds prior to the meeting that had been issued to Klian in 2009 but not reported. AR 467. At the meeting, they determined that Klian executed the bonds and had failed to report them and pay premiums totaling $23,111. AR 154, 387, 468. The parties agreed that Klian would pay off this debt by making monthly payments of $2,500 until the debt was satisfied. AR 398, 472.

Klian alleges that he reported the bonds and that no such oral agreement was formed. AR 565-66.

5. The Dispute About Payment

Between April and September 2010, Klian made five payments of $2,500 each for the 2009 unpaid premiums. AR 129-34, 154. The checks are designated as for “1st Payment 2009/Bonds Sharkey”, “Sharkey 2009 Payment Plan”, and “Sharkey 2009”. Id.

In September 2010, Klian had a disagreement with F. Stroobant and Parton. AR 316-17. Klian sent F. Stroobant an email stating, “The reason for this email is due to your failure of honoring our agreements of my payments of the bonds reported.” AR 317.

On April 6, 2011, Mark T. Holtschneider (“Holtschneider”), Lexington’s Executive Vice President and General Counsel, sent Klian a letter requesting payment of the remaining balance owed, $10,611. AR 169. The letter discussed the missing premium for the 65 bonds issued in 2009. Id.

On April 11, 2011, Holtschneider spoke with Klian by telephone. AR 154. Klian told Holtschneider that he believed the balance owed for unpaid premium was only $7,500. Id. In email correspondence following the telephone call, Klein stated, “my records show that I owed Lexington a total of $19,000. I have an email from Glenda, which I will forward to you, that shows my original premium underpayment owed. Also, I would greatly appreciate it if you would use my Build Up Fund to pay for the remaining premium.” AR 154, 199.

6. The Complaint and Investigation

F. Stroobant filed a complaint against Klian with the Department. AR 424.

On June 20, 2013, Department Investigators Collin Norrbom and Herb Klotzsche (“Klotzsche”) interviewed Klian regarding complaints filed by Stroobant and Lexington. AR 140. Klian told the investigators that he issued the 65 bonds in question, filled out an AER, and delivered it to Stroobant, and remitted the premium. AR 140-41. The investigators asked why Klian had made five payments in the amount of $2,500 each to Stroobant and Lexington. AR 141. Klian responded that the payments were not for payment of the premiums for the 65 bonds, but he was “not sure” what the payments were for. Id.

On July 3, 2013, the investigators interviewed Klian a second time. AR 143-48. The investigators asked Klian again about the checks. AR 146. Klian responded that he now remembers that he made the payments to Stroobant. Id. According to Klian, Lexington wanted Klian to sue Scott Anschultz (“Anschultz”) of American Contractors Indemnity Company (“ACIC”), and Lexington gave money to Klian’s lawyer from his BUF to pay for a lawyer. Id. Klian said that he received $20,000 to $30,000 from his BUF and had to pay Lexington back the money. Id.

Klian showed the investigators AERs from 2006, 2007, and 2008. AR 144. Klian did not produce an AER from 2009. Id. He told them that he is required to keep records for three years after the bond is exonerated. After that period, he shreds them. AR 147. He also destroyed his business records when he sold his business. AR 512.

8. The Accusation

On March 2, 2015, the Department filed an Accusation against Klian alleging numerous Insurance Code violations predicated inter alia on his (1) failure to conduct business in his own name and his use of fictitious business names without complying with fictitious business name requirements; (2) failure to report the issuance of 65 bonds to Lexington and Stroobant; (3) conversion of the bond premiums; (4) breach of the Agreement; and (5) failure to maintain business records. AR 3-14.

On March 23, 2015, Klian filed a Notice of Defense.

9. The Hearing

The hearing on the Accusation was held before the ALJ on May 25 and 26, 2016. AR 329, 568.

a. F. Stroobant

In April 2010, F. Stroobant and Parton audited Klian’s business books in Klian’s office because they had become aware of several 2009 bonds that had not been reported. AR 385-86. In the course of the audit, F. Stroobant and Parton determined that bonds had been issued but not reported. AR 387. After completing the audit, they informed Klian how the dollar amount of the unreported bonds, which was more than $20,000. AR 392, 398.

Klian told F. Stroobant and Parton that he did not report the bonds in retaliation for the fact that they had contracted with one of his former agents and he felt that was unfair. AR 397.

F. Stroobant, Parton, and Klian orally agreed to give Klian the opportunity to pay off this debt by making monthly payments of $2,500 until the debt was satisfied. AR 398. Klian made five to six payments pursuant to this arrangement. AR 399.

F. Stroobant acknowledged that around 2010 Klian sued ACIC. AR 444-45. Lexington did give some money to Klian’s attorney for the lawsuit. AR 445. Klian entered into an agreement with Lexington to repay some of these fees. AR 445. The matter was between Lexington and Klian and F. Stroobant did not have the records. AR 445. F. Stroobant denied that the $2,500 payments were repayment of those attorney’s fees. Id.

In 2014 or 2015, F. Stroobant destroyed the 2009 AERs which would have reflected whether Klian reported the bonds in question. AR 423-24. The Department only mandates the retention of records for five years, and the 2009 AERs from Klian were destroyed in 2014 or 2015. AR 424. Had Klian reported the bonds in his 2009 AERs, they would have been destroyed. AR 426. The AERs for 2009 could be obtained from Lexington’s computer records. AR 427.

b. Parton

Parton and F. Stroobant identified 65 bonds issued to Klian in 2009 but not reported by him. AR 467. Parton and F. Stroobant decided to meet with Klian in order to determine whether these bonds could be voided, had been executed but not reported, or were simply just lying around and not returned. Id.

At the meeting, Klian was asked to retrieve the ERs. AR 468. Klian retrieved the reports from his filing cabinet and tossed them on the desk in front of Parton. AR 469. Parton determined that the bonds had been issued by examining the ERs’ power-of-attorney (see, e.g., AR 107). AR 468. Parton saw no evidence that the premium had been remitted on the bonds and Klian did not indicate such remittance. AR 470. To the contrary, Klian said that he did not report the bond’s execution because he believed that Lexington owed him something because it gave one of his former agents a contract. AR 471. Parton replied that nothing prevented Lexington from giving this person a producer’s agreement, and that had no effect on the premium owed by Klian. AR 471.

F. Stroobant suggested that they allow Klian to make payments over a period in order to pay the premiums. AR 471-72. Lexington management consented to this arrangement. AR 472. Between April and September 2010, Klian tendered five payments in the amount of $2,500 each to Lexington. Id.

While Lexington does allow money to be withdrawn from an agent’s BUF account for legal fees, such an arrangement is always written. AR 473.

c. Klotzsche

Klotzsche is a Department investigator. AR 493. He received a list of 65 bonds which Stroobant claimed were unreported. AR 526. The AERs would show whether a bond has been reported. AR 529-30. He could have determined whether the bonds were reported by asking for AERs. AR 526. He never asked Stroobant for the 2009 AERs relevant to these bonds. AR 526-27. He acknowledged that review of these AER’s could be important. AR 528.

d. Klian

In 2009, Klian had discussions with F. Stroobant about funding a potential lawsuit against ACIC. AR 576. They wanted him to sue Anschultz for malicious prosecution. Id. Stroobant and Lexington agreed to help him financially by paying his attorney’s fees. AR 579.

The suit was initiated in March 2010. AR 576. Klian eventually dropped the suit because he learned that Stroobant and Lexington were paying his attorney fees using money from his BUF account. AR 579. In total, approximately $25,000 was withdrawn from his BUF account for these expenses. AR 580. Klian, Stroobant, and Lexington worked out a deal in which Klian would pay them $2,500 a month. Id. When Klian discovered in mid-2010 that the money came from his BUF, he stopped making the payments. AR 580, 583.

One morning in April 2010, F. Stroobant and Parton visited Klian’s office. AR 563. F. Stroobant was “angry and pissed.” Id. Stroobant demanded to see all of Klian’s bonds. AR 564. Klian admitted to not having all the bonds and stated that some of them were in the possession of his night-shift employees. Id. Stroobant started “yelling” and “screaming”. Id. Klian claims that Stroobant’s issue with Klian was that he signed a contract with Accredited Company. AR 565. Klian denied ever failing to pay premium on unreported bonds or agreeing to such an arrangement. AR 584.

Since his 2013 interview with Klotzsche, Klian has been demanding to see the 2009 AERs in the possession of Lexington and Stroobant. AR 566. Klian admitted that when he submits AERs to Stroobant, he is provided a copy of the report for his own recordkeeping. AR 641. He received copies of the 2009 AERs, but his “general managing office” stole his files and computer. He has sued her. AR 646-47.

7. The Decision

On June 8, 2016, the ALJ issued her proposed decision. AR 692-701. The ALJ found that from January through September 2009, Klian issued 65 Lexington bail bonds without providing Stroobant with corresponding ERs, without making any other kind of report to Stroobant or Lexington, and without remitting premiums. AR 694. At the April 2010 meeting with F. Stroobant and Parton , Klian admitted that he had not reported the bonds and agreed to pay the missing premiums in monthly installments of $2,500. AR 695.

The ALJ viewed Klian’s explanation for the monthly installments as implausible and lacking credibility. AR 696-97. When interviewed by a Department investigator in 2013, he was not sure why he made five monthly payments of $2500 to Stroobant, but denied they were premiums. AR 695 (¶14). A short time later, he was interviewed again and told the investigator that the payments were a reimbursement for attorney’s fees and not payment of back premiums. AR 695 (¶15). He stopped making the payments when he learned that Stroobant had been plundering his BUF account or using his 2009 premium payments to pay its own obligations. AR 695 (¶15). At the hearing, he reaffirmed that he made the 2009 premium payments and expanded on his contention that the $2500 payments were for a loan of attorney’s fees. AR 695 (¶16). The loan was $25,000 to hire an attorney to sue ACIC. AR 695 (¶17). Unbeknownst to him, Stroobant and Lexington took the loan monies from his BUF account. Id. He made five payments but discontinued them when he realized the advance came from his BUF account. AR 696 (¶17). Klian believed that Stroobant and Lexington fabricated the allegations about the 65 2009 bonds in retaliation for him signing with ACIC in 2010. AR 697 (¶18).

The ALJ found that Klian’s recantation of his admission that he did not report the 65 bonds and did not pay the premium lacked credibility. She noted that no documentation substantiated Klian’s claim that Stroobant and Lexington advanced him $25,000, and the only documented attorney’s fees showed a $3200 was charged by an attorney in December 2010, eight months after the $2500 payments began. AR 696 (¶20). Likewise, the $25,000 purportedly advanced for the lawsuit does not correspond to the dollar amounts referred to in the parties’ correspondence. AR 696 (¶21). In contrast, the five $2500 payments subtracted from the bond amounts results in a remaining $10,611 referred as unpaid in July 2014. AR 696-97 (¶21). Klian also admitted to “premium underpayment owed” in an April 18, 2011 email, which is consistent with his admissions in the April 2010 meeting that the 65 bonds were not paid. AR 697 (¶22). Finally, it was implausible that Stroobant and Lexington would create a false scenario of unpaid bond premium over a period of nine months. It was more plausible that Klian became angry when he learned that Stroobant contracted with one of Klian’s former employees, who then became a competitor of Klian, and that he felt entitled to withhold money in retaliation. AR 697-98 (¶23).

Klian had a duty to maintain records of his reporting. If they existed, the 2009 AERs for the 65 bonds would have exculpated him. Klian blamed Stroobant for destroying its 2009 AERs, but the ALJ noted that Klian “did not have copies of those records, either.” AR 698 (¶24). Klian also failed to maintain trust account records showing his premiums paid on the 65 bonds, and he failed to keep his records for five years. Instead, he destroyed or discarded his records in 2013. AR 698 (¶25).

The ALJ concluded that the Department had established cause to discipline Klian’s license on each of grounds set forth in the Accusation. AR 698-99. Klian’s conduct “demonstrates compellingly that his continued licensure would contravene the public interest, he lacks integrity, he has conducted business in a dishonest manner, he has shown incompetency or untrustworthiness in the conduct of business, he has failed to perform duties required by the Insurance Code, he does not understand the obligations and duties of bail, and he is not fit or proper for continued licensure.” AR 699.

In determining appropriate discipline, the ALJ noted: (1) Klian’s misconduct adversely affected the other parties to the Agreement and had the potential to harm both himself and others; (2) Klian’s misconduct, ranging from the non-approved fictitious business name to the nonpayment of premiums owed, spanned almost his entire career and the nonpayment of premiums was recent; (3) As a bail bondsman, Klian is required to be trustworthy and reliable in his business and his misconduct shows he was not; and (4) His refusal to accept responsibility for his conduct and failure to be wholly candid and truthful in his dealings with the Department and at the hearing stood in aggravation. AR 699. The only countervailing factor was that Klian “enjoyed a 23-year history of licensure, with no history of license discipline.” AR 700. Klian failed to show any rehabilitation, let alone sufficient rehabilitation to warrant continued licensure. AR 700. The ALJ recommended that Klian’s license be revoked. AR 700.

On September 1, 2016, the Commissioner adopted the ALJ’s decision. AR 690-91. On October 31, 2016, Klian filed a Petition for Reconsideration. AR 717-21. On November 16, 2016, the Commissioner denied Klian’s Petition. AR 722-23.

E. Analysis

Petitioner Klian seeks a writ of mandate compelling Respondent Commissioner to set aside his September 1, 2016 order on the basis that (a) the ALJ improperly shifted the burden of proof to Petitioner, (b) the decision is not supported by the findings, and (c) the findings are not supported by the weight of the evidence.

1. Burden of Proof

Petitioner Klian contends that the ALJ’s[3] decision rests on an error of law. Pet. Op. Br. at 6. Klian notes that the Department had the burden of proving the Acussation by clear and convincing evidence. Pet. Op. Br. at 7. The Department’s investigator testified that he could have ascertained that the 65 bonds were reported from the 2009 AERs, if there were any for those bonds. AR 526-28. The investigator did not ask Stroobant for Klian’s 2009 AERs, and this “could be” important information. Id. Petitioner relied on this testimony and the fact that Stroobant destroyed its 2009 records to contend that the 2009 AERs were vital to his case, but the Department never produced them. Pet. Op. Br. at 9.

Petitioner argues that the ALJ abused her discretion by improperly shifting the burden of proof to him when she found:

“[Klian] did not maintain records of his reporting to Lexington and/or [Stroobant] regarding the 65 bonds. At the hearing, [Klian] blamed [Stroobant] for destroying its 2009 [Agent Executive Reports], which he contended would have shown he reported all 65 bonds. But [Klian] did not have copies of those records, either.” AR 697 (¶24). Pet. Op. Br. at 9.

The ALJ did not improperly shift the burden of proof for two reasons. First, Klian had a duty under the law and the Agreement to maintain records for the issuance of bonds. AR 7, 96. He also was required by law and the Agreement to maintain complete and accurate trust account records for premium payments on all bonds. AR 7, 96. In the cited finding, the ALJ concluded that Klian did not meet this duty to maintain records. Klian blamed Stroobant for destroying records, but he did not have them either. This is not burden shifting, but rather making a point that Klian did not meet his legal duty: he was guilty of failing to maintain the proper records.[4]

Second, to the extent that the ALJ also was commenting on other issues, she was permitted to draw conclusions about the evidence. The ALJ simply pointed out a hole in Klian’s defense – his contention that the 2009 AERs would have shown that he reported the premium for the 65 bonds and paid the premium, and yet Stroobant had destroyed its records. The ALJ pointed that Klian did not have the copies of records either. He could have presented the records as evidence if they actually existed. Since he did not, the fair inference is that no such records exist.[5]

The ALJ did not improperly shift the burden of proof.

2. The Weight of the Evidence

Petitioner Klian contends that the ALJ’s findings that he failed to report executed bonds and pay premiums on these bonds is unsupported by the evidence. Pet. Op. Br. at 11-14. Klian substantiates this contention with four observations: (1) Klotzsche never requested copies of the “most vital” records in the case, the 2009 AERs, (2) F. Stroobant acknowledged destroying these records after filing a complaint against Klian, (3) the Department never introduced these records, and (4) F. Stroobant corroborated vital elements of Klian’s case. Id.

As a preliminary matter, Klian inaccurately implies that the court must overturn the ALJ’s decision because it is not supported by clear and convincing evidence. See Pet. Op. Br. at 14. This is incorrect. The proper standard of review for a trial court reviewing agency factual determinations is independent judgment. The standard of review governing the agency’s decision is irrelevant in this respect. See Chamberlain v. Ventura County Civil Service Com., (1977) 69 Cal.App.3d 362, 370. Thus, the court must decide whether Petitioner has met his burden to show that the weight of the evidence does not support the ALJ’s decision.

Turning to substance, Klian overstresses the absence of the 2009 AER evidence. If they existed, 2009 AERs for the 65 bonds would have dispositively shown that Klian reported them. The lack of such reports means either that they never existed as the Department contends, or they have been destroyed as Klian argues. Other evidence compellingly shows that they never existed.

The Department presented the testimony of F. Stroobant and Parton, both of whom testified that their records showed that 65 bonds had not been reported and that Klian admitted it. The Department also presented the Declaration of Mark T. Holtschneider, Lexington’s Executive Vice-President and General Counsel, who said the 65 bonds had not been reported. AR 154 (¶6).

The five $2500 payments by Klian between April and September 2010 are designated on the “re” line consistently with the bond premium payment agreement as F. Stroobant and Parton testified. The checks are designated as for “1st Payment 2009/Bonds Sharkey”, “Sharkey 2009 Payment Plan”, and “Sharkey 2009”. AR 129-34, 154. Particularly the first check is wholly inconsistent with Klian’s defense that he was repaying a loan for attorney’s fees in a lawsuit.

Similarly, the correspondence between the parties shows that they all knew the payments were for the 65 missing bond premiums, and the only dispute was the amount owed. Klian sent F. Stroobant an email stating: “The reason for this email is due to your failure of honoring our agreements of my payments of the bonds reported.” AR 317 (emphasis added). On April 6, 2011, Holtschneider sent Klian a letter requesting payment of the remaining balance owed for the missing premium for the 65 bonds issued in 2009, which was $10,611. AR 169.

On April 11, 2011, Holtschneider spoke with Klian by telephone. AR 154. Klian told Holtschneider that he believed the balance owed for unpaid premium was only $7,500. Id. In email correspondence following the telephone call, Klein stated, “my records show that I owed Lexington a total of $19,000. I have an email from Glenda, which I will forward to you, that shows my original premium underpayment owed. Also, I would greatly appreciate it if you would use my Build Up Fund to pay for the remaining premium.” AR 154, 199 (emphasis added).

Finally, Klian shifted his answers between his two Department interviews. On June 20, 2013, Klian told the investigators that he issued the 65 bonds in question, filled out an AER, and delivered it to Stroobant, and remitted the premium, but was “not sure” why he made five $2500 payments to Stroobant and Lexington. AR 140-41. Two weeks later, on July 3, 2013, Klian answered that he now remembers what the $2500 checks were for the ACIC lawsuit. AR 146. While his initial failure to recall could be innocent, it is also fair to conclude that he used the two week period to concoct a story.

The ALJ made a persuasive observation about motive. It is implausible that Lexington and Stroobant concocted a false story involving unreported bonds to retaliate against Klian for signing with another company. It is more plausible that Klian felt entitled to withhold premiums from Stroobant and Lexington because they signed one of his former employees to compete with him.

The Department also noted that Klian was able to provide investigators with 2006,2007, and 2008 AERS, but did not have a copy of the 2009 AERs. Opp. At 11, n.7. Klian’s failure to present the 2009 AERs is surely subject to greater criticism than (a) Stroobant’s destruction of its 2009 AERs since it is not a party, and (b) the Department’s failure to ask for them.

Finally, as the ALJ pointed out, Klian presented no documentation of the legal fees payment arrangement and the amounts he claims were paid did not add up to $25,000. His explanation that he stopped making payments when he found out that he had been loaned money from his own BUF account makes little sense; Klian still would have to repay monies taken from that trust account.

The weight of the evidence shows that Klian is guilty of the misconduct alleged.

3. Penalty Decision Supported by the Findings

Petitioner Klian claims that the ALJ abused her discretion in concluding that his continued licensure would contravene the public interest because the ALJ made no finding that he engaged in any misconduct with the public or the clients that he served. Pet. Op. Br. at 10. Klian misunderstands the meaning of “public interest” as used by the ALJ.

In part, the ALJ found that Klian should be disciplined because his licensure is against public interest. AR 698; §1668(b). Requiring and maintaining professional standards of conduct on the part of all licensees protects the public and therefore serves the public interest. §1737 (setting forth purpose of section 1668 and 1738). See Ready, supra, 243 Cal.App.2d at 117 (section 1668 and 1738 are designed “to insure that the privileges granted under the license are not exercised in derogation of the public interest”) (emphasis added)). The converse is also plainly true: a violation of professional standards harms the public interest. It is not necessary for Klian to cause harm to a client to violate professional standards and harm the public interest.

Moreover, the ALJ found more than the public interest grounds for discipline. She also found that Klian lacks integrity (§1668(e)), he “engaged in a fraudulent practice or act or has conducted business in a dishonest manner” (§1668(i)), has “shown …untrustworthiness in the conduct of any business, or has by commission of a wrongful act or practice in the course of any business exposed…those dealing with him to the danger of loss” (§1668(j)), failed to perform an act required by the Insurance Code, or has committed an act forbidden by the Insurance Code (§1668(l), (g)), does not understand his duties (§1805(c)), and is not fit or proper for licensure. §1805(h).

Klian argues that the ALJ’s conclusion that he “does not understand the obligations and duties of bail” under section 1805(c) is unsupported by her findings. Pet. Op. Br. at 10; AR 699. He contends that this conclusion conflicts with the ALJ’s finding that Klian “has enjoyed a 23-year history of licensure, with no history of license discipline.” Pet. Op. Br. at 10; AR 700.

He is wrong. Klian does not dispute that he committed misconduct by prematurely destroying his business records and failure to seek approval for use of a fictitious name. The weight of the evidence also shows that he engaged in a scheme of retaliation against Stroobant and Lexington by withholding $23,111 in premiums for 65 bonds because they hired his former agent as his competitor. When confronted, he agreed to pay the money back, but stopped mid-stream. He then concocted a fictitious excuse for Department investigators as to why he made five $2500 payments. Klian repeated this falsehood under oath before the ALJ. This misconduct adequately supports the inference that Klian does not adequately understand the obligations and duties of bail.

Klian relies on the factors set forth in Skelly v. State Personnel Board, (1975) 13 Cal.3d 194, 219, for a decision-maker to consider in the discharge of a public employee. Pet. Op. Br. at 11. This is the wrong test.

“The object of an administrative proceeding aimed at revoking a license is to protect the public, that is, to determine whether a licensee has exercised his privilege in derogation of the public interest, and to keep the regulated business clean and wholesome. Such proceedings are not conducted for the primary purpose of punishing an individual.” Cornell v. Reilly, (1954) 127 Cal.App.2d 178, 184. The administrative agency’s penalty decision may not be disturbed unless there has been a manifest abuse of discretion. Lake, supra, 47 Cal.App.3d at 228. The policy consideration underlying such allocation of authority is the expertise of the administrative agency in determining penalty questions. Cadilla, supra¸26 Cal.App.3d at 966.

Klian committed misconduct which, pursuant to sections 1738 and 1807, authorize the Commissioner to suspend or revoke his license. In light of his 23-year history as a bail bondsman without discipline, his misconduct probably would have been insufficient to revoke his license if it had been limited to a failure to pay 65 bond premiums, use of an unauthorized fictious name, and failure to maintain adequate records. But Klian created a false story for investigators and perjured himself at the hearing. He also showed no remorse, no understanding of his obligations to Stoorbant and Lexington, and no prospect of rehabilitation. The ALJ accurately concluded that Klian’s misconduct had the potential to harm himself and others and exhibited untrustworthiness and irresponsibility.

This punishment of license revocation was not a manifest abuse of discretion.

F. Conclusion

The petition for writ of mandate is denied. The Department’s counsel is ordered to prepare a proposed judgment, serve it on Petitioner Klian’s counsel for approval as to form, wait ten days after service for any objections, meet and confer if there are objections, and then submit the proposed judgment along with a declaration stating the existence/non-existence of any unresolved objections. An OSC re: judgment is set for July 19, 2018 at 9:30 a.m.

[1] All further statutory references are to the Insurance Code unless otherwise stated.

[2] This appears to have been a mistake. The premiums charged to arrestees was only ten percent of the face amount of the bond. AR 375.

[3] The Commissioner adopted the ALJ’s decision, and that is the operative decision. For convenience, the court will refer to the ALJ’s decision.

[4] Klian does not dispute his guilt for this misconduct.

[5] F. Stroobant testified that Lexington would have computer records of the 2009 AERs. AR 427. Hotschnedier, who has access to Lexington’s computer, determined that the 65 bonds premiums were unpaid. AR 154 (¶6). Presumably, Klian could have asked Parton to bring to the hearing Lexington’s computer records for Klian’s 2009 AERs.