Opinion
NOT TO BE PUBLISHED
Marin County Super. Ct. No. CIV 090939
Jenkins, J.
This is an appeal from a judgment following the trial court’s denial of a petition for writ of administrative mandamus (petition) filed by appellants Suzie and Paul Zupan. The underlying administrative proceedings resulted in decisions by respondent Department of Corporations (department) to revoke seven of appellants’ finance-related business licenses, permits and applications, and to bar them from holding certain positions of employment, management or control in the State of California. For reasons discussed below, we affirm the judgment.
FACTUAL AND PROCEDURAL BACKGROUND
In 2003, appellants, husband and wife, formed Latitude Capital Management, Inc. (LCM), a real estate loan brokerage firm of which Suzie Zupan was president and sole shareholder. In 2005, LCM and Suzie Zupan filed applications for investment advisor representative certificates, which were issued simultaneously by the department on June 8, 2005. In LCM’s application, Suzie Zupan was identified as LCM’s president and sole shareholder, but no mention was made of Paul Zupan or his role in the company.
Subsequently, appellants formed the LCM High Income Fund, LLC (High Income Fund), followed by the Strategic Income Fund LLC (Strategic Income Fund), two mortgage pool investment funds managed by LCM. Both Funds eventually applied to the department for permits to offer and sell securities and lender/broker licenses pursuant to the California Finance Lenders Law, Financial Code section 22000, et seq. These applications, signed by Suzie Zupan under penalty of perjury, identified Suzie Zupan as president and person in charge of LCM, the Funds’ manager, without mentioning Paul Zupan or his corporate role. The High Income Fund was issued a lender/broker license on or about November 16, 2004, and a permit to offer and sell securities on or about March 2, 2005. The Strategic Income Fund was issued a lender/broker license on or about February 23, 2007, and a permit to offer and sell securities on or about July 5, 2007.
We collectively refer to LCM, the High Income Fund, and the Strategic Income Fund as the “investment companies, ” and collectively refer to the High Income Fund and Strategic Income Fund as the “Funds.”
Around this time, on July 18, 2006, Paul Zupan filed an application with the department for an investment advisor representative certificate. In response to specific questions on the application form, Paul Zupan disclosed that he had pled guilty to two felony counts of grand theft, for which he served prison time; his license to practice law had been suspended; he had resigned from the California State Bar with disciplinary proceedings pending for a crime of moral turpitude; and he had declared bankruptcy at least once. Also in this application, Paul Zupan identified his role in LCM as “clerk.” Based upon this representation that his corporate role was limited to that of clerk, the department issued Paul Zupan an investment advisor representative certificate on August 23, 2006.
Subsequently, on May 9, 2008, appellants were served by the department with an Order Summarily Suspending Permit Issued to LCM Strategic Income Fund, LLC and an Accusation and Statement in Support of Notice of Intent to Issue Orders (Suspension Order and Accusation). Named in the Suspension Order and Accusation were appellants and the investment companies. At appellants’ request, an administrative hearing was held July 1 and 2, 2008, at the Office of Administrative Hearings in Oakland to consider the issues raised therein.
At the hearing, numerous witnesses testified, including appellants, some of the Funds’ investors and several department investigators. During this testimony, it was revealed that the department’s action against appellants and the investment companies originated with an inquiry received by the Department of Real Estate that, in turn, led to investigations by the department into appellants’ investment-related activities. These investigations, in turn, prompted the department to file the Suspension Order and Accusation containing allegations that appellants and LCM, as manager of the Funds, failed to disclose to the department in connection with applications for various licenses, certificates and permits that Paul Zupan’s disciplinary history included felony convictions and disbarment, and that his role in LCM was that of a manager or executive rather than a clerk.
Appellants and a number of investors in the Funds later became involved in a separate civil lawsuit filed by appellants in California court.
Paul Zupan was, among other things, a licensed real estate salesperson.
After the hearing, on September 2, 2008, the administrative law judge (ALJ) issued a 27-page proposed decision, in which it found that appellants had committed numerous violations of the California Finance Lenders Law, Financial Code section 22000 et seq., as well as violations of Corporations Code section 25245, by, among other things, willfully omitting material facts and making false statements of material fact. The ALJ thus proposed revoking the lender/broker licenses, investment advisor certificates and permits to offer and sell securities issued to appellants and the investment companies. In addition, the ALJ proposed barring appellants from holding positions of employment, management or control of any finance lender, broker, investment advisor, broker-dealer or commodity advisor. The department adopted the ALJ’s proposed decision in its entirety on December 12, 2008.
On June 5, 2009, appellants filed a first amended petition for writ of administrative mandate (petition) seeking to have the decision adopted December 12, 2008 (decision) and orders contained therein overturned. Following a hearing, the trial court denied appellants’ petition and entered judgment against them.
On June 29, 2010, appellants filed a timely notice of appeal.
DISCUSSION
On appeal, appellants contend the following errors require reversal of the judgment and remand of the matter to the trial court for entry of an order in their favor or, in the alternative, a rehearing: (1) the trial court erred in denying their motion to augment the record; (2) the decision applied the wrong burden of proof; (3) the decision applied an overbroad definition of “controlling persons”; (4) substantial evidence did not support the factual finding that Paul Zupan’s role in LCM included exercising management and executive authority; (5) the administrative hearing was not conducted in the manner required by law because appellants were precluded from challenging the motive and credibility of certain witnesses; (6) the decision failed to “bridge the analytical gap” between its factual findings and legal conclusions; (7) the decision failed to state a basis for the finding that Paul Zupan lacked credibility; and (8) substantial evidence did not support the factual finding that LCM failed to disclose material information in connection with an investment in the High Income Fund by Allan Bright and Hae Fields.
We address each of these arguments below after setting forth the applicable standard of review.
I. Standard of Review.
The department is a state administrative agency with regulatory authority with respect to the financial operations of corporations. (Corp. Code, § 2207.) Among other things, the department is authorized to issue, administer, regulate and revoke certain licenses, certificates, and permits issued to individuals and corporations engaged in investment-related businesses. (E.g., Corp. Code, §§ 25113, 25140, subd. (a), 25143, subd. (a), 25232, 25232.1; Fin. Code, §§ 22101, 22169, subd. (a), 22714.)
As with other administrative decisions, final disciplinary decisions and orders by the department are subject to review by the California Superior Court. (Code Civ. Proc., § 1094.5.) In conducting this review, the trial court exercises its independent judgment on the evidence presented in the administrative hearing and determines whether the weight of the evidence supports the agency’s decision. (Fukuda v. City of Angels (1999) 20 Cal.4th 805, 817 [Fukuda].) In exercising this independent judgment, the trial court employs a “strong presumption of correctness” to the agency’s findings. (Breslin v. City and County of San Francisco (2007) 146 Cal.App.4th 1064, 1077-1078 [Breslin].) Further, the party challenging the administrative decision – here, appellants – bear the burden of proving that such findings were against the weight of the evidence. (Fukuda, supra, 20 Cal.4th at p. 817; Breslin, supra, 146 Cal.App.4th at pp. 1077-1078 [“In the trial court, the [petitioners] had the burden of proof to show that the [agency’s] decision was not supported by the weight of the evidence — that is, that the decision was not supported by the preponderance of the evidence”].)
In fleshing out this standard, the Fukuda court explained: “The findings of a board where formal hearings are held should and do come before the courts with a strong presumption in their favor based primarily on the [rebuttable] presumption contained in section 1963, subsection 15, of the Code of Civil Procedure [currently Evidence Code section 664] ‘That official duty has been regularly performed.’ Obviously, considerable weight should be given to the findings of experienced administrative bodies made after a full and formal hearing, especially in cases involving technical and scientific evidence.” (Fukuda, supra, 20 Cal.4th at p. 812; see also Mason v. Office of Admin. Hearings (2001) 89 Cal.App.4th 1119, 1131 [Mason].)
The Fukuda court noted that such a procedure ‘ “gives the reviewing court the power and duty of exercising an independent judgment as to both facts and law, but contemplates that... the burden shall rest upon the petitioner to support his challenge affirmatively, competently, and convincingly. In other words, rarely, if ever, will a board determination be disturbed unless the petitioner is able to show a jurisdictional excess, a serious error of law, or an abuse of discretion on the facts.” ([Sipper v. Urban (1943) 22 Cal.2d 138, 144] (conc. opn. of Schauer, J.).)’ (Fukuda v. City of Angels, supra, 20 Cal.4th at p. 814.)” (Mason, supra, 89 Cal.App.4th at p. 1131.)
On appeal, our task is to determine whether the trial court’s judgment is supported by substantial evidence. (Fukuda, supra, 20 Cal.4th at p. 824; see also Yakov v. Board of Medical Examiners (1968) 68 Cal.2d 67, 72-73 [“the question before this court turns upon whether the evidence reveals substantial support, contradicted or uncontradicted, for the trial court’s conclusion that the weight of the evidence does not [support the agency’s findings]”].) We therefore uphold the trial court’s factual findings unless they “so lack evidentiary support that they are unreasonable.” (Breslin, supra, 146 Cal.App.4th at p. 1078; see also City of Rancho Cucamonga v. Regional Water Quality Control Bd. (2006) 135 Cal.App.4th 1377, 1387.)
With respect to the trial court’s legal conclusions, however, we perform a de novo review. (Breslin, supra, 146 Cal.App.4th at pp. 1076-1077; Pollak v. State Personnel Bd. (2001) 88 Cal.App.4th 1394, 1404.) This de novo review includes deciding whether the factual findings made by the administrative agency – here, the department – support its ultimate decision or order. (Topanga Ass’n for a Scenic Community v. County of Los Angeles (1974) 11 Cal.3d 506, 515.)
II. Legal Contentions.
A. Did the trial court err in denying appellants’ motion to augment the record?
Appellants first challenge the trial court’s denial of their motion to augment the administrative record to include a transcript of a deposition taken of Allen Bright on March 17, 2010, nearly two years after the administrative hearing was held. Bright, an investor in the High Income Fund with his wife, Hae Fields, testified against appellants at the administrative hearing and was named as a defendant in a civil action brought by appellants in March of 2008 against certain of the Funds’ investors. It was in this civil action that Bright was deposed in March of 2010.
The parties agree the governing statute with respect to appellants’ motion to augment is Code of Civil Procedure section 1094.5, subdivision (e) (hereinafter, section 1094.5(e)), which provides as follows: “Where the court finds that there is relevant evidence that, in the exercise of reasonable diligence, could not have been produced or that was improperly excluded at the hearing before respondent, it may enter judgment as provided in subdivision (f) remanding the case to be reconsidered in the light of that evidence; or, in cases in which the court is authorized by law to exercise its independent judgment on the evidence, the court may admit the evidence at the hearing on the writ without remanding the case.”
Several appellate decisions have fleshed out the requirements of section 1094.5(e), and have concluded based on the clear statutory language that a moving party is barred from augmenting the record to include evidence not offered at the administrative hearing unless the party first demonstrates the evidence could not have been produced at the hearing even if reasonable diligence had been exercised. (Armondo v. Department of Motor Vehicles (1993) 15 Cal.App.4th 1174, 1180; Pomona Valley Hosp. Med. Center v. Superior Court (1997) 55 Cal.App.4th 93, 101-102.) “Determination of the question [of whether to augment the record] is within the discretion of the trial court; we will not disturb the exercise of that discretion unless it is manifestly abused. [Citation.]” (Armondo v. Department of Motor Vehicles, supra, 15 Cal.App.4th at p. 1180.)
In this case, we agree with the trial court that appellants have failed to make the evidentiary showing required by section 1094.5(e) in seeking to augment the record with testimony from Bright’s deposition, taken close to two years after the administrative hearing. The following is relevant to our conclusion.
In moving to augment the record, appellants claimed that Bright testified at the deposition that, when he invested in the High Income Fund, he did not completely understand the meaning of the term “dividend, ” but he did understand the Fund’s distributions were not guaranteed and could “fluctuate.” At the administrative hearing, appellants note, when asked why he expected to receive a monthly distribution, Bright responded: “When I got the paperwork, it said now where do you want that money sent? Do you want it sent to you or to your custodian?” According to appellants, because Bright’s deposition testimony contradicts his administrative hearing testimony that he expected monthly distributions, it should be admitted.
However, as the trial court noted in denying the motion to augment, appellants had ample opportunity, and in fact availed themselves of the opportunity, to cross-examine Bright at the administrative hearing on the issue of what he understood or expected with respect to the Fund’s payment of dividends and distributions. To the extent more information could have been gleaned from Bright during the hearing, appellants alone were responsible for uncovering it during cross-examination. As other courts have explained, “[w]here, as here, the witnesses in question had been subjected to a searching examination by petitioner at the hearing, where ample opportunity had been offered therein to impeach their testimony, and where it affirmatively appears from the discussion of counsel that he did not expect to elicit anything from the witnesses beyond that already in the record, the trial judge does not abuse his discretion in refusing to permit further testimony from such witnesses, the effect of which would be an encumbrance of the record with redundant matter. (Sparks v. Board of Dental Examiners, 54 Cal.App.2d 491, 494-495 [129 P.2d 405].)” (Mast v. State Board of Optometry (1956) 139 Cal.App.2d 78, 89.)
Finally, we add that the proffered testimony from Bright was both incomplete and highly selective in that it consisted of isolated, self-selected portions from the transcript of a deposition that the department neither attended nor received notice of. As such, we conclude, the trial court also had cause to deny appellants’ motion to augment based upon the evidence’s questionable origin and likely prejudicial effect. (See Pegues v. Civil Service Comm’n (1998) 67 Cal.App.4th 95, 105.)
B. Did the ALJ apply the wrong burden of proof and thereby fail to proceed in the manner required by law?
Appellants next contend the ALJ, whose decision was adopted by the department, applied the wrong standard of proof in deciding whether grounds existed for revoking or suspending their various licenses, certificates and permits and, in doing so, failed to proceed in the manner required by law. Specifically, appellants contend the administrative findings in this regard required proof that was clear and convincing, not just a preponderance of the evidence. In so arguing, appellants acknowledge the decision does not actually state which burden of proof the ALJ applied. However, appellants argue nonetheless that the evidence itself, which, they claim was insufficient to support the factual findings made below, was “sufficient to call into question whether the ALJ failed to properly apply the proper burden of proof.”
The trial court, in rejecting this argument below, found that because “this court will be independently reviewing the evidence and applying the weight of the evidence standard, the standard of proof used in the original proceedings is immaterial. (See Ettinger v. Board of Med. Quality Assurance (1982) 135 Cal.App.3d 853, 858.)” In addition, the trial court found appellants had waived the right to raise this issue by failing to offer it as grounds for relief in their first amended petition.
Putting aside the trial court’s reasoning and assuming without deciding that clear and convincing evidence is in fact the proper standard, we reject appellants’ burden of proof argument based upon the well-established presumption of regularity that applies to all administrative proceedings. As set forth above, the governing independent judgment standard of review “ ‘gives the reviewing court the power and duty of exercising an independent judgment as to both facts and law, but contemplates that the record of the administrative board shall come before the court endowed with a strong presumption in favor of its regularityand propriety in every respect and that the burden shall rest upon the petitioner to support his challenge affirmatively, competently, and convincingly. [Citation.]’ (Fukuda v. City of Angels, supra, 20 Cal.4th at p. 814.)” (Mason, supra, 89 Cal.App.4th at p. 1131 [emphasis added].) This standard stems from the equally well-established and related presumption that official duty has been regularly performed. (Fukuda, supra, 20 Cal.4th at p. 812.)
Here, in seeking to rebut this presumption of administrative regularity, appellants argue that “[the ALJ] must have used merely a preponderance of the evidence standard” because the ALJ failed to state in the decision when setting forth the factual findings that she employed the clear and convincing standard. In other words, appellants ask us to regard the ALJ’s silence on this issue as proof that she acted improperly. However, were we to accept this reasoning by appellants as sufficient to rebut the presumption of regularity with respect to the ALJ’s decisionmaking, we would all but eviscerate the presumption. This, we decline to do. Accordingly, we reject appellants’ contention that the ALJ failed to apply the proper standard of proof and continue to the next issue.
C. Did the decision apply an overbroad definition of “controlling persons”?
Appellants next contend the decision applied an overly broad definition of “controlling person” when determining that Paul Zupan qualified as such for purposes of the relevant disclosure requirements under the Corporations Code, Financial Code, and their implementing regulations. In doing so, appellants refer us to the definition of “controlling person” under the federal Securities Exchange Act, which, according to federal case law, requires proof of a person’s actual power or influence over the business entity. (E.g., Christoffel v. E.F. Hutton & Co. (9th Cir. 1978) 588 F.2d 665, 668.) According to appellants, by failing to apply this definition of “controlling person” below, the department failed to proceed in the manner required by law in conducting the administrative proceedings.
The trial court rejected this argument below, reasoning that “control person” liability under federal securities law is not the governing standard in this context. Rather, the much broader disclosure requirements under the California finance and security permit application statutes and regulations provide the governing standard.
We agree with the trial court. As reflected in the decision below, appellants’ failure to disclose material information regarding Paul Zupan’s role in LCM occurred in connection with their applications for various permits, certificates and licenses (including the broker/lender licenses and permit to offer and sell securities) and related filings. The rules governing completion and submission of these applications and filings are matters of state law, not federal law. For example, the contents of an application for a lender/broker license is governed by the California Finance Lenders Law, Finance Code section 22000 et seq. In particular, Financial Code section 22101, subdivision (a), provides: “An application for a license as a finance lender or broker under this division shall be in the form and contain the information that the commissioner may by rule require and shall be filed upon payment of the fee specified in Section 22103.” Financial Code section 22108, subdivision (a), in turn, provides: “The commissioner may by rule require licensees to file, at the times that he or she may specify, the information that he or she may reasonably require regarding any changes in the information provided in any application filed pursuant to this division.”
Further, the regulations that implement these statutory provisions are likewise rooted in state law. As the ALJ noted, instructions for completing a broker/lender license application are found in Code of Regulations, title 10, section 1422; and those for completing a permit to offer and sell securities in Code of Regulations, title 10, section 260.110. These instructions, in turn, are set forth in the actual application forms themselves, which appellants prepared.
For example, consistent with Code of Regulations, title 10, section 1422, the broker/lender license application form asks the applicant to identify “each of the person[s] who will be in charge of the place of business” and to then submit for each identified person a Statement of Identity and Questionnaire (SIQ) which, among other things, requires disclosure of the person’s criminal history. Further, the form’s execution page requires the applicant to agree to submit an amended application in the event of any change of its officers, directors, or any persons named in the application. (Cal. Code Regs, tit. 10, § 1422.)
Code of Regulations, title 10, section 1422 mandates, among other things, disclosure of the following information in an application for a lender/broker license:
LCM’s application for a lender/broker license, filed with the department on or about August 17, 2004 and signed by Suzie Zupan, identified one person – Suzie Zupan – as the person “in charge of the place of business.” Because Paul Zupan was not identified as a person in charge of the business in this application, there was no SIQ prepared on his behalf or any disclosures relating to his disciplinary history.
In addition, as the ALJ also noted, the Form ADV - Uniform Application for Investment Advisor Registration – contains a Schedule A, which requires the applicant to list “direct owners and executive officers.” With respect to each person listed in Schedule A, the applicant must provide certain information, including identifying whether this person has “control” over the applicant as the term is defined in Form ADV’s Glossary of Terms. This Glossary of Terms, in turn, defines “control” as “the power, directly or indirectly, to direct the management or policies of a person, whether through ownership of securities, by contract or otherwise. [¶] Each of your firm’s officers, partners, or directors exercising executive responsibility (or persons having similar status or functions) is presumed to control your firm.”
The Form ADV is filed online with the Investment Advisor Registration Depository, which then forwards applications from California applicants to the department.
On LCM’s Form ADV, filed on March 2, 2005 and signed electronically by Suzie Zupan, as LCM’s president, Suzie Zupan is the sole person listed in Schedule A. On August 16, 2007, an amended Form ADV was filed and signed electronically by Suzie Zupan on behalf of LCM. This amended form added James Wall as a direct owner and executive officer of LCM and designated both Suzie Zupan and Dois Brock as control persons. Subsequently, another amended Form ADV was filed and signed electronically by Suzie Zupan on behalf of LCM in early 2008. This amended form deleted James Wall as a direct owner and executive officer of LCM while continuing to designate Suzie Zupan and Dois Brock as control persons.
Form ADV also contains an “Item 10, ” asking the applicant whether any person not named in Schedule A directly or indirectly controls the applicant’s management or policies, and “Item 11, ” requiring the applicant to provide information about its disciplinary history, as well as the history of any of the applicant’s “advisory affiliates.” “Advisory affiliates” are defined on the form as: “(1) all of your current employees (other than employees performing only clerical, administrative, support or similar functions); (2) all of your officers, partners, or directors (or any person performing similar functions); (3) all persons directly or indirectly controlling you or controlled by you.” Question F under Item 11 then asks: “Has an authorization to act as an attorney, accountant, or federal contractor granted to you or any advisory affiliate ever been revoked or suspended?”
Under Item 10 on LCM’s original Form ADV, as well as both amended forms, Dois Brock is the only person listed. Further, there is no disciplinary history provided for any advisory affiliate under Item 11 and the answer to Question F on all forms is “No.”
Part II of Form ADV, in turn, requires all applicants providing investment supervisory services, managing investment advisory accounts, or holding themselves out as providing financial planning or some similarly termed service to, among other things, describe the “reviewers” of the accounts, including “the number of reviewers, their titles and functions, instructions they receive from applicant on performing reviews, and [the] number of accounts signed each.”
On LCM’s original Form ADV, Suzie Zupan was the only reviewer identified. However, the amended form filed in 2007 added the following information: “[LCM] manages the LCM High Income Fund, LLC, which amounts to reviewing one account. Suzie Zupan and Paul Zupan are assigned to review this account. Review consists of managing the daily review of investments, maintaining sufficient liquidity and supervising receivables (loan servicing is contracted out.)” In addition, this amended form listed both Suzie Zupan and Paul Zupan in Schedule F, Item 6, when asked to identify “each principal executive of applicant or each person with similar status or performing similar functions.” Paul Zupan is also identified as the Operations Manager of Latitude Capital and Latitude Financial.
And finally with respect to the lender/broker license, all licensees are required to file annual reports with the department. Schedule K of the annual report includes a directory of directors, officers, branch managers and any person owning or controlling 10 percent or more interest or equity securities. The instructions for completing Schedule K provide in relevant part: “If the person was required to be included in the initial application or in a subsequent report of a changes [sic] in personnel, the person should be included in this directory.”
LCM’s Schedule K for the High Income Fund listed only Suzie Zupan and Dois Brock.
It was upon these and related sources of California law that the ALJ relied in deciding what information appellants were required to disclose regarding Paul Zupan’s corporate role when applying to the department for the relevant permits, certificates and licenses. Given the undeniable relevance of these legal sources, the ALJ’s decision in this regard was proper. (E.g., Fin. Code, §§ 22101, subd. (a), 22108, subd. (a); Cal. Code Regs., tit. 10, §§ 1422, 260.110.)
Accordingly, because we agree with the trial court that the decision applied the appropriate legal framework for determining whether appellants properly disclosed all relevant information regarding Paul Zupan and his role in LCM in connection with their applications for the various licenses and permits, we now turn to the actual evidence in the record to determine whether it supports the factual finding in the decision that material omissions of such information were made.
D. Does the evidence support the finding that Paul Zupan’s role in LCM included management and executive authority such that his identity was required to be disclosed in the license and permit applications?
The specific factual finding challenged by appellants herein is that Paul Zupan assumed a management and executive role in LCM such that his identity should have been disclosed to the department in connection with appellants’ various license and permit applications. In initially making this finding, the ALJ reasoned that the “evidence supports a finding that at least as of June 10, 2005, when Paul Zupan became Financial Manager of High Income Fund by the terms of the Employment Agreement, his role in [LCM] and High Income Fund included executive and management authority such that he should have been listed on all subsequent official applications and reports for LCM and High Income Fund (and, later, Strategic Income Fund).” Subsequently, in the mandamus proceedings below, the trial court accepted the ALJ’s finding as supported by the weight of the evidence.
Appellants, in challenging this finding, insist Paul Zupan’s role in LCM was limited to bookkeeping, accounting and client contact in a non-advisory role, such as describing to clients the Fund’s offering circular and operating agreement. Suzie Zupan, on the other hand, was the person primarily responsible for LCM’s marketing, investment decisions, bank relations, employee oversight, and other executive decisions. According to appellants, they orchestrated this division of labor with assistance from counsel based upon their awareness of the legal limits placed on Paul Zupan’s corporate role as a result of his disciplinary history.
Appellants acknowledge they intended that Paul Zupan would eventually become an officer, director and shareholder of LCM, but only when appropriate for him to do so.
We reject appellants’ claims. Having reviewed the relevant portions of the administrative record, we find no grounds for disturbing the ALJ’s factual finding, accepted by the department and the trial court, that Paul Zupan acted with management and executive authority on behalf of LCM.
First, as noted by the ALJ, on June 10, 2005, Paul Zupan executed an Employment Agreement with Suzie Zupan, who was acting as LCM’s president, to serve as “Financial Manager” of the High Income Fund with “all of the powers and duties usually incident to the office.” According to this agreement, Paul Zupan “has and will invest significant assets and time into the founding and development of the Company....” Then, after noting that “it is apparent it will be necessary to delay compensation, ” the agreement set Paul Zupan’s compensation at not less than $100,000 per year, with severance pay of $500 per day until December 31, 2010.
An updated version of this employment agreement was later executed by Suzie and Paul Zupan on October 5, 2007, identifying Paul Zupan’s position as both Advisor and Financial Manager of the High Income Fund with “all of the powers and duties usually incident to the office.” Similar to the original agreement, the updated agreement, which became effective January 1, 2008, noted that Paul Zupan “has invested significant assets and time into the founding and development of the Company” and has “delayed receiving compensation for services pending development of the Company.” The updated agreement set Paul Zupan’s compensation at not less than $100,000 per year and his severance pay at $277.78 per day until December 31, 2010.
Appellants claim these employment agreements are insignificant because they merely assign a title to Paul Zupan without describing his actual role in LCM. However, we agree with the ALJ and the trial court that there is other evidence in the record demonstrating that Paul Zupan exercised management and executive authority on LCM’s behalf, consistent with the terms of these agreements.
For example, in August 2007, Marc Valle, a corporations examiner with the department, visited LCM’S offices to respond to an inquiry from the Department of Real Estate as to why Paul Zupan had been issued an investment advisor representative registration. As part of his examination, Valle reviewed 39 High Income Fund client files maintained by LCM and discovered in these files four operating agreements and two subscription agreements signed on behalf of LCM by Paul Zupan as the Fund’s manager. Paul Zupan’s signature was likewise found on several other documents executed between December 2005 and May 2007, including one in which his title is identified as “VP.” Valle also reviewed files for 10 of the 37 properties held in the High Income Fund mortgage pool, each of which contained a lender servicing and equity interest agreement between Integral Financial Services and “Lender.” In six of these ten files, Paul Zupan’s signature was found on agreements executed between April and June 2007, including one in which he is identified as “EVP” of LCM, manager of the High Income Fund. As the ALJ pointed out, section 3.08 of the High Income Fund operating agreement states that “no Member (other than a Manager who is also a Member) shall take part in the management of the Company’s business, transact any business in the Company’s name or have the power to sign documents for or otherwise bind the Company.”
Also of significance, during Valle’s August 16, 2007 visit, Paul Zupan filled out an Investment Advisor Summary of Personnel form on behalf of LCM in which he listed Suzie Zupan as president, director and sole shareholder and himself as operations manager.
In addition, a month before Valle’s visit, on July 27, 2007, Paul Zupan wrote a letter to Hae Fields, wife of Allen Bright and a potential High Income Fund investor, which he signed “EVP” (executive vice president) of LCM, manager of the High Income Fund. He then emailed Fields on September 18, 2007, enclosing a copy of LCM’s monthly update and signing off “Paul Zupan, Vice President.”
Several months later, on February 11, 2008, corporations examiners Annette Yeung and Angela Blais visited LCM’S offices to conduct a routine 6-day regulatory examination of the High Income Fund’s activities as a broker/lender under the California Finance Lenders Law. During this visit, Yeung and Blais personally observed that Paul Zupan was in charge of the office and he identified himself to Blais as an investment advisor/manager for the Fund. Consistent with this description, on or about March 12, 2008, Paul Zupan signed annual reports for the High Income Fund and Strategic Income Fund identifying himself as “Manager” that were later filed with the department.
Consistent with Yeung’s and Blais’s observations, Josh Nevarez, a certified public accountant and the High Income Fund’s independent auditor, testified that, based on his professional experience, he considered Paul Zupan to be the Fund’s manager and person in charge. Nevarez also described the Fund as a “one man shop” for purposes of internal control evaluation based on Paul Zupan’s role in the company. Nevarez noted that he never dealt with Suzie Zupan.
Finally, several investors testified at the hearing regarding their personal observations that Paul Zupan had an executive or management role with LCM. Investors Randolph Smith, Patrick Sheehan, Howard Gore and Ronald Samet testified that, based on their interactions with LCM personnel, they believed Paul Zupan, not Suzie Zupan, was the Fund manager and primary decisionmaker. In addition, investor Arnold Neil testified that he received written correspondence designating Paul Zupan as “manager” or vice-president, and investor Gore added that “at least for my personal experience, [Paul Zupan] did all the marketing, all the sales... signed the checks, handled all the problems.... [He] did everything. Everything to service my account.”
This evidence, viewed collectively, more than supports the factual finding in the decision that, by June 10, 2005, the date on which Paul Zupan became Financial Manager of the High Income Fund under the employment agreement, his role in LCM was far more extensive than that of clerk or bookkeeper. Rather, as both the ALJ and the trial court found, the documentary evidence and live testimony established that Paul Zupan performed managerial and executive-level tasks for LCM that included transacting business with investors in LCM’s name and executing documents, including operating agreements, that would ultimately become legally binding on LCM. Accordingly, based on the substantial, credible and competent evidence in the record, the factual finding regarding Paul Zupan’s management or executive role in LCM is affirmed.
E. Was the hearing conducted in the manner required by law?
Appellants further contend the administrative hearing was not conducted in the manner required by law because they were precluded from challenging the motive and credibility of certain witnesses. Specifically, appellants claim the hearing was flawed because the ALJ improperly excluded material evidence tending to prove the investors who testified against them at the hearing acted with malice or otherwise lacked credibility.
Decisions regarding the admissibility of evidence at administrative hearings are governed by the Government Code. Section 11513, subdivision (c), of this Code provides that “[a]ny relevant evidence shall be admitted if it is the sort of evidence on which responsible persons are accustomed to rely in the conduct of serious affairs, regardless of the existence of any common law or statutory rule which might make improper the admission of the evidence over objection in civil actions.” In addition, subdivision (f) of this statute grants discretion to the presiding officer “to exclude evidence if its probative value is substantially outweighed by the probability that its admission will necessitate undue consumption of time.” (Gov. Code, § 11513, subd. (f).)
As these provisions reflect, the legislature contemplates a relaxing of the rules of evidence in administrative hearings. However, as noted above, unless it can be demonstrated that the hearing officer’s decision, including its exclusion of evidence, was the product of jurisdictional excess or a serious error of law, the reviewing court will presume the administrative proceedings were conducted with regularity. (Fukuda, supra, 20 Cal.4th at p. 814; City of Rancho Cucamonga v. Regional Water Control Board, supra, 135 Cal.App.4th at p. 1384.) In addition, the challenging party – here, appellants – has the burden of demonstrating such error “affirmatively, competently, and convincingly.” (Fukuda, supra, 20 Cal.4th at pp. 814, 817.) In this case, we conclude appellants have failed to meet this burden.
Below, in upholding the ALJ’s decision to exclude the challenged evidence, the trial court found that it was “clear the ALJ was well aware of the animosity and ‘recriminations back and forth’ between the Zupans and the investors [record citation] and the ALJ allowed direct evidence of motivation and malice when it was presented. [Record citation.] The excluded testimony would have been cumulative and its probative value outweighed by the probability that its admission would necessitate undue consumption of time.” Having reviewed the record ourselves, we find this observation by the trial court adequately supported by the evidence. Specifically, the record reflects that appellants were in fact permitted to present some evidence relevant to the investors’ malice and lack of credibility before the ALJ ultimately decided to bar further such evidence on grounds that it would have been cumulative and substantially more prejudicial that probative. In doing so, the ALJ pointed out that much of the excluded evidence was irrelevant to the actual issues at hand – whether appellants failed to disclose material information in their submissions to the department. Even assuming marginal relevance, however, given the credibility and malice evidence already in the record and in light of the presumption of regularity afforded to administrative proceedings, we conclude the ALJ’s decision to exclude additional evidence reflective of the distrust and animosity between appellants and their investors was within the scope of discretion afforded under Government Code section 11513, subdivision (f). (See Fukuda, supra, 20 Cal.4th at p. 814; City of Rancho Cucamonga v. Regional Water Control Board, supra, 135 Cal.App.4th at p. 1384.)
For example, the ALJ permitted appellants to elicit testimony that one of the investors referred to Paul Zupan as a “scumbag” in an email to other members of the Fund, but then sustained an objection when appellants further asked the investor how he came “to believe that we were criminals and scumbags and committing a ponzi scheme.” In doing so, the AJL reasoned such evidence was irrelevant to whether appellants had a duty to disclose certain information to the department, and then added: “We could be here all day listening.”
F. Does the decision adequately link the factual findings to the legal conclusions?
As appellants correctly note, “the agency which renders the challenged decision must set forth findings to bridge the analytic gap between the raw evidence and ultimate decision or order.” (Topanga Ass’n for a Scenic Community v. County of Los Angeles, supra, 11 Cal.3d at p. 515.) According to appellants, in this case, the ALJ violated this principle in two instances: (1) when finding that they violated Code of Regulations, title 10, sections 1409 and 1422 by failing to file an amendment to their application for a lender/broker license adding Paul Zupan as a person “in charge of the place or business”, and (2) in finding cause to censure, suspend or bar Paul Zupan from any position of employment, management or control of any finance lender or broker pursuant to Financial Code section 22169, subdivision (a). We address each of these alleged errors in turn below.
Turning to the first alleged violation, we note the decision clearly sets forth the substance of both regulations governing the disclosure requirements for lender/broker licenses (Cal. Code Regs, tit. 10, §§ 1409, 1422), then describes the evidence relating to Paul Zupan’s role in LCM and the contents of appellants’ lender/license applications and related filings, before ultimately concluding as follows:
“On August 13, 2004, Suzie Zupan signed High Income Fund’s application for a lender/broker license under the California Finance Lenders Law. Above her signature on the execution page was the language that she:
... agrees that in the event of any change of its officers, directors, or any persons named in this application, that an amendment to the application reflecting such change shall within sixty days from the date of the change, be filed with the Commissioner of Corporations setting forth the change, the effective date of the change, the names of the persons involved in the change, and a statement of the qualifications of each successor person.’
After June 10, 2005, an amendment to the application should have been filed, adding Paul Zupan in the section for listing each person who will be in charge of the place of business. A SIQ completed by Paul Zupan should have accompanied the amendment.” The decision reaches the conclusion that appellants violated the identified regulations by failing to disclose information relating to Paul Zupan’s role and undisputed personal history.
The requirements of these regulations, as well as the evidence relating to Paul Zupan’s corporate role and appellants’ submissions to the department, are set forth above. (See pp. 10-18.) We see no reason to repeat them here.
Unlike appellants, we encountered no confusion in following the ALJ’s analytical reasoning in concluding that appellants violated the aforementioned regulations. We have already held that the weight of the evidence supports a finding that Paul Zupan had an executive or management role in LCM and, thus, should have been disclosed in LCM’s original and amended lender/broker license applications. Further, the disclosure requirements set forth in the relevant regulations speak for themselves. California law requires only that an administrative agency “render findings sufficient both to enable the parties to determine whether and on what basis they should seek review and, in the event of review, to apprise a reviewing court of the basis for the board’s action.” (Topanga Ass’n for a Scenic Community v. County of Los Angeles, supra, 11 Cal.3d at p. 514.) In this instance, this standard was met.
Moreover, we reach the same result with respect to appellants’ challenge to the legal conclusion that cause existed to censure, suspend or bar Paul Zupan from any position of employment, management or control of any finance lender or broker pursuant to Financial Code section 22169, subdivision (a). In this instance, the conclusion reached by the ALJ was as follows:
“The violations of High Income Fund and Strategic Income Fund set forth in Conclusions 3 through 6 were committed or caused by Paul Zupan, since he had executive and management authority in Latitude Capital. Cause to censure, suspend or bar him from any position of employment, management or control of any finance lender or broker exists under Financial Code section 22169, subdivision (a)(1). The censure, suspension or bar is in the public interest. Additional cause exists under Financial Code section 22169, subdivision (a)(2), by reason of Paul Zupan’s 1992 conviction for grand theft. (Finding 9.) Grand theft is an offense involving dishonesty which is reasonably related to the qualifications, functions or duties of a person engaged in the finance lending business.”
Financial Code section 22169, subdivision (a) provides in relevant part: “The commissioner may, after appropriate notice and opportunity for hearing, by order, censure or suspend for a period not exceeding 12 months, or bar from any position of employment, management, or control any finance lender, broker, mortgage loan originator, or any other person, if the commissioner finds either of the following: [¶] (1) That the censure, suspension, or bar is in the public interest and that the person has committed or caused a violation of this division or rule or order of the commissioner, which violation was either known or should have been known by the person committing or causing it or has caused material damage to the finance lender, broker, or mortgage loan originator, or to the public. [¶] (2) That the person has been convicted of or pleaded nolo contendere to any crime, or has been held liable in any civil action by final judgment, or any administrative judgment by any public agency, if that crime or civil or administrative judgment involved any offense involving dishonesty, fraud, or deceit, or any other offense reasonably related to the qualifications, functions, or duties of a person engaged in the business in accordance with the provisions of this division.”
Appellants make no challenge to Conclusions 3 through 6, cross-referenced above, which relate generally to their multiple failures to provide relevant information to the department in connection with their applications for lender/broker licenses and other paperwork in violation of, among other provisions, Financial Code section 22159, subdivision (a). Instead, appellants argue that “Financial Code section 22169 requires a finding that any censure, suspension or bar is in the public interest and that the person has committed or caused a violation of this division or rule or order of the commissioner which was either known or should have been known by the person committing or causing it or has caused material damage to the finance lender, or to the public.”
However, appellants’ argument on this point addresses Financial Code section 22169, subdivision (a)(1), while ignoring subdivision (a)(2) of the statute, which was also relied upon by the ALJ. And while we may agree with appellants that the ALJ could have offered more analysis with respect to its conclusion under subdivision (a)(1) that Paul Zupan’s censure, suspension or bar is in the public interest, our agreement in this regard would provide no ground for reversal given the ALJ’s alternative conclusion under subdivision (a)(2). It is beyond dispute that Paul Zupan was convicted of grand theft, an offense involving dishonesty, fraud, or deceit. Accordingly, on this basis alone we may affirm the AJL’s conclusion that grounds exist to censure, suspend, or bar Paul Zupan pursuant to Financial Code section 22169, subdivision (a).
G. Does substantial evidence support the finding that LCM failed to disclose material information to investor Allen Bright prior to his investment?
Appellants also challenge the factual finding that LCM violated Corporations Code section 25401 by failing to disclose material information to investor Bright before he and his wife, Fields, invested in the High Income Fund. Based on our review of the record, we again disagree.
Corporations Code section 25401 makes it “unlawful for any person to offer or sell a security in this state or buy or offer to buy a security in this state by means of any written or oral communication which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.”
As the record reflects, the ALJ found that LCM failed to disclose to Bright and Fields the material fact that the Fund in which they were investing was performing quite poorly and had ceased making monthly distributions as of late August 2007, weeks before their September 21, 2007 investment. The ALJ based this finding on documentary evidence as well as Bright’s live testimony showing that Paul Zupan presented the High Income Fund to Bright and Fields at all times prior to their investment as a well-performing fund that “distributes dividends on a monthly basis” despitethe fact that the Fund had already ceased generating income. It is clear from the decision itself that the ALJ accepted Bright’s testimony on this subject. It is equally clear the ALJ rejected as not credible Paul Zupan’s inconsistent testimony that he in fact told Fields by telephone on September 19, 2007, that the Fund had ceased paying dividends and asked her repeatedly before finalizing their investment whether they would rather invest in the Strategic Income Fund. In rejecting this testimony by Paul Zupan, the ALJ relied on, among other things, the fact that no documentary evidence in the record corroborated it, even though it would have been reasonable to record the details of such a significant conversation had it occurred.
Specifically, in finding Paul Zupan not credible, the ALJ relied on the fact that he failed to advise Fields that dividends had been suspended in a “Monthly Update” emailed to her on September 18, 2007, the day before he allegedly gave her this information by telephone. Nor did Paul Zupan cross-examine Bright at the hearing regarding whether Fields told him that she had learned distributions were suspended. According to the ALJ, “if Paul Zupan had made such an unexpected disclosure [about the Fund’s nonpayment of distributions], it would have been reasonable to document the disclosure and the investor’s acknowledgement of it in going forward with the investment.” Finally, the ALJ relied on the fact, reflected in the documentary evidence, that Paul Zupan in fact considered returning Bright’s investment in the High Income Fund and excluding him from the Fund’s subsequent write-down. According to the ALJ, it was unlikely Paul Zupan would have considered taking these actions had he disclosed to Bright and Fields prior to their investment that the Fund was not paying dividends.
Based on this record, we see no grounds for overturning the trial court’s decision that the ALJ’s factual findings with respect to the Bright investment, including the ALJ’s credibility findings, were supported by the weight of the evidence. (See Fukuda, supra, 20 Cal.4th at p. 819 [trial courts must give “great weight” to state agency hearing officers’ credibility determinations].) As recognized by the trial court, because the ALJ was able to personally observe this testimony at the hearing, she was in a much better position than this court to weigh its evidentiary value. And, given Bright’s credible and competent testimony that appellants failed to disclose that the Fund had ceased paying distributions in August of 2007, there was sufficient evidence in the record to prove LCM’s failure to disclose material facts. (Duncan v. Department of Personnel Administration (2000) 77 Cal.App.4th 1166, 1174-1175 & fn. 6 [foundational factual findings must be sustained if supported by substantial evidence, which in some cases may be in the form of a single witness’s testimony].)
H. Did the ALJ’s credibility finding comport with Gov. Code § 11425.50(b)?
Finally, in a related argument, appellants claim the administrative decision violated Government Code section 11425.50, subdivision (b), by failing to state a basis for the ALJ’s finding that Paul Zupan lacked credibility when testifying that he advised Fields by telephone on September 19, 2007, that the High Income Fund had ceased paying monthly distributions. Government Code section 11425.50, subdivision (b), provides in relevant part that “[i]f the factual basis for the decision includes a determination based substantially on the credibility of a witness, the statement shall identify any specific evidence of the observed demeanor, manner, or attitude of the witness that supports the determination, and on judicial review the court shall give great weight to the determination to the extent the determination identifies the observed demeanor, manner, or attitude of the witness that supports it.” (Gov. Code § 11425.50, subd. (b).)
As this statutory language makes clear, to the extent the ALJ’s finding regarding Paul Zupan’s credibility rested on “any specific evidence of the observed demeanor, manner, or attitude of the witness, ” such evidence was required to be identified in the decision. (Gov. Code § 11425.50, subd. (b).) In this case, however, the ALJ found Paul Zupan not credible for reasons other than his observed demeanor, manner, or attitude. Specifically, as set forth above, the ALJ made clear in the decision that she found Paul Zupan’s testimony regarding his phone conversation with Fields not credible because, among other things, his testimony was inconsistent with or not corroborated by other evidence, even though it would have been reasonable to document such a significant disclosure had it actually been made before going forward with the Bright investment. (See p. 24 and fn. 16, ante.)
Accordingly, we reject appellants’ ultimate claim that the decision failed to comport with the requirements of Government Code section 11425.50, subdivision (b).
DISPOSITION
The judgment is affirmed. Costs are awarded to respondent.
We concur: McGuiness, P. J., Pollak, J.
“ITEM NUMBER 6 OF APPLICATION (Corporations and Other Business Entities):... [¶¶] 6.b. Officers and Directors: [¶] List the full name of each of the officers, directors, managers, and trustees.[¶] 6.c. Person(s) Who Will Be In Charge of the Place of Business: [¶] Provide the full name, address, telephone number, and e-mail address of all managers as ‘person(s) who will be in charge of the place of business.’ ‘Managers’ are persons with authority to manage the operations of the organization in California. [¶] 6.d. and 6.e. Other Persons: [¶] List the full name of any other person with direct responsibility for the applicant’s proposed activities under the CFLL license in 6.d. and any other person that owns or controls, directly or indirectly, 10% or more of the applicant in Item 6.e.” (Emphasis added.)
In addition, the applicant must sign an execution page that includes, among other things, the following declaration: “In the matter of the Application for a License under the California Finance Lenders Law, I, the undersigned, authorized to act on behalf of the applicant, declare that the following statements are true and correct: [¶]... [¶] “4. That in the event of any change of its officers, directors, or any other persons named in this application, the applicant will file an amendment to the application containing the same information in relation to the new person(s) as is required in the application, within thirty days from the date of the change, with the California Corporations Commissioner.” (Cal. Code Regs., tit. 10, § 1422.)