
FILED:  September 10, 2004
IN THE SUPREME COURT OF THE STATE OF OREGON
PAUL A. KERLEY,
Respondent on Review,
v.
REAL ESTATE AGENCY,
Petitioner on Review.
(Agency No. 200003-R-098C; CA A115200; SC S49995)
En Banc
Argued and submitted September 5, 2003.*
Philip Schradle, Special Counsel to the Attorney General,
Salem, argued the cause and filed the brief for petitioner on
review.  With him on the brief were Hardy Myers, Attorney
General, and Mary H. Williams, Solicitor General.
Andrew P. Ositis, Salem, argued the cause and filed the
brief for respondent on review.
Andrea L. Bushnell and Matt Farmer, Salem, filed the brief
for amicus curiae Oregon Association of Realtors.
GILLETTE, J.
The decision of the Court of Appeals is reversed.  The order
of the Real Estate Commissioner is affirmed.
*On judicial review of an order of the Real Estate
Commissioner.  184 Or App 163, 55 P3d 549 (2002). 
GILLETTE, J.
This is a case of judicial review of a final order of
the Real Estate Commissioner (the commissioner).  The order
revoked the real estate salesperson's and real estate broker's
licenses of respondent Kerley, based on Kerley's embezzlement of
funds belonging to two partnerships of which Kerley was a member. 
Kerley had committed the acts of embezzlement before he received
his real estate licenses.  On Kerley's petition for judicial
review, the Court of Appeals reversed the commissioner's order. 
Relying on this court's decision in Dearborn v. Real Estate
Agency, 334 Or 493, 53 P3d 436 (2002) (Dearborn II), the court
held that the commissioner lacked authority to suspend or revoke
a real estate license for "private acts."  Kerley v. Real Estate
Agency, 184 Or App 163, 168, 55 P3d 549 (2002).  We allowed the
commissioner's petition for review and now reverse the decision
of the Court of Appeals.
We take our statement of facts from the decision of the
Court of Appeals: (1)

"In 1988, 1990, and 1992, [Kerley], who was then a
member of the Oregon State Bar (the Bar), entered into
three real estate investment partnerships (the
partnerships).  In each case, [Kerley] drafted the
partnership agreement.  A second partner, Rogovoy, was
the managing partner of each partnership.  In the
partnerships formed in 1988 and 1990, all of the
capital was provided by a third partner, King.  In the
partnership formed in 1992, which also included King, a
fourth partner, Kayser, provided all of the capital.  
"Sometime in 1993, [Kerley] invested in the
Dandelion Pub, a business venture that did not involve
any of his partners in the partnerships.  In October
and November 1993, [Kerley] wrote and negotiated three
separate checks totaling $50,000 from two of the
partnership accounts to fund the Dandelion Pub venture. 
[Kerley] did not inform any of his partners that he had
withdrawn partnership funds for that purpose.  In April
1994, [Kerley] realized that he could not replace the
$50,000, so he disclosed to Rogovoy his unauthorized
withdrawal of the partnership funds.  When King learned
of [Kerley's] conduct, he instituted partnership
dissolution proceedings.  On April 14, 1995, all three
partnerships were dissolved pursuant to a settlement
agreement.
"On May 1, 1995, The Real Estate Agency (the
agency) issued a real estate salesperson's license to
[Kerley].  In August 1995, King's attorney filed a Bar
complaint against [Kerley].  In June 1997, [Kerley]
applied for a real estate broker's license, which the
agency issued in July 1997.  In January 1999, the Bar
commenced formal disciplinary proceedings against
[Kerley].  The Bar's complaint alleged that [Kerley]
had violated several disciplinary rules in connection
with his real estate partnership activities, including
the unauthorized withdrawal of partnership funds.  In
December 1999, [Kerley] executed a Form B resignation
from the Bar, which the Supreme Court accepted.
"When the agency learned that disbarment
proceedings had been instituted against [Kerley], it
commenced a separate disciplinary investigation of his
activities.  On June 20, 2000, the agency notified
[Kerley] that it intended to revoke both of his real
estate licenses."

Id. at 165-66.
The commissioner (2) is the person responsible for
issuing orders disciplining persons who are subject to the
agency's authority.  ORS 696.301 (1995). (3)  In the present
case, the commissioner purported to act under the authority
granted him to suspend or revoke a real estate license by ORS
696.301(31) (1995), amended by Or Laws 2003, ch 398, § 10a, which
provided:

"The [Real Estate C]ommissioner may suspend or
revoke the real estate license of any real estate
licensee or reprimand any licensee, or may deny the
issuance or renewal of a license to an applicant, who
has done any of the following:
"* * * * *
"(31) Any act or conduct, whether of the same or
of a different character specified in [the other
subsections of] this section which constitutes or
demonstrates bad faith, incompetency or
untrustworthiness, or dishonest, fraudulent or improper
dealings." (4)

The scope of that subsection, the commissioner determined,
extended beyond any acts that a licensee might commit while
licensed and permitted the commissioner to suspend or revoke a
license when acts that a licensee had committed before becoming a
licensee demonstrated the requisite degree of, for example,
"untrustworthiness" or "dishonest, fraudulent or improper
dealings." (5)  Kerley, however, argued that ORS 696.301(31)
was inapplicable to him because the acts in question all occurred
before he became a licensee and the scope of the statutory
prohibition did not extend to prelicense conduct.
As noted, the Court of Appeals agreed with Kerley. 
That court, relying on this court's opinion in Dearborn II, held
that,

"even though [Kerley's] conduct demonstrated
untrustworthiness and improper dealings, that conduct
did not occur while he held a real estate license and
therefore did not relate to professional real estate
activities.  Accordingly, the commissioner was not
authorized, under ORS 696.301(31), to rely on that
conduct as the ground for revocation of petitioner's
broker's license."

Kerley, 184 Or App at 169.  As we shall explain, we read both
Dearborn II and the statute differently.
Because Dearborn II, the case on which the Court of
Appeals and Kerley rely, is pivotal to this case, we discuss it
in some detail.  Dearborn was a licensed real estate broker who
pleaded no contest to certain drug possession charges.  In
addition to those charges, evidence received by the commissioner
established that Dearborn had been exchanging drugs for sex with
itinerant men and that he may have engaged in such sexual acts
while a juvenile male runaway was present in his house.  Dearborn
II, 334 Or at 495-96.  After notice and a hearing, the
commissioner issued a final order revoking Dearborn's broker's
license.  In doing so, the commissioner relied on ORS 696.301(26)
(1995) (licensee convicted of felony or misdemeanor
"substantially related to the licensee's trustworthiness or
competence to engage in professional real estate activity") and
ORS 696.01(31) (1995).
On judicial review in the Court of Appeals, Dearborn
asserted, and the Court of Appeals agreed, that the facts proved
at the hearing were not connected sufficiently with Dearborn's
activities as a licensee to permit the commissioner to sanction
him for those activities.  Dearborn v. Real Estate Agency, 165 Or
Ap 433, 439, 997 P2d 239 (2000) (Dearborn I).  This court allowed
the commissioner's petition for review.
In Dearborn II, 334 Or 493, this court addressed the
kind of nexus, if any, that had to exist between any allegedly
improper acts by a real estate licensee and real estate activity. 
To answer that question, the court focused on the wording of the
two subsections of ORS 696.301 on which the commissioner had
relied, as well as the context in which those two subsections
appeared.  The court noted, first, with respect to the scope of
ORS 696.301, that

"[v]irtually all the subsections specify, in one way or
another, that the acts that they set out must have
occurred in connection with the licensee's real estate
activity, and the others, read in context, all appear
to be similarly limited in scope."

Id. at 499.  The court then examined the text of the two
subsections there at issue and summarized its conclusions
respecting subsection (31) (6) as follows:

"[W]e conclude from the foregoing review of text and
context that the reference in subsection (31) to 'any
act or conduct * * * which constitutes or demonstrates
bad faith, incompetence or untrustworthiness, or
dishonest, fraudulent or improper dealing,' is a
reference to conduct that is substantially related to
the broker's trustworthiness, competence, honesty, or
good faith to engage in real estate activity."

Id. at 500-01 (emphasis added).  The court repeated that
requirement later in the opinion:

"We conclude that, under both subsections cited by
the Commissioner as authority for his decision to
revoke broker's license, there must be a substantial
relationship between the conduct at issue and a
licensee's real estate activities."

Id. at 502 (emphasis added).
Having set out the foregoing requirement that, to be
sanctionable, the real estate licensee's acts must have been
substantially related to the licensee's real estate activities,
this court then reviewed the acts that Dearborn had committed. 
As a part of that inquiry, this court observed that there was a
temporal element to the commissioner's authority, i.e., the acts
that led to sanctions must have occurred in the past; it was not
enough that the commissioner could predict that such acts might
occur in the future:

"[T]he reference in ORS 696.301 (1995) to acts that a
licensee 'has done' places a temporal element in the
statutory inquiry:  The acts that give rise to the
Commissioner's authority must have occurred in the past
and, at the time that they occurred, must have been
substantially related to broker's real estate
activities."

Id. at 504 (emphasis added).  
Finally, this court went on to hold that, respecting
the applicability of subsection (31),

"the range of acts to which subsection (31) applies is
limited by the implicit requirement that the conduct in
question relate substantially to the broker's fitness
and ability to engage in real estate activity."

Id. at 505.  The court then turned its focus specifically to the
acts that Dearborn had committed and, respecting those acts,
stated:

"[T]he question is whether the acts that broker
committed, at the time that he committed them,
'demonstrated' untrustworthiness, incompetence, or
improper dealings with respect to broker's real estate
activities. * * * [T]hey did not.  They did not involve
real estate, clients, or funds of clients.  They were
private acts separate from broker's professional life.
And, because they were, the Commissioner had no
authority under them to discipline broker under ORS
696.301(31) (1995)."

Id. at 505 (emphasis added).
In the present case, the Court of Appeals, after
reviewing certain parts of the foregoing analysis, held:

"The court's construction limits the reach of ORS
696.301(31), as it relates to licensees, to
professional real estate activities, not 'private
acts.'  Accordingly, as pertinent here, Dearborn [II]
compels the conclusion that, even though petitioner's
conduct demonstrated 'untrustworthiness' and 'improper
dealings' and involved the misuse of funds in
connection with real estate investments, that conduct
was not within the regulatory ambit of ORS
696.301(31)."

Kerley, 184 Or App at 168 (emphasis in original, footnote
omitted).
In Dearborn II, this court held that the acts that
Dearborn had committed simply bore no demonstrable relationship
to the things that a real estate licensee does.  314 Or at 505. 
That is, this court concluded that the acts that Dearborn had
committed bore no "substantial relationship" to the activities of
a real estate licensee.  In the absence of such a relationship,
the commissioner did not have authority to impose sanctions.  The
court also expanded on its earlier observation that, because ORS
696.301 referred to acts that the licensee "has done," the
statute incorporated a "temporal element."  That observation is
correct as far as it goes:  The statute clearly contemplates that
the commissioner may impose sanctions for completed acts, not for
predicted future acts.
However, the opinion in Dearborn II went on to assert,
as already noted, that the "temporal element" in ORS 696.301 also
required that the licensee's completed acts must have related to
real estate activities when they occurred.  334 Or at 505.  We
now recognize that the words "has done" in ORS 696.301 do not
necessarily justify the latter statements about the statute's
reach.  In any event, the latter statements were dictum because
they were unnecessary to the court's ultimate conclusion.  Those
statements had an unfortunate consequence:  They purported to
impose a greater limitation on the commissioner's authority to
sanction than the statute identifies.  To correct that problem,
we disavow the dictum that we have identified above. (7) 
Dearborn II held that, on the facts of that case, no
act that Dearborn had committed while licensed as a real estate
broker was sufficiently connected to the work of a real estate
broker to justify suspending his real estate broker's license. 
The present case is different from Dearborn II in that Kerley has
committed acts that demonstrate dishonesty and untrustworthiness
to carry on real estate activities.  However, the acts occurred
before Kerley became licensed; the commissioner learned of them
only after the licenses were issued.  This case thus presents the
question whether the commissioner can revoke Kerley's licenses
under such circumstances.
The answer to that question is clear.  As this court's
analysis in Dearborn II states, all that ORS 696.301(31) requires
to permit the commissioner to sanction certain prior acts is that
the acts must "relate substantially to the [licensee's] fitness
and ability to engage in real estate activity."  Dearborn II, 334
Or at 505.  Here, Kerley's dishonesty met that criterion; that
is, it was such that it justified the commissioner's conclusion
that Kerley should not continue by virtue of his licenses to be
placed in a position of confidence and trust respecting other
people's money and property.  The fact that the acts in question
occurred before Kerley obtained his license also is no barrier to
the commissioner's decision.  Subsection (31) of ORS 696.301
imposes no requirement that the acts that are subject to
discipline have been committed after the licensee received his or
her license.
In summary, we hold that the Court of Appeals wrongly
reversed the order of the commissioner.  We therefore must
reverse that decision of the Court of Appeals.
The decision of the Court of Appeals is reversed.  The
order of the Real Estate Commissioner is affirmed.


1. The Court of Appeals' statement of the pertinent facts
is a condensed version of the facts found in the commissioner's
final order.  In his petition to the Court of Appeals, Kerley did
not challenge any factual finding in the commissioner's final
order.  Consequently, those facts are settled for the purposes of
judicial review.  See Jefferson County School Dist. No. 509-J v.
FDAB, 311 Or 389, 393 n 7, 812 P2d 1384 (1991) (illustrating
rule).
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2. The Real Estate Agency is "under the supervision and
control" of the Real Estate Commissioner.  ORS 696.375(2).  At
the time that the present proceedings were under way, the
commissioner issued licenses in the name of the agency.  Former
ORS 696.160, repealed by Or Laws 2001, ch 300, § 84.
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3. The legislature has amended ORS 696.301 in various
respects since the Real Estate Agency instituted the present
proceedings.  None of the amendments affects the merits of this
case.
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4. The 2003 Legislative Assembly amended subsection (31)
in Oregon Laws 2003, chapter 398, section 10a.  The subsection
now provides:

"Committed an act or conduct substantially related
to the applicant or licensee's fitness to conduct
professional real estate activity, whether of the same
or of a different character and whether or not in the
course of professional real estate activity, that
constitutes or demonstrates bad faith or dishonest or
fraudulent dealings."

No one asserts that the revised version of subsection (31) is applicable to the present case.
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5. Kerley never has denied that his embezzlement of funds
belonging to the partnerships was "conduct * * * which
constitutes or demonstrates * * * dishonest, fraudulent or
improper dealings," as those terms were used in ORS 696.301(31)
(1995).  In any event, we agree with the Commissioner that
Kerley's acts fit within that statutory description.
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6. We omit any further substantive discussion of ORS
696.301(26), because that subsection is not implicated in this
case.
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7. Our disavowal of dictum in Dearborn II does not
undermine the ultimate conclusion in that case, which rested on
the court's determination that Dearborn's conduct was not
sufficiently connected to the activities of a licensee to justify
the imposition of discipline.
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