T. FARRINGTON, JR., )
Respondent. )
This matter came on for hearing in Pensacola, Florida, before the Division of Administrative Hearings by its duly designated hearing officer, Robert T. Benton, II, on September 27, 1977. The parties were represented by counsel:
For Petitioner: Mr. Barry Sinoff, Esquire
For Respondent: Mr. Charles S. Liberis, Esquire and
Mr. Larry G. Parks, Esquire Post Office Drawer 1832 Pensacola, Florida 32598
By administrative complaint dated March 2, 1976, petitioner alleged that respondent "filed[d] a voluntary petition of Bankruptcy," in "violation of F.S. 468.112(7)." The administrative complaint sought the suspension of respondent's general contractor's license until respondent furnished "evidence of financial responsibility."
Respondent Farrington holds a registered general contractor's license. He has worked in the construction business in and around Pensacola, Florida, for the last ten or fifteen years at least. On April 25, 1975, respondent caused to be filed in the United States District Court for the Northern District of Florida an original petition under Chapter XI of the Bankruptcy Act, on behalf of Rotunda Construction Company, Inc. (Rotunda). Both at the time of the filing of the petition and at the time of the final hearing, respondent served as Rotunda's president and as its qualifying licensee. Respondent is also a principal stockholder in the corporation. There has been no adjudication of bankruptcy in the course of the Chapter XI proceedings. No receiver has been appointed, nor have Rotunda's creditors sought the appointment of a receiver. There has been no composition of creditors.
Rotunda was in the business of building single family dwellings, using borrowed money which it repaid after the houses were finished and sold. In 1974, Rotunda had 20 to 30 houses under construction for which Commonwealth Corporation (Commonwealth) a mortgage broker, had agreed to supply financing. In June of 1974, however, Commonwealth experienced financial difficulties, initiated proceedings under the Bankruptcy Act, and stopped furnishing Rotunda the construction money it had contracted for. Without the money Commonwealth had promised, Rotunda was unable to meet all its obligations as they came due. (A dozen or so other contracting companies also had serious financial problems in the wake of Commonwealth's collapse.) When several major creditors
threatened foreclosure suits, Rotunda filed a petition pursuant to Chapter XI of the Bankruptcy Act.
At the time Rotunda initiated Chapter XI proceedings, the Citizens and Peoples National Bank was a principal creditor. The bank has since been satisfied and, in the opinion of Eric Jay Nicholson, who works for the Citizens and Peoples National Bank, respondent now enjoys a "very good" reputation for financial responsibility. John Scott Carr, a mortgage banker in the employ of Southern American Mortgage Co., has known respondent for eight years and has overseen the loan of more than $2,000,000.00 to respondent or to companies he controlled. According to Mr. Carr, respondent is among the "top one or two contractors in the area." Wayne Walden, formerly associated with the First Federal Savings and Loan Association of Santa Rosa County, testified that respondent is "very responsible financially."
Respondent has a very good reputation among lenders, and has demonstrated outstanding financial responsibility. He is presently actively engaged in the contracting business. Since the filing of the petition, Southern American Mortgage Co., the First Federal Savings and Loan Association of Santa Rosa County, and Mr. Donald A. Shear, a concrete supplier, have all extended credit to respondent or corporations he controls.
CONCLUSIONS OF LAW
Respondent contends that Section 468.112(7), Florida Statutes (1975), which provides that "filing of a petition in bankruptcy . . . for the business of the registrant . . . may be considered . . . as just cause for suspension of
. . . registration," is repugnant to the Supremacy Clause of the United Stated Constitution, Art. VI, cl. 2, in that Section 468.112(7) purports to authorize state law sanctions against contractors who exercise their federal statutory rights under the Bankruptcy Act. See Perez v. Campbell, 402 U.S. 637, 29 L.Ed. 2d 233, 91 S. Ct. 1704 (1971); Grimes v. Hoschler, 12 Cal. 3d 305, 115 Cal.
Rptr. 625, 525 P. 2d 65 (1974); Rutledge v. City of Shreveport, 387 F. Supp. 1277 (W. D. La. 1975). Such a contention is properly addressed to the judiciary; as part of the executive branch of state government, the Division of Administrative Hearings has no authority to declare statutes unconstitutional.
Assuming the validity of the statute, respondent argues that it does not reach the filing of a petition for reorganization under Chapter XI of the Bankruptcy Act, at least when the petitioner is not adjudicated bankrupt. In support of this proposition, respondent has cited Penn Central Transportation Co. v. March Warehouse Corp., 356 F. Supp. 567 (S.D. Ind. 1972), which explains "the sharp difference between tide purposes of bankruptcy and reorganization proceedings," 256 F. Supp. at 568, in these words:
The objective of bankruptcy proceedings is to liquidate the assets of the debtor as
quickly as possible to pay off his creditors and to free the bankrupt to start anew.
Reorganization on the other hand is designed to allow the debtor corporation to continue to function and carry on its business.
Its purpose is to save a sick business, not the liquidation and division of its assets . . . . 356 F. Supp. at 568.
Respondent also relies on Re Lancer Books, Inc., 2 Bankr. Ct. Dec. 1430 (S.D.
N.Y. 1976). In that case a writer's contracts with his publisher provided that the contracts would terminate in the event of the publisher's "bankruptcy or liquidation." Then the publisher filed a petition for reorganization under Chapter XI, the writer, one De Camp, sought rescission of the contracts, but the court could "find no support for De Camp's contention that the language of the provision encompasses a petition in Chapter XI," and held that the "terms, 'bankruptcy' and 'liquidation', are cot applicable to the Chapter XI situation."
2 Bankr. Ct. Dec. at 1431.
One apparent purpose of Section 468.112(7), Florida Statutes (1975), is to protect persons dealing with licensed contractors from financial loss. If the statute were construed to cover the filing of petitions for reorganization under Chapter XI, this apparent purpose would be frustrated. Corporations are reorganized under Chapter XI in order to preserve them as going entities, because they are worth more as functioning businesses than could be realized if their assets were liquidated. It is in the interest of creditors that the corporation's resources be put to their best use, so that the chances of full payment can be maximized. Section 468.112(7), Florida Statutes (1975), should not be construed to authorize suspension of a contractor's license, on the ground that a corporation for which he is qualifying licensee has filed a petition for reorganization under Chapter XI of the Bankruptcy Act. Otherwise, creditors would be deprived of the benefits of reorganization, because a reorganized contracting corporation cannot continue to operate (and to generate revenue for the payment of debts), if its qualifying licensee's contractor's license is revoked.
In light of this construction of Section 468.112(7), Florida Statutes (1975), it is clear that petitioner has failed to carry its burden of proof. It should also be noted that the evidence that respondent is financially responsible was overwhelming, so that, for this reason, too, no suspension is warranted under the administrative complaint which began these proceedings.
