STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF LEGAL AFFAIRS, )

)

Petitioner, )

)

vs. ) CASE NO. 88-0505

)

1. VIDEO, INC., a )

   Florida corporation, ) BILL LACEK and ROSE RICHARD, )

   )

   Respondents. )

   )

   
   

   RECOMMENDED ORDER

   
   

   Pursuant to Notice, this cause was heard by Linda M. Rigot, the assigned Hearing Officer from the Division of Administrative Hearings, on November 22, 1988, in West Palm Beach, Florida.

   
   

   APPEARANCES

   
   

   For Petitioner: Rhonda G. Lapin, Esquire

   and Andy Itzkovits, Esquire Assistant Attorneys General Suite N921

   401 N.W. Second Avenue Miami, Florida 32128

   
   

   For Respondent: Bill Lacek did not appear and

   was not represented PRELIMINARY STATEMENT

   Petitioner Department of Legal Affairs filed a Complaint against Respondents V.T.S. Video, Inc., a Florida corporation, Bill Lacek, and Rose Richard alleging that Respondents had violated Florida's Deceptive and Unfair Trade Practices Act, and Respondents timely requested a formal hearing on the allegations contained within that Complaint. At the commencement of the final hearing in this cause, the parties filed an Agreed Final Order to Cease and Desist disposing of all issues between Petitioner and Respondents V.T.S. Video, Inc., and Rose Richard, and Attorney James Telepman was permitted to withdraw as attorney for Respondent Bill Lacek. Accordingly, the issue remaining for determination herein is whether Respondent Bill Lacek is guilty of the allegations contained within the Complaint filed against him, and, if so, what relief should be afforded to Petitioner, if any.

   
   

   Petitioner presented the testimony of Barry Smith; Eric F. Kerry, Jr.; James D. Andrews; John Roscoe; and Molly Kelly. Additionally, Petitioner's exhibits numbered 1-12 were admitted in evidence. No evidence was offered on behalf of Respondent Bill Lacek.

   Petitioner submitted post-hearing proposed findings of fact in the form of a proposed recommended order. A ruling on each proposed finding of fact can be found in the Appendix to this Recommended Order.

   
   

   FINDINGS OF FACT

   
   

   1. On August 24, 1981, Famous Brands Television and Appliances, Inc., entered into a Consent Order with the State Attorney for Palm Beach County, Florida, whereby Famous Brands, together with its principals and officers and agents, agreed to cease and desist from utilizing "bait and switch" practices or be held in contempt of court. At all times material to that litigation, Respondent Bill Lacek was the president of Famous Brands Television and Appliances, Inc. Famous Brands became bankrupt.

      
      

   2. Lacek knew that his credibility had been affected by his management of Famous Brands. Therefore, when he opened V.T.S. Video, Inc., a similar business, he placed the corporation in the name of his sister Rose Richard. Although ostensibly the president and sole director of V.T.S. Video, Rose Richard's duties were limited to those of a bookkeeper/office manager, the same duties which she had when she worked for her brother at Famous Brands.

      
      

   3. V.T.S. Video was in the business of advertising and offering for sale video, television and stereo products to the general public. The business was located at 25 North Military Trail, West Palm Beach, Florida.

      
      

   4. Respondent Bill Lacek formulated, controlled, and directed the acts and practices at V.T.S. Video. He was personally responsible for the purchasing, advertising, marketing, and promoting of the products sold by V.T.S. Video. He personally wrote the advertising, established the sales commission structure for the employees of V.T.S. Video, and attended sales meetings.

      
      

   5. Lacek solicited customers through newspaper advertising, including advertisements in The Palm Beach Post. Lacek's advertisements included ads for Sony and Hitachi televisions and video cameras. Respondent Lacek's advertisements were not bona fide offers to sell the advertised products.

      
      

   6. When customers appeared at V.T.S. Video to purchase the advertised Sony or Hitachi products, they were told by V.T.S. Video employees that the Sony or Hitachi products were not available or that the only product available was a "floor model," i.e., a model which has been used at the business for demonstration purposes and which frequently has been damaged and is, therefore, an unattractive product for purchase. Additionally, Lacek and the employees of

      V.T.S. Video would disparage the advertised products and "switch" the shopper to a different brand, the item which Lacek intended to sell instead of the advertised product. To assure that his salesmen would follow his established "switch and bait" techniques, Lacek set the sales commission structure so that no commission was paid to a salesman who sold the advertised product (if one were available) rather than the product to which the customer was to be switched. Further, the advertisements written by Lacek did not disclose the fact that the advertised item was a floor model.

      
      

   7. Hopper Electronics in Miami purchases from the factory rebuilt or refurbished products which it then sells to wholesalers. A rebuilt or refurbished product is a product which has been returned to the factory as defective by a customer or a distributor. The factory repairs the item and then re-boxes it for sale. In other words, a rebuilt or refurbished ("RB") product is a used product.

   8. Lacek purchased from Hopper on behalf of V.T.S. Video between 3,000 and 5,000 Emerson "RB" products between approximately late 1986 and late 1987. All of the Emerson RB units purchased from Hopper Electronics carried a label saying "RB" on the back of the unit itself and a label saying "RB" on the box containing the unit. Lacek paid Hopper Electronics a total of $780,000 for Emerson RB units during that time period.

      
      

   9. Although Lacek knew that the RB units were used and not new products, his newspaper ads for those units did not disclose that the products were used or that they were RB products.

      
      

   10. The Emerson televisions and VCRs purchased from Hopper were sold to the public as new products. Lacek instructed his employees not to disclose that the Emersons were not new products. If a customer questioned the "RB" label appearing on the back of the unit or on the box, the customer was told that the product had been re-boxed or that the product was from Riviera Beach.

       
       

   11. Respondent Bill Lacek knew that his sales practices were deceptive and that they constituted unfair trade practices, even prior to the institution of this proceeding, since they were the same practices that he was enjoined from utilizing when he signed the Consent Order on behalf of Famous Brands Television and Appliances, Inc., in 1981.

       
       

   12. Respondent Lacek's practices in the operation of V.T.S. Video have injured the public.

       
       

   13. Two Assistant Attorneys General represented Petitioner at the final hearing in this cause. Attached to Petitioner's proposed recommended order are affidavits from those attorneys stating that they have spent 220 hours combined in the "investigation and resolution" of this matter. Petitioner has failed to submit a cost affidavit and has therefore waived its statutory right to recover reasonable costs in this action.

       
       

   14. The Agreed Final Order to Cease and Desist entered into by Petitioner and Respondents V.T.S Video, Inc., and Rose Richard the day before the final hearing in this cause provides that Respondent V.T.S. Video, Inc., will pay to Petitioner the sum of $10,000 in civil penalties plus the sum of $15,000 for attorney's fees in this action.

       
       

       CONCLUSIONS OF LAW

       
       

   15. The Division of Administrative Hearings has jurisdiction over the parties hereto and the subject matter hereof. Section 120.57(1), Florida Statutes.

       
       

   16. The Complaint filed in this cause alleges that Respondent Lacek has violated the Florida Deceptive and Unfair Trade Practices Act, Chapter 501, Part II, Florida Statutes, and Chapter 2-9, Florida Administrative Code, the rules promulgated by the Department of Legal Affairs pursuant to Chapter 501, Part II, Florida Statutes. Petitioner seeks an order to cease and desist, the assessment of civil penalties, and the recovery of attorney's fees and costs incurred in this proceeding.

       
       

   17. Petitioner has clearly proven that Respondent Lacek is guilty of utilizing unfair methods of competition and unfair and deceptive acts and practices, in violation of Section 501.204, Florida Statutes. Petitioner has

       clearly proven that Lacek has violated Rule 2-9.002(6), Florida Administrative Code, by misrepresenting used products to be new products; that Lacek has violated Rule 2-9.002(8) by advertising products with the intent not to sell them as advertised; and that Lacek has violated Rule 2-9.004(1)(a) and (b) by advertising a product for sale when the advertisement is not a bona fide offer to sell, both by refusing to sell the product advertised and by disparaging the advertised product. Petitioner has further proven that Lacek engaged in bait and switch practices as well as misrepresenting that goods were new when they were in fact used, intentionally and with full knowledge that his acts were illegal.

       
       

   18. Although Petitioner argues in its proposed recommended order that Lacek has also violated Rule 2-9.006 and Rule 2-9.004(1)(c) and (f), Florida Administrative Code, Lacek was not charged with violation of those rules in the Complaint filed against him and cannot be found guilty of violating rules which he has not been charged with having violated.

       
       

   19. In assessing the amount of civil penalty, the federal courts have established the following criteria: (1) the good faith or bad faith of the violator; (2) the injury to the public; (3) the violator's ability to pay; (4) the desire to eliminate the benefits derived from the violation; and (5) the necessity to vindicate the authority of the enforcing agency. See United States

       v. Reader's Digest Ass'n., Inc., 494 F. Supp. 770 (D. Del. 1980), aff'd., 662 F.2d 955 (3d Cir. 1981), cert. den., 455 U.S. 908 (1982). Petitioner has proven that Respondent Lacek acted in bad faith in that he had previous knowledge that his activities were illegal and had previously signed a Consent Order with the State of Florida agreeing to not engage in those practices again. As to the second criteria -- the injury to the public -- Petitioner has proven that consumers purchased used products believing them to be new and that the performance of "brand name" products was misrepresented by Respondent and his employees to the public. Lastly, Petitioner has shown the necessity to vindicate the authority of the enforcing agency, not specifically the Department of Legal Affairs but in this instance the State of Florida with whom Lacek has already signed a Consent Order promising not to engage in the very practices he later engaged in at V.T.S. Video.

       
       

   20. Petitioner has, however, failed to present any evidence regarding two of the five criteria. No evidence was offered regarding Lacek's ability to pay civil penalties imposed against him, and no evidence was offered as to the benefits derived by Lacek from his violations in order to determine how those benefits can be eliminated.

       
       

   21. Section 501.2075, Florida Statutes, provides that a civil penalty of up to $5,000 can be assessed for each violation. Petitioner has shown that Lacek purchased at least 3,000 Emerson used units from Hopper Electronics, although there was no evidence as to how many of those units were sold by Lacek. There is, further, no method of determining the number of people who were subjected to Lacek's bait and switch practices. In its proposed recommended order, Petitioner recommends a civil penalty based upon 3,000 units sold, at $500 per violation, for a total civil penalty of $1,500,000. Although Lacek's intentional misconduct would suggest a penalty at the higher end of the range, Petitioner's failure to present any evidence regarding two of the five criteria reduces the amount of penalty assessable per violation. Therefore, Petitioner's recommendation of $500 each for 3,000 violations is both reasonable and appropriate under the circumstances in this cause.

   22. Petitioner further seeks payment of its attorney's fees and costs incurred in this proceeding. As to the costs, Petitioner has failed to submit any evidence as to the costs incurred by it and has, therefore, waived its statutory right to reimbursement of reasonable costs. As to its attorney's fees, Petitioner has also failed in its proof.

       
       

   23. Section 501.2105, Florida Statutes, relieves Petitioner of the normal burden and methodology approved by the courts for a prevailing party to prove its entitlement to, and the reasonableness of the amount of, attorney's fees claimed by such a prevailing party. Rather, Section 501.2105(6) simply requires that the attorney for the enforcing authority certify by sworn affidavit the number of hours "and the cost thereof to the enforcing authority" for the time spent in the investigation and litigation of the case.

       
       

   24. Two Assistant Attorneys General represented Petitioner at the final hearing in this cause. They have each filed an affidavit representing the total number of hours spent regarding this proceeding. However, the affidavits fail to set forth "the cost thereof to the enforcing authority." Rather, the affidavits simply state that the hourly rate for attorney's fees is $125. That statement appears to relate to attorney's fees in general in some undesignated community and does not purport to relate to the cost to the Department of Legal Affairs for the services of the two attorneys involved in this case. It is improbable that assistant attorneys general in the State of Florida are paid

$125 an hour for their services. The affidavits are also deficient in that they fail to reduce the $27,500 in attorney's fees requested by the $15,000 in attorney's fees payable to Petitioner pursuant to the terms of the Agreed Final Order To Cease and Desist entered into between Petitioner and V.T.S. Video, Inc. Accordingly, Petitioner has simply not met the minimal standards for establishing the attorney's fees to which it would have been entitled in this proceeding.

RECOMMENDATION

Based upon the foregoing Findings of Fact and Conclusions of Law, it is, therefore,

RECOMMENDED that a Final Order be entered:

1. Finding Respondent Bill Lacek guilty of the allegations in the Complaint filed against him;

   
   

2. Ordering Respondent Bill Lacek to cease and desist from all violations of Chapter 501, Part II, Florida Statutes, and of Chapter 2-9, Florida Administrative Code;

   
   

3. Assessing against Respondent Bill Lacek a civil penalty in the amount of $1,500,000; and

   
   

4. Denying Petitioner's claim for reimbursement of its attorney's fees and costs against Respondent Bill Lacek.

DONE and ENTERED this ,7th day of March, 1989, in Tallahassee, Leon County, Florida.

LINDA M. RIGOT

Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550 904/488-9675

Filed with the Clerk of the Division of Administrative Hearings this 7th day of March, 1989.

APPENDIX TO RECOMMENDED ORDER DOAH CASE NO. 88-0505

1. Petitioner's proposed findings of fact numbered 5, 7-15, and 17 have been adopted either verbatim or in substance in this Recommended Order.

2. Petitioner's proposed finding of fact numbered 6 has been rejected as not constituting a finding of fact.

3. Petitioner's proposed finding of fact numbered 16 has been rejected as not being supported by the record in this cause.

COPIES FURNISHED:

Rhonda G. Lapin, Esquire Andy Itzkovits, Esquire Assistant Attorneys General Suite N921

401 N.W. Second Avenue Miami, Florida 32128

James S. Telepman, Esquire

340 Royal Palm Way Post Office Box 2525

Palm Beach, Florida 33480

(Last known address for Respondent Bill Lacek)

Honorable Robert A. Butterworth Attorney General

The Capitol

Tallahassee, Florida 32399-1050

=================================================================

AGENCY FINAL ORDER

=================================================================

DEPARTMENT OF LEGAL AFFAIRS DEPARTMENT OF LEGAL AFFAIRS,

Petitioner,

vs. DLA CASE NUMBER: 88-4-0002

DOAH CASE NUMBER: 88-0505

VTS VIDEO, INC., a Florida Corporation, BILL LACEK and ROSE RICHARD,

Respondents.

/

FINAL ORDER

This cause came before the Department of Legal Affairs (hereafter

`Department') pursuant to section 120.57(1)(b)9, Florida Statutes, in Tallahassee, Florida, for the purpose of considering the Hearing Officer's Recommended Order (a copy of which is attached hereto as Exhibit A) in the above-styled cause.

Upon review of the Recommended Order, the argument of the parties, and after a review of the complete record in this case, the Department makes the following findings and conclusions.

FINDINGS OF FACT

1. Findings of fact set forth in the Recommended Order are approved and adopted and incorporated herein.

   
   

2. There is competent substantial evidence to support the findings of fact.

CONCLUSIONS OF LAW

1. The Department has jurisdiction of this matter pursuant to Section 120.57(1), Florida Statutes, and Chapter 501, Florida Statutes.

   
   

2. The conclusions of law set forth in the Recommended Order are approved and adopted and incorporated herein.

   
   

3. There is competent substantial evidence to support the conclusions of

law.

PENALTY

Upon a complete review of the record in this case, the Department determines that the penalty recommended by the Hearing Officer be ACCEPTED. WHEREFORE,

IT IS ORDERED AND ADJUDGED that

1. Respondent BILL LACEK is guilty of the allegations in the Complaint filed against him;

   
   

2. BILL LACEK shall cease and desist from all violations of Chapter 501, Part II, Florida Statutes, and Chapter 2-9, Florida Administrative Code;

   
   

3. A civil penalty shall be assessed against BILL LACEK in the amount of

$1,500,000.

DONE AND ORDERED this 7th day of November, 1989, in Tallahassee, Leon County, Florida.

ROBERT A. BUTTERWORTH ATTORNEY GENERAL

DEPARTMENT OF LEGAL AFFAIRS THE CAPITOL

TALLAHASSEE, FLORIDA 32399-1050

CERTIFICATE OF SERVICE

I HEREBY CERTIFY that a true and correct copy of the foregoing Order has been provided by mail to James Telepman, Esquire, 340 Royal Palm Way, P.O. Box 2525, Palm Beach, Florida 33480 (last known address of Bill Lacek); Linda Rigot, Hearing Officer, Division of Administrative Hearings, the DeSoto Building, 1230 Apalachee Parkway, Tallahassee, Florida 32399-1550; and by interoffice delivery to Rhonda G. Lapin and Andy Itzkovits, Attorneys at Law, Department of Legal Affairs, 401 N.W. 2nd Avenue, Suite N921, Miami, Florida 33128, this 20th day of November, 1989.

NOTICE OF RIGHT TO JUDICIAL REVIEW

A PARTY WHO IS ADVERSELY AFFECTED BY THIS FINAL ORDER IS ENTITLED TO JUDICIAL REVIEW PURSUANT TO SECTION 120.68, FLORIDA STATUTES. REVIEW PROCEEDINGS ARE GOVERNED BY THE FLORIDA RULES OF APPELLATE PROCEDURE. SUCH PROCEEDINGS ARE COMMENCED BY FILING ONE COPY OF A NOTICE OF APPEAL WITH THE AGENCY CLERK OF THE DEPARTMENT OF PROFESSIONAL REGULATION AND A SECOND COPY, ACCOMPANIED BY FILING FEES PRESCRIBED BY LAW, WITH THE DISTRICT COURT OF APPEAL, FIRST DISTRICT, OR WITH THE DISTRICT COURT OF APPEAL IN THE APPELLATE DISTRICT WHERE THE PARTY RESIDES. THE NOTICE OF APPEAL MUST BED. FILED WITHIN THIRTY (30) DAYS OF RENDITION OF THE ORDER TO BE REVIEWED.

Docket for Case No: 88-000505

Orders for Case No: 88-000505