STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
ENVIRONMENTAL TRUST, )
)
Petitioner, )
) CASE NOS. 95-4606,
vs. ) 96-0401RU - 96-0410RU
) 96-0413RU - 96-0415RU, DEPARTMENT OF ENVIRONMENTAL ) 96-0417RU, 96-0419RU - PROTECTION, ) 96-0429RU, 96-0431RU -
) 96-0434RU, 96-0436RU,
Respondent. ) 96-1004 - 96-1007,
) 96-1009 and 96-1353 SARASOTA ENVIRONMENTAL )
INVESTORS, INC., )
)
Petitioner, )
)
vs. ) CASE NOS. 96-0411RU,
) 96-0412RU, 96-0416RU, DEPARTMENT OF ENVIRONMENTAL ) 96-0418RU, 96-0435RU, PROTECTION, ) 96-0437RU, 96-1008
) and 96-1352
Respondent. )
)
FINAL ORDER
This cause came on for formal hearing before Suzanne F. Hood, Administrative Law Judge with the Division of Administrative Hearings, commencing on April 22, 1996, and concluding on April 25, 1996 in Tallahassee, Florida.
APPEARANCES
For Petitioner: E. Gary Early, Esquire
Christopher R. Haughee, Esquire Akerman, Senterfitt and Eidson
216 South Monroe Street, Suite 200 Tallahassee, Florida 32302-2555
For Respondent: W. Douglas Beason, Esquire
Betsy F. Hewitt, Esquire
Department of Environmental Protection 2600 Blair Stone Road
Tallahassee, Florida 32399-2400 STATEMENT THE OF ISSUE
The issue is whether the Respondent Department of Environmental Protection (DEP) implemented agency statements having the effect of a rule as defined in Section 120.52(16), Florida Statutes, without having adopted such agency statements as rules in violation of Section 120.535(1), Florida Statutes.
PRELIMINARY STATEMENT
Between September 7, 1995, and February 7, 1996, Petitioner The Environmental Trust (ET) and Petitioner Sarasota Environmental Investors, Inc. (SEI) filed 46 individual petitions for administrative hearing. DEP referred the first of these cases, Case Number 95-4606, to the Division of Administrative Hearings on September 19, 1995. In this case, Petitioner ET sought an administrative hearing pursuant to Section 120.57(1), Florida Statutes, contesting DEP's denial of certain costs from applications for reimbursement of petroleum contamination site cleanup costs submitted pursuant to Section 376.3071(12), Florida Statutes.
On or about October 6, 1995, Petitioner ET requested that Case Number 95- 4606 be placed in abeyance until all anticipated related petitions for administrative hearing could be filed with DEP and referred to the Division of Administrative Hearings for consolidation before formal hearing.
On October 10, 1995, the undersigned entered an order granting abeyance and requiring Petitioner ET to file a status report in Case Number 95-4606 within forty-five days. The undersigned entered orders continuing abeyance of Case Number 95-4606 on December 4, 1995 and January 12, 1996.
On January 24, 1996, DEP referred thirty-seven related cases to the Division of Administrative Hearings: Case Numbers 96-401RU through Case Number 96-437RU. In Count One of these cases, Petitioners sought an administrative hearing pursuant to Section 120.57(1), Florida Statutes, contesting DEP's denial of certain costs from applications for reimbursement of petroleum contamination site cleanup costs submitted pursuant to Section 376.3071(12), Florida Statutes. In Count Two, Petitioners alleged that DEP implemented non-rule policies in violation of Section 120.535, Florida Statutes, which resulted in the denial of certain costs from applications for reimbursement of petroleum contamination site cleanup. That same day, DEP filed a motion to consolidate these cases for purposes of final hearing.
The undersigned issued a Notice of Hearing and Order of Consolidation on February 5, 1996. This order consolidated the above referenced cases with Case Number 95-4606. It also advised the parties that the consolidated cases would be heard on February 21, 1996.
The parties filed a joint motion dated February 8, 1996 requesting that the formal hearing be rescheduled. By order dated February 12, 1996, the undersigned scheduled this matter for hearing on April 22, 1996.
On February 28, 1996, DEP referred six related cases to the Division of Administrative Hearings and requested their consolidation: Case Number 96-1004 through Case Number 96-1009. On March 14, 1996, DEP referred the final two related cases to the Division of Administrative Hearings and requested their consolidation: Case Numbers 96-1352 and 96-1353. In these cases, Petitioners ET or SEI seek the same relief as Petitioner ET in Case Number 95-4606 pursuant to Section 120.57(1), Florida Statutes. By orders dated March 8, 1996 and March 15, 1996, the undersigned consolidated these cases to proceed under Case Number 95-4606.
On April 18, 1996, Petitioner ET dismissed its petition for final hearing in Case Number 96-430RU. Accordingly, the undersigned issued an order closing the file in Case Number 96-430RU on April 19, 1996.
Petitioners ET and SEI filed a unilateral Prehearing Stipulation on April 19, 1996. DEP filed its unilateral Prehearing Statement on April 22, 1996.
At the final hearing, Petitioners presented testimony from Robert K. Beard, a Certified Public Accountant (CPA) who was tendered and accepted as an expert in the field of accounting with an emphasis on the relationship of accounting to the Florida petroleum contamination site cleanup reimbursement program; Douglas
Jones, Bureau Chief for DEP's Bureau of Waste Cleanup; Melike Altun, an Environmental Specialist with DEP; William Sittig, a CPA with DEP's Office of the Inspector General; Kirste Johnson, a contract reviewer with Restoration Assistance, Inc.; Charles Williams, Administrator of the Reimbursement Section of DEP's Bureau of Waste Cleanup and the designated agency representative; Neeld Wilson, President of Gator Environmental, Inc.; and Stephen R. Parrish, Vice President of American Factors Group, Inc. and designated corporate representative for ET and SEI. DEP presented testimony from John Ruddell, Director of DEP's Division of Waste Management; and Charles Williams. Petitioners presented the testimony of Robert Beard in rebuttal.
Petitioners offered Petitioners Exhibits 1-18 and 20-57 which the undersigned received into evidence during the hearing. The undersigned also received DEP Exhibits 1-12 into evidence. The undersigned authorized Petitioners to copy and file Petitioners' Exhibits 55 and 56 post-hearing. The undersigned also authorized DEP to file a supplement to DEP's Exhibit 10 post- hearing. The undersigned left the record open for Petitioners to submit two additional exhibits post-hearing.
Upon request by Petitioners, the undersigned took official recognition of Chapter 376, Florida Statutes (1993); Chapter 17-773, Florida Administrative Code as last amended on April 22, 1993; Chapter 94-311, Laws of Florida; and House of Representatives Committee on Governmental Operations Final Bill Analysis and Economic Impact Statement for HB 1879. Upon request by DEP, the undersigned took official recognition of DEP's Notice of Proposed Rule Development published in Volume 22, No. 12, p. 1911 of the Florida Administrative Weekly, March 22, 1996; the Notice issued on January 29, 1996, by James W. York in DOAH Case Nos. 96-0401RU through 96-0437RU; and the Final Order in American Factors Group Inc. and The Environmental Trust vs. Department of Environmental Protection, DOAH Case No. 96-0434RU entered on July 24, 1995.
The court reporter filed the transcript of the formal hearing with the Division of Administrative Hearings on May 30, 1996.
On June 5, 1996, Petitioners filed four post-hearing exhibits: (1) Petitioners' Exhibit 55, consisting of the reimbursement application in each of the above-styled cases; (2) Petitioners' Exhibit 56, consisting of the DEP stamped reimbursement application cover pages in the above-styled cases; (3) Written authorization from Petitioners' representatives for Stephen R. Parrish to testify on their behalf; and (4) Stephen R. Parrish's deposition errata sheet. Petitioners filed a supplement to Petitioners' Exhibit 55 on June 7, 1996 relative to Case Number 96-1008. DEP filed a post-hearing exhibit on June 6, 1996 consisting of fourteen letters to supplement DEP's Exhibit 10.
On June 10, 1996 DEP filed a Request for Official Recognition of the Notice of Workshop published in the Florida Administrative Weekly, June 7, 1996, Volume 22, No. 23, page 3467, the subject of which is Rule 62-773, Florida Administrative Code. Petitioners did not file a response to this request.
The parties filed their Proposed Final Orders on June 10, 1996.
On August 16, 1996, Petitioners filed a Motion for Official Recognition of a letter dated July 18, 1996 from DEP to the Office of the Auditor General as an official action of DEP. Petitioners specifically requested that the undersigned acknowledge the letter as admissions of DEP regarding the inapplicability of new rules to work that has already been performed, and the fact that new rulemaking is not warranted due to the limited life of the reimbursement program.
DEP filed a response in opposition to this motion on August 28, 1996. On September 3, 1996, Petitioners filed a Motion to Strike and Reply to DEP's Response in Opposition to Petitioners' Motion for Official Recognition. On September 12, 1996, DEP filed a Motion to Strike Petitioners' Motion to Strike and Reply. The motions filed on August 16, 1996, September 3, 1996, and
September 12, 1996 are hereby denied.
On September 10, 1996, Petitioners filed a Notice of Failure to Publish Notice of Proposed Rulemaking. On September 19, 1996, DEP filed a Request for Official Recognition of a Notice Of Proposed Rulemaking to be published in the Florida Administrative Weekly on Friday, September 27, 1996. The undersigned has not considered these unauthorized pleadings in the formulation of this Final Order.
FINDINGS OF FACT
Reimbursement Program
The Florida Legislature created the reimbursement program to provide for rehabilitation of as many petroleum contamination sites as possible, as soon as possible. Section 376.3071(12)(a), Florida Statutes. The Legislature intended that those responsible persons who possessed adequate financial ability should conduct site rehabilitation and seek reimbursement in lieu of the state conducting the cleanup. Section 376.3071(12)(c), Florida Statutes (1993).
When owners and operators of the site or their designees perform site remediation program tasks under any of the programs created by Chapter 376, Florida Statutes, those entities become entitled to reimbursement from the Inland Protection Trust Fund (IPTF) of their allowable costs at reasonable rates. Section 376.3071(12)(b), Florida Statutes. "Allowable" costs are those which are associated with work that is appropriate for cleanup tasks.
Section 376.3071(12)(d), Florida Statutes, requires DEP to:
Reimburse actual and reasonable costs for site rehabilitation; and
Reimburse interest on the amount of reimbursable costs for applications filed after August 14, 1992, at a rate of 1 percent per month or the prime rate, which- ever is less. Interest shall be paid from the 61st day after an application is filed with the department until the application is paid, provided the department determines the application is sufficient; otherwise, interest shall be paid commencing on the date the application is made sufficient until the application is paid. . . .
A site owner or operator may engage the services of firms to perform remediation activities on a site and may designate an entity to receive reimbursement for such work. Section 376.301(14), Florida Statutes.
Chapter 17-773, Florida Administrative Code (as revised in April of 1993), contains DEP's rules which were in effect at the time Petitioners submitted the instant applications. This chapter is currently located in Chapter 62-773, Florida Administrative Code. Chapter 17-773, Florida Administrative Code establishes procedures and documentation required to receive reimbursement from the IPTF. Rule 17-773.100(4), Florida Administrative Code.
Rule 17-773.100(5), Florida Administrative Code, provides in pertinent part:
"review and approval of reimbursement applications shall be based upon the statutes, rules and written guidelines governing petroleum contamination site cleanup and reimbursement which were in effect at the time the work was performed or the records of activities and expenses were generated, as applicable. . . .
In order to be reimbursable, an applicant must break charges in an application into applicable units and rates. Rule 17-773.100(5), Florida Administrative Code. DEP has a predominate rate schedule to determine whether an allowable cost is reasonable. DEP bases its predominate rates on a study of average rates that contractors charge for a particular task.
Requests for reimbursement must apply to costs which are "integral" to site rehabilitation. Rule 17-773.100(2), Florida Administrative Code. "Integral" costs are those which are essential to completion of site rehabilitation. Rule 17-773.200(2)(11), Florida Administrative Code.
After integral costs have been identified and incorporated on a units and rates basis in an invoice, the invoice may be marked up at two levels. These markups are subject to certain limitations established by DEP rule:
There can be no more than two levels of markups or handling fees applied to contractor, subcontractor or vendor invoices (Rule 17-773.350(9), F.A.C.);
There can be no markups or handling fees in excess of 15 percent for each level of allowable markup applied to contractor, subcontractor or vendor invoices (Rule
17-773.350(10), F.A.C.); and
There can be no markups or handling fees applied to invoices between any two entities which have a financial, familial, or beneficial relationship with each other (Rule 17-773.350(11), F.A.C.).
In order to be reimbursable, costs must have been actually "incurred." Rule 17-773.700, Florida Administrative Code. "Incurred" means that allowable costs have been paid. Rule 17-773.200(9), Florida Administrative Code.
When the "person responsible for conducting site rehabilitation" (PRFCSR) has no financial interest in the site, DEP considers the following costs as incurred when the program task is complete:
Reasonable rates, including profits associated with the work performed, claimed for the use of their own personnel or equip- ment with documentation pursuant to Rule
17-773.700(7), F.A.C.; and
Allowable markups or handling fees applied to their paid contractor, subcontractor, or vendor invoices pursuant
to Rule 17-773.350(9), (10), and (11), F.A.C.
Rule 17-773.200(9), Florida Administrative Code.
Other rules reference limitations on the ability of an entity to take a markup. Rule 17-773.600(2)(d), Florida Administrative Code, provides in pertinent part:
. . . If the person responsible for conducting site rehabilitation manufactured the [capital expense item], or a markup is
otherwise prohibited under Rule 17-773.350(9),
(10) or (11), Florida Administrative Code, no markup of the equipment shall be allowed.
Rule 17- 773.700(5), Florida Administrative Code, provides in pertinent part:
Costs claimed in a reimbursement application for the employees, equipment or materials of the site owner, site operator or any entity which has a financial interest in the site or a familial or other beneficial relation- ship with the site owner or operator shall be considered to be in house and reimburse- ment shall be limited to actual costs only. No fee, markup, commission, percentage or other consideration shall be allowed. . . .
Rule 17-773.700(7), Florida Administrative Code, provides in pertinent part as follows:
Pursuant to Rule 17-773.200(9), Florida Administrative Code, reasonable rates, including profits, may be claimed for the personnel and equipment or other allowable expenses of the person responsible for conducting site rehabilitation as well as allowable markups on paid contractor subcon- tractor and vendor invoices and shall be considered incurred for the purpose of reimbursement provided:
The person responsible for conducting site rehabilitation does not have a
financial interest in the site pursuant to Rule 17-773.200(7), Florida Administrative Code, or a familial or other beneficial relationship with the site owner or operator;
The activities performed were integral to the program task claimed pursuant to Rule 17-773.500, Florida Administrative Code; and
Detailed invoices are provided by the person responsible for conducting site rehabilitation that include all subcon- tractor and vendor invoices . . . [which] must identify the person responsible for conducting site rehabilitation and clearly distinguish their costs from those for paid subcontractors or vendors.
There are no other provisions in the applicable rules which pertain to markups.
A contractor must pay all invoices generated by a subcontractor at 100 percent of their face value prior to submission of an application in order to qualify those invoices for reimbursement. When a contractor pays a subcontractor's invoices, the contractor paying those invoices normally may take one of the allowable levels of markup.
Prior to submitting a reimbursement application, a funder or PRFCSR involved in the reimbursement chain must pay the contractor for its invoices and markup. Then, the funder may apply the second allowable markup and submit the reimbursement application for review by DEP and payment from the IPTF. DEP does not contest the second level of markup in these applications.
DEP rules restrict reimbursement when parties within the usual "chain" of reimbursement (PRFCSR or funder, contractor and subcontractor) have financial, beneficial or familial relationships with each other or the site owner. The application form requires disclosure of such relationships through the Program Task and Site Identification Form.
Rule 17-773.200(1), Florida Administrative Code, provides as follows: "Beneficial relationship (interest)" means
a connection or association, excluding an
arm's length contractual relationship, which benefits a person or company by yielding a profit, advantage or benefit, or entitlement thereto, exceeding five percent of the person's or company's annual gross income.
Rule 17-773.200(6), Florida Administrative Code, provides in pertinent part:
"Familial relationship (interest)" means a connection or association by family or relatives, in which a family member or a relative has a material interest. . . .
Rule 17-773.200(7), Florida Administrative Code, provides as follows: "Financial relationship (interest)" means a
connection or association through a material interest or sources of income which exceed five percent of annual gross income from a business entity. Banks, lending institutions, and other lenders that provide loans for site rehabilitation activities are not considered to have a financial interest in the site on that basis alone. However, as of the effective date of this rule, guarantors of loans to or co-makers of loans with persons signing as responsible party are considered
to have a financial interest if the amount of the loan exceeds five percent of the net worth of either company. As used in this definition, sources of income shall not include any income derived through arm's- length contractual transactions.
Rule 17-773.200(13), Florida Administrative Code, states as follows: "Material interest" means a direct or
indirect interest or ownership of more than five percent of the total assets or capital stock of any business entity.
The rules and written guidelines of DEP do not address activities, including financing arrangements, occurring outside of the usual chain of reimbursement, so long as an applicant does not include charges for such activities in an application. Heretofore, DEP has not deducted finance costs that an applicant does not include as a line item in a reimbursement application.
Pursuant to Section 376.3071(l2)(m), Florida Statutes, DEP must perform financial audits "as necessary to ensure compliance with this rule and to certify site rehabilitation costs." Rule 17-773.300(1), Florida Administrative Code. DEP performs this audit function: (a) to establish that the PRFCSR incurred the cost; (b) to determine that adequate documentation supports the claimed costs as incurred; and (c) and to review the reasonableness and allowance of the costs. The audit staff interprets the term "incurred" to mean that the applicant paid the costs included in the reimbursement application.
Pursuant to Rule 17-773.350(4)(e), Florida Administrative Code, "[i]nterest or carrying charges of any kind with the exception of those outlined in Rule 17-773.650(1), F.A.C." are not reimbursable. The exceptions to the payment of interest set forth in Rule 17-773.650(1), Florida Administrative Code, are not at issue here.
An interest rate charge on short-term borrowed capital from an unrelated third-party source is a "cost of doing business." DEP's predominate rates are fully loaded. They include a variable for all direct and indirect business overhead costs such as rent, utilities and personnel costs. DEP includes the cost of short-term borrowed capital in the direct and indirect overhead components of DEP's fully-loaded personnel rates. Rule 17- 773.700(5)(a), Florida Administrative Code. However, DEP never intended for its predominate rate schedule to create an entitlement to reimbursement of claims which are not otherwise actual and reasonable costs of site rehabilitation.
Petitioners
PRFCSRs are entitled to make application for reimbursement of allowable markups and costs of site rehabilitation that they incur. In these consolidated cases, the site owners or operators designated either Petitioner ET or Petitioner SEI as PRFCSR. The PRFCSR is typically referred to as the "funder" in the reimbursement chain.
Petitioner ET is a trust formed in 1993 and domiciled in Bermuda. It acts as a conduit for funds that finance activities associated with Florida's petroleum contamination site cleanup program. The named beneficiaries of the trust are those contractors and subcontractors entitled to payment of costs for activities integral to site rehabilitation and for allowable markups of such costs. The sole trustee of ET is Western Investors Fiduciary, Ltd. (WIFL).
WIFL is also the owner and a beneficiary of ET. Any profit that ET derives from funding cleanup projects flows through WIFL to investors who provide funds to finance site rehabilitation. American Environmental Enterprises, Inc. (AEE discussed below) provided the investment funds for the reimbursement applications at issue here.
WIFL is a limited liability corporation created and domiciled in Bermuda. The officers of WIFL are: William R. Robins, President; John G. Engler, Vice-President; and Peter Bougner, Secretary. The directors of WIFL are: William R. Robins, John G. Engler, Paul H. DeCoster, Alec R. Anderson and Nicholas Johnson. WIFL's directors are also its shareholders.
Petitioner SEI is a corporation incorporated and operating under Florida law. Organized in 1994, SEI acts as a conduit for funds to finance activities associated with Florida's petroleum contamination site cleanup program. The officers and directors of SEI are: William R. Robins, President; John G. Engler, Executive Vice President; and Paul H. DeCoster, Secretary. William R. Robins is the sole shareholder of SEI. SEI was specifically created to meet the needs of American Factors Group, Inc.'s (AFG discussed below) Florida investors.
Respondent
DEP is the agency charged with the duty to administer the IPTF and Chapter 376, Florida Statutes.
Financing Entities
American Factors Group, Inc. (AFG) is a privately held corporation incorporated and operating under New Jersey law. AFG is not a party to this proceeding. AFG, acts as the servicing agent for contracts associated with factoring activities and other types of financing operations.
AFG, through one of its divisions, Environmental Factors (EF), entered into financing contracts with entities in the reimbursement process: (a) Petitioners ET and SEI, funders; (b) Gator Environmental, Inc. (Gator), general contractor; and (c) Tower Environmental, Inc. (Tower), prime subcontractor. Through these agreements, EF or its assignee bought the rights of ET, SEI, Gator, and Tower to future reimbursement payments at a percentage of the face value of the relevant invoices. The officers of AFG are: William R. Robins,
President; John G. Engler, Vice President; and Paul H. DeCoster, Secretary. Bleak House, Inc. (Texas) owns the stock of AFG.
American Environmental Enterprises, Inc. (AEE) is incorporated and operating under Nevada law. AEE is not a party to this proceeding. AEE, as the assignee under the EF contracts, is a third-party provider of capital to various entities in the reimbursement process, including Petitioners. The officers of AEE are: William R. Robins, President; John G. Engler, Vice-President; and Paul
H. DeCoster, Secretary. Bleak House, Inc., (Nevada) owns the stock of AEE.
Bleak House, Inc., (Nevada) is incorporated and operating under Nevada law. Bleak House, Inc. (Texas) is incorporated and operating under Texas law. Officers of both corporations are William R. Robins, President; John G. Engler, Vice President; and Paul H. DeCoster, Secretary. Magazine Funding, Inc. owns the stock of both Bleak House corporations.
Magazine Funding, Inc. is incorporated and operating under Nevada law. Officers of Magazine Funding, Inc. are William R. Robins, President; John G. Engler, Vice-President; and Paul H. DeCoster, Secretary. Family Food Garden, Inc. owns the stock of Magazine Funding, Inc.
Family Food Garden, Inc. is incorporated and operating under Massachusetts law. Officers of Family Food Garden, Inc., are William R. Robins, President; and Paul H. DeCoster, Secretary. Six shareholders own the stock of Family Food Garden, Inc. None of these shareholders are related by familial ties to the officers or directors of the aforementioned companies or any relative thereof.
Each of these companies -- ET, SEI, WIFL, AEE and AFG (including EF) share common officers and directors. Each of the companies maintain their own books and business records, file their own tax returns, and maintain records in accordance with the laws of the jurisdiction in which they were established. They operate pursuant to their respective bylaws or trust agreement.
ET, WIFL, and SEI do not have common assets with AEE or AFG (including
EF).
ET, WIFL and SEI do not have a beneficial, financial, or familial
relationship with AEE or AFG (including EF) as Rule 17-773.200, Florida Administrative Code, defines those terms.
Despite the facial organizational and structural integrity of ET, WIFL, SEI, AEE and AFG, the officers and directors of AFG and/or AEE created Petitioners, in large part, for the benefit of AFG and/or AEE as a means to invest funds in Florida's petroleum contamination site cleanup program. The primary purpose of each funder is to maximize the profits of AFG and its investors.
AFG has other investment vehicles (funders) which it uses at times depending on the needs of its investors. AFG waits until the last instance before deciding which entity it will designate as funder in any particular factoring scenario. AFG usually does not make that decision until the day AFG's designated funder issues a funder's authorization to the general contractor.
At the hearing, Mr. Stephen Parrish, a vice president of AFG, testified as the party representative for ET and SEI. WIFL and SEI have no employees. EF or AFG responded to DEP's request for Petitioners to provide
additional information about the financing scheme utilized here using stationary bearing EF's or AFG's letterhead. Nineteen of the letters written on ET's behalf refer to ET as an affiliate of AEE. At least five of the letters written on SEI's behalf refer to ET as the funder and AEE as ET's affiliate.
The greater weight of the evidence indicates that AFG and/or AEE negotiated less than arms-length contractual agreements with ET, WIFL, and SEI. Petitioners admit that they are "affiliates" of AEE and AFG through contractual agreements. However, there are no written factoring contracts between Petitioners and AFG such as the ones that exist between AFG, Gator and Tower. The only documented evidence of agreements between Petitioners and AFG are transactional based bills of sale representing the sale to AEE of Petitioners' right to receive reimbursement from the IPTF. AFG created these bills of sale for bookkeeping purposes. AFG did not even go to the trouble of tailoring the form for the bills of sale for their stated purpose. For all practical purposes, Petitioners are under the management and control of AEE and AFG.
Petitioners and AFG disclosed their affiliation in meetings with DEP staff and through correspondence and other documentation, including but not limited to: (a) letter to DEP dated July 13, 1994 from AFG's counsel; (b) Addendum to Certification Affidavit signed by a Certified Public Accountant in each application; (c) Funder's Authorization; (d) letters sent to DEP between August 14, 1995 and November 19, 1996.
Factoring and the Factoring Transactions
Factoring is the purchase and sale of an asset, such as an account receivable, at a discount. An account receivable reflects the costs that a business charges after rendering a service but before the entity responsible for payment pays for that service. When a contractor completes a rehabilitation task, the contractor's invoice is an account receivable until it receives payment.
In these consolidated cases, AEE provided short-term operating capital to Gator and Tower at an interest rate equal to the discount percentage of the relevant invoice (account receivable). Gator and Tower did not sell their account receivables to AEE. Instead, AEE, as the assignee of EF, purchased a contractual right to receive Gator's and Tower's reimbursement payments. In exchange, AEE advanced Gator and Tower a discounted amount of their invoices. The discounted amount of an invoice represents a loan from AEE to Gator and Tower.
The difference between the face amount of the invoice and the discounted amount of the invoice represents interest. A discount percentage and an interest rate are equivalent. The amount of the discount represents interest on the loan or advance provided by AEE. It is an interest expense to the contractor or subcontractor.
The Factoring Agreements
On or about April 25, 1994, EF and Tower entered into a Prime Subcontractor Factoring Agreement. On or about July 8, 1994, EF and Tower executed an addendum to the Prime Subcontractor Factoring Agreement. The addendum required Tower to sell to EF Tower's right to receive payments from Gator. In return, EF agreed to advance Tower a discounted amount equal to 97 percent of the face amount of Tower's invoices. Tower agreed to repay EF 100 percent of the face amount of the invoices upon receipt of payments from Gator.
The discounted amount of each invoice represents a loan from AEE to Tower. A bill of sale evidenced the sale of Tower's right to receive payment on each application.
On or about July 8, 1994, EF and Gator entered into a General Contractor Factoring Contract. On or about July 13, 1994, EF and Gator entered into an Addendum to General Contractor Factoring Agreement. This addendum required Gator to sell EF Gator's right to receive payments from ET or SEI. In return, EF agreed to advance Gator a discounted amount equal to 88 percent of the face amount of Gator's invoices. Gator agreed to repay EF 100 percent of the face amount of the invoices upon receipt of payments from the funder. The discounted amount of each invoice represents a loan from AEE to Gator. A bill of sale evidenced the sale of Gator's right to receive payment on each application.
The financing of the pending reimbursement applications involved the following interrelated transactions though not necessarily in this order:
AEE as the assignee of EF purchased the right of ET, SEI, Gator and Tower to receive reimbursement for their services at a discount. ET, SEI, Gator and Tower agreed to repay AEE in full.
Tower prepared and submitted to Gator an invoice for services provided by Tower and its subcontractors. Tower also prepared and
submitted to Gator a reimbursement application for the program task.
AEE advanced Tower the agreed upon discount amount. Tower used these funds to pay its subcontractors and vendors.
AEE advanced Gator the agreed upon discount amount. Gator used these funds to pay Tower. Tower repaid AEE in full.
Gator prepared an invoice for services provided by Gator, Tower and Tower's subcon- tractors including a 15 percent markup and submitted it with the reimbursement application either to ET or SEI.
AEE advanced ET or SEI the discounted amounts as agreed. ET or SEI paid Gator in the full amount of Gator's invoice plus markup. Gator repaid AEE in full.
ET or SEI prepared an invoice for its services plus the services of Gator, Tower, and Tower's subcontractors and a 15 percent markup. ET or SEI submitted the reimbursement application to DEP.
When ET or SEI receives reimbursement from the IPTF, they will remit the total payment to AEE.
The on-site work on each project was complete or substantially complete prior to Gator's involvement.
In regards to some applications, the relevant dates on the subcontract/purchase order, Gator invoice, and Tower invoice are the same. The
amount of time between AEE's payment of the advances and Gator's and Tower's subsequent remittance of 100 percent of the face amount of their invoices to AEE varied from a few days to a few weeks.
The Agency Statement--Factoring
Petitioners submitted the subject applications to DEP between July 18, 1994 and February 17, 1995. The financing scheme utilized in these applications was unique. Prior to the receipt of these applications, DEP never had reviewed reimbursement applications using the type of factoring scheme at issue here. In fact, the instant cases present a scenario never contemplated by DEP when it promulgated its rules and written policies.
In the instant applications, the "chain of reimbursement" included: ET and SEI as funders or PRFCSRs, Gator as the named general contractor, Tower as prime subcontractor, and numerous subcontractors and vendors. As stated
above, DEP was also aware that AFG and AEE (including EF) were "affiliated" with ET and SEI and would ultimately receive all reimbursement payments from the IPTF.
56 When Petitioners submitted the subject applications, no rule or written policy disallowed reimbursement for the face amount of contractors' and subcontractors' invoices when they sold their right to payments, i.e. the receivables, at a discount.
When Petitioners submitted the subject applications, DEP had rules that restricted the ability of an entity to apply markups on invoices when a familial, financial or beneficial affiliation existed between a contractor, subcontractor, PRFCSR and the site or site owner, or when such relationships existed amongst those entities in the chain of reimbursement. However, there were no rules or written guidelines restricting reimbursement, based upon financial transactions occurring outside of the chain of reimbursement, if the applicant did not pass the costs of such transactions to DEP in an reimbursement application.
In that regard, DEP usually dealt only with what was apparent in an application. If an application had a line-item claim for interest, DEP would not pay that claim under the rule limiting the payment of interest. Otherwise, DEP generally did not deal with costs, including interest, for which the applicant did not seek reimbursement.
The applications in the subject cases did not contain line-item claims for interest. However, the difference between the face value of the invoices and the amount for which Gator and Tower sold their right to receive reimbursement for those invoices clearly represents interest.
Tower's invoices appear to represent work that was integral to site remediation which was broken down into appropriate Eunits and rates. There is no evidence that the prime subcontractor, subcontractors and vendors intentionally inflated their invoices to cover the cost of financing. However, they did agree to accept a lesser amount then the face amount of their invoices for their services prior to the filing of the applications.
In September and October of 1993, Paul DeCoster wrote letters to DEP describing a proposed financing scheme in which AFG would purchase the account receivables of contractors engaged in site rehabilitation. Mr. DeCoster wrote a follow-up letter dated October 4, 1993. In this letter, Mr. DeCoster proposed
that AFG would charge the contractor a finder's fee which would be in addition to the 15 percent financing "markup" taken by the investor providing the financing. This proposal referenced a funder, FEC, whose parent was AFG. The transactions between the entities in the instant applications did not involve a finder's fee or a funder identified as FEC.
In October of 1993, Will Robins met with DEP staff to discuss the manner in which the reimbursement program would apply to a proposed financing scheme. In this proposal, AFG would charge contractors an application/initiation fee and/or a commitment fee. The transactions between the entities in the instant applications did not involve an application/initiation fee and/or a commitment fee.
After that meeting, counsel for AFG sent DEP a letter dated November 4, 1993. The letter acknowledges that the existing rules did not "specifically address the types of situations that arise when providing capital for cleanup activities through funding groups such as AFG." The letter identifies ET as the proposed funder through which AFG would finance cleanups. AFG would receive the ultimate reimbursement payment from the IPTF. At that time DEP was concerned that the proposed application/initiation fee was a "kickback" which DEP should deducted from the funder's markup.
In January of 1994, counsel for AFG wrote a letter to DEP describing a financing scheme which differs in some respects from the financing scheme at issue here. This letter states that AFG intended to purchase receivables of the funder and the general contractor at a discount. Under this plan, the general contractor and the funder would claim the two markups. The subcontractors would pay AFG a finder's fee. The letter reveals that AFG, its affiliates, and investors would recover the cash equivalent of both levels of markups plus a fee from subcontractors for funding the high costs or risky projects. The transactions between the entities in the instant applications did not involve a finder's fee.
On July 13, 1994, counsel for AFG wrote DEP to explain some modifications in the details to the proposed plan for the purchase and sale of receivables at a discount. This letter informed DEP that AFG would have a financial affiliation with the funder (ET) which would exist outside the chain of reimbursement and which would have no effect on either the markups or the overall reimbursement amount reflected in any application. All contracts within the chain of reimbursement (between ET, SEI, Gator, Tower, and its subcontractors) would be negotiated in arms-length transactions. The letter states:
In this plan the subcontractors will perform their work on the site and will prepare their invoices in a manner consistent with any publicly or privately financed cleanup.
Those invoices will be complied and forwarded to the general contractor for its review and the general contractor will add on the markup allowed by rule to the subcontractor's bills. The reimbursement application will then be forwarded to the funder who will ensure that all bills have been paid and who will be identified as the "person responsible for conducting site rehabilitation" on the reimbursement application. The funder will
take the second markup allowed by rule, and will submit the reimbursement application to the Department of Environmental Protection for processing. Reimbursement will ultimately be paid by the Department to the funder in accordance with the reimbursement application. At no step in this process will the Department relinquish any authority to review and approve either the scope and nature of the clean-up or the rates charged by the contractors and subcontractors.
Commencing on August 31, 1994, DEP began to develop a policy regarding the use of factoring as a financing mechanism in the reimbursement program. DEP personnel exchanged numerous documents regarding the subject of factoring. In one of those memoranda dated September 2, 1994, Charles Williams, DEP's Reimbursement Administrator, indicated that "we absolutely need to have a Big Meeting to decide what to do once and for all."
In November 1994, DEP provided AFG's counsel with an informal opinion of how DEP would handle a factored application as described by Will Robins of AFG in an earlier meeting with DEP staff. The statement was
that the difference between the amount that a contractor accepted in payment for his services, which was a discounted amount after factoring, . . . and the face value of the invoice which was claimed and marked
up in the application was determined to be a carrying charge or interest, which is specifically disallowed for reimbursement in the reimbursement rule.
American Factors Group. Inc. and the Environmental Trust v. Department of Environmental Protection, DOAH Case No. 95-0343RU, Final Order issued July 24, 1995. DEP advised AFG's counsel that it would deal with factored applications involving other entities on a case by case basis.
On December 20, 1994, John Ruddell, DEP's Director of the Division of Waste Management, sought permission from DEP's Policy Coordinating Committee to promulgate a rule amendment to Chapter 62-773, Florida Administrative Code (formally Chapter 17-773). A draft rule accompanied the request. Mr. Ruddell developed the draft rule in compliance with Chapter 94-311, Section 6, Laws of Florida, which required DEP to revise its reimbursement rule. The draft rule provided that
nothing in this Chapter shall be construed to authorize reimbursement for the face amount of any bill or invoice representing incurred costs when the receivable has been sold at a discount. In all such cases, reimbursement shall be limited to the actual discounted amount accepted by the provider of the goods or services. . . .
The draft rule had the effect of prohibiting factoring as a mechanism for financing site rehabilitation work. The draft rule did not single out any other financing mechanism. DEP did not promulgate that draft rule.
DEP requested that Petitioners furnish additional information regarding the instant applications. Between March 1, 1995 and November 17, 1995, Petitioners responded to DEP's requests with letters bearing AFG's or EF's letterhead. The letters state that prior to filling the applications, ET (and in some cases SEI) paid Gator for the face amount of the invoices plus Gator's markup. Gator then paid the subcontractors for the face amount of their invoices. Prior to these payments, AEE, an affiliate of ET, purchased the right to receive the amount due to Gator from ET or SEI and the right to receive the amount due to subcontractors from Gator. In each case, AEE bought the right to receive at a discount. According to the financing scheme, ET or SEI received sufficient funds from AEE to make the payments to Gator. ET, in turn, was obligated to pay AEE following its receipt of the funds claimed in the reimbursement application.
On or about April 21, 1995, Bruce French, Environmental Manager in DEP's Bureau of Waste Cleanup, developed a memorandum discussing the proper handling of factored and/or discounted reimbursement applications. Mr. French initially sent the memorandum to Charles Williams, DEP's Reimbursement Administrator in DEP's Bureau of Waste Cleanup. The memorandum states that:
invoices from subcontractors, vendors, suppliers and/or the general contractor
which were paid a factored (e.g., discounted) amount by a third party capital participant (e.g., funder) represents the actual amount incurred by that entity and subsequently by the general contractor.
DEP subsequently disseminated the memorandum to all application reviewers to acquaint them with DEP's policy on invoices or applications involving factoring as the financing mechanism.
DEP did not direct the policy on factoring towards any individual company. DEP intended it to apply to "any combination of a general contractor, management company, funder and responsible party" in any situation in which a third party capital provider paid those program participants or suppliers a factored (discounted) amount of their invoices.
The policy memorandum directed DEP reviewers to deduct costs from an application in an amount equal to the difference in the face value of an invoice and the amount paid for the right to receive payment under that invoice.
The language of the policy set forth in the April 21, 1995 memorandum was broad and did not condition DEP's position on factoring on any affiliation between any parties.
Between August 14, 1995 and February 2, 1996, DEP took action on the
45 applications at issue here. As reflected in those notices, DEP denied reimbursement of costs claimed in those applications because of the factoring of the supporting invoices and because "the difference between the face amount of the supporting invoices and the amount factored represents interests or carrying charges which are specifically excluded from reimbursement pursuant to Rule 62-
773.350(4), F.A.C." DEP deducted from the cost of each application an amount equal to the amount of the discount on each relevant invoice.
When DEP issued the denial letters, it had not adopted the policy against factoring by the rulemaking procedure required in Section 120.54, Florida Statutes. The notices reflected a basis of denial of costs that was consistent with DEP's policy as reflected in the December 20, 1994 Draft Rule and the April 21, 1995 memorandum. This non-rule policy, which generally applied to all factoring schemes was not apparent from the rules in effect at that time.
The Agency Statement--Markup/Value Added Policy
Funders and contractors are entitled to take a markup of paid contractor and subcontractor invoices for allowable costs at reasonable rates. The invoices must represent actual and reasonable costs which are integral to site remediation.
Contractors usually are entitled to a first-tier 15 percent markup for supervising and/or coordinating on-site remediation, for investing capital while awaiting reimbursement by paying subcontractors' invoices, and for assuming liability for the performance of the subcontractors.
Funders normally are entitled to a second-tier 15 percent markup as an incentive to provide funds to finance the work.
Markups are expressly subject to limitations set forth in Section 17- 773.350(9), (10) and (11), Florida Administrative Code. There are no other specific or implied limitations on markups in the rules or written guidelines.
Requiring each entity that receives a markup in the reimbursement chain to pay contractor, subcontractor, and vendor invoices helps ensure that each level in the reimbursement chain pays the entity at the next lowest level in full. In these cases, each level in the reimbursement application chain "technically" paid the entity at the next lowest level.
DEP policy in effect at the time Petitioners submitted the instant applications for reimbursement was to allow markups of paid invoices at two levels. However, DEP was not aware of situations where general contractors claimed markups for work that was complete before they ever became involved in the projects.
With regard to all of the pending reimbursement applications, Gator applied a 15 percent markup to all of Tower's invoices including the invoices of Tower's subcontractors and vendors.
With regard to a minimum of 30 of the 45 sites, Gator clearly did not supervise, manage or direct any of the on-site remediation activities. In fact, Gator did not become involved until after Tower had undertaken and completed these tasks.
In at least 30 of the instant cases, Tower was acting as the general contractor when all of the on-site remediation took place. However, Tower could not apply a 15 percent markup to the invoices for its own services. Gator made it possible for Petitioners to claim the markup on Tower's invoices.
As to the 15 sites at which Gator allegedly had some type of involvement with on-site remediation activities, the record contains no evidence regarding the specific activities or the level of Gator's involvement on any particular project.
Gator performed some type of minimal due diligence review of Tower's site work. Gator allegedly reviewed Tower's technical and administrative files, cross-referenced technical and administrative files with the applications which Tower prepared, made visits to some job sites, and prepared a deficiency letter to determine the appropriateness of the scope of Tower's work. However, all of these functions were repetitious of the work performed by Tower and the certified public accountant attesting to the Certification Affidavit.
Tower was a qualified engineering consulting firm that employed its own engineers and geologists. Gator's employee that reviewed the technical information in Tower's files was not a Florida professional engineer. He was not qualified as a certified public accountant to determine whether a charge was within DEP's reasonable rates. The Gator employee was a Florida professional geologist but he did not sign and seal the deficiency letter as such. There is no reference in DEP's rules or written policies to a deficiency letter.
AFG required Gator to prepare the deficiency letter within two days of the date on which EF provided Gator with the opportunity to review a completed task. This two-day turn around time allegedly afforded efficiency of payment. The deficiency letters were limited to the question of whether the scope of Tower's services were reimbursable. Gator did not begin its review of an reimbursement application until after Gator received an invoice from Tower. The relevant subcontract/purchase order issued by Gator to Tower, the Tower invoice and the Gator invoice often were prepared on the same day.
Gator "technically" paid the invoices at the next lowest level with money that AEE advanced. When Gator received payments from ET or SEI, it immediately repaid AEE before ET or SEI submitted the applications to DEP or soon thereafter. Pursuant to the addenda to the factoring contracts, Tower, not Gator, contributed to a reserve trust account which AEE will use to cover any reimbursement shortfalls. Gator allegedly indemnified the funder and guaranteed its own work but did not assume a risk of loss on Tower's work. On most if not all of the applications, Gator performed no meaningful management or supervisory functions. Gator's primary purpose in these consolidated cases was not to afford AFG a level of comfort as to the appropriate scope of the individual program tasks but to ensure that third-party investors maximized their profits.
On September 1, 1994, Restoration Assistance, Inc., an entity under contract with DEP to review reimbursement applications, issued a memorandum to its reviewers directing them to complete their review and do a "total denial" on "Gator Environmental packages." The memorandum advised the reviewers that "Bruce" was drafting canned language to use in DEP's denial statement.
On or about April 21, 1995, DEP presented its reviewers with a memorandum setting forth an initial overview of a "value added" policy for markups taken by a "management company" involved in site remediation activities. The memorandum indicated that DEP would allow reimbursement of claims for actual project management work and value-added services. The memorandum further provided that DEP would allow markups to a management company which only provided cash-flow services for a majority of the program task period even if the management company performed no other service. However, DEP would deny a markup if the management company provided such services during a "one month time
period." DEP intended for the April 21, 1995 memorandum to acquaint DEP reviewers with the emerging DEP policy on markups.
DEP's rules and written guidelines do not address the distinction made in the April 21, 1995 memorandum regarding the timing during which a management company could provide cash flow services and still be entitled to a markup.
On October 20, 1995, Charles Williams issued a DEP policy memorandum for reviewers to use in reviewing reimbursement applications. Through that memorandum, DEP finalized and implemented the "value added" policy. The memorandum states that
if the "GC" [general contractor] was involved with the management of the project during the course of the actual work by subcontractors, [DEP] rules do not preclude them from applying a markup. However, if the "GC" came along after the work was completed by other contractors and their involvement was more
of a due diligence exercise to faciltiate (sic) a funding arrangement by a third party, then the "GC" markup would not be justified, though a markup by the actual funder listed as the PRFCSR could be allowed."
Prior to the establishment of the "value added" policy on October 20, 1995, DEP made no inquiry as to whether a contractor provided value added services which were not reflected in an application in order to be entitled to a markup. DEP applied the "value added" policy to all pending applications (including the ones at issue here) resulting in a deduction of Gator's markup in all of the subject cases.
The Department of Banking and Finance reviewed and issued a report (Comptroller's Report) on the Petroleum Contamination Site Cleanup Reimbursement Program on November 29, 1994. This report addressed the issue of markups in the reimbursement program. The Comptroller's Report recognized that DEP found the multiple markup structure to be beneficial in that it "attracts the involvement of companies whose role in cleanup projects is limited to providing funds to finance the work [and] attracts investors who provide funds which might not otherwise be available--thus facilitating cleanup of contaminated sites." The report acknowledges that a prime contractor "might have only limited direct involvement in the cleanup, having engaged subcontractors for most or all of the actual work." The Comptroller's Report did not address whether a contractor would be entitled to a markup if it became involved after all site work was complete.
The Petroleum Efficiency Task Force's (PETF) final report concerning financing for reimbursement contractors issued on August 17, 1994. This report discussed DEP's policy of allowing two markups on paid invoices. The report recognized that "funders must be able to rely on the skills and knowledge of contractors to minimize reimbursement shortfalls." The PETF recommended for future consideration that "the Department should provide in rulemaking that contractors who take the first-tier 15 percent markup on subcontracted work must adequately supervise the work." When the PETF issued this final report, there was no existing rule that established any level of on site supervision or any other specific criteria for applying one of the two allowable levels of markup, other than paying invoices for integral site rehabilitation work.
DEP's rules and written guidelines did not substantively change with regard to the "value added" policy from the April 22, 1993 revision of Chapter 17-773, Florida Administrative Code, to the October 20, 1995 memorandum which established a non-rule limitation on the ability of an entity to apply a markup to paid invoices.
The "value added" policy is not reflected in any rule or written guideline, and would not be made available to a participant in the reimbursement program who requested program information.
The "value added" agency statement is a non-rule policy which has the effect of a rule. DEP intends to apply the policy in all cases where a contractor's service adds no value to a project. DEP did not anticipate the need for such a rule when it promulgated the current rules.
The Agency Statement Standard
During the 1994 Legislative Session, the Florida Legislature directed that "no later than January 1, 1995, DEP shall review and revise rules related to the pollutant storage tanks programs . . . ." Chapter 94-311, Section 6, Laws of Florida. DEP understood that legislative instruction to include rule revisions related to the reimbursement program.
On April 7, 1994, the Office of Statewide Prosecution issued a Statewide Grand Jury Report. The final report concerning financing of reimbursement contractors was prepared for the Florida Petroleum Efficiency Task Force on August 17, 1994. The Office of Controller issued its report on the Petroleum Contamination Site Cleanup Reimbursement Program on November 29, 1994. All of these reports offered suggestions for changes to the reimbursement rule.
DEP first learned about factoring from presentations by Paul DeCoster and Will Robins in 1993. After these meetings, Petitioner proposed several factoring plans as proposed schemes to finance petroleum contamination site cleanup projects.
Petitioners did not finalize the exact financing scheme they intended to use until July of 1994. Petitioners filed the first applications on July 18, 1994. By that time, DEP was aware that the factoring company was affiliated with the funders. DEP was also aware that the factoring company would receive the difference between the face amount of an invoice and the discount amount of that invoice. However, DEP was not aware of the exact nature of the relationships between AFG, AEE, EF, ET, WIFL, SEI, Gator and Tower.
DEP was unable to evaluate all aspects of Petitioners' factoring plan without supplemental information about the details of the purchase and sale of receivables as they related to each application. DEP requested additional information from the applicants to determine if the costs were actually incurred. As a result of the information that DEP received, it reviewed all transactions to determine whether the costs claimed in the applications were actual and reasonable.
On December 20, 1994, John Ruddell, Director of DEP's Division of Waste Management, sought permission from DEP's Policy Coordinating Committee to promulgate a rule amendment to Chapter 62-773, Florida Administrative Code (formerly Chapter 17-773, Florida Administrative Code). A draft rule accompanied the request. DEP intended the draft rule to comply with the
legislative mandate contained in Chapter 94-311, Section 6, Laws of Florida. By that time, Petitioners had filed 41 of the subject applications.
The 1994 draft rule provided that if a program participant sold a receivable at a discount, reimbursement would be limited to the actual discounted amount accepted by the provider of the goods or services rendered.
The draft rule eliminated markups of contractor and subcontractor invoices.
The December 20, 1994 memorandum to DEP's Policy Coordinating Committee did not indicate any deficiency in the existing delegated legislative authority that would prevent DEP from implementing the changes to the draft rule.
DEP policy coordinating committee declined to approve the initiation of rulemaking procedures. Instead, it directed DEP staff to draft a bill for the 1995 legislative session. DEP based this decision on a determination that it would take too long to correct the numerous problems through the rulemaking process.
The 1995 Legislative Session made several changes to the reimbursement program, particularly as it related to the direction of future site remediation activities. Chapter 95-2, Laws of Florida, passed the 1995 Legislative Session and changed the program from reimbursement of completed work to requiring pre-approval of work before it commenced. The 1995 Legislative Session did not make any relevant amendment to the reimbursement payment procedures in Section 376.3071(12), Florida Statutes.
During the period between adjournment of the 1995 Legislative Session and February 2, 1996, DEP took action on each of the 45 applications that are the subject of this proceeding. Meanwhile, DEP focused its attention on making the necessary changes to switch from a reimbursement program to the new pre- approval program. It is not unreasonable to believe that such a significant change in a large program would take an agency some time to educate itself and the program's participants, prepare documentation and forms, and take steps to begin implementation.
On March 22, 1996, approximately six and one-half months (198 days) after the petition for administrative hearing in Case No. 95-4606, and almost 21 months after the effective date of Chapter 94-311, Laws of Florida, DEP published its notice of rule development in the Florida Administrative Weekly. DEP filed the notice of rule development specifically "in response to litigation pending before the Division of Administrative Hearings" in the 45 cases that are the subject of this proceeding.
In these consolidated cases, DEP did not have sufficient time prior to March 22, 1996 to acquire the knowledge and experience reasonably necessary to address, through the rulemaking process, the policy statements relative to factoring and markups based on value added services. Certainly, related matters were not sufficiently resolved to enable DEP to initiate rulemaking to address the policies set forth in the March 21, 1995 and October 20, 1995 memoranda until the spring of 1996. DEP is currently using the rulemaking procedure expeditiously and in good faith to adopt rules which address these non-rule policies.
Additionally, the record indicates that it was not possible for the agency to initiate rulemaking in time to give Petitioners advance notice of the new policies. Petitioners filed the last applications in February of 1995 before DEP had time to fully evaluate the factoring plan. The time it took DEP to develop the detail or precision in the establishment of the policies set forth in the March 21, 1995 and October 20, 1995 memoranda was reasonable under the circumstances.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties to and the subject matter of this proceeding pursuant to Sections 120.535, Florida Statutes.
As applicants for reimbursement of costs of petroleum contamination site cleanup activities in Florida pursuant to Section 376.3071(12), Florida Statutes, ET and SEI are substantially affected by DEP's statements requiring the denial of costs due to the method of financing utilized by Petitioners and the denial of markups on paid contractor and subcontractor invoices.
Section 120.535(l), Florida Statutes provides as follows:
Rulemaking is not a matter of agency discretion. Each agency statement defined as a rule under s. 120.52(16) shall be adopted by the rulemaking procedure provided
by s. 120.54 as soon as feasible and practical. Rulemaking shall be presumed feasible and practicable to the extent provided by this subsection unless one of the factors provided by this subsection is applicable.
Rulemaking shall be presumed feasible unless the agency proves that:
The agency has not had sufficient time to acquire the knowledge and experience reasonable necessary to address a statement by rulemaking; or
Related matters are not sufficiently resolved to enable the agency to address a statement by rulemaking; or
The agency is currently using the rule- making procedure expeditiously and in good faith to adopt rules which address the statement.
Rulemaking shall be presumed practi- cable to the extent necessary to provide fair notice to affected persons of relevant agency procedures and applicable principles, criteria, or standards for agency decisions unless the agency proves that:
Detail or precision in the establishment of principles, criteria, or standards for agency decisions is not reasonable under the circumstances; or
The particular questions addressed are of such a narrow scope that more specific resolution of the matter is impractical out-
side of an adjudication to determine the substantial interests of a party based on individual circumstances.
The burden is upon the Petitioners to demonstrate, by a preponderance of the evidence, that the challenged agency assertions constitute rules as defined by Section 120.52(16), Florida Statutes. See, Section 120.535, Florida Statutes, Humana Inc. v. Department of Health and Rehabilitative Services, 469 So. 2d 889 (Fla. 1st DCA 1985), and Agrico Chemical Co. v. Department of Environmental Regulation, 365 So. 2d 759 (Fla. 1st DCA 1978).
Section 120.52(16), Florida Statutes, defines the term "rule" as follows:
(16) "Rule" means each agency statement of general applicability that implements, interprets, or prescribes law or policy or describes the organization, procedure, or practice requirements of an agency. . .
An agency statement satisfies the requirement of general applicability if it is intended by its own effect to require compliance, is consistently applied to a broad class of persons, or otherwise has the direct and consistent effect of law. Florida Public Service Commission v. Central Corporation, 551 So. 2d 568, 570 (Fla. 1st DCA 1989); Friends of the Everglades Inc. v. Department of Community Affairs, 495 So. 2d 1193, 1994 n.2 (Fla. 3d DCA 1986); Balsam v. Department of Health and Rehabilitative Services, 452 So. 2d 976, 977-978 (Fla. 1st DCA 1984); Department of Corrections v. Sumner, 447 So. 2d 1388, 1390 (Fla. 1st DCA 1984); McDonald v. Department of Banking and Finance, 346 So. 2d 569, 580 (Fla. 1st DCA 1977); Department of Administration v. Stevens, 344 So. 2d 290, 296 (Fla. 1st DCA 1977).
DEP's April 21, 1995 statement, on its face, applies to any combination of a general contractor, management company, funder and responsible party in any situation in which a program participant sells the right to receive payment at a discounted amount to a third-party capital provider. The policy applies regardless of the relationship between the third-party capital provider and any entity in the chain of reimbursement. The policy does not distinguish those cases where a program participant pays all invoices at the next lowest level at 100 percent of their face value. The policy prohibiting factoring as a method of financing is not readily apparent from DEP's rules and written guidelines.
DEP does not limit the applicability of the policy against factoring to any individual entity. Instead, DEP intends for its reviewers to apply the policy consistently to applications using factoring as a financing mechanism. DEP's application of the policy in the instant cases specifically restricts the reimbursement of costs associated with Petitioners' payment of interest to AEE.
Pursuant to the April 21 1995 and October 20, 1995 memoranda, DEP created a distinction on the ability of an entity to apply a markup based upon the time during which an entity provides cash management services. In the instant cases, DEP's application of the "value added" policy restricts the ability of Gator to apply a markup to invoices that it at least "technically" paid.
DEP does not limit the applicability of the "value added" policy to any individual entity. To the contrary, DEP intends for the reviewers to apply the policy consistently to applications in which entities perform cash management services for less than the majority of the task period, regardless of whether the entity pays contractor and subcontractor invoices.
DEP's value added policy is not readily apparent from the terms of the rules or written guidelines. It has the direct and consistent effect of law. DEP intends for the "value added" policy, by its own effect, to require compliance.
Petitioners have met their burden of proving by a preponderance of the evidence that the agency statements in question here are rules as defined by Section 120.52(16), Florida Statutes. DEP has not adopted these statements by the rulemaking procedure of Section 120.54, Florida Statutes.
However, DEP met its burden of proving that it initiated rulemaking procedures as soon as it was feasible and practicable pursuant to Section 120.535(1), Florida Statutes.
Petitioners filed the subject applications with DEP between July 18, 1994 and February 17, 1995. DEP expected the 1995 legislative session to deal with the issues of storage tanks and the reimbursement program. The legislature made significant revisions to the program changing it from reimbursement of completed work to requiring pre-approval of work before it commenced. However, the legislature did not make changes to the provisions of Chapter 376.3071, Florida Statutes, at issue here.
DEP requested additional information from Petitioners on each application to discern the details of the factoring scheme. Petitioners responded to these request between March 1, 1995 and November 17, 1995. After receiving that information, DEP took official action on the applications between August 14, 1995 and February 2, 1996.
Petitioners filed their requests for administrative hearings with DEP between September 7, 1995 and February 7, 1996. In the meantime, DEP focused its efforts towards implementing the new reimbursement program created by the 1995 legislature.
Prior to publishing its Notice of Proposed Rule Development on March 22, 1996, DEP was either acquiring the knowledge and experience reasonably necessary to address the statements in question by rule or resolving related matters. Before that time, detail or precision in the establishment of principles, criteria, or standards for the agency decisions was not reasonable under the circumstances. As of March 22, 1996, DEP proceeded to expeditiously and in good faith engage in rulemaking procedures. See Christo v. Department of Banking and Finance, 649 So.2d 318 (Fla. 1st DCA), rev. dismissed, 660 So.2d 712 (Fla. 1995).
Petitioners demonstrated through a preponderance of the evidence that DEP policies on factoring and value added services have all the attributes of a rule. DEP applied the policies as if they were rules in the instant cases. However, DEP demonstrated that it commenced rulemaking to adopt the policies as rules as soon as it was feasible or practicable pursuant to Section 120.535(1), Florida Statutes.
ORDER
Based upon the foregoing findings of fact and conclusions of law, it is ORDERED that Petitioners' claims for relief pursuant to Section 120.535(1),
Florida Statutes, in Count II of Case Numbers 96-401RU through 96-429RU and 96- 431RU through 96-437RU are dismissed.
DONE and ORDERED this 8th day of October, 1996, in Tallahassee, Leon County, Florida.
SUZANNE F. HOOD
Administrative Law Judge
Division of Administrative Hearings The DeSoto Building
1230 Apalachee Parkway
Tallahassee, Florida 32399-1550
(904) 488-9675 SUNCOM 278-9675
Fax Filing (904) 921-6847
Filed with the Clerk of the Division of Administrative Hearings this 8th day of October, 1996.
COPIES FURNISHED:
E. Gary Early, Esquire Christopher R. Haughee, Esquire Akerman, Senterfitt, et al.
216 South Monroe Street, Suite 200 Tallahassee, FL 32302-2555
W. Douglas Beason, Esquire Betsy F. Hewitt, Esquire Department of Environmental
Protection
3900 Commonwealth Boulevard
Tallahassee, FL 32399-3000
Virginia B. Wetherell, Secretary Department of Environmental
Protection Douglas Building Mail Station 10
3900 Commonwealth Boulevard
Tallahassee, FL 32399-3000
Perry Odom, Esquire Department of Environmental
Protection
3900 Commonwealth Boulevard
Tallahassee, FL 32399-3000
Carroll Webb, Executive Director Administrative Procedures Committee Holland Building, Room 120 Tallahassee, FL 32399-1300
NOTICE OF RIGHT TO APPEAL
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 the notice of appeal with the Agency Clerk of the Division of Administrative Hearings 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 be filed within 30 days of rendition of the order to be reviewed.
| Issue Date | Proceedings |
|---|---|
| Aug. 12, 1998 | Mandate from the First DCA filed. |
| Jun. 03, 1998 | Opinion filed. |
| Feb. 07, 1997 | Index, Record, Certificate of Record sent out. |
| Jan. 27, 1997 | Payment in the Amount of $338.00 for indexing filed. |
| Dec. 26, 1996 | Index sent out. |
| Nov. 18, 1996 | Letter to DOAH from DCA filed. DCA Case No. 1-96-4341. |
| Nov. 07, 1996 | Notice of Administrative Appeal filed. |
| Nov. 07, 1996 | Certificate of Notice of Administrative Appeal sent out. |
| Oct. 14, 1996 | Kathy Carter from DEP called, she has the transcripts and exhibits if we need them call her at 488-9736. dh |
| Oct. 08, 1996 | CASE CLOSED. Final Order sent out. Hearing held 04/22-25/96. |
| Mar. 15, 1996 | Order of Consolidation sent out. (Consolidated cases are: 95-4606, 96-0401RU through 96-0419RU, 96-0434RU through 96-0437RU, 96-1004 through 96-1009, 96-1352 & 96-1353) |
| Mar. 08, 1996 | Order Granting Consolidation and Amending Style sent out. (Consolidated cases are: 95-4606, 96-0401RU through 96-0419RU, 96-0434Ru through 96-0437RU, 96-1004 through 96-1009) |
| Feb. 05, 1996 | Order of Assignment sent out. |
| Feb. 05, 1996 | Order of Consolidation Notice of Hearing sent out. (Hearing set for 2/21/96; 10:00am; Talla; Consolidated cases are: 95-4606 and 96-401RU through 96-0437RU) |
| Jan. 29, 1996 | Letter to Liz Cloud & Carroll Webb from J. York w/cc: Agency General Counsel sent out. |
| Jan. 24, 1996 | Request for Assignment of Hearing Officer and Notice of Preservation of Record; Petition for Administrative Hearing (w/exhibit A-B); Department of Environmental Protection`s Notice of Related Cases and Motion to Consolidate (96-0401RU through 96-0437RU) r |
| Issue Date | Document | Summary |
|---|---|---|
| Aug. 11, 1998 | Mandate | |
| Jun. 03, 1998 | Opinion | |
| Jun. 03, 1998 | Opinion | |
| Oct. 08, 1996 | DOAH Final Order | DEP adopting nonrule policies in good faith. DEP can apply policy against factoring of invoices and deny markup where contractor services add no value. |
