STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF BUSINESS AND ) PROFESSIONAL REGULATION, )

)

Petitioner, )

)

vs. ) CASE NOS. 96-4967

) 96-4968

SUSAN JAN HAGGERTY and ) SUNCOAST RESOURCE MANAGEMENT, ) INC., )

)

Respondents. )

)

RECOMMENDED ORDER

Robert E. Meale, Administrative Law Judge of the Division of Administrative Hearings, conducted the final hearing in Port Charlotte, Florida, on March 12, 1997.

APPEARANCES

For Petitioner: Mary Ellen Clark

Senior Attorney

Department of Business and Professional Regulation

1940 North Monroe Street Suite 60

Tallahassee, Florida 32399-0792

For Respondents: Attorney Frank M. Gafford

Post Office Box 1789

Lake City, Florida 32506-1789 STATEMENT OF THE ISSUE

The issue is whether Respondents failed to file four quarterly and one annual financial statements and failed to maintain minimum amounts of net worth and working capital. If so, an additional issue is what penalty should be imposed.

PRELIMINARY STATEMENT

By Administrative Complaint dated April 29, 1996, in DOAH Case No. 96-4967, Petitioner alleged that Respondent Haggerty is the licensed controlling person of Suncoast Resource Management, Inc., which was not named as a respondent in DOAH Case No. 96- 4967.

Count I of the Administrative Complaint alleges that employee leasing companies must annually file audited financial statements, pursuant to Rule 61G7-5.0031(2), Florida Administrative Code; financial statements reflecting a positive working capital and tangible accounting net worth, pursuant to Rule 61G7-10.0011, Florida Administrative Code; and reviewed or audited financial statements (depending on the gross payroll of the company), pursuant to Section 468.525(3)(e), Florida Statutes.

The Administrative Complaint alleges that Sections 468.532(1)(i) and (r), Florida Statutes, authorize the Board of Employee Leasing Companies to impose discipline for violation of any provision of Chapter 468 or failure to meet any licensing requirements.

The Administrative Complaint alleges that Suncoast Resource Management, Inc. was required to file financial statements on or about April 30, 1995, for fiscal year ending December 31, 1994. Count II of the Administrative Complaint alleges that Suncoast Resource Management, Inc. failed to file the financial statements

by the deadline, thereby causing Respondent Haggerty to violate Sections 468.532(1)(i), 468.525(3)(e), and 468.532(1)(r) and Rule 61G7-5.0031(2).

Count II of the Administrative Complaint alleges that each employee leasing company must maintain an accounting net worth and positive working capital or have security in sufficient amounts to offset any deficiency, pursuant to Section 468.525(3)(d), Florida Statutes.

The Administrative Complaint alleges that Respondent Haggerty submitted the financial statements for year ending December 31, 1994, on or about March 14, 1996. The Administrative Complaint alleges that the financial statements were not audited or reviewed, as required by Rules 61G7-5.0031(2) and 61G7-10.0011 and Section 468.525(3)(e). The Administrative Complaint alleges that the financial statements disclosed a deficiency in tangible accounting net worth of about $180,885.

Count III of the Administrative Complaint alleges that Section 468.526(3)(a), Florida Statutes, requires each employee leasing company to pay Petitioner a license fee and an annual assessment sufficient to cover the costs of regulation. The Administrative Complaint alleges that Rule 61G7-5.002(1), Florida Administrative Code, requires Petitioner to assess each employee leasing company an annual assessment fee based on the company’s gross Florida payroll. The Administrative Complaint alleges that Rule 61G7-5.002(2), Florida Administrative Code, requires each

employee leasing company to submit annually a statement of gross Florida payroll.

Count III of the Administrative Complaint alleges that Respondent Haggerty failed to pay the annual assessment fee due April 1, 1995, by April 30, 1995, and thus violated Sections 468.532(1)(i), 468.526(3)(a) and 468.532(1)(r) and Rules 61G7-

5.002(1) and (2).

Count IV of the Administrative Complaint alleges that Rule 61G7-10.001 requires each employee leasing company to submit quarterly a statement that it is in compliance with the requirement of a positive working capital and has had adequate reserves to pay all payroll taxes, workers compensation and health insurance premiums, and amounts due under any self- insurance program.

The Administrative Complaint alleges that Respondent Haggerty failed to submit the quarterly report for the quarter ending December 31, 1994, by the deadline of March 16, 1995.

Count IV alleges that Respondent Haggerty thus violated Section 468.532(1)(i) and Rule 61G7-10.001.

Counts V, VI, and VII of the Administrative Complaint make the same allegations for the quarters ending March 31, June 30, and September 30, 1995.

Following the hearing, Petitioner abandoned its allegations that Respondents failed to pay the annual assessment. Thus,

Petitioner has withdrawn Count III of both administrative complaints.

By Administrative Complaint dated April 29, 1996, in DOAH Case No. 96-4968, Petitioner alleged that Respondent Suncoast Resource Management, Inc. violated the same provisions as alleged in DOAH Case No. 96-4967.

Respondents denied the material allegations and demanded a formal hearing.

At the hearing, Petitioner called two witnesses and offered into evidence three exhibits. Respondent called one witness and offered into evidence four exhibits. All exhibits were admitted except Respondent Exhibits 1-3.

On the grounds of relevance, the administrative law judge sustained objections to Respondent Exhibits 1-3 and an objection to Respondent calling former Secretary of the Department of Business and Professional Regulation, George Stuart. Respondent sought to solicit evidence showing that the Board of Employee Leasing Companies had unreasonably delayed approving the initial applications of Respondents and this delay, with the attending expense of administrative litigation to obtain approval of the initial applications, left Respondent Suncoast Resource Management, Inc. in a financially weakened position. The administrative law judge ruled that such evidence did not constitute a good defense to any of the charges, including most directly the allegation that Respondent Suncoast Resource

Management, Inc. failed to maintain the net worth and working capital requirements.

The court reporter filed the transcript on April 16, 1997. The parties filed their proposed recommended orders on April 28, 1997.

FINDINGS OF FACT

1. At all material times, Respondent Susan Jan Haggerty (Haggerty) was the controlling person of Respondent Suncoast Resource Management, Inc. (Suncoast). The Board of Employee Leasing Companies (Board) licensed Suncoast as an employee leasing company, holding license number EL 0000055, and Haggerty as the company’s controlling person, holding license number CO 0000125.

2. Haggerty is also the licensed controlling person for Suncoast Management Group, Inc., an employee leasing company licensed since January 1994.

3. Respondents applied for their licenses in July 1992. Suncoast was first licensed on March 22, 1994, and Haggerty was first licensed on January 13, 1994.

4. Haggerty’s license remains currently in effect. However, following its surrender, as described below, Suncoast’s license became null and void on September 12, 1995.

5. During 1994--its first year of licensed operation-- Suncoast encountered financial problems. At some point prior to December 31, 1994, a workers’ compensation carrier won a judgment

   of about $200,000 against Suncoast for unpaid workers’ compensation premiums.

6. During 1994, Haggerty decided to close Suncoast. She instructed the company’s independent accountant to contact Board staff and find out how to close down the company, from a regulatory standpoint.

7. An unidentified male staffperson employed by the Board informed the accountant by telephone that all the Respondents had to do was to write the Board a letter informing it of what was happening and to submit the quarterly compiled financial statement. The accountant conveyed these instructions to Haggerty in October or November 1994.

8. Suncoast ceased doing business effective December 31, 1994. During this month, Suncoast terminated its last employee. During 1994, Suncoast had a gross Florida payroll of less than

   $2.5 million.

   
   

9. During 1995, an investigator for Petitioner contacted Haggerty and discussed some of the unfiled financial statements that are the subject of these cases. In an effort to resolve this matter, Suncoast formally surrendered its license on August 2, 1995.

10. The Administrative Complaints allege that Respondents failed to file five financial statements with the Board. These are four quarterly financial statements due for the quarters ending December 31, 1994, and following, and the 1994 annual

    financial statement. There are also allegations of failure to maintain minimum requirements of net worth and working capital.

11. It appears that Suncoast did not file any quarterly financial statements prior to the one due for December 1994. However, Petitioner did not elect to allege violations of the law for these failures to file.

12. For the relevant period, Suncoast only filed two statements with the Board of Employee Leasing Companies. The first statement was a quarterly financial statement for the last quarter of 1994, which was filed in March 1996--well after the ordinary deadline for such quarterly statements.

13. The second statement was an annual financial statement for 1994. The accountant prepared this statement, dated June 4, 1995, and Haggerty filed it with the Board of Employee Leasing Companies on July 10, 1996--also well after the ordinary deadline for such annual statements.

14. The 1994 financial statement is compiled, not audited or reviewed. The 1994 financial statement reveals that Suncoast had a tangible accounting net worth deficiency of about $180,000 and a positive working capital of $28,737, which reflects current assets and current liabilities and treats the $200,000 judgment as a long-term liability. Suncoast never obtain Board-approved security to offset the $180,000 deficiency in its net worth.

    CONCLUSIONS OF LAW

    
    

15. The Division of Administrative Hearings has jurisdiction over the subject matter. Section 120.57(1), Florida Statutes. (All references to Sections and Chapters are to Florida Statutes (Supp. 1994). All references to Rules are to the Florida Administrative Code.)

16. Section 468.532(1)(i) authorizes the Board to impose discipline against a licensee for any violation of Chapter 468, Part XI, or any lawful order or rule issued under the provisions of Chapter 468, Part XI, and Chapter 455.

17. Section 468.532(1)(r) authorizes the Board to impose discipline against a licensee for failing to “meet or maintain the requirements for licensure as an employee leasing company or a controlling person.”

18. Section 468.525(3)(d) requires each employee leasing company to “maintain an accounting net worth and positive working capital . . . or shall have . . . security acceptable to the board in sufficient amounts to offset any deficiency.”

19. Section 468.525(3)(e) requires each employee leasing company to submit annual financial statements within 120 days after the end of each fiscal year. Companies, such as Suncoast, with gross Florida payrolls of less than $2.5 million may file reviewed statements; other companies must file audited statements.

20. Upon a violation of Section 468.532(1), Section 468.532(2) authorizes the Board to revoke, suspend, restrict, or not renew the license; place the licensee on probation; impose an administrative fine of not more than $5000 per offense; issue a reprimand to the licensee; and assess costs for the investigation and prosecution.

21. Petitioner must prove the material allegations by clear and convincing evidence. Department of Banking and Finance v. Osborne Stern and Company, Inc., 670 So. 2d 932 (Fla. 1996) and Ferris v. Turlington, 510 So. 2d 292 (Fla. 1987).

22. The most important issue in this case is whether Suncoast maintained the minimum net worth and positive working capital requirements while licensed. The issue whether Suncoast filed the necessary financial statements following its cessation of business, for periods prior to its cessation of business, raises difficult factual and legal questions of estoppel and statutory interpretation concerning whether these licensee responsibilities extend past the point at which a licensee is a going concern. It is unnecessary to resolve these difficult issues.

23. At the close of 1994, Suncoast met the requirement of positive working capital, but not the requirement of minimum net worth. Nothing in the record suggests that the deficiency in net worth arose abruptly on the last day of the year; instead, the deficiency existed for some period prior to the end of the year--

    largely attributable to the $200,000 judgment in favor of the workers’ compensation carrier.

24. Section 468.525(3)(d) requires that companies maintain an accounting net worth. This requirement is violated if a company falls below the minimum net worth requirement between financial statements. The net worth requirement does not require only that a company’s financial statements reflect a positive net worth; it requires that the company actually have a positive net worth at all times, not just at those several points during a year that financial statements describe.

25. Section 468.525(3)(d) offers leasing companies and their controlling persons an alternative to revocation, if the company’s net worth is no longer positive. The leasing company and controlling person may obtain security, such as a personal guarantee from the controlling person, to offset the deficiency. Respondents did not avail themselves of this opportunity and instead allowed Suncoast to continue to operate over some period of time with a negative net worth--a fact well known to Haggerty, who had decided to liquidate Suncoast due to its precarious financial condition and transfer her operations to another employee leasing company.

26. The parties stipulated that Suncoast’s license became "null and void" seven months before Petitioner filed the Administrative Complaints. The license was not inactive or surrendered, so as to leave it capable of reactivation. Section

    468.532 authorizes the Board to impose discipline against a "licensee." Petitioner therefore has no jurisdiction to discipline Suncoast's nonexistent license.

27. Haggerty’s license remains valid. The record is devoid of evidence detailing the extent of any injury to the public. It is unclear whether Suncoast or Haggerty has yet satisfied the workers’ compensation judgment. It is clear that the judgment is the cause of Suncoast’s net worth deficiency. The 1994 financial statement, which was prepared in mid-1996, states that Suncoast and Haggerty are still contesting the liability. If resolved in their favor, or if the judgment were paid, the violation proved in this case would be less serious than if the judgment is affirmed and unpaid. The Board should impose discipline to accommodate these contingencies.

RECOMMENDATION

It is

RECOMMENDED that the Board of Employee Leasing Companies enter a final order dismissing the administrative complaint against Suncoast Resource Management, Inc. and suspending Susan Jan Haggerty’s license for a period equal to the earlier of five years or until she proves to the reasonable satisfaction of the Board that the $200,000 judgment in favor of the workers’ compensation carrier has been satisfied or vacated with all judicial review concluded; but in no event shall the term of the suspension be less than one year.

ENTERED in Tallahassee, Florida, on June 5, 1997.

COPIES FURNISHED:

Mary Ellen Clark Senior Attorney

Department of Business and Professional Regulation 1940 North Monroe Street Suite 60

ROBERT E. MEALE

Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(904) 488-9675 SUNCOM 278-9675

Fax Filing (904) 921-6847

Filed with the Clerk of the Division of Administrative Hearings on June 5, 1997.

Tallahassee, Florida 32399-0792

Attorney Frank M. Gafford Post Office Box 1789

Lake City, Florida 32506-1789

Isla Jones Executive Director

Board of Employee Leasing Companies 1940 North Monroe Street Tallahassee, Florida 32399-0792

Lynda L. Goodgame General Counsel

Department of Business and Professional Regulation

1940 North Monroe Street Tallahassee, Florida 32399-0792

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within 15 days from the date of this recommended order. Any exceptions to this recommended order must be filed with the agency that will issue the final order in this case.

Docket for Case No: 96-004967

Orders for Case No: 96-004967