STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

EASTLAKE MEMORIAL GARDEN, )

)

Petitioner, )

)

and )

) TRINITY MEMORIAL CEMETERY, INC., a )

Florida corporation, )

)

Intervenor, )

)

vs. )

) Case No. 97-19lORP DEPARTMENT OF BANKING AND FINANCE, )

DIVISION OF FINANCE and BOARD OF ) FUNERAL AND CEMETERY SERVICES, )

)

Respondent, )

)

and )

) FLORIDA CEMETERY ASSOCIATION, INC., )

a not-for-profit corporation, )

)

Intervenor. )

)

FINAL ORDER

Upon due notice, William R. Cave, Administrative Law Judge, Division of Administrative Hearings (Division), held a formal hearing in this matter on May 16, 1997, in Tallahassee, Florida.

APPEARANCES

For Petitioner: P. Bruce Culpepper, Esquire

AKERMAN, SENTERFITT & EIDSON, P.A.

216 South Monroe Street, Suite 200 Post Office Box 10555

Tallahassee, Florida 32302-2555 For Intervenor: Chris H. Bentley, Esquire

(Trinity) John Wharton, Esquire ROSE, SUNDSTROM & BENTLEY

2548 Blairstone Pines Drive Tallahassee, Florida 32302

For Respondents: Theresa G. Walsh, Esquire

Office of the Comptroller Department of Banking and Finance The Fletcher Building, Suite 526

101 East Gaines Street Tallahassee, Florida 32301

John Rimes, Esquire

Lee Ann Gustafson, Esquire Office of the Attorney General Administrative Law Section

The Capitol, Plaza Level-01 Tallahassee, Florida 32301

For Intervenor: Ross A. McVoy, Esquire (Association) Terrell C. Madigan, Esquire

ECKERT, SEAMANS, CHERIN & MELLOTT

Hospitality Square, Third Floor

200 West College Avenue Tallahassee, Florida 32301

STATEMENT OF THE ISSUE

Is Proposed Rule 3F-5.009, Florida Administrative Code, invalid on the basis that the proposed rule is an invalid exercise of delegated legislative authority?

PRELIMINARY STATEMENT

By Petition filed April 18, 1997, Petitioner Eastlake Memorial Gardens, Inc. (Eastlake) challenged as an invalid exercise of delegated legislative authority the Board of Funeral and Cemetery Services' (Board) Proposed Rule 3F-5.009, Florida Administrative Code, as published in the Florida Administrative Law Weekly, Volume 23, Number 13, on March 28, 1997. This cause was assigned to the undersigned Administrative Law Judge by Order of Assignment dated April 24, 1997. Florida Cemetery Association, Inc. (Association) filed a petition for leave to intervene in favor of the proposed rule which was granted.

Trinity Memorial Cemetery, Inc. (Trinity) filed a petition for leave to intervene in opposition to the proposed rule which was granted. This cause was heard on May 16, 1997.

At the hearing, the Board presented the testimony of Diana Evans. The Board's exhibit 1 was received as evidence. There were no witnesses or documentary evidence presented by Eastlake,

Trinity or the Association. Section 497.201, Florida Statutes, was officially recognized.

There was no transcript of the hearing filed with the Division. The Board timely filed its proposed final order. Trinity elected not to file a proposed final order. Eastlake and the Association each filed what was titled Proposed Recommended Order which have been treated as proposed final orders.

FINDINGS OF FACT

Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant findings are found:

1. On March 28, 1997, the Board caused to be published in the Florida Administrative Weekly, Volume 23, Number 13, the text of its proposed rule to be known as Rule 3F-5.009, Florida Administrative Code, which the Board indicated that it intended to adopt. The proposed rule reads:

   
   

   3F-5009 Regulatory Standards for Evaluating Applications by the Board.

   
   

   1. When an application for authority to organize and operate a new cemetery company is filed, it is the applicant's responsibility to meet the statutory criteria warranting the grant of authority. The Department shall conduct an investigation pursuant to Section 497.201(2), Florida Statutes, and report its findings to the Board. If in the opinion of the Board, any one of the criteria as set forth in Section 497.201, Florida Statutes, which requires board review and approval has not been met and cannot be remedied by the applicant, the Department cannot approve the application.

The applicant shall submit information addressing the following:

1. Capital structure.

   1. Capital should be adequate to enable the new cemetery to provide necessary services for cemeteries, including adequate service to the community and adequate care and maintenance of the cemetery.

      
      

   2. Capital shall be sufficient to purchase a cemetery site of no less than 15 contiguous acres in fee simple unencumbered; to develop at least two (2) acres for burial spaces including paved road from a public roadway; to purchase or lease adequate equipment for the operation and maintenance of the cemetery; and to build or lease suitable facilities to operate the cemetery.

      
      

   3. An applicant shall demonstrate that it has sufficient capital to sustain its operations until its first projected profitable year. Sufficient capital shall mean that the applicant is able to cover its cumulative losses until projected profitability; provided that in no event may the tangible accounting net worth of the applicant be less than $50,000. The demonstration of sufficient capital shall be made by submittal of a business plan covering every year from inception up to and including its first projected year of profitability and providing:

      
      

      1. Revenue expectations based on the applicant's projected sources of revenue and projected revenue including number of annual sales and average sales on a unit basis and a demographic analysis of the applicant's projected market which supports this revenue projection;

         
         

      2. An analysis of the cost incurred to achieve the projected revenues including sales costs, product costs, delivery of service costs, financing of capital requirement cost, care and maintenance costs, the costs of perpetual care (including other

         sources of funds in the event of shortfalls in the perpetual care funds); and

         
         

      3. any information required by the Board and reasonably necessary for the Board to make a determination of the applicant's financial stability.

         
         

2. Proposed executive officers, directors or principals.

1. The proposed officers, directors or principals shall each submit an executed Historical Sketch, Form DBF-HS-1, effective 4/25/94, which has been incorporated in Rule 3F-5.002, and shall have reputations evidencing honesty and integrity. They shall have employment and business histories demonstrating their responsibility in financial affairs. The fact that a proposed officer, director or principal has been adjudicated bankrupt or has filed for relief under the Federal Bankruptcy Act shall be considered a material factor in the evaluation of responsibility in financial affairs.

   
   

2. At least one (1) of the proposed directors or principals, who is not also a proposed officer, shall have had substantial direct experience as an executive officer, director or principal of a cemetery or a certificate holder licensed pursuant to Section 497.405, within 3 years of the date of the application. If in the opinion of the Board the aggregate level of experience represented by the proposed board of directors or principals is not substantial, the Board shall require the addition of other outside directors or principals who have adequate experience.

   
   

3. The proposed general manager shall have at least 1 year of direct experience within 7 years of the application as a general manager, director, regulator of a cemetery or similar position having an

   equivalent level of responsibility for a cemetery. The general manager must have a reputation evidencing honesty and integrity and an employment history demonstrating competent past experience. It is not necessary that the name of the general manager be submitted with the application. However, this individual must be named and have submitted an executed Historical Sketch, Form DBF-HS-1, not later than ninety (90)

   days prior to applicant's intended opening date. The applicant may not open for business without prior approval of the general manager by the Department.

   
   

4. Change of a director, chief executive officer, president, principal or general manager or the addition of any new directors, executive officers through the first two (2) years of operation shall also require approval of the Department and the Board.

   
   

5. The Department shall conduct background investigations on the principals, general manager, executive officers, directors, and major shareholders. Any misrepresentations or omission of fact in an application by any person shall be cause for the Department or the Board to deny that person's participation in the application and to the extent such misrepresentation or omission of fact reflect upon their honesty and integrity shall be grounds for denial of the entire application.

Specific Authority 497.103, F.S. Law Implemented 497.201, F.S. History - New.

1. Eastlake's petition challenges the proposed rule on the basis that it is an invalid exercise of delegated legislative authority. Eastlake's challenge is more specifically set out in paragraphs 5 through 8 of the petition which provide:

   
   

   1. The proposed rule imposes requirements regarding:

      
      

      1. the nature of the property interest in a cemetery site necessary to obtain a license;

         
         

      2. the nature of the capital requirements necessary to obtain a license;

         
         

      3. the information to be submitted regarding the officers of a cemetery company necessary to obtain a license;

         
         

      4. the level of experience of directors and principals of the proposed cemetery company necessary to obtain a license;

         
         

      5. the level of experience of the general manager of the proposed cemetery company necessary to obtain a license;

         
         

         which exceed the Board's grant of rulemaking authority, and enlarge, modify, or contravene the specific provisions of law implemented.

         
         

   2. The standards established in the proposed rule regarding the "reputations evidencing honesty and integrity" of the proposed officers, directors, principals and general manager, which reputations" may lead the Board to deny a license to engage in the business of a cemetery company are vague, fail to establish adequate standards for the Board's decisions, or vest unbridled discretion in the Board, and are arbitrary or capricious.

      
      

   3. The standards regarding the ability of the Board to conduct background investigations of the principals, general manager, executive officers, directors and major shareholders, and the extent to which such investigations may allow the Board to deny a license to engage in the business of a cemetery company, exceed the Board's grant of rulemaking authority, and enlarges, modifies, or contravenes the specific provisions of law implemented.

      
      

   4. The standards regarding the ability of the Board to conduct background investigations of the principals, general manager, executive officers, directors and major shareholders and the extent to which such investigations may allow the Board to deny a license to engage in the business of a cemetery company are vague, fail to establish adequate standards for the Board's decisions, or vest unbridled discretion in the Board, and are arbitrary or capricious.

      
      

2. Eastlake is an applicant to obtain a licenses to operate a cemetery and is the Respondent in a challenge to a Board and

   Department decision to grant initial approval for that license (Trinity Memorial Cemetery, Inc., et al. v. Board of Funeral and Cemetery Services, Department of Bankina and Finance, Division of Finance and Eastlake Memorial Gardens, Inc., Case No.

   96-3938), and thus would be affected by the proposed rule if it goes into effect.

   
   

3. Trinity holds a license to operate a cemetery and is a petitioner in Trinity, Case No. 96-3938 in opposition to Eastlake's application and thus would be affected by the proposed rule if it goes into effect.

   
   

4. The Association is an industry trade association which has membership of some 109 licensed cemeteries in Florida. Its members would be affected by the proposed rule if it goes in effect insofar: (a) as the proposed rule sets forth standards for entities attempting to become licensed as cemetery companies; and (b) as its membership has a direct interest in promoting the overall quality of the cemetery industry and assuring that the entities that are licensed to provide cemetery services provide such services in a manner so as to enhance the industry as a whole.

   
   

5. It was the unrebutted testimony of Diana Evans, Executive Director of the Board that the purpose of the proposed rule was to set standards to guide applicants seeking Board approval of their ability, integrity, financial stability, and experience to operate a cemetery, and to guide the Board in reviewing those criteria.

   CONCLUSIONS OF LAW

   
   

6. The Division of Administrative Hearings has jurisdiction over the parties to, and the subject matter of, this proceeding pursuant to Section 120.56(1), Florida Statutes (Supp. 1996).

   
   

7. Eastlake, Trinity and the Association have each established that they would be substantially affected by the proposed rule and thereby have standing to challenge the proposed rule.

   
   

8. Licensed cemeteries have a quasi-fiduciary duty to those individuals that use their services to inter their loved ones and family members. Therefore, the State of Florida requires that all persons and entities seeking to obtain a license as a cemetery company must have the ability, integrity and experience to operate a cemetery and to fulfill their contractual obligations to the persons using the cemetery. Section 497.201, Florida Statutes.

   
   

9. The legislature created the Board to regulate the professional and business aspects of licensed cemeteries. This occurred in 1993 by the enactment of Chapter 93-399, Laws of Florida. The Board was given certain specific duties which include, along with the Department of Banking and Finance, the authority to authorize the initial approval of licensure applications for new cemeteries in the State of Florida. Section 497.201, Florida Statutes.

   
   

10. Sections 497.201(1)(2) and (4), provide in pertinent

    part:

    
    

    497.201 Cemetery companies; license; application; fee.-

    
    

    1. No person may operate a cemetery without first obtaining a license from the department, unless specifically exempted from this chapter.

       
       

    2. The department may require any person desiring to establish a cemetery company who applies for a license to provide any information reasonably necessary to make a determination of the applicant's eligibility for licensure. Any person

       desiring to establish a cemetery company shall first:

       
       

       1. File an application, which states the exact location of the proposed cemetery, which site shall contain not less than 15 contiguous acres; provide a financial statement signed by all officers of he company which attest to a net worth of at least $50,000, which net worth must be continuously maintained as a condition of licensure; and pay an application fee of

          $5,000;

          
          

       2. Create a legal entity; and

          
          

       3. Demonstrate to the satisfaction of the board that the applicant possesses the ability, experience, financial stability, and integrity to operate a cemetery.

    
    

    * * *

    
    

    1. If the board finds that the applicant meets the criteria established in subsection (2) and the department determines that a need for the cemetery in the community exists, the department shall notify the applicant that a license will be issued when:

       
       

       1. The establishment of a care and maintenance trust fund containing not less than $50,000 has been certified by a trust company, a state or national bank, or a savings and loan association licensed in this state.

    
    

    * * *

    
    

    1. The applicant holds an unencumbered fee simple title to at least 15 contiguous acres of land.

       
       

    2. The applicant has designated as general manager a person who has integrity,

       1 year of cemetery experience, and the ability to operate a cemetery.

       
       

    3. The applicant has fully developed not less that acres for use as burial space, such development to include a paved road from a public roadway to the developed section. (Emphasis furnished).

    
    

11. A substantially affected person may seek an administrative determination of the invalidity of the proposed rule. Section 120.56(2)(a), Florida Statutes. The petition filed by Eastlake describes with particularity the objections to the proposed rule and the reason that the proposed rule is an alleged invalid exercise of delegated legislative authority. Therefore, under Section 120.56(2)(a), Florida Statutes (Supp. 1996), the Board has the burden of establishing that the proposed rule is not an invalid exercise of delegated legislative authority as to objections raised. Section 120.56(2)(a), Florida Statutes (Supp. 1996) provides in pertinent part:

    
    

    (2) CHALLENGING PROPOSED RULES; SPECIAL PROVISIONS.-(a) Any substantially affected person may seek an administrative determination of the invalidity of any proposed rule by filing a petition seeking such determination with the division. . . .

    The petition shall state with particularity the objections to the proposed rule and the reasons that the proposed rule is an invalid exercise of delegated legislative authority. The agency then has the burden to prove that the proposed rule is not an invalid exercise of delegated legislative authority as to the objections raised.

    
    

12. Section 150.52(8), Florida Statutes, defines an invalid exercise of delegated legislative authority and provides:

    
    

    (8) "Invalid exercise of delegated legislative authority" means action which goes beyond the powers, function, and duties delegated by the Legislature. A proposed or existing rule is an invalid exercise of

    delegated legislative authority if any one or more of the following apply:

    
    

    1. The agency has materially failed to follow the applicable rule making procedures or requirements set forth in this chapter;

       
       

    2. The agency has exceeded its grant of rulemaking authority, citation to which is required by s. 120.54(3)(a)1.;

       
       

    3. The rule enlarges, modifies, or contravenes the specific provisions of law implemented, citation to which is required by s. 120.54(3)(a)1.;

       
       

    4. The rule is vague, fails to establish standards for agency decision, or vests unbridled discretion in the agency;

       
       

    5. The rule is arbitrary or capricious;

       
       

    6. The rule is not supported by competent substantial evidence; or

       
       

    7. The rule imposes regulatory costs on a regulated person, county or city which can be reduced by adoption of less costly alternatives that substantially accomplish the statutory objectives.

    
    

    A grant of rulemaking Authority is necessary but not sufficient to allow an agency to adopt a rule; a specific law to be implemented is also required. An agency may adopt only rules that implement, interpret, or make specific the particular powers and duties Granted by the enabling statute. No agency shall have authority to adopt a rule only because it is reasonably related to the purpose of the enabling legislation and is not arbitrary and capricious. . . .

    (Emphasis furnished).

    
    

13. It is clear from the petition filed by Eastlake that it is not challenging the proposed rule under the provisions of Section 120.52(8)(a),(f) and (g), Florida Statutes (Supp. 1996).

    
    

14. Eastlake contends that the proposed rule exceeds the Board's grant of rulemaking authority, and enlarges, modifies, or contravenes the specific provisions of the law implemented as it relates to: (a) the nature of the property interest in a cemetery site necessary to obtain a license; (b) the nature of the capital requirement necessary to obtain approval to receive a license; (c) the information required regarding officers of the proposed cemetery company; (d) the level of experience of directors and principals of the proposed cemetery company necessary to obtain a license; (e) the level of experience of the general manager of the proposed cemetery company necessary to obtain a license; and (f) the standards regarding the ability of the Board to conduct background investigations of principals, general manager, executive officers, directors and major shareholders. Section 120.52(8)(b) and (c), Florida Statutes.

    
    

15. Section 497.103(1), Florida Statutes, authorizes the Board to adopt rules not inconsistent with law as may be necessary to carry out the duties and authority conferred upon the Board by Chapter 497, Florida Statutes, as may be necessary to protect the health, safety and welfare of the public. The Board has identified Section 497.201, Florida Statutes, as the law being implemented, interpreted or made specific. The matters addressed in the proposed rule such as: (a) the ability and financial stability of a cemetery license applicant to begin operations as a viable cemetery company and to maintain those operations until the business becomes profitable; (b) the applicant's experience in business generally and in the specific area of cemetery services; and (c) the integrity of the applicant and its principals by requiring background checks are the same matters addressed in the law being implemented, interpreted or made specific. Therefore, the proposed rule implements, interprets or makes specific the terms under which the Board will perform a statutory duty which has been mandated by the legislature as a prerequisite to the approval of an application to operate a cemetery company. The Board in promulgating Rule 3F-5.009, Florida Administrative Code, has not exceeded its grant of rulemaking authority. Likewise, the proposed rule does not enlarge, modify or contravene the specific provisions of Section 497.201, Florida Statutes, which are being implemented by the rule. Florida East Coast Industries v. Department of Community Affairs, 677 So. 2d 357, 360-363 (1st DCA Fla. 1996); Apalachee Regional Planning Council v. Brown, 546 So. 2d 451, 453 (1st DCA Fla. 1989).

16. Eastlake also contends that the proposed rule is vague, fails to establish adequate standards for the Boards' decisions, or vest unbridled discretion in the Board, and is arbitrary or capricious as to: (a) the standards established in the proposed rule regarding "reputations evidencing honesty and integrity" of the proposed officers, directors, principals and general manager which reputations may lead to the Board denying a license to engage in the business of a cemetery company; and

    (b) the standards regarding the ability of the Board to conduct background investigations of the principals, general manager executive officers, directors and major shareholders and to the extent to which such investigations may allow the Board to deny a license to engage in the business of a cemetery company. Section 120.52(8)(d) and (e) Florida Statutes.

    
    

17. The proposed rule contains adequate standards to guide applicants seeking Board approval of their ability, integrity, financial stability and experience to operate a cemetery. The proposed rule provides specific criteria that the applicant must satisfy in order to meet the requirements for initial approval to receive a license to operate a cemetery company. The proposed rule addresses an area of intended regulation--personal integrity-- which, in the context of a highly regulated industry, need not be any more specific--given the complex subject matter of the actions being regulated. Florida East Coast Industries, 677 So. 2d at 360-363; Apalachee Regional Planning Council, 546 So. 2d at 453.

    
    

18. To determine if a rule vests unbridled discretion in an agency the language of the rule must be given its plain meaning. Boca Raton Artificial Kidney Center v. Department of Health and Rehabilitative Services, 493 So. 2d 1055 (1st DCA Fla. 1986). The proposed rule uses well known and understood terms such as "reputations evidencing honesty and integrity", "responsibility in financial affairs," "business plans," "sufficient capital" and "profitability" which when given their plain meaning and used in the context of cemetery and business operations can be understood by any applicant and provide sufficient meaningful standards against which a finding of the Board can be judged. Boca Raton, 493 So. 2d 1055; Marine Industries Ass'n of Fla. v. DEP, 672 So. 2d 878, 882 (4th DCA Fla. 1996).

    
    

19. The proposed rule is non-penal, and if the terms are given their plain and ordinary meaning by any applicant to operate a cemetery company they are understandable. The rule is

    not vague. Florida East Coast Industries, 677 So. 2d at 360-363.

    
    

20. The law is well settled on the definition of the terms arbitrary and capricious. A rule or proposed rule is arbitrary or capricious if it is not supported by fact or logic, if it was adopted without thought or reason, or if it is not otherwise based on competent substantial evidence. Humana, Inc. v. Department of Health and Rehabilitative Services, 469 So. 2d 889 (1st DCA Fla. 1985). Specifically, a "capricious" action is one taken without thought or reason, or which is taken irrationally. An "arbitrary" action is one taken that is not supported by facts or logic or is despotic. See, Aqrico Chemical Co. v. Department of Environmental Requlation, 365 So. 2d 759 (1st DCA Fla. 1978), cert. denied, 376 So.2d 74 (Flat 1979). The Board did not act without thought or reason, and its action was supported by facts and logic. The proposed rule is not arbitrary or capricious.

ORDER

Based on the foregoing, it is hereby

ORDERED that Eastlake's challenge to proposed rule 3F-5.009, Florida Administrative Code, is dismissed.

DONE AND ORDERED this 16th day of June, 1997, in Tallahassee, Florida.

WILLIAM R. CAVE

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

this 16th day of June, 1997.

COPIES FURNISHED:

Hon. Robert F. Milligan Comptroller, State of Florida The Capitol, Plaza Level Tallahassee, Florida 32399-0350

Harry Hooper General Counsel Room 1302

The Capitol

Tallahassee, Florida 32399-0350

Diana Evans, Director

101 East Gaines Street Fletcher Building, Suite 553-E

Tallahassee, Florida 32399-0350

Liz Cloud, Chief

Bureau of Administrative Code The Elliott Building Tallahassee, Florida 32399-0250

Carroll Webb, Executive Director Administrative Procedures Committee Holland Building, Room 120 Tallahassee, Florida 32399-1300

P. Bruce Culpepper, Esquire AKERMAN, SENTERFITT & EIDSON, P.A.

216 South Monroe Street, Suite 200 Post Office Box 10555

Tallahassee. Florida 32302-2555

Theresa G. Walsh, Esquire Department of Banking and Finance The Fletcher Building, Suite 526

101 East Gaines Street Tallahassee, Florida 32301-0350 r

John Rimes, Esquire

Office of the Attorney General Administrative Law Section

The Capitol, Plaza Level 01 Tallahassee, Florida 32301

Chris H. Bentley, Esquire

John Wharton, Esquire ROSE, SUNDSTROM & BENTLEY

2548 Blairstone Pines Drive Tallahassee, Florida 32302

Ross A. McVoy, Esquire Terrill C. Madigan, Esquire

ECKERT, SESMANS, CHERIN & MELLOTT

Hospitality Square, Third Floor

200 West College Avenue Tallahassee, Florida 32301

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 a 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.

Docket for Case No: 97-001910RP

Orders for Case No: 97-001910RP