STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

THE SECURITY MUTUAL LIFE ) INSURANCE COMPANY OF LINCOLN, ) NEBRASKA, )

)

Petitioner, )

)

vs. ) Case No. 97-2836F

)

DEPARTMENT OF INSURANCE )

AND TREASURER, )

)

Respondent. )

)

FINAL ORDER

On June 22, 1998, a formal administrative hearing was held in this case in Tallahassee, Florida, before Carolyn S. Holifield, Administrative Law Judge, Division of Administrative Hearings.

APPEARANCES

For Petitioner: Sharon A. DiMuro, Esquire

Granger, Santry, Mitchell, and Heath, P.A.

2833 Remington Green Circle Tallahassee, Florida 32317

For Respondent: David J. Busch, Esquire

Department of Insurance and Treasurer

Division of Legal Services

200 East Gaines Street 645A Larson Building

Tallahassee, Florida 32399-0307

STATEMENT OF THE ISSUES

The issue for determination is what amount of attorney's fees and costs should be awarded to Petitioner for costs incurred in prosecuting the rule challenge case, Security Mutual Life Insurance Company of Lincoln, Nebraska vs. Department of Insurance and the Treasurer, DOAH Case No. 97-1132RU.

PRELIMINARY STATEMENT

Petitioner, Security Mutual Life Insurance Company of Lincoln, Nebraska (Petitioner or Security Mutual), challenged three statements of the Department of Insurance and the Treasurer (Respondent or Department) as unpromulgated rules in violation of Section 120.54(1)(a), Florida Statutes. Prior to the hearing, Petitioner withdrew its allegation as to one of the statements.

As to the remaining challenged statements, the Final Order: (1) found that one of the statements did not constitute an unpromulgated rule; (2) held that one of challenged agency statements should have been adopted by the rulemaking process; and (3) denied attorney's fees and costs. See Security Mutual Life Insurance Company of Lincoln, Nebraska vs. Department of Insurance and the Treasurer, DOAH Case No. 97-1132RU, (Final Order entered May 19, 1997).

On May 20, 1997, Security Mutual filed a Motion for Corrected Order which sought to have the administrative law judge award attorney's fees and costs under Section 120.595(4)(a), Florida Statutes. In the motion, Security Mutual contended that

it was entitled to such fees and costs because the Final Order held that one of the challenged agency statements was an unpromulgated rule. In response thereto, the Department filed a Motion to Strike. By Order issued June 16, 1997, the matter was reopened, with a new assigned case number, for the limited purpose of determining whether Security Mutual was entitled to attorney's fees and costs and, if so, the amount of such fees and costs. On that same date, the final hearing was set for August 11, 1997.

On July 15, 1997, the Department filed a Motion to Dismiss Case or Abate Hearing (Motion) which represented that on June 18, 1997, Security Mutual had filed, with the First District Court of Appeal, a Notice of Appeal in DOAH Case No. 97-1132RU. The Motion also stated that the Department had filed a Notice of Cross-Appeal on June 19, 1997. In response to the Department's Motion, Security Mutual filed a Response in Opposition to the Respondent's Motion and a Motion for Expedited Fees Hearing. By Order entered July 28, 1997, the matter was placed in abeyance pending a decision in the appeal and cross-appeal in Security Mutual Life Insurance Company vs. Department of Insurance, Case No. 97-2399, District Court of Appeal, First District.

On March 13, 1998, the appellate court rendered an opinion holding that because Security Mutual successfully challenged one of the two Department statements raised in the underlying proceeding, it was entitled to an award of attorney's fees under

Section 120.595(4), Florida Statutes. Accordingly, the matter was remanded to the undersigned to award of costs and fees.

Thereafter, the final hearing in the above-styled matter was set for June 22, 1998. Prior to the final hearing, on June 19, 1998, and July 15, 1998, respectively, Security Mutual filed a Motion for Taxable Costs and a Supplement to Motion for Taxable Costs.

At hearing, Petitioner presented the testimony of one witness, Kenneth G. Ortel, Esquire, an expert in the area of administrative law. Petitioner's Exhibits 1 and 2 were offered and received into evidence. Respondent called no witnesses and offered no exhibits into evidence. At Respondent's request, judicial notice was taken of the record in DOAH Case No.

97-1132RU. Counsel for both parties made legal arguments at the conclusion of the hearing.

A transcript of the proceeding was filed on July 9, 1998.

Neither party filed a proposed order.

FINDINGS OF FACT

1. On March 11, 1997, Security Mutual Life Insurance Company, filed a Petition challenging three statements of Respondent, the Department of Insurance and the Treasurer, as unpromulgated rules. See Security Mutual Life Insurance of Lincoln, Nebraska vs. Department of Insurance and Treasurer, DOAH Case No. 97-1132RU.

2. According to the Petition, the first statement concerned the Department's requiring that annuity contracts contain a table

   of guaranteed values. The second statement alleged to be an unpromulgated rule was that the Department disapproved contract forms labeled as "single premium annuity" contracts which permit additional contributions after the initial premium is made. The third statement challenged by Security Mutual as an unpromulgated rule involved a requirement of the Department that annuity contracts include a demonstration of compliance with Actuarial Guideline 33 to avoid form/rate denial. Throughout the proceeding below and in the Final Order issued pursuant thereto, the second and third challenged agency statements were referred to as the "Single Premium Statement" and the "Guideline 33 Statement."

3. At the commencement of the final hearing in the proceeding below, pursuant to a stipulation, Security Mutual withdrew its challenge to the Department's alleged statement requiring that annuity contracts contain a table of guaranteed values.

4. On May 19, 1997, the Final Order in the proceeding below, dismissed Security Mutual's petition as to the "Single Premium Statement," but determined that the "Guideline 33 Statement" should have been adopted by the rulemaking process. See Security Mutual Life Insurance of Lincoln, Nebraska vs. Department of Insurance and Treasurer, DOAH Case No. 97-1132RU.

5. In the proceeding below, Security Mutual was represented by Sharon A. DiMuro, Esquire, of Ganger, Santry, Mitchell, and

   Heath, P.A. (law firm). The hourly rate of Ms. DiMuro and one other lawyer who worked on the rule challenge case was $175.00. The hourly rate of two other lawyers in the firm who worked on the case was $150.00.

6. Ms. DiMuro expended a total of 180 hours in prosecuting the underlying rule challenge case; 172.2 of these hours were expended on issues on which Security Mutual prevailed. The remaining 7.8 hours were spent on matters related to the "Single Premium Statement" on which Security Mutual did not prevail. Thus, these 7.8 hours are deducted from Ms. DiMuro's total number of hours.

7. The three other attorneys in the law firm expended a total of 12.7 hours on the underlying proceeding, all of which were attributable to work related to the "Guideline 33 Statement," the issue on which Security Mutual prevailed.

8. The attorney, other than Ms. DiMuro, who earned $175.00 an hour worked on the rule challenge case 4.1 hours. The two attorneys, whose hourly rate was $150.00, worked a combined 8.6 hours on the case.

9. With respect to its successful claim in the underlying case, the law firm expended a total of 184.9 hours. Of the total hours expended, 176.3 were billed at $175.00 an hour, and 8.6 were billed at $150.00 an hour.

10. The $150.00 and $175.00 are reasonable hourly rates for the attorneys. Likewise, the time expended in prosecuting the

    underlying proceeding, 184.9, is reasonable.

    
    

11. Based on the foregoing, Security Mutual incurred attorney's fees of $32,142.50 in maintaining and prosecuting the claim on which it succeeded.

12. Security Mutual also incurred reasonable costs of

    
    

    $1,270.29 in connection with the underlying rule challenge proceeding.

13. Moreover, in the instant proceeding, Security Mutual incurred taxable costs in the amount of $1,051.50 for the preparation and hearing time of its expert witness, Kenneth Oretel, of the law firm of Oretel, Hoffman, Fernandez and Cole,

    P.A. These costs were reasonable and necessary.

    
    

    CONCLUSIONS OF LAW

    
    

14. The Division of Administrative Hearings has jurisdiction over the parties to and the subject matter of this proceeding. Sections 120.54, 120.56, and 120.57(1), Florida Statutes.

15. Section 120.595(4), Florida Statutes, mandates that reasonable attorney's fees be awarded to the "prevailing party" in an action which results in a determination that an agency statement is an unpromulgated rule.

16. Section 120.595(4), Florida Statutes, provides in pertinent part the following:

    (4) CHALLENGES TO AGENCY ACTION PURSUANT TO SECTION 120.56(4)

    
    

    1. Upon entry of a final order that all

       or part of an agency statement violates

       s. 120.54(1)(a), the administrative law judge shall award reasonable costs and reasonable attorneys fees to petitioner.

       . . .

    2. Notwithstanding the provisions of chapter 284, an award shall be paid from the budget entity of the secretary, executive director, or equivalent administrative officer of the agency, and the agency shall not be entitled to payment of an award or reimbursement for payment of an award under any provision of law.

17. In cases seeking attorney's fees and costs, the fee applicant has the burden of establishing entitlement to an award and documenting the appropriate hours expended on the case and the hourly rates.

    
    

18. In Security Mutual vs. Department of Insurance and Treasurer, DOAH Case No. 97-1132RU,(Final Order issued May 19, 1997), the underlying rule challenge proceeding, a determination was made that one of the two agency statements challenged by Security Mutual constituted an unpromulgated rule in violation of Section 120.54(1)(a), Florida Statutes.

19. Because the Final Order in DOAH Case No. 97-1132RU found that the challenged "Guideline 33 Statement" violated Section 120.54(1)(a), Florida Statutes, there is no dispute that Security Mutual is entitled to attorney's fees and costs. However, prior to such an award being made, Security Mutual must establish: (1) the amount of attorney's fees and costs incurred in prosecuting the claim on which it prevailed; and (2) the

    reasonableness of such fees and costs.

    
    

20. Here, Security Mutual has met its burden of proof. By uncontroverted evidence, Security Mutual established that it is entitled to attorney's fees of $32,142.50 and costs of $1,270.29, incurred in connection with the prosecution of DOAH Case No. 97- 1132RU. Moreover, Security Mutual established that it is entitled to $1.051.50 for costs incurred in retaining the services of an expert witness for this proceeding.

ORDER

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

ORDERED that:

1. The Department of Insurance and Treasurer shall pay to Security Mutual Life Insurance Company of Lincoln, Nebraska attorney's fees of $32,142.50 and costs of $1,270.29 in connection with DOAH Case No. 97-1132RU.

2. The Department of Insurance and Treasurer shall pay to Security Mutual $1,051.50 for costs incurred in retaining the services of an expert witness in DOAH Case No. 97-2836F.

DONE AND ORDERED this 10th day of September, 1998, in Tallahassee, Leon County, Florida.

CAROLYN S. HOLIFIELD

Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

COPIES FURNISHED:

Sharon A. DiMuro, Esquire Granger, Santry, Mitchell,

and Heath, P.A.

2833 Remington Green Circle Tallahassee, Florida 32317

David J. Busch, Esquire Department of Insurance and

Treasurer

Division of Legal Services

200 East Gaines Street 645A Larson Building

(850) 488-9675 SUNCOM 278-9675

Fax Filing (850) 921-6847

Filed with the Clerk of the Division of Administrative Hearings this 10th day of September, 1998.

Tallahassee, Florida 32399-0307

Daniel Y. Sumner General Counsel

Department of Insurance and Treasurer The Capitol, Lower Level 26 Tallahassee, Florida 32399-0300

Bill Nelson

State Treasurer and Insurance Commissioner

Department of Insurance and Treasurer The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300

NOTICE OF RIGHT TO JUDICIAL REVIEW

A party who is adversely affected by this Final Order is entitled to judicial review pursuant to Section 120.68, Florida Statutes. Review proceedings are governed by the Florida Rules of Appellate Procedure. Such proceedings are commenced by filing one copy of a notice of appeal with the 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 thirty

(30) days of rendition of the order to be reviewed.

Docket for Case No: 97-002836F

Orders for Case No: 97-002836F