STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

AMSCOT INSURANCE, INC., and ) IAN MACKECHNIE, )

)

Petitioners, )

)

vs. ) Case No. 98-1974F

) DEPARTMENT OF INSURANCE, )

)

Respondent. )

)

FINAL ORDER

The above-styled proceeding is derived from the consolidated cases Mackechnie v. Department of Insurance, DOAH Case No.

98-1553, and Amscot Insurance, Inc. v. Department of Insurance, 98-1554. Those cases involved Emergency Orders entered on

March 27, 1998, by the Department of Insurance against the named Petitioners, as "affiliated parties" under Section 624.310, Florida Statutes. The Emergency Orders prohibited Petitioners from involvement with the sale of certain "ancillary products" associated with their primary business of selling automobile insurance, and were premised upon Section 624.310(4)(f)2., Florida Statutes, which provides in relevant part:

Whenever any affiliated party is charged with a felony in a state or federal court . . . and the charge alleges violation of any law involving fraud, theft, or moral turpitude, the [Department of Insurance] may enter an emergency order suspending the affiliated party or restricting or prohibiting participation by the affiliated party in the affairs of the particular licensee or of any

other licensee upon service of the order upon the licensee and the affiliated party charged. The order shall contain notice of opportunity for a hearing pursuant to ss.

120.569 and 120.57, where the affiliated party may request a postsuspension hearing to show that continued service to or participation in the affairs of the licensee does not pose a threat to the interests of the licensee's policyholders or creditors and does not threaten to impair public confidence in the licensee. . . . The emergency order remains in effect, unless otherwise modified by the department, until the criminal charge is disposed of. . . .

It was undisputed that the Petitioners had been indicted by the Statewide Grand Jury on charges involving "fraud, theft, or moral turpitude" in connection with the sale of the "ancillary products" addressed by the Emergency Orders.

Petitioners filed a Motion for Summary Order, seeking dismissal of the Emergency Orders for failure to comply with the standard for emergency orders set forth in Sections 120.569(2)(l) and 120.60(6), Florida Statutes. In response, the Department of Insurance argued that Section 624.310(4)(f)2., Florida Statutes, essentially stands alone, providing both the substantive underpinning for the Emergency Orders and a statutorily and constitutionally sufficient procedure for the issuance of such orders and the postsuspension sufficiency challenge to those orders, without reference to the requirements set forth in Chapter 120, Florida Statutes. The practical import of the Department's argument was that Section 624.310(4)(f)2., Florida Statutes, establishes that the issuance of the indictment itself

constitutes the "emergency," and there was no further need or statutory requirement to set forth "specific facts and reasons for finding an immediate danger to the public health, safety, or welfare."

In an order entered on April 15, 1998, the undersigned recommended dismissal of the Emergency Orders, finding that Section 624.310(4)(f)2., Florida Statutes, did not exempt the Department of Insurance from the obligation to comply with the requirements of Chapter 120, Florida Statutes. By a Final Order dated May 18, 1998, the Department of Insurance dismissed the Emergency Orders without prejudice.

On April 24, 1998, Petitioners filed their Motion for Evidentiary Hearing and Order Determining Entitlement to Attorney's Fees and Costs in Case Nos. 98-1553 and 98-1554. Because the Division of Administrative Hearings files of those cases had been closed with the entry of the Recommended Order of Dismissal, a new file was opened and assigned Case No. 98-1974F.

On May 8, 1998, the Department of Insurance filed its Response, urging dismissal because the facts alleged by Petitioners did not and could not establish that the Department of Insurance initiated or participated in the underlying administrative proceeding for an "improper purpose" as that term is defined in Sections 120.569(2)(l) and 120.595(1), Florida Statutes.

On May 21, 1998, a telephonic hearing was held on

Petitioners' Motion for Evidentiary Hearing and Order Determining Entitlement to Attorneys' Fees and Costs, and Respondent's Response to that motion. At that hearing, it was determined that, prior to a decision on the Department's request for summary denial of the request for attorneys' fees and costs, the Petitioners should be granted an opportunity to file an amended petition that more fully set forth the alleged facts supporting their claim that Respondent acted with an "improper purpose" in the underlying proceeding. An order to that effect was entered on May 22, 1998.

On June 5, 1998, Petitioners filed their Amended Petition and accompanying affidavits setting forth the factual particulars of their claim that the Department of Insurance participated in the administrative proceeding for an improper purpose. On

June 12, 1998, the Department of Insurance filed its Response, once again moving for summary dismissal for failure to allege facts that would establish an improper purpose on the part of the Department. For the reasons stated below, the Department's motion is granted and the Amended Petition is dismissed.

Section 120.569(2)(c), Florida Statutes, provides:

All pleadings, motions, or other papers filed in the proceeding must be signed by the party, the party's attorney, or the party's qualified representative. The signature constitutes a certificate that the person has read the pleading, motion, or other paper and that, based upon reasonable inquiry, it is not interposed for any improper purposes, such as to harass or to cause unnecessary delay, or for frivolous purpose or needless

increase in the cost of litigation. If a pleading, motion, or other paper is signed in violation of these requirements, the presiding officer shall impose upon the person who signed it, the represented party, or both, an appropriate sanction, which may include an order to pay the other party or parties the amount of reasonable expenses incurred because of the filing of the pleading, motion, or other paper, including a reasonable attorney's fee.

Section 120.595(1), Florida Statutes, provides in relevant part:

1. The final order in a proceeding pursuant to s. 120.57(1) shall award reasonable costs and a reasonable attorney's fee to the prevailing party only where the nonprevailing adverse party has been determined by the administrative law judge to have participated in the proceeding for an improper purpose.

   
   

2. In proceedings pursuant to s. 120.57(1), and upon motion, the administrative law judge shall determine whether any party participated in the proceeding for an improper purpose as defined by this subsection and s. 120.569(2)(c). In making such determination, the administrative law judge shall consider whether the nonprevailing adverse party has participated in two or more other such proceedings involving the same prevailing party and the same project as an adverse party and in which such two or more proceedings the nonprevailing adverse party did not establish either the factual or legal merits of its position, and shall consider whether the factual or legal position asserted in the instant proceeding would have been cognizable in the previous proceedings. In such event, it shall be rebuttably presumed that the nonprevailing adverse party participated in the pending proceeding for an improper purpose.

* * *

(e) For the purpose of this subsection:

1. "Improper purpose" means participation in a proceeding pursuant to s. 120.57(1) primarily to harass or to cause unnecessary delay or for frivolous purpose or to needlessly increase the cost of licensing or securing the approval of an activity.

The leading case dealing with the award of attorney's fees

and costs against a party alleged to have participated in an administrative proceeding for an improper purpose is Mercedes Lighting and Electrical Supply, Inc. v. Department of General Services, 560 So. 2d 272 (Fla. 1st DCA 1990). In applying Section 120.57(1)(b)5., Florida Statutes (now Section 120.569(2)(c), Florida Statutes), the court held that

courts should not delve into an attorney's or party's subjective intent or into a good faith-bad faith analysis. Instead, if a reasonably clear legal justification can be shown for the filing of the paper in question, improper purpose cannot be found and sanctions are inappropriate....

[I]mproper purpose may be manifested by excessive persistence in pursuing a claim or defense in the face of repeated adverse rulings, or by obdurate resistance out of proportion to the amounts or issues at stake.

Mercedes Lighting, 560 So. 2d at 278 (citations omitted). See also Procacci Commercial Realty, Inc. v. Department of Health and Rehabilitative Services, 690 So. 2d 603, 608 n.9 (Fla. 1st DCA 1997)(court must ask objectively whether an ordinary person standing in the party's or counsel's shoes would have prosecuted the claim).

Applying this objective standard to the case at hand, an "improper purpose" cannot be found against the Department of Insurance under either Section 120.569(2)(c) or Section 120.595(1), Florida Statutes. Most of the factual allegations set forth in the Amended Petition and in the accompanying affidavits deal with alleged improprieties in the Department of Insurance's investigation of Petitioners: that the initial raid

on Amscot Insurance offices was conducted as a media event; that Department of Insurance investigators falsely told Amscot customers that the company was out of business; that the investigators threatened and cajoled Amscot employees to obtain their cooperation; and that the investigators caused former Amscot employees to be blackballed from working for other insurance agencies if they did not cooperate in the effort against Amscot. This investigation and the alleged improprieties therein occurred some months prior to the issuance of the indictments that triggered the Emergency Orders at issue in this proceeding.

The Department of Insurance investigation was undoubtedly related to the Statewide Grand Jury indictment that followed. However, Mercedes Lighting makes it clear that the "improper purpose" analysis should focus on whether a "reasonably clear legal justification can be shown for the filing of the paper in question," rather than engage in a far-ranging examination of the contentious history between the parties. The allegations regarding improper investigatory practices by the Department of Insurance are irrelevant to an inquiry regarding the legal justification for the filing of the Emergency Orders.

As to those allegations dealing directly with "the filing of the paper," Petitioners repeat the argument that prevailed in Case Nos. 1553 and 1554, i.e., that an Emergency Order issued pursuant to Section 624.310(4)(f)2., Florida Statutes, must

nonetheless comply with the emergency procedures set forth in Chapter 120, Florida Statutes, and append the allegation that the Department's assertion of a contrary position was "improper or frivolous."

Even if the factual assertions of the Amended Petition were accepted as true, they could not establish that the Department of Insurance acted without a "reasonably clear legal justification" when it issued the Emergency Orders. Neither party could direct the undersigned to any appellate decision dealing directly with the application of the APA's emergency order requirements to the arguably independent requirements set forth in Section 624.310(4)(f)2., Florida Statutes. The undersigned could discover no prior Division of Administrative Hearings case in which a party even raised the issue of APA compliance in challenging an emergency order issued pursuant to Section 624.310(4)(f)2., Florida Statutes.

The Department of Insurance issued these Emergency Orders according to its customary procedures, historically unchallenged by any litigant and based on a legally justifiable reading of Section 624.310(4)(f)2., Florida Statutes. Petitioners made a novel challenge to those Emergency Orders, ultimately persuading the undersigned that Petitioners' reading of the statute and appellate decisions was correct. Under these circumstances, Petitioners cannot prevail on a claim that the Department of Insurance issued the Emergency Orders for an improper or

frivolous purpose. This was a case of first impression that required the extension of the rationale of existing case law, the precise opposite of the "excessive persistence in pursuing a claim or defense in the face of repeated adverse rulings" indicating an improper purpose. Mercedes Lighting, 560 So. 2d at 278.

It is, therefore,

ORDERED that the Amended Petition for Evidentiary Hearing and Order Determining Entitlement to Attorneys' Fees and Costs is dismissed.

DONE AND ORDERED this 14th day of July, 1998, in Tallahassee, Leon County, Florida.

LAWRENCE P. STEVENSON

Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(850) 488-9675 SUNCOM 278-9675

Fax Filing (850) 921-6847

Filed with the Clerk of the Division of Administrative Hearings this 14th day of July, 1998.

COPIES FURNISHED:

Patrick J. McNamara, Esquire David M. Caldevilla, Esquire

de la Parte, Gilbert & Bales, P.A. Post Office Box 2350

Tampa, Florida 33601-2350

John A. Anthony, Esquire Shackleford, Farrior, Stallings,

& Evans, P.A.

Post Office Box 3324 Tampa, Florida 33601

John L. Brennan, III, Esquire Michael H. Davidson, Esquire John Dunphy, Esquire

S. Marc Herskovitz, Esquire Christopher J. Karo, Esquire William W. Tharpe, Jr., Esquire Department of Insurance

Division of Legal Services 612 Larson Building

Tallahassee, Florida 32399-0300

Bill Nelson

State Treasurer and Insurance Commissioner

The Capitol, Plaza Level Eleven 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 30 days of rendition of the order to be reviewed.

Docket for Case No: 98-001974F

Orders for Case No: 98-001974F