STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

JAMES E. CATHEY, d/b/a CATHEY ) CONSTRUCTION COMPANY, INC., )

)

Petitioner, )

)

vs. ) Case No. 99-4888

)

DEPARTMENT OF BUSINESS AND )

PROFESSIONAL REGULATION, ) CONSTRUCTION INDUSTRIES RECOVERY ) FUND and TIMOTHY and LEE ANN )

GOLDEN, )

)

Respondents. )

)

RECOMMENDED ORDER

An administrative hearing was conducted in this proceeding on April 26, 2000, in Orlando, Florida, before Daniel Manry, Administrative Law Judge ("ALJ") Division of Administrative Hearings ("DOAH"). Petitioner, the witnesses, the court reporter, and Respondent, Timothy and Lee Ann Golden ( the "Goldens"), attended the hearing in Orlando. Respondent, Department of Business and Professional Regulation, Construction Industries Recovery Fund (the "Fund") and the ALJ participated by videoconference from Tallahassee, Florida.

APPEARANCES

For Petitioner: John Mahaffey, Esquire

Law Offices of Mahaffey, Leitch, and Burgunder

3113 Lawton Road, Suite 225

Orlando, Florida 32803

For Respondent: John J. Rimes, III

the Fund Assistant Attorney General Department of Legal Affairs The Capitol, Plaza Level 01

Tallahassee, Florida 32399-1050

For Respondent: James Shepherd, Esquire the Goldens Pohl and Short, P.A.

280 West Canton Avenue Winter Park, Florida 32789

STATEMENT OF THE ISSUES

The issues for determination in this case are whether the Goldens' application for payment from the Fund should be approved pursuant to Sections 489.140, 489.141, and 489.143, Florida Statutes (1999) and, if so, whether Petitioner's license as a contractor should be suspended automatically, pursuant to Section 489.143(7), upon payment from the Fund. (All chapter and section references are to Florida Statutes (1999) unless otherwise stated).

PRELIMINARY STATEMENT

By Order dated July 9, 1999, the Construction Industry Licensing Board (the "Board") found that the Goldens had satisfied all requirements for payment from the Fund and ordered the Department of Business and Professional Regulation (the "Department") to pay $25,000 to the Goldens within 45 days of the Order and to automatically suspend Petitioner's construction license. Petitioner timely requested an administrative hearing.

At the hearing, Petitioner testified in his own behalf and the Goldens testified. The Fund submitted six exhibits, and Petitioner submitted two exhibits for admission in evidence.

The identity of the witness and exhibits, and any rulings regarding each, are set forth in the Transcript of the hearing

filed on May 30, 2000. Petitioner timely filed his proposed recommended order ("PRO") on June 15, 2000. Respondents timely filed their respective PROs on June 12, 2000.

FINDINGS OF FACT

1. The Fund is the state agency responsible for regulating claims and payments from the Fund. Petitioner is licensed as a contractor pursuant to license number RR 0011768. On December 29, 1995, the Goldens entered into a contract with Cathey & Sons, Inc. (the "corporation") to construct a single-family residence for a fixed price of $153,579. The corporation is a Florida corporation wholly owned by Petitioner.

2. The actual cost of construction was $178,552.20. The Goldens used a bank construction loan to fund most of the cost of construction. The bank placed construction loan proceeds into the Goldens' bank account. The Goldens paid the corporation when it presented draw requests.

3. The Goldens paid $108,000 directly to the corporation. At Petitioner's request, the Goldens paid the remainder of the cost of construction directly to subcontractors on behalf of the corporation.

4. The actual cost of construction of $178,552.20 exceeded the $153,579 contract price by $24,973.20. Approximately $14,380 of the increase was attributable to changes and upgrades authorized by the Goldens for: porch trusses and posts ($2,400); the driveway ($1,680); interior doors ($2,000); the septic system ($1,500); sod ($2,000); changing the interior floor from concrete to wood ($2,400); and a change in the construction space over the

   garage ($2,400). The Goldens were responsible under the construction contract for changes and upgrades made after signing the fixed price contract.

5. The remaining increase of $10,593.20 was attributable to increases in the price of materials, principally lumber, and the corporation's failure to adequately estimate the cost of kitchen cabinets. The corporation had sole responsibility under the contract for the increase in the price of materials and the failure to adequately estimate the cost of kitchen cabinets.

6. The corporation did not pay the increased price of materials or the increased cost of kitchen cabinets. The Goldens chose to pay the increased cost in order to remove liens from the property so that the Goldens could occupy their home.

7. On December 3, 1998, the Goldens sued Petitioner and the corporation in circuit court in Seminole County, Florida. The complaint alleged mismanagement of construction funds by Petitioner and the corporation.

8. The parties resolved the suit by entering into a Stipulation for Final Judgment. In relevant part, the Goldens dismissed Petitioner individually, with prejudice, and released Petitioner from any personal liability arising out of the construction of their home. Petitioner released his lien against the Goldens' property, and the parties agreed to the entry of a final judgment against the corporation in the amount of

   $34,001.84. The total amount of judgment consisted of $2,141.50 in costs, $4,638.88 in pre-judgment interest, and $27,221.46 that was not attributed to a type of recovery or otherwise identified.

   Counsel for the Goldens prepared a Final Judgment that was signed by the court.

9. The Goldens are eligible to seek recovery from the Fund pursuant to Section 489.141(1). There was no bond, cash bond, surety, guarantee, warranty, letter of intent, or insurance policy against which the Goldens could make a claim. The Goldens received a final judgment in a court of competent jurisdiction in which the cause of action was based on a construction contract executed after July 1, 1993. For a valid reason, the Goldens did not cause a writ of execution to be issued on the judgment. At the time of the judgment, the corporation was dissolved and had no assets, income, or financial ability to pay the judgment. The Goldens made all reasonable searches and inquiries to ascertain whether the judgment debtor possessed real or personal property or other assets from which to satisfy the judgment. The Goldens discovered no such property or assets.

10. In order for the Fund to make payment to the Goldens,

    the Goldens must satisfy conditions prescribed in Section 489.143(1) as prerequisites to recovery. The Goldens satisfied all but two of the statutory requirements.

11. The Goldens failed to satisfy the requirement in Section 489.143(1) that the amount of recovery from the Fund does not exceed the amount of actual and compensatory damages. No amount is "reflected in the judgment . . . as being actual or compensatory damages." The Final Judgment was prepared by counsel for the Goldens and reflects the character of each of the other elements of the $34,001.84 judgment except one item in the

    amount of $27,221.46. As an agreed sum, the $27,221.46 may be a settlement figure agreed to by the parties, or it could be actual or compensatory damages, but the Final Judgment does not reflect the distinction.

12. The Goldens failed to satisfy the provision in Section 489.143(1) that the Final Judgment must be "expressly" based on one of the grounds in Section 489.140(1). Section 489.143(1) provides, in relevant part:

    The fund is not obligated to pay any judgment

    . . . which is not expressly based on one of the grounds for recovery set forth in s.

    489.140(1). (emphasis supplied)

13. The grounds for recovery set forth in Section 489.140(1) incorporate by reference Section 489.129(1)(d), (h), (k), and (l). The only section at issue here is Section 489.129(1)(h). Section 489.129(1)(h), in relevant part, makes mismanagement of construction funds that results in financial harm to the customer punishable by suspension of the contractor's license. Thus, Section 489.143(1) requires the Final Judgment in this case to be "expressly based" on a violation of Section 489.129(1)(h).

14. The Final Judgment drafted by counsel for the Goldens is not "expressly based" on a violation of Section 489.129(1)(h). The parties agree that the complaint filed by the Goldens in circuit court generally alleged mismanagement by Petitioner and the corporation. However, the complaint was not submitted for admission in evidence and no finding can be made that the complaint filed in circuit court alleged a violation of Section 489.129(1)(h). Even if the complaint had alleged a violation of

    Section 489.129(1)(h), the Final Judgment does not expressly incorporate any factual and legal allegation from the complaint or any finding or conclusion concerning the allegations in the complaint.

15. The Final Judgment is "expressly based" on the agreement of the parties. The Final Judgment contains no admission by Petitioner or the corporation that either violated Section 489.129(1)(h). Nor is the Final Judgment "expressly based" on a violation of Section 489.129(1)(h).

16. The statutory provision in Section 489.143(1) that relieves the Fund from any obligation to make payment to the Goldens if the Final Judgment is not "expressly based" on a violation of Section 489.129(1)(h) effectuates fundamental principles of due process. Section 489.143(7) states, in relevant part, that Petitioner's license "shall be automatically suspended, without further administrative action, upon the date of payment from the fund." Fundamental principles of due process prohibit the taking of property such as a license to earn a living without a fair hearing.

17. Even if the Final Judgment had been based on a finding and verdict that Petitioner or the corporation violated Section 489.129(1)(h), such a finding and verdict in a civil action in circuit court would have been proven only by a preponderance of the evidence rather than by clear and convincing evidence required in license discipline proceedings conducted pursuant to Chapter 120. However, the Final Judgment was not based upon a finding and verdict by a trier of fact that Petitioner or the

    corporation violated Section 489.129(1)(h). The Final Judgment was based on a stipulation between the parties. A Final Judgment based on a stipulation of an express violation of Section 489.129(1)(h) would be "expressly based" on an admission that either Petitioner or the corporation, or both, violated Section 489.129(1)(h) and would satisfy the statutory prerequisite for payment from the Fund. If the Fund were to make payment based on a stipulated Final Judgment that is not "expressly based" on a violation of Section 489.129(1)(h) and Petitioner's license were suspended, Petitioner would face denial of a valuable property interest in his license to earn a living without ever admitting to the violation and without receiving a fair hearing to determine, by clear and convincing evidence, whether he violated Section 489.129(1)(h).

18. Section 489.143(1) does not prohibit the Fund from

    making payment to the Goldens when the Final Judgment is not "expressly based" on a violation of Section 489.129(1)(h).

    Rather, Section 489.143(1) states that the Fund is "not obligated" to make payment in such cases. The quoted statutory language allows the Fund to exercise its discretion to make payment from the Fund when the Final Judgment is not expressly based on a violation of Section 489.129(1)(h) if the applicant shows by clear and convincing evidence that the licensee violated Section 489.129(1)(h).

19. The Goldens argue that they are entitled to payment from the Fund even though the Final Judgment is not expressly based on a violation of Section 489.129(1)(h) and that, as the

    applicants for payment, they are not required to prove by clear and convincing evidence in this proceeding that Petitioner violated Section 489.129(1)(h). Statutes should be construed in a manner that preserves their constitutionality. The constitutionality of Section 489.143(7) is best insured by rejecting the Goldens' statutory construction.

20. Section 489.129(1)(h), in relevant part, authorizes the Board to suspend Petitioner's license if Petitioner commits mismanagement in the practice of contracting, and the mismanagment causes financial harm to a customer. The Goldens showed by clear and convincing evidence that Petitioner committed mismanagement in the practice of contracting within the meaning of Section 489.129(1)(h). Petitioner failed to pay $10,593.20 in increased costs that he was contractually obligated to pay for the cost of materials and the cost of kitchen cabinets.

21. Petitioner's mismanagement of funds caused financial harm to the Goldens who were Petitioner's customers. The Goldens had to pay $10,593.20 in order to remove liens from their property and to occupy their house. The Goldens suffered delays in occupying their house and extenuated costs for temporary housing. They incurred other damages in the form of increased debt service on the construction loan; damage to their credit rating from recorded liens; mental anguish; and the time and expense of litigation in circuit court. The total amount of actual and compensatory damages incurred by the Goldens exceeded the $25,000 payment for which they have applied.

    CONCLUSIONS OF LAW

22. The Division of Administrative Hearings has jurisdiction over the subject matter and parties. The parties were duly noticed for the administrative hearing.

23. The burden of proof in an administrative proceeding is on the person asserting the affirmative of an issue. Florida Department of Transportation vs. J.W.C. Company, Inc., 396 So. 2d 778 (Fla. 1st DCA 1981); Balino vs. Department of Health and Rehabilitative Services, 348 So. 2d 349 (Fla. 1st DCA 1977). The Goldens, as the applicants for payment from the Fund, are the persons asserting the affirmative of their entitlement to payment pursuant to Sections 489.140, 489.141, and 489.143.

24. In relevant part, the Goldens must show in this de novo proceeding that they satisfy three statutory requirements. They must show that they satisfy the express requirements in Sections 489.140(1) and 489.143(1) that the Final Judgment is based on a violation of Section 489.129(1)(h) and that the payment applied for does not exceed the "amount reflected in the judgment . . . as being actual or compensatory damages" within the meaning of Section 489.143(1).

25. As a general proposition, the standard of proof applicable to this proceeding would be a preponderance of the evidence. Section 120.57(1)(h); J.W.C., 396 So. 2d at 778; Balino, 348 So. 2d at 349. If the Final Judgment had expressly stated that it was based on a violation of Section 489.129(1)(h) and "reflected" the amount of actual and compensatory damages, then the Goldens arguably could have shown by a preponderance of

    the evidence that they satisfied the statutory conditions for recovery through a prima facie showing of relevant documents admitted in evidence. However, the facts in this case are different, and the preponderance of evidence standard does not apply in this case.

26. Section 489.140(1), in relevant part, provides that payment ". . . shall be disbursed as provided in s. 489.143 . .

    ." The mandatory disbursement in Section 489.140(1) arises only when the requirements of Section 489.143 are satisfied.

    Mandatory disbursement does not operate in this case because the Final Judgment is not "expressly based" on a violation of Section 489.129(1)(h). However, the facts in this case do not prohibit disbursement from the Fund.

27. Section 489.143(1) does not prohibit disbursement from the Fund when the Final Judgment is not expressly based on a violation of Section 489.129(1)(h). Section 489.143(1) merely states:

    The fund is not obligated to pay any judgment

    . . . which is not expressly based on one of the grounds for recovery set forth in s.

    489.140(1). (emphasis supplied)

28. The Fund may pay the Final Judgment if the Goldens, as the applicants for payment, can prove that Petitioner violated Section 489.129(1)(h) and that the payment does not exceed the actual and compensatory damages caused by the violation. The Goldens may prove by a preponderance of the evidence that the payment applied for does not exceed the actual and compensatory damages. However, the application process cannot be used as a substitute for a license discipline proceeding to reduce the

    standard of proof from clear and convincing to a preponderance of the evidence. Dubin v. Department of Business and Professional Regulation, 262 So. 2d 273 (Fla. 1st DCA 1972). Petitioner's violation of Section 489.129(1)(h) must be proven by clear and convincing evidence. Department of Banking and Finance, Division of Securities and Investor Protection v. Osborne Stern and Company, 670 So. 2d 932 (Fla. 1996).

29. The Goldens satisfied their burden of proof. They showed by clear and convincing evidence that Petitioner violated Section 489.129(1)(h) by failing to pay $10,593.20 in construction costs for which Petitioner was contractually liable. The Goldens also showed by clear and convincing evidence that Petitioner's mismanagement of funds caused actual and compensatory damages to the Goldens. Finally, the Goldens showed by a preponderance of the evidence that the payment applied for does not exceed the amount of actual and compensatory damages.

30. Petitioner argues that the Goldens application should be denied because they did not satisfy the requirement in Section 489.141(1)(a)1.a. to cause a writ of execution upon the Final Judgment. Petitioner's argument is not persuasive.

31. Section 489.141(1)(a)1.b. provides that the requirement to obtain a writ of execution is not mandatory if the Goldens were unable to comply with that requirement for a valid reason. The Goldens were unable to comply with the requirement for a writ of execution because the corporation had been dissolved and was devoid of assets. Dissolution of the judgment debtor is a "valid reason" within the meaning of Section 489.141(1)(a)1.b.

32. The remaining issue is whether Petitioner's license should be suspended pursuant to Section 489.143(7). In relevant part, Section 489.143(7) provides:

    Upon payment of any amount from the [Fund] in settlement of a claim in satisfaction of a judgment . . . against a licensee as described in Section 489.141(1), the license of the licensee shall be automatically suspended, without further administrative action, upon the date of payment from the fund. . . . (emphasis supplied)

33. The Final Judgment was entered against the corporation. The action against Petitioner was dismissed with prejudice, and the Goldens, as the judgment creditors, expressly released the licensee from personal liability for the judgment. Therefore, there is no "judgment . . . against the licensee" within the meaning of Section 489.143(7). Without a judgment against the licensee, the Board lacks statutory authority under Section 489.143(7) to suspend Petitioner's license.

34. As the Fund points out in its PRO, the statutory scheme in Chapter 489 makes it clear that the person who is the licensee is the qualifying contractor. Business entities such as the corporation are not licensees. Section 489.119(2) and (3)(a). The payment applied for by the Goldens is not in satisfaction of a judgment against a licensee.

35. The Fund argues that a licensee who qualifies a business entity such as the corporation to engage in construction is responsible to satisfy any judgment against the business entity. In support of this general proposition, the Fund cites Loeffler v. Florida Department of Business and Professional Regulation, 739 So. 2d 150 (Fla. 1st DCA 1999). In the current

    proceeding, however, the Goldens dismissed the suit against the licensee with prejudice and chose to proceed only against the corporation. The Final Judgment was expressly limited to the corporation and expressly insulated the licensee from liability for the judgment.

36. The Fund argues that Petitioner is already on notice of his liability to pay judgments against the corporation pursuant to Florida Administrative Code Rule 61G4-17.001(23) and relevant case law. Lewis v. State, Department of Business and Professional Regulation, 711 So. 2d 573 (Fla. 2d DCA 1998); Loeffler, 739 So. 2d at 150. If so, the Board can institute a separate license discipline proceeding against Petitioner for violation of the rule and the statutes it implements because Petitioner failed to satisfy a judgment in a suit from which Petitioner was expressly dismissed with prejudice and held not responsible for payment. However, the Board's statutory authority to suspend Petitioner's license in this proceeding expressly requires that the Final Judgment be entered against Petitioner as the licensee. It was not.

37. The statutory requirement in Section 489.143(7) that

the Final Judgment be entered against Petitioner, as the licensee, is plain and unambiguous. However, any ambiguity in a statute that is penal in nature should be strictly construed in favor of Petitioner as the person whose license is subject to suspension. Lester vs. Department of Professional and Occupational Regulations, State Board of Medical Examiners, 348 So. 2d 923 (Fla. 1st. DCA 1977). The automatic suspension of

Petitioner's license without further administrative action is penal in nature because it deprives the licensee of the ability to earn a living.

RECOMMENDATION

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

RECOMMENDED that the Fund enter a final order finding that Petitioner is guilty of mismanagement of construction funds in violation of Section 489.129(1)(h), that the violation resulted in damages to the Goldens in excess of the payment applied for, and that the Board may not suspend Petitioner's license, pursuant to Section 489.143(7), because the judgment satisfied by the payment from the Fund was not entered against the licensee.

DONE AND ENTERED this 28th day of June, 2000, in Tallahassee, Leon County, Florida.

DANIEL MANRY

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 www.doah.state.fl.us

Filed with the Clerk of the Division of Administrative Hearings this 28th day of June, 2000.

COPIES FURNISHED:

Rodney Hurst, Executive Director Department of Business and

Professional Regulation Construction Industry Licensing Board 7960 Arlington Expressway, Suite 300

Jacksonville, Florida 32211-7467

Barbara D. Auger, General Counsel Department of Business and

Professional Regulation Northwood Centre

1940 North Monroe Street Tallahassee, Florida 32399-0792

John J. Rimes, III Assistant Attorney General Department of Legal Affairs

The Capitol, Plaza Level 01 Tallahassee, Florida 32399-1050

James Shepherd, Esquire Pohl and Short, P.A.

280 West Canton Avenue Winter Park, Florida 32789

John Mahaffey, Esquire Law Offices of Mahaffey,

Leitch, and Burgunder 3113 Lawton Road, Suite 225

Orlando, Florida 32803

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 should be filed with the agency that will issue the final order in this case.

Docket for Case No: 99-004888

Orders for Case No: 99-004888