STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

JUDITH C. CLEARY,

Petitioner,

vs.

DEPARTMENT OF FINANCIAL SERVICES,

Respondent.

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) Case No. 11-0876F

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CHARLES B. HOUCK,

Petitioner,

vs.

DEPARTMENT OF FINANCIAL SERVICES,

Respondent.

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) Case No. 11-0877F

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FINAL ORDER

A final hearing was held in the above-styled consolidated cases on May 31, 2011, by video teleconference in Tallahassee and St. Petersburg, Florida, before Administrative Law Judge Elizabeth W. McArthur of the Division of Administrative Hearings.

APPEARANCES

For Petitioners: Stacey L. Turmel, Esquire

Turmel Trial Law, LLC 721 First Avenue North

St. Petersburg, Florida 33701

For Respondent: James A. Bossart, Esquire

Department of Financial Services 612 Larson Building

200 East Gaines Street, Room 612 Tallahassee, Florida 32399-0333

STATEMENT OF THE ISSUE

The issue is whether Petitioners, Judith C. Cleary and Charles B. Houck (Petitioners or Ms. Cleary and Mr. Houck), are entitled to an award of attorney's fees against Respondent, Department of Financial Services (Respondent or the Department), pursuant to section 57.111, Florida Statutes (2009).1/

PRELIMINARY STATEMENT

On February 17, 2011, Petitioners filed identical petitions for attorney's fees and costs pursuant to section 57.111.

Pursuant to an Initial Order, Respondent filed a response to the petitions for attorney's fees and costs on March 7, 2011. In its response, Respondent admitted that Petitioners will be prevailing parties after expiration of the 30-day appeal period; that Petitioners are small business parties; and that the amounts requested were not unreasonable. However, Respondent maintained that its actions in the underlying proceedings were substantially justified and that circumstances exist that would make an award of attorney's fees unjust.

As offered in the Initial Order, Respondent's March 7, 2011, response included a request for an evidentiary hearing. Accordingly, a hearing was scheduled and held on May 31, 2011.

At the hearing, Petitioners testified on their own behalf, and Petitioners' Exhibits 1 through 4 were received into evidence. Respondent did not present any testimony, but Respondent's Exhibits A through D were received into evidence. In addition, the undersigned took Official Recognition of the record in the underlying consolidated proceeding, Department of

Financial Services v. Judith C. Cleary, Case No. 1504PL, and Department of Financial Services v. Charles B. Houck, Case No. 10-1505PL.

No transcript was ordered. The parties timely filed their Proposed Final Orders, which have been considered in the preparation of this Final Order.

FINDINGS OF FACT

1. The underlying proceedings were initiated by Respondent on February 22, 2010, by the issuance of substantively identical Administrative Complaints against Petitioners. Petitioners timely requested administrative hearings to contest the charges against them, and the cases were forwarded to the Division of Administrative Hearings where they were consolidated for hearing.

2. Count 1 of each Administrative Complaint charged Petitioners with willfully misrepresenting and or omitting material information in order to induce Mr. and Mrs. Nagle to cash in another annuity they held in order to purchase an

   
   

   annuity sold by Petitioners. Included in the alleged misrepresentations or material omissions were:

   1. misrepresenting that there would be no surrender charges to withdraw the entire amount of the new annuity after one year, when in fact there would be a 15 percent surrender charge;

   2. falsely representing that the annuity would earn the Nagles ten to 20 percent returns; and (3) misrepresenting the suitability of the Nagles to purchase the annuity by misrepresenting the Nagles' net worth and by misrepresenting the Nagles' investment objective as long-term, in a form Petitioners submitted to the insurance company issuing the annuity.

3. Count 2 of each Administrative Complaint charged Petitioners with similar conduct in order to induce the Nagles' son, Robert, to purchase an annuity. Included in the alleged misrepresentations or material omissions were:

   1. misrepresenting that there would be no surrender charges to withdraw the entire amount of the new annuity after one year, when, in fact, there would be a 15 percent surrender charge; and

   2. falsely representing that the annuity would earn Robert Nagle ten to 20 percent annual returns.

4. Petitioners do not dispute that if the allegations charged in the Administrative Complaint had been proven by clear and convincing evidence, then Respondent would have established the statutory violations alleged as the predicate for taking

   
   

   disciplinary action against Petitioners' insurance agent licenses.

5. Petitioners also acknowledge that Respondent initiated the disciplinary actions against them on the basis of two complaint letters received by Mrs. Phyllis Nagle, the attestation of Mrs. Nagle to the material allegations in an affidavit, and a corroborating complaint letter by Mrs. Nagle's son, Robert Nagle.

6. After a full evidentiary hearing, a Recommended Order issued in the underlying disciplinary actions determined that the more credible evidence failed to establish the allegations in the Administrative Complaints. In particular, the undersigned weighed the credibility of testimony by Robert Nagle and by Petitioners at the final hearing, as well as deposition testimony by both Mr. and Mrs. Nagle.

7. The question posed in this case, however, is not whether credibility judgments caused the Department to ultimately not prevail in its charges against Petitioners. Instead, the question here is whether Respondent had a reasonable basis, in law and in fact, at the time it initiated the underlying disciplinary actions.

8. In this regard, Petitioners contend that the Department's investigation file contained documents from the

   
   

   insurance company issuing the annuities that contradict the allegations in the Administrative Complaints.

9. Petitioners point to three documents in particular.

   
   

   The first document was a customer survey response submitted by Mrs. Nagle to the insurance company after she purchased the annuity from Petitioners. Her completion of the survey form indicated that she knew that "[s]urrender charges are imposed on premature full withdrawal"; that she considered the "annuity to be a long-term investment"; that she did "not intend to use these funds to meet current expenses"; and that Petitioners reviewed her "financial status . . . and other pertinent information to determine whether this annuity purchase" was suitable to her.

10. The other document claimed to contradict the allegations in the Administrative Complaints was the Nagles' annual statement showing a yield of 5.66 percent, which was different than the 2.6 percent yield claimed by Mrs. Nagle in her complaint letters or affidavit.

11. Finally, Petitioners point to statements of understanding signed by the Nagles, showing the surrender charges that would be imposed for early withdrawals.

12. None of these documents conclusively refute the charges in the Administrative Complaint. For example, with respect to surrender charges, the Nagles' complaints assert that

    
    

    Petitioners represented that there would be no surrender charges for a withdrawal after one year. Mrs. Nagle's survey form only acknowledged that there would be surrender charges for "premature" withdrawal. It certainly would have been possible to reconcile these two concepts in that Mrs. Nagle may have been thinking that "premature" withdrawal, as used in the survey form, was a withdrawal in less than one year. The response in the survey form to the "surrender charge" question does not conclusively contradict Mrs. Nagle's complaint and affidavit, nor does it conclusively contradict the allegations in the Administrative Complaint. Similarly, the responses in the survey form about suitability do not conclusively contradict the allegations in the Administrative Complaint.

13. The annual statement likewise does not conclusively contradict the allegations in the Administrative Complaint, even though the yield shown is somewhat different from the yield Mrs. Nagle referred to in her complaint. Whether the yield was actually 2.6 percent or 5.66 percent, the material allegations in the Administrative Complaint were that Petitioners misrepresented that the yield would be 10 to 20 percent per year. These allegations and the complaints on which they were based, were not so plainly lacking in credibility that no reasonable agency would have proceeded with charges.

    
    

14. Finally, the signed statements of understanding showing that surrender charges would be imposed for early withdrawals do not contradict the Nagles' complaints or the allegations in the Administrative Complaint. Although the undersigned ultimately found against the credibility of the Nagles' complaints, those complaints were that Petitioners made oral representations assuring the Nagles that there would be no surrender charges after one year, even though the policy forms themselves said otherwise. The ultimate lack of credibility of the complaining witnesses' testimony was not so clear that no reasonable agency would have prosecuted the claims.

15. In short, Respondent had a reasonable basis in law and in fact, following a reasonable investigation, to make the allegations and to charge the statutory violations it did in the Administrative Complaints. The documentation gathered in the investigation did not conclusively contradict the factual allegations, and the credibility of the complainants was not so obviously lacking that no reasonable agency would have made the allegations in the Administrative Complaints. And it is beyond dispute that if those factual allegations had been proven, the charged statutory violations would have been established. Thus, it cannot be said that Respondent's action in initiating the disciplinary proceedings against Petitioners was unreasonable governmental action.

    
    

    CONCLUSIONS OF LAW

    
    

16. The Division of Administrative Hearings has jurisdiction over the parties and the subject matter of this proceeding. §§ 120.569 and 120.57(1), Fla. Stat. (2010).

17. Petitioners initiated this action by filing petitions for attorney's fees and costs pursuant to section 57.111.

18. Respondent has stipulated that Petitioners are small business parties, that Petitioners are prevailing parties, and that the amount of attorney's fees and costs requested by Petitioners is reasonable. Therefore, the only issues remaining for resolution are whether Respondent's disciplinary actions against Petitioners were "substantially justified" or whether "special circumstances exist that would make the award unjust."

    § 57.111(4)(a).

    
    

19. At the time the Department initiated the disciplinary actions against Petitioners, section 57.111 provided in pertinent part:

    1. As used in this section:

    
    

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    (e) A proceeding is "substantially justified" if it had a reasonable basis in law and fact at the time it was initiated by a state agency.

    
    

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    (4)(a) Unless otherwise provided by law, an award of attorney's fees and costs shall be made to a prevailing small business party in any adjudicatory proceeding or administrative proceeding pursuant to chapter 120 initiated by a state agency, unless the actions of the agency were substantially justified or special circumstances exist which would make the award unjust.

    
    

20. The burden of proof is on the government agency to show that its action in initiating the proceeding was "substantially justified." Helmy v. Dep't of Bus. & Prof'l Reg., 707 So. 2d 366, 368 (Fla. 1st DCA 1998). The "substantially justified" standard falls somewhere between the "no justiciable issue" standard and an automatic award of fees to a prevailing party. Id.

21. The Department met its burden of proving that its actions in initiating the disciplinary proceedings against Petitioners were "substantially justified." The Department did not ultimately prevail in the underlying proceedings; however, the outcome was based on the credibility of witnesses who testified at the final hearing and by deposition. The documentation referred to by Petitioners did not refute the allegations in the Administrative Complaint; instead, it was the testimony of the key witnesses explaining, or failing to adequately explain, that documentation, and it was the testimony

    
    

    of the key witnesses explaining, or failing to credibly explain, conflicting versions of what was said during the meetings that led to the purchased annuities at issue.

22. In deciding this attorney's fees case, the undersigned cannot be influenced by the testimony in the record and the credibility judgments made in the recommended order in the underlying disciplinary proceedings. See Dep't of Health, Bd. of Physical Therapy Practice v. Cralle, 852 So. 2d 930 (Fla. 1st DCA 2003); Gentele v. Dep't of Prof'l Reg. Bd. of Optometry, 513 So. 2d 672 (Fla. 1st DCA 987).

23. Judged from the proper perspective, as found above, Respondent's actions in initiating the disciplinary proceedings against Petitioners was not unreasonable governmental action. "The [Florida Equal Access to Justice] Act is designed to discourage unreasonable governmental action, not to paralyze agencies doing the necessary and beneficial work of government." State Dep't of HRS v. South Beach Pharmacy Inc., 635 So. 2d 117,

121 (Fla. 1st DCA 1994), quoting Rudloe v. Dep't of Envtl. Reg., 33 Fla. Supp. 2d 203, 211 (DOAH 1988).

ORDER

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

ORDERED that the Petitions for Attorney's Fees and Costs filed by Petitioners, Judith C. Cleary and Charles B. Houck, are denied.

DONE AND ORDERED this 29th day of June, 2011, in Tallahassee, Leon County, Florida.

S

ELIZABETH W. MCARTHUR

Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(850) 488-9675

Fax Filing (850) 921-6847 www.doah.state.fl.us

Filed with the Clerk of the Division of Administrative Hearings this 29th day of June, 2011.

ENDNOTE

1/ Unless otherwise indicated, all references to the Florida Statutes are to the 2009 codification in effect at the time the Department initiated the underlying disciplinary actions against Petitioners.

COPIES FURNISHED:

Julie Jones, CP, FRP, Agency Clerk Department of Financial Services Division of Legal Services

200 East Gaines Street Tallahassee, Florida 32399-0390

James A. Bossart, Esquire Department of Financial Services 612 Larson Building

200 East Gaines Street Tallahassee, Florida 32399-0333

Stacey L. Turmel, Esquire Turmel Trial Law, LLC

721 First Avenue North

St. Petersburg, Florida 33701

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 Administrative 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 Administrative Appeal must be filed within 30 days of rendition of the order to be reviewed.

Docket for Case No: 11-000876F

Orders for Case No: 11-000876F