STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF BUSINESS ) REGULATION, DIVISION OF ALCOHOLIC ) BEVERAGES AND TOBACCO, )

)

Petitioner, )

)

vs. ) CASE NO. 86-2247

)

THE SOUTHLAND CORPORATION, )

d/b/a 7-ELEVEN STORES, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, a formal hearing was held on April 9 and 10, 1987, in Tallahassee, Florida, before the Division of Administrative Hearings, by its designated Hearing Officer, Diane K. Kiesling.

APPEARANCES

For Petitioner: Daniel J. Bosanko,

Deputy General Counsel

Thomas A. Bell, General Counsel Thomas A. Presnell, Staff Attorney Department of Business Regulation 725 South Bronough Street Tallahassee, Florida 32155-1007

For Respondent: William Baer, Esquire

Peter Bleakley, Esquire Edward L. Wolf, Esquire Carolyn J. Horne, Esquire

1200 New Hampshire Avenue, N.W. Washington, D.C. 20036

John Rodgers, Esquire 2828 North Haskell Dallas, Texas

Richard McFarlain, Esquire Charles Stampelos, Esquire Linda McMullon, Esquire

Suite 666, 1st Florida Bank Building Tallahassee, Florida 32316

The ultimate issue is whether the Florida alcoholic beverage licenses held by The Southland Corporation, d/b/a 7-Eleven Store, (Southland) should be revoked, suspended, or otherwise penalized based upon southland's 1984 felony conviction in the United States District Court for the Eastern District of New York for violation of Title 18 U.S.C. Section 371.

The Department of Business Regulation, Division of Alcoholic Beverages and Tobacco, (DABT) presented the testimony of Barry Schoenfeld, Louisa Hargrett and Richmond Dole (a rebuttal witness). DABT had ten exhibits admitted in evidence. Southland presented the testimony of John P. Thompson, James West, S. Richmond Dole, Frank Kitchen, Eugene Pender, Michael Davis, Clark J. Matthews, II, John

H. Rodgers, and Barry Schoenfeld. Southland introduced eleven exhibits into evidence. Additionally, the parties introduced four joint exhibits into evidence.

The parties submitted proposed findings of fact and conclusions of law. All proposed findings of fact and conclusions of law have been considered. A ruling has been made on each proposed finding of fact in the Appendix attached hereto and made a part of this Recommended Order.

Background and Preliminary Matters

On April 22, 1986, DABT issued Southland a Notice to Show Cause why Southland's alcoholic beverage license should not be revoked or suspended due to the corporation's 1984 conviction in the United States District Court for the Eastern District of New York of conspiring to defraud the Internal Revenue Service in violation of 18 U.S.C. Section 371. As authority for its action, the DABT relied on Section 561.29, Florida Statutes.

On March 16, 1987, the DABT moved to amend its Notice to Show Cause and added, as statutory authority for its action, Section 561.15, Florida Statutes. This motion was granted on March 17, 1987.

On March 25, 1987, the DABT filed a Motion for Judicial Notice, requesting judicial notice of the opinions issued by the Second Circuit of the United States Court of Appeals in United States vs. The Southland Corporation, 760 F.2d 1366 (1985), and United States vs. Matthews, 787 F.2d 38 (1986). The Hearing Officer granted official recognition by Order dated April 19, 1987.

On April 1, 1987, Southland filed a Motion for Recommended Order of Dismissal, arguing that the DABT had failed to meet one of the jurisdictional prerequisites established by Section 561.15, cited for the first time as statutory authority in the DABT's Amended Notice to Show Cause. The motion was heard on April 8, 1987. The Hearing Officer denied the motion, finding that dismissal was not appropriate at that point in time, but reserving ruling on the merits of the legal argument.

On April 7, 1987, the parties submitted a detailed Prehearing Stipulation, identifying the factual and legal issues on which the parties were agreed and delineating those on which there was disagreement.

A hearing on the merits was held on April 9-10, 1987. At this hearing, the parties submitted as Joint Exhibit 1 the trial transcripts from United States vs. The Southland Corporation, 83-CR-155 (E.D.N.Y) [hereinafter the Southland trial] and United States vs. Dole and Matthews, 84-CR-461 (E.D.N.Y.) [hereinafter the Dole and Matthews trial]. In accordance with the parties' stipulation dated March 6, 1987, the testimony in Joint Exhibit 1 can be

considered as direct evidence in this proceeding, sufficient in itself to support findings of fact, subject to those objections that were raised and sustained during the above trails.

As Joint Exhibits 2 and 3, the parties have submitted the exhibits from the Southland and Dole and Matthews trials. Only the exhibits that were admitted into evidence in the prior criminal trials are to be considered as direct evidence in the present proceeding, sufficient in themselves to support findings of fact. No other exhibits in either Joint Exhibit 2 or 3 are to be considered in any way.

In addition to the ultimate issue, the following issues remain for resolution.

1. Whether Southland's Motion for Recommended Order of Dismissal should now be granted and this case dismissed with prejudice for the reasons set forth in that motion.

   
   

2. Whether the DABT must prove by clear and convincing evidence that an officer of Southland was convicted of a crime recognized in the State of Florida as a felony before the DABT can revoke or suspend Southland's licenses, or impose any other penalty, pursuant to Sections 561.29(1)(g) and 561.15.

   
   

3. Whether the DABT has the burden of establishing the grounds justifying the revocation or revocation or suspension of Southland's licenses, or the imposition of any other penalty, by clear and convincing evidence that either Matthews or Dole directly contributed to Southland's conviction.

   
   

4. Whether, if the burden of proof on all critical matters lies with the DABT, it has established by clear and convincing evidence that either Matthews or Dole directly contributed to Southland's conviction.

   
   

5. Alternatively whether, if the burden of proof shifted to Southland, it has established by the preponderance of the evidence that neither Matthews nor Dole directly contributed to Southland's conviction, and whether the DABT has rebutted this proof by substantial competent evidence.

   
   

6. Whether, in order to find that either Matthews or Dole directly contributed to Southland's conviction, it must be found that the jury in the Southerland trial necessarily based its verdict against the corporation on their conduct, or whether, at a minimum, scienter must be found.

FINDINGS OF FACT

Stipulated Facts

The following facts, 1-36, are taken as established by stipulation of the parties in their Prehearing Stipulation filed April 7, 1987.

1. Southland presently holds and held, on the date of issuance of the Notice to Show Cause issued in this case, 704 non-temporary Florida alcoholic beverage license.

   
   

2. On or about September 13, 1983, Eugene DeFalco, then a Southland employee, pled guilty to conspiring to bride an official of the New York State Tax Commission in violation of 18 U.S.C. Section 371.

3. On or about September 27, 1983, Southland terminated its employment relationship with DeFalco.

   
   

4. In 1977 and 1978, Eugene DeFalco was the manager of all 7-Eleven Stores in Southland's Northeast Division.

   
   

5. DeFalco, Eugene Mastropiere, who in 1977 was a practicing attorney in New York City and a New York City Councilman, and John Kelly, a corporate security consultant, agreed that Mastropiere would submit a fictitious legal bill to Southland for $96,500.

   
   

6. After receiving Mastropiere's bill, Southland issued a check in that amount payable to Mastropiere.

   
   

7. Upon receipt of the check, Mastropiere turned over the proceeds of that check to Kelly and DeFalco.

   
   

8. DeFalco and Kelly undertook those actions to facilitate their misappropriation of Southland funds.

   
   

9. DeFalco and Kelly did ultimately misappropriate the entire $96,500 for their personal use.

   
   

10. DeFalco was aware that Southland would deduct the $96,000 as a business expense and issue Mastropiere an IRS Form 1099, thereby concealing from the Internal Revenue Service and others DeFalco's and Kelly's conversion of the money.

    
    

11. On or about June 8, 1984, a jury convicted Southland of conspiring to defraud the Internal Revenue Service.

    
    

12. On or about June 11, 1984, the same jury was unable to reach a verdict as to Dole, and the judge declared a mistrial.

    
    

13. On August 2, 1984, the judge entered a Judgment and Conviction Order, convicting Southland of conspiring to defraud the Internal Revenue Service in violation of 18 U.S.C. Section 3371, a felony under the laws of the United States.

    
    

14. On or about December 28, 1984, Southland paid the $10,000 fine imposed by a federal district court judge in the Eastern District of New York on the basis of that conviction.

    
    

15. Southland's August 2, 1984 conviction was upheld by a three-judge panel of the United States Court of Appeals, Second Circuit, on April 23, 1985, United States vs. Southland Corp., 760 F.2d 1366 (1985), which determined that the trial record contained sufficient evidence to support the jury's verdict.

    
    

16. On or about February 27, 1985, a jury acquitted S. Richmond Dole of conspiring (1) to bribe an official of the New York Tax Commission and (2) to defraud the Internal Revenue Service in violation of 18 U.S.C. Section 371.

    
    

17. On or about February 27, 1985, a jury acquitted Clark J. Matthews, II, then Executive Vice President and Chief Financial Officer of Southland, of conspiring (1) to bribe an official of the New York Tax Commission and (2) to defraud the Internal Revenue Service in violation of 18 U.S.C. Section 371.

18. On or about January 27, 1985, a jury convicted Clark J. Matthews, II, of violating the federal securities laws, 15 U.S.C. Section 78n(a), but on March 27, 1986, a unanimous panel of the United States court of Appeals for the Second Circuit reversed his conviction and ordered the indictment dismissed.

    
    

19. At the conclusion of the second trial, United States vs. Dole and Matthews, CR 84-00461 (E.D.N.Y. 1985), the trial judge instructed the jury that it could not, as a matter of law, consider Southland employees John Thompson, Michael Davis, Frank Kitchen, or Eugene Pender as members of any conspiracy.

    
    

20. Eugene DeFalco directly contributed to Southland's 1984 conviction in the United States District Court for the Eastern District of New York.

    
    

21. For the purposes of this proceeding, the Division takes the position that Clark J. Matthews, II, and S. Richmond Dole are the only present employees of Southland that directly contributed to Southland's conviction in United States vs. Southland, et al., 83-CR-515 (E.D.N.Y.)

    
    

22. On or about February 15, 1977, S. Richmond Dole and Eugene DeFalco discussed hiring Eugene Mastropiere as outside counsel on certain New York sales tax cases and at that time, discussed charging Masterpiere's fee to a corporate account in Dallas rather than directly to the Northeast Division.

    
    

23. Later that night, on February 15, 1977, Dole, DeFalco, Frank Kitchen and John Thompson met informally and discussed, among other matters, the Northeast Division and its progress. At this meeting, they discussed DeFalco's proposal to have Eugene Masteropiere as outside counsel on the New York sales tax cases.

    
    

24. Following this meeting, on February 15, 1977, Dole and Kitchen discussed the proposed retention of Eugene Mastropiere, and Dole told Kitchen not to worry about the sales tax cases--that Eugene DeFalco would handle them. United States of America vs. S. Richmond Dole & Ano., 84 CR 00461 (E.D.N.Y.), tr. at 2493-94.

    
    

25. In correspondence from S. Richmond Dole to Eugene DeFalco dated February 23, 1977, Dole stated, "Be sure to send me the bill on the sales tax case so that I can see that it's paid from the corporate office. Hopefully, it will hit one of Clark's legal accrual accounts."

    
    

26. In or about May 1977, Eugene DeFalco asked S. Richmond Dole whether Mastropiere's legal fee could be submitted and paid in the form of an airplane lease. United States of America vs. S. Richmond Dole and Ano., 84 CR 00461 (E.D.N.Y.), tr. at 2493-94.

    
    

    Matthews also told DeFalco that Southland would only pay a bill for legal services as a bill for legal services.

    
    

27. At some point in time in mid-1977, S. Richmond Dole asked Eugene Pender, Southland's Controller, who was responsible for accounting and payroll, to process the Mastropiere legal fee. United States vs. S. Richmond Dole and Clark Matthews, 84 CR 00461 (E.D.N.Y.), tr. at 2493-94.

    
    

28. The legal bill for $96,500 submitted to Southland by Mastropiere indicates services rendered from October, 1976 to May, 1977.

29. Southland's normal procedure for payment of outside legal fees requires approval from the General Counsel's Office.

    
    

30. On or a about June, 1977, management of The Southland Corporation undertook a Business Ethics Review. Clark J. Matthews, II, then Vice President and General Counsel for Southland, was in charge of that review under the supervision of the Audit Committee of the Southland Board of Directors.

    
    

31. When Matthews learned of the size of the Mastropiere legal fee he recalled the airplane lease suggestion and directed Michael Davis, the staff attorney assisting him, to add the Mastropiere fee to the list of items to be investigated in the Business Ethics Review.

    
    

32. The handwriting notes that Clark Matthews prepared prior to the meeting at which the Board of Directors was briefed on the Mastropiere matter contain the words "NY-Mastropiere Div. Mg. Thought Payment Outside Usual Controls" and "for $40M to spread among moms tax comm."

    
    

33. In 1978, prior to the filing of Southland's 1977 federal income tax return, Matthews and Davis discussed with Stanley Simon, Southland's outside tax counsel, whether the Mastropiere fee was a deductible expense for purposes of Southland's tax return.

    
    

34. No written discussion of the Mastropiere legal fee was contained in the final written report prepared at the conclusion of the Business Ethics Review.

    
    

35. Gate Petroleum, Inc., Eastern Oil Co. and Cargo Gasoline Co. were convicted in May 1980 of violations of Section 1 of the Sherman Annatitrust Act,

    15 U.S.C. Section 1. As a result of these convictions, Gate Petroleum, Inc., paid a civil penalty of $100.00 for each license held (total of $2100.00); Eastern Oil Co. and Cargo Gasoline Co. each paid a civil penalty of $500 per license.

    
    

36. The Division and Southland stipulate that Responses Nos. 1 and 2 to Petitioner's First Set of Interrogatories accurately set forth the actions taken by state licensing agencies with respect to Southland's licenses based on Southland's federal conviction in New York.

    
    

    The following additional facts, 37-172, are based upon the record herein.

    
    

    The Sales Tax Cases

    
    

37. What has come to be known as the "New York sales tax cases" began in 1972 when New York asserted a sales tax deficiency against one of Southland's franchise 7-Eleven stores. In the next few years, additional deficiency notices were issued. By 1977, New York State contended that Southland owed between

    $150,000 and $300,000.

    
    

38. The New York State Tax Commission asserted that unless Southland gave the state sufficient notice when it terminated a franchise, the Tax Commission could audit that store and hold Southland secondarily liable for any sales tax deficiencies discovered.

    
    

39. Southland believed it had a meritorious defense based on a specific exemption provided that there was no transferee liability upon the foreclosure

    of security interest, and Southland's franchise agreement gave it such an interest in the inventory and assets of the franchises in question.

    
    

40. In 1976 and 1977, S. Richmond Dole was Southland's Vice President in charge of franchise stores. He is presently Executive Vice President in charge of 7-Eleven stores.

    
    

41. In 1977, Clark J. Matthews, II, was Vice President and General Counsel of Southland. He is today Senior Executive Vice President and Chief Financial Officer.

    
    

42. In 1977, John P. Thompson was Chairman of the Board of Southland and its Chief Executive Officer. He today holds the position of Chairman of the Board.

    
    

43. In 1977, Frank Kitchen was Regional Manager of the Northeast Region. He is today a Regional Vice President at Southland.

    
    

    The Retention of Mastropiere

    
    

44. In 1976, S. Richmond Dole and Eugene DeFalco discussed the New York sales tax cases. In the course of this discussion, DeFalco expressed to Dole his dissatisfaction with the performance of Thomas Dougherty, the outside counsel that Southland had hired to handle the New York sales tax cases.

    DeFalco stated in substance that he felt that another attorney should be hired since the cases were not moving and additional assessments by New York continued to be made.

    
    

45. At the end of 1976 or the beginning of 1977, Dole called Clark J. Matthews, II, and told him that DeFalco was dissatisfied with the progress of the sales tax cases. Dole stated that DeFalco would be giving Matthews a call.

    
    

46. DeFalco subsequently called Matthews to discuss the New York sales tax cases. DeFalco stated that he was dissatisfied with Dougherty, Southland's local counsel, because the New York sales tax cases were not moving forward.

    
    

47. DeFalco told Matthews that John Kelly, a Southland supplier, had recommended that Eugene Mastropiere be retained to help Southland in the sales tax cases. DeFalco asked Matthews if it would be all right to retain Mastropiere.

    
    

48. Matthews told DeFalco that he would check on Masterpiere and get back to him. Matthews reviewed Mastropiere's listing in Martindale Hubbell, and then called Southland's local counsel, Thomas Dougherty, for additional information. Dougherty called Matthews back later and told him that, as far as he could ascertain, Mastropiere was a reputable attorney.

    
    

49. Matthews then called DeFalco and told him that he could engage Mastropiere as counsel, but that Matthews wanted Dougherty retained as co- counsel. Matthews also told DeFalco to ascertain what the fee arrangement would be.

    
    

50. DeFalco later called Matthews and told him that Mastropiere would require a retainer of $30,000 - $40,000.

    
    

51. On or about February 15, 1977, at a Northeast Division sales meeting in Hartford, Connecticut, Dole and DeFalco met in the lobby or coffee shop of

    the hotel at which the sales meeting was being held. DeFalco told Dole that he wanted to hire Mastropiere as outside counsel on the New York sales tax cases.

    
    

52. During the conversation in the hotel lobby, DeFalco again stated that he was not satisfied with Dougherty's handling of the sales tax cases and that the cases were not moving fast enough.

    
    

53. DeFalco expressed concern that a negative decision in New York might set a precedent in other states. He stated that he had found a number of stores were undercollecting their taxes and he feared that, because of these stores and the possibility of a bad precedent, Southland faced a potential liability of over one million dollars.

    
    

54. DeFalco proposed to Dole the retention of Mastropiere as an attorney in the sales tax cases. He stated that, based on his conversations with Mastropiere and their review of the files, Mastropiere could be helpful to Southland.

    
    

55. DeFalco also mentioned to Dole that Mastropiere was a New York City Councilman and a practicing attorney. Dole questioned whether there might be a possible conflict of interest, but DeFalco indicated that there was no conflict since the sales tax cases were disputes with the state and Mastropiere's responsibilities as Councilman involved the city.

    
    

56. DeFalco told Dole that there would be an unusual fee arrangement--a one-time payment of $90-100,000, to include appeals.

    
    

57. DeFalco never said anything to Dole about a bride or improper payment.

    
    

58. DeFalco also proposed charging Mastropiere's fee to a corporate legal accrual account in Dallas rather than directly to the Northeast Division.

    
    

59. By charging the fee to a corporate legal accrual account, the expense would not be considered part of the operating expenses of DeFalco's division and thus would not reduce the bonus paid to him and others in the division.

    
    

60. Later that night, on February 15, 1977, Dole, DeFalco, Frank Kitchen and John P. Thompson met informally and discussed, among other matters, the Northeast Division and its progress, including the sales tax cases. Such informal gatherings between senior executives from Dallas and field personnel are common at Southland's periodic sales meetings.

    
    

61. At that meeting, DeFalco stated that the cases were not moving along and that he had recommended hiring another attorney, by the name of Eugene Mastropiere, who was both a practicing attorney and a City Councilman in New York. DeFalco noted that Mastropiere might be expensive. Thompson replied that all lawyers are expensive, that DeFalco should be sure to get a good one, but that if DeFalco and others thought it was a good idea to hire this man, they should do so.

    
    

62. Thompson also told DeFalco to check with Matthews, who ran Southland's Legal Department, about hiring Mastropiere.

    
    

63. No mention of a bribe or payoff was made at the meeting.

    
    

64. The term "entertainment" may have been used, but if it was used, it did not signify to those present that a bribe was to be paid.

65. Immediately following his meeting, on February 15, 1977, Kitchen expressed concern to Dole about the proposed retention of Mastropiere and asked Dole whether they had just agreed to give $100,000 to a politician, i.e., to Mastropiere.

    
    

66. Dole said no and told Kitchen not to worry about the sales tax cases, because DeFalco was fully familiar with these cases, and Kitchen was new to his position and had other priorities to worry about in the region.

    
    

67. Following the Hartford meeting, Dole spoke to Matthews about DeFalco's desire to hire Mastropiere. Matthews stated that he had already spoken to DeFalco and that Mastropiere had been retained as co-counsel.

    
    

68. Following this meeting, Dole confirmed in a letter to DeFalco that he would attempt to have the bill charged to the corporate legal accrual account.

    
    

    Payment of Mastropiere

    
    

69. In or about May 1977, Dole received a phone call from DeFalco, in which DeFalco stated that he had talked with Mastropiere who had suggested that Southland could reduce Mastropiere's bill by 50 percent if it paid him in cash. Dole rejected this proposal.

    
    

70. In that conversation or a subsequent conversation, DeFalco asked Dole whether Mastropiere's legal fee could be submitted and paid in the form of an airplane lease. When Dole asked about these unusual payment proposals, DeFalco explained that Mastropiere was having problems with his law partner. Dole told DeFalco that he wanted no part of Mastropiere's partner problems and that DeFalco should send Mastropiere's legal bill to Dole right away. Dole also told DeFalco to tell Matthews about Mastropiere's proposal.

    
    

71. DeFalco later called Matthews and told him of the proposal that Mastropiere's fee be paid in the form of an airplane lease. Matthews rejected the suggestion and told DeFalco that Southland would only pay a bill for legal services as a bill for legal services.

    
    

72. Because of his concerns about the airplane lease proposal, Matthews arranged to talk to Mr. Dougherty about Mastropiere on a trip to New York in June 1977. When Matthews asked Dougherty in New York about Mastropiere's participation in the sales tax cases, Dougherty indicated that Mastropiere was involved and performing substantive work on the cases. Matthews told Dougherty of the airplane lease proposal. Dougherty acknowledge that the request was peculiar, but added that he had practiced before the Tax Commission for a long time and knew the individual Commissioners to be reputable people. Dougherty assured Matthews that there was nothing improper going on with the Tax Commission.

    
    

73. In or about June 1977, DeFalco called Dole to tell him that the bill was in the mail and that he would appreciate it if Dole would expedite the payment for the bill and ensure that it was charged to a corporate account DeFalco also requested that the check be sent to him personally so that he could hand-deliver it to Mastropiere. In the past, other division manager had asked Dole to allow them to deliver a check personally, for various reasons, and Dole saw nothing improper in DeFalco's request.

74. After receiving the bill, Dole took it to Eugene Pender, Southland's Controller, who was responsible for accounting and payroll. Dole told Pender that he had a bill from the attorney working on the sales tax cases in New York. Dole stated that Pender might recall this attorney because the attorney had suggested that his bill be paid in cash or in some form of an airplane lease. Dole indicated that he wanted the bill paid and charged against the corporate legal accrual account.

    
    

75. Pender noted that it was a Division expense and should be charged to the Division, but Dole stated that he had promised DeFalco that the bill would be charged to the corporate legal accrual account and that if Pender had any questions he should check with the Legal Department.

    
    

76. Dole also told Pender to send the check directly to DeFalco so that DeFalco could hand-deliver it to the attorney.

    
    

77. In 1977, it was not unusual for Pender to be asked to expedite the payment of a bill.

    
    

78. Although Southland's normal procedure for payment of outside legal fees requires approval from the General Counsel's office, it was not unusual for the Controller to process a legal or other bill based on the oral authorization of a senior executive such as Dole.

    
    

79. Dole did not suggest anything improper to Pender. Pender would not have processed the Mastropiere fee if he had felt that the bill was improper.

    
    

80. Upon receipt of the check, Mastropiere turned over the proceeds of that check to Kelly and DeFalco.

    
    

81. DeFalco and Kelly ultimately misappropriated the entire $96,500 for their personal use.

    
    

    Business Ethics Review Investigation

    
    

82. In or about June 1977, Southland's management undertook a Business Ethics Review (BER). Clark J. Matthews, II, then Vice President and General Counsel, was in charge of that review under the supervision of the Audit Committee of the Board of Directors. Michael Davis, then a staff attorney at the Legal Department, handled most of the day-to-day work on the BER.

    
    

83. In conducting the investigation, Matthews, Davis and the Audit Committee relied on the advice of an outside attorney, John Fedders. Fedders helped draft the BER questionnaire, consulted with Matthews and Davis concerning responses and follow-up strategy, helped prepare the presentation of these findings to the Audit Committee (a committee comprised of outside directors) and assisted in the drafting of the final written BER report.

    
    

84. In or about July 1977, Southland distributed BER questionnaires to over 300 employees to elicit information on possibly questionable payments.

    
    

85. Independent of the BER, in August 1977, Matthews learned that the size of the Mastropiere fee was $96,500 rather than the $30-$40,000 that he expected.

    
    

86. The size of the fee and the earlier airplane lease suggestion led Matthews to direct Michael Davis to add the mastropiere fee to a list of items to be investigated in the Business Ethics Review.

87. When the BER questionnaires were returned in August or September 1977, Davis prepared a summary of the positive responses, i.e., those responses that reported information which might require further investigation.

    
    

88. In his response to the BER questionnaire, Pender denied any direct knowledge of improprieties, but raised questions about a legal fee in the Northeast Division. Pender cannot recall today what led him to mention the legal fee on his questionnaire, but he is certain that he was not suggesting that the fee might include a payoff or bribe.

    
    

89. Davis interviewed Pender about his BER questionnaire response but Pender could provide no information beyond what was contained in his questionnaire.

    
    

90. On September 22, 1977, Davis Fedders, and Matthews met to review the summary and to determine how to proceed with the BER investigation.

    
    

91. At the September 22, 1977 meeting, Davis, Fedders and Matthews discussed the Mastropiere fee and the Pender questionnaire response, and prepared a list of people to be interviewed, which included DeFalco and Kitchen.

    
    

92. On or about September 27, 1977, Matthews and Davis reported to the Audit Committee on the status of the BER investigation, including the investigation of the Mastropiere fee.

    
    

93. As part of their investigation, on October 17 or 18, 1977, Matthews and Davis interviewed Eugene DeFalco about the Mastropiere fee. This interview took place in DeFalco's room at a Dallas hotel, where he was staying while in Dallas for a meeting. Matthews and Davis drove to the hotel in separate cars and met DeFalco at the hotel.

    
    

94. In the interview, DeFalco provided some background information concerning the retention of Mastropiere, including the involvement of John Kelly in DeFalco's negotiations with Mastropiere over his fee. However, DeFalco did not tell Matthews and Davis that he and Kelly had begun to embezzle the funds, and he never suggested that any part of the fee was intended as a pay-off or bribe.

    
    

95. DeFalco did not try to prevent Matthews or Davis from interviewing Matropiere.

    
    

96. After the interview, Matthews and Davis walked to their cars together. DeFalco remained in his room and did not speak separately with Matthews.

    DeFalco did not advise Matthews in a parking lot conversation or on the way to the car of any alleged bribe conspiracy or that any improper payment had been made.

    
    

97. The next day, Davis interviewed Frank Kitchen. Kitchen told Davis that he surmised that a payoff had been discussed at the Hartford meeting with Thompson, DeFalco and Dole. When pressed by Davis for more information, Kitchen listed four factors that led him to this conclusion: (a) the name Mastropiere was Italian; (b) the cases involved a New York state agency; (c) the attorney was said to be "expensive", and (d) entertainment was mentioned. Kitchen could provide no more specific information and cannot recall the details of that conversation today.

98. Davis thereupon recommended that Kitchen amend his BER questionnaire, which Kitchen eventually did.

    
    

99. Based on the results of this interview, Davis Fedders and Matthews decided that Thompson and Dole--the other two persons present at the Hartford meeting--should be interviewed.

    
    

100. Matthews subsequently interviewed Dole and Thompson; both denied that any payoff or bribe had been discussed at Hartford.

     
     

101. In December 1977, Matthews and Davis again reported to the Audit Committee the status of the Mastropiere investigation, including that there had been a suggestion that the Mastropiere fee be paid as an airplane lease, that the actual fee was substantially greater than Matthews had anticipated, that Kelly had been involved in the alternative payment suggestions, that Kitchen had indicated in an amendment to his questionnaire responses that he felt that at a meeting in Hartford a payoff had been discussed, and that Thompson, Dole and DeFalco all had denied any such conversation.

     
     

102. During December, 1977, and January, 1978, Matthews consulted with the Audit Committee and with Fedders and one of his law partners, Bud Vioth, as to how to proceed with the investigation of the Mastropiere fee. It was agreed that Matthews should interview Mastropiere.

     
     

103. Matthews' meeting with Mastropiere was arranged for late afternoon, January 9, 1978, in New York. Because of a snowstorm, Mastropiere never showed up for the meeting. Matthews and Mastropiere later talked by telephone.

     
     

104. During their telephone conversation, Mastropiere demonstrated knowledge of the cases and was conversant with the theory of Southland's defense.

     
     

105. Matthews questioned Mastropiere about his legal fee. Matthews asked if Mastropiere received the entire fee, to which Mastropiere responded yes. Matthews asked if any of the money had been paid or was intended to be paid to anybody else, to which Mastropiere responded no. Matthews followed the interview protocol that Fedders had recommended.

     
     

106. On or about January 12, 1978, the Audit Committee held another meeting at which Matthews shared the details of the Mastropiere conversation with Fedders and his law partner, Vieth, and with the Audit Committee. At this meeting, the Audit Committee also interviewed Dole about the Mastropiere fee.

     
     

107. After the Mastropiere and Dole interviews, the Audit Committee, Fedders, Vieth, and Matthews and Davis reviewed the evidence and concluded that they had no proof that there had been a bride or any improper use of the money. In making this determination, they took into consideration that New York was continuing to file sales tax cases and that there had been no unusual activity in the course of that litigation or its pace.

     
     

108. Because there was no evidence of any impropriety and because of the possibility of libel, it was agreed that the matter would not be discussed in the final written

     BER report. It was also agreed that a detailed oral report on the matter would be made to the Board of Directors.

109. On or about January 25, 1978, Matthews made an oral report to the Southland Board of Directors on the finding of the BER, including the investigation of the Masteropiere fee.

     
     

110. At the conclusion of the BER investigation, Southland's Board of Directors adopted a "Code of Business Conduct," which it now requires all employes to follow.

     
     

111. The Legal Department's investigation of the Mastropiere fee was a good faith effort to determine whether there was any impropriety connected with the retention and payment of Mastropiere. Matthews and Davis completely and accurately disclosed to outside counsel, the Audit Committee and the Board of Directors the steps taken to investigate the Mastropiere fee and the results of that investigation. In fact, according to one Audit Committee member, Matthews was the motivating force behind the Mastropiere investigation and brought it to the Audit Committee's attention on a number of occasions.

     
     

112. DeFalco engaged in a conspiracy with Kelly and Mastropiere to misappropriate $96,500 from Southland. DeFalco was aware that Southland would deduct the $96,500 as a business expense on its federal corporate income tax return and issue Mastropiere an IRS Form 1099, thereby concealing from the Internal Revenue Service and others DeFalco's and Kelly's intended use of that money.

     
     

113. Neither Dole nor Matthews knew of any facts that would require them to prevent the deduction of the Mastropiere fee on Southland's 1977 income tax.

     
     

114. Neither Matthews nor Dole had an any involvement in the preparation of filing of Southland's 1977 federal income tax return or in the deduction of the paid to Eugene Mastropiere.

     
     

115. In December 1977 and January 1978, Matthews discussed with Stanley C. Simon, Southland's outside tax counsel, a number of issues arising out of the BER investigation, including the Mastropiere fee. Simon stated that Southland should deduct the fee unless it had proof of a bribe or of any other improper use of the money.

     
     

116. Based on this advise, Matthews and Davis determined that no action need be taken with respect to the deduction of the Mastropiere fee.

     
     

117. Inasmuch as DeFalco embezzled the entire sum, the Mastropiere fee deduction by Southland was in any event properly deductible as a theft loss.

     
     

118. The IRS has never challenged Southland's deduction of the Mastropiere

     fee.

     
     

119. In connection with an IRS audit of Southland's 1974 and 1975 tax

     returns, Southland volunteered to the IRS that it had conducted a Business Ethics Review and it made available to the IRS all of the questionnaires requested. Davis' secretary was told by Davis to make the BER questionnaires available to the IRS and personally saw the IRS take the boxes of questionnaires to their work area, but the IRS agent does not recall seeing the Kitchen questionnaire. He concedes that he does not recall seeing other questionnaires that his records indicate that he did in fact review.

     
     

     DeFalco's Credibility

120. Eugene DeFalco was the only witness in either the Southland trial or the Dole and Matthews trial who testified that there was a conspiracy to bribe a New York State tax official or to defraud the Internal Revenue Service, or that Matthews and Dole were knowledgeable of or participated in any conspiracy.

     
     

121. Even DeFalco's confederate, John Kelly, who testified with immunity, while admitting participating in DeFalco's scheme to defraud Southland, denied that he was a party to or aware of a conspiracy to bribe an official of the New York Tax Commission.

     
     

122. The record of these proceedings shows that DeFalco has lied repeatedly to serve his own interests.

     
     

123. DeFalco admitted in the Southland and Dole and Matthews trials that he was both a liar and a thief.

     
     

124. DeFalco admitted that he lied to the FBI in 1980 by telling them that he had a B.S. in marketing from the University of San Diego and that he had attended one semester of law school--when he had not.

     
     

125. DeFalco admitted at trial that he stole Southland's money, and that he lied to the FBI in July 1980 on how he spent the money, falsely stating that a substantial part of the fee ($18,000 - $20,000) went for business expenses. DeFalco admitted lying on various occasions to federal government officials.

     
     

126. DeFalco told the FBI that no portion of the Mastropiere fee money went to his then future wife, Kathy Burton. Later he admitted at trial that this was not true.

     
     

127. DeFalco repeatedly lied to Southland about his use of the money. Prior to pleading guilty, DeFalco denied that there was any conspiracy to bribe and denied that he had embezzled any of Southland's funds. Upon pleading guilty, DeFalco changed his story.

     
     

128. On a loan application to the Union Trust Company in April 1979, DeFalco listed as assets certain WD-40 stock wit the value of $150,000. DeFalco admitted at trial that this was a lie, that his largest holding was $6,000 -

     $8,000.

     
     

129. On the same application, DeFalco claimed to have an interest of over

     $100,000 in a trust called Falcon Investment Trust, even though he admitted at trial that he had no present interest in the trust.

     
     

130. On a loan application to the Southern Ocean State Bank in June 1979, DeFalco claimed to have an interest in the Falcon Investment Trust of $1.5 million, even though he had no present interest in the trust. He also claimed to have $81,000 worth of WD-40 stock, which he admitted at trial was a lie.

     
     

131. DeFalco perjured himself even after pleading guilty in September 1983. In November 1983, two months after pleading guilty to a felony and while awaiting sentencing, DeFalco lied on a California residential loan application. He listed a company called "Coast-to-Coast" as his employer for the preceding three years at an annual income of $140,000, even though Coast-to-Coast was not yet generating any income. On the same application, DeFalco listed as assets 1,371 shares of Southland stock at a value of $54,840, even though DeFalco had sold these shares in September 1983.

132. DeFalco admitted that he lied throughout his career at Southland, including falsely claiming on his personnel form in 1969-70 that he had a B.S. in marketing. DeFalco admitted that he lied to get ahead in the corporation.

     
     

133. DeFalco even admitted lying under oath at the Southland trial. He claimed in that trial that the false statements on the California residential loan application were mistakes made by the person who typed the application. When confronted with an earlier handwritten version containing the same statements, he admitted that the statements were his.

     
     

134. DeFalco's lies are so numerous and pervasive as to render all of this testimony unbelievable. His testimony is rejected as lacking in credibility and as self-serving.

     
     

     DeFalco's Direct Contribution to Southland's Conviction

     
     

135. In 1983, DeFalco was indicted and charged with one felony count of conspiracy to bribe an official of the New York State Tax Commission in violation of 18 U.S.C. Section 371 and three felony counts relating to his misappropriation of Southland's funds.

     
     

136. On or about September 13, 1983, Eugene DeFalco who was then on administrative leave from Southland, pleaded guilty to the conspiracy charge.

     
     

137. In return for pleading guilty, the government agreed to dismiss the three counts of fraud pending against him relating to his misappropriation of

     $96,500 from Southland. As a result, DeFalco's potential prison sentence was reduced from 20 years to 5 years.

     
     

138. Up until the time he pleaded guilty, DeFalco denied the existence of any conspiracy to bribe.

     
     

139. Up until the time he pleaded guilty, DeFalco denied that he had embezzled any of Southland's money.

     
     

140. After pleading guilty, DeFalco testified at both Southland's trial and the trial of Dole and Matthews that one objective of his agreement with Kelly and Mastropiere was bribery, and that ultimately he and Kelly embezzled from Southland all of the $96,500 fee.

     
     

141. Eugene DeFalco directly contributed to Southland's 1984 conviction in the United States District Court for the Eastern District of New York.

     
     

142. At Southland's trial, the jury was instructed that a "corporation is liable for the acts of its agents within the scope of his employment as long as the agent acted in substantial part and [sic] with the specific intent of benefiting the corporation." The jury was also instructed that if DeFalco had that intent "[i]t does not matter that [he] . . . may have also had another purpose in mind which may have involved personal gain for himself.

     
     

     Mitigation

     
     

143. Southland's conviction in 1984 is the first and only felony conviction against Southland in the 53 years the company has been in business.

144. The DABT offered no evidence to suggest that Southland's conviction for conspiring to defraud the IRS was anything more than an isolated incident or that it cast doubt on Southland's qualifications to hold beer and wine licenses in Florida.

     
     

145. Southland holds beer and wine licenses in 39 states. No other state has revoked Southland's alcoholic beverage licenses based on this conviction, and approximately 29 of the 39 states in which Southland holds licenses took no action whatsoever.

     
     

146. The record in this proceeding establishes that Southland has been a good corporate citizen both nationally and in the State of Florida.

     
     

147. In the past 11 years, Southland has raised millions of dollars for the Muscular Dystrophy Association, contributing up to a million dollars each year in advertising alone for the Association's fund raising campaign.

     
     

148. Southland was the March of Dimes first corporate sponsor and remains its leading sponsor today. Southland strongly encourages its employees to participate in the March of Dimes "Walk America" and has developed a manual for its employees on how they can best promote the March of Dimes effort.

     
     

149. Southland was a major corporate sponsor of the Olympic Games in Los Angeles in 1984 and of the United States Olympic Committee. Southland funded the construction of the $3,000,000 7-Eleven Velodrome in Los Angeles for the Olympic Cycling events and also built a similar Velodrome for the Olympic committee at the Olympic Training Center in Colorado Springs, Colorado.

     
     

150. Prior to the Olympics, Southland created and funded the Olympia Awards, awards given by a panel of past Olympic competitors to young athletes. This program continues today.

     
     

151. Beginning in August 1974, Southland co-sponsored the Save a Living Thing project with the National Wildlife Federation. The project was designed to generate funds for the purchase of nesting grounds for the American Bald Eagle. As a result of the Save a Living Thing project, Southland raised two hundred thousand dollars for the National Wildlife Association, and, with that, purchased 1,123 acres of eagle nesting grounds. Southland and the National Wildlife Federation transferred the deed to the property to the Department of the Interior, which now maintains the refuge as part of the National Parks System.

     
     

152. Southland is active in efforts to reduce crime and has hired an ex- convict to conduct seminars and clinics on how best to deter robberies.

     
     

153. Southland has signed an agreement with two minority organizations, Operations PUSH and LULAC, committing Southland to seek a greater representation of minorities in its corporate and franchise operations.

     
     

154. Southland sponsors at a local level in Florida many of the organizations it helps nationally. In addition, it sponsors organizations and events indigenous to Florida.

     
     

155. Southland has developed and underwirtten child abuse prevention programs in New York, Texas, and Florida. The Florida program, called "Child Abuse, It's A Crying Shame," was launched in January 1986 by Governor Graham.

     As part of this program, all Florid 7-Eleven stores made available, at no charge

     the public, Child Abuse Awareness and Prevention bumper stickers supporting the 1-800-FLA-LOVE telephone number--a hotline number for those who need help or who want information concerning child abuse. Southland also paid for the creation of similar placards for buses.

     
     

156. Since 1984, Southland has sponsored Florida's Sunshine State Games, encouraging people from across the state to compete in the amateur Olympic-type events.

     
     

157. In 1981, Southland established the Come of Age Program and became the first retailer in the country to initiate an in-house employee training program to prevent the sale of alcoholic beverages to minors. This program continues today. Southland has received numerous letters from public officials and law enforcement officers in Florida and elsewhere praising the Come of Age Program and its efforts to prevent the sale of alcoholic beverages to minors.

     
     

158. In addition, Southland sponsors various community programs designed to combat drug and alcohol abuse among minors. In 1985, Southland developed an educational packet on drug and alcoholic abuse, which it has now sent to 40,000 junior high schools across the country. Southland also sponsors a program called Operation Prom/Graduation, designed to encourage alcoholic-free events for minors, and has developed and sent to communities across the country a manual on how to sponsor such events."

     
     

     DABT'S Policy

     
     

159. DABT has never previously revoked or suspended a corporation's license when the corporation was convicted of a felony.

     
     

160. Mr. Barry Schoenfield is the Bureau Chief of Licensing and Records for the DABT. Based on his nearly 20 years with the DABT and his review of final agency documents, he could identify only four DABT actions against corporate license holders based on the felony convictions of the corporations themselves--all of which stem from a common indictment. The DABT settled with the corporations and, for three of the corporations, imposed fines of $1,000, to

     $7,500. The fourth company agreed to divest itself of its license.

     
     

161. Ms. Louisa Hargrett is a staff attorney who has been with the DABT for the past 3 1/2 years and has dealt with literally hundreds of cases. Ms. Hargrett presented the representatives cases that he had discovered in a search of her files. None of these cases involved corporations who themselves have been convicted of a felony.

     
     

162. The DABT admits that it has no procedure for determining whether corporations that hold alcoholic beverage licenses have been convicted of a felony within the last fifteen years. DABT does not even require corporations applying for a license to list prior criminal convictions.

     
     

     Actions by Other States Against Southland

     
     

163. Other states have imposed penalties against Southland for its 1984 conviction.

     
     

164. California accepted an offer of compromise in the amount of $157,680 in lieu of a 30-day suspension. There was also a probationary period of one year.

165. Colorado agreed to a ten-day suspension, with the suspension held in abeyance for a one-year probationary period. This penalty applied to both alcoholic beverage and lottery licenses.

     
     

166. Connecticut agreed to an offer of compromise in the amount of $250 per license, for a total of $6,750.

     
     

167. Hawaii accepted payment of a penalty of $500 per business for a total of $15,500.

     
     

168. Illinois was paid a penalty of $27,000 for restitution.

     
     

169. Iowa agreed to a accept a 30-day suspension with 27 days remitted and cancelled. Southland also paid a penalty of $12,500 in Iowa.

     
     

170. In Michigan, Southland paid a penalty of $22,600.

     
     

171. In New York, Southland paid a penalty of $46,000 plus an additional fine of $10,000 for the conviction of Matthews which subsequently was reversed.

     
     

172. Oregon agreed to impose a penalty of $455 per license, for a total of

     $8,190, and a suspension of 3 days per license.

     
     

     CONCLUSIONS OF LAW

     
     

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

     
     

174. The following sections are relevant and at issue in this proceeding.

     
     

     Section 1.01(3), Florida Statutes (1985):

     (3) The word "person" includes individuals, corporations and all other groups or combinations.

     
     

     Section 561.15, Florida Statutes:

     * * *

     (2) No licenses under the Beverage Law shall be issued to any person who has been convicted in the last past 15 years of any felony in this state or any other state or the United States or to a corporation, any of the officers of which shall have been so convicted....

     * * *

     Any license issued to a person, firm, or corporation that would not qualify for the issuance of a new license or the transfer of an existing license may be revoked by the division . . .

     (4) If a corporation is unable to qualify for or continue to hold an alcoholic beverage license because the corporation has been convicted of a felony and the felony conviction is unrelated to any offense against the beverage laws of this state, or

     any other state, or the United States, such conviction will not constitute an absolute bar to the issuance, renewal, or transfer of an alcoholic beverage license to the corporation, or to the continued holding of an alcoholic beverage license by the corporation, if the corporation can demonstrate to the satisfaction of the division in a public hearing under s. 120.57, that the corporation has terminated its relationship with any director, officer, employee, or controlling shareholder whose actions directly contributed to the conviction of the corporation. If a corporation is unable to qualify for or continue to hold an alcoholic beverage license because an officer of the corporation has been convicted of an offense enumerated in subsection (2), such conviction will not constitute an absolute bar to the issuance, renewal, or transfer of a license to the corporation, or to the continued holding of an alcoholic beverage license by the corporation, if the corporation can demonstrate to the satisfaction of the division that the corporation has terminated its relationship with the officer so convicted. If any corporation has received a full pardon or restoration of civil rights pursuant to state law with respect to any conviction of a violation of law, the conviction does not constitute an absolute bar to the issuance, renewal, or transfer of a license or grounds for revocation or suspension of a license. The division shall annually report to the offices of the President of the Senate and the Speaker of the House of Representative all agency actions taken pursuant to the provisions of subsection.

     
     

     Section 561.29, Florida Statutes:

     (1) The division is given full power and authority to revoke or suspend the license of any person holding a license under the beverage law, when it is determined or found by the division upon sufficient cause appearing of:

     * * *

     (b) Violation by the license or, if a corporation, by any officers thereof, of any laws of this state or any state or territory of the United States.

     * * *

     (g) A determination that any person required to be qualified by the division as a condition for the issuance of the license is not qualified.

     * * *

     (3) The division may impose a civil penalty against a license for any violation mentioned in the beverage law or any rule issued pursuant thereto.

     
     

     Standards of Proof

     
     

175. It cannot be disputed that cases as the present one for revocation of licenses are "penal in nature." Bach v. Florida State Board of Dentistry, 378 So.2d 34 (Fla. 1st DCA 1979). A statute which is penal in nature must be strictly construed and the authority to revoke licenses is restricted to the grounds enumerated in such a statute. State ex rel. Volusia Jai-Alai, Inc. v. Board of Business Regulation, 304 So.2d 473 (Fla. 1st DCA 1974). The "outright revocation of a beverage license is a most serious and drastic penalty, even in a flagrant case; it is comparable to the extreme penalty in a criminal case." Taylor v. State Beverage Department, 194 So.2d 321 (Fla. 2d DCA 1967), cert. denied, 201 So.2d 464 (Fla. 1967). It is further axiomatic that statutes which are penal in nature must be strictly construed in favor of the licensee.

     McClung v. Criminal Justice Standards and Training Commission, 458 So.2d 87 (Fla. 5th DCA 1984).

     
     

176. The burden of proof on this proceeding was previously established by order dated March 24, 1987, however, Respondent continues to argue the issue and it will accordingly be addressed herein. Specifically, the burden of proof is on DABT to prove the charges set forth in the Amended Notice to Show Cause and this proof must be by clear and convincing evidence. See Bowling v. Department of Insurance, 394 So.2d 165 (Fla. 1st DCA 1981); Robinson v. Florida Board of Dentistry, 447 So.2d 930 (Fla. 3rd DCA 1984); Reid v. Florida Real Estate Commission, 188 So.2d 846 (Fla. 2d DCA 1966), disapproved on other grounds, 205 So.2d 98 (Fla. 1967). Once DABT meets its burden, the burden shifts to Southland to prove its entitlement to the exception set out in Section 561.15(4), Florida Statutes. It is axiomatice also that one who "asserts entitlement to an exception or exemption bears the burden of proving such entitlement. However, the burden of proving entitlement to an exception is by a preponderance of the evidence.

     
     

177. Southland argues that the "clear and convincing" standard applies to all "critical matters and issues" in the proceedings, including Southland's continued employment of individuals who directly contributed to its conviction. This argument is rejected for the reasons set forth above.

     
     

     Application and Construction of Sections 561.15 and 561.29

     
     

178. In this proceeding, DABT is relying on Section 561.29(1)(g), which incorporates, as grounds for the revocation or suspension of licenses, such conditions that would bar the issuance of a new license. Here, DABT is relying on the conditions barring the issuance of a license which are set forth in Section 561.15(2). In its Motion for Recommended Order of Dismissal, which remains at issue here, Southland argues that Section 561.15(2) authorizes the revocation of a corporation's licenses only if the corporation has been convicted of a crime recognized as a felony in Florida. It asserts that it has

     not been convicted of such a crime and that therefore Section 561.15(2) has no application to the case.

     
     

179. Sections 561.15(2), in conjunction with Section 561.29(1)(g), permits the revocation or suspension of a corporation's licenses if the corporation "has been convicted in the last 15 years of any felony in this state or any other state or the United States." Additionally, Sections 561.15(3) provides that any license issued to a corporation that would not qualify for issuance of a new license or the transfer of an existing license may be revoked. Conviction of a felony as set forth in 561.15(2) would be such a disqualifying event.

     
     

180. Southland argues that Article X, Section 10, of the Florida Constitution restricts the Legislature's use of the word felony by the following prescription:

     
     

     [T]he term "felony" as used herein and in the laws of this State shall mean any criminal offense that is punishable under the laws of this State, or that would be punishable if committed in this State, by death or by imprisonment in the State penitentiary.

     
     

     Southland contends that Rotstein v. Department of Professional and Occupational Regulation, 397 So.2d 305 (Fla. DCA 1980), (on rehearing), petition for review denied, 402 So.2d 609 (Fla. 1981), stands for the proposition that Article X, Section 10, restricts the term felony as used by the Legislature to mean only Florida felonies and those non-Florida offenses which "if committed in this State" would be Florida felonies. It is urged that Rotstein would forbid the Legislature to use the term felony in any other sense than the restricted Constitutional definition.

     
     

181. This application of Rotstein is restricted by that court's language at page 308-09 limiting the use of Article X, Section 10, as a "compelling instrument of statutory interpretation" to its applicability in that case only. Instead, it is concluded herein that the plain language of Section 561.15 restricts qualification to hold a license by conviction of any felony in Florida or any other state or the United States. Southland having been convicted of a felony in the United States District Court, the terms of Section 561.15 are applicable to it. There is support for this interpretation in Guiseppe Pizzeria

     v. Department of Business Regulation, 472 So.2d 1331 (Fla. 3rd DCA 1985), where the question of constitutional constraints on the definition of the term "felony" is treated collaterally. Accordingly, Southland's Motion for Recommended Order of Dismissal is denied and the grounds raised therein are rejected.

     
     

182. Southland next argues that it is necessary for DABT to prove that an officer of the corporation has been convicted and that the conviction of the corporation only is insufficient to permit revocation or suspension of Southland's licenses. Specifically, Southland points out that Section 561.15(2) and Section 561.29(1)(b) both permit such action against a corporation only where there has been a conviction or violation by an officer thereof. As relevant, Section 561.15(2) states:

     
     

     No license under the Beverage Law shall be issued to any person who has been convicted within the past five years of any offense

     against the Beverage Laws of this State, the United States, or any other state; ... or who has been convicted within the last fifteen years of any felony in this State or

     any other state or the United States; or to a corporation, any of the officers of which shall have been so convicted.

     
     

     Additionally, Section 561.29(1)(b) states in pertinent part:

     
     

     The division is given full power and authority to revoke or suspend the license of any person holding a license under the Beverage Law, when it is determined or found by the division upon sufficient cause appearing of:

     * * *

     (b) Violation by the license or, if a corporation, by an officer thereof, of any laws of this state or any state or territory of the United States.

     
     

183. It is argued by DABT that Section 1.01(3), Florida Statutes, defines the word "person" to include corporations. Therefore those portions of the statute referring to "person" are applicable to a corporation such as Southland.

     
     

184. Facially, Southland's argument appears to have merit. However, upon a closer examination it must be rejected. A close reading of Sections 561.15 and 561.29(1)(b) suggests that the language referring to a corporation is included to cover those situations where an officer of the corporation is convicted, but the corporation is not. In such situations, if an officer of the corporation, acting within his authority as such an officer, is convicted or violates the applicable laws, the licenses held by the corporation can be sanctioned. Since "person" is defined to include corporations, where a corporation itself is convicted of the applicable violation, the portion of the statutes referring to "persons" becomes applicable. Accordingly, where as here, Southland, a corporation, "has been convicted in the past fifteen years of any felony in this state or any other state or the United States" it becomes disqualified for issuance of a new license and any licenses which it holds may be revoked by the Division.

     
     

185. DABT has carried its burden of proving by clear and convincing evidence that Southland, a corporation, has been convicted in the past fifteen years of a felony in the United States and it is therefore disqualified from continuing to hold an alcoholic beverage license in Florida. Southland may, however, avail itself of the exception to disqualification set forth in Section 561.15(4). This subsection sets forth three specific exceptions to disqualification. First, where the corporation itself has been convicted of a felony, the felony conviction must not be related to any offense against the beverage law and the corporation must demonstrate that it has terminated its relationship with any director, officer, employee, or controlling shareholder whose actions directly contributed to the conviction of the corporation. second, where an officer of the corporation has been convicted of an enumerated

     felony, the corporation must demonstrate that it has terminated its relationship with the officer so convicted. Third, where the corporation has been so convicted, it must show that it has received a full pardon or restoration of civil rights with respect to that conviction. If one of these three exceptions

     is met, the conviction, whether of the corporation or its officer, "does not constitute an absolute bar to the issuance, renewal, or transfer of a license or to the continued holding of the license by the corporation."

     
     

186. In the present case, Southland has attempted to avail itself of the first exception set forth above. To that end, both parties have argued extensively regarding the meaning of the words "directly contributed" to the conviction of the corporation. Southland contends that the term "directly contributed" should be synonymous with conviction to the extent that only an individual who committed particular criminal acts, where those acts formed the basis of the conviction of the corporation, can be construed to have "directly contributed" to that conviction. Further, Southland argues that at the very least, scienter is an essential element required by the phrase "directly contributed." DABT, on the other hand, argues that the acts necessary to establish direct contribution to the conviction by necessity must be something less than those acts which would be required for conviction. According to DABT, the clause is "obviously intended to require proof by the corporation claiming the exemption that the affected persons were neither involved in nor had responsibility for the events leading to the conviction." As acknowledged by both parties, this is a question of first impression. According, basic rules of statutory construction must prevail.

     
     

187. The plain meaning of the term "directly contributed" can first be examined in light of the dictionary definitions of these two common words. Webster's New Twentieth Century Dictionary of the English Language, Unabridged (2nd Ed.)(1980), defines "directly" to include: "1. In a direct way, line, or course; . . . 2. Immediately; without a person or thing coming between. . . .

1. Openly; expressly; without circumlocution or ambiguity; without a train of inferences." The definition of "contribute" includes: "to give a part; . . .

   to have a share in any act or effect; . . ." Synonyms for the term include cooperate and assist. Reading these definitions together, the plain meaning of the term "directly contributed," must require the actor to give a part or to have a share in any act or affect, in a direct way, or immediately, without a person or thing coming between, or without a train of inferences.

   
   

   1. The meaning ascribed to the words "directly contributed" by either party seems to stretch the plain meaning of these words. Because the phrase "directly contributed" must be strictly construed, with all ambiguities read in Southland's favor, it is concluded that "directly contributed" must include a requirement that either Dole or Matthews had a share in the conviction of Southland and that their share was immediate, without a person or thing coming between, and without a train of inferences.

      
      

   2. Based on the record in the foregoing findings of fact, it cannot be determined that either Dole or Matthews "directly contributed" to Southland's conviction. The preponderance of the competent substantial evidence is sufficient to only support conclusions that Dole and Matthews at the very most failed to supervise DeFalco adequately or failed to investigate the Mastropiere fee to the degree that others, with hindsight, might think warranted.

      
      

   3. DABT failed to establish in the record of this case any support for a policy adopting a broader definition. As recognized by the Florida Supreme Court, "when an agency elects to adopt incipient policy in a non-rule proceeding, there must be adequate support for its decision in the record of the proceeding." Florida Cities Water Co. v. Florida Public Service Commission, 384 So.2d 1280, 1261 (Fla. 1980). Additionally, in Anheuser-Busch, Inc. v. Department of Business Regulation, 393 So.2d 1177, 1182-83 (Fla. 1st DCA 1981),

it is established that DABT's interpretation of a statute cannot be accepted "as a matter of common knowledge, economic logic, or abstract statutory interpretation" but must instead be "test[ed] by cross-examination, countervailing testimony or documentary proof or in other [appropriate] ways." Accordingly, if DABT wishes to interpret the phrase "directly contributed" to have anything other than its plain meaning, it should have presented evidence in the record to support its definition. Having failed to do so, DART cannot now make policy decisions not expressed in rules and not having been made subject to countervailing evidence and argument. See MacDonald v. Department of Banking and Finance, 346 So.2d 569 (Fla. 1st DCA 1977), cert. denied, 368 So.2d 1370

(Fla. 1979)

It is concluded that neither Dole nor Matthews directly contributed to Southland's conviction. It is therefore further concluded that Southland proved its entitlement to the exception contained in Section 561.5(4) and its conviction "will not constitute an absolute bar" to its qualification for and continued holding of alcoholic beverage licenses in Florida. This however does not mean that some penalty cannot be imposed. DART is authorized by Section 561.29(1)(b) to revoke, suspend, or impose a civil penalty, against Southland's license by virtue of Southland's violation (and conviction of the law of the United States. It is therefore important to examine the evidence in the record regarding Southland's corporate citizenship. Based upon Southland`s extensive involvement with community programs and national charitable organizations, it must be concluded that Southland has offered evidence in mitigation of this one conviction which resulted from the criminally culpable behavior of one former employee, Eugene DeFalco. However, some penalty is warranted.

RECOMMENDED ORDER

Based upon the foregoing facts and conclusions of law, it is RECOMMENDED that the Department of Business Regulation, Division of

Alcoholic Beverages and Tobacco, enter a Final Order and therein impose a civil penalty in the amount of $500 for each of Southland's 704 alcoholic beverage licenses, for a total of $352,000.00.

DONE AND ENTERED this 16th day of July, 1987, in Leon County, Tallahassee, Florida.

DIANE K. KIESLING

Hearing Officer

Division of Administrative Hearings The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 16th day of July, 1987.

APPENDIX TO RECOMMENDED ORDER, CASE NO. 86-2247

The following constitutes my specific rulings pursuant to section 120.59(2), Florida Statutes, on all of the proposed findings of fact submitted by the parties in this case.

Specific Rulings on Proposed Findings of Fact Submitted by Petitioner, Department of Business Regulation,

Division of Alcoholic Beverages and Tobacco

1. Each of the following proposed findings of fact are adopted in substance as modified in the Recommended Order. The number in parentheses is the Finding of Fact which so adopts the proposed finding of fact: I[1]-I[36](1-36); 2[11](69); 2[13](74-76); 3[1](43); 3[4](97, 98); 5[1](10); 6[4](39); 7[1](31); 8[4](31); 8[8] (90-92: 8[10](94); 8[12)(97); 8[13](65,66); 8[15](98); 8[l7](99,100); 8[18](102,103); 8[21](33,115); 8[23](109); 10[1](30); 10[2](37,38); 10[3] (37-39); 10[4](69-72,86,92); 10[10](99-101); 10[11](101); 10[13](115); III[1](35,160) and III[5](163-172).

2. Proposed findings of fact 1(1),1(2),1(4),1(5), 1(7)-1(12)and 7(2) are rejected as unsupported by the competent, substantial and credible evidence. See Findings of Fact 120-134 regarding the lack of credibility of DeFalco.

3. Proposed findings of fact 2(5), 6(1), 6(7), 6(8), 7(2),

8(2), 8(20), 9(1), 11(1), and III6 are rejected as irrelevant or unnecessary.

4. All other proposed findings of fact are subordinate to the acts actually found in this Recommended Order.

Specific Rulings on Proposed Findings of Fact Submitted by Respondent, The Southland Corporation, d/b/a

7-Eleven Stores

1. Each of the following proposed findings of fact are adopted in substance as modified in the Recommended Order. The number in parentheses is the Finding of Fact which so adopts the proposed finding of fact: 11(11); 12(14); 13(15); 14(13); 15-17(37-39); 18(4); 19-22(40-43); 23(5); 24(8); 25- 93(44-112); 95-115(113-133); 117-124(135-142);126-128(16- 18); 130-145(143-158); and 147-150(159-162).

2. Proposed findings of fact 1-10 are unnecessary and inappropriate as findings of fact.

3. Proposed findings of fact 94, 116, 129 and 146 are rejected as being conclusory and argumentative.

4. Proposed finding of fact 125 is rejected as being conclusory and speculative.

5. Proposed finding of fact 151 is rejected as unsupported by the competent, substantial evidence.

COPIES FURNISHED:

James Kearney, Secretary Department of Business Regulation The Johns Building

725 South Bronough Street Tallahassee, Florida 32301

Daniel J. Bosanko Deputy General Counsel

Thomas A. Bell, General Counsel Thomas A. Presnell, Staff Attorney Department of Business Regulation 725 South Bronough Street Tallahassee, Florida 32399-1007

William Baer, Esquire Peter Bleakley, Esquire Edward L. Wolf, Esquire Carolyn J. Horne, Esquire

1200 New Hampshire Avenue, N.W. Washington, D.C. 20036

John Rodgers, Esquire 2828 North Haskell Dallas, Texas

Richard McFarlain, Esquire Charles Stampelos, Esquire Linda McMullen, Esquire

Suite 666, 1st Florida Bank Building Tallahassee, Florida 32316

=================================================================

AGENCY FINAL ORDER

=================================================================

STATE OF FLORIDA DEPARTMENT OF BUSINESS REGULATION

DIVISION OF ALCOHOLIC BEVERAGES AND TOBACCO

DEPARTMENT OF BUSINESS REGULATION, ) DIVISION OF ALCOHOLIC BEVERAGES ) AND TOBACCO, )

)

Petitioner, )

)

v. ) CASE NO. 86-2247

)

THE SOUTHLAND CORPORATION, )

d/b/a/ 7-ELEVEN STORES, )

)

Respondent. )

)

FINAL ORDER

COMES NOW, the Secretary of the Department of Business Regulation, State of Florida and after due deliberation enters the following Final Order in the above styled cause and states:

FINDINGS OF FACT

The Department hereby accepts the findings of fact as determined by Hearing Officer Diane K. Keisling, as set forth in her Recommended Order of July 16, 1987, a copy of which is attached hereto and incorporated herein by reference as Exhibit A.

CONCLUSIONS OF LAW

Except for the conclusions of law specifically enumerated below, the Department hereby accepts and adopts each conclusion of law as determined by Hearing Officer Diane K. Keisling, as set forth in her Recommended Order of July 16, 1987. (Exhibit A)

The Department specifically rejects the following conclusions of law as determined by Hearing Officer Keisling:

1. Hearing Officer Keisling's construction of the meaning of the term "directly contributed" and the conclusion that the Department's construction of such term constituted a policy" requiring a record foundation are hereby rejected.

2. Hearing Officer Keisling's conclusion that the Southland Corporation was required to prove its entitlement of the statutory exception in Section 561.15(4), Florida Statutes, by a preponderance of the evidence is hereby rejected.

The Department's rationale in specifically rejecting the foregoing conclusions of law is more fully set forth below.

"DIRECTLY CONTRIBUTED"

Hearing Officer Keisling concluded that the Department's proposed construction of the statutory term, "directly contributed" constituted a policy which required the presentation of record evidence in support thereof. The Department agrees that there are instances in which an agency's construction of a statutory term may be tested through the dynamics of the administrative process. However, these instances involve statutory interpretations which are strained relative to the statutory language and which do not clearly fall within the parameters of the "plain meaning" of the statute. The hearing officer's conclusion implicitly holds that there may be no variation in the interpretation of "plain meaning".

The hearing officer cites Anheuser-Busch, Inc., v. Department of Business Regulation, 393 So.2d 1177, 1182-83 (Fla. 1st DCA 1981), in support for her conclusion. That case is clearly distinquishable from the facts of the instant cause. First, in Anheuser-Busch, the Department sought to impose disciplinary sanctions for an activity which was not clearly proscribed by statute or rule, and which had been historically acquiesced in by the Department. Specifically, the Department , contended that the practice of "manufacturer bar spending" constituted a benefit to a licensed vendor and accordingly was a "gift" in violation of Section 561.42(1), Florida Statutes. The court appropriately required the Department to provide a record foundation in support of its less than unambiguous construction of the term "gift". The necessity for agency explication of this position was amplified by the fact that the Department's interpretation constituted retrospective policy making in contravention of prior practice. This agency procedure failed to inform the licensee of prohibited conduct which could have been avoided, had the agency made its position public.

The present case is one of first impression. The phrase "directly contributed", as of necessity, had not been defined by the Department prior to the commencement of the proceedings herein. There can be no prejudice to the Southland Corporation created by the Department's failure to promulgate a rule or implement a policy relative to the construction of the aforementioned statutory term. This is so, because the acts of the Southland officers at issue herein were consummated years before Section 561.15(4), Florida Statutes, was promulgated as law. Therefore, the opportunity for the licensee to conform its conduct to the standards proposed by the Department did not exist.

Additionally, the conduct engaged in by the licensee and its officers was clearly not conduct which had been historically acquiesced in by the Department. Even disregarding the absence of these critical factors, the salient element militating against the requirement of record evidence, is that the Department's proposed construction of the term "directly contributed" squarely falls within the "plain meaning" of that term.

The hearing officer created her own definition of the subject phrase by selective application of the several possible definitions of the individual words at issue. She then concluded that her final product enunciated the "plain meaning" of the phrase. This subjective exercise in choice, properly suggests

that within the realm of the English language, more than one definitional interpretation may comport with the "plain meaning" of a word. Simply stated, the Department's interpretation of the subject phrase is one that is clearly supported by the statutory language and is easily foreseeable by a person of reasonable intelligence.

Moreover, the acceptance of the hearing officer's conclusion would create the implicit requirement that any proposed agency construction, whether reasonable or not, must be supported by record evidence provided at formal hearing. This inordinate burden obviates properly exercised agency discretion and does violence to the axiom that an agency's interpretation of its own statute should not be overturned or disregarded unless such interpretation is clearly erroneous. See Sans Souci v. Division of Florida Land Sales and Condominiums. Department of Business Regulation, 421 So.2d 623 (Fla. 1st DCA 1982); Natelsen v. Department of Insurance, 454 So.2d 31 (Fla. 1st DCA 1984); Pan American World Airways, Inc. v. Florida Public Service Commission and Florida Power & Light, 427 So.2d 716 (Fla. 1983).

Accordingly, the Department's construction of the term "directly contributed" is hereby adopted without amendment to the conclusions reached by the hearing officer relative to the involvement of employees Dole and Matthews in the Southland conviction.

BURDEN OF PROOF

Hearing Officer Keisling's conclusion that the Southland Corporation was required only by a preponderance of the evidence to show its entitlement to the statutory exception of 561.15(4), Florida Statutes, is hereby rejected. A procedural approach which employs a bifurcated standard of proof when dealing with statutes of similar gravity is fundamentally flawed. It seems inherently unfair to impose varying standards of proof on party litigants operating together within a single set of facts and a defined body of law.

The Southland Corporation sought to avoid the imposition of the penalty of revocation against its alcoholic beverage licenses by proving that the corporation had severed its relationship with any employee directly contributing to its conviction. The better reasoned approach appears to be that an individual seeking to avoid the highest penalty which may be assessed against an occupational or business license meet the same standard of proof required of the government in order to impose such a penalty on said license. There is no rational basis upon which to distinguish between the burden of proof imposed on one seeking revocation and one seeking to affirmatively avoid revocation of a license.

The aforementioned statutory exception is in effect, a statutory affirmative defense to revocation. It is a well ingrained tenet of law that a defendant asserting an affirmative defense must prove such defense by evidence equal in probative force with that propounded by the plaintiff to establish the case in chief. See Futterman v. Gerber, 190 So.2d 575 (Fla. 3rd DCA 1959).

It is noteworthy that the Southland Corporation proposed that a clear and convincing standard of proof be made applicable to all "critical matters" in these proceedings. It is indisputable that the matters discussed herein constitute "critical matters". Therefore, it is concluded that the standard of clear and convincing proof is applicable to proving entitlement to the exception to revocation provided in Section 561.15(4), Florida Statutes.

MITIGATION

This Department has a long-standing policy of tempering the maximum penalty to be assessed against an errant licensee where circumstances merit such action. The Southland Corporation wisely presented comprehensive evidence of mitigation in the proceeding below. As noted by the hearing officer, the Department must recognize Southland's exemplary public service record in deliberating upon a proper penalty. Additionally the Department is cognizant of the fact that Southland's conviction resulted from the actions of one individual. This individual must be contrasted with the thousands of innocent shareholders and law abiding employees in the Southland Corporate structure.

PENALTY

The hearing officer recommended that a civil penalty of $352,000.00 be assessed against the Southland Corporation. The penalty recommended by the hearing officer was based upon cogent and persuasive reasoning. Because of the fair and balanced approach employed by the hearing officer, the Department is compelled to accept the recommended penalty. Therefore, a civil penalty of

$352,000.00 is hereby imposed against the Southland Corporation, to be paid within thirty (30) days from the date below. Failure to timely remit the above sum will result in suspension of Southland Corporation's alcoholic beverage licenses.

DONE AND ORDERED this 31st day of July, 1987.

E. JAMES KRARNEY, SECRETARY Department of Business Regulation State of Florida

726 South Bronough Street Tallahassee, Florida 32399-1000

COPIES FURNISHED:

Daniel Bosanko, Esquire Thomas A. Bell, Esquire Thomas A. Presnell, Esquire William Baer, Esquire Peter Bleakley, Esquire Edward L. Wolf, Esquire Carolyn J. Horne, Esquire John Rodgers, Esquire Richard McFarlain, Esquire

This Final Order may be appealed pursuant to Section 120.68, Florida Statutes, and Rule 9.110, Florida Rules of Appellate Procedure, by filing a Notice of Appeal conforming to the requirements of Rule 9.110(d), Florida Rules of Appellate Procedure, both with the appropriate District Court of Appeal and with this agency within 30 days of rendition of this Order, accompanied by the appropriate filing fees.

Docket for Case No: 86-002247

Orders for Case No: 86-002247