STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

STRUCTURED SHELTERS FINANCIAL ) MANAGEMENT, INC., a Florida )

corporation, STRUCTURED SHELTERS ) SECURITIES, INC., a foreign ) corporation, ROBERT ILES, and ) MONICA ILES, )

)

Petitioners, )

)

vs. ) CASE NO. 87-1015F

)

DEPARTMENT OF BANKING AND ) FINANCE, DIVISION OF SECURITIES, )

)

Respondent. )

)

FINAL ORDER

Pursuant to notice, a formal hearing was conducted in this case on June 11, 1987, and on September 23, 1987, in Tallahassee, Florida, before Michael M. Parrish, a duly designated Hearing Officer of the Division of Administrative Hearings. At the hearing, the parties were represented by the following counsel:

APPEARANCES

For Petitioners: Martin S. Friedman, Esquire

ROSE, SUNDSTROM & BENTLEY

2544 Blairstone Pines Drive Tallahassee, Florida 32301

For Respondent: Elise M. Greenbaum, Esquire

Assistant General Counsel Office of the Comptroller

400 West Robinson Street, Suite 501 Orlando, Florida 32801

INTRODUCTION AND ISSUES

This proceeding commenced upon the Application for Attorneys' Fees and Costs filed by Petitioners pursuant to Section 57.111, Florida Statutes. The Respondent filed an Answer and requested an evidentiary hearing. The Petitioners and Respondent entered into a Prehearing Stipulation identifying the issues of fact to be litigated as (1) whether or not the actions of the Department of Banking and Finance were substantially justified, and (2) whether or not it would be unjust to award attorneys' fees against the Department. The issues of law identified by the Parties were (1) if the actions of the Department of Banking and Finance were not substantially justified, should the attorneys' fees and costs be apportioned between DOAH Case No. 86-1553 and DOAH Case NO. 86-1336, and (2) whether or not Monica Iles and Robert Iles are "small

business parties." The Prehearing Stipulation also contains six paragraphs of facts that are admitted by all parties.

At the hearing all parties presented testimony and exhibits and following the hearing a transcript of the proceedings was filed with the Hearing Officer. Thereafter, all parties filed proposed orders containing proposed findings of fact and conclusions of law. Specific rulings on all findings proposed by all parties are contained in the Appendix which is attached to and incorporated into this Final Order.

FINDINGS OF FACT

Based on the admissions of the parties and on the evidence received at the hearing, I make the following findings of fact.

Findings Based on Admissions

1. The attorney's fees and costs itemized in the petition were for the preparation of both DOAH Case Nos. 86-1336 and 86-1553.

   
   

2. DOAH Case Nos. 86-1336 and 86-1553 were consolidated for hearing and were tried together before Hearing Officer Michael M. Parrish.

   
   

3. DOAH Case No. 86-1336 resulted in a Final Order suspending the registration of Structured Shelters Financial Management, Inc., (hereinafter "SSFM") and vacating the order revoking the registration of Structured Shelters Securities, Inc. (hereinafter "SSSI").

   
   

4. The Department initiated the administrative action against the two corporations and the two individuals by serving them with a Cease and Desist Order. The case was tried before Hearing Officer Michael M. Parrish.

   
   

5. Structured Shelters Financial Management, Inc., and Structured Shelters Securities, Inc., are "small business parties."

   
   

6. The Petitioners were the prevailing parties in DOAH Case No. 86-1553.

   
   

   Finding Based on Evidence Presented at Hearing

   
   

7. Robert Iles' profession is that of a business consultant. Mr. Iles files a Schedule C with his federal income tax return which identifies his business income and expenses. Mr. Iles' business office is in Edgewater, Florida. Mr. Iles has not more than 25 full-time employees, nor a net worth of more than two million dollars.

   
   

8. Monica Iles is a business consultant who files a Schedule C with her federal income tax return separate from that of Robert Iles. Mrs. Iles has no more than 25 full-time employees, nor has she a net worth of more than two million dollars.

   
   

9. The attorney for Petitioners submitted an itemized statement of attorneys' fees and costs incurred in defending against Respondent's Cease and Desist Order. The invoices rendered are reasonable and substantiated. The hourly rate of $125.00 per hour billed by the attorney for Petitioners is reasonable. The total amount billed for Petitioner's attorney's fees was

   $8,375.00, plus costs in the amount of $1,180.73, for a grand total of attorney's fees and costs in the amount of $9,555.73.

10. The Department of Banking and Finance was not a nominal party in DOAH Case No. 86-1553.

    
    

11. The initial decision to take action against the Petitioners was made by the Director of the Division of Securities, who in turn referred the case to the Department legal section. The case was then referred to the Orlando office where it was reviewed by Mr. Robert Good. Mr. Good has been with the Department for eight and a half years. He is an attorney in charge of the Department's Orlando office. He is an expert in the field of securities law.

    
    

12. In this particular case, Mr. Good initially questioned whether the corporate business plans being sold by the Petitioners were securities. Therefore, he carefully evaluated the evidence presented to him by the Department's securities examiners and investigators in light of the applicable case law. He relied on a Report of Examination and a Report of Investigation in reaching his conclusion that the corporate business plans being sold by the Petitioners were securities. These reports were compiled during investigations of SSFM, SSSI, and Structured Shelters, Inc., by Department securities examiners and investigators.

    
    

13. Although the Report of Investigation dealt with a corporation named Structured Shelters, Inc. (a corporation different from the Petitioner corporations), Mr. Good concluded that the report was relevant to the activities of the Petitioners for reasons which included the following. Robert Iles was the President and/or a Director of Structured Shelters, Inc., SSFM, and SSSI. Monica Iles was the Treasurer, Secretary, Director, and/or registered agent of Structured Shelters, Inc., SSFM and SSSI. Structured Shelters, Inc., offered at least one corporate investment program, the children's cassette master recordings, which was very similar to the children's cassette master recording program being offered by SSFM.

    
    

14. The Report of Investigation included a Final Order entered by the State of Alaska against Structured Shelters, Inc., and Robert Iles, which Final Order was issued after an administrative hearing at which testimony was presented and the parties were represented by legal counsel. The Alaska Final Order concluded that the children's classic cassette recording program was a security. The Report of Investigation also included an Order from the Ohio Division of Securities against Structured Shelters, Inc. The Ohio Order discussed the children's classic cassette recording program offered by Structured Shelters, Inc., in the State of Ohio and concluded that the program was a security. The programs which were the subjects of the Alaska and Ohio Orders were very similar to the corporate business plans being offered by the Petitioners.

    
    

15. The Report of Investigation also contained a letter from the Ohio Division of Securities which listed about 48 investors in the various corporate business plans of Structured Shelters, Inc. Department investigators contacted these investors and received eleven responses indicating that Florida investors had invested in various corporate business plans of Structured Shelters, Inc.

    
    

16. Mr. Good also reviewed and relied upon the Report of Examination prepared by the Division of Securities. This report included numerous documents obtained from the business records of the Petitioners which indicated that SSFM, SSSI, Robert Iles, and Monica Iles were selling corporate business plans or offering to sell corporate business plans in the State of Florida. These documents included such things as an Investment Advisory Agreement between

    investors, SSFM, and SSSI, a description of the children's cassette recording program corporate business plan, the cover letters mailed to potential investors, an SSFM ledger book containing a list of numerous sales of corporate business plans by SSFM to investors in the State of Florida, a memo on the stationery of Monica Iles listing the names of numerous Florida investors, and numerous letters on SSFM's letter head sent to Florida investors.

    
    

17. The Report of Examination also included information from the Florida Secretary of State's office which showed that SSFM and SSSI had the same address and that Robert Iles and Monica Iles were both officers and/or directors in both corporations.

    
    

18. After reviewing the Report of Investigation and the Report of Examination, Mr. Good researched the applicable law. Based on his review of the information in the two reports and on his legal research, Mr. Good concluded that the corporate business plans being sold through SSFM were "securities" and that those securities were being sold to Florida investors.

    
    

19. The Cease and Desist Order was filed against SSFM because all of the sales of the subject business plans were made through that corporation, because the corporation had officers in the State of Florida, and because correspondence, invoices, and the corporate ledger book provided additional documentation that sales were being made from Florida.

    
    

20. The Cease and Desist Order was filed against Robert Iles due to the fact that he was actively involved in selling the subject business plans to the investors.

    
    

21. The matter of whether to also file the Cease and Desist Order against Monica Iles was a close call and the files were carefully examined to determine whether there was sufficient evidence of sales activity by Monica Iles to warrant including her in the Cease and Desist Order. Based on correspondence and invoices contained in the Report of Examination, Mr. Good concluded there was sufficient evidence of sales activity by Monica Iles to include her in the Cease and Desist Order.

    
    

22. The Cease and Desist Order was filed against SSSI on the basis of documents contained within the Report of Examination and Report of Investigation establishing the commonality of corporate officers and directors in SSSI, SSFM, and Structured Shelters, Inc., and on the basis of the investment advisory agreement entered into between investors, SSFM and SSSI. The Investment Advisory Agreement set forth the rights and responsibilities of the investor and SSFM. According to this agreement, SSSI would act as a securities broker for its client, SSFM. It appeared from the agreement that SSFM was able to bind SSSI to perform for SSFM's benefit. The only corporate signature provided for on the agreement was for a signature on behalf of SSFM; no signature appeared on behalf of SSSI. Thus, it appeared that SSFM and SSSI were being operated as one company. Based on the Investment Advisory Agreement and the commonality of corporate officers and directors, it appeared that SSFM had the power to act on behalf of SSSI and, therefore, the Cease and Desist Order was also filed against this corporation.

    
    

23. Prior to filing the Cease and Desist Order against SSFM, SSSI, Robert Iles, and Monica Iles, all of the evidence in the possession of the Department was carefully reviewed by Mr. Good, an expert in securities law, to determine whether there was a reasonable basis for taking action against the Petitioners. Mr. Good concluded that the evidence in the possession of the Department was

    sufficient to warrant the filing of a Cease and Desist Order against the Petitioners. For reasons not clearly explained in the record of this proceeding, the attorney who represented the Department at the formal hearing regarding the Cease and Desist Order (an attorney other than Mr. Good) failed to present all of the evidence the Department had available.

    
    

    CONCLUSIONS OF LAW

    
    

    Based on the foregoing findings of fact and on the applicable legal precedents and principles, I make the following conclusions of law.

    
    

24. The Division of Administrative Hearings has jurisdiction over the subject matter of and the parties to this proceeding. Sections 57.111 and 120.57(1), Florida Statutes.

    
    

25. This case arises under the Florida Equal Access to Justice Act, Section 57.111, Florida Statutes. At Section 57.111(4)(a), the Act states:

    
    

    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.

    
    

26. Section 57.111(3)(d) of the Act defines the term "small business party" to mean, with certain qualifications not in dispute here, either "a sole proprietor of an unincorporated business" or "a partnership or corporation." The parties have stipulated that SSFM and SSSI are "small business parties" within the meaning of the Act. The two individual Petitioners, Robert Iles and Monica Iles, are not "small business parties" within the meaning of the Act, because neither is a sole proprietor of an unincorporated business.

    
    

27. Section 57.111(3)(e) of the Act states: "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." In determining whether a particular proceeding is substantially justified, it is instructive to consider the duty and authority of the state agency involved. Section 517.221(1), Florida Statutes, states:

    
    

    The department may issue and serve upon a person a Cease and Desist Order whenever the department has reason to believe that such person is violating, has violated, or is about to violate any provision of this chapter, any rule or order promulgated by the department, or any written agreement entered into with the department.

    
    

28. It is also instructive to look to the decisions of federal courts which have construed the meaning of the language of the federal legislation on which the Florida Equal Access to Justice Act is modeled. See Gentele v. DPR,

    Board of Optometry, 513 So.2d 672 (Fla. 1st DCA 1987). In discussing the meaning of the term "substantially justified," the court in Ashburn v. U.S., 740 F.2d 843 (11th Cir. 1984), said:

    
    

    The government bears the burden of showing that its position was substantially justified. [citations omitted] The standard is one of reasonableness; the government must show "that its case had a reasonable basis both in law and fact." [citations omitted] The fact that the government lost its case does not raise a presumption that the government's position was not substantially justified. [citation omitted] Nor is the government required to establish that its decision to litigate was based on a substantial probability of prevailing. [citation omitted]

    
    

    To the same effect, see White v. U.S., 740 F.2d 836 (11th Cir. 1984).

    
    

29. On the basis of the evidence contained in the Report of Examination and the Report of Investigation, as evaluated by an expert in securities law, the Department had reason to believe that the Petitioners had violated, were violating, or were about to violate, one or more provisions of Chapter 517, Florida Statutes. Accordingly, at the time of filing the Cease and Desist Order, the Department had a reasonable basis in both law and fact for filing the Order and was, therefore, substantially justified in filing the Cease and Desist Order.

    
    

30. Since the Department has demonstrated that the filing of the Cease and Desist Order was "substantially justified" within the meaning of the Florida Equal Access to Justice Act, the Petitioners' application for an award of attorney's fees and costs must be denied. It is, therefore, unnecessary to reach the issue of whether fees and costs should be apportioned between DOAH Case No. 86-1553 and DOAH Case No. 86-1336 or the issue of whether the fees and costs authorized by the Act include fees and costs incurred as a result of the litigation of the Petitioners' application for an award of attorney's fees and costs.

On the basis of all of the foregoing, it is hereby ORDERED:

That the Petitioners' application for attorney's fees and costs is DENIED. DONE and ORDERED this 24th day of December, 1987, in Tallahassee, Florida.

MICHAEL M. PARRISH

Hearing Officer

Division of Administrative Hearings The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32301 904/488-9675

FILED with the Clerk of the Division of Administrative Hearings this 24th day of December, 1987.

APPENDIX TO FINAL ORDER

The following are my specific rulings on all of the findings of fact submitted by the parties.

Findings Proposed by the Petitioners:

The findings numbered as follows are accepted: 1, 2, 3, 4, 5, 6, 7, 8, 9,

13, 14, 15, 17, and 18.

The findings numbered as follows are rejected as constituting subordinate or unnecessary details: 22, 23, 27, 28, 29, 31, 32, 33, 37, 38, 40, 41, and 43.

The findings numbered as follows are rejected as constituting subordinate or unnecessary details and as also constituting oversimplifications: 16, 20, and 42.

The findings numbered as follows are rejected as constituting unnecessary details and as not being supported by persuasive competent substantial evidence: 24, 25, 26, 34, and 44.

The findings numbered as follows are rejected as constituting unnecessary details and as being contrary to the greater weight of the evidence: 21.

The findings numbered as follows are rejected as not being supported by persuasive competent substantial evidence: 10 and 19.

The findings numbered as follows are rejected as contrary to the greater weight of the evidence: 30, 36, and 45.

Proposed finding number 11 is rejected as too high in light of the totality of the evidence.

Proposed finding number 12 is rejected as a comment on the evidence rather than a proposed finding.

Regarding proposed finding number 35: the first sentence is rejected as unnecessary detail and the second sentence is rejected as not supported by persuasive competent substantial evidence.

Proposed finding number 39 is rejected as irrelevant.

Findings Proposed by the Respondent:

The findings numbered as follows are accepted in whole or in substance: l, 2, 3, 4, 5, 10, 15, 16, 19, 20, 21, 22, 23, 24, 27, 28, 32, 33, 35, 36, 37, 38,

29, 40, 41, 42, 43, and 45.

The findings numbered as follows are rejected as constituting subordinate or unnecessary details: 11, 12, 13, 17, 18, 25, 26, 29, 30, 31, 34, 47, and 48.

The findings numbered as follows are rejected as unnecessary procedural details: 6, 7, 8, and 9.

Proposed finding number 14 is rejected as subordinate or unnecessary details and as not fully supported by competent substantial evidence.

Proposed finding number 44 is rejected as irrelevant.

Proposed finding number 46 is rejected as constituting a summary of testimony rather than proposed findings.

COPIES FURNISHED:

THE HONORABLE GERALD LEWIS MARTIN S. FRIEDMAN, ESQUIRE COMPTROLLER, STATE OF FLORIDA ROSE, SUNDSTROM & BENTLEY THE CAPITOL 2544 BLAIRSTONE PINES DRIVE TALLAHASSEE, FLORIDA 32399-0350 TALLAHASSEE, FLORIDA 32301

CHARLES L. STUTTS, ESQUIRE ELISE M. GREENBAUM, ESQUIRE GENERAL COUNSEL ASSISTANT GENERAL COUNSEL DEPARTMENT OF BANKING & FINANCE OFFICE OF THE COMPTROLLER PLAZA LEVEL SUITE 501

THE CAPITOL 400 WEST ROBINSON STREET TALLAHASSEE, FLORIDA 32399-0350 ORLANDO, FLORIDA 32801

NOTICE OF RIGHT TO JUDICIAL REVIEW

A PARTY WHO IS ADVERSELY AFFECTED BY THIS FINAL ORDER IS ENTITLED TO JUDICIAL REVIEW PURSUANT TO SECTION 120.68, FLORIDA STATUTES. REVIEW PROCEEDINGS ARE GOVERNED BY THE FLORIDA RULES OF APPELLATE PROCEDURE. SUCH PROCEEDINGS ARE COMMENCED BY FILING ONE COPY OF A NOTICE OF APPEAL WITH THE 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 APPEAL MUST BE FILED WITHIN 30 DAYS OF RENDITION OF THE ORDER TO BE REVIEWED.

Docket for Case No: 87-001015F

Orders for Case No: 87-001015F