STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

SARABAY SAVINGS BANK (A Proposed )

State Chartered Savings Bank) ) AND THE ORGANIZERS OF THE )

SAVINGS BANK, )

)

Petitioners, )

)

vs. ) CASE NO. 88-0060RX

) STATE OF FLORIDA, DEPARTMENT ) OF BANKING AND FINANCE, )

)

Respondent. )

)

FINAL ORDER

Pursuant to notice, an administrative hearing was held before Diane D. Tremor, Hearing Officer with the Division of Administrative Hearings, on February 5, 1988, in Tallahassee, Florida. The issue for determination in this proceeding is whether Rule 3C-9.004(3), Florida Administrative Code, constitutes an invalid exercise of delegated legislative authority.

APPEARANCES

For Petitioner: A. George Igler, Esquire

Muldoon, Murphy & Faucette

249 East Virginia Street Tallahassee, Florida 32301

For Respondent: H. Richard Bisbee, Esquire

and Albert T. Gimbel, Esquire The Capitol, Suite 1302 Tallahassee, Florida 32399

INTRODUCTION AND PRELIMINARY MATTERS

Pursuant to Section 120.56, Florida Statutes, the petitioner seeks an administrative determination of the invalidity of Rule 3C-9.004(3), Florida Administrative Code, which provides that

"The Department may initiate a hearing on its own motion, at any time regardless of whether there has been a petition."

Prior to the hearing, the respondent moved to dismiss the petitioners' petition to determine the invalidity of Rule 3C- 9.004(3) on the grounds of lack of standing and improper utilization of a Section 120.56 proceeding. After argument by counsel, this motion to dismiss was denied.

Respondent's two requests for official recognition were granted. Among the items for which official recognition was requested and granted were all papers, pleadings and documents filed in Division of Administrative Hearings' Case No.

87-4417. That case was initiated with the filing by the Department of Banking and Finance, Division of Banking, of an "Administrative Notice for Public Formal Hearing," dated September 18, 1987, on the issue of whether to grant or deny the application of Sarabay Savings Bank to organize a state-chartered bank in Sarasota, Florida, said application having been filed on January 2, 1987. In an Amended Notice filed on November 20, 1987, the Department of Banking and Finance cites Rule 3C-9.004 as its authority to initiate the formal hearing requested in Case No. 87-4417.

After the respondent's requests for official recognition were granted at the commencement of the hearing, counsel for the petitioners presented opening legal argument, and then rested their case without presenting any witnesses or further evidence. At that point, counsel for the respondent again moved to dismiss or for a Summary Final Order on the basis that the petitioners had failed to prove standing or injury in fact. The undersigned denied that motion on the ground that the pending case before the Division of Administrative Hearings, Case No. 87-4417, in which the undersigned is the designated Hearing Officer, adequately establishes petitioners' substantial interest in the challenged rule. That pending case establishes, without dispute, that the petitioners are applicants for a banking charter and that the Department of Banking and Finance, Division of Banking, instead of either granting or denying approval of the application, requested (over eight months after the application was filed) a hearing regarding that application. The Department's request for hearing was made pursuant to the challenged rule.

After the petitioners rested their case in the instant rule-challenge proceeding, the respondent presented the testimony of Rod Jones, the Director of the Division of Banking, and respondent's Exhibit 1 was received into evidence. In rebuttal, the petitioners presented the testimony of Johnnie Hollingsworth, the Division of Banking's Chief of the Bureau of Licensing and Chartering.

Subsequent to the hearing, both parties submitted proposed findings of fact and proposed conclusions of law. To the extent that the parties' proposed factual findings are not included in this Final Order, they have been rejected for the reasons set forth in the Appendix hereto.

FINDINGS OF FACT

Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found:

1. In early January, 1987, the petitioners filed with the respondent their application for authority to organize a state-chartered bank to be located in Sarasota. Notice of receipt of this application was published in the Florida Administrative Weekly on January 16, 1987. The application was deemed complete in March or April of 1987. By an "Administrative Notice for Public Formal Hearing" dated September 18, 1987, and received by the Division Of Administrative Hearings on September 22, 1987, the respondent Department of Banking and Finance, Division of Banking, noticed its intent to initiate a formal hearing concerning the issue of whether to grant or deny the application. That proceeding was assigned to the undersigned as the designated Hearing Officer as Case No. 87-4417. As a result of various preliminary motions filed in Case No. 87-4417, the Department was ordered to file a more definite statement of the issues and/or statutory criteria in dispute between the parties

   and the final hearing was scheduled for December 16 and 17, 1987. In response, the Department filed an "Amended Administrative Notice for Public Formal Hearing," citing as authority therefore, Rule 3C-9.004, Florida Administrative Code. Due to appellate court proceedings, the December 16 and 17, 1987, final hearing was cancelled and rescheduled for the week commencing February 29, 1988. On January 6, 1988, the petitioners filed with the Division of Administrative Hearings its petition for a determination of the invalidity of Rule 3C-9.004(3), Florida Administrative Code, and the final hearing was held on February 5, 1988. The parties agreed that the final hearing in Case No. 87-4417, regarding the merits of the petitioners' application for a bank charter, should be continued pending a resolution of the instant rule-challenge proceeding.

   
   

2. While the State of Florida has enjoyed a period of relative economic health in comparison to other regions of the country, in the past three years there have been a growing number of financial institutions experiencing difficulties related primarily to their financial condition and solvency. During this time period, the Department has found it necessary to close seven commercial banks and six savings and loan associations. Accordingly, when applications for new financial institutions are filed, the Department attempts, during the application process, to ensure the probability of success of the proposed institution. This is done through a period of investigation by the Department's trained financial investigators of all the material submitted by applicants, particularly with respect to the individuals who are named as proposed directors and officers. During the course of the Department's investigation, information frequently is discovered which is at some variance with the information contained in the application. To the extent that it is possible to do so, the Department attempts to reconcile any discrepancies between the application contents and the products of its investigation through informal dialogue or correspondence with the applicant. In instances where

   there may be questions of credibility on the part of the applicant, that type of informal resolution may not be feasible.

   
   

3. The procedural processing of bank charter applications is specifically governed by Section 120.60(5), Florida Statutes, and Chapter 3C-9, Florida Administrative Code. As pertinent to the issues in this proceeding, those statutory and regulatory provisions require the Department to have published in the Florida Administrative Weekly notice of an application within 21 days of its receipt. Section 120.60(5)(a)1; Florida Statutes; Rule 3C-9.003(1), Florida Administrative Code. Within 21 days of publication of notice,

   
   

   "any person may request a hearing....

   however, the failure to request a hearing within 21 days of publication of notice shall constitute waiver of any right to a hearing."

   
   

   Section 120.60(5)(a)2, Florida Statutes. Any petition for hearing filed before an application is received or more than 21 days after the publication of notice is void. Rule 3C-9.003, Florida Administrative Code. While all information in support of an application is required to be submitted with the original filing, the Department has the authority to request additional information and ask for the correction of errors or omissions within 30 days of its receipt of the original application. Thereafter, the applicant has 60 days to respond to the Department's request. Rule 3C-9.002(3), Florida Administrative Code. Every application, except for those involving foreign nationals, is required to be approved or denied within 180 days after receipt of either the original application or the timely requested additional information or correction of

   errors or omissions. Applications not approved or denied within that 180- day period or within 30 days after the conclusion of a public hearing on the application, whichever date is latest, are deemed approved. Section 120.60(5)(c), Florida Statutes. Rule 3C- 9.012(i), Florida Administrative Code. The procedures with regard to financial institutions involving foreign nationals differ in that the Department is required to request that a public hearing be conducted and the 180-day period for approval or denial is extended to a period of one (1) year. Section 120.60(5)(d), Florida Statutes. The statute is silent with respect to the time period within which the Department must request a hearing on applications involving foreign nationals.

   
   

4. More often that not, the Department does request additional information from an applicant subsequent to the filing of the initial application. Since the Department has 30 days within which to request this information and the applicant has another 60 days to supply it, the additional information typically is received by the Department long after it has published notice of the application and long after the 21-day point of entry to request a hearing.

   
   

5. The challenged rule is contained as a subsection of the rule entitled "Petition for Public Hearing." After providing that petitions for public hearing must be filed within 21 days of publication of notice and that petitions not received within that time are void, subsections (1) and (2) of Rule 3C- 9.004, subsection (3) provides that

   
   

   "The department may initiate a hearing on its own motion, at any time regardless of whether there has been a petition."

   
   

6. It was the opinion of the Director of the Division of Banking that the purpose of the challenged rule was to afford the Department the opportunity for a hearing in those instances where information is discovered during the investigation process or where additional information is supplied subsequent to

   21 days after publication of notice of the initial application. Generally, the character, credit worthiness and financial responsibility of the organizers, officers or directors of a proposed financial institution is determined toward the end of the application and investigation process, and not within the 21- day period after publication of notice of the initial application. According to the Director, if the Department were unable to request a hearing subsequent to that 21-day period, it would be compelled to request a hearing within that 21-day period every time an application is filed. An employee from the Division of Banking for approximately ten years could recall only one occasion when the Department had requested a hearing after the passage of 21 days from the publication of notice. In that one instance, a foreign national was involved in the application.

   
   

   CONCLUSIONS OF LAW

   
   

7. Petitioners filed their application for a state-chartered bank in January of 1987. No request for a hearing on that application was filed within

   21 days of publication of notice of the application. Additional information was requested and furnished, and the application was deemed complete in March or April of 1987. From that point, absent a proper request for a hearing, the statutory requirements for processing banking applications mandated that the Department either grant or deny the application within 180 days. Failure to do so would result in an automatic approval of the application. The petitioners are clearly substantially affected by a rule which purports to extend the 180-

   day period of time within which the Department must act through the initiation of a hearing by the Department at any time. Had the respondent not requested a hearing pursuant to the challenged rule, the petitioners would have been entitled to obtain a decision on their application.

   
   

8. The petitioners contend in this proceeding that the challenged rule is invalid because it directly conflicts with legislative directives with respect to the processing of banking applications. The Department urges that the challenged rule is a reasonable interpretation of the statutes given the Department's wide discretion with respect to the chartering process. It is contended that, were it not for the challenged rule's provisions, the Department would be forced to request a hearing for every de novo application, even before it deems the application complete and conducts its investigation, in order to assure that it does not waive its right to a hearing. Such a requirement, it is argued, would place an unnecessary and undue burden upon both the Department and applicants.

   
   

9. In processing applications regarding financial institutions, Section 120.60(5), Florida Statutes, is controlling. As pertinent to the issues in this proceeding, those statutory provisions require the Department to publish notice of applications within 21 days of receipt. The statute further allows persons to request a hearing within 21 days of the publication of notice. However, failure to request a hearing within that time period "shall constitute waiver of any right to a hearing." Section 120.60(5)(a)2, Florida Statutes. That statutory provision has been effective for ten years without change. It is clear and leaves no room for interpretation. It applies to applicants, other persons wishing to challenge the application and to the Department itself.

   
   

10. In the case of Peoples Bank of Indian River County v. State, Department of Banking and Finance, 395 So.2d 521 (Fla. 1981), the Florida Supreme Court upheld the constitutionality of the statutory requirement that hearing requests on banking applications be made within 21 days of notice or the right to a hearing is waived. While noting that the legislature might have more logically provided for a hearing request at a later stage in the informal licensing proceedings, the Court acknowledged that the legislature may determine by what process and procedure legal rights may be asserted and determined. The requirement that a hearing timely be requested was applied to the applicant in that case.

    
    

11. In the case of World Bank v. Lewis, 406 So.2d 541 (Fla. 1st DCA, 1981), the District Court of Appeal, First District, acknowledged that the 21- day period for requesting a hearing was equally applicable to the Department. There, the Court noted that the Department had duly published notice of receipt of an application to organize a state chartered bank and "timely requested a hearing." The same case came back to the District Court a second time. World Bank v. Lewis, 425 So.2d 77 (Fla. 1st DCA, 1982). There, the Court distinguished the statutory requirements relating to bank charter applications from other mandatory statutory timeliness provisions which do not specify the consequences of a violation. The Court held that when the legislature has made its intent as to the consequence of a violation abundantly clear, that intent will be followed. This discussion by the Court was directed to the 180-day period for approving or denying a banking application, with the statutory consequence for violation being that the application "shall be deemed approved." The Court's holding is equally applicable to the 21-day period for requesting a hearing, where the consequence of a violation is also abundantly clear: "the failure to request a hearing within 21 days of publication of notice shall constitute waiver of any right to a hearing." Florida Statutes, Section

    120.60(5)(a)2. By reserving unto itself, in the form of a rule, the right to initiate a hearing "at any time," the Department is in direct conflict with and violation of the statute it is attempting to implement.

    
    

12. At the first blush, the Department's predictions of the dire consequences of being forced to request a hearing regarding every application constitute an appealing justification for the rule's allowance of a hearing request at a later point in time. To require an agency to invoke the hearing process before it receives all pertinent information, before it completes its review or investigation of an application and before it determines what action it desires to take would appear to be a meaningless step in the licensing process. However, this argument must fail for two reasons. First, the statutory requirement for a timely hearing request and the consequences for failure to make such a request are abundantly clear and leave no room for interpretation. Second, on reflection, it is clear that the consequences of either requesting or waiving a hearing are equally applicable to every applicant and every person interested in the application. Such applicants and persons must also, in order to prevent a waiver of their right to a hearing, request a hearing in every instance long before they receive any indication of the Department's action with regard to the application. In fact, the consequences of failing to timely request a hearing works more harshly upon an applicant or interested third person than it does upon the Department. Those persons are barred from requesting an administrative hearing once the 21-day period has elapsed, no matter what agency action the Department ultimately takes. On the other hand, if the Department fails to request a hearing within 21 days and later receives additional information, either by way of supplements to the application or through its own independent investigation, it may simply and without recourse grant or deny the application. This ability to grant or deny a bank charter application, with or without a hearing, fully allows the Department an opportunity to obtain and review all pertinent information and to exercise its discretion within statutory guidelines. If the Department is not satisfied that the applicant has demonstrated compliance with all the statutory criteria, it may simply deny the application. Thus, the consequences to the Department of failing to request a hearing are not nearly so dire as the Department predicts. It must also be remembered that any request for a hearing, whether it be made by the Department, an applicant or a third person, may be voluntarily dismissed if the issues are resolved. This is recognized in the Department's own Rule 3C- 9.004(4), Florida Administrative Code.

    
    

13. In any event, the logic or wisdom underlying the statutory requirements regarding the timeliness and manner of processing banking applications is not the issue in this proceeding. The issue is whether the Department's rule allowing it to request a hearing "at any time" constitutes an invalid exercise of delegated legislative authority.

    
    

14. An agency has no inherent authority, but has only those powers granted by statute. Administrative regulations must be consistent with the statutes under which they are promulgated and they may not add to, amend or repeal the statute. Department of Health and Rehabilitative Services v. The Florida Psychiatric Society, Inc., et al., 382 So.2d 1280 (Fla. 1st DCA, 1980). Likewise, an administrative rule may not enlarge, modify or contravene the provisions of a statute. The Department of Health and Rehabilitative Services

    1. McTique, 387 So.2d 454 (Fla. 1st DCA, 1980). A rule which allows the Department to request a hearing "at any time" when the statute requires a hearing request to be made within 21 days is clearly and directly inconsistent with the statute on the same subject and constitutes an effort to enlarge,

       modify and contravene the statute. As such, the challenged rule constitutes an invalid exercise of delegated legislative authority.

       
       

15. The Department makes three further assertions in support of the challenged rule. First, it is urged that the Department is not subject to Section 120.60(5)(a)2, which requires "any person" to either timely request or waive the right to a hearing. To urge that the Department is not a "person" within the meaning of Section 120.60(5)(a)2 ignores the definitional provisions of the Administrative Procedure Act. A "person" is defined, in part, as "any unit of government" and any "agency." Section 120.52(13), Florida Statutes. An "agency" is described as "each state department" and each "departmental unit" described in Section 20.04. Section 120.52(1)(b), Florida Statutes. It is clear that the Office of the Comptroller, Department of Banking and Finance, Division of Banking is a "person" within the meaning of the APA's statutory provisions relating to licensing.

    
    

16. The Department further contends that if the term "person" were interpreted to include the Department, then the Department would be placed in the absurd position of having to request from itself a hearing. As noted above, the word "person" has been specifically defined in the Administrative Procedure Act. It needs no interpretation. While the undersigned might agree that it appears to be incongruous to require an agency to make a request of itself, the legislature apparently did not agree. It must be presumed that the legislature was well aware of the definitional sections in the APA when it chose to place a time frame upon any "person" requesting a hearing in connection with a bank charter application. Indeed, in another subsection regarding the bank application process, the legislature mandated the "Department" to "request" a hearing when foreign nationals are involved in the application. As noted in the Peoples Bank case, supra, the legislature may determine by what process and procedure legal rights may be asserted and determined. It has done so in this instance, and the Department may not, by rule, deviate from that determination.

    
    

17. Finally, the Department contends that it has been granted wide discretion with regard to the bank chartering process in order to ensure and maintain a safe and sound banking system in Florida. Various statutory provisions and court decisions are cited which acknowledge such discretion. There is no doubt that the respondent's discretion as it relates to the establishment of policies regarding the regulation of existing financial institutions and the chartering of new institutions has been recognized by both the legislature and judicial branches of government. Both branches, however, have likewise recognized and prescribed the procedures to be followed when exercising such discretion. The legislature has mandated specific time provisions relating to the licensing or chartering process and has specified the consequences of failure to act within such time periods. While special provisions within the APA have been enacted with regard to the time within which a bank charter application must be approved or denied and with regard to the "report" to be filed when a Hearing Officer from the Division of Administrative Hearings conducts the hearing (Section 120.57(13), Florida Statutes), the time within which a hearing must be requested is mandatory and not subject to the respondent's discretion. As observed in the case of McDonald v. Department of Banking and Finance, 346 So.2d 569 (Fla. 1st DCA, 1977), the Administrative Procedure Act tends to confine the wide discretion committed to the respondent in approving applications for banking authority.

    
    

18. In conclusion, that portion of challenged Rule 3C-9.004(3), Florida Administrative Code, which permits the Department to initiate a hearing on a bank charter application "at any time" is in direct conflict with and

contravenes the specific provisions of Florida Statutes, Section 120.60(5)(a)2. As such, that portion of the rule exceeds the Department's rulemaking authority and constitutes an invalid exercise of delegated legislative authority.

FINAL ORDER

Based upon the findings of fact and conclusions of law recited herein, it is ORDERED that the words "at any time" appearing in Rule 3C-9.004(3), Florida Administrative Code, constitute an invalid exercise of delegated legislative authority.

DONE and ORDERED this 12th day of May, 1988, in Tallahassee, Florida.

DIANE D. TREMOR

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 12th day of May, 1988.

APPENDIX TO RECOMMENDED ORDER, CASE NO. 88-0060RX

The parties' proposed findings of fact have been fully considered and are accepted and/or incorporated in this Final Order, with the following exceptions:

Petitioners

Paragraphs 5 and 6. The specific dates are rejected

as not established by competent evidence.

Paragraph 10. The date upon which the 180th day fell is rejected as not established by competent evidence.

Respondent

Paragraph 12. Rejected as immaterial to the issues in dispute.

Paragraph 17. Rejected as immaterial to the issues in dispute.

Paragraph 27. Rejected as a conclusion without supporting factual evidence.

Paragraphs 57 and 58. Accepted as to the factual

effect of the rule, but rejected as a grounds for the rule's validity.

COPIES FURNISHED:

1. George Igler, Esquire Muldoon, Murphy & Faucette

249 East Virginia Street Tallahassee, Florida 32301

H. Richard Bisbee, Esquire and Albert T. Gimbel, Esquire The Capitol, Suite 1302 Tallahassee, Florida 32399

Honorable Gerald Lewis Comptroller, State of Florida The Capitol

Tallahassee, Florida 32399-0350

Liz Cloud, Chief

Bureau of Administrative Code 1802 The Capitol

Tallahassee, Florida 32399-0250

Carroll Webb, Executive Director Administrative Procedures

Committee

120 Holland Building Tallahassee, Florida 32399-1300

Docket for Case No: 88-000060RX

Orders for Case No: 88-000060RX