STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

RAMIRO J. ALFERT and TOLEDO ) REALTY, INC., )

)

Petitioners, )

)

vs. ) CASE NO. 88-0857F

) DIVISION OF REAL ESTATE, )

)

Respondent. )

)

FINAL ORDER

Pursuant to notice, the above matter was heard before the Division of Administrative Hearings by its duly designated Hearing Officer, Donald R. Alexander, on July 11, 1988, in Miami, Florida.

APPEARANCES

For Petitioner: Harold M. Braxton, Esquire

Suite 406, One Datran Center 9100 South Dadeland Boulevard Miami, Florida 33156

For Respondent: Arthur R. Shell, Jr., Esquire

Post Office Box 1900 Orlando, Florida 32802

BACKGROUND

By petition filed on February 25, 1988, petitioners, Ramiro

J. Alfert and Toledo Realty, Inc., requested an award of attorney's fees and costs pursuant to Section 57.111, Florida Statutes (1987). The petition was filed after respondent, Division of Real Estate, entered a Final Order on January 27, 1988 in Case No. 87-3189 dismissing with prejudice an administrative complaint filed against petitioners for allegedly violating Chapter 475, Florida Statutes (1985).

By notice of hearing dated April 1, 1988, a final hearing on the petition was scheduled on April 27, 1988 in Miami, Florida.

At the request of petitioners, the matter was rescheduled to June 15, 1988. Respondent's motion to continue was granted and the

final hearing was rescheduled to July 11, 1988 at the same location. At hearing, petitioner Alfert testified on his own behalf. In addition, petitioners presented the testimony of Alberto Daire, president and owner or Toledo Realty, Inc. and Harold M. Braxton, their counsel. They also offered petitioners' exhibits 1-5 and 7-9. All exhibits were received in evidence.

Respondent presented the testimony of Arthur R. Shell, Jr. and offered respondent's exhibits 1-4. All exhibits were received in evidence except exhibit 3 upon which a ruling was reserved.

This order has been prepared without the benefit of a transcript of hearing or proposed findings of fact and conclusions of law and is based on the undersigned's notes and recollection of testimony taken at hearing.

The issues are whether petitioners are prevailing small business parties, whether the fees and costs requested by petitioners are reasonable and necessary, and whether respondent was substantially justified in initiating its complaint or whether other special circumstances exist which would make an award of fees and costs unjust.

Based upon all of the evidence, the following findings of fact are determined:

FINDINGS OF FACT

1. Introduction

   
   

   1. Petitioner, Toledo Realty, Inc. (TRI), is a corporation engaged in the real estate business in Miami, Florida. It holds a corporate broker's license issued by respondent, Division of Real Estate (Division). Petitioner, Ramiro J. Alfert (Alfert), is a licensed real estate broker employed by TRI.

      
      

   2. On June 24, 1987 the Division issued an administrative complaint against petitioners alleging they had violated certain provisions within Chapter 475, Florida Statutes. The case eventually came on for final hearing, and after a one day trial was conducted, the undersigned issued a Recommended Order on December 7, 1987 recommending that all charges be dismissed. No exceptions to the Recommended Order were filed by Division counsel, and the Division entered a Final Order on January 27, 1988 adopting all findings of fact and conclusions of law and dismissing the complaint. Therefore, petitioners were the prevailing parties in that action. Petitioners thereafter timely filed their request for attorney's fees and costs pursuant to Section 57.111, Florida Statutes (1987). This proceeding followed.

2. Probable Cause Phase

   
   

   1. The transcript of the meeting at which the probable cause panel considered initiating the above action was not introduced into evidence. Therefore, the record is silent as to what information (oral or written), if any, the panel considered in making its decision to find probable cause. Although the report compiled by the Division investigator is a part of this record, there is no evidence that the panel read or considered it before making its decision.

3. Small Business Party?

   
   

   1. Petitioner Alfert is an employee of TRI. He has no ownership in the business. His net worth was less than $2 million in June, 1987.

      
      

   2. Petitioner TRI is a corporation engaged in the real estate business with offices located in Miami, Florida. According to the unrefuted testimony of its owner, the net worth of TRI was less than $500,000 when the Division initiated its complaint.

      This amount is based upon the owner's estimated evaluation of the corporation's goodwill, equipment and furniture, the firm's only assets.

      
      

   3. Although Division records regarding registration were not introduced into evidence, petitioners agreed to hearing that approximately 75 to 80 real estate salesmen and brokers had their license registered with TRI during the pendency of Case No. 87- 3189. Of that number, TRI considered only 20 or 21 to be full- time employees while the remainder were considered part-time.

      This was not refuted. At hearing, TRI's broker identified TRI's full-time employees from a complete list of all licensees registered with the firm. The broker defined a full-time employee as one who works at least one regular shift of four hours each week in the office and who has no second job. All other employees are considered part-time. All salesmen, both full and part-time, received the same compensation (80 percent of the commission) and sign the same employment agreement.

4. Reasonableness of Fees and Costs

1. Petitioners seek $12,239.60 as reimbursement for attorney's fees and costs incurred in defending against the Division's action. This amount includes $1,539.77 for costs while the remainder are attorney's fees. All fees and costs are itemized in petitioners' composite exhibit 1 except for a $2,000 nonrefundable retainer charged by counsel at the inception of the engagement.

2. On June 30, 1987 petitioner TRI entered into an employment contract with Harold M. Braxton, Esquire, an attorney with eight years of experience in professional licensing disciplinary matters and who has handled well over 100 cases of this nature. Although the employment contract was entered into between TRI and Braxton, Alfert came along "for a free ride" since his employer was defending the same action and the addition of Alfert meant no more or less work on the part of counsel. Under the contract, Braxton was given a nonrefundable $2,000 retainer and was compensated at a rate of $200 per hour. The requested fees (except the $2,000 retainer) are the product of multiplying the total number of hours expended on the case times the hourly rate of $200.

   
   

3. Braxton began active representation of his clients in July, 1987 and thereafter prepared handwritten time sheets in July, August and September, 1987 which detailed the type of work performed on the case and the amount of time expended. Beginning on October 1, 1987 his office switched to computer billing. Under that procedure, Braxton initially continued to prepare daily written timesheets from which a description of work and time expended was entered into the computer. At the end of each month, the written timesheets were cross-checked with the computer printout to verify the accuracy of the computer records. Once the accuracy of the computer billing was established, Braxton discontinued using written timesheets.

   
   

4. To substantiate the reasonableness of the fees and costs, petitioners provided the deposition testimony of William M. Furlow, a Tallahassee attorney with eight years of experience in prosecuting and defending this type of case. Although Furlow charges only $150 per hour, he pointed out that fees are generally lower in Tallahassee than in Miami. In addition, Furlow charges a higher initial retainer than Braxton. Based upon his review of the complaint, billing records, investigative file and pleadings, Furlow concluded that Braxton's fees were reasonable, given the nature and complexity of the case.

   
   

5. The Division challenged the amount of fees through the testimony of David M. Lazan, Esquire, a Bay Harbor Islands (Dade County) attorney. Although Lazan has maintained a civil practice in the Miami area 21 years, he has handled only approximately five Department of Professional Regulation cases during this time period, with none going to hearing. Lazan did not dispute the reasonableness of Braxton's hourly rate of $200. Also, he did not suggest a different amount of billable hours that Braxton should have charged or the number of hours he (Lazan) would have expended to handle the case. Instead, Lazan contended he could not determine the reasonableness of the number of hours expended by Braxton for each service until he reviewed the underlying

   documentation. But, the Division made no effort to obtain the underlying documentation for its witness, and Lazan conceded that, if records were available that corroborated the computer records, he would have no problem with the amount of time expended.

   
   

6. Given the nature of Furlow's experience and experience in the area of administrative law, it is found that Furlow's testimony is more persuasive and credible than that of Lazan and that the requested fees and costs are reasonable and necessary.

   
   

   CONCLUSIONS OF LAW

   
   

7. The Division of Administrative Hearings has jurisdiction of the subject matter and the parties thereto pursuant to Section

   57.111 and Subsection 120.57(1), Florida Statutes (1987).

   
   

8. Respondent's exhibit 3 is received in evidence.

   
   

9. In this proceeding, the parties agree only that petitioners prevailed in Case No. 87-3189. Therefore, a number of matters remain in dispute. First, the Division contends that neither TRI or Alfert are small business parties within the meaning of the law. Secondly, the Division contests the reasonableness of the fees and costs requested by petitioners. Finally, the parties are in disagreement as to whether the Division was substantially justified in initiating this action.

   
   

10. Under well-established principles of allocation of proof, petitioners bear the burden of showing that they are prevailing small business parties within the meaning of the law, and that the requested fees and costs, which cannot exceed

    $15,000, are reasonable and necessary. This burden having been met, respondent must then demonstrate that it was "substantially justified" in initiating the administrative complaint against petitioners, and as a corollary, that the requested fees and costs are not reasonable or necessary. In both instances, the moving party must establish its proof by a preponderance of evidence, which is the appropriate standards in conventional regulatory proceedings. 1/

    
    

11. Subsection 57.111(3)(d)1., Florida Statutes (1987), defines the term "small business party" as follows:

    
    

    (d) The term "small business party" means:

    1.a. A sole proprietor of an unincorporated business, including a professional practice, whose principal office is in this state, who is domiciled in this sate, and whose business or professional practice has, at the

    time the action is initiated by a state

    agency, not more than 25 full-time employees or a net worth of not more than $2 million, including both personal and business investments; or

    b. A partnership or corporation, including a professional practice, which has its principal office in this state and has at the time the action is initiated by a state agency not more than 25 full-time employees or a net worth of not more than $2 million; . . .

    
    

12. Alfert, who is an employee-licensee of a licensed and incorporated real estate firm, contends he is a small business party under the foregoing statute. Since he is not a sole propriertor of an unincorporated business a partnership or a corporation, he must establish eligibility under some other theory. Alfert has not cited any particular theory or specific authority but apparently relies upon the rationale espoused in McCallister v. Department of State, Division of Licensing, 9 FALR 4064 (DOAH, June 15, 1987). 2/ In McCallister, the licensee- petitioner was an employee of an entity known as McCallister Polygraph Service, Inc., a corporation which met the size and net worth requirements of the law. However, the regulatory agency had brought an action against McCallister individually and not against his corporation. After prevailing in the action, McCallister sought recovery of attorney's fees and costs. At issue is that case was whether an employee of a sole proprietor, partnership or corporation could qualify as a small business party. After making an analysis of the law, and relying on several general principles of statutory construction, the Hearing Officer resolved the question in McCallister's favor and concluded that the term "including a professional practice" should be constructed to encompass an individual licensee (professional) who, as an employee, was engaged in the practice of his profession. Put another way, McCallister stands for the proposition that any "salaried employee" who is engaged in his profession is a small business party for the purpose of the law. Id. at 4069.

13. Whether the statute is reasonably susceptible to the above interpretation is debatable. Initially, it is noted that the Florida Equal Access to Justice ACT (FEAJA) is intended to provide a cause of action for "small business" parties who are subject to unjustified legal action by a state agency. To this end, Subparagraph (d)1. identifies three specific categories of eligible claimants. (1) a sole proprietor of an unincorporated business, (2) a partnership, and (3) a corporation. These categories are plain and unambiguous and convey a clear and definite meaning. In view of this, there is no need to resort to the rules of statutory construction. Indeed, under these circumstances, it would be improper to construe an unambiguous

    statute in a way which would extend its express terms. See, e. g. Holly v. Auld, 450 So.2d 217 (Fla. 1984). Secondly, because employees are omitted from the enumerated categories of claimants, the statute ordinarily should be construed to exclude from its operation that category of claimant not expressly mentioned.

    Bergh v. Stephens, 175 So.2d 787 (Fla. 4th DCA 1965). Finally, the Federal Equal Access to Justice Act (5 U.S.C. 504), upon which the state FEAJA is patterned, provides that the "prevailing party other than the United States" may seek recovery of "fees and other expenses." A "party" is defined as both an "individual" and an "owner of an unincorporated business, or any partnership, corporation, association, unit of local government, or organization." Thus, unlike Section 57.111, the federal law allows a prevailing employee to recover fees and other expenses.

    By adopting only a portion of the federal statute, there is a strong presumption of legislative intent to omit from Florida law that portion of the federal act not adopted. Crane Company v.

    Richardson Construction Company, 312 F.2d 269 (5th Cir. 1963). Therefore, it is concluded that McCallister is either distinguishable from the facts herein are is founded on an erroneous construction of the law. Since Alfert does not fall within one of the three designated statutory classes, he is not a small business party eligible to recover attorney's fees and costs under Section 57.111, Florida Statutes (1987).

14. Petitioner TRI is another matter. Unrefuted testimony established that it was a corporation with a net worth of less than $2 million when the action was initiated. The more persuasive evidence also supports a conclusion that it then had less than 25 full-time employees. This conclusion is based on the accepted testimony of witness Alfert that, although some 75 or 80 licensees were registered with the firm, less than 25 were classified as full-time employees. Therefore, it is concluded that TRI is a small business party.

    
    

15. The parties have agreed that petitioner TRI prevailed in the action before the Division.

    
    

16. The next issues is whether the Division was substantially justified in initiating an action against TRI. To resolve this issue, and because the statutory scheme in Section 455.225, Florida Statutes (1987) applies, it is necessary to review the actions of the probable cause panel which determined that a complaint should be filed. See, for example, Romaguera v. Board of Medical Examiners, Case No. 87-3604F (DOAH, Final Order dated January 4, 1988). In the case at bar, there is no record evidence of what the panel heard, read or considered. Although an investigative report has been made a part of this record, there is no evidence that it was reviewed or considered by the panel before a finding of probable cause was made. Thus, the record is silent

    as to whether a "meaningful" inquiry was conducted by the panel as required by law. Kibler v. Department of Professional Regulation,

    418 So.2d 1081 (Fla. 4th DCA 1982). This being so, it is concluded that the Division has failed to establish that the probable cause panel was substantially justified in initiating Case No. 87-3189. 3/ It has also failed to show whether other special circumstances exist which would make an award of fees and costs unjust.

    
    

17. Finally, the reasonableness and necessity of the requested fees and costs have been questioned. The more credible and persuasive evidence supports a conclusions that the fees and costs were both reasonable in amount and necessary. Since the record shows that counsel would have expended the same amount of time and effort in defending TRI alone, TRI is entitled to the requested amount of $12,239.60 without proration.

    
    

18. Based on the foregoing findings of fact and conclusions of law, it is

ORDERED that TRI's petition for attorney's fees and costs be GRANTED and the Division of Real Estate pay petitioner TRI

$12,239.60 within thirty days from date of this order as required by Subsection 57.111(5), Florida Statutes (1987). The claim of petitioner Alfert is DENIED.

DONE AND ORDERED this 1st day of August, 1988, in Tallahassee, Leon County, Florida.

DONALD R. ALEXANDER, 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 1st day of August, 1988.

ENDNOTES

1/ Petitioners' contention that the parties must establish their proof by clear and convincing evidence is rejected. That standard applies only in license revocation proceedings. Ferris

v. Turlington, 510 So.2d 292 (Fla. 1987).

2/ At hearings, counsel simply referred to the "McCallister decision" without giving a full citation of authority. The undersigned assumes counsel was referring to the above case.

3/ The opinion testimony of witness Furlow and excluded testimony of witness Lazan on this issue are clearly irrelevant. It is the transcript of the meeting itself that provides the only way of deciding whether the panel made a meaningful determination of probable cause as required by law. If extrinsic evidence on this issue were allowed, it would render meaningless the requirement that the meetings be recorded. See, for example, Department of Professional Regulation, Board of Dentistry v. Rindley, DOAH Case Nos. 82-2588, 82-2589, 82-2590 and 82-2833 (Order of Dismissal dated April 15, 1983); Department of Professional Regulation, Board of Dentistry v. Walker, DOAH Case No. 82-2281 (Order of Dismissal dated December 9, 1982).

COPIES FURNISHED:

Harold H. Braxton, Esquire Suite 406, One Datran Center 9100 South Dadeland Boulevard Miami, Florida 33156

Arthur R. Shell, Jr., Esquire Division of Real Estate

Post Office Box 1900 Orlando, Florida 32801

Darlene F. Keller Executive Director Division of Real Estate Post Office Box 1900 Orlando, Florida 32802

William O'Neil, Esquire General Counsel

Department of Professional Regulation

130 North Monroe Street Tallahassee, Florida 32399-0750

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 AND 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.

DISTRICT COURT OPINION

IN THE DISTRICT COURT OF APPEAL FIRST DISTRICT, STATE OF FLORIDA

DEPARTMENT OF PROFESSIONAL NOT FINAL UNTIL TIME EXPIRES TO REGULATION, DIVISION OF REAL FILE MOTION FOR REHEARING AND ESTATE, DISPOSITION THEREOF IF FILED.

Appellant,/Cross Appellee, CASE NO. 88-2182

DOAH CASE NO. 88-857F

vs.

TOLEDO REALTY, INC. and RAMIRO ALFERT,

Appellees/Cross Appellants.

/ Opinion filed September 20, 1989.

An Appeal from an Order of the Division of Administrative Hearings.

Lisa S. Nelson, Department of Professional Regulation, Tallahassee, for Appellant.

Patricia Ann Ash and Harold M. Braxton, P.A., Miami, for Appellees.

ERVIN, J.

The Department of Professional Regulation (DPR) appeals a final order of a Division of Administrative Hearings officer, awarding attorney's fees against it pursuant to the provisions of Section 57.111, Florida Statutes (1987), the Florida Equal Access

to Justice Act (FEAJA). Alfert cross appeals the order denying him fees. We reverse and remand as to the former appeal, and affirm as to the latter.

The present action for fees was instituted following the conclusion of a disciplinary proceeding in which DPR had accepted the recommended order of a hearing officer to dismiss a disciplinary complaint filed against Toledo Realty, Inc. (TRI), and Alfert. The basis of the hearing officer's denial of fees to Alfert in the present action was that, because Alfert was an employee of TRI, he therefore did not fall within the definition of a small business party, as provided in section 57.111(3)(d). We agree. The evidence supports this determination, and the issue of Alfert's status as a small business party is controlled by Thompson v. Department of Health & Rehabilitative Servs., 533 So.2d 840 (Fla. 1st DCA 1988) (FEAJA does not apply to individual employees). We therefore affirm that part of the order denying Alfert fees.

In regard to DPR's appeal from the award of feed to TRI, DPR argues that the hearing officer in reaching his decision incorrectly refused to consider evidence contained in DPR's investigative file which had supported its probable cause determination. The hearing officer's order stated that only the transcript of the probable cause panel's proceeding was admissible in a determination of whether the agency was substantially justified in initiating the disciplinary complaint. DPR accordingly seeks reversal of the fee award, asking that we direct the hearing officer to conduct further proceedings, during which he will then take into consideration the contents of the investigative file of the Division of Real Estate (Division) for the purpose of deciding the issue of substantial justification. We agree with appellant that the hearing officer, in awarding attorney's fees in favor of TRI, did not properly take into account the Division's investigative file and therefore reverse and remand the cause with directions.

In excluding from his determination the investigative report, the hearing officer stated:

Although an investigative report has been made a part of this record, there is no evidence that it was reviewed or considered by the panel before a finding of probable cause was made. Thus, the record is silent as to whether a "meaningful" inquiry was conducted by the panel as required by law. Kibler v. Department of Professional Regulation, 418 So.2d 1081 (Fla. 4th DCA 1982). This being so, it is concluded that

the Division has failed to establish that the probable cause panel was substantially justified in initiating Case No. 87-3189. [Footnote omitted.]

The hearing officer's initial finding that there was no evidence that the investigative report was reviewed by the probable cause panel is not supported by the record. DPR's exhibit number 2 (the probable cause memorandum off the panel) recites that the panel members had reviewed the investigative file in reaching a determination of probable cause. We also note that the hearing officer did not make a finding that the investigative file was inadmissible as competent evidence for some stated reason, such as hearsay. Indeed, the contents of the investigative report would appear to be a proper exception to the hearsay rule as a public record of the agency. See _ 90.803(8), Fla. Stat. (1987).

Before further discussing the issue regarding whether the hearing officer correctly excluded from consideration the probable cause panel's investigative report in a proceeding for attorney's fees brought pursuant to the act, we consider it essential to address a latent issue necessarily entwined with the issue before us, that is which party bears the burden of persuasion in establishing a claim for attorney's fees. The hearing officer correctly placed the initial burden on TRI to establish by a preponderance of evidence, first, that it had prevailed in the earlier disciplinary proceeding, and second, that it was a small business party as defined by the statute. Once he found the licensee had met the above burden, he then placed the burden on the agency to establish whether it was substantially justified in prosecuting the administrative complaint.

We approve of the hearing officer's interpretation of the statute, insofar as it relates to the parties' respective burdens. We consider that his construction is consistent with the legislative purpose, as provided in section 57.111(2), which is "to diminish the deterrent effect of . . . defending against governmental action by providing in certain situations an award of attorney's fees and costs against the state," and as provided in subsection (4)(a) thereof, stating:

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 could make the award unjust.

We have previously observed that the FEAJA is generally modeled after its federal counterpart (the Equal Access to Justice Act (EAJA), 5 U.S.C. _ 504 (1980)) and that it will take the same construction in the Florida courts as its prototype has been given in the federal courts, insofar as such construction is harmonious with the spirit and policy of Florida legislation on the subject. Gentele v. Department of Professional Regulation, Bd. of Optometry, 513 So.2d 672, 673 (Fla. 1st DCA 1987). Section 504(a)(1) of the EAJA, similar to Section 57.111(4)(a), Florida Statutes, provides:

(a)(1) An agency that conducts an adversary adjudication shall award, to a prevailing party other than the United States, fees and other expenses incurred by that party in connection with that proceeding, unless the adjudicative officer of the agency finds that the position of the agency was substantially justified or that special circumstances make an award unjust.

(Emphasis added.)

In the federal sector, after the government raises the defense that its action in initiating a proceeding against an affected party was substantially justified, the burden is placed on the government to establish such defense. This principle is well exemplified by the following comments contained in the House Report of the Judiciary Committee accompanying the passage of the EAJA:

Under S. 265, fees will be awarded unless the Government can show that its action was substantially justified or that special circumstances make an award unjust. This standard balances the constitutional obligation of the executive branch to see

that the laws are faithfully executed against the public interest in encouraging parties to vindicate their rights.

* * *

The test of whether or not a Government action is substantially justified is essentially one of reasonableness. Where the Government can show that its case had a reasonable basis both in law and fact, no award will be made. In this regard, the strong deterrents to contesting government

action require that the burden of proof rest with the Government. This allocation of the burden; in fact, reflects a general tenderly to place the burden of proof on the party who has readier access to and knowledge of the facts in question. The committee believes that it is far easier for the Government, which has control of the evidence, to

the reasonableness of its action than it is for a private party to marshal the facts to prove that the Government was unreasonable.

H.R. Rep. No. 1418, 96th Cong., 2d Sess. 10, reprinted in 1980

U.S. Code Cong. & Admin. News 4984, 4989. See also White v. United States, 740 F.2d at 836, 839 (11th Cir. 1984); Enerhaul, Inc. v. NLRB, 710 F.2d 748, 750 (11th Cir. 1983). The above portion of the comments, establishing the standard of reasonableness, i.e., that the government show that its "case had a reasonable basis in both law and fact," has been explicitly adopted by the Florida Legislature. See section 57.111(3)(e), providing: "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."

Although we agree with the hearing officer's preliminary determination that the burden was upon the agency to prove--once the licensee presented evidence showing that it was a prevailing small business party--that its action in prosecuting the administrative complaint was substantially justified, we cannot agree with the officer's conclusion that the investigative file was not competent or relevant evidence relating to that issue or that the record of the entire proceeding was necessary to support the agency's defense. In so saying, we first observe that there is no similar provision in the FEAJA to that of the EAJA, which provides: "Whether or not the position of the agency was substantially justified shall be determined on the basis of the administrative record, as a whole, which is made in the adversary adjudication for which fees and other expenses are sought." 5

U.S.C. _ 504(a)(1) (1985) (emphasis added). Accordingly, we

conclude there is no impediment to the agency's submission of only a portion of the evidence considered by the probable cause panel-- such as the investigative report--in support of the defense raised, if it is not inadmissible for some other reason such as irrelevance or incompetence.

TRI relies also upon Kibler v. Department of Professional Regulation, 418 So.2d 1081 (Fla. 4th DCA 1982), for the position that the entire record of the probable cause proceeding is essential to a determination of whether the agency was substantially justified in bringing the administrative action

against it. Kibler is not, however, dispositive of the issue of whether an investigative file that was considered by a probable cause panel is competent or relevant evidence in a later proceeding for attorney's fees. Rather, the issue in Kibler was whether the reviewing agency acted correctly in rejecting a hearing officer's recommended findings of fact on an incomplete record following a Section 120.57(1), Florida Statutes, adversary proceeding relating to the prosecution of a disciplinary complaint. In reversing the agency's action, the Fourth District specifically noted the provisions of section 120.57(1)(b)10, regarding the requirement that the reviewing agency shall not reject or modify the recommended findings of a hearing officer, unless the agency first determines from a review of the complete record that the officer's findings were not based upon competent, substantial evidence. Kibler was simply a recognition of the rule, well established by Florida courts in their interpretation of the Administrative Procedure Act, that a reviewing agency may not reject the recommended findings of a hearing officer following a section 120.57(1) adversary proceeding; unless the agency had the opportunity to review the entire record of the 120.57 proceeding.

Kibler did not address the issue of whether the contents of an investigative report may constitute evidence supportive of a probable cause determination in a later proceeding for fees and costs brought pursuant to the FEAJA. In fact, Kibler specifically recognizes that in order "[t]o sustain a probable cause determination there must be some evidence considered by the panel that would reasonably indicate that the violations alleged had indeed occurred." Kibler, 418 So.2d at 1084 (emphasis added).

Indeed, the procedure set forth under Section 455.225, Florida Statutes (1987), relating to disciplinary proceedings initiated by a regulatory agency, clearly suggests that an investigative report may be the most substantial and relevant evidence necessary to assist the panel in rendering a decision of whether probable cause exists for the issuance of a formal complaint against the licensee. Specifically, subsection (2) thereof provides that once an investigation is complete, the DPR shall prepare and submit to the probable cause panel the investigative report of the DPR, which shall include the investigative findings and the recommendations of the DPR concerning the existence of probable cause. Finally, subsection (3) of the statute provides that the probable cause panel shall make its determination of probable cause within 30 days after receipt by it of the final investigative report.

Clearly, there was some evidence before the panel in the form of the investigative report on which it based its decision to file the administrative complaint against the licensees. From our examination of section 455.225, it appears that a panel's decision

of whether to initiate a disciplinary action against a licensee is not subject to the requirements of section 120.57, in that a probable cause determination may be made without the licensee present. Moreover, section 455.225(3) specifically states that the strictures of chapter 120 are applicable only after the complaint has been filed and the investigation completed.

Therefore, we conclude, by reference to the statutory procedure outlined under section 455.225, that although a review of the entire transcript of the proceedings before the panel might be helpful in deciding whether the panel's initiation of prosecution was substantially justified, it is nonetheless not essential to a resolution of such issue.

The cause is remanded to the hearing officer to consider whether the report was otherwise competent or relevant to the defense raised, and, if so, whether it supported such defense.

AFFIRMED in part, REVERSED in part and REMANDED. SHIVERS, C. J., AND JOANOS, J., CONCUR.

M A N D A T E

From

DISTRICT COURT OF APPEAL OF FLORIDA FIRST DISTRICT

To the Honorable, Donald R. Alexander

Hearing Officer

WHEREAS, in that certain cause filed in this Court styled: RAMIRO J. ALFERT and TOLEDO

REALTY, INC.

vs. Case No. 88-2182

Your Case No. 88-0857F

DIVISION OF REAL ESTATE

The attached opinion was rendered on September 20, 1989.

YOU ARE HEREBY COMMANDED that further proceedings be had in accordance with said opinion, the rules of this Court and the laws of the State of Florida.

WITNESS the Honorable Douglass B. Shivers

Chief Judge of the District Court of Appeal of Florida, First District and the Seal of said court at Tallahassee, the Capitol, on this 23rd day of October, 1989.

Clerk, District Court of Appeal of Florida,

First District

SUPPLEMENTAL FINAL ORDER

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

RAMIRO J. ALFERT and TOLEDO ) REALTY, INC., )

)

Petitioners, )

)

vs. ) CASE NO. 88-0857F

)

DIVISION OF REAL ESTATE, )

)

Respondent. )

)

SUPPLEMENTAL FINAL ORDER

This matter came before the undersigned after a mandate was issued by the First District Court of Appeal in the case of Department of Professional Regulation, Division of Real Estate v. Toledo Realty, Inc. and Ramiro Alfert, 549 So.2d 715 (Fla. 1st DCA 1989). In brief, the case involved an appeal by the Division of Real Estate (Division) from a final order entered by the undersigned which granted the request of petitioner, Toledo Realty, Inc., for attorney's fees and costs in the amount of

$12,239.60. The request of Ramiro J. Alfert was denied. The award was made after the undersigned concluded that the Division had not shown that it was "substantially justified" in prosecuting a disciplinary action against petitioners in DOAH Case No. 87- 3139. Although an investigative report relating to Case No. 87- 3139 had been stipulated into evidence by the parties during the fee hearing, the undersigned found insufficient evidence of record to establish that the probable cause panels which found probable cause to initiate the action, had reviewed or considered the investigative report prior to such action. This conclusion was reached because the minutes of the probable cause meeting were not proffered into evidence, and the record did not contain what the undersigned considered to be adequate extrinsic evidence to establish that fact. In its opinion, the court concluded that the report had been reviewed by the panel and that further proceedings were necessary. On remand, the court provided the following instructions:

The cause is remanded to the hearing officer to consider whether the report was otherwise competent or relevant to the defense raised, and, if so, whether it supported such defense. Id. at 719.

After the mandate was issued by the court, the undersigned entered an order on November 17, 1989 directing the parties "to file written supplemental argument consistent with the opinion no later than January 5, 1990." After two requests by petitioners for an extension of time were granted, proposed supplemental final orders were filed by petitioners and respondent on February 9 and 19, 1990, respectively. In addition, the undersigned has considered the record of the fee hearing, which includes the investigative report in question.

FINDINGS OF FACT

Based upon all of the evidence, the following findings of fact are determined:

1. On October 3, 1986 respondent, Division of Real Estate (Division), received a complaint from a Federal National Mortgage Association (FNMA) attorney alleging that petitioners, Toledo Realty, Inc. (TRI) and Ramiro J. Alfert (Alfert), both licensed realtors, had presented FNMA with a "false real estate sales contract." Based upon this letter, a Division analyst concluded that a possible violation of Subsection 475.25(1)(a) may have occurred and referred the matter to an investigator.

   
   

2. The investigation was performed by a Division investigator, Kenneth G. Rehm, who did not testify at the fee hearing. Rehm's investigation was made during the period from October 17 through December 23, 1986 and culminated on January 8, 1987 with the issuance of an investigative report. That report has been received in evidence as respondent's exhibit 1. The report, which consists of sixty-three pages, contains eleven exhibits as well as notes from interviews by Rehm with eight individuals. The exhibits include copies of (a) the complaint which prompted the investigation, (b) documents pertaining to the real estate transaction which precipitated the complaint, and (c) the affidavit of respondent Alfert. Finally, the report contains the conclusions reached by Rehm and a finding that Subsection 475.25(1)(b), Florida Statutes may have been violated by petitioners.

   
   

3. On June 16, 1987 a two-person probable cause panel convened on behalf of the Division to consider whether to find probable cause to initiate a disciplinary action against petitioners. The panel's consideration included review of the

   investigative report (file). This is confirmed by a memorandum dated June 16, 1987 from the panel to the Division which contained the following statement:

   
   

   I hereby acknowledge that I have reviewed the investigative file in the above referenced case and by affixing my initials hereto indicate my vote.

   
   

   Both members of the panel placed their respective initials in the block next to "Finding Probable Cause". It is unknown if Rehm gave oral advice to the panel during its deliberations. Likewise, the nature and extent of the panel's review of the report is not of record since the minutes of the meeting were not introduced into evidence. In any event, the panel's vote prompted the Department of Professional Regulation, on behalf of the Division, to file an administrative complaint on June 24, 1987.

   
   

4. Although the administrative complaint named not only Alfert and TRI as respondents, but also two TRI salespersons, Maria J. Pardo and Carlos Cachaldora, only petitioners requested a formal hearing to contest the charges. The complaint rests upon a lengthy and complicated factual scenario more specifically described in the complaint itself. For purposes of this order, it is sufficient to say that the Division alleged that Pardo and Cachaldora solicited and obtained a sales offer on a certain FNMA foreclosed residential property in Miami, Florida, the offer was accepted by FNMA, and the contract was given an acceptance endorsement by FNNA personnel. However, the sale did not close due to the buyer's inability to obtain financing. It was alleged further that the buyer agreed to allow the salespersons to retain his deposit to be used on another FNMA property and that the two salespersons later submitted a second offer on another FNMA property. In preparing the second contract, Pardo and Cachaldora took the first contract and "whited out" the description of the property and other relevant items, filled in the new contract information, and left the original FNMA endorsement unchanged. Finally, it was alleged that Pardo and Cachaldora placed a copy of the altered contract in the TRI office files and represented to Alfert that the original copy of the contract had been forwarded to FNMA in Atlanta. There is no allegation that Alfert or TRI had knowledge of the salespersons' illicit conduct regarding the alteration of the contract. Paragraph 10 of the complaint alleges, however, that petitioners "failed to discipline or otherwise impose corrective measures against (their employees) for forwarding a sales offer to 'Fannie Mae' without the prior knowledge and approval of (petitioners)". In addition, paragraph

   15 of the complaint charges that TRI and Alfert "failed to

   supervise, control, direct and manage the sales activities of (Pardo and Cachaldora)". Those two factual allegations underpin

   the charge that petitioners violated Subsection 475.25(1)(b), Florida Statutes, in that they allegedly committed fraud, misrepresentation, concealment, false promises, false pretenses, dishonest dealing by trick, scheme or device, culpable negligence and breach of trust in a business transaction and had violated a duty imposed by law. The issue in the fee case is whether there was a reasonable basis in fact and law to initiate the disciplinary action against petitioners. This in turn requires a determination as to whether the investigative report provided such a basis for the panel.

   
   

5. Rehm's investigation confirmed that an altered contract had been sent to FNMA. Although the report indicates that Pardo had "no explanation for the `copied contract', and when questioned responded with `I don't know' as her only answer", Rehm reached the conclusion that Pardo and possibly Cachaldora, had altered the contract in question and sent the copy directly to FHMA. This conclusion was supported by Pardo's admission to Rehm and Alfert that she alone had prepared all of the documents pertaining to the transaction, Alfert's denial of any illicit conduct, and the listing broker's opinion that Pardo was the guilty culprit.

   Rehm's ultimate conclusions, as reflected in the report, are as follows:

   
   

   This investigation was predicated on a complaint by SHERMAN LANDAU, Senior Counsel for FANNIE MAE against RAMIRO ALFERT, Broker for TOLEDO REALTY, INC.

   LANDAU claims that a fraudulent purchase/sales contract was submitted to FANNIE MAE, in an attempt to halt a foreclosure sale, so as to induce a sale to a TOLEDO REALTY purchaser.

   Investigation revealed ALFERT was not directly responsible for the questionable contract which was originated by a sales associate, MARIA J. PARDO, and possibly CARLOS CACHALDORA.

   Additional complaints were filed against the two associates, by DPR. (page 1 of report)

   
   

   Rehm noted elsewhere in the report that during her interview, Pardo gave "misinformation and evasive answers". In contrast, Alfert submitted a three and one-half page affidavit detailing his knowledge of the entire transaction. In the affidavit, Alfert denied any knowledge of Pardo's wrongdoing, and this assertion was not contradicted by any other person or document. Indeed, Pardo's effort to conceal her activities was corroborated by Rehm in a note to his report that "RAMIRO terminated PARDO after the DPR

   interview (on December 2, 1986) as she would not respond to (Alfert's) inquiries either." (page 5 of report)

   
   

6. Assuming that a failure by a broker to discipline his employees constitutes a violation of the law, nonetheless there was no reasonable basis to make that allegation against petitioners. The investigative report indicates father clearly that the guilty employee, Pardo, attempted to conceal her misconduct from her employer and was immediately fired after Alfert suspected she had engaged in wrongdoing. This information was available to the panel. As to the charge that petitioners did not supervise, control, direct and manage the sales activities of Pardo and Cachaldora, the report does not comment on this issue, and the panel's vote, as reflected in respondent's exhibit 2, offers no insight as to how or why this charge was made. Even so, it may be reasonably inferred that the panel relied upon the law of agency and intended to impute the wrongdoing of the agent (Pardo) to her principals (Alfert and TRI). However, the report strongly suggests that the agent concealed her illicit activities from Alfert and TRI, and there was no finding, suggestion or conclusion by Rehm that petitioners failed to exercise reasonable control and supervision over the activities of their employees. Moreover, Rehm himself concluded that "Alfert was not directly responsible for the questionable contract". Again, this information was available to the panel prior to the initiation of the complaint. Thus, there was no reasonable basis in fact or law to hold the principal accountable under those circumstances.

7. There is no dispute that petitioners incurred reasonable attorney's fees and costs in the amount of $12,239.60 in defending against the administrative complaint.

CONCLUSIONS OF LAW

The Division of Administrative Hearings has jurisdiction of the subject matter and the parties hereto pursuant to Subsections

57.111 and 120.57(1), Florida Statutes (1989).

1. The issue raised in this proceeding is whether the probable cause panel had "substantial justification" to initiate an administrative action against petitioner TRI. 1/ Under the terms of Subsection 57.111(3)(e), Florida Statutes (1989), a proceeding is substantially justified "if it had a reasonable basis in law and fact at the time it was initiated."

   
   

2. The court opinion requires the undersigned to consider whether the investigative report received in evidence as respondent's exhibit 1 is "competent or relevant to the defense raised (by the Division), and if so, whether it supported such defense." Since the parties have stipulated the exhibit into

   evidence, the report is deemed to be competent, or admissible, and its contents have been freely used by both parties in their supplemental proposed final orders. While the report is hearsay- ladened, the undersigned is not concerned with the truth or falsity of the statements asserted therein but only whether those statements, if accepted as being true for the limited purpose of determining whether probable cause should be found, constitute a "reasonable basis in fact and law" to initiate an action against TRI. This is because the probable cause panel may properly assess the credibility of the statements of the declarants in determining whether probable cause exists. See, e.g., Gentele v. Department of Professional Regulation, Board of Optometry, 513 So.2d 672 (Fla. 1st DCA 1987) (probable cause panel's decision to prosecute may turn on its credibility assessment of complaining witness).

   
   

3. The investigative report is competent and relevant to the defense of substantial justification raised by the Division. However, it is concluded that the report fails to support that defense. While respondent's assertion that the law of agency may be utilized in a disciplinary case is correct, and thus leaves the panel "room to argue" whether the theory is a viable one, the report lacks sufficient factual information to justify the use of that theory in this case. This is because Pardo actively concealed her illicit conduct from her broker, and the investigative report contains no finding, suggestion or conclusion that petitioners failed to exercise reasonable control or supervision over the activities of their employees. Although liability might be imputed to a principal if this were a civil action, the disciplinary action against TRI was quasi-penal in nature, and the legislature and the courts have not imposed strict liability upon licensees for the wrongful acts of their employees in an administrative setting. This conclusion was confirmed by the Division itself when it dismissed the charges in the final order. Therefore, the petition of TRI should be granted, and the Division should reimburse TRI $12,239.60 for fees and costs incurred in "defending against governmental action" not substantially justified.

Based on the foregoing findings of fact and conclusions of law, it is

ORDERED that respondent pay petitioner Toledo Realty, Inc.,

$12,239.60 in attorney's fees and costs.

DONE and ENTERED this 1st day of March, 1990, in Tallahassee, Leon County, Florida.

DONALD R. ALEXANDER, Hearing Officer Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904)488-9675

Filed with the Clerk of the Division of Administrative Hearings this 1st day of March, 1990.

ENDNOTE

1/ Since Alfert, as an individual employee, is precluded from recovering attorney's fees and costs under section 57.111, this order pertains only to TRI's petition.

APPENDIX

Petitioners: *

1. Partially adopted in findings of fact 1 and 2.

2. Partially adopted in finding of fact 1.

3. Partially adopted in finding of fact 5.

4. Partially adopted in finding of fact 3.

5. The first sentence is rejected since Pardo never admitted sending the altered contract to FNMA. Rather, she admitted preparing all documents in the transaction. The second sentence was substantially adopted in finding of fact 5.

6. Substantially adopted in finding of fact 5.

7. Partially adopted in finding of fact 5.

8. Substantially adopted in finding of fact 5.

9. Rejected as being unnecessary.

10. Partially adopted in finding of fact 2.

11. Rejected as being unnecessary or irrelevant.

• Petitioners' proposed findings were numbered 3-13. Respondent:

  1. Partially adopted in finding of fact 2.

  2. Partially adopted in finding of fact 1.

  3. Partially adopted in finding of fact 4.

  4. Rejected as being unnecessary.

  5. Partially adopted in findings of fact 5 and 6.

  6. Partially adopted in finding of fact 3.

  
  

• Note - Where findings have been partially adopted, the remainder has been rejected as being unnecessary, irrelevant, cumulative, subordinate, or not supported by the evidence.

COPIES FURNISHED:

Harold M. Braxton, Esquire Suite 400, One Datran Center 9100 South Dadeland Boulevard Miami, Florida 33156-7815

John R. Alexander, Esquire

P. O. Box 1900

Orlando, Florida 32802

Kenneth E. Easley, Esquire

1940 North Monroe Street, Suite 60

Tallahassee, Florida 32399-0792

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: 88-000857F

Orders for Case No: 88-000857F