STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

LARRY WAYNE LINDSAY, )

)

Petitioner, )

)

vs. ) CASE NO. 88-3905F

)

DEPARTMENT OF INSURANCE )

AND TREASURER, )

)

Respondent. )

)

FINAL ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, K. N. Ayers, held a public hearing in the above- styled cause on October 11, 1988, at Tallahassee, Florida.

APPEARANCES

For Petitioner: Thomas F. Woods, Esquire

1709 D Mahan Drive Tallahassee, Florida 32308

For Respondent: Robert V. Elias, Esquire

Room 413 Larson Building Tallahassee, Florida 32399-0300

By Petition dated July 22, 1988, Larry Wayne Lindsay, Respondent in DOAH Case No. 87-3046, seeks attorney's fees and costs as a prevailing small business party in that proceeding. As grounds therefor, it is alleged that Respondent in those proceedings incurred attorney's fees and costs on charges for which the Department was not substantially justified in bringing. Accordingly, the sole issue in this proceeding is whether the filing of the Administrative Complaint was substantially justified at the time it was initiated by the state agency.

At the commencement of the hearing, the parties stipulated that Petitioner herein is a small business party as defined in Section 57.111, Florida Statutes (1987), that an administrative hearing was held involving charges of insurance code violations by Lindsay, and that a Final Order was entered making Lindsay the prevailing party in that proceeding. Thereafter, Petitioner presented two affidavits (Exhibits 1 and 2) regarding the reasonable value of the legal services rendered and his attorney's statement that six hours of negotiations were expended subsequent to the filing for attorney's fees; Respondent called three witnesses, including Petitioner, and an additional seven exhibits were admitted into evidence. Two exhibits (Exhibits 10 and 11) were marked for identification, but were never offered into evidence.

Proposed findings have been submitted by the parties. Treatment accorded those proposed findings are included in the Appendix attached hereto and made a part hereof.

FINDINGS OF FACT

1. In an Administrative Complaint containing 48 counts and an Amended Administrative Complaint containing an additional six counts, Respondent in DOAH Case No. 87-3046 was charged with some 43 counts of "sliding" accidental death and automobile club coverages with PIP coverage without client's informed consent; 5 counts alleging the financing of policies for which the insured had paid full coverage by forging the insured's signature on a finance agreement; and counts involving failure to remit premiums to the insurance company on whom the policies were written.

   
   

2. At the hearing, no evidence was presented on the "sliding" charges, although Exhibits 5, 6, 7 and 8 contain affidavits of numerous clients who averred they were sold accidental death and automobile club coverage either without their knowledge and consent or told it was compulsory to purchase this coverage with PIP coverage.

   
   

3. The investigation which led to the charges preferred against Lindsay in DOAH Case No. 87-3046 centered on four offices of Friendly Insurance agency, all owned by Lindsay. However, the only office for which Lindsay was the authorized agent was the Bartow office. Investigations were conducted at each of these offices, and the agent authorized to write policies at that office was a subject of the investigations.

   
   

4. Evidence presented at the hearing in DOAH Case No. 87-3046 was that insurance companies licensed only one agent to write policies on the company at each office, and no one else could approve a policy at the Winter Haven office, for example, but the agent so licensed. Respondent in Case No. 87-3046 was the licensed agent at the Bartow office only.

   
   

5. At the original hearing, the only witness who testified regarding Respondent's participation in the operation and control of the office in Haines City was Norma Judd who was office manager there. Her testimony that Respondent was her direct supervisor and was aware of activities that were subject to the Administrative Complaint was somewhat discredited by the fact she was fired from her job by Respondent and by a rebuttal witness' testimony contradicting Judd's testimony that Judd was unemployed by testimony that this witness had purchased an insurance policy the day before written up by Judd who told this witness the auto club (or accidental death) policy was required when PIP was purchased.

   
   

6. Exhibits 5, 6, 7 and 8 contain several affidavits of Friendly Insurance Agency employees that Lindsay exercised supervision and control over the Winter Haven, Haines City and Lake Wales offices much more so than did the licensed agents at those offices. Those affidavits would support a conclusion that Lindsay exercised supervision and control over the employees of those offices.

   
   

7. A fee of $8600 would constitute a reasonable attorney's fee in this case. Costs to Petitioner were $1867.44.

   
   

8. While attempting to show that special circumstances existed existed which would make the award of attorney's fees to Lindsay unjust, the Department called Lindsay to the witness stand to elicit testimony that he was untruthful in his testimony at the original hearing. Upon the advice of his attorney, Lindsay invoked the Fifth Amendment privilege against giving incriminatory evidence against himself.

   CONCLUSIONS OF LAW

   
   

9. The Division of Administrative Hearings has jurisdiction over the parties to, and the subject matter of, these proceedings.

   
   

10. Section 57.111(4)(c), Florida Statutes (1987), mandates an award of attorney's fees and costs to a prevailing small business party in an adjudicatory proceeding pursuant to Chapter 120 which was initiated by a state agency. There are two exceptions to this mandate:

    
    

    1. If the actions of the state agency were substantially justified; or

    2. If special circumstances exist which would make the award unjust.

       
       

11. In applying the Florida Equal Access to Justice Act (the Act), guidance can be found in the federal cases under the Equal Access to Justice Act, 5 U.S.C. Section 504, on which the Act is patterned. Gentele v. Department of Professional Regulation, Board of Optometry, 513 So.2d 672 (Fla. 1st DCA 1987). The Act is subject to the same construction as the federal Act so long as "such construction harmonious with the spirit and policy of Florida legislation on the subject." Pasco County School Board v. Florida Public Employee Relations Commission, 353 So.2d 108, 116 (Fla. 1st DCA 1977). Gentele, supra at 673.

    
    

12. The Petitioner bears the initial burden of proving that it is a small business party, that it prevailed, and that the underlying adjudicatory proceeding pursuant to Chapter 120 was initiated by a state agency. Once this showing is made, the burden shifts to the Department of Insurance to demonstrate that its actions were substantially justified or that special circumstances exist which would make the award unjust. The allocation of the burden of proof is clearly stated in Gentele v. Department of Professional Regulation, Board of Optometry, 9 FALR 310, 327 (DOAH June 20, 1986), affirmed on other bases in Gentele, supra:

    
    

    The conclusion that the agency must prove its actions were substantially justified, or that special circumstances exist which would make an award unjust,

    is buttressed by the plain language of the statute. In mandatory language, Section 57.111(4)(a) declares the general rule -- that fees and costs "shall" be awarded to a prevailing small business party. Then, following a comma, the Act creates two exceptions (actions substantially justified or special circumstances make an award unjust) which, if proven, make the general rule inapplicable. The agency is the best party to know the factual and legal basis of its prior actions, and whether special circumstances exist which would make an award unjust. Hence, it is the agency which must affirmatively raise and prove the exception.

13. The parties have here stipulated that Petitioner is a "small business party" as defined by the statute and that he was the prevailing party in DOAH Case No. 87-3046.

    
    

14. The burden now shifts to the agency to prove the exception that its actions were substantially justified. Section 57.111(3)(e) defines it as follows:

    
    

    A proceeding is "substantially justified" if it had a reasonable basis in law and in

    fact at the time it was initiated by a state agency.

    
    

15. The standard to be applied is less restrictive than the "complete absence of a justiciable issue of either law or fact" of Section 57.105, Florida Statutes, and is more restrictive than an automatic award of fees to every prevailing small business party. McCallister v. Department of State, Division of Licensing, 9 FALR 4064 (DOAH 1987); Robaina v. Division of Professional Regulation (sic), 9 FALR 4072 (DOAH 1987). Federal authority defining the standard is persuasive. Gentele, supra, at 673. 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 stan- dard is one of reasonableness; the govern- ment must show "that its case had a rea- sonable 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. (Citations omitted) Nor is the government required to establish that its decision

    to litigate was based on a substantial probability of prevailing. (Citations omitted).

    
    

    Quoted with approval in Structured Shelters Financial Management, Inc., et. al.

    v. Department of Banking and Finance, Division of Securities, DOAH Case No. 87- 1015F (Final Order December 24, 1987).

    
    

16. It is the evidence deemed available at the time the charges were preferred in Case No. 87-3046 which is determinative of the substantial justification for the charges -- not the evidence presented at the hearing. Prior to preferring the charges which formed the Administrative Complaint, the investigator had obtained affidavits from numerous clients of Friendly Auto Insurance who, in sworn statements, said they had been sold accidental death benefits without their knowledge and consent or who had been told it was necessary to buy this coverage to get PIP coverage. This constitutes sufficient evidence to form a reasonable belief that "sliding" was a regular procedure at the four Friendly offices.

    
    

17. The finding that the Department had not proved, by clear and convincing evidence, that Lindsay was guilty of the charged preferred stemmed from a failure to prove that Lindsay supervised and controlled the employees at

    the Winter Haven, Haines City and Lake Wales offices. The only evidence presented at the hearing on Lindsay's supervision and control other than his ownership of the offices was presented by Norma Judd whose credibility was successfully impugned. Exhibits 5, 6, 7 and 8 contain affidavits from various employees of these offices averring that they were under the direct supervision and control of Lindsay. Those affidavits constitute reasonable cause to believe that Lindsay had actual or constructive knowledge that improprieties, such as the financing of policies for which the insured had paid in full, were taking place in some of these offices. Failure to call these witnesses at the hearing undoubtedly contributed to Lindsay prevailing in that action, but is not determinative of the issue in this proceeding, viz, did the Department have reasonable cause to believe Friendly Auto Insurance Agency employees, under the supervision and control of Lindsay, violated the provisions of the Insurance Code as alleged? Since these affidavits constitute probable cause to believe Lindsay exercised supervision and control over these employees, the action of the Department in filing the charges contained in the Administrative Complaint were substantially justified.

    
    

18. Respondent attempted to show that special circumstances exist which would make the award of attorney's fees unjust. Those special circumstances were that Lindsay had testified falsely at the original hearing. The proof of this allegation was attempted through the testimony of Lindsay who, on the advice of his attorney, claimed his Fifth Amendment privilege against giving such testimony.

    
    

19. From the foregoing, it is concluded that at the time the Administrative Complaint was filed in DOAH Case No. 87-3046, the Department of Insurance had reasonable cause to believe that Larry Wayne Lindsay was a corporate officer of the Friendly Auto Insurance Agencies in Bartow, Winter Haven, Lake Wales and Haines City and that he exercised direct supervision and control over the employees of those offices. Accordingly, pursuant to Section 626.734, Florida Statutes, he can properly be held liable and accountable as an officer of those corporations for the wrongful acts, misconduct, or violations of the Insurance Code committed by employees of those corporations under his direct supervision and control while acting on behalf of the corporation. It is

ORDERED that the petition of Larry W. Lindsay for attorney's fees and costs as the prevailing party in DOAH Case No. 87-3046 be denied.

DONE and ORDERED this 9th day of December, 1988, in Tallahassee, Florida.

K. N. AYERS 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 9th day of December, 1988.

APPENDIX TO RECOMMENDED ORDER, CASE NO. 88-3905

Treatment Accorded Petitioner's Proposed Findings

It appears that in Petitioner's proposed order the findings are contained in the summary section and will be so treated.

1. Accepted. However, no evidence was produced at this hearing to support the finding that the money taken from Friendly Insurance Agency's bank account was not owed to American Excel Insurance Company as claimed by Chuck Evans.

2. Accepted. Pertinent parts are contained in HO #2. 3-5. Rejected as factual but irrelevant.

Treatment Accorded Respondent's Proposed Findings

1. Accepted.

2. Accepted. Included in HO #3.

3. Included in HO #2.

4-5. Included in HO #2 and 6.

1. Accepted.

2. Rejected as conclusion of law.

3. Rejected as irrelevant.

4. Rejected as irrelevant.

5. Included in HO #8.

COPIES FURNISHED:

Thomas F. Woods, Esquire 1709 D Mahan Drive Tallahassee, Florida 32308

Robert V. Elias, Esquire Department of Insurance

and Treasurer

Room 413 Larson Building Tallahassee, Florida 32399-0300

Honorable William Gunter

State Treasurer and Insurance Commissioner The Capitol, Plaza Level

Tallahassee, Florida 32399-0300

Don Dowdell General Counsel

Department of Insurance and Treasurer The Capitol, Plaza Level

Tallahassee, Florida 32399-0300

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: 88-003905F

Orders for Case No: 88-003905F