STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF BUSINESS )

REGULATION, DIVISION OF )

FLORIDA LAND SALES, ) CONDOMINIUMS AND MOBILE HOMES, )

)

Petitioner, )

)

vs. ) CASE NO. 93-0340

) CARLA C. HABERLAND, d/b/a ) QUAIL HOLLOW PINES, INC., )

)

Respondent. )

) DEPARTMENT OF BUSINESS )

REGULATION, DIVISION OF )

FLORIDA LAND SALES, ) CONDOMINIUMS AND MOBILE HOMES, )

)

Petitioner, )

)

vs. ) CASE NO. 93-0543

)

MARIO J. MANETTI, d/b/a ) QUAIL HOLLOW PINES, INC., )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, final hearing in the above-styled case was held in Tallahassee, Florida, on August 16, 1993, before Robert E. Meale, Hearing Officer of the Division of Administrative Hearings.

APPEARANCES

The parties were represented at the hearing as follows: For Petitioner: Tracy P. Moye, Assistant General Counsel

Department of Business and Professional Regulation

1940 North Monroe Street Tallahassee, Florida 32399-1007

For Respondent: Carl A. Bertoch

Carl A. Bertoch, P.A. Post Office Box 3106

Tallahassee, Florida 32315-3106

STATEMENT OF THE ISSUE

The issue in this case is whether Respondents are liable for the failure of Quail Hollow Pines, Inc. to pay timely ad valorem taxes as required under contracts with lot purchasers under agreements for deed and, if so, what penalty should be imposed.

PRELIMINARY STATEMENT

By Notice To Show Cause dated December 21, 1992, Petitioner alleged that, from April 1, 1987, to date, Respondent Haberland directly or indirectly controlled Quail Hollow Pines, Inc. as an officer, director, agent, or employee. Petitioner alleged that, during that time, Quail Hollow Pines, Inc. failed to pay timely County ad valorem taxes causing a delinquency that adversely affected the interests of lot purchasers in violation of Sections 498.033(1) and (2), 498.039(6), and 498.049(5), Florida Statutes, and Rules 7D-5.006 and 7D-5.008(5) and (8), Florida Administrative Code. This Notice To Show Cause commenced DOAH Case No. 93-0340.

By Notice To Show Cause dated December 21, 1992, Petitioner made the same allegations againstRespondent Manetti. This Notice To Show Cause commenced DOAH Case No. 93-0543.

Each Respondent timely requested a formal hearing. At the hearing, Petitioner called four witnesses and offered into evidence 13 exhibits. Respondent called two witnesses and offered into evidence four exhibits. All exhibits were admitted.

The transcript was filed September 14, 1993. Each party filed a proposed recommended order. Rulings on the proposed findings are in the appendix.

FINDINGS OF FACT

1. By Notice To Show Cause dated December 21, 1992, Petitioner alleged that, from April 1, 1987, to date, Respondent Haberland directly or indirectly controlled Quail Hollow Pines, Inc. (Quail Hollow) as an officer, director, agent, or employee. Petitioner alleged that, during that time, Quail Hollow failed to pay timely County ad valorem taxes causing a delinquency that adversely affected the interests of lot purchasers in violation of Sections 498.033(1) and (2), 498.039(6), and 498.049(5), Florida Statutes, and Rules 7D-

   5.006 and 7D-5.008(5) and (8), Florida Administrative Code. This Notice To Show Cause commenced DOAH Case No. 93-0340.

   
   

2. By Notice To Show Cause dated December 21, 1992, Petitioner made the same allegations againstRespondent Manetti. This Notice To Show Cause commenced DOAH Case No. 93-0543.

   
   

3. In 1972, Quail Hollow, then known as Tampa Development Corporation, obtained from Petitioner an Order of Registration for 767 parcels, averaging

   1.25 acres each. The Public Offering Statement states that sales will be by installment contract and that the seller, Quail Hollow, will retain title and possession to each lot until the lot purchaser pays in full the contract price. Typically, the term of the installment sale is ten years.

4. The conditions of sale, which are part of the form sales contract, provide that, while the lot purchaser is making payments, Quail Hollow shall advance all property taxes levied against the property. The lot purchaser is then required to reimburse Quail Hollow for these payments.

   
   

5. The conditions of sale add that Quail Hollow will convey the lot by general warranty deed once the lot purchaser has paid in full all principal and interest, as well as all taxes and assessments that Quail Hollow has advanced on the lot. The deed is to be subject only to taxes for the current year and other irrelevant matters.

   
   

6. The material provisions of these agreements form part of the basis of the 1972 registration order. These provisions have never been amended.

   
   

7. In the intervening 21 years, Quail Hollow has sold all but about 50 of the lots initially offered. Only about 57 lots remain subject to agreements for deed. The remaining 660 lots have been conveyed to the lot purchasers.

   
   

8. The business of Quail Hollow is now reduced largely to bookkeeping duties in connection with the collection of receivables on the outstanding installment sales contracts, payment of payables consisting largely of ad valorem taxes on sold and unsold lots and an underlying mortgage (from which releases are obtained when individual lots are conveyed), and closing on lots on which purchasers have completed their payments. General office expenses of Quail Hollow are paid by Quail Hollow Properties, Inc., which Respondent Manetti owns with his brother. Quail Hollow Properties allocates these expenses among it, Quail Hollow, and Quail Hollow Realty, Inc., which is also owned by Respondent Manetti and his brother and sells lots in Quail Hollow Properties.

   
   

9. Quail Hollow has not paid timely the ad valorem taxes for numerous lots, including both unsold lots and lots under agreements for deed. However, no lots have ever been lost due to nonpayment of taxes, as Respondent Manetti has always advanced sufficient funds to prevent this occurrence. In several cases since 1987, though, purchasers who had completed their payments and were entitled to conveyance have encountered delays in closings due to ad valorem taxes that Quail Hollow had failed to pay. There is no evidence, however, that any lot owner has suffered any economic injury due to these delays or, in general, due to Quail Hollow's tardy payment of ad valorem taxes.

   
   

10. There is no evidence that Quail Hollow or either Respondent has diverted funds. Although it is true that Quail Hollow has not had sufficient funds on hand to pay taxes when due, several possible causes of these shortfalls emerge.

    
    

11. Respondent Manetti and his brother initially contributed $500,000 to Quail Hollow and Quail Hollow Properties. To pay for necessary improvements within the subdivision, Respondent Manetti obtained financing at then-prevailing interest rates of 22 percent. The interest charged on the installment sales contracts with lot purchasers was only 8 percent. Further exacerbating cash- flow problems for Quail Hollow is the fact that the cost of the subdivision improvements went up by over 30 percent during the time it took to construct them. These improvements have been completed, but their unanticipated costs deprived Quail Hollow of funds that would have been otherwise available.

12. The holder of the underlying mortgage directly receives the lot purchasers' payments of principal and interest. There is some indication that the mortgagee is insisting on an earlier retirement of the mortgage debt than Respondent Manetti would prefer. In any event, until the mortgage is paid, monthly mortgage payments of $5000 exceed monthly installment payments of principal and interest by about $400.

    
    

13. A third source of money problems is Quail Hollow's policy concerning defaults by lot purchasers failing to pay timely their invoices for ad valorem taxes. In several cases, Quail Hollow has continued to pay the ad valorem taxes on lots for which the purchasers have failed to reimburse Quail Hollow when invoiced for previously advanced taxes. But, as long as the lot purchasers continue to pay the principal and interest under the installment sales contracts, Quail Hollow has not terminated these contracts and attempted to resell the lots.

    
    

14. On top of these problems is Quail Hollow's bookkeeping practices, which do not readily permit the preparation and implementation of corporate budgets. Quail Hollow records installment payments and reimbursements of taxes received, ad valorem taxes paid, payments against the underlying mortgage, and general office expenses. But no one at Quail Hollow has an exceptionally firm grasp of these figures, especially as they are paid or received. Just as the corporate policy of forgiving lot purchasers' defaults is due less to generosity and more to a disinclination toward accounting (and perhaps sales), so the monetary shortfalls are not due to fraudulent diversion, but instead to an aversion to the twin disciplines of bookkeeping and accounting.

    
    

15. The key fact is that Respondent Manetti has always been and promises to continue to be willing to advance personal funds when absolutely necessary, which means before economic injury is suffered by a lot purchaser.

    
    

16. Additionally, reliance upon Respondent Manetti's contributions may not always be necessary. Quail Hollow's receivables are $119,000 in payments due under installment sales contracts and $12,000 in advanced taxes for which reimbursement remains due. Its payables are $55,000 on the mortgage and $66,000 in taxes due. This leaves $10,000, which, when added to the $50,000 value to two additional properties owned by Quail Hollow, leaves the company with $60,000 in excess funds. Although these figures ignore taxes that continue to accrue, they also appear to ignore the value of the unsold lots. Just as important, these figures indicate that the mortgage, which is paid at the rate of $5000 monthly, will be satisfied in less than a year.

    
    

17. This was Mr. Manetti's first experience in the land sale business and it has not been a profitable one. As of yet, he has not taken any salary out of the company and has personally paid for his expenses in connection with company travel. The Quail Hollow Properties investment includes one or more larger properties that, if sold, would produce considerable cash. Consistent with his past practices of treating these investments as combined, Respondent Manetti remains willing to apply these proceeds as needed to the remaining liabilities of Quail Hollow.

    
    

18. Respondent Manetti is the president of Quail Hollow. He and his brother, together with an entity owned by family members, are the sole shareholders.

19. At first, Respondent Manetti, who, like his brother, resides out-of- state, was only indirectly involved in the management of Quail Hollow. He left much of the management of the business, especially during its active early years, to two individuals who worked out of the Pasco County office. In 1972, William Wilen, who was secretary of Quail Hollow, handled many aspects of the land sales business, with which Mr. Wilen was quite familiar. After Mr. Wilen left the company, Sam Corello assumed much of the responsibilities for the land sale business. Mr. Corello remained with Quail Hollow until the end of 1987.

    
    

20. Respondent Haberland has been an employee of Quail Hollow for 22 years. Working out of the company's only office, which is in Pasco County, Respondent Haberland began as a receptionist and later worked as a secretary. About ten years ago, Respondent Haberland received her Florida real estate brokers license. After she obtained her brokers license, Respondent Haberland worked for Quail Hollow Realty.

    
    

21. As compared to the compensation of Respondent Haberland, Mr. Wilen and Mr. Corello were more highly compensated, as is consistent with their greater responsibilities. By the end of 1987, when Mr. Corello left the company, the business of Quail Hollow had wound down considerably as compared to the activities of the preceding 15 years.

    
    

22. At present, Respondent Haberland is one of three employees in the office that serves Quail Hollow, Quail Hollow Properties, and Quail Hollow Realty. One of the other two employees is a bookkeeper and the third performs general duties, including maintaining relations with customers who are still making payments on lots. The three employees perform services for all three companies, with the least amount of services performed for Quail Hollow due to its relative inactivity.

    
    

23. Respondent Haberland is vice president of Quail Hollow. She is also secretary of Quail Hollow Properties and president of Quail Hollow Realty. She has held her position with Quail Hollow since 1973.

    
    

24. In no way, however, is Respondent Haberland responsible for formulating policy for Quail Hollow. She is paid less than $20,000 annually for her services to the Quail Hollow companies, which salary appears to be paid by Quail Hollow Properties. Respondent Haberland also receives some sales commissions from Quail Hollow Realty when she participates in the sale of land. As she accurately stated in her interrogatory answers, Respondent Haberland "oversee[s] the basic day to day activities [of Quail Hollow] under the direction of [Respondent] Manetti."

    
    

25. Both Respondents were aware that Quail Hollow lacked sufficient funds to pay all ad valorem taxes, when due, on unsold lots and lots under agreement for deed. However, Respondent Haberland understood that Respondent Manetti would advance the funds necessary to avoid the loss of any lot due to nonpayment of taxes. Further neither Respondent was aware of any diversion of funds. Monies received as tax reimbursements have been applied to ordinary office expenses. This practice does not violate Quail Hollow's contractual undertaking to advance, rather than forward, tax payments, and, more importantly, each Respondent has long understood that no lot would ever be lost due to nonpayment of taxes.

    
    

26. Quail Hollow and Quail Hollow Properties have previously been disciplined by Petitioner. In a Consent Order entered October 7, 1980, the two companies agreed to pay all outstanding taxes currently owned on the

    subdivisions in accordance with a schedule and to pay "when due" all future taxes on properties subject to sales contracts. In the Consent Order, the corporate respondents acknowledge that "any unauthorized use of such funds shall constitute a willful violation of the terms of this Consent Order and the provisions of Chapter 498, Florida Statutes."

    
    

27. Through the end of 1989, Quail Hollow deposited the ad valorem taxes paid by lot purchasers in a separate account from other monies. Starting at the end of 1989, however, these tax payments were deposited in the general operating account of Quail Hollow Properties. Check-signing authority for these accounts is limited to Respondents, as well as Mr. Corello until his departure.

    
    

28. As was the case with respect to her role as an officer of Quail Hollow, Respondent Haberland's authority to sign checks was strictly as a convenience to Respondent Manetti and did not reflect any substantial authority on her behalf. Following the departure of Mr. Corello, Respondent Haberland speaks with Respondent Manetti at least once a day, and Respondent Manetti decides which creditors are to be paid.

    
    

29. There is no evidence that either Respondent has directly or indirectly participated in any type of fraud whatsoever with respect to the matters discussed above.

    
    

    CONCLUSIONS OF LAW

    
    

30. The Division of Administrative Hearings has jurisdiction over the subject matter and the parties. Section 120.57(1), Florida Statutes. (All references to Sections are to Florida Statutes.)

    
    

31. Petitioner has jurisdiction to "prevent, investigate, or punish" any violation of Section 498.022(1)(a) and (c), which provides:

    
    

    1. It shall be unlawful for any person to offer or dispose of 25 or more lots, units, or interests pursuant to a common promotional plan, and to:

       1. Employ any device, scheme, or artifice to defraud.

          * * *

          (c) Engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon a purchaser.

          
          

32. Section 498.033(1) and (2) provide:

    
    

    1. After an order of registration has been issued, the registrant shall comply with all obligations in the purchase contract, public offering statement, and registration statement.

    2. After an order of registration has been issued, no material change of the offering shall be made unless the registrant first notifies the division in writing and obtains the division's written approval. The approval shall not be unreasonably withheld, and a decision shall be rendered within 20 days from

       the date the division receives adequate information, unless the registrant and the division have agreed in writing to a delay.

       
       

33. Section 498.039(6) provides:

    
    

    Each registrant with registered subdivided lands subject to any lien, mortgage, or other encumbrance shall submit quarterly encumbrance reports certifying that all terms of any encumbering instrument have been met and that timely payments have been made to satisfy any lien, mortgage, real property tax, or other encumbrance upon subdivided lands in whole or in part. The quarterly report shall include satisfactory evidence of the registrant's compliance.

    
    

34. Section 498.049(5) provides:

    
    

    Each person who materially participates in any offer or disposition of any interest in subdivided lands in violation of this chapter or relevant rules involving fraud, deception, false pretenses, misrepresentation, or false advertising or the disposition, concealment, or diversion of any funds or assets of any person which adversely affects the interests of a purchaser of any interest in subdivided lands, and who directly or indirectly controls a subdivider or is a general partner, officer, director, agent, or employee of a subdivider shall also be liable under this subsection jointly and severally with and to the same extent as the subdivider, unless that person

    did not know, and in the exercise of reasonable care could not have known, of the existence of the facts creating the alleged liability.

    Among these persons a right of contribution shall exist, except that a creditor of a subdivider shall not be jointly and severally liable unless the creditor has assumed managerial or fiduciary responsibility in a manner related to the basis for the liability of the subdivider under this subsection.

    Civil penalties shall be limited to $10,000 for each offense . . .. No order requiring the payment of a civil penalty shall become effective until 20 days after the date of the order, unless otherwise agreed in writing by the person on whom the penalty is imposed.

    
    

35. Petitioner does not cite or discuss Former Rule 7D- 5.006, or 7D- 5.008(5) and (8), which were repealed February 16, 1993.

36. Petitioner must prove the material allegations against Respondent by clear and convincing evidence. Ferris v. Turlington, 510 So. 2d 292 (Fla. 1987).

    
    

37. These cases do not directly involve Quail Hollow or its shortcomings with respect to compliance with various laws, contractual obligations, or good bookkeeping and accounting practices. These cases involve only Respondents Haberland and Manetti and raise the issue whether they or either of them are guilty of fraud, deception, false pretenses, misrepresentation, or false advertising in connection with the sale of the Quail Hollow lots.

    
    

38. Under the present facts, it is unnecessary to consider the obvious differences in responsibility that differentiate the Respondents from each other. The evidence in these cases does not demonstrate fraud, deception, false pretenses, misrepresentation, or false advertising.

    
    

39. The contractual scheme devised by Quail Hollow with respect to taxes obligates it to advance monies for taxes. This means that it is always spending money that it has not yet received from the lot purchasers. If Quail Hollow established a sufficient reserve to advance these taxes, the source of funds would be relatively secure. If not, then, as has been the case, Quail Hollow must find the funds somewhere among its general operating funds, regardless whether derived from normal operations or extraordinary contributions to capital from its owners.

    
    

40. As Quail Hollow experienced financial pressures, the source of the funds ultimately became Respondent Manetti. Respondent Manetti has discharged the corporate obligations without demonstrated economic injury to lot purchasers. Under these circumstances, sloppy bookkeeping and accounting are not tantamount to fraud.

ENTERED on September 28, 1993, in Tallahassee, Florida.

ROBERT E. MEALE

Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, FL 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings on September 28, 1993.

APPENDIX TO RECOMMENDED ORDER, CASE NO. 93-0340

Treatment Accorded Proposed Findings of Petitioner 1-11: adopted or adopted in substance.

12: rejected as unsupported by the appropriate weight of the evidence.

13: adopted or adopted in substance.

14: adopted to the extent of general understanding. 15: rejected as irrelevant.

16: rejected as unsupported by the appropriate weight of the evidence. 17-18: adopted or adopted in substance.

19: rejected as unsupported by the appropriate weight of the evidence.

The contract called for Quail Hollow to advance tax payments, not forward them.

20-30: adopted or adopted in substance.

31-32: rejected as unsupported by the appropriate weight of the evidence. 33: adopted in substance.

34: rejected as unsupported by the appropriate weight of the evidence.

35: adopted in substance, except for implication that Quail Hollow did not thereafter pay the outstanding taxes.

36: adopted in substance.

37-38: rejected as unsupported by the appropriate weight of the evidence. 39-40: adopted or adopted in substance.

41: adopted, at least as to current tracking. 42-43: adopted.

47-48: rejected as irrelevant. Petitioner does not discuss these rules in the conclusions of law.

Treatment Accorded Proposed Findings of Respondent 1-28: adopted or adopted in substance.

29-30: rejected as unsupported by the appropriate weight of the evidence. 31-34: adopted or adopted in substance.

COPIES FURNISHED:

Jack McCray, General Counsel Department of Business and

Professional Regulation 1940 North Monroe Street

Tallahassee, Florida 32399-0792

Henry M. Solares, Director Division of Florida Land Sales,

Condominiums, and Mobile Homes Department of Business and

Professional Regulation 1940 North Monroe Street

Tallahassee, Florida 32399-0792

Tracy P. Moye, Assistant General Counsel Department of Business and

Professional Regulation Northwood Centre

1940 North Monroe Street Tallahassee, Florida 32399-1007

Carl A. Bertoch

Carl A. Bertoch, P.A. Post Office Box 3106

Tallahassee, Florida 32315-3106

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions to this Recommended Order. All agencies allow each party at least 10 days in which to submit written exceptions. Some agencies allow a larger period within which to submit written exceptions. You should contact the agency that will issue the final order in this case concerning agency rules on the deadline for filing exceptions to this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the final order in this case.

Docket for Case No: 93-000340

Orders for Case No: 93-000340