STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

LADATCO, INC., d/b/a LADATCO TOURS, )

)

Petitioner, )

)

vs. ) CASE NO. 94-4918

) DEPARTMENT OF AGRICULTURE AND ) CONSUMER SERVICES, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, a formal hearing was conducted in this case on November 8, 1994 in Miami, Florida, before J. Stephen Menton, a duly designated Hearing Officer of the Division of Administrative Hearings.

APPEARANCES

For Petitioner: Michelle D. Shelburne, President

Ladatco, Inc. d/b/a Ladatco Tours 2220 Coral Way

Miami, Florida 33145

For Respondent: Jay S. Levenstein, Senior Attorney

Department of Agriculture and Consumer Services

Room 515, Mayo Building Tallahassee, Florida 32399-0800

STATEMENT OF ISSUE

The issue in this case is whether Petitioner is entitled to a waiver of the bond requirement set forth Section 559.927, Florida Statutes.

PRELIMINARY STATEMENT

By application dated May 27, 1994, Petitioner Ladatco, Inc. d/b/a Ladatco Tours ("Ladatco"), sought a waiver of the requirement in Section 559.927(10)(b), Florida Statutes, that a seller of travel in Florida purchase a performance bond or otherwise provide security to the Department of Agriculture and Consumer Services (the "Department") for potential future claims by travelers. The Department issued a Notice of Intent to Deny Bond Waiver (the "Denial Notice") on August 2, 1994. That Denial Notice indicated that Ladatco's bond waiver request was denied because Ladatco had failed to submit information establishing five consecutive years of ownership as a seller of travel in Florida, because Ladatco had failed to provide documentation to demonstrate financial responsibility and because the audited financial statements or income tax returns submitted did not demonstrate financial responsibility. The Denial Notice advised Ladatco of its right to request an administrative hearing on the

denial. Ladatco timely requested such a hearing and the case was referred to the Division of Administrative Hearings which noticed and conducted a hearing pursuant to Section 120.57, Florida Statutes.

At the outset of the hearing, the Department stipulated that Petitioner had been in business for five consecutive years and the only issue in this case was whether there was sufficient evidence of financial responsibility on the part of Ladatco. During the hearing, Petitioner presented the testimony of Joe S. Berkovits, a certified public accountant who has represented Ladatco since 1977, and Michelle Shelburne, the president of Ladatco and a 50 percent shareholder in the company. Ladatco offered three exhibits into evidence, all of which were accepted without objection.

Respondent presented the testimony of Gloria Van Treese, the Chief of the Bureau of Consumer Protection for the Department. Respondent did not offer any exhibits into evidence.

A transcript of the proceedings has been filed. At the conclusion of the hearing, a schedule was established for filing proposed findings of fact and conclusion of law. Respondent has timely submitted such proposals. As of the date of this Recommended Order, no such proposals have been received from Petitioner. A ruling on each of Respondent's proposed findings of facts is included in the Appendix to this Recommended Order.

FINDINGS OF FACT

Based upon the oral and documentary evidence adduced at the final hearing and the entire record in this proceeding, the following findings of fact are made:

1. Ladatco is a "seller of travel" as that term is defined in Section 559.927(1)(a), Florida Statutes.

   
   

2. Ladatco deals exclusively in wholesale travel packages. Ladatco primarily packages and sells tours of Central and South America to retail travel agents. Until the last few years, the retail travel agents handled virtually all of the ticketing involved in the packages. Changes in the industry have resulted in Ladatco becoming more involved in the ticketing aspect as part of the services it provides in assembling the packages. However, Ladatco has very little direct contact with consumers.

   
   

3. Ladatco originally began operations in 1967 as a subsidiary of another company. Ladatco has been conducting business in its current corporate form since 1976.

   
   

4. Michelle Shelburne has been working for the company since 1969. She has been the president of Ladatco for at least the last ten years and she owns fifty percent (50 percent) of the outstanding stock. Annie Burke and Rosa Perez are the other officers of the company and they each own approximately twenty two and half percent (22 1/2 percent) of the stock. Both Burke and Perez have worked for Ladatco since approximately 1970. The remaining five percent of the outstanding stock is owned by an attorney who has represented Ladatco since 1967.

   
   

5. Ladatco has seven other full time employees and operates out of an office building that is owned jointly by Shelburne, Perez and Burke.

6. Under Section 559.927(10)(b), Florida Statutes, a seller of travel is obligated to post a performance bond or otherwise provide security to the Department to cover potential future claims made by travelers. The security required by this statute is for the benefit of consumers and may be waived by the Department in certain circumstances.

   
   

7. On or about May 27, 1994, Ladatco submitted an Application for Security Waiver (the "Application") pursuant to Section 559.927(10)(b)5, Florida Statutes. In lieu of audited financial statements, Ladatco submitted a copy of its 1993 income tax return with the Application. Line 30 of that income tax return reflects a net loss for tax purposes of $100,722.

   
   

8. In reviewing an application for a bond waiver, the Department looks at the taxable income on the income tax return. It is the Department's position that if a company shows a loss for tax purposes, it is lacking in financial responsibility and is ineligible for a bond waiver. Based on this policy, the Department denied Ladatco's Application by letter dated August 2, 1994.

   
   

9. The certified public accountant who has handled all outside accounting services for Ladatco since 1977 testified at the hearing in this matter. He submitted a history of operations for the company from 1985 through 1993. The accountant explained that, in 1986, Ladatco acquired a very expensive computer system with customized software. The cost of this system was depreciated over a five year period. In addition, until 1991, the company operated out of a building that it owned. The building was sold to the individual principals of the company in 1991. During the years the company owned the building, a significant amount of depreciation was generated for tax purposes.

   
   

10. The large depreciation expenses for the years 1986 through 1991 generated losses for tax purposes which have been carried over for future years. Thus, while the company's operations for 1993 generated a profit of $65,000, the loss carry over resulted in a net loss for income tax purposes.

    
    

11. The current year forecast for the company, based upon existing bookings, projects a net income in excess of $64,000 for the year ending December 31, 1994.

    
    

12. In sum, an isolated look at the taxable income loss reflected on the 1993 income tax return does not provide an accurate picture of the financial responsibility of this company. This closely owned company has been in business for approximately twenty eight (28) years. The three principals in the company have all been with the firm for more than twenty four (24) years. The company has demonstrated a great deal of stability and, while profitability has fluctuated from year to year, the company has continually met its obligations for more than a quarter century. There is every indication that it will continue to do so in the future.

    
    

13. Ladatco has maintained a bond with the Airline Reporting Corporation ("ARC") for approximately two and a half years. The amount of the bond varies from year to year, but is generally in the vicinity of $35,000.

    
    

14. The statute provides that a company which has successfully maintained a bond with the ARC for three years is entitled to a security waiver. While the ARC bond only protects the airlines and not the travelers, Ladatco will qualify for a waiver under this provision in approximately May of 1995.

15. There is no indication of any unresolved complaints against Ladatco nor is there any evidence of civil, criminal or administrative action against the company.

    
    

    CONCLUSIONS OF LAW

    
    

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

    
    

17. Ladatco is a "seller of travel" as that term is defined in Section 559.927, Florida Statutes, and is required to annually register with the Department under subsection 2 of the statute.

    
    

18. Section 559.927(10)(b) provides that it is a violation of the statute for any person:

    
    

    * * *

    (b) To conduct business as a seller of travel without an annual purchase of a performance bond in the amount set by the Department, which amount will set by the Department, which amount will not exceed $25,000 . . .

    1. In lieu of the performance bond required in this section, a registrant or applicant for registration may establish a letter of credit or certificate or certificate of deposit in a Florida

       . . .

    2. Any traveler may file a claim against the bond, letter of credit, or certificate of deposit which shall be made in writing to the Department within a hundred and twenty days after an alleged violation of a contract and shall be disposed of pursuant to s. 120.57 . . .

    3. The bond or certificate of deposit shall be payable to the state for the use and benefit of any traveler who was injured by the fraud, misrepresent- ation, or financial failure of the seller of travel and conditioned that the registrant will pay any judgement recovered by any traveler in any suit for actual damages, including reasonable attorney's fees, resulting from a cause of action involving the registrant's activities as a seller of travel . . .

    5. The Department may waive the bond requirement in this subsection if the seller of travel has had five or more consecutive years of experience as a seller of travel in Florida, can demonstrate financial responsibility in the submission of current audited financial statements, has not had any civil, criminal or administrative action instituted against him in the vacation and travel business, and has a satisfactory consumer complaint history with the Department. Such waiver maybe revoked if the seller of travel violates any provision of this section.

19. Rule 5J-9.007(1)(b), Florida Administrative Code, provides as follows:

    
    

    1. The Department may waive the bond requirements in this section if the seller of travel:

       1. Provides documentation that he has 5 or more consecutive years of business ownership experience as a seller of travel in Florida:

       2. Can demonstrate financial responsibility by submitting to the Department an audited financial statement or Federal income tax return for the immediately proceeding fiscal year;

       3. Has had no civil, criminal, or administrative action instituted against it or any of its owners, officers, directors or general partners in the vacation or travel business; and

       4. Has a satisfactory consumer complaint history with the Department.

          
          

20. Ladatco has the burden of proof in this proceeding to establish that it has met the requirements for a waiver of security. See, Balino v. Department of Health and Rehabilitative Services, 348 So.2d 349 (Fla. 1st DCA 1977); Department of Transportation v. J.W.C. Company Inc., 396 So.2d 778, 786-789 (Fla. 1st DCA 1981).

    
    

21. The parties have stipulated that the only issue in this case is whether Ladatco has demonstrated financial responsibility. Ladatco submitted its 1993 Federal income tax return with its Application. The Department denied the Application because line 30 of the income tax return, which sets forth the taxable income, reflects a loss of $100,722. The Department contends that an applicant's income tax return must reflect a positive taxable income during the immediately proceeding fiscal year in order for a waiver to be granted. This requirement is not specifically set forth in the statue or the rules.

    
    

22. The Department argues that its interpretation of the statute should be given deference and must be upheld unless it is shown to be clearly erroneous. The cases cited by the Department in support of this contention involve judicial review of agency declaratory statements, Motel 6 v. Department of Business Regulation, 560 So.2d 1322 (Fla. 1st DCA 1990), challenges to policies enuciated in formally adopted rules, Department of Professional Regulation, Board of Medical Examiners v. Durrani 455 So.2d 515 (Fla. 1st DCA, 1984), or issues that were legal conclusions or "ultimate facts infused with policy consideration for which the agency could rightfully claim some special insight." Public Employees Relations Commission v. Dade County Police Benevolent Association, 467 So.2d 987 (Fla. 1987); Griffin v. Department of Business Regulation, Division of Pari- Mutual Waging, 613 So.2d 930 (Fla. 3d DCA 1993.) The central issue in this proceeding, i.e., whether Ladatco is financially responsible, does not fall in any of those categories. Instead, it is purely a question of fact which is appropriately resolved based upon the consideration of all of the evidence presented in a de novo proceeding pursuant to Section 120.57(1), Florida Statutes.

    
    

23. The statutory scheme grants the Department discretion to waive the security requirement based upon its review of an applicant's financial condition. Neither the statute nor the Rules of the Department specify how that discretion is to be exercised. The Department is certainly justified in considering the net taxable income reflected on an applicant's federal income

    tax return in determining whether to grant a waiver of security. However, the reasonableness of the Department's unwritten policy of looking solely at the taxable income reflected on the income tax return has not been explained or supported by evidence in this proceeding. See McDonald v. Department of Banking and Finance, 346 So.2d 583 (Fla. 1st DCA 1977). The Department's exercise of its discretion should be based upon a consideration of all the evidence presented by an applicant regarding its financial condition not just one line on a tax return. The length of time that a company has been in business, the stability of its management, the reasons behind the taxable income loss, and the operating history of the company are all relevant factors that should be taken into account on a case by case basis in determining financial responsibility.

    
    

24. Absent some further explication, it would be appropriate to deny a waiver to a company whose income tax return for the prior year reflected a loss of $100,000. However, the evidence presented at the de novo hearing in this case established that Ladatco has been in business for approximately 28 years. The company has never failed to meet its obligations. The management of the company has remained extraordinarily stable. In fact, each of the principals of the company has been with Ladatco for more than 24 years. The net taxable loss reflected on the 1993 Federal income tax return was the result of a tax loss carry over that was generated largely through high depreciation expenses in prior years. In sum, the evidence demonstrated that Ladatco is financially responsible and is entitled to a waiver of security pursuant to Section 559.927(10)(b)5, Florida Statutes.

RECOMMENDATION

Based upon the forgoing findings of fact and conclusions of law, it is RECOMMENDED that the Department of Agriculture and Consumer Services enter a Final Order granting Ladatco's application for security waiver pursuant to Section 559.927(10)(b)5, Florida Statutes.

DONE AND ENTERED in Tallahassee, Leon County, Florida, this 16th day of December 1994.

J. STEPHEN MENTON 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 16th day of December 1994.

APPENDIX TO RECOMMENDED ORDER

Only the Respondent has submitted proposed findings of fact. The following constitutes my ruling on those proposals.

1. Adopted in pertinent part Finding of Fact 6 and also addressing the Preliminary Statement and in the Conclusions of Law.

2. Adopted in substance in Finding of Fact 6.

3. Adopted in substance in Finding of Fact 7.

4. Adopted in substance in Finding of Fact 7.

5. Adopted in substance in Finding of Fact 8.

6. Adopted in substance in Finding of Facts 7 and 8.

COPIES FURNISHED:

Michelle D. Shelburne, President Ladatco, Inc. d/b/a Ladatco Tours 2220 Coral Way

Miami, Florida 33145

Jay S. Levenstein, Senior Attorney Department of Agriculture

and Consumer Services Room 515, Mayo Building

Tallahassee, Florida 32399-0800

Honorable Bob Crawford Commissioner of Agriculture The Capitol, PL-10

Tallahassee, Florida 32399-0810

Richard Tritschler General Counsel Department of Agriculture

and Consumer Services The Capitol, PL-10

Tallahassee, Florida 32399-0810

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: 94-004918

Orders for Case No: 94-004918