STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

CAPITAL NATIONAL FINANCIAL )

CORPORATION, )

)

Petitioner, )

)

vs. ) Case No. 97-2160F

)

DEPARTMENT OF INSURANCE )

AND TREASURER, )

)

Respondent. )

)

FINAL ORDER

Pursuant to notice, the above-styled matter was heard before the Division of Administrative Hearings by its duly designated Administrative Law Judge, Susan B. Kirkland, on September 8, 1997, by telephonic conference.

APPEARANCES

For Petitioner: Matias R. Dorta, Esquire

Tew & Beasley, LLP

Miami Center, Suite 2600

201 South Biscayne Boulevard Miami, Florida 33131-4336

For Respondent: Christopher J. Karo, Esquire

Michael H. Davidson, Esquire Division of Legal Services 612 Larson Building

Tallahassee, Florida 32399-0333

STATEMENT OF THE ISSUES

Whether Petitioner is entitled to receive attorney's fees and costs from Respondent pursuant to Section 57.111, Florida Statutes.

PRELIMINARY STATEMENT

On August 20, 1994, Respondent, Department of Insurance and Treasurer (Department), issued A Notice of Intent to Non-Renew Petitioner's, Capital National Financial (Capital), license to transact the business of premium financing in Florida, alleging that Capital was in violation of Sections 627.8504 and 627.838, Florida Statutes. The matter was referred to the Division of Administrative Hearings. On January 8, 1996, the Administrative Law Judge assigned to the case entered a Recommended Order concluding that Capital was not in violation of Section 627.8405, Florida Statutes, because Capital was not financing automobile club memberships. On March 1, 1996, the Department entered a final order, rejecting the Recommended Order's conclusion and finding that Capital was financing automobile club memberships in violation of Section 627.8405, Florida Statutes. Capital appealed the final order, and on March 12, 1997, the Third District Court of Appeal reversed the final order which had found Capital in violation of Section 627.8405. On April 29, 1997, the Department issued an amended final order consistent with the appellate court's decision.

On May 8, 1997, Capital filed a Motion for Attorney's Fees and Costs pursuant to Section 57.111, Florida Statutes. On August 29, 1997, the parties filed a Prehearing Stipulation in which they admitted to certain facts. The Department has admitted the reasonableness of the attorney's fees and costs

incurred by Capital, but opposes an award of fees and costs on the basis that the Department was substantially justified in initiating the underlying administrative action against Capital. At the final hearing, the attorneys for the parties made oral argument. Petitioner's Exhibits 1-50 and Respondent's Exhibits 1-3 were admitted in evidence.

The parties agreed to file proposed final orders within ten days of the close of the hearing. Petitioner filed its proposed final order on September 19, 1997, and Respondent filed its proposed final order on September 19, 1997.

FINDINGS OF FACT

1. On June 24, 1994, Dolly Davis, Insurance Specialist at the Department's Daytona Beach Service Office, sent a letter to Mary Russo, Examiner, Bureau of Specialty Insurers, which brought to the Department's attention that Capital was utilizing a billing service disclosure form in conjunction with its standard premium financing agreement to collect a charge for a supplemental product, allegedly in violation of Sections 627.8405 and 627.838, Florida Statutes.

2. On August 25, 1994, Al Willis, Bureau Chief, Bureau of Specialty Insurance, sent a memorandum to Dennis Silverman, Legal Services, in which Mr. Willis requested the Division of Legal Services to issue an immediate final order to revoke Capital's license to transact premium financing or to fine Capital for allegedly violating Sections 627.8405 and 627.838, Florida

   Statutes. Mr. Willis explained in the memorandum that the Department became aware of the alleged violations through examinations of Ace Auto Insurance and Accountable Auto-Star, both of which were believed to be affiliated with Capital.

3. On August 30, 1994, the Department issued its Notice of Intent to Non-Renew Capital National's license. The Department stated in the Notice that the Department had obtained evidence that Capital was financing automobile club memberships in violation of Section 627.8405, Florida Statutes, and was utilizing a form in conjunction with its premium finance agreement which had not been approved by the Department in violation of Section 627.838, Florida Statutes.

4. The case was referred to the Division of Administrative Hearings for an administrative hearing. The parties agreed to submit memoranda of law and proposed recommended orders based on stipulated facts in lieu of an evidentiary hearing. The parties agreed that the sole issue to be determined by the administrative law judge was whether Capital was financing the purchase of automobile club memberships in violation of Section 627.8405, Florida Statutes. The parties stipulated that the billing service disclosure form used by Capital is executed on the same day the premium finance agreement is executed, and the billing disclosure form is physically a separate document from the premium finance agreement.

5. On January 8, 1996, the administrative law judge entered

   a Recommended Order, concluding that although the billing service disclosure form was part of the premium finance agreement, Capital was not financing automobile club memberships and, therefore, was not in violation of Section 627.8405, Florida Statutes.

6. On February 15, 1996, the Department issued a declaratory statement, In the Matter of Just Premium Finance, Inc., Case No. 12412-95-C-JAB, in which the Department took the position that Section 627.8405, Florida Statutes, prohibits as financing a premium finance company's collection of a charge for the purchase of a supplemental product, despite the fact that the premium company does not advance any funds or charge a rate of interest for performing the service.

7. On March 1, 1996, the Department entered a final order concluding that Capital was financing automobile club memberships in violation of Section 627.8405, Florida Statutes.

8. Capital appealed the final order to the Third District Court of Appeal, Capital National Financial Corporation v. Department of Insurance and Treasurer, Case No. 96-0826.

9. On November 6, 1996, the Department issued a Report of Examination for Dome Premium Finance Company, in which the Department noted that Dome was engaging in activities prohibited by Section 627.8405, Florida Statutes, by utilizing a separate billing disclosure form for the payment of supplemental products.

10. On November 18, 1996, the Department sent a letter to

    Richard Perry, President of Perry and Company, in which the Department requested confirmation that all companies managed or serviced by Perry and Company had terminated the practice of using separate consumer finance agreements. On January 12, 1997, Mr. Perry verified that all companies managed or serviced by Perry and Company had terminated this practice. Perry and Company manages and/or services the following premium finance companies: Freedom Premium Finance Corporation; Equity Premium, Inc.; Puritan Budget Plan, Inc.; and Gibraltar Budget Plan, Inc.

11. Capital National was the only premium finance company to challenge the Department's interpretation of Section 627.8405, Florida Statutes, and thus, it was the only premium finance company to receive a Notice of Intent to Non-Renew its license. The Notice of Intent to Non-Renew was used for the first time against Capital and has never been used again.

12. On March 12, 1997, the Third District Court of Appeal reversed the Department's final order, finding that Capital was not financing automobile club membership under Section 627.8405, Florida Statutes.

13. On April 29, 1997, pursuant to the Third District Court of Appeal's Mandate, the Department issued an amended final order consistent with the Appellate Court's decision.

14. Capital incurred total attorney's fees of $23,010 and costs of $2,024 in defending against the Department's Notice of Intent not to renew Capital's premium finance license. The

    Department has agreed that the fees and costs are reasonable.

    
    

15. Capital is domiciled in the State of Florida.

    
    

16. Currently Capital has ten employees. Since its inception, Capital has never had more than 15 employees.

    CONCLUSIONS OF LAW

    
    

17. The Division of Administrative Hearings has jurisdiction over the parties and subject matter in this proceedings. Sections 57.111 and 120.57(1), Florida Statutes.

18. Petitioner is seeking attorney's fees and costs pursuant to Section 57.111(4)(a), Florida Statutes, which provides:

    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 would make the award unjust.

19. The parties have agreed that Capital is a prevailing small business party and that the only issue that remains is whether the actions of the Department were substantially justified.

20. Sections 57.111(3)(e), Florida Statutes, provides:

    
    

    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.

    
    

21. The Department initiated the underlying administrative proceeding against Capital through the issuance of the Notice of

    Intent to Non-Renew Capital's premium finance license. At the time the Department issued the notice, the Department had evidence in its possession that showed that Capital was executing a billing service disclosure form in conjunction with its execution of its premium finance agreement. The billing disclosure form contained payments for a supplemental product prohibited by Section 627.8405, Florida Statutes, from being financed in a premium finance agreement.

22. The Department interpreted Section 627.8405 to prohibit the collection of the costs of automobile club memberships as the financing of such costs. In Cinciarelli v. Reagan, 729 F.2d 801 (D.C. Cir. 1984), the court was faced with determining whether the government was substantially justified in interpreting the term "period of agreement." The court stated:

    Evaluating the government's position as to the meaning of the term 'period of agreement' in Sections 679 and 680, we find that the interpretation, while ultimately wrong, was substantially justified. As the earlier panel of this circuit noted, the government's interpretation of the statutory term was neither facially unreasonable nor inconsistent with the terms of Sections 679 and 680. Though the government must prove its position is more than merely 'facially' reasonable to meet the EAJA's 'substantially justified' standard, the government's reading meets this higher threshold in this case.

    The phrase 'period of agreement' is nowhere

    defined in the relevant statute. The legislative history evinces no specific congressional intent that 'period of agreement' be read as commencing on the day a SWAG is signed rather than the day service commences. And prior to our ruling on the merits of this case, no court had construed

    the term. Given the lack of clarity in the governing statute and the absence of any definitive construction of that statute, we hold that the government's litigation position on this issue was sufficiently reasonable to qualify as 'substantially justified' under Section 2412(d). See Spencer, supra, 712 F.2d at 559-5560.

    Resolution of the statutory issue interpretation issue turned ultimately on subtle and competing policy judgments. We will not hold the government to a standard of prescience as to which way we would resolve competing policies in this case.

    Id. at 806, 807.

    
    

23. "The term "financing" is not defined within Part XV of Chapter 627, Florida Statutes. No court had previously construed the term "financing" within the context of Section 627.8405. However, unlike the term interpreted in Cinciarelli, the interpretation of "financing" did not turn on subtle and competing judgment policies. The interpretation was simply a matter of reading the dictionary and applying the common meaning to the term. It was facially unreasonable for the Department to interpret financing to mean collection. The Department was not substantially justified in bringing the notice of intent to non- renew against Capital.

24. The Department has agreed that the fees and costs incurred by Capital are reasonable. Section 57.0111(4)(d)2, Florida Statutes, provides that the award of fees and costs shall not exceed $15,000. The fees and costs incurred by Capital exceed $15,000; thus, Capital is entitled to recover $15,000 in fees and costs.

Based on the foregoing Findings of Fact and Conclusions of Law, it is ORDERED that the Motion for Attorney's Fees and Costs is GRANTED and that Capital recover $15,000 against the Department for fees and costs.

DONE AND ORDERED this 10th day of October, 1997, in Tallahassee, Leon County, Florida.

SUSAN B. KIRKLAND

Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(904) 488-9675 SUNCOM 278-9675

Fax Filing (904) 921-6847

Filed with the Clerk of the Division of Administrative Hearings this 10th day of October, 1997.

COPIES FURNISHED:

Bill Nelson, State Treasurer and Insurance Commissioner

Department of Insurance The Capitol, Plaza Level

Tallahassee, Florida 32399-0300

Daniel Y. Sumner, General Counsel Department of Insurance

The Capitol, Lower Level 26 Tallahassee, Florida 32399-0300

Matias R. Dorta, Esquire Tew & Beasley, LLP

Miami Center, Suite 2600

201 South Biscayne Boulevard Miami, Florida 33131-4336

Christopher J. Karo, Esquire Michael H. Davidson, Esquire Division of Legal Services 612 Larson Building

Tallahassee, Florida 32399-0333

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: 97-002160F

Orders for Case No: 97-002160F