Pursuant to notice, a formal hearing was held in these cases on January 12, 1999, in Gainesville, Florida, before Donald R. Alexander, the assigned Administrative Law Judge of the Division of Administrative Hearings.
For Petitioners: Steven D. Spivey, Esquire
For Respondent: Margaret S. Karniewicz, Esquire
Department of Banking and Finance Suite 526, Fletcher Building Tallahassee, Florida 32399-0350
The issue is whether Petitioners' applications for reimbursement from the Securities Guaranty Fund should be approved.
This matter began on July 28, 1998, when Respondent, Department of Banking and Finance, issued two Notices of Intent
to Enter a Final Order Denying Recovery from the Securities Guaranty Fund. The notices denied the applications by Petitioners, Clyde and Patti Gallo and Richard and Belinda Morin, for payment from the Securities Guaranty Fund for monetary damages suffered by virtue of a registered associated person having violated Sections 517.07 or 517.301, Florida Statutes.
Petitioners then requested a formal hearing under Section 120.569, Florida Statutes, to contest the proposed action. Both matters were referred by Respondent to the Division of Administrative Hearings on August 25, 1998, with a request that an Administrative Law Judge be assigned to conduct a formal hearing.
By Notice of Hearing dated September 14, 1998, a consolidated final hearing on both applications was scheduled on January 12, 1999, in Gainesville, Florida.
At final hearing, Petitioners offered Petitioners' Exhibits A-F, which were received in evidence. Respondent presented the testimony of Donald Saxson, director for the
Division of Securities and Investor Protection. Also, it offered Respondent's Exhibits 1-6. All exhibits were received in evidence.
The transcript of hearing was filed on February 1, 1999. Proposed findings of fact and conclusions of law was filed by Petitioners and Respondent on February 8 and 15, 1999, respectively, and they have been considered by the undersigned in the preparation of this Recommended Order.
These cases involve claims by Petitioners, Clyde and Patti Gallo (Case No. 98-3765) and Richard and Belinda Morin (Case No. 98-3766), for payment from the Securities Guaranty Fund (Fund) for monetary damages suffered as a result of violations of the Florida Securities and Investor Protection Act by William Anthony McClure (McClure). When the violations occurred, McClure was a registered associated person employed by Schneider Securities, Inc. (Schneider), a Colorado corporation registered as a securities dealer in the State of Florida. The Fund is administered by Respondent, Department of Banking and Finance (Department), which must approve all applications for payment from the fund.
Undisputed Facts Regarding the Gallo's Claim
McClure served as manager for Schneider's branch office in Gainesville, Florida. On February 26, 1993, the Gallos deposited the sum of $213,978.10 with Schneider to open an account for investment purposes.
McClure executed a Letter of Authorization dated March 18, 1993, for the transfer of $30,000.00 from the Gallo's
brokerage account without the Gallo's authority. This money was then transferred to Buddy Miller, who paid McClure $5,000.00 for the delivery of the money.
McClure subsequently obtained ratification of the transfer of monies from the Gallo's account by representing to Mr. Gallo that the transaction was a "factoring arrangement" and that the investment of monies would be "secure."
McClure made the foregoing representations at a time when he knew that Miller was insolvent, that he was paying him a kickback, and that the money had already been transferred from the Gallo's account. McClure did not disclose this information to the Gallos. The Gallos lost the entire $30,000.00 appropriated by McClure from their account with Schneider.
In February 1995, the Gallos filed a five-count complaint with the Circuit Court of the Eighth Judicial Circuit against McClure and Schneider. They also served a treble damage notice to McClure under Section 772.11, Florida Statutes. McClure did not make restitution within 30 days from receipt of notice in order to avoid liability for treble damages.
In April 1996, the Gallos received the sum of $40,000.00 from Schneider in a mediated settlement. This amount covered their loss of principal.
On August 19, 1996, an Amended Final Judgment awarded the Gallos the sum of $30,000.00 in compensatory damages. This amount was then trebled to $90,000.00 pursuant to Section 772.11, Florida Statutes.
The Amended Final Judgment subtracted the sum of
$40,000.00 received from Schneider from the $90,000.00 in trebled damages for a total of $50,000.00 plus statutory interest of
$9,999.00, or a total of $59,999.00 against McClure.
On December 4, 1996, a Final Judgment awarded the Gallos the sum of $20,878.50 in attorney's fees and the sum of
$1,312.06 in court costs against McClure. The parties agree that these amounts are not recoverable from the Fund.
On July 11, 1998, the Gallos submitted a claim to the Department seeking to recover $10,000.00 of the treble damages they were awarded pursuant to Section 772.11, Florida Statutes. This claim was denied by the Department on July 28, 1998, on the ground that a claimant cannot recover treble damages from the Fund.
Undisputed Facts Regarding the Morin Claim
In January 1993, Richard and Belinda Morin deposited the sum of $231,862.59 with Schneider to open an account for investment purposes. McClure was the account executive for Schneider who handled the Morin's brokerage account.
In mid-March 1993, McClure contacted Mr. Morin to suggest an investment that he represented as being "secure" and "short-term." McClure described the investment to Morin as a "factoring security" of an account receivable of a major manufacturing concern that was secured by the guaranteed payment of the invoice.
The investment suggested by McClure to Morin was really an unsecured loan to a small outdoor furniture manufacturer in Central Florida known as Cypress Originals (Cypress). Cypress was then in severe financial distress which fact was not disclosed to Morin by McClure.
On March 5, 1993, or prior to the above discussion, McClure had forged Morin's signature on a Letter of Authorization for the transfer of $25,000.00 from the Morin's brokerage account with Schneider and forwarded the money to Cypress.
In June 1993, McClure appropriated an additional
$20,000.00 from the Morin's brokerage account into his own personal account or to an account owned and controlled by him. The Morins lost the entire $45,000.00 appropriated from their account.
In February 1995, the Morins filed a five-count complaint in the Circuit Court of the Eighth Judicial Circuit against McClure and Schneider. They also served a treble damage notice to McClure under Section 772.11, Florida Statutes. McClure did not make any restitution within thirty days after receipt of the notice in order to avoid liability for treble damages.
In February 1997, the Morins received $45,000.00 from Schneider in a mediated settlement. This amount covered their loss of principal.
On July 2, 1997, the Morins were awarded the sum of
$45,000.00 in compensatory damages. This amount was trebled to
$135,000.00 pursuant to Section 772.11, Florida Statutes. The Final Judgment awarded the Morins the sum of $90,000 ($135,000.00 in trebled damages less $45,000.00 received from Schneider), prejudgment interest of $48,397.20, court costs of $9,001.67, and attorney's fees of $32,410.00 against McClure. The parties agree that the court costs and attorney's fees are not recoverable from the Fund.
On June 11, 1998, the Morins submitted a claim with the Department seeking to recover $10,000.00 of the prejudgment interest award. On July 28, 1998, the Department issued its proposed agency action denying the claim on the ground that prejudgment interest cannot be recovered from the Fund.
The Department's Interpretation and Practice
The Department interprets the term "actual or compensatory damages," as used in Section 517.141(1), Florida Statutes, to mean only the principal amount of the loss by the investor. The Department has never approved a claim against the Fund for any damages other than the actual loss of principal.
Under the Department's interpretation of "actual or compensatory damages," prejudgment interest and trebled damages would be excluded from being recovered from the Fund.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the subject matter and the parties hereto pursuant to Sections 120.569 and 120.57(1), Florida Statutes.
In proving up their claims, Petitioners bear the burden of showing by a preponderance of the evidence of their entitlement to recover from the Fund. Dep't of Transportation v. J. W. C. Co., Inc., 396 So. 2d 778 (Fla. 1st DCA 1981). In making this showing, it must be kept in mind that "[s]tatutes establishing economic grants or entitlements are strictly construed in favor of the government and against the grantee." The Environmental Trust v. State, Dep't of Envir. Reg., 714 So. 2d 493, 497 (Fla. 1st DCA 1998).
Section 517.131, Florida Statutes (1997), is controlling and provides in part that the "Fund shall be disbursed as provided in s. 517.141 to a person who is adjudged by a court of competent jurisdiction to have suffered monetary damages as a result of [a violation of s.517.07 or 517.301] by a dealer, investment advisor, or associated person who was licensed under this chapter at the time the act was committed[.]"
Paragraph (3)(c) of the same statute goes on to provide that any person is eligible to seek recovery from the Fund so long as the claimant "has applied any amounts recovered from the judgment debtor, or from any other source, to the damages awarded by the court."
Section 517.141(1), Florida Statutes (1997), further provides that a claimant may receive reimbursement for the unsatisfied portion of that claimant's judgment, not to exceed
$10,000.00 per claim, "but only to the extent and amount
reflected in the judgment as being actual and compensatory damages, excluding costs and attorney's fees." (Emphasis added)
In support of their claims, Petitioners contend that the treble damages recovered by the Gallos under Section 772.103, Florida Statutes, and the prejudgment interest awarded to the Morins, are "actual or compensatory damages" within the meaning of Section 517.141(1), Florida Statutes. Therefore, they assert that even though Schneider has reimbursed them for their actual loss of principal, they are still entitled to pursue their claims from the Fund for the unsatisfied judgments against McClure.
An agency's interpretation of the statute it administers is entitled to great weight and should not be overturned unless it is clearly erroneous. See, e.g., Braman Cadillac, Inc. v. Dep't of Highway Safety and Motor Vehicles,
584 So. 2d 1047, 1049 (Fla. 1st DCA 1991). That interpretation does not have to be the only interpretation or even the most desirable one; it is enough if the agency interpretation is within the range of permissible ones. Golfcrest Nursing Home v. State, Agency for Health Care Admin., 662 So. 2d 1330, 1333 (Fla. 1st DCA 1995).
The Department interprets the phrase "actual or compensatory damages" to include only the principal amount which has been lost by the investor. It excludes prejudgment interest and treble damages. This interpretation is within the range of permissible interpretations and is consistent with the purpose of the Fund, which restricts recovery to the unsatisfied portion of
those damages which were "reflected in the judgment as being actual or compensatory." While this interpretation does not favor the Petitioners, it has not been shown to be "clearly erroneous," and it has accordingly been accepted.
This interpretation is also consistent with the interpretation given to the same term by the Supreme Court in Bidon v. Department of Professional Regulation, 596 So. 2d 450 (Fla. 1992). In construing Section 475.484, Florida Statutes, which prescribes the conditions for recovery from the Real Estate Recovery Fund, the court defined the term "actual or compensatory damages" as "those amounts necessary to adequately compensate an injured party for losses sustained as a result of a defendant's wrongful or negligent actions." Id. at 452. The court went on to say that the legislature's use of the term "actual or compensatory damages" was intended as a "restriction on reimbursement" precluding the recovery of attorney's fees from the Fund. Id. By analogy, the Legislature's use of the term "actual or compensatory damages" in Section 517.141, Florida Statutes, likewise indicates a "restriction on reimbursement" of the types of damages recoverable from the Fund. It is fair to conclude that the Legislature's use of the term "actual or compensatory damages" was also intended as a "restriction on reimbursement" precluding the recovery of treble damages and prejudgment interest from the Fund.
In addition, treble damages are more in the nature of a statutory penalty. Gilliard v. Wright, 667 So. 2d 815 (Fla. 1st
DCA 1995). The treble damages awarded to the Gallos were based upon their cause of action that McClure's actions amounted to "civil theft" under the provisions of Section 772.11, Florida Statutes. Section 772.19, Florida Statutes, cautions, however, that "[n]o damages shall be recoverable under this chapter against the state or its agencies . . ." Allowing the Gallos to recover treble damages from the Fund would circumvent the preceding statutory prohibition.
Finally, under the cases cited by the Morins, they are entitled to recover prejudgment interest on their damages. However, they are entitled to recover prejudgment interest from the defendant who caused their damages, not from the Fund. It would be inequitable to make "innocent" dealers and their agents pay for prejudgment interest on damages that they were not responsible for causing.
In summary, Petitioners have failed to show their entitlement to seek reimbursement from the Fund. Their applications should accordingly be denied.
RECOMMENDED that the Department of Banking and Finance enter a Final Order denying the applications of Clyde and Patti Gallo and Richard and Belinda Morin for reimbursement from the Securities Guaranty Fund.
DONE AND ENTERED this 22nd day of February, 1999, in Tallahassee, Leon County, Florida.
DONALD R. ALEXANDER
Filed with the Clerk of the Division of Administrative Hearings this 22nd day of February, 1999.
Honorable Robert F. Milligan Comptroller, State of Florida The Capitol, Plaza Level Tallahassee, Florida 32399-0350
Steven D. Spivy, Esquire
Margaret S. Karniewicz, Esquire Department of Banking and Finance Suite 526, Fletcher Building Tallahassee, Florida 32399-0350
Harry L. Hooper, III, General Counsel Department of Banking and Finance Room 1302, The Capitol
All parties have the right to submit written exceptions within 15 days from the date of this Recommended Order. Any exceptions to this Recommended Order should be filed with the Department of Banking and Finance.
