STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

NATIONAL ASSOCIATION OF ) LOTTERY PURCHASERS, INC., )

)

Petitioner, )

)

vs. ) Case No. 99-4431RE

) STATE OF FLORIDA, DEPARTMENT ) OF THE LOTTERY, )

)

Respondent. )

)

FINAL ORDER

This cause came on for formal proceeding before

P. Michael Ruff, a duly-designated Administrative Law Judge of the Division of Administrative Hearings. The hearing was conducted on November 18, 1999, at Tallahassee, Florida.

APPEARANCES

For Petitioner: Segundo J. Fernandez, Esquire

Timothy P. Atkinson, Esquire

Oertel, Hoffman, Fernandez & Cole, P.A.

301 South Bronough Street Tallahassee, Florida 32301

For Respondent: Edwin A. Bayó, Esquire

Office of the Attorney General The Capitol, Plaza Level 01 Tallahassee, Florida 32399-1050

STATEMENT OF THE ISSUES

The issues to be resolved in this proceeding concern whether the Emergency Rule 53ER99-48, Florida Administrative Code, constitutes an invalid exercise of delegated legislative authority, whether it was promulgated pursuant to a true

emergency and whether certain agency statements contained in letters promulgated by the agency constitute an unadopted rule, in purported violation of Section 120.54(1)(a), Florida Statutes.

PRELIMINARY STATEMENT

This cause arose on October 19, 1999, upon the filing of a "Petition for Administrative Determination of Invalidity of Emergency Rule and Agency Statement Defined as rule." The Petition was filed by the National Association of Lottery Purchasers, Inc. (NALP), challenging the validity of Emergency Rule 53ER99-48, Florida Administrative Code, as well as certain letters dated September 13, 1999 and September 28, 1999, relative to lump-sum cash pay-outs of lottery winnings. Both the Emergency rule and the letters sought to implement a one-time opportunity for eligible lottery prize winners to voluntarily "cash-out" the remaining annual payments and receive a single lump-sum cash payment settlement. The new Emergency Rule was adopted by the Department of the Lottery (Department) on

October 8, 1999, and published in the Florida Administrative Weekly in Volume 25, Number 40.

A Motion for Summary Final Order was filed by the Department on November 4, 1999, challenging the Petitioner's standing. An Order was entered by the undersigned Judge on November 12, 1999, holding that based upon the arguments advanced and authorities cited that the Petitioner had sufficiently pled its standing so

as to allow it to proceed to hearing at which proof of standing could be offered.

The cause came on for hearing as noticed on the above date. The Petitioner offered Exhibits 1 through 15, 20 through 27, and

29 through 31, which were received into evidence. The Petitioner also presented expert testimony by David M. Lewis, the President of NALP, and expert testimony of Robyn Marc Shapiro, General Counsel of Singer Asset Finance Company, a member organization of NALP.

The Respondent presented the expert testimony of Barbara Jarriel, Chief of Fixed Income Securities for the State Board of Administration (SPBA) as well as the testimony of Barbara Goltz, the Assistant Secretary for Finance and Administration for the Department of the Lottery. The Respondent also offered its Exhibit 1 which was received into evidence over a hearsay objection for the limited purpose of showing the sources the Department relied on in arriving at a rationale for the challenged Emergency Rule and not for the truth of the matters contained in the document.

FINDINGS OF FACT

1. The Petitioner is a corporation incorporated in the Commonwealth of Virginia as a "not-for-profit" corporation. It is registered to do business in the State of Florida. NALP is an association of six member companies. It became organized following the passage of a change to the Internal Revenue Service

   (IRS) tax code enacted on October 21, 1998. That provision,

   
   

   I.R.C. Section 451(h), the so called "transitional rule" provided that if state lotteries offered to "cash-out" previous prize winners on a limited basis, then the tax payer would not be subject to the so called "constructive receipt doctrine." NALP's members purchase large lottery payment streams in every state that has a lottery, including Florida. The winners assign their right to the annual payments in return for a lesser amount than their payments would total over, in Florida, the twenty-year time span for pay-outs, in return for receiving the immediate cash lump-sum. In Florida this is accomplished pursuant to Section 24.1153, Florida Statutes (1999). One of NALP's main purposes is to protect the interests of its member companies through monitoring and participating in the formulation of federal legislation as well in rulemaking before various state agencies including the Florida department, as well as to provide educational materials and functions for members and for the various state lottery agencies. Each of the member companies owns at least one Florida Lottery prize and in the aggregate they own dozens of Florida large lottery prize payment streams worth over fifty million dollars.

2. The Respondent is the Florida Department of The Lottery (Respondent or Department). It is a state agency authorized under Chapter 24, Florida Statutes, to organize, regulate and administer the operation of the state lottery and to properly

   account for, deposit in trust and invest lottery ticket sale proceeds and to pay related prizes from funds received from ticket sales and through investments of such lottery department revenues, all pursuant to Chapter 24, Florida Statutes, and related rules.

   Petitioner's Standing:

   
   

3. The Petitioner has standing to pursue its challenge to the rule and agency statements in this case. Each of its members owns Florida lottery prizes. That is, by operation of assignment under Section 24.1153, Florida Statutes, they have assumed the interests of the actual lottery prize winners who have assigned their prizes to the members of NALP by assignment agreements enacted pursuant to the terms of this statute. The prize winners (winning ticket holders) received discounted amounts, lump-sum settlements, in lieu of prizes paid in equal annual installments over twenty years. Therefore, each of the companies who are members of NALP and hold assignment rights to the lottery prizes, are eligible for the lottery's one-time, cash-out opportunity under the subject Emergency Rule 53ER99-48, Florida Administrative Code. The Emergency Rule applies by its own terms to the Petitioner's members, as they are assignees of the prizes involved. Through the Emergency Rule as well, the Department, in effect, is competing for the same clientele, that is, past lottery prize winners who won the lottery during the relevant time period, and the same cash flow from the prize winners'

   annual payments as are all of the Petitioner's members by virtue of the above-referenced assignment statute. The only real difference is that the Department, by the terms of the rule, does not have to comply with the extensive "Consumer Protection" provisions of the statute which include court proceedings, explicit disclosures of purchase price and discount rate and the ultimate mandate of court orders on proposed assignments, all of which is required by Section 24.1153, Florida Statutes, of private assignment companies. In short, the Petitioner has established a sufficient substantial interest "injury and fact" which occurs within the zone of interest carved out by the lottery prize payment, revenue investment and trust fund management scheme established by Chapter 24, Florida Statutes.

   Emergency Rule 53ER99-48 and Agency statements Purported To be Rules.

   
   

4. Prior to October of 1998, all large lottery prize winners could receive their prize only in equal annual installments over a period of twenty years. They were not given the choice of an immediate lump-sum, cash settlement. This was because, under the federal tax law prevailing at the time, the ability to make a choice of receiving a lump-sum prize award or payments over time automatically triggered the "constructive receipt doctrine" which thereupon allowed the Internal Revenue Service (IRS) to assume the taxpayer had constructive receipt over the entire prize money and therefore, owed income tax on the entire prize in one year. However, assignments of prize payment

   streams to private investment companies for a cash lump-sum settlement in return were allowed through the aegis of state circuit court orders without violating the constructive receipt doctrine. Section 24.1153, Florida Statutes (1999), was enacted to provide for such assignments to third-party, private investment companies with court approval.

5. On October 21, 1998, Congress passed an amendment to Section 451(h) of the I.R.C., henceforth called the "transitional rule." This amendment provided that if state lotteries offered, on a limited basis, to "cash-out" past prize winners, the taxpayer would not be subject to the constructive receipt doctrine for IRS tax purposes. This federal tax exception provision is only effective for a limited period of time, however, from July 1, 1999 through December 31, 2000. This change in the federal tax law does not itself authorize the Department to do anything, rather it only changes the tax consequences to individual tax payers who are lottery winners.

6. When change in the tax code allowing state lotteries to cash-out past winners became known, Mr. Shapiro, General Counsel for a NALP member company, met with attorneys for the Florida Department in 1998 to discuss the Florida Lottery's intentions following passage of Section 451(h) (the amendment in question). In November of 1998, the Department began its examination of the federal transition rule in order to determine whether it would adopt a rule regarding cash-outs of past prize winners. There is

   no federal or state requirement that the Department adopt such a rule. There is no testimony of any need created by changing market conditions to adopt such a rule. The NALP sent information regarding the transition rule including memoranda and legal analysis to all the state lotteries in January of 1999.

7. Many months elapsed during which time the Department was apparently contemplating whether or not to adopt a rule accommodating the above-referenced federal tax law change. On September 13 and September 28, 1999, letters were issued by the Department which offered a cash-out option and announced a methodology available to all previous large lottery prize winners as an alternative to the normal twenty-year, equal annual installment method of payment of prizes. These letters were sent to all eligible winners and predated the issuance of the Emergency Rule adopted by the Department and under consideration in this case. Even though the Emergency Rule was adopted after the mailing of the letters, the Department still takes the position that it relied on the letters as supplemental to the terms of the offers contained in the Emergency Rule itself.

8. Thereafter, and almost one year after it first considered adopting a rule to accommodate the advent of the federal transitional rule, and almost a month after the first cash-out option letter went to previous lottery winners, the Department, on October 8, 1999, published its Emergency Rule

   53ER99-48, entitled "Florida Lottery Prize Payment Option Election." That rule provides in pertinent part as follows:

   1. From October 1, 1999 through November 30, 1999, the Florida Lottery is

      providing a one-time opportunity for eligible prize winners to elect to voluntarily cash out their remaining annual installment payments and receive a single lump-sum cash payment.

      
      

   2. In order to be eligible for this opportunity, the prize winner must have won a Florida Lottery prize before October 22, 1998, which is payable over a period of at least ten years, and the prize winner must not have assigned the prize to another person or entity pursuant to Section 24.1153, Florida Statutes (1999).

      * * *

      
      

      1. All prize winners who elect to cash out will be paid in one lump-sum cash payment and the payment shall be calculated as follows:

         
         

         1. For all prizes, other than WIN FOR LIFE prizes, the lump-sum payment amount will be the accreted value of the Lottery's investment (original cost plus accrued interest) as determined on a date certain (the "trade date"), unless the market value of the investment is less than the accreted value determined on the trade date. In that case, the market value of the investment will be paid.

            
            

      2. If a prize winner elects to cash out, the Lottery's investment will be liquidated.

      . . .

9. According to department witnesses, the delays in adopting the subject Emergency Rule were attributable to changes in the executive administration of the state due to the 1998 election of the Governor and concomitant changes in the person of the Secretary of the Lottery as well as changes in the prize

   payment process for new lottery winners (as opposed to past lottery winners), embodied in Rule 53-28.007, Florida Administrative Code (not here under challenge). The Department conceded that it did not make the promulgation of the Emergency Rule its highest priority and took almost a year, from

   October 21, 1998 to October 8, 1999, for adoption of the rule even as an Emergency Rule.

10. No market conditions were described in the evidence which would have prevented the adoption of a regular rule proposed in the normal fashion rather than an Emergency Rule. No evidence propounded by the Department explains why regular rulemaking would not have been practicable in this matter and in dealing with the subject matter of the Emergency Rule. No reason stated by the Department at hearing will support a factual finding of any emergency existing which required the promulgation of the prize payment option election as an Emergency Rule rather than in a regularly proposed and enacted rule proposed in accordance with Section 120.53, Florida Statutes. In fact, the Internal Revenue Code transition rule option which gave rise to the purported Emergency Rule is valid through December 31, 2000, almost thirteen months after actual promulgation of the Emergency Rule.

11. Any urgency perceived by the Department at this point was not shown to be anything other than a sense of urgency in the perceived need to adopt the past prize winner cash pay-out

    "Emergency Rule" caused by the Department's own delay since October 21, 1998, in promulgating a rule on the subject, emergency or otherwise. While this delay might be for legitimate, understandable reasons, the fact remains that the delay was the Departments' own responsibility and does not militate in favor of a finding that there is any emergency necessitating the adoption of an emergency rule because of changes in market conditions or for other reasons.

12. Once a large lottery drawing produces a winner or winners and a monetary prize, the Department transfers the prize funds to the State Board of Administration (SBA) for investment pursuant to Section 24.120(2), Florida Statutes, and in accordance with a Trust Agreement executed between the Department and the SBA. The Department and the SBA hold those past funds in trust pursuant to Section 24.120(2), Florida Statutes, for the benefit of that Lottery prize winner so that the winner will be assured of receiving the prize payments in equal amounts over a twenty-year period. Under the statutorily required payments system, when a prize is awarded, the Department and the SBA calculate the amount of money needed to purchase U.S. Treasury Securities (Treasury Strips) which will generate enough funds to meet the prize payment requirements for each year of the pay-out period. The investment is then done in a manner designed to preserve capital and to ensure the integrity of the lottery disbursement system by eliminating risk of payment of funds when

    due and to produce annual sums of money over the required term of investments. Once the prize monies are in the Section 24.120(2), Florida Statutes, trust fund, the prize is deemed awarded and paid by the Department. Thereafter, the annual payments to the lottery winner are a matter of privity between that winner and the trust fund.

13. Section 24.120(2), Florida Statutes, was enacted at a time when only annual payments were statutorily authorized. Section 24.120, Florida Statutes, has not been amended since new lottery winners (post October 1998) were given the choice of annual payments or a lump-sum payment pursuant to

    Rule 53-28.007, Florida Administrative Code. Moreover, money for those lump-sum prize payments pursuant to that rule do not get deposited into the Section 24.120(2), Florida Statutes, trust fund, but are always deposited in the trust fund called the Administrative Trust Fund pursuant to Section 24.120(1), Florida Statutes. They are not deposited in the Section 24.120(2), Florida Statutes, trust because that trust was designed by the Legislature to provide investment instruments securing only equal annual installment prize payments.

14. The Emergency Rule 53ER99-48 does not actually effectuate payment of a prize. Rather, it has the effect of changing Lottery prizes already first awarded and already transferred to the Section 24.120(2), Florida Statutes, trust fund. Winners of large Lottery prizes prior to October 1998,

    were entitled to equal annual prize payments over a twenty-year period.

15. The Department's Emergency Rule has the effect of changing that prize to allow a single cash payment of the funds produced from the sale of the investment held and designed by the Legislature to fund only the annual prize payments. The Department thereby would instruct the SBA to liquidate the "Treasury Strips" held in trust for the benefit of the Lottery prize winner and designed to secure payment of equal annual installments to the prize winner over twenty-years, in order to fund the lump-sum payment provided for under the Emergency Rule at issue.

16. The Emergency Rule allows the Department to sell the trust investment which supports the twenty-year pay-out of a prize, on a "trade date" before the required term of the investments lapses. The "trade date", while it might presumably be the date of sale of the trust investment which supported installment payments of the prize in question, is not clearly defined in the rule as to what the trade date is or how it is determined. The Department would then pay the prize winner the lesser of the "market value" or the "accreted value." This lump- sum amount is not the same as the total amount of the installments the prize winner would be entitled to over the entire twenty-year period calculated as the winner's entitlement when the prize is initially awarded. The lump-sum also does not

    represent the liquidated value of the investment held in trust for the winner. If the accreted value is less than the market value on the trade date then the lottery winner would only get the accreted value and the Department would get the balance, presumably the difference between accreted value and market value. Thus, through this Emergency Rule the Department proposes to sell the investments before the required term lapses and potentially pay the winner only a portion of that money, thus retaining additional proceeds for the Lottery. The Emergency Rule does not specify how the Department would determine what the winner's share would be under the lump-sum arrangement, nor how much the Department would keep after payment of the lump-sum amount when the supporting investments in the trust are liquidated for a given prize winner.

17. In this connection the Emergency Rule does not clearly define certain critical terms necessary for a lay person to be able to understand the cash-out offer from the Department. The terms include "accreted value", "original cost" and "accrued interest." Accreted value is described as being the difference in the sum of the original cost of the investment and the accrued interest earned thereon. How one determines "original cost" and "accrued interest" is not specified in the rule, however. While financial experts might easily determine how to define those terms and determine the relevant sums attributable to them, the rule is vague in these particulars in terms of adequately

    defining how these critical terms relate to the amount a lottery prize winner could expect from a lump-sum pay-out and in providing such a prize winner a clear understanding of how the lump-sum is calculated. Thus the rule has not been shown to be engendered by a true emergency and, in the particulars referenced last above, it is vague.

    Agency statements Defined As A Rule:

    
    

18. On September 13 and 28, 1999, the Department issued letters to previous lottery prize winners setting forth the terms and conditions concerning the formulae and method in which the pricing, timing and other terms and conditions of cash pay-outs would be determined. Those letters pre-dated the promulgation of the subject Emergency Rule. Several of the Petitioner's member companies received the cash-out offer letters similar to those attached to the Petitioner's petition. The letter stated, in pertinent part:

    If you elect to cash out, however, you will receive a single, smaller lump-sum payment. This amount will be the accreted value of the Lottery's investment (original cost plus accrued interest) as determined on a date certain (the "trade date"), unless the market value of the investment is less than the accreted value determined on the trade date. In that case, you will receive the market value of the investment. . . .

19. The Department's letters thus contain a formula for determining the amount of the cash-out offer. That formula is not disclosed or contained in the Emergency Rule, even though it purports to apply to all previous lottery winners eligible under

    the rule. Be that as it may, the Respondent has asserted in its Proposed Final Order that the Petitioner's challenge to the letters as agency statements amounting to a rule is now moot with the enactment of the subject Emergency Rule. This appears to amount to a recession by the Department from reliance on the statements and content of those letters in defining and implementing its cash pay-out program for previous Lottery winners. Nevertheless, in the context of resolving all issues raised by the Petitioner, the question of those letters having the quality of an unpromulgated rule will be addressed below.

20. The Department has cited Sections 24.105(10)(j), 24.115(1) and 24.109(1), Florida Statutes, as the source of its rule-making authority. Section 24.105(10)(j), Florida Statutes, provides the Department with authority to adopt rules concerning the manner of payment of prizes to holders of winning tickets and such other matters necessary or desirable for the efficient or economical operation of the lottery or for the convenience of the public. See also Section 24.105(10)(e), Florida Statutes. Section 24.105(10)(j), Florida Statutes, however, does not specifically authorize cash pay-outs to previous lottery winners already determined to be eligible to receive payment as holders of winning tickets and who have already received awards of payments in equal annual installments pursuant to Section 24.120(2), Florida Statutes. Section 24.115(1), Florida Statutes, authorizes the Department to adopt rules "to effect

    payment of . . . prizes." However, the payment of prizes to the relevant past winners was effected when the Department made its initial one-year payment to the pertinent prize winners and then paid the remaining cash represented by the winning tickets to the SBA in the trust established by the Legislature for the lottery winners, for investment in securities supportive of equal annual installment payments to the winners pursuant to the trust arrangement established in Section 24.120(2), Florida Statutes.

21. Section 24.109(1), Florida Statutes, while it authorizes the Department to adopt emergency rules in general when such emergency rulemaking power " . . . is necessary for the preservation of the rights and welfare of the people in order to provide additional funds to benefit the public . . . " does not specifically authorize any particular emergency rule subject matter, including cash pay-outs to prior Lottery winners already determined eligible to receive prize payments in equal annual installments pursuant to Section 24.120(2), Florida Statutes.

    The Department, pursuant to Section 24.104(2), Florida Statutes, and Section 24.121(2), Florida Statutes, has a mandate "to maximize revenues consistent with the dignity of the state and the welfare of its citizens" in order to provide, among other things, improvement of the Educational Enhancement Trust Fund each year. The Department has not shown any specific authority to adopt a rule which changes a prize previously awarded, even though it might create new revenues as a result of the difference

    between lump-sum awarded to a past winner and the accreted value of the investment supportive of the prize, or the market value as the case may be. There is no specific authority to have such funds previously invested to support annual installment payments of prize money being diverted from the trust fund set up by the Legislature by Section 24.120(2), Florida Statutes, instead of, for instance, the "Administrative Trust Fund," constituted under Section 24.120(1), Florida Statutes. These findings in conjunction with the reasons given in the Conclusions of Law below show that the Department exceeded its rulemaking authority in enacting the Emergency Rule and the agency statements at issue.

    Enlargement Modification or Contravention of the Implemented Law:

    
    

22. Section 24.120(2), Florida Statutes (1999), provides for a payment of prizes on a deferred basis and for the safe investment of the prize monies set aside in the trust fund under that section for payment of deferred prize payments. That section also provides for production of equal annual sums of money over the required term of the investment (twenty years). The Emergency Rule and the agency statements at issue depart from the terms of the trust relationship set up by the Legislature through Section 24.120(2), Florida Statutes, by changing the prize awarded to allow the early liquidation of prize monies invested on behalf of the prize winners in the trust fund constituted under that section. Such a change in the prize

    awarded and manner of award is not authorized by the terms of that statute. The Emergency Rule and agency statements thus enlarge, modify and contravene Section 24.120(2), Florida Statutes, by departing from the terms of the trust created by the Florida Legislature designed to ensure a safe investment of lottery monies so as to produce annual prize payments over twenty years. The Emergency Rule, by allowing a liquidation of trust investments before the statutorily required term and by allowing the trustee of the Section 24.120(2), Florida Statutes, trust (the Department) to intentionally profit from liquidation of the trust investments and concomitant change in the prize awarded departs from the conditions of the Section 24.120(2), Florida Statutes, trust, and the purposes for which it was established.

    In the enactment of this rule, the Department stands in the position of a trustee varying the terms of a trust in terms of the benefits to be afforded the beneficiary of that trust and the method of calculation and payment. While the beneficiary (the prize winner) in the trust analogy might agree with that course of action, the settlor has not assented to variance from the terms of the trust arrangement. The Florida Legislature is in a position analogous to the settlor of the trust created pursuant to Section 24.120(2), Florida Statutes.

23. Since that law, implemented purportedly by the Emergency Rule and agency statements, does not itself provide authority for the change in the award of prizes and methods of

    paying prizes embodied in the rule and in the agency statements, it would appear that the settlor, the Legislature, must first assent to the new arrangement (ipso facto by an amendment to the statute). Moreover, it should be pointed out that the new arrangement contemplated by the Emergency Rule would be accomplished without any disclosure to a lottery winner of the discount rate or dollar amount that the state would retain, in the sense that the terms in the rule of "trade date," "market value," "original cost" plus accrued interest or "accreted value" are not adequately defined on the face of the rule. They are thus amenable to varying interpretations, leading potentially to ad hoc policy decisions by the agency or necessitating further illumination by the agency through an additional rule enactment, thus rendering the rule, in the sense of the employment of these terms and any disclosure to the lottery winner, vague.

24. There are various "consumer protection" standards set forth in Section 24.1153, Florida Statutes (1999), which are directed to the third-party assignment arrangement whereby lottery winners may assign their right to the annual installment payments of their prizes to third-party entities and thus obtain from those entities a discounted, lump-sum payment of a prize. Those standards or restrictions include oversight by a circuit court and include the necessity of approval of the assignments and lump-sum payments through third-party entities by an appropriate circuit court order. They also include a provision

    allowing the prize winner a three-day cancellation period opportunity. The Emergency Rule and agency statements at issue in this case modify, contravene or depart from the provisions of that law because the Department in the so-called emergency cash pay-out provision in the subject rule is not required to adhere to the "consumer protection restrictions" mandated by Section 24.1153, Florida Statutes (1999). Although the end result of what the Department proposes by the Emergency Rule achieves a lump-sum, cash payment to the lottery winner, unlike the arrangement to be set up by the Emergency Rule, the "cash-out" assignment arrangement authorized by Section 24.1152, Florida Statutes, was mandated by the Legislature.

25. The Emergency Rule is potentially arbitrary and capricious (meaning not adequately supported by facts or enacted without adequate support as to reason or rationale) 1/ The impetus for the Emergency Rule, as found above was a change in the Internal Revenue Code concerning the "constructive receipt doctrine". The relevant I.R.C. provision Section 451(h), contains the "qualified prize option" test. The Emergency Rule purports to meet that test but does not. A qualified prize option must contain three things: (1) A clear statement that it is only an offer; (2) A statement of the offer methodology; and

    (3) A disclosure of the discount rate that makes equivalent the present value of the prize previously awarded and the Department's new offer (lump-sum pay-out). The Emergency Rule

    does not adequately disclose the methodology of the offer since critical terms enabling a lay prize winner to understand the offer are not clearly defined, as referenced in the Findings of Fact above. The Emergency Rule does not require, on its face, any disclosure of the discount or amount of the prize valued as of an identified date. In its Executive Summary regarding its decision to adopt the Emergency Rule, the Department stated that it would meet the requirements of Section 451(h), by providing full and clear disclosure "as described in the Federal Tax Conference Report on Section 451(h)." The rule has the potential of being arbitrary and capricious in its operation since it does not in fact meet the qualified prize option test in the I.R.C. provision by clearly disclosing the discount rate or the methodology used in arriving at the offer, even though it purports to disclose those matters.

    Agency statements As Rules:

    
    

26. The agency statements, the letters mailed to each prior prize winner contain financial information specific to each individual prize winner but they also contain general formulae to be applied by the Department to all eligible winners in cashing out prizes under the Emergency Rule. Thus the letters expand the cash-out procedure by providing cash-out formulae and other critical conditions beyond those which are stated and disclosed in the rule itself. This is necessary information for the prize winners to make decisions on accepting the Department offers but

    was not adopted as a rule and is not contained in the Emergency Rule. It is meant by the Department to apply to the entire universe of eligible prior prize winners.

    CONCLUSIONS OF LAW

    
    

27. The Division of Administrative Hearings has jurisdiction over the subject matter of and the parties to this proceeding in accordance with Sections 120.536(1), 120.56(4), 120.56(5), 120.569(4)(a), and 120.57(1), Florida Statutes.

    The Petitioner's Standing:

    
    

28. On November 4, 1999, the Respondent served a Motion for Summary Final Order challenging the standing of the Petitioner to pursue the rule challenge at issue. Following a written response by the Petitioner a Motion hearing was held and based on the arguments advanced and authority cited, it was found that the Petitioner sufficiently alleged standing in its Petition so

    that it would be allowed to offer proof for such standing at the final hearing. Therefore a written Order denying the motion was entered on November 12, 1999.

29. The Petitioner offered proof that its member companies which own large lottery payment streams are eligible for the Department's cash-out offer under the challenged Emergency Rule and agency statements. Moreover, the Department and all of the Petitioner's members are in direct economic competition for the same previous lottery prize winners and their payment streams and revenues pursuant to the enactment and authority of Section

    24.153, Florida Statutes. The specific activity which the Petitioner's members engage in, assignments of prize winnings, is provided for within the scope of Chapter 24, Florida Statutes, since it is authorized and governed by Section 24.1153. Should a prize winner elect to accept the Department's Emergency Rule

    lump-sum offer, the Petitioner's members would suffer real and immediate injury in fact from the economic losses. Consequently, the Petitioner's members injuries are well within the zone of interests to be protected or regulated by Chapter 24, Florida Statutes. See Ward v. Board of Trustees of the Internal Improvement Trust Fund, 651 So. 2d 1236 (Fla. 1st DCA 1993). The Petitioner's interest are substantially affected by the Emergency Rule and the agency statements at issue and the Petitioner has standing to maintain this challenge. Department of Professional Regulation, Board of Dentistry v. Florida Dental Hygienist Association, Inc., 612 So. 2d 646 (Fla. 1st DCA 1993).

30. The undersigned is mindful of the question and discussion concerning the assignment of burden of proof to establish the invalidity of the Emergency Rule which was raised at hearing and in paragraphs 39 through 46 of the Petitioner's Proposed Final Order. That discussion and legal position are meritorious within the frame of reference of the decision in St. Johns River Water Management District v. Consolidated-Tomoka Land Company, 717 So. 2d 72 (Fla. 1st DCA 1998) and the amendment to Section 120.56, Florida Statutes enacted in 1999, in response to

    that court decision, specifically enacted at Section 120.56(2)(a), Florida Statutes (1999). Be that as it may, in the instant case the Petitioner voluntarily accepted the burden of going forward to present evidence on the invalidity of the Emergency Rule. Had this been a proposed rule challenge under Section 120.56(2), Florida Statutes, as that provision was amended by the 1999 Legislature, the Petitioner could have chosen to initially present only as much evidence as it deemed necessary to establish a basis for its objections to the proposed rule, at which point the agency's burden to prove by a preponderance of the evidence that the proposed rule was not invalid would have arisen. Presumably, a challenger would then have an opportunity to rebut the evidence presented by the agency in support of the validity of its proposed rule. Such a bifurcated presentation of its case into an initial, prima facie showing, and a more detailed rebuttal showing is similar to the case which might be presented by a permit applicant whose permit has been challenged by a third party. See Department of Transportation v. J.W.C. Co., Inc., 396 So. 2nd 78 (Fla. 1st DCA 1981). The Petitioner herein, as is often the case with permit applicants involved in third party challenges, simply elected to present its case in its entirety in the case-in-chief.

31. The Petitioner contends that Emergency Rule 53ER99-48 and the agency statement at issue are an "invalid exercise of delegated authority" within the meaning of Section 120.52(8),

    Florida Statutes (1999). That term is defined in relevant part as follows:

    (8) 'Invalid exercise of delegated legislative authority' means action which goes beyond the powers, functions, and duties delegated by the Legislature. A proposed or existing rule is an invalid exercise of delegated legislative authority if any one of the following applies:

    
    

    1. The agency has materially failed to follow the applicable rulemaking procedures or requirements set forth in this chapter;

       
       

    2. The agency has exceeded its grant of rulemaking authority, citation to which is required by s. 120.54(3)(a)1.;

       
       

    3. The rule enlarges, modifies or contravenes the specific provisions of law implemented, citation to which is required by s. 120.54(3)(a)1.;

       
       

    4. The rule is vague, fails to establish adequate standards for agency decisions, or vests unbridled discretion in the agency;

       
       

    5. The rule is arbitrary or capricious;

       
       

    6. The rule is not supported by competent substantial evidence; or

       
       

    7. The rule imposes regulatory costs on the regulated person, county, or city which could be reduced by the adoption of less costly alternatives that substantially accomplish the statutory objectives.

    
    

    A grant of rulemaking authority is necessary but not sufficient to allow an agency to adopt a rule; a specific law to be implemented is also required. An agency may adopt only rules that implement or interpret the specific powers and duties granted by the enabling statute. No agency shall have authority to adopt a rule only because it is reasonably related to the purpose of the enabling legislation and is not arbitrary and

    capricious or is within the agency's class of powers and duties, nor shall an agency have the authority to implement statutory provisions setting forth general legislative intent or policy. Statutory language granting rulemaking authority or generally describing the powers and functions of an agency shall be construed to extend no further than implementing or interpreting the specific powers and duties conferred by the same statute.

32. The Respondent took the position at hearing that the validity of the rule in question could not be determined by reference to the degree of specificity, or lack of specificity, found in the enabling act. This is an error. Respondent has suggested reliance upon St. Johns River Water Management District v. Consolidated-Tomoka Land Company, supra, and Florida Department of Business and Professional Regulation, et al. v. Investment Corp. of Palm Beach, d/b/a Palm Beach Kennel Club, et al., 24 Fla. L. Weekly S520 (Nov. 4, 1999). In Tomoka, supra, the First District Court of Appeal considered the "level of detail" which the legislature intended to establish as a rule- making standard. The Tomoka court never took the position that there was a lack of any standard applicable to rule-making which required some degree of specificity in an enabling statute. In the Investment Corp. of Palm Beach opinion, the Florida Supreme Court, while discussing the Tomoka decision, merely resolved a conflict regarding the circumstances in which agencies may issue declaratory statements. Moreover, it is crucial to note that in 1999, subsequent to the Florida First District Court of Appeal's

    decision in Tomoka, the Florida legislature significantly amended Section 120.52(8), of the Administrative Procedures Act to Provide as follows:

    A grant of rulemaking authority is necessary but not sufficient to allow an agency to adopt a rule; a specific law to be implemented is also required. An agency may adopt only rules that implement or interpret the specific powers and duties granted by the enabling statute. No agency shall have authority to adopt a rule only because it is reasonably related to the purpose of the enabling legislation and is not arbitrary and capricious or is within the agency's class of powers and duties, nor shall an agency have the authority to implement statutory provisions setting forth general legislative intent or policy. Statutory language granting rulemaking authority or generally describing the powers and functions of an agency shall be construed to extend no further than implementing or interpreting the specific powers and duties conferred by the same statute. (Emphasis supplied.)

33. The Department has exceeded its rulemaking authority in adopting Emergency Rule 53ER99-48 in a number of respects. The findings of fact above and the discussion in the conclusions of law below lead to the determination that no emergency supportive of the enactment of an emergency rule was established. It is obvious that in order to enact the subject rule the Department would have to embark on the relevant statutory procedures in Section 120.54(1)(a), governing the adoption of the proposed rule. Since that obviously has not been done and since no emergency supportive of the rule has been proven, the rule at this point in the discussion must be deemed invalid. However,

    the other issues concerning excession of rulemaking authority have been raised and thoroughly litigated by the parties and, with a view toward future evolutions in this dispute, and in the interest of thoroughness will be treated and resolved in the remainder of this Final Order. The Department has violated Section 120.52(8)(a), Florida Statutes, by materially failing to follow applicable rulemaking requirements by essentially adopting an emergency rule in the absence of a factual emergency.

34. The Respondent seems to assert that it may adopt an emergency rule without the actual existence of an "emergency" to support that rule. In attempting to advance this position the Respondent references Section 24.109(1), Florida Statutes. Section 24.109(1), provides that in adopting an emergency rule, the Department "need not make the finding required by S.120.54(8)." Nowhere does Section 24.109, Florida Statutes, provide that an emergency need not exist in order to support an emergency rule. On the contrary, by providing the Department of the Lottery with non-emergency rulemaking authority, the legislature has clearly indicated that in order to adopt an emergency rule something "extra" must be present. 2/ That extra element necessary must be the existence of an emergency. In this case, no emergency has been proven to exist.

35. Moreover, even the facts which the Respondent might claim as constituting an emergency cannot be so relied upon since the situation described by the Respondent was of its own making.

    In Coastal Colony Co., v. Askew, 348 So. 2d 338, 342 (Fla. 1st DCA 1977), the Florida First District Court of Appeal reviewed final agency rulemaking adopting emergency rules. In finding that the record in that rulemaking proceeding was "barren of evidence that . . . there was immediate danger to the central Florida water supply which could be obviated only by emergency rules," the Court held as follows:

    Any 'immediate danger' in July 1975 did not loom over the water supply but over Chapters 22F-6 and 22F-7, which because they were not filed until June 30, 1975, could not be effective until July 20. The emergency therefore was not created by rampant commercialism, the spoliation of wetlands, ineffective local control, or public indifference to the Green Swamp, but rather by an avoidable administrative failure to make the necessary regulation effective within the time allowed. When as here the legislature has clearly specified the consequences of delay, emergency created wholly by an agency's failure to take timely action cannot justify extraordinary suspensions or extensions of the statutory schedule.

    See also Golden Rule Insurance Company v. Department of Insurance, 586 So. 2d 429, 431 (Fla. 1st DCA 1991), where the Court held:

    On prior occasions this court has invalidated emergency rules based on reasons which, upon analysis, we found were rooted in avoidable administrative failure and/or inaction.

    
    

    See also Let's Help Florida v. Smathers, 306 So. 2d 496, 497 (Fla. 1st DCA 1978), where the Florida First District Court of

    Appeal held an emergency rule invalid. The Court held that the asserted basis for the emergency rule could not be used to support it since it:

    [C]onstitutes an avoidable administrative failure and does not justify the adoption of an emergency rule.

    
    

36. Finally, the Department could have adopted its rule as a regular, non-emergency rule, and has adopted numerous other rules concerning games and prizes via regular rulemaking procedures. It certainly had adequate time to do so after enactment of the engendering Internal Revenue Code change referenced above.

37. The Department has also exceeded its grant of rulemaking authority by adopting the Emergency Rule in the absence of specific authority granted by the Legislature. Section 120.52(8), Florida Statutes, provides that agency authority shall be construed to extend no further than implementing or interpreting the specific powers and duties conferred by the same statute.

38. Section 24.105(1), Florida Statutes, simply authorizes the Department to adopt rules "governing the establishment and operation of the state lottery." Nothing in the cited statute authorizes the Department to adopt rules which permit the Department to offer previous Florida lottery prize winners a new cash-pay-out option. Likewise, Section 24.105(10)(j), Florida

    Statutes, cited by the Department, provided the Department with authority to adopt rules concerning:

    Such other matters necessary or desirable for the efficient or economical operation of the lottery or for the convenience of the public.

    
    

    This provision concerns only the adoption of rules for the "efficient or economical operation of the lottery," and does not specifically authorize rules concerning new ventures with previous prize winners receiving annual prize payments. In one sense, everything the Department does should be done for the efficient and economic operation of the lottery or for the convenience of the public. Section 24.225(1), Florida Statutes, also cited by the Department states, in pertinent part, that:

    The department shall promulgate rules to establish a system of verifying the validity of tickets claimed to win prizes and to effect payment of such prizes.

    
    

    Nothing in Section 24.225(1) specifically authorizes the Department to enter into the business of first cashing-out fixed income investments already invested and held in the Section 24.120(2) trust, then potentially "cashing-out" its previous winners at a lower price, and retaining the difference, without statutory authorization by the Section 24.120(2) trust "settlor," the Florida Legislature.

39. While Section 24.225(1) authorizes the Department to set rules to "effect payment" of prizes when awarded, no authorization is provided to change the manner in which a prize already awarded is paid. Moreover, Subsection (1)(a) of Section

    24.115 expressly governs prizes already awarded and payable over time, providing that "[a] prize that is payable in installments over time is assignable, but only pursuant to an appropriate court order as provided in s. 24.1153."

40. The Department has also cites Section 24.109(1), Florida Statutes, as specific authority to adopt Emergency Rule 53ER99-48. Section 24.109(1), Florida Statutes, states, in pertinent part, that:

    The department may at any time adopt emergency rules pursuant to s. 120.54. The Legislature finds that such emergency rulemaking power is necessary for the preservation of rights and welfare of the people in order to provide additional funds to benefit the public. The Legislature further finds that the unique nature of state lottery operations requires, from time to time, that the department respond as quickly as is practicable to changes in the marketplace.

    All agencies are granted emergency rulemaking authority by Chapter 120, Florida Statutes. A grant of emergency rulemaking authority does not, in itself, provide the Department with authority to adopt rules which permit the Department to offer a one-time cash-out to past prize winners, or authorize the Department to enter into the entirely new business of selling fixed income investments held in the trust constituted under Section 24.120(2), Florida Statutes, and then "cashing-out" its past winners at a lower price, improperly diverting the difference to the Department's coffers.

41. While the Department has authority to adopt emergency rules concerning matters already within the sphere of powers granted by the Legislature (for example, rules concerning the method of play or odds of winning a given lottery game), it cannot, by rule, change the time and amount of payments due on prizes already claimed and awarded. They were already awarded in the instant situation because clearly the rule's purview extends to past prize winners whose prize monies have already been invested to secure annual installment payments in and by virtue of the trust arrangement of Section 24.120(2), Florida Statutes. The Legislature has required that those monies be invested for that specific, legislatively mandated purpose, so it seems apparent that such cash pay-outs could only be done prospectively for future winners before a prize award is actually effected and the monies appurtenant thereto invested in the security instruments that the Legislature has mandated be bought and placed in the trust for securing the presently, statutorily required, annual installment payments to the prize winners.

42. The Department is also without specific authority to adopt Emergency Rule 58ER99-48 as the rule has the effect of changing the prize previously awarded and thereby creating new revenues not contemplated by the Legislature in Section 24.120, Florida Statutes. That provision provides pertinently:

    All money received by the Department which remains after payment of prizes and initial compensation paid to retailers shall be

    deposited in the administrative trust fund. 3/ (Emphasis supplied).

    
    

43. Emergency Rule 53ER99-48 and the agency statements at issue thus violates Section 24.120(2) by changing the prize awarded to allow the earlier liquidation of the prize monies invested on behalf of the lottery prize winners in the Section 24.120(2) trust. Section 24.120(2), Florida Statutes (1999), states:

    Moneys available for the payment of prizes on a deferred basis shall be invested by the State Board of Administration in accordance with the trust agreement approved by the secretary and entered into between the department and the State Board of Administration in accordance with ss. 215.44-

    215.53. The investments authorized by this subsection shall be done in a manner designed to preserve capital and to ensure the integrity of the lottery disbursement system by eliminating the risk of payment of funds when due and to produce equal annual sums of money over the required term of the investments. (Emphasis supplied.)

    This statute only authorizes one system of lottery disbursement which includes as a central feature the payment of equal annual sums of money. The Emergency Rule and agency statements improperly modify this established arrangement by permitting a one-time lump-sum pay-out.

44. The Emergency Rule and the agency statements improperly circumvent the requirements of Section 24.1153, Florida Statutes (1999), by authorizing the Department to cash-out past lottery prizes without adhering to the various consumer protection safeguards and restrictions set forth in and required by Section

    24.1153, including appropriate circuit court oversight and a circuit court order, as well as a provision allowing a lottery prize winner a three-day cancellation period option. This provision of course, as discussed above is the provision whereby certain cash pay-outs can be accomplished by assignment to third parties and is the only arrangement currently approved by the legislature for providing cash-outs to past prize winners. When the entire Chapter 24, Florida Statutes, is read in para materia with this emergency rule, it is clear that the legislature has only expressed the intent to grant restrictive cash pay-outs by this assignment-to-third-party method, rather than through the procedures set forth in the Emergency Rule. Wilensky v. Fields,

    267 So. 2d 1 (Fla. 1972) (a statute must be read and interpreted in its entirety and must be so construed that it is meaningful in all of its parts). In failing to include in the Emergency Rule similar consumer protection provisions as are found in Section 24.1153, the Department's Emergency Rule would act as to circumvent the provisions of Section 24.1153.

45. Under Florida law, a trustee cannot assume an antagonistic position to a beneficiary, and any transactions between a trustee and beneficiary will be closely scrutinized. Crawford v. Crawford, 120 Fla. 746, 176 So. 838 (1937). Such transactions will not be upheld where a trustee has taken advantage of the beneficiary through information received by the trustee or if the beneficiary acts in ignorance. Saunders v.

    Richard, 35 Fla. 28, 16 So. 679 (1895). Moreover, a trust cannot be altered or amended without consent of all parties and interest, including the settlor of the trust. Here the Florida Legislature is in a position analogous to the settlor of the trust, having created it through enactment of Section 24.120(2), Florida Statutes. It seems apparent that whether the beneficiary of the trust is the prize winner or not, that the alteration of the trust in its terms and effect cannot be accomplished without the consent of the settlor (i.e. by appropriate legislative amendment.) The Department's Emergency Rule and the agency statements, in taking potential advantage of previous prize winners by not fully disclosing the proper financial information, including discount rate, concerning the pay-outs and without following the legislatively approved consumer protection provisions for the only currently legislatively mandated, lump- sum pay-outs would be invalid under Florida Law. See Fla. Juris 2d Trusts, Sections 81-84. Moreover, for these reasons the Rule and the agency statements would be arbitrary and capricious.

46. The Rule and the agency statements contain several terms which attempt to define the payment methodology of the cash-out offer by the Department. These financial terms are not clearly defined, however, and are not necessarily of the type capable of ordinary understanding. The terms "accreted value," "original cost," "accrued interest," "market value," and "trade date," while possibly readily understandable to persons

    experienced with the financial markets are nevertheless, vague and afford excessive discretion to the Department in interpreting what those terms mean and the values ascribable to them. For instance, it is unclear from the rule at what point in time the trade date would be fixed. The financial markets and the market value of investment securities can change greatly in a 24-hour period. It is also not clearly defined what market value means, which is of course also directly related to what trade date means, nor is the method of determining the valuation of accrued interest and therefore accreted value. Moreover, the method of determining the original cost of the securities involved is not clearly established. Such terms are vague and overly discretionary and subject to differing interpretations or assignments of values because those interpretation methods and value assignment methods are not clearly set forth on the face of the rule. Thus, for the reason of vagueness and a lack of adequate standards, the Rule and agency statements are invalid exercises of delegated legislative authority.

47. Section 120.54(1)(a), Florida Statutes, provides:

    
    

    (1)(a) Rulemaking is not a matter of agency discretion. Each agency statement defined as a rule by s. 120.52 shall be adopted by the rulemaking procedure provided by this section as soon as feasible and practicable.

    
    

    The agency statements which predated the Emergency Rule which Petitioner contends amount to rules themselves not adopted pursuant to Section 120.54(1), Florida Statutes, were letters

    mailed to each prior large lottery prize winner. These letters contain financial information which is specific to each individual prize winner. However, the letters also contain general formulae to be applied by the Department to all eligible winners in cashing-out under the Emergency Rule. This critical component is necessary to provide information to the winner, yet was not adopted as a rule and is not part of the Emergency Rule either. These supplement the terms and conditions of the Emergency Rule and, to the extent that they may be considered by the Department to be still in effect, are invalid because they have not been adopted in accordance with the rule adoption procedure referenced above.

48. The Petitioner also contends that the Emergency Rule and agency statements are arbitrary and capricious by purporting to meet the qualified prize option test set forth in Section 451(h) of the Internal Revenue Code discussed above, but that they actually do not do so. Since the Rule and agency statements do not set forth the entire methodology of the offer or the discount rate, and yet the Department based its decision on the fact that those components were present, the rule and statements are arbitrary and capricious. See Agrico Chemical Co. v. State, Dep't of Envir. Reg., supra; Board of Trustees, Internal Improvement Trust Fund v. Levy, 656 So 2d 1359, 1362 (Fla. 1st DCA 1995).

49. In order for the rule to avoid the application of the IRS "constructive receipt doctrine," which would trigger immediate tax liability for all lottery prize winners, on the entire winnings of a large prize, it must constitute a "qualified prize option" as that term is defined in Section 451(h), Internal Revenue Code:

    (2) Qualified Prize Option: Qualified Prize.

    -- For purposes of this subsection-

    
    

    1. IN GENERAL.-The term 'qualified prize option' means an option which-

       
       

       1. entitles an individual to receive a single cash payment in lieu of receiving a qualified prize (or remaining portion thereof), and

          
          

       2. Is exercisable not later than 60 days after such individual becomes entitled to the qualified prize.

    
    

    The "Transition Rule" contained in Section 451(h) provides that the 60-day exercisability deadline in Section 451(h)(2)(A)(ii) does not apply to otherwise "qualified prize options" which are excercisable within 18 months beginning on July 1, 1999.

    However, to constitute a "qualified prize option," the Joint Committee Report referenced above specifically provides that:

    Any offer of a qualified prize option must include disclosure of the methodology used to compute the single cash payment, including the discount rate that makes equivalent the present values of the prize to which the prize winner is entitled (or relevant portion thereof) and the single cash payment offered. Any offer of a qualified prize option must also clearly indicate that the prize winner is under no obligation to accept any offer of a single cash payment and may continue to

    receive the payment to which he or she is entitled under the terms of the qualified prize.

    
    

50. In its Executive Summary of the cash-out rule decision dated July 16, 1999, the Department announced that there would be full and fair disclosure of the discount rate and the amount of the prize as of the date to be identified. The Emergency Rule and agency statements are arbitrary and capricious since no such disclosure is provided. An arbitrary decision "is one not supported by facts and a capricious action is one taken without sufficient rationality, thought or reason." See Agrico Chemical Co. v. State, Dep't of Envir. Reg., supra; Bd. Of Trustees, Internal Improvement Trust Fund v. Levy, supra. The arbitrary and capricious effect occurs by virtue of the failure to adequately explain and define the above-referenced terms involving trade date, market value, etc, in the rule and the failure to include the explanation in the agency statement letters in the language of the rule.

51. In summary, the Rule and the agency statements, by exceeding, modifying, and contravening the authority of Section 24.120(2), Florida Statutes, as well as in the other particulars found and concluded above, are violative of Subsections 120.52(8)(a), (b), (c), (d), and (e) as excessions of delegated legislative authority by the material failure to follow the applicable rulemaking procedures or requirements set forth in Chapter 120, Florida Statutes. The Department has exceeded its

    grant of rulemaking authority, citation to which is required by Section 120.54(3)(a)1., Florida Statutes, by enlarging, modifying, or contravening specific provisions of the law implemented. The rule is vague by failing to establish adequate standards for agency decisions vesting excessive discretion in the agency because of its vagueness and the lack of explication of important terms as referenced-above. Consequently, the rule is also arbitrary and capricious.

52. Accordingly, it is concluded that the Rule and the agency statements referenced herein are invalid.

ORDER

In accordance with the foregoing Findings of Fact, Conclusions of Law, the preponderant evidence of record, the candor and demeanor of the witnesses and the pleadings and arguments of the parties, it is

ORDERED that the Petition for Administrative Determination of Invalidity of Emergency Rule and agency statements Defined As A Rule is granted and that Emergency Rule 53ER99-48 is violative of Section 120.52(8), Florida Statutes (1999), and is therefore invalid. The agency statements set forth in the Department of the Lottery's letters dated September 13 and 28, 1999, as found, concluded and discussed above, are unadopted rules in violation of Section 120.54(1), Florida Statutes (1999) and are therefore invalid as well.

DONE AND ORDERED this 10th day of March, 2000, in Tallahassee, Leon County, Florida.

P. MICHAEL RUFF Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(850) 488-9675 SUNCOM 278-9675

Fax Filing (850) 921-6847 www.doah.state.fl.us

Filed with the Clerk of the Division of Administrative Hearings this 10th day of March, 2000.

ENDNOTES

1/ Agrico Chemical Co. v. State, 365 So. 2d 759, 763 (Fla. 1st DCA 1978).

2/ At the very least, the basis for a Department of the Lottery emergency rule must be an emergency arising from "market conditions." "[T]he legislature further finds that the unique nature of state lottery operations requires, from time to time, that the Department respond as quickly as is practicable with changes in the market place." Section 24.109(1)(2), Florida Statutes. Other emergencies could also exist absent market conditions. The Department did not present persuasive, preponderant evidence on either.

3/ It should be noted that the Legislature thus has stated, consistent with the Petitioner's arguments, that once monies go to the Section 24.120(2) trust fund and monies which remain go to the administrative trust fund set up under Section 24.120(1), that prizes have been paid. In order to proceed to cash-out previous winners, the Department will take funds from the

Section 24.120(2) trust by virtue of the subject emergency rule. This is an action for which it has been granted no legislative authority and which could potentially divert funds from the previous prize winners to the State of Florida.

COPIES FURNISHED:

Segundo J. Fernandez, Esquire Timothy P. Atkinson, Esquire Oertel, Hoffman, Fernandez

& Cole, P.A.

301 South Bronough Street Tallahassee, Florida 32302

Edwin A. Bayó, Esquire

Office of the Attorney General The Capitol, Plaza Level 01 Tallahassee, Florida 32399-1050

Ken Hart, General Counsel Department of Lottery

250 Marriot Drive Tallahassee, Florida 32301

David Griffin, Secretary Department of Lottery

250 Marriot Drive Tallahassee, Florida 32301

Liz Cloud, Chief

Bureau of Administrative Code The Elliott Building Tallahassee, Florida 32399-0250

Carroll Webb, Executive Director Administrative Procedure Committee

120 Holland Building Tallahassee, Florida 32399-1300

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 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: 99-004431RE

Orders for Case No: 99-004431RE