STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

BRADLEY WAYNE KLINE,

Petitioner,

vs.

DEPARTMENT OF FINANCIAL SERVICES,

Respondent.

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) Case No. 07-5243RU

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FINAL ORDER

This case is before the undersigned based upon the Second Response to Order to Show Cause filed by Petitioner on November 30, 2007. No hearing is necessary.

APPEARANCES

For Petitioner: H. Richard Bisbee, Esquire

H. Richard Bisbee, P.A.

1882 Capital Circle Northeast, Suite 206

Tallahassee, Florida 32308

For Respondent: David J. Busch, Esquire

Department of Financial Services Division of Legal Services

612 Larson Building

200 East Gaines Street Tallahassee, Florida 32399-0333

STATEMENT OF THE ISSUE

The issue is whether the Petition to Determine the Invalidity of Agency Statements should be dismissed.

PRELIMINARY STATEMENT

On November 16, 2007, Petitioner filed a Petition to Determine the Invalidity of Agency Statements (the petition) with the Division of Administrative Hearings (DOAH). The petition was filed under Section 120.56(4), Florida Statutes,1 and alleged that certain statements2 of the Department of Financial Services (Department) concerning viatical settlement contracts are rules that have not been adopted in accordance with the procedures in Section 120.54, Florida Statutes.

This case was initially assigned to Administrative Law Judge Bram D.E. Canter. On November 21, 2007, Judge Canter entered an Order to Show Cause directing Petitioner to “show cause in writing no later than November 28, 2007, why his challenge to certain alleged unpromulgated rules is not moot

. . . and, furthermore, why the current petition is not premature until the Department issues its final order in DOAH Case No. 07-1218PL.”

On November 26, 2007, Petitioner filed a motion to disqualify Judge Canter because he presided over the related disciplinary proceeding involving Petitioner, DOAH Case No. 07- 1218PL. On November 28, 2007, Petitioner filed an “initial response” to the Order to Show Cause, which requested a ruling on the motion to disqualify “prior to Petitioner having to submit further substantive response to the order.”

On November 28, 2007, Judge Canter granted Petitioner’s motion to disqualify. On November 29, 2007, this case was transferred to the undersigned.

On November 30, 2007, Petitioner filed his substantive response to the Order to Show Cause. Due consideration has been given to that filing.

FINDINGS OF FACT

1. Petitioner is a licensed insurance agent, and was the subject of the Administrative Complaint filed by the Department that became DOAH Case No. 07-1218PL.

2. The Administrative Complaint alleged that Petitioner violated Section 626.611(16), Florida Statutes, by selling unregistered viatical settlement contracts to four elderly individuals in 2003. Most pertinent to this case, the Administrative Complaint alleged:

   Viatical settlement contracts are investment contracts within the meaning of section 517.021(21)(q), Florida Statutes, and are therefore securities requiring registration pursuant to section 517.07, Florida Statutes. As to each of the transactions described below, the viatical settlement contracts sold by [Petitioner] . . . were unregistered securities.[3]

3. The Administrative Complaint also alleged that Petitioner violated a number of other statutes (e.g., Sections 626.611(5), (7), and (9), and 626.621(9), Florida Statutes)

   based upon misrepresentations made by Petitioner in connection with the sales of the viatical settlement contracts.

4. On October 9, 2007, Judge Canter issued a Recommended Order in DOAH Case No. 07-1218PL finding that Petitioner violated Sections 626.611(5), (7), (9), and (16) and 626.621(9), Florida Statutes, and recommending that the Department revoke Petitioner’s license.4

5. The Recommended Order included the following findings and conclusions pertinent to the issue framed by the petition:

   1. [Petitioner] misrepresented the risk character of viaticals in his discussions with the investors involved in this case. He had a motive to downplay the true risk character of the viaticals, because if he received a commission for every sale of a viatical. If [Petitioner] had informed the investors of the true risk character of viaticals, the investors might not have purchased the viaticals.

      
      

   2. The definition of "security" in Section 517.021, Florida Statutes, was amended in 2006 to specifically identify "viatical settlement investment" as a type of security. [Petitioner] does not dispute that a viatical is a security.

      
      

   3. There is no dispute that the viaticals sold by [Petitioner], which are the subject of this case, were not registered securities when [Petitioner] sold them in 2003.

      
      

      * * *

      
      

      1. [Petitioner] objects to being charged with selling unregistered securities, because viaticals were not specifically

         defined as securities until 2006. [The Department] claims that, although viaticals were not specifically defined as securities in Section 517.021, Florida Statutes, in 2003, the prior definition, which included "investment contracts," was sufficient to include viaticals. [The Department] further asserts that viaticals have all the elements of a security as established by the case law.

      2. [The Department] is correct that a viatical met the definition of a security under the law that existed in 2003. However, the Administrative Law Judge does not agree with [the Department]'s argument that this interpretation of the law was clear and settled in 2003. The regulation of viaticals under the insurance code was a cause of confusion.

         
         

      3. Under Florida Administrative Code Rule 69B-231.080, the penalty for each violation of Subsections 626.611(5) and (7), Florida Statutes, is a six-month suspension; the penalty for each violation of Subsection 626.611(9), Florida Statutes, is a nine month suspension; and the penalty for each violation of Subsection 626.611(16), Florida Statutes, is a 12-month suspension.

      
      

      * * *

      56. [U]nder Florida Administrative Code Rule 69B-231.040(1)(a), the “penalty per count” cannot exceed the highest penalty for any violation under the count, which in this case is the 12-month suspension for sale of an unregistered security. Therefore, based on the four counts of the Administrative Complaint, the “total penalty” would be four years.

      
      

      * * *

      
      

      58. A mitigating factor is the unsettled state of the law in 2003 regarding the legal status of viaticals as securities. However,

      even if the penalty for the sale of unlicensed securities were eliminated altogether and the penalty per count were reduced to a nine-month suspension, the total penalty would be suspension for 36 months. Subsection 626.641(1), Florida Statutes, does not permit Petitioner to suspend a license for more than two years. Therefore, the required penalty in this case is revocation of [Petitioner]’s license.

      
      

6. Petitioner has filed exceptions to the Recommended Order, and the Department has not yet entered a Final Order.

   CONCLUSIONS OF LAW

   
   

7. DOAH has jurisdiction over the parties to and subject matter of this proceeding pursuant to Section 120.56(4), Florida Statutes.

8. The scope of a proceeding under Section 120.56(4), Florida Statutes, is limited to determining whether the challenged agency statement meets the definition of a rule and, if so, whether the agency’s failure to adopt the statement as a rule is justified under Section 120.54(1)(a)1. or 2., Florida Statutes.

9. Issues related to the substantive validity of the agency statement are beyond the scope of a proceeding under Section 120.56(4), Florida Statutes. Those issues can be litigated in the proceeding under Section 120.57(1), Florida Statutes, involving the application of the challenged agency statement. See § 120.57(1)(e), Fla. Stat.

10. Section 120.56(4)(a), Florida Statutes, provides that “[a]ny person substantially affected by an agency statement may seek an administrative determination that the statement violates s. 120.54(1)(a).”

11. To be “substantially affected” by an agency statement, the petitioner must allege, and ultimately prove “(1) a real and sufficiently immediate injury in fact; and (2) that the alleged interest is arguably within the zone of interest to be protected or regulated.” Ward v. Board of Trustees of the Internal Improvement Trust Fund, 651 So. 2d 1236, 1237 (Fla. 4th DCA 1995) (internal quotations omitted).

12. It is questionable whether Petitioner is substantially affected by the challenged agency statements in light of Judge Canter’s conclusion in paragraph 58 of his Recommended Order that revocation of Petitioner’s license would be required even if the violation of Section 626.611(16), Florida Statutes, for selling unregistered viatical settlement contracts were not considered. Stated another way, based upon the Recommended Order, there is no “immediate injury in fact” to Petitioner because his license will likely be revoked even if the Department is not able to rely on the challenged agency statements to discipline him under Section 626.611(16), Florida Statutes.

13. Jacoby v. Florida Board of Medicine, 917 So. 2d 358 (Fla. 1st DCA 2005), cited by Petitioner in his substantive response to the Order to Show Cause, is distinguishable. Unlike the rule at issue in that case, the agency statements challenged by Petitioner in this case do not establish criteria for licensure with which Petitioner will have to comply in order to get a license in the future. Indeed, it is the discipline imposed in DOAH Case No. 07-1218PL, not the challenged agency statements, that might impact Petitioner in the future.

14. In any event, it is not necessary to reach the issue of standing because even if it were determined that Petitioner has standing to challenge the agency statements, the petition would still be dismissed based upon United Wisconsin Life Insurance Company v. Department of Insurance, 831 So. 2d 239 (Fla. 1st DCA 2002).

15. In United Wisconsin, the court affirmed the dismissal of a petition filed under Section 120.56(4), Florida Statutes. The court expressly held that the petitioner in that case had “no right to pursue a separate, collateral challenge to an alleged nonrule policy where an adequate remedy exists through a section 120.57 proceeding.” Id. at 240. The court explained that the petitioner “was free to make, and in fact did make, the same arguments raised in [the unadopted rule challenge] case in the then-pending section 120.57 proceeding.” Id.

16. Like the petitioner in United Wisconsin, Petitioner had an adequate opportunity in DOAH Case No. 07-1218PL to litigate the precise issue framed by the petition in this case. Indeed, the Recommended Order in DOAH Case No. 07-1218PL reflects that Petitioner did raise the issue in that case and that it was fully considered by Judge Canter.

17. The following comments of the Administrative Law Judge in the DOAH case in United Wisconsin are equally applicable in this case:

It seems unlikely that the Florida Legislature intended that allegations under a prohibitory or penal statute could be subject to collateral attack through a Section 120.54 [sic], Florida Statutes, rule challenge. Such a procedure could result in two hearings each time a regulatory action was brought by an agency. In the pursuit of justice through the administrative process, simplicity and economy of resources are primary goals. Permitting collateral challenges in enforcement cases unreasonably derogate those goals.

United Wisconsin Life Insurance Co. v. Dept. of Insurance, Case No. 01-3135RU, 2001 Fla. Div. Adm. Hear. LEXIS 3204, at ¶ 66 (DOAH Nov. 27, 2001), aff’d, 831 So. 2d 239 (Fla. 1st DCA 2002).

ORDER

Based upon the foregoing findings of fact and conclusions of law, it is

ORDERED that:

1. the final hearing scheduled for December 20, 2007, is cancelled;

2. the Petition to Determine the Invalidity of Agency Statements is dismissed; and

3. all pending motions are denied as moot.

DONE AND ORDERED this 6th day of December, 2007, in Tallahassee, Leon County, Florida.

S

T. KENT WETHERELL, II 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 6th day of December, 2007.

ENDNOTES

1/ All statutory references in this Recommended Order are to the 2007 version of the Florida Statutes, except for references to the provisions of Chapter 626, Florida Statutes, which are to the 2003 version.

2/ The challenged agency statements are summarized in paragraph

12 of the petition as follows:

1. Ownership interests in viatical settlement contracts sold in 2002 and 2003 are considered securities;

   
   

2. Ownership interests in viatical settlement contracts in 2002 and 2003 are not exempt from registration as securities;

   
   

3. Ownership interests in viatical settlement contracts sold in 2002 and 2003 are required to be registered pursuant to Section 517.07, Florida Statutes;

   
   

4. Individuals selling ownership interests in viatical settlement contracts in 2002 and 2003 are required to be licensed pursuant to Section 517.12, Florida Statutes;

   
   

5. Ownership interests in viatical settlement contracts sold in 2002 and 2003 are deemed by the Department to be “securities which were required to be registered” as referenced in Section 626.611(16), Florida Statutes;

   
   

6. The Department is authorized to initiate enforcement actions and penalize individuals who sold ownership interests in viatical settlement contracts which are and were required to be registered as securities and which were sold prior to July 1, 2005.

   
   

7. The Department may apply Rules 1 through 6 above retroactively before July 1, 2005.

3/ Administrative Complaint, at ¶ 8 (attached as an exhibit to the petition).

4/ The Recommended Order is referenced in paragraph 9 of the petition, and the undersigned can (and does) take official recognition of the Recommended Order pursuant to Sections

90.202(5) and (6), Florida Statutes. The Recommended Order is reported at 2007 Fla. Div. Adm. Hear. LEXIS 555.

COPIES FURNISHED:

Honorable Alex Sink Chief Financial Officer

Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300

Daniel Sumner, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0307

Liz Cloud, Program Administrator Administrative Code

Department of State

R. A. Gray Building, Suite 101 Tallahassee, Florida 32399

Scott Boyd, Executive Director and General Counsel

Administrative Procedures Committee Holland Building, Room 120 Tallahassee, Florida 32399-1300

H. Richard Bisbee, Esquire

H. Richard Bisbee, P.A.

1882 Capital Circle Northeast, Suite 206

Tallahassee, Florida 32308

David J. Busch, Esquire Department of Financial Services

Division of Legal Services 612 Larson Building

200 East Gaines Street 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 the original Notice of Appeal with the agency clerk of the Division of Administrative Hearings and a 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: 07-005243RU

Orders for Case No: 07-005243RU