The Issue The issue is whether Mr. Carlson is guilty of misconduct in his practice as a certified public accountant by making personal use of trust fund monies or by his firm's issuance of an audit report on a bank while one of the firm's partners was a shareholder in the bank.
Findings Of Fact Mr. Carlson has been licensed as a certified public accountant in Florida, holding license #AC0002345. His address is 930 North Chrome Avenue, Suite 2B, Homestead, Florida 33030. Mr. Carlson became a partner in an accounting firm known as Brown, Carlson, and Derrer in 1985. Prior to Mr. Carlson's association with Richard Brown, one of the partners in that firm, the Islamorada Bank was a major client of Mr. Brown. Brown had issued audit opinions on the financial statements of the bank without disclosing that Brown was a stockholder of the bank, and therefore lacked independence with respect to the bank. Financial statements for the year ending December 31, 1986, were issued on the letterhead of Brown, Carlson, and Derrer, and signed by Richard Brown, along with an audit opinion with respect to the financial statements of the Islamorada Bank. Brown's lack of independence was not disclosed in the audit opinion letter. Mr. Carlson had specifically asked Mr. Brown on all audits, including the audit of the Islamorada Bank, whether Brown was independent of the client, and Brown unequivocally told Carlson that he (Brown), was independent. Other members of the firm, including Roger Infante, also specifically inquired about Brown's independence and was assured that Brown was independent with respect to the Islamorada Bank. After the audit report on the financial statements of the Islamorada Bank for 1986 was issued, the firm of Brown, Carlson, and Derrer broke up in April, 1987. In connection with the breakup, Carlson discovered that Brown had held stock in the Islamorada Bank, and was not independent with respect to the bank. At that time, Mr. Carlson's lawyer advised him that: If he notified all shareholders of the bank, this would be improper because Carlson was currently in acrimonious litigation with Brown over the breakup of the accounting firm, and such action could be viewed as harassment; Brown still denied the lack of indepen- dence despite the appearance of shares in the bank on Brown's personal financial statements, and If Carlson failed to notify anyone, he might be guilty of a potential violation of his professional responsibility. Thus, Carlson's lawyer told him that no matter what he did, he could be guilty of wrongdoing. In order to resolve this problem, Carlson reported the situation to the Department of Professional Regulation. He did not attempt to recall the audit that Brown had done on the bank. A certified public accountant who owns even one share of stock in a company for which he issues financial statements lacks independence. Because Brown lacked independence and the financial statements were issued on the letterhead of Brown, Carlson, and Derrer, the firm also lacked independence. Willard Teft, a client of Mr. Carlson, established an educational trust fund known as a Clifford Trust. Those trust funds were delivered to Mr. Carlson and held in Carlson's trust account. Mr. Carlson failed to post and reconcile the Teft trust account from January 1, 1985 until May, 1988. The failure to perform the posting and reconciliations resulted in overdrafts against the Teft trust. These overdrafts consisted of payments to clients and fees paid to the accounting firm. Only after the Teft trust was reconciled did Mr. Carlson realized he had used money that was not his. The Teft trust should have had a balance of $7,500-10,000 at all times. Mr. Carlson should have known by looking at the balance of his trust account that he was misusing trust fund money. Mr. Carlson's misuse of the trust fund money constitutes misconduct in the practice of public accounting. The Teft trust account had been reconciled and posted to date before the Department began its investigation. All monies due to the trust because of overdrafts had been returned to the account before the Department's investigation. Mr. Carlson provided full and complete cooperation in the investigation conducted by the Department.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is recommended that a Final Order be entered finding Mr. Carlson guilty of violation of Section 473.323(1)(g), Florida Statutes, that he be reprimanded, and placed on probation with the usual probationary terms for a period of one year. RECOMMENDED this 22nd day of June, 1990, at Tallahassee, Florida. WILLIAM R. DORSEY, JR. Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 22nd day of June, 1990. COPIES FURNISHED: Tobi C. Pam, Esquire Department of Professional Regulation 1940 North Monroe Street Tallahassee, Florida 32399-0792 Victor K. Rones, Esquire MARGULIES AND RONES 16105 Northeast 18th Avenue North Miami Beach, Florida 33162 Kenneth E. Easley, General Counsel Department of Professional Regulation 1940 North Monroe Street Tallahassee, Florida 32399-0792 Martha Willis, Executive Director Department of Professional Regulation Board of Accountancy Suite 16 4001 Northwest 43rd Street Gainesville, Florida 32606
Findings Of Fact The parties stipulated to facts set forth in paragraphs 1-8, below. Stipulated Facts The Petitioner is the Division of Real Estate of the Department of Professional Regulation. As such, Petitioner acts as the licensing and regulatory agency for real estate broker licensees. The Respondent is Harriet M. Arndt, holder, at all times pertinent to these proceedings, of license number 0002216 issued by Petitioner. Her address of record is One South Ocean Boulevard, Suite 322, Boca Raton, Florida 33431. On January 28, 1987, Respondent received in trust an earnest money deposit in the amount of $39,000 from a buyer for a piece of property listed with another realtor, Merrill Lynch Realty, Inc. At closing of the sales transaction on February 25, 1987, Respondent delivered a check drawn on her trust account in the amount of $15,600 and made payable to Merrill Lynch Realty, Inc. This payment represented payment of one half of the $31,200 real estate brokerage commission. The check was subsequently returned to Merrill Lynch Realty, Inc. due to "non-sufficient funds." On March 27, 1987, Respondent delivered a cashier's check in the amount of $15,600 to Merrill Lynch Realty, Inc., to replace the February 25, 1987, check. The Respondent's real estate brokerage trust account was overdrawn from January 8, 1987 through March 4, 1987, by amounts ranging from $12,991.39 to $14,306.53 on various days during that period. The Respondent failed to maintain the $39,500 earnest money deposit in her trust account from February 2, 1987 until February 25, 1987, because the trust account's daily balance was less than that amount during that period. The Respondent subsequently failed to maintain the $15,660 due to Merrill Lynch Realty Inc., in the trust account from February 25, 1987, through March 25, 1987, because the trust account's daily balance was less than $15,600. From March 19, 1987, through October 29, 1987, Petitioner's investigator requested Respondent to produce for inspection and copying those books and papers relating to Respondent's trust account which are maintained in connection with Respondent's real estate activities. The Respondent failed to make the requested trust account books and records available at any time. Other Facts The Respondent offered mitigating testimony establishing that she was initially licensed in 1978 and has never been censured by Petitioner for any professional violations. She is 57 years of age and her real estate license is her sole source of support. Further, Respondent has borrowed money from her children to make up the deficit in her trust account. The testimony of Respondent also established that she was introduced to a gentleman named Robert H. Lajoie by another realtor in December of 1986. Subsequently, on or about December 8, 1986, Respondent entered into a nefarious arrangement with Lajoie. Under terms of the arrangement, Lajoie gave Respondent a check for $25,500 as a deposit to purchase a property listed with Respondent. In turn, Respondent gave Lajoie back a cash deposit of $10,000 from her trust fund in connection with a contract between the two of them whereby Respondent was to purchase a property of Lajoie's. The closing of the sale of Lajoie's property to Respondent would not take place until May, 1987. Lajoie returned to his native Canada shortly after receiving the $10,000 cash payment from Respondent and died. Shortly thereafter, payment on Lajoie's $25,500 check to Respondent was stopped. The Respondent is not sure whether this action was taken by Lajoie prior to his death or by his estate subsequent to that event. It is Respondent's contention that the loss of the $10,000 cash deposit to Lajoie resulted in a negative net balance in her trust account and eventually all of her financial difficulties in this case. The Respondent was sent an overdraft notice by her bank on January 8, 1987, stating that her trust account was overdrawn by $13,500 and that a check for $25,500 had been returned. Subsequent overdraft notices dated January 13, 1987 and January 21, 1987, were received by Respondent noting the rejection of two of Respondent's checks; one in the amount of $294.90 and the other in the amount of $34.35. The notice of January 13, 1987, indicated a hold on the account in the amount of $2,862.94 against the account's balance of $3,006.19. The January 21, 1987, notice continued this hold on the account's balance of $2,891.45. The Respondent related a series of personal matters at hearing that had prevented her from keeping appointments with Petitioner's investigators to inspect her records. She agreed to make access to those records immediately available.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that a final order be entered finding Respondent guilty of the offenses charged in the administrative complaint, imposing an administrative fine of $1,000 and suspending her license for a period of six months. DONE AND RECOMMENDED this 22nd day of July, 1988, in Tallahassee, Leon County, Florida. DON W. DAVIS Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 22nd day of July, 1988. APPENDIX TO RECOMMENDED ORDER, CASE NO. 88-1472 The following constitutes my specific rulings, in accordance with section 120.59, Florida Statutes, on findings of fact submitted by the parties. Petitioner's Proposed Findings 1-2. Included in finding 1. 3-8. Included in findings 3-8 respectively. Respondent's Proposed Findings 1. Included in finding 2. 2-5. Included finding 10. Included in finding 3. Included in finding 4, 5, and 10. Included in finding 8 and 12. 9-10. Rejected. 11. Included in finding 9. COPIES FURNISHED: Steve W. Johnson, Esquire Department of Professional Regulation Post Office Box 1900 Orlando, Florida 32802 Robert E. Gordon, Esquire 2601 Tenth Avenue North Suite 314 Lake Worth, Florida 33461-3197 William O'Neil, Esquire General Counsel Department of Professional Regulation 130 North Monroe Street Tallahassee, Florida 32399-0750 Darlene F. Keller, Acting Director Department of Professional Regulation Division of Real Estate 130 North Monroe Street Tallahassee, Florida 32399-0750
Findings Of Fact On June 8, 1979, the Division of Banking, Department of Banking and Finance, received an application submitted by Stanley G. Harris, Jr., Philip O. Gentry, Wendell Gooch, Harry W. Lindhorst, and Robert H. Long (hereinafter Applicant), pursuant to Section 650.02, Florida Statutes, for authority to organize a corporation for the purpose of conducting a trust business to be located at 501 South Flagler Drive, West Palm Beach, Florida. The proposed trust company will be named "Harris Trust Company of Florida." It will be a wholly owned subsidiary of Harris Bankcorp., Inc. Chicago, Illinois. Harris Bankcorp., Inc. is also the parent of Harris Trust and Savings Bank, Chicago, Illinois. (Testimony of Harris, Gooch, Exhibit 20) Each organizer of the proposed trust company will be a director and the trust committee will be composed of the chief executive officer who is a director, and the investment officer and trust officer of the proposed company. The proposed chief executive officer held various positions within the trust department of Harris Trust and Savings Bank from 1939 to 1977. All of the proposed officers and directors are United States citizens and there is no evidence that any have been convicted of a criminal offense. Three of the five proposed directors have resided in Florida for at least one year, including the proposed chief executive officer. (Testimony of Gooch, Exhibit 20) The proposed capital structure of the trust company will be $2,000,000, allocated $1,000,000 to common stock, $500,00 to surplus and $500,000 to undivided profits. (Testimony of Gooch, Exhibit 20) The proposed trust company will utilize 3,685 square feet on the first floor of Flagler Center, located at 501 South Flagler Drive, West Palm Beach, Florida. The office space is presently leased by the Harris Trust and Savings Bank for an investment advisory representative office. The lease is for a term of nine years commencing February 1979, and will be assigned to the proposed trust company if its application is approved, The lease cost during the first three years will be $53,432.50 per annum. (Testimony of Gooch, Exhibit 20) The Applicant's purpose in seeking to establish a trust company in Florida is to provide better service to a substantial portion of some 300 present customers of Harris Trust and Savings Bank who reside in the State of Florida, and to seek new trust business in the Applicant's designated Palm Beach County primary service area. The Applicant proposes to offer all services normally associated with a non-deposit trust company at competitive fees. These services include trustee, personal representative, and personal investment management. In addition, specialized services including institutional investors services, economic research and fixed income portfolio services and other services of a specialized nature. The proposed trust company will initially employ ten individuals, four of whom will be corporate officers. Support services utilizing the staff and systems of the Harris Trust and Savings Bank will be obtained by the Applicant under contractual arrangements at basically the same fees as those charged to correspondent banks for similar services. These services will include safekeeping of securities, record keeping and reporting, administration of accounts, execution of purchases or sales of securities, preparation of tax returns, and investment and economic research services. Investment decisions will be made by the local management of the proposed trust company. Personnel employed by the proposed company will solicit new accounts and provide independent investment and estate planning advice and services. (Testimony of Harris, Gooch, Exhibit 20) The Applicant's designated primary service area is all Of the area located within Palm Beach County, Florida. The Applicant is of the opinion that the defined PSA encompasses the smallest area from which the proposed trust company can anticipate obtaining 75 percent or more of its prospective business, including transfer of existing accounts of customers of Harris Trust and Savings Bank who reside in the primary service area. (Testimony of Gooch, Exhibit 20) The population of Palm Beach County increased from 348,993 persons in 1970 to 534,551 persons in 1978, an increase of 53.2 percent. The population of the State of Florida increased during a similar period by 32 percent. It is projected that the county population will increase to 673,000 by mid-1985. In mid-1978, Palm Beach County ranked 6th in population in the state. Almost 91 percent of the county's increased population during the period 1970-1978 was due to migration of individuals moving into the area rather than natural increase of the population. A substantial number of in-migrants consists of Illinois residents moving to Palm Beach County. Between 1970 and 1978, the 45 to 64 age group of Palm Beach County's population expanded from 79,298 to 120,469. The age group of 65 years and older increased from 60,655 to 110,825 during the same period. The 1970 to 1978 increase of county residents aged 45 years or more was 91,351 persons or 65.3 percent. The comparable percentage increase throughout Florida was 44 percent. It is estimated that from 1978 to 1985 the age group of 45 years and older will increase from 231,294 to 290,736. In 1978, those persons over 45 years of age constituted 43.2 percent of the population. The number of households in Palm Beach County in 1970 was 123,347 and is estimated to increase to 202,615 in 1930. In 1976, the per capita income of Palm Beach County residents was $7,165 as compared to $6,101 for the state population. In 1977, per capita income in Palm Beach County increased to $7,878 compared to $6,697 for the state. The average household effective buying income in Palm Beach County in 1978 was over $20,000 while the average for the state was $16,488. Such income is estimated to increase to $25,541 in Palm Beach County by 1982 and to $21,101 for the state. During a one year period between 1977 and 1978, there were 483 estate tax returns filed in Palm Beach County, of which 40.2 percent had a gross value of over $500,000. The average value of the estates was $935,242. Those estates over one million dollars constituted 16.8 percent of the total number of estates. About 40 percent of the estates were over $500,000 and this group constituted 83 percent of the total gross value of all estates during that period. Of the total number of 483 estate cases, corporate fiduciaries were named as sole executor in only 72 estates, and served with individual co- fiduciaries in 21 additional cases. Of 81 estates valued at one million dollars or more, only 15 estates were handled by corporate fiduciaries and in four additional cases a corporate fiduciary served jointly with an individual. Between 1975 and 1978, deposits of Palm Beach County financial institutions increased by 59.3 percent, while deposits in the state as a whole increased by 44.8 percent during the same period. Palm Beach County's per capita deposits increased from $6,990 in 1975 to $9,954 in 1978. Per capita deposits in the state as a whole were $5,376 in 1975 and $7,364 in 1978. In 1978, personal intangible tax returns for Palm Beach County show that 51.4 percent of the 15,700 returns included taxable personal assets of $100,000 or more. Almost ten percent of the returns included taxable assets of $500,000 or more and 4.39 percent were of one million dollars or more. (Testimony of Badalich, Exhibits 19-20, 26) The application reflects that in 1977, some 800 million dollars in trust assets were under management in Palm Beach County by 15 insured commercial banks. Over 40 percent of these assets were administered by the First National Bank in Palm Beach. During the period between 1972 and 1977, total trust assets under management by commercial banks in Palm Beach County increased over 32 percent while similar assets in banks throughout Florida increased 6.8 percent. Most of the banks providing trust services in Palm Beach County are affiliated with holding companies. There is one non-deposit trust company, Bessemer Trust Company of Florida, located in Palm Beach County, which is affiliated with out- of-state corporations. The combined total trust assets of all sixteen of the financial institutions in Palm Beach County totaled almost 938 million dollars as of December, 1978. In 1979, five of eight pending applicants for trust companies in Palm Beach County showed an existing volume of trust assets under management in Palm Beach County of almost 400 million dollars. Although Palm Beach County has been experiencing substantial population growth which is expected to continue into the future, not all of the affluent areas of the county are susceptible to continuing growth. The Town of Palm Beach is limited in growth possibilities and has increased by only 2,539 persons in the last ten years. However, the Boca Raton, Delray Beach, Palm Beach Gardens, and Jupiter-Tequesta areas are expected to have significant population growth in the future. (Testimony of Badalich, Beck, Exhibits 19-20, 26) The factors determining the extent of demand for trust services in particular areas include considerations of population and age distribution, personal wealth and income levels, and income growth. There is a higher potential for increased trust business in a rapidly growing area. The presence of a substantial segment of older population is significant because wealth is normally concentrated in that portion of the population and they constitute the primary customer source for fiduciary services. The primary service area of Palm Beach County constitutes a substantial market for trust services due to rapid population growth, together with age and wealth characteristics of its population. However, there exist other competitors in the field, such as attorneys, accountants, insurance companies, financial advisors, and relatives or fiends of potential customers. The extent of this portion of the market is large, but unknown as to the amount. (Testimony of Badalich, Beck, Exhibits 2, 19-20, 26) The national trust business is highly concentrated in a relatively small number of large banks, primarily in the eastern part of the nation. The largest fifty banks control almost two-thirds of the nation's trust assets and the largest thirty banks administer about as many trust assets as all other banks and trust companies. Harris Trust and Savings Bank has the fifth largest trust department in the United States with 1978 assets under management of over 11 billion dollars. It has 302 accounts of Florida customers which have an asset value of $190,879,000. Of these accounts, 100 are located in Palm Beach County which have an asset valuation of $82,189,000. The bank has experienced difficulties in servicing these Florida customers from its base in Chicago. The trust relation shin is one based upon personal service which requires a considerable amount of close contact in order to insure timely solutions and decisions with regard to the account. Harris Trust and .Savings Bank intends to "transfer" to the Applicant some 113 of the 302 existing Florida accounts with an asset valuation of $77,568,000, and annual fee income of $278,000. Included in the 113 accounts are some 39 investments accounts which are already being administered at the Bank's West Palm Beach investment advisory office. The 113 accounts include 60 personal trusts, 37 investment advisory accounts, and 16 custodian accounts. The accounts that are proposed to be transferred do not include those requiring major document modification nor Harris Trust and Savings Bank will appointments of Florida customers. Although customer consent to transfer has not yet been obtained, the fact that 39 investment accounts have been transferred to the Bank's West Palm Beach office leads the Applicant to believe that the other customers will agree to transfer. The Applicant therefore projects in its application that the 113 accounts will be transferred on the opening day of operations and that an additional 30 accounts will either be transferred or obtained by the end of the first year. It projects the acquisition of an additional 40 accounts by the end of the second year of operation, and a total of 233 accounts with asset valuation of $137,568,000 by the end of the third year and annual fee income of $926,000. Assuming that it will be successful in achieving projected transfer of accounts, together with an undetermined amount of new business and income Off on investment of its initial capitalization, the Applicant estimates that its total income for the first year will be $531,515, $710,280 for the second year, and $1,031,270 for the third year of operation. After deduction of anticipated expenses, the Applicant predicts a loss during the first year of operation amounting to $93,860, a loss during tie second year of $51,407, and net income of $57,850 during the third year. (Testimony of Harris, Gooch, Exhibit 20) The Applicant believes that it will secure new business, other than the transferred accounts, from current customers of Harris Trust and Savings Bank and other individuals familiar with its name who migrate to Florida, and from new customers obtained in the primary service area. It will not seek accounts under 5150,000, but will accept and service them at its minimum fee. It intends to employ advertising, personal contact, and solicitation of third parties, such as local lawyers, in order to obtain new business. It does not intend to seek new business from existing customers of local trust institutions. Trust customers usually remain with the institution which carries its account if acceptable services are being rendered. During the first six months of operation of the Harris Trust and Savings Thank's West Palm Beach investment advisory office, five customer accounts totalling seven and one-half million dollars were obtained from one present customer and four new customers who had moved to Florida and bad not previously had a customer relationship with the bank. (Testimony of Gooch, Beck, LeMaistre, Randall, Exhibits 20-22) Although trust departments of banks do not usually generate large profits through trust activities, three of four trust representatives of banks which intervened in this proceeding have experienced substantial growth in trust business over the past few years. The fourth representative testified that the trust department had been "marginally" profitable in recent years. All of these individuals are concerned that if a number of now competing trust companies are permitted to operate in Palm Beach County, such entry would result in the loss of larger, more profitable accounts which tend to subsidize the smaller ones because the services rendered in each instance are virtually the same. One representative testified that an account has to be at least $250,000 to be profitable and another testified that any account less than $100,000 would not usually be profitable dependent upon the services required to administer the account. They generally agreed that there is aggressive competition among trust institutions in Palm Beach County and that influx of numerous new trust companies would affect their ability to secure large accounts and consequently could affect profits. Smaller accounts of trust departments normally are with customers of the commercial banking department whom the bank feels obliged to accommodate with trust services. Profits, of course, are generated from these customers from their use of other services of the bank. If the large accounts of the banks are not replenished as the current ones expire, it will be difficult to provide the same services for the smaller accounts or to maintain them at all. Large accounts have been "leveling out" in recent years and most of the high wealth individuals migrating to Palm Beach County already have existing trust relationships. Additionally, some of the affluent communities in the county lack room for expansion and many of the wealthy individuals tend to locate in areas to the north of Palm Beach County. There is little fear by these banks that their present customers will affiliate with new institutions, but they believe that their ability to secure new customers from those with current customer relationship or those with current accounts with out-of-state institutions will be impaired. (Testimony of LeMaistre (Deposition-Exhibit 21), Kline, Northcrafts Myers, Southall, Beck) The impact of the Applicant and other new trust companies entering the Palm Beach County trust market is conjectural and speculative at this time. Although exact figures cannot be obtained as to the extent of the existing trust market in the county or as to the extent of "penetration' of such a market, various studies show that there is a market of approximately three billion dollars in trust assets and that it has been penetrated by both local and out- of-state institutions at least to the extent of 30 to 50 percent. Entry of new institutions into the market can benefit the public by providing new services and making the public more aware of the availability and extent of such services. Small trust departments of banks which are unaffiliated with holding companies generally are in a different market than the larger companies. Consequently, the Applicant and other new applicants representing large out-of- state corporations primarily will be competing with the larger local trust departments which have the expertise and can provide the customized services desired by trust customers. The entry of the Applicant into the local market will initially have little impact on local institutions because the bulk of its business will consist of customers who already have a trust relationship with the Harris Trust and Savings Bank. In addition, the Applicant will not be competing with the local trust departments for small accounts and will offer no commercial banking services which would generally be the vehicle through which such accounts are obtained and developed. A former chairman of the Federal Deposit Insurance Corporation testified at the hearing that the entry of large out-of-state trust companies into the Florida market would be a positive impact for the State in bringing new accounts and assets to Florida. It was his opinion that multiple entry of new companies would improve the "dynamics" of the entire area. Although he conceded that profits accruing to the new companies would probably be returned to the out-of-state parent corporation, some would be left in Florida for expansion and that the remaining amount would be insignificant compared to the additional business brought into the state. (Testimony of Randall, Beck, Myers, LeMaistre (Exhibits 21-26)) A telephone survey was made by a market research firm in October, 1979, that sought to determine the extent of the market for fiduciary services in the primary service area. The questions in the survey included such matters as length of residence in the area, age of the person called, current utilization of trust or other financial services, types and amounts of potential trust accounts, and whether those called would establish new trust accounts or change existing ones to either a major out-of-state institution" which opened a trust office in the area, or a "Florida based institution." The survey included responses of 219 individuals in Palm Beach County. The results of the survey are not found to be a reliable or representative assessment of the potential trust market in the primary service area. Limitations on the geographical areas covered by the survey, elimination of certain individuals as potential users of trust services, and the misleading use of certain terms in the questions are the primary reasons for the above finding. (Testimony of McAleer, Legg, Badalich, Randall, Exhibit 27) This Report is submitted pursuant to Section 120.57 (1)(b)(12), Florida Statutes, and Rule 3C-9.11, Florida Administrative Code. ISSUED this 8th day of January, 1980, in Tallahassee, Florida. THOMAS C. OLDHAM Hearing Officer Division of Administrative Hearings 101 Collins Building Tallahassee, Florida 32301 (904) 488-9675 COPIES FURNISHED: Stephen E. Day Julie H. Kuntz Attorneys for Respondent Bankers Trust Company of Florida Mathews, Osborne, Ehrlich, McNatt, Gobelman and Cobb 1500 American Heritage Life Building Jacksonville, Florida 32202 (904) 354-0624 John A. Jones Bruce Roberson Attorneys for DBT Trust Company of Florida Case No. 79-1228; 79-1234 Holland and Knight 610 North Florida Avenue Tampa, Florida 33601 (813) 223-1621 John Radey Holland and Knight Post Office Drawer 810 Tallahassee, Florida 32302 J. Thomas Cardwell Attorney for Petitioner Florida Bankers Association and Intervenor Atlantic National Bank of Palm Beach County Akerman, Senterfit and Eidson Post Office Box 231 Orlando, Florida 32802 (305) 843-7860) Bruce Culpepper Attorney for Petitioner Florida Association of Registered Bank Holding Companies, Inc. 350 East College Avenue Tallahassee, Florida 32301 (904) 222-6071 James G. Pressly, Jr. Attorney for Intervenor First National Thank in Palm Beach Attorney for Intervenor Bessmer Trust Company of Florida Gunster, Yoakley, Criser, Stewart and Hirsey, P.A. First National Bank Building Palm Beach, Florida 33480 (305) 655-1980 H. David Faust Attorney for Intervenor Bank of Palm Beach and Trust Company Attorney for Intervenor First Bank and Trust Company of Boca Raton Burns, Middleton, Farrell and Faust 205 Worth Avenue Palm Beach, Florida 33480 (305) 655-5311 Robert I. MacLaren, II Attorney for Intervenor Boca Raton National Bank Osborne and Hankins Post Office Drawer 40 855 South Federal Highway, Suite 200 Boca Raton, Florida 33432 (305) 395-1000 Ralph J. Blank, Jr. Attorney for Intervenor First National Bank and Trust Company of Riviera Beach Blank, Will and Benn Post Office Box 2100 West Palm Beach, Florida 33402 (305) 832-2889 John C. H. Miller, Jr. Attorney for All Intervenors Post Office Box 46 Mobile, Alabama 36601 (205) 432-1414 Eugene Cella and Franklyn J. Wollett Attorneys for Respondent Office of the Comptroller The Capitol, Room 1302 Tallahassee, Florida 32301 (904) 488-9896 Phillip G. Newcomm, Bowman Brown, and Arnold L. Berman Attorneys for Respondent, U.S. Trust Company of Florida 1000 Southeast First National Bank Building Miami, Florida 33131 (305) 358-6300
Findings Of Fact At all times material hereto The Ambrosia Home was a licensed nursing home facility subject to Chapter 400, Florida Statutes, and Chapters 10C-7 and 10D-29, Florida Administrative Code. During the summer of 1982 an auditor from the Medicaid Fraud Control Unit of the Office of the Auditor General conducted an examination of the patient trust fund accounts of The Ambrosia Home. During the course of this audit some 11 instances were found where deceased patients' trust funds had been disbursed by the nursing home without the benefit of probate proceedings. A report of these findings was forwarded to the Department of Health and Rehabilitative Services Office of Licensure and Certification, and the Administrative Complaint dated March 7, 1983, was issued. Respondent had a policy under which all patients entering the nursing home completed a simple "will" which provided that if funds accruing to them monthly for personal use remained in their accounts after their demise, they directed disbursement of these funds to pay all outstanding debts to The Ambrosia Home and remaining funds be used for funeral expenses or paid directly to their named beneficiaries. The 11 patients whose trust funds were not all placed in an interest-bearing account upon their death had completed such a document designating a beneficiary of these funds. The funds which were allegedly not placed in an interest-bearing account upon the death of the patient were disbursed for funeral expenses or paid to the designated beneficiary. This policy had been in existence at The Ambrosia Home for a considerable period of time and inspectors from the Office of Licensure and Certification had inspected these trust fund records several times without noting that such disbursements violated the Florida Probate Code.
Findings Of Fact The Respondent was, at the time of the hearing and at all times material to this proceeding, registered with the Real Estate Commission as a real estate broker. During the period of the transactions involved in this proceeding the Respondent was operating and registered as an active broker and President of Fortiner Realty Company, which was a corporate real estate broker registered with the Commission. In Count One of the Complaint, the Respondent is charged with failing to maintain a security deposit in his trust account in connection with a real estate transaction involving Phillip E. Andrews and Betsy K. Andrews, as sellers, and Joseph T. Lyons and Marion C. Lyons, as purchasers. In Count Two of the Complaint the Respondent is charged with converting the deposit in the Andrews-Lyons transaction to his own use. During March, 1976, Claude I. Allen was employed at the Respondent's real estate office as a salesman. Allen negotiated a transaction between the Andrewses and the Lyonses. On March 17, 1976, the Lyonses made an offer to purchase the Andrews property and submitted a $1,000.00 deposit to Allen. On March 18, 1976 the $1,000.00 was deposited in the Respondent's trust account at the Palmer Bank of Ft. Myers. On March 22, 1976 the Andrewses accepted the offer and the Lyonses provided an additional $2,000.00 deposit to Allen. On that same date the $2,000.00 was deposited in the Respondent's trust account. The transaction closed on May 11, 1976. It was a smooth transaction. On May 110, 1976 $3,000.00 was withdrawn from the Respondent's trust account as a part of the transaction. During the entire time from March 17 through May 11, 1976, the monies deposited by the Lyonses remained on deposit in the Respondent's trust account. There is no evidence to support a finding either that the Respondent failed to maintain the $4,000.00 in the trust account, or that he converted any part of the deposit for his own use. In Count Three of the Complaint the Respondent is charged with failing to maintain a deposit in his trust account in connection with real estate transactions between Mac-Nel Ltd. and M & N Ltd. as sellers, and Stanley G. Courtney, as purchaser. In Count Four the Respondent is charged with converting all or part of the security deposit to his own use. The Respondent was one of several partners in Mac-Nel Ltd. and M & N Ltd. On august 28, 1976, Stanley G. Courtney entered into separate contracts to purchase all of the property owned by the two partnerships. Through six separate checks Courtney made a deposit of $13,500.00 to the Respondent to be placed in the Respondent's trust account. The evidence is unclear as to when or in what manner the deposit was placed in the trust account, or whether all of it was in fact placed in the trust account. The bank records reflect that $17,600.00 was placed in the Respondent's trust account on August 30, 1976, and it is possible that the Courtney checks formed a part of that deposit. During August and September, 1976, the Respondent's financial condition became grave. He had apparently defaulter on several notes to the Palmer Bank in which he had his trust account. The bank sued on the notes, and put a hold on the Respondent's accounts. In order to allow the Courtney transactions to close, the Respondent was able to withdraw allow a portion of the deposits made by Courtney form his trust account. He transferred his interest in the property to a Mr. Blankenship, so that Mr. Blankenship could close the transaction unfettered by the Respondent's financial plight. After he withdrew the money from his trust account, and forwarded it to Blankenship, the Respondent took no further part in the Courtney transaction either as a party to the transaction or as a broker. The closing of the transaction was delayed due in part to the Respondent's bankruptcy, however, it did close on October 29, 1976. Courtney was credited with the full amount that he had deposited with the Respondent. It is clear that the Respondent did not maintain all of the monies deposited by Courtney in the trust account. His reason for failing to do that was to permit the transaction to close even though the Respondent had gone bankrupt. The evidence would not support a finding that the Respondent converted any portion of the Courtney deposit to his own use. In Count Five of the Complaint the Respondent is charged with failing to maintain a deposit in his trust account in connection with a transaction involving Charles and Margaret Lathrop as sellers, and William and Jeannette Whitacre as purchasers. In Count Six the Respondent is charged with converting all or part of the deposit in that transaction to his own use. On or about June 29, 1976, the Whitacres entered into a contract to purchase property from the Lathrops. The transaction was negotiated by Mary E. Bishop, a saleswoman who was employed by the Respondent in his real estate company. The Whitacres delivered a $6,500.00 check to Mrs. Bishop as a deposit on the transaction. The bank records received into evidence do not clearly reveal when or in what manner the Whitacre's deposit was placed in the Respondent's trust account. The bank statements do show a $7,000.00 deposit made into the Respondent's trust account at the Palmer Bank of Ft. Myers on July 1, 1976, and it is possible that the Whitacre's check was a part of that deposit. Bank records from other trust accounts maintained by the Respondent such as that at the Cape Coral Bank do not reveal any deposit that could have been the Whitacre's check. The Lathrop/Whitacre transaction closed successfully on August 18, 1976, and the Whitacres were credited with the $6,500.00 that they had submitted to the Respondent's firm. It is apparent from the bank records that $6,500.00 was not on deposit at all times in the Respondent's trust account between July 1 and August 18, 1976. During most of that period the Respondent's balance in his trust account was less than $6,500.00. No evidence was offered from which it could be concluded that the Respondent made any specific use of the money deposited by the Whitacres. It is apparent, however, that the money was not used as intended, i.e., it was not maintained in the Respondent's trust account. In Count Seven of the Complaint the Respondent is charged with fraud, misrepresentation, and dishonest dealing in connection with his handling of the business of a partnership known as 27 Oaks Ltd. The Respondent was the general partner in 27 Oaks Ltd. He was responsible for carrying on the business of the partnership for the benefit of eight limited partners. The partnership owned property which it was seeking to develop and sell in small parcels. On November 19, 1975, a mortgage payment in the amount of $21,300.00 was due from the partnership. In accordance with the partnership agreement, the Respondent solicited funds from the limited partners so that the mortgage payment could be made by letter dated October 15, 1975. The evidence does not reveal whether the Respondent received sufficient contributions from the limited partners to pay the mortgage payment. The evidence reveals only that he received $9,997.00 from the limited partners in response to his solicitation. The Respondent did not make the mortgage payment when it was due, but instead received a ninety-day extension. The new date was February 19. The principal payment on the mortgage was not made on that date, but instead, the Respondent made payments on the interest due. Ultimately the payment was made in a manner satisfactory to the mortgagee by early June, 1976. The Real Estate Commission has charged that the Respondent received funds sufficient to make the mortgage payment in November, 1975, but that he applied the money to some other purpose. This contention is not supported by the evidence. The evidence does not reveal that the Respondent received sufficient money to make the mortgage payment. The bank records reveal that there was sufficient money in the 27 Oaks Ltd account to make the mortgage payment in November, and that the Respondent withdrew most of that money. The evidence does not establish that the Respondent improperly withdrew the money, or that the Respondent improperly withdrew the money, or that he put it to any but a valid partnership purpose. The Commission has also contended that the Respondent failed to maintain the monies he received from the limited partners in a trust account. Nothing in the partnership agreement requires that such monies be kept in a trust account, and the Respondent's failure to do so could not, therefore, constitute fraud or misrepresentation. Even if the contract were construed arguably to require that funds be placed in a trust account, certainly there are equally valid arguments that is does not. In Count Eight of the Complaint the Respondent is charged with fraud, misrepresentation, and dishonest dealing in connection with his handling of the affairs of a Florida limited partnership know as Randag Properties Ltd. During 1976 the Respondent was the sole general partner of Randag Properties Ltd. The partnership owned property which it was seeking to develop into apartments. The Respondent was responsible for carrying on the partnership business. The property consisted of more than 40 acres on a river and a navigable canal. Part of the property was a small appendage which contributed little to the development potential of the property. In order to raise money to prepare the property for development, the Respondent sold the appendage to an ajoining property owner. That transaction closed on or about May 28, 1976. The Respondent had contributed more than $30,000 of his own money to the partnership in order to prepare the property for development. These expenditures included attorneys fees that he had incurred; a boundary survey, a high tide location survey, and a topographical survey; fees to the Florida Secretary of State's office; real estate taxes; land clearing expenses; and various miscellaneous expenditures. The Respondent had also made an advance to one of the limited partners. The Respondent applied most of the proceeds from the sale of the appendage to compensate himself for the expenditures that he had incurred. The Respondent had a disagreement with one of the limited partners, Mr. Swartz, as to whether the proceeds of the sale should be applied to compensate the limited partners for their initial investment or the Respondent for his expenditures. The Respondent's applying the proceeds to compensate himself does not appear to be contrary to the partnership agreement and it does appear that he had validly incurred expenses on behalf of the partnership to which he was entitled to be compensated. The Respondent ultimately resigned as the general partner on October 12, 1976, in order to save the partnership from the consequences of his bankruptcy, and was replaced by Swartz. Early in October, 1976, the Respondent issued a promissory note to the partnership, but there was no showing that this promissory note was the consequence of any fraud, but rather that it was for the purpose of placing the partnership in a favorable position in relation to the Respondent's bankruptcy. The Respondent ended up losing money through his participation in the partnership while the limited partners ended by making a substantial profit. All of the limited partners were advised of the sale of the appendage either prior to the sale or shortly after. There is no requirement in the partnership agreement that they be advised in advance of the sale, or that they assent to it. The Respondent is charged in Count Nine of the Complaint with fraud, misrepresentation, and dishonest dealing in connection with a business transaction that he had with William K. Gamble and Dorothy V. Gamble. The allegations in essence are that the Respondent received loans from the Gambles, and that he pledged certain property as security for the loans. He was required under the terms of the promissory notes and the collateral assignment that accompanied them to provide other adequate security in the event that he sold any of the property that served as collateral for the loans. It is alleged that the Respondent sold the property, did not advise the Gambles, and did not substitute any other property as security for the promissory notes. The only testimony offered to establish that the property that served as collateral was sold was the testimony of Mrs. Dorothy V. Gamble. Mrs. Gamble had no direct knowledge that the property was in fact sold. It is apparent from the evidence that the Respondent has defaulted on the promissory notes. In Count Ten of the Complaint it is alleged that the Respondent failed to maintain a deposit in his trust account in connection with a real estate transaction involving Herbert J. Haase and Katherine M. Haase, as trustees, the sellers, and Loyal H. Tingley as purchaser. In Count Eleven it is alleged that the Respondent converted all or part of the deposit to his own use. On or about August 6, 1976, Tingley entered into a contract to purchase property from the Haases. Herbert Haase was a real estate salesman employed in the Respondent's real estate firm, and he held title to the subject property in trust. The Respondent was the actual owner. Tom Carpenter, another salesman employed in the Respondent's firm, was the sales man in the transaction. Tingley delivered a $5,000 check to Carpenter as a deposit on the transaction. Another real estate broker, a Mr. Himmelrick, had negotiated mortgage modifications in connection with the sale. He and the mortgage bank insisted that the deposit be placed in Himmelrick's trust account. Accordingly, the Respondent deposited the $5,000 check from Tingley into his trust account, and delivered a $5,000 check from his trust account to Himmelrick. Carpenter advised Tingley that Himmelrick and the bank insisted upon having the $5,000 deposited in Himmelrick's trust account prior to the time that the check was forwarded from the Respondent's trust account to Himmelrick. Tingley consented to that arrangement. While it is true that the Respondent did not keep the $5,000 deposit in his trust account, his failure to do so was with the consent of the purchaser, and resulted only in the deposit being placed in the trust account of a participating realtor. The evidence would not sustain a finding that the Respondent converted any part of the deposit to his own use. In Count Twelve of the Complaint it is alleged that the Respondent issued over 22 checks drawn on his trust account wherein said checks were not honored for payment for the reason of insufficient funds; that the Respondent placed funds in his trust account that did not come from valid trust account sources; and that the Respondent caused his account to have a negative closing balance on May 13, 1876. The evidence would not sustain any finding that the Respondent issued checks which were not honored for payment. It is apparent from the bank records that several checks issued by the Respondent drawn on his trust account were not covered by the balance in the trust account. Bank records indicated a "OC" next to such withdrawals on the ledger sheets. The bank witnesses testified, however, that frequently such entries are honored by the bank and are not returned due to the insufficient funds. The evidence would not sustain a finding that the Respondent placed money in his trust account that came from sources there were not proper for placing in a trust account. Nothing in the bank records offered into evidence demonstrates which deposits may not have been valid trust account deposits. The deposit slips merely show the payor of the checks. The bank records do reveal that the Respondent's trust account balance in the Palmer Bank of Ft. Myers on May 13, 1976 was a negative balance of $732.60. On September 29, 1978, the Florida Real Estate Commission entered its final order finding the Respondent guilty of a of a violation of the Real Estate License Law. The Respondent's registration as a real estate broker was suspended for a period of ninety days. The Real Estate Commission Case Number was Progress Docket Number 3130. All of the events involved in the instant proceeding occurred prior to the time that the final order was entered in Case Number 3130 and indeed prior to the time that the Complaint was issued in Case Number 3130. The Respondent has enjoyed a very good reputation in his community for fair dealing, truthfulness and competence. None of the acts which the Respondent committed that led to the instant proceedings show that the Respondent has engaged in a course of conduct or in practices which demonstrate that he is so incompetent, negligent, dishonest and untruthful that the money, property, transactions and rights of others may not safely be entrusted to him. The Administrative Complaint in Case Number 3130 before the Florida Real Estate Commission was issued on January 14, 1977. In included twenty-seven counts. All of the allegations related to the Respondent's dealings with various real estate salesman, and his alleged failure to share real estate commissions with the salesmen. In connection with the transactions involved, it was asserted in several counts that the Respondent failed to place deposits properly in his trust account. None of the charges in the first administrative complaint are grounded upon the facts alleged in the instant Administrative Complaint. The facts involved in the instant proceeding did, however, all occur at about the same time as the facts alleged in the first complaint, and all occurred prior to the date that the Administrative Complaint was filed in Case Number 3130. New facts came to the attention of the Commission due in part to comments made to one of the present real estate commissioners by a Ft. Myers resident. With diligent inquiry it is possible that the Commission could have discovered the facts which have resulted in the instant proceeding and included them as additional counts in the complaint in Case Number 3130. It has not, however, been shown that the Commission had reason to believe that it should make such diligent search and inquiry. B
The Issue In this disciplinary proceeding, the issues are whether Respondents, who are licensed real estate brokers, failed to preserve and make available certain records relating to trust accounts and real estate transactions, and/or obstructed or hindered Petitioner's investigators in an official investigation, as alleged by Petitioner in its Administrative Complaint. If Petitioner proves one or more of the alleged violations, then an additional question will arise, namely whether disciplinary penalties should be imposed on Respondents, or either of them.
Findings Of Fact The Parties Respondent Nestor G. Mendoza ("Mendoza") is a licensed real estate broker subject to the regulatory jurisdiction of the Florida Real Estate Commission ("Commission"). Respondent Diamonds Realty of Miami Beach, Inc. ("Diamonds Realty") is and was at all times material hereto a corporation registered as a Florida real estate broker subject to the regulatory jurisdiction of the Commission. Mendoza is an officer and principal of Diamonds Realty, and at all times relevant to this case he had substantial, if not exclusive, control of the corporation. Indeed, the evidence does not establish that Diamonds Realty engaged in any conduct distinct from Mendoza's in connection with the charges at issue. Therefore, Respondents will generally be referred to collectively as "Mendoza" except when a need to distinguish between them arises. Petitioner Department of Business and Professional Regulation ("Department"), Division of Real Estate, has jurisdiction over disciplinary proceedings for the Commission. At the Commission's direction, the Department is authorized to prosecute administrative complaints against licensees within the Commission's jurisdiction. On January 15, 2008, Veronica Hardee, who was then employed by the Department as an investigator, conducted an audit of Mendoza's records at Mendoza's real estate brokerage office, which was located in Miami Beach. Ms. Hardee was accompanied by her supervisor, Brian Piper. Ms. Hardee knew Mendoza because, in the latter part of 2007, she had investigated a consumer complaint against him, which arose from a transaction that had taken place in the fall of that year. In the course of that investigation, which focused on the period from August 20, 2007 through November 30, 2007, Mendoza had provided Ms. Hardee with business records, including bank statements and documents relating to the brokerage's escrow account. Ms. Hardee's previous investigation had not resulted in charges of wrongdoing being brought against Mendoza. During the audit, Ms. Hardee asked to review some of Mendoza's business records. She testified about this on direct examination as follows: Q. All right. Did you tell [Mendoza] what he would need to bring——or what he could expect from an audit? A. I don't remember, but usually procedure [sic], I would tell them we need to see older escrow accounts, older operating accounts, deposit slips, deposit checks, anything that has to do with their financial matters. Final Hearing Transcript ("TR.") 40-41 (emphasis added). On cross examination, Ms. Hardee elaborated: Q. (BY MR. MENDOZA) . . . I remember quite well that you did not ask me for the whole year of——for instance, of 2004, you never asked me for whole year, you asked me for a certain month; is that correct? * * * THE WITNESS: During the investigation I requested certain documents, yes. You're correct, I asked you for certain months, you had different issues with the Department that I was looking at. . . . * * * You didn't provide all the months requested and we came to the audit, you didn't provide——at that time, we asked you to see all of your accounts, it just wasn't for the investigation, we wanted to see your escrow account so you should have had for——I don't remember the——we wanted 1-15-08, we would have done from January of '08 to six months prior, let's just say. I don't remember what dates we gave you at the time. But then you would have a file with those documents in your escrow reconciliation statement, with all of your checks, all of your deposits with the bank statement attached, you know, organized. But it wasn't so and you said that you wanted to organize it properly and that's why we allowed you to organize it. So the question, did you provide me documents, yes, you provided me documents in the investigation but not all of the documents requested. TR. 58-60 (emphasis added). The undersigned attempted to elicit from Ms. Hardee a more detailed description of the materials requested during the audit, giving rise to the following exchange: THE HEARING OFFICER: Okay. And can you describe for me what it was in particular that you did request on that day in January of 2008? What did you ask [Mendoza] for? THE WITNESS: Yeah. We asked him for his escrow documents, reconciliation statements, such as the one that you see in [Petitioner's Composite] Exhibit 3. We asked about those months that were missing. We asked him——I don't know if we asked him for six months or one year. I don't remember the time frame we gave him, but pretty much when we go in to do an audit, we get the last six months, usually the months that are particularly discussed, the checks or the deposits that we're looking into for an investigation. * * * So pretty much that's what we asked, all of his escrow operating account that we had for the company, which includes the reconciliation statement, bank statement, deposit checks, as the statute statues here. THE HEARING OFFICER: Okay. You're standard procedure would have been you say in an audit like this, to have asked for the last six months of records right? So you're nodding your head, that's a yes? THE WITNESS: Yes. In this case we asked for the months that I was missing and plus I wanted to do a whole——we were going to do a whole audit. I don't remember right now if I asked him for six months or twelve months, I don't remember that part, but usually we ask for all the documents. THE HEARING OFFICER: And if I could just ask you to clarify do there's no mistake about this, when you say the months that are missing, what months are you referring to? THE WITNESS: I'm sorry, November of '04 and December of '04. TR. 73-75 (emphasis added). The Department did not, at the time of the audit, reduce its request for records to writing, which is unfortunate for the Department because, as the above-quoted testimony shows, Ms. Hardee's memory of specifically what Mendoza had been asked to produce was spotty. Although Ms. Hardee did identify two particular months——November and December of 2004——for which contemporaneous records were sought, this detail is practically random (because no context was given to explain the description of these periods, which predated the audit by more than three years, as "missing" months) and, in any event, fails to make the testimony as a whole explicit or distinctly remembered. The undersigned finds that Ms. Hardee's testimony was insufficiently precise to constitute clear and convincing evidence concerning the particular items that the Department wanted to see. Even if Ms. Hardee's testimony were sufficient on the previous point, however, the proof regarding Mendoza's alleged failure to produce records, which is a separate issue, is less compelling. Ms. Hardee's testimony was that Mendoza made available some but not all of the documents she and Mr. Piper wanted to see. (Actually, a fairer characterization of Mendoza's relative compliance, accepting Ms. Hardee's testimony as true, would be that he produced most of the documents requested, namely six-to-12 or 13 months' worth, failing only to make available documents associated with the last two or three months of 2004.) Mendoza then requested, and was given, additional time to assemble the rest of the materials. For some reason, Mendoza never contacted the Department thereafter to produce the items he could not locate on January 15, 2008, which caused the Department to initiate the instant proceeding. The undersigned largely credits Ms. Hardee's testimony regarding this overview of the events, with the qualification that Mendoza's compliance, while less than 100 percent, was nevertheless substantial. (He might, after all, have produced satisfactorily as much as 13 months' worth of documents, according to Ms. Hardee's testimony.) Given that Mendoza is alleged to have failed only to produce specific documents relating to the particular period from October through December 2004, the undersigned infers that he produced everything else that the Department wanted to see. The Department did not, however, at the time of the audit (or later), prepare an inventory of the records Mendoza made available (or failed to produce), take copies of the materials Mendoza produced, or otherwise reduce to writing the particulars of his noncompliance (e.g. by sending him a letter, soon after the audit, reminding him of the obligation to produce the materials that were not accessible on January 15, 2008, and listing or describing those materials). The absence of a contemporaneous written record of Mendoza's alleged failure to make documents available at the audit is unfortunate for the Department because, on the question of what Mendoza did and did not produce, Ms. Hardee testified as follows: THE HEARING OFFICER: All right. And when you went back in January of 2008 to see the ——Mr. Mendoza at his office and audit his books and records, he produced nothing to you and your supervisor whatsoever on that date in response to the things that you requested to see? THE WITNESS: He may have provided certain documents but were incomplete. I do not remember which documents he provided. * * * I'm not saying he didn't provide me with anything. He didn't provide us with all of the documents we requested. TR. 71-72 (emphasis added). In sum, the evidence against Mendoza consists of the testimony of Ms. Hardee, who in a nutshell says that, while she cannot clearly remember exactly what the Department asked Mendoza to produce, she knows that she requested documents relating to November and December of 2004, and that, while she cannot remember what documents Mendoza made available, she is sure he did not produce everything associated with the fourth quarter of 2004. Assuming for argument's sake that the Department requested the specific documents Mendoza is charged with failing to produce (which is not entirely clear), and accepting that Mendoza did not produce everything that the Department asked to see, the Department's evidence is still too conclusory to support disciplinary action, in view of Ms. Hardee's testimony that the temporal scope of the Department's request for documents was not limited to the three-month period comprising the fourth quarter of 2004 and indeed might have covered 15 months or more. Because, as found above, Mendoza did produce a substantial, albeit indeterminate, amount of documentation, and because there is no clear proof regarding the contents of the records that Mendoza made available, the undersigned is unable to find, based on clear and convincing evidence as the law requires, that Mendoza failed to produce the documents he has been accused of failing to produce. The Charges In Counts I and V of the Administrative Complaint, the Department alleges that Mendoza and Diamonds Realty are guilty of failing to preserve and make available to the Department all deposit slips and bank statements associated with the broker's trust account(s), in violation of Florida Administrative Code Rule 61J2-14.012(1), which is a disciplinable offense under Section 475.25(1)(e), Florida Statutes. In Counts II and VI, it is alleged that Mendoza and Diamonds Realty failed to prepare written monthly statements comparing the broker's total trust liability to the bank balance(s) in the broker's trust account(s), in violation of Florida Administrative Code Rule 61J2-14.012(2)-(3). This alleged violation is a disciplinable offense under Section 475.25(1)(e), Florida Statutes. In Counts III and VII, the Department accuses Mendoza and Diamonds Realty of having failed to preserve and make available to the Department books, accounts, and records pertaining to the brokerage business, in violation of Section 475.5015, Florida Statutes. This alleged violation constitutes a disciplinable offense under Section 475.25(1)(e), Florida Statutes. In Counts IV and VIII of its Administrative Complaint, the Department asserts that Respondents obstructed or hindered the enforcement of Chapter 475, Florida Statutes, in violation of Section 475.42(1)(i), Florida Statutes, which is a disciplinable offense under Section 475.25(1)(e), Florida Statutes. Ultimate Factual Determinations As found and explained above, the evidence is insufficient to prove, clearly and convincingly, that Respondents failed to make available the specific records they are alleged to have withheld. At most the evidence establishes that Respondents were unable, on January 15, 2008, to produce an imprecisely identified (and not clearly proved) subset of the universe of documents that the Department's investigators sought to examine during the audit. This is insufficient to prove, much less clearly and convincingly to demonstrate, that Respondents failed to keep or preserve any particular documents. There is no persuasive evidence that Respondents obstructed or hindered the Department's audit. To the contrary, the evidence shows that Mendoza cooperated with the Department's investigators and substantially complied with their demands. Ultimately, therefore, it is found that Respondents are not guilty of the offences charged in Counts I through VIII of the Administrative Complaint.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Commission enter a final order finding Mendoza and Diamonds Realty not guilty of the offenses charged in the Administrative Complaint. DONE AND ENTERED this 30th day of June, 2009, in Tallahassee, Leon County, Florida. JOHN G. VAN LANINGHAM 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 30th day of June, 2009. COPIES FURNISHED: Patrick J. Cunningham, Esquire Department of Business and Professional Regulation 400 West Robinson Street Hurston Building-North Tower, Suite N801 Orlando, Florida 32801 Nestor G. Mendoza Diamonds Realty of Miami Beach 12501 Southwest 26th Street Miami, Florida 33175 Thomas W. O'Bryant, Jr., Director Division of Real Estate 400 West Robinson Street, Suite 802, North Orlando, Florida 32801 Reginald Dixon, General Counsel Department of Business and Professional Regulation Northwood Centre 1940 North Monroe Street Tallahassee, Florida 32399-0792
Findings Of Fact The Respondent licensee, Martin County Properties, Inc., was at all times material registered with the Commission as a real estate corporate broker and the Respondent licensee, Jackson L. Smith, was at all times material registered with the Commission as a real estate broker. On May 8, 1974, the G. H. I. Inc., as purchaser, offered to purchase property described as: "132 plus or minus lots, Parcel #1, and 154 plus or minus acres, Parcel #2, in the County of Okeechobee" for a purchases price of $567,600.00 from Nachman Tevlo, et al., seller. Accompanied with this officer, the corporation submitted a $10,000.00 security deposit to be held in trust by the Respondent, Martin County Properties, Inc. In count one of the complaint, it is alleged that the Respondents failed to place that deposit in a trust or escrow account and that on December 31, 1974, Respondent Smith issued a check to the buyer for $7,700.00, which was drawn from its escrow account and that said check was returned for insufficient funds. The complaint alleges that at the time of issuing this check, the Respondent Smith overdrew the firm's escrow account by $402.80 and that by reason thereof, Respondents are guilty of failing to immediately place upon receipt the monies received from persons they dealt with as brokers in an escrow account in violation of Section 475.25(1)(i), Florida Statutes. Robert F. Cochran, Secretary-Treasurer of G.H.I., Inc., the corporate purchaser, acknowledged tendering the deposit in connection with the above referenced transaction. The proposed offer was conditioned on acceptance by two undisclosed partners of which the corporate purchaser had no knowledge of and Respondent Smith was advised to retain the deposit check until such time as the two undisclosed partners accepted the terms of the contract. Respondent Smith was unable to obtain such approval from the undisclosed partners and when the transaction fell through, Respondent returned the original deposit check within one week of the time that he advised the purchasers that the proposed offer was not accepted. Mr. Cochran had no recollection of Respondent Smith ever tendering him a check drawn in the amount of $7,700.00 as alleged in count one of the administrative complaint. (See Commission's Exhibit #1). In count five of the administrative complaint, the Commission alleges in pertinent part that Respondent Smith issued Dwight L. Clemons a check from his trust account drawn in the amount of $4,842.95, which created a deficit in his escrow account of $1,202.20. By such act, it is alleged that the Respondent failed to maintain sufficient monies in his escrow or trust bank account, monies received and entrusted to them by persons dealing with them as brokers until disbursements are properly authorized in violation of Subsection 475.25(1)(i), F.S. Mr. Clemons acknowledged the transaction with Respondent Smith in which he received a return of an escrow deposit in the amount of $4,842.95 which was received in the form of a check which was returned by the bank for "uncollected funds." Mr. Clemons testified that he presented the check to the bank and knowing Respondent Smith, tendered the necessary funds to cover the deficiency and that Respondent Smith returned his money approximately one week later. (See Commission's Exhibit 2). In count six of the administrative complaint, it is alleged that William A. and Agnes Foster, as buyers, made an offer to purchase one half of a duplex in Jensen Beach, Florida, and to secure such offer, they made a security deposit of $1,000.00 to Respondent Smith. It is alleged that Respondent Smith failed to deposit the $1,000.00 in his escrow account and on October 10, 1974, he deposited only $500.00 in his account from this transaction. By reason thereof, it is alleged that the Respondent failed to immediately place in his escrow or trust bank account, upon receipt, monies etc. entrusted to him until disbursements thereof were properly authorized in violation of Subsection 475.25(1)(a), F.S. William Foster acknowledged the subject transaction and his tender of the $1,000.00 deposit. He testified that the seller, Miriam Fell, accepted his offer on or about November 8, 1974, and that the transaction closed without difficulty. However, an examination of Martin County Properties, Inc., trust account statement for the month ending October 1, 1974, reveals that on October 10, 1974, a $500.00 credit was entered on the subject trust account and an examination of the September 4, 1975, check drawn in the amount of $1,000.00 and issued by William A. Foster revealed that the check was deposited in Martin County Properties' trust account on October 10, 1974, the same date that the $500.00 deposit appears on the October trust account statement. Count eight alleges in pertinent part that Respondent Smith received an escrow deposit of $2,500.00 from Jansje Welm, toward the purchase of the "Gideon Property" on Indian River Drive in Jensen Beach. It is further alleged that approximately eight (8) days later, without permission of Jansje Welm, Respondent issued to Martin County Properties, Inc., a check in the sum of $1,000.00 which left a balance in his escrow account of approximately $1,597.00 and that by reason thereof, Respondent Smith is guilty of failing to maintain in an escrow or trust bank account monies received from persons dealing with him as a broker, where such funds should have been kept until properly disbursed or otherwise authorized, in violation of Subsection 475.25(1)(i), F.S. Mrs. Welm testified that she advanced Respondent Smith, a $2,500.00 deposit to secure an offer which she was led to believe consisted of a syndication of approximately six or either others who were interested in purchasing the "Gideon Properties." The transaction did not close and as of the hearing date she had not received a refund or her escrow deposit. An examination of Respondent Martin Counties, Inc., trust account for the month ending December 31, 1974, reveals that a $2,500.00 deposit was made on approximately December 12, 1974, and that for the month ending December 31, 1974, the account was overdrawn by $402.80. This of course covers the time period in which Mrs. Welm had tendered her $2,500.00 deposit toward the "Gideon Properties" and at no time during the period December 6 through December 31, did the statement reveal that Mrs. Welm's deposit was returned. It was noted that a deposit was made during the period December 23 through 27, in the amount of $5,000.00, however, this deposit apparently failed to clear based on insufficient funds. (See, Commission's Exhibit #9). It was also noted that the $2,500.00 check issued by Mrs. Welm was honored by her bank on December 16, 1974, and that during the period in which she drew her check i.e., December 9 through December 23, 1974, the firm's trust account at no time had a balance in excess of $2,297.20. (See, Commission's Exhibit #6). In count ten it is alleged that Respondent Smith also received from his salesman, Jack K. Follrath, a check in the amount of $2,500.00 to be held in escrow toward the purchase of the Gideon Properties. This check was issued by Jerry Warwin and was made payable to the firm's trust fund. It is alleged that on January 8, 1975, Respondent Smith exchanged that check for a cashier's check at the First National Bank and Trust Company which he placed in his personal account. It is further alleged that on March 18, 1975, Warwin's attorney demanded the return of the $2,500.00 which Warwin received on June 18, 1975. By this act it is alleged that the Respondents are guilty of failure to maintain in their escrow account funds entrusted to them in violation of Subsection 475.25(1)(i), F.S.; and are guilty of forming an intent, design or scheme to defraud, appropriate or otherwise convert properties entrusted to them in violation of Subsection 475.25(1)(a), F.S. Warwin testified that while he gave the Respondents no specific instructions to place the money in an escrow account, he was led to understand that the deposit would be escrowed until the sales transaction for the property closed. He testified that after making repeated demands for the return of his deposit, first by himself and ultimately through his attorney, it was returned. Jack Follrath, a salesman for Jackson County Properties, acknowledged receipt of the $2,500.00 check from Jerry Warwin and expressed his opinion that the money was not to be deposited until sufficient escrow deposits were received to effect the closing. The check representing the deposit made by Jerry Warwin was introduced and an examination thereof reveals that it was drawn on January 5, 1975, in the amount of $2,500.00 and was paid by his bank on January 8, 1975. An examination of the firm's trust account statement reveals that on January 8 a $2,500.00 deposit was in fact made, however, on January 13 the account balance was $293.20 which was the same amount remaining in the account as of January 31, 1975. And, of course, at no time during the period of January 8 through January 31, 1975, was Mr. Warwin's $2,500.00 deposit returned. In count eleven, it is alleged in pertinent part that on February 6, 1975, Respondent Smith issued check no. 259 on his trust account made payable to Commercial Trend Development, Inc., for $750.00 and marked "refund - Carter"; that on February 18, 1975, Respondent Smith deposited from the firm's operating account $457.00 in the said trust account and that on February 23, 1975, the check for $750.00 written previously cleared, leaving a total balance of $18.20 in Respondent Smith's trust account. It is alleged that based on the foregoing, Respondents failed to maintain trust funds in their escrow account until such were properly disbursed in violation of Subsection 475.25(1)(i), F.S. Roy Glancy, the real estate salesman who was involved with the Respondent in connection with the Carter transactions, testified that he intended to purchase a piece of property from the Carters which is located in the Dixie Park Subdivision of South Stuart. He acknowledged payment of the $750.00 deposit and indicated that when the transaction did not close, he received a refund of his deposit. It is alleged in count four that on July 15, 1974, Respondent Smith received a deposit of $2,200.00 to be held in trust on the purchase of property known as the "Krueger" property by C & D Contractors, which he (Smith) deposited in his escrow account; that on July 16, 1974, without the permission of C & D Contractors, issued check no. 236 from his escrow account in the amount of $900.00 payable to Martin County Properties, Inc., leaving a balance in his escrow account of $1,360.83 as of July 31, 1974, which amount represented the closing balance for the firm's escrow account for the month of July. It is further alleged that on September 6, Respondent Smith issued a check drawn on his trust account to C & D Contractors in the amount of $2,200.00 marked "deposit refund on Krueger Property" which was returned for uncollected funds. Thereafter on September 23, 1974, Respondent Smith paid C & D Contractors by cashier's check, the sum of $2,200.00 which represented the earnest money deposit placed on the Krueger property. Robert Coy, President of Coy and Deggeller Construction Co. of Stuart, Florida, testified that he made an offer to purchase the Krueger properties to Respondent Smith which offer was accompanied by an earnest money deposit of $2,200.00. Mr. Coy testified that his offer was tendered to Respondent Smith on July 16, 1974, and that when he did not receive any notification from Respondent Smith regarding whether or not his offer had been accepted, he demanded the return of the deposit which occurred during early September 1974. Commission's Exhibit #15 reveals that the $2,200.00 deposit above referred to was deposited into Respondent's trust account on the same date on which the check was drawn, i.e., July 16, 1974. (See, Commission's Exhibits #15 and #11). On that same day, a $900.00 check and/or debit was made to the account leaving a balance of $1,360.83. The firm's account statement reveals that this balance ($1,360.83) was constant throughout the period from July 17 to July 31. During the period July 17 through July 31, Mr. Coy did not receive a refund of his $2,200.00 deposit. Mrs. Betty White, the head bookkeeper of Jensen Beach Bank, the banking institution in which the Respondent Martin County Properties, Inc., maintains its trust account, testified that she provided the firm's account statements pursuant to subpoena and that the account's statements were under her custody and control, and that they were kept and maintained during the normal course of the bank's business. While the Respondent's counsel objected to the introduction of copies of the firm's trust account statements, Mrs. White creditably testified that the original of such account statements were forwarded to the firm (depositor) at the end of each month and that the bank has at its disposal, only microfilm of the originals. Based thereon, Respondent's counsel's objection to the introduction of copies was overruled.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is hereby recommended as follows: That the Respondents be found not guilty of the allegations contained in counts one, two, three, seven, nine and eleven of the administrative complaint and, therefore, that they be dismissed. That the Respondents be found guilty of the allegations contained in counts four, five, six, eight, ten, twelve and thirteen of the administrative complaint filed by the Petitioner. That the Respondent Smith's registration with the Florida Real Estate Commission as a real estate broker be revoked. That the Respondent Martin County Properties, Inc.'s, registration as a real estate corporate broker with the Florida Real Estate Commission be revoked. DONE AND ENTERED this 30th day of March 1977 in Tallahassee, Florida. JAMES E. BRADWELL Hearing Officer Division of Administrative Hearings 530 Carlton Building Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 30th day of March 1977. COPIES FURNISHED: Frederick H. Wilsen, Esquire 2699 Lee Road Winter Park, Florida 32789 R. J. Randolph, Sr., Esquire R. Jerry Randolph, Jr., Esquire Randolph and Randolph, P.A. 201 East Osceola Street Stuart, Florida 33494
The Issue Whether Respondent committed the violations alleged in the Administrative Complaint? If so, what disciplinary action should be taken against her?
Findings Of Fact Based upon the evidence adduced at hearing, and the record as a whole, the following Findings of Fact are made: The Department is a state government licensing and regulatory agency. Respondent is now, and has been at all times material to the instant case, a licensed real estate broker in the State of Florida holding license number 0005609. She is 72 years of age. The money she earns as a real estate broker helps to supplement her retirement income. In the almost 40 years that she has been broker, the only complaint that has been made against her in connection with the practice of her profession is the complaint that is the subject of the instant case. Peter Rettig is a longtime acquaintance of Respondent's. He too is a Florida real estate broker. Rettig is the operating and qualifying broker for La Costa Real Estate, Inc. In September of 1993, as a favor to Rettig, Respondent agreed to act, without compensation, as Rettig's escrow agent. Thereafter, Rettig deposited trust funds received from his buyer/clients in the "Mary A. Belotto Escrow Account" (account number 3431110272) that Respondent had established at Barnett Bank. On various occasions from September of 1993, to July of 1994, Respondent, unthinkingly, appropriated a portion of these funds for her own personal use, but acted swiftly to replace the appropriated funds with her own personal funds. As a result, no one was actually harmed by her actions. During this period of time, Respondent was suffering from severe emotional distress and a resulting inability to think clearly due to the death of her husband and the subsequent death of a close friend who had provided her with needed assistance and support following her husband's death. On January 18, 1995, Edward Gruskin, an investigator with the Department, conducted an office inspection/audit of La Costa Real Estate, Inc. and the "Mary A. Belotto Escrow Account." The inspection/audit revealed that Respondent had engaged in the conduct previously described in Finding of Fact 11 of this Recommended Order and that, in addition, she had failed to prepare and sign monthly reconciliation statements for her escrow account. Respondent now realizes that she erred in engaging in such conduct and in failing to prepare and sign these reports. She has apologized for making these errors and has promised, with apparent sincerity, not to repeat them in the future.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law it is hereby RECOMMENDED that the Commission enter a final order finding Respondent guilty of the violations alleged in the Administrative Complaint and fining her $250.00, issuing her a reprimand, and placing her on probation for a period of three years for having committed these violations. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 14th day of September, 1995. STUART M. LERNER Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 14th day of September, 1995. APPENDIX TO RECOMMENDED ORDER The following are the Hearing Officer's specific rulings on the findings of fact proposed by the parties in their proposed recommended orders: The Department's Proposed Findings 1-2. Accepted and incorporated in substance, although not necessarily repeated verbatim, in this Recommended Order. 3. Not incorporated in this Recommended Order because it would add only unnecessary detail to the factual findings made by the Hearing Officer. 4-5. Accepted and incorporated in substance, except for 5c. and 5d., which have not been incorporated in this Recommended Order because they would add only unnecessary detail to the factual findings made by the Hearing Officer. Respondent's Proposed Findings First unnumbered paragraph: To the extent that this proposed finding states that Respondent is 72 years of age and has been a real estate broker in the State of Florida for almost 40 years, it has been accepted and incorporated in substance. Second unnumbered paragraph: Accepted and incorporated in substance. Third unnumbered paragraph: Not incorporated in this Recommended Order because it would add only unnecessary detail to the factual findings made by the Hearing Officer. Fourth and fifth unnumbered paragraphs: Accepted and incorporated in substance. Sixth unnumbered paragraph: Rejected as a finding of fact because it is more in the nature of argument than a finding of fact. Seventh unnumbered paragraph- First sentence: Accepted and incorporated in substance; Second sentence: Rejected as a finding of fact because it is more in the nature of argument than a finding of fact. COPIES FURNISHED: Daniel Villazon, Esquire Senior Attorney Department of Business and Professional Regulation 400 West Robinson Street Post Office Box 1900 Orlando, Florida 32802 Mary A. Belotto 1571 Southeast 23rd Avenue Pompano Beach, Florida 33062 Henry M. Solares, Division Director Division of Real Estate 400 West Robinson Street Post Office Box 1900 Orlando, Florida 32802-1900 Lynda L. Goodgame, Esquire General Counsel Department of Professional Regulation 1940 North Monroe Street Tallahassee, Florida 32399-0792
Findings Of Fact Petitioner is a state government licensing and regulatory agency charged with the responsibility and duty to prosecute administrative complaints pursuant to the laws of the State of Florida, in particular Section 20.30, F.S., Chapters 120, 455, and 475, F.S., and the rules promulgated pursuant thereto. Respondent Charles B. Harvey, Jr. is now and was at all times material hereto a licensed real estate broker in the State of Florida having been issued license number 0474466 in accordance with Chapter 475, F.S. The last license issued was as a broker t/a Commercial & Investment Realty, 1116D Thomasville Road, P. O. Box 785, Tallahassee, Florida 32317. On or about April 17, 1992, Petitioner's Investigator Juanita Waller conducted a routine office/inspection audit of Respondent at 1116D Thomasville Road, Tallahassee, Florida and discovered that Respondent's trust account #077780-00242743 had an approximate shortage of $3,343.07, calculated as $29,205.00 in total trust liability but only $25,861.93 as reconciled bank balance. Thereafter, the Respondent wrote Investigator Waller and provided evidence that a portion of the missing funds was caused by an $875 "bad check" which had been deposited into his escrow account. Additionally, Investigator Waller found that Respondent failed to properly reconcile his escrow account by comparing the total trust liability with the reconciled bank balance of the trust account, as required by the rules of the Commission. Rather, he had been balancing his checkbook only. Respondent has been completely cooperative with Petitioner agency and upon notification of his errors and omissions immediately began the process of correcting the procedures used in reconciling his escrow account in accord with the requirements of the agency. He also immediately made restitution from his own monies to his escrow account as soon as he was made aware what had happened. It is noted that reconciliation of monthly written statements were not required by the agency until shortly before Respondent was investigated, however he had a duty to apprise himself of all statutes and rules and to govern himself accordingly. Likewise, he accepted "full responsibility" for allowing funds from individual clients' accounts to be used to pay for expenses incurred by other clients' properties, and has taken steps to prevent such occurrences in the future. No loss has been incurred by any party. Respondent has made good any payments owed.
Recommendation Upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED That a Final Order be issued and filed by the Florida Real Estate Commission finding the Respondents not guilty of breach of trust but guilty of culpable negligence as charged in Count I of the Administrative Complaint, guilty of having failed to maintain trust funds in escrow as charged in Count II of the Administrative Complaint, and guilty of having failed to properly reconcile his escrow account as charged in County III of the Administrative Complaint and further ordering that all the Respondent's licenses, registrations, certificates and permits be reprimanded and placed on probation for a period of one year and Respondent be required to pay an administrative fine of $300 (total) within sixty (60) days of the entry of the Final Order and that before the end of the probationary period he successfully complete and provide satisfactory evidence to the Florida Real Estate Commission of having successfully completed the thirty (30) hour Brokerage Management course, these education hours to be in addition to any other professional education required by the Respondent by the licensing provisions of this state, and further providing that if all these requirements not be successfully fulfilled as required by the Final Order, then all the Respondent's licenses, registrations, certificates and permits shall be suspended until all such requirements are completed but in no event shall such suspension exceed ten (10) years. RECOMMENDED this 12th day of January, 1993, at Tallahassee, Florida. ELLA JANE P. DAVIS Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 12th day of January, 1993. APPENDIX TO RECOMMENDED ORDER 92-6154 DOAH CASE NO. 92-6154 The following constitute specific rulings, pursuant to S120.59 (2), F.S., upon the parties' respective proposed findings of fact (PFOF) Petitioner's PFOF: 1-5 Accepted. 6 Accepted as modified. Respondent's filed no PFOF: COPIES FURNISHED: Charles B. Harvey, Esquire 1018-104 Thomasville Road Tallahassee, FL 32303 James H. Gillis, Esquire Department of Professional Regulation Division of Real Estate P. O. Box 1900 Orlando, FL 32802 Jack McRay General Counsel 1940 North Monroe Street Tallahassee, FL 32399-0792 Darlene F. Keller Division Director 400 West Robinson Street Post Office Box 1900 Orlando, FL 32802-1900
The Issue Here Petitioner has alleged that Respondent has violated Section 120.535, Florida Statutes, by failing to adopt its policies as rules. Those alleged policies are more completely described in the fact finding.
Findings Of Fact Mitchell has been subjected to the proposed agency action set forth in the order to show cause described in the preliminary statement. James Mitchell and Company, JMC Insurance Services, Inc., and JMC Financial Corporation are California corporations authorized to do business in Florida. JMC Insurance Services, Inc., and JMC Financial Corporation are wholly owned subsidiaries of James Mitchell and Company. James K. Mitchell is a resident of California. He is the president, chief executive officer and founder of James Mitchell and Company. He is also licensed by the Department as a nonresident life insurance agent. The Department is a regulatory agency in Florida who has the responsibility for implementing and enforcing the Florida Insurance Code. The Florida Insurance Code includes Chapters 624 and 626, Florida Statutes. The Department is headed by the Insurance Commissioner and Treasurer. The order to show cause forms the sole basis for action taken against Mitchell. The order to show cause has allegations by the Department concerning alleged violations of Section 626.988, Florida Statutes, attributed to Mitchell. It is the alleged interpretation which the Department has placed on Section 626.988, Florida Statutes, which Mitchell asserts is in violation of Section 120.535, Florida Statutes. The present petition sets forth that Mitchell's substantial interest are affected in accordance with Section 120.535(2)(a)1, Florida Statutes, in that: JMC is substantially affected by the Department's interpretation of s. 626.988 in that the Department would use the interpretation to require JMC to cease and desist from all current business activities in Florida, i.e., JMC's sale of annuities to Barnett as trustee to hold in trust for the benefit of trust participants/beneficiaries. The present petition then describes those agency statements by the Department which Mitchell claims constitute a rule as defined by Section 120.52(16), Florida Statutes, and thus subject to the requirements of Section 120.535(2)(a)2, Florida Statutes. The first statement by the Department which Mitchell claims violates Section 120.535(1), Florida Statutes, is to this effect: Abandoned Former Section .003 of Rule Chapter 4-223. Pursuant to Section 120.535(2)(a)(2) and 120.535(2)(b), the text of one of the statements which substantially affects JMC is the text of former Section .0003(2) (now abandoned) of Rule Chapter 4-223, promulgated by the Department on October 16, 1992 (copy attached as Exhibit F). The text of former Section .003(2) is as follows: For purposes of this entire rule chapter and enforcement of Section 626.988, Florida Statutes, the Department interprets the terms "associated" and "associate" as those terms are used in Section 626.988, as meaning: united in a relationship, or connected or joined together, or connected in mind or imagination. Therefore instances of prohibited association included, but are not limited to, situations wherein an agent or solicitor, themselves or through their employer: is in law or fact related or connected to the Financial Institution, as by formal or informal arrangement, contract, etc.; or is or may reasonably be expected to be connected with the Financial Institution in the mind or imagination of the general pubic using the Financial Institution's facilities, as a result of the agent or solicitor's presence or activities on Financial Institution premises, or other conduct or activities by the agent or solicitor or done with their consent. Section .003(2) of Rule Chapter 4-223 was promulgated ostensibly under F.S., s. 626.988(2), which provides: (2) No insurance agent or solicitor licensed by the Department of Insurance under the provisions of this chapter who is associated with, under contract with, retained by, owned or controlled by, to any degree, directly or indirectly, or employed by, a financial institution shall engage in insurance agency activities as an employee, officer, director, agent, or associate of a financial institution agency. By its terms Section .003(2) of Rule Chapter 4.223 defines the "associated" and associate" language in F.S. s.626.988(2). On July 30, 1993, the Department's Section .003(2) "mind or imagination of the consumer" definition of the "associated" and "associate" language in s. 626.988(2) was struck down by DOAH Hearing Officer Mary Clark in the Rule Challenge as irredeemably vague and exceeding proper agency discretion. In her Final Order in this proceeding, Officer Clark concluded as follows: Aside from idiosyncratic grammar and the ambiguous use of an open-ended "etc.," this definition offends any rational interpretation of s. 626.988, F.S. and is thoroughly useless as a standard for the agency's enforcement of that and other relevant statutes. It is vague and incomprehensible, like beauty, an "association" lies in the eyes (or mind) of the beholder. The definition relegates to the mind or imagination of the general public the determination of what relationships are prohibited. This is a fragile basis for enforcement, as should be apparent to the agency by the fact that so few complaints have come from the general public. That such definition is unenforceable is obvious from the agency's pained attempts to craft its earlier guidelines and from its inability to articulate how it should be applied. (see generally, testimony of Dowdell and Shropshire). Proposed Rule 4 Final Order, Great Northern Annuities Corp. v. Department of Insurance, et al., No. 92-4332RP, etc., paragraph 56, at 29 - 30 (July 30, 1993)(Copy attached as Exhibit C). As noted above, Officer Clark's Final Order in the Rule Challenge was appealed in part by the Department. However, the Department did not appeal that portion of the Final Order striking down Section .003(2), the definition of "associated" and "associate" when the Department noticed its appeal on August 15, 1993, and filed its amended notice of appeal on August 27, 1993 (copies attached Exhibits D and E). On October 10, 1993, the Department filed Rule Chapter 4 State. The Rule Chapter as filed on October 10, 1993, did not include Section .003(2), and included no other rule interpreting "associated" or "associate" from F.S. s. 626.988(2). The Department has abandoned Section .003(2) (Rule Chapter 4 rule defining the "associated" and "associate" language in F.S. s. 626.988(2), and has abandoned any and all other efforts to promulgate a rule defining "associated" or "associate." Despite the Department's voluntary abandonment of Section .003(2), the Department is now relying on the substance of its Section .003(2) "mind or imagination of the consumer" definition of "associated" and "associate," and is attempting to enforce this definition in its Order to Show Cause filed against JMC on March 11, 1993, and now pending in DOAH before Hearing Officer Chad Adams. Department of Insurance v. James Mitchell & Co. et al. DOAH Cased No. 93-2422 (hereinafter the "Order to Show Cause Proceeding") (copy attached as Exhibit A). The Department has admitted its reliance on the abandoned Section .003(2) "mind or imagination of the consumer" definition. In a deposition on December 22, 1993, in the Order to Show Cause Proceeding of Douglas A. Shropshire, the Department's Director of Division of Legal Services and its Rule 1.310(b)(6) designated Department representative, the Department stated the following: [p. 136] Q: There is no current rule defining [F.S. Section 626].988, subparagraph (2) with respect to what is or is not an association at this time, correct? A: No, I wouldn't say that at all. [p. 212] . . . Q: What is the definition of "associate" for the purposes of the enforcement proceeding against my client [JMC]? Mr. Silverman [Department attorney]: Objection. The order to show cause doesn't use the term "associate," it uses the term "association." The term "associate" is only used in Webster's dictionary definition. [p. 218] . . . Q: All right. So that in defending JMC next month, am I able to rely on the association definition that uses "in the mind of the customer" as a standard? [p. 219] . . . Q: Answer yes or no first, please. A: No, I can't. What you should rely on is the guidelines, I believe, and I refer there to the '85, '86 [guidelines], and the Department's concern with appearances. Shropshire depo 136, 212, 218, 219 (emphasis added) (copies of these pages attached as Exhibit F). "[T]he Department's concern with appearances" that the Department's representative testified to, a concern that focuses on the possible perceptions of the consumer, merely recapitulates the Department's "mind or imagination of the consumer" definition in abandoned Rule Chapter Section .003(2). (The 1985 and 1986 Department guidelines, to which the Department representative also refers to in this testimony, do not contain a definition of, or refer directly to, the "associated" or "associate" language in s. 626.988(2)). The foregoing statements have not been adopted by the rulemaking procedure provided for in F.S. ss. 120.535(1) and 120.535(1)(a)3. The statements have been struck down by Officer Clark, are not currently contained in any promulgated rule, and have been abandoned as the basis for any rule as a result of the Department's decision not to appeal Officer Clark's Final Order striking the statements.
