The Issue The issues in this case are the amount of attorney’s fees and costs to be awarded to Petitioners pursuant to Section 120.595, Florida Statutes (2007);1 whether Petitioners are entitled to fees and costs pursuant to Subsections 57.105(5), 120.569(2)(e), and 120.595(4), Florida Statutes; and, if so, what amount should be awarded.
Findings Of Fact Each of the 14 Petitioners filed separate rule challenges, challenging the validity of Florida Administrative Code Rule 64B16-26.2031 and challenging eight statements of policy of the Board of Pharmacy, which statements had not been adopted as rules. Prior to the filing of his or her rule challenge, each Petitioner had graduated from a pharmacy school located outside the United States and had taken and passed the Foreign Pharmacy Graduate Equivalency Examination, the Test of Spoken English, and the Test of English as a Foreign Language. Petitioners had been issued Intern Registrations by the Board of Pharmacy. All but two of the Petitioners had submitted an application to be admitted to the professional licensure examination. Those applications had been denied. All Petitioners, including the two Petitioners who had not submitted an application, had applied to the Board of Pharmacy for a variance or waiver to allow them to sit for the professional licensure examination. The Board of Pharmacy denied each Petitioner’s application for a variance or waiver. Each Petitioner had been represented by The Health Law Firm in their applications for a variance or waiver and wanted The Health Law Firm to continue to represent them in the rule challenge. When asked why the Petitioners had contacted The Health Law Firm to represent them, an attorney for The Health Law Firm stated: I think they have a network where word just gets around. And they-–I believe they even had some sort of list serve or Web site where they had all noted that they were being treated unfairly, and so they knew each other. And maybe our name got out on that or something. But they-–they all seemed to know each other-–seemed to know each other. Additionally, The Health Law Firm had sent out letters soliciting the foreign pharmacy graduates to join the rule challenge. An attorney for The Health Law Firm was not sure whether the letter had been posted on the web site for the foreign pharmacy graduates. In several of the invoices submitted by The Health Law Firm, there was a charge of $20.00 for a “[t]elephone conference with client’s colleagues who are in the same situation and interested in filing petitions for waivers and joining the rule challenge.”2 Thus, the circumstances surrounding the representation of Petitioners by The Health Law Firm do not demonstrate that it was a coincidence that Petitioners just happened to pick The Health Law Firm to represent them in the rule challenges. The Health Law Firm decided to file 14 separate petitions instead of one petition with 14 petitioners. The reason for the filing of the separate petitions was to increase the amount of attorney’s fees which could be awarded. Given the inexperience of attorneys at The Health Law Firm with rule challenges and the difficulty in understanding the speech of Petitioners, who received their pharmacy training in countries other than the United States, The Health Law Firm felt that it was not economically feasible to pursue the rule challenge for $15,000.00. Petitioners had a common goal, i.e. to be allowed to sit for the professional licensure examination. The wording of each of the petitions was essentially the same except for the names of the individual Petitioners. Because the issues were the same for all the rule challenges, the rule challenges were consolidated for final hearing. No final hearing was held in the consolidated cases. The parties agreed that, based on the parties’ Joint Pre-hearing Stipulation, there were no disputed issues of material fact and agreed to file proposed final orders addressing each party’s position regarding the application of the law to the stipulated facts. The Board of Pharmacy conceded that Florida Administrative Code Rule 64B16-26.2031 was an invalid exercise of delegated legislative authority, and Petitioners were determined to prevail on the issue of the invalidity of the existing rule. On the challenge to the Board of Pharmacy’s policy statements, four statements were determined to meet the definition of a rule. The Board of Pharmacy conceded in the parties’ pre-hearing stipulation that the instructions in the Foreign Pharmacy Graduate Application for Licensure by Examination, directing applicants not to apply prior to obtaining all the required internship hours, constituted a non-rule policy. On August 1, 2008, in response to its concession that some of the statements or policies at issue were invalid non-rule policies, the Board of Pharmacy had published, in the Florida Administrative Law Weekly, a Notice of Rule Development for Florida Administrative Code Rule 64B16-26.2031. On August 21, 2008, the Board of Pharmacy approved changes to Florida Administrative Code Rule 64B16- 26.2031, eliminating the Foreign Pharmacy Graduate Examination Committee (FPGEC) requirement, incorporating by reference the Foreign Graduate Examination Application, and stating the time frames for the application of Florida Administrative Code Rule 64B16-26.2031. Pursuant to Subsection 120.56(4)(e), Florida Statutes, the portion of the petitions dealing with the statements on which the Board of Pharmacy did not prevail was abated pending the rulemaking process. Petitioners did not prevail on four of the policy statements they challenged. These were the policy statements which the Board of Pharmacy contested. Based on the invoices submitted, the parties attempted to settle the case. Essentially, the Board of Pharmacy had started rule development which eliminated the requirement in the existing rule which caused it to be invalid and which dealt with the unpromulgated rule issues that the Board of Pharmacy had conceded in the Joint Pre-hearing Stipulation. Petitioners wanted to be able to sit for the National Association of Pharmacy Licensure Examination (NAPLEX) and the Multistate Pharmacy Jurisprudence Examination (MPJE). All Petitioners who had a Foreign Pharmacy Graduate Application for Licensure by Examination pending on August 21, 2008, were approved by the Board of Pharmacy to sit for the NAPLEX and the Florida version of the MPJE. Thus, by August 21, 2008, those Petitioners had reached their goal. The impediment to settling the cases was the amount of attorney’s fees that should be awarded to Petitioners. There was no undue delay by the Board of Pharmacy or anything which could be attributed to the Board of Pharmacy as needlessly increasing the cost of litigation. The Board of Pharmacy correctly contended that the amount of fees requested by Petitioners was unreasonable. The Partial Final Order entered in the underlying rule challenges held that Petitioners are entitled to an award of attorney’s fees and costs pursuant to Subsection 120.595(3), Florida Statutes. The Board of Pharmacy was not substantially justified in promulgating the challenged rule in the underlying case and did not demonstrate that special circumstances existed to warrant the promulgation of the challenged rule. The Board of Pharmacy did not demonstrate that the statements which constituted unpromulgated rules are required by the Federal Government to implement or retain a delegated or approved program or to meet a condition to receipt of federal funds. Each Petitioner entered into a contingency fee contract3 with The Health Law Firm to represent him or her in a rule challenge. The parties have agreed that the hourly rate of $350.00 per hour for the services of George F. Indest, III, Esquire, is reasonable and fair under the circumstances. The parties have agreed that some of the hourly rates being claimed for the other attorneys and employees of The Health Law Firm are reasonable and fair under the circumstances. Those fees are $200.00 and $150.00 per hour for the associate attorneys, $80.00 per hour for the paralegals, and $70.00 per hour for the legal assistants. There were a few entries in the invoices made by senior attorneys for whom the rate charged is $300.00 per hour. Based on the rates charged for the senior partner and the associate attorneys, an hourly rate of $300.00 for a senior attorney is reasonable. The names of the attorneys and staff and the respective hourly rate amount for each are listed below. In discussing the reasonableness of the fees claimed in the various invoices, the attorneys and staff will be referred to by their initials as listed in the invoices. Initials Name Hourly Rate GFI George F. Indest, III, Senior Partner $350.00 MLS Michael L. Smith, Senior Attorney $300.00 JK Joanne Kenna, Senior Attorney $300.00 TJJ Teresa J. James, Attorney $200.00 MRG Matthew R. Gross, Attorney $150.00 JP Justin Patrou, Law Clerk $100.00 GJ Gail Joshua, Senior Paralegal $80.00 PD Pamela Dumas, Litigation Clerk $80.00 SF Sandra Faiella, Paralegal $80.00 RS Rebecca Simmons, Paralegal $80.00 AE Alexa Eastwood, Legal Assistant $70.00 SE Shelly Estes, Legal Assistant $70.00 The amount of fees claimed by each Petitioner for representation by The Health Law Firm for the rule challenge is listed below. These amounts are based on the individual invoices and the first consolidated invoice:4 Name Amount Vipul Patel $15,212.36 Miriam Hernandez $15,683.36 Mirley Aleman-Alejo $11,469.36 Valliammai Natarajan $5,074.36 John H. Neamatalla $11,215.36 Samad Mridha $13,650.36 Se Young Yoon $12,292.36 Saurin Modi $10,093.36 Deepakkumar Shah, M.Ph. $11,764.36 Mijeong Chang $12,528.36 Nabil Khalil $10,272.36 Hadya Alameddine $5,313.36 Balaji Lakshminarayanan $4,585.36 Anand Narayanan $4,218.36 Total $143,372.04 Sandra Ambrose testified as an expert witness on behalf of Petitioners. Her opinion is that the amounts claimed are based on a reasonable number of hours expended in the litigation of the rule challenge. However, Ms. Ambrose has never represented a client in a rule challenge. It was Ms. Ambrose’s opinion that the difficulty in the cases was a result of the number of Petitioners not the issues to be litigated. Having reviewed all the invoices submitted in these cases, the undersigned cannot credit Ms. Ambrose’s testimony that the fees are reasonable. The Board of Pharmacy argues that the amount of fees and costs should be limited to the amount expended in the petition brought by the first Petitioner, Vipul Patel. The expert who testified for the Board of Pharmacy did not give a definite amount that he considered to be a reasonable fee in these cases. Prior to the final consolidation of all 14 rule challenges, The Health Law Firm invoiced for its services and costs by individual Petitioner. After all 14 rule challenges were consolidated, The Health Law Firm invoiced for its time and costs via a consolidated invoice. The undersigned has painstakingly reviewed all the invoices that were submitted to support Petitioners’ claims for fees and costs in the rule challenges and finds the fees requested are not reasonable. On May 15, 2008, the invoices for Case Nos. 08-2733RX contained the following entry for MRG. “Review/analyze final order. Strategize regarding final order.” The final order appears to be related to a petition5 for a waiver or variance before the Board of Pharmacy, and the entry is deleted. This conclusion is supported by the entry in the invoice dated May 29, 2008, relating to a telephone conference with the client relating to a re-petition for waiver. In Case No. 08-2730RX, there is an entry on May 27, 2008, for .10 hours for MRG, but no service is listed. That entry is deleted. On June 6, 2008, MRG entered .50 hours each in Case Nos. 08-2728RX, 08-2729RX, 08-2732RX, 08-2733RX, 08-2734RX, 08-2821RX, 08-2823RX, 08-2824RX, and 08-3298RX. The entry stated: “Continue preparing rule challenge and waiver.” The Health Law Firm represented the Petitioners in four of these cases before the Board of Pharmacy on June 10, 2008, on their petitions for a wavier or variance. The invoice does not delineate the amount of time that was spent on the rule challenge and the amount of time that was spent on the waiver cases. Therefore, the time is divided equally and .25 hours in each case is charged toward the rule challenge. 23. On June 9, 2008, in Case Nos. 08-2733RX, 08-2730RX, 08-2731RX, 08-2734RX, 08-2729RX, and 08-2732RX, the senior partner of The Health Law Firm entered .30 hours for each case, which stated: “Prepare letter to Division of Administrative Hearings forwarding Petition for Rule Challenge to be filed.” The letter which accompanied the petitions in these cases stated: Dear Clerk: Attached for filing, please find a separate Petition to Determine the Invalidity of an Existing Agency Rule and the Invalidity of Agency Policy and Statements defined as Rules, for each of the individuals listed below: Miriam L. Hernandez Mirley Aleman-Alejo Se Young Yoon John H. Neamatalla Valliammai Natarajan Md. A. Samad Mridha Thank you for your assistance in this matter. For this letter, Petitioners are claiming 1.8 hours or $630.00. This is not reasonable. On the same date, GFI prepared a similar transmittal letter in Case No. 08-2728RX and listed .3 hours, which is a reasonable amount for the preparation of such a letter. Thus, the preparation of the transmittal letter on June 9th for Case Nos. 08-2733RX, 08-2730RX, 08-2731RX, 08-2734RX, 08-2729RX, and 08-2732RX is reduced to .3 hours, which is prorated to .05 hours for those cases. The senior partner in The Health Law Firm claims 23.6 hours during June 3 through 5, 2008, for the following service which was entered on the invoices for Case Nos. 08-2730RX, 08-2729RX, 08-2731RX, 08-2823RX, 08-3298RX, 08-2821RX, 08-2728RX, 08-2734RX, 08-2733RX, and 08-2824RX. Conduct legal research, review statutes, cases (approximately 28 cases reviewed and analyzed) and two (2) different Florida Administrative Law legal treatises regarding rule challenges and challenging agency statements not adopted as rules, in order to properly prepare Petition for Formal Rule Challenge in case. Research legal issues including administrative agency rules exceeding authority granted in statutes, retroactive applications of agency rules, adding requirements to licensure requirements through administrative rules when those requirements are not contained in the statute. Review Rules of Procedure and Chapter 120 to determine contents of Rule Challenge Petition. Begin reviewing and revising draft for Rule Challenge in case. (Note: Only pro-rata portion of this time charged to each case.) The total amount of fees claimed for this research is $8,260.00. GFI testified that he had never done a rule challenge prior to filing the petitions in the instant cases. His fees for research due to his lack of knowledge of the basics of a rule challenge should not be assessed against the Board of Pharmacy. A reasonable amount of time for his research is four hours. Thus, the amount for this legal research prorated among the ten cases for which it was listed is .4 hours. On July 19, 2008, the senior partner of The Health Law Firm entered .60 hours in ten of the rule challenges for reviewing the Transcripts of the Board of Pharmacy meetings for February 8 and April 5, 2008, and preparing a notice of filing the Transcripts with the Division of Administrative Hearings. Six hours to review the Transcripts and prepare a notice of filing is not reasonable. Three hours is determined to be a reasonable amount of time for this task, and that amount is prorated among the ten cases in which the charge was made. On June 10, 2008, members of The Health Law Firm attended a Board of Pharmacy meeting at which they represented foreign pharmacy graduates who had petitioned the Board of Pharmacy for a waiver or variance. In Case Nos. 08-2821RX, 08-3298RX, and 08-2733RX, the senior partner listed .90 hours for each case for preparation for the June 10th Board of Pharmacy meeting. The preparation related to the petitions for variances or waivers and should not be assessed for the instant cases. For June 10, 2008, JP listed .70 hours each in Case Nos. 08-2823RX, 08-2732RX, 08-2821RX, and 08-2733RX for attendance at the Board of Pharmacy meeting. For June 10, 2008, GFI entered 1.4 hours for attendance at the Board of Pharmacy meeting. The entries for attending the Board of Pharmacy meeting related to the petitions for waivers and should not be assessed in the instant cases. For June 19, 2008, the senior partner made the following entry in the invoices for Case Nos. 08-2728RX, 08-2729RX, 08-2732RX, 08-2733RX, 08-2734RX, 08-2821RX, 08-2823RX, and 08-2824RX: Travel to Boca Raton to meet with other health care lawyers and discuss issues in common on these cases and others. Discuss legal strategies that worked in the past and legal strategies to be avoided. Return from Boca Raton. Each entry was for one hour, for a total of eight hours claimed for a trip to Boca Raton, which equates to $2,880.00. Based on the entry, it seems that the trip included discussions of other cases that The Health Law Firm was handling or that other attorneys were handling. Additionally, there was no rationale for having to travel to Boca Raton to discuss the issues, and fees for such travel should not be awarded. A reasonable amount of time for discussion of the case with other attorneys by telephone would be .80 hours. The prorated amount of time for each case listed is .10 hours. On May 27, 2008, SF made a .30-hour entry in Case No. 08-2824RX for reviewing the agenda of the June 10th Board of Pharmacy meeting as it related to the client in Case No. 08-2824RX. The entry related to the client’s petition for a waiver, which was heard at the June 10th meeting and should be deleted. On May 30, 2008, in Case No. 08-2824RX, SF made a .40-hour entry for drafting a letter to client with retainer agreement. The entry is clerical and should be deleted. On June 18, 2008, an entry was made in the invoice in Case No. 08-2731RX, which stated: “Telephone call from husband of our client indicating that they want us to close this matter and that they do not wish to pursue it any further; follow-up memorandum to Mr. Indest regarding this.” Charges continued to be made to the client through July 16, 2008. Based on the entry to the invoice on June 18, 2008, no further charges should have been made to the client except for the filing of a voluntary dismissal of the rule challenge for the client. However, no voluntary dismissal was filed. Based on the absence of any further charges to the client after July 18, 2008, it is concluded that the client did wish not to proceed with her rule challenge. Any charges by The Health Law Firm after June 18, 2008, in Case No. 08-2731RX will not be assessed against the Board of Pharmacy as it relates to the rule challenge. On June 19, 2008, TJJ made the following .10-hour entry in ten of the cases: “Review June 10, 2008, Board of Pharmacy Agenda. Telephone conference with Court Reporter, Ms. Green, ordering transcript of the June 10, 2008, meeting.” An hour for reviewing an agenda and ordering a transcript is not reasonable. A reasonable amount of time is .40 hours, and such time is prorated to the ten cases in which it is charged. 33. On June 20, 2008, in Case Nos. 08-2823RX and 08-2824RX, TJJ made a .80-hour entry which stated: “Prepare draft motion for consolidation.” No motion was ever filed and would not have been necessary since the parties had agreed at the pre-hearing conference that the rule challenges would be consolidated. The time for this service should be deleted. 34. On July 10, 2008, TJJ made the following .10-hour entry in several of the cases: “Review prehearing instruction orders and amended orders to determine respondent’s deadline to serve discovery responses.” The entry is duplicative of services provided by MRG on July 8, 2008, and should be deleted. 35. On July 15, 2008, in Case Nos. 08-2729RX, 08-2728RX, 08-2730RX, 08-2732RX, 08-2733RX, 08-2734RX, 08-2821RX, 08-2823RX, 08-2824RX, and 08-3298RX, TJJ had .40 hours for a total of 4.00 hours for the following entry: Prepare Petitioners’ Motion to Compel Discovery and assemble and copy documents to be attached to Motion. Prepare facsimile coversheets and transmit the Motion to the attorney for the Board of Pharmacy, Ms. Loucks, and to the clerk for the Division of Administrative Hearings. The copying, preparing facsimile coversheets, and transmitting the motion are clerical tasks. The entries are reduced to .20 hours due to the clerical nature of the tasks, which leaves a total of two hours for preparing a simple motion to compel. The time for the preparation of the motion to compel is not reasonable and is reduced to .10-hour for each entry. On July 22, 2008, the last Order consolidating all the cases was filed. The Order consisted of four paragraphs. On July 29, 2008, TJJ entered .10 hours in Case Nos. 08-2733RX, 08- 2730RX, 08-2734RX, 08-2728RX, 08-2729RX, 08-2732RX, 08-2824RX, 08-3510RX, 08-3488RX, 08-3347RX, 08-2823RX, 08-3298RX, and 08- 2821RX, and each entry stated: “Review order of consolidation filed on July 22, 2008, for common information needed for all cases.” Thus, Petitioners are claiming a total of 1.3 hours or $260.00 to review a four-paragraph Order of Consolidation. This claim is not reasonable. A reasonable amount of time to review the Order was .10 hours, and the time shall be prorated among the cases for which it was claimed at .08 hours each. On July 24, 2008, TJJ made an entry of .10 hours in ten of the cases which stated: Telephone conference with the clerk of the District Court of Appeal, First District to find out the start time of oral arguments on Custom Mobility (rule challenge case). Request information from clerk regarding how to listen to oral arguments online. Observing this oral argument will allow us to better prepare our case for possible appeal. First, a one-hour telephone conversation with the Clerk of District Court of Appeal to ascertain the time for an oral argument and to learn how to listen to oral arguments online is not reasonable. Second, it is not reasonable to charge the Board of Pharmacy with a call to the District Court of Appeal in the instant cases, even if the amount of time for the call had been reasonable. The one-hour charge for $200.00 for a telephone call is deleted. On July 30, 2008, TJJ made an entry of .10 hours in 13 of the rule challenges. The entry stated: “Listen to oral arguments presented before District Court of Appeals, First District, in Custom Mobility case (rule challenge case).” The oral argument was not related to the instant rule challenges and should not be charged to the Board of Pharmacy. The 1.3 hours or $260.00 claim for listening to an oral argument is deleted. On August 4, 2008, TJJ made the following .10-hour entry in 13 of the cases: “Review Joint Motion for Abeyance and Order Canceling Hearing and Placing Cases in Abeyance. Calendar deadlines regarding same.” The time of 1.3 hours for reviewing the simple motion and Order is not reasonable. Calendaring is a clerical task. The time for this service is reduced to .01 hours for each entry. On August 5, 2008, TJJ made the following .10-hour entry in 13 of the cases: “Review Respondent’s Objections and Responses to Petitioners’ Second Set of Interrogatories and Respondent’s Objections to Petitioners’ Second Set of Requests for Admissions.” The objections were that the interrogatories and requests for admissions exceeded 30. The time of 1.3 hours for reviewing the pleadings is not reasonable. The time for this service is reduced to .04 for each entry. Petitioners had scheduled the depositions of Rebecca Poston and Daisy King for July 18, 2008. On July 17, 2008, Petitioners filed notices canceling the depositions. On July 17, 2008, PD entered .10 hours in ten of the rule challenges for the following entry: Telephone conference with Accurate Stenotype Reporters regarding cancellation of depositions of Daisy King and Rebecca Poston on July 18, 2008 and delay transcription of depositions of Erika Lilja and Elizabeth Ranne due to potential settlement. It is not reasonable to charge an hour to cancel depositions with the court reporter. A reasonable amount of time would be .10 hours, which is prorated to the ten cases to which it is charged. PD prepared the notice of the canceling of the deposition of Ms. Poston and the notice of the canceling of the deposition of Ms. King. Entries were made in ten of the cases for time for preparing the notices. The total time for preparing the two notices by PD was 1.45 hours. The time is not reasonable. A reasonable time to prepare two notices of canceling depositions would be .40 hours, which is prorated among the ten cases in which it was charged. One of the issues on which Petitioners did not prevail in the rule challenges was the issue of retroactive application of the rule. There are entries totaling 3.4 hours for JP for preparation of a memorandum dealing with the retroactive application of a rule issue. GFI entered .30 hours for the same issue. The time relating to the retroactive application issue is deleted. On April 19, 2008, MRG entered .20 hours each in several cases, which related to the rule challenge and retroactive application issue. That time is reduced by half. On May 6, 2008, MRG made .60-hour entries in Case Nos. 08-2728RX, 08-2729RX, 08-2730RX, 08-2732RX, 08-2733RX, 08-2734RX, 08-2821RX, 08-2823RX, 08-2824RX, and 08-3298RX, which showed the preparation of three sections of the petition. One of the sections dealt with the retroactive application issue, and the entries are reduced by .20 hours for that issue. The invoices demonstrated that a considerable amount of time was charged for legal assistants and paralegals. Much of this time was for clerical tasks. SE is identified in Petitioners’ exhibits as a legal assistant. The majority of the entries by SE dealt with the photocopying, labeling, organizing, indexing, and filing documents. These services performed by SE are clerical and, as such, cannot be included in an award of attorney’s fees. RS is identified in Petitioners’ exhibits as a paralegal/legal assistant. The majority of the entries in the invoices for RS deal with receiving, reviewing, labeling, indexing, scanning, summarizing, and calendaring pleadings and orders that were received in the cases. These services are clerical and, as such, cannot be included in an award of attorney’s fees. Petitioners in Case Nos. 08-2728RX, 08-2732RX, and 08-2733RX each claimed .30 hours for RS for the following service on April 30, 2008: Received and reviewed letter from Department of Health regarding our Public Records Request dated April 28, 2008 relating to client’s case. Index document for filing and scanning for use of attorneys at hearing. However, .90 hours for reviewing and indexing a letter is not reasonable and is clerical in nature. On June 17, 2008, in Case No. 08-2730RX, RS entered .60 hours for preparing, copying, and sending a letter to the client forwarding a copy of the Order of Assignment. That entry is reduced to .30 hours, since at least half of the time appeared to be for clerical tasks. AE, who is identified as a legal assistant in Petitioners’ exhibits, has numerous entries in the invoices for receiving, indexing, filing, calendaring, and providing pleadings and orders to clients. Those services are clerical and, as such, cannot be included in an award of attorney’s fees. In Case No. 08-2728RX, PD, identified in Petitioners’ exhibits as a paralegal, made entries on June 16 and June 25, 2008, for .30 hours each. These entries were to update the litigation schedule with the hearing date. The entry is clerical and, as such, cannot be included in an award of attorney’s fees. SF, who is identified in Petitioners’ exhibits as a paralegal/legal assistant, made an entry for .30 hours in Case No. 08-2728RX on June 26, 2008, and in Case No. 08-2732RX on June 11, 2008, for forwarding orders to the client. An entry was made on July 10, 2008, in Case No. 08-2728RX and on June 18, 2008, in Case No. 08-2730RX for .30 hours for processing the retainer package. Additionally, SF had entries for organizing and filing transcripts and orders. Such services are clerical and, as such, cannot be included in an award of attorney’s fees. In Case No. 08-3488RX, SF made a .30-hour entry on June 30, 2008, for updating the parties list and document file and a .50-hour entry on June 26, 2008, for completing opening procedures. In the same case, SF made two entries on July 7, 2008, for a total of 1.5 hours for preparing a retainer package and sending it to the client. These tasks are clerical. On June 24, 2008, SF made the following .30-hour entry in 11 of the cases: “Finalize and forward Joint Motion for Continuance of Final Hearing to client in this matter.” These entries are deleted; as they represent clerical tasks and an unreasonable amount of time to finalize a motion for continuance for which GFI had charged 1.1 hours for preparing the motion. In several cases JP, identified as a law clerk, made entries on July 15, 2008, for .30-hour for creating, numbering, and copying exhibits. Such service is clerical. On July 30, 2008, PD made the following .20-hour entry in 13 of the cases: Prepare Petitioners’ Notice of Service of Second Set of Interrogatories and Certificate of Filing and Service. Prepare correspondence to Debra Loucks, attorney for Board of Pharmacy regarding filing and Service of Petitioners’ Fourth Set of Request to Produce and Second Set of Interrogatories. However, 2.6 hours is not a reasonable amount of time to prepare a notice of service of discovery and a transmittal letter to opposing counsel. A reasonable amount of time to prepare such documents is .50 hours, and the time is prorated among the 13 cases. On July 28, 2008, PD made the following .10-hour entry in 13 of the cases: Prepare Notice of Filing Videotaped Depositions of Elizabeth Ranne and Erika Lilja. Prepare draft of Notice of Filing Deposition Transcript of Elizabeth Ranne. However, 1.3 hours is an unreasonable amount of time to prepare two notices of filing depositions. A reasonable amount of time is .40 hours, and that amount is prorated among the 13 cases. On June 17, 2008, PD made the following .20-hour entry in each of the 11 cases: Prepare Petitioners’ Notice of Service of First Set of Interrogatories to Respondent and Certificate of Filing and Service. Prepare correspondence to Debra Loucks, attorney for Board of Pharmacy, regarding filing and service of Petitioners’ First Set of Request to Produce, Petitioners’ First Set of Request for Admissions and Petitioners’ First Set of Interrogatories. However, 2.2 hours is an unreasonable amount of time to prepare a notice of service of discovery and a transmittal letter to opposing counsel. A reasonable amount of time is .50, which is prorated among the 11 cases. 58. On June 21, 2008, in Case Nos. 08-2821RX, 08-2823RX, and 08-2824RX, there is a .30-hour entry for SF for finalizing and forwarding a petition for formal hearing to the Department of Health for filing. This entry does not appear to be related to the rule challenges and is deleted. In Case No. 08-3298RX, MRG made an entry of .50 hours for a telephone conference regarding the date of rule challenge and petition for rehearing. The petition for rehearing dealt with the client’s petition for waiver and should not be included. Thus, the entry is reduced to .25 hours. After all the cases were consolidated The Health Law Firm began to make entries for all cases in the first consolidated invoice. On July 28, 2008, GFI made an entry of 2.8 hours, which related exclusively to the issue of retroactive application of the rule. This entry is deleted. RS made entries in the first consolidated invoice for August 12, 14, 28, and 29, 2008, and September 2, 5, 10, and 18, 2008, relating to filing, indexing, copying, and forwarding documents. There are similar entries for SF on August 26, 2008, and September 4 and 9, 2008, and for AE on September 8, 2008. Those entries are for clerical tasks. PD had entries for reviewing, organizing, and indexing documents on September 4, 8, 11, and 17, 2008, and October 8, 2008. Those entries are for clerical tasks. There were numerous entries in August 2008 relating to a Board of Pharmacy meeting on August 21, 2008, in which the Board of Pharmacy heard motions for reconsideration of orders denying Petitioners’ petitions for waivers. Those entries are related to the petitions for waiver and not to the rule challenges. Although, The Health Law Firm makes reference to a settlement agreement in which the Board of Pharmacy agreed to grant the waivers, there was no settlement agreement of the rule challenges because the parties proceeded to litigate the issues by summary disposition. Thus, the references to attending and preparing for the August 21, 2008, Board of Pharmacy meeting as well as advising the clients of the outcome of the meeting on August 20 and 21, 2008, are deleted. Additionally, an entry by MRG on August 20, 2008, which included reviewing the August 21st agenda is reduced to .75 hours. On August 25, 2008, MRG made an entry which included a telephone conference with Mr. Bui and a telephone conference with Ms. Ranne regarding Mr. Bui. Mr. Bui is not a Petitioner, and the entry is reduced to .55 hours. Based on the invoices, it appears that Mr. Bui and Ms. Ranne were also foreign pharmacy graduates seeking waivers from the Board of Pharmacy. On August 29, 2008, MRG made another entry which included the preparation of an e-mail to Mr. Bui. The entry is reduced to two hours. On August 6, 2008, MRG made a 1.80-hour entry which included preparing e-mail to Mr. Bui and a telephone conference with Mr. Sokkan regarding the rule challenge and settlement negotiations. Neither of these persons is a Petitioner; thus, the entry is reduced to .60 hours. On August 28, 2008, TJJ made a 3.60-hour entry for researching and preparing Petitioners’ second motion to compel discovery. No such motion was filed. Thus, the entry is deleted. Another entry was made on September 2, 2008, which included, among other things, the revision of the motion to compel. That entry is reduced to .80 hours. On August 8, 2008, MRG made a 1.00-hour entry which included a telephone conference with Ms. Alameddine regarding her passing the MPJE and being licensed in Michigan. Those issues relate to the petition for reconsideration of the waiver. The entry is reduced to .50 hours. On September 4, 2008, TJJ made a .80-hour entry for preparing a letter to Mr. Modi regarding his approval to take the examination, a 1.00-hour entry dealing with Mr. Lakshminarary’s application, a .90-hour entry dealing with Petitioner Narayanan’s application, a .70-hour entry dealing with Mr. Shah’s application, and a .60-hour entry dealing with Ms. Hernandez’s application. The entries deal with the petitions for a waiver and are deleted. On September 4, 2008, MRG made an entry which included, among other tasks, time for determining if the Board of Pharmacy had sufficient funds to pay Petitioners’ attorney’s fees. This entry is reduced to two hours. On October 10, 2008, MRG made a 1.20-hour entry which included, among other things, analyzing pleadings to determine if persons who were not Petitioners should file petitions for attorney’s fees. The entry is reduced to .60 hours. On July 16, 2008, MRG and JP made entries in ten of the cases for traveling to Tallahassee and attending the depositions of Elizabeth Ranne and Erika Lilja. The total hours for MRG was 16.9 hours and for JP the total was 17 hours. These total hours are reduced by ten hours each for travel time. On August 12 and 13, 2008, MRG made entries which included travel time to attend Board of Pharmacy meetings.6 Those entries are reduced each by one hour to account for travel time. The following is a listing of the amount of hours and dollar amount for fees, which are considered to be reasonable for the rule challenges. Individual and First Consolidated Invoice Hours Rate Amount GFI 146.10 $350.00 $51,135.00 MLS 3.70 $300.00 $1,110.00 JK 1.40 $300.00 $420.00 TJJ 80.13 $200.00 $16,026.00 MRG 210.16 $150.00 $31,824.00 JP 37.80 $100.00 $3,780.00 PD 39.053 $80.00 $3,124.24 SF 16.80 $80.00 $1,344.00 GJ .40 $80.00 $32.00 RS 1.3 $80.00 $104.00 $108,899.24 The Partial Final Order found that Petitioners were entitled to an award of attorney’s fees pursuant to Subsection 120.595(3), Florida Statutes. Thus, the issue of entitlement to fees and costs pursuant to Subsection 120.595(3), Florida Statutes, was not an issue that was litigated in the instant fee cases. The issue of whether Petitioners were entitled to fees and costs pursuant to Subsections 57.105(5), 120.569(2)(e), and 120.595(4), Florida Statutes, were entitlement issues which were litigated in the instant fee cases.7 Most of the charges dealing with the petitions for fees and costs are related to the amount of fees that are to be awarded and not to the entitlement to fees. In Petitioners’ second consolidated invoice (Petitioners’ Exhibit 4), there is a two-hour entry by MLS on November 3, 2008, for research of entitlement to fees pursuant to Subsection 120.595(3), Florida Statutes. This entry is deleted since the issue of entitlement to fees pursuant to Subsection 120.595(3), Florida Statutes, had already been determined. The following entries in the second consolidated invoice relate to the litigation of the amount of fees to be awarded and are deleted: 11-5-08 GFI 6.90 hours 11-6-08 SF 7.00 hours 11-6-08 GFI 7.40 hours 11-7-08 SF 7.00 hours 11-7-08 MLS 1.00 hour 11-7-08 JCP 7.00 hours 11-8-08 JCP 1.00 hours 11-8-08 GFI 7.10 hours 1-26-09 GFI 1.00 hour 2-9-09 GFI .60 hours 2-10-09 GFI .30 hours 2-12-09 GFI .60 hours 2-17-09 GFI .30 hours 2-17-09 GFI .60 hours 2-19-09 GFI .60 hours The following entries were made in the second consolidated invoice for clerical tasks performed by paralegals and legal assistants: 11-3-08 RAS .30 hours 2-9-09 RAS .30 hours 2-10-09 RAS .30 hours 2-12-09 ACE .40 hours The issue of entitlement to fees pursuant to statutes other than Subsection 120.595(3), Florida Statutes, was a small portion of the litigation relating to attorney’s fees and costs. The major areas of litigation dealt with the amount of fees and costs that should be awarded. The invoices do not specifically set forth the amount of time that was spent on the issue of entitlement to fees on statutes other than Subsection 120.595(3), Florida Statutes. Based on a review of the pleadings in these fee cases and a review of the invoices submitted for litigation of attorney’s fees and costs, it is concluded that ten percent of the time should be allocated to the issue of entitlement to fees. The percentage is applied to the fees after the fees listed in paragraphs 76, 77, and 78, above, have been deleted. Thus, the following entries in the second consolidated invoice are reduced to the following amount of hours: 11-1-08 JCP .26 hours 11-3-08 MLS .10 hours 11-4-08 MLS .40 hours 11-8-08 JCP .32 hours 12-22-08 GFI .04 hours 12-30-08 MLS .03 hours 1-7-09 GFI .02 hours 1-14-09 GFI .04 hours 1-15-09 GFI .07 hours In the third consolidated invoice (Petitioners’ Exhibit 5), the following entries relate to the amount of fees to be awarded and are deleted: 3-4-09 SME 4.80 hours 3-4-09 GFI 1.20 hours 4-3-09 GFI 3.20 hours 4-7-09 GFI .50 hours 4-7-09 GFI .60 hours 4-7-09 GFI .30 hours 4-8-09 GFI 4.20 hours 4-8-09 GFI 1.00 hour 4-9-09 MRG 1.50 hours 4-9-09 GFI 3.20 hours 4-11-09 GFI .60 hours 4-15-09 GFI 4.40 hours On April 14, 2009, GFI made an entry which included time for travel to the expert witness’ office. The entry is reduced by .75 hours for travel time. Ten percent of the time not excluded or reduced above related to the issue of entitlement of fees pursuant to statutes other than Subsection 120.595(3), Florida Statutes. The following entries are reduced to that percentage: 3-31-09 GFI .05 hours 4-1-09 GFI .20 hours 4-6-09 GFI .19 hours 4-6-09 GFI .03 hours 4-7-09 MRG .05 hours 4-7-09 GFI .07 hours 4-7-09 GFI .19 hours 4-7-09 GFI .27 hours 4-9-09 GFI .10 hours 4-13-09 GFI .50 hours 4-14-09 GFI .48 hours 4-14-09 GFI .275 hours The following is a list of the fees in the second and third consolidated invoices which are related to entitlement of fees pursuant to Florida Statutes other than Subsection 120.595(3), Florida Statutes. Second and Third Consolidated Invoice Hours Rate Amount GFI 2.525 $350.00 $883.75 MLS .43 $300.00 $129.00 MRG .05 $150.00 $7.50 JCP .32 $100.00 $32.00 $1,052.25 With the exception of the costs related to the Transcripts of the Board of Pharmacy meetings of April 8 and 9, 2008, and June 10, 2008, Respondent, as stipulated in the parties’ Joint Pre-hearing Stipulation, does not dispute that the amounts of costs set forth in the invoices submitted by Petitioners are fair and reasonable.8 The cost of the Transcripts of the Board of Pharmacy meetings on April 8 and 9, 2008, was $1,476.00. The cost of the Transcript of the Board of Pharmacy meeting on June 10, 2008, was $524.00. At the final hearing, the Board of Pharmacy’s objection appeared to be based on the timing of the payment of the court reporter’s fees related to the transcribing of those meetings. The Transcripts were filed with the Division of Administrative Hearings prior to the issuance of the Partial Final Order. Thus, the costs of the transcribing of the Board of Pharmacy meetings are properly included in the amount of costs to be awarded to Petitioners. The amounts of the costs claimed for the rule challenges in the individual and first consolidated invoice are reasonable. The costs incurred by Petitioners for the rule challenges as set forth in the individual and first consolidated invoices are listed below: Name Amount Vipul Patel $1,773.62 Miriam Hernandez $1,801.41 Mirley Aleman-Alejo $1,213.80 Valliammai Natarajan $321.17[9] John H. Neamatalla $1,118.72 Samad Mridha $975.12 Se Young Yoon $1,097.07 Saurin Modi $1,168.75 Deepakkumar Shah, M.Ph. $1,119.24 Mijeong Chang $1,213.16 Nabil Khalil $961.32 Hadya Alameddine $464.60 Balaji Lakshminarayanan $509.71 Anand Narayanan $461.87 The total amount of costs to be awarded for the challenge to the existing rule and to the policy statements is $14,199.56. The parties stipulated to the reasonableness of the costs contained in the second consolidated invoice. The second consolidated invoice lists the total costs as $2,096.12. Therefore, the costs for the second consolidated invoice are reduced to $209.61,10 which represents the amount attributable to litigation of entitlement of fees, ten percent of the total costs. The parties stipulated to the reasonableness of the costs contained in the third consolidated invoice. The third consolidated invoice lists the total costs as $580.62. Therefore, the costs for the third consolidated invoice are reduced to $58.06,11 which represents the amount attributable to litigating the entitlement of fees, ten percent of the total costs. Petitioners incurred costs in the litigation of the amount of attorney’s fees to be awarded. Petitioners retained an expert witness, Sandra Ambrose, Esquire. Ms. Ambrose’s fee relating to the issue of attorney’s fees is $5,200.00. Her fee is reasonable; however, Ms. Ambrose’s testimony was related to the amount of the fees not to the entitlement to fees and are, therefore, not awarded as part of the costs. The total costs to be awarded for the litigation of the fees is $267.67.
The Issue Whether Olin Scott Stoutamire is required to repay monies paid to Olin Scott Stoutamire as salary, which is alleged by the Department of Transportation (DOT) to be excess salary.
Findings Of Fact Petitioner is an agency of state government. The Respondent is a career service employee of the Petitioner, and is employed at a site located away from the Petitioner's District Office in Chipley, Florida. The Respondent is the Project Manager of the Petitioner's Thomasville Road and Interstate 10 Intersection Improvement Project in Tallahassee, Florida. The Respondent is paid less than other Petitioner's Construction Project Managers because the Respondent has less tenure. The Respondent's supervisor told Respondent that he would try to correct what appeared to be a salary inequity. The Petitioner initiated a raise for Respondent equal to 5 percent of the Respondent's base rate of pay. The proposed 5 percent salary increase was initiated by his supervisor completing and submitting an "Employee Action" form. The form provides the employee's identification, position, and includes the employee's current base pay rate and the calculated pay rate after the proposed increase becomes effective. The Respondent's base rate of pay and the resulting calculations as to the proposed resulting pay increase were incorrect on the Employee Action form submitted to the Petitioner's Personnel Office (Personnel) in Chipley, Florida. Personnel detected the supervisor's error, but then committed its own error, resulting in an $80 bi-weekly overpayment. The Respondent noticed the apparent overpayment and inquired of his supervisor if there had been a mistake. Respondent told his supervisor that he did not want the State to seek reimbursement for a large amount at a later date. The Respondent's supervisor told Respondent that the payment was correct and to accept it. The Respondent asked him to check and be certain because he did not want to have to repay the money. A short time later, the Respondent's supervisor told Respondent to accept the total amount of the warrant as being correct. His supervisor mentioned other pay increases for which the Respondent was being considered during the same time that the 5 percent pay increase was being processed. The Respondent thought that his supervisor had checked with personnel, and that his pay was correct. The Petitioner did not become aware of the error until an overpayment of $1,200 had accumulated. The Petitioner's Office of Financial Services requested reimbursement in the amount of $771.15 as payment in full within ten days or a payment of $117.00 biweekly pursuant to Sections 110.205(2) and 216.251, Florida Statutes and Chapter 60L-8, Florida Administrative Code. The Respondent's salary was immediately adjusted to show the correct amount. The Respondent contends he did his best to determine if he was being overpaid and was assured the payment was correct. The Respondent changed his budget and spent the money in reliance upon the assurance that the payment to him was correct. The Respondent concedes that Petitioner's records reflect an error and an overpayment. However, the Respondent does not believe he should have to repay the money immediately or in amounts greater than he received the overpayment.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that: Respondent repay $40 per pay period to the Department beginning on the effective date of the next annual pay raise and continuing each month thereafter until the overpayment is repaid. The Department refer the case to the Department of Banking and Finance if an agreement cannot be reached. DONE AND ENTERED this 9th day of July, 1997, in Tallahassee, Leon County, Florida. COPIES FURNISHED: Ben G. Watts, Secretary Department of Transportation Haydon Burns Building 605 Suwannee Street STEPHEN F. DEAN Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (904) 488-9675 SUNCOM 278-9675 Fax Filing (904) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 9th day of July, 1997. Tallahassee, Florida 32399-0450 Pamela Leslie, General Counsel Department of Transportation Haydon Burns Building 605 Suwannee Street Tallahassee, Florida 32399-0450 Charles G. Gardner, Esquire Department of Transportation Haydon Burns Building 605 Suwannee Street, Mail Station 58 Tallahassee, Florida 34399-0458 Olin Scott Stoutamire 63 Graham Trail Crawfordville, Florida 32327
The Issue The issue in this case is whether Respondent applied the following policy to Petitioner and, if so, whether the policy constitutes an unpromulgated "rule" as defined in Section 120.52(15), Florida Statutes. If during its review of a rate change filing, DOI determines an insurer is not in compliance with the annual rate filing requirements of section 627.410(7), Florida Statutes, and if the filing involves a Medicare Supplement form, section 627.6745, Florida Statutes, then DOI will only approve an "annual portion" as a percentage of the rate change requested based on the elapsed time period since the last approved rate filing.
Findings Of Fact The Parties. Petitioner, Central States Health and Life Company of Omaha (hereinafter referred to as "Central States"), is a corporation domiciled in Nebraska. Central States holds a certificate of authority issued by the Department which allows it to sell life and health insurance, including individual and group standardized Medicare supplement policies, in Florida. Respondent, the Department of Insurance and Treasurer (hereinafter referred to as the "Department"), is an agency of the State of Florida. The Department is charged with the responsibility for, among other things, the review and approval of health insurance policy forms used in Florida. General Requirements for Medicare Supplement Policy Forms in Florida. No "basic insurance policy" may be delivered in Florida unless the "form" has first been approved by the Department. Section 627.410(1), Florida Statutes. Section 627.410(6), Florida Statutes, additionally requires that a copy of the applicable rating manual or rating schedule included as part of a insurance policy form must be filed with the Department for approval before any "health insurance policy form" is delivered in Florida. Pursuant to Section 627.410(7), Florida Statutes, insurers required to file rating manuals or rating schedules pursuant to Section 627.410(6), Florida Statutes, must make an "annual filing" with the department. The rating manual and rating schedule requirements of Section 627.410(7), Florida Statutes, may be satisfied by: A "rate filing prepared by an actuary which contains documentation demonstrating the reasonableness of benefits in relation to premiums charged in accordance with the applicable rating laws and rules promulgated by the department." Section 627.410(7)(b)1, Florida Statutes; or "If no rate change is proposed, a filing which consists of a certification by an actuary that benefits are reasonable in relation to premiums currently charged in accordance with applicable laws and rules promulgated by the department." Section 627.410(7)(b)2, Florida Statutes. The filing requirements of Section 627.410(6) and (7), Florida Statutes, apply to Medicare supplement forms. Section 627.6745, Florida Statutes, limits the manner in which entities providing Medicare supplement policies may meet the annual filing requirement of Section 627.410(7), Florida Statutes. Section 627.6745, Florida Statutes, eliminates the use of the certification procedure described in Finding of Fact 7.b., supra, by Medicare supplement policy providers. Section 627.6745(2), Florida Statutes, requires that all providers of Medicare supplement policy forms: . . . file annually its rates, rating schedules, and supporting documentation demonstrating that it is in compliance with the applicable loss ratio standards of this code. The filing of rates and rating schedules shall demonstrate that the actual and expected losses in relations to premiums comply with the requirements of this section. Rule 4-156.012(3), Florida Administrative Code, requires that issuers of Medicare supplement policies and certificates must file their rates annually "for approval by the Department in accordance with Section 627.410, Florida Statutes." Section 627.6745, Florida Statutes, also provides limitations on the rates which may be charged for Medicare supplement policies: Medicare supplement policies shall return the following to policyholders in the form of aggregate benefits under the policy, with respect to the lifetime of the policy, on the basis of earned premiums and on the basis of incurred claims experience . . . and in accordance with accepted actuarial principles and practices: At least 75 percent of the aggregate amount of premiums earned in the case of group policies. . . . for individual policies issued on or after July 1, 1989, at least 65 percent of the aggregate amount of premiums earned. . . . Stated very simply, this provision requires that for every dollar of premiums earned, a minimum of 75 cents must be paid in claims for group policies and a minimum of 65 cents must be paid in claims for individual policies. The grounds for disapproval of "any form filed under s. 627.410" are provided in Section 627.411, Florida Statutes. In pertinent part, Section 627.411(1), Florida Statutes, provides that a "form" may be disapproved if the form: (e) Is for health insurance, and provides benefits which are unreasonable in relation to the premium charged, contains provisions which are unfair or inequitable or contrary to the public policy of this state or which encourage misrepresentation or which apply rating practices which result in premium escalations that are not viable for the policyholder market or result in unfair discrimination in sales practices. The Department has adopted rules establishing rate filing procedures. Rule 4-149.003, Florida Administrative Code. Rule 4-149.006, Florida Administrative Code, sets out the information an actuary must provide and the manner in which an actuary is to provide that information. The Department has also adopted rules providing the manner in which the reasonableness of benefits in relation to premiums will be determined. Rule 4-149.005, Florida Administrative Code. Central States' 1998 Rate Increase Filings and the Department's Denial Thereof. On or about January 20, 1998, Central States filed two requests for rate increase with the Department. One request sought a 39% increase for Individual Medicare supplement policy forms (hereinafter referred to as "Individual Medicare Forms") sold in Florida and the other sought a 39% increase for Group Medicare supplement policy forms (hereinafter referred to as "Group Medicare Forms") sold in Florida. For purposes of this Final Order all Findings of Fact and Conclusions of Law apply equally to each type of rate increase request unless otherwise noted. Both rate increase requests were accompanied by an actuarial memorandum certified by Dawn Helwig, an actuary retained by Central States. The rate increase requests were reviewed by Linda Ziegler, an actuary employed by the Department. Following her review, Ms. Ziegler asked for additional information or explanation concerning several issues by letters dated February 10, 1998. By letter dated February 18, 1998, Central States responded to Ms. Ziegler's letters. Each of the issues raised by Ms. Ziegler was addressed in the February 18, 1998, letter. After review of Central States' rate increase requests, the Department informed Central States that the 39% rate increases it had requested were disapproved. Central States was informed of the denial by letter dated March 6, 1998. The Department also informed Central States in the March 6, 1998, denial letter that rate increases of 9.6% were "APPROVED." Central States was requested to "provide revised rate pages reflecting the approved rate increase by March 20, 1998." The Department denied the 39% rate increase requests for three reasons: The Department determined that the rate increases sought by Central States did not provide benefits which were reasonable in relation to the premium to be charged. Therefore, the Department denied the rate increase requests pursuant to Section 627.411(1)(e), Florida Statutes. This determination was based upon a finding that Central States' projected Anticipated Loss Ratio did not meet or exceed the weighted average of the Anticipated Loss Ratio *N (hereinafter referred to as the "*N Test"). "Anticipated Loss Ratio" is defined in Rule 4- 149.006(3)(b)20, Florida Administrative Code, as essentially the present value of future benefits (claims) divided by the present value of future premiums. The conclusion that Central States' projected Anticipated Loss Ratio did not meet or exceed the *N Test was based essentially upon four areas of disagreement with Ms. Helwig's calculations in her actuarial memoranda; The Department determined that Central States' "forms" were in violation of Chapter 627, Florida Statutes. Therefore, the Department denied the rate increase requests pursuant to Section 627.411(1)(a), Florida Statutes. This determination was based upon the Department's conclusion that Central States had failed to make annual rate filings as required by Section 627.410(7), Florida Statutes, and Rule 4-156.011, Florida Administrative Code; and The Department determined that Central States' requested rates were not "viable." Therefore, the Department denied the rate increase requests pursuant to Section 627.411(1)(e), Florida Statutes. This determination was based upon the Department's conclusion that because Central States had failed to obtain annual approval of its Individual and Group Medicare Forms for several years the amount of the increases sought by Central States was not "viable." The four areas of disagreement with Ms. Helwig's calculations are: What Individual Medicare Forms should be considered to have been issued to individual customers after "6/1/94" for purposes of Rule 4-149.005(2), Florida Administrative Code. (This issue only impacted Central States' Individual Medicare Forms request); Whether Central States should pool its experience with its Individual and Group Medicare Forms; Whether Central States should use its actual nationwide experience instead of its actual nationwide experience "adjusted to the Florida Rate basis"; and Whether it was appropriate for Central States to assume that its premiums would be received and its claims incurred at the beginning of the year. The Department concluded that 32.7% increases would meet the *N Test if the four areas of disagreement with Ms. Helwig were corrected by Central States. The four areas of disagreement are the subject of Case Numbers 98-1562 and 98-1563. The Department also concluded, however, that even if Central States met the *N Test it would only be entitled to a one-year adjustment which it calculated to be 9.6%. It is this determination that Central States has alleged constitutes the application of an unpromulgated rule. The Challenged Unpromulgated "Rule." The specific statement or statement description challenged by Central States as an unpromulgated rule is as follows: If during its review of a rate change filing, DOI determines an insurer is not in compliance with the annual rate filing requirements of section 627.410(7), Florida Statutes, and if the filing involves a Medicare Supplement form, section 627.6745, Florida Statutes, then DOI will only approve an "annual portion" as a percentage of the rate change requested based on the elapsed time period since the last approved rate filing. (The foregoing statement of policy will be referred to as the Challenged Policy"). Central States has alleged that the Department applied the Challenged Policy to it in denying its rate increase requests. Central States has also alleged that the Challenged Policy had not been adopted or proposed as a rule pursuant to Section 120.54, Florida Statutes, at the time of its application by the Department. The Department's Application of the Challenged Policy. The Challenged Policy is actually more than one policy. First, the Challenged Policy includes a policy of the Department that it will not allow a rate increase for Individual or Group Medicare supplement forms attributable to more than a one-year period if an insurer fails to comply with the annual filing requirement of Section 627.410(7)(b), Florida Statutes. This policy is based upon the Department's conclusion that the failure to obtain annual approval means that any future "form" filed by an insurer is in violation of Chapter 627, Florida Statutes, and its conclusion that any future rate increase will not be viable. Secondly, the Challenged Policy includes a policy of the Department that, if the annual filing requirement has not been met, it will only approve an "annual portion" as a percentage of the rate change requested based on the elapsed time period since the last approved rate filing. The evidence in this case proved that the first part of the Challenged Policy formed a large part of the basis for the Department's denial of Central States' applications for rate increases. The evidence also proved that the second part of the Challenged Policy was relied upon by the Department in determining that increases of 9.6% would be acceptable. The Challenged Policy was a statement of general applicability implementing and interpreting Section 627.411(1)(e), Florida Statutes, and prescribing policy of the Department concerning the procedures the Department intended to follow in determining a viable rate of increase for Medicare supplement forms where an insurer has not made the annual filings required by Section 627.410(7), Florida Statutes. The Department has not disputed this finding. The Challenged Policy, as alleged by Central States, constitutes a "rule" as that term is defined in Section 120.52(15), Florida Statutes. The Challenged Policy had not been adopted by the rulemaking procedure provided in Section 120.54, Florida Statutes, at the time of its application to Central States. Throughout this proceeding, the Department has conceded that the Challenged Policy is a "rule" and that the Challenged Policy has not been adopted by rulemaking. Feasibility of Rulemaking. The Challenged Policy was proposed for adoption as a rule by the Department prior to the filing of the petition in this case. On November 7, 1997, the Department caused notice of its intent to adopt proposed rules to be published. Volume 23, Number 45, Pages 6045-6068 of the Florida Administrative Weekly (November 7, 1997). Pursuant to this notice the Department indicated its intent to repeal Chapter 4-149, Florida Administrative Code, and replace it with a new Chapter 4-149. Included in the newly proposed rule chapter, the Department included newly proposed rule 4-149.108(14): (14) If an insurer has not made an annual rate filing or certification stating the reasonableness of benefits in relation to the premiums charged as required by section 627.410(7), Florida Statutes, other than when the department approved a lower increase than what was requested, the current rate increase request shall be limited to the current year's increase. The current year's increase is defined as the maximum level average annual increase permitted by this part, determined assuming that the insurer had implemented level annual rate increase for the period where no filing or certification had been made. (Hereinafter referred to as the "First Proposed Policy"). Volume 23, Number 45, Pages 6045-6068 of the Florida Administrative Weekly (November 7, 1997)(hereinafter referred to as the "Proposed Rules"). Neither party disputes the fact that the Challenged Policy is included in the First Proposed Policy. Nor do the parties dispute that the Department applied the policies of the First Proposed Policy to Central States in March 1998 in denying its requested rate increases and approving a 9.6% rate increase. Therefore, the evidence failed to prove that rulemaking was not feasible and practicable under Section 120.54(1)(a), Florida Statutes.
Findings Of Fact Southern Bell Telephone and Telegraph Company filed petition with the Public Service Commission pursuant to Section 120.54(5), Florida Statutes, seeking to have the Commission adopt a new rule numbered 25-9.11(2). By Order entered April 10, 1979, the Commission initiated rule-making proceedings in accordance with the petition of Southern Bell, and by Order entered May 4, 1979, amended the rule-making proceeding by expanding the applicability of the proposed rule to include not only telephone utilities as proposed by Southern Bell, but also electric, gas, water and sewer utilities. On May 24, 1979, the Citizens of the State of Florida, represented by the Office of Public Counsel, initiated the instant proceeding by filing a petition to determine that a portion of the proposed rule is invalid. Various regulated utilities moved to intervene in the proceeding, and were granted intervenor status. The Public Service Commission and various other Intervenors moved to dismiss the proceeding on jurisdictional grounds. The motions were denied by Orders entered June 12 and 19, 1979. The Public Service Commission filed a Petition for Writ of Prohibition in the Supreme Court of Florida with respect to the jurisdictional issues. Proceedings before the Division of Administrative Hearings were stayed. The Petition for Writ of Prohibition was denied on September 5, 1979. Florida Public Service Commission v. Division of Administrative Hearings, Case No. 57,116 (Supreme Court of Florida). A Petition for Rehearing was denied by Order entered November 9, 1979. Subsequently, the final hearing was scheduled to be conducted on December 27, 1979, and upon stipulation of the parties was rescheduled for January 22, 1980. At the final hearing, the Public Service Commission and the Intervenors stipulated that the Petitioners have the requisite substantial interest in the proposed rule to maintain the instant rule challenge. The Petitioners and the Commission stipulated that the Intervenors have the requisite standing to participate in the proceeding as Intervenors. A copy of the rule was received in evidence. Issues respecting the validity of the rule are legal rather than factual, and the parties have submitted post-hearing briefs and legal memoranda. The proposed rule [25-9.11(2)] relates to whether a regulated utility is entitled to a rate increase during the period in which a rate proceeding is pending before the Public Service Commission. The rule provides: In any general rate case filed by a utility, the utility shall be permitted upon thirty (30) days' notice to increase its rate pending final disposition of the case by an amount sufficient to produce a rate of return on its investment rate base at the bottom of its most recent previously allowed zone of reasonableness; provided, however, that any such interim increase shall be subject to refund. The rule purports to implement the provisions of the so-called file and suspend laws. As to telephone companies, the file and suspend law is set out at Section 364.05(4), Florida Statutes. The section provides: Pending a final order by the Public Service Commission in any rate proceeding under this section, the commission may withhold consent to the operation of all or any portion of the new rate schedules, delivering to the utility requesting such increase, within 30 days, a reason or written statement of good cause for withholding its consent. Such consent shall not be withheld for a period longer than 8 months from the date of filing the new schedules. The new rates or any portion not consented to shall go into effect under bond at the end of such period, but the commission shall, by order, require such utility to keep accurate account in detail of all amounts received by reason of such increase, specifying by whom and in whose behalf such amounts were paid, and upon completion of hearing and final decision in such proceeding, shall by further order require such utility to refund with interest at a fair rate, to be determined by the commission in such manner as it may direct, such portion of the increased rate or charge as by its decision shall be found not justified. Any portion of such refund not thus refunded to patrons or customers of the utility shall be refunded or disposed of by the utility as the commission may direct; however, no such funds shall accrue to benefit of the utility. Virtually identical provisions have been adopted with respect to gas and electric utilities [Section 366.06(4), Florida Statutes], and with respect to water and sewer utilities [Section 367.081(5), Florida Statutes]. The leading judicial decision interpreting the provisions of the file and suspend laws is Citizens of the State of Florida v. Mayo, 333 So.2d 1 (Fla. 1976). The Court described the alternatives available to the Public Service Commission in conjunction with a request for interim rate increase as follows: (at p. 4) If the Commission does not affirmatively act within 30 days to suspend the proposed new rate schedule file as a part of the request for higher rates, the new rates go into effect automatically on the 31st day following the utility company's filing. Since the Commission's inaction is equivalent to its consent to the new rate schedule, no bond is required of the utility and there is no mechanism by which customers of the utility system can ever recover interim charges which, after the full rate proceeding, the Commission may find to have been wholly or partly unwarranted. If the Commission acts within thirty days to suspend all or part of the tariffs, the utility may not charge its customers the proposed new rates. The Commission's action is effective on a day to day basis until either (a) it grants full or partial consent to the new rates, or (b) eight months elapse from the date the new schedules were filed. If consent is given before the time expiration, as it was here, the utility may then begin to charge the new rates. Where consent is continuously withheld, the utility may still begin to charge its customers on the new basis after eight months have passed, under bond and record-keeping requirements required by statute. The relationship of the interim rate relief provisions to the general scheme of rate regulation was described by the Court as follows: (at p. 5) The Legislature did not intend all public utility filings to go into effect without some review by the Public Service Commission. Had that been the intent the Legislature would not have created a "suspend" power in the Commission. By placing the file and suspend law in Section 366.06, however, the Commission was given direct responsibility in this type of proceeding to insure that all charges collected by a public utility are lawful. See Section 366.06(1), Florida Statutes (1975). The Legislature did not intend a full rate hearing before all new rate schedules become effective. Had it intended that result, there would have been no need to enact subsection 366.06(4) at all. The Legislature obviously intended to allow public utilities the benefit of proposed rate increases from the date they could satisfy the Commission on the basis of an uncontested preliminary showing that the needs of the company were such as to necessitate immediate financial aid. Where the Commission is so satisfied after a preliminary analysis extending over a period not longer than thirty days, the rates become effective without further action by the Commission. (It follows from this, of course, that the Commission's affirmative act of suspending proposed rates means that the Commission is dissatisfied with the utility's preliminary showing.) The Legislature has relieved the Commission of the responsibility for balancing the rights of the company and its customers when the utility is unable to develop new facts to show that there exists good cause to put into operation the new rates which have been found to be unjustified on the basis of the preliminary showing. This was done by providing that Commission inaction following an initial suspension is overcome by time, and that the rates become effective at the end of eight months, automatically, under bond. In light of the conclusion in paragraph 5 and the fact that the Commission must provide its "reason or written statement of good cause" whenever it withholds consent to the new rates, the Legislature must have intended that there be some presentation of evidence or development of new facts between that initial withholding of consent by the Commission and its later grant of consent. (citations omitted) Petitioners contend that the proposed rule is invalid because it would render an interim rate increase automatic upon the filing of a request for interim rate relief by a regulated utility without regard to the merits of the request and without any review of the propriety of the request by the Commission. Petitioners argue that the proposed rule removes the discretion and range of alternatives available to the Commission set out in Citizens of Florida v. Mayo, supra. These contentions are without merit. Rather than making an interim rate increase automatic, the proposed rule sets the standard against which a proposed increase would be measured, that being a rate sufficient to produce a return on the utility's investment at the bottom of the most recently determined zone of reasonableness. The utility's expenses, revenues and investment rate would be calculated in the same manner as was used in the most recent general rate case involving the utility. See: proposed Rule 25-9.11(4). Under the proposed rule, the public Service Commission would retain its discretion to suspend an interim rate increase if the substantive requirements of the proposed rule were not met. The Commission would also retain its responsibility to consider the propriety of interim rate increases. Petitioners' contention that the proposed rule improperly denies appropriate parties who may contest the need for interim rate increases an opportunity for hearing is also without merit. The rule does not address procedures to be followed by the Commission in applying the substantive standards of the rule. The fact that procedures are not addressed does not mean that no such procedures exist. The rule neither expressly nor implicitly undermines rights to a hearing that parties may have under the Administrative Procedure Act, Chapter 120, Florida Statutes, or under constitutional due process requirements, Florida Power Corporation v. Hawkins, 367 So.2d 1011, 1013 (Fla. 1979). Petitioners further contend that the proposed rule is an effort to reinstate the so-called "make-whole" doctrine set out in Southern Bell Telephone and Telegraph Company v. Bevis, 279 So.2d 285 (Fla. 1973). Petitioners' argument is that the make-whole doctrine has been superseded by the file and suspend laws. In Southern Bell, the utility requested that the Public Service Commission grant it an interim rate increase pending completion of a general rate proceeding. The Commission denied the request for interim relief. The Court stated: (at p. 286) Thus when Southern Bell alleged that its rate of return was below that approved by the Commission as a minimum it had alleged a prima facie case to require approval of the Commission for an interim rate increase, so long as the increase would not raise the company's rate of return above the minimum level of 8.25 percent approved by the Commission. Since it must be assumed that the Commission obeyed its statutory mandate. . . any rate of return above the authorized minimum must, of necessity, be unfair, unjust, unreasonable and insufficient. If Southern Bell has proved the allegations which were made in its petition for an interim rate increase, the Commission must approve that request so as to bring the Southern Bell rates within statutory guidelines. It is for the Commission to determine whether or not Southern Bell has met this requirement, as the Commission sits as trier of fact, rather than this Court. The proposed rule adopts this same standard. The file and suspend laws have not changed that standard, but rather have streamlined the mechanism for considering whether interim rate increases should be granted. Maule Industries, Inc. v. Mayo, 342 So.2d 63 (Fla. 1977); Citizens of the State of Florida v. Mayo, supra, at Footnote 12, p. 6. The Petitioners have failed to establish that Public Service Commission Proposed Rule 25-9.11(2) constitutes an invalid exercise of delegated legislative authority. The proposed rule is presently pending for consideration before the Commission. Whether the proposed rule constitutes the best of various policy alternatives that may be available to the Commission has not been an issue in this proceeding. Based upon the foregoing, it is, hereby ORDERED: Petitioner has failed to establish that Proposed Rule 25-9.11(2) of the Public Service Commission constitutes an invalid exercise of delegated legislative authority, and the petition to determine invalidity of the proposed rule filed by the petitioners is hereby dismissed. ENTERED this 22nd day of February, 1980, in Tallahassee, Florida. G. STEVEN PFEIFFER Assistant Director Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301 (904) 488-9675 COPIES FURNISHED: Norman H. Horton, Jr., Esquire Marta Crowley, Esquire Staff Counsel Florida Public Service Commission 101 East Gaines Street Tallahassee, Florida 32301 Benjamin H. Dickens, Jr., Esquire Office of Public Counsel Room 4, Holland Building Tallahassee, Florida 32301 Lorin H. Albeck, Esquire Post Office Box 110 Tampa, Florida 33601 Lee L. Willis, Esquire Ausley, McMullen, McGehee, Carothers & Proctor Post Office Box 391 Tallahassee, Florida 32302 William E. Sundstrom, Esquire Myers, Kaplan, Levinson Kenin & Richards 1020 East Lafayette Street Tallahassee, Florida 32301 James F. Sanfield, Esquire Post Office Box 14042 St. Petersburg, Florida 33733 Ms. Nancy H. Roen 1111 South Bayshore Drive Miami, Florida 33131 Matthew M. Childs, Esquire 1400 Southeast First National Bank Bldg. Miami, Florida 33131 Ms. Mary Jo Francis Post Office Box 47000N Miami, Florida 33147 William B. Barfield, Esquire General Attorney 666 North West 79th Avenue, Room 680 Miami, Florida 33126 Ms. Liz Cloud, Chief Bureau of Administrative Code Department of State The Capitol Tallahassee, Florida 32301 Carroll Webb, Esquire Executive Director Administrative Procedures Committee Room 120, Holland Building Tallahassee, Florida 32301
Findings Of Fact By letter dated 2 September 1975, the Commissioner of Education notified petitioner that, as a result of reorganization of the Department of Education he was being demoted from an Assistant Chief, Research and Information, Pay Grade 33, to a Program Director, Pay Grade 32, with no change in his salary or anniversary date. On 22 September 1975 petitioner filed timely appeal with the Career Service Commission to protest this action. Thereafter the file was, transferred to the Division of Administrative Hearings, and, following several continuances, was set for hearing on 17 August 1976. By letter dated July 27, 1976 directed to the Commissioner of Education, petitioner resigned from his position in the Department of Education, effective 19 August 1976 to take another position. By letter of 30 July 1976 this resignation was accepted by the Commissioner. Petitioner acknowledged that he had suffered no loss of pay in his demotion; and, in fact, received an increase in pay when general state-wide pay increases were approved by the legislature in 1976. At the motion hearing petitioner's principal argument was directed towards his entitlement to attorney's fees in the event the hearing was held and he was successful in proving he had been wrongfully demoted.
The Issue Whether the Petitioner should be subjected to a penalty pursuant to Section 395.5094, Florida Statutes (1987), or Section 407.51, Florida Statutes (1989)?
Findings Of Fact The Respondent, the Health Care Cost Containment Board, is an agency of the State of Florida charged with the responsibility of regulating hospital budgets. The Office of the Public Counsel is authorized pursuant to Section 407.54, Florida Statutes, to represent the general public in budget review proceedings before the Respondent. The Petitioner, Centro Asturiano Hospital, is a 144-bed acute care hospital located in Tampa, Florida. During all times relevant to this proceeding, the Petitioner's fiscal year was the calendar year. During 1984, 1985 and 1986, the accounting firm of Peat, Marwick and Main (hereinafter referred to as "Peat") prepared financial statements and Medicare reports for the Petitioner. Peat also performed audits of the Petitioner during 1984, 1985 and 1986. During all times relevant to this proceeding, the Petitioner's comptroller, Hilda Smith, prepared reports filed with the Respondent on behalf of the Petitioner. For the fiscal year 1987, the Respondent had approved the Petitioner's budgeted gross revenue per adjusted admission (hereinafter referred to as "GRAA") of $7,536.00 and net revenue per adjusted admission (hereinafter referred to as "NRAA") of $4,913.00. Based upon the Petitioner's audited actual experience for fiscal year 1987, the Petitioner's actual NRAA exceeded its budgeted NRAA. Therefore, the Respondent proposed to impose a penalty (hereinafter referred to as the "Main Penalty") on the Petitioner pursuant to Section 395.5094, Florida Statutes (1987), and Rule 10N-1.062, Florida Administrative Code. By letter dated May 12, 1988, the Respondent notified the Petitioner that it was imposing a Main Penalty on the Petitioner for 1987. A second letter dated August 15, 1988, was sent by the Respondent to the Petitioner revising the amount of the penalty. In calculating the revised penalty the Respondent took into account the Petitioner's case-mix and outlier activity. The total recommended penalty was $609,218.00. The penalty consists of a budget reduction to net revenue of $566,938.00 with a corresponding reduction to gross revenue of $854,425.00, and a cash fine of $42,280.00. The reason for imposing the Main Penalty was explained in the Respondent's letter of August 15, 1988, as follows: Preliminary findings indicated that an excess of net revenue per adjusted admission in the amount of $381.00 had occurred. These findings are based upon a comparison [sic] of the previous year's audited actual experience inflated by the MARI, and the Board approved budget for the fiscal year ended December 31, 1987. The total excess has been adjusted by case-mix and outlier activity and results in a total recommended penalty of $609,218. . . . The proposed penalty could have been avoided if the Petitioner had sought a budget amendment for 1987 or if the Petitioner had modified its operations during 1987 when it learned that its actual experience would exceed its approved budget. The Petitioner believes that the difference in the Petitioner's actual experience for 1987 and its approved budget for 1987 was caused primarily by an adjustment to Medicare contractual allowances. When a hospital treats a patient eligible for Medicare payment for the patient's services, the hospital records the gross amount of the hospital's charges for the patient's services. Medicare, however, only pays a portion of the total charges. The difference between the hospital's charges and the amount actually paid by Medicare is referred to as "Medicare contractuals." For example, if a patient is charged $1,000.00 by a hospital for services but Medicare will only pay $800.00 for those services, the $200.00 difference is referred to as a Medicare contractual. If the $200.00 is not paid from some other source it must be deducted from gross revenue to arrive at net revenue on the books of the hospital. The Petitioner receives a substantial portion of its revenue for Medicare reimbursed services. Therefore, Medicare contractuals constitute a significant item in the Petitioner's budget. An adjustment to the Petitioner's Medicare contractuals could have a significant impact on the Petitioner's budget. During April, 1987, Peat notified the Petitioner's comptroller, Ms. Smith, that the Petitioner's Medicare contractuals needed to be adjusted by $488,000.00. This adjustment was the result of Peat's audit of Petitioner's 1986 financial records and was related to Medicare cost reports for 1983, 1984 and 1985. Peat also determined that an additional $200,000.00 adjustment was required. The Petitioner knew that the adjustments were material. The net effect of Peat's 1986 audit was that the Petitioner was required in 1987 to reduce 1986 Medicare and other contractual deductions from gross revenue by $688,000.00. This amount was a significant amount. The $688,000.00 adjustment was reported by Peat to the Board of Directors of the Petitioner and accepted by the Board in April, 1987. Between June, 1987, and July, 1987, Ms. Smith, the Petitioner's comptroller, prepared a Current Year Actual and Estimated Interim Report (hereinafter referred to as the "1987 Interim Report"). In the 1987 Interim Report the Petitioner compared actual GRAA for the first 6 months of 1987 and projected GRAA for the last 6 months of 1987 with 1987 budgeted GRAA. Based upon this computation it was apparent that the Petitioner was operating in excess of the Petitioner's budget for 1987 as approved by the Respondent. The Petitioner, therefore, could have sought a budget amendment or modified its operations. Ms. Smith testified that she believed that the excess of actual GRAA and NRAA over budgeted GRAA and NRAA had been caused by the Medicare contractual adjustment recommended by Peat for 1986. The Petitioner failed to prove what the cause of the excess actually was. Ms. Smith testified that the Petitioner did not realize what the affect of the contractual adjustment was until the 1987 Interim Report was prepared. The Petitioner, however, could have determined in April of 1987 what affect the Medicare contractual adjustment would have on its 1987 budget. Therefore, if the Medicare contractual adjustment was the cause of the excess of its actual experience over its budget, the Petitioner could have taken steps as early as April, 1987, to seek a budget amendment for its 1987 fiscal year or to modify its operations. In July, 1987, Ms. Smith contacted staff of the Respondent. She spoke with Pete Pearcy and Bill Summers. She also spoke to these staff members in September, 1987. Ms. Smith contacted the Respondent because of her concern about the excess of the Petitioner's actual 1987 experience over its 1987 approved budget. She contacted the Respondent seeking assistance in determining what steps the Petitioner should take to resolve the potential problem the excess in the Petitioner's actual experience over its approved budget could cause. The Petitioner failed to prove that Ms. Smith's explanation of the problem adequately informed the Respondent what the Petitioner's problem was. Generally, the Respondent's staff will consult and/or counsel hospitals concerning matters within the Respondent's responsibilities. The Respondent's policy prohibits staff from advising hospitals, however, as to whether a budget amendment should be filed; that decision is left up to each individual hospital. Consistent with the Respondent's policy, staff of the Respondent attempted to assist Ms. Smith. During September, 1987, Ms. Smith asked Mr. Summer of the Respondent's staff whether the Petitioner should file a budget amendment. Mr. Summer responded "amend what?" This response was based upon the inability of Ms. Smith to explain to Mr. Summer what exactly the Petitioner believed it needed to amend or exactly how the Medicare contractual adjustments affected the Petitioner's 1987 budget. Mr. Summer did not specifically recommend to Ms. Smith that the Petitioner file or not file a budget amendment. Nor did anyone else on the Respondent's staff advise the Petitioner that a budget amendment should or should not be filed. Mr. Summer asked Ms. Smith to send him information concerning the problem. Mr. Summer told Ms. Smith that he would review the material before discussing the problem further. Mr. Summer did not, however, contact Ms. Smith. Nor did Ms. Smith attempt to contact Ms. Summer before the end of the Petitioner's 1987 fiscal year. The Petitioner was aware of the fact that any budget amendment for its 1987 fiscal year had to be filed before the end of the 1987 fiscal year. The Petitioner was also familiar with the manner in which a budget amendment was to be filed since the Petitioner had obtained approval of a budget amendment for its 1986 fiscal year. The Petitioner did not file a budget amendment for its 1987 fiscal year. The Petitioner was aware that it was required to operate within its 1987 approved budget. Ms. Smith indicated that she believed that the Respondent's staff would have warned her if the Petitioner had been in danger of having a penalty imposed. The Petitioner, however, was not informed by the Respondent that the Main Penalty would not be imposed upon it for its 1987 fiscal year. The Petitioner's actual GRAA for 1987 was $8,096.00 and its approved GRAA was $7,536. Therefore, the Petitioner's actual GRAA for 1987 exceeded its approved GRAA by 7.4%. The Petitioner's actual NRAA for 1987 was $5,294.00 and its approved NRAA was $4,913.00. The excess of actual NRAA over approved NRAA was 7.7%. The percentage of excess of actual GRAA and NRAA over budget is almost the same. Therefore, it is possible that whatever caused the Petitioner's excessive GRAA also caused its excessive NRAA. GRAA is not affected by Medicare contractual adjustments. NRAA is affected by Medicare contractual adjustments. Therefore, since the Petitioner's percentage excess in GRAA (7.4%) and NRAA (7/7%) for 1987 was almost the same, it is questionable whether the Petitioner's Medicare contractual adjustments were the sole cause for the excess of the Petitioner's actual experience over its budget for 1987. It is more likely that the excessive GRAA and NRAA were caused by the same problem. The Petitioner, therefore, failed to prove that its discussions with the Respondent about the Medicare contractual adjustment would have helped the Petitioner avoid the penalty proposed in this proceeding. The Petitioner filed its 1988 budget and the 1987 Interim Report with the Respondent on or about September 29, 1987. The 1987 Interim Report includes information concerning the Petitioner's actual experience for the first 7 months of 1987 and projections for the remaining 5 months of 1987. The 1987 Interim Report was submitted for informational purposes. For the first 7 months of 1987 the Petitioner's actual gross revenue was $10,171,658.00. Gross revenue for the last 5 months of 1987 was projected at $7,265,470.00. The Petitioner's estimated adjusted admissions for 1987 were 1,221 for the first 7 months and 873 for the last 5 months. Gross revenue divided by adjusted admissions for 1987 yields GRAA of $8,337.00 for the first 7 months and projected GRAA of $8,322.00 for last 5 months. Based upon the information contained in the 1987 Interim Report, the Petitioner's GRAA for the entire 1987 fiscal year was projected to be $8,331.00. The Petitioner's approved GRAA, which was included in the 1987 Interim Report, was only $7,536.00. Therefore, the Petitioner should have been aware that it would very likely exceed its approved 1987 budgeted GRAA by approximately $795.00 (approximately 10.5%) in June of 1987. Accordingly, the Petitioner should have taken steps in September of 1987 to amend its budget or to modify its operations. The Petitioner had sufficient information during 1987 (April, June and September, 1987) to warn it that its actual experience would exceed its approved budget. Although the Petitioner's comptroller did discuss what she believed to be the cause of the Petitioner's problem (the Medicare contractual adjustment) with the Respondent, the evidence failed to prove that it was reasonable for the Petitioner to wait for the Respondent to take some action while the Petitioner took no action on its own behalf to rectify the problem.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Respondent issue a final order dismissing the Petitioner's petition. DONE and ENTERED this 23rd day of July, 1990, in Tallahassee, Florida. LARRY J. SARTIN 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 23rd day of July, 1990. APPENDIX TO RECOMMENDED ORDER The parties have submitted proposed findings of fact. It has been noted below which proposed findings of fact have been generally accepted and the paragraph number(s) in the Recommended Order where they have been accepted, if any. Those proposed findings of fact which have been rejected and the reason for their rejection have also been noted. The Petitioner's Proposed Findings of Fact Proposed Finding Paragraph Number in Recommended Order of Fact Number of Acceptance or Reason for Rejection 1 3. 1 and hereby accepted. hereby accepted. 2 and hereby accepted. 5 4. 6 15. 7-8 16. 9 17. 10-11 Hereby accepted. 12-13 Not supported by the weight of the evidence. 14 7. NRAA was $4,913.00 and not $4,938.00. 15 19. 16 33. 31 and hereby accepted. Not supported by the weight of the evidence. 19 22. 20 24. Hereby accepted. The last sentence is not supported by the weight of the evidence. Not supported by the weight of the evidence. Not relevant. Not supported by the weight of the evidence. See 22 and 25. Several of the contacts with the Respondent took place after 1987 and are not relevant to this proceeding. The second sentence is hereby accepted. The last sentence is not supported by the weight of the evidence. Not supported by the weight of the evidence. The Respondent's Proposed Findings of Fact Proposed Finding Paragraph Number in Recommended Order of Fact Number of Acceptance or Reason for Rejection 1 3. 2 4. 3 5-6. 4 8-9. 10 and hereby accepted. Hereby accepted. 7 11. 8 8 and 11. 9 13 and 20. 10 16. See 21. 18 and hereby accepted. See 22. See 25. 15 27. 16 Hereby accepted. 17-18 Although true, not relevant to this proceeding. 19-21 Hereby accepted. 22 21. 23 See 21. 24 19 and 33-36. 25 11. Not relevant. See 21. Incorrect conclusion of law. Ms. Smith testified what she was told. Her testimony about what she heard is not hearsay. 29 14. 30-32 Hereby accepted. 33 33-34. 34 35 and hereby accepted. 35 36. 36 32 37 Cumulative. 38 12. 39 31-32. The Intervenor's Proposed Findings of Fact Proposed Finding Paragraph Number in Recommended Order of Fact Number of Acceptance or Reason for Rejection 1 3. 2 4. 3 6. 4 5 and hereby accepted. 5 5-6. 6 hereby accepted. 7 7. 8 14. 9-10 15. 11 16. 12-13 17. 14 16. 15 18. 16 16. Hereby accepted. See 21. Hereby accepted. See 16. 21-22 Hereby accepted. 23-24 Not relevant. 25 Hereby accepted. 26 27. 27 21. First contact with the Respondent was in July, and not August. 28 19. 29 19-20. 30 Cumulative. 31 22. 32-33 24. 34-35 Hereby accepted. 36-37 25. 38 30. 39 Hereby accepted. 40 29. Not relevant. Hereby accepted. 43-44 Not relevant. 45 31-32. 46 33. 47-51 36. 52-54 19. 55-57 31. 58-59 32. 60 Not supported by the weight of the evidence. 61-62 Hereby accepted. 63 31-32. 64 Hereby accepted. 65 9. 66 10-11. COPIES FURNISHED: Julia P. Forrester Senior Attorney Health Care Cost Containment Board Building L, Suite 101 325 John Knox Road Tallahassee, Florida 32303 David D. Eastman, Esquire Patrick J. Phelan, Jr., Esquire Post Office Box 669 Tallahassee, Florida 32302 Jack Shreve, Public Counsel David R. Terry, Associate Public Counsel Peter Schwarz, Associate Public Counsel c/o The Florida Legislature 111 West Madison Street, Room 801 Tallahassee, Florida 32399-1400 Stephen Presnell, General Counsel Health Care Cost Containment Board Woodcrest Office Park 325 John Knox Road Building L, Suite 101 Tallahassee, Florida 32303
The Issue The issue for determination is whether Petitioner should be assessed sales and use tax for the audit period May 1, 1997 through April 30, 2002, per the Notice of Proposed Assessment dated July 3, 2003.
Findings Of Fact Wales is a Florida S corporation. Its principal place of business is located at 2916 Southeast 6th Avenue, Fort Lauderdale, Florida. Wales' federal employee identification number is 59- 1703273. Wales' Florida sales and tax number is 16-03-095273- 26/1. By letter dated June 6, 2002, the Department issued to Wales a Notice of Intent to Audit Books and Records (Notice of Intent). The Notice of Intent identified the audit number as A0205310975. On July 10, 2002, the Department's auditor assigned to perform the audit conducted an initial interview with Wales. The auditor discussed, among other things, the audit and sample methods that would be employed during the audit. On August 13, 2002, the auditor began examining Wales' books and records at Wales' business location. Wales was cooperative during the audit. Wales provided all available books and records for the audit. The sole shareholders of Wales are Stewart Levy and Diane Levy. Wales leased its business location from Element Two Enterprises, Inc., ( Element Two) a related entity. Stewart Levy and Diane Levy are also the sole officers of Element Two, president and secretary, respectively. Element Two is the record owner of the improved real property located at 2916 Southeast 6th Avenue, Fort Lauderdale, Florida, (realty). The address for the realty is also the address for Wales' place of business. Element Two mortgaged the realty leased by Wales. Wales paid monthly monetary consideration to Element Two in lease payments, which directly correlated to the amount of the monthly mortgage payments. Ad valorem taxes and property insurance were included in the monthly mortgage payments. Wales paid the ad valorem taxes and property insurance on the leased property. The lease payments to Element Two by Wales included the amount of the ad valorem taxes, property insurance, and common areas of maintenance. Wales did not pay sales tax on any of the lease payments to Element Two. Element Two did not charge or remit sales tax to the Department on the lease payments by Wales. Element Two was not registered with the Department as a dealer. Only dealers that are registered can remit sales tax on lease payments. Consequently, Element Two could not remit sales tax on the lease payments by Wales. Wales did not utilize all of the property it leased. Wales sub-leased a portion of the leased property to an unrelated entity. A prior sales and use tax audit was conducted of the sub-lessee, which included the period May 1997 through December 1998. The Department examined the sublease audit to determine whether Wales owed additional sales tax. The Department's examination of that audit revealed that the sales and use tax on the rent paid by the sub-lessee for the period May 1997 through September 1998 was assessed and paid by the sub-lessee. For the period May 1997 through December 1998, Wales had neither charged or collected sales tax nor remitted sales tax to the Department on the sub-lessee's payments. No sales tax was charged or paid on the sublease payments for the period October 1998 through December 1998. From January 1999 through April 2002, Wales charged, collected, and remitted sales tax on the sublease payments. The Department credited Wales for sales tax already paid on the subleased portion for the period May 1997 through September 1998 and January 1999 through April 2002. On its general ledger, Wales posted the lease payments to Element Two as rent payments. Element Two posted the lease payments to its general ledger as rent income. On its federal income tax returns, Wales reported the lease payments to Element Two as rent expense. Element Two reported the lease payments on its federal income tax returns as rent income. On November 29, 2002, the Department issued to Wales a Notice of Intent to Make Audit Changes for audit number A0205310975. Wales requested and the Department agreed to hold an audit conference to discuss the audit findings. Wales claimed that rent payments made were not subject to sales tax because both Wales and Element Two signed the mortgage and promissory note on the realty leased by Wales. However, only Element Two was reflected as the borrower on the loan and only Element Two was the signatory on the mortgage even though both Wales and Element Two signed the promissory note. On January 10, 2003, Wales executed a Consent to Extend the Time to Issue an Assessment or to File a Claim for Refund (Consent). The Consent extended the statute of limitations for the period of time in which an assessment may be issued or a claim for refund may be filed to December 31, 2003. On July 3, 2003, the Department issued, by certified mail, the Notice and an Addendum to Proposed Assessment for audit number A0205310975. The Notice provided, among other things, for the assessment of sales and use tax in the amount of $17,481.73; penalty in the amount of $8,741.10; interest in the amount of $5,756.03, with additional daily interest being computed at the rate of $3.54 per day from July 3, 2003; and a total assessment in the amount $31,978.86. On September 1, 2003, the Notice became a Final Assessment for audit number A0205310975. Wales contested the Final Assessment and requested a hearing. Wales is not contesting that part of the audit which found that Wales failed to pay sales tax on certain fixed assets purchased for use in its business. At hearing, Wales contended that its federal income tax returns could be amended to reflect the payments to Element Two as mortgage payments instead of rent payments, which would, in turn, change the Department's audit to reflect the payments as mortgage not rent. To address this contention, the Department presented the testimony of an expert witness in the area of rental consideration and sales tax audits. The Department's expert testified that the consideration for rental or use of property is the payment between/to one who owns the real property and/from one who uses the property; and concluded that consideration, as rental, was provided to Wales by Element Two based on the Department's taxing statute, Section 212.031, Florida Statutes, and its rules and regulation, Florida Administrative Code Rule 12A-1.070. The expert opined that the mortgage payments were consideration for a lease or license to use the real property and that, therefore, the monthly lease payment, which equaled the monthly mortgage payment, paid by Wales to Element Two was consideration for the lease or license to use the realty. The expert's testimony is found to be credible. The evidence presented shows that the mathematical computations performed by the Department in its audit are correct. Further, the evidence shows that the mathematical computations as to tax, penalty, and interest assessed are correct.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Revenue's assessment of sales tax, interest, and penalty against Wales Garage Corporation be sustained and that the Department of Revenue enter a final order assessing sales tax, interest, and penalty against Wales Garage Corporation for the period May 1, 1997 through April 30, 2002, consistent herewith. DONE AND ENTERED this 27th day of May, 2004, in Tallahassee, Leon County, Florida. S ERROL H. POWELL 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 27th day of May, 2004. COPIES FURNISHED: Gerald S. Schnitzer GSS Advisory Services, Inc. 2455 East Sunrise Boulevard, Suite 502 Fort Lauderdale, Florida 33304 Carrol Y. Cherry, Esquire Office of the Attorney General The Capitol, Plaza Level 01 Tallahassee, Florida 32399-1050 Bruce Hoffmann, General Counsel Department of Revenue 204 Carlton Building Tallahassee, Florida 32399-0100 James Zingale, Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100
