The Issue The issues in this case are whether Respondents violated various provisions in Sections 626.611, 626.621, and 626.9541, Florida Statutes (2006),1 as charged in the Administrative Complaints, and, if so, what discipline should be imposed.
Findings Of Fact At all times relevant to this proceeding, Respondents have been licensed in Florida as annuity and insurance agents in the following categories: life and variable annuity agent; life and variable annuity and health agent; life and health insurance agent; health insurance agent; and life insurance agent. Ms. Cleary has been licensed since 2000, and Mr. Houck has been licensed since 1999. According to Petitioner's certified licensure records, Respondents' licensure histories are clear of any prior discipline and clear of any active or inactive investigations or administrative complaints, with the exception of those pending here. Petitioner is the state agency with the responsibility for licensing and regulating agents, such as Respondents, and for taking disciplinary action for violations of the laws in its charge. Sometime before January 2007, Phyllis Nagle completed and mailed in a card to request information on investments for seniors. The card included the home address for Mrs. Nagle and her husband, Joseph Leo Nagle, and their ages, then 82 and 87, respectively. Respondents worked together as a team in the Nagles' area of Ellenton, Florida. Respondents' practice, upon receiving a card requesting information, was to go to the person's address identified on the card, show the card they received, and ask to set up an appointment at a later time, unless the person wanted to meet with them then and there. In early January 2007, in accordance with their practice, Respondents went to the Nagles' home to follow up on the card Mrs. Nagle had submitted to ask if they could set up an appointment. When Respondents showed Mrs. Nagle the card that she had filled out, she recognized it and invited Respondents into the Nagles' home. For the first 20 minutes, Mrs. Nagle took Respondents on a tour through the home to show off the Nagles' many collections, including figurines, clocks, brass items that Mr. Nagle made in his workshop and music that Mrs. Nagle collected to use when teaching line dancing in the clubhouse of the mobile home park where they lived. After the tour, Mrs. Nagle introduced Respondents to Mr. Nagle, explaining to him that Respondents were there because of a card she sent to request information. They all sat down at a round table in the Nagles' Florida room. For more than an hour, Respondents and the Nagles discussed the Nagles' financial situation, their age, their investment objectives, and their concerns. The Nagles told Respondents that they were concerned about the yield they were making on their money in different accounts at the bank. One of these "bank" accounts was a fixed-rate annuity issued by an insurance company, and the Nagles were not happy with its yield. Respondents talked about the annuity investment product they were selling, but only in general terms at that meeting because the Nagles said that they did not make their financial decisions; instead, they allowed their son to make their financial decisions. The Nagles asked Respondents to call their son, Robert Nagle, and gave his phone number to Respondents.2 Another issue the Nagles talked about at that first meeting was their concern about qualifying for Medicaid. Having observed other seniors who had gone through a spend-down of their assets to qualify for Medicaid, the Nagles learned that while they would be allowed to keep one vehicle, there was an issue regarding whether their mobile home would be considered a vehicle. The Nagles had been told there was a document they could use to designate their mobile home as their domicile and not a vehicle, so they could keep both the home and a vehicle during Medicaid spend-down. Ms. Cleary had heard of the same document, and in the days following the meeting, Ms. Cleary took it upon herself to research and find the appropriate document for the Nagles called a Declaration of Domicile. Meanwhile, on the day after meeting the Nagles, Respondents called Robert Nagle, who knew that Respondents had met with his parents and was expecting their call. Respondents made an appointment to meet Robert Nagle at his residence in Indian Rocks Beach. That meeting took place a few days later. At their first meeting with Robert Nagle, Respondents introduced themselves and discussed Robert's parents' financial status and investment objectives. They discussed Robert's parents' investments held in IRAs, CDs, and annuities and the Nagles' investment concern of making a better yield. Robert added his concern that he thought it was time for all of his parents' investments to be changed over to just his mother's name because of his father's age. They also talked about Robert's investments in CDs and an IRA, for which he had the statement out to review with Respondents. Respondents told Robert about the company, Allianz, whose products they were offering, and Respondents went through an Allianz product brochure with Robert, which they left with him for his further review. Respondents also gave Robert Nagle a financial disclosure from Allianz for the previous year. In addition, since Robert was very computer-savvy, Respondents gave him Allianz' website address so he could check out the company for himself. Respondents reviewed with Robert Nagle the features of the MasterDex 5 annuity product, which was the product they suggested. This product allowed the purchaser to allocate their investment among three different choices: a Standard & Poor's (S&P) 500 index, a Nasdaq-100 index, and/or a fixed interest investment. The two stock market-based components had a greater potential upside return, but, also, a greater risk if the stock market did not perform well. One benefit of this annuity product, as Respondents explained, was that if the stock market went down, the initial investment would not lose value (as it would for direct stock purchases). Robert Nagle had invested in stocks and mutual funds, and so he understood the concept of greater-risk, greater-reward potential inherent in stock investments, versus fixed interest investments. To show the actual recent performance of MasterDex 5 annuity investments, Respondents showed Robert Nagle actual annual statements recently received by clients whose names were blacked out. The actual yields shown on these statements ranged from a low of around five percent to a high of around 14 percent. Respondents also reviewed the terms of the annuity, which was considered a long-term investment of over ten years. Respondents reviewed the various options for withdrawals before the end of the annuity's term. Up to ten percent of the initial investment could be withdrawn annually without penalty or surrender charge. Alternatively, after the first year, a five-year payout option could be invoked, allowing withdrawal of the entire initial investment, with interest, payable in six installments (one immediately, and then one each year for five years). Respondents also reviewed the surrender charges that would apply for early withdrawal of the whole investment, set forth in a schedule of decreasing surrender charges shown in the product brochure. Respondents' first meeting with Robert Nagle lasted approximately 90 minutes. At the end of the meeting, they agreed that since Robert Nagle was looking for a job and was about to leave town for an interview, Respondents would initiate the next contact by calling Robert in a few days to see if he had any questions about the Allianz material. Respondents' next encounter with any of the Nagles was a few days later, after Ms. Cleary had found the Declaration of Domicile form that had been of such concern to the senior Nagles. Respondents had another appointment in the area, and so they volunteered to drop off the form at the Nagles' home. Respondents did not discuss annuities with the Nagles that day; they simply dropped off the form. A few days after they dropped off the form, Respondents called Robert Nagle back, as agreed. Robert said that he had gone over the Allianz product brochure and had also reviewed the company's website. Robert added that he had contacted his parents to give them his recommendation that they should fill out paperwork to purchase an annuity contract. Robert then said he was leaving town again, and when he got back, he wanted to set up another meeting with Respondents because he was probably going to purchase a contract of his own. Respondents then called the Nagles to schedule the next appointment. The Nagles had spoken with their son and knew his recommendation, so they set up the appointment for January 11, 2007. Respondents received a warm reception when they returned to the home of the Nagles for their appointment. Mrs. Nagle expressed excitement that Robert Nagle had given the go-ahead, and they were ready to go through the paperwork. Respondents went over, in detail, all of the paperwork to be filled out, going through each question and answer on each form and filling them out side-by-side with the Nagles. The paperwork included a five-page application, a statement of understanding, and a suitability form. Respondents also showed the Nagles the same actual recent annual statements showing yields earned in MasterDex 5 annuity investments, with client names blacked out, that they had shown the Nagles' son, Robert. The application was completed for the MasterDex 5 annuity in the name of Phyllis Nagle alone, based on Robert's recommendation that his parents should transition all of their accounts to Phyllis Nagle's name alone. The application also included the beneficiary designation, and Joseph Nagle was named the sole primary beneficiary. Even though the Nagles have three children, with Robert being the youngest, for some reason that was not explained, their son Robert Nagle was named the sole contingent beneficiary. Finally, the application included the Nagles' investment allocation among the three options, and they chose 50 percent in the S&P 500 index, 25 percent in the Nasdaq 100 index, and 25 percent in the lower-risk fixed- interest category. The completed application form was signed by Phyllis Nagle on January 11, 2007, immediately below a statement of agreement that included the following: It is agreed that (1) All statements and answers given above are true and complete to the best of my knowledge, . . . (5) I understand that I may return my policy within the free look period (shown on the first page of my policy) if I am dissatisfied for any reason, and (6) I believe this annuity is suitable for my financial goals. Although the policy was not introduced in evidence, the undisputed testimony was that the "free look period" referred to in Mrs. Nagle's acknowledgement was 30 days. The second document that was completed to submit with the annuity application was the statement of understanding. This document, reviewed with the Nagles, is a five-page detailed summary of the terms of the MasterDex 5 annuity contract. The summary sets forth the investment allocation options, guarantees, withdrawals, contract cancellation, and surrender charges. The last page included a chart illustrating how the terms would work for a hypothetical investment, with a column showing the decreasing surrender charges over the years from issuance of the annuity through the tenth contract anniversary. This chart is on the same page as, and immediately above, Mrs. Nagle's signature as the annuity owner, who acknowledged the following by signing the document: I have received a copy of this Statement of Understanding. The agent has answered my questions. I have also received the MasterDex 5 Annuity consumer brochure. I understand that any values shown, other than Guaranteed Minimum Values, are not guarantees, promises, or warranties. I understand that I may return my policy within the free-look period (shown on the first page of the contract) if I am dissatisfied for any reason. The third document that was completed for submission with the annuity application was the product suitability form. This document calls for information about the financial status of the annuity purchaser, including annual income and net worth (defined on the form as total assets, not including home and automobile, minus total debts). In addition, the form asks the purchaser to identify the financial objectives in purchasing the annuity. Finally, in a section called "Accessing your money," the form asks the purchasers how and when they expect to take money out of the annuity. The product suitability form was reviewed by reading the questions and answer options aloud, with Ms. Cleary and Mrs. Nagle reading the form together sitting side-by-side. Mrs. Nagle would discuss the answer with Mr. Nagle, and they agreed on the correct response for Ms. Cleary to check on the form. For annual income, the Nagles agreed that the correct response was $25,000 to $49,999. For net worth excluding home and automobile, the Nagles discussed the answer option categories and agreed that the category $150,000 to $199,999 was the correct response. Respondents did not ask for back-up documentation to prove that the Nagles' income and net worth answers were accurate, as neither Allianz, nor Petitioner requires proof of the purchasers' answers. The Nagles identified the following as their financial objectives in purchasing the annuity: first, to pass on to beneficiaries; and second, for the guarantees provided. With respect to the guarantees, the Nagles considered that for the stock-market-indexed portion of their investment (75 percent of the total investment), the product guaranteed that they would not lose any of their principal, even if the stock market dropped. That was important to the Nagles, who liked the prospect for a higher return than fixed-interest investments allow, but without risking losing their principal if the stock market dropped (as it did in the year following their investment). The product suitability form represented that the Nagles currently, or previously owned, financial products that included certificates of deposit and fixed annuities, but that the source of the premium for this annuity purchase would not be an annuity, certificate of deposit, or other investment; instead, it would be "other." That category was selected, because the premium was going to be paid by check from funds on deposit in a regular bank account.3 The product suitability form also represented that the Nagles had sufficient available cash, liquid assets, or other sources of income for monthly living expenses and emergencies other than the money they planned to use to purchase the annuity contract. Both Phyllis and Joseph Nagle were in agreement that they considered this to be a long-term investment, meaning ten years or more. That is because their goal was not to use the funds, but, rather, to have the investment to pass on to their beneficiaries. Therefore, the Nagles answered the questions about accessing their money by stating that they intended the money to be taken out of the annuity in a lump sum, in ten or more years. After the form was filled out, Ms. Cleary read aloud the questions and the answers she marked down to confirm that she had marked the correct responses. The Nagles confirmed that the answers were completed correctly. Phyllis Nagle signed the completed product suitability form, acknowledging as follows by her signature: I acknowledge that I have read the Statement of Understanding for the product listed and believe it meets my needs at this time. To the best of my knowledge and belief, the information above is true and complete. When Robert Nagle returned to town, he met with Respondents and completed the same set of paperwork to apply for his own MasterDex 5 annuity contract. On his application, he designated his two sisters as primary beneficiaries (33 percent each), and a friend, Cheri Davis, as the third primary beneficiary (34 percent). He allocated 75 percent of his annuity investment to the S&P 500 index choice and the remaining 25 percent to the Nasdaq-100 index choice, thus, taking the higher-risk, higher-potential reward avenue. Robert Nagle signed his application on January 22, 2007, agreeing to the same statements that his mother agreed to by signing her application. Robert Nagle did not complete all the paperwork or fund his annuity that day. Instead, he wanted to read through the statement of understanding again before signing it, while deciding what source he was going to use to fund the annuity. He ultimately decided to cash in a certificate of deposit earning 1.5 percent interest. He met again with Respondents one week later, when he signed the same five-page statement of understanding that Phyllis Nagle had signed, summarizing the terms of the MasterDex 5 annuity. Just as on the form signed by Mrs. Nagle, Robert Nagle's signature appears immediately below a chart that illustrates how the terms would apply to a hypothetical investment over the years, with a column showing the decreasing surrender charges that would apply if the entire initial investment were withdrawn before the tenth anniversary. By his signature on January 29, 2007, Robert Nagle acknowledged: I have received a copy of this Statement of Understanding. The agent has answered my questions. I have also received the MasterDex 5 Annuity consumer brochure. I understand that any values shown, other than the Guaranteed Minimum Values, are not guarantees, promises, or warranties. I understand that I may return my policy within the free-look period (shown on the first page of the contract) if I am dissatisfied for any reason. Robert Nagle wrote a check to Allianz for $30,000 for his MasterDex 5 annuity contract on January 29, 2007. Respondents delivered Robert Nagle's policy to him on February 15, 2007, and he signed a receipt acknowledging its delivery. After a delay, because of some minor surgery Mrs. Nagle had on March 6, 2007, Mrs. Nagle wrote a check to Allianz for $35,000 for her MasterDex 5 annuity contract. As they had done for Robert Nagle, Respondents personally delivered Phyllis Nagle's policy to her shortly thereafter in March 2007, as the Nagles acknowledged. On April 7, 2007, Phyllis Nagle responded to an Allianz request that she complete a questionnaire about her recent annuity purchase. Mrs. Nagle's responses indicated that she found the service provided by Respondents to be "extremely" helpful and that she found the Allianz product descriptions and sales material to be "extremely" helpful. The questionnaire also sought to establish Mrs. Nagle's understanding of the terms of the product she purchased. In this regard, Mrs. Nagle's responses showed that she knew the annuity would provide tax-deferred savings, that surrender charges are imposed on premature full withdrawal, that the investment options she chose include a guaranteed minimum interest rate, and that she "consider[s] this annuity to be a long-term investment and do[es] not intend to use these funds to meet current expenses." Mrs. Nagle also responded that the source of funds used to purchase her annuity was savings, either savings account or certificates of deposit. Finally, Mrs. Nagle acknowledged that Respondents reviewed her financial status, tax status, investment objectives, and other pertinent information to determine whether the annuity purchase was suitable for her and that Respondents personally delivered her policy to her. Mrs. Nagle's only additional comment or suggestion was that she would like statements more than once a year. Neither Robert, nor Phyllis Nagle raised any questions or concerns or voiced dissatisfaction with their annuity contracts within the 30-day free look period during which they could have cancelled their contracts without penalty or surrender charges. Robert Nagle received his annual statement shortly after his one-year contract anniversary. The annual statement showed a yield of 5.00 percent for the policy year beginning January 28, 2007, and ending January 27, 2008. Mr. Nagle had no complaints and voiced no concerns about this annual statement in the month following his receipt of the statement. Phyllis Nagle received her annual statement shortly after her one-year contract anniversary. The annual statement shows a yield of 5.66 percent for the policy year beginning March 7, 2007, and ending March 6, 2008. Inexplicably, Phyllis Nagle believed that her statement showed a yield of only one percent or 1.5 percent. Joseph Nagle also was under the impression that they had received an annual statement that reflected a yield of only one percent or 1.5 percent. But the only annual statement for Phyllis Nagle offered in evidence--part of Petitioner's certified investigation file--plainly shows a yield of 5.66 percent, and nowhere shows a yield of one percent or 1.5 percent. The Nagles were shown the annual statement in evidence and agreed that it shows rather clearly a yield of 5.66 percent. They did not have any explanation for their misunderstanding of what the statement plainly showed. The Nagles seemed to think there was a different statement or some other paper out there that showed a different yield of one percent or 1.5 percent, but the Nagles acknowledged that they only received one annual statement, which they did not have because they said that they turned over all of their papers, presumably to Petitioner. The Nagles were very upset because of their misimpression that the Allianz annuity had only yielded one percent or 1.5 percent in its first year. Mr. Nagle testified that he did not expect the performance to be as high as what he had seen in 2007 on the other recent annual statements and that "I figured at worst it wouldn't be any more than four or five [percent]." Instead, "[i]t was either one or one-and-a-half percent, and I was shocked." Based on their misimpression, the Nagles took action to complain to the state, after talking to their son. But, Mr. Nagle made it clear that they would not have complained or taken any action if they had realized the annual statement showed a yield of 5.66 percent: "I would not have done anything if it was [five] point or whatever percent. . . I wouldn't have cancelled everything out. But when I saw the figures that they showed me, [the yield was] one to one-and-a-half." When asked who showed him those figures, he said he got the information in the mail, and it was not five percent. When asked if it was on another statement, Mr. Nagle said no, but then he said he was not sure where the information came from. As to the 5.66 percent yield he saw clearly on the annual statement in evidence, Mr. Nagle said, "that does not ring a bell at all. I don't understand it. Because that was average money at the time for investments." The Nagles immediately complained to Respondents. Ms. Cleary spoke with Mrs. Nagle, who was very irate about her misimpression of the yield shown on the annual statement and started demanding complete return of the entire investment. Ms. Cleary attempted to remind Mrs. Nagle of the annuity terms that allowed limited withdrawals without surrender charges, and Mrs. Nagle got angrier and ended the conversation. Apparently upon consultation with Robert Nagle's and, possibly, attorneys, the Nagles agreed to complain to Petitioner. The Nagles complained to Allianz and to Petitioner. Robert Nagle complained to Respondents' agency and to Petitioner. These complaints asserted that the Nagles were told by Respondents that their investments were entirely liquid after the first year and could be completely withdrawn without penalty or surrender charge. The statement of understanding that Phyllis Nagle and Robert Nagle each signed plainly says otherwise. When he was asked at the final hearing about the numerous references in the papers he signed and in the brochure he reviewed to surrender charges for premature full withdrawal, with limited options for penalty-free partial withdrawals, Robert Nagle had no response other than to suggest that he was assured by Respondents that the written terms in the documents he signed would not apply. Robert Nagle's testimony, in this regard, was not credible. Instead, he apparently had a change of heart about his intent to make a long-term investment.4 The Administrative Complaints charge that Respondents misrepresented the yields that the MasterDex 5 annuity would earn for the Nagles. The more credible testimony on this subject was that Respondents did not make any such misrepresentations. Instead, Respondents showed the Nagles' actual client annual statements for investments in the same MasterDex 5 annuity, with the client names blacked out, to demonstrate actual yields that others had obtained recently, and those yields ranged from approximately five percent to 14 percent.5 The Nagles testified that their review of these statements led them to expect they could make the same yields. But Respondents credibly testified that they never represented to any of the Nagles what their yields would be and never represented that their yields would be as high as the yields shown on any of the actual statements. Instead, Respondents represented the statements as what they were--actual statements showing yields recently earned by actual clients who purchased the same annuity product. The most credible evidence establishes only that the three Nagles optimistically inferred what they hoped would be true--that the recent past performance would repeat itself. Instead, they experienced the "higher- risk" part of the "higher-risk, higher reward potential" of investments tied to stock market performance. But as promised, they did not lose any part of their initial investment, unlike those who directly invested in a dropping stock market. The Administrative Complaints also charged Respondents with misrepresenting to the Nagles that they could withdraw their entire investment after one year with no penalty or surrender charges. But, Respondents credibly testified that they never made any such representation to any of the Nagles. Instead, Respondents reviewed the annuity's terms summarized in the consumer brochure and the statement of understanding multiple times with the Nagles, and with Robert Nagle. Indeed, the signature page of the statement of understanding shows, right above the signatures, a chart detailing the surrender charges by year, decreasing according to the schedule shown, for complete withdrawal before the end of the annuity's term. The Nagles' complaint of not being able to withdraw their entire investment after one year without penalty was not based on any misrepresentation by Respondents. Instead, the complaint appears contrived after-the-fact, after the Nagles apparently misread their first annual statement as reporting a one percent or 1.5 percent yield, when, in fact, the annual statement reports a 5.66 percent yield. Mr. Nagle testified unequivocally that if he understood the yield was really 5.66 percent and not 1.5 percent, they would not have complained and would have been satisfied to keep the annuity product (consistent with their original long-term intent). It was only when they attempted cancellation upon being dissatisfied with an imagined 1.5 percent yield that they first decided the goal of liquidity, with immediate access to their funds, was an objective that was important to them. That the senior Nagles' complaints are contrived and based solely on their misreading of their annual statement, is clear from the consumer survey completed by Mrs. Nagle on April 7, 2007, after the annuity purchase, but before the first anniversary. This completed survey, in evidence as part of Petitioner's certified investigation file for Respondents, was provided by Allianz upon Petitioner's request. Mrs. Nagle's survey responses show she knew that "Surrender charges are imposed on premature full withdrawal"; and "I consider this annuity to be a long-term investment and do not intend to use these funds to meet current expenses." Further, she confirmed that Respondents reviewed her "financial status, tax status, investment objectives, and other pertinent information to determine whether this annuity purchase" was suitable for the Nagles. Finally, the Administrative Complaints charge Respondents with misrepresenting the Nagles' net worth on the product suitability form. Petitioner presented absolutely no evidence to substantiate the charge that Respondents made any such misrepresentation. Petitioner elicited from Mrs. Nagle the testimony that the product suitability form falsely indicated the Nagles' net worth as in the range of $150,000 to $199,000; Mr. Nagle was more equivocal, saying only that the report range was "[u]ntrue, I think." However, the only evidence in the record as to the source of the net-worth information was Ms. Cleary's detailed description of how the forms were completed, when she clearly and credibly testified that the Nagles discussed and determined what the correct answer was to the net worth question. Moreover, Petitioner failed to establish that, in fact, the information on the product suitability form was a misrepresentation (by the Nagles) at the time it was made. Perhaps the net worth information was accurate in January 2007 when Mrs. Nagle signed the form and acknowledged that the information on it was accurate. Mr. Nagle testified that they probably had certificates of deposit at that time, and Mrs. Nagle could not remember. There was also testimony that the Nagles were working on a spend-down of assets for Medicaid qualification, so their net worth may well have been intentionally reduced after January 2007. In any event, if the net worth information on the form signed by Mrs. Nagle was inaccurate, that inaccuracy was the fault of the Nagles and was not, as charged, a misrepresentation made by Respondents.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is hereby: RECOMMENDED that a final order be entered by Petitioner, Department of Financial Services, dismissing all charges in the Administrative Complaints against Respondents, Judith C. Cleary and Charles B. Houck. DONE AND ENTERED this 22nd day of December, 2010, in Tallahassee, Leon County, Florida. S ELIZABETH W. MCARTHUR Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 22nd day of December, 2010.
The Issue Whether the Respondent, Holiday Inn Oceanside/Cleveland Caribbean, Inc., is liable for the payment of $10,176.18, together with a penalty of 5 percent and interest accruing daily as claimed in the audit by the Petitioner, State of Florida, Department of Revenue, for the period September 1, 1975, through August 31, 1970.
Findings Of Fact This cause comes on for consideration based upon the Respondent, Holiday Inn Oceanside/Cleveland Caribbean, Inc.`s challenge to the tax audit conducted by the Petitioner, State of Florida, Department of Revenue, covering the period September 1, 1975, through August 31, 1978. The claim of the audit is for sales tax due pursuant to Chapter 212, Florida Statutes, and its supporting rules found in the Florida Administrative Code. The audit document showing the Proposed Notice of Assessment of Tax, Penalties and Interest may be found as the Petitioner's Exhibit A admitted into evidence. Although the audit document originally claimed tax in the amount of $29,600.37, at the commencement of the hearing the amount remaining in dispute was $15,288.75, together with a penalty of 5 percent and interest accruing until date of payment. During the hearing, a stipulation was entered into between the parties to the effect that, of the remaining disputed tax, penalty and interest, $5,112.57, together with the applicable penalty and interest was acknowledged to be owed by the Respondent. Therefore, there remains in dispute the amount of $10,176.18, with a 5 percent penalty and interest accruing until date of payment. This amount of tax, penalty and interest claimed represents the difference between the tax rate which the Petitioner has applied in this assessment process and the tax rate that the Respondent claims to be applicable. The Petitioner claims that a tax rate of 4.5 percent against total receipts, in keeping with the authority of Rule 12A-1.57(3), Florida Administrative Code. The Respondent counters that position by offering its own formula arrived at in view of the nature of its prices charged its customers, and that tax rate is 4.1666667 percent. The sales in question during the audit period pertain to sales of alcoholic and malt beverage in the lounges of the Respondent's licensed premises located in Dade County, Florida. The facts reveal that the sale of all alcoholic beverages in the time period at issue were made in increments of a quarter dollar ($.25). These quarter-dollar increments included the imposition of sales tax. As example: SALES PRICE TAX TOTAL $ .48 $.02 $ .50 .72 .03 .75 .96 .04 1.00 1.20 .05 1.25 1.44 .06 1.50 1.68 .07 1.75 Although the tax was computed on the sales price and this system was made known to the public by prominently displaying the price list, which list indicated that the beverage prices included tax; the Respondent did not separate the increment of the total price into categories of sales price and tax at the time of each transaction. Consequently, the books audited in the process of making the claim for assessment only demonstrated the total sales price of a given day's alcoholic beverage sales as an aggregate and did not reflect the tax as a separate item from the sales price. To this aggregate amount the Respondent applied its tax rate formula of 4.166667 by taking the amount of total receipts for the day and dividing by 1.04666667 to get gross sales. The gross sales were then subtracted from the amount of total receipts to obtain the figure for tax collected. This method was rounded off to the nearest penny on each day of computation. The Petitioner, as stated before, relies on Rule 12A-1.57(3), Florida Administrative Code, as a basis for its claim that the rate of tax should be 4.5 percent. That provision states: (3) Dealers in alcoholic and malt beverages are required to remit the actual tax collected to the State. In some instances, however, it may be impractical for such dealers to separately record the sales price of the beverage and the tax collected thereon. In such cases, dealers may elect to report tax on the following basis. Package stores who sell no mixed drinks should remit the tax at 4.3 percent of total receipts and dealers who sell mixed drinks or a combination of mixed drinks and packaged goods should remit the tax at the rate of 4.5 percent of total receipts. In those instances where the sales price and the tax have not been separately recorded but where it can be demonstrated that the public has been put on notice by means of price lists posted prominently throughout the establishment that the total charge includes tax, the dealer may deduct the tax from the total receipts to arrive at the appropriate tax and gross sales figures using the method shown below: Total receipts divided by the tax rate = gross sales. For example, a package store which sells no mixed drinks and whose total receipts are $2,000 would compute sales as follows: $2,000 divided by 1.043 percent = gross sales $1,917.54 tax collected 82.46 A dealer who sells drinks or a combination of drinks and package goods and whose total receipts are $2,000 would compute sales as follows: $2,000 divided by 1.045 percent = gross sales $1,913.87 tax collected 86.12 When the public has hot been put on notice through the posting of price lists that tax is included in the total charge, tax shall be computed by multiplying total receipts by the applicable rates referred to in this rule. In the mind of the Petitioner, by failing to segregate the total amounts collected into the categories of sales price and tax and then to remit the tax collected as a separate item, the Respondent is relegated to the utilization of Rule 12A-1.57(3), Florida Administrative Code, in remitting its tax. Under its theory, the Petitioner has taken the total receipts recorded in the Respondent's work sheets and divided those total receipts by the formula 1.045 percent to get gross sales and then subtracted the gross sales from the amount of total receipts to get the amount of tax that should have been collected, and then made a further subtraction of the tax which the Respondent remitted, from the tax formula which the Petitioner claims to be due on the transactions to arrive at the tax presently outstanding. This amount being the figure referenced above. From that computation, the amount of penalty and interest has been claimed. (By its position the Petitioner does not seem to question the fact that the public has been put on notice by price lists posted throughout the establishment that the total charge reflected on the price lists includes tax, as referred to in the subject Rule 12A-1.57(3), Florida Administrative Code.) According to the Respondent, the reason for the utilization of the rate of 4.1666667 percent was the fact that all beverages having a break in price increments of a quarter-dollar ($.25), it is mathematically impossible for the proper effective rate being charged on all beverages sold in the lounges to vary from their tax rate of 4.1666667 percent because each increment of increase has the same ratio of sales price to tax. The Respondent argues that to claim a rate of 4.5 percent causes the collection in excess of the amount allowed by Chapter 212, Florida Statutes. After considering the position of the parties, the Respondent is found to be correct in its position. The overall scheme of Chapter 212, Florida Statutes, calls for the taxation of sales of tangible personal property at a rate of 4 percent, see Section 212.05, Florida Statutes. A further refinement of that theory is found in Subsection 212.12(10), Florida Statutes, which creates a bracketing system for sales representing the various fractions of a dollar in amount. This bracketing system thereby causes imposition of a sales tax greater than 4 percent in some transactions. The Petitioner is granted further authority to refine the system of taxation by those provisions of Subsections 212.17(6) and 212.18(2), Florida Statutes, which state in turn: 212.17(6) The department shall have the power to make, prescribe and publish reasonable rules and regulations not inconsistent with this chapter, or the other laws, or the constitution of this state, or the United States, for the enforcement of the provisions of this chapter and the collection of revenue hereunder, and such rules and regulations shall when enforced be deemed to be reasonable and just. 212.18(2) The department shall administer and enforce the assessment and collection of the taxes, interest, and penalties imposed by this chapter. It is authorized to make and publish such rules and regulations not inconsistent with this chapter, as it may deem necessary in enforcing its provisions in order that there shall not be collected on the average more than the rate levied herein. The department is authorized to and it shall provide by rule and regulation a method for accomplishing this end. It shall prepare instructions to all persons required by this chapter to collect and remit the tax to guide such persons in the proper collection and remission of such tax and to instruct such persons in the practices that may be necessary for the purpose of enforcement of this chapter and the collection of the tax imposed hereby. The use of tokens in the collection of this tax is hereby expressly forbidden and prohibited. It can be seen that the Petitioner has the authority to promulgate the necessary rules for the accomplishment of the purpose of Chapter 212, Florida Statutes, but is restricted in this task by being prohibited from making rules and regulations which are inconsistent with this chapter or other statutes within the laws of the State of Florida or the Constitution of the United States or the Constitution of the State of Florida and it is further restricted from imposing rules or regulations which cause the tax to be collected on the average more than the rate levied in Chapter 212, Florida Statutes. While it is clear that the legislature intended to keep the effective rate of tax as near the 4 percent level as possible, it is also evident that the system contemplated a segregation of the amount collected in a sale as sales price, and the amount of tax applied to the sale at the point of the transaction. This is a means of accountability that helps insure that the proper remittance of tax due on each and every retail sales occurs. However, the preeminent charge to the Petitioner is the duty to collect the tax at a rate which most closely approximates the 4 percent called for, without abandoning responsibility or the close monitoring of the records of a given taxpayer. When considered in the overall context of the purpose of Chapter 212, Florida Statutes, the method which the Respondent used to collect and remit tax, does not violate the conditions of Chapter 212, Florida Statutes, nor the rules designed to enforce that chapter. The tax rate of 4.1666667 percent has been proven to be correct, in the sense of more closely approximating the 4 percent tax rate called for than the application of a tax rate of 4.5 percent. The correctness is established because the increments charged for alcoholic beverages are always in the amount of a quarter-dollar ($.25) and each increment of increase carries the same tax rate. This fact, when considered with the additional fact that the break-out of the tax in the price structure as established by the Respondent, is in keeping with the tables of the bracket system found in Subsection 212.12(10), Florida Statutes, is sufficiently convincing to demonstrate the propriety of the Respondent's position. Nonetheless, a further examination of the Petitioner's argument is indicated. The focus of the Petitioner's position is Rule 12A-1.57(3), Florida Administrative Code, and a detailed reading of this rule reveals that dealers who have properly put the public on notice that their sales prices include tax, "may" elect to remit tax by using the formula of the rate of 4.5 percent of total receipts as the tax due. The use of the word "may" in this instance creates an option on the part of the Respondent, an option which it has elected not to proceed under and by the facts of this case, the alternate method which the Respondent used in computing this tax, i.e., the rate 4.1666667 percent is efficacious. Finally, the Petitioner has advanced the argument that the formula found in Rule 12A-1.57(3), Florida Administrative Code, is unique to that rule and may not be utilized unless the prerequisite factors are shown and unless the tax rate factor 4.5 percent is part of the formula. Even though the formula as expressed in Rule 12A-1.57(3), Florida Administrative Code, may have legitimate application to some cases, it is not preemptive in its scope and it would not prohibit the Respondent in this case from using the formula and substituting the rate of tax of 4.1666667 percent for the rate of 4.5 percent in that part of the formula. In summary, the Petitioner has failed to demonstrate its entitlement to the tax, penalty and interest under its claim founded on Rule 12A-1.57(3), Florida Administrative Code. (Petitioner in this cause had submitted Proposed Findings of Fact, Conclusions of Law and a Recommendation in the case styled, Holiday Inn Oceanside/Cleveland Caribbean, Inc., Petitioner, vs. State of Florida, Department of Revenue, Respondent, D.O.A.H. Case No. 70-1003R, and in doing so made reference to matters which have been considered in the present case. Therefore, to the extent that those matters are not inconsistent with this Recommended Order they have been utilized. To the extent that those proposals are inconsistent with this Recommended Order they are specifically rejected. The Respondent has also submitted Proposed Findings of Fact, Conclusions of Law and a Recommended Order and to the extent that those matters are not inconsistent with this Recommended Order they have been utilized. To the extent that those proposals are inconsistent with this Recommended Order they are specifically rejected.)
Recommendation It is recommended that the Respondent, Holiday Inn Oceanside/Cleveland Caribbean, Inc., be relieved from further responsibility to pay the amount of tax, $10,176.18 and the 5 percent penalty and interest accruing on that amount of tax. DONE AND ENTERED this 29th day of June, 1979, in Tallahassee, Florida. CHARLES C. ADAMS, Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301 (904) 488-9675 COPIES FURNISHED: Martha J. Cook, Esquire Department of Revenue Room 422, Fletcher Building Tallahassee, Florida 32301 Richard Watson, Esquire c/o Spieth, Bell, McCurdy & Newell 1190 Union Commerce Building Cleveland, Ohio 44115 Mark J. Wolff, Esquire and Howard E. Roskin, Esquire First Federal Building, 30th Floor One Southeast Third Avenue Miami, Florida 33131
Findings Of Fact FMCC is a corporation organized and existing under Delaware law. FMCC maintains its principal place of business in Dearborn, Michigan. FMCC is a wholly owned subsidiary of Ford Motor Company. FMCC qualified and is authorized to do business in the State of Florida pursuant to the foreign corporation provisions of Chapter 607, Florida Statutes, and has continuously maintained a registered office and agent in this state during the audit years at issue. During the tax years 1980-1982, inclusive, FMCC and Ford filed corporate tax returns in Florida and paid the taxes due thereon under the Florida Income Tax Code; FMCC maintained 7 to 8 branch offices and employed approximately 200 people in Florida; and Ford had contractual relationships with approximately 130 to 150 authorized Ford dealers in Florida. A copy of a representative agreement between Ford and the dealers is Exhibit 3 to this Stipulation. FMCC's principal business is financing the wholesale and retail sales of vehicles manufactured by Ford Motor Company. During the audit period FMCC provided financing for the purchase of vehicles as authorized by Ford dealers from Ford Motor Company. FMCC also: provided financing for the purchase of automobiles by the public from the dealers; and engaged in commercial, industrial and real estate financing, consumer loan financing, and leasing company financing in the State of Florida as well as other states. Attached as Composite Exhibit 4 are sample documents utilized by FMCC in the above financing. The majority of the intangibles in question are accounts receivables held by FMCC and owned by Florida debtors in connection with the purchase of tangible personal property shipped to or located in the State of Florida. FMCC is the holder of security agreements executed by thousands of Florida debtors. These security agreements gave FMCC a lien on tangible personal property located in the State of Florida. The Florida Secretary of State's Office was utilized by FMCC during the assessment period to perfect and protect its liens created under these security agreements with Florida debtors by the filing of U.C.C. financing statements. None of the original notes are stored in Florida. During the assessment period, FMCC utilized or could have utilized the Florida Courts to recover sums due by Florida debtors on delinquent accounts receivable. In addition, FMCC utilizes the Florida Department of Highway Safety and Motor Vehicles to perfect its liens on motor vehicles pursuant to Chapter 319, Florida Statutes. In 1983, the Department conducted an audit of the FMCC intangible tax returns for tax years 1980 through 1982, inclusive. On June 3, 1983, the Department proposed an assessment of tax, penalty and interest in the total amount of $2,560,379.00. See Exhibit 5. FMCC filed a timely protest. On October 8, 1984, the Department issued a Notice of Decision. See Exhibit 2. On December 12, 1984, the Department acknowledged receipt of FMCC's timely November 8, 1984 Petition for Reconsideration. On February 18, 1985, the Department issued a Notice of Reconsideration. See Exhibit 6. FMCC elected to file a Petition for Formal Proceedings, which was received on April 8, 1985. On the basis of the revised audit report, the Department of Revenue imposed the intangible tax on FMCC for the tax years 1980 through 1982, inclusive, in the following categories, and in the taxable amounts listed as follows: 1/1/80 1/1/81 1/1/82 Commercial Finance Receivables-- $342,892,615 $403,061,571 $486,412,164 Retail Commercial Finance Receivables-- 218,591,180 241,993,462 228,303,569 Wholesale Simple Interest Lease Receivables-- 66,345,902 75,978,095 71,315,777 Retail Lease Finance Receivables N/A N/A N/A Capital Loan Receivables 3,112,877 2,064,698 2,419,770 Consumer Loan Receivables 10,144,531 14,122,666 18,578,699 Service Equipment Financing--Dealer I.D. 481,869 368,186 422,108 Receivables Ford Rent-A-Car Receivables 27,825,283 26,179,377 20,362,896 Ford Parts & Service Receivables -0- 10,499,401 10,800,313 (10) Accounts Receivables--Customers & Others 3,452,194 4,581,629 4,952,234 (11) Accounts Receivables--Affiliate 1,617,880 2,914,094 4,438,849 (12) C.I.R. Receivables 23,243,257 27,387,938 24,222,621 TOTAL FLORIDA RECEIVABLES------ 697,707,588 809,151,117 872,229,000 TAX AT 1 MILL---- 697,708 809,151 872,229 LESS ORIGINAL TAX PAYMENT------ 312,703 351,976 339,142 LESS PETITION PAYMENT ON AGREED CATEGORIES------ 51,069 53,567 44,586 TOTAL REMAINING TAX ASSESSED------ $333,936 $403,608 $488,501 TOTAL TAX FOR ALL YEARS----- $1,226,045 REVISED ASSESSMENT FIGURES DOES NOT INCLUDE $1,386.18 OF THE PETITION PAYMENT At the time it filed its petition for a formal hearing, FMCC agreed to and paid the 1 mill tax, but no interest or penalty, on the following amounts. The taxability of these items is no longer in dispute, only penalty and interest. 1980 1981 1982 (8) Ford Rent-A-Car 27,825,283 26,179,377 20,362,896 Receivables (12) CIR 23,243,257 27,387,938 24,222,621 Receivables Capital Loan Receivables (item 5 of paragraph 11) reflect amounts of money owed by Ford dealers to FMCC. The obligation arises from loans made to Ford dealers located in Florida to expand showroom or other facilities and for working capital. The items located as (10) Accounts Receivable - Customers and Others and (11) Accounts Receivables - Affiliates in paragraph 11 reflect only the amount of accrued interest to which FMCC is entitled on notes from non-affiliates and affiliates, respectively, from the last settlement date prior to year end until the end of each respective year. The principal amounts owed on these notes, which are not secured by realty, are included in other categories. The Department does not assess a tax for similar interest when the amount owed is secured by realty. Wholesale and retail intangibles were created and handled in 1980, 1981 and 1982 by FMCC in the manner set forth in Exhibit 7. The Department of Revenue has imposed penalties in the amount of $543,968 composed of $330,051 as the 25% delinquent penalty imposed pursuant to Fla. Stat. Section 199.052(9)(a) (1983), and $15,886 as the 15% undervalued Property penalty imposed pursuant to Section 199.052(9)(d)(1983), Florida Statutes. The Department offered abatement of the 15% omission penalty ($198,031) imposed pursuant to Fla. Stat. Section 199.052(9)(c) (1983). The closing agreement required pursuant to Fla. Stat. Section 213.21 reflecting this reduction of penalty was not signed by petitioner. FMCC's intangible tax returns have been audited on prior occasions. The manner of reporting was identical to the manner in which FMCC reported its intangibles for tax years 1980 through 1982. The 1973-1975 and the 1976-1978 audits were "no change" audits. FMCC's method of reporting receivables generated from Florida sales was challenged by the Department of Revenue. The challenge was dropped because the Department of Revenue did not have the statutory authority to assess sales of tangible personal property with an f.o.b. point other than Florida. Chapter 77-43, Laws of Florida amended Section 199.112, Fla. Stat. to allow tangible personal property (sic) [to be taxed] regardless of the f.o.b. point of sale. This amendment applied to the January 1, 1978 taxable year. There was a 1978-1980 "no change" audit. Ford Motor Company has filed refund claims for certain categories for the tax year 1981 and 1982. Ford Motor Company claims that it inadvertently paid intangible tax on accounts receivable owned by FMCC. As presented in the Notice of Decision, no refund will be made as it will be handled as a credit against taxes due by Ford Motor Company. While not an announced policy, the Department of Revenue drafted and utilized proposed rules relating to compromising penalties. These rules are not final. Attached as Exhibit 8 are the proposed rules. A copy of these rules was provided to Petitioner by letter dated July 28, 1986. In addition, while not an announced policy the Department of Revenue utilized guidelines established by the Internal Revenue Service and federal court for compromising penalties.
Findings Of Fact On or about August 18, 1977, Respondent, Charles Leon Winkleman (Winkleman), filed an application with Petitioner, Office of the Comptroller, Department of Banking and Finance (Department) for registration as an associated person with Tax Favored Securities, Inc., now known as Global Investors Securities, Inc. Winkleman's application was granted November 1, 1977. On April 11, 1984, Winkleman pled guilty to an information filed in the United States District Court, Southern District of Florida (District Court) , Case No. 84-6043-Cr-JLK, which charged that he: did wilfully and knowingly aid assist in, and counsel, procure, and advise the preparation and presentation to the Internal Revenue Service of a United States Individual Income Tax Return (Form 1040) of William I. and Amy Steele Donner for the calendar year 1978 which was false and fraudulent as to a material matter, in that it represented that said William I. Donner was entitled under the provisions of the Internal Revenue laws to claim deductions in the sum of $83,313.00 representing an ordinary loss of income, as a result of being owner of a sole proprietorship managed by Charles L. Winkleman, whereas, as . Winkleman . . . then and there well knew and believed William I. Donner was not entitled to said deductions all in violation of Title 26 United States Code, Section 7206(2). 1/ On April 18, 1984, Winkleman filed an amended Form U-4 with the Central Registration Depository, and thereby advised interested parties that he had pled guilty to the information filed in the District Court. A copy of the amended Form U-4 was, contemporaneously, filed with the Department. 2/ On June 6, 1984, the District Court entered a judgment of guilt on Winkleman's plea. Winkleman was sentenced to six months imprisonment and fined $3,000.00. Winkleman failed, however, to notify the Department of such conviction until April 10, 1987, and offered no explanation at hearing for such failure. Following Winkleman's plea of guilty in the District Court, the Department of Commerce and Economic Development, Division of Banking, Securities and Corporations (Department of Commerce) in Juneau, Alaska, issued a notice of intent to revoke Winkleman's registration. This notice, dated June 4, 1984, sought revocation based primarily on Winkleman's plea of guilty to the charges filed in the District Court. Winkleman failed to notify the Department of the pendency of the Alaska proceeding until April 10, 1987, and offered no explanation at hearing for such failure. On March 10, 1987, the Department of Commerce entered an order revoking Winkleman's registration in Alaska based on his conviction in the District Court. By amended Form U-4, filed April 10, 1987, Winkleman advised the Department of his conviction in the District Court and the revocation of his registration by the State of Alaska. 3/ The order of the Department of Commerce, revoking Winkleman's registration, is currently on appeal. Winkleman seeks reversal of such order predicated on his assertion that the Department of Commerce breached an agreement to allow him to withdraw his registration in lieu of revocation. On July 20, 1987, the court, which is reviewing the Department of Commerce proceedings, entered an order staying the order of revocation pending the disposition of Winkleman's appeal. On April 1, 1987, a hearing was held before the National Association of Securities Dealers, Inc. (NASD), to consider whether Winkleman, because of his conviction, should be disqualified as a registered representative with Global Investors Securities, Inc. On August 13, 1986, NASD entered a "Notice Pursuant to Rule 19h-1 of the Securities and Exchange Act of 1934" whereby it proposed that Winkleman not be disqualified. On January 8, 1987, the Securities and Exchange Commission (SEC) rendered its decision that it would not invoke Section 15A(g)(2) of the Securities and Exchange Act of 1934 to direct NASD to disqualify Winkleman.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the registration of Respondent, Charles Leon Winkleman, as an associated person under the Florida Securities and Investor Protection Act be REVOKED. DONE AND ENTERED this 6th day of October, 1987, in Tallahassee, Leon County, Florida. WILLIAM J. KENDRICK Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 904/488-9675 Filed with the Clerk of the Division of Administrative Hearings this 6th day of October, 1987.
Findings Of Fact In 1971, the Okaloosa Island Authority, a governmental agency, leased certain real property on Santa Rosa Island in Okaloosa County to the Okaloosa Development Corporation for a term of 99 years. Certain ultimate sub-lessees under the Okaloosa Island Authority lease mortgaged their leaseholds as security for the payment of promissory notes held by petitioner First National Bank of Birmingham. Two such notes are involved, both of which were executed and recorded in Florida during 1974. Petitioner is the payee on both notes, and kept them both at its headquarters in Birmingham, Alabama. The maker of the larger note is U.R.S., Inc., a Pennsylvania corporation. The U.R.S. note is in the face amount of $2,500,000.00, although only $347,867.91 of the principal obligation was still outstanding on January 1, 1975; the note was paid in full on January 27, 1975. The makers of the second note were Phillip F. Zeidman and his wife, Nancy L. Zeidman. The Zeidman note is in the face amount of $45,000.00. On January 1, 1975, $44,000.00 of the principal obligation remained outstanding; and on January 1, 1976, $29,286.83 of the principal obligation was still outstanding. No intangible personal property tax was paid when the U.R.S. and Zeidman notes, together with the mortgages which secured their Payment, were recorded by the office of the Clerk of the Circuit Court of Okaloosa County. Statement Required By Stuckey's of Eastman, Georgia v. Department of Transportation, 340 So.2d 119 (Fla. 1st DCA 1976) Petitioner's proposed fact findings have been adopted, in substance, except as to what the First National Bank of Birmingham relied on, as to which no evidence was adduced. Respondent's proposed fact findings have been adopted, in substance, except that the face amount of the U.R.S. note was $2,500,000.00, not $500,000.00; and the real property leased by the Okaloosa Island Authority is situated in Okaloosa, not Escambia County.
Recommendation Upon consideration of the foregoing, it is RECOMMENDED: That petitioner's substantive tax liability for 1975 and 1976 be set, with respect to the Zeidman note, at seventy-three and twenty-nine hundredths dollars ($73.29 = 44.00 + 29.29). That petitioner's substantive tax liability for 1975 and 1976 be set, with respect to the U.R.S. note, at three hundred forty-seven and eighty-seven hundredths dollars ($347.87 = 347.87 + 0.00). DONE and ENTERED this 15th day of June, 1977, in Tallahassee, Florida. ROBERT T. BENTON, II Hearing Officer Division of Administrative Hearings Room 530 Carlton Building Tallahassee, Florida 32304 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 15th day of June, 1977. COPIES FURNISHED: E. Wilson Crump, II, Esquire Assistant Attorney General The Capitol Tallahassee, Florida 32304 William Guy Davis, Jr., Esquire Beggs and Lane 700 Brent Building Post Office Box 12950 Pensacola, Florida 32576
Findings Of Fact At all times material hereto, Respondent John E. LeMieux (Respondent LeMieux) was a licensed real estate broker in the State of Florida, having been issued license numbers 051596 and 0266128 in accordance with Chapter 475, Florida Statutes. The last licenses issued were as a broker in care of Retco Realty, Inc., 5942 SW 73rd Street, South Miami, Florida 33143, and as a broker in care of Retco Kassner, Inc., 7311 SW 59th Court, Miami, Florida 33143. At all times pertinent hereto, the Respondent Retco Realty, Inc. (Respondent Retco) was a corporation registered as a real estate broker in the State of Florida, having been issued license number 0141149 in accordance with Chapter 475, Florida Statutes. The last license issued was at the address of 5942 SW 73rd Street, South Miami, Florida 33143. At all times pertinent hereto, Respondent LeMieux was licensed and operating as the qualifying broker and officer of Respondent Retco. Kenneth and Regina Davis have been married for 12 years and have four children. Both are high school graduates, but neither had been involved in a transaction to purchase real estate prior to the one involved in this proceeding. Ms. Davis is a housewife. Mr. Davis repairs and restores wrecked automobiles. Prior to their dealings with Respondents, the Davises and their four children lived in a rented, two bedroom duplex. In February 1990, Mr. and Mrs. Davis began looking for a house to purchase after their landlord threatened to evict them. The landlord objected to the number of children living in the duplex and to Mr. Davis's practice of parking several cars at the duplex. Because of the threatened eviction, the Davises were anxious to find alternative housing. Mr. and Mrs. Davis saw an advertisement in the Miami Herald for a house located at 14700 South West 104th Place, Miami, Florida. They went to the house on Sunday, February 18, 1990, and, after looking at the house from the outside, decided that they liked the house and called the telephone number listed in the ad on February 18, 1990. In February 1990, Investor's Choice International, Inc., a corporation that was owned and operated by Respondent LeMieux at all times pertinent to this proceeding, owned the house that interested the Davises. Investor's Choice had first acquired the property in 1985 and had subsequently sold the property to Marva Pitter. Respondent LeMieux assisted Ms. Pitter in obtaining a first mortgage on the premises from Savings of America and his corporation took a second mortgage on the premises. Investor's Choice reacquired the property after Ms. Pitter defaulted on the second mortgage and executed a deed to Investor's Choice in lieu of an action to foreclose the second mortgage. Investor's Choice continued to pay the first mortgage to Savings of America, but there was no formal assumption of that first mortgage by Investor's Choice. Respondents had placed the ad for the house, and the number listed was the office of Respondent Retco. Barbara Couret, the Respondents' secretary, answered the Davises's telephone call and promised to have Respondent LeMieux return the call. Later that day Respondent LeMieux talked with Mrs. Davis by telephone, at which time Mrs. Davis gave Respondent LeMieux her and her husband's social security numbers so Respondent LeMieux could check their credit. Mrs. Davis and Respondent LeMieux agreed to meet the following day. The meeting on February 19, 1990, was cancelled when Respondent LeMieux failed to show up and the Davises went home after having waited for him at his office for approximately one hour. That evening Respondent LeMieux called the Davises, apologized for not being able to meet with them as scheduled, and arranged to meet them the following day at Respondent LeMieux's offices. On February 20, 1990, Respondent LeMieux called and changed the location of the meeting to the Pink Flamingo Restaurant on South Dixie Highway, Miami, a location that was mutually convenient. Mr. and Mrs. Davis met with Respondent LeMieux for the first time on February 20, 1990, in the parking lot of the Pink Flamingo Restaurant. At the meeting, Respondent LeMieux told the Davises that he had checked their credit and that he did not believe they would qualify for a FHA loan. Respondent LeMieux told the Davises that his company, Investor's Choice, owned the property and that he would sell it to them for the price of $52,000. The purchase price would be paid as follows: the Davises would pay $2,000 down; they would assume payment of the first mortgage held by Savings of America of approximately $43,000; and they would execute in favor of Respondent LeMieux's corporation a purchase money second mortgage of $7,000. Respondent LeMieux told the Davises that they would have to make an additional payment on the second mortgage of $2,000 around May 1, 1990, when they received their income tax refund. The monthly payment on the first mortgage was to be $367 and the monthly payment on the second mortgage, which was to bear interest at the rate of 12% per annum, was to be $150. One monthly check, in the aggregate amount of $517, was to be paid by the Davises to Respondent Retco Realty. Respondent LeMieux viewed the financing arrangements as a temporary solution to the Davises's credit problems, and he structured the transaction to accommodate those problems. Pursuant to their agreement, the Davises were to live in the house until permanent financing could be arranged. At all times pertinent to this proceeding, Respondent LeMieux was familiar with the terms of the Savings of America first mortgage. He knew that the mortgage was an assumable, variable rate mortgage that provided the borrower with the option of negative amortization in the event the interest rates increased and the borrower wanted to keep his or her monthly payments at a constant level. He knew that the interest rate was tied to an established index and could fluctuate on a monthly basis. He knew that the first mortgage was assumable if the borrower qualified, but otherwise had a "due on sale" clause. The amount of the monthly payment was important to the Davises because of their budgetary constraints. They knew that they would have difficulty paying the $367 first mortgage and the $150 second mortgage, but they felt they could comfortably pay the first mortgage once the second mortgage was paid off. Respondent LeMieux estimated during the meeting of February 20, 1990, that the second mortgage would be paid off around July 1993, assuming that the Davises made the payments to which they agreed, including a payment of $2,000 around May 1, 1990. There is a dispute in the testimony as to what was said about the first mortgage at the meeting between Respondent LeMieux and the Davises on February 20, 1990. From the conflicting testimony, it is found that Respondent LeMieux informed the Davises that the first mortgage was assumable, but that their credit report would not qualify them to assume the mortgage. Respondent LeMieux told them that they would have to clear up their credit problems during the time they were paying off the second mortgage so that they could qualify for a FHA mortgage or, in the alternative, formally assume the Savings America first mortgage, and that title would not be conveyed to them until permanent financing was arranged. As a result of the meeting with Respondent LeMieux on February 20, 1990, Mr. and Mrs. Davis's understanding of the transaction was that the first mortgage payment was fixed, that the interest rate was fixed, and that they would be able to assume the first mortgage (or secure their own mortgage) after they cleared up their credit problems. They would not have entered into the transaction had they known that the interest rate on the first mortgage was variable. Respondent LeMieux asserts that he told the Davises that the mortgage had a variable rate of interest that could fluctuate monthly, and that, because the mortgage permitted negative amortization, the monthly payments could remain constant. This testimony is rejected based on the testimony of Mr. and Mrs. Davis and that of Petitioner's investigator, Hector F. Sehwerert, who testified that Respondent LeMieux told him that he could not specifically recall whether he told the Davises that the first mortgage contained a variable rate. The evidence clearly and convincingly establishes that Respondent LeMieux failed to explain to the Davises that the first mortgage contained a variable interest rate which could cause the monthly payment to fluctuate. Respondent LeMieux knew or should have known that the Davises were relying on his explanation as to the terms of the first mortgage in deciding whether to enter into the subject transaction. He also was aware that the Davises were unsophisticated buyers who were most concerned with the monthly payments they would have to make. His explanation of the terms of the first mortgage misled the Davises into believing that the first mortgage was a fixed rate mortgage and that the payments would remain constant. The Davises did not sign a contract at the meeting of February 20, 1990, but Respondent LeMieux gave them a copy of a contract with the terms of the proposal they had discussed filled out. The Davises took this contract home to think over the transaction. On the evening of February 20, 1990, the Davises gave Respondent LeMieux a check in the amount of $1,000 as a down payment on the house. The following day, the parties executed the contract with the Davises signing as purchasers and Respondent LeMieux signing as president of Investors' Choice International, Inc., the seller, and as president of Respondent Retco Realty, the broker to whom a $2,000 commission was to be paid. The following language appears immediately above the signature line of this form contract: "REALTOR ADVISES BOTH PARTIES TO CONSULT AN ATTORNEY AND FOR THE PURCHASER TO SECURE TITLE INSURANCE." The Davises did not receive the services of an attorney because Ms. Couret told them that an attorney should not be necessary and because they trusted Respondent LeMieux. The contract required a down payment of $2,000 (the receipt of the sum of $1,000 was acknowledged) with the Davises assuming the first mortgage of approximately $43,000 and executing a purchase money second mortgage in the sum of $7,000. The following clauses are found in the contract: 2. ASSUMPTION OF FIRST MORTGAGE: The Purchaser, subject to the lending institution's requirement, including an interest rate of change, if any, agrees to assume an existing First Mortgage of approximately $43,000. Payable at approximately $367 monthly with Homestead Exemption which payment includes principal and interest at existing interest rate on mortgage held by Savings of America. ... * * * 7. NEW PURCHASE MONEY SECOND MORTGAGE: The Purchaser shall execute a purchase money second mortgage and note in favor of (sic) for $7,000.00 payable at $150.00 monthly until paid, including principal and interest at 12% per annum. Said mortgage shall be prepayable without penalty. Documentary stamps, intangible tax and recording mortgage shall be paid by Purchaser. * * * 13. SPECIAL CLAUSES: Purchaser to assume existing 1st mtg. (sic) with Savings of America of approx. (sic) $43,000. Seller to give Buyer a Purchase Money 2nd Mtg. (sic) of $7,000 at 12% per annum, payable $150./mo. (sic) with a $2,000 balloon pmt. (sic) due May 1, 1990. On March 2, 1990, the parties executed an addendum to the contract they had executed on February 21, 1990, which clarified that the Davises were to pay ad valorem taxes and insurance and which contained, in pertinent part, the following: It is understood and agreed that the seller is conveying title at such time as the Purchase Money Second Mortgage of $7,000 is retired; unless that sum is prepaid, the anticipated date of payment in full will occur on or about July 1993. Both parties agree that payment to the first and second mortgages must be made on time, and in the event that these payments or real estate taxes or insurance shall fall into default, that this contract shall be cancelled and all monies forfeited. As an additional incentive for the seller to extend these terms to the buyer, the buyer agrees to make the first and second mortgage payment to the seller's office at 5942 SW 73 Street, Miami, Florida 33143 on or before the first of each month. The aggregate total of these payments will be $517 per month effective April 1, 1990. Both parties understand that the March payment of $367 is now due. Also on March 2, 1990, the Davises paid the Respondents the sum of $1,000, representing the balance of the down payment, paid the sum of $367 representing the March 1990 payment on the first mortgage, and moved into the house. When the Davises received their income tax refund in April 1990, Mrs. Davis went to the Respondents' office to pay the sum of $2,000 on the second mortgage. (This was the payment contemplated by the Special Clauses paragraph of the contract executed February 21, 1990.) At that time Respondent LeMieux informed Mrs. Davis that the sum of $314 was due for insurance on the house and he agreed to accept the sum of $1700 as the lump sum payment on the second mortgage so Mrs. Davis could pay the insurance premium. In addition to the annual insurance premium in the amount of $314 paid by the Davises in April 1990, they paid the annual insurance premium in the amount of $314 in April 1991, and the ad valorem tax bill for 1990 in the amount of $605.89. From March 30, 1990 through April 30, 1991, the Davises made 14 monthly payments in the amount of $517 each by check payable to Respondent Retco Realty. These payments were hand delivered by Mrs. Davis and were always timely made. The Davises and their children liked the house and the neighborhood. During the time the Davises were in the house, they made repairs and improvements worth approximately $500. On May 29, 1991, Mrs. Davis went to Respondents' office to make a regular $517 monthly payment. At that time Respondent LeMieux met with Mrs. Davis and told her that the interest rate on the first mortgage was variable, that the payments on the first mortgage had gone up, and that his second mortgage was not making any money. Prior to this meeting, the Davises did not know that the first mortgage was not a fixed rate mortgage or that the first mortgage payments were subject to change and had changed. At the meeting on May 29, 1991, with Mrs. Davis, Respondent LeMieux prepared a document entitled "Letter of Understanding", and asked Mrs. Davis to sign it on her own behalf and on behalf of her husband. Respondent LeMieux was to sign the Letter of Understanding as president of Investor's Choice International. The Letter of Understanding provided, in pertinent part, as follows: Both parties acknowledge that the existing first mortgage of approximately $43, 500 (sic) held by Savings of America contains a variable interest rate, which is adjusted monthly, and therefore causes the monthly mortgage payments to either increase or decrease by a particular number. Currently the mortgage payment is $477.48. The mortgage also contains a "due-on-sale" clause, and that is why pursuant to the contract dated February 20th, 1990 between the Davises and Investor's Choice, no deed was ever conveyed so as to prevent triggering any "due-on-sale" clause that may cause the mortgage to go into default and subsequent foreclosure. To date, the Davises have made 13 payments of $517 each for a grand total of $6,721. To date, Investor's Choice has paid Savings of America $5,884.69; therefore the difference that was paid to Investor's Choice on that certain second mortgage of $7,000 pursuant to that contract of February 1990 is $836; of which $636 is interest and $200 is principal. Therefore, after the principal reduction that the Davises have made during the course of the last twelve months, namely $1,700 plus $200 by virtue of their monthly installments, the current mortgage balance is $5,100. The parties have agreed that Mrs. Davis will pay $100 toward the principal balance this month, May 1991, leaving a principal unpaid balance due Investor's Choice of $5,000. Said mortgage to be payable at the rate of 12% per annum, interest only monthly, or $50 per month. If Mr. and Mrs. Davis elect to make principal reduction in said mortgage, they will be receipted for same, and the interest payment per month would drop accordingly. Mrs. Davis refused to sign the "Letter of Understanding". After discussing the matter with her husband, the Davises obtained through legal aid the services of attorney Candis Trusty. Ms. Trusty negotiated an agreement with the Respondents' attorney, Robert Korschun, whereby the Davises would be reimbursed the sum of $3,899, they would vacate the premises by September 1, 1991, and they would deposit the sum of $500 into Ms. Trusty's trust account as security for damages to the premises. The Davises did not move out of the premises until September 8, 1991. Thereafter, Respondent LeMieux inspected the premises and informed Ms. Trusty that there were no damages to the premises beyond normal wear and tear, and that he would therefore make no claim on the damages deposit. Respondent LeMieux did assert a claim against the Davises in the amount of $166.67 for unpaid rent for the days they occupied the premises beyond September 1, 1991. Because of the dispute over rent, Ms. Trusty retained, as of the formal hearing, the sum of $166.67 in her trust account. At the formal hearing, Respondent LeMieux continued to assert his entitlement to the rent from the Davises in the amount of $166.67, but he acknowledged that the funds the Davises deposited in Ms. Trusty's trust account were not intended to secure rent and that he had no claim to that particular fund. In October of 1988, Petitioner filed an Administrative Complaint against Respondents which is unrelated to the present proceeding. That Administrative Complaint contained certain factual allegations which charged that Respondents were guilty of "fraud, misrepresentation, concealment, false promises, false pretenses, dishonest dealing by trick, scheme or device, culpable negligence and breach of trust in a business transaction, all in violation of Subsection 475.25(1)(b), Florida Statutes (1988)." This Administrative Complaint was referred to the Division of Administrative Hearings and assigned DOAH Case No. 88-5771. Respondents settled that prior matter and executed a Stipulation which they neither admitted nor denied the allegations of the Administrative Complaint. Respondents were reprimanded and fined in the amount of $400.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered finding the Respondents guilty of having violated the provisions of Section 475.25(1)(b), Florida Statutes, which assesses an administrative fine in the aggregate amount of $500 against the Respondents, and which places the licensure of both Respondents on probation for a period of six months. DONE AND ENTERED this 15th day of January, 1993, in Tallahassee, Leon County, Florida. CLAUDE B. ARRINGTON 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 15th day of January, 1993. APPENDIX TO RECOMMENDED ORDER, CASE NO. 92-1906 The following rulings are made on the proposed findings of fact submitted on behalf of the Petitioner. The proposed findings of fact in paragraphs 1, 2, 3, 4, 5, 6, 7, 8, 10, 11, 13, 14, 15, 16, 17, 18, 19, and 22 are adopted in material part by the Recommended Order. The proposed findings of fact in paragraph 9 are adopted in part by the Recommended Order, but are rejected to the extent the proposed findings are contrary to the findings made. The proposed findings of fact in paragraphs 12 and 20 are adopted in part by the Recommended Order, but are rejected to the extent the proposed findings are unnecessary to the findings made. The proposed findings of fact in paragraph 21 are rejected as being unnecessary to the conclusions reached. The following rulings are made on the proposed findings of fact submitted on behalf of the Respondents. The proposed findings of fact in paragraph 1 are adopted in material part by the Recommended Order. The proposed findings of fact in the first sentence of paragraph 2 are rejected as being contrary to the findings made. The findings of fact in the last sentence of paragraph 2 are rejected as being unnecessary to the findings made. The remaining proposed findings of fact contained in paragraph 2 are adopted in material part by the Recommended Order or they are subordinate to the findings made. The proposed findings of fact in the first sentence of paragraph 3 are rejected as being unsubstantiated by the evidence or as being unnecessary to the findings made. The proposed findings of fact in the second sentence of paragraph 3 are adopted to the extent that the Respondents's standard form contract contains the advice for the parties to seek the services of an attorney. The proposed findings of fact in the third sentence of paragraph 3 are adopted in material part by the Recommended Order. The proposed findings of fact in the fourth sentence of paragraph 3 are adopted in part by the Recommended Order, but are rejected to the extent that said proposed findings state that Respondent LeMieux was acting to accommodate the Davises. The proposed findings of fact in the fifth sentence of paragraph 3 are rejected since the Davises appeared to understand why the payments on the first mortgage went up after Respondent LeMieux informed Mrs. Davis that the mortgage had a variable interest rate. The proposed findings of fact in the last sentence of paragraph 3 are adopted in part and are rejected in part as being unnecessary to the conclusions reached. The proposed findings of fact in paragraphs 4, 5, and 6 are adopted in part by the Recommended Order or are subordinate to the findings made. The proposed findings of fact in paragraphs 7 and 8 are rejected as being contrary to the evidence or as being unnecessary to the findings made. Both Mr. and Mrs. Davis understood the explanation of the transaction Respondent LeMieux made to them before they signed the contract. That they became confused on cross examination is unnecessary to the conclusions reached in this proceeding. Her confusion as to the meaning of a fixed rate mortgage and the assumability of the mortgage is subordinate to the findings made that Respondent LeMieux did not lie to them about the status of the interest rate on the first mortgage. The statements made by the attorney they consulted during the settlement negotiations are also unnecessary to the conclusions reached in this proceeding. The proposed findings of fact in paragraph 9 consists of argument and are unnecessary as findings of fact. The proposed findings of fact in paragraph 10 are adopted in part by the Recommended Order with the exception of the last sentence, which is rejected as being argument and unnecessary as a finding of fact. The proposed findings of fact in paragraph 11 are rejected as being unnecessary to the conclusions reached. COPIES FURNISHED: Theodore R. Gay, Esquire Department of Professional Regulation 401 Northwest Second Avenue Suite N-607 Miami, Florida 33128 Jorge Gaviria, Esquire 2222 Ponce de Leon Boulevard Mezzanine 200 Coral Gables, Florida 33134-6193 Darlene F. Keller, Director Division of Real Estate 400 West Robinson Street Post Office Box 1900 Orlando, Florida 32802-1900 Jack McRay, General Counsel Department of Professional Regulation 1940 North Monroe Street Tallahassee, Florida 32399-0792
Findings Of Fact American Beryllium Company, Inc. is a subsidiary of Loral Corporation. On March 16, 1981, American Beryllium Company, Inc. filed a separate company form DR-601-C for Florida Intangible Tax Return reflecting a tax liability of 52,483.00 and paid this amount accordingly upon this date. The above form and check were processed by the Department of Revenue on April 9, 1981. On April 29, 1981, the Loral Corporation filed a separate company 1981 form DR-601-C reflecting a tax liability of $45.70 and paid this amount accordingly upon this date. The above form and check were processed by the Department of Revenue on May 4, 1981. On April 27, 1984, Loral Corporation and American Beryllium Company, Inc., filed a consolidated and amended 1981 form DR-601-C reflecting a tax liability of $35.07. Also, on April 27, 1984, Loral Corporation and American Beryllium Company, Inc., filed a 1981 form DR-26 refund claim exclusive of interest and penalties in the amount of $2,443.63, which is $85.07 less than the $2,528.70 total amount of taxes reported and paid in 1981. The above refund claim was received by the Department of Revenue on May 1, 1984. The Office of the Comptroller denied Petitioner's refund request in the amount of $2,443.63. The Office of the Comptroller authorized and paid a refund in the amount of $45.70 to the Loral Corporation which it paid as taxes owed on April 29, 1981. This leaves a remaining balance of $2,397.93 paid by American Beryllium Company, Inc. as tax it paid on March 16, 1981.
Findings Of Fact At all material times, Respondent Sauer was licensed in Florida as an ordinary life agent working for Money-Plan International, Inc. (Money-Plan) and selling National Western Life Insurance Company (National Western) insurance and annuity contracts. From October 10, 1984, until sometime prior to the events in question, Respondent Sauer had been an agent for Northern Life Insurance Company (Northern Life). Respondent Sauer had about five years' relevant job experience at the time of the events in question. At all material times, Respondent Connell was licensed in Florida as an ordinary life agent working for Money-Plan and selling National Western insurance and annuity contracts. Respondent Connell had no significant job experience prior to his employment with Money-Plan about three months prior to the events in question. His principal employment at all material times has been as a real estate broker. During the spring of 1986, Money-Plan was soliciting employees of the Manatee County School District for the purchase of two types of National Western annuity contracts. The flexible-premium annuity contract permits periodic contributions in such amounts and at such times as the policyholder selects. The single-premium annuity contract involves only a single premium, such as in the form of a rollover from another tax-qualified retirement plan. The Manatee County School Board had approved these National Western contracts and an annuity contract offered by Northern Life for sale to Manatee County School District employees, who could pay the premiums by a payroll-deduction plan. Each client described below, except for Jack Dietrich, is a schoolteacher employed by the Manatee County School Board; Mr. Dietrich is a principal of a Manatee County elementary school. Each Respondent used the same general sales procedure. First, he would contact the client, set up an appointment, make the sales presentation, and often obtain a signed application at the end of the appointment. He would then leave the client a copy of the application and a National Western brochure. Upon delivery of the annuity contract some weeks later, the client would have a chance to review the specific provisions and, if she did not like them, reject the contract without cost or further obligation. The front side of the two-sided, one-page application requires some basic identifying information concerning the annuity contract selected and the applicant. The back side contains five disclosure paragraphs in somewhat larger print than that on the front side. The first disclosure paragraph does not apply to the annuity contracts sold by Respondents in these cases. The last disclosure paragraph reminds the policyholder to review annually the tax status of the contract. The second disclosure paragraph applies to the single-premium contract. This paragraph warns that: a) a withdrawal of more than 10% of the Cash Value during the first seven years after the contract is issued will result in the loss of 10% of the contribution and b) if the policyholder fails to use one of the approved settlement options, the contribution will earn interest at the lower Cash Value rate rather than the higher Account Balance rate. The third disclosure paragraph applies to the flexible-premium annuity contract. This paragraph provides: FLEXIBLE PREMIUM ANNUITY FORM 01-1063 If, prior to the annuity date, I withdraw my contributions in excess of the renewal contributions made during the previous twelve months or if I do not use one of the retirement benefit options under the policy for distribution of my account on the annuity date, my account will be subject to the following: (a) a charge of twenty percent (20%) will be made against my contributions during the first contract year and all contribution increases during a twelve (12) month period from the date of any increase (a contribution increase occurs when the new contribution is greater than the initial contribution plus the sum of all prior increases) unless such contributions are not withdrawn prior to the end of the seventh (7th) contract year following the year of receipt, and (b) interest will be credited on my contributions at rates applicable under the Cash Value provisions and not the Account Balance provisions. The fourth disclosure paragraph applies to both the single-premium and flexible-premium annuity contracts. This paragraph identifies two types of guaranteed interest rates. Four guaranteed annual rates, ranging from 9 1/2% for the first year after issuance of the contract to 4% after ten years, apply to the Account Balance. A single guaranteed annual rate of 4% applies to the Cash Value. The brochure describes the flexible-premium contract as having: "Stop and Go privileges: Contributions are fully flexible and nay be increased, decreased or stopped, subject to employer rules and IRS regulations." Elsewhere, the brochure states: "To avoid the surrender charge, the participant simply annuitizes the contract and elects one or more settlement options." (Emphasis supplied.) The brochure states that the policyholder is not currently taxed on the portion of her salary deducted by the employer to pay for the premium or, as to both types of contract, the interest earned by the premiums within the annuity contract. National Western offers in the brochure to calculate for any policyholder the maximum amount of salary that she may defer so as to avoid current income tax on her periodic contributions. The brochure explains how a policyholder may, subject to restrictions imposed by law, borrow her annuity funds without the loan being treated as a taxable distribution. The brochure cautions that the loan must be repaid within five years unless the proceeds are used for certain specified purposes relating to a principal residence. The brochure states in boldface: "Each participant will have an Account Balance and a Cash Value Balance." The Account Balance is defined as all of the contributions or premiums with interest from the date of receipt to the annuity starting date (of, if earlier, the death of the annuitant). The brochure explains: "The Account Balance is the amount available when the participant retires or [elects to begin receiving payments] and selects one or more of the approved settlement options." In such event, "[t]here are no charges or fees deducted from the Account Balance ..." The Cash Value for the flexible-premium contract is defined as 80% of the first-year premiums and 100% of renewal premiums with interest from the date of receipt to the date of withdrawal. If the policyholder increases the amount of her premiums in any year, the amount of the increase is treated as first-year premiums. The policyholder vests as to the remaining 20% of the first-year premiums seven years after the issuance of the contract or, if applicable, seven years after the year in which the premiums are increased. The brochure explains: The Cash Value is the amount received if the participant surrenders the contract without electing one of the approved settlement options, which are described in the next section of the brochure. The brochure offers no explanation of the provisions governing the vesting of 10% of the Cash Value of the single-premium contract. The brochure sets forth the differences in interest rates between the Account Balance and Cash Value in a clear boldface table. The table notes that the Cash Value guaranteed interest rate may be higher for the first year if a higher rate is in effect at the time of the issuance of the contract. Neither the application or the brochure mentions the interest rate applicable to policy loans. The flexible-premium annuity contract generally conforms to the above- described provisions of the application and brochure. This is the type of contract that the Respondents sold to each of the clients described below. No sample of the single-premium annuity contract was offered into evidence. This is the type of contract that Respondent Sauer sold to Mr. Dietrich, in addition to a flexible-premium contract. The flexible-premium annuity contract adds an important additional requirement for the policyholder to vest in the remaining 20% of the first-year premiums when calculating the Cash Value. The flexible-premium contract requires that the policyholder pay, in the six years following the first anniversary of the contract, sufficient additional premiums so that the accrued Cash Value, immediately before the 20% credit, equals anywhere from four to seven times the total first-year premium, depending upon the age of the policyholder when the contract is issued. In the case of a policyholder with an issue age of 57 years or less, the multiple is four. No such requirement would be applicable to a single-premium contract where the parties intend from the start that there shall be no additional premiums. More favorable to the policyholder, the flexible-premium annuity- contract provides that, after ten years, the annual interest rate on the Cash Value will be the greater of the guaranteed rate or one point less than the rate then credited to the Account Balance. Concerning policy loans, the flexible-premium annuity contract states that the policyholder may obtain a loan "using the contract as loan security." The amount borrowed may not exceed 90% of the Cash Value. Interest on the loan must be paid in advance. The rate of interest, which remains in effect for an entire contract year, is the greater of the Moody's Corporate Bond Yield Average, which is determined twice annually, or one point greater than the Cash Value interest rate in effect on the contract anniversary. The initial annual loan rate stated in the annuity contract issued to Rebecca McQuillen was 10 1/2%. Each flexible-premium annuity contract issued contains a statement of benefits. The one-page statement contains four columns showing, by Cash Value and Account Balance, the accrual of benefits if guaranteed interest rates apply or if current interest rates apply. The statement warns: "This contract may result in a loss if kept for only 3 years, assuming withdrawal values are based on guaranteed rate and not on current rate." The initial guaranteed rates were, for a contract issued on April 15, 1986, 10 1/2% on the Account Balance and 8% on the Cash Value and, for a contract issued on May 15, 1986, 10% and 7 1/2%, respectively. Respondent Connell visited Ms. McQuillen and Virginia Taylor on separate occasions in the spring of 1986 for the purpose of selling National Western annuity contracts. During these visits, Henry James Jackson, Jr. accompanied Respondent Connell and made the sales presentations to the clients as part of the training that Respondent Connell was then undergoing. Mr. Jackson is the vice-president of Money-Plan and supervisor of Respondent Sauer, who manages the Sarasota office of Money-Plan and supervises four or five agents, including, at the time, Respondent Connell. Respondent Connell signed the applications of Ms. McQuillen and Ms. Taylor, as the selling agent, in order to receive the credit for the sales. Respondent Connell earned this credit by arranging the appointments. In their applications, Ms. McQuillen projected periodic contributions totalling, on an annual basis, $2400 from her to the flexible-premium contract, and Ms. Taylor projected a total annual contribution of $2280. Respondent Connell subsequently visited Linda Rush, to whom he was referred by Ms. McQuillen. Respondent Connell himself made the sales presentation to Ms. Rush. In his meeting with Ms. Rush, Respondent Connell explained the mechanics of the flexible-premium annuity contract. He discussed the current interest rates and how they were set by market conditions. Although he did not discuss the specifics of the Account Balance versus the Cash Value, he gave Ms. Rush a copy of the application and the brochure. He also discussed generally that the annuity contract was primarily a retirement policy and that Ms. Rush would not enjoy all of its benefits, partly due to penalties, if she failed to keep it until retirement. Ms. Rush signed an application at the conclusion of their meeting. She projected a total annual contribution of $1200. Later, at Ms. McQuillen's request, Respondent Connell attended a meeting with her and a friend of hers named Mike Donaldson, who represents Northern Life. Mr. Donaldson had informed the clients of both Respondents, directly or indirectly, that his company's annuity contract was superior to those of National Western because of the latter's "two-tiered" interest rate whereby a lower rate of interest was credited to the Cash Value than the Account Balance. Respondent Connell did not perform well in the confrontation with his more experienced counterpart. Subsequently, the three above-described clients timely cancelled their contracts at no cost to themselves. In the spring of 1986, Respondent Sauer made a sales presentation to Mr. Dietrich. Mr. Dietrich's issue age was 56 years and he had owned a 15-year old tax-sheltered annuity with a surrender value of $8200. Meeting with Mr. Dietrich six times for a total of six to eight hours, Respondent Sauer discussed at length tax-sheltered annuities, as well as life insurance. The discussions involved the flexible-premium annuity contract that was purchased by all of the other clients involved in these cases, as well as a single-premium annuity contract for the $8200 rollover contribution. With regard to the flexible-premium annuity contract, Respondent Sauer discussed with Mr. Dietrich the lower interest rate used if the policyholder surrendered the contract, the penalty of 20% of the first-year premiums if the contract was surrendered in the first seven years, and the various ways that the policyholder could avoid the penalties. Respondent Sauer explained generally the similar penalties and lower interest rate applicable to a prematurely terminated single-premium annuity contract. In making the sales presentations to Mr. Dietrich, Respondent Sauer emphasized the loan options available with the these tax-sheltered annuities. Respondent Sauer stressed the small margin between the interest credited on the contract and the interest charged on a policy loan and stated that, at times, a National Western policyholder could borrow his annuity funds at a lower interest rate than he was being paid on the funds by the company. He also informed Mr. Dietrich that he did not need to pay back the loan, but could instead roll it over every five years. The loan options in the National Western annuity contracts are a major selling point and offset to some degree the so-called "two-tiered" interest rate. These tax-sheltered annuities compare favorably to other annuity contracts because the National Western policyholder does not earn a lower interest rate on that portion of the policy balance encumbered by the loan. Also, National Western has historically maintained a more favorable margin than that maintained by other companies between the loan rates charged and the interest paid on the Account Balance. At the time of the hearing, for example, the interest paid annually on the Account Balance was 9.5% and the interest charged annually on policy loans was 9.09%. Mr. Dietrich signed two applications. In the application for a flexible-premium contract, he projected a total annual contribution of $3850. In the application for a single-premium contract, he projected a rollover contribution of $8200. Respondent Sauer left Mr. Dietrich a copy of the application and the brochure. In the spring of 1986, Respondent Sauer made a sales presentation of the flexible-premium contract to Noah Frantz. Respondent Sauer explained to Mr. Frantz the different interest rates applicable to the Account Balance and the Cash Value, as well as the 20% penalty for early surrender. The sales presentation to Mr. Frantz took place shortly after the confrontation between Respondent Connell and Mr. Donaldson representing Northern Life. Respondent Sauer therefore found it necessary to inform Mr. Frantz that Respondent was familiar with the Northern Life tax-sheltered annuity because he used to sell it. Respondent Sauer emphasized the point by showing his Northern Life license to Mr. Frantz. Respondent Sauer obtained a signed application for a flexible-premium contract from Mr. Frantz, who projected a total annual contribution of $300. Respondent Sauer left Mr. Frantz a copy of the application and brochure. Subsequently, Mr. Dietrich and Mr. Frantz timely cancelled their annuity contracts at no cost to themselves. An important feature of the tax-sheltered annuities is their favorable federal income tax treatment. Within certain limits, the policyholder is able to exclude front his gross income the amount of his salary used to pay the premiums. The contributions, whether periodic or one-time, then earn tax-free interest, which is taxed when distributed later in the form of annuity payments. The Tax Equity and Fiscal Responsibility Act (TEFRA) imposes certain requirements on loans involving tax-sheltered annuities. In general, if these requirements are not satisfied, a nontaxable loan is converted into a taxable distribution. Both before and after TEFRA, however, a loan would be converted into a taxable distribution if the borrower, at the time of taking out the loan, had no intention of repaying it. An intent to roll over the loan periodically rather than repay it is evidence of a taxable distribution rather than a true loan. The use of a tax-sheltered annuity as security for a loan increases the risk that the policyholder will be forced to surrender prematurely the contract. In such event, the interest rate on the policy loan would generally be greater than the interest rate credited to the Cash Value because the loan interest rate is at least one point over the current Cash Value interest rate. The only time that a favorable margin could develop would be if, subsequent to setting the loan rate for the next year, the Cash Value rate increased by more than one point. It is more likely that a favorable margin would exist between the higher Account Balance interest rate and the loan interest rate. However, in April, 1986, the two stated rates were equal, although the effective rate charged on loans would presumably be somewhat higher because the annual interest is paid in advance at the beginning of each year. The viability of the strategy of borrowing at lower rates than are credited to the contract during the term of the loan depends upon the ability of National Western to establish and maintain a favorable margin between the Account Balance rate and the loan rate and the ability of the policyholder to retain his eligibility for the higher Account Balance rate. Neither Respondent made any material misrepresentations or omissions with respect to the flexible-premium contracts sold to Ms. McQuillen, Ms. Taylor, Ms. Rush, or Mr. Frantz. Each sales presentation gave an accurate and reasonably complete description of a somewhat complicated insurance product. Any possible material omissions in the presentation, or in the client's understanding of the material presented, were substantially cured by the application and brochure. The sales presentation to Mr. Dietrich was inaccurate with respect to Respondent Sauer's recommendation that Mr. Dietrich could, by continually rolling over loans, borrow against his contract without ever repaying the loan. By neglecting to mention the possible adverse tax consequences of such a strategy, Respondent Sauer inadvertently misled Mr. Dietrich. The sales presentation to Mr. Dietrich concerning the flexible-premium contract contained another omission. There was no mention in the application, brochure, or sales presentation of the requirement that Mr. Dietrich contribute, in the next four years, a sum equal to four times the amount of his first-year contributions in order to vest the unvested 20% of his first-year contributions when calculating his Cash Value. To the contrary, the brochure emphasized the flexibility accorded the policyholder in setting the amount of his contributions, as described in Paragraph 11 above. Although this omission occurred in all of the presentations, it had greater significance in the case of Mr. Dietrich, who planned on making- significantly greater first-year contributions than the other clients planned to make. In purchasing the flexible-premium annuity, Mr. Dietrich was obligating himself to contribute, based on his projected first-year contributions, an additional $15,400 over the next six years into what he had assumed was a flexible-premium contract.
Recommendation In view of the foregoing, it is hereby RECOMMENDED that a Final Order be entered finding Respondent Connell and Respondent Sauer not guilty and dismissing the Administrative Complaint filed against each of them. ENTERED this 30th day of November, 1988, in Tallahassee, Florida. ROBERT E. MEALE Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 30th day of November, 1988. APPENDIX TO RECOMMENDED ORDER, CASE NOS. 88-3302, 88-3303 Treatment Accorded Petitioner's Proposed Findings 1-4. Adopted in substance. Rejected as irrelevant. Adopted. 7 & 9. Rejected as unsupported by the evidence. 8. First sentence adopted. Second and third sentences rejected as recitation of testimony. Fourth sentence rejected as unsupported by the evidence. Rejected as recitation of evidence. First sentence adopted. Second and fourth sentences rejected as unsupported by the evidence. Third sentence rejected as legal argument. & 14. Adopted in substance. & 15-16. Rejected as irrelevant, except that last eight words of first sentence of Paragraph 16 are adopted. 17 & 21. Rejected as unsupported by the evidence. Adopted. Rejected as irrelevant. Adopted in substance, except that first 16 words arerejected as unsupported by the evidence. Treatment Accorded Respondent's Proposed Findings 1-3 & 6. Adopted. 4 & 5. Rejected as subordinate. 7-11. Adopted in substance. Rejected as recitation of evidence. Adopted through word "policy." Remainder rejected asirrelevant. Last sentence rejected as subordinate. Remainder rejected as recitation of testimony. Rejected as recitation of evidence and legal argument. First sentence adopted. Remainder rejected as recitation of evidence. Rejected as irrelevant. 18-19. Rejected as recitation of evidence. 20. First two sentences adopted, except that from "and" through end of first sentence rejected as irrelevant. Last sentence rejected as not finding of fact. 21-22 & 25. Adopted in substance. 23-24. Adopted. 26. Rejected as unsupported by the evidence. 27-28. Rejected as recitation of testimony. 29-31. Adopted in substance. 30. Adopted. 32. Rejected as irrelevant through "policy." Remainder adopted in substance. 33-34. Adopted in substance, except that first sentence ofParagraph 34 is rejected as recitation of testimony. Rejected as irrelevant. Rejected as unsupported by the evidence, except that the first and tenth sentences are adopted. Adopted in substance. Rejected as irrelevant. COPIES FURNISHED: William W. Tharpe, Jr., Esquire Office of Legal Services 413-B Larson Building Tallahassee, Florida 32399-0300 Richard R. Logsdon, Esquire 1423 South Fort Harrison Avenue Clearwater, Florida 34616 Hon. William Gunter State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Don Dowdell, Esquire General Counsel The Capitol, Plaza Level Tallahassee, Florida 32399-0300 =================================================================
Findings Of Fact The First Variable Rate Fund for Government Income, Inc., (hereinafter referred to as the Fund) is an open-end diversified investment company incorporated under Maryland law. The Fund is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management company. The Fund has an authorized capital of 2.5 billion shares of common stock with a par value of $.001 per share which may be issued in classes and are freely transferable. Each outstanding share is entitled to one vote on all matters submitted to a vote of stockholders and to a prorata share of dividends declared and of the Fund's net assets in liquidation. Shares of the Fund are issued and redeemed at their net asset value. It is the Fund's policy to maintain a constant net asset value of $1.00 per share. The net asset value is determined by subtracting liabilities from value of assets and dividing the remainder by the number of outstanding shares. The Fund's shares are sold to the public without a sales charge. The Fund is a money market fund. Its investment goals are high current income, preservation of capital and liquidity. In pursuing these goals, the Fund invests solely in debt obligations issued or guaranteed by the United States, its agencies or instrumentalities, assignments of interests in such obligations, and commitments to purchase such obligations ("U.S. Government- backed obligators"). The fund may invest in U.S. Government-backed obligations subject to repurchase agreements with recognized securities dealers and banks. Some of the U.S. Government-backed securities are supported by the full faith and credit of the U.S. Treasury; others are supported by the right of the issuer to borrow from the Treasury; still others are supported only by the credit of the instrumentality. The Portfolio of Investments of the Fund on December 31, 1982 contains the following types of investments: U.S. Treasury Bills; Student Loan Marketing Association; Certificates of Deposit; Certificates of Deposit Investment Pools with U.S. Government guarantee on the underlying certificates; Repurchase agreements collateralized by securities issued by or guaranteed by the U.S. Government; Variable rate loans guaranteed by agencies of the U.S. Government. The Portfolio of Investments of the Fund on December 31, 1981 contains the following types of investments: U.S. Treasury Bills; Federal Farm Credit Banks; Repurchase agreements substantially collateralized by securities issued or guaranteed by the U.S. Government; Certificate of Deposit Investment pools with U.S. Government guarantee on the underlying certificates; Variable rate loans guaranteed by agencies of the U.S. Government. Repurchase agreements are transactions in which a person purchases a security and simultaneously commits to resell that security to the seller at a mutually agreed upon time and price. The seller's obligation is secured by the underlying security. The resale price reflects the purchase price plus an agreed upon market rate of interest. While the underlying security may bear a maturity in excess of one year, the term of the repurchase agreement is always less than one year. In the event of the bankruptcy of a seller during the term of a repurchase agreement, a substantial legal question exists as to whether the Fund would be deemed the owners of the underlying security or would be deemed only to have a security interest in and lien upon such security. If the Fund's interest is deemed a security interest in and lien upon such security, the Fund may realize a loss or may be delayed in receiving the repurchase price due it pursuant to the agreement or in selling the underlying security. The Fund will only engage in repurchase agreements with recognized securities dealers and banks. In addition, the Fund will only engage in repurchase agreements reasonably designed to secure fully during the term of the agreement the seller's obligation to repurchase the underlying security and will monitor the market value of the underlying security during the term of the agreement. If the value of the underlying security declines, the Fund may require the seller to pledge additional securities or cash or secure the seller's obligations pursuant to the agreement. If the seller defaults on its obligation to repurchase and the value of the underlying security declines, the Fund may incur a loss and may incur expenses in selling the underlying security. Although all the securities purchased by the Fund are Government-backed as to principal or secured by such securities, some of the types of Government securities the Fund buys may be sold at a premium which is not backed by a Government guarantee. The premiums are amortized over the life of the security; however, if a security should default or be prepaid, the fund could realize as a loss the unamortized portion of such premium. Petitioners, R. W. and Joyce S. Aronson remitted $66.56 by check #235 dated April 10, 1982 in payment of Florida Intangible Tax for 1982. If it is determined that the Fund at issue herein is totally exempt from taxation, the aforesaid Petitioners are entitled to a refund in the amount of $3.96. Petitioner, Helen T. Aronson remitted $84.30 by check #138 dated February 28, 1983 in payment of Florida Intangible Tax for 1983. If it is determined that the Fund at issue herein is totally exempt from taxation, the aforesaid Petitioner is entitled to a refund in the amount of $16.73. The Department of Revenue computes intangible tax on shares of corporations on the basis of "just value" which for publicly held corporations, is market value. The Department of Revenue computed the value of the shares of the Fund on the basis of market value. A review of the Prospectus forwarded with the stipulation of facts discloses that in the Prospectus dated March 1, 1982 only $73,186,000 was invested in United States Government obligations of the total of $1,121,285,000 invested by the Fund; and that in Prospectus dated February 28, 1983, $199,387,000 was invested in United States Government obligations of the total of $1,125,500,000 invested by the Fund. Thus, approximately 6.5 percent in 1982 and 17.7 percent in 1983 of the value of the funds were invested in funds exempt from the Florida intangible tax. Six and one-half percent (6-1/2 %) of $3.96 is $0.26 and 17.7 percent of $16.73 is $2.96.
Findings Of Fact Finding no record that Taxpayer had filed or paid intangible taxes for the years 1979 and 1980, on June 17, 1982, DOR notified Taxpayer they were reviewing Taxpayer's intangible personal property tax account for the years 1979 through 1982 (Exhibit 16). During the audit which followed Taxpayer presented copies of the 1981 and 1982 tax returns and cancelled checks evidencing payment. The audit disclosed small discrepancies in these returns and those discrepancies were satisfied by the Taxpayer and are not an issue in these proceedings. On December 15, 1982, Gateway Hospital sold its assets to Humana Corporation and in December 1983 the corporation was dissolved and a liquidating trust was established to settle accounts and distribute proceeds to the stockholders. After this date none of Taxpayer's employees were located at the Gateway Hospital address, 5115 - 58th Avenue North, St. Petersburg, Florida. One of Taxpayer's contentions on the timeliness issue is that all notices from DOR were sent to the 58th Street address and were either not received or not timely received by Taxpayer. No special notification to DOR of a change of address was submitted by Taxpayer. The 1983 intangible tax return showed Taxpayer's address as 5800 49th Street, Suite 201, St. Petersburg, Florida. However, in the petition for hearing dated March 21, 1985, Petitioner's address is shown as 5115 58th Avenue North, St. Petersburg, Florida 33709. On April 2, 1984, DOR sent Taxpayer Notice of Proposed Assessment (Exhibit 6) for tax years 1979, 1980, 1981, 1982, and 1983 in the amount of $19,786.36 with interest through February 23, 1984. This notice advised Taxpayer that this was final agency action and of its right to petition for an administrative hearing within 60 days or file an action in circuit court within 60 days, and that failure to so petition or file would render the proposed assessment final and no action could thereafter be brought to contest the assessment. This notice was sent certified mail and receipted for at the 58th Avenue North address. Alan Steinbach, the chief operating officer of the liquidating trust, testified he never received Exhibit 6. Subsequent to June 19, 1984, DOR sent Notice of Demand for Payment (Exhibit 7) to Taxpayer to the 58th Avenue North address. This document, the top part of which is identical to Exhibit 6 except interest has been computed to 6/19/84, was received by Steinbach. Steinbach contacted DOR and told Randy Miller, Executive Director, that this was the first notice of a delinquency he had received from DOR and needed additional time to show the taxes had been paid. Miller agreed to allow Taxpayer more time and communicated this to Steven J. Barger, Jr., Chief, Bureau of Audit Selection. By letter dated August 13, 1984 (Exhibit 8), Barger advised Steinbach that the collection procedure would be delayed 30 days to permit Taxpayer time to submit the information necessary to set aside the assessment. By letters dated September 11, 1984 (Exhibit 9) and October 17, 1984 (Exhibit 12), the collection procedures were further stayed until December 12, 1984. During this period Taxpayer presented evidence that the 1982 and 1983 intangible personal property taxes had been paid and all errors in those returns were corrected and the correct taxes paid. By Notice of Proposed Assessment dated 1/9/85 (Exhibit 14) an audit assessment for the tax years 1979-1983 was forwarded to Taxpayer showing the tax, penalties and interest for the tax years 1979 and 1980 through 1/3/85 in the amount of $12,296.30 were due and no taxes were due for the other years. The explanation of appeal rights attached to this audit assessment advised the Taxpayer had 60 days from the date of assessment to contest the assessment in an administrative proceeding or a judicial proceeding. On March 21, 1985, the instant petition was filed. During the period prior to January 9, 1985, Petitioner was unable to locate tax returns or cancelled checks showing payment for 1979 and 1980 although Taxpayer produced returns and cancelled checks for all of the other years from 1977 through 1983. DOR also located evidence showing intangible personal property taxes paid by Taxpayer before and after 1979 and 1980, but could find no record of returns being filed or taxes paid for the years 1979 and 1980. Upon receipt of a tax return and payment DOR photographs the return and payment check on microfilm, enters the data from the return in the computer, and forwards the tax return to the archives in the Department of State. An index for a tax year is compiled after the close of that tax year. Until this index is prepared, DOR cannot readily locate any tax return. As a result, whether or not a tax return was filed by a particular taxpayer cannot be ascertained by DOR until six to nine months after the close of the tax year. At the time Exhibit 7 was forwarded to Taxpayer, DOR could not have located the Taxpayer's 1983 return which, in fact, had been filed, as had the 1981 and 1982 returns. Taxpayer could not locate the returns or cancelled checks representing payment for the years 1979 and 1980. When asked why Taxpayer did not obtain bank records to establish payment, Steinbach responded that the corporation wrote 1000- 1500 checks per month and too many check would have to be screened. Since all payments by Taxpayer for the five years for which returns were produced were made in June, except for one year, 1983, which was paid in July, that does not appear to be an onerous task to avoid a tax liability of more than $12,000.
