Findings Of Fact On September 12, 1985, the LCSB issued a Request for Proposals ("PEP") for a telephone system to serve its Administrative Complex and Lively Area Vocational-Technical Center Main Campus ("the proposed telephone system"). Subsequently, several addenda and supplemental materials were forwarded to all participating vendors of handwritten portion. The PEP scheduled a vendor's conference for September 19, 1985. It required any "discrepancies, errors, omissions, or ambiguities in the specifications or addenda (if any)" to be reported to the LCSB no later than September 25, 1985. Similarly, the PEP required vendors to "submit written requests for clarification of terminology, if necessary, no later than September 25, 1985." Responses to the PEP were required by the time set for opening the vendors' proposals at 10:00 a.m. on October 4, 1985. The compressed time frames were imposed in an effort to be able to complete the PEP process, award the contract and have a telephone system installed by the first week of January 1986. This target date for installation was established because, although budgetary and other problems delayed the start of the PEP process, the LCSB had decided by September 1985 to change its telephone listings in the December 1985 to December 1986 edition of the Official Telephone Directory For Tallahassee, Florida, in anticipation of a new telephone system. Pursuant to a requirement of the PEP, ten letters of intent to submit proposals were received on or before September 19, 1985, including letters of intent from Petitioner, Telecom Plus of Florida, Inc. ("Telecom Plus"), and Intervenor, Centel Business Systems ("Centel"). Telecom Plus, Centel, and three other vendors submitted proposals on or before the deadline of October 4, 1985. By letters dated October 10, 1985, the LCSB Director of Purchasing notified the five proposing vendors that the Superintendent intended to recommend to the LCSB that the contract be awarded to Centel based on the bid tabulation prepared by the LCSB telecommunications consultants. Attached to those letters was a copy of the evaluation summary (bid tabulation). The letter was written on LCSB stationery on behalf of the LCSB and, under Rule 6g x 37-6.09, Rules of the LCSB, had the effect of announcing the intention of the LCSB to award the contract to Centel. The proposed telephone system will serve two locations, the LCSB Administration Complex and the Lively Area Vocational-Technical Center Main Campus. These two locations are separated by a distance of approximately 4,500 feet. The PEP required the proposed telephone system to provide telephone service to each location, as well as to interconnect the two locations. The cable(s) for the interconnection between the two locations will be housed in a 4,500-foot long, four-inch PVC conduit to be installed as part of the proposed telephone system. To satisfy the needs of the LCSB, the proposed telephone system could be in one of several configurations. At least one Electronic Private Automatic Branch Exchange (EPABX, commonly referred to as a "switch") is necessary to provide for intra- and inter-facility communications and to connect the Administration Complex and Lively Area Vocational-Technical Center Main Campus to the outside world. The PEP indicated that the possible configurations for the proposed telephone system included: (1) a single switch at the Administration Complex with cables extending at least 4,500 feet to each telephone instrument at the Lively location; (2) a single switch at the Administration Complex with remote peripheral equipment ("RPE," means a portion of the single switch which is remotely located) located at the Lively location and connected to the switch by 4,500-foot long cables, and (3) two switches, one at the Administration Complex and one at the Lively location, interconnected by 4,500-foot long cables. Telecom Plus filed a protest after the posting of the bid tabulations on or about October 16, 1985. 2/ In its letter of protest, as further explicated in the Prehearing Stipulation, Telecom Plus raised three basic issues. First, Telecom Plus complained that the RFP specifications were ambiguous and not well enough defined, resulting in comparisons between vendors' systems which were not "apples to apples." Second, Telecom Plus claimed that Centel's Call Accounting System, a required subcomponent of the proposed telephone system, fails to meet the FFP's specifications. Finally, Telecom Plus challenged the subjectivity of the point awards in the equipment evaluation, claiming that the point awards for equipment did not accurately reflect the proposals of Telecom Plus and Centel. The LCSB used a request for proposals to solicit vendors' suggestions on how its proposed telephone system needs could best be met because, in the opinion of the LCSB telecommunications consultants, an invitation to bid setting forth precise specifications for equipment in a given configuration would have eliminated all competition among vendors. While the telephone systems proposed by Telecom Plus and Centel differed in the mechanisms used to meet the LCSB needs, the systems were capable of comparison in an evaluation of whether and the extent to which they met the LCSB needs. Each of the alleged ambiguities raised in the Telecom Plus letter of protest were apparent on the face of the FFP. Telecom Plus did not avail itself of several opportunities to have any such perceived ambiguities in the RFP specifications cleared up. On September 19, 1985, the LCSB conducted a vendors' conference to answer vendor questions concerning the PEP and to clarify the vendors' understanding of the PEP. Representatives of Telecom Plus and Centel, as well as several other vendors, attended the vendors' conference. Notes from the vendors' conference setting forth questions raised and the LCSB's answers were distributed as supplemental material to all PEP specifications. In addition to the clarifications made as a result of the vendors' conference, the PEP included an invitation to vendors to submit written requests for clarification of terminology, if necessary, by no later than September 25, 1985. No such written requests were received by LCSB. The PEP also provided that any discrepancies, errors, omissions, or ambiguities in the specifications, errors, omissions, or ambiguities in the specifications or addenda should be reported in writing to the LCSB by no later than September 25, 1985. No such written notification was received by the LCSB. Despite complaints in its protest that these time frames were inadequate, Telecom Plus acknowledged the time frames in its response to the PEP and neither made objection nor took exception to them. On the merits, the PEP clearly and accurately communicated that no system architecture was "preferred" over another. The LCSB wanted the vendor's to propose their solutions to the peculiar communications problems faced by the LCSB. Neither single switch, double switch nor switch with remote peripheral equipment (RPE) configuration was to be excluded from consideration. Regarding the system features, the PEP required electronic multi-line key sets "providing for combinations of five or more lines and/or programmable feature access buttons." Although it may have been wiser to specify the maximum number of lines and feature access buttons, there is nothing ambiguous about the PEP. It requires a minimum of five lines or feature access buttons. Telecom Plus asserted that the Call Accounting System proposed by Centel did not comply with the RFP specifications in that the Call Accounting System proposed by Centel only provides 40,000 call records. The LCSB indicated in the notes from the vendors' conference that a 60,000 capacity in number of calls recorded was "desired"; no 60,000 capacity was specified in the EFP itself. Even if the desired target of 60,000 call records contained in the vendors' conference notes was considered a specification of the RFP, vendors had the option of adding or deleting items from the system requirements in their proposal as long as the additions or deletions are clearly indicated. Centel clearly indicated that its proposed SUMMA IV Call Accounting System would provide only 40,000 call records, complying with the addition/deletion provision of the RFP. 3/ In recognition of the fewer call records provided by Centel's Call Accounting System, the LCSB telecommunications consultants awarded Centel seven fewer points than possible. Telecom Plus, on the other hand, received all of the available points for its Call Accounting System that exceeded the desired target of 60,000 call records. The RFP described the criteria to be used by the LCSB in evaluating proposals. A maximum of 1,000 points would be awarded to each proposal--300 points for equipment considerations, 300 points for vendor considerations and 400 points for financial considerations. The equipment considerations included the system's fulfillment of the minimum size, feature, capacity and performance characteristics contained in the RFP, as well as the availability and functionality of specified items, such as the availability of features, ease of systems operation, and projected longevity. The vendor considerations included the vendor's capability and qualifications to provided installs and maintain the system, which would involve an evaluation of the vendor's experience (particularly with other installations of comparable size and complexity), available manpower, financial stability, and proposed installation and maintenance plans. The financial considerations included initial and recurring costs of the system, which would involve an evaluation of the cost of lease or purchase, cost of maintenance, cost of future additions based upon an assumed annual average growths cost of insurance, cost of systems administration, and any other determinable costs associated with the acquisition, installations or operation of the proposed system. In evaluating proposals, some effort was made to relate points to a dollar value. Since Centel's proposal would cost a total of $1,164,528 over seven years and Telecom Plus' would cost a total of $1,223,281 over seven years, it was borne in mind that each point in the equipment or vendor categories would relate to roughly $4,000 in the financial category. In other words, if a proposal fell short of optimal in an equipment category, for example, the proposal would receive enough fewer points in the equipment category to correspond to the value in dollars by which the proposal was thereby reduced figured at roughly $4,000 per point. By submitting a proposal in response to the PEP, Telecom Plus signified that it understood and accepted the criteria upon which proposals were to be evaluated and the sole discretion of the LCSB evaluators to determine the bid rankings. 4/ Extensive testimony was received regarding the capabilities and features of both Telecom Plus' proposed NEAX 2400 telephone system and Centel's proposed SL-1N telephone system. In addition, the LCSB telecommunications consultants who performed the technical evaluation of the proposals detailed the relative merits of the two systems in their Evaluation Of Proposals dated October 11, 1985. In the Evaluation Of Proposals, points were awarded as follows: Centel Telecom Plus A. Equipment Proven Reliability (of 40) 40 35 System Architecture (of 40) 39 35 Reliability Considerations (of 40) 37 35 System Capacities (of 40) 32 40 System Features (of 35) 35 33 Instruments (of 35) 28 30 Data Considerations (of 35) 34 30 Call Accounting System (of 35) 28 35 TOTAL 273 273 B. Vendor 292 290 C. Financial 384 366 GRAND TOTAL 949 929 The points awarded in the equipment evaluation were justified with one minor exception. The LCSB consultants based their award of points in the "System Features" category on the assumption that the system proposed by Telecom Plus provided for 100 speed call assignments. Actually, that system provides 200 speed call assignments. Accordingly Telecom Plus should have been awarded an additional point. Since the Telecom Plus system received 20 points overall less than Centel's proposed system, the addition of one point to Telecom Plus' total point award would not change the outcome. Regarding proven reliability of the equipment proposed, Centel's proposed switch was first marketed by Northern Telecom in 1975. The switch was improved and modified over the years, and much of the SL-1N is "backward compatible" (i.e., uses components that could be used in prior versions of the switch) Telecom Plus' proposed NEAX 2400, in contrast, has been on the market only approximately 18 months. This gave Centel's proposal the advantage in this category. Regarding Systems Architecture, Centel's RPE proposal gave it the advantage in solving the peculiar need of the LCSB to provide an EPABX to serve two buildings at least 4500 feet apart (but especially in comparison with the Telecom Plus proposal). Regarding reliability considerations, Telecom Plus did not prove (either by documentation in its proposal or by evidence at the hearing) that its D Term telephone instruments will operate reliably at 4500 or more feet from its single telephone switch, as was proposed to provide telephone service for the Lively building. Telecom Plus did, however, delete from the manufacturer's literature included in its response to the RFP the manufacturer's recommendation that the D Term not be used more than 4500 feet from the switch. All these facts and circumstances result in an advantage to the Centel proposal. In the categories System Capacities, Instruments and Call Accounting System, Telecom Plus' proposal deserved and was given the advantage. Telecom Plus did not prove that its advantage should have been larger. In System Capacities, Telecom Plus' proposal received eight more points (worth roughly $32,000) for being "non-blocking" (i.e., all telephone instruments could be off- hook at the same time) although Centel's proposal met all specifications of the RFP. Centel's Call Accounting System is capable of less-than-desired 40,000 call records; Telecom Plus' has the desired 60,000 call record capacity and was given the maximum 35 points in this category. Telecom Plus did not prove that its Call Accounting System was worth more than seven points (roughly $28,000) more to the LCSB, especially since lack of capacity can be addressed by simply "dumping" call records twice as often. (See also footnote 3 above.) Regarding the financial category, Telecom Plus proved that the LCSB consultants erroneously used the pre-cutover price of $240 instead of the post- cutover price of $281 in figuring the cost of additional telephone sets anticipated to be needed during the first seven years of operation under the Centel proposal. This error deflated the total cost of the Centel proposal by approximately $3,000 over seven years. In light of the actual total cost of the Centel proposal, Centel should have received only 383 points in the financial category instead of 384 points, not enough of a difference to change the outcome of this case.
Recommendation Based on the foregoing Findings Of Fact and Conclusions Of Law, it is recommended that the Leon County School Board enter a final order awarding a contract to Centel Business Systems to install the telephone communications system proposed in its response to the Request For Proposals in this case. RECOMMENDED this 5th day of December 1985, in Tallahassee, Florida. J. LAWRENCE JOHNSTON Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 5th day of December 1985.
The Issue The issues are whether Respondents are guilty of selling or offering for sale securities in Florida that were not exempt under Section 517.051, Florida Statutes, were not sold in an exempt transaction under Section 517.061, Florida Statutes, were not a federally covered security, or were not registered pursuant to Chapter 517, Florida Statutes, in violation of Section 517.07(1), Florida Statutes; or whether Respondents are guilty of acting as unregistered dealers, associated persons, or issuers and selling or offering for sale any securities from this state, in violation of Section 517.12(1), Florida Statutes. If so, an additional issue is what penalties should be imposed.
Findings Of Fact At all material times, neither Respondent Philip E. Mehl, Sr. (Mr. Mehl), nor Respondent Susan E. Mehl (Ms. Mehl) has been licensed or registered to sell securities. However, Mr. and Ms. Mehl, who are married to each other, were licensed to sell securities from 1993 through mid-1996. During this period of time, they were registered with three different brokers. Both Mr. and Ms. Mehl were registered with the same broker at the same time. The interests in, or obligations of, the products or investments that were the subject of programs sponsored by ETS Payphones, Inc. (ETS), Eagle Capital Management One U.S. Estate Group, LLC (Eagle), and MP3 Entertainment.com, Inc. (MP3) were never registered as securities pursuant to Chapter 517, Florida Statutes. All sales described below took place in Florida. The ETS payphone program evolved out of the ownership and operation of payphones by ETS, starting in 1992. Offering materials prepared by National Communications Marketing, Inc. (NCMI), offer to sell installed payphones to individuals for $7000. These materials provide each payphone purchaser three options: owner operation, in which the payphone owner maintains, services, and collects coins from the payphone; "turn-key maintenance," in which the payphone owner pays a monthly fee for a payphone management company to maintain, service, and collect coins from the payphone; and a lease, in which the payphone owner leases the payphone to a management company that will pay monthly rent of $82 for a five-year term-- at the end of which the payphone owner may assume the maintenance and operation responsibilities, attempt to renegotiate the lease, or sell the payphone for the original purchase price to the management company. The materials provide that self-directed individual retirement accounts, Keogh plans, simplified employee pension plans, and Section 401K plans may purchase payphones, but only under the third option, in which they lease them to a management company. Mr. Mehl learned of ETS and NCMI in 1996 through Michael Bugelman, who visited Mr. Mehl's office and explained the ETS payphone program. Mr. Bugelman described his business relationship with NCMI, which was one of four ETS affiliates formed by ETS or its chief executive officer, Charles B. Edwards. Mr. Mehl later met Mr. Edwards. From these men, Mr. Mehl learned that NCMI sold the payphones, ETS leased them from the purchasers, and Mr. Mehl could earn commissions if he procured purchasers of ETS payphones. Before agreeing to market ETS payphones, Mr. Mehl contacted numerous persons who had purchased payphones and determined that they were satisfied with the operation of the program. Mr. Mehl also visited the main plant in Georgia where over 200 persons were working in shipping and maintaining payphones. Eventually, Mr. Mehl decided to participate in the marketing of ETS payphones, and his first sales took place in mid-1997. By Sales Representative Agreement dated January 1, 1998, between NCMI and Mr. Mehl or Mehl & Mehl, Inc. (the agreement identifies the sales representative as Mr. Mehl once and Mehl & Mehl, Inc., once), NCMI appointed Mr. Mehl or Mehl & Mehl, Inc., as its sales representative for customer-owned payphones. Among the sales representative's responsibilities was to "[d]evelop and implement a marketing program and plan for maximum sales . . .." In return, NCMI would pay a 10 percent commission with a bonus of a free payphone for sales of at least 15 payphones in a single month. An undated addendum, signed only by Mr. Mehl, raises the commission to 12 percent. Another undated addendum, again signed only by Mr. Mehl, changes the commission to 10-16 percent, based on sales volume. Contemporaneous with the developments, Mr. Mehl was aware of a complaint from a purchaser concerning the sale of four payphones by David R. Fuller. A March 30, 1999, memorandum prepared by Marsha A. Perkins, financial investigator, criminal enforcement, West Central Florida Regional Office, Department of Banking and Finance, states that "[initial review of the offer [including the "offering material"] revealed that [the purchaser] purchased a leasing agreement from ETS Payphones to lease pay phones, which was not within the scope of F.S. 517." The memorandum notes that ETS refunded the purchaser her entire purchase price and that Mr. Fuller may have violated the Florida Deceptive and Unfair Trade Practices Act by representing an annual yield of 15 percent. At some point, Mr. Mehl formed the opinion that Mr. Bugelman was unreliable and decided that he wanted to sever their business relationship. Mr. Bugelman maintained a commission override on all of Mr. Mehl's commissions, so Mr. and Ms. Mehl formed ETI Enterprise Telephone Industries, Inc. (ETI). Although Mr. Mehl remained responsible for selling the payphone program, the addition of Ms. Mehl as a sales agent enabled them to eliminate Mr. Bugelman's commission override. From this point, NCMI and/or ETS paid ETI all commissions due on the sale of ETS payphones. Notwithstanding the assertions contained in his proposed recommended order, Mr. Mehl contends, as he stated in his answers to interrogatories, "I acted more in the nature of a broker. The purchase of payphones was from an unrelated third- party." (Ms. Mehl makes the same contention in her answers to interrogatories.) The Eagle program consists of the sale of membership units in the U.S. Estate Group, LLC. As explained in the Operating Agreement, the business of the limited liability company is "limited to the purchase and collection of defaulted consumer debt that lending institutions have written off, and such other activities as are incidental to [this b]usiness . . .." The Eagle Operating Agreement provides: "all profits and losses of [Eagle] and all income, deductions and credits shall be allocated to the Members in the percentages as set forth in Exhibit 'A.'" The Operating Agreement states that the Manager is to conduct the business of the company, unless removed by a 60 percent vote of the Members or unless a majority of Members vote to override a business decision of the Manager. The Eagle Operating Agreement provides that the company will pay each Member a monthly sum equal to two percent of the Member's investment until the Member receives an amount equal to his or her original investment. The Operating Agreement conditions these payments upon the presence of sufficient operating net cash flow. The Operating Agreement provides that 34 months after the commencement of the two- percent monthly payments, a Member may elect to require the company to repurchase the Member's original investment for the original price.1 Mr. Mehl contends, as he stated in his response to interrogatories, that he "merely conveyed onto individuals the information [about the Eagle program] that was provided to me by the Eagle Program managers. . . . I contest that I was the 'seller' with regard to this alleged investment. I acted as . . . 'broker' in the transaction. I conveyed certain information to interested individuals and they made the decision whether or not they wished to purchase the investment from the Eagle Program itself." (Ms. Mehl makes the same contention in her answers to interrogatories.) The MP3 program consists of the sale of nine-month promissory notes issued by MP3 with an eleven-percent annual return. On certain conditions, including the payment of $4 per share over a specified period of time, the note is convertible to equity. The MP3 offering material adds that these "obligations are fully guaranteed by United Assurance Company Ltd. [w]ith $41 million in assets listed in the A.M. Best International Directory of Insurance Companies." On a candid note, the offering material notes: The company is a public company, listed on the NASD Bulletin Board . . ., formed in 1983, with a $2,000,000 tax loss carry forward, and no assets or liabilities from its former publishing business. Company is receiving $5,000,000 in assets from its new major shareholder. . . . Mr. Mehl holds licenses to sell health, life, annuities, and insurance contracts. He is a certified senior advisor and a certified estate planner. At all material times, he maintained an office in Stuart, Florida, staffed with nine support employees and adjoining a law office, whose attorneys were available to Mr. Mehl's clients. Publishing flyers in the local newspaper, Mr. Mehl solicited interested persons to attend monthly workshops or seminars that he would sponsor in the Stuart area. Persons obtained by Mr. Mehl would present investment options at the workshops or seminars. Two or three times, Mr. Edwards was the featured speaker. Although other speakers did not highlight any of the three programs that are the subject of this case, they discussed many investment topics. At some point, attendees would have an opportunity to sign up to meet Mr. Mehl at his office to discuss investment possibilities. Ten persons testified that they invested money based on Mr. Mehl's advice in one of the three subject programs. Sterling Tyndall has been retired for six years. Formerly an electrician, he had little investment experience, mostly in some mutual funds and major stocks like Intel and Oracle. A friend, Richard Granger, who had done business with Mr. Mehl, recommended that Mr. Tyndall discuss with Mr. Mehl investment options. Although he met Ms. Mehl inconsequentially while in the office, Mr. Tyndall's contact was with Mr. Mehl. When Mr. Tyndall asked for an investment that would provide him a good return, Mr. Mehl recommended ETS payphones. Mr. Mehl assured Mr. Tyndall that the principal would be guaranteed for five years and he would receive 14 percent annually on his investment. Mr. Mehl explained the three management options for the payphones, and Mr. Tyndall chose the lease option. Mr. Tyndall invested $28,000 in ETS payphones three years ago. Mr. Mehl was the sales agent on the sale. After receiving several monthly payments, he stopped receiving any money. His sole chance of recovering any more of his investment lies with the trustee in bankruptcy. Mr. Tyndall also invested $99,000 in the Eagle membership units, apparently in a single transaction. Acting as the sales agent in this transaction, Mr. Mehl assured Mr. Tyndall that the investment was risk-free, and Mr. Tyndall would receive a guaranteed annual return of 24 percent. After receiving two payments, Mr. Tyndall received notification from the Commonwealth of Pennsylvania that it had attached the accounts and hoped to be able to return two-thirds of his original investment. Mr. Granger has been retired 16 years after a career with General Motors as Senior Buyer in charge of the Fisher Body Division. Mr. Granger has no investment experience and learned of Mr. Mehl through a flyer in the Stuart News. During the seminar that he attended, Mr. Granger made an appointment to meet Mr. Mehl at his office. During that meeting, Mr. Mehl sold him three annuity contracts. About one year later, Mr. Granger visited Mr. Mehl again; the annuities that had originally paid eight percent annually were now paying only 4.25 percent annually. Mr. Mehl suggested that Mr. Granger cash in his annuities and invest in a higher-returning investment--ETS payphones. Mr. Granger originally bought two or three ETS payphones. Later, he purchased ten more ETS payphones. His total investment was $84,000. Mr. Mehl was the sales agent. Although Ms. Mehl and Mr. Granger became friends, she did not participate in the sales. Mr. Granger received payments for about six months, but has received no more income or return of principal on this investment. Mr. Granger also invested in MP3 notes, on Mr. Mehl's recommendation. Mr. Mehl told Mr. Granger that this was an "insured" investment, and he would earn 11 percent over nine months, if he accepted a single payment at the end of the term, or 10 percent over nine months, if he preferred monthly payments. Mr. Granger invested $60,000 with Mr. Mehl as the sales agent. Mr. Granger has lost his entire investment in MP3. Robert A. Cook is a freelance contractor engaged in structural and architectural design work. He has no investment experience. When looking for insurance, Mr. Mehl was recommended to Mr. Cook. At some point, Mr. Cook learned that Mr. Mehl was also a financial advisor. In a discussion, Mr. Mehl recommended that Mr. Cook diversify his investments to include ETS payphones. Assuring Mr. Cook that the ETS payphone investment was secure, Mr. Mehl said that it was a five-year guaranteed contract at a certain interest rate. Mr. Mehl praised the investment highly. Mr. Cook understood that, if something happened to "his" payphone, ETS would assign him another, and he could deduct his expenses in visiting "his" payphone. Mr. Cook invested over $120,000 in ETS payphones. Mr. Mehl served as the sales agent. He was not told of the three management options or that a separate company would lease the phones. At some point, Mr. Cook met Mr. Edwards at a seminar and was impressed with Mr. Edwards down-to-earth quality. Mr. Edwards even mentioned how they had returned the money of one purchaser who had suffered some financial problems. When Mr. Cook first encountered interrupted payments, he trusted Mr. Mehl's assurances that Mr. Cook would get his payments. Mr. Cook lost nearly all of his investment. Naomi Schounard is a retired teacher without much investment experience. She first met Mr. Mehl when he served as her Sunday school teacher. Three years prior to her ETS investment, Ms. Schounard visited Mr. Mehl at his office and received good advice on stocks. When Ms. Schounard heard about the ETS payphones, she asked Mr. Mehl if they were not securities. He responded that problems with the state concerning the ETS program had been taken care of. He told her that the ETS payphones carried only a "little bit" of risk and that she would get her money back in five years. Ms. Schounard kept wondering about the impact of cell phones and why all the payphones she saw were rundown. Mr. Mehl replied that one-third of all persons did not have a phone. He assured her that Mr. Edwards was a good friend and a "fine Christian gentleman," on whom she could depend. Mr. Mehl added, "I wouldn't think of offering to sell something to those wonderful people at the church that I knew wasn't a good investment." Eventually, Ms. Schounard invested $38,000 in ETS payphones with Mr. Mehl as the sales agent. No one told her about the three management options. She lost her entire investment except for six monthly checks that she received from January through June 2000. As late as July 2000, Mr. Mehl tried to sell Ms. Schounard more ETS payphones. Ms. Schounard also invested in MP3 notes. Commenting on how hesitant she had been in making the ETS investment, Mr. Mehl told Ms. Schounard that he had another investment that is guaranteed by an offshore insurance company also licensed in California. Mr. Mehl asked her if she had anything to cash in to buy these notes. Ms. Schounard replied that she had a single premium life insurance policy. Mr. Mehl told her that that was a bad investment, so she cashed in two of three or four policies. She and her husband invested a total of $116,350, including $25,000 from the cashed-in life policies and the rest from their individual retirement accounts. Mr. Mehl was the sales agent on this investment, and Mr. and Ms. Schounard lost every penny of the money they spent on MP3 notes. Ms. Mehl did not participate in Ms. Schounard's transactions. However, Ms. Schounard heard Ms. Mehl assure an elderly woman in the office lobby about her ETS payphone investment, "Don't worry. Everything will be great. Wait until you get your first check." Mary Louise Smick is a retired customer service representative for a utility company. She has no investment experience. Ms. Smick first met Mr. Mehl in late 1998 through her income-tax preparer, who had advised Ms. Smick that she was paying too much income tax. When she met Mr. Mehl, he told her that he had researched ETS for two years before presenting it to clients. Ms. Smick invested $110,600 in ETS payphones with Mr. Mehl as the sales agent through purchases of $7000 in May 1999, $77,000 in August 1999, and $26,600 in March 2000. Mr. Mehl assured her that the investment had no risk and was liquid. No one told Ms. Smick about the management options. She lost her total investment except for payments of $11,414. Ms. Mehl did not take part in any transaction with Ms. Smick. Ms. Smick also invested $86,000 in Eagle and MP3. Her Eagle investment appears to have been a single transaction. Again, Mr. Mehl assured her that he had researched Eagle for two years and she could not lose money in Eagle membership interests. Mr. Mehl told Ms. Smick that the MP3 notes were ideal for her desire for short term return on $20,000 that she wanted to invest; he guaranteed her that she would have her money back plus interest in nine months. Ms. Smick lost her entire investment. She has since been forced to sell her apartment. Arthur Hayes is retired from Allstate Insurance Company and has no previous investment experience, except for rolling over a profit-sharing account and retirement pay into an AG Edwards account. Mr. Hayes first met Mr. Mehl two years ago after seeing an advertisement for a trust for $365. Mr. Hayes visited Mr. Mehl's son, Shawn, who suggested that Mr. Hayes speak with Mr. Mehl. When he visited Mr. Mehl, Mr. Hayes learned from Mr. Mehl that ETS payphones were paying 14 percent annually. Mr. Mehl told Mr. Hayes that Mr. Mehl had $500,000 in ETS payphones, and the investment was very safe and secure. Mr. Hayes knew that one of his neighbors had been collecting for 12-18 months on an ETS payphone purchase through Mr. Mehl. With Mr. Mehl as the sales agent, Mr. Hayes invested $280,000 in ETS payphones in early June 2000. Mr. Hayes had no dealings with Ms. Mehl. No one discussed the three management options. Mr. Hayes lost his entire investment. At Mr. Mehl's suggestion, Mr. Hayes purchased $328,000 in MP3 notes. Mr. Mehl assured him that the notes were bonded and he would receive nine percent, if he wanted monthly payments, or 10 percent, if he would accept a single payment at the end of a year. Mr. Mehl did not reveal that the surety, if any, was offshore. Mr. Haynes lost his entire investment, as to which Mr. Mehl was the sales agent. George Kitchen is a retired ophthalmic lens designer. His investment experience is limited to mutual funds, such as those offered by Fidelity Investment. Mr. Kitchen first met Mr. Mehl in 1998 when Mr. Kitchen attended a seminar for which he had seen an advertisement in the newspaper. The subject of the seminar was investing and trusts. Mr. Mehl later recommended to Mr. Kitchen the ETS payphones. Mr. Mehl assured him that the investment was liquid, risk-free, and interest-bearing. With Mr. Mehl as the sales agent, Mr. Kitchen and his wife invested a total of $233,000. Although he recalls that Ms. Mehl had him sign some papers, Mr. Kitchen cannot recall whether the papers were connected to the ETS purchase. Mr. Mehl explained the three management options. Mr. Kitchen and his wife lost their entire investment. In what appears to have been a single transaction, Mr. Kitchen also invested in Eagle through Mr. Mehl as the sales agent. Mr. Mehl described the investment as an opportunity to earn 24 percent interest annually. Mr. Kitchen invested $100,000 in Eagle membership interests, but hopes to receive 86 percent of this investment back through the efforts of Pennsylvania officials. With Mr. Mehl as the sales agent, Mr. Kitchen also invested $30,000 in MP3 notes. Mr. Mehl told Mr. Kitchen that these notes would pay nine percent annually and were ironclad because they were insured. Lengi Dominissini is a retired plasterer without investment experience. He first met Mr. Mehl at a seminar to protect money from a nursing home. During the seminar, Mr. Dominissini made an appointment to meet Mr. Mehl at his office. Mr. Mehl and Ms. Mehl described the ETS payphone program to Mr. Dominissini during several office visits. Mr. Mehl assured Mr. Dominissini that the investment was "rock solid." On the last visit, when Mr. Dominissini purchased $56,000 of ETS payphones, his wife walked out of the office in disgust. To make the purchase, Mr. Dominissini paid a $17,000 penalty on an early withdrawal, based on Mr. Mehl's advice that his five percent annual return was insufficient. With Mr. Mehl as the sales agent, Mr. Dominissini received three monthly checks before losing the remainder of his investment. Mr. Mehl also served as the sales agent when Mr. Dominissini purchased $86,000 in MP3 notes. Mr. Mehl assured Mr. Dominissini that this investment was safe. Mr. Dominissini lost his entire investment in MP3 notes. Martha Fritz is a housewife with no investment experience. She first met Mr. Mehl in 1997 when she saw one of his advertisements as a financial advisor. She attended one of Mr. Mehl's financial seminars. She later went to his office for financial advice and to obtain a living trust. As the sales agent, Mr. Mehl sold Ms. Fritz $72,000 in ETS payphones. She based her investment decision on her trust of Mr. Mehl and his assurance that he had invested in the ETS payphones for a couple of years. Mr. Mehl mentioned the three management options. Ms. Fritz lost her entire investment. Raymond Joseph Sweeney is a retired manager of New York Telephone, who had invested previously only in his company's stock. Mr. Sweeney met Mr. Mehl two and one-half years ago through word-of-mouth. He sought Mr. Mehl's advice for the investment of retirement funds at a return that would better current returns in the stock market. Mr. Mehl suggested ETS payphones, assuring Mr. Sweeney that he would receive 14 percent annually, risk-free, and ETS would collect the coins from his payphones. With Mr. Mehl as the sales agent, Mr. Sweeney invested $114,000 and lost all of it except for $41,000. Again with Mr. Mehl as the sales agent, Mr. Sweeney and his wife, each using his or her individual retirement account and both using a joint account, purchased $103,203.38 in Eagle membership interests. Mr. Mehl told Mr. Sweeney that he could get 24-25 percent annual interest. Instead, Mr. and Ms. Sweeney lost their entire investment in these three Eagle transactions. An employee of Petitioner posing as a potential investor spoke with Ms. Mehl about ETS payphones. She told him that the ETS payphone purchases could be determined to be securities, but they were not. She said that ideal locations would be in places like the South Bronx, where residents could not afford home telephones. She told the employee that he needed to make an appointment for a one to one and one-half hour presentation on the ETS program, and she mailed him ETS payphone offering materials. Mr. Mehl's 181 sales of ETS payphones constituted 181 sales of unregistered securities and 181 sales of securities by an unregistered associated person or dealer. The ETS payphone sales by NCMI with simultaneous leases from the purchasers to ETS constitute investment contracts because the payphone purchasers are investing money in a common enterprise induced by the expectation of profit solely from the efforts of other persons. As for the common enterprise, the ETS payphone program bears all the indicia of a Ponzi scheme, in which early investors are paid not with earned income, but with the investments made by later investors, often acting in reliance upon the positive returns experienced by the early investors. By definition, such a scheme requires the pooling of investors' funds, despite any contrary indications in the offering materials. Even if not a Ponzi scheme, the ETS payphone program constitutes a common enterprise because the economic return of the investors in based on the managerial efforts of the promoters. Each payphone purchaser chose the lease option from among the three management options or one of the Respondents chose the lease option for the payphone purchaser. Regardless of the documentation, when the ETS payphone program went down, all purchasers went down at the same time. Nor does the ETS payphone lease leave purchasers with significant control over "their" payphones. The lease provides that ETS has the "right and sole authority" to move payphones to a new location if the original location proves unprofitable or subject to vandalism. The lease adds that the payphones remain under the "sole and absolute control" of ETS with the lessor having only a right to inspect the payphones. The present record does not support the characterization of the sale-and-lease transactions as a financing arrangement. No evidence suggests that ETS relied on the investments of ETS payphone purchasers in order to conduct normal business. Instead, the record, including the offering materials, is replete with evidence that the motivating force for these purchases was the payphone purchasers' search for superior, safe returns on their investments. The record amply demonstrates that the role of ETS was to provide managerial expertise to assist the purchasers in realizing their investment objectives, and the role of the purchasers was not to provide financing for ETS to expand its payphone business. Thus, the sale-and-lease transaction was an investment contract, not a financing arrangement. Mr. Mehl's six sales of Eagle membership interests constituted six sales of unregistered securities and six sales of securities by an unregistered associated person. The Eagle membership interests constitute investment contracts because the purchasers are investing money in a common enterprise induced by the expectation of profit solely from the efforts of other persons. Unlike the situation with the ETS payphone purchases, in which the focus is on the common enterprise, the focus in the Eagle membership interests is on whether the purchasers are relying solely on the efforts of other persons. In the Eagle operating agreement, the Manager exerts the efforts, in buying accounts receivable, on which the Members rely for their profits. Although it is true that Members may override decisions of the Manager and replace the Manager, these rights are illusory as a practical matter. The purchasers in this case, for instance, had no clear idea what they were buying. They sensed vaguely (and incorrectly) that they held some form of debt, not equity. The Eagle purchasers had no idea that the form of their purchase was not a promissory note, but a membership interest in a form of entity that did not even exist in Florida 25 years ago. It follows that the Eagle purchasers had no idea that they had any rights in the management of Eagle and no idea how to exercise such rights. In sum, the Eagle purchasers had no effective rights in the management of Eagle, but relied completely on the Manager to provide a return on their investment, and, when he failed to do so, the Eagle purchasers in this case had no idea what to do but to wait for Pennsylvania to try to return a portion of their investments. Mr. Mehl's 52 sales of MP3 notes constituted 52 sales of unregistered securities and 52 sales of securities by an unregistered associated person. The MP3 notes constitute a security because they are option contracts that are convertible to equity at a fixed price within a specified period of time. The notes also constitute a security because they are investment contracts. Ms. Mehl participated substantially in the sale of ETS payphones to an unnamed elderly woman and Mr. Dominissini and participated substantially in the offer to sell ETS payphones to one of Petitioner's employees. These sales and offer to sell constitute three sales or offers to sell an unregistered security and three sales or offers to sell a security by an unregistered associated person. Additionally, Petitioner proved that Ms. Mehl was the sales agent on 285 purchases involving ETS payphones. Petitioner established this sales activity by the 285 COCOT [Coin-Operated, Customer-Owned Telephones] Purchase Agreements signed by Ms. Mehl (Petitioner Exhibit 12) and other evidence in the record.
Recommendation It is RECOMMENDED that the Department of Banking and Finance enter a final order directing Respondents to cease and desist from further violations of Sections 517.07(1) and 517.12(1), Florida Statutes; imposing an administrative fine of $2,390,000 against Mr. Mehl; and imposing an administrative fine of $2,880,000 against Ms. Mehl. DONE AND ENTERED this 16th day of July, 2002, in Tallahassee, Leon County, Florida. ROBERT E. MEALE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 16th day of July, 2002.
The Issue Whether proposed rules 25-4.300 ("Scope and Definition"); 25-4.301 ("Applicability of Fresh Look"); and 25-4.302, ("Termination of Local Exchange Contracts"), Florida Administrative Code, known as "The Fresh Look Provision," constitute an "invalid exercise of delegated legislative authority".
Findings Of Fact Telecommunications carriers/providers may "wear different hats," dependent upon what function they are performing at a given time. Local exchange carriers are abbreviated "LECs" in the proposed rules. For purposes of this case only, Time Warner is an Alternative Local Exchange Carrier ("ALEC") and GTE and BST are Incumbent Local Exchange Carriers ("ILECs"). Both types of companies provide local telephone service over the public switch network. On February 17, 1998, Time Warner filed a Petition to Initiate Rulemaking. Time Warner's Petition requested that the Commission adopt what it described as a "Fresh Look" rule, under which a customer a/k/a "patron" a/k/a "end user" of an ILEC who had agreed to a long-term, discounted contract would have an opportunity to abrogate that ILEC contract without incurring the liability to the ILEC which the customer had agreed to, so that the customer could then enter a new contract with an ALEC. On at least one prior occasion, the Commission had elected to reach a similar result by a Final Order, rather than by enacting a rule. This time, the Commission granted Time Warner's Petition, and the Commission began the rulemaking process. Other states have adopted "Fresh Look" rules or statutes with varying degrees of success. The legislative, administrative, or litigation histories of these extraterritorial matters are immaterial to the rule validity issues herein, which are governed by Chapter 120, Florida Statutes. Those histories are likewise non-binding on this forum. The Commission has no way of identifying, let alone notifying, ILEC contract customers as a separate class of the public or as a separate class of potentially interested parties. However, the public, including customers and carriers, received the required statutory notice(s) at each stage of the rulemaking process, and only the following dates and occurrences have significance within the rulemaking process for purposes of the issues herein. A Notice of Rulemaking Development was published in the Florida Administrative Weekly on April 3, 1998. Commission staff held a Rule Development Workshop on April 22, 1998. Based on information received from carriers in response to staff data requests, the rules as proposed April 3, 1998, were revised by staff. On March 4, 1999, staff recommended that the revised rules be adopted by the Commission. At its Agenda Conference on March 19, 1999, the Commission set the rulemaking for hearing. On March 24, 1999, the Commission issued a Notice of Rulemaking, which included further revisions to the proposed rules. The Commission received a letter from JAPC dated April 28, 1999 ("the JAPC letter") which stated, in pertinent part: Article 1, Section 10 of the Florida Constitution prohibits the passage of laws impairing the obligation of contracts. Inasmuch as the rules effectively amend the terms of existing contracts, please reconcile the rules with the Constitution. The JAPC letter was not placed into the rulemaking record, responded-to by the Commission, or specifically addressed on its merits by any interested parties. Interested parties did not find out about it until many months later. A rulemaking hearing on the proposed rules was held before the Commission on May 12, 1999. Interested persons submitted written and oral testimony and comments at the hearing. No customer with a contract that would be affected by these rules participated in the rulemaking proceedings, including the hearing, before the Commission. At no time did anyone formally submit a lower cost regulatory alternative, but it was clear throughout the rulemaking process that Petitioners herein opposed the adoption of the proposed rules. Two Statements of Estimated Regulatory Cost ("SERCs") were prepared by Commission staff. The proposed rules were further revised after the May 12, 1999, hearing. On November 4, 1999, Commission staff issued a recommendation that the Commission adopt the latest rules draft, in part on the basis that the proposed rules will implement the "regulatory mandates" of Section 364.01, Florida Statutes, that the Commission should "promote competition by encouraging new entrants" and "encourage competition through flexible regulatory treatment among providers of telecommunication services." Attached to this recommendation was a revised SERC, dated September 13, 1999. The September 13, 1999, SERC addressed the alternative of not adopting the proposed rules, and found such an alternative was not viable because it would not foster competition. In preparing both SERCs, Commission staff relied solely on market share data for analyzing competition and did not fully account for revenues to which ILECs were contractually entitled, but which potentially could be unilaterally cancelled by the ILEC customer as a result of the proposed rules. Staff did not ask for such data for estimating cost of the proposed rules to the ILECs. At its November 16, 1999, Agenda Conference, the participation of interested parties was limited to addressing the new SERC. During this Agenda Conference, the Commission revised the rules further, limiting the contracts affected by them to contracts entered into before July 1, 1999, and voted to approve the proposed rules as revised. The exact language of the proposed rules under challenge, as published in the December 3, 1999, Florida Administrative Weekly, pursuant to Section 120.54(3)(d), Florida Statutes, is as follows: PART XII - FRESH LOOK: 25-4.300 Scope and Definitions. Scope. For the purposes of this Part, all contracts that include local telecommunications services offered over the public switched network, between LECs and end users, which were entered into prior to June 30, 1999, that are in effect as of the effective date of this rule, and are scheduled to remain in effect for a least one year after the effective date of this rule will be contracts eligible for Fresh Look. Local telecommunications services offered over the public switched network are defined as those services which include provision of dial tone and flat-rated or message-rated usage. If an end user exercises an option to renew or a provision for automatic renewal, this constitutes a new contract for purposes of this Part, unless penalties apply if the end user elects not to exercise such option or provision. This Part does not apply to LECs which had fewer than 100,000 access lines as of July 1, 1995, and have not elected price-cap regulation. Eligible contracts include, but are not limited to, Contract Service Arrangements (CSAs) and tariffed term plans in which the rate varies according to the end user's term commitment. The end user may exercise this provision solely for the purpose of obtaining a new contract. For the purposes of this Part, the definitions to the following terms apply: "Fresh Look Window" - The period of time during which LEC end users may terminate eligible contracts under the limited liability provision specified in Rule 25- 4.302(3). "Notice of Intent to Terminate" - The written notice by an end user of the end user's intent to terminate an eligible contract pursuant to this rule. "Notice of Termination" - The written notice by an end user to terminate an eligible contract pursuant to this rule. "Statement of Termination Liability" - The written statement by a LEC detailing the liability pursuant to 25-4.302(3), if any, for an end user to terminate an eligible contract. 25-4.301 Applicability of Fresh Look. The Fresh Look Window shall apply to all eligible contracts. The Fresh Look Window shall begin 60 days after the effective date of this rule. The Fresh Look Window shall remain open for one year from the starting date of the Fresh Look Window. An end user may only issue one Notice of Intent to Terminate during the Fresh Look Window for each eligible contract. 25-4.302 Termination of LEC Contracts. Each LEC shall respond to all Fresh Look inquiries and shall designate a contact within its company to which all Fresh Look inquiries and requests should be directed. An end user may provide a written Notice of Intent to Terminate an eligible contract to the LEC during the Fresh Look Window. Within ten business days of receiving the Notice of Intent to Terminate, the LEC shall provide a written Statement of Termination Liability. The termination liability shall be limited to any unrecovered, contract specific nonrecurring costs, in an amount not to exceed the termination liability specified in the terms of the contract. The termination liability shall be calculated as follows: For tariffed term plans, the payments shall be recalculated based on the amount that would have been paid under a tariffed term plan that corresponds to the actual time the service has been subscribed to. For CSAs, the termination liability shall be limited to any unrecovered, contract specific nonrecurring costs, in an amount not to exceed the termination liability specified in the terms of the contract. The termination liability shall be calculated from the information contained in the contract or the workpapers supporting the contract. If a discrepancy arises between the contract and the workpapers, the contract shall be controlling. In the Statement of Termination Liability, the LEC shall specify if and how the termination liability will vary depending on the date services are disconnected pursuant to subsections (4) and (6). From the date the end user receives the Statement of Termination Liability from the LEC, the end user shall have 30 days to provide a Notice of Termination. If the end user does not provide a Notice of Termination within 30 days, the eligible contract shall remain in effect. If the end user provides the Notice of Termination, the end user will pay any termination liability in a one-time payment. The LEC shall have 30 days to terminate the subject services from the date the LEC receives the Notice of Termination. (Emphasis provided only to facilitate the following discussion of "timed" provisions) "Tariff term plans" or "tariffed term plans" are telecommunication service plans in which the rate the customer pays depends on the length of the service commitment. The longer the service commitment the customer makes with the company, the lower the monthly rate will be. Ninety-eight percent of the contracts affected by the proposed rules are tariff term plans filed with the Commission. Contract service arrangements (CSAs) have many functions. By tariff term plans and CSAs, carriers and their customers formalize a negotiation whereby the customer signs-on for service for an extended period, in exchange for lower rates than he would get if he committed to shorter periods or under the regular tariff. Both tariff term plans and CSAs are subject to the Commission's regulatory oversight. No reason was given for use of the "included but not limited to" language added in the rules' current draft. The Commission has published that the "specific authority" for the proposed rules is Sections 350.127(2) and 364.19, Florida Statutes. The Commission has published that the "law implemented" by the proposed rules is Sections 364.19 and 364.01, Florida Statutes. The proposed rules would allow customers of ILECs, including Petitioners GTE and BST, to terminate their contracts and tariffed term plans for local exchange services without paying the termination liability stated in those contracts and tariffs. Instead, customers would only be required to pay the ILEC "any unrecovered, contract specific nonrecurring costs" associated with the contracts. (Proposed rule 25-4.302(3)(b)). For tariffed term plans (but not contracts), termination liability would be recalculated as the difference, if any, between the amount the customer paid and the amount he would have paid under a plan corresponding to the period during which he actually subscribed to the service. (Proposed rule 25- 4.302(3)(a)). The "Fresh Look" rule applies to agreements entered into before June 30, 1999, and that remain in effect for at least one year after the date the rule takes effect. (Proposed rule 25-4.300(1)). The window for contract termination starts 60 days after the rules' effective date and lasts for one year thereafter. (Proposed rule 25-4.301). In the case of ILEC customers who may exercise the "opt-out early" (termination) provisions of the proposed rules, the proposed rules would provide the ILECs with the compensation they would have received if the contracts had been made for a shorter period than for the period of time for which the parties had actually negotiated. The proposed rules clearly modify existing contracts. Indeed, they retroactively impair existing contracts. It may reasonably be inferred that the retroactive elimination of the respective durations of the existing contracts would work to the detriment of any ILECs which have waived "start up costs" on individual contracts or which planned or invested in any technological upgrades or committed to any other business components (labor, training, material, development, expansion, etc.) in anticipation of fulfilling the contracts and profiting over the longer contract terms legally entered-into prior to the proposed rules. The purpose of the proposed rules, as reflected in the Commission's rulemaking notices, is to "enable ALECs to compete for existing ILEC customer contracts covering local exchange telecommunications services offered over the public switched network, which were entered into prior to switch-based substitutes for local exchange telecommunications services." However, the Commission now concedes that switch-based substitutes for the ILECs' local exchange services were widely available to consumers prior to June 30, 1999, the date provided in the proposed rule. At hearing, the Commission asserted that it is also the purpose of the proposed rules to actively encourage competition, and that by proposing these rules, the Commission deemed competition to be meaningful or sufficient enough to warrant a "fresh look" at the ILECs' contracts, but not so widespread that the rules would not be necessary. In effect, the Commission made a "judgment call" concerning the existence of "meaningful or sufficient" competition, but has not defined "sufficient" or "meaningful" competition for purposes of the proposed rules. The Commission's selection of June 30, 1999, as the cut-off date for contract eligibility was motivated primarily by a concept that using that date would render approximately 40 percent of existing ILEC contracts eligible for termination. The rulemaking process revealed that the terms of so- called "long-term" agreements range from six months to four years in duration. The Commission selected a one-year term for eligible contracts subject to the proposed rules as a compromise based on this spread of actual contract durations. The one-year window of opportunity in which a customer will be permitted to terminate a contract was selected by the Commission as a compromise among presenters' views expressed during the rulemaking process. The one-year window is to be implemented 60 days after the effective date of the rule to avoid the type of problems incurred when a "fresh look" was previously accomplished by a Commission Order and to allow the ILECs and ALECs time to prepare. Tariffed term plans were developed as a response to competition and have been used at least since 1973. As early as 1984, the Commission had, by Order, given ILECs authority to use CSAs for certain services, upon the condition that there was a competitive alternative available. The Commission has long been aware of the ILECs' use of termination liability provisions in CSAs and tariff term plans, including provisions for customer premises equipment (CPE), and has not affirmatively determined that their use is anticompetitive, discriminatory, or otherwise impermissible. Private branch exchanges (PBXs), which are switches, competed with the ILECs' Centrex systems for medium- to large- size business customers and key telephone systems for smaller businesses, from the early 1980's, as recognized by a Commission Order in 1994. Commission Order No. PSC-94-0285-FOF-TP, dated March 3, 1994, in Docket No. 921074-TP, permitted a "fresh look" for customers of LEC private line and special access services with terms equal to, or greater than, three years. Customers were permitted a limited time to terminate their existing contracts with LECs to take advantage of emerging competitive alternatives, such as alternative access vendors' (AAVs') ability to interconnect with LECs' facilities. Termination liability of the customer to the ILEC was limited to the amount the customer would have paid for the services actually used. Prior to 1996, only ILECs could offer dial tone service, which enables end users to communicate with anyone else who has a telephone. Chapter 364, Florida Statutes, Florida's telecommunication statute, was amended effective January 1, 1996, to allow ALECs to operate in Florida. ILECs had offered tariffed term plans and CSAs for certain services before the 1996 revision of Chapter 364, Florida Statutes, but effective 1996, substantial amendments allowed the entry of ALECs into ILECs' markets. The new amendments codified and expanded the ILECs' ability to use CSAs and term and volume discount contracts in exchange for ILECs losing their exclusive local franchises and deleted statutory language requiring the Commission to determine that there was effective competition for a particular service before an ILEC could be granted pricing flexibility for that service. Tariff filings before the amendments had required Commission approval. The federal Telecommunications Act of 1996 also opened the ILECs' local exchange markets to full competition and imposed upon the ILECs a number of obligations designed to encourage competitive entry by ALECs into the market, including allowing ALECs to interconnect their networks with those of ILECs; "unbundling" ILEC networks to sell the unbundled elements to competitors; and reselling ILEC telecommunications services to ALECs at a wholesale discount. See 47 U.S.C. Section 51 et seq. "Resale" means taking an existing service provided by a LEC and repackaging or remarketing it. The requirement that ILECs resell their services, including contracts and tariffed term plans, to competitors at a wholesale discount, has been very effective in stimulating resale competition, but to resell or not is purely an internal business decision of each ALEC. For instance, Time Warner has elected not to be involved in "resales," and is entirely "facility based." Since 1996, competing carriers could and do sell additional (other) services to customers already committed to long-term ILEC contracts. They may also purchase ILEC CSAs wholesale at discount and resell such agreements to customers. Market share data demonstrates that there has been greater ALEC competition in Florida since the 1996 amendments, but typically, ALECs target big cities with denser populations and denser business concentrations. There is no persuasive evidence that any of the affected ILEC contracts (those post-June 30, 1999) were entered into by customers who did not have competing alternatives from which to choose. In fact, testimony by Commission staff supports a finding that since LECs' CSAs are subject to Commission review and their service tariffs are filed with the Commission, the Commission has not authorized CSAs unless there was an "uneconomic bypass" or competition. "Uneconomic bypass" occurs where a competitor can offer service at a price below the LEC's tariffed rate but above the LEC's cost. The Commission presented an ILEC customer, Mr. Eric Larsen of Tallahassee, who testified that he had had the benefit of competition, not necessarily from an ALEC, when he had entertained a bid from a carrier different from his then-current ILEC in 1999. However, at that time, he renegotiated an expiring contract with his then-current ILEC instead of with the competitor. This renewal contract with an ILEC would not be affected by the proposed rules. Business customers, such as Mr. Larsen, may reasonably perceive business trends. They could reasonably be expected to have factored into their negotiations with competing carriers at the time the contracts were formed that a potential for greater choices would occur in the future, even within the life of their long-term contracts with an ILEC. As of 1999, 80 ALECs were serving Florida customers, 100 more had expressed their intention of serving Florida before the end of the year 2000, and ALECs had obtained some share of the business lines in many exchanges. While this does not mean that every area of Florida has every service, it is indicative of a spread of competition. Petitioner GTE is anchored in the Tampa Bay area. By June 30, 1999, the date expressed in the proposed rules, nine facilities-based competitors were in the same geographic area. One ALEC (MCI) was serving 10,000 lines. Competitors operated 20 switches and 83 percent of the buildings in GTE's franchise area were within 18,000 feet of a competitor's switch. However, in most cases, GTE's CSA or tariff term agreements had been successful against specific competing bids for the respective services. Market share data showed that by June 30, 1999, Petitioner GTE had executed 101 agreements allowing ALECs to provide service by inter-connecting their networks with GTE's networks, reselling GTE's services, and/or taking "unbundled" parts of GTE's network. While market share data is not conclusive, in the absence of any better economic analysis by the Commission or other evidence of existing ALEC presence or of a different prognosis for ALEC penetration, market share is at least one indicator of the state of competition when the contracts addressed by the proposed rules were entered into. The Commission has no data about how many customers currently opt-out of their ILEC contracts prior to natural expiration and pay the termination liability to which those ILEC agreements bind them in order to accept a competing offer from another carrier, but clearly, some do. This evidences current competition. Competing carriers can and do sell to ILEC customers at the natural expiration of their long-term agreements. This evidences current competition. The Commission has no data predicting how many more customers would opt-out if the proposed rules are validated. Therefore, the presumption that "if we publish a rule they will come" is speculative. Likewise the Commission's presumption that customers regard termination liability provisions in ILEC contracts as a barrier to their choices and a bar to competition was not proven. Some of the factors that went into that presumption were speculative because the Commission has not reviewed the termination liability provisions of Petitioners' contracts and has offered no evidence of formal complaints to the Commission by customers who want to opt-out of ILEC contracts. "Informal communication" with Commission staff by customers was undocumented and unquantified. The Commission did present the testimony of Mr. Larsen who explained that because he needs to keep the same business telephone number, he feels that it is not economically feasible for him to opt-out of his several overlapping ILEC contracts unless he can synchronize all his existing contract termination dates and that the proposed "fresh look" rules would permit him to do that. However, his testimony provided no valid predictor that even if the termination of all his existing ILEC contracts were enabled by the proposed rules he would, in fact, be able to find a competitor in his area whose contract(s) were more to his liking. The proposed rules, with their arbitrary date of June 30, 1999, would not allow Mr. Larsen to terminate, without liability, the one ILEC contract he entered into after that date. (See Finding of Fact No. 47). Based on his sincere but unfocused testimony, it remains speculation to presume that Mr. Larsen would be willing to incur contractual liability by early termination of his single non-qualifying ILEC contract just because the proposed rules would let him "opt-out" of the several qualifying ILEC contracts. It is indicative of the proposed rules' possible effect on future competition that Mr. Larsen speculated that if he could terminate all his qualifying ILEC contracts simultaneously under the proposed rules, he might be able to persuade a competitor, perhaps an ALEC, to pay his termination costs on his single non- qualifying ILEC contract if he renegotiated all his business away from his ILEC and to that competitor. The introduction of the proposed rules into the market place could create a "competitive edge" not anticipated by the Commission. Other carriers, including ALECs competing with ILECs, can and do enter into contracts with their customers which, like the contracts which would be affected by the proposed rules, are long-term contracts subject to termination liability, but the long-term contracts of carriers other than ILECs would not be affected by the proposed rules. The proposed rules pertain only to ILECs and their business customers. In effect, the proposed rules apply predominantly to ILECs' large business customers. Under the proposed rules, competitors which had originally bid against the ILECs for an affected contract at the time it was entered-into could get "a second bite at the apple" occasioned solely by the application of the proposed rules.
Conclusions Mr. Klein had a duty to operate the van he was driving on the day of the accident with reasonable care. See ss. 316.183(1), 316.1925(1), F.S. Mr. Klein breached that duty when he was distracted by a cellular phone call at or around the time of the accident or otherwise not paying full attention to the road at the time of the accident. Mr. Klein’s negligent operation of the van was a proximate cause of the accident that resulted in Angelica’s death. Mr. Klein was acting within the course and scope of his employment at the time of the accident. Therefore, the County is responsible for Mr. Klein’s negligence. Angelica violated s. 316.130(10) and/or (11), F.S., when she attempted to run across SR 436 in the middle of the block rather than at a cross-walk and, as a result, Angelica’s own negligence contributed to her death. The percentage of fault allocated to Angelica by the jury -- 39 percent -- is reasonable under the circumstances. Ms. Wagner’s failure to supervise Angelica on the night of the accident was, in my view, irresponsible and unreasonable. Ms. Wagner knew or should have known that Angelica might cross SR 436 based upon prior instances of her crossing the road without permission. Furthermore, it is irresponsible and unreasonable for Ms. Wagner to allow an 11-year-old child to be unsupervised and to stay out on her own until 9:00 p.m., which was after dark. Ms. Wagner’s negligent supervision of Angelica contributed to her death because if she had been supervised she would not have gone across SR 436 in the first place. Thus, notwithstanding the jury verdict on this issue, I find that a portion of the fault for Angelica’s death should be apportioned to Ms. Wagner and, in my view, a figure of 10 percent is reasonable. In summary, I conclude that liability for Angelica’s death should be apportioned as follows: 51 percent to the County; 39 percent to Angelica; and 10 percent to Ms. Wagner. As to the damages, I find the amounts awarded by the jury -- $8,000 in funeral expenses and $1.4 million in non-economic damages -- to be reasonable. The amount of the claim bill should be reduced to reflect a set-off of the $8,000 received by Ms. Wagner from another source (i.e., Angelica’s uncle) to pay the funeral expenses and to reflect the allocation of a portion of the fault to Ms. Wagner. As adjusted, the claim bill should be for $652,080, which is calculated as follows: $1,408,000 (verdict) x 51% (County’s revised share of liability) = $718,080 + $42,000 (taxable costs) - $100,000 (partial satisfaction by County) - $8,000 (set-off for funeral expenses paid by uncle). ATTORNEY’S FEES AND LOBBYIST’S FEES: The claimant’s attorney provided an affidavit stating that that attorney’s fees will be capped at 25 percent in accordance with s. 768.28(8), F.S. The attorney’s fees will be $163,020 if the bill is approved at the amount recommended. The lobbyist’s fees are in excess of the 25 percent attorney’s fee, and according to the contract between the claimant’s attorney and the lobbying firm, the lobbyist’s fees will be an additional 5 percent of the final claim. Thus, the lobbyist’s fees will be approximately $32,604 if the bill is approved at the amount recommended. The bill, as filed, provides that payment of attorney’s fees, costs, and lobbyist’s fees are limited to 25 percent of the final claim. If that language remains in the bill and the claim is paid in the amount recommended, the claimant will receive $489,060 and the balance of $163,020 will go towards attorney’s fees, costs, and lobbyist’s fees. If that language was not in the bill, the claimant would receive only $456,456. LEGISLATIVE HISTORY: This is the second year that this claim has been presented to the Legislature. Last year’s bill, SB 62 (2007), was not referred to committee. RECOMMENDATIONS: For the reasons set forth above, I recommend that Senate Bill 26 (2008) be reported FAVORABLY, as amended. Respectfully submitted, T. Kent Wetherell Senate Special Master cc: Senator Gary Siplin Faye Blanton, Secretary of the Senate House Committee on Constitution and Civil Law Counsel of Record
The Issue This is a bid protest proceeding pursuant to Section 120.57(3), Florida Statutes, in which the primary issue raised by the Petitioner (who is the second-ranked proposer) is that the subject contract should be awarded to the Petitioner because the first-ranked proposer submitted a non-responsive proposal. The Petitioner's alternative arguments challenge the manner in which the proposals were evaluated and assert, alternatively, that, if properly evaluated, the Petitioner would be the first-ranked proposer, or that the evaluation was so flawed as to require that all bids be rejected and that the agency embark upon a new request for proposals. The first-ranked proposer intervened to protect its substantial interests. The primary issues raised by the first- ranked proposer are that its own proposal is responsive, that any flaws in the evaluation process are insufficient in nature and number to warrant embarking on a new request for proposals, and that the second-ranked proposer lacks standing to challenge the proposed agency action because the proposal of the second-ranked proposer is asserted to be non-responsive. The third-ranked proposer intervened primarily in a defensive posture to protect its interests from any adverse consequences that might flow from the issues raised by the other two proposers, as well as to benefit from any windfall that might result from the challenges to the sufficiency of the other two proposals.
Findings Of Fact Preparation and issuance of the subject RFP The state agency involved in this dispute is AHCA. AHCA's powers and duties include the administration of Florida's Medicaid program. The Medicaid program provides medical services to eligible Medicaid recipients under Chapter 409, Florida Statutes, the United States Code Title 19, which involves Medicaid, and to children from birth until five years of age under United States Code Title 21, State Children's Health Insurance Program of the Social Security Act, through enrolled providers. On or about March 3, 2005, AHCA issued the subject RFP, which solicited proposals to develop the MMIS/DSS and to provide fiscal agent operations. The RFP required proposers to separately submit a technical proposal and a cost proposal. The RFP also required implementation of the new MMIS/DSS technical systems by July 1, 2007. However, the RFP permitted the implementation of some non-critical business functions after July 1, 2007. The RFP incorporated several separate addenda, numbered one through seven. Addendum Six, also had a separately issued Clarification Notice. Each addendum also included a list of questions asked by potential proposers concerning the RFP, and AHCA's answers to those questions. The questions and answers were part of the addenda in which they appeared and, therefore, became part of the RFP. Each proposer was required to include with its proposal a signed acknowledgement certifying its receipt of each addendum. Section 20.2 of the RFP includes the following: The State has established certain requirements with respect to responses submitted to competitive solicitations. The use of "shall", "must", or "will" (except to indicate futurity) in this solicitation, indicates a requirement or condition from which a material deviation may not be waived by the State. A deviation is material if, in the State's sole discretion, the deficient response is not in substantial accord with the solicitation requirements, provides an advantage to one respondent over another, or has a potentially significant effect on the quality of the response or on the cost to the State. Material deviations cannot be waived. The words "should" or "may" in this solicitation indicate desirable attributes or conditions, but are permissive in nature. Deviation from, or omission of, such desirable feature will not in itself cause rejection of a response. Sections 20.17 and 20.18 of the RFP read as follows: Correction of Proposal Errors If the Agency determines that a proposal contains a minor irregularity or an error, such as a transposition, extension or footing error in figures that are presented, the Agency may provide the Vendor an opportunity to correct the error. Information that is required to be included in the proposal and is inadvertently omitted shall not be accepted under this error correction provision. All information required to be included in a proposal must be received by the date and time that proposals are due to the Agency. The Agency reserves the right to seek clarification from a Vendor of any information contained in the proposal. Minor irregularities in proposals may be waived by the evaluators. A minor irregularity is a variation from the RFP terms and conditions that does not affect the price of the proposal or give one applicant an advantage or benefit not enjoyed by others or adversely affects the State's interest. Rejection of Proposals Proposals that do not conform to the mandatory requirements of this RFP shall be rejected by the Agency. Proposals may be rejected for reasons that are provided in Appendix M, Checklist of Mandatory Items; for failure to comply with any requirement of this RFP; when the proposal is conditional; or when in the Agency discretion, it is in the best interests of the Agency. The Agency reserves the right to reject any and all proposals. The three proposers ACS Parent, EDS Subsidiary, and Unisys each submitted a proposal in response to the subject RFP. EDS Parent did not submit a proposal in response to the RFP. A partnership or joint venture comprised of EDS Subsidiary and EDS Parent did not submit a proposal in response to the RFP. EDS Parent is not a party to this proceeding. A partnership or joint venture comprised of EDS Subsidiary and EDS Parent is not a party to this proceeding. In the MMIS area, EDS Parent and EDS Subsidiary frequently both sign the proposals and the contracts. EDS Parent and EDS Subsidiary as a matter of practice usually perform the EDS MMIS work together. As a general practice, EDS Parent stands behind the obligations of EDS Subsidiary as a guarantor of any unfulfilled liabilities of EDS Subsidiary, even when EDS Subsidiary is the only signer on a contract. And it may well be that EDS Parent and EDS Subsidiary intended to be co-proposers or joint adventurers on the subject RFP, but no such intention was set forth in the EDS Subsidiary proposal.2 EDS Parent and EDS Subsidiary are two separate legal entities. EDS Parent is a publicly traded Delaware corporation that was formed in the 1960s. EDS Subsidiary is a Delaware limited liability company that was formed in 1997. EDS Subsidiary is a wholly-owned subsidiary of EDS Parent. EDS Subsidiary was specifically established and has been operated as a separate business entity for the express purposes of obtaining the advantages of certain operational flexibilities, as well as certain tax advantages that may result from the operations of a separate business entity. During at least one period in its existence EDS Subsidiary owned assets valued at more than one billion dollars.3 Delivery of the proposals The RFP originally called for proposals to be submitted to AHCA's "Issuing Officer" at 2727 Mahan Drive, Tallahassee, FL 32308. Angela Smith was designated as the "Issuing Officer" of the RFP. Addendum Two to the RFP, which was issued on April 1, 2005, changed the delivery address for all proposals to: 2308 Killearn Center Boulevard, Tallahassee, Florida 32309. Proposals were required to be submitted at this new address by no later than 5:00 p.m. on June 2, 2005. EDS Subsidiary acknowledged receipt of Addendum Two. Section 20.08 of the RFP made it clear that it was each Proposer's responsibility "to obtain any issued addenda and to consider these materials in their response to the RFP." The RFP further expressly provided, "PROPOSALS RECEIVED AFTER THE SPECIFIED TIME AND DATE WILL NOT BE CONSIDERED AND RETURNED UNOPENED." In accordance with the requirements of the RFP, as amended by Addendum Two, ACS Parent and Unisys properly delivered their proposals to 2308 Killearn Center Boulevard, Tallahassee, Florida 32309. EDS Subsidiary's proposal consisted of 15 cartons. The proposal's cover letter and each carton were correctly addressed to 2308 Killearn Center Boulevard, Tallahassee, Florida 32309, but the proposal was never delivered to that address. Rather, EDS Subsidiary's proposal was delivered to AHCA's offices at 2727 Mahan Drive, Tallahassee, Florida 32308. Pat King, Marc Vandenbark, and Milt Ashford, employees of EDS Parent, delivered EDS Subsidiary's proposal to AHCA's 2727 Mahan Drive address at approximately 12:35 p.m. on June 2, 2005. Jason Kinchon, an AHCA employee, met Messers. King, Vandenbark, and Ashford outside of the AHCA office building and directed them to a second floor room in Building No. 2 where the EDS Subsidiary proposal was delivered. Mr. Kinchon brought a hand cart with him. Messrs. King, VanDenbark, Ashford, and Kinchon jointly loaded the proposal on a hand truck on multiple occasions near the rear entrance of the AHCA Contract Administration Office. It took three trips with the hand cart to move the proposal into AHCA Building Number 2 at 2727 Mahan Drive, Tallahassee, Florida. Messrs. Kinchon and King took the loaded hand cart into the AHCA Building Number 2 on the three trips into the building. Messrs. Kinchon and King placed the proposal in a room on the second floor of AHCA Building Number 2. Subsequent to delivery, AHCA secured the proposal to ensure that no unauthorized persons had access to the proposal. Messrs. King, VanDenbark, and Ashford attended the public proposal opening where they saw AHCA open the original proposal. At Mr. King's request, Mr. Kinchon provided a receipt for the EDS Subsidiary proposal bearing a date-time stamp and Mr. Kinchon's signature. After 5:00 p.m. on June 2, 2005, Angela Smith, AHCA's Issuing Officer for the RFP, called Mr. King to inquire about the status of EDS Subsidiary's proposal. Mr. King explained that he had delivered EDS Subsidiary's proposal to the incorrect Mahan Drive address and then faxed Ms. Smith a copy of Mr. Kinchon's receipt. After first conferring with legal counsel, Ms. Smith later informed Mr. King that AHCA would nevertheless accept the EDS Subsidiary proposal. The next day, at Ms. Smith's direction, other AHCA employees retrieved the EDS Subsidiary proposal from 2727 Mahan Drive, Tallahassee, Florida 32308, and delivered it to the AHCA office located at 1669 Mahan Center Boulevard, which was the address where AHCA planned to open, and in fact did open, all three of the proposals. On that same day, AHCA employees retrieved the ACS Parent proposal and the Unisys proposal from 2308 Killearn Center Boulevard and delivered those two proposals to the AHCA office located at 1669 Mahan Center Boulevard, at which address all three proposals were eventually opened. The delivery of the EDS Subsidiary proposal to an incorrect address did not confer any advantage to EDS Subsidiary, nor did it result in any detriment to either of the other proposers. EDS Subsidiary had no more time to prepare its proposal than its competitors and had no opportunity to see the bids of its competitors before submitting its own. The delivery to an incorrect address also did not result in any detriment to AHCA. On the day of the opening of the proposals, AHCA had to move each of the three proposals from the place where each proposal was received to the place where all of the proposals would be opened. It was no significant burden for AHCA to retrieve two proposals from one location and to retrieve the third from another location. The bid bond submitted by EDS Subsidiary On June 3, 2005, AHCA opened the technical proposals that were submitted by ACS Parent, EDS Subsidiary, and Unisys. Two AHCA employees, Angela Smith and Sally Morton-Crayton, presided over the opening. At the opening, Ms. Smith and Ms. Crayton reviewed each proposal to ensure the presence of those items required by the mandatory checklist located in Appendix M to the RFP. Section 70.4 of the RFP reads as follows: Each proposal will be reviewed for responsiveness to the mandatory requirements set forth in this RFP. This will be a yes/no evaluation. The purpose of this phase is to determine if the Technical Proposal is sufficiently responsive to the RFP to permit a complete evaluation. Mandatory requirements for the Technical Proposal are presented in a checklist in Appendix M. Failure to comply with the instructions or to submit a complete proposal will deem a proposal non-responsive, and will cause the proposal to be rejected with no further evaluation. The state reserves the right to waive minor irregularities. No points will be awarded for passing the mandatory requirements. As part of their review, Ms. Smith and Ms. Crayton did not actually read or analyze the mandatory items to determine whether the proposals complied with the RFP's requirements, but only looked to see if the items were present. The RFP required each proposer to submit a Proposal Guarantee with its proposal. In this regard, Section 20.12 of the RFP states: 20.12 Proposal Guarantee One proposal guarantee must be included in the sealed package with the original Technical Proposal. The original Technical Proposal shall be accompanied by a proposal guarantee payable to the State of Florida in the amount of $500,000.00. The form of the proposal guarantee shall be a bond, cashier's check, treasurer's check, bank draft, or certified check. If the proposal guarantee is a bond, the bond shall be written by a surety company authorized to do business in the State of Florida and signed by a Florida Licensed Agent. If a non-resident Florida Licensed Agent signs the bond, the bond shall be considered to have been made and executed in the State of Florida. All proposal guarantees shall be returned upon execution of a legal contract with the successful Vendor. If the successful Vendor fails to execute a contract within ten (10) consecutive calendar days after a contract has been presented to the Vendor for signature, the proposal guarantee shall be forfeited to the State. The proposal guarantee from the successful Vendor shall be returned only after the Agency has received the performance bond required under Section 30.24 of this RFP. The Proposal Guarantee submitted with the EDS Subsidiary proposal did not refer to any proposal submitted by EDS Subsidiary and did not name EDS Subsidiary as principal on the Proposal Guarantee. Fidelity and Deposit Company of Maryland is the surety that issued the Proposal Guarantee. The Proposal Guarantee named EDS Parent as the principal and the State of Florida as the obligee. On its face, the Proposal Guarantee provided security for a proposal submitted by EDS Parent (which proposal never existed), but not for a proposal submitted by EDS Subsidiary. The Proposal Guarantee does not indicate that EDS Parent, as the principal on the bond, is involved in a partnership or joint venture with any other entity, including EDS Subsidiary. Specifically, on its face, the Proposal Guarantee does not reference any entity, partnership, or venture other than EDS Parent as the principal. The Proposal Guarantee included in EDS Subsidiary's proposal does not guarantee EDS Subsidiary's proposal, but rather specifically references a proposal by EDS Parent; a proposal which never existed.4 Financial statements submitted by EDS Subsidiary Section 60.2.4(2) of the RFP required proposers to submit the following financial information: Corporate Financial Statements Audited financial statements for the legal contracting entity (and parent company if applicable) and subcontractors, sufficient to demonstrate the capability to perform this contract, shall be provided for each of the last three fiscal years. These shall include: Balance sheets; Statement of income; Statements of changes in financial position; Auditor's reports; Notes to financial statements; and Summary of significant accounting policies. If all of these are not provided, please explain why. The requirement quoted immediately above was amended by Addendum One, which included the following question and answer which became part of the RFP: Question: Audited financial statements are required in this section. However, many subcontracting firms may not be publicly held with the required forms available. What will the Agency accept for these financial requirements for non-public firms? Answer: If audited financial statements exist they are to be submitted. If audited financial statements do not exist, unaudited statements or financial information of the type that is contained in financial statements may be submitted with an appropriate explanation. (Emphasis added.) EDS Subsidiary's proposal did not include any financial information, audited or otherwise, from which the financial condition of EDS Subsidiary could be determined. Rather, the proposal only included consolidated audited financial statements for EDS Parent. In its proposal, under Tab 4, EDS Subsidiary explained: "EDS Information Systems (sic), L.L.C., will be the contract signing authority for the Florida Medicaid project. As a wholly owned subsidiary of EDS, EDS Information Systems (sic), L.L.C., is not a separate corporation and, as such, does not have separate financial statements. Throughout this RFP response, we will use the term ‘EDS’ to refer to this organization." While EDS Subsidiary may not have had audited separate financial statements, it certainly had "financial information of the type that is contained in financial statements." Without receiving any "financial information of the type that is contained in financial statements," AHCA has no information at all about the financial circumstances of EDS Subsidiary.5 In its proposal, on the title page under Tab 2, EDS Subsidiary stated that the vendor's name was "EDS Information Services, L.L.C." And in the transmittal letter under Tab 2 of the proposal, EDS Subsidiary states: "EDS Information Services, L.L.C., a subsidiary of the of Electronic Data Systems, (hereafter EDS), is pleased to submit our response to the Request for Proposal (RFP) 0514 issued by the Agency for Healthcare Administration." The transmittal letter also states: "EDS' federal tax identification number is 75-2714824." Tax identification number 75-2714824 is the tax identification number of EDS Subsidiary. The transmittal letter also lists "EDS Information Services, L.L.C." as the "Prime Contractor" and states that its "Corporate Charter Number" is M97000000533. That number is the document number assigned by the Florida Department of State to EDS Subsidiary. (The document number assigned by the Florida Department of State to EDS Parent is F96000001705.) The transmittal letter under Tab 2 of the EDS Subsidiary proposal also states: The following table reflects the exact amount of work in percentages to be completed by the Prime Contractor and each subcontractor. Company Percent of Work EDS Information Services, L.L.C. 76.5% First Health Services Corporation 21.8% APS Healthcare, Inc. 1.3% ProviderLink, Inc. .4% Cost proposal submitted with EDS Subsidiary's proposal Section 60.3 of the RFP required proposers to include in their Cost Proposal "a firm fixed price for each of the requirements contained on the pricing schedules within this section." Additionally, the mandatory checklist contained in Appendix M of the RFP required proposers to submit a "firm, fixed price without any additional stipulations or limitations." ACS Parent's Cost Proposal was $38 million less than the next least expensive Cost Proposal. ACS Parent submitted the lowest Cost Proposal and was awarded 600 points, consistent with the language of the RFP. The Cost Proposals for EDS Subsidiary and Unisys were awarded scores of 508 and 523, respectively, based on the application of a specified formula in the RFP and the ratio their prices bore to ACS Parent's price. Ms. Smith and Ms. Crayton oversaw the review and scoring of the proposers' Cost Proposals. During their opening of the Cost Proposals, Ms. Smith and Ms. Crayton did not analyze the Cost Proposal submitted with EDS Subsidiary's proposal to determine if it was submitted by the same legal entity. Ms. Smith and Ms. Crayton did not analyze EDS Subsidiary's Cost Proposal to determine whether it proposed a firm fixed price without additional stipulations or limitations. The Cost Proposal submitted with the EDS Subsidiary proposal identified a different legal entity, Electronic Data Systems, LLC, as the proposer. The Cost Proposal submitted with EDS Subsidiary's proposal included a firm, fixed price. The language in that proposal that described the "Cost Assumptions" underlying the Cost Proposal did not change the character of the Cost Proposal; it remained firm and fixed. Proposed EDS Subsidiary local operations facility Section 50.3.2.1 of the RFP reads as follows: 50.3.2.1 Location of Operations Facilities The Contractor's local facility shall be located within a five (5) mile radius of the State offices located at 2727 Mahan Drive, Tallahassee, Florida. The Agency prefers a location convenient to the Agency and will consider the location in the evaluation process. Consideration of potential expansion of operations should be given in choosing a site for the facility. The language quoted immediately above is rather ambiguous as to what must be included in the proposal regarding the proposer's local facility. It does not clearly state that a specific location must be identified in the proposal. The specific instructions in the RFP about what must be included under each tab of the proposals do not clearly require the inclusion of a specific address for the proposer's local facility. Further, the instructions in the Evaluation Manual do not appear to require the inclusion of a specific address. ACS Parent's proposal included a specific facility and address for its proposed operations facility location in Tallahassee. Unisys' proposal included the addresses for two possible locations, but did not include a specific proposed facility in Tallahassee. EDS Subsidiary's proposal did not include a proposed facility or an address for its operations facility in Tallahassee. EDS Subsidiary simply agreed to meet AHCA's requirements for a local facility. At its oral presentation, which occurred approximately six weeks after submission of the proposals, EDS Subsidiary first provided AHCA with a possible address for its local operations facility, at 325 John Knox Road in Tallahassee. Staffing information submitted by EDS Subsidiary The RFP required proposers to identify within their proposals certain individuals to fill various Named Staff positions. The Named Staff positions carried certain educational qualification requirements based on the type of work expected from each position. The Named Staff positions were separately identified because they were important positions and AHCA considered them critical to the success of the project. Addendum One to the RFP contained the following question and answer which became part of the RFP: Question: Will the State allow equivalent work experience in lieu of a bachelor's degree? Answer: The State will allow equivalent work experience, non-degree training and alternate certification in lieu of a required bachelors degree, provided the Vendor clearly identifies and explains the equivalence. Qualifications of proposed staff are an important consideration in the scoring of proposals. Several of the individuals that EDS Subsidiary and Unisys proposed to fill the Named Staff positions did not facially meet the minimal educational requirements as stated in the RFP. However, from resumes and other information submitted with the EDS Subsidiary and the Unisys proposals, AHCA could determine that the proposed staff at issue possessed degrees in related fields and/or had sufficient qualifications through extensive experience in the areas in which they would be working. Technical solutions proposed by EDS Subsidiary At paragraph 24 of the ACS Parent's amended petition, it asserts that EDS Subsidiary "failed to meet many of the mandatory technical requirements concerning the new FMMIS/DSS. . . ." In seven following subparagraphs the petition asserts seven specific alleged technical deficiencies in the EDS Subsidiary proposal. In view of the disposition of certain other issues in this case, it seems neither useful nor necessary to make detailed findings of fact (or conclusions of law) regarding these alleged technical deficiencies in the EDS Subsidiary proposal. In this regard it is sufficient to find that the technical solutions proposed in the EDS Subsidiary proposal were in compliance with the technical requirements of the RFP in all material matters. There are perhaps a few minor irregularities in a few minor details, but there is nothing in the technical solution proposed by EDS Subsidiary that deviates materially from the requirements of the RFP.6 The evaluation of the proposals In paragraph 26 of ACS Parent's amended petition, it is asserted that there were numerous irregularities in the manner in which the proposals were evaluated. The following paragraphs contain findings of fact related to those assertions. Gartner Report and Presentation AHCA hired Gartner, Inc. ("Gartner"), a third party company with technology expertise, to analyze the risk found in each of the technical proposals, and then produce a written report. The evaluators received and read the Gartner report before completing their final scores. The RFP did not disclose, and the proposers were never informed until after the proposed award was announced, that Gartner would conduct an analysis of the Technical Proposals. Gartner's written report visually displayed its final analysis through color coded comments (green, yellow, and orange). Gartner created its own criteria and sub-criteria to evaluate the proposals. The evaluators attended a presentation where the Gartner report's results were presented by Mr. Flowerree. The evaluators discussed these results at the presentation. This presentation on the Gartner report was neither publicly noticed or recorded, nor were any minutes taken at the meeting. AHCA did not give the proposers an opportunity to address the concerns and comments contained in the Gartner report and/or discussed at the presentation with the evaluators. The evaluators had the benefit of Gartner's analysis and conclusions when completing their scoring of the proposals. The evidence in this case is insufficient to determine whether the information in the Gartner presentation and report had any significant effect on the scoring of any of the proposals.7 ACS Parent's Corporate References Donna Eldridge. an AHCA employee, provided a corporate reference for ACS Parent which contained some errors, primarily errors of omission about matters of which Ms. Eldridge had no personal knowledge. There was also a corporate reference form from a Georgia official which contained a number of responses that were remarkably similar to the responses provided by Ms. Eldridge. The evidence in this case does not explain why the two responses were so similar. The evidence in this case is also insufficient to show that the information in either of the corporate references mentioned above had any material adverse impact on the evaluation scores of ACS Parent.8 Evenhanded evaluations During the course of their evaluation, to the best of their ability the evaluators applied the evaluation criteria in the same manner to all proposers. There is no persuasive evidence that the evaluators applied different criteria or different standards to different proposers. With regard to a related issue, the RFP required a critical path diagram for each phase. The proposal submitted by EDS Subsidiary had a critical path diagram for each of the phases. Organizational Conflicts of Interest Unbeknownst to the proposers, AHCA engaged Gartner to conduct an analysis of the proposals submitted in response to the RFP. As part of an earlier proposal submitted to the State of Texas, EDS Subsidiary proposed to hire Gartner as an "optional" subcontractor for the purpose of [I]ndependent assessment of governance processes." In that proposal, EDS Subsidiary described Gartner as having "[t]otal independence and objectivity--no ties to any one vendor or technology solution." EDS Subsidiary was not awarded the Texas contract, so the proposed use of Gartner as a subcontractor never happened. Site Visit Debriefing During the evaluation period, the evaluators attended multiple presentations and debriefings that covered different topics. AHCA did not publicly notice any of these meetings, and only one type of presentation, the proposers' oral presentations, was recorded or had any minutes taken. During their oral presentations, each proposer discussed its proposed solution and then answered questions posed by the evaluators. Evaluators also attended a briefing where they were presented with information gathered during AHCA's site visits to the proposers' operations in other states. This information included a presentation and a written site visit report compiling all of the site visit information into one document. Mr. Jay Ter Louw, an AHCA consultant, prepared the final site visit report. However, none of the evaluators attended any of the site visits. The evaluators relied upon the information presented during the site visit presentation and information contained in the site visit report to complete their assigned evaluations. The manner in which the site visits were conducted and reported was consistent with the provisions of the RFP. AHCA's Score Debriefings Section 70.3 of the RFP reads as follows: Evaluators will conduct a strictly controlled evaluation of the Technical Proposals submitted in response to this RFP. The evaluators will use prescribed evaluation criteria to score each proposal on its own merit regarding the Vendor's response to the requirements and adherence to the instructions in this RFP. The evaluators will not discuss the contents of the proposals with each other or anyone else during the evaluation process. The evaluators will be closely proctored to ensure that they follow the established rules of the evaluation. The evaluators attended numerous debriefings concerning their preliminary scoring. The stated purpose behind these debriefings was to give the evaluators an opportunity to discuss the reasons for their scores and where relevant information was located in the various proposals. The debriefing sessions were neither publicly noticed, recorded, nor were any minutes taken of these numerous sessions. While the evaluators did not discuss their scores with each other, they did discuss their evaluations and the contents of the proposals. All evaluators had the opportunity to change their scores based upon these discussions. At least one evaluator changed her scores after a debriefing session because of information she learned from other evaluators. Scoring After AHCA opened the proposals, it assigned various individuals to evaluate specific portions of the proposals. Some of the evaluators read the RFP and each proposal in its entirety, while others did not. The evaluators also reviewed an Evaluation Manual, an instruction manual produced by AHCA to guide agency staff and the evaluators through the evaluation process. After reading a proposal, an evaluator would generally assign preliminary scores for each of his or her assigned sections. The evaluators' scores were numeric and ranged from zero (worst) to ten (best). AHCA never gave the evaluators any instruction authorizing them to reject a proposal if it did not comply with the RFP's requirements. Rather, they were instructed to "score every section." Concerning the scoring of the Technical Proposals, Section 70.5.14 of the RFP provided, "[a] maximum of one thousand four hundred (1,400) points will be assigned to the highest passing Technical Proposal." The quoted provision is followed by a formula to be used to determine the number of points to be assigned to the other proposers for their Technical Proposals. It is clear from the formula that the formula only works if the highest passing Technical Proposal is awarded the full 1,400 points. Financial statements submitted by ACS Parent EDS Subsidiary asserts that the financial statements submitted with the ACS Parent proposal are deficient. The transmittal letter in the ACS Parent proposal contains a table reflecting the amount of work to be performed by the prime contractor and each subcontractor, as follows: Company Percent of Work ACS 97% Deloitte Consulting, LLP 1% FourThought Group, Inc. 0.2% Sun Microsystems, Inc. 1% Florida Pharmacy Association 0.4% KePRO, Inc. 0.4% There is no dispute about the sufficiency of the financial information submitted regarding ACS Parent, Deloitte Consulting, LLP, and KePRO, Inc. At page 4.4-5 of the proposal submitted by ACS Parent, Sun Microsystems includes the following: Per RFP Reference 60.2.4.2, we include our FY2004 Annual Report. The FY2004 Annual Report contains audited financial statements for fiscal years 2002 through 2004. These financial statements include information on the financial strength and stability of Sun including: Balance sheets Statement of income Statements of Changes in Financial Position Auditor's Reports Notes to Financial Statements Summary of Significant Accounting Policies The proposal submitted by ACS Parent also included information about both company and government web sites where additional financial information about Sun Microsystems could be found. With regard to the financial statements of the Florida Pharmacy Association, the proposal submitted by ACS Parent included the following: The Florida Pharmacy Association has not provided the above items [financial documents requested in the RFP] for submission with this proposal. Being a not-for-profit corporation we file an annual report with the Secretary of State and have enclosed a copy of our 2005 report in this section. We would be pleased to discuss additional details regarding our status with the Agency. The annual report included with the proposal did not contain any financial information regarding the Florida Pharmacy Association. FourThought Group, Inc., is a privately held corporation organized as an "S-Corporation." With regard to the financial statements of FourThought Group, Inc., the proposal submitted by ACS Parent included the following: FourThought Group has not provided the above items [financial documents requested in the RFP] for submission with this proposal. Being a privately held corporation, we do not routinely disclose our financials. We would be pleased to provide an overview of FourThought Group's financials to the agency. The information regarding FourThought Group, Inc., did not include any financial information. The ACS Parent cost proposal forms With respect to the cost proposal forms, RFP Section 60.4.3 states that "[w]here a signature block is indicated, pricing schedules must be signed and dated by an authorized corporate official." The pricing forms included in the RFP further state in all capital letters: "AN AUTHORIZED CORPORATE OFFICIAL OF THE VENDOR MUST SIGN THIS FORM. THE OFFICIAL'S TITLE AND THE DATE THIS FORM WAS SIGNED MUST BE ENTERED." The ACS Parent pricing schedules were all signed by John Crysler, who indicated that he was signing under the title and in the capacity of "Managing Director." When John Crysler signed the pricing schedules he was, and still is, a Senior Vice President and Assistant Secretary of ACS Parent. As such, when he signed the pricing schedules, Mr. Crysler was "an authorized corporate official of the vendor." The Unisys proposal The proposal submitted by Unisys (which was ranked third by AHCA) was responsive to the RFP in all material ways. No specific challenge to the responsiveness of the Unisys proposal was raised as an issue in the pleadings filed by either of the other two proposers. Similarly, AHCA did not file any pleading challenging the responsiveness of the Unisys proposal.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED: That the Agency for Health Care Administration enter a Final Order in this case rejecting the proposal of EDS Information Services, L.L.C., as non-responsive, and awarding the contract at issue in this case to Affiliated Computer Services, Inc. DONE AND ENTERED this 17th day of January, 2006, in Tallahassee, Leon County, Florida. S MICHAEL M. PARRISH Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings This 17th day of January, 2006.
The Issue The issues are: Did the 2008 amendment of Florida Administrative Code rule 59G-13.082(2) incorporate the Developmental Disabilities Home and Community-Based Services Waiver Billing Code Matrix (Billing Code Matrix) when the amended rule explicitly incorporated the Developmental Disabilities Home and Community-Based Services Waiver Procedure Codes and Maximum Units of Service (Procedure Codes and Maximum Units of Service), but Respondent filed, as the incorporated document, the Billing Code Matrix with the Joint Administrative Procedures Committee (JAPC), the Department of State, and the Medicaid fiscal agent? If the circumstances described in Issue 1 did not result in the incorporation of the Billing Code Matrix in the 2008 amendment of rule 59G-13.082(2), was the Billing Code Matrix incorporated in the amended rule when, four years after the amendment, the Department of State revised the language of the archived version of rule 59G-13.082(2) to incorporate explicitly the Billing Code Matrix, even though the amended rule submitted to the Department of State in 2008 explicitly incorporated the Procedure Codes and Maximum Units of Service? If the circumstances described in Issues 1 and 2 did not result in the incorporation of the Billing Code Matrix in the 2008 amendment of rule 59G-13.082(2), is the Billing Code Matrix an agency statement constituting a rule that Respondent has not adopted by the rulemaking procedure set forth in section 120.54, Florida Statutes? If the circumstances described in Issue 1 or 2 resulted in the incorporation of the Billing Code Matrix in the 2008 amendment of rule 59G-13.082(2), is the amended rule an invalid exercise of delegated legislative authority?
Findings Of Fact At all material times, Petitioner has been an enrolled Medicaid provider. From 2002 through November 5, 2012, Petitioner provided companion services to persons with developmental disabilities, pursuant to the home and community- based services waiver program. Companion services are personal services to support the Medicaid recipient in accessing community activities As is typical in the Medicaid program, Petitioner submitted reimbursement claims to Respondent for covered services that it provided to Medicaid recipients, and Respondent promptly paid these claims, subject to later audit. As a result of an audit conducted by Respondent for the period of December 4, 2008, through December 31, 2010, Respondent determined that it was entitled to recoup $418,563.87 in overpayments and associated charges. As a result of this proposed adjustment, Petitioner discontinued operations on November 5.1 However, Petitioner requested a formal hearing on Respondent's recoupment claim. Respondent transmitted the file to the Division of Administrative Hearings, which assigned it DOAH Case No. 12-2906MPI. This overpayment case was assigned to the undersigned Administrative Law Judge, who continued the final hearing until after the issuance of the Final Order in this rule challenge. During the two years covered by the audit, Petitioner served 89 recipients, of whom about two-thirds received companion services. A substantial portion of the recoupment claim, if not all of it, is attributable to Petitioner's billing of, and Respondent's reimbursing for, companion services. Respondent's recoupment claim is not based on allegations that Petitioner billed companion services that were not provided or necessary or billed companion services that were in excess of the amount of services authorized by law. The recoupment claim is based on allegations that, consistent with past approved practice, Petitioner billed up to 40 QHs of service units per claim line, but, relying on the Billing Code Matrix, Respondent must disallow either the entire claim or at least all QHs in excess of 24 QHs of service units per claim line. In no way has Respondent singled out Petitioner for audit and recoupment. After determining that it had adopted the Billing Code Matrix in December 2008, Respondent audited every provider that continued to bill more than 24 QHs of service units of companion services per claim line. This amounted to about 700 providers. Respondent's auditor eventually opened 120 cases and found overpayments in every single case--all of them based on the providers' continuing to adhere to the past approved practice of billing more than 24 QHs--but not more than 40 QHs--of service units per claim line, thus placing at issue hundreds of thousands, if not millions, of dollars of reimbursements. At hearing, Respondent's auditor admitted the obvious: providers were clearly continuing to bill companion services under the "old" rule.2 Adopted in 2006, rule 59G-13.082(1) provided then, as it does now, that it applies to all developmental disabilities waiver service providers enrolled in the Medicaid program. Notwithstanding its references to rule 59G-13.082, Petitioner does not challenge rule 59G-13.082(1). As adopted in 2006, rule 59G-13.082(2) incorporated by reference the Procedure Codes and Maximum Units of Service, version November 2006, and advised that the incorporated document was available from the Medicaid fiscal agent or Respondent, whose address was supplied. The Procedure Codes and Maximum Units of Service, November 2006 version, allowed Medicaid providers to bill, on a single billing claim line, up to 40 QHs of service units of companion services. As amended in 2008, rule 59G-13.082(2) incorporated by reference the Procedure Codes and Maximum Units of Service, version January 1, 2008, and advised that the incorporated document was available from the Medicaid fiscal agent at its cited website. However, no November 2006 version of the document incorporated in the original rule appears ever to have existed. When filing the "incorporated" document with JAPC, the Department of State, and the Medicaid fiscal agent, Respondent filed the Billing Code Matrix, which is the document that Respondent now claims that it intended to incorporate in 2008. As relevant to this rule challenge, the difference between the Procedure Codes and Maximum Units of Service, version November 2006, and the Billing Code Matrix is that the latter document reduces from 40 QHs to 24 QHs the maximum number of service units that a provider may input onto a single claim line when billing claims for reimbursement for companion services. Apparently to minimize the number of claim lines, providers routinely included the maximum of 40 QHs per claim line when submitting bills for companion services, as the 2006 version of rule 59G-13.082(2) allowed. In fact, at least prior to 2008, Petitioner received training to bill its companion services with 40 QHs per claim line. The reason for the purported 2008 change is not completely clear. A rule allowing a provider to include 40 QHs per claim line would allow a single claim line to span one day and two-thirds of a second day, if the Medicaid recipient were approved to receive the maximum of 24 QHs per day. A rule allowing a provider to include only 24 QHs per claim line would tend to limit a single claim line to one day, again if the Medicaid recipient were approved to receive the maximum of 24 QHs per day. But if a recipient were approved to receive fewer than the maximum of 24 QHs per day, the 24-QH limitation would not prohibit the provider from spanning more than day's companion services on a single claim line. For instance, for a recipient approved for a maximum of 8 QHs per day, a provider's inclusion of 24 QHs of service units per claim line would span three days of companion services. Authoritative Medicaid documents did not prohibit claim lines spanning more than one day of companion services, at least in 2008. The Developmental Disabilities Waiver Services Coverage and Limitations Handbook, July 2007 version, referred providers seeking "[s]pecific billing instructions and procedures for submitting claims" to chapter 1 of the Florida Medicaid Provider Reimbursement Handbook and the Florida Medicaid Provider Reimbursement Handbook, CMS-1500. The Florida Medicaid Provider Reimbursement Handbook, CMS-1500, version July 2008 (Provider Reimbursement Handbook) clearly restricted a provider to one claim form per Medicaid recipient and one procedure code per claim line, but did not restrict a provider to one day's service per claim line. Provider Reimbursement Handbook, p. 1-9. Instead, for home and community-based waiver services, the Provider Reimbursement Handbook directed the provider to: Enter the units of service rendered for the procedure code. If multiple units of the same procedure were performed on the same date of service, enter the total number of units. If the date of service covers a span of time, i.e. [sic] a month, enter the total number of units for that span of time (emphasis added). Id. at p. 1-29. (Because other spans of time, besides one month, could apply, it would appear that the "i.e." should have been an "e.g.") Interestingly, the Provider Reimbursement Handbook touted electronic claim submission, over the submission of paper CMS-1500 claim forms, because the electronic claim submission offered "the advantage of speed and accuracy in processing." Id. at p. 1-47. Emphasizing the accuracy of electronic claim submission, the Provider Reimbursement Handbook assured providers that the electronic system would "[c]orrect data entry errors immediately." Id. Petitioner would probably disagree. During the audit period, Petitioner submitted electronically its billing claims for companion services, these claims routinely included 25-40 QHs of service units per claim line, and the electronic claim program invariably accepted these claims. This fact alone prevented the timely correction of the billing practices of Petitioner and numerous other Medicaid providers or timely recognition by Respondent that it had incorporated the wrong document in its 2008 rule amendment. At the hearing, Respondent's auditor explained that the electronic claim program, which was maintained by the Medicaid fiscal agent, could only accommodate so many "edits," and, during the audit period, the only relevant edit rejected claims only when they exceeded 40 QHs of service units per claim line. In other words, the fiscal agent maintained the edit that was in effect before the 2008 rule amendment. Obviously, the auditor's explanation misses the point that, at least on a going-forward basis, a new edit was not required: after the purported effective date of a new, lower limit, the 40-QH edit could have been reduced to a 24-QH edit. In June 2012, the fiscal agent reprogrammed the electronic claim program to do just that. Not only did the Medicaid fiscal agent fail to reprogram the edit in the electronic claim program to reflect Respondent's 2008 rule amendment, but a major third-party auditor participating in the Florida Statewide Quality Assurance Program also missed this change. In the middle of the audit period, on January 7, 2010, this third-party auditor, the Delmarva Foundation, issued to Petitioner a "Collaborative Outcomes Review and Enhancement Report" covering Petitioner's waiver services. Among the purposes of the report was to identify any claims that might be subject to recoupment. The report notes, among other things, that Petitioner was meeting the requirements of "Service Authorization/Billing as Authorized." It is not hard to understand how numerous providers, Respondent's Medicaid fiscal agent, and a major quality-control auditor missed Respondent's decision, in 2008, to reduce from 40 QHs to 24 QHs the maximum number of service units that may be included on a claim line when billing companion services. The 2008 rule amendment incorporated what appeared to be only an update of the existing document that governed the billing of reimbursement claims. All affected parties continued to conduct their billing business in conformity with the past approved practice--and the evidence does not suggest that Respondent and its agents contemporaneously informed the providers of the new limit of 24 QHs of service units that could be included in a single claim line. Arguing that the misidentification of the incorporated document was only a "scrivener's error," Respondent contends that the regulated community should be subjected, as of 2008, to the document that Respondent filed with JAPC, the Department of State, and the Medicaid fiscal agent--the Billing Code Matrix. This argument seems to focus upon the ease with which the mistake could have been made, rather than focusing on the extent to which Respondent's carelessness in preparing the 2008 amendment may have precluded effective notice of this change in billing procedure to the provider community or the unfairness of imposing the cost of Respondent's carelessness on the provider community. It is understandable that the modern equivalent of a scrivener--say, a Clerk Typist II--might keystroke "Procedure Codes and Maximum Units of Service," instead of "Billing Code Matrix." To this extent, Respondent's error in preparing the 2008 amendment may be characterized as a "scrivener's error," but this characterization does not receive much weight in resolving the first two issues stated above. There are at least two problems with the scrivener's- error argument. First, the discovery of the filed document--the Billing Code Matrix--is not the equivalent of the discovery of the new law governing the preparation of reimbursement claims. A diligent provider that discovered the Billing Code Matrix at JAPC, the Department of State, or the Medicaid fiscal agent would learn only that Respondent had filed a different document than it had incorporated. If a diligent provider also learned that the incorporated document did not exist, it is still unclear how the provider would get from these facts to the understanding that the Billing Code Matrix now governed. Perhaps the language of the 2008 rule amendment reflected an intent to incorporate the same document that was incorporated in 2006 or a revised document--with a different revision date than January 1, 2008--that may have made inconsequential changes to the November 2006 version of the document. This flaw in Respondent's argument effectively imposes upon the provider community the responsibilities to complete Respondent's unfinished rulemaking exercise from 2008. Second, the notice to providers was insufficient even to impose upon them any duty to find the filed Billing Code Matrix. Perhaps due to the near-identity in titles between the originally incorporated document and the revision of this document that the 2008 rule amendment explicitly incorporated, as noted above, much of the provider community, as well as the fiscal agent and third-party quality-assurance auditor, missed the 2008 change in their discharge of important responsibilities. The three repositories do not appear to have noticed the discrepancy between the incorporated document and the filed document. Even Respondent apparently failed to notice the obvious flaw in its own rule for four years while it prosecuted numerous, large reimbursement cases based on the Billing Code Matrix. If Respondent had properly identified the Billing Code Matrix in the 2008 rule amendment, the provider community would not have objected, but would have quickly complied with the new billing procedure, because the change--if it had been implemented prospectively with notice to providers--would have had no real financial impact on providers. Because of Respondent's carelessness in its exercise of its rulemaking responsibilities in 2008, the change now would effectively be imposed retroactively upon, and at considerable expense to, providers. Unfortunately, in trying to achieve this result, Respondent is engaged, not in a valiant effort to oppose rapacious Medicaid providers from defrauding the program, but only to assist Respondent, in overpayment cases, in opposing otherwise-legitimate reimbursement claims for companion services on the sole ground that these claims violated a purported rule change that reduced the number of service units that could be included on a single claim line by 40%.
The Issue Whether Respondent Dustin Daniels, while serving as Chief of Staff for the Mayor of Tallahassee, violated section 112.313(6), Florida Statutes, by corruptly using or attempting to use his official position or any property or resource which may have been within his trust, or performed his official duties, to secure a special privilege, benefit, or exemption for himself or others; and, if so, the appropriate penalty.
Findings Of Fact Mr. Daniels served as the Chief of Staff to the Mayor of Tallahassee, Mr. Gillum, from November 2014 through April 2018. Mr. Daniels previously served as Mr. Gillum’s campaign manager for his mayoral campaign. As Chief of Staff, Mr. Daniels managed the day-to-day responsibilities of the Mayor’s Office, supervised the Mayor’s staff, advocated on behalf of the Mayor’s initiatives, and approved purchases made using city-issued credit cards (p-cards). NGP VAN NGP VAN is a cloud computing software suite that describes itself as: [T]he leading technology provider to Democratic and progressive campaigns and organizations, as well as nonprofits, municipalities, and other groups, offering clients an integrated platform of the best fundraising, compliance, field, organizing, digital, and social networking products. In February 2015, the Mayor’s Office entered into a contract with NGP VAN for a subscription to its services, and used funds from the Mayor’s “office account,” i.e., leftover funds from his campaign account, to pay for the NGP VAN subscription for the remaining 11 months of that year. See § 106.141(5)(d), Fla. Stat., (providing a candidate elected to local office the opportunity to transfer from a campaign account to an office account certain amounts of remaining funds from the campaign account, provided that such office account funds are used “only for legitimate expenses in connection with the candidate’s public office.”). From January 2016 through the end of 2017, the City of Tallahassee, rather than the Mayor’s Office account, paid for the NGP VAN subscription; specifically, Mr. Daniels used a p-card to make these payments. Mr. Daniels explained the Mayor’s Office’s use of NGP VAN as follows: NGP VAN is a set of online – it’s a company that provides online communication services, digital communication services, in various forms. For the purposes of what I have used it for, what I use it for in the city was basically as a Client Relationship Management, or what’s commonly known as a CRM. It’s basically a system that allows for mass communications with large numbers of people via email, as well as social media in some cases. But for the most part, it was basically – it’s a system that allows kind of two-way feedback. So instead of just sending emails, it allowed for you to understand how effective the communication was that you were sending. So it would provide you information about open rates, click-through rates … how engaged the audience was, how effective the message of the emails actually was. And so things that’s essentially what we used it for. Mr. Gillum provided additional context for the Mayor’s Office’s use of NGP VAN. Mr. Gillum became familiar with NGP VAN during his work for what he labeled as a progressive organization, and then used it during subsequent campaigns for city commission, mayor, and, most recently, governor of Florida. As a member of the city commission, Mr. Gillum stated that one of his “big frustrations” was the “absence of a real communication tool” with voters. He recalled that, during this time period, “there were no newsletters being sent from commissioners to their residents.” Mr. Gillum testified that prior to his election as Mayor, the Mayor’s Office’s method of electronic communication consisted of taking contact information from an Excel spreadsheet and transferring that information to the City of Tallahassee’s Outlook email program, and then sending out a mass email with that contact information. NGP VAN was a “completely new and dynamic way of being in communication” that allowed his office to determine whether communications it sent were being opened and read, as well as “a way for us to organize information through our offices as well.” Mr. Kamin-Cross testified that NGP VAN had a subscription account with the “Office of Andrew Gillum.” He stated that this subscription was used as a CRM “for tracking interactions with people[.]” He stated that more than two-thirds of NGP VAN’s revenue is from subscriptions to elected officials and municipalities; the remaining subscribers are candidates who identify as Democrats or progressives, as NGP VAN’s parent company “operates on a set of business ethics outlined in our terms of service that generally prohibits us from working with Republican campaigns based off of our business ethics.” Mr. Daniels also testified concerning the Mayor’s Office’s use of NGP VAN as follows: So we would mass email folks of a variety of different things that we were working on, and then we would look at, again, the information or the key performance indicators that each one of those messages would create for us about, again, click-through rates, open rates, essentially telling us a story behind all of that[.] Like how effective was that email? You know, could we make changes that would make it more appealing for people to want to stay engaged with the things that we were doing? We used it solely for that purpose, as well as to maintain, obviously, our large database of contacts. And outside of that, no other services were used. NGP VAN offers more than a CRM for managing various forms of communications. Mr. Kamin-Cross mentioned that “[t]here are add-on modules for things like donations or compliance filings[,]” as well as another campaign-related tool known as “Vote Builder.” Mr. Gillum testified as to NGP VAN’s usefulness in a campaign with respect to fundraising, including tracking contributions and generating campaign finance reports. However, the version of NGP VAN utilized in the Mayor’s Office between February 2015 and the end of 2017 did not utilize any of these campaign-related add- ons; rather, the Mayor’s Office utilized NGP VAN solely as a CRM for managing communications—namely, mass emails. Both Mr. Daniels and Mr. Gillum testified that the NGP VAN subscription utilized by the Mayor’s Office served the public purpose of establishing accountability to the citizens of Tallahassee by effectively communicating the Mayor’s initiatives and priorities, while also digitally organizing information that encouraged public engagement beyond what previous mayors had accomplished. Purchase of NGP VAN Subscription At the beginning of his employment with the City of Tallahassee, Mr. Daniels received training on the use of the p-card, which primarily focused on the different spending limits for different levels of city employees, and improper uses of p-cards, such as the purchase of alcohol or other personal purchases. In January 2016, the Mayor’s “office account” no longer paid for the NGP VAN subscription. From January 2016 through April 2018 (the duration of Mr. Daniels’s employment as Chief of Staff), Mr. Daniels used his p-card to pay for the NGP VAN subscription. Mr. Daniels made four payments to NPG VAN with the p-card, as follows: (a) $1,050.00; (b) $750.00; (c) $1,050.00; and (d) $2,115.00. These four payments total $4.965.00. P-Card Procedures #603 (Procedure 603), found in the City of Tallahassee’s Administrative Procedures Manual, establishes “departmental procedures for the procurement of supplies and services with a City of Tallahassee credit card (Purchase Card) that has been implemented for small purchase transactions less than $25,000.” P-Card Procedure 603.09, entitled “PROGRAM REQUIREMENTS/LIMITATIONS,” provides, in part: All purchases that exceed $1,000 shall be supported by at least three-documented phone or written quotes; evidence of contract; sole source, etc. (See Administrative Policy and Procedure #242CP). At least three of the purchases of the NGP VAN subscription (totaling $4,965) with the p-card were subject to Procedure 603, and specifically, P-Card Procedure 603.09. Mr. Libroth, who was the City of Tallahassee’s procurement services manager during the time Mr. Daniels served as Chief of Staff, testified as to the City of Tallahassee’s purchasing procedures, and confirmed that any purchase above $1,000.00 required three quotes, or documentation that it was from a sole source. Mr. Libroth additionally testified that the City of Tallahassee’s procurement policies require not only three quotes for any p-card purchase above $1,000.00 (that is not from a sole source), but also that the purchaser must ultimately purchase the goods or services from the vendor with the least expensive price quote. Mr. Daniels testified that his understanding of the procedures for purchasing goods or services above $1,000.00 with a p-card: [M]y understanding of the process that we had to essentially go and get at least three quotations from those – from different vendors to basically try to understand not only pricing for those services, but also quality of services and utility of services; and that we would basically keep a record of those instances where we sought a quote; that we had to basically keep records of the fact that we did that. The undersigned has reviewed Procedure 603 and specifically, P-Card Procedure 603.09, and has not located any requirement that, for p-card purchases above $1,000.00, the purchaser must purchase the goods or services from the vendor with the least expensive price quote. When asked if he recalled whether Mr. Daniels followed P-Card Procedure 603.09 with respect to the purchase of the NGP VAN subscription with the p-card— i.e., procuring three documented quotes—Mr. Libroth stated, “I can’t with 100 percent certainty.” He testified that after receiving a public records request for this information, he searched for this information, but again, stated that he could not recall if he had a discussion with someone in the Mayor’s Office, or observed something written concerning the Mayor’s Office seeking the documentation, and requested (during the final hearing) if he could consult with another city employee to confirm this.1 The undersigned finds that Mr. Libroth’s testimony was unclear and confusing on this important point. 22 Despite this uncertainty, Mr. Libroth stated that Mr. Daniels failed to follow Procedure 603, in particular, “[c]ompetition and proper documentation.” He further testified that the “three documented quotes” that would accompany this purchase, as required under P-Card Procedure 603.09, would be found in the City of Tallahassee’s “On Base system,” but for the purchase of NGP VAN, he could not find these three quotes in the “On Base system.” The undersigned has reviewed Procedure 603, and has found no requirement that a user of a p-card include the required three documented quotes in the City of Tallahassee’s “On Base system.” To the contrary, in a Procedure 603 subsection entitled “Documentation Retention Requirements,” Procedure 603 states: A filing system that promotes quick and easy retrieval is required. One method is to attach all supporting documentation to a copy of the cardholder’s monthly statement. However, any method that is consistent with departmental procedures and maintains an adequate retrieval system is satisfactory. Mr. Daniels testified that, in 2015, he received quotes from three other vendors that provided CRM services: Salsa Labs; Mailchimp; and iConstituent. With respect to iConstitutent, Mr. Daniels stated that he utilized a free trial of its CRM system. Mr. Daniels provided evidence, in the form of a “screen shot,” of communications with a representative from Salsa Labs, one of which was entitled “Pricing Request Lead Alert.” He also provided more written substantial evidence 1 That other city employee was Matt Lutz, who the Commission did not timely list or disclose as a witness, as required under the August 20, 2020, Order of Pre-hearing Instructions. However, during the final hearing, and during its case-in-chief, the Commission attempted to call Mr. Lutz as a witness, claiming he was a rebuttal witness. The undersigned declined to allow Mr. Lutz to be called as a rebuttal witness during the Commission’s case-in-chief, and the Commission did not later attempt to call Mr. Lutz after Mr. Daniels rested. that reflected the trial period, and cost, for the iConstituent service. Mr. Daniels did not provide any written evidence concerning a “quote” from Mailchimp, but testified that he received one. However, Mr. Libroth testified that he could not recall whether he had a verbal discussion with the Mayor’s Office, or saw some type of written documentation with respect to other CRM systems, concerning this issue, while responding to a public records request, which occurred in 2017. Mr. Daniels further testified that he maintained these “quotes” in the Mayor’s Office, and ultimately determined that NGP VAN was “one of the most cost effective” CRMs that the Mayor’s Office reviewed, and decided to use it as a CRM. The undersigned finds Mr. Daniels’s belief that he followed Procedure 603 credible, while Mr. Libroth’s testimony on the issue of whether Mr. Daniels followed Procedure 603 in procuring and paying for NGP VAN with a p-card unclear, confusing, and at least with respect to the retention of the written quotes, contrary to Procedure 603.2 The Commission also questioned Mr. Libroth concerning other, unrelated p-card transactions that Mr. Daniels made, as “similar fact evidence” under sections 90.404(2) and 120.57(1)(d), Florida Statutes, to establish that Mr. Daniel’s used the p-card for other unauthorized purchases, and to show intent or indifference with respect to non-official City government related expenses. And again, Mr. Libroth’s testimony was less than clear on this issue. For example, when asked if it was appropriate to use the p-card for charitable donations—something the Commission contends Mr. Daniels did, improperly—he stated that as long as it was not an organization that had been red-lined as an unacceptable vendor, it would be an allowable charge (unless determined otherwise during an audit). When asked about a p-card charge related to an expense for a political protest or rally, Mr. Libroth stated that he did 2 In its Proposed Recommended Order, the Commission contends that Mr. Daniels violated Procedure 603’s requirement that “[p]urchase card purchases of assets that exceed $1000 must be recorded in the fixed asset system to ensure that the item is properly safeguarded. Departmental representatives shall prepare the appropriate documents to ensure the item is added to the fixed asset inventory.” The Commission presented no evidence at the final hearing whether the NGP VAN CRM was recorded in the City of Tallahassee’s “fixed asset system” and did not question either Mr. Daniels or Mr. Libroth on this contention. not know, and could not find it during a quick review of Procedure 603. When asked if he saw problems with the Mayor’s Office’s use of the p-cards during this time period, he stated, “at certain times, yes. I mean, I can’t put my finger on a particular transaction ” When asked on cross-examination about the p-card charges for charitable donations (to organizations that allowed use of their facilities for meetings), and for the “political protest or rally” (to rent a table and chairs at an event in the courtyard of the Florida Legislature), Mr. Libroth admitted that such charges could comport with Procedure 603. And, with respect to issues the Commission also raised concerning catering charges, Mr. Libroth admitted that if such charges were later reimbursed with grant funds, then the charges were appropriate, so long as proper procedures were followed, although he would prefer to see “good documentation.” Mayor’s Office’s Use of NGP VAN and Investigation Mr. Daniels and the Mayor’s communications director, Jamie Van Pelt, were the only two employees of the Mayor’s Office who had passwords, and thus access to, the Mayor’s Office’s NGP VAN account. The Mayor’s Office’s NGP VAN subscription account resided in “the cloud,” as opposed to the City of Tallahassee’s servers. Mr. Daniels, and other employees of the Mayor’s Office, added individual’s contact information to the NGP VAN account in numerous ways. Beginning in February 2015, the mayor had approximately 5,937 contact records that were migrated to the NGP VAN system. The Mayor’s Office also added contact information to NGP VAN from any person who contacted the Mayor’s Office, as well as contact information volunteered from individuals who attended various initiative events. Additionally, the Mayor’s Office requested all of the email addresses from the City of Tallahassee’s utilities department, which Mr. Daniels believed would be residents of or connected to the City of Tallahassee. During the course of Mr. Daniel’s employment as Chief of Staff, the contact list in the Mayor’s Office’s NGP VAN account grew to approximately 31,282 individual contacts. From the time period between February 2015 to the end of 2017, the Mayor’s Office sent out 106 emails using NGP VAN’s CRM system to the individual contacts in the NGP VAN system. These emails are numerous and varied. Many of these emails included information concerning such initiatives from the Mayor’s Office as the Longest Table, regular meetings of the Faith Leaders Network, the Community Summit on Children, the Tallahassee Innovation Partnership, and Tallahassee Forward. At the final hearing, the Commission questioned Mr. Daniels and Mr. Gillum concerning a small number of these and other emails, which will be discussed separately below. With respect to the categories of emails previously mentioned, Mr. Daniels testified that the Mayor’s Office used these emails to communicate the initiatives and work of the Mayor’s Office, and to “usher in . . . a change of strategy for the city as a whole as it relates to how we engage with people digitally[.]” In 2017, Mr. Daniels became aware of an internet blog post that raised questions about the Mayor’s Office’s use of NGP VAN for these emails. Soon thereafter, he became aware of a press inquiry and then a public records request for these emails. Mr. Daniels testified that he worked with the City of Tallahassee and NGP VAN to ensure that all of the emails sent from the Mayor’s Office were available for production. Mr. Daniels noted that the database of individual contacts in the NGP VAN CRM was also located in the City of Tallahassee’s server. He also noted that he believed that most of the emails sent using the NGP VAN CRM were also on the City of Tallahassee’s server as well; as Mr. Daniels and other city employees were recipients of these emails, these emails would necessarily be found on the City of Tallahassee’s server. Mr. Daniels also testified that the Mayor’s Office often saved drafts of these emails on the City of Tallahassee’s server, prior to sending them to the individual contacts through the NGP VAN. The undersigned finds that all of the records related to the Mayor’s Office’s use of the NGP VAN subscription between February 2015 and 2017 appear to have been produced pursuant to (at least) a public records request and a law enforcement subpoena, and were admitted into evidence in this proceeding. During the course of this matter, the Commission did not file any pleadings with the undersigned that indicated that it was unable to obtain any of documentation related to the NGP VAN subscription, and, as discussed below, law enforcement did not appear to have any issues procuring it from the city as well. On March 2, 2017, Mr. Gillum reimbursed the City of Tallahassee for the City of Tallahassee’s cost of the NGP VAN CRM subscription, plus an additional amount to cover a credit card fee. At that time, Mr. Gillum had announced his intention to run for Governor of Florida. Mr. Gillum explained: I purchased the system NGP and all of its data when I – when this became an issue – it wasn’t an issue until I guess someone had made a complaint, and when this thing got into sort of controversial territory, I purchased the system, and you know, I haven’t touched it again. I never re- subscribed or anything like that. Mr. Gillum stated that he did not use the Mayor’s Office’s NGP VAN CRM for his gubernatorial campaign. He further stated that his gubernatorial campaign advisers suggested that he purchase the Mayor’s Office’s NGP VAN CRM because: It was an expense that I made for the benefit of the fact that my folks wanted to move on to another issue and didn’t want me going out there having to make the case as to why a contact management system was necessary for the Office of the Mayor in the eighth largest city in the third largest state in all of America. On March 6, 2017, the State Attorney’s Office of the Second Judicial Circuit received a complaint that Mr. Gillum had committed grand theft and “official misconduct by falsifying official document or record” while serving as mayor of Tallahassee. The State Attorney referred this matter to the Leon County Sheriff’s Office (LCSO), who assigned this matter to Sergeant Epstein, who at that time was a detective with LCSO. Sergeant Epstein testified that he obtained records from both the City of Tallahassee (via subpoena) and NGP VAN (via an electronic search warrant), concerning Mr. Gillum’s time as mayor of Tallahassee. He received roughly 3500 emails from NGP VAN, as well as payment records, and a contact list. He also received a large number of documents from the City of Tallahassee, including p-card records, and approximately 1,628 emails.3 He then reviewed these emails under the “scope” of “were there elements of grand theft, and were there any elements for official conduct.” He further looked at how the Mayor’s Office used the NGP VAN system, and whether “there was any political advertisement sent through that program during the time frame that the city was paying for it.” Sergeant Epstein also analyzed the 31,282 contacts within the Mayor’s Office’s NGP VAN CRM. Of these contacts, Sergeant Epstein confirmed that 5,626 contained the word “Tallahassee” in the “city” field of the contact list, or had a zip code associated with Leon County, and concluded that this number of contacts were Tallahassee residents. When he analyzed contacts that identified anything other than “Tallahassee” in the “city” field of the contact list, he found 2,083 contacts that he concluded were not Tallahassee residents. Another 23,370 contacts did not contain anything in the “city” field of the contact list, or an associated zip code; Sergeant Epstein determined that these contacts had an “unknown location.” Sergeant Epstein looked at emails that were sent from the Mayor’s Office using NGP VAN—through comparing the emails produced by the City of Tallahassee and NGP VAN—and verified that the Mayor’s Office sent a total of 106 emails using NGP VAN. Sergeant Epstein testified: The majority of those emails were around city events Long Table, I think the 1,000 Mentor program, just different community service programs that when you—and I read every single one of those fliers; of the 106, only four were identified as being political in nature. 3 Sergeant Epstein explained that the subpoena to the City of Tallahassee requested emails with “NGP VAN” in the email; in response, he received some “random political advertisements” unrelated to Mr. Gillum in which a political candidate had utilized NGP VAN for that candidate’s race, and to which a city employee had subscribed, which he explained was a reason for the relatively large number of responsive emails (compared to the 106 NGP VAN-utilized emails sent from the mayor’s office). However, Sergeant Epstein stated that the 106 emails received from NGP VAN matched the same 106 emails received from the City of Tallahassee. Sergeant Epstein stated that he turned these four emails he identified as being “political in nature” to the state attorney for consideration by a grand jury.4 These four emails can be described as follows: An email that stated “Join Vice President Joe Biden and Dr. Jill Biden in Tallahassee[,]”for a free event would take place at Florida A&M University, with a further message from Mr. Gillum touting this event as the last major “get out the vote” effort in Tallahassee; An email from Mr. Gillum stating that he will be representing Florida at the Democratic National Convention in a speaking role, and included a link to an article in the Tallahassee Democrat; An email from Mr. Gillum’s wife, R. Jai Gillum, stating that Mr. Gillum was the only Floridian to have a speaking role at the Democratic National Convention, that she was proud of him, and provided a link to a video of that speech, as well as excerpts from several news articles about Mr. Gillum’s speech; and A 2015 invitation to “Join Us for an Evening With a Special Guest,” indicating that the “special guest” was “United States Senator Bill Nelson” and “Chairwoman Allison Tant,” that this event was chaired by “Florida Democratic Party Vice Chair & 4 Sergeant Epstein relied on the definition of “political advertisement” that he found in the Leon County Supervisors of Elections handbook, which referenced section 106.011(15), Florida Statutes, in making this determination. Section 106.011(15) provides: “Political advertisement” means a paid expression in a communications medium prescribed in subsection (4), whether radio, television, newspaper, magazine, periodical, campaign literature, direct mail, or display or by means other than the spoken word in direct conversation, which expressly advocates the election or defeat of a candidate or the approval or rejection of an issue. However, political advertisement does not include: A statement by an organization, in existence before the time during which a candidate qualifies or an issue is placed on the ballot for that election, in support of or opposition to a candidate or issue, in that organization’s newsletter, which newsletter is distributed only to the members of that organization. Editorial endorsements by a newspaper, a radio or television station, or any other recognized news medium. Tallahassee Mayor Andrew Gillum,” that the event was in support of the Florida Democratic Party, and which provided various monetary sponsorship levels for this event. Sergeant Epstein’s report of investigation included the following conclusion: Over the course of this investigation the following was learned. Andrew Gillum originally purchased the NGP VAN program for use in his campaign for City Commissioner. After his election, then-City Commissioner Gillum did not utilize the NGP VAN software program as a CRM tool while on the City Commission. In 2014, City Commissioner Gillum again utilized the NGP VAN program during his campaign for Mayor of Tallahassee. After winning the election and being sworn into office, Mayor Gillum along with Chief of Staff Daniels made the decision to use the NGP VAN program in the mayor’s office as a CRM. The decision was made by Chief of Staff Daniels … to use the NGP VAN program in the mayor’s office as a CRM. The decision was made by Chief of Staff Daniels to initially pay for this program out of the converted office account, then out of the mayor’s office budget. The use of this program as a CRM was widely known in the mayor’s office and was utilized as a contact database list. Based on the evidence provided, the fundraising component built into the NGP VAN program was not utilized in the mayor’s office. Obtained documents suggest, Chief of Staff Daniels did evaluate other CRM vendors (Salsa Labs, Mailchimp, iConstituent), but ultimately decided to stay with NGP VAN due to familiarity with the program. Of the 106 mass emails sent through the NGP VAN program while it was in the Mayor’s Office, four emails were identified as “political advertisement.” In his testimony Mayor Gillum acknowledges that one of the four emails should not have been sent out through the NGP VAN program and labels the decision a “human error.” Mayor Gillum continued to support his decision to use the NGP VAN program in the mayor’s office as a CRM, however Mayor Gillum made the decision to reimburse the City of Tallahassee because by his own admission, he did not want this to be an issue in his run for the governor’s office. On August 7, 2017, the State Attorney presented the criminal complaint to the grand jury, to determine whether Mr. Gillum committed the crimes of grand theft or official misconduct “by paying for this software with public funds when he believed they served no public purpose to the taxpayer.” On that same date, the grand jury issued a No True Bill Presentment, and made numerous findings, including: The software here was only utilized as a CRM or Client Relations Management System. Such a system is commonly used in government and industry to manage communications with clients or constituents. NGP Van [sic] software also holds the ability to track responses and assist in fundraising. There is no evidence that this fundraising option was utilized during the relevant period. * * * The investigation never revealed any evidence of public records being destroyed, altered, or mutilated. Furthermore, there is no evidence of advantage or detriment to any person through manipulation of public records. * * * We conclude that governmental bodies at all levels spend vast monies communicating to their constituents as so the use of this software to announce city affairs does not constitute a crime. While the investigation shows that this software was capable of fundraising and other activities that might not serve a legitimate interest, the only way it was utilized was as a client relations management system distributing mass emails. The wisdom or waste of governmental officials in deciding which tools to use is a political issue and not one for criminal prosecution. * * * Finally, we decide whether this governmentally leased software was used for personal or political purposes outside the scope of legitimate communication with constituents. We find it was. There is no question that the advertisement for Florida DEMS fundraising was outside the duties of the Mayor of Tallahassee and served no public interest. We find the other three emails more questionable. While the investigator concluded they were political speech, we are not as sure. One any mayor’s duties is to be the City of Tallahassee’s representative when interacting with other political leaders. Whether speaking at the Democratic National Committee [sic] or introducing the current Vice President of the United States, the voters of Tallahassee chose Mayor Gillum to be the person invited. The dissemination of his appearance at each may constitute an appropriate use of the software. * * * Two persons, Jamie Van Pelt and Dustin Daniels, had the password for the system. … Hence, only these staffers could hold criminal liability for inappropriately sending out political emails. The system was lawfully utilized to communicate the public actions of Mayor Gillum. To be guilty of misappropriation, the State would have to prove that these staffers had a criminal intent to steal when they utilized this system to distribute each of these questionable emails. We don’t find such evidence. These men sent 102 emails announcing the Mayor’s Longest Table and the Faith Leadership Network. Our issue is when they also announced the Mayor’s participation and support of candidates and fundraising. We find that a less than 4% error rate in determining whether the Mayor was acting in furtherance of his position as Mayor, or as a private political fundraiser, cannot support a conclusion of criminal intent. No criminal charges have been filed against Mr. Daniels, Mr. Gillum, or any other person involved with this criminal investigation. In April 2018, Mr. Daniels resigned from his position as Chief of Staff and declared his candidacy for Mayor of Tallahassee. Mr. Daniels did not take or use any of the information from the Mayor’s Office’s NGP VAN CRM, nor did he use this information in his unsuccessful run for mayor. The Commission correctly notes, in its Proposed Recommended Order, that its scope in this proceeding is different than the grand jury’s scope. With respect to three of the four emails that were the subject of the criminal investigation, Mr. Daniels offered credible testimony as to his intent in sending these emails using the Mayor’s Office’s NGP VAN system. For example, with respect to the email concerning then-Vice President Biden’s visit to FAMU, he stated that the Vice President’s visit to Tallahassee was a “big deal,” that he was visiting a “major institution of public learning in this community,” and that “citizens deserved to know that this was happening.” With respect to the two emails concerning Mayor Gillum’s speech at the Democratic National Convention, he stated that “anything the mayor was involved with in a leadership capacity, in his official capacity as mayor, then that was something that was fair game for citizens to both know about and engage with[,]” and that “he was invited as mayor of the City of Tallahassee, he represented the city on a very large, national—maybe international stage, and we felt like that— again, it was worthwhile for folks to know about that.” The undersigned credits Mr. Daniels’s explanation for these three emails, and finds that his sending, or authorizing to send, these emails using the Mayor’s Office’s NGP VAN CRM was consistent with the performance of his public duties as chief of staff, and did not otherwise violate Florida law. With respect to the remaining email that was the subject of the criminal investigation, which was the fundraising event held to benefit the Florida Democratic Party—which Mr. Gillum admitted to Sergeant Epstein was a “human error”— Mr. Daniels testified that he has some “remorse” because it had “become a distraction,” but also stated, “I still believe that the mayor was involved in his official capacity, and at the time it made sense to me that this was something that the citizens of Tallahassee ought to know about.” The undersigned finds Mr. Daniels’s justification for this particular email to be less than credible; a person of Mr. Daniels’s position—the Chief of Staff to the mayor of a large Florida city—should know that sending an advertisement for a partisan fundraiser to contacts and constituents from a public email was inconsistent with the performance of his public duties and would be violative of Florida law. In its Proposed Recommended Order, the Commission details many other emails (i.e., other than the four emails that Sergeant Epstein identified as “political in nature” in paragraph 40 above, and which the grand jury reviewed) sent from the Mayor’s Office’s NGP VAN system that it contends are “self aggrandizing,” that identify Mr. Gillum as the mayor of the City of Tallahassee, and that (at least some) include the seal of the Mayor’s Office, which do not constitute a public purpose. The Advocate questioned Mr. Daniels about one of these “other” emails, which advertised the opening of the Edison restaurant; Mr. Daniels stated that the Edison restaurant was formerly the City of Tallahassee’s old electricity building, that it was a project that utilized Community Redevelopment Agency funds, and that it was appropriate to alert the public of its grand opening. And, at the final hearing, Mr. Daniels mentioned one email concerning Mr. Gillum receiving the Small Business Advocate award from the Conference of Mayors, and an event at City Hall commemorating this award. And, as found previously in paragraph 31 above, Mr. Daniels and Mr. Gillum testified as to the emails that included information initiatives from the Mayor’s Office, such as the Longest Table, regular meetings of the Faith Leaders Network, the Community Summit on Children, the Tallahassee Innovation Partnership, and Tallahassee Forward. The Commission did not question Mr. Daniels—or any witness—at the final hearing concerning these other “unexamined” emails it argues in its Proposed Recommended Order do not constitute a public purpose, except for what is discussed above. Other than successfully moving into evidence all 106 emails sent from the NGP VAN system in the Mayor’s Office, the Commission, which has the burden in this matter, presented no competent, substantial evidence on these other, unexamined emails from which the undersigned could make a factual finding that Mr. Daniels acted corruptly in the sending of these other, unexamined emails.5 5 Nor should a finding of corrupt intent be implied with respect to these other, unexamined emails. See Robinson v. Comm’n on Ethics, 242 So. 3d 467, 471 n.4 (Fla. 1st DCA 2018). Findings of Ultimate Fact Based on the foregoing, the undersigned finds, as a matter of ultimate fact, that the Commission did not prove, by clear and convincing evidence, that Mr. Daniels’s purchase of the NGP VAN subscription with the City of Tallahassee p-card constituted a violation of section 112.313(6). Additionally, based on the foregoing, the undersigned finds, as a matter of ultimate fact, that the Commission did not prove, by clear and convincing evidence, that Mr. Daniels’s use of the NGP VAN CRM constituted a violation of Florida’s Sunshine Law, see chapter 119, Florida Statutes, and thus, the commission did not prove that the use of the NGP VAN CRM constituted a violation of section 112.313(6). The undersigned finds, of the 106 mass emails sent from the Mayor’s Office’s NGP VAN CRM system, the Commission proved, by clear and convincing evidence, that one email—which is described in paragraph 40d. above, an invitation to a fundraiser for the Florida Democratic Party, which listed Mr. Gillum as both “Florida Democratic Party Vice Chair” and “Mayor of Tallahassee,” and which listed various contribution levels—constituted an improper use of his and the Mayor’s Office’s resources. The dissemination of that email was not consistent with the performance of his public duties, as a partisan fundraising email from the Mayor’s Office’s public account constitutes an improper political advertisement, and thus constituted a violation of section 112.313(6). With respect to the remaining 105 mass emails sent from the Mayor’s Office’s NGP VAN CRM, the undersigned finds, as a matter of ultimate fact, that the Commission did not prove, by clear and convincing evidence, that Mr. Daniels’s mass emailing of these various other emails constituted a violation of section 112.313(6).
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, the undersigned hereby RECOMMENDS that the Commission enter a final order finding that Respondent, Dustin Daniels, violated section 112.313(6), and that Respondent be subject to a $250 fine. DONE AND ENTERED this 19th day of February, 2021, in Tallahassee, Leon County, Florida. COPIES FURNISHED: Millie Wells Fulford, Agency Clerk Florida Commission on Ethics Post Office Drawer 15709 Tallahassee, Florida 32317-5709 Jennifer S. Blohm, Esquire Meyer, Brooks, Blohm & Hearn, P.A. Post Office Box 1547 Tallahassee, Florida 32302 S ROBERT J. TELFER III Administrative Law Judge 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 19th day of February, 2021. Elizabeth A. Miller, Esquire Office of the Attorney General The Capitol, Plaza Level 01 Tallahassee, Florida 32399 Advocates for the Commission Office of the Attorney General The Capitol, Plaza Level 01 Tallahassee, Florida 32399-1050 C. Christopher Anderson, III, Executive Director and General Counsel Florida Commission on Ethics Post Office Drawer 15709 Tallahassee, Florida 32317-5709
The Issue The issue for determination is whether Petitioner is entitled to a refund of gross receipts tax on its sales of telecommunication services for the period May 1, 1997 through October 1, 2001.
Findings Of Fact The Department is the agency of the State of Florida charged with implementing the State's tax statutes. Sheraton operates a full service hotel, the Sheraton Bal Harbour, located at 9701 Collins Avenue, Bal Harbour, Florida. Sheraton is licensed as a hotel under the provisions of Chapter 509, Florida Statutes. Sheraton's principal business is providing lodging, food, and other services to the guests at its hotel. Sheraton provides taxable transient rentals pursuant to Section 212.03, Florida Statutes. Sheraton offers its guests numerous amenities, including retail shopping, banquet facilities, meeting rooms, on-site dining, and luxury spa. Sheraton separately charges its guests for using these services. Sheraton also collects and remits taxes on charges for these services apart from the taxes it collects and remits on the room rental charges. In addition, Sheraton offers approximately 24 different room types within five different season schedules. The telecommunications services charges that are the subject of these proceedings are charges for local and toll telephone service. Sheraton charges guests who use the telephones located in the guestrooms. Sheraton purchased special equipment and services to determine whether local or long distance calls are placed from a guest room in order to bill the telephone call charges to the individual guests. Sheraton purchased the switch from GTE Communications, Inc. Sheraton's call accounting services are provided by Homisco, and the Property Management System was purchased from GEAC. Hotel guests initiate a call from a guest room. Upon conclusion of the call, a Nortell telephone switch sends the time of the call, duration of the call, and number called to the Hosmisco Call Accounting System. Homisco assigns a price for the call based upon preprogrammed parameters and passes that information to Sheraton's property management system. The property management system assigns the appropriate taxes to the call and posts the charge to the guest's folio. Sheraton offers no advertised rate plan that includes local calls that are not separately charged to the guest. At times, which are infrequent, charges for local calls are included as part of the sales negotiation process, however, this is rare. The telecommunications charges, which are relevant to these proceedings, were separately stated on the bills Sheraton provided to its hotel guests. Sheraton is a member of the Florida Hotel and Motel Association. Its member identification number is 8590. Sheraton has been a member of the Florida Hotel and Motel Association since 1980. On a monthly basis, during the period from May 1, 1997 to April 30, 2002 (the refund period), Sheraton self-accrued and paid to the State of Florida gross receipt taxes on sales of telecommunication services to its guests in the amount of $195,310.33. On or about July 9, 2002, Sheraton applied for a refund of the gross receipt taxes it paid during the refund period in the amount of $195,310.33. However, the parties agree that no refund is due for the period after October 1, 2001, which reduces the amount of the refund request to $185,508.95. On June 11, 2003, the Department denied the refund request. On August 4, 2003, Sheraton filed a protest with the Department. On December 22, 2003, the Department issued a Notice of Decision sustaining the denial of a refund. Sheraton timely filed its Petition for Administrative Hearing. For the calendar years ending December 2000, 2001, and 2002, the percentage of revenue from telecommunications as compared to total revenues of Sheraton are 3.1%, 2.6%, and 1.8%, respectively. Florida Administrative Code Rule 12B-6.001(1)(c)3.b. was in effect from 1990 to 2003, when it was repealed by the Department.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Revenue enter a final order denying Sheraton Bal Harbour Associates, Ltd. a refund in the amount of $185,508.95 for gross receipt taxes paid on sales of telecommunication services for the period May 1, 1997 through October 1, 2001. DONE AND ENTERED this 1st day of February, 2005, in Tallahassee, Leon County, Florida. S ERROL H. POWELL Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 1st day of February, 2005. COPIES FURNISHED: Joseph C. Moffa, Esquire Law Offices of Moffa & Gainor, P.A. One Financial Plaza, Suite 2202 100 Southeast Third Avenue Fort Lauderdale, Florida 33394 Martha F. Barrera, Esquire Office of the Attorney General The Capitol, Plaza Level 01 Tallahassee, Florida 32399-1050 Bruce Hoffmann, General Counsel Department of Revenue 204 Carlton Building Tallahassee, Florida 32399-0100 James Zingale, Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100
