Findings Of Fact No evidence was adduced in support of any of the allegations of the administrative complaint.
Recommendation Upon consideration of the foregoing, it is RECOMMENDED: That petitioner dismiss the administrative complaint. DONE AND ENTERED this 22nd day of November, 1982, in Tallahassee, Florida. ROBERT T. BENTON, II Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 Telephone: (904) 488-9675 Filed with the clerk of the Division of Administrative Hearings this 22nd day of November, 1982. COPIES FURNISHED: Charles F. Tunnicliff, Esquire Department of Professional Regulation 130 North Monroe Street Tallahassee, Florida 32301 Terry P. Lewis, Esquire Post Office Box 10508 Tallahassee, Florida 32302 ================================================================= AGENCY FINAL ORDER =================================================================
The Issue Pursuant to the order of the First District Court of Appeal dated October 18, 2005, the issue before the Division of Administrative Hearings is a determination of the amount of attorneys' fees and costs to be awarded for the administrative proceeding in Department of Health v. Anthony Glenn Rogers, M.D., DOAH Case No. 02-0080PL, and for the appellate proceeding styled Anthony Glenn Rogers, M.D. v. Department of Health, Case No. 1D04-1153 (Fla. 1st DCA Oct. 18, 2005).
Findings Of Fact Based on the oral and documentary evidence presented at the final hearing and on the entire record of this proceeding, the following findings of fact are made: The Department is the state agency charged with regulating the practice of medicine, and the Board of Medicine ("Board") within the Department is the entity responsible for entering final orders imposing disciplinary action for violations of the laws regulating the practice of medicine. See §§ 455.225 and 458.331(2), Fla. Stat. On January 4, 2002, the Department of Health filed an Administrative Complaint charging Dr. Rogers with violations of Section 458.331(1)(m), (q), and (t), Florida Statutes (1998).3 The matter was referred to the Division of Administrative Hearings, which assigned the matter DOAH Case No. 02-0080PL. The case was heard on May 7, 2002, by Administrative Law Judge Michael J. Parrish. Judge Parrish entered his Recommended Order on February 21, 2003, in which he found that the Department had failed to prove violations of Section 458.331(1)(q) and (t), Florida Statutes (1998), and recommended dismissal of those charges. Judge Parrish found that the Department had proven a violation of Section 458.331(1)(m), Florida Statutes (1998), failing to keep medical records as required by rule, and he recommended that Dr. Rogers be required to pay a $1,000.00 administrative fine and attend a Florida Medical Association record-keeping course as the penalty for the violation. The Board entered its Final Order on February 17, 2004, in which it adopted its own findings of fact and conclusions of law; found Dr. Rogers guilty of all three charges in the Administrative Complaint; and imposed a penalty on Dr. Rogers consisting of a $10,000 administrative fine, completing of a drug course sponsored by the University of South Florida, completion of a Florida Medical Association record-keeping course, and two years' probation, during which he was not permitted to practice medicine unless his practice was monitored quarterly by a physician approved by the Board. Dr. Rogers appealed the Board's Final Order to the First District Court of Appeal, challenging the Board's determination that Dr. Rogers had violated Section 458.331(1)(q) and (t), Florida Statutes (1998). Dr. Rogers filed a motion for attorneys' fees and costs based on Section 120.595(5), Florida Statutes. In addition, Dr. Rogers filed a Motion for Stay of Final Order, which the Board opposed. The district court denied the motion for stay in an order entered April 2, 2004, and Dr. Rogers proceeded to comply with the terms of the two-year probationary period imposed by the Board, as well as fulfilling the other requirements set forth in the Board's Final Order of February 17, 2004. In an opinion issued on October 18, 2005, the First District Court of Appeal reversed the Board's Final Order with respect to its determination that Dr. Rogers had violated Section 458.331(1)(q) and (t), Florida Statutes (1998), and remanded the matter to the Board for entry of a Final Order consistent with its opinion. The district court held in its opinion that the Board had erroneously re-weighed the evidence and had rejected findings of fact in the administrative law judge's Recommended Order that were supported by competent substantial evidence. The district court also entered on October 18, 2005, the order granting Dr. Rogers's motion for attorneys' fees and costs that is the subject of this proceeding. The district court's mandate issued on February 23, 2006, and, on April 21, 2006, the Board entered a Final Order on Remand adopting the findings of fact and conclusions of law in Judge Parrish's Recommended Order, finding that Dr. Rogers had violated Section 458.331(1)(m), Florida Statutes (1998), and imposing a $1,000.00 administrative fine on Dr. Rogers and requiring him to attend a medical record-keeping course. Based on the Amended Affidavit of C. William Berger filed August 24, 2006, the total number of hours Mr. Berger spent in representing Dr. Rogers in the administrative proceeding in DOAH Case No. 02-0080PL is 79.75, a total that the Department does not challenge. Mr. Berger's billing rate was $300.00 per hour, a rate that the Department accepts as reasonable. The total amount of attorney's fees paid to Mr. Berger for his representation of Dr. Rogers through the administrative proceedings before the Division of Administrative Hearings was, therefore, $23,925.00. Dr. Rogers was ultimately found to have violated one count of the three-count Administrative Complaint filed against him by the Department, the count in which the Department alleged that Dr. Rogers had violated Section 458.331(1)(m), Florida Statutes (1998), by failing to keep adequate medical records related to the patient that was the subject of the charges against him. Mr. Berger did not record in his billing statements the amount of time he spent researching this charge, preparing for hearing on this charge, or addressing this charge in the Proposed Recommended Order he filed in 02-0080PL. It is reasonable that Mr. Berger spent 10 percent of the hours included in his billing statements preparing Dr. Rogers's defense to the charge that he failed to keep adequate medical records.4 Accordingly, Mr. Berger's attorney's fees will be reduced by 10 percent, or by $2,392.50, for a total of $21,532.50. In reaching the percentage by which Mr. Berger's fees should be reduced, consideration has been given to the amount of the fees in relationship to the failure to prevail on the medical-records violation, to the seriousness of the alleged violations on which Dr. Rogers prevailed before both the administrative law judge and on appeal,5 and the penalty ranges that the Board could impose for the violations with which Dr. Rogers was charged.6 Based on the Supplemental Affidavit of Lisa Shearer Nelson Regarding Attorneys' Fees and Costs filed September 5, 2006, Ms. Nelson claimed that she spent a total of 187.1 hours "from the issuance of the final order of the Board of Medicine through the appeal and remand and initial preparation of the petition for attorney's fees and costs." Ms. Nelson's billing statements reflect that she represented Dr. Rogers during the appellate proceedings before the First District Court of Appeal in Case No. 1D04-1153 and before the Board on remand from the district court. Ms. Nelson's billing rate was $250.00 per hour, a rate that the Department accepts as reasonable. The total amount of attorney's fees paid by Dr. Rogers to Ms. Nelson for her representation was, therefore, $46,775.00. A review of the billing statements attached to Ms. Nelson's supplemental affidavit reveals that the final billing statement, dated June 9, 2006, was for "preparation of petition for fees and costs; preparation of affidavit re same." Dr. Rogers was billed for 1.9 hours in this billing statement, for a total of $475.00. Because the work done by Ms. Nelson reflected in this billing statement did not involve the appellate proceeding arising out of the Board's Final Order of February 17, 2004, the hours claimed by Ms. Nelson are reduced by 1.9 hours, for a total of 185.2 hours. Accordingly, Ms. Nelson's attorney's fees for her representation of Dr. Rogers on appeal total $46,300.00. The total costs identified in Mr. Berger's Amended Affidavit and in the billing statements attached to the Amended Affidavit is $4,462.55. This amount is reduced by $1,000.00 attributable to a retainer paid to a Dr. Spanos, who was initially retained as an expert witness but who ultimately did not testify on Dr. Rogers's behalf. The total allowable costs for the administrative proceeding, therefore, are $3,462.55. The total costs identified by Ms. Nelson in her Supplemental Affidavit and in the billing statements attached to the Supplemental Affidavit is $1,005.01. The total costs for both the administrative and the appellate proceedings are, therefore, $4,467.56. Dr. Rogers submitted an affidavit in which he claimed that he expended total costs of $154,807.23 in fulfilling the terms of the penalty assessed against him in the Board's Final Order of February 17, 2004, which was reversed by the district court.
Conclusions For Petitioner: C. William Berger, Esquire One Boca Place, Suite 337W 2255 Glades Road Boca Raton, Florida 33486 For Respondent: John E. Terrel, Esquire Michael D. Milnes, Esquire Department of Health 4052 Bald Cypress Way, Bin C-65 Tallahassee, Florida 32399-3265
Other Judicial Opinions A party who is adversely affected by this Final Order is entitled to judicial review pursuant to Section 120.68, Florida Statutes. Review proceedings are governed by the Florida Rules of Appellate Procedure. Such proceedings are commenced by filing the original Notice of Appeal with the agency clerk of the Division of Administrative Hearings and a copy, accompanied by filing fees prescribed by law, with the District Court of Appeal, First District, or with the District Court of Appeal in the Appellate District where the party resides. The notice of appeal must be filed within 30 days of rendition of the order to be reviewed.
Findings Of Fact At all times material to this case, the Respondent, Gloria Corsoro, has been a licensed real estate broker. She is the qualifying broker for the company known as Orange Management Corp. The Department is the state agency charged with the responsibility of regulating real estate licensees in the State of Florida. On or about July 20, 1994, the Respondent, Gloria Corsoro, entered a plea of nolo contendere to the crime of unlawful use of a notary. As a result, the Respondent was adjudicated guilty, placed on probation for a period of six months, and required to make payments and serve community service as directed by the court order. The plea and conviction stemmed from Respondent's conduct in connection with a warranty deed (the deed) which was recorded in the public record for Indian River County, Florida, on October 12, 1993. The deed conveyed a condominium unit from Leon R. Leavitt to the G. Corsoro Family Trust. The deed, notarized on October 1, 1989, purportedly bore the signatures of Leon R. Leavitt, the grantor; Mamie Cellura, a witness; Marie Copley, a witness; and Joseph Cellura, the notary before whom the document was executed. In fact, the document was not signed by Marie Copley or Leon R. Leavitt. At the time of the hearing, Mamie Cellura and Joseph Cellura were deceased. They were the parents of Marie Copley and her sister, the Respondent. At the time the deed was executed, Respondent signed Mr. Leavitt's name under a power of attorney he had reportedly given to her. Respondent further claims that Mamie Cellura signed for herself as a witness, signed for Marie Copley as a witness, and signed her husband's name with him (he had Parkinson's disease) as the notary. All this was completed, according to Respondent, Marie Copley, and Leon R. Leavitt, with everyone's full consent and knowledge. Marie Copley and Leon R. Leavitt were not present when the document was executed. Since they claim Respondent was authorized to execute the document, they are not concerned as to who signed the document but believe Mamie Cellura and Respondent signed as represented by Respondent. According to Nicholas Burczyk, the Respondent signed the document for all signatories on the instrument. Even by Respondent's account, the named parties did not execute the deed as presented on the face of the document. Respondent was originally charged with uttering a forged instrument and forgery. She chose to enter the plea as to the misdemeanor charge of unlawful use of a notary because she was "financially unable to pay to go to trial."
Recommendation Based on the foregoing, it is, hereby, RECOMMENDED: That the Department of Business and Professional Regulation, through the Florida Real Estate Commission enter a final order determining the Respondent, Gloria Corsoro violated Section 475.25(f), Florida Statutes, and imposing a reprimand together with an administrative fine in the amount of $1,000.00. DONE AND RECOMMENDED this 10th day of July, 1995, in Tallahassee, Leon County, Florida. JOYOUS D. PARRISH Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 10th day of July, 1995. APPENDIX TO RECOMMENDED ORDER, CASE NO. 95-0334 Rulings on the proposed findings of fact submitted by the Petitioner: Paragraphs 1, 2, 3, 5, and 6 are accepted. Paragraph 4 is accepted as stated in findings of fact paragraphs 6 through 14 above; otherwise rejected as incomplete statement of fact. Rulings on the proposed findings of fact submitted by the Respondent: 1. None submitted. Respondent's assessment of the charges against Respondent together with the argument has been considered in the preparation of the foregoing. COPIES FURNISHED: Darlene F. Keller Division Director Department of Business and Professional Regulation Division of Real Estate 400 West Robinson Street, Suite N-308 Post Office Box 1900 Orlando, Florida 32802-1900 Lynda L. Goodgame General Counsel Department of Business and Professional Regulation 1940 North Monroe Street, Suite 60 Tallahassee, Florida 32399-0792 Daniel Villazon Senior Attorney Department of Business and Professional Regulation 400 West Robinson Street Post Office Box 1900 Orlando, Florida 32802 Michael F. Berry MICHAEL F. BERRY, P.A. 2145-15th Avenue Vero Beach, Florida 32960
The Issue The issue is whether Respondent Three Rivers Legal Services engaged in unlawful employment practices with regard to Petitioner.
Findings Of Fact The Petitioner Attorney Kaimowitz was born on May 5, 1935. He attended the University of Wisconsin, served in the U. S. Army, and was a journalist early in his career. He worked to obtain voting rights for African-Americans in the Deep South as a volunteer for the Congress of Racial Equality in the summer of 1964. He attended law school at New York University and while attending law school worked for the New York Civil Liberties Union as an investigator. Upon graduating from law school in 1967, he applied for membership in the New York State Bar Association and was eventually admitted. He was employed as a staff attorney with the Center on Social Welfare Policy and Law in New York City. He was suspended from that position. In 1970 he was awarded a Reginald Heber Smith Fellowship which took him to Michigan Legal Services in Detroit, Michigan. He remained there until he took a sabbatical so that he could complete a Legal Services Corporation Research Fellowship in 1979 and 1980, which was located at the University of North Carolina at Chapel Hill. He could have returned to his employment at Michigan Legal Services but instead sued that entity. He also sued Pennsylvania Legal Services, Legal Services of North Carolina, and the Mental Health Law Project of the District of Columbia for alleged age discrimination in hiring. From December 1980 until 1984 he was employed as associate counsel for the Puerto Rican Legal Defense and Education Fund in New York and Connecticut. He left there because of a "labor dispute." In March of 1985 he was hired as director of the Greater Orlando Area Legal Services (GOALS). He was fired in 1986. He sued GOALS, and obtained a financial settlement. Subsequently he applied for jobs with Broward County Legal Services and Central Florida Legal Services. When he was turned down for those jobs, he sued both entities based on age discrimination. The action against Central Florida Legal Services ended in 1999 or 2000 with a confidential settlement involving the payment of money to Attorney Kaimowitz. At some point he also entered into a confidential settlement with Broward County Legal Services. Attorney Kaimowitz claims that the suits he filed against various legal services programs were based on his personal mission to reform the hiring practices of legal services programs, and he avers that he has been on that mission since 1980. Although he claims to have instituted these suits for altruistic motives, many of them resulted in monetary settlements that benefited him personally. None of these suits were tried to the point that a verdict resulted. After being fired by GOALS he obtained a master's in communications from the University of Central Florida in 1988. While attending school he worked as a journalist for the "Orlando Weekly," a publication targeted to African-Americans in the Orlando area. Subsequently Attorney Kaimowitz represented African- Americans in civil rights actions, including employment discrimination in the Orlando area. He was in private practice of law at that time although he had no office. In 1989 or 1990 a court assessed fees against him for engaging in frivolous litigation. Attorney Kaimowitz moved to Gainesville because his domestic partner was seeking a Ph.D. at the University of Florida. From May 14, 1999, until February 7, 2002, he worked for Alachua County as an investigator into citizen complaints of discrimination in housing and public accommodation. He was terminated from that job because of accusations of "serious misconduct." He claimed his discharge from this job was in retaliation for whistle blowing. He sued, and received a monetary settlement. He subsequently and unsuccessfully sought employment with the City of Gainesville, the University of Florida, and with the State of Florida. He had a dispute with the University of Florida based on the University's failure to publish written material that he submitted. He filed suits pro se based on age discrimination against Gainesville for failing to hire him and against the University of Florida and the Florida Board of Regents because of the publication dispute and because they refused to hire him. The suit against the Board of Regents was settled by a monetary payment to him of a confidential sum, according to Attorney Kaimowitz. In 1997, Judge Maurice Paul, a U. S. District Judge, entered an order forbidding Attorney Kaimowitz from filing pro se lawsuits in his court. Prior to 2003, Attorney Kaimowitz was disciplined by the Florida Supreme Court on two occasions. A Florida Bar report dated January 29, 2002, reported a finding on January 3, 2002, of professional misconduct. He was reprimanded for making a statement he knew to be false or with reckless disregard as to its truth or falsity concerning the integrity of a judge. He had been previously reprimanded by the Florida Supreme Court in 1998. Attorney Kaimowitz is proud that he has filed countless motions to disqualify judges. He claims he has succeeded in disqualifying, at one time or another, every judge in the Middle District of Florida, and several in the Eighth Judicial Circuit, which includes the Gainesville area. Attorney Kaimowitz agrees with the notion that he is, "the most well-known offensive personality in the Eighth Judicial Circuit," but asserts that this reputation was not fully achieved until 2004. This self-characterization is accepted based on the evidence adduced in this case. Attorney Kaimowitz suffered a hearing loss and began using hearing aids in 1992. It is found as a fact that he hears well enough to try a case, which was demonstrated in this case. At his request, counsel table was moved close to the bench. He subsequently announced that this accommodated his hearing deficiency. Attorney Kaimowitz was arrested for causing a disturbance in a Gainesville City Commission meeting in 2002. He is very proud of being arrested. On November 16, 2004, Eighth Judicial Circuit Judge Larry Gibbs Turner entered an order entitled Sentence on Judgment of Guilty of Direct and In-Direct Criminal Contempt, following a Judgment of Guilty of eight separate allegations of direct and indirect criminal contempt on October 13, 2004. This Order recited the following language: A review of the fifteen (15) volumes of the record in this cause clearly demonstrates that throughout these proceedings Mr. Kaimowitz carefully, willfully, and with calculation and premeditation abused his status as a lawyer/pro se litigant in filing repetitious and frivolous pleadings including, but not limited to, his repeated motions to recuse every judge associated with this case. Mr. Kaimowitz's most recent effort to recuse this undersigned judge was framed by his GABE KAIMOWITZ'S APPLICATION TO DISQUALIFY JUDGE LARRY G. TURNER, FROM TAKING ANY FURTHER ACTION IN THIS MATTER - LAWFUL OR UNLAWFUL - BECAUSE THE JURIST HAS BEEN AND CURRENTLY APPARENTLY IS AN EMPLOYEE OF THE FLORIDA BOARD OF REGENTS, AND/OR ITS SUCCESSOR RESPONSIBLE FOR THE UNIVERSITY OF FLORIDA AND AFFIDAVIT/CERTIFICATE WITH GABE KAIMOWITZ'S APPLICATION TO DISQUALIFY JUDGE LARRY G. TURNER, FROM TAKING ANY FURTHER ACTION IN THIS MATTER - LAWFUL OR UNLAWFUL - BECAUSE THE JURIST HAS BEEN AND CURRENTLY APPARENTLY IS AN EMPLOYEE OF THE FLORIDA BOARD OF REGENTS, AN/OR ITS SUCCESSOR RESPONSIBLE FOR THE UNIVERSITY OF FLORIDA. The motions/applications seeking recusal of each of the judges in this cause provide ample evidence of Mr. Kaimowitz's "style" of litigation in which he intentionally confuses, obfuscates, insults, defames, and makes scurrilous and unsubstantiated claims against parties, judges, witnesses, and others related and unrelated to the litigation. Further evidence is found in his VERIFIED MOTION FOR ARREST OF JUDGMENT BASED ON FRAUD COMMITTED UPON THIS COURT. Beginning at page 10 of that motion Mr. Kaimowitz claims that he ". . . has learned that repeated motions for recusal as evidence pours in eventually tends to work in his favor. For instance, after Judge Jopling finally recused himself, Kaimowitz had little difficulty resolving at mediation the underlying cases. They were assigned to Judge Turner at the time, but all he did was agree to the parties' stipulated willingness to proceed to mediation." Over the following several pages, Mr. Kaimowitz recites his history of recusal litigation in other state and federal cases. Judge Turner permanently enjoined Attorney Kaimowitz from filing further pro se litigation in the county and circuit courts of the Eighth Judicial Circuit. Although Judge Turner based his finding on Kaimowitz v. The Florida Board of Regents, Eighth Circuit Case No. 01-1996-CA-3260, he noted a number of cases involving Attorney Kaimowitz going back to 1996, including Eighth Judicial Circuit Case No. 01-2003-CA-2400-A, Gabe Kaimowitz v. Gainesville, Florida, and the Gainesville Sun, in which Judge Toby S. Monaco outlined abuses as a basis for his dismissal of Attorney Kaimowitz's Complaint with prejudice. The Respondent and Its Executive Director, Allison Thompson TRLS exists pursuant to Title 42 U. S. Code, § 2996 et seq. It is governed, inter alia, by Title 45, Code of Federal Regulations, § 1600.1, et seq. Its mission is to provide equal access to the system of justice so that those who are otherwise unable to afford adequate counsel may have high quality legal assistance to seek redress of grievances. It receives funding from the Legal Services Corporation in Washington, D.C., the Florida Bar Foundation, United Way, and other local and national government sources. TRLS is headquartered in Gainesville, Florida, and serves eleven mostly rural counties surrounding Alachua County, as well as Alachua County. It works with other volunteer agencies and with pro bono attorneys. It is essential to the success of TRLS that it maintain cordial relations with the community and the bar. Ms. Thompson hires all of the TRLS management team. TRLS does not use an application form when seeking applicants for jobs. Advertisements for positions solicit resumes. TRLS does not maintain a "pool" of applicants for any particular job. The number of employees at TRLS fluctuates depending on funding. The racial, age, and gender composition of TRLS personnel from May 2003 to May 2004, was as follows: Whites 20 Blacks 19 Asian 2 Hispanic 2 Male 11 Female 32 Of the above, the oldest was born in 1947. Three of the above were born in that year. Since 2003, new attorney hires, (including law school graduates not admitted) were as follows: Whites 10 Blacks 6 Asian 0 Hispanic 1 Male 4 Female 13 Of these, the oldest was born in 1958. TRLS has hired, since Ms. Thompson has been Executive Director, at least one person who was over the age of 70. TRLS does not have quotas or a diversity plan that requires certain races, genders, or ages to be given preference in hiring. TRLS is guided in this regard by Title 45, Code of Federal Regulations, § 1616.1, et seq. Specifically, Title 45, Code of Federal Regulations, § 1616.6 requires that TRLS adopt, "employment qualifications, procedures, and policies that meet the requirements of applicable laws prohibiting discrimination in employment, and shall take affirmative action to insure equal employment opportunity." The hiring record of TRLS, taken as a whole, demonstrates compliance with this requirement and does not indicate any pattern of discrimination. Ms. Thompson has been the executive director of TRLS since 1996. She is an African-American. She graduated from the University of Florida Law School and was admitted to the Florida Bar in 1974. She has extensive experience in the delivery of legal services to the poor. She worked for Tampa Legal Services beginning in 1973. It became a Legal Services Corporation program while she was employed there. She began working for Rhode Island Legal Services in 1976, practicing primarily family law. Ms. Thompson worked for Philadelphia Legal Services for five years and then, beginning in 1982, worked for a number of years in the U. S. Virgin Islands where she was litigation director. She was appointed Executive Director of TRLS in December of 1996. Job applications with TRLS in 2003 and earlier Attorney Kaimowitz applied for a managing attorney position with TRLS in 1997. Ms. Thompson interviewed him and determined that he was an "interesting person" but was not the type of person who would work well with others. She concluded he would be difficult to manage. She noted that if she had a job which did not require working well with others, she might wish to hire him in the future. Attorney Kaimowitz applied for a job as a staff attorney in 2001. He received a letter dated May 13, 2001, from Ms. Thompson, advising him that he was not selected and that she would keep his resume on file. Attorney Kaimowitz responded to this letter with a letter dated August 15, 2001, that pointed out two settlements he had received from legal services programs in Florida based on their alleged discrimination against him because of his age. He also discussed his whistle blowing with regard to GOALS and stated, "I include this information to indicate that when there really is a will, there is a way." Ms. Thompson took this as a threat. Attorney Kaimowitz applied for a job as a managing attorney in the TRLS Lake City office in 2002. He was not interviewed for that position. TRLS advertised for a fair housing attorney and a fair housing testing coordinator in various publications during April 2003. Attorney Kaimowitz applied for both of these jobs. He interviewed with Ms. Thompson and Mary O'Rourke, a staff attorney with TRLS, on May 30, 2003. Ms. Thompson asked Ms. O'Rourke to sit in as a witness to the interview because she was concerned that Attorney Kaimowitz would sue TRLS if she did not hire him. Initially, Attorney Kaimowitz expressed an interest in both the fair housing attorney job and the fair housing testing coordinator job. However, during the interview Attorney Kaimowitz stated that he did not wish to apply for the fair housing attorney position, but wished to be considered only as an applicant for the fair housing testing coordinator position. The occupant of this position was expected to supervise individuals who would determine if discrimination in housing was occurring. Attorney Kaimowitz claimed during his testimony that he told Ms. Thompson and Ms. O'Rourke that his ability to hear was impaired. He claimed he told them he required an accommodation for his hearing loss. He stated that he had a discussion with Ms. O'Rourke during the interview about an electronic system where a court reporter would record words spoken, and the words would be displayed on a monitor so that he could read what was being said. Attorney Kaimowitz appeared at the interview wearing one hearing aid. Ms. Thompson said that Attorney Kaimowitz said that one of his hearing aids was "in the shop." Ms. Thompson testified that he announced during the interview that his hearing loss was corrected by his hearing aids. Ms. Thompson said it was clear that he had no difficulty in understanding her with only one hearing aid. In no event did she perceive him as being hearing impaired. Ms. O'Rourke stated that the conversation claimed by Attorney Kaimowitz regarding an electronic monitor system to aid hearing never occurred. Based on Ms. O'Rourke's testimony, Ms. Thompson's testimony, and Attorney Kaimowitz's credibility, which is addressed in detail below, it is found that at the time of this interview Attorney Kaimowitz did not claim the need for an accommodation based on an alleged hearing impairment and he was not perceived as being hearing impaired. Ms. Thompson wanted employees at TRLS who would maintain a good relationship with the local bar. Even though the housing testing coordinator position was not a job requiring the incumbent to be a licensed attorney, it is not helpful for TRLS to have employees who are at odds with the local bar or community. She was looking for an employee who was a team player, who could get along with the other employees at TRLS, the local bar, and with persons in the community. She also wanted someone with good references. The fair housing testing coordinator required training in Jacksonville. Ms. Thompson believed Attorney Kaimowitz could not be trained because, "He already knew everything." She believed he couldn't take orders. She was troubled because he had no references from people who had supervised him. Although attorneys who have their own practice cannot give references of supervisors, they usually can give a judge or judges as a reference, but Attorney Kaimowitz did not provide any judges as references. Attorney Kaimowitz provided a co-plaintiff in a lawsuit and a professor named Joe Little as references. Ms. Thompson called Professor Little but did not feel it would be worthwhile calling his co-plaintiff, who was embroiled in a lawsuit at the time. She was concerned because Attorney Kaimowitz told her, with regard to references, "everyone in Gainesville was suspect." Moreover, he did not provide any references from his time as director of GOALS, which was a job where he had a supervisor who could comment on his work. Ms. Thompson was aware of Attorney Kaimowitz's arrest during a Gainesville City Commission meeting, and was aware of at least one of his Florida Supreme Court reprimands at the time she decided not to hire him. She was also aware that he would occasionally write in "black English," and she found that offensive. She believed him to be a disruptive force. She stated she would not hire him if he was "the last man on earth." She stated that an equally obnoxious black man would often apply for positions at TRLS, and she would not hire him for the same general reasons that she would not hire Attorney Kaimowitz. Ms. Thompson thought Attorney Kaimowitz would be a liability to her organization. She noted that, "He makes comments without any basis. He makes sweeping comments when he knows nothing. He doesn't even check." Brenda Scafadi was eventually hired for the housing testing coordinator. She was, at the time, a 50-year-old white woman who had a disability in the form of fibromyalgia. She was not an attorney. She was hired because she was perceived to be a team player and she had good references. Ms. Scafadi resigned after about eight months and was replaced by Steve Malu, a 50-year-old Nigerian, who also was not an attorney. Attorney Kaimowitz was a person Ms. Thompson had personally known for about six years at the time of the interview. She also knew about him from his letters to the "Gainesville Sun" and numerous e-mails he sent to her and to others. She was aware of his reputation in the community. She refused to hire him because she did not believe he would be a good employee. Neither his age, nor his race, nor his claimed hearing loss was a factor in her decision. Attorney Kaimowitz received a letter from Ms. Thompson dated July 22, 2003, advising him that she had, "decided to offer the position to different applicants who I thought would be more appropriate for our needs." The Americorps positions On August 1, 2004, Americorps positions in Gainesville and Jacksonville were advertised. These jobs were targeted at inexperienced attorneys and paid "living expenses" and a promise of scholarship help rather than a salary. During the evening of August 2, 2004, Ms. Thompson offered testimony before the Gainesville City Commission. After her testimony she departed, although the meeting continued. After exiting the building, she heard footsteps behind her and turned to see Attorney Kaimowitz following her. There were no other people in the area. He stated that he wanted to "mediate our situation" but was informed by Ms. Thompson that there was nothing to mediate because she did not discriminate. She told him she was tired of him making disparaging comments about her program and her staff. Attorney Kaimowitz expressed an interest in the Americorps positions in an e-mail to Ms. Thompson dated August 5, 2004, which was in the nature of a resume. In this letter he said, "I certainly will refrain from any action I suggested I might take through this month of August, so that we can see if we can reach an accommodation in that time." Ms. Thompson regarded this as a threat. Ms. Thompson did not interview him for the Americorps positions because the "resume" e-mail of August 5, 2004, did not match the requirements of the job. Three of the positions were designed for attorneys TRLS could train so that they could recruit students from the law school to assist in the delivery of services. The other two positions required no litigation skills and were designed to provide limited legal services over the telephone to a large volume of clients. Another reason Ms. Thompson found Attorney Kaimowitz to be unsuitable for this job were statements he made to her, such as claiming she hired an "incompetent black male." She had seen, and was familiar with, another widely circulated writing in which he stated, "The real 'piece of work' is Three Rivers Legal Services, and their foolish young attorney of color Glorimil Walker, everyone's favorite minority attorney since she speaks her mind--even if it is against the adults and children at University Centre." The Americorps attorneys hired during this period, instead of Attorney Kaimowitz, included Shelly E. Beach, who was a 26-year-old white female, Melissa B. Long, a 29-year-old black female, and Julie A. Santioni, a 26-year-old white female. Ms. Thompson, and TRLS did not discriminate or retaliate against Mr. Kaimowitz in refusing him an Americorps position. He was not hired because the job was unsuitable for him and because he was unsuitable for employment at TRLS. Retaliation Attorney Kaimowitz's original claim of retaliation was based on his view that TRLS would not hire him because he had sued Central Florida Legal Services and that Ms. Thompson knew and would not hire him because of that lawsuit. Ms. Thompson denied this. Attorney Kaimowitz's second claim of retaliation was based on the complaint to the Commission concerning the refusal of TRLS to hire him for the fair housing testing coordinator position. For reasons that are abundantly clear herein, there were numerous reasons for not hiring him other than retaliation. Attorney Kaimowitz's Credibility Attorney Kaimowitz claims that he applied for the fair housing attorney position as well as the fair housing testing coordinator. Both Ms. Thompson and Ms. O'Rourke stated that at his interview he said he wished to apply only for the fair housing testing coordinator. Attorney Kaimowitz also claims that he informed Ms. Thompson and Ms. O'Rourke at his interview that he was hard of hearing and required an accommodation. Ms. Thompson and Ms. O'Rourke both said that during the interview he asserted that any hearing problems he had were resolved by hearing aids. Attorney Kaimowitz has demonstrated through his pleadings and actions in court, and before this Administrative Law Judge, that he has a low regard for the truth. As an example, he claims to believe in the equality of mankind, but during his examination of Ms. Thompson, he threw a document at her and stated that, "And then you could never find discrimination unless I don't want a nigger in here." As a consequence all issues involving credibility are resolved against Attorney Kaimowitz. That being the case, it is found by a preponderance of the evidence that he did not seek the fair housing attorney position in 2003 and that he did not assert during the interview that he was hard of hearing and thus required an accommodation.
Conclusions For Petitioner: Gabe H. Kaimowitz, Esquire, pro se Post Office Box 140119 Gainesville, Florida 32614-0119 For Respondent: Carla D. Franklin, Esquire 4809 Southwest 91st Terrace Gainesville, Florida 32608
Recommendation Based upon the Findings of Fact and Conclusions of Law, it is RECOMMENDED that the petitions be dismissed. DONE AND ENTERED this 1st day of June, 2006, in Tallahassee, Leon County, Florida. S HARRY L. HOOPER 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 June, 2006. COPIES FURNISHED: Denise Crawford, Agency Clerk Florida Commission on Human Relations 2009 Apalachee Parkway, Suite 100 Tallahassee, Florida 32301 Carla D. Franklin, Esquire 4809 Southwest 91st Terrace Gainesville, Florida 32608 Gabe H. Kaimowitz, Esquire Post Office Box 140119 Gainesville, Florida 32614-0119 Cecil Howard, General Counsel Florida Commission on Human Relations 2009 Apalachee Parkway, Suite 100 Tallahassee, Florida 32301
The Issue The issue for determination is whether Intervenors are entitled to reasonable attorney fees and costs pursuant to Section 120.595, Florida Statutes (2003).1
Findings Of Fact Petitioner is an insurer and carrier within the meaning of Subsections 440.02(4) and 440.02(38), Florida Statutes (2005), and Florida Administrative Code Rule 69L-7.602(1)(w).2 Petitioner is licensed in the state as a workers' compensation insurance carrier (carrier).3 Respondent is a state agency within the meaning of Subsection 440.02(3), Florida Statutes (2005), and Florida Administrative Code Rule 69L-7.602(1)(b). In relevant part, Respondent is responsible for resolving reimbursement disputes between a carrier and a health care provider. Intervenors are health care providers within the meaning of Subsection 440.13(1)(h), Florida Statutes (2005), and Florida Administrative Code Rule 69L-7.602(1)(u). Each Intervenor is a health care facility within the meaning of Subsection 440.13(1)(g), Florida Statutes (2005). Intervenors seek an award of attorney fees and costs against Petitioner pursuant to Sections 57.105 and 120.595, Florida Statutes (2003). The proceeding involving Section 57.105, Florida Statutes (2003), is the subject of a separate Final Order entered on the same date as this Recommended Order. The scope of this Recommended Order is limited to Section 120.595, Florida Statutes (2003). Intervenors allege that Petitioner is the "non- prevailing adverse party" in an underlying proceeding and participated in the underlying proceeding for an "improper purpose" as the quoted terms are defined, respectively, in Subsections 120.595(1)(e)3. and 120.595(1)(e)1., Florida Statutes (2003). The underlying proceeding involves eight consolidated Petitions for Administrative Hearing. Petitioner filed each Petition for Administrative Hearing after Respondent determined Petitioner had improperly discounted the amount of reimbursement Petitioner paid for hospital services that Intervenors provided to eight patients from March 13, 2004, through February 11, 2005. From April 13 through May 23, 2005, Respondent issued separate orders directing Petitioner to pay the disputed amounts pursuant to Subsection 440.13(7), Florida Statutes (2005). From June 1 through June 21, 2005, Petitioner filed eight separate Petitions for Administrative Hearing. The eight petitions were subsequently consolidated into one underlying proceeding. Petitioner is the non-prevailing adverse party in the underlying proceeding. On December 8, 2005, Petitioner filed a Notice of Voluntary Dismissal in the underlying proceeding. On December 9, 2005, Intervenors filed their motion for attorney fees based on Section 120.595, Florida Statutes (2003). The formal hearing in the underlying proceeding was set for January 18, 2006. The ALJ amended the issue for the formal hearing to exclude the original reimbursement dispute and to limit the scope of the formal hearing to the fee dispute. The ALJ did so to avoid delay in the resolution of the proceeding. The fee dispute at issue in this proceeding includes only six of the original eight reimbursement disputes because Intervenors were not the medical providers in two of the original eight disputes.4 In the six reimbursement disputes involving Intervenors, Respondent ordered Petitioner to pay additional reimbursements in the aggregate amount of $54,178.52. Approximately $51,489.27 of the $54,178.52 in additional reimbursement involved inpatient hospital services provided to one patient.5 The remaining $2,689.25 in additional reimbursement involved outpatient hospital services in the emergency room.6 Subsection 440.13(12), Florida Statutes (2005), mandates that a three-member panel must determine statewide schedules for reimbursement allowances for inpatient hospital care. The statute requires hospital outpatient care to be reimbursed at 75 percent of "usual and customary" charges with certain exceptions not relevant to this proceeding. Notwithstanding the statutory mandate to schedule reimbursement rates for hospital inpatient services, the inpatient services at issue in the underlying proceeding were apparently unscheduled inpatient services. By letter dated April 13, 2005, Respondent ordered Petitioner to pay Intervenor, Holmes Regional Medical Center, Inc. (Holmes), an additional reimbursement in the amount of $51,489.27. The total reimbursement to Holmes was 75 percent of the charges that Holmes submitted to Petitioner for reimbursement.7 Respondent interprets Subsection 440.13(12), Florida Statutes (2005), to authorize reimbursement of both unscheduled inpatient hospital services and outpatient hospital services at the same rate. There is no dispute that Respondent reimburses unscheduled inpatient hospital services and outpatient hospital services at 75 percent of the "usual and customary" charges. The dispute in the underlying proceeding was over the meaning of the phrase "usual and customary" charges. Petitioner challenged the interpretation asserted by Respondent and Intervenors. Respondent and Intervenors contended that the quoted statutory phrase means Intervenors' usual and customary charges evidenced in a proprietary document identified in the record as the "charge master." Each Intervenor maintains its own charge master, and the information in each charge master is proprietary and confidential to each Intervenor. Petitioner asserted that the statutory phrase "usual and customary" charges means the usual and customary charges imposed by other hospitals in the community in which Intervenors are located. Petitioner maintains a data base that contains information sufficient to determine the usual and customary charges in each community. Petitioner did not participate in the underlying proceeding for an improper purpose within the meaning of Subsection 120.595(1)(e)1., Florida Statutes (2003). Rather, Petitioner presented a good faith claim or defense to modify or reverse the then-existing interpretation of Subsection 440.13(12), Florida Statutes (2005). Petitioner had a reasonable expectation of success. The statutory phrase "usual and customary" charges is not defined by statute. Nor has the phrase been judicially defined. Respondent bases its interpretation of the disputed phrase on two agency final orders and relevant language in the Florida Workers' Compensation Reimbursement Manual for Hospitals (2004 Second Edition) (the Manual). The Manual is developed by the Florida Department of Financial Services (DFS).8 The Manual interprets the quoted statutory phrase to mean the "hospital's charges." However, after the effective date of the Manual in 2004, DFS developed a proposed change to the Manual that, in relevant part, interprets "usual and customary" charges to mean the lesser of the charges billed by the hospital or the median charge of hospitals located within the same Medicare geographic locality.9 The trier of fact does not consider the new interpretation of the disputed statutory phrase as evidence relevant to a disputed issue of fact. As Respondent determined in an Order to Show Cause issued on February 16, 2006, and attached to Intervenors' PRO, "what constitutes 'usual and customary' charges is a question of law, not fact." The ALJ considers the new interpretation proposed by DFS for the purpose of determining the reasonableness of the interpretation asserted by Petitioner in the underlying proceeding. The ALJ also considers the new DFS interpretation to determine whether the interpretation asserted by Petitioner presented a justiciable issue of law. Intervenors assert that Petitioner's improper purpose in the underlying proceeding is evidenced, in relevant part, by Petitioner's failure to initially explain its reduced reimbursement to Intervenors with one of the codes authorized in Florida Administrative Code Rule 69L-7.602(5)(n) as an explanation of bill review (EOBR). None of the EOBR codes, however, contemplates a new interpretation of the statutory phrase "usual and customary" charges. Intervenors further assert that Petitioner's improper purpose in the underlying proceeding is evidenced, in relevant part, by Petitioner's failure to respond to discovery. However, responses to discovery would not have further elucidated Petitioner's rule-challenge. Petitioner stated eight times in each Petition for Administrative Hearing that Florida Administrative Code Rule 69L-7.501, the DFS rule incorporating the Manual by reference: [S]hould be read to allow recovery of 75% of the usual and customary fee prevailing in the community, and not 75% of whatever fee an individual provider elects to charge. Respondent and Intervenors were fully aware of the absence of statutory and judicial authority to resolve the issue. Petitioner did raise at least one factual issue in each Petition for Administrative Hearing. Petitioner alleged that Respondent's decision letters ordering Petitioner to pay additional reimbursement amounts had no legal effect because Respondent acted before each provider requested and received the carrier's reconsidered reimbursement decision. The absence of a formal hearing in the underlying proceeding foreclosed an evidential basis for a determination of whether each provider in fact requested and received a reconsidered reimbursement decision before the date Respondent ordered Petitioner to pay additional reimbursements. In this fee dispute, Petitioner presented some evidence to support the factual allegation and thereby established the presence of a justiciable issue of fact. It is not necessary for Petitioner to present enough evidence to show that Petitioner would have prevailed on that factual issue in the underlying proceeding. If the letters of determination issued by Respondent were without legal effect, Petitioner would not have waived its objections to further reimbursement within the meaning of Subsection 440.13(7)(b), Florida Statutes (2005). A determination that Petitioner did, or did not, submit the required information is unnecessary in this proceeding. During the formal hearing in this proceeding, Petitioner called an expert employed by a company identified in the record as Qmedtrix. The testimony showed a factual basis for the initial reimbursement paid by Petitioner. It is not necessary for Petitioner to show that this evidence was sufficient to prevail on the merits in the underlying case. The evidence is sufficient to establish justiciable issues of fact in the underlying case. In this proceeding, Petitioner submitted some evidence of justiciable issues of fact in the underlying proceeding. Petitioner need not submit enough evidence in this fee dispute to show Petitioner would have prevailed on these factual issues in the underlying proceeding. Intervenors are not entitled to a presumption that Petitioner participated in this proceeding for an improper purpose in accordance with Subsection 120.595(1)(c), Florida Statutes (2003). Although Petitioner was the non-prevailing party in two previous administrative hearings involving the same legal issue, the two proceedings were not against the same prevailing hospital provider and did not involve the same "project" as required in the relevant statute. Intervenors seek attorney fees in the amount of $36,960 and costs in the amount of $2,335.37 through the date that Petitioner voluntarily dismissed the underlying proceeding. Absent a finding that Petitioner participated in the underlying proceeding for an improper purpose, it is unnecessary to address the amount and reasonableness of the attorney fees and costs sought by Intervenors. If it were determined that Petitioner participated in the underlying proceeding for an improper purpose, the trier of fact cannot make a finding that the proposed attorney fees and costs are reasonable. Such a finding is not supported by competent and substantial evidence. The total attorney fees and costs billed in the underlying proceeding were charged by six or seven attorneys or paralegals employed by the billing law firm. However, the fees and costs at issue in this proceeding exclude any time and costs charged by paralegals and include only a portion of the total fees and costs charged by the attorneys. The total amount of time billed and costs incurred in the underlying proceeding is evidenced in business records identified in the record as Intervenors' Exhibits 20-23. However, those exhibits do not evidence the reasonableness of the fees and costs billed by the attorneys.10 Either the testimony of the billing attorneys or the actual time slips may have been sufficient to support a finding that the attorney fees and costs are reasonable. However, Intervenors pretermitted both means of proof. Intervenors asserted that the time slips contain information protected by the attorney-client privilege. However, Intervenors neither submitted redacted time slips nor offered the actual time slips for in-camera review. Nor did Intervenors allow the attorneys to testify concerning unprivileged matters. The absence of both the testimony of the attorneys and the time slips is fatal. The fact-finder has insufficient evidence to assess the reasonableness of the fees and costs, based on the novelty and difficulty of the questions involved. Intervenors' expert opined that the attorney fees and costs are reasonable. The expert based her opinion, in relevant part, on her review of the actual time slips maintained by each attorney. However, Petitioner was unable to review the time slips before cross-examining the expert. In lieu of the actual time slips, Intervenors submitted a summary of the nature of the time spent by each attorney. The summary is identified in the record as Intervenors' Exhibit 2. Petitioner objected to Intervenors' Exhibit 2, in relevant part, on the ground that it is hearsay. The ALJ reserved ruling on the objection and invited each side to brief the issue in its respective PRO. The paucity of relevant citations in the PROs demonstrates that neither side vigorously embraced the ALJ's invitation. Intervenors' Exhibit 2 is hearsay within the meaning of Subsection 90.801(1)(c), Florida Statutes (2005).11 The author of Intervenors' Exhibit 2 summarized the unsworn statements of attorneys from their time slips and submitted those statements to prove the truth of the assertion that the time billed was reasonable. Intervenors made neither the attorneys nor their time slips available for cross examination.12 Even if the summary were admissible, the summary and the testimony of its author are insufficient to show the attorney fees and costs were reasonable. The insufficiency of the summary emerged during cross-examination of its author. The author is the lone attorney from the billing law firm who testified at the hearing. Q. What other information did you look at to decide what time to actually bill . . .? A. The information I used was the information from the actual bill. Q. If we look at the first entry . . . were you the person that conducted that telephone conference? A. No, I wasn't. Transcript (TR) at 510-511. Q. In other words, [the entries] go with the date as opposed to the event [such as a motion to relinquish]? A. That's correct. Q. So if I wanted to know how much time it took you to actually work on the motion to relinquish, I would have to look at each entry and add up all the hours to find out how long it took you to do one motion. Is that how I would do that? A. It would be difficult to isolate that information from this record, we bill and explain in the narrative what work is performed each day, and unless that was the single thing worked on for several days, there would be no way to isolate the time, because we don't bill sort of by motion or topic. . . . Q. Well, if I'm trying to decide whether the time billed is reasonable, wouldn't I need to know how much time was spent on each task? A. I'm not sure how you would want to approach that. . . . Looking at this document, it does not give you that detail. It doesn't provide that breakout of information. Q. Is there a way for us to know who you spoke with on those entries? A. The entry . . . doesn't specify who participated in the conference. I don't recall what the conference entailed . . . . And many of these entries are from months ago, and I can't specifically recall on that date if I was involved in a conference and who else might have been there. . . . And so my guess is where the conference is listed on a day when lots of activity was performed on behalf of the client, most of it in this case was research. TR at 516-521.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Respondent enter a final order denying the motion for attorney fees and costs. DONE AND ENTERED this 27th day of April, 2006, in Tallahassee, Leon County, Florida. S DANIEL MANRY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 27th day of April, 2006.
The Issue The issue for determination in this proceeding is whether Petitioner is entitled to reimbursement for underpayment of Medicaid expenses, and, if so, the amount of such underpayment.
Findings Of Fact Some of the findings of fact relevant to this proceeding have been determined in two previous administrative proceedings, a federal district court case, and a federal bankruptcy action. The findings of fact made in the prior administrative and civil cases are discussed in the background of this proceeding. Background Petitioner is a wholly owned subsidiary of Suburban Nursing and Mobile Homes, Inc., of Ohio ("Suburban"). Suburban is a holding company which owns the stock of numerous corporations engaged in the operation of nursing homes or mobile home parks. At all times material to this proceeding, the stock of Suburban was owned or controlled by the late Gerald D. Keller and members of his family ("Keller"). Petitioner's assets include the land, buildings, and equipment used in the operation of Krestview Nursing Home ("Krestview") and Towne House Convalescent Center ("Towne House"). Krestview and Towne House are located in the greater metropolitan area of Miami, Florida. Prior to May 5, 1977, Krestview and Towne House were operated by the Wilson management group ("Wilson"). Wilson fell on dire financial straits. Criminal charges were pending against Wilson, and the closure of Krestview and two other nursing homes managed by Wilson was imminent. In an effort to avoid closure of the nursing homes, Respondent contacted Keller and asked if Keller would operate the nursing homes threatened with closure until a qualified operator could be located. A primary consideration underlying Respondent's request was the high mortality rate that could be expected if large numbers of elderly patients were relocated to other nursing homes. B & K Investments, Inc. ("B & K") was a Florida corporation wholly owned by Suburban on May 5, 1977. B & K had a current registration, a federal tax number, and the qualified personnel required to operate the nursing homes. At tile request of Respondent, B & K became the licensed provider for Krestview and Towne House. The land, buildings, and equipment used to operate Krestview and Towne House were leased to B & K by Petitioner. The lease to Wilson was terminated and new lease was executed by B & K and Petitioner. B & K agreed to a net lease containing substantially the same terms as the lease to Wilson. Under the terms of the net lease, the lessee in possession was required to pay all taxes and insurance premiums on real and personal property used in the operation of Krestview and Towne House. B & K incurred expenses for legal fees in the successful defense of an action brought by a labor. The labor union brought the action to prevent B & K from taking over the operation of Krestview and Towne House unless B & K assumed the collective bargaining obligations of its predecessor. Local 1115 Joint Bd. Nursing Home v. B & K Investments, 436 F.Supp 1203 (S.D. Fla. 1977) [hereinafter, "Local 1115"]. An agreement was entered into between B & K and Respondent for the operation of the nursing homes by B & K. The agreement provided that B & K would have no liabilities for debts or obligations attributable to the prior period of operation by Wilson. B & K paid the real property taxes for 1976 and the allocable portion of real property taxes for 1977 that were owed by Wilson for the prior period of operation. Respondent refused to reimburse B & K for those expenses even though the lease required a lessee in possession to pay property taxes and even thought payment of such taxes was a practical necessity to prevent a tax sale and subsequent redemption of the tax certificate. A formal hearing was conducted by Hearing Officer Ken Ayers to determine whether B & K should be reimbursed for the payment of real property taxes for 1976 and 1977. A Recommended Order in Division of Administrative Hearings Case No. 79-720 was entered on November 27, 1979. The Order recommended that B & K should not be reimbursed for real property taxes attributable to the prior period of operation by Wilson. The findings of fact and conclusions of law in the Recommended Order were adopted by Respondent in a Final Order entered on December 13, 1979, in Department of Health and Rehabilitative Services v. B & K Investments, Inc. d/b/a Krestview Nursing Home, and G & J Investments Corp., 2 F.A.L.R. 111-A (Fla. Dept. of Health and Rehabilitative Servs.) [hereinafter, "HRS v. B & K"]. B & K operated Krestview and Towne House from May 5, 1977, through August 31, 1977, while it was related by stock ownership to Petitioner. Medicaid rules prohibited the payment of rent by a provider to a landlord that was a related-party. B & K and Petitioner were related sibling corporations. The stock of the two corporations was owned by a common parent. Respondent disallowed the reimbursement of expenses for rent paid to a related party, and & K requested a formal hearing. The issue was resolved in the same formal hearing that was conducted to resolve the issue of whether B & K should be reimbursed for payment of real property taxes owed by Wilson. In HRS v. B & K, it was determined that. B & K should not be reimbursed for expenses incurred for rental payments to a related party. All of the stock of B & K was sold to an unrelated party to eliminate any conflict with Medicaid rules. The B & K stock was sold to Crestwood Care Centers of Florida, Inc. ("Crestwood") in an arms-length transaction completed on August 31, 1977. Respondent executed a conditional provider agreement for the operation of Krestview on November 14, 1977. An unconditional provider agreement for the operation of Krestview was executed by Respondent on December 19, 1978. 4/ The provider agreements authorized the operation of the two facilities pursuant to a Medicaid plan developed by the state and approved by the federal government (the "Medicaid plan"). Respondent amended its Medicaid plan on October 1, 1977. The amended plan adopted a "prospective" method of reimbursement and repealed the "retrospective" method of reimbursement previously applied by Respondent. /5 The provider agreements executed by Respondent after it amended its Medicaid plan specifically authorized the retroactive method of reimbursement. /6 The relationship between B & K and Respondent became increasingly strained. A medicaid audit evaluation and review analyst for Respondent speculated that, ". . . the Ohio group would get out of the business in Florida.' Respondent had complete control of B & K's sole source of cash flow for the operation of Krestview and Towne House. 7/ Respondent substantially affected B & K's cash flow by setting reimbursement rates inconsistently during 1978 and 1979, and by withholding Medicaid reimbursement payments of approximately $700,000 between July 1, 1979, and August 31, 1979. B & K sought protection in bankruptcy court in an emergency proceeding precipitated by Respondent. B & K filed a petition in bankruptcy on August 3, 1979. The primary asset of B & K was the money allegedly due from Respondent for unreimbursed Medicaid expenses. The bankruptcy trustee determined that cost reports required by Respondent for reimbursement of such expenses should be submitted if they could be prepared. For numerous reasons, the cost reports required considerable time and effort to prepare. They were eventually filed on February 7, 1983, for review and audit by Respondent. Respondent returned the cost reports submitted by Petitioner for the reasons stated in Respondent's letter dated March 25, 1983. First, Respondent alleged that the cost reports were filed after the end of the fiscal year of B & K. Second, Respondent claimed that the cost reports could only be used to set a new rate for the month following the filing of the cost report. Third, a retroactive payment allegedly could not be made to a facility with costs exceeding annual payments. Finally, the cost reports allegedly had been subject to a final audit by Respondent and the provider or bankruptcy trustee failed to timely file its request for hearing after the final audits were issued. The bankruptcy trustee desired to close the bankruptcy proceeding and assigned its interest in the claim for unpaid Medicaid reimbursements to Petitioner. Petitioner requested a formal hearing to contest Respondent's refusal to review and audit the cost reports. A formal hearing was conducted by Hearing Officer Sharyn L. Smith on October 14, 1983, to determine whether Respondent should accept the cost reports for review and audit. The Recommended Order in Division of Administrative Hearings Case No. 83-1769 entered on February 6, 1984, recommended that Respondent should accept the cost reports for review and audit. The findings of fact and overall recommendation of the Hearing Officer were adopted by Respondent in the Final Order in G & J Invs. Corp. v. Department of Health & Rehabilitative Servs., 6 F.A.L.R. 3788 (Fla. Dept. of Health & Rehabilitative Servs.), appeal dismissed, No. BA-57 (Fla. 1st DCA Nov. 5, 1984) [hereinafter "G & J v. HRS"]. The Final Order stated that all other conclusions of law were rejected. The parties in G & J v. HRS and in this proceeding are identical. On August 22, 1984, all of the cost reports were submitted for review and audit by Respondent in accordance with the Final Order entered in G & J v. HRS. Three cost reports were submitted for Krestview for the fiscal years ending May 31, 1978, and May 31, 1979, and for the three month period ending August 31, 1979. Two cost reports were submitted for Towne House for the fiscal year ending May 31, 1979, and for the three month period ending August 31, 1979. The cost report submitted for the fiscal year ending May 31, 1978, replaced the cost report originally submitted for the same period. Respondent reviewed and audited the cost reports for Krestview and Towne House, allowed a substantial portion of the claimed expenses, and made various adjustments and disallowances with regard to the remaining expenses (the "audit adjustments"). The reasons for the audit adjustments and the amount of the audit adjustments are set forth in the final audit reports prepared by Respondent. Audit reports for Krestview for the fiscal years ending May 31, 1978, and May 31, 1979, and for the three month period ending August 31, 1979, are referred hereinafter, respectively, as "EAR 5/31/78", "EAR 5/31/79", "EAR 8/31/79", Audit reports for Towne House for the fiscal year ending May 31, 1979, and for the three month period ending August 31, 1979, are referred to hereinafter, respectively, as "TAR 5/31/79" and "TAR 8/31/79". Amounts At Issue Respondent disallowed expenses in the aggregate amount of $1,748,636. Petitioner claims that it has been underpaid in the aggregate amount of $528,879 after deduction for certain disallowances admitted by Petitioner prior to the formal hearing and after reduction for mandatory limits imposed on Medicaid expenses by applicable law. Respondent claims that an overpayment was made to B & K in the aggregate amount of $1,125,910.10 Respondent asserts the overpayment as a setoff against Petitioner's claim for underpayment in the amount of $528,879. 5.02(a) Property Related Expenses Property related expenses comprised the largest portion of total expenses disallowed in the amount of $1,748,636. Some property related expenses were disallowed for more than one reason. 5.02(a) (1) Section 1122 Property related expenses, including rent, taxes, interest, depreciation, and insurance, were disallowed `by Respondent in the aggregate amount of $962,426. 11/ One of the reasons for disallowing all property related expenses included the alleged use of federal funds for capital expenditures in violation of Section 1122 of Public Law 92-603 (1972) (referred to hereinafter as either "Section 1122" or the "Section 1122 issue"). Section 1122 generally prohibits the use of federal funds by Medicaid providers for capital expenditures in excess of $100,000 without the prior approval of the then Department of Health, Education and Welfare ("HEW"). /12 Property related expenses in the amount of $575,925 /13 were disallowed solely on the basis of the Section 1122 issue. Property related expenses in the amount of $386,501 were disallowed for reasons in addition to the Section 1122 issue. Resolution of the Section 1122 issue in favor of Respondent, therefore, would dispose of a substantial portion of the disallowances involving property related expenses but not all of those disallowances. 5.02(a) (2) Other Disallowances Property related expenses in the amount of $386,501 were disallowed for reasons in addition to the Section 1122 issue. Respondent disallowed $202,680 for the additional reason that there was no actual payment of the individual items comprising that amount. /14 Expenses in the amount of $111,344 were disallowed as payments to a related party. /15 Respondent disallowed expenses in the amount of $42,029 because they were allegedly attributable to a "prior period". /16 The disallowance of this amount is a single entry in KAR 5/31/78. The period prior to the period covered by KAR 5/31/78 was the period of operation by Wilson. The "prior period" in EAR 5/31/78, therefore, refers to the period of operation by the previous provider. Finally, property related expenses in the amount of $30,448 were disallowed as insufficiently documented. /17 Property related expenses that were disallowed for insufficient documentation comprise only a portion of the total expenses disallowed as insufficiently documented. Expenses unrelated to property were also disallowed as insufficiently documented. 5.02(b) Expenses Unrelated To Property Disallowances in the amount of $786,210 involve expenses unrelated to property. Expenses unrelated to property were disallowed either for lack of documentation or for other reasons. 5.02(b) (1) Documentation Expenses unrelated to property were disallowed in the amount of $445,479 on the grounds that they were insufficiently documented. Respondent claims that documentation of expenses in the amount of $274,081 was insufficient with respect to the expenses, their relationship to patient are, or both. /18 Other expenses unrelated to property which were disallowed as insufficiently documented included accrued employee expenses in the amount of $99,163, /19 the allocation of expenses from the home office to the provider in Florida in the amount of /20 $25,311, and various other expenses in the aggregate amount of $46,924. When the amount of property related expenses and expenses unrelated to property are taken into account, expenses in the aggregate amount of $475,927 were disallowed for insufficient documentation. 5.02(b) (2) Other Disallowances Expenses unrelated to property were disallowed in the amount of $340,731 for reasons other than the lack of documentation. The reasons given in the audit reports for such disallowances were varied. Expenses in the amount of $51,310 were disallowed as either not accrued, accrued but not paid, or both. 21 When property related expenses and expenses unrelated to property are taken into account, expenses in the amount of $253,990 were disallowed as either not accrued, accrued but not paid, or both. / 22 Expenses in the amount of $34,456 were disallowed as attributable to the previous "owner" of Krestview and Towne House. /23 However, ownership of the physical assets required to operate Krestview and Towne House, including the land, buildings, and equipment was never transferred from Petitioner. Nor was the stock of Petitioner ever transferred from its parent. The reference in the audit reports to the previous "owner" of Krestview and Towne House, therefore, is construed to mean the previous provider who used the land, buildings, and equipment owned by Petitioner to operate Krestview and Towne House, i.e., Wilson. Legal fees in the amount of $26,804 were disallowed by Respondent as not related to patient /24 Respondent claims that the legal fees were incurred by the provider in connection with a union matter in which the provider was found to be in violation of the National Labor Relations Act. Expenses disallowed in the amount of $42,079 were attributed by Respondent to adjustments to the providers return on equity. /25 Disallowances to adjust the provider's return on equity were made as a result of disallowances based on the Section 1122 issue. Respondent disallowed expenses allocated from the provider's home office in the amount of $67,575 as non-reimbursable even though such expenses were sufficiently documented. /26 Expenses claimed by Krestview in the amount of $37,994 were disallowed as related to Towne House but not otherwise allowable ("allocations between facilities") /27 Expenses in the amount of $34,607 were disallowed as already paid, covered by another program, a previously entered expense, or attributable to a prior period ("already paid or covered by another program") 23 Expenses unrelated to property were disallowed in audit reports other than KAR 5/31/78 as attributable to a "prior period." The periods preceding audit reports subsequent to EAR 5/31/78 do not necessarily include either the period prior to the transfer of operations to B & K or the period prior to the transfer of B & K stock to an unrelated party. The meaning of the reference in the subsequent audit reports to a "prior period," therefore, is ambiguous and is an issue that Petitioner is required to prove. Expenses in the amount of $22,046 were disallowed for the purpose of making adjustments in the cost. /29 Expenses in the amount of $5,446 were disallowed as either personal or imprudent. /30 Expenses in the amount of $3,265 were disallowed as related to depreciation or improvements to /31 property. The audit reports do not state whether the property improved or the property subject to depreciation is real property or personal property. That is an issue Petitioner is required to prove. Expenses in the amount of $5,968 were disallowed as unrelated to the business of the provider. /32 Finally, expenses in the amount of $9,181 were disallowed to offset other income of the provider. /33 Adjustments to expenses in the amount of $204,785 were allowed but reclassified to different cost centers. /34 Those adjustments are not at issue in this proceeding. 5.02(c) Limitation Of Amounts At Issue Petitioner claims that it has been underpaid in the net amount of $528,879. The net amount of underpayment claimed by Petitioner represents the amount of underpayment after total expenses disallowed by Respondent in the amount of $1,748,636 are reduced by the amount of disallowances admitted by Petitioner and by the amount of mandatory limits on Medicaid expenses. Petitioner's failure to address certain issues during the formal hearing further limited the issues and the amounts of the issues to be determined in this Recommended Order. 5.02(c) (1) Disallowances Admitted By Petitioner Petitioner admitted prior to and during the formal hearing that Respondent properly disallowed expenses in the aggregate amount of $304,305.34. Disallowances admitted by Petitioner are comprised of expenses disallowed for insufficient documentation in the amount of $131,168.34, and other expenses disallowed in the aggregate amount of $173,137. Other expenses in the amount of $173,137 involve both property related expenses and expenses unrelated to property. Petitioner admitted that property related expenses in the amount of $111,344 were properly disallowed as payments to a related party and that expenses in the amount of $42,029 were properly disallowed as attributable to a prior period. Petitioner admitted that expenses unrelated to property in the amount of $19,764 were properly disallowed. /35 5.02(c) (2) Mandatory Limitations On Medicaid Expenses The net amount of underpayment claimed by Petitioner was determined after reductions for mandatory limits on Medicaid expenses. The actual gross amount of underpayment claimed by Petitioner is $698,875. Petitioner admits, however, that the gross amount of underpayment should be reduced by $169,996 as a result of "ceilings" or "caps" imposed by applicable statutes and rules. The net amount of underpayment claimed by Petitioner after reduction for such mandatory limits on Medicaid expenses is $528,879. 5.02(c) (3) Pretermitted Issues The issues to be determined in this Recommended Order and the amounts of those issues are limited to issues which satisfy two conjunctive tests. First, the issues must not have been admitted prior to the formal hearing. Second, the issues must have been addressed by Petitioner during the formal hearing. Issues not addressed by Petitioner during the formal hearing need not be determined on their merits but may be determined summarily as a threshold matter ("pretermitted issues") /36 Petitioner admitted prior to the formal hearing that disallowances in the amount of $304,305.34 were proper. Disallowances in the amount of $1,444,330.66 were not admitted prior to the formal hearing and formed the basis for the underpayment claimed by Petitioner in gross and net amounts of $698,875 and $528,879. /37 Pretermitted issues involved only expenses unrelated to property disallowed in the aggregate amount of $81,405.66. The aggregate amount of pretermitted issues is comprised of the following individual amounts and disallowances: (a) $14,692 disallowed as attributable to the previous owner; /38 (b) $20,807.66 disallowed as already paid or covered by another /39 program; (c) $22,046 disallowed as adjustments to cost reports; (d) $5,446 disallowed as personal or imprudent; (e) $3,265 disallowed as depreciation and improvements; (f) $5,968 disallowed as unrelated to the business of the provider,; and (g) $9,181 disallowed as an offset against other income. 5.02(d) Expenses At Issue The issues remaining to be determined in this Recommended Order involve both property related expenses and expenses unrelated to property in the aggregate amount of $1,362,925. That amount is comprised of the following individual amounts and disallowances (the "expenses at issue"): (a) property related expenses and expenses unrelated to property disallowed in the amount of $344,758.66 as insufficiently documented; (b) expenses unrelated to property disallowed in the amount of $67,575 as improper allocations from the home office; (c) expenses unrelated to property disallowed in the amount of $37,994 as improper allocations between facilities; (d) expenses unrelated to property which were disallowed in the amount of $13,799.34 as already paid or covered by another program; /40 (e) legal fees unrelated to property disallowed in the amount of $26,804; (f) property related expenses disallowed in the amount of $575,925 solely on the basis of Section 1122; (g) expenses unrelated to property disallowed in the amount of $42,079 as adjustments to return on equity; and (h) property related expenses and expenses unrelated to property disallowed in the amount of $253,990 as either not accrued, accrued but not paid, or both. Bankruptcy B & K filed a petition in bankruptcy on August 3, 1979, in the United States District Court for the Southern District of Florida, Bankruptcy No. 79- 925-BK-JE-B (the "bankruptcy proceeding"). The bankruptcy proceeding was conducted pursuant to Chapter 7 of the Bankruptcy Code of 1978 (the "Bankruptcy Code") /41 A Discharge of Bankrupt was entered on November 15, 1979. A final decree closing the bankruptcy file was entered on August 26, 1987. 5.03(a) The Bankrupt Estate Claims against the bankrupt estate included claims filed by Respondent and Petitioner. Respondent filed proof of claim in the amount of $1,179,278.51. Petitioner filed a proof of claim for administrative expenses in the amount of $35,000, a priority claim for unpaid rent in the amount of $105,000, and a non-priority claim for unpaid rent in the amount of $292,750.65. No objection was made to any of the unsecured claims. Funds in the bankrupt estate were sufficient to pay only priority claims. The bankrupt estate included two assets. One asset consisted of the bankrupt's interest in two nursing homes that housed approximately 320 Medicaid patients i.e., Krestview and Towne House. The other asset consisted of the bankrupt's claim for monies due and owing from Respondent for the underpayment of Medicaid reimbursement payments.. All right, title, and interest of B & K in the assets of the estate passed to the bankruptcy trustee when the petition in bankruptcy was filed. The claim against Respondent for unreimbursed Medicaid expenses became the property of the estate. B & K ceased to be the real party in interest for purposes of enforcing the claim against Respondent. The bankruptcy trustee had the duty of enforcing B & K's claim against Respondent. /42 The bankrupt's interest in Krestview and Towne House was abandoned by Order of Abandonment entered by the bankruptcy court on August 31, 1979. The trustee was relieved of all further responsibilities for the custody and operation of both nursing homes. The claim for monies due from Respondent was retained as the sole asset of the bankrupt estate. The amount of that claim required approximately three years to document and determine. 5.03(b) Preparation Of Cost Reports The bankruptcy trustee determined that cost reports required by Respondent for Krestview and Towne House should be submitted if they could be prepared. The bankruptcy trustee was unable to make sense of the books and records of the bankrupt to the point where the trustee felt she could make a claim for monies due from Respondent. B & K was unable to pay its accountant to prepare the cost reports required by Respondent. The bankruptcy trustee recommended to the court that the cost reports should be prepared on a contingency fee basis by Nursing Home Consultants, Inc. ("Consultants"). Consultants is an Ohio corporation engaged in the business of providing accounting services to health care organizations and a wholly owned subsidiary of Suburban. /43 The proposal to have Consultants prepare. the cost reports on a contingent basis was accepted by the bankruptcy court. An order appointing Consultants to prepare the cost reports was entered on January 11, 1980. Faced with court action, B & K's accountant eventually relinquished his work papers in December, 1980. In the words of the bankruptcy court, ". . . this pile of books . . ." was turned over to Consultants ". . . to audit the books and file the claims and press the claims." Preparation of the cost reports required by Respondent was a long and arduous task. It required checks to be matched to invoices and patient records to be verified. The first cost report was completed by Consultants in July, 1981, forwarded to the bankruptcy trustee, and filed with Respondent. Respondent returned the cost report to Consultants because the signatory of the cost report was not a certified public accountant in Ohio. Consultants obtained the required signature and returned the cost report to Respondent. 5.03(c) Assignment To Petitioner All of the cost reports had not been completed in July, 1982. Both the bankruptcy trustee and the bankruptcy judge desired to close the bankruptcy estate and ascertain what, if any, assets were available. Petitioner offered to purchase the interest of the bankruptcy trustee in the claim of the bankrupt against Respondent for unreimbursed Medicaid expenses. Petitioner's offer was accepted by the trustee and ratified and approved by the bankruptcy court on September 24, 1982. 5.03(c)(1) Consideration Paid The consideration paid by Petitioner to acquire the interest of the bankruptcy trustee included both cash and non-cash elements. Petitioner paid $5,000 in cash and agreed not to exercise its legal right to take action in the bankruptcy proceeding to recover priority claims for unpaid rent in the amount of $105,000 and administrative expenses in the amount of $35,000. Petitioner also agreed not to exercise its legal right to take action in the bankruptcy proceeding to recover the non-priority claim for unpaid rent in the amount of $292,750.65. Petitioner's offer was approved by the bankruptcy court, and Petitioner's claims were stricken by Order On Objections To Claims entered on March 11, 1983. 5.03(c) (2) Asset Acquired The asset acquired by Petitioner is reflected in the five cost reports submitted for review and audit by Respondent. Petitioner's written offer to the bankruptcy trustee stated that: the cost reports, and figures extrapolated therefrom, reflect an `asset' of the bankrupt in the form of monies dub and owing from the State of Florida. The bankruptcy trustee filed a Motion For Rule To Show Cause on or before August 25, 1982 (the "Motion"). The Motion requested the bankruptcy court to enter an order to show cause why the offer by Petitioner should not be accepted by the bankruptcy trustee. The Motion expressly incorporated by reference the terms of Petitioner's written offer and made the written offer part of the Motion. The Motion was approved by the bankruptcy court by Order On Rule To Show Cause entered on September 24, 1982. The Order On Rule To Show Cause expressly incorporated the terms of Petitioner's written offer attached to the Motion. The Order On Rule To Show Cause, in relevant part, provides: That the offer made by [Petitioner], a copy of said offer more specifically detailed and attached to the Trustee's . . . Motion, be and the same is hereby ratified and approved. 5.03(c)(3) Respondent And The Bankruptcy Court Respondent appeared at a hearing conducted on September 23, 1982, to determine whether Petitioner's offer should be accepted. Respondent's objection to the assignment was specifically denied, and Respondent did not appeal the order approving the assignment. The transcript of the hearing reveals that Respondent urged the bankruptcy court to retain the claim for the benefit of all creditors. The bankruptcy court noted that the only asset of the bankrupt was the claim for unreimbursed Medicaid payments. In an exchange between counsel for Respondent and the court, the court said: a claim is a puff of wind until it is translated by a capable attorney into proof and argument, against a solvent Defendant, to the point where it becomes money. . The [Petitioner] has . . . an administrative claim . . . for some $35,000, and . . . a priority rent claim of $105,000. /44 [The Petitioner] is willing to cancel those two and also pay $5,000 to the estate. In other words, the estate has a $145,000 bird in the hand. You urge me to tell this trustee to let that bird fly away and attempt, perhaps for the next two years, to see if this trustee can get anything on these accounts You give me a very hard choice. /45 The hard choice presented by Respondent in that case was rejected by the bankruptcy court. 5.03(d) Continued Preparation Of Cost Reports After the first cost reports were submitted to Respondent, Respondent notified Consultants that the cost reports were not in acceptable form and that additional information would be required, including balance sheets and revenues for Crestwood. Consultants began again to gather the additional information requested by Respondent. Petitioner filed cost reports containing the additional information on February 7, 1983. Respondent declined to accept the cost reports for review and audit. An administrative proceeding was conducted to determine whether Respondent should accept the cost reports. Respondent agreed to accept the cost reports in G & J v. HRS. The cost reports claimed an underpayment in the gross amount of $745,037 and an underpayment in the net amount of $359,229, after taking into account applicable ceilings on allowable expenses. Neither the gross nor the net amounts of the claimed underpayment included the cost report for Krestview for the fiscal year ending on May 31, 1978. Petitioner prepared a revised cost report to replace the original cost report submitted by B & K on November 1, 1978. /46 Documentation Petitioner sufficiently documented expenses disallowed by Respondent in the aggregate amount of $344,758.66. Documented expenses consisted of those disallowed in the amount of $25,990.66 in KAR 5/31/78, $140,329 in KAR 5/31/79, $128,006 in KAR 8/31/79, $26,330 in TAR 5/31/79, and $24,103 in TAR /47 8/31/79. Petitioner documented the amount of the expense, its relation to patient care, and the record of payments from Respondent /48 5.04(a) Amount Of The Expense Petitioner documented the amount of the disallowed expenses with records that included either original invoices, cancelled checks, or both. The records also included supporting information such as delivery receipts and receiving reports signed by employees of Krestview and Towne House. The delivery receipts and receiving reports showed that goods and services issue in this proceeding were received. The delivery receipt also contained the number of the cancelled check used to pay for the goods or services delivered. The cancel led check was verified against paid invoices. Many invoices were not located at the time the records were reviewed by field auditors because they were misfiled or filed in accordance with an unknown filing system. The records were voluminous and filled approximately 50 boxes. The records included books of original entry, original invoices, cancelled checks, personnel records, payroll records, payroll journals, pay claim listings, and other supporting documentation from which costs of operation were determined. The records originally obtained from the bankruptcy trustee were in such a state that Consultants had to completely reconstruct the operation of Krestview and Towne House. The records were first sorted into logical groups. Then cash accounts were reconciled to each account for each reporting period covered in each cost report. Each check was listed by number, amount, identity of vendor, and category. Consultants contacted the suppliers and purveyors for each facility to review their records for the years in question. Information was also obtained from federal, state, and county agencies, including the Medicare/Medicaid intermediary. The information obtained from government agencies included: computer printouts of reimbursement checks, vendor payment checks, and patient activity records from Respondent; all invoices from the Dade County Department of Human Resources, Health Services Division; and B & K's banking records. The records and the cost reports prepared from those records were reviewed and tested by certified public accountants in accordance with generally accepted auditing standards ("GAAS"). The examination included tests of the accounting records and other auditing procedures considered necessary under the circumstances. /49 Petitioner is the custodian of the records used to document the expenses claimed in the cost reports pursuant to the order of the bankruptcy court. The records were delivered to Mrs. Ruth Eldridge at Consultants by the CPA for B & K pursuant to the order of the bankruptcy court. Mrs. Eldridge has over 30 years of experience in the health care industry and has prepared hundreds of cost reports for various nursing homes subject to Medicaid and Medicare requirements. Mrs. Eldridge was personally responsible for preparing and verifying the records and cost reports. Her testimony at the formal hearing was credible and persuasive. 5.04(b) Relation To Patient Care Disallowed expenses documented by Petitioner were related to patient care. The expenses were reasonable in amount and in line with amounts paid by other providers in the same geographic area. The goods and services purchased were of the same kind and character as that provided to other providers in the same geographic area. The population of patients in Krestview and Towne House was monitored by daily census records taken by nurses at each nursing station within each facility. The names of patients appearing on the daily census reports corresponded to names of patients appearing on the nurses daily activity reports. The expenses listed in the five cost reports correlated to the patient days listed in the record of payments from Respondent. 5.04(c) Payment Petitioner sufficiently documented the record of payments from Respondent to B & K. Respondent withheld all payments to B & K from July 1, 1979, through August 31, 1979. Respondent withheld payments in the approximate aggregate amount of $700,000. Petitioner documented the record of payment with the paid claim listing provided to Petitioner by Respondent's agent. Respondent entered into a contract with Systems Development Corporation of Tallahassee, Florida ("SDC") to process Medicaid claims and issue reimbursement checks to providers. Pursuant to that contract, SDC maintained a paid claim listing and backup documentation for reimbursement payments made to providers. The paid claim listing is a computer printout containing the names of each individual Medicaid recipient in Krestview and Towne House for the periods at issue in this proceeding. In addition to the name of each Medicaid patient, the paid claim listing shows the identification number of each patient, the months that each patient was in the facility, the date of service rendered by month, the amount of payment from other sources, including patient contributions, and the net amount remitted by Respondent. Paid claim listings were audited by Respondent each month. Petitioner was directed by Respondent to obtain the paid claim listing from SDC for the purpose of determining the record of payments made by Respondent to B & K. When Petitioner asked Respondent how to obtain information evidencing such payments, Respondent instructed Petitioner to contact SDC. Mrs. Eldridge wrote to SDC asking for a paid claim listing. SDC responded by mailing a computer printout to Mrs. Eldridge containing the paid claim listings for Krestview and Towne House. Paid claim listings were audited by Respondent to assure that rates established by Respondent were properly input by SDC into the computer system. The reimbursement rate for B & K was adjusted downward by Respondent effective June 19, 1979. While the paid claim listing shows that the rate adjustment was never implemented, it also shows that no payments were made to B & K after June 30, 1979. Allocations From The Home Office Expenses in the amount of $67,575 were properly allocated from the home office. The method of allocation was reasonable and sufficiently documented. Expenses incurred by Krestview and Towne House for services provided to each facility by the home office were allocated based upon the number of patient days for each facility. Allocating expenses based upon the number of patient days is the generally accepted method used for allocating expenses in cost reports when more than one facility is operated by the same home office and services are rendered to both facilities. Allocations Between Facilities Expenses in the amount of $37,994 were allocated between Krestview and Towne House. The method of allocating expenses between facilities was reasonable and sufficiently documented. The expenses were allocated between facilities based upon a case-by-case determination of which individual expense was actually incurred by each facility. Expenses incurred by one facility but paid by a check from the other facility were allocated to the facility that incurred the expense. All of the expenses allocated between facilities were related to patient care. Already Paid Or Covered By Another Program Expenses in the amount of $13,799.34 were proper expenses and were not already paid or paid under alternative programs. These expenses included pharmaceutical and nursing home supplies actually purchased by Krestview and Towne House. The expenses were disallowed because another program generally paid for that type of expense. The amount of expenses paid by other programs, however, was limited. The excess of the actual expense over that paid by the other program was a proper expense incurred by the facility. If the amount of prescription order by the physician, for example, exceeded the amount paid by the alternative program or if the amount of the supplies needed by the facility exceeded the maximum paid by the alternative program, then the facility had to pay the difference. The amount of the difference ended up as an actual expense of each nursing home Legal Fees Legal fees in the amount of $26,804 are allowable expenses. They are reasonable expenses incurred as a precondition for the delivery of health services. The legal fees were not incurred in violation of the National Labor Relations Act. Local 1115. The legal fees were incurred in connection with activities related to collective bargaining, contract negotiations, and procedures which flow from enforcement of the terms of a collective bargaining contract either in a collective or individual setting. The legal fees were necessary to maintain operations by the provider and were a precondition of the delivery of health services. The legal fees at issue were incurred by the provider in connection with activities related to the enforcement of the terms of a collective bargaining contract. A labor union attempted to prevent the transfer of management operations to B & K unless B & K agreed to assume the obligations of the collective bargaining agreement between the union and B & K's transferor. The labor union's attempt resulted in litigation in federal district court. Local 1115. The court specifically found that the case began as an attempt by the labor union to prevent the transfer of the management operation of Krestview and Towne House unless the transferee agreed to assume the obligations of the collective bargaining agreement between the labor union and the transferor. The court did not find that B & K was in violation of the National Labor Relations Act. Respondent improperly characterized a portion of the legal fees as organizational or start-up costs associated with the transfer of ownership to B & K. Respondent improperly required the legal fees to be capitalized and amortized rather than currently deductible. Section 1122 Property related expenses in the aggregate amount of $809,053 /50 are ordinary expenses which are properly allowable as current deductions against ordinary income. They are related to patient care and are reimbursable Medicaid expenses. Respondent's determination that the expenses at issue were capital expenditures was incorrect and was made in a procedurally deficient manner. The expenses at issue are not capital expenditures that must be capitalized and either amortized or depreciated over time. Respondent's determination that such expenses were capital expenditures failed to comply with applicable federal and state requirements for making determinations, findings, and recommendations upon which the federal government made the decision to deny reimbursement of expenses on the basis of the Section 1122 issue. 5.09(a) Unauthorized Review Of Leases Federal law enacted in 1975 required states to have either a program for granting or denying certificates of need ("CON") or a program that required prior approval for capital expenditures in excess of $100,000 in accordance with Section 1122. The certificate of need program was purely a state program. The Section 1122 program was a federal program administered by states pursuant to contract between the state and federal governments. States were authorized under the federal legislation to establish and administer both a CON program and a Section 1122 program. HEW had exclusive authority to determine. whether a capital expenditure had occurred without prior approval, whether to impose sanctions, and what sanctions to impose, if any. The HEW determination was based on findings and recommendations of the state agency administering the plan. The state agency was required to give the provider an opportunity for a fair hearing before presenting findings and recommendations to HEW. Both types of programs were established and administered in Florida by Respondent until sometime in June, 1978. The Office of Community Medical Facilities was the office responsible for administering the Section 1122 program for Respondent. In June, 1978, the contract under which Respondent administered the Section 1122 program for HEW expired. The contract under which Respondent administered the Section 1122 program expired prior to the time any action was taken by Respondent in connection with B & K and Section 1122. Respondent first requested that it be permitted to review the two leases for Krestview and Towne House pursuant to Section 1122 on March 2, 1979. Respondent's request was made to B & K approximately eight months after Respondent's contract to administer the federal program expired. Respondent's Office of Community Medical Facilities notified the president of B & K by separate letters dated March 2, 1979, that a "capital expenditure" in the form of the leases for Krestview and Towne House had "occurred." The separate letters stated that the lease agreements had not been reviewed ". . . as required by Section 1122, P.L. 92-603. Acting as the Designated Planning Agency (DPA) in the Section 1122 review program . . .," Respondent offered to ". . . review the . . . capital expenditure[s] under the Section 1122 program for conformity with standards, plans and criteria." Respondent had no contractual authority on March 2, 1979, to conduct a review of the leases for Krestview and Towne House on behalf of the federal government. Even if Respondent had authority to review the leases, that authority was limited to a review of the leases for the purpose of determining whether lease payments made from May 5, 1977, until sometime in June, 1978, constituted capital expenditures. Respondent withheld reimbursement of all Medicaid expenses after June 30, 1979, in an effort to recoup all lease payments irrespective of when they were made. 5.09(b) Previous Authorized Review Of Leases The two leases for the operation of Krestview and Towne House were net leases entered into between B & K and Petitioner on May 5, 1977. HRS v. B & K. The terms of the net leases required the lessee to pay property related expenses including taxes and insurance on real and personal property. Id. The leases contained substantially the same terms and conditions as those by which the previous provider had operated the two facilities prior to the time B & K assumed operations at the request of Respondent. Id. The two leases for Krestview and Towne House were included in a review by Respondent's Office of Community Medical Facilities in 1978, prior to the expiration of the contract to administer the Section 1122 program. The purpose of tile review was to determine if there was ". . . a purchase made of the nursing facilities. . . " and if there was ". . . any action to be taken under Section 1122, Public Law 92-603. See Joint Exhibit 27. Respondent's review focused on transactions between B & K and its parent company and the stock purchase agreement between B & K's parent and Petitioner as the transferor of the stock. The stock purchase agreement expressly incorporated the two leases between B & K and Petitioner. On April 11, 1978, Respondent's Office of Community Medical Facilities notified the president of B & K that the ". . stock transfer . . . is not reviewable . . . under Section 1122, . . . as it will have no effect on depreciation, interest or fair return on investment for reimbursement purposes." See Joint Exhibit 28. 5.09(c) No Capital Expenditure Occurred Lease payments made by B & K to Petitioner for use of the Krestview and Towne House facilities did not constitute capital expenditures within the meaning of Section 1122. The lease payments were properly chargeable as a currently deductible expense of operation and maintenance based on GAAP. Lease payments could be treated as capital expenditures if lease payments were made pursuant to a transaction which was cast in the form of a lease but which in substance was an installment sale (a "virtual purchase"). A lease could be recharacterized as a virtual purchase if the lease payments exceeded the fair rental value in the geographic area, the term of the lease was less than the useful life of the facility, and the provider had either an option to renew the lease at a significantly reduced rental rate or an option to purchase at a price significantly less than the fair market value of the facility. The terms of the two leases for Krestview and Towne House did not satisfy any one of the requirements of a virtual purchase. The lease payments individually and in the aggregate did not exceed fair rental value for the geographic area. The terms of the leases did not exceed the useful life of the facilities. The terms of the leases included neither an option to renew at a rental rate significantly less than the fair rental value nor an option to purchase at a price significantly less than the fair market value of the facilities. There is nothing in either of the two leases to suggest that the agreements were anything but a straight lease or that the payments were anything but bona fide lease payments. Respondent's determination in 1978 that the rental rate for Krestview and Towne House exceeded the fair rental value of the two facilities was dismissed by Respondent prior' to a formal hearing in 1979. HRS v. B & K at 2. A desk review by Respondent's Office of Audit Service disallowed an increase in rent on May 31, 1976, prior to the time B & K began operations of the two facilities. Respondent's field audit allowed the rental increase. Petitioner requested a formal hearing to determine ". . . `an appropriate and acceptable rental amount'. . ." Respondent's Office of Audit Service received a copy of each of the leases for the two facilities on February 19, 1979. The issue of the whether the rental rate was reasonable was dismissed prior to the formal hearing. Id. 5.09(d) Agency Determinations, Findings, And Recommendation Respondent determined the substantial interests of B & K in two separate determinations. First, Respondent made a threshold determination that a "capital expenditure" had occurred in the form of lease payments made under two leases far Krestview and Towne House. Second, Respondent determined that B & K failed to submit a proposal for review of a "capital expenditure." Both of Respondent's determinations constituted findings without an opportunity for a fair hearing in violation of state and federal law. Based upon those findings, Respondent submitted recommendations to HEW that led to the exclusion of amounts attributable to such "capital expenditures" in determining Medicaid reimbursement payments to B & K. 5.09(d) (1) Determinations Respondent's first determination of B & K's substantial interests took the form of separate "implicit" determinations made on March 2, 1979. /51 Respondent's Office of Community Medical Facilities stated in separate letters to B & K dated March 2, 1979, that correspondence had been received from Respondent's Office of Audit Service ". . . indicating that a capital expenditure . . . [had] occurred . . . ." See Joint Exhibit 20 (emphasis added). In the next paragraph, Respondent offered ". . . to review the above mentioned capital expenditure under the Section 1122 program . . . ." (emphasis added) The next paragraph advised B & K that it had only 30 days to initiate a request for review . . ." of the capital expenditure or risk the withholding of payments Respondent explicitly determined on April 10, 1979, that a "capital expenditure" had occurred in the form of lease payments for Krestview and Towne House. On April 10, 1979, Respondent's Office of Community Medical Facilities stated in a letter to counsel for Petitioner that ". . . it is the determination of [Respondent] and this office that the lease transactions were a capital expenditure and subject to review under Section 1122 of P.L. 92-603." See Joint Exhibit~22. Respondent's second determination of B & K's substantial interests took the form of separate written determinations on May 15 and 16, 1979, that B & K had failed to submit a proposal for review of a capital expenditure. On May 15 and 16, 1979, Respondent's Office of Community Medical Facilities made numerous findings in written correspondence to HEW. Respondent found, in relevant part, that B & K had undertaken action under Section 1122 involving the acquisition of two nursing homes at an aggregate cost of $8,300,000 without submitting a proposal for review of such costs. 5.09(d) (2) Findings And Recommendations Respondent's determinations that a "capital expenditure" had occurred and that B & K had not submitted a proposal for review of such "capital expenditures" constituted findings under applicable federal law. HEW notified the president of B & K on May 25, 1979, that HEW had ". . reviewed the findings and recommendations of [Respondent] with respect to the proposed capital expenditure [of $8,300,000] . . ." (emphasis added). See Respondent's Exhibit 6. Respondent recommended to the federal government that amounts attributable to "capital expenditures" be excluded in determining Medicaid reimbursement payments to B & K. On May 15 and 16, 1979, Respondent's Office of Community Medical Facilities recommended to the appropriate office of HEW that " . . . amounts attributable to this capital expenditure be excluded in determining payments to the proponent under Titles V, XVIII and XIX of the Social Security Act for services furnished." See Joint Exhibits 23 and 24, Part IV, D, of attached Record Of State And Local Action Under Section 1122 Of The Social Security Act. The letter of transmittal from Respondent to HEW represented that the correspondence contained Respondent's "recommendation." The findings and recommendations made by Respondent to HEW formed the basis for HEW's decision to withhold reimbursements for capital expenditures. On May 25, 1979, HEW notified Respondent that HEW had ". . . reviewed the bindings and recommendations of [Respondent] with respect to the proposed capital expenditure [of $8,300,000] . . . ." Based upon Respondent's findings and recommendations, HEW determined that reimbursement would be indefinitely withheld for the "capital expenditure." 5.09(e) Procedural Defects Respondent determined the substantial interests of B & K without giving B & K an opportunity for a fair hearing. Respondent's notice to B & K on March 2, 1979, did not clearly state that a determination had been made of the occurrence of a capital expenditure. That determination was only "implied" /52 Respondent did not explicitly state that a determination had been made of the occurrence of a capital expenditure until Respondent made that disclosure in its letter to counsel for Petitioner on April 10, 1979. That disclosure, however, was addressed by Respondent to counsel for Petitioner and was not addressed to B & K. Neither notice included a statement of B & K's appeal rights with respect to either Respondent's "implicit" or explicit determinations that a "capital expenditure" had occurred. 5.09(e)(1) Determinations That Capital Expenditure Had Occurred Respondent's notice to B & K on March 2, 1979, failed to disclose B & K's appeal rights concerning Respondent's "implicit" determination that a "capital expenditure" had occurred. Respondent's notice offered to ". . review the . capital expenditure . . . . [,] stated that B & K had 36 days to " . . . initiate a request for review [of the capital expenditure] in compliance with DHRS Rule 10-5 . [,]" and further stated that failure to ". . . initiate such a request for review leaves no basis for a finding of conformity and may be grounds for indefinite withholding of Medicare/Medicaid reimbursements by DHEW." The copies of administrative rules attached to the notice on March 2, 1979, addressed neither B & K's rights to appeal Respondent's implicit determination that a capital expenditure had occurred nor the procedures for such appeals. See Joint Exhibit 20. The notice to counsel for Petitioner on April 10, 1979, of Respondent's explicit determination that a "capital expenditure" had occurred contained no statement of appeal rights available to B & K. The notice merely stated that Respondent had determined that the lease payments ". . . were capital expenditures . . ." and referred counsel for Petitioner to state and federal laws relied upon by Respondent for its determination. 5.09(e) (2) Determination Of Failure To Submit Proposal For Review Of A Capital Expenditure The first written notice of Respondent's determination that B & K had failed to submit a proposal for review of a capital expenditure was given to B & K in the form of copies of Respondent's written correspondence to the federal government. That written notice was received by B & K after Respondent mailed its findings and recommendations to HEW. The notice of determination failed to inform B & K of any appeal rights concerning Respondent's determination of B & K's substantial interests. The notice of determination also made findings and recommendations relied upon by HEW without- first giving B & K an opportunity for a fair hearing. B & K was not given 30 days to request a formal hearing. The notices of March 2, 1979, were received ) by B & K on March 21, 1979. The time to submit a proposal for review of a "capital expenditure" expired on or about April 21, 1979. April 22, 1979, was the first day that Respondent could have determined that B & K had not timely filed a proposal for review of a "capital expenditure." There is no evidence in the record that Respondent made such a determination on April 22, 1979. Even if Respondent determined in free form agency action conducted on April 22, 1979, that a proposal for review of a "capital expenditure" had not been timely filed, B & K would have had 30 days under applicable federal regulations, or until May 22, 1979, to request a formal hearing concerning Respondent's determination. Respondent, however, notified the federal government on May 15 and 16, 1979, that Respondent had determined that no proposal for review of a "capital expenditure" had been timely filed. Respondent's notice to the federal government was dated approximately six to seven days prior to the last day of the 30 day period in which B & K was entitled to request a formal hearing. May 15, 1979, was the first day that the failure to timely file a proposal for review of a capital expenditure could have been determined by Respondent in any manner other than free form agency action. May 15 and 16, 1979, were the dates of Respondent's written notices to the federal government that no proposal for review of a capital expenditure had been filed. The notices of Respondent's determinations were also mailed to B & K on May IS and 16, 1979. The last days to request a formal hearing concerning Respondent's determinations were Jane 15 and 16, 1979. A formal hearing was requested by counsel for Petitioner on May 29, 1979. The request for a formal hearing from counsel for Petitioner was sufficient to put Respondent on notice that its proposed agency action was being contested. In any event, the issue of who requested the formal hearing and his or her authority to represent B & K is a moot point. The federal government instructed Respondent to withhold Medicaid reimbursements for capital expenditures before the request for formal hearing could be made. On May 21, 1979, the federal government received Respondent's notices of May 15 and 16, 1979. On May 25, 1979, HEW notified Respondent that HEW had determined that B & K failed to submit a review for proposal and that reimbursement would be indefinitely withheld for the `capital expenditure [of $8,300,000] . . . ." See Respondent's Exhibit 6. /53 Even if a point of entry had been provided to B & K, it was not a clear point of entry. The point of entry provided to B & K on March 2, 1979, was a 30 day window of time to submit an application for review of a "capital expenditure." Respondent never informed B & K of its appeal rights concerning either Respondent's threshold determination that a capital expenditure had occurred or Respondent's determination that ". . . no proposal [had been] submitted. . ." for review of a "capital expenditure." The manner in which Respondent determined B & K's substantial interests and the manner in which Respondent attempted to fulfill its due process obligations was, at best, confusing and unclear. Respondent's conduct precipitated more than one attempt by more than one law firm to ascertain what action had in fact been taken by Respondent. See Joint Exhibits 21, 25, 26. Accrual And Payment Expenses in the amount of $253,990 were either properly accrued and properly paid. A portion of those expenses were discharged in bankruptcy. The remaining portion was assigned to Petitioner for payment. 5.10(a) Accrual An invoice for each expense claimed in the cost reports was received at the time the goods or services were delivered. The provider had knowledge of the amount due for such goods or services. The obligation to pay for the goods or services was incurred in the ordinary course of business. The amount of the obligation and time for payment gas fixed and determined between the parties to each transaction. The provider either paid the obligation or intended to pay the obligation at the time the provider received the invoice. B & K, the bankruptcy trustee, and Petitioner have always intended to pay expenses disallowed as not properly accrued. Petitioner never abandoned the claim for reimbursement of expenses. Pursuant to the assignment approved by the bankruptcy court Petitioner prepared the needed cost reports and "pressed" the claim against Respondent for reimbursement of Medicaid expenses. Pursuant to the Final Order in G & J v. HRS, Petitioner submitted the cost reports required by Respondent for review and audit on August 22, 1984. More than four years later, Respondent completed its review and audit of the cost reports. Petitioner has consistently pursued the payment of expenses disallowed by Respondent. 5.10(b) Payment Expenses disallowed in the audit reports in the amount of $253,990 were properly paid within the meaning of applicable Medicaid rules. /54 Applicable Medicaid rules require payment within one year after the end of the cost reporting period in which the liability was incurred. Payment may occur up to three years after the end of the cost reporting period in which the liability was incurred if there is valid justification for the delay. Valid justification includes cash flow difficulties and accounting errors in the receipt and processing of bills. See discussion at Conclusions of Law, Sac. 6.07(d), infra. Valid justification existed for not paying expenses disallowed as unpaid within one year after the end of the cost reporting period in which the liabilities were incurred. B & K encountered cash flow difficulties when Respondent cut off the sole source of cash flow required to pay expenses disallowed by Respondent as unpaid. B & K also encountered accounting errors in the receipt and processing of bills for the cost of goods and services when Respondent adjusted the reimbursement rate to be paid to B & K to recoup expenses disallowed retroactively to May 5, 1977. The cash flow difficulties and accounting errors experienced by B & K were caused by action undertaken by Respondent without reasonable care. 55/ The lease payments from B & K to Petitioner were made pursuant to leases that here substantially the same as those under which the previous provider operated Krestview and Towne House. The leases under which B & K operated the two facilities had been included in a review conducted by Respondent the previous year. When Respondent incorrectly determined that the lease payments were capital expenditures, Respondent did so pursuant to a contract with the federal government that had previously expired. Respondent made recommendations to the federal government based upon findings that were substantively incorrect and that were procedurally deficient. Notices to B & K of action taken or to be taken by Respondent were untimely, deficient, and unclear. When Respondent explicitly stated what action it had taken, the notice of that action was not mailed to B & K. Liabilities for expenses disallowed as unpaid were incurred in the period covered by cost reports for the fiscal year ending May 31, 1979, and for the three month period ending August 31, 1979. See, KAR 8/31/79, TAR 5/31/79, and TAR 8/31/79. An automatic stay was imposed by applicable bankruptcy law when the petition in bankruptcy was filed on August 3, 1979; within one year after the end of the cost reporting period in which the liabilities were incurred. The automatic stay enjoined any action for the payment of expenses until the bankruptcy proceeding was closed. The three year period allowed for payment of expenses under applicable Medicaid rules was tolled upon the filing of the petition in bankruptcy. The three year period ran from May 31, 1979, to August 3, 1979, when the petition in bankruptcy was filed. The automatic stay enjoined further action until the bankruptcy file was closed. The bankruptcy file was closed on August 27, 1987. This proceeding began on July 9, 1987, during the pendency of the automatic stay imposed under applicable bankruptcy law. /56 The three year period allowed under applicable Medicaid rules for payment of Medicaid expenses will not begin to run again until the conclusion of this proceeding. 57/ Return On Equity Expenses unrelated to property in the amount of $42,079 were improperly disallowed by Respondent as adjustments to return on equity. The adjustments to return on equity were made as a result of the lease payments disallowed as "capital expenditures." One of the purposes of a review under Section 1122 is to determine whether a particular expenditure will have an affect on ". . . depreciation, interest or fair return on investment for reimbursement purposes." See Respondent's letter to B & K on April 11, 1978 in Joint Exhibit 28. Retroactive And Prospective Methods Of Reimbursement Two methods of reimbursement for Medicaid expenses were used by Respondent from May 5, 1977, through August 31, 1979. The retrospective method of reimbursement was issued prior to October 1, 1977. The prospective system was used effective October 1, 1977. Application for approval of the change in methods of reimbursement was submitted by Respondent to the appropriate office of HEW on December 12, 1977, received by HEW on December 15, 1977, and approved by HEW on April 26, 1978. The effective date of the change was October 1, 1977. The adoption of the prospective method of reimbursement was merely a continuation of the previously existing Medicaid program with no new or additional economic impact to the state, private persons, or others. G & J v. HRS at 10. 5.12(a) Final Rate And Rate Application Period Both methods of reimbursement are used to establish a per diem rate of reimbursement ("final rate"). The final rate is determined under both methods of reimbursement for a particular provider by dividing allowable costs by allowable Medicaid patient days. 58/ Allowable costs are those costs reported by providers on annual cost reports submitted to Respondent after upward or downward adjustments, if any, are made by Respondent and agreed to by the provider. The final rate established under the retrospective method of reimbursement is applied backward over the period covered by the cost report. The final rate is also used as the interim rate to be paid until the next cost report is filed by the provider. The final rate established under the prospective method of reimbursement is applied forward during the period covered by the next cost report to be filed. The final rate includes an inflation factor to compensate the provider for the fact that the final rate is calculated prior to the rate application period. 5.12(b) Settlement Of Overpayment And Underpayment An overpayment occurs when the actual annual payments received by a provider exceed the actual annual allowable costs included in the cost report filed by the provider. An underpayment occurs when the actual annual allowable costs included in the cost report filed by the provider exceed the actual annual payments received by the provider during the period covered by the cost report. An overpayment and an underpayment are generally settled in the same process in which final rates and interim rates are determined. The customary method of settling an overpayment and an underpayment assumes that the provider is an ongoing business. The customary method of settlement does not address a provider who terminates its operations as a result of bankruptcy or otherwise. 5.12(b) (1) Overpayment The customary method of settling an overpayment is different under the retrospective and prospective methods of reimbursement. Under the retrospective method of reimbursement, an overpayment is recovered by Respondent either by a mutually acceptable plan negotiated between Respondent and the provider or by withholding regular payments to the provider. Recovery by withholding of payments, however, can be used only after the provider is offered an opportunity for a fair hearing and, if requested, a fair hearing is completed and a final decision is entered. Under the prospective method of reimbursement, an overpayment is not recovered retrospectively. Instead, the amount of overpayment is excluded from the allowable costs used in calculating the final rate to be applied subsequently during the rate application period. The exclusion of an from allowable costs has the effect of reducing the final rate subsequently received by the provider during the rate application period. 5.12(b) (2) Underpayment An underpayment is treated similarly under the retrospective and prospective methods of reimbursement. When a provider's actual annual allowable costs included in the cost report filed under the retrospective method of reimbursement exceed the actual annual payment from Respondent, the interim rate paid until the next cost report is filed is increased by an allowance of nine percent in lieu of retroactive payments. When a provider's actual annual allowable costs included in the cost report filed under the prospective method of reimbursement exceed the actual annual payment from Respondent, the final rate to be applied during the next rate application period is increased in proportion to the actual annual allowable costs included in the cost report. 5.12(c) Reimbursement For Underpayment Petitioner is entitled to reimbursement of an underpayment under either the retrospective or prospective methods of reimbursement. Some of the findings of fact that are relevant to this factual issue were made in the Recommended Order in G & J v. HRS. The findings of fact in the Recommended Order were adopted in Respondent's final order. Other findings of fact that are relevant to this factual issue are made in this proceeding. 5.12(c) (1) Prior Proceeding The Recommended Order in G & J v. HRS found that underpayment could be recovered by a provider upon receipt of a properly completed claims document. The Recommended Order found that a claims document included a cost report. The Recommended Order in G & J v. HRS rejected Respondent's assertion that cost reports can only be used to set a new rate and cannot be used to establish the amount of retroactive payments. The Recommended Order found that the purpose of the cost reports was not limited to the establishment of a new rate. Respondent was aware that Petitioner was preparing cost reports for audit and that B & K was out of business. The establishment of a new rate for an ongoing business is not the only purpose for filing cost reports. Cost reports may also be filed to obtain retroactive payments if such payments are not otherwise prohibited. G & J v. HRS. Florida Administrative Code Rule 10C-7.48(6) (i) does not prevent retroactive reimbursement for an underpayment. The Recommended Order based its determination upon four findings of fact. Most importantly, the Recommended Order found that retroactive reimbursement for an underpayment was specifically contemplated in the provider agreement entered into between B & K and Respondent. 60/ Any rights to such reimbursement were assigned to Petitioner by the bankruptcy trustee pursuant to the order of the bankruptcy court. Second, Retroactive reimbursement of underpayment was contemplated in Respondent's "Instructions to Cost Reports for Nursing Homes Participating in the Florida Medicaid Program." Florida Administrative Code Rule 10C-7.48 provides that cost reports are to be completed in accordance with Respondent's instructions. Third, retroactive reimbursement of an underpayment was not eliminated by the adoption of a "totally new prospective system of payment." The adoption of the prospective system of payment was merely a continuation of the Medicaid program with no new or additional economic impact to the state, private persons, or others. Fourth, Florida Administrative Code Rule 10C-7.48(6) (i) does not prohibit all retroactive payments bat rather only retroactive reimbursement of those costs which exceed annual payment." A definition of "annual payment" could not be established by Respondent. B & K never experienced an established and consistently applied rate during 1978 and 1979. Instead, B & K experienced a series of eight different crates in less than 12 months. The policy of Respondent was that rates became effective on the first day of each month after a cost report was filed. The Respondent's policy, however, was inapplicable because rates for B & K were not set with any consistent pattern or principle in mind. 5.12(c) (2) This Proceeding Both the retrospective and prospective methods of reimbursement authorize the recovery of an underpayment by a provider under two sets of circumstances. First, underpayment can be recovered by the provider if an audit determines that there were errors on the cost reports and actual costs were greater than reported costs. Second, the provider agreement expressly states that "[i]n instances of nonpayment or under- payment . . . the [Respondent] shall make payment to the Provider upon receipt of properly completed claims documents." (emphasis added) Both sets of circumstances required to recover an underpayment are satisfied in this proceeding. First, actual costs incurred by B & K exceeded reported costs as adjusted by Respondent. The excess of actual costs over adjusted reported costs was caused by errors made in the audit reports prepared by Respondent. Second, the provider agreement executed by Respondent after it adopted the prospective method of reimbursement requires payment to Petitioner upon the receipt of properly completed claims documents. A cost report is a properly completed claims document. Respondent's claim that the prospective method of reimbursement must be used in this proceeding is inconsistent with Respondent's actions in two respects. First, Respondent executed provider agreements with B & K which authorized the use of the retrospective method of reimbursement after Respondent amended its plan and adopted the prospective method of reimbursement. Second, when Respondent adjusted B & K's rate to recoup capital expenditures, Respondent did not base the adjustment on the prior cost reporting period as is done in the prospective method of reimbursement. Rather, Respondent went back retrospectively and based the adjustment on all cost reporting periods since B & K began operation of Krestview and Towne House. Once it has been determined that Petitioner is entitled to recovery of an underpayment, the only issues to be determined are the form and amount of such recovery. The customary form of recovering an underpayment under either the retrospective or prospective method of reimbursement is an increase in the final rate. The customary form of recovering an underpayment is ineffectual whenever the provider has terminated business operations through bankruptcy or otherwise. A provider that has terminated business operations does not lose its right to recover underpayment merely because the customary form of recovering underpayment is no longer an effectual form of recovery. Such a provider remains entitled to recover an underpayment through an effectual form of payment. The most effectual form of recovering an underpayment for a provider that has terminated its business is a lump sum payment determined in a final accounting. 5.12(c) (3) Final Accounting Expenses at issue in the amount of $1,362,925 are allowable and properly included in the five cost reports reviewed and audited by Respondent. Adjustments to reported costs made in the five audit reports disallowed expenses in the aggregate amount of $1,748,636. Petitioner admitted prior to the formal hearing that disallowances by Respondent in the aggregate amount of $304,305.34 were proper. Of the remaining $1,444,330.66 to be determined at the formal hearing, Petitioner failed to present evidence with respect to $81,405.66. The remaining expenses disallowed in the audit reports are expenses at issue in this proceeding. All of the expenses at issue are allowable and properly included in the five cost reports reviewed and audited by Respondent. Allowable expenses are not reduced by any setoff claimed by Respondent. Respondent determined as a result of KAR 5/31/78 that overpayment had been made to B & K in the aggregate amount of $1,125,910. No overpayment was determined from Respondent's audit of the other cost reports. Respondent determined that the other cost reports served only to set the prospective final rate for the subsequent periods of operation. Approximately $620,724 of the alleged overpayment resulted from Respondent's determination that the interim Medicaid per diem payment rate for Krestview's first period of operation by B & K was greater than the retrospectively determined Medicaid per diem payment rate for the same period. Approximately $505,186 of the aggregate amount of overpayment resulted from Respondent's determination that inaccuracies in original cost report for 5/31/78 caused an additional overpayment in the prospective Medicaid per diem payment rate for Krestview following Krestview's first period of operation. A major portion of the aggregate amount of claimed overpayment resulted from rent payments which were disallowed by HEW on the basis of the Section 1122 issue. /61 The net amount of underpayment due from Respondent to Petitioner is $447,473.34. The net amount of underpayment has been determined by reducing the net underpayment claimed by Petitioner in the amount of $528,879 by pretermitted issues in the amount of $81,405.66. Some of the limitations applicable to the gross underpayment claimed by Petitioner may have been applicable to some or all of the pretermitted issues. The burden of proof, however, is on Petitioner to show the proportion of the limitations applicable to the pretermitted issues. Petitioner presented no evidence to show what proportion of the limitations applied to the pretermitted issues.
Conclusions Reserved Rulings 70 6.01(a) Authenticity 70 6.01(b) Hearsay 72 6.01(b) (1) Other Rulings 77 6.01(b) (2) The Public Records Exception 78 6.01(c) Unfair Surprise 78 6.01(d) Respondent Is Bound By Res Judicata 80 6.01(e) No Waiver Of Objections Not Raised In The Prehearing Stipulation 83 6.02 No Waiver Of The Claim Against Respondent 83 6.02(a) No Waiver Under Bankruptcy Law 85 6.02(b) No Waiver Under State Law 88 6.03 Petitioner Is Not Barred By Collateral Estoppel 90 6.04 Petitioner Is Not Barred By Res Judicata 91 6.05 Setoff 94 6.05(a) Right To Assert Setoff Under Bankruptcy Law . . 94 6.05(b) Right To Assert Setoff Under State Law 97 6.06 Merits Of Respondent's Setoff 98 6.07 Petitioner's Claim 100 6.07(a) Documentation 102 6.07(b) Legal Fees 105 6.07(c) Section 1122 105 6.07(d) Accrual And Payment 107 7. RECOMMENDATION 111 APPENDIX 113 Petitioner's Proposed Findings of Fact 113 Respondent's Proposed Findings of Fact 114
The Issue Whether the license of the Defendant should be suspended or revoked.
Findings Of Fact Defendant Robert M. Trombley holds real estate broker's license No. 0090046. An Information was filed against Defendant charging him with sharing a commission or paying a fee or other compensation to a person not properly registered as a real estate broker or salesman under the laws of this state for the referral of real estate business, clients, prospects or customers in violation of Subsections 475.25(1) and 475.01(2), Florida Statutes. Mary M. Morritt, a real estate broker with Realty Unlimited, was involved in a real estate transaction with Defendant for the purchase of 37 acres of property in Brevard County in the summer of 1972. Several times she met with others and the purhaser's agent, Percy Buzaglo, in order to draw a contract. Mrs. Morritt suggested at a meeting in the office of Tom Griffith, Esquire, that the real estate commission be renegotiated and divided equally amoung the three brokers involved in the sale. She received no response to her suggestion although on a previous occasion Defendant had understood from a remark of Defendant that another broker was involved in the purchase. Mrs Morritt received a commission for the sale although she did not attend the closing. She never saw the unknown so-designated broker she had understood would share the commission and saw no evidence of an agreement or payment of real estate commission to him. At the time of the hearing the witness did not know the names of all of the principals. Mr. Ray M. Teboe, a registered real estate broker with Realty Unlimited, testified that there was a commission split in April 1973 for the sale of the subject property 50 percent to Defendant and 50 percent to Realty Unlimited which in turn was divided with The Keyes Company. Mr. Teboe understood from Mrs. Morritt that Defendant had another broker working with him. Mr. Teboe understood that Defendant was afraid of getting into trouble with, he understood, the Florida Real Estate Commission. Mr. Teboe was at some of the meetings concerning the transaction with Defendant and Defendant mentioned that he had to pay his wife alimony. Relevancy of this statement not established. The main witness for the Plaintiff refused to testify upon the grounds that his testimony might tend to incriminate him. The Hearing Officer further finds: The Plaintiff Florida Real Estate Commission presented evidence and testimony by witnesses with innuendo that Defendant as a cooperating real estate broker did share a real estate commission in violation of Chapter 475, Florida Statutes, but did not present sufficient competent evidence to establish its position that the Defendant did in fact violate the statute.
Recommendation Dismiss the Information. DONE and ORDERED this 12th day of February, 1976. DELPHENE C. STRICKLAND Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Louis B. Guttmann, Esquire Florida Real Estate Commission 2699 Lee Road Winter Park, Florida 32789 David T. Price, Esquire Price, Bryne & Case 2810 East Oakland Park Boulevard Fort Lauderdale, Florida
