Findings Of Fact On October 7, 1982, petitioner's employee took samples of gasoline offered for sale at respondent's Beacon Store No. 7 in Milton, Florida, including a sample of regular gasoline mixed with alcohol, known as "regularhol." The regularhol sample reached petitioner's laboratory in Tallahassee on October 11, 1982, and tests done the following day revealed that the 50 percent evaporated distillation temperature of the mix as a whole was 151 degrees Fahrenheit. Otherwise the tests revealed no problem with any of the gasolines sampled. A stop sale notice issued on October 13, 1982, and, after bond in the amount of one thousand dollars ($1,000.00) was posted, in lieu of confiscation of 3,865 gallons, the "regularhol" was released on November 8, 1982. Respondent began mixing regular gasoline with ethanol and selling it as regularhol in 1978 at the same price as regular gasoline. Until recently, Mocar made less on regularhol sales than on sales of regular gasoline. It originally offered regularhol as its way of helping to reduce the national consumption of petroleum. It has now discontinued sales of regularhol. The Phillips' terminal in Pensacola was respondent's source of the regular gasoline it mixed to make regularhol. This gasoline reached Pensacola by barge, and petitioner's employees sampled and tested each barge's cargo. The 50 percent evaporated distillation temperature of the regular gas Mocar bought from Phillips varied over a range of more than 30 degrees Fahrenheit upwards from 181 degrees Fahrenheit. Mixing ethanol with the gasoline lowered its distillation temperature, but with the single exception of the batch sampled on July 14, 1982, Mocar's regularhol had passed the testing petitioner has regularly (once every three or four months) conducted. There had also been a problem with gasohol once before.
Recommendation Upon consideration of the foregoing, it is RECOMMENDED: That petitioner retain five hundred dollars ($500.00) and return five hundred dollars ($500.00) to the respondent. DONE and ENTERED this 2nd day of June, 1983, in Tallahassee, Florida. ROBERT T. BENTON, II Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 2nd day of June, 1983. COPIES FURNISHED: Robert A. Chastain, Esquire Department of Agriculture and Consumer Services Mayo Building Tallahassee, Florida 32301 James Milton Wilson, Esquire 201 E. Government Street Pensacola, Florida 32598 Doyle Conner, Commissioner of Agriculture Department of Agriculture and Consumer Services The Capitol Tallahassee, Florida
The Issue The issue is whether Respondent is guilty of alleged acts and omissions constituting fraud, misrepresentation, concealment, false promises, false pretenses, dishonest dealing by trick, scheme or device, culpable negligence, or breach of trust in any business transaction, in violation of Section 475.25(1)(b), Florida Statutes, and, if so, what penalty should be imposed.
Findings Of Fact Respondent is a licensed real estate broker, holding license number 0143761. As president of Mission Bay Homes, Inc., Respondent entered into a sales contract on February 13, 1995, with Edward and Debra Henderson. The contract contemplates that Mission Bay Homes, Inc., would construct a home on a lot and that, at closing, Mission Bay Homes, Inc., would present the Hendersons with an affidavit that the property was unencumbered by any liens for materials and labor. The closing took place on May 1, 1995. At closing, Respondent, as president of Mission Bay Homes, Inc., general contractor, executed and delivered an affidavit attesting that all parties had been paid except for two parties whose claims totaled $2796. The final paragraph of the affidavit states: In the event any of the matters herein sworn to, represented, and alleged, are not true and correct, affiants, jointly and severally (if more than one) agree to hold [the title company] harmless therefrom including all costs and reasonable attorneys fees i[n] connection therewith. On the same date, Respondent, as president of Mission Bay Homes, Inc., owner, executed and delivered another affidavit attesting that there were no liens against the property, without exception. In fact, Mission Bay Homes, Inc., had not paid, prior to closing, a plumbing subcontractor, Charlie Brown's Plumbing, Inc. Charlie Brown's Plumbing, Inc., filed a Claim of Lien on July 3, 1995, for work performed on April 19, 1995. The Claim of Lien is for $1175. The representative of Charlie Brown's Plumbing, Inc., who is the secretary and bookkeeper for the company and wife of the owner, admitted that the claim was excessive by $250. She testified that Respondent told her to combine their bills for the Henderson and other jobs. She also testified that she sent a Notice to Owner to Mission Bay Homes, Inc., on April 18, 1995. The representative of Charlie Brown's Plumbing, Inc., was not a credible witness. Besides admitting to filing a fraudulent Claim of Lien, which is a sworn document, and then filing an action in small claims court against the title company to recover this excessive amount, she could not produce a copy of the Notice to Owner that she claimed to have mailed to Mission Bay Homes, Inc., on April 19. She could only produce a copy of the return-receipt card, indicating that Mission Bay Homes, Inc., received something from her. However, she testified that she sent a statement that Mission Bay Homes, Inc., received on April 19. It is found that, prior to the closing, Charlie Brown Plumbing, Inc., sent Mission Bay Homes, Inc., a single document stating it was owed money on the Henderson job: this was a statement for $925. Charlie Brown Plumbing, Inc., sent the Hendersons a Notice to Owner, on May 16, 1995, claiming to be entitled to $1175. The Hendersons declined to pay. Charlie Brown Plumbing, Inc., later dismissed a small claims action against the title company after receiving $600 from the title company. Respondent's claim that he was unaware of an unpaid statement from Charlie Brown's Plumbing, Inc., is buttressed by the testimony of a former employee, who testified that she found no such invoice when she was preparing the closing papers. It is also unclear why Respondent would disclose two liens of nearly $2800 and conceal a third lien of about one- third as much. On the present record, it is impossible to find clear and convincing evidence that Respondent was aware of the invoice from Charlie Brown's Plumbing, Inc., prior to the Henderson closing. Charlie Brown Plumbing, Inc., sent an invoice, but it did not find its way into the Henderson file. At the time of this sale, Mission Bay Homes, Inc., was working on 20 homes involving millions of dollars. The record is relatively silent as to Respondent's actions following the commencement of the small claims action by Charlie Brown's Plumbing, Inc., and the $600 payment by the title company. More evidence as to Respondent's subsequent failure to honor his responsibilities might have provided a basis to infer a fraudulent intent at the time of closing. (Evidence of this later failure might have established a separate fraudulent act, but Petitioner did not charge Respondent with fraud for his acts and omissions after the closing.) On the present record, Petitioner has not proved by clear and convincing evidence its allegation that Respondent culpably failed to pay the plumbing invoice at the time of the closing.
Recommendation It is RECOMMENDED that the Florida Real Estate Commission enter a final order dismissing the Administrative Complaint against Respondent. DONE AND ENTERED this 26th day of March, 1998, in Tallahassee, Leon County, Florida. ROBERT E. MEALE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 26th day of March, 1998. COPIES FURNISHED: Christine M. Ryall Senior Attorney Division of Real Estate Department of Business and Professional Regulation Post Office Box 1900 Orlando, Florida 32802-1900 Mark W. McFall, Esquire Post Office Box 60572 Fort Myers, Florida 33906 Lynda L. Goodgame, General Counsel Office of the General Counsel Department of Business and Professional Regulation 1940 North Monroe Street Tallahassee, Florida 32399-0792 Henry M. Solares, Division Director Division of Real Estate Department of Business and Professional Regulation Post Office Box 1900 Orlando, Florida 32802-1900
Findings Of Fact On November 5, 1987, a customer at Cowarts 66 service station complained of suspected water in the premium unleaded gasoline the customer had purchased at Cowarts 66 service station. Pursuant to the complaint, William Ford, an inspector for the Department, examined the premium unleaded gasoline storage facility at Cowarts 66 service station. The inspector obtained a sample of gasoline from the premium unleaded gasoline tank. The sample was examined by a Department of Agriculture chemist. There was no water found in the sample. However, the sample showed an end point of 455 degrees Fahrenheit which exceeded the maximum end point of 437 degrees Fahrenheit allowed by the Department under its rules governing petroleum products. Rule 5F-2.001(c)(4), F.A.C. The high end point was caused by the gasoline stored in the tank being mixed with or contaminated by another petroleum product with a high end point such as diesel fuel, thereby raising the end point of the premium unleaded. The contamination was caused by Clay Oil when their delivery driver accidentally mixed two fuels together and delivered the contaminated fuel to Cowarts 66. On November 6, 1987, the inspector issued a stop sale notice. The Department then has the right to confiscate the contaminated gasoline. However, the Department may elect to allow the station to post a bond in lieu of confiscation. In this case, the Department allowed Cowarts 66 to post a $1,000.00 bond in return for replacing the contaminated gasoline with gasoline meeting the Department's standards. The bond was posted the same day as the stop sale notice. The gasoline was likewise replaced either the same day or the morning after by Clay Oil. Cowarts 66 was later reimbursed by Clay Oil for the $1,000.00 cash bond. William Ford testified that he had been an inspector for Petitioner in the Jacksonville area for 16 years and had been familiar with Clay Oil Corporation and its operation for the past 10 or 15 years. He knew the corporation to be a reputable company. Prior to the instant case, he had never had any dealings with Clay Oil Corporation regarding dispensing of contaminated fuel. He had never had an occasion to require Clay Oil Corporation to post a bond. Ford, also, testified that the violation was clearly inadvertent and not representative of the normal business practices of Clay Oil Corporation. Furthermore, Ford testified that Clay Oil Corporation had been totally cooperative with the Department and had made immediate efforts to correct the violation regarding the contaminated fuel. Clay Oil Corporation's representative, Peter T. Eyrick, testified that upon being advised that contaminated fuel had been delivered to Cowarts' service station, he immediately instigated measures to replace the contaminated fuel with fuel that met Department standards. Furthermore, he testified that he had no knowledge that contaminated fuel had been delivered or that illegal sales had occurred until being informed by Cowarts' owner and the Department's inspector. The evidence clearly establishes that this violation was inadvertant and isolated. The violation is not representative of the normal business practice of Respondent. The evidence, also, clearly demonstrated that Respondent had no intent to sell adulterated fuel.
Recommendation Based upon the foregoing findings of fact and Conclusions of Law, it is RECOMMENDED that the Department refund to Clay Oil Corporation $750.00 of the $1,000.00 bond. DONE and ORDERED this 11th day of May, 1988, in Tallahassee, Florida. DIANE CLEAVINGER Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 11th day of May, 1988. APPENDIX CASE NO. 88-0181 Petitioner, Clay Oil Corporation, did not number its paragraphs in its recommended order. I, therefore, have numbered the paragraphs in its recommended order sequentially and utilize those numbers in this appendix. Petitioner's proposed findings of fact contained in paragraphs 1, 2, 3, 4 and 5, have been adopted, in substance, in so far as material. Respondent's proposed findings of fact contained in paragraphs 1, 2 and 3, have been adopted, in substance, in so far as material. Respondent's proposed findings of fact contained in paragraph 4 has been adopted, in substance, in so far as material, except for the finding regarding the number of gallons sold. The number of gallons sold was not shown by the evidence. Respondent's proposed findings of fact contained in paragraph 5 was not shown by the evidence. COPIES FURNISHED: Peter T. Eyrick Clay Oil Corporation Post Office Box 8 Doctors Inlet, Florida 32030 Harry Lewis Michael, Esquire Florida Department of Agriculture and Consumer Services Mayo Building Tallahassee, Florida 32399-0800 Paul S. Boone, Esquire 1221 King Street Jacksonville, Florida 32204 Honorable Doyle Connor Commissioner of Agriculture The Capitol Tallahassee, Florida 32399-0810 Ben Pridgeon, Chief Bureau of Licensing & Bond Department of Agriculture Lab Complex Tallahassee, Florida 32399-1650
The Issue The issues in these consolidated cases are: (1) whether Petitioner, Department of Health, properly denied Respondent Discovery Experimental and Development, Inc.'s, application for a drug manufacturer's permit or, if the permit is deemed issued, whether the permit remains valid, and, if so, whether the Department may revoke such permit; (2) whether Respondents committed the offenses alleged in the Administrative Complaints and, if so, what administrative fine should be imposed; whether the Department of Health properly denied Respondent Discovery Experimental and Development, Inc.'s, application for an over-the-counter permit or any other approval; and whether the Department of Health properly denied Respondent Discovery Experimental and Development, Inc.'s, request to register its Silvicidal ES (extra strength) as a drug.
Findings Of Fact The Department of Health ("Department"), through its Bureau of Pharmacy Services ("Bureau"), is the state agency responsible for administering and enforcing the Florida Drug and Cosmetic Act, Chapter 499, Florida Statutes, which includes the regulation of the manufacture, promotion, and distribution of prescription drugs. James T. Kimball ("Mr. Kimball"), a former Respondent in this case and who is now incarcerated at the federal facility FCI Yazoo City, formerly resided at 6036 Country Club Road, Wesley Chapel, Pasco County, Florida 33544. At all times relevant to this proceeding, Respondent Discovery Experimental and Development, Inc. ("DEDI"), an alter ego of Mr. Kimball, was a Florida corporation, whose principal place of business was 29949 State Road 54 West, Wesley Chapel, Florida. The April 14, 1992, financial statement of Mr. and Mrs. James T. Kimball indicated that Mr. and Mrs. Kimball jointly owned 90 percent of the stock of DEDI and valued that interest at $1,000,000. Respondent Discovery Experimental and Development of Mexico, N.A. ("Discovery-Mexico"), existed in name only and was really a front for DEDI as noted elsewhere in these findings. At all times relevant to this proceeding, Respondent Discovery Distributing, Inc. (“DDI”), an alter ego of Mr. Kimball, was a Florida corporation whose principal place of business was 29949 State Road 54 West, Wesley Chapel, Florida. At all times relevant to this proceeding, Respondent ASTAK, Inc. (“ASTAK, Inc.”), an alter ego of Mr. Kimball, was a Florida corporation whose principal place of business was 29949 State Road 54 West, Westley Chapel, Florida. Respondent B & B Freight Forwarding, Inc. ("B & B"), an alter ego of Mr. Kimball, was a Florida corporation whose principal place of business was 29949 State Road 54 West, Wesley Chapel, Florida, from 1991 through July 1994. Subsequently, B & B moved to other locations. At all times relevant to this proceeding, Respondent Josephine Kimball (“Mrs. Kimball”), wife of Mr. Kimball, resided and continues to reside at 6036 Country Club Road, Wesley Chapel, Pasco County, Florida 33544. Respondent Discovery Tour Wholesaler, Inc. ("TOURS"), is a Florida corporation whose principal place of business is 29949 State Road 54 West, Wesley Chapel, Pasco County, Florida. Mrs. Kimball is the president and majority owner of TOURS as well as its only full-time employee. TOURS owns the property located at 29949 State Road 54 West, in Wesley Chapel, Florida. This property includes a building with over 10,000 square feet and six acres of land, with 440 feet abutting State Road 54. TOURS acquired this real estate from Mr. and Mrs. Kimball in 1987 or 1988 at no cost to TOURS. The Kimballs acquired this real estate from an individual who holds a mortgage that TOURS pays at $3,350 per month. TOURS pays the mortgage on the property located at 29949 State Road 54 West, Wesley Chapel, Florida, from the rent it receives from DEDI and ASTAK, Inc., and at the times noted below, from DDI and B & B. Respondents DEDI, ASTAK, Inc., DDI and B & B paid the rent to Tours from their income. According to the April 14, 1992, financial statement of Mr. and Mrs. Kimball, Mrs. Kimball owned 83 percent of the stock of Tours jointly with her husband and valued the stock at a minimum of $383,460 and valued the real property at $800,000 less the mortgage. Respondent Toni Ann Kimball ("Ms. Kimball") is the daughter of Mr. and Mrs. Kimball and resides at 3122 49th Avenue, North, St. Petersburg, Florida 33714-3018. At one time, Ms. Kimball was a part-time employee of B & B. At all times relevant to this proceeding, Respondent GLOBAL Health Information/Medical Research Institute ("GLOBAL"), was a Florida corporation whose principal place of business was 15310 Amberly Drive, Suite 250, Tampa Palms in Tampa, Florida. GLOBAL was set up as a nonprofit organization at Mr. Kimball's direction, and Mr. Kimball was responsible for the executive direction of GLOBAL. GLOBAL produced literature that was used as a means of getting out information about various products manufactured and/or distributed by one or more of Respondent corporations. At all times relevant to this proceeding, Mr. Kimball operated corporate Respondents DEDI, ASTAK, Inc., DDI, B & B, and GLOBAL as his alter ego. Mr. Kimball utilized each of the corporate Respondents that served as his alter ego as he saw fit. Respondents DEDI, DDI, ASTAK, Inc., and B & B were used interchangeably and often assets were transferred from one to another. The Department first interacted with Mr. Kimball in the fall of 1990 when he contacted the Department to request information regarding the types of permits he would need to research using sulfa Dimethyl ether. Mr. Kimball also indicated that he was interested in researching generic drugs. As a result of this conversation, a local Department agent was sent to visit DEDI's facility at 29949 State Road 54 West, Wesley Chapel, Florida ("business establishment" or "Wesley Chapel business establishment"), to determine how he was using the ether. Following the visit, the agent reported to the Bureau's drug agent supervisor, now program manager, Gregg Jones, R.Ph. ("Agent Jones"), that Mr. Kimball was interested in producing a generic or improved version of an already approved drug called Eldepryl. Eldepryl is and at all times relevant to the proceeding was, an approved prescription drug, approved by the Food and Drug Administration ("FDA"), and marketed in tablet form for the treatment of Parkinson's Disease. Eldepryl has as its active ingredient, Selegiline. In the fall of 1990, Eldepryl was the only form of Selegiline that was approved by the FDA. In or about November 1990, Agent Jones inspected DEDI's space in the business establishment. During that inspection, Mr. Kimball indicated to Agent Jones, as he had the Department agent who had previously visited the business establishment, that he wanted to produce a generic and highly improved form of the product, Eldepryl. According to Mr. Kimball, he wanted to make the product available as an over- the-counter product, without a prescription, for the condition of life extension or life enhancement. In response, Agent Jones notified Mr. Kimball, DEDI's and DDI's principal, that since the FDA had approved the Selegiline-based drug Eldepryl as a prescription drug, DDI's Selegiline-based product was also a prescription drug and, as such, required FDA new drug approval in order for DEDI or DDI to produce and/or market that product. Agent Jones further advised Mr. Kimball that he would need to be licensed by the State of Florida. During the November 1990 inspection, Agent Jones provided DEDI and/or DDI, through Mr. Kimball, with a copy of the Florida Drug and Cosmetic Act, Chapter 499, Florida Statutes, and the rules adopted under the Act. The Department, through the Bureau as configured under its predecessor, the Florida Department of Health and Rehabilitative Services ("HRS"), began its investigation of DEDI and DDI, and their principal, Mr. Kimball, in 1990. Agents of the Bureau learned that in December 1990, Wes Sargenson, a reporter with WFLA Channel 8 TV, a television station serving the Tampa, Florida, viewing area, had interviewed Mr. Kimball on the air. The subject of the television interview was the promotion by DDI of a drug which was not approved by the FDA. During the publicly televised interview, DDI, through Mr. Kimball, voiced the intention to make and sell a new drug, not approved by the FDA, he called Kimbellac Vitamin C Plus ("Kimbellac"). The active ingredient in the product was Selegiline. DDI, through Mr. Kimball, further expressed the intention to sell Kimbellac, an unapproved drug, in spite of FDA opposition, which he acknowledged during the interview. A promotional letter by DDI and a label on the bottle of Kimbellac shown during the interview claims that Kimbellac can treat or mitigate diseases in humans that are not amenable to self-treatment, but rather require the intervention of and prescription from a physician. The DDI promotional letter states in part the following: The side effects of Kimbellac are negligible at most . . . Kimbellac is in essence the same as Eldepryl, also known as Deprenyl and in purer form . . . It is proven that this product enhances sex drive in older people. It has been proven and again was in the edited F.D.A. report the antidepressant qualities. Tests have proven Kimbellac will help some people that have contracted Alzheimer's disease. Despite these claims, the FDA had not approved Kimbellac as safe and effective for such medicinal purposes. Mrs. Kimball, at her husband's request, recorded a telephone message that was written by Mr. Kimball. The recorded message explained how persons could place orders for Kimbellac. However, it is not clear that Mrs. Kimball knew that the product being promoted in the recording was an unapproved drug. When Mr. Kimball had the television interview and directed his wife to make the promotional recording, neither the FDA nor HRS had approved Kimbellac. This fact was acknowledged in a letter from DDI to customers which stated, "[T]he receipt of this letter and your returned unprocessed check, means that the F.D.A. and the Florida Health and Rehabilitative Services (H.R.S.) has refused to allow you to purchase Kimbellac by refusing to allow us the right to sell it to you." As a result of the actions of DDI, through Mr. Kimball, to promote and sell Kimbellac, in March 1991, the Department, through its predecessor, HRS, filed an Administrative Complaint, seeking to impose a fine of $55,000 against DDI and Mr. Kimball. The Administrative Complaint charged DDI and Mr. Kimball with manufacturing, advertising or otherwise promoting and distributing a new unapproved drug containing selegiline. On September 26, 1991, HRS resolved the matter by Consent Final Order. Mr. Kimball and DDI did not admit to any of the violations, but they agreed to certain "acceptable corrective actions." The Stipulation for Settlement, adopted and incorporated into the Consent Final Order, provides in pertinent part the following: Discovery [DDI] is located at 29949 State Route [sic] 54 West, Wesley Chapel, FL 33543. Jay Kimball [Mr. Kimball] is president of Discovery [DDI]. * * * HRS, Discovery [DDI], and Jay Kimball [Mr. Kimball] agree that the following actions shall constitute acceptable corrective actions in response to concerns expressed by HRS: HRS agrees not to file proceedings against Discovery [DDI] under Chapter 499, Florida Statutes, or otherwise seek remedy for any purported violations of Florida law as alleged in the March 7, 1991 Administrative Complaint. Discovery [DDI] and Jay Kimball [Mr. Kimball] agree not to distribute the new drug Selegiline HCL, alone or in combination with other substances, within the state of Florida without permits required pursuant to Chapter 499, Florida Statutes. Discovery [DDI]and Jay Kimball [Mr. Kimball] agree not to manufacture the new drug Selegiline HCL [unless and until a permit to manufacture a legend drug has been obtained.] Discovery [DDI] and Jay Kimball [Mr. Kimball] agree to allow inspection by HRS of any establishment owned or maintained by Discovery [DDI] and/or Jay Kimball [Mr. Kimball] in which drugs are manufactured or held. Discovery [DDI] and Jay Kimball [Mr. Kimball] agree not to advertise and offer for sale a drug advertised to have an effect on[:] High Blood Pressure Mental Disease Sexual Impotence Extension of life expectancy Depression or on any other of the diseases and conditions listed in ss. 499.0054, F.S. Discovery [DDI] and Jay Kimball [Mr. Kimball] acknowledge that they are aware of the provisions of [S]ections 499.005(4), 499.005(5), 499.005(6), 499,005(11), 499.054(3), 499.0054(6), 499.011, and 499.023, Florida Statutes. Notwithstanding the Stipulation for Settlement and the Consent Final Order referenced in paragraphs 27 and 28, in the spring of 1991, Respondent DEDI, through Mr. Kimball, had developed Kimbellac (Deprenyl) in liquid form, and called this new unapproved drug Liquid Deprenyl Citrate. The Liquid Deprenyl Citrate (“DEDI-brand liquid deprenyl citrate”) is composed of selegiline, the active drug ingredient, in addition to citra-gel, the inactive component. Selegiline is also referred to as deprenyl. Soon after the Consent Final Order referenced in paragraphs 27, 28, and 29 was issued, it came to the Department's attention that a newsletter, Inside Health, was being placed in various establishments in the Tampa area. The 1991 Spring edition and the 1991 Fall edition of Inside Health were published by DDI and paid for by Respondents DDI and ASTAK, Inc. DDI used the Inside Health newsletter to market the benefits of deprenyl to consumers and to recommend dosages. For example, the Fall 1991 edition of Inside Health, included an article titled "Discovery's Recommended Dosages for Deprenyl." The article provided two charts regarding the dosages for deprenyl, one for humans and the other for animals. The chart listing the dosages of deprenyl for humans provided the following: People with Alzheimer's Disease-10mg twice daily during the day, early AM & Early afternoon People with Parkinson's Disease - consult with a physician familiar with Parkinson's Disease If you are using Deprenyl to improve quality of life, as a sex stimulant, to prolong life, or a preventative for Parkinson's or Alzheimer's disease use the chart above for proper dosage Attached to Inside Health was a form entitled, "How to Order Deprenyl." The order form, developed by DEDI, directs customers to purchase the DEDI-brand liquid deprenyl citrate from its alter ego, Discovery-Mexico, at $75.00 for a one-half ounce bottle, plus $18.00 for shipping and handling. To place an order, the form directs customers to call either B & B at the business establishment in Wesley Chapel, Florida, or to contact the B & B in San Diego, California, near Tijuana, Mexico. The order form indicates that to expedite orders, mail should be sent to Discovery-Mexico, c/o B & B, Post Office Box 7178, Wesley Chapel, Florida. The order form advises readers to call "Inside Health" at (813) 973-7704 to obtain the name of the nearest health food or nutrition center that could provide them with information on acquiring the DEDI-brand liquid deprenyl citrate. The telephone number listed in Inside Health was a number at the Wesley Chapel business establishment. One or more employees of Respondents DEDI, ASTAK, Inc., and/or B & B, packaged Inside Health, along with "How to Order Deprenyl" forms, and shipped them for said Respondents to stores that had agreed to promote the sale of DEDI-brand liquid deprenyl citrate. Respondents DEDI and B & B, through promotional material, brochures, labels, and labeling, promoted and advertised DEDI-brand liquid deprenyl citrate as a new drug intended for the cure, mitigation, treatment, therapy, or prevention of disease in humans. Specifically, Respondents DEDI and B & B promoted this new, unapproved drug through brochures, bearing the DEDI logo, entitled Facts About Liquid Deprenyl and Updated Facts About Liquid Deprenyl Citrate. These brochures state that the DEDI-brand liquid deprenyl citrate has been proven effective for increasing life span and for the following conditions: depression, senile dementia, abolishing ulcer formation, sex drive dysfunction, Parkinson's disease, Alzheimer's disease, multiple sclerosis, ALS (Lou Gehrig's disease), and high blood pressure. A copy of one of these brochures was mailed out with each purchase of DEDI-brand liquid deprenyl citrate. Contrary to the representations in the brochures, Facts about Liquid Deprenyl and Updated Facts About Liquid Deprenyl Citrate, the diseases on which the DEDI-brand liquid deprenyl citrate is claimed to be effective are serious diseases that require physician oversight to properly treat them. Moreover, the DEDI-brand liquid deprenyl citrate has serious side effects, and its interactions with other drugs and foods make it unsafe if it is not prescribed under the direction and supervision of a physician. Clearly, based on the representations and claims in Facts About Liquid Deprenyl and Updated Facts About Liquid Deprenyl Citrate, Respondents DEDI and ASTAK, Inc., and B & B intended to sell the DEDI-brand liquid Deprenyl Citrate in such a manner as to make it an unapproved prescription drug. Carol Vigue was employed as the secretary for DEDI from September 1991 through May 1993. While a secretary for DEDI, Ms. Vigue formatted the Facts About Liquid Deprenyl on a computer-publishing program at the business establishment in Wesley Chapel, Florida. During her employment with DEDI, there were several different versions of the brochure published, all of which were produced commercially and mailed to individuals as directed by Mr. Kimball. On five occasions between August 1991 and October 1993, the Department made undercover purchases of DEDI- brand liquid deprenyl citrate. In each instance, the Department requested and received DEDI-brand liquid deprenyl citrate by using instructions on the "How to Order Deprenyl" form developed by DEDI. The Department found these instructions at health food establishments in Florida, attached to the DDI newsletter, Inside Health. Pursuant to these instructions, the Department sent each of its deprenyl purchase requests to the business establishment in Wesley Chapel, Florida, or to Post Office Box 7178, Wesley Chapel, a post office box purchased by B & B. Two of the canceled money orders that the Department submitted to Respondent B & B to purchase DEDI-brand liquid deprenyl citrate had the endorsement of James T. Kimball and the money for these purchases was deposited in bank accounts controlled by Mr. Kimball. The Department received the DEDI-brand liquid deprenyl citrate that it had ordered in a location in Florida. Of the five orders received by the Department, the first of the undercover purchases was sent via United Parcel Service ("UPS") account #263-0X8, an account paid for by B & B. The DEDI-brand liquid deprenyl citrate received by the Department through these undercover purchases had a return address in the San Diego, California, vicinity at business locations leased by Respondent B & B. The DEDI-brand liquid deprenyl citrate received by the Department through these undercover purchases also came with brochures and directions for use as a drug. The purpose of this drug, as stated in the labels and labeling, is to affect the structure and function of the human body or to treat or mitigate diseases such as ". . . depression; learning, cognitive and motor functions; sense of well being; senile dementia; increasing energy; pain reduction; abolishing ulcer formation; hormone release; inhibiting toxic free radicals; sex drive dysfunction; revival of dying brain cells; Parkinson's disease; Alzheimer's disease; increasing life span; multiple sclerosis; ALS (Lou Gehrig's Disease); blepharospasms; high blood pressure; stroke induced paralysis; and mental dysfunction." The Department sent the DEDI-brand liquid deprenyl citrate obtained through each of its undercover purchases to the Crime Laboratory of the Florida Department of Law Enforcement (“FDLE”), and, in each instance, the DEDI-brand liquid deprenyl citrate tested as containing the active drug ingredient, selegiline. On November 29, 1991, about a year after Mr. Kimball met with Agent Jones, DEDI applied to the FDA for approval of the DEDI-brand liquid deprenyl citrate as a new drug to treat Alzheimer’s disease. On April 3, 1997, the FDA issued a Final Order denying this application. The Final Order, published in the Federal Register, Vol. 62, No. 64, pages 15903-15914, Docket No. 94N-0171, detailed the reasons for the denial. According to the Final Order, the FDA refused to approve DEDI-brand liquid deprenyl citrate because it found that DEDI’s application lacked essential information to support approval. Specifically, the FDA found that DEDI provided insufficient information for the FDA to determine that DEDI’s liquid deprenyl citrate was safe for use or that it would have the effect it purported to have under the conditions of use stated in DEDI’s proposed labeling. Additionally, the FDA found that DEDI did not submit any supporting information on the safety or efficacy of its new drug but instead relied only on data about other selegiline-based drugs. Finally, the FDA found that DEDI’s drug manufacturing facilities at the Wesley Chapel business establishment did not comply with the FDA's current good manufacturing practice standards. The FDA and the Department issued warning notices to DEDI regarding deprenyl. The FDA and the Department warned DEDI through these notices that DEDI could not, directly or indirectly through a company in a foreign country, introduce deprenyl in interstate commerce in the United States and Florida. DEDI received these notices prior to submission of its application to the FDA and after the FDA issued a Final Order denying approval of the DEDI-brand liquid deprenyl citrate, as well as times in between. Almost 11 months after DEDI applied to the FDA for approval of the DEDI-brand liquid deprenyl citrate as a new drug to treat Alzheimer's disease, DEDI submitted to the Department an application for a permit as a drug manufacturer. The application was received by the Department on October 9, 1992, but was neither approved nor denied by the Department within the 90-day period required by Section 120.60(2), Florida Statutes (1991). Accordingly, DEDI's application was approved as a matter of law, on or about January 20, 1993, which was 90 days after the receipt of DEDI's completed application by the Department.10 Pursuant to Section 499.01(3)(b), Florida Statutes (1993), DEDI manufacturer's permit that was issued by operation of law on January 20, 1993, "automatically expire[ed] 2 years after the last day of the anniversary month in which the permit was originally issued," unless DEDI initiated action to renew the permit. Therefore, DEDI's manufacturing permit was effective from January 20, 1993, until January 31, 1995. Although DEDI had a manufacturer's permit, the permit authorized DEDI to conduct only those activities authorized by Chapter 499, Florida Statutes. Such authorized activities did not include DEDI's selling or otherwise distributing unapproved drugs. Prior to the expiration of the DEDI's manufacturer's permit, and after the Department's May 1993 inspection of the Wesley Chapel business establishment, discussed below, the Department filed an Administrative Complaint in which it sought to revoke DEDI's manufacturer's permit. Between 1991, before DEDI had a manufacturer's permit, and 1999, after such permit expired, persons working for DEDI at the Wesley Chapel establishment manufactured the freebase or active ingredient of DEDI-brand liquid deprenyl citrate. Other employees of Respondent DEDI at the Wesley Chapel business establishment manufactured the inactive ingredients for DEDI- brand liquid deprenyl citrate. From August 1991 through May 12, 1993, Mr. Kimball, DEDI, and B & B implemented a scheme to enhance the distribution of the DEDI-brand liquid deprenyl citrate. A memorandum developed by DEDI entitled, "Big Profits In Deprenyl" ("Big Profits"), and mailed on occasion from the Wesley Chapel business establishment, explained how businesses could make commissions by displaying advertisements on how to order deprenyl. When a customer paid for an order of DEDI-brand liquid deprenyl citrate, his order form referenced the store number from which the customer got the order form. B & B then paid commissions to the store based on the number of DEDI-brand liquid deprenyl citrate purchases. With regard to commissions, "Big Profits" indicated that participating stores would receive a profit of 25 percent for each bottle of DEDI-brand liquid deprenyl citrate ordered, using that particular store number. The cost of each bottle of DEDI-brand liquid deprenyl citrate was listed at $75.00 per 300 mg bottle, plus $18.00 for freight and handling. With regard to the cost, the form states, "This compares to Chinoin’s Deprenyl (Eldepryl) that sells for $120.00 to $200.00, for sixty 5mg pills available by prescription only." "Big Profits" also stated that Discovery-Mexico would issue commission checks based on the amount of collected sales for the previous month. Finally, "Big Profits" advised that the checks may be issued by banks outside the United States in United States dollars and would be designated as consulting fees. The principal of DEDI and B & B directed the development of "Big Profits." For example, while a secretary for DEDI, Carol Vigue, typed "Big Profits" in accordance with instructions from DEDI's principal, Mr. Kimball. Consistent with those directives, "Big Profits" was on Discovery-Mexico's letterhead and listed the address as APDO Post No. 5049, Tijuana, B.C., Mexico. According to "Big Profits," in order to expedite calls or mail, individuals were advised to call 813- 973-7354 or 813-973-7437 for message forwarding. For expedited mail, customers were advised to mail orders to Discovery-Mexico, c/o B & B, Post Office Box 7178, Wesley Chapel, Florida 33543. From at least 1991 until 1993, B & B employees were directed to mail "Big Profits" to health food stores that wanted to earn commissions for promoting the sale of DEDI-brand liquid deprenyl citrate. DEDI and B & B operated consistent with "Big Profits" in that when a person ordered the DEDI-brand liquid deprenyl citrate, the order always included a store number. B & B logged the sale with credit to that particular store and then paid a monthly commission to the store based on monthly sales of DEDI- brand liquid deprenyl citrate attributed to that store. B & B maintained a database of all the stores and how many sales of DEDI-deprenyl were attributed to each store. Once a month B & B totaled all the sales of the DEDI-brand liquid deprenyl citrate for each of the stores to which it had assigned a store number pursuant to "Big Profits." The money from the sale of the DEDI-brand liquid deprenyl citrate was usually deposited in the B & B Barnett Bank checking account in Florida. The money from the sales was then wired from the B & B Barnett Bank account to the California Commerce Bank so that B & B employees in California could write checks to pay the commissions to each store. The commission checks were typically written in San Diego, California, on the B & B account at the California Commerce Bank. These checks for commissions were sometimes written by Respondent Ms. Kimball, who was a signatory on the B & B bank account at the California Commerce Bank in the San Diego, California, vicinity. Louis T. Smith was an employee of B & B from 1991 until May or June of 1993, when he was employed by ASTAK, Inc. As an employee of B & B and ASTAK, Inc., Mr. Smith was familiar with the inner workings of the DEDI-brand liquid deprenyl citrate sales and distribution enterprise of Respondents DEDI, B & B, and ASTAK, Inc. When Mr. Smith worked for B & B, both B & B and DEDI initially sold DEDI-brand liquid deprenyl citrate by requesting that customers place orders by mail to B & B's Wesley Chapel Post Office Box 7178 in Wesley Chapel, Florida. These instructions were consistent with the ordering directions in "How to Order Deprenyl." Orders for the DEDI-brand liquid deprenyl citrate were sent to Wesley Chapel, Florida. Many of these orders were addressed to Discovery of Mexico, c/o B & B Freight Forwarding, Inc., at Post Office Box 7178, in Wesley Chapel, Florida. Even though not shown on B & B's registration as a Florida corporation, DEDI, through its principal, Mr. Kimball, directed B & B and ensured that customers received their orders of DEDI-brand liquid deprenyl citrate. As an employee of B & B, Mr. Smith helped log in customer names and addresses and the quantity of deprenyl that they ordered into a computer database system. Also, while employed by B & B, Mr. Smith, on a daily basis, between Monday and Friday, sent by facsimile the information on customers who had ordered DEDI-brand liquid deprenyl citrate to Ms. Kimball in San Diego. Respondent Ms. Kimball then filled those orders as well as any orders received via the automated telephone system in California and/or Mexico. From the spring of 1992 until about May 12, 1993, Mr. Smith was responsible for maintaining the checking accounts of B & B. Mr. Smith’s responsibilities included depositing funds from the sale of the DEDI-brand liquid deprenyl citrate, an unapproved prescription drug, into the B & B checking account at a Barnett Bank in Florida. The funds received from purchasers of the DEDI-brand liquid deprenyl citrate and deposited into B & B’s checking account was in the form of money orders, personal checks, and cashier's checks. From time to time, B & B obtained cashiers checks made payable to the principal of DEDI and B & B, or to Discovery- Mexico from its Barnett Bank account in Florida. This made it possible for either Discovery-Mexico or the principal of DEDI and B & B to cash the checks. The checks were in round figures, in amounts from three thousand to eight thousand dollars. In some instances, the day after a cashier's check was generated from the sale of DEDI-brand liquid deprenyl citrate, the principal of DEDI and B & B confirmed that the bank had enough money to cover the check, and would then take the check to the bank and cash it. B & B developed a record of DEDI-brand liquid deprenyl citrate customers, referred to as "Client Quick History Reports" ("Client Reports") for Client No. 1001 through Client No. 2764. Each Client Report recorded the name and address of the DEDI- brand liquid deprenyl citrate customer, a code to track the number of sales, the price of the product, the amount that was collected for each sale, plus shipping information, and how the customer ordered the deprenyl. Information concerning the filling and shipping of customers ordering the DEDI-brand liquid deprenyl citrate was recorded in a UPS shipping book. This UPS shipping book was maintained in San Diego, California, initially by Julio Garcia, subsequently by Respondent Ms. Kimball, and later by Gaylord Hughes, when they were employees of B & B. The UPS account number for the shipments of DEDI-brand liquid deprenyl citrate was 263-0X8. As noted in paragraph 41, this was the same UPS account on the envelopes containing DEDI- brand liquid deprenyl citrate which the Department purchased undercover. DEDI's principal, Mr. Kimball, and B & B took orders for DEDI-brand liquid deprenyl citrate and handled the money received through these orders. The bank accounts were established and authorized in a manner that allowed DEDI's principal, Mr. Kimball, to possess and control the income from the sale of deprenyl, either in the form of deposits to bank accounts which he controlled or in cash or its equivalent. At or near the time Mr. Kimball and DDI agreed to the Stipulation of Settlement incorporated in the Department’s 1991 Consent Final Order referenced in paragraphs 27, 28, and 29, Respondents DDI, ASTAK, Inc., DEDI, B & B, and Discovery-Mexico implemented an elaborate scheme to conceal from drug regulatory agencies, the FDA and the Department, their responsibility for the manufacture, promotion, distribution, and sale of deprenyl. Under this scheme DEDI, ASTAK, Inc., B & B, and Mr. Kimball made it appear that the DEDI-brand liquid deprenyl citrate was being manufactured and distributed by a foreign company, Discovery-Mexico. However, Discovery-Mexico is another alter ego of DEDI and Mr. Kimball and was a front for them to sell the DEDI-brand liquid deprenyl citrate, undetected by Florida and federal drug regulators. There is no indication that Discovery-Mexico was capable of manufacturing or properly formulating deprenyl without the direct participation of DEDI and its agents. Instead, the Mexican company, Cyto-Pharma, which fronted as Discovery-Mexico, merely mixed the active ingredient, selegiline, called deprenyl freebase, with the inactive ingredient, citra gel. Under instructions from DEDI, Cyto- Pharma then bottled the formulated DEDI-brand liquid deprenyl citrate, but had nothing to do with manufacturing the active ingredient. The principals of Respondent DEDI are identified as owners of Discovery-Mexico in a fictitious name disclosure filed by Respondent Ms. Kimball with the Recorder and County Clerk for San Diego County, California. Respondent Ms. Kimball applied for the mailbox for Discovery-Mexico at Pak Mail in San Ysidro, California. On or about October 1, 1991, Respondent DEDI opened a Florida bank account in the name of DEDI doing business as Discovery-Mexico. Mr. Kimball noted on the Request for Tax Identification Number ("Request") for the Discovery-Mexico account that he was the president of the company. Mr. Kimball also signed the Request as president of Discovery-Mexico. On the bank account, Discovery-Mexico's address was listed as 29949 State Road 54 West in Wesley Chapel, Florida. In a separate document related to the account, Mr. Kimball authorized that the facsimile signature of R.R. Riot be honored for payment of all checks, drafts, and money orders on the account for "Discovery Experimental and Development, Inc. d/b/a Discovery Experimental and Development Mexico, N.A." Mr. Kimball signed this authorization as secretary of DEDI d/b/a Discovery-Mexico. Mr. and Mrs. Kimball declared on their April 14, 1992, financial statement that the value of the 100 percent ownership interest in Discovery-Mexico of DEDI's principal, Mr. Kimball, was $2,000,000. DEDI, through Mr. Kimball, had signature stamps, including one with the name R.R. Riot on it. These signature stamps were in DEDI’s control and were used by Mr. Kimball, as DEDI’s principal, when he transacted business related to the manufacture and sale of deprenyl in the name of Discovery- Mexico. On one occasion, Mr. Kimball admitted to Mr. Smith that Riot did not exist. In connection with the consulting services that Mrs. Kimball through TOURS, provided to Respondent DEDI, she placed an order for two "R.R. Riot" signature stamps, one of which was on the premises of the Wesley Chapel establishment in May 1993. In December 1991, on a visit to B & B in California, Mr. Smith and Mr. Kimball both went daily to Cyto-Pharma in Tijuana, Mexico, the Discovery-Mexico front for DEDI. The purpose of these visits was to retrieve overnight orders of DEDI-brand liquid deprenyl citrate that were on an automated voice system. Julio Garcia originally installed the automated voice mail system on a personal computer for Respondent B & B. The prerecorded messages on the voice mail system were the voices of DEDI's principal, Mr. Kimball, and Respondent Ms. Kimball. These recorded messages all related to placing orders for the DEDI-brand liquid deprenyl citrate. In 1991, while Mr. Smith was in Mexico and California, the information regarding persons to whom Mr. Kimball and Mr. Smith were to send filled orders of DEDI-brand liquid deprenyl citrate came via facsimile from Respondent Ms. Kimball in Florida. Respondents B & B and DEDI also received faxed orders daily at the Wesley Chapel business establishment from Respondent Ms. Kimball when she moved to San Diego, California. In December 1991, when Mr. Kimball and Mr. Smith returned to San Diego from Mexico, they packaged orders for DEDI-brand liquid deprenyl citrate that they had retrieved from the computer system in Mexico. They would take bottles of deprenyl from a large box and place them in Jiffy packs, a brown padded envelope, together with a dropper and a plastic package, and then seal the Jiffy pack. Using customer information obtained from the computer at B & B in Otay Mesa and San Diego, California, the customer information (i.e. name and address) would be placed on the front of the Jiffy pack. The packaged DEDI-brand liquid deprenyl citrate was in the same form that the Department received when it placed undercover orders for the DEDI-brand liquid deprenyl citrate. Mr. Kimball, as the principal of DEDI and Discovery- Mexico, had a falling out with its Mexican front, Cyta-Pharma. Soon thereafter, in the spring of 1992, the computer and automated voice mail system for placing orders for DEDI-brand liquid deprenyl citrate were moved to Respondent Ms. Kimball's apartment in San Diego, California. While continuing to use the name Discovery-Mexico, Respondent DEDI moved the process of mixing the active and inactive ingredients of DEDI-brand liquid deprenyl citrate, called "formulation," from Cyta-Pharma, its front company in Mexico, to the Wesley Chapel business establishment. On May 12, 1993, agents of a multi-agency federal task force executed search warrants regarding the manufacture and sale of the DEDI-brand liquid deprenyl citrate at the Wesley Chapel business establishment. The Department participated in the task force search and also conducted an inspection that day. Areas searched and/or inspected included the Wesley Chapel business establishment, the residence of Mr. and Mrs. Kimball at 6036 Country Club Road, Wesley Chapel, Florida, and the Wesley Chapel, Florida, residence of Mr. Bob Brown, a friend of Mr. Kimball and a business tenant of the Wesley Chapel business establishment. During the inspection and execution of search warrants, the Department agents wore blue shirts with huge letters across the back that read, "HRS Drug Agent," and displayed their identification badges on their front pockets. During the May 12, 1993, inspection and search, the Department found two 50-kilogram drums of ephedrine, the basic starting chemical for the manufacture of deprenyl, at the residence of Mr. and Mrs. Kimball. The ephedrine was labeled "Caution Federal Law prohibits dispensing without a prescription." The two drums of ephedrine, as labeled and in the form found by the Department on May 12, 1993, at the Kimball residence, is a drug, not a herbal or dietary supplement. The two drums contained enough ephedrine to make between 18 and 20 million dollars worth of finished DEDI-brand liquid deprenyl citrate at the price being charged by Respondents DEDI and B & B. At the Brown residence, a Department agent found a DEDI refrigerator containing more ephedrine, the chemical building block for DEDI-brand liquid deprenyl citrate, as well as deprenyl free base (selegiline) and unlabeled one-half ounce bottles of formulated DEDI-brand liquid deprenyl citrate. Some of the unlabeled bottles were control samples of various drugs or products that DEDI had manufactured. Respondent DDI purchased ephedrine from BASF, a manufacturer of chemicals, prior to the May 12, 1993, search and inspection. DDI again purchased ephedrine after the Department had seized the ephedrine from the Kimball residence even though DDI never obtained a manufacturer’s or any other permit pursuant Chapter 499, Florida Statutes. The only manufacturer's permit issued and in effect at this time was the one issued to DEDI as noted in paragraphs 47 and 48. During the May 1993 search and inspection of the Wesley Chapel business establishment, the Department found other items related to the production, promotion, and distribution of deprenyl. These included Discovery-Mexico letterhead, a brochure advertising DEDI-brand liquid deprenyl citrate, checks and money orders (not yet cashed) from customers for orders of DEDI-brand liquid deprenyl citrate, glass jugs of selegiline, deprenyl labels and labeling, and rubber stamps for Discovery- Mexico and for R.R. Riot. During the May 12, 1993, inspection of the business establishment, the Department issued stop-sale orders for items that were not seized by federal agents at the scene. The Department also seized ephedrine from the residence of Mr. and Mrs. Kimball, pursuant to Sections 499.06 through 499.064, Florida Statutes. The Department sent a bottle of what it believed to be DEDI-brand liquid deprenyl citrate to the FDA for testing, and the FDA confirmed that the contents contained the DEDI-brand liquid deprenyl citrate. On August 10, 1993, after the May 12, 1993, search and inspection, the Department initiated an injunctive enforcement case in the Circuit Court of Pasco County, Florida. After an evidentiary hearing, the Department obtained a temporary injunction against Mr. Kimball and DEDI, which was issued on or about February 17, 1994. More than four years later, on motion by the defendants to vacate the temporary injunction, the court issued a corrected order dated November 24, 1998, dissolving the temporary injunction as vague. After the May 12, 1993, inspection by the Department and before the issuance of the February 17, 1994, temporary injunction, Respondents DEDI and B & B changed the method of selling DEDI-brand liquid deprenyl citrate by accepting orders only if payments were made in cash. This eliminated much of the audit trail of the sale of DEDI-brand liquid deprenyl citrate. Respondent DEDI did not comply with the temporary injunction, entered February 17, 1994, and did not seek to dissolve the temporary injunction until approximately four years after it was issued. Nevertheless, the temporary injunction did not deter DEDI's and B & B's sales of DEDI-brand liquid deprenyl citrate, which had returned to the pre-May 12, 1993, level by late 1993. An inventory of DEDI dated year end 1991 corresponds with DDI possessing ephedrine and having the capacity to manufacture deprenyl in large, valuable quantities from 1991 through May 1993 by stating the following: "We currently hold over 200 kilos of starting chemicals for deprenyl. These starting chemicals would produce a wholesale value of completed deprenyl in excess of $20 million." The inventory for that date indicates that DEDI had operating locations not only in Wesley Chapel, Pasco County, Florida, but also in San Diego, California, and Tijuana, Mexico, with a completed product in stock valued at $430,500. After the May 12, 1993, search and inspection, but before the July 13, 1994, inspection discussed below, DEDI and B & B sent its employee, Gaylord Hughes a/k/a Hugo Lord West, to fill DEDI-brand liquid deprenyl citrate orders. He traveled with the shipping labels to send the filled orders to the customers, and was usually gone from Wesley Chapel for three to four days. At the same time, DEDI sent by Airborne Express the formulated one-half ounce bottles of DEDI-deprenyl from the Wesley Chapel business establishment. The Department conducted another inspection of the Wesley Chapel business establishment on July 13, 1994, to check the status of the May 1993 drugs and items under stop-sale order, and to check for compliance with the temporary injunction. This inspection was initiated during a visit to the business establishment in response to a request of Pasco County officials, after a small fire and explosion had spread smoke in the business establishment from a DEDI laboratory on the premises. The Pasco County officials wanted to determine the status of the business establishment after the chemical reaction that had caused the fire. When the Department inspected the business establishment on July 13, 1994, Department agents found shredded orders for DEDI-brand liquid deprenyl citrate, which B & B had filled. They also found labeling, promotional literature, and business records regarding the manufacture, promotion and sale of DEDI-brand liquid deprenyl citrate by Respondents DEDI and B & B. One of the filled orders was to a husband and wife, Mr. and Mrs. Freis, who resided in Florida at that time, and another filled order was sent to Mr. Joseph Marino who resided in South Carolina. Federal Express confirmed delivery of the orders for the DEDI-brand liquid deprenyl citrate to B & B at the Wesley Chapel business establishment. Subsequent to the Department's July 13, 1994, inspection, Respondents DEDI and B & B sold DEDI-brand liquid deprenyl citrate such that purchasers in Florida, as well as in other jurisdictions, received this unapproved drug. After July 13, 1994, DEDI and B & B moved the location where cash orders for DEDI-brand liquid deprenyl citrate were received and the location from which orders for deprenyl DEDI- brand liquid deprenyl citrate were filled. B & B paid the rent for each of these locations. These locations included 8875 Hidden River Parkway, Suite 300, Tampa, Florida; 7676 Hazard Center, 5th Floor, San Diego, California; and 5025 Central Avenue, Box 619, Phoenix, Arizona. On August 9, 1995, the FDA issued an import alert regarding DEDI-brand liquid deprenyl citrate, as an unapproved new drug being promoted in the United States. This alert was relied on by the Department in its investigation of DEDI-brand liquid deprenyl citrate as further indication that the FDA considered this product to be an unapproved drug. In June 1996, Gaylord Hughes moved to Phoenix, Arizona, to be with his girlfriend who had relocated to that area. In Phoenix, Mr. Hughes continued to operate B & B and DEDI-brand liquid deprenyl citrate sales operations like B & B had operated from Wesley Chapel before May 1993, from the Wesley Chapel business establishment from May 1993 to the Department's July 13, 1994, inspection, and from the Hidden River Parkway location from mid-1994 through 1996. Mr. Kimball paid the fee for B & B’s mailbox in Phoenix, Arizona. After Mr. Hughes moved to Phoenix and B & B was set up there, once a week, DEDI received, at the Wesley Chapel business establishment location, a package containing a large quantity of cash from B & B's sales of DEDI-brand liquid deprenyl citrate. The currency was neatly wrapped in the manner and style of Mr. Hughes. Federal search warrants were executed in Phoenix, Arizona, on May 7 and 8, 1998, at Mr. Hughes' residence in Phoenix, Arizona, and the B & B mailbox at Mail Boxes Etc., on Central Avenue, in Phoenix, Arizona. Two months later, the Phoenix B & B was closed and the mailbox rental was cancelled. From August 1991 through September 2000, Mr. Kimball along and with Respondents DEDI, DDI, B & B, and ASTAK, Inc., have manufactured, held for sale and sold or otherwise distributed the selegiline based drug, DEDI-brand liquid deprenyl citrate, from and into Florida, without first obtaining from the FDA the requisite new drug approval. From September 17, 1991, until just prior to the May 12, 1993, search and inspection, B & B received more than $600,000 gross income from the sale of DEDI-brand liquid deprenyl citrate. This is based on sales of 8,424 bottles of DEDI-brand liquid deprenyl citrate, of which 1,407 bottles were sold in Florida. The 8,424 bottles of DEDI brand liquid deprenyl citrate, an unapproved drug, were sold to 1,634 persons. The Department's fair estimate of the income to DEDI, B & B, and ASTAK, Inc., from their sale of DEDI-brand liquid deprenyl citrate is an average of $28,000 per month, totaling more than $2,600,000.11 Client reports maintained by B & B and DEDI indicate that clients purchased Vitamin C as well as DEDI-brand liquid deprenyl citrate. However, according to these records, there are seven times as many client reports for customers who purchased DEDI-brand liquid deprenyl citrate as for those who purchased DEDI Vitamin C. The average income of $53,585 for the three-month period of February 1993 through April 1993 was for the sale of DEDI-deprenyl as compared to an average of $200 per month for DEDI Vitamin C. Prior to the multi-agency task-force's execution of search warrants regarding the DEDI-deprenyl brand liquid citrate manufacture and sales operations, DEDI and B & B sold between 500 and 600 bottles of DEDI-deprenyl brand liquid citrate a month. Pursuant to agreements, DEDI and other corporate Respondents paid TOURS consulting and administrative fees for providing specified services, equipment, and furniture. The administrative services provided by TOURS included the following: maintaining the books; making bank deposits; handling accounts payable; monitoring payroll records; keeping bank ledgers updated, making and monitoring a purchasing system, making purchases; and working with accountants; and filing incorporation and annual corporate renewal papers. The aforementioned Respondents paid TOURS for use of TOURS' office equipment, such as the postage meter and telephones. TOURS also purchased office supplies and other needed materials and equipment for Respondents. The costs of these supplies, materials, and equipment were then billed by TOURS to Respondents as charge-backs. The fees paid by these Respondents came from the sale of unapproved drugs such as DEDI-brand liquid deprenyl citrate. Pursuant to a lease agreement, TOURS charged DEDI $3,000 per month rent while DEDI was a tenant at the Wesley Chapel business establishment from late 1990 through the first of 2000. Likewise, TOURS charged rent to B & B from early 1990s to 1995 or 1996; DDI from 1990 to May 1993; and ASTAK, Inc., from early 1990 to late 1999 or early 2000. For the period of September 17, 1991, through September 23, 1994, TOURS generated income from the rent paid by the corporate Respondents who occupied space in the Wesley Chapel business establishment, as follows: rent, $75,792; consulting and administrative fees, $112,834; and charge-backs or miscellaneous, $34,856. The total collected by TOURS for this time period was $223,482 or over $6,200 per month. From 1993 through 2000, Mr. Kimball transferred most of his assets, as well as all the assets of DEDI and ASTAK, Inc., to TOURS. Mr. Kimball transferred his interest in his personal residence in Wesley Chapel, Florida, to his wife, Mrs. Kimball. Most recently, DEDI transferred its rights to its line of products and customer lists to TOURS. TOURS, in turn, transferred its rights to DEDI's products and customer lists to Strictly Supplements, Inc.,12 a company recently formed by Mrs. Kimball, who serves as the company's marketing director. DEDI, through its "pharmaceutical division," and ASTAK, Inc., sold in commerce for human use several colloidal silver drugs that had not been approved by the FDA. Initially, DEDI and ASTAK, Inc., sold colloidal silver drugs as if they were FDA-sanctioned by being “grand- fathered” or exempt from the FDA new drug approval process. To qualify for an exemption from this regulation, the DEDI colloidal silver drug would have had to exist prior to 1938 or the present manufacturer of the drug must have been the pre-1938 manufacturer. Here, none of DEDI’s colloidal silver drugs met the criteria to qualify for an exemption or grandfather status under the FDA’s new drug approval process. At times relevant to this proceeding, DEDI and ASTAK, Inc., filled orders for AG-Cidal and shipped AG-Cidal to a company in California which sold to customers drug products whose active ingredient is the heavy metal, silver, in colloidal suspension. DEDI and ASTAK, Inc., labeled DEDI-AG-Cidal, some of which the Department stop-saled in July 13, 1994, at the Wesley Chapel business establishment, as a drug in that the label claims it to be an antibiotic, anti-viral, anti-bacterial and anti-infective. DEDI and ASTAK, Inc., also misbranded AG-Cidal by putting a National Drug Code number ("NDC#") on the label of the product. Such information on the label is false and misleading to the consumers in that an NDC# makes the product appear to be an FDA approved drug, or an FDA drug authorized in commerce, when neither DEDI nor ASTAK, Inc., has ever obtained FDA drug approval for their AG-Cidal. DEDI and ASTAK, Inc., also labeled their DEDI- Silvicidal as a drug in that the label claims it to be an anti- infective. The Department had issued a stop-sale of some of these products on May 12, 1993, while conducting an inspection of the business establishment. Although DEDI registered this product, it was never approved as a drug with FDA. Notwithstanding its failure to obtain the necessary approvals, DEDI sought to distribute these products through an out-of-state company. DEDI applied to the Department to register, as a drug, DEDI-Silvicidal ES (extra strength), 300 ppm, Mild Silver Protein. In response, the Department timely gave notice to DEDI of its intent to deny the application by letter dated May 29, 1998. The FDA has not approved DEDI-Silvicidal ES as a drug that the FDA authorizes in commerce and such approval is required by Section 499.023, Florida Statutes, before such drugs can be marketed in commerce in Florida. Although DEDI never obtained the necessary approvals, DEDI manufactured Silvicidal ES at the Wesley Chapel business establishment as an anti-viral and anti-infective and distributed the unapproved drug. DEDI gave to others Experimental Colloidal Silver for use on persons with serious illnesses, thus making this product a drug. The Experimental Colloidal Silver was used on persons having Lyme disease, HIV, staphylococcus infections, and other serious illnesses. The DEDI-Silvicidal ES is a DEDI colloidal silver drug that has been advertised by NaturaLife, Arvada, Colorado, as an “incredible antibiotic” priced at $69. According to advertising and/or labeling, the product can be used to prevent both contact and airborne transmitted diseases when office, hospital, school and daycare environments cannot be avoided and is proven to be exceedingly effective in bacterial, viral and fungal infections from a common virus or bacteria to more serious infections such as E. coli and Streptococcus. DEDI and ASTAK, Inc., sold each of the above-listed, colloidal silver drugs for human use as antibiotic, anti-viral, anti-bacterial and anti-fungal. DEDI made claims that the products were effective to treat diseases such as Lyme disease and the common cold, even though the FDA never authorized these drugs in commerce with such claims. DEDI and ASTAK, Inc., further misled the consuming public as to the safety and effectiveness of these unapproved drugs by claiming on the labels that their colloidal silver drugs were "non-toxic" and had no side effects. In fact, there are serious side effects that can occur from the human consumption of drugs containing colloidal silver. DEDI, through its principal, established GLOBAL to publish a pamphlet, entitled "Silver Solutions" espousing the FDA unapproved colloidal silver drugs manufactured by DEDI and sold by DEDI and ASTAK, Inc. The FDA has never authorized a New Drug Application for any of the Respondents for any of the colloidal silver products listed above, nor otherwise authorized any such drugs in commerce by other means. The FDA has adopted a final rule regarding drugs containing colloidal silver ingredients, which states in pertinent part that: (b) Any OTC drug product containing colloidal silver ingredients or silver salt that is labeled, represented, or promoted for the treatment and/or prevention of any disease is regarded as a new drug within the meaning of section 201(p) of the Federal Food, Drug, and Cosmetic Act (the act) for which an approved application or abbreviated application under section 505 of the act and part 314 of this chapter is required for marketing. In the absence of an approved new drug application or abbreviated new drug application, such product is also misbranded under section 502 of the act. * * * After September 16, 1999, any such OTC drug product containing colloidal silver or silver salts initially introduced or initially delivered for introduction into interstate commerce that is not in compliance with this section is subject to regulatory action. See Federal Register, August 17, 1999, Volume 64, No. 158, and 21 C.F.R. Section 310.548. The DEDI colloidal silver drugs discussed in the above paragraphs are misbranded drugs since none have new drug approval by the FDA. Also, in absence of such approval, the products may not be introduced in commerce. Because Section 499.023, Florida Statutes, requires such approval, the Department is without authority to grant DEDI's request to register DEDI's Silvicidal ES as a drug. After the Department filed its first Administrative Complaint in these consolidated cases, Respondents as named and noted below conducted themselves as follows in paragraphs 127 through 134. In July 13, 1994, upon execution of a federal search warrant, Respondents DEDI and ASTAK, Inc., were found to have a hidden compartment, having dimensions about two or three feet by two or three feet, under a stairwell at the Wesley Chapel business establishment. In the compartment, which was obscured by a cabinet, there were five boxes of 100 one-half ounce bottles of DEDI-brand liquid deprenyl citrate. In 1998, the Unites States Customs returned to DEDI the Selegiline freebase that had been seized in May 1993 from the Wesley Chapel business establishment. Soon thereafter, at Mr. Kimball’s direction, DEDI's consultants and/or employees of DEDI purified or reprocessed the Selegiline as DEDI deprenyl freebase.13 On May 7 and 8, 1998, an agent with the Department accompanied federal agents who were executing a federal search warrant of Box 619 at Mail Boxes Etc., located at 5025 Central Avenue, Phoenix, Arizona. The Department's agent observed orders for DEDI-brand liquid deprenyl citrate along with the correct amount of cash enclosed ($75.00 per bottle, plus $18.00 for shipping and handling per order) at the mailbox in Phoenix, Arizona, that was rented by B & B. In June 1996, B & B, through Mr. Kimball, executed a rental agreement with Mail Boxes Etc. to rent Mail Box 619 at that location, and paid rent for that box. Subsequently, Mr. Hughes, as an agent for B & B paid the fees required for renewal of the mailbox. In or about October 2000, while this proceeding was pending, Mr. Kimball, the principal officer of DEDI, DDI, B & B, ASTAK, Inc., and GLOBAL was indicted by a federal grand jury and convicted of fraud and conspiracy to commit fraud against the FDA and the Department. See United States of America v. James T. Kimball, USDC-Middle District of Florida, Case No. 99-256-CR- T-26E, upheld on appeal 291 F.3d 726 (11th Cir. 2002). At a hearing on September 20, 1999, regarding the government's motion to revoke Mr. Kimball's release bond in United States v. Kimball, supra, DEDI's and ASTAK, Inc.’s, principal, Mr. Kimball, admitted to the presiding federal magistrate judge that for the preceding two and one-half years he has sold selegiline, the active drug ingredient in the DEDI- brand liquid deprenyl citrate, to compounding pharmacies in Oregon. The principal of DEDI's and ASTAK, Inc., Mr. Kimball, knew and intended that the selegiline DEDI and ASTAK, Inc., sold and shipped to these pharmacies would be formulated and labeled in finished dosage form as Discovery-brand liquid deprenyl citrate. This version of the unapproved prescription drug, DEDI-deprenyl, was not compounded pursuant to a patient-specific prescription but was manufactured for sale through their agents in Oregon.14 On September 13, 1999, a shipment of 940 bottles labeled deprenyl, and bearing the DEDI logo was seized under a federal warrant in Oregon, by Oregon law enforcement officers and the FDA officials. But for the seizure of the unapproved drug, it would have been shipped to IAS, a company in England with which the DEDI and ASTAK, Inc., through its principal, had a business relationship. DEDI and ASTK, Inc., knew and intended that the DEDI-brand liquid deprenyl citrate would be shipped to IAS in England, where persons from the United States, including Florida, could purchase it. By letter dated August 16, 1999, the FDA warned Respondents DEDI and ASTAK, Inc., that their manufacturing, labeling, and selling of DEDI-brand liquid deprenyl citrate was unlawful since this product is an unapproved new drug not authorized by the FDA in commerce. The aforementioned Respondents were also advised that the unapproved drug was being labeled in a false and misleading manner. By Final Judgment rendered March 3, 2000, Respondents, DEDI, DDI, B & B, ASTAK, Inc., and Mr. Kimball were permanently enjoined, either directly or indirectly, from manufacturing, advertising or selling liquid deprenyl, any compound or article containing selegiline or any other drug, unless and until they demonstrate at an evidentiary hearing that they have complied with the Florida Drug and Cosmetic Act. See Department of Health and Rehabilitative Services v. Discovery Experimental and Development, Inc., et al., Case Nos. 93-3991 and 93-4287, Sixth Judicial Circuit in and for Pasco County, Florida (rendered March 3, 2000); appealed dismissed on August 30, 2000, in Discovery Experimental and Development, Inc., v. State, Department of Health, 769 So. 2d 376 (Fla. 2d DCA 2000). Respondents DEDI, ASTAK, Inc., B & B, and Discovery- Mexico are a danger to public health, safety and welfare. They have persisted in manufacturing for sale, holding for sale, promoting and selling or otherwise distributing the unapproved prescription drug deprenyl in disregard of the Department's 1991 Consent Final Order. Moreover, these Respondents have never obtained the required FDA approval and the Department licenses or permits that would authorize such activities. Nonetheless, from August 1991, these Respondents have distributed the unapproved prescription drug deprenyl in, from and into Florida by direct sales to the purchaser without a prescription from the purchaser's prescribing health care practitioner and without the deprenyl being dispensed by a licensed pharmacist. By marketing and selling the unapproved drug, DEDI- brand liquid deprenyl citrate, over-the-counter and without the intervention of a prescribing medical practitioner or a pharmacist, Respondents posed a danger to the public. The Department, through its Bureau, incurred the costs of investigating Respondents from 1990 to the presentation of evidence in this proceeding. The Department employed in this investigation and enforcement action numerous drug agents, drug agent supervisors, and clerical staff. One of the Department’s drug agents, Chief Investigator Agent Deborah Orr, worked on this case on an almost full-time basis since being employed by the Department in or about 1992. The Department incurred costs associated with the expenses of court reporters, appearance of witnesses, travel costs, expert witness costs, office supplies, and materials, as well as the salaries of the investigative staff assigned to work on this case. Conservatively, the Department spent approximately one-half million dollars, or more specifically, $486,621.40, in this investigation and enforcement action. After giving careful consideration and evaluation to the many intense hours of testimony, the undersigned concludes that the Department’s witnesses are credible experts in the field of pharmacy and drug regulation laws and procedures of the State of Florida. The Findings of Fact in the Final Judgment in Department of Health and Rehabilitative Services v. Discovery Experimental and Development, Inc., et al., Case Nos. 93-3991 and 93-4287, Sixth Judicial Circuit Court, Pasco County, Florida (March 2, 2000) against Respondents, DEDI, ASTAK, Inc., DDI and B & B are adopted by reference herein. These findings are adopted under the doctrines of res judicata, collateral estoppel, and estoppel by judgment as to these same Respondents, except for Mr. Kimball, who has been dismissed from the instant case, and are noted as additional support for the Findings of Fact in this Recommended Order.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Health issue a final order which finds that: Respondents Discovery Distributing, Inc.; Discovery Experimental and Development, Inc.; ASTAK, Inc.; and B & B Freight Forwarding, Inc., committed the offenses alleged in the Administrative Complaint, as it relates to the DEDI-brand liquid deprenyl cittrate. Respondents Discovery Distributing, Inc. and Discovery Experimental and Development, Inc., shall jointly and severally pay to the Florida Department of Health an administrative fine of two million, eighty-seven thousand dollars ($2,087,000.00), for violations of Chapter 499, Florida Statutes (1997), as they relate to the DEDI-brand liquid deprenyl citrate. Respondents Discovery Experimental and Development, Inc., and ASTAK, Inc., committed the offenses related to the DEDI drugs containing colloidal silver as alleged in the Administrative Complaint. Respondents Discovery Experimental and Development, Inc., and ASTAK, Inc., shall jointly and severally pay to the Florida Department of Health an administrative fine of one million five hundred and three thousand dollars ($1,503,000) for violations of Chapter 499, Florida Statutes (1997), as those violations relate to the DEDI drugs containing colloidal silver. The pending application for Discovery Experimental and Development, Inc., to register as a drug, its Silvicidal ES be and hereby is denied. The Administrative Complaint against Respondents Global Health Information/Medical Research Institute, Inc.; Discovery Tours Wholesalers, Inc.; Josephine Kimball; and Toni Ann Kimball be dismissed. DONE AND ENTERED this 18th day of April, 2003, in Tallahassee, Leon County, Florida. CAROLYN S. HOLIFIELD 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 18th day of April, 2003.
The Issue Whether or not the agency may, pursuant to Section 525.06, F.S. enter an assessment for sale of substandard product due to a violation of the petroleum inspection laws and also set off that amount against Respondent's bond.
Findings Of Fact Frank Hampton, d/b/a Hampton's Gulf Station, has operated at 2610 North Myrtle Avenue, Jacksonville, for many years and has had no prior complaints against it by the Petitioner. Respondent is in the business of selling kerosene, among other petroleum products. The facts in this case are largely undisputed. On November 28, 1990, Bill Ford, an inspector employed with the Department of Agriculture and Consumer Services, visited the Respondent's premises to conduct an inspection of the petroleum products being offered for sale to the public. Ford drew a sample of "1-K" kerosene being offered for sale, sealed it, and forwarded it to the agency laboratory in Tallahassee where John Anderson, under the supervision of Nancy Fischer, an agency chemist, tested it to determine whether the sample met agency standards. The testing revealed that the sampled kerosene contained .21% by weight of sulfur. This in excess of the percentage by weight permitted by Rule 5F- 2.001(2) F.A.C. for this product, but it would qualify as "2-K" kerosene. A "Stop Sale Notice" was issued, and on the date of that notice (November 30, 1990) the tank from which the test sample had been drawn contained 3887 gallons of product. It was determined from Respondent's records that 4392 gallons had been sold to the public since the last delivery of 5500 gallons on November 16, 1990. The product was sold at $1.58 per gallon. The calculated retail value of the product sold was determined to be in excess of $1,000.00, and the agency permitted the seller to post a bond for $1,000.00 (the maximum legal penalty/bond) on December 3, 1990. The assessment is reasonable and conforms to the amount of assessments imposed in similar cases. On this occasion, Respondent had purchased the kerosene in question from a supplier which is not its usual wholesale supplier. This was the first time Respondent had ever ordered from this supplier and it is possible there was some miscommunication in the order, but Respondent intended to order pure "1-K" kerosene. Respondent only purchased from this supplier due to the desperate need in the community for kerosene during the unusually cold weather that occurred during the fall of 1990. Respondent ordered "1-K" kerosene and believed that "1-K" had been delivered to it by the new wholesale supplier up until the agency inspector sampled Respondent's tank. After posting bond, Respondent originally intended to send the unused portion of "2-K" kerosene back to its supplier, but instead was granted permission by the agency to relabel the remaining product so that the label would correctly reflect that the product was "2-K." Respondent accordingly charged only the lesser rate appropriate to "2-K" kerosene for sale of the remaining 3887 gallons.
Recommendation Upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Agriculture and Cnsumer Services enter a final order approving the $1,000.00 maximum penalty and offsetting the bond against it. DONE and ENTERED this 20th day of June, 1991, at Tallahassee, Florida. ELLA JANE P. DAVIS, Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 20th day of June, 1991. COPIES FURNISHED TO: FRANK HAMPTON HAMPTON VILLA APARTMENTS 3190 WEST EDGEWOOD AVENUE JACKSONVILLE, FL 32209 CLINTON COULTER, JR. ESQUIRE DEPARTMENT OF AGRICULTURE AND CONSUMER SERVICES (LEGAL) MAYO BUILDING, ROOM 510 TALLAHASSEE, FL 32399-0800 HONORABLE BOB CRAWFORD COMMISSIONER OF AGRICULTURE THE CAPITOL, PL-10 TALLAHASSEE, FL 32399-0810 RICHARD TRITSCHLER, GENERAL COUNSEL DEPARTMENT OF AGRICULTURE AND CONSUMER SERVICES 515 MAYO BUILDING TALLAHASSEE, FL 32399-0800
Findings Of Fact Puckett Oil Company, at times pertinent hereto, operated a full-service gasoline and auto service station at 7251 Pensacola Boulevard, Pensacola, Florida. The station at that site performed a complete range of automotive repairs, including lubrication and oil changes. These services are typical of such full-service service stations. On or about June 27, 1986, the operator of that station which was owned by Puckett, Mr. Winters, discovered a discharge of used oil at the site. The discharge occurred because the operator believed that used oil had been drained into an underground storage tank on a routine basis at the facility, as the oil was changed in customer vehicles. In fact, it developed that, unbeknownst to Mr. Winters, the tank had been removed by the prior land owner. This resulted in repetitive contamination of soil and groundwater at the facility, since the oil poured into the floor drain at the station, after being removed from the crank cases of customer vehicles, was in reality draining into the ground, instead of into a storage tank. After becoming aware of this problem, Puckett filed an Early Detection Incentive (EDI) Program Notification Application, reporting the discharge of used oil to the Department, pursuant to Section 376.3071, Florida Statutes (Supp. 1986). That EDI notification application form lists used oil as a "product." Puckett notified the Department of its intent to proceed with voluntary cleanup at the Puckett site pursuant to Section 376.3071(11) and (12), Florida Statutes (Supp. 1986), and to seek reimbursement for the cost of that contamination cleanup pursuant to Section 376.3071(12), Florida Statutes (Supp. 1986). The Department, in view of the request, conducted a site inspection on December 19, 1986. The Department's inspection personnel prepared an EDI Program Compliance Notification Checklist on the Puckett site. This report noted the circumstances of the discharge, to the effect that the used oil tank had been removed while used oil was still being disposed of through the drain at the service station. Thereafter, by its Order of April 16, 1987, the Department advised Puckett that its site was not eligible for "Super Act" reimbursement. The denial of eligibility was based on the DER's position that used oil was not "petroleum" or a "petroleum product" for purposes of Section 376.301(9) or (10), Florida Statutes (Supp. 1986). On May 8, 1987, Puckett filed a Petition for Formal Proceedings, alleging, among other things, that used oil is "petroleum" or "petroleum product" within the meaning of the "Super Act" and that the Department is estopped from denying "Super Act" reimbursement eligibility for voluntarily reported discharges of used oil. Inasmuch as the DER conducted inspections of the site in question, recording its findings, the Department was aware of the circumstances of the discharge; that the used oil tank had been removed and that oil had continued thereafter to be placed in the drain facility, thus contaminating the soil where the used oil disposal tank had formerly been placed. The Department did not raise the eligibility exception involving gross negligence in the Order of April 16, 1987, however, nor by any other vehicle until the filing of its Motion for Continuance with the Hearing Officer on August 31, 1987. Additionally, in response to a Request for Admissions served by Puckett, the Department admitted that the sole basis for denial of the reimbursement eligibility for the Puckett site was the fact that the substance discharged was "used oil," which the Department contends is not petroleum or petroleum product and thus is not a proper subject for reimbursement of related clean up and decontamination expenses. Uncontroverted evidence establishes that in August 1984, eleven oil changes at the Puckett site generated 3.5 quarts or about 9 1/2 gallons of used oil. Using this figure as an average, until the time the discharge was discovered 22 months later, the Puckett site generated approximately 210 gallons of used oil. Mr. Winters testified that he believed he had a 500 or 1,000 gallon used oil tank. Puckett's used oil was disposed of by inserting the drain bucket on the floor drain. The floor drain is a receptacle with an adapter on it for the oil drain bucket. Although the floor drain system appeared to be a working system, the underground used oil storage tank at the Puckett site had been removed, unbeknownst to Mr. Winters. It was apparently removed by Exxon Corporation, the previous site operator. It was Exxon's practice to remove fuel tanks from non-operational stations, such as the Puckett site was at the time it was sold to Puckett. It was not their normal practice, however, to remove used oil storage tanks. Mr. Winters, in his sixteen years of operating service stations, has never experienced a floor drain with such an adapter that was not connected to an underground storage tank. Further, he had previously leased a service station that had been purchased from Exxon after being closed for seven years and the used oil tank was still in place at the time he took possession of the station. He asked the person responsible for closing the Exxon station (the Puckett site) where the used oil tank was located. That person responded by pointing to an area of landscape shrubbery where a galvanized pipe could be seen protruding from the ground. A used oil collection company attempted to pump the contents of the tank using that pipe. Three large holly bushes were growing undisturbed over the area where Mr. Winters had been told the tank was located. It thus appeared to Mr. Winters that the tank could not have been removed. There was no evidence that Mr. Winters attempted to conceal the discharge of the oil or that he continued to dispose of the used oil in the floor drain after discovering that the tank had been removed. If the floor drain had not become stopped up, Mr. Winters likely never would have begun looking for the presence of the tank. A used oil collection company never was able to pump any used oil from the pipe supposedly connected to the tank. It was Mr. Winters' belief that used oil collection companies normally came to service stations after closing hours to pump the used oil storage tanks, so they can avoid paying for the used oil. It was for this reason, he believed, that he rarely had seen a used oil collection company trying to pump oil from such a storage tank. He was thus not concerned when the company reported that it could pump no used oil from the tank because he believed that another used oil collector had previously drained it. The used oil discharged at the Puckett site consists of used engine crank case oil with an estimated two percent of used transmission oil. Used oil at the Puckett site is not mixed with solvents or other hazardous wastes. Puckett does not accept neighborhood collections of used oil. An assessment of the contamination at the Puckett site was conducted by Delta Environmental Consultants. Delta had an analysis of soil samples prepared by Pioneer Laboratories and an analysis of ground water samples by Savannah Laboratories. Dr. Litt, the Petitioner Puckett's expert witness, opined, based on the contamination assessment, that the contamination was due to used oil or "used oil fuel" instead of "hazardous waste fuel" or hazardous waste. Dr. Litt relied on the testimony of Mr. Winters to the effect that solvents or other hazardous wastes were not mixed with the used oil at the Puckett site in the service station's operations. Based on the soil and ground water analyses supplied him, Dr. Litt found an absence of halogenated solvents which would commonly be mixed with used oil, thus corroborating Mr. Winters' testimony that the used oil at the Puckett facility was not known to have been mixed with any hazardous wastes. The soil analysis indicates a level of organic halogens of 1,090 parts per million. This level might raise a presumption, under relevant EPA regulations, that the oil had been mixed somewhat with hazardous wastes, but Dr. Litt established that indeed no mixing had occurred based upon Mr. Winters' testimony, as well as the fact that the testing method used is accurate to only a plus or minus 700 parts per million in a total range of 1,000 to 2,000 parts per million. Indeed, some halogen levels may be attributed to natural soil conditions. Thus, the finding of 1,090 parts per million organic halogens could be as much as 700 parts per million in error, and some of this quantity can be due to natural backgrounds. Additionally, the level of individual chlorinated solvents sampled indicated no mixing of used oil with typical hazardous wastes. International Petroleum Corporation International Petroleum Corporation (International) has operated an oil storage plant and used oil reclamation facility at 105 South Alexander Street, Plant City, Florida, since May 1980. That site contains approximately 10 acres. There are two on-site tank farms containing 17 above-ground stationary tanks and two underground tanks. One underground tank holds 10,000 gallons and is used to store diesel fuel. The other tank holds 5,000 gallons and stores virgin gasoline. The above-ground tanks range in size from 8,000 to 212,000 gallons and are used to store oil, both used oil and new oil. All the tanks have been registered with the DER in accordance with its rules and are a part of the DER's "stationary tank system." The plant site also contains an office building and a testing laboratory which provides an array of testing services. The lab contains an atomic absorption unit, kinematic viscosity baths, API gravity hydrometers, distillation equipment and a gas chromatography. International uses this equipment, operated by a trained chemist, to test incoming loads of oil for such things as viscosity, flash point, API gravity, heavy metals, halides, etc. Since 1980, International has received, processed and sold more than 5,000,000 gallons of oil from this facility. The oil processed through the facility includes virgin kerosene, diesel, jet fuel and oils of various grades ranging from ASTM grade numbers 1-4 (the distillates) and ASTM grade numbers 5, 6 and "bunker C" (the residuals). The residual oils are those oils left after the lighter distillates are removed through the vacuum distillation process. The amount of residual oils processed since 1980 is relatively low, less than fifteen percent of the total amount of oils processed at International's facility. Out of 7,000,000 gallons processed in an average year, the plant may receive two or three carloads of grade numbers 5, 6 or bunker C. From 1980 to 1985, approximately 7,000,000 to 12,000,000 gallons of virgin oils were processed at the facility. In each of those years, from 4,000,000 to 7,000,000 gallons of used oil were also processed. Over that five- year period approximately 20,000,000 gallons of used oil were processed and sold through the International facility. International blends virgin oils received at the plant with used oils to meet particular specifications of a customer. It uses its own trucks to collect oil from service stations, automobile dealerships and other industrial accounts. Oil is then delivered to the plant and tested for basic constituents before being placed in an appropriate storage tank. International tests all incoming used oil to see if it meets the criteria for so-called "on spec" used oil or "off spec" used oil. These specifications were established by the EPA in 1985 and adopted by the DER. Used oil meeting these criteria may be burned as fuel in industrial and non-industrial boilers without limitations. The criteria are as follows: Constituent/Property Allowable Level Arsenic 5 ppm maximum Cadmium 2 ppm maximum Chromium 10 ppm maximum Lead 100 ppm maximum Total Halogens 4,000 ppm maximum Flashpoint 100 degrees Fahrenheit minimum International has followed a practice of rejecting incoming used oil which fails to meet the criteria of 1,000 parts per million or less of total halogens, which is the rebuttable threshold presumption of "hazardous waste" oil. International makes an effort to ensure that used oil it receives and processes is thus "on spec." It regularly sends samples to independent laboratories to cross-check its own laboratory testing results. It is selective in its sources of used oil and typically obtains used oil from large companies such as the Mack truck shops, car dealerships and other large volume producers of used oil. These are sources unlikely to be contaminated with any hazardous materials. The "on-spec" used oil accepted by International is placed in separate storage tanks, segregated according to water content and API gravity, viscosity and lead content. It is then blended with virgin oils to meet the specification of various customers. Heat is sometimes supplied in order to drive off water. The used oil undergoes no further treatment or alteration, being merely tested and blended to meet the customer's requirements. Often blending is unnecessary. When a truckload is received, tested and found to meet specifications, it is sometimes directly delivered to a customer. International sometimes obtains used oil without payment from its suppliers and has often purchased it from the generators of used oil. It always sells it to its customers, however. It has a definitely defined industrial market as a fuel commodity and is recognized as having value when sold for such purposes. It may sell for as little as 30 cents per gallon and has sold for much more than that, depending on the market conditions prevailing at the time of sale. It is used both as a burner fuel for industrial and non-industrial boilers, as well as a key constituent in the phosphate beneficiation process. International sells approximately 40 percent of its used oil production to asphalt plants where it is used to fire burners and to rock drying mills, also as a burner fuel. It sells approximately 60 percent of its production of used oil to the phosphate companies for the beneficiation process. In that process, oil is used with other reagents and fatty acids to "float" phosphate out of the rock or ore in which it is contained, allowing it to be skimmed and separated. Although the oil is not burned as a fuel in this process, its use by the phosphate plants substitutes for virgin oils of ATM grade numbers 4 and 5 (heating oil) or in some cases kerosene or number 2 diesel. In 1985, International produced 4,295,101 gallons of used oil which were burned as a fuel by its customers and in 1986 produced 2,221,652 gallons of used oil which were burned as a fuel. The used oil which it sells for the beneficiation process meets DER and EPA standards for "on spec" used oil fuel, except for the lead content, which fact is immaterial to its use for the beneficiation of phosphate. The used oil sold for phosphate purposes does meet pertinent regulatory standards for "off spec" used oil, in any event, so that it could be burned as industrial furnace fuel under EPA and DER rules. The sale of used oil for final use as a burner fuel is very common. Many oil recyclers pick up used oil and take it directly to asphalt plants for burning as fuel without any blending or other treatment. International's sale of 60 percent of its used oil for phosphate processing is unique in the used oil industry, but is attributable to its close proximity to the central Florida phosphate plants. Most oil recycling facilities sell a larger percentage of their product for burner fuel than does International. The used oil which International sells as burner fuel is comparable to heating oil, ASTM grade numbers 2 or 4 and has a similar viscosity, specific gravity and flash point. It can be poured and handled without preheating. Residual oil, however, such as grade numbers 5 and 6 (bunker C) are very viscous and require preheating in industrial boilers or burner furnaces before it can be burned as fuel. The used oil sold by International Petroleum is more similar to ASTM grades 2 and 4 (the distillates) than it is to grades 5 and 6 (the residuals). Petroleum hydrocarbon contamination of the soil and groundwater at the International site was discovered in December 1983 by DER personnel. International retained a consultant to assess the site and determine the nature and extent of any contamination. It has already expended more than $50,000 in an effort to investigate and clean up petroleum contamination at its site. DER conducted a soil and groundwater site investigation in 1985, which showed that hydrocarbons were in the soil and that volatile organics were also present in the groundwater at the site. International has provided all background information requested by DER on site conditions existing prior to cleanup. This was for purposes of showing its entitlement to reimbursement eligibility. The contamination at the site consisted mostly of small leaks, drips and spills associated with loading and unloading railway tank cars, as well as stationary tanks, over at least a five year period. The storage tanks include integral piping systems, and some leakage occurred at hose or pipe connections. The petroleum products placed in the various tanks in the tank farm vary, so that the contamination existing at the site cannot be differentiated or attributed separately to used oils or virgin oils, to distillates (ASTM grades 1-4) or the heavier residuals. All are made up of hydrocarbons and their breakdown products in the ground are essentially indistinguishable. The record does not establish that any major or significant oil spills have occurred at the plant site and does not show that the operators have been particularly negligent or have failed to conform to industry standards. International has already taken remedial action by building high retaining walls and by removing contaminated dirt where repeated drippages occurred near the railroad tracks. Employees have received training to avoid leaks from hoses and pipes and have been instructed to clean up even small spills immediately. Valve equipment has also been upgraded. As a result of these efforts, subsequent testing of the monitoring wells at the site has shown that the groundwater condition has markedly improved and it may be possible that the cleanup action already taken will be sufficient to accord with regulatory standards for groundwater. Used Oil as "Petroleum" or "Petroleum Product" Used oil is derived from crude oil and consists primarily of engine lubricating oil which is a form of hydrocarbon and a special fraction of the original crude oil. The lubricating oil consists of vacuum distilled base oil and atmospheric distillate portions of crude oil produced at a refinery and further refined by processes involving wax removal and solvent extraction. The remaining portion of lubricating oil consists of additives added to the base oil to improve certain physical properties such as rust inhibition and to improve viscosity. Many of these additives, in turn, are substantially comprised of base oil themselves. Used oil also typically contains gasoline which condenses in the crank case, water, gasoline additives, lead sulfates, carbonates or oxides and other partial combustion products of gasoline motor fuel. Lead contained in used engine oil is produced by engines running on tetraethyl lead gasoline. This lead accumulates in the form of lead sulfate, lead carbonate or lead oxide, rather than tetraethyl lead in its original form. The sulfates, carbonates and oxides are insoluble and are not likely to be leached out by groundwater, in contrast to tetraethyl lead. Use of the oil does not change its basic chemical structure. The oil may be contaminated by various impurities resulting from partial combustion of gasoline, from rust, from condensed water and so forth, but these are essentially mechanical mixtures, rather than alterations of the chemical structure of the oil itself. Aside from water, when oil is pumped from the ground at the well, two substances are produced at the well head: crude petroleum oil and natural gas, including casing head gas. Used oil is similar in nature to the petroleum products specifically listed in Section 376.301(10), Florida Statutes (Supp. 1986). The predominant use of used oil is as a fuel, similar to diesel, kerosene and gasoline. A fuel is a material burned as a source of heat, rather than for disposal purposes. It can be either for propulsion purposes or for stationary equipment such as industrial boilers, asphalt plants and the like. Kerosene and diesel fuel are similar in terms of viscosity and BTU value to ASTM grade number 2 fuel oil. Used oil is thicker and more viscous than ASTM grades 2, 3 or 4, but not so viscous as grades 5 or 6. Neither does it have as high a BTU content as grade number 5 fuel oil. ASTM grade number 5 residual oil must be preheated before burning as a fuel. Viscosity is too high for the material to atomize properly at normal temperature. In fact, used oil can be used as a blending agent to blend down or reduce viscosity of grade number 5 oil and reduce the temperature to which number 5 oil must be preheated before burning. With some variance from one sample to another, used oil typically is similar in viscosity and BTU value to ASTM grade number 3 or 4 fuel oil. Gasoline, kerosene, diesel and used oil are all hydrocarbons which burn readily. These materials are mixtures of hydrocarbons, with additives which do not materially affect the properties of the hydrocarbon fuel, or its use as a fuel. Gasoline, in fact, is not classified by ASTM grade. Parenthetically, it thus appears that the Legislature did not intend to limit the scope of "petroleum product" by such considerations as only viscosity and BTU value. "Petroleum products" are commonly used as fuels and are typically stored at service stations or storage tank facilities which can pose a danger of causing inland soil or water contamination, if improperly discharged. Gasoline, kerosene, diesel and used oil are commonly stored in tanks at facilities throughout the state. Used oil does not have any meaningful similarity to the substances specifically excluded from the definition of petroleum or petroleum product by Section 376.301(10), Florida Statutes (Supp. 1986). Used oil, for instance, bears little similarity to liquefied petroleum gas or to petrochemical feed stocks, which latter products are used to supply the raw materials for chemical plants manufacturing petrochemicals of many types. Used oil only is similar to these substances to the extent that it is within the broad family of hydrocarbons derived from crude oil or gases, derived in turn from petroleum wells. Likewise, the ASTM Grades 5 and 6 residual oils are based on the residuum or the heave viscous material left after the distillation process is applied to crude oil. This residuum is the material left that is too heavy to further distill. On the other hand, crank case lubricating oils and transmission oils, which are typically involved in the category "used oil" or "used oil fuel," are derived by the process of vacuum distillation such that they are distillation products, as opposed to residual products. "Bunker C" oils, and marine bunkering oils generally, are residual fuel products and, together with asphalt oil, are not used as fuel, at least not at inland locations. These materials likewise are typically not stored at inland service stations or bulk storage or reclamation facilities and locations. Both the Federal Environmental Protection Agency (EPA) and the Florida DER, in their regulatory scheme concerning used oil, encourage its collection and recycling. Used oil is typically recycled as a fuel and as a lubricant, by being separated from its contaminants by a re-refining process. Indeed, the oil constituent of used oil is not altered by use as lubricating or transmission oil, but rather is rendered in a "used oil" state by being subjected to various contaminants. It is not presently economically viable, given low virgin oil prices, to recycle used oil for lubricating oil. Thus, the two alternatives for disposition of used oil are to deposit it in landfills, a practice now generally prohibited by the DER and other regulatory authorities, or to use it as a fuel. Indeed, the use of used oil as a fuel is about the only practical way to dispose of it safely and legally in view of former uses, such as road oiling for dust control and weed abatement, now being prohibited in potable water aquifer areas. Section 403.75(2), Florida Statutes (1985). Thus, it is not only common and general practice to burn used oil as a boiler fuel and as a fuel in various industrial and utility plants, at the present time-that is almost the only manner in which it can be legally and safely disposed of. The Department itself has a policy encouraging the collection and recycling of used oil, as lubricating oil, fuel or as a feed stock in the manufacturing of other petroleum products. (See IP Exhibits 17, 18 and Joint Exhibit 5 in evidence.) Under EPA regulations which have been adopted by DER, used oil is not regulated as a hazardous waste. Under these regulations, the EPA has adopted a "rebuttable presumption of mixing" in order to distinguish between used oils which have been contaminated through mere use and used oils which have been mixed with hazardous wastes and therefore must be regulated as hazardous wastes or "hazardous waste fuel." Certain hazardous, halogenated constituents, such as chlorinated solvents, are the hazardous wastes typically found mixed with used oil. The "presumption of mixing" provides that any used oil containing greater than 1,000 parts per million of total halogens (such as chlorine, fluorine, bromine, iodine and similar substances) is presumed to have been mixed with a hazardous waste and will be regulated as "hazardous waste fuel" under 40 CFR Part 266, Subpart D, rather than as "used oil fuel" under 40 CFR Part 266, Subpart E. Hazardous waste fuel is essentially a hazardous waste with a BTU value of at least 5,000 BTUs per gallon. Hazardous waste fuel burning is tightly regulated by the EPA and DER. The presumption of mixing can be rebutted through a demonstration that the used oil in question has not been mixed with any hazardous waste. If mixing of used oil with hazardous wastes is known to have occurred, however, the oil is regulated as a hazardous waste when it is burned for energy recovery. Once it has been determined that a particular used oil is a used oil fuel and not a hazardous waste, the used oil falls into one of two categories: "Specification used oil fuel" or "off-specification used oil fuel." Specification used oil contains essentially the same toxic constituents as virgin oil fuels. Off-specification used oil fuel contains elevated levels of toxic components. Most used oil is off-specification, particularly if it is made up of mixtures of several types of used oil. If oil comes from a service station which was used in an engine burning leaded gasoline it would likely result in the used oil from that engine being off-specification due to the toxic lead compounds which would be present in the oil. If the oil was used in an engine which burned unleaded fuel, it is likely that it would be within specification limits for "on-specification used oil." Neither type of used oil is regulated as hazardous waste when burned as fuel, however. For purposes of determining whether an oil fuel is off-specification on on-specification, the EPA has developed a list [at 40 CFR Section 266.40(e): of contaminants, with the allowable levels for each contaminant, below which oil will be determined to be "on specification." Those contaminants are arsenic (5 ppm), cadmium (2 ppm), chromium (10 ppm), lead (100 ppm), with total halogens not exceeding 4,000 ppm in order for used oil to be within specification for nonindustrial burning. Specification used oils may be burned as fuel in nonindustrial boilers, including schools, hospitals, and apartment buildings. Off-specification used oil fuel may be burned in industrial furnaces, industrial boilers, utility boilers and some space heaters meeting certain federal safety requirements. Moreover, EPA regulations allow the blending of off-specification and specification used oil so that the resultant used oil, when burned, meets the specifications for nonindustrial burning. The Department's policy makers who were responsible for the initial decision that used oil is not petroleum or a petroleum product did not consult with certain key personnel in the Department's own used oil section concerning whether oil should be considered as a petroleum or petroleum product. In fact, Mr. Gentry, who is involved in policy making regarding the subject matter of the "Super Act," was not aware that the Department has a program to encourage the burning of used oil as a fuel nor the fact that used oil is extensively burned as a fuel in Florida.
Recommendation Having considered the foregoing Findings of Fact, Conclusions of Law, the evidence of record, the candor and demeanor of the witnesses, and the pleadings and arguments of the parties, it is, therefore RECOMMENDED that the applications of Puckett Oil 4 Company and International Petroleum Corporation for eligibility for reimbursement pursuant to Section 376.3071(12), Florida Statutes (Supp. 1986), be granted. DONE and ENTERED this 7th of June, 1988, in Tallahassee, Florida. P. MICHAEL RUFF Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 904/488-9675 FILED with the Clerk of the Division of Administrative Hearings this 7th day of June, 1988. APPENDIX TO RECOMMENDED ORDER CASE NOS. 87-2161 & 87-2465 Petitioners' Proposed Findings of Fact: 1-23. Accepted. 24. Rejected as subordinate to the Hearing Officer's findings on this subject matter. 25-38. Accepted. 39-40. Rejected as subordinate to the Hearing Officer's findings and as not directly material. 41-45. Accepted. 46-48. Rejected as not material and relevant. 49-54. Accepted. 55. Rejected as subordinate to Hearing Officer's findings on this subject matter. 56-58. Accepted. 59. Rejected as subordinate to Hearing Officer's findings on this subject matter. 60-63. Accepted. 64. Rejected as subordinate to the Hearing Officer's findings on this subject and as unnecessary to the resolution of material issues. 65-70. Accepted. 71. Rejected as irrelevant. 72-77. Rejected as subordinate to the Hearing Officer's findings on this subject. Accepted, but not directly relevant and material. Accepted. Respondent's Proposed Findings of Fact: 1-5. Accepted. 6. Rejected as subordinate to the Hearing Officer's findings on this subject matter. 7-8. Rejected as subordinate to the Hearing Officer's findings on this subject matter and as immaterial, in part, because the Hearing Officer, in determining whether the material at the subject sites meets the statutory definitions at issue is not, by the "pleading" confronted with the issue of whether any and all types of "used oil" meet these definitions, rather merely those types comprising the contamination at Petitioner's facility. The Hearing Officer cannot, in this proceeding, issue declaratory statements or advisory opinions. Accepted. Accepted, except for the next to last sentence. 11-12. Accepted. Accepted as to its historic accuracy, but not as a resolution of the essential issue presented. Rejected as immaterial in the absence of a Motion to Compel further, more detailed answers. Accepted as to its historical accuracy, but, for reasons similar to the ruling next above, not as probative of the appropriate, timely raising of the issue of gross negligence. 16-24. Accepted. 25-26. Rejected as subordinate to the Hearing Officer's findings on this subject matter. Accepted. Accepted as to its historical import. 29-38. Accepted. 39. Rejected as subordinate to the Hearing Officer's findings on this subject matter and as contrary to the preponderant evidence of record. 40-43. Accepted. 44-45. Rejected as subordinate to the Hearing Officer's findings on this subject matter. Rejected as not constituting a finding of fact, but, rather, a conclusion of law and statement of policy. Rejected as contrary to the preponderant evidence, as subordinate to the Hearing Officer's findings and as largely immaterial. Rejected as subordinate to the Hearing Officer's findings on this subject matter. Accepted. Rejected as subordinate to the Hearing Officer's findings on this subject matter; as being partially immaterial and as a discussion of policy and not a pertinent finding of fact. 51-53. Rejected as constituting legal argument and not a finding of fact. 54-55. Rejected as constituting legal argument. 56. Rejected as subordinate to the Hearing Officer's findings on this subject matter and as contrary to the preponderant weight of the evidence. 57-58. Rejected as - subordinate to the Hearing Officer's findings on this subject matter. Accepted. Rejected as subordinate to the Hearing Officer's findings on this subject matter. 61-63. Rejected as subordinate to the Hearing Officer's findings on this subject matter and as contrary to the preponderant weight of the evidence. Rejected as subordinate to the Hearing Officer's findings on this subject matter and as contrary to the preponderant weight of the evidence and as constituting, in part, legal argument instead of fact finding. Accepted. Rejected as subordinate to the Hearing Officer's findings on this subject matter. Rejected as subordinate to the Hearing Officer's findings on this subject matter. Rejected as subordinate to the Hearing Officer's findings on this subject matter and as contrary to the preponderant weight of the evidence. Accepted. Rejected as subordinate to the Hearing Officer's findings on this subject matter and as contrary to the preponderant weight of the evidence. Accepted. Rejected as subordinate to the Hearing Officer's findings on this subject matter. Rejected as subordinate to the Hearing Officer's findings on this subject matter and as contrary to the preponderant weight of the evidence. Accepted. Rejected as subordinate to the Hearing Officer's findings on this subject matter, as contrary to the preponderant weight of the evidence and, standing alone, of scant materiality in proving whether used oil is a "petroleum product" or a "fuel commodity." Rejected as contrary to the preponderant weight of the evidence. 78-80. Accepted in part, but not as to its material import and subordinate to the Hearing Officer's findings on this subject matter. 81-84. Rejected as subordinate to the Hearing Officer's findings on this subject matter and as contrary to the preponderant credible evidence. 85. Rejected as subordinate to the Hearing Officer's findings on this subject matter and as contrary to the preponderant credible evidence and as largely immaterial. 86-87. Rejected as immaterial to the ultimate factual and legal issues. 88-89. Accepted. Rejected as subordinate to the Hearing Officer's findings on this subject matter and as contrary to the preponderant credible evidence. Accepted. 92-93. Rejected as subordinate to the Hearing Officer's findings on this subject matter. 94-95. Rejected as subordinate to the Hearing Officer's findings on this subject matter and not in itself material. Rejected as subordinate to the Hearing Officer's findings on this subject matter. Rejected as not comporting with the preponderant weight of the evidence and as immaterial. Rejected as immaterial and irrelevant. Rejected as subordinate to the Hearing Officer's findings and as not directly material and relevant. Rejected as not in accordance with the preponderant weight of the evidence. Rejected as subordinate to the Hearing Officer's 4 findings on this subject matter. 102-103. Rejected as subordinate to the Hearing Officer's findings on this subject matter and as to its purported material import. 104. Rejected as subordinate to the Hearing Officer's findings on this subject matter and as to its purported material import and further as not being in accord with the preponderant weight of the evidence. 105-106. Rejected as constituting legal argument and discussion. 107-109. Rejected as constituting legal argument and discussion and as contrary to the preponderant weight of the evidence. 110-111. Rejected as constituting legal argument and discussion. 112-113. Rejected as constituting legal argument and discussion and as contrary to the preponderant weight of the evidence. Rejected as constituting legal argument and discussion. Accepted but subordinate to the Hearing Officer's findings and not, in itself, material to the legal issue sub judice. Rejected as contrary to the preponderant weight of credible evidence. Rejected as not in itself material and as contrary to the preponderant weight of the credible evidence. Rejected as not in itself material and as contrary to the preponderant weight of the credible evidence and as constituting legal argument and discussion. 119-120. Rejected as subordinate to the Hearing Officer's findings on this subject matter and as to its purported material import and further as not being in accord with the preponderant weight of the evidence. COPIES FURNISHED: Robert D. Fingar, Esquire HUEY, GUILDAY, KUERSTEINER & TUCKER Regulation Suite 510 First Florida Bank Building Post Office Box 1794 Tallahassee, Florida 32302 Dale Twachtmann, Secretary Department of Environmental Blair 2600 Stone Road Tallahassee, Florida 32399. L. Caleen, Jr., Esquire OERTEL & HOFFMAN 2400 Blair Stone Road Tallahassee, Florida 32301 E. Gary Early, Esquire Department of Environmental Regulation 2600 Blair Stone Road Tallahassee, Florida 32399-2400
The Issue The issue to be determined is whether the applicant, Kanter Real Estate, LLC (Kanter), is entitled to issuance of an Oil and Gas Drilling Permit, No. OG 1366 (the Permit).
Findings Of Fact The Parties Kanter is a foreign limited liability company registered to do business in the State of Florida. Kanter owns 20,000 acres of property in western Broward County, on which it seeks authorization for the drilling of a vertical exploratory well. The exploratory well is to be located on a five-acre site that is subject to an ERP (the Well Site). The Department is the state agency with the power and duty to regulate activities related to the management and storage of surface waters pursuant to chapter 373, Florida Statutes, and to regulate oil and gas resources, including the permitting of activities related to the exploration for and extraction of such resources, pursuant to chapter 377, Florida Statutes. Miramar is a Florida municipal corporation located in Broward County, Florida. Broward County is a political subdivision of the State of Florida with jurisdiction extending to the Kanter property and the Well Site. The Application On July 2, 2015, Kanter submitted its Application for Permit to Drill (Application) to the Department. The proposed Well Site is on land to which Kanter owns the surface rights and subsurface mineral rights. The Application contemplates the drilling of an exploratory well to a depth of approximately 11,800 feet. The Application is not for a production well. The well is to be drilled, and ancillary activities are to be performed on a fill pad of approximately five acres, surrounded by a three-foot high perimeter berm on three sides and the L67-A levee on the fourth. The pad is the subject of an ERP which, as set forth in the Preliminary Statement, is not being challenged. The pad is designed to contain the 100-year, three-day storm. The engineering design incorporates a graded area, berm, and containment with a water control structure and a gated culvert to manipulate the water if necessary. The entire pad is to be covered by a 20 mil PVC liner, is sloped to the center, and includes a steel and concrete sump for the collection of any incidental spills. The pad was designed to contain the full volume of all liquids, including drilling fluid, fuel, and lubricating oil, that are in tanks and containers on the facility. The Application includes technical reports, seismic data, and information regarding the geology and existing producing oil wells of the Upper Sunniland Formation, which Kanter filed for the purpose of demonstrating an indicated likelihood of the presence of oil at the proposed site. The third Request for Additional Information (RAI) did not request additional information regarding the indicated likelihood of the presence of oil at the proposed site. After it submitted its response to the third RAI, Kanter notified the Department of its belief that additional requests were not authorized by law. As a result, the Department completed the processing of the Application without additional RAI’s. On November 16, 2016, the Department entered its Notice of Denial of the Oil and Gas Drilling Permit. The sole basis for denial was that Kanter failed to provide information showing a balance of considerations in favor of issuance pursuant to section 377.241.1/ There was no assertion that the Application failed to meet any standard established by applicable Department rules, Florida Administrative Code Chapters 62C-25 through 62C-30. In particular, the parties included the following stipulations of fact in the Joint Prehearing Stipulation which are, for purposes of this proceeding, deemed as established: The structure intended for the drilling or production of Kanter’s exploratory oil well is not located in any of the following: a municipality; in tidal waters within 3 miles of a municipality; on an improved beach; on any submerged land within a bay, estuary, or offshore waters; within one mile seaward of the coastline of the state; within one mile seaward of the boundary of a local, state or federal park or an aquatic or wildlife preserve; on the surface of a freshwater lake, river or stream; within one mile inland from the shoreline of the Gulf of Mexico, the Atlantic Ocean or any bay or estuary; or within one mile of any freshwater lake, river or stream. The location of Kanter’s proposed oil well is not: within the corporate limits of any municipality; in the tidal waters of the state, abutting or immediately adjacent to the corporate limits of a municipality or within 3 miles of such corporate limits extending from the line of mean high tide into such waters; on any improved beach, located outside of an incorporated town or municipality, or at a location in the tidal waters of the state abutting or immediately adjacent to an improved beach, or within 3 miles of an improved beach extending from the line of mean high tide into such tidal waters; south of 26°00'00? north latitude off Florida’s west coast and south of 27°00'00? north latitude off Florida’s east coast, within the boundaries of Florida’s territorial seas as defined in 43 U.S.C. 1301; north of 26°00'00? north latitude off Florida’s west coast to the western boundary of the state bordering Alabama as set forth in s. 1, Art. II of the State Constitution; or north of 27°00'00? north latitude off Florida’s east coast to the northern boundary of the state bordering Georgia as set forth in s. 1, Art. II of the State Constitution, within the boundaries of Florida’s territorial seas as defined in 43 U.S.C. 1301. 19. The proposed oil well site does not contain Florida panther habitat and is located outside of the primary and secondary habitat zones for the Florida panther. 21. There are no recorded archaeological sites or other historic resources recorded within the area of the proposed oil well site. Kanter submitted a payment of $8,972.00 for its oil and gas permit application on June 30, 2016 pursuant to Rule 62C- 26.002(5)(c), F.A.C. Kanter’s application includes sufficient information and commitments for performance bonds and securities. DEP and Intervenors do not claim that the application lacks the information required in rule 62C-26.002, F.A.C. Kanter’s application includes an organization report that satisfies the requirements of rule 62C-26.003(3), F.A.C. Kanter’s engineering aspects of the site plan for the proposed project site, are appropriate. Kanter’s survey submitted to DEP in support of its application includes a suitable location plat which meets the minimum technical standards for land surveys. Kanter’s application includes an appropriate description of the planned well completion. DEP and Intervenors do not claim that the drilling application lacks the information required by rule 62C-26.003, F.A.C. Kanter’s Application proposes using existing levees to provide access to the proposed Kanter well site. Kanter did not propose to construct additional roads for access. Kanter’s proposed well site is located 332 feet from the L67-A levee, which serves as a roadway for trucks used to perform operations and maintenance on the levees and canals in the area. Kanter’s application does not lack any information required by DEP with respect to the location of roads, pads, or other facilities; nor does it lack any information regarding the minimization of impacts with respect to the location of roads. DEP and Intervenors do not contend that the permit should be denied based upon the proposed “spacing” of the well, or drilling unit, as that term is used in rule 62C-26.004, F.A.C. Kanter’s application includes appropriate plans for the construction of mud tanks, reserve pits, and dikes. Kanter agrees to a reasonable permit condition requiring that if water is to be transported on-site, that it will add additional tanks for the purpose of meeting water needs that would arise during the drilling process. Kanter’s design of the integrated casing, cementing, drilling mud, and blowout prevention programs is based upon sound engineering principles, and takes into account all relevant geologic and engineering data and information. Kanter’s proposed casing plan includes an additional casing string proposed in its response to DEP’s Third Request for Additional Information. This casing plan meets or exceeds the requirements of 62C-27.005, F.A.C. Kanter’s proposed casing and cementing program, as modified, meets or exceeds all applicable statutory and rule criteria.[2/] Kanter’s response and documents provided in response to DEP’s 3rd RAI satisfactorily resolved DEP’s concern regarding the risk of passage of water between different confining layers and aquifers resulting from the physical act of drilling through the layers of water and the intervening soil or earth. Kanter’s application includes a sufficient lost circulation plan. Kanter’s application is not deficient with respect to specific construction requirements which are intended to prevent subsurface discharges. Kanter’s drilling fluids plan is appropriate and is not deficient. Kanter’s blowout prevention equipment and procedures are appropriate and are not deficient. Kanter’s plans for blowout prevention are not insufficient. Kanter’s proposed oil pad is above the 100 year flood elevation and under normally expected circumstances would not be inundated by water if constructed as proposed in Kanter’s application. Kanter’s application includes a Hydrogen Sulfide Safety Plan that includes standards which are consistent with the onshore oil and gas industry standards set forth in the American Petroleum Institutes’ Recommended Practice. DEP and Intervenors do not claim any insufficiencies with respect to Kanter’s Hydrogen Sulfide Gas Contingency Plan, the sufficiency of secondary containment, its construction plans for a protective berm around the drilling site and storage tank areas of sufficient height and impermeability to prevent the escape of pad fluid, its pollution prevention plan, its safety manual, or its spill prevention and cleanup plan. DEP and Intervenors do not contend that the permitting of the well would violate section 377.242(1), F.S., regarding permits for the drilling for, exploring for, or production of oil, gas, or other petroleum products which are to be extracted from below the surface of the land only through the well hole(s). DEP and Intervenors do not contend that Kanter’s application violates the applicable rule criteria for oil and gas permitting set forth in Chapters 62C-25 through 62C-30, Florida Administrative Code. In addition to the foregoing, Kanter is not seeking or requesting authorization to perform “fracking,” and has agreed to a permit condition that would prohibit fracking. As a result of the foregoing, the parties have agreed that the Application meets or exceeds all criteria for an exploratory oil well permit under chapters 62C-25 through 62C-30. The Property Kanter owns two parcels of land totaling 20,000 acres in the area of the proposed Well Site: a northern parcel consisting of approximately 11,000 acres and a southern parcel consisting of approximately 9,000 acres. Kanter assembled its holdings through a series of acquisitions by deeds from 1975 to 1996. The Well Site is to be located within the southern parcel. On August 7, 1944, Kanter’s predecessor in title, Dallas Investment Co., acquired by tax deed all interests in a parcel within the 9,000-acre southern parcel described as “All Section 23 Township 51 South, Range 38 East, 640 Acres,” including, without reservation, the oil, gas, minerals, and phosphate. The evidence of title submitted as part of the Application indicates that a “Kanter” entity first became possessed of rights in Section 23 in 1975. By virtue of a series of transactions extending into 1996, Kanter currently holds fee title to all surface rights, and title to all mineral rights, including rights to oil, gas, and other mineral interests, within Section 23 Township 51 South, Range 38 East. The Well Site specified in the Application is within Section 23, Township 51 South, Range 38 East. Kanter’s property is encumbered by a Flowage Easement that was granted to the Central and Southern Flood Control District in 1950, and is presently held by the South Florida Water Management District (SFWMD). The Flowage Easement guarantees Kanter access to the entire easement property “for the exploration or drilling for, or the developing, producing, storing or removing of oil, gas or other . . . in accordance with sound engineering principles.” Kanter has the legal property right to locate and drill the well, and the exploratory well is consistent with Kanter’s ownership interest. The Well Site is located in a 160-acre (quarter section) portion of the 640-acre tract described above, and is within a “routine drilling unit,” which is the block of land surrounding and assigned to a well. Fla. Admin. Code R. 62C-25.002(20) and 62C-25.002(40). The Kanter property, including the Well Site, is in the historic Everglades. Before efforts to drain portions of the Everglades for development and agricultural uses, water flowed naturally in a southerly direction through land dominated by sawgrass and scattered tree islands. The tree islands were generally shaped by the direction of the water flow. Beginning as early as the late 1800s, dramatically increasing after the hurricane of 1947, and extending well into the 1960s, canals, levees, dikes, and channels were constructed to drain, impound, or reroute the historic flows. Those efforts have led to the vast system of water control structures and features that presently exist in south Florida. The Well Site, and the Kanter property as a whole, is located in Water Conservation Area (WCA)-3. WCA-3 is located in western Broward County and northwestern Miami-Dade County. It was constructed as part of the Central and Southern Florida Flood Control project authorized by Congress in 1948, and was created primarily for flood control and water supply. In the early 1960s, two levees, L67-A and L67-C, were constructed on a line running in a northeast to southwest direction. When constructed, the levees separated WCA-3 into WCA-3A to the west and WCA-3B to the southeast. The Well Site is in WCA-3A.3/ The area between L67-A and L67-C, along with a levee along the Miami Canal, is known as the “Pocket.” There is no water control in the Pocket. Although there is a structure at the south end of the Pocket, it is in disrepair, is rarely -- if ever -- operated, and may, in fact, be inoperable. The Well Site is located within the Pocket, on the southern side of L67-A. L67-A and L67-C, and their associated internal and external canals, have dramatically disrupted sheet flow, altered hydrology, and degraded the natural habitat in the Pocket. Water inputs and outputs are entirely driven by rainfall into the Pocket, and evaporation and transpiration from the Pocket. From a hydrologic perspective, the Pocket is entirely isolated from WCA-3A and WCA-3B. The Pocket is impacted by invasive species, which have overrun the native species endemic to the area and transformed the area into a monoculture of cattails. Vegetation that grows in the Pocket dies in the Pocket. Therefore, there is a layer of decomposing vegetative muck, ooze, and sediment from knee deep to waist deep in the Pocket, which is atypical of a functioning Everglades system. L67-A and L67-C, and their associated internal and external canals, impede wildlife movement, interfering with or preventing life functions of many native wildlife species. The proposed Well Site, and the surrounding Kanter property, is in a rural area where future residential or business development is highly unlikely. The property is removed from urban and industrial areas and is not known to have been used for agriculture. The Department has previously permitted oil wells within the greater Everglades, in areas of a more pristine environmental nature, character, and location than the Pocket. The Raccoon Point wellfield is located 24 miles west of the Proposed Project Site within the Big Cypress National Preserve. It is within a more natural system and has not undergone significant hydrologic changes such as the construction of canals, levees, ditches, and dikes and, therefore, continues to experience a normal hydrologic flow. Mr. Gottfried testified that at Raccoon Point, “you can see the vegetation is maintaining itself because the fact that we don’t have levees, ditches canals, dikes, impacting the area. So you have a diversity of plant life. You have tree islands still. You have the normal flow going down.” The greater weight of evidence shows that the Kanter Well Site is far less ecologically sensitive than property at Raccoon Point on which the Department has previously permitted both exploration and production wells. The Biscayne Aquifer The Biscayne Aquifer exists in almost all of Miami- Dade County, most of Broward County and a portion of the southern end of Palm Beach County. It is thickest along the coast, and thinnest and shallowest on the west side of those counties. The western limit of the Biscayne Aquifer lies beneath the Well Site. The Biscayne Aquifer is a sole-source aquifer and primary drinking water source for southeast Florida. A network of drainage canals, including the L-30, L-31, L-33, and Miami Canals, lie to the east of WCA-3B, and east of the Well Site. Those canals penetrate into the substratum and form a hydrologic buffer for wellfields east of the Well Site, including that operated by Miramar, and isolate the portions of the Biscayne Aquifer near public wellfields from potential impacts originating from areas to their west. The canals provide a “much more hydraulically available source” of water for public wellfields than water from western zones of the Biscayne Aquifer, and in that way create a buffer between areas on either side of the canals. The Pocket is not a significant recharge zone for the Biscayne Aquifer. There is a confining unit comprised of organic soils, muck, and Lake Flint Marl separating the Pocket and the Well Site from the Fort Thompson formation of the Biscayne Aquifer. There is a layer of at least five feet of confining muck under the L67-A levee in the area of the Well Site, a layer that is thicker in the Pocket. The Well Site is not within any 30-day or 120-day protection zones in place for local water supply wells. The fact that the proposed well will penetrate the Biscayne Aquifer does not create a significant risk of contamination of the Biscayne Aquifer. The drilling itself is no different than that done for municipal disposal wells that penetrate through the aquifer much closer to areas of water production than is the Well Site. The extensive casing and cementing program to be undertaken by Kanter provides greater protection for the well, and thus for the aquifer, than is required by the Department’s rules. A question as to the “possibility” that oil could get into the groundwater was answered truthfully in the affirmative “in the definition of possible.” However, given the nature of the aquifer at the Well Site, the hydrological separation of the Well Site and well from the Biscayne Aquifer, both due to the on-site confining layer and to the intervening canals, the degree of casing and cementing, and the full containment provided by the pad, the testimony of Mr. Howard that “it would be very difficult to put even a fairly small amount of risk to the likelihood that oil leaking at that site might possibly actually end up in a well at Miramar” is accepted. The Sunniland Formation The Sunniland Formation is a geologic formation which exists in a region of South Florida known as the South Florida Basin. It is characterized by alternating series of hydrocarbon-containing source rock, dolomite, and limestone of varying porosity and permeability and evaporite anhydrite or mudstone seal deposits. It has Upper Sunniland and Lower Sunniland strata, and generally exists at a depth of up to 12,000 feet below land surface (bls) in the area of the Well Site. Underlying the Sunniland Formation is a formation generally referred to as the “basement.” The basement exists at a depth of 17,000-18,000 feet bls. Oil is produced from organic rich carbonate units within the Lower Cretaceous Sunniland Formation, also known as the Dark Shale Unit of the Sunniland Formation. The oil produced in the Sunniland Formation is generally a product of prehistoric deposits of algae. Over millennia, and under the right conditions of time and pressure, organic material is converted to hydrocarbon oil. The preponderance of the evidence demonstrates that active generating source rock capable of producing hydrocarbons exists in the Sunniland Formation beneath the Kanter property. The preponderance of the evidence also indicates that the oil generated in the Sunniland Formation is at a sufficient depth that it is preserved from microbial degradation, which generally occurs in shallower reservoirs. The Upper Sunniland Formation was formed in the Cretaceous geological period, between 106 and 100 million years ago. Over that period, sea levels rose and fell dramatically, allowing colonies of rudists (a now extinct reef-building clam) and oysters to repeatedly form and die off. Over time, the colonies formed bioherms, which are reef-like buildups of shell elevated off of the base of the sea floor. Over millennia, the bioherms were exposed to conditions, including wave action and exposure to air and rainwater, that enhanced the porosity of the component rudist and oyster shell. Those “patch reefs” were subsequently buried by other materials that formed an impermeable layer over the porous rudist and oyster mounds, and allowed those mounds to become “traps” for oil migrating up from lower layers. A trap is a geological feature that consists of a porous layer overlain by an impervious layer of rock that forms a seal. A trap was described, simplistically, as an upside down bowl. Oil, being lighter than water, floats. As oil is generated in source rock, it migrates up through subterranean water until it encounters a trapping formation with the ability to create a reservoir, and with an impervious layer above the porous layer to seal the trap and prevent further migration, thus allowing the “bowl” to fill. The reservoir is the layer or structure with sufficient porosity and permeability to allow oil to accumulate with its pores. The thickness of the layer determines the volume of oil that the reservoir is capable of retaining. Although rudist mounds are generally considered to be more favorable as traps due to typically higher porosity, oyster mound traps are correlated to producing wells in the Sunniland Formation and are primary producers in the Felda field and the Seminole field. The Lower Sunniland Formation is a fractured carbonate stratum, described by Mr. Aldrich as a rubble zone. It is not a traditional structural trap. Rather, it consists of fractured and crumbling rock thought to be created by basement shear zones or deep-seated fault zones. It has the same source rock as the Upper Sunniland. There is little information on traps in the Lower Sunniland, though there are two fields that produce from that formation. A “play” is a group of prospects or potential prospects that have the same source rock, the same reservoir rock, the same trap style, and the same seal rock to hold in the hydrocarbons. The producing oil fields in the Sunniland Formation, including Raccoon Point, Sunniland, Felda, West Felda, and Lake Trafford are part of a common play known as the Sunniland Trend. The Sunniland Trend is an area of limestone of greater porosity within the Sunniland Formation, and provides a reasonable extrapolation of areas that may be conducive to oil traps. The Sunniland Trend extends generally from Manatee County on the west coast of Florida southeasterly into Broward County and the northwestern portion of Miami-Dade County on the east coast of Florida. The trend corresponds to the ancient Cretaceous shoreline where rudist and oyster bioherms formed as described above. In 2003, the “Mitchell-Tapping” report, named after the husband and wife team, identified two separate trends within the Sunniland Trend, the rudist-dominant West Felda Trend, and the more oyster-based Felda Trend. Both are oil-producing strata. The Felda Trend is more applicable to the Kanter property. Throughout the Sunniland Trend, hydrocarbon reservoirs exist within brown dolomite deposits and rudist and oyster mounds. Dolomite is a porous limestone, and is the reservoir rock found at the productive Raccoon Point oil wellfield. The evidence indicates that a brown dolomite layer of approximately 20 feet underlies the Well Site, and extends in all directions from the Well Site. A preponderance of the evidence indicates that the Kanter property, including the Well Site, is within the Sunniland Trend and its Felda Trend subset.4/ Oil produced from wells in the Sunniland Trend is typically thick, and is not under pressure. The oil does not rise through a bore hole to the surface, but must be pumped. The Raccoon Point Field, which is the closest productive and producing wellfield to the proposed Well Site, is located approximately 24 miles to the west of the Well Site, within the Sunniland Trend. Raccoon Point contains numerous well sites, of which four or five are currently producing, and has produced in the range of 20 million barrels of oil since it began operation in the late 1970s. Cumulative production of oil from proven fields in the South Florida Basin, including fields in the Sunniland Formation, is estimated to be in excess of 160 million barrels. Estimates from the U.S. Geological Service (USGS) indicate that 25 new fields capable of producing five million barrels of oil each are expected to be found within the Lower Cretaceous Shoal Reef Oil Assessment Unit, which extends into the Kanter property. Estimates of the potential reserves reach as high as an additional 200 million barrels of oil. The Dollar Bay Formation Another formation that has potential for oil production is the Lower Cretaceous Dollar Bay Formation, also in the South Florida Basin. The Dollar Bay Formation exists beneath the Kanter property at a shallower depth than the Sunniland Formation, generally at a depth of 10,000 feet in the vicinity of the Well Site. Most of the Dollar Bay prospects are on the east side of the South Florida Basin. Most of the wells in the South Florida Basin are on the west side. Thus, there has not been much in the way of exploration in the Dollar Bay Formation, so there is a lack of data on traps. Dollar Bay has been identified as a known oil-bearing play by the USGS. It is a self-source play, so the source comes from the Dollar Bay Formation itself. Dollar Bay exists both as potential and mature rock. It has known areas of very high total organic content (TOC) source rock; logged reservoir in the formation; and seal rock. There have been three oil finds in the Dollar Bay formation, with at least one commercial production well. Kanter will have to drill through the Dollar Bay Formation to get to the Upper Sunniland formation, thus allowing for the collection of information as to the production potential of the prospect. Although Dollar Bay is not generally the main “target” of the Permit, its potential is not zero. Thus, consideration of the Dollar Bay Formation as a factor in the calculation of risk/success that goes into the decision to drill an exploratory well is appropriate. Initial Exploratory Activities In 1989, Shell Western E&P, Inc. (Shell), conducted extensive seismic exploration in south Florida. Among the areas subject to seismic mapping were two lines -- one line of 36,000 feet mapped along the L67-A levee, directly alongside the Well Site, and the other of approximately 10 miles in length along the Miami Canal levee. The lines intersect on the Kanter property just north of the Well Site. The proposed exploration well is proposed to extend less than 12,000 feet deep. The seismic mapping performed by Shell was capable of producing useful data to that depth. The seismic methodology utilized by Shell produced data with a high degree of vertical and spatial resolution. Given its quality, the Shell data is very reliable. Shell did not use the seismic data generated in the 1980s, and ultimately abandoned activity in the area in favor of larger prospects, leaving the smaller fields typical of south Florida for smaller independent oil companies. The Shell seismic data was purchased by Seismic Exchange, a data brokerage company. In 2014, Kanter purchased the seismic data from Seismic Exchange for the lines that ran through its property. With the purchase, Kanter received the original field tapes, the support data, including surveyors’ notes and observer sheets which describe how the data was acquired, and the recorded data. As a result of advances in computer analysis since the data was collected, the seismic data can be more easily and accurately evaluated. It is not unusual for companies to make decisions on whether to proceed with exploration wells with two lines of seismic data. Mr. Lakin reviewed the data, and concluded that it showed a very promising area in the vicinity of the L67-A levee that was, in his opinion, sufficient to continue with permitting an exploratory oil well. Mr. Lakin described the seismic information in support of the Application as “excellent data,” an assessment that is well-supported and accepted. Mr. Pollister reviewed the two lines of seismic data and opined that the information supports a conclusion that the site is a “great prospect” for producing oil in such quantities as to warrant the exploration and extraction of such products on a commercially profitable basis. Seismic Data Analysis The seismic lines purchased by Kanter consist of line 970, which runs southwest to northeast along the L67-A levee, and a portion of line 998, which runs from northwest to southeast along the Miami Canal levee. The lines intersect at the intersection of the two levees. The data depicts, among others, the seismic reflection from the strata of the Sunniland Trend, and the seismic reflection from the basement. The depiction of the Sunniland Trend shows a discernable rise in the level of the strata, underlain by a corresponding rise in the basement strata. This rise is known as an anticline. An anticline is a location along a geologic strata at which there is an upheaval that tends to form one of the simplest oil traps that one can find using seismic data. In the South Florida Basin, anticlines are typically associated with mounded bioherms. A “closed structure” is an anticline, or structural high, with a syncline, or dip, in every direction. A closed structure, though preferable, is not required in order for there to be an effective trap. Most of the Sunniland oil fields do not have complete closure. They are, instead, stratigraphic traps, in which the formation continues to dip up and does not “roll over.” Where the rock type changes from nonporous to porous and back to nonporous, oil can become trapped in the porous portion of the interval even without “closure.” Thus, even if the “bowl” is tilted, it can still act as a trap. Complete closure is not necessary in much of the Sunniland Trend given the presence of an effective anhydrite layer to form an effective seal.5/ The seismic data of the Kanter property depicts an anticline in the Sunniland Formation that is centered beneath the Well Site at a depth in the range of 12,000 feet bls. Coming off of the anticline is a discernable syncline, or dip in the underlying rock. Applying the analogies used by various witnesses, the anticline would represent the top of the inverted bowl, and the syncline would represent the lip of the bowl. The evidence of the syncline appears in both seismic lines. The Shell seismic data also shows an anhydrite layer above the Sunniland Formation anticline. The same anticline exists at the basement level at a depth of 17,000 to 18,000 feet bls. The existence of the Sunniland formation anticline supported by the basement anticline, along with a thinning of the interval between those formations at the center point, provides support for the data reliably depicting the existence of a valid anticline. A basement-supported anticline is a key indicator of an oil trap, and is a feature commonly relied upon by geophysicists as being indicative of a structure that is favorable for oil production. The seismic data shows approximately 65 feet of total relief from the bottom to the top of the anticline structure, with 50 feet being closed on the back side. The 50 feet of closed anticline appears to extend over approximately 900 acres. There is evidence of other anticlines as one moves northeast along line 970. However, that data is not as strong as that for the structure beneath the Well Site. Though it would constitute a “lead,” that more incomplete data would generally not itself support a current recommendation to drill and, in any event, those other areas are not the subject of the permit at issue. The anticline beneath the well site is a “prospect,” which is an area with geological characteristics that are reasonably predicted to be commercially profitable. In the opinion of Mr. Lakin, the prospect at the location of the proposed Well Site has “everything that I would want to have to recommend drilling the well,” without a need for additional seismic data. His opinion is supported by a preponderance of the evidence, and is credited. Confirmation of the geology and thickness of the reservoir is the purpose of the exploratory well, with the expectation that well logs will provide such confirmation. Risk Analysis Beginning in the 1970s, the oil and gas industry began to develop a business technique for assessing the risk, i.e., the chance of failure, to apply to decisions being made on drilling exploration wells. Since the seminal work by Bob McGill, a systematic science has developed. In 1992, a manual was published with works from several authors. The 1992 manual included a methodology developed by Rose & Associates for assessing risk on prospects. The original author, Pete Rose,6/ is one of the foremost authorities on exploration risk. The Rose assessment method is a very strong mathematical methodology to fairly evaluate a prospect. The Rose method takes aspects that could contribute to finding an oil prospect, evaluates each element, and places it in its perspective. The Rose prospect analysis has been refined over the years, and is generally accepted as an industry standard. The 1992 manual also included a methodology for assessing both plays and prospects developed by David White. The following year, Mr. White published a separate manual on play and prospect analysis. The play and prospect analysis is similar to the Rose method in that both apply mathematical formulas to factors shown to be indicative of the presence of oil. Play and prospect analysis has been applied by much of the oil and gas industry, is used by the USGS in combining play and prospect analysis, and is being incorporated by Rose & Associates in its classes. The evidence is convincing that the White play and prospect analysis taught by Mr. Aldrich is a reasonable and accepted methodology capable of assessing the risk inherent in exploratory drilling. Risk analysis for plays and prospects consists of four primary factors: the trap; the reservoir; the source; and preservation and recovery. Each of the four factors has three separate characteristics. Numeric scores are assigned to each of the factors based on seismic data; published maps and materials; well data, subsurface data, and evidence from other plays and prospects; and other available information. Chance of success is calculated based on the quantity and quality of the data supporting the various factors to determine the likelihood that the prospect will produce flowable hydrocarbons. The analysis and scoring performed by Mr. Aldrich is found to be a reasonable and factually supported assessment of the risk associated with each of the prospects that exist beneath the proposed Well Site and that are the subject of the Application.7/ However, Mr. Aldrich included in his calculation an assessment of the Lower Sunniland Formation. The proposed well is to terminate at a depth of 11,800 feet bls, which is within the Upper Sunniland, but above the Lower Sunniland. Thus, although the Lower Sunniland would share the same source rock, the exploration well will not provide confirmation of the presence of oil. Therefore, it is more appropriate to perform the mathematical calculation to determine the likelihood of success without consideration of the Lower Sunniland prospect. To summarize Mr. Aldrich’s calculation, he assigned a four-percent chance of success at the Well Site for the Dollar Bay prospect. The assignment of the numeric scores for the Dollar Bay factors was reasonable and supported by the evidence. Mr. Aldrich assigned a 20-percent chance of success at the Well Site for the Upper Sunniland play. The assignment of the numeric scores for the Upper Sunniland factors was reasonable and supported by the evidence. In order to calculate the overall chance of success for the proposed Kanter exploratory well, the assessment method requires consideration of the “flip side” of the calculated chances of success, i.e., the chance of failure for each of the prospects. A four-percent chance of success for Dollar Bay means there is a 96-percent (0.96) chance of failure, i.e., that a commercial zone will not be discovered; and with a 20-percent chance of success for the Upper Sunniland, there is an 80-percent (0.80) chance of failure. Multiplying those factors, i.e., .96 x .80, results in a product of .77, or 77 percent, which is the chance that the well will be completely dry in all three zones. Thus, under the industry-accepted means of risk assessment, the 77-percent chance of failure means that there is a 23-percent chance of success, i.e., that at least one zone will be productive. A 23-percent chance that an exploratory well will be productive, though lower than the figure calculated by Mr. Aldrich,8/ is, in the field of oil exploration and production, a very high chance of success, well above the seven-percent average for prospecting wells previously permitted by the Department (as testified to by Mr. Linero) and exceeding the 10- to 15-percent chance of success that most large oil companies are looking for in order to proceed with an exploratory well drilling project (as testified to by Mr. Preston). Thus, the data for the Kanter Well Site demonstrates that there is a strong indication of a likelihood of the presence of oil at the Well Site. Commercial Profitability Commercial profitability takes into account all of the costs involved in a project, including transportation and development costs. Mr. Aldrich testified that the Kanter project would be commercially self-supporting if it produced 100,000 barrels at $50.00 per barrel. His testimony was unrebutted, and is accepted. The evidence in this case supports a finding that reserves could range from an optimistic estimate of 3 to 10 million barrels, to a very (perhaps unreasonably) conservative estimate of 200 barrels per acre over 900 acres, or 180,000 barrels. In either event, the preponderance of the evidence adduced at the hearing establishes an indicated likelihood of the presence of oil in such quantities as to warrant its exploration and extraction on a commercially profitable basis.9/
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Environmental Protection enter a final order: Approving the Application for Oil and Gas Drilling Permit No. OG 1366 with the conditions agreed upon and stipulated to by Petitioner, including a condition requiring that if water is to be transported on-site, it will add additional tanks for the purpose of meeting water needs that would arise during the drilling process, and a condition prohibiting fracking; and Approving the application for Environmental Resource Permit No. 06-0336409-001. DONE AND ENTERED this 10th day of October, 2017, in Tallahassee, Leon County, Florida. S E. GARY EARLY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 10th day of October, 2017.
Findings Of Fact On February 27, 1980, Respondent converted one of its service station fuel tanks from gasoline to diesel. The tank was cleaned by Garrison Petroleum Equipment Company at Pinellas Park. Respondent paid $67.08 for this service. That same day, Respondent received 5,176 gallons of No. 2 diesel fuel from Jack Russell Oil Company, Inc., of Clearwater, a Union 76 dealer. On March 18, 1980, a standards inspector employed by Petitioner took samples from the Respondent's gasoline and diesel pumps. These samples were delivered to Petitioner's portable laboratory in Clearwater where they were analyzed. The gasoline was found to be satisfactory, but the diesel sample showed fuel contamination. The tests were conducted in accordance with the methods and standards established by Rule 5F-2.01(4)(b), Florida Administrative Code. Specifically, the "flash point" of the diesel sample was 88 degrees F, but must be 125 degrees F or above to meet the established standard. Petitioner's inspector then returned to the Pronto Car Wash station where he issued a stop-sale order to Respondent. Subsequently, the inspector accepted Respondent's cash bond in lieu of fuel confiscation. This procedure, agreed to by both parties, allowed Respondent to pay $865.36 to the State of Florida and retain the contaminated fuel. Respondent originally paid $5,286.25 for 5,176 gallons of diesel fuel. He had sold 736 gallons of this amount at the time of the stop-sale order on March 18, 1980. Total sales of this diesel fuel amounted to $865.36, which was the amount of bond demanded by Petitioner. Respondent paid $200 to Patriot Oil, Inc., to remove the contaminated fuel, but received a $3,225 credit for this fuel. Respondent does not deny that the fuel was contaminated, but seeks to establish that he acted in good faith. Respondent had the tank cleaned prior to the diesel changeover and dealt with established tank cleaning and fuel wholesaling companies. In addition, he kept the tank locked at all times after delivery of the fuel. Respondent does not contest forfeiture of his bond, but seeks refunds of state and federal taxes paid on the unsold fuel. However, Respondent was correctly informed that refund of tax payments will require him to communicate with agencies which are not parties to this proceeding.
Recommendation Upon consideration of the foregoing, it is RECOMMENDED: That Petitioner enter its order declaring forfeiture of Respondent's $865.36 bond posted in lieu of confiscation of contaminated diesel fuel. RECOMMENDED this 7th day of August, 1980, in Tallahassee, Florida. COPIES FURNISHED: Stephenson Anderson Pronto Car Wash 220 34th Street North St. Petersburg, Florida 33713 Robert A. Chastain, Esquire General Counsel Department of Agriculture and Consumer Services Mayo Building Tallahassee, Florida 32301 John Whitton, Chief Gasoline and Oil Section Department of Agriculture and Consumer Services Mayo Building Tallahassee, Florida 32301 R. T. CARPENTER Hearing Officer Division of Administrative Hearings 101 Collins Building Tallahassee, Florida 32301 (904) 488-8584
The Issue The issue in this case is whether, under Section 57.111, Florida Statutes, Respondent is liable for attorneys' fees and costs incurred by Petitioner in an earlier proceeding. The purpose of the earlier proceeding was to determine the eligibility of Petitioner's site for state-administered cleanup of discharge from a petroleum storage system under the Early Detection Incentive program described in Section 376.3071(9), Florida Statutes.
Findings Of Fact Petitioner informed Respondent of a pollutant discharge at Petitioner's gasoline station by filing a Discharge Notification Form on March 9, 1987. The form states that the discovery was made on March 5, 1987, as a result of a manual test of one or more monitoring wells. The form is marked "unknown" in response to questions concerning the estimated gallons lost, the part of storage system leaking, the type of tank, the cause of leak, and the type of pollutant discharged, although next to the last response are the typewritten words: "appears to be motor oil." A cover letter from Petitioner dated March 5, 1987, accompanied the Discharge Notification Form. The letter restates that the source of pollution is unknown, but adds that "there is a possibility that [the pollution] is the result of a septic tank, drain field discharge." The letter discloses that Blackhawk Environmental Services, Inc. ("Blackhawk") and NEPCCO/IT are investigating "to determine the extent of the contamination as well as the source." The letter provides the name and telephone number of the Blackhawk employee for further information. A separate cover letter from the Blackhawk employee to Respondent states that the notification was being submitted for consideration for Site Rehabilitation Reimbursement Costs. The letter also states that the site has been the subject of groundwater contamination from an "unknown source." Following the notification, Orlando Laboratories, Inc. submitted to Blackhawk a written analysis of the groundwater at the site. The report, which is dated March 19, 1987, contains quantitative data without any interpretation and was submitted without interpretation to Respondent on March 20, 1987. Petitioner applied to participate in the Early Detection Incentive ("EDI") Program by filing an EDI Program Notification Application dated March 23, 1987, together with a cover letter of the same date. The application supplied no more information than did the notification form. In response to the question as to the type of product discharged, Petitioner circled the choice, "used oil," but added the word, "possibility." Although the application may not have been immediately filed, Respondent received it prior to July, 1987. As part of a site inspection, an employee of Respondent prepared an Early Detection Incentive Program Compliance Verification Checklist, which was dated April 28, 1987. The checklist notes that Blackhawk "is looking into problem [and] will forward results from lab when available." The checklist also states: Odor found in E[ast] & W[est] M[onitoring] W[ells]. No other contamination found on site. Site has old waste oil tank on site that could possibly be contaminating drainfield next to tank. Also old abandoned tank (since 1967) on site. Asked owner to investigate tank's conditions. If not needed, he will remove & adjust registration accordingly. Floordrain in shop area dumps into on-site septic tank which could also contribute. The repeated mention of motor oil is due to at least two factors. First, a Blackhawk employee had mentioned to Belvin Marr, who owns and operates Petitioner, that the contaminant "looked like" motor oil. Second, Mr. Marr knew that he had, for many years, discarded used motor oil down a floordrain leading into a septic tank with an onsite drainfield. By letter dated July 22, 1989, Respondent informed Petitioner that its site was ineligible for state-administered cleanup under for the EDI program described in Section 376.3071(9), Florida Statutes. The letter states that the decision was "based upon information given in this [Notification Application] and a compliance verification evaluation of your reported site." The July 22 letter explains that the site is ineligible because, according to the application and district inspection: the source of contamination at Marr's Exxon has been attributed to used oil. Petroleum, as defined by Section 376.301(9), Florida Statutes (F.S.), included [sic] only crude oil and other hydrocarbons in the form in which they are originally produced at the well. Petroleum product, as defined by Section 376.301(10), F.S., means fuel in its refined state which is similar in nature to fuels such as diesel fuel, kerosene, or gasoline. Used oil cannot be considered "petroleum" or "petroleum products" because it has become unsuitable for its original purpose due to the presence of impurities or loss of original properties. Therefore, your site, which is contaminated by unrefined used oil, is not eligible for participation in Early Detection Incentive (EDI) Program. The July 22 letter advises Petitioner that he could obtain administrative and judicial review of the decision by filing a petition within 21 days of the date of receipt of the letter. The letter thus provided Petitioner with a clear point of entry. By letter dated July 30, 1987, Petitioner requested a 30-day extension to allow for retesting. Additional testing took place in early August, 1987. However, there is no indication that the resulting data, which again omit textual interpretation, were submitted to Respondent until the filing of the more definite statement described in the following paragraph. The next communication between Petitioner and Respondent took place when Petitioner requested a formal hearing by filing a Petition for Hearing dated August 26, 1987. By Order for More Definite Statement entered September 14, 1987, Respondent ordered Petitioner to file a more definite statement. By Response to Order for More Definite Statement dated September 28, 1987, Petitioner filed a more definite statement. The additional test data were attached to the more definite statement, although they are not in the DOAH case file. The Response offers the following chronology with all dates being approximate dates. March 5, 1987: Respondent notified of groundwater contamination from unknown source. March 20, 1987: analysis of contamination conducted by Orlando Laboratories, Inc. and forwarded to Respondent. March 23, 1987: Petitioner applied for participation in Early Detection Incentive ("EDI") program, and the application is attached to the More Definite Statement. April 27, 1987: Compliance Verification checklist issued. July 22, 1987: Respondent denied Petitioner's application. July 30, 1987: Petitioner requested 30-day extension to conduct further testing, the results of which are attached to the More Definite Statement. August 26, 1987: Petitioner requested formal administrative hearing. Following receipt of the more definite statement, Respondent forwarded the pleadings to the Division of Administrative Hearings for assignment of a Hearing Officer to conduct a hearing. The pleadings were received on October 9, 1987, and the file was assigned DOAH Case No. 87-4448. In a Motion for Continuance filed on January 14, 1988, Respondent asserted that the case involves the issue whether "used oil," which was what had been discharged at Petitioner's facility, is a "petroleum product." The motion refers to a pending case, Puckett Oil v. Department of Environmental Regulation, and states that this case, which had been heard in September, 1987, involves the same question. By Motion for Continuance filed on May 13, 1988, Respondent requested a continuance on the same grounds as previously cited and represented that Petitioner had no objection. An internal memorandum of Respondent dated March 17, 1988, acknowledges that Petitioner requested a review of the available data based on an "inaccurate assessment by his contractor." Reviewing the data, some of which had been provided after July 22, 1987, the memorandum notes that the majority of the contamination is from gasoline, but the involvement of the drainfield as the source of contamination "is the reason eligibility was denied." After the issuance of the final order in Puckett Oil v. Department of Environmental Regulation, 10 FALR 5525 (September 1, 1988), Respondent, filing a Motion to Set Hearing Date, disclosed that "[Respondent's] review of the Final Order indicates that Petitioner's site remains ineligible for SUPER Act funding." However, on July 28, 1989, the parties filed a fully executed Joint Stipulation and Motion to Dismiss. An Order Closing File, which was entered the same date, returned the matter to Respondent for final disposition consistent with the stipulation. The Joint Stipulation and Motion to Dismiss states: On July, 22, 1987, [Respondent] denied eligibility for the [EDI] Program, Section 376.3071(9), Florida Statutes, to [Petitioner's) site . . .. The basis for the denial was that the site was contaminated with used oil. Subsequent to [Respondent's] denial, Petitioner conducted a series of ground water tests to more accurately determine the nature and extent of contamination at the site. The results of that testing indicate that the site was contaminated with significant amounts of gasoline constituents and minor amounts of used oil constituents emanating possibly from a septic tank drainfield and a used oil storage facility. The gasoline constituents exist at levels many times that of the other constituents. Based upon the overwhelming contribution to the overall contamination presented by the gasoline constituents, [Respondent] agrees that the presence of minor amounts of contaminants from something other than a tank should not preclude [Petitioner's] site from being eligible for the EDI Program. [Respondent reserves the right not to pay for the cost of cleanup of contamination not related to discharge from a tank.] WHEREFORE Petitioner . . . and Respondent request that the hearing officer adopt this stipulation . . . and retain jurisdiction for an award of attorney's fees and costs (Fla. Stat. Sect. 57.111 (1986 Supp.) and Fla. Admin. Code Rule 22I-6.035). . .. The parties stipulated that Petitioner was a small business party. The parties also stipulated to reasonable attorneys' fees of $6625 and costs of $4690. Following the final hearing, Petitioner filed supplemental affidavits showing, in connection with the prosecution of the subject case and not the earlier proceeding, additional attorneys' fees of $1875 and costs of $490.85.
