The Issue Should Petitioner discipline Respondent for failure to make certain disclosures and to maintain certain accounting practices for the benefit of unit owners at Palisades Condominiums, Phase I, called for in Chapter 718, Florida Statutes, and Rule 61B-22, Florida Administrative Code.
Findings Of Fact Palisades Condominium, Phase I, is a forty-four (44) unit condominium located at 6901 North Lagoon Drive, Panama City Beach, Florida. The condominium is subject to Petitioner's regulatory authority set forth in Chapter 718, Florida Statutes, and related rules within the Florida Administrative Code. Among Petitioner's regulatory opportunities, directed to the condominium, is the establishment of requirements for annual financial reports and annual budgets. Respondent is charged with the responsibility for operating and managing the Palisades Condominium, Phase I, to include compliance with Chapter 718, Florida Statutes, and related rules in the Florida Administrative Code, that address annual financial reports and annual budgets. This case arose on the basis of an investigation performed by the Petitioner in accordance with Section 718.501, Florida Statutes, pursuant to complaints received by the Petitioner concerning activities by Respondent in conducting the affairs of the Palisades Condominium, Phase I. This investigation led to the disciplinary action taken pursuant to the Notice to Show Cause in Case No. 96-0510-CC-16440. The investigation opened on May 10, 1996, and was concluded by the investigator on August 5, 1996. To resolve the issues framed by the Notice to Show Cause, Petitioner examined documents maintained by the Respondent that relate to annual financial reports and annual budgets of common expenses in the years in question. Pursuant to the by-laws of the Respondent, the fiscal year for the organization is the calendar year. The documents maintained by Respondent depicting the annual financial reports in the years 1993, 1994, and 1995 fail to disclose the beginning balance for each reserve account, fail to reflect the amount of money added to each reserve account, fail to describe the amount removed from each reserve account, and fail to describe the ending balance in each reserve account for the years in question. Moreover, during the years 1993, 1994, and 1995, the documents maintained by the Respondent, in reference to financial reporting, fail to describe the manner in which reserve items were estimated, the dates the estimates were last made, the association's policy for allocating reserve fund interest and whether reserves had been waived during those years. 9. In the years 1992, 1993, 1994, 1995, and 1996, Respondent's proposed annual budgets failed to set forth each reserve account as a separate item, failed to show the estimated life of the reserves, failed to disclose the estimated replacement cost of the reserves, and failed to estimate the remaining useful life for the reserves. Additionally, the proposed annual budgets in the years in question did not separate the current balance in each reserve account as of the date the proposed budget was prepared. Finally, during the years 1994, 1995, and 1996, the annual budgets prepared by Respondent did not disclose the beginning and ending dates of the period covered by the budgets. Although unit owners of the Palisades Condominium, Phase I, voted in September, 1996, to waive the requirement for reserves, the proposed annual budget for 1996 does not reflect that decision.
Recommendation Upon consideration of the facts found and the conclusions of law reached, its is, RECOMMENDED: That a Final Order be entered which imposes a civil penalty in the amount of $500.00. That amount shall be remitted by certified check payable to the Division of Florida Land Sales, Condominiums, and Mobile Home Trust Fund, at 1940 North Monroe Street, Tallahassee, Florida 32399-1007, to be delivered by United States Certified Mail, Return Receipt Requested, within thirty (30) days of the entry of the Final Order. DONE AND ENTERED this 27th day of March, 1998, in Tallahassee, Leon County, Florida. CHARLES C. ADAMS 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 27th day of March, 1998. COPIES FURNISHED: Theresa M. Bender, Esquire Department of Business and Professional Regulation 1940 North Monroe Street Tallahassee, Florida 32399-1007 William Underwood Palisades Owners Association, Inc. 6901 North Lagoon Drive, No. 48 Panama City Beach, Florida 32408 Linda Goodgame, Esquire Department of Business and Professional Regulation 1940 North Monroe Street Tallahassee, Florida 32399-1007 Robert H. Ellzey, Jr., Director Department of Business and Professional Regulation 1940 North Monroe Street Tallahassee, Florida 32399-1007
The Issue Whether Petitioner failed to secure worker’s compensation coverage for seven employees who worked from February 28, 2006, to March 3, 2006, in violation of Chapter 440, Florida Statutes, and whether, as a result, Petitioner should be assessed a penalty in the amount of $1,115.52.
Findings Of Fact Respondent, Department of Financial Services, Division of Workers’ Compensation ("the Division"), is the state agency responsible for enforcing the statutory requirement that employers provide workers' compensation coverage for their employees. Subsection 440.107, Florida Statutes (2006). Petitioner, Boudreau Concrete, Inc. (BCI), was, at all relevant times, an employer and engaged in concrete construction work in Florida. John Cipyak is a vice president with Builders Plus, a Boynton Beach Company hired to work on a Westview Office Building Site, in Port St. Lucie, Florida. Builders Plus subcontracted with BCI to perform pre-concrete form carpentry work at the site, including construction of the foundation and panels into which the concrete slab would be poured. Near the end of February 2006, Mr. Cipyak told Mr. Boudreau that the Westview project was falling behind schedule and that BCI needed more laborers on the job. Mr. Cipyak testified that Mr. Boudreau specifically agreed that his company, BCI, would hire sufficient additional manpower and would not use subcontractors. That agreement was not reduced to writing. In response to the need for additional laborers, the Division claims that BCI violated the applicable statutes and the insurance code by hiring seven carpenters, who worked at the Westview site from February 27, 2006, through March 3, 2006, as employees of BCI without providing workers' compensation insurance coverage for them. The seven carpenters are Dimas Zelaya, Francisco Figueroa, Gerardo Nava, Hector Sevilla, Jeremias Martinez, Carlos Quevedo and Jesse Hernandez. BCI claims that the seven carpenters were employees of a subcontractor, J. A. J. Construction Company, owned by Jose Alfredo Jiminez, and that Mr. Jiminez, BCI believed, carried the required workers' compensation insurance. The arrangements to have the additional workers on the project were made during a telephone call between Mr. Boudreau, Mr. Jiminez and Mr. Zelaya, who got the other six men to come with him and once they reported to the job, served as a translator for them. On March 2, 2006, Lynn Cornelius, a manager with Woodland Construction Company, Inc. (“Woodland”), sent an e-mail to Thomas Puglis, of the Division, listing the names of seven former employees of Woodland who had left Woodland’s employment, on February 24, 2006, to work for a subcontractor on another project. He named the same seven people who started work on the Westview site on the following Monday, February 27, 2006. On March 3, 2006, Mr. Puglis and Lieutenant Vance Akins, both investigators for the Division, visited the construction site where the seven former Woodland employees were working. With the assistance of an interpreter over the telephone, because no Spanish speaker was available for the site visit, the investigators instructed the seven workers to fill out Spanish language questionnaires for public works contractor licensing, provided by St. Lucie County. The investigators also tape recorded a statement from the only one of the seven men who spoke some English, Dimas Zelaya, during which, at best, he could be understood to have recognized and identified a picture of Mr. Boudreau. Lieutenant Akins telephoned another Division investigator Robert Barnes from the work site. Mr. Barnes testified that he telephoned someone who identified himself as Todd Freeman, a BCI employee, from whom he got the name of William Yocum of First Financial Employee Leasing, Inc., as the leasing company that provided workers' compensation coverage for BCI. Although he had no personal knowledge about where the seven carpenters were working from February 27 through March 3, 2006, Mr. Yocum noted that they were not covered on the policy for BCI and that the failure of BCI to report the names of all of its employees to the leasing company would violate the agreement between those two companies. Mr. Boudreau, on behalf of BCI, wrote a check dated March 10, 2006, to J. A. J. Construction Services, Inc., for $3860.00, with the notation "7 men - 2/27-3/3." BCI had no evidence of a written agreement with J. A. J. and the compensation to J. A. J. was solely for the wages earned by the carpenters. The Division's case is essentially based on the inference, without corroborating evidence, that Mr. Boudreau fabricated the subcontractor relationship and furthered that deception by writing the check after he knew BCI was being investigated for failure to secure workers’ compensation insurance. The Division based its assertion on the fact that Mr. Boudreau could not name the subcontractor during his first interviews by Mr. Barnes, saying that he was dealing with the subcontractor through Mr. Zelaya. The Division also presented evidence to demonstrate that the nature of the working relationship between BCI and the seven men was that of employer and employee, not independent contractors. That evidence was inconclusive. Although Mr. Boudreau kept their time sheets and personally supervised the work at the job site everyday from Monday through Thursday, with the assistance of Mr. Zelaya, as a translator, the carpenters brought their own tools and used materials and supplies provided by Builders Plus. The argument that J. A. J.'s role was administrative in nature is not convincing, since the same can be said of the leasing company, with which the Division asserted BCI should have obtained coverage. Mr. Barnes testified that he reviewed records of J. A. J., that someone from his office questioned Mr. Jiminez, and that they determined that the seven carpenters were not covered by J. A. J.'s workers' compensation policy during the time that they were working for Mr. Boudreau, based on some sworn statement made by Mr. Jiminez to the investigators. Mr. Jiminez did not appear as a witness in this case. The Division's investigator conceded that the Division did not determine whether or not the seven workers should have been on the J. A. J. policy. Mr. Zelaya testified that he spoke to Mr. Jiminez about getting more pay and understood that he would ". . . work with the license and insurance of Jose Jiminez. Mr. Boudreau was going to pay Jose and Jose was to pay me." Further, he stated that "Jose gets the workers, Jose makes a dollar off of the pay that we make. Mr. Boudreau was to give Jose a check, and Jose was to pay us, but Jose never paid us." Before he paid Mr. Jiminez, Mr. Boudreau requested and received from J. A. J. a workers' compensation policy, but that certificate of insurance was dated March 6, 2006, and did not appear to cover BCI for the prior week. At the same time, Mr. Boudreau added some of the workers to his own lease company policy, in an apparent attempt to continue the job, but was unable to do so after the stop work order was issued.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Division enter a final order rescinding the Stop Work Order and Order of Penalty Assessment, Amended Order of Penalty Assessment, and Second Amended Order of Penalty Assessment. DONE AND ENTERED this 8th day of June, 2007, in Tallahassee, Leon County, Florida. S ELEANOR M. HUNTER 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 8th day of June, 2007. COPIES FURNISHED: John M. Iriye, Esquire Department of Financial Services Division of Workers' Compensation 200 East Gaines Street Tallahassee, Florida 32399-4229 Mary Morris, Esquire Morris & Morris, P.A. 224 Datura Street, Suite 300 West Palm Beach, Florida 33401 Honorable Alex Sink Chief Financial Officer Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Daniel Sumner, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0307
The Issue The Department adopts and incorporates in this Final Order the Statement of the Issue presented in the Recommended Order.
Findings Of Fact The Department adopts and incorporates in this Final Order the Findings of Fact set forth in the Recommended Order.
Conclusions This cause came before the Department of Revenue for the purpose of issuing a final order. The Administrative Law Judge assigned by the Division of Administrative Hearings issued a Recommended Order dated July 5, 2001, sustaining in full the Department’s assessment. Petitioner timely filed exceptions to the Recommended Order, but Petitioner subsequently withdrew its exceptions by way of letter dated September 7, 2001. The Department filed no exceptions to the Recommended Order and there are no proposed substituted orders to consider. A copy of the Recommended Order is attached to this Final Order and is specifically incorporated by reference. The Department has jurisdiction of this cause.
Other Judicial Opinions A party who is adversely affected by this Final Order is entitled to judicial review pursuant to Section 120.68, Florida Statutes. Review proceedings are governed by the , Florida Rules of Appellate Procedure. Such proceedings are commenced by filing one copy of a Notice of Appeal with the Agency Clerk of the Department of Revenue and a second copy, accompanied by filing fees prescribed by law, with the District Court of Appeal, First District, or with the District Court of Appeal in the appellate District where the party resides. The Notice of Appeal must be filed within 30 days of rendition of the order to be reviewed.
Findings Of Fact First Bank of Hollywood Beach is a state-chartered bank duly authorized and empowered under the laws of the State of Florida and of the United States to conduct a general banking business in and from offices in the State of Florida. First Bank's main office is located in Broward County, and it has three authorized branch offices in Broward County. (Hearing Officer's Exhibit 1) American Bank of Hollywood is a state-chartered bank duly authorized and empowered under the laws of the State of Florida and of the United States to conduct a general banking business in and from offices in the State of Florida. (Hearing Officer's Exhibit 1) It conducts business in its main office in Broward County, has a branch office in Broward County, and has applied for a second branch office in Broward County. Gerald A. Lewis is the Comptroller of the State of Florida and, as such, is the head of the Department of Banking and Finance. On August 1, 1980, the Department received request from the First Bank of Hollywood Beach for approval of an amendment to its charter changing its name to First American Bank of Broward County. On August 22, 1980, the department received an objection to the requested name change from American Bank of Hollywood. (Hearing Officer's Exhibit 1) Both banks have engaged in the banking business in Broward County, Florida, for more than eight years using their current corporate names. (Hearing Officer's Exhibit 1) Some of the principals of First Bank of Hollywood Beach, either as directors, officers, or shareholders, are and have been directors, officers, or shareholders of the First American Bank of Palm Beach County, which bank conducts a business through a main office and ten branch offices in Palm Beach County, Florida. Said principals desire to change the name of First Bank of Hollywood Beach to reflect its affiliation with the First American Bank of Palm Beach County. Additionally, substantially the same group of individuals has pending with the Department an application to organize a new bank to be named First American Bank of Broward County, which bank will also conduct its business through its main office in Broward County, Florida. If the de novo charter is approved, the new bank would also function as part of the "group" comprised of the First American Bank of Palm Beach County and the First Bank of Hollywood Beach. (Hearing Officer's Exhibit 1) As of the date of hearing in this cause, banks with the word "American" in their names were located in thirteen different counties within the State of Florida. At that time, within Broward County, the following commercial banks and savings and loan associations used the word "American" in their titles: American Bank of Hollywood + 1 branch (+ 1 branch applied for) Transamerica Bank of Florida + 1 branch Pan American Bank of Broward + 3 branches Great American Bank of Davie Great American Bank of Broward County Gulfstream American Bank & Trust Company + 5 branches AmeriFirst Federal Savings & Loan Associa- tion + 5 branches American Savings & Loon Association + 14 branches The proposed First American Bank of Broward County, together with First Bank's group if its requested name change is approved, would produce five additional locations of banks with "American" in their titles in Broward County. The sole basis for American Bank's objection to First Bank's requested name change is confusion based upon name similarity. No confusion exists between the First American Bank of Palm Beach County and the Pan American Bank of Palm Beach County or between the First American Bank of Palm Beach County and any bank in Broward County with "American" in its name, although the First American Bank of Palm Beach County has a branch within one mile of the Palm Beach/Broward County line. David Starke, an economist who specializes in consulting work with financial institutions, was not tendered as an expert witness and, accordingly, was not accepted as one. However, the surveys of banks with similar names in the State of Florida prepared by him reveal that all banks using the word "American" in their names also use either a first-word adjective and/or a geographic designation to distinguish one from the other. According to those surveys, both the banks and the savings and loam associations in Broward County with "American" in their titles use these two methods of distinguishing themselves. Both methods of distinction would be utilized by the requested one change in this cause. Other than uncorroborated hearsay evidence, American Bank introduced four items of correspondence which David L. Cory personally obtained from mail erroneously received by American Bank on one Saturday. All of the items of correspondence originated from persons outside of Broward County, with two of them originating from outside of the State of Florida. None of the items was addressed to the American Bank of Hollywood; however, three of the four items specifically carried American Bank's mailing address. The 1980 Hollywood (Broward County, Florida) telephone directory contains a listing for a First American Bank of Broward County, a bank formerly known as Executive Bank of Fort Lauderdale and now known as Great American Bank of Broward County. 10 . In March, 1979 the American Bank of Hollywood reserved with the Secretary of State's office the corporate name of American Bank of Broward. Other than reserving the name, American Bank has taken no steps toward using that name. The Department takes no position on the requested name change herein and recommends neither approval nor disapproval.
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is, therefore, RECOMMENDED: That a final order be entered approving the request of First Bank of Hollywood Beach to change its name to First American Bank of Broward County. RECOMMENDED this 13th day of May, 1981, in Tallahassee, Florida. LINDA M. RIGOT, 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 13th day of May, 1981. COPIES FURNISHED: Leonard L. Levenstein, Esquire 1500 South Dixie Highway Coral Gables, Florida 33146 Walter W. Wood, Esquire Assistant General Counsel Office of the Comptroller Suite 1302, The Capitol Tallahassee, Florida 32301 Robert B. Butler, Esquire Ellis, Spencer, Butler & Kisslan 1909 Tyler Street Post Office Box 6 Hollywood, Florida 33022 The Honorable Gerald A. Lewis Comptroller, State of Florida The Capitol Tallahassee, Florida 32301 =================================================================
Findings Of Fact Based upon consideration of the oral testimony and documentary evidence introduced at the hearing, the following relevant facts are found. In October, 1978, the Applicant filed with the Department of Banking and Finance an application for authority to open a branch bank at the northwest corner of Gunn Highway and Hudson Lane in the northwest section of unincorporated Hillsborough County, Florida. The Applicant presently does not have any branch bank facilities and, by way of this application, seeks the establishment of its first branch bank. The applicant bank was established April 11, 1975, as the Citrus Park Bank and is located at Gunn Highway and Hixon Road in the northwest section of unincorporated Hillsborough County, Florida. The site of the proposed branch is approximately 4.5 miles southeast of the main office. As stated, the site for the proposed branch is the northwest corner of Gunn Highway and Hudson Lane, which provides good access to both roads. The proposed branch office will offer the full extent of customer facilities. The branch bank building will contain approximately 1,500 square feet, housing four interior teller windows and two auto tellers. The seller of the land on which the proposed branch facility will be situated, has no connection with the Applicant. The primary service area for the proposed branch bank is bounded on the north by Erlich Read, on the south by railroad tracks, on the east by a direct line running north from Gunn Highway, Linebaugh Avenue intersection, and on the west by Henderson Road extended to Bellamy Road. Witnesses Bobier and Noto, of Site Selection Consultants, Inc., testified that the primary service area boundaries are realistic, in that they comply with regulatory criteria of being the smallest area within which the proposed bank will garner 75 percent of its deposits. Exhibit 5 of the Applicant's application reveals that there are eight deposit customers within the primary service area with total deposits of $178,783, and eight loan customers with total loans of $13,735. Since the date of its initial application with FDIC 1/, October 15, 1978, from that date to April 18, 1979, Citrus Park Bank has acquired eighty-one new deposit customers for total additional deposits of $186,548. (See Applicant's Exhibit No. 5) There are presently no existing banks within the primary service area for this proposed branch. Within the proposed site for this branch bank, it appears that the population of the primary service area is approximately 6,900 persons. It is projected that by 1985, the population will reach at least 15,000. The people living within the primary service area are of the highest strata when using traditional factors such as income, wealth, housing and occupation. The average population per banking office for the United States as a whole is 4,561, whereas this population figure for-the State of Florida is 8,086 per banking office. The Applicant anticipates total deposits at the end of the first year's operation of the proposed branch to be $1.5 million; at the end of the second year, $3.0 million and at the end of the third year, $4.5 million. At the end of the first year of operating, the Applicant anticipates a net loss of approximately $25,900. At the end of the second year, the Applicant projects a net profit of $41,300; and at the end of the third year, a net profit projection of $85,000 is expected. There are a significant number of new or recently developed subdivisions in the primary service area. There appears to be approximately nine large residential communities within the service area. While there appears to be no large commercial activity and development in the primary service area, current plans for such development appear imminent. According to the applicant bank, it is entitled to have 50 percent of its unimpaired capital and surplus in direct ownership or leasehold improvements of land and building, which eqnals $545,000. As of December 31, 1978, the bank had invested in such assets a total of $285,000. Thus, the Applicant figures that it has available to invest in bank promises an amount of $260,000. The applicant bank has a net investment in land of $20,000 and anticipates spending $150,000 on buildings, which make a total of $170,000 invested in land and buildings. The applicant bank's president, Robert D. Sellas, testified that the Applicant has sufficient capital accounts to support the bank's deposit base and the additional fixed asset proposal for the branch and its operations. Based on the main facility's record of growth, Mr. Sellas testified that the applicant bank has sufficient earnings and earnings prospects to support the anticipated expenses of the proposed branch. The bank's net profit to asset ratio is being maintained at 1.04 percent for the calendar year or better. It has good established earnings and is presently retaining most of its earnings for the branch expansion. As of December 31, 1978, the Applicant's adjusted capital to asset ratio was 13.97 percent. This figure is expected to increase over the following few months. An examination of the bank's economic figures indicate that the Applicant is enjoying good liquidity. (See Applicant's Exhibit No. 4) This chart which commences in the month of May, 1976, and continues through March, 1979, indicates that at the end of March, 1979, the bank had a ratio of approximately 76 percent of loans to loanable funds. In determining the bank's liquidity, a figure is utilized to determine the amount of funds it is willing to commit to loans. According to this formula, 80 percent of total deposits excluding public funds plus capital funds exists in excess of the amount invested in fixed assets and is considered available to fund the loan account. According to this formula, President Sellas testified that the bank has sufficient liquidity to support the branch bank expansion. The Applicant's main office is staffed with the intention of establishing an additional branch. The Applicant's managerial capacity, asset condition and past performance are good. President Sellas testified that the Applicant has sufficient depth and quality of management to operate the proposed branch without reducing its current level of services or over-extending its managerial or operational capacity. (See Respondent's Exhibit No. 3) The Applicant has six officers excluding its Chairman of the Board. The average banking experience for the Applicant's officer' is 10.5 years and their average age is 36 years. The individual designated to be the manager for the proposed branch is Dana Chwan. Ms. Chwan has a Bachelor of Science degree from the University of Tampa, has been associated with the Citrus Park Bank since its inception four years ago, and is presently in a loan officers training program. Prior to this program, Ms. Chwan served as the bank's marketing officer. (See Respondent / Applicant's Exhibit No. 3 for personnel data concerning the officers) Mr. Keith White, an expert for the Petitioner, Carrollwood State Dank, testified that there was total available deposits within the primary service area of approximately $104,200,000. He (White) further testified that it is possible that Citrus Park Bank, through its proposed branch, could garner $1.5 million in deposits during its first year in operation. Additionally, President Sellas testified that in his judgment, the prospect for the viability of the proposed branch is good. The applicant bank recently underwent an FDIC examination and at that time the financial-asset condition of the bank was in excellent shape, although the bank wrote off a minor amount of loans. Expert witnesses Bobier and Noto, of Site Selection Consultants, Inc., testified that the public convenience and need would be better served by the establishment of the Citrus Park branch bank at the proposed location and both were optimistic about the future growth in and around the proposed location of this branch bank. The Citrus Park Bank started with an initial capitalization of $1,201,500. The bank has had an excellent past performance record and has been profitable. Over the years the bank has taken a conservative approach toward dividends and has paid five cents per share to its stock-holders per quarter, retaining a substantial sum of its earnings for expansion. The bank's president, Robert D. Sellas, testified that the bank projects a continued increase in earnings and feels that the establishment of this branch will not adversely affect the bank's earnings. The name of the proposed branch is to be "Citrus Park Bank-Gunn Highway Branch Office." In accordance with provisions of Florida Statutes, Subsection 120.57(1)(a)(12), conclusions of law and recommendations are not included in this Report. RESPECTFULLY SUBMITTED AND ENTERED this 21st day of May, 1979, in Tallahassee, Florida. JAMES E. BRADWELL Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301 (904) 488-9675 COPIES FURNISHED: Richard B. Collins, Esquire Michaels, Sheffield, Perkins, Collins and Vickers 2007 Apalachee Parkway Post Office Box 10069 Tallahassee, Florida 32302 J. Riley Davis, Esquire Taylor, Brion, Buker and Greene 32G Barnett Bank Building Post Office Pox 1796 Tallahassee, Florida 32302 Gerald A. Lewis, Comptroller Office of the Comptroller The Capitol Tallahassee, Florida 32301 William S. Lyman, Esquire Assistant General Counsel Office of the Comptroller The Capitol Tallahassee, Florida 32301
Findings Of Fact Based upon the parties' factual stipulations, the evidence adduced at hearing, and the record as a whole, the following Findings of Fact are made: On August 28, 1992, Petitioner submitted to the Department its application for licensure as a mortgage lender. 1/ On October 28, 1992, the Department sent Petitioner a letter announcing its intent to deny Petitioner's application for licensure as a mortgage lender. The text of the letter read as follows: This is to inform you that your Application for Licensure as a Mortgage Lender for Citifirst Mortgage Corp. is hereby denied. The denial is based on Section 494.0072(2)(k), Florida Statutes. Section 494.0072(2), Florida Statutes, "Each of the following acts constitutes a ground for which the disciplinary actions specified in subsection may be taken: . . . (k) Acting as a mortgage lender or correspondent mortgage lender without a current active license issued under ss. 494.006-494.0077." The Department's investigation revealed Citifirst Mortgage Corp. has acted as a mortgage lender without a current, active license. Please be advised that you may request a hearing concerning this denial to be conducted in accordance with the provisions of Section 120.57, Florida Statutes. Requests for such a hearing must comply with the provisions of Rule 3-7.002, Florida Administrative Code (attached hereto) and must be filed in duplicate with: Clerk Division of Finance Department of Banking and Finance The Capitol Tallahassee, Florida 32399-0350 (904) 487-2583 within twenty-one (21) days after receipt of this notice. Failure to respond within twenty-one days of receipt of this notice shall be deemed to be a waiver of all rights to a hearing. Should you request such a hearing, you are further advised that at such a hearing, you will have the right to be represented by counsel or other qualified representative; to offer testimony, either oral or written; to call and cross examine witnesses; and to have subpoenas and subpoenas duces tecum issued on your behalf. Petitioner timely requested a formal hearing on the proposed denial of its application. The matter was referred to the Division of Administrative Hearings, where it is still pending.
The Issue In DOAH Case No. 92-2455 the Department of Banking and Finance, Division of Banking (Department) seeks to recover the costs of examination and supervision of Bay Bank and Trust Company (Bay Bank). As reason, Bay Bank is alleged to have engaged in unsafe or unsound practices as discovered in the examination the Department made of Bay Bank on March 31, 1991. In addition, the Department seeks to impose a late payment penalty in the amount of $100.00 per day commencing on November 15, 1991, and an administrative fine of $1000.00 per day commencing on December 16, 1991. See Section 655.045(1), Florida Statutes (1991). In DOAH Case No. 92-3744 the Department seeks entry of a cease and desist order directed to Bay Bank and to John Christo, Jr. (Christo, Jr.) and John Christo, III (Christo, III). See Section 655.033, Florida Statutes (1991). Moreover, the Department seeks to remove Christo, Jr. and Christo, III, as Bay Bank Directors and to prohibit their participation in the affairs of Bay Bank or any other financial institution regulated by the Department. See Section 655.037, Florida Statutes (1991). In particular the Department seeks to impose this discipline based upon alleged unsafe and unsound practices as determined through the Department's March 31, 1991, examination conducted at Bay Bank and the Federal Deposit Insurance Corporation (FDIC) examination conducted at Bay Bank on November 18, 1991; for alleged breaches of the written agreement entered into between Bay Bank and the Department following the March 31, 1991 examination; for alleged violation of the Federal Reserve Act, 12 C.F.R. s. 215.4, known as Regulation O; for alleged violation of Section 23A of the Federal Reserve Act, 12 U.S.C. s. 371(c), and for alleged violation of fiduciary duties associated with the previously described acts by Christo, Jr. and Christo, III.
Findings Of Fact Prehearing Stipulations of Fact The following facts were admitted and required no proof at the final hearing: At all times material hereto, Bay Bank and Trust Company ("Bay Bank") has been a state-chartered, federally insured bank operating under Charter No. 188-T, having a principal place of business at 509 Harrison Avenue, Box 1350, Panama City, Florida, 32402. At all times material hereto, Florida Bay Bank, Inc. ("FBB") has been a Florida corporation operating as a one bank holding company. FBB owns 100 percent of Bay Bank. At all times material hereto, John Christo, Jr. has been chairman of the board of FBB, John Christo, III has been president and Irene Christo has been secretary/treasurer. Until November, 1992, John Christo, Jr. was Chairman of the Board and Chief Executive Officer of Bay Bank. From November, 1992, John Christo Jr. has been Chairman of the Board of Bay Bank. Until July, 1992, John Christo, III was a Director and President of Bay Bank. From July, 1992 until the present, Christo III has been Vice-Chairman of the Board of Bay Bank. At all times material hereto, JCJ Irrevocable Trust ("JCJ Trust") has been a trust, the managing trustee of which has been John Christo, III. Each of the children of John Christo, Jr. has possessed a beneficial interest in JCJ Trust in at least the following amounts: John Christo, III - 40 percent James Phillip Christo - 30 percent Irene L. Christo - 30 percent FBB has two classes of voting securities outstanding, voting preferred stock and common stock. At all times material hereto, John Christo, Jr. owned approximately 97 percent of the preferred stock and JCJ Trust owned more than 65 percent of the common stock of FBB. John Christo, Jr. was Chairman of the Board and owned approximately 32 percent of the outstanding shares of Bay Savings Bank, a state chartered savings and loan association in West Palm Beach. JCJ Trust owned approximately 37 percent of Bay Savings Bank. FBB owned approximately 5 percent of Bay Savings Bank. Bay Savings Bank failed and was placed in receivership by the Resolution Trust Corporation on September 6, 1992. On April 18, 1986, the Board of Directors of Bay Bank voted to approve two irrevocable standby letters of credit in favor of SouthTrust Bank of Alabama, N.A. ("SouthTrust") for the benefit of John Christo, Jr. (LOC #281) and JCJ Trust (LOC #282) respectively. These letters of credit were unsecured. These loans at SouthTrust were originally obtained by the Christos for the purpose of providing the initial capitalization of Bay Savings Bank in West Palm Beach. These letters of credit were subsequently renewed and approved by the Board of Directors of Bay Bank on April 18, 1989 and again on February 15, 1990. These renewal letters of credit, like #281 and #282, were unsecured. On February 19, 1991, the Board of Directors of Bay Bank voted to again renew the irrevocable letters of credit in favor of SouthTrust for the benefit of and to secure the debts of JCJ Trust and John Christo, Jr. to SouthTrust. Christo, Jr. was present at the board meeting when the board voted to approve LOC #509. Christo, III voted with the Board of Directors of Bay Bank to approve LOC #509. On February 25, 1991, Bay Bank issued the irrevocable letter of credit (LOC #509) in favor of SouthTrust in the aggregate amount of $425,000 for the benefit of and to secure a debt owed by JCJ Trust to SouthTrust. The terms of LOC #509 permitted SouthTrust to draw any amounts of funds due and payable to SouthTrust from JCJ Trust that were at least 30 days past due, up to the limit of LOC #509. On September 23, 1991, SouthTrust sent Bay Bank a letter indicating that SouthTrust would draw on LOC #509 because JCJ Trust owed SouthTrust $433,429.17, which amount was past due for more than 30 days. On October 2, 1991, Bay Bank funded a loan in the amount of $425,000 to JCJ Trust to cover LOC #509 as drawn upon by SouthTrust. The note was signed by Christo, III as trustee of JCJ Trust. The note was unsecured. On February 25, 1991, Bay Bank issued the irrevocable letter of credit (LOC #510) in favor of SouthTrust in the aggregate amount of $425,000 for the benefit of and to secure a debt by Christo, Jr. to SouthTrust. The terms of LOC #510 permitted SouthTrust to draw any amount of funds due and payable to SouthTrust from Christo, Jr. that were at least 30 days past due, up to the limit of LOC #510. Christo, Jr. was present at the board meeting when the board voted to approve LOC #510. John Christo, III voted with the Board of Directors to approve LOC #510. On August 26, 1991, SouthTrust notified Bay Bank that it would draw on LOC #510 because Christo, Jr. owed SouthTrust $425,000, which amount was past due for more than 30 days. On September 3, 1991, Bay Bank funded an unsecured loan in the amount of $425,000 to Christo, Jr. to cover LOC #510 as drawn upon by SouthTrust. The note was signed by Christo, Jr. Although bank documents reflect board approval of LOC #509 and #510, there is no bank document relating to LOC #509 or #510 reflecting approval by the Board of Directors, on or about the time of the issuance of LOC #509 and #510, of the terms of any loan to John Christo, Jr. or JCJ Trust that might be made should the letters of credit be drawn upon by SouthTrust. In December, 1990, Bay Bank exchanged a 1986 Ferrari Testarossa with FBB in exchange for a 1984 Ferrari 4001. The Bank booked the value of the 4001 as $35,954 and FBB booked the value of the Testarossa at $110,793. The Testarossa had a market value in excess of that of the 4001. No security was given by FBB in connection with this transaction. Other Facts The State Examination and Findings Pursuant to Section 120.57(1)(b)15, Florida Statutes (1992 Supp.) (Use of Manuals) Consistent with long-standing practices in examining Bay Bank and other financial institutions over which the Department has had jurisdiction, it performed an examination to assess Bay Bank's financial condition and banking practices. This examination took place on March 31, 1991. In performing the examination it employed the use of a manual produced by the FDIC which the Department has used in conducting examinations beginning in 1977, to include examinations of Bay Bank. The Department also utilized its Examination Procedures Manual. Again, this manual had been referred to in the past when conducting examinations of this and other regulated institutions. As had been its custom the Department also utilized a document known as Management Evaluation Guidelines, derived from information gained from the state of Texas. Prior to the March 31, 1991 examination the Department had used the Management Evaluation Guidelines in performing examinations of Bay Bank. The Department has substantially affected the interest of Bay Bank and the Christos by resort to the three manuals in conducting the March 31, 1991 examination. None of these manuals had been adopted as rules when the March 31, 1991 examination was made; however, on August 6, 1993, Respondent noticed its intent to adopt the manuals as rules through incorporation by reference into an existing chapter within the Florida Administrative Code. The FDIC Manual establishes a rating system known as the Camel rating system. That acronym stands for measurements of a bank's condition related to capital, asset quality, management, earnings and liquidity. Out of component scores assigned to those measurements of the bank's condition, but not through averaging, an aggregate score is assigned which identifies the overall health of the institution. An aggregate score of 1 is the highest rating, with aggregate scores of 4 or 5 considered to be substandard. In March, 1991, as in its general experience with prior examinations, the Department equated the assigned aggregate score of 4 with unsafe and unsound practices by Bay Bank. This opinion was held when taking into account the specific conditions within the bank found at the time of examination and as set forth in the post-examination written report. The Camel rating system had its origin with the Federal Financial Institutions Examinations Council and was designed to identify institutions that needed closer supervisory attention. It is a system that had been used in regulation of banks since the 1970s. The FDIC Manual and the state Examination Procedures Manual include definitions of the numerical ratings found within the Camel rating system. The source material for arriving at the Camel ratings are constituted of the lending institution's records and other information gathered during the examination sessions. In assigning the Camel ratings in the March 31, 1991 examination, the Department followed these approaches. In addition to the Camel rating system, the FDIC Manual sets forth criteria related to determining whether a bank violated federal banking statutes and regulations. On this occasion the Department considered the criteria set forth in the FDIC Manual to determine whether Bay Bank violated federal law. The Department's Examination Procedures Manual explains procedural steps that the examiners took in conducting the March 31, 1991 examination. The state Examination Procedures Manual affords latitude to the examiners to deviate from guidelines set forth in the manual if the deviation can be supported in writing. The right to deviate from the guidelines was available upon the occasion of the March 31, 1991 examination. Over and above the possibility that an examiner, in this case an examiner performing the examination on March 31, 1991, would deviate from the guidelines set forth in the state Examination Procedures Manual, the entire examination process draws upon the experience of the examiner in a somewhat subjective manner and in recognition that the activity of bank examination is one that requires flexibility in thinking. Specific guidance to the examiners contained within the state Examination Procedures Manual includes a statement of expected documentation that a bank should have in support of its loans, instructions concerning how to grade the bank, as well as how to proceed with the examination, to include various operational steps to be taken while conducting the examination. The state Examination Procedures Manual also sets forth personnel duties for the examiners. The state Examination Procedures Manual sets forth the need for bankers to adhere to safe and sound banking practices. The Management Evaluation Guidelines sets forth guidance for the examiners, to include their responsibilities in the March 31, 1991 examination, related to assessing bank management. This guidance is in addition to the guidance set forth in the FDIC Manual and the state Examination Procedures Manual. The Management Evaluation Guidelines sets out instructions about its use and provides worksheets to be executed in the assessment process. The rating system contemplated by the Management Evaluation Guidelines ties in with the Camel rating system. Aside from the legal requirements set forth in Chapter 655, Florida Statutes, the Department has not established formal rules which would further define the term "unsafe and unsound" practices as that term describes the circumstances under which the Department would assess a bank for costs of examination and supervision, seek to order a bank or its directors, officers and employees to cease and desist or seek the removal of a bank's officers and directors and to restrict and prohibit those officers and directors from participating in the affairs of that bank or any other financial institution over which the Petitioner has regulatory authority. Other than information gained during an examination, to include the March 31, 1991 examination, concerning perceptions held by the examiners about the Camel ratings for the bank, as reflected in the examination report provided to the bank and through the aforementioned manuals, the Department has made no attempt to specifically describe its use of the Camel ratings. The explanation of the Camel rating as set forth in the three manuals would become codified requirements of law if the rule enactment process is concluded. The contents of those manuals would be specifically disseminated to affected persons with that eventuality; however, such an arrangement would have only prospective utility as a means to specifically notify a regulated entity concerning the imposition of the regulatory terms set forth in the manuals. When the March 31, 1991 report of examination was prepared there were no formal written rules or other written guidance concerning the occasion upon which the Department would seek a written agreement as opposed to an imposition of a cease and desist order in trying to correct problems with a bank discovered through the examination process. Instead, the Department exercised its discretion consistent with findings made during the examination. The three manuals offer assistance in the proper exercise of regulatory discretion concerning corrective action directed to a given institution and had that part to play in the March 31, 1991 examination process as well as the overall decision to pursue the present cases. As far back as 1984 it has not been the Department's policy to provide copies of the state Examination Procedures Manual to institutions being examined under its terms. It was not the policy to provide a copy of the state Examination Procedures Manual to the Bay Bank at the March 31, 1991 examination. On the other hand, there has never been any prohibition against allowing the members of the banking industry in Florida or others to have access to the state manual. Similarly, the Department does not provide copies of the FDIC Manual to the public, nor did it provide a copy of the FDIC Manual to Bay Bank when the March 31, 1991 examination was conducted. The Department does not deem the failure to provide that manual and the state Examination Procedures Manual as an inappropriate oversight. The Department is not conversant with the opportunities which the public, to include Bay Bank, would have to obtain the FDIC Manual from federal officials. The Department makes the assumption that the FDIC Manual is available from the FDIC. Finally, Respondent does not publish the Management Evaluation Guidelines for the benefit of members of the regulated industry, but it would provide a copy of the Management Evaluation Guidelines on request. In particular, it did not provide a copy of the Management Evaluation Guidelines to Bay Bank associated with the March 31, 1991 examination. None of the three manuals discussed are deemed to be confidential. Ultimately, the decision to take administrative action based upon the findings made in the March 31, 1991 examination must be factually supported and legally correct, whatever contribution was made to the regulatory function when the Department chose to make its customary usage of the three manuals in performing the March 31, 1991 examination. Petitioners Exhibit No. 2 is the report of examination for March 31, 1991. It identifies the aggregate Camel rating of 4 and sets forth the reasons for that finding. As set forth in the report of examination there were numerous unsatisfactory conditions found during the March 31, 1991 examination. In particular, the findings in the report of examination identify a number of unsafe or unsound practices, together with other shortcomings in the performance by Bay Bank, its management, employees and directors. In carrying out the examination of March 31, 1991, the examination team was constituted of 14 examiners to include two Area Financial Managers, two Financial Examiner Analyst Supervisors, and two Financial Specialists. Two members of the examination team were trainees. The work performed by the trainees was supervised and the examination findings made were not constituted of work performed by the trainees that had not been reviewed. In conducting the examination 2,538 hours were devoted to the task. Additionally, the examiner in charge spent 116 hours planning the examination and writing the report of examination, activities conducted away from the bank. The costs of examination and supervision was $67,494.20. Review was made of the examination report through various department employees. This arrangement was in accordance with normal departmental routine for conducting such review. The only notable change to the report prepared by the Examiner in Charge concerned the component Camel rating for assets wherein the Examiner in Charge had failed to offer a written explanation for assigning a component rating of 4 when written guidelines in the state Examination Procedures Manual called for a 5 for that component. Consequently the component rating was changed by the Bureau Chief for the area where Bay Bank conducts its business. This change for the asset component did not modify the overall Camel rating. Among the unsafe and unsound practices discovered in the March 31, 1991 examination was Bay Bank's failure to establish an adequate loan loss reserve. The management and directors had set aside approximately 1.364 million dollars for loan loss reserve. The methodology utilized by the Department to identify an adequate loan loss reserve revealed the need for 4.05 million dollars to be available for that function. That methodology is accepted. Therefore, the deficiency in the loan loss reserve approximated 2.686 million dollars. This shortfall was brought about by the ineffective methods of risk identification which the bank management and its directors had utilized prior to the March 31, 1991 examination. For a substantial period of time prior to the March 31, 1991 examination Bay Bank had maintained a significantly higher percentage of noncurrent loans and leases than its peers, while maintaining a loan loss reserve comparable to its peers. This contributed to the inadequate loan loss reserve. Bay Bank questioned the formula employed by the Department to establish loan loss reserves wherein it is anticipated that 10 percent losses are contemplated for substandard loans. Bay Bank claimed to have a loss experience for substandard loans in the range of 2 to 4 percent. Nonetheless, the Bay Bank internal loan watch-list estimated the loss of approximately 9.14 percent for each loan that it had designated as substandard, which more closely approximates the formula utilized by the Department in establishing a proper loan loss reserve. The deficiency in the loan loss reserve is high and contrary to standards expected of Bay Bank in maintaining a loan loss reserve, so much so that it constitutes an unsafe and unsound practice. Without providing an adequate reserve the financial health of the banking institution is at risk, in that the management has a false picture of the bank's condition when making decisions about banking activities. The deficiency in the loan loss reserve creates the likelihood of abnormal risk or loss, insolvency, or dissipation of assets or other serious prejudice to the interests of the bank and its depositors. During the March 31, 1991 examination, the examiners found numerous instances where the bank management had failed to establish or enforce internal routines and controls. Included within those findings were: Improper recordation of other real estate (ORE) within the bank's books, contrary to bank loan policies, Failure to obtain and maintain current appraisals on ORE and pending ORE, Failure to establish adequate records to allow reconciliation of income and expenses relating to ORE and to maintain adequate documentation thereof, Failure to comply with the bank's loan policies preventing the continued accrual of interest on loans delinquent 90 days or more, Failure to implement credit risk grades established in loan policies more than a year before the examination period, Disorganized and outdated loan file information, Statutory violations associated with loans that were past due for more than a year and Failure to document secured real estate loans as first liens, a requirement by the bank's loan policy and state law. As the examination report states, Bay Bank's Board of Directors had implemented a corrective plan of action dated January 31, 1989, which responded to material deficiencies that had been reported in the June 30, 1988 FDIC report of examination and the November 30, 1987 Department report of examination. The findings within the March 31, 1991 examination show significant violations of the internal plan for corrective action implemented on January 31, 1989, especially in the area of adequate loan policies and the need to insure compliance with the requirements of law. The failure to establish and enforce internal routines and controls and noncompliance with the January 31, 1989 corrective plan of action point to practices and conduct contrary to proper expectations incumbent upon Bay Bank, its management and directors, thereby constituting unsafe and unsound practices that creates the likelihood of abnormal risk or loss, insolvency, or dissipation of assets or otherwise seriously prejudices the interests of Bay Bank or its depositors. The March 31, 1991 examination revealed violations of laws and regulations governing the bank's activities. Taken together these violations point to an unsafe and unsound practice that creates the likelihood of abnormal risk or loss, insolvency or dissipation of assets or otherwise seriously prejudices the interests of the bank or its depositors. On the occasion of the March 31, 1991 examination it was appropriate for the Department to advise Bay Bank to refrain from paying dividends until asset quality, earnings and capital had improved sufficiently to justify dividend payments. Prior to the examination Bay Bank had paid questionably high dividend amounts in a circumstance in which the bank's capital position was tenuous. The excessive levels of adversely classified loans discovered during the March 31, 1991 examination were somewhat the product of conditions in the local economy. However, the outside influences in the economy did not completely explain the deteriorating loan portfolio and offer a defense to imprudent lending practices and the failure to adequately diversify the loan portfolio. The imprudent lending practices were manifested through inadequate risk identification and lack of proper attention to problem loans. In the final analysis the bank management and directors were responsible for the loan portfolio's substandard condition. The circumstances associated with adversely classified loans as commented on in the March 31, 1991 examination report are indicators of unsafe and unsound practices by bank management and the directors, creating the likelihood of abnormal risk or loss, insolvency, or dissipation of assets or otherwise seriously prejudicing the interests of the bank or its depositors. Costs of Examination, Late Payment Penalty and Administrative Fine On July 26, 1991, the Department transmitted a copy of its March 31, 1991 examination report to Bay Bank. Then on July 31, 1991, the Department began a free-form negotiation process to try and get Bay Bank to honor an invoice in the amount of $67,494.20 which constituted the costs associated with examination and supervision for the March 31, 1991 examination. The theory for claiming those costs was pursuant to Section 655.045, Florida Statutes (1991), which indicates that the Department may recover the costs of the examination and supervision against banks engaging in unsafe and unsound practices as defined at Section 655.005(1)(d), Florida Statutes (1991). The correspondence dated July 31, 1991, asked Bay Bank to remit payment within 30 days of receipt of the invoice setting forth the costs of the examination and supervision. The correspondence reminded Bay Bank that a late payment penalty of up to $100.00 a day might be imposed for overdue examination and supervisory fees. This reminder was as contemplated by Section 655.045, Florida Statutes (1991). A dialogue commenced between the Department and Bay Bank through further correspondence in which Bay Bank was unavailing in its attempt to convince the Department that its practices as revealed through the March 31, 1991 examination were not unsafe and unsound, thereby setting aside the right for the Department to assess the costs of examination and supervision. Rather than apprising Bay Bank that it could contest the preliminary agency decision concerning assessment of costs of examination and supervision related to the March 31, 1991 examination, by resort to procedures set forth in Section 120.57, Florida Statutes, the Department sent another free-form notification on October 2, 1991, stating that the Department continued to assert its claim based upon the belief that the practices found in the March 31, 1991 examination constituted unsafe and unsound practices. Again the October 2, 1991 correspondence instructed Bay Bank to remit $67,494.20 within 30 days of receipt of the letter. Having failed to hear from the bank by virtue of its October 2, 1991 communication, the Department again wrote on November 13, 1991, this time telling Bay Bank that the Department had determined to impose a late payment penalty of $100.00 per day commencing November 5, 1991, and of the possibility of imposing a $1,000.00 per day administrative fines if payment were not received. This November 13, 1991, correspondence was free-form. As with prior correspondence it did not advise Bay Bank of its right to seek relief pursuant to Section 120.57, Florida Statutes. On February 5, 1992, another free-form communication was provided vying for the cost of the examination and supervision related to the March 31, 1991 examination, reminding Bay Bank that the Department was persuaded that it was entitled to a late payment penalty of $100.00 per day commencing November 5, 1991, and informing Bay Bank that as of December 16, 1991, a date upon which the Department surmised Bay Bank had received an earlier communication, that the Department was imposing an administrative fine of $1,000.00 per day. As was the circumstance of prior occasions the February 5, 1992 correspondence was free- form and failed to advise Bay Bank concerning its right to seek administrative relief from the decision by the agency to seek the costs of examination and supervision for alleged unsafe and unsound practices. Finally, the Department issued an administrative complaint to recover the costs of examination and supervision associated with the March 31, 1991 examination. This complaint was dated March 11, 1992, and advised Bay Bank of its right to contest the determination concerning whether the practices by Bay Bank were unsafe and unsound, thus entitling the Department to collect the costs of examination and supervision associated with the March 31, 1991 examination. The administrative complaint also asserted claims for late penalty and administrative fines dating from November 5, 1991 and December 16, 1991 respectively. Bay Bank contested the administrative complaint leading to the formal hearing which this recommended order addresses. Absent a rule describing the occasion upon which the Department would seek to recover costs of examination and supervision for unsafe and unsound practices, the Department has acted rationally and has been acceptably consistent in exercising its discretion to recover the costs of examination and supervision when comparing the Bay Bank experience to other circumstances where the Department had the opportunity to recover costs of examination and supervision based upon unsafe and unsound practices within an institution. Further Administrative Correction: The Written Agreement Based upon the results of the March 31, 1991 examination the Department deemed it necessary to initiate administrative action against Bay Bank and its directors in accordance with Section 655.033, Florida Statutes (1991). That provision allows the Department to impose cease and desist orders for unsafe and unsound practices, violations of laws relating to the operation of the bank, violation of rules of the Department, violation of orders of the Department or breach of any written agreement with the Department. The law contemplates that a complaint shall be drawn stating the facts that support the action and noticing the accused of the opportunity to seek hearing pursuant to Section 120.57, Florida Statutes. The Department did not file the formal administrative complaint. Instead, through negotiations with Bay Bank and its directors it addressed the concerns the Department had about the findings made in the report of examination through entry of a written agreement between the Department and Bay Bank and its directors. In anticipation of the written agreement the directors of Bay Bank passed a resolution in support of the written agreement. The directors took that action on September 17, 1991. Two directors were not immediately available to execute the written agreement as such by signing the document. Their unavailability delayed the submission of the written agreement signed by Bay Bank until October 4, 1991. On that date Bay Bank transmitted the signed written agreement to the Department. In support of the written agreement there was a stipulation between the parties to enter into the written agreement. Given the language of the stipulation to enter the written agreement and the written agreement itself, it was contemplated that both documents be executed simultaneously by the Bay Bank directors and that the Department would sign the stipulation to enter the written agreement at the time that the directors signed the stipulation to enter the written agreement. The signing of the stipulation to enter into the written agreement and the written agreement itself by Bay Bank directors and the signing of the stipulation to enter into the written agreement by the Department would make the written agreement effective upon the date of issuance by the Department subsequent to those activities. The written agreement would be issued after the Comptroller signed it. The stipulation to enter into the written agreement was signed by both parties on October 7, 1991. The language employed with the signing of the stipulation to enter the written agreement stated: WHEREFORE, and it is resolved, that in consideration of the foregoing, the Department and Bay Bank and Trust Co., Panama City, Florida and each of the directors, hereby execute this Stipulation and consent to its terms, this 7th day of October, 1991. The exact language related to the effective date of the written agreement was set forth in the stipulation to enter into the written agreement at Paragraph 6 which stated: Effectiveness. Bay Bank and each of the directors stipulate and agree that the Agreement attached hereto shall be effective on the date of its issuance by the Department. The version of the written agreement upon which the Department has based its actions is dated September 29, 1991, and carries the Comptroller's signature. On October 9, 1991, through correspondence from Department's counsel to counsel for Bay Bank, the Department acknowledged receipt of the written agreement signed by the directors. The October 9, 1991 correspondence from the Department to the bank goes on to describe the notion that when the Comptroller signed the written agreement one of the originals would be forwarded to the bank for its file. This comment makes the meaning of the September 29, 1991, signature by the Comptroller unclear. Further contributing to the confusion, there is a reference in the next paragraph to the October 9, 1991 correspondence, to the effect that some conversation was held between counsel for the Department and a Joel McLamore in the office of counsel for the bank, about an agreement made in the course of that conversation, that the written agreement had an effective date of September 29, 1991. On October 14, 1991 the written agreement was docketed by the Department. On that same date the Department sent the bank a copy of the written agreement as executed by the Comptroller. Again, this correspondences from the Department stated that the written agreement had an effective date of November 29, 1991. On November 12, 1991, further correspondence was directed from the Department to Bay Bank making mention that the Department considered the effective date of the agreement to be September 29, 1991. Before the occasion of the administrative complaint seeking a cease and desist order and removal and prohibition directed to Christo, Jr. and Christo, III there was no dispute concerning the effective date of the written agreement. Now Bay Bank and the Christos assert that the written agreement was effective on October 7, 1991, contrary to the Department's position that the effective date is September 29, 1991. The general purposes which the parties had in mind for entering into the stipulation for entry of the written agreement are set out in Paragraph 1 to that stipulation which states: Consideration. The Department has determined that necessary grounds exist to initiate an administrative proceeding pursuant to Section 655.033, Florida Statutes, against Bay Bank and each of the directors. Bay Bank and each of the directors wish to cooperate with the Department and avoid the initiation of administrative litigation. Accordingly, Bay Bank and each of the directors, hereby stipulate and agree to the following terms in consideration of the Department's forbearance from initiating such administrative litigation through the attached Written Agreement (hereinafter Agreement). This intent by the parties to resolve their differences is brought forth in the written agreement where it states: WHEREAS, in an effort to avoid the consequences of protracted litigation and by virtue of signing the Stipulation, Bay Bank and each of the directors have waived their rights to separately stated Findings of Fact and Conclusions of Law, such findings and conclusions would be taken from and based upon the most recent State Report of Examination, specifically the State's Report of Examination dated March 31, 1991. By the terms of the stipulation for entry into the written agreement Bay Bank and its directors consented had agreed to the entry of the written agreement and to comply with the provisions, without admitting or denying violations of laws or regulations or rules and without admitting or denying that those entities had engaged in any unsafe and unsound practices. There was a section within the stipulation to enter into the written agreement which spoke to the matter of future administrative action by the Department against Bay Bank or its directors where it stated: 7. Future Action. The Stipulation is being entered into without prejudice to the rights of the Department and to take such further action, joint or severally, against Bay Bank and the directors as the Department deems necessary and appropriate to insure compliance with the terms of the Stipulation and the attached Agreement, any other Agreement or order entered against Bay Bank, and/or to prevent any violation of laws relating to financial institutions. The written agreement did not speak to the opportunity for the Department to seek costs of examination and supervision pursuant to Section 655.045, Florida Statutes (1991), and to pursue removal and prohibition actions against Christo, Jr., and Christo, III, as Bay Bank officers pursuant to Section 655.037, Florida Statutes (1991), based upon findings made in the March 31, 1991 examination. Among requirements of the written agreement was found Paragraph 5 (a) which states: As of the effective date of this Agreement, the Bank shall not extend, directly or indirectly, any additional credit to or for the benefit of any borrower who has a loan or other extension of credit from the Bank which has been charged-off or classified, in whole or in part, "Loss" or "Doubtful" and is uncollected. The prohibition of this paragraph 5(a) shall not prohibit the Bank from renewing or extending the maturity of any credit, provided that the renewal or extension is approved by the full board and that all interest due at the time of such renewal or extension is collected in cash from the borrower. An additional requirement of the written agreement was set forth in Paragraph 7 where it states: As of the effective date of this Agreement, all new loans or lines of credit (including renewals and extensions of existing loans and lines of credit, but excluding additional advances under existing lines of credit) in an amount of $200,000 or more shall require the prior approval of the Bank's board of directors or the directors' committee designated to approve and review loans, and all such loans or lines of credit shall be supported by a written summary that provides the board of directors or directors' committee with the information sufficient for it to make a prudent decision. The Department seeks to impose discipline based upon alleged violations of the written agreement as set forth in the administrative complaint of May 15, 1992. Specifically, that administrative complaint contains allegations of violation of the written agreement associated with Paragraphs 5(a) and 7 directed to Bay Bank and the Christos for cease and desist and as a means of removal and prohibition against the Christos. Concerning Paragraph 5(a), Bay Bank allowed a customer to post over drafts on his checking account, thus maintaining an overdraft position, commencing September 28, 1991, and ending November 18, 1991. The allegations related to Paragraph 7 are discussed under the section in the recommended order detailing events about the letter of credit and a subsequent loan to JCJ Trust said to be made without board approval and proper documentation. Beyond alleged violations of the compromise of the differences between the Department, Bay Bank and its directors embodied by the written agreement, the May 15, 1992 administrative complaint seeks to impose discipline against the Christos for findings made in the course of the March 31, 1991 examination. Those allegations are associated with the manner in which the Christos conducted themselves as officers and directors of Bay Bank based upon findings made through the examination of March 31, 1991 related to the Christos' fiduciary duties. These latter allegations are grounded upon the contention that the Christos were responsible for the unsafe and unsound practices discovered during the March 31, 1991 examination. In response to problems with the payment of dividends Paragraph 2e of the written agreement stated: 2. (e) During the life of this Agreement, the bank shall not pay any dividends at any time it is in noncompliance with the capital and reserve requirement specified in paragraphs 2.(b), 3., 9., or Section 658.37, Florida Statutes. Prior to declaration of dividends, the board of directors will certify the bank's compliance with the cited sections and provide that certification to the Department. Letters of Credit and Loans On April 18, 1986, Bay Bank issued an unconditional/ irrevocable letter of credit to South Trust Bank of Alabama for JCJ Trust and a similar letter of credit to South Trust Bank of Alabama for Christo, Jr. Both letters of credit were in the amount of $425,000.00. The letters of credit expired on February 25, 1989. South Trust had required letters of credit as preconditions to granting the loans described on the stipulated facts herein. At some point in time unsigned notes and security agreements were placed in the files of Bay Bank associated with the Christo, Jr., and JCJ Trust letters of credit. The terms of the notes and security agreements to address the contingency that South Trust Bank would draw upon the letters of credit were not identified. Also missing was an amount of collateral to secure repayment. Nonetheless, there appeared to be a commitment by Bay Bank to meet the contingency where South Trust Bank drew upon the letters of credit by Bay Bank by then offering to loan money to Christo, Jr. and JCJ Trust at an undisclosed rate. The Bay Bank records merely describe the collateral arrangement for such a contingent liability as "open". Further letters of credit were requested by Christo, Jr. and JCJ Trust and issued by Bay Bank in the amount of $425,000.00 each to favor South Trust. The next letters of credit were issued on April 26, 1989. The duration of those letters of credit was until February 25, 1990. The letters of credit of April 26, 1989, had been approved by action of the Bay Bank directors through a common certification for John Christo, Jr., and JCJ Trust in which Christo, Jr. and Christo, III, abstained from voting and other beneficiaries through the JCJ Trust who were directors to Bay Bank were absent. When the letters of credit were issued on April 26, 1989, the loan line presentation for Christo, Jr. and JCJ Trust revealed that no collateral was required when issuing the letters of credit to favor South Trust Bank. Included with the documents under consideration by the directors when they decided to issue these letters of credit was customer profile information for Christo, Jr., a statement of financial condition dated December 31, 1988 for Christo, Jr., a balance sheet for JCJ Trust from December 31, 1988, a February 28, 1989 portfolio investment review for JCJ Trust, and a review of assets of JCJ Trust as of December 31, 1988. On February 15, 1990, the Bay Bank directors again voted to approve lines of credit to favor South Trust Bank in amounts of $425,000.00 each at the request of Christo, Jr. and JCJ Trust. The common certification of approval shows that Christo, Jr. and Christo, III abstained, while Missey Christo and Phillip Christo beneficiaries under JCJ Trust and directors voted to approve the issuance of the letters of credit. Again the loan line presentations for Christo, Jr. and JCJ Trust reveal that collateral was not required in issuing the two letters of credit. The terms of the duration of the letters of credit issued on February 25, 1990, ended on February 25, 1991. The beginning date for the letters of credit was February 25, 1990. The Bay Bank records reveal a customer profile of John Christo, Jr., as associated with the letter of credit approved on February 15, 1990. The information concerning the customer profile is dated February 13, 1990. On February 19, 1991, the Bay Bank directors were requested to and voted to issue letters of credit to favor South Trust Bank related to Christo, Jr. and JCJ Trust in the amount of $425,000.00 each. The common certification of approval shows that Christo, Jr. abstained from voting. Christo, III, voted in favor of the letters of credit as did Phillip Christo and Missey Christo, other directors and beneficiaries under JCJ Trust. In association with the letters of credit on February 19, 1991, the loan line presentations for Christo, Jr. and JCJ Trust revealed that no collateral was provided. The act of approval involved a customer profile for Christo, Jr. from February 12, 1991. Also included was a balance sheet for JCJ Trust dated December 31, 1989, with notes to the financial statement. The duration of the respective letters of credit was February 25, 1991 through February 25, 1992. A draft or drafts drawn on the respective letters of credit would be honored through March 25, 1992. Each time Bay Bank through its directors voted to approve letters of credit to favor South Trust Bank at the request made by Christo, Jr. and JCJ Trust, the directors exercised distinct acts of discretion. The letters of credit issued in 1986, 1989, 1990 and 1991 did not establish terms that would entitle Christo, Jr. and JCJ Trust to an automatic renewal once a prior letter of credit expired. Each letter of credit had its own identifying number. The common features of the respective letters of credit were that they were irrevocable and transferable. Commencing with the series of the letters of credit issued in 1989 and extending through the series in 1990 and 1991, the basis for drawing on the letters of credit was a statement from South Trust Bank that the amount for which the draft was drawn was representative of amounts due and payable by Christo, Jr. or JCJ Trust to South Trust Bank on loans extended from South Trust Bank to Christo, Jr. and JCJ Trust which were a minimum of 30 days past due. The March 31, 1991 examination did not report that the actions by Christo, Jr., Christo, III, and other beneficiaries that the JCJ Trust who were directors had violated any laws or regulations in their conduct around the time the Bay Bank directors' made their February 19, 1991 decision to approve the letters of credit to favor South Trust Bank. Contentions of violations of laws or regulations concerning the conduct by Christo, Jr. and Christo, III first arose in the May 15, 1992 administrative complaint for cease and desist and removal and prohibition. The administrative complaint concerning inappropriate action by Christo, Jr. and Christo, III in their consideration of the extension of the letters of credit to South Trust Bank through the February 19, 1991 meeting of Bay Bank directors and the consequences of that decision is somewhat premised upon findings made by the FDIC in the November 18, 1991 examination as adopted by the Department, in which the FDIC reported violations of the Federal Reserve Act, 12 C.F.R. 215.4 (Regulation O), and Section 23A of the Federal Reserve Act, 12 U.S.C. s. 371(c). Related allegations about the letters of credit are based upon claims of breaches of fiduciary duties by the Christos. A further discussion of the November 18, 1991, federal examination follows. A notation was made in the March 31, 1991 examination concerning the Christo, Jr. letter of credit issued on February 25, 1991 in the amount of $425,000.00 wherein it is described in the examination report as, "additionally, a contingent liability of an unfunded, unsecured letter of credit to South Trust Bank of Alabama, N.A. to secure a $425,000.00 note there, also exist." As of August 26, 1991, Christo, Jr. was past due on his obligation to South Trust Bank and South Trust Bank drew upon the letter of credit. The draw was in the amount of $425,115.00 which was paid from Bay Bank to South Trust Bank on August 26, 1991. On September 3, 1991, Christo, Jr. signed a term disclosure note and security agreement in the amount of $425,000.00 at an annual interest rate of 10.736 percent. That interest rate was not more favorable than an ordinary customer of Bay Bank could have obtained. No security was required when Bay Bank made its September 3, 1991 loan to Christo, Jr. On September 23, 1991, the JCJ Trust debt to South Trust Bank having been overdue for more than 30 days, South Trust Bank drew upon the letter of credit associated with JCJ Trust. The draw was in the amount of $425,000.00. On October 2, 1991, a loan in the principle amount of $426,479.80 was made from Bay Bank to JCJ Trust, Christo, III as Trustee, to cover the draw that had been made by South Trust Bank against Bay Bank upon the letter of credit. The granting of this loan is alleged to be in violation of paragraph 7 to the written agreement. It is not a violation because the loan predates the effective date of the written agreement. The maturity date on the loan made on October 2, 1991, was October 1, 1992. The annual percentage rate was 10.885, interest terms that were not more favorable to JCJ Trust than would be available to Bay Bank's ordinary customers. In February, 1992, the Bay Bank directors took action to approve the loan that had been made to JCJ Trust on October 2, 1991. No indication is made in the credit file records of Bay Bank concerning the date upon which the Bay Bank directors may have approved the September 3, 1991 loan to Christo, Jr. Prudent lending practices would not have justified the approval of the February 26, 1991, letters of credit requested by Christo, Jr. and JCJ Trust when taking into account credit information made available to the Bay Bank directors, especially when considering that the letters of credit were approved without provision of security from the requesting parties, Christo, Jr. and JCJ Trust. It can be inferred that Christo, Jr., Christo, III, and other directors were aware that the custom and practice within Bay Bank was to not extend letters of credit in excess of $100,000.00 without requiring provision of security in the way of mortgages on real estate, certificates of deposit or a combination of both forms of security. At the time the February 19, 1991 decision was made to approve the letters of credit to South Bay at the request of Christo, Jr. and JCJ Trust, it can be inferred that Christo, Jr. and Christo, III, recognized that terms of credit should not have been granted to those requesting parties because the arrangements did not comport with terms available to other borrowers. This admonition included reference to more beneficial terms to "related interests" and "affiliates." JCJ Trust was a "related interest" and "an affiliate" at the time the decision was reached on February 19, 1991, to approve the letter of credit requested by JCJ Trust through Christo, III. Christo, Jr. and Christo, III, as trustee for JCJ Trust had made no alternative arrangements to make Bay Bank whole in the event South Trust Bank called on the letters of credit issued February 26, 1991. This refers to an arrangement separate and apart from the unsecured notes which were signed by Christo, Jr., and JCJ Trust in the person of Christo, III, following the draws by South Trust against the letters of credit, as a means of protecting Bay Bank at a time when the bank was troubled financially. The February 19, 1991, decision to approve letters of credit requested by Christo, Jr. and JCJ Trust were not adequately supported with an underlying written justification contrary to existing bank policy and prudent banking practice. As with the extension of the line of credit on February 26, 1991, the financial position of Christo, Jr. did not justify the unsecured loan that Bay Bank made to him on September 3, 1991. These arrangements were contrary to prudent banking practice. Moreover, it was violative of the Bay Bank loan policies and constituted more favorable treatment than an ordinary customer would receive. The loan was contrary to the policies in that the unsecured loan was not "supported by satisfactory balance sheet and income statement information with repayment from demonstrated cash flow or reasonably certain conversion of its assets." Similar problems were in evidence concerning the loan made to JCJ trust on October 2, 1991. Prudent bankers would not have extended the credit to JCJ Trust, to include a lack of security, contrary to the credit opportunities a normal customer would have had. The balance sheet available to support the JCJ loan was out of date. Moreover, the availability of funds to repay the loan according to the balance sheet was inadequate. The problems with the Christo, Jr. September 3, 1991 loan concerned heavy debt obligations for notes payable to Bay Bank and South Trust and a questionable position concerning assets that were readily available to meet debt service at the time the decision was being reached to extend the September 3, 1991 credit. These problems were evident in the December 31, 1989 financial statement pertaining to Christo, Jr. The principle asset available to JCJ Trust to meet the debt obligations contemplated by the October 2, 1991 loan were associated with Bay Bank stock. The Bay Savings Bank stock which was shown on the December 31, 1989 balance sheet for JCJ Trust had no value as support for the October 2, 1991 loan in that the savings bank had been declared insolvent by the Department and placed in conservatorship through the Resolution Trust Corporation in September, 1991. The Bay Bank stock was not a liquid asset to meet the loan obligation, there being no apparent market for its disposal as a means to obtain ready cash to meet the debt obligation envisioned by the note issued on October 2, 1991. Nor could dividends be anticipated as a means to meet the debt obligation, Bay Bank having been criticized in the March 31, 1991 examination for paying out dividends in a circumstance in which there was a need to infuse additional capital to bolster the loan loss reserve deficit and in view of the limiting features in the written agreement concerning payment of dividends. In this connection the true value of the Bay Bank stock when considering the methods employed for its valuation is uncertain during the period of time at which the loans were made to JCJ Trust and Christo, Jr., those dates being October 2, 1991 and September 3, 1991 respectively. Although more recent financial statements not found in the credit files associated with the loans made on September 3, 1991, and October 2, 1991, to Christo, Jr. and JCJ Trust respectively was potentially available in making the decisions concerning those loans, those more recent financial statements do not depict a financial position by the borrowers that would justify the loans. Strictly considered, the existence of other financial statements had no pertinence at the time that the loans were made, because the loan and discount committee and the directors made their decisions based upon matters found within the credit file and it is their actions at the moment that warrant criticism. After the letter of credit issued on February 25, 1991 to Christo, Jr. was drawn upon, the September 3, 1991 note for repayment by Christo, Jr., to Bay Bank was one without collateral and for which no payment was due until maturity on September 3, 1992 and about which the source of repayment was questionable. Therefore, it involved more than the normal risk of repayment. After the letter of credit issued on February 25, 1991 to JCJ Trust was drawn upon, the October 2, 1991 note for repayment by JCJ Trust to Bay Bank as one without collateral and for which no payment was due until maturity on October 1, 1992 and about which the source of repayment was questionable. Therefore, it involved more than the normal risk of repayment. Christo, III's claim that when he voted on February 19, 1991 to approve the JCJ Trust letter of credit that he did so through inadvertence is not persuasive. The protocol for considering this letter of credit was the same as had been the case in the past when the directors decided to provide a letter of credit for JCJ Trust. On those prior occasions Christo, III, had abstained from voting on the JCJ Trust on a single voting sheet for JCJ Trust and Christo, Jr. Nothing had changed in the voting sheet format for February 19, 1991. His claim that he was confused and mistakenly voted for the JCJ Trust letter of credit on February 19, 1991, because it also contained a reference to the Christo, Jr. letter of credit is not credible. The idea that his decision was inadvertent based upon some confusion is rejected in favor of the inference that his choice to vote was through negligence or intent. FDIC Examination The circumstances associated with the JCJ Trust February 25, 1991 letter of credit and the ensuing loan of October 2, 1991, that have been described form the basis for the FDIC through the November 18, 1991 report of examination to comment that violations of the Federal Reserve Act, 12 C.F.R., s. 215.4 and Section 23A of the Federal Reserve Act, 12 U.S.C. 371(c) had occurred. In addition, the FDIC in its November 18, 1991 examination rated Bay Bank through the Camel rating system as an aggregate 4. As with the prior rating by the Department, Bay Bank was observed by the FDIC to be engaged in unsafe and unsound practices through acts of commission or omission by its management team and directors. Although some changes can be seen through the findings made in the state examination performed on March 31, 1991 compared to the report of examination by the FDIC on November 18, 1991, Petitioner's Exhibit No. 6, they do not tend to substantially alter the impression about the persistent problems within the institution. In particular, the FDIC directed criticism to the board of directors concerning the need for the directors to ensure that executive management was cognizant of applicable laws and regulations pertaining to the bank's activities and the need to develop a system to affect and monitor compliance with those laws and regulations. This observation was made notwithstanding the recognition that members of the board of directors for Bay Bank would not necessarily be expected to have personal knowledge of those laws and regulations, but would need to make certain that the laws and regulations received high priority attention by the bank's everyday managers. The FDIC also commented on a problem with maintaining an appropriate internal control system and an adequate means of auditing as evidenced by violations found within the November 18, 1991 report. The board was reminded to evaluate the adequacy of the bank's loan watch-list as that device was calculated to assist in determining the proper allowance for loan losses, and from there establish a sufficient loan loss reserve. The loan loss reserve was criticized. The regulators subsequent adjustment to the loan loss reserve calculation following the November 18, 1991 examination still revealed a deficiency in the loan loss reserve. There was a continuing problem with asset quality showing a further deterioration from the March 31, 1991 state examination. This pertains to adversely classified loans in the categories of loss and doubtful loans, when taking into account the need to comply with the written agreement in charging off 100 percent of loss and 50 percent of doubtful. Among the adversely classified loans which were mentioned in the FDIC examination was the October 2, 1991 loan to JCJ Trust. The November 18, 1991 report reminded Bay Bank to dispose of other real estate at the earliest favorable opportunity. The FDIC examination pointed out the weakness in the bank's capital position due to large loan losses. When the examination was conducted on November 18, 1991, the liquidity ratio was found to be unsatisfactory. Fiduciary Duties Generally, Christo, Jr. and Christo, III, were sufficiently apprised of the practices which are complained of and proven here to be held accountable for their respective actions or inactions as bank officers. More specifically, Christo, Jr., and Christo, III, were knowledgeable concerning the respective financial positions of Christo, Jr., and JCJ Trust associated with the letters of credit approved on February 25, 1991, for Christo, Jr., in his personal capacity and Christo, III, as Trustee for JCJ Trust. The Christos knew or should have known about the Bay Bank loan policies for issuing letters of credit on February 25, 1991. The basis for imputing this knowledge or need for knowledge is premised upon the fact that Christo, Jr., was then CEO and Christo, III, was then president of Bay Bank. Given their positions as officers the Christos knew or should have known that the letters of credit that were issued on February 25, 1991, were by terms dissimilar to those afforded the ordinary bank customer when receiving a letter of credit. Similarly, the Christos knew or should have known that the loans that were made to Christo, Jr., and JCJ Trust on September 3, 1991 and October 2, 1991 respectively were pursuant to arrangements that were not otherwise available to an ordinary bank customer. Another reason for holding the Christos to knowledge of relevant requirements for proper practices and conduct in bank affairs is based upon the fact that Christo, Jr., had been a banker, and for the most part, a chief executive of a bank, for a period approximating 30 years at the time the decisions were made concerning the letters of credit and loans once the letters of credit were drawn upon. In a related capacity Christo, III, has been a national bank examiner and has worked in banking for a period of approximately 25 years to include 10 years service with Bay Bank as an executive officer. Notwithstanding their background and knowledge the Christos allowed conditions to arise in association with the issuance of the two letters of credit and the loans that were made following draws, in contravention of internal loan policies, prudent banking practices and laws and regulations. It is to be expected that the Christos should have reminded the other directors that internal bank policies and laws and regulations would not allow more favorable treatment for Christo, Jr., and JCJ Trust concerning the issuance of letters of credit in February of 1991 and loans in September and October, 1991, to pay back the draws, especially when taking into account that security was not required for the transactions in question. The need for the other directors who voted to issue the letters of credit and to approve loans following the draws, to conform to acceptable banking practices in their respective positions as directors, does not excuse the Christos from their affirmative duty to remind the other directors to conform to internal policies and laws and regulations concerning equal treatment of other persons and bank officials when establishing letters of credit and making loans. The Christos failed to properly exercise their fiduciary duties when action was taken concerning the letters of credit and subsequent loans following the draws. It was not enough for Christo, Jr., to abstain from participating in the decision to approve his letter of credit and that for JCJ Trust. It was even more inappropriate for Christo, III, to affirmatively vote in favor of the letters of credit for JCJ Trust and Christo, Jr. The arrangements made for the benefit of Christo, Jr., and JCJ Trust left Bay Bank exposed for $850,000.00 in disbursements without security should the letters of credit be drawn upon and that arrangement continued following the decision to make loans to Christo, Jr., and JCJ Trust in a related amount after the letters of credit were drawn upon. The Christos as the principal managers of the bank when the examinations were conducted were shown through the findings made in the examination reports to have breached their fiduciary duties. By failing to meet their responsibilities concerning the findings made in the two examinations and related to the Christo, Jr., and JCJ Trust letters of credit and loans, the Christos engaged in unsafe and unsound practices whose consequences created the likelihood of abnormal risk or loss, insolvency or dissipation of assets which seriously prejudice the interests of Bay Bank and its depositors when taking into account the overall condition of Bay Bank at the time at which the letters of credit were issued and the loans made following the draws. History of Regulatory Correction The external history of action by the Department to correct problems within Bay Bank is constituted of the written agreement that has been described. Consistent Agency Practices As alluded to before, the treatment given other institutions which the Department regulates when considering the propriety of assessing the costs of examination and supervision does not point out inconsistent agency practices. Having reviewed the evidence concerning inconsistent agency practice in removal and prohibition of individuals from participating in banking in Florida, while the means to affect removal from an institution may not have always been the same, the outcome anticipated by that process is sufficiently consistent and the factual differences between cases do not lead to a finding that the agency has acted inconsistently when comparing its effort to remove the Christos with other removal actions described at hearing.
Recommendation Based upon the findings of facts and the conclusions of law, it is, RECOMMENDED: That a final order be issued which assesses the cost of examination and supervision for the March 31, 1991 examination in the amount $67,494.20; That denies the imposition of a levy for late payment of $100.00 per day commencing November 5, 1991 and beyond; That denies the imposition of an administrative fine for intentional late payment in the amount of $1,000.00 per day commencing December 16, 1991 and beyond; That orders Bay Bank, its officers, directors, or other persons participating in the conduct of the affairs of Bay Bank, to cease and desist from engaging in practices which would allow Christo, Jr., and Christo, III, to obtain credit from Bay Bank in contravention of laws and regulations, and which breach the October 14, 1991 written agreement and Bay Bank internal policies; That prohibits Christo, Jr., from participating in Bay Bank or any other financial institution regulated by the Department as an officer or in a similar position for Bay Bank or any other financial institution or becoming a director in any other financial institution and that restricts Christo, Jr., in his directorship at Bay Bank from participating in any decision to select or dismiss Bay Bank officers or directors; That prohibits Christo, III, from participating in Bay Bank or any other financial institution regulated by the Department as an officer or in a similar position for Bay Bank or any other financial institution or becoming a director in any other financial institution and that restricts Christo, III, in his directorship at Bay Bank from participating in any decision to select or dismiss Bay Bank officers or directors; DONE and ENTERED this 1st day of February, 1994, in Tallahassee, Florida. CHARLES C. ADAMS, 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 1st day of February, 1994. APPENDIX TO RECOMMENDED ORDER, CASE NO. 92-2455 and 92-3744 The following discussion is given concerning the proposed facts submitted by the parties: Petitioner's Facts: Paragraphs 1 through 26 are subordinate to facts found. Paragraphs 27 and 28 constitute conclusions of law. Paragraphs 29 through 81 are subordinate to facts found. Paragraph 82 constitutes legal argument. Paragraphs 83 through 85 are subordinate to facts found. Paragraph 86 is not relevant. Paragraphs 87 through 123 are subordinate to facts found. Paragraph 124 is rejected. Paragraphs 125 through 136 are subordinate to facts found. Paragraph 137 constitutes legal argument. Paragraphs 138 through 145 are subordinate to facts found. Paragraph 146 constitutes a conclusion of law. Paragraph 147 is subordinate to facts found. Paragraph 148 constitutes a conclusion of law. Paragraphs 149 through 152 constitute legal argument. Paragraph 153 through 170 are subordinate to facts found. Paragraphs 171 through 181 constitute legal argument. Paragraph 182 through 201 are subordinate to facts found. Respondent's Facts: Paragraphs 4 through 7 with the exception of the latter sentences found within subparagraphs 13 through 15 to paragraph 7 are subordinate to facts found. Those latter sentences within the subparagraphs are not relevant. Paragraphs 8 through 10 are subordinate to facts found. Paragraph 11 is subordinate to facts found with the exception that subparagraph 1 in its suggestion that the Department does not adequately explain its assignment of an aggregate score is rejected, as is the contention at subparagraph 9 that Camel rating may be changed at a "whim" and that a change was made to a component Camel rating in the March 31, 1991 examination without justification for that change. Paragraph 12 is subordinate to facts found. Paragraph 13 is rejected. Paragraph 14 is not relevant. Paragraphs 15 through 30 are subordinate to facts found. Paragraph 31 as it attempts to defend the accusations in the administrative complaint is rejected. Paragraph 32 is subordinate to facts found. Paragraphs 33 through 36 are not relevant. Paragraph 37 is subordinate to facts found. Paragraph 38 is rejected. Paragraph 39 is not relevant. Paragraph 40 is rejected. Paragraph 41 is not relevant. Paragraph 42 is subordinate to facts found. Paragraph 43 is not relevant. Paragraphs 44 through 48 are subordinate to facts found, except that the subparts to Paragraph 48 constitute legal argument. Paragraph 49 is not relevant. The first sentence to Paragraph 50 is not relevant. The second sentence is rejected. Paragraphs 51 and 52 are rejected. Paragraph 53 constitutes legal argument. Paragraphs 51 and 52 are rejected. Paragraph 53 constitutes legal argument. Paragraphs 54 through 56 are not relevant. Paragraphs 57 and 58 are rejected. Paragraph 59 is not relevant. Paragraph 60 does not form a defense to the accusations. Paragraph 61 and 62 are rejected. COPIES FURNISHED: Alan C. Sundberg, Esquire Robert Pass, Esquire E. Kelley Bittick, Jr., Esquire Carlton, Fields, Ward, Emmanuel Smith & Cutler, P.A. 500 Barnett Bank Building 215 South Monroe Street Tallahassee, Florida 32301 William G. Reeves, General Counsel Albert T. Gimble, Chief Banking Counsel Department of Banking and Finance Suite 1302, The Capitol Tallahassee, Florida 32399-0350 William A. Friedlander, Esquire Raymond B. Vickers, Esquire Craig S. Kiser, Esquire 424 West Call Street Tallahassee, Florida 32301 Gerald Lewis, Comptroller Department of Banking and Finance The Capitol, Plaza Level Tallahassee, Florida 32399-0350
Findings Of Fact The Applicant, Protestant, and Department submitted Proposed Findings of Fact pursuant to Rule 3C-9.11, Florida Administrative Code. The Applicant's Proposed Findings of Fact are accepted except where they might specifically conflict with the Findings stated in the Hearing Officer's Report or where they may constitute conclusions of law, with the following exceptions: The last sentence of Proposed Finding Number 8 is rejected to the extent that it constitutes a legal argument as opposed to a finding of ultimate fact. Proposed Finding Number 11 is rejected in that it constitutes legal argument as opposed to a finding of ultimate fact. Proposed Finding Number 15 is rejected in that it constitutes a conclusion of law. The Protestant's Proposed Findings of Fact are accepted except where they might specifically conflict with the Findings stated in the Hearing Officer's Report or where they may constitute conclusions of law, with the following exceptions: The first sentence of Proposed Finding Number 6 is rejected in that it is speculative, constitutes legal argument, and is not supported by competent substantial evidence. The last sentence of Proposed Finding Number 6 is rejected in that it constitutes a conclusion of law as to the reason why the Protestant's bank charter was granted. The first, third, fourth and fifth sentences of Proposed Finding Number 10 are rejected, as they constitute legal arguments based upon restatement of testimony, as opposed to findings of ultimate fact. The second sentence of Proposed Finding Number 11 is rejected in that it constitutes a conclusion of law. Proposed Finding Number 14 is rejected in that it consists of argumentative references to testimony and not findings of ultimate fact. Proposed Finding Number 24 is rejected in that it constitutes legal argument and conclusions of law rather than findings of ultimate fact. The first sentence of Proposed Finding Number 26 is rejected in that it constitutes a conclusion of law. The second sentence of Proposed Finding Number 26 is rejected in that it is repetitious and constitutes a conclusion of law. The Fourth sentence of Proposed Finding Number 26 is rejected in that it constitutes a conclusion of law. Proposed Finding Number 27 is rejected in that it constitutes a conclusion of law. Proposed Finding Number 28 is rejected in that it constitutes legal argument rather than a finding of ultimate fact. The last sentence of Proposed Finding Number 31 is rejected in that it constitutes legal argument and a conclusion of law. The Department's Proposed Findings of Fact are accepted except where they might specifically conflict with the Findings of the Hearing Officer's Report or where they may constitute conclusions of law.
