The Issue The issue in these cases is whether petitioners are entitled to payment from the mortgage brokerage guaranty fund, and if so, in what amounts. A further issue is in what order of priority the claims should be paid. Based upon all of the evidence, including the pleadings filed in this cause, the following findings of fact are deter- mined:
The Issue The purpose of the public hearing was to review the application to consolidate New River Bank, Oakland Park, Florida, and 1st United Bank, Boca Raton, Florida, in accordance with Florida law.
Findings Of Fact 1st United Bancorp (Bancorp) is a Florida bank holding company which maintains its principal place of business at 980 North Federal Highway, Boca Raton, Florida. 1st United is a Florida chartered bank and is a wholly-owned subsidiary of Bancorp and operates full service banking facilities at seven locations in Palm Beach and Martin Counties. New River is a Florida chartered bank which maintains its executive offices at 2901 West Oakland Park Boulevard, Oakland Park, Florida, and operates two banking facilities in Broward County, Florida. The Department is the duly designated state agency vested with the responsibility of processing and approving or disapproving a plan of any financial entity to acquire the assets and assume the liabilities of another financial entity pursuant to Section 655.414, Florida Statutes. On July 13, 1993, Bancorp and New River entered into a Sale and Purchase Agreement which provides that Bancorp will cause 1st United to purchase substantially all of the assets and to assume substantially all of the liabilities of New River, after which New River will be liquidated and dissolved. The agreement noted above was duly adopted by majority vote of the respective Boards of Directors of Bancorp, 1st United and New River. In addition, the respective Boards of Directors of Bancorp, 1st United and New River duly adopted by majority vote a Plan of Acquisition of Assets and Assumption of Liabilities which summarized pertinent portions of the agreement and which includes all of the terms and conditions required by Section 655.414 (1), Florida Statutes. On September 7, 1993, 1st United and New River submitted an application to the Department seeking the Department's approval for the purchase of New River's assets and assumption of its liabilities as set forth in the agreement and as summarized by the plan. Submitted with the application were the requisite filing fee and all of the required documents including copies of the agreement, the plan and certified copies of the authorizing resolutions of the respective boards of directors. On September 17, 1993, the Department caused notice of the receipt of the application to be published in the Florida Administrative Weekly. This published notice met the requirements of Rule 3C-9.003(1), Florida Administrative Code. On September 7, 1993, Warren Orlando, in his capacity as president of 1st United, filed a petition for public hearing and notice of intention to appear on behalf of 1st United. On October 27, 1993, the Department referred the matter to the Division of Administrative Hearings for the purpose of conducting a public hearing pursuant to Section 120.60(5), Florida Statutes, and Rule 3C-9.004, Florida Administrative Code. Notice that a public hearing would be held on the application on December 13, 1993, was duly published in conformity with Rule 3C-9.005, Florida Administrative Code, in the Fort Lauderdale Sun-Sentinel, Palm Beach Post, and Stuart News, newspapers of general circulation in the communities in which 1st United and New River do business. The agreement provides that New River will receive a combination of cash and Bancorp common stock equal to the net asset value, as defined in the plan, of the assets and liabilities of New River being purchased or assumed. The agreement further provides that after the closing of the asset acquisition, New River shall cease operations and commence dissolution and liquidation proceedings. Substantially all of the Bancorp common stock and available cash received by New River from Bancorp will be distributed to New River shareholders, other than dissenting shareholders. New River stockholders will receive a pro rata portion of the Bancorp common stock and cash available for distribution. After the acquisition of the assets and assumption of liabilities as set forth in the agreement and as summarized in the plan, 1st United will have adequate capital structure in relation to its activities and its deposit liabilities. The acquisition of the assets and assumption of liabilities as set forth in the agreement and as summarized in the plan, if consummated, are not contrary to the public interest. The respective boards of directors of Bancorp and New River requested the opinion of Alex Sheshunoff & Co. Investment Banking with regard to the fairness to the respective shareholders of each corporation, from a financial point of view, of the terms and conditions of the agreement. Alex Sheshunoff & Co. Investment Banking is regularly engaged in and is an expert authority in the valuation of bank and bank holding company securities in connection with bank mergers and acquisitions. Thomas Mecredy is an expert in the valuation of bank and bank holding companies in connection with bank mergers and acquisitions. On December 8, 1993, Alex Sheshunoff & Co. Investment Banking through Thomas Mecredy issued its opinion to the respective Boards of Directors of Bancorp and New River that the terms and conditions of the agreement were fair and equitable to the shareholders of each corporation. Pursuant to the agreement, New River's Board of Directors duly adopted a plan of dissolution and complete liquidation for New River. The plan of dissolution provides that after the sale of assets and assumption of liabilities the Board of Directors will reserve a sufficient amount of Bancorp stock and cash for payment of liquidation expenses and payment of liabilities not assumed by 1st United, including contingent liabilities (general reserves). In addition to the general reserves, New River will create a special reserve (special reserve) in an amount which it considers sufficient to defend and satisfy certain potential claims which may be asserted against New River by shareholders of New River in conjunction with the organization and initial offering of common stock of New River. In determining the amounts necessary to establish the general reserves and special reserve, New River's board of directors consulted with the national law firm of Proskauer Rose Goetz and Mendelsohn with respect to both reserves and the Florida law firm of Shutts & Bowen with respect to the special reserve for advice concerning the potential liability on the part of New River in connection with both known claims and potential claims and the amounts, if any, for which New River could be held liable. Shareholder E.D. Hittson noted that the book value of the New River stock is approximately $11.00 per share versus the $4.50 per share value of the 1st United stock. In response, bank officials noted that 1st United has dividend and strong growth potential not available to New River. Shareholder James Weck questioned provisions being made to satisfy outstanding lawsuit liabilities, the future location of the facility, and the effect on New River employees. In response, bank officials stated that the potential lawsuit liability is included in the reserve amounts, that no decision has been made as to the future location of the banking facility but that the needs of the service area will be met, and that it is their intention to draw talent from the New River staff. Shareholder Amine Semaan questioned whether New River would be represented on the Board of Directors at 1st United, whether minority areas would be a priority for the future location of the facility, and whether another buyer would have paid $10.50 per share. In response, bank officials maintained that New River will have one member on the Board of Directors at 1st United, that the needs of the service area will be met, and that no other, more attractive, buyer is available. On January 11, 1994, MaryAnn Cassel, a shareholder who reportedly attended the public hearing on December 13, 1993, filed a motion for leave to become a party. Such motion alleged that the movant, a minority shareholder, will be forced to accept Bancorp common stock in exchange for her New River shares or be forced to accept appraisal rights in lieu of her shares. Further, movant claimed that the plan is not fair to all parties because the shares of New River have been undervalued. Having deemed such motion untimely, and having determined such request does not allege circumstances unknown to movant prior to the December 13, 1993 public hearing, it is denied. DONE AND ENTERED this 24th day of January, 1994, in Tallahassee, Leon County, Florida. Joyous D. Parrish Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904)488-9675 Filed with the Clerk of the Division of Administrative Hearings this 24th day of January, 1994. COPIES FURNISHED: Honorable Gerald Lewis Comptroller, State of Florida The Capitol, Plaza Level Tallahassee, Florida 32399-0350 William G. Reeves General Counsel Department of Banking and Finance Room 1302, The Capitol Tallahassee, Florida 32399-0350 Donald E. Thompson, II Proskauer Rose Goetz and Mendelsohn One Boca Place, Suite 340 2155 Glades Road Boca Raton, Florida 37431 Michael W. Ford Phillip T. Ridolfo, Jr. Mershon, Sawyer, Johnston, Dunwody & Cole Phillips Point East Tower 777 South Flagler Drive, Suite 900 West Palm Beach, Florida 33401 Jeffrey D. Jones Department of Banking and Finance Division of Banking The Capitol, Suite 1302 Tallahassee, Florida 32399-0350 David S. Zimble Zimble Formoso-Murias, P.A. 1401 Brickell Avenue, Suite 730 Miami, Florida 33131
Findings Of Fact At all times relevant thereto, respondent, Cheryl A. Cooper, was licensed as a real estate broker having been issued license number 0409775 by petitioner, Department of Professional Regulation, Division of Real Estate (Division). Respondent presently resides at 3828 Gatewood Drive, Sarasota, Florida. Also, Cooper has been issued permit number ZH33902 authorizing her to operate Professional School of Business, Inc. (school), a real estate licensing school in Sarasota. Respondent and her husband, Ron, began operating the school in 1985. Each owned 50% of the business. Although both Ron and Cheryl have real estate licenses, only Cheryl had the necessary broker's license to obtain a permit for the school. The school's principal office was in Sarasota while smaller branch offices were located in Fort Myers and Port Charlotte. According to Ron, he promoted the business, gave examinations, answered the telephone, did the bookkeeping, and performed other assorted tasks. This description of duties was not contradicted, and it is found that Ron performed these duties as an agent for his principal. On the other hand, Ron described Cheryl's role as merely giving out handouts and occasionally teaching a few classes. The school also employed part-time instructors for the purpose of teaching most of the courses. When the school was established, a bank account was opened at the Sarasota branch of the NCNB National Bank of Florida. Both Ron and Cheryl were signatories on the account. Around May 27, 1988 Ron moved out of the marital home. The couple is now involved in an acrimonious dissolution proceeding. As of the date of final hearing, the court had not yet adjudicated the property rights of each party, including the assets of the school. On June 21, 1988 Cheryl withdrew $3500 from the school's bank account. She pointed out that Ron had not provided any support for her and the two children since he had moved out a month earlier, and she needed the funds to live on. After learning the following day of the withdrawal of funds by his estranged wife, Ron, without authority from Cheryl, closed the school's bank account and moved the remaining funds to a new account on which he was the sole signatory. He did not disclose this action to his wife, and she did not learn what had happened until later. After June 21, all moneys given to the school by customers were deposited into the school's new bank account over which Cheryl had no control. Around the same time, Ron changed the locks on the school's offices so that Cheryl could not gain access. All school records were located in the Sarasota office. After the new bank account was opened and the locks on the doors changed, Ron continued to promote the school and to accept new customers. He did so since he intended to continue the school's operations after the impending divorce. The administrative complaint charges that during this same time period, Cheryl solicited a number of customers for the school and accepted deposits from these customers. However, the evidence shows clearly that all solicitation was performed by Ron and, with one exception, was done after he changed the door locks and opened the new bank account on June 21. Further, all funds were deposited into the bank account over which he had exclusive control. Therefore, even though Cheryl was the permit holder, she did not have access to the business, its records or the firm's bank account. Thus, she did not know who, if anyone, had been solicited to take courses, the disposition of their deposits, or the course schedule. As to the single instance cited in the complaint where a customer was solicited prior to June 21, this involved a broker in Fort Myers who wished to send an employee to the school's branch office in Fort Myers. The broker dealt directly with the husband or an instructor, and not Cheryl, and sent a check through the mail to the school for the coursework. Whether the check was received and deposited before the old bank account was closed is not of record since the check was not offered in evidence, and the partial bank records received in evidence do not disclose this fact. In any event, after he was advised by letter from Ron that the course had been cancelled, the broker was told by Ron to seek a refund from his wife and to file a complaint against Cheryl with the Division. The broker eventually received a refund from Cheryl on January 9, 1989. On June 27, 1988 respondent contacted the Division and explained her predicament. She advised the Division that her husband had a signature stamp that was being used without her authorization, and that she was unable to get access to her business records. She added that she hoped to gain access after a court hearing then scheduled on July 8, 1988. As it turned out, the hearing was postponed. On July 12, 1988 Cheryl sent a written memorandum to all school instructors advising them not to teach any class that was scheduled to end after August 1, 1988. That date was chosen since it was the date of the final examination of the then pending evening class that had the longest time until completion. It is noted that after Ron saw a copy of this letter, he accepted a deposit from one new customer (Janice Hamann) on July 19 but no others. The school eventually shut down permanently in August or September. As noted in finding of fact 9, Cheryl attempted to get legal access to the Sarasota office by an order of the circuit court. For whatever reason, however, she was unable to get a prompt hearing. When no hearing had been held by early August 1988, upon advice of her attorney, she paid a locksmith to open the Sarasota office one evening and, after gaining access, she removed what she believed to be one-half of the office equipment and furniture. Also, she found some of the school's records and learned that, since the change of bank accounts, Ron had continued to promote the school's business, had accepted deposits from customers and then cancelled classes. In addition, she found letters written to her at the school address demanding refunds of customer deposits previously sent to her husband. Cheryl immediately responded by letter advising those customers of the problems caused by the marital split and that their money would be refunded. The complaint identifies six individuals who paid moneys to the school but were allegedly not given a timely refund. In addition, the complaint cites one individual who was guaranteed a free repeat course if she failed the examination, and who, after failing the examination, was unable to do so since the school had by then closed down. As noted above, with the exception of the broker in Fort Myers who sent a check to the school sometime in mid or late June 1988, all customers were solicited after Ron had opened a new bank account and changed the door locks to the office. Therefore, and in light of the uncertainty surrounding when the broker's deposit was received, it is found the moneys withdrawn by Cheryl on June 21 did not pertain to any customer deposits which are the subject of this complaint. Of the six customers who were solicited by Ron, one, Mary Bellemare, paid her deposit by Visa credit card and obtained a credit on her bank card statement before any money was actually paid by Visa to the school. Therefore, there was no obligation on the part of the school to make a refund to Bellemare since no funds had been exchanged. The remaining five customers received refunds from Cheryl in January 1989. One of these, who was owed $20, never made demand for a refund from Cheryl, but was paid after respondent learned of her situation through the allegations in the administrative complaint. Finally, the customer who desired to receive a free repeat course likewise did not notify respondent of her predicament. Respondent has fully cooperated with the Division during the pendency of this proceeding. Indeed, as explained above, she contacted the Division before the complaint was filed seeking advice on how to properly handle this confusing situation. In addition, at least three memoranda have been sent by Cheryl to the Division. She attributed the delay in refunding the customers' money to a lack of financial resources caused by the still unresolved marital split.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that respondent be found guilty of breach of trust in a business transaction and that she be given a reprimand. All other charges should be dismissed. DONE AND ORDERED this 18th day of April, 1989, in Tallahassee, Leon County, Florida. DONALD R. ALEXANDER 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 18th day of April, 1989. APPENDIX TO RECOMMENDED ORDER, CASE NO. 89-0139 Petitioner: 1-2. Covered in finding of fact l. 3. Covered in finding of fact 2. 4. Covered in findings of fact 5 and 6. 5. Covered in findings of fact 6 and 11. 6. Covered in finding of fact 10. 7. Covered in finding of fact 7. 8-12. Covered in finding of fact 12. 13. Covered in finding of fact 6. 14. COPIES Covered in FURNISHED: finding of fact 12. Stephen W. Johnson, Esquire Post Office Box 1900 Orlando, Florida 32802 Ms. Cheryl A. Cooper 3828 Gatewood Drive Sarasota, Florida 34232 Darlene Keller, Director Division of Real Estate Post Office Box 1900 Orlando, Florida 32802 Kenneth E. Easley, Esquire 130 North Monroe Street Tallahassee, Florida 32399-0750
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 Respondent is currently licensed, and as of the date of the Administrative Charges and Complaint, held license No. HB-0008511 as a mortgage broker and was president and principal broker of Bay Area Financial Services, Inc. He has held such license since November 1979. He sold the business in April 1980 and has reapplied within six months for an individual license. The application was received on May 16, 1980. Pursuant to Rule 3D-40.03(3), Florida Administrative Code, Respondent is treated as a current licensee, and as an applicant. From October 25, 1977, until June 12, 1979, Respondent was employed as vice-president and principal mortgage broker by United Companies Mortgage and Investment of St. Petersburg, Inc., hereinafter UCMI, a mortgage brokerage firm. United Companies Financial Corporation, hereinafter UCFC, is a Louisiana corporation, authorized to do business in Florida. The company engages in the business as a mortgage lender. On August 31, 1978, UCMI by and through its broker, Respondent, made a loan to "James G. Anderson" and "Lorraine Anderson, his wife," and accepted a note in the amount of $14,500.00 made by "James G. Anderson and Lorraine Anderson," together with a first mortgage also made by "James G. Anderson and Lorraine Anderson, his wife," as security for the repayment of the loan. The first mortgage purported to encumber Lot 25, Oak Harbor Subdivision, according to the plat thereof as recorded in Plat Book 5, page 94, Public Records of Pinellas County, Florida. On August 31, 1978, UCMI, for value, assigned the note and mortgage to UCFC. The Respondent has no objection as to the authenticity and genuineness of Exhibit 11, a copy of a contract for sale of real estate which, on its fact, was executed by "James G. Anderson and Lorraine Anderson," as purchasers of certain real property from the seller, Linda Carol Querry, a/k/a L. C. Querry. The document reflects that the purchase price be $18,500.00, payable $100.00 in cash as a deposit, $900.00 cash within twenty-four hours, $4,500.00 additional deposit at time of closing, and $13,000.00 mortgage balance. (Exhibit 2). Anderson acknowledged his signature on this document but has no recollection of signing it. On August 31, 1978, a Notice to Customers, required by federal law, was executed by "James G. Anderson and his wife Lorraine," setting forth the disclosure requirements of Regulation Z. The lender is reflected as UCFC and the broker as UCMI of St. Petersburg. Respondent Hughes executed such document as a witness to the signatures of "Mr. and Mrs. Anderson." On August 31, 1978, a promissory note was executed by "James G. Anderson and Lorraine Anderson" promising to pay UCMI the sum of $14,500.00. (Exhibit 3). On August 31, 1978, a document entitled Consummation of Loan Secured by Real Property, was executed by "James G. Anderson and Lorraine Anderson," as the borrowers. (Exhibit 4). On August 31, 1978, a document entitled Notice to Customer Required by Federal Law was executed by "James G. Anderson and Lorraine Anderson," as the borrowers. (Exhibit 5). On August 31, 1978, a document regarding the loan transaction was executed by "James G. Anderson and Lorraine Anderson," acknowledging receipt of the "Good Faith Estimates," and certain other materials. (Exhibit 6). On August 31, 1978, a Notice to Purchaser-Mortgagor was executed by "James G. Anderson and his wife, Lorraine Anderson" acknowledging receipt of such notice. (Exhibit 7). On August 31, 1978, an Owner's Affidavit was executed by "James G. Anderson and his wife, Lorraine." (Exhibit 8). On August 28, 1978, a loan application was executed by "James G. Anderson" for the $14,500.00 to be secured by a first mortgage. Respondent personally handled the application as indicated on the application itself. (Exhibit 1). On August 31, 1978, check No. 15-39091 was executed by Respondent Hughes, as authorized representative of United Companies, Inc., as payor, to James G. Anderson and Title Consultants, as payees, in the amount of $11,014.58. The check was endorsed by "James G. Anderson and Lorraine Anderson." (Exhibit 10). On August 31, 1978, a Warranty Deed was executed by Linda Carol Querry, a/k/a L. C. Querry, as seller of certain real property to "James G. Anderson and Lorraine Anderson, his wife." Respondent Hughes executed the document as a witness to Linda Querry's signature and execution. The property described in the Warranty Deed is the identical property mortgaged by "James G. Anderson and Lorraine Anderson" to secure the loan from UCMI and UCFC. (Exhibit 13). On August 31, 1978, a Mortgage Deed was executed by "James G. Anderson and Lorraine Anderson, his wife," as mortgagors, to UCMI of St. Petersburg, as mortgagee, as security for the repayment of the loan. Respondent Hughes executed the Mortgage Deed as a witness to the signatures of "Mr. and Mrs. Anderson." (Exhibit 9). On August 31, 1978, UCMI, by and through its principal broker and vice president, Respondent Hughes, assigned the Anderson mortgage and note to UCFC. The applicable Florida law governing this matter is Chapter 494, Florida Statutes (1977), and as amended in the 1978 Supplement, and Chapter 3D- 40, administrative rules regulating mortgage brokerage, Florida Administrative Code. In August 1978, James G. Anderson, who worked in the Sanitation Department of the City of St. Petersburg, also worked part-time repainting houses purchased for resale by Vic Vogel, a speculator. While so employed, Anderson had seen Respondent a few times in the company of Vogel, but had never formally met Respondent. Vogel offered to sell one of these houses to Anderson on terms that would require no down payment by Anderson, who would thereafter make monthly payments similar to the rental payments he was then making. Further, there would be no "red tape" and Anderson would be buying a home rather than renting one. Anderson trusted Vogel, who assured Anderson he would take care of all the details. The house Anderson agreed to buy was on 11th Street and 20th Avenue South in St. Petersburg and was one of the houses Anderson had worked on in his part-time job with Vogel. In the contract to purchase signed by Anderson (Exhibit 11) the block for the legal description of the property is blank. The various other spaces on the form now showing the purchase price, down payment, etc., were blank when signed by Anderson. For several years prior to 1977 Anderson had been living with Lorraine Walker but never held her out as his wife. The signature "Lorraine Anderson" on all exhibits except Exhibit 14, the quitclaim deed from Anderson to United Companies Financial Corporation, were signed by someone other than Lorraine Walker. At the instigation of his attorney, Anderson and Lorraine Walker signed Exhibit 14 to clear up foreclosure proceedings that had been instituted against Anderson. The closing of the sale of property to Anderson took place at the offices of United Companies at 300 S. Duncan Street, Clearwater, Florida on 31 August 1978. Anderson was picked up by Vogel and driven to the closing. Accompanying Vogel was Mike Robertson, an associate of Vogel; Linda Querry, Vogel's girl friend, who signed the deed conveying the property to Anderson; and an unidentified black woman. While awaiting Respondent's arrival for the closing, Vogel took the group to lunch. At the closing, Anderson signed numerous documents and other people, including the black woman who obviously signed "Lorraine Anderson," also signed these documents as witnesses and/or notary. Anderson does not recall having seen Verona Krnjaich, who notarized his signature on the documents he signed at the closing and Ms. Krnjaich does not recall a closing at which Anderson was present. However, she testified that her normal practice is to notarize only documents notarized in her presence, and that she follows this practice at all closings. On the other hand, she has good recall of faces seen at closings but does not believe she ever saw Anderson before this hearing. Anderson testified that he trusted Vogel and signed whatever documents Vogel asked him to sign; that all the documents bearing his signature were blank when he signed them; that he did not know the black woman in the room at the closing or that when she signed these documents she did so in the name of Lorraine Anderson; that the closing took place on the second or third floor of a building just off U.S. 19 between Clearwater and St. Petersburg; that he doesn't know the address of this building but could return to it, and in fact, a few months prior to this hearing, took one of Petitioner's agents to the building where the closing took place; that he received no copy of any document signed by him at the closing; that he thought he was buying a house from Vogel; and that he expected Vogel to notify him after the closing when he could move in and how much he would pay each month. Vogel did not again contact Anderson and apparently has left the area. A few months prior to this hearing Anderson accompanied one of Petitioner's agents to show the agent where the closing occurred. The building to which the agent was taken by Anderson is two-storied and occupied by Ellis National Bank. In August 1978 there was no other occupant of this building and the second floor was unfinished but contained restrooms and some offices occupied by bank employees. Anderson made no cash payment before, at, or after the closing on this house; nor did he ever move into it. The legal description on the deed conveying the property to Anderson is for property located at 626-27th Avenue South, St. Petersburg, Florida, and not for the house at 11th Street and 20th Avenue South which Anderson thought he was buying. After Anderson became delinquent on his mortgage payments Respondent went to Anderson's home one Sunday afternoon demanding payment of the delinquent monthly payments owed by Anderson. The latter told Respondent he hadn't bought any house from the lender, owed no money, and wasn't going to pay. Respondent shortly thereafter turned the case over to the United Companies' attorney, who instituted foreclosure proceedings. When served with these papers Anderson took them to his lawyer. After some of the facts surrounding this transaction became apparent, the assignee of the mortgagee accepted a quitclaim deed to the mortgaged property from Anderson. Lorraine Walker accompanied Anderson to the lawyer's office and signed the quitclaim deed "Lorraine Anderson" (Exhibit 14). The deed signed by L. C. Querry conveying Lot 25 to Anderson (Exhibit 13) conveyed the property to "James G. Anderson and Lorraine Anderson, his wife." Respondent had known Vic Vogel for five or six years prior to August 1977 and had been involved in ten or twelve transactions in which Vogel had picked up distressed property, refurbished it and sold it. Anderson had few debts and readily qualified for the mortgage loan without considering the income of Lorraine or his income from his part-time work. He understood he was buying the house without any down payment, and, in fact, Anderson paid nothing down when he signed the contract and he produced no cash at the closing. The only disbursement made at closing was by the mortgagee, whose check for $11,014.58 (Exhibit 10) was payable to Title Consultants and Anderson. The latter endorsed this check and presumably Title Consultants disbursed to the seller. Closing statements for the buyer and seller were not in the files of UCMI or Title Consultants, nor was a contract to purchase in which the description of the property to be bought was shown. Respondent's witness testified that she reviewed all documents prior to a closing; that she recalls the Anderson transaction; doesn't recall who prepared those documents but believes she typed them; that documents were never signed in blank and the blanks subsequently completed; that she did the credit check on Anderson; and that all documents used in the closing were completed in full before the closing at which they were signed by Anderson and the person signing as Lorraine Anderson. A check with the credit bureau should have disclosed Anderson's marital status as not married and this witness was unable to explain the failure to pick this up when Exhibit 1, the loan application, was verified with the credit bureau. Respondent testified that he recalled the Anderson transaction on 31 August 1978 but later in his testimony stated he did not recall this specific transaction. He believes he followed his usual procedure and explained the various documents to Anderson before the latter signed them. Prior to 1978 he had closed many transactions for UCMI without a contract to purchase having been executed. The loan application is mailed to the main office of United Companies in Baton Rouge, Louisiana and telephonic approval is given by Baton Rouge. Accordingly, it was not unusual for Anderson's loan application to be prepared 28 August 1978, the original mailed to Baton Rouge and approval received in time to close the transaction on 31 August 1978. The contract upon which this house was conveyed, and the closing statements of buyer or seller, were not presented at this hearing. Witnesses testified these documents were missing from the files in which they would be expected to keep. Regardless of this, it is uncontradicted that Anderson made no payment at closing and, if any payment was made prior to closing, any such payment would have been accounted for by the escrow agent. It is also evident that no such accounting was made. By signing a note and mortgage for $14,500.00 Anderson purported to purchase a house for slightly more than $11,000.00, which is the amount of the check endorsed by Anderson at closing and which sum presumably went to the seller. Some $3,000.00 was retained by the lender as prepaid finance charges ($1,567.67) and brokerage fee ($1,545.45). (Exhibit 2.) Accordingly, the mortgage of $14,500 represented approximately 130% of the amount paid for this house. This fact was known, or should have been known, to Respondent, who presumably was representing his principal, UCMI, the lender at this closing. Respondent was paid a fixed salary by UCMI and did not receive additional compensation for each transaction he closed. UCMI suffered a financial loss on the repossession of the house from Anderson and filed suit against Industrial Valley Title Insurance Company (Exhibit 15).
Recommendation From the foregoing it is concluded that Respondent was guilty of concealing material facts from UCMI involving the transaction with Anderson at which UCMI was mortgagee, and that, as a result, UCMI suffered injury. It is therefore RECOMMENDED that Robert E. Hughes' license as a mortgage broker be suspended for a period of six (6) months. DONE AND ENTERED this 17th day of October 1980. COPIES FURNISHED: Franklyn J. Wollett, Esquire Assistant General Counsel Office of the Comptroller Room 1302, The Capitol Tallahassee, Florida 32301 George W. Greer, Esquire 302 South Garden Avenue Clearwater, Florida 33516 K. N. AYERS Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 17th day of October 1980.
Findings Of Fact The Respondent Hollywood, Inc., is a licensed corporate real estate broker engaged in real estate activities. Hollywood, Inc., is also a subdivider and builder of residential homes in Broward County. One of the qualifying brokers for Respondent Hollywood, Inc., is the Respondent William D. Horvitz, who also serves as President and a Director of the corporation. On or about March 12, 1981, Mildred McGehee, a real estate salesman working for the Respondent Hollywood, Inc., showed a model home and building in Rock Creek, a Hollywood, Inc., development, to Andrew and Linda Medvin. As a result of McGehee's efforts, the Medvins, as Buyers, signed a contract with Respondent Hollywood, Inc., as Seller, to construct and purchase a dwelling unit for a total purchase price of $118,900. Pursuant to the contract, the Medvins gave the Respondent Hollywood, Inc., a good faith deposit for $11,890 at the time the contract was executed. The Medvins' deposit was not placed into a broker's escrow account by the Respondent Hollywood, Inc. The subject contract required the Medvins to supply $11,910 cash at closing and to make application to a qualified lending institution for the mortgage balance, $95,100. Under the provisions of paragraph (c) on page two of the contract, the contract was contingent upon: "BUYER obtaining a firm commitment (the term 'firm commitment' as used in this Contract shall mean a written agreement by a Qualified Lending Insti- tution to make a mortgage loan to BUYER on the Property in the amount of the above MORTGAGE BALANCE) for said loan within thirty (30) days from the date of execution hereof by SELLER." Respondent's Exhibit 1. The mortgage balance referred to in the contract was $95,100. The failure of the Medvins to make and complete an application for the mortgage financing or failure of the Medvins to timely satisfy any conditions in the firm commitment was cause for default under the contract unless the Medvins made other arrangements satisfactory to Respondent Hollywood, Inc., for payment of the total purchase price at closing. The Medvins timely filed applications for $80,000 rather than $95,100 as set forth in the contract, with four lending institutions. Two of the lending institutions rejected the application, one offered a $75,000 loan and one, Hollywood Federal, offered a commitment of $80,000 subject to the Medvins' sale and verification of the sale of the home which they then owned. The delivery by the Medvins of the disapproval for mortgage financing from a qualified lending institution would have resulted in the return of the Medvins' deposit and termination of the contract. A copy of a disapproval of financing was never delivered to Respondent Hollywood, Inc., by the Medvins. The Medvins gave the letter of commitment with conditions issued by Hollywood Federal to Respondent Hollywood, Inc., pursuant to the contract. As long as the special conditions of the mortgage loan commitment made by Hollywood Federal were met, the lender was obligated to make the loan to the Medvins. The Medvins intended to personally supply at closing the difference between the amount due Respondent Hollywood, Inc., under the contract and the mortgage financing received from Hollywood Federal. Upon receipt from the Medvins of the mortgage loan commitment with conditions, the Respondent Hollywood, Inc., commenced construction on their home pursuant to the contract. The Respondent Hollywood, Inc., constructed a residence for the Medvins in accordance with the specifications contained in the contract and the changes and modifications to the residence requested by the Medvins during the course of construction. A condition of the mortgage financing commitment from Hollywood Federal received by the Medvins was that they sell their present home prior to February 19, 1982, the scheduled date of closing. The Medvins did not sell their present home prior to February 19, 1982, the scheduled date of closing. Section 2.C of the subject contract provides: Failure by the Buyer to timely make and complete application for mortgage financing or failure by the Buyer to satisfy any conditions in the firm commitment timely shall be cause for default of Buyer under Paragraph 7 (as hereinafter) of the Contract unless Buyer makes other arrangements satisfactory to the Seller for pay- ment of the Total Purchase Price at closing. (Emphasis added.) Respondent's Exhibit 1. Pursuant to the contract, the Respondent Hollywood, Inc., notified the Medvins that their home was constructed and complete and a closing date of February 19, 1982, was set. Although Linda Medvin had repeated contact with Hollywood, Inc.'s personnel between April 20, 1981, and February, 1982, regarding extras and changes to the house being constructed for her, the Medvins did not inform Hollywood, Inc., until February 10, 1982, that they did not intend to close on the home. The Medvins failed to appear at the closing which was scheduled for February 19, 1982. The contract provides that as soon as Seller notifies the Buyer of his readiness to close, it is the duty of the Buyer to execute all documents required by the lending institution in order to close the mortgage loan and home purchase simultaneously. The Respondent Hollywood, Inc., was informed by legal counsel that the failure of the Medvins to make arrangements satisfactory to Hollywood, Inc., for payment of the purchase price at closing constituted a default by the Medvins as Buyers under the terms of the contract and all payments including the deposit were to be retained by the Seller as liquidated damages. The Medvins through counsel demanded the return of their earnest money deposit. The Respondents have refused to return the deposit based on their belief that the Medvins were in default under the contract. The Respondent, William D. Horvitz, has not personally engaged in any dealings with the Medvins and is not the only licensed broker associated with Hollywood, Inc. The Respondent Horvitz was not involved either directly or in a supervisory capacity in the transaction between the Medvins and Hollywood, Inc.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED: That the Florida Real Estate Commission enter a Final Order dismissing the Administrative Complaint filed against Respondents Hollywood, Inc., and William D. Horvitz. DONE AND ENTERED this 30th day of September, 1983, at Tallahassee, Florida. SHARYN L. SMITH, 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 30th day of September, 1983. COPIES FURNISHED: John Huskins, Esquire Department of Professional Regulation - Legal Section 400 West Robinson Street Orlando, Florida 32801 Carlos Alvarez, Esquire and Carolyn S. Raepple, Esquire HOPPING BOYD GREEN & SAMS Post Office Box 6526 Tallahassee, Florida 32314 Randy Schwartz, Esquire Assistant Attorney General Department of Legal Affairs Suite 212 400 West Robinson Street Orlando, Florida 32801 Howard Huff, Executive Director Florida Real Estate Commission Department of Professional Regulation 400 West Robinson Street Orlando, Florida 32801 Fred M. Roche, Secretary Department of Professional Regulation 130 North Monroe Street Tallahassee, Florida 32301
The Issue Whether Respondent failed to preserve and maintain broker records in violation of Section 475.5015, Florida Statutes. Whether Respondent committed culpable negligence or breach of trust in any business transaction in violation of Subsection 475.25(1)(b), Florida Statutes.
Findings Of Fact Petitioner is a state licensing and regulatory agency charged with the duty to prosecute administrative complaints pursuant to the laws of the State of Florida, in particular, Section 20.30, Chapters 120, 455, and 475, and the rule promulgated thereto. Respondent is and was at all times material hereto a licensed real estate broker in the State of Florida, having been issued License No. 600642 in accordance with Chapter 475. The last license was issued to Respondent as a broker of Cascade Referral Service, Inc., 2439 Bee Ridge Road, Sarasota, Florida. At all times material, Respondent was the president and registered agent of Knightsbridge Park International (KPI), a corporation under the laws of Florida. At all times material, Respondent was the registered agent of an entity called Knightsbridge Vacation Homes (KVH). Between August 14, 1999, through May 21, 2001, Respondent was an active broker/officer of Knightsbridge Realty, Inc. (KRI). In the Fall of 1999, Sharon Malecki (Malecki), a resident of Wisconsin, met with Respondent's wife, Janet Wilkes, who was vice-president of KPI, to discuss engaging KPI's services in managing Malecki's property in Kissimmee, Florida. On or about February 14, 2000, as a result of this initial contact, Malecki entered into a contract with KPI to manage her property. Respondent signed the contract as president of KPI. The contract required Respondent and KPI to provide general management services to Malecki and to provide a monthly accounting showing all income and expenses for a period of one year commencing on March 1, 2000. The contract also required Malecki to keep a balance of $500 as a "management reserve balance." Respondent and KPI were required to deposit any amounts held in excess of the reserve amount in Malecki's bank account. Implicit in the monthly accounting requirement was that KPI and Respondent would collect the rental proceeds from Malecki's property and remit the proceeds to Malecki. At the same time the parties executed the contract, Malecki sent KPI a check for $500 to be kept in the escrow account for incidental maintenance and repairs of the property. Between August 10, 2000, and August 24, 2000, KPI placed a tenant by the name of "Plant" in Malecki's property and collected $1,214.29 in rent from the tenant. Between August 29, 2000, and September 12, 2000, KPI placed a tenant by the name of "Lusted" in Malecki's property and collected $1,309 in rental income funds from the tenant. The monthly accounting for August of 2000, purports to represent that KPI paid Malecki $616.42 toward the balance owed. Malecki never received this payment. Respondent failed to remit any of the above-referenced funds to Malecki. Respondent sent Malecki a letter dated November 7, 2000, in which he terminated the management contract and promised to send Malecki a final accounting "as soon as possible." On or about January 2, 2001, Respondent sent Malecki a letter, in which he acknowledged that there had been a "major accounting breakdown." In the letter, Respondent promised to make an interim payment within the next week. Subsequent to receipt of the two letters, Malecki made various attempts to obtain an accounting of the rental proceeds due. Respondent never remitted nor accounted for the funds. At all times material, Respondent failed to account for the $500 deposit he held for the benefit of Malecki. In June of 1999, a real estate broker by the name of John Young (Young) referred Isabel Benitez (Benitez) to Respondent after she bought a home through Young. On or about June 23, 1999, Benitez signed a contract with Respondent to manage her property located at 7981 Magnolia Bend Court, Kissimmee, Florida. The contract period was for one year and was renewed for an additional year in June of 2000. Although structured in the form of a lease, there was a clear understanding that KPI and Respondent were performing property management services and were obligated to pay a guaranteed amount to Benitez every month. The contract required Benitez to place a $500 deposit with Respondent and KPI as a "management deposit" to be used for incidental expenses associated with the management of the property. In approximately August of 2000, Benitez stopped receiving monthly payments from KPI. During the latter part of 2000, Benitez made various attempts to contact Respondent to determine the whereabouts of the monies due her. On or about December 14, 2000, Benitez sent Respondent a letter, in which she requested the monies due her under the contract. On or about December 15, 2000, Respondent faxed to Benitez a response to her letter, in which he accepts her termination of the contract and confesses that he had "not been involved in property management matters, let alone accounting aspects " On or about January 2, 2000, Respondent mailed to Benitez a letter informing her that there had been an "accounting breakdown," and promising to make an interim payment within a week. A review of an accounting provided to Benitez, dated February 9, 2001, indicates that Respondent owes Benitez funds in excess of $8,473. At all times material, Respondent has failed to remit the funds due or otherwise account for said funds. Around February of 2001, Thirza Neal (Neal), a resident of Washington, D.C., engaged the services of KRI to manage her property located at 114 Dornock Street, Davenport, Florida. Neal delivered a check for $1,000 to a Chris Turner (Turner), who was an agent of KRI, for the "start-up of utility costs." At some point, Neal decided not to engage the services of KRI, and on March 12, 2001, Neal sent an e-mail to Turner, in which she terminated the management contract and requested a return of her deposit. The above e-mail contains an indication that it was copied to the attention of Respondent. On or about March 26, 2001, Neal sent a certified letter to Respondent demanding a return of the deposit. On or about March 28, 2001, Neal received a letter from a gentleman by the name of B.C. Murphy, referencing her letter to Turner, denying that the check had been deposited into KRI's account and informing Neal that he had purchased KRI during the previous year. Eventually, Neal determined that the bank had inadvertently deposited the check into KVH's account. Neal made several attempts to contact Respondent personally and through his attorney and received no response. Neal was eventually able to obtain a reimbursement from the bank. Respondent neither provided assistance to Neal, nor did he remit the funds on his own accord. At some point later, Petitioner began an investigation and David Guerdan (Guerdan) was assigned to investigate the case. During the course of his investigation, Guerdan conducted interviews of the complaining witnesses and Respondent. On or about September 26, 2001, Guerdan conducted an interview of Respondent. During the course of the interview, Respondent was unable to address the specifics of the complaints. Respondent told Guerdan that he was not involved in the day-to-day operations of the business. He stated that his wife and son actually ran the business and that they had "poor accounting practices, overspent and ran out of the money." During the interview, Respondent could not be specific as to the amounts due each owner. Guerdan was unable to determine whether Respondent paid the funds due to each owner.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that The Florida Real Estate Commission issue a final order finding Respondent guilty of violating Subsections 475.25(1)(a) and (e) and Section 475.5015, as charged in the Administrative Complaint; and Impose a fine of $1,000 and suspend Respondent's license for a period of two years and require Respondent to make restitution to his former clients and complete a 45-hour salesperson's post-licensure course, as prescribed by the Florida Real Estate Commission. DONE AND ENTERED this 22nd day of August, 2003, in Tallahassee, Leon County, Florida. S DANIEL M. KILBRIDE 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 22nd day of August, 2003. COPIES FURNISHED: Christopher J. De Costa, Esquire Department of Business and Professional Regulation 400 West Robinson Street, Suite N801 Orlando, Florida 32801-1772 Brian John Wilkes 55 Pacific Close Southampton, England SO143TY Nancy P. Campiglia, Acting Director Division of Real Estate Department of Business and Professional Regulation 400 West Robinson Street Suite 802, North Orlando, Florida 32801 Hardy L. Roberts, III, General Counsel Department of Business and Professional Regulation 1940 North Monroe Street Tallahassee, Florida 32399-2202
Findings Of Fact Primary Service Area (PSA) The proposed association will be located in the Paddock Plaza adjacent to the Paddock Mall Regional Shopping Center, both of which are currently under construction. The site is in the vicinity of the intersection of Southwest 27th Avenue and State Road 200 in the southwest portion of Marion County. The PSA encompasses the southwestern portion of Marion County, including a part of Ocala which is a concentrated residential community. Beyond the city limits, there are schools, recreational areas, an airport, horse farms, a community college, and light industrial type firms in the surburban area. The proposed site is located in the northeastern part of the PSA. The PSA is in a developmental stage with current plans of residential and commercial development which should make the area the fastest growing sector in Marion County. The home offices of Fidelity Federal Savings and Loan Association and Midstate Federal Savings and Loan Association, and a satellite office of the latter association are located near the northeast boundary of the PSA some three miles from the proposed site. The northern and eastern boundaries of the PSA follow well-defined highways. The southern boundary follows the Marion County line, and the western boundary is drawn due north from the intersection of State Road 200 and the Marion County line. (Testimony of Starke, Exhibit 1) Standards (a) Public convenience and advantage. One commercial banking facility, the main office of Citizens First Bank of Ocala, is located in the northeast corner of the PSA approximately two and one-half miles from the proposed site. It provides full banking services to its customers. Two savings and loan associations have received approval to operate in the PSA. One will be a branch of Midstate Federal Savings and Loan Association which will be located at the Paddock Mall adjacent to the proposed site. The other will be a limited facility of the First Federal Savings and Loan Association of Mid-Florida (Volusia County) which will he situated approximately 11.3 miles south of the proposed site in a residential community. Neither of these approved institutions have commenced operations. The proposed site is readily accessible from all sectors of the market area. State Road 200 is a primary artery for northeast/southwest travel. Southwest 27th Avenue is a primary north/south thoroughfare. There are numerous other feeder streets which connect with those two roads to bring traffic to the new mall and plaza area. In addition, Interstate Highway 75 intersects State Road 200 approximately one mile southwest of the proposed site. An extension to Southwest 17th Street is currently proposed which would provide direct access from the northeast to the proposed site. The location of the proposed association at a large regional shopping center will provide an opportunity for residents of the PSA to combine shopping and financial business. This will be facilitated through the utilization of a drive-in facility at the site. Ample parking will be provided in the plaza area, and the network of roads in and around the shopping center will facilitate use of the applicant's services. It will provide a convenient location to conduct savings and loan business for residents and businessmen in the southwestern portion of the county without the necessity of traveling to the more congested downtown area of Ocala. The fact that the proposed association will be a home office rather than a branch office will tend to attract a greater number of individuals within the PSA than a satellite office, and undoubtedly will induce persons outside the PSA to use the institution's services. In 1960, the City of Ocala had a population of 13,598. It increased 66.1 percent to 22,583 by 1970. The 1978 city population was estimated to be 32,652, a 44.6 percent increase over 1970. An April 1, 1979 estimate placed the population at 34,034. In 1960, Marion County had a population of 51,616. It increased 33.7 percent to 69,030 in 1970 and was estimated at 102,722 in 1978, an increase of 48.8 percent over 1970. The population was estimated to be 106,852 in April 1979 and is scheduled to reach 164,400 by 1990. It is estimated that the population of the PSA was about 7,700 in 1960 and increased to 10,500 or 36.4 percent by 1970. It is now estimated to be some 17,000 and projected to reach over 19,000 by 1982. This projection is based on the area's recent growth history, current housing developments in the area, and projected growth within Marion County. The 45 to 64 year group of the population of Marion County has shown a modest increase since 1960 from 21 percent to 22.6 percent in 1978. At that time, the state percentage was 22 percent. Those 65 years of age and over in Marion County increased from 10.6 percent in 1960 to 15.7 percent in 1978. This was lower than the statewide average of 17.5 percent in that category. It is anticipated that those 45 years and older will continue to show a steady increase in the future due to the fact that most of the county increase in population has been due to continuing in-migration of retirees. These individuals normally bring cash assets which are available for deposit in savings and loan associations, and they ordinarily would have no prior connection with other banks or savings and loan associations in the immediate area. The per capita personal income in Marion County in 1969 was $2,646 and increased to $5,157 in 1977. Per capita personal income in Florida in 1977 was $6,697. In 1969 the mean family income of residents of Ocala was $9,775, as compared with $8,062 in Marion County and $10,120 throughout the State of Florida. It is estimated that the current mean family income in Ocala is approximately $17,506, as compared to $14,438 in the county and $18,123 in the state. The unemployment rate in Marion County in January 1980 was 6 percent whereas the rate in the State of Florida was 5.2 percent. Residential building permits issued in the City of Ocala in 1975 rose from 156 units for a total of 3.5 million dollars to 511 permits in 1979 for a total of 10.7 million dollars. For Marion County, 872 permits were issued in 1975 for a total of 14.3 million dollars and 1,706 in 1979 for a total of 44.5 million dollars. It is currently estimated that the median value of owner occupied housing units in Ocala is $32,775 and $26,173 in Marion County. Local Conditions There are seven commercial banks with approval to operate a total of 18 offices in Marion County. In June 1975, the commercial banks headquartered in Marion County held combined time and savings deposits of some 104 million dollars and by mid-1979, such deposits totaled over 176 million dollars, an increase of about 69.5 percent. From December 1978 to December 1979, time and savings deposits in those banks rose from 161.4 million dollars to 199.8 million dollars, an increase of 23.8 percent. Total deposits in all Marion County Banks increased from 204.8 million dollars in 1975 to 304.9 million in 1979, a 48.9 percent increase. There are currently 16 savings and loan association offices approved for operation in Marion County. Three of the associations have their home office in Ocala. These are Fidelity Federal, Mid-State, and United Federal of Ocala. Fidelity Federal operates a total of five offices within the county, one of which is not yet open. Mid-State Federal has seven offices approved within the county and its office in the PSA is not as yet open. United Federal, an association which opened in January 1979, has its only office within the county. Both First Family Federal (Lake County) and First Florida Federal Savings and Loan Association (Alachua County) have recently received approval to operate branch offices within Marion County. First Federal of Mid-Florida (Volusia County) has received approval to operate an office in the southern part of the PSA but has not yet opened. In 1975, savings and loan associations headquartered in Marion County reported combined savings of $162,177,000. By the end of June 1979, their combined savings totaled $312,508,000, an increase of 92.7 percent. The combined savings accounts of the three Marion County associations totaled $312,508,000 in midyear 1979, as compared to June, 1975 savings of $162,177,000, representing an increase of $150,331,000 or 92.7 percent, during the subject four-year interval. Mid-State Federal, with an office approved at the Paddock Mall, held June, 1979 savings of $207,770,000, and those accounts represented an increase of $96,475,000, or 86.7 percent, over its savings reported June, 1975. First Federal of Mid-Florida, a Volusia County association with an office approved in the PSA, had June, 1975 savings of $199,843,000, and those savings increased by $150,637,000, or 75.4 percent, to reach a total of $350,480,000 in June, 1979. The smallest savings and loan association in Marion County is United Federal, which opened in 1975. In June, 1975, it reported savings of $6,881,000, and its midyear 1979 statement showed savings of $27,830,000. United Federal, operating only one office in Ocala, had growth in savings of $20,949,000, or 304.5 percent, during the stated interval. In the opinion of the applicant's economic consultant, approval of the applicant's application would not have an adverse effect on the other financial institutions in the area due to the steady growth of the community and anticipated growth in the future. He further is of the opinion that the proposed savings and loan association will be able to successfully operate in the PSA in view of the presence of the Paddock Mall and the general growth of population and business establishments in the area. He feels that the current national economic situation will not have a great impact on a new institution which will be able to obtain variable interest rates. He further sees an advantage to the fact that the proposed association will be the first state chartered capital stock form of organization in Marion County, and that it will provide an opportunity for public purchase of shares in the association. During the first three years of operations, the applicant projects its net profits at $75,648 for the first year, $88,335 for the second, and $103,340 for the third. These amounts were arrived at by including known cost items and estimating various income and expense amounts. The applicant anticipates acquiring accounts from new residents of the PSA and those current residents who may wish to transfer savings accounts from commercial banks in the Ocala area due to convenience and the higher rate of interest paid by savings and loan associations. The applicant does not anticipate the acquisition of a significant number of customers from existing savings and loan associations in the area. It also will look to employees at the new shopping mall who may utilize the conveniently located new institution for savings transactions. The applicant intends to compete vigorously for new business with these individuals and from those who presently do not have accounts in any existing associations. The applicant estimates that the institution will attain savings of five million dollars at the end of the first year, $9,500,000 at the end of the second year, and $14,500,000 at the end of the third year of operation. In arriving at those estimates, consideration was given to past experience of existing association offices in the Ocala area, and that of established associations in similar competitive situations. The eight organizers of the proposed association will also serve as the directors. They represent a diversity of occupations, including businessmen, attorneys, real estate broker, a physician, and a dentist. All but three reside in the Ocala area. All have been residents of Florida for over a year and none has been adjudicated a bankrupt or convicted of a criminal offense involving dishonesty or breach of trust. Their employment and business histories show responsibility in the handling of financial affairs. One of the proposed directors has served as an attorney to a large savings and loan association in Miami Beach, and is a member of the board of directors of Barnett Bank of Miami. Another serves as legal counsel for a local bank in Ocala. The proposed officers of the association have not been named as yet. The proposed association will be capitalized at $2,000,000. This capital will be divided into common capital of $1,000,000 in surplus and reserves of $1,000,000. The association intends to issue 200,000 shares of stock with a par value of $5.00 and the selling price of $10.25, plus a $.25 share organizational expense fund contribution. The proposed directors of the association have subscribed to 25,000 shares each. This is a preliminary stockholder list and it is the intention of those individuals to redistribute the stock to a minimum of 400 persons in accordance with FSLIC requirements. It is the organizers' intention to acquire pledges from 700 persons for the deposit of $1,000,000 in withdrawable savings accounts. It is intended that the majority of the stock will be sold to persons residing in Marion County, and the organizers anticipate no difficulty in this respect. (Testimony of Starke, Hastings, Bitzer, Berman, Casse, Hicks, Williams (Deposition - Exhibit 5), Broad (Deposition - Exhibit 6), Carter, Exhibits 1-3) Name As heretofore found above, the applicant amended its application to change the proposed name to Allstate Savings and Loan Association. Although the descriptive word "Allstate" is not used in the corporate name of any other savings and loan association in this state, the Office of the Comptroller received a letter, dated February 22, 1980, from Allstate Savings and Loan Association, Glendale, California, an affiliate of Sears Roebuck and Company, objecting to the use of the word "Allstate" in that the public may be misled to believe that the proposed association is in some way affiliated with Sears Roebuck and Company. (Testimony of Starke, Exhibit 1) Site and Quarters. As heretofore found, it is the organizers intention to locate the proposed association in the Paddock Plaza, adjacent to the Paddock Mall, a new shopping center to be constructed in Ocala. The applicant has an option to lease 5,000 square feet of space for a period of fifteen years for a rental price of $12.00 per square foot for 2,000 square feet and $10.00 per square foot for 3,000 square feet, plus common area maintenance. The option provides that on the fifth year of tenancy, the total annual rental will be increased by the cost of living as determined by the consumer price index. The leased area will include a two-car drive-in facility. There will be adequate parking at the site. The applicant plans to sublease 2,000 square feet of the leased premises on a short-term basis to reduce operating costs in the initial years of operation. An appraisal of the proposed association quarters establishes that the proposed leased premises are suitable for a savings and loan association and that the lease price compares favorable to current leasing arrangements for similar business property. (Testimony of Starke, Exhibit 1) Proposed Findings of Fact filed by the parties have been fully considered and those findings which have not been adopted herein are considered to be either unnecessary, or unsupported in fact and are specifically rejected. Some of the proposed findings state conclusions which properly should be considered by the Comptroller. Pursuant to Section 120.57(1)(b)(12), Florida Statutes, this REPORT does not include conclusions of law and recommendations. DONE and ENTERED this 25 day of April, 1980, in Tallahassee, Florida. THOMAS C. OLDHAM Hearing Officer Division of Administrative Hearings 101 Collins Building Tallahassee, Florida 32301 (904) 488-9675 COPIES FURNISHED: Honorable Gerald A. Lewis Comptroller, State of Florida The Capitol Tallahassee, Florida 32301 William L. Lyman, Esquire Assistant General Counsel The Capitol Tallahassee, Florida 32301 Daniel Hicks and Randolph Tucker, Esquires Post Office Drawer 1969 Ocala, Florida 32670 Merritt C. Fore, Esquire Post Office Box 1507 Ocala, Florida 32670
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found: In early January, 1987, the petitioners filed with the respondent their application for authority to organize a state-chartered bank to be located in Sarasota. Notice of receipt of this application was published in the Florida Administrative Weekly on January 16, 1987. The application was deemed complete in March or April of 1987. By an "Administrative Notice for Public Formal Hearing" dated September 18, 1987, and received by the Division Of Administrative Hearings on September 22, 1987, the respondent Department of Banking and Finance, Division of Banking, noticed its intent to initiate a formal hearing concerning the issue of whether to grant or deny the application. That proceeding was assigned to the undersigned as the designated Hearing Officer as Case No. 87-4417. As a result of various preliminary motions filed in Case No. 87-4417, the Department was ordered to file a more definite statement of the issues and/or statutory criteria in dispute between the parties and the final hearing was scheduled for December 16 and 17, 1987. In response, the Department filed an "Amended Administrative Notice for Public Formal Hearing," citing as authority therefore, Rule 3C-9.004, Florida Administrative Code. Due to appellate court proceedings, the December 16 and 17, 1987, final hearing was cancelled and rescheduled for the week commencing February 29, 1988. On January 6, 1988, the petitioners filed with the Division of Administrative Hearings its petition for a determination of the invalidity of Rule 3C-9.004(3), Florida Administrative Code, and the final hearing was held on February 5, 1988. The parties agreed that the final hearing in Case No. 87-4417, regarding the merits of the petitioners' application for a bank charter, should be continued pending a resolution of the instant rule-challenge proceeding. While the State of Florida has enjoyed a period of relative economic health in comparison to other regions of the country, in the past three years there have been a growing number of financial institutions experiencing difficulties related primarily to their financial condition and solvency. During this time period, the Department has found it necessary to close seven commercial banks and six savings and loan associations. Accordingly, when applications for new financial institutions are filed, the Department attempts, during the application process, to ensure the probability of success of the proposed institution. This is done through a period of investigation by the Department's trained financial investigators of all the material submitted by applicants, particularly with respect to the individuals who are named as proposed directors and officers. During the course of the Department's investigation, information frequently is discovered which is at some variance with the information contained in the application. To the extent that it is possible to do so, the Department attempts to reconcile any discrepancies between the application contents and the products of its investigation through informal dialogue or correspondence with the applicant. In instances where there may be questions of credibility on the part of the applicant, that type of informal resolution may not be feasible. The procedural processing of bank charter applications is specifically governed by Section 120.60(5), Florida Statutes, and Chapter 3C-9, Florida Administrative Code. As pertinent to the issues in this proceeding, those statutory and regulatory provisions require the Department to have published in the Florida Administrative Weekly notice of an application within 21 days of its receipt. Section 120.60(5)(a)1; Florida Statutes; Rule 3C-9.003(1), Florida Administrative Code. Within 21 days of publication of notice, "any person may request a hearing.... however, the failure to request a hearing within 21 days of publication of notice shall constitute waiver of any right to a hearing." Section 120.60(5)(a)2, Florida Statutes. Any petition for hearing filed before an application is received or more than 21 days after the publication of notice is void. Rule 3C-9.003, Florida Administrative Code. While all information in support of an application is required to be submitted with the original filing, the Department has the authority to request additional information and ask for the correction of errors or omissions within 30 days of its receipt of the original application. Thereafter, the applicant has 60 days to respond to the Department's request. Rule 3C-9.002(3), Florida Administrative Code. Every application, except for those involving foreign nationals, is required to be approved or denied within 180 days after receipt of either the original application or the timely requested additional information or correction of errors or omissions. Applications not approved or denied within that 180- day period or within 30 days after the conclusion of a public hearing on the application, whichever date is latest, are deemed approved. Section 120.60(5)(c), Florida Statutes. Rule 3C- 9.012(i), Florida Administrative Code. The procedures with regard to financial institutions involving foreign nationals differ in that the Department is required to request that a public hearing be conducted and the 180-day period for approval or denial is extended to a period of one (1) year. Section 120.60(5)(d), Florida Statutes. The statute is silent with respect to the time period within which the Department must request a hearing on applications involving foreign nationals. More often that not, the Department does request additional information from an applicant subsequent to the filing of the initial application. Since the Department has 30 days within which to request this information and the applicant has another 60 days to supply it, the additional information typically is received by the Department long after it has published notice of the application and long after the 21-day point of entry to request a hearing. The challenged rule is contained as a subsection of the rule entitled "Petition for Public Hearing." After providing that petitions for public hearing must be filed within 21 days of publication of notice and that petitions not received within that time are void, subsections (1) and (2) of Rule 3C- 9.004, subsection (3) provides that "The department may initiate a hearing on its own motion, at any time regardless of whether there has been a petition." It was the opinion of the Director of the Division of Banking that the purpose of the challenged rule was to afford the Department the opportunity for a hearing in those instances where information is discovered during the investigation process or where additional information is supplied subsequent to 21 days after publication of notice of the initial application. Generally, the character, credit worthiness and financial responsibility of the organizers, officers or directors of a proposed financial institution is determined toward the end of the application and investigation process, and not within the 21- day period after publication of notice of the initial application. According to the Director, if the Department were unable to request a hearing subsequent to that 21-day period, it would be compelled to request a hearing within that 21-day period every time an application is filed. An employee from the Division of Banking for approximately ten years could recall only one occasion when the Department had requested a hearing after the passage of 21 days from the publication of notice. In that one instance, a foreign national was involved in the application.
