The Issue The issues are whether Respondent is guilty of demonstrating a lack of fitness or trustworthiness to engage in the business of insurance and, if so, what penalty should be imposed.
Findings Of Fact At all relevant times, Respondent has held a 2-20 license as a property and casualty agent. At all relevant times, Respondent was the agent in charge of Carol City; in fact, he was the lone agent employed by the agency. At all relevant times, Respondent was the lone signatory on Carol City's Wachovia banking account described below. Respondent was first issued a 2-20 license in 1993. By Consent Order dated September 25, 2006, and approved October 17, 2006, Respondent agreed to cease and desist from making excess charges for insurance and from selling ancillary products with the informed consent of the insurer, to pay an administrative fine of $3000 and restitution of about $1600 to four customers, and to one year of probation. This is the sole discipline imposed on Respondent's license over 20 years. At all material times, Respondent was an appointed agent with United Auto. In this case, Carol City effectively remitted premiums directly to United Auto or, for customers who chose to finance their premiums, indirectly to United Auto by remitting premiums directly to United Finance, a premium- financing affiliate of United Auto. As relevant to this case, the subject insurance transactions are simple. Customers of Carol City purchase insurance underwritten by United Auto. As an appointed agent of United Auto, Respondent causes United Auto to commit to coverage upon Carol City's receipt of the premium payment from the customer (and the execution of certain documents that are irrelevant to this case). If the customer chooses not to finance the premium, the customer pays the premium to Carol City, which deposits the customer's check and issues a Carol City check in the same amount, net of commission, to United Auto. If the customer chooses to finance the premium, the customer pays the premium downpayment to Carol City, which deposits the customer's check and issues a Carol City check in the same amount, net of commission, to United Finance. United Finance then advances the full premium payment to United Auto and collects installment payments from the insured. At some point, the payment process changed. United Auto and United Finance electronically swept Carol City's bank account for the payments due each company, relieving Carol City of the responsibility of issuing separate checks to each company. This change in payment processing is irrelevant to this case. As detailed below, Carol City issued a number of bad checks to United Auto and United Finance. Respondent's defenses are essentially that Carol City's checks were dishonored because: 1) customers' checks to Carol City were dishonored and 2) the electronic sweeping of the Carol City account did not provide Carol City an opportunity to follow the usual procedure to avoid liability to its insurers when customers' checks to Carol City were dishonored. These defenses find no support in the evidence. First, the evidentiary record includes nine handwritten Carol City checks, corresponding to the nine counts, that failed to clear when presented for payment by United Auto or United Finance. In other words, these transactions occurred before electronic sweeping was implemented, at least by United Auto and United Finance. Second, at all times--both before and after the institution of the electronic-sweeping process--United Auto and United Finance maintained a procedure by which Carol City could void any transaction if the customer's premium-payment check to Carol City failed to clear. In this procedure, as provided by section 626.9201(2)(a), Florida Statutes, the insurance transaction is void ab initio, once the agent provides statutory notice to the customer whose initial premium payment has been dishonored. United Auto requires the agent to send the insurer a copy of the bad check and a copy of the certified notice letter to the customer, after which United Auto will void the policy, and the agency and agent will have no liability to United Auto or United Finance. Respondent testified vaguely that he thought that he had complied with this policy-cancelation process, but clearly he had not. He produced no documentary evidence of his having ever attempted to advise United Auto or United Finance that Carol City's customers had given Carol City bad checks. And Respondent had many months during which he might have advanced this contention, if it had been true. Instead, rather than following the liability-avoidance procedure outlined above or ever advising United Auto or United Finance of dishonored customers' checks, Respondent allowed United Auto's liabilities to these customers to become fixed and allowed Carol City's liabilities toward United Auto and United Finance to remain unsatisfied. By failing to follow the statutory procedure that would have allowed United Auto to relieve itself of liability to any customers who had failed to pay their initial premium, Carol City obligated itself to pay United Auto and United Finance for this coverage that Carol City allowed its customers to obtain, even if they had not paid for it. After becoming dissatisfied with Carol City's instalment remittances of the unpaid balance due from the failure of its checks to have cleared, United Auto and United Finance obtained a judgment against Carol City for an amount probably a little in excess of $10,000. After becoming dissatisfied with Carol City's payments on this judgment, United Auto and United Finance levied on Carol City's office furnishings. After losing possession of its computers and office furniture, Carol City or Respondent promptly satisfied the amount still due on the judgment. The dishonored checks that Carol City issued to United Auto or United Finance, the amounts, the last four digits of the United Auto policies corresponding to these remittances, and the dates of the checks are: Check No. Amount Policy Nos. Date of check 2640 $2233.82 6792 12/27/08 2643 $ 898.60 7231 12/30/08 7155 7060 7232 6707 2650 $ 658.04 7558 1/6/09 7642 7557 7385 7910 2648 $ 151.90 4852 1/5/09 2660 $1788.97 7986 1/17/09 8057 8322 2988 9323 7990 2659 $2197.92 7845 1/19/09 2661 $ 713.57 7989 1/20/09 8810 8433 8694 8056 2663 $ 505.61 9191 1/22/09 9092 9302 9290 2665 $ 176.25 9427 1/26/09 TOTAL $9324.68 The bank records of Carol City for January and February 2009 show a large number of $35 charges for returned checks and overdrafts, as well as a number of returned deposited items. Although it is impossible, on this record, to determine if any of these returned deposits pertain to any of the 29 policy transactions detailed in the preceding paragraph, such a finding would be irrelevant because of Respondent's above- described failure to avail himself of the available policy- cancelation procedure. Likewise, although the imposition of extraordinary $35 charges may explain why specific Carol City checks did not clear, such a finding would also be irrelevant because it would not excuse the dishonoring of Carol City's checks to United Auto and United Finance. Petitioner has proved that Respondent collected initial premiums from Carol City's customers in 29 transactions, caused United Auto to commit to insurance coverage to these customers, and either: 1) Respondent did not remit these successfully collected premiums to United Auto or United Finance or 2) when the initial premium payments by Carol City's customers were dishonored, Respondent failed to take the necessary steps to void the committed insurance coverage and relieve United Auto, Carol City, and himself of any further liability.
Recommendation It is RECOMMENDED that the Department of Financial Services enter a final order finding Respondent guilty of violating section 626.611(7) and suspending his license for six months. DONE AND ENTERED this 14th day of February, 2013, in Tallahassee, Leon County, Florida. S ROBERT E. MEALE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 14th day of February, 2013. COPIES FURNISHED: Orrin R. Beilly, Esquire The Law Office of Orrin R. Beilly, P.A. The Citizens Building, Suite 705 105 South Narcissus Avenue West Palm Beach, Florida 33401-5529 David J. Busch, Esquire Department of Financial Services Division of Legal Services 612 Larson Building 200 East Gaines Street Tallahassee, Florida 32399-0390 Julie Jones, CP, FRP, Agency Clerk Division of Legal Services Department of Financial Services 200 East Gaines Street Tallahassee, Florida 32399-0390
The Issue The issue is whether respondent acted as a mortgage lender within the meaning of Section 494.001(3), Florida Statutes, and thus is subject to Division licensure requirements.
Findings Of Fact Based upon all of the evidence, the following findings of fact are determined: Petitioner, Department of Banking and Finance, Division of Finance (Division), is a state agency charged with the responsibility of administering and enforcing the Florida Mortgage Brokerage and Lending Act which is codified in Chapter 494, Florida Statutes. Among other things, the Division regulates mortgage lenders and requires such persons or entities to secure a license. Respondent, White Pine Resouces, Inc. (WPR), is a Florida corporation formed in March 1986. Its sole shareholder is John R. Grass, a Pensacola attorney. Although the corporation was originally formed for a number of purposes, its primary activity is the real estate investment business. It holds no licenses issued by, or registrations with, the Division. WPR's current business address is 358-C West Nine Mile Road, Pensacola, Florida. WPR's principal source of money is Grass, or his professional association, who loan money to the corporation. In some cases, the money is used to acquire parcels of property for resale, make necessary repairs or improvements, and then provide owner financing to the buyer. In other cases, WPR loans money to persons needing to make improvements to their homes or rental property and takes back a second mortgage from the borrower. These types of transactions, which occurred during the years 1992-95, are found in documents offered in evidence as petitioner's exhibits 1-5. Respondent has also stipulated that several other transactions of this nature occurred during that same period of time. In every case, WPR was investing its own money or that of its principal. In 1992, a Division examiner analyst noted the following listing in the Yellow Pages section of the Pensacola telephone directory under the heading of "Mortgages": White Pine Resources Having Trouble With Financing Residential & Land Fast Service on 1st Mortgages The advertisement also contained respondent's street address and telephone number. In the 1993-94 telephone directory, WPR carried the following advertisement under the "Mortgages" section of the Yellow Pages: White Pine Resources Specialists! Bad Credit - We Can Help Vacant Land Loans In the 1995-96 telephone directory, WPR placed the following advertisement in the "Mortgages" section of the Yellow Pages: White Pines Resources A Private Investor Not a Mortgage Broker Specialists! We Can Help Vacant Land Loans Although the Division first noted one of WPR's Yellow Page advertisements in 1992, for some reason it did not conduct a formal investigation of respondent's activities until February 28, 1994. On that day, an examiner analyst made an unannounced visit to respondent's office for the purpose of inspecting its records to determine if WPR was acting as a mortgage lender. However, WPR's principal, John R. Grass, was not in the office, and the analyst simply left his business card and a message for Grass to contact him. The next morning, Grass telephoned the analyst's supervisor and advised him that since WPR was merely a private investor, and not a mortgage lender, it was not subject to the Division's regulation, and hence it would not provide copies of its records. A subpoena duces tecum was then issued by the Division, records were produced pursuant to the subpoena, and this controversy ensued. The parties agree, however, that this action was not prompted by complaints from consumers or other persons having dealings with WPR. The record indicates that a mortgage lender differs from a private investor in several material respects. An important distinction is that a private investor uses its own funds rather than those of another party. Also, a private investor does not buy or sell paper, does not escrow taxes, does not split or broker commissions, and does not close its own loans. In all of these respects, WPR had the attributes of a private investor. When mortgage brokerage firms are involved in transactions with private investors, they must supply the private investor with certain documents that are not provided to an institutional investor. Among others, they include a disclosure agreement, receipt of recorded instruments, an appraisal or waiver of the same, and title insurance. In addition, Division rules require that a mortgage brokerage firm record its transactions with private investors in a log journal known as DBF-MB-888. The evidence shows that for transactions between WPR and at least two mortgage brokerage firms during the years in question, the two firms recorded those transactions on DBF-MB-888. They also provided WPR with documents typically given to private investors. The Division has adopted Rule 3D-40.290(2), Florida Administrative Code, which provides that a person is deemed to be holding himself out to the public as being in the mortgage lending business if he advertises in a manner "which would lead the reader to believe the person was in the business of buying, making or selling mortgage loans." The rule has not been challenged and, for purposes of resolving this controversy, is presumed to be valid. In view of the representations that WPR provided "Fast Service on 1st Mortgages" and "Vacant Land Loans," it is fair to infer that the Yellow Page advertisements made by WPR would reasonably lead the reader to believe that WPR was in the business of buying, making or selling mortgage loans. Therefore, by virtue of advertising in the Yellow Pages, WPR is deemed to be holding itself out to the public as being in the mortgage lending business. During the years 1993-95, the Division routinely sent WPR questionnaires regarding various WPR transactions with licensed lenders. The transmittal letter accompanying the questionnaire noted that the Division was conducting "a routine examination" of the licensed lender (and not WPR), and WPR's comments would "be of material assistance to (the Division) in determining compliance with the Florida Mortgage Brokerage Act." By way of an estoppel defense, WPR has essentially contended that the questionnaires constituted a representation by the Division that WPR was merely a private lender. It further contends that, to its detriment, it relied upon that representation. But there is nothing in the documents that states that the Division considered WPR to be a private lender. Nor is there any evidence that the Division made any other oral or written representations to WPR that it did not need to secure a license. Finally, assuming arguendo that such a representation occurred, there was no showing that WPR relied to its detriment on such an alleged "misstatement of fact." WPR also raises the defense of laches arguing that it was severely prejudiced by the Division's delay in prosecuting this action. Except for testimony that respondent was forced to secure the services of an attorney to defend against this action, and its principal was required to attend a hearing, there was no showing of prejudice on the part of WPR.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Department of Banking and Finance enter a final order requiring respondent to cease and desist from engaging in the mortgage lending business without a license. DONE AND ENTERED this 17th day of June, 1996, in Tallahassee, 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 17th day of June, 1996. APPENDIX TO RECOMMENDED ORDER CASE NO. 95-0290 Petitioner: Because petitioner's post-hearing filing is more in the nature of a memorandum of law containing argument rather than proposed findings of fact, specific rulings have not been made. Respondent: Because respondent's post-hearing filing is more in the nature of a memorandum of law containing argument rather than proposed findings of fact, specific rulings have not been made. COPIES FURNISHED: Honorable Bob Milligan Comptroller, State of Florida The Capitol, Plaza Level Tallahassee, Florida 32399-0350 Harry L. Hooper, III, Esquire Department of Banking and Finance Room 1302, The Capitol Tallahassee, Florida 32399-0350 Clyde C. Caillouet, Jr., Esquire 4900 Bayou Boulevard, Suite 103 Pensacola, Florida 32503 John T. Reading, Jr., Esquire 358-C West Nine Mile Road Pensacola, Florida 32534-1818
Findings Of Fact Forbes, Walsh & Kelly is a New York corporation licensed to deal in securities under the laws of New York. The company through its secretary, Mr. Robert E. Kelly, contacted the Division of Securities on March 2 and 21, 1979 concerning the procedure for registering to be a securities dealer in Florida. After receiving the appropriate application forms and a copy of the relevant Florida Statutes, Forbes, Walsh & Kelly filed its application on March 26, 1979, to be licensed in Florida as a securities dealer. On April 2, 1979, FWK was notified that its application as a dealer was being held in abeyance, pending receipt of the corporate by-laws, a branch office application, and other materials. Subsequently, on April 20, 1979, FWK applied for a branch office license with Respondent, Carl F. Bailey, Jr. to be the company's "principal" and branch manager in Florida. Between March 26, 1979 and June 26, 1979, while Mr. Carl F. Bailey was not licensed as a securities salesman and while FWK was not registered as a securities dealer, FWK through Bailey executed approximately 774 security sales transactions on behalf of their customers. On June 27, 1979, the Division told FWK that its registration as a security broker-dealer had been approved. At the same time notice was also given that the application for a branch office in Orlando was approved as was the transfer of Carl F. Bailey's registration as a salesman for FWK. Between March 26, 1979 and August 14, 1979, in the course of its business, FWK through Carl F. Bailey "introduced" approximately 263 security transactions on a fully disclosed basis to Robb, Peck, McCooey & company, Inc., which though registered as a securities dealer in New York was not at that time so registered in Florida. Aside from the instant order of suspension, neither Carl F. Bailey, Jr. nor FWK has ever been charged with previously violating the Florida Securities Act. FWK and Carl F. Bailey, Jr., have at least two very satisfied customers, Mr. A.J. Rusterholtz and Mr. Richard W. Baker. They testified in support of Respondents at the final hearing. No evidence was presented to show that either Carl F. Bailey or FWK ever made any inquiry with the Division about when they would be eligible to engage in securities transactions in Florida after submitting their applications for registration. FWK through its Orlando branch office serves approximately 500 securities customers, many of whom are in direct daily contact with the office.
Recommendation In light of the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED: That the registration of Forbes, Walsh, Kelly & Company, Inc., as a dealer and to operate a branch office and the registration of Carl F. Bailey, Jr., as an associated salesman, with Forbes, Walsh, Kelly & Company, Inc. be suspended for a period of 65 business days from the effective date of the Department's final order. DONE AND ORDERED in Tallahassee, Leon County, Florida, this 5th day of October, 1980, in Tallahassee, Florida. MICHAEL P. DODSON Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301 (904) 488-9675 COPIES FURNISHED: Philip J. Snyderburn, Esquire Director, Division of Securities Office of Comptroller The Capitol, Suite 1402 Tallahassee, Florida 32301 Patrick T. Christiansen, Esquire AKERMAN SENTERFITT & EIDSON 17th Floor, CNA Building Post Office Box 231 Orlando, Florida 32802
