The Issue The issues are whether Respondent has made unauthorized payments to Superior Insurance Group, its corporate parent, and whether Respondent has properly disclosed these payments on its financial reports filed with Petitioner.
Findings Of Fact Respondent is a domestic stock insurance company operating under a certificate of authority to transact in Florida the business of property and casualty insurance. As a nonstandard automobile insurer, Respondent primarily deals with policyholders whose driving records and accident histories preclude their coverage by standard automobile insurers. Superior Insurance Group, Inc. (formerly GGS Management, Inc. (GGS)) owns Respondent; Symons International Group, Inc. (Symons) owns Superior Insurance Group, Inc. (Superior Group); and Goran Capital, Inc. (Goran) owns 73 percent of Symons. Although publicly traded, Goran was founded, and probably is still controlled, by the Symons family. Superior Group serves as Respondent’s managing general agent. GGS changed its name to Superior Group in early 2000; where appropriate, this Recommended Order refers to this entity as GGS/Superior Group. Respondent owns Superior American Insurance Company (Superior American) and Superior Guaranty Insurance Company (Superior Guaranty), which are both domestic stock insurance companies authorized to conduct in Florida the business of property and casualty insurance. Also engaged in the nonstandard automobile insurance business, Superior American and Superior Guaranty transfer all of their premiums and losses to Respondent under a reinsurance agreement. All financial information concerning Superior American and Superior Guaranty, which, for the purpose of this case, are mere conduits to Respondent, are included in the financial information of Respondent. On or about April 30, 1996, GGS acquired the stock of Respondent, as well as other assets, from an unrelated corporation, Fortis, Inc. or one of its subsidiaries. From the regulatory perspective, the acquisition started when, as required by law, on or about February 5, 1996, GGS filed with Petitioner a Form A application for Petitioner’s approval of the acquisition of Respondent. This was an extensive document, consisting of more than 1000 pages. One of the purposes of the application process, as described in Section 628.461, Florida Statutes, is to assure the adequacy of the funds used by the entity acquiring the insurer. The proposed acquisition is described by the Statement Regarding the Acquisition of More Than Five Percent of the Outstanding Voting Securities of Superior Insurance Company . . . by GGS Management, Inc., dated February 5, 1996 (Acquisition Statement). The Acquisition Statement states that GGS Management Holdings, Inc. owned GGS. (The distinction between GGS and GGS Management Holdings, Inc. is irrelevant to this case, so “GGS,” as used in this Recommended Order, shall also refer to GGS Management Holdings, Inc.) According to the Acquisition Statement, Symons owned 52 percent of GGS; GS Capital Partners II, L.P., owned 30 percent of GGS; GS Capital Partners II Offshore, L.P., owned 12 percent of GGS; and three mutual funds (probably all affiliates of Goldman Sachs) owned the remaining 6 percent of GGS. GS Capital Partners II, L.P., was owned by 100 investors, including The Goldman Sachs Group, L.P. (16.54 percent), “wealthy individuals and trusts, corporate pension funds, foundations and endowments, family trusts/corporations and one state pension fund.” The ownership of GS Capital Partners II Offshore, L.P., resembled the ownership of GS Capital Partners II, L.P. The Acquisition Statement states that GGS “will be the manager of all insurance operations for [Respondent] and will act as the holding company for [Respondent] and [an Indiana nonstandard automobile insurer known as Pafco whose stock Symons was contributing to GGS].” The Acquisition Statement projects the stock-purchase price, which was expressed as a formula, to be about $60 million. Citing the $2 billion in capital of the two Goldman Sachs limited partnerships and the $50 million in capital of Goran, the Acquisition Statement assures that “GGS has tremendous wherewithal to fund the growth needs of [Respondent] . . ..” Alluding to Goran’s 20 years’ experience in managing nonstandard automobile insurance companies, the Acquisition Statement represents that the Goldman Sachs limited partnerships and Goran “possess the capital and leadership resources to support the proposed activities of [Respondent].” According to the Acquisition Statement, the Goldman Sachs limited partnerships and Goran “anticipate that the acquisition of [Respondent] is but the first step in an effort to build a significant non-standard auto insurance company.” The Acquisition Statement describes the respective contributions of the two owners of GGS: Symons will contribute Pafco, which then had a current GAAP book value of $14 million, and the Goldman Sachs limited partnerships will contribute $20 million in cash. With the backing of Symons and the Goldman Sachs limited partnerships and secured by all of the stock of Respondent and GGS, GGS will execute a six-year promissory note with The Chase Manhattan Bank (Chase) for $44 million. Drawing $40 million from this credit extension and using the $20 million cash contribution of the Goldman Sachs limited partnerships, GGS will fund the anticipated cash purchase price of $60 million. The Acquisition Statement represents that GGS will be able to service the debt. Due to the cash contribution of the Goldman Sachs limited partnerships, the Chase debt represents only two-thirds of the purchase price. Due to the cash contribution of the Goldman Sachs limited partnerships and the stock contribution by Symons, the Chase debt represents only about one-half of the initial capital of GGS. The Acquisition Statement states that GGS will service the Chase debt in part by “the combination of the management activities of both Pafco and [Respondent] within GGS, billing fees, other non-insurance company activities and anticipated insurance company operating economies which will result from the combination of these two operations [Pafco and Respondent].” The equity contributions of cash and stock “contribute significantly to the financial stability of GGS, allowing GGS to service the debt using operating cash flows only, including, if necessary, normal dividends from earned surplus as a secondary source of debt service funds. GGS does not anticipate using dividends from either Pafco or [Respondent] as a primary source of debt service funds.” The Chase Credit Agreement, which is dated April 30, 1996, requires GGS to use its best efforts to cause Respondent to pay "cash dividends or other distributions or payments in cash including . . . the payment of Billing Fees and Management Fees" in sufficient amounts to pay all principal and interest due under the financing instrument. The Chase Credit Agreement defines "Billing Fees" as: "fees with respect to the payment of premiums on an installment basis that are received by an Insurance Subsidiary from policyholders and in turn paid to [GGS] or received directly by [GGS] . . .." The Chase Credit Agreement defines "Management Fees" as: "all fees paid by an Insurance Subsidiary to [GGS] that are calculated on the basis of gross written premiums." With respect to the "Management Fees" described in the Chase Credit Agreement, the Acquisition Statement describes a five-year management agreement to be entered into by GGS with Pafco and Respondent (Management Agreement). The Management Agreement, which GGS and Respondent executed on April 30, 1996, provides that GGS “will provide management services to both Pafco and [Respondent] and will receive from [Respondent] as compensation 17% of [Respondent’s] gross written premium” and a slightly lower percentage of premiums from Pafco (Management Fee). Under the Management Agreement, Respondent “will continue to pay premium taxes, boards and bureaus costs, legal and audit fees and certain computer costs.” The Acquisition Statement states that Respondent’s “operating costs" were about 21%, so the 17% cap “will allow [Respondent] to see a significant and immediate improvement in its overall financial performance”-- over $1 million in 1994, which was the last year for which financial information was then available. The Management Agreement gives GGS the exclusive right and nondelegable and nonassignable obligation to perform a broad range of business actions on Respondent’s behalf. These actions include accepting contracts, issuing policies, appointing adjustors, and adjusting claims. The Management Agreement requires GGS to "pay [Respondent’s] office rent and occupancy operating expenses from the amounts that it receives pursuant to this Agreement.” In return, the Management Agreement requires Respondent to pay GGS “fees for the business placed with [Respondent as follows:] Agents commission plus 17% not to exceed 32% in total.” The scope of the services undertaken by GGS in the Management Agreement is similarly described in the Plan of Operation, which GGS filed with Petitioner as part of the application. The Plan of Operation provides that, in exchange for the 17 percent “management commission,” GGS assumes the responsibility for all aspects of the operating expenses of the book including underwriting, claims handling and administration. The only expenses which remain the responsibility of [Respondent] directly are those expenses directly related to the insurance book, such as premium taxes, boards and bureaus, license fees, guaranty fund assessments and miscellaneous expenses such as legal and audit expenses and certain computer costs associated directly with [Respondent]. In response to a request for additional information, Goran’s general counsel, by letter dated March 13, 1996, to Petitioner’s application coordinator, added another document, Document 26. The new document was a pro forma financial projection for 1996-2002 (Proforma) showing the sources of funds for GGS to service the Chase debt. The seven-year Proforma contains only two significant sources of income for GGS: “management fee income” and “finance & service fee income" (Finance and Service Fees). By year, starting with 1996, these respective figures are $28.6 million and $7.0 million, $34.2 million and $8.6 million, $38.1 million and $9.9 million, $42.6 million and $11.0 million, $47.5 million and $12.3 million, $53.0 million and $13.7 million, and $59.3 million and $15.3 million. Accounting for the principal and interest payments over the six-year repayment term of the Chase Credit Agreement, the Proforma shows ending cash balances, during each of the covered years, culminating in a final cash balance, in 2002, of $43.9 million. By letter dated March 29, 1996, Goran’s general counsel informed Petitioner that an increase in Respondent’s book value had triggered an increase in the purchase price from $60 million to $66 million. Also, the book value of Pafco had increased from $14 million to $15.3 million, and the cash required of the Goldman Sachs limited partnerships had increased from $20 million to $21.2 million. Additionally, the letter states that Chase had increased its commitment from $44 million to $48 million. A revised Document 26 accompanied the March 29 letter and showed the same income projections. Reflecting increased debt-service projections, the revised Proforma projected lower cash balances, culminating with $39.8 million in 2002. During a meeting in March 1996, Mr. Alan Symons, president and chief executive officer of Goran and a director of Superior Group and Respondent, met with three of Petitioner's representatives, including Mary Mostoller, Petitioner's employee primarily responsible for the substantive examination of the GGS application. During that meeting, Mr. Symons informed Petitioner that GGS would receive Finance and Service Fees from Respondent's policyholders who paid their premiums by installments. Ms. Mostoller did not testify, and the sole representative of Petitioner who attended the meeting and testified candidly admitted that he could not recall whether they discussed this matter. In response to another request for additional information, Respondent’s present counsel, by letter dated April 12, 1996, informed Petitioner that the “finance and service fee income” line of the Proforma “is composed primarily of billing fees assessed to policyholders that choose to make payments on a monthly basis,” using the same rate that Respondent had long used. The letter explains that the projected increase in these fees is attributable solely to a projected increase in business and not to a projected increase in the rate historically charged policyholders for this service. In an internal memorandum dated April 18, 1996, Ms. Mostoller noted that GGS would pay the Chase Credit Agreement through a “combination of the management fees and other billing fees of both Pafco and [Respondent].” Later in the April 18 memorandum, though, Ms. Mostoller suggested, among other things, that Petitioner condition its approval of the acquisition on the right of Petitioner to reevaluate annually the reasonableness of the “management fee and agent’s commission”--omitting any mention of the "other billing fees." On April 30, 1996, Petitioner entered a Consent Order Approving Acquisition of Stock Pursuant to Section 628.461, Florida Statutes (Consent Order). Incorporating all of Ms. Mostoller's recommendations, the Consent Order is signed by Respondent and GGS, which "agree to and consent to all of the above cited terms and conditions . . .." The Consent Order does not incorporate by reference the application and related documents, nor does the Consent Order contain an integration clause, which, if present, would merge all prior written and unwritten agreements into the Consent Order so as to preclude the implementation of such agreements in conjunction with the Consent Order. Among other things, the Consent Order mandates the following: [Respondent] shall give advance notice to [Petitioner] of any proposed changes in the [Management Agreement] and shall receive written approval from [Petitioner] prior to implementing those changes. In addition, for a period of three (3) years, [Petitioner] shall reevaluate at the end of each calendar year the reasonableness of the fees as reflected on Addendum A of the [Management] Agreement[.] Furthermore, [Petitioner] may at its sole discretion, and after consideration of the performance and operating percentages of [Respondent] and any other pertinent data, require [Respondent] to make adjustments in the [M]anagement [F]ee and agent's commission. GGS . . . shall file each year an audited financial statement with [Petitioner] . . .. In addition to the above, for a period of 4 years from the date of execution of this Consent Order . . .: [Respondent] shall not pay or authorize any stockholder dividends to shareholders without prior written approval of [Petitioner]. Any direct or indirect contracts, agreements or transactions of any type or nature including but not limited to the sale or exchange of assets among or between [Respondent] and any member of the Goran . . . holding company system shall receive prior written approval of [Petitioner]. That failure to adhere to one or more of the above terms and conditions shall result WITHOUT FURTHER PROCEEDINGS in the Treasurer and Insurance Commissioner DENYING the above acquisition, or the REVOCATION of the insurers' certification of authority if such failure to adhere occurs after the issuance of the Consent Order approving the above acquisition. The Consent Order addresses the Management Fees and the commissions payable to the independent agents who sell Respondent's insurance policies. However, the Consent Order omits any explicit mention of the Finance and Service Fees, even though GGS and Respondent had clearly and unambiguously disclosed these fees to Petitioner on several occasions prior to the issuance of the Consent Order. On its face, the Consent Order requires prior approval for the payment of Finance and Service Fees, which arise due to a contract or agreement between Respondent and GGS/Superior Group. The Consent Order prohibits "direct or indirect contracts, agreements or transactions of any type or nature including . . . the sale or exchange of assets among or between [Respondent] and any member of the Goran . . . holding company system," without Petitioner's prior written approval. The exact nature of these Finance and Service Fees facilitates the determination of their proper treatment under the Consent Order and the facts of this case. Ostensibly, the Finance and Service Fees pertain to items not covered by the Management Fees, which cover a wide range of items. In fact, the Finance and Service Fees arise only when a policyholder elects to pay his premium in installments; if no policyholder were to pay his premium by installments, no Finance and Service Fees would be due. The testimony in the record suggests that the Finance and Service Fees pertain to services that necessarily must be performed when policyholders pay their premiums by installments. This suggestion is true, as far as it goes. Installment payments require an insurer to incur administrative and information-management costs in billing and collecting installment payments. Other costs arise if late installment payments necessitate the cancellations and if reinstatements follow cancellations. Installment-payment transactions are undeniably more expensive to the insurer than single-payment transactions. The record as to these installment-payment costs, which are more in the nature of a service charge, is well- developed. However, the Finance and Service Fees also pertain to the cost of the loss of the use of money when policyholders pay their premiums by installments. Installment-payment transactions cause the insurer to lose the use of the deferred portion of the premium for the period of the deferral. The record as to these costs, which are more in the nature of a finance charge or interest, is relatively undeveloped. At the hearing, Mr. Symons testified that an insurer does not lose the use of the deferred portion of the premium for an established book of business. Mr. Symons illustrated his point by analyzing over a twelve-month period the development of a hypothetical book of business consisting of twelve insureds. If an insurer added its first insured in the first month, added a second in the third, and so forth, until it added its twelfth insured in the twelfth month, and each insured chose to pay a hypothetical $120 annual premium in twelve installments of $10 each, the cash flow in the twelfth and each succeeding month (assuming no changes in the number of insureds) would be $120-- the same that it would have been if each of the insureds chose to pay his premium in full, rather than by installment. Thus, Mr. Symons' point was that, after the first eleven months, installment payments do not result in the loss of the use of money by the insurer. Mr. Symons' illustration assumes a constant book of business after the twelfth month. However, while the insurer is adding installment-paying insureds, the insurer loses the use of the portion of the first-year premium that is deferred, as is evident in the first eleven months of Mr. Symons' illustration. Also, if the constant book of business is due to a constant replacement of nonrenewing insureds with new insureds--a distinct possibility in the nonstandard automobile market--then the insurer will again suffer the loss of the use of money over the first eleven months. Either way, Mr. Symons' illustration does not eliminate the insurer's loss of the use of money when its insureds pay by installments; the illustration only demonstrates that the extent of the loss of the use of the money may not be as great as one would casually assume. The Finance and Service Fee is sufficiently broad to encompass all of the terms used in this record to describe it: "installment fee," "billing fee," "service charge," "premium fee," and even "premium finance fee." However, only "installment fee" is sufficiently broad as to capture both types of costs covered by the Finance and Service Fee. The dual components of the Finance and Service Fee are suggested by the statute authorizing its imposition. Section 627.902, Florida Statutes, authorizes an insurer or affiliate of the insurer to "finance" premiums at the "service charge or rate of interest" specified in Section 627.901, Florida Statutes, without qualifying as a premium finance company under Chapter 627, Part XV, Florida Statutes. If the insurer or affiliate exceeds these maximum impositions, then it must qualify as a premium finance company. The "service charge or rate of interest" authorized in Section 627.901, Florida Statutes, is either $1 per installment (subject to limitations irrelevant to this case) or 18 percent simple interest on the unpaid balance. The charge per installment, which is imposed without regard to the amount deferred, suggests a service charge, and the interest charge, which is imposed without regard to the number of installments, suggests a finance charge. The determination of the proper treatment of the Finance and Service Fees under the Consent Order is also facilitated by consideration of the process by which these fees were transferred to GGS/Superior Group. As anticipated by the parties, after the acquisition of Respondent by GGS, Respondent retained no employees, and GGS/Superior Group employees performed all of the services required by Respondent. The process by which Respondent transferred the Finance and Service Fees to GGS/Superior Group began with Respondent issuing a single invoice to the policyholder showing the premium and the Finance and Service Fee, if the policyholder elected to pay by installments. As Mr. Symons testified, Respondent calculated the Finance and Service Fee on the basis of the 1.5 percent per month on the unpaid balance, rather than the specified fee per installment. The installment-paying policyholder then wrote a check for the invoiced amount, payable to Respondent, and mailed it to Respondent at the address shown on the invoice. Employees of GGS/Superior Group collected the checks and deposited them in Respondent's bank account. From these funds, the employees of GGS/Superior Group then paid the commissions to the independent agents, the Management Fee (calculated without regard to the Finance and Service Fee) to GGS/Superior Group, and the Finance and Service Fee to GGS/Superior Group. Respondent retained the remainder. Finance and Service Fees can be considerable in the nonstandard automobile insurance business. Many policyholders in this market lack the financial ability to pay premiums in total when due, so they commonly pay their premiums in installments. At the time of the 1996 acquisition, for instance, about 90 percent of Respondent's policyholders paid their premiums by installments. For 1996, on gross premiums of $156.4 million, Respondent earned net income (after taxes) of $1.978 million, as compared to gross premiums of $97.6 million and net income of $5.177 million in 1995. At the end of 1996, Respondent's surplus was $57.1 million, as compared to $49.3 million at the end of the prior year. "Surplus" or "policyholder surplus" for insurance companies is like net worth for other corporations. In 1996, Respondent received $2.154 million in Finance and Service Fees, as compared to $1.987 million in the prior year. However, Respondent did not pay any Finance and Service Fees to GGS in 1996. For related-party transactions in 1996, Respondent's financial statements disclose the payment of $155,500 to GGS and Fortis for "management fees," assumed reinsurance premiums and losses, and a capital contribution of $5.558 million from GGS, of which $4.8 million was in the form of a note. These related-party disclosures for 1996 were adequate. In August 1997, Symons bought out Goldman Sachs' interest in GGS for $61 million. Following the 1996 acquisition, Goldman Sachs had invested another $3-4 million, but, with a total investment of about $25 million, Goldman Sachs enjoyed a handsome return in a little over one year. Mr. Symons attributed the relatively high price to then-current valuations, which were 100 percent of annual gross premiums. More colorfully, Mr. Symons' brother, also a principal in the Goran family of corporations, attributed the purchase price to Goldman Sachs' "greed. " At the same time that Symons bought out Goldman Sachs, Symons enabled GGS to retire the Chase acquisition debt. The elimination of Goldman Sachs and Chase may be related by more than the need for $61 million to buy out Goldman Sachs. The 1996 Annual Statement that Respondent filed with Petitioner reports "total adjusted capital" of $57.1 million and "authorized control level risk-based capital" of $20.7 million, for a ratio of less than 3:1. Section 8.10 of the Chase Credit Agreement states that GGS "will not, on any date, permit the Risk Based Capital Ratio . . . of [Respondent] to be less than 3 to 1." Section 1 of the Chase Credit Agreement defines the ”Risk-Based Capital Ratio" as the ratio of Respondent's "Total Adjusted Capital" to its "Authorized Control Level Risk-Based Capital." In August 1997, Symons raised $135 million in a public offering of securities that probably more closely resemble debt than equity. After paying $61 million to Goldman Sachs and the $45-48 million then due Chase under the Credit Agreement (due to additional advances), Symons applied the remaining loan proceeds to various affiliates, as additional capital contributions, and possibly itself, for cash-flow purposes. The $135 million debt instrument, which remains in place, requires payments over a 30- year term, provides for no repayment of principal until the end of the term, and allows for the deferral of the semi-annual dividend/interest payments for up to five years. Symons exercised its right to defer dividend/interest payments for an undetermined period of time in 2000. The payments that are the subject of this case took place from 1997 through 1999. During this period, on a gross basis, Respondent paid GGS $35.2 million in Finance and Service Fees. In fact, $1.395 million paid in 1999 were not Finance and Service Fees, but were SR-22 policy fees, which presumably are charges attributable to the preparation and issuance by GGS of certificates of financial responsibility. Because Respondent's financial statements did not separate any SR-22 fees from Finance and Service Fees for 1997 or 1998, it is impossible to identify what, if any, portion of the Finance and Service Fees in those years were actually SR-22 fees. Even though SR-22 fees represent a service charge without an interest component, they are included in Finance and Service Fees for purposes of this Recommended Order. For 1997, on gross premiums of $188.3 million, Respondent earned net income of $379,000. For 1998, on gross premiums of $179.8 million, Respondent suffered a net loss of $8.122 million. For 1999, on gross premiums of $170.5 million, Respondent suffered a net loss of $19.232 million. Respondent's surplus decreased from $65.1 million at the end of 1997, to $57.6 million at the end of 1998, to $34.2 million at the end of 1999. In its Quarterly Statement filed as of September 30, 2000, Respondent disclosed, for the first nine months of 2000, a net loss of $5.89 million and a decline in surplus to $24.0 million. By the end of 2000, Respondent's surplus decreased to $21.6 million. However, at all times, Respondent's surplus exceeded the statutory minimum. For 1999, for example, Respondent's surplus of $34.2 million doubled the statutory minimum. Respondent also satisfied the statutory premium-to-surplus ratio, although possibly not the statutory risk-based capital ratio. As of the final hearing, Petitioner had required Respondent to file a risk-based capital plan, Respondent had done so, Petitioner had required amendments to the plan, Respondent had declined to adopt the amendments, and Petitioner had not yet taken further action. From 1997-1999, Respondent's annual statements, quarterly statements, and financial statements inadequately disclosed the payments that Respondent made to GGS. The annual statements disclose "Service Fee on Ceded Business," which is a write-in item described in language chosen by Respondent. Petitioner's contention that this item appears to be a reinsurance transaction in which Respondent is ceding risk and premiums to a third-party is rebutted by the fact that the Schedule F, Part 5, on each annual statement discloses relatively minor reinsurance transactions whose ceded premiums would not approach those reported as "Service Fee on Ceded Business." Notwithstanding the unconvincing nature of Petitioner's contention as to the precise confusion caused by Respondent's reporting of the payment of Finance and Service Fees, Respondent's reporting was clearly inadequate and even misleading. The real problem in the annual statements, quarterly statements, and financial statements is their failure to disclose Respondent's payments to a related party, GGS. Respondent unconvincingly attempts to explain this omission by an imaginative recharacterization of the Finance and Service Fee transactions as pass-through transactions. These were not pass-through transactions in 1996 when Respondent retained the Finance and Service Fees. These were not pass- through transactions in 1997-1999 when Respondent properly accounted for these payments from policyholders as income and payments to GGS as expenses. The proper characterization of these transactions involving the Finance and Service Fees does not depend on the form that Respondent and GGS/Superior Group selected for them-- in which policyholders pay Respondent and Respondent pays GGS/Superior Group--although this form does not serve particularly well Respondent's present contention. Even if Respondent had changed the form so that the policyholders paid the Finance and Service Fees directly to GGS/Superior Group, the economic reality of the transactions would remain the same. Even if policyholders paid their installments to Respondent, GGS/Superior Group, or any other party, the Finance and Service Fees would initially vest in Respondent, which, under an agreement, would then owe them to GGS/Superior Group. The inadequacy of the disclosure of the Finance and Service Fees is a relatively minor issue, in itself, in this case. In its proposed recommended order, Respondent invites direction as to how Petitioner would like Respondent to report these payments in the future. The major impact of Respondent's nondisclosure of these payments is that none of the statements filed after the 1996 acquisition notified Petitioner of the existence of these payments. It is thus impossible to infer an agreement or even acquiescence on the part of Petitioner regarding Respondent's payment of Finance and Service Fees to GGS/Superior Group. The major issue in this case is whether the Consent Order authorizes Respondent to pay $35 million in Finance and Service Fees after the 1996 acquisition or, if not, whether Petitioner has approved of such payments by any other means. As already noted, the Consent Order authorizes the payment of agents' commissions and Management Fees, but not Finance and Service Fees. To the contrary, the Consent Order prohibits the payment of Finance and Service Fees for four years, at least without Petitioner's approval, because of the provision otherwise prohibiting agreements, contracts, and the transfer of assets involving Respondent and its affiliates. As noted in the Conclusions of Law, the absence of an integration clause invites consideration of oral agreements that may have preceded the execution of the Consent Order. The Consent Order is somewhat of a hybrid: Petitioner orders and Respondent consents. However, the Consent Order is sufficiently an agreement to be subject to interpretation under normal principles governing the interpretation of contracts. Respondent contends that such agreements encompassed the payment of Finance and Service Fees because Respondent disclosed such payments several times to Petitioner prior to the issuance of the Consent Order. (Any testimonial assertion of an explicit agreement by Petitioner to the payment of the Finance and Service Fees is discredited.) Respondent repeated disclosures to Petitioner of the Finance and Service Fees began with the Acquisition Statement at the start of the application process. The parties discussed these fees in March 1996. The Proformas disclose two main revenue sources from which GGS/Superior Group could service its acquisition debt: Management Fees and Finance and Service Fees. And the Proformas project almost exactly the amount that Respondent paid GGS in Finance and Service Fees from 1997-99. Although the ratio of Management Fees to Finance and Service Fees was 4:1 in the Proformas, this ratio does not minimize the role of the Finance and Service Fees. Based on gross revenues, this ratio is no indication of the relative profitability of these two sources of revenue. In fact, in 1999, the expenses covered by the Management Agreement exceeded the Management Fees by $3 million. The Finance and Service Fees are thus an important component of the revenue on which GGS intended to rely in servicing the acquisition debt. However, neither the clear disclosure of the Finance and Service Fees nor Petitioner's recognition of the importance of these fees in servicing the acquisition debt necessarily means that Petitioner agreed to their payment. By a preponderance of, although less than clear and convincing, evidence, the record precludes the possibility that Petitioner agreed in preclosing discussions or the Consent Order to preapprove the Finance and Service Fees. In this respect, Petitioner treated the Finance and Service Fees differently from the Management Fees, which Petitioner agreed to preapprove, subject to annual reevaluation for the first three years. At the level of a preponderance of the evidence, it is possible to harmonize this construction of the Consent Order with Respondent's repeated disclosures of the Finance and Service Fees. The Acquisition Statement mentions dividends as a revenue source--although a "secondary" source--and the Consent Order clearly did not impliedly preapprove the payment of dividends. Aware of the reliance of GGS upon the Finance and Service Fees to service the Chase acquisition debt, Petitioner may have chosen, for the first four years, to consider Respondent's requests for approval of the Finance and Service Fees, based on the circumstances in existence at the time of the requests. This interpretation is consistent with the testimony of Petitioner's employee that he believed that Petitioner would be able to restrict Respondent's payment of Finance and Service Fees to GGS/Superior Group because Petitioner's approval was required for the payment of dividends. The payments are pursuant to a contract or agreement for services and, as such, are not dividends, but the Consent Order requires Petitioner's approval for all contracts and agreements during the first four years. The common point is that Petitioner understood that its approval would be required for Finance and Service Fees, which had not been preapproved like Management Fees. During the application process, GGS may not have been concerned by Petitioner's failure to preapprove the Finance and Service Fees. At the time of the 1996 acquisition, as contrasted to the period after the 1997 refinancing, GGS enjoyed a relatively light debt load due to Goldman Sachs' equity investment and the "tremendous wherewithal" of its 48 percent co-owner. Another practical distinction between the Finance and Service Fees and the Management Fees militates against finding that the Consent Order impliedly approves the Finance and Service Fees and militates in favor of a finding that GGS viewed these fees as more contingent and less likely to be needed than the Management Fees. At the start of the application process, GGS submitted to Petitioner a form Management Agreement. At no time did GGS ever submit to Petitioner a form Finance and Service Agreement. The contingent nature of the Finance and Service Fees, relative to the Management Fees, is reinforced by the fact that, in 1996, Respondent retained the Finance and Service Fees. Respondent's contention that the Finance and Service Fees were a component of the agreement between it and Petitioner is not without its appeal. The contention is sufficient to preclude a finding by clear and convincing evidence that the agreement between the parties did not include a preapproval of Finance and Service Fees. Unlike the Management Fees, the maximum amount of the Finance and Service Fees is set by statute. Two consequences follow. First, Petitioner might not have found it necessary to incorporate these fees in a written agreement, as long as the maximum amount were acceptable to Petitioner, because the law establishes a ceiling on the fees and identifies the services for which they are compensation. Second, Petitioner might not have found it necessary provide for annual reevaluation of the fees, again due to the applicable statutory maximum. In one respect, the relatively contingent quality of the Finance and Service Fees inures to Respondent's benefit, at least in theory. If no policyholder paid by installments, there would be no Finance and Service Fees; however, as a practical matter, the Finance and Service Fees are almost as pervasive as the Management Fees. More importantly, though, the Finance and Service Fees, especially when imposed as a percentage of the unpaid balance, contain a significant interest component. Paying these fees to GGS/Superior Group, Respondent denies itself the investment income attributable to this forbearance. Alternatively, to the extent that the Finance and Service Fees defray services, as they do to some unknown extent, the greater weight of the evidence, although not clear and convincing evidence, establishes that these services are among the services that GGS/Superior Group undertook in the Management Agreement. These factors militate strongly against treating the Finance and Service Fees as an implied exception to the provision of the Consent Order requiring approval of all contracts or agreements with affiliates during the first four years. For these reasons, Petitioner has proved by a preponderance of the evidence, although not clear and convincing evidence, that GGS/Superior Group and Respondent needed Petitioner's approval for all payments of Finance and Service Fees prior to April 30, 2000. To the extent that, as discussed in the Conclusions of Law, Petitioner withholds such approval, the next issue is to determine the amount of Finance and Service Fees that GGS/Superior Group must return to Respondent. The determination of the amount of the repayment is substantially affected by two facts. First, Petitioner's approval is not required for any Finance and Service Fees that Respondent paid GGS/Superior Group after April 30, 2000. The Consent Order did not require Petitioner's approval for such payments, which were not dividends, for which approval would always be required, if inadequate surplus existed. Second, GGS/Superior Group is entitled to a dollar-for-dollar credit, against any liability for improperly received Finance and Service Fees, for about $20 million that it directly or indirectly transferred to Respondent since the 1996 acquisition. Half of the $20 million credit arises from Management Fees that GGS did not collect from Respondent in 1996 and 1998. As Petitioner notes, there is little, if any, documentation concerning these uncollected fees. Mr. Symons persuasively testified that the proper characterization of these amounts is dependent upon the outcome of Petitioner's effort to disallow the Finance and Service Fees already paid by Respondent. Petitioner must credit to GGS/Superior Group these $10 million in fees as an offset to the $35.2 million (or such lesser amount remaining after any retroactive approvals from Petitioner) that Respondent improperly paid GGS/Superior Group in Finance and Service Fees. Also, in 1997, GGS contributed about $10 million to Respondent's capital. As was the case with the uncollected Management Fees in 1996 and 1998, the record contains little, if any, documentation concerning the transfer, including any conditions that may have attached to it. Petitioner should credit GGS/Superior Group with this sum as an offset against the $35.2 million (or such lesser amount remaining after any retroactive approvals from Petitioner) that Respondent improperly paid GGS/Superior Group in Finance and Service Fees. As for the remaining $15 million in Finance and Service Fees that Respondent improperly paid to GGS through 1999 and any additional amounts through April 30, 2000, the impropriety arises because Respondent failed first to obtain Petitioner's approval--not because any transaction was otherwise necessarily improper. Concerning the remaining $15 million, then, Petitioner should give Respondent and GGS/Superior Group an opportunity to request retroactive approval for the payment of all or part of this sum, without regard to the lateness of the request. Applying any and all factors that Petitioner would ordinarily apply in considering such requests, Petitioner can then reach an informed determination as to the propriety of this $15 million in Finance and Service Fees. If Petitioner determines that Respondent must obtain from GGS/Superior Group repayment of any Finance and Service Fees, then Petitioner may consider the issue of the timing of the repayment. As Petitioner mentions in its proposed recommended order, an evidentiary hearing might be useful for this purpose. Obvious sources would be setoffs against Management Fees and Finance and Service Fees that Respondent is presently paying Superior Group.
Recommendation It is RECOMMENDED that the Department of Insurance enter a final cease and desist order: Determining that, without the prior written consent of the Department, Superior Insurance Company paid Finance and Service Fees to GGS/Superior Group in the net amount of approximately $15 million, plus all such amounts paid after the period covered by this case through April 30, 2000. Requiring that Superior Insurance Company immediately file all necessary documentation with the Department to seek the retroactive approval of all or part of the sum set forth in the preceding paragraph. If any sum remains improperly paid after implementing the procedure set forth in the preceding paragraph, establishing a reasonable repayment schedule for Respondent to impose upon Superior Group--if necessary, in the form of setoffs of Management Fees and Finance and Service Fees due at the time of, and after, the Final Order. Determining that Superior Insurance Company inadequately disclosed related-party transactions and ordering that Superior Insurance Company comply with specific guidelines for the reporting of these transactions in the future. DONE AND ENTERED this 1st day of June, 2001, in Tallahassee, Leon County, Florida. ROBERT E. MEALE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 1st day of June, 2001. COPIES FURNISHED: Honorable Tom Gallagher State Treasurer/Insurance Commissioner Department of Insurance The Capitol, Plaza Level 02 Tallahassee, Florida 32399-0300 Mark Casteel, General Counsel Department of Insurance The Capitol, Lower Level 26 Tallahassee, Florida 32399-0307 S. Marc Herskovitz Luke S. Brown Division of Legal Services Department of Insurance 200 East Gaines Street, Sixth Floor Tallahassee, Florida 32399-0333 Clyde W. Galloway, Jr. Austin B. Neal Foley & Lardner 106 East College Avenue, Suite 900 Tallahassee, Florida 32301
The Issue 1. Whether the applications which are the subjects of DOAH Case Nos. 96-4970 and 96-4971 should be granted. 2a. Whether the respondents in DOAH Case No. 96-5525 committed the violations alleged in the Amended Administrative Complaint issued in that case. 2b. If so, what sanctions should be imposed.
Findings Of Fact Based upon the evidence adduced at hearing and the record as a whole, the following findings of fact are made: The Department is a state government licensing and regulatory agency, which, among other things issues motor vehicle retail installment seller (MVRIS) licenses. Jack Bowshier Buick-Pontiac-GMC Trucks, Inc. (Bowshier Buick) is a corporation organized under the laws of the State of Florida. Bowshier Buick formerly operated an automobile dealership at 2445 Southeast Federal Highway in Stuart, Florida, and held a MVRIS license issued by the Department. At all times material to the instant cases, Jack A. Bowshier, Sr., in his capacity as owner/director/president, and Jack D. Bowshier, Jr., in his capacity as general manager/director, exercised control over the policies and practices of Bowshier Buick. On or about October 25, 1995, the Department began an investigation into the business affairs of Bowshier Buick. The Department's investigation revealed, among other things, that Bowshier Buick engaged in the practice of reselling "trade-ins" without timely satisfying the existing liens on the vehicles. Such practice, which was the product of cash flow problems the dealership was experiencing, adversely affected the credit ratings of those who had "traded-in" these vehicles and prevented the ultimate purchasers of the vehicles from timely obtaining new certificates of title. In the "deal jackets" that the dealership created to place the paperwork relating to the transactions involving these "traded-in" vehicles, the Department's investigators found copies of checks which were made payable to those who held the liens on these "trade-in" vehicles. The investigators subsequently discovered, however, that these checks had not been timely sent to the lienholders, but instead had been placed in the desk drawer of the dealership's office manager, Christine Casale. On several occasions, when customers who had "traded-in" vehicles complained to the dealership that the liens on their vehicles had not been satisfied, they were told by Casale that the checks to satisfy the liens had been mailed to the lienholders, when in fact they had not been. Such misrepresentations were made in an effort to mislead and deceive these complaining customers. In making these fraudulent misrepresentations, Casale acted pursuant to instructions that had been given to her by Jack A. Bowshier, Sr., and Jack D. Bowshier, Jr. On November 3, 1995, the Department issued an Emergency Immediate Temporary Final Order to Cease and Desist and Suspension of [Bowshier Buick's] Motor Vehicle Retail Installment Seller's License (Emergency Order) in Administrative Proceeding Nos. 4287-F-11/95, 4287a-F-11/95, and 4287b-F-1195. Bowshier Buick, Jack A. Bowshier, Sr., and Jack D. Bowshier, Jr., were named as respondents in the Emergency Order. The Department alleged in the Emergency Order that they had committed the following violations of the law for which they are subject to the penalties as set forth in Section 520.995, Florida Statutes: Violation of Section 520.995(1)(b), Florida Statutes, in that they have perpetrated fraud, misrepresentation, deceit, or gross negligence in retail installment transactions, regardless of reliance by or damage to the buyer. Violation of Section 520.995(1)(b), Florida Statutes, in that they have committed criminal conduct in the course of their Motor Vehicle Retail Installment Sellers business. Violation of Section 520.995(3)(d), Florida Statutes, in that they have demonstrated a lack of financial responsibility. On November 13, 1995, an Administrative Complaint for Imposition of Sanctions was filed against Bowshier Buick, Jack A. Bowshier, Sr., and Jack D. Bowshier, Jr. Jack A. Bowshier, Sr., subsequently engaged in negotiations with William Chamberlain, the owner and president of WAFC Holdings, Inc. (WAFC) concerning the sale of the assets of Bowshier Buick to WAFC in return for, among other things, the assets of two Chamberlain-owned corporations, South Florida Auto Exchange, Inc., d/b/a Palm Beach Motors, and Stuart Motors, Inc., d/b/a Stuart Motors, that were in the business of selling pre- owned motor vehicles in the West Palm Beach and Stuart areas, respectively. On December 5, 1995, Jack A. Bowshier, Sr., and Chamberlain signed paperwork (Sale/Purchase Agreements) in which their corporations agreed to consummate such a transaction. On that same date, they also, on behalf of their corporations, executed Interim Management Agreements, pursuant to which WAFC took over the management of Bowshier Buick's dealership at 2445 Southeast Federal Highway in Stuart and Bowshier Buick assumed responsibility for the management of Palm Beach Motors and Stuart Motors, effective December 5, 1995. Later that month, WPAS, Inc. (WPAS) and DAB, Inc. (DAB) were formed. At all times material to the instant case, Jack A. Bowshier, Sr., has been the sole owner, president and director of WPAS, and, as such, has directed the operations of the corporation. At all times material to the instant case, WPAS maintained its principal place of business at 2815 Okeechobee Boulevard in West Palm Beach, the location of Palm Beach Motors. At all times material to the instant case, Jack D. Bowshier, Jr., was the general manager of Palm Beach Motors. At all times material to the instant case, Jack A. Bowshier, Sr., has been the sole owner, president and director of DAB, and, as such, has directed the operations of the corporation At all times material to the instant case, DAB has maintained its principal place of business at 2695 Southeast Federal Highway in Stuart, the location of Stuart Motors. At all times material to the instant case, Todd Bowshier, has been the general manager of Stuart Motors. A Stipulation for Settlement and Consent to Final Order in Administrative Proceeding Nos. 4287-F-11/95, 4287a-F-11/95, and 4287b-F-1195 (Stipulation) was executed by Jack A. Bowshier, Sr., on behalf of Bowshier Buick and on his own behalf, and by Jack D. Bowshier, Jr., on January 31, 1996, and by Thomas Stouffer, the Regional Director of the Department's Southeast Florida Regional Office, on behalf of the Department, on February 2, 1996. It provided as follows: The State of Florida, Department of Banking and Finance, Division of Finance (hereinafter "Department"), and Respondents Jack Bowshier Buick-Pontiac-GMC Trucks, Inc. (hereinafter "Bowshier Buick"), Jack A. Bowshier (hereinafter "JA Bowshier"), and Jack D. Bowshier (hereinafter "JD Bowshier"), in consideration of the mutual promises herein contained and other good and valuable consideration hereby agree to enter into this Stipulation for Settlement and Consent to Final Order as follows: At all times material hereto Bowshier Buick has been a Florida corporation with its principal place of business located at 2445 SE Federal Highway, Stuart, FL 34994. On or about December 25, 1988 Bowshier Buick was issued a Motor Vehicle Retail Installment Seller's License by the Department, which remains active to date. At all times material hereto JA Bowshier has been a Director, owner and control person of Bowshier Buick. In these capacities JA Bowshier creates, controls, formulates, directs and personally participates in the acts, practices and affairs of Bowshier Buick. At all times material hereto JD Bowshier has been a Director and General Manager of Bowshier Buick. In these capacities JD Bowshier creates, controls, formulates, directs and personally participates in the acts, practices and affairs of Bowshier Buick. On or about October 25, 1995, the Department received information that it believed indicated that Bowshier Buick had accepted motor vehicles as "trade-ins" and resold these vehicles without first satisfying their existing liens. The Department was concerned that purchasers of these motor vehicles could not be issued Certificates of Title. As a result of this information, Department examiners/investigators, on three occasions, visited Bowshier Buick's principal office pursuant to Section 520.996, Florida Statutes. They concluded that Bowshier Buick was engaging in acts and/or practices constituting violations of Chapter 520, Florida Statutes. On November 3, 1995, the Department filed an Emergency Immediate Temporary Final Order to Cease and Desist and Suspension of Motor Vehicle Retail Installment Seller's License (hereinafter "Emergency Order") which was followed, on November 13, 1995, with an Administrative Complaint for Imposition of Sanctions and Notice of Rights (hereinafter "Complaint"). Respondents agree that they have been duly served with both the Emergency Order and Complaint and that the Department has jurisdiction over them and this case. The Department agrees that Respondents timely filed their Answer, Affirmative Defenses and Petition for Formal Proceedings in response to the Complaint. The Department herein makes the following findings of fact, upon which the penalties imposed are based, but which findings Respondents neither admit nor deny: There were approximately thirty trade-ins taken by Bowshier Buick for which the dealership had not satisfied existing liens. Some of these vehicles were resold without first satisfying their existing liens. Some customers who traded in their motor vehicles suffered adverse credit ratings because of the failure of Bowshier Buick to pay off the existing lienholders. Bowshier Buick was experiencing severe cash flow problems. For the month of September, Bowshier Buick incurred a monthly bank charge of $5,000 for dealership bank overdrafts. A total estimated amount of $125,000 in outstanding insufficient funds checks was evident as of November, 1995. Bowshier Buick did not remit premiums collected to the insurance company for credit life, accident & health insurance policies which had been purchased by Bowshier Buick customers. They had not forwarded said premiums for policies purchased by customers since January, 1995. Bowshier Buick records were misleading in that copies of checks made payable to lienholders and in the amount due to satisfy liens were contained within the files for months, when the checks were never delivered and/or funds were never disbursed to the payee. Respondents maintain that subsequent to the Department's filing of its Emergency Order, Bowshier Buick has cooperated with the Department to resolve the lien, title, and premium problems. In an effort to avoid litigation and costs associated therewith, the Department and Respondents now voluntarily agree to enter into this Stipulation for Settlement and Consent to Final Order (hereinafter "Stipulation") addressing the violations raised by the Emergency Order and the Complaint. The Respondents and the Department agree as follows: Respondents will bring and keep all books and records up to date and maintain them accurately and in compliance with the law. Respondents will maintain and keep current all forms required by the automobile dealer's manual, Department of Motor Vehicles and the Department, including the title log. Respondents will keep all title work and registrations current and in compliance with the law. Respondents will write any and all insurance policies and remit all premiums in compliance with the law, including but not limited to credit life, accident and health insurance. Respondents will dismiss with prejudice any and all actions pending in Circuit Court and the District Court of Appeal, not file any further actions in any court which in any fashion or respect arise or tend to arise out of the facts presented by the Emergency Order or the Complaint (see paragraph 6 herein) and, indemnify and hold the Department harmless if such further actions are filed. Respondents shall, within 30 days from the date of execution of this stipulation, reimburse any and all customers who made payment(s) on past due liens which they did not owe. Within 45 days, verifiable proof of reimbursement shall be provided to the Department. Respondent shall, within 90 days from the date of execution of this stipulation, assist any and all customers who have been affected by Respondents untimely payment of liens in repairing their credit. Their assistance shall include, but shall not be limited to, sending letters to lenders wherein Respondents assume all responsibility for the late lien payments. Within 105 days, verifiable proof of such assistance shall be provided to the Department. Respondents shall, within 30 days from the date of execution of this stipulation, reimburse any and all customers due refunds on credit life, accident and health insurance. Within 45 days, verifiable proof of such assistance shall be provided to the Department. Respondents shall, immediately upon execution of this stipulation, pay off any and all outstanding past due customer liens, as well as all liens that have been improperly levied upon customers. Upon repayment, verifiable proof thereof shall be provided to the Department. Respondents shall operate the dealership, at all times in compliance with the law. Respondents shall pay to the Department by cashiers check, within 30 days of the date of execution of this stipulation, $5,000, representing costs of the Department's examination/investigation in this case. Respondents agree to sell Bowshier Buick to WAFC Holdings, Inc., its agents, nominees or assigns. If the sale is cancelled or not consummated within 6 months from the date of the Final Order herein, for any reason: 1.) Respondents will immediately notify the Department, Diane Leeds, Esq., in writing via certified mail, return receipt requested, of that fact. 2.) Respondents' Departmental license(s) shall be placed upon and remain on probation for a period of three (3) years, commencing on the date the sale is cancelled or not consummated. For the duration of the probationary period, Respondents agree to: Provide the Department, on a monthly basis, prior to the 10th day of each month, a copy of the dealership "finance log" attached hereto and made a part hereof as Exhibit "A." Allow the Department to make unannounced visits to the dealership, as frequently as the Department deems necessary, to assure that Respondents are operating in compliance with the law. Prior to the termination of the probationary period the dealership shall have, in reserve, a minimum of three (3) weeks supply of operating capital, to be computed based upon the operating expenses of the dealership at that time, and provide verifiable proof thereof to the Department. The Final Order incorporating the terms of this stipulation constitutes final agency action by the Department for which the Department may seek enforcement pursuant to the provisions of Chapters 120 and 520, Florida Statutes, and Respondents knowingly and voluntarily agree to waive any right to: 1. A formal hearing; 2. To contest the finality of the Final Order; 3. To contest the validity of any term, condition, obligation or duty created hereby; 4. To separately stated Findings of Fact and Conclusions of Law; and 5. To administrative or judicial review hereof. Respondents acknowledge, concur and stipulate that their failure to comply with any of the terms, obligations and conditions of this stipulation and the Final Order adopting it, shall result in their being deemed to be in violation of a written agreement and Final Order issued pursuant to the provisions of Chapters 120 and 520, Florida Statutes, and Respondents stipulate and agree to the issuance of an emergency suspension of their license(s) and a cease and desist order. Respondents waive all rights to prior notice and hearing before entry of such order. However, nothing herein limits Respondents' right to contest any finding or determination made by the Department concerning their alleged failure to comply with any of the terms and provisions of this stipulation or of the Final Order. Respondents waive and release the Department and its agents, representatives, and employees from any and all causes of action they may have including without limitations, any right to attorney fees arising out of this proceeding; libel; slander; violation of a constitutionally protected right; intentional tortious interference with advantageous contractual relationship and the like; arising prior to or out of the filing of the Complaint, Emergency Order, the execution of the stipulation and entry of the Final Order. The Department agrees to accept this release without acknowledging, and expressly denies, that any such causes of action may exist. Respondents further agree that nothing contained herein shall be construed to waive or restrict the Department's right to initiate any legal action based upon facts or information which come to the Department's attention subsequent to the execution of this stipulation and the Department further agrees that nothing contained herein shall be construed to waive or restrict the Respondents' rights to defend any subsequent legal action. The Department and Respondents each agree to bear their own costs and attorneys' fees incurred in connection with this proceeding and entry of the Final Order, except as stated in paragraph 11k. herein. The Department and Respondents represent that the officer(s) executing this stipulation are authorized to act on behalf of the corporations and agency for settlement purposes. The Department and Respondents acknowledge that they have read this stipulation and fully understand the rights, obligations, terms, conditions, duties, and responsibilities with respect to its contents. Execution of this stipulation by the Department shall not be construed as a final acceptance of its terms and conditions absent entry of a Final Order by the Comptroller adopting same, however, the existing Emergency Order shall be null and void immediately upon entry of the Final Order by the Comptroller. The undersigned parties hereby acknowledge and agree to the terms and conditions of the foregoing stipulation by written consent on the last date executed below, subject to final approval by the Comptroller. On February 16, 1996, a Final Order was issued in Administrative Proceeding Nos. 4287-F-11/95, 4287a-F-11/95, and 4287b-F-1195 adopting the parties' Stipulation and requiring the parties to comply with the Stipulation's terms and conditions. The purchases of the assets of Bowshier Buick, South Florida Auto Exchange, Inc., and Stuart Motors, Inc., were finalized in March of 1996. On March 18, 1996, WPAS filed with the Department an Application for Motor Vehicle Retail Installment Seller License (WPAS's Application). In its Application, WPAS indicated that it was doing business as Palm Beach Motors at 2815 Okeechobee Boulevard in West Palm Beach. In response to Question 10 on the application form, which read as follows, WPAS answered "yes" and appended to its completed Application a copy of the Stipulation filed in Administrative Proceeding Nos. 4287-F-11/95, 4287a-F- 11/95, and 4287b-F-1195: Has the applicant, any of the persons listed herein, or any person with power to direct the management or policies of the applicant had a license, registration, or the equivalent, to practice any profession or occupation revoked, suspended, or otherwise acted against? Yes No (If yes, list such persons, give details, and provide a copy of the allegations and documentation of the final disposition of the case.) WPAS's Application was signed by Jack A. Bowshier, Sr. On April 8, 1996, DAB filed with the Department an Application for Motor Vehicle Retail Installment Seller License (DAB's Application). In its Application, which was signed by Jack A. Bowshier, Sr., DAB indicated that it was doing business as Stuart Motors at 2695 Southeast Federal Highway in Stuart. In response to Question 10 on the application form, DAB mistakenly answered "no." Neither a copy of the Stipulation filed in Administrative Proceeding Nos. 4287-F-11/95, 4287a-F-11/95, and 4287b-F-1195, nor a copy of the Final Order entered in these proceedings, was appended to DAB's completed Application. The Department granted DAB's Application and issued DAB a MVRIS license, effective April 11, 1996. On May 1, 1996, Jack A. Bowshier, Sr., sent the following letter to the Department: I am voluntarily surrendering my license from the Department of Banking and Finance issued to DAB, Inc., D/B/A Stuart Motors to you today due to the fact that we have made an honest mistake in the application for the license. I apologize for this mistake. I am reapplying for the license for this corporation. I ask that you please reconsider your position. On that same day, May 1, 1996, Jack A. Bowshier, Sr., on behalf of WPAS, and William Chamberlain, on behalf of South Florida Auto Exchange, Inc., executed an agreement (WPAS Use of License Agreement), which provided as follows: AGREEMENT made this 1st day of May, 1996 by and between SOUTH FLORIDA AUTO EXCHANGE, INC., DBA PALM BEACH MOTORS, INC., a Florida corporation ("PBM") AND WPAS, INC., a Florida corporation ("Operator"). WHEREAS, PBM and Operator, or Operator's affiliate, entered into an agreement for sale and purchase of assets dated December 5, 1995 (the "Asset Purchase Agreement") for the purchase and sale of certain assets of PBM located at 2815 Okeechobee Blvd., West Palm Beach, Florida (the "Dealership"); and WHEREAS, PBM and Operator closed on the sale and purchase on or about the 19th day of March, 1996; and WHEREAS, Operator has submitted an application (the "Application") to the State of Florida, Comptroller's Office, Department of Banking (the "Department") for a license to originate financing in connection with the sale of automobiles at the Dealership, which Application remains pending with the Department; and WHEREAS, Operator has not yet received a license from the Department pursuant to the Application; and WHEREAS, Operator has requested PBM to allow Operator to continue to use PBM's license (the "PBM License") from the Department at the Dealership pending the Department's action on Operator's Application; and WHEREAS, PBM, after obtaining the verbal approval of the Department, has agreed to allow Operator to utilize PBM['s] License at the Dealership on a temporary basis. NOW, THEREFORE, for and in consideration of Ten dollars ($10.00) paid by Operator to PBM, as well as other good and valuable considerations, the receipt and sufficiency of which are hereby acknowledged by PBM, the parties agree as follows: The foregoing recitals are true and correct and incorporated herein by reference. PBM hereby authorizes Operator to originate finance paper under the PBM license at the Dealership until the earlier of: PBM notice to Operator of the revocation of such authority, which notice may be given [by] PBM, in PBM's sole and absolute discretion, at any time upon three (3) days prior notice to Operator, upon the Department's disposition of Operator's application, whether such disposition is a granting of a license or the denial of a license, any demand by the Department that Operator cease the use of the PBM license, upon the infraction of any rule or regulation by Operator applicable to the PBM License. Operator agrees to utilize the PBM License only in strict compliance of all applicable rules and regulations, including, but not limited to the rules and regulations of the Department. Operator does hereby agree to indemnify and hold PBM harmless against any claim arising out of the Dealership or Operator's use of the PBM License. This Agreement contains the entire understanding of the parties and may not be changed or modified orally, but only by written instrument signed by the parties hereto. Any notice required or permitted to be given under this Agreement shall be in writing, delivered by certified mail, return receipt requested, or by a national overnight courier service, such as Federal Express, and mailed to the parties at the following address: PBM: c/o Stuart Buick Pontiac GMC 2445 S.E. Federal Highway Stuart, Florida 34994 Operator: 2815 Okeechobee Blvd. West Palm Beach, Florida 33409 This agreement shall be binding upon the parties, their successors and assigns. This Agreement shall be governed by the laws of the State of Florida. In the event litigation is instituted in connection with the enforcement of the terms of this Agreement, the prevailing party shall be entitled to an award of costs and attorneys fees, including attorneys fees and costs on appeal. The "PBM License" referenced in the WPAS Use of License Agreement had an "expiration date" of December 31, 1996. An agreement between DAB and Stuart Motors, Inc. (DAB Use of License Agreement) containing provisions substantially identical to those in the WPAS Use of License Agreement was executed by Jack A. Bowshier, Sr. (on behalf of DAB) and Chamberlain (on behalf of Stuart Motors, Inc.) also on May 1, 1996. The MVRIS license which was the subject of the DAB Use of License Agreement, like the "PBM License," had an expiration date of December 31, 1996. The WPAS and DAB Use of License Agreements were both drafted by Chamberlain's attorney, Michael Botos. Before drafting these agreements, Botos had spoken to Diane Leeds, an attorney with the Department. Botos erroneously believed that Leeds, acting on behalf of the Department, had given the "verbal approval" referenced in the agreements. On May 6, 1996, Jack A. Bowshier, Sr., filed a corrected Application for Motor Vehicle Retail Installment Seller License on behalf of DAB (DAB's Second Application). Department investigators visited Palm Beach Motors on July 19, 1996. They discovered, from an examination of WPAS's records, that WPAS (acting through Jack D. Bowshier, Jr., the general manager of Palm Beach Motors) had been involved in retail installment transactions with retail buyers of its vehicles, notwithstanding that it did not have a license from the Department authorizing it to engage in such activity. Ten retail installment contracts (signed by Jack D. Bowshier, Jr., on behalf of WPAS) were found and reviewed. In four of these ten retail installment transactions, the buyer was charged a simple interest rate in excess of 18 percent per annum. By letter mailed on July 19, 1996, the Department notified WPAS of its intention to deny WPAS's Application for a Motor Vehicle Installment Seller License. In its notice, the Department advised that its proposed denial was based upon, among other things, WPAS's engaging in the business of a motor vehicle retail installment seller without a license, in violation of Section 520.03(1), Florida Statutes. Department investigators visited Stuart Motors on July 22, 1996. They discovered, from an examination of DAB's records, that DAB (acting through Todd Bowshier, the general manager of Stuart Motors) had been involved in retail installment transactions with retail buyers of its vehicles, notwithstanding that it did not have a license from the Department authorizing it to engage in such activity. Ten retail installment contracts (signed by Todd Bowshier on behalf of DAB) were found and reviewed. In all of these ten retail installment transactions, the buyer was charged a simple interest rate of 19.95 percent per annum. On or about July 26, 1996, Jack A. Bowshier, Sr., met with Department representatives, including Diane Leeds, to discuss the Department's proposed action. At the meeting, Jack A. Bowshier, Sr., was told that "he could not finance without a license at that time under anybody's license." Nonetheless, following the meeting, WPAS (doing business as Palm Beach Motors) and DAB (doing business as Stuart Motors), relying on the legal advice of their attorney (and acting through their general managers), continued to operate as motor vehicle retail installment sellers without having MVRIS licenses of their own (as they had done since May of that year, following the execution of the WPAS and DAB Use of License Agreements). In addition, they continued to knowingly charge buyers simple interest rates in excess of 18 percent per annum. Jack A. Bowshier, Sr., was at all material times aware of these activities, which continued at Palm Beach Motors until approximately September or October of 1996, when the used car operation was sold,1 and continued at Stuart Motors until early 1997. By letter mailed on October 1, 1996, the Department notified DAB of its intention to deny DAB's Second Application for a Motor Vehicle Installment Seller License. In its notice, the Department advised that its proposed denial was based upon, among other things, DAB's engaging in the business of a motor vehicle retail installment seller without a license, in violation of Section 520.03(1), Florida Statutes. Department investigators returned to Stuart Motors on October 6, 1996, to examine DAB's records. Their examination revealed nine retail installment contracts that DAB had entered into since the investigators' July 22, 1996, visit. These contracts were signed by Todd Bowshier on behalf of DAB. In all but one of these retail installment transactions, the buyer was charged a simple interest rate of more than 18 percent per annum. In late January of 1997, personnel from the Office of the State Attorney, 19th Judicial Circuit, assisted by Department personnel, conducted a search (pursuant to a search warrant) of the records maintained by DAB at Stuart Motors. Sixty-four retail installment contracts (signed by Todd Bowshier on behalf of DAB) that DAB had entered into from August 10, 1996, to January 25, 1997, (including eight of the nine contracts that Department investigators had discovered during their October 6, 1996, visit to Stuart Motors) were seized. Thirty-seven of these 64 retail installment transactions took place from August 10, 1996, to October 16, 1996. In all but one of these 37 transactions, the buyer was charged a simple interest rate of more than 18 percent per annum. In all of the post-October 16, 1996, transactions (including eight which occurred after the expiration of the MVRIS license which was the subject of the DAB Use of License Agreement), the buyer was charged a simple interest rate of 17.99 percent. It was not until the Bowshiers received a copy of the following letter, dated February 13, 1997, the Office of the State Attorney, 19th Judicial Circuit, sent to the Department regarding the "Jack Bowshier investigation" that DAB stopped engaging in the business of a motor vehicle retail installment seller: This letter is in response to your investigation of DAB, Inc. d/b/a Stuart Motors etc. As you are aware I have spent the last three weeks reviewing the events between your Department, which began on March 18, 1996, and the above named suspect. It is apparent from the outset of your investigation that Mr. Bowshier and associates have done everything in their power to continue operating a business and finance automobiles without the appropriate Retail Installment Sellers license. However, it is my opinion that I would have insurmountable proof problems in a criminal prosecution based on the events that have occurred to date. Mr. Bowshier maintains that he can continue writing installment loan contracts because the validity of the denial of his application continues to be the subject of litigation. Mr. Bowshier continues to suggest that this is his position at the advi[c]e of his attorney, Mr. Ronald LaFace. After speaking with Mr. LaFace regarding the above I can see why the suspect would reasonably rely on his attorney's advice. Even to me, Mr. LaFace continues to maintain the position that the denial of the licensure application is "nonfinal." While we know this position is irrelevant to both the Department of Banking and Finance, and the criminal prosecution, it still creates the appearance of a defense which would remove the "criminal intent" aspect of our case. I have an ethical obligation to only prosecute cases in which I believe, based on my training and experience, there is a reasonable chance for a conviction at trial. Because this case has become so diluted in "my attorney told me" and "my understanding was . . .," I cannot ethically go forward with a criminal prosecution and still meet my burden of proof at trial. However, I understand the frustration in wanting to go forward in a case of this nature. With that in mind this letter will serve two purposes. While my declination to prosecute this case up through the date of this letter is final, it is not absolute. This letter will be sent to both Mr. Bowshier (and associates) and Mr. Ronald LaFace. In doing so, it will serve a very particular purpose. It will inform the above (including Mr. LaFace), that I will not prosecute the criminal acts that Mr. Bowshier and associates have committed to date because of the above explained proof problems. However, I will prosecute from this date forward any and all financing that occur[s] by the suspect and his associates without a license. I should make it perfectly clear to Mr. Bowshier and his attorney that it does not matter what their position is regarding the "appeal" of the denial of license, they cannot finance automobiles. Mr. Bowshier and associates should also know that the advice of their attorney to continue writing contracts during the pendency of the licensure "appeal" is wrong. If the suspect and his associates continue to write contracts, it will constitute a criminal act despite the advice of his attorney. I will prosecute Mr. Bowshier and associates if he continues to write contracts without the appropriate licenses pr[e]scribe[d] by law. The "appeal" referenced in the letter was taken after the Department, by letter mailed October 1, 1996, advised DAB of its intention to deny DAB's Application for a Motor Vehicle Installment Seller License. In its letter, the Department advised that its proposed denial was based upon, among other things, DAB's engaging in the business of a motor vehicle retail installment seller without a license, in violation of Section 520.03(1), Florida Statutes.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department enter a final order (1) finding the Bowshiers guilty of the violations alleged in the Amended Administrative Complaint; (2) directing the Bowshiers to cease and desist from committing such violations; (3) imposing jointly and severally upon WPAS, Jack A. Bowshier, Sr., and Jack D. Bowshier, Jr., an administrative fine in the amount of $7,000.00; (4) imposing jointly and severally upon DAB, Jack A. Bowshier, Sr., and Todd Bowshier an administrative fine in the amount of $61,500.00; and (5) denying WPAS's and DAB's applications for licensure. DONE AND ENTERED this 28th day of May, 1998, in Tallahassee, Leon County, Florida. STUART M. LERNER Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 28th day of May, 1998.
The Issue The issue is whether Petitioners should be permitted to establish an additional dealership for the sale of motorcycles manufactured by Astronautical Bashan Motorcycle Manufacturer Company, Ltd., at 5720 North Florida Avenue, Tampa, Florida.
Findings Of Fact Based on the evidence adduced at hearing and the record as a whole, the following Findings of Fact are made: On March 7, 2008, the Florida Administrative Weekly published a notice that Peace Industry Group intended to allow the establishment of Mobility Tech as a dealership for the sale of motorcycles manufactured by BASH at 5720 North Florida Avenue in Tampa (Hillsborough County), Florida. The notice also stated that the "new point" location for the proposed dealership is in a "county of more than 300,000 population, according to the latest population estimates of the University of Florida, Bureau of Economic and Business Research." Respondent is an existing franchised dealer of motorcycles manufactured by BASH. Respondent's dealership is located at 5908 North Armenia Avenue in Tampa, Florida. The driving distance between Respondent's dealership and the location of the new dealership that Peace Industry proposes to establish is 2.05 miles.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Highway Safety and Motor Vehicles issue a final order denying Petitioners, Peace Industry Group, Inc., and Mobility Tech, Inc.'s, approval to establish a new BASH motorcycle dealership at 5720 North Florida Avenue, Tampa, Florida. DONE AND ENTERED this 19th day of November, 2008, in Tallahassee, Leon County, Florida. S CAROLYN S. HOLIFIELD 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 19th day of November, 2008.
Conclusions This matter came before the Department for entry of a Final Order upon submission of an Order Closing File by Daniel M. Kilbride , an Administrative Law Judge of the Division of Administrative Hearings, pursuant to Petitioner's Motion to Relinquish Jurisdiction based on a Settlement Stipulation entered into between the parties, a copy of which is attached and incorporated by reference in this order. The Department hereby adopts the Order Closing File as its Final Order in this matter. Accordingly it is FOUND and ORDERED as follows: That Respondent shall pay an administrative fine in the amount of two hundred fifty dollars ($250.00) per count for a total of four thousand two hundred fifty dollars ($4,250.00). The fine shall be paid in four monthly payments. The first payment of $1,250.00 to be paid on or before April 16, 2010. The second payment of $1,000.00 to be paid on or before May 16, 2010. The third payment of $1,000.00 to be paid on or before June 16, 2010. The fourth Filed March 18, 2010 4:17 PM Division of Administrative Hearings. and final payment of $1,000.00 to be paid on or before July 16, 2010. All payments are to be made by returning a copy of the order with payment to: Department of Highway Safety and Motor Vehicles Office of the Hearing Officer Division of Motor Vehicles 2900 Apalachee Parkway, Room A308, MS-61 Tallahassee, Florida 32399-0600 If Respondent pays each installment of the amount specified in paragraph one above within the specified time the Department will impose no further penalties or sanctions against Respondent. However, if Respondent fails to pay any installment as specified in paragraph one, on the day following the due date of the installment, Respondent's motor vehicle dealer license will be automatically suspended and Respondent will cease to do business as a motor vehicle dealer. If, after suspension Respondent pays the past due installment before the due date of the next installment, its motor vehicle dealer license will immediately be reinstated without further penalties or sanctions. However, if Respondent fails to pay the past due installment by the due date of the next installment, the Department will revoke Respondent's motor vehicle dealer license. If the Department suspends or revokes Respondent's motor vehicle dealer license for non-payment as specified in paragraphs two and three said suspension or revocation shall be without recourse to the Respondent and Respondent hereby expressly waives any right to appeal or otherwise contest the suspension and revocation./ / DONE AND ORDERED this / gday of March 2010, at Tallahassee, Leon County, Florida. Division of Motor Vehicles Department of Highway Safety and Motor Vehicles Neil Kirkman Building, Room B439, MS-60 Tallahassee, Florida 32399-0600 Filed in the official records of the Division of Motor Vehicles this ay of March 2010. NOTICE OF APPEAL RIGHTS Judicial review of this order may be had pursuant to section 120.68, Florida Statutes, in the District Court of Appeal for the First District, State of Florida, or in any other district court of appeal of this state in an appellate district where a party resides. In order to initiate such review, one copy of the notice of appeal must be filed with the Department and the other copy of the notice of appeal, together with the filing fee, must be filed with the court within thirty days of the filing date of this order as set out above, pursuant to Rule 9.110, Rules of Appellate Procedure. CAF:jdc Copies furnished: Gary Konopka Regional Administrator Dealer License Section Riad I. Kantar, President World Shell, Inc. 7161 Augusto Boulevard Seminole, Florida 33777 FALR Post Office Box 385 Gainesville, Florida 32602
The Issue Whether the Respondent knowingly sold rebuilt vehicles without disclosing in writing to the purchaser, customer, or transferee that the vehicles were previously titled as rebuilt vehicles.
Findings Of Fact The Respondent, Charles R. Kuhn, III, is and was at all times relevant to the allegations in the administrative complaint a licensed independent motor vehicle dealer in Florida. The Respondent did business in the name A-1 Auto and Truck Center and was located at 12180-1 Phillips Highway, Jacksonville. The Department is the state agency authorized by statutes to regulate licensed independent motor vehicle dealers and to maintain the titles of motor vehicles in the State of Florida. Pam A. Albritton testified about her experiences buying a vehicle from the Respondent. On August 22, 2003, as reflected by the date on the installment sales contract, Albritton purchased a 2000 Volkswagen (VW), VIN (Vehicle Identification Number) 3 VWSD 29 M1YM 197846, for $8,281.80. The Respondent did not at any time provide Albritton with a written statement that the vehicle she purchased, VIN 3 VWSD 29 M1YM 197846, hereafter the Albritton vehicle or car, was a rebuilt vehicle and had been previously titled as a rebuilt vehicle. The Respondent did not tell Albritton that this vehicle was a rebuilt vehicle. Albritton did not see the certificate of title to the vehicle until after the sale of the vehicle. Albritton took the car to an authorized VW dealer in November of 2003 because it was not shifting gears properly. The dealer found that the vehicle had suffered extreme damage from an accident and needed extensive repairs to the engine control system and the airbag in order to make the car safe to drive. The dealer told Albritton what had been found and advised her not to drive the car until it had been repaired. Albritton confronted the Respondent about the problems with the vehicle, and the Respondent gave her a handwritten "warranty" dated November 20, 2003. Pursuant to this agreement, Albritton took the car to the Respondent to have the seatbelts fixed; however, the repairs did not actually make the belts safe because the seatbelt retractor mechanism would not lock. In December of 2003, the wheel bearings on Albritton's car broke, and she contacted the Respondent about getting the car fixed. She was informed that the Respondent was away for two weeks, and nothing could be done until he returned. Needing her car for transportation in her work, she paid $200 to have the wheel bearings repaired. Pursuant to a mediation agreement, Albritton agreed to settle her complaint against the Respondent on the basis that he would get her a comparable vehicle. The Respondent was supposed to contact Albritton within 30 days of the mediation but failed to do so. The records introduced at hearing show that Albritton's vehicle had been re-titled as a rebuilt vehicle. Such a title indicates that the vehicle in question had been written off as an insurance loss and the original title cancelled or destroyed. Thereafter, the vehicle was repaired, and the person making the repair obtained a new title, which when issued, showed that the vehicle was rebuilt. Aylwin S. Bridges testified regarding his purchase of a VW from the Respondent. On or about June 14, 2003, Aylwin S. Bridges, purchased a 2000 VW, VIN 3 VWTE 29 MXYM 135556, from the Respondent for $11,555.00. Neither prior to nor at the time of the sale did the Respondent provide Bridges a written statement that the 2000 VW, VIN 3 VWTE 29 MXYM 135556, was a rebuilt vehicle. The Respondent did not tell Bridges that the car he was purchasing was rebuilt. The records introduced at hearing show that the Bridges' car had been re-titled as rebuilt. Bridges did not see a certificate of title to the vehicle prior to the sale of the vehicle. The Bridges' vehicle had extensive mechanical problems. For example, the engine control module had been spliced into the car and several codes had been deleted from it; the seat belts would not work; and the horn would not work. When Bridges sought to trade the vehicle, he found that the most he was offered for the car was only $2,500 because it was rebuilt. The Respondent testified in his own behalf. He did not deny having failed to disclose to Albritton and Bridges in writing prior to selling them their cars that the vehicles had previously been titled as rebuilt vehicles. The Respondent introduced a general disclaimer, Respondent's Exhibit 7, which was provided to Albritton and Bridges. This disclaimer states that the purchaser is buying a used car and that used cars may have any one or more of the listed problems. The Respondent testified that he knew the cars were rebuilt, but felt he had complied with the legal requirements of disclosure by providing the buyers with the aforementioned disclaimer. The specifics of the disclaimer are discussed in the Conclusions of Law for purposes of continuity, but are findings of fact.
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED: That the Department enter its final order finding that the Respondent violated Section 319.14, Florida Statutes, on two occasions; fine Respondent $1,000 for each violation; and suspend the Respondent's license for six months for each violation, said suspensions to run consecutively, and that payment of the fine be a condition precedent to re-issuance of a license. DONE AND ENTERED this 1st day of February, 2005, in Tallahassee, Leon County, Florida. S STEPHEN F. DEAN Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 1st day of February, 2005. COPIES FURNISHED: Charles Patrick Kuhn, III A-1 Auto and Truck Center 12180-1 Philips Highway Jacksonville, Florida 32256 Michael J. Alderman, Esquire Department of Highway Safety and Motor Vehicles Neil Kirkman Building, Suite A432 2900 Apalachee Parkway Tallahassee, Florida 32399 Carl A. Ford, Director Division of Motor Vehicles Department of Highway Safety and Motor Vehicles Neil Kirkman Building, Suite B439 2900 Apalachee Parkway Tallahassee, Florida 32399
