The Issue The issue to be determined is the amount of attorneys' fees and costs to be awarded to Petitioner pursuant to section 120.595(4), Florida Statutes (2011).
Findings Of Fact Petitioner, Premier Group Insurance Company ("Premier"), filed a challenge to an agency statement that had not been adopted as a rule in Premier Group Insurance Company v. Office of Insurance Regulation and Financial Services Commission, DOAH Case No. 12-1201RU (Fla. DOAH July 5, 2012). A Final Order was entered finding that the statement of the Office with respect to the allowance of federal income taxes as an expense for excess profits reporting was an unadopted rule. Premier was the prevailing party in Case No. 12-1201RU. As detailed more thoroughly in the Final Order in Case No. 12-1201RU, the Office was on notice that the agency statement may constitute an unadopted rule for substantially more than 30 days preceding the filing of the Petition in that case. Premier incurred attorneys' fees and costs in its challenge to the Office's agency statement in excess of $50,000. The parties have agreed that $50,000.00 in attorneys' fees shall be awarded to Premier.
The Issue The issue in this proceeding is whether Petitioner, Richard Ruble, is entitled to renewal of his loan originator license, pursuant to chapter 494, Florida Statutes.
Findings Of Fact The Parties Petitioner, Richard Ruble, holds a loan originator license, National Mortgage Licensing System Identification Number 209981 ("LO License"), which was issued by Respondent, Office of Financial Regulation, and is the subject of this proceeding. Respondent is the state agency charged with administering and enforcing chapter 494, including part II of that statute, which regulates loan originators. Background and Evidence Adduced at the Final Hearing Petitioner has held his LO License since approximately 2004. As required by section 494.00312(7), Florida Statutes, loan originator licenses must be annually renewed.2/ In 2005 and 2006, Petitioner earned a substantial income from his business as a loan originator for real estate mortgage loans. As a result, he incurred a substantial federal income tax liability. When the real estate market took a dramatic downturn starting in 2007, Petitioner's income also dramatically dropped. He suffered significant loss of income starting in 2007. As a consequence, he has been unable to pay his federal income taxes since 2006. As a result of Petitioner's federal income tax liability for the years of 2005 and 2006, on February 12, 2013, the Internal Revenue Service(“IRS”) recorded a Notice of Federal Tax Lien ("Tax Lien") against Petitioner's real property located at 3801 South Ocean Drive, Unit 6Z, Hollywood, Florida,3/ and in Leon County, Florida. As a consequence of the creation of the Tax Lien, information constituting "adverse credit history information," as defined in Florida Administrative Code Rule 69-40.0113(2), has been included in his credit report. The inclusion of adverse credit history in Petitioner's credit report prompted Respondent to contact Petitioner sometime after February 12, 2013, and before June 8, 2013, and request him to provide specified information about release or payment of the Tax Lien by a June 8, 2013, deadline. Petitioner, through his counsel, contacted Respondent by correspondence dated June 7, 2013, explaining the circumstances under which the Tax Lien had been created and stating that Petitioner would provide the requested information, and notifying Respondent that Petitioner's accountant would need additional time beyond the June 8, 2013, deadline to gather and provide the requested information. On July 30, 2013, Respondent proposed to deny renewal of Petitioner's LO on the basis of the Tax Lien. On August 13, 2013, Petitioner provided to Respondent the requested additional information explaining the circumstances under which the Tax Lien was created. On August 15, 2013, Respondent withdrew its notice of denial of renewal of Petitioner's LO License; this withdrawal document expressly stated: "Please consider the Notice of Denial previously issued as withdrawn and of no force and effect." Respondent renewed Petitioner's LO, effective August 15, 2013. On December 30, 2013, Petitioner applied to renew his LO license for the year 2014. On June 30, 2014, Respondent issued a notice of denial of renewal of Petitioner's LO. Petitioner timely requested a hearing challenging the proposed denial of the renewal of his LO License. However, before the final hearing in that proceeding, the parties settled the matter by executing a Settlement Stipulation, a condition of which was that Petitioner provide, by December 31, 2014, all information required by Respondent to complete review of the renewal application for his LO. To comply with this condition, on December 22, 2014, Petitioner submitted Respondent's4/ Response Pursuant to Settlement Stipulation ("Response"), consisting of an explanation of his adverse credit history due to the Tax Lien and two lines of credit he had taken out to cover his business and personal expenses after the 2007 economic downturn and his consequent loss of income. The Response was supported by extensive documentation consisting of Petitioner's personal and business federal income tax returns; correspondence from Petitioner's counsel to Respondent addressing the Tax Lien and the status of Petitioner's efforts to resolve the Tax Lien matter with the IRS; and correspondence from the IRS dated September 8, 2014, stating that due to information Petitioner had provided, it (the IRS) had refunded some taxes paid and applied them to Petitioner's 2005 tax liability, which had, in part, given rise to the Tax Lien. On December 24, 2014, a Final Order incorporating the Settlement Stipulation was issued, and the file was closed on December 29, 2014. On December 31, 2014, Petitioner filed, and Respondent deemed received, Petitioner's application to renew his LO License for the year 2015. Sometime before October 19, 2015——over nine months later——Respondent informed Petitioner that the information that he had provided was not substantively adequate to support renewal of his LO License for 2015. Thereafter, on October 19 and December 14, 2015, Petitioner, through his counsel, submitted information consisting of copies of his income tax returns filed with the IRS for years 2005 through 2010, as well as copies of his 2011, 2012, and 2013 income tax returns that were filed with the IRS by his accountant, Chris Bagnall. The last three years of tax returns (for years 2011, 2012, and 2013) were offered by Petitioner as evidence that he was working diligently with the IRS to become current with respect to his filed income tax returns. On December 28, 2015, Petitioner applied to renew his LO License for the year 2016. On February 15, 2016, Respondent issued a Notice of Intent to Deny Renewal Application for Loan Originator License Pursuant to Chapter 494, Florida Statutes (hereafter, "Notice of Intent to Deny"), proposing to deny Petitioner's application to renew his LO License for the years 2014, 2015, and 2016.5/ The Notice of Intent to Deny cited three grounds, two of which remain pertinent to this proceeding: (1) Petitioner failed to demonstrate that he possessed the general fitness and responsibility necessary to command the confidence of the community and warrant a determination that he, as the applicant, would operate honestly, fairly, and efficiently, as required by section 494.00312(4)(b) and rule 69V-40.113; and (2) a background check revealed that Petitioner's credit history contained adverse credit history information——specifically, that the IRS holds an outstanding federal income tax lien on property owned by Petitioner. At the final hearing, Respondent expressly abandoned the third ground for its proposed denial—— specifically, that Petitioner had failed to provide certain information as required under the terms of a final order of settlement (discussed in greater detail below); accordingly, that ground is no longer at issue in this proceeding.6/ At the final hearing, Petitioner presented the testimony of his accountant, Chris Bagnall, who was retained in 2013 to assist Petitioner in preparing and submitting his overdue tax returns for years 2005 through 2015, and negotiating a plan for paying his past due income taxes for these years. Bagnall explained that it is the IRS's preference to have the taxpayer make payments toward the outstanding liability, and then to issue refunds if the taxpayer has overpaid. Alternatively, if the taxpayer is not able to make payments toward resolving the outstanding tax liability, the IRS will negotiate payment plans applying the carryback rules, which allow income gains and losses to be "netted out" for purposes of determining overall tax liability. Under this approach, the IRS will not negotiate payment plans until all past due tax returns have been filed. In the meantime, interest and penalties continue to accrue on the outstanding income tax liability. Bagnall testified, credibly, that after the real estate market crash in 2008, Petitioner did not have the money to pay the income tax he owed, and he used what little money he did have to try to keep his business afloat. Because Petitioner was not in a position to make a payment toward his tax liability due to his drastically diminished income, and due to not having timely filed income tax returns for several years, he was not in a position to negotiate a plan with the IRS to pay the income taxes he owes. In the meantime, interest and penalties on Petitioner's past due taxes continued to accrue. As of the date of the final hearing, Petitioner's total liability was approximately $366,000, a significant portion of which was attributable to penalties and interest accruing on the outstanding tax liability.7/ Bagnall testified that since Petitioner retained him in 2013, he has been preparing and filing Petitioner's past due income tax returns in batches, as Petitioner has been able to garner the funds to pay for Bagnall's accounting services. As of the date of the final hearing, Bagnall recently had filed Petitioner's income tax return for 2014, and he testified, credibly, that he would be filing Petitioner's 2015 income tax return within a few days after the final hearing. Once Petitioner's 2015 return was filed, he would be current regarding the filing status of his income tax returns, so finally would be in a position to negotiate with the IRS to develop a plan to pay off his tax liability, with the ultimate aim of dissolving the Tax Lien. Petitioner acknowledged that as of the date of the final hearing, he had not voluntarily made any payments toward addressing his income tax liability. Additionally, Petitioner's tax returns show gambling losses of $8,782 in 2011, $2,100 in 2012, and $18,546 in 2013. However, as discussed above, the evidence shows that Petitioner, through Bagnall, is taking a comprehensive approach to resolving his income tax liability based in part on the use of the carryback rules to net out his overall tax liability. The evidence does not show that it would have been feasible for Petitioner to have made individual payments toward his outstanding tax liability until all of his returns had been filed and he was in a position to negotiate a repayment plan. Respondent elicited testimony from Petitioner that in the application for renewal of his LO License filed in December 2013 for the year 2014, he had failed to disclose the existence of the Tax Lien until Respondent brought to his attention that they were aware of the existence of the Tax Lien. Respondent also elicited testimony that until brought to his attention by Respondent, Petitioner had failed to disclose, in his LO License renewal application filed in December 2015 for the year 2016, that he had filed for personal bankruptcy in September 2015. Respondent elicited this testimony to establish that Petitioner exhibited a pattern of being untruthful and incomplete in his responses to the application questions, and, thus, lacks the character to warrant a determination that he would operate honestly, fairly, and efficiently, as required by rule 69V-40.0113(3)(b), for purposes of entitlement to renewal of his LO License.8/ However, the evidence does not clearly and convincingly show that Petitioner intended to be untruthful in his application responses or to hide the existence of the Tax Lien or his personal bankruptcy from Respondent. It is as plausible that Petitioner omitted this information in error. With respect to the Tax Lien, the evidence shows that Petitioner had previously disclosed the creation of the Tax Lien to Respondent in correspondence dated June 13, 2013, and had, at that time, provided an explanation regarding the events leading to its creation. It would simply be nonsensical for Petitioner to intentionally falsely deny the existence of the Tax Lien on his application when he had previously submitted that very information to Respondent. Similarly, with respect to disclosure of his personal bankruptcy, Petitioner credibly testified that the matter had been a topic of discussion with Respondent's staff for a period of months. Although Petitioner amended his 2016 LO License renewal application only shortly before the final hearing to correctly reflect that he had filed a personal bankruptcy petition within the past 10 years, the credible evidence indicates that Petitioner believed that Respondent was aware of his personal bankruptcy through previous discussions with Respondent's staff, so would have had no motivation to intentionally provide false information regarding that matter on his renewal application. No evidence was presented at the hearing showing that Petitioner has ever engaged, in the course of conducting his mortgage loan originator business, in any fraudulent, dishonest, or other conduct harmful to the consuming public. Findings of Ultimate Fact The undersigned found Petitioner to be credible and forthright in his explanation of the creation and status of the Tax Lien, his personal bankruptcy, the filing of his tax returns, and his ongoing efforts to resolve his adverse credit history issues that have affected renewal of his LO License.9/ As discussed in detail above, Petitioner's adverse credit history information is, at least in some significant measure, a result of circumstances largely beyond Petitioner's control. When the real estate market collapsed in 2008, Petitioner suffered an immediate, dramatic drop in income; at that point, he incurred the large tax liabilities with which he has been burdened ever since. As discussed above, due to Petitioner's lack of income during and after the real estate market crash, it took some time for him to obtain the accounting services he needed in order to file his overdue tax returns——an essential step in negotiating a tax payment plan with the IRS. Although Petitioner's efforts to resolve the Tax Lien with the IRS have taken some time, Petitioner finally is, or soon will be, in a position to negotiate a payment plan with the IRS to pay his tax liability and, ultimately, resolve the Tax Lien. Before now, Petitioner has not been in a position to comprehensively and systematically pay down his tax liability pursuant to a negotiated plan. Thus, at this juncture, Petitioner's lack of voluntary payments toward resolving his Tax Lien and his gambling losses have not been determined a basis for finding that Petitioner lacks the character, general fitness, and financial responsibility to entitle him to renewal of his LO License.10/ The persuasive evidence shows that Petitioner is making steady progress toward getting himself in the position, through bringing himself current in his income tax returns filings, to negotiate a payment plan with the IRS in order to comprehensively and systematically pay down his tax liability with the aim of dissolving the Tax Lien. For these reasons, the undersigned finds that Petitioner has shown that he possesses the character, general fitness, and financial responsibility to warrant a determination that he will operate honestly, fairly, and efficiently such that his LO License should be renewed for the year 2016.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Respondent issue a final order approving renewal of Petitioner's loan originator license for the year 2016. DONE AND ENTERED this 27th day of January, 2017, in Tallahassee, Leon County, Florida. S CATHY M. SELLERS 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 27th day of January, 2017
The Issue The issue in this case is whether Petitioner is liable for corporate income and excise taxes that have been assessed by Respondent.
Findings Of Fact Petitioner is a subsidiary of PBS Building Systems America, Inc. (PBS- A). PBS-A and Petitioner filed consolidated Florida income and excise tax returns during the time in question. During the years in question, PBS-A had no tax nexus with Florida, but incurred losses that were available to offset gross income. During the years in question, Petitioner had nexus with Florida and incurred taxable income. The filing of the consolidated return reduced the taxable income of Petitioner by the losses of PBS-A. On December 19, 1990, Respondent issued two notices of proposed assessment for years ending December 31, 1985, through March 31, 1989. One notice identifies $8273 of unpaid corporate excise tax, plus $2798 of interest through September 15, 1990. The notice states that interest would continue to accrue at the daily rate of $2.27. The second notice of proposed assessment identifies $55,480 of unpaid corporate income tax, plus $20,254 of interest through September 15, 1990. The notice states that interest continues to accrue at the daily rate of $15.20. Petitioner filed a notice of protest dated February 15, 1991. By notice of decision dated October 17, 1991, Respondent rejected the protest and sustained the proposed deficiencies. The claimed deficiency for unpaid corporate income tax, however, was revised to $75,039. A notice of reconsideration dated July 21, 1992, restates the conclusions of the notice of decision. By petition for formal hearing dated September 16, 1992, Petitioner requested a formal hearing concerning the tax liabilities in question and specifically the conclusion that PBS- A was ineligible to file a consolidated return in Florida due to the absence of tax nexus with Florida. The September 16 letter recites facts to establish tax nexus with Florida through the establishment of financing relationships. However, it is unnecessary to consider the sufficiency of these factual assertions because they represent mere allegations. Petitioner failed to produce any evidence in the case and, when noticed for a corporate deposition, failed to appear. Additionally, Petitioner's failure to respond to requests for admission results in admissions that, during the relevant period, PBS-A was not a bank, brokerage house, or finance corporation and did not lend money to Petitioner.
Recommendation Based on the foregoing, it is hereby RECOMMENDED that the Department of Revenue enter a final order sustaining the above-described assessments against Petitioner. ENTERED on February 12, 1993, in Tallahassee, Florida. ROBERT E. MEALE 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 12th day of February, 1993. COPIES FURNISHED: Dr. James Zingale, Executive Director Department of Revenue 104 Carlton Building Tallahassee, FL 32399-0100 Linda Lettera, General Counsel Department of Revenue 204 Carlton Building Tallahassee, FL 32399-0100 Attorney Lisa Raleigh Department of Legal Affairs Tax Section, Capitol Building Tallahassee, FL 32399-1050 Kathryn M. Jaques Arthur Andersen & Co. Suite 1600 701 B Street San Diego, CA 92101-8195
Findings Of Fact Winn-Dixie. Winn-Dixie is a Florida corporation with its principal offices at 5050 Edgewood Court, Post Office Box B, Jacksonville, Florida. [Stipulation of Facts]. Winn-Dixie's taxpayer identification number is 59-0514290. The Department's audit number is 88-04203785035. Winn-Dixie's fiscal year ends on the last Wednesday of June. Winn-Dixie's Intangible Tax Returns. Winn-Dixie has filed a Florida intangible tax return for every year beginning with the calendar year 1972. For calendar years 1972 through and including 1988, Winn-Dixie reported the value of its intangible personal property based upon the value of its intangible personal property at the end of its previous fiscal year, the last Wednesday of June. For example, in its 1972 intangible tax return Winn-Dixie reported the value of its intangible personal property as of June 26, 1971. The decision to use the value of its intangible personal property as of the end of its fiscal year for Florida intangible tax was made by Winn-Dixie without any direction from, or communication with, the Department. When Winn- Dixie began using its fiscal year end as the date to value its intangible personal property for Florida intangible tax purposes, no representation concerning the appropriateness of this method was made by the Department. Winn- Dixie made no effort to obtain approval of its method of valuation from the Department. Winn-Dixie indicated on each of its intangible tax returns for 1972 through 1988, that it had determined the value of its intangible personal property based upon its value as of the end of Winn-Dixie's fiscal year. Winn-Dixie used the fiscal year end value of its intangible personal property as the value of those assets for Florida intangible tax purposes for administrative convenience. It was easier to use such data than it would have been to redetermine the value of its intangible personal property at the end of each calendar year. When Harry Francis began working for Winn-Dixie in 1978, Mr. Francis was aware that Florida law required that intangible personal property be valued as of the first day of the calendar year. Mr. Francis, who served as director of taxes for Winn-Dixie until 1989, was also aware that Winn-Dixie was using the incorrect valuation date to value its intangible personal property for Florida intangible tax purposes. When Leon Calvert became the director of taxes for Winn-Dixie in 1989, Mr. Calvert was aware that Florida law required that intangible personal property be valued as of the first day of the calendar year. Mr. Calvert was also aware that Winn-Dixie was using the incorrect valuation date to value its intangible personal property for Florida intangible tax purposes. The explanations Mr. Francis and Mr. Calvert gave for not changing Winn-Dixie's method of valuing its intangible personal property for Florida intangible tax purposes were not credible. Both Mr. Francis or Mr. Calvert indicated that the valuation practice of Winn-Dixie was followed, in part, because of the need for consistency in the field of accounting. Neither Mr. Francis or Mr. Calvert, however, cited any generally accepted accounting principle to support the use of an incorrect method of valuing assets for tax purposes when that method is clearly contrary to law. Winn-Dixie does not collect intangible tax as an agent for the State of Florida by separately stating and passing along said tax to its customers. [Stipulation of Facts]. Therefore, Winn-Dixie has not lost any right to pass the asserted additional intangible tax liability along to others. Subsequent to the audit involved in this case Winn-Dixie prepared an analysis of the difference in the value of its intangible personal property for 1972 through 1984 and the value of its intangible personal property for 1972 through 1984 if it had valued its intangible personal property as of January first of each year. Based upon this analysis, Winn-Dixie over reported the value of its intangible personal property by $78,390,211.00 for the period from 1972 through 1984. [See Stipulation of Facts]. This amounted to an overpayment of taxes of approximately $81,485.00. Winn-Dixie has not filed any claim for refund of any amount of intangible taxes it may have overpaid as a result of using the value of its intangible personal property as of the end of its fiscal year. The weight of the evidence failed to prove that the value of Winn- Dixie's intangible personal property as of the end of its fiscal year for any year for which it has filed an intangible tax return was approximately the same as the "just value" of those assets as January first. 1972 and 1973 Intangible Tax Returns. Winn-Dixie's intangible tax returns for calendar years 1972 and 1973 were examined by the Department. [Stipulation of Facts]. Winn-Dixie's 1972 and 1973 returns clearly indicated that the value of the assets included in the returns was the value as of the last Wednesday of June as of the previous year, Winn-Dixie's fiscal year end. No changes to Winn-Dixie's valuation method were recommended by the Department to Winn-Dixie's 1972 or 1973 intangible tax returns. The weight of the evidence failed to prove that any Department employee made any statements as a result of the Department's audit of the 1972 and 1973 returns to Winn-Dixie concerning Winn-Dixie's use of the value of its intangible personal property as of the end of its fiscal year to determine its intangible tax liability. The weight of the evidence failed to prove that any representation was made to Winn-Dixie by a Department employee that it was okay to use the June value of Winn-Dixie's intangible personal property even if that value was not the same as the January first value of Winn-Dixie's intangible personal property. Therefore, it is possible that the Department made no adjustments to Winn-Dixie's 1972 and 1973 returns because of a determination that the value of Winn-Dixie's intangible personal property in January was not materially different from the June value of its intangible personal property as reported by Winn-Dixie. Such a conclusion is consistent with Harry Francis' belief that there was not much difference in the value of Winn-Dixie's intangible assets at any time during the year. [See Transcript of Formal Hearing, page 90, lines 9- 12]. The weight of the evidence also failed to prove that any representation was made to Winn-Dixie as a result of the audit of the 1972 and 1973 returns by a Department employee concerning the filing of future year intangible tax returns. 1979, 1980 and 1981 Intangible Tax Returns. Winn-Dixie's intangible tax returns for calendar years 1979, 1980 and 1981 were examined by the Department. [Stipulation of Facts]. The auditor that performed the examination is now deceased. [Stipulation of Facts]. The director of taxes for Winn-Dixie at the time of the audit of the 1979, 1980 and 1981 returns described a conversation he had with the Department's auditor as follows: The gist of the conversation was why did we use the June year end instead of January 1st. And the answer was as I said before, it was a long-standing practice, it was a consistency method, it was not a question of cherry picking for a good date and it seemed to do no harm. The recollection I have is that he was hesitant to make a determination on his own as to whether he required an adjustment or required a recomputation using a different date and that he was checking with some unknown superior in the Department of Revenue and later the no-change audit resulted. I don't recall if he ever called me about his conversation with the superiors, but I do recall no adjustments of any kind were made to any of those tax returns. And I would have recalled. I was nervous about those because I had prepared them. And they were the first ones that had been audited since I had been there. So I was relieved that no adjustments were made. And that was the gist of my relationship with the auditor. [Transcript of Formal Hearing, page 94, lines 17-25, and page 95, lines 1-12]. No changes were recommended by the Department to Winn-Dixie's 1979, 1980 or 1981 intangible tax returns. [Stipulation of Facts]. The weight of the evidence, however, failed to prove why the Department made no changes. Winn-Dixie did not change its method of reporting its intangible personal property as a result of any representations from a Department employee. The weight of the evidence failed to prove that any Department employee made any statements to Winn-Dixie as a result of the Department's audit of the 1979, 1980 and 1981 returns concerning Winn-Dixie's use of the value of its intangible personal property as of the end of its fiscal year to determine its intangible tax liability. The weight of the evidence failed to prove that any representation was made to Winn-Dixie by a Department employee that it was okay to use the June value of Winn-Dixie's intangible personal property even if that value was not the same as the January first value of Winn-Dixie's intangible personal property. Therefore, it is possible that the Department made no adjustments to Winn-Dixie's 1979, 1980 and 1981 returns because of a determination that the value of Winn-Dixie's intangible assets in January was not materially different from the June value of its intangible personal property as reported by Winn- Dixie. Such a conclusion is consistent with Harry Francis' belief that there was not much difference in the value of Winn-Dixie's intangible assets at any time during the year. [See Transcript of Formal Hearing, page 90, lines 9-12]. The weight of the evidence also failed to prove that any representation was made to Winn-Dixie as a result of the audit of the 1979, 1980 and 1981 returns by a Department employee concerning the filing of future year intangible tax returns. 1985, 1986, 1987 and 1988 Intangible Tax Returns. The Department performed an audit of Winn-Dixie's intangible tax returns for 1985, 1986, 1987 and 1988. For these tax years Winn-Dixie valued its intangible personal property as of the end of the fiscal year preceding the taxable year, consistent with prior years. As a result of the Department's audit of the 1985, 1986, 1987 and 1988 returns, the Department determined that Winn-Dixie had underpaid Florida intangible tax in the following amounts and issued an assessment for same: 1985 $(16,244.00) 1986 21,471.00 1987 93,980.00 1988 86,974.00 Total $186,181.00 The Department's auditor who performed the audit of Winn-Dixie's 1985, 1986, 1987 and 1988 tax returns determined the value of Winn-Dixie's intangible personal property based on the value of those assets as reasonably close to January first as provided to Winn-Dixie. The information provided by Winn-Dixie was reasonably close to the value of Winn-Dixie's intangible personal property as of January first. Winn-Dixie filed a Petition for Reconsideration dated August 24, 1990. By letter dated October 17, 1990, the Department issued a Notice of Reconsideration. [Stipulation of Facts]. Other Receivables. Winn-Dixie has taken the position that it overpaid intangible taxes for 1985, 1986, 1987 and 1988 because it incorrectly treated certain accounts as intangible personal property. The parties agreed that the amount of tax paid on these accounts for the years at issue was as follows: 1985 $ 8,614.00 1986 9,823.00 1987 11,120.00 1988 13,562.00 Total $43,119.00 The parties agreed that the amount of intangible tax paid on the accounts at issue should be refunded to Winn-Dixie if it is determined that Winn-Dixie improperly paid intangible tax on the accounts. The following are the accounts which Winn-Dixie has argued it should not have treated as intangible personal property: Account Number 123-2, perishable vendors- billed outside sales warehouse invoices. Account Number 123-3, vendors debit balances/billed advertising coupons, vendor freight claims, promotion allowances, billings, return merchandise, charges and other debit memo billings. Account Number 123-4, claims insurance and freight/insurance and freight claims against carriers. Account Numbers 123-2, 123-3 and 123-4 are listed as "receivables" on Winn-Dixie's federal income tax return balance sheet as of its fiscal year end, Winn-Dixie's accounts receivable trial balances and on Winn-Dixie's SEC public disclosure forms 10-K. Account Numbers 123-2 and 123-3 are essentially identical except for the type of vendor involved. Account Number 123-2 involves vendors of perishable products and Account Number 123-3 involves vendors of nonperishable products. Winn-Dixie strives to pay for merchandise it receives within seven to ten days from the date it receives an invoice for the merchandise in order to receive discounts and the best merchandise available. Winn-Dixie earns trade discounts, promotional allowances and volume discounts on some of the merchandise it handles. When Winn-Dixie pays an invoice on merchandise for which it may receive such reductions in costs, Winn- Dixie may not know the exact amount of the discount. Therefore, it pays the entire amount invoiced. As a result of the quick payment of invoices and the inability to calculate the exact amount of discounts or other reductions in the amount owed, Winn-Dixie pays more on some invoices than it ultimately may owe on the invoice. The amount of any estimated overpayments is reflected in Account Numbers 123-2 and 123-3. Winn-Dixie also receives coupons from customers on certain merchandise. The coupons received by Winn-Dixie entitle it to reimbursement on the product sold from the vendor. The amount which Winn-Dixie will ultimately receive for the coupons is also recorded in Account Numbers 123-2 and 123-3. The coupons are ultimately turned over to a coupon handling firm which pays Winn-Dixie for the coupons. Account Number 123-4 involves claims insurance and freight. It is similar to the other two accounts at issue except that it relates primarily to claims against railroads for misdelivery or damaged merchandise which Winn-Dixie is entitled to. As is true of other merchandise, Winn-Dixie strives to pay for merchandise shipped to it by rail within seven to ten days to be entitled to the discounts for quick payment. Therefore, Winn-Dixie is not always able to estimate the amount of damaged or missing merchandise it may be entitled to a reduction for. The amount of such reductions are reflected in Account Number 123-4. When the amounts owed to Winn-Dixie, which are reflected in Account Numbers 123-2, 123-3 and 123-4, are finally determined, Account Number 123-2, 123-3 or 123-4 is debited and the amount received is recorded in another account. The amounts recorded in Account Numbers 123-2, 123-3 and 123-4 are valued, recorded and returned for tax purposes as accounts receivable. Account Numbers 123-2, 123-3 and 123-4 are "accounts receivable" under generally accepted accounting principles. The weight of the evidence failed to prove that all of the amounts recorded in Account Numbers 123-2, 123-3 and 123-4 during the years in question were not due at the time they were entered in the accounts. Therefore, the weight of the evidence failed to prove what portion of Account Numbers 123-2, 123-3 or 123-4 are contingent.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is recommended that the Department issue a Final Order assessing $186,181.44 in additional intangible tax, plus interest, against Winn-Dixie for 1985, 1986, 1987 and 1988, and dismissing Winn-Dixie's Petition for Administrative Proceedings. RECOMMENDED this 8th day of May 1991, in Tallahassee, Florida. LARRY J. SARTIN 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 8th day of May, 1991. APPENDIX TO RECOMMENDED ORDER, CASE NO. 90-8021 The parties have submitted proposed findings of fact. It has been noted below which proposed findings of fact have been generally accepted and the paragraph number(s) in the Recommended Order where they have been accepted, if any. Those proposed findings of fact which have been rejected and the reason for their rejection have also been noted. Winn-Dixie's Proposed Findings of Fact Proposed Finding Paragraph Number in Recommended Order of Fact Number of Acceptance or Reason for Rejection 1 2-4 and 6. 2 6. 3 15 and 17. 16. See 18-20 and 30. The last sentence is not supported by the weight of the evidence. 21 and 23. The last sentence is not relevant. See 22. The last sentence is not relevant. Not relevant. Not supported by the weight of the evidence. 9 12. Not supported by the weight of the evidence. 12. The last sentence is not supported by the weight of the evidence. Not supported by the weight of the evidence. Not supported by the weight of the evidence. The last sentence is not relevant. 14 32-33, 35 and 40. 15 34. Not relevant. See 36 and 41. The weight of the evidence failed to prove that Winn- Dixie was "required to pay" its vendors within seven to ten days. 37-38. The weight of the evidence failed to prove the last sentence. 19 40-41. 20 42. 21 Not supported by the weight of the evidence. The Department's Proposed Findings of Fact Proposed Finding Paragraph Number in Recommended Order of Fact Number of Acceptance or Reason for Rejection 1 and 3. 2 and 4. 3 5. 4 7. 5 15 and 21. 6 28. 7 4. 8-9 29. 10-11 11. 12 22. 13 22 and 25-27. 14 24. 15 22. 16 18-20 and 25-27. 17 5. 18 21. 19 12. 20 13. 21 14. Not relevant. See 45. 24 35 and 40. 25 37-38 and 43. 26 39. 27 Not relevant. 28 32. 29 See 44. 30 34. COPIES FURNISHED: Thomas K. Purcell, Esquire Suite 1235, One Enterprise Center 225 Water Street Jacksonville, Florida 32211 Leonard F. Binder Kevin O'Donnell Assistant Attorneys General Department of Legal Affairs Tax Section, Capitol Building Tallahassee, Florida 32399-1050 J. Thomas Herndon, Executive Director Department of Revenue 104 Carlton Building Tallahassee, FL 32399-0100
The Issue Whether the "Additional Payment" made by Hernando HMA, Inc., d/b/a Brooksville Regional Hospital to Hernando County pursuant to a document entitled Lease Agreement, as amended, constitutes "rent" subject to sales tax under section 212.031, Florida Statutes.1/
Findings Of Fact Hernando HMA, Inc. (HMA) is a for-profit entity which operates Brooksville Regional Hospital, Spring Hill Regional Hospital, and other entities, as successor to an entity that was in Chapter 11 bankruptcy proceedings from 1993 to 1998, Regional Healthcare, Inc. (RHI). The Department is an agency of the State of Florida that has been delegated the responsibility to collect sales and use taxes imposed by chapter 212, Florida Statutes. In 1998, as part of RHI's bankruptcy plan, HMA and the County entered into various agreements, including a lease agreement (1998 Lease), regarding the use and operation of several RHI hospital properties and improvements owned by the County, and leased back to RHI. Under the 1998 Lease and other agreements, HMA agreed to continue to operate the hospital facilities for 30 years with possession of the real property and improvements to be returned to the County at the end of the lease term. Section 1.2W. of the 1998 Lease defined "Rental Payment" as follows: "Rental Payment" means all payments due from Lessee to Lessor or otherwise required to be paid by Lessee pursuant to the terms of this lease. The 1998 Lease further provided in section 3.3 under the heading "Rent": The annual rental payment of the Leased Premises for each year of the Lease Term (the "Rental Payment") shall be in the amount of Three Hundred Thousand and 00/100 Dollars ($300,000). This Rental Payment shall be paid to Lessor by Lessee on the Commencement Date and on each anniversary date of the Commencement Date during the Lease Term. The 1998 Lease also provided that HMA, as Lessee, would pay "all taxes, if any, prior to delinquency." Under the 1998 Lease, the County agreed to lease the premises in consideration of HMA’s timely payment of rent and timely performance of the other covenants and agreements required under the lease. It was an “event of default” under the lease if HMA failed to observe and perform any covenant, condition, or agreement on its part which could be cured by a payment of money. Remedies for default under the 1998 Lease included termination of the lease by the County and exclusion of HMA from possession of the leased premises. Even though the leased premises under the 1998 Lease were not subject to ad valorem taxes because they were owned by the County, during public discussions of the proposed 1998 Lease, an issue arose about HMA's responsibility for payment of fire assessments that would have been paid if the property was not immune or exempt from ad valorem taxes. HMA agreed, by separate agreement, to pay the fire assessments and buy a new ambulance to serve the community. The fire assessment agreement was by separate document that was included as part of the closing of the 1998 Lease and other agreements involving the hospital facilities in June 1998. The 1998 Lease was dated June 1, 1998. The 1998 Lease terms included a merger clause in section 15.6 entitled “ENTIRE AGREEMENT,” which provided: This lease may not be modified, amended or otherwise changed orally, but may only be modified, amended or otherwise changed by an agreement in writing signed by both parties. This Lease Agreement and its accompanying guaranty constitute the entire agreement between the parties affecting this Lease. This Lease Agreement supersedes and cancels any and all previous negotiations, arrangements, agreements, and understandings between the parties hereto with respect to the subject matter thereof, and no such outside or prior agreements shall be used to interpret or to construe this Lease. There are no promises, covenants, representations or inducements in addition to, or at variance with any of the terms of this Lease Agreement except the Guaranty. In 2001, the County and HMA began negotiations for relocation of the Brooksville Regional Hospital which was part of the leased premises described in the 1998 Lease. During the negotiations, HMA, through its attorney, Steven Mitchell, prepared a proposed comprehensive relocation agreement in consultation with former County Attorney Bruce Snow. Section 7.3 of the proposed relocation agreement contemplated revising the 1998 Lease and suggested the following preliminarily negotiated language for rental payments under a revised 1998 Lease: Rental Payments The Lessee shall pay to Lessor on the due date therefore as set forth in the Lease Agreement, the sum of Three Hundred Thousand and no/100 Dollars ($300,000.00) per annum. The Lessee shall pay to Lessor on an annual basis, either as rent or by virtue of a payment to Hernando County of the same sum to be used by Hernando County as it deems appropriate, an amount equal to the ad valorem taxes that would have been paid on the New Facility Site as improved with the New Facility if the New Facility Site were not owned by Hernando County but owned by a for-profit entity. In the event the New Facility Site and the New Facility located thereon are subsequently required by law to pay ad valorem taxes then the obligation to pay the amount described in Section 7.3(b) herein shall immediately terminate and Lessee shall be responsible for the payment of the appropriate ad valorem tax. The proposed comprehensive relocation agreement was discussed at public meetings held by the Hernando County Board of Commissioners on September 17 and September 25, 2001. The minutes of the September 25, 2001, meeting indicate that the County Administrator advised that the proposed relocation agreement contemplated that HMA would continue to pay $300,000 annually as rent, and “would make a payment-in-lieu of taxes annually to the County . . . .” The minutes also reflect that, in responding to a question from a commissioner regarding whether there should be language in the agreement that would protect the “payment-in-lieu of taxes” provision in the event the law changed: [Former County Attorney] Snow replied that it was his recommendation that there should be a provision that to the extent that the organic law of the State provided that facilities, such as the new hospital or other hospital under the lease, were taxable for ad valorem tax purposes, that that provision of the organic law would apply to ensure that that provision superseded. He explained that the lease provision to provide for an ad valorem tax payment was only to the extent that the organic law did not otherwise compel it so that the County would be receiving ad valorem tax under either scenario. The minutes from the September 25, 2001, meeting further state: Mr. Snow replied to County Attorney Garth Coller that there had been recent Supreme Court decisions which may have a bearing on the organic law to the extent that a decision of that nature indicated that the facilities were subject to ad valorem tax, notwithstanding the ownership issue, then they were subject to ad valorem tax and the lease would need to clarify that. He suggested that if the FS or Constitution should change, even in the absence of an interpretation of the Supreme Court decision, the change would obligate the payment of ad valorem taxes pursuant to the constitutional or statutory provisions. He explained that organic law pertained to provisions of FS or the Constitution as opposed to a Court decision. Mr. Snow’s reported reference to recent “Supreme Court decisions” regarding ad valorem taxes undoubtedly was referring the decision, among others, in Sebring Airport Authority v. McIntyre, 718 So. 2d 296 (Fla. 1998). In that decision, rendered a few months after the County entered into the 1998 Lease, the Supreme Court of Florida stated with regard to municipal (as opposed to county) property: [T]here is nothing in article VII, section 3 that allows the legislature to exempt from ad valorem taxation municipally owned property or any other property that is being used primarily for a proprietary purpose or for any purpose other than a governmental, municipal or public purpose. To the extent section 196.012(6) attempts to exempt from taxation municipal property used for a proprietary purpose, the statute is unconstitutional. Id. at 298. The Sebring case did not address tax immunity of county property as distinguished from the issue of tax exemptions for the proprietary use of municipal property. The proposed “Rental Payments” language for revisions to the 1998 Lease, however, demonstrates that the drafters of the comprehensive relocation agreement were aware of the possibility that the Sebring rationale could be expanded and applied to county property. The comprehensive relocation agreement was approved by the County, and executed in late 2001. Attached as to that relocation agreement as Schedule C was an unsigned document entitled “First Amendment to Lease Agreement” that was not to be executed until the new facility was completed and transferred to the County. Subsection 3.3 of the First Amendment to Lease Agreement entitled “Rental Payments” provided: Rental Payments The Lessee shall pay to the Lessor on the due date therefore as set forth in the Lease Agreement, the sum of Three Hundred Thousand and No/100 Dollars ($300,000.00) per annum. The Lessee shall pay to the Lessor on an annual basis, either as rent or by virtue of a payment to Hernando County of an amount (“Additional Payment”) equal to the sum of the following: An amount equal to that portion of the ad valorem taxes that would have been paid to Hernando County on the Leased Premises (as modified by the substitution of the New Facility Site for the Current Hospital Site) if the Leased Premises were not owned by Hernando County but owned by a for profit entity; and An amount equal to that portion of the ad valorem taxes that would have been paid to the Spring Hill Fire and Rescue District, the Township 22 Fire District and/or any other special taxing district that may be established pursuant to law; and An amount equal to all special assessments levied by Hernando County through any Municipal Service Benefit Unit created by Hernando County pursuant to the provisions of Section 125.01, Florida Statutes; and An amount equal to all ad valorem tax levied by Hernando County through any Municipal Service Taxing Unit created by Hernando County pursuant to the provisions of Section 125.01, Florida Statutes. In no event shall the Additional Payments exceed an amount equal to a full ad valorem tax assessment on the New Facility Site as determined annually by the Hernando County Property Appraiser. In the event the Lessee and/or Lessor is required by law to pay ad valorem taxes on the Leased Premises or any portion thereof, the obligation to pay to Lessor the Additional Payment described in this Section 3.3 shall immediately terminate (and/or be adjusted, whichever is applicable), and Lessee shall be responsible for payment of the appropriate ad valorem tax. The First Amendment to Lease Agreement further provided, “[e]xcept as expressly modified herein, all other terms and conditions set forth in the [1998] Lease Agreement are hereby ratified and confirmed.” The new hospital facility was completed and transferred to the County in 2005. On November 15, 2005, the County commission approved documents related to the transfer, including the First Amendment to Lease Agreement in the precise form as attached to the relocation agreement approved in 2001. The approval was obtained on a consent agenda, and the minutes reflect no further discussion by the commission or the public on the documents that were approved. In 2009, the Hernando County School District sued the County Property Appraiser, alleging that the properties subject to the 1998 Lease as amended by the First Amendment to Lease Agreement should not be exempt from ad valorem taxation. In a 13-page Order dismissing the School District’s action, Circuit Judge Daniel B. Merritt, Jr., distinguished the cases disallowing statutory ad valorem tax exemptions for properties owned by special tax districts or cities from the sovereign immunity against ad valorem taxes enjoyed by real estate owned by the State of Florida and its counties. In his ruling, Judge Merritt noted that Florida law specifically makes leasehold interests in governmental property subject to taxation, noting: The Legislature defines leasehold interests as intangible personal property and, hence, assessed by the Florida Department of Revenue, when: (1) rent is due; (2) the property is used for commercial purposes; (3) is not used for agriculture; (4) not financed with revenue bonds, and; (5) the lease is for an initial term of less than 100 years; §§196.199(2)(b), Florida Statutes (2008), 199.023(1)(d), Florida Statutes (2005), specifically preserved in Chapter 2006-312, Laws of Florida (2006). However, see below for further analysis with regard to presumed ownership of property leased for 100 years or more as set forth in §196.199(7), Florida Statutes. Judge Merritt also discussed those instances where “leased” property might not qualify as State or county property where lessees are the “equitable owners,” such as leaseholds of 100 years or more or where properties do not revert to the State until the end of a lease term. In his order, however, Judge Merritt noted that the tax immunity of the County was a fundamental attribute of county property and held that “under the terms of the Lease Agreements the Court concludes that HMA has merely the right to use and possession and is not the beneficial owner as a matter of law Hernando County’s immune property and improvements.” Judge Merritt’s Order was affirmed on appeal. School Board of Hernando County v. Mazourek, Case No. H-27-CA-2009-549 (5th Cir. 2009), per curiam aff’d, 2010 WL 4323055 (Fla. 5th DCA 2010) In December, 2010, the Department notified the County it had been selected for a tax compliance audit under chapter 212, Florida Statutes, Sales and Use Tax. The audit period was from January 1, 2007, through December 31, 2009. The County’s personnel were cordial and receptive during the audit process and the Department’s auditor determined that the books and records kept by the County had adequate internal accounting controls in place and sufficient data integrity. Out of the approximately 19 tax registration accounts the County has with the Department, the Department’s auditor found exception with only tax account #12445797, the tax collected and remitted under its lease with HMA. In her record review, the Department’s auditor noticed invoices and worksheets from the County to HMA, titled “Payment in lieu of taxes.” In examining the First Amendment to the Lease Agreement, Section 3.3 “Rental Payments,” the Department’s auditor determined that the County was not collecting sales tax on a portion of the rent received under that section. The monthly tax return filed by the County under account # 12445797 reflected that it was collecting and remitting the sales tax calculated on the $300,000.00 annual rent payment, but was not collecting and remitting sales tax calculated on the additional payments in lieu of taxes. The Department’s auditor determined the additional payments, required under the lease and made as a condition of occupancy, constituted a taxable transaction as additional rent consideration. The amount of the additional payments, made January 2007 and March 2008, as revealed on the County’s “Payment in lieu of taxes worksheets,” was multiplied by 6.5 percent to arrive at the additional tax amount due of $78,710.17. On December 9, 2010, the Department issued a Notice of Intent to Make Audit Changes, Form DR 1215, advising the County of its audit findings, which included $78,710.17 in taxes due, $14,526.37 in accrued interest through December 9, 2010, and a $19,677.55 late payment penalty. On December 21, 2010, the Department issued its Notice of Proposed Assessment, Form DR 831, showing an assessment of $78,710.17 in tax and $14,707.51 in accrued interest, for a total of $93,417.68 through December 21, 2010, with interest accruing thereafter at the rate of $15.10 per diem. All penalty amounts were waived. At the final hearing, the County argued that the additional payments from HMA under the First Amendment to Lease Agreement were not rent, but rather separate payments to pay for County services. While the actual language used in the First Amendment to Lease Agreement appears to unambiguously indicate that the additional payments were rent, the County offered additional evidence of facts and circumstances beyond the terms of the lease itself in support of its argument that the additional payments were not rent. That evidence was admitted, without objection, and has been considered in determining the intention of the parties to the lease with regard to the additional payments. In addition to evidence that the lease drafters were aware of certain cases decided on the issue of whether the leased premises would be subject to ad valorem taxes, the County offered the testimony of Mr. Mitchell regarding the “Rental Payments” language found in the First Amendment to Lease Agreement. When asked whether there had been much negotiation over the format or wording of the First Amendment to Lease Agreement, Mr. Mitchell recalled: No, there really wasn’t other than, you know, the concept – what this amendment does is what we had agreed to pay rental payment. The rental payment was $300,000. And then, we also had agreed independently just to go ahead and pay the County for certain services that they were providing to us. And then we specified those. Those were independent payments, not part of the rental payment. Mr. Mitchell further testified: [B]asically, this property is free of ad valorem tax. That is why the school board filed their lawsuit because, of course, they were not getting any of the ad valorem taxes. So, the property is free of payment of ad valorem taxes. We’re paying our 300,000. It was very, very clear. However, HMA felt that the County was providing certain services, the fire districts and whatnot. So, independent of the rent, we paid this amount. If you read the section dealing – it’s 3.3.[2], or whatever it is, which I’ll read it to you, it talks about, at the very end – and they did it for whatever reason the property became taxable, you know, it effectively became taxable and we had to pay full ad valorem taxes on the property, then the specialties – these additional payments we called, you know, would go away and they, effectively, be part of rent. That's why it talks about it as such, and it was either additional payment and/or rent. Contrary to Mr. Mitchell’s recollection, section 3.3.2 of the First Amendment to Lease Agreement does not speak in terms of “additional payment and/or rent” but rather states that another payment would be made “either as rent or by virtue of a payment to Hernando County of an amount ('Additional Payment') . . .". Mr. Mitchell makes a valid point regarding the fact that HMA was concerned about having to pay both the additional payment and ad valorem taxes. Consistent with this concern, the lease amendment made it clear that HMA would not have to pay the additional amount if the property ever became subject to ad valorem taxes. Mr. Mitchell’s testimony in support of the County’s contention that HMA’s payment in lieu of taxes under the First Amendment to Lease Agreement was not rent, however, is unpersuasive. Considering the extrinsic evidence offered by the County, especially evidence of the parties concern that the subject County property might someday be subject to ad valorem taxes, together with the 1998 Lease, language negotiated for the proposed relocation agreement, and the actual terms of the First Amendment to Lease Agreement, it is found that the parties intended the language under the "Rental Payments" section to assure that HMA did not have to pay the additional amount twice. The extrinsic evidence offered by the County, however, was insufficient to support a finding that the parties intended to differentiate between “rent” and the “additional payment” or that, however characterized, the payment in lieu of taxes was not rent subject to assessment by the Department. If the parties had wanted to provide language that designated the payment in lieu of taxes as a payment for services instead of rent they could have, as they did in the Second Amendment to Lease Agreement entered into on September 13, 2011, just ten days prior to the final hearing in this case.2/ That Second Amendment to Lease Agreement changed the name of section 3.3 from “Rental Payments,” as found in the First Amendment, to “Rent and Additional Payment for County Services.” Pertinent subsections of the Second Amendment further provided: 3.3.2 Additional Payment for County Services. The Lessee shall pay to Lessor on an annual basis, as an additional payment (“Additional Payment”) for services provided by Hernando County [in its role as a service provider and local taxing authority], . . . * * * The Additional Payment is not intended to constitute “rent” and is not intended to create an event subject to Florida sales tax – but rather is intended to constitute a separate payment for the provision of services, payable to the local taxing authority, as provided in § 212.031(1)(c), Florida Statutes (which allow parties by contractual arrangement to distinguish between payments which are intended to be taxable and payments which are intended to be nontaxable), as this section may be amended or renumbered from time to time.
Recommendation Based on the foregoing Findings of Facts and Conclusions of Law, it is RECOMMENDED that, consistent with the Notice of Proposed Assessment dated December 21, 2010, and this Recommended Order, the Department of Revenue enter a final order finding that Petitioner owes tax and interest due totaling $93,417.68 through December 21, 2010, with interest accruing thereafter at the rate of $15.10 per diem, without penalties. DONE AND ENTERED this 30th day of December, 2011, in Tallahassee, Leon County, Florida. S JAMES H. PETERSON, III 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 30th day of December, 2011.
Findings Of Fact Petitioner is the administrative agency charged with responsibility for administering and enforcing the provisions of Chapter 626, Florida Statutes. At all times material to this proceeding, Respondent has been licensed and eligible for appointment in Florida as a life and variable annuities agent, a life, health, and variable annuities agent, and a general lines agent. The City of Port St. Lucie (the "City") has had a City-funded pension plan in effect for its employees since October 1, 1977 (the "plan"). The City funds the plan with a contribution of 10.5 percent of the gross income of each employee who is enrolled in the plan (the "participant"). The monthly contributions by the City are sent directly to The Prudential Insurance Company ("Prudential"). The plan is participant directed. It allows each participant to direct the investment of his or her share of the City's contribution into either an investment account or a split investment account. If a participant elects an investment account, all of the City's contributions for that participant are used to purchase an annuity contract. If a participant elects the split investment account, a portion of the City's contribution for that participant is invested in an annuity contract and a portion is invested in whole life insurance issued by Prudential. Each whole life policy builds a cash value and provides benefits not available in the annuity contract, including disability benefits. Each participant is completely vested in the plan after he or she has been enrolled in the plan for five years. Prudential issues annuity contracts and insurance policies on participants and provides plan services to the administrator and trustees of the plan. 1/ The City is the owner of both the annuity contracts and the insurance policies. Both the annuity contracts and insurance policies are maintained in the City offices of the plan administrator. Participants do not receive copies of either annuity or insurance contracts and do not receive certificates of insurance. Beginning in 1984, each participant has received monthly Confirmation Statements in their paycheck envelopes. The Confirmation Statements are prepared by Prudential and disclose the net investment activity for the annuity contract. From the inception of the plan, each participant has received an annual Employee Benefit Statement which is prepared by Prudential and discloses the amount of the employer contributions that were allocated to the annuity contract and the amount that was allocated to insurance. Participants are eligible to enroll in the pension plan after six months of service. Biannual enrollment dates are scheduled in April and October each year. Prior to each biannual enrollment date, the City conducts an orientation meeting to explain the pension plan to prospective participants. The City sends a notice to each eligible employee in his or her payroll envelope. The notice informs the employee of his eligibility and the date and time of the orientation meeting. At the City-run orientation meeting, eligible employees are told that the pension plan is a participant directed plan in which each of them must elect either a straight annuity investment or a split investment involving an annuity and life insurance. Thirty to forty percent of the prospective participants do not attend the City-run orientation meeting. Subsequent to the orientation meeting, Respondent meets individually with each eligible employee in a room located on the premises of the City. The enrollment sessions are scheduled by the City so that Respondent has approximately 30 minutes to meet individually with each prospective participant. During that 30 minutes, Respondent provides each eligible employee who enrolled in 1987 and thereafter with a copy of the Summary Plan Description. 2/ Respondent explains the investment options, answers questions, asks the participants for the information contained in the applications and has the participants sign the appropriate applications. 3/ Each participant elects his or her investment option during the 30 minute enrollment session with Respondent. 4/ There is no separate written form evidencing the participant's election. The only written evidence of the election made by the participant is the application for annuity contract and, if the participant elects the split investment option, the application for insurance. If a participant elects the straight annuity investment option, Respondent completes and has the participant sign only one application. That application is for an annuity contract. If the split investment option is elected, Respondent completes and has the participant sign a second application. The second application is for life insurance. An application for an annuity contract is completed by Respondent and signed by the participant regardless of the investment option elected by the individual participant. 5/ An application for an annuity contract is clearly and unambiguously labeled as such. The top center of the application contains the following caption in bold print: Application For An Annuity Contract [] Prudential's Variable Investment Plan Series or [] Prudential's Fixed Interest Plan Series The participant must determine as a threshold matter whether he or she wishes to apply for a variable investment or fixedinterest annuity contract. Respondent then checks the appropriate box. The front page of the application for annuity contract contains an unnumbered box on the face of the application that requires a participant who applies for a variable investment annuity contract to select among seven investment alternatives. The unnumbered box is labeled in bold, capital letters "Investment Selection." The instructions to the box provide: Complete only if you are applying for a variable annuity contract of Prudential's Variable Investment Plan Series Select one or more: (All % allocations must be expressed in whole numbers) [] Bond [] Money Market [] Common Stock [] Aggressively Managed Flexible [] Conservatively Managed Flexible [] Fixed Account [] Other TOTAL INVESTED 100 % The application for annuity contract is two pages long. Question 1a is entitled "Proposed Annuitant's name (Please Print)." Question 4 is entitled "Proposed Annuitant's home address." Question 10, in bold, capital letters, is entitled "Annuity Commencement Date," and then states "Annuity Contract to begin on the first day of." There is an unnumbered box on the application relating to tax deferred annuities. Question 12 asks, "Will the annuity applied for replace or change any existing annuity or life insurance?" (emphasis added) The caption above the signature line for the participant is entitled "Signature of Proposed Annuitant." An application for insurance is also completed by Respondent and signed by the participant if the split investment option is elected. The application for insurance is clearly and unambiguously labeled as such. The upper right corner of the application for insurance contains the following caption in bold print: Part 1 Application for Life Insurance Pension Series to [] The Prudential Insurance Company of America [] Pruco Life Insurance Company A Subsidiary of The Prudential Insurance Company of America The term "proposed insured" also appears in bold print in the instructions at the top of the application for insurance. The application for insurance is approximately five pages long. 6/ It contains questions concerning the participant's treating physician, medical condition, driving record, and hazardous sports and job activities. 7/ Question 1a is entitled "Proposed Insured's name - first, initial, last (Print)." Question 7 asks for the kind of policy for which the participant is applying. Question 9 asks if the waiver of premium benefit is desired. Question 12 asks, "Will this insurance replace or change any existing insurance or annuity in any company?" (emphasis added) Question 21 asks, "Has the proposed insured smoked cigarettes within the past twelve months?" The caption under the signature line for the participant is entitled "Signature of Proposed Insured," as is the signature line for the Authorization For The Release of Information attached to the application for insurance. Respondent met with each of the participants in this proceeding during the time allowed by the City for the enrollment sessions. Mr. Robert Riccio, Respondent's sales manager, was present at approximately 70 percent of those enrollment sessions. Respondent provided each participant who enrolled in 1987 and thereafter with a copy of the Summary Plan Description. Respondent explained the investment options, and answered any questions the participants had. The name, occupation, and date of the enrollment session of the participants involved in this proceeding are: (a) Edmund Kelleher Police Officer 3-16-88 (b) Raymond Steele Police Officer 9-29-88 (c) Mark Hoffman Police Officer 10-29-86 (d) Joseph D'Agostino Police Officer 3-12-88 (e) Charles Johnson Police Officer 9-24-84 (f) Donna Rhoden Admin. Sec. 3-26-87 (g) John Gojkovich Police Officer 10-2-84 (h) John Skinner Police Officer 9-14-84 (i) John Sickler Planner 3-14-90 (j) James Lydon Bldg. Inspect. 9-13-89 (k) Robert McGhee Police Officer 9-18-84 (l) Richard Wilson Police Officer 3-21-89 (m) Lorraine Prussing Admin. Sec. 9-6-84 (n) Helen Ridsdale Anml. Cntrl. Off. 9-14-84 (o) Sandra Steele Admin. Sec. 4-3-85 (p) Linda Kimsey Computer Op. 3-18-89 (q) Jane Kenney Planner 3-13-85 (r) Alane Johnston Buyer 3-18-89 (s) Paula Laughlin Plans Exam. 3-18-89 Helen Ridsdale Anml. Cntrl. Super. 9-14-84 Jerry Adams Engineer 3-16-88 Cheryl John Records Super. for the Police Dept. 9-14-84 Each participant in this proceeding elected the split investment option during his or her enrollment session with Respondent and signed applications for both an annuity contract and an insurance policy. Each participant signed the application for insurance in his or her capacity as the proposed insured. The City paid 10.5 percent of each participant's salary to Prudential on a monthly basis. The payments were sent to Prudential with a form showing the amount to be invested in annuities and the amount to be used to purchase insurance. Each participant who enrolled in 1987 and thereafter received with his or her paycheck a monthly Confirmation Statement and all participants received an annual Employee Benefit Statement disclosing the value of the investment in annuities and the value of the investment in life insurance. The participants in this proceeding, like all participants, did not receive copies of annuity contracts and insurance policies and did not receive certificates of insurance. The annuity and insurance contracts were delivered to the City, as the owner, and maintained in the offices of the City's finance department. The participants in this proceeding had no actual knowledge that they had applied for insurance during the enrollment session with Respondent. Most of the participants had other insurance and did not need more insurance. Each participant left the enrollment session with Respondent with the impression that they had enrolled in the pension plan and had not applied for insurance. The lack of knowledge or misapprehension suffered by the participants in this proceeding was not caused by any act or omission committed by Respondent. Respondent did not, either personally or through the dissemination of information or advertising: wilfully misrepresent the application for insurance; wilfully deceive the participants with respect to the application for insurance; demonstrate a lack of fitness or trustworthiness; commit fraud or dishonest practices; wilfully fail to comply with any statute, rule, or order; engage in any unfair method of competition or unfair deceptive acts or practices; knowingly make false or fraudulent statements or representations relative to the application for insurance; or misrepresent the terms of the application for insurance. No clear and convincing evidence was presented that Respondent committed any act or omission during the enrollment sessions which caused the participants to believe that they were not applying for insurance. 8/ None of the participants testified that Respondent prevented them or induced them not to read the applications they signed. 9/ All of the participants affirmed their signatures on the application for insurance, but most of the participants did not recognize the application for insurance signed by them. Some participants could not recall having signed the application. The participants could not recall being hurried or harassed by Respondent and could not recall if Respondent refused to answer any of their questions. 10/ None of the participants provided a clear and convincing explanation of how Respondent caused them to sign an application for insurance without their knowledge or described in a clear and convincing fashion the method by which Respondent prevented them or induced them not to read or understand the contents of the documents they were signing. 11/ Eleven of the 22 participants cancelled their insurance policies after "learning" that they had insurance policies. Eight participants cancelled their policies on August 23, 1990. Two cancelled their policies on February 5, 1991, and one cancelled her policy on April 18, 1991. Financial adjustments required by the cancellations have been made and any remaining contributions have been invested in annuity contracts. Since 1983, Respondent has assisted Prudential and the City in the administration of the pension plan, including the enrollment of all participants. Prior to 1990, there was only one incident in which a participant complained of having been issued an insurance policy without knowing that she had applied for an insurance policy. The policy was cancelled and the appropriate refund made. Respondent has a long and successful relationship with the City and has no prior disciplinary history with Petitioner. Respondent is the agent for Prudential. The pension plan was intended by Prudential and the City to provide eligible employees with investment opportunities for annuities and life insurance. Respondent generally makes higher commissions from the sale of insurance than he does from the sale of annuities. 12/ Mr. Riccio receives 14 percent of the commissions earned by Respondent. Respondent encourages all participants to elect the split investment option by purchasing both annuities and insurance. If a participant states that he or she does not want life insurance, Respondent asks them for their reasons and explains the advantages of life insurance. If the participant then rejects life insurance, Respondent enrolls the participant in a straight annuity investment. Such practices do not constitute fraud, deceit, duress, unfair competition, misrepresentations, false statements, or any other act or omission alleged in the one count Administrative Complaint.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Petitioner should enter a Final Order finding Respondent not guilty of the allegations in the Administrative Complaint and imposing no fines or penalties. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 14th day of January 1992. DANIEL MANRY 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 14th day of January 1992.
Findings Of Fact Based upon my observation of the witnesses and their demeanor while testifying, documentary evidence received and the entire record filed herein, I hereby make the following relevant factual findings: During times material, Respondent was licensed and/or qualified for licensure as a General lines (2-20), Ordinary Life, and Health Insurance (2-18) Agent in Florida (Petitioner's Exhibit 1). During times material to the allegations herein, 1/ Respondent was an officer and director of White Insurance Agency, Inc. (White Insurance). (Petitioner's Exhibit 2). On June 20, representatives of Great Wall Chinese Restaurant (Great Wall) entered into a premium finance agreement with Crown Premium Finance, Inc., (Crown), through White Insurance, which indicated the insurance coverage for Great Wall would be provided and issued through Service Insurance Company and Corporate Group Services. (Petitioner's Exhibit 3, sub. "a"). On June 20, Respondent signed the premium finance agreement as broker- agent. (Petitioner's Exhibit 3, sub "a"). On June 22, pursuant to the premium finance agreement, Crown issued a check made payable to White Insurance in the amount of eight hundred ninety-four dollars ($894.00) which was subsequently deposited into Respondent's bank account. (Petitioner's 3, sub B). On July 13, a representative of Service Insurance Company notified Crown that they had not received the full annual premium for Great Wall and a binder charge of $81.00 was sent to White Insurance. (Petitioner's Exhibit 3 sub C). On July 13, representatives of Service Insurance Company notified Respondent that coverage was bound for Great Wall's risk for only 33 days and a charge of $81.00 was sent to White Insurance. (Petitioner's Exhibit 3, sub D). On July 13, representatives of Service Insurance Company mailed a cancellation notice to Great Wall and Crown indicating an $81.00 charge as due and owing. (Petitioner's Exhibit 3, sub) On September 14, Crown sent a standard cancellation notice to both Corporate Group Services and Service Insurance Company. (Petitioner's Exhibit 3, sub H & I). On November 8, representatives of Corporate Group Services notified Crown that an application for insurance was received but was rejected and returned to the agent's (Respondent) office. (Petitioner's Exhibit 3, sub F). Neither Service Insurance Company nor Corporate Group Services issued a policy for the consumer, Great Wall. Respondent refuses to return the premium monies received for the Great Wall coverage to Crown. Respondent owes Crown for the premium monies submitted by Crown. COUNT II On July 8, representatives of Chateau Madrid, Inc., a restaurant, entered into a premium finance agreement with Crown, through Respondent, which indicated the insurance coverage would be issued through Casualty Indemnity Exchange. (Petitioner's Exhibit 4, sub A). On July 8, Respondent signed the premium finance agreement as broker/agent. On July 25, pursuant to the premium finance agreement, Crown issued a check made payable to Respondent in the amount of three thousand five hundred eight dollars (3,508.00). The check was deposited into White Insurance's bank account. (Petitioner's Exhibit 4, sub b). On August 30, Crown sent a standard cancellation notice to both Chateau Madrid and Casualty Indemnity Exchange and their managing general agents, Program Underwriters. (Petitioner's Exhibit 4, sub D). As a result of the standard cancellation notice, the policy was reduced to a short-term policy which was effective July 15 and expired September 13, 1983. On March 13, 1984, Program Underwriters notified Crown that they had not received a premium payment concerning this particular policy and that neither Respondent nor White Insurance was an authorized agent for Casualty Indemnity Exchange. (Petitioner's Exhibit 4, sub e). Respondent never returned the premium monies he received to Crown. Respondent owes Crown for the premium monies he received from Crown. COUNT III On September 16, a representative of Tennis Trainer, Inc. requested that Respondent secure a multi-peril insurance policy for Tennis Trainer. Respondent secured a binder for Tennis Trainer indicating the insurance would be issued through Service Insurance Company. On September 16, Respondent signed the binder as an authorized representative. (Petitioner's Exhibit 13, sub b). On September 16, Respondent was not authorized to represent Service Insurance Company. (Petitioner's Exhibits 12 and 13, sub a and b). On September 15, Jeffrey Rider, Vice President of Tennis Trainer issued a check in the amount of three hundred five dollars ($305.00) to White Insurance representing the downpayment necessary to secure the agreed business insurance coverage. Thereafter, Respondent, took no measures to secure insurance for Tennis Trainer other than issuing the binder. Respondent has failed to submit the premium to secure the agreed upon insurance coverage on behalf of Tennis Trainer. Additionally, Respondent refused to return the premium payments to Tennis Trainer despite its demand (from Respondent) to do so. Tennis Trainer has directly forwarded the remainder of the premium to Service Insurance to secure the multi-peril coverage. Service Insurance Company is owed a balance due of approximately $305.00 from Respondent. COUNT VI On May 5, Donald Powers entered into a premium finance agreement with Crown, through White Insurance. Pursuant to the agreement, the insurance coverage would be provided through Progressive American Insurance (Progressive). On May 9, Crown issued a check made payable to White Insurance in the amount of two hundred ninety-nine dollars ($299.00) which was subsequently deposited into Respondent's bank account. On October 1, the consumer, Donald Powers, requested that the policy be cancelled. On October 25, Crown sent a standard cancellation notice to both the consumer and Progressive. On October 19, Progressive notified both Crown and White Insurance that the gross unearned premium of two hundred twenty-six dollars ($226.00) was applied to the Agent's (White Insurance) monthly statement and Crown must therefore collect this amount from the Agent. Progressive American never received any premium payments from Respondent concerning the subject policy. On November 25, 1986, Progressive notified Petitioner that the policy was originally accepted on May 7, 1983 at an annual premium of four hundred sixty dollars ($460.00) and was cancelled on October 1, 1983, with Two Hundred twenty-six Dollars ($226.00) credited to Respondent's statement. Progressive never received any premium payment for this policy. Respondent has failed to return to Crown the returned premium credit received on behalf of the Donald Powers' policy. COUNT VII On November 28, Russell Lung entered into a premium finance agreement with Crown through White Insurance. The insurance coverage for Lung was to be provided and issued through Interstate Underwriters. On November 29, pursuant to the premium finance agreement with Russell Lung, Crown issued a check made payable to White Insurance in the amount of one hundred sixty-seven dollars (167.00) which was subsequently deposited into a bank account controlled by Respondent. On February 14, 1984, Crown sent a standard cancellation notice to both the consumer and Interstate Underwriters. The policy for Russell Lung was cancelled before its normal expiration date and the unearned premium was credited to Respondent's account. Respondent has not returned to Crown the unearned premium credit received for Lung's policy. COUNT VIII On December 6, representatives of Thomson's Lawn Care (Thomson) entered a premium finance agreement with Crown, through White Insurance, which indicated the insurance coverage would be provided through Northeast Insurance and Southern Underwriters as managing general agents. On December 8, pursuant to the premium finance agreement, Crown issued a check made payable to White Insurance in the amount of one hundred fifty-one dollars ($151.00) which was subsequently deposited into a bank account controlled by Respondent. On January 25, 1984, Crown sent a standard cancellation notice to both the consumer and Northeast Insurance Company/Southern Underwriters. On February 8, 1984, Southern Underwriters notified Crown that they were never paid by White Insurance for Thomson's insurance. On October 16, 1984, Crown was notified by representatives of Thomson's that immediately after making the down payment to White Insurance, Thomson notified White Insurance that the policy should be cancelled immediately since Thomson never operated as a business. (Petitioner's Exhibit 7, sub e). Crown received the returned premium payment from Southern Underwriters even though the original payment to White Insurance by Crown was never forwarded to Southern Underwriters. Respondent refuses to return the unearned premium payment to Crown. COUNT IX On October 15, representatives of Comfort Inn entered a premium finance agreement with Crown, through White Insurance, which indicated the insurance coverage would be provided through Protective National Insurance Company and Interstate Fire and Casualty Company. On November 4, pursuant to the premium finance agreement, Crown issued a check made payable to White Insurance in the amount of one thousand six hundred sixty dollars ($1,660.00) which was subsequently deposited into a bank account controlled by Respondent. On March 1, 1984, Crown sent a standard cancellation notice to both Comfort Inn and the Insurance Companies involved. On February 6, 1984, Comfort Inn's counsel, James W. Martin, forwarded a letter to the insurance companies involved and simultaneously notified Crown that White failed to remit funds to the insurance companies involved and as a result, the policy was cancelled and subsequently reinstated only after his client, Comfort Inn paid the premium directly to the respective insurers. (Petitioner's Exhibit 8, sub e). On February 23, 1984, Irwin Lonschien of Crown responded to attorney Martin's letter and advised that the one thousand six hundred sixty dollars premium payment was forwarded to White Insurance pursuant to the premium finance agreement on November 4, 1983. On July 23, 1984, William Edwards, a representative of Comfort Inn, wrote a letter to Dan Martinez of Eagle Underwriters advising that Comfort Inn had paid a premium to White Insurance and Comfort Inn no longer desired White Insurance to represent them in insurance matters. Respondent, has not returned premiums received from Crown and is therefore indebted to Crown in the amount of one thousand six hundred sixty dollars. COUNT X On April 14, representatives of Royal Palm Motel entered into a premium finance agreement with Crown, through White Insurance which indicated insurance coverage would be provided through Casualty Indemnity- Exchange. On April 18, pursuant to the premium finance agreement, Crown issued a check made payable to White Insurance in the amount of nine hundred seventy- seven dollars ($977.00) which was subsequently deposited into a bank account controlled by Respondent. COUNT XI On March 16, 1982, representatives of Flip's of West Broward entered a premium finance agreement with Crown, through White Insurance which indicated the insurance coverage would be provided through Service Insurance Company. On March 19, 1982, pursuant to the premium finance agreement, Crown issued a check made payable to White in the amount of six hundred forty-eight dollars ($648.00) which was subsequently deposited in a bank account controlled by Respondent. Sometime between March 1982 and June 20, 1982, White Insurance forwarded a premium payment for this coverage to Service Insurance Company. On June 20, 1982, Crown sent a standard cancellation to the consumer and Service Insurance indicating the policy was to be cancelled. By letter dated January 7, Service Insurance notified White Insurance that the policy had been cancelled and the returned premium for the policy was credited to the account of White Insurance. Respondent, as agent/director of White Insurance has failed and refused to return to Crown the returned premiums received for Flip's of West Broward. COUNT XII On November 7, Paula Wilcoxon entered a premium finance agreement with Crown, through White Insurance, indicating the insurance coverage would be issued through Universal Casualty. On November 8, pursuant to the premium finance agreement, Crown issued a check made payable to White Insurance in the amount of two hundred ninety-five dollars ($295.00) which was subsequently deposited into a bank account controlled by Respondent. On December 15, Crown notified the consumer and Universal Casualty, by standard cancellation notice, that the policy was being cancelled. Respondent has refused and continues to refuse to return the unearned premium to Crown.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED: That the Petitioner, Department of Insurance and Treasurer, enter a Final Order revoking all licenses and qualifications for licensure of Respondent, Kenneth Everett White, as an insurance agent in the State of Florida. RECOMMENDED this 20th day of March, 1987, in Tallahassee, Florida. JAMES E. BRADWELL Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 20th day of March, 1987.
The Issue The issue is whether respondent's license as a public adjuster should be revoked, suspended, or otherwise disciplined after his conviction for aiding in the preparation of a false tax return in violation of 26 U.S.C. Section 7206(2).
Recommendation It is RECOMMENDED that Mr. Lesser be found guilty of violation of Section 626.611(7), Florida Statutes (1987), and that his licensure as a public adjuster be suspended for a period of six months. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 28th day of December, 1989. WILLIAM R. DORSEY, JR. 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 28th day of December, 1989. APPENDIX TO RECOMMENDED ORDER DOAH CASE NO. 89-0502 Rulings on findings proposed by the Department: 1 and 2. Adopted in finding of fact 3. Adopted in finding of fact 4. Implicit in findings of fact 5 and 6. Adopted in finding of fact 6. Adopted in finding of fact 8. Adopted in finding of fact 8. Adopted in finding of fact 8. Implicit in finding of fact 11. Rulings on findings proposed by Mr. Lesser: 1-11. Inapplicable. Adopted in finding of fact 3. Adopted in finding of fact 3, to the extent necessary. Rejected as unnecessary. Adopted in finding of fact 5. Adopted in finding of fact 5. Adopted in finding of fact 5, though finding of fact 5 includes certain logical deductions or inferences. Made more specific in findings of fact 5 and 6. Adopted as modified in finding of fact 7. Rejected. Not only were the laundering transactions illegitimate because they allowed Benevento Maneri to mischaracterize the source of their income, they also created false expenses for Lesser and Company, Inc., which artificially lowered the income of Lesser and Company, Inc., by the amount of the expense. Adopted as modified in finding of fact 7. It is difficult to determine what Mr. Lesser actually thought the source of the money was, but he knew it was illicit. See, finding of fact 7. Adopted as modified in finding of fact 8. Adopted as modified in finding of fact 9. 25 and 26. Adopted as modified in finding of fact 9. Adopted as modified in finding of fact 10 The extent of Mr. Lesser's danger cannot be determined from this record, although he was in some danger. Covered in finding of fact 9 Adopted as modified in finding of fact 11. Rejected. See, finding of fact 8. The IRS first contacted Mr. Lesser. He then went to Mr. Weinstein to set matters straight. Adopted as modified in finding of fact 11. Adopted as modified in finding of fact 4. Adopted as modified in finding of fact 12. Adopted as modified in finding of fact 12. A light sentence implies the factors set out in finding of fact 35, were taken into consideration, but does not prove that they were all the reasons the U.S. District Judge took into consideration. To the extent necessary, mentioned in finding of fact 12. Rejected as procedural. 38-51. Covered in findings of fact 13 and 14. The proposed findings are subordinate to the findings made in findings of fact 13 and 14. COPIES FURNISHED: S. Marc Herskovitz, Esquire Robert V. Elias, Esquire Office of Legal Services 412 Larson Building Tallahassee, Florida 32399-0300 William W. Corry, Esquire Jack M. Skelding, Jr., Esquire Patrick J. Phelan, Jr., Esquire Parker, Skelding, Labasky & Corry 318 North Monroe Street Post Office Box 669 Tallahassee Florida 32301 Honorable Tom Gallagher State Treasurer and Insurance Commissioner Department of Insurance and Treasurer The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Don Dowdell, General Counsel Department of Insurance and Treasurer The Capitol, Plaza Level Tallahassee, Florida 32399-0300
The Issue Whether the proposed rules, 60Z-1.026 and 60Z-2.017, Florida Administrative Code, published in the Florida Administrative Weekly on March 7, 2003 (Volume 29, No. 10, at pages 979-80), constitute an invalid exercise of delegated legislative authority.
Findings Of Fact Petitioner, Florida League of Cities, Inc. (“League”), is a not-for-profit Florida corporation located at 301 South Bronough Street, Suite 300, Tallahassee, Florida 32301. The League is a wholly owned instrumentality of its 405 member cities. The League’s purpose is to work for the general improvement of municipal government and its effective administration in this state, and to represent its members before the legislative, executive and judicial branches of Florida’s state government on issues pertaining to the welfare of its members. The League’s members include 175 cities with pension plans for firefighters established pursuant to Chapter 175; and 184 cities with pension plans for police officers established pursuant to Chapter 185. Petitioner Casselberry maintains a local law pension plan for its firefighters and police officers pursuant to Chapters 175 and 185. Casselberry’s pension plan was in effect on October 1, 1998. Casselberry’s pension plan meets all the minimum benefit requirements of Chapters 175 and 185. Casselberry’s police/fire pension plan provides benefits in addition to or greater than the pension benefits it provides to general employees that cost as much or more than the total amount of premium taxes received by the City of Casselberry. Petitioner Deerfield Beach maintains a local law pension plan for its police officers pursuant to Chapter 185, Florida Statutes. Deerfield Beach’s pension plan meets all the minimum benefit requirements of Chapter 185. Further, Deerfield Beach’s police pension plan provides benefits in addition to or greater than the pension benefits it provides to general employees that cost as much or more than the total amount of premium taxes received by the City of Deerfield Beach. Petitioner Greenacres maintains a local law pension plan for its firefighters and police officers pursuant to Chapters 175 and 185, Florida Statutes. Greenacres’ pension plan meets all the minimum benefit requirements of Chapters 175 and 185. Greenacres’ police/fire pension plan provides benefits in addition to or greater than the pension benefits it provides to general employees that cost as much or more than the total amount of premium taxes received by the City of Greenacres. Petitioner Kissimmee maintains a local law pension plan for its firefighters pursuant to Chapter 175. Kissimmee’s firefighter pension plan meets all the minimum benefit requirements of Chapter 175. Kissimmee’s firefighter pension plan provides benefits in addition to or greater than the pension benefits it provides to general employees that cost as much or more than the total amount of premium taxes received by the City of Kissimmee. Petitioner New Port Richey maintains a local law pension plan for its firefighters pursuant to Chapter 175. New Port Richey’s firefighter pension plan meets all the minimum benefit requirements of Chapter 175, and provides benefits in addition to or greater than the pension benefits it provides to general employees. These benefits cost as much or more than the total amount of premium taxes received by the City of New Port Richey. Chapters 175 and 185, govern the establishment and operation of defined benefit retirement plans for municipal police officers and firefighters employed by cities and special districts. These Chapters also contain a revenue sharing program that allows participating cities and districts to receive a portion of the state excise tax on property and casualty insurance premiums collected on policies covering property within each jurisdiction. In order to qualify for the annual distribution of premium tax revenues provided by Chapters 175 and 185, the local government pension plan must comply with the applicable provisions of those statutes. Sections 175.351(1) and 185.35(1), respectively, of those Chapters were amended in 1999 by Chapter 99-1, Laws of Florida. The two Sections are virtually identical and can be treated interchangeably for the purposes of this proceeding. Section 175.351(1), in pertinent part, reads as follows: PREMIUM TAX INCOME.--If a municipality has a pension plan for firefighters, or a pension plan for firefighters and police officers, where included, which in the opinion of the division meets the minimum benefits and minimum standards set forth in this chapter, the board of trustees of the pension plan, as approved by a majority of firefighters of the municipality, may: Place the income from the premium tax in Section 175.101 in such pension plan for the sole and exclusive use of its firefighters, or for firefighters and police officers, where included, where it shall become an integral part of that pension plan and shall be used to pay extra benefits to the firefighters included in that pension plan; or Place the income from the premium tax in Section 175.101 in a separate supplemental plan to pay extra benefits to firefighters, or to firefighters and police officers where included, participating in such separate supplemental plan. The premium tax provided by this Chapter shall in all cases be used in its entirety to provide extra benefits to firefighters, or to firefighters and police officers, where included. However, local law plans in effect on October 1, 1998, shall be required to comply with the minimum benefit provisions of this chapter only to the extent that additional premium tax revenues become available to incrementally fund the cost of such compliance as provided in Section 175.162(2)(a). When a plan is in compliance with such minimum benefit provisions, as subsequent additional premium tax revenues become available, they shall be used to provide extra benefits. For the purpose of this chapter, ‘additional premium tax revenues’ means revenues received by a municipality or special fire control district pursuant to Section 175.121 that exceed that amount received for calendar year 1997 and the term ‘extra benefits’ means benefits in addition to or greater than those provided to general employees of the municipality. Local law plans created by special act before May 23, 1939, shall be deemed to comply with this chapter. (Underscored language was enacted by Chapter 99-1, Laws of Florida.) The above-quoted underscored language of Sections 175.351 and 185.35 became effective March 12, 1999. The Division of Retirement advised all cities and districts that they could use additional premium tax revenues received in excess of the amount received for 1997 solely to pay for new extra benefits adopted after March 12, 1999. The additional premium tax revenues could not be used to pay for extra benefits adopted before March 12, 1999. Consequently, responsibility for the cost to local governments for extra benefits adopted prior to March 12, 1999, is not defrayed by additional premium tax benefits and must be absorbed by the particular local government. As established by testimony of Respondent's Actuary, Charles Slavin, along with Article X, Section 14 of the Florida Constitution and Part VII, Chapter 112, governmental pension plans must be funded on a “sound actuarial basis.” A plan is actuarially funded when funded by contributions which, when expressed as a percent of active member payrolls or a fixed dollar amount, will remain approximately level from year to year and will not have to be increased in the future, in the absence of benefit improvements. Actuarial funding is based on reasonable assumptions, predictable events and variables so that all the funds necessary to pay employees' future benefits are accumulated by the expected date of benefit payments. A pension plan is funded on a sound actuarial basis when a funding program has been established which, with the payment of level contributions and investment returns over the lifetime of the participants, will fund the difference between the value of expected promised benefits and the available assets. Although pension benefits increase in future years from increased salaries and other facts, pension plans are usually funded on a constant level percentage of payroll. Such funding pays the normal fiscal cost and amortizes unfunded liabilities as required by Chapter 112, Part VII. Payroll growth helps pay for increases in the cost of benefits because employee contributions, based on a level percentage of payroll produce increased funding. Liability increases are offset by payroll growth. Extra benefits for firefighters and police officers in excess of those provided general employees, that were enacted by local governments, prior to or after March 12, 1999, were required by law to be funded on a sound actuarial basis. Premium tax revenues to the local governments are not within the control of those local governments since the amount of tax levied is set by the legislature through statutory enactment. Accordingly, inclusion of future revenues in future years from the premium tax is not a proper actuarial assumption in the funding of extra benefits. Some local governments, despite this categorization of the premium tax revenue, enacted special benefits in reliance upon possible future increases in revenues from the tax to fund special benefits. All local government Petitioners in the present proceeding meet the minimum benefit requirements of Sections 175.162 and 185.16. The cost of extra benefits enacted by Petitioners prior to the effective date of Chapter 99-1 (March 12, 1999), generally exceeded the amount of the premium tax received by Petitioners. Respondent's requirement that Petitioners set aside additional premium tax revenues to fund solely future benefit increases prevented the reduction of future funds for future benefits. Respondent's proposed rules, 60Z-1.026 and 60Z-2.017, are identical with exception that one is applicable to Sections 175.351(1) and 185.35(1), respectively, and read as follows: Use of premium tax revenues: For pension plans that were in effect on October 1, 1998, that have not met the minimum benefit requirements described in Section 185.16, benefits shall be increased incrementally as additional premium tax revenues become available. For pension plans that were in effect on October 1, 1998, that provide benefits that meet or exceed the minimum benefits described in Section 185.16, increases in premium tax revenues over the amount collected for calendar year 1997, must be used in their entirety to provide extra benefits in addition to those benefits provided prior to the effective date of Chapter 99-1, Laws of Florida. For plans that were not in existence on October 1, 1998, premium tax revenues must be used in their entirety to provide extra benefits. Respondent interprets "additional premium benefits" as defined in Sections 175.351 and 185.35 to mean premium tax benefits greater than those received in 1997 and distributed to cities in 1998, prior to enactment of Chapter 99-1. "Extra benefits" means benefits greater than those afforded general employees and in addition to or greater than those benefits enacted prior to the effective date of Chapter 99-1. These definitions presume that amendments in Chapter 99-1 are to be applied prospectively, or after the effective date of that legislative enactment. Extra benefits enacted prior to that date must be funded from premium tax dollars received prior to that date. No evidence was presented by Petitioners of legislative intent that "additional premium tax revenues" should or could be used to fund existing extra benefits enacted prior to Chapter 99-1.
Findings Of Fact Petitioner is the administrative agency charged with responsibility for administering and enforcing the provisions of Chapter 493, Florida Statutes. Respondent, Mortgage Refunds Research and Consulting ("Mortgage"), is a Florida corporation that is wholely owned by Respondent, Richard Vidair. Respondent has sole responsibility for the direction, control, operation, and management of Mortgage. Respondent is not licensed as a private investigator and Mortgage is not a licensed private investigative agency. Respondent is considered by the United States Department of Housing and Urban Development to be a third party tracer. Respondent and his agency locate persons who may be owed refunds for mortgage insurance premiums. From sometime in August, 1990, through May 2, 1991, Respondent contacted individuals who may be owed mortgage insurance refunds by the federal government. Respondent solicited a fee contingent upon actual receipt of the mortgage refund from the federal government. Respondent obtained from the United States government a list of persons owed mortgage refunds. Such lists are available to anyone for a nominal processing fee. Respondent determined the whereabouts of persons named on the list. Respondent either telephoned or mailed a letter to the person named on the list and informed that person of the service offered by Respondent. Respondent included in the letter sent to the person a finder's fee agreement to be signed by the person on the list. Once the contract was signed and returned to Respondent, Respondent provided the person on the list with additional documents to be filled out for the purpose of filing a claim with the federal government. Government refunds were mailed directly to the person on the list. The terms of the finder's fee agreement required the person on the list to pay Respondent's fee within three days of the date the person received his or her money from the government. The agreement further provided that if Respondent's fee was not paid within 30 days, Respondent was entitled to a fee equal to 50 percent of the government refund. Finally, the agreement provided that all collection and legal expenses incurred by Respondent in collecting the finder's fee must be paid by the other party. Respondent received a letter in March, 1991, from the Division of Licensing notifying Respondent that his activities required licensure. After conferring with his attorney, Respondent terminated his activities in Florida but continued his activities outside the state. On October 14, 1987, an attorney for the Division of Licensing issued an internal legal opinion to then Division Director Dave Register. The opinion concluded that persons who engage in the business of locating individuals to whom mortgage insurance premium refunds are due from the federal government are not required to be licensed pursuant to Chapter 493, Florida Statutes. On October 30, 1987, Ken Rouse, General Counsel, Department of State, issued a legal opinion which rescinded the prior internal opinion and concluded that such activities must be licensed.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Petitioner enter a Final Order finding Respondent guilty of violating Section 493.6118(1)(g), Florida Statutes, and Florida Administrative Code Rule 1C-3.122(1), imposing an administrative fine of $500 pursuant to Florida Administrative Code Rule 1C-3.113(1)(a)2, imposing an administrative fine of $150 pursuant to Florida Administrative Code Rule 1C- 3.113(1)(b)2, and ordering Respondent to cease all investigative activities until Respondent is properly licensed in accordance with Chapter 493. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 23 day of January 1992. DANIEL MANRY 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 23th day of January 1992.
