The Issue Whether Respondents committed the offenses alleged in the Administrative Complaint and the penalties, if any, that should be imposed.
Findings Of Fact Petitioner is a state licensing and regulatory agency charged with the responsibility and duty to prosecute administrative complaints pursuant to the laws of the State of Florida, in particular, Chapters 455 and 475, Florida Statutes, and Title 61J2, Florida Administrative Code. At all times pertinent to this proceeding, Respondent, Gerry Sullivan & Associates Realty, Inc., was a corporation registered as a real estate broker in the State of Florida, having been issued license number 0215569 in accordance with Chapter 475, Florida Statutes. The last license issued for that corporation was at the address of 7169 West Broward Boulevard, Plantation, Florida. At all times pertinent to this proceeding, Respondent, Geraldine R. Sullivan, was a licensed real estate broker in the State of Florida, having been issued license number 0086238 in accordance with Chapter 475, Florida Statutes. At all times pertinent to this proceeding, Respondent, Geraldine R. Sullivan, was the qualifying broker and office manager of the corporate Respondent. At all times pertinent to this proceeding, Jim Sullivan and Pamela Sullivan were real estate salespersons in the State of Florida and employed by the corporate Respondent. Jim Sullivan is the son of Geraldine R. Sullivan and the husband of Pamela Sullivan. On June 16, 1997, Elaine P. Martin entered into a listing agreement with the corporate Respondent to sell her condominium for the price of $32,900. The listing agreement provided for the seller (Ms. Martin) to pay a brokerage commission of 6% that would be reduced to 5% if Jim Sullivan or Pamela Sullivan found the buyer without the involvement of another broker. The listing agreement also provided that Ms. Martin would pay a processing fee in the amount of $150.1 The listing agreement did not refer to a transaction fee.2 Ms. Martin did not agree to pay any fees other than the commission and the processing fee. In 1996, the corporate Respondent began a practice of charging sellers in certain transactions a fee, referred to as a transaction fee, that was in addition to the processing fee and the commission. The transaction fee was used by the salesperson to pay the salesperson's "facilitator," a person employed by the salesperson to run errands to facilitate the closing of the transaction. Examples of the type errands performed by the facilitator included meeting persons at the property to perform inspections and delivering documents. The practice of charging a transaction fee was not uncommon in Broward County, but it was not standard practice. Whether a particular seller would be charged a transaction fee depended, in part, on the listing salesperson. Typically, if a salesperson employed by the corporate Respondent did not us a facilitator, no transaction fee would be charged. The minutes of the Florida Real Estate Commission for July 16-17, 1996, contain the following entry: It was decided that as long as there is disclosure to all parties involved, the transaction fees indicated on closing statements is not a violation of F.S. 475. The customary practice of the corporate Respondent in June of 1997 was for its salesperson to complete a "net sheet" at the time the listing agreement is executed. The "net sheet" is a good faith estimate of the seller's expenses and reflects the estimated amount the seller will net from the transaction. The evidence established that Respondent, Geraldine R. Sullivan, and Pamela Sullivan could not locate in the Martin file a net sheet was prepared on or about the time Ms. Martin executed the listing agreement on June 16, 1997. From that evidence, and from the testimony of Ms. Martin, it is found that Jim Sullivan did not complete a net sheet when he and Ms. Martin executed the listing agreement. The listing agreement created a principal/agent relationship between Ms. Martin, as the seller, and the corporate Respondent, as the agent. At all times pertinent to this proceeding, the corporate Respondent and Geraldine R. Sullivan, as the qualifying broker of the corporate Respondent, were the agents of Ms. Martin and owed her the fiduciary duties of an agent. In connection with the subject listing agreement, Ms. Martin executed an Agency Disclosure Statement which set forth the fiduciary duties owed by the agent to the principal, in pertinent part, as being the ". . . fiduciary duties of loyalty, confidentiality, obedience, full disclosure, accounting and the duty to use skill, care and diligence." In addition, the statement set forth that the agent owed the duty of honesty and fair dealing.3 A buyer working through another real estate broker made an offer to purchase the Martin property for the sum of $30,000. The offer, dated June 22, 1997, was presented to Ms. Martin by Pamela Sullivan. Because another real estate broker was involved, the real estate commission was based on 6% of the sales price. On June 22, 1997, Pamela Sullivan discussed the offer with Ms. Martin by telephone and informed her, for the first time, of the transaction fee. Later that day, Pamela Sullivan and Ms. Martin met and Pamela Sullivan prepared a "net sheet" that reflected the seller's estimated closing costs. The transaction fee in the amount of $3004 was reflected on the net sheet as an expense of the seller. As of June 22, 1997, Pamela Sullivan knew or should have known that the file on the Martin transaction maintained by her office did not contain a net sheet that was executed at the same time the listing agreement was executed. Prior to signing the contract or the net sheet on June 22, 1997, Ms. Martin placed a question mark next to the line on which the transaction fee was disclosed. Ms. Martin questioned the charge because she did not understand what was being done to earn that fee. Ms. Martin did not accept the explanations Pamela Sullivan gave for the transaction fee. Ms. Martin thereafter had Pamela Sullivan insert the following as a special condition of the contract: The seller reserves the right to have her attorney review the contract at his earliest opportunity. After the special condition was signed, Ms. Martin signed the contract and the net sheet. The net sheet was intended to be informational. By signing the net sheet, Ms. Martin did not intend to agree to pay the $300 transaction fee. Ms. Martin did not agree in writing or verbally to pay the transaction fee. Between June 22 and June 25, 1997, Pamela Sullivan, on behalf of the corporate Respondent, reduced the amount of the claimed transaction fee from $300 to $200. Following the execution of the Sales Contract, Ms. Martin had her attorney review the contract and the net sheet. Ms. Martin informed her attorney by memo dated June 25, 1997, in pertinent part, as follows: . . . We disputed the Transaction Fee of $300.00 and Century 21 lowered it to $200. We asked Pam Sullivan for a break down (sic) on the $200.00 cost. She refused to provide any; stated it was the cost of doing business. Since the housing prices in Broward County have not increased, they charge this extra fee along with their normal commission. . . . Ms. Martin sent a copy of her memo to Pamela Sullivan. Ms. Martin's attorney accepted the sales contract without any changes and informed her that he would address the issue of the transaction fee at the time of the closing. On the day of the closing, Ms. Martin's attorney telephoned Respondent, Geraldine R. Sullivan, to discuss the transaction fee. Geraldine R. Sullivan would not agree to waive the transaction fee after she learned that there was a signed net sheet. She did not realize that there was no net sheet prepared when the listing agreement was first executed. This was the only direct dealing Respondent, Geraldine R. Sullivan, had with this transaction. Between June 25, 1997, the date of Ms. Martin's memo, and July 7, 1997, the date of the closing, neither Ms. Martin nor her attorney voiced additional objection to the transaction fee.5 The transaction closed on July 7, 1997. The sum of $200, representing the amount of the disputed transaction fee, was placed in escrow by the closing agent, where it remained at the time of the formal hearing. All other fees and costs were paid at closing, including a brokerage commission of $1,800 (which was split with the realtor representing the buyer) and a processing fee of $150 (which was retained by the corporate Respondent).
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered that finds the corporate Respondent guilty of violating Section 475.25(1)(b), Florida Statutes, and finds Geraldine R. Sullivan not guilty of that charge. It is further RECOMMENDED that the corporate Respondent be reprimanded and fined in the amount of $1,000. DONE AND ENTERED this 4th day of August, 1998, in Tallahassee, Leon County, Florida. CLAUDE B. ARRINGTON Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 4th day of August, 1998
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the administrative complaint filed against H. Ernest Morris, Sr. be DISMISSED with prejudice. DONE and ENTERED this 3rd day of May, 1984, in Tallahassee, Florida. DONALD R. ALEXANDER 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 3rd day of May, 1984. COPIES FURNISHED: Tina Hipple, Esquire P. O. Box 1900 Orlando, Florida 32802 Carmine M. Bravo, Esquire 1450 State Road 434 Longwood, Florida 32750 Steven H. Coover, Esquire P. O. Drawer H Sanford, Florida 32771 Fred M. Roche, Secretary 130 North Monroe Street Tallahassee, Florida 32301 Mr. Harold R. Huff, Director Division of Real Estate 400 West Robinson Street Orlando, Florida 32801 ================================================================= AGENCY FINAL ORDER ================================================================= STATE OF FLORIDA DEPARTMENT OF PROFESSIONAL REGULATION FLORIDA REAL ESTATE COMMISSION DEPARTMENT OF PROFESSIONAL REGULATION, FLORIDA REAL ESTATE COMMISSION Petitioner, vs. CASE NO. 0034049 DOAH NO. 83-3273 H. ERNEST MORRIS, SR. Respondent. /
The Issue The issues are whether proposed rules 12-18.008, 12A-15.001 and 12A-1.044, Florida Administrative Code, are valid exercises of delegated legislative authority.
Findings Of Fact The Parties The Family Arcade Alliance (Alliance) is a group composed primarily of businesses that operate amusement game machines in the State of Florida which are activated either by token or coin. The parties agree that the Alliance is a substantially affected person as that term is defined in Section 120.54(4)(a), Florida Statutes (1991), and has standing to maintain these proceedings. The Department of Revenue (Department) is the entity of state government charged with the administration of the revenue laws. The Tax and the Implementing Rules Except for the period the services tax was in force, no sales tax had been imposed on charges made for the use of coin-operated amusement machines before the enactment of Chapter 91-112, Laws of Florida, which became effective on July 1, 1991. The Act imposed a 6 percent sales tax on each taxable transaction. Coin-operated amusement machines found in Florida are typical of those machines throughout the United States. The charges for consumer use of the machines are multiples of twenty-five-cent coins, i.e., 25 cents, 50 cents, 75 cents, and one dollar. The sales tax is most often added to the sale price of goods, but it is not practicable for the sellers of all products or services to separately state and collect sales tax from consumers. For example, there is no convenient way separately to collect and account for the sales tax on items purchased from vending machines such as snacks or beverages, or from newspaper racks. For these types of items, a seller reduces the price of the object or service sold, so that the tax is included in the receipts in the vending machine, newspaper rack or here, the coin-operated amusement machine. There are subtleties in the administration of the sales tax which are rarely noticed. The sales tax due on the purchase of goods or services is calculated at the rate of 6 percent only where the purchase price is a round dollar amount. For that portion of the sales price which is less than a dollar, the statute imposes not a 6 percent tax, but rather a tax computed according to a specific statutory schedule: Amount above or below Sales tax whole dollar amount statutorily imposed 1-9 0 10-16 1 17-33 2 34-50 3 51-66 4 67-83 5 84-100 6 Section 212.12(9)(a) through (h), Florida Statutes (1991). In most transactions the effect of the schedule is negligible and the consumer never realizes that the tax rate is greater than 6 percent for the portion of the sales price that is not a round dollar amount. Where a very large percentage of sales come from transactions of less than a dollar, the statutory schedule for the imposition of the sales tax takes on a greater significance. For those transactions between 9 cents up to a dollar the schedule's effective tax rate is never below the nominal tax rate of 6 percent, and may be as high as 11.76 percent. For example, the 1 cent sales tax on a 10 cent transaction yields an effective tax rate of 10 percent, not 6 percent. Where it is impracticable for businesses in an industry to separately state the tax for each sale, the statutes permit sellers (who are called "dealers" in the language of the statute) to file their tax returns on a gross receipts basis. Rather than add the amount of the tax to each transaction, taxes are presumed to be included in all the transactions and the dealer calculates the tax based on his gross receipts by using the effective tax rate promulgated by the Department in a rule. See Section 212.07(2), Florida Statutes (1991). Businesses also have the option to prove to the Department that in their specific situation the tax due is actually lower than a rule's effective tax rate for the industry, but those businesses must demonstrate the accuracy of their contentions that a lower tax is due. Applying the statutory tax schedule to sales prices which are typical in the amusement game machine industry (which are sometimes referred to as "price points") the following effective tax rates are generated at each price point: Total Sales Presumed Presumed Effective Price Selling Price Sales Tax Tax Rate 25 cents 23 cents 2 cents 8.7% 50 cents 47 cents 3 cents 6.38% 75 cents 70 cents 5 cents 7.14% $1.00 94 cents 6 cents 6.38% The determination of an effective tax rate for an industry as a whole also requires the identification of industry gross receipts from each of the price points. Once that effective tax rate is adopted as a rule, the Department treats dealers who pay tax using the effective tax rate as if they had remitted tax on each individual transaction. Proposed Rule 12A-1.044 establishes an industry-wide effective tax rate for monies inserted into coin-operated amusement machines or token dispensing machines of 7.81 percent. For counties with a one half or one percent surtax, the effective tax rates are 8.38 percent and 8.46 percent respectively. These rates include allowances for multiple plays, i.e., where the consumer deposits multiple coins to activate the machine. Proposed Rule 12A-1.044(1)(b) defines coin-operated amusement machines as: Any machine operated by coin, slug, token, coupon or similar device for the purpose of entertainment or amusement. Amusement machines include, but are not limited to, coin-operated radio and televisions, telescopes, pinball machines, music machines, juke boxes, mechanical games, video games, arcade games, billiard tables, moving picture viewers, shooting galleries, mechanical rides and all similar amusement devices. Proposed Rule 12-18.008 contained a definition of "coin-operated amusement machines" when the rule was first published which was essentially similar, but that rule's nonexclusive list of amusement machines did not include radios, televisions or telescopes. The Department has prepared a notice to be filed with the Joint Administrative Procedures Committee conforming the definitions so they will be identical. The current differences found in the nonexclusive descriptive lists are so slight as to be inconsequential. The Petitioners have failed to prove any confusion or ambiguity resulting from the differences that would impede evenhanded enforcement of the rule. Proposed Rule 12A-15.011 did not contain a separate definition of coin-operated amusement machines. Owners of amusement machines do not always own locations on which to place them. Machine owners may go to landowners and lease the right to place their machines on the landowner's property. The transaction becomes a lease of real property or a license to use real property. Sometimes owners of locations suitable for the placement of amusement machines lease machines from machine owners. Those transactions become leases of tangible personal property. Both transactions are subject to sales tax after July 1, 1991. Proposed rules 12A- 1.044(9)(c), (d) and 10(a), (c) prescribe which party to the leases of real estate or personal property will be responsible to collect, report and remit the tax. Under subsection 9(d) of proposed rule 12A-1.044, sales tax will not be due on any payment made to an owner of an amusement machine by the owner of the location where that machine is placed if: a) the lease of tangible personalty is written, b) the lease was executed prior to July 1, 1991, and c) the machine involved was purchased by the lessor prior to July 1, 1991. The tax will be effective only upon the expiration or renewal of the written lease. Similarly, proposed 12A-1.044(10)(d) provides that sales tax will not be due on written agreements for the lease of locations to owners of amusement machines if: a) the agreement to rent the space to the machine owner is in writing, and b) was entered into before July 1, 1991. At the termination of the lease agreement, the transaction becomes taxable. Changes to the proposed rules The Department published changes to the proposed rule 12A-1.044(3)(e) on October 18, 1991, which prescribed additional bookkeeping requirements on any amusement machine operators who wished to avoid the effective tax rate established in the proposed rule, and demonstrate instead a lower effective tax rate for their machines. The significant portions of the amendments read: In order to substantiate a lower effective tax rate, an operator is required to maintain books and records which contain the following information: * * * b. For an amusement machine operator, a list identifying each machine by name and serial number, the cost per play on each machine, the total receipts from each machine and the date the receipts are removed from each machine. If an operator establishes a lower effective tax rate on a per vending or amusement machine basis, the operator must also establish an effective tax rate for any machine which produces a higher rate than that prescribed in this rule. Operators using an effective rate other than the applicable tax rate prescribed within this rule must recompute the rate on a monthly basis. (Exhibit 6, pg. 4-5) There was also a change noticed to subsection (e) of the proposed rule 12A-1.044, which reads: (e) For the purposes of this rule, possession of an amusement or vending machine means either actual or constructive possession and control. To determine if a person has constructive possession and control, the following indicia shall be considered: right of access to the machine; duty to repair; title to the machine; risk of loss from damages to the machine; and the party possessing the keys to the money box. If, based on the indicia set out above, the owner of the machine has constructive possession and control, but the location owner has physical possession of the machine, then the operator shall be determined by who has the key to the money box and is responsible for removing the receipts. If both the owner of the machine and the location owner have keys to the money box and are responsible for removing the receipts, then they shall designate in writing who shall be considered the operator. Absent such designation, the owner of the machine shall be deemed to be the operator. (Exhibit 6, pg. 1-2) The Amusement Game Machine Industry All operators must be aware of how much money an amusement machine produces in order to determine whether it should be replaced or rotated to another location when that is possible, for if games are not changed over time, patrons become bored and go elsewhere to play games on machines which are new to them. The sophistication with which operators track machine production varies. It is in the economic self interest of all operators to keep track of the revenues produced by each machine in some way. In general, amusement game machine businesses fall into one of three categories: free standing independent operators, route vendors, and mall operators. Free standing independent operators have game arcades located in detached buildings, and offer patrons the use of amusement machines much in the same way that bowling alleys are usually freestanding amusement businesses. Like bowling alleys, they are designed to be destinations to which patrons travel with the specific purpose of recreation or amusement. They are usually independent businesses, not franchises or chains. Route operators place machines individually or in small numbers at other businesses, such as bars or convenience stores. People who use the machines are usually at the location for some other purpose. Those games are maintained on a regular basis by an operator who travels a route from game location to game location. The route operator or the location owner may empty the machine's money box. Mall operators tend to be parts of large chains of amusement game operators who rent store space in regional shopping malls. The mall is the patron's destination, and the game parlor is just one of the stores in the mall. Amusement machines are operated by either coin or by token. About 75 percent of independent amusement game operators use coin-operated machines. About 75 percent of the large chain operators found in malls use tokens. The cost of converting a coin-activated amusement machine to a token-activated amusement machine is about thirty dollars per machine. The mechanism costs $10 to $12, the rest of the cost comes from labor. Token operators must buy an original supply of tokens and periodically replenish that supply. The use of tokens enhances security because it gives the operator better control over their cash and permits the operator to run "promotions," for example, offering 5 rather than 4 tokens for a dollar for a specific period in an attempt to increase traffic in the store. Depending on the number purchased, tokens cost operators between 5 and 10 cents each. Token-activated machines accept only tokens. Coin-operated machines only accept a single denomination of coin. Change machines generally accept quarters and one, five and ten dollar bills. A change machine may be used either to provide players with quarters, which can be used to activate coin- operated machines, or they can be filled with tokens rather than quarters, and become a token dispenser. In a token-operated amusement location, the only machines which contain money are the change machines used to dispense tokens. The game machines will contain only tokens. Token machines record the insertion of each coin and bill by an internal meter as a domination of coin or currency is inserted. Token dispensing machines record their receivables as follows: when one quarter is inserted, the machine records one transaction. When a fifty-cent piece is inserted, the machine records one transaction. When three quarters are inserted, the machine records three transactions. When a dollar bill is inserted, the machine records one transaction. When a five dollar bill is inserted, the machine records one transaction. When a ten dollar bill is inserted, the machine records one transaction. Token machine meters record separately for each domination the total number of times coins or currency of each domination are deposited in the machine. The internal meters of token dispensing machines do not distinguish between insertion of several coins or bills by one person and the insertion of singular coins or bills by several persons. Token dispensing machines cannot distinguish the insertion of four quarters by one person on a single occasion from the insertion of one quarter by each of four persons at four different times. Similarly, the internal meters of amusement machines activated by coin rather than by token do not distinguish between insertion of several coins or bills by one person and the insertion of single coins or bills by several persons. Machines which are coin-activated also do not distinguish between the insertion of four quarters by one person at one time or the insertion of one quarter by each of four persons at different times. Coin-operation has certain cost advantages. The operator avoids the cost of switching the machine from coin to token operation, for machines are manufactured to use coins, and avoids the cost of purchasing and replenishing a supply of tokens. The operator does not risk activation of his machine by tokens purchased at another arcade, which have no value to him, and can better take advantage of impulse spending. Coin-operated machines do not have a separate device for collecting tax and it is not possible for an operator to fit games with machinery to collect an additional two cents on a transaction initiated by depositing a quarter in a machine. There are alternative methods available to operators of amusement game machines to recapture the amount of the new sales tax they may otherwise absorb.1 One is to raise the price of games. This can be done either by setting the machines to produce a shorter play time, or to require more quarters or tokens to activate the machines. Raising the prices will not necessarily increase an operator's revenues, because customers of coin-operated amusement businesses usually have a set amount of money budgeted to spend and will stop playing when they have spent that money. In economic terms, consumer demand for amusement play is inelastic. Amusement businesses could also sell tokens over- the-counter, and collect sales tax as an additional charge, much as they would if they sold small foods items over the counter such as candy bars. Over-the- counter sales systems significantly increase labor costs. An amusement business open for 90 hours per week might well incur an additional $30,000-a-year in operating costs by switching to an over-the-counter token sales system. In a small coin-operated business, the operator often removes the receipts by emptying the contents of each machine into a larger cup or container, without counting the receipts from each machine separately because it is too time consuming to do so. But see Finding 17 above. With a token-operated business, the operator can determine the percentage of revenue derived from twenty-five cent transactions, as distinct from token sales initiated by the insertion of one, five or ten dollar bills into token dispensing machines. The proposed rule has the effect (although it is unintended) of placing the coin-operated amusement operators at a relative disadvantage in computing sales tax when compared to the token-operated businesses. Token operators can establish that they are responsible for paying a tax rate lower than the 7.81 percent effective rate set in the rule because many of their sales are for one dollar, five dollars or ten dollars. The smaller businesses using coin-operated machines do not have the technological capacity to demonstrate that customers are spending dollars rather than single quarters. Consequently, coin operators will have an incentive to shift to token sales rather than pay the proposed rule's higher effective tax rate if a large percentage of their patrons spend dollars rather than single quarters. For example, Mr. Scott Neslund is an owner of a small business which has 80 amusement machines at a freestanding token-operated location. He is atypical of small amusement game operators because 75 percent of them use coin-operated machines rather than token-operated machines. Mr. Neslund can demonstrate that 92 percent of his sales are for one dollar or more. By applying the tax rate of six percent to those transactions, he pays substantially less than the proposed rule's effective tax rate of 7.81 percent. This is very significant to Mr. Neslund because over the nine years from 1982 to 1990, his average profit margin was 7.77 percent. Although a flat 6 percent tax would have consumed 73 percent of that profit margin, if his businesses were on a coin-operated basis he would have been required to pay the proposed rule's 7.81 percent effective tax rate, which would have consumed 93 percent of his profit margin, leaving him with a very thin profit margin of 1/2 of 1 percent. The difference between a 1/2 of 1 percent profit margin and 2 percent profit margin, on a percentage basis, is a four hundred percent difference. Mr. Neslund's average profit annually had been $24,000. The effective tax rate of 7.81 percent would take $22,7000 of that amount, leaving an average annual profit of only $1,700. It is impossible to extrapolate from this single example and have confidence in the accuracy of the extrapolation, however. The Department's Effective Tax Rate Study There is no data for the amusement game industry specific to Florida concerning the number of transactions occurring at specified price points, but there is national data available which the Department considered. There is no reason to believe that the Florida amusement game industry is significantly different from the national industry. Nationally approximately 80 percent of all plays and 60 percent of all revenues come from single quarter (twenty-five- cent) plays. The Department's study used the typical sale prices charged in the industry and the categories of coin-operated amusement games reported in the national survey. Using them the Department derived an estimate of revenues by type of game for Florida. The effective tax rate the Department derived is the Department's best estimate of the price mix of transactions which occur through amusement machines. It is not itself an issue in this proceeding. Petitioners' counsel specifically agreed that they were not contesting the setting of the effective tax rate at 7.81 percent and presented no evidence that any other effective tax rate should have been set. The Department's Economic Impact Statement Dr. Brian McGavin of the Department prepared in July 1991 paragraphs 2, 3 and 5 of the economic impact statement for the proposed rules (Exhibits 14, 15 and 16), which concluded that proposed rules 12A-15.001, 12-18.008 and 12A- 1.044 would have no effect on small businesses. The economic impact statements for all three proposed rules contain identical information and involve the same issues concerning economic impact. Before drafting the economic impact statement published with these rules, Dr. McGavin had completed one other economic impact statement, had used a small manual which gave a general description of the process for developing economic impact statements and had discussed the process with another economist, Al Friesen, and his supervisor, Dr. James Francis, the Department's director of tax research. Dr. Francis prepares or reviews more than a dozen economic impact statements annually, and is well aware of the definition of small businesses found in Section 288.703(1), Florida Statutes. Dr. Francis reviewed Dr. McGavin's work and agreed with Dr. McGavin's conclusions. Paragraphs 2, 3 and 5 of the economic impact statements for these rules state: Estimated cost or economic benefits to persons directly affected by the proposed rule. The rule establishes effective tax rates for two categories of machines - 1) amusement machines, 2) vending machines. Amusement machines were not previously taxable (except during the Services tax period). * * * The costs of this rule are primarily compliance costs. The rules establishe several compliance provisions. quarterly sale and use tax reports. submission of supporting information for these reports on electronic media. affixation of registration certifi-cates to machines. presentation of certificates by operators to wholesale dealers. The filing requirement is obviously an integral and necessary part of the sales tax collection process . . . . The costs of complying will be borne by operators. If the operators have previously computerized their records, the marginal compliance costs will be negligible. For a small operator who has not computerized his operations, the costs of minimally configured PC systems - including software and training - would be roughly $2,000. This could be a major expense for a small operator . . . . We do not have data which will permit us to estimate the proportion of non-computerized operators in this industry. Effect of the proposed action on competition and on the open market for employment. * * * Given the low labor-intensity of this industry the overall effect should be very small. * * * 5. Impact of the proposed action on small business firms. Small business firms are not affected by the proposed action. (Exhibits 14, 15 and 16) The Petitioners demonstrated that before Dr. McGavin prepared the economic impact statement he did not read section 120.54 on rulemaking and he did not conduct any industry research or refer to any sources of information on the amusement game industry in Florida or nationally. He did not use any data to calculate or measure economic impact, consult text books, or refer to any outside sources or statistical information, nor did he talk with any industry experts or representatives. He did not obtain any information about the industry by distributing questionnaires to those in the industry, nor did he know whether there were differences in day-to-day operations between large and small amusement businesses or the different types of accounting and bookkeeping systems used by small businesses. He had not read Section 288.073, Florida Statutes, which defines a small business. He did not know the impact the 7.81 percent effective tax rate established by the rule would have on small business, and he did not analyze the cost difference businesses experienced between the sale of tokens by machine and the sale of tokens over-the-counter by an employee. To the extent it even entered into Dr. McGavin's thought process, Dr. McGavin made the general assumption that token sales would either be made over the counter, in which case the sales tax could be separately collected, or possibly by selling fewer tokens per unit of currency. When the Legislature enacted Chapter 91-112, Laws of Florida, and imposed the tax on the use of coin operated amusement machines, it did not provide for any phasing in of the tax, nor for any tiering of the tax based on the size of the taxpayers. Nothing in the language of the statute imposing the tax indicates that the Legislature believed that there was a distinction to be made in the taxation of larger and smaller businesses which provide the same service, viz, use of amusement machines. The Department does permit certain accommodations to businesses which have a small volume of sales. A business may report quarterly rather than monthly if its tax liability is less than $100 for the preceding quarter, and if the tax liability is less than $200 for the previous six months, a dealer may request semiannual reporting periods. Regardless of size, a business with more than one location in a county may file one return. Both of these provisions may lessen the burden of complying with the tax imposed on the use of coin-operated amusement machines. The Economic Impact Analysis Performed For The Challengers By Dr. Elton Scott Dr. Elton Scott is an economist and a professor at the Florida State University. The Petitioners engaged him to evaluate the economic impact statement the Department had prepared when these proposed rules were published. After conducting his own analysis, Dr. Scott wrote a report in which he determined that the Department's economic impact statement was deficient. According to Dr. Scott, one must understand an industry to determine whether an economic impact flows from a regulation and to determine the magnitude of any impact or the differential impact the regulation may have on large and small businesses. To prepare his own economic impact analysis, Dr. Scott first obtained information about the operational characteristics of the industry by speaking directly with a handful of industry members. He developed a questionnaire that tested the experience and background of operators so that he could evaluate the reliability or accuracy of information he received from them. He then asked additional questions about the operators' individual businesses and questions about differences between large and small operators within the industry. Dr. Scott's testimony outlines the factors which should be used to make an economic impact statement as useful as possible, but his testimony does not, and cannot, establish minimum standards for what an economic impact analysis should contain. Those factors are controlled by the Legislature, and no doubt the requirements imposed on agencies could be more onerous, and if faithfully followed could produce more useful economic impact statements. The economic impact small businesses will bear is caused by the statute, not by the implementing rule, with the possible exception of the electronic filing requirement, which has not been challenged in any of the three proceedings consolidated here. Large businesses have several advantages over smaller ones. Large businesses have sophisticated accounting systems, whether they use token or coin-operated machines, which allow tracking not only of gross receipts but kinds of plays, which enhance the operator's ability to establish that the tax due is lower than the effective tax rate, while the less sophisticated systems of metering receipts in coin-operated small businesses require reliance on the effective tax rates. (Exhibit 9 pg. 4) Large businesses may extend the useful life of a game machine by rotating the machine from one location to another, may deal directly with manufactures in purchasing a larger number of games or machines and therefore obtain more favorable discounts. Small businesses cannot rotate games if they have only one location, and purchase at higher prices from manufactures. In general, smaller businesses have lower profit margins than larger businesses. All of these advantages exist independently of any rule implementing the sales tax statute.
The Issue The issue in this case is whether Respondent failed to execute a written agreement with the owner of property to be auctioned and, if so, what penalty should be imposed.
Findings Of Fact Respondent is a licensed auctioneer, holding license number AU 0000415. Respondent and Danny Mitchell are coworkers at a County mosquito control agency. Mr. Mitchell and his wife Joan were selling their house and moving out of town. Wanting to sell their personal possessions fast, they agreed that Mr. Mitchell would contact Respondent and ask him about conducting an auction. In late March 1993, Respondent visited the Mitchells at their home to view the property to be auctioned. Based on the number and quality of the property available for auction, Respondent realized that the auction would not raise much money. He estimated the value of the property to be auctioned at $1200 to $2000. Respondent did not require the Mitchells to sign a contract right away. Because of the friendship between Mr. Mitchell and Respondent, Respondent allowed the Mitchells to sell or give away items without Respondent's approval prior to the auction, and they sold $525 worth of items in the interim. Even the auction date was left open. The Mitchells did not want the auction to take place until they were closing on the sale of their house. For the next three months, the Mitchells sold and gave away what property they could. Then, without much notice, they told Respondent that they wanted the auction to take place. The Mitchells and Respondent agreed that the auction would take place July 24, 1993. Respondent discussed with Mr. Mitchell the need for advertising, which would come out of the Mitchells' share of the proceeds. The Mitchells agreed on fairly modest advertising. Respondent never obtained a written contract in the days prior to the auction. Although he was in frequent contact with Mr. Mitchell at work, there was some awkwardness in presenting the contract to him because Mr. Mitchell does not read or write. Respondent instead agreed to meet the Mitchells at their house on the morning of the auction, and he intended to present them a contract at that time to sign. Respondent appeared at their house at the agreed-upon time with a contract to be signed. However, he did not insist that they read and sign the contract because, as Respondent arrived, the Mitchells were rushing out of the house to take care of other matters. Consistent with their intent all along, the last instructions that the Mitchells gave Respondent was that he had to sell everything so the new homeowners could get into the house and the Mitchells would not have to move anything. Only about ten bidders appeared for the auction. Bidding was low. Respondent wanted to stop the auction, but had no way to contact the Mitchells, who did not try to contact him that day. Recalling the final instructions about selling everything, Respondent continued with the auction. After about an hour and a half, the auction ended with everything sold. Respondent claims that he received $499.50 in sale proceeds. It is unnecessary to determine whether this testimony should be credited. Respondent did not hear from the Mitchells for two weeks after the auction. One day, Mr. Mitchell returned to work from his vacation and asked for his money. Bringing the money the next day to work, Respondent gave the Mitchells a check for $200 with a settlement sheet itemizing the expenses. Upon the insistence of Mrs. Mitchell for documentation of the auction sales, Respondent later provided the Mitchells with copies of the clerking tickets. The estimated value of the auctioned property exceeded $500.
Recommendation It is RECOMMENDED that the Board of Auctioneers enter a final order reprimanding Respondent. ENTERED on July 28, 1995, 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 on July 28, 1995. COPIES FURNISHED: Linda Goodgame, General Counsel Department of Business and Professional Regulation 1940 North Monroe Street Tallahassee, FL 32399-0792 Susan Foster, Executive Director Board of Auctioneers Northwood Centre 1940 North Monroe Street Tallahassee, FL 32399-0792 Charles F. Tunnicliff, Chief Attorney Department of Business and Professional Regulation 1940 North Monroe Street Tallahassee, FL 32399-0792 Bruce C. Scott 2424 McGregor Boulevard Ft. Myers, FL 33901
Findings Of Fact At all times material hereto, Respondent Mark S. Henderson (hereinafter "Henderson") has been a real estate salesman licensed in the State of Florida, having been issued License No. 0441662. At all times material hereto, Respondent Auction World of West Florida, Inc., (hereinafter "Auction World") has been a corporate real estate broker registered in the State of Florida, having been issued License No. 0238372. Respondent Henderson is a real estate salesman/auctioneer employed by Auction World. He moved to Florida in October, 1984, and became a licensed real estate salesman in Florida in February, 1985, some 8 months prior to the transaction forming the basis for the Administrative Complaint. John and Joanne Henneberry signed a listing for the auction/sale of their home with Auction World through Henderson. The Henneberrys are both educated people who had prior experience in buying and selling real estate. The October 1, 1985 listing signed by the Henneberrys provided that it was a 30-day listings provided for a seven percent commission, provided for the Henneberrys to pay advertising costs not to exceed $750, and provided specifically that the $750 would not be considered as an advance fee. The listing further provided for an accounting to be made within 30 days. The Henneberrys gave Auction World a check for $750. The Henneberrys' best friend is Ralph Marciano, a real estate broker. He sold his home through Auction World and referred the Henneberrys to Auction World. The Henneberrys purchased a home through Marciano and throughout the transactions involved here consulted Marciano about how to proceed. Auction World was engaged primarily to sell the Henneberrys' home in Lehigh Acres, and Marciano was involved in the purchase or offers to purchase their new home. Pursuant to the listings advertising for the auction was published by Auction World. The auction was held on October 19, 1985, but no sale resulted from the contract negotiated through the auction. Auction World continued to work on behalf of the Henneberrys pursuant to an oral extension. Johan Ruhe and his wife were advised by Henderson of the availability of the Henneberrys' home in Lehigh Acres. Johan Ruhe is a retired real estate broker who now works for Lee County as its Director of Land Management. In December, 1984, an offer of $66,000 was made by the Ruhes to the Henneberrys through Auction World, but this offer was not accepted. On January 2 or 3, 1985, the Ruhes made an offer on the Henneberrys' home in the amount of $68,000. The offer provided for no down payment; included the range, refrigerator, dishwasher, washer, dryer, curtains and draperies to be included in the sale price; and called for financing over 30 years at an 11 percent fixed rate of interest. It further required that financing be obtained for 80 to 95 percent of the purchase price. This offer was accepted by the Henneberrys, and all parties considered this to be a binding legal contract. The original listing had called for a 7 percent commission, but when the $68,000 contract was signed, the Henneberrys negotiated Auction World from a 7 percent commission down to a $3,000 commission. The Ruhes filed a loan application with B. F. Saul Mortgage Company (hereinafter "B. F. Saul") based upon the $68,000 contract. B. F. Saul has an office in Fort Myers, Florida, which was opened on May 2, 1983, by Robert W. Prange (hereinafter "Prange") who at all times relevant to this action was a vice-president of B. F. Saul and branch manager of the local office. On January 11, 1986, the Henneberrys made an offer to purchase a home from the Jamilles, which was contingent on the Henneberrys closing with the Ruhes. Prior to signing the contract with the Ruhes, the Henneberrys discussed the contract with their best friend, real estate broker Marciano who made changes to the contract and discussed with the Henneberrys the fact that there was no deposit provided in reference to that contract. After the Henneberrys signed the contract to purchase a home from the Jamilles, the Jamilles' broker indicated to the Henneberrys that the Jamilles would like the Henneberrys' contract with the Ruhes to have a provision for a deposit. During this period of time, the Henneberrys were in direct contact with Prange at B. F. Saul, and Prange indicated to them that there was no problem with the Ruhe contract and loan application. After the Jamilles' broker contacted the Henneberrys and asked for a contract showing an escrow deposit on the Henneberry home, the Henneberrys contacted Henderson at Auction World and asked him to draw a new contract to show that a down payment had been made. Henderson prepared a new contract, and the Ruhes signed it. The new contract showed a deposit of $3,600, a purchase price increase of $3,600, and a commission increase of $3,600. In order to show the deposit requested by the Henneberrys, Auction World "gifted" by letter the $3,600 to the Ruhes. The contract was then presented to the Henneberrys. In fact, the Ruhes were not paying $3,600 more to purchase the home for which they already had a contract. Since the new agreement increased the commission by $3,600, Auction World by letter was giving back that sum to the Ruhes so that everything actually stayed the same but an escrow was shown as requested by the Henneberrys. The Henneberrys signed the new contract. At the time that they signed, they knew that the Ruhes were not paying the $3,600 additional purchase price. About the same time that the Henneberrys were requesting that the contract be redrawn to reflect a down payment from the Ruhes, Prange at B. F. Saul became concerned as to whether the Ruhes had sufficient cash available to them to consummate the transaction. When the second contract was taken by Henderson to Prange, Prange suggested that a change be made in it from a fixed interest rate to a variable interest rate so that the Ruhes could qualify for the loan. Prange then "whited out" the listing of personal property that appeared in the contract, suggesting that the deletion of the personal property would reflect an increased value in the price of the real estate. Although Prange was an officer of B. F. Saul, he was on a commission basis. He was not only the loan officer on the Henneberrys/Ruhes transaction, he was also the loan officer on the Henneberrys/Jamilles transaction. Accordingly, he knew that a successful consummation of the Ruhe transaction would ensure him of receiving two commissions but that a lack of success on the Ruhe transaction would automatically defeat the Jamille transaction. Prange knew that there was no escrow of $3,600 as reflected by the second contract Henderson presented to him. Yet, he requested Henderson to execute a "Verification of Earnest Money" form, which stated that an earnest money deposit had been received in the amount of $3,600 to be held toward the down payment and/or closing costs on the Henneberrys home. The form did not represent that the money was held in escrow, nor did it differentiate between whether that money was the down payment toward the purchase or whether that money was to be used toward closing costs. Henderson signed the verification that the $3,600 deposit was being held by Auction World because he believed the gift to the Ruhes was the same as having the deposit since it was Auction World's $3,600. Additionally, the buyer, the seller, and the loan officer were aware of the contents and reasons for the series of contracts, and the gift was evident from the series of contracts involved. Henderson prepared another contract. He also prepared an addendum to that contract containing an agreement on the purchase of the personal property since he believed the personal property had to be mentioned somewhere in order to protect both the buyer and the seller. The addendum was signed on or about February 13, 1985. The newest contract also provided for the seller to pay the closing costs. When the addendum was presented to the Henneberrys they insisted that an additional provision be added to the addendum that would guarantee that the buyer would pay the Henneberrys $4,000 toward the closing costs prior to the closing. Therefore, at the Henneberrys' request, language was added to the addendum to provide that $4,000 would be paid to the Henneberrys 72 hours prior to the closing by either Auction World or by the Ruhes. Despite the efforts of Henderson and Prange to successfully structure the Henneberry/Ruhe transaction, the Ruhes were not able to obtain approval on their loan application, and the Henneberry/Ruhe sale was not consummated. The listing agreement for the auction of the Henneberry home required that the Henneberrys pay $750 to Auction World to pay for the costs of advertising the auction. The listing contract specifically provided that the $750 did not represent an advance fee but simply represented costs of advertising. Since the statutes regulating the real estate profession do not define what constitutes an advance fee, Henderson consulted an attorney regarding the desire to obtain advertising costs in advance. The listing form used and the method of handling the Henneberrys' $750 was in compliance with the recommendation to Auction World and Henderson by that attorney. The legal advice given to them was that none of the $750 should be used on any overhead or internal expenses but rather the $750 must all be spent on independent outside advertising. Since the listing agreement specified that the $750 was not an advance fee, and since Henderson and Auction World followed the procedure recommended to them by an attorney, all parties believed that the funds were not an advance fee. The listing called for an accounting within 30 days, and an oral accounting was provided at that time. The Henneberrys did not request a further accounting until February 27 or 28, 1985. A written accounting was provided by March 11, 1985. No evidence was offered to show that any of the $750 was kept other than in a trust or escrow account at Auction World, and no evidence was offered to indicate that any of it was misused. In fact, the advertising expenses on the Henneberry home exceeded $750, and Auction World bore the extra expense.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is, RECOMMENDED that a Final Order be entered finding Respondents Henderson and Auction World not guilty of the allegations contained within Counts I, III, and V, and dismissing the Administrative Complaint filed against them. DONE and RECOMMENDED this 3rd day of November, 1987, at Tallahassee, Florida. LINDA M. RIGOT, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 3rd day of November, 1987. APPENDIX TO RECOMMENDED ORDER, CASE NO. 87-0602 Respondents Henderson and Auction World's proposed findings of fact numbered 1, 30, 35, 36, and 38 have been rejected as not constituting findings or fact but rather as constituting conclusions of law or argument of counsel. Respondents Henderson and Auction World's proposed findings of fact numbered 2, 6, and 7 have been rejected as being immaterial to the issues under consideration herein. Respondents Henderson and Auction World's proposed findings of fact numbered 3-5, 8-29, 31-34, 37, and 39-42 have been adopted either verbatim or in substance in this Recommended Order. COPIES FURNISHED: Harold Huff, Executive Director Department of Professional Regulation Division of Real Estate Post Office Box 1900 Orlando, Florida 32802 Arthur R. Shell, Jr., Esquire Department of Professional Regulation Division of Real Estate Post Office Box 1900 Orlando, Florida 32802 E. G. Couse Esquire Post Office Drawer 1647 Fort Myers, Florida 33902 Tom Gallagher, Secretary Department of Professional Regulation 130 North Monroe Street Tallahassee, Florida 32399-0750 William O'Neil, General Counsel Department of Professional Regulation 130 North Monroe Street Tallahassee, Florida 32399-0750
The Issue As stipulated by the parties and as reflected in the Amended Administrative Complaint dated September 28, 1992 the issues for resolution are whether Respondent misrepresented property for sale at auction or made false promises concerning the use, value or condition of such property; whether this conduct demonstrates bad faith or dishonesty; whether Respondent failed to appropriately conduct and maintain control of the auction; and whether the Respondent used false bidders, cappers or shills. (Joint Prehearing Statement filed 9/28/92) If those violations occurred, an appropriate penalty must be determined.
Findings Of Fact Respondent, Ronald Ray Kool, Sr., (Kool) has been licensed continually as an auctioneer in the State of Florida since approximately 1988, having been issued license number AU 0000510. He is the registered owner of the business, A-Plus Auctions, which is issued license number AB 0000071. On July 9, 1990, Respondent contracted with Dr. Florence Alexander for the conduct of an auction at the Ebon Center, in Titusville, Florida. The contract was renegotiated, and a subsequent written contract was entered between the parties on July 26, 1990, for the auction to be held on July 28, 1990. The latter contract provided that the auction was a reserve auction, that is, minimum bids were provided by Dr. Alexander for the items offered for sale. Prior to the auction, on July 27, 1990, some items originally included in the list for the auction were sold by Ebon Galleries, and numerous other items were substituted. This was satisfactory to Kool as the potential commission on the substitute items was considerably larger. This transaction constituted an oral amendment by the parties. As advertised, the auction commenced at 10:00 a.m., July 28, 1990 at the Ebon Center in Titusville. The goods for sale were on display and available for inspection by the bidders prior to, and during the auction in a large warehouse area where the auction was being held. The items were mostly oriental pots, vases, lamps, ceramic figures, mugs, frames, and other decorator pieces and bric-a-brac. There were approximately 200-250 bidders. As they entered the auction area all bidders were given a perforated card to fill out. The lower portion included their name, address, phone number and assigned bidder identification number. This was detached and given to the auction clerk. The top portion was retained by the bidder and included the assigned bidder number and this text: EVERYTHING MUST BE PAID IN FULL ON THE DAY OF THE AUCTION regardless of when it is picked up. Everything will be sold "as is, where is", with no guarantees of any kind, regardless of statement of condition made from the auction block. Buyers shall rely entirely on their own inspection and information Every effort is made to "guard" merchandise throughout the auction; however, the bidder becomes solely responsible for all items purchased by him immediately following his winning bid. Therefore, he is advised to further guard his items at his own discretion. The Bidder is responsible for knowing which items he is bidding on. If he is unsure, he should inquire or not bid. When you become the winning bidder at auction you have effected a contract and will be expected to pay for items in which you were evidenced to be the successful bidder. Auctioneer will not honor "mistakes". The Auctioneer reserves the right to accept bids in any increment he feels is in the best interest of his client, the seller. The Auctioneer reserves the right to reject the bidding of any person whose conduct, auctions, or adverse comments he feels are not in the best interest of the seller. (Petitioner's Ex. #14, deposition of Kool, ex. 6 to deposition) At the commencement of the auction Kool announced various ground rules or terms of the auction, including the fact that this was not an absolute auction, that bidders had an obligation to inspect merchandise because they were responsible for what they bought and that there was a ten percent buyer's premium on the sales. "Buyer's premium" is a surcharge on the bid price, which surcharge is received by the auctioneer, along with his commission from the seller. Kool also introduced his employees and informed the gathered bidders that he and his employees would bid if they wished and the bidders would know when employees were bidding. Kool and his employees were assigned bidder numbers 502 through 509. The male employees wore gray slacks and gray shirts with "A-Plus Auctions" embroidered on the shirts. The women employees wore blue dresses with "A-Plus Auctions" inscribed. The employees were up front working behind the table and in front of the auctioneer. When they bid, they raised their hands like anyone else. Max Algase and Herbert Michaels arrived at the auction just as the introduction was being completed. Max Algase was assigned bidder number 569 and received the card described above. Max Algase describes himself as a "liquidator"; he buys and sells merchandise, including entire stores or chains of stores and occasionally attends auctions. Herbert Michaels is a good friend and sometimes business associate of Algase. Michaels is on disability retirement from Zayre's Department Stores, where he was merchandise manager for twenty years and was responsible for twenty-eight stores' apparel, comprising $85 million in sales. At some point during the auction, Shirley Thompson (now Shirley Thompson Effron) sat down next to the two men and introduced herself. The three individuals decided to form a partnership, each putting up a third for the purchases at the auction, and then reselling the items later in a shop that they would open for that purpose. Algase considered the venture "a lark" rather than a serious business deal. (Transcript, p. 51) So many purchases were made by bidder number 569 (Algase, or Liquidators III, the ad hoc partnership) that during the course of the auction, the computer program utilized by Kool ran out of data space for that number, and another number, 626, was assigned. During the auction the seller, Dr. Alexander obtained bidder number 604 and she purchased three items. When Kool recognized her as a purchaser, he turned the auction block over to another auctioneer and confronted Dr. Alexander, telling her that it was inappropriate for her to bid. The items she had purchased were put back up for sale. Towards the end of the auction, Dr. Alexander approached Kool and asked about placing some racks of clothing up for sale. He agreed, reluctantly, because clothing sales are time-consuming, and the racks of clothes were wheeled out to the warehouse floor. The clothes were in two categories, one group was a large number of heavy woolen items, coats, capes, jackets, suits and the like; the other, smaller group was mostly lightweight dresses, bathing suits and similar items. Kool announced the clothes would be placed for sale and invited the bidders to go look at them. About five or ten minutes later bidding started on the items, "bidders choice". That means the individual who bid highest would get the first choice of the multiple items. The reserve, or lowest bid acceptable, was $75.00 each. After ten or fifteen minutes, only a few items had been sold and Kool told Dr. Alexander to remove them from the floor. She and her father wheeled the racks back into the front showroom of the building. One of the participants interested in the clothing was Herbert Michaels. He inspected the racks, felt and touched the clothing and convinced Algase that the items were well worth $35.00 a piece. The partners bought the woolen items for $35.00 each, and the lighter items at $10.00 each. All three partners have a different version of how the sale took place. Herbert Michaels claims that Kool, while off the auction block, negotiated the sale with Max Algase and Shirley Thompson Effron; Max Algase claims that after the woolen items were offered at "bidders choice", they were offered from the block at "bidder take all", and he won the bid at $35.00 apiece. Shirley Thompson Effron claims that after the clothing was removed from the floor, Dr. Alexander approached their group and negotiated the sale with Max Algase. The latter version is consistent with Kool's testimony and that of his other witnesses and is credited. The latter version is also consistent with a tally sheet identified by Kool as a paper brought to him by Dr. Alexander approving the transaction. (Petitioner's Ex. 14, Kool deposition, exhibit 6 to the deposition) During the clothing deal, Algase, Herbert Michaels and Shirley Thompson Effron went to the showroom while Kool's employees counted the items. There were 550 woolen items and 88 lighter items, with a total cost of $19,250.00 for the former and $880.00 for the latter. The counts are reflected on the tally sheet given to Kool. Algase paid for these and other items purchased at the auction with a check. Later, he made arrangements with Mrs. Kool to substitute cash and he did so on Tuesday of the following week, when he had all of the clothing loaded into large trucks for removal from the Ebon Center. The Liquidators III venture was not successful. Few of the items were resold as they had hoped. The relationship between Shirley Thompson Effron and Max Algase deteriorated and he is suing her husband's corporation. On November 7, 1990, Shirley Thompson Effron, as secretary of the partnership, and at the insistence of Max Algase, sent a letter to Ron Kool complaining that they bargained for, and bought, coats, but that more than half of the items were dresses, suits or skirts. The letter demanded "full restitution immediately". (Petitioner's Ex. 11) In March 1991, Algase complained to the Department of Professional Regulation, and Investigator Bobby Hunter conducted interviews and gathered documents, including the records maintained by A-Plus Auctions for the July 1990 auction. Those records reflect the bidder number 500 for many items, with a "0" final settlement price. That is a number assigned by Mrs. Kool, a licensed auctioneer and the business manager for the company, to account for items which were offered for sale but did not reach the minimum bid set by the seller, Dr. Alexander. Bidder numbers assigned to A-Plus employees show purchases of several items, mostly small, less than $10.00, the largest amount being $40.00. The records also reflect that the 550 woolen items bought by Algase and his partners are described as "coats" on the final settlement printout. This description was assigned by an employee of A-Plus Auctions when the items were offered for sale. There is no credible evidence that Kool described the items from the auction block as only coats. Rather, he described woolen clothing, including alpaca coats from Central or South America. Herbert Michaels conceded that he knew the items were not all coats before the sale was made because he had inspected the racks on the floor. He found capes as well as coats, and tops to ensembles. (Transcript, p. 34) Several expert auctioneers testified on behalf of the parties, one on behalf of Petitioner and two for the Respondent, with a combined experience of 62 years in auctioneering. Their opinions did not vary substantially. They expressed concern with the fact that the owner, Dr. Alexander, managed to bid on several lots, but they agreed that Kool handled the problem properly after he discovered it. They also agreed that side deals like the one involving the clothing deprive the general public of an opportunity to participate, but they are not illegal so long as records are kept and funds, including the commission, are disbursed and accounted for. The experts described the practice, more common in the past than now, of "dropping on the house number". An auctioneer can falsely raise bids by acknowledging a phony bid. If the phony bid is not raised, the auctioneer is stuck with it and announces the sale to a "house number", not associated with any real bidder, but in the words of R. L. Huntsinger, bid by "Mr. Wall", "Mr. Floor", "Mr. Ceiling", etc. The appearance of the number 500 without a bidder identified, in Kool's records of the auction, raised the suspicion that this illegal practice was used. Respondent and his witnesses adequately explained why the number was used, however, to account for items that did not reach the reserve minimum bid. Even Petitioner's expert conceded that he could not say that the practice was used in this case. (Transcript, p. 180) Petitioner's expert also opined that any errors committed by Respondent were due to lack of knowledge and not because of an intent to defraud the public or the seller. (Transcript, p. 193) The weight of evidence, taking into consideration the demeanor and credibility of the witnesses, fails to support a finding that Respondent Kool committed the violations alleged. He did not misrepresent the property being sold. The clothing was described as such, and not as only "coats". The complainants, sophisticated and experienced business people, had an opportunity to inspect the items and knew what they were buying. There is no evidence of bad faith or dishonesty and the evidence presented by Respondent effectively forecloses a finding that he used or permitted the use of false bidders. Although Max Algase was not required to re-register when he was assigned a subsequent number, the records produced at hearing confirm the testimony of Mrs. Kool that Algase was bidder number 626. The auction on July 28, 1990 was an all-day affair with a high volume of goods to be moved. As principal auctioneer, Kool was in charge and maintained control. He hired experienced, competent employees and utilized only licensed auctioneers in calling the bids. Certain tasks were appropriately delegated to his wife, also a licensed auctioneer. Recordkeeping was thorough and substantially accurate. While Respondent regrets that the seller, Dr. Alexander, was given a bidder number and managed to bid, her participation, as concluded below, is not prohibited.
Recommendation Based on the foregoing, it is, hereby, RECOMMENDED: That a final order be entered finding no violation by Respondent and dismissing the amended administrative complaint. DONE AND RECOMMENDED this 24th day of May, 1993, in Tallahassee, Leon County, Florida. MARY CLARK Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 24th day of May, 1993. APPENDIX TO RECOMMENDED ORDER, CASE NO. 92-3112 The following are specific rulings on the findings of fact proposed by the parties: Petitioner's Proposed Findings 1.-2. Adopted in paragraph 1. Adopted in paragraph 2. Rejected as irrelevant. Included in paragraph 3. Rejected as irrelevant. Adopted in paragraph 4. Rejected as irrelevant (see paragraph 3.) Rejected as irrelevant. Included in paragraph 9. Adopted in paragraph 8. 12.-14. Rejected as unnecessary. The clothing was not described at auction as only coats. Rejected as contrary to the weight of evidence. (see 12-14, above) Rejected as unnecessary. Adopted in paragraph 11. 18.-19. Adopted in paragraph 12. Rejected as unnecessary, but addressed by implication in paragraph 21. Adopted in paragraph 13. Adopted in paragraph 14. Adopted in paragraph 13. and 14. Addressed in paragraph 21, but the implication of illegality is rejected as contrary to the law and rules. Rejected as irrelevant. Adopted in paragraph 16. Rejected as unnecessary. Adopted in summary in paragraph 16. Rejected as contrary to the weight of evidence. 30.-31. Rejected as irrelevant, and contrary to the weight of evidence. Adopted in paragraph 17. Rejected as contrary to the weight of evidence and a misstatement of the expert's testimony. The witness was responding to a hypothetical question. 34.-35. Adopted in paragraph 6. 36. Addressed in paragraphs 21. and 26. 37.-44. Rejected as unnecessary. 45. Adopted in paragraph 10. 46.-50. Rejected as immaterial. 51. Rejected as contrary to the weight of evidence. "Control" also means delegation to competent staff. See Rule 21BB-5.001(2), F.A.C. 52.-55. Rejected as irrelevant. These proposed facts do not relate to any alleged violation of statute or rule. Respondent's Proposed Facts 1.-3. Adopted in paragraph 1. 4. Adopted in paragraph 2. 5.-6. Adopted in paragraph 4. 7. Adopted in paragraph 5. 8. Adopted in paragraph 7. 9. Adopted in paragraph 2. and 6. 10. Adopted in paragraph 4. 11. Adopted in paragraph 5. 12. Adopted in paragraph 6. 13. Adopted in paragraph 19. 14. Adopted in paragraph 10. 15. Adopted in paragraph 11. 16. Adopted in paragraph 8. 17. Adopted in paragraph 15. 18. Adopted in paragraph 12. 19. Adopted in paragraph 15. Rejected as unnecessary. Adopted in paragraph 26. Rejected as unnecessary; included by implication in paragraph 24. COPIES FURNISHED: Anthony Cammarata, Senior Attorney Department of Professional Regulation 1940 North Monroe Street, Suite 60 Tallahassee, Florida 32399-0792 Joseph E. Miniclier, Esquire 1970 Michigan Avenue Building E Cocoa, Florida 32924-8248 Jack McRay, General Counsel Department of Professional Regulation 1940 North Monroe Street, Suite 60 Tallahassee, Florida 32399-0792 Suzanne Lee, Executive Director Department of Professional Regulation Board of Auctioneers 1940 North Monroe Street, Suite 60 Tallahassee, Florida 32399-0792
