The Issue The issue in this case is whether Respondent condominium association timely mailed or hand delivered to unit owners either a copy of the annual financial report for the year 2004 or, alternatively, a notice stating that a copy of the report would be provided to any owner, free of charge, upon request.
Findings Of Fact Respondent Eden Isles Condominium Association, Inc. ("Association") is the entity responsible for operating the common elements of the Eden Isles Condominium ("Condominium"), which consists of seven buildings comprising 364 units. As such, the Association is subject to the regulatory jurisdiction of Petitioner Division of Florida Land Sales, Condominiums, and Mobile Homes ("Division"). The Association retained Louis John Claps, C.P.A. & Associates, P.A. ("Claps") to audit the Association's books and prepare a financial statement respecting the year ending December 31, 2004. Thereafter, under a cover letter dated May 2, 2005, Claps delivered to the Association a financial report for the year 2004. This financial report was readily available to the members of the Association's governing Board of Directors ("Board"), who in turn could make copies thereof for delivery to the unit owners in their respective buildings. (The owners in each building elect a "building director" to serve on the Board.) In addition, the financial report was available for inspection and copying at the Association's office; any unit owner who asked for a copy was given one. The Association, however, did not mail or hand deliver to each unit owner either a copy of the financial report or, alternatively, a notice stating that a copy of such report could be had, at no charge, upon request.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Division enter a final order finding the Association guilty of the charge of failing to timely provide each unit owner with either the annual financial report for the year 2004 or, alternatively, a notice stating that a copy of such report would be delivered, without charge, to any owner who requested one. In consequence of the Association's violation of Section 718.111(13), Florida Statutes, the Division should: (a) impose a civil penalty against the Association in the amount of $1,092; (b) order the Association to mail or hand deliver to each unit owner, within 30 days after the date of the Final Order, either a copy of the financial report for the year 2004 or, alternatively, a notice stating that a copy of such report will be provided at no cost to any owner who requests one in writing; and (c) order the Association to furnish the Division, within 45 days after the date of the Final Order, with an affidavit attesting that the remedial action just described has been taken. DONE AND ENTERED this 11th day of May, 2007, in Tallahassee, Leon County, Florida. S JOHN G. VAN LANINGHAM Administrative Law Judge Division of Administrative Hearings Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 11th day of May, 2007.
The Issue Whether Gary Savage committed the statutory violations alleged in the Amended Administrative Complaint and, if so, what penalty is authorized for such violations.
Findings Of Fact The Parties and Principle Allegations The Department is the state agency charged with the licensing of insurance agents in Florida, pursuant to authority granted in chapter 626, parts I and IX, Florida Statutes, and Florida Administrative Code Chapter 69B-231. Mr. Savage is a 75-year-old registered investment advisor and financial planner who also is licensed to sell life insurance in Florida. The Department’s Complaint seeks to revoke Mr. Savage’s license as an insurance agent. Counts I through III and V through VIII concern eight clients, whereby Mr. Savage earned commissions for selling them annuities and, based on agreements they signed, charged them annual one-percent financial planning service fees tied to the value of their portfolios, including the annuities. Each of these counts alleged the following statutory violations: Engaging in unfair insurance trade practices for knowingly collecting an excessive premium or charge. § 626.9541(1)(o)2., Fla. Stat.; Demonstrating a lack of fitness or trustworthiness to conduct insurance business. § 626.611(1)(g), Fla. Stat.; Demonstrating a lack of reasonably adequate knowledge and technical competence to engage in insurance transactions. § 626.611(1)(h), Fla. Stat.; Engaging in fraudulent or dishonest insurance practices. § 626.611(1)(i), Fla. Stat.; and Misappropriating, converting, or unlawfully withholding moneys belonging to others in conducting insurance transactions. § 626.611(1)(j), Fla. Stat. Count IX charged Mr. Savage with two violations concerning adverse administrative action taken by the Financial Industry Regulatory Authority (“FINRA”) against his securities license: Failing to timely report final administrative action taken by FINRA against his securities license. § 626.536, Fla. Stat.; and Being suspended and fined for violating FINRA’s rules. § 626.621(12), Fla. Stat. At the time of the hearing, Mr. Savage was not working in the financial services industry because FINRA suspended him for several months. During his suspension, Mr. Savage continued to meet with his insurance clients, though he currently has no appointments with life insurers to sell their products. Wearing Two Hats - An Investment Advisor and Insurance Agent Mr. Savage has worked in the investment industry for over 50 years, initially focusing on securities but evolving into financial advising and estate planning work. He has taken numerous courses and examinations relevant to securities law, financial planning, and tax law. Mr. Savage owns two investment advisor businesses: Wall Street Strategies, Inc. (“Wall Street”), is a stock brokerage firm that handles securities transactions; and Advanced Strategies, Inc. (“Advanced Strategies”), is a registered investment advisor firm, offering clients financial planning, tax management, and estate planning advice. In order to provide a wide variety of products to his financial planning clients, Mr. Savage also is licensed as a nonresident agent in Florida to sell life insurance, including annuities.2/ Annuities provide a guaranteed income stream over a term of years, but also come with substantial penalties if they are surrendered or cancelled before the term expires. Fixed index annuities, like those Mr. Savage sold to the clients at issue here, offer portfolios of funds tracking stock market indexes. Owners choose from around six portfolios and can then reallocate by choosing different portfolios each year. Mr. Savage considers himself an investment advisor who is licensed to sell insurance, which is what he tells new clients. Indeed, his businesses are securities and investment advisor firms, not insurance agencies. Mr. Savage’s client base is diverse. Many have portfolios with annuities and other investment products. Some have portfolios with no annuities. Others have portfolios with only annuities, like most of the clients at issue. In order to procure new clients, Mr. Savage held financial planning seminars where diverse speakers discussed financial and estate planning, and tax management. Mr. Savage discussed the types of insurance products he preferred, including fixed index annuities. Other speakers discussed real estate, oil, and investment trusts, which were beneficial from a tax perspective. Most of the clients at issue attended such a seminar and later met with Mr. Savage to discuss their financial plans. When Mr. Savage first met with the clients at issue, he asked them to bring tax returns, investment statements, wills and/or trusts, and other documents relevant for a financial planning discussion. They completed a new client form with information about their assets, investments, and objectives. He often met several times with new clients to develop a plan for them to reach their financial, estate, and tax management goals. To provide financial planning services, Mr. Savage—— like most investment advisors——charged an annual one-percent fee based on the total value of the portfolio. He has reduced or waived his fee if the clients’ situation warranted it or if they continued to purchase products for which he received commissions to compensate him for providing financial planning services. Before that are charged an annual fee, Mr. Savage’s clients signed a “Service Fee Agreement” (“Fee Agreement”), which was on “Advanced Strategies, Inc., Registered Investment Advisor” letterhead and provided as follows: Advanced Strategies charges a 1% (one percent) financial planning retention fee annually. This fee is based upon the total combined value of accounts including annuities, indexed life, mutual funds, income products and brokerage accounts that we manage or provide service for. This amount is tax deductible as a professional fee. The Fee Agreement offered to provide several financial planning services3/: Address, ownership, and beneficiary changes; Duplicate statements and tax returns; Required minimum distribution and withdrawal requests, and deposits; General account questions; One printed analysis per year; Annual review; Asset rebalancing when applicable; Informing client of new tax laws, changes in estate planning, and new exciting products and concepts. The Fee Agreement noted that the non-refundable fee was due on the service anniversary date and that non-payment would result in discontinuation of the planning services until paid in full. Mr. Savage confirmed that the Fee Agreement was voluntary. If clients wanted to purchase a product, but did not want him to manage their portfolio or provide the outlined services, they did not have to sign the agreement. In that event, Mr. Savage would procure the product and not provide financial planning services. All of the clients at issue here purchased annuities from Mr. Savage. He helped them complete the applications with the insurance companies and, if necessary, assisted them with transferring or closing out other investments used to pay the premiums. He ensured that the insurers received the paperwork and the premiums. Once the annuities were procured, he received commissions from the insurers. The Complaint did not allege that he acted unlawfully in recommending annuities to the clients or receiving commissions from the insurers. All of the clients at issue also signed the Fee Agreement and Mr. Savage provided them with services every year.4/ Some of the services were things an insurance agent technically could handle, such as answering client calls, making address and beneficiary changes, providing duplicate statements, assisting with the paperwork for required minimum distributions, withdrawals, and deposits, and asset reallocation. Other services were things that an agent could not provide, such as tax management/credits, duplicate tax forms, assistance with estates, trusts, and wills, and financial planning advice. But, even as to the services an agent technically could provide, Mr. Savage used his financial planning expertise to advise these clients as to a number of decisions relating to their annuities. For instance, although agents can assist with reallocation, required minimum distributions, and withdrawals, Mr. Savage’s securities and financial planning expertise allowed him to make recommendations that took into account an analysis of the stock market, the economy, and the clients’ financial circumstances and overall goals. An agent is not required to have that expertise, which is one reason he charged the clients an annual service fee. Many of these clients did not recall Mr. Savage providing most of the services listed in the Fee Agreement, but the weight of the credible evidence reflects otherwise. He analyzed asset reallocations for these clients every year and, when he believed reallocation was appropriate, he undisputedly made it happen. He provided annual account analyses consolidating the clients’ investment statements. He met with some of them every year to conduct an annual review and, for those he did not meet, he offered to do so in their annual invoice letter. Whenever the clients asked for assistance with questions, address, beneficiary, or ownership changes, withdrawals or required minimum distributions, or deposits, among others, he performed the task. And, as he confirmed and some of the clients acknowledged, the Fee Agreement made it clear that the services were available, even if they did not need all of them in a particular year or did not think to ask. Although some of the clients testified that Mr. Savage failed to tell them that his fee was optional, all of them had a chance to review the Fee Agreement before voluntarily signing it. The agreement noted that the fee was a “financial planning retention fee” based on the value of the accounts “that we manage or provide service for,” and that non-payment “will result in the discontinuation of my/our planning services.” These clients believed they hired Mr. Savage as an investment advisor and many understood that such advisors do charge fees for providing services. More importantly, no client testified that Mr. Savage said his annual fee was required to procure the annuities or was a charge for insurance. Nothing in the Fee Agreement gave that indication either. Mr. Savage credibly confirmed that he did not charge a fee for insurance; rather, the client paid the fees for financial planning services. And, if they decided they no longer wanted Mr. Savage’s services and stopped paying his fee, they took over management of their annuities without losing access to them or the money in them. The Department concedes that Mr. Savage may wear two hats, as both the agent selling an annuity and the financial advisor managing his client’s portfolio. It contends, however, that Mr. Savage violated the insurance code by selling annuities to these clients and thereafter charging them annual fees——tied to the value of the annuities——to provide services that he should have provided for free after earning commissions on the sale of those annuities. The Department’s investigator, Ms. Midgett, testified about annuities, commissions, and insurance agent services based on her experience in the industry as both a former agent and certified chartered life underwriter.5/ Ms. Midgett confirmed that the Department approves both the premiums and commissions applicable to annuities. Once the premium or deposit is paid, the commission is earned; if an additional deposit is made into the annuity, the agent would earn another commission. Ms. Midgett testified that it is improper for an agent to receive a commission and knowingly charge a client any fees with respect to that annuity under section 626.9541(1)(o). However, she admitted that a financial advisor may charge service fees on annuities if they did not receive a commission on the sale. And, if the annuity is ever rolled into a non- insurance product, that agent could charge service fees on that asset because they are no longer tied to the annuity. Ms. Midgett also testified about the services agents are expected to provide. Once an agent sells a product, he or she becomes the agent of record and does “things such as answer questions, beneficiary changes, address changes, yearly reviews, anything to keep that client and to help them in any way they can.” According to her, “it’s basic 101 insurance that an agent services their clients,” which is “extremely important if you want to build your book of business and to keep a client happy.” Importantly, however, Ms. Midgett conceded that no statute or rule specified what services agents were required to provide once they sold an annuity. “It’s just understood when you’re an insurance agent that you’re going to service your clients. It’s part of the sale of the product.” She believed agents learned this in the course study to obtain a license. Although Ms. Midgett testified that Mr. Savage should have provided most of the services listed in the Fee Agreement for free once he earned commissions on the sale of the annuities, she conceded that at least two of them——duplicate tax forms and informing the client of new tax laws——were not services agents would do. She also agreed that agents could not advise clients as to taking money from an annuity and investing in stocks, mutual funds, real estate trusts, or other investment-related options as “those are all investment advisor functions.” Ms. Midgett initially admitted having no knowledge of whether insurance agents were trained in asset reallocation, though she “would assume so” because “[i]f you have a license to sell the product, then obviously you have to have the knowledge of how to be able to service that product and make the allocations.” When she testified several months later in the Department’s rebuttal case, she stated that the manual used to obtain a license in Florida had a chapter on annuities that “touched on” reallocation. But, she admitted she was not an expert on reallocation or analyzing market conditions, and she had only previously worked with one agent who sold annuities, though he did advise his annuity clients on reallocation. In sum, the Department conceded that no statute or rule articulated the services an agent is required to provide upon receiving a commission. The appointment contracts between the agents and the insurance companies, two of which are in the record, apparently do not specify the services agents are expected to provide. At best, the evidence established what a good agent should do to build a book of business; the evidence did not establish what services an agent, like Mr. Savage, was legally required to provide for receiving a commission. Count I – Kathy Butler Ms. Butler met Mr. Savage while working at a yacht club. In February 2011, they met at his office and she filled out a new client form with financial information. In March 2011, Mr. Savage assisted Ms. Butler with the application for a fixed index annuity for $50,000. On that same day, she signed the Fee Agreement, which she understood to be paying for his services as an investment advisor to manage the annuity and ensure it was being invested correctly; she believed he received income from the insurance company. In January 2012, she purchased another fixed index annuity for $8,000. Mr. Savage procured both annuities. Between 2012 and 2015, Ms. Butler received annual invoices from Mr. Savage and paid about $3,265 in service fees. At this point, Ms. Butler deals directly with the insurance companies, though Mr. Savage is still listed as her agent. The weight of the credible evidence shows that Mr. Savage answered general account questions, made a beneficiary change, conducted annual reviews when requested, sent annual account statements, analyzed reallocation each year and, when he recommended reallocation in 2014 and 2015, he handled the paperwork. Ms. Butler knew she could avail herself of the services in the Fee Agreement, even though she chose not to request many of them. Count II – Beverly Wilcox Ms. Wilcox met Mr. Savage at a seminar in early 2009. In February 2009, they met at his office, she completed a new client form, and she signed the Fee Agreement. She believed he was a financial advisor and that she would owe him money, but she did not read the Fee Agreement before signing it. In March 2009, Mr. Savage assisted Ms. Wilcox with the application to purchase a fixed index annuity for $120,000. He procured the annuity, as requested. Between 2010 and 2016, Ms. Wilcox received yearly invoices from Mr. Savage and paid about $6,500 in fees, after which she decided to deal with the annuity company directly. The weight of the credible evidence shows that Mr. Savage answered questions when asked, offered to conduct annual reviews each year, sent annual account statements, analyzed reallocation each year and, when he recommended reallocation in 2010 and 2012, he handled the paperwork. Count III – Joseph Cerny Mr. Cerny met Mr. Savage while working at a yacht club and knew he was a financial advisor. Mr. Cerny purchased several fixed index annuities and other investments from Mr. Savage, who helped him complete the paperwork and procured the policies. Between 2003 and 2004, he bought two annuities for $100,000 each and two mutual funds for about $30,000 each. In 2008, he bought an annuity for $10,000. In 2010, he bought another annuity for $119,400. Mr. Savage did not charge fees for the first few years. Mr. Cerny believed he received compensation from the companies. However, in March 2010, Mr. Cerny signed the Fee Agreement. Between 2011 and 2012, he received two invoices, paying the first for $1,266.84 but refusing to pay the second. Mr. Cerny and Mr. Savage ended their relationship at that point. The weight of the credible evidence shows that Mr. Savage answered questions, provided annual statements, assisted with making withdrawals when requested, met with Mr. Cerny yearly, analyzed reallocation each year and, when he recommended reallocation in 2010 and 2011, he handled the paperwork. Count V – Marion Albano Ms. Albano met Mr. Savage at a retirement seminar in early 2007. In February 2007, they met at his office to go over her investments, including several annuities. Based on his recommendation, she surrendered her old annuities and purchased a fixed index annuity for about $1.6 million. He assisted her with the application and procured the annuity. In February 2007, Ms. Albano also signed the Fee Agreement. Mr. Savage told her there was a service charge to manage the annuity and she agreed because her brother pays the same rate on his managed brokerage account. She was never worried about losing the annuity if she failed to pay the fee. Ms. Albano received invoices from Mr. Savage every year from 2008 through 2015 and testified that she had paid between $110,000 and $120,000 in fees during that time. She had to pay some of the fees out of her distributions. The weight of the credible evidence shows that Mr. Savage answered account questions, corresponded with her daughter about his recommendations, provided her with an account analysis each year, met with her annually to review her account, and assisted her with required minimum distributions and withdrawals. He analyzed reallocation each year and, when he recommended reallocation in 2010 and 2011, he handled the paperwork. Count VI – Jane D’Angelo Ms. D’Angelo and her late husband, whose son-in-law was an insurance agent, met Mr. Savage at an estate planning seminar in early 2003; they believed he was an investment advisor. In March 2003, he came to their home and they completed a new client form, indicating they had several types of investments, including annuities. Between 2003 and 2016, the D’Angelos invested with Mr. Savage. In 2003, they purchased a tax credit investment for $10,000. In 2005, they purchased a similar investment for $19,000, which resulted in tax credits totaling $17,174. Between 2005 and 2011, they purchased eight fixed index annuities from Mr. Savage. He assisted them with the applications, informing them that the companies paid him directly. He procured the following annuities, some of which were purchased by transferring money from their existing annuities: In April 2005, they bought an annuity for $250,000; in May 2007, they bought an annuity for $32,789.78; in May 2008, they bought an annuity for $29,510; in March 2009, they bought three annuities for $337,554, $550,000, and $6,000; in May 2011, they bought two annuities, one for $40,715 and another for $150,889; and, in June 2011, they bought an annuity for $24,667. Prior to 2010, they paid no service fees. However, in April 2010, they signed the Fee Agreement. Although they were surprised and felt like they had to sign, Ms. D’Angelo agreed they were not coerced or told the annuities would lapse if they failed to do so. Indeed, she never lost access to the annuities even after she stopped paying Mr. Savage’s fees in 2015. Mr. Savage sent them annual invoices from 2010 through 2015, totaling $54,000 in fees. Mr. Savage agreed to waive the 2010 fee and, ultimately, they only paid about $14,511 total. In 2016, Ms. D’Angelo informed Mr. Savage that she no longer needed his services. She had been dealing directly with the insurance companies herself, though they have provided her with names of individuals if she wanted someone to advise her. The weight of the credible evidence shows that Mr. Savage provided numerous services to the D’Angelos on the investments he managed for them.6/ He had discussions with them, sent them annual statements, and assisted them with deposits and transfers between annuities, required minimum distributions and withdrawals, income riders, and beneficiary and ownership changes. He analyzed reallocation every year and handled the paperwork when he felt it was appropriate. He also offered to meet annually and held those meetings in years in which they were requested. Count VII – Ernest Blougouras Rev. Ernest Blougouras, a Greek Orthodox priest, attended several financial planning seminars with Mr. Savage. They met privately in February 2005, at which he completed a new client form listing his investments, which included fixed annuities, CDs, mutual funds, bonds, and stocks. Rev. Blougouras purchased fixed index annuities and other investments from Mr. Savage. He told Rev. Blougouras that he received commissions for selling the annuities. Mr. Savage assisted with the applications and procured the policies. Over the last 14 years, Rev. Blougouras purchased nine fixed index annuities. In March 2005, he bought an annuity for $347,003; in April 2005, he bought an annuity for $229,458; in August 2005, he bought an annuity for $102,227; in June 2006, he bought an annuity for $8,300; in May 2007, he bought an annuity for $41,143; in June 2009, he bought an annuity for $50,000; in July 2009, he bought an annuity for $14,308; and, though the record is unclear as to the date, he bought another annuity that was worth $40,572 in 2010. Since 2011, he bought an additional annuity and several non-insurance investments, such as real estate trusts and energy funds. Prior to 2010, Mr. Savage did not charge Rev. Blougouras service fees because he continued to purchase annuities. However, in 2010, Mr. Savage decided to start charging an annual service fee and sent Rev. Blougouras the Fee Agreement. Rev. Blougouras believed that Mr. Savage’s services would be cancelled if he failed to pay the fee and he would have to hire another advisor. He signed the Fee Agreement and continues to use Mr. Savage’s services. Mr. Savage has sent annual invoices to Rev. Blougouras every year since 2010. The record only contains the 2010 invoice for $9,883 and Rev. Blougouras could not recall how much he paid overall. However, he confirmed that he has paid every invoice he has received either himself or with distribution checks he received from the annuities. The weight of the credible evidence shows that Mr. Savage provided numerous services to Rev. Blougouras. He prepared paperwork and documents for required minimum distributions and withdrawals, held meetings to review and organize his tax paperwork, copied documents requested, and made address changes when requested. He analyzed asset reallocation every year and, when he recommended reallocation in 2010 and 2011, he completed the necessary paperwork. Count VIII – George Flate Mr. Flate and his wife met Mr. Savage at a financial planning seminar in 2010. In February 2010, they met Mr. Savage and completed their new client form listing their investments, including fixed annuities, CDs, mutual funds, and stocks. They also signed the Fee Agreement, which Mr. Flate believed was a standard service agreement. They thought they hired Mr. Savage as an investment advisor and never believed they would lose access to the annuities if they stopped paying his fees. Based on Mr. Savage’s recommendation, the Flates purchased two fixed index annuities: one annuity was issued in April 2010 for approximately $22,000, and the other annuity was issued in May 2010 for approximately $22,500. Mr. Savage assisted them with filling out the applications and handled the paperwork to ensure the annuities were issued. Between 2012 and 2015, Mr. Savage sent the Flates invoices for his annual service fees every year. In total, they paid approximately $1,506 in service fees. In 2015, the Flates terminated their relationship with Mr. Savage. They have worked with two financial advisors since then, neither of whom charged them service fees relating to the annuities. The weight of the credible evidence shows that Mr. Savage provided numerous services to the Flates. Each year, he met with them to go over their account, provided them with account analyses, analyzed reallocation and, the two to three times they agreed with his recommendations, he handled the paperwork. He handled withdrawals and address changes for them when requested, and he provided them with information as to changes in tax law and estate planning, though they did not believe that was necessary since they had tax and estate lawyers. The Flates understood that Mr. Savage was available to answer their questions and provide the services if they asked. Count IX – FINRA Disciplinary Proceeding On July 14, 2016, two former clients of Mr. Savage’s filed a Statement of Claim with FINRA alleging that he had recommended investments that were not suitable for them. Over Mr. Savage’s objections to proceeding with the hearing as scheduled, the arbitration panel awarded the clients over $725,000 in damages, fees, and costs. The clients filed a petition in Florida circuit court to approve the arbitration award. Mr. Savage responded in opposition and moved to vacate the arbitration award on grounds that it violated his due process rights. On November 9, 2017, the circuit court issued a final judgment awarding over $769,000. On December 4, 2017, Mr. Savage appealed the circuit court’s order to the Second District Court of Appeal. On June 12, 2018, while the appeal was pending, Mr. Savage signed a Letter of Acceptance, Waiver and Consent (“AWC”) with FINRA. The AWC stated that Mr. Savage accepted and consented, without admitting or denying, the following findings: Wall Street failed to apply for a material change in its business operations, i.e., to sell oil and gas interests, private placements, and non-traded real estate investment trusts, before engaging in more than 50 such transactions, many of which were consummated by Mr. Savage; Mr. Savage failed to timely update his FINRA Form U4 within 30 days of the Statement of Claim being filed against him in July 2016; Mr. Savage failed to timely respond to FINRA’s requests for information relating to an upcoming examination of Wall Street; and Wall Street failed to maintain the minimum net capital requirements of $5,000 while engaging in securities transactions. Mr. Savage agreed to three sanctions: (1) a five- month suspension from associating with any FINRA registered firm; (2) a three-month suspension from association with any FINRA registered firm in a principal capacity, to be served following the five-month suspension; and (3) a $30,000 fine. The AWC confirmed that Mr. Savage waived his procedural rights relating to these alleged violations and made clear that it would become part of his permanent disciplinary record that could be considered in future actions brought by FINRA or other regulators. He was precluded from taking positions inconsistent with the AWC in proceedings in which FINRA was a party, but was not precluded from taking inconsistent positions in litigation if FINRA was not a party. The five-month suspension began on June 13, 2018, and ended on November 17, 2018. The three-month suspension began on November 18, 2018, and ended on February 17, 2019. In the interim, on August 16, 2018, FINRA notified Mr. Savage by letter that it was suspending his securities license indefinitely for his “failure to comply with an arbitration award or settlement agreement or to satisfactorily respond to a FINRA request to provide information concerning the status of compliance.” This letter is not in the record and, as such, it is unclear whether Mr. Savage had an avenue to challenge that suspension directly. Mr. Savage had challenged the underlying arbitration award, which remained pending on appeal in the Second District Court of Appeal. On November 7, 2018, the Second District affirmed the circuit court’s arbitration order. On November 20, 2018, Mr. Savage put the Department on notice of the FINRA disciplinary actions, including the AWC from June 2018 and the decision of the Second District affirming the arbitration award.
Conclusions For Petitioner: David J. Busch, Esquire Department of Financial Services Room 612, Larson Building 200 East Gaines Street Tallahassee, Florida 32399-0333 For Respondent: Michael Buchholtz, Esquire The Law Office of Michael Buchholtz Post Office Box 13015 St. Petersburg, Florida 33777
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Financial Services issue a final order suspending Mr. Savage’s license as an insurance agent for twelve months. DONE AND ENTERED this 30th day of September, 2019, in Tallahassee, Leon County, Florida. S ANDREW D. MANKO 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 September, 2019.
Findings Of Fact The Petitioner is University General Hospital, Inc. (hereinafter "UGHI"), the present license holder of University General Hospital (hereinafter "University Hospital"), a 140-bed general acute-care hospital located in Seminole, Florida. During calendar years 1989 and 1990 and until July 30, 1991, University Hospital operated as a division of Community Health Investment Corporation f/k/a/ CHS Management Corporation (hereinafter "CHIC"). On July 30, 1991, UGHI was incorporated as a wholly-owned subsidiary of CHIC and became the license holder of University Hospital. University Hospital's change in licensure on that date did not change its ownership, control, management, reporting, or operation. On or about December 2, 1991, UGHI timely filed Certificate of Need (hereinafter "CON") Application No. 6851 to convert 12 general acute-care beds to hospital-based skilled nursing beds. In a letter dated December 19, 1991, the Department (hereinafter "HRS") identified certain items of information omitted from UGHI's initial application (commonly referred to as an "Omissions Letter"), including, among other items, audited financial statements of the applicant. On or about January 15, 1992, UGHI timely filed its response to the Omissions Letter and included a document entitled "UNIVERSITY GENERAL HOSPITAL, INC. (A WHOLLY-OWNED SUBSIDIARY OF COMMUNITY HEALTH INVESTMENT CORPORATION) FINANCIAL STATEMENTS AS OF DECEMBER 31, 1990 AND 1989 TOGETHER WITH REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS." In a letter dated January 28, 1992, HRS notified UGHI that its CON application was being administratively withdrawn from consideration for the sole reason that it did not contain audited financial statements of the applicant, University General Hospital, Inc. The purpose of audited financial statements from the standpoint of HRS' review of CON applications is that they provide HRS with a basis to determine the overall financial strength and financial position of the applicant and the applicant's ability to carry out the project being proposed. HRS requires that the financial statements be "of the applicant" because it looks to the source of funding and financial strength of the entity responsible for funding the project--the party submitting the CON application. The audited financial statements submitted by UGHI reflect the resources available to it for the CON project proposed in CON Application No. 6851 and are appropriate to demonstrate the financial strength of UGHI. The audited financial statements filed by UGHI contain financial documentation for years ending December 31, 1990 and 1989, as well as information through November 13, 1991. The issuance of audited financial statements for an entity incorporating a period of time before that entity's corporate existence (known as "reissuance") is a common practice in the accounting profession and, subject to the entity's ability to satisfy the specified prerequisites, is consistent with pronouncements and standards under generally accepted auditing standards (hereinafter "GAAS") and generally accepted accounting principles (hereinafter "GAAP"). The prerequisites for reissuance of an audited financial statement are adequate disclosure made in the notes of the financial statement and continuance of common ownership, control, management, reporting, and operation of the entity's activities. Prior to issuance of the audited financial statements for UGHI, Arthur Andersen & Co. conducted an extensive post-audit review of UGHI and concluded that the financial statements previously issued to University Hospital could be reissued as audited financial statements of UGHI. Had Arthur Andersen & Co. found that the previously-issued audited financial statements were misleading or that the requirements set forth in GAAS and GAAP were not satisfied, it would not have reissued the audited financial statements on behalf of UGHI. The audited financial statements submitted by UGHI to HRS constitute a valid document prepared in accordance with the pronouncements and standards under GAAS and GAAP. It is the policy of HRS that, if an entity has been in existence for less than one year, HRS will accept only a balance sheet audit as of the date of incorporation, or a short period audit from the date of incorporation through an undefined period of time. HRS' policy is not reflected in any of the statutes, rules, or HRS Manual provisions regarding audited financial statements, and HRS is not in the process of promulgating a rule regarding this policy. HRS' policy applies to all entities submitting CON applications that have been in existence for less than one year. Balance sheet and short period audits are not appropriate documents to assess an entity's financial condition. In many cases, HRS would prefer a reissued audited financial statement to a balance sheet audit in analyzing a CON application. In determining whether an applicant complies with Section 381.707(3), Florida Statutes, HRS will, with certain exceptions, look at whether the definition of "Audited Financial Statement" set forth in Rule 10-5.002(5), Florida Administrative Code, is met. HRS does not apply the definition of "Audited Financial Statement" set forth in Section 10-5.002(5), Florida Administrative Code, to applicants in existence for less than one year. The definition it applies to these entities is not set forth in any rule, statute, or HRS Manual provision. A balance sheet audit does not comply with the definition of "Audited Financial Statement" set forth in Rule 10-5.002(5), Florida Administrative Code. The audited financial statements filed by UGHI comply with the definition of "Audited Financial Statement" set forth in Rule 10-5.002(5), Florida Administrative Code. Rule 10-5.008(5)(g), Florida Administrative Code, identifies those audited financial statements satisfying the rule definition of "Audited Financial Statement" that HRS will not accept. HRS explains the exceptions set forth within Rule 10-5.008(5)(g), Florida Administrative Code, on the basis that these audited financial statements reflect financial documentation of an affiliate entity. The audited financial statements submitted by UGHI are not a combined audit, a consolidated audit, or an audit of a division, as prohibited under Rule 10-5.008(5)(g). From an accounting standpoint, the audited financial statements submitted by UGHI are those of UGHI. An accounting firm typically identifies the entity being audited on the title page of the audited financial statements and in the audit report and financial statements contained therein. The title page of, and audit report and financial statements in, the audited financial statements prepared by Arthur Andersen & Co. for UGHI all reflect that the entity being audited is UGHI. An accounting firm faces significant liability if the audited financial statements it prepares are found to be inaccurate or misleading. HRS does not dispute, and in fact agrees, that the audited financial statements prepared by Arthur Andersen & Co. for UGHI were correctly issued and are consistent with GAAS and GAAP.
The Issue Whether the proposed decision of the Department of Children and Family Services to award the contract for Florida Assertive Community Treatment (FACT) Programs for District 11, as set forth in RFP No. 01H02FP5, to Psychotherapeutic Services of Florida, Inc., was contrary to the Agency's governing statutes, the Agency's rules or policies, or the specifications of the RFP?
Findings Of Fact On or about February 18, 2002, DCF issued RFP No. 01H02FP5 for the implementation of Florida Assertive Community Treatment (FACT) Programs for persons with severe and persistent mental illnesses in DCF Districts 4, 7, and 11. The review in this case is limited to DCF's proposal to award a FACT contract in District 11. Three vendors submitted proposals for District 11, including Petitioner and Intervenor. Section 5.2 of the RFP requires that each proposal include a title page as page two of the proposal and include the RFP number; title of proposal; prospective offeror's name; organization to which the proposal is submitted; name, title, phone number and address of person who can respond to inquiries regarding the proposal; and name of project director, if known. The proposal submitted by Intervenor contained a title page identifying the offeror as Psychotherapeutic Services of Florida, Inc., (PSFI) with a mailing address in Chesterfield, Maryland. Further, every page of Intervenor's proposal had the name Psychotherapeutic Services of Florida, Inc. printed on the bottom left corner of every page. Section 6.1 of the RFP describes two phases of DCF's review of the proposals. The first is an initial screening of all proposals for what the RFP describes as "Fatal Criteria." The second is the qualitative review by an evaluation team of each proposal using criteria set out in the RFP. Fatal Criteria Section 5.4 of the RFP reads as follows: 5.4 RESPONSE TO INITIAL SCREENING REQUIREMENTS The initial screening requirements are described as FATAL CRITERIA on the RFP Rating Sheet (see section 6.1). Failure to comply with all initial screening requirements will render a proposal non-responsive and ineligible for further evaluations. The fatal criteria are: Was the proposal received by the date, time and location as specified in the Request for Proposal (section 2.4)? Was one (1) original and eight (8) copies of the proposal submitted and sealed separately? (section 5.12)? Did the provider include a Proposal Guarantee payable to the department in the amount of $1,000.00 (section 2.11)? Did the application include the signed State of Florida Request for Proposal Contractual Services Acknowledgement Form, PUR 7033 for each proposal submitted? Did the provider submit the Notice of Intent to Submit form contained in Appendix 2 by the required due date? Did the provider register and attend the offeror's conference? Did the proposal include the signed Certification Regarding Debarment, Suspension, Ineligibility and Voluntary Exclusion Contracts/Subcontracts (Appendix 6)? Did the proposal include the signed Statement of No Involvement(Appendix 7)? Did the proposal include the signed Acceptance of Contract Terms and Conditions indicating that the offeror agrees to all department requirements, terms and conditions in the Request for Proposal and in the Department's Standard Contract (Appendix 8)? Did the proposal include a signed lobbying form (Appendix 9)? Did the proposal include an audited financial statement for fiscal years 1999- 2000 and 2000-2001? Did the proposal include a certification of the offeror's good standing (Appendix 1)? Did the proposal contain evidence the minimum staffing levels in section 3.11 will be hired and employed? Did the proposal contain a signed Certification of a Drug-Free Workplace program (Appendix 10)? Did the proposal contain a certification regarding electronic mailing capability as referenced in section 3.20 (Appendix 5)? (emphasis in original) Section 6.1 of the RFP includes a Fatal Criteria rating sheet requiring "yes" or "no" responses by the reviewer, which included, among other provisions, the following: 4. Did the proposal include a signed Form PUR 7033? * * * 11. Did the proposal include independent audited financial statement from a CPA firm for fiscal years 1999-2000 and 2000-2001? Form PUR 7033 Section 5.1 of the RFP, entitled, STATE OF FLORIDA REQUEST FOR PROPOSAL CONTRACTUAL SERVICES ACKNOWLEDGMENT FORM, PUR 7033, requires proposers to manually sign an original Form 7033 on the appropriate signature line. The signed form 7033 must appear as the first page of the proposal. Form PUR 7033 is not a form generated by DCF but is generated by the Department of Management Services. The RFP did not set forth any fatal criteria in connection with this form other than it be signed. The proposal of Intervenor, PSFI, contained form PUR 7033 with the signature of PSFI's Chief Executive Officer, D. Cherry Jones, within the signature block designated as "authorized signature." The name Psychotherapeutice [sic] Services appears on Intervenor's form 7033 in the block entitled "vendor name." The address which appears in the block designated as "vendor's mailing address" on Intervenor's form PUR 7033 is the same mailing address in Chesterfield, Maryland, that appears on the title page of Intervenor's proposal. In completing the RFP forms designated as Appendix 1, Offeror Certification of Good Standing; Appendix 5, Certification of Electronic Mail Capability; Appendix 7, Statement of No Involvement; Appendix 8, Acceptance of Contract Terms and Conditions; and Appendix 10, Certification of a Drug-Free Workplace Program, Psychotherapeutic Services appears in the blank designated for the name of the vendor or offeror. These appendices were all signed by D. Cherry Jones. No required appendix was omitted or unsigned in Intervenor's proposal. Petitioner contends that the use by Intervenor of Psychotherapeutic Services or a shortened version of its full name instead of Psychotherapeutic Services of Florida, Inc., on Form PUR 7033 and the required appendices renders Intervenor's proposal non-responsive to fatal criteria and caused confusion within DCF as to the corporate status of the actual offeror. In Appendix 8 to Intervenor's proposal, the corporate documents from the Florida Department of State were for Psychotherapeutic Services of Florida, Inc. Timothy Griffith is Deputy Executive Director of Psychotherapeutic Services of Florida, Inc. According to Mr. Griffith, the use of the term Psychotherapeutic Services refers to a group of companies that make up the Psychotherapeutic Services Group. The parent company of all Psychotherapeutic Services affiliates, including Psychotherapeutic Services of Florida, Inc., is Associated Service Specialists, Inc. The relationship between Psychotherapeutic Services of Florida, Inc., and Associated Service Specialists, Inc., was set forth in sufficient detail in Intervenor's proposal. There is no evidence that anyone in DCF or its evaluators were confused as to what entity was identified in the proposal submitted by Intervenor. Stephen Poole is a Senior Management Analyst II with DCF, and is the procurement manager for the RFP. There was never any confusion in his mind as to what entity was making the offer to DCF. He understood Psychotherapeutic Services to refer to Psychotherapeutic Services of Florida, Inc., and had a "common sense" understanding of who the offeror was. Consistent with his testimony, Mr. Poole's reference to Psychotherapeutic Services, Inc., on the bid tabulation sheet was simply shorthand for Psychotherapeutic Services of Florida, Inc. Similarly, the bid tabulation sheet references Petitioner as Bayview Center for Mental Health even though its full name is Bayview Center for Mental Health, Inc. Likewise, his reference to "PSI" on the fatal criteria evaluation sheet "stood for and stands for, in our language, Psychotherapeutic Services of Florida, Inc." Petitioner's assertion that Intervenor's proposal was non-responsive as a result to the use of an abbreviated form of Intervenor's name is not supported by the above findings. Financial Statements Petitioner asserts that Intervenor failed to meet the requirement set forth in Section 5.4k of the RFP and referenced in paragraph 11 of the fatal criteria RFP rating sheet, that proposers include independent audited financial statements for fiscal years 1999-2000 and 2000-2001. The RFP did not provide any definition, standard, guideline, or mandatory requirement for the format or content of financial statements, audits, or audited statements. The RFP simply required that they be included. Intervenor's proposal contained audited financial statements for fiscal years 1999-2000 and 2000-2001. Intervenor's 2000-2001 audited financial statements consisted of an independent auditor's report from Nardone, Pridgeon & Company, P.A., Certified Public Accountants, dated August 10, 2001; balance sheets; statements of cash flow; statements of operations and retained earnings (deficit); and personnel and operating expenses. However, four pages, consisting of the Notes to Financial Statements, were omitted. There is no dispute regarding the contents of the audited financial statements for 1999-2000 submitted by Intervenor. The independent auditor's report stated in pertinent part: We have audited the accompanying balance sheets of Psychotherapeutic Services of Florida, Inc. as of June 30, 2001 and 2000, and their related statements of operations and retained earnings (deficit) and cash flows for the years then ended. . . . In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Psychotherapeutic Services of Florida, Inc. as of June 30, 2001 and 2000 We conducted our audits to form an opinion on the 2001 and 2000 basic financial statements taken as a whole. Luther Cox is a certified public accountant and has expertise in accounting and financial statements. It is Mr. Cox's opinion that the notes to financial statements are a required element of an audited financial statement. Mr. Cox's opinion was based in part on the Florida Board of Accountancy Rules in defining the term, "financial statement." Mr. Cox acknowledged, however, that based upon the representation that the auditors provided in the first paragraph of their letter, the auditors reviewed all of the financial statements. Additionally, Mr. Cox acknowledged that based upon his review of the notes to the financial statements, there was no negative information which should have been disclosed in the subject auditor's opinion letter and that the letter was a "clean opinion", meaning that no adverse financial information was known to the auditors which otherwise would have been required to be reported. Martin Kurtz is also a certified public accountant. He acknowledged that that the omission of the notes is not consistent with the standards of the practice of accountancy in Florida. However, he was of the opinion that, based upon the way the independent auditor's opinion letter is written, the letter relates to a full set of financial statements. "They may not have all been presented in the proposal. But there was a full set of audited financial statements." Thus, the auditor's clean opinion letter included a review of the notes. According to Mr. Kurtz, the text of Intervenor's proposal contains more information about the relationship between the parent company and Psychotherapeutic Services of Florida, Inc., than the notes to the financial statements. With the above competing opinions by certified public accountants, it is appropriate to examine the agency's use of the audited financial statements in their review of the proposals. According to Mr. Poole, the requirement to have the proposals contain independently audited financial statements was to assure DCF that the offeror possessed sufficient financial sophistication and organizational capacity to perform a FACT contract. In reviewing compliance with the requirement for an audited financial statement, DCF reviewed the submission to determine whether or not it had a letterhead from an independent auditor and whether there were financial statements. The submitted financial statements were not reviewed by a certified public accountant of DCF. According to Mr. Poole, DCF was looking generally for the "strength, administratively of the offeror. If it had the level of management expertise to be able to perform a contract in that amount of money of a million dollars." The independent auditor's letter represents that Intervenor's financial statements for fiscal years 2000-2001 were in fact audited. Petitioner's assertion that Intervenor's proposal is non-responsive because of the omission of the notes to the financial statements is not supported by the above findings. In further support for its assertion that Intervenor's omission of the notes to the financial statements renders Intervenor's proposal non-responsive for failure to meet fatal criteria, Petitioner asserts that the requirement for the inclusion of audited financial statements was not only considered within the fatal criteria of the RFP, but also was a "key consideration" for scoring criterion 36 of the RFP. Organizational capacity is set forth in section 5.5(4) of the RFP and states in pertinent part: To assist in the determination of the offeror's organizational capacity, please provide, as part of this section, the following: 4. A copy of the financial statements or audits for state fiscal years 1999-2000 and 2000-2001. 6. Evidence that the offeror has met its financial obligations in a timely and consistent manner without the need to incur loans or a line of credit to routinely meet its expenses. (emphasis in original) Section 6.3.6 of the RFP contains certain criteria for the evaluators to score with regard to organizational capacity of the proposers. Criterion 36 reads as follows: 36. What evidence did the proposal provide that the offeror has not had to obtain loans or a line of credit to routinely meet its financial obligations and expenses in a timely and consistent manner as referenced in section 5.5(4)? Key considerations for scoring: Its independently audited financial statements for fiscal years 1999-2000 and 2000-2001 support response. Offeror's independently audited financial statements for the last two years give evidence of ability to start a new program without benefit of start-up funds. Each of the evaluation criteria contained references to key considerations for scoring. The key considerations were to assist the evaluators in assessing the merits of the proposals. In evaluating criterion 36 pertaining to lines of credit, it was the role of the individual evaluators to interpret the degree of routine reliance and assign, accordingly, a particular score from zero to three. Intervenor directly addressed loans and lines of credit in the text of its proposal in response to criterion 36. As with the other criteria, evaluators could score this criterion from zero to three. The Department deferred to the evaluators regarding how they interpreted offerors' responses to the requirements of 5.5(4). Thus, the omission of the auditor's notes in regard to criterion 36 goes to the weight of the information in the proposal, not as to whether or not fatal criteria were met. Evaluation Committee Process Members of the Evaluation Committee were given instructions by Mr. Poole prior to commencing the qualitative review of each proposal. Each Evaluation Committee member signed a conflict of interest statement indicating they had no conflicts. The members were specifically instructed that the proposals were to be reviewed independently from one another and from each other; that any problem an evaluator may have with a proposer was not to be considered as part of their score; that the universe began and ended within the confines of the proposal; and that they were to use a scoring protocol to affix their score and to report back the following week to give that score, but not to share their results with anyone until the briefing meetings that followed the qualitative review. The Evaluation Committee consisted of employees of DCF, except for Barbara Johanningsmeier, who is a National Alliance for the Mentally Ill (NAMI) representative. Mr. Poole spoke to the executive director of NAMI explaining that the NAMI evaluator should be a person who is knowledgeable either through life experience or work of Florida's community mental health system; who has an understanding of the system of care that is publicly funded; and who has an interest and some knowledge and expertise in the area of programs either through employment or through other factors. NAMI provided Ms. Johanningsmeier as the evaluator requested by DCF. Mr. Poole explained DCF's unquestioned acceptance of Ms. Johanningsmeier as an evaluator: We accepted Mrs. Johanningsmeier as the representative of NAMI because of our relationship with NAMI and our shared vision and mission of a community mental health system of Florida that is responsive to the individual needs with persons with severe and persistent illness and that our goals in some ways are the same, that we want a responsive system to people with a very serious disability . . . . [T]here would be no reason to question the validity or expertise of a representative of NAMI because NAMI has an interest in Florida's publically funded community mental health system. According to Celeste Putman, DCF's Director of Mental Health, the evaluation team included a NAMI representative to make sure that the team had a strong representative who really understood the needs of people with very severe, persistent mental illness, and who has worked closely with that population. Ms. Putnam explained that DCF has always felt that it is important to have a family member, someone who is close, from a personal standpoint, to the service delivery involved. Ms. Johanningsmeier had experience evaluating at least three other similar procurements. Further, Ms. Johanningsmeier was a member of the Board of Directors of NAMI, Florida, at the time she served on the Evaluation Committee and was a member of a local Board of Directors of NAMI. She was familiar with the NAMI PACT manual. Ms. Johanningsmeier gave an extensive description of her personal experiences with the public and private mental health systems in Florida, from her child's experience in those systems. Ms. Johanningsmeier's purpose on the evaluation team was to represent NAMI and not to promote the NAMI viewpoint in the evaluation. She denied scoring any of the criteria out of bias toward or against any of the participants using criteria outside of those that were given to her in the RFP, or attempting to skew the score in any way. Petitioner alleges that many of its responses to subjective questions were better than those of Intervenor and therefore should have been scored higher. Robert Ward, President and chief executive officer of Bayview, believed that Ms. Johanningsmeier scored Petitioner low, and as a result he felt there was either a bias of some kind or that the evaluator did not know what she was doing. Mr. Ward felt that something was wrong, but did know what it was. Petitioner's expert witness, Dr. Susan Kelly, is a senior research consultant with a private company. She works with data analysis and research and has expertise in statistics with a Ph.D. in sociology. She conducted a statistical test of the scoring by all evaluators for the purpose of determining the existence of patterns or any kind of irregularities or differences in scoring. The statistical significance test performed by Dr. Kelly showed variations between the scores of Ms. Johanningsmeier and two of the other reviewers. Dr. Kelly characterized Ms. Johanningsmeier's scores as an "outlier," but did not know the reason why there was a difference in scores between Ms. Johanningsmeier and the other evaluators. Dr. Kelly's analysis did not involve any review of the RFP, the proposals or information regarding Ms. Johanningsmeier's background or position to the Evaluation Committee. There was no substantial or material evidence presented by Petitioner to show that Ms. Johanningsmeier's scoring of the proposals was inconsistent with the scoring methodology in the RFP, clearly erroneous, contrary to competition, arbitrary or capricious.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law set forth herein, it is RECOMMENDED: That the Department of Children and Families enter a final order dismissing the bid protest filed by Bayview Center for Mental Health, Inc. DONE AND ENTERED this 27th day of September, 2002, in Tallahassee, Leon County, Florida. BARBARA J. STAROS Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 27th day of September, 2002. COPIES FURNISHED: Gary J. Clark, Esquire Frank P. Rainer, Esquire Sternstein, Rainer & Clark, P.A. 101 North Gadsden Street Tallahassee, Florida 32301 William A. Frieder, Esquire Department of Children and Family Services 1317 Winewood Boulevard Building Two, Room 204 Tallahassee, Florida 32399-0700 Thomas R. Tatum, Esquire Brinkley, McNerney, Morgan, Soloman & Tatum, LLP. Post Office Box 522 Fort Lauderdale, Florida 33302-0522 Paul F. Flounlacker, Jr., Agency Clerk Department of Children and Family Services 1317 Winewood Boulevard Building 2, Room 204B Tallahassee, Florida 32399-0700 Josie Tomayo, General Counsel Department of Children and Family Services 1317 Winewood Boulevard Building 2, Room 204 Tallahassee, Florida 32399-0700
Findings Of Fact Petitioner, Wood-Hopkins Contracting Company, is a general contractor specializing in heavy industrial and water-related construction activities. Its principal offices are located at 1901 Hill Street, Jacksonville, Florida. On February 8, 1982, Petitioner filed an application for a certificate of qualification with Respondent, Department of Transportation. A certificate of qualification is necessary in order for any person or firm to bid on road and bridge work to be let by the Department. The application included, inter alia, financial statements for the forty weeks ending October 3, 1981. The statements were prepared by Coopers and Lybrand, an independent accounting firm. On February 10, 1982, Respondent advised Petitioner by certified mail that its application was being denied on the ground "[t]he financial statements submitted (were) of a date of more than 120 days prior to the application." The letter of denial precipitated the instant proceeding. Petitioner is currently qualified to bid on construction projects to be let by the Department. However, its certificate of qualification expires on March 27, 1982. It is also qualified to bid on contracts let by the Department of General Services and the University System for the State of Florida. Prior to 1981, Petitioner's fiscal year-end was the Saturday nearest December 31 of each year. Therefore, its financial statements for 1980 were based upon the fifty-two weeks ended December 28, 1980. Sometime during 1981, Petitioner's parent company, Rowe Corporation, changed the fiscal year-end to the Saturday nearest September 30 of each year. Consequently, its most recent financial statements under the new fiscal year were based upon the forty weeks ended October 3, 1981. Department rules and applicable statutory provisions require that financial statements submitted with an application reflect the financial position of the applicant as of a date not more than one hundred twenty days prior to the date of filing of the application. Petitioner's financial statements preceded the date of filing by one hundred twenty-eight days, or eight days more than the law allows. Petitioner contends that it has been qualified to bid for a number of years, and its financial position has not materially changed even though its statements are more than four months old. It argues that the application of the rule in this case is arbitrary given the fact that it was only eight days late in filing its statements, and that the denial of its right to bid is harsh treatment for such a minor violation of the rule. Respondent processes approximately five hundred applications for certificates of qualification each year. Many of these are not timely filed, thereby prompting requests for waiver of the rule. However, it has a uniform policy of not waiving the rule in any cases, and to require strict compliance with the rule.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that Petitioner's application for a certificate of qualification be DENIED. DONE and ENTERED this 24th day of March, 1982, 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 24th day of March, 1982.
The Issue Whether Respondent, State Board of Administration (SBA or Respondent), validly enrolled Petitioner, Sharon R. Huberty (Petitioner), into the Florida Retirement System (FRS) “Investment Plan” (Investment Plan), when Petitioner used a telephonic hotline to “elect” to transfer her FRS assets without completing or signing any form. Whether SBA should void Petitioner’s initial election to join the Investment Plan made via telephone in August 2002 and allow her to transfer back into the FRS Pension Plan (Pension Plan) without any cost in excess of the current value of her Investment Plan accounts.
Findings Of Fact Petitioner has been employed as a corrections officer with the Florida Department of Corrections since 1997 and has been assigned to the Hendry County Corrections Institute in Fort Myers, Florida. In Florida, corrections officers are classified as “special risk” for FRS purposes. Petitioner became a member of the Pension Plan in 1997 after she moved from Wisconsin to Florida to work for the Florida Department of Corrections. In 2000, the Florida Legislature enacted law creating a bipartite retirement system for public employees. The new system granted existing public employees the one-time option of “electing” to transfer their FRS Defined Benefit Plan assets into a newly-created FRS Defined Contribution Plan, also known as the Investment Plan. This election was termed the “first election.” Under the new optional retirement system, FRS- eligible public employees who had made a valid “first election” could, at a later date, exercise the option of making a “second election,” whereby the market value of the FRS-eligible public employee’s Investment Plan assets would be returned to the Pension Plan, and any deficit between the value of the employee’s Investment Plan assets and the value of the Pension Plan would be paid by the employee. The Investment Plan is a defined contribution plan, and the member bears the risk of loss of the investments he or she chooses. In contrast, the Pension Plan is a defined benefit plan, wherein retirement benefits are calculated based upon a fixed formula, not the performance of the investments, which are selected by the state. Thus, the state, not the member, bears the risk of loss of the Pension Plan investments. In creating the Investment Plan option, the Florida Legislature emphasized through the enabling legislation, the importance of providing information and education to potential program participants. During the 2002 “initial election” enrollment period, the SBA implemented three ways for a Pension Plan member to elect to join the Investment Plan: (1) by submitting a hard copy of the MyFRS Your Plan Choice Form, (2) by logging into the MyFRS.com website and completing the MyFRS Your Plan Choice Form electronically, or (3) by calling the MyFRS Financial Guidance Line and enrolling verbally over the telephone. Section 121.4501, Florida Statutes (2002),1 describes the standards by which the SBA must administer the Public Employee Optional Retirement Program (PEORP or Investment Plan). Subsection 121.4105(4)(a)1., Florida Statutes, provides, in part: 1. With respect to an eligible employee who is employed in a regularly established position on June 1, 2002, by a state employer: a. Any such employee may elect to participate in the Public Employee Optional Retirement Program in lieu of retaining his or her membership in the defined benefit program of the Florida Retirement System. The election must be made in writing or by electronic means and must be filed with the third-party administrator by August 31, 2002, or within 90 days after the conclusion of the leave of absence whichever is later. This election is irrevocable, except as provided in paragraph (e). . . . Thus, state employees electing to transfer from the Pension Plan into the Investment Plan must do so “in writing or by electronic means.” Further, the election must be “filed” with the third-party administrator. Pursuant to Section 121.4501, Florida Statutes, the SBA created a form called the MyFRS Your Plan Choice Form. In order to complete the MyFRS Your Plan Choice Form and elect to transfer from the Pension Plan into the Investment Plan, the SBA required that the employee sign the form. If an eligible employee submitted an otherwise complete MyFRS Your Plan Choice Form without signing it, the SBA would reject the form as incomplete and not effectively enroll the employee into the Investment Plan. For employees electing to enroll in the Investment Plan by submitting the MyFRS Your Plan Choice Form, the SBA requires that the employee sign the “Authorization” section of the form, which includes a section titled “IMPORTANT INFORMATION,” which contains several affirmative statements describing the Investment Plan participant’s rights and responsibilities. According to Daniel Beard, the form requires a signature “because there is some very important information that a member needs to take into consideration before making any choices.” This “very important information” was not provided to Petitioner at the time she used the MyFRS Financial Guidance Line to “elect” to enroll into the Investment Plan. In 2002, the SBA contracted with a third-party administrator to create and operate a telephone hotline (MyFRS Financial Guidance Line) whereby FRS-eligible public employees could elect to transfer their Pension Plan assets into the newly-created Investment Plan via telephone. On August 27, 2002, Petitioner contacted the telephone hotline intending to transfer her retirement assets from the Pension Plan to the Investment Plan. Petitioner’s initial election to transfer into the Investment Plan was made orally by telephone to the third-party administrator on August 27, 2002. The SBA did not require Petitioner to complete or sign any form following her election to transfer into the Investment Plan by telephone. Petitioner did not sign or submit a form, and no form was “filed” with the third-party administrator. At the time of her 2002 election, Petitioner understood the Investment Plan to be an alternative to the Pension Plan whereby she would have the ability to choose her own investments rather than follow the investments that the state FRS administrators picked for her. She assumed that her retirement benefits would otherwise be unchanged. At the time of her 2002 election, Petitioner claims that she did not understand that she was effectively canceling her fixed-benefit pension plan and replacing it with a fixed- contribution, market-based investment plan and that she would no longer be eligible to receive pension benefits or to participate in the state’s deferred compensation “DROP” program. Petitioner’s deadline to elect membership in the newly-created Investment Plan was August 31, 2002. Before this deadline expired, a Plan Choice Kit was mailed to members who were eligible to enroll in the Investment Plan. The Plan Choice Kit included a document entitled “Your Plan Choice Form” (Plan Choice Form). The Plan Choice Form identified 39 different investment options available to members who transferred to the Investment Plan. The Plan Choice Form advised plan members to review the material in the Plan Choice Kit before making a plan choice. The MyFRS Choice Book (Choice Book), including the Plan Choice Kit, advised members of key differences between the Pension Plan and the Investment Plan. The Choice Book warned members that the value of an Investment Plan account is not fixed and “will vary depending on the performance of your investment. That means, the value of your account can go up, but it also can go down . . .”. The Choice Book also advised members that they would have an opportunity to switch back to the Pension Plan if they so desired, but they would have to “buy back” into the Pension Plan with money from their Investment Plan account. The Choice Book cautioned members, “[i]f you don’t have enough money in your Investment Plan account, you can still get back in . . . but you’ll have to make up the difference from other savings.” The Plan Choice Form advised members to review a description of their “rights and responsibilities under the FRS Pension Plan and FRS Investment Plan in the respective Summary Plan Descriptions and Florida Statutes, available through the MyFRS Financial Guidance Line at 1-866-44-MyFRS . . . or at MyFRS.com.” The Investment Plan Summary Plan Description informed members in 2002: You will have a one-time opportunity to switch to the Pension Plan at any point while working for an FRS employer. If you decide to switch, you must “buy back” into the Pension Plan with the money in your Investment Plan account. If you don’t have enough money in your Investment Plan account, you can still get back in . . . but you’ll have to make up the difference from your other financial resources. The Plan Choice Form and Choice Book advised members that they could make an election to enroll in the Investment Plan online at MyFRS.com or by calling the MyFRS Financial Guidance Line and choosing option five to be connected directly to the FRS Plan Choice Administrator. The SBA conducted numerous workshops for members to help them determine which plan to choose. Five workshops were noticed in Fort Myers, Florida, for April 8 through 12, 2002. Petitioner testified that she was not aware the workshops were offered and, therefore, did not avail herself of the information available at the workshops. Petitioner did call her personal financial advisor at Raymond James, before the plan choice deadline expired, to discuss the investment options available to her if she chose to transfer to the Investment Plan. Petitioner’s financial advisor recommended that she invest in the following Investment Plan funds identified on the Plan Choice Form: Franklin Small-Mid Cap Growth, Fidelity Mid Cap Stock Fund, Fidelity Growth Company Stock Fund, and the T. Rowe Price Small Cap Stock Fund. On August 27, 2002, Petitioner called the MyFRS Financial Guidance Line and spoke to an FRS Plan Choice Administrator representative (Representative). She told the Representative she wanted to transfer to the Investment Plan. She also told the Representative she wanted her Investment Plan assets to be invested in the four funds recommended by her Raymond James financial advisor and identified a beneficiary for her Investment Plan account. Petitioner testified at hearing that she did not have a copy of the Plan Choice Form with her when she made the call to the Representative on August 27, 2002. However, it is evident from the transcript of the recording of the August 27, 2002, call that Petitioner, in fact, either did have that form or had reviewed it prior to the call. When asked by the Representative what she had decided to elect, Petitioner replied “section one, number two.” “Section one, number two” of the Plan Choice Form is the option to transfer all of the member’s Pension Plan assets and all future contributions to the Investment Plan. The Representative confirmed Petitioner’s “section one, number two” reference as follows: REPRESENTATIVE: Okay. You want to go into the Investment Plan? MS. HUBERTY: Yes ma’am. REPRESENTATIVE: Okay. So you’re wanting to transfer your present value of your Pension Plan and all future contributions to the Investment Plan? MS. HUBERTY: Yes, Ma’am. Similarly, when identifying the funds in which she wanted to invest, Petitioner referenced the funds in “section three,” the section containing the list of fund choices in the Plan Choice Form. Petitioner identified the funds in the order they are found in “section three” of the Plan Choice Form. Petitioner claims she had another form with her during the call, but failed to produce a copy of this other form in the instant proceeding. Petitioner’s claim that she either did not receive or did not review the Plan Choice Kit prior to her enrollment in the Investment Plan is not credible. After enrolling in the Investment Plan, Petitioner received quarterly statements indicating her membership in the Investment Plan. The quarterly statements advised Petitioner of the value of her Investment Plan account and the performance of the investment funds she selected. Petitioner changed her beneficiary designation by submitting a written form on February 2, 2007. She called the MyFRS Financial Guidance line to clarify that one of the beneficiaries she designated was to be contingent. During the call, Petitioner did not complain or make any mention of the possibility that she might be in the wrong plan. Petitioner’s Investment Plan account value grew from an opening balance of $40,308.63 on September 30, 2002, to a high of $144,029.62 on September 30, 2007. As of September 30, 2008, the value of Petitioner’s Investment Plan account had declined to $121,019.94. On October 7, 2008, Petitioner contacted the MyFRS Guidance Line and spoke with an FRS representative about the circumstances under which she had made her first election into the Investment Plan. Petitioner requested that the FRS representative send her a copy of the document that she had signed electing to switch to the Investment Plan. The FRS representative responded that Petitioner would not necessarily have signed anything and that Petitioner may have enrolled verbally over the telephone or may have filled out an electronic enrollment form. During the October 7, 2008, telephone call, Petitioner stated that she would never have “join[ed] something where I wouldn’t be getting a pension. There’s nowhere on any form or whatever supposedly that I signed or was over the telephone that nobody ever told me that I wouldn’t be getting a pension if I joined this.” Petitioner repeated this sentiment on several subsequent telephone calls to the MyFRS Financial Guidance Line. On November 5, 2008, the SBA sent a letter to Petitioner stating that on August 27, 2002, Petitioner “actively enrolled” in the Investment Plan by making her “initial election” through calling the MyFRS Financial Guidance Line, effective September 1, 2002. The SBA letter stated as follows: In processing the election through the MyFRS Financial Guidance line, you agreed to the following statements listed on the Retirement Plan Enrollment Form: “I want to . . . take the FRS Investment Plan 100% Transfer Option. That means I switch to the new FRS Investment Plan and transfer the present value of my FRS Pension Plan benefit to the new FRS Investment Plan. I will also have future employer contributions sent to my new FRS Investment Plan.” “I understand that I can find a description of my rights and responsibilities under the FRS Pension Plan and the FRS Investment Plan in the respective Summary Plan Descriptions, Florida Statutes, available through the MyFRS Financial Guidance Line . . . or at MyFRS.com. I understand that the value of my FRS Pension Plan benefit which will be initially transferred to my Investment Plan account will be an estimate. Then, within 60 days of that transfer, there will be a reconciliation pursuant to Florida law which will use my actual FRS membership record. The actual amount could be more or less than the estimate you received.” “Your choice will be final at 4:00 p.m. (Eastern Time) on the first day of your Choice period if you file prior to the beginning of your Choice period. Otherwise it will be final on the day it is received. You must file before the applicable deadline noted on page 1. See Your Choice Book for more details on when your Choice period begins, and on the second chance opportunity you have during your career with the FRS to change your selection.” The attestations and warnings listed on the SBA’s November 5, 2008, letter to Petitioner were taken from the MyFRS Your Plan Choice Form, Section 4: Authorization. However, the Representative who received Petitioner’s August 27, 2002, telephone call had not verbally, or subsequently in writing, provided Petitioner with the information, attestations and warnings that the SBA listed on its November 5, 2008, letter to her, or those which are included in the MyFRS Your Plan Choice Form. On the August 27, 2002, telephone call to the MyFRS Financial Guidance Line, Petitioner did not verbally attest that she agreed to any statements from the MyFRS Your Plan Choice Form, Section 4: Authorization. The Representative who assisted Petitioner on August 27, 2002, did not advise her that she could speak with a financial services expert from Ernst & Young to discuss the distinctions between the Investment Plan and the Pension Plan. The Representative who assisted Petitioner on August 27, 2002, did not: Refer Petitioner to Section 121.4501, Florida Statutes. Confirm that Petitioner understood the terms and conditions of the “second election.” Confirm that Petitioner understood that there might be a cost if she decided later to transfer from the Investment Plan back into the Pension Plan. Confirm that Petitioner understood that under the terms of the Investment Plan, she would not be eligible to receive monthly pension checks during her retirement. Provide any disclosures about where Petitioner could find information concerning her rights as a participant in the Investment Plan. Confirm that Petitioner understood that under the terms of the FRS Investment Plan, she would not be eligible to participate in the state’s deferred compensation “DROP” program. Confirm that Petitioner understood that she should review the fund profiles and the Investment Fund Summary before choosing investment funds. Had Petitioner been required to complete and sign the MyFRS Your Plan Choice Form, she would necessarily have been presented with such information and had the opportunity to affirmatively state that she understood her rights as a participant in the Investment Plan. The form also references Section 121.4501, Florida Statutes, which is the governing statute of the Investment Plan. Therefore, Petitioner’s alleged “election” by telephone was not the functional equivalent of her having completed and signed the MyFRS Your Plan Choice Form, and Petitioner’s alleged “election” was voidable. Petitioner did not complete any kind of form that met the requirements of Florida Administrative Code Rule 19-10.001, 19-10.002, or 19- 10.003, which were in effect at the time of her alleged election. The MyFRS telephone hotline used to enroll FRS- eligible public employees into the Investment Plan at the time of Petitioner’s alleged “election” did not require that employees complete a written or electronic enrollment form in order to transfer their Pension Plan assets into the Investment Plan. However, no one affiliated with the SBA provided her with any misleading information about the Investment Plan. The SBA did not require that an FRS-eligible public employee sign any form in order to transfer his or her FRS assets from the Pension Plan to the Investment Plan, but did require that Investment Plan participants complete and sign a “Beneficiary Designation Form” in order to change the beneficiary designation on an Investment Plan participant’s account. On November 22, 2008, Petitioner filed a petition for hearing with the SBA seeking to return to the Pension Plan at no cost over the value of her Investment Plan account. As of July 15, 2009, the balance of Petitioner’s Investment Plan account was $104,238.10. As of July 16, 2009, Petitioner’s cost to “buy back” into the Pension Plan was $184,658.81. Based upon this value, Petitioner would have to contribute $80,420.70 in addition to the value of her Investment Plan account if she exercised her second election to transfer back to the Pension Plan. Subsection 121.4501(4)(a)1., Florida Statutes, governed Petitioner’s enrollment in the Investment Plan in 2002. This provision provides in pertinent part: Any such employee may elect to participate in the [Investment Plan] in lieu of retaining his or her membership in the defined benefit program of the Florida Retirement System. The election must be made in writing or by electronic means and must be filed with the third-party administrator by August 31, 2002. . . . The SBA construed the phrase “by electronic means” used in Subsection 121.4501(4)(a)1., Florida Statutes, to mean the election could be made by computer or by telephone. The SBA considers a telephone call to be “electronic” because the telephone calls to the Plan Choice Administrator are recorded. However, Petitioner received her bachelor’s degree in 1976 and completed a semester of coursework toward a Masters of Business Administration degree in 1977. When Petitioner moved from Wisconsin to Florida in 1977, she “rolled-over” her Wisconsin retirement plan account into an Individual Retirement Account (IRA) with the assistance of a Raymond James financial advisor.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the State Board of Administration enter a final order, as follows: Allowing Petitioner to transfer her accumulated retirement assets from the Pension Plan to the Investment Plan by telephone without completing or signing a form was improper and invalid. By taking no action for six years after the SBA enrolled her in the Investment Plan, Petitioner has waived her right to transfer back into the Pension Plan without any cost in excess of the current value of her Investment Plan accounts and must comply with requirements of Subsection 121.4501(4)(e), Florida Statutes, if she desires to make a “second election.” DONE AND ENTERED this 1st day of October, 2009, in Tallahassee, Leon County, Florida. S DANIEL M. KILBRIDE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 1st day of October, 2009.
The Issue Whether Respondent timely filed a quarterly report as required under chapter 560, Florida Statutes (2015), or related rules.
Findings Of Fact OFR is the state agency responsible for the administration and enforcement of chapter 560, related to licensing of money services businesses, a term that includes money transmitter services, and the rules promulgated thereunder. Respondent is a money services business and has license number FT30800590. Respondent operates as a check casher, and is located at 3220 Sydney Dover Road, Dover, Florida. Every Florida licensed check casher is required to submit quarterly reports to OFR in a format which includes information specified by rule. See § 560.118(2), Fla. Stat. The due date for a check casher to have filed its money services business quarterly report for the quarter ending December 31, 2014, was February 16, 2015. OFR sent a reminder to Respondent within ten days following December 31, 2014, to file the quarterly report. OFR sent seven additional e-mails before the deadline advising Respondent to file the quarterly report within the deadline. On March 6, 2015, Respondent filed the quarterly report in the proper format; however, it was 18 days after the applicable filing deadline. OFR determined that Respondent’s late filing of the quarterly report is a “Class A” violation pursuant to rule 69V- 560.1000(39) and (150). OFR determined the appropriate penalty to be a $1,000 fine. Mr. Grosmaire’s testimony on the basis of OFR’s imposition of the $1,000 fine is credible.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Florida Office of Financial Regulation enter a final order imposing an administrative fine of $1,000. DONE AND ENTERED this 19th day of July, 2016, in Tallahassee, Leon County, Florida. S LYNNE A. QUIMBY-PENNOCK Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 19th day of July, 2016. COPIES FURNISHED: Amjad J. Hijaz Mexican American Grocery 1105 Spurwood Court Brandon, Florida 33511 (eServed) William Michael Oglo, Esquire Office of Financial Regulation Fletcher Building, Suite 550 200 East Gaines Street Tallahassee, Florida 32399-0376 (eServed) Eric O. Husby, Esquire 2001 West Cleveland Street Tampa, Florida 33606 (eServed) Drew J. Breakspear, Commissioner Office of Financial Regulation 200 East Gaines Street Tallahassee, Florida 32399-0350 (eServed) Colin M. Roopnarine, General Counsel Office of Financial Regulation The Fletcher Building, Suite 118 200 East Gaines Street Tallahassee, Florida 32399-0370 (eServed)
The Issue Whether or not Petitioner's application for registration as an associated person of Brauer & Associates, Inc., and as an investment adviser of G.G. Brauer & Associates, Inc. should be approved.
Findings Of Fact Respondent, Department of Banking and Finance, is the state agency charged with the administration and enforcement of Chapter 517, Florida Statutes, The Florida Securities and Investor Protection Act and the administrative rules promulgated thereunder. On or about October 30, 1990, Petitioner submitted a Form U-4, Uniform Application for Securities Industry Registration or Transfer, seeking transfer as an associated person of Brauer & Associates, Inc., and as an investment adviser of G.G. Brauer, Inc. On or about January 25, 1991, Respondent denied Petitioner's application for registration based upon its determination that Petitioner had filed a form U-4, which contained material misstatements and had demonstrated prima facie evidence of unworthiness by engaging in prohibited business practices. Petitioner was previously registered as an associated person with the St. Petersburg, Florida branch office of Smith Barney from March 1987 until July 25, 1990, when he was permitted to resign from the firm for ordering securities from the "over the counter" desk without prior client orders. Petitioner was also registered with the NASD and is charged with knowledge of their Rules of Fair Practice. On or about May 9 1990, Ronald Padgett filed a written complaint with Respondent alleging that Petitioner was engaging in unauthorized trading in his account and that the account was trading on margin without a signed margin agreement. Mr. Padgett also alleged that the signed margin agreement on file with Smith Barney was a forgery. After receiving Mr. Padgett's complaint, Respondent commenced its investigation in Petitioner's activities and requested that Smith Barney provide it with information regarding Padgett's complaint. Respondent also requested and was provided with copies of all other customer complaints that had been filed against Petitioner with Smith Barney. Smith Barney provided Respondent with copies of customer complaints that had been filed against Petitioner by Dorothy Juranko, Wayne Schmidt, Mark Madison, Michael Russo, Gloria Fallon, Patricia Schoenberg and William & Verna Bankhead. All of these individuals were investor clients of Petitioner. Prior to his employment with Smith Barney, Petitioner had not been the subject of a customer complaint or industry disciplinary proceeding or licensure revocation, suspension, or denial. Wayne Schmidt Sr. the owner of Suncoast Chrysler-Plymouth (Suncoast) opened his account at Smith Barney in 1985. Initially, the account executive assigned to Schmidt's account at Smith Barney was Steve Ellis. Schmidt maintained two accounts with Smith Barney and Steve Ellis, namely, a profit- sharing account for Suncoast Chrysler-Plymouth and a joint account with his wife. Schmidt exercised no control of the Suncoast account, but rather allowed his associate, Gloria Fallon to initially monitor the transactions in that account. Afterwards, Schmidt started overseeing the trading activities in the Suncoast account. Schmidt had no knowledge of any unauthorized transactions in the Suncoast account after he began monitoring it. Gloria Fallon did not testify at the proceeding. In connection with the maintenance of his joint account at Smith Barney, Schmidt executed a "Securities Account Agreement." During the time Schmidt maintained his account at Smith Barney, the Securities Account Agreement was utilized by Smith Barney as a margin contract. The Securities Account Agreement qualifies as a margin account agreement/margin contract as to form, and is consistent with industry standards, custom and usage. Although Florida Statutes proscribes certain procedures relative to margin agreements, neither the Florida Securities Act nor the rules promulgated thereunder require a broker/dealer to characterize a margin contract as a "margin agreement." The gravamen of Schmidt's complaint against Petitioner was that certain shares of stock were not liquidated from the joint account maintained by him in contravention of his directions to Petitioner. There was no proof submitted to support any conclusion that Petitioner failed to place an order for the liquidation of such securities for Schmidt's account. Likewise, there was no evidence of any unauthorized trading in the Schmidt's joint account. While Petitioner was assigned as account executive to the Schmidts joint account, a profit of approximately $10,000.00 was generated for that account in 1988 and in 1989, a net gain of approximately $15,000.00 was generated. Schmidt conceded at hearing that Petitioner probably did a better job handling his account than his prior broker, Steve Ellis. During the year 1988, Smith Barney generated and sent to Schmidt, monthly statements and confirmation statements regarding every transaction in his joint account. The monthly statements sent to Schmidt for the joint account contained entries regarding margin interest being charged to the account. For the year 1989, Smith Barney also generated and sent to Schmidt, monthly statements and confirms regarding every transaction in his joint account. The 1989 monthly statements sent to Schmidt also showed margin interest. For the years 1988 and 1989, Schmidt deducted from his individual tax returns, the margin interest charged to his account. Also, during 1988 and 1989, Schmidt did not complain to Petitioner or Smith Barney that the use of margin account was unauthorized. During his tenure at Smith Barney, Petitioner was the account executive assigned to the account of Michael Russo (Russo). Petitioner was assigned to the Russo account in approximately May of 1990, an account which was formerly serviced by an account executive whose last name is Dudenhaver. Michael Russo matriculated at City College of New York where he received a Bachelor of Business Administration degree and was a certified public accountant for approximately 30 years. Russo has been in the accounting business for approximately 40 years and during this time period, he operated his own accounting practice. Russo maintained three (3) accounts at Smith Barney which included an account with his wife, an individual account and an IRA account. Russo opened his first brokerage account in the early 1980s with Merrill Lynch, Pierce, Fenner & Smith. Russo has a history is investing in real estate and by mid 1990, he had accumulated a net worth of approximately $750,000.00. On or about July 13, 1990, Russo presented Petitioner a check in the amount of $26,000.00 which was to be deposited into Russo's accounts. The $26,000.00 check was deposited by Petitioner into Russo's accounts but were returned for non-sufficient funds (NSF). Russo then replaced the NSF check with a $22,000.00 check. The funds derived from the $26,000.00 of Russo originated from an interest-bearing money market account from the Fidelity- Spartan Mutual Funds Family. During the period July 13-20, 1990, Russo was on vacation and was away from his home visiting relatives in the Melbourne, Florida area. During that week, Russo spoke by telephone with Petitioner regarding his account on more than one occasion. Russo specifically recalls speaking with Petitioner on July 15, 1990, regarding his account. During that week, Russo spoke with Respondent about selling certain shares of stock in his account and his specific recall is that one of those conversations occurred on July 15, 1990. The shares were to be sold "at market." Russo again spoke with Petitioner on July 21, 1990, regarding transactions in his account. On July 24, 1990, Russo told Larry Youhn, the branch manager at Smith Barney, that he was very happy with Petitioner as his broker. The July 1990 month-end statement for the Russo account indicate that funds were deposited into the Russo accounts in an amount sufficient to satisfy security purchases made in his account during July 1990. Although these transactions appear at month-end in a type-2 margin account, a review of such statements indicate that the transactions initially occurred in a cash account and were mistakenly journaled to the margin account by Smith Barney as a result of an NSF check presented by Russo as payment for the purchase transactions. The individual account of Russo reflects the purchase of 500 shares of Wiley Laboratories on July 16, 1990, for $7,702.00. On that same day, $10,500.00 from the $26,000.00 NSF check was received into the account. The July 1990 monthly statement for Russo's individual account reflected that there would have been a $2,800.00 net credit in the account if Russo had not presented the NSF check. During his tenure at Smith Barney, Petitioner also served as the registered representative for an account maintained by Nicholas and Dorothy Juranko (Juranko). The Jurankos have a substantial history of business experience, having currently owned a service station in the Ohio area and Mrs. Juranko currently owns her own drapery shop and manages eight (8) apartment/rental units that they jointly own. The Jurankos opened their first securities brokerage account in approximately 1962. They have held accounts at several brokerage firms including Merrill Lynch, Blinder-Robinson and First Jersey Securities prior to opening their account at Smith Barney. At Blinder-Robinson, the Jurankos engaged in the purchase of several "Penny" stocks and fully realized that they were speculating. The Blinder- Robinson account was opened by the Jurankos so that Mr. Juranko would "have something to do." The Jurankos maintained a securities brokerage account at First Jersey Securities prior to Petitioner's employment with First Jersey. Petitioner was assigned as account executive for the Juranko account at First Jersey in approximately 1985. When the Jurankos opened their account at Smith Barney, their net worth was approximately $220,250.00. Although Mrs. Juranko maintains that unauthorized trades occurred in her account during the month of December 1987, when asked to identify which trade which unauthorized, she could not do so. This was so, despite an effort to refresh her recollection by presenting her the December 1987 monthly account statement which depicted all securities holdings and transactions generated in their account. Mrs. Juranko also alleged that she was losing money and did not want to deposit any additional funds into her account. However, Mrs. Juranko wanted to have profits generated from the funds that were then existing into her account as of year-end December, 1987. Respecting the December 1987 trades, the Jurankos received confirms for every transaction that occurred during the month. Through December 1987, while Petitioner was assigned to manage the Juranko account, the account generated a net profit. Also, continuing through January 1988, Petitioner had effected trades which produced a net profit for the Juranko account. As testified by Mrs. Juranko, "All I could see...greed, all I could see was $14,200.00 some dollars and $9,900.00 some dollars, and I thought, wow... I thought "wow", he's making me money." Although Mrs. Juranko complained that she was losing money, an analysis of the account revealed that during the two years that Petitioner was assigned her account, it made a net profit. Notwithstanding the documentary evidence to the contrary, Mrs. Juranko admitted that she was upset and complained to Smith Barney's compliance officer, a Mr. Singer, because of her unfounded belief that she had lost money. Mrs. Juranko identified anger as the basis for her inability to understand a letter which was sent by Larry Youhn, Smith Barney's branch manager, which show the activity that had been generated into her account. Notwithstanding the clear language of that letter, Mrs. Juranko maintained that she did not understand it. This is so, despite the fact that Mrs. Juranko did not telephone Smith Barney to complain because she "didn't want to get [Petitioner] in trouble." 1/ The use of margin in the Jurankos account was discussed because Mrs. Juranko believed the account was losing money; she wanted to do whatever was necessary over a period of time to make up for the losses and she refused to deposit additional funds into the account to generate profits in trading the account. In connection with the maintenance of the Juranko account at Smith Barney, Petitioner instructed his sales assistant to send a margin agreement to Mr. and Mrs. Juranko for execution. The use of margin was discussed with the Jurankos in approximately November 1987. Petitioner relied upon the Smith Barney infrastructure to maintain the necessary paperwork for margin accounts, including the Jurankos. This is a customary practice in the securities industry and is utilized by most large brokerage houses. Juranko first complained to Petitioner about the use of margin in January 1988, when she received her monthly account statement which contained an entry for margin interest. Mrs. Juranko explained that she thought the margin charges were too much and that she wanted to reduce the margin charges by liquidating securities from the account. Mrs. Juranko thereafter became uncooperative and it became difficult for Petitioner to transact business in the account consistent with Mrs. Juranko's desired objectives. As a result, in March 1988, Petitioner determined that the only thing he could do for the account was to liquidate positions at or near break-even points. Thereafter, Petitioner never made any other purchase recommendations to the Jurankos. Petitioner also serviced the account of Mark D. Madison while employed at Smith Barney. Madison is a marketing, advertising and management consultant who owns his own business. Madison maintained two (2) accounts at Smith Barney's St. Petersburg branch office, including an individual account and an account in the name of his mother, Mary Jean Madison. Mark Madison was a fiduciary for and conducted all transactions in his mother's account. Prior to Petitioner's assignment as broker to Madison's fiduciary account, it was assigned to broker Steve Ellis. The fiduciary account was maintained as a margin account since its opening in 1984. Commencing on February 13, 1986, broker Ellis and Madison executed several margin transactions in the fiduciary account. Through the period ending October 31, 1987, roughly 95% of the transactions in the fiduciary account were executed on margin. As of year-end 1987, the Madison fiduciary account and Mark Madison's personal account historically traded over-the-counter securities. During this period while Ellis was the broker, margin transactions were executed in both Madison accounts. During this period, broker Ellis actively traded both accounts and generated both profits and losses in the accounts. Mark Madison was familiar with the active trading in both accounts as well as the profit/loss picture. Madison estimated losses in the fiduciary account to be over $20,000.00 while the account was handled by Ellis. These losses all occurred while he was the fiduciary on the account and was in charge of approving trading in the account. When the fiduciary account was transferred from Ellis to Petitioner, Madison expressed his concern about the losses that his mother's fiduciary account had sustained as well as his responsibility for such losses. During his initial conversations with Petitioner, Madison explained his mother's displeasure at the approximately $30,000.00 in losses that had been generated while Ellis was assigned as broker. Madison also explained to Petitioner that his brother had made references to conversations with his mother about suing him as the fiduciary because of the losses generated. During the time that the fiduciary account was handled by Ellis, there were differences in the execution prices of transactions in the same securities which occurred in both the fiduciary account and his (Mark Madison's) personal account. When Petitioner was assigned the account, it became apparent to him that Madison consistently obtained higher prices on liquidating transactions than his mother was obtaining in the fiduciary account for the same securities. Petitioner was concerned with the type of trading in which Madison wanted to engage in for the fiduciary account and brought this trading strategy to the attention of branch manager, Youhn, who explained to Petitioner that it was the fiduciary who had ultimate responsibility for trading the account. In addition to discussing the trading strategy with Youhn, a review of the account history was conducted by Petitioner. Petitioner's review revealed that the account had lost approximately 40% in equity during the time it was handled by account executive Ellis and Mark Madison as fiduciary. As a result of the losses generated, Madison expressed his desire to Petitioner to recoup losses in the account by taking advantage of 2-3 point swings in certain over-the-counter securities. During the months of January through March 1988, Madison, despite his allegations to the contrary, authorized the purchase of a specified number of shares of certain securities and later maintained that certain additional shares of those securities were purchased without his authorization. Throughout this period, Madison maintained continuous telephone conversations with Petitioner regarding such securities. Throughout the period, Madison did not instruct Petitioner to cancel the trades, but rather instructed him that he wanted out of those positions as near as possible to "break even." The Department conducted an investigation of the allegations made by Petitioner's former clients in connection with the denial of his registrations as an associated person an investment advisor. In connection with the investigation, the Department, through its investigative employee, Carol Irizarry (Irizarry), spoke with individuals who had submitted written complaints against Petitioner. In furtherance of her investigation, Irizarry visited the office of William Lyman, Esquire, who represented several of the former customer/complainants, and reviewed the information that Lyman had relative to such complaints. Ms. Irizarry did not testify during the formal hearing herein. Dennis Farrar (Farrar), area financial manager, Division of Securities, Department of Banking and Finance, supervised the writing of the report completed by Irizarry. Farrar's first direct contact with the investors/complainants in this case occurred approximately one (1) week prior to the commencement of the hearing herein. Following Ellis' separation from employment with Smith Barney, several Smith Barney brokers and clients of Petitioner advised him that broker Ellis was out to get him and urged them to file complaints against Petitioner. Specifically, Petitioner received a telephone call from Gloria Fallon, an associate of Wayne Schmidt, who warned Petitioner that Ellis was "trying to stir up trouble for him." In connection with the initial customer complaint received by the Department, a request for information responsive to the complaint was sent to Smith Barney. Among the documents received by the Department was a securities account agreement which contained language normally contained in a margin contract. The securities account agreement is the document utilized by Smith Barney as its margin contract at all time material hereto. A Form U-4, Uniform Application for Securities Industry Registration for Transfer, is a document generated by the National Association of Securities Dealers (NASD) and the North American Securities Administrators Association (NASAA). The Form U-5, Uniform Termination Notice, also is generated by the above entities. The disclosure section of a Form U-4 requires an applicant to respond to the best of his ability. An intentional falsification of information on a Form U-4 will give rise to a violation of Section 517.161, Florida Statutes. It is customary in the securities industry for a registered representative to rely upon his current broker/dealer employer to determine which complaints, if any, are disclosable on the Form U-4. It is customary in the industry for a representative to rely on the Form U-5, termination notice for completion of his U-4 and usually the information on both forms track each other. Also, the prospective applicant filling out his U-4 usually consults with the firm that he separated from to ensure that both Forms U-4 and U-5 are consistent. Petitioner's completion of the Form U-4 on August 30, 1990 in connection with his employment at Brauer & Associates contained a disclosure of customer complaints consistent with the disclosures made by Smith Barney on its amended Form U-5 Termination Notice dated August 17, 1990. Petitioner's reliance on the information contained in his files and that provided by his employers was reasonable and there was no evidence that Petitioner intentionally falsified his Form U-4 application.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that Respondent enter a Final Order granting Petitioner's application for registrations as an associated person or broker/dealer of Brauer & Associates, Inc. and investment adviser to G.G. Brauer, Inc. RECOMMENDED this 13TH day of August, 1991, in Tallahassee, Leon County, Florida. JAMES E. BRADWELL 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 13th day of August, 1991.
The Issue The issues are as follows: (a) whether Respondent Department of Corrections (the Department) properly determined that there were no responsive proposals to the Request for Proposals entitled Mental Healthcare Services in Region IV, RFP #08-DC-8048 (the RFP); (b) whether the Department's intended award of a contract to provide mental healthcare services to inmates in Region IV to Intervenor Correctional Medical Services, Inc. (CMS), pursuant to Section 287.057(6), Florida Statutes (2008), is unlawful; and (c) whether Petitioner MHM Correctional Services, Inc. (MHM), has standing to challenge the Department's intended award of a contract to CMS pursuant to Section 287.057(6), Florida Statutes (2008).
Findings Of Fact The RFP Process The Department issued the RFP on February 5, 2009. Two addendums were issued to the RFP, the first on February 6, 2009, and the second on March 11, 2009. The Department did not receive any protest of the RFP or addendums from MHM or any other proposer within the statutorily set time limit of 72 hours from the issuance of the RFP. At the time of issuance of the RFP, MHM was the incumbent provider of mental health services to inmates in Region IV. At that time, MHM was providing the services at a rate of $77.62 per month/per inmate. MHM's contract to provide mental health services in Region IV was the result of a prior vendor being financially unable to perform the contract at its agreed rate. The RFP sought proposals from vendors to provide comprehensive mental healthcare services for inmates located at 14 correctional institutions located in the southern part of the State beginning on July 1, 2009. The Department’s contract with MHM for those services was set to expire on June 30, 2009. The Department had previously attempted another procurement for replacement of those services in late 2008. Proposals to the RFP were received and opened in a public meeting on March 23, 2009, from CMS, MHM, the University of Miami's Department of Psychiatry and Behavioral Sciences (the University of Miami), and Wexford Health Sources, Inc. (Wexford). The Department’s Bureau of Procurement and Supply (BPS) was responsible for overseeing the RFP. The Procurement Manager for the RFP was Ana Ploch. Ms. Ploch’s duties included drafting the proposal with the assistance of the Office of Health Services, managing the procurement process by coordinating release of documents, conducting related meetings (such as proposers’ conferences, proposal opening, and price opening), conducting site visits, supervising the evaluation process, and keeping records of the process through completion of a summary report of the procurement. Once the Department received the proposals, it began the eight-phased review and evaluation process as set forth in Section 6 of the RFP. Phase 1 of the review and evaluation process began with the public opening of the proposals that took place on March 23, 2009. Phase 1 also included the review of the proposals to determine if they met mandatory responsiveness requirements. Determination of meeting mandatory responsiveness requirements was made by BPS staff. Mandatory Responsiveness Criteria or “fatal criteria” is described in Section 5.1 of the RFP as requirements that must be met by a proposer for the proposal to be considered responsive. A failure to meet any one of the three following criteria would result in an immediate finding of non- responsiveness and the rejection of the proposal: (a) the subject proposal must be received by the Department by the date and time specified in the RFP; (b) the proposal must include a signed and notarized Certification Attestation Page for Mandatory Statements; and (c) the price proposal must be received by the Department by the date and time specified in the RFP and must be in a separate envelope or package in the same box or container as the project proposal. There is no dispute that all four proposals met these mandatory responsiveness/fatal criteria. In addition to the fatal criteria, a proposal could be found to be non-responsive for failing to conform to the solicitation requirements in all material respects. The RFP, Section 1.20, clearly set forth the definition of a “material deviation” and the basis for rejecting a proposal as follows: 1.20 Material Deviations: The Department has established certain requirements with respect to proposals to be submitted by vendors. The use of shall, must or will (except to indicate simple futurity) in this RFP indicates a requirement or condition which may not be waived by the Department except where any deviation therefrom is not material. A deviation is material if, in the Department’s sole discretion, the deficient proposal is not in substantial accord with this RFP’s requirements, provides an advantage to one proposer over other proposers, or has a potentially significant effect on the quantity or quality of items or services proposed, or on the cost to the Department. Material deviations cannot be waived and shall be the basis for rejection of a proposal. (Emphasis in original.) A Responsive Proposal is defined in the RFP Section 1.29 as “[a] proposal, submitted by a responsive and responsible vendor that conforms in all material respects to the solicitation.” A minor irregularity is defined in Section 1.26 of the RFP as: 1.26 Minor Irregularity: A variation from the RFP terms and conditions which does not affect the price proposed or gives the proposer an advantage or benefit not enjoyed by the other proposers or does not adversely impact the interests of the Department. Phase 2 consisted of a review of the business/corporate qualifications and technical proposal/service delivery narratives contained in the proposals. This phase was completed individually by evaluation team members. The evaluation team, which consisted of 5 employees from the Department’s Office of Health Services, met with Ms. Ploch on March 24, 2009, for instruction on how to proceed with the evaluation. The team members were given the evaluation materials on that date. Evaluation and scoring of the proposals was done separately by each individual without discussion among the members. At the March 31, 2009, bid tabulation meeting, which occurred after the team members scored the proposals, Ms. Ploch told the team members that MHM and the University of Miami were non-responsive to the RFP. Then the scores for the different categories were recorded as announced by each member of the evaluation team. All four proposals were scored for the three categories listed in RFP Section 5.3 (business/corporate experience), Section 5.5 (project staff) and Section 5.6 (technical proposal and service delivery narrative). There is no allegation that the scores assigned to the proposals were done in error or that they were not in compliance with Department rules or procedures. Phase 3 of the review and evaluation process was completed at the same time as Phase 2 and 4, by Ms. Ploch and the BPS staff. That review of the proposals included a determination as to whether the proposers were in compliance with Section 5.3 “Business/Corporate Qualifications.” At that point in the review process, BPS determined that the University of Miami’s proposal was non-responsive in that the proposer did not have the necessary business experience. This finding has not been disputed by any party. An independent Certified Public Accountant (CPA) completed Phase 4 of the review and evaluation process. The Department hired the CPA to review the financial requirements of Section 5.4 of the RFP. The CPA, Richard Law, was given all the proposals, including the financial documentation, on March 24, 2009. He conducted his review separately from the Department's reviews in Phases 2 and 3. Mr. Law has been a licensed CPA for over 30 years. His major practice area is conducting audits for state governments, as well as private businesses. With more than 10 years of experience reviewing financial documentation for the Department and assisting on the setting of financial benchmarks for numerous procurements, he is highly qualified to perform the evaluation and assessment of these basic financial criteria. The financial requirements and the financial documentation and information that the proposers had to submit are set out in Section 5.4 of the RFP. That section is entitled “Financial Documentation,” and provides as follows in pertinent part: Tab 4-Financial Documentation The Proposer shall provide financial documentation that is sufficient to demonstrate its financial viability to perform the Contract resulting from this RFP. Three of the following five minimum acceptable standards shall be met, one of which must be either item d, or item e, below. The Proposer shall insert the required information under Tab 4 of the Proposal. Current ratio: = .9:1 or (.9) Computation: Total current assets ÷ total current liabilities Debt to tangible net worth: = 5:1 Computation: Total liabilities ÷ net worth Dun and Bradstreet credit worthiness (credit score): = 3 (on a scale of 1-5) Minimum existing sales: = $50 million Total equity: = $5 million NOTE: The Department acknowledges that privately held corporations and other business entities are not required by law to have audited financial statements. In the event the Proposer is a privately held corporation or other business entity whose financial statements ARE audited, such audited statements shall be provided. If the privately held corporation or other business entity does not have audited financial statements, then unaudited statements or other financial documentation sufficient to provide the same information as is generally contained in an audited statement, and as required below, shall be provided. The Department also acknowledges that a Proposer may be a wholly-owned subsidiary of another corporation or exist in other business relationships where financial data is consolidated. Financial documentation is requested to assist the Department in determining whether the Proposer has the financial capability of performing the contract to be issued pursuant to this RFP. The Proposer MUST provide financial documentation sufficient to demonstrate such capability including wherever possible, financial information specific to the Proposer itself. All documentation provided will be reviewed by an independent CPA and should, therefore, be of the type and detail regularly relied upon by the certified public accounting industry in making a determination or statement of financial capability. To determine the above ratios, the most recent available and applicable financial documentation for the Proposer shall be provided. This financial documentation shall include: The most recently issued audited financial statement (or if unaudited, reviewed in accordance with standards issued by the American Institute of Certified Public Accountant). All statements shall include the following for the most recently audited (immediate past) year. auditors’ reports for financial statements; balance sheet; statement of income; statement of retained earnings; statement of cash flows; notes to financial statements; any written management letter issued by the auditor to the Proposer’s management, its board of directors or the audit committee, or, if no management letter was written, a letter from the auditor, stating that no management letter was issued and that there were no material weaknesses in internal control or other reportable conditions; and a copy of the Dun & Bradstreet creditworthiness report dated on or after February 5, 2009. (Emphasis in original) The RFP provided as follows in Section 5.4.2: If the year end of the most recent completed audit (or review) is earlier than nine (9) months prior to the issuance date of this RFP, then the most recent unaudited financial statement (consisting of items b, c, d and e above) shall also be provided by the Proposer in addition to the audited statement required in Section 5.4.1. The unaudited financial data will be averaged with the most recent fiscal year audited (or reviewed) financial statement to arrive at the given ratios. Throughout Section 5.4 of the RFP, the emphasis is on the need for audited financial statements. The use of unaudited financial statements alone does not apply to MHM pursuant to the terms of the RFP, but they did apply to other proposers. Both audited and unaudited financial statements were averaged to determine ratios for CMS and Wexford, where their audited financial statements were older than 9 months. This was clearly permissible under Section 5.4.2. MHM’s proposal included audited financial statements dated September 30, 2008, and also additional information, including unaudited financial statements and a financial narrative in which it admitted that its current ratio as of September 30, 2008, was 0.82 and that it had a negative equity of $24.8 million dollars. MHM was fully aware that it could have difficulty meeting the financial ratios before the Department issued the RFP. As early as January 2008, MHM was considering a stock repurchase. MHM knew its existing contract would come up for rebid. MHM also knew that the Department sometimes used financial criteria and financial ratios as pass/fail ratios. MHM was concerned that the stock repurchase would trigger one of those ratios, causing them to lose the contract. In January 2008, Susan Ritchey, MHM's Chief Financial Officer, and Steve Wheeler, MHM's President and Chief Operating Officer, contacted Mr. Law. Ms. Ritchey and Mr. Wheeler wanted to discuss their concerns regarding financial ratios that the Department might require in the future. During the hearing, Mr. Wheeler denied that the contact with Mr. Law had anything to do with the instant RFP. There is no persuasive evidence that Mr. Law gave Ms. Ritchey and Mr. Wheeler inappropriate advice. The independent review by Mr. Law of MHM’s financial documentation resulted in the finding that MHM only met two of the minimum acceptable standards required by Section 5.4 of the RFP. Mr. Law set out his conclusions on a Department form entitled “Phase IV, Financial Documentation Review to Be Completed by Independent CPA.” That sheet reflected that MHM had failed the current ratio with a score of .819, when a ratio of = 9:1 or (.9) was required (item a). Likewise, MHM failed the “Debt to tangible net worth” and the “total equity” criteria (items b and e, respectively), since MHM had a negative equity of $22 million dollars. MHM passed the two remaining criteria. First, it met the minimum existing sales (item d) with sales at $217 million (greater than or equal to $50 million). Second, it met the requirement of the Dun & Bradstreet creditworthiness score (item c), which needed to be less than or equal to 3, with a score of The Dun & Bradstreet score was not noted on the Department review form because MHM had already failed three of the financial minimum acceptable financial standards. MHM disputes the finding that it failed the “Debt to tangible net worth” requirement (item b) which was a ratio of = 5:1 or “less than or equal to 5 to 1, a whole number.” Net worth is the same as equity. Following proper accounting practices and a commonsense reading of this mathematical phrase required that both numbers be whole numbers, neither could be a negative. Put simply, a proposer could only have a maximum of five dollars in debt for every one dollar in net worth to pass this minimum acceptable standard. So, for purposes of evaluating this ratio, once it was determined that MHM had a negative equity of $22 million dollars, there was no way for MHM to pass this critical requirement. The “Debt to tangible net worth” criteria, was meant to be “Debt to net worth.” The computation set out below the criteria reflects the proper calculation needed to find debt to net worth, not debt to tangible net worth. Mr. Law performed the computation for debt to net worth as set out in the description of the computation, which was more advantageous to proposers than debt to “tangible net worth,” and resulted in a more favorable ratio. The ratio of “-1.77,” reflected on MHM's financial documentation review sheet is a mistake because Mr. Law used the number he reached averaging the audited and unaudited financial statements. The correct number is “-2.16,” which is based only on MHM's audited financial statement of September 30, 2008. That is, it was a greater negative number, but still negative. Either way, MHM fails this criteria. MHM had no dollars in net worth as of the issuance date of the RFP. Instead, MHM had a negative net worth of $24,785,000.00 as of the end of its fiscal year on September 30, 2008, as reflected in its audited financial statement. As to item “a”, “Current ratio,” a finding of .819 was reached by taking the total current assets ($23,493) and dividing into that number the total current liabilities ($28,692), both reflected on the MHM’s audited financial statement of September 30, 2008. These numbers taken from MHM’s audited financial statements for total current liabilities; total current assets and total equity represent millions, rounded for accounting purposes. MHM reached a similar finding of .82 using its September 30, 2008, audited financial statements. On the date the RFP was issued, February 5, 2009, MHM’s audited financial statement of September 30, 2009, was indisputably less than 9 months old and was the only financial statement under Section 5.4.2 of the RFP that could be used to compute the ratios in Section 5.4.2. Even if the unaudited financial statement submitted by MHM were averaged with the most recent audited financial statement, as demonstrated by Mr. Law’s attempts to do so, MHM would still not have met the current ratio. Nowhere in the RFP does it allow for the use of unaudited financial statements alone when there are existing audited financial statements. Mr. Law’s completed Phase 4 review of the financial documentation. He returned it to the Department on March 30, 2009. The Department conducted Phase 5 of the review and evaluation process, the Public Opening of the price proposals, on April 2, 2009, in a properly noticed meeting. At that time, the Department knew that there were only two responsive proposals (CMS and Wexford). No public announcement regarding the status of the other proposals had been made at that time. The RFP contained a price cap of $70.00 per inmate per month as reflected in Section 5.11.2 of the RFP and the Price Information Sheet. The intent of the price cap of $70 per month was to achieve a price savings for the Department over what it was then paying for mental healthcare services in Region IV, which was nearly $78.00. The goal of $70 was considered to be possibly unrealistic, but the true intent was to keep from exceeding the current rate of $78.00. At the price opening, the following prices were announced: (a) MHM’s price was $70.00 per inmate per month; (b) the University of Miami’s price was $69.49 per inmate per month; (c) CMS’s price was $74.49 per inmate per month; and (d) Wexford’s price was $95.00 per inmate per month. It was later determined that CMS had also submitted an alternative price sheet. However, the alternative price sheet did not affect the responsiveness of CMS's proposal or the Department's subsequent decision. Based on the fact that CMS’s and Wexford’s proposed prices exceeded the amount set by the RFP, their proposals were deemed non-responsive to the RFP. Consequently, as of April 2, 2009, there were no responsive proposers to the RFP. BPS staff prepared a final score and ranking sheet as required by Section 6.2.7 of the RFP. The scoring and ranking included just the two proposals, CMS and Wexford, that were responsive going into the Phase 5 Price Opening. BPS staff did not perform further scoring and ranking of the two proposals that were non-responsive prior to the Price Opening. Department of Corrections’ Procedure 205.002, entitled “Formal Service Contracts,” addresses the Department’s procedures, terms, and conditions for soliciting competitive offers for certain types of services. The Procedure has separate sections for Invitations to Bid, Requests for Proposals, Invitations to Negotiate and general sections that address all three. There is no requirement in the procedure that addresses the specific situation facing the Department in the mental healthcare procurement. The section of Procedure 205.002 that Petitioner points to, Section (5)(r)3., applies only to instances when the Department is seeking to single source a procurement or negotiate with a single responsive bidder. The section reads as follows in pertinent part: (r) Receipt of One or Fewer Responsive Bids, Proposals or Responses: * * * 3. If the department determines that services are available only from a single source or that conditions and circumstances warrant negotiation with the single responsive bidder, proposer, or respondent on the best terms and conditions, the department’s intended decision will be posted in accordance with section 120.57(3), F.S., before it may proceed with procurement. This section of the procedure is clearly inapplicable in the instant case since there were no responsive proposals. Section 287.057(6), Florida Statutes (2008) Faced with no responsive proposers, the Department considered its options. The Department then decided to negotiate for a contract on best terms and conditions pursuant to Section 287.057(6), Florida Statutes (2008), in lieu of going through a third competitive solicitation. The Department’s decision to negotiate was ultimately made by the Assistant Secretary for Health Services in the Department's Office of Health Services. The BPS staff and legal counsel advised Assistant Secretary Dr. Sandeep Rahangdale about the options available to the Department. Dr. Rahangdale had the following three options: (1) to reject all proposals and begin what would be the third competitive procurement for mental healthcare services in less than 8 months; (2) to negotiate a contract on best terms and conditions under Section 287.057(6), Florida Statutes (2008), since there were less than two responsive proposals to the RFP; or (3) to use the statutory exemption for health services under Section 287.057(5)(f), Florida Statutes (2008), and enter into a contract with any vendor the Department selected. Option 1, to begin a new procurement was time-barred because the Department needed a new contract in place by July 1, 2009. Dr. Rahangdale’s primary concern was to insure that the Department provided constitutionally mandated health care, including mental healthcare to all inmates in its custody. In making the decision to negotiate, Dr. Rahangdale reasonably chose to begin negotiations with CMS. He made this decision because, of the two proposers who were responsive except for exceeding the price cap, CMS’s price was closest to the $70.00 per inmate per month goal. Wexford, the other proposer that was responsive except for price, had submitted a price of $95.00 per inmate per month. Thus, the Department had a reasonable belief there was a better chance of reaching its $70 goal through negotiations with CMS. Additionally, CMS was the highest scored technical proposal of the only two responsive proposals prior to the Price Opening. Thus, CMS was a better choice for the Department from a delivery of services standpoint. The Department made a reasoned decision to not abandon all the criteria of the RFP that had to do with qualifications, such as business experience (failed by University of Miami) or financial viability (failed by MHM). Dr. Rahangdale considered and determined that the nature of MHM’s and the University of Miami’s failure to be responsive could not be changed or cured in the negotiation process unless the Department lowered its expectations regarding performance and corporate viability. Negotiations were conducted between April 7, 2009, and April 9, 2009, by Jimmie Smith of the Office of Health Services. Dr. Rahangdale instructed Mr. Smith to undertake negotiations with CMS on best terms and conditions, and to strive to get as close as possible to a price of $70.00 per inmate per month in the negotiations. Mr. Smith is a Registered Nurse working in the Department’s Office of Health Services. His working job title is Assistant Program Administrator/Contracting. He has the responsibility to contact potential vendors for health-related services and commodities and to ensure that formal contracts or purchase orders are issued for the required health-related services and commodities. Mr. Smith typically is charged with making initial contact with vendors, handling negotiations for exempt health service contracts, and coordinating the procurement of the services with BPS. He is also a contract manager for healthcare services and advises other contract managers. Mr. Smith was eminently well qualified to negotiate this contract for mental healthcare services on behalf of the Department. Prior to beginning his negotiations, Mr. Smith obtained a complete copy of CMS’s proposal, including the price proposal. He contacted CMS'S Senior Director of Business Development, Frank Fletcher, by telephone to conduct the negotiations. Emails dated April 9, 2009, between the Department and CMS’s representative reflect an offer by CMS to perform the scope of work described in the RFP at a capitated rate of $70.00 for the first year of service, with a $2.50 escalator per year for a five-year non-renewal contract term. CMS also proposed adding a 30-day period for correction of performance measures, prior to the imposition of liquidated damages. The Department counter-offered with a requirement that any failure to correct the performance measure violation within the 30-day period would result in retroactive imposition of liquidated damages to the day of the violation. These terms and conditions were presented to Dr. Rahangdale who approved them. Dr. Rahangdale considered the $2.50 escalator, but decided he was satisfied with the initial year price of $70, a 10% savings for the Department over its current contract and a savings of three million over the life of the contract. On April 10, 2009, Mr. Smith confirmed the tentative agreement to Mr. Fletcher by email. CMS understood that the agreement was tentative until the Department posted a notice of agency decision. The BPS staff prepared an Agency Action Memo, the Summary Report, and the Notice of Intent to Award. The Agency Action Memo contained a recommendation for award and an option of non-award. The Agency Action Memo stated as follows in part: The Department made the determination that it was in the best interest of the State to proceed with negotiations as authorized by Section 287.057(6), Florida Statutes. The Department negotiated with the highest- ranked Proposer on the best terms and conditions for the resulting Contract. Based upon the results of the negotiation conducted, it is recommended that the Department awards a Contract to Correctional Medical Services, Inc. A Summary Report was attached to the Agency Action Memo. The report explained the RFP process in detail. It explained the reasons for finding MHM and the University of Miami non-responsive. It explained that CMS and Wexford were non-responsive because they exceeded the price cap. 55.. The report charted the results of the Phase 5--Public Opening of Price Proposals as follows in abbreviated form: PROPOSER UNIT PRICE ANNUAL COST FINANCIAL EXPERIENCE CMS $74.59 $16,536,780 Passed Passed Wexford $95.00 $21,090,000 Passed Passed U. of M. $69.49 $15,426,780 Passed Failed MHM $70.00 $15,540,000 Failed Passed The report set forth the Department's reasons for negotiating on best terms and conditions pursuant to Section 287.057(6), Florida Statutes (2008), in pertinent part as follows: Phase 8--Notice of Agency Decision The procurement of Mental Healthcare Services in Region IV was under competitive solicitation for over eight (8) months, via two (2) different solicitations (ITN and RFP). The companies that submitted proposals in response to this RFP also submitted responses to the previous ITN. Pursuant to Section 287.057(6), Florida Statutes, the Department negotiated with the highest-ranking proposer on the best terms and condition and in the best interest of the state, in lieu of resoliciting competitive proposals for a third time. The last page of the report charted the Final Score and Ranking for CMS and Wexford. The first chart showed the actual points received by the proposers, the highest points received by any proposal, and the awarded points. The second chart showed the proposed unit price, the lowest verified price, and the awarded points. The third chart showed the total response points, with CMS having 500 and Wexford having 454.64. MHM and the University of Miami were non-responsive as to RFP requirements that the Department, in its sole discretion, determined were non-negotiable. Therefore, the Department properly determined that CMS was the highest-ranking proposer after the Price Opening. As Bureau Chief, Mr. Staney was ultimately responsible for verifying that the four proposals were non-responsive. He and Dr. Rahangdale signed the Agency Action Memo, recommending an award to CMS. On April 15, 2009, Mr. Staney sent the documents to his supervisor, Director of Administration Millie J. Seay. The BPS staff briefed Ms. Seay regarding the Agency Action Memo. Ms. Seay questioned whether the Department should negotiate with Wexford. The BPS staff explained that Dr. Rahangdale had considered negotiating with Wexford but that he was satisfied with the negotiated rate and the higher technically-scored proposal from CMS. On Monday, April 20, 2009, Ms. Seay signed the Agency Action Memo. The next day the Department posted its intent to award a contract to CMS. The Department's Notice of Agency Decision announced the intent to award a contract for Mental Healthcare Services in Region IV to CMS as follows: DEPARTMENT OF CORRECTIONS NOTICE OF AGENCY DECISION RFP #08-DC-8048 MENTAL HEALTHCARE SERVICES IN REGION IV Pursuant to the provisions of Chapter 287.057(6), Florida Statutes, the Department of Corrections announces its intent to award a contract for MENTAL HEALTHCARE SERVICES IN REGION IV to the following vendor: Correctional Medical Services, Inc. This announcement gave all interested parties notice that the Department was taking some action with regard to the referenced RFP. The Notice also contained the statutorily required language giving all interested parties a point of entry to challenge the Department’s intent to award. Accordingly, no proposers were denied an opportunity to inquire into the details of the process that led to an award under the referenced statute, including the evaluation of the proposals and the Department’s decision to wait until it had completed Section 287.057(6), Florida Statutes (2008), negotiations to post the intended agency decision. 63 MHM timely filed its Formal Bid Protest Petition with the Department on May 4, 2009.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is Recommended: That the Department enter a final order awarding the contract for Mental Healthcare Services in Region IV to CMS and dismissing the protest of MHM. DONE AND ENTERED this 27th day of July, 2009, in Tallahassee, Leon County, Florida. S SUZANNE F. HOOD 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 July, 2009.
