The Issue The issue presented for determination herein is whether or not the existing Pontiac dealers serving the West Palm Beach area are providing inadequate representation.
Findings Of Fact Art Moran filed an application with the Department seeking licensure as a franchised Pontiac-GMC motor vehicles dealer. The GMC license is not at issue herein. By its application, it sought the issuance of a license to operate a new Pontiac dealership in Palm Beach County on Northlake Boulevard (stipulation of the parties). A letter of protest to the application was timely filed by Stewart pursuant to Section 320.642, Florida Statutes. (stipulation of the parties) THE MARKET AREA The relevant market area for purposes of Section 320.642 is the West Palm Beach multiple dealer area (MDA). 1/ The West Palm Beach MDA consists of the densely populated portion of eastern Palm Beach County (Exhibits 9-10). The West Palm Beach MDA has been divided into three smaller markets known as areas of geographic sales and service advantage ("AGSSA") (GM Exhibit 6-7). AGSSA's are developed by GM as a dealer network planning tool. (I-92, 100, 103). Each AGSSA consists of those census tracts closest to a proposed or existing dealer and identifies an area of shopping convenience for consumers in that AGSSA. (GM Exhibits 19 and 20) Each AGSSA represents the area in which an existing or proposed resident dealer has or would have an advantage over the same line make dealer(s) in the MDA by virtue of the resident dealer's location. (I-103). AGSSA I is that portion of eastern Palm Beach County generally lying between 45th Street and Lantana Road. AGSSA II is south of AGSSA I and essentially surrounds the Delray Beach area. AGSSA III is the area of Palm Beach County north of 45th Street where Art Moran has proposed to be located. (GM Exhibit 6, 7). Stewart offered no alternative market definition for performing a registration penetration analysis of the West Palm Beach community. MARKET PENETRATION IN THE WEST PALM BEACH MDA General Motors conducts periodic analyses of market penetration in each MDA by reviewing registration data provided by R. L. Polk and Company ("Polk") at both the county and census tract levels (GM Exhibit 8). The registration data provided by Polk includes every vehicle registered to an address within a particular area of geography (county or census tract) regardless of the selling dealer. Stewart raised an issue during the hearing respecting the reliability of certain market penetration data gleaned from the Polk figures for 1985. This issue was raised based on the parties' inability to affirmatively state whether certain transactions calculated by Polk were fleet or retail transactions. Both parties relied on the Polk data and it is the industry standard for tracking automobile registrations. The Polk data is reliable for the purposes introduced by GM. Adequacy of representation is primarily determined by using retail registration data. The Polk data includes the components of retail and fleet as well as total registrations. (GM Exhibits 25-27). Both parties have used Polk retail registration data to analyze market penetration. (GM Exhibits 25-35, Stewart Exhibits I-N). Retail market penetration is a relative concept that compares the retail registration of one line make with all industry registrations in a particular geographic area. For example, 7.02 percent of all the vehicles registered in the Jacksonville zone for retail use were Pontiac in 1985. Thus, Pontiac's market penetration in the zone was 7.02 percent. (I- 107; GM Exhibit 17). Correspondingly, 5.32 percent of all retail vehicles registered in the West Palm Beach MDA in 1985 were Pontiacs for an MDA average of 5.32 percent, or 1.70 percent below zone average. (GM Exhibits 34 and 35). Market penetration compares total industry retail registrations in an area to the retail registrations of a particular line make in that area. An individual dealer's sales records are not helpful when evaluating market penetration. Retail registration efficiency to Jacksonville's zone average is the percentage relationship between retail penetration in a geographic area and zone penetration. In 1985, the retail registration efficiency of the West Palm Beach MDA to zone areas was 75.8 percent, the lowest penetration in the Jacksonville zone. (GM Exhibit 3). Retail registration efficiency in the West Palm Beach MDA has steadily declined since 1985. (I-154, 155, 157; GM Exhibit 27 utilizing the Polk community registration reports). MDA Retail Reg: 1981 1982 1983 1984 1985 March, 1986 annualized INDUSTRY 31,845 31,328 39,273 42,247 43,797 41,128 PONTIAC 2,356 2,220 2,590 2,639 2,460 2,152 PONTIAC percent 7.4 7.1 OF INDUSTRY 6.6 6.4 5.6 5.2 Zone Retail Reg: PONTIAC percent 8.5 7.4 7.4 7.2 7.0 7.6 OF INDUSTRY Further, from 1981 to 1985, industry retail registrations in the MDA have increased 11,952 vehicles or 38 percent while Pontiac retail registrations increased only 104 units or 4 percent (GM Exhibits 27 and 28). Stewart's sales increased only 41 units or 3 percent in the same time period. (I-159). The sales performance of the West Palm Beach dealers has declined 10 percent from 1984 to 1985. Stewart's sales were also down in 1985 (I-159). Perhaps a contributing factor to Stewart's sales performance is his practice of putting supplemental dealer price stickers averaging $800 extra on each car. According to Mr. Stewart, such additional charges make cars more difficult to sell (GM Exhibit 66, p. 345). In 1985, the Pontiac West Palm Beach MDA ranked 123rd in retail penetration when compared with the 159 largest Pontiac markets in the United States. (I-95; GM Exhibit 4). Based on retail penetration, the West Palm Beach MDA has been the worst MDA in Pontiac's Jacksonville zone since 1983 (GM Exhibits 30, 32 and 34) In AGSSA III The most current registration data available at the AGSSA level is year-end 1985 data. This data was available to both parties prior to the hearing. The parties agree that the most current data is required to do market research. In this regard, Stewart relied on outdated data in a number of its exhibits (see, for example, Stewart Exhibits D, J, O, P and W.) The West Palm Beach MDA retail penetration has been consistently below zone and national retail penetration. (GM Exhibit 27). AGSSA III has repeatedly had the worst penetration in the MDA (GM Exhibit 35). For the years 1983, 1984 and 1985, Pontiac's retail penetration figures nationally in the Jacksonville zone, in the West Palm Beach MDA and in the three AGSSA's were as follows-utilizing census tract reports: Zone National West Palm Beach MDA AGSSA 1 AGSSA II (middle) (south) AGSSA III (north) 1983 7.42 6.13 6.86 7.8 6.3 6.2 1984 7.15 6.00 6.41 6.8 6.3 5.9 1985 7.02 6.99 5.32 5.6 5.4 4.7 Recognizing the growth in northern Palm Beach County, Pontiac established AGSSA III as a study area--an area set aside to determine the potential for representation--as early as 1978. Due to the growth, the decline in market penetration, and other factors, the study was converted to a proposed additional point. An additional dealer in an area tends to increase market penetration in its line make to the benefit of the existing same line make dealers. (GM Exhibits 49, 50, 54, 55 and 57). The parties agreed that size class is a factor that may be considered in addressing market penetration. (GM Exhibits 38 through 40; Stewart Exhibits I through Q). Mr. Gahrs testified that model mix is not as significant as line make. Pontiac competes with the full line of vehicles offered by Ford, Chevrolet and the imports (I-168). LOST OPPORTUNITIES "Lost opportunities" is the difference between actual Pontiac retail registrations in an area and the number of registrations that would have occurred had a given norm (i.e. zone average penetration) been achieved. The number of lost opportunities represents the number of registrations available to the Pontiac dealers in the MDA had zone average penetration been attained. (GM Exhibits 30, 32, 34, 39 and 40). The parties agree that lost opportunities exist in AGSSA III and that those losses are increasing: LOST OPPORTUNITIES COMPARED TO ZONE RETAIL PENETRATION 1983 1984 1985 Zone Penetration 7.42 7.15 7.02 MDA (241) (312) (733) AGSSA I no loss (54) (227) AGSSA II (182) (164) (320) AGSSA III (84) (95) (187) The above graphically portrayed the poor market penetration in the West Palm Beach MDA and AGSSA III. (GM Exhibits 30 through 35). Stewart also recognizes the theory of lost opportunity but calculates the loss by comparing the MDA to itself. The car loss which has almost doubled from 1984 to 1985 appears to be growing, based upon the first three months of 1986. Annualized for 1986, the MDA car loss will be 976 (GM Exhibit 27). The lost opportunity in the MDA when adjusted for product popularity drops slightly. However, when the high level of in-sells (cars sold by dealers outside an area but registered in an area in the West Palm Beach MDA) is considered (GM Exhibit 21), the lost opportunity to the dealers doubles from 733 to 1,524 (GM Exhibits 22, 34 and 35). The parties agree that high levels of in-sells can be caused by deficient dealer performance or inadequate representation. The parties also agree that there is a shortfall in registration performance in AGSSA III and that lost opportunities exist in AGSSA III. (GM Exhibit 34; Stewart Exhibit Q, last two pages). CUSTOMER CONVENIENCE The parties also agree that if a manufacturer offers better convenience, better penetration will result. According to Mr. Stewart, the closer the people are to his dealership, the higher the penetration. (GM Exhibit 66, page 332). In fact, there is a high concentration of retail registrations surrounding each Pontiac MDA dealer. (GM Exhibits 19 and 20). Stewart, the Pontiac dealer with the best level of convenience (4.5 miles) has the highest level of sales (1,391 sales) and the highest level of penetration in the MDA (5.6 percent). (Stewart Exhibit E, weighted average distance by dealer, by AGSSA; GM Exhibit 35). In AGSSA III, where Pontiac has its lowest level of customer convenience in the MDA, Pontiac retail penetration is also lowest. (GM Exhibits 35 and 45). Potential buyers in AGSSA's I and II enjoy far greater convenience to the nearest Pontiac dealer than does a potential buyer living in AGSSA III. (GM Exhibit 45; Stewart Exhibit E, Section 2, page 2). All manufacturers represented in AGSSA I and AGSSA II offer similar levels of convenience. On the other hand, the average consumer must travel almost twice as far from his residence in AGSSA III to reach a Pontiac dealer than to reach a Chevrolet, Honda, Ford, Nissan, Volkswagen or Toyota dealer. Correspondingly, Chevrolet, Honda, Ford, Nissan and Volkswagen have higher penetration in AGSSA III than their MDA average. (GM Exhibits 43 and 44). Easy access to a dealer can help improve penetration for a manufacturer. Similarly, an improper location can result in low penetration. (GM Exhibit 43). The sales and service facilities offered by the existing Pontiac dealers in AGSSA's I and II are or soon will be adequate. However, even expanding, optimally located facilities cannot adequately serve a large and growing market. Facilities expansion will not, standing alone, result in increased sales, improved penetration or higher rates of registrations. The West Palm Beach market has simply outgrown the existing 2-dealer network for Pontiac. Proximity is the distance between the home address of a customer or prospective customer of an automobile and the location of the selling dealer. The parties agree that proximity relates to intra-brand competition--competition among dealers of the same line make, and inter-brand competition--competition among dealers of different line makes. The parties also agree that proximity affects intra-brand competition. Seventy-five percent of Pontiac buyers in West Palm Beach travel to the closest Pontiac dealer to purchase a Pontiac. Nationally, sixty percent of purchasers buy from the nearest dealer. (Stewart Exhibit F, Power's Study). The majority of Pontiac purchasers in West Palm Beach are proximity sensitive. Proximity affects inter-brand competition. Manufacturers providing convenience to customers in AGSSA III have a greater opportunity to enjoy above- average penetration performance than manufacturers that do not offer similar levels of convenience. (GM Exhibits 43 and 44; Stewart Exhibit S). Further, Dr. Ostlund admits that the addition of a different line make dealer in AGSSA III could adversely affect Pontiac if it is not represented in AGSSA III, but he cannot determine the degree of the impact. Further indication that proximity affects inter-brand competition is a 1980 Power's Study of Pontiac purchases. That study showed that 72.4 percent of Pontiac purchasers nationwide visited one or more different line make dealerships before buying a Pontiac. The availability of a Pontiac dealership to proximity sensitive buyers is therefore very important. The Power's Study, deemed reliable by Stewart, contradicts the 1958 Ford study offered by Dr. Ostlund. (Stewart Exhibit F, Ford study). The Cort Dissertation, another source recognized by Stewart as reliable, also cautioned against broad use of the Ford results due to the methodology employed therein. Proximity only becomes a factor for Pontiac, however, when the competition offers relatively better level of proximity in comparison to Pontiac. The addition of a Pontiac dealer in AGSSA III would provide Pontiac customers convenience commensurate with the convenience offered by competitive line makes. Further, the customer convenience offered by Pontiac in AGSSA III would be twice as good as the convenience currently offered by Pontiac in AGSSA III and would be consistent with its convenience offered (by Pontiac) in AGSSA's I and II. (GM Exhibits 44 and 45). The proposed Pontiac location in AGSSA III will be 8.1 air miles from its nearest same line make competitor in AGSSA I. That distance is greater than the distance between the Ford, Toyota, Nissan, Volkswagen and Chevrolet dealers in AGSSA III and their nearest same line make competitor. Thus, the distance of the proposed Pontiac dealer from Stewart is consistent with the respective distances between nearest same line make dealers in the MDA. (GM Exhibit 46). Measured by the shortest route in non-rush hour traffic, drive time from the proposed Art Moran location to the Stewart location is long when compared to the convenience levels offered by other line makes. The drive time between the two locations range from 12:50 minutes (Stewart Exhibit C, second to last page) to 14:30 minutes (GM Exhibit 1, page 35) via Interstate 95. The drive time between the proposed location and Stewart's location via US 1 is over 23 minutes (GM Exhibit 1, page 34). A consumer living in a typical residential area in AGSSA III, such as Old Port Cove traveling to Art Moran would travel less than half the time now required to reach Stewart and drive less than one- fourth of the distance (GM Exhibit 1, pages 34 and 35) Pontiac's lack of competitive convenience in AGSSA III is a significant factor in its inadequate retail market penetration. Stewart offered no current data or objective, quantifiable evidence to rebut GM's evidence that customer convenience is directly related to retail market penetration. THE STANDARD Pontiac's zone average penetration, 7.02 percent, is a reasonable norm to use in evaluating the West Palm Beach MDA for five reasons: All Florida markets exceeded national average in 1983, and three of those markets exceeded zone average. In West Palm Beach, AGSSA I exceeded both the zone and national average. (GM Exhibits 30 and 31). Pontiac's penetration in Jacksonville and Pensacola exceeded both zone and national average in 1984. In West Palm Beach, AGSSA I was virtually at national average. (GM Exhibits 32 and 33). Adjusting for product popularity, the MDA should be attaining a penetration level of 95 percent of zone average (GM Exhibits 39 and 40). The demographic characteristics of the community approach national average. (GM Exhibits 36 and 37). Some census tracts in the West Palm Beach MDA are currently attaining or exceeding zone and national average penetration. (GM Exhibits 17 and 18). To develop a reasonable norm, it is necessary to determine what level of penetration an MDA can attain. Selecting a market which is inadequate to develop a standard of adequacy is not proper. Nor is it proper to compare an MDA with a level it is achieving in a given year and contend that it has achieved its full potential. Zone or national average penetration is the proper level of performance for an MDA that is performing at substandard levels. Compared to the 1985 zone average of 7.02 percent, only 5.32 percent of the vehicles registered in the MDA were Pontiacs, and in AGSSA III only 4.66 percent of the vehicles registered were Pontiacs. That deficiency results in a penetration shortfall of 733 units in the MDA compared to zone average (GM Exhibits 34 and 35). That lost opportunity is even more significant in AGSSA III where the lost units amount to 187 in an area where only 369 Pontiacs were registered in 1985 (GM Exhibits 34 and 35). THE NEED FOR MARKET REPRESENTATION Pontiac is not achieving adequate levels of penetration in either the West Palm Beach MDA or in AGSSA III. The cause of that inadequacy is that the market has outgrown the existing 2-dealer network for Pontiac. Since 1950, population in the MDA has increased seven-fold, but the number of dealers has remained at two (GM Exhibit 42). In Florida, the ratio of population to approved Pontiac dealer points is approximately 250,000 to 1 (GM Exhibit 42). The ratio of registrations per approved dealer point is approximately 10,000 to 1 (GM Exhibit 41). Based on the size of the market alone, West Palm Beach could support at least one additional dealer. The relative levels of convenience in the MDA also support additional Pontiac representation in AGSSA III. Six manufacturers offer higher levels of relative convenience to AGSSA III buyers than does Pontiac: Volkswagen, Honda, Chevrolet, Ford, Nissan and Toyota (GM Exhibit 44). Those manufacturers have a competitive advantage over Pontiac in AGSSA III. The most recent data available supports the proposition that, in order to have an opportunity to achieve areas of better than average penetration in an area, a manufacturer must be represented in that area (GM Exhibits 43 and 44). Of the 13 major line makes represented in the MDA, only those manufacturers represented in AGSSA III exceed their MDA average in that AGSSA (GM Exhibit 43). Convenience is not an issue in AGSSA's I and II where relative proximity is provided by all manufacturers. However, in AGSSA III, the prospective Pontiac purchaser must travel twice as far than other Pontiac purchasers in the MDA (GM Exhibit 45), and twice as far as purchasers of vehicles from manufacturers represented in AGSSA III to purchase a vehicle (GM Exhibit 44). The distance between the proposed Art Moran site and Stewart is consistent with the distance between dealers in AGSSA's III and the closest same line make dealer in AGSSA I (GM Exhibit 46). Lack of proximity was one factor influencing those individuals in AGSSA III who desired a Pontiac, but who did not purchase Pontiacs since seventy-five percent of Pontiac purchasers in the MDA are proximity-sensitive. Pontiac cannot be adequately represented in AGSSA III without establishing an additional dealership in AGSSA III. In 1985, the AGSSA I dealer placed 24 percent of its retail sales in AGSSA III (GM Exhibit 47) and the AGSSA II dealer placed less than five percent making it an insignificant factor in AGSSA III (GM Exhibit 22). To correct the penetration shortfall in AGSSA III, the AGSSA I dealer would have to sell over 750 additional units, an 80 percent sales increase (GM Exhibits 27, 28). This is highly unlikely given the historically flat sales performance of Stewart (GM Exhibit 27). It is industry practice to place a dealer in a market where market penetration is lowest. In order to achieve above-average penetration, a manufacturer must be represented (GM Exhibits 43, 47, 49, 50, 54-57). The combined efforts of the new dealer in an area coupled with those of the next closest dealer are usually required (GM Exhibit 47). Dealer additions in other markets have resulted in a consistent pattern (GM Exhibits 49, 50, 54-57): The existing dealers improve their sales performance; Penetration efficiency increases; and The distribution pattern of the dealer adjacent to the new point remains constant, despite addition of a dealer. GROWTH OF THE WEST PALM BEACH AREA Since 1950, the population of the area as a whole has increased more than sevenfold. The metropolitan area is expected to be the fastest growing in the nation by the turn of the century. (Moran Exhibit 1, Florida Forecast, January 1, 1986) There has been no change in the Pontiac dealer count in the last 36 years (GM Exhibit 43). Palm Beach County's 1985 population was 713,253, a 23.6 percent increase over the 1980 population of 576,863. (GM Exhibit 1, Table 1) As significant as that increase is, it is less than the 1980-85 increase experienced in AGSSA III, which went from 111,228 to 140,007 or a 26.1 percent increase (GM Exhibit 1, Tables 30 and 31). Dealers are usually added in growing areas. Palm Beach County has become economically diversified and its population is heterogeneous. AGSSA III mirrors these patterns. Consistent with these trends in population are increases in households, construction, employment, which are all growing rapidly for Palm Beach County as a whole and even faster for AGSSA III. (GM Exhibit 1, Tables 27 and 28) Per capita income, as well as the average household income, remains high in Palm Beach County and in AGSSA III. (GM Exhibits 12, 13 and 14) Moreover, in 1985 all but one of the census tracts in AGSSA III had a median household income higher than the county median. (GM Exhibit 1, Table 34) Most of the people of driving age in the market can afford automobiles. In fact, people in the country spend more on their automotive needs, in the aggregate, than on food. Similarly, all measures of residential and industrial commercial growth indicate substantial growth for Palm Beach County as a whole and even more growth in AGSSA III (GM Exhibit 1, Tables 2-7, and GM Exhibit 2). Building permit valuations have increased 700 percent from 1975 to 1985. Residential construction, either underway or approved, reflects the actual and anticipated growth of population in Palm Beach County. Retail sales in Palm Beach County increased 47 percent from 4.5 million dollars in 1980 to 6.6 million dollars in 1985. From 1984 to 1985, the civilian labor force increased by more than 3 percent, employment increased 4.6 percent and unemployment decreased 15.2 percent (GM Exhibit 1, Table 14). Large industrial and commercial firms such as IBM and Pratt and Whitney have located in AGSSA III. Traffic counts near the proposed point more than doubled from 1976 to 1984. (GM Exhibit 1, Table 35) Traffic volume is 5 times greater on I-95 near the location of the proposed dealer than on US-1 where Stewart is located. The "explosive" growth in the northern part of the West Palm Beach MDA has attracted extensive public and media attention. Research conducted by Mr. Stewart revealed a special section in the Palm Beach Post headline "Horizon Bright for North County." (Moran Exhibit 1, Palm Beach Post, July 21, 1985) As stated by the mayor of Palm Beach Gardens, "We are ready to explode. This is the hot spot for development." A regional mall is being constructed on PGA Boulevard in AGSSA III. The distance between this new mall and its nearest competitor to the south is similar to the distance between Moran's proposed location and Stewart. This mall, located in Palm Beach Gardens, "is actually a downtown. . . The 322 million dollar project combines residential, commercial and retail uses on property on the north side of PGA Boulevard between US-1 and Alternate A1A." (Moran Exhibit 1, Palm Beach Post, July 21, 1985, p. F-4) In addition to the development in the northern section of the county (essentially AGSSA III), development in the central section of Palm Beach County is also significant. Stewart, located in AGSSA I just east of the central section of Palm Beach County, is in a position to take advantage of this growth. Growth in the areas near the existing and proposed dealerships is strong. DEMOGRAPHICS Growth has led to demographic diversity in Palm Beach County. While the very wealthy remain, they have become less important as the middle and upper middle income groups have grown. Palm Beach County has become more like other urbanized counties in Florida. The entire MDA, in AGSSA III in particular, show heavy concentrations of household annual incomes between 15 and 40 thousand dollars and at levels above 40 thousand dollars (GM Exhibits 36 and 37). As of 1985, there were no census tracts in AGSSA III where the average household income was less than 15 thousand dollars. West Palm Beach and AGSSA III have residents in every age group. (GM Exhibit 36) Stewart has not performed any study which demonstrates a link or relationship between demographics and market penetration. ALLOCATION The Pontiac allocation system is based upon the number of sales reported by a dealer. The more cars sold by the dealer, the more car the dealer earns from the factory. Stewart Pontiac has had a history of not reporting sales promptly. Earl D. Stewart recognized the benefits of the Pontiac allocation system when he testified in the Fischer-Mazda case in 1980. In discussing the Phoenix, a hot or popular car that year (a car easy to sell), he compared the Pontiac system to that of Mazda. (GM Exhibit 66, pages 311-312): I would say that the Phoenix shortage compares most closely of any car I have in the line with the Mazda problem. However, the interesting thing with the Phoenix is that through sales efforts there is a direct correlation between selling more cars and earning more cars. . . With the Phoenix I have started out with a relatively small number of cars, and through my rates of sales, I have earned additional cars. So my experience, since the new X-body came out, I have earned additional products. Stewart maintains a large number of vehicle orders to ensure sufficient numbers of vehicles to sell. While Mr. Stewart suspects that other Pontiac dealers have a greater supply of popular vehicles and estimates that other manufacturers have more new cars at model introduction, he admitted that "my total inventory compares equitably with other Pontiac dealers in the zone. . ." (III-51) CUSTOMER SATISFACTION Both Pontiac and its dealers strive to satisfy the ultimate customer-- the automobile purchaser. Both the manufacturer and dealer must provide a level of satisfaction the customers expect. The customer is the best judge of whether satisfaction has been achieved. Customer satisfaction is measured through an involved market research procedure. General Motors measure customer satisfaction with both the product and the selling dealer. Overall experience with the selling dealer measures the customer satisfaction with the dealer's sales staff, delivery condition of the vehicle, and warranty service. 2/ Most dealers with low CSI ratings usually offer customers poor service (Montgomery deposition, pages 4 and 5). Responses from consumers regarding overall satisfaction are verified and evaluated. The parties agree that higher CSI scores are preferable. CSI results are used as a management tool. CSI assist the zone office and the dealer to identify problems in the dealership and allows the dealer an opportunity to correct noted deficiencies. Zone average is the minimum level of satisfaction acceptable to General Motors. Zone average is sales weighted, which tends to reduce the standard below the average of all consumer responses in the zone. A dealer whose CSI rating is below zone average is not providing the levels of satisfaction expected by either GM or the customer. Stewart Pontiac is significantly below zone average and does not provide adequate representation of GM relative to the other zone dealers. Over the past six quarters, Stewart Pontiac's CSI has declined from 6 points below zone average to 10 points below zone average: Quarter Zone Average CSI Stewart Pontiac CSI Difference 4th-1984 75 69 (6) 1st-1985 76 69 (7) 2nd-1985 77 71 (6) 3rd-1985 77 69 (8) 4th-1985 77 67 (10) While other dealers have improved their CSI during this period of time, Stewart has consistently been one of the worst performing dealers in the zone. The other Pontiac dealers in the MDA are performing at zone average. As of March, 1986, Stewart Pontiac is 13 points below national average and 10 points below zone average, a statistically significant difference. Moreover, developing a comparison with certain sub-groups of dealers, Stewart Pontiac is significantly below those averages. Utilizing GM's methodology, the parties agree that there is a significant difference between Stewart and any other sub-group or combination thereof (GM Exhibit 67). Comparing all GM dealers in West Palm Beach, the ratings range from 67 to 90. Stewart Pontiac is at67, six points below the nearest automobile dealer (GM Exhibit 59). Stewart Pontiac is the lowest rated dealer in West Palm Beach. Indeed, in terms of product evaluation, Cadillac is rated lower than Pontiac, yet the Cadillac dealers in West Palm Beach are able to perform at higher levels of satisfaction for their customers. CUSTOMER SERVICE PROVIDED BY STEWART PONTIAC Stewart Pontiac receives the same products as other Pontiac dealers. The Pontiac zone office has sent personnel over to Stewart Pontiac in order to assist the dealership in improving its CSI rating. About the same time as the protest was filed, Stewart Pontiac commenced improvement efforts (GM Exhibit 65). Stewart's CSI improvement program was necessitated by the absence of any such program at the dealership (Montgomery deposition, pages 15-17). The attitude of the dealer and desire of its management to improve CSI will have a greater impact on CSI performance than the mere spending of substantial sums as a means to correct a CSI problem. Clyde Montgomery, Pontiac's district manager, is familiar with the CSI for Stewart Pontiac. Montgomery has discussed the improvement programs with Stewart's dealership personnel and expects Stewart's CSI to increase. Montgomery noted that there were numerous attitude problems at the dealership which needed attention to include the following: Customer relations manager, recently hired and has little authority; Service manager is not consumer oriented; Earl D. Stewart does not appear to have a sufficient interest in the service department; The dealership has not properly implemented a number of programs suggested. To improve a CSI rating, the dealership must be attentive and a positive attitude must be sustained to earn the approval of its customers. IMPACT OF SERVICE ON PENETRATION Dealers with higher sales rates usually have lower CSI ratings. However, there are major exceptions to that rule. Three of the top ten dealers in the Jacksonville zone have high CSI ratings. Both parties agree that good service leads to customer retention and increased sales while poor service means lost sales. As Dr. Ostlund stated (IV-215, 216): There is no question that people are more likely to buy a car from their nearest Pontiac dealer, but that is not something that is axiomatic. They will buy a car from other dealers if there are reasons that prompted that condition, such as. they may buy from a dealer who is known to have a good service operation . . . Convenience of service is extremely important to a dealer after the warranty expires. (GM Exhibit 66, page 292) The proposed Art Moran dealership would provide prospective purchasers a high level of convenience and increased market penetration. Service convenience is an important factor in establishing a dealership. Convenience for service returns is at least if not more important to a customer than convenience for purchasing. If a dealer is too far, a consumer may not return to the dealer but have work done elsewhere. AGSSA III customers must drive longer distances for both sales and service than the average customer in the MDA.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Art Moran Palm Beach Pontiac-GMC Inc., application for a motor vehicle dealer license as a Pontiac dealer be GRANTED. RECOMMENDED this 5th day of September, 1986 in Tallahassee,, Florida. JAMES E. BRADWELL Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 5th day of September, 1986.
The Issue The issues presented for determination are whether Florida Housing Finance Corporation’s determination that the three applicant-parties were eligible for the allocation of low-income housing tax credits; and its intended decision to award such tax credits to Ocean Breeze East Apartments, LLC, are contrary to governing statutes, rules, or the solicitation specifications.1/
Findings Of Fact Parties and Process Florida Housing is a public corporation and, for the purposes of these proceedings, is an agency of the State of Florida. Pursuant to section 420.5099, Florida Statutes, Florida Housing is designated as the housing credit agency for Florida within the meaning of section 42(h)(7)(A) of the Internal Revenue Code and has the responsibility and authority to establish procedures for allocating and distributing low-income housing tax credits.3/ Florida Housing is authorized by law to allocate tax credits (and other funding) by means of requests for proposal or other forms of competitive solicitation. On October 6, 2017, Florida Housing published the RFA, starting the competitive application process being challenged in this proceeding. Completed applications were due December 28, 2017.4/ As explained below, all of the non-agency parties (HTG Heron, Channel Side, and Ocean Breeze) in this case applied for funding for a proposed development in Palm Beach County. According to the terms of the RFA, only one application for each county was to be funded. Moreover, the RFA’s stated goal was to fund one application wherein the applicant applied and qualified as a non-profit applicant. This non-profit goal did not apply within each of the six counties included in this RFA; one non-profit applicant in any of the six counties could satisfy the non-profit applicant goal for the entire RFA. No challenges were made to the terms or requirements of the RFA. HTG Heron is an applicant to the RFA, requesting an allocation of $1,541,751.00 in competitive tax credits. Its application, assigned number 2018-289C, was deemed eligible for consideration but was not selected for funding under the RFA. Channel Side is also an applicant to the RFA. It is requesting an allocation of $2,100,000.00 in competitive tax credits. Its application, assigned number 2018-278C, was deemed eligible for consideration but was not selected for funding under the RFA. Ocean Breeze is an applicant requesting an allocation of $2,070,000.00 in competitive tax credits. Its application, assigned number 2018-286C, was deemed eligible for consideration and was selected for funding under the RFA, subject to a credit underwriting review process. Florida Housing has adopted Florida Administrative Code Chapter 67-60 to govern the competitive solicitation process for several different programs, including the tax credit program. See § 420.507(48), Fla. Stat. The bid protest provisions of section 120.57(3) are adopted as part of the process for allocating tax credits, except that no bond is required. See Fla. Admin Code R. 67-60.009. A review committee was appointed to evaluate the applications and make recommendations to Florida Housing’s Board of Directors (the Board). Thirty-three applications for the RFA were received, processed, deemed eligible or ineligible, scored, and ranked, pursuant to the terms of the RFA; Florida Administrative Code Chapters 67-48 and 67-60; and applicable federal regulations. The review committee found 25 applications eligible and eight applications ineligible. Through the ranking and selection process outlined in the RFA, seven applications were recommended for funding, including Ocean Breeze. The review committee developed charts listing its eligibility and funding recommendations to be presented to the Board. On March 16, 2018, the Board met and considered the recommendations of the review committee for the RFA. The same day, the applicants to the RFA received notice of the Board’s determinations as to whether the applications were eligible or ineligible for consideration for funding, and which of the eligible applicants were selected for award of tax credits, subject to satisfactory completion of a credit underwriting process. Such notice was provided by the posting of two spreadsheets, one listing the “eligible” applications to the RFA and one identifying the applications which Florida Housing proposed to fund.5/ Relevant to this proceeding, Florida Housing announced its intention to award funding for Palm Beach County to Ocean Breeze, which received the maximum points available. Channel Side and HTG Heron were deemed eligible and scored the maximum number of points, but were not recommended for funding. Each applicant-party timely filed a Notice of Protest and Petition for Formal Administrative Proceedings. RFA The RFA contemplated a structure in which each applicant is scored on eligibility items and obtains points for other items. To determine if an application is eligible for funding, it must meet all of the requirements listed in section 5.A.1, of the RFA. The following eligibility terms and requirements are challenged in this proceeding: The evidence of control of the development site (site control) by Ocean Breeze and Channel Side; and The address of the development site provided by HTG Heron. For scoring the applications, the RFA allows up to a total of 20 points with the following point allocations: Submission of Principal Disclosure form stamped by Corporation as “Pre-Approved” (5 points); Development Experience Withdrawal Disincentive (5 points); and Local Government Contribution Points (5 points) or Local Government Area of Opportunity Points (10 points). As explained in pages 66-67 of the RFA, the first step in evaluating the applications is the sorting order. All eligible applications are ranked by first sorting all eligible applications from the highest score to the lowest score, with any scores that are tied separated in the following order: First, by the Application’s eligibility for the Proximity Funding Preference (which is outlined in Section Four A.5.e. of the RFA) with Applications that qualify for the preference listed above Applications that do not qualify for the preference; Next, by the Application’s eligibility for the Per Unit Construction Funding Preference which is outlined in Section Four A.11.e. of the RFA (with Applications that qualify for the preference listed above Applications that do not qualify for the preference); [sic] Next, by the Application’s eligibility for the Development Category Funding Preference which is outlined in Section Four A.4.b.(4) of the RFA (with Applications that qualify for the preference listed above Applications that do not qualify for the preference); [sic] Next, by the Application’s Leveraging Classification, applying the multipliers outlined in Item 3 of Exhibit C of the RFA (with Applications having the Classification of A listed above Applications having the Classification of B); [sic] Next, by the Application’s eligibility for the Florida Job Creation Funding Preference which is outlined in Item 4 of Exhibit C of the RFA (with Applications that qualify for the preference listed above Applications that do not qualify for the preference); and [sic] And finally, by lottery number, resulting in the lowest lottery number receiving preference. In other words, those competing for the RFA must first submit an application that meets all the eligibility criteria and does not have any significant omissions or errors before it is scored. After scoring, any tiebreakers are determined strictly by the luck of the draw. After applications are filed, but before they are scored, Florida Housing randomly assigned each a lottery number, and the highest scoring applicant with the lower number wins any ties, thus becoming the intended funding recipient. The notice of the intended award does not end the process, and the selection of an applicant for funding does not guarantee distribution of tax credits to that applicant. Florida Housing’s representative, Ms. Button, explained at the hearing: Q Okay. What happens once a preliminary agency action from Florida Housing becomes final agency action? A The awardees who are recommended or preliminarily approved for funding, once that becomes final, those applicants are then invited to credit underwriting by Florida Housing. * * * Q Can you provide some general information about credit underwriting? A Credit underwriting is essentially a de novo review of all the information that the applicant has provided in their application to proceed forward with the proposed development. Florida Housing retains their party underwriters who review that information and provide recommendations to Florida Housing. Similarly, the RFA provides that each selected awardee must complete a credit underwriting process before receiving funding or credits. The RFA states on page 68: Notwithstanding an award by the Board pursuant to his RFA, funding will be subject to a positive recommendation from the Credit Underwriter based on criteria outlined in the credit underwriting provisions in Rule Chapter 67-48, F.A.C. Rule 67-48.0072, in turn, provides in part: Credit underwriting is a de novo review of all information supplied, received or discovered during or after any competitive solicitation scoring and funding preference process, prior to the closing on funding, including the issuance of IRS Forms 8609 for Housing credits. The success of an Applicant in being selected for funding is not an indication that the Applicant will receive a positive recommendation from the Credit Underwriter or that the Development team’s experience, past performance or financial capacity is satisfactory. Thus, an application might fail in this de novo credit underwriting phase and never receive funding, even though it was “awarded” tax-credit funding as a result of a proceeding such as this one. In that event, page 67 of the RFA provides: 4. Returned Allocation Funding that becomes available after the Board takes action on the [Review] Committee’s recommendation(s), due to an Applicant withdrawing its Application, an Applicant declining its invitation to enter credit underwriting, or an Applicant’s inability to satisfy a requirement outlined in this RFA and/or Rule Chapter 67-48, F.A.C., will be distributed as approved by the Board. Therefore, if an intended applicant (such as Ocean Breeze), was nominally selected for funding at the end of the eligibility and scoring phase, but failed to garner a positive recommendation from the credit underwriting process, the next eligible applicants in the queue (such as HTG Heron and Channel Side) would be awarded the tax credits. As a result, in this consolidated proceeding, the objective of Petitioners is to displace any and all applicants in more favorable positions. Here, Petitioner Channel Side challenges the eligibility of both the Ocean Breeze and HTG Heron applications; and Petitioner HTG Heron challenges the eligibility of Ocean Breeze. Ocean Breeze, in turn, challenges both HTG Heron’s and Channel Side’s eligibility. The specific issues raised as to the three challenged applications will be discussed below. OCEAN BREEZE APPLICATION HTG Heron and Channel Side challenge Ocean Breeze’s eligibility based on the RFA requirements relating to site control. The parties have stipulated, and the undersigned finds, that site control must have been demonstrated as of the application deadline of December 28, 2017. The RFA provides three ways an applicant can demonstrate site control: (1) eligible contract, (2) deed or certificate of title, or (3) lease. Ocean Breeze utilized the first method to satisfy the site control requirement by submitting a document titled “Purchase and Development Agreement” (PDA) as Exhibit 8 to its Application. The PDA included two attachments: the “Legal Description” and a “Reverter Agreement.” Petitioners challenge the enforceability of the PDA on two apparent grounds: (1) it was not executed by the applicant6/; and (2) it was executed before the applicant was properly incorporated to do business within the State of Florida. The RFA, however, does not mention “enforceability” of a contract in its definition for “Eligible Contract.” The requirements for establishing site control though an eligible contract are found on page 30 through 31 of the RFA. Eligible Contract - For purposes of this RFA, an eligible contract is one that has a term that does not expire before June 30, 2018 or that contains extension options exercisable by the purchaser and conditioned solely upon payment of additional monies which, if exercised, would extend the term to a date that is not earlier than June 30, 2018; specifically states that the buyer’s remedy for default on the part of the seller includes or is specific performance; and the buyer MUST be the Applicant unless an assignment of the eligible contract which assigns all of the buyer’s rights, title and interests in the eligible contract to the Applicant, is provided. Any assignment must be signed by the assignor and the assignee. If the owner of the subject property is not a party to the eligible contract, all documents evidencing intermediate contracts, agreements, assignments, options, or conveyances of any kind between or among the owner, the Applicant, or other parties, must be provided, and, if a contract, must contain the following elements of an eligible contract: (a) have a term that does not expire before June 30, 2018 or contain extension options exercisable by the purchaser and conditioned solely upon payment of additional monies which, if exercised, would extend the term to a date that is not earlier than June 30, 2018, and (b) specifically state that the buyer’s remedy for default on the part of the seller includes or is specific performance. The initial paragraph of the PDA identifies the parties to the PDA as “Boyton Beach Community Redevelopment Agency,” as the “Seller,” and “Ocean Breeze East Apartments, LLC” as the “Purchaser.” Paragraph 14 of the PDA designates the following for purposes of notices: If to Purchaser: Ocean Breeze East Apartments, LLC Attn: Lewis Swezy 7735 NW 146 Street, Suite 306 Miami Lakes, FL 33016 Under the signature block, however, the PDA states it was executed on behalf of the “Purchaser” by “OCEAN BREEZE APARTMENTS LLC By Ocean Breeze East GP LLC” and signed by Lewis Swezy, “Title: Authorized Member” on December 8, 2017. “Ocean Breeze East, GP, LLC” does not exist and never has in Florida. The parties admit that this entity was not in existence on December 8, 2017, and was never subsequently formed. Ocean Breeze admits the identification of “Ocean Breeze East, GP, LLC” was in error. The PDA was executed on behalf of the “Seller” by BBCRA and signed by Steven B. Grant, “Title: Chair” on December 15, 2017. Paragraph 4 of the PDA indicates that its effective date is the date when the last party signed the PDA; in this case being the date the BBCRA executed the document--December 15, 2017. The Reverter Agreement is executed by the “Purchaser” “Ocean Breeze East Apartments, LLC” and signed by Lewis Swezy, “Title: Manager of Manager,” on December 12, 2017. The Reverter Agreement is executed by the “Seller,” BBCRA, and signed by Steven B. Grant, “Title: Chairman” on December 15, 2017. Mr. Swezy testified Ocean Breeze complied with all the terms of the PDA, including submitting an initial $25,000 deposit within two days of full execution of the PDA and a second deposit within 30 days. The Articles of Organization for Ocean Breeze East Apartments, LLC were filed on December 19, 2017, and effective December 14, 2017. Rachael Grice, Florida Housing Multifamily Programs Manager, scored the site control portion for this RFA based on the information in the application. Mrs. Grice found that Ocean Breeze met the RFA requirements for site control. It is unnecessary, and beyond the scope of the undersigned’s jurisdiction, to make a factual or legal determination as to the enforceability of the PDA. The RFA does not mention enforceability or validity as requirements for an “Eligible Contract” for site control purposes. There is no dispute that on its face, the PDA with the Reverter Agreement satisfied the RFA’s requirements for an “Eligible Contract” listed on page 30 and 31. In fact, as of the date of the application deadline the following was true: Ocean Breeze East Apartments, LLC, was listed as the applicant for the RFA. Ocean Breeze East Apartments, LLC, was listed as the “Purchaser” on the PDA. Mr. Swezy had signature authority to bind Ocean Breeze and was listed on the Ocean Breeze application as the “Authorized Representative.” Ocean Breeze East Apartments, LLC, and Mr. Swezy were identified in the notice provision in the PDA. The Reverter Agreement, which was signed after the PDA, correctly identified the applicant entity as Ocean Breeze East Apartments, LLC. Effective December 14, 2017, Ocean Breeze was incorporated. The PDA was fully executed on December 15, 2017. HTG Heron and Channel Side have not established that the PDA was fatally flawed or that Florida Housing erred in accepting the PDA as an “eligible contract” satisfying the RFA’s site control requirement. Even if the PDA contained errors by listing “Ocean Breeze East GP, LLC” in the signature block or was prematurely signed before Ocean Breeze was effectively incorporated, the evidence at the hearing established that it was a minor irregularity waivable by Florida Housing, and that Florida Housing would have waived any such errors. If the PDA is ultimately determined to be unenforceable and site control is not established at the credit underwriting stage, Petitioners would be next in line to be selected to receive the tax credits under the terms of the RFA. The preponderance of the evidence established that Ocean Breeze’s application is eligible for funding, it received the proper scoring, and should be the intended award for Palm Beach County. HTG HERON APPLICATION Channel Side and Ocean Breeze challenge the eligibility of the HTG Heron application because they claim it fails to satisfy the RFA eligibility requirement to provide a correct address of the proposed development site. Page 18 of the RFA requires in relevant part: Indicate (1) the address number, street name, and name of city, and/or (2) the street name, closest designated intersection, and either name of city or unincorporated area of county. Ms. Button testified the purpose of the address requirement in the RFA is to allow parties, including Florida Housing, to know where the proposed development will be built and to ensure the property has access to utility and other services. In that vein, the RFA does not require the street identified in an application to be a publicly maintained street. In its application, HTG Heron provided the address of the proposed development as “W 17th Ct., W 17th Ct. and North Congress Ave., Riviera Beach,” along with latitudinal and longitudinal coordinates of the development location. Ryan McKinless, Multifamily Programs Senior Analyst for Florida Housing, scored the development address section for this RFA. Mr. McKinless found that HTG Heron met the requirements in the RFA for providing an address of the proposed development. Here, Channel Side and Ocean Breeze argue Florida Housing erred in accepting the “W. 17th Ct.” address provided by HTG Heron because the address does not exist. They point to the site sketch submitted by HTG Heron in support of its application which references a “W. 17th Street” (not “W. 17th Ct.”) and has “W. 17th Street” intersecting with “Congress Avenue Extension,” (not “N. Congress Ave.”). In support of this position that “W. 17th Ct.” does not exist, Ocean Breeze and Channel Side also rely on a 1975 plat and a 1999 City of Rivera Beach Ordinance. The sketches attached to HTG Heron’s application each contain the disclaimer “NOT A SURVEY.” Although the sketches contain a reference to an abandonment relating to “W. 17th Ct.,” the 1999 Ordinance describing the abandonment relied on by Channel Side and Ocean Breeze was not submitted to Florida Housing. Regardless, this plat and ordinance information was not required by the RFA nor was it considered by Florida Housing in determining whether to accept the address submitted by HTG Heron for eligibility determination purposes. There was no evidence at the hearing that the “W. 17th Court” address misled Florida Housing (or anyone else) or caused confusion as to the location of HTG Heron’s proposed development. To the contrary, other information in the application supports accepting the provided address. The “Local Government Verification of Status of Site Plan Approval for Multifamily Developments” form executed by the City Manager of Riviera Beach affirms the “W. 17th Ct.” address. The “Local Government Verification that Development is Consistent with Zoning and Land Use Regulations” form executed by the City Manager of Riviera Beach affirms the “W. 17th Ct.” address. The “Verification of Availability of Infrastructure- Electricity” form executed by an Associate Engineer from Florida Power and Light affirms the “W. 17th Ct.” address. The “Verification of Availability of Infrastructure” form for water and sewer services executed by a Utilities Engineer from City of Riviera Beach affirms the “W. 17th Ct.” address. The “Verification of Availability of Infrastructure- Roads” form executed by a City Engineer from the City of Riviera Beach affirms the “W. 17th Ct.” address. The “Local Government Verification of Contribution- Grant” form executed by the Interim City Manager of Riviera Beach affirms the “W. 17th Ct.” address. The acting director of the City of Riviera Beach, Department of Community Development confirms by letter that the property at the “2003 W. 17th Court (adjacent to North Congress Avenue)” address is located with a “Qualified Census Tract for 2017 and 2018” and attaches a diagram of that tract. Documentation from the Palm Beach County Property Appraiser’s website lists the address location as “2003 W. 17th Ct.” Given that the purpose of providing an address was fulfilled and there was no ambiguity as to the actual location of the HTG Heron’s development site, Channel Side and Ocean Breeze failed to prove that Florida Housing erred in accepting HTG Heron’s address for the purposes of eligibility. At the hearing, HTG Heron also submitted a certified copy of a 2017 map from the Palm Beach County Property Appraiser’s Office for range 43, township 42, which includes the area of the proposed development in HTG Heron’s application, and indicates there is a “W. 17th Ct.” that intersects with “N. Congress Avenue.” There was a preponderance of evidence establishing HTG Heron’s designation in its application of “W 17th Ct., W 17th Ct. and North Congress Ave., Riviera Beach” was not an error, and that HTG Heron’s application is eligible for funding. CHANNEL SIDE APPLICATION7/ To satisfy the Site Control requirements Channel Side submitted a Purchase and Sale Agreement that lists among the sellers an entity named “MWCP, Inc., f/k/a Blueprint Properties, Inc., a Delaware corporation whose post office address is 248 Columbia Turnpike Florham Park, NJ (‘Blueprint’)” in the initial paragraph. MWCP, Inc. (MWCP) did not exist in Florida when the Purchase and Sale Agreement was executed. The parties stipulated that the reference in the Channel Side site control documents to MWCP was erroneous and that the owner of the property for the Channel Side’s proposed development as of the application deadline was a Delaware corporation known as Blueprint Properties, Inc., which has never operated as, or been corporately related to, MWCP. Rachel Grice, Florida Housing Multifamily Programs Manager, scored the Site control portion of this RFA based on the information in the Application. Mrs. Grice found that Channel Side met the RFA requirements for Site control. The RFA does not require the listing of related names of any corporations other than the applicant or developer. Thus, the error in the Purchase and Sale Agreement does not seem to affect Channel Side’s satisfaction of any requirement of the RFA. The error is insignificant and immaterial. There was no evidence presented at the hearing that Channel Side received a competitive advantage by identifying “MWCP, Inc. f/k/a Blueprint Properties, Inc.” instead of simply “Blueprint Properties” as the seller. The slight error conferred no competitive advantage on Channel Side; its application received no more points than it was entitled to by reason of the mistake. Ms. Button reasonably testified that had Florida Housing known about the mistaken listing of MWCP as the seller, it would have waived the error as a minor irregularity. The applicant-parties failed to prove that Channel Side’s application reflecting the “wrong corporate entity” as the seller was an error affecting eligibility of Channel Side’s application, or that Florida Housing erred in accepting the Purchase and Sale Agreement as proof of site control. The mistake was, at worst, a minor, inconsequential error that was waivable. Based on the preponderance of the evidence, Channel Side’s application is eligible for funding.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Respondent, Florida Housing Finance Corporation, enter a final order consistent with its initial decisions: (1) finding the applications of Ocean Breeze, HTG Heron, and Channel Side eligible for funding; (2) awarding the RFA Palm Beach County funding for the Ocean Breeze proposed development; and (3) dismissing the formal written protests of HTG Heron and Channel Side. DONE AND ENTERED this 29th day of June, 2018, in Tallahassee, Leon County, Florida. S HETAL DESAI 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 29th day of June, 2018.
The Issue The issues presented are whether Respondents are guilty of the allegations contained within the Amended Administrative Complaint filed against them, and, if so, what disciplinary action should be taken against them, if any.
Findings Of Fact At all times material hereto, Respondent Emilio Faroy has been a licensed real estate broker in the State of Florida, having been issued License No. 0332008. At all times material hereto, Respondent Adriana Creel has been a licensed real estate salesperson in the State of Florida, having been issued License No. 033464. Creel has been employed as a licensed real estate salesperson with Faroy Realty since April 1, 1985. At all times material hereto, Respondent Faroy Realty Company has been a corporation registered as a real estate broker in the State of Florida, having been issued License No. 0236806. At all times material hereto, Respondent Faroy was licensed and operating as the qualifying broker and the sole officer and director of Respondent Faroy Realty Company. The real estate licenses of the Respondents are presently suspended pursuant to an emergency suspension order issued by the Secretary of the Department of Professional Regulation on July 25, 1990, because of their activities at the Dunes Beach Club. Respondent Faroy and Respondent Creel live in a unit owned by Creel at the Dunes Beach Club. Faroy Realty is registered at that same address. The Dunes Beach Club is a former motel on Miami Beach which was purchased by a developer. The units were sold to individual owners, many of whom make their units available for rental to transients and tourists. Although the Dunes Beach Club is not a condominium, there is a Homeowners' Association. The developer retained ownership of certain commercial space within the Dunes Beach Club and leased the "front desk" to a realtor who managed rentals and sales of the individual units. The Homeowners' Association became dissatisfied with that realtor and bought the lease for the front desk. At the May 19, 1986, Board of Directors meeting, the Dunes Beach Club Homeowners' Association decided that it was in the Association's best interest to hire someone to both run the operation of the front desk and manage the Association's affairs. Adriana Creel, a member of the Board of Directors, was hired for that position. Her agreement with the Board was that she would be paid $30,000.00 as a salary, that she would be given the front desk office to use at no charge, add that the Association would receive 1% of the sales price as a commission for any sales or resales of units produced through her office. No evidence was offered to show that Creel sold any units through that office or paid a commission to the Homeowners' Association during the one year that that arrangement was in effect. Creel received no commissions for renting rooms during that year since she was a salaried employee of the Homeowners' Association, and renting rooms was part of her responsibilities. In April of 1987, the Homeowners' Association decided not to renew their front desk lease with the developer and told Creel to vacate the premises immediately and to cease renting rooms. She did not do so. Instead, she and Faroy negotiated a lease with the developer, the Dunes Beach Club, Inc., which lease commenced on May 1, 1987. Pursuant to the terms of the lease, Faroy Realty was given the right to use the front desk area for "real estate rental and sales" for 36 months in exchange for Faroy Realty paying the sum of $1,050.00 per month as rent for that space. A few months later, the business address for Faroy Realty was changed to the address of the Dunes Beach Club. From that point forward until the date of the emergency suspension order entered against Respondents herein, Creel ran the front desk operation through Faroy Realty. She and Faroy set up an operating account in the name of Faroy Realty for the Dunes Beach Club operation. She arranged rentals for approximately 60 of the units at the Dunes Beach Club, collecting the rental money and depositing it Into the Faroy Realty account. She paid expenses from that account and remitted to the owners of the units the rental monies minus expenses. Although the Homeowners' Association, when it was running the front desk, had written agreements with some of the unit owners for the rental of their units, when Faroy Realty took over that operation it obtained no written agreements from any of the unit owners on whose behalf Faroy and Creel acted. In November of 1989, Creel wrote six checks to Irene Avellino for the proceeds of rentals covering May through September for units 210 and 268. At the time that those checks were written, Faroy Realty did not have sufficient funds in its checking account to cover those checks. In November of 1989, Creel wrote two checks to Samco c/o Stan Paul, representing rental proceeds for May and June for units 124, 128, and 132. At the time that those checks were written, Faroy Realty did not have sufficient funds in its checking account to cover those checks. Respondent Creel also wrote two checks to Andrew Mecca representing rental proceeds for unit 102 at the Dunes Beach Club. At the time that those checks were written, Faroy Realty did not have sufficient funds in its checking account to cover those checks. Pursuant to complaints received by Petitioner, Petitioner initiated an investigation of Respondents on November 9, 1989. The Department's investigator met with Faroy and Creel a number of times. Creel told the investigator that she had made restitution for the worthless checks she had written on the Faroy Realty account. When the investigator contacted Avellino, Paul, and Mecca in mid-December, they advised him that restitution had not been made. Faroy Realty also had an escrow account. Faroy told the investigator that although monthly reconciliation statements had been made on Faroy Realty's escrow account, none of them could be located. A subpoena was issued to Faroy Realty and Emilio Faroy on February 9, 1990, for all escrow and operating account monthly bank statements, cancelled checks, all purchase/sale contracts and leases including addenda for the period January 1987 through present, all employment agreements, and bank deposit slips. Very few records were produced pursuant to that subpoena. The few bank statements which were produced indicated that the Faroy Realty escrow account experienced overdrafts in the early part of 1989. An examination of the Faroy Realty escrow account further revealed that between March of 1987 and October of 1989, Creel wrote checks from the Faroy Realty escrow account for such personal expenses as insurance on automobiles, payments on automobiles, repairs on fax machines, dinners, health insurance, and pet supplies. She had even written checks from the escrow account to Faroy Realty with the notation that the money represented a loan. In defense of her using escrow monies for personal expenses, Creel testified at the final hearing that those checks represented earned commissions. That being the case, then the escrow account contained personal monies intermingled with trust monies. In defense of Respondent Creel writing checks on the Faroy Realty operating account when there were not monies in the account to cover those checks, Creel testified that she would write postdated checks to the unit owners commensurate with the date that she had calculated there would be sufficient monies in the account to cover those checks. Whatever her reason for doing so, the fact remains that Creel wrote checks from an account which did not have monies in the account to cover those checks. Creel's explanation for the worthless checks written in November revolved around a German tour group which, according to Respondents' exhibit, stayed at the Dunes Beach Club in October. However, the checks written by Creel in November which "bounced," on their face, represent the proceeds from rentals well prior to October. Creel testified that Emilio Faroy knew nothing of her check-writing practices. Taken in its best light, her testimony shows that Faroy failed to exercise his supervisory responsibilities over the Faroy Realty escrow account, the Faroy Realty operating account, and Faroy Realty's licensed salesperson Creel. Creel's testimony is consistent with Faroy's statement to Petitioner's investigator that he was primarily involved with his bail bond business and Creel was running Faroy Realty. Creel testified that monthly reconciliation statements had been made regarding the Faroy Realty escrow account but that they could not be found. She further testified that no attempt was made to obtain copies from the accountant who allegedly prepared those monthly statements and that she does not know whether Faroy ever signed any of the monthly reconciliation statements alleged prepared. An accountant testified on behalf of Respondents in this proceeding that he was hired in March of 1990 to do the monthly reconciliation statements on Faroy Realty's escrow account and that he had gone back to 1986 to prepare those reconciliations. None of the statements performed by that accountant have been signed by Faroy. It is found that Respondent Faroy has failed to prepare, sign, retain, and produce for inspection the required written monthly escrow account reconciliations. Creel testified that restitution had been made for the worthless checks written to Avellino, Samco c/o Stan Paul, and Mecca. Absent from her testimony was the date on which restitution was made. Respondents did offer in evidence affidavits regarding those three unit owners, which affidavits were admitted without objection. One of the affidavits was dated August 29, 1990 and two were dated August 30, 1990, one and two days prior to the final hearing in this cause. Absent from each of the three affidavits is the date on which restitution was made. The affidavits state that two of the owners have received restitution. It is noted that the affidavit from Stan Paul does not, in fact, state that restitution was made but rather that Paul has arranged a payment plan with Creel. No proof of restitution was offered to Petitioner prior to the entry of the emergency suspension order against Respondents or prior to the filing of the Administrative Complaint or Amended Administrative Complaint in this cause. It is also noteworthy that Mecca had to file a lawsuit against Creel and Faroy Realty to secure payment of the rental proceeds for which Creel had written the worthless checks to him. Respondents' failure to produce to Petitioner bank statements, cancelled checks from the escrow account, and monthly reconciliation statements has prevented a meaningful audit from being performed on the Faroy Realty accounts. Similarly, Respondents' failure to provide to Petitioner employment agreements or management agreements has made it impossible to determine Respondents' obligation to the unit owners.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered revoking the real estate certifications, licenses, permits, and registrations of the Respondents Emilio Faroy, Adriana Creel, and Faroy Realty Company. DONE AND ORDERED in Tallahassee, Leon County, Florida, this 19th day of October, 1990. LINDA H. RIGO 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 19th day of October, 1990. APPENDIX TO RECOMMENDED ORDER DOAH CASE NO. 90-5153 Petitioner's proposed findings of fact numbered 2-17 and 19-23 have been adopted either verbatim or in substance in this Recommended Order. Petitioner's proposed findings of fact numbered 1 and 18 have been rejected as not constituting findings of fact but rather as constituting conclusions of law, argument of counsel, or recitation of the testimony. Respondents' proposed findings of fact numbered 2-6, 9-12, 14, 15, 17, 21, 25, 31-33, 36, and 37 have been adopted either verbatim or in substance in this Recommended Order. Respondents' proposed findings of fact numbered 1 and 24 have been rejected as not constituting findings of fact but rather as constituting conclusions of law, argument of counsel, or recitation of the testimony. Respondents' proposed findings of fact numbered 7, 8, 16, 22, 23, 30, and 35 have been rejected as being irrelevant to the issues under consideration herein. Respondents' proposed findings of fact numbered 13, 18, 19, 26-29, 34, and 38 have been rejected as not being supported by the weight of the credible evidence in this cause. Respondents' proposed finding of fact numbered 20 has been rejected as being unnecessary to the issues in this cause. COPIES FURNISHED: James H. Gillis, Esquire Department of Professional Regulation 400 West Robinson Street Post Office Box 1900 Orlando, Florida 32801 Harold M. Braxton, Esquire Suite 400 - One Datran Center 9100 South Dadeland Boulevard Miami, Florida 33156 Kenneth E. Easley, Esquire General Counsel Department of Professional Regulation 1940 North Monroe Street Northwood Centre Tallahassee, Florida 32399-2450 Darlene F. Keller, Division Director Division of Real Estate Department of Professional Regulation 400 West Robinson Street Post Office Box 1900 Orlando, Florida 32801
The Issue The issue presented is whether the Respondent, David Hirshberg acted as a yacht salesman without being licensed in accordance with Chapter 326, Florida Statutes.
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant findings of fact are made: At all times material to this proceeding, the Respondent was not licensed as a yacht broker or as a yacht salesman in accordance with Chapter 326, Florida Statutes, commonly referred to as the "Yacht and Ship Broker's Act". The Division is the state agency statutorily authorized to regulate yacht and ship brokers and salesmen. At all times material to this proceeding, the Respondent was employed by Tampa Bay Marine Repossession Center (Center). Respondent's main responsibility was the sale of new Chris Craft boats and occasionally used boats. However, other than giving directions or explaining procedures at the boat show as set out in Finding of Fact 11 the Respondent was not involved with the sale of yachts. The Center is a division of Hirsh Marine, Inc., and acts as the showing agent between banks owning the repossessed boats and the boat buyer. At all times material to this proceeding, Center was not licensed as a yacht broker in accordance with Chapter 326, Florida Statutes, but was licensed as a boat dealer. On Sunday, March 10, 1991, the Center maintained a display booth at the Ninth Annual Suncoast Boat Show (Show) at Sarasota, Florida. The Center's display booth at the Show on March 10, 1991 contained listings offering boats for sale which had been repossessed by banks. One of those listings was for a 34-foot Mainship Trawler (Trawler). Listing of boats on a display board at boat shows is a common method of offering brokerage boats for sale. At the time Center was offering the Trawler for sale on March 10, 1991, the Center did not own, hold title to or have a secured interest in the Trawler. On March 10, 1992, the Trawler was owned by a lending institution that had foreclosed its security interest in the Trawler. The Trawler had been delivered to the Center by the lending institution to be offered for sale. The Trawler was held for sale by the Center for the owner in expectation of compensation for the sale. Ron Hirshberg testified that after the Center negotiated the sale of a repossessed boat with a buyer, the Center paid the lending institution off and title to the boat was transferred to the Center which in turn transferred title to the buyer. Based on material available at Center's display booth, this does not appear to be the procedure used by the Center in handling a sale. The material available at the Center's display booth advises the potential buyer, among other things, that: (a) Center acts as the showing agent between the boat owner (bank) and buyer; (b) certain guidelines are imposed by the bank; (c) no offers will be submitted to the bank without a 10% refundable deposit on initial offer; (d) offers are subject to bank's acceptance; and (e) if repairs are needed, this will be negotiated between bank and buyer. Respondent had his business cards on the table at the display booth which indicated he was associated with the Center. Also, on the display board was a notice that read "Any questions, come out to Chris Craft in-water display and ask for Dave". Dave is the Respondent herein. Upon inquiry, Respondent would direct the person to the marina where the repossessed boats were stored and explain the procedure on how to make an offer or purchase a repossessed boat. There was insufficient competent substantial evidence to establish facts to show that the Respondent was employed by the Center as a yacht salesman or that the Respondent acted as a yacht salesman on behalf of Center as the term "salesman" is defined in Section 326.082(4), Florida Statutes.
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is, accordingly, RECOMMENDED: That Petitioner, Department of Business Regulation, Florida Land Sales, Condominiums and Mobile Homes enter a final order dismissing the order to show cause. DONE and ENTERED this 14th day of January, 1992, in Tallahassee, Florida. WILLIAM R. CAVE Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 14th day of January, 1992. APPENDIX TO RECOMMENDED ORDER The following constitutes my specific rulings pursuant to Section 120.59(2), Florida Statutes, on all of the Proposed Findings of Fact submitted by the parties in the case. Rulings on Proposed Finding of Fact Submitted by the Petitioner Adopted in substance as modified in Findings of Fact 6 and 7. Adopted in substance as modified in Finding of Fact 8. - 5. Adopted in substance as modified in Finding of Fact 9. Adopted in substance as modified in Findings of Fact 3 and 11. Rejected as not being supported by competent substantial evidence in the record. Adopted in substance as modified in Finding of Fact 11. Adopted in substance as modified in Findings of Fact 1 and 5. Adopted in substance as modified in Finding of Fact 1. Adopted in substance as modified in Finding of Fact 9. Rulings on Proposed Findings of Fact Submitted by the Respondent The Respondent did not submit any Proposed Findings of Fact. COPIES FURNISHED: Mark Henderson, Esquire Department of Business Regulation Division of Florida Land Sales, Condominiums and Mobile Homes 725 South Bronough Street Tallahassee, Florida 32399-1007 David R. Hirshberg 6035 30th Avenue West Bradenton, Florida 34209 Henry M. Solares, Director Division of Florida Land Sales, Condominiums and Mobile Homes 725 South Bronough Street Tallahassee, Florida 32399-1000 Donald D. Conn, General Counsel Department of Business Regulation 725 South Bronough Street Tallahassee, Florida 32399-1000
Findings Of Fact An ethics complaint was filed against Petitoner, Eli Tourgeman (Tourgeman) alleging that Tourgeman, as Mayor of the Town of Surfside, violated Chapter 112, Florida Statutes. Respondent, the Florida Commission on Ethics (Commission), found probable cause to believe that Tourgeman did violate Section 112.313(6), Florida Statutes. A formal hearing was held by the Division of Administrative Hearings. Tourgeman hired Richard Waserstein to represent him in the administrative proceedings. The Commission issued a Final Order and Public Report on July 20, 1994, Complaint No. 91-73 and Final Order No. COE 94-28, finding that Tourgeman did not violate Section 112.313(6), Florida Statutes, and dismissing the complaint. Tourgeman filed a Petition for Award of Costs and Attorneys Fees. In the petition, he alleged that he was on the Town of Surfside City Commission for six years and during the last four years he served as Vice Mayor and Mayor of the Town of Surfside. He also alleged that he is a banker employed by Glendale Federal as a Branch Manager and Vice President. Mr. Waserstein spent 52.75 hours in representing Tourgeman in the case at a rate of $150 per hour. The total cost for legal services was $7,912.50. The costs incurred by Tourgeman was $1,934, which included costs for depositions, transcripts, and travel to attend the Commission meeting in Tallahassee.
Findings Of Fact Peter P. Sedler, at all times material to the complaint, has been licensed as a real estate broker, holding license 0079017. He was last licensed as a broker c/o Marshall & Sedler, Inc., 7771 St. Andrews, Lake Worth, Florida 33467. Marshall & Sedler, Inc., at all times relevant to the complaint, had been registered as a Florida real estate broker, holding license 0250511, its last licensed address was 7771 St. Andrews, Lake Worth, Florida 33467. Peter P. Sedler was the qualifying broker and officer for Marshall & Sedler, Inc. On about July 3, 1987, Tom Teixeira was employed as a salesman by Cartier Realty, of 11852 42nd Road North, Royal Palm Beach, Florida. Cartier Realty had solicited, through a direct mailing, listings for property in the Royal Palm Beach area. Ms. Mary Myers, an older woman of about 70 years of age, responded to the advertisement, and gave Mr. Teixeira an open listing for real property which she owned. While Mr. Teixeira placed a Cartier Realty "For Sale" sign on the property, the sign was somehow removed shortly thereafter, and no party dealing with Ms. Myers during the months of July, August and September of 1987 would have been placed on notice that Cartier Realty had any listing on the property. Mr. Sedler had nothing to do with the disappearance of the sign. Ms. Myers had originally acquired the property from her daughter. Long before Ms. Myers gave a listing to Cartier Realty, William Kemp and his wife Gina DiPace Kemp had told Ms. Myers that they were interested in purchasing the property, which is adjacent to the home of Mr. and Mrs. Kemp. When Mr. and Mrs. Kemp first contacted Ms. Myers, she had wanted to keep the property, in the belief that she might eventually convey it back to her daughter. Mr. Teixeira brought to Ms. Myers an offer from David R. and Maureen C. Rose to purchase the land for $11,900. Ms. Myers did not accept that offer, but the Roses accepted Ms. Myers' counteroffer on July 24, 1987, to sell it for $12,300. The sale was contingent upon the buyers obtaining financing; they applied for a loan, and ordered both an appraisal and a survey. The closing was to be held by September 1, 1987. (Contract, paragraph VI.) The closing date passed, without the buyers obtaining the necessary financing, so the contract was no longer effective. On about September 8, 1987, Mr. Teixeira attempted to contact Ms. Myers. He had obtained no written extension of the contract but hoped the sale might yet close. Ms. Myers told Teixeira that she was still willing to sell the property to Mr. and Mrs. Rose. In the meantime, Mr. and Mrs. Kemp became aware that Ms. Myers wanted to sell the property, because they noticed Mr. and Mrs. Rose coming to look at the land, and had engaged them in conversation. Ms. Kemp then contacted Ms. Myers to remind her that they were still willing to purchase the property, and also to say that they would offer more than the current offer on the property. On about September 11, 1987, Ms. Kemp contacted Cartier Realty to say that she also wished to make an offer on the Myers' lot. For a reason which was never adequately explained at the hearing, Teixeira, who should have been working on behalf of the seller, refused to take the offer, even though it was for a higher price. After this rebuff by Teixeira, Ms. Kemp contacted Marshall & Sedler, Inc., in order to try to find a broker who would convey their offer to Ms. Myers and spoke with Patricia Marshall, Ms. Marshall referred her to her partner, Peter Sedler. The Kemps told Sedler that Ms. Myers had told them that she had received a $9,000 offer on the lot. Why Ms. Myers told the Kemps that the Rose offer was $9,000 is not clear, for the actual offer had been $12,300, but Sedler did not know this. There was no listing of the lot in the local board of realtors multiple listing service book, and Mr. Sedler found the address of Ms. Myers through the public records. Mr. Sedler knew from his conversations with Ms. Kemp that Cartier Realty had some involvement with an offer on the property. He called Cartier Realty and tried to speak with the broker handling the matter. He spoke with a man named Tom, who he thought was a brother of the owner of Cartier Realty, Pete Cartier. Mr. Sedler actually talked with Tom Teixeira. Sedler believed he was dealt with rudely by Teixeira, who had hung up on him. Sedler then called Pete Cartier directly to find out whether there was an outstanding contract on the property, and Cartier told Sedler that he would call Sedler back. When Cartier called Sedler, Cartier warned Sedler that he should stay out of the deal. Mr. Sedler became suspicious about Cartier Realty's failure to bring a higher offer to the attention of the seller, and on September 16, 1987, filed a complaint against Tom Cartier with the Lake Worth Board of Realtors. Mr. Sedler then traveled to Pompano Beach to meet with Ms. Myers at her home, and brought with him a contract for sale and purchase of the property, already signed by the Kemps and dated September 14, 1987. While at the door, Ms. Myers asked Peter Sedler if he was "Tom." Ms. Myers knew that she had been dealing with a "Tom" at Cartier Realty, but all her dealings were on the phone, and she did not know what Tom Teixeira looked like. Sedler replied "Yes, but you can call me Pete." Sedler merely intended the comment as humor. At that time Sedler gave Ms. Myers his pink business card and specifically identified himself as Pete Sedler of Marshall & Sedler, Inc. Mr. Sedler asked Ms. Myers if she had any paperwork, such as the prior contract for the sale of the lot which had expired on September 1, 1987, but she did not. While Sedler was with Ms. Myers, she agreed to sell the property to the Kemps for $12,500 and signed the Kemp contract. The Kemps had put the purchase price of $12,500 into the Marshall & Sedler escrow account. Three days later, on September 18, 1987, Mr. Sedler, in the company of his wife Bonnie, presented a post-dated check to Ms. Myers in the amount of $11,020, the net amount due to Ms. Myers for the lot, based on the purchase price of $12,500. When they met this second time he introduced himself again as Pete Sedler and offered Ms. Myers his card for a second time. The post-dated check was conditioned by an endorsement making it good upon a determination that the title to the lot was good. A quit claim deed to Mr. and Mrs. Kemp was executed by Ms. Myers and witnessed by Bonnie Sedler. The post-dated check was given to Ms. Myers because she was about to leave on vacation. The check was given as a sort of security for good title, in return for the quit claim deed which closed the transaction. Mr. Sedler had structured the transaction in this way because he was concerned that someone at Cartier Realty might also attempt to purchase the property from Ms. Myers on behalf of one of their clients. At that time, Mr. Sedler held the reasonable belief that no other party had a subsisting contract to purchase the property from Ms. Myers. Sedler had no reason to believe the Roses would or could pay more for the property than the Kemps offered. Ms. Myers knew that Tom Teixeira from the Cartier realty firm represented a distinct business entity from Marshall & Sedler or Pete Sedler. After a title search showed that Ms. Myers had clear title to the property, the check which Mr. Sedler had given to Ms. Myers on September 18, 1987, with the restrictive endorsement was replaced. Later Mr. and Mrs. Rose tried to close their purchase, but found they could not. Ms. Myers had failed to inform them of the sale she made to the Kemps through Mr. Sedler. Mr. Teixeira, in retribution, filed an ethics complaint about Mr. Sedler with the West Palm Beach Board of Realtors.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is recommended that the Administrative Complaint against Peter P. Sedler and Marshall & Sedler, Inc., be dismissed. RECOMMENDED this 14th day of March, 1991, at Tallahassee, Florida. WILLIAM R. DORSEY, JR. Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 14th day of March, 1991. APPENDIX TO RECOMMENDED ORDER, CASE NO. 90-6183 Rulings on findings proposed by the Department: 1. Rejected as unnecessary. 2 and 3. Adopted in Finding 1. 4 - 6. Adopted in Finding 2. Adopted in Finding 3. Adopted in Finding 3. Implicit in Finding 5. Adopted in Finding 5. Adopted in Finding 5. Adopted in Finding 5. Adopted in Finding 5. Adopted in Finding 6. Implicit in Finding 6. This does not mean that the contract subsisted, however. Rejected. Ms. Myers was willing to sell the property to Mr. and Mrs. Rose after the contract expired, but she was not under any obligation to do so. Adopted in Finding 7. Rejected, because there was no pending contract. Teixeira never obtained a written extension of the closing date and Ms. Myers was free to sell elsewhere. Rejected. No one could have truthfully told Sedler there was a pending contract. None existed. Rejected, because Mr. Sedler had no reason to believe that there was a subsisting contract for the sale of the property; there was none. Admission number 20 is not to the contrary. Adopted in Findings 10 and 11. Rejected. See, Findings 9 and 10. Rejected as unpersuasive. Rejected as cumulative to Finding 9. Adopted in Finding 14. Adopted in Finding 11. Rejected as unnecessary. COPIES FURNISHED: James H. Gillis, Esquire Department of Professional Regulation Post Office Box 1900 Orlando, Florida 32802-1900 Frank W. Weathers, Esquire Frank W. Weathers, P.A. Post Office Box 3967 Lantana, Florida 33465-3967 Darlene F. Keller, Division Director Department of Professional Regulation Division of Real Estate Post Office Box 1900 Orlando, Florida 32801 Jack McRay, General Counsel Department of Professional Regulation 1940 North Monroe Street Tallahassee, Florida 32399-0792
The Issue The issues presented are whether two separate sales of unregistered securities to elderly persons demonstrate a lack of fitness or trustworthiness to engage in the business of insurance in violation of Section 626.611(7), Florida Statutes (2001); and, if so, what penalty, if any, should Petitioner impose against Respondent's license. (All chapter and section references are to Florida Statutes (2001) unless otherwise stated.)
Findings Of Fact Respondent is currently licensed in this state as an insurance agent pursuant to license number A124652. The license authorizes Respondent to perform the duties of an agent for health and life insurance and variable annuity agent. Respondent is not licensed to sell securities. Petitioner is the state agency responsible for regulating the business of insurance in this state. Petitioner is not authorized to regulate the sale of securities. On September 18, 1998, Respondent sold eight shares of unregistered securities in Palm Beach Investment Group, Inc. (Palm Beach) to Mr. and Mrs. Anthony and Lucille Fusco (Fusco) for $40,000. On January 5, 1998, Respondent sold 18 shares of unregistered securities in Palm Beach to Mrs. Gladys Speth (Speth) for $90,000. The Department of Banking has jurisdiction over the sale of unregistered securities by unlicensed individuals. The Department of Banking disciplined Respondent for the sales of unregistered securities to Fusco and Speth. On November 10, l999, Respondent and the Department of Banking entered into a Settlement Stipulation and Final Order whereby Respondent admitted he violated Sections 517.07 and 517.12 by offering for sale or selling unregistered securities while he himself was not authorized to sell securities. Respondent did not dispute these facts at the administrative hearing of this case. The Administrative Complaint alleges that Respondent violated Sections 626.611(7)(9)(13), 626.621(2)(3) and (6), and 626.9541(1)(e)1 when he sold unregistered securities to Fusco and Speth. In Petitioner's PRO, however, Petitioner admits that Respondent could not have violated any statute other than Section 626.611(7) because Respondent did not engage in the business of insurance when he sold securities to Fusco and Speth. In relevant part, Petitioner states: Petitioner concedes that the alleged conduct does not involve insurance transactions and therefore cannot be considered transactions under Respondents [sic] insurance licenses. As a result, no violation of the other enumerated statutes has occurred. Petitioner's PRO at 11, paragraph 5. The only remaining issue that Petitioner asserts is whether Respondent violated Section 626.611(7). A licensee violates Section 626.611(7) if he or she demonstrates a lack of fitness or trustworthiness to engage in the business of insurance. Petitioner asserts that Respondent violated Section 626.611(7) by engaging in a business other than the business of insurance in a manner that demonstrates a lack of fitness or trustworthiness to engage in the business of insurance. Neither Fusco nor Speth are experienced investors. Neither buys or sells stock or securities and neither has any training or education in investing. Mr. and Mrs. Fusco are retirees, as is Speth. Fusco invested $40,000 of their life savings, and Speth invested $90,000 from a personal injury settlement. Mrs. Fusco had never purchased shares of stock before. Her father had lost a great deal of money in the l929 market crash and there was a long-standing family prejudice against stock. Fusco had business experience with Respondent prior to the time that Respondent sold Palm Beach securities to Fusco. That prior experience is relevant to the perspective and understanding that Fusco brought to the Palm Beach transaction. Sometime in l998, while Respondent worked with a previous employer, Respondent solicited Fusco to invest funds in a Certificate of Deposit (CD). Fusco did so and believed they were completing a similar transaction when they later purchased Palm Beach securities from Respondent. After Respondent sold the CD to Fusco, but still in l998, Respondent changed his employment to Evergreen National (Evergreen). Respondent telephoned Fusco and informed them that he had moved to Evergreen and that he was selling a very good security that they might be interested in purchasing. Mrs. Fusco explained to Respondent that they were not interested in securities, but they would be interested in purchasing a CD similar to the one they had previously purchased from Respondent. Fusco made an appointment to visit Respondent at his office. At Respondent's office, Mrs. Fusco stated unequivocally that Fusco desired to purchase only a CD. Fusco wanted no risk to their funds, and they made that clear to Respondent. Respondent represented to Fusco that Respondent was selling a CD that was fully guaranteed and insured against any loss. Respondent represented that Fusco would be investing in a proportionate share of a jumbo CD issued by Palm Beach, that they would enjoy a 14 percent return on their investment, and that their investment was insured by the Federal Deposit Insurance Corporation (FDIC) and the Great American Insurance Company (Great American). Respondent provided Fusco with various brochures about the investment that verified Respondent's representations that the investment was an insured, safe way to earn a high interest rate. Fusco relied on the representations contained in those brochures and those made by Respondent. Fusco was still somewhat hesitant to invest their funds. Respondent then brought into his office Darrin Carlson, the president of Evergreen (Carlson). Carlson reiterated to Fusco that the investment was insured and was completely safe and without risk. Fusco elected to invest $40,000 to purchase a CD. They gave a check to Respondent, and Respondent promptly remitted the check to Palm Beach. On September 18, 1998, Fusco signed a document entitled Subscription Agreement. The terms of the Subscription Agreement state that it is an application for Fusco to purchase shares of stock in Palm Beach. The agreement is clearly not an application to purchase a CD. In fact, no reference is made in the document to any CD or to Fusco's $40,000. Fusco did not understand the terms of the Subscription Agreement. Respondent did not explain the terms of the agreement to them. Fusco relied on the representations made by Respondent. Approximately three weeks later, Fusco received a stock certificate in the mail issued by Palm Beach showing that they owned eight shares of stock in Palm Beach. The certificate makes no reference to any CD or Fusco's $40,000 investment. Fusco was confused and upset. The stock certificate does not document that the Fusco's owned any CD or any share in a CD. Furthermore, Respondent offered no evidence of the use of the funds by Palm Beach. Fusco contacted Respondent. Respondent assured Fusco that this was the "way things were done," and their investment was safe. Fusco trusted Respondent and relied on the representation by Respondent. In May of l999, Fusco received a letter from Palm Beach informing Fusco that they would receive a full refund of their money plus interest as of June 7, l999. Palm Beach did not deliver on its promise. When Fusco did not receive any money from Palm Beach, Fusco contacted Respondent. Respondent assured Fusco that their investment as safe, that they were insured, and that they would soon receive their money. Fusco has never received the original $40,000 or any interest payment from Palm Beach. Palm Beach has never provided an accounting to Fusco showing the value of their investment. Fusco has suffered a loss of $40,000 plus accumulated interest at a fair market value rate. Respondent also sold unregistered securities to Speth. Sometime in January l999, Respondent visited the home of Speth. Speth had recently received $90,000 as a personal injury settlement and was looking for a secure investment. Speth wanted a risk-free investment. She told Respondent that she would purchase a CD, but had no interest in purchasing stock. Respondent suggested that Speth invest in a proportionate share of a jumbo CD to be issued by Palm Beach that would yield a 14 percent return. Respondent represented that the CD would be insured and risk free. Respondent showed Speth various brochures claiming that the investment was fully insured by the FDIC as well as other insurance companies. Respondent did not inform Speth that there was a risk she could lose her entire investment. Speth gave Respondent a check for $90,000 made out to Palm Beach to invest in a CD with a one-year maturity date. Speth subsequently received a stock certificate in the mail from Palm Beach showing that she owned 18 shares of Palm Beach stock. Speth was puzzled, telephoned Respondent, and told him that she thought she had purchased a CD. Respondent represented to Speth that her money was safe and fully insured. Speth has not received either her original investment or any interest on that investment. Palm Beach has not provided Speth with an accounting showing the value of her investment. Speth has suffered a loss of $90,000 plus accumulated interest at a fair market value rate. Respondent sold investments to Fusco and Speth that were not appropriate for their age, skill, and investment objectives. Both Fusco and Speth clearly expressed the maximum aversion to risk. Neither Fusco nor Speth would have invested in Palm Beach if they knew they were investing in stock. Both Fusco and Speth intended to purchase a CD or a proportionate share of a CD that was insured by the FDIC and Great American. At no time were their investments insured by the FDIC or any insurance company. Respondent had actual knowledge of the investment goals and skill of Fusco and Speth. Respondent believed that he was selling an investment vehicle that was appropriate to the knowledge, skill, and goals of Fusco and Speth. Prior to selling any securities in Palm Beach, Respondent undertook several independent inquiries that are fairly characterized as a form of due diligence. Some of Respondent's efforts toward due diligence are relevant to the unauthorized sale of unregistered securities. Other efforts are relevant to the nature of the investment as a secured investment. Palm Beach represented in a letter to Respondent that the securities offered for sale were exempt from registration. Carlson believed the securities were exempt and assured Respondent that Respondent did not need a license to sell the securities. Carlson went on-line to the web site of the Securities and Exchange Commission (SEC) and obtained a letter from private securities attorneys stating that the securities were exempt. Carlson believed that the securities were insured by Great American and obtained a copy of a financial institution bond with a limit of $5 million. Carlson represented to Respondent that any investment in Palm Beach securities was an insured investment. Respondent thought that he had verified the matter by telephoning the office of Great American and obtaining verbal assurances that the Palm Beach investment was insured. Respondent had a good faith belief that the securities he offered to Fusco and Speth, in part, were appropriate to the clients' investment goals because Respondent believed the securities satisfied the risk aversion expressed by Fusco and Speth. Respondent believed the securities were risk-free because he believed they were insured. Respondent knew the Palm Beach securities he offered to Fusco and Speth, in part, were not appropriate to the clients' investment goals because the securities were stock in a company and that neither Fusco nor Speth wanted to invest in securities. The first paragraph of the Securities Agreement clearly states that the investor is purchasing stock in Palm Beach. Respondent had actual knowledge that he was selling securities to Fusco and Speth and that neither wanted to purchase securities. Respondent has demonstrated in two separate transactions a willingness to sell a product to a person that the person did not desire to purchase. Even though the products sold were securities, rather than insurance, and even though Respondent believed the products represented the risk- free investment sought by Fusco and Speth, the willingness to sell securities to persons who have expressly stated that they do not want to purchase that type of product demonstrates a lack of fitness or trustworthiness to engage in the business of insurance within the meaning of Section 626.611(7). Respondent sold a product to Fusco and Speth that, in fact, was not risk-free. Respondent's due diligence prior to the sale did not include an independent attempt to ascertain whether Palm Beach in fact purchased a jumbo CD with the investments made by Fusco and Speth. Respondent did not disclose his omission to Fusco or Speth. After Respondent entered into a stipulation and final order with the Department of Banking, Respondent continued to represent to Fusco and Speth that their money was safe and that they would receive their money. Respondent has no prior discipline against his insurance license.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Petitioner enter a Final Order finding Respondent guilty of violating Section 626.611(7) and suspending Respondent's license for nine months. DONE AND ENTERED this 25th day of October, 2002, in Tallahassee, Leon County, Florida. ___________________________________ DANIEL MANRY 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 25th day of October, 2002. COPIES FURNISHED: Elihu H. Berman, Esquire 509 South Greenwood Avenue Post Office Box 6801 Clearwater, Florida 33758 James A. Bossart, Esquire Division of Legal Services Department of Insurance 200 East Gaines Street, Room 612 Tallahassee, Florida 32399-0333 Honorable Tom Gallagher State Treasurer/Insurance Commissioner Department of Insurance The Capitol, Plaza Level 02 Tallahassee, Florida 32399-0300 Mark Casteel, General Counsel Department of Insurance The Capitol, Lower Level 26 Tallahassee, Florida 32399-0307
Findings Of Fact Application for registration as dealer was filed by the Financial marketing Group, Inc., in the person of M. L. Popkin, President and Milton A. Fried, Secretary for that corporation, on June 30, 1975. This information is reflected in the Petitioners' Exhibit 1, which was accepted into evidence in the course of the hearing. On that same date, Marvin Leo Popkin filed a request for registration as executive officer for the Financial Marketing Group, Inc., and this information is reflected in Petitioners' Exhibit 1(A), which was received into evidence in the course of the hearing. The matters set forth in Petitioners' Exhibits 1 and 1(A) are on file with the Respondent, Department of Banking and Finance, Division of Securities. The principal contention offered by the Respondent in refusing the application of the Financial Marketing Group, Inc., for registration as a dealer in securities, is due to the answers given by Marvin Leo Popkin in completing the Petitioners' Exhibit 1(A). Specifically the basis for denial would refer to question 12, found in Petitioners' Exhibit 1(A). That question is as follows: "12. List on a separate schedule your employment history, giving positions held, dates employed, dates terminated, and reasons for leaving each position so listed. (All times must be accounted for.) To the question 12, Marvin Leo Popkin attached an addendum to the application for registration as dealer and in that addendum question 12 was answered as follows: "12. 6/1/73 - Present - Realty Marketing Group, Inc. - President - 5040 Lakeview Drive, Miami Beach, Florida 33140 7/1/69-6/1/73 - Florida Development & Sales Corp. - President - 1666 Kennedy Causeway, Miami Beach, Florida 10/1/68 - 7/1/69 - Registered Realty Corp. - Salesman 8403 N.E. Second Avenue, Miami, Florida 1/1/68 - 10/1/68 - Miami Beach Vacations, Inc. - Salesman - 3001 Collins Avenue, Miami Beach, Florida" The Respondent felt that this answer to number 12 was insufficient, because on January 22, 1975, Marvin L. Popkin had filed an application for reregistration as a mortgage broker before the Department of Banking and Finance, Division of Finance, in which Marvin L. Popkin signed as Vice President of Financial Resources Corporation. Apparently, the Respondent felt that this affiliation referred to in the application for reregistration as a mortgage broker, which matters are found in Petitioners' Exhibit 2, admitted into evidence, was tantamount to an employment of Marvin Leo Popkin by the Financial Resources Corporation. Consequently, the failure of Marvin Leo Popkin to list this employment with the Financial Resources Corporation in response to question 12 of the request for registration as executive officer for the Financial Marketing Group, Inc., was felt to be a materially false statement. Marvin Leo Popkin, through his testimony in the hearing, indicated that the affiliation with the Financial Resources Corporation was a prospective one and not one in actuality. The background of the affiliation of Marvin Leo Popkin with Financial Resources Corporation, according to Mr. Popkin, was that he was approached in behalf of one Sidney Gilbert and Ronald Schaffer about becoming mortgage broker for Financial Resources Corporation, should a purchase of that company be consummated by Messrs. Gilbert and Schaffer. In fact the purchase was never completed because of certain problems associated with Financial Resources Corporation and Marvin Leo Popkin never became a mortgage broker for that company. Moreover, according to Mr. Popkin the basis for the application which is referred to in Petitioners' Exhibit 2, was premised upon the purchase being made by Mr. Gilbert and Mr. Schaffer and agreement for remuneration being made between Marvin Leo Popkin, and the others. The witness indicated that the purchase not being made, no salary was ever agreed upon and furthermore, the witness never did any work for Financial Resources Corporation, nor for that matter ever went to the office location of Financial Resources Corporation. The witness, Popkin, also indicated that signing the application as vice president was strictly prospective, in that he was not in fact at any time the vice president of Financial Resources Corporation. He stated that this signature was a matter of the necessity of signing as an officer, so that compliance with the Division of Finance requirements could be achieved. The title, vice president, was selected because Mr. Gilbert and Mr. Schaffer had tentatively agreed to identify themselves as the president and secretary, of Financial Resources Corporation, should the purchase be completed. Mr. Popkin indicated that a mortgage brokers license was issued by the office of the comptroller, without his knowledge. Mr. Popkin stated that he wrote a letter dated February 28, 1975, indicating to the office of the state comptroller that he was no longer affiliated with Financial Resources Corporation and therefore did not desire the issuance of a mortgage brokers license, in which a transfer of his mortgage brokers license had been made from the Florida Mortgage Group, Inc. to the Financial Resources Corporation. A copy of this correspondence is Petitioner's Exhibit 3, which was admitted into evidence. It is noted that the character of the correspondence, which is Petitioner's Exhibit 3, indicates that the witness, Marvin Leo Popkin, was at the time of the correspondence, a principal broker for the Financial Resources Corporation; however, testimony was not offered in the course of the hearing which would tend to refute the explanation of the prospective nature of Mr. Popkin's association with the Financial Resources Corporation. Consequently, the unrefuted testimony of the witness, Marvin Leo Popkin, concerning the prospective nature of the affiliation with Financial Resources Corporation stands established. On February 28, 1975, Marvin Leo Popkin also wrote a letter to Financial Resources Corporation in which he tendered his resignation as a mortgage broker with their corporation. A copy of this correspondence is Petitioner's Exhibit 4, admitted into evidence. Again the nature of the correspondence is such that it would seem that Marvin Leo Popkin was formally associated with Financial Resources Corporation and comments made about Petitioner's Exhibit 3 would seem to have application here. The witness's explanation offered in the course of the hearing stands without rebuttal and is established as a fact. Subsequent to the time of writing the letters of February 28, 1975, the witness, Marvin Leo Popkin, received a mortgage brokers license issued to Marvin L. Popkin as vice president of Financial Resources Corporation, and in response wrote a letter to the comptroller's office dated March 19, 1975, in which he enclosed the license which had been issued to him as vice president of Financial Resources Corporation. A copy of this correspondence together with the face sheet of the license referred to, is Petitioner's Exhibit 5, which was admitted into evidence. The Respondent did not offer any evidence by way of testimony or documents, in opposition to the explanation of the events, which was set forth by the witness Marvin Leo Popkin. Therefore, it is assumed that the reasons set forth for denial of the application of Financial Marketing Group, Inc., as a registered dealer in securities and for the denial of Marvin Leo Popkin as executive director of the Financial Marketing Group, Inc., stand upon the matters set forth in Petitioner's Exhibits 1 and 1A and that no other explanation for denial under F.S., Sections 517.16(1)(h), 517.30(3), 517.301(3), 517.301(4) and Florida Administrative Rule 3B-305 is forth coming. Consequently, the denial of the Financial Marketing Group, Inc., application for license as a registered dealer in the State of Florida and the denial of Marvin Leo Popkin's request to be executive officer of the Financial Marketing Group, Inc. rests upon an examination of the documents referred to in Petitioner's Exhibits 1, 1A, and 2, together with testimony offered in explanation of those documents. An examination of the Petitioner's Exhibits 1, 1A, and 2 in light of the testimony of Marvin Leo Popkin would indicate that the witness did not knowingly and willfully falsify, conceal or cover up by any trick, scheme, or device, a material fact in filling out the request for registration as executive officer for the Financial Marketing Group, Inc. as set forth in Petitioner's Exhibit 1A, all in violation of F.S., Section 517.301(3). Moreover, it does not appear that the Financial Marketing Group, Inc. through its applicant to be executive officer, Marvin Leo Popkin, has demonstrated an unworthiness to transact the business of a dealer in securities in the State of Florida.
Recommendation It is recommended that the application of the Financial Marketing Group, Inc. to become a registered dealer in securities in the State of Florida be granted and that the request for registration filed by Marvin Leo Popkin to act as executive officer of the Financial Marketing Group, Inc., an applicant for license to be a registered dealer in securities, be granted. DONE and ENTERED this 2nd day of March, 1976, in Tallahassee, Florida. CHARLES C. ADAMS, Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Fred O. Drake, III, Esquire Assistant General Counsel Office of the Comptroller The Capitol Tallahassee, Florida 32304 Paul J. Levine, Esquire Noriega and Bartel P.A. 2100 First Federal Building One Southeast Third Avenue Miami, Florida 33131
