The Issue Whether Respondent committed the violations alleged in the First Amended Administrative Complaint; and If so, what disciplinary action should be taken against him.
Findings Of Fact Based upon the evidence adduced at hearing, and the record as a whole, the following findings of fact are made: Respondent's Licensure Status Respondent is now, and has been at all times material to the instant case, a Florida-licensed life and health insurance agent. Counts I through VI At all times material to the instant case, Peter DeBello, Inc., d/b/a Emery Richardson Insurance (Corporation), a Florida corporation owned by Respondent's father, operated a general lines insurance agency (Emery Richardson Insurance) located in the state of Florida. The Corporation was formed to manage the assets of Emery Richardson, Inc., which assets Respondent's father had obtained through litigation. Respondent's father delegated to Respondent the authority to manage the affairs of the Corporation. The same day (in 1992) that the Corporation took possession of Emery Richardson, Inc.'s assets, it so notified the Department of Insurance (Department) by telephone. Shortly thereafter, Leo Joy, a Florida-licensed property and casualty insurance agent since 1961, was designated on a Department- provided form as the primary agent for Emery Richardson Insurance at its 240 Commercial Boulevard location in Lauderdale By The Sea, Florida, and the completed form was provided to the Department.3 At no time prior to the commencement of the instant administrative proceeding did Respondent himself personally notify the Department of the identity of Emery Richardson Insurance's primary agent. It was Mr. Joy who (in 1992) filled out the primary agent designation form and submitted it to the Department. Mr. Joy, however, did so on behalf of Respondent, who had verbally designated Mr. Joy as Emery Richardson Insurance's primary agent. Neither Respondent, Mr. Joy, nor any one else, has subsequently used the Department's primary agent designation form to advise the Department of Mr. Joy's continuing status as Emery Richardson Insurance's primary agent. In his capacity as president of the Corporation, Respondent, on behalf of the Corporation, in April of 1994, entered into an agreement (Agreement) with Ulico Casualty Company of Washington, D.C. (Ulico), which provided as follows: WHEREAS, the Applicant (Corporation), a licensed insurance agent and/or insurance broker, has heretofore obtained from the COMPANY (Ulico) or is desirous of obtaining from the COMPANY the placement of insurance for the Applicant's customers or principals, and WHEREAS, the COMPANY, using its facilities, has placed insurance for the Applicant or with whom Applicant has requested the placement of such insurance, NOW, THEREFORE, in consideration of the mutual promises herein contained, and for other good and valuable consideration, the receipt whereof is hereby acknowledged. It is mutually AGREED as follows: With reference to the placement of new insurance, Applicant shall submit to the COMPANY a separate application containing the name of each prospective insured, describing the risk to be considered for underwriting and binding. Applicant specifically understands and agrees that Applicant shall have no authority to authorize or write any insurance or bind any risk on behalf of the COMPANY without the prior written approval by a duly authorized representative of the COMPANY. With respect to any insurance heretofore placed with the COMPANY by the Applicant, and with respect to any insurance hereinafter placed by the Applicant, all premiums shall be payable to the COMPANY and such Applicant assumes and agrees to pay the COMPANY premiums on all the policies of insurance heretofore or hereinafter placed by Applicant with the COMPANY in accordance with the current statements rendered to the Applicant by the COMPANY, such payment to be made no later than 30 days after the month of issue of the insurance policy, or due date of any installment if issued on an installment basis, less any credits due to the Applicant for return premium, provided an appropriate credit memorandum therefor has previously been issued by the COMPANY to Applicant. In the absence of such credit memorandum, Applicant shall have no right of counterclaim or setoff with respect to any claimed credits due, but shall be required to establish entitlement to the same in a separate action. Applicant shall have the right, so long as Applicant is not indebted to the COMPANY, to deduct agreed upon commissions on each policy of insurance prior to remitting the remaining premium to the COMPANY. In the event that premiums on behalf of any insured party shall have been financed and refund of financed premiums are required from the COMPANY to the financing institution, Applicant shall forthwith refund and pay to the COMPANY all unearned commissions heretofore received with respect to such financed premiums. In the event that Applicant shall fail to make any payment to the COMPANY which is required to be made pursuant to this Agreement, within the time specified, the COMPANY shall have the right, at any time subsequent to the due date of payment, to cancel any policy on which the premium payments have not been remitted to the COMPANY, without prior notice to the Applicant, by sending notice of cancellation directly to the insured, except that Applicant shall continue to remain liable to the COMPANY for the payment of all premiums earned as of the date of cancellation which are collected by Applicant. Applicant represents that they are duly licensed as an insurance broker or agent for Casualty and Property Insurance as indicated in the States set forth below, and agrees that in the event that any license shall cease, terminate or be cancelled, that the Applicant will promptly notify the COMPANY accordingly. Applicant agrees, where required, to file at Applicant's expense, all necessary affidavits and collect all State or local premium taxes and to pay the same promptly to the respective taxing authorities on all insurance placed with the COMPANY, in accordance with the laws applicable in the State of licensing. No changes or modification of this Agreement shall be valid unless such change or modification is subscribed, in writing, by the COMPANY and Applicant. Ulico is one of approximately 47 insurance companies that Emery Richardson Insurance represents. In the past five years, Emery Richardson Insurance has received from clients in excess of seven or eight million dollars in premium payments, which it has deposited in its various checking accounts and then paid over to these insurance companies. Ulico is the only one of these 47 insurance companies to have experienced "problems" in receiving from Emery Richardson Insurance monies due. These "problems" are detailed below. On June 13, 1994, the Corporation opened a checking account (account no. 458-902279-9, hereinafter referred to as the "Account") with Savings of America at the bank's Hollywood, Florida, branch. The Peter Debello described on the signature card for the Account was Respondent's father. Respondent's father, however, through execution of a power of attorney, had authorized Respondent to act on his behalf in connection with the Account. On August 20, 1996, Respondent drafted and signed four checks drawn on the Account, which were made payable to Ulico: check no. 804, in the amount of $1,729.15, for "Teamsters #769, Policy #BOU 907"; check no. 805, in the amount of $1,071.65, for "Sheet Metal Appr. #32, Policy #CLU 668"; check no. 806, in the amount of $700.00, for "Sheet Metal #32, Policy #CLU 682"; and check no. 807, in the amount of $96.05, for "Painters L.U. 160, Policy #CLU 451." (These policies will hereinafter be referred to as the "Subject Policies.") On January 24, 1997, Respondent drafted and signed a check (check no. 882) drawn on the Account, in the amount of $7,500.00, which was also made payable to Ulico. Check nos. 804, 805, 806, 807,4 and 882 were sent to Ulico as payment for monies the Corporation owed Ulico (pursuant to the Agreement) for insurance coverage obtained from Ulico by the Corporation for its clients (as reflected in invoices Ulico sent the Corporation, which hereinafter will be referred to as the "Subject Invoices").5 At the time that he drafted and signed these checks and submitted them to Ulico, Respondent assumed that there were sufficient funds in the Account to cover the amounts of the checks. In drafting and signing these checks and submitting them to Ulico, Respondent did not make any statements or representations that he knew to be false or misleading. All five checks were returned by Savings of America unpaid, with the explanation, "insufficient funds," stamped on each check.6 (These checks will hereinafter be referred to as the "Dishonored Checks.") Ulico's premium collection manager, Gayle Shuler, spoke with Respondent, as well as with Mr. Joy, "many times" concerning the monies the Corporation owed Ulico. At no time did either Respondent or Mr. Joy indicate that they disputed the Subject Invoices7 (although Respondent and Mr. Joy did contest other invoices that they received from Ulico). Although aware that the Dishonored Checks had been returned due to insufficient funds8 and knowing that Ulico desired payment, Respondent failed to act promptly to remedy the situation. It was not until early 1998, after the commencement of the instant administrative proceeding, that Respondent, on behalf of the Corporation, took steps to address the matter. At that time, using Fidelity Express money orders purchased between February 26, 1998, and March 1, 1998, (which Respondent dated August 26, 1996), Respondent paid Ulico a portion ($1,867.70) of the total amount of the Dishonored Checks. The money orders were sent to Ulico by certified mail, along with a cover letter from Respondent. Respondent "backdated" the money orders to reflect "when [the monies owed Ulico] should have been" paid. He did so without any intent to mislead or deceive. There is no clear and convincing evidence that anyone other than Ulico was injured by Respondent's failure to timely pay over to Ulico the monies Emery Richardson Insurance had received from its clients for the Subject Policies (which monies belonged to Ulico). Respondent's failure to timely make such payments, it appears, was the product of isolated instances of carelessness, neglect and inattention on Respondent's part,9 which, when considered in light of the totality of circumstances, including his problem-free dealings with the other insurance companies Emery Richardson Insurance represents, were not so serious as to demonstrate a lack of fitness, trustworthiness or competency to engage in transactions authorized by his license. Count VII In August of 1986, Respondent visited Gary Faske, Esquire, at Mr. Faske's office in Dade County, Florida. The purpose of the visit was to have Mr. Faske complete the paperwork necessary to add Mr. Faske to his new employer's group major medical insurance policy with Union Bankers Insurance Company. After the paperwork was completed, Respondent left Mr. Faske's office with the completed paperwork, as well as a check from Mr. Faske's employer to cover the cost of adding Mr. Faske to the group policy.10 It is unclear what Respondent did with the paperwork and check after he left Mr. Faske's office. In October of that same year (1986), Mr. Faske took ill and had to be hospitalized on an emergency basis. He assumed that he was covered by his employer's group major medical insurance policy, but he subsequently learned that he was wrong and had to pay between $50,000.00 to $60,000.00 in medical bills. The evidence does not clearly and convincingly establish that Respondent (as opposed to Union Bankers Insurance Company or some other party) was responsible for Mr. Faske not having such coverage. Mr. Faske thereafter filed suit against Respondent and Union Bankers Insurance Company in Dade County Circuit Court. He settled his claim against the insurance company, but was unable to reach an agreement with Respondent. Respondent's case therefore went to trial, following which, on August 12, 1997, a Final Judgment11 was entered against Respondent in the amount of $40,271.00.12 Count VIII By filing an Address Correction Request, dated January 29, 1992, Respondent notified the Department that his new mailing address was 40 Hendricks Isle, Fort Lauderdale, Florida. The Department subsequently sent a letter, dated April 14, 1995, to Respondent at this 40 Hendricks Isle address. Respondent, however, "had just moved from that address," and the letter was returned to the Department stamped, "forward expired." In May of 1995, Respondent advised the Department in writing of his new mailing address. It is unclear whether such written notification was given more than, or within, 30 days from the date Respondent had moved to his new address.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is hereby RECOMMENDED that the Department issue a final order: (1) finding Respondent guilty of the violations noted in the Conclusions of Law of this Recommended Order; (2) penalizing Respondent for having committed these violations by suspending his license for 18 months; and (3) dismissing the remaining allegations of misconduct advanced in the First Amended Administrative Complaint. DONE AND ENTERED this 12th day of February, 1999, in Tallahassee, Leon County, Florida. STUART M. LERNER Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 12th day of February, 1999.
The Issue The issue presented is whether Petitioner is eligible to participate in the State of Florida's group health insurance plan.
Findings Of Fact Petitioner Judy Stahl began her employment with the State of Florida as a public assistance specialist with the Department of Children and Families on October 4, 1991. She began participating in the State's group health insurance program on December 1, 1991. Petitioner voluntarily terminated her employment by the State on November 28, 2002, for personal reasons. In her letter of resignation she stated that it was her intention to again seek employment with the State after the personal situation which caused her to resign was concluded. Premiums for the State's group health insurance are paid one month in advance. Therefore, Petitioner's coverage under the State's group health insurance program continued through the end of December 2002. In January 2003, the State's Division of State Group Insurance notified Petitioner of her right to elect continuation coverage under the federal Consolidated Omnibus Budget Reconciliation Act (COBRA) and the federal Public Health Services Act (PHSA). Petitioner so elected and continued her participation in the State's group health insurance under COBRA for the maximum period of 18 months that was available to her. Her continuation coverage expired June 30, 2004. In May 2004 the State's Division of State Group Insurance notified Petitioner that her continuation coverage would soon expire and further advised her of her right to convert her insurance coverage to a private, individual policy. Petitioner exercised her option to convert to a private policy, effective July 1, 2004. In March 2005 the Florida Division of Retirement sent Petitioner an Estimate of Retirement Benefits. The Estimate contained the comment that: "As a result of a review of accounts for terminated members, it was determined that you are eligible for retirement benefits." The Estimate form was accompanied by a pamphlet explaining the Florida Retirement System Pension Plan. It was also accompanied by information on the State Employees' Preferred Provider Organization (PPO) health plan. The retirement pamphlet included the information that health insurance was available to retirees; however, the health insurance information advised that health insurance was only available to certain retirees. Petitioner concluded that if she retired, she could obtain cheaper health insurance from the State than from her private provider. This was the first time that Petitioner considered the possibility of retirement. Petitioner thereafter made many telephone calls to the Department of Children and Families, to the Division of Retirement, to the Division of State Group Insurance, and to People First, inquiring about retirement and insurance. These telephone inquiries were the first time she mentioned to any State employee or representative that she was interested in retiring. At the end of March 2005 she made the decision to retire and submitted her application for retirement benefits. Her effective retirement date was April 1, 2005. At the time Petitioner filed her application for retirement, she was no longer participating in the State's group health insurance program. At the time she filed her application for retirement, she was no longer participating in continuation coverage pursuant to COBRA. She was insured under a private policy. At the time of her initial enrollment in the State group health insurance program, Petitioner signed a new enrollee form that, inter alia, advised her that eligibility and enrollment were governed by the provisions of Florida Administrative Code Rule 22K-l. During her employment she also enrolled in supplemental dental insurance. That enrollment application form notified Petitioner that any changes in enrollment or coverage are governed by the federal Internal Revenue Code and the Florida Administrative Code. Throughout her employment and at the time that she terminated her employment, she completed Annual Benefits Open Enrollment forms, which also notified her that any changes in enrollment or coverage are governed by the Internal Revenue Code and the Florida Administrative Code. While employed by the Department of Children and Families, Petitioner was provided with copies of the State of Florida Employees Group Health Self Insurance Plan Booklet and Benefit Document. Those booklets describe eligibility for participation to include employees, certain retirees, and COBRA participants. They also describe termination of coverage due to termination of employment and describe continuation coverage and conversion coverage. At the time Petitioner retired, she was not a State employee; she was a former State employee.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered finding that Petitioner is not eligible to participate in the State's group health insurance program. DONE AND ENTERED this 19th day of January, 2006, in Tallahassee, Leon County, Florida. S LINDA M. RIGOT 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 19th day of January, 2006. COPIES FURNISHED: Mark J. Berkowitz, Esquire Mark J. Berkowitz, P.A. 524 South Andrews Avenue, Suite 200N Fort Lauderdale, Florida 33301 Sonja P. Matthews, Esquire Department of Management Services 4050 Esplanade Way, Suite 260 Tallahassee, Florida 32399-0950 Tom Lewis, Jr., Secretary Department of Management Services 4050 Esplanade Way Tallahassee, Florida 32399-0950 Alberto Dominguez, General Counsel Department of Management Services 4050 Esplanade Way Tallahassee, Florida 32399-0950
Findings Of Fact The Respondent, John Edward Gonzalez, is licensed in the State of Florida as a life and variable annuity agent and as a life, health and variable annuity agent. During 1992, he was employed by Metropolitan Life Insurance Company (MetLife). The Respondent worked out of MetLife's Southeastern Head Office in Tampa under its marketing head, Rick Urso. Under Urso, the Tampa office developed a scheme for marketing whole life insurance to nurses as an "insured nurses' retirement" plan or program. The goal of the scheme was for the nurses to apply for a whole life insurance policy before they realized that the "insured nurses' retirement" plan or program consisted of nothing more than a whole life insurance policy. Under the marketing scheme, MetLife's Tampa office would mail unsolicited "pre-approach" letters to nurses informing them of a supposedly new retirement savings plan available to professional nurses. The "pre-approach" letter touted the retirement investment's high current interest rates, the availability of the investment's cash fund for emergencies and opportunities, the ability to make "deposits" monthly, an optional "disability benefit," and a guaranteed income at retirement. The wording of the "pre-approach" letter was designed to disguise the fact that the supposedly new retirement savings program was nothing more than a whole life insurance policy. The "pre-approach" letter allowed the recipient to tear off a form at the bottom of the letter to fill in and mail to MetLife for more information. In the spring of 1992, an unsolicited "pre-approach" letter was mailed from MetLife's Tampa office to Sharon Ward, a registered nurse living in Fort Worth, Texas. The letter was signed by the Respondent. If the "pre-approach" letter had given Ward notice that she was being solicited for life insurance, she would have disregarded it. She already had all the life insurance she wanted. However, she was interested in saving and investing for retirement, so she responded by requesting more information. Under the marketing scheme, responses from recipients of the "pre- approach" letter ordinarily would be referred to the MetLife insurance agent who mailed the letter. The agent would telephone to schedule an appointment. Ward's response was referred to the Respondent as the agent who signed the "pre- approach" letter to her. The Respondent was trained in MetLife's Career Success School (CSS) to telephone nurses responding to "pre-approach" letters to schedule an appointment. No information was intended to be imparted during this telephone contact; certainly, the agent was not to reveal that whole life insurance was being solicited. In accordance with his CSS training, the Respondent telephoned Ward during the spring of 1992 and scheduled an appointment to meet with her at her home in Fort Worth. If the Respondent had revealed to Ward that he was soliciting for life insurance, she would not have agreed to the appointment. However, as planned by the MetLife Tampa office and the Respondent, she agreed to an appointment to learn more about the "nurses' retirement savings" plan. CSS also trained the Respondent and other MetLife agents in how to deliver a scripted presentation to a nurse at the scheduled appointment. The script was carefully worded to entice the nurse to apply to be accepted in the "nurses' retirement savings" plan or program without revealing that it consisted of nothing more than a whole life insurance policy. Whole life insurance was not mentioned in the script; once in the eleven page script, it was mentioned that "the retirement account provides an insurance benefit to protect it." Otherwise, the script gave no indication that life insurance was involved. The script never mentioned insurance premiums; instead, it referred only to "deposits," "contributions," or "savings." While the "optional disability benefit" referred to in the "pre-approach" letter was nothing more than the standard life insurance "disability waiver of premium," those words were not used; instead, the script described how, in the event of a disability, "Met will keep saving for you." The word "policy" was not mentioned; instead, the script offered to have MetLife "open an account" for the prospect. One of the big selling points emphasized in the script was MetLife's reputation, assets and security. Another big selling point was flexibility. While informing the prospect that the retirement savings plan is meant for long- term investment, the plan is contrasted with IRA's and other investments that penalize withdrawal of cash before retirement. CSS trained the Respondent and other MetLife agents to use a "Track Book" for illustrative purposes while delivering the scripted presentation. Life insurance was mentioned in parts of the "Track Book," but the "Track Book" was to be shown to prospects during the course of a presentation in a manner designed to preserve the disguise of the nature of the "nurses' retirement savings" plan or program. When the Respondent met with Ward in the spring of 1992 at her home in Fort Worth, he followed the CSS scripted presentation exactly, and it worked as designed. When Ward agreed to "apply," she had no idea that she was applying for a whole life insurance policy; she thought she was opening a retirement savings and investment account. Had she known that the Respondent was soliciting life insurance, she would have declined. When Ward agreed to apply, the Respondent took information from Ward and filled out the application for her, as he was trained to do in CSS. Some of the information for the application--e.g., the names of beneficiaries--was consistent with a life insurance application, but also not inconsistent with information required for opening a retirement savings account. Other information was less consistent with opening a retirement savings account, such as health history; but that type of information may not have been considered to be inconsistent with the "insurance protection" and "disability option" the plan was supposed to have. After completing the information on the application, the Respondent had Ward sign. Under the marketing scheme, it was hoped that the nurse would sign the application without reading it to determine that it was an application for life insurance. On the other hand, a nurse who read the application and determined that it was a life insurance application might assume that it was an application for the "insurance protection" and "disability option" the plan was supposed to have. In Ward's case, the scheme worked to perfection. While the Respondent did not prevent Ward from reading the application, he did not encourage her to, and she did not read it. She did not know it was an application for life insurance. Had Ward known that it was an application for life insurance, and that the "retirement savings" program was nothing more than a whole life insurance policy, she would not have applied. In accordance with the CSS marketing scheme, the Respondent left a brochure with Ward before he returned to Tampa. The brochure reiterated the major selling points of the "Nurses Insured Retirement Plan." Like the other marketing literature, the brochure was worded so as not to reveal that the "retirement plan" consisted of nothing more than a whole life insurance policy. In accordance with the CSS marketing scheme, after the Respondent's return to Tampa, a letter was sent to Ward signed by the Respondent as "Account Representative," dated August 13, 1992, congratulating Ward on her "foresight in starting an insured retirement savings program." (The Respondent denied that he signed the letter or authorized it to be signed for him by someone else. But the Respondent knew the substance of the congratulatory letter sent to a prospect at this stage of the sales process, and he did not protest when he learned that one had been sent to Ward over his signature.) As with prior communications with Ward, the letter was worded so as not to alert her to the nature of the "program"--i.e., that it was nothing more than a whole life insurance policy. It never mentioned life insurance. In accordance with the CSS marketing scheme, the Respondent's manager also sent Ward a letter of congratulation later in August, 1992, advising her that her "plan" had been approved and that her "Account Representative" (the Respondent) would be telephoning to make an appointment to "review the benefits and flexibility of your Retirement Program in detail." As with the Respondent's August 13 letter, the manager's letter was worded so as not to alert Ward to the nature of the "program"--i.e., that it was nothing more than a whole life insurance policy. It never mentioned life insurance. When Ward received a whole life insurance policy in the mail, she filed it away without reading it. Had she read it, she probably would have been able to determine what it was. If she had made this determination within ten days of receipt of the policy, she might have been able to cancel it and get a full refund; on the other hand, she might have assumed that it was the "insurance protection" her "retirement savings plan" was supposed to have. After about a year of making her monthly payments as they came due, Ward changed jobs, and her new employer gave her the opportunity to begin a Section 401K retirement account. When she attempted to transfer her MetLife funds into it, she learned for the first time that her MetLife retirement "account" consisted of a whole insurance policy that had no cash value yet. Ward tried to contact the Respondent to complain but he did not return her calls. When she pursued it further with MetLife, MetLife initially refused to refund her money. MetLife asked for the Respondent's version of what had happened, and the Respondent reported essentially that he had followed the CSS training. The Respondent let MetLife handle the matter from there. It was not until after Ward requested the assistance of the Texas Insurance Commissioner that MetLife finally refunded her money. The Respondent did not question the legality of the marketing scheme devised by the Tampa office of MetLife. He assumed that MetLife and the Florida Department of Insurance had approved it. There was no evidence that the Department or even MetLife had in fact approved the scheme. The Respondent sold many whole life insurance policies using the CSS methods. (He received MetLife's Leader's Conference Award for high sales.) No customer other than Ward has filed a complaint against him.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that the Department of Insurance and Treasurer enter a final order finding the Respondent guilty of the violations charged and suspending his licenses and eligibilities for six months. DONE and ENTERED this 7th day of August, 1996, in Tallahassee, Florida. J. LAWRENCE JOHNSTON, 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 7th day of August, 1996. APPENDIX TO RECOMMENDED ORDER, CASE NO. 94-2220 To comply with the requirements of Section 120.59(2), Florida Statutes (1995), the following rulings are made on the parties' proposed findings of fact: Petitioner's Proposed Findings of Fact. 1.-37. Accepted and incorporated to the extent not subordinate or unnecessary. Cumulative. Cumulative and argument. Respondent's Proposed Findings of Fact. 1.-2. Accepted and incorporated. 3. Conclusion of law. 4.-5. Accepted and incorporated to the extent not subordinate or unnecessary. 6. Accepted but subordinate and unnecessary. 7.-10. Accepted and incorporated. Rejected as contrary to the greater weight of the evidence that the Track Book "consistently referred to life insurance" or that it was used as a "visual aid." It contained some references to life insurance but did not, and was not used so as to, make it clear that what the Respondent was selling was a whole life insurance policy. Accepted and incorporated. Rejected as contrary to the greater weight of the evidence in that the entire marketing scheme gave him reason to believe it was illegal; accepted and incorporated that MetLife did not indicate to him that its scheme was illegal. In part, rejected as contrary to the greater weight of the evidence. See 13., above. In part, accepted and incorporated. See Finding 21, above. Cumulative. Rejected as contrary to the greater weight of the evidence. Accepted and incorporated. Accepted but subordinate and unnecessary. Rejected as contrary to the greater weight of the evidence that he gave her "every opportunity"; otherwise, accepted and incorporated. Rejected as contrary to the greater weight of the evidence that all were sent out by MetLife management or that any were approved by the Department. Otherwise, accepted and incorporated. it.) Accepted but subordinate and unnecessary. (The Respondent identified Rejected as contrary to the greater weight of the evidence. Accepted and incorporated. Accepted and incorporated. However, it was MetLife's explanation as to why she could not transfer funds from her MetLife "retirement account" that finally revealed to her that it was nothing more than a whole life insurance policy. Accepted but subordinate and unnecessary. Accepted and incorporated. COPIES FURNISHED: Willis F. Melvin, Jr., Esquire Department of Insurance and Treasurer 612 Larson Building Tallahassee, Florida 32399-0333 Stacey L. Turmel, Esquire Maney, Damsker, Harris and Jones, P.A. Post Office Box 172009 Tampa, Florida 33672 Bill Nelson State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Dan Sumner Acting General Counsel Department of Insurance and Treasurer The Capitol, PL-11 Tallahassee, Florida 32399-0300
The Issue The issue for consideration is whether Respondent's licenses as an insurance agent and his eligibility for licensure in various areas of insurance sales should be disciplined because of the matters set forth in the Administrative Complaint.
Findings Of Fact At all times pertinent to the allegations contained herein, the Department of Insurance and Treasurer was the state agency responsible for the regulation of and licensing of insurance professionals in Florida. The Respondent, Richard Lee Fast, was licensed and eligible for licensure in Florida as a life insurance agent, life and health insurance agent, home warranty association contracting sales representative, and solicitor-property, casualty, surety, and miscellaneous lines agent. In June, 1978, Fast & Co., an insurance sales firm, was organized under the laws of Florida. Corporate records and records maintained by the Florida Secretary of State's office reveal that at no time pertinent to the matters involved herein was Respondent listed as an officer, director or shareholder of the corporation. Notwithstanding, the evidence clearly indicates that Respondent was in charge of and dictated the daily operations of the firm. Richard Fast, Jr., the Respondent's son, was identified on the records as President of the firm yet had no managerial role whatever regarding the firm's activities. Both Respondent's wife and daughter were listed as corporate officers but the evidence also indicates that the majority of the company's accounts and business was generated and handled by the Respondent. At no time did Respondent dispute his control over the daily operations of Fast & Co. Therefore, though there may have been no direct evidence of who solicited or sold the policies to American and Sunniland banks, it is clear that Respondent was the guiding force for and architect of the company's business activities and knew at all times what major policies were in force and by whom they were written. Sydell Rubin was hired by Respondent as corporate secretary for Fast & Co. and indicated that during the lifetime of the corporation few if any formalities of corporate activity were observed. No shareholder, director, or officer meetings were held; no corporate minutes were kept; and only the Respondent could authorize the issue of checks drawn on the corporate bank account. Ms. Rubin, as corporate secretary, could sign corporate checks, but only with the Respondent's knowledge and consent, and he maintained complete control over the remittance of premium monies to insurers. In November, 1979, Fast & Co. entered into an agreement with Fidelity whereby Fast & Co. would serve as agent for Fidelity. This agreement was executed on behalf of Fast & Co. by Ms. Rubin and contained, in the various provisions thereof, the terms by which Respondent's company was to remit premiums earned to the insurance company. Specifically, at paragraph six, the agent, Fast & Co., was to provide Fidelity, before the 20th of each month, an account of all business written, renewed or cancel led during the preceding month and, thereafter, was to remit to the company, within 45 days after the end of the month for which the account was written, the net premium due. In the event the agent did not submit the account in a timely fashion, Fidelity was to submit its accounting to the agent for the preceding month, again, the net premium due was to be paid by 45 days after the end of the month for which the account was rendered. Paragraph eleven of the agreement provided that any monies collected on behalf of the company by the agent should be held in a fiduciary capacity and kept separate and apart from the agent's own funds and, consistent with paragraph fifteen of the agreement, the agreement could not be assigned without the consent of both parties. In October, 1985, a corporate resolution of Fast & Co. was executed by the Respondent which authorized certain individuals to have check signatory authority for the Fast & Co. business bank account with American National Bank. On this resolution, Respondent was identified as President of the corporation and signed the resolution as such. In fact, he was not President, but had he not appeared on the resolution as an officer, he would not have been allowed unlimited control over the corporation's accounts at American. In October, 1988, Fast & Co. received a check in the amount of $17,351.00 from American for the purchase of an insurance policy to be issued by Fidelity. In October, November, and December, 1988, Fast & Co. also received three checks from Sunniland Bank of Ft. Lauderdale, in the total amount of $19,478.75, also for the purchase of insurance policies from Fidelity. All these checks were endorsed and deposited into Fast & Co. `s business bank account. It was not shown who actually endorsed the checks or made the deposits. So much Of the payment as was not commission, however, was premium earned by Fidelity and under the terms of the agency agreement, should have been held for it in a fiduciary account kept separate and apart from Fast & Co. funds. It was not a Fast & Co. asset. The policy for American was issued by Fidelity effective October 1, 1988, and the Sunniland Bank policies were issued by Fidelity with an effective date of December 8, 1988. American's invoice was sent by Fidelity to Fast & Co. on November 9, 1988 and the invoice for the Sunniland Bank policies was forwarded by Fidelity on December 21, 1988. The net premium due on all policies, together, after deduction of commission due Fast & Co., was $30,012.40. The invoice forms were not, however, the account forms referred to by the agency agreement. The first account form on which the relevant policies appear was dated February 29, 1989. That statement referred to the policies effective in October, 1988 (American) and December, 1988, (Sunniland). Petitioner and Fidelity urge that the earlier notice as to each policy starts the 45 day period running. Respondent, of course, claims it is the later "statement of account." Since the "account statement" was sent by Fidelity, listing all outstanding balances due, consistent with the terms of the agency agreement which call for the submittal of an account by Fidelity in the event Fast & Co. does not do it, it is more reasonable to conclude that it is the latter. In late December, 1988, certain assets of Fast & Co. were sold by the Respondent to Loomis Management Company, (Loomis). The sale was consummated after an extended negotiation between Fast and Loomis during which time representatives of Loomis were given free access to Respondent's books and records. Included as an asset which was assigned to Loomis was the Fast & Co.'s agency agreement with Fidelity and according to the terms of the sales agreement, Loomis assumed "the duties and obligation of Fast & Co." Notwithstanding the provision of the agency agreement for notification of and obtaining consent to a transfer, no notice of the transfer was submitted to Fidelity by either Fast & Co. or Loomis, nor was Fidelity's consent to the transfer obtained prior to closing of the sale. The $30,012.40 premium held by Fast & Co. for Fidelity as a result of the sale of the American and Sunniland policies was not transferred to Loomis. It was not remitted to Fidelity, either, notwithstanding the provision of the agency agreement, which required Fast & Co. to remit earned premiums due the company in a timely fashion. The money in question was maintained by Fast & Co. and was not transferred to Loomis, and notwithstanding the fact that Fidelity contacted Respondent on several occasions throughout 1989 demanding remittance of the premium due, the money was not remitted. Finally, on December 30, 1989, after extended discussion with Fidelity regarding the delay in payment, Mr. Fast issued a check to Fidelity's agent in the amount of $30,012.40, drawn on the Fast & Co. corporate bank account, in full payment of the premium on the American and Sunniland policies. This check was dishonored by the bank upon presentation. To the date of hearing, the earned premium has not been remitted to Fidelity and as of the hearing date, those monies are unaccounted for. Respondent claims they are no longer in his custody and he disclaims any responsibility for their payment. He claims that because the agency agreement called for payment only at 45 days after the last day of the month for which the account was rendered, and since the accounting calling for payment was not sent by Fidelity until well after the policy effective date and the issuance of the preliminary invoices, the funds were not payable to Fidelity as of the date of the transfer of the corporate assets to Loomis and, therefore, the terms of the sale agreement between Fast and Loomis, calling for Fast to pay-only those obligations due and payable at the time of transfer, did not include that obligation. Respondent also shrugs off the issue of why, since the funds had been collected from the insured, they were not considered held in a fiduciary capacity to be transferred to Loomis by indicating Loomis representatives had ample opportunity to examine the books and the issue was not raised. His arguments are specious and without merit.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is, therefore: RECOMMENDED that a Final Order be issued in this case revoking all Respondent's licenses and eligibility for licensure. RECOMMENDED in Tallahassee, Florida this 21st day of November, 1991. ARNOLD H. POLLOCK 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 21st day of November, 1991. APPENDIX TO RECOMMENDED ORDER IN CASE NO. 91-4320 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 to this case. FOR THE PETITIONER; Accepted and incorporated herein. & 3. Accepted and incorporated herein. Accepted and incorporated herein. Accepted and incorporated herein. - 8. Accepted and incorporated herein. 9. & 10. Accepted and incorporated herein. 11. - 14. Accepted and incorporated herein. 15. Rejected as not a proper Finding of Fact. FOR THE RESPONDENT; Accepted and incorporated herein. - 4. Accepted and incorporated herein Accepted and incorporated herein. Accepted in the sense that he worked at Fast & Co. & 8. Rejected as implying Ms. Rubin was acting for American. Ms. Rubin completed the form for American, but it is clear she did so as an employee of Fast & Co. at the request of American. 9. & 10. Accepted and incorporated herein. 11. & 12. Accepted and incorporated herein. Accepted, but see (7. & 8.). - 17. Accepted and incorporated herein. Accepted. Rejected as contra to the weight of the evidence. 20.- 22. Accepted. Accepted. Accepted. & 26. Rejected. 27. & 28. Rejected as not pertinent to the issues of fact herein. COPIES FURNISHED: James A. Bossart, Esquire Department of Insurance 412 Larson Building Tallahassee, Florida 32399-0300 Charles L. Curtis, Esquire 1177 Southeast Third Avenue Fort Lauderdale, Florida 33316 Tom Gallagher State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Bill O'Neill Deputy General Counsel Department of Legal Affairs The Capitol, Plaza Level Tallahassee, Florida 32399-0300 =================================================================
The Issue Whether Petitioner should be licensed as a life, variable annuity and health agent by the Department of Financial Services?
Findings Of Fact Based on the oral and documentary evidence presented at the final hearing, the following findings of fact are made: Petitioner is 51 years old; has Associate of Arts degrees from Seminole Community College, Sanford, Florida, and Davenport University, Grand Rapids, Michigan; will soon acquire a bachelor of business administration degree from Belhaven College; and is applying for a doctoral program at the University of Central Florida. Petitioner holds a real estate sales associate license issued by the Department of Business and Professional Regulation, Division of Real Estate. The effective date of the license is September 29, 2003; it will expire on September 30, 2005. On November 28, 2001, Petitioner applied to Respondent for a license classified as a "life and variable annuity and health insurance agent." One of the screening questions on the license application was the following: "[H]ave you ever had any professional license subjected to any of the following actions by any state agency or public authority in any jurisdiction?" In response, Petitioner circled "Yes." The screening question was then followed by the following "actions": suspension, revocation, placed on probation, administrative fine or penalty levied, cease and desist order entered. In response, Petitioner circled "suspension." On July 17, 1997, a Final Order was entered in Department of Business and Professional Regulation, Division of Real Estate v. David Nelson Weiker, Case No. 95-85173, which reads, in part, as follows: . . . the Commission finds the Respondent guilty of violating ss 475.25(1)(c) and 475.42(1)(j), Florida Statutes, as charged in the Administrative Complaint. Therefore the Commission ORDERS that the license of David Nelson Weiker be suspended until the liens are removed. At the conclusion of the period of suspension, the Respondent is directed to contact the Records Section of the Division of Real Estate . . . to secure proper forms for reinstatement of Respondent's suspended license. The Commission further ORDERS that the Respondent pay a $1000 administrative fine and investigative costs of $768 within 30 days of the filing date of this order or the Respondent's license shall be suspended until such time as the fine and costs are paid in full. In Weiker, Case No. 95-85173, Petitioner, David N. Weiker, Sr., initially requested a formal hearing, then failed to respond to a request for admissions. As a result, he admitted being a licensed real estate salesperson who, as an employee of a builder, Mercedes Homes, Inc., filed 14 liens in a total amount of $23,301 against homes owned by Mercedes Homes, Inc., in an attempt to collect sales commissions he deemed he was owed. The administrative fine of $1,000, in Weiker, Case No. 95-85173, was paid by a check dated August 5, 1998, drawn on the account of David S. Piercefield, P.A. On August 13, 1998, an Amended Final Order was entered in Department of Business and Professional Regulation, Division of Real Estate v. David Nelson Weiker, Case No. 96-83238 (DOAH Case No. 97-4742), which reads, in part, as follows: . . . the Commission finds the Respondent guilty of violating s.475.25(1)(b) and (c), Florida Statutes, as charged in the Administrative Complaint. The Florida Real Estate Commission therefore ORDERS that the Respondent pay a $1,000.00 administrative fine. . . . Therefore the Commission ORDERS that the Respondent be placed on probation for a period of ninety days . . . In Weiker, Case No. 96-83238 (DOAH Case No. 97-4742), the Real Estate Commission adopted the Recommended Order of the Administrative Law Judge. In that Recommended Order, the Administrative Law Judge found that "he [Weiker] furthered a scheme of misrepresentation, false promises, and dishonest dealing." The administrative fine of $1,000, in Weiker, Case No. 96-83238 (DOAH Case No. 97-4742), was paid by a SouthTrust Bank check dated October 14, 2003. The remitter was Irene L. Weiker. On several occasions, in correspondence with representatives of Respondent, and while testifying at the final hearing, Petitioner testified that his real estate license had not been suspended. He also maintained, without substantive evidence or reasonable explanation, that the two administrative fines had been paid several times or by the wrong individuals. His attempts to explain the facts and circumstances of the two administrative actions disciplining his real estate license were unreasonable and not credible.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Respondent's decision to deny Petitioner's application for a life, variable annuity and health insurance agent license is well-founded; Petitioner's license application should be denied. DONE AND ENTERED this 22nd day of December, 2003, in Tallahassee, Leon County, Florida. S JEFF B. CLARK 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 22nd day of December, 2003. COPIES FURNISHED: R. Terry Butler, Esquire Department of Financial Services 200 East Gaines Street Tallahassee, Florida 32399-0399 David N. Weiker, Sr. 1506 Elfstone Court Casselberry, Florida 32707 Honorable Tom Gallagher Chief Financial Officer Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Mark Casteel, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300
The Issue Whether Respondent properly denied Petitioner's application for licensure as a Life and Variable Annuity and Health Insurance Agent.
Findings Of Fact Petitioner applied for licensure as a Life and Variable Annuity and Health Insurance Agent. Petitioner's application was signed and mailed to the Department of Insurance on or about January 27, 1998. Petitioner's application for licensure was denied by the Department on or about May 5, 1998. Two months later, on July 6, 1998, the Department issued an Amended Denial Letter that set forth the basis for the denial. According to the Amended Denial Letter, Petitioner's license was denied because she failed to meet the licensure requirements set forth in Sections 626.611(1) and (7) and 626.785(1), Florida Statutes. As a basis for the alleged violations, the Department stated: The Office of the Attorney General filed a civil action against you as vice-president and a director of the H.O.M.E. Program, and the H.O.M.E. Program along with other directors, alleging that the Program was formed as a not-for-profit corporation. . . to help people buy a house for themselves to live in. The complaint alleges that the Program offered a variety of services for a "Service Fee," has not provided any services, and that those fees were deposited into an account with NationsBank and the money was then misappropriated by one Jerome Ellington. The Attorney General still has a case pending against the H.O.M.E. Program and has stipulated to dismiss the cause of action against you with prejudice only at the conclusion of the lawsuit against the remaining defendants. You Charita Strode, were terminated from employment with NationsBank for wiring funds out of the H.O.M.E. Program's account in November 1997, after specifically being told by the Regional Service Support Manager that the funds needed to remain in the account until all items had cleared. The bank was placed in a loss situation of over $6,000 and due to your behavior you were terminated because you abused your authority in order to achieve the funds transfer, and did not follow supervisory instructions. That is evidence of lack fitness and trustworthiness. Further, it was determined by the Unemployment Compensation Appeals Bureau that you were discharged for misconduct and the Appeals referee resolved the conflicts in favor of your former employer. Petitioner was employed by NationsBank in January 1994, and, except for a six-month voluntary leave of absence, worked there continuously until she was terminated in January 1998. Prior to going on voluntary leave, Petitioner was manager of the NationsBank Gunn Highway Banking Center. During her first year with NationsBank, Petitioner was a management trainee associate. Thereafter, Petitioner became a manager, a position in which she served for the remainder of her tenure with NationsBank. As a manager, Petitioner was assigned to several NationsBank banking centers and was responsible for the operations, sales, and service of the centers to which she was assigned. Additionally, Petitioner's responsibilities included training and supervising more than fifty associates. In the spring of 1997, Petitioner was promoted from bank officer to an assistant or associate vice-president. While employed at NationsBank, Petitioner received at least two awards for her job performance. In 1997, Petitioner was recognized by NationsBank as a member of Florida Team One, a commendation that recognizes excellence in sales. One of the banking centers managed by Petitioner also received an award for service quality, an award received by only 20 to 30 percent of NationsBank banking centers. In May 1997, Petitioner first met and became acquainted with Jerome Ellington, the owner and founder of the H.O.M.E. Program. According to its literature, the H.O.M.E. Program was a "Christian Home Building Program" designed to assist individuals in building or remodeling their homes. Petitioner was particularly interested in the program because of her desire to become a homeowner. Based on her interest, Petitioner asked Mr. Ellington questions about the H.O.M.E. Program, how to become a member, and how to help other people who might be interested in the program. Petitioner became a client of the H.O.M.E. Program. As a client, Petitioner was required to pay to the program an initial fee of $1700 and a monthly maintenance fee of approximately $170 for three months. Based on her belief that the H.O.M.E. Program was a legitimate organization whose purpose was to assist individuals in purchasing homes, Petitioner told several family members and friends about the program. She told these individuals that the program would allow them to purchase homes for themselves and encouraged them to "look into it." Eventually, like Petitioner, between six and eight of these individuals paid the required fees and became clients of the H.O.M.E. Program. In late June or early July 1997, Petitioner became involved with the H.O.M.E. Program, serving on the program's Financial Advisory Board. The purpose of the Financial Advisory Board was to act as an agent to control the finances of the H.O.M.E. Program. During the time Petitioner was a named member of the advisory board, it met in July or August 1997, to organize that board. Other than this initial organizational meeting, the advisory board never met nor did it ever function in any official manner. In late July 1997, at about the time the H.O.M.E. Program was incorporated, Petitioner was selected by Mr. Ellington to serve as a member and elected as vice-president of the H.O.M.E. Program's Board of Directors (Board or Board of Directors). While Petitioner was on the Board, it seldom met. In July or August 1997, the H.O.M.E. Program set up three bank accounts at NationsBank. Each of the accounts had three signators, all of whom were officers of the H.O.M.E. Program: Bernadette Orsley, treasurer; Jerome Ellington, president; and Petitioner, vice-president. The address of record listed on the H.O.M.E. Program account was 7819 North Dale Mabry Highway, Suite 208, Tampa, Florida. From August 1997 through January 1998, Petitioner took a voluntary leave of absence from NationsBank to do work for the H.O.M.E. Program and to explore the possibility of going into business for herself. Petitioner's work with the H.O.M.E. Program involved setting up "outside services to clients once they got into their homes." Jerome Ellington was the chief executive officer and president of the H.O.M.E. Program. During the time that Petitioner was on the H.O.M.E. Program's Board and the Financial Advisory Board, Petitioner found that Mr. Ellington was not open about the expenditures he claimed to be making on behalf of the H.O.M.E. Program. Attempts were made by Petitioner and one other Board member to develop, initiate, and implement better accounting practices, operational procedures, and financial controls for the H.O.M.E. Program. For example, one recommendation was that two signatures be required on all checks written on the H.O.M.E. Program accounts. However, these efforts proved futile because Mr. Ellington was unwilling to implement any changes and relinquish financial control of the program's finances. By letter dated October 28, 1997, NationsBank advised the H.O.M.E. Program that due to the chargeback activity involving its three accounts, the bank was closing the accounts, effective ten days from the date of the letter. The letter acknowledged that the relationship between NationsBank and the H.O.M.E. Program was "a contractual one and under the terms of our Deposit Agreement either party can terminate the relationship at any time without cause." Chargeback activity occurs when items that are deposited or credited to the account are returned to the bank dishonored for a variety of reasons. NationsBank's concern with the H.O.M.E. Program accounts was that the excessive chargeback activity might possibly place the bank at risk of loss. In October 1997, Patricia McSweeney, then Regional Service Manager for NationsBank, spoke to Petitioner about the H.O.M.E. Program accounts and reiterated the contents of the October 28, 1997, letter from NationsBank. Upon learning from Ms. McSweeney that NationsBank was closing the H.O.M.E. Program's three accounts, Petitioner requested that the bank allow the three accounts to remain open to receive two electronic deposits that were scheduled to be made in November 1997. The electronic deposits were to be made on or about November 5 and 20, 1997. Ms. McSweeney agreed to leave the H.O.M.E. Program accounts open to receive the November electronic deposits and told Petitioner that there could be no check activity on the accounts. This agreement between Petitioner and Ms. McSweeney modified the terms of the October 28, 1997, letter and the accounts remained open beyond the time designated in that letter. However, the modification was not memorialized in writing and no date was established for closing the H.O.M.E. Program accounts once the November electronic deposits were made. With regard to the agreement between Petitioner and Ms. McSweeney, there was a material misunderstanding of how the H.O.M.E. Program accounts were to be handled during this extension. Ms. McSweeney's intent and understanding was that the account would remain open on a "credits-only" basis so that the credits could be received and posted to the account, and then allowed to age. Moreover, Ms. McSweeney believed there would be no check activity in the H.O.M.E. Program account, thereby eliminating or reducing the likelihood that the bank would be placed in a loss situation. On the other hand, Petitioner understood the agreement to mean that no checks could be written on the account or deposited into the H.O.M.E. Program account. However, Petitioner also believed that once the electronic deposits were made to the account, funds could be withdrawn from the account to cover the H.O.M.E. Program's expenses. The anticipated electronic deposits were made to the H.O.M.E. Program account as scheduled on or about November 5 and 20, 1997. After the November 5, 1997, electronic deposit of between $8,000 and $10,000, on November 10, 1997, Petitioner went to the NationsBank Carrollwood Banking Center and withdrew approximately $9,000 from one of the H.O.M.E. Program accounts to make a payment to the H.O.M.E. Program's line of credit. Petitioner believed that this withdrawal was permissible and not inconsistent with or in violation of the agreement with Ms. McSweeney. Furthermore, when Petitioner made the withdrawal, she was unaware of any flag on the account and no bank representative informed her that the account was so designated. At no time, either on November 10, 1997, or later, did any NationsBank representative notify Petitioner that the account was flagged and that the $9,000 withdrawal was improper and should not have been allowed. On or about November 20, 1998, the second electronic deposit was received and posted to the H.O.M.E. Program account. On the morning of November 20, 1997, Petitioner telephoned the NationsBank's Gunn Highway Banking Center and spoke with Michelle Shumate. Petitioner and Ms. Shumate knew each other because prior to Petitioner's going on leave, she was a bank officer and/or manager of the Gunn Highway Banking Center. During her telephone conversation with Ms. Shumate, Petitioner requested that two cashier's checks be drawn from the H.O.M.E. Program account and that the checks be made payable to the H.O.M.E. Program. The funds were to be used for operating expenses of the H.O.M.E. Program. When Petitioner requested the two cashier's checks, she did not perceive the requested transaction as being inconsistent with or in violation of the agreement she and Ms. McSweeney had made. Petitioner's interpretation of the agreement was that the H.O.M.E. Program was only precluded from writing checks to third parties on checks issued on the program's accounts. Because the cashier's checks were certified funds, Petitioner knew that there was no potential, at that time, for a loss situation. After Ms. Shumate's telephone conversation with Petitioner, Ms. Shumate immediately called Ms. McSweeney, her supervisor, and advised her of Petitioner's request for two cashier's checks. At hearing, in explaining her reason for calling Ms. McSweeney, Ms. Shumate made no mention of the account being flagged. Rather, Ms. Shumate stated, "I had knowledge of chargeback activity of the account, and I made it a policy for myself that before doing anything for any H.O.M.E. Program accounts, I would call a supervisor." Based on Ms. Shumate's testimony and written statement concerning Petitioner's request for two cashier's checks, it appears that Ms. Shumate's decision to call Ms. McSweeney was not because the accounts were flagged, but rather because of her personal knowledge of the problems with the H.O.M.E. Program accounts. In response to Ms. Shumate's call, Ms. McSweeney told her that the H.O.M.E. Program accounts were "credit only" accounts and withdrawals or debits were not to be made on the account. Thirty minutes after Petitioner requested the cashier's checks, she came to the drive-through window of the NationsBank Gunn Highway Banking Center to pick up the checks. Ms. Shumate then told Petitioner that Ms. McSweeney had advised her that the H.O.M.E. Program account was a "credit only" account and that there could be no check activity on the account. Pursuant to Ms. McSweeney's directive, Ms. Shumate told Petitioner that if she had any questions, she should call Ms. McSweeney. Petitioner then immediately called Ms. McSweeney from her cellular telephone. However, when Petitioner was unable to reach Ms. McSweeney, she left a voice mail message for her. After leaving the Gunn Highway Banking Center, Petitioner then went to pick up a Ms. Barnes for a 9:00 a.m. meeting. When the meeting concluded, Petitioner took Ms. Barnes back to the H.O.M.E. Program Office located at 7819 North Dale Mabry Highway. Petitioner then went to the NationsBank Carrollwood Banking Center, the banking center closest to the H.O.M.E. Program Office. Petitioner signed in as a representative of the H.O.M.E. Program to request customer service. Petitioner then met with a consumer banker regarding having a wire transfer made from one of the NationsBank H.O.M.E. Program accounts to the program's new account at First Union. Petitioner gave the consumer banker the H.O.M.E. Program account number and the Petitioner and the consumer banker filled out the required forms necessary to effectuate the wire transfer. When the form was completed, the consumer banker initiated the wire transfer in the system and Petitioner left the Carrollwood Banking Center. Immediately prior to the wire transfer, the H.O.M.E. Program account from which the funds were taken had a balance of approximately $23,000. The amount that Petitioner had wire transferred from the NationsBank's H.O.M.E. Program account was $19,800. The purpose of the transfer was to put funds into the H.O.M.E. Program's account at First Union to meet the program's expenses. Petitioner was aware there had been a history of minimal chargebacks on the account, in the form of drafts. Based on this knowledge, when Petitioner initiated the wire transfer, she left a balance in the account that she believed would be sufficient to cover any potential chargebacks from the electronic drafts. Petitioner based the estimate on the past experience of the chargebacks from electronic drafts. When Petitioner requested that funds be removed from the H.O.M.E. Program account, she never anticipated that it would result in or contribute to a loss by NationsBank. When Petitioner requested the wire transfer, neither the consumer banker nor anyone else at the bank told her that the account was flagged and that funds could not be wired from the H.O.M.E. Program account. The transfer went smoothly and in accordance with NationsBank's routine business practices. On the afternoon of November 20, 1997, after the wire transfer was made, Petitioner spoke to Ms. McSweeney, who asked her why she had made the wire transfer. During that conversation, it became clear that there was a misunderstanding between Petitioner and Ms. McSweeney regarding how the H.O.M.E. Program's NationsBank accounts were to be handled in November 1997. Ms. McSweeney told Petitioner that she had told Petitioner "not to do that," apparently referring to their October agreement regarding Petitioner's request to allow the H.O.M.E. Program accounts to remain open in November. Petitioner then told Ms. McSweeney that she had never said that to her. Petitioner indicated to Ms. McSweeney that the H.O.M.E. Program needed funds from the account for its operating expenses and that she never would have asked that the accounts be allowed to remain open to receive the electronic deposits if the organization were absolutely prohibited from accessing the funds. In the days or weeks after the funds were wired from one of H.O.M.E. Program accounts at NationsBank, the chargebacks on the accounts were in excess of any amount that they had ever been. Between November 20, 1998, the date the wire transfer was made, and January 30, 1998, the date Petitioner's termination, NationsBank sustained a loss of approximately $6,000. This loss has not yet been recovered by the bank. Had the wire transfer not been made, NationsBank may not have sustained this loss. However, the approximate $6,000 loss by NationsBank may not be attributable to the November 20, 1997, wire transfer. Two other individuals on the H.O.M.E. Program accounts, including Jerome Ellington, were authorized signators on the H.O.M.E. Program accounts and could have made withdrawals. At the hearing, personnel of NationsBank did not state unequivocally that the other authorized persons on the H.O.M.E. Program accounts had not made withdrawals from the accounts between November 1997 and January 1998. NationsBank personnel did not rule out that such withdrawals had been made, but stated only that to confirm whether such withdrawals had been made, the bank records, which were unavailable, would have to be reviewed. If, in fact, such withdrawals were made, those withdrawals could have contributed to or been responsible for the bank's financial loss. In November 1997, the previously existing problems and disputes within the H.O.M.E. Program organization exacerbated. Mr. Ellington, president and founder of the H.O.M.E. Program, who had previously encouraged Petitioner's involvement in the program, both as a client and officer, now would no longer allow Petitioner to transact business on the H.O.M.E. Program accounts. Consequently, once the excessive chargebanks in the H.O.M.E. Programs account surfaced, Petitioner was unable to move funds back to NationsBank. Her requests to Mr. Ellington that he move funds to NationsBank were disregarded. When Petitioner was on the H.O.M.E. Program's Board of Directors, the Board not only failed to meet on a regular basis, but was also prohibited by Mr. Ellington from functioning as a governing body. Mr. Ellington controlled the H.O.M.E. Program, including the "purse strings" of the organization. Petitioner lost approximately $2,000, the total amount of the funds she invested as a client in the H.O.M.E. Program. Moreover, Petitioner also lost a substantial part of approximately $3,000 to $4,000 of her personal funds that she had used for the H.O.M.E. Program to cover some of its operating expenses. In one instance, during her early involvement with the H.O.M.E. Program, Petitioner co-signed a loan agreement for the organization to have a phone telephone system installed in the program's office. After the H.O.M.E. Program failed to make the payments, Petitioner paid off the loan and received no reimbursements. In the first week of December 1997, Petitioner received a copy of minutes from Special Meeting of the Board held on November 18, 1997. Petitioner received no notice of that meeting and, consequently, was not in attendance. The minutes of the meeting reflect that the only three Board members and/or officers present at the meeting were: Jerome Ellington, president; Jacqueline Garcia Ellington, secretary; and Bernadette Orsley, treasurer. Pursuant to the minutes of the November 18, 1997, Special Meeting of the Board, under the category of "New and Urgent Agenda Items," Mr. Ellington initiated a discussion regarding his dissatisfaction with Petitioner, one other Board member, and two staff members. The minutes reported that Mr. Ellington stated that the organization was facing "certain and immanent (sic) insurrection" by Petitioner and the other three individuals. Moreover, the minutes indicated that the labor force was "being manipulated into a confused state of loyalty and that this along with a confrontation of gross insubordination" by Petitioner and the other three individuals was "usurpatous (sic) to the general operations of the Firm and extremely deleterious to Client confidence." According to the minutes, following the discussion, Mr. Ellington moved to vote on the removal or termination of Petitioner and the other three individuals "in view of their attempted take over of the business and a number of other possible infractions of the law." Following Mr. Ellington's motion, by a unanimous vote of the three Board members/officers attending the Special Meeting, Petitioner and the other absent Board member were removed from the Board and the two staff members were terminated, effective immediately. Prior to Petitioner's receiving the minutes of the Special Meeting, she was unaware of her removal from the Board. On January 30, 1998, near the end of her voluntary leave, Petitioner met with officials of NationsBank. Petitioner was advised that her employment with NationsBank was being terminated, effective immediately, because she had failed to follow and had directly violated instructions of the service support manager, Ms. McSweeney. These charges stemmed from the incident involving the transfer of funds on November 20, 1997. Petitioner explained to NationsBank officials that she did not understand that the agreement with Ms. McSweeney prevented the removal of funds from the H.O.M.E. Program accounts. Petitioner also told the NationsBank officials that her behavior with regard to the accounts was consistent with her understanding of the agreement. In this regard, Petitioner informed NationsBank staff that prior to the wire transfer, in November 1997, she had made a withdrawal from the account to pay on the program's line of credit with no problem. Petitioner also told the bank officials that when that withdrawal was made, no one at the bank advised her that the withdrawal was improper or that the account was flagged. Notwithstanding Petitioner's explanation, NationsBank terminated Petitioner's employment, effective immediately. After Petitioner was terminated from NationsBank, she applied for unemployment benefits. The application was denied and Petitioner appealed. In the Notice of Decision issued on the matter, the appeals referee concluded that the Petitioner, claimant in that proceeding, "intentionally violated direct orders from her supervisor." Petitioner had fiduciary duties with regard to her position as vice-president and member of the Board and member of the Financial Advisory Board of the H.O.M.E. Program. However, for the reasons stated above, Petitioner's efforts to perform these duties were thwarted by tactics employed by Mr. Ellington. On January 10, 1998, Petitioner first learned that the Florida Attorney General's Office had been investigating the H.O.M.E. Program, when she was served with a civil action brought by the Attorney General. The Complaint, filed on December 13, 1997, named the H.O.M.E. Program, Inc., Jerome Ellington, and Board members, including Petitioner, as defendants. Among the allegations contained in the Complaint were that the funds collected by the H.O.M.E. Program had not been placed in an escrow account as had been represented to members and that the program had not initiated construction on any residence for any of its 140 clients. The Complaint also alleged that Mr. Ellington withdrew or transferred approximately $31,000 from a H.O.M.E. Program account and of that amount, $23,000 was transferred by Mr. Ellington from a H.O.M.E. Program's account at NationsBank to First Union on November 27, 1997. Moreover, the Complaint alleged that a substantial amount of those funds were used by Mr. Ellington for his personal expenses and approximately $17,000 of the program funds, at one time in Mr. Ellington's possession, remained unaccounted for. The Complaint contained no allegations that Petitioner or any other Board member had misappropriated H.O.M.E Program funds or, at any time, had organization funds in their possession which could not be accounted for. Pursuant to a Stipulated Settlement Agreement (Agreement) entered into on May 18, 1998, the Complaint was dismissed without prejudice against Petitioner "until the conclusion of the lawsuit against each of the remaining Defendants at which time the cause of action against [Petitioner] shall be dismissed with prejudice, provided that [Petitioner] has complied with the terms of the Agreement." In this regard, the Agreement requires the Petitioner to cooperate and assist the Attorney General's Office in the investigation and litigation relating to the Complaint. The Agreement acknowledged and expressly stated that Petitioner's acceptance of the Agreement did not constitute an admission that she violated the laws of Florida as alleged in the Complaint. To determine fitness and trustworthiness of applicants for insurance licenses, the Department looks at the applicant's history and activities in which the applicant participated. Also, the Department considers other issues, such as whether there were victims of the applicant's activities; whether someone was financially harmed; whether money and/or fiduciary duties were involved; and whether the actions were willful. In evaluating Petitioner's application, the Department had several concerns. First, the Department determined that Petitioner had willfully violated or refused to obey a supervisor's direct orders by moving funds out of the H.O.M.E. Program account and that as a consequence thereof, the bank lost several thousand dollars. In the Amended Denial Letter, the Department alleged that Petitioner accomplished this by "abusing" her position with the bank. From this uncorroborated information the Department received from NationsBank, the Department concluded that Petitioner's conduct demonstrated a lack of fitness and trustworthiness. Second, in making the final decision to deny Petitioner's application, the Department considered the fact that Petitioner had been a named defendant in the aforementioned Complaint filed by the Attorney General. Prior to the Department's issuing the Amended Denial Letter, it was aware that the Complaint had been dismissed as to Petitioner. Nonetheless, the Department found it significant that the Complaint had been dismissed without prejudice and that the Agreement had been reached in exchange for Petitioner's cooperation and testimony. The Department believed that the Agreement did not suggest that the underlying events that gave rise to the allegation in the Complaint did not occur. Finally, as a basis for its decision with regard to Petitioner's application, the Department relied on an Unemployment Appeals Bureau decision denying Petitioner unemployment benefits. The Department apparently found it significant that the referee in that proceeding found Petitioner's account of the events less credible than that of NationsBank and concluded that Petitioner "intentionally violated direct orders from her superior." Based on these considerations, the Department then concluded that the allegations raised in the Complaint demonstrated that Petitioner lacked the fitness to fulfill the fiduciary responsibilities required of an insurance agent. When the Department issued the Amended Denial Letter, it was unaware that Petitioner had been removed from the H.O.M.E Program Board in November 1997, because of her efforts to have the program implement financial controls for the funds it was collecting and expending. The Department was also unaware or failed to consider the short period of time Petitioner was associated with the Board, that Petitioner was a client of the H.O.M.E. Program, and that she lost money as a result of her involvement with the program.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department issue to Petitioner, Charita Michelle Strode, a license as a Life and Variable Annuity and Health Issuance Agreement. DONE AND ENTERED this 16th day of February, 1999, in Tallahassee, Leon County, Florida. CAROLYN S. HOLIFIELD 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 16th day of February, 1999. COPIES FURNISHED: Bill Nelson State Treasurer and Insurance Commissioner Department of Insurance The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Daniel Y. Sumner, General Counsel Department of Insurance The Capitol, Plaza Level 26 Tallahassee, Florida 32399-0300 Steve E. Baker, Esquire Delano Stewart, Esquire Stewart, Joyner, Jordan-Holmes, P.A. 1112 East Kennedy Boulevard Tampa, Florida 33672 Elenita Gomez, Esquire Mechelle R. McBride, Esquire Department of Insurance 612 Larson Building 200 East Gaines Street Tallahassee, Florida 32399-0333
The Issue This is a license discipline proceeding in which the Petitioner seeks to take disciplinary action against the Respondent on the basis of allegations of misconduct set forth in an Administrative Complaint. The violations charged in the Administrative Complaint relate primarily to alleged mishandling of funds received on behalf of an insurer.
Findings Of Fact The Respondent, Louis Iannucci, is currently eligible for licensure and is licensed in this state as a life insurance agent, life and health insurance agent, and health insurance agent, and was so eligible and so licensed at all times relevant to these proceedings. At all times pertinent to these proceedings the Respondent was an officer and director of Certified Insurance Associates, Inc., an incorporated insurance agency doing business in Fort Lauderdale, Florida. At all times pertinent to these proceedings, the Respondent was a duly appointed agent in this state under contract with United American Insurance Company. At all times relevant to these proceedings, Respondent was the sole authorized signatory on his business bank account with Capital City Bank, now known as Union Planters Bank. On or about February 12, 1997, Respondent received a check from Gretchen Smith of Titusville, Pennsylvania, in the amount of $1,833.00 and made payable to United American Insurance Company. This sum was intended as the renewal premium payment of Mrs. Smith's United American Medicare supplement insurance policy. Respondent endorsed this check and deposited it into his business bank account on February 18, 1997. Even though the premium was due on or before March 1, 1997, the Respondent waited until April 14, 1997, to remit only $486.00 of the money received from Gretchen Smith to United American Insurance Company in payment of a quarterly premium on her policy. Respondent retained the remainder of the funds for his own use and benefit. A short while later it was brought to the attention of United American Insurance Company that Gretchen Smith had paid an annual, not quarterly, premium for the policy. United American Insurance Company wrote to Mrs. Smith and requested a copy of her cancelled check for $1,833.00 that she had given to the Respondent. Upon receiving Gretchen Smith's response and a copy of her premium check, the insurance company credited her account with payment of an annual premium and reversed out the quarterly payment that had been posted to her account. The Respondent was charged for the difference of $1,347.00. On or about September 6, 1996, Respondent received a check from Mr. and Mrs. Lew Kisver of Plantation, Florida, in the amount of $3,666.00 and made payable to United American Insurance Company. This sum was intended as the renewal premium payments of Mr. and Mrs. Kisvers' United American Medicare supplement insurance policies. Respondent endorsed this check and deposited it into his business account. The Respondent, on or about September 25, 1996, remitted only $1,894.00 of the money received from Mr. and Mrs. Kisver to United American Insurance Company in payment of a semi-annual premium on each Kisver policy. Respondent retained the remainder of the funds for his own use and benefit. On or about March 7, 1997, it was brought to the attention of United American Insurance Company by Mr. and Mrs. Kisver that they had paid an annual, not semi-annual, premium for each of their policies. United American requested Mr. and Mrs. Kisver to provide a copy of their cancelled check or receipt for their payment of the premium. In response, the Kisvers mailed to the insurance company a copy of their cancelled check for $3,666.00 that they had given to the Respondent to pay their policy premiums. Upon receiving the Kisvers' response and copy of their premium check, the insurance company credited their account with payment of annual premiums and reversed out the semi-annual payments that had been posted to their accounts. The Respondent was charged the difference of $1,894.00. By coincidence, at this same time in March 1997, Respondent remitted $1,894.00 to the insurance company in payment of the next semi-annual premium due on the Kisver policies. The insurance company subsequently credited the money to Mr. Iannucci's account as he had already been charged for the premiums. The Respondent's agency contract then in effect with United American Insurance Company provided in relevant part: The Agent shall immediately remit to the Company all premiums collected by the Agent or sub-agents in excess of the Agent's initial commission thereon. In addition, the contract limited the agent's authority to collect premiums by specifically providing that the Agent shall not "collect or receipt for premiums other than initial premiums with applications for insurance." At all times material, the United American Insurance Company had on file at the Capital Bank a letter of authorization. The letter of authorization read as follows, in pertinent part: This letter will authorize the captioned General Agent of United American Insurance Company [the Respondent] to endorse and deposit to the General Agent's account with your bank checks made payable to the United American Insurance Company for premiums collected at the time of application for insurance with this Company. The General Agent may also withdraw or disburse any such funds so deposited. Pursuant to both the agency contract and the letter of authorization on file with the bank, the Respondent lacked authority to deposit and cash checks received from customers in payment of their renewal premiums. Similarly, the Respondent lacked authority to hold premium funds in his bank account for lengthy periods of time. The Respondent was aware, or should have been aware, of these limitations on his authority. Between September 1996 and April 1997, the balance of Respondent's business bank account with Capital City Bank at the end of each month was less than the amount of the premium funds that Respondent had received from the Kisvers and Gretchen Smith but had not remitted to the insurance company. At the end of September and October 1996, Respondent's bank account had an ending balance of $1,659.91, and $1,589.82 respectively. At this time he should have been holding $1,894.00 of unremitted funds in trust on behalf of the Kisvers and the insurance company. In February 1997, the end of the month balance of the business account was only $71.19, even though Respondent should have been holding not only the $1,894.00 previously received from the Kisvers but also the $1,347.00 received from Gretchen Smith on February 12, 1997, but not remitted to the insurance company. Respondent had apparently applied the insurance premium payments received from the insureds for his own use and benefit, even though the funds were fiduciary in nature and were held in trust. At all times material to this case, it was the practice of United American Insurance Company to forward monthly statements to the Respondent. If the Respondent had a credit balance, the statement would be accompanied by a check in the amount of the credit balance. If the Respondent had a debit balance, the statement would request that the Respondent make "payment in full by return mail." Although the United American Insurance Company debited the Respondent's account for the portions of the Smith and Kisver funds that were not promptly forwarded to the insurance company, there is no clear and convincing evidence that the United American Insurance Company ever made demand on the Respondent to pay those specific amounts. There is no clear and convincing evidence that the Respondent had any fraudulent or dishonest intent in connection with his handling of the Smith and Kisver funds discussed above. The Respondent's handling of those funds does, however, demonstrate a lack of fitness to engage in the business of insurance as well as a lack of reasonably adequate knowledge and technical competence to engage in the transactions authorized by his license.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department enter a Final Order to the following effect: Concluding that the Respondent violated Sections 626.611(7), 626.611(8), and 626.611(10), Florida Statutes, as charged in Count One and in Count Two of the Administrative Complaint; Concluding that the allegations that the Respondent violated Sections 626.611(9) and 626.621(4), Florida Statutes, should be dismissed for lack of clear and convincing evidence to establish those violations; and Imposing a penalty consisting of a suspension of the Respondent's License for a period of six months. DONE AND ENTERED this 18th day of November, 1998, in Tallahassee, Leon County, Florida. MICHAEL M. PARRISH Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 18th day of November, 1998.
Findings Of Fact Caribank, N.A. ("Caribank"), was acquired by J. J. Gonzalez Gorrondona, Jr. ("Gorrondona Jr.") and George Childs, Jr. ("Childs") in May, 1977, and Dania Bank was acquired by these individuals through a tender offer in April, 1978. Caribank Corporation, the Applicant herein, is a bank holding company that now owns more than 99 percent of the stock of Caribank. Gorrondona Jr. owns 90 percent of Caribank Corporation and Childs owns 10 percent. Caribank Corporation was originally named Banconac Shares, Inc. when it was established in November, 1977. Its name was changed to Caribank Corporation on June 5, 1979. Banconac is a name used by many subsidiaries of the Banco National de Descuento ("BND"), a Venezuelan private commercial bank, a majority of the stock of which was formerly owned by Gorrondona Jr. and his father, J. J. Gonzalez Gorrondona, Sr. ("Gorrondona Sr."). It is derived from the name Banco National de Descuento and is used in Venezuela to signify business owned by the BND directly or indirectly. The use of the name Banconac in the Applicant's former name was not explained by the Applicant although Gorrondona Jr.'s testimony established that BND funds were not used to purchase Caribank. Gorrondona Jr. owns approximately 90 percent of Dania Bank and Childs owns approximately 10 percent of the Dania Bank, a state chartered bank. Approximately .3 percent is owned by shareholders who did not surrender their shares. Martin L. Wyneken ("Wyneken") is President and chief executive officer of both the Dania Bank in Broward County and of the Caribank in Coral Gables, Dade County. Childs is Chairman of the Board of the Dania Bank and Caribank, and President, Treasurer and a Director of Caribank Corporation. Policies of Caribank and Dania Bank are established through frequent conferences between Childs and Wyneken. Wyneken has a very close working relationship with Childs. Gorrondona, Jr. has the power to remove Wyneken and Childs. Childs comes to Florida about three times per month to confer with Wyneken. In these above-mentioned discussions, Childs is the spokesman for the "capital." Owning 90 percent of the stock of the Dania Bank provides Gorrondona, Jr. with authority concerning the management and policies of the bank. Directors of the Dania Bank are selected by the shareholders. Gorrondona, Jr. and Childs have not taken any dividends as shareholders of Dania Bank or Caribank, despite the substantial earnings of these banks. Dania Bank and Caribank centralize their operations as much as possible with two separate corporations. Dania Bank and Caribank trade employees back and forth and bill each other through an elaborate accounting system. Thad R. Chamberlain, a director of Caribank Corporation, is executive director of the Banco Suramericano de Desarollo, a Panamanian bank in which Gorrondona, Jr. owns a controlling interest. This is an application pursuant to the Florida Banking Code, Section 658.28, Florida Statutes, for permission to acquire control of Dania Bank by Caribank Corporation. This change in control is sought in order to facilitate a merger of Caribank and Dania Bank. The merger is desired to facilitate the expansion of branch banking, the development of an international department and the development of subsidiaries in such areas as leasing, mortgage financing, and small business investment (S.B.I.C.). The combined capital of Caribank, of approximately $4 million, and the Dania Bank, of $16 million, is expected to facilitate the establishment of subsidiaries. Dania and Caribank are, according to their Chief Executive Officer, Wyneken, "aggressive" banks and there exists a policy of increasing total assets from $265 million at the end of June, 1982, to $500 million by the end of 1985; there is also an aggressive program for subsidiaries. The merged bank plans to spend more on advertising in Dade County. Caribank at its present size cannot justify an increase in advertising expenditures. If this application is approved and a merger subsequently occurs, management expects that there will be benefit on the deposit side since assertedly better use will be able to be made of the money deposited. The Caribank/Dania Bank management has an ambitious program of branch banking. Gorrondona, Jr. and Childs have asked that Dania and Caribank branch into the counties as quickly as possible. Management would like to concentrate branching efforts in Dade County, but their capital at Caribank is so much smaller that it must rely on the Dania Bank for all kinds of assistance. Denial of this application and the failure to merge would restrict expansion in Dade County. The Caribank/Dania Bank management hope that the merged bank will become a large chain bank. The Chief Executive Officer of the two banks testified that to become a large chain bank "[W]e need every bit of help we can get, and that is why we need this consolidation." According to Childs, merger is expected to allow a "substantial increase in the capital base of all the subsidiaries which we have established or intend in the future to establish." A merger is expected to follow immediately upon the granting of the application. If the application were approved and for some reason the merger did not occur, Applicant would seek to change the name of the Dania Bank to Caribank to get the maximum effect out of their advertising dollars. It is further expected that if the application for change in control is granted, the two banks could file a consolidated tax return with an annual tax saving of approximately $64,000. From the above findings, it can reasonably be inferred that this application is made to facilitate a program of rapid expansion and establishment of subsidiaries, and if the application is granted, it can be expected that rapid expansion and development of subsidiaries will be more likely to occur. George Childs, Jr., started Banac Management, Inc. ("Banac") for Gorrondona, Jr. seven and a half years ago and was president of the corporation at the time of the intervention of the BND (discussed below). Banca is a BND subsidiary located in New York City. At the time of the intervention it was acting as a representative of the BND and its subsidiaries to obtain credit lines. Prior to the intervention, Gorrondona, Jr. was involved in the affairs of Banac. He visited Banac in New York six to seven times per year. He was a member of the Banac Board of Directors from 1975 to 1979. The BND was founded in 1954 by Dr. Jose Joaquin Gonzalez Gorrondona, Sr., who is the father of Gonzalez Gorrondona, Jr., the ninety percent (90 percent) owner of the Petitioner, Caribank Corporation, and the subject bank, The Dania Bank. Dr. Gonzalez Gorrondona, Sr. does not now, nor has he ever had any interest in, nor involvement with, Caribank Corporation, The Dania Bank or Caribank, N.A. Since its beginning, the BND had a steady growth until, at the time of the intervention of the bank by the government on December 7, 1978, it was the largest privately owned (nongovernmental) bank in Venezuela with the largest amount of private deposits, 6.3 billion Bolivars (1 Bolivar equals about 0.25 in U.S currency). Gorrondona, Jr. began working at the bank in 1958, worked throughout his early years, and continued to work full-time for the bank after receiving his doctoral degree in economics from the Catholic University in Venezuela with a doctoral thesis in economic planning. During his education, Gorrondona, Jr. studied such subjects as Monetary Theory, History of Financial Institutions, Operation of Financial Institutions, and Public Finance. His interest in economics began early in his life because Dr. Gonzalez Gorrondona, Sr. was the founder of the School of Economics in Venezuela, having been the founder of the Venezuelan Economic Council and the representative of Venezuela at the Bretton Woods meeting in 1943 at which the International Monetary Fund was founded. After graduation, Gorrondona, Jr. continued to study, taking courses in management such as Management by Objective, Computer Science, Systems Analysis, and other courses which would enable him to perform as a manager of a financial institution. Gorrondona, Jr. worked in many phases of the management of the bank, until in 1974, he became president in charge, which means that he was the chief executive officer in the absence of his father. He never drew a salary. By the time of the BND intervention, the stock interest of Gorrondona, Jr. was worth between $350 and $700 million dollars. As an outcome of the intervention, Gorrondona, Jr. lost between $150 and $200 million dollars in the worth of the BND stock which was owned by him. By the time of the intervention, the BND had grown to a bank which included approximately 60 branches, primarily in urban areas of Venezuela. The BND also owned several profitable subsidiaries, including Crenca, a financial society which was able to engage in financial transactions forbidden for commercial banks; Credimatico, which was the owner of a Master Charge franchise in Venezuela which had a market share of twenty-five percent of the credit card sales in the country; Arrendarca, a leasing and factoring company; and Almacendadora Caracas, a bonded warehouse company owning bonded warehouses in several cities in Venezuela. The BND also owned Servimatico, which dealt mainly with consumer credit and financed appliance and other small consumer purchases. Each of these subsidiaries was profitable to the bank and assisted the bank in paying dividends which had been declared each year, since 1973. Beginning prior to 1977, the BND was required to send its minutes of Board meetings to the Superintendent of Banks because there had been detected, as a result of special inspection, a tendency toward concentration of credit. In 1978, BND was the only bank required to send minutes of Board meetings to the Superintendent. At a majority of the meetings of the Board of the Central Bank of Venezuela ("CBV") during the last six months of 1978, there was an agenda item entitled "BND." During this time, employees of the Superintendent and the CBV were at the BND carrying out studies to see in what way or ways the BND's financial soundness could be improved. In August of 1978, the Superintendent of Banks wrote to the Minister of Finance about the situation of the BND. The letter notes that credits of Bs. 2,553.8 million were concentrated in 130 companies, that directors of these companies were in turn, directors of the bank, that there was a disproportion between the amount of these credits and the net worth of the borrower, that renewals were made even after delay in payment and that the credits were extended without analysis of the balance sheet. In September, 1973, the BND was prohibited from distributing dividends by the Superintendent of Banks because it would have adversely affected the liquidity of the BND. In November of 1978, the BND asked the Venezuelan Government for special financial aid in the amount of Bs. 600 million. The BND proposed that it be made the subject of a "private intervention" during the period of time such advance was outstanding. On December 6, 1978, the CBV excluded the BND from the Clearing House effective December 7, 1978, by vote of its Board. The CBV, the equivalent of the U.S. Federal Reserve, is a public institution of the Republic of Venezuela, but is considered independent. Eight members of its Board of Directors and its President are appointed by the government. Six members are appointed on recommendation of the private sector. The CBV, through its credit functions, provides credit assistance to banks and credit institutions in Venezuela. Through its operations, it seeks to safeguard the solvency and liquidity of Venezuela's banking system. A Clearing House to settle accounts between banks is operated by the CBV. When bank customers draw and deposit checks, credits and debits between banks are created that have to be reconciled on a daily basis. Venezuelan banks are required by law to maintain a deposit account at the CBV in order to settle such accounts. If after reconciliation, a bank owes money to other banks, its CBV account is debited to cover the debt. If after reconciliation, a bank is owed money, its account is credited. If a bank does not have enough on deposit to cover its debts, it can present to the CBV cash or checks or payment orders against other banks in sufficient amount. It can also present funds obtained outside the country. Finally, it can obtain funds by rediscounting commercial paper at the CBV. Rediscount consists of endorsing eligible commercial paper to the CBV in return for payment. Eligible paper, for example, must mature within 360 days and be adequately secured so that there is assurance as to its liquidity or self-liquidating nature. Thus, medium or long-term loans do not normally give rise to eligible paper. The decision to exclude the BND from the Clearing House was reached on December 5 and 6, 1978. Prior to this time, BND had had repeated difficulties converting its debts at the Clearing House. On December 5, the CBV Board authorized the exclusion of the BND in principle subject to discussion with the Venezuelan Government. At the time, the BND did not have commercial paper considered eligible by the CBV to receive credit assistance from the CBV. The situation was examined again on December 6 by the CBV to see if there were new elements or new alternatives. On December 6, 1978, the BND was overdrawn at the Clearing House to the extent of being unable to make good in its negative balance of approximately Bs. 100 million. It was decided there were no new elements or alternatives, and accordingly, the President of the CBV wrote to the Venezuelan Minister of Finance to let him know (1) that the BND had a deficit in its legal reserve requirement (see below); and (2) that the CBV Board had decided to exclude the BND from the Clearing House effective December 7, 1978. Prior to the exclusion of the BND from the Clearing House, the CBV Board considered the possibility of extending extraordinary credit assistance to the BND. The Board concluded that such assistance would be in violation of Article 45 of the law governing the CBV. That article provides: "Article 45. - In exceptional cases and with the favorable vote of the six members of its Board of Directors, the Banco Central de Venezuela may, in order to insure the due liquidity of a bank or credit institution in transitory difficulties, provide it with funds for a period not to exceed ninety days, which may be extended for an equal term at the Bank's discretion, secured by other assets of said bank or credit institution, different from those listed in the previous article. "Loans may in no event be made to a bank or credit institution if the trans- itory difficulties it faces are due, in the Board's opinion, after having consulted with the Bank Regulatory Commission, to the poor management or inadequate investment of its resources." In the case of the BND, the CBV Board concluded extraordinary credit assistance would be illegal because BND's liquidity problems were not "transitory" but rather structural, permanent and progressive, because the liquidity problems of the BND were due to improper investment of its resources, and because its funds were invested in operations that were insecure or lacking in guarantees, which reflected bad banking management. Under the rules and regulations of the Clearing House, the exclusion of the BND was mandatory. On the evening of December 6, 1978, a meeting was held at the Presidential Palace attended by the President of Venezuela, the Minister of Finance, other ministers involved in the financial sector, some of the board members of the CBV and the Superintendent of Banks. The stated purpose of the meeting was to inform the President of the Republic about the BND situation. The meeting lasted three hours. There was a discussion as to whether there was any alternative to the one proposed by the CBV. It was concluded that there was no alternative. The President of the Republic instructed the Minister of Finance and the President of CBV to hold a meeting the following morning to inform the banking community that the BND had been excluded from the Clearing House and that the government had decided to intervene the BND. The decision to intervene was unanimous. Two major events which contributed to the liquidity crisis which allowed the government to intervene the BND, were the result of actions by the government itself. The first of these actions was the substantial withdrawal of public funds from the BND. Between November 30 and December 6, over 100 million dollars was withdrawn by the government agencies from the BND. Withdrawals averaged 20 million dollars per day with a high of 30 million dollars on December 6. These daily balances were reported by the Comptroller of the bank to Gorrondona, Jr. on a twice daily basis during these days. No testimony, either from a witness or in the form of an exhibit, was ever introduced to contradict Gorrondona, Jr.'s testimony concerning these substantial withdrawals during the week prior to the intervention. The second action which was taken by the government injurious to the BND was the refusal to accept commercial paper for rediscount. Gorrondona, Jr.'s unrebutted testimony established that the same paper which was denied rediscount by the Central Bank on December 6 was granted rediscount on December 30 and during the period of time after the intervention. Gorrondona, Jr.'s testimony established that it would have been impossible to change the loan portfolio within such a short period of time and therefore of necessity it was the same loan portfolio which was granted rediscount after the intervention which had been denied rediscount during the week prior to the intervention. Gorrondona, Jr. further testified that the December 7, 1978, hand- written balance sheet, contained in Petitioner's Exhibit 70, the Intervenor's January 12, 1979, report, was a consolidated balance sheet including all 60 of the BND's branches. Therefore, the balance sheet was prepared by employees of the intervenor during the period between December 7, 1978 and January 12, 1979. On the issue of loans eligible for rediscount on December 7, Mr. Gabledone, Respondent's witness, using Respondent's Exhibit 70, stated that if the figures in Exhibit 70 were correct, the BND had 3.663 billion Bolivars eligible for rediscount on December 7, and that "the BND would have been able to obtain a large amount of rediscounts, or large amounts that would be eligible for rediscounts." In part, a result of the withdrawal of government funds, the failure of the government to repay its loans and overdrafts, and the denial of rediscount by the Central Bank of BND commercial paper, the BND had a deficit at the Central Clearing House on December 6 of 100 million Bolivars. Article 166 of the General Banking Law of Venezuela provides: "Whenever a bank or credit institute, subject to the Provisions of this Act, faces a preca- rious situation which might entail an eventual detriment to its depositors or creditors, or endanger the banking system in general, or when infringing repeatedly (the provisions of) this Act, or those of the Central Bank of Venezuela Statute or the Regulations of either or both, or any Resolution adopted by the Executive Branch, the Superintendent of Banks or of the Central Bank of Venezuela, then the Executive Branch shall empower the Superintendent of Banks or any other individual it may deem com- petent to place the Bank or Credit Institute in Receivership. The Receiver may agree with the Central Bank of Venezuela on the course of action to be taken for the respective bank's or credit institute's redress, its eventual reorganization or liquidation, which shall become mandatory for the respective financial house. But he shall, without exception, pre- pare, within a period not exceeding thirty days as from the date or resolution decreeing the receivership, a complete and itemized report concerning the legitimacy of the respective intervention and submit it to the Executive Branch. By Resolution 2296 issued December 7, 1978, the Minister of Finance of Venezuela intervened the BND. Intervention is an uncommon occurrence and the law contemplates it will occur only when a financial institution is in danger. The decision to intervene the BND could have been appealed to the Supreme Court of Venezuela. No appeal was taken. Neither Gorrondona, Sr. or Jr. or any other shareholder filed suit to block or overturn the intervention, although they had lawyers in Venezuela and Gorrondona, Sr. was in Venezuela. The BND is still under intervention. On march 31, 1979, the Superintendent of Banks of Venezuela issued its Annual Report for the year 1978 ("Superintendent's Report"). The Report contains an extensive discussion of the BND and the reasons for its intervention. The Superintendent's Report states the following: In 1977 and 1978, a decrease in the rate of growth of the Venezuelan economy together with unbalanced financial management at the BND whose key feature was credit over- expansion, especially as regarded credits to companies connected to the bank, placed the BND in a non-liquidity crisis to be- come increasingly notorious. The BND was the object of special attention by the Bank Regulatory Commission because over the 5 years preceding the intervention several violations of the General Law on Banks and other Credit Institutions had been detected. The BND had repeated insufficiency of the reserve requirement, a problem from which the bank chronically suffered. The BND was twice fined the maximum amount for illegal credits extended (1) to the Banco Suramericano de Desarollo ("BSD"), a Panamanian bank in which Gorrondona Jr. owns 80 percent of the shares, and (2) Crenca, a BND subsidiary, in violation of Article 153 of the Banking Law. Certain credits regarded by the BND as agricultural were not properly classified as agricultural. As of March 31, 1978, Bs. 2,553.8 million of bank loans were concentrated in 130 customers (the "Specially Classified Companies"). Directors of these companies were also bank directors. Credits were granted to these companies easily, then were renewed frequently and even when over- due, balance sheets for some of these credits did not exist and most of the credits were unsecured. The minutes provided by the BND to the Superintendent of Banks were not identical to those recorded in the BND's minute book, including that innumerable credit operations with subsidiaries had been omitted from the provided minutes. BND employees failed to cooperate with the Superintendency in providing requested in- formation. An official memorandum was sent to the BND president about this matter, ordering him to rectify this situation. Irregularities in the BND's legal reserve led to numerous notices to the BND president as well as to the levying of several fines. Until December 12, 1978, the BND received 224 memoranda concerning shortages in the legal reserve requirement and was fined 32 times for such legal reserve requirement deficiencies. The average weekly shortage in the legal reserve requirement through- out 1978 was Bs. 124 million. An audit conducted as of September 30, 1978, showed that the estimated loss on the loans to the Specially Classified Companies was Bs. 632.9 million. The estimated loss on other credits in the bank Portfolio was 35.7 million. The reserve for Portfolio Contin- gencies was Bs. 12 million. On January 12, 1979, the BND Intervenor, Tinco, made a report 1/ to the Minister of Finance pursuant to Article 166 of the General Banking Law of Venezuela. The Report describes the reasons for intervention. The Intervenor's Report states the following: During the first eleven months of 1978 the BND increased its Invested Assets by Bs. 1.0789 billion while in that same period deposits increased only Bs. 183 million. The imbalance was partially covered by rediscounts. By November 30, 1978, the BND had rediscounts of Bs. 485.4 million, which is 32.7 percent of all commercial bank re- discounts for that period. Many of the documents submitted to the Central Bank for rediscounts were rejected by it since they did not comply with the requirements for eligible paper. Credit restrictions were imposed on the BND by other banks. The BND's failure to make timely remittance of funds to correspondents resulted in their not honoring checks and refusing to open let- ters of credit. In 1975-78 the BND had a chronic shortage in its legal reserve requirement. The BND had a shortage in the legal reserve in 38 of 48 weeks during the first 11 months of 1978. The BND's reserve shortage stabilized during the months of September 1978 through November 1978 at over Bs. 100 million and reached Bs. 169 million in the last week of November. Prior to the intervention the BND was twice fined Bs. 30,000 for having granted illegal credits to the BSD, the Panamanian bank owned by Gorrondona Jr., and to Crenca. Even after the fines, the illegality was not corrected. In the case of the BSD the credit at the time of the fine through a time deposit was Bs. 657 million. At the time the BND was inter- vened, this deposit had not been reduced at all. In late November and early December of 1978 the situation grew more serious as the BND's negative balances at the Clearing House in- creased, and the BND had difficulty sub- mitting documents eligible for rediscount by the CBV. Questions from abroad about the BND's situation became more insistent. When the BND was unable to make good on its negative balance at the Clearing House on December 6, the BND was expelled as of December 7 in compliance with Article 11 of the pertinent Rules and Regulations. Thereupon the BND was intervened pursuant to Article 166. There were large withdrawals after the intervention and instructions were given that teller windows would not close as long as there were clients present. As of December 7, 1978 loans placed with affiliates (companies owned totally or partially by the BND) totaled more than Bs. 1.302 billion. Loans placed in 93 companies with which important shareholders, directors or executive officers of either the BND or its affiliates were directly or indirectly associated totaled Bs. 1.739 billion. Other credits were as of the date of the Intervenor's Report are still under study. On October 14, 1976, five vice-presidents of the BND, including the vice-president of Credit, the First Vice- President-Treasurer, the Vice- President-Comptroller, the Vice- President of Branches and Agencies, and Jaime Benitez ("Benitez") Vice-President for Banking Services, wrote a confidential memorandum to Gorrondona, Sr. and Gorrondona, Jr. in order to emphasize deficiencies and problems within the BND and to present recommendations. As summarized by Benitez, who testified at the hearing in this matter on July 16, 1982, the principal problem was a high concentration of credits in a group of businesses. These credits were not paid as they matured. This created a deficiency in cash flow and caused liquidity problems. There were also deficits in the legal reserve requirement. Accounting procedures were not being correctly applied and there was a problem of overdrafts. The memorandum recommended: (1) a change in credit policy even though this would limit the expansion program; (2) affiliated and related companies should start paying their debts; (3) concentration of credit should be eliminated; and (4) internal controls aid internal procedures should be improved. Benitez' testimony established that as a whole, recommedations were not carried out and deficiencies were not eliminated. The Memorandum of October 14, 1976, stated that: "The Office of the First Vice-President for the Treasury has repeatedly voiced to the highest authorities in the institution its opinion regarding the excessive placements with Group Companies and has gone as far as to file a written report with the President and the Acting President. In spite of the fact that, on account of its position, it must authorize almost all of the overdrafts and/or charges to the accounts of Group companies, it acknowledges the need to put an end to this practice. This question has been the subject of repeated discussions with the President and the Acting President, who are the only authorities empowered to put an end to this situation. The Memorandum of October 14, 1976, identified a number of problems then existing at the BND. It stated that there existed problems of: "1. High credit concentration (approximately 60 percent of the entire credit portfolio is placed with 1.4 percent of the total number of clients) in Group companies or companies directly or in- directly tied and/or related to it. We mean by this those companies or natural persons in the organization created by the highest ex- ecutive level or under instructions from it, who are organized with high Group officials, Bank officers or trusted persons, both as regards the holding and representation of their shares and their administrative or Director offices. These companies were expedited by said high levels or under orders from them, given through high Bank officers." "2. Non-payment by said companies due to con- stant renewals, without partial [the translation of "abonos parciales" should be "partial pay- ment" in the sense of "amortization"] or in- terest payments." "3. Credits to Group companies, above the legal limits, which are authorized or ordered by the highest officials." "4. Interest documented as promissory notes that accumulates above and beyond the credits originally granted." "5. Excessive number of permanent overdrafts with the National Government, governmental de- pendencies and especially and in an increasing fashion, with Group companies or companies directly tied or related thereto." "6. Overdrafts and collateral obligations in overseas banks due to the financing com- mitment and ever increasing requirements of Group companies or companies directly or indirectly tied or related thereto, which render the institution vulnerable to possible changes in the financial market." "7. Constant use of the Bank's own credit resources for the financing of Group companies directly or indirectly tied or associated there- to, whether they be already in existence or some of the ones that are constantly being created for expanionist purposes and whose activities represent a medium or long-term investment, at loggerheads with the soundness of commercial banking (Treasury Commission: see the material submitted at the meetings and on the minutes)" "8. Exclusion from the List ratified by the Board of Directors of certain operations of Group's companies and of companies directly or indirectly tied or related thereto, following longstanding instructions from high officers, who, in turn, received them from the highest levels." "9. Credits to companies whose balance sheets do not justify the amounts of said loans, mainly Group companies, and which credits are authorized or ordered by the highest levels." "10. Accounting omission of operations-especially guarantees and bonds-conducted from the Group com- panies under order from the highest levels." "11. Excessive financial burden due to the payment of surtaxes and commissions on deposits." "12. Increase in expenses through outlays that are not compatible with the normal management of the Bank." "13. Insufficient income generation, In relation to portfolio volume, which causes the interest account to be affected by amounts equal to the yield said portfolio should generate. Therefore, an insufficient amount in the account Interest Collected in Advance due to the drain it has been withstanding." "14. Inconsistency in the Reserve Requirements position due to a weak treasury and the continuous negative balances at the Clearing House." "15. Unbridled personnel growth at all levels, which has brought about an evident bueaucratization of Bank functions." "16. Ignorance of normal communication channels and of approved bonus norms and procedures." One of the signers of the memorandum of October 14, 1976, Santiago Rodriquez Marcano, was made an Assistant to the President of BND after the memorandum was sent, but he left after a few months saying that he did not receive the necessary cooperation in his new position. Gorrondona, Jr. testified that in 1978, BND was facing a "serious . . . liquidity crisis" and "had very little liquidity." Gorrondona, Jr.'s testimony established that he made his fortune in real estate. Gonzalez' testimony indicated that in 1978 the BND faced liquidity problems, a "liquidity crisis" which even with government assistance would have continued until the end of 1979. Benitez' testimony indicated that the BND was in serious trouble at the time of intervention and that the primary cause was credit concentration and the lack of payment upon maturity. Romero's testimony indicated that at the time of intervention the BND had the following problems in the area of credits or loans: A substantial part was concentrated in real estate activities. A lot of the business that had received credits from the bank was related indirectly with directors and executives of the bank. Some businesses received credits for amounts that went over what the law allows. The credits were not sufficiently col- lateralized or guaranteed. Some of these credits had a maturity of more than one year which is illegal for a commercial bank. Gabaldon's testimony established that while he has been President of the BND many adjustments had to be made to correct the accounts of the BND as they existed at the time of intervention; that the BND Board had decided to make an appropriate footnote reservation in the BND financial statements calling attention to the possibility of future adjustments which might result from investigations and analyses of the BND's accounts prior to the intervention. Gabaldon's testimony, based on his study of BND records, established that at the time of intervention is some cases the loans to subsidiary companies were paying interest but in a majority of the cases they were not doing so but rather the BND would increase the amount of the debt to cover the amount of the interest due. At the time of intervention, approximately 12 to 15 percent of the BND loan portfolio consisted of loans to these subsidiary companies. Alejandro Guevara Chacin's ("Guevara Chacin") testimony established that the minutes of the BND sent to the Superintendent compared with the minute books of the bank revealed that many operations were omitted. Guevara Chacin supervised the comparison. Juan Ramirez' ("Ramirez"), the present Superintendent of Banks of Venezuela, testimony indicated that there were many reasons for the intervention of the BND and any one of them, if put together with or alongside the others, was enough to support the decision. Benitez' testimony indicated that the basic principle of the banking business is diversification; in other words, to place loans with diverse or different customers. Childs' testimony indicated that renewal of loans without payment of interest is bad banking practice. Childs' testimony indicated that loans to corporations in which directors have an equity interest should be secured and at arms length. Wyneken's testimony indicated that there are reserve requirements in the United States and violation is not a trivial matter. The testimony of Guevara Chacin, Eenitez, Lopez-Romero and Ramirez established that one of the BND's major problems under Gorrondona, Jr. was repeated deficiencies in the BND's legal reserve. After the intervention, there was a run on the BND. Between June 30, 1978, and December 31, 1978, deposits from the public decreased by Bs. 2.1 billion and most of this decrease occurred between December 7, 1978, and December 31, 1978. In the six months following the intervention government deposits at the BND went from Bs. .6 to Bs. 2.7 billion. These deposits permitted the BND to cover withdrawals. Gorrondona, Jr. left Venezuela for a two week period on November 17, 1978, and a detention order was issued on November 24 which would have resulted in arrest had he had been in the country. In Venezuela, the subject of a detention order is immediately arrested and is held without any opportunity for posting bail until the detention order is resolved. The detention order was based upon an allegation that Gorrondona, Jr. had been involved in a company which had committed a security violation more than five years prior to the detention order. Petitioner contends that the charges against him, which resulted in the detention order, were politically motivated. This order kept Gorrondona, Jr. out of the country during the intervention, and was eventually dismissed. The Court, in dismissing the charges, stated: It then follows from the aforesaid, that it would -- clearly result in an injustice to assign any criminal liability to persons who are not even members of the Board when the presumed irregularities may have been committed. The period leading up to the intervention of the BND was also the period immediately prior to the national election which was held on December 3, 1978. In the elections in 1974, Gorrondona, Jr. had contributed 9 million dollars to the unsuccessful opponent of President Perez. In the election of 1978, Gorrondona, Jr. had contributed over 1 million dollars to the opponent of President Perez's party, the Accion Demicratico (AD) party. Venezuelan laws do not restrict the size of campaign contributions. Gorrondona, Jr. returned to Venezuela in June, 1979. At that time Gonzalez recommended to Gorrondona, Jr. that he go to court to prove his innocence. In June, 1979, Gorrondona, Jr. and Sr. initiated a noticia criminis proceeding in a Venezuelan Penal Court of First Instance. There are three ways to initiate a criminal proceeding in Venezuela: denunciation (a person makes a charge that a crime may have been committed), accusation (a person makes a charge that a particular person may have committed a crime), and noticia criminis (the court takes notice that a crime may have been committed). In Venezuela, the courts may call witnesses and thereby take investigative initiative. The noticia criminis proceeding is based on the obligation of a Venezuelan court to investigate a possible crime of which it has notice from whatever source. In the case of the noticia criminis proceeding initiated by Gorrondona, Jr. and Sr., the court was called on to determine if the BND administrators had participated in the commission of any crime while they were serving as such. In other words, the purpose of the noticia criminis proceeding initiated by Gorrondona, Jr. and Sr. was to determine if during the period of time in which they were administering the bank they committed an act that would or could be considered criminal in Venezuela. The word used by Gonzalez in describing the noticia criminis determination was "delito," which the interpreter testified means crime. The decision of the Court of First Instance in the noticia criminis proceeding was to terminate the summary investigation pursuant to Article 206 of the criminal code for criminal trials. The court found there was no evidence of crime. In other words, the determination of the judge in the noticia criminis proceeding was to end the criminal investigation because the facts presented were not of a criminal nature. With regard to the violation of banking laws described in the Superintendent's Report and the Intervenor's Report, the Court said "[a]s is clearly appreciated from these provisions, none establishes penal sanctions and although they constitute a violation of juridical regulations and comprise sanctions, same have no other character than an administrative one. The appellate court said, "this Superior Court considers that lack of maintenance of reserves in such proportion and manner as established in Articles 20, 21, and 163 of the General Act governing Banks and other Credit Institutes, is object of a sanction under Article 170 of the said law consisting of a fine to be applied by the Superintendent of Banks. Efforts to collect the loans made by the BND prior to intervention: On February 28, 1980, the BND entered into an agreement with Gorrondona, Sr. and Gonzalez regarding the loans to certain debtors of the BND ("February 28, 1980 Agreement"). All these loans were made prior to the intervention. The February 28, 1980 Agreement fixed the amount of the debt to the BND of the ap- proximately 180 companies specified therein at Bs. 4.038 billion. It specified that the BND would accept in payment of this debt the amount of Bs. 3.388 billion. It specified that payment would be made within one year. It specified that during that year no actions would be commenced to compel payment of this debt. Gorrondona, Sr. and Gonzalez signed the February 28, 1980 Agreement either as business brokers for the companies specified therein or as representatives of such companies. According to Gorrondona, Jr. all the debtor companies obligated themselves jointly, and any collateral posted by one could be used to satisfy the debts of the other. Paragraph 15 of the February 28, 1980 Agree- ment specifies certain responsibilities assumed by Gorrondona, Sr. and Gonzalez. "We, JOSE JOAQUIN GONZALES GORRONDONA, a Venezuelan citizen, of legal age, of this domicile, the bearer of identity card number 30.580; and DIOGENES Jr. GONZALES HURTADO, a Venezuelan citizen, of legal age, of this domicile, the bearer of identity card number 1.193.753, state that acting as business brokers for THE DEBTORS by virtue of the already noted common interests, personally and jointly and severally in behalf of all of THE DEBTORS undertake to accept and comply with the present agreement in all of its parts. Therefore, and to preserve the fullness of its effects, we undertake to have those debtor companies whose Articles of Incorporation or By-Laws forbid or limit the granting or posting of guarantees or securities, amend them as needed in order to allow for the profferred guarantees; we likewise undertake to have them grant their consent lawfully and execute the present in- strument within the term of thirty (30) days, and to execute any other documents, as re- quired, that may be necessary for the per- formance thereof. As of the present, the loans of the com- panies specified in the February 28, 1980 Agreement have not been paid in full. The amount remaining to be paid, exclusive of interest, is either approximately 2.8 bil- lion B's or 2.1 billion B's depending on whether the loans compromised in the February 28, 1980 Agreement (the difference between Bs. 4.038 billion and Bs. 3.388 billion) are treated as paid. Such unpaid loans as of this time are neither principal nor interest. At this time the BND's total loan portfolio is approximately Bs. 6.2 billion. Whether the figure of Bs. 2.1 or Bs. 2.8 billion is used for the amount of these unpaid loans, these frozen loans from prior to the intervention represent a substantial portion of the BND loan port- folio. These loans to related or Specially Classified Companies are in addition to the approximately Bs. 900 million in loans to subsidiary or affiliated companies that are not paying interest or amortizing principal. There is no evidence that Gorrondona, Sr. or Gonzalez were coerced into signing the February 28, 1980 Agreement. The Agreement was negotiated over an extended period of time. Gonzalez has testified that he signed the February 28, 1980 Agreement in order to assist the rehabilitation of BND and that Gorrondona, Sr. signed in the same spirit. Both men initialed each page when they signed it. Gorrondona, Jr. has testified that it is his position that the agreement is invalid in parts because he did not sign it. The BND has negotiated with Gorrondona, Jr. concerning the performance of the February 28, 1980 Agreement and the debts owed by the Specially Classified Companies. Such negotiations have not been successful. Under the February 28, 1980 Agreement, suits could not be filed for one year. When the agree- ment was not performed, the administration of Borjas pursued negotiations with Gorrondona, Jr. and, when Gabaldon became President of BND in August, 1981, he continued negotiations with Gorrondona, Jr. No suits have been filed against Gorrondona, Sr. or Gonzalez personally on account of the February 28, 1980 Agreement. The BND has very recently started to file suits against some of the debtors. Gorrondona, Sr.'s signing of the Agreement of February 28, 1980, Gorrondona, Jr.'s partici- pation in negotiations with respect to the performance thereof, together with the state- ments made in Memorandum of October 14, 1976 and described above concerning loans made prior to intervention to companies owned directly or indirectly by owners of the BND, corroborates the finding of the Intervenor that prior to intervention a substantial amount of loans were made to companies in which officers and directors of the BND had an interest. The inability to collect these loans corroborates the conclusion of the Superintendent and Intervenor that these loans were not adequately collateralized and were made in amounts in excess of what prudent credit practices would dictate based on the companies' balance sheets. Transfer of ownership of the BND: In the days following the intervention, members of the national government of Venezuela, including the Minister of Finance, met with Gorrondona, Sr. The possible liquidation of the BND and the possible transfer of ownership were discussed. On February 8, 1979, agreements were signed providing for the sale of 65 percent of the BND's shares to the Corporation Venezolana de Fomento ("CVF") . Sixteen shareholders, including Gorrondona, Sr., signed these agreements. They covered the shares owned by both Gorrondona, Sr. and Jr. The February 8, 1979 Agreement set a minimum price of Bs. 1 per share. The Agreement provided that the actual price would be set by the Superintendent of Banks prior to July 31, 1979. The price was to be fixed based on the book value of the BND and its subsidiaries as of December 31, 1978 less the uncollect- ible loans in its portfolio. At the time of intervention the losses on the BND loan portfolio exceeded the capital and reserve of the bank. Under Venezuelan law, when a bank has lost more than 25 per- cent of its capital, the stockholders are required to replace it. Accordingly, had they not sold their shares, the former owners of the BND would have had to make a capital contribution to the BND. As it is, the new owners of the shares have replaced the lost capital of the BND. Gorrondona, Jr., Borjas, the then President of the BND, and the Planning Minister of Venezuela met between June and November, 1979, to discuss the price for the BND shares and repayment of debts owed by the Specially Classified Companies. As a result of this meeting, an agreement was signed on December 21, 1979, regarding the fixing of the price of the stock and the negotiation of the re- payment of loans made to the Specially Clas- sified Companies. In February, 1980, two agreements were signed finalizing the sale of the BND shares to the CVF. One of these agreements (Respondent's Exhibit 82) was with the parties that had signed the February 8, 1979 Agreement. Re- spondent's Exhibit 82 was signed by Gorrondona Sr. and Gonzalez among others. In paragraph First it recites that: "In execution of the agreement reached in the Third clause of the sales contracts for Banco National de Descuento, C.A. shares, sub- scribed between C.V.F. and THE SELLERS and dated February 8, 1979, the Bank Examiner through Official Notices Nos. HSE-200- 3860 and HSE-200-3992, dated July 31 and August 7, 1979, respectively, ad- dressed to the Banco National de Descuento, C.A., determined losses in the Credit Portfolio of said Institution reaching an amount of ONE THOUSAND ONE HUNDRED AND EIGHTY SIX MILLION AND SEVEN [TOS (hundred) omitted in translation] THOUSAND BOLIVARS (Bs. 1,186,700,000.00) and therefore ordered the pertinent adjustments to the BANCO NACIONAL DE DESCUENTO C.A.'s Balance Sheet as of December 31, 1978." In paragraph Second it recites: "Due to the adjustments referred to in the previous Clause, and pursuant to the agree- ment between the parties listed in the con- tracts entered into on February 8, 1979, the Book value of the sold shares resulted in an amount less than One Bolivar (Bs. 1.00) per share, wherefore 'THE SELLERS' have, pursuant to the provisions of the Third Clause of the aforementioned contracts, agreed to accept the amount of One Bolivar (Bs. 1.00) per share, as the sale price for the shares sold." In paragraph Third it recites: "Lastly, 'THE SELLERS' state for the record that what they declare herein completely invalidates any statement or claim made by them, their agents, attorneys or represent- ative regarding any questions on the validity of the agreements executed on February 8, 1979, whose contents they are aware of, and which they execute in a final and definite manner through this document." There is no claim made in the record that the signers of Respondent's Exhibit 82 were coerced in their decision to execute that agreement. The other agreement of February 1980 regard- ing the transfer of shares of the BND (Respon- dent's Exhibit 81) was with shareholders who had not signed the February 8, 1979 Agreement. That agreement also fixed the sales price at 1 B per share. As recited therein, it used as the amount of the losses the Bs. 649 million figure established by the Minister of Finance pursuant to the appeal taken November 30, 1979, rather than the Bs. 1.186 billion figure established by the Superinten- dent of Banks prior to the appeal. This established that whether the Bs. 1.186 bil- lion or the Bs. 649 million figure is used for the amount of the losses, the shares of the BND had at most a nominal value of 1 B on December 31, 1978. Property in Venezuela cannot lawfully be taken by the Government without compensation. If it is taken for less than a fair price, the aggrieved person can go to court to seek a fair price. The judiciary in Venezuela is independent. No lawsuit has yet been filed to obtain ad- ditional compensation for the shares of the BND transferred to the new owners. Recently an "administrative letter" was sent regarding additional compensation for the shares. Nothing in Venezuelan law precluded its being sent earlier. The evidence in the record does not support a finding that the government of Venezuela coerced the owners of the BND to sell their shares or that such shares were sold at less than a fair price. As alleged by Petitioner. SUMMARY FINDINGS The decision to intervene the BND was, in part, politically motivated as evidenced by the timing of the intervention, the withdrawal of substantial government deposits immediately prior to intervention and the decision to refuse recognition of previously accepted commercial paper for rediscount. This is not to conclude, however, that the continuing liquidity problems of the BND were caused by the government. The reasons for the liquidity crisis experienced by the BND in 1978 had existed since at least 1976, and were identified in internal memoranda as well as Superintendent of Banks' and Intervenor's reports. The liquidity crisis experienced by the BND in 1978 and the intervention of the BND by the Venezuelan Government have at the present time a somewhat adverse effect on the reputation of Gorrondona, Jr. with respect to his qualifications as a banker. There is no evidence of any deficiency in his character or integrity. The education and business experience of Gorrondona, Jr. tend to establish his qualifications. However, his role as President-in-Charge of the BND during the liquidity crisis and intervention reflects adversely on those qualifications. No witness was called by the Banking Department or the Applicant on the question whether the practices that gave rise to the intervention constitute unsound banking practices. Those practices have been identified in the findings herein and include concentration of credit in the loans to the Specially Classified Companies, the renewal of loans to subsidiary companies though those loans were not paying interest, repeated violation of legal reserve requirements, failure to comply with the laws relating to agricultural loans, and failure to disclose to regulatory authorities that the minutes submitted for review by those authorities were not the same as the minutes in the books of the bank. LEGAL CONCLUSIONS AND RULINGS Subsection 120.57(1)(b) 12, Florida Statutes, provides: In applications for a license or mergers pursuant to title XXXVIII which are referred by the agency to the division for hearing pursuant to this section, the hearing officer shall complete and submit to the agency and to all parties a written report consisting of findings of fact and rulings on evidentiary matters. The agency shall allow each party at least 10 days in which to submit written exceptions to the report. Subsection 120.52(7), Florida Statutes, defines "license" as [a] franchise, permit, certificate, registration, charter, or similar form of authorization required by law, but it does not include a license required pri- marily for revenue purposes when issuance of the license is merely a ministerial act. Subsection 658.28(1), Florida Statutes, provides in part: (1) In any case in which a person or a group of persons, proposes to purchase or acquire a controlling interest in any state bank or state trust company and thereby to change the control of that bank or trust company, each person shall first make ap- plication to the department for a certificate of approval of such proposed change of control of the bank or trust company. . . The above provisions of Chapter 120 establish the Hearing Officer's report procedure for license applications under Florida banking laws. This is an application for a certificate of approval which is a form of license application within the meaning of that term as used and defined in Chapter 120. Therefore, no recommended order will be issued. Subsection 658.28(1), Florida Statutes, provides in part: [T]he department shall issue a certificate of approval only after it has made an investi- gation and determined that the proposed new owner or owners of the interest are qualified by character, experience, and financial responsibility to control and operate the bank and trust company in a legal and proper manner and that the interests of the other stockholders, if any, and the depositors and creditors of the bank or trust company and the interests of the public generally will not be jeopardized by the proposed change in ownership, controlling interest, or management. The above provision necessitates Respondent's investigation of Gorrondona, Jr.'s banking experience. Thus, the history of the BND and his role in the management of that institution are relevant to Respondent's investigation and to this proceeding. Petitioner's objection to such evidence is hereby overruled. FILED this 28th day of December, 1982, in Tallahassee, Florida. R. T. CARPENTER, 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 28th day of December, 1982.
The Issue The issues in this case are whether the Florida Real Property and Casualty Joint Underwriting Association (FRPCJUA) failed to comply with applicable requirements and standards of Part I of Chapter 627, Florida Statutes, when it utilized a request for proposals (RFP) in autumn 1995 to arrive at its decision in early 1996 to contract with Intervenors, Audubon Insurance Company (Audubon), AIB Holdings, Inc. (AIB), and American International Insurance Company (AIIC), but not with the Petitioner, Bankers Insurance Company (Bankers), for insurance policy servicing work through the year 1999. Specifically, Bankers asserts: (1) that FRPCJUA improperly gave policy servicing work to AIB, which is not a licensed insurance company; that FRPCJUA violated Chapter 287, Florida Statutes, regarding competitive bidding requirements for state agencies; that, regardless whether Chapter 287 is applicable, whether FRPCJUA acted arbitrarily and in bad faith instead of using procedures equivalent to the procedures found in Chapter 287, Florida Statutes; and (4) that FRPCJUA violated the Government in the Sunshine Law, Chapter 286, Florida Statutes. The Respondent, the Department of Insurance (the Department), and the Intervenors oppose Bankers' assertions. After initially seeking maintenance of the status quo or a contract on the same terms as the others, Bankers now seeks money damages from FRPCJUA, including attorney fees and costs.
Findings Of Fact In response to Hurricane Andrew, which struck in September 1992, insurers either stopped or significantly curtailed writing residential property and casualty insurance in Florida, or in parts of Florida. In response to this crisis, the Florida Legislature enacted Section 627.351, Florida Statutes, which created the Intervenor, the Florida Real Property and Casualty Joint Underwriting Association (FRPCJUA). FRPCJUA is an unincorporated association of insurers licensed to write residential property and casualty insurance in Florida. In addition to the licenses held by its members, FRPCJUA itself also is required by law to be licensed by the Respondent, the Department of Insurance (Department), as an insurer in Florida. FRPCJUA is governed by a Board of Governors chosen in accordance with the statute; some members are appointed by the Insurance Commissioner. The Petitioner, Bankers Insurance Company (Bankers), was represented on the initial FRPCJUA Board of Governors. The FRPCJUA Board hires an executive director and other staff to conduct the day-to-day operations of FRPCJUA. The evidence indicates that Florida Representative John Cosgrove and his staff were the primary drafters of the FRPCJUA legislation and that the House Insurance Committee he chaired was its primary sponsor. Rep. Cosgrove believed that the legislation did not intend to authorize FRPCJUA to contract with non-insurers for policy and claims servicing. Rep. Cosgrove's primary reasons for wanting to limit policy and claims servicing to insurers were to ensure the financial backing of those doing the work and to maintain regulatory control over them. However, policy and claims servicing providers bear no policy risk, and the Department maintains regulatory control over FRPCJUA both under the Section 627.351 and under the statutes regulating licensed insurers. Insurance Commissioner, Tom Gallagher, and his staff also were involved in the enactment of the FRPCJUA legislation. Commissioner Gallagher believed that the legislation authorized FRPCJUA to contract with non-insurers for policy and claims servicing. He believed that the legislation was not designed to enable insurers, who had "created" the insurance crisis by refusing to write or curtailing the writing of, insurance, to keep the lucrative policy and claims servicing to themselves. Section 627.351 requires FRPCJUA to operate pursuant to a plan of operations approved by the Department. FRPCJUA's first plan of operations and its articles of association were approved by the Department in 1993. The First Amended Articles of Association were approved by the Department on December 29, 1993. Before approving them, the Department reviewed both of these documents and required FRPCJUA to make corrections or revisions. Both of these documents provided for the use of insurers (called service carriers) and non-insurers (called servicing providers) to provide policy and claims services for FRPCJUA. In addition, they provided that FRPCJUA itself could provide those services. Bankers' President, David Meehan, was on the FRPCJUA Board when it produced the first two versions of FRPCJUA's plan of operations. Bankers never objected to the provisions for the use of non-insurers to provide policy and claims services. In accordance with the plans of operation, FRPCJUA formed the Shared Market Insurance Services, Inc. (SMISI) to provide policy and claims services for FRPCJUA. SMISI in turn contracted with other entities, including Intervenor, Policy Management Services Corporation (PMSC), which did policy servicing using a computer system it developed called the Point System. In addition to the SMISI contract, FRPCJUA also had policy and claims servicing contracts with five servicing carriers: Bankers; Diamond State Insurance Company; Fortune Insurance Company; Intervenors, Audubon Insurance Company (Audubon); and American International Insurance Company (AIIC). In late 1994, Bankers objected to the growth of SMISI. When Bankers' President tried to persuade Commissioner Gallagher to abolish or down-size SMISI, he was informed that Gallagher himself supported SMISI. In response, Meehan said he was going to resign in protest. Gallagher told Meehan that he intended to ask all representatives of FRPCJUA's members to resign and asked Meehan to wait until all resigned for the sake of appearance. Meehan agreed. Approximately coinciding with Meehan's conversation with Commissioner Gallagher, the Department initiated a market conduct examination of Bankers. For various reasons, Bankers believed and alleged in this proceeding that Bankers was targeted for the market conduct examination and other punitive measures in reprisal for opposing SMISI and for arguing the issue with Commissioner Gallagher. Bankers' allegations were not proven by the evidence in this case, but Bankers' beliefs colored its perception of the Department's dealings with it from then on. They also caused Bankers to suspect that the Department also was trying to influence FRPCJUA to take punitive action against Bankers. But it was not proven that the Department's relations with Bankers had any effect on FRPCJUA's dealings with Bankers. In late 1994, Florida elected Bill Nelson to succeed Tom Gallagher as Insurance Commissioner in January 1995. Commissioner Nelson appointed William Wilson as new chair of the FRPCJUA Board and recommended that Wilson consider James W. (Jay) Newman, Jr., for appointment as new Executive Director of FRPCJUA. Wilson interviewed and hired Newman, who had impressive credentials (including service as Insurance Commissioner for the State of Virginia) and extensive and directly relevant experience. The Department approved FRPCJUA's Second Amended Plan of Operation on July 21, 1995. As with the earlier versions of the plan of operations, the Department reviewed the document and required FRPCJUA to make corrections or revisions before approving it. As with the earlier versions of the plan of operations, the Second Amended Plan of Operation provided for the use of insurers (called service carriers) and non-insurers (called servicing providers) to provide policy and claims services for FRPCJUA. It also provided that FRPCJUA itself could provide those services. Although Bankers no longer was represented on the FRPCJUA Board, it knew of these provisions and voiced no objection to them. By September 1995, FRPCJUA had decided to reduce its business (so-called "depopulation") and thought that it soon would not need so many contracts for policy and claims servicing. It also thought it could save money by reducing the number of servicing contracts. Meanwhile, the contracts of the five servicing carriers were due to expire in February 1996, and the deadline for notice of non-renewal was approaching. (Bankers' contract would have expired in approximately June 1995, but it was extended.) Although all of the contractors were performing satisfactorily, Executive Director Newman thought FRPCJUA should give notice to the five servicing carriers that their contracts would not be renewed and should initiate a request for proposals (RFP) for new contracts. His desire was to reduce the number of contracts from five to either two or three. (The SMISI contracts and subcontracts were not due to expire, and no consideration was given to terminating those contracts at the time.) At the FRPCJUA Board meeting on September 19, 1995, which was noticed and conducted as an open meeting, Newman presented this idea, and the FRPCJUA Board agreed with him. It directed Newman to give notice of non-renewal to the five servicing carriers and to proceed with the RFP process. On October 18, 1995, FRPCJUA published notice in the Florida Administrative Weekly that it would be accepting proposals from insurance companies interested in servicing FRPCJUA policies and that the deadline for proposals would be December 4, 1995. The notice referred those interested to FRPCJUA staff from whom the RFP would be available at a later date. No specifics of the RFP were included in the notice. Prior to the Board's next meeting on October 25, 1995, Newman prepared Proposed Servicing Carrier Selection Criteria. At the Board's meeting on October 25, 1995, which was noticed and conducted as an open meeting, the Board decided to add a provision that FRPCJUA should reserve the right to reject all proposals and instead negotiate contracts apart from the RFP and that the criteria should allow all existing servicing carriers to be eligible for selection. The Board directed Newman to proceed with the RFP so that the Board would be in a position to make its selection decision at its December 1995 meeting. (It does not appear from the evidence that there was a November 1995 meeting of the Board.) Immediately after the meeting on October 25, 1995, Newman began the task of drafting an RFP with the help of FRPCJUA General Counsel Michael Colodny and FRPCJUA staff attorney Fred Karlinsky. At some point in the drafting process, Colodny noticed that, by its terms, the draft RFP only solicited proposals from servicing carriers (insurers) and could be construed to prohibit servicing providers (non-insurers) from responding. To include servicing providers, other modifications to the RFP also would have to made. Newman, Colodny, and Karlinsky re-drafted the RFP to accommodate proposals by servicing providers and issued the re-drafted RFP on November 7, 1995. Bankers did not object to the eligibility of non- insurers to respond to the re-drafted RFP. Instead, it proceeded to prepare its response. On November 17, 1995, FRPCJUA published an amended notice in the Florida Administrative Weekly that it would be accepting proposals from both insurance companies and non- insurers interested in servicing FRPCJUA policies and that the deadline for proposals would be December 6, 1995. The RFP provided for a pre-bid conference to answer any questions on the services to be rendered under the RFP; it also provided an opportunity for written inquiries after the pre-bid conference. The pre-bid conference was held on November 28, 1995. Bankers attended and asked questions about the applicability of Chapter 287, Florida Statutes, and Newman answered that it did not apply. Bankers also asked questions on how to present compensation proposals and how different proposals would be scored. Newman explained that the intent was to encourage creative responses. Questions also were asked at the pre-bid conference about the requirements for a non-insurer to act as a servicing provider. Newman explained the terms of the RFP and confirmed that proposals from non-insurers were welcomed. Bankers did not object then or at any time prior to submission of its proposal. The RFP provided that proposals would be evaluated by FRPCJUA's executive director and staff. Newman asked FRPCJUA Chief Operating Officer, Robert Sklenar, Colodny, and Karlinsky to assist him in evaluating the proposals. Sklenar had extensive (35 years) experience in the insurance industry, mostly as vice-president of personal lines for Travelers Insurance Company. His experience included the design and preparation of competitive scoring processes for vendor selection by Travelers. Newman asked him to prepare the documents to be used for scoring RFP responses (the score sheets). Proposals were received on December 6, 1995. Proposals were received from Bankers, AIIC, Audubon, PMSC, Fortune, Hartford Fire Insurance Company, Mobile America Insurance Group, Inc., National Con-Serv, Inc. (NCSI), American Southern Insurance Company, and Intervenor, AIB Holdings, Inc. (AIB), which had a subcontract for policy and claims servicing with Diamond State. The RFP provided that submission of a response signified acceptance of the terms and conditions of the RFP. Newman, Sklenar, Colodny, and Karlinsky met in Tallahassee to evaluate the responses on December 6, 1995. First, the four jointly evaluated the proposals to determine whether they met seven mandatory criteria. They determined that all ten proposals met the mandatory criteria. Then each evaluator independently scored the ten proposals on each of seven technical criteria, using a numerical point scale of 1 to 5 for each criterion. Then they compared their scores, discussed any differences, and attempted to reach consensus scores for each technical criterion. Then they added the consensus scores given on all technical criteria for each of the ten proposals. At this point in the process, the evaluation team observed that 15 points seemed to be a natural break point and reasoned that American Southern Fortune, Mobile America, and NCSI should be eliminated from further consideration because they got less than 15 points on the technical criteria. Of the proposals still under consideration, Hartford scored 23 on the technical criteria, PMSC scored 22, Audubon scored 21, AIIC scored 20, Bankers scored 18, and AIB scored 17. The evaluators then discussed the top two scorers, Hartford and PMSC. The team did not think FRPCJUA should enter into a contract under the RFP with either Hartford or PMSC. By this time, the evaluation team was aware that the SMISI contract would terminate as of December 27, 1995, for "breaches and defaults of the agreements and obligations owing to the FRPCJUA by SMISI," in accordance with correspondence from FRPCJUA Board Chairman Wilson, dated November 14, 1995; however, it was anticipated that PMSC would continue to handle the SMISI business--fully half of FRPCJUA's total book of business--under a direct contract with FRPCJUA. Due to capacity concerns, the team did not think additional business should be directed to PMSC until those concerns were allayed. Meanwhile, Hartford's proposal disclosed that it would not be in a position to handle a large number of policies for some time, and it proposed either delaying initiation of services or subcontracting with PMSC in the interim. The evaluation team did not think either alternative was acceptable. Evaluation of the mandatory and technical criteria took approximately six hours and was not completed until 1 or 2 a.m. on December 7, 1995. The evaluators decided not to review or evaluate the compensation proposals; however, the other three evaluators persuaded Newman to at least look at the compensation proposals and generally advise the group as to the general nature and parameters of the compensation proposals without identifying the proposers. Colodny was unable to meet again on December 7, 1995. Newman, Sklenar, and Karlinsky met briefly to review the proposals, but it was decided that Newman would conduct a more thorough review and report his findings and recommendations to the others by telephone. Although Newman knew the team would not recommend either Hartford or PMSC, he evaluated their compensation proposals for information and comparison. Hartford offered a flat 18.42% fee. PMSC offered two alternatives. One was a very favorable flat fee of 14.9%; the other proposed flat dollar amounts. Bankers proposed an 18% fee for six-month policies, and an 18.45% fee if FRPCJUA returned to annual policies. The other compensation proposals were tiered by volume (either net written policies or policies in force). AIB structured its compensation proposal as follows: 18% fee for $25 million net written policies (NWP); 17.75% for $25-$30 million NWP; 17.50% for $30- $35 million NWP; 17.25% for $30-$40 million NWP; and 17.00% for more than $40 million NWP. Audubon proposed a 17.9% fee for up to 50,000 policies in force (PIF), 17.5% for up to 100,000 PIF, and 16.9% for over 100,000 PIF. AIIC structured its proposal: 20.0% for up to 50,000 PIF; 19.5% for up to 100,000 PIF; 19.0% for up to 150,000 PIF; 18.5% for up to 200,000 PIF; 18.0% for up to 250,000 PIF; and 17.5% for over 250,000 PIF. In order to evaluate the tiered proposals, Newman had to exercise professional judgment as to future volume in light of FRPCJUA's "depopulation" efforts and intention to replace five contracts with just two or three. Newman did not score the Hartford and PMSC compensation proposals since he knew the team would not be recommending that FRPCJUA should enter into contracts with either under the RFP. In Newman's judgment, based on a 15 point scale, the Audubon and AIB compensation proposals deserved scores of 14, Bankers' proposal deserved a score of 10, and AIIC deserved a score of 9. Adding these scores to the technical scores, Audubon's proposal would be scored the best, with 35 points, AIB would score 31 points, AIIC would score 29 points, and Bankers would score 28 points. As agreed, Newman telephoned the other evaluators to discuss the compensation proposals and Newman's scoring of them. All agreed with Newman's assessments. They decided to recommend that FRPCJUA contract with Audubon and attempt to negotiate with the others to accept Audubon's compensation proposal. Sklenar wanted to recommend that FRPCJUA contract with Audubon and one other; Newman thought it would be more prudent to contract with three. It was agreed to recommend that FRPCJUA first attempt to negotiate with AIB and AIIC to accept Audubon's compensation proposal and to negotiate with Bankers (and, if necessary, those previously eliminated from consideration) only if either AIB or AIIC refused to accept Audubon's compensation proposal. The recommendation of the evaluation team was put in writing on December 11 and was presented to the FRPCJUA Board at its meeting on December 14, 1995, which was noticed and conducted as an open meeting. The evidence was that the Board had a full and open discussion of the recommendation. Ultimately, the Board voted unanimously to accept the evaluation team's recommendation, and it instructed Newman and his staff to proceed with contract negotiations. Section 24 of the Second Amended Plan of Operation provided a means for resolving disputes with respect to any decision of the FRPCJUA Board. Section 24 provided: Except as to any dispute, cause of action, claim or controversy arising under, or out of, any contract or Agreement pertaining to bonding or borrowing by the Association, any person or entity aggrieved with respect to any action or decision of the Board of the Association, or any Committee thereof, (other than matters regarding Assessments which appeals are governed by Sections 15, 16 and 17 hereof) may make written request of the Board for specific relief. All written requests for relief or redress shall be deemed Appeals and shall be delivered to the Executive Director. The Executive Director shall schedule any Appeal for hearing at the next regularly scheduled Board meeting occurring, not less than ten (10) days nor more than forty (40) days from the Executive Director's receipt of the Appeal. Any person or entity whose Appeal for relief is denied by the Board may appeal to the Insurance Commissioner in the manner provided by § 627.371, Florida Statutes. A transcript of any Appeal items shall be made at the time of hearing. In accordance with Section 24 of the Second Amended Plan of Operation, Bankers and Fortune appealed from the FRPCJUA Board's action taken at its meeting on December 14, 1995. Before the next scheduled meeting of the FRPCJUA Board on February 7, 1996, Newman was able to successfully negotiate contracts with Audubon, AIIC, and AIB. However, the contracts were not finalized and executed by the time of the meeting. Bankers also indicated its willingness to accept the terms being offered to the other three if FRPCJUA would agree to contract with Bankers as well. At the Board's meeting on February 7, 1996, which was noticed and conducted as an open meeting, the Board fully and openly discussed several subjects relevant to the RFP contracts, including capacity concerns and whether to contract with Bankers, Fortune and Hartford. Ultimately, a motion was made to reject the RFP process and negotiate contracts with the five existing servicing carriers--i.e., Audubon, AIIC, Bankers, Fortune, and Diamond State--with new contract provisions and a blended compensation rate. The Board voted to approve the motion with only member Diaz voting "no." Bankers and Fortune indicated that the Board's action was acceptable to them, and Chairman Wilson announced that the Board's action mooted the appeals of Bankers and Fortune. Audubon, AIIC, and AIB did not indicate whether the Board's action was acceptable to them. Before the next regular meeting of the Board, all three appealed from the Board's action under Section 24 of the Second Amended Plan of Operation. The next regular meeting of the FRPCJUA Board was held on February 29, 1996, which was noticed and open to the public. The Board considered a motion by member Ricciardelli to rescind its action on February 7, 1996. After a full and open discussion, the Board voted to approve the motion; members McGriff and Burgess voted "no." As part of its attempt to prove improper influence by the Department and arbitrary and capricious action by the FRPCJUA Board, Bankers introduced as evidence that Insurance Commissioner Nelson contacted Board member McGriff once by telephone prior to the meeting on February 29, 1996, to ask him to support the FRPCJUA staff's recommendation made on December 14, 1995. But there also was evidence that Bankers' representatives contacted McGriff several times to ask him to vote to uphold the Board's action on February 6, 1996, and it is self-evident that Commissioner Nelson's telephone contact did not influence McGriff at all. In accordance with Section 24 of the Second Amended Plan of Operation, on February 29, 1996, Bankers filed an appeal of the Board's actions of that date, and Bankers presented its appeal to the Board at a meeting on April 7, 1996, which was noticed and open to the public. After hearing and discussion, the Board denied the appeal. On April 24, 1996, Bankers appealed the Board's decision to the Department of Insurance. It is found from the evidence presented that the FRPCJUA's actions in connection with the RFP were neither arbitrary nor capricious. The Board and its staff set about to reduce the number of servicing contracts it had (other than the SMISI contract) from five to either two or three in order to save money. FRPCJUA thoughtfully adopted a reasonable RFP process for achieving its objective and implemented the RFP in a thoughtful and reasonable manner. The result achieved the objective. FRPCJUA replaced the five existing servicing contracts with three new contracts and has saved FRPCJUA millions of dollars a year in servicing fees. Bankers presented the testimony of an expert in business valuation, RFP processes, and gaming theory in an attempt to prove that the RFP process and the scoring of the proposals was so flawed as to be arbitrary and capricious. But Bankers' evidence itself was flawed. First, Bankers' expert questioned RFP specifications that Bankers accepted. Second, the expert questioned the points given by the evaluators on the scoring scale they used without ever reviewing or considering any proposals other than those submitted by Bankers, Audubon, AIIC, and AIB. Third, while the expert conceded that it was important to understand the thought processes of the evaluators in assessing the validity of their judgments, he had absolutely no evidence and no knowledge about the judgments of Colodny or Karlinsky. Fourth, while the expert criticized the scoring system as not being sophisticated enough to indicate "fractional differences" between proposals, and criticized the team's failure to use a "tie-breaking" mechanism, he conceded that the consensus scoring used by the team was a valid and acceptable way to assess relatively small differences between proposals and to break scoring ties. Fifth, much of the expert's criticism amounted to disagreements as to how to evaluate aspects of the proposals; meanwhile, as the expert admitted, in most cases the evaluation required the exercise of professional judgment, and the evaluation team had more and better expertise. The expert's testimony did not prove that the RFP process and the scoring of the proposals was arbitrary or capricious.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Insurance enter a final order denying Bankers' appeal and claim for money damages and attorney fees. DONE AND ENTERED this 10th day of November, 1998, in Tallahassee, Leon County, Florida. J. LAWRENCE JOHNSTON Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 10th day of November, 1998. COPIES FURNISHED: Douglas A. Mang, Esquire Wendy Russell Wiener, Esquire Mang Law Firm, P.A. Post Office Box 11127 Tallahassee, Florida 32302-3127 Michael H. Davidson, Esquire Division of Legal Services 200 East Gaines Street 612 Larson Building Tallahassee, Florida 32399-0333 Seann M. Frazier, Esquire Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. Post Office Drawer 1838 Tallahassee, Florida 32302 Perry Ian Cone, General Counsel AIB Insurance Group, Inc. 2500 Northwest 79th Avenue Miami, Florida 33122 Michael Colodny, Esquire Stuart B. Yanofsky, Esquire Colodny, Fass & Talenfeld, P. A. 2000 West Commercial Boulevard Suite 232 Fort Lauderdale, Florida 33309 Fred E. Karlinsky Associate General Counsel Florida Residential Property and Casualty Joint Underwriting Association 101 North Monroe Street Suite 1000 Tallahassee, Florida 32301 Zollie M. Maynard, Esquire William C. Owen, Esquire Panza, Maurer, Maynard & Neel, P.A. 215 South Monroe Street, Suite 320 Tallahassee, Florida 32301 Mitchell B. Haigler, Esquire Paul R. Ezatoff, Esquire Katz, Kutter, Haigler, Alderman, Bryant & Yon, P.A. Post Office Box 1877 Tallahassee, Florida 32302 J. Stephen Menton, Esquire Rutledge, Ecenia, Underwood, Purnell & Hoffman, P.A. Post Office Box 551 Tallahassee, Florida 32302-0551
