The Issue Whether the petitioner should revoke respondent's self-insurance privilege for failure to comply with Rule 38F-5.10(2)(a), Florida Administrative Code.
Findings Of Fact On February 12, 1980, the Department of Labor and Employment Security, through its Bureau of Self-Insurance, notified the Deauville Hotel (respondent) of its intention to revoke respondent's workers' compensation self-insurance privilege for failure to comply with the requirements of Rule 38F-5.10(2)(a), Florida Administrative Code. This Rule requires each se1f-insurer to have on file with the Department a "financial statement of a current date showing a net worth of not less than $250,000 and a current ratio of more than 1 to 1, and a working capital of an amount establishing financial strength and liquidity of the business to pay normal compensation claims promptly". Specifically, petitioner contends the respondent filed financial statements for calendar year 1978 that were not certified by an outside independent accounting firm, and that such statements reflected an unsatisfactory current ratio and net worth in contravention of the Rule. Respondent is a large luxury hotel located in Miami Beach, Florida, and employs more than 400 persons. It is a division of Deauville Operating Corporation. Respondent is now and has been for a number of years a self- insurer under Section 440.38(1)(b), Florida Statutes. The privilege to self- insure is granted by the Department when an employer demonstrates the financial ability to promptly discharge all amounts required to be paid under the provisions of the Workers' Compensation Law as contained in Chapter 440, Florida Statutes. Having once established the requisite financial integrity, an employer must file within six months following the close of each succeeding fiscal year financial statements demonstrating the continued ability to discharge all obligations under the Law. The Department is reposed with the responsibility of reviewing the financial statements to insure compliance with the applicable rules governing self-insurers. When the administrative complaint was issued, respondent had on file financial statements consisting of a balance sheet, statement of income, home office equity, and changes in financial position (Exhibit No. 1). All statements were prepared using the year ending December 31, 1978. Three financial measurements are used by the Department to evaluate the financial integrity of an employer. These are current ratio, net worth and working capital. However, the Department has chosen to rely only upon the first two measurements as a basis for revoking the self-insurance privilege of respondent. The current ratio of a business entity is determined by comparing the ratio of current assets to current liabilities as shown in the most recent financial statement (Rule 38F-5.01 (10), Florida Administrative Code). The owner's equity or net worth is computed by subtracting total liabilities from total assets. Working capital is derived by taking the excess of current assets over current liabilities. (Rule 38F-5.01(16), Florida Administrative Code);. The application of these measurements to the 1978 financial statements of respondent reveals a current ratio of .82 to 1 based upon current assets and liabilities of $667,542 and $816,542, respectively, a negative net worth of $543,112, and a working capital in a negative position. Efforts by petitioner in late 1979 and early 1980 to obtain more current financial statements of respondent were not successful. However, in April and July, 1980, respondent filed certain financial data for calendar year 1979 and the year ending March 31, 1980 (Exhibit Nos. 2, 3, 6 and 7). Exhibit Nos. 2 and 3 pertain to the financial position of the Deauville Operating Corporation at December 31, 1979, and incorporate therein the operating results of the Deauville Hotel. Exhibit No. 2 failed to segregate the Corporation's current assets and liabilities from total assets and liabilities. Therefore, no determination of current ratio or working capital can be made. The Exhibit does show the Corporation had a net worth of $2,643,487. Exhibit No. 3 revised the data shown in Exhibit No. 2 and provided a division of assets and liabilities from which a measurement of current ratio and working capital can be calculated. However, the Corporation improperly classified as a current asset a long-term receivable in the amount of $2 million. Had this asset been properly classified, current liabilities would have exceeded current assets and produced a negative working capital and current ratio of less than 1 to 1. Exhibit Nos. 6 and 7 are financial statements of the Deauville Hotel for calendar year 1979 and the year ending March 31, 1980, respectively. Exhibit No. 6 shows total current assets and liabilities of $495,449 and $1,072,540, respectively, as of December 31, 1979. The resulting current ratio is .46 to 1 while the working capital is in a negative position. Net worth is a negative $394,639. As of March 31, 1980, current assets had increased to $832,763 while current liabilities had slightly decreased to $1,017,636. The current ratio is accordingly less than 1 to 1. At the same time, net worth had increased to a positive amount of $137,901 while working capital remained in a negative position by virtue of current liabilities exceeding current assets (Exhibit No. 7). None of the financial statements are certified by outside independent accounting firms. The audit reports for the set of statements contained in Exhibit Nos. 1, 2, 6 and 7 specifically contain a disclaimer by the accountants that they have "not audited or reviewed the accompanying financial statements, and accordingly, do not express an opinion or any other form of assurance on them". By the same token, the statements encompassed in Exhibit No. 3 include the conspicuous disclaimer by the accountant that such statements are "unaudited".
Recommendation Based upon the foregoing findings of fact and conclusions of law, the Hearing Officer recommends that petitioner Department revoke the privilege of respondent to be a self-insurer under Section 440.38(1)(b), Florida Statutes. DONE AND ENTERED this 15th day of August, 1980, in Tallahassee, Florida. DONALD R. ALEXANDER Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 15th day of August, 1980. COPIES FURNISHED: Douglas P. Chanco, Esquire Suite 131, Montgomery Building 2652 Executive Center Circle East Tallahassee, Florida 32301 William Wade Hampton, Esquire Post Office Box 355 Gainesville, Florida 32602
Findings Of Fact The Petitioner, Parson & Associates, Inc., d/b/a Overhead Door Company of Tampa Bay (Parsons & Associates), is a Florida corporation, having been incorporated under the laws of the State of Florida in March, 1992. The principal place of business for Parsons & Associates is 5134 W. Idlewild, Tampa, Florida. The Petitioner corporation engages in the business of the sale, installation, and repair of overhead doors, both residential and commercial. The corporation has ten (10) full-time employees and one (1) part-time employee. The only stockholders of the Petitioner corporation are: Gail Parsons, the minority owner; and her son-in-law, Robert Briesacher. Gail Parsons owns eighty (80 percent) of the stock of Parsons & Associates. Robert Briesacher, who is not a minority, owns the remaining twenty (20 percent) of the Petitioner corporation. Gail Parsons was the incorporator of Parsons & Associates when it was initially incorporated. She also is its President. Robert Briesacher is the Vice-President. Prior to the incorporation of Parsons & Associates, Gail Parsons, who has a Bachelor of Business Administration degree, worked for the Better Business Bureau. Robert Briesacher had previous experience in the overhead door business, having worked for Overhead Door Company of Clearwater. Briesacher, who at the time was engaged to marry Parsons's daughter, learned from Overhead Door Corporation (the manufacturer) that the manufacturer intended to establish a distributorship in Tampa. Briesacher told Parsons about it. While Briesacher had the knowledge and experience to successfully sell, install, and repair both residential and commercial overhead doors, he had no money to invest in the business opportunity and had no experience running his own business. Thinking that she might be able to help her daughter and future/present son-in-law, and herself, by combining her capital and business and financial skills with his knowledge and technical skill in the automatic door business, Parsons suggested to Briesacher that they go into business together. He readily agreed, and the pursued the opportunity with the manufacturer. Parsons incorporated the business, registered the fictitious name, compiled the business plan, developed the cash flow projections (with Briesacher's help), found the office/warehouse space (which the manufacturer had to approve), and negotiated, executed, and personally guaranteed the lease agreement and negotiated the Distributorship Agreement with the manufacturer. Briesacher provided none of the initial start-up monies for the Petitioner. Gail Parsons is the financial interest holder in the corporation, having made all the initial contributions to capital ($38,000), as well as making all the personal loans to the corporation thereby accepting all the financial risk. Parsons personally guaranteed the promissory note, the credit agreement, contracts required to be personally guaranteed and the warehouse lease. The Distributorship Agreement is a standard Overhead Door Corporation agreement common to all distributors nationwide. It is customary for a manufacturer like Overhead Door Corporation to offer a distributor incentives-- like yellow page advertisement, signage, and telephone numbers--in order to gain market penetration. In the case of Parsons & Associates, Overhead Door supplied a telephone number (the number Overhead Door previously had bought from the prior distributor in Tampa), a year's worth (about $10,000) of yellow page advertising, and some signage. The total fair market value of the incentives to Parsons & Associates was approximately $31,000, but the marginal cost to the manufacturer was less. In the initial months of operation of the business, Gail Parsons had to rely on Briesacher and the first employee they hired, Charles Martin, who worked under Briesacher at Overhead Door of Clearwater, to teach her what she had to know about the technical aspects of the business. She had to learn about the Overhead Door products and the basics of how to install them. This knowledge, which she quickly acquired, soon enabled her to take service orders, schedule the orders, supervise the day-to-day activities, perform trouble-shooting over the telephone and handle all of the sales calls. Meanwhile, Robert Briesacher was in the field with Martin installing and servicing Overhead Doors. Briesacher currently corresponds with the factories on product orders, schedules and supervises the installers, and takes the physical inventory. Commercial bidding is only one portion of the total corporate sales, which includes residential new construction, residential service and residential retrofit. Over ninety-five (95 percent) percent of the business of Parsons and Associates is handled over the telephone from the office where Parsons spends virtually one hundred (100 percent) percent of her time. Parsons is personally responsible for the majority of the residential sales, including negotiating and contracting with contractors, and negotiating and entering into the agreement to provide installation services for Home Depot door sales. Business from negotiating, estimating, and bidding on contracts in the field is a relatively small portion of the company's overall revenues. Gail Parson is involved in the interviewing of prospective employees, including Martin and Charles Jarvis. She confers with Briesacher, but she alone controls hiring and firing. She possesses the knowledge to evaluate employee performance and has demonstrated her supervisory authority and evaluation skills in exercising her authority to fire an employee. Actually, it is not difficult to evaluate the performance of installers: service calls on warranty work and customer complaints generally tell her all she needs to know. The Petitioner/corporation has both commercial and residential outside sales persons who prepare bids for the Petitioner. The minority owner, Gail Parsons, establishes the geographic and profit margin parameters, which ultimately control the bidding process. She inspects all bids prior to executing the contracts, thereby further controlling who, where and under what terms the Petitioner corporation does business. In fact, Parsons recently rejected an accepted bid and cancelled the job because it was too far from Tampa. While both Gail Parsons and Robert Briesacher are authorized to sign checks for Parsons & Associates, Briesacher has signed less than five checks, out of the thousands of checks written. Parsons and Briesacher draw the same salary. However, their salaries are commensurate with the work they perform for the company. Parsons has chosen the salary levels; Briesacher does not even know what Parsons's salary is. Parsons also is entitled to an 80/20 split of any future distributions as a result of the operation of the company. Briesacher has the use of a company truck, while Parsons does not. However, Briesacher is a part-time installer and service man, while Parsons is not. All installers/service technicians at Parsons and Associates have the use of company trucks, not just Briesacher. Currently, in addition to controlling the entire corporation and making all of the business decisions, Gail Parsons sets inventory parameters, purchases the inventory, sells doors in the showroom, knows the purchased products, is responsible for accounts receivable, handles the payroll, and assists in the scheduling and supervising of the installers.
Recommendation On the basis of the foregoing Findings of Fact and Conclusions of Law, it is recommended that the Department of Management Services enter a final order granting Petitioner's application for certification as a minority business enterprise (MBE). RECOMMENDED this 14th day of July, 1994, 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 14th day of July, 1994. APPENDIX TO RECOMMENDED ORDER, CASE NO. 94-1268 To comply with the requirements of Section 120.59(2), Fla. Stat. (1991), the following rulings are made on the parties' proposed findings of fact: Petitioner's Proposed Findings of Fact. 1.-3. Accepted and incorporated. First sentence, rejected as contrary to facts found; the rest is accepted and incorporated. Second sentence, rejected to the extent that it implies that Briesacher has no financial interest. Otherwise, accepted and incorporated. Accepted and incorporated. Rejected, as contrary to facts found, to the extent that it implies Parsons knew it all from the start and that Parsons "supervised" Briesacher and Martin installing and servicing doors; in fact, there was a learning curve. Otherwise, accepted and incorporated. 8.-11. Accepted and incorporated. Respondent's Proposed Findings of Fact. 1.-2. Accepted and incorporated to the extent not subordinate or unnecessary. 3.-4. Accepted and incorporated to the extent not subordinate or unnecessary. Last sentence, rejected in part as contrary to facts found and as contrary to the greater weight of the evidence. (She makes sales and trouble- shoots, and is no longer just learning those aspects of the business.) Otherwise, accepted and incorporated to the extent not subordinate or unnecessary. Accepted and incorporated to the extent not subordinate or unnecessary. However, except for actually installing and servicing doors, Parsons also does the same jobs as Briesacher to some extent, and some of Briesacher's functions are ministerial in light of Parsons's management decisions. Penultimate sentence, rejected as contrary to facts found and as contrary to the greater weight of the evidence; he proposed "piece-work" but Parsons participated in the final decision. (Since it is standard in Florida, it was not a difficult or controversial decision.) Otherwise, accepted and incorporated to the extent not subordinate or unnecessary. (However, "joint responsibility" should not be construed to mean "equal authority." Parsons has the final say.) Accepted and incorporated to the extent not subordinate or unnecessary. However, while Parsons's knowledge and skill does not exceed the others' in the area of installing and servicing doors, she has enough knowledge to control the business. The characterization "very broad" in the last sentence is rejected as contrary to facts found and as contrary to the greater weight of the evidence. Otherwise, accepted and incorporated to the extent not subordinate or unnecessary. However, again, while Parsons's knowledge and skill does not exceed the others' in the area of installing and servicing doors, and while she does not personally install and service doors, she has enough knowledge to control the business. 10.-14. Accepted and incorporated to the extent not subordinate or unnecessary. Again, while Parsons and Briesacher, and other employees, share responsibilities, Parsons has the knowledge necessary to control the business and has dominant control over the business. COPIES FURNISHED: Jonathan D. Kaplan, Esquire 6617 Memorial Highway Tampa, Florida 33615 Wayne H. Mitchell, Esquire Department of Management Services Office of the General Counsel Suite 312, Ninth Building 2737 Centerview Drive Tallahassee, Florida 32399-0950 William H. Lindner, Secretary Department of Management Services Knight Building, Suite 307 Koger Executive Center 2737 Centerview Drive Tallahassee, Florida 32399-0950 Paul A. Rowell, General Counsel Department of Management Services Knight Building, Suite 312 Koger Executive Center 2737 Centerview Drive Tallahassee, Florida 32399-0950
The Issue The issue in these cases is whether the Agency for Health Care Administration's (AHCA) proposed award of a contract to Caremark, Inc., based on evaluations of proposals submitted in response to a Request for Proposals (RFP), is clearly erroneous, contrary to competition, arbitrary, or capricious.
Findings Of Fact AHCA is the single state agency in Florida authorized to make payments for medical assistance and related services under Title XIX of the Social Security Act (the "Medicaid" program). In order to participate in the federal Medicaid program, AHCA is required to maintain a state plan for Medicaid in compliance with Title XIX of the Social Security Act. AHCA is required to operate the Florida Medicaid program in compliance with the state plan. AHCA is apparently concerned by costs associated with the Florida Medicaid program's hemophilia population. Florida's Medicaid hemophilia beneficiaries constitute a relatively small, but costly population to serve. Hemophilia is a bleeding disorder caused by a deficiency in one of numerous "clotting factors," which normally causes a persons' blood to coagulate. Hemophilia is treated by administration of the deficient clotting factor to the person with the disorder. AHCA seeks to control the cost of providing hemophilia-related services to this population through a combination of case management and medication discounts known as the Medicaid Comprehensive Hemophilia Management (MCHM) program. AHCA believes that a single vendor responsible for operation of the MCHM program can provide managed care to the population while achieving significant drug-cost savings. Through a federal requirement referred to as "freedom of choice," Florida's Medicaid program state plan must provide that any individual eligible for medical assistance (including drugs) may obtain such assistance from any institution, agency, community pharmacy, or person qualified to perform the service and who undertakes to provide such services. The freedom of choice requirement is subject to being waived in accordance with applicable federal law. Such waiver requires approval by the Centers for Medicare and Medicaid Services (CMS). AHCA began seeking approval from CMS for an amendment to an existing "Managed Care Waiver" to implement the MCHM program in October 2002. By letter dated May 22, 2003, CMS approved AHCA's request to amend the existing waiver to permit implementation of the MCHM program. Subsequent correspondence between the agencies has further established AHCA's authority to implement the MCHM program. AHCA issued the RFP ("RFP AHCA 0403") on October 1, 2003. The RFP seeks to implement the MCHM program. There were no timely challenges filed to the terms and specifications of the RFP. Section 287.057, Florida Statutes (2003), requires that an agency must make a written determination that an invitation to bid is not practicable for procurement of commodities or contractual services prior to issuance of an RFP. AHCA did not make such a written determination prior to issuance of the RFP. Under the terms of the RFP, AHCA will contract with a single provider for a period of two years, with an option to extend the contract for an additional two-year period. RFP Section 10.2 sets out an extensive list of vendor requirements designed to provide care to Medicaid hemophilia beneficiaries and better management of related costs. The RFP provides that the successful vendor will be paid only on the basis of the factor products dispensed to eligible Medicaid beneficiaries. All other services required by the RFP must be delivered within the revenue provided by AHCA's reimbursement for factor product costs. No additional payment beyond payment of factor product costs will be provided. The RFP stated that the successful vendor would be reimbursed for factor product cost based on the average wholesale price (AWP) of the factor product minus a minimum discount of 39 percent. The RFP provided that vendors may offer a greater discount than 39 percent. An Addendum to the RFP indicated that if a vendor proposed a discount greater than 39 percent, the increased discount must apply to all factor products and that vendors could not propose varying discounts for individual factor products. The RFP contains language in the background section referencing budget "proviso" language adopted by the Legislature and referring to the MCHM program as a "revenue enhancement program." HHS asserts that because this RFP does not create a revenue enhancement program, AHCA had no authority to proceed with the RFP. The evidence fails to establish that this program will enhance revenue. The evidence fails to establish that based on the "proviso" language, AHCA is without authority to issue the RFP. RFP Section 20.11 sets forth the "proposal submission requirements." The section included a number of requirements set in capital letters and highlighted in boldface. The terms of each requirement indicated that failure to comply with the requirement was "fatal" and would result in rejection of the proposal submitted. None of the proposals submitted by the parties to this proceeding were rejected pursuant to RFP Section 20.11. The evidence fails to establish that any of the proposals submitted by the parties to this proceeding should have been rejected pursuant to RFP Section 20.11. RFP Section 20.16 provides that AHCA may waive "minor irregularities," which are defined as variations "from the RFP terms and conditions, that [do] not affect the price of the proposal or give one applicant an advantage or benefit not enjoyed by others or adversely affect the state's interest." RFP Section 20.17 provides as follows: Rejection of proposals Proposals that do not conform to all mandatory requirements of this RFP shall be rejected by the Agency. Proposals may be rejected for reasons that include, but are not limited to, the following: The proposal was received after the submission deadline; The proposal was not signed by an authorized representative of the vendor; The proposal was not submitted in accordance with the requirements of Section 20.11 of this RFP; The vendor failed to submit a proposal guarantee in an acceptable form in accordance with the terms identified in Section 20.12 of this RFP or the guarantee was not submitted with the original cost proposal; The proposal contained unauthorized amendments, deletions, or contingencies to the requirements of the RFP; The vendor submitted more than one proposal; and/or The proposal is not deemed to be in the best interest of the state. None of the proposals submitted by the parties to this proceeding were rejected pursuant to RFP Section 20.17. The evidence fails to establish that any of the proposals submitted by the parties to this proceeding should have been rejected pursuant to RFP Section 20.17. RFP Section 30.1 provides that the "total cost of the contract will not exceed $36,000,000 annually." RFP Section 30.2 provides in part that the "total cost for the contract under any renewal will not exceed $36,000,000 per year." The RFP's contract amount apparently was based on historical information and assumed that some level of cost control would occur through case management. The contract amount cannot operate as a "cap" because Medicaid hemophilia beneficiaries are an "entitled" group and services must be provided. If the amount of the contract is exceeded, AHCA is obliged to pay for necessary factor products provided to the beneficiaries; however, in an Addendum to the RFP, AHCA stated that if the contract fails to contain costs "there would be no justification to renew or extend the contract." The RFP required vendors to submit a performance bond based on 20 percent of the $36 million contract amount. The RFP stated that proposals could receive a maximum possible score of 2000 points. The proposal with the highest technical evaluation would receive 1340 weighted points. The proposal with the lowest cost proposal would receive 660 weighted points. The combined technical and cost proposal scores for each vendor determined the ranking for the proposals. The RFP set forth formulas to be used to determine the weighted final score based on raw scores received after evaluation. AHCA conducted a bidder's conference related to the RFP on October 8, 2003. All parties to this proceeding attended the conference. At the conference, AHCA distributed a copy of a spreadsheet chart that listed all factor products provided to Florida's Medicaid hemophilia beneficiaries during the second quarter of 2003. The chart identified the amount of each factor product used and the amount paid by AHCA to vendors for the factor product during the quarter. The chart also showed the amount that would have been paid by AHCA per factor product unit had the vendors been paid at the rate of AWP minus 39 percent. AHCA received six proposals in response to the RFP. The proposals were received from Caremark, HHS, Lynnfield, PDI Pharmacy Services, Inc., Advance PCS/Accordant, and Coram. RFP Section 60 contained the instructions to vendors for preparing their responses to the solicitation. As set forth in RFP Section 60.1, the technical response was identified as "the most important section of the proposal with respect to the organization's ability to perform under the contract." The section requires vendors to include "evidence of the vendor's capability through a detailed response describing its organizational background and experience," which would establish that the vendor was qualified to operate the MCHM program. Vendors were also directed to describe the proposed project staffing and the proposed "technical approach" to accomplish the work required by the RFP. Vendors were encouraged to propose "innovative approaches to the tasks described in the RFP" and to present a detailed implementation plan with a start date of January 10, 2003. The technical responses were opened on October 29, 2003. AHCA deemed all six proposals to be responsive to the technical requirements of the RFP and each technical proposal was evaluated. For purposes of evaluation, AHCA divided the technical requirements of the RFP into 50 separate criteria. AHCA assembled the technical evaluators at an orientation meeting at which time an instruction sheet was issued and verbal instructions for evaluating the technical proposals were delivered. The instruction sheet distributed to the evaluators provided that the evaluators "should" justify their scores in the "comments" section of the score sheets. The five AHCA employees who evaluated the technical proposal were Maresa Corder (Scorer "A"), Bob Brown-Barrios (Scorer "B"), Kay Newman (Scorer "C"), Jerry Wells (Scorer "D"), and Laura Rutledge (Scorer "E"). AHCA employees Dan Gabric and Lawanda Williams performed reference reviews separate from the technical evaluations. Reference review scores were combined with technical evaluation scores resulting in a total technical evaluation score. Reference review scores are not at issue in this proceeding. Kay Newman's review was limited to reviewing the financial audit information provided by the vendors. Technical evaluators reviewed each technical response to the RFP and completed evaluation sheets based on the 50 evaluation criteria. Other than Mr. Wells, evaluators included comments on the score sheets. Mr. Wells did not include comments on his score sheet. The technical proposal scoring scale set forth in the RFP provided as follows: Points Vendor has demonstrated 0 No capability to meet the criterion 1-3 Marginal or poor capability to meet the criterion 4-6 Average capability to meet the criterion 7-9 Above average capability to meet the criterion 10 Excellent capability to meet the criterion Each evaluator worked independently, and they did not confer with each other or with anyone else regarding their evaluations of the responses to the RFP. Janis Williamson was the AHCA employee responsible for distribution of the technical proposals to the evaluators. She received the completed score sheets and evaluation forms from each of the technical evaluators. The RFP set forth a process by which point values would be assigned to technical proposals as follows: The total final point scores for proposals will be compared to the maximum achievable score of 1340 points, and the technical proposal with the highest total technical points will be assigned the maximum achievable point score. All other proposals will be assigned a percentage of the maximum achievable points, based on the ratio derived when a proposal's total technical points are divided by the highest total technical points awarded. S = P X 1340 N Where: N = highest number of final points awarded to t technical proposal P = number of final points awarded to a proposal S = final technical score for a proposal According to the "Summary Report and Recommendation" memorandum dated December 4, 2003, after application of the formula, Caremark received the highest number of technical points (1340 points). Of the parties to this proceeding, HHS was ranked second on the technical proposal evaluation (1132.30 points), and Lynnfield was ranked third (1101.48 points). Lynnfield and HHS assert that the scoring of the technical proposals was arbitrary based on the range of scores between the highest scorer and the lowest scorer of the proposals. Review of the score sheets indicates that Scorer "A" graded "harder" than the other evaluators. The scores she assigned to vendor proposals were substantially lower on many of the criteria than the scores assigned by other evaluators. The range between her scores and the highest scores assigned by other evaluators was greater relative to the Lynnfield and the HHS proposals than they were to the Caremark proposal, indicating that she apparently believed the Caremark technical proposal to be substantially better than others she reviewed. There is no evidence that Scorer "A" was biased either for or against any particular vendor. The evidence fails to establish that her evaluation of the proposals was arbitrary or capricious. The evidence fails to establish that AHCA's evaluation of the technical proposals was inappropriate. After the technical evaluation was completed, cost proposals were opened on November 21, 2003. Section 60.3 addressed the cost proposal requirements for the RFP. RFP Section 60.3.1 provides as follows: The cost proposal shall cover all care management services, hemophilia specific pharmaceuticals dispensing and delivery, and pharmacy benefits management activities contemplated by the RFP. The price the vendor submits must include a detailed budget that fully justifies and explains the proposed costs assigned. This includes salaries, expenses, systems costs, report costs, and any other item the vendor uses in arriving at the final price for which it will agree to perform the work described in the RFP. The maximum reimbursement for the delivery of services and factor products used in factor replacement therapy (inclusive of all plasma-derived and recombinant factor concentrates currently in use and any others approved for use during the term of the contract resulting from this RFP) will be at Average Wholesale Price (AWP) minus 39%. Proposals may bid at a lower reimbursement but not higher. All other drugs not otherwise specified in factor replacement therapy will be paid at the normal Medicaid reimbursement. RFP Section 60.3.2 provides as follows: A vendor's cost proposal shall be defined in terms of Average Wholesale Price (AWP) and conform to the following requirements: The first tab of a vendor's original cost proposal shall be labeled "Proposal Guarantee" and shall include the vendor's proposal guarantee, which shall conform to the requirements specified in this RFP, Section 20.12. Copies of the cost proposal are not required to include the proposal guarantee. The second tab of the cost proposal shall be labeled "Project Budget" and shall include the information called for in the RFP, including the total price proposed, a line item budget for each year of the proposal, a budget narrative, and other information required to justify the costs listed. The RFP does not define the "detailed" budget mentioned in RFP Section 60.3.1 and does not define the "line item" budget mentioned in RFP Section 60.3.2. No examples of such budgets were provided. RFP Section 80.1 provides as follows: Evaluation of the Mandatory Requirements of the Cost Proposal Upon completion of the evaluation of all technical proposals, cost proposals will be opened on the date specified in the RFP Timetable. The Agency will determine if a cost proposal is sufficiently responsive to the requirements of the RFP to permit a complete evaluation. In making this determination, the evaluation team will review each cost proposal against the following criteria: Was the cost proposal received by the Agency no later than time specified in the RFP Timetable? Did the vendor submit an original and ten copies of its cost proposal in a separate sealed package? Was the vendor's cost proposal accompanied by a proposal guarantee meeting the requirements of the RFP? Did the cost proposal contain the detailed budget required by the RFP? Does the proposal contain all other mandatory requirements for the cost proposal? The AHCA employee who opened the cost proposals apparently determined that each proposal met the requirements of RFP Section 80.1, including providing a "detailed" budget. The RFP set forth a process by which point values would be assigned to cost proposals as follows: On the basis of 660 total points, the proposal with the lowest total price will receive 660 points. The other proposals will receive a percentage of the maximum achievable points, based on the ratio derived when the total cost points are divided by the highest total cost points awarded. Where: S = L X 660 N N = price in the proposal (for two years) L = lowest price proposed (for two years) S = cost points awarded The cost proposal scoring process clearly required comparison of each vendor's total price for the initial two-year portion of the contract. Caremark's proposal included estimated total costs of $44,797,207 for FY 2002-2003, $43,245,607 for FY 2003-2004, and $44,542,975 for FY 2004-2005. According to RFP Section 30.1, the maximum annual contract was not to exceed $36,000,000. All of Caremark's estimated annual costs exceeded the contract amount set forth in the RFP. Caremark's proposal also provided as follows: The above budget includes all salary expenses for Caremark employees involved in providing services for the program including the Contract Manager, Clinical Pharmacist, Care manager, additional pharmacist(s), Client Service Specialists in Florida for the expanded hemophilia program. Also included are the support staff such as pharmacy technicians, materials management, field service representatives, warehouse, reimbursement, marketing, sales and administrative staff. Also included are all delivery, data and report development, educational and marketing communication expenses. Product costs including medically necessary ancillary supplies, medical waste disposal and removal, protective gear and therapeutic devices. Caremark's proposal did not include information sufficient to assign specific costs to any of the items that Caremark indicated were included in its annual cost estimate. The HHS proposal projected estimated costs identified by month and year. The HHS proposal estimated total first-year costs of $14,261,954 and second-year costs of $27,333,389. HHS did not propose to assume responsibility for serving all Medicaid hemophilia beneficiaries at the start of the contract, but projected costs as if beneficiaries would "migrate to our service at a rate of 20 per month" during the first year and that full service provision would begin by the beginning of year two. RFP Section 10.2 provides as follows: The purpose of this RFP is to receive offers from qualified vendors wishing to provide the services required by the Florida Medicaid Comprehensive Hemophilia Management Program. The contract resulting from this RFP shall be with a single provider for up to two years commencing on the date signed, with an option to renew for two additional years. Otherwise stated, all Medicaid hemophilia beneficiaries would be served though the program's sole provider from the start of the contract period. The RFP provides no option for a vendor to gradually increase service levels through the first half of the two-year contract. The HHS proposal also included a breakdown of costs by factor product unit, identifying the AWP for each listed factor product and applying a discount of between 39 percent and 45 percent to indicate the product cost-per-unit that would be charged to AHCA. In Addendum 2 to the RFP, AHCA stated that it has received a written inquiry as follows: Knowing that the minimum accepted discount is AWP less 39%, can different products have different discounts. AHCA's response to the inquiry was as follows: No. The proposed discount will apply to all factor products. As to the costs included in the proposal annual total, the HHS proposal provided as follows: The product price above will include the following costs incurred in servicing the patients: The cost of the product dispensed to the patient. The cost of freight and other delivery expense of transporting the product to the patient. Pharmacy, warehouse and patient supplies. Cost incurred for patient protective gear and education materials Salary costs for the following: o Project/Contract Manager Clinical Pharmacist Staff Pharmacist Case Management Coordinator Pharmacy Care Coordinators Shipping Clerk Warehouse Coordinator Community Advocates Insurance Reimbursement Specialist The cost of Information Technology support for systems and reporting The cost of rent, office supplies, equipment, postage, printing. The HHS proposal did not include information sufficient to assign specific costs to any of the items that HHS indicated were included in its annual cost estimate. Lynnfield's proposal estimated total costs of $34,000,000 for calendar year 2004 and $36,000,000 for calendar year 2005. Lynnfield's budget proposal included information identifying the specific expense lines which form the basis for the cost estimation, including salary costs by position, travel costs, employee insurance, postage, equipment costs, and various office expenses. Lynnfield's budget proposal included a significantly greater level of detail than did either the Caremark or the HHS proposals. Jerry Wells was assigned the responsibility to evaluate the cost proposals. Mr. Wells failed to review the RFP or the related Addenda prior to evaluating the cost proposals submitted by the vendors. Mr. Wells asserted that it was not possible, based on the information submitted by the vendors, to perform an "apples- to-apples comparison." Each vendor set forth information in its proposal sufficient to calculate a total price for the initial two-year portion of the contract. Mr. Wells testified at the hearing that his cost review was intended to determine what AHCA would be paying for each of the individual factor products that AHCA provides hemophiliacs through Medicaid because the cost of the products was all AHCA would be paying to the vendors. The RFP did not require vendors to include a detailed list of, or unit prices for, factor products. The RFP specified only that factor products be provided at a minimum of AWP minus 39 percent. AHCA employees, under the direction of Mr. Wells, created a cost comparison chart which purported to identify the price proposed by each vendor for certain factor products and which projects an estimated quarterly factor product cost for each vendor. HHS's cost proposal included a listing of specific prices to be charged for factor products. The list was based on products being used by existing HHS patients. Caremark offered to provide all products at the AWP minus 39 percent cost required by the RFP. Caremark also suggested various "innovative cost savings," which specified use of factor products and indicated discounts greater than the 39 percent required by the RFP. Lynnfield did not include a product-specific listing of factor costs in its proposal, but offered to provide all products at the AWP minus 39 percent cost required by the RFP. The AHCA employees used the HHS cost proposal, including the HHS range of discounts, as the basis for preparation of the cost comparison chart that included the other vendors. The factor products listed on the AHCA cost comparison mirror those listed in the HHS cost proposal. AHCA employees apparently applied the factor product usage information from the second quarter of 2003 that was included on the spreadsheet distributed at the bidder's conference to the HHS factor product list. The AHCA spreadsheet distributed at the bidder conference lists 29 factor products by name and dosage. Of the 29 products, 15 are listed in the HHS cost proposal. The AHCA cost comparison created at Mr. Wells' direction includes only the 15 factor products listed on the HHS cost proposal. AHCA's cost comparison assumed no costs would be incurred, where the AHCA spreadsheet information indicated no usage of the factor product that had been included on the HHS cost proposal. AHCA's cost comparison did not include factor products which have been supplied by AHCA to Medicaid beneficiaries, but which do not appear on the HHS list. Mr. Wells relied on this cost comparison to determine that the cost proposal submitted by HHS offered the lowest cost to the agency and was entitled to the 660 points. Lynnfield and Caremark were both ranked according to cost proposals of AWP minus 39 percent, and according to the Summary Report and Recommendation memorandum, were awarded 652.74 points. Calculation of the points awarded to Lynnfield and Caremark in the Summary Report and Recommendation memorandum does not appear to comply with the formula set forth in the RFP. The AHCA cost comparison spreadsheet identifies the HHS proposed cost as $10,706,425.66 and identifies the AWP minus 39 percent cost as $10,795,477.48 (assigned as the Lynnfield and Caremark cost proposal). The Summary Report and Recommendation memorandum states the lowest cost proposal to be $10,706,405.66 (perhaps a typographical error). The methodology applied by AHCA assumed that all vendors would utilize identical quantities of identical factor products (based on historical usage in Quarter 2 of 2003 of those listed in the HHS cost proposal) and that there would be no cost savings related to disease management. The application of methodology to compare vendor cost proposals outside the process established by the RFP is clearly erroneous, arbitrary, and capricious. The vendors who are party to this proceeding assert that each other vendor's budgetary submission is insufficient, flawed, or unreliable for varying reasons. It is unnecessary to determine whether the budgetary information submitted by the vendors meets the requirements of the RFP because, despite having requested the information, AHCA has no interest in the data. There is no evidence that in making an award of points based on the cost proposals, AHCA relied on any of the budgetary information required by the RFP or submitted by the vendors.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency for Health Care Administration enter a final order rejecting all proposals submitted in response to the RFP AHCA 0403. DONE AND ENTERED this 29th day of April, 2004, in Tallahassee, Leon County, Florida. S WILLIAM F. QUATTLEBAUM 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 29th day of April, 2004. COPIES FURNISHED: Anthony L. Conticello, Esquire Thomas Barnhart, Esquire Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308 Geoffrey D. Smith, Esquire Thomas R. McSwain, Esquire Blank, Meenan & Smith, P.A. 204 South Monroe Street Post Office Box 11068 Tallahassee, Florida 32302-3068 Linda Loomis Shelley, Esquire Karen A. Brodeen, Esquire Fowler, White, Boggs, Banker, P.A. 101 North Monroe Street, Suite 1090 Post Office Box 11240 Tallahassee, Florida 32301 J. Riley Davis, Esquire Martin R. Dix, Esquire Akerman & Senterfitt Law Firm 106 East College Avenue, Suite 1200 Tallahassee, Florida 32301 Lealand McCharen, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Mail Stop 3 Tallahassee, Florida 32308 Valda Clark Christian, General Counsel Agency for Health Care Administration 2727 Mahan Drive Fort Knox Building, Suite 3431 Tallahassee, Florida 32308
Findings Of Fact Nelson Martinez together with others purchased the truck distributorship known as Ocala Mack Sales, Inc. It was bought from George Raney on or about March 1, 1985. In January, 1989, Respondent still owed Raney $370,000 for that purchase. In furtherance of the purchase Martinez on behalf of the Respondent entered into a Floor Plan Financing Agreement with Mack Financial Corporation (MFC), a subsidiary to the Petitioner. Martinez also executed two distributor agreements with Petitioner. These events took place on March 26, 1985. Petitioner is a corporation which has its principal place of business in Allentown, Pennsylvania. That business involves the manufacture and sale of Mack trucks and related products. MFC is the credit administration arm of the Petitioner. It has its principal place of business in Allentown, Pennsylvania. The credit arm, at its discretion, serves as a lender to the several distributors, to include Respondent, in the financing of new and used trucks, parts and other Mack products. In accordance with his agreements, Respondent sells new Mack trucks, used trucks, Mack parts and products as well as servicing the vehicles. The geographical area which constitutes the principal territory which Respondent is responsible for consists of Marion, Gilchrist, Levy, and Dixie Counties in Florida. The Distributor Agreements entered into between Petitioner and Respondent do not prohibit sales in the international market or outside the assigned geographical area in Florida. At the inception of the distributorship Martinez signed a $375,000 promissory note in April, 1985. That obligation is referred to as the capitol loan. Its terms call for the repayment of the principal in five years under monthly installments of $6,250. Although the terms of the note call for the payment on the 15th of each month, by oral agreement during the life of the note Respondent was allowed to remit payment by the end of each month. It is specified in the agreement that Respondent upon default is obligated to pay the entire unpaid balance immediately. In Paragraph 1 to the Floor Plan Financing Agreement, MFC has reserved to itself the ability to refuse or limit Floor Plan Financing when in its judgment the credit standing or financial condition of the distributor, such as the Respondent, would not warrant an extension of credit. These limitations can occur in those instances where the distributor carries excessive inventory for a two-month period. Finally, should the distributor default on payment of any obligation owed to the Petitioner or MFC, MFC may refuse or limit the Floor Plan Financing. Respondent's Floor Plan Financing Agreement with MFC, at Paragraph 6, obligates the Respondent to keep the floor plan vehicles free of all taxes, liens and encumbrances. Paragraph 7 to the Floor Plan Financing Agreement between Respondent and Petitioner requires that the distributor keep cash received from the disposition of vehicles that were subject to the floor plan obligations separate from the other funds and property of the dealership. That same paragraph requires the Respondent to immediately remit the proceeds from the sales of any vehicle under the floor plan to MFC. Notwithstanding remarks by Mr. Martinez that he is not particularly familiar with the details of the Floor Plan Financing Agreement, he and other members of Respondent corporation would be subject to the Floor Plan Financing Agreement terms throughout the history of the dealership absent written amendments or oral agreements which restructured those terms. In executing the Distributor Agreements for sale of "Mack vehicles" and "Mack mid-liner vehicles," Respondent subjected itself to the possible termination of those agreements should the Respondent default on the payment obligations to Petitioner or MFC. George Brigman who was the district manager for MFC in the period 1980 through 1990 had explained the nature of the policies and procedures of Petitioner and MFC as it spoke to the Floor Plan Financing Agreement and Distributor Agreements executed between Petitioner/MFC and Respondent concerning payment of the floor plan, capitol loan and parts accounts. From the inception of Respondent's dealership until notice was given concerning the termination, Brigman was conversant with Respondent's financial position vis-a-vis its obligations to Petitioner and MFC. There is some question concerning Respondent's capitol position at the inception of its business. Nonetheless it chose to pursue the enterprise. Within six months its capitol position was weak and it continued to be weak until December, 1989, when Petitioner gave the Respondent the termination notice. Respondent's business practices contributed to this under capitalization. Concerning the related topic of repayment of the capitol loan, Respondent did not make the payment due on September 31, 1989. Thus, by October, 1989, it was in default. In particular, it was in default on October 5, 1989 when Petitioner took control of Respondent's truck inventory of new and used vehicles in an action in replevin. The cash flow problems which Respondent experienced over time were especially grave in that period January 1988, through October 1989. Concerning the inventory, MFC had established a $150,000 floor plan financing limit on used trucks which Respondent held in its inventory. In this connection Respondent participated in the evaluation of used inventory by submitting its opinion of the appraised value of a used truck as a predicate to the decision by MFC on the amount of floor plan financing to be assigned that truck. Respondent also pursued in-house financing of used trucks held in inventory. That practice had an adverse affect on cash flow and the ability to meet financial obligations incumbent upon Respondent. On October 1988 Respondent's used truck floor plan financing balance was $294,000. From that point forward it did not fall below the $150,000 limit, although there were occasions when some improvement was shown in Respondent's attempts to comply with the credit ceiling. Commencing November 1988, MFC in cooperation with the Respondent made a conscientious attempt to reduce the floor plan financing debt below the $150,000 credit limit. As an incentive, in January 1989 MFC imposed the requirement that Respondent sell a used truck before an additional used truck would be included within MFC Floor Plan Financing Agreement for used trucks. MFC also called for an assessment of each additional truck to be placed in the used truck inventory and floor planned by MFC. MFC went so far as to advise Respondent that should it not reduce the used truck inventory that it might be required to pay curtailments on the existing inventory. The concept of curtailment is one calling for the dealership to pay off a vehicle in inventory to reduce the floor plan debt. MFC in this time frame was particularly concerned about used trucks that had been held in Respondent's inventory for a long period of time. The range of financing of the used truck floor plan held by MFC in the January through June 1989 period was as follows: January, $281,956.45; February, $168,627.79; March, $162,673.63; April, $215,861.20; May, $236,863.54, and June, $274,841.73. In addition to the problems with control of used truck inventory, Respondent also had tax problems. In late 1988 Respondent owed the United States Government $190,000 in unpaid Federal Excise Tax. It also owed the State of Florida under a tax warrant issued in Alachua County, Florida, on July 24, 1989. That amount was $155,916.61, related to unpaid sales tax. Respondent had been aware of that obligation in early 1989. This refers to the fact that Respondent had consciously sold trucks, collected sales tax for those sales, and failed to remit to the State of Florida in the subject period. Nelson Martinez as the person responsible for Respondent's business affairs recognized the legal requirement to remit the sales and excise taxes to the respective governments. Although Martinez arranged a payment schedule to satisfy the tax warrant issued by the State of Florida, and met the payment schedule, that encumbrance still affected Petitioner's financial position as well as that of Respondent. Petitioner was aware of the arrangement to pay the tax lien and compliance by Respondent with the payment schedule, but this did not prohibit the Petitioner from taking the actions it did in view of the existence of that lien. Nelson Martinez had made no mention of the existence of the two tax obligations to either Petitioner or MFC with the exception that information about the tax was included in the June 1989 financial statement from Respondent to Petitioner. In view of the tax lien held by the State of Florida, Petitioner in the person of MFC notified Respondent that floor plan financing would not be extended for future new, and by inference used trucks, placed in inventory and that the sale of new trucks and parts from Petitioner to Respondent would be on a C.O.D. (collect on delivery) basis. This notification took place on September 20, 1989. When Respondent became a franchisee it was extended a $250,000 credit limit on its parts account. That credit limit was increased to $330,000 in May 1988. In the history of the parts account, Mr. Martinez had been informed by Brigman through correspondence of December 6, 1985, concerning the necessity to pay $172,000 outstanding on that account by December 16, 1985, or be placed on a C.O.D. basis. This was followed by correspondence of December 23, 1985, Brigman to Martinez concerning the payment of outstanding indebtedness on the parts account by January 15, 1986. Correspondence of February 20, 1987, from Brigman to Martinez continued to discuss the problem of payment on the parts account. That correspondence followed a letter of February 13, 1987, from Brigman to Martinez referring to the then outstanding balance of $548,321.53 effective January 30, 1987. Martinez was reminded that on February 2, 1987, the parts account had been credited in the amount of $49,612.77, leaving a balance of $498,808.76. The aging of that account was a current balance of $242,809.50 with $255,999.26 in the 1 to 30 day past due section. The correspondence called for a payment of $100,000 of that 1 to 30 day balance by February 16, 1987, with that 1 to 30 day balance to be paid by February 27, 1987. Similarly, during the year 1986, Respondent's parts account had been routinely 30 days past due and the practice by Respondent was to pay the 1 to 30 day amount when the following statement was received which was around the tenth of the month. Given credit problems on the parts account, Respondent was eventually placed on a C.O.D. payment basis from August through November, 1987 based upon its failure to pay the amounts owed that were over thirty days past due. In early 1988 Respondent arrived at an arrangement with MFC which made it responsible to pay only those amounts which were 31 to 60 days overdue by remitting payment by the end of each month. In August 1989 the amount over 30 days past due, or in the 31 to 60 category, which had not been paid was $69,000, and in September of that year the amount over 30 days past due was $165,000. The business practices of Respondent had led to problems with paying the parts bill as well as paying the taxes. In particular, some of the decisions on in-house financing of used trucks had promoted these problems. About $400,000 of this financing was on the books in the spring of 1989 attributed to persons who were poor credit risks that had been turned down by other lending institutions. Although Respondent had placed uncollected judgements against "an awful lot of the folks" that had bought the used trucks, the trucks themselves were not worth repossessing in the estimation of Respondent's General Manager Theordore D. Steele as an alternative means of collecting the debt. In addition to its indebtedness to Petitioner, Respondent had considerable other debt obligations for operating its dealership in the period in question. Notwithstanding Respondent's debt position, Petitioner during the history of the relationship with Respondent did not place undue pressure on the Respondent to honor its debt obligations to the Petitioner. When it was finally necessary to take the drastic action that occurred in September 1989 to protect its financial interest, Petitioner was justified in that course of conduct. Another problem experienced with the Respondent concerning its financial obligations to the Petitioner involved what is referred to as "sales out of trust." That condition occurs, generally stated, when a truck is not on the distributor's lot and payment has been received by the distributor but not remitted to MFC. The custom and practice calls for Respondent to remit to MFC upon payment from a customer; however, three or four days are allowed from receipt of the customer's payment until MFC receives its funds. Under those circumstances the transaction would not be considered a sale out of trust. MFC had made the Respondent mindful of the payment procedures on a number of occasions to include written explanations by correspondence of April 23, 1985; September 25, 1985, and July 21, 1987. Although these explanations were clearly understood by the Respondent, it made sales out of trust numerous times. It also failed to segregate the proceeds from sales of trucks in violation of the Floor Plan Financing Agreement. By a conversion report of January 1986, prepared for Petitioner, references were made to sales of out trust from November 27, 1985 to January 2, 1986. There were nine trucks involved, one of which was worth $18,000, three of which were valued in the $20,000 range and the remainder of which were in the mid $50,000 bracket. As a consequence, MFC picked up the Manufactures Statements of Origin (MSO) for new trucks and titles to all used trucks in Respondent's inventory to be released as the units were sold. This is in contrast to the usual practice of having the distributor control the MSOs and titles pending sales. The inability of Respondent to control the MSOs and titles remained in effect until October 1986. When an audit was conducted by MFC concerning the Respondent's operation effective July 21, 1989, it was discovered that a truck sale had been made on June 23, 1989, for which no payment had been made. The truck sold on June 23, 1989, was paid for at the time of the July 21, 1989, audit. A further audit on July 31, 1989, revealed that five trucks had been exported to Puerto Rico without the authorization of MFC. The trucks exported to Puerto Rico were paid for on August 3, 1989. Based on these events, Respondent was advised not to export trucks without payment being received. On August 18, 1989 another audit was made. MFC discovered that Ocala Mack had exported units to the Dominican Republic and Puerto Rico. The letters of credit on these units had expired. Respondent did not pay for the subject trucks at the time of the audit. Instead, Respondent indicated that payment would be made when the letters of credit were cashed. Respondent was again advised that if this practice of export and no arrangement for payment persisted restrictions would be placed on dealership sales. At the time of the September 8, 1989, audit by MFC, payment on the above described units had not been received. As a consequence, the MSOs and titles for vehicles in inventory were picked up with the exception of two MSOs which the Respondent requested be retained because they had acquired purchasers for those units. Respondent committed itself to immediately pay MFC for those two units when the sells were consummated. By correspondence of September 15, 1989, directed from Brigman to the attention of Martinez, payment was requested for the sale of a unit to Shell Company in the West Indies which had been previously sold. When an audit was performed on October 2, 1989, Respondent was found to be out of trust relating to the sales of the two vehicles for which the MSOs had been left with the Respondent following the September 8, 1989, audit. Respondent understood pursuant to the terms of its contractual arrangements with MFC that money received for sales, such as those described, belonged to MFC and not to Respondent and that Respondent was not in a position to use the proceeds from those sales at its discretion. Moreover, the circumstances concerning the sales did not fall into the category of exceptions related to trucks missing from the dealership which were away for preparation at a body builder with proof of that arrangement through a receipt at the dealership issued from the body builder; away from the dealership pursuant to a demonstration agreement with a copy of that agreement available at the dealership or based upon a deferred billing and assignment that had been agreed to by MFC. In the audit that took place on October 2, 1989, MFC demanded that all new and used vehicles be turned over to its control. Respondent was not willing to comply with that request without a court order. On that same date, October 2, 1989, Respondent shipped four 1989 model trucks to Cementos Nacionales in the Dominican Republic. The value of those trucks was $236,744. Respondent received payment for those trucks in October 1989, but never remitted payment to MFC as required. Instead, Respondent used the proceeds from the sale to pay $102,000 for the two previously described trucks, whose sale out of trust was noted at the October 2, 1989, audit, with a balance of the proceeds from the $236,744 being used to pay C.O.D. for parts and to pay other suppliers. At the time Respondent sold the four trucks in question, it had no other arrangements for independent financing of its dealer operations which would have allowed it to meet its obligations to MFC. Respondent had made attempts to secure alternate means of floor plan financing separate and apart from its arrangement with MFC but without success. Respondent had also attempted to secure working capital from Petitioner in the amount of approximately $300,000 in April of 1989. The request was not granted. When Respondent chose to distribute the proceeds from the sale of the four trucks in the manner described, that was a decision reached in exercising its discretion and business judgment unrelated to the advice of others. On September 29, 1989, when Respondent sold the two trucks which were found out of trust in the audit of October 2, 1989, it had anticipated being able to pay for those trucks based upon proceeds realized in the floor planning of five used trucks taken in trade. It held this opinion in spite of the fact that effective September 20, 1989, the Floor Plan Financing Agreement for new and used trucks to be obtained in the future had been terminated. Consequently, MFC refused to floor plan the five used trucks. Being unable to gain financing, Respondent advised Petitioner it would be unable to pay for the two new trucks and it did not pay for them until it misappropriated the funds from the sale of the Cementos Nacionales trucks. Having discovered that the two new trucks were missing from the dealership on October 2, 1989, MFC requested immediate payment for those trucks and that request was met with the offer of a postdated check but no guarantee was stated as to the date upon which that check would clear in extinguishing the debt for the two trucks. This eventuated in the request from Petitioner to Respondent to have the Respondent surrender possession of the truck inventory under financing by MFC. Respondent, having refused to surrender those items on October 2, 1989, Petitioner obtained a Writ of Replevin which was served on the distributorship on October 5, 1989. At that time, Petitioner took position of the new and used truck inventory in accordance with the collateral security provisions set forth in the Floor Plan Financing Agreement. Petitioner left Respondent with the parts inventory. In pursuing the Writ of Replevin, Petitioner had in mind the existence of the tax lien to the State of Florida, delinquencies associated with the parts account and capital loan, the out of trust situation with the two trucks which have been mentioned and Respondent's previous history concerning delinquent payment for trucks which Respondent sold. From that point forward sales to the Respondent by Mack and MFC associated with parts and new vehicles has been on a C.O.D. basis. On December 11, 1989, Petitioner gave notice of termination to Respondent. The basis for the termination concerns defaults in the payment obligations from Respondent to Petitioner associated with floor plan indebtedness, parts account indebtedness, capital loan account indebtedness, and in particular the failure to make payment for the Cementos Nacionales trucks. That termination notice was in accordance with and authorized by paragraphs 22e(1) and 25(D)(1) of the Distributor Agreements between the Petitioner and Respondent that had been entered into on March 26, 1985. In addition to concerns about the viability of the Respondent, Petitioner had concerns of its own associated with its financial position. Petitioner had lost $185,000,000 in the calendar year 1989. It caused the Petitioner to be more cautious in its financial dealings to include the business conducted with its distributors. Paul Ritter, a Senior Vice President of Sales with Petitioner, made the decision to terminate. He had adequate cause for the termination. Respondent's attempts to minimize the significance of its shortcomings that led Petitioner to take the action calling for termination and to ascribe motives to the Petitioner which Respondent deems to be a matter of pretext are unavailing. As to the latter, pursuant to Section 320.641(3), Florida Statutes, Respondent alleges that the reason for termination is unfair and that Petitioner took the action of termination as part of Petitioner's attempt to interfere with the export business which Respondent conducted and as an overall pattern of discriminatory treatment of Respondent by Petitioner that would include threats and intimidation directed from Petitioner to Respondent. Although the Distributor Agreements did not prohibit sales in the international market, Petitioner regarded this as contrary to its policy and adverse to Mack International, a subsidiary to the Petitioner which conducted sales in the international market place. Mr. Martinez made known to the Petitioner that he intended to conduct sales in the international market place at the inception of his franchise. Indeed, in the history of the franchise approximately a third of the sales were in the international market place. Petitioner was not pleased with these activities and monitored them over time. Respondent, through the knowledge of its principal officer, Mr. Martinez, was conversant with the truck business in Central and South America where it conducted sales. One of the reasons for Petitioner's concern about the sales activities by Respondent in the international market place was the adverse economic impact that would occur to Mack International in that the price structure by Respondent was cheaper than that of Mack International. Petitioner requested Respondent to stop doing business in the international market place and tried to discourage Respondent's customers from buying from Respondent in the international market place. Petitioner even went so far as to tell the Respondent that these activities might jeopardize the franchise. In spite of this friction over sales activities in the international market place, the facts presented do not lead to the conclusion that Petitioner's resistance to Respondent's sales activities in that market lead to the inability to meet debt obligations referred to before or that Petitioner used the nonpayment of those debt obligations as a ruse for terminating Respondent when Respondent's activities in the international market place was the true reason for termination. Likewise, although Petitioner was not pleased with some of the sales activities by Respondent outside of its domestic territory in territories of other domestic dealers, this was not the reason for terminating the distributorship. Nor did the Petitioner terminate the Respondent's dealership based upon a disagreement over the distribution of sales effort discounts for sales to out of territory customers. Over the history of the franchise, Respondent sold approximately one third of its vehicles in domestic territory not specifically assigned to it, and which it was allowed to do. Petitioner became aware in 1989 that Respondent had taken on the sale of Western Star Trucks which competed with sales of Petitioner's product and it also had undertaken the sale of U.D. (Nissan) vehicles. This was a matter of concern to the Petitioner, but did not influence its decision to terminate Respondent's franchise for failure to honor financial obligations. Any suggestion by Respondent that the basis for termination was related to ethnic discrimination against Hispanics is rejected.
Recommendation Based upon the consideration of the facts found and the conclusions of law reached, it is, RECOMMENDED: That a Final Order be entered which upholds the decision to terminate/cancel Respondent's franchise. DONE and ENTERED this 10th day of July, 1991, in Tallahassee, Florida. CHARLES C. ADAMS, 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 10th day of July, 1991. APPENDIX TO RECOMMENDED ORDER The following discussion is given concerning the fact proposals of the parties. Petitioner's Facts Paragraph 8 is not necessary to the resolution of the dispute. Paragraph 24 is a incorrect portrayal of the transcript pages cited to. Paragraph 26 is not necessary to the resolution of the dispute. Paragraph 41 is rejected. Paragraph 42 is rejected with the exception of the reference to placement on C.O.D. on September 20, 1989. Paragraph 65 is not necessary to the resolution of the dispute. The last sentence of Paragraph 87 is not necessary to the resolution of the dispute. Respondent's Facts Paragraph 3 is not necessary to the resolution of the dispute. In Paragraph 10 the impression of one witness concerning what another witness thought is rejected. Paragraphs 18 through 26 are not necessary to the resolution of the dispute. Paragraph 27 is rejected in that aspect which attempts to report one witness's impression of the attitude of another witness concerning mental state. Paragraph 38 is rejected. Paragraph 39 is not necessary to the resolution of the dispute. Concerning Paragraph 41, the agreements between the parties did not require that Respondent be made aware of the Petitioner's choices before those choices were carried out. Paragraphs 43 and 44, see above. The matters set forth in Paragraph 45 do not excuse Respondent's nonpayment. Paragraph 52 is rejected. Paragraph 53 constitutes argument. Paragraphs 57 and 58 are not necessary to the resolution of the dispute. Paragraph 59 is rejected as is Paragraph 62. Paragraph 66 is accepted but it does not lead to a different result in the case. Paragraphs 67 and 68 are irrelevant. Paragraph 69 is rejected in the last sentence. Concerning Paragraph 70, the change in policy of September 29, 1989 did not relate to existing inventory but it did relate to inventory to be gained beyond that point, to include used inventory. As to Paragraph 71 it can be inferred that the used truck floor plan was affected by the September 20, 1989 decision, especially given existing problems with used truck inventory. As to Paragraph 72 it is accepted but the choice of placement on C.O.D. was justified. Paragraph 73 is not necessary to the resolution of the dispute. As to Paragraph 74 the suggestion that the parts account was current is rejected. The balance of the paragraph is accepted. As to Paragraphs 77 and 78 this is not an accurate statement of the present case. Paragraph 79 is rejected. Paragraph 81 is accepted but it is not sufficient to cover the two out of trust sales which amounted to $102,000, more importantly, Respondent owed Petitioner for the two new trucks aside from the attempt to floor plan the five units as a means of paying for the two new trucks. Paragraph 82 is rejected. Paragraphs 83 and 84 are accepted. Paragraph 85 is rejected. As to Paragraph 86, see discussion for Paragraph 81. Paragraph 90 is accepted but does not change the outcome. Paragraph 91, see above. Paragraph 92 is irrelevant. Paragraph 93 is rejected. Paragraphs 94 and 95 are accepted. Paragraph 98 is accepted but does not change the outcome. Paragraph 99 is accepted. Paragraph 101 is accepted with the exception of the value of receivables and value of used truck inventory which is rejected. Paragraph 103 is rejected in that the parts were not taken. Paragraphs 104 and 105 are irrelevant. Paragraph 106 is accepted. Paragraphs 109 and 110 are accepted. Paragraph 111 is rejected. Paragraph 115 is irrelevant. That portion of Paragraph 116 attributable to the position of the Associates is rejected as hearsay. Paragraph 118 is irrelevant. Paragraphs 119 through 123 are not necessary to the resolution of the dispute. Paragraph 128 is rejected. Paragraph 129 is accepted as is Paragraph 131. Paragraphs 132 through 134 are irrelevant. Paragraph 136 is irrelevant. Paragraph 137 does not establish ethnic discrimination as a basis for termination. Paragraphs 138 and 139 are rejected. Concerning Paragraph 140, the December 11, 1989 letter constituted notice of termination. Paragraphs 141 and 142 are irrelevant. The balance of the suggested fact finding by the Petitioner and Respondent is subordinate to facts found in the Recommended Order. COPIES FURNISHED: Dean Bunch, Esq. Robert L. Hessman, Esq. RUMBERGER, KIRK, ET AL. 106 E. College Avenue, Suite 700 Tallahassee, FL 32301 Roy Cohn, Esq. GIBBONS, SMITH, COHN & ARNETT 501 E. Kennedy Boulevard, Suite 906 Tampa, FL 33602 Irwin J. Weiner, Esq. 50 S.E. First Avenue Ocala, FL 32671 Scott R. Corbett, Esq. 550 N. Bumby Avenue, Suite 280 Orlando, FL 32803 Michael J. Alderman, Esquire Department of Highway Safety and Motor Vehicles Neil Kirkman Building Tallahassee, FL 32399-0500 Charles J. Brantley, Director Division of Motor Vehicles Department of Highway Safety and Motor Vehicles Neil Kirkman Building, Room B439 Tallahassee, FL 32399-0500
The Issue The issue presented is whether Petitioners are entitled to recover from Respondent the attorney's fees and costs incurred by Petitioners, pursuant to the Florida Equal Access to Justice Act.
Findings Of Fact At the time material hereto, Global Real Estate and Management, Inc., was a corporation registered as a real estate broker in the state of Florida, Mark H. Adler was a real estate broker licensed in the state of Florida, and Richard Shindler was a real estate salesman licensed in the state of Florida. Adler was the qualifying broker for Global, and Shindler was employed by Global. On November 17, 1989, the Department of Professional Regulation, Division of Real Estate, received a written complaint about Adler, Shindler, and Global from Jay Hirsch, a real estate broker licensed in the state of Florida. Hirsch's complaint included the following allegations. Shindler had entered into two contracts for the purchase of real estate which required Shindler to place a total of $11,000 in Global's escrow account. Requests for verification of the deposit of such funds had been ignored. Hirsch had told Shindler at the time that the contracts were executed and on numerous occasions thereafter that since Shindler had chosen to participate in the real estate commission to be earned from the transaction, Shindler had assumed a fiduciary relationship with the sellers. Shindler had arbitrarily refused to close pursuant to the contracts and on October 2, 1989, Hirsch met with Shindler, reminded Shindler of Shindler's fiduciary responsibil-ities to the sellers, made demand on Shindler for the escrow deposit on behalf of the sellers, and advised Shindler of the provisions of Florida law relating to the responsibilities of the escrow holder when demands are made for release of escrowed money. Written demand was made on Adler within days of the oral demand. Hirsch subsequently spoke with Adler, the broker of record for Global, regarding the legal requirements in escrow deposit disputes but discovered that Adler "knew nothing" about the transaction. Shindler and Adler continued to ignore the demands made on them for the escrow deposit. Hirsch also alleged that there may be "certain other irregularities" regarding fiduciary responsibilities, entitlement to commissions by Global, and conflicts of interest. An investigator was assigned to investigate Hirsch's complaint against Adler, Shindler, and Global. According to the investigative report issued on February 12, 1990, that investigation revealed possible serious violations of the laws regulating the conduct of real estate brokers and salespersons. Although the investigative report recited that Global waited two months after the initial deposit demand was made by Hirsch before it filed an interpleader action to resolve conflicting demands on the escrow deposit, the documentation attached to the investigative report clearly indicated that Global waited just a few days short of three months before filing the interpleader action. The investigative report further revealed that during the time that at least the $11,000 was required to be in Global's escrow account (if Global were not involved in any other real estate transactions at the time), the escrow account had less than an $11,000 balance for both the months of September and October of 1989. The report further indicated that the IRS had attached Global's escrow account for Global's failure to pay payroll taxes. The investigative report revealed that there had been a problem obtaining broker Adler's presence for the interview with the Department's investigator. When a joint interview with both broker Adler and salesman Shindler did take place, the broker was unable to answer any of the investigator's questions, telling the investigator that he knew little regarding the problems since he relied on salesman Shindler to operate the business on a daily basis. In response to the investigator's continued questioning as to how IRS was able to attach an escrow account, Shindler explained that although the checks were marked escrow account, the bank statements did not reflect an escrow account but rather reflected a "special account." It was further discovered during the investigation that broker Adler had not been a signatory on the escrow account; rather, salesman Shindler had been the only signatory on the escrow account. At the conclusion of that interview, Shindler, who had taken control of the interview, agreed to supply the Department's auditors with all IRS and bank correspondence relative to the escrow account attachment. During that same joint interview on January 23, 1990, when questioned about the real estate transactions which were the subject of broker Hirsch's complaint, Shindler spoke in terms of having "his" attorney file an interpleader action (although he was the buyer). He also talked about oral extensions to the written contracts. Shindler also explained that his "deposit moneys" were in the escrow account because he was using a part of sale proceeds belonging to his brother as his down payment on purchases made for himself, an explanation which suggested there might be co-mingling of funds. A complete audit of Global's escrow account by the Department's auditors was scheduled for February 7, 1990. A supplemental investigative report was issued on May 3, 1990. That report contained the following recital. Shindler and Adler had failed to comply with the Department's requests for files and bank statements so that an audit could be conducted on the escrow and operating accounts. On March 22, 1990, a subpoena was served on Global requiring those records to be made available by April 3. As of April 30, complete records were still not submitted in that case files were not available and certain checks and monthly bank statements were missing. Therefore, an appointment was made to conduct the audit in Global's office on May 1 with the requirement that broker Adler be present. On that date, files were still not available and bank records were incomplete, precluding the conduct of a proper audit. Adler told the investigator on that date that Shindler had not even told Adler that a subpoena had been served, which statement reinforced the investigator's belief that salesman Shindler had been operating as a broker and running the business operations of Global, with broker Adler merely lending his license. On that same date Shindler changed his explanation of the escrow account shortages, saying the IRS had not garnished the escrow account; rather, Global's bank had transferred $3,200 from Global's "escrow" account to Global's operating account to cover checks written on Global's operating account when the account did not have sufficient funds. It was also discovered that Adler had not been performing monthly reconciliations of Global's "escrow" account. Adler told the investigator that he would supply files and reconciliations by June 1, 1990. A supplemental investigative report was issued on June 12, 1990, advising that although the subpoena return date had been extended to June 1, 1990, as of June 12 Adler had still failed to respond by producing the required records. On June 19, 1990, the Probable Cause Panel of the Florida Real Estate Commission considered the investigative reports and determined that there was probable cause to believe that Adler, Shindler, and Global had violated statutes regulating the conduct of real estate brokers and salespersons. The administrative complaint recommended to be filed by the Probable Cause Panel was issued by the Department of Professional Regulation, Division of Real Estate, on June 21, 1990, against Mark H. Adler, Richard Shindler, and Global Real Estate and Management, Inc. That Administrative Complaint contained factual allegations regarding Shindler's contracts to purchase properties listed by broker Hirsch, regarding the alleged "verbal" extensions of the closing dates in the written contracts, regarding the repeated demands on broker Adler for release of the escrowed money as liquidated damages, and regarding the lengthy delay in responding to those demands. The Administrative Complaint also contained factual allegations regarding Shindler's use of a part of sale proceeds due to his brother as his own down payment on the properties and regarding the escrow account balance which was less than $11,000, the minimum balance required to be maintained in Global's escrow account if there were no other sales pending. Also included were factual allegations regarding the alleged attachment of Global's escrow account by the IRS for failure to pay payroll taxes, regarding the fact that broker Adler was not a signatory on the escrow account, and regarding Adler's reliance on Shindler to operate the real estate brokerage office on a daily basis. The Administrative Complaint also recited the failure of the Respondents to comply with the subpoena served on Global by the Department, which precluded the possibility of conducting a proper audit of Global's account. Factual allegations were included reciting that on May 1, 1990, Shindler had acknowledged that he had been operating as a broker and running the real estate brokerage business of Global with broker Adler "lending his license." In addition, the Administrative Complaint recited Shindler's original explanation that the IRS had attached the escrow account, which explanation was later changed by Shindler to be that Global's bank had taken $3,200 from Global's escrow account to cover checks written against Global's operating account when there were not sufficient funds in that operating account. Lastly, the Administrative Complaint alleged that Adler had not done monthly reconciliation statements of the escrow account from October of 1989 through the date of the Administrative Complaint. Based upon those factual allegations, the Administrative Complaint alleged that Adler was guilty of culpable negligence or breach of trust in a business transaction (Count I), that Shindler was guilty of culpable negligence or breach of trust in a business transaction (Count II), that Global was guilty of culpable negligence or breach of trust in a business transaction (Count III), that Adler was guilty of having failed to maintain trust funds in the real estate brokerage escrow bank account or some other proper depository until disbursement thereof was properly authorized (Count IV), that Global was guilty of having failed to maintain trust funds in the real estate brokerage escrow bank account or some other proper depository until disbursement thereof was properly authorized (Count V), that Adler was guilty of having failed to produce for inspection records when subpoenaed by the Department (Count VI), that Global was guilty of having failed to produce for inspection records when subpoenaed by the Department (Count VII), that Shindler was guilty of having failed to deposit funds with his employing broker (Count VIII), and that Shindler was guilty of having operated as a broker while being licensed as a salesman (Count IX). The Administrative Complaint sought disciplinary action against Adler, Shindler, and Global for those alleged violations. Adler did not seek a formal hearing regarding the allegations contained within that Administrative Complaint. Rather, he entered into a settlement agreement with the Department, agreeing that all of his real estate licenses, registrations, certificates, and permits would be suspended for a period of eighteen months, that he would resign as an officer and/or director of Global, and that he would testify at any formal hearing held regarding the Administrative Complaint. Adler also agreed that notice would be published that he had been suspended for 18 months for culpable negligence and failure to properly supervise a licensed salesman in his employ. That agreement was approved by the Florida Real Estate Commission in a Final Order filed of record on August 31, 1990. On the other hand, Shindler and Global did request a formal hearing regarding the allegations contained in that Administrative Complaint. The matter was subsequently transferred to the Division of Administrative Hearings for the conduct of that formal hearing and was assigned DOAH Case No. 90 That formal hearing was conducted on January 9, 1991. Based on the evidence presented during that final hearing, a Recommended Order was entered on March 20, 1991, finding that the Department had failed to prove its allegations as to Shindler and further finding that the Department had failed in its burden of proof as to two of the three counts against Global. The Recommended Order did find that Global failed to maintain trust funds as alleged in Count V of the Administrative Complaint and recommended that Global be ordered to pay an administrative fine in the amount of $500. That Recommended Order was adopted in toto by the Florida Real Estate Commission in its Final Order filed on April 24, 1991. It is clear that Shindler prevailed in the underlying administrative action and that Global prevailed as to two of the three counts against Global. The Department was substantially justified in initiating the underlying administrative proceeding against both Shindler and Global. At the time that the underlying action was initiated, it had a reasonable basis both in law and in fact.
The Issue The issues for determination in this proceeding are whether Respondent, by and through his employees: (a) sold unregistered securities in the secondary market which were marked up in excess of 10 percent of the prevailing market price and which were not exempt from registration; (b) permitted an agent to service accounts prior to the agent's effective date of registration in the State and concealed such action; and (c) failed to maintain minimum net capital requirements for his corporation; and (d) failed to properly supervise the activities of his employees and agents.
Findings Of Fact Respondent owned the stock of a holding company and was an officer in a wholly owned subsidiary of the holding company. Respondent and another individual owned the stock of Dean, Johnson and Burke Holding Company ("Holding"). Holding owned the stock of Dean, Johnson and Burke Securities, Inc. ("Securities"). Respondent was the Secretary of Securities. Respondent had ultimate responsibility for disbursements and profits for Holding and Securities. Respondent monitored the checkbooks and daily expenses for Securities. Respondent's accountant provided financial information to Respondent concerning the daily operations of both companies. The information was provided on forms supplied by Respondent. Respondent kept a daily record of how much each company made or lost, how much was owed, and other accounting information. Respondent made sure that the bills were paid and that the credit of each company remained good. Respondent also controlled the hiring of key personnel. Brent A. Peterson was a manager and principal for Securities. 2/ Mr. Peterson set prices for the firm. Mr. Peterson engaged in transactions in which prices were set for securities to be sold to customers in excess of 10 percent above and below the prevailing market price. Out of 457 trades, approximately 38 were sold at prices that exceeded a 10 percent markup (the "marked up securities"). The marked up securities were sold at prices in excess of 10 percent of the prevailing market rate. The National Association of Securities Dealers, Inc., ("NASD") determined that the securities were marked up in excess of 10 percent of the prevailing market price based upon Securities' contemporaneous costs. When a dealer is simultaneously making a market in a security (a "market maker"), the NASD looks to the prevailing market price for the purpose of determining if a markup exceeds 10 percent. The prevailing market price is the price at which dealers trade with one another, i.e., the "current inter-dealer market." 3/ When a dealer is not simultaneously making a market in a security (a "non-market maker"), the contemporaneous costs of the dealer are used for the purpose of determining if the securities have been marked up in excess of 10 percent. The contemporaneous costs reflect the prices paid for a security by a dealer in actual transactions closely related in time to the dealer's retail sales of that security. Such a standard is normally a reliable indication of prevailing market price in the absence of evidence to the contrary. Securities was not a market maker in the marked up securities. Even though securities may be sold at the same market price by one firm that is a market maker and one that is not a market maker, the latter may be deemed by the NASD to have marked up the security by more than 10 percent depending on the firm's contemporaneous costs. Many of the marked up securities were sold to customers at the same market price as that the customers would have paid other brokerage houses. 4/ Since Securities was not a market maker in the marked up securities, the standard used by the NASD to determine the amount of markup was the contemporaneous costs paid by Securities. The securities involved in the 38 trades were marked up more than 10 percent over Securities' contemporaneous costs. Respondent sold unregistered securities that were not exempt from registration. Unregistered securities may be sold if they are reasonably related to the current market price. The marked up securities were not reasonably related to the prevailing market price because they were marked up more than 10 percent over Securities' contemporaneous costs. Robert M. Long sold securities to customers as an employee of Securities prior to the effective date of his registration with Petitioner. Mr. Long was registered with Petitioner as a registered representative on May 18, 1988. Mr. Long was employed by Securities, from April 19, 1988, through September 20, 1989. Mr. Peterson advised Mr. Long that Mr. Long was authorized to trade securities. Pursuant to Mr. Paterson's advice, Mr. Long sold securities in Tel-optics prior to the effective date of his registration with Petitioner on May 18, 1988. Respondent concealed the sale of securities by Mr. Long prior to the effective date of his registration with Petitioner. Mr. Long's registered representative number was 34. Relevant order tickets showed Mr. Long as the person engaged in the sale of securities prior to May 18, 1988. Registered representative number 30 had been used on the order tickets at the time of the trades. After Mr. Long was registered with Petitioner, Mr. Long's number 34 was added to the order tickets and number 30 was crossed out. Securities operated with a net capital deficiency of approximately $30,000. The net capital deficiency resulted from the failure to accrue liabilities. The net capital deficiency was discovered by Mr. Long and Jeff Clark, an examiner for the NASD. The invoices for bills for the unaccrued liabilities were not filed where bills and invoices were normally filed and were found by Mr. Long concealed in drawers and other remote locations in the office. The net capital deficiency was discovered by Mr. Long on August 28, 1989, but not reported to Petitioner until September 19, 1989. Mr. Long did not notify Petitioner of the net capital deficiency at Securities until the deficiency could be verified by Mr. Clark.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Petitioner enter a final order finding that Respondent is guilty of committing the acts alleged in the Administrative Complaint, requiring Respondent to cease and desist from all violations of Florida statutes and rules, and imposing a fine in the aggregate amount of $9,000. The fine should be imposed in the amount of $2,000 for selling securities in excess of a 10 percent markup and $3,500 for each of the other two acts that constituted violations of applicable statutes and rules. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 25th day of July, 1991. DANIEL MANRY Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 25th day of July, 1991.
The Issue The issue in this case is whether Petitioner's application for self-insurance for workers' compensation should be approved.
Findings Of Fact Based upon the observation of the witnesses' testimony and the documentary evidence received into evidence, the following relevant and material facts that follow are determined. The Florida Self-Insurers Guaranty Association, Inc. (Association), is established by Section 440.385, Florida Statutes (2003), and is an organization that provides a guarantee for workers' compensation benefits for companies that are self-insured. The Association pays injured workers their benefits, if the self-insurer becomes insolvent. An insolvency fund is established and managed by the Association, which funds the workers' compensation benefits for insolvent members. The insolvency fund is funded by assessments from members of the Association. Pursuant to Florida Administrative Code Rule 69L-5.102 (formerly Florida Administrative Code Rule 4L-5.102), in order for an employer to qualify for self-insurance under the relevant provisions of law, the applicant must meet the following requirements: (1) have and maintain a minimum net worth of $1,000,000; (2) have at least three years of financial statements or summaries; (3) if the name of the business has changed in the last three years, provide a copy of the Amended Articles of Incorporation; and (4) have the financial strength to ensure the payment of current and estimated future compensation claims when due, as determined through review of their financial statement or summary by the Department. Of the general requirements noted in paragraph 3, above, the only issue in this proceeding regards N.C.M.'s financial strength. An applicant for self-insurance is required to submit in its application audited financial statements for its three most recent years. All financial statements, audits, and other financial information must be prepared in accordance with Generally Accepted Accounting Principles. The Association is required to review each application and the financial documents which are submitted as part of that application to determine if the applicant has the financial strength to ensure the timely payment of all current and future workers' compensation claims. After the Association reviews the application, it makes a recommendation to the Department as to whether the application for self-insurance should be approved or denied. The Department is required by law to accept the Association's recommendations unless it finds that the recommendations are clearly and convincingly erroneous. N.C.M. submitted its application for self-insurance on or about May 6, 2003, and included in its application audited financial statements for its three most recent fiscal years. The statement contained an unqualified opinion from N.C.M.'s accountant. N.C.M. provided information in its application regarding the number of employees, the worker classifications of these employees, and a payroll classification rating that has been established by the National Council on Compensation Insurance. The application made it clear that the Department could use this information to calculate a manual annual rate premium for each worker classification to determine an overall workers' compensation premium based on statewide manual rates. The Association calculated a standard premium of $507,088.75 for N.C.M., after giving credit for its experience modification of .71. N.C.M. confirmed in its application that it was a corporation duly organized and existing in the State of Florida. N.C.M. also supplied information on its corporate officers and copies of its Articles of Incorporation confirming its corporate existence. In its application and at the hearing, N.C.M. agreed that, if accepted for membership, it will maintain security deposits and excess insurance as required by the Department's administrative rules. Upon receipt of N.C.M.'s application, the Association thoroughly reviewed the application and financial statements for the three most recent years. The Association examined the balance sheets to analyze the Company's assets, liabilities, working capital, and equity structure. Additionally, the Association examined N.C.M.'s income statements to analyze the Company's revenues, profits and/or losses, and expenses. The Company's cash flows were examined. The Association calculated various financial ratios for N.C.M. in order to examine, among other things, the company's asset structure, liquidity, total debt to equity structure, and net income or loss as it relates to the company's equity. The analysis and review performed by the Association, as described in paragraph 12, is the same type of analysis the Association performs on every applicant for self-insurance. Because applicants for self-insurance come from various types of industries, it is not useful to establish specific threshold values for various financial ratios in determining financial strength. However, the Association reviews and analyzes the financial statements of each applicant to determine the financial condition of that applicant. The Association's review of N.C.M.'s audited financial statements revealed that the Company had a net loss of $60,937 in the year ending December 31, 2002. The Company also had a loss from operations in its most recent year in the amount of $74,897, or negative .62 of its revenues. This was a significant factor to the Association because it revealed N.C.M.'s lack of profitability for its most recent year. Petitioner's tax return of 2002 showed a profit for the Company. However, the tax returns are not meant to reflect the economic profit of a business and are not prepared in accordance with Generally Accepted Accounting Principles. Rather, the audited financial statements provide more accurate information about the Company’s financial health. N.C.M.'s 2002 net worth was $1,218,895, which exceeded the $1,000,000 minimum net worth requirement established in the applicable rule cited in paragraph 3 above. However, the Association was concerned about N.C.M.'s net worth when taken as a percentage of its workers' compensation premiums, calculated by using the payroll classification information in N.C.M.'s application. The analysis of N.C.M.'s net worth as a percentage of workers' compensation premiums is important because workers' compensation claims can accrue each year and be paid out over a long period of time by the self-insurer. A company with equity that is relatively low in comparison to its workers' compensation exposure might, over time, owe its injured workers as much as, or more than, the equity in the company. This would increase the risk for the injured worker. Upon completing its financial analysis, the Association recommended that N.C.M.'s application for self- insurance be denied. Brian Gee, the executive director of the Association, conveyed the recommendation of denial to the Department in two letters, one dated May 12, 2003, and the other one dated June 19, 2003. The letters were virtually identical, except that the June 19, 2003, letter referred to the specific statute at issue and statutory language that N.C.M. did not have the financial strength necessary to ensure timely payment of all current and future claims. Attached to both the May 12, 2003, and June 19, 2003, letters was a copy of the Association's summary of N.C.M.'s audited financial statements for the years ended December 31, 2002, 2001, and 2000. Based on the review of the financial data, the Association made the following four findings, which it listed in both letters: The Company received unqualified audit opinions on its December 31, 2002, 2001, and 2000 financial statements from Rust & Christopher, P.A. Liquidity - The current ratio has decreased from 1.34 at December 31, 2000 to 1.13 at December 31, 2002. Capital Structure - The total liabilities to book equity ratio has increased since December 31, 2000 from 1.39 to 1.99 at December 31, 2002. Results of Operations - The Company's gross profit margin has negative 0.62 for the year ended December 31, 2002. The Company reported a net loss of $60,937 for the year ended December 31, 2002. Although the above-referenced letters listed findings relative to the Company's liquidity and capital structure, Mr. Gee did not believe that those findings were of "major significance." The Association's letters and accompanying financial data were submitted to the Department for a final decision to be made by the Department. The Department received and reviewed the Association's letters of recommendation and the accompanying documentation. Based on its review of the letter, the Department noted that the Association appeared to have concerns about the Company's liquidity, liabilities, and profitability. However, there was nothing in the letters which indicated that the Association did not consider the findings related to the Company's liquidity and liabilities (capital structure) to be of major significance. The Department sent N.C.M.'s application, which included the financial statements, to an outside CPA firm for review. The outside CPA performed a financial analysis, calculated various financial ratios on N.C.M., and provided a report to the Department. The outside CPA correctly noted in her report that N.C.M.'s gross profit margin for the year ended December 31, 2002, was 15.4 percent. In Finding No. 4 of its letters of recommendation to the Department, the Association had mistakenly mislabeled the Company's net profit margin as the gross profit margin. As a result of that mislabeling in the letters, the finding incorrectly stated that N.C.M.'s gross profit margin was a negative 0.62 percent for the year ending December 31, 2002. In fact, it was the Company's net profit margin for the year ending December 31, 2001, that was negative 0.62 percent. Notwithstanding the incorrect mislabeling of this item in the letters, the financial summary attached to the letters accurately reflected the Company's gross profits and revenue. The financial statement of N.C.M. also reflected that for the year ending 2002, the Company had a gross profit of $1,877,076, and for that same period had a loss from operations of $74,897, or negative .62 percent. The outside CPA also compared various financial information on N.C.M. to an industry average and concluded that "some of the Company's ratios are below the industry ratios." In making these comparisons, the outside CPA researched two companies she believed were in a business similar to N.C.M. The research on these companies provided an industry average for various financial information on companies in the same industry as the two reference companies. In this case, the two reference companies were primarily producers or sellers of concrete products, as opposed to construction companies like N.C.M. Accordingly, the industry ratios contained in the outside CPA's report may be different than the construction industry and not an appropriate basis with which to compare N.C.M. The report of the outside CPA stated that N.C.M. pays approximately $1,000,000 a year in workers' compensation insurance. That figure is higher than the premiums calculated by the Association using statewide manual rates. Instead of using those rates, the outside CPA based her figure on a newspaper article, which stated that Mr. DelDuca, president of N.C.M., pays $1,000,000 for workers' compensation insurance. In her report, the outside CPA cited N.C.M.'s lack of profitability for the year ending 2002 and correctly noted that for that year, the Company reported a net loss of $60,937. The outside CPA notified the Department that she concurred with the Association's recommendation to deny N.C.M.'s application to become self-insured because the Company had not demonstrated it has the financial strength to ensure timely payment of workers' compensation claims. The Department reviewed the outside CPA's report and noted the concerns about the company's debt equity and lack of profitability. Based on the outside CPA's report, the Department correctly determined that the report contained no information that the Association's recommendation was clearly and convincingly erroneous. As a result of its determination that the Association's recommendation to deny N.C.M.'s application for self-insurance was not clearly or convincingly erroneous, the Department denied the application.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department issue a final order denying N.C.M. of Collier County, Inc.'s application for self-insurance. DONE AND ENTERED this 26th day of February, 2004, in Tallahassee, Leon County, Florida. S 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 26th day of February, 2004. COPIES FURNISHED: John M. Alford, Esquire 542 East Park Avenue Tallahassee, Florida 32301 Cynthia A. Shaw, Esquire Department of Financial Services 200 East Gaines Street Tallahassee, Florida 32399-4229 Mark B. Cohn, Esquire McCarthy, Lebit, Crystal & Liffman Co., L.P.A. 1800 Midland Building 101 West Prospect Avenue Cleveland, Ohio 44115-1088 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 the decision to award the bid for Parcel No. 93S101, State Road 84 Spur, was in accordance with the governing rules and statutes or was arbitrary, capricious, or contrary to competition.
Findings Of Fact In October of 1993 the Respondent declared that a spur property located at State Road 84 (the subject matter of these proceedings) was a surplus parcel. Such property is comprised of two identifiable tracts identified in this record as parcel 101-A and parcel 101-B. The Respondent utilizes a manual entitled "Disposal of Surplus Real Property" as its guide for the procedures used to comply with statutory and rule provisions regarding the disposal of surplus parcels. Since 1993 the Department has made several attempts to market the spur property. Such attempts included offering parcel 101-A to the Petitioner for no consideration. As recently as October of 2000 the Department offered the spur property to the Petitioner at no cost. The offer did include some conditions but same did not materially affect whether or not Davie would or could accept the transfer. For whatever reasons, the Petitioner did not accept the offer. Subsequently, the Respondent withdrew the offer in writing. Additionally, the Respondent notified the Petitioner that it intended to make the spur property (both parcels) available to the public through the competitive bid process. It was contemplated that the bid process would allow any person from the public to competitively place bids for the subject property. Nevertheless, the Petitioner was advised that it would be given an opportunity to acquire the property. A letter of February 7, 2001, from the Department to the Petitioner advised the town of its right to acquire the property but did not in any manner prohibit or prevent the Town of Davie from bidding on the spur property. In fact, the Petitioner did not bid on the subject property. Further, the Petitioner did not and does not intend to purchase the subject property. The only way the Intervenor seeks to acquire the property is without cost. The Petitioner had actual knowledge of the Department's intention of making the property available through competitive bid. The Town of Davie did nothing to oppose the bid process. On May 30, 2001, the spur properties were advertised for competitive bidding with sealed bids to be opened by the Department on June 14, 2001. On June 21, 2001, the Town of Davie by and through its town administrator contacted the Department in order to exercise the town's right of refusal on the property. Accordingly, on June 25, 2001, the Respondent posted a notice stating it would reject all bids. On July 12, 2001, the Respondent notified the Petitioner that it had ten days to exercise its right to purchase the property. In connection with the proposed sale the Department offered the property to the Town of Davie at the approved appraised value of $1.9 million. The Petitioner made no counter-offer. Instead, on July 27, 2001, the Town of Davie responded to the offer stating it would accept the parcel for a public purpose for no consideration. Thereafter, the Respondent posted a "Revised Bid Tabulation" indicating it would award the spur property to the highest responsive bidder, the Intervenor. The Petitioner has not proposed to pay for the spur property. The Petitioner did not have an appraisal of the spur property prepared. The Petitioner did not bid on the spur property.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Respondent enter a final order confirming the award of the spur property to the Intervenor. DONE AND ENTERED this 7th day of February, 2002, in Tallahassee, Leon County, Florida. J. D. 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 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 7th day of February, 2002. COPIES FURNISHED: Michael T. Burke, Esquire Johnson, Anselmo, Murdoch, Burke & George, P.A. 790 East Broward Boulevard, Suite 400 Post Office Box 030220 Fort Lauderdale, Florida 33303-0220 Joseph W. Lawrence, II, Esquire Vezina, Lawrence & Piscitelli, P.A. 350 East Las Olas Boulevard Suite 1130 Fort Lauderdale, Florida 33301 Brian F. McGrail, Esquire Department of Transportation Haydon Burns Building, Mail Station 58 605 Suwannee Street Tallahassee, Florida 32399-0450 Thomas F. Barry, Secretary Department of Transportation Haydon Burns Building 605 Suwannee Street Tallahassee, Florida 32399-0450 Pamela Leslie, General Counsel Department of Transportation Haydon Burns Building, MS 58 605 Suwannee Street Tallahassee, Florida 32399-0450
The Issue The issue is whether Respondents failed to file four quarterly and one annual financial statements and failed to maintain minimum amounts of net worth and working capital. If so, an additional issue is what penalty should be imposed.
Findings Of Fact At all material times, Respondent Susan Jan Haggerty (Haggerty) was the controlling person of Respondent Suncoast Resource Management, Inc. (Suncoast). The Board of Employee Leasing Companies (Board) licensed Suncoast as an employee leasing company, holding license number EL 0000055, and Haggerty as the company’s controlling person, holding license number CO 0000125. Haggerty is also the licensed controlling person for Suncoast Management Group, Inc., an employee leasing company licensed since January 1994. Respondents applied for their licenses in July 1992. Suncoast was first licensed on March 22, 1994, and Haggerty was first licensed on January 13, 1994. Haggerty’s license remains currently in effect. However, following its surrender, as described below, Suncoast’s license became null and void on September 12, 1995. During 1994--its first year of licensed operation-- Suncoast encountered financial problems. At some point prior to December 31, 1994, a workers’ compensation carrier won a judgment of about $200,000 against Suncoast for unpaid workers’ compensation premiums. During 1994, Haggerty decided to close Suncoast. She instructed the company’s independent accountant to contact Board staff and find out how to close down the company, from a regulatory standpoint. An unidentified male staffperson employed by the Board informed the accountant by telephone that all the Respondents had to do was to write the Board a letter informing it of what was happening and to submit the quarterly compiled financial statement. The accountant conveyed these instructions to Haggerty in October or November 1994. Suncoast ceased doing business effective December 31, 1994. During this month, Suncoast terminated its last employee. During 1994, Suncoast had a gross Florida payroll of less than $2.5 million. During 1995, an investigator for Petitioner contacted Haggerty and discussed some of the unfiled financial statements that are the subject of these cases. In an effort to resolve this matter, Suncoast formally surrendered its license on August 2, 1995. The Administrative Complaints allege that Respondents failed to file five financial statements with the Board. These are four quarterly financial statements due for the quarters ending December 31, 1994, and following, and the 1994 annual financial statement. There are also allegations of failure to maintain minimum requirements of net worth and working capital. It appears that Suncoast did not file any quarterly financial statements prior to the one due for December 1994. However, Petitioner did not elect to allege violations of the law for these failures to file. For the relevant period, Suncoast only filed two statements with the Board of Employee Leasing Companies. The first statement was a quarterly financial statement for the last quarter of 1994, which was filed in March 1996--well after the ordinary deadline for such quarterly statements. The second statement was an annual financial statement for 1994. The accountant prepared this statement, dated June 4, 1995, and Haggerty filed it with the Board of Employee Leasing Companies on July 10, 1996--also well after the ordinary deadline for such annual statements. The 1994 financial statement is compiled, not audited or reviewed. The 1994 financial statement reveals that Suncoast had a tangible accounting net worth deficiency of about $180,000 and a positive working capital of $28,737, which reflects current assets and current liabilities and treats the $200,000 judgment as a long-term liability. Suncoast never obtain Board-approved security to offset the $180,000 deficiency in its net worth.
Recommendation It is RECOMMENDED that the Board of Employee Leasing Companies enter a final order dismissing the administrative complaint against Suncoast Resource Management, Inc. and suspending Susan Jan Haggerty’s license for a period equal to the earlier of five years or until she proves to the reasonable satisfaction of the Board that the $200,000 judgment in favor of the workers’ compensation carrier has been satisfied or vacated with all judicial review concluded; but in no event shall the term of the suspension be less than one year. ENTERED in Tallahassee, Florida, on June 5, 1997. COPIES FURNISHED: Mary Ellen Clark Senior Attorney Department of Business and Professional Regulation 1940 North Monroe Street Suite 60 ROBERT E. MEALE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (904) 488-9675 SUNCOM 278-9675 Fax Filing (904) 921-6847 Filed with the Clerk of the Division of Administrative Hearings on June 5, 1997. Tallahassee, Florida 32399-0792 Attorney Frank M. Gafford Post Office Box 1789 Lake City, Florida 32506-1789 Isla Jones Executive Director Board of Employee Leasing Companies 1940 North Monroe Street Tallahassee, Florida 32399-0792 Lynda L. Goodgame General Counsel Department of Business and Professional Regulation 1940 North Monroe Street Tallahassee, Florida 32399-0792
