The Issue The issue proposed in the Department's "Recommended Order" is: Whether the Department was substantially justified in bringing this action, or that special circumstances exist which would make an award of attorney's fees unjust, pursuant to Section 57.111, Florida Statutes (1983). As Respondent, the Department has not contested Ms. Fieber's allegations of standing as a "prevailing small business party" nor the reasonableness of the fees and costs claimed by Ms. Fieber.
Findings Of Fact Kimberlee M. Fieber is a licensed mortgage solicitor, having been issued license number HK 0008319 by the Department of Banking and Finance ("Department"). Ms. Fieber was employed by State Capital Corporation in the capacity of a mortgage solicitor commencing in 1983 and ending in August 1984. (Stipulation Agreement filed February 17, 1987; R 53, 132.) The Department began investigating State Capital Corporation in 1982, and in July of that year filed suit against the corporation, its directors, officers and certain named employees (not Kimberlee Fieber), charging eleven counts of securities and mortgage brokerage act offenses. (R 1-24, 160-161) The parties executed stipulations for final judgment, and judgment was entered on April 11, 1983, restraining the defendants from making certain representations to investors and from other specific violations of Chapters 494 and 517 F.S.. 25-28) Anthony Bernardo lives in Ft. Myers, Florida. Sometime in early 1983 he saw a State Capital Corporation advertisement regarding investment opportunities. He contacted the company and on June 27, 1983, Kimberlee Fieber came to his house to answer his questions. After about one hour Mr. Bernardo gave Ms. Fieber a check for $5,000.00 to invest as a loan yielding 18 percent interest, secured by a mortgage on commercial property. (R 30-32, 68-80) This was the first and only contact he had with Ms. Fieber. (R 74) Approximately two weeks later, the Bernardos received the papers related to their investment, including a Mortgage Deed, described in boldfaced print on the first page as a first mortgage of equal dignity with other first mortgages to be given in the total amount of $260,000.00, on a motel in Ft. Lauderdale. (R 32, 73) The Bernardos began receiving their $75.00 per month interest payments; in November 1983, they exercised an option to continue the investment for an additional twelve months at the same interest rate. (R 38) After reading some adverse articles about State Capital Corporation in the newspaper, Anthony Bernardo decided not to continue his loan beyond the term ending December 31, 1984. He informed the company in writing. (R 50, 83-85) When he did not receive his $5,000.00, he began calling the company on January 7, 1985. (R 84) He sent a letter dated January 16, 1985, to Gary Allen at State Capital Corporation demanding the return of his $5,000.00 with interest from January 1, 1985. He sent a copy of that letter to Gerald Lewis, State Comptroller. (R 50) On January 31, 1985, John Willard, an investigator for the Office of the Comptroller, interviewed Anthony Bernardo by telephone. The investigator's notes of that interview reflect the facts described in paragraphs 3 and 4, above, but also note that during Ms. Fieber's explanation of the investment, she did not explain to the Bernardos what equal dignity mortgages were, nor did she disclose that the Comptroller's Office had taken action against State Capital Corporation. The investigator noted that Bernardo told him that Ms. Fieber suggested he call the Comptroller's Office as a reference. (R 51-52) On February 14, 1985, Anthony Bernardo received his $5,000.00 from State Capital Corporation along with full interest. (R 85-86) John Willard never interviewed nor contacted Anthony Bernardo again, nor did he ever interview Ms. Fieber or anyone else regarding the Fieber case. He conducted interviews with other investors. He had some general discussion with an attorney in the Comptroller's Office about solicitors who had been employed by State Capital Corporation who may have committed misrepresentations regarding the sale of equal dignity mortgages. (R 170-173) He told the attorney, John Root, that the only thing they had in the file on Ms. Fieber was the memorandum of his interview with Anthony Bernardo. (R 174) Nothing in the record suggests that any other investigation of Ms. Fieber was done. On April 2, 1986, the Department served Kimberlee M. Fieber, as individual Respondent, a Notice of Intention to Suspend and Administrative Charges and Complaint which provided, in pertinent part: * * * STATEMENT OF FACTS Under the Provisions of Chapter 494, Florida Statutes (1983), the Department is charged with the responsibility and duty of administering and enforcing the provisions of the ACT, which includes the duty to suspend the licenses of those persons registered under the ACT for violations of the terms therein, as set forth in Section 494.05, Florida Statutes (1983). Kimberlee M. Fieber is a mortgage solicitor, who has been issued license number HK 0008319 by the DEPARTMENT. Formerly, Respondent was a mortgage solicitor for State Capital Corporation. As authorized by Section 494.071(1), Florida Statutes (1983), the DEPARTMENT conducted an investigation of the affairs of State Capital Corporation under the ACT. During that investigation, the DEPARTMENT took a statement from A. G. Bernardo. Mr. Bernardo stated that he had first heard of State Capital Corporation through its advertisements in the newspaper, to which he responded. After Mr. Bernardo contacted State Capital in answer to the advertisements, Respondent went to his home to attempt to persuade him to invest. During her sales talk, Respondent failed and neglected to explain the concept of equal dignity mortgages to Mr. Bernardo. Respondent also failed and neglected to disclose to Mr. Bernardo that the DEPARTMENT had taken legal action against State Capital and, in fact, suggested that Mr. Bernardo call the Department as a reference. Based on Respondent's representations, Mr. Bernardo invested $5,000.00 with State Capital Corporation. In return for his investment, Mr. Bernardo received an equal dignity first mortgage on a small motel. Mr. Bernardo's note became due after six months, and he renewed his investment for another period, this time of a year. When the one year renewal period had expired, Mr. Bernardo had decided not to renew his investment because of newspaper articles telling of State Capital's financial difficulties, and he notified State Capital of his decision and made demand on it for the return of his investment. Said mortgage note was due to be paid in December, 1984. However, payment was not made to Mr. Bernardo at that time, nor within a reasonable time thereafter.
The Issue Whether Respondents, Zuma Engineering Company, Inc., ("Zuma") and Michael J. Gruttadauria, sold securities in Florida in violation of Sections 517.07 and 517.12, Florida Statutes? Whether Respondents, in connection with the offer and sale to Florida investors of Zuma promissory notes, (whether the notes constituted securities or not) violated the anti-fraud provisions of Section 517.301(1)(a), Florida Statutes? Whether Mr. Gruttadauria, as President of Zuma, may be held responsible for Zuma's corporate acts even if Mr. Gruttadauria did not have direct knowledge of them?
Findings Of Fact The Parties The Department Petitioner, the Department of Banking and Finance, Division of Securities and Investor Protection, is the state agency mandated by the Florida Securities and Investor Protection Act, Chapter 517, Florida Statutes, to "administer and provide for the enforcement of all the provisions of [Chapter 517]." Section 517.03, Florida Statutes. Zuma Respondent Zuma Engineering Co., Inc., is a Florida corporation that has ceased operating and is no longer in business. Its last known address was 11700 Belcher Road South, Largo, Florida 34643. In the early part of this decade, Zuma's business operation was to consist primarily of the recycling of scrap rubber tires through a manufacturing process that produced crumb rubber to be used in the construction of roads. Zuma had other revenue components planned as well: picking up tires from used tire dealers, shipping used tires to overseas dealers, collecting factory on-site dump fees for used tires, and pursuing the manufacture of rubber mulch to be used in playgrounds. Michael Gruttadauria Mr. Gruttadauria is the President of Zuma. Mr. Gruttadauria has been the President of Zuma since its inception, that is, since the day Zuma was incorporated. Former Respondents Jeffrey George Turino was Zuma's Chief Financial Officer. He had been a licensed securities dealer at some time prior to 1990 but his license lapsed. Mr. Gruttadauria relied on Mr. Turino for the raising of capital for Zuma through the sale of promissory notes. The other former respondents were selling agents for Zuma. Several of them were insurance salesmen who benefited from pre-existing relationships with insurance business clients to sell them promissory notes as investments in Zuma. For example, former Respondent Darren Carlson was Nancy Lechner's mother's insurance agent. Carlson sold Ms. Lechner's mother nursing home insurance. In the course of their business relationship, both Ms. Lechner and her mother learned that Mr. Carlson also sold annuities and offered other investments. Ms. Lechner, a nurse, and her mother, "were looking for . . . investments that paid a little more interest than what the banks would pay, and he mentioned Zuma to us." (Vol. 1, Tr. 118.) Mr. Carlson told Ms. Lechner it was "a recycling company. They had very unique equipment that made tires into mulch and rubber that went back into the roads, . . . I had heard of recycling on the TV and how fantastic it's doing. So we invested in it." (Vol. 1, Tr. 119). Mr. Carlson did not give Ms. Lechner and her mother a business plan, an offering circular or a prospectus, but after hearing of their concerns over whether the investment was safe or not, "he told us that if anything were to happen to the company that there is always the equipment, which was worth a lot of money, that we would get our money back." (Vol. 1, Tr. 120.) Ms. Lechner and her mother invested $47,000 in Zuma in 1995. In return, they received promissory notes. At the time of the investment, they did not understand that they had loaned the money to Zuma. They were not told that the equipment, which supposedly ensured the safety of the investment, was pledged, collateralized or leased. Had they known Zuma did not own the equipment, they would not have made the loan. Importantly, too, they were not told that there were approximately $2,000,000 in outstanding promissory notes at the time they invested. Mr. Carlson also failed to tell Ms. Lechner and her mother that Zuma had applied for but not yet received a state permit necessary to carry out its operation of producing crumb rubber. Had Ms. Lechner known about the lack of a permit, she would not have invested in Zuma. After the investment was made, Ms. Lechner and her mother did not receive any interest payments as required by the notes. Nor have she or her mother ever received re-payment of any of the principal. Their $47,000 has been lost. The only contact initiated by the company after the investment was a newsletter claiming that 1995 had been an explosive year for Zuma with a major tire company considering investment in Zuma and entry into a joint venture research agreement with the University of South Florida's College of Chemistry. Bad Business From the Start Zuma was undercapitalized from the beginning. Zuma did not have the millions of dollars necessary to conduct a successful crumb rubber factory. It did not own its equipment nor did it own the property on which the business was sited. Zuma's business never turned a profit either. In fact, its revenue never came close to approaching what was necessary just to break even. From 1990 through 1993, it had significant losses. For these four years, tax returns show revenue of only $37,000. Total expenses for the four years amounted to $572,000. Of these expenses, commissions paid to agents who obtained capital by selling promissory notes executed by Zuma amounted to $248,000. During the same time period, Zuma paid out over $117,000 in interest. Zuma's financial picture was portrayed at hearing in bleak terms by Mary M. Delano, the Department's financial investigator who had reviewed Zuma's financial records: [T]he business was operating at a large loss and . . . the revenues were far below what was necessary to maintain the operations of the business. . . . with a commissions and interest expense of that significance . . . the borrowings of the company were significant and . . . the cost of those borrowed funds were significant, also. Vol. 1, Tr. 80. Zuma's financial picture did not improve after 1994. But Zuma continued to obtain loans through promissory notes mainly from elderly people like Ms. Lechner's mother. Loans evidenced by promissory notes for the period of time from 1991 through 1995 totaled nearly three million dollars. Promissory Notes Because it did not have adequate capitalization, Zuma, through its principals, employees, associates and agents offered to sell and did sell promissory notes to finance its operation. Most had a maturity date in excess of nine months. The face value of the notes ranged from $25,000 to $170,0000. They were sold to Florida investors. Typical of these investors was Carlyle H. Charles' mother. She invested over $105,000 in Zuma for which she received a promissory note. The note was executed on June 5, 1997, the day after her 91st birthday. The funds in the case of Mr. Charles' mother came from surrender of two annuities. Even with interest which should have been paid, Mr. Charles' mother would have lost over $6,000 the first year of the life of the loan because of surrender penalties imposed by the annuity companies. Had Mr. Charles' mother understood that she would have lost so much money the first year from surrender penalties, there is "no way" (Vol. 1, Tr. 103,) that she would have loaned or invested the money in Zuma. The surrender penalty was not explained to Mr. Charles' mother by the insurance agent who had established the annuities for her. Nor was it explained by Darren Carlson who actually sold the promissory note to Mr. Charles' mother. She did not realize, moreover, the nature of the investment in Zuma. After discussion with Carlson, she thought that she had either entered new annuities or had the old ones adjusted to improve her payments. Mr. Charles' mother has never received any interest payments on the promissory note or repayment of any of the principal. Any possibility of re-payment has dimmed to the point of hopelessness now that Zuma is out of business. All told, Zuma sold more than seventy notes to more than forty investors. Most of these were elderly people, retirees and widows, in their seventies and eighties, who did not understand the full import of the investments in Zuma. None of Zuma investors were provided with an offering circular, a prospectus or a financial statement about Zuma. While these investors lost all of their investments, Mr. Carlson and Zuma's other selling agents were paid handsome commissions for the sale of Zuma promissory notes, usually between 10 percent and 15 percent of the face value of the notes. Registration with the Department Zuma's promissory notes were not registered as securities with the Department pursuant to Chapter 517, Florida Statutes. Neither Zuma nor Mr. Gruttadauria have ever been registered with the Department to sell securities. Mr. Gruttadauria's involvement Mr. Gruttadauria relied on Mr. Jeffrey Turino, Zuma's Chief Financial Officer, with regard to the sale of the promissory notes. Prior to an investment being made, Mr. Gruttadauria never met or talked with an investor except for Jack Wheeler. In Mr. Wheeler's case, Mr. Gruttadauria met with Mr. Wheeler and Mr. Turino before the promissory note was executed and, at Mr. Wheeler's insistence, Mr. Gruttadauria signed the note both on behalf of Zuma and personally. Mr. Gruttadauria also signed every promissory note on behalf of the corporation. Many of these notes were signed long after Zuma's financial condition had become desperate. During this time, Mr. Gruttadauria saw the selling agents as often as once or twice a week. He did not ask them who the investors were or what their interest in investing in Zuma might be. Mr. Gruttadauria wanted to know as little as possible about the people who were investing large sums of money in his failing business. Nonetheless, Mr Gruttadauria recognized his responsibility for the financial affairs of Zuma in October of 1995 when he sent out the newsletter received by Ms. Lechner. In the closing paragraphs of a 5-page letter trumpeting Zuma's environmental achievements and advances in the areas of the market place, personnel, finance, and research the following appears: The reason this newsletter is so long, is that Michael G., [Mr. Gruttadauria], thought others had been sent out since last October, and it turns out I was misinformed on this and other matters, by an employee no longer with the firm. [T]he bottom line is that I have the ultimate responsibility of everything that has or has not now returned to a "hands on" mode in regard to the financial aspects of Zuma. * * * My attitude is that without you, Michael G., and Zuma would not only be where they are "today", but would never be able to get where we going "tomorrow". You have every right to receive accurate, truthful answers to any and all of your questions regarding Zuma. Thank you for "Today" and thank you again for "Tomorrow". Zuma Engineering Co., Inc. Michael J. Gruttadauria President/Founder Petitioner's Exhibit No. 18, (emphasis added) To this day, with minor exceptions, all the promissory notes signed by Mr. Gruttadauria are in default.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED: That the Department of Banking and Finance enter a final order ordering Zuma Engineering Co., Inc., and Michael J. Gruttadauria to cease and desist from all present and future violations of Chapter 517, Florida Statutes, and fining them the maximum amount allowable by law: $5,000 for each violation of the provisions of Chapter 517, Florida Statutes, found above; that is, $5,000 for failure to register Zuma as a dealer in securities and $10,000 times the number of promissory notes introduced into evidence in this proceeding ($5,000 for failure to register each and every note as a security with the department plus $5,000 for the fraud connected with each and every note.) DONE AND ORDERED this 5th day of November, 1997, in Tallahassee, Leon County, Florida. DAVID M. MALONEY 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 this 5th day of November, 1997. COPIES FURNISHED: Josephine A. Schultz, Esquire Division of Securities and Investor Protection Department of Banking and Finance 526 Fletcher Building 101 East Gaines Street Tallahassee, Florida 32399-0350 Michael J. Gruttadauria 1908 Downing Place Palm Harbor, Florida 34683 Harry Hooper, General Counsel Department of Banking and Finance Room 1302, The Capitol 01 Tallahassee, Florida 32399-0350 Honorable Robert F. Milligan Comptroller Department of Banking and Finance The Capitol, Plaza Level Tallahassee, Florida 32399-0350
The Issue The issue is whether respondent acted as a mortgage lender within the meaning of Section 494.001(3), Florida Statutes, and thus is subject to Division licensure requirements.
Findings Of Fact Based upon all of the evidence, the following findings of fact are determined: Petitioner, Department of Banking and Finance, Division of Finance (Division), is a state agency charged with the responsibility of administering and enforcing the Florida Mortgage Brokerage and Lending Act which is codified in Chapter 494, Florida Statutes. Among other things, the Division regulates mortgage lenders and requires such persons or entities to secure a license. Respondent, White Pine Resouces, Inc. (WPR), is a Florida corporation formed in March 1986. Its sole shareholder is John R. Grass, a Pensacola attorney. Although the corporation was originally formed for a number of purposes, its primary activity is the real estate investment business. It holds no licenses issued by, or registrations with, the Division. WPR's current business address is 358-C West Nine Mile Road, Pensacola, Florida. WPR's principal source of money is Grass, or his professional association, who loan money to the corporation. In some cases, the money is used to acquire parcels of property for resale, make necessary repairs or improvements, and then provide owner financing to the buyer. In other cases, WPR loans money to persons needing to make improvements to their homes or rental property and takes back a second mortgage from the borrower. These types of transactions, which occurred during the years 1992-95, are found in documents offered in evidence as petitioner's exhibits 1-5. Respondent has also stipulated that several other transactions of this nature occurred during that same period of time. In every case, WPR was investing its own money or that of its principal. In 1992, a Division examiner analyst noted the following listing in the Yellow Pages section of the Pensacola telephone directory under the heading of "Mortgages": White Pine Resources Having Trouble With Financing Residential & Land Fast Service on 1st Mortgages The advertisement also contained respondent's street address and telephone number. In the 1993-94 telephone directory, WPR carried the following advertisement under the "Mortgages" section of the Yellow Pages: White Pine Resources Specialists! Bad Credit - We Can Help Vacant Land Loans In the 1995-96 telephone directory, WPR placed the following advertisement in the "Mortgages" section of the Yellow Pages: White Pines Resources A Private Investor Not a Mortgage Broker Specialists! We Can Help Vacant Land Loans Although the Division first noted one of WPR's Yellow Page advertisements in 1992, for some reason it did not conduct a formal investigation of respondent's activities until February 28, 1994. On that day, an examiner analyst made an unannounced visit to respondent's office for the purpose of inspecting its records to determine if WPR was acting as a mortgage lender. However, WPR's principal, John R. Grass, was not in the office, and the analyst simply left his business card and a message for Grass to contact him. The next morning, Grass telephoned the analyst's supervisor and advised him that since WPR was merely a private investor, and not a mortgage lender, it was not subject to the Division's regulation, and hence it would not provide copies of its records. A subpoena duces tecum was then issued by the Division, records were produced pursuant to the subpoena, and this controversy ensued. The parties agree, however, that this action was not prompted by complaints from consumers or other persons having dealings with WPR. The record indicates that a mortgage lender differs from a private investor in several material respects. An important distinction is that a private investor uses its own funds rather than those of another party. Also, a private investor does not buy or sell paper, does not escrow taxes, does not split or broker commissions, and does not close its own loans. In all of these respects, WPR had the attributes of a private investor. When mortgage brokerage firms are involved in transactions with private investors, they must supply the private investor with certain documents that are not provided to an institutional investor. Among others, they include a disclosure agreement, receipt of recorded instruments, an appraisal or waiver of the same, and title insurance. In addition, Division rules require that a mortgage brokerage firm record its transactions with private investors in a log journal known as DBF-MB-888. The evidence shows that for transactions between WPR and at least two mortgage brokerage firms during the years in question, the two firms recorded those transactions on DBF-MB-888. They also provided WPR with documents typically given to private investors. The Division has adopted Rule 3D-40.290(2), Florida Administrative Code, which provides that a person is deemed to be holding himself out to the public as being in the mortgage lending business if he advertises in a manner "which would lead the reader to believe the person was in the business of buying, making or selling mortgage loans." The rule has not been challenged and, for purposes of resolving this controversy, is presumed to be valid. In view of the representations that WPR provided "Fast Service on 1st Mortgages" and "Vacant Land Loans," it is fair to infer that the Yellow Page advertisements made by WPR would reasonably lead the reader to believe that WPR was in the business of buying, making or selling mortgage loans. Therefore, by virtue of advertising in the Yellow Pages, WPR is deemed to be holding itself out to the public as being in the mortgage lending business. During the years 1993-95, the Division routinely sent WPR questionnaires regarding various WPR transactions with licensed lenders. The transmittal letter accompanying the questionnaire noted that the Division was conducting "a routine examination" of the licensed lender (and not WPR), and WPR's comments would "be of material assistance to (the Division) in determining compliance with the Florida Mortgage Brokerage Act." By way of an estoppel defense, WPR has essentially contended that the questionnaires constituted a representation by the Division that WPR was merely a private lender. It further contends that, to its detriment, it relied upon that representation. But there is nothing in the documents that states that the Division considered WPR to be a private lender. Nor is there any evidence that the Division made any other oral or written representations to WPR that it did not need to secure a license. Finally, assuming arguendo that such a representation occurred, there was no showing that WPR relied to its detriment on such an alleged "misstatement of fact." WPR also raises the defense of laches arguing that it was severely prejudiced by the Division's delay in prosecuting this action. Except for testimony that respondent was forced to secure the services of an attorney to defend against this action, and its principal was required to attend a hearing, there was no showing of prejudice on the part of WPR.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Department of Banking and Finance enter a final order requiring respondent to cease and desist from engaging in the mortgage lending business without a license. DONE AND ENTERED this 17th day of June, 1996, in Tallahassee, Florida. DONALD R. ALEXANDER, 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 17th day of June, 1996. APPENDIX TO RECOMMENDED ORDER CASE NO. 95-0290 Petitioner: Because petitioner's post-hearing filing is more in the nature of a memorandum of law containing argument rather than proposed findings of fact, specific rulings have not been made. Respondent: Because respondent's post-hearing filing is more in the nature of a memorandum of law containing argument rather than proposed findings of fact, specific rulings have not been made. COPIES FURNISHED: Honorable Bob Milligan Comptroller, State of Florida The Capitol, Plaza Level Tallahassee, Florida 32399-0350 Harry L. Hooper, III, Esquire Department of Banking and Finance Room 1302, The Capitol Tallahassee, Florida 32399-0350 Clyde C. Caillouet, Jr., Esquire 4900 Bayou Boulevard, Suite 103 Pensacola, Florida 32503 John T. Reading, Jr., Esquire 358-C West Nine Mile Road Pensacola, Florida 32534-1818
Findings Of Fact The parties entered into a Stipulation resolving many of the factual disputes involved in this proceeding. This Stipulation included attached Exhibits 1 - 21, which were referred to by number in the Stipulation. The Stipulation, in its entirety, provided as follows: On August 1, 1973, and February 1, 1976, the State of Florida issued full faith and credit road bonds on behalf of Alachua County, Florida, said bonds having a face value of $3.8 million and $4.0 million, respectively (see Exhibits 1 and 2). The 1976 bonds were issued in parity with the 1973 bonds. The Alachua County portion of the fifth and sixth cent gas tax (Second Gas Tax) were pledged for the payment of "the principal of and interest on the bonds." The 1973 and 1976 bonds were issued to pay for certain specified road construction projects and unspecified "rights-of-way acquisition for Primary and Secondary roads throughout Alachua County" (see Exhibits 1 and 2, pp. 6). Prior to July 1, 1977, the Florida Department of Transportation (DOT) controlled the expenditure of the counties' portion of the Second Gas Tax fund pursuant to statute. Prior to July 1, 1977, upon priorities established jointly by the counties and the DOT, the counties through their respective boards of county commissioners adopted resolutions and signed agreements authorizing the DOT to expend county Second Gas Tax funds and road bonds (such as the Alachua County road bond funds) on road construction and right-of-way acquisition projects within the counties. Upon receiving such authorization, all aspects of the road projects. Exhibits 3, 4, and 5 (attached hereto) consist of the requisite county resolutions (requesting initiation of road projects and specifying the source of funds) and right-of-way acquisition agreements for Alachua County road projects initiated by the Florida Department of Transportation, prior to July 1, 1977, said projects being identified as numbers 26070-2532, 26070-2533 and 26250-2501, respectively. Exhibits 6, 7, and 8 (attached hereto) consist of right-of-way agreements, right-of-way appraisal agreements, and orders of taking in condemnation suits, executed prior to July 1, 1977, which pertain to the road projects identified in Paragraph 5 above. Exhibits 9 and 10 (attached hereto) are of the same character as Exhibits 6, 7, and 8, but were executed after July 1, 1977. Exhibit 11 (attached hereto) represents a summary of expenditures, by year, for each of the above- enumerated right-of-way acquisition projects. The Florida Department of Transportation committed and expended approximately $500,000 to $600,000 of Alachua County road bond funds after July 1, 1977, for acquisition of Primary rights-of-way. These expenditures included acquisition of real property, surveying costs, appraisals, general personnel and office operation costs of the Florida Department of Transportation. Prior to July 1, 1977, the three above-enumerated road projects were designated as part of the state Primary Road System, pursuant to statute. After July 1, 1977, pursuant to Chapter 77-165, Laws of Florida, establish [sic] three road classification systems including State roads, County roads, and Municipal roads. Pursuant to law, each jurisdiction was to assume administrative, operational, and financial responsibility for its respective road system. Pursuant to Chapter 77-165, Laws of Florida, Florida DOT assumed the administrative, operational, and financial responsibility for State roads, and adopted Chapters 14-11 and 14-12, Florida Administrative Code, to effect this assumption and transfer of responsibility. Pursuant to Chapter 77-165, Laws of Florida, and Chapters 14-11 and 12, Florida Administrative Code, the Florida DOT requested that the various counties identify those road projects (jurisdiction over which had been transferred to the counties pursuant to the new law) for which the counties desired the Florida Department of Transportation to continue administrative responsibility. Attached as Composite Exhibit 12 are documents consisting of the new Florida DOT's above-noted request to Alachua County and Alachua County's response thereto. After July 1, 1977, Alachua County never requested, through resolution or signed agreement, that the Florida Department of Transportation acquire rights-of-way on the three above-identified rights-of-way acquisition projects. Alachua County did not adopt resolution [sic] in the same form used to initiate the road projects (see Exhibits 3, 4 and 5), requesting the Florida Department of Transportation to discontinue acquisition of said rights-of-way; however, there was an exchange of correspondence between representatives of both Alachua County and the Florida Department of Transportation subsequent to July 1, 1977, relative to the issue of bond monies, copies of which letter [sic] are attached hereto as Composite Exhibit Number 13. Exhibit 14 consists of a DOT office of Management and Budget circular which was distributed throughout the various offices, including District Offices, of the Department of Transportation. Exhibit 15 (which is a July 22, 1977, letter) was distributed to the various boards of county commissioners for the counties within the State of Florida. For fiscal year 1977-1978, the Florida Legislature appropriated to the Florida Department of Transportation at Chapter 77-464, Laws of Florida, the amount of $20 million for the specific purpose of acquiring Primary rights-of-way for the new State Road System. Similar appropriations have been awarded to the Department of Transportation in subsequent fiscal years. On or about October 18, 1988, the Florida Department of Transportation pursuant to Chapter 77-165, Laws of Florida, for the purpose of affecting said law, promulgated rules as set forth at Chapters 14-11 and 14-12, Florida Administrative Code. In connection with the February 1, 1976, bond issue, the road construction project denominated as Southeast 40th Avenue (see page 6 of Exhibit 2) remains uncompleted as of this date and there are insufficient monies remaining in the Alachua County road bond fund to complete said project. As of July 21, 1980, $28,317.01 remains in the February 1, 1976, bond issue fund. Attached as Composite Exhibit 16 is an August 23, 1977, letter from the Palm Beach County Engineer to Board of County Commissioners, an August 26, 1977, letter from Palm Beach County Director of Engineering Coordination to the Florida Department of Transportation, and a copy of resolution number R-77-859, said resolution dated August 23, 1977. Attached as Exhibit Number 17 are documents showing that the Florida Department of Transportation, with the concurrence of the Alachua County Board of County Commissioners, transferred $1.2 million from the Alachua County road bond account to the Second Gas Tax account of Alachua County. Attached as Exhibits 18 and 19, respectively, are the January 30, 1973, and August 5, 1975, resolution of the Alachua County Commission issued in connection with the August 1, 1973, and February 1, 1976, bond issues. Attached as Exhibits 20 and 21, respectively, are the August 1, 1973, Lease Purchase Agreement and the February 1, 1976, Supplemental Lease Purchase Agreement prepared in connection with their respective bond issues. The parties to this stipulation agree to submit into evidence the depositions taken by Petitioner of Leon Cassels, Florida Department of Transportation, Comptroller; Tom Webb, Florida Department of Transportation, Deputy Director of Operations; Gene Mynard, Florida Department of Transportation, Fiscal Division Accountant; Fred Renault, Florida Department of Transportation, Chief, Bureau of Right-of Way; Chuck Butterworth, Florida Department of Transportation, Fiscal and Securities Analyst; Robert (Bob) Taff, Florida Department of Transportation, Contracts Supervisor. Subsequently, the parties by Supplemental Stipulation further agreed as follows: . . . The Florida Department of Transportation expended $590,018 of Alachua County road bond funds after July 1, 1977, in connection with road projects #26070-2532, 26070-2533, and 26250-2501; and this sum represents the amount of money Alachua County claims should be reimbursed by the Florida Department of Transportation. The July 22, 1977, letter referred to in Paragraph 14 above which Petitioner challenges as an unadopted, and therefore invalid "rule," provides, insofar as here pertinent, as follows: Subject: Administration of the 80 percent Surplus of the Second Gas Tax (Secondary) Governor Askew has signed into law House Bill 803 and Senate Bill 32-B which provide for the transfer of the 5th and 6th cents gas tax to the counties over a three-year period. This is extremely complex legislation which is summarized and consolidated for your convenience in attachment 1. Implementation of the new law will require a major administrative effort by the state and the counties in the next two months. It is the department's desire to be as helpful as possible during the transition while abiding by the spirit and intent of the law. It is apparent that the transition should be orderly and that counties must address the matter in time to make any necessary adjustments to the county budget. The district engineer in your area, or his representative, will visit you shortly to assist in the matters set forth in this letter. We need to proceed immediately with the following tasks: Project Authorizations. Without formal request from the county, the department is unable to continue with projects currently being administered for the county from your secondary fund unless the project is: A project on which construction bids were received before July 1; A bond project which pledges the secondary fund; or A project which is a connector to the Interstate under county-state agreement prior to July 1. All other projects underway require a new request from the project phase, it should be listed on a standard resolution-agreement form which will be provided by our district engineer. If you wish to take over a project phase now underway, the department will provide technical assistance during the changeover . . . . (Emphasis added). Petitioner also argues that additional evidence of the existence of the alleged unadopted "rule" is contained in a circular dated July 19, 1977, developed by DOT's Office of Management and Budget. This circular provided that "[n]o work funded by the 5th and 6th cents may be administered by [DOT] without a formal requires from the counties after July 1, 1977, except for [b]ond projects pledging the 5th and 6th cents . . . ." The circular further indicated that ". . . [b]ecause bond projects are financed through the sale of bonds under authority specified in the Florida Constitution, there will be no change in the administration of bond projects which pledge the 80 percent Surplus Gas Tax."
Findings Of Fact Joseph D. Burke first held broker's license number HB0013603 on February 23, 1984. Under that license Joseph Burke was principal broker for Burke Mortgage Company in Cocoa, Florida. The license was cancelled on September 1, 1985, for failure to renew. Joseph Burke also held two mortgage solicitor's licenses: HK 0009779 and HK 0011217, with Burke Financial Services Corporation. These licenses were active until August 31, 1986, and were not renewed. The Department of Banking and Finance receives applications and issues all licenses to do business in the state of Florida for mortgage brokers and mortgage solicitors. Since 1984 the Department has conducted three complete examinations of Joseph Burke's mortgage broker/mortgage solicitor records. Anthony D. Winn approached Joseph Burke in March or April 1985 for a mortgage loan for a house he was having built. Mr. Winn paid $200.00 for an investigation for credit and was given a form, "Good faith estimates", setting out estimated settlement charges and acknowledging collection of the $200.00. The form was signed by Becky Robinson, a person in the Burke Mortgage Company office, but not signed by the borrower. In May 1985, Mr. Winn gave two checks for $300.00 each to Joseph Burke. The verbal understanding was that these funds would be held in escrow for closing costs. No written agreement or confirmation was given. The builder and Anthony Winn decided to hold off on the contract for the house. Mr. Winn did not get his mortgage loan and never received any refund from Joseph Burke. The funds were not maintained in an escrow account. On October 5, 1984, Joseph Burke issued a loan approval form on Burke Mortgage Company letterhead to Roland and Shirley Paquette, Sr. There was, in fact, no lender commitment. On February 13, 1985, a form was sent to the Paquettes denying credit for inability to verify income. In fact, the income had been verified by Aider Construction Company on September 12, 1984. The completed verification form was in the Burke Mortgage Company file. On October 5, 1984, Joseph Burke issued a loan approval form to Roland and Lisa Paquette Jr. This was on Burke Mortgage Company letterhead and the file revealed no lender commitment to support the "approval". On February 13, 1985, the Paquettes were issued a statement of credit denial on the basis of "insufficient liquid assets to close the loan". Three versions of a good faith estimate form were found in the file for Betty Lemert: one with figures signed by someone other than Joseph Burke or the borrower; one with figures unsigned by anyone; and one blank form signed by Betty Lemert. No broker's agreement was found in the Betty Lemert file. Although Joseph Burke routinely accepted deposits he did not maintain a trust account.
Recommendation Based upon the foregoing, it is recommended that the Petitioner, Office of the Comptroller, Department of Banking and Finance, enter its Final Order revoking the mortgage solicitor's licenses of Respondent, Joseph D. Burke. DONE AND RECOMMENDED this 21st day of October, 1986, in Tallahassee, Florida. MARY CLARK Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 21st day of October, 1986. APPENDIX TO RECOMMENDED ORDER, CASE NO. 86-2246 The following constitute my specific rulings on the proposed findings of fact submitted by Petitioner in this case: Adopted in paragraph #1. Adopted in conclusion of law #3. Adopted in general in paragraph #2. 4.and 5. Adopted in paragraph #4. 6.and 7. Rejected as unsubstantiated by the evidence. Adopted in paragraph #5. Rejected as unsubstantiated by the evidence. and 11. Adopted in paragraph #6. Adopted in Paragraph #7. through 16. Adopted in general in paragraph #3. COPIES FURNISHED: Robert K. Good, Esquire Office of the Comptroller 400 West Robinson Street Orlando, Florida 32801 Joseph D. Burke Post Office Box 323 Sagamore Beach, MA 02532
Findings Of Fact Express Financial Group of Florida, Inc., (EFGF) has never been licensed as a mortgage brokerage business pursuant to Chapter 494, Florida Statutes. Express Financial Mortgage Systems- Inc., (EFMS) was first registered as a mortgage brokerage business on June 21, 1988, with registration NO. HB 133412124. James C. Saunders was the licensed principal broker. EFMS renewed its registration on September 1, 1988, and the registration is still active. Prior to the first registration of EFMS in Florida, a business also called Express Financial Mortgage Systems, Inc., with an address in White Plains, New York, operated in Florida using several unlicensed persons who are not parties to this action, specifically Heidi D. Clark, Rutherford Smith, Tom Quellhorst, and Matt Piazza. Express Mortgage Corporation (ENC) was first registered as a mortgage brokerage business on May 9, 1988, registration NO. HB 592876630. The registration is still active subject to renewal by August 31, 1990. James T. Hines first became licensed as a mortgage broker on January 12, 1988, license no. HA 252880288. He was a self-employed broker at 780 Bayou Drive, Destin, Florida, his home address. On May 9, 1988, Hines was licensed as the principal broker of EMC. Hines terminated his registration with EMC on July 1, 1988. Effective July 11, 1988, Hines again became licensed as a self-employed mortgage broker. This license became inactive on September 1, 1989, because Hines failed to renew it by August 31, 1989. The license is still inactive. James C. Saunders first became licensed as a mortgage broker on June 21, 1988, as the principal broker with EFMS. On November 14, 1988, Saunders also became the principal broker for EMC. The endorsements with both EFMS and EMC were terminated for failure to renew the licenses by August 31, 1989. On October 20, 1989, Saunders renewed his license as a self- employed broker. That license is still active. At all times relevant to this case, Hines was also a licensed real estate broker with Express Listings, Inc. (Listings). EFMS, EFG, EMC, and Listings all operated from office space at 1021 Highway 98 East, Gulfview Plaza, Destin, Florida. On November 4, 1987, Clark, acting as representative of Express Financial Mortgage Systems, Inc., of White Plains, N.Y., signed a Customer Agency and Fee Agreement to assist Henry and Heidi Maclin in securing a mortgage loan with Cite Savings. A check for $1241.25 was written to Express Mortgage by Express Financial Mortgage Systems, Inc., of New York on January 27, 1988. While this check allegedly represented payment of a brokerage commission on the Maclin loan, no evidence was introduced to show that any of the parties named in this Administrative Complaint were involved in the Maclin loan or received any compensation from it. On December 30, 1987, entities identified as Express Financial Systems or Express Financial Group were named as recipients of $660 brokerage fee on a mortgage loan for Carrie Moye. Again, no evidence was introduced to show that the parties in this case were involved in or received mortgage brokerage fees for the Moye mortgage loan. Listings was paid a real estate commission of $330 on the real estate portion of the transaction. On March 1, 1988, Clark, acting as representative of Express Financial Group and Express Financial Mortgage Systems, Inc., of New York, agreed to assist William and Janice Bennett in seeking a mortgage loan from Prudential Home Mortgage Company. On the April 14, 1988, Settlement Statement, Express Financial Group was listed as being entitled to a $674.00 brokerage fee on the Bennett loan. Again, Clark and Express Financial Group are not parties to this case. On March 23, 1988, Clark, as representative of Express Financial Group and Express Financial Mortgage Systems, Inc., of New York, agreed to assist Franklin and Priscilla Ford in securing a mortgage loan from Prudential Home Mortgage Company. Express Financial Group is shown as being entitled to receive a brokerage fee of $2,550.00 on the Ford loan. Again, no showing was made that any party to this case was involved in or received compensation from the Ford loan. On March 22, 1988, James T. Hines signed a Customer Agency and Fee Agreement as representative to assist Jacqueline C. and William S. Ansley in securing a mortgage loan from Citisavings. The form which Hines signed is on letterhead of Express Financial Group, Inc., which is shown to include Express Listings Corporation, a licensed real estate brokerage firm, and Express Mortgage Corporation, a licensed mortgage brokerage firm. However, the form also stated that the Ansleys agreed to allow Express Financial Mortgage Systems, Inc., of 1021 Highway 98 East, Suite I, Destin, Florida 32541, to receive mortgage commitments on their behalf. The Ansley loan closed on April 21, 1988, and on April 26, 1988, Ansley wrote a check for $1,925.00 to Express Financial Group, but no competent evidence was introduced to show the purpose of this check. No evidence was introduced showing that any party to this case received any compensation or mortgage brokerage fee for the Ansley mortgage loan. On December 29, 1987, Tom Quellhorst as a representative of Express Financial Group and Express Financial Mortgage Systems, Inc., of New York, agreed to assist William H. and Margaret C. Kinna in securing a mortgage loan from Prudential Home Mortgage Company. The February 5, 1988, Settlement Statement shows Express Financial Group to be entitled to a $1,260 brokerage fee for the Kinna loan. There is no showing that a brokerage fee was ever paid or that any party to this case was involved in the Kinna loan. On December 1, 1987, Rutherford Smith, as representative of Express Financial Mortgage Systems, Inc., of New York, agreed to assist Robert Schonhut in securing a mortgage loan from Prudential Home Mortgage Company. A check dated January 29, 1988, from Express Financial Mortgage Systems, Inc., of New York, to Express Mortgage, Destin, for $126.63, allegedly for a quarter of a point of the Schonhut mortgage loan, was introduced into evidence. No evidence was presented that showed any involvement in or compensation received by any party to this case. On February 8, 1988, Tom Quellhorst, as representative for Express Financial Group and Express Financial Mortgage Systems, Inc., of New York, agreed to assist Marion and Sylvia Howl and in securing a mortgage loan from Prudential Home Mortgage Company. The March 14, 1988, Settlement Statement shows Express Financial Group to be entitled to a brokerage fee of $1,239.75 for the Howland loan. There is no showing that any party to this case was involved in or received compensation for the Howland loan. On January 22, 1988, James T. Hines signed a Customer Agency and Fee Agreement as representative for Express Financial Group, Inc., and Express Financial Mortgage Systems, Inc., of New York, to assist Tom and Sally Underwood in securing a mortgage loan from Prudential Home Mortgage Company. There is no showing that a loan was secured or a brokerage fee paid in connection with the Underwood agreement. No competent evidence was introduced to show that James C. Saunders was connected with any of the transactions described above. Further, Hines denied ever soliciting for a mortgage loan or receiving any compensation for acting as a mortgage broker in connection with any of the transactions described above.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Office of the Comptroller, Department of Banking and Finance, enter a Final Order and therein: Dismiss all charges against Express Mortgage Corporation, Express Financial Group of Florida, and James C. Saunders. Find Express Financial Mortgage Systems, Inc., guilty of violating Section 494.055(1)(1) in connection with the Ansley loan. Find James T. Hines guilty of violating Section 494.055(1)(1) in connection with the Ansley loan and guilty of violating Section 494.055(1)(q) by failing to comply with Section 494.0393(2). Revoke the mortgage brokerage business license of Express Financial Mortgage Systems, Inc. Impose a $500 fine on James T. Hines and place his mortgage broker license on probation for one year. DONE and ENTERED this 13th day of June, 1990, in Tallahassee, Florida. DIANE K. KIESLING Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 13th day of June, 1990. APPENDIX TO THE RECOMMENDED ORDER IN CASE NO. 88-5086 The following constitutes my specific rulings pursuant to Section 120.59(2), Florida Statutes, on the proposed findings of fact submitted in this case. Specific Rulings on Proposed Findings of Fact Submitted by Petitioner, Department of Banking and Finance Each of the following proposed findings of fact are adopted in substance as modified in the Recommended Order. The number in parentheses is the Finding of Fact which so adopts the proposed finding of fact: 1(1); 2a(2); 2b(3); 3a-d(4); 4a-d(5); and 6c(7). Proposed findings of fact 5a, 6a-c, 7a & b, 1Ob, 11b, 12b, 13b, and 15 are rejected as being unsupported by the competent, substantial evidence. Proposed findings of fact 5b, 8a & b, 9a & b, 10a, 11a, 12a, 13a, and 14 are subordinate to the facts actually found in this Recommended Order. COPIES FURNISHED: James T. Hines 2481 Arthurs Court Marietta, GA 30062 Paul C. Stadler, Jr. Assistant General Counsel Office of the Comptroller The Capitol, Suite 1302 Tallahassee, FL 32399-0350 James C. Saunders 60 Indian Bayou Drive Destin, FL 32541 Express Financial Mortgage Systems, Inc. 1021 Highway 98 East, Suite A Destin, FL 32541 Express Financial Group of Florida, Inc. 1021 Highway 98 East, Suite A Destin, FL 32541 Murai, Wald, Biondo, Matthews & Moreno, P.A. Registered Agent for Express Mortgage Corp. 9th Floor Ingraham Building 25 South Second Avenue Miami, FL 33131 Honorable Gerald Lewis Comptroller, State of Florida The Capitol Tallahassee, FL 32399-0350 William G. Reeves General Counsel The Capitol Plaza Level, Room 1302 Tallahassee, FL 32399-0350 =================================================================
The Issue Here Petitioner has alleged that Respondent has violated Section 120.535, Florida Statutes, by failing to adopt its policies as rules. Those alleged policies are more completely described in the fact finding.
Findings Of Fact Mitchell has been subjected to the proposed agency action set forth in the order to show cause described in the preliminary statement. James Mitchell and Company, JMC Insurance Services, Inc., and JMC Financial Corporation are California corporations authorized to do business in Florida. JMC Insurance Services, Inc., and JMC Financial Corporation are wholly owned subsidiaries of James Mitchell and Company. James K. Mitchell is a resident of California. He is the president, chief executive officer and founder of James Mitchell and Company. He is also licensed by the Department as a nonresident life insurance agent. The Department is a regulatory agency in Florida who has the responsibility for implementing and enforcing the Florida Insurance Code. The Florida Insurance Code includes Chapters 624 and 626, Florida Statutes. The Department is headed by the Insurance Commissioner and Treasurer. The order to show cause forms the sole basis for action taken against Mitchell. The order to show cause has allegations by the Department concerning alleged violations of Section 626.988, Florida Statutes, attributed to Mitchell. It is the alleged interpretation which the Department has placed on Section 626.988, Florida Statutes, which Mitchell asserts is in violation of Section 120.535, Florida Statutes. The present petition sets forth that Mitchell's substantial interest are affected in accordance with Section 120.535(2)(a)1, Florida Statutes, in that: JMC is substantially affected by the Department's interpretation of s. 626.988 in that the Department would use the interpretation to require JMC to cease and desist from all current business activities in Florida, i.e., JMC's sale of annuities to Barnett as trustee to hold in trust for the benefit of trust participants/beneficiaries. The present petition then describes those agency statements by the Department which Mitchell claims constitute a rule as defined by Section 120.52(16), Florida Statutes, and thus subject to the requirements of Section 120.535(2)(a)2, Florida Statutes. The first statement by the Department which Mitchell claims violates Section 120.535(1), Florida Statutes, is to this effect: Abandoned Former Section .003 of Rule Chapter 4-223. Pursuant to Section 120.535(2)(a)(2) and 120.535(2)(b), the text of one of the statements which substantially affects JMC is the text of former Section .0003(2) (now abandoned) of Rule Chapter 4-223, promulgated by the Department on October 16, 1992 (copy attached as Exhibit F). The text of former Section .003(2) is as follows: For purposes of this entire rule chapter and enforcement of Section 626.988, Florida Statutes, the Department interprets the terms "associated" and "associate" as those terms are used in Section 626.988, as meaning: united in a relationship, or connected or joined together, or connected in mind or imagination. Therefore instances of prohibited association included, but are not limited to, situations wherein an agent or solicitor, themselves or through their employer: is in law or fact related or connected to the Financial Institution, as by formal or informal arrangement, contract, etc.; or is or may reasonably be expected to be connected with the Financial Institution in the mind or imagination of the general pubic using the Financial Institution's facilities, as a result of the agent or solicitor's presence or activities on Financial Institution premises, or other conduct or activities by the agent or solicitor or done with their consent. Section .003(2) of Rule Chapter 4-223 was promulgated ostensibly under F.S., s. 626.988(2), which provides: (2) No insurance agent or solicitor licensed by the Department of Insurance under the provisions of this chapter who is associated with, under contract with, retained by, owned or controlled by, to any degree, directly or indirectly, or employed by, a financial institution shall engage in insurance agency activities as an employee, officer, director, agent, or associate of a financial institution agency. By its terms Section .003(2) of Rule Chapter 4.223 defines the "associated" and associate" language in F.S. s.626.988(2). On July 30, 1993, the Department's Section .003(2) "mind or imagination of the consumer" definition of the "associated" and "associate" language in s. 626.988(2) was struck down by DOAH Hearing Officer Mary Clark in the Rule Challenge as irredeemably vague and exceeding proper agency discretion. In her Final Order in this proceeding, Officer Clark concluded as follows: Aside from idiosyncratic grammar and the ambiguous use of an open-ended "etc.," this definition offends any rational interpretation of s. 626.988, F.S. and is thoroughly useless as a standard for the agency's enforcement of that and other relevant statutes. It is vague and incomprehensible, like beauty, an "association" lies in the eyes (or mind) of the beholder. The definition relegates to the mind or imagination of the general public the determination of what relationships are prohibited. This is a fragile basis for enforcement, as should be apparent to the agency by the fact that so few complaints have come from the general public. That such definition is unenforceable is obvious from the agency's pained attempts to craft its earlier guidelines and from its inability to articulate how it should be applied. (see generally, testimony of Dowdell and Shropshire). Proposed Rule 4 Final Order, Great Northern Annuities Corp. v. Department of Insurance, et al., No. 92-4332RP, etc., paragraph 56, at 29 - 30 (July 30, 1993)(Copy attached as Exhibit C). As noted above, Officer Clark's Final Order in the Rule Challenge was appealed in part by the Department. However, the Department did not appeal that portion of the Final Order striking down Section .003(2), the definition of "associated" and "associate" when the Department noticed its appeal on August 15, 1993, and filed its amended notice of appeal on August 27, 1993 (copies attached Exhibits D and E). On October 10, 1993, the Department filed Rule Chapter 4 State. The Rule Chapter as filed on October 10, 1993, did not include Section .003(2), and included no other rule interpreting "associated" or "associate" from F.S. s. 626.988(2). The Department has abandoned Section .003(2) (Rule Chapter 4 rule defining the "associated" and "associate" language in F.S. s. 626.988(2), and has abandoned any and all other efforts to promulgate a rule defining "associated" or "associate." Despite the Department's voluntary abandonment of Section .003(2), the Department is now relying on the substance of its Section .003(2) "mind or imagination of the consumer" definition of "associated" and "associate," and is attempting to enforce this definition in its Order to Show Cause filed against JMC on March 11, 1993, and now pending in DOAH before Hearing Officer Chad Adams. Department of Insurance v. James Mitchell & Co. et al. DOAH Cased No. 93-2422 (hereinafter the "Order to Show Cause Proceeding") (copy attached as Exhibit A). The Department has admitted its reliance on the abandoned Section .003(2) "mind or imagination of the consumer" definition. In a deposition on December 22, 1993, in the Order to Show Cause Proceeding of Douglas A. Shropshire, the Department's Director of Division of Legal Services and its Rule 1.310(b)(6) designated Department representative, the Department stated the following: [p. 136] Q: There is no current rule defining [F.S. Section 626].988, subparagraph (2) with respect to what is or is not an association at this time, correct? A: No, I wouldn't say that at all. [p. 212] . . . Q: What is the definition of "associate" for the purposes of the enforcement proceeding against my client [JMC]? Mr. Silverman [Department attorney]: Objection. The order to show cause doesn't use the term "associate," it uses the term "association." The term "associate" is only used in Webster's dictionary definition. [p. 218] . . . Q: All right. So that in defending JMC next month, am I able to rely on the association definition that uses "in the mind of the customer" as a standard? [p. 219] . . . Q: Answer yes or no first, please. A: No, I can't. What you should rely on is the guidelines, I believe, and I refer there to the '85, '86 [guidelines], and the Department's concern with appearances. Shropshire depo 136, 212, 218, 219 (emphasis added) (copies of these pages attached as Exhibit F). "[T]he Department's concern with appearances" that the Department's representative testified to, a concern that focuses on the possible perceptions of the consumer, merely recapitulates the Department's "mind or imagination of the consumer" definition in abandoned Rule Chapter Section .003(2). (The 1985 and 1986 Department guidelines, to which the Department representative also refers to in this testimony, do not contain a definition of, or refer directly to, the "associated" or "associate" language in s. 626.988(2)). The foregoing statements have not been adopted by the rulemaking procedure provided for in F.S. ss. 120.535(1) and 120.535(1)(a)3. The statements have been struck down by Officer Clark, are not currently contained in any promulgated rule, and have been abandoned as the basis for any rule as a result of the Department's decision not to appeal Officer Clark's Final Order striking the statements.
