The Issue The issue for determination is whether Respondent, Construction Industries Recovery Fund ("Respondent"), should reimburse Petitioners for damages caused by a contractor.
Findings Of Fact 1. Respondent is the governmental agency responsible for processing claims against it pursuant to Sections 489.140 through 489.143. Petitioners are natural persons within the meaning of Section 489.140(1). Except for the matters to be determined in this proceeding, Petitioners are otherwise eligible to seek recovery from Respondent within the meaning of Section 489.141. Initial Agreement On June 10, 1993, Petitioners entered into a written contract of sale with Klingshirn & Associates, Inc. ("Klingshirn") to construct a home at 6617 Southfork, Titusville, Florida (the "initial agreement"). The total purchase price was $134,000. The home was to be completed by November 24, 1993. The initial agreement required Petitioners to pay $24,000 of the total purchase price from their own funds3 and to make a good faith effort to obtain financing for the remaining $110,000. If Petitioners were unable to obtain financing, Klingshirn reserved the option to provide financing. The terms of financing were prescribed in paragraph 3 of the initial agreement. Paragraph 3 stated: . . . MORTGAGE PROVISION . . . within five (5) days [Petitioners] will make a good faith application with . . . a lender approved by [Klingshirn] for a mortgage loan in the amount set forth above at the prevailing interest rate not to exceed 8 1/2% 30 year and terms of the lender as of closing. If [Petitioners are] not approved for the mortgage within 30 days or any extension [Klingshirn gives them], or if [Petitioners] application is rejected, [Klingshirn] can either provide [Petitioners] with the mortgage on the same terms and conditions as the lender [Petitioners] applied with, or (ii) refund [Petitioners] deposits . . . and terminate this contract. . . . Petitioners and Klingshirn changed the printed text in the initial agreement. They struck through the phrase, "at the prevailing interest rate," and inserted the phrase, "not to exceed 8 1/2% 30 year." Condition Precedent A condition precedent is one which calls for the performance of some act, or the happening of some event, after a contract is entered into upon the performance or happening of which an obligation to perform depends.4 The initial agreement was subject to a condition precedent by its express terms and by oral agreement. The express terms of the initial agreement made the agreement subject to a condition precedent. Petitioners' obligation to perform was expressly dependent on the procurement of financing for $110,000, over a 30 year term, at an interest rate not to exceed 8 1/2 percent per annum. Even if the initial agreement were not expressly subject to a condition precedent, it was subject to such a condition by oral agreement. Prior to and at the time that Klingshirn and Petitioners signed the initial agreement, Petitioners and Klingshirn agreed that the initial agreement would become operative only upon the occurrence of financing. Even if the initial agreement were not subject to a condition precedent, the requisite financing was part of a contemporaneous oral agreement that induced Petitioners to enter into the initial agreement. There was no mutual intent for Petitioners to be obligated unless they procured the prescribed financing from either a commercial lender or Klingshirn. Construction Contract The condition precedent to the initial agreement was never satisfied. The initial agreement never became operative. On July 7, 1993, Petitioners obtained a financing commitment from Harbor Federal Savings & Loan Association in Fort Pierce, Florida ("Harbor"). Harbor agreed to provide financing for $105,000 rather than the $110,000 prescribed in the initial agreement. Petitioners agreed to increase their cash investment. On August 4, 1993, Petitioners and Klingshirn executed a Construction Loan Agreement for $105,000 (the "construction loan agreement"). The construction loan agreement stated: [Klingshirn] hereby . . . agrees to the terms and conditions of the [construction loan], and further agrees that where the [construction loan] conflicts with the terms and provisions of any construction contract existing with Borrower, that the [construction loan] shall control. Petitioners executed the construction loan agreement as borrowers. Klingshirn executed the builder's assent to the construction loan agreement. On August 4, 1993, Petitioners and Klingshirn executed a construction contract within the meaning of Section 489.141(1)(a) (the "construction contract"). The construction contract included the construction loan agreement and those terms in the initial agreement which did not conflict with the construction loan agreement and which Petitioners and Klingshirn adopted when they executed the construction contract.5 The construction contract was executed after July 1, 1993. It controlled the construction of Petitioners' home until it was modified on December 9, 1993. On December 9, 1993, Petitioners agreed to extend the completion date to March, 1994. Klingshirn agreed to repair specified defects and to increase the landscaping allowance. Mismanagement And Misconduct Petitioners did not know that Klingshirn was a corporation engaged in contracting without a qualifying agent in violation of Section 489.119. Mr. Michael R. Harvey, a financially responsible officer of Klingshirn and one of its employees, was licensed as a certified building contractor (the "contractor" or "licensee"). However, the contractor neglected to qualify Klingshirn. The contractor illegally used his license to obtain the necessary building permit on behalf of Klingshirn. He procured the building permit in his own name on August 27, 1993. The contractor knowingly violated Section 489.129. He committed mismanagement and misconduct in the practice of contracting that caused financial harm to Petitioners in the amount of $58,534.46. The contractor failed to ensure that the home was constructed according to either the plans and specifications of the project or the Southern Building Code. He also failed to remedy the violations. The contractor failed to satisfy subcontractor liens after Petitioners gave him the funds to do so. He obtained at least three draws of unspecified amounts from Harbor. The contractor abandoned the job. He failed to perform work without just cause for over 90 consecutive days when the percentage of completion was less than the total contract price paid to him at the time of abandonment. The project was not completed on November 24, 1993. On December 9, 1993, Petitioners and Klingshirn entered into an Addendum to the initial agreement. The Addendum extended the completion date to March, 1994. The contractor failed to meet the extended deadline. On April 4, 1994, construction ceased. On April 14, 1994, the contractor removed himself and his license from the project. Final Order On August 11, 1995, the Department of Business and Professional Regulation filed an Administrative Complaint against the contractor alleging violations of Sections 489.129(d), (h), and (k). The Construction Industry Licensing Board (the "Board") entered a Final Order on January 16, 1996. The Final Order found the contractor guilty of the allegations in the Administrative Complaint. The Board directed the licensee to pay restitution to Petitioners in an unspecified amount based on violations of Sections 489.129(d), (h), and (k) that occurred on or after July 1, 1993. Civil Action On October 23, 1995, Petitioners filed a civil action against the contractor. Petitioners filed the civil action in the Circuit Court of the Eighteenth Judicial Circuit in and for Brevard County, Florida. Daniel J. Johnson and Doris S. Johnson v. Michael R. Harvey, Case Number 95-16601-CA-F. On December 1, 1995, the contractor filed a Suggestion of the Pendency of Bankruptcy in the civil case. On November 25, 1994, the contractor had filed for bankruptcy in the United States Bankruptcy Court, Middle District of Florida. In Re: Michael R. Harvey, Debtor, Case Number 94-11514-8B7. On March 8, 1995, the Bankruptcy Court entered a Discharge of Debtor Order. On December 1, 1995, the bankruptcy trustee notified Petitioners that no assets were available for distribution from the bankruptcy estate except exempt assets. Claim Against Respondent On March 29, 1996, Petitioners filed a claim against Respondent. On June 13, 1996, the Construction Industries Recovery Fund Committee (the "Committee") denied the claim. The Committee determined that Petitioners are required by law to execute a construction contract on or after July 1, 1993, to recover from Respondent. The Committee found that Petitioners executed the required contract on June 10, 1993. On June 14, 1996, the Board ratified the Committee's action. The Board entered a Final Order on August 20, 1996. Payment To Respondent Petitioners paid money to Respondent in statutorily prescribed amounts through a surcharge of one-half cent per square foot of the project. The surcharge is imposed pursuant to Sections 489.140(2) and 468.631. Petitioners received no reimbursement from Respondent. Nor did Petitioners receive restitution from the licensee.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Respondent enter a Final Order and thereinGRANT Petitioners' claim for recovery against Respondent. RECOMMENDED this 20th day of March, 1997, in Tallahassee, Florida. DANIEL MANRY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 SUNCOM 278-9675 Fax Filing (904) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 20th day of March, 1997.
The Issue Whether Respondents committed the unlawful employment practices alleged in the Charges of Discrimination filed with the Florida Commission on Human Relations ("FCHR") and, if so, what relief should Petitioner be granted.
Findings Of Fact Petitioner is an African-American male. Randstad is an employment services provider that assists clients with the placement of qualified candidates for available employment positions. BOA is a national financial institution. Randstad Petitioner applied for a Mortgage Customer Service Position that Randstad posted in August 2012. Petitioner was not hired for the position. Minda Hampel, an assistant branch manager for Randstad, testified that Randstad does not place candidates in every job that it posts. Ranstad's business records show a Mortgage Customer Service position was posted in August 2012; however, there are no facts or information contained in Randstad's business records to demonstrate that it assisted the hiring employer in filling or placing a candidate in that position. Ms. Hampel credibly testified that she had never met or spoken with Petitioner, and, therefore, was unaware of his race when the Mortgage Customer Service position was posted in August 2012. In October 2012, Randstad assisted one of its clients, MDVIP, with filling an available Purchasing Specialist Position. Petitioner applied for the position. Josh Rabine, a Randstad employee, credibly testified that, when Petitioner applied for the position, Mr. Rabine was unaware of Petitioner's race. Mr. Rabine further testified credibly that Petitioner did not meet the minimum qualifications for the position and that another applicant, who possessed over ten years of experience in purchasing management, was qualified for the position. Mr. Rabine did not decide which candidate would be awarded the position, and, ultimately, the position was filled by one of MDVIP's internal candidates. In November 2012, Ranstad assisted one of its clients, CWB Home Solutions, with filling an available position as an Outside Sales Manager. The position required prior experience with sales of audiovisual equipment and home systems. Petitioner applied for the position. Chelsea Arnold, a staffing manager for Randstad, credibly testified that Petitioner did not meet the minimum qualifications for the position. Ms. Arnold further testified that of the 12 applicants for the position, another individual was chosen who possessed over ten years' experience selling audiovisual and video equipment and home integrating security systems. Ms. Arnold credibly testified that she was unaware of Petitioner's race and that the client, CWB Home Solutions, ultimately made the decision to hire the alternative candidate. Bank of America On November 2, 2012, and January 4, 2013, Petitioner submitted online applications for Mortgage Loan Specialist ("MLS") positions with BOA in Boca Raton and Palm Beach Gardens. BOA's online application system is race-neutral. Petitioner did not identify his race on his online applications. Jorge Trujillo, the BOA corporate recruiter for the above-referenced positions, credibly testified that he has never met nor spoken with Petitioner. Mr. Trujillo testified that BOA was seeking candidates with sales experience, mortgage sales experience, and relational ties to the respective communities. Additionally, as the positions were located in South Florida, it was desirable for the candidate to be bilingual. The 2012 position was not filled because BOA cancelled the requisition.1/ Concerning the remaining MLS position, 31 candidates applied. Petitioner was not hired for the position. Petitioner had never worked in the Boca Raton or Palm Beach area and did not possess any mortgage sales experience. Mr. Trujillo testified that the candidate who was hired was an internal BOA candidate who had progressed from teller to personal banker and possessed relational connections with existing customers, as well as in the surrounding market. The hired candidate was bilingual (Creole), and African- American. Mr. Trujillo credibly testified that neither he nor anyone else involved in the hiring process was aware of Petitioner's race or that Petitioner had previously asserted a discrimination claim against BOA. Petitioner Petitioner failed to present any persuasive evidence that Respondents were aware of his race during the application process for any of the above-referenced positions. Petitioner failed to present any evidence regarding his employment qualifications in general or as specifically related to the above-referenced positions. Indeed, Petitioner's only evidence in this regard is his bald assertion that he was qualified for the positions to which he applied. Petitioner failed to present any evidence that he was equally or more qualified than the candidates hired for the above-referenced positions. Petitioner also failed to present any evidence that the above-referenced positions that he applied for remained open or were filled with individuals outside his protected class. The entirety of Petitioner's evidence in support of a retaliatory motive is set forth below: . . . it's been two years since I've been unemployed, seeking employment, and every position that I applied for or that I'm qualified for for different companies have pretty much sent automated response stating that we filled the position, and, for one person to apply for that many jobs for a long period of time, I feel that I'm being retaliated against, and I also was abused. Randstad and Bank of America refused to hire me and denied me of a job opportunity for positions that I'm qualified for. Ranstad also stated that there are other qualified applicants more qualified and they hired them instead of me, which is the statement that I'm making that I'm being retaliated against for full-time jobs that I'm qualified for. And, again, like I said before, a two-year gap in my employment is a sign of retaliation. The undersigned finds that Petitioner failed to present any credible evidence of a causal connection between BOA's failure-to-hire Petitioner and his previously asserted claim of discrimination.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Florida Commission on Human Relations enter a final order adopting the Findings of Fact and Conclusions of Law contained in this Recommended Order. Further, it is RECOMMENDED that the final order dismiss the respective Petitions for Relief against Respondents. DONE AND ENTERED this 12th day of December, 2013, in Tallahassee, Leon County, Florida. S TODD P. RESAVAGE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 12th day of December, 2013.
Recommendation Based upon the findings of fact and conclusions of law recited herein, it is RECOMMENDED that the Administrative Complaint filed against the respondent on September 9, 1981 be DISMISSED. Respectfully submitted and entered this 11th day of May, 1982, in Tallahassee, Florida. DIANE D. TREMOR, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 11th day of May, 1982. COPIES FURNISHED: Robert F. Jordan, Esquire CONRAD, SCHERER & JAMES 707 Southeast Third Avenue Post Office Box 14723 Ft. Lauderdale, Florida 33302 Philip Jansen, Esquire JANSEN & DE GANCE, P.A. Post Office Box 7375 Ft. Lauderdale, Florida 33304 Mr. C. B. Stafford Executive Director Florida Real Estate Commission Post Office Box 1900 Orlando, Florida 32801 Frederick H. Wilsen, Esquire Assistant General Counsel Department of Professional Regulation 130 North Monroe Street Tallahassee, Florida 32301
The Issue The Respondents have been charged with multiple violations of Chapter 494, (1987), the Florida Mortgage Brokerage Act, and administrative rules promulgated pursuant to the act. The violations, described in an amended administrative complaint dated April 16, 1990, are as follows: Rule 3D-40.006(5), F.A.C.: Respondents failed to issue a statement signed by both parties, when receiving a deposit on a mortgage loan, regarding disposition of the deposit and other matters. Section 494.08(10), F.S. and Rule 3D-40.091(2), F.A.C.: Respondents failed to provide a written statement with a summary of limits and conditions for recovery from the Mortgage Broker Guaranty Fund. Section 494.055(1)(b), F.S. and Rule 3D-40.008(1), F.A.C.: Respondents assessed fees for credit reports, phone calls, appraisals and courier services, which fees were not supported by the files. Section 494.055(1)(0), F.S. and Rule 3D-40.006(4), F.A.C.: The department had to issue a subpoena for compensation records. Section 494.055(1)(g) and (p), and Section 494.08(5), F.S.: Borrowers were required to pay higher closing costs than were disclosed on the good faith estimate form. Section 494.08(5), F.S.: Respondents failed to secure executed modified mortgage loan applications from the borrowers or to return excess monies to the borrowers. Section 494.08(5), F.S. and Rule 3D-40.091(1), F.A.C.: Respondents accepted deposits from loan applicants but failed to obtain executed mortgage broker agreements which would disclose the cost of the loans. Sections 494.055(1)(b) and (g), and Sections 494.093(3)(a), (b), (c), and (4), F.S.: Respondents failed to disclose that they would retain both origination fees and discount points as their compensation, and failed to disclose compensation received from the lender in addition to brokerage fees assessed the borrowers on the closing statements. Section 494.055(1)(b), F.S., Section 494.08(5), F.S. and Sections 494.093(3)(a), (b), (c) and (4), F.S.: Respondents collected a servicing release fee from the borrowers when the Respondents were not the lender, and failed to disclose the collection. Section 494.055(1)(e), F.S. and Rule 3D-40.006(b)(a), F.A.C.: Respondents failed to maintain an escrow account.
Findings Of Fact Inlet Mortgage Company, Ltd. ("IMC") is a mortgage brokerage business operating under license #HB65002147500. Its place of business is 700 Virginia Avenue, Suite 105, Ft. Pierce, Florida 34982. John Davis is the principal mortgage broker of Respondent IMC, operating under license #HA246700273. He has been licensed in Florida since approximately 1987, and opened his business in February 1988. As authorized by Section 494.065(1), F.S. (1987), the Department of Banking and Finance ("department") conducted an examination of the affairs of the Respondents for the time period February 1988 through June 1, 1988. The examination was completed on July 5, 1988, with a written report. At the time of the examination Respondents had closed only four loans and had another six in progress. The audit was conducted because a loan processor working for IMC had applied for her mortgage broker license, and her application seemed to imply that she was already practicing mortgage brokering. The audit cleared up this question and the processor was not found to be operating improperly. However, Timothy Wheaton, the department examiner, found other violations by IMC. When an audit or review is conducted by the department, the agency staff first interviews the person in charge to explain the review and to learn about the company. The staff then looks at the licenses, reviews files of closed and active loans, and examines books and accounts, payroll records, and the like. Generally, a sampling of loan files is selected from the broker's loan log, but in this first review all loans were reviewed, as so few existed. The staff writes a preliminary report and conducts an exit interview to let the broker know its findings. Later, a formal report is completed and provided to the broker, who has thirty days to respond. Timothy Wheaton conducted his review of IMC and John Davis at the company office in Ft. Pierce on June 3, 1988 and June 7, 1988. At some point on June 3rd, Wheaton was reviewing compensation records to determine how the broker, his partner and the loan processor were paid. Davis had checkbooks available, but the accountant had not prepared his books as the office had just opened. Wheaton had questions as to whether the checkbooks were all that was available; when he asked for the payroll records, Davis told him he would have to subpoena them. Wheaton returned on Monday with a subpoena and was given the same records as before. Davis admits that he made the demand for the subpoena. He was piqued because he was very busy when the audit staff arrived, and when he suggested they return later, he felt they wrongfully impugned his motives and accused him of hiding something. Respondent Davis has admitted to several "technical" violations or oversights in the loan files at the time of the first review. A summary of the limits and conditions of recovery from the Mortgage Brokerage Guaranty Fund was not being provided, but has been provided since the first audit. Deposits for credit report, appraisal fees and other costs were collected from the borrowers, but the files did not include a statement, signed by the borrowers, describing disposition of the funds in the event that the loan was not consummated, or the term of the agreement. After the first audit Davis has provided such a form statement and has included it in each file. On three closed loans, and one that was still pending, the files did not include documentation to support minimal (i.e., $25.00, $10.00, $6.56) fees for phone calls and courier fees, or fees were collected which exceeded the documentation in the file. Davis explained that these are charges made by the closing attorney, and the files now document those expenses. The difference between what was collected for a credit report and what was spent was returned to the borrower. (For example, $20.30 was returned to borrower, G. Stewart). In three loans closed at the time of the first audit, Davis and IMC received as compensation both the origination fee and a portion of the discount points. In the McCurdy loan, IMC received its 1 percent origination fee ($600.00), plus one half of the 1 percent discount fee ($300.00). In the Alexander loan, IMC received its 1 percent origination fee ($469.00), plus a .75 percent discount fee ($351.75). In the Stewart loan, IMC received its 1 percent origination fee ($612.00), plus 1/2 percent discount fee ($306.00). In each case, the Good Faith Estimate form provided to the borrowers disclosed the fees separately and did not break out which portion of the loan discount would be paid to the lender and which portion would be paid to IMC. The origination fee is sometimes called the broker's fee, although some banks also collect the fee when a mortgage broker is not involved. Discount points are a one-time payment to a lender to increase its yield on the loan. They are a percentage of the loan, paid up front, to reduce the interest rate over the term of the loan. These are distinctly different forms of charges to the borrower. Davis claims that he explained orally to each borrower how much compensation he would receive. The borrowers do not remember the specifics of that explanation, but rather consider the total origination fee and discount fee as their cost of the loan. They knew that the broker was going to be compensated for his services and understood that compensation would come from those fees in some unspecified manner. Davis claims that he checked with some lenders who told him that it was standard practice for part of the broker's compensation to be called a "discount" fee. He considered it a tax advantage to the borrower, as discount fees could be deductible, just as interest is deductible. During the audit, Davis discussed his compensation practice with the agency staff, who explained that, whatever it is called, the broker's compensation had to be fully disclosed to the borrower at the time of application on the Good Faith Estimate form. Between June 3rd and June 7th, Davis attempted to redisclose his compensation to the borrowers, but this resulted in unsigned disclosure forms in the file when the agency review staff returned on June 7th to complete the audit. At the time of the first audit, Davis and IMC maintained an escrow account for the deposits received from applicant/borrowers for audit reports, appraisal fees and other costs. Davis later closed his escrow account because he felt it was costing him money and because he did not consider the funds he received at the time of application to be escrow deposits. In most cases, the credit report and appraisal and other relevant services were ordered the same day as the loan application. Whether the loan was eventually consummated, the customer was still responsible for paying the charge if the services were provided. This is disclosed in a statement at the bottom of the Good Faith Estimate form and in a separate "Notice to Borrower", signed by the applicant which, since the first audit, is maintained in the loan file. According to the Notice to Borrower, if the loan is cancelled or denied, and the services have not been performed, the funds will be returned to the customer, less any cancellation charge by the appraisal or credit firm. These funds are deposits. When the escrow account was closed, Davis deposited the money for appraisals and credit report in his operating account. After services were rendered and an invoice received, he would pay the bill. Barbara Janet (Jan) Hutchersien, conducted the department's second audit of IMC in January 1990. This review covered the period from July 1, 1988 through December 31, 1989. John Davis provided the boxes of loans and bank records and loan log. The auditor used the logs to review a sample of loans from each lender with whom IMC works. The bank records were used to trace funds reflected in the loan files. Ms. Hutchersien found, and noted in her examination report, that no escrow account was maintained, although deposits were received in a sample of loan applications. In the Fishman loan, which closed on 4/11/89, closing costs were disclosed by IMC as $1,822.00 on the Good Faith Estimate form dated 1/12/89, yet those costs actually amounted to $2,075.00, disclosed at closing on the U.S. Housing and Urban Development (HUD) Settlement form, for a difference of $253.00. In determining consistency between a good faith estimate and actual closing costs, the agency staff looks at items which are predeterminable costs. In the Fishman case, the estimate for survey was $225.00, but the actual cost was $400.00, due, according to John Davis, to an oddly-shaped lot. In two loans financed by Greentree Mortgage Corporation, IMC received a substantial fee from the lender, which fee was not disclosed on the Good Faith Estimate form, on the HUD Settlement form, or anywhere in writing to the borrower. File documents call these fees "discount for pricing". In the Meslin loan, closed on 8/11/89, the fee from the lender to broker was $432.00; in the Krueger loan, closed on 7/21/89, the payment was $820.00. These paybacks are called "par plus pricing", a relatively new (within the last five years) form of loan pricing. Par plus pricing allows a borrower who does not wish to pay cash at closing, but who would qualify for a higher interest rate in terms of monthly payments, to avoid paying discount points fee at closing. Instead, the lender pays the points to the broker, and the borrower gets a higher interest rate. This is contrasted with the discount point system where the borrower pays cash points at closing in return for a lower interest rate. Par plus pricing can work to the advantage to all parties: The borrower avoids a large cash outlay at closing, the lender enjoys a higher interest rate over the term of the loan, and the broker receives his money from the lender. The borrower, however, should understand his options, including the option to pay cash at closing for a lower interest rate. Davis did not disclose the payback from the lender in writing because that is the way he says he was told to handle the loan by Greentree's representative. Davis told the borrowers that he was getting his money from the lender. He did not, however, explain that the borrower would be paying a higher interest rate in return, and Roger Krueger did not understand why his loan was at 10 1/4 percent, rather than 9 3/4 percent, which he thought was the going rate at the time of closing. IMC also received funds from the lender in the Barnes loan, closed on 12/30/88. Cobb Financial Partners was the original lender, yet they paid IMC a service release fee ordinarily paid by one lender to another for release of servicing a loan. Although the fee from Cobb to IMC was not disclosed in writing to the borrowers, the Barnes' were told that the fee for IMC's services would come from the lender, rather from them. They were told, and it is disclosed on the Good Faith Estimate form, and on the HUD Settlement Form, that Cobb Partners Financial was paid $900.00 (1.25 percent loan discount) by the borrowers. Of this, $810.00 was returned by Cobb to IMC. John Davis concedes that Cobb, not IMC, was the lender and was not "comfortable" with how Cobb told him to handle his fee. He has not done business with Cobb since this loan and was simply trying to avoid having to charge his fee to Barnes, who had just arrived in town to become the newspaper editor. The borrowers who were the subject of the files in which the agency found violations generally did business with Davis and IMC because they thought he would get the best deal for them. They were financially unsophisticated and trusted him to represent them. They understood that he was being paid for his services and felt that he should be paid. Except for Mr. Krueger, they were generally satisfied with their mortgage rates. The mortgage broker's fiduciary responsibility is to the borrower, rather than the lender, although he must deal fairly and honestly with the lender. The service that the broker provides to the borrower is his knowledge and his ability to shop for the best product. Par plus pricing and other mechanisms by which the broker receives his fee in whole or part from the lender are not considered by the department to be a violation of standards governing the practice of mortgage brokerage, so long as the customer is fully apprised of his options and is informed of the role of those payments in the product or service they are receiving. The Barnes' and Kruegers clearly were not so apprised, nor does the record establish that the Meslins were informed, although they did not testify. Categorizing brokerage fees or compensation as "discount points" is patently misleading, as discount points are used to buy down an interest rate. When the points are diverted instead to the broker, the consumer does not receive the loan for which he has paid. John Davis admits certain technical violations, but unequivocally denies that he wilfully misled his customers or committed fraud. Since the second audit, he has restored his escrow account. He now discloses his compensation as brokers fees rather than discount points, and has learned how to disclose in writing the par plus pricing loans. In considering certain violations as "technical", and in recommending a penalty in this case, the undersigned has considered Respondents' willingness to correct the errors addressed by the department and Respondents' inexperience at the time of the first audit. Although he was involved in banking, insurance, and accounting, John Davis had not practiced mortgage brokering before moving to Florida and starting his business. In his early practice, as evidenced by his own testimony, he was willing to rely on the advice of lenders, rather than to seek guidance from his licensing authority. He misconceived his role as being jointly responsible to the borrowers and lenders with whom he worked, rather than a primary fiduciary duty to the borrowers, his clients. Although the concealment of compensation as discount points was a willful misrepresentation, the record establishes a pattern of ignorance, albeit inexcusable, rather than fraud.
Recommendation Based on the foregoing, it is hereby, RECOMMENDED That a Final Order be entered, finding that Respondents violated Sections 494.055(1)(e), (o), and (q), F.S. (1987); Sections 494.08(5) and (10), F.S. (1987); and Section 494.093(4), F.S. (1987), and imposing a penalty of $1,000.00 fine, and one year probation, with the conditions that Respondent Davis successfully complete a specified amount and type of professional short course work and undergo periodic review and supervision by the agency. DONE AND RECOMMENDED this 30th day of July, 1990, in Tallahassee, Leon County, Florida. MARY CLARK, 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 30th day of July, 1990. APPENDIX The following constitute specific rulings on the findings of fact proposed by the parties. Petitioner's Proposed Findings of Facts Rejected as unnecessary. Adopted in paragraphs 3 and 6. Adopted in paragraphs 5 and 6. Rejected as redundant. - 8. Rejected as unsupported by the weight of evidence except as found in paragraph 6. The department was required to obtain a subpoena due to Respondents' feigned or real refusal to produce certain records. Rejected as unnecessary. Adopted in substance in paragraph 13. Adopted in substance in paragraph 7. Adopted in substance in paragraph 7. - 18. Rejected as unnecessary. Adopted in summary in paragraph 8. Rejected as immaterial. The telephone charges were incurred by the closing agent, not Respondents. Rejected as unnecessary. Rejected as contrary to the weight of evidence. Rejected as unnecessary. Adopted in summary in paragraph 7. and Rejected as unnecessary and - 48. Adopted in summary in paragraph 8. 49. - 52. Adopted in summary in paragraph 14. Adopted in paragraph 15. Rejected as unnecessary. Adopted in paragraph 13. and Rejected as unnecessary. Adopted in paragraphs 16 and 20. 59 - 74. Adopted in summary in paragraphs 16-19. Rejected as unnecessary. The conclusion that the handling of "par plus pricing" was fraudulent is rejected as contrary to the weight of evidence. 77. - 81. Adopted in summary in paragraphs 20 and 21. 82. Rejected as contrary to the weight of evidence. 83. Adopted in paragraphs 10 and 12. 84. Adopted in paragraph 10. 85. - 89. Rejected as unnecessary. 90. Adopted in paragraph 22. 91. - 93. Rejected as unnecessary. 94. Adopted in part in paragraph 26. Respondent's Proposed Findings of Fact Adopted in paragraphs 1 and 2. Rejected as unnecessary. Adopted in paragraph 6. Rejected as contrary to the weight of evidence. Adopted in paragraph 3. Adopted in paragraph 13. - 9. Adopted in summary in paragraph 7. Rejected as contrary to the evidence. Liability for payment occurs when the service is rendered, as reflected in Respondent's "Notice to Borrower". Rejected as unnecessary. Adopted in paragraph 12. Rejected as unnecessary and immaterial. Rejected as unnecessary. - 19. Adopted in summary in paragraph 8. 20. - 22. Rejected as unnecessary. Adopted in paragraph 14. Adopted in substance in paragraph 13. Adopted in substance in paragraph 16. Adopted in substance in paragraph 19. Rejected as unnecessary. - 29. Rejected as contrary to the weight of evidence. Included in conclusion of law number 9. Rejected as immaterial. - 33. Rejected as contrary to the evidence. The terms implied that the loans would be at a discounted rate, but were not, because the "discount" (partial) went to the broker. Adopted in paragraphs 19 and 20. Rejected as immaterial. COPIES FURNISHED: Elise M. Greenbaum, Esquire Office of the Comptroller 400 W. Robinson St., Suite 501 Orlando, FL 32801 John O. Williams, Esquire Renaissance Square 1343 East Tennessee St. Tallahassee, FL 32308 Hon. Gerald Lewis Comptroller, State of Florida The Capitol Tallahassee, FL 32399-0350 William G. Reeves General Counsel Dept. of Banking & Finance The Capitol Plaza Level, Rm. 1302 Tallahassee, FL 32399-0350 =================================================================
The Issue In this proceeding pursuant to Section 120.56(4), Florida Statutes, Petitioner Dave Taylor (“Taylor) alleges that various purported “statements” which he attributes to Respondent Department of Banking and Finance (the “Department”) constitute rules-by-definition that were not adopted under, and therefore violate, Section 120.54(1)(a), Florida Statutes.
Findings Of Fact The evidence adduced at final hearing established the facts that follow. The Department of Banking and Finance is the state agency charged with the administration of Chapter 494, Florida Statutes, titled “Mortgage Brokerage and Mortgage Lending.” As such, it is responsible for regulating all persons, including mortgage brokers and lenders, licensed under that chapter. Taylor is licensed under Chapter 494 as a mortgage broker and as a “continuing education school.” His firm, Florida Compliance Specialists, Inc., provides consulting services to Chapter 494 licensees. The present dispute stems from amendments to Chapter 494 that the legislature enacted during the 2001 regular session. See Ch. 2001-228, Laws of Florida. These amendments were contained in a bill (CS/HB 455) approved by the governor on June 13, 2001, and became effective on October 1, 2001; they created a new position called “principal representative.” As defined by the legislature, the term “principal representative” means “an individual who operates the business operations of a licensee under part III.” Section 494.001(29), Florida Statutes (2001) (emphasis added).4 This statutory definition is amplified in a mandate that requires all licensees (and applicants) to designate a “principal representative who exercises control of the licensee’s business[.]” Sections 494.0061(8) and 494.0062(11), Florida Statutes. (Emphasis added). Notably, the terms “operates” and “exercises control of” are not defined. As mentioned, the statute requires all licensees and applicants to designate a PR. Although PRs do not engage in a licensed occupation (i.e. there is no PR license), an individual appointed to the post of PR after October 1, 2001, must satisfy certain educational and testing requirements (the details of which are not important here), and the designating lender must submit documents showing that its PRD has complied with those requirements.5 After the governor signed CS/HB 455 into law but before the amended statutes took effect, the Department began making rules to implement the new provisions. Before long, proposed rules were published in the August 31, 2001, issue of Florida Administrative Weekly. One provision of these proposed rules instructed that “[a]n individual can only be a principal representative for one [lender].” This “one lender to a PR” proposal did not implement an explicit statutory directive but arose from the Department’s then-prevailing interpretation of the statutory description of a PR as one who “operates” and “exercises control of” the lender’s business. Further illuminating the Department’s understanding of these terms were the Designation forms that it proposed to adopt, wherein the PRD was required to acknowledge that he or she would be “in full charge, control, and supervision of the [lender’s] business.” A person, the Department reasoned, could be “in full charge,” etc., of but one company at a time. In the course of rulemaking, however, the Department receded from its original interpretation. As a result, revised proposed rules——from which the bright line, “one lender to a PR” directive had been deleted——were published in the October 5, 2001, Florida Administrative Weekly.6 An amended Designation, which unlike earlier versions lacked language requiring a PRD to confirm (with his or her signature) having “full charge, control, and supervision” of the applicant’s or licensee’s business, was proposed as well.7 By the end of January 2002, the Department’s proposed rules relating to PRs had been adopted and, at the time of this Final Order, were among the agency’s duly promulgated, existing rules. See Rule 3D-40.242, Florida Administrative Code. Although the Department does not presently have a bright line rule or policy that flatly forbids an individual from serving simultaneously as PR to more than one licensee, the Department continues to be skeptical that a dual designee can effectively perform, for more than one lender at a time, the responsibilities that it believes inhere in the office of PR. Accordingly, whenever a lender or applicant nominates an XPR for PR, the Department without exception subjects that lender’s Designation to stricter scrutiny than would be given if its PRD were not an XPR. (Indeed, if the PRD is not an XPR, then the Department presumes that he or she will be able to carry out the duties of a PR and hence makes no inquiry as to how the PRD will function as PR.) The first outward manifestations of the Department’s internal decision to scrutinize any Designation in which an applicant’s PRD is an XPR emerged in late November 2001 after the agency had received four separate applications naming Taylor as PR.8 As the Department had discovered upon review of these four applications, Taylor was already serving as PR to an existing licensee. This situation had given rise to a dilemma for which the Department was not fully prepared, as evidenced by a November 26, 2001, e-mail message from an agency attorney to the responsible policy makers in which she (the attorney) had advised that: There are two pending applications in which there are no deficiencies and we need to decide how will [sic] we will proceed since we took out the language in the rule that specifically stated an individual could only be a PR for one company at a time. Let me know what times you would be available [for a meeting to decide what to do]. The Department quickly decided what to do. Between November 27 and November 29, 2001, the Department issued four nearly identical letters, one sent by certified mail to each applicant who had chosen Taylor as its PR, which provided, in pertinent part: We are in receipt of your company’s application to become licensed as a mortgage lender in the State of Florida. A review of the application materials indicates that [applicant’s name] has designated Dave Taylor at [address] as the company’s Principal Representative. [The next four paragraphs quote Sections 494.001(29); 494.0062(11); 494.0062(1)(f); and 494.0062(12), Florida Statutes, which pertain to PRs.] Sections 494.0072(1) and (2)(c), Florida Statutes, provide as follows: Whenever the department finds a person in violation of an act specified in subsection (2), it may enter an order imposing one or more of the following penalties against that person: Revocation of a license or registration. Suspension of a license or registration, subject to reinstatement upon satisfying all reasonable conditions that the department specifies. Placement of the licensee or applicant on probation for a period of time and subject to all reasonable conditions that the department specifies. Issuance of a reprimand. Imposition of a fine in an amount not exceeding $5,000 for each count or separate offense. Denial of a license or registration. Each of the following acts constitutes a ground for which the disciplinary actions specified in subsection (1) may be taken: (c) A material misstatement of fact on an initial or renewal application.[9] Dave Taylor has already been designated as a principal representative for another licensed lender under part III of Chapter 494, Florida Statutes. Please advise in detail how Mr. Taylor will operate and exercise control over your business.[10] We request that your response be submitted to the Department within 10 days of the date of this letter. If you have any questions regarding this matter, please call me at [phone number]. On or about November 30, 2001, the Department created a new deficiency code, DF 416, the description of which is “principal representative is designated to more than one entity.” This is an active deficiency code and is used consistently as a “red flag” on all applications to which it applies. When an application is tagged with a DF 416, the applicant is sent a letter in the form of the letters quoted in the preceding paragraph. This letter will hereafter be referred to as the “DF 416 Inquiry Letter.”11 It is important to emphasize that all applicants whose PRD is an XPR are sent the DF 416 Inquiry Letter, without exception.12 It is undisputed that Taylor has met all of the educational and testing requirements necessary to serve as a PR, and that the Department has no objection, based on facts and circumstances unique to Taylor, to Taylor’s being a lender’s PR. (In fact, he is presently a PR to one lender,13 under a designation to which the Department, consistent with its policy and practice of making no inquiry concerning PRDs who are not XPRs, raised no objection.) The Department’s concern about Taylor’s having been designated a PR by more than one company is indistinguishable from the concern that it expresses regarding all dual designees. This is why, although the contents of the DF 416 Inquiry Letter were developed to resolve a problem that specifically involved Taylor and his clients, the Department decided (and was able) to implement its Taylor-made solution on a generally applicable basis by sending the DF 416 Inquiry Letter to all applicants whose PRD is a dual designee. Each of the four applicants that had designated Taylor as its PR declined the Department’s November 2001 invitation to submit detailed information regarding the manner in which Taylor would operate and control the licensed business. Each applicant chose, instead, to designate someone else as PR. Thus, whatever advantages or considerations Taylor expected to receive in exchange for serving as these lenders’ PR were lost; the Department’s letters (the letters that became the form for the DF 416 Inquiry Letter) were the proximate cause of that loss, in that but for the letters, the lenders would not summarily have severed their respective business relationships with Taylor. After deciding how to deal with applicants whose PRDs are XPRs, the Department turned its attention to the dual designees of existing licensees. This was, in a sense, a bigger problem because, in their respective Designations, more than 50 licensees had selected an individual for PR who was a dual designee. Beginning around December 12, 2001, the Department sent all these lenders a letter similar to the DF 416 Inquiry Letter. This letter stated: We are in receipt of the principal representative designation forms for the following companies: [lender’s names]. A review of the principal representative forms indicates that [PRD’s name and address] has been designated the Principal Representative for both companies. [The next two paragraphs quote statutory provisions pertaining to PRs.] Sections 494.0072(1) and (2)(p) state as follows: Whenever the department finds a person in violation of an act specified in subsection (2), it may enter an order imposing one or more of the following penalties against that person: Revocation of a license or registration. Suspension of a license or registration, subject to reinstatement upon satisfying all reasonable conditions that the department specifies. Placement of the licensee or applicant on probation for a period of time and subject to all reasonable conditions that the department specifies. Issuance of a reprimand. Imposition of a fine in an amount not exceeding $5,000 for each count or separate offense. Denial of a license or registration. Each of the following acts constitutes a ground for which the disciplinary actions specified in subsection (1) may be taken: (p) Failure to comply with, or violations of, any other provision of ss. 494.001-494.0077. Please advise in detail how you will operate and exercise control over both of the above- mentioned businesses. We request that your response be submitted to the Department within 14 days of the date of this letter. If you have any questions regarding this matter, please call me at [phone number]. This form letter will be referred to as the “Compliance Inquiry Letter.” The evidence is unequivocal that the Department has sent, and plans to send, the Compliance Inquiry Letter to all licensees whose Designation names a person determined to be a dual designee, without exception.14 Taylor’s Description of the Alleged Rules-by-Definition In his petition, as required by Section 120.56(4)(a), Florida Statutes, Taylor described the alleged rules-by- definition. Here, in his words, are the Department’s alleged statements: Only one person can realistically “operate the business operations” of a licensee and “exercise control over the licensee’s business.” Therefore, only one individual shall prima facie be designated as principal representative for only one mortgage lender. The above rule shall not apply, however, to mortgage lenders which the Department deems to be “grand-fathered” i.e., such companies who designated their principal representative on or prior to October 1, 2001, the effective date of the statutory amendments. In such instances, an individual will be permitted multiple designations without further departmental scrutiny or inquiry as to how that individual will “operate” or “exercise control over each business.”[Footnote omitted]. Except for “grand-fathered” companies, if an individual once designated principal representative by a mortgage lender is similarly designated principal representative by a separate mortgage lender, the Department based upon the agency statement recited in (a) above, will require the subsequent mortgage lender(s) (i.e., the lender(s) other than the one first designating that individual) to provide in writing a detailed explanation to the Department, subject to potential sanctions, describing how that individual will operate and exercise control over that second mortgage lender. The Department considers as a “licensing deficiency” any mortgage lender application or principal representative designation submitted to the Department where the individual designated as the mortgage lender’s principal representative has previously been and continues to be designated principal representative by another mortgage lender. The Department, based upon this “deficiency,” shall not deem the application(s) “complete” for purposes of section 120.60, Florida Statutes. Such application(s) shall be subjected to the licensing procedures set forth in paragraphs (e) and (f) hereafter. In conformity with the agency statement set forth in (a) above, the Department will not undertake an inquiry of the principal representative designation submitted by the mortgage lender who first designated the individual as its’ principal representative. The Department will require mortgage lenders to provide the information referred to in section c above, through the use of a form, [i.e., the form letters attached as EXHIBITS “14”, “15”, & “16”, to this Petition]. Further, this form created for the purpose of soliciting information [not specifically required by statute or an existing rule] will require mortgage lenders to provide a response, specifically subject to announced sanctions, of details not otherwise required under the applicable statutes or rules. The Department, though requiring mortgage lenders to comply with the agency statements through the threat of announced sanctions, shall not provide to mortgage lenders or their designated principal representatives any clarifying or defining circumstances or criteria the Department will deem as acceptable——contractual or otherwise——for a person to be designated as principal representative for more than one mortgage lender. Any responses provided by such mortgage lenders in response to the Department’s written form shall be submitted by the applicant “at their peril.” Ultimate Factual Determinations In his just-quoted statements “a,” “c,” “d,” and “e,” Taylor described, with reasonable particularity, the essence of policies that, in fact, fall within the statutory definition of the term “rule.” Statement “a” describes (albeit somewhat imprecisely) a Departmental mindset, the view that a person is likely to have difficulty simultaneously serving more than one master as a PR; the last sentence of statement “d” accurately describes the Department’s related policy of not inquiring as to how a PRD who is not a dual designee will operate and control the lender’s business (because the agency presumes that a person will probably have no difficulty serving as PR to one lender at a time). Taken together, these views, in fact, constitute the Department’s interpretation of the PR statutes.15 Taylor’s statement “c” and the third sentence of “d” (all of which, of course, he attributes to the Department) correctly describe, for the most part,16 the Department’s policy of requiring additional information from all licensees and applicants whose Designations nominate an XPR for the position of PR. This policy is plainly driven by the Department’s interpretation of the PR statutes, and it leads, in turn, directly to statement “e.” Restated to conform to the evidence, statement “e” holds that the Department will send either the DF 416 Inquiry Letter or the Compliance Inquiry Letter, whichever is applicable, to any lender whose PRD is an XPR. It is the form letters——the DF 416 Inquiry Letter and the Compliance Inquiry Letter——that have emerged as the most visible, most readily identifiable unadopted rules of the Department, for they solicit information not specifically required by statute or by an existing rule. By the end of December 2001 at the latest, rulemaking was both feasible and practicable with regard to the above- described statements, but no effort was made to adopt them as rules. Thus, the Department failed timely to commence rulemaking with regard to these statements in accordance with Section 120.54(1)(a), Florida Statutes.17
Conclusions For Petitioner: H. Richard Bisbee, Esquire Law Office of H. Richard Bisbee 124 Salem Court, Suite A Tallahassee, Florida 32301-2810 For Respondent: Cynthia K. Maynard, Esquire James H. Harris, Esquire Department of Banking and Finance Fletcher Building, Suite 526 101 East Gaines Street Tallahassee, Florida 32399-0350
Other Judicial Opinions A party who is adversely affected by this Final Order is entitled to judicial review pursuant to Section 120.68, Florida Statutes. Review proceedings are governed by the Florida Rules of Appellate Procedure. Such proceedings are commenced by filing the original notice of appeal with the Clerk of the Division of Administrative Hearings and a copy, accompanied by filing fees prescribed by law, with the District Court of Appeal, First District, or with the District Court of Appeal in the Appellate District where the party resides. The notice of appeal must be filed within 30 days of rendition of the order to be reviewed.
The Issue Whether the Florida Department of Environmental Protection‘s (Department) notice of intent to issue an environmental resource/mitigation bank permit, and notice of intent to grant a variance waiving the financial responsibility requirements for the construction and implementation activities of the mitigation bank to Respondent, CRP/HLV Highlands Ranch, LLC (Highlands Ranch) should be approved, and under what conditions.
Findings Of Fact The Parties Petitioner is a Florida not-for-profit corporation in good-standing, originally incorporated in 1946, with its corporate offices currently located at 2545 Blairstone Pines Drive, Tallahassee, Florida. Petitioner‘s corporate purposes include, among others, ?the cause of natural resource conservation and environmental protection, to perpetuate and conserve the fish, wildlife, mineral, soil, water, clean air and natural resources of Florida.? The Department is an agency of the State of Florida having concurrent jurisdiction with the state‘s water management districts for permitting mitigation banks pursuant to chapter 373, Part IV, Florida Statutes. Highlands Ranch is a Delaware limited-liability corporation registered with the State to do business in Florida, with its corporate offices located at 9803 Old St. Augustine Road, Suite 1, Jacksonville, Florida. Highlands Ranch was the applicant for the SJRWMD Permit, and is the applicant for the DEP Permit and Variance that are at issue in this proceeding. The Property The property designated to become the HRMB (the Property) comprises approximately 1,575 acres, which includes 551.99 acres of wetlands, 990.90 acres of uplands, and 32.60 acres of miscellaneous holdings, including easements and a hunt camp. The Property is bounded by the Jennings State Forest on the eastern boundary, the conservation lands of Camp Blanding Joint Training Center on the southern boundary, and a titanium mine on the western boundary. The upland communities consist of mesic and xeric pine plantations. The wetland communities consist of 260.30 acres of hydric pine flatwoods, 80.26 acres of bay and bottomland, and 211.43 acres of floodplain. The wetland areas of the HRMB are generally associated with two creeks that traverse the property, Boggy Branch on the northern portion of the property, and Tiger Branch, which is a series of streams and branches in the southeastern and eastern portion of the property. Boggy Branch and Tiger Branch feed into the north fork of Flat Creek, some of which encroaches onto the eastern side of the property. In addition to Boggy Branch and Tiger Branch and their tributaries, there are isolated wetlands scattered throughout the HRMB property. Most of the uplands, and much of the wetlands have been altered from their native plant communities by historic and on- going silvicultural activities. The uplands currently consist largely of pine plantation planted in slash pine of various ages and densities, with one small area planted in longleaf pine. The property has an elevation gradient of approximately 90 feet, which extends generally from the higher xeric pine flatwoods, sloping down to the creek systems. A gradient of 90 feet over an area as small as the HRMB is a significant elevation change in Florida. Mitigation Banks A mitigation bank is ?a project permitted under 373.4136 undertaken to provide for the withdrawal of mitigation credits to offset adverse impacts authorized? by an Environmental Resource Permit (ERP) issued under Part IV, chapter 373, Florida Statutes. § 373.403(19), Fla. Stat. A mitigation bank permit is a type of ERP. The Department and the water management districts are legislatively authorized to require permits to establish and use mitigation banks. § 373.4136(1), Fla. Stat. Mitigation banks act as repositories for wetland mitigation credits that can be used to offset adverse impacts to wetlands that occur as the result of off-site ERP projects. Mitigation banks are intended to ?emphasize the restoration and enhancement of degraded ecosystems and the preservation of uplands and wetlands as intact ecosystems rather than alteration of landscapes to create wetlands. This is best accomplished through restoration of ecological communities that were historically present.? They are designed to ?enhance the certainty of mitigation and provide ecological value due to the improved likelihood of environmental success associated with their proper construction, maintenance, and management,? often within larger, contiguous, and intact ecosystems. § 373.4135(1), Fla. Stat. A mitigation credit is a "standard unit of measure which represents the increase in ecological value resulting from restoration, enhancement, preservation, or creation activities." Fla. Admin. Code R. 62-345.200(8). Ecological value is defined as the value of functions performed by uplands, wetlands, and other surface waters to the abundance, diversity, and habitats of fish, wildlife, and listed species. Included are functions such as providing cover and refuge; breeding, nesting, denning, and nursery areas; corridors for wildlife movement; food chain support; natural water storage, natural flow attenuation, and water quality improvement which enhances fish, wildlife, and listed species utilization. Fla. Admin. Code R. 62-345.200(3). When an ERP permit requires wetland mitigation to offset adverse impacts to wetlands, the permittee may purchase wetland credits from a mitigation bank and apply them to meet the mitigation requirements. When the permittee has completed the agreement with the mitigation bank and paid for the credits, those mitigation credits are debited from the mitigation bank's ledger. Every mitigation bank has a ledger that reflects how many credits have been released for use, and how many have been sold for use as mitigation. Uniform Mitigation Assessment Method Rule A mitigation bank is to be awarded mitigation credits ?based upon the degree of improvement in ecological value expected to result from the establishment and operation of the mitigation bank as determined using a functional assessment methodology.? § 373.4136(4), Fla. Stat. Section 373.414(18), Florida Statutes, provides, in pertinent part, that: The department and each water management district responsible for implementation of the environmental resource permitting program shall develop a uniform mitigation assessment method for wetlands and other surface waters. The department shall adopt the uniform mitigation assessment method by rule no later than July 31, 2002. The rule shall provide an exclusive and consistent process for determining the amount of mitigation required to offset impacts to wetlands and other surface waters, and, once effective, shall supersede all rules, ordinances, and variance procedures from ordinances that determine the amount of mitigation needed to offset such impacts. Once the department adopts the uniform mitigation assessment method by rule, the uniform mitigation assessment method shall be binding on the department, the water management districts, local governments, and any other governmental agencies and shall be the sole means to determine the amount of mitigation needed to offset adverse impacts to wetlands and other surface waters and to award and deduct mitigation bank credits . . . . It shall be recognized that any such method shall require the application of reasonable scientific judgment. The uniform mitigation assessment method must determine the value of functions provided by wetlands and other surface waters considering the current conditions of these areas, utilization by fish and wildlife, location, uniqueness, and hydrologic connection, and, when applied to mitigation banks, the factors listed in s. 373.4136(4). The uniform mitigation assessment method shall also account for the expected time lag associated with offsetting impacts and the degree of risk associated with the proposed mitigation. The uniform mitigation assessment method shall account for different ecological communities in different areas of the state . . . . In 2004, the Department adopted the Uniform Mitigation Assessment Method (UMAM) rule, Florida Administrative Code Chapter 62-345. In general terms, the UMAM is designed to assess impacts and wetland functions associated with projects that impact wetlands, along with necessary mitigation required to offset those impacts. As it pertains to this proceeding, the UMAM establishes the standards for evaluating mitigation banks and calculating the credits that may be awarded to a mitigation bank, and provides a standardized wetland assessment methodology that may be applied across community types. Permitting of a mitigation bank first involves a qualitative characterization of the property, known as a Part I evaluation. The Part I evaluation is conducted by dividing the subject parcel of property into assessment areas for wetlands and uplands. An assessment area is ?all or part of a . . . mitigation site, that is sufficiently homogeneous in character . . . or mitigation benefits to be assessed as a single unit.? Fla. Admin. Code R. 62-345.200(1). Each mitigation assessment area must be described with sufficient detail to provide a frame of reference for the type of community being evaluated and to identify the functions that will be evaluated. When an assessment area is an upland proposed as mitigation, functions must be related to the benefits provided by that upland to fish and wildlife of associated wetlands or other surface waters. Information for each assessment area must be sufficient to identify the functions beneficial to fish and wildlife and their habitat that are characteristic of the assessment area‘s native community type . . . Fla. Admin. Code R. 62-345.400. After the assessment areas have been established, a Part II assessment is performed using the scoring criteria established in the UMAM "to determine the degree to which the assessment area provides the functions identified in Part I and the amount of function lost or gained by the project.? Under the Part II evaluation, each mitigation assessment area is evaluated under its current condition --or for areas subject to preservation mitigation, without mitigation -- and its ?with mitigation? condition. The difference in those conditions represents the improvement of ecological value referred to as the ?delta? or the ?lift.? Fla. Admin. Code R. 62-345.500. The ?delta? for an enhancement or restoration area is subject to modification by applying any applicable time lag factor and risk factor to arrive at the numeric relative functional gain (RFG). The RFG is multiplied by the number of acres of the assessment area to determine the number of mitigation bank credits to be awarded. Fla. Admin. Code R. 62- 345.600. Time Lag Factor Section 373.414(18) provides, in pertinent part, that ?[t]he uniform mitigation assessment method shall also account for the expected time lag associated with offsetting impacts . . . .? Florida Administrative Code Rule 62-345.600(1) establishes the UMAM criteria for applying the time lag factor and provides, in pertinent part, that: Time lag shall be incorporated into the gain in ecological value of the proposed mitigation as follows: The time lag associated with mitigation means the period of time between when the functions are lost at an impact site and when the site has achieved the outcome that was scored in Part II. In general, the time lag varies by the type and timing of mitigation in relation to the impacts. Wetland creation generally has a greater time lag to establish certain wetland functions than most enhancement activities. Forested systems typically require more time to establish characteristic structure and function than most herbaceous systems. Factors to consider when assigning time lag include biological, physical, and chemical processes associated with nutrient cycling, hydric soil development, and community development and succession. There is no time lag if the mitigation fully offsets the anticipated impacts prior to or at the time of impact. * * * For the purposes of this rule, the time lag, in years, is related to a factor (T- factor) as established in Table 1 below, to reflect the additional mitigation needed to account for the deferred replacement of wetland or surface water functions. The ?Year? column in Table 1 represents the number of years between the time the wetland impacts are anticipated to occur and the time when the mitigation is anticipated to fully offset the impacts, based on reasonable scientific judgment of the proposed mitigation activities and the site specific conditions. TABLE 1. Year T-factor <or=1 1 2 1.03 3 1.07 4 1.10 5 1.14 6-10 1.25 11-15 1.46 16-20 1.68 21-25 1.92 26-30 2.18 31-35 2.45 36-40 2.73 41-45 3.03 46-50 3.34 51-55 3.65 >55 3.91 The time lag factor is a discounting process which adjusts the future value of the mitigation to a present value at the time credits are released, and is intended to account for the difference between the time that the impacts that the mitigation is to offset have occurred and the time that the final success upon which the credits are based is achieved. The application of the time lag factor is required when mitigation credits are released prior to the mitigation bank achieving the scored final "with-mitigation" condition. Risk Factor Section 373.414(18) provides, in pertinent part, that ?[t]he uniform mitigation assessment method shall also account for the . . . degree of risk associated with the proposed mitigation.? Florida Administrative Code Rule 62-345.600(2) establishes the criteria for applying the time lag factor and provides, in pertinent part, that: (2) Mitigation risk shall be evaluated to account for the degree of uncertainty that the proposed conditions will be achieved, resulting in a reduction in the ecological value of the mitigation assessment area. In general, mitigation projects which require longer periods of time to replace lost functions or to recover from potential perturbations will be considered to have higher risk that those which require shorter periods of time. The assessment area shall be scored on a scale from 1 (for no or de minimus risk) to 3 (high risk), on quarter- point (0.25) increments. A score of one would most often be applied to mitigation conducted in an ecologically viable landscape and deemed successful or clearly trending towards success prior to impacts, whereas a score of three would indicate an extremely low likelihood of success based on the ecological factors below. A single risk score shall be assigned, considering the applicability and relative significance of the factors below, based upon consideration of the likelihood and the potential severity of reduction in ecological value due to these factors. As with the time lag factor, the risk factor is a discounting process which is designed to account for the possibility that there may be occurrences that interfere with the ability of the mitigation bank to replace the ecological functions and values lost when wetland impacts are permitted prior to the final success or evidence that the mitigation bank is clearly trending towards success. DEP/SJRWMD Operating Agreement Sections 373.4135 and 373.4136 establish that the mitigation banking program was created to be jointly administered by the Department and the water management districts. In order to facilitate that joint administration, and to ?further streamline environmental permitting, while protecting the environment,? the Department and the SJRWMD have entered into a written Operating Agreement to ?divide[] responsibility between the DISTRICT and the DEPARTMENT for the exercise of their authority regarding permits . . . under Part IV, Chapter 373, F.S.? By that Operating Agreement, the Department expressly delegated its ?duties and responsibilities? under chapter 373 and Title 62, F.A.C. to the SJRWMD. The Operating Agreement has been adopted by rule by the Department, in rules 62-113.100(3)(x) and 62-300.200(2)(b), and by the SJRWMD in rule 40C-4.091(1)(b). The Department and the SJRWMD are clearly in privity with one another for projects that are subject to the written Operating Agreement. HRMB Permitting History On January 5, 2009, Highlands Ranch submitted an application to the SJRWMD for approval of the HRMB to be located on a 1,575.5-acre parcel of property in Clay County, Florida, specifically in Sections 9, 10, 15, and 16, Township 5 South, Range 23 East (the Property). The application was appropriately submitted to the SJRWMD pursuant to the terms of the Operating Agreement. The Mitigation Service Area (MSA) for the proposed HRMB incorporated portions of Baker, Clay, St. Johns, Putnam, and Duval Counties. The land area and MSA that was the subject of the SJRWMD Permit is identical to the Property encompassed by the proposed DEP Permit at issue in this proceeding. As established in the proceeding that resulted in the issuance of the SJRWMD permit: Highlands Ranch is proposing to place a conservation easement over the mitigation bank property and to conduct enhancement activities in those areas of the property needing improvement as a result of current land uses. Generally, it proposes to cease all pine production practices and cutting of cypress and hardwood trees after the permit is issued. It has also proposed to improve hydrologic conditions on the property by removing a trail road, installing four low water crossings, and removing pine bedding and furrows within all areas planted with pine on the property. Finally, supplemental plantings of appropriate canopy species will be conducted. The project will be implemented in three phases . . . . CRP/HLV Highlands Ranch, LLC v. SJRWMD, Case No. 10-0016, ¶20, (Fla. DOAH May 26, 2010; SJRWMD July 16, 2010). The general project description and phases were substantially identical to the phased proposal in the instant DEP Permit. When Highlands Ranch made its 2009 application to the SJRWMD, the District performed a review of the application, conducted multiple site inspections, met with the applicant's consultants, submitted requests for additional information, and reviewed other appropriate resources. On November 19, 2009, the SJRWMD issued its notice of intent to approve the application, and to approve 204.91 mitigation credits for the HRMB. The credits were calculated by the SJRWMD by applying the UMAM rule. Highlands Ranch filed a petition to challenge the number of credits with the SJRWMD, and requested a formal administrative hearing before the Division of Administrative Hearings. By the time of the final hearing, Highlands Ranch had modified its request to 425 credits, and the SJRWMD had modified its proposed agency action to reduce the number of credits to 193.56. A primary issue of contention in the SJRWMD permit hearing was whether the UMAM preservation adjustment factor (PAF) should be separately applied in areas proposed for enhancement activities in conjunction with preservation afforded by the conservation easement, or whether preservation should be considered as a subsumed element of the enhancement. The PAF is a process that assigns a value to the preservation of the property, and is scored on a scale from zero (no preservation value) to one (optimal preservation value) on one-tenth increments. Fla. Admin. Code R. 62-345.500(3)(a). Thus, preservation at anything less than optimal preservation will result in a downward adjustment of the RFG upon which credits for the acres in an assessment area are ultimately calculated. Under the ?two-step? process, after the functional gain associated with the preservation of the wetland assessment areas is determined, the second step of scoring the functional gain that would be achieved from the enhancement activities, which includes consideration of time lag and risk associated therewith, is performed. The preservation and enhancement scores are considered as separate forms of mitigation, and are each applied as multiples of the delta to arrive at the RFG. In contrast to the SJRWMD approach, Highlands Ranch used a "one-step approach," which scored any area that would be both preserved and enhanced/restored only as ?with mitigation? under UMAM and did not conduct a separate analysis for preservation or apply a separate preservation factor multiple. Neither the ?two-step? PAF nor the ?one-step? PAF is specifically described in the UMAM rule, and both are allowable interpretations of the rule. After the formal hearing, the administrative law judge entered a recommended order in which he determined that the SJRWMD‘s application of the UMAM standards, including its application of the ?two-step approach? was appropriate and correct, thus warranting an award of 193.56 mitigation credits for the HRMB. Neither Highlands Ranch nor the SJRWMD filed exceptions to the recommended order. On July 14, 2010, the SJRWMD entered its final order, which adopted the recommended order ?in its entirety as the final order of this agency.? The final order was not appealed. The SJRWMD permit, Permit Number 4-019-116094-2, was thereafter issued on August 4, 2010, and is currently valid. Development of the June 15, 2011 DEP Guidance Memo During the 2011 legislative session, a bill was proposed to amend the statutes governing mitigation banks. The legislation failed to pass. After the conclusion of the 2011 legislative session on May 7, 2011,1/ more than nine months after the issuance of the SJRWMD permit, counsel for Highlands Ranch contacted Mr. Littlejohn, who had been hired in March, 2011 as the Department‘s Deputy Secretary for Regulatory Programs, to express Highlands Ranch‘s ?frustration with . . . what they considered not an objective review at the [SJRWMD].? Mr. Littlejohn understood that Highlands Ranch believed the SJRWMD review of the application that led to the issuance of the SJRWMD Permit ?was not impartial.? After the telephone conversation, Mr. Littlejohn instructed Department staff to work with counsel for Highlands Ranch to develop guidance to interpret the UMAM rule. Counsel for Highlands Ranch prepared and provided drafts of a guidance document for the Department. There was no evidence of any private individual, other than counsel for Highlands Ranch, being given an opportunity to provide input or otherwise participate in the development of the guidance document. On June 15, 2011, the Department released its final ?Guidance Memo on Interpreting and Applying the Uniform Mitigation Assessment Method? (Guidance Memo). The Guidance Memo was designed to establish ?nuanced interpretations of the UMAM rule? in order to ?provide a uniform method throughout the state.? The Guidance Memo consisted of eight numbered paragraphs. According to Mr. Littlejohn, ?some of these paragraphs are completely unaltered from the [failed 2011] legislation, but I believe that most of them probably had some minor alteration in the subsequent review by the Office of General Counsel and during our own review internally, but . . . some form of Paragraphs 2 through 8 existed in . . . that legislation.? It was the intent of the Department that the Guidance Memo would reflect the current Department interpretation and direction to others in the application of the UMAM. The Guidance Memo was provided to the program administrators for each of the Department‘s six district offices, to the ERP program administrators for each of the water management districts, and to Broward County, which administered the only delegated local ERP program, with the intent that it be uniformly applied by each of them. The Guidance Memo is, and was intended to be, a Department-issued statement of general applicability that implements, interprets, or prescribes law or policy. The practical effect of the Guidance Memo was to reject the ?two-step? preservation adjustment factor (PAF) as applied by the SJRWMD, and establish the ?one-step? PAF as the only interpretation and application allowed by the UMAM rule. The development of the Guidance Memo would have made an appropriate subject for rulemaking, at which all affected stakeholders could have participated. Instead, the Department chose to limit participation to Highlands Ranch, offering no opportunity for other views, either in favor of or in opposition to the terms of the Guidance Memo. Notably, despite the legislature‘s encouragement, if not requirement, of cooperation between the Department and the water management districts in the development and implementation of the UMAM, the Guidance Memo, which was designed to override the method by which UMAM standards were applied by at least two of the water management districts, was developed without water management district knowledge or participation. SJRWMD Application for Modification On September 14, 2011, Highlands Ranch submitted an application for a modification of the SJRWMD permit to the SJRWMD. The application requested that the SJRWMD reconsider the permitted mitigation bank plan in light of the DEP Guidance Memo and, based thereon, modify the number of mitigation credits awarded. No other changes were made to the mitigation bank as permitted. Based on the application of the Guidance Memo alone, Highlands Ranch calculated that 425 mitigation credits was the appropriate number for the development and implementation activities presented in the original SJRWMD permit application. Highlands Ranch withdrew the application for a modification of the SJRWMD permit prior to November 2011. DEP Application for Modification On November 2, 2011, Highlands Ranch submitted an application to the Department for a modification of the SJRWMD Permit (the DEP modification application). In addition to a request that the Guidance Memo be applied, the modification made changes to the plan permitted by the SJRWMD, including supplemental planting of seedling longleaf pine, modification to the prescribed burn schedules, and modification of the monitoring plans and ?success criteria? for demonstrating ecological progress. The application proposed that 426.05 credits be awarded for the HRMB as modified. The DEP modification application was assigned for permit review to Constance Bersok who was, at the time, the Environmental Administrator for the Wetlands Mitigation Program. Ms. Bersok had been involved in the process of applying the UMAM since shortly after the 2000 legislative session, when she ?was in charge of the Department's part of [the UMAM rule] development and coordination? along with the water management districts and other affected entities. Ms. Bersok was identified as the primary Department contact for ?questions and other feedback? regarding the UMAM rule in the June 15, 2011 Guidance Memo. Ms. Bersok is knowledgeable and experienced regarding the interpretation and application of the UMAM rule. Thus, she was the appropriate staff person for primary oversight of the application. Special Cases Agreement The Department determined that it would process the modification application despite the assignment of such projects to the SJRWMD under the Operating Agreement. In order to assume control over the permitting of the HRMB, the Department entered into a ?Written Agreement Pursuant to the Special Cases Section of the Operating Agreement? with the SJRWMD (Special Cases Agreement). Section II, Part D. of the Operating Agreement provides that: By written agreement between the DISTRICT and the DEPARTMENT, responsibilities may deviate from the responsibilities outlined in II. A., B., or C. above. Instances where this may occur include: An extensive regulatory history by either the DISTRICT or the DEPARTMENT with a particular project that would make a deviation result in more efficient or effective permitting; Simplification of the regulation of a project that crosses water management district boundaries; The incorrect agency has begun processing an application or petition and transfer of the application or petition would be inefficient; or Circumstances in which a deviation would result in the application being more efficiently or effectively processed. The specific provisions of paragraphs 1-3 being inapplicable, the Department assumed control over the modification application by relying on the generic ?catch-all? reason set forth in paragraph 4. The basis for the Department‘s determination that it could ?more efficiently or effectively process[]? the application -- despite the fact that the HRMB Property was literally in the SJRWMD‘s back yard, that the SJRWMD had a recent permitting history regarding the Property, and that the SJRWMD had extensive existing knowledge of the condition of the Property -- is not apparent and was not explained. The Special Cases Agreement became effective on December 13, 2011, upon Mr. Littlejohn‘s signature. DEP Permit Application On November 22, 2011, Highlands Ranch submitted a second package to Ms. Bersok, which converted the HRMB application from one for a modification of the SJRWMD permit, to one for a new permit to be issued by the Department. The permit application made certain changes to the terms and conditions for the development of the mitigation bank established in the SJRWMD Permit, but otherwise encompassed the same boundary and service area of the SJRWMD Permit. Highlands Ranch proposed 426.05 mitigation credits as the appropriate number of credits for the activities in the DEP permit application. There has been no other instance in which the Department accepted, processed, or issued a second mitigation bank permit when there was an existing and valid permit issued by a water management district for the same property. Thus, this application is unique in that regard. The Special Cases Agreement provided that it was designed to allow the Department to process the ?[a]pplication for a modification of the Highlands Ranch Mitigation Bank wherein the applicant seeks to revise the mitigation plan.? Despite its apparent limitation to a modification of the SJRWMD permit, the Special Cases Agreement cites to the application number of the DEP Permit that is the subject of this proceeding, and became effective after the submission of the new permit application. There is no evidence of the SJRWMD having objected to the Department‘s continued processing of the application. Thus, although irregular, the Special Cases Agreement was broad enough in its scope to encompass the conversion of the application for modification to a separate permit application. In addition to the foregoing, the scope of the Special Cases Agreement is a matter between the Department and the SJRWMD. There is no question that both agencies have legislatively conferred authority with regard to permitting mitigation banks. The decision between those agencies as to which would have responsibility going forward with the HRMB is not one that affects the substantial interests of Petitioner. Creation of the New ?Performance-driven? Approach On or about February 10, 2012, Ms. Bersok was advised by Mr. Littlejohn that the Department was going to implement a new and previously untried ?performance-driven? approach to permitting the HRMB. Mr. Littlejohn testified that this performance-driven approach is an interpretation of existing mitigation banking rules, and was to provide greater certainty in environmental performance, mitigation success, and provide for a more consistent, predictable, and repeatable permitting process.2/ The more practical effect of the ?performance-driven? approach, as stated by Mr. Littlejohn, is that ?there may be some increase in credits upon not applying a risk or a time lag factor. Those are both discount factors which attach to the raw scoring. So there may be an increase in credits.? Mr. Littlejohn testified that under his ?performance- driven? approach, the current condition of the Property and the final ?success criteria? were the only relevant factors, not how the applicant chose to meet those criteria. Consistent with that approach, Ms. Bersok was instructed that there was no need to issue a request for additional information as to the details by which the performance goals would be met, as was the normal procedure for environmental resource permits, including mitigation bank permits.3/ Under the performance-driven approach as applied to the HRMB, mitigation credits are subject to interim release and available for use upon the satisfaction of ?success criteria? set forth in the permit. Pursuant to the credit release schedule set forth in the DEP Permit, credits may be released upon recording the conservation easement(s), posting the required financial responsibility instrument and providing site security, and thereafter upon meeting one of five ?interim release? milestones. The interim credit releases authorize the release of mitigation credits for use to offset wetland impacts well before the time when the site has achieved the outcome that was scored in the Part II assessment. Although Highlands Ranch will have performed the bulk of the active construction and implementation activities before being entitled to an interim release, the ecological benefit of the interim ?success criteria? does not represent the achievement of the structure and function that will be necessary for final success, nor does it guarantee that that final structure and function will ultimately be achieved. Complete Application Though instructed not to request additional information, Ms. Bersok sent an e-mail to the agent for Highlands Ranch that contained a recitation of what she would have sent the applicant in a request for additional information. On February 14, 2012, Highlands Ranch submitted supplemental information in support of the permit application to Ms. Bersok. The supplemental information contained some, though not all, of the information requested by Ms. Bersok. The submittals of November 1, 2011; November 22, 2011; and February 14, 2012, along with the application check, constitute the application to DEP. There were no written submittals designed to supplement, alter, or amend the proposed activities to enhance or preserve the Property after February 14, 2012. Thus, those documents constituted the complete application. The application contained Highlands Ranch‘s description of historic and existing vegetative communities. There was no suggestion that the description provided by Highlands Ranch was not accurate. The goal of the HRMB as reflected in the DEP application was to convert a silviculture operation to the appropriate native target communities. Mitigation activities proposed in the complete application included restoring or enhancing longleaf pine/xeric oak sandhill, mesic flatwoods, hydric or wet flatwoods, baygall/bay swamp, floodplain swamp/stream or lake swamp and bottomland forest/wetland forest mixed communities, generally through reversal of the existing silvicultural impacts and implementing hydrologic enhancement activities. Each phase of the HRMB would be subject to a conservation easement granted to the Department and the SJRWMD for preservation of the Property in its existing or enhanced condition. The complete application provided that enhancement and restoration would be accomplished through canopy thinning in existing upland and wetland pine plantation areas; control of nuisance and invasive exotic vegetative species; vegetative enhancement, including replanting thinned pine areas with appropriate species where necessary, and supplemental planting of historic native trees and ground cover; prescribed fire; and hydrologic enhancements. Ongoing management of the HRMB site would primarily involve monitoring; prescribed fire; and control of nuisance and invasive exotic vegetative species. Draft Permits As information regarding the application was submitted by Highlands Ranch, Ms. Bersok undertook to calculate the number of mitigation credits warranted by the complete application. She performed several calculations between December 8, 2011 and February 22, 2012. On February 22, 2012, Ms. Bersok performed her final written analysis of the application using the information contained in the November 22, 2011, submittal, including the mitigation activities and target levels and methodologies described by Highlands Ranch, and the information contained in the February 14, 2012, submittal. Thus, her assessment and review was based upon the complete application. In addition to the information regarding site conditions from the permitting file, Ms. Bersok had ?a couple of meetings? to discuss the application, made a site visit, and reviewed additional aerial images obtained on-line. Although her site visit was not comprehensive, Ms. Bersok felt that she had adequate information regarding the current condition for each of the different types of assessment areas that were on the site. Since her review was based in large measure on information and site descriptions regarding the current conditions provided by Highlands Ranch, her belief as to the sufficiency of the information regarding the assessment areas upon which she based her review is warranted and accepted. The November 22, 2011, submittal included the following mitigation activities that differed from the conditions of the SJRWMD permit: All areas subjected to prescribed burning would be burned on a 2-8 year rotation. Two burns necessary to reach final success criteria. Communities defined by both FLUFCS classification and FNAI classification. Basal area targets of less than 60 square feet per acre in U1 and 80 square feet per acre in U2 (perpetual management only). A total of 426.05 credits proposed. No credit withholding by phase. Completion of Construction and Implementation tasks results in 20% of credit release. Target levels and methodologies to determine percent cover and composition of canopy, shrub, and groundcover. The February 14, 2012, submittal included the following description of mitigation activities that differed from the conditions of the SJRWMD permit: The expected fire frequency for the hydric pine restoration areas to be a 1-3 year cycle, with actual burn frequency to be in the professional judgment of the burn manager and team ecologists. Further description of the low water crossings and structures. Since Ms. Bersok utilized the November 22, 2011, submittal, along with the information provided by Highlands Ranch on February 14, 2012, her review and analysis necessarily included the above-listed mitigation activities and target conditions. Ms. Bersok made assumptions designed to produce high quality outcomes that, at the time of her review, had not yet been incorporated as conditions to any proposed permit. Her assumptions/recommendations included the following: In those locations without sufficient pyrogenic groundcover, mechanical means of shrub reduction to carry a fire, and planting or seeding of the native ground cover to achieve and sustain the target community type. Planting of longleaf pine in the xeric (U1) and mesic (U2) communities, and similar mitigation in the hydric pine restoration (W1 and W2) assessment areas. Ms. Bersok‘s assumptions were ultimately incorporated in the DEP draft permit. Ms. Bersok‘s analysis included the ?one-step? approach to application of the preservation factor, wherein preservation was included as an element of enhancement in restoration or enhancement assessment areas, rather than as a separate factor, consistent with the approach outlined in the June 15, 2011 Guidance Memo. Thus, for the assessment areas that were not exclusively bay or floodplain preservation, the ?P-Factor? score was listed as ?n/a.? Ms. Bersok utilized the ?performance-driven? approach as instructed by Mr. Littlejohn. Therefore, her February 22, 2012, assessment assigned a score of 1.00 for both time lag and risk. As a result of her calculations, Ms. Bersok arrived at a total of 280.33 mitigation credits for the HRMB. Ms. Bersok‘s February 22, 2012, score of 280.33 credits incorporated all of the material changes to the SJRWMD permit that were proposed by Highlands Ranch in its complete application, and the material specific conditions that were ultimately included in the DEP proposed permit. The only changes to the SJRWMD permit that were not explicitly part of Ms. Bersok‘s calculation, either as a proposal by the applicant or as an assumption, were: two consecutive burns within a period of 1-3 years in the xeric, mesic, and hydric pine restoration areas to demonstrate final success. monitoring and recording of shrub height to meet success criteria. control of oak species ?to obtain the abundance appropriate to the sandhill community condition.? Those relatively minor changes are not significant in light of the overall information presented in the complete application and Ms. Bersok‘s accepted assumptions, and do not materially affect the final target conditions for the mitigation. Several days prior to May 8, 2012, Ms. Bersok met with Mr. Rach and Mark Thomasson to discuss progress on the application and draft permits. At that time, she reviewed a UMAM assessment that assigned 333 mitigation credits to the HRMB. She was instructed ?to look for some more credits, that [333 credits] wasn't enough.? Ms. Bersok advised Mr. Rach and Mr. Thomasson that 333 mitigation credits was more than could be ecologically supported.4/ On May 8, 2012, Mr. Rach presented Ms. Bersok with a draft pilot permit that called for the award of 424 mitigation credits for the HRMB. Mr. Rach was unable to identify who in the Department calculated the UMAM credits, but that ?the credits which were the result of the UMAM were one of the last things filled in in the permit. So I'm not sure at that point in time who it was.? On May 9, 2012, Ms. Bersok prepared a ?status memo? in which she expressed her opinion that she could not ecologically support the award of 424 mitigation credits for the HRMB, and expressed her ?objection to the intended agency action and refusal to recommend this permit for issuance.? On May 11, 2012, Ms. Bersok was removed from further involvement in the review of the HRMB permit application. Issuance of the DEP Permit and Variance Over the course of the next three months, the Department and Highlands Ranch had several meetings in which they developed the performance standards and ?success criteria? that would be applied to allow for the release of mitigation credits. The meetings included additional site visits. There was no evidence that the additional site visits revealed conditions of the site that were inconsistent with those set forth in the complete application. During the course of the hearing, it was suggested that ?additional activities [were] proposed? during the period when the permit application was being processed. There were, in this case, no requests for additional information, no written submittals memorializing any such additional activities, and no evidence of any alteration or amendment of the complete application. Those ?additional activities? were not specified or described during the final hearing. To the extent that the Department or Highlands Ranch purports to rely on unspecified ?additional activities? that are not contained in the application or the permitting file, or otherwise presented as evidence to support issuance of the permit, they may not be considered as part of the record of this proceeding. On August 17, 2012, the Department issued its Notice of Intent to Issue Environmental Resource/Mitigation Bank Permit and Variance (Notice) and draft permit that awarded 424.81 mitigation credits for the HRMB. The number of credits awarded by the Department ?was a collaborative effort with the Applicant over the course of several meetings,? with Mr. Thomasson ultimately signing off and agreeing to the final scores. The Notice provided that the UMAM assessment of the HRMB Property showed ?a potential of 424.81 total freshwater credits: 207.31 Hydric Flatwoods/Wet Prairie credits and 217.50 Freshwater Forested wetlands credits.? Thus, the credits awarded to the HRMB may be purchased and applied at impact sites in the MSA to offset 207.31 units of functional loss associated with hydric flatwoods and wet prairies, and 217.50 units of functional loss associated with freshwater forested wetlands. The 426.05 credits proposed by Highlands Ranch in the November 22, 2011 application were derived by calculating 291.99 credits for restoration of the upland pine assessment areas, 73.78 credits for restoration of the hydric pine assessment areas (thus 365.77 credits for restoration of overall pine assessment areas), 15.40 total credits for enhancement and restoration of floodplain, bottomland, and bay assessment areas, and 37.65 credits for preservation of floodplain and bay assessment areas. The 425.81 credits awarded by the Department were derived by calculating 317.64 credits for restoration of the upland pine assessment areas, 52.06 credits for restoration of the hydric pine assessment areas (thus 369.70 credits for restoration of overall pine assessment areas), 15.35 total credits for enhancement and restoration of floodplain, bottomland, and bay assessment areas, and 39.75 credits for preservation of floodplain and bay assessment areas. The number of credits awarded by the Department is roughly identical to the number requested by Highlands Ranch in the 2010 SJRWMD proceeding (425 credits), the number requested by Highlands Ranch in the November 1, 2012, application for modification of the SJRWMD permit (426.05 credits), the number requested by Highlands Ranch in the November 22, 2011 DEP permit application (426.05 credits), and the number preliminarily calculated by the Department and provided to Ms. Bersok on May 8, 2012 (424 credits). Credit Release Schedule Section 373.4136(5) provides that: SCHEDULE FOR CREDIT RELEASE.— After awarding mitigation credits to a mitigation bank, the department or the water management district shall set forth a schedule for the release of those credits in the mitigation bank permit. A mitigation credit that has been released may be sold or used to offset adverse impacts from an activity regulated under this part. The department or the water management district shall allow a portion of the mitigation credits awarded to a mitigation bank to be released for sale or use prior to meeting all of the performance criteria specified in the mitigation bank permit. The department or the water management district shall allow release of all of a mitigation bank‘s awarded mitigation credits only after the bank meets the mitigation success criteria specified in the permit. The number of credits and schedule for release shall be determined by the department or water management district based upon the performance criteria for the mitigation bank and the success criteria for each mitigation activity. The release schedule for a specific mitigation bank or phase thereof shall be related to the actions required to implement the bank, such as site protection, site preparation, earthwork, removal of wastes, planting, removal or control of nuisance and exotic species, installation of structures, and annual monitoring and management requirements for success. In determining the specific release schedule for a bank, the department or water management district shall consider, at a minimum, the following factors: Whether the mitigation consists solely of preservation or includes other types of mitigation. The length of time anticipated to be required before a determination of success can be achieved. The ecological value to be gained from each action required to implement the bank. The financial expenditure required for each action to implement the bank. Notwithstanding the provisions of this subsection, no credit shall be released for freshwater wetland creation until the success criteria included in the mitigation bank permit are met. Florida Administrative Code Rule 62-342.470(3) allows for the release of credits prior to final success criteria having been met, and provides that: Some Mitigation Credits may be released for use prior to meeting all of the performance criteria specified in the Mitigation Bank Permit. The release of all mitigation credits awarded will only occur after the bank meets all of the success criteria specified in the permit. The number of credits and schedule for release shall be determined based upon the performance criteria for the Mitigation Bank, the success criteria for each mitigation activity, and a consideration of the factors listed in subsection 373.4136(5), F.S. However, no credits shall be released until the requirements of Rules 62-342.650 and 62.342.700, F.A.C., are met. Additionally, no credits awarded for freshwater creation shall be released until the success criteria included in the Mitigation Bank Permit are met. Prior to achieving the final success criteria, Highlands Ranch will be eligible for interim credit releases when the ?success criteria? for each phase as set forth in the permit are met. The mitigation credits are scheduled for release as follows: Conservation Easement/Financial Assurance/Security Phase 1 - 23.45 credits Phase 2 - 21.78 credits Phase 3 - 18.49 credits Interim Criteria I Phase 1 - 39.09 credits Phase 2 - 36.29 credits Phase 3 - 30.82 credits Interim Criteria II-A Phase 1 - 9.38 credits Phase 2 - 8.71 credits Phase 3 - 7.40 credits Interim Criteria II-B Phase 1 - 3.13 credits Phase 2 - 2.90 credits Phase 3 - 2.47 credits Interim Criteria III Phase 1 - 32.83 credits Phase 2 - 30.49 credits Phase 3 - 25.89 credits Interim Criteria IV Phase 1 - 28.14 credits Phase 2 - 26.13 credits Phase 3 - 22.19 credits Final Success Criteria by Phase Phase 1 - 12.51 credits Phase 2 - 11.61 credits Phase 3 - 9.86 credits Final Bank Success Criteria - 21.25 credits The tasks related to Phase 1 are targeted to commence upon permit issuance, with active management activities -- i.e., recording the conservation easement, providing title insurance, executing financial assurance mechanisms, and providing security; and enhancement activities, e.g., tree thinning, crushing bedding rows, planting, and activities relating to trail roads and culverts -- to be completed within one year. The evidence indicates that some of the management activities, including tree thinning and crushing bedding rows were completed prior to the submission of the application for the DEP Permit. The tasks related to Phase 2 and Phase 3 are targeted to commence upon ?phase implementation,? with active management and enhancement activities within one year of the implementation of each phase. The application provides that the implementation date for Phase 2 and Phase 3 ?will be based upon market demand for mitigation within the mitigation service area.? Thus, the phases could be implemented immediately, or not at all, at the sole discretion of Highlands Ranch. The HRMB mitigation milestones that allow for interim releases of mitigation credits prior to the final success of the target communities and measures for which the bank was scored under the Part II assessment do not materially differ from standards for interim releases applicable to all mitigation banks pursuant to section 373.4136(5) and Florida Administrative Code Rule 62-342.480(3). In addition to the foregoing, though not dispositive of the issue, is the fact that the ?success criteria? in the HRMB permit are, in many cases, vague and non-quantifiable. Thus, in the absence of specific standards and comparators, the HRMB success criteria may allow for the release of credits to offset present wetland impacts without any specific or measurable ecological benefit. Application of the Time Lag Factor The Department calculated the credits for the HRMB using a time lag score of 1.00 for all assessment areas. Thus, in keeping with the UMAM, the Department necessarily made the decision that at the time of the interim releases, ?the mitigation fully offsets the anticipated impacts prior to or at the time of impact.? Meeting the ?success criteria? for an interim release of credits does not mean that the mitigation bank has met the success measures for which the bank was scored under the Part II assessment. Rather, meeting the ?success criteria? serves only to recognize that the project is meeting interim goals that show general progress towards the target goals if continued and successful into the future. In this case, there is a time difference between the achievement of the ecological benefits of the final target community, and the interim release of mitigation credits and their use to offset impacts at sites requiring mitigation. There is little practical ecological difference between releasing credits before final target communities are achieved based on ?success criteria? that are the result of implementing described activities, and releasing credits based on the physical implementation of those described activities. The effect in both cases is that mitigation credits are to be released during the ?time between when the functions are lost at an impact site and when the site has achieved the outcome that was scored in Part II.? There was testimony offered at the final hearing that the Department‘s time lag and risk scores of 1.00 were appropriate because the credit release schedule represents functional ecological improvement that must be achieved before credits are released. For the reasons set forth above, the undersigned finds that the functional ecological improvement represented by the ?success criteria? is not materially dissimilar from the means by which the ecological value of interim release milestones has been calculated for previously permitted and implemented mitigation banks. Thus, testimony that the success criteria as proposed in the DEP Permit warrants time lag and risk scores of 1.00 is not credited. Contrary to the evidence referenced in the preceding paragraph, Mr. Hull testified convincingly that there is a sizable percentage of credits released prior to the mitigation bank reaching the success proposed for many of the restoration assessment areas without time lag or risk. An example of time lag that should be applicable to the HRMB is the fact that final success for all assessment areas includes, among other criteria, the requirement that all plants, except those targeted for control or eradication, be reproducing naturally. In the case of longleaf pine, which is to be planted throughout the Property, the period before the achievement of that outcome is approximately 30 years. Furthermore, Ms. Bersok testified credibly that when starting with a community that has few ecological functions, the time necessary to ultimately achieve a high community structure score can take much longer than 15 to 20 years. That period before final success should have been reflected as time lag in the UMAM assessment, but was not. In accordance with the schedule proposed by Highlands Ranch, a significant number of the total credits awarded for the three phases may be released within one year of permit issuance. In that regard, the ?CE/Financial Assurance/Security? interim release allows for a three-phase total of 63.72 credits to be released for that interim step, estimated to occur within 30 days of permit issuance or phase implementation, while Interim Criteria I allows for a three-phase total of 106.20 credits to be released for that interim step, estimated to occur within one year of permit issuance or phase implementation. Thus, 169.92 of 425.81 credits, or 40 percent of the total, are potentially eligible for release within a short period, and years before any reasonable expectation of final target community success. It is that circumstance that squarely meets the standards for the application of the time lag factor. Based on the testimony and evidence adduced at the final hearing, the calculation of credits for the HRMB without accounting for the time lag before final success produces an unreasonable result, regardless of the application of the "performance-driven" approach that was created for the HRMB by the Department.5/ Thus, the decision to assign a time lag score of 1.00 to each of the restoration assessment areas is contrary to the facts of this case, and the plain language of the UMAM rule and its requirements. Application of the Risk Factor The Department calculated the credits for the HRMB using a risk score of 1.00 for all assessment areas. Thus, pursuant to the UMAM, the Department made the decision that the mitigation projects require no significant ?periods of time to replace lost functions or to recover from potential perturbations,? and that the mitigation activities are being ?conducted in an ecologically viable landscape and deemed successful or clearly trending towards success prior to impacts.? As set forth in preceding paragraphs, there is a sizable period of time between the interim release of credits - and their availability to replace lost functions at permitted impact sites -- and the time at which the mitigation has been established and monitored to the point at which it is ?clearly trending towards success.? Thus, a risk score of 1.00, meaning that there is essentially no risk, is not warranted. The risk in this case is that associated with the fact that the ?mitigation projects . . . require longer periods of time to replace lost functions or to recover from potential perturbations.? Although there were concerns expressed that the proposed activities might have heightened risk inherent in the mitigation methods, the testimony on that issue was vague and non-specific, and is not accepted. Based on the testimony and evidence adduced at the final hearing, the failure to account for the risk associated with the extended period of time expected before final restoration and enhancement success is not warranted, regardless of the application of the "performance-driven" approach. Thus, the decision to assign a risk score of 1.00 to each of the restoration assessment areas is contrary to the facts of this case, and the plain language of the UMAM rule and its requirements. Application of the Preservation Adjustment Factor The DEP Permit applied the preservation factor as a ?one-step? process as described above. Under that method, the PAF was not separately applied in any restoration or enhancement assessment area. That method was applied by Ms. Bersok in her February 22, 2013, UMAM scoring of the HRMB complete application. A PAF of 0.70 was applied to both of the preservation assessment areas. That score was also applied by Ms. Bersok in her February 22, 2013, UMAM scoring of the HRMB complete application. The ?one-step? application of the PAF was an allowable method under the UMAM rule. Petitioner failed to prove that the score of 0.70 for the preservation assessment areas was not warranted. Variance from Construction and Implementation Financial Responsibility Requirement Section 373.4136 provides that, in order to obtain a mitigation bank permit, an applicant must meet the financial responsibility requirements established by rule. § 373.4136(10), Fla. Stat. As it relates to financial responsibility for the construction and implementation of a mitigation bank, Florida Administrative Code Rule 62-342.700(4) provides, in pertinent part, that: Financial Responsibility for Construction and Implementation. No financial responsibility shall be required where the construction and implementation of the Mitigation Bank, or a phase thereof, is completed and successful prior to the withdrawal of any credits. * * * . . . When the bank (or appropriate phase) has been completely constructed, implemented, and is trending toward success in compliance with the permit, the respective amount of financial responsibility shall be released. The financial responsibility mechanism shall become effective prior to the release of any mitigation credits. Section 120.542(2) provides that: (2) Variances and waivers shall be granted when the person subject to the rule demonstrates that the purpose of the underlying statute will be or has been achieved by other means by the person and when application of a rule would create a substantial hardship or would violate principles of fairness. For purposes of this section, ?substantial hardship? means a demonstrated economic, technological, legal, or other type of hardship to the person requesting the variance or waiver. For purposes of this section, ?principles of fairness? are violated when the literal application of a rule affects a particular person in a manner significantly different from the way it affects other similarly situated persons who are subject to the rule. On July 16, 2012, Highlands Ranch filed a petition with the Department for a variance from the financial responsibility requirements of rule 62-342.700 for the construction and implementation activities of Highlands Ranch Mitigation Bank.6/ In its ?Petition for Variance from Rule Subsections 62-342.700(1)(a), (2), (3) and (4), F.A.C.?, Highlands Ranch requested that the variance be granted on the basis that the application of the rule would create a substantial hardship. Highlands Ranch did not assert that the application of the financial responsibility rule would violate principles of fairness. As indicated previously, the proposed permit authorizes a release of credits when Highlands Ranch records the conservation easement, provides title insurance, executes financial assurance mechanisms, and provides security. Thus, the proposed HRMB permit authorizes the release of mitigation credits prior to any construction being commenced, much less completed. Although certain interim criteria must be met in order for additional mitigation credits to be released, those interim steps do not constitute success of the target conditions scored under the Part II Assessment or, without more, demonstrate that the mitigation is ?trending toward success? in meeting those final target conditions. Financial assurance is required for construction and implementation activities at all mitigation banks, and may not be released until the mitigation ?is trending toward success in compliance with the permit.? Highlands Ranch asserts that the unique ?performance-driven? approach that has been applied to the HRMB warrants a deviation from the requirement that it financially guarantee the work. To the contrary, the financial responsibility required by rule provides assurance that the active construction and implementation is performed and, as would be the case with the ?performance-driven? approach, may be released only when the expected outcomes are trending towards success. Without question, any time a permitee is required to provide financial responsibility, it will have a financial effect on the permittee. However, the standard for a variance requires that the financial effect constitute a hardship to the person requesting the variance. In this case, Highlands Ranch failed to demonstrate that meeting the financial responsibility requirements applicable to all mitigation bank permittees would constitute an economic, technological, legal, or other type of hardship as applied to it. Highlands Ranch did not request a variance on the basis that the application of the financial-responsibility rule would violate principles of fairness. Nonetheless, the Department determined that ?principals of fairness? warranted its grant of the variance. For the reasons set forth herein, including the fact that the financial-responsibility instruments required of all permittees may be released only when the mitigation ?is trending toward success in compliance with the permit,? the undersigned finds that the financial-responsibility rule does not affect Highlands Ranch in a manner significantly different from the way it affects other similarly situated persons who are subject to the rule. Highlands Ranch failed to demonstrate that the application of Florida Administrative Code Rule 62-342.700(4) would create a substantial hardship or would violate principles of fairness as applied to Highlands Ranch and the HRMB. Highlands Ranch‘s Motion for Attorney‘s Fees and Costs Based on the evidence adduced in this proceeding, the undersigned finds that Petitioner did not participate in this proceeding for an improper purpose. In that regard, Petitioner is found to have prevailed on certain issues that substantially changed the outcome of the proposed agency action which is the subject of this proceeding regarding both the DEP Permit and the Variance. Furthermore, despite the evidence provided as to the source of payment for certain of Petitioner‘s costs and attorney‘s fees, there was insufficient evidence to support a finding that Petitioner brought this action ?primarily to harass or to cause unnecessary delay or for frivolous purpose or to needlessly increase the cost of litigation, licensing, or securing the approval of an activity.? § 120.595(1)(e)1., Fla. Stat. Ultimate Findings of Fact Based on the totality of the facts adduced at the final hearing, having weighed the evidence introduced by each of the parties, and having gauged the demeanor and credibility of the witnesses, the undersigned accepts the testimony of Ms. Bersok as constituting the most credible and reliable application of reasonable scientific judgment, resulting in an accurate calculation of the allowable credits (except as modified below) that may be awarded under the standards established by the UMAM rule. The competent and substantial evidence available to Ms. Bersok, including the complete application submitted by Highlands Ranch, and her assumptions that were ultimately incorporated in the DEP proposed permit, are found to have been sufficient to allow her to formulate reasoned opinions and conclusions regarding the number of mitigation credits that could be ecologically justified in this case. Therefore, the undersigned finds that the application of the UMAM standards to the HRMB property and the restoration, enhancement, and preservation activities to take place thereon, warrants an award of a maximum of 280.33 mitigation credits. Based on the testimony and evidence adduced at the final hearing, and as set forth herein, the undersigned finds that the facts of this case, including the ?performance-driven? approach that was developed for and applied to the HRMB application, do not warrant a determination that there is no time difference between the time wetland impacts being mitigated by released mitigation credits are anticipated to occur and the time when the mitigation is anticipated to fully offset the impacts. Based thereon, the application of a time lag score of 1.00 in the UMAM assessment was in error. Thus, the 280.33 mitigation credits that reflect the maximum allowable number should be revised by applying an appropriate time lag modifier to the ?delta? for each restoration and enhancement assessment area as calculated by Ms. Bersok, with the RFG and final credits calculated based thereon. Based on the testimony and evidence adduced at the final hearing, and as set forth herein, the undersigned finds that the facts of this case do not warrant a determination that there is no uncertainty that there may be a reduction in the ecological value of the mitigation assessment area. That finding is based on the length of time expected before final success, rather than any inherent vulnerability of the target communities. Based thereon, the application of a risk score of 1.00 in the UMAM assessment was error. Thus, the 280.33 mitigation credits that reflect the maximum allowable number should be revised by applying an appropriate risk modifier to the ?delta? for each restoration and enhancement assessment area as calculated by Ms. Bersok, with the RFG and final credits calculated based thereon. For the reasons set forth herein, Highlands Ranch failed to demonstrate that it was entitled to a variance from the financial responsibility requirements of Florida Administrative Code Rule 62-342.700.
Recommendation Based on the findings of fact and conclusions of law, it is RECOMMENDED that the Department of Environmental Protection enter a final order consistent with the findings of fact and conclusions of law set forth herein. DONE AND ENTERED this 11th day of April, 2013, in Tallahassee, Leon County, Florida. S E. GARY EARLY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 11th day of April, 2013.
