The Issue By a Notice to Show Cause filed in the above-styled cases, the Petitioner seeks to suspend or revoke the Certificate of Qualification and license issued to Homer (Glen) Leonard Wade, d/b/a American Collection Systems, Inc., Respondent to operate a collection agency for conduct of violative of provisions of provisions of Chapter 559, Florida Statutes; namely -- Threatening to communicate or communicating with a debtor's employer prior to obtaining a final judgment against the debtor or without securing the debtor's written permission in violation of section 559.72(4), Florida Statutes. Collecting or attempting to collect from a debtor or debtors a fee for collection services without authorization to do so in violation of Section 559.75(5), Florida Statutes. Communicating orally or in writing, with a debtor in such a manner as to give the false impression or appearance that the licensee or his agent was an attorney or was associated with an attorney in violation of Section 559.72(12), Florida Statutes. Claiming, attempting or threatening to enforce a consumer claim when knowing the right to collect such claim did not exist in violation of Section 559.72(9), Florida Statutes. While not part of Petitioner's Notice to Show Cause, the issue of Petitioner's jurisdictional authority to revoke or suspend Respondent's license and certificate was raised by its Motion to Dismiss filed herein. NOTICE In that a recommended order was submitted by the hearing officer who conducted the hearing in the instant case and upon consideration of said recommended order the agency intends to reject certain findings of fact and reject or modify certain conclusions of law, it states that such was done only after reviewing the entire record consisting of the specific documents required under Section 120.57(1)(b)(5).
Findings Of Fact Based upon my observation of the witnesses and their demeanor while testifying, the arguments of counsel, and the briefs submitted by the parties, the following relevant facts are found. During times materiel herein, Homer (Glen) Leonard Wade, d/b/a American Collection Systems, Inc., has been continuously issued a Certificate of Qualification to operate a collection agency in this State pursuant to Chapter 559, Florida Statutes. At the outset of the hearing, Respondent's counsel contested the Petitioner's jurisdiction to take administrative action to suspend or revoke the Respondent's Certificate of Qualification or license issued pursuant to Chapter 559, Florida Statutes, Part IV, on the basis that Section 559.79, Florida Statutes (1977), provides in pertinent part that only a circuit court and not an administrative agency has the express statutory authority to suspend or revoke certificates of qualification or licenses issued pursuant to Chapter 559, Florida Statutes. After reviewing the arguments and the citations of authorities, the undersigned concludes that the Petitioner is vested with the implied authority to specify conditions under which such certificates (licenses) shall be held and revoked, and such appears to be in keeping and necessarily implied from the power to issue a certificate and thus is in keeping with the necessary and broad power granted to Petitioner to issue certificates. It is thus concluded that the power to issue certificates in this instance carries with it the power to specify the terms and conditions of the issuance, as well as terms and conditions upon which the same may be held or revoked. See, for example, State Board of Education v. Nelson, So.2d 1979, Florida Law Weekly, 880 (1st DCA 1979), and 1 FIa.Jur.Prud., 2nd Adm.Law, 21. In Case No. 78-2428, the Petitioner, in support of its Notice to Show Cause, alleges that the Respondent engaged in the following: On or about January 15, 1976, the Respondent/Licensee or an agent of the Respondent/Licensee, did violate Subsection 559.72(7), Florida Statutes, by willfully communicating with Debtor David Gottlieb or a member of his family with such frequency as to harass the debtor or his family and willfully engaged in other conduct which could reasonably be expected to abuse or harass the debtor or a member of his family during the course of collection agency activity. On or about January 21, 1976, the Respondent/Licensee or an agent of the Respondent/Licensee, did violate Subsection 559.72(5), Florida Statutes, by disclosing to a person other than David Gottlieb or his family information affecting the reputation of Mr. Gottlieb whether or not for credit worthiness, with knowledge or reason to know that the other person did not have a legitimate business need for the information. On or about July 12, 1970, Respondent, American Collection Systems, Inc., by or through its agent, servant or employee did communicate or threaten to communicate with the employer of Mr. Donald Terry, a consumer, prior to obtaining final judgement against Mr. Terry without Mr. Terry having given his permission in writing to contact his employer or having acknowledged in writing the existence of the debt after that debt had been placed for collection in violation of Subsection 559.72(4), Florida Statutes. On or about April 9, 1976, Respondent, American Collection Systems, Inc., by or through its agent, servant or employee did communicate or threaten to communicate with the employer of Mr. James T. Redington, a consumer, prior to obtaining final judgement against Mr. Redington and without Mr. Redington having acknowledged in writing the existence of the debt after that debt had been placed for collection in violation of Subsection 559.72(4), Florida Statutes. On or about April 9, 1976, Respondent, American Collection Systems, Inc., by or through its agent, servant or employee did orally communicate with a consumer, Mr. James T. Redington, in such a manner as to give the false impression or appearance that its agent, servant or employee was associated with an attorney in violation of Subsection 559.72(12), Florida Statutes. On or about August 24, 1976, Respondent, American Collection Systems, Inc., did claim, attempt or threaten to enforce a consumer claim against Ms. Patricia M. Tracey when it, its agents, servant or employee knew the claim was not legitimate or that the right to collect the consumer claim did not exist in violation of Subsection 559.72(9), Florida Statutes. Thereafter, in Cases Nos. 79-910 and 79-911, the parties stipulated that the controversy involves a legal question as to whether or not the Respondent is authorized to exact a fee, an amount agreed to be computed at the rate of 6 percent simple interest, which amount was added to the amount Respondent attempted to collect from each of the debtors cited in the Notice to Show Cause herein is permissible under Subsection 559.75(5), Florida Statutes. J. Lymon Babcock, Jr., is Petitioner's investigator who conducts background investigations for collection agency applications. He has custody of the license end records and is familiar with the Respondent's licensing entity, American Collection Systems, Inc. Babcock testified that Respondent was first licensed on or about January 26, 1973, and has continued to hold a license since that time. Respondent's certificate has been renewed annually and audit numbers are changed when the annual renewal is furnished. (See Petitioner's Exhibits 1 and 2 composites.) On or about August 10, 1976, Respondent, by letter of the same date, advised John and Patricia Tracey of Coral Springs, Florida, that they owed a Dr. Jorge $149.60 and requested payment in the full amount at his office within five days to avoid the exaction of additional court costs and other legal expenses. (Petitioner's Exhibit 4 composite.) Ms. Tracey appeared at the hearing and testified that she spoke to an unidentified female employee of Respondent and a Mr. Hawk and a Mr. Richards, who also requested payment of the $149.00 as set forth in the demand letter of August 10, 1976. At that time, the Tracey's testimony was that they had also been contacted by Respondent and Broward Adjustment Bureau for the same indebtedness to Dr. Jorge which, according to their records, reflected an amount owing of $136.00. The Traceys received a second letter from Respondent on September 8, 1976, from Mr. Richards, the General Manager, and Bruce L. Glaskin, attorney for Respondent. (Petitioner's Exhibits 6 and 7.) Both letters also requested payment within five days of the date of the letters. The Traceys testified that they had made arrangements with Broward Adjustment to pay the indebtedness in two monthly installments of $68.00 each. The Traceys contacted Consumer Affairs prior to the time that they received the last demand letter from Respondent and it appears that the indebtedness had been paid by October 12, 1976. (See Petitioner's Exhibits 3, 4, 5, 6, 7 and 8.) On cross-examination, the Traceys acknowledged that the debt was a legitimate debt which was due and owing and that they never notified the Respondent in writing that the debt had been paid to either Dr. Jorge or the Respondent. Maxine Hughey is employed by Rolando Jorge, M.D., P.A., in the collection department primarily in the workmen's compensation collection section. Ms. Hughey testified that she turned the Tracey account over to Respondent sometime during 1970. It appears that after the Traceys advised Respondent that they had been contacted by another collection service for payment of the same indebtedness to Dr. Jorge, Mr. Godette of Respondent's office advised Ms. Hughey that Respondent was still working the Tracey account for Dr. Jorge. Ms. Hughey advised Respondent by letter dated August 11, 1976, that the accounts for Dr. Jorge had been withdrawn from the Respondent verbally during mid-September, 1974. Ms. Hughey testified that she withdrew the collection accounts of Dr. Jorge from Respondent due to the slow recovery on collections. (See Petitioner's Exhibits 9 and 10.) Ms. Hughey spoke to Respondent, Homer (Glen) Leonard Wade, during August or September, 1976, and inquired of Respondent why he was working the Tracey account. Respondent replied that Dr. Jorge had not withdrawn the accounts that had been assigned to him and that for him (Dr. Jorge) to assign the accounts to anyone without prior contact and arrangement with Respondent would subject Dr. Jorge to a legal suit. On cross-examination, Ms. Hughey testified that the Tracey account was turned over to Respondent during December, 1973, and that Broward adjustment received two payments from the Traceys account on September 15, 1976, and October 26, 1976. She also testified that she formally notified Respondent that Dr. Jorge was withdrawing the accounts assigned to Respondent during 1974. In this regard, no written evidence was offered establishing that any attempt at withdrawal of accounts was sent to Respondent until the letter dated August 11, 1975, was mailed by Ms. Hughey allegedly per instructions from Dr. Jorge. Ms. Hughey forwarded a copy of the letter to Mr. Godette of Consumer Services on or about August 25, 1976, when she received inquiry from the Traceys referencing the demand letters the Traceys had received from the Respondent. In this regard, Respondent introduced a copy of its collection procedures which was submitted to all its clients and prospects. Respecting Respondent's collection procedures, paragraph 2A provides in pertinent part that: We will close any account to you upon your request after listing, with these exceptions: (1) Those paying (2) Those promised to pay (3) Forwarded accounts (4) Those accounts in law or hands of attorney and of course, those we have reduced to judgements for you. (Respondent's Exhibit 1.) James Redington, an engineer for Motorola, appeared and testified that he received demand letters requesting collections from Respondent during January, 1976. Mr. Redington acknowledged a past-due account with Dr. Jacobsen. Mr. Redington testified that "Bob Cash", one of the Respondent's aliases, called him at work and inquired when his delinquent bill would be paid. According to Redington, after receiving two calls from "Bob Cash", he was advised by "Cash" that Respondent was holding a check payable to Dr. Jacobsen which was returned for insufficient funds. Thereafter, in April, 1976, Redington received another call from a Mr. Richardson, who was then Respondent's General Manager, who advised Mr. Redington that there was an outstanding warrant which had been issued due to the outstanding sufficient insufficient funds check made payable to their client, Dr. Jacobsen, and requested that payment be made immediately or the Sheriff would serve the warrant. Redington immediately went to Respondent's office and spoke to "Bob Cash", who advised that Richardson, Respondent's General Manager, had called. Redington tendered "Cash" a money order for the indebtedness and requested that the returned check be given to him. Redington had no further contact with Respondent, although the Sheriff did serve the warrant on him at work. Donald Terry, an instructor at Plantation High School, received a demand letter from Respondent during the summer of 1976 for a $48.00 indebtedness he owed a Dr. Segal. Mr. Terry received a phone call from a representative of Respondent advising him that if he did not make arrangements to pay the indebtedness owed Dr. Segal, the Respondent would "take him to court." Terry testified that within two days he received another call from an employee of Respondent who advised that if he did not pay his indebtedness, his employer would be contacted. Terry received a copy of the letter which, in his opinion, had been mailed to his employer. The letter was received from Respondent at Plantation High School. (Petitioner's Exhibits 12 and 13.) Additionally, Mr. Terry received another demand letter inquiring of the Segal's indebtedness in the mail. (Petitioner's Exhibit 14.) On cross-examination, Terry testified that the letter was not distributed at the school and that he paid the indebtedness in full the following year, which was a legitimate debt owed to Dr. Segal. Derrick Costa, Respondent's manager, was first employed during 1974 and since 1976, has served as a quasi-manager. Costa testified that the name changed from American Collection Service to American Collection Systems, Inc., during September or October of 1976. He testified that at all times material, Wade had ultimate responsibility and authority for the operation of both American Collection Service and American Collection Systems, Inc. Costa expressed familiarity with the Redington account and testified that he worked the account, which was due for Dr. Jacobsen. Costa testified that he never threatened to contact Mr. Redington's employer nor had he violated in any manner Chapter 559, Florida Statutes. On redirect examination, Costa testified that true names were never used when dealing with debtors and that the aliases such as "Richards", "Cash", etc., are used extensively in a collection business. Petitioner also introduced into evidence copies of a letter which had been forwarded to Irving Weislander of Sunrise, Florida, and Jeanette Mims of Boca Raton, Florida. According to Petitioner, these letters were intended as a threat and mailed to the above-named debtors' employers. (See Petitioner's Exhibits 15 and 16.) Another letter of the same type was mailed to James Fannin of Lauderdale Lakes, Florida. (See Petitioner's Exhibit 17.) Homer (Glen) Leonard Wade, Respondent, appeared and testified in his own behalf. Wade heard Costa's testimony and adopted it in all respects. Respondent testified that he never threatened Redington or Terry, nor did be indicate to them that he would contact their employers. He testified that he never held himself out as an attorney with Redington. Respondent testified that he has a collections manual which is given to all employees and that that manual sets forth in vivid detail, the practices and procedures utilized in collecting accounts assigned to him. He testified that new employees are oriented respecting the do's and don'ts of the collection business for approximately four days and they are administered a test on the fifth day. The employees are assigned collection tasks only if they pass the examination. Respondent stressed that he apprises new employees that both the "spirit" and "letter" of the law must be adhered to rigidly. Respondent testified that he uses the "gag" of long distance calls on occasion as the situation dictates. He testified that it is not improper to engage in such gags in the collection business. He testified that the gag of making a long distance telephone call was used in the case wherein the James T. Redington account was serviced because, in his personal opinion, a review of Redington's credit history file revealed that his account was in fact collectible. Respondent has serviced the collection accounts for Dr. Jorge since approximately 1973. A problem in the servicing of Dr. Jorge's accounts when he was unable to pick up same accounts that Dr. Jorge wanted serviced one day during 1973. According to Respondent, there was never any conversations with Dr. Jorge respecting termination of his contract with him, nor did Dr. Jorge ever write him a letter advising that he wanted to terminate his contract with Respondent. Respondent has been engaged in business since 1951. CASE NOS. 79-910; 79-911 The Petitioner has alleged that the Respondent violated Subsections 559.72(4) and 559.72(5), Florida Statutes, by its allegation dent Respondent has either communicated or threatened to communicate with the employers of debtors without first obtaining the debtors' written permission to do so and by sending certain demand letters to debtors demanding payment of sums which are in excess of the original amount of the debt. Respecting the allegation that the Respondent has attempted to collect a fee violative of Subsection 599.75(5), Florida Statutes, the parties stipulate that the method of calculating the amount set forth in the demand letter is based on an amount less than 6 percent simple interest. The uncontroverted evidence clearly indicates that in every instance Respondent's letters to the debtors are for an amount in excess of the original obligation. However, the difference between the original amount of the debt and the amount sought to be collected, in each instance, falls below the permissible interest rate allowed by Section 687.01, Florida Statutes. Respondent gave sworn testimony that the excess amounts demanded represented interest and was not a collection fee. Both Subsections 559.75(1) and 687.01, Florida Statutes, provide for the calculation and collection of interest. Subsection 559.75(1), Florida Statutes, states in applicable part: Any payment made by a debtor to a collection agency shall be deemed to be made to the creditor and such payment shall be made in the following order: Court costs and attorney fees; Principal amount of the consumer claim and incurred interest; and Other legally chargeable fees. Additionally, Section 687.01, Florida Statutes, states: In all cases where interest shall accrue without a special contract for the rate thereof, the rate shall be 6 percent per annum, but parties may contract for a lesser or greater rate by contract in writing. Inasmuch as the language of Subsection 559.75(1), Florida Statutes, provides that a collection entity such as Respondent is permitted to charge interest at the legal rate for all debts collected and inasmuch as all of the requested sums fall within the prescribed rate of interest, it can only be concluded that such was a legally chargeable rate of interest and not a fee for the collection of the debt which is passed on to the debtor. This is especially true in view of the sworn testimony of Respondent and/or its employees. Respecting the allegations that the Respondent either communicated or threatened to communicate with the employers of the debtors without first obtaining the debtors' written permission, the evidence reveals that Respondent's employees sent to the employee-debtor carbon copies of letters addressed to the employee's employer. The contents of the letters are demands to assist the Respondent in collecting a lawful debt owed by the debtor- employee. In all instances, the debtors acknowledged that the debts were in fact legal debts which had not been paid. The evidence also reveals that the original of the letters were never sent to the employers or anyone else and at no time did the debtors' employers ever receive the letter. It view thereof, it is impossible for the Respondent to have violated the cited statutes under its terms concerning "communication" with the debtors' employers. The remaining portion of the above allegation is to the effect that the Respondent "threatened to communicate with the debtor's employer. . .,". Under the above-referred to facts, it is impossible to "threaten" to do the act which the statutes proscribes. The Respondent's action herein is clearly not a "declaration of intention. . .to do an unlawful act." An intent to do an act evidences the accomplishment of it sometime in the future. Under the circumstances herein, any act in the mind of the debtor was clearly consummated. Nothing remained to be done and hence no threat was possible at the time the debtors received the communication from the Respondent. Although the debtor could only believe in his mind after reading the letter that the employer had already been contacted, which if said act had occurred, would be a violation of the statute, it cannot operate to take away the debtor's voluntary consent to allow Respondent to contact his employer. No such request or demand was made by the letter and, in fact, it never happened. In view thereof, and inasmuch as no future action remains to be done, the letter can in no way be interpreted as a threat in violation of Subsection 559.72(4), Florida Statutes.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is hereby, RECOMMENDED: That the allegations contained in the Notice to Show Cause filed herein be DISMISSED. RECOMMENDED this 26th day of September, 1979, in Tallahassee, Florida. JAMES E. BRADWELL, Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301 (904) 488-9675 COPIES FURNISHED: Francis Bayley, Esquire Division of Business Regulation 725 South Bronough Street Tallahassee, Florida 32301 Emerson Allsworth, Esquire and Charles L. Curtis, Esquire Allsworth, Doomar, Schuler, Padula & Laystrom, P.A. 1177 Southeast Third Avenue Fort Lauderdale, Florida 33310 ================================================================= AGENCY FINAL ORDER =================================================================
The Issue The issues are whether Respondent has made unauthorized payments to Superior Insurance Group, its corporate parent, and whether Respondent has properly disclosed these payments on its financial reports filed with Petitioner.
Findings Of Fact Respondent is a domestic stock insurance company operating under a certificate of authority to transact in Florida the business of property and casualty insurance. As a nonstandard automobile insurer, Respondent primarily deals with policyholders whose driving records and accident histories preclude their coverage by standard automobile insurers. Superior Insurance Group, Inc. (formerly GGS Management, Inc. (GGS)) owns Respondent; Symons International Group, Inc. (Symons) owns Superior Insurance Group, Inc. (Superior Group); and Goran Capital, Inc. (Goran) owns 73 percent of Symons. Although publicly traded, Goran was founded, and probably is still controlled, by the Symons family. Superior Group serves as Respondent’s managing general agent. GGS changed its name to Superior Group in early 2000; where appropriate, this Recommended Order refers to this entity as GGS/Superior Group. Respondent owns Superior American Insurance Company (Superior American) and Superior Guaranty Insurance Company (Superior Guaranty), which are both domestic stock insurance companies authorized to conduct in Florida the business of property and casualty insurance. Also engaged in the nonstandard automobile insurance business, Superior American and Superior Guaranty transfer all of their premiums and losses to Respondent under a reinsurance agreement. All financial information concerning Superior American and Superior Guaranty, which, for the purpose of this case, are mere conduits to Respondent, are included in the financial information of Respondent. On or about April 30, 1996, GGS acquired the stock of Respondent, as well as other assets, from an unrelated corporation, Fortis, Inc. or one of its subsidiaries. From the regulatory perspective, the acquisition started when, as required by law, on or about February 5, 1996, GGS filed with Petitioner a Form A application for Petitioner’s approval of the acquisition of Respondent. This was an extensive document, consisting of more than 1000 pages. One of the purposes of the application process, as described in Section 628.461, Florida Statutes, is to assure the adequacy of the funds used by the entity acquiring the insurer. The proposed acquisition is described by the Statement Regarding the Acquisition of More Than Five Percent of the Outstanding Voting Securities of Superior Insurance Company . . . by GGS Management, Inc., dated February 5, 1996 (Acquisition Statement). The Acquisition Statement states that GGS Management Holdings, Inc. owned GGS. (The distinction between GGS and GGS Management Holdings, Inc. is irrelevant to this case, so “GGS,” as used in this Recommended Order, shall also refer to GGS Management Holdings, Inc.) According to the Acquisition Statement, Symons owned 52 percent of GGS; GS Capital Partners II, L.P., owned 30 percent of GGS; GS Capital Partners II Offshore, L.P., owned 12 percent of GGS; and three mutual funds (probably all affiliates of Goldman Sachs) owned the remaining 6 percent of GGS. GS Capital Partners II, L.P., was owned by 100 investors, including The Goldman Sachs Group, L.P. (16.54 percent), “wealthy individuals and trusts, corporate pension funds, foundations and endowments, family trusts/corporations and one state pension fund.” The ownership of GS Capital Partners II Offshore, L.P., resembled the ownership of GS Capital Partners II, L.P. The Acquisition Statement states that GGS “will be the manager of all insurance operations for [Respondent] and will act as the holding company for [Respondent] and [an Indiana nonstandard automobile insurer known as Pafco whose stock Symons was contributing to GGS].” The Acquisition Statement projects the stock-purchase price, which was expressed as a formula, to be about $60 million. Citing the $2 billion in capital of the two Goldman Sachs limited partnerships and the $50 million in capital of Goran, the Acquisition Statement assures that “GGS has tremendous wherewithal to fund the growth needs of [Respondent] . . ..” Alluding to Goran’s 20 years’ experience in managing nonstandard automobile insurance companies, the Acquisition Statement represents that the Goldman Sachs limited partnerships and Goran “possess the capital and leadership resources to support the proposed activities of [Respondent].” According to the Acquisition Statement, the Goldman Sachs limited partnerships and Goran “anticipate that the acquisition of [Respondent] is but the first step in an effort to build a significant non-standard auto insurance company.” The Acquisition Statement describes the respective contributions of the two owners of GGS: Symons will contribute Pafco, which then had a current GAAP book value of $14 million, and the Goldman Sachs limited partnerships will contribute $20 million in cash. With the backing of Symons and the Goldman Sachs limited partnerships and secured by all of the stock of Respondent and GGS, GGS will execute a six-year promissory note with The Chase Manhattan Bank (Chase) for $44 million. Drawing $40 million from this credit extension and using the $20 million cash contribution of the Goldman Sachs limited partnerships, GGS will fund the anticipated cash purchase price of $60 million. The Acquisition Statement represents that GGS will be able to service the debt. Due to the cash contribution of the Goldman Sachs limited partnerships, the Chase debt represents only two-thirds of the purchase price. Due to the cash contribution of the Goldman Sachs limited partnerships and the stock contribution by Symons, the Chase debt represents only about one-half of the initial capital of GGS. The Acquisition Statement states that GGS will service the Chase debt in part by “the combination of the management activities of both Pafco and [Respondent] within GGS, billing fees, other non-insurance company activities and anticipated insurance company operating economies which will result from the combination of these two operations [Pafco and Respondent].” The equity contributions of cash and stock “contribute significantly to the financial stability of GGS, allowing GGS to service the debt using operating cash flows only, including, if necessary, normal dividends from earned surplus as a secondary source of debt service funds. GGS does not anticipate using dividends from either Pafco or [Respondent] as a primary source of debt service funds.” The Chase Credit Agreement, which is dated April 30, 1996, requires GGS to use its best efforts to cause Respondent to pay "cash dividends or other distributions or payments in cash including . . . the payment of Billing Fees and Management Fees" in sufficient amounts to pay all principal and interest due under the financing instrument. The Chase Credit Agreement defines "Billing Fees" as: "fees with respect to the payment of premiums on an installment basis that are received by an Insurance Subsidiary from policyholders and in turn paid to [GGS] or received directly by [GGS] . . .." The Chase Credit Agreement defines "Management Fees" as: "all fees paid by an Insurance Subsidiary to [GGS] that are calculated on the basis of gross written premiums." With respect to the "Management Fees" described in the Chase Credit Agreement, the Acquisition Statement describes a five-year management agreement to be entered into by GGS with Pafco and Respondent (Management Agreement). The Management Agreement, which GGS and Respondent executed on April 30, 1996, provides that GGS “will provide management services to both Pafco and [Respondent] and will receive from [Respondent] as compensation 17% of [Respondent’s] gross written premium” and a slightly lower percentage of premiums from Pafco (Management Fee). Under the Management Agreement, Respondent “will continue to pay premium taxes, boards and bureaus costs, legal and audit fees and certain computer costs.” The Acquisition Statement states that Respondent’s “operating costs" were about 21%, so the 17% cap “will allow [Respondent] to see a significant and immediate improvement in its overall financial performance”-- over $1 million in 1994, which was the last year for which financial information was then available. The Management Agreement gives GGS the exclusive right and nondelegable and nonassignable obligation to perform a broad range of business actions on Respondent’s behalf. These actions include accepting contracts, issuing policies, appointing adjustors, and adjusting claims. The Management Agreement requires GGS to "pay [Respondent’s] office rent and occupancy operating expenses from the amounts that it receives pursuant to this Agreement.” In return, the Management Agreement requires Respondent to pay GGS “fees for the business placed with [Respondent as follows:] Agents commission plus 17% not to exceed 32% in total.” The scope of the services undertaken by GGS in the Management Agreement is similarly described in the Plan of Operation, which GGS filed with Petitioner as part of the application. The Plan of Operation provides that, in exchange for the 17 percent “management commission,” GGS assumes the responsibility for all aspects of the operating expenses of the book including underwriting, claims handling and administration. The only expenses which remain the responsibility of [Respondent] directly are those expenses directly related to the insurance book, such as premium taxes, boards and bureaus, license fees, guaranty fund assessments and miscellaneous expenses such as legal and audit expenses and certain computer costs associated directly with [Respondent]. In response to a request for additional information, Goran’s general counsel, by letter dated March 13, 1996, to Petitioner’s application coordinator, added another document, Document 26. The new document was a pro forma financial projection for 1996-2002 (Proforma) showing the sources of funds for GGS to service the Chase debt. The seven-year Proforma contains only two significant sources of income for GGS: “management fee income” and “finance & service fee income" (Finance and Service Fees). By year, starting with 1996, these respective figures are $28.6 million and $7.0 million, $34.2 million and $8.6 million, $38.1 million and $9.9 million, $42.6 million and $11.0 million, $47.5 million and $12.3 million, $53.0 million and $13.7 million, and $59.3 million and $15.3 million. Accounting for the principal and interest payments over the six-year repayment term of the Chase Credit Agreement, the Proforma shows ending cash balances, during each of the covered years, culminating in a final cash balance, in 2002, of $43.9 million. By letter dated March 29, 1996, Goran’s general counsel informed Petitioner that an increase in Respondent’s book value had triggered an increase in the purchase price from $60 million to $66 million. Also, the book value of Pafco had increased from $14 million to $15.3 million, and the cash required of the Goldman Sachs limited partnerships had increased from $20 million to $21.2 million. Additionally, the letter states that Chase had increased its commitment from $44 million to $48 million. A revised Document 26 accompanied the March 29 letter and showed the same income projections. Reflecting increased debt-service projections, the revised Proforma projected lower cash balances, culminating with $39.8 million in 2002. During a meeting in March 1996, Mr. Alan Symons, president and chief executive officer of Goran and a director of Superior Group and Respondent, met with three of Petitioner's representatives, including Mary Mostoller, Petitioner's employee primarily responsible for the substantive examination of the GGS application. During that meeting, Mr. Symons informed Petitioner that GGS would receive Finance and Service Fees from Respondent's policyholders who paid their premiums by installments. Ms. Mostoller did not testify, and the sole representative of Petitioner who attended the meeting and testified candidly admitted that he could not recall whether they discussed this matter. In response to another request for additional information, Respondent’s present counsel, by letter dated April 12, 1996, informed Petitioner that the “finance and service fee income” line of the Proforma “is composed primarily of billing fees assessed to policyholders that choose to make payments on a monthly basis,” using the same rate that Respondent had long used. The letter explains that the projected increase in these fees is attributable solely to a projected increase in business and not to a projected increase in the rate historically charged policyholders for this service. In an internal memorandum dated April 18, 1996, Ms. Mostoller noted that GGS would pay the Chase Credit Agreement through a “combination of the management fees and other billing fees of both Pafco and [Respondent].” Later in the April 18 memorandum, though, Ms. Mostoller suggested, among other things, that Petitioner condition its approval of the acquisition on the right of Petitioner to reevaluate annually the reasonableness of the “management fee and agent’s commission”--omitting any mention of the "other billing fees." On April 30, 1996, Petitioner entered a Consent Order Approving Acquisition of Stock Pursuant to Section 628.461, Florida Statutes (Consent Order). Incorporating all of Ms. Mostoller's recommendations, the Consent Order is signed by Respondent and GGS, which "agree to and consent to all of the above cited terms and conditions . . .." The Consent Order does not incorporate by reference the application and related documents, nor does the Consent Order contain an integration clause, which, if present, would merge all prior written and unwritten agreements into the Consent Order so as to preclude the implementation of such agreements in conjunction with the Consent Order. Among other things, the Consent Order mandates the following: [Respondent] shall give advance notice to [Petitioner] of any proposed changes in the [Management Agreement] and shall receive written approval from [Petitioner] prior to implementing those changes. In addition, for a period of three (3) years, [Petitioner] shall reevaluate at the end of each calendar year the reasonableness of the fees as reflected on Addendum A of the [Management] Agreement[.] Furthermore, [Petitioner] may at its sole discretion, and after consideration of the performance and operating percentages of [Respondent] and any other pertinent data, require [Respondent] to make adjustments in the [M]anagement [F]ee and agent's commission. GGS . . . shall file each year an audited financial statement with [Petitioner] . . .. In addition to the above, for a period of 4 years from the date of execution of this Consent Order . . .: [Respondent] shall not pay or authorize any stockholder dividends to shareholders without prior written approval of [Petitioner]. Any direct or indirect contracts, agreements or transactions of any type or nature including but not limited to the sale or exchange of assets among or between [Respondent] and any member of the Goran . . . holding company system shall receive prior written approval of [Petitioner]. That failure to adhere to one or more of the above terms and conditions shall result WITHOUT FURTHER PROCEEDINGS in the Treasurer and Insurance Commissioner DENYING the above acquisition, or the REVOCATION of the insurers' certification of authority if such failure to adhere occurs after the issuance of the Consent Order approving the above acquisition. The Consent Order addresses the Management Fees and the commissions payable to the independent agents who sell Respondent's insurance policies. However, the Consent Order omits any explicit mention of the Finance and Service Fees, even though GGS and Respondent had clearly and unambiguously disclosed these fees to Petitioner on several occasions prior to the issuance of the Consent Order. On its face, the Consent Order requires prior approval for the payment of Finance and Service Fees, which arise due to a contract or agreement between Respondent and GGS/Superior Group. The Consent Order prohibits "direct or indirect contracts, agreements or transactions of any type or nature including . . . the sale or exchange of assets among or between [Respondent] and any member of the Goran . . . holding company system," without Petitioner's prior written approval. The exact nature of these Finance and Service Fees facilitates the determination of their proper treatment under the Consent Order and the facts of this case. Ostensibly, the Finance and Service Fees pertain to items not covered by the Management Fees, which cover a wide range of items. In fact, the Finance and Service Fees arise only when a policyholder elects to pay his premium in installments; if no policyholder were to pay his premium by installments, no Finance and Service Fees would be due. The testimony in the record suggests that the Finance and Service Fees pertain to services that necessarily must be performed when policyholders pay their premiums by installments. This suggestion is true, as far as it goes. Installment payments require an insurer to incur administrative and information-management costs in billing and collecting installment payments. Other costs arise if late installment payments necessitate the cancellations and if reinstatements follow cancellations. Installment-payment transactions are undeniably more expensive to the insurer than single-payment transactions. The record as to these installment-payment costs, which are more in the nature of a service charge, is well- developed. However, the Finance and Service Fees also pertain to the cost of the loss of the use of money when policyholders pay their premiums by installments. Installment-payment transactions cause the insurer to lose the use of the deferred portion of the premium for the period of the deferral. The record as to these costs, which are more in the nature of a finance charge or interest, is relatively undeveloped. At the hearing, Mr. Symons testified that an insurer does not lose the use of the deferred portion of the premium for an established book of business. Mr. Symons illustrated his point by analyzing over a twelve-month period the development of a hypothetical book of business consisting of twelve insureds. If an insurer added its first insured in the first month, added a second in the third, and so forth, until it added its twelfth insured in the twelfth month, and each insured chose to pay a hypothetical $120 annual premium in twelve installments of $10 each, the cash flow in the twelfth and each succeeding month (assuming no changes in the number of insureds) would be $120-- the same that it would have been if each of the insureds chose to pay his premium in full, rather than by installment. Thus, Mr. Symons' point was that, after the first eleven months, installment payments do not result in the loss of the use of money by the insurer. Mr. Symons' illustration assumes a constant book of business after the twelfth month. However, while the insurer is adding installment-paying insureds, the insurer loses the use of the portion of the first-year premium that is deferred, as is evident in the first eleven months of Mr. Symons' illustration. Also, if the constant book of business is due to a constant replacement of nonrenewing insureds with new insureds--a distinct possibility in the nonstandard automobile market--then the insurer will again suffer the loss of the use of money over the first eleven months. Either way, Mr. Symons' illustration does not eliminate the insurer's loss of the use of money when its insureds pay by installments; the illustration only demonstrates that the extent of the loss of the use of the money may not be as great as one would casually assume. The Finance and Service Fee is sufficiently broad to encompass all of the terms used in this record to describe it: "installment fee," "billing fee," "service charge," "premium fee," and even "premium finance fee." However, only "installment fee" is sufficiently broad as to capture both types of costs covered by the Finance and Service Fee. The dual components of the Finance and Service Fee are suggested by the statute authorizing its imposition. Section 627.902, Florida Statutes, authorizes an insurer or affiliate of the insurer to "finance" premiums at the "service charge or rate of interest" specified in Section 627.901, Florida Statutes, without qualifying as a premium finance company under Chapter 627, Part XV, Florida Statutes. If the insurer or affiliate exceeds these maximum impositions, then it must qualify as a premium finance company. The "service charge or rate of interest" authorized in Section 627.901, Florida Statutes, is either $1 per installment (subject to limitations irrelevant to this case) or 18 percent simple interest on the unpaid balance. The charge per installment, which is imposed without regard to the amount deferred, suggests a service charge, and the interest charge, which is imposed without regard to the number of installments, suggests a finance charge. The determination of the proper treatment of the Finance and Service Fees under the Consent Order is also facilitated by consideration of the process by which these fees were transferred to GGS/Superior Group. As anticipated by the parties, after the acquisition of Respondent by GGS, Respondent retained no employees, and GGS/Superior Group employees performed all of the services required by Respondent. The process by which Respondent transferred the Finance and Service Fees to GGS/Superior Group began with Respondent issuing a single invoice to the policyholder showing the premium and the Finance and Service Fee, if the policyholder elected to pay by installments. As Mr. Symons testified, Respondent calculated the Finance and Service Fee on the basis of the 1.5 percent per month on the unpaid balance, rather than the specified fee per installment. The installment-paying policyholder then wrote a check for the invoiced amount, payable to Respondent, and mailed it to Respondent at the address shown on the invoice. Employees of GGS/Superior Group collected the checks and deposited them in Respondent's bank account. From these funds, the employees of GGS/Superior Group then paid the commissions to the independent agents, the Management Fee (calculated without regard to the Finance and Service Fee) to GGS/Superior Group, and the Finance and Service Fee to GGS/Superior Group. Respondent retained the remainder. Finance and Service Fees can be considerable in the nonstandard automobile insurance business. Many policyholders in this market lack the financial ability to pay premiums in total when due, so they commonly pay their premiums in installments. At the time of the 1996 acquisition, for instance, about 90 percent of Respondent's policyholders paid their premiums by installments. For 1996, on gross premiums of $156.4 million, Respondent earned net income (after taxes) of $1.978 million, as compared to gross premiums of $97.6 million and net income of $5.177 million in 1995. At the end of 1996, Respondent's surplus was $57.1 million, as compared to $49.3 million at the end of the prior year. "Surplus" or "policyholder surplus" for insurance companies is like net worth for other corporations. In 1996, Respondent received $2.154 million in Finance and Service Fees, as compared to $1.987 million in the prior year. However, Respondent did not pay any Finance and Service Fees to GGS in 1996. For related-party transactions in 1996, Respondent's financial statements disclose the payment of $155,500 to GGS and Fortis for "management fees," assumed reinsurance premiums and losses, and a capital contribution of $5.558 million from GGS, of which $4.8 million was in the form of a note. These related-party disclosures for 1996 were adequate. In August 1997, Symons bought out Goldman Sachs' interest in GGS for $61 million. Following the 1996 acquisition, Goldman Sachs had invested another $3-4 million, but, with a total investment of about $25 million, Goldman Sachs enjoyed a handsome return in a little over one year. Mr. Symons attributed the relatively high price to then-current valuations, which were 100 percent of annual gross premiums. More colorfully, Mr. Symons' brother, also a principal in the Goran family of corporations, attributed the purchase price to Goldman Sachs' "greed. " At the same time that Symons bought out Goldman Sachs, Symons enabled GGS to retire the Chase acquisition debt. The elimination of Goldman Sachs and Chase may be related by more than the need for $61 million to buy out Goldman Sachs. The 1996 Annual Statement that Respondent filed with Petitioner reports "total adjusted capital" of $57.1 million and "authorized control level risk-based capital" of $20.7 million, for a ratio of less than 3:1. Section 8.10 of the Chase Credit Agreement states that GGS "will not, on any date, permit the Risk Based Capital Ratio . . . of [Respondent] to be less than 3 to 1." Section 1 of the Chase Credit Agreement defines the ”Risk-Based Capital Ratio" as the ratio of Respondent's "Total Adjusted Capital" to its "Authorized Control Level Risk-Based Capital." In August 1997, Symons raised $135 million in a public offering of securities that probably more closely resemble debt than equity. After paying $61 million to Goldman Sachs and the $45-48 million then due Chase under the Credit Agreement (due to additional advances), Symons applied the remaining loan proceeds to various affiliates, as additional capital contributions, and possibly itself, for cash-flow purposes. The $135 million debt instrument, which remains in place, requires payments over a 30- year term, provides for no repayment of principal until the end of the term, and allows for the deferral of the semi-annual dividend/interest payments for up to five years. Symons exercised its right to defer dividend/interest payments for an undetermined period of time in 2000. The payments that are the subject of this case took place from 1997 through 1999. During this period, on a gross basis, Respondent paid GGS $35.2 million in Finance and Service Fees. In fact, $1.395 million paid in 1999 were not Finance and Service Fees, but were SR-22 policy fees, which presumably are charges attributable to the preparation and issuance by GGS of certificates of financial responsibility. Because Respondent's financial statements did not separate any SR-22 fees from Finance and Service Fees for 1997 or 1998, it is impossible to identify what, if any, portion of the Finance and Service Fees in those years were actually SR-22 fees. Even though SR-22 fees represent a service charge without an interest component, they are included in Finance and Service Fees for purposes of this Recommended Order. For 1997, on gross premiums of $188.3 million, Respondent earned net income of $379,000. For 1998, on gross premiums of $179.8 million, Respondent suffered a net loss of $8.122 million. For 1999, on gross premiums of $170.5 million, Respondent suffered a net loss of $19.232 million. Respondent's surplus decreased from $65.1 million at the end of 1997, to $57.6 million at the end of 1998, to $34.2 million at the end of 1999. In its Quarterly Statement filed as of September 30, 2000, Respondent disclosed, for the first nine months of 2000, a net loss of $5.89 million and a decline in surplus to $24.0 million. By the end of 2000, Respondent's surplus decreased to $21.6 million. However, at all times, Respondent's surplus exceeded the statutory minimum. For 1999, for example, Respondent's surplus of $34.2 million doubled the statutory minimum. Respondent also satisfied the statutory premium-to-surplus ratio, although possibly not the statutory risk-based capital ratio. As of the final hearing, Petitioner had required Respondent to file a risk-based capital plan, Respondent had done so, Petitioner had required amendments to the plan, Respondent had declined to adopt the amendments, and Petitioner had not yet taken further action. From 1997-1999, Respondent's annual statements, quarterly statements, and financial statements inadequately disclosed the payments that Respondent made to GGS. The annual statements disclose "Service Fee on Ceded Business," which is a write-in item described in language chosen by Respondent. Petitioner's contention that this item appears to be a reinsurance transaction in which Respondent is ceding risk and premiums to a third-party is rebutted by the fact that the Schedule F, Part 5, on each annual statement discloses relatively minor reinsurance transactions whose ceded premiums would not approach those reported as "Service Fee on Ceded Business." Notwithstanding the unconvincing nature of Petitioner's contention as to the precise confusion caused by Respondent's reporting of the payment of Finance and Service Fees, Respondent's reporting was clearly inadequate and even misleading. The real problem in the annual statements, quarterly statements, and financial statements is their failure to disclose Respondent's payments to a related party, GGS. Respondent unconvincingly attempts to explain this omission by an imaginative recharacterization of the Finance and Service Fee transactions as pass-through transactions. These were not pass-through transactions in 1996 when Respondent retained the Finance and Service Fees. These were not pass- through transactions in 1997-1999 when Respondent properly accounted for these payments from policyholders as income and payments to GGS as expenses. The proper characterization of these transactions involving the Finance and Service Fees does not depend on the form that Respondent and GGS/Superior Group selected for them-- in which policyholders pay Respondent and Respondent pays GGS/Superior Group--although this form does not serve particularly well Respondent's present contention. Even if Respondent had changed the form so that the policyholders paid the Finance and Service Fees directly to GGS/Superior Group, the economic reality of the transactions would remain the same. Even if policyholders paid their installments to Respondent, GGS/Superior Group, or any other party, the Finance and Service Fees would initially vest in Respondent, which, under an agreement, would then owe them to GGS/Superior Group. The inadequacy of the disclosure of the Finance and Service Fees is a relatively minor issue, in itself, in this case. In its proposed recommended order, Respondent invites direction as to how Petitioner would like Respondent to report these payments in the future. The major impact of Respondent's nondisclosure of these payments is that none of the statements filed after the 1996 acquisition notified Petitioner of the existence of these payments. It is thus impossible to infer an agreement or even acquiescence on the part of Petitioner regarding Respondent's payment of Finance and Service Fees to GGS/Superior Group. The major issue in this case is whether the Consent Order authorizes Respondent to pay $35 million in Finance and Service Fees after the 1996 acquisition or, if not, whether Petitioner has approved of such payments by any other means. As already noted, the Consent Order authorizes the payment of agents' commissions and Management Fees, but not Finance and Service Fees. To the contrary, the Consent Order prohibits the payment of Finance and Service Fees for four years, at least without Petitioner's approval, because of the provision otherwise prohibiting agreements, contracts, and the transfer of assets involving Respondent and its affiliates. As noted in the Conclusions of Law, the absence of an integration clause invites consideration of oral agreements that may have preceded the execution of the Consent Order. The Consent Order is somewhat of a hybrid: Petitioner orders and Respondent consents. However, the Consent Order is sufficiently an agreement to be subject to interpretation under normal principles governing the interpretation of contracts. Respondent contends that such agreements encompassed the payment of Finance and Service Fees because Respondent disclosed such payments several times to Petitioner prior to the issuance of the Consent Order. (Any testimonial assertion of an explicit agreement by Petitioner to the payment of the Finance and Service Fees is discredited.) Respondent repeated disclosures to Petitioner of the Finance and Service Fees began with the Acquisition Statement at the start of the application process. The parties discussed these fees in March 1996. The Proformas disclose two main revenue sources from which GGS/Superior Group could service its acquisition debt: Management Fees and Finance and Service Fees. And the Proformas project almost exactly the amount that Respondent paid GGS in Finance and Service Fees from 1997-99. Although the ratio of Management Fees to Finance and Service Fees was 4:1 in the Proformas, this ratio does not minimize the role of the Finance and Service Fees. Based on gross revenues, this ratio is no indication of the relative profitability of these two sources of revenue. In fact, in 1999, the expenses covered by the Management Agreement exceeded the Management Fees by $3 million. The Finance and Service Fees are thus an important component of the revenue on which GGS intended to rely in servicing the acquisition debt. However, neither the clear disclosure of the Finance and Service Fees nor Petitioner's recognition of the importance of these fees in servicing the acquisition debt necessarily means that Petitioner agreed to their payment. By a preponderance of, although less than clear and convincing, evidence, the record precludes the possibility that Petitioner agreed in preclosing discussions or the Consent Order to preapprove the Finance and Service Fees. In this respect, Petitioner treated the Finance and Service Fees differently from the Management Fees, which Petitioner agreed to preapprove, subject to annual reevaluation for the first three years. At the level of a preponderance of the evidence, it is possible to harmonize this construction of the Consent Order with Respondent's repeated disclosures of the Finance and Service Fees. The Acquisition Statement mentions dividends as a revenue source--although a "secondary" source--and the Consent Order clearly did not impliedly preapprove the payment of dividends. Aware of the reliance of GGS upon the Finance and Service Fees to service the Chase acquisition debt, Petitioner may have chosen, for the first four years, to consider Respondent's requests for approval of the Finance and Service Fees, based on the circumstances in existence at the time of the requests. This interpretation is consistent with the testimony of Petitioner's employee that he believed that Petitioner would be able to restrict Respondent's payment of Finance and Service Fees to GGS/Superior Group because Petitioner's approval was required for the payment of dividends. The payments are pursuant to a contract or agreement for services and, as such, are not dividends, but the Consent Order requires Petitioner's approval for all contracts and agreements during the first four years. The common point is that Petitioner understood that its approval would be required for Finance and Service Fees, which had not been preapproved like Management Fees. During the application process, GGS may not have been concerned by Petitioner's failure to preapprove the Finance and Service Fees. At the time of the 1996 acquisition, as contrasted to the period after the 1997 refinancing, GGS enjoyed a relatively light debt load due to Goldman Sachs' equity investment and the "tremendous wherewithal" of its 48 percent co-owner. Another practical distinction between the Finance and Service Fees and the Management Fees militates against finding that the Consent Order impliedly approves the Finance and Service Fees and militates in favor of a finding that GGS viewed these fees as more contingent and less likely to be needed than the Management Fees. At the start of the application process, GGS submitted to Petitioner a form Management Agreement. At no time did GGS ever submit to Petitioner a form Finance and Service Agreement. The contingent nature of the Finance and Service Fees, relative to the Management Fees, is reinforced by the fact that, in 1996, Respondent retained the Finance and Service Fees. Respondent's contention that the Finance and Service Fees were a component of the agreement between it and Petitioner is not without its appeal. The contention is sufficient to preclude a finding by clear and convincing evidence that the agreement between the parties did not include a preapproval of Finance and Service Fees. Unlike the Management Fees, the maximum amount of the Finance and Service Fees is set by statute. Two consequences follow. First, Petitioner might not have found it necessary to incorporate these fees in a written agreement, as long as the maximum amount were acceptable to Petitioner, because the law establishes a ceiling on the fees and identifies the services for which they are compensation. Second, Petitioner might not have found it necessary provide for annual reevaluation of the fees, again due to the applicable statutory maximum. In one respect, the relatively contingent quality of the Finance and Service Fees inures to Respondent's benefit, at least in theory. If no policyholder paid by installments, there would be no Finance and Service Fees; however, as a practical matter, the Finance and Service Fees are almost as pervasive as the Management Fees. More importantly, though, the Finance and Service Fees, especially when imposed as a percentage of the unpaid balance, contain a significant interest component. Paying these fees to GGS/Superior Group, Respondent denies itself the investment income attributable to this forbearance. Alternatively, to the extent that the Finance and Service Fees defray services, as they do to some unknown extent, the greater weight of the evidence, although not clear and convincing evidence, establishes that these services are among the services that GGS/Superior Group undertook in the Management Agreement. These factors militate strongly against treating the Finance and Service Fees as an implied exception to the provision of the Consent Order requiring approval of all contracts or agreements with affiliates during the first four years. For these reasons, Petitioner has proved by a preponderance of the evidence, although not clear and convincing evidence, that GGS/Superior Group and Respondent needed Petitioner's approval for all payments of Finance and Service Fees prior to April 30, 2000. To the extent that, as discussed in the Conclusions of Law, Petitioner withholds such approval, the next issue is to determine the amount of Finance and Service Fees that GGS/Superior Group must return to Respondent. The determination of the amount of the repayment is substantially affected by two facts. First, Petitioner's approval is not required for any Finance and Service Fees that Respondent paid GGS/Superior Group after April 30, 2000. The Consent Order did not require Petitioner's approval for such payments, which were not dividends, for which approval would always be required, if inadequate surplus existed. Second, GGS/Superior Group is entitled to a dollar-for-dollar credit, against any liability for improperly received Finance and Service Fees, for about $20 million that it directly or indirectly transferred to Respondent since the 1996 acquisition. Half of the $20 million credit arises from Management Fees that GGS did not collect from Respondent in 1996 and 1998. As Petitioner notes, there is little, if any, documentation concerning these uncollected fees. Mr. Symons persuasively testified that the proper characterization of these amounts is dependent upon the outcome of Petitioner's effort to disallow the Finance and Service Fees already paid by Respondent. Petitioner must credit to GGS/Superior Group these $10 million in fees as an offset to the $35.2 million (or such lesser amount remaining after any retroactive approvals from Petitioner) that Respondent improperly paid GGS/Superior Group in Finance and Service Fees. Also, in 1997, GGS contributed about $10 million to Respondent's capital. As was the case with the uncollected Management Fees in 1996 and 1998, the record contains little, if any, documentation concerning the transfer, including any conditions that may have attached to it. Petitioner should credit GGS/Superior Group with this sum as an offset against the $35.2 million (or such lesser amount remaining after any retroactive approvals from Petitioner) that Respondent improperly paid GGS/Superior Group in Finance and Service Fees. As for the remaining $15 million in Finance and Service Fees that Respondent improperly paid to GGS through 1999 and any additional amounts through April 30, 2000, the impropriety arises because Respondent failed first to obtain Petitioner's approval--not because any transaction was otherwise necessarily improper. Concerning the remaining $15 million, then, Petitioner should give Respondent and GGS/Superior Group an opportunity to request retroactive approval for the payment of all or part of this sum, without regard to the lateness of the request. Applying any and all factors that Petitioner would ordinarily apply in considering such requests, Petitioner can then reach an informed determination as to the propriety of this $15 million in Finance and Service Fees. If Petitioner determines that Respondent must obtain from GGS/Superior Group repayment of any Finance and Service Fees, then Petitioner may consider the issue of the timing of the repayment. As Petitioner mentions in its proposed recommended order, an evidentiary hearing might be useful for this purpose. Obvious sources would be setoffs against Management Fees and Finance and Service Fees that Respondent is presently paying Superior Group.
Recommendation It is RECOMMENDED that the Department of Insurance enter a final cease and desist order: Determining that, without the prior written consent of the Department, Superior Insurance Company paid Finance and Service Fees to GGS/Superior Group in the net amount of approximately $15 million, plus all such amounts paid after the period covered by this case through April 30, 2000. Requiring that Superior Insurance Company immediately file all necessary documentation with the Department to seek the retroactive approval of all or part of the sum set forth in the preceding paragraph. If any sum remains improperly paid after implementing the procedure set forth in the preceding paragraph, establishing a reasonable repayment schedule for Respondent to impose upon Superior Group--if necessary, in the form of setoffs of Management Fees and Finance and Service Fees due at the time of, and after, the Final Order. Determining that Superior Insurance Company inadequately disclosed related-party transactions and ordering that Superior Insurance Company comply with specific guidelines for the reporting of these transactions in the future. DONE AND ENTERED this 1st day of June, 2001, in Tallahassee, Leon County, Florida. ROBERT E. MEALE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 1st day of June, 2001. COPIES FURNISHED: Honorable Tom Gallagher State Treasurer/Insurance Commissioner Department of Insurance The Capitol, Plaza Level 02 Tallahassee, Florida 32399-0300 Mark Casteel, General Counsel Department of Insurance The Capitol, Lower Level 26 Tallahassee, Florida 32399-0307 S. Marc Herskovitz Luke S. Brown Division of Legal Services Department of Insurance 200 East Gaines Street, Sixth Floor Tallahassee, Florida 32399-0333 Clyde W. Galloway, Jr. Austin B. Neal Foley & Lardner 106 East College Avenue, Suite 900 Tallahassee, Florida 32301
The Issue The issue in this case is whether the Respondent's certificate of registration to collect sales tax should be revoked.
Findings Of Fact In 1996, the Respondent and Lance Arnette were engaged in a dissolution of marriage action in the circuit court, Case No. 96-1185-FD. On June 20, 1997, the business known as Giff’s Sub Shop was awarded to Respondent, Linda Arnette. The circuit court transferred the business to Respondent free of any and all liabilities. Later, Respondent discovered that there was an undisclosed sales tax liability. The amount of that liability was not clear from the record. However, the Department was not a party to the Arnette’s dissolution of marriage action. On March 3, 1998, Respondent filed an application for a certificate of registration with the Department. The reason for the application was due to the change of ownership from Respondent’s ex-husband to Respondent. The application reflected an opening date for the business of June 1, 1997. Linda Arnette was reflected as the owner of the business. Respondent was the only person who signed the application. No other person was listed as having an interest in the sub shop. The certificate of registration was issued to Respondent and she became the registered dealer for the sub shop. As such, she was under a legal duty to collect and remit all taxes collected by the sub shop to the Department. She was also responsible to file tax returns for the business with the Department. Her first return would have been due on July 20, 1997. A tax warrant or lien for unpaid taxes was filed against Respondent on October 26, 2005. It is unclear what happened with the 2005 warrant. Department records reflect that the sub shop did not file returns for November 2006, December 2006, January 2007, and February 2007. A second tax warrant for unpaid taxes was filed against Respondent on April 4, 2007. The warrant covered the period from August 2003 to February 2007. The amount of tax due under the warrant was $14,658.07, plus interest and penalties. The 2003 date was well after Respondent had taken over operation of the sub shop from her ex-husband. The evidence did not show that the amount included any taxes which may have been due prior to her award of the sub shop in 1997 or prior to the August 2003 date. Moreover, the warrant did not include months for which Respondent had timely paid the tax due. Data from the Department revocation worksheet showed that Respondent owed only interest for the months of August 2003 and March through August, 2006. The fact she owed only interest in those months indicates that the taxes were paid late. The Department’s data showed the month of December 2005 with zero tax due and zero interest due. It is not clear from the evidence why the Department claimed the month of December 2005 was out of compliance. However, even without the month of December 2005, the Department’s data showed 30 months of noncompliance by Respondent either by not filing timely or not paying the tax. On March 2, 2007, the Department sent Respondent a notice of its intent to revoke her certificate of registration. An informal meeting was scheduled for April 17, 2007. The purpose of the meeting was to permit Respondent to present evidence on why her certificate of registration should not be revoked and to show that the amount of taxes due was incorrect. Respondent attended the meeting on April 17, 2007. The Department waived the penalties due on her tax liability. Interest due totaled $2,857.68. Respondent did not raise any issue regarding her ex-husband’s past tax liability or any payments she had allegedly made thereon. Indeed, Respondent’s argument regarding payment on her ex-husband’s past tax liability did not make sense and was not borne out by the evidence. Respondent did file her tax returns for November 2006, December 2006, January 2007, and February 2007. It was unclear, if Respondent brought her account books for the sub shop to the meeting. Respondent’s own books reflect that she reported tax liability for the period August 2003 through August, 2006 in the amount of $25,133.97, and through December 2006, she owed $27,620.97. Respondent’s records did not reflect the return amounts for 2007. Her records also reflect that for the period August 2003 through August 2006, she paid $13,311.68 and through December 2006, she paid $16,029.68 to the Department. Returns filed with the Department for 2007 totaled $1,379.78 though February 2007. In 2007, Respondent’s records reflect that through April 2007, she paid $1,912.08 to the Department. In short, Respondent’s own records reflect that for the period August 2003 through August 2006, she owed past due taxes in the amount of $11,822.19 and through December 2006, she owed past due taxes in the amount of $11,591.29. Her own records reflect she had repeatedly not complied with the requirements of Chapter 212, Florida Statutes, to timely remit and pay taxes. More importantly, Respondent entered into a compliance agreement with the Department at the April 17, 2007, meeting. In the agreement, Respondent admitted she owed taxes in the amount of $14,658.07, plus interest in the amount of $2,857.68, for a total of $17,515.75, to the Department. She admitted she had not complied with Sections 212.14(1), 212.14(2) and 212.15(1), Florida Statutes, regarding timely filing of returns and timely payment of taxes. These failures were repeated. Additionally, Respondent agreed to timely file all tax returns for the period April 2007 through March 2008, timely pay all tax due for the same period, as well as, comply with the payment schedule for the past due amount referenced above. Failure to abide by the terms of the compliance agreement would permit the Department to initiate revocation of the Respondent’s certificate of registration and the use of the compliance agreement to establish the facts of the earlier noncompliance with Chapter 212, Florida Statutes. Respondent made the payments required under the payment schedule in the compliance agreement, but did not make such payments timely. Her most current return was late. Respondent also paid the current taxes due each month, but did not timely pay those taxes. Thus, Respondent has accrued $2,519.96 in interest and $214.22 in penalties through July 18, 2007, in addition to the amount she agreed was due in the compliance agreement. Given this history, Respondent has clearly not complied with the requirements of Chapter 212, Florida Statutes, and her certificate of registration should be revoked.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is: RECOMMENDED that the Department of Revenue enter a final order revoking Respondent’s certificate of registration pursuant to Section 212.18, Florida Statutes. DONE AND ENTERED this 14th day of March, 2008, in Tallahassee, Leon County, Florida. S DIANE CLEAVINGER Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 14th day of March, 2008. COPIES FURNISHED: Warren J. Bird, Esquire Office of the Attorney General The Capitol, Plaza Level 101 Revenue Litigation Bureau Tallahassee, Florida 32399-1050 Glen M. Swiatek, Esquire 5 Clifford Drive Shalimar, Florida 32579 Marshall Stranburg, General Counsel Department of Revenue The Carlton Building, Room 204 501 South Calhoun Street Post Office Box 6668 Tallahassee, Florida 32314-6668 Lisa Echeverri, Executive Director Department of Revenue The Carlton Building, Room 104 501 South Calhoun Street Tallahassee, Florida 32399-0100
Findings Of Fact Petitioner's business activities include the sale of tangible personal property such as caskets and burial vaults. The written sales contract utilized by Petitioner sets forth the amount of sales tax and includes that sum in the total amount which the customer agrees to pay. The contracts are in the form of a note, containing a promise to pay, and were sold at discount by the Petitioner at certain times during the audit period. The contracts require a down payment and installment payments thereafter. The contracts further contain a clause allowing the customer three days in which to cancel the contract, under which circumstances the customer is reimbursed all moneys paid by him to Petitioner. Under Petitioner's retained- title, conditional-sale contract, if the customer cancels the contract or stops making payments at any time subsequent to the initial three-day period, Petitioner retains all sums which have been paid to it by the customer. Petitioner's business practice is to pay its salesmen commission from the down payment on a contract. Petitioner operates on the accrual method of accounting, and its sales tax liability is entered on its books at the time of the sale. Petitioner pays the total sales tax due at the time that it enters into the contract. When a contract is cancelled (after the initial three-day cancellation period), Petitioner claims a credit against its current liability for the full amount of sales tax charged on the transaction when it files its sales tax report for the month, even though at least the down payment, and frequently additional payments, has been collected from the customer. On audit, Respondent allowed full credit for the amount of sales tax when a contract had been cancelled within the three-day cancellation period, but disallowed that portion of the credits claimed which related to the down payments and installments which the Petitioner retained when a contract was cancelled after the three-day period. Respondent did allow, however, a credit for taxes attributable to the unpaid balance under each cancelled contract.
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED THAT: The Department of Revenue enter its final order disallowing to Petitioner a credit for taxes attributable to amounts retained by it upon the cancellation of its installment sales contracts. DONE AND ORDERED in Tallahassee, Leon County, Florida, this 29th day of May, 1980. LINDA M .RIGOT Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 29th day of May, 1980. COPIES FURNISHED: Ms. Cynthia Savage Comptroller Restlawn, Inc. 2600 Ribualt Scenic Dr Post Office Box 9306 Jacksonville, FL 32208 E. Wilson Crump, II, Esq. Assistant Attorney General Department of Legal Affairs The Capitol Tallahassee, FL 32301 John D. Moriarty, Esq. Deputy General Counsel Department of Revenue Room 104, Carlton Building Tallahassee, FL 32301 Mr. Randy Miller Executive Director Department of Revenue Room 102, Carlton Building Tallahassee, FL 32301
The Issue The issue for determination is whether Respondent committed the offenses set forth in the Administrative Complaint for Revocation of Certificate of Registration issued on November 16, 2009, and, if so, what action should be taken.
Findings Of Fact There is no dispute that the Department is the state agency charged with the responsibility of regulating, controlling, and administering the revenue laws of the State of Florida, including the laws relating to the imposition and collection of the state's sales and use tax pursuant to chapter 212, Florida Statutes. There is no dispute that Abkey is a Florida corporation whose principal address is 7800 Southwest 104th Street, Miami, Florida 33156. Abkey is a restaurant. At the time of hearing, Abkey had 33 employees and was operating at a deficit. There is no dispute that, at all times material hereto, Abkey possessed Florida sales tax certificate of registration number 23-8012096448-9, issued by the Department on April 18, 1994. There is no dispute that Abkey is a dealer as defined in section 212.06(2), Florida Statutes, and has been a dealer at all times material hereto. For the month of June 2009, Abkey failed to file a sales tax return. As a result of this failure, the Department assessed Abkey an estimated sales tax due in the amount of $9,500.00. For 2005, Abkey failed to remit its self-reported sales tax liability to the Department for the months of July, September, October, November, and December. Abkey self-reported its tax liability, by filing sales tax returns, for the said months. For 2006, Abkey failed to remit its self-reported sales tax liability to the Department for the months of January and May. Abkey self-reported its tax liability, by filing sales tax returns, for the said months. Also, for 2006, Abkey failed to timely remit its sales tax liability for the month of October for which the Department assessed a penalty and an administrative/collection/processing fee. For 2007, Abkey failed to remit its self-reported sales tax liability to the Department for the months of February and August. Abkey self-reported its tax liability, by filing sales tax returns, for the said months. Also, for 2007, Abkey failed to timely remit its sales tax liability for the month of October, for which the Department assessed a penalty and an administrative/collection/processing fee. In total, for 2005, 2006, and 2007, Abkey self- reported sales tax due and failed to remit to the Department sales tax reportedly due in the amount of $122,355.36. As a result of Abkey's failure to file the sales tax return, to remit the $122,355.36 in sales tax, and to remit timely sales tax, the Department assessed Abkey, as of October 29, 2009, $16,287.59 in interest, $4,891.73 in penalties, and $13,845.10 in administrative/collection/ processing fees. Additionally, for the month of February 2007, Abkey issued to the Department a dishonored check (electronic funds transfer) on March 23, 2007, in the amount of $18,254.00. The Department assessed a $150.00 return check fee for the dishonored check. Shortly after being notified of the dishonored check by the Department, Abkey paid the $18,254.00. Abkey has a significant history of delinquency in remitting payments to the Department. The Department made several attempts, unsuccessfully, to collect the delinquent tax liabilities, including issuing Tax Warrants. In January 2007, the Department sought to revoke Abkey's Certificate of Registration for delinquent returns and outstanding liability and engaged in an informal conference with Abkey. As a result of the informal conference, Abkey and the Department entered into a Compliance Agreement executed on February 15, 2010. The Compliance Agreement required Abkey, among other things, to remit all past due payments; for 12 months (January through December 2007), to timely file tax returns and to timely remit all sales tax due; and to make a down payment of $45,000.00 (in three monthly installments but no later than April 1, 2007), 11 monthly payments of $5,000.00 (beginning May 1, 2007), and a balloon payment of $141,982.43 on April 1, 2008. Further, regarding the balloon payment of $141,982.43, the Compliance Agreement provided that the balloon payment might be negotiated for another 12 months. However, in order for Abkey to take advantage of this provision, Abkey was required to be compliant with the terms of the Compliance Agreement and its account was required to be in good standing with the Department. In accordance with the Compliance Agreement, Abkey paid the down payment of $45,000.00 (in three monthly installments) and the 11 payments of $5,000.00 although the 11 payments were late. Additionally, for the period of January through December 2007, Abkey was late filing tax returns and remitting sales tax. Abkey requested a renewal of the Compliance Agreement. Despite the late payments, the Department approved the renewal of the Compliance Agreement. A Compliance Agreement Renewal was executed on May 1, 2008. It required Abkey, among other things, to remit all past due payments and to timely file tax returns and timely remit all sales tax due for the next 12 months (May 1, 2008 through April 30, 2009); and to make 11 monthly payments of $5,000.00 (beginning May 1, 2008), and a balloon payment of $120,749.14 on April 1, 2009. Furthermore, regarding the balloon payment of $120,749.14, the Compliance Agreement Renewal provided that the balloon payment might be negotiated for another 12 months. However, in order for Abkey to take advantage of this provision, Abkey was required to be compliant with the terms of the Compliance Agreement Renewal and its account was required to be in good standing with the Department. Under the Compliance Agreement Renewal, Abkey made four payments of $5,000.00 but the payments were late. Abkey requested a reduction in the amount of the monthly payments from $5,000.00 to $2,000.00. The Department granted Abkey's request. Abkey made 12 payments of $2,000.00 but the payments were late. Additionally, for the period of May 1, 2008 through April 30, 2009, Abkey was late filing tax returns and remitting sales tax. Further, Abkey failed to make the balloon payment of $120,749.14 that was due on April 1, 2009. Abkey did not request a renegotiation of the balloon payment. At that time, Abkey did not request another Compliance Agreement. As of September 28, 2010, Abkey owed the Department $122,355.36 in actual sales tax (per Abkey's sales tax returns), $9,500.00 in estimated tax, $4,419.73 in penalty2, $14,572.80 in administrative/collection/processing fees3, $25,032.28 in interest, and $20.00 in warrant fees; totaling $175,900.17. The Department seeks to revoke Abkey's Certificate of Registration.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Revenue enter a final order revoking the Certificate of Registration issued to and held by Abkey No. 1 Limited. DONE AND ENTERED this 18th day of February, 2011, in Tallahassee, Leon County, Florida. S ERROL H. POWELL Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 18th day of February, 2011.
The Issue Whether petitioner taxpayer is liable for delinquent sales tax, penalties, and interest under Chapter 212, Florida Stat utes, as alleged by respondent Department in its notice of proposed assessment.
Findings Of Fact The Taxpayer Taxpayer is a family-operated Florida corporation which has engaged in retail sales at the Tampa Port Authority since 1975 or 1976; it is a licensed dealer registered with the Department. (Testimony of Roberts, Marylis.) Taxpayer's Sales During Audit Period From June 1, 1977, through July 31, 1980 (the audit period covered by the Department's proposed assessment), Taxpayer had gross sales in the approximate amount of $691,013.46. (Testimony of Roberts; Exhibit 2.) During that period, Taxpayer filed the required DR-15 monthly sales tax reports and paid taxes on all retail sales transactions which took place on the premises of its store located at 804 Robinson Street, (Tampa Port Authority) Tampa, Florida. (Testimony of Roberts.) During the same audit period -- in addition to sales on its store premises -- Taxpayer sold goods to merchant seamen on board foreign vessels temporarily docked at the Port of Tampa. These vessels operated in foreign commerce, entering the port from and returning to international waters outside the territorial limits of the United States. Taxpayer did not report these sales on its monthly sales tax reports; neither did it charge or collect sales tax from the on-board purchasers. (Testimony of Marylis.) Taxpayer failed to charge or collect sales tax in connection with its on-board sales because it relied on what it had been told by Department representatives. Prior to forming Taxpayer's corporation Thomas Marylis went to the local Department office to obtain a dealer's certificate. While there, he asked Manuel Alvarez, Jr., then the Department's regional audit supervisor, whether he was required to collect sales tax on ship-board sales. Alvarez replied that he didn't have to collect sales taxes on sales made to seamen when he delivered the goods to the ship. 1/ (Testimony of Marylis.) The on-board sales transactions took place in the following manner: Taxpayer (through its owner, Thomas Marylis) would board the foreign vessel and accept orders from the captain, chief mate, or chief steward. (Earlier, one of these persons would have taken orders from the rest of the crew.) If individual crewmen tried to place orders, Marylis would refer them to the captain, chief mate, or chief steward. After receiving orders from one of these three persons, Marylis would return to Taxpayer's store, fill the order, and transport the goods back to the vessel. Whoever placed the order would then examine the goods and give Marylis the money /2 collected from the crew. (Testimony of Roberts, Marylis.) The goods sold in this manner were ordinarily for the personal use of individual crew members; typical items were: shoes, underwear, working clothes, small radios, watches, suitcases, soap, paper towels, and other personal care products. (Testimony of Marylis.) Department Audit of Taxpayer In 1980, the Department audited Taxpayer's corporate books to determine if sales tax had been properly collected and paid. Taxpayer could produce no dock or warehouse receipts, bills of lading, resale certificates from other licensed dealers, or affidavits verifying that its on-board sales were made to out-of-state purchasers for transportation outside of Florida. (Testimony of Roberts, Marylis.) Due to Taxpayer's failure to supply documentation demonstrating that its ship-board sales from June 1, 1977, to July 31, 1980, were exempt from sales tax imposed by Chapter 212, Florida Statutes, the Department issued a proposed assessment on September 23, 1980. Through that assessment, the Department seeks to collect $21,201.01 in delinquent sales tax, $5,131.39 in penalties, and $3,892.18 in interest (in addition to interest at 12 percent per annum, or $6.97 per day, accruing until date of payment). (Exhibit 5.) Informal Conference with Department; Alvarez's Representations to Taxpayer In October 1980 -- after the audit -- Taxpayer (through Marylis) informally met with Manuel Alvarez, the Department's regional audit supervisor, to discuss the tax status of the shipboard sales. Specifically, they discussed the Department auditor's inability to confirm that Taxpayer delivered the items to the ships, as opposed to the buyers picking up the goods at the store. Alvarez told him: [I]f the buyers would come and just pick them up and take them. And I [Alvarez] think I told him that, if that was the case, it was taxable. But, if they just placed their orders there -- like we have had other ship supplies -- and they them- selves, or one of their employees, would take the items aboard ships, that would be an exempt sale. I did make that state ment. If we had any type of confirmation to that effect, when it comes to that. (Tr. 61.) 3/ (Testimony of Alvarez.) Alvarez then told Marylis to obtain documentation or verification that the sales were made on foreign vessels, i.e., proof that Taxpayer delivered the goods to the vessels. He assured Marylis that if he could bring such verification back, such sales "would come off the audit." (Tr. 62.)(Testimony of Alvarez.) Alvarez was an experienced Department employee: he retired in 1980, after 30 years of service. It was Alvarez's standard practice -- when dealing with sales tax exemption questions -- to reiterate the importance of documentation. He would always give the taxpayer an opportunity -- 30 days or more -- to obtain documentation that a sale was exempt from taxation. (Testimony of Alvarez.) Taxpayer's Verification In response to the opportunity provided by Alvarez, Taxpayer (through Marylis) obtained affidavits from numerous captains of foreign vessels and shipping agents. Those affidavits read, in pertinent part: I, [name inserted] , am the Captain aboard the vessel [name inserted] from [place of origin]. I am personally aware that Speros International Ship Supply Co., Inc. sells various commodities, supplies, clothing, and various sundry items to for eign ship personnel by delivering the said items to the ships docked at various termi- nals inside the Tampa Port Authority and other locations in Tampa, Florida from [date] to the present. (Testimony of Marylis; Exhibit 8.) Moreover, in an attempt to comply with the tax law and avoid similar problems in the future, Taxpayer printed receipt books to be used in all future on-board sales. The receipts reflect the type of goods sold, the date of delivery to the vessel, the foreign vessel's destination, and the total purchase price. Also included is a signature line for the individual who delivers and receives the goods. (Testimony of Marylis; Exhibit 7.)
Recommendation Based on the foregoing, it is RECOMMENDED: That Department's proposed assessment of Taxpayer for delinquent sales tax, penalties, and interest, be issued as final agency action. DONE AND RECOMMENDED this 17th day of February, 1982, in Tallahassee, Florida. R. L. CALEEN, JR. 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 17th day of February, 1982.
The Issue The issues for determination are whether Respondent should assess tax, interest, and penalty on gross sales that Petitioner reported in Petitioner's federal income tax returns, but not in Petitioner's state sales tax returns; and on gross sales of services in transactions that also involved sales of tangible personal property.
Findings Of Fact Petitioner was a Florida corporation from May 1, 1995, through April 30, 2000 (the audit period). Petitioner maintained its principal place of business at 153 East Morse Boulevard, Winter Park, Florida 32789, and engaged in the business of providing services for interior design and decorating and selling tangible personal property used in the design and decoration of properties. On October 10, 2004, the Department of State, Division of Corporations, administratively dissolved Petitioner for failure to file Petitioner's annual report. Petitioner's federal employer identification number during the audit period was 59-2706005. Petitioner reported income and deductions for purposes of the federal income tax using the cash method of accounting. During the audit period, Petitioner was a registered dealer and filed a monthly Sales and Use Tax Return (DR-15) with Respondent. On June 2, 2000, Respondent sent Petitioner a Notification of Intent to Audit Books and Records (Form DR-840) bearing audit number A9933414838. Respondent and Petitioner agreed that a sampling method would be the most effective, expedient, and adequate method in which to audit Petitioner's books and records. Respondent examined and sampled the available books and records to determine whether Petitioner properly collected and remitted sales and use tax in compliance with Chapter 212, Florida Statutes (1993). For 1996, 1997, and 1999, Petitioner reported fewer gross sales on the DR-15s used for the purpose of the state sales tax than Petitioner reported on its Form 1120S federal income tax return. Respondent determined that the difference between gross sales reported for purposes of the state and federal taxes constituted unreported sales on which Respondent was statutorily required to assess sales tax, penalty, and interest. Respondent's auditor divided the yearly differences in the amounts reported on the Form 1120S and the DR-15s to determine a monthly difference for each month from 1996 through 1997. The auditor then scheduled the monthly difference and assessed the tax appropriately. The auditor also assessed tax for the value of design services that Petitioner provided to customers when Petitioner sold the customers design services and tangible personal property as a part of the same transaction. Pursuant to an agreement between Petitioner and Respondent's auditor, the sample included the entire year in 1999. Petitioner collected sales tax on all sales of tangible personal property, but did not collect sales tax on fees charged for decorator and design services provided in the same transactions. Respondent is authorized by rule to assess sales tax on the value of services provided in the same transaction in which Petitioner sold tangible personal property. The auditor correctly divided the total taxable design fees invoiced for 1999 by the total invoiced amount per sales by customer detail. The resulting quotient of .0752 percent was the applicable percentage of the design fees that were taxable in 1999. The auditor multiplied the applicable percentage by the gross sales that Petitioner reported on its federal tax returns for 1997, 1998, and 1999 to determine the total amount of design fees that were taxable. The auditor then properly scheduled and assessed the taxable interior design fees. On May 1, 2001, Respondent issued a Notice of Intent to Make Audit Changes (form DR-1215). The Notice provided that Petitioner owed $77,249.72 in taxes; $38,625.02 in penalties; and $29,471.12 in interest, for a total deficiency of $145,345.86. Interest continued to accrue on the unpaid assessment. On August 15, 2001, Respondent issued its Notice of Proposed Assessment. The Notice provided that Petitioner owed: $77,249.72 in taxes; $38,625.02 in penalties; and $32,145.15 in interest, for a total of $148,019.89 through August 15, 2001.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Respondent enter a final order assessing Petitioner for $148,019.89 in tax, penalty, and interest, plus the amount of interest that accrues from August 15, 2001, through the date of payment. DONE AND ENTERED this 4th day of February, 2005, in Tallahassee, Leon County, Florida. S DANIEL MANRY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 4th day of February, 2005. COPIES FURNISHED: W. Scott Carter Carter Wolf Interiors, Inc. 153 East Morse Boulevard Winter Park, Florida 32789-7400 J. Bruce Hoffmann, General Counsel Department of Revenue 204 Carlton Building Post Office Box 6668 Tallahassee, Florida 32314-6668 W. Scott Carter 1700 Briercliff Drive Orlando, Florida 32806-2408 James O. Jett, Esquire Office of the Attorney General The Capitol, Plaza Level 01 Tallahassee, Florida 32399-1050 James Zingale, Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100
The Issue Whether Respondent committed the offenses set forth in the two-count Administrative Complaint, dated April 17, 2007, and, if so, what penalty should be imposed.
Findings Of Fact Based on the oral and documentary evidence adduced at the final hearing and the entire record in this proceeding, the following findings of fact are made: The Department of Business and Professional Regulation, Division of Real Estate (the "Department"), is the state agency charged with enforcing the statutory provisions pertaining to persons holding real estate broker and sales associate's licenses in Florida, pursuant to Section 20.165 and Chapters 455 and 475, Florida Statutes. At all times relevant to this proceeding, except where specifically noted, Respondent Mathew Johnson was a licensed Florida real estate sales associate, having been issued license number SL3149081. Respondent first obtained his real estate associate's license in 2003 and worked under the license of broker Jacqueline Sanderson in Orlando. When he married and his wife became pregnant, Respondent believed that he needed a more steady income than his commission-based employment with Ms. Sanderson provided. Respondent left Ms. Sanderson's employ on good terms and commenced work as the marketing manager for the downtown YMCA in Orlando. While working at the downtown YMCA, Respondent met a member of the YMCA named Tab L. Bish ("Mr. Bish"), a broker who owns First Source, Inc., an Orlando real estate sales company (sometimes referred to as "FSI Realty"). Respondent became friendly with Mr. Bish, and expressed an interest in getting back into the real estate business. Mr. Bish offered Respondent a job at First Source. Respondent had allowed his sales associate's license to lapse while he was working at the YMCA. Respondent informed Mr. Bish of that fact, and told Mr. Bish that he required a salaried position in order to support his young family. Respondent testified that Mr. Bish was happy to hire him as an office manager, because Mr. Bish wanted Respondent to perform a marketing role for First Source similar to that he had performed for the YMCA. Respondent started working at First Source in May 2005, as a salaried office manager. Mr. Bish agreed that he initially hired Respondent as an office manager, but only on the understanding that Respondent would take the necessary steps to reactivate his sales associate's license and commence selling property as soon as possible. Respondent took the licensing course again. Mr. Bish believed that Respondent was taking too long to obtain his license, and cast about for something Respondent could do during the interim. In order to make profitable use of Respondent's time, Mr. Bish began to deal in referral fees from apartment complexes. Certain complexes in the Orlando area would pay a fee to brokers who referred potential renters to the apartments, provided these potential renters actually signed leases. Among the apartment complexes offering referral fees was the Jefferson at Maitland, which in 2005 offered a referral fee of half the first month's rent. Mr. Bish placed Respondent in charge of connecting potential renters with apartment complexes, showing the apartments, following up to determine whether the potential renters signed leases, and submitting invoices for the referral fees. Mr. Bish did not authorize Respondent to collect the payments. Respondent initiated contact with the Jefferson at Maitland and began sending potential renters there. Respondent would submit invoices to the Jefferson at Maitland, payable to First Source, for each referral that resulted in a lease agreement. Respondent estimated that he submitted between 12 and 15 invoices for referral fees to the Jefferson at Maitland during his employment with First Source. Respondent obtained his license and became an active sales associate under Mr. Bish's broker's license on November 16, 2005. Mr. Bish began a process of weaning Respondent away from his salaried position and into working on a full commission basis. Respondent stopped showing apartments under the referral arrangement and began showing properties for sale. The last lease for which First Source was due a referral fee from the Jefferson at Maitland was dated December 5, 2005. In early February 2006, it occurred to Respondent that he had failed to follow up with the Jefferson at Maitland regarding the last group of potential renters to whom he had shown apartments during October and November 2005. Respondent claimed that he "hadn't had the opportunity" to follow up because of the press of his new duties as a sales associate and the intervening holiday season. However, nothing cited by Respondent explained his failure to make a simple phone call to the Jefferson at Maitland to learn whether First Source was owed any referral fees. Respondent finally made the call to the Jefferson at Maitland on February 9, 2006. He spoke to a woman he identified as Jenny Marrero, an employee whom he knew from prior dealings. Ms. Marrero reviewed Respondent's list and found three persons who had signed leases after Respondent showed them apartments: Mike Tebbutt, who signed a one-year lease on October 26, 2005, for which First Source was owed a referral fee of $532.50; Terry Ford, who signed an eight-month lease on November 14, 2005, for which First Source was owed a referral fee of $492.50; and Juan Sepulveda, who signed an eight-month lease on December 2, 2005, for which First Source was owed a referral fee of $415.00. However, there was a problem caused by Respondent's failure to submit invoices for these referral fees in a timely manner. Respondent testified that Ms. Marrero told him that the Jefferson at Maitland had reduced its referral fee from 50 percent to 20 percent of the first month's rent, effective January 2006.2 Ms. Marrero could not promise that these late invoices would be paid according to the 2005 fee structure. According to Respondent, Ms. Marrero suggested that the Jefferson at Maitland's corporate office would be more likely to pay the full amount owed if Respondent did something to "break up" the invoices, making it appear that they were being submitted by different entities. She also suggested that no invoice for a single payee exceed $1,000, because the corporate office would know that amount exceeded any possible fee under the 2006 fee structure. Ms. Marrero made no assurances that her suggestions would yield the entire amount owed for the 2005 invoices, but Respondent figured the worst that could happen would be a reduction in the billings from 50 percent to 20 percent of the first month's rent. On February 9, 2006, Respondent sent a package to the Jefferson at Maitland, via facsimile transmission. Included in the package were three separate invoices for the referral fees owed on behalf of Messrs. Tebbutt, Ford, and Sepulveda. The invoices for Messrs. Tebbutt and Sepulveda stated that they were from "Matt Johnson, FSI Realty," to the Jefferson at Maitland, and set forth the name of the lessee, the lease term, the amount of the "referral placement fee," and stated that the checks should be made payable to "FSI Realty, 1600 North Orange Avenue, Suite 6, Orlando, Florida 32804." The invoice for Mr. Ford stated that it was from "Matt Johnson" to the Jefferson at Maitland. It, too, set forth the name of the lessee, the lease term, and the amount of the referral fee. However, this invoice stated that the check should be made payable to "Matt Johnson, 5421 Halifax Drive, Orlando, Florida 32812." The Halifax Drive location is Respondent's home address. The package sent by Respondent also included an Internal Revenue Service Form W-9, Request for Taxpayer Identification Number and Certification, for Mr. Bish and for Respondent, a copy of Respondent's real estate sales associate license, a copy of Mr. Bish's real estate broker's license, and a copy of First Source, Inc.'s real estate corporation registration. Approximately one month later, in early March 2006, Mr. Bish answered the phone at his office. The caller identifying herself as "Amber" from the Jefferson at Maitland and asked for Respondent, who was on vacation. Mr. Bish asked if he could help. Amber told Mr. Bish that the W-9 form submitted for Respondent had been incorrectly filled out, and that she could not send Respondent a check without the proper information. Mr. Bish told Amber that under no circumstances should she send a check payable to Respondent. He instructed her to make the payment to First Source. Amber said nothing to Mr. Bish about a need to break up the payments or to make sure that a single remittance did not exceed $1,000. Mr. Bish asked Amber to send him copies of the documents that Respondent had submitted to the Jefferson at Maitland. Before those documents arrived, Mr. Bish received a phone call from Respondent, who explained that he submitted the invoice in his own name to ensure that Mr. Bish received the full amount owed by the Jefferson at Maitland. On March 10, 2006, after reviewing the documents he received from the Jefferson at Maitland, Mr. Bish fired Respondent. On March 29, 2006, Mr. Bish filed the complaint that commenced the Department's investigation of this matter.3 At the hearing, Mr. Bish explained that, even if Respondent's story about the need to "break up" the invoices and keep the total below $1,000 were true, the problem could have been easily resolved. Had Mr. Bish known of the situation, he would have instructed the Jefferson at Maitland to make one check payable to him personally as the broker, and a second check payable to First Source, Inc. In any event, there was in fact no problem. By a single check, dated March 15, 2008, First Source received payment from the Jefferson at Maitland in the amount of $1,440, the full sum of the three outstanding invoices from 2005. Respondent testified that he never intended to keep the money from the invoice, and that he would never have submitted it in his own name if not for the conversation with Ms. Marrero. Respondent asserted that if he had received a check, he would have signed it over to Mr. Bish. Respondent and his wife each testified that the family had no great need of $492.50 at the time the invoices were submitted. Respondent's wife is an attorney and was working full time in February 2006, and Respondent was still receiving a salary from First Source. In his capacity as office manager, Respondent had access to the company credit card to purchase supplies. Mr. Bish conducted an internal audit that revealed no suspicious charges. Respondent failed to explain why he did not immediately tell Mr. Bish about the potential fee collection problem as soon as he learned about it from Ms. Marrero, why he instructed the Jefferson at Maitland to send the check to his home address rather than his work address, or why he allowed a month to pass before telling Mr. Bish about the invoices. He denied knowing that Mr. Bish had already learned about the situation from the Jefferson at Maitland's employee. The Department failed to demonstrate that Respondent intended to keep the $492.50 from the invoice made payable to Respondent personally. The facts of the case could lead to the ultimate finding that Respondent was engaged in a scheme to defraud First Source of its referral fee. However, the same facts also may be explained by Respondent's fear that Mr. Bish would learn of his neglect in sending the invoices, and that this neglect could result in a severe reduction of First Source's referral fees. Respondent may have decided to keep quiet about the matter in the hope that the Jefferson at Maitland would ultimately pay the invoices in full, at which time Respondent would explain himself to Mr. Bish with an "all's well that ends well" sigh of relief. Given the testimony at the hearing concerning Respondent's character and reputation for honesty, given that Respondent contemporaneously told the same story to his wife and to Ms. Sanderson that he told to this tribunal, and given that this incident appears anomalous in Respondent's professional dealings, the latter explanation is at least as plausible as the former. Respondent conceded that, as a sales associate, he was not authorized by law to direct the Jefferson at Maitland to make the referral fee check payable to him without the express written authorization of his broker, Mr. Bish. Respondent also conceded that Mr. Bish did not give him written authorization to accept the referral fee payment in his own name. Respondent has not been subject to prior discipline.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Florida Real Estate Commission enter a final order: Dismissing Count I of the Administrative Complaint against Respondent; and Suspending Respondent's sales associate's license for a period of one year for the violation established in Count II of the Administrative Complaint. DONE AND ENTERED this 21st day of September, 2007, in Tallahassee, Leon County, Florida. S LAWRENCE P. STEVENSON Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 21st day of September, 2007.
The Issue The parties stipulated that the following legal issues were presented on the facts: When the taxpayer fails to claim the tax credit for sales tax on bad debts charged off during the month for which the return is filed as permitted by Section 212.17(8) Florida Statutes, may the taxpayer claim a refund of the overpayment pursuant to Section 215.26, Florida Statutes? Does claiming a bad debt credit on a return for a month later than the month in which the charge-offs were made constitute an "application for refund" within the meaning of Section 215.26(2), Florida Statutes? STIPULATIONS The parties entered into a written stipulation of the issues, of the facts, and stipulated to the introduction into evidence of the attachments to the written stipulation of facts and the Exhibits 1 through 6. The following are the pertinent findings of fact in this case.
Findings Of Fact Causeway Lumber Company, Inc., (Causeway) is a Florida corporation engaged in the sale of lumber and building materials. During the years 1973- 1977 it operated two yards; one at 2701 South Andrews Avenue, Fort Lauderdale, Broward County, and one and 400 Northwest 2nd Avenue, Boca Raton, Palm Beach County. Because it operated in two counties, separate tax returns were filed for the Fort Lauderdale yard and the Boca Raton yard. Causeway uses the accrual method of accounting, the specific charge-off method of writing off bad debts, and its fiscal year ends March 31. Causeway did not collect the sales tax on credit sales at the time such sales were made, but billed sales tax to its customers as part of the credit sales. Although the sales taxes were not received by Causeway at the time the credit sales were made, Causeway reported and paid the sales tax on credit sales on the return for the month in which the sale was made as required in Section 212.06, Florida Statutes. In March of 1974, 1975, and 1976 the accounts receivable were reviewed and the account deemed worthless were written off as uncollectable and so reported on the corporation's income tax returns for those years. Causeway attempted to take as a credit in September of 1976 all of the bad debts written off in March of 1974, 1975 and 1976. The taking of this credit was questioned by the Comptroller, and Causeway paid the taxes due on the September 1976 sales tax remittance and then filed an application for refund on January 20, 1978, pursuant to provisions of Section 215.26, Florida Statutes. The Comptroller denied the application for refund stating as the grounds that there was no authority in Section 212.17, Florida Statutes, for a refund. Causeway's two outlets overpaid sales taxes in the following amounts in the years indicated: 1974 1975 1976 Boca Raton $ 1,072.51 $ 9,208.17 $ 30,477.11 Ft. Lauderdale 3,323.15 10,237.33 10,004.22 $ 4,395.66 $ 19,445.50 $ 40,481.33
Recommendation Based upon the foregoing findings of fact and conclusions of law, the Hearing Officer recommends to the Comptroller that the taxpayer be refunded the taxes overpaid in 1975, and 1976, in the total amount of $59,926.83. DONE and ORDERED this 9th day of October, 1978, in Tallahassee, Florida. STEPHEN F. DEAN Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 9th day of October, 1978. COPIES FURNISHED: Richard W. Roe 2900 East Oakland Park Boulevard Fort Lauderdale, Florida 33306 Harold F. X. Purnell Assistant Attorney General The Capitol, Room LL04 Tallahassee, Florida 32304 Eugene J. Cella General Counsel Office of the Comptroller The Capitol Tallahassee, Florida 32304 =================================================================
