The Issue The issue is whether petitioner's average final compensation and retirement service credit were properly calculated.
Findings Of Fact Based upon all of the evidence, the following findings of fact are determined: Petitioner, Dr. Michael Kasha, is a former professor in the School of Arts and Sciences at Florida State University. His most recent stint of employment occurred during school year 1995-96 when he was employed in the Institute of Molecular Biophysics. He retired at the end of December 1995, and counting several years of out-of-state service, he had a total of 50.58 years of creditable service. In November 1995, petitioner contacted respondent, Division of Retirement (DOR), for the purpose of determining his Average Final Compensation (AFC) for retirement purposes. That agency has the statutory responsibility of performing all retirement related calculations. In making its calculations, DOR determined petitioner's service credit for his last fiscal year of service (1995-96) by using a nine-month work year divided by six months of actual service (July-December 1995), or a .67 service credit. When this factor was applied to his compensation received for the six months of service, it produced a much lower annualized salary for ranking purposes than petitioner expected. Contending that a twelve-month work year should have been used, rather than the nine months used by DOR, petitioner filed a request for a hearing to contest DOR's action. During petitioner's last fiscal year of service, he was contracted to work from July 1 to July 28, 1995, by a Summer Supplemental Employment Contract. In addition, he was employed under a Nine Month Employment Contract from August 8, 1995, to May 6, 1996. On January 23, 1996, however, this contract was mutually revised by the parties to provide that petitioner's employment would terminate on December 29, 1995. Between July 1, 1995, and December 29, 1995, the parties agree that petitioner received $67,290.22 in total compensation from the university. To determine a member's appropriate service credit, DOR rule 60S- 2.002(4)(a) provides that if a member earns service credit for fewer months than comprise his work year, he shall receive a fraction of a year of service credit, such fraction to be determined by dividing the number of months and fractions thereof of service earned by the number of months in the approved work year. Since petitioner worked only six months during his last work year, the rule requires that this period of time be divided by "the number of months in the approved work year" to calculate his appropriate service credit. Members of the retirement system are employed for either nine, ten or twelve months each fiscal year, depending on the nature of their jobs. As to university instructional/academic members, such as petitioner, DOR rule 60S- 2.002(4)(b) defines the work year to be the number of months in the full contract year or nine months, whichever is greater, as specified by the contract between the employee and the school system. Because university faculty members normally work under a nine-month contract, DOR used that time period to establish petitioner's work year. In doing so, DOR excluded petitioner's Supplemental Summer School Contract on the theory it was "supplemental to (his) regular 9 month contract." That is to say, petitioner earned a maximum full year of creditable service during the nine months, and the three months in the supplemental contract would not add any additional creditable service. This determination is in conformity with the rule. Since petitioner's actual service credit for fiscal year 1995-96 was six months, that is, he worked full-time from July 1 through December 29, 1995, the computation under rule 60S-2.002(4)(a) produced a service credit of .67. Petitioner's compensation of $67,290.22 was then divided by the .67 factor and resulted in an annualized salary for ranking purposes of $100,433.16. Since the salary was not one of petitioner's highest fiscal years of salary, it was excluded from his AFC. Petitioner contends, however, that his work year is actually twelve months, rather than nine, if his Supplemental Summer School Contract is included. He points out that the university has always required that he and other science professors be on campus twelve months a year, unlike most other faculty members. Despite this requirement, the university has never used a twelve-month contract for this group of professors. Instead, it has relied on a combination of regular and supplemental contracts. If a twelve month work year had been used for petitioner's last fiscal year, this would have produced a service credit of .50, which if applied to his compensation, would have produced an annualized salary for ranking purposes of $134,580.44. This in turn would increase petitioner's retirement benefits by more than $1,200 per year. There is no provision in the DOR's rules which permits the use of a twelve-month work year in calculating the service credit for any person who is employed under a nine-month contract. While this may be unfair to members who find themselves in petitioner's circumstances, until the rule is changed, it must be uniformly applied. Therefore, the request should be denied.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Division of Retirement enter a final order denying petitioner's request to have his retirement benefit calculated using a twelve- month work year for his last fiscal year of employment. DONE AND ENTERED this 22nd day of January, 1997, in Tallahassee, Florida. DONALD R. ALEXANDER Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (904) 488-9675 SUNCOM 278-9675 Fax Filing (904) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 22nd day of January, 1997. COPIES FURNISHED: Dr. Michael Kasha 3260 Longleaf Road Tallahassee, Florida 32310 Stanley M. Danek, Esquire Division of Retirement 2639-C North Monroe Street Tallahassee, Florida 32399-1560 A. J. McMullian, III, Director Division of Retirement Cedars Executive Center, Building C 2639 North Monroe Street Tallahassee, Florida 32399-1560
The Issue Whether the Florida Department of Environmental Protection‘s (Department) notice of intent to issue an environmental resource/mitigation bank permit, and notice of intent to grant a variance waiving the financial responsibility requirements for the construction and implementation activities of the mitigation bank to Respondent, CRP/HLV Highlands Ranch, LLC (Highlands Ranch) should be approved, and under what conditions.
Findings Of Fact The Parties Petitioner is a Florida not-for-profit corporation in good-standing, originally incorporated in 1946, with its corporate offices currently located at 2545 Blairstone Pines Drive, Tallahassee, Florida. Petitioner‘s corporate purposes include, among others, ?the cause of natural resource conservation and environmental protection, to perpetuate and conserve the fish, wildlife, mineral, soil, water, clean air and natural resources of Florida.? The Department is an agency of the State of Florida having concurrent jurisdiction with the state‘s water management districts for permitting mitigation banks pursuant to chapter 373, Part IV, Florida Statutes. Highlands Ranch is a Delaware limited-liability corporation registered with the State to do business in Florida, with its corporate offices located at 9803 Old St. Augustine Road, Suite 1, Jacksonville, Florida. Highlands Ranch was the applicant for the SJRWMD Permit, and is the applicant for the DEP Permit and Variance that are at issue in this proceeding. The Property The property designated to become the HRMB (the Property) comprises approximately 1,575 acres, which includes 551.99 acres of wetlands, 990.90 acres of uplands, and 32.60 acres of miscellaneous holdings, including easements and a hunt camp. The Property is bounded by the Jennings State Forest on the eastern boundary, the conservation lands of Camp Blanding Joint Training Center on the southern boundary, and a titanium mine on the western boundary. The upland communities consist of mesic and xeric pine plantations. The wetland communities consist of 260.30 acres of hydric pine flatwoods, 80.26 acres of bay and bottomland, and 211.43 acres of floodplain. The wetland areas of the HRMB are generally associated with two creeks that traverse the property, Boggy Branch on the northern portion of the property, and Tiger Branch, which is a series of streams and branches in the southeastern and eastern portion of the property. Boggy Branch and Tiger Branch feed into the north fork of Flat Creek, some of which encroaches onto the eastern side of the property. In addition to Boggy Branch and Tiger Branch and their tributaries, there are isolated wetlands scattered throughout the HRMB property. Most of the uplands, and much of the wetlands have been altered from their native plant communities by historic and on- going silvicultural activities. The uplands currently consist largely of pine plantation planted in slash pine of various ages and densities, with one small area planted in longleaf pine. The property has an elevation gradient of approximately 90 feet, which extends generally from the higher xeric pine flatwoods, sloping down to the creek systems. A gradient of 90 feet over an area as small as the HRMB is a significant elevation change in Florida. Mitigation Banks A mitigation bank is ?a project permitted under 373.4136 undertaken to provide for the withdrawal of mitigation credits to offset adverse impacts authorized? by an Environmental Resource Permit (ERP) issued under Part IV, chapter 373, Florida Statutes. § 373.403(19), Fla. Stat. A mitigation bank permit is a type of ERP. The Department and the water management districts are legislatively authorized to require permits to establish and use mitigation banks. § 373.4136(1), Fla. Stat. Mitigation banks act as repositories for wetland mitigation credits that can be used to offset adverse impacts to wetlands that occur as the result of off-site ERP projects. Mitigation banks are intended to ?emphasize the restoration and enhancement of degraded ecosystems and the preservation of uplands and wetlands as intact ecosystems rather than alteration of landscapes to create wetlands. This is best accomplished through restoration of ecological communities that were historically present.? They are designed to ?enhance the certainty of mitigation and provide ecological value due to the improved likelihood of environmental success associated with their proper construction, maintenance, and management,? often within larger, contiguous, and intact ecosystems. § 373.4135(1), Fla. Stat. A mitigation credit is a "standard unit of measure which represents the increase in ecological value resulting from restoration, enhancement, preservation, or creation activities." Fla. Admin. Code R. 62-345.200(8). Ecological value is defined as the value of functions performed by uplands, wetlands, and other surface waters to the abundance, diversity, and habitats of fish, wildlife, and listed species. Included are functions such as providing cover and refuge; breeding, nesting, denning, and nursery areas; corridors for wildlife movement; food chain support; natural water storage, natural flow attenuation, and water quality improvement which enhances fish, wildlife, and listed species utilization. Fla. Admin. Code R. 62-345.200(3). When an ERP permit requires wetland mitigation to offset adverse impacts to wetlands, the permittee may purchase wetland credits from a mitigation bank and apply them to meet the mitigation requirements. When the permittee has completed the agreement with the mitigation bank and paid for the credits, those mitigation credits are debited from the mitigation bank's ledger. Every mitigation bank has a ledger that reflects how many credits have been released for use, and how many have been sold for use as mitigation. Uniform Mitigation Assessment Method Rule A mitigation bank is to be awarded mitigation credits ?based upon the degree of improvement in ecological value expected to result from the establishment and operation of the mitigation bank as determined using a functional assessment methodology.? § 373.4136(4), Fla. Stat. Section 373.414(18), Florida Statutes, provides, in pertinent part, that: The department and each water management district responsible for implementation of the environmental resource permitting program shall develop a uniform mitigation assessment method for wetlands and other surface waters. The department shall adopt the uniform mitigation assessment method by rule no later than July 31, 2002. The rule shall provide an exclusive and consistent process for determining the amount of mitigation required to offset impacts to wetlands and other surface waters, and, once effective, shall supersede all rules, ordinances, and variance procedures from ordinances that determine the amount of mitigation needed to offset such impacts. Once the department adopts the uniform mitigation assessment method by rule, the uniform mitigation assessment method shall be binding on the department, the water management districts, local governments, and any other governmental agencies and shall be the sole means to determine the amount of mitigation needed to offset adverse impacts to wetlands and other surface waters and to award and deduct mitigation bank credits . . . . It shall be recognized that any such method shall require the application of reasonable scientific judgment. The uniform mitigation assessment method must determine the value of functions provided by wetlands and other surface waters considering the current conditions of these areas, utilization by fish and wildlife, location, uniqueness, and hydrologic connection, and, when applied to mitigation banks, the factors listed in s. 373.4136(4). The uniform mitigation assessment method shall also account for the expected time lag associated with offsetting impacts and the degree of risk associated with the proposed mitigation. The uniform mitigation assessment method shall account for different ecological communities in different areas of the state . . . . In 2004, the Department adopted the Uniform Mitigation Assessment Method (UMAM) rule, Florida Administrative Code Chapter 62-345. In general terms, the UMAM is designed to assess impacts and wetland functions associated with projects that impact wetlands, along with necessary mitigation required to offset those impacts. As it pertains to this proceeding, the UMAM establishes the standards for evaluating mitigation banks and calculating the credits that may be awarded to a mitigation bank, and provides a standardized wetland assessment methodology that may be applied across community types. Permitting of a mitigation bank first involves a qualitative characterization of the property, known as a Part I evaluation. The Part I evaluation is conducted by dividing the subject parcel of property into assessment areas for wetlands and uplands. An assessment area is ?all or part of a . . . mitigation site, that is sufficiently homogeneous in character . . . or mitigation benefits to be assessed as a single unit.? Fla. Admin. Code R. 62-345.200(1). Each mitigation assessment area must be described with sufficient detail to provide a frame of reference for the type of community being evaluated and to identify the functions that will be evaluated. When an assessment area is an upland proposed as mitigation, functions must be related to the benefits provided by that upland to fish and wildlife of associated wetlands or other surface waters. Information for each assessment area must be sufficient to identify the functions beneficial to fish and wildlife and their habitat that are characteristic of the assessment area‘s native community type . . . Fla. Admin. Code R. 62-345.400. After the assessment areas have been established, a Part II assessment is performed using the scoring criteria established in the UMAM "to determine the degree to which the assessment area provides the functions identified in Part I and the amount of function lost or gained by the project.? Under the Part II evaluation, each mitigation assessment area is evaluated under its current condition --or for areas subject to preservation mitigation, without mitigation -- and its ?with mitigation? condition. The difference in those conditions represents the improvement of ecological value referred to as the ?delta? or the ?lift.? Fla. Admin. Code R. 62-345.500. The ?delta? for an enhancement or restoration area is subject to modification by applying any applicable time lag factor and risk factor to arrive at the numeric relative functional gain (RFG). The RFG is multiplied by the number of acres of the assessment area to determine the number of mitigation bank credits to be awarded. Fla. Admin. Code R. 62- 345.600. Time Lag Factor Section 373.414(18) provides, in pertinent part, that ?[t]he uniform mitigation assessment method shall also account for the expected time lag associated with offsetting impacts . . . .? Florida Administrative Code Rule 62-345.600(1) establishes the UMAM criteria for applying the time lag factor and provides, in pertinent part, that: Time lag shall be incorporated into the gain in ecological value of the proposed mitigation as follows: The time lag associated with mitigation means the period of time between when the functions are lost at an impact site and when the site has achieved the outcome that was scored in Part II. In general, the time lag varies by the type and timing of mitigation in relation to the impacts. Wetland creation generally has a greater time lag to establish certain wetland functions than most enhancement activities. Forested systems typically require more time to establish characteristic structure and function than most herbaceous systems. Factors to consider when assigning time lag include biological, physical, and chemical processes associated with nutrient cycling, hydric soil development, and community development and succession. There is no time lag if the mitigation fully offsets the anticipated impacts prior to or at the time of impact. * * * For the purposes of this rule, the time lag, in years, is related to a factor (T- factor) as established in Table 1 below, to reflect the additional mitigation needed to account for the deferred replacement of wetland or surface water functions. The ?Year? column in Table 1 represents the number of years between the time the wetland impacts are anticipated to occur and the time when the mitigation is anticipated to fully offset the impacts, based on reasonable scientific judgment of the proposed mitigation activities and the site specific conditions. TABLE 1. Year T-factor <or=1 1 2 1.03 3 1.07 4 1.10 5 1.14 6-10 1.25 11-15 1.46 16-20 1.68 21-25 1.92 26-30 2.18 31-35 2.45 36-40 2.73 41-45 3.03 46-50 3.34 51-55 3.65 >55 3.91 The time lag factor is a discounting process which adjusts the future value of the mitigation to a present value at the time credits are released, and is intended to account for the difference between the time that the impacts that the mitigation is to offset have occurred and the time that the final success upon which the credits are based is achieved. The application of the time lag factor is required when mitigation credits are released prior to the mitigation bank achieving the scored final "with-mitigation" condition. Risk Factor Section 373.414(18) provides, in pertinent part, that ?[t]he uniform mitigation assessment method shall also account for the . . . degree of risk associated with the proposed mitigation.? Florida Administrative Code Rule 62-345.600(2) establishes the criteria for applying the time lag factor and provides, in pertinent part, that: (2) Mitigation risk shall be evaluated to account for the degree of uncertainty that the proposed conditions will be achieved, resulting in a reduction in the ecological value of the mitigation assessment area. In general, mitigation projects which require longer periods of time to replace lost functions or to recover from potential perturbations will be considered to have higher risk that those which require shorter periods of time. The assessment area shall be scored on a scale from 1 (for no or de minimus risk) to 3 (high risk), on quarter- point (0.25) increments. A score of one would most often be applied to mitigation conducted in an ecologically viable landscape and deemed successful or clearly trending towards success prior to impacts, whereas a score of three would indicate an extremely low likelihood of success based on the ecological factors below. A single risk score shall be assigned, considering the applicability and relative significance of the factors below, based upon consideration of the likelihood and the potential severity of reduction in ecological value due to these factors. As with the time lag factor, the risk factor is a discounting process which is designed to account for the possibility that there may be occurrences that interfere with the ability of the mitigation bank to replace the ecological functions and values lost when wetland impacts are permitted prior to the final success or evidence that the mitigation bank is clearly trending towards success. DEP/SJRWMD Operating Agreement Sections 373.4135 and 373.4136 establish that the mitigation banking program was created to be jointly administered by the Department and the water management districts. In order to facilitate that joint administration, and to ?further streamline environmental permitting, while protecting the environment,? the Department and the SJRWMD have entered into a written Operating Agreement to ?divide[] responsibility between the DISTRICT and the DEPARTMENT for the exercise of their authority regarding permits . . . under Part IV, Chapter 373, F.S.? By that Operating Agreement, the Department expressly delegated its ?duties and responsibilities? under chapter 373 and Title 62, F.A.C. to the SJRWMD. The Operating Agreement has been adopted by rule by the Department, in rules 62-113.100(3)(x) and 62-300.200(2)(b), and by the SJRWMD in rule 40C-4.091(1)(b). The Department and the SJRWMD are clearly in privity with one another for projects that are subject to the written Operating Agreement. HRMB Permitting History On January 5, 2009, Highlands Ranch submitted an application to the SJRWMD for approval of the HRMB to be located on a 1,575.5-acre parcel of property in Clay County, Florida, specifically in Sections 9, 10, 15, and 16, Township 5 South, Range 23 East (the Property). The application was appropriately submitted to the SJRWMD pursuant to the terms of the Operating Agreement. The Mitigation Service Area (MSA) for the proposed HRMB incorporated portions of Baker, Clay, St. Johns, Putnam, and Duval Counties. The land area and MSA that was the subject of the SJRWMD Permit is identical to the Property encompassed by the proposed DEP Permit at issue in this proceeding. As established in the proceeding that resulted in the issuance of the SJRWMD permit: Highlands Ranch is proposing to place a conservation easement over the mitigation bank property and to conduct enhancement activities in those areas of the property needing improvement as a result of current land uses. Generally, it proposes to cease all pine production practices and cutting of cypress and hardwood trees after the permit is issued. It has also proposed to improve hydrologic conditions on the property by removing a trail road, installing four low water crossings, and removing pine bedding and furrows within all areas planted with pine on the property. Finally, supplemental plantings of appropriate canopy species will be conducted. The project will be implemented in three phases . . . . CRP/HLV Highlands Ranch, LLC v. SJRWMD, Case No. 10-0016, ¶20, (Fla. DOAH May 26, 2010; SJRWMD July 16, 2010). The general project description and phases were substantially identical to the phased proposal in the instant DEP Permit. When Highlands Ranch made its 2009 application to the SJRWMD, the District performed a review of the application, conducted multiple site inspections, met with the applicant's consultants, submitted requests for additional information, and reviewed other appropriate resources. On November 19, 2009, the SJRWMD issued its notice of intent to approve the application, and to approve 204.91 mitigation credits for the HRMB. The credits were calculated by the SJRWMD by applying the UMAM rule. Highlands Ranch filed a petition to challenge the number of credits with the SJRWMD, and requested a formal administrative hearing before the Division of Administrative Hearings. By the time of the final hearing, Highlands Ranch had modified its request to 425 credits, and the SJRWMD had modified its proposed agency action to reduce the number of credits to 193.56. A primary issue of contention in the SJRWMD permit hearing was whether the UMAM preservation adjustment factor (PAF) should be separately applied in areas proposed for enhancement activities in conjunction with preservation afforded by the conservation easement, or whether preservation should be considered as a subsumed element of the enhancement. The PAF is a process that assigns a value to the preservation of the property, and is scored on a scale from zero (no preservation value) to one (optimal preservation value) on one-tenth increments. Fla. Admin. Code R. 62-345.500(3)(a). Thus, preservation at anything less than optimal preservation will result in a downward adjustment of the RFG upon which credits for the acres in an assessment area are ultimately calculated. Under the ?two-step? process, after the functional gain associated with the preservation of the wetland assessment areas is determined, the second step of scoring the functional gain that would be achieved from the enhancement activities, which includes consideration of time lag and risk associated therewith, is performed. The preservation and enhancement scores are considered as separate forms of mitigation, and are each applied as multiples of the delta to arrive at the RFG. In contrast to the SJRWMD approach, Highlands Ranch used a "one-step approach," which scored any area that would be both preserved and enhanced/restored only as ?with mitigation? under UMAM and did not conduct a separate analysis for preservation or apply a separate preservation factor multiple. Neither the ?two-step? PAF nor the ?one-step? PAF is specifically described in the UMAM rule, and both are allowable interpretations of the rule. After the formal hearing, the administrative law judge entered a recommended order in which he determined that the SJRWMD‘s application of the UMAM standards, including its application of the ?two-step approach? was appropriate and correct, thus warranting an award of 193.56 mitigation credits for the HRMB. Neither Highlands Ranch nor the SJRWMD filed exceptions to the recommended order. On July 14, 2010, the SJRWMD entered its final order, which adopted the recommended order ?in its entirety as the final order of this agency.? The final order was not appealed. The SJRWMD permit, Permit Number 4-019-116094-2, was thereafter issued on August 4, 2010, and is currently valid. Development of the June 15, 2011 DEP Guidance Memo During the 2011 legislative session, a bill was proposed to amend the statutes governing mitigation banks. The legislation failed to pass. After the conclusion of the 2011 legislative session on May 7, 2011,1/ more than nine months after the issuance of the SJRWMD permit, counsel for Highlands Ranch contacted Mr. Littlejohn, who had been hired in March, 2011 as the Department‘s Deputy Secretary for Regulatory Programs, to express Highlands Ranch‘s ?frustration with . . . what they considered not an objective review at the [SJRWMD].? Mr. Littlejohn understood that Highlands Ranch believed the SJRWMD review of the application that led to the issuance of the SJRWMD Permit ?was not impartial.? After the telephone conversation, Mr. Littlejohn instructed Department staff to work with counsel for Highlands Ranch to develop guidance to interpret the UMAM rule. Counsel for Highlands Ranch prepared and provided drafts of a guidance document for the Department. There was no evidence of any private individual, other than counsel for Highlands Ranch, being given an opportunity to provide input or otherwise participate in the development of the guidance document. On June 15, 2011, the Department released its final ?Guidance Memo on Interpreting and Applying the Uniform Mitigation Assessment Method? (Guidance Memo). The Guidance Memo was designed to establish ?nuanced interpretations of the UMAM rule? in order to ?provide a uniform method throughout the state.? The Guidance Memo consisted of eight numbered paragraphs. According to Mr. Littlejohn, ?some of these paragraphs are completely unaltered from the [failed 2011] legislation, but I believe that most of them probably had some minor alteration in the subsequent review by the Office of General Counsel and during our own review internally, but . . . some form of Paragraphs 2 through 8 existed in . . . that legislation.? It was the intent of the Department that the Guidance Memo would reflect the current Department interpretation and direction to others in the application of the UMAM. The Guidance Memo was provided to the program administrators for each of the Department‘s six district offices, to the ERP program administrators for each of the water management districts, and to Broward County, which administered the only delegated local ERP program, with the intent that it be uniformly applied by each of them. The Guidance Memo is, and was intended to be, a Department-issued statement of general applicability that implements, interprets, or prescribes law or policy. The practical effect of the Guidance Memo was to reject the ?two-step? preservation adjustment factor (PAF) as applied by the SJRWMD, and establish the ?one-step? PAF as the only interpretation and application allowed by the UMAM rule. The development of the Guidance Memo would have made an appropriate subject for rulemaking, at which all affected stakeholders could have participated. Instead, the Department chose to limit participation to Highlands Ranch, offering no opportunity for other views, either in favor of or in opposition to the terms of the Guidance Memo. Notably, despite the legislature‘s encouragement, if not requirement, of cooperation between the Department and the water management districts in the development and implementation of the UMAM, the Guidance Memo, which was designed to override the method by which UMAM standards were applied by at least two of the water management districts, was developed without water management district knowledge or participation. SJRWMD Application for Modification On September 14, 2011, Highlands Ranch submitted an application for a modification of the SJRWMD permit to the SJRWMD. The application requested that the SJRWMD reconsider the permitted mitigation bank plan in light of the DEP Guidance Memo and, based thereon, modify the number of mitigation credits awarded. No other changes were made to the mitigation bank as permitted. Based on the application of the Guidance Memo alone, Highlands Ranch calculated that 425 mitigation credits was the appropriate number for the development and implementation activities presented in the original SJRWMD permit application. Highlands Ranch withdrew the application for a modification of the SJRWMD permit prior to November 2011. DEP Application for Modification On November 2, 2011, Highlands Ranch submitted an application to the Department for a modification of the SJRWMD Permit (the DEP modification application). In addition to a request that the Guidance Memo be applied, the modification made changes to the plan permitted by the SJRWMD, including supplemental planting of seedling longleaf pine, modification to the prescribed burn schedules, and modification of the monitoring plans and ?success criteria? for demonstrating ecological progress. The application proposed that 426.05 credits be awarded for the HRMB as modified. The DEP modification application was assigned for permit review to Constance Bersok who was, at the time, the Environmental Administrator for the Wetlands Mitigation Program. Ms. Bersok had been involved in the process of applying the UMAM since shortly after the 2000 legislative session, when she ?was in charge of the Department's part of [the UMAM rule] development and coordination? along with the water management districts and other affected entities. Ms. Bersok was identified as the primary Department contact for ?questions and other feedback? regarding the UMAM rule in the June 15, 2011 Guidance Memo. Ms. Bersok is knowledgeable and experienced regarding the interpretation and application of the UMAM rule. Thus, she was the appropriate staff person for primary oversight of the application. Special Cases Agreement The Department determined that it would process the modification application despite the assignment of such projects to the SJRWMD under the Operating Agreement. In order to assume control over the permitting of the HRMB, the Department entered into a ?Written Agreement Pursuant to the Special Cases Section of the Operating Agreement? with the SJRWMD (Special Cases Agreement). Section II, Part D. of the Operating Agreement provides that: By written agreement between the DISTRICT and the DEPARTMENT, responsibilities may deviate from the responsibilities outlined in II. A., B., or C. above. Instances where this may occur include: An extensive regulatory history by either the DISTRICT or the DEPARTMENT with a particular project that would make a deviation result in more efficient or effective permitting; Simplification of the regulation of a project that crosses water management district boundaries; The incorrect agency has begun processing an application or petition and transfer of the application or petition would be inefficient; or Circumstances in which a deviation would result in the application being more efficiently or effectively processed. The specific provisions of paragraphs 1-3 being inapplicable, the Department assumed control over the modification application by relying on the generic ?catch-all? reason set forth in paragraph 4. The basis for the Department‘s determination that it could ?more efficiently or effectively process[]? the application -- despite the fact that the HRMB Property was literally in the SJRWMD‘s back yard, that the SJRWMD had a recent permitting history regarding the Property, and that the SJRWMD had extensive existing knowledge of the condition of the Property -- is not apparent and was not explained. The Special Cases Agreement became effective on December 13, 2011, upon Mr. Littlejohn‘s signature. DEP Permit Application On November 22, 2011, Highlands Ranch submitted a second package to Ms. Bersok, which converted the HRMB application from one for a modification of the SJRWMD permit, to one for a new permit to be issued by the Department. The permit application made certain changes to the terms and conditions for the development of the mitigation bank established in the SJRWMD Permit, but otherwise encompassed the same boundary and service area of the SJRWMD Permit. Highlands Ranch proposed 426.05 mitigation credits as the appropriate number of credits for the activities in the DEP permit application. There has been no other instance in which the Department accepted, processed, or issued a second mitigation bank permit when there was an existing and valid permit issued by a water management district for the same property. Thus, this application is unique in that regard. The Special Cases Agreement provided that it was designed to allow the Department to process the ?[a]pplication for a modification of the Highlands Ranch Mitigation Bank wherein the applicant seeks to revise the mitigation plan.? Despite its apparent limitation to a modification of the SJRWMD permit, the Special Cases Agreement cites to the application number of the DEP Permit that is the subject of this proceeding, and became effective after the submission of the new permit application. There is no evidence of the SJRWMD having objected to the Department‘s continued processing of the application. Thus, although irregular, the Special Cases Agreement was broad enough in its scope to encompass the conversion of the application for modification to a separate permit application. In addition to the foregoing, the scope of the Special Cases Agreement is a matter between the Department and the SJRWMD. There is no question that both agencies have legislatively conferred authority with regard to permitting mitigation banks. The decision between those agencies as to which would have responsibility going forward with the HRMB is not one that affects the substantial interests of Petitioner. Creation of the New ?Performance-driven? Approach On or about February 10, 2012, Ms. Bersok was advised by Mr. Littlejohn that the Department was going to implement a new and previously untried ?performance-driven? approach to permitting the HRMB. Mr. Littlejohn testified that this performance-driven approach is an interpretation of existing mitigation banking rules, and was to provide greater certainty in environmental performance, mitigation success, and provide for a more consistent, predictable, and repeatable permitting process.2/ The more practical effect of the ?performance-driven? approach, as stated by Mr. Littlejohn, is that ?there may be some increase in credits upon not applying a risk or a time lag factor. Those are both discount factors which attach to the raw scoring. So there may be an increase in credits.? Mr. Littlejohn testified that under his ?performance- driven? approach, the current condition of the Property and the final ?success criteria? were the only relevant factors, not how the applicant chose to meet those criteria. Consistent with that approach, Ms. Bersok was instructed that there was no need to issue a request for additional information as to the details by which the performance goals would be met, as was the normal procedure for environmental resource permits, including mitigation bank permits.3/ Under the performance-driven approach as applied to the HRMB, mitigation credits are subject to interim release and available for use upon the satisfaction of ?success criteria? set forth in the permit. Pursuant to the credit release schedule set forth in the DEP Permit, credits may be released upon recording the conservation easement(s), posting the required financial responsibility instrument and providing site security, and thereafter upon meeting one of five ?interim release? milestones. The interim credit releases authorize the release of mitigation credits for use to offset wetland impacts well before the time when the site has achieved the outcome that was scored in the Part II assessment. Although Highlands Ranch will have performed the bulk of the active construction and implementation activities before being entitled to an interim release, the ecological benefit of the interim ?success criteria? does not represent the achievement of the structure and function that will be necessary for final success, nor does it guarantee that that final structure and function will ultimately be achieved. Complete Application Though instructed not to request additional information, Ms. Bersok sent an e-mail to the agent for Highlands Ranch that contained a recitation of what she would have sent the applicant in a request for additional information. On February 14, 2012, Highlands Ranch submitted supplemental information in support of the permit application to Ms. Bersok. The supplemental information contained some, though not all, of the information requested by Ms. Bersok. The submittals of November 1, 2011; November 22, 2011; and February 14, 2012, along with the application check, constitute the application to DEP. There were no written submittals designed to supplement, alter, or amend the proposed activities to enhance or preserve the Property after February 14, 2012. Thus, those documents constituted the complete application. The application contained Highlands Ranch‘s description of historic and existing vegetative communities. There was no suggestion that the description provided by Highlands Ranch was not accurate. The goal of the HRMB as reflected in the DEP application was to convert a silviculture operation to the appropriate native target communities. Mitigation activities proposed in the complete application included restoring or enhancing longleaf pine/xeric oak sandhill, mesic flatwoods, hydric or wet flatwoods, baygall/bay swamp, floodplain swamp/stream or lake swamp and bottomland forest/wetland forest mixed communities, generally through reversal of the existing silvicultural impacts and implementing hydrologic enhancement activities. Each phase of the HRMB would be subject to a conservation easement granted to the Department and the SJRWMD for preservation of the Property in its existing or enhanced condition. The complete application provided that enhancement and restoration would be accomplished through canopy thinning in existing upland and wetland pine plantation areas; control of nuisance and invasive exotic vegetative species; vegetative enhancement, including replanting thinned pine areas with appropriate species where necessary, and supplemental planting of historic native trees and ground cover; prescribed fire; and hydrologic enhancements. Ongoing management of the HRMB site would primarily involve monitoring; prescribed fire; and control of nuisance and invasive exotic vegetative species. Draft Permits As information regarding the application was submitted by Highlands Ranch, Ms. Bersok undertook to calculate the number of mitigation credits warranted by the complete application. She performed several calculations between December 8, 2011 and February 22, 2012. On February 22, 2012, Ms. Bersok performed her final written analysis of the application using the information contained in the November 22, 2011, submittal, including the mitigation activities and target levels and methodologies described by Highlands Ranch, and the information contained in the February 14, 2012, submittal. Thus, her assessment and review was based upon the complete application. In addition to the information regarding site conditions from the permitting file, Ms. Bersok had ?a couple of meetings? to discuss the application, made a site visit, and reviewed additional aerial images obtained on-line. Although her site visit was not comprehensive, Ms. Bersok felt that she had adequate information regarding the current condition for each of the different types of assessment areas that were on the site. Since her review was based in large measure on information and site descriptions regarding the current conditions provided by Highlands Ranch, her belief as to the sufficiency of the information regarding the assessment areas upon which she based her review is warranted and accepted. The November 22, 2011, submittal included the following mitigation activities that differed from the conditions of the SJRWMD permit: All areas subjected to prescribed burning would be burned on a 2-8 year rotation. Two burns necessary to reach final success criteria. Communities defined by both FLUFCS classification and FNAI classification. Basal area targets of less than 60 square feet per acre in U1 and 80 square feet per acre in U2 (perpetual management only). A total of 426.05 credits proposed. No credit withholding by phase. Completion of Construction and Implementation tasks results in 20% of credit release. Target levels and methodologies to determine percent cover and composition of canopy, shrub, and groundcover. The February 14, 2012, submittal included the following description of mitigation activities that differed from the conditions of the SJRWMD permit: The expected fire frequency for the hydric pine restoration areas to be a 1-3 year cycle, with actual burn frequency to be in the professional judgment of the burn manager and team ecologists. Further description of the low water crossings and structures. Since Ms. Bersok utilized the November 22, 2011, submittal, along with the information provided by Highlands Ranch on February 14, 2012, her review and analysis necessarily included the above-listed mitigation activities and target conditions. Ms. Bersok made assumptions designed to produce high quality outcomes that, at the time of her review, had not yet been incorporated as conditions to any proposed permit. Her assumptions/recommendations included the following: In those locations without sufficient pyrogenic groundcover, mechanical means of shrub reduction to carry a fire, and planting or seeding of the native ground cover to achieve and sustain the target community type. Planting of longleaf pine in the xeric (U1) and mesic (U2) communities, and similar mitigation in the hydric pine restoration (W1 and W2) assessment areas. Ms. Bersok‘s assumptions were ultimately incorporated in the DEP draft permit. Ms. Bersok‘s analysis included the ?one-step? approach to application of the preservation factor, wherein preservation was included as an element of enhancement in restoration or enhancement assessment areas, rather than as a separate factor, consistent with the approach outlined in the June 15, 2011 Guidance Memo. Thus, for the assessment areas that were not exclusively bay or floodplain preservation, the ?P-Factor? score was listed as ?n/a.? Ms. Bersok utilized the ?performance-driven? approach as instructed by Mr. Littlejohn. Therefore, her February 22, 2012, assessment assigned a score of 1.00 for both time lag and risk. As a result of her calculations, Ms. Bersok arrived at a total of 280.33 mitigation credits for the HRMB. Ms. Bersok‘s February 22, 2012, score of 280.33 credits incorporated all of the material changes to the SJRWMD permit that were proposed by Highlands Ranch in its complete application, and the material specific conditions that were ultimately included in the DEP proposed permit. The only changes to the SJRWMD permit that were not explicitly part of Ms. Bersok‘s calculation, either as a proposal by the applicant or as an assumption, were: two consecutive burns within a period of 1-3 years in the xeric, mesic, and hydric pine restoration areas to demonstrate final success. monitoring and recording of shrub height to meet success criteria. control of oak species ?to obtain the abundance appropriate to the sandhill community condition.? Those relatively minor changes are not significant in light of the overall information presented in the complete application and Ms. Bersok‘s accepted assumptions, and do not materially affect the final target conditions for the mitigation. Several days prior to May 8, 2012, Ms. Bersok met with Mr. Rach and Mark Thomasson to discuss progress on the application and draft permits. At that time, she reviewed a UMAM assessment that assigned 333 mitigation credits to the HRMB. She was instructed ?to look for some more credits, that [333 credits] wasn't enough.? Ms. Bersok advised Mr. Rach and Mr. Thomasson that 333 mitigation credits was more than could be ecologically supported.4/ On May 8, 2012, Mr. Rach presented Ms. Bersok with a draft pilot permit that called for the award of 424 mitigation credits for the HRMB. Mr. Rach was unable to identify who in the Department calculated the UMAM credits, but that ?the credits which were the result of the UMAM were one of the last things filled in in the permit. So I'm not sure at that point in time who it was.? On May 9, 2012, Ms. Bersok prepared a ?status memo? in which she expressed her opinion that she could not ecologically support the award of 424 mitigation credits for the HRMB, and expressed her ?objection to the intended agency action and refusal to recommend this permit for issuance.? On May 11, 2012, Ms. Bersok was removed from further involvement in the review of the HRMB permit application. Issuance of the DEP Permit and Variance Over the course of the next three months, the Department and Highlands Ranch had several meetings in which they developed the performance standards and ?success criteria? that would be applied to allow for the release of mitigation credits. The meetings included additional site visits. There was no evidence that the additional site visits revealed conditions of the site that were inconsistent with those set forth in the complete application. During the course of the hearing, it was suggested that ?additional activities [were] proposed? during the period when the permit application was being processed. There were, in this case, no requests for additional information, no written submittals memorializing any such additional activities, and no evidence of any alteration or amendment of the complete application. Those ?additional activities? were not specified or described during the final hearing. To the extent that the Department or Highlands Ranch purports to rely on unspecified ?additional activities? that are not contained in the application or the permitting file, or otherwise presented as evidence to support issuance of the permit, they may not be considered as part of the record of this proceeding. On August 17, 2012, the Department issued its Notice of Intent to Issue Environmental Resource/Mitigation Bank Permit and Variance (Notice) and draft permit that awarded 424.81 mitigation credits for the HRMB. The number of credits awarded by the Department ?was a collaborative effort with the Applicant over the course of several meetings,? with Mr. Thomasson ultimately signing off and agreeing to the final scores. The Notice provided that the UMAM assessment of the HRMB Property showed ?a potential of 424.81 total freshwater credits: 207.31 Hydric Flatwoods/Wet Prairie credits and 217.50 Freshwater Forested wetlands credits.? Thus, the credits awarded to the HRMB may be purchased and applied at impact sites in the MSA to offset 207.31 units of functional loss associated with hydric flatwoods and wet prairies, and 217.50 units of functional loss associated with freshwater forested wetlands. The 426.05 credits proposed by Highlands Ranch in the November 22, 2011 application were derived by calculating 291.99 credits for restoration of the upland pine assessment areas, 73.78 credits for restoration of the hydric pine assessment areas (thus 365.77 credits for restoration of overall pine assessment areas), 15.40 total credits for enhancement and restoration of floodplain, bottomland, and bay assessment areas, and 37.65 credits for preservation of floodplain and bay assessment areas. The 425.81 credits awarded by the Department were derived by calculating 317.64 credits for restoration of the upland pine assessment areas, 52.06 credits for restoration of the hydric pine assessment areas (thus 369.70 credits for restoration of overall pine assessment areas), 15.35 total credits for enhancement and restoration of floodplain, bottomland, and bay assessment areas, and 39.75 credits for preservation of floodplain and bay assessment areas. The number of credits awarded by the Department is roughly identical to the number requested by Highlands Ranch in the 2010 SJRWMD proceeding (425 credits), the number requested by Highlands Ranch in the November 1, 2012, application for modification of the SJRWMD permit (426.05 credits), the number requested by Highlands Ranch in the November 22, 2011 DEP permit application (426.05 credits), and the number preliminarily calculated by the Department and provided to Ms. Bersok on May 8, 2012 (424 credits). Credit Release Schedule Section 373.4136(5) provides that: SCHEDULE FOR CREDIT RELEASE.— After awarding mitigation credits to a mitigation bank, the department or the water management district shall set forth a schedule for the release of those credits in the mitigation bank permit. A mitigation credit that has been released may be sold or used to offset adverse impacts from an activity regulated under this part. The department or the water management district shall allow a portion of the mitigation credits awarded to a mitigation bank to be released for sale or use prior to meeting all of the performance criteria specified in the mitigation bank permit. The department or the water management district shall allow release of all of a mitigation bank‘s awarded mitigation credits only after the bank meets the mitigation success criteria specified in the permit. The number of credits and schedule for release shall be determined by the department or water management district based upon the performance criteria for the mitigation bank and the success criteria for each mitigation activity. The release schedule for a specific mitigation bank or phase thereof shall be related to the actions required to implement the bank, such as site protection, site preparation, earthwork, removal of wastes, planting, removal or control of nuisance and exotic species, installation of structures, and annual monitoring and management requirements for success. In determining the specific release schedule for a bank, the department or water management district shall consider, at a minimum, the following factors: Whether the mitigation consists solely of preservation or includes other types of mitigation. The length of time anticipated to be required before a determination of success can be achieved. The ecological value to be gained from each action required to implement the bank. The financial expenditure required for each action to implement the bank. Notwithstanding the provisions of this subsection, no credit shall be released for freshwater wetland creation until the success criteria included in the mitigation bank permit are met. Florida Administrative Code Rule 62-342.470(3) allows for the release of credits prior to final success criteria having been met, and provides that: Some Mitigation Credits may be released for use prior to meeting all of the performance criteria specified in the Mitigation Bank Permit. The release of all mitigation credits awarded will only occur after the bank meets all of the success criteria specified in the permit. The number of credits and schedule for release shall be determined based upon the performance criteria for the Mitigation Bank, the success criteria for each mitigation activity, and a consideration of the factors listed in subsection 373.4136(5), F.S. However, no credits shall be released until the requirements of Rules 62-342.650 and 62.342.700, F.A.C., are met. Additionally, no credits awarded for freshwater creation shall be released until the success criteria included in the Mitigation Bank Permit are met. Prior to achieving the final success criteria, Highlands Ranch will be eligible for interim credit releases when the ?success criteria? for each phase as set forth in the permit are met. The mitigation credits are scheduled for release as follows: Conservation Easement/Financial Assurance/Security Phase 1 - 23.45 credits Phase 2 - 21.78 credits Phase 3 - 18.49 credits Interim Criteria I Phase 1 - 39.09 credits Phase 2 - 36.29 credits Phase 3 - 30.82 credits Interim Criteria II-A Phase 1 - 9.38 credits Phase 2 - 8.71 credits Phase 3 - 7.40 credits Interim Criteria II-B Phase 1 - 3.13 credits Phase 2 - 2.90 credits Phase 3 - 2.47 credits Interim Criteria III Phase 1 - 32.83 credits Phase 2 - 30.49 credits Phase 3 - 25.89 credits Interim Criteria IV Phase 1 - 28.14 credits Phase 2 - 26.13 credits Phase 3 - 22.19 credits Final Success Criteria by Phase Phase 1 - 12.51 credits Phase 2 - 11.61 credits Phase 3 - 9.86 credits Final Bank Success Criteria - 21.25 credits The tasks related to Phase 1 are targeted to commence upon permit issuance, with active management activities -- i.e., recording the conservation easement, providing title insurance, executing financial assurance mechanisms, and providing security; and enhancement activities, e.g., tree thinning, crushing bedding rows, planting, and activities relating to trail roads and culverts -- to be completed within one year. The evidence indicates that some of the management activities, including tree thinning and crushing bedding rows were completed prior to the submission of the application for the DEP Permit. The tasks related to Phase 2 and Phase 3 are targeted to commence upon ?phase implementation,? with active management and enhancement activities within one year of the implementation of each phase. The application provides that the implementation date for Phase 2 and Phase 3 ?will be based upon market demand for mitigation within the mitigation service area.? Thus, the phases could be implemented immediately, or not at all, at the sole discretion of Highlands Ranch. The HRMB mitigation milestones that allow for interim releases of mitigation credits prior to the final success of the target communities and measures for which the bank was scored under the Part II assessment do not materially differ from standards for interim releases applicable to all mitigation banks pursuant to section 373.4136(5) and Florida Administrative Code Rule 62-342.480(3). In addition to the foregoing, though not dispositive of the issue, is the fact that the ?success criteria? in the HRMB permit are, in many cases, vague and non-quantifiable. Thus, in the absence of specific standards and comparators, the HRMB success criteria may allow for the release of credits to offset present wetland impacts without any specific or measurable ecological benefit. Application of the Time Lag Factor The Department calculated the credits for the HRMB using a time lag score of 1.00 for all assessment areas. Thus, in keeping with the UMAM, the Department necessarily made the decision that at the time of the interim releases, ?the mitigation fully offsets the anticipated impacts prior to or at the time of impact.? Meeting the ?success criteria? for an interim release of credits does not mean that the mitigation bank has met the success measures for which the bank was scored under the Part II assessment. Rather, meeting the ?success criteria? serves only to recognize that the project is meeting interim goals that show general progress towards the target goals if continued and successful into the future. In this case, there is a time difference between the achievement of the ecological benefits of the final target community, and the interim release of mitigation credits and their use to offset impacts at sites requiring mitigation. There is little practical ecological difference between releasing credits before final target communities are achieved based on ?success criteria? that are the result of implementing described activities, and releasing credits based on the physical implementation of those described activities. The effect in both cases is that mitigation credits are to be released during the ?time between when the functions are lost at an impact site and when the site has achieved the outcome that was scored in Part II.? There was testimony offered at the final hearing that the Department‘s time lag and risk scores of 1.00 were appropriate because the credit release schedule represents functional ecological improvement that must be achieved before credits are released. For the reasons set forth above, the undersigned finds that the functional ecological improvement represented by the ?success criteria? is not materially dissimilar from the means by which the ecological value of interim release milestones has been calculated for previously permitted and implemented mitigation banks. Thus, testimony that the success criteria as proposed in the DEP Permit warrants time lag and risk scores of 1.00 is not credited. Contrary to the evidence referenced in the preceding paragraph, Mr. Hull testified convincingly that there is a sizable percentage of credits released prior to the mitigation bank reaching the success proposed for many of the restoration assessment areas without time lag or risk. An example of time lag that should be applicable to the HRMB is the fact that final success for all assessment areas includes, among other criteria, the requirement that all plants, except those targeted for control or eradication, be reproducing naturally. In the case of longleaf pine, which is to be planted throughout the Property, the period before the achievement of that outcome is approximately 30 years. Furthermore, Ms. Bersok testified credibly that when starting with a community that has few ecological functions, the time necessary to ultimately achieve a high community structure score can take much longer than 15 to 20 years. That period before final success should have been reflected as time lag in the UMAM assessment, but was not. In accordance with the schedule proposed by Highlands Ranch, a significant number of the total credits awarded for the three phases may be released within one year of permit issuance. In that regard, the ?CE/Financial Assurance/Security? interim release allows for a three-phase total of 63.72 credits to be released for that interim step, estimated to occur within 30 days of permit issuance or phase implementation, while Interim Criteria I allows for a three-phase total of 106.20 credits to be released for that interim step, estimated to occur within one year of permit issuance or phase implementation. Thus, 169.92 of 425.81 credits, or 40 percent of the total, are potentially eligible for release within a short period, and years before any reasonable expectation of final target community success. It is that circumstance that squarely meets the standards for the application of the time lag factor. Based on the testimony and evidence adduced at the final hearing, the calculation of credits for the HRMB without accounting for the time lag before final success produces an unreasonable result, regardless of the application of the "performance-driven" approach that was created for the HRMB by the Department.5/ Thus, the decision to assign a time lag score of 1.00 to each of the restoration assessment areas is contrary to the facts of this case, and the plain language of the UMAM rule and its requirements. Application of the Risk Factor The Department calculated the credits for the HRMB using a risk score of 1.00 for all assessment areas. Thus, pursuant to the UMAM, the Department made the decision that the mitigation projects require no significant ?periods of time to replace lost functions or to recover from potential perturbations,? and that the mitigation activities are being ?conducted in an ecologically viable landscape and deemed successful or clearly trending towards success prior to impacts.? As set forth in preceding paragraphs, there is a sizable period of time between the interim release of credits - and their availability to replace lost functions at permitted impact sites -- and the time at which the mitigation has been established and monitored to the point at which it is ?clearly trending towards success.? Thus, a risk score of 1.00, meaning that there is essentially no risk, is not warranted. The risk in this case is that associated with the fact that the ?mitigation projects . . . require longer periods of time to replace lost functions or to recover from potential perturbations.? Although there were concerns expressed that the proposed activities might have heightened risk inherent in the mitigation methods, the testimony on that issue was vague and non-specific, and is not accepted. Based on the testimony and evidence adduced at the final hearing, the failure to account for the risk associated with the extended period of time expected before final restoration and enhancement success is not warranted, regardless of the application of the "performance-driven" approach. Thus, the decision to assign a risk score of 1.00 to each of the restoration assessment areas is contrary to the facts of this case, and the plain language of the UMAM rule and its requirements. Application of the Preservation Adjustment Factor The DEP Permit applied the preservation factor as a ?one-step? process as described above. Under that method, the PAF was not separately applied in any restoration or enhancement assessment area. That method was applied by Ms. Bersok in her February 22, 2013, UMAM scoring of the HRMB complete application. A PAF of 0.70 was applied to both of the preservation assessment areas. That score was also applied by Ms. Bersok in her February 22, 2013, UMAM scoring of the HRMB complete application. The ?one-step? application of the PAF was an allowable method under the UMAM rule. Petitioner failed to prove that the score of 0.70 for the preservation assessment areas was not warranted. Variance from Construction and Implementation Financial Responsibility Requirement Section 373.4136 provides that, in order to obtain a mitigation bank permit, an applicant must meet the financial responsibility requirements established by rule. § 373.4136(10), Fla. Stat. As it relates to financial responsibility for the construction and implementation of a mitigation bank, Florida Administrative Code Rule 62-342.700(4) provides, in pertinent part, that: Financial Responsibility for Construction and Implementation. No financial responsibility shall be required where the construction and implementation of the Mitigation Bank, or a phase thereof, is completed and successful prior to the withdrawal of any credits. * * * . . . When the bank (or appropriate phase) has been completely constructed, implemented, and is trending toward success in compliance with the permit, the respective amount of financial responsibility shall be released. The financial responsibility mechanism shall become effective prior to the release of any mitigation credits. Section 120.542(2) provides that: (2) Variances and waivers shall be granted when the person subject to the rule demonstrates that the purpose of the underlying statute will be or has been achieved by other means by the person and when application of a rule would create a substantial hardship or would violate principles of fairness. For purposes of this section, ?substantial hardship? means a demonstrated economic, technological, legal, or other type of hardship to the person requesting the variance or waiver. For purposes of this section, ?principles of fairness? are violated when the literal application of a rule affects a particular person in a manner significantly different from the way it affects other similarly situated persons who are subject to the rule. On July 16, 2012, Highlands Ranch filed a petition with the Department for a variance from the financial responsibility requirements of rule 62-342.700 for the construction and implementation activities of Highlands Ranch Mitigation Bank.6/ In its ?Petition for Variance from Rule Subsections 62-342.700(1)(a), (2), (3) and (4), F.A.C.?, Highlands Ranch requested that the variance be granted on the basis that the application of the rule would create a substantial hardship. Highlands Ranch did not assert that the application of the financial responsibility rule would violate principles of fairness. As indicated previously, the proposed permit authorizes a release of credits when Highlands Ranch records the conservation easement, provides title insurance, executes financial assurance mechanisms, and provides security. Thus, the proposed HRMB permit authorizes the release of mitigation credits prior to any construction being commenced, much less completed. Although certain interim criteria must be met in order for additional mitigation credits to be released, those interim steps do not constitute success of the target conditions scored under the Part II Assessment or, without more, demonstrate that the mitigation is ?trending toward success? in meeting those final target conditions. Financial assurance is required for construction and implementation activities at all mitigation banks, and may not be released until the mitigation ?is trending toward success in compliance with the permit.? Highlands Ranch asserts that the unique ?performance-driven? approach that has been applied to the HRMB warrants a deviation from the requirement that it financially guarantee the work. To the contrary, the financial responsibility required by rule provides assurance that the active construction and implementation is performed and, as would be the case with the ?performance-driven? approach, may be released only when the expected outcomes are trending towards success. Without question, any time a permitee is required to provide financial responsibility, it will have a financial effect on the permittee. However, the standard for a variance requires that the financial effect constitute a hardship to the person requesting the variance. In this case, Highlands Ranch failed to demonstrate that meeting the financial responsibility requirements applicable to all mitigation bank permittees would constitute an economic, technological, legal, or other type of hardship as applied to it. Highlands Ranch did not request a variance on the basis that the application of the financial-responsibility rule would violate principles of fairness. Nonetheless, the Department determined that ?principals of fairness? warranted its grant of the variance. For the reasons set forth herein, including the fact that the financial-responsibility instruments required of all permittees may be released only when the mitigation ?is trending toward success in compliance with the permit,? the undersigned finds that the financial-responsibility rule does not affect Highlands Ranch in a manner significantly different from the way it affects other similarly situated persons who are subject to the rule. Highlands Ranch failed to demonstrate that the application of Florida Administrative Code Rule 62-342.700(4) would create a substantial hardship or would violate principles of fairness as applied to Highlands Ranch and the HRMB. Highlands Ranch‘s Motion for Attorney‘s Fees and Costs Based on the evidence adduced in this proceeding, the undersigned finds that Petitioner did not participate in this proceeding for an improper purpose. In that regard, Petitioner is found to have prevailed on certain issues that substantially changed the outcome of the proposed agency action which is the subject of this proceeding regarding both the DEP Permit and the Variance. Furthermore, despite the evidence provided as to the source of payment for certain of Petitioner‘s costs and attorney‘s fees, there was insufficient evidence to support a finding that Petitioner brought this action ?primarily to harass or to cause unnecessary delay or for frivolous purpose or to needlessly increase the cost of litigation, licensing, or securing the approval of an activity.? § 120.595(1)(e)1., Fla. Stat. Ultimate Findings of Fact Based on the totality of the facts adduced at the final hearing, having weighed the evidence introduced by each of the parties, and having gauged the demeanor and credibility of the witnesses, the undersigned accepts the testimony of Ms. Bersok as constituting the most credible and reliable application of reasonable scientific judgment, resulting in an accurate calculation of the allowable credits (except as modified below) that may be awarded under the standards established by the UMAM rule. The competent and substantial evidence available to Ms. Bersok, including the complete application submitted by Highlands Ranch, and her assumptions that were ultimately incorporated in the DEP proposed permit, are found to have been sufficient to allow her to formulate reasoned opinions and conclusions regarding the number of mitigation credits that could be ecologically justified in this case. Therefore, the undersigned finds that the application of the UMAM standards to the HRMB property and the restoration, enhancement, and preservation activities to take place thereon, warrants an award of a maximum of 280.33 mitigation credits. Based on the testimony and evidence adduced at the final hearing, and as set forth herein, the undersigned finds that the facts of this case, including the ?performance-driven? approach that was developed for and applied to the HRMB application, do not warrant a determination that there is no time difference between the time wetland impacts being mitigated by released mitigation credits are anticipated to occur and the time when the mitigation is anticipated to fully offset the impacts. Based thereon, the application of a time lag score of 1.00 in the UMAM assessment was in error. Thus, the 280.33 mitigation credits that reflect the maximum allowable number should be revised by applying an appropriate time lag modifier to the ?delta? for each restoration and enhancement assessment area as calculated by Ms. Bersok, with the RFG and final credits calculated based thereon. Based on the testimony and evidence adduced at the final hearing, and as set forth herein, the undersigned finds that the facts of this case do not warrant a determination that there is no uncertainty that there may be a reduction in the ecological value of the mitigation assessment area. That finding is based on the length of time expected before final success, rather than any inherent vulnerability of the target communities. Based thereon, the application of a risk score of 1.00 in the UMAM assessment was error. Thus, the 280.33 mitigation credits that reflect the maximum allowable number should be revised by applying an appropriate risk modifier to the ?delta? for each restoration and enhancement assessment area as calculated by Ms. Bersok, with the RFG and final credits calculated based thereon. For the reasons set forth herein, Highlands Ranch failed to demonstrate that it was entitled to a variance from the financial responsibility requirements of Florida Administrative Code Rule 62-342.700.
Recommendation Based on the findings of fact and conclusions of law, it is RECOMMENDED that the Department of Environmental Protection enter a final order consistent with the findings of fact and conclusions of law set forth herein. DONE AND ENTERED this 11th day of April, 2013, in Tallahassee, Leon County, Florida. S E. GARY EARLY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 11th day of April, 2013.
Findings Of Fact The Petitioner, Hughlan Long, was employed by the Florida Industrial Commission from 1946 to 1952, during which time he was a member of the State and County Officer and Employee Retirement System (SCOERS). Petitioner was employed as a state attorney from 1953 to 1956. Again, during that time he was a member of SCOERS. During the period 1962 to 1964, Petitioner was a member of the Dade County Commission, at which time he was a member of SCOERS. On this occasion, as on each of the above occasions, the Petitioner obtained a refund of all contributions to SCOERS when he terminated his employment. In October of 1969, Petitioner became Public Defender for Dade County and was a member of SCOERS. From this position he was appointed a judge of industrial claims. He has stayed in that position since his appointment on December 28, 1970. Several days prior to his appointment as a judge of industrial claims, on December 1, 1970, Petitioner voluntarily transferred from SCOERS to the Florida Retirement System (FRS). Petitioner based his decision to transfer upon his reading of the statutes and the data available from the Division of Retirement upon the benefits available under the two systems. At the time he transferred to FRS, Petitioner was not eligible to purchase past service credit in SCOERS. Petitioner corresponded with Respondent and was advised he could receive two percent credit for his 10.18 years prior SCOERS service. The Division erroneously advised him that he would receive two percent credit for his past service, although at the time Petitioner was a member of FRS and only eligible for 1.6 percent credit for such service. Based upon the information provided to him, the Petitioner purchased his prior service credit of 10.18 years and paid the required interest, a total of $4,092.27. In 1975, the Division discovered its error and sent a letter to Petitioner. See Petitioner's Exhibit #11. This letter advised Petitioner that his purchase had been incorrectly computed based upon Chapter 122, Florida Statutes, because he did not have three years service prior to the time he transferred to FRS. The letter further stated, "therefore, after you completed the three continuous years you must claim prior service in this system (FRS)." This was the only reference or correction made by the Division to Petitioner until 1981. In 1981, Petitioner requested data on his retirement credit and was advised he would get 1.6 percent rather than two percent for his past service credit. No credible evidence was received that Petitioner was induced to purchase his past service by the erroneous information provided him. Petitioner filed a timely request for a hearing pursuant to Section 120.57, Florida Statutes.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law the Hearing Officer recommends that the decision of the Division of Retirement to deny the Petitioner two percent service credit be upheld. However, because Petitioner was misadvised he should receive the option of accepting the benefit as provided by law or receiving his purchase price back with interest of six percent per annum. DONE and ORDERED this 11th day of February, 1982, in Tallahassee, Leon County, Florida. STEPHEN F. DEAN, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 11th day of February, 1982. COPIES FURNISHED: Jerold Feuer, Esquire 19 West Flagler Street Miami, Florida 33130 Augustus D. Aikens, Esquire Division of Retirement Cedars Executive Center Nevin G. Smith, Secretary 2639 North Monroe Street Department of Administration Suite 207C - Box 81 435 Carlton Building Tallahassee, Florida 32303 Tallahassee, Florida 32301
The Issue The issue for determination in this consolidated bid protest proceeding is whether the Florida Housing Finance Corporation’s (“FHFC”) intended award of tax credits for the preservation of existing affordable housing developments was clearly erroneous, contrary to competition, arbitrary, or capricious.
Findings Of Fact FHFC and Affordable Housing Tax Credits FHFC is a public corporation that finances affordable housing in Florida by allocating and distributing low income housing tax credits. See § 420.504(1), Fla. Stat. (providing that FHFC is “an entrepreneurial public corporation organized to provide and promote the public welfare by administering the governmental function of financing or refinancing housing and related facilities in this state.”); § 420.5099(2), Fla. Stat. (providing that “[t]he corporation shall adopt allocation procedures that will ensure the maximum use of available tax credits in order to encourage development of low-income housing in the state, taking into consideration the timeliness of the application, the location of the proposed housing project, the relative need in the area for low-income housing and the availability of such housing, the economic feasibility of the project, and the ability of the applicant to proceed to completion of the project in the calendar year for which the credit is sought.”). The tax credits allocated by FHFC encourage investment in affordable housing and are awarded through competitive solicitations to developers of qualifying rental housing. Tax credits are not tax deductions. For example, a $1,000 deduction in a 15-percent tax bracket reduces taxable income by $1,000 and reduces tax liability by $150. In contrast, a $1,000 tax credit reduces tax liability by $1,000. Not surprisingly, the demand for tax credits provided by the federal government exceeds the supply. A successful applicant/developer normally sells the tax credits in order to raise capital for a housing development. That results in the developer being less reliant on debt financing. In exchange for the tax credits, a successful applicant/developer must offer affordable rents and covenant to keep those rents at affordable levels for 30 to 50 years. The Selection Process FHFC awards tax credits through competitive solicitations, and that process is commenced by the issuance of a Request for Applications (“RFA”). Florida Administrative Code Rule 67-60.009(2) provides that unsuccessful applicants for tax credits “may only protest the results of the competitive solicitation process pursuant to the procedures set forth in Section 120.57(3), F.S., and Chapter 28-110, F.A.C.” For purposes of section 120.57(3), an RFA is equivalent to a “request for proposal.” See Fla. Admin. Code R. 67.60.009(4), F.A.C. FHFC issued RFA 2015-111 on October 23, 2015, and responses from applicants were due on December 4, 2015. Through RFA 2015-111, FHFC seeks to award up to $5,901,631 of tax credits to qualified applicants that commit to preserve existing affordable multifamily housing developments for the demographic categories of “Families,” “the Elderly,” and “Persons with a Disability.” FHFC only considered an application eligible for funding from RFA 2015-111, if that particular application complied with certain content requirements. FHFC ranked all eligible applications pursuant to an “Application Sorting Order” set forth in RFA 2015-111. The first consideration was the applicants’ scores. Each application could potentially receive up to 23 points based on the developer’s experience and the proximity to services needed by the development’s tenants. Applicants demonstrating that their developments received funding from a U.S. Department of Agriculture (“USDA”) Rural Development program known as RD 515 were entitled to a 3.0 point proximity score “boost.” That proximity score boost was important because RFA 2015-111 characterized counties as small, medium, or large. Applications associated with small counties had to achieve at least four proximity points to be considered eligible for funding. Applications associated with medium-sized counties and those associated with large counties had to achieve at least seven and 10.25 proximity points respectively in order to be considered eligible for funding. Because it is very common for several tax credit applicants in a particular RFA to receive identical scores, FHFC incorporated a series of “tie-breakers” into RFA 2015-111. The tie-breakers for RFA 2015-111, in order of applicability, were: First, by Age of Development, with developments built in 1985 or earlier receiving a preference over relatively newer developments. Second, if necessary, by a Rental Assistance (“RA”) preference. Applicants were to be assigned an RA level based on the percentage of units receiving rental assistance through either a U.S. Department of Housing and Urban Development (“HUD”) or USDA Rural Development program. Applicants with an RA level of 1, 2, or 3 (meaning at least 75 percent of the units received rental assistance) were to receive a preference. Third, by a Concrete Construction Funding Preference, with developments incorporating certain specified concrete or masonry structural elements receiving the preference. Fourth, by a Per Unit Construction Funding Preference, with applicants proposing at least $32,500 in Actual Construction Costs per unit receiving the preference. Fifth, by a Leveraging Classification favoring applicants requiring a lower amount in housing credits per unit than other applicants. Generally, the least expensive 80 percent of eligible applicants were to receive a preference over the most expensive 20 percent. Sixth, by an Applicant’s specific RA level, with Level 1 applicants receiving the most preference and Level 6 the least. Seventh, by a Florida Job Creation Preference, which estimated the number of jobs created per $1 million of housing credit equity investment the developments were to receive based on formulas contained in the RFA. Applicants achieving a Job Creation score of at least 4.0 were to receive the preference. Eighth, by lottery number, with the lowest (smallest) lottery number receiving the preference. Rental assistance from the USDA or HUD is provided to existing developments in order to make up for shortfalls in monthly rent paid by tenants. For example, if an apartment’s base rent is $500 per month and the tenant’s income limits him or her to paying only $250 towards rent, then the USDA or HUD rental assistance pays the other $250 so that the total rent received by the development is $500. As evident from the tie-breakers incorporated into RFA 2015-111, the amount of rental assistance, or “RA Level,” played a prominent role in distinguishing between RFA 2015-111 applicants having identical scores. RFA 2015-111 required that applicants demonstrate RA Levels by providing a letter containing the following information: (a) the development’s name; (b) the development’s address; (c) the year the development was built; (d) the total number of units that currently receive PBRA and/or ACC;/3 (e) the total number of units that would receive PBRA and/or ACC if the proposed development were to be funded; (f) all HUD or RD financing program(s) originally and/or currently associated with the existing development; and (g) confirmation that the development had not received financing from HUD or RD after 1995 when the rehabilitation was at least $10,000 per unit in any year. In order to determine an applicant’s RA Level Classification, RFA 2015-111 further stated that Part of the criteria for a proposed Development that qualifies as a Limited Development Area (LDA) Development to be eligible for funding is based on meeting a minimum RA Level, as outlined in Section Four A.7.c of the RFA. The total number of units that will receive rental assistance (i.e., PBRA and/or ACC), as stated in the Development Category qualification letter provided as Attachment 7, will be considered to be the proposed Development’s RA units and will be the basis of the Applicant’s RA Level Classification. The Corporation will divide the RA units by the total units stated by the Applicant at question 5.e. of Exhibit A, resulting in a Percentage of Total Units that are RA units. Using the Rental Assistance Level Classification Chart below, the Corporation will determine the RA Level associated with both the Percentage of Total Units and the RA units. The best rating of these two (2) levels will be assigned as the Application’s RA Level Classification. RFA 2015-111 then outlined a Rental Assistance Level Classification Chart to delineate between the RA Levels. That chart described six possible RA Levels, with one being developments that have the most units receiving rental assistance and six pertaining to developments with the fewest units receiving rental assistance. A development with at least 100 rental assistance units and greater than 50 percent of the total units receiving rental assistance was to receive an RA Level of 1. FHFC also utilized a “Funding Test” to assist in the selection of applications for funding. The Funding Test required that the amount of unawarded housing credits be enough to satisfy any remaining applicant’s funding request. In other words, FHFC prohibited partial funding. In addition, RFA 2015-111 applied a “County Award Tally” designed to prevent a disproportionate concentration of funded developments in any one county. As a result, all other applicants from other counties had to receive an award before a second application from a particular county could be funded. After ranking of the eligible applicants, RFA 2015-111 set forth an order of funding selection based on county size, demographic category, and the receipt of RD 515 financing. The Order was: One RD 515 Development (in any demographic category) in a medium or small county; One Non-RD 515 Development in the Family Demographic Category (in any size county); The highest ranked Non-RD 515 application or applications with the demographic of Elderly or Persons with a Disability; and If funding remains after all eligible Non- RD 515 applicants are funded, then the highest ranked RD 515 applicant in the Elderly demographic (or, if none, then the highest ranked RD 515 applicant in the Family demographic). Draft versions of every RFA are posted on-line in order for stakeholders to provide FHFC with their comments. In addition, every RFA goes through at least one workshop prior to being finalized. FHFC often makes changes to RFAs based on stakeholder comments. No challenge was filed to the terms, conditions, or requirements of RFA 2015-111. A review committee consisting of FHFC staff members reviewed and scored all 24 applications associated with RFA 2015-111. During this process, FHFC staff determined that none of the RD-515 applicants satisfied all of the threshold eligibility requirements. On June 24, 2016, FHFC’s Board of Directors announced its intention to award funding to five applicants, subject to those applicants successfully completing the credit underwriting process. Pineda Village in Brevard County was the only successful applicant in the Non-RD 515 Family Demographic. The four remaining successful applicants were in the Non-RD 515 Elderly or Persons with Disability Demographic: Three Round Tower in Miami-Dade County; Cathedral Towers in Duval County; Isles of Pahokee in Palm Beach County; and Lummus Park in Miami- Dade County. The randomly-assigned lottery number tie-breaker played a role for the successful Non-RD 515 applicants with Three Round Tower having lottery number one, Cathedral Towers having lottery number nine, and Isles of Pahokee having lottery number 18. While Lummus Park had a lottery number of 12, the County Award Tally prevented it from being selected earlier because Three Round Tower had already been selected for funding in Miami-Dade County. However, after the first four applicants were funded, only $526,880 of credits remained, and Lummus Park was the only eligible applicant with a request small enough to be fully funded. All Petitioners timely filed Notices of Protest and petitions for administrative proceedings. The Challenge by Woodcliff, Colonial, and St. Johns Woodcliff is seeking an award of tax credits in order to acquire and preserve a 34-unit development for elderly residents in Lake County.4/ Colonial is seeking an award of tax credits in order to acquire and preserve a 30-unit development for low-income families in Lake County.5/ St. Johns is seeking an award of tax credits to acquire and preserve a 48-unit development for elderly residents in Putnam County.6/ FHFC deemed Woodcliff, Colonial and St. Johns to be ineligible because of a failure to demonstrate the existence or availability of a particular source of financing relied upon in their applications. Specifically, FHFC determined that the availability of USDA RD 515 financial assistance was not properly documented. For applicants claiming the existence of RD 515 financing, RFA 2015-111 stated: If the proposed Development will be assisted with funding under the United States Department of Agriculture RD 515 Program and/or RD 538 Program, the following information must be provided: Indicate the applicable RD Program(s) at question 11.b.(2) of Exhibit A. For a proposed Development that is assisted with funding from RD 515 and to qualify for the RD 515 Proximity Point Boost (outlined in Section Four A.6.b.(1)(b) of the RFA), the Applicant must: Include the funding amount at the USDA RD Financing line item on the Development Funding Pro Forma (Construction/Rehab Analysis and/or Permanent Analysis); and Provide a letter from RD, dated within six (6) months of the Application Deadline, as Attachment 17 to Exhibit A, which includes the following information for the proposed Preservation Development: Name of existing development; Name of proposed Development; Current RD 515 Loan balance; Acknowledgment that the property is applying for Housing Credits; and Acknowledgment that the property will remain in the USDA RD 515 loan portfolio. (emphasis added). FHFC was counting on the letter mentioned directly above to function as proof that: (a) there was RD 515 financing in place when the letter was issued; and that (b) the RD 515 financing would still be in place as of the application deadline for RFA 2015-111. FHFC deemed Woodcliff, Colonial and St. Johns ineligible because their RD letters were not dated within six months of the December 4, 2015, deadline for RFA 2015-111 applications. The Woodcliff letter was dated May 15, 2015, the Colonial letter was dated May 15, 2015, and the St. Johns letter was dated May 5, 2015. FHCA had previously issued RFA 2015-104, which also proposed to award Housing Credit Financing for the Preservation of Existing Affordable Multifamily Housing Developments. The deadline for RFA 2015-104 was June 23, 2015, and Woodcliff, Colonial, and St. Johns applied using the same USDA letter that they used in their RFA 2015-111 applications. Woodcliff, Colonial, and St. Johns argued during the final hearing that FHFC should have accepted their letters because: (a) they gained no competitive advantage by using letters that were more than six months old; (b) waiving the six- month “shelf life” requirement would enable FHFC to satisfy one of its stated goals for RFA 2015-111, i.e., funding of an RD 515 development; and (c) other forms of financing (such as equity investment) have no “freshness” or “shelf life” requirement. However, it is undisputed that no party (including Woodcliff, Colonial, and St. Johns) challenged any of the terms, conditions, or requirements of RFA 2015-111. In addition, Kenneth Reecy (FHFC’s Director of Multifamily Programs) testified that there must be a point at which FHFC must ensure the viability of the information submitted by applicants. If the information is “too old,” then it may no longer be relevant to the current application process. Under the circumstances, it was not unreasonable for FHFC to utilize a six-month shelf life for USDA letters.7/ Furthermore, Mr. Reecy testified that excusing Woodcliff, Colonial, and St. Johns’ noncompliance could lead to FHFC excusing all deviations from all other date requirements in future RFAs. In other words, applicants could essentially rewrite those portions of the RFA, and that would be an unreasonable result. Excusing the noncompliance of Woodcliff, Colonial, and St. Johns could lead to a “slippery slope” in which any shelf- life requirement has no meaning. The letters utilized by Woodcliff, Colonial, and St. Johns were slightly more than six months old. But, exactly when would a letter become too old to satisfy the “shelf life” requirement? If three weeks can be excused today, will four weeks be excused next year? St. Elizabeth’s and Marian Towers’ Challenge St. Elizabeth is seeking low-income housing tax credit financing in order to acquire and preserve a 151-unit development for elderly residents in Broward County, Florida. Marian Towers is an applicant for RFA 2015-111 funding seeking low-income housing tax credits to acquire and preserve a 220-unit development for elderly residents in Miami-Dade County, Florida. The same developer is associated with the St. Elizabeth and Marian Towers projects. In its scoring and ranking process, FHFC assigned St. Elizabeth an RA Level of two. RFA 2015-111 requires that Applicants demonstrate RA Levels by providing a letter from HUD or the USDA with specific information. That information is then used to establish an RA Level for the proposed development. As noted above, the RFA requires the letter to contain several pieces of information, including: (a) the total number of units that currently receive PBRA and/or ACC; and (b) the total number of units that will receive PBRA and/or ACC if the proposed development is funded. RFA 2015-111 provided that a development with at least 100 rental units would receive an RA Level of one. St. Elizabeth included with its application a letter from HUD’s Miami field office stating in pertinent part that: Total number of units that currently receive PBRA and/or ACC: 99 units. Total number of units that will receive PBRA and/or ACC if the proposed Development is funded: 100 units*. The asterisk in the preceding paragraph directed readers of St. Elizabeth’s HUD letter to a paragraph stating that: HUD is currently processing a request from the owner to increase the number of units subsidized under a HAP Contract to 100 by transferring budget authority for the one additional unit from another Catholic Housing Services Section 8 project under Section 8(bb) in accordance with Notice H-2015-03. Because of the foregoing statement from HUD, FHFC concluded that St. Elizabeth did not have 100 units receiving rental assistance as of the application deadline. Accordingly, FHFC used 99 units as the total number of units that would receive rental assistance when calculating St. Elizabeth’s RA Level, and that led to FHFC assigning an RA Level of two to St. Elizabeth’s application.8/ If St. Elizabeth had been deemed eligible and if FHFC had used 100 units as the total number of units that would receive rental assistance, then St. Elizabeth would have received an RA Level of one. Given the application sorting order and the selection process outlined in RFA 2015-111, St. Elizabeth (with a lottery number of six) would have been recommended for funding by FHFC, and that outcome would have resulted in Intervenors Isles of Pahokee and Lummus Park losing their funding. St. Elizabeth asserted during the final hearing that the 100th unit had obtained rental assistance financing since the application deadline on December 4, 2015. However, FHFC could only review, score, and calculate St. Elizabeth’s RA Level based on the information available as of the application deadline. While St. Elizabeth argues that the asterisk paragraph sets forth a “condition,” Kenneth Reecy (FHFC’s Director of Multifamily Housing) agreed during the final hearing that the asterisk paragraph was more akin to information that was not explicitly required by RFA 2015-111. FHFC did not use that additional information to declare St. Elizabeth’s application ineligible for funding. Despite being assigned an RA Level of two, St. Elizabeth’s application still could have been selected for funding because RFA 2015-111 merely established RA Level as a basis for breaking ties among competing applications. However, too many applicants for RFA 2015-111 had identical scores, and RFA 2015-111’s use of RA Level as a tiebreaker forced St. Elizabeth’s application out of the running. Under the circumstances, FHFC’s treatment of St. Elizabeth’s application was not clearly erroneous, contrary to competition, arbitrary, or capricious. As noted above, tie- breakers are very important, because there is often very little to distinguish one application for tax credits from another. Given that there was a degree of uncertainty about whether St. Elizabeth’s would have 100 qualifying units, FHFC acted reasonably by assigning St. Elizabeth’s application an RA Level of two for this tie-breaker rather than an RA Level of one. St. Elizabeth and Marian Towers argue that other applications contained language that indicated a degree of uncertainty. Nevertheless, those other applications received an RA Level of one. For example, FHFC assigned an RA Level of one to Three Round and Haley Sofge even though their HUD letters stated that both developments would be “subject to a Subsidy Layering Review to be conducted by HUD.” Marian Towers argued that if FHFC does not accept HUD or RD letters containing conditional language about the number of units that will be subsidized, then FHFC should have assigned an RA Level of six to Three Round and Haley Sofge. If Three Round and Haley Sofge had been assigned an RA Level of six, then Marian Towers (with a lottery number of five) would have been recommended for funding. St. Elizabeth and Marian Towers cited another instance in which an application received an RA Level of one, even though its application contained a letter from the RD program stating that “USDA Rural Development will consent to the transfer if all regulatory requirements are met.” (emphasis added). However, St. Elizabeth and Marian Towers failed to demonstrate that the language cited above applied only to those particular applications rather than to all applications for tax credits. For example, if all applications are subject to a subsidy layering review and compliance with all regulatory requirements, then inclusion of such language in a HUD letter (in and of itself) should not prevent an applicant from being assigned an RA Level of one. St. Elizabeth and Marian Towers also cited a HUD Letter used in another recent RFA by an applicant that received an RA Level of one. The HUD letter in question contained an asterisk followed by the following statement: “It is HUD’s understanding that two separate applications are being submitted – one for each tower comprising St. Andrew Towers. If funded, HUD will consider a request from the owner to bifurcate the St. Andrew Towers HAP contract in order to facilitate the separate financing of each tower.” However, St. Elizabeth and Marian Towers failed to demonstrate why the language quoted directly above should have resulted in the applicant in question being awarded an RA Level less than one. There is no indication that the total number of units receiving rental assistance would change.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Florida Housing Finance Corporation enter a final order awarding funding to Three Round Tower A, LLC; Cathedral Towers, Ltd; Isles of Pahokee Phase II, LLC; SP Manor, LLC; and Pineda Village. DONE AND ENTERED this 18th day of October, 2016, in Tallahassee, Leon County, Florida. S G.W. CHISENHALL Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 18th day of October, 2016.
Findings Of Fact Based upon the parties' factual stipulations, the evidence adduced at hearing, and the record as a whole, the following Findings of Fact are made: On August 28, 1992, Petitioner submitted to the Department its application for licensure as a mortgage lender. 1/ On October 28, 1992, the Department sent Petitioner a letter announcing its intent to deny Petitioner's application for licensure as a mortgage lender. The text of the letter read as follows: This is to inform you that your Application for Licensure as a Mortgage Lender for Citifirst Mortgage Corp. is hereby denied. The denial is based on Section 494.0072(2)(k), Florida Statutes. Section 494.0072(2), Florida Statutes, "Each of the following acts constitutes a ground for which the disciplinary actions specified in subsection may be taken: . . . (k) Acting as a mortgage lender or correspondent mortgage lender without a current active license issued under ss. 494.006-494.0077." The Department's investigation revealed Citifirst Mortgage Corp. has acted as a mortgage lender without a current, active license. Please be advised that you may request a hearing concerning this denial to be conducted in accordance with the provisions of Section 120.57, Florida Statutes. Requests for such a hearing must comply with the provisions of Rule 3-7.002, Florida Administrative Code (attached hereto) and must be filed in duplicate with: Clerk Division of Finance Department of Banking and Finance The Capitol Tallahassee, Florida 32399-0350 (904) 487-2583 within twenty-one (21) days after receipt of this notice. Failure to respond within twenty-one days of receipt of this notice shall be deemed to be a waiver of all rights to a hearing. Should you request such a hearing, you are further advised that at such a hearing, you will have the right to be represented by counsel or other qualified representative; to offer testimony, either oral or written; to call and cross examine witnesses; and to have subpoenas and subpoenas duces tecum issued on your behalf. Petitioner timely requested a formal hearing on the proposed denial of its application. The matter was referred to the Division of Administrative Hearings, where it is still pending.
Findings Of Fact At all times material hereto, Respondent John E. LeMieux (Respondent LeMieux) was a licensed real estate broker in the State of Florida, having been issued license numbers 051596 and 0266128 in accordance with Chapter 475, Florida Statutes. The last licenses issued were as a broker in care of Retco Realty, Inc., 5942 SW 73rd Street, South Miami, Florida 33143, and as a broker in care of Retco Kassner, Inc., 7311 SW 59th Court, Miami, Florida 33143. At all times pertinent hereto, the Respondent Retco Realty, Inc. (Respondent Retco) was a corporation registered as a real estate broker in the State of Florida, having been issued license number 0141149 in accordance with Chapter 475, Florida Statutes. The last license issued was at the address of 5942 SW 73rd Street, South Miami, Florida 33143. At all times pertinent hereto, Respondent LeMieux was licensed and operating as the qualifying broker and officer of Respondent Retco. Kenneth and Regina Davis have been married for 12 years and have four children. Both are high school graduates, but neither had been involved in a transaction to purchase real estate prior to the one involved in this proceeding. Ms. Davis is a housewife. Mr. Davis repairs and restores wrecked automobiles. Prior to their dealings with Respondents, the Davises and their four children lived in a rented, two bedroom duplex. In February 1990, Mr. and Mrs. Davis began looking for a house to purchase after their landlord threatened to evict them. The landlord objected to the number of children living in the duplex and to Mr. Davis's practice of parking several cars at the duplex. Because of the threatened eviction, the Davises were anxious to find alternative housing. Mr. and Mrs. Davis saw an advertisement in the Miami Herald for a house located at 14700 South West 104th Place, Miami, Florida. They went to the house on Sunday, February 18, 1990, and, after looking at the house from the outside, decided that they liked the house and called the telephone number listed in the ad on February 18, 1990. In February 1990, Investor's Choice International, Inc., a corporation that was owned and operated by Respondent LeMieux at all times pertinent to this proceeding, owned the house that interested the Davises. Investor's Choice had first acquired the property in 1985 and had subsequently sold the property to Marva Pitter. Respondent LeMieux assisted Ms. Pitter in obtaining a first mortgage on the premises from Savings of America and his corporation took a second mortgage on the premises. Investor's Choice reacquired the property after Ms. Pitter defaulted on the second mortgage and executed a deed to Investor's Choice in lieu of an action to foreclose the second mortgage. Investor's Choice continued to pay the first mortgage to Savings of America, but there was no formal assumption of that first mortgage by Investor's Choice. Respondents had placed the ad for the house, and the number listed was the office of Respondent Retco. Barbara Couret, the Respondents' secretary, answered the Davises's telephone call and promised to have Respondent LeMieux return the call. Later that day Respondent LeMieux talked with Mrs. Davis by telephone, at which time Mrs. Davis gave Respondent LeMieux her and her husband's social security numbers so Respondent LeMieux could check their credit. Mrs. Davis and Respondent LeMieux agreed to meet the following day. The meeting on February 19, 1990, was cancelled when Respondent LeMieux failed to show up and the Davises went home after having waited for him at his office for approximately one hour. That evening Respondent LeMieux called the Davises, apologized for not being able to meet with them as scheduled, and arranged to meet them the following day at Respondent LeMieux's offices. On February 20, 1990, Respondent LeMieux called and changed the location of the meeting to the Pink Flamingo Restaurant on South Dixie Highway, Miami, a location that was mutually convenient. Mr. and Mrs. Davis met with Respondent LeMieux for the first time on February 20, 1990, in the parking lot of the Pink Flamingo Restaurant. At the meeting, Respondent LeMieux told the Davises that he had checked their credit and that he did not believe they would qualify for a FHA loan. Respondent LeMieux told the Davises that his company, Investor's Choice, owned the property and that he would sell it to them for the price of $52,000. The purchase price would be paid as follows: the Davises would pay $2,000 down; they would assume payment of the first mortgage held by Savings of America of approximately $43,000; and they would execute in favor of Respondent LeMieux's corporation a purchase money second mortgage of $7,000. Respondent LeMieux told the Davises that they would have to make an additional payment on the second mortgage of $2,000 around May 1, 1990, when they received their income tax refund. The monthly payment on the first mortgage was to be $367 and the monthly payment on the second mortgage, which was to bear interest at the rate of 12% per annum, was to be $150. One monthly check, in the aggregate amount of $517, was to be paid by the Davises to Respondent Retco Realty. Respondent LeMieux viewed the financing arrangements as a temporary solution to the Davises's credit problems, and he structured the transaction to accommodate those problems. Pursuant to their agreement, the Davises were to live in the house until permanent financing could be arranged. At all times pertinent to this proceeding, Respondent LeMieux was familiar with the terms of the Savings of America first mortgage. He knew that the mortgage was an assumable, variable rate mortgage that provided the borrower with the option of negative amortization in the event the interest rates increased and the borrower wanted to keep his or her monthly payments at a constant level. He knew that the interest rate was tied to an established index and could fluctuate on a monthly basis. He knew that the first mortgage was assumable if the borrower qualified, but otherwise had a "due on sale" clause. The amount of the monthly payment was important to the Davises because of their budgetary constraints. They knew that they would have difficulty paying the $367 first mortgage and the $150 second mortgage, but they felt they could comfortably pay the first mortgage once the second mortgage was paid off. Respondent LeMieux estimated during the meeting of February 20, 1990, that the second mortgage would be paid off around July 1993, assuming that the Davises made the payments to which they agreed, including a payment of $2,000 around May 1, 1990. There is a dispute in the testimony as to what was said about the first mortgage at the meeting between Respondent LeMieux and the Davises on February 20, 1990. From the conflicting testimony, it is found that Respondent LeMieux informed the Davises that the first mortgage was assumable, but that their credit report would not qualify them to assume the mortgage. Respondent LeMieux told them that they would have to clear up their credit problems during the time they were paying off the second mortgage so that they could qualify for a FHA mortgage or, in the alternative, formally assume the Savings America first mortgage, and that title would not be conveyed to them until permanent financing was arranged. As a result of the meeting with Respondent LeMieux on February 20, 1990, Mr. and Mrs. Davis's understanding of the transaction was that the first mortgage payment was fixed, that the interest rate was fixed, and that they would be able to assume the first mortgage (or secure their own mortgage) after they cleared up their credit problems. They would not have entered into the transaction had they known that the interest rate on the first mortgage was variable. Respondent LeMieux asserts that he told the Davises that the mortgage had a variable rate of interest that could fluctuate monthly, and that, because the mortgage permitted negative amortization, the monthly payments could remain constant. This testimony is rejected based on the testimony of Mr. and Mrs. Davis and that of Petitioner's investigator, Hector F. Sehwerert, who testified that Respondent LeMieux told him that he could not specifically recall whether he told the Davises that the first mortgage contained a variable rate. The evidence clearly and convincingly establishes that Respondent LeMieux failed to explain to the Davises that the first mortgage contained a variable interest rate which could cause the monthly payment to fluctuate. Respondent LeMieux knew or should have known that the Davises were relying on his explanation as to the terms of the first mortgage in deciding whether to enter into the subject transaction. He also was aware that the Davises were unsophisticated buyers who were most concerned with the monthly payments they would have to make. His explanation of the terms of the first mortgage misled the Davises into believing that the first mortgage was a fixed rate mortgage and that the payments would remain constant. The Davises did not sign a contract at the meeting of February 20, 1990, but Respondent LeMieux gave them a copy of a contract with the terms of the proposal they had discussed filled out. The Davises took this contract home to think over the transaction. On the evening of February 20, 1990, the Davises gave Respondent LeMieux a check in the amount of $1,000 as a down payment on the house. The following day, the parties executed the contract with the Davises signing as purchasers and Respondent LeMieux signing as president of Investors' Choice International, Inc., the seller, and as president of Respondent Retco Realty, the broker to whom a $2,000 commission was to be paid. The following language appears immediately above the signature line of this form contract: "REALTOR ADVISES BOTH PARTIES TO CONSULT AN ATTORNEY AND FOR THE PURCHASER TO SECURE TITLE INSURANCE." The Davises did not receive the services of an attorney because Ms. Couret told them that an attorney should not be necessary and because they trusted Respondent LeMieux. The contract required a down payment of $2,000 (the receipt of the sum of $1,000 was acknowledged) with the Davises assuming the first mortgage of approximately $43,000 and executing a purchase money second mortgage in the sum of $7,000. The following clauses are found in the contract: 2. ASSUMPTION OF FIRST MORTGAGE: The Purchaser, subject to the lending institution's requirement, including an interest rate of change, if any, agrees to assume an existing First Mortgage of approximately $43,000. Payable at approximately $367 monthly with Homestead Exemption which payment includes principal and interest at existing interest rate on mortgage held by Savings of America. ... * * * 7. NEW PURCHASE MONEY SECOND MORTGAGE: The Purchaser shall execute a purchase money second mortgage and note in favor of (sic) for $7,000.00 payable at $150.00 monthly until paid, including principal and interest at 12% per annum. Said mortgage shall be prepayable without penalty. Documentary stamps, intangible tax and recording mortgage shall be paid by Purchaser. * * * 13. SPECIAL CLAUSES: Purchaser to assume existing 1st mtg. (sic) with Savings of America of approx. (sic) $43,000. Seller to give Buyer a Purchase Money 2nd Mtg. (sic) of $7,000 at 12% per annum, payable $150./mo. (sic) with a $2,000 balloon pmt. (sic) due May 1, 1990. On March 2, 1990, the parties executed an addendum to the contract they had executed on February 21, 1990, which clarified that the Davises were to pay ad valorem taxes and insurance and which contained, in pertinent part, the following: It is understood and agreed that the seller is conveying title at such time as the Purchase Money Second Mortgage of $7,000 is retired; unless that sum is prepaid, the anticipated date of payment in full will occur on or about July 1993. Both parties agree that payment to the first and second mortgages must be made on time, and in the event that these payments or real estate taxes or insurance shall fall into default, that this contract shall be cancelled and all monies forfeited. As an additional incentive for the seller to extend these terms to the buyer, the buyer agrees to make the first and second mortgage payment to the seller's office at 5942 SW 73 Street, Miami, Florida 33143 on or before the first of each month. The aggregate total of these payments will be $517 per month effective April 1, 1990. Both parties understand that the March payment of $367 is now due. Also on March 2, 1990, the Davises paid the Respondents the sum of $1,000, representing the balance of the down payment, paid the sum of $367 representing the March 1990 payment on the first mortgage, and moved into the house. When the Davises received their income tax refund in April 1990, Mrs. Davis went to the Respondents' office to pay the sum of $2,000 on the second mortgage. (This was the payment contemplated by the Special Clauses paragraph of the contract executed February 21, 1990.) At that time Respondent LeMieux informed Mrs. Davis that the sum of $314 was due for insurance on the house and he agreed to accept the sum of $1700 as the lump sum payment on the second mortgage so Mrs. Davis could pay the insurance premium. In addition to the annual insurance premium in the amount of $314 paid by the Davises in April 1990, they paid the annual insurance premium in the amount of $314 in April 1991, and the ad valorem tax bill for 1990 in the amount of $605.89. From March 30, 1990 through April 30, 1991, the Davises made 14 monthly payments in the amount of $517 each by check payable to Respondent Retco Realty. These payments were hand delivered by Mrs. Davis and were always timely made. The Davises and their children liked the house and the neighborhood. During the time the Davises were in the house, they made repairs and improvements worth approximately $500. On May 29, 1991, Mrs. Davis went to Respondents' office to make a regular $517 monthly payment. At that time Respondent LeMieux met with Mrs. Davis and told her that the interest rate on the first mortgage was variable, that the payments on the first mortgage had gone up, and that his second mortgage was not making any money. Prior to this meeting, the Davises did not know that the first mortgage was not a fixed rate mortgage or that the first mortgage payments were subject to change and had changed. At the meeting on May 29, 1991, with Mrs. Davis, Respondent LeMieux prepared a document entitled "Letter of Understanding", and asked Mrs. Davis to sign it on her own behalf and on behalf of her husband. Respondent LeMieux was to sign the Letter of Understanding as president of Investor's Choice International. The Letter of Understanding provided, in pertinent part, as follows: Both parties acknowledge that the existing first mortgage of approximately $43, 500 (sic) held by Savings of America contains a variable interest rate, which is adjusted monthly, and therefore causes the monthly mortgage payments to either increase or decrease by a particular number. Currently the mortgage payment is $477.48. The mortgage also contains a "due-on-sale" clause, and that is why pursuant to the contract dated February 20th, 1990 between the Davises and Investor's Choice, no deed was ever conveyed so as to prevent triggering any "due-on-sale" clause that may cause the mortgage to go into default and subsequent foreclosure. To date, the Davises have made 13 payments of $517 each for a grand total of $6,721. To date, Investor's Choice has paid Savings of America $5,884.69; therefore the difference that was paid to Investor's Choice on that certain second mortgage of $7,000 pursuant to that contract of February 1990 is $836; of which $636 is interest and $200 is principal. Therefore, after the principal reduction that the Davises have made during the course of the last twelve months, namely $1,700 plus $200 by virtue of their monthly installments, the current mortgage balance is $5,100. The parties have agreed that Mrs. Davis will pay $100 toward the principal balance this month, May 1991, leaving a principal unpaid balance due Investor's Choice of $5,000. Said mortgage to be payable at the rate of 12% per annum, interest only monthly, or $50 per month. If Mr. and Mrs. Davis elect to make principal reduction in said mortgage, they will be receipted for same, and the interest payment per month would drop accordingly. Mrs. Davis refused to sign the "Letter of Understanding". After discussing the matter with her husband, the Davises obtained through legal aid the services of attorney Candis Trusty. Ms. Trusty negotiated an agreement with the Respondents' attorney, Robert Korschun, whereby the Davises would be reimbursed the sum of $3,899, they would vacate the premises by September 1, 1991, and they would deposit the sum of $500 into Ms. Trusty's trust account as security for damages to the premises. The Davises did not move out of the premises until September 8, 1991. Thereafter, Respondent LeMieux inspected the premises and informed Ms. Trusty that there were no damages to the premises beyond normal wear and tear, and that he would therefore make no claim on the damages deposit. Respondent LeMieux did assert a claim against the Davises in the amount of $166.67 for unpaid rent for the days they occupied the premises beyond September 1, 1991. Because of the dispute over rent, Ms. Trusty retained, as of the formal hearing, the sum of $166.67 in her trust account. At the formal hearing, Respondent LeMieux continued to assert his entitlement to the rent from the Davises in the amount of $166.67, but he acknowledged that the funds the Davises deposited in Ms. Trusty's trust account were not intended to secure rent and that he had no claim to that particular fund. In October of 1988, Petitioner filed an Administrative Complaint against Respondents which is unrelated to the present proceeding. That Administrative Complaint contained certain factual allegations which charged that Respondents were guilty of "fraud, misrepresentation, concealment, false promises, false pretenses, dishonest dealing by trick, scheme or device, culpable negligence and breach of trust in a business transaction, all in violation of Subsection 475.25(1)(b), Florida Statutes (1988)." This Administrative Complaint was referred to the Division of Administrative Hearings and assigned DOAH Case No. 88-5771. Respondents settled that prior matter and executed a Stipulation which they neither admitted nor denied the allegations of the Administrative Complaint. Respondents were reprimanded and fined in the amount of $400.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered finding the Respondents guilty of having violated the provisions of Section 475.25(1)(b), Florida Statutes, which assesses an administrative fine in the aggregate amount of $500 against the Respondents, and which places the licensure of both Respondents on probation for a period of six months. DONE AND ENTERED this 15th day of January, 1993, in Tallahassee, Leon County, Florida. CLAUDE B. ARRINGTON Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 15th day of January, 1993. APPENDIX TO RECOMMENDED ORDER, CASE NO. 92-1906 The following rulings are made on the proposed findings of fact submitted on behalf of the Petitioner. The proposed findings of fact in paragraphs 1, 2, 3, 4, 5, 6, 7, 8, 10, 11, 13, 14, 15, 16, 17, 18, 19, and 22 are adopted in material part by the Recommended Order. The proposed findings of fact in paragraph 9 are adopted in part by the Recommended Order, but are rejected to the extent the proposed findings are contrary to the findings made. The proposed findings of fact in paragraphs 12 and 20 are adopted in part by the Recommended Order, but are rejected to the extent the proposed findings are unnecessary to the findings made. The proposed findings of fact in paragraph 21 are rejected as being unnecessary to the conclusions reached. The following rulings are made on the proposed findings of fact submitted on behalf of the Respondents. The proposed findings of fact in paragraph 1 are adopted in material part by the Recommended Order. The proposed findings of fact in the first sentence of paragraph 2 are rejected as being contrary to the findings made. The findings of fact in the last sentence of paragraph 2 are rejected as being unnecessary to the findings made. The remaining proposed findings of fact contained in paragraph 2 are adopted in material part by the Recommended Order or they are subordinate to the findings made. The proposed findings of fact in the first sentence of paragraph 3 are rejected as being unsubstantiated by the evidence or as being unnecessary to the findings made. The proposed findings of fact in the second sentence of paragraph 3 are adopted to the extent that the Respondents's standard form contract contains the advice for the parties to seek the services of an attorney. The proposed findings of fact in the third sentence of paragraph 3 are adopted in material part by the Recommended Order. The proposed findings of fact in the fourth sentence of paragraph 3 are adopted in part by the Recommended Order, but are rejected to the extent that said proposed findings state that Respondent LeMieux was acting to accommodate the Davises. The proposed findings of fact in the fifth sentence of paragraph 3 are rejected since the Davises appeared to understand why the payments on the first mortgage went up after Respondent LeMieux informed Mrs. Davis that the mortgage had a variable interest rate. The proposed findings of fact in the last sentence of paragraph 3 are adopted in part and are rejected in part as being unnecessary to the conclusions reached. The proposed findings of fact in paragraphs 4, 5, and 6 are adopted in part by the Recommended Order or are subordinate to the findings made. The proposed findings of fact in paragraphs 7 and 8 are rejected as being contrary to the evidence or as being unnecessary to the findings made. Both Mr. and Mrs. Davis understood the explanation of the transaction Respondent LeMieux made to them before they signed the contract. That they became confused on cross examination is unnecessary to the conclusions reached in this proceeding. Her confusion as to the meaning of a fixed rate mortgage and the assumability of the mortgage is subordinate to the findings made that Respondent LeMieux did not lie to them about the status of the interest rate on the first mortgage. The statements made by the attorney they consulted during the settlement negotiations are also unnecessary to the conclusions reached in this proceeding. The proposed findings of fact in paragraph 9 consists of argument and are unnecessary as findings of fact. The proposed findings of fact in paragraph 10 are adopted in part by the Recommended Order with the exception of the last sentence, which is rejected as being argument and unnecessary as a finding of fact. The proposed findings of fact in paragraph 11 are rejected as being unnecessary to the conclusions reached. COPIES FURNISHED: Theodore R. Gay, Esquire Department of Professional Regulation 401 Northwest Second Avenue Suite N-607 Miami, Florida 33128 Jorge Gaviria, Esquire 2222 Ponce de Leon Boulevard Mezzanine 200 Coral Gables, Florida 33134-6193 Darlene F. Keller, Director Division of Real Estate 400 West Robinson Street Post Office Box 1900 Orlando, Florida 32802-1900 Jack McRay, General Counsel Department of Professional Regulation 1940 North Monroe Street Tallahassee, Florida 32399-0792
The Issue The issue for determination is whether Respondent's intended decision to award low-income housing tax credits in Miami-Dade County through Request for Applications 2013-003 to HTG Miami-Dade 5, LLC, and Allapattah Trace Apartments, Ltd., is contrary to governing statutes, the corporation’s rules or policies, or the solicitation specifications.
Findings Of Fact Overview FHFC is a public corporation created pursuant to section 420.504, Florida Statutes (2013).1/ Its purpose is to promote the public welfare by administering the governmental function of financing affordable housing in Florida. Pursuant to section 420.5099, FHFC is designated as the housing credit agency for Florida within the meaning of section 42(h)(7)(A) of the Internal Revenue Code and has the responsibility and authority to establish procedures for allocating and distributing low-income housing tax credits. The low-income housing tax credit program was enacted by Congress in 1986 to incentivize the private market to invest in affordable rental housing. Tax credits are competitively awarded to housing developers in Florida for qualified rental housing projects. Developers then sell these credits to investors to raise capital (or equity) for their projects, which reduces the debt that the developer would otherwise have to borrow. Because the debt is lower, a tax credit property can offer lower, more affordable rents. Provided the property maintains compliance with the program requirements, investors receive a dollar-for-dollar credit against their federal tax liability each year over a period of 10 years. The amount of the annual credit is based on the amount invested in the affordable housing. These are tax credits and not tax deductions. For example, a $1,000 deduction in a 15 percent tax bracket reduces taxable income by $1,000 and reduces tax liability by $150. However, a $1,000 tax credit reduces tax liability by $1,000. Developers that are awarded tax credits can use them directly. However, most sell them to raise equity capital for their projects.2/ Developers sell these credits for up-front cash. A developer typically sets up a limited partnership or limited liability company to own the apartment complex. The developer maintains a small interest but is responsible for building the project and managing (or arranging for the management) of the project. The investors have the largest ownership interest but are typically passive investors with regard to development and management.3/ Because the tax credits can be used by the investors that provide the equity for 10 years, they are very valuable. When sold to the investors, they provide equity which reduces the debt associated with the project. With lower debt, the affordable housing tax credit property can (and must) offer lower, more affordable rent. The demand for tax credits provided by the federal government far exceeds the supply. FHFC has adopted Florida Administrative Code Rule chapter 67-60, to govern the competitive solicitation process for several different programs, including the one for tax credits. Chapter 67-60 was newly enacted on August 20, 2013. It replaced prior procedures used by FHFC for the competitive process for allocating tax credits. FHFC has now adopted the bid protest provisions of section 120.57(3), Florida Statutes, as its process for allocating tax credits.4/ The Competitive Application Process Tax credits are made available annually. FHFC begins the competitive application process through the issuance of a Request for Applications.5/ In this case, that document is Request for Applications 2013-003. A copy of the RFA, including its Questions & Answers, is Joint Exhibit 1. The RFA was issued September 19, 2013 and responses were due November 12, 2013. According to the RFA, FHFC expected to award up to approximately $10,052,825 in tax credits for qualified affordable housing projects in Miami-Dade, Broward, and Palm Beach Counties. Knowing that there would be far more applications than available credits, FHFC established an order for funding in the three counties: The Applications will be considered for funding in the following funding order: first the highest scoring eligible Application located in Miami-Dade County that can meet the Funding Test, then the highest scoring eligible Application located in Broward County that can meet the Funding Test, then the highest scoring eligible Application located in Palm Beach County that can meet the Funding Test, then the highest scoring eligible unfunded Application located in Miami-Dade County that can meet the Funding Test and then the highest scoring eligible unfunded Application located in Broward County regardless of the Funding Test. If there is not enough funding available to fully fund this last Broward County Application, the Application will be entitled to receive a Binding Commitment for the unfunded balance. No further Applications will be considered for funding and any remaining funding will be distributed as approved by the Board. RFA at page 36. Applications were scored using a 27-point scale based on criteria in the RFA. RFA at page 37. This process was described in the RFA as follows: The highest scoring Applications will be determined by first sorting all eligible Applications from highest score to lowest score, with any scores that are tied separated first by the Application’s eligibility for the Development Category Funding Preference which is outlined in Section Four A.4.c.(1)(a) of the RFA (with Applications that qualify for the preference listed above Applications that do not qualify for the preference), then by the Application’s eligibility for the Per Unit Construction Funding Preference which is outlined in Section Four A.9.e. of the RFA, (with Applications that qualify for the preference listed above Applications to [sic] do not qualify for the preference), then by the Application’s Leveraging Classification (applying the multipliers outlined in Exhibit C below and having the Classification of A be the top priority), then by the Application’s eligibility for the Florida Job Creation Preference which is outlined in Exhibit C below (with Applications that qualify for the preference listed above Applications that do not qualify for the preference), and then by lottery number, resulting in the lowest lottery number receiving preference. RFA at page 36 (emphasis added). The way this process works in reality is that the developers know that they must first submit a project that meets all the eligibility criteria and does not have any significant omissions or errors.6/ Developers also strive to submit projects structured to receive all 27 points. The tiebreaker is then the luck-of-the-draw. At the time each application is filed, it is randomly assigned a lottery number7/ used to break the ties. The role of the lottery numbers is demonstrated by the following facts. One hundred and nineteen applications were filed in response to the RFA. All but six received the maximum score of 27 points. Seventy of the 119 were deemed eligible. Of those 70, 69 received the maximum score of 27 points. A copy of the RFA Sorting Order is Joint Exhibit 2.8/ As such, the lottery numbers are a big factor in deciding the winners and, concomitantly, the challengers are (1) the projects with high lottery numbers that were deemed ineligible; and (2) those with lottery numbers outside the funding range that are trying to displace those with lower lottery numbers. A copy of the final Review Committee Recommendations is Joint Exhibit 3. This document shows the developers selected, the county and the lottery number. The two Miami-Dade projects selected for funding are: HTG Miami-Dade 5, LLC d/b/a Wagner Creek - lottery number 3 Allapattah Trace Apartments, Ltd. - lottery number 6 The Petitioners/Intervenors in these consolidated proceedings are: Town Center Phase Two, LLC - lottery number 7 Pinnacle Rio, LLC - lottery number 9 APC Four Forty Four, Ltd. - deemed ineligible and with a lottery number of 10 The protests here center upon whether various applicants were correctly deemed eligible or ineligible. Applications are competitively reviewed, and so determinations as to one applicant affect other applicants’ positions. Each application, and the allegations against it, will be considered in turn. HTG’s Application APC argues that HTG should be found ineligible for allocation of tax credits because HTG failed to disclose its principals and those of its developer, as required by the RFA. The RFA at Section Four A.2.d. provides, in part, that each applicant will submit an application that identifies: d. Principals for the Applicant and for each Developer. All Applicants must provide a list, as Attachment 3 to Exhibit A, identifying the Principals for the Applicant and for each Developer, as follows: * * * (2) For a Limited Liability Company, provide a list identifying the following: (i) the Principals of the Applicant as of the Application Deadline and (ii) the Principals for each Developer as of the Application Deadline. This list must include warrant holders and/or option holders of the proposed Development. * * * This eligibility requirement may be met by providing a copy of the list of Principals that was reviewed and approved by the Corporation during the advance-review process. To assist the Applicant in compiling the listing, the Corporation has included additional information at Item 3 of Exhibit C. RFA at page 5. The RFA goes on to provide in Exhibit C 3.: 3. Principal Disclosures for Applicants and Each Developer The Corporation is providing the following charts and examples to assist the Applicant in providing the required list identifying the Principals for the Applicant and for each Developer. The term Principals is defined in Section 67-48.002, F.A.C. a. Charts: (1) For the Applicant: * * * (b) If the Applicant is a Limited Liability Company: Identify All Managers and Identify All Members and For each Manager that is a Limited Partnership: For each Manager that is a Limited Liability Company: For each Manager that is a Corporation: Identify each General Partner Identify each Manager Identify each Officer and and and Identify each Limited Partner Identify each Member Identify each Director and Identify each Shareholder and For each Member that is a Limited Partnership: For each Member that is a Limited Liability Company: For each Member that is a Corporation: Identify each General Partner Identify each Manager Identify each Officer and and and Identify each Limited Partner Identify each Member Identify each Director and Identify each Shareholder For any Manager and/or Member that is a natural person (i.e., Samuel S. Smith), no further disclosure is required. RFA at page 61. The RFA at Section Three F.3. Provides: 3. Requirements. Proposed Developments funded with Housing Credits will be subject to the requirements of the RFA, the Application requirements outlined in Rule Chapter 67-60, F.A.C., the credit underwriting and HC Program requirements outlined in Rule Chapter 67-48, F.A.C., and the Compliance requirements of Rule Chapter 67-53, F.A.C. RFA at page 3. The term “principal” is defined by rule 67-48.002(89)9/, as follows: (89) “Principal” means: (a) Any general partner of an Applicant or Developer, any limited partner of an Applicant or Developer, any manager or member of an Applicant or Developer, any officer, director or shareholder of an Applicant or Developer, * * * (c) Any officer, director, shareholder, manager, member, general partner or limited partner of any manager or member of an Applicant or Developer, and . . . . HTG received an “advance review” approval of its designation of principals on October 8, 2013. HTG submitted this stamped and approved list of principals with its application. Applicant HTG is a limited liability company, as is its developer, HTG Miami-Dade 5 Developer, LLC. In its submission of principals, HTG disclosed the names of the manager and member of the applicant and the manager and member of the developer, all of which were also LLCs. HTG also disclosed the names of the managers and members of these component LLCs. HTG did not disclose any officers of the applicant, the developer, or any of the component LLCs. Other documents submitted as part of the application indicate that Mr. Matthew Rieger is a Vice President of the applicant, HTG Miami-Dade 5, LLC, and that the component LLCs also have officers. APC contends that the rule’s definition of principal requires HTG to disclose not only the managers and members of the applicant and developer, and those of their component LLCs, but also the officers of any of these entities, if they also have officers. FHFC asserts that such disclosure is not required, arguing that the term “officer” as found in the rule’s definition of “principal” only applies to corporations. FHFC argues that there is no inconsistency between the rule and the charts of the RFA with respect to disclosure of principals. FHFC contends that the charts in the RFA, read in conjunction with the rule, indicate that officers must be disclosed only when the entity is a corporation, and that members and managers must be disclosed when the entity is a LLC. FHFC interprets rule 67-48.002(89) in a manner consistent with the charts. It does not interpret the rule to require that an LLC disclose its officers, even if it has them, but only that an LLC disclose its managers and members. Both Ms. O’Neill and Ms. Thorp testified to that effect. The examples provided in the RFA are also consistent with this interpretation. The rule certainly might have been drafted with more precision to expressly indicate that a principal is any officer, director, or shareholder if the entity is a corporation; any manager or member if the entity is an LLC; and any general partner or limited partner if the entity is a Limited Partnership. It cannot be said, however, that the Corporation’s interpretation of the RFA and its rule is impermissible. ATA’s Application Mr. Kenneth Reecy, Director of Multifamily Programs, testified that FHFC revised the “Universal Application Cycle” process that had been conducted in the past. Under the old universal cycle, most of the criteria were incorporated into the rule, and then there was a “cure” process that provided an opportunity to correct errors that didn’t necessarily have a bearing on whether a project was good enough to be funded. Under the newer process, several issues were moved out of the eligibility and scoring phase and into the credit underwriting phase.10/ Specifically relevant here, site plan issues and the availability of infrastructure, such as sewer service, were no longer examined as part of the eligibility and scoring phase set forth in the RFA. Mr. Reecy testified that these issues were complex and had been intentionally pushed to the “rigorous review” that takes place during the credit underwriting phase. In signing and submitting Exhibit A of the RFA, each applicant acknowledges and certifies that certain information will be provided to FHFC by various dates in the future. RFA at page 46. Section Four 10.b.(2)(b) provides in part that the following will be provided: Within 21 Calendar Days of the date of the invitation to enter credit underwriting: Certification of the status of site plan approval as of Application Deadline and certification that as of Application Deadline the site is appropriately zoned for the proposed Development, as outlined in Item 13 of Exhibit C of the RFA; Certification confirming the availability of the following for the entire Development site, including confirmation that these items were in place as of the Application Deadline: electricity, water, sewer service, and roads for the proposed Development, as outlined in Item 13 of Exhibit C of the RFA; Item 13 of Exhibit C goes on to provide: 13. Certification of Ability to Proceed: Within 21 Calendar Days of the date of the invitation to enter credit underwriting, the following information must be provided to the Corporation: a. Submission of the completed and executed 2013 Florida Housing Finance Corporation Local Government Verification of Status of Site Plan approval for Multifamily Developments form. * * * c. Evidence from the Local Government or service provider, as applicable, of the availability of infrastructure as of Application Deadline, as follows: * * * Sewer: Submission of the completed and executed 2013 Florida Housing Finance Corporation Verification of Availability of Infrastructure — Sewer Capacity, Package Treatment, or Septic Tank form or a letter from the service provider which is dated within 12 months of the Application Deadline, is Development specific, and specifically states that sewer service is available to the proposed Development as of the Application Deadline. The 2013 Florida Housing Finance Corporation Local Government Verification of Status of Site Plan Approval for Multifamily Developments Form (Site Plan Approval Form) and the 2013 Florida Housing Finance Corporation Verification of Availability of Infrastructure — Sewer Capacity, Package Treatment, or Septic Tank Form (Certification of Sewer Capacity Form) are incorporated by reference in the RFA. The Site Plan Approval Form requires (in the case of Miami-Dade County which does not have a preliminary or conceptual site plan approval process) that the local government confirm that the site plan was reviewed as of the application deadline. Pinnacle and APC assert that the site plan that ATA submitted to the City of Miami for review included a strip of land that is not legally owned by the current owner and will not be conveyed to ATA under the Purchase and Sale Agreement. As a result, they contend, the site plan review which was required on or before the application deadline did not occur. Pinnacle argues that ATA’s certification in its application was incorrect, that this was a mandatory requirement that was not met, and that it will be impossible for ATA to provide the Site Plan Approval Form in credit underwriting. TC similarly maintains that ATA could not “acknowledge and certify” as part of its application that it would later certify that it had “ability to proceed” because the RFA (at Section Four 10.b.(2)(b) quoted above) requires that “sewer service” be “in place” for ATA’s proposed development as of the application deadline. TC also asserts that the Certification of Sewer Capacity Form explicitly states (and that any service provider letter must, too) that no moratorium is applicable to a proposed development. ATA did not submit a Certification of Sewer Capacity Form. Miami-Dade County will not complete such forms. The “letter of availability” option was created to accommodate Miami-Dade County. The November 12, 2013, letter from Miami-Dade Water and Sewer regarding ATA’s development does not state that there is no applicable moratorium in effect. In fact, the letter affirmatively acknowledges that flow to the gravity system already connected to the property cannot be increased because there is a moratorium in effect as to the pumping station serving the abutting gravity sewer basin. The letter from the County states that, if the pumping station is still in Moratorium Status “at the time this project is ready for construction,” that a private pump station is acceptable. It is logical to conclude that this means sewer service would be available at that time and that sewer service was similarly available at the time of application deadline. The letter, therefore, implies, but does not specifically state, that “sewer service is available to the proposed development as of the application deadline.” The moratorium in effect at the application deadline was not a “general” moratorium. It applied only to the pump station serving the abutting gravity sewer basin, but it was applicable to the proposed development and precluded any increase in the flow to the gravity system connected to the property. A moratorium pertaining to sewer service applicable to ATA’s proposed development was in effect at the time that ATA’s application was submitted. Sewer capacity was otherwise available for the proposed development through use of a private pump station. ATA asserts, first, that ATA has not yet filed certification of ability to proceed or the required forms or letter, that it is not to do so until after it is invited to enter credit underwriting, that FHFC has consequently yet to make a determination as to ATA’s ability to proceed, and that therefore any issues as to site plan or sewer service are not yet ripe for consideration. As to the site plan, ATA further maintains that even if it had been required to provide evidence of ability to proceed as part of its application, the site plan submitted to the City of Miami did not represent that the alley was part of the ATA site. ATA, therefore, asserts that the site plan that was reviewed was the correct one, and that its application certification was correct. The plan of the site of ATA’s development project indicates that the site is bifurcated by a private alley, which is not dedicated as a street, avenue, or boulevard. The legal description of the development project, as submitted to the Department of Planning and Zoning of the City of Miami, included lots 2 through 7 and lots 19 and 20. It did not include the strip of land that lies between these lots (lots 2 through 7 lie to the West of the alley and lots 19 and 20 lie to the East of it.) As to sewer availability, ATA asserts that the 2011 Universal Cycle and the RFA are significantly different. ATA maintains that while the former provided that the existence of a moratorium pertaining to sewer service meant that infrastructure was unavailable, this language was removed from the RFA. ATA contends that a letter of availability need not “mimic” the Certification of Sewer Capacity Form and that the RFA allows a development to certify sewer availability by other means when a moratorium is in effect. Mr. Reecy testified that FHFC takes the certified application at face value, regardless of what other information the Corporation might have at hand. As to the site plan, he testified that even had site plan approval been a part of the scoring process, FHFC would not have found ATA’s application ineligible on that ground. He testified that the alley would not be a problem unless it was a “road” or something similar. He testified that it also could have been a problem if the measurement point to measure the distance to nearby amenities was not on the property, but he was not aware that that was the case in ATA’s application. As for sewer service, Mr. Reecy testified that a letter from the service provider does not have to say “exactly” what is on the form, but stated that it does have to give “the relevant information” to let FHFC know if sewer is “possible.” He testified that the only guidance as to what constituted sewer “availability” was contained in the criteria found on the Certification of Sewer Capacity Form. One of the four numbered requirements on the Certification of Sewer Capacity Form is that there are no moratoriums pertaining to sewer service that are applicable to the proposed development. Under the RFA, the Certification of Sewer Capacity Form could not be completed for a proposed development for which a moratorium pertaining to sewer service was in effect at the time the application was submitted. The form could not be certified by the service provider even if it was possible for such a development to obtain sewer service by other means. The text on the 2013 form is substantively identical to that on the form used during the 2011 Universal Cycle, that wording was specifically drafted to require that any moratorium on sewer infrastructure would be a disqualifying criterion, and the 2013 Certification of Sewer Capacity Form still has that effect. No challenge to the use of the form in the RFA was filed. Even though the language of the 2011 Universal Cycle which paralleled the text on the form does not appear in the RFA, that criterion remains as part of the RFA because of the incorporated Certification of Sewer Capacity Form. In any event, the site plan and sewer availability issues must await at least initial resolution by FHFC during the credit underwriting phase. The testimony of Mr. Reecy clearly indicated that FHFC interprets the RFA specifications and its rules to move consideration of site plan issues and infrastructure availability to the credit underwriting phase. It has not been shown that this is an impermissible interpretation. Town Center’s Application Pinnacle alleges that TC’s application fails to demonstrate site control, because the applicant, Town Center Phase Two, LLC, is not the buyer of the site it intends to develop. The RFA requires at Section Four A.7. that an applicant must provide a copy of a contract, deed, or lease to demonstrate site control: 7. Site Control: The Applicant must demonstrate site control by providing, as Attachment 7 to Exhibit A, the documentation required in Items a., b., and/or c., as indicated below. If the proposed Development consists of Scattered Sites, site control must be demonstrated for all of the Scattered Sites. a. Eligible Contract - For purposes of the RFA . . . the buyer MUST be the Applicant unless an assignment of the eligible contract which assigns all of the buyer's rights, title and interests in the eligible contract to the Applicant, is provided. If the owner of the subject property is not a party to the eligible contract, all documents evidencing intermediate contracts, agreements, assignments, options, or conveyances of any kind between or among the owner, the Applicant, or other parties, must be provided . . . . RFA at page 23. The Contract for Purchase and Sale of Real Property submitted as Attachment 7 to TC’s application is signed by Mr. Milo, who is identified as Vice President. The Buyer on the signature page is incorrectly listed as RUDG, LLC. No other assignment, intermediate contract, agreement, option, or conveyance was included with TC’s application to indicate that TC otherwise had site control of the property. The applicant entity, Town Center Phase Two, LLC, is correctly listed in the opening paragraph of the Contract for Purchase and Sale of Real Property as the “Buyer.” RUDG, LLC, is the 99.99 percent Member of Town Center Phase Two, LLC, and is also the sole Member and Manager of Town Center Phase Two Manager, LLC, which is the .01 percent Managing Member of Town Center Phase Two, LLC. Mr. Milo is a Vice President of RUDG, LLC, a Vice President of Town Center Phase Two Manager, LLC, and a Vice President of the applicant, Town Center Phase Two, LLC. Florida Administrative Code Rule 67-60.008, provides that the Corporation may waive minor irregularities in an otherwise valid application. The term “Minor Irregularity” is defined by rule 67- 60.002(6), as follows: (6) “Minor Irregularity” means a variation in a term or condition of an Application pursuant to this rule chapter that does not provide a competitive advantage or benefit not enjoyed by other Applicants, and does not adversely impact the interests of the Corporation or the public. Mr. Reecy testified that FHFC interpreted the rule to mean that if information requested by the RFA is reasonably available within the Application, even if it was not provided exactly in the place where it was requested, the failure to have it in the particular place it was requested is a minor irregularity. Although the information on the signature page of the Contract for Purchase and Sale of Real Property identifying the Buyer as RUDG, LLC, was a discrepancy in the application, the contract elsewhere identified Town Center Phase Two, LLC, as the Buyer, and Mr. Milo was, in fact, authorized to sign for the true Buyer. Ms. Amy Garmon’s deposition testimony indicated that because she was able to determine from other places in the application that the Buyer was the applicant, and that Mr. Milo was authorized to sign for the Buyer, she found this portion of TC’s application to be compliant, and she didn’t see that there was a “minor irregularity” that needed to be waived. However, it is determined that FHFC actually did finally determine that the error in identification constituted a minor irregularity that was waived, in accordance with Mr. Reecy’s testimony. Although it was Ms. Garmon who called attention to the irregularity, Mr. Reecy is in a position of higher authority within the FHFC and is better able to address the Corporation’s actions with respect to TC’s application. Pinnacle also asserts that TC’s finance documents fail, based upon the same signature issue. TC submitted equity proposals detailing its construction funding sources that were addressed to Mr. Milo and endorsed by him as “Vice President.” FHFC similarly concluded that Mr. Milo had authority to endorse the finance letters on behalf of TC. There is evidence to support FHFC’s findings that TC was the actual Buyer, that Mr. Milo had authority to sign the contract and the equity documents, and that the discrepancies in the documents were minor irregularities. Pinnacle’s Application The equity commitment letter from Wells Fargo Bank regarding Pinnacle’s development, as submitted to FHFC, contained only pages numbered one, two, and four of a four-page letter. It is clear that page three is actually missing and the letter was not simply incorrectly numbered, because of discontinuity in the text and in the numbering of portions of the letter. APC contends that Pinnacle’s application should have been deemed ineligible for award because of the missing page. Mr. Reecy testified that even though a page of Pinnacle’s equity commitment letter was missing, all of the RFA requirements were set forth in the remaining pages. He acknowledged that the missing page might have included unacceptable conditions for closing or information that was inconsistent with the other things in the application, but stated that FHFC determined that the missing page from Pinnacle’s equity letter was a minor irregularity. There is evidence to support FHFC’s finding that the missing page was a minor irregularity. APC’s Application The RFA provides at Section Four, A.3.c., at page 5: c. Experienced Developer(s) At least one Principal of the Developer entity, or if more than one Developer entity, at least one Principal of at least one of the Developer entities, must meet the General Developer Experience requirements in (1) and (2) below. (1) General Developer Experience: A Principal of each experienced Developer entity must have, since January 1, 1991, completed at least three (3) affordable rental housing developments, at least one (1) of which was a Housing Credit development completed since January 1, 2001. At least one (1) of the three (3) completed developments must consist of a total number of units no less than 50 percent of the total number of units in the proposed Development. For purposes of this provision, completed for each of the three (3) developments means (i) that the temporary or final certificate of occupancy has been issued for at least one (1) unit in one of the residential apartment buildings within the development, or (ii) that at least one (1) IRS Form 8609 has been issued for one of the residential apartment buildings within the development. As used in this section, an affordable rental housing development, including a Housing Credit development that contains multiple buildings, is a single development regardless of the number of buildings within the development for which an IRS Form 8609 has been issued. If the experience of a Principal for a Developer entity listed in this Application was acquired from a previous affordable housing Developer entity, the Principal must have also been a Principal of that previous Developer entity. (2) Prior General Development Experience Chart: The Applicant must provide, as Attachment 4 to Exhibit A, a prior experience chart for each Principal intending to meet the minimum general development experience reflecting the required information for the three (3) completed affordable rental housing developments, one (1) of which must be a Housing Credit development. Each prior experience chart must include the following information: Prior General Development Experience Chart Name of Principal with the Required Experience Name of Developer Entity (for the proposed Development) for which the above Party is a Principal: ___ ___________ ___ Name of Development Location (City & State) Affordable Housing Program that Provided Financing Total Number Of Units Year Completed RFA at pages 5, 6. Exhibit A to the RFA, at 3.c., further provides: General Developer Experience For each experienced Developer entity, the Applicant must provide, as Attachment 4, a prior experience chart for at least one (1) experienced Principal of that entity. The prior experience chart for the Principal must reflect the required information for the three (3) completed affordable rental housing developments, one (1) of which must be a Housing Credit development. RFA at page 41. Ms. O’Neill, a Senior Policy Analyst at FHFC and member of the Review Committee responsible for scoring the applications’ developer information section, testified at hearing. When FHFC first started scoring applications, Ms. O’Neill was not taking any action to confirm principal developer experience, but rather was taking the information provided by applicants at face value, as it had been submitted on the chart. A colleague of Ms. O’Neill’s, not serving on the Review Committee, called her attention to the fact that a development that was then going through credit underwriting (following an award during the 2011 funding cycle) had recently requested that FHFC approve a change to the developer entity. Ms. O’Neill testified that this request raised a question at FHFC as to whether Ms. Wong, listed by APC as the principal with the required experience, met the requirements. FHFC decided to confirm that Ms. Wong had the required experience for the developments listed in the RFA. Ms. O’Neill stated that she did not make any inquiry to Ms. Wong or to Atlantic Pacific Communities as to whether Ms. Wong was, in fact, a principal of St. Luke’s Development, LLC, developer of St. Luke’s Life Center, because “we’re not really supposed to do that.” Ms. O’Neill instead looked at portions of a credit underwriting report on the St. Luke’s Life Center project that were researched and shown to her by a colleague. Ms. O’Neill did not see Ms. Wong listed in that report as a principal. She did find information in FHFC files that Ms. Wong was a principal on the other two listed developments. Ms. Thorp testified that she researched several documents in FHFC’s possession and found no information indicating that Ms. Wong was a principal for the St. Luke’s development. She testified that Ms. Wong or another representative of APC was not contacted about the issue because that would have given them an unfair advantage over other applicants. Based upon the information in its files, FHFC determined that Ms. Wong did not meet the requirements for principal developer experience. FHFC then similarly reviewed the files of other applicants who had listed in-state developments as their experience, but was unable to review out-of-state experience, so out-of-state experience continued to be accepted at face value. Ms. Wong was not originally a principal in the St. Luke’s development. However, it was demonstrated at hearing through documentary evidence that Ms. Wong was later appointed an officer of St. Luke’s Development, LLC, effective March 2007. That change was submitted to the credit underwriter, and Ms. Wong was a principal for the developer entity before it completed credit underwriting. Both Ms. O’Neill and Ms. Thorp testified that if the documents provided at hearing by APC had been in FHFC’s possession at the time APC’s application was scored, FHFC would have found that Ms. Wong was a principal of the St. Luke’s development and that her experience met principal developer experience requirements. In light of the evidence presented at hearing, it is clear that FHFC’s conclusion was wrong. The prior experience chart submitted by APC as part of its application provided all of the information requested by the RFA, and all of that information was accurate. The information available to FHFC in the application correctly indicated that Ms. Wong was a principle for the developer of the St. Luke’s Life Center development. APC’s application met all requirements of the RFA with respect to prior developer experience. The Corporation’s preliminary determinations that Ms. Wong was not a principal in the St. Luke’s development, and that the APC application did not, therefore, meet principal experience requirements to the contrary, made in good faith based upon incomplete information contained in its files, was clearly erroneous. FHFC’s contention that APC should have submitted explanations or further documentation of Ms. Wong’s developer experience at the time it submitted its application is untenable. APC submitted all of information requested of it. FHFC asked for a chart to be completed, which APC did, completely and accurately. An applicant cannot be found ineligible for failing to do more than was required by the RFA. Credit Underwriting A comparison of the RFA and rules with the 2011 Universal Cycle process shows that the Corporation has moved many requirements formerly required as part of the eligibility and scoring phase into a second review in the credit underwriting phase, as noted earlier. Rule 67-48.0072 provides in part: Credit underwriting is a de novo review of all information supplied, received or discovered during or after any competitive solicitation scoring and funding preference process, prior to the closing on funding, including the issuance of IRS Forms 8609 for Housing Credits. The success of an Applicant in being selected for funding is not an indication that the Applicant will receive a positive recommendation from the Credit Underwriter or that the Development team’s experience, past performance or financial capacity is satisfactory. The rule goes on to provide that this de novo review in the credit underwriting phase includes not only economic feasibility, but other factors statutorily required for allocation of tax credits, such as evidence of need for affordable housing and ability to proceed. These factors might cause an application to fail and never receive funding, even though it was nominally “awarded” the credits earlier. In that event, the RFA provides: Funding that becomes available after the Board takes action on the Committee’s recommendation(s), due to an Applicant declining its invitation to enter credit underwriting or the Applicant’s inability to satisfy a requirement outlined in this RFA, and/or Rule Chapter 67-48, F.A.C., will be distributed to the highest scoring eligible unfunded Application located in the same county as the Development that returned the funding regardless of the Funding Test. If there is not enough funding available to fully fund this Application, it will be entitled to receive a Binding Commitment for the unfunded balance. If an applicant nominally “awarded” funding in the eligibility and scoring phase fails credit underwriting, the next applicant in the queue of eligible applicants may still be granted funding, and so, is substantially affected by FHFC’s decisions in the credit underwriting phase.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Florida Housing Finance Corporation enter a final order finding that APC Four Forty Four, Ltd., is eligible for funding, adjusting the Sorting Order accordingly, and otherwise dismissing the formal written protests of all Petitioners. DONE AND ENTERED this 4th day of June, 2014, in Tallahassee, Leon County, Florida. S F. SCOTT BOYD Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 4th day of June, 2014.
The Issue Whether or not Petitioner's application for registration as an associated person of Brauer & Associates, Inc., and as an investment adviser of G.G. Brauer & Associates, Inc. should be approved.
Findings Of Fact Respondent, Department of Banking and Finance, is the state agency charged with the administration and enforcement of Chapter 517, Florida Statutes, The Florida Securities and Investor Protection Act and the administrative rules promulgated thereunder. On or about October 30, 1990, Petitioner submitted a Form U-4, Uniform Application for Securities Industry Registration or Transfer, seeking transfer as an associated person of Brauer & Associates, Inc., and as an investment adviser of G.G. Brauer, Inc. On or about January 25, 1991, Respondent denied Petitioner's application for registration based upon its determination that Petitioner had filed a form U-4, which contained material misstatements and had demonstrated prima facie evidence of unworthiness by engaging in prohibited business practices. Petitioner was previously registered as an associated person with the St. Petersburg, Florida branch office of Smith Barney from March 1987 until July 25, 1990, when he was permitted to resign from the firm for ordering securities from the "over the counter" desk without prior client orders. Petitioner was also registered with the NASD and is charged with knowledge of their Rules of Fair Practice. On or about May 9 1990, Ronald Padgett filed a written complaint with Respondent alleging that Petitioner was engaging in unauthorized trading in his account and that the account was trading on margin without a signed margin agreement. Mr. Padgett also alleged that the signed margin agreement on file with Smith Barney was a forgery. After receiving Mr. Padgett's complaint, Respondent commenced its investigation in Petitioner's activities and requested that Smith Barney provide it with information regarding Padgett's complaint. Respondent also requested and was provided with copies of all other customer complaints that had been filed against Petitioner with Smith Barney. Smith Barney provided Respondent with copies of customer complaints that had been filed against Petitioner by Dorothy Juranko, Wayne Schmidt, Mark Madison, Michael Russo, Gloria Fallon, Patricia Schoenberg and William & Verna Bankhead. All of these individuals were investor clients of Petitioner. Prior to his employment with Smith Barney, Petitioner had not been the subject of a customer complaint or industry disciplinary proceeding or licensure revocation, suspension, or denial. Wayne Schmidt Sr. the owner of Suncoast Chrysler-Plymouth (Suncoast) opened his account at Smith Barney in 1985. Initially, the account executive assigned to Schmidt's account at Smith Barney was Steve Ellis. Schmidt maintained two accounts with Smith Barney and Steve Ellis, namely, a profit- sharing account for Suncoast Chrysler-Plymouth and a joint account with his wife. Schmidt exercised no control of the Suncoast account, but rather allowed his associate, Gloria Fallon to initially monitor the transactions in that account. Afterwards, Schmidt started overseeing the trading activities in the Suncoast account. Schmidt had no knowledge of any unauthorized transactions in the Suncoast account after he began monitoring it. Gloria Fallon did not testify at the proceeding. In connection with the maintenance of his joint account at Smith Barney, Schmidt executed a "Securities Account Agreement." During the time Schmidt maintained his account at Smith Barney, the Securities Account Agreement was utilized by Smith Barney as a margin contract. The Securities Account Agreement qualifies as a margin account agreement/margin contract as to form, and is consistent with industry standards, custom and usage. Although Florida Statutes proscribes certain procedures relative to margin agreements, neither the Florida Securities Act nor the rules promulgated thereunder require a broker/dealer to characterize a margin contract as a "margin agreement." The gravamen of Schmidt's complaint against Petitioner was that certain shares of stock were not liquidated from the joint account maintained by him in contravention of his directions to Petitioner. There was no proof submitted to support any conclusion that Petitioner failed to place an order for the liquidation of such securities for Schmidt's account. Likewise, there was no evidence of any unauthorized trading in the Schmidt's joint account. While Petitioner was assigned as account executive to the Schmidts joint account, a profit of approximately $10,000.00 was generated for that account in 1988 and in 1989, a net gain of approximately $15,000.00 was generated. Schmidt conceded at hearing that Petitioner probably did a better job handling his account than his prior broker, Steve Ellis. During the year 1988, Smith Barney generated and sent to Schmidt, monthly statements and confirmation statements regarding every transaction in his joint account. The monthly statements sent to Schmidt for the joint account contained entries regarding margin interest being charged to the account. For the year 1989, Smith Barney also generated and sent to Schmidt, monthly statements and confirms regarding every transaction in his joint account. The 1989 monthly statements sent to Schmidt also showed margin interest. For the years 1988 and 1989, Schmidt deducted from his individual tax returns, the margin interest charged to his account. Also, during 1988 and 1989, Schmidt did not complain to Petitioner or Smith Barney that the use of margin account was unauthorized. During his tenure at Smith Barney, Petitioner was the account executive assigned to the account of Michael Russo (Russo). Petitioner was assigned to the Russo account in approximately May of 1990, an account which was formerly serviced by an account executive whose last name is Dudenhaver. Michael Russo matriculated at City College of New York where he received a Bachelor of Business Administration degree and was a certified public accountant for approximately 30 years. Russo has been in the accounting business for approximately 40 years and during this time period, he operated his own accounting practice. Russo maintained three (3) accounts at Smith Barney which included an account with his wife, an individual account and an IRA account. Russo opened his first brokerage account in the early 1980s with Merrill Lynch, Pierce, Fenner & Smith. Russo has a history is investing in real estate and by mid 1990, he had accumulated a net worth of approximately $750,000.00. On or about July 13, 1990, Russo presented Petitioner a check in the amount of $26,000.00 which was to be deposited into Russo's accounts. The $26,000.00 check was deposited by Petitioner into Russo's accounts but were returned for non-sufficient funds (NSF). Russo then replaced the NSF check with a $22,000.00 check. The funds derived from the $26,000.00 of Russo originated from an interest-bearing money market account from the Fidelity- Spartan Mutual Funds Family. During the period July 13-20, 1990, Russo was on vacation and was away from his home visiting relatives in the Melbourne, Florida area. During that week, Russo spoke by telephone with Petitioner regarding his account on more than one occasion. Russo specifically recalls speaking with Petitioner on July 15, 1990, regarding his account. During that week, Russo spoke with Respondent about selling certain shares of stock in his account and his specific recall is that one of those conversations occurred on July 15, 1990. The shares were to be sold "at market." Russo again spoke with Petitioner on July 21, 1990, regarding transactions in his account. On July 24, 1990, Russo told Larry Youhn, the branch manager at Smith Barney, that he was very happy with Petitioner as his broker. The July 1990 month-end statement for the Russo account indicate that funds were deposited into the Russo accounts in an amount sufficient to satisfy security purchases made in his account during July 1990. Although these transactions appear at month-end in a type-2 margin account, a review of such statements indicate that the transactions initially occurred in a cash account and were mistakenly journaled to the margin account by Smith Barney as a result of an NSF check presented by Russo as payment for the purchase transactions. The individual account of Russo reflects the purchase of 500 shares of Wiley Laboratories on July 16, 1990, for $7,702.00. On that same day, $10,500.00 from the $26,000.00 NSF check was received into the account. The July 1990 monthly statement for Russo's individual account reflected that there would have been a $2,800.00 net credit in the account if Russo had not presented the NSF check. During his tenure at Smith Barney, Petitioner also served as the registered representative for an account maintained by Nicholas and Dorothy Juranko (Juranko). The Jurankos have a substantial history of business experience, having currently owned a service station in the Ohio area and Mrs. Juranko currently owns her own drapery shop and manages eight (8) apartment/rental units that they jointly own. The Jurankos opened their first securities brokerage account in approximately 1962. They have held accounts at several brokerage firms including Merrill Lynch, Blinder-Robinson and First Jersey Securities prior to opening their account at Smith Barney. At Blinder-Robinson, the Jurankos engaged in the purchase of several "Penny" stocks and fully realized that they were speculating. The Blinder- Robinson account was opened by the Jurankos so that Mr. Juranko would "have something to do." The Jurankos maintained a securities brokerage account at First Jersey Securities prior to Petitioner's employment with First Jersey. Petitioner was assigned as account executive for the Juranko account at First Jersey in approximately 1985. When the Jurankos opened their account at Smith Barney, their net worth was approximately $220,250.00. Although Mrs. Juranko maintains that unauthorized trades occurred in her account during the month of December 1987, when asked to identify which trade which unauthorized, she could not do so. This was so, despite an effort to refresh her recollection by presenting her the December 1987 monthly account statement which depicted all securities holdings and transactions generated in their account. Mrs. Juranko also alleged that she was losing money and did not want to deposit any additional funds into her account. However, Mrs. Juranko wanted to have profits generated from the funds that were then existing into her account as of year-end December, 1987. Respecting the December 1987 trades, the Jurankos received confirms for every transaction that occurred during the month. Through December 1987, while Petitioner was assigned to manage the Juranko account, the account generated a net profit. Also, continuing through January 1988, Petitioner had effected trades which produced a net profit for the Juranko account. As testified by Mrs. Juranko, "All I could see...greed, all I could see was $14,200.00 some dollars and $9,900.00 some dollars, and I thought, wow... I thought "wow", he's making me money." Although Mrs. Juranko complained that she was losing money, an analysis of the account revealed that during the two years that Petitioner was assigned her account, it made a net profit. Notwithstanding the documentary evidence to the contrary, Mrs. Juranko admitted that she was upset and complained to Smith Barney's compliance officer, a Mr. Singer, because of her unfounded belief that she had lost money. Mrs. Juranko identified anger as the basis for her inability to understand a letter which was sent by Larry Youhn, Smith Barney's branch manager, which show the activity that had been generated into her account. Notwithstanding the clear language of that letter, Mrs. Juranko maintained that she did not understand it. This is so, despite the fact that Mrs. Juranko did not telephone Smith Barney to complain because she "didn't want to get [Petitioner] in trouble." 1/ The use of margin in the Jurankos account was discussed because Mrs. Juranko believed the account was losing money; she wanted to do whatever was necessary over a period of time to make up for the losses and she refused to deposit additional funds into the account to generate profits in trading the account. In connection with the maintenance of the Juranko account at Smith Barney, Petitioner instructed his sales assistant to send a margin agreement to Mr. and Mrs. Juranko for execution. The use of margin was discussed with the Jurankos in approximately November 1987. Petitioner relied upon the Smith Barney infrastructure to maintain the necessary paperwork for margin accounts, including the Jurankos. This is a customary practice in the securities industry and is utilized by most large brokerage houses. Juranko first complained to Petitioner about the use of margin in January 1988, when she received her monthly account statement which contained an entry for margin interest. Mrs. Juranko explained that she thought the margin charges were too much and that she wanted to reduce the margin charges by liquidating securities from the account. Mrs. Juranko thereafter became uncooperative and it became difficult for Petitioner to transact business in the account consistent with Mrs. Juranko's desired objectives. As a result, in March 1988, Petitioner determined that the only thing he could do for the account was to liquidate positions at or near break-even points. Thereafter, Petitioner never made any other purchase recommendations to the Jurankos. Petitioner also serviced the account of Mark D. Madison while employed at Smith Barney. Madison is a marketing, advertising and management consultant who owns his own business. Madison maintained two (2) accounts at Smith Barney's St. Petersburg branch office, including an individual account and an account in the name of his mother, Mary Jean Madison. Mark Madison was a fiduciary for and conducted all transactions in his mother's account. Prior to Petitioner's assignment as broker to Madison's fiduciary account, it was assigned to broker Steve Ellis. The fiduciary account was maintained as a margin account since its opening in 1984. Commencing on February 13, 1986, broker Ellis and Madison executed several margin transactions in the fiduciary account. Through the period ending October 31, 1987, roughly 95% of the transactions in the fiduciary account were executed on margin. As of year-end 1987, the Madison fiduciary account and Mark Madison's personal account historically traded over-the-counter securities. During this period while Ellis was the broker, margin transactions were executed in both Madison accounts. During this period, broker Ellis actively traded both accounts and generated both profits and losses in the accounts. Mark Madison was familiar with the active trading in both accounts as well as the profit/loss picture. Madison estimated losses in the fiduciary account to be over $20,000.00 while the account was handled by Ellis. These losses all occurred while he was the fiduciary on the account and was in charge of approving trading in the account. When the fiduciary account was transferred from Ellis to Petitioner, Madison expressed his concern about the losses that his mother's fiduciary account had sustained as well as his responsibility for such losses. During his initial conversations with Petitioner, Madison explained his mother's displeasure at the approximately $30,000.00 in losses that had been generated while Ellis was assigned as broker. Madison also explained to Petitioner that his brother had made references to conversations with his mother about suing him as the fiduciary because of the losses generated. During the time that the fiduciary account was handled by Ellis, there were differences in the execution prices of transactions in the same securities which occurred in both the fiduciary account and his (Mark Madison's) personal account. When Petitioner was assigned the account, it became apparent to him that Madison consistently obtained higher prices on liquidating transactions than his mother was obtaining in the fiduciary account for the same securities. Petitioner was concerned with the type of trading in which Madison wanted to engage in for the fiduciary account and brought this trading strategy to the attention of branch manager, Youhn, who explained to Petitioner that it was the fiduciary who had ultimate responsibility for trading the account. In addition to discussing the trading strategy with Youhn, a review of the account history was conducted by Petitioner. Petitioner's review revealed that the account had lost approximately 40% in equity during the time it was handled by account executive Ellis and Mark Madison as fiduciary. As a result of the losses generated, Madison expressed his desire to Petitioner to recoup losses in the account by taking advantage of 2-3 point swings in certain over-the-counter securities. During the months of January through March 1988, Madison, despite his allegations to the contrary, authorized the purchase of a specified number of shares of certain securities and later maintained that certain additional shares of those securities were purchased without his authorization. Throughout this period, Madison maintained continuous telephone conversations with Petitioner regarding such securities. Throughout the period, Madison did not instruct Petitioner to cancel the trades, but rather instructed him that he wanted out of those positions as near as possible to "break even." The Department conducted an investigation of the allegations made by Petitioner's former clients in connection with the denial of his registrations as an associated person an investment advisor. In connection with the investigation, the Department, through its investigative employee, Carol Irizarry (Irizarry), spoke with individuals who had submitted written complaints against Petitioner. In furtherance of her investigation, Irizarry visited the office of William Lyman, Esquire, who represented several of the former customer/complainants, and reviewed the information that Lyman had relative to such complaints. Ms. Irizarry did not testify during the formal hearing herein. Dennis Farrar (Farrar), area financial manager, Division of Securities, Department of Banking and Finance, supervised the writing of the report completed by Irizarry. Farrar's first direct contact with the investors/complainants in this case occurred approximately one (1) week prior to the commencement of the hearing herein. Following Ellis' separation from employment with Smith Barney, several Smith Barney brokers and clients of Petitioner advised him that broker Ellis was out to get him and urged them to file complaints against Petitioner. Specifically, Petitioner received a telephone call from Gloria Fallon, an associate of Wayne Schmidt, who warned Petitioner that Ellis was "trying to stir up trouble for him." In connection with the initial customer complaint received by the Department, a request for information responsive to the complaint was sent to Smith Barney. Among the documents received by the Department was a securities account agreement which contained language normally contained in a margin contract. The securities account agreement is the document utilized by Smith Barney as its margin contract at all time material hereto. A Form U-4, Uniform Application for Securities Industry Registration for Transfer, is a document generated by the National Association of Securities Dealers (NASD) and the North American Securities Administrators Association (NASAA). The Form U-5, Uniform Termination Notice, also is generated by the above entities. The disclosure section of a Form U-4 requires an applicant to respond to the best of his ability. An intentional falsification of information on a Form U-4 will give rise to a violation of Section 517.161, Florida Statutes. It is customary in the securities industry for a registered representative to rely upon his current broker/dealer employer to determine which complaints, if any, are disclosable on the Form U-4. It is customary in the industry for a representative to rely on the Form U-5, termination notice for completion of his U-4 and usually the information on both forms track each other. Also, the prospective applicant filling out his U-4 usually consults with the firm that he separated from to ensure that both Forms U-4 and U-5 are consistent. Petitioner's completion of the Form U-4 on August 30, 1990 in connection with his employment at Brauer & Associates contained a disclosure of customer complaints consistent with the disclosures made by Smith Barney on its amended Form U-5 Termination Notice dated August 17, 1990. Petitioner's reliance on the information contained in his files and that provided by his employers was reasonable and there was no evidence that Petitioner intentionally falsified his Form U-4 application.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that Respondent enter a Final Order granting Petitioner's application for registrations as an associated person or broker/dealer of Brauer & Associates, Inc. and investment adviser to G.G. Brauer, Inc. RECOMMENDED this 13TH day of August, 1991, in Tallahassee, Leon County, Florida. JAMES E. BRADWELL Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904)488-9675 Filed with the Clerk of the Division of Administrative Hearings this 13th day of August, 1991.
The Issue The issue in this case is whether credit underwriting reports associated with applications for funding submitted by the developer of an apartment complex in Brevard County, Florida, met applicable requirements, and whether acceptance and approval of such reports by the Respondent, Florida Housing Finance Corporation (FHFC), was appropriate.
Findings Of Fact The FHFC is a public corporation organized under Chapter 420, Florida Statutes (2008), to administer a state program through which, insofar as is relevant to this proceeding, developers obtain funding for construction of rental apartments to provide housing to persons of low, moderate, and middle income. The funding is provided through various mechanisms, including the State Apartment Incentive Loan (SAIL) program. The Petitioner owns and operates Madalyn Landing, a 304-unit, affordable housing complex in Palm Bay, Brevard County, Florida, located approximately one-half mile from the Malabar Cove apartment complex. Madalyn Landing was constructed in 2000. The Petitioner has consistently asserted that the Malabar Cove apartment complex will negatively impact the Petitioner’s ability to obtain and retain tenants for Madalyn Landing and has objected to the receipt by Malabar Cove of financial assistance available through local and state programs for affordable rental housing construction developers. To participate in the programs administered by the FHFC, developers submit applications for project funding during an annual process identified as the "universal cycle." Each application is evaluated, scored, and competitively ranked against other applications filed during the same cycle. Applicants are provided with an opportunity to review and comment on the evaluation and scoring of all proposals. Defects in application may be cured during this initial review process. After the period for comment ends, the FHFC issues a revised competitive ranking of the proposals. Developers may challenge the second ranking through an administrative hearing. After the second ranking process is final, developers achieving an acceptable score receive a preliminary funding commitment and proceed through an evaluation process performed by an independent credit underwriter. The underwriter reviews each proposal according to the provisions of Florida Administrative Code Rule 67-48.0072. The credit underwriting reports are eventually submitted to the FHFC Board for approval. The developer of Malabar Cove is Atlantic Housing Partners (AHP), which develops and operates affordable housing projects in Florida, including others within Brevard County. Malabar Cove is a multifamily apartment complex located in Palm Bay, Florida, which was proposed by AHP in two phases. Phase I of the project included 76 three-bedroom, two-bath apartment units. Phase II of the project included 72 additional units designated as follows: eight three-bedroom, two-bath units; 32 two-bedroom, one-bath units; and 32 four-bedroom, three-bath units. The Malabar Cove units are designated for tenants earning 60 percent or less of the Area Median Income (AMI) as determined by the U.S. Department of Housing and Urban Development. Madalyn Landing Apartments are likewise designated for tenants earning 60 percent or less of the AMI. AHP applied for approximately $4 million in SAIL funds and $680,000 in supplemental loan funds for Malabar Cove Phase I during the 2007 universal cycle. The project received a preliminary funding commitment letter during the 2007 cycle and proceeded into the credit underwriting process. AHP applied for approximately $2 million in SAIL funds and $680,000 in supplemental loan funds for Malabar Cove Phase II during the 2008 universal cycle. The project received a preliminary funding commitment letter during the 2008 cycle and proceeded into the credit underwriting process. Malabar Cove obtained tax-exempt bond financing from the Brevard County Housing Authority (BCHA). Madalyn Landing was constructed with $14 million in tax-exempt bond financing from the FHFC. Developers constructing affordable housing projects with tax-exempt bond financing are eligible to receive low- income housing tax credits. The credits are approximately 4 percent of the development costs for a period of ten years. Such tax credits are typically sold to institutional investors and generate equity for the developer. The tax credits obtained by the Petitioner for Madalyn Landing and by AHP for Malabar Cove were sold to generate equity for construction of the properties. Construction of the Malabar Cove project commenced prior to this litigation and was projected to be complete as of April 2009. The receipt of funding from the BCHA obligates Malabar Cove to provide the affordable rental housing as identified herein. Because the Malabar Cove project includes supplemental loan funds from the FHFC, 10 percent of the units must be held for tenants making 33 percent or less of the AMI, assuming that the FHFC ultimately approves the Malabar Cove request. There is no evidence that Madalyn Landing or any other competing affordable housing apartment complex is required to, or has, set aside units for tenants making 33 percent or less of the AMI. The credit underwriting reports for both phases of Malabar Cove were prepared by the Seltzer Management Group, Inc. (SMG), and were submitted to the FHFC Board in December 2008. SMG retained a certified public accounting firm, Novogradac & Company, LLP (Novogradac), to prepare the market studies referenced in the credit underwriting reports. References herein to the Novogradac market study are as reported by SMG in the credit underwriting report. The Novogradac market study determined that construction of the Malabar Cove development would have a negative impact on Madalyn Landing, as well as on a second affordable housing rental complex not at issue in this proceeding. According to the SMG report, Novogradac determined that "there are ample eligible renters in the sub-market," but noted that Malabar Cove, a newer housing complex, would have "a competitive advantage as it relates to age, condition, amenities, and unit size." The report stated that Malabar Cove's competitive advantage could result in occupancy at competing apartment complexes "at below break even levels once the market stabilizes." As reflected in the SMG report, the Novogradac study included a projection of affordable housing demand in the market area through analysis of a "capture rate,” a projection of the percentage of tenants an affordable housing project must achieve from the pool of appropriately-qualified tenants in order to be financially feasible. A capture rate of 10 percent or less is regarded as a positive indicator of financial feasibility. The Malabar Cove capture rate was projected to be between about 3 and 6 percent, depending on the type of rental unit. Accordingly, the Malabar Cove project is regarded as financially feasible. According to the SMG report, Novogradac noted that the relevant housing market had experienced declining occupancy rates in the last few years, while the number of available affordable rental units had remained stable. Novogradac attributed the situation to the general economic downturn and "to the decline in the single family home market specifically" as unoccupied single-family residences have become available at rental rates competitive with affordable housing units. The SMG credit underwriting report states as follows: Novogradac believes the current situation to be temporary and that single family home values will recover in the future. As home values recover, single family homes will revert to home ownership and no longer be available to the rental market or rents for the single family homes will rise to historical levels and no longer directly compete with the traditional affordable housing apartment units. Novogradac concludes that when the supply of competing single family homes is reduced to normal levels, affordable housing occupancy levels will increase to levels just below . . . those experienced between 2004 and 2006. Neither the credit underwriting report nor the market study established a time frame during which single-family housing values were expected to improve. Although testimony was offered at the hearing as to what the phrase "in the future" was intended to signify, the testimony on this point reflected little more than speculation (albeit informed), and none of the testimony was persuasive. The credit underwriting report included a substantive review of the Malabar Cove financing package and the ability of the developer to proceed through the construction process to the point of project completion and unit occupancy. The referenced information in the credit underwriting report on this issue was not credibly contradicted. The credit underwriting report adequately and accurately determined that the developer could proceed with the project through completion. The credit underwriting report recommended that the FHFC Board approve the Malabar Cove applications for funding. On December 12, 2008, the FHFC Board unanimously voted to accept the credit underwriting reports for the relevant phases of Malabar Cove and to approve the applications for funding. It is unnecessary to include herein a detailed recitation of the discussion during the Board's meeting on December 12, 2008. Review of the meeting transcript establishes that the Board's decision followed discussions with representatives of the Malabar Cove project and the Madalyn Landing apartment complex as well as the credit underwriter. The Board was aware of the affordable housing market conditions in Brevard County and elsewhere in the state. The Board was clearly aware that the construction of the Malabar Cove project would likely have an impact on competing affordable housing providers, specifically Madalyn Landing, and there was reference to the fact that such competition could potentially reduce housing costs for the populations being served by the FHFC programs. The Board additionally considered the present and future availability of state funds. There is no evidence that the Board acted inappropriately or unreasonably in approving the credit underwriting reports for the Malabar Cove project and proceeding to commit the funds at issue in this proceeding, or that the decision was an abuse of the Board’s discretion. The Petitioner has asserted that the Board's recent decision in the “Pine Grove” project (wherein the Board declined to follow the credit underwriter's recommendation for approval of an affordable housing project located in Duval County) requires that the Petitioner's project be denied, particularly because the perceived viability of the Pine Grove project was regarded as superior to that of Malabar Cove. The FHFC Board's denial of the Pine Grove application is the subject of a separate administrative proceeding, and this Recommended Order sets forth no findings of fact applicable to the Pine Grove project or the Board’s decisions related to the Pine grove application. The evidence establishes that the Board discussed the Pine Grove decision during their consideration of the Malabar Cove applications. Prior to the Board's denial of the Pine Grove application, the FHFC Board had apparently never rejected a credit underwriter's recommendation for approval. However, there was uncontradicted testimony that, because the Board's rules provides an opportunity for both the FHFC and an applicant to review a draft credit underwriting report prior to the issuance of the final report, underwriting problems are routinely resolved prior to the issuance of the report and that, where a problem cannot be sufficiently resolved for the credit underwriter to recommend approval, developers routinely withdraw applications rather than attempt to seek Board approval for projects over the negative evaluation by the credit underwriter. There was consideration at the December 12 Board meeting about the relevance of the Pine Grove application denial (over the credit underwriter’s recommendation) to the Board’s presumable intention to approve the Malabar Cove applications; however, the evidence fails to establish that the Board’s decision on the Pine Grove application has any relevance to the instant case. The Board was advised that the affordable housing markets in Duval County and Brevard County, although currently troubled, are not similar, with the Duval County market for affordable housing being described as historically weak and the Brevard County market weakness attributed to the recent economic downturn. Additionally, the Board was aware that, in the Pine Grove application, the FHFC has obligated itself to satisfy the mortgage of an affordable housing development competing with Pine Grove through a "Guarantee Fund" program. Simply stated, if the developer of the FHFC-guaranteed project defaults on payment, the FHFC is essentially “on the hook” for the debt, and the Board was apparently sufficiently concerned of the default prospect to include such consideration in rendering a decision on the Pine Grove application. The FHFC has no similar obligation to any competitor of the Malabar Cove apartment complex. Not insignificantly, the Board’s consideration of the Malabar Cove project included the fact that construction of the Malabar Cove apartment complex had commenced and was projected to be complete by April 2009, while construction of the Pine Grove project had not commenced. There is no credible evidence that the Board's decision to accept the credit underwriter's recommendation to approve the Malabar Cove applications was improper or inappropriate for any reason related to the Pine Grove decision.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Respondent enter a final order dismissing the petition for hearing filed in this case. DONE AND ENTERED this 2nd day of June, 2009, in Tallahassee, Leon County, Florida. S WILLIAM F. QUATTLEBAUM Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 2nd day of June, 2009. COPIES FURNISHED: Hugh R. Brown, Esquire Florida Housing Finance Corporation 227 North Bronough Street, Suite 5000 Tallahassee, Florida 32301-1329 M. Christopher Bryant, Esquire Oertel, Fernandez, Cole & Bryant, P.A. 301 South Bronough Street, Fifth Floor Post Office Box 1110 Tallahassee, Florida 32302-1110 Donna E. Blanton, Esquire Elizabeth McArthur, Esquire Radey, Thomas, Yon & Clark, P.A. 301 South Bronough Street, Suite 200 Post Office Box 10967 Tallahassee, Florida 32301 Wellington Meffert, General Counsel Florida Housing Finance Corporation 227 North Bronough Street, Suite 5000 Tallahassee, Florida 32301-1329 Sherry Green, Corporation Clerk Florida Housing Finance Corporation 227 North Bronough Street, Suite 5000 Tallahassee, Florida 32301-1329
The Issue The issue is whether Interamerican Financial Corporation is guilty of six types of violations of the Florida Retail Installment Sales Act alleged in the Department's Administrative Complaint of June 23, 1992, and, if so, what penalty should be imposed.
Findings Of Fact Interamerican Financial Corporation (Interamerican) is a Florida corporation with its sole place of business at 2600 S.W. 3rd Avenue, Suite 730, Miami, Florida. Interamerican is registered with the Department as a Retail Installment Seller, under license number HI-0004299/SF-592236293 000. The Department is authorized by the Florida Retail Installment Sales Act (Chapter 520, Florida Statutes) to examine licensees engaged in the retail installment financing business. Interamerican is in the business of financing automobile loans. Most of its loans are ones banks will not make because of the age of the automobile or because of the borrower's lack of a credit history. Borrowers are often first time retail installment purchasers. The purchase price of the vehicles financed ranges from about $2,000.00 to $5,000.00. Interamerican is owned by Raul Lopez and his wife. Mr. Lopez is President of the corporation. Its affairs are conducted on a day to day basis by Ms. Iris Hernandorena, who has been an employee of Interamerican since its inception twelve years ago in December 1980. There are 3 employees other than Ms. Hernandorena, two of whom are full time employees. Interamerican has flexible criteria for reviewing applications when deciding whether to make loans. Interamerican weighs the length of the applicant's employment, the length of residence at the applicant's present address, personal references, and the applicant's salary. Applicants often speak little or no English. They depend on Ms. Hernandorena to explain each element of the transaction to them. They are highly dependent on the good faith of Ms. Hernandorena, and their limited fluency in English leaves most of them ill-equipped to protect their own interests in the financing transaction. The Department conducted an examination of Interamerican on February 10 and February 27, 1992. This examination covered the period from November 1, 1990, through January 31, 1992. The examining officer examined 7.6 percent of Interamerican's 314 financing contracts for the examination period. Ms. Iris Hernandorena is a single mother with three children, is a naturalized American citizen and a native of Argentina. As a practical matter, Ms. Hernandorena runs the affairs of Interamerican for Mr. Lopez with little supervision. Ms. Hernandorena reviews and approves applications for credit using the criteria set out in Finding 4, pays the automobile dealers when an application has been approved, and handles face-to-face dealings with the borrowers. Before the time period covered by the examination, Interamerican was an authorized agent for Bankers Insurance Group to issue credit life insurance certificates to Interamerican borrowers who elected to purchase credit life insurance. It was Interamerican's practice to include credit life insurance on the retail installment contracts at the time they were initially presented for a borrower's consideration. Credit life insurance was always explained to the customer by Ms. Hernandorena. Whenever a borrower requested it, the credit life insurance and the premiums were deleted from the retail installment contract. Fewer than 4% of Interamerican's borrowers declined credit life insurance. When the loan documents were signed, the borrowers signed Franchise Creditor Insurance Certificate applications which disclosed credit life insurance premiums. These premiums were also disclosed on the face of the retail installment contracts. If a borrower elected credit life insurance, a certificate of insurance was issued and Interamerican forwarded one half of the premium disclosed on the financing contract to Bankers Insurance Group. Because the premium was included in the total amount financed by borrowers, this payment to Bankers was an additional cash outlay by Interamerican. Over the life of the loan, the borrower repaid the full amount financed and Interamerican recovered pro rata in each payment its cash outlay to Bankers (the first 1/2 of the insurance premium financed), and its commission (the second 1/2 of the premium financed). During its examination, the Department made its random sampling of 314 Interamerican customer files. It found four which contain the following information concerning charges for credit life insurance: Bankers Credit Life Amount of Credit Insur. Account Buyer's Date of Life Insurance Certif. Number Name Contract Premium Charged Number TA 388 Maria E. Arias 12-24-91 $60.22 FLO 44341 VE 165 Juan A. DelVilla 11-25-91 $74.38 FLO 43482 BEN 603 Julio C. Figueroa 05-06-91 $32.52 FLO 43378 HON 178 Darryl D. Pride 02-27-91 $70.38 FLO 43018 (Administrative Complaint, Paragraph 6) The monies received from these customers for credit life insurance policies were never remitted to Bankers Insurance Group. Bankers Insurance Group had no record of franchise creditor insurance certificates issued on behalf of these borrowers, or of any payments from Interamerican to Bankers for the period January 1, 1991, to February 26, 1992. Franchise credit life insurance certificates on the borrowers were not submitted to Bankers Insurance Group, nor do any of the certificate numbers match any series of numbers issued by Bankers during the past five years. The standard credit life insurance policies which had been issued through Bankers Insurance Group before the credit period had provided that Interamerican was named as beneficiary in the event of the borrower's death. The amount of the insurance coverage automatically reduced during the life of the loan so that the benefits due under the policy in the event of the death of the borrower equaled the amount of the loan balance at all times. Before the period covered by the Department's examination, Interamerican had two occasions when a borrower died and Interamerican had to make application to Bankers Insurance Group for payment of the proceeds due on the credit life insurance the borrower had purchased. In both instances, Interamerican had a difficult time collecting the remaining portion of the loan from Bankers Insurance Group. As a result of these experiences, before the audit period at issue here, Ms. Hernandorena decided on her own that Interamerican should become "self-insured," rather than send Bankers Insurance Group fifty percent of the credit life insurance premium financed by the borrower at the signing of the retail installment contract. After Interamerican ceased sending credit life insurance premiums to Bankers Insurance Group, it was the intention of Ms. Hernandorena to use the funds collected for credit life insurance premiums as a sort of reserve for bad debts out of which to pay the uncollected loan balances of borrowers who died, after having paid for credit life on their retail installment contracts. No specific escrow or reserve account was established with the funds, however. Because so few borrowers decline credit life insurance (see Finding 7), for about 96% of the 314 financing contracts entered into during the credit period, borrowers were charged for credit life insurance which was never put in force. Ms. Hernandorena reasoned that borrowers were not harmed by this arrangement. Borrowers never would have received any payment from Bankers Insurance Group if the credit life insurance became payable--Interamerican was the only beneficiary of the insurance, which would pay only the outstanding loan balance. They received a substitute of equal value in her eyes, the waiver by Interamerican of any claim for the remaining balance due on the loan if the borrower died after having paid for what appeared to be "credit life" insurance issued through Bankers Insurance Group. The Department examined the following four Interamerican customers' files which disclosed that these customers were charged premiums for credit life insurance on their retail installment contracts apparently placed with Bankers Insurance Group after August 31, 1991 in excess of the uniform rate permitted by the Department of Insurance for credit life insurance contracts: Credit Life Uniform Account Buyer's Date of Insurance Rate Amount of Number Name Contract Premm Chrgd Permitted Ovrchrge VE 163 Early H. Wims 11-21-91 $57.66 $48.05 $ 9.61 TA 395 Reyna I. Boyd 01-27-92 $64.60 $53.84 $10.76 HON 236 A. Sarrantos 01-08-92 $58.93 $49.10 $ 9.83 TA 388 Maria E. Arias 12-24-92 $60.22 $50.19 $10.03 & Mario F. Carrion (Administrative Complaint, Paragraph 7) How these overcharges came about were not explained at the hearing. The Department submitted no evidence that these overcharges were part of a scheme to intentionally overcharge customers. There was no evidence that these four instances of overcharge in the sample of contracts audited equate to any specific likely percentage of overcharges in contracts not selected for audit. Contrast Finding 13, above. Interamerican failed to journal payment for and to affix documentary stamps to the following three customer contracts: Interamerican Account Buyer's Number Name Date of Charge Amount of Documentary Stamps Charged on Contract TA 395 Reyna I. Boyd 01-27-92 $6.15 TA 388 Maria E. Arias 12-24-91 $5.70 VE 159 Maria A. Reyes 10-25-91 $8.40 (Administrative Complaint, Paragraph 8) Interamerican did purchase the requisite amount of documentary stamps from the Florida Department of Revenue. The explanation given for the error in not affixing the stamps was that stamps of small denomination were not always on hand. Since the examination was in February 1992, this reason is not persuasive. Two of the contracts involved were ones from October and December of 1991. There had been adequate time to exchange larger stamps for smaller ones or to purchase more small denomination stamps. The amount involved, however, is trivial ($20.25). Interamerican negligently failed to maintain credit insurance acknowledgment forms, since it was not actually placing credit life insurance in force. See Findings 13 through 14, above. Contrary to the allegations of Paragraph 9 of the Administrative Complaint, Interamerican did not charge finance charges in excess of the legal maximum permitted by law. The contracts for the borrowers set forth below contained an "amount charged" on the face of the contract which is slightly in excess of the legal maximum charge. This came about because the machine used to calculate the amount placed on the contact had a limited number of decimal places. Each of these borrowers was later furnished with a payment coupon book by Interamerican which contained an amount charged within the maximum rate. These payment books were prepared with computer programs using more decimal places, and the payment books are what borrowers used in repaying their loans. No additional notification was given to the borrowers calling attention to the small differences, indicating that the payment books, rather than the contracts, stated the correct amount due. The payment books served as a notice of correction to the borrowers. No Interamerican customer has paid any finance charges in excess of the legal maximum (Tr. 23). The customer contracts examined contained the following information: Account Number Buyer's Name Total Amount Charged Per Contract Legal Maximum Differences VE 178 Sonia E. Vanturyl $2,152.86 $2,147.84 $5.02 VE 173 Monique D. Jordan $1,715.13 $1,711.16 $3.97 VE 165 Juan A. Delvilla $1,481.37 $1,477.99 $3.38 VE 152 Edward Mantilla $1,712,56 $1,708.56 $4.40 Jannette S. Williams $1,347.97 $1,344.84 $3.13 The Department conducts an examination of Interamerican and other retail installment sellers on a periodic basis. The prior examinations by the Department revealed no violations by Interamerican before the examination that is the subject of this proceeding. Throughout this examination by the Department, Interamerican furnished the Department with all the information and documents requested, made no attempt to conceal anything from the examiner, and was cooperative throughout the examination. This is consistent with Ms. Hernandorena's belief that on the credit life insurance charges, Interamerican had done nothing wrong.
Recommendation A final order should be entered finding Interamerican guilty of violations of Sections 520.995(1)(a), (b) and (c) and 520.07(4), Florida Statutes (1990 Supp.) as alleged in Paragraphs 11 and 12 of the Administrative Complaint, and dismissing the charges made in Paragraphs 13, 14 and 15 of the Administrative Complaint. The Department has suggested that the appropriate penalty in this case is to find Interamerican guilty of all allegations made in the Administrative Complaint and impose a cease and desist order enjoining Interamerican from future violations of the Retail Installment Sales Act, and to impose an administrative fine of $1,000 for each violation. It is difficult to determine whether the Department suggest a fine of $6,000.00, one for each paragraph in the Conclusions of Law in its Administrative Complaint (Paragraphs 11-15), or whether a separate fine of $1,000.00 is meant to be imposed for each violation alleged in each contract containing a violation, which would be a fine of approximately $16,000.00. Based on the belief that Interamerican was guilty of all the violations alleged, the Department also recommended that the retail installment sellers license of Interamerican be revoked. It seems pointless to enter an order that Interamerican desist from future violations of the act, and at the same time revoke its authority to engage in business under the act. The penalty of revocation is too draconian. Revocation is certainly a penalty available under the statute, but revocation is appropriate where there is a pattern of misconduct which indicates that the licensee will not conform to applicable rules and statutes in the future, or that the misconduct is so egregious that, without consideration of the likelihood of future misconduct, severe discipline is warranted. This is not such a case. Moving from the less serious to more serious charges, the three instances of failure to attach documentary stamps to contracts is only proof of lack of attention to detail, since a sufficient supply of stamps had been purchased from the Department of Revenue. There was no violation of the disclosure requirements of Section 520.07(3)(e), Florida Statutes (1990 Supp.). With respect to charging, in four instances, credit life insurance premiums in excess of those permitted by the uniform rates filed with the Department of Insurance, in those four cases the amount of each overcharge was approximately $10.00. Interamerican should be required to refund the excess amounts due to the borrowers, with interest at the legal rate from the date of the contract. Due to the small amounts involved, for each instance Interamerican also should be assessed a fine of $250.00, for a total fine of $1,000.00 for that class of violations. No penalty can be imposed on the allegation that Interamerican charged excess finance charges, because it did not do so. Neither can a penalty be imposed for failure to maintain credit insurance acknowledgment forms, since no insurance was placed to be acknowledged by an insurer. Although it is true that those forms were not maintained, the real violation, which is the most serious violation, is the failure to have purchased the insurance at all. The Administrative Complaint alleges in Paragraph 7 four instances where charges were made for credit life insurance where no insurance was actually purchased. Ms. Hernandorena had mistakenly decided that by charging the amount permitted for credit life insurance, without purchasing it, and waiving the right of Interamerican to obtain payment from any borrower who died after paying for credit life insurance, the borrowers were receiving what they paid for. In a rough sense, this was true, but the transaction documents simply were not structured that way. Had the evidence been convincing that borrowers were being charged for credit life insurance as a ruse to obtain additional money from them, when they were receiving nothing in return, I would not hesitate to recommend that the Department revoke the license of Interamerican, especially when the evidence demonstrates that the overcharge occurred not only in the four cases alleged, but in 96% of all contracts Interamerican entered into. On the other hand, Interamerican's evidence was persuasive that the borrowers were receiving something of value for the credit life insurance premiums, even though the insurance was never purchased. The testimony of Ms. Hernandorena was sincere, and I simply do not believe that her explanation of what was done was an after-the-fact justification concocted in an attempt to excuse Interamerican's misconduct. Ms. Hernandorena made a serious error in doing what she did, but she did not engage in a scheme to defraud borrowers. On this charge, Interamerican should be required to repay the amount of credit life insurance premiums plus interest at the legal rate to the four borrowers listed in Paragraph 6 of the Administrative Complaint, and to review its records and make similar refunds to all borrowers who paid for credit life insurance, plus interest at the legal rate from the date of each contract. An administrative fine in the amount of $4,000.00 should also be imposed, the maximum fine for the four instances of overcharge alleged and proven. Had the Department undertaken to allege and prove additional instances of overcharges, the fine would be larger, but that is not how the complaint was drafted. Although the conduct proven does not rise to the level of an intentional scheme to defraud, the misconduct is sufficiently serious that a significant penalty, less severe than revocation, ought to be imposed. That Interamerican has otherwise conducted its affairs over the years in conformity with the law weighs in its favor. The appropriate penalty here is to suspend the licensure of Interamerican for 30 days, to place its licensure on probation for the following 11 months, and to restrict its licensure to prohibit the "waiver of liability" plan created by Ms. Hernandorena and to require submission of all credit life insurance premiums to an appropriate insurer. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 21st day of December, 1992. WILLIAM R. DORSEY, JR. Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 21st day of December, 1992. APPENDIX TO RECOMMENDED ORDER IN DOAH CASE NO. 92-4404 The following are my rulings on findings proposed by the parties: Findings proposed by the Department: 1.-4. Adopted in Findings of Fact (FOF)1. 5. Adopted in FOF 5. 6.-7. Rejected as unnecessary. 8.-9. Adopted in FOF 5. 10.-11. Rejected as recitations of testimony, not findings of fact. Adopted in FOF 6. Implicit in FOF 6. Adopted in FOF 3. Adopted in FOF 6. Rejected as unnecessary. Adopted in FOF 4. Adopted in FOF 8. Adopted in FOF 13 and 14. Adopted in FOF 7. Adopted in FOF 4. Adopted in FOF 13. Rejected as unnecessary-Interamerican never contended it was an insurance company. Findings proposed by Respondent: Adopted in FOF 1. Adopted in FOF 2 and 4. Adopted in FOF 5. Adopted in FOF 3, 4 and 6. Adopted in FOF 7. Adopted in FOF 9. Adopted in FOF 10. Adopted in FOF 12. Adopted in FOF 13 and 14. The Borrower was the insured, Interamerican was the beneficiary. Adopted in FOF 11. Adopted in FOF 13. Adopted in FOF 15. Adopted in FOF 16. Adopted in FOF 17. Adopted in FOF 18. Adopted in FOF 19. COPIES FURNISHED: Steven R. Walker, Esquire Office of Comptroller Suite 708-N 401 N.W. 2nd Avenue Miami, Florida 33128 Ted Bartlestone, Esquire Suite 1550, 1 Biscayne Tower 2 South Biscayne Boulevard Miami, Florida 33131 The Honorable Gerald Lewis Comptroller, State of Florida The Capitol, Plaza Level Tallahassee, Florida 32399-0350 William G. Reeves, General Counsel Department of Banking and Finance The Capitol, Room 1302 Tallahassee, Florida 32399-0350
