The Issue Whether Irene Lieberman is entitled to attorney fees and costs from Lorenzar Brown, as provided in Section 112.317(8), Florida Statutes, and if so, the amount.
Findings Of Fact At all times relevant to this proceeding, Ilene Lieberman (Lieberman) served as mayor of the City of Lauderhill, Florida (City). The City and Broward County entered into an agreement (Grant) in January, 1992, for a Self-Help Home Ownership and Repair Program in the amount of $117,500, which provided for funding and administration of Community Development Block Grant (CDBG) projects. Pursuant to the Grant, the City would be reimbursed for allowable project expenses. On July 13, 1992, the City Commission passed Ordinance No. 92-161, which approved budget adjustment BA 92-86 for the transfer of $123,000 from various budget accounts to establish the budget for the CDBG program. When entering the CDBG budget into the City's computer system, the data entry operator made some coding errors. Budget adjustment BA-92-86 showed that $22,500 was to be budgeted for account number 3110. However, when it was keyed into the computer system, the $22,500 was coded to account number 3121, which was the account for the City Attorney's hourly charges. No funds were entered as budgeted for account number 3110. Budget adjustment BA-92-86 showed that $25,000 was to be budgeted for account number 3122. However, when keying the entry, the data entry operator entered $25,500 instead of the $25,000. Lorenzar Brown (Brown), the Respondent, obtained a copy of the City Expenditure Status Report for July, 1992 (July Expenditure Report). The report reflected the errors that were made when the budget information was placed in the computer system. The report indicated that there were no expenditures made from account number 3121, the account for the City Attorney hourly charges. In July or August, 1992, Brown talked to Marcia Berkely, who was the City Planner, concerning whether CDBG funds were being used to pay City Attorney fees. Ms. Berkely advised Brown that the CDBG funds were not being used to pay the City Attorney. Brown did not show Ms. Berkely the July Expenditure Report. On August 31, 1992, Brown made a presentation to the City Commission, expressing his "concerns about the present taxpayer's dollars being expended to pay fees to the city attorney of the City of Lauderhill." Brown referenced the City's July Expenditure Report, stating, "In reviewing the monthly expenditure report for July, there was a number of other accounts budgeted to the city attorney." In particular Brown was concerned about CDBG funds being used for City Attorney's fees. Brown stated: This last month an additional $40,000.00 of Community Development Block Grant was recom- mended by the Mayor and approved by the City Commission to be used for city attorney fees. This also passed by the Ordinance 92-161. The community, especially the taxpayers, request that the City Commission look into or investigate the action of the Mayor, on the part of the Mayor in recommending that the City Commission use Block Grant Funds for the city attorney fees contrary to the contract approved by the Commission by Resolution 91-83 which was passed on July 13th, 1992. Brown's presentation was made during the communications from the public portion of the City Commission meeting. According to the policy of the City Commission, the Mayor and City Commission members are not allowed to respond to comments made during this portion of the meeting. Comments from the public officials are made during communications from the public officials portion of the meeting. Lieberman asked the Vice Chair of the City Commission to allow her to respond to Brown's presentation immediately after Brown concluded but she was not allowed to do so. Brown was unable to stay for the comments from the public officials because he had to pick up his daughter. He apologized to the Commission and told them that he had to leave. During the comments from public officials, Lieberman explained the purpose of the Community Development Block Grant Program. She stated that $40,000 was not used for City Attorney fees but that the CDBG budget did include a line item for "legal matters that are incident to home ownership." She invited the public to spend time with her and Marcia Berkely to discuss the attorney fees issue. By memorandum dated September 8, 1992, Brown advised the City Commission that he had not received a response from the Mayor's office concerning his request made on August 31, 1992, that the City Commission "investigate the propriety of the Mayor's office in recommending that the City Commission use BLOCK GRANT FUNDS for the City's Attorney fees. (92-161)." Brown did not reference the July Expenditure Report. By letter dated September 16, 1992, Richard J. Kaplan (Kaplan), Commission Vice Chair, advised Brown that the Mayor had responded to Brown's comments at the City Commission meeting on August 31, 1992, and attached a copy of the minutes of the meeting. Kaplan additionally told Brown that he had checked the ordinances cited by Brown and found that one was in error. By memorandum dated September 16, 1992, Kaplan forwarded a copy of Brown's September 8 correspondence to Lieberman and requested that she respond to Brown in writing. By letter to Kaplan dated September 21, 1992, Brown stated that he had reviewed the ordinances and the information submitted to Kaplan, that they were correct and that if the City Commission failed to investigate his allegations, that "the concern (sic) residents of Lauderhill will be compelled to file a complaint with the Ethics Commission and or the Bar Association." Brown did not reference the July Expenditure Report. Lieberman responded to Brown by letter dated September 29, 1992. She attached a copy of the budget for the CDBG program, budget adjustment request BA 92-86, Ordinance 92-161, and a portion of the transcript of the August 31, 1992, City Commission meeting. She advised that there had been no misappropriation of City funds and that according to the budget adjustment $5,500 was coming from the City Attorney's budget to the CDBG budget as matching funds from the City for the program. The budget adjustment contained a $25,000 line item for legal services for closing costs, and included the $5,500 from the City Attorney's budget. She invited Brown to contact her directly if he had any further questions. She did not review the July Expenditure Report in the preparation of her response. Brown never contacted Lieberman after the August 31 City Commission meeting to resolve any questions that he may have had. Based on prior dealings with her, he felt that she made him feel small and little and that she embarrassed and belittled him at City Commission meetings; therefore he did not feel comfortable directly asking her questions concerning the attorney fees issue. Brown never asked anyone in the City's finance department, including Donald Giancoli, the Director of Finance, Assistant City Administrator for the City, to explain the differences between budget adjustment 92-86 and the July Expenditure Report. On October 3, 1992, Brown executed Commission on Ethics Complaint No. 92-157 against Lieberman, alleging that she had violated Section 112.313(6), Florida Statutes, in that she "breached the public trust by solicitation in recommending that the City Commission Board use Community Block Grant funds for the City Attorney fees." On November 12, 1992, Brown executed an amendment to Complaint No. 92-157, enclosing additional information, which included a copy of the July Expenditure Report. Prior to filing the Complaint, Brown spoke with Theresa Gillis, the Director of the Community Development Division of Broward County. She administered the Community Development Block Grant Programs for the County including the Grant to the City of Lauderhill. He told her that the City had violated the terms of the Grant by getting reimbursed for attorney's fees. He did not reference the July Expenditure Report. Ms. Gillis checked the reimbursements made to the City and found that the City had not violated their obligations under the CDBG Program. If she had been aware of the July Expenditure Report showing funds being budgeted to the City Attorney account, she would have been concerned and asked the City for an explanation. On December 7, 1992, the Executive Director of the Florida Commission on Ethics issued a Recommendation of Legal Insufficiency, stating that the allegations in Complaint No. 92-157 were legally insufficient to indicate a possible violation of Section 112.313(6), Florida Statutes. On February 2, 1993, the Chairman of the Commission on Ethics filed a Public Report and Order Dismissing Complaint, stating that on January 28, 1993, the Commission on Ethics voted to adopt the Executive Director's legal sufficiency analysis and to dismiss Complaint No. 92-157. On January 19, 1993, Brown filed a complaint with The Florida Bar against Lieberman. The complaint stemmed from remarks Lieberman made at a December 7, 1992 City Commission meeting. The Florida Bar declined to pursue the matter, determining that his complaint did not reveal any violations of the Rules Regulating Attorneys. On February 18, 1993, Brown filed a lawsuit against Lieberman, alleging that she had defamed him in the December 7, 1992 meeting. During the January 25, 1993, City Commission meeting, Brown publicly stated that he would personally support a recall petition against Lieberman. He took this position due to Lieberman's comments against him at the December 7, 1992, meeting. Around the time that Lieberman first became mayor in 1988, she and Brown had some discusssions concerning a citation which he had received from the code enforcement board for failure to pay for garbage service at his premises. Brown was very angry and accused Lieberman of violating his constitutional rights. At a City Commission meeting in approximately September, 1992 while Lieberman was responding to a question, Brown told the gentleman seated next to him that she was lying. Brown's voice was loud enough that it was heard twenty feet away by Richard Korte, the Director for Code Enforcement for the City. After Brown filed the complaint against Lieberman, City Attorney Richard Michelson represented Lieberman as Mayor in his role as City Attorney. The City paid for these services out of the City Attorney's monthly $3,500 retainer. The total number of hours provided by the City Attorney relating to Brown's complaint and the instant fee proceeding was 23.1 hours. After Brown's complaint was dismissed, Samuel Goren was retained to represent the Mayor. Mr. Goren filed the instant fee petition. The total number of hours for Mr. Goren's law firm was 16.2 hours. After the fee petition was filed, Stuart Michelson (no relation to Richard Michelson) was retained to represent the Mayor. The total number of hours for Stuart Michelson through November 18, 1993 was 33.675. The total number of hours spent in hearing by Stuart Michelson was 17.5 hours, which included closing argument by telephone conference. Stuart Michelson spent one hour in taking the deposition of Thomas Bradley. Stuart Michelson's law clerk provided 5.45 hours of services. Each of the attorneys providing services in representing Lieberman in the complaint by Brown and in the fee petition charged the City at $125 per hour. The services of the law clerk were billed at $50 per hour. The City paid for the services provided through November 18, 1993. Jeffery Pheterson, who was qualified as an expert on attorney's fees issues, opined that based on the rates customarily charged locally the rate of $125 per hour is a modest, reasonable rate for the services provided by the attorneys. He also opined that the rate of $50 per hour for paralegal services was also a reasonable rate for the services provided. At the final hearing, counsel for Brown stipulated that the rates for Stuart Michelson and Samuel Goren were reasonable. The rates of $125 per hour for attorney services and $50 for paralegal services are reasonable rates for similar services in the community. Mr. Pheterson opined that the 23.1 hours of service provided by Richard Michelson, City Attorney, the 16.2 hours of service provided by Samuel Goren's firm, the 33.675 hours provided by Stuart Michelson and the 5.45 hours provided by Stuart Michelson's law clerk were reasonable. The hours of service provided by the above attorneys and law clerk through November 18, 1993, were reasonable. Additionally, the 17.5 hours spent by Stuart Michelson at the final hearing is reasonable and the one hour spent in taking the deposition of Thomas Bradley was reasonable.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered denying Ilene Lieberman's Verified Petition for Attorney's Fees and Costs. DONE AND ENTERED this 6th day of December, 1994, in Tallahassee, Leon County, Florida. SUSAN B. KIRKLAND 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 6th day of December, 1994. APPENDIX TO RECOMMENDED ORDER, CASE NO. 93-1180EC To comply with the requirements of Section 120.59(2), Florida Statutes (1993), the following rulings are made on the parties' proposed findings of fact: Respondent Lieberman's Proposed Findings of Fact. Paragraph 1: Accepted in substance. Paragraph 2: Accepted. Paragraphs 3-25: Accepted in substance. Paragraph 26: Rejected as subordinate to the facts actually found. Paragraphs 27-29: Accepted in substance. Paragraph 30: Rejected as subordinate to the facts actually found. Paragraph 31-33: Accepted in substance. Paragraphs 34-35: Rejected as constituting argument. Paragraphs 36-37 Accepted in substance. 10 Paragraph 38: Rejected as constituting argument. Paragraphs 39-40: Rejected as constituting recitation of testimony. Paragraph 41: Rejected as constituting argument. Paragraph 42: Rejected as subordinate to the facts actually found. Paragraph 43: Rejected as constituting recitation of testimony. Paragraph 44: Accepted in substance. Paragraph 45: Rejected as subordinate to the facts actually found. Paragraphs 46-47: Accepted in substance. Paragraph 48: The first sentence is rejected as not supported by the greater weight of the evidence. The second sentence is accepted to the extent that he filed the complaint because his concerns were not answered but rejected to the extent that it states that he filed the complaint a day or two after he received Lieberman's letter. Paragraph 49: Rejected as not supported by the greater weight of the evidence. Brown knew that the July Expenditure Report showed funds being budgeted from the CDBG program to the City Attorney. The second sentence is rejected as subordinate to the facts actually found. Paragraphs 50-51: Rejected as subordinate to the facts actually found. Paragraphs 52-55: Accepted in substance. Paragraph 56: Accepted in substance to the extent that Brown never told Lieberman personally that the expenditure report showed money going to the City Attorney, but rejected to the extent that he never referenced the expenditure report in her presence because he did at the August 31, 1992, City Commission meeting. Paragraph 57: Rejected as subordinate to the facts actually found. Paragraph 58: Rejected as cumulative. Paragraphs 59-69: Accepted in substance. Paragraphs 70-71: Rejected as constituting argument. Paragraphs 72-73: Rejected as mere recitation of testimony. Paragraphs 74-75: Accepted in substance. Paragraphs 76-77: Rejected as mere recitation of testimony. Paragraph 78: Accepted in substance to the extent that he refers to the ordinance but not as to the expenditure report. Lieberman did not address the expenditure report which Brown referenced in the August 31 meeting. Paragraph 79: Rejected as subordinate to the facts actually found. Paragraphs 80-81: Accepted in substance. Paragraphs 82-88: Rejected as constituting argument. Paragraph 89: Rejected as subordinate to the facts actually found. Paragraphs 90-92: Rejected as constituting argument. Paragraph 93: Accepted in substance to the extent that there was a posting error. Paragraphs 94-95: Rejected as constituting argument. Paragraph 96: Accepted in substance. Paragraph 97: Rejected as not supported by the greater weight of the evidence. Paragraph 98: Accepted in substance. Paragraph 99: Rejected as subordinate to the facts actually found. Paragraphs 100-102: Rejected as constituting argument. Complainant Brown's Proposed Findings of Fact. Paragraphs 1-3: Accepted in substance. Paragraph 4: The first sentence is accepted in substance. The second sentence is accepted to the extent that the responses did not make any reference to the July Expenditure Report which Brown brought up during his presentation at the August 31, 1992, City Commission meeting. The third sentence is accepted in substance to the extent that Brown let Kaplan know that he was not satisfied with the responses. Paragraphs 5-6: Rejected as subordinate to the facts actually found. Paragraph 7: The first sentence is accepted to the extent that Brown had a copy of the Expenditure Status Report prior to the August 31, 1992, City Commission meeting and rejected as not supported by the greater weight of the evidence that Brown received the document from the City's finance department. The evidence is not clear how Brown received the document. The last sentence is accepted in substance. Paragraphs 8-10: Accepted in substance. Paragraph 11: The first and third sentences are accepted in substance. The second sentence is accepted in substance except that the July Expenditure Report was not attached to the original complaint but to an amendment to the complaint. Paragraph 12: Accepted in substance to the extent that Lieberman personally did not expend funds or was obligated to pay the attorney's fees. Paragraph 13: Rejected to the extent that his services were included in his retainer fee. Paragraph 14: Accepted in substance. COPIES FURNISHED: Stuart R. Michelson, Esquire 1111 Kane Concourse, Suite 517 Bay Harbor Islands, Florida 33154 Anthony J. Titone, Esquire 7471 West Oakland Park Blvd., Suite 110 Ft. Lauderdale, Florida 33319 Bonnie Williams Executive Director Florida Commission On Ethics Post Office Drawer 15709 Tallahassee, Florida 32317-5709 Phil Claypool, Esquire General Counsel Ethics Commission 2822 Remington Green Circle, Suite 101 Post Office Drawer 15709 Tallahassee, Florida 32317-5709 Carrie Stillman Complaint Coordinator Commission on Ethics Post Office Box 15709 Tallahassee, Florida 32317-5709
The Issue As to Case 95-3362RX: 1. Whether the portion of School Board Rule 6Gx13-3C-1.08 pertaining to vendors who have defaulted on contracts for commodities is an invalid exercise of delegated legislative authority. 2. Whether the instructions to bidders issued by the School Board as part of its invitation to bid on commodities constitute inadequate, unpromulgated rules. As to Case 95-4834Rx: Whether an amendment to School Board Rule 6Gx13-3C-1.08 (adopted July 12, 1995) that purports to disqualify as bidders for 14 months the principals of defaulted vendors is an invalid exercise of delegated legislative authority.
Findings Of Fact THE PETITIONERS Petitioners Mary Ann Talmadge and Dunbar Electric Supply, Inc., are vendors who have bid on invitations to bid (ITBs) issued by the School Board. Ms. Talmadge is an officer and principal shareholder of Dunbar. Thomas W. Talmadge is the husband of Ms. Talmadge and is also a principal shareholder and officer of Dunbar. The Petitioners have standing to bring these rule challenges. THE SCHOOL BOARD - GENERAL AUTHORITY The Respondent is a duly constituted school board with the authority to enact rules, including those relating to the procurement of commodities. Article IX, Section 4, Florida Constitution, provides, in pertinent part, as follows: 4.(a) Each county shall constitute a school district. . . . In each school district there shall be a school board. . . . (b) The school board shall operate, control and supervise all free public schools within the school district. . . . Section 230.03, Florida Statutes, provides, in pertinent part, as follows: The district school system shall be managed, controlled, operated, administered, and supervised as follows: * * * SCHOOL BOARD. - In accordance with the provisions of s. 4(b) of Art. IX of the State Constitution, district school boards shall operate, control, and supervise all free public schools in their respective districts and [may exercise any power except as expressly prohibited by the State Constitution or general law.] [Emphasis added.] Section 230.22(2), Florida Statutes, confers rulemaking authority on school boards as follows: ADOPT RULES AND REGULATIONS. - The school board shall adopt such rules and regulations to supplement those prescribed by the state board as in its opinion will contribute to the more orderly and efficient operation of the district school system. SCHOOL BOARD PURCHASES - IN GENERAL Section 230.23(2), Florida Statutes, confers upon school boards the authority to contract, to sue, and to purchase commodities as follows: The school board, acting as a board, shall exercise all powers and perform all duties listed below: * * * CONTROL OF PROPERTY. - Subject to regulations of the state board, retain possession of all property to which title is now held by the school board and to obtain possession of and accept and hold under proper title as a body corporate by the name of "The School Board of County, Florida," all property which may at any time be acquired by the school board for educational purposes in the district; manage and dispose of such property to the best interests of education; [contract, sue, receive, purchase], acquire by the institution of condemnation proceedings if necessary, lease, sell, hold, transmit, and convey the title to real and personal property, all contracts to be based on resolutions previously spread upon the minutes of the school board; receive, hold in trust, and administer for the purpose designated, money, real and personal property, or other things of value granted, conveyed, devised, or bequeathed for the benefit of the schools of the district or any one of them. [Emphasis added.] Section 237.02(1)(a), Florida Statutes, pertains to purchases by school boards and provides as follows: PURCHASES. - Each district school board shall develop and adopt policies establishing the plan to be followed in making purchases as may be prescribed by the state board. The state board rule pertinent to this proceeding is Rule 6A-1.012, Florida Administrative Code, which provides, in part, as follows: Purchasing Policies. Each district school board shall establish purchasing rules which shall include but not be limited by the following: * * * (6) Except as authorized by law or rule, bids shall be requested from three (3) or more sources for any authorized purchase or contract for services exceeding ten thousand (10,000) dollars. . . . The school board shall have the authority to reject any or all bids and request new bids. In acceptance of bids, the school board shall accept the lowest and best bid from a responsive and responsible bidder. . . . The School Board's Department of Procurement Management is responsible for administering and managing all of the purchases of materials and services for the school district of Dade County, Florida. School Board Rule 6Gx-3C-1.14 designates the Department of Procurement Management as the official purchasing agency for the School Board and requires it to make such purchases in compliance with Florida Statutes, State Board of Education Rules, School Board Rules, and administrative directives and manuals. The School Board has the authority to determine which bidders are responsible, the authority to reject bids from irresponsive bidders, and the authority to enact rules pertaining thereto. THE CHALLENGED RULE Rule 6Gx13-3C-1.08, is styled "Performance and Payment Security, Declining a Bid Award, and Bonding Company Qualifications". The rule, initially adopted in 1974 and subsequently amended, was adopted pursuant to the authority of Section 237.02(1)(a), Florida Statutes, and Rule 6A-1.012, Florida Administrative Code. The rule is divided into three parts. Part I pertains to performance security on construction bids and awards. Part II, the portion of the rule being challenged in this proceeding, pertains to performance security on awards other than construction. Part III pertains to bonding company qualifications. The rule, as amended on July 12, 1995, has been duly adopted by the School Board following all pertinent rulemaking procedures. The rule reasonably relates to one subject matter, protecting the School Board against defaults by parties who have been awarded contracts. Prior to its amendment on July 12, 1995, School Board Rule 6Gx13-3C-1.08 provided for performance security on awards other than construction, in pertinent part, as follows: Bid security is not required. However, a bidder who declines an award shall either (1) pay a bid default penalty of five percent of the unit price bid times the quantity, or $10, whichever is greater, or (2) lose eligibility to transact new business with the Board for a period of 14 months from date of award by the Board. A bidder who accepts an award but fails to perform shall either (1) pay a performance default penalty of 25 percent of the unit price of the item(s) awarded times the quantity, or $25, whichever is greater, (where partial ship- ment of items awarded has been made, the default penalty shall be applied to the balance remaining after items received have been deducted from the estimated quantity(ies),) or lose eligibility to transact new business with the Board for a period of 14 months from date of the cancellation of award by the Board. The School Board amended Rule 6Gx13-3C-1.08 on July 12, 1995, to provide as follows: Bid security is not required. However, a bidder who declines an award shall either (1) pay a bid default penalty of five percent of the unit price bid times the quantity, or $10, whichever is greater, or (2) lose eligi- bility to transact new business with the Board for a period of 14 months from date of award by the Board. A bidder who accepts an award but fails to perform shall either (1) pay a performance default penalty of 10 percent of the unit price of the item(s) awarded times the quantity, or $25, whichever is greater, (where partial shipment of items awarded has been made, the default penalty shall be applied to the balance remaining after items received have been deducted from the estimated quantity(ies),) or lose eligibility to transact new business with the Board for a period of 14 months from date of the cancellation of award by the Board. [The ineligibility shall be applicable to the principals individually and the entity, as well as any other firm in which a principal of a defaulting firm is a principal. For purposes of this rule principal is defined as an executive officer of a corporation, partner of a partnership, sole proprietor of a sole proprietorship, trustee of a trust, or any other person with similar supervisory functions with respect to any organization, whether incorporated or unincorporated]. [Emphasis added.] THE AUTHORITY OF THE SCHOOL BOARD TO IMPOSE LIQUIDATED DAMAGES OR TO DISQUALIFY DEFAULTED VENDORS FOR FOURTEEN MONTHS A provision for liquidated damages is not against public policy and is not prohibited by law or by state board rules. Pursuant to the provisions of Sections 230.03(2), 230.22(2), and 230.23(2), and 237.02(1)(a), Florida Statutes, the School Board has the authority to provide for liquidated damages in its purchasing contracts. A provision disqualifying vendors for a reasonable period of time based on prior performance is not uncommon in government contracts. The period of disqualification for defaulted vendors was for a one year period when the rule was first adopted. In 1987, the period of disqualification was extended from one year to fourteen months. The notice of intended action pertaining to this amendment provided, in pertinent part, as follows: PURPOSE AND EFFECT: This amendment extends the period of time a vendor is penalized for failing to accept a bid award or performing (sic) after a bid award has been made. This will give the Board more leverage in penalizing a vendor when necessary. SUMMARY: This amendment extends the penalty period for declining a bid award or failing to perform once a bid is awarded, from the current one (1) year period to a fourteen (14) month period, which will result in the vendor being precluded from the current contract and the subsequent contract. Such a provision disqualifying vendors for a reasonable period of time is not against public policy and is not prohibited by law or by state board rules. The period of fourteen months is a reasonable period for the term of disqualification. The School Board selected a period of fourteen months because many of its contracts are for one year terms. The rationale was to prevent a defaulted vendor from bidding on the ensuing year's contract. Pursuant to the provisions of Sections 230.03(2), 230.22(2), and 230.23(2), and 237.02(1)(a), Florida Statutes, the School Board has the authority to provide for the disqualification of defaulted vendors for a fourteen month period. The determination that a bidder has failed to perform the terms of a contract is initially made by a buyer in the School Board's Department of Procurement Management. Efforts are made to bring a defaulted vendor into compliance with the contract. If that cannot be done, the defaulted vendor is informed that it may either perform the contract, pay liquidated damages, or face disqualification. If the vendor performs or pays liquidated damages, the matter is ended. If the vendor refuses to perform or to pay liquidated damages, the School Board determines whether the vendor should be disqualified. A vendor who is subject to disqualification has the opportunity to address the School Board on that matter and has the right to challenge the agency action pursuant to Section 120.57(1), Florida Statutes. A principal of a disqualified vendor who is also being disqualified also has the right to address the School Board on that matter and has the right to challenge the agency action pursuant to Section 120.57(1), Florida Statutes. 2/ LIQUIDATED DAMAGES OR PENALTY Petitioners assert that the provision that gives a defaulted vendor the option to pay a sum equal to 10 percent of the bid price of undelivered commodities constitutes a penalty and is void. 3/ In support of their position, Petitioners correctly assert that the rule itself refers to this provision as a "default penalty." Notwithstanding that reference, the greater weight of the competent evidence in this proceeding established that the purpose of this provision of the challenged rule is to provide for reasonable liquidated damages so that the School Board can recoup its damages when a contract is breached. That the School Board has made an effort to set a reasonable amount is established by the research done by Mr. Carter in reviewing similar provisions in other government contracts and by the action of the School Board on July 12, 1995, in reducing the percentage from 25 percent to 10 percent. What has been referred to as a defaulted vendor's Option 1 is the payment of liquidated damages, not the payment of a cash penalty. The default provision serves three valid School Board purposes. First, it discourages vendors from defaulting on contracts. Second, it provides for liquidated damages if a vendor wants to keep its good standing as a vendor. Third, it prevents a vendor that has defaulted on its contract and thereafter has declined to pay the School Board's liquidated damages from securing other School Board contracts for at least 14 months following the default, thereby ensuring that the School Board will not have to deal with such a vendor during the period of disqualification. THE EXTENSION OF THE DISQUALIFICATION TO PRINCIPALS OF DEFAULTED VENDORS The extension of the disqualification to the principals of a defaulted vendor was enacted in response to problems the School Board experienced with the principals of certain vendors who, having defaulted on contracts in the name of one bidding entity, thereafter obtaining contracts under other vendor names and defaulted on the subsequent contracts. The extension of the disqualification serves a valid School Board purpose in that it prohibits the individuals who control various bidding entities from defaulting on a contract by one bidding entity while continuing to bid on other contracts through other entities. The amendment was duly adopted. The rule provides a definition of the operative term "principal" so that it is not vague and does not vest unbridled discretion in the School Board. It is within the School Board's authority to adopt this amendment pursuant to the provisions of Sections 230.03(2), 230.22(2), and 230.23(2), and 237.02(1)(a), Florida Statutes. Petitioner, Thomas Talmadge, has failed to demonstrate that the amendment is an invalid exercise of delegated legislative authority within the meaning of Section 120.52(8), Florida Statutes. THE INSTRUCTIONS TO BIDDERS Each ITB contains "Instructions to Bidders" that become part of the contract once the contract is awarded. Pertinent to this proceeding, the Instructions to Bidders that accompany each ITB for commodities, contain "instructions" as to the filing of objections to bid specifications (Section I.C.2.), the place, date, and hour for the submission of bids (Section II.C.), the method for filing objections for the award of bids (Section IV.D.), and the default provision (Section IV.F.). Section I.C.2. contains an agency statement of general applicability that is not found in any promulgated rule as follows: 2. OBJECTION TO BID/SPECIFICATION. Any objections to specifications and/or bid conditions must be filed in writing and must be received by the Superintendent of Schools no later than 9:00 A.M. on the date specified for acceptance of bid. Section II.C. contains an agency statement of general applicability that is not found in any promulgated rule as follows: PLACE, DATE AND HOUR. Bids shall be submitted by U.S. Mail, Courier/Express Service, or deposited in the BID receiving slot located in Room 352, 8:00 A.M. to 4:30 P.M., Monday through Friday, SCHOOL BOARD ADMINISTRATION BUILDING, 1450 N.E. Second Avenue, Miami, Florida 33132. Bids received after the date and hour specified in the BIDDER QUALIFICATION FORM will not be considered. Section IV.D. contains an agency statement of general applicability that is not found in any promulgated rule as follows: FILING OF OBJECTION. Any objections to an award by the Board must be filed in writing and must be received by the Superintendent of Schools no later than 9:00 A.M. on the first Monday following the award. 4/ Section IV.F. contains three sentences. The first two sentences merely repeat the default provisions contained in School Board Rule 6Gx13-3C-1.08. The final sentence, however, contains an agency statement of general applicability that is not found in any promulgated rule. The rule does not state that the vendor will be disqualified if it does not pay the liquidated damages within fifteen days of the default. Section IV.F. of the Instructions to Bidders is as follows: F. DEFAULT: In the event of default, which may include, but is not limited to non- performance and/or poor performance, the awardee shall pay to the Board as liquidated damages an amount equal to 10 [percent] of the unit price times the quantity, or $25, whichever amount is larger. Where partial shipment of items awarded has been made, the default penalty shall be applied to the balance remaining after the items received have been deducted from the estimated quantity(s). [Where no performance bond or check has been acquired (sic), each awardee who fails to pay the penalty within 15 days after it is invoked shall lose eligibility to be awarded new business by the Board for a period of 14 months from the date of cancellation of award by the Board]. [Emphasis added.]
The Issue The issue for determination is whether Petitioner should be assessed sales and use tax for the audit period May 1, 1997 through April 30, 2002, per the Notice of Proposed Assessment dated July 3, 2003.
Findings Of Fact Wales is a Florida S corporation. Its principal place of business is located at 2916 Southeast 6th Avenue, Fort Lauderdale, Florida. Wales' federal employee identification number is 59- 1703273. Wales' Florida sales and tax number is 16-03-095273- 26/1. By letter dated June 6, 2002, the Department issued to Wales a Notice of Intent to Audit Books and Records (Notice of Intent). The Notice of Intent identified the audit number as A0205310975. On July 10, 2002, the Department's auditor assigned to perform the audit conducted an initial interview with Wales. The auditor discussed, among other things, the audit and sample methods that would be employed during the audit. On August 13, 2002, the auditor began examining Wales' books and records at Wales' business location. Wales was cooperative during the audit. Wales provided all available books and records for the audit. The sole shareholders of Wales are Stewart Levy and Diane Levy. Wales leased its business location from Element Two Enterprises, Inc., ( Element Two) a related entity. Stewart Levy and Diane Levy are also the sole officers of Element Two, president and secretary, respectively. Element Two is the record owner of the improved real property located at 2916 Southeast 6th Avenue, Fort Lauderdale, Florida, (realty). The address for the realty is also the address for Wales' place of business. Element Two mortgaged the realty leased by Wales. Wales paid monthly monetary consideration to Element Two in lease payments, which directly correlated to the amount of the monthly mortgage payments. Ad valorem taxes and property insurance were included in the monthly mortgage payments. Wales paid the ad valorem taxes and property insurance on the leased property. The lease payments to Element Two by Wales included the amount of the ad valorem taxes, property insurance, and common areas of maintenance. Wales did not pay sales tax on any of the lease payments to Element Two. Element Two did not charge or remit sales tax to the Department on the lease payments by Wales. Element Two was not registered with the Department as a dealer. Only dealers that are registered can remit sales tax on lease payments. Consequently, Element Two could not remit sales tax on the lease payments by Wales. Wales did not utilize all of the property it leased. Wales sub-leased a portion of the leased property to an unrelated entity. A prior sales and use tax audit was conducted of the sub-lessee, which included the period May 1997 through December 1998. The Department examined the sublease audit to determine whether Wales owed additional sales tax. The Department's examination of that audit revealed that the sales and use tax on the rent paid by the sub-lessee for the period May 1997 through September 1998 was assessed and paid by the sub-lessee. For the period May 1997 through December 1998, Wales had neither charged or collected sales tax nor remitted sales tax to the Department on the sub-lessee's payments. No sales tax was charged or paid on the sublease payments for the period October 1998 through December 1998. From January 1999 through April 2002, Wales charged, collected, and remitted sales tax on the sublease payments. The Department credited Wales for sales tax already paid on the subleased portion for the period May 1997 through September 1998 and January 1999 through April 2002. On its general ledger, Wales posted the lease payments to Element Two as rent payments. Element Two posted the lease payments to its general ledger as rent income. On its federal income tax returns, Wales reported the lease payments to Element Two as rent expense. Element Two reported the lease payments on its federal income tax returns as rent income. On November 29, 2002, the Department issued to Wales a Notice of Intent to Make Audit Changes for audit number A0205310975. Wales requested and the Department agreed to hold an audit conference to discuss the audit findings. Wales claimed that rent payments made were not subject to sales tax because both Wales and Element Two signed the mortgage and promissory note on the realty leased by Wales. However, only Element Two was reflected as the borrower on the loan and only Element Two was the signatory on the mortgage even though both Wales and Element Two signed the promissory note. On January 10, 2003, Wales executed a Consent to Extend the Time to Issue an Assessment or to File a Claim for Refund (Consent). The Consent extended the statute of limitations for the period of time in which an assessment may be issued or a claim for refund may be filed to December 31, 2003. On July 3, 2003, the Department issued, by certified mail, the Notice and an Addendum to Proposed Assessment for audit number A0205310975. The Notice provided, among other things, for the assessment of sales and use tax in the amount of $17,481.73; penalty in the amount of $8,741.10; interest in the amount of $5,756.03, with additional daily interest being computed at the rate of $3.54 per day from July 3, 2003; and a total assessment in the amount $31,978.86. On September 1, 2003, the Notice became a Final Assessment for audit number A0205310975. Wales contested the Final Assessment and requested a hearing. Wales is not contesting that part of the audit which found that Wales failed to pay sales tax on certain fixed assets purchased for use in its business. At hearing, Wales contended that its federal income tax returns could be amended to reflect the payments to Element Two as mortgage payments instead of rent payments, which would, in turn, change the Department's audit to reflect the payments as mortgage not rent. To address this contention, the Department presented the testimony of an expert witness in the area of rental consideration and sales tax audits. The Department's expert testified that the consideration for rental or use of property is the payment between/to one who owns the real property and/from one who uses the property; and concluded that consideration, as rental, was provided to Wales by Element Two based on the Department's taxing statute, Section 212.031, Florida Statutes, and its rules and regulation, Florida Administrative Code Rule 12A-1.070. The expert opined that the mortgage payments were consideration for a lease or license to use the real property and that, therefore, the monthly lease payment, which equaled the monthly mortgage payment, paid by Wales to Element Two was consideration for the lease or license to use the realty. The expert's testimony is found to be credible. The evidence presented shows that the mathematical computations performed by the Department in its audit are correct. Further, the evidence shows that the mathematical computations as to tax, penalty, and interest assessed are correct.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Revenue's assessment of sales tax, interest, and penalty against Wales Garage Corporation be sustained and that the Department of Revenue enter a final order assessing sales tax, interest, and penalty against Wales Garage Corporation for the period May 1, 1997 through April 30, 2002, consistent herewith. DONE AND ENTERED this 27th day of May, 2004, in Tallahassee, Leon County, Florida. S ERROL H. POWELL Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 27th day of May, 2004. COPIES FURNISHED: Gerald S. Schnitzer GSS Advisory Services, Inc. 2455 East Sunrise Boulevard, Suite 502 Fort Lauderdale, Florida 33304 Carrol Y. Cherry, Esquire Office of the Attorney General The Capitol, Plaza Level 01 Tallahassee, Florida 32399-1050 Bruce Hoffmann, General Counsel Department of Revenue 204 Carlton Building Tallahassee, Florida 32399-0100 James Zingale, Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100
The Issue The issue for determination at the final hearing was whether Respondent committed the allegations contained in the Administrative Complaint, specifically: (1) misconduct in the practice of architecture, and/or; (2) violation of a rule adopted pursuant to Chapter 481, Florida Statutes (1983).
Findings Of Fact At all times material to this proceeding, the Respondent, John H. Vongunten, has been a registered architect in the State of Florida, having been issued license number AR- 0006074 which expires on January 31, 1987. The Respondent graduated third in a class of 600 from the University of Pennsylvania. While attending the University of Pennsylvania, Respondent received several honors, including the John Stewardson Memorial Scholarship, was runner-up for the Rome prize, and was Phi Beta Kappa in architecture. Respondent first registered as an architect in Kansas in 1949 and in Florida and Ohio in 1956. Respondent is a member of the American Institute of Architects, the American Registered Architects, and the Guild for Religious Architecture. During his career, Respondent has worked as an assistant on a project with Frank Lloyd Wright, completed 56 churches, 23 automobile agencies, 15 industrial projects and 4 health care facilities. Respondent's background also includes a brief military career where he served as a carrier based fighter pilot, flew with the Blue Angels and received the Navy Cross for service during World War II. The Respondent was employed by Hunton, Shivers, Brady, Associates, P.A. from 1981 until his termination in September of 1984. The Respondent was assigned to provide services to the joint venture of Medical Facilities Consultants (MFC), of which Hunton, Shivers, Brady Associates, P. A. took part. MFC is an architectural firm under contract with the Florida Department of Health and Rehabilitative Services (HRS) to review design plans for health care facilities. Pursuant to its contract with HRS, MFC was required to provide consultative services and perform detailed analysis of proposed medical facilities construction projects and to determine compliance with state licensure standards with respect to architectural, mechanical, electrical and structural engineering disciplines. MFC is a joint business venture which combined the efforts of the architectural firm of Hunton, Shivers and Brady Associates, P.A. and Tilden, Lobnitz and Cooper, Inc. Consulting Engineers. Tom R. Hunton was designated as the representative of the firm to act as contract administrator with HRS for non-technical matters related to administration and work flow. Mr. Hunton was the only individual with complete authority to sign documents and bind the firm in matters relating to the contract. MFC is business operations consisted solely of its work for HRS. The Respondent was employed by MFC as senior architect in charge of the review process. Respondent reviewed the architectural portion of all plans that came in the office; other employees reviewed mechanical and electrical aspects of the plans. Respondent, as senior architect, was the coordinator between mechanical, electrical and architectural. The review process consists of three (3) primary stages of plan submittal to HRS. The first stage is the furnishing of schematic plans. Schematic plans are not very detailed and may consist of single line drawings of the proposed facility. The second stage is much more detailed and is called the submission of preliminary plans. Walls with elevations and other details are shown in this second stage of review of the "design development drawings." The third and final phase is the construction documents review stage. At this stage, there is a full list of plans, including architectural, engineering, landscaping and civil engineering portions of the project. Under a typical review, the design professionals seeking to build the project submit the plans to HRS through the plans and construction section of the Office of Licensure and Certification located in Jacksonville. The plans are thereafter passed on to MFC for their review of the plans pursuant to the previously mentioned contract. MFC provides assistance in all these stages of the review process. MFC then reviews the plans and submits a report to HRS which recommends approval or disapproval and may contain comments about the project. The Office of Licensure and Certification then decides to approve the project or to disapprove it. HRS receives plan review fees as a part of the plan review process. Requests for official plan review fees are made in writing by Mr. Rosenvold. MFC principals and employees generally do not have direct contact with the design professionals. However, at the schematic plans stage, often a meeting is held at the HRS office in Jacksonville between HRS officials, MFC and the design professionals. MFC officials were instructed by Richard Rosenvold, administrator for the Plans and Construction Section, not to contact the design professionals without prior approval of the Office of Licensure and Certification. During the summer of 1984, MFC was employed to review the design documents for a health-care project known as "The Cloisters of Deland" to be built in Deland by the firm of MacMahon-Cajacob Associates. The Cloisters of Deland is planned as a retirement community on an eleven and one-half acre site in downtown Deland. A multi-story building is projected to house general-use facilities on the first floor including administration, food service and activity areas, and a 60-bed skilled nursing facility on the entire second floor. The remaining 6 floors are projected to contain apartments. HRS is required to review the nursing home portion of the project. When HRS submits plans for review to MFC, MFC generally has 30 days in which to respond. An architectural review, a mechanical review, an electrical review and a fire protection review is completed. After these reviews are completed, Tom Hunton reviews the comments, if any, and signs off on a package which is sent to HRS recommending approval or disapproval and including comments. The Cloisters project was scheduled to be returned to HRS by MFC on or before August 31, 1984. Tom Hunton signed off on the The Cloisters of Deland project on August 29, 1984 recommending disapproval. Contrary to normal procedure, the disapproval package signed by Mr. Hunton was not mailed immediately to HRS, but was held up by Respondent. In the review process, it was Respondent's job to review the comments of the architect, the mechanical engineer and electrical engineer, mark the comments approved or disapproved, and give the package to Hunton. When Hunton signed off on The Cloisters project on August 29, 1984, it was disapproved in all three categories: architectural, electrical and mechanical. The Cloisters project package was not mailed out immediately after Hunton signed it because Respondent kept it in his office for an undetermined reason. On September 5, 1984, the Respondent telephoned Mr. MacMahon (supervising architect for The Cloister project) in Deland and advised him that the construction documents of The Cloisters of Deland had been reviewed and that they contained numerous violations and would be disapproved by the Office of Licensure and Certification. The Respondent advised Mr. MacMahon that he was in a position to assist them in making corrections that would avoid disapproval. The Respondent advised that he had a team of "moonlighters" available to assist them at the rate of $100 an hour per man. Respondent told MacMahon that the moonlighting service would be a way to get contingency approval, and thus, avoid rejection and considerable loss of time. Because Mr. MacMahon was planning to leave town for a short period of time, he asked his partner, Alan Cajacob, to handle the matter with Respondent. On September 6, 1984, Respondent and Mr. Cajacob spoke on the telephone. Respondent suggested a meeting to discuss the situation concerning problem areas in the plans. Mr. Cajacob was interested in finding out what the comments or problem areas found in the plans by the reviewers were; he, therefore, agreed to a meeting. The Cloisters project was under construction and time was critical to the project. Thereafter, a meeting was held on Saturday, September 8, 1984, between Mr. Cajacob, the Respondent, and Mr. Carl Stanton. Mr. Cajacob invited Mr. Stanton (supervisor and project manager of construction at The Cloisters) to attend the meeting because Stanton was thoroughly knowledgeable about the project. Mr. Cajacob anticipated that Respondent would bring a list of the deficiencies or comments from the reviewing team to the meeting for discussion. However, Respondent advised Cajacob that it was his intention to obtain a clean set of construction documents and have them marked up in red pencil with comments from a team of people who could review them quickly over the weekend. Respondent told Mr. Cajacob that his reviewing team consisted of mechanical and electrical personnel who had previously worked as reviewers for HRS for these types of plans. The Respondent repeated his assertion that his moonlighting team could avoid a complete turndown of the construction documents and obtain a conditional approval of the plans. This could be accomplished because with the comments, changes in the construction documents could be made and inserted so that costly delay would be-avoided. Therefore, Cajacob gave the Respondent a "clean" set of plans. At the conclusion of the September 8th meeting, Respondent asked Cajacob for a total of one thousand dollars ($1,000). The Respondent wanted five hundred dollars ($500) "up front" money as a retainer to pay for his time and the time and expenses of his moonlighting team. In addition, he wanted $500 which would be due the following day when he returned with the marked set of drawings. Mr. Cajacob advised the Respondent that he could not produce that amount without the approval of the project owner and that he would need an invoice from Respondent to support his request. The Respondent then left the office with an unmarked set of drawings and stated that he would contact Mr. Cajacob later after he had spoken with his team members. Before leaving, Respondent told Cajacob and Stanton that their meeting should be held in confidence. At this point, Cajacob began to have his doubts about the propriety of the conversation but decided that he would contact HRS on that Monday and determine whether the Respondent's proposal was an appropriate way to proceed. Later that day, the Respondent telephoned Mr. Cajacob at home and advised him that without the full $1,000 up front, the moonlighting team could not provide the services they were offering. During this telephone conversation, Mr. Cajacob refused to provide the $1,000 up front and asked the Respondent to return the plans so that the normal procedure could be followed. At that point, Mr. Cajacob began to feel nervous and uneasy about the Respondent's proposal The following Monday or Tuesday, Mr. Cajacobe received a note from his secretary stating that Respondent had called and that the plans had been dropped off at a nearby Holiday Inn. Mr. Cajacob's secretary picked up the plans. After the return of the plans, Cajacob received several telephone calls and at least one letter from Respondent stating each time that he (Respondent) was very sorry, he had made a terrible mistake and requesting that Cajacob forgive him. On September 10, 1984, Mr. Cajacob, after discussing the incident with his partner, Mr. MacMahon, called Mr. Rosenvold in Jacksonville and apprised him of Respondent's contact. Thereafter, Mr. Rosenvold called Mr. Hunton and advised him of the complaint that Respondent had contacted the firm of MacMahon and Cajacob in Deland. At Rosenvold's request, Hunton investigated it. On Tuesday, September 11, 1984, Hunton and the surviving partner, Brady, met with Respondent and, effective September 12, temporarily suspended him while the matter was being investigated. The Respondent was terminated on September 18, 1985. Respondent's moonlighting team consisted of himself, and two other people who were going to review the electrical and mechanical aspects of the plans. The moonlighting team would have based their work on their own knowledge and Respondent did not intend to let them use the list of comments prepared by the MFC Reviewing Team. Respondent did not advise Hunton or Mr. Rosenvold that he intended to contact MacMahon or Cajacob regarding The Cloisters. Likewise, neither Hunton nor Mr. Rosenvold authorized the contact with MacMahon and Cajacob. After a turn-down or disapproval from HRS, the design professionals may resubmit new plans directly to HRS in Jacksonville. The instance of turn-downs in plans is rare. Only about 10%-15% of plans reviewed by MFC are disapproved. The Cloisters of Deland project had been disapproved five (5) times previously.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law it is recommended that: Respondent be found guilty of a violation of §§481.225(1)(i) and (j), Florida Statutes (1983); and that, Respondent's license to practice architecture be suspended for a period of one year and that an administrative fine of $1,000 be assessed. DONE and ORDERED this 9th day of January, 1986 in Tallahassee, Leon County, Florida. W. MATTHEW STEVENSON, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 9th day of January, 1986. COPIES FURNISHED: Wings Slocum Benton, Esquire Department of Professional Regulation 130 North Monroe Street Tallahassee, Florida 32301 Joseph A. Scarlett, Esquire Joseph R. Clark, Esquire 208 West Howry Avenue Deland, Florida 32720 Fred Roche Secretary Department of Professional Regulation 130 North Monroe Street Tallahassee, Florida 32301 Salvatore A. Carpino, Esquire General Counsel Department of Professional Regulation 130 North Monroe Street Tallahassee, Florida 32301 J. W. Hendry Executive Director Board of Architecture Department of Professional Regulation 130 North Monroe Street Tallahassee, Florida 32301 APPENDIX The following are my specific rulings on the proposed findings of fact submitted by the parties in this case. Petitioner's Findings of Fact Paragraph Ruling Accepted; see R.O. paragraph 1. Accepted; see R.O. paragraphs 3 & 4. Accepted; see R.O. paragraphs 3 & 4. Accepted; see R. O. paragraph 5. Accepted; see R.O. paragraph 8. Accepted; see R.O. paragraphs 6 & 7. Accepted; see R.O. paragraph 8. Accepted; see R. O. paragraph 4. Accepted; see R. O. paragraph 3. Rejected as irrelevant. Accepted; see R. O. paragraph 8. Accepted; see R.O. paragraph 8.I Accepted; see R.O. paragraph 8. Accepted; see R.O. paragraph 9. Accepted; see R.O. paragraph 9. Accepted; see R.O. paragraph 13. Accepted; see R.O. paragraph 14. Accepted; see R.O. paragraph 8. Accepted; see R.O. paragraph 7. Partially accepted; see R.O. paragraphs 11 and 12; matters not contained therein are rejected as subordinate. Accepted; see R.O. paragraph 12. Rejected as not supported by credible evidence. Accepted; see R.O. paragraph 12. Accepted; see R.O. paragraph 12. Accepted; see R.O. paragraph 11. Accepted; see R.O paragraph 12. Accepted; see R.O. paragraphs 11 and 12. Accepted; see R.O. paragraph 13. Rejected as subordinate. Partially accepted; see R.O. paragraph 14. Matters not included therein are rejected as subordinate and unnecessary. Accepted; see R.O. paragraph 14. Not included in R.O. because subordinate. Not included in R.O. because subordinate. Rejected as subordinate. Not included in R.O. because subordiante. Accepted; see R.O. paragraph 13. Accepted; see R.O. paragraph 14. Not included in R. O. because subordinate. Not included in R.O. because subordinate. Accepted; see R.O. paragraph 15. Accepted see R.O. paragraph 15. Accepted; see R.O. paragraph 14. Partially accepted; see R.O. paragraph 16. Matters not included are considered subordinate. Accepted; see R.O. paragraph 16. Accepted; see R.O. paragraph 16. Accepted; see R.O. paragraph 16. Accepted; see R.O. paragraph 17. Accepted; see R.O. paragraph 17 Not included in R.O. because subordinate. Accepted; see R.O. paragraph 18. Accepted; see R.O. paragraph 18. Not included in R.O. because subordinate. Not included in R.O. because subordinate. Accepted; see R.O. paragraph 19. Accepted; see R.O. paragraph 19. Accepted; see R.O. paragraph 20. Not included in R.O. because subordinate. Not included in R.O. because subordinate. Accepted; see R.O. paragraph 21. Partially accepted; see R.O. paragraph 21. Matters not included therein are considered subordinate. Rejected as irrelevant. Rejected as irrelevant. Rejected as a recitation of testimony Rejected as not supported by credible evidence. Rejected as a recitation of testimony Rejected as a recitation of testimony Rejected as not supported by credible evidence. Rejected as a recitation of testimony. Rejected as a recitation of testimony. Accepted; see R.O. paragraphs 13, 16 and 23 Rejected as a recitation of testimony. Rejected as a recitation of testimony. Rejected as a recitation of testimony. Rejected as a recitation of testimony. Accepted; see R.O. paragraph 17. Rejected as subordinate. Partially accepted; see R.O. paragraph 17. Matters not included therein are rejected as subordinate and irrelevant. Accepted; see R.O. paragraph 16. Partially accepted; see R.O. paragraphs 13 and 16. Matters not included therein are rejected as irrelevant and subordinate. Accepted; see R.O. paragraph 24. Rejected as recitation of testimony. Accepted; see R.O. paragraph 24. Accepted; see R.O. paragraph 24. Accepted; see R.O. paragraph 22. Accepted; see R.O. paragraph 22. Rejected as irrelevant, subordinate and cumulative. Rejected as subordinate and irrelevant. Rejected as irrelevant. Accepted; see R.O. paragraph 25. Rejected as recitation of testimony and a conclusion of law. Rejected as a recitation of testimony and a conclusion of law. Partially accepted; although Respondent did teach a course in architectural ethics, at one point in his career, there was no evidence to indicate the specific content of the course on whether "conflicts of interest" were covered. RESPONDENT'S FINDINGS OF FACT Paragraph Ruling Accepted; see R.O. para. 4. Accepted; see R.O. paras. 4 and 9. Accepted; see R.O. para. 13. Accepted; see R.O. paras. 7. Accepted; see R.O. paras. 6, 7 and 14. Accepted; see R.O. para. 4. Accepted; see R.O. para. 5. Accepted; see R.O. paras. 7 and 10. Accepted; see R.O. paras. 7, 11 and 12; Partially accepted; see R.O. paras. 9 and 12. Matters not included therein are rejected as not supported by credible, competent and substantial evidence. Accepted; see R. O. paras. 13 and 14. Partially accepted; see R. O. paras. 15, 16, 17 and 18. Matters not included therein are rejected as subordinate. Rejected as argument and not supported by the evidence. Partially accepted; see R. O. para. 22. Matters not included therein are rejected as argument and subordinate. Accepted, but considered as a conclusion of law.
Findings Of Fact Petitioner School Board of Orange County, Florida, operates the public schools in the School District of Orange County, Florida, which is part of the state system of public education. (Pleadings) Each school district in Florida receives funds annually on a July 1 - June 30 fiscal year basis under the state Legislative Appropriations Act. The annual allocation from the Florida Education Finance Program (FEFP) to each school district for operation of schools is determined by a number of factors spelled out in Chapter 236, Florida Statutes. A "district cost differential" is then applied which takes into consideration each district's price level index as published in the Florida Price Level Index for the most recent three years. The resulting sum is divided by three, and a further fixed mathematical computation is applied to arrive at the result. The computation is made by the Department's Bureau of Management Systems and Services for the Director of Public schools, and approved by the Commissioner of Education. Application of the district cost differential results in either an upward or downward total amount allocated to the various school districts for school operation. (Testimony of Ferrell, Composite Exhibit 5) The FEFP program began in 1973 with the requirement that a district cost differential be applied based upon a price level study. The legislature set the cost differential by statute for the years 1973-1975. Although the price level index is published each January for the preceding year, the cost differential computations in past years were made each July based on the price level index for the previous year. In 1976-1977, the Commissioner of Education was given the responsibility by statute to arrive at the district cost differential. During these years, the computation was made in July each year by using the preceding year's price level index. In 1978, the law was changed to require the use of the price level index for the most recent three years. (Subsection 236.081(2), F.S. (1978 Supp.)) (Testimony of Ferrell, Golden) No price level index was prepared for the year 1979 because the legislature adopted the biennial system that year. Accordingly, in July 1980, the allocations to the various school districts for 1980-81 were estimated with the district cost differential being calculated on the basis of the 1976, 1977, and 1978 indexes. The Department then started distributing funds to the school districts for 1980-81 on the basis of 24 semimonthly payments. Various adjustments to the estimates normally are made during the course of the year in the amounts paid to the districts, based upon student enrollment and other factors. A small change is made in June of each year for anticipated summer school enrollment, and a final adjustment is made based upon actual summer school attendance. Such adjustments are always made retroactive to the beginning of the fiscal year. (Testimony of Ferrell). By a Memorandum, dated December 19, 1980, to District School Superintendents, the Director of the Division of Public Schools provided a new calculation for the 1980-81 FEFP based on the July and October FTE (full-time equivalent), survey data and on a certification of the 1980 tax roll provided by the Department of Revenue. On February 25, 1981, another Memorandum from the same official was sent to District School Superintendents reflecting further adjustments based on the tax rolls provided by the Department of Revenue on February 13, 1981. In the meantime, the price level index for 1980 had been received by the Department of Education, and it was decided that the district cost differential for the current year should be recomputed based upon the 1977, 1978, and 1980 indexes. Therefore, by Memorandum, dated April 10, 1981, the Director of the Division of Public Schools advised the District School Superintendents of the new calculations based upon updated student surveys, and the Department of Revenue certification of the 1980 tax roll, dated April of 1981, together with an adjustment of the cost differential to reflect inclusion of the 1980 price level index study. As a result of the recalculation, Petitioner's funds for the year were increased by $873.103. The adjustment in April was the final estimate of each district's funds to be distributed for the remainder of the fiscal year, as required under Department of Education Rule 6A- 1.452, Florida Administrative Code. The Rule requires that any difference in the amount of a district's entitlement by June 30th and the actual funds distributed shall be adjusted in the succeeding year. (Testimony of Ferrell, Exhibits 2-3, 4, 6). By Memorandum of July 16, 1981, the Director of the Division of Public Schools advised the District School Superintendents that the district cost differential for 1980-81 had again been recalculated on the basis of the 1976, 1977, and 1978 price level studies due to language contained in the 1981- 82 Appropriations Act which stated that the district cost differential used in the calculation of the FEFP for any fiscal year should be the one used in calculating the initial allocation. The Memorandum stated that "This legislative interpretation of the statute effectively requires that we utilize the three latest studies in existence on July 1 for any fiscal year." The Memorandum then stated that since the previous interpretation of the statute was inconsistent with the legislative intent, a recalculation would have to be made for the past fiscal year and appropriate adjustments made for each school district, to be incorporated in the August FEFP calculation as prior year adjustments. A list attached to the Memorandum reflected the upward and downward adjustments for the various county districts, including a loss of funds to Orange County in the amount of $873,103. The adjustments were approved by the Commissioner of Education. By Memorandum, dated August 12, 1981, to District School Superintendents, the final FEFP computation computed pursuant to Rule 6A-1.452 was transmitted to District School Superintendents. The various deductions from the school districts are currently being made from funds appropriated under the 1981-82 Appropriations Act in semimonthly payments. (Testimony of Ferrell, Golden, Exhibits 1, 4) On August 14, 1981, Petitioner filed Notice of Administrative Appeal against Respondents herein to the First District Court of Appeal, Case No. 8F383, from Respondents' action in withholding funds pursuant to its Memorandum of July 16, 1981, which was therein characterized as an "Order."
The Issue The issues are whether Respondent properly conducted a sales and use tax audit of Petitioner's books and records; and, if so, whether Petitioner is liable for tax and interest on its purchases of materials used for improvements to real property.
Findings Of Fact During the audit period, Petitioner was a Florida corporation with its principal place of business located at 7820 Professional Place, Suite 2, Tampa, Florida. Petitioner's Florida sales tax number was 39-00-154675-58, and Petitioner's federal employer identification number was 59-3089046. After the audit period, the Florida Department of State administratively dissolved Petitioner for failure to file statutorily required annual reports and filing fees. Petitioner engaged in the business of providing engineering services and fabricating control panels. Petitioner fabricated control panels in a shop Petitioner maintained on its business premises. Petitioner sold some of the control panels in over-the- counter sales. Petitioner properly collected and remitted sales tax on the control panels that Petitioner sold over-the-counter. Petitioner used other control panels in the performance of real property contracts by installing the panels as improvements to real property (contested panels). Petitioner was the ultimate consumer of the materials that Petitioner purchased and used to fabricate the contested panels. At the time that Petitioner installed the contested panels into real property, the contested panels became improvements to the real property. Petitioner failed to pay sales tax at the time Petitioner purchased materials used to fabricate the contested panels. Petitioner provided vendors with Petitioner's resale certificate, in lieu of paying sales tax, when Petitioner purchased the materials used to fabricate the contested panels. None of the purchase transactions for materials used to fabricate the contested panels were tax exempt. The audit is procedurally correct. The amount of the assessment is accurate. On October 23, 2000, Respondent issued a Notification of Intent to Audit Books and Records (form DR-840), for audit number A0027213470, for the period of October 1, 1995, through September 30, 2000. During an opening interview, the parties discussed the audit procedures and sampling method to be employed and the records to be examined. Based upon the opening interview, Respondent prepared an Audit Agreement and presented it to an officer and owner of the taxpayer. Respondent began the audit of Petitioner's books and records on January 22, 2001. On March 9, 2001, Respondent issued a Notice of Intent to Make Audit Changes (original Notice of Intent). At Petitioner's request, Respondent conducted an audit conference with Petitioner. At the audit conference, Petitioner provided documentation that the assessed transactions involved improvements to real property. At Petitioner's request, Respondent conducted a second audit conference with Petitioner's former legal counsel. Petitioner authorized its former legal counsel to act on its behalf during the audit. At the second audit conference, the parties discussed audit procedures and sampling methods, Florida use tax, fabricated items, and fabrication costs. Respondent revised the audit findings based upon additional information from Petitioner that the assessed transactions involved fabricated items of tangible personal property that became improvements to real property. Respondent assessed use tax on the materials used to fabricate control panels in those instances where Petitioner failed to document that Petitioner paid sales tax at the time of the purchase. Respondent also assessed use tax on fabrication costs including the direct labor and the overhead costs associated with the fabrication process, for the period of October 1, 1995, through June 30, 1999. Respondent eliminated use tax assessed on cleaning services in the original Notice of Intent because the amount of tax was de minimis. On August 29, 2001, Respondent issued a Revised Notice of Intent to Make Audit Changes (Revised Notice of Intent). On September 18, 2001, Petitioner executed a Consent to Extend the Time to Issue an Assessment to File a Claim for Refund until January 25, 2002. On October 18, 2001, Petitioner executed a second Consent to Extend the Time to Issue an Assessment to File a Claim for Refund until April 25, 2002. On February 6, 2002, Respondent issued a Notice of Proposed Assessment for additional sales and use tax, in the amount of $21,822.27; interest through February 6, 2002, in the amount of $10,774.64; penalty in the amount of $10,831.12; and additional interest that accrues at $6.97 per diem. Petitioner exhausted the informal remedies available from Respondent. On April 29, 2002, Petitioner filed a formal written protest that, in substantial part, objected to the audit procedures and sampling method employed in the audit. Respondent issued a Notice of Decision sustaining the assessment of tax, penalty, and interest. Respondent correctly determined that the audit procedures and sampling method employed in the audit were appropriate and consistent with Respondent's statutes and regulations. Respondent concluded that the assessment was correct based upon the best available information and that Petitioner failed to provide any documentation to refute the audit findings. Petitioner filed a Petition for Reconsideration that did not provide any additional facts, arguments, or records to support its position. On May 16, 2003, Respondent issued a Notice of Reconsideration sustaining the assessment of tax and interest in full, but compromising all penalties based upon reasonable cause.
Recommendation Based upon the findings of fact and the conclusions of law, it is RECOMMENDED that Respondent enter a Final Order denying Petitioner's request for relief and sustaining Respondent's assessment of taxes and interest in full. DONE AND ENTERED this 10th day of December, 2003, in Tallahassee, Leon County, Florida. S DANIEL MANRY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 10th day of December, 2003. COPIES FURNISHED: Carrol Y. Cherry, Esquire Office of the Attorney General Revenue Litigation Section The Capitol, Plaza Level 01 Tallahassee, Florida 32399-1050 Michael E. Ferguson Control Design Engineering, Inc. 809 East Bloomingdale Avenue, PMB 433 Brandon, Florida 33511 Bruce Hoffmann, General Counsel Department of Revenue 204 Carlton Building Tallahassee, Florida 32399-0100 James Zingale, Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100
The Issue The issues are whether Respondent violated Chapter 440, Florida Statutes, by failing to obtain workers' compensation insurance, and if so, what penalty should be imposed.
Findings Of Fact Petitioner is the state agency responsible for enforcing the statutory requirement that employers secure the payment of workers' compensation for the benefit of their employees as required by Section 440.107, Florida Statutes (2008). Respondent is a Florida Corporation that engages in the painting business. Abner Gonzalez is Respondent's President. Painting is a workplace operation that satisfies the criteria of the term "construction industry" as set forth in the Basic Manual of the National Council on Compensation Insurance, Inc. (NCCI). On May 15, 2009, Petitioner's investigator, Allen DiMaria conducted an investigation at the intersection of Normandy Boulevard and Guardian Drive in Jacksonville, Florida. Mr. DiMaria observed one worker on a ladder and another worker on the ground painting a block and masonry entrance to a development. The workers at the site identified themselves to Mr. DiMaria as Abner Gonzalez and César Silvestre. Mr. Gonzalez stated that Respondent had a contract to paint the wall and that he and Mr. Silvestre were Respondent's employees. Mr. Gonzalez stated that, as a corporate officer, he had an exemption for workers' compensation. Mr. Gonzalez admitted that Respondent had not secured workers' compensation for Mr. Silvestre. Mr. DiMaria was able to confirm that Mr. Gonzalez had a current valid construction exemption, specifically for painting. However, Mr. Gonzalez did not have a painting exemption for the entirety of the prior three years. On May 15, 2009, Mr. DiMaria issued and personally served on Respondent a Stop-Work Order and Order of Penalty Assessment for failure to comply with statutory requirements. Mr. DiMaria also issued Respondent a Request for Production of Business Records for Penalty Assessment Calculation. Because Respondent did not promptly provide Petitioner with the requested business records, Petitioner's staff imputed Respondent's payroll and calculated the penalty as the average weekly wage rate multiplied by 1.5. pursuant to Section 440.107, Florida Statutes. Petitioner then issued the Amended Order of Penalty Assessment in the amount of $26,180.24 on June 11, 2009. Respondent subsequently provided Petitioner with business records. The records included Respondent's bank statements for the prior three years and Respondent's 2007 Employer's Quarterly Federal Tax Returns. The records also showed that Respondent provided employment without workers' compensation insurance to persons other than Mr. Gonzalez and Mr. Silvestre during the prior three years. On June 26, 2009, Petitioner issued the Second Amended Order of Penalty Assessment based upon Respondent's business records in the amount of $7,641.14. The Second Amended Order of Penalty Assessment, showing the reduced penalty, was served on Respondent by certified mail.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED: That Respondent issue a final order affirming the Stop-Work Order and Second Amended Order of Penalty Assessment in the amount of $7,641.14. DONE AND ENTERED this 14th day of October, 2009, in Tallahassee, Leon County, Florida. S SUZANNE F. HOOD 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 14th day of October, 2009. COPIES FURNISHED: Paige Billings Shoemaker, Esquire Department of Financial Services 200 East Gaines Street Tallahassee, Florida 32399-4229 Abner Gonzales 1924 Firefly Drive Green Cove Springs, Florida 32043 Tracy Beal, Agency Clerk Department of Financial Services 200 East Gaines Street Tallahassee, Florida 32399-0390 Benjamin Diamond, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0307 Honorable Alex Sink Chief Financial Officer Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300
The Issue Whether the Department of Revenue properly denied Petitioner's March 10, 2000, Application For Refund of Sales and Use Tax, Petitioner having asserted that the Department of Revenue obtained the Closing Agreement through misrepresentation and intimidation.
Findings Of Fact Petitioner, Tuskawilla Learning Center, is a Florida corporation which operates a private Montessori School in Oviedo, Seminole County, Florida. Petitioner has elected to be an "S" corporation for federal income tax reporting purposes. Tuskawilla Learning Center is owned by its shareholders, Thomas E. Phillips; his wife, Lois; his daughter, Terry Lynn DeLong; and his son-in-law, Daniel F. DeLong. At all times material to this matter, a partnership comprised of the above-named owners of the Tuskawilla Learning Center also owned the real property upon which the Tuskawilla Learning Center operated. In early July 1997, Respondent audited Petitioner's corporate transactions for the period from July 1, 1992, through June 30, 1997, for compliance with sales and use tax and the local government infrastructure surtax. During the audit Petitioner was requested to provide all information and documents which Petitioner felt supported its business activities. Respondent issued a Notice Of Intent To Make Audit Changes on September 25, 1997, which advised Petitioner that the audit revealed that Petitioner had failed to pay use tax on purchases Petitioner made from out-of-state vendors, which Petitioner acknowledged and paid. The audit also revealed that Petitioner failed to pay sales tax on the monthly rental charges that Petitioner paid to the property owner on which the Tuskawilla Learning Center operated. Petitioner did not agree with Respondent's position on the sales tax on monthly rental charges. On October 28, 1997, an audit conference was held in Orlando, Florida, where the tax assessment on the monthly rental charges was discussed. The parties were unable to resolve the issue, and Petitioner requested that the issue be referred to Tallahassee for further review. The review in Tallahassee essentially confirmed the original audit findings, and a Notice of Proposed Assessment was issued on January 26, 1998. Petitioner filed a protest and requested a further review of the Notice of Proposed Assessment. As a result, the entire audit was reviewed, and Petitioner was allowed to provide additional documentation to support its position. On August 4, 1998, Respondent issued a Notice of Decision which essentially confirmed the findings of the original audit. At this point, Petitioner had certain rights of appeal which had to be exercised within specific time limits, or Petitioner could elect to pay the taxes and interest as set forth in a Closing Agreement in which Respondent waived the penalties which had accrued for failure to pay the tax. The various time deadlines passed without Petitioner electing one of the avenues of appeal nor did Petitioner execute the Closing Agreement. After all deadlines for appeal had passed, Petitioner contacted Respondent through an attorney seeking relief. Respondent found no basis for relief but renewed the opportunity for Petitioner to sign the Closing Agreement. On February 5, 1999, Petitioner executed the Closing Agreement and paid $71,693.87 (a $285.31 overpayment). The Closing Agreement clearly states: The taxpayer waives any and all rights to institute any judicial or administrative proceedings, including the remedies provided by ss. 213.21(2)(a) and 72.011(1), F.S., to recover, compromise, or avoid any tax, penalty or interest paid or payable pursuant to this agreement. This agreement is for the sole purpose of compromising and settling taxpayer's liability to the State of Florida . . . This agreement is final and conclusive with respect to the audit assessment or specific transaction/assessment and period described . . . and no additional assessment may be made by the Department against the taxpayer for the specific liability referenced above, except upon showing of fraud or misrepresentation of material fact . . . . On March 10, 2001, Petitioner filed an Application for Refund of the taxes and interest paid with the Closing Agreement. Attached to the Application for Refund was Petitioner's four-page "position paper," which outlined facts and arguments related to the sales tax issue. Petitioner's Application for Refund states that "the State has misled us." The Application for Refund went through the review process. On May 5, 2000, Respondent issued a Notice of Proposed Denial for the refund claim. Petitioner sought an informal review of the proposed refund denial. After an informal review of the proposed refund denial, on June 16, 2000, Respondent issued a Notice of Decision denying Petitioner's Application for Refund. On August 12, 2000, Petitioner forwarded a letter to Respondent, which was interpreted as a request for an administrative hearing to review the decision to deny the Application for Refund which resulted in the instant administrative hearing. Thomas E. Phillips has a Ph.D. in accounting from the University of Nebraska, is a Certified Public Accountant, and had taught accounting at the University of Central Florida for 23 years prior to his retirement. He and his family founded the Tuskawilla Learning Center. On behalf of Petitioner, Dr. Phillips maintains that the tax audit and subsequent review process were "intimidating" and that Respondent "misled" Petitioner. Notwithstanding Dr. Phillips' assertion that the audit and review process were "intimidating," he testified that he found the auditor and her supervisor "not intimidating, but were very pleasant." Dr. Phillips testified about several aspects of the audit and review process and activities that occurred during the audit and review process that he found objectionable. For example, Dr. Phillips testified that Respondent failed to respond to his inquiries in an appropriate way and that Respondent had misinterpreted certain case law that he felt applicable. Nothing offered by Dr. Phillips suggests any impropriety or misrepresentation by Respondent.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is recommended that Respondent enter a final order denying Petitioner's Application for Refund. DONE AND ENTERED this 26th day of April, 2001, in Tallahassee, Leon County, Florida. JEFF B. CLARK Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 26th day of April, 2001. COPIES FURNISHED: Joseph C. Mellichamp, III, Esquire Office of the Attorney General Department of Legal Affairs The Capitol, Plaza Level 01 Tallahassee, Florida 32399-1050 John Mika, Esquire Office of the Attorney General Department of Legal Affairs The Capitol, Tax Section Tallahassee, Florida 32399-1050 Thomas E. Phillips 1625 Montessori Point Oviedo, Florida 36527 Linda Lettera, General Counsel Department of Revenue 204 Carlton Building Tallahassee, Florida 32399-0100 James Zingale, Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100
