The Issue The issue is the amount of attorney's fees and costs to which Petitioner is entitled by Order of the appellate court pursuant to Subsection 120.595(5), Florida Statutes (2007).1
Findings Of Fact On February 9, 2005, the Commissioner of Education (the Commissioner) filed an Administrative Complaint against Ms. Stacy Stinson, now Ms. Stacy Lewis. Ms. Stinson requested an administrative hearing pursuant to Subsection 120.57(1) (a 120.57 proceeding). The Commissioner referred the matter to DOAH to conduct the 120.57 proceeding. DOAH opened the 120.57 proceeding as Jim Horne, as Commissioner of Education v. Stacy Stinson, Case No. 05-0504PL (DOAH August 11, 2005) (the underlying proceeding). The Recommended Order in the underlying proceeding recommended the entry of a final order finding the respondent in the underlying proceeding not guilty of the charges against her and imposing no penalty against her teaching certificate. On January 5, 2006, the Educational Practices Commission (EPC) entered a Final Order rejecting or modifying some findings of fact in the Recommended Order, reprimanding the respondent, imposing a two-week suspension of her teaching certificate, and placing her on probation for three years. On January 5, 2006, the respondent in the underlying proceeding filed a notice of administrative appeal to the First District Court of Appeal. The initial brief was filed on March 16, 2006. The answer was filed on May 1, 2006. On May 15, 2006, the respondent filed a reply brief, motion for attorney's fees, and request for oral argument. On August 22, 2006, the appellate court issued its order in Stinson v. Winn, 938 So. 2d 554 (Fla. 1st DCA 2006). The appellate court concluded that the EPC improperly rejected or modified factual findings and legal conclusions of the ALJ and remanded the matter for entry of a final order dismissing the Administrative Complaint and finding the respondent in the underlying proceeding not guilty of the allegations, consistent with the Recommended Order. The appellate court also granted the motion for attorney's fees, pursuant to Subsection 120.595(5), and remanded the case to DOAH to determine the amount of fees. The instant proceeding ensued. Respondent does not contest the reasonableness of costs in the amount of $3,484.95. Petitioner seeks an award of costs in the amount of $3,954.95. Petitioner is entitled to costs in the amount of $3,484.95. Petitioner seeks attorney's fees for the underlying proceeding and the appellate proceeding in the amount of $94,104.45, plus interest. The amount of fees is based on 360.6 hours at an hourly rate of $250.00. Respondent claims the correct amount of attorney's fees is $22,680.00. The amount of fees is based on 252 hours at an hourly rate of $90.00. An hourly rate of $90.00 is reasonable. The $90.00- rate is the rate established in the fee agreement reached between Petitioner and her attorney. Judicial decisions discussed in the Conclusions of Law hold that in no case should the court-awarded fee exceed the fee agreement reached by the attorney and her client. The number of hours reasonably expended is 283.15 hours. The hours claimed by Petitioner in the amount of 360.6 should be reduced by 62.8 hours based on credible and persuasive testimony of Respondent's expert. The subtotal of 297.8 hours includes 34.9 hours billed, from June 6 through July 5, 2005, to prepare the PRO in the underlying proceeding. The total time billed for preparing the PRO includes 19.2 hours for what is labeled, in part, as research undertaken to prepare the PRO. The 2.7 hours for research pertaining to penalties, bearing an entry date of June 27, 2005, is reasonable because the research is reflected in the PRO. The remaining legal research undertaken to prepare the PRO is not reflected in the PRO. The amount billed for preparation of the PRO is reduced from 34.9 hours to 20.25 hours, a reduction of 14.65 hours. The Conclusions of Law in the PRO consist of 33 paragraphs numbered 17 through 49. Apart from administrative proceedings pertaining to penalties, the 33 paragraphs cite three appellate decisions, one of which may be fairly characterized as a "boiler-plate" citation for the burden of proof. The remainder of the 33 paragraphs consists of naked argument. A principal purpose of a PRO is to inform the ALJ of relevant judicial decisions, to distinguish between supporting and contradicting decisions, and to explain why, in the context of the facts at issue, the supporting decisions seize the day for the client. That is the proper role of an attorney in the adversarial process at the trial level. The PRO does not reflect that effort.3 Economic reality is not lost on the fact-finder. It may be that the fee-sensitivity of a client in a particular case precludes an attorney from fully researching and discussing a relevant legal issue. In the instant case, however, the attorney billed 34.9 hours for a PRO with two citations to appellate decisions beyond the burden of proof. Novel and difficult questions of fact and law were present in the underlying proceeding. The factual issues involved a so-called trial by deposition in a penal proceeding. The legal issues involved a literal conflict between a so-called adopted rule and a statute in a 120.57 proceeding. However, the PRO filed in the underlying proceeding provided no legal research concerning either novel question. Judicial decisions discussed in the Conclusions of Law hold that reasonable attorney's fees are determined by multiplying the number of hours reasonably expended by a reasonable hourly rate. The mathematical product is the lodestar. The lodestar in this proceeding is $25,483.50, determined by multiplying 283.15 hours by an hourly rate of $90.00. The lodestar is not increased or decreased by the results obtained or risk factor. There is no evidence of a "risk factor" attributable to contingency or other factors. There is no increase for the results obtained. Although the results were favorable, the favorable results turned principally on issues of fact and law for which relevant judicial decisions exist and were found through independent research by the ALJ without any assistance from legal research evidenced in the PRO.
Conclusions For Petitioner: Anthony D. Demma, Esquire Meyer and Brooks, P.A. Post Office Box 1547 Tallahassee, Florida 32302 For Respondent: Todd Resavage, Esquire Brooks, LeBoef, Bennett, Foster & Gwartney, P.A. 909 East Park Avenue Tallahassee, Florida 32301
Other Judicial Opinions A party who is adversely affected by this Final Order is entitled to judicial review pursuant to Section 120.68, Florida Statutes. Review proceedings are governed by the Florida Rules of Appellate Procedure. Such proceedings are commenced by filing the original Notice of Appeal with the agency clerk of the Division of Administrative Hearings and a copy, accompanied by filing fees prescribed by law, with the District Court of Appeal, First District, or with the District Court of Appeal in the Appellate District where the party resides. The notice of appeal must be filed within 30 days of rendition of the order to be reviewed.
Findings Of Fact Petitioner was represented by in this case by Michael Linsky, Esquire, beginning in April 1988. Two complaints of discrimination had been brought against the Department of Corrections by Petitioner. Linsky is an experienced trial lawyer having been admitted to the Florida Bar in 1970. However, he had no experience with discrimination cases prior to these proceedings. The Florida Commission on Human Relations found the Department had committed an unlawful employment practice when it assigned Petitioner to perimeter post duty and transferred him to Polk Correctional Institution in retaliation for having filed a discrimination complaint. Linsky originally took Petitioner's case on a contingency fee basis, but later it was decided between Linsky and Petitioner that the fee would be whatever was awarded by the Commission. Petitioner was only to be responsible for costs. Linsky submitted into evidence as Exhibit 1 a list of dates and hours expended on this case. However, this exhibit was prepared by Linsky's secretary some months after the events depicted and appear grossly exaggerated in some instances. Linsky claims a total of 159.35 hours expended. Linsky testified that his billing rate from April 1988 to December 1988 was $175 per hour, and thereafter it was raised to $190 per hour. Petitioner's expert witnesses contend the average billing rate in the Tampa area for this type of case ranges from $125 to $175 per hour. Respondent's expert witnesses contend the fees awarded run from $100 to $150 per hour. I find the appropriate fee in this case to be $135 per hour. Although Linsky claims to have spent 159.35 hour on this case, including the attorney's fees portion, 1 find that only 100 hours are reasonable. Costs of $423.60 is not disputed.
Recommendation It is recommended that the Department of Corrections be directed to pay Sefsick's attorney $13,500 attorney's fees and $423.60 costs in these proceedings. DONE AND ENTERED this 28th day of September, 1990, in Tallahassee, Florida. K. N. AYERS Hearing Officer Division of Administrative Hearings The Desoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 28th day of September, 1990. APPENDIX Petitioner's proposed findings are accepted, except: 3. This proposed finding is accepted as a recital of the testimony presented, but rejected insofar as inconsistent with H.O. #8. 5. Rejected insofar as inconsistent with H.O. #7. 6 and 7. Accepted as legal argument, but rejected as a finding of fact. Respondent's proposed findings are accepted. COPIES FURNISHED: Michael A. Linsky, Esquire 600 North Florida Avenue Suite 1610 Tampa, FL 33602 Lynne T. Winston, Esquire Department of Corrections 2601 Blair Stone Road Tallahassee, FL 32399-2500 Louis A. Vargas General Counsel Department of Corrections 1313 Winewood Boulevard Tallahassee, FL 32399-2500 Richard L. Dugger Secretary Department of Corrections 1313 Winewood Boulevard Tallahassee, FL 32399-2500 =================================================================
The Issue Whether Respondent committed the offenses set forth in the two-count Administrative Complaint, dated April 17, 2007, and, if so, what penalty should be imposed.
Findings Of Fact Based on the oral and documentary evidence adduced at the final hearing and the entire record in this proceeding, the following findings of fact are made: The Department of Business and Professional Regulation, Division of Real Estate (the "Department"), is the state agency charged with enforcing the statutory provisions pertaining to persons holding real estate broker and sales associate's licenses in Florida, pursuant to Section 20.165 and Chapters 455 and 475, Florida Statutes. At all times relevant to this proceeding, except where specifically noted, Respondent Mathew Johnson was a licensed Florida real estate sales associate, having been issued license number SL3149081. Respondent first obtained his real estate associate's license in 2003 and worked under the license of broker Jacqueline Sanderson in Orlando. When he married and his wife became pregnant, Respondent believed that he needed a more steady income than his commission-based employment with Ms. Sanderson provided. Respondent left Ms. Sanderson's employ on good terms and commenced work as the marketing manager for the downtown YMCA in Orlando. While working at the downtown YMCA, Respondent met a member of the YMCA named Tab L. Bish ("Mr. Bish"), a broker who owns First Source, Inc., an Orlando real estate sales company (sometimes referred to as "FSI Realty"). Respondent became friendly with Mr. Bish, and expressed an interest in getting back into the real estate business. Mr. Bish offered Respondent a job at First Source. Respondent had allowed his sales associate's license to lapse while he was working at the YMCA. Respondent informed Mr. Bish of that fact, and told Mr. Bish that he required a salaried position in order to support his young family. Respondent testified that Mr. Bish was happy to hire him as an office manager, because Mr. Bish wanted Respondent to perform a marketing role for First Source similar to that he had performed for the YMCA. Respondent started working at First Source in May 2005, as a salaried office manager. Mr. Bish agreed that he initially hired Respondent as an office manager, but only on the understanding that Respondent would take the necessary steps to reactivate his sales associate's license and commence selling property as soon as possible. Respondent took the licensing course again. Mr. Bish believed that Respondent was taking too long to obtain his license, and cast about for something Respondent could do during the interim. In order to make profitable use of Respondent's time, Mr. Bish began to deal in referral fees from apartment complexes. Certain complexes in the Orlando area would pay a fee to brokers who referred potential renters to the apartments, provided these potential renters actually signed leases. Among the apartment complexes offering referral fees was the Jefferson at Maitland, which in 2005 offered a referral fee of half the first month's rent. Mr. Bish placed Respondent in charge of connecting potential renters with apartment complexes, showing the apartments, following up to determine whether the potential renters signed leases, and submitting invoices for the referral fees. Mr. Bish did not authorize Respondent to collect the payments. Respondent initiated contact with the Jefferson at Maitland and began sending potential renters there. Respondent would submit invoices to the Jefferson at Maitland, payable to First Source, for each referral that resulted in a lease agreement. Respondent estimated that he submitted between 12 and 15 invoices for referral fees to the Jefferson at Maitland during his employment with First Source. Respondent obtained his license and became an active sales associate under Mr. Bish's broker's license on November 16, 2005. Mr. Bish began a process of weaning Respondent away from his salaried position and into working on a full commission basis. Respondent stopped showing apartments under the referral arrangement and began showing properties for sale. The last lease for which First Source was due a referral fee from the Jefferson at Maitland was dated December 5, 2005. In early February 2006, it occurred to Respondent that he had failed to follow up with the Jefferson at Maitland regarding the last group of potential renters to whom he had shown apartments during October and November 2005. Respondent claimed that he "hadn't had the opportunity" to follow up because of the press of his new duties as a sales associate and the intervening holiday season. However, nothing cited by Respondent explained his failure to make a simple phone call to the Jefferson at Maitland to learn whether First Source was owed any referral fees. Respondent finally made the call to the Jefferson at Maitland on February 9, 2006. He spoke to a woman he identified as Jenny Marrero, an employee whom he knew from prior dealings. Ms. Marrero reviewed Respondent's list and found three persons who had signed leases after Respondent showed them apartments: Mike Tebbutt, who signed a one-year lease on October 26, 2005, for which First Source was owed a referral fee of $532.50; Terry Ford, who signed an eight-month lease on November 14, 2005, for which First Source was owed a referral fee of $492.50; and Juan Sepulveda, who signed an eight-month lease on December 2, 2005, for which First Source was owed a referral fee of $415.00. However, there was a problem caused by Respondent's failure to submit invoices for these referral fees in a timely manner. Respondent testified that Ms. Marrero told him that the Jefferson at Maitland had reduced its referral fee from 50 percent to 20 percent of the first month's rent, effective January 2006.2 Ms. Marrero could not promise that these late invoices would be paid according to the 2005 fee structure. According to Respondent, Ms. Marrero suggested that the Jefferson at Maitland's corporate office would be more likely to pay the full amount owed if Respondent did something to "break up" the invoices, making it appear that they were being submitted by different entities. She also suggested that no invoice for a single payee exceed $1,000, because the corporate office would know that amount exceeded any possible fee under the 2006 fee structure. Ms. Marrero made no assurances that her suggestions would yield the entire amount owed for the 2005 invoices, but Respondent figured the worst that could happen would be a reduction in the billings from 50 percent to 20 percent of the first month's rent. On February 9, 2006, Respondent sent a package to the Jefferson at Maitland, via facsimile transmission. Included in the package were three separate invoices for the referral fees owed on behalf of Messrs. Tebbutt, Ford, and Sepulveda. The invoices for Messrs. Tebbutt and Sepulveda stated that they were from "Matt Johnson, FSI Realty," to the Jefferson at Maitland, and set forth the name of the lessee, the lease term, the amount of the "referral placement fee," and stated that the checks should be made payable to "FSI Realty, 1600 North Orange Avenue, Suite 6, Orlando, Florida 32804." The invoice for Mr. Ford stated that it was from "Matt Johnson" to the Jefferson at Maitland. It, too, set forth the name of the lessee, the lease term, and the amount of the referral fee. However, this invoice stated that the check should be made payable to "Matt Johnson, 5421 Halifax Drive, Orlando, Florida 32812." The Halifax Drive location is Respondent's home address. The package sent by Respondent also included an Internal Revenue Service Form W-9, Request for Taxpayer Identification Number and Certification, for Mr. Bish and for Respondent, a copy of Respondent's real estate sales associate license, a copy of Mr. Bish's real estate broker's license, and a copy of First Source, Inc.'s real estate corporation registration. Approximately one month later, in early March 2006, Mr. Bish answered the phone at his office. The caller identifying herself as "Amber" from the Jefferson at Maitland and asked for Respondent, who was on vacation. Mr. Bish asked if he could help. Amber told Mr. Bish that the W-9 form submitted for Respondent had been incorrectly filled out, and that she could not send Respondent a check without the proper information. Mr. Bish told Amber that under no circumstances should she send a check payable to Respondent. He instructed her to make the payment to First Source. Amber said nothing to Mr. Bish about a need to break up the payments or to make sure that a single remittance did not exceed $1,000. Mr. Bish asked Amber to send him copies of the documents that Respondent had submitted to the Jefferson at Maitland. Before those documents arrived, Mr. Bish received a phone call from Respondent, who explained that he submitted the invoice in his own name to ensure that Mr. Bish received the full amount owed by the Jefferson at Maitland. On March 10, 2006, after reviewing the documents he received from the Jefferson at Maitland, Mr. Bish fired Respondent. On March 29, 2006, Mr. Bish filed the complaint that commenced the Department's investigation of this matter.3 At the hearing, Mr. Bish explained that, even if Respondent's story about the need to "break up" the invoices and keep the total below $1,000 were true, the problem could have been easily resolved. Had Mr. Bish known of the situation, he would have instructed the Jefferson at Maitland to make one check payable to him personally as the broker, and a second check payable to First Source, Inc. In any event, there was in fact no problem. By a single check, dated March 15, 2008, First Source received payment from the Jefferson at Maitland in the amount of $1,440, the full sum of the three outstanding invoices from 2005. Respondent testified that he never intended to keep the money from the invoice, and that he would never have submitted it in his own name if not for the conversation with Ms. Marrero. Respondent asserted that if he had received a check, he would have signed it over to Mr. Bish. Respondent and his wife each testified that the family had no great need of $492.50 at the time the invoices were submitted. Respondent's wife is an attorney and was working full time in February 2006, and Respondent was still receiving a salary from First Source. In his capacity as office manager, Respondent had access to the company credit card to purchase supplies. Mr. Bish conducted an internal audit that revealed no suspicious charges. Respondent failed to explain why he did not immediately tell Mr. Bish about the potential fee collection problem as soon as he learned about it from Ms. Marrero, why he instructed the Jefferson at Maitland to send the check to his home address rather than his work address, or why he allowed a month to pass before telling Mr. Bish about the invoices. He denied knowing that Mr. Bish had already learned about the situation from the Jefferson at Maitland's employee. The Department failed to demonstrate that Respondent intended to keep the $492.50 from the invoice made payable to Respondent personally. The facts of the case could lead to the ultimate finding that Respondent was engaged in a scheme to defraud First Source of its referral fee. However, the same facts also may be explained by Respondent's fear that Mr. Bish would learn of his neglect in sending the invoices, and that this neglect could result in a severe reduction of First Source's referral fees. Respondent may have decided to keep quiet about the matter in the hope that the Jefferson at Maitland would ultimately pay the invoices in full, at which time Respondent would explain himself to Mr. Bish with an "all's well that ends well" sigh of relief. Given the testimony at the hearing concerning Respondent's character and reputation for honesty, given that Respondent contemporaneously told the same story to his wife and to Ms. Sanderson that he told to this tribunal, and given that this incident appears anomalous in Respondent's professional dealings, the latter explanation is at least as plausible as the former. Respondent conceded that, as a sales associate, he was not authorized by law to direct the Jefferson at Maitland to make the referral fee check payable to him without the express written authorization of his broker, Mr. Bish. Respondent also conceded that Mr. Bish did not give him written authorization to accept the referral fee payment in his own name. Respondent has not been subject to prior discipline.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Florida Real Estate Commission enter a final order: Dismissing Count I of the Administrative Complaint against Respondent; and Suspending Respondent's sales associate's license for a period of one year for the violation established in Count II of the Administrative Complaint. DONE AND ENTERED this 21st day of September, 2007, in Tallahassee, Leon County, Florida. S LAWRENCE P. STEVENSON Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 21st day of September, 2007.
The Issue Whether Respondents committed the offenses alleged in the Administrative Complaint and the penalties, if any, that should be imposed.
Findings Of Fact Petitioner is a state licensing and regulatory agency charged with the responsibility and duty to prosecute administrative complaints pursuant to the laws of the State of Florida, in particular, Chapters 455 and 475, Florida Statutes, and Title 61J2, Florida Administrative Code. At all times pertinent to this proceeding, Respondent, Gerry Sullivan & Associates Realty, Inc., was a corporation registered as a real estate broker in the State of Florida, having been issued license number 0215569 in accordance with Chapter 475, Florida Statutes. The last license issued for that corporation was at the address of 7169 West Broward Boulevard, Plantation, Florida. At all times pertinent to this proceeding, Respondent, Geraldine R. Sullivan, was a licensed real estate broker in the State of Florida, having been issued license number 0086238 in accordance with Chapter 475, Florida Statutes. At all times pertinent to this proceeding, Respondent, Geraldine R. Sullivan, was the qualifying broker and office manager of the corporate Respondent. At all times pertinent to this proceeding, Jim Sullivan and Pamela Sullivan were real estate salespersons in the State of Florida and employed by the corporate Respondent. Jim Sullivan is the son of Geraldine R. Sullivan and the husband of Pamela Sullivan. On June 16, 1997, Elaine P. Martin entered into a listing agreement with the corporate Respondent to sell her condominium for the price of $32,900. The listing agreement provided for the seller (Ms. Martin) to pay a brokerage commission of 6% that would be reduced to 5% if Jim Sullivan or Pamela Sullivan found the buyer without the involvement of another broker. The listing agreement also provided that Ms. Martin would pay a processing fee in the amount of $150.1 The listing agreement did not refer to a transaction fee.2 Ms. Martin did not agree to pay any fees other than the commission and the processing fee. In 1996, the corporate Respondent began a practice of charging sellers in certain transactions a fee, referred to as a transaction fee, that was in addition to the processing fee and the commission. The transaction fee was used by the salesperson to pay the salesperson's "facilitator," a person employed by the salesperson to run errands to facilitate the closing of the transaction. Examples of the type errands performed by the facilitator included meeting persons at the property to perform inspections and delivering documents. The practice of charging a transaction fee was not uncommon in Broward County, but it was not standard practice. Whether a particular seller would be charged a transaction fee depended, in part, on the listing salesperson. Typically, if a salesperson employed by the corporate Respondent did not us a facilitator, no transaction fee would be charged. The minutes of the Florida Real Estate Commission for July 16-17, 1996, contain the following entry: It was decided that as long as there is disclosure to all parties involved, the transaction fees indicated on closing statements is not a violation of F.S. 475. The customary practice of the corporate Respondent in June of 1997 was for its salesperson to complete a "net sheet" at the time the listing agreement is executed. The "net sheet" is a good faith estimate of the seller's expenses and reflects the estimated amount the seller will net from the transaction. The evidence established that Respondent, Geraldine R. Sullivan, and Pamela Sullivan could not locate in the Martin file a net sheet was prepared on or about the time Ms. Martin executed the listing agreement on June 16, 1997. From that evidence, and from the testimony of Ms. Martin, it is found that Jim Sullivan did not complete a net sheet when he and Ms. Martin executed the listing agreement. The listing agreement created a principal/agent relationship between Ms. Martin, as the seller, and the corporate Respondent, as the agent. At all times pertinent to this proceeding, the corporate Respondent and Geraldine R. Sullivan, as the qualifying broker of the corporate Respondent, were the agents of Ms. Martin and owed her the fiduciary duties of an agent. In connection with the subject listing agreement, Ms. Martin executed an Agency Disclosure Statement which set forth the fiduciary duties owed by the agent to the principal, in pertinent part, as being the ". . . fiduciary duties of loyalty, confidentiality, obedience, full disclosure, accounting and the duty to use skill, care and diligence." In addition, the statement set forth that the agent owed the duty of honesty and fair dealing.3 A buyer working through another real estate broker made an offer to purchase the Martin property for the sum of $30,000. The offer, dated June 22, 1997, was presented to Ms. Martin by Pamela Sullivan. Because another real estate broker was involved, the real estate commission was based on 6% of the sales price. On June 22, 1997, Pamela Sullivan discussed the offer with Ms. Martin by telephone and informed her, for the first time, of the transaction fee. Later that day, Pamela Sullivan and Ms. Martin met and Pamela Sullivan prepared a "net sheet" that reflected the seller's estimated closing costs. The transaction fee in the amount of $3004 was reflected on the net sheet as an expense of the seller. As of June 22, 1997, Pamela Sullivan knew or should have known that the file on the Martin transaction maintained by her office did not contain a net sheet that was executed at the same time the listing agreement was executed. Prior to signing the contract or the net sheet on June 22, 1997, Ms. Martin placed a question mark next to the line on which the transaction fee was disclosed. Ms. Martin questioned the charge because she did not understand what was being done to earn that fee. Ms. Martin did not accept the explanations Pamela Sullivan gave for the transaction fee. Ms. Martin thereafter had Pamela Sullivan insert the following as a special condition of the contract: The seller reserves the right to have her attorney review the contract at his earliest opportunity. After the special condition was signed, Ms. Martin signed the contract and the net sheet. The net sheet was intended to be informational. By signing the net sheet, Ms. Martin did not intend to agree to pay the $300 transaction fee. Ms. Martin did not agree in writing or verbally to pay the transaction fee. Between June 22 and June 25, 1997, Pamela Sullivan, on behalf of the corporate Respondent, reduced the amount of the claimed transaction fee from $300 to $200. Following the execution of the Sales Contract, Ms. Martin had her attorney review the contract and the net sheet. Ms. Martin informed her attorney by memo dated June 25, 1997, in pertinent part, as follows: . . . We disputed the Transaction Fee of $300.00 and Century 21 lowered it to $200. We asked Pam Sullivan for a break down (sic) on the $200.00 cost. She refused to provide any; stated it was the cost of doing business. Since the housing prices in Broward County have not increased, they charge this extra fee along with their normal commission. . . . Ms. Martin sent a copy of her memo to Pamela Sullivan. Ms. Martin's attorney accepted the sales contract without any changes and informed her that he would address the issue of the transaction fee at the time of the closing. On the day of the closing, Ms. Martin's attorney telephoned Respondent, Geraldine R. Sullivan, to discuss the transaction fee. Geraldine R. Sullivan would not agree to waive the transaction fee after she learned that there was a signed net sheet. She did not realize that there was no net sheet prepared when the listing agreement was first executed. This was the only direct dealing Respondent, Geraldine R. Sullivan, had with this transaction. Between June 25, 1997, the date of Ms. Martin's memo, and July 7, 1997, the date of the closing, neither Ms. Martin nor her attorney voiced additional objection to the transaction fee.5 The transaction closed on July 7, 1997. The sum of $200, representing the amount of the disputed transaction fee, was placed in escrow by the closing agent, where it remained at the time of the formal hearing. All other fees and costs were paid at closing, including a brokerage commission of $1,800 (which was split with the realtor representing the buyer) and a processing fee of $150 (which was retained by the corporate Respondent).
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered that finds the corporate Respondent guilty of violating Section 475.25(1)(b), Florida Statutes, and finds Geraldine R. Sullivan not guilty of that charge. It is further RECOMMENDED that the corporate Respondent be reprimanded and fined in the amount of $1,000. DONE AND ENTERED this 4th day of August, 1998, in Tallahassee, Leon County, Florida. CLAUDE B. ARRINGTON 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 Filed with the Clerk of the Division of Administrative Hearings this 4th day of August, 1998
The Issue Whether the Petitioner, Edward J. Miller, is entitled to be licensed as a resident life and variable annuity insurance agent.
Findings Of Fact The Petitioner, Edward J. Miller, is employed at Washington Mutual Bank. His supervisor is Tracy Tarach. It was Ms. Tarach's desire that Mr. Miller become licensed as a resident life and variable annuity insurance agent. To that end, she and Mr. Miller filed the necessary papers with Washington Mutual Bank to approve the application process as well as the course to become licensed. The process of having the bank issue the check to cover the licensing procedure was timely. Additionally, the Petitioner could only be scheduled for the licensure class and completion of the licensing process when the bank took favorable action on the request. Accordingly, for this Petitioner the licensing process was dragged out over the course of several months. In January 2003 the Petitioner completed the state application for licensure but did not transmit it to the state. He submitted the request to the bank for course approval and planned to submit the paperwork when it was successfully completed. At that time, the Petitioner did not have any criminal charges pending against him and the answers noted on the application were all correct and truthful. In February 2003 the Petitioner was stopped for DUI. The next workday the Petitioner went to his supervisor and fully disclosed the arrest as well as the charge. The Petitioner made no effort to hide the arrest from his employer and the employer considers the Petitioner a valuable employee, despite the incident. In March 2003 the Petitioner was formally charged with DUI, a misdemeanor. Meanwhile, the bank approved the Petitioner's request to take the course for licensure. The forty-hour course in another work location required the Petitioner to travel to the school site and reside in a hotel for a week while the course work was completed. Obviously the Petitioner's supervisor was willing to invest the costs of licensure school and accommodations for the Petitioner with full knowledge of the Petitioner's pending criminal matter. After successfully completing the licensure course in April 2003 the Petitioner submitted the license application to the state. He failed to double-check the forms. He failed to correct an answer that was now incorrect. That is, he failed to fully disclose the arrest. Subsequently, the criminal case went to hearing, and the Petitioner entered a plea and was placed on probation. The resolution of the DUI charges was completed after the application was submitted. Section 3 of the license application asks several screening questions of applicants for licensure. Applicants are required to answer "yes" or "no", depending on the information sought. In this case, it is undisputed that the Petitioner failed to correct his answers to the questions posed in Section 3. More specifically, the Petitioner failed to truthfully disclose that he had been arrested for DUI. This failure was an oversight on the Petitioner's part, and not intended to deceive the Department. The answers should have been corrected when the Petitioner amended the application form to include the information regarding his completion of the Gold Coast School of Insurance class on April 11, 2003. He did not do so. When the Department reviewed the Petitioner's application and discovered the false answer, it took action to deny the licensure request. That denial was entered on January 22, 2004. A notice of the denial was provided to the Petitioner and he timely challenged the proposed action. On October 31, 2003, the Petitioner completed all of the terms of his court-ordered probation and the entire DUI incident was put to rest.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Financial Services enter a Final Order granting the Petitioner's application for licensure. DONE AND ENTERED this 30th day of July, 2004, in Tallahassee, Leon County, Florida. S ___________________________________ J. D. PARRISH 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 30th day of July, 2004. COPIES FURNISHED: Honorable Tom Gallagher Chief Financial Officer Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Pete Dunbar, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Dana M. Wiehle, Esquire Department of Financial Services 612 Larson Building 200 East Gaines Street Tallahassee, Florida 32399 Edward J. Miller 6205 Northwest West Deville Circle Port St. Lucie, Florida 34986
The Issue The issue for determination in this proceeding is whether Petitioner is entitled to reimbursement for underpayment of Medicaid expenses, and, if so, the amount of such underpayment.
Findings Of Fact Some of the findings of fact relevant to this proceeding have been determined in two previous administrative proceedings, a federal district court case, and a federal bankruptcy action. The findings of fact made in the prior administrative and civil cases are discussed in the background of this proceeding. Background Petitioner is a wholly owned subsidiary of Suburban Nursing and Mobile Homes, Inc., of Ohio ("Suburban"). Suburban is a holding company which owns the stock of numerous corporations engaged in the operation of nursing homes or mobile home parks. At all times material to this proceeding, the stock of Suburban was owned or controlled by the late Gerald D. Keller and members of his family ("Keller"). Petitioner's assets include the land, buildings, and equipment used in the operation of Krestview Nursing Home ("Krestview") and Towne House Convalescent Center ("Towne House"). Krestview and Towne House are located in the greater metropolitan area of Miami, Florida. Prior to May 5, 1977, Krestview and Towne House were operated by the Wilson management group ("Wilson"). Wilson fell on dire financial straits. Criminal charges were pending against Wilson, and the closure of Krestview and two other nursing homes managed by Wilson was imminent. In an effort to avoid closure of the nursing homes, Respondent contacted Keller and asked if Keller would operate the nursing homes threatened with closure until a qualified operator could be located. A primary consideration underlying Respondent's request was the high mortality rate that could be expected if large numbers of elderly patients were relocated to other nursing homes. B & K Investments, Inc. ("B & K") was a Florida corporation wholly owned by Suburban on May 5, 1977. B & K had a current registration, a federal tax number, and the qualified personnel required to operate the nursing homes. At tile request of Respondent, B & K became the licensed provider for Krestview and Towne House. The land, buildings, and equipment used to operate Krestview and Towne House were leased to B & K by Petitioner. The lease to Wilson was terminated and new lease was executed by B & K and Petitioner. B & K agreed to a net lease containing substantially the same terms as the lease to Wilson. Under the terms of the net lease, the lessee in possession was required to pay all taxes and insurance premiums on real and personal property used in the operation of Krestview and Towne House. B & K incurred expenses for legal fees in the successful defense of an action brought by a labor. The labor union brought the action to prevent B & K from taking over the operation of Krestview and Towne House unless B & K assumed the collective bargaining obligations of its predecessor. Local 1115 Joint Bd. Nursing Home v. B & K Investments, 436 F.Supp 1203 (S.D. Fla. 1977) [hereinafter, "Local 1115"]. An agreement was entered into between B & K and Respondent for the operation of the nursing homes by B & K. The agreement provided that B & K would have no liabilities for debts or obligations attributable to the prior period of operation by Wilson. B & K paid the real property taxes for 1976 and the allocable portion of real property taxes for 1977 that were owed by Wilson for the prior period of operation. Respondent refused to reimburse B & K for those expenses even though the lease required a lessee in possession to pay property taxes and even thought payment of such taxes was a practical necessity to prevent a tax sale and subsequent redemption of the tax certificate. A formal hearing was conducted by Hearing Officer Ken Ayers to determine whether B & K should be reimbursed for the payment of real property taxes for 1976 and 1977. A Recommended Order in Division of Administrative Hearings Case No. 79-720 was entered on November 27, 1979. The Order recommended that B & K should not be reimbursed for real property taxes attributable to the prior period of operation by Wilson. The findings of fact and conclusions of law in the Recommended Order were adopted by Respondent in a Final Order entered on December 13, 1979, in Department of Health and Rehabilitative Services v. B & K Investments, Inc. d/b/a Krestview Nursing Home, and G & J Investments Corp., 2 F.A.L.R. 111-A (Fla. Dept. of Health and Rehabilitative Servs.) [hereinafter, "HRS v. B & K"]. B & K operated Krestview and Towne House from May 5, 1977, through August 31, 1977, while it was related by stock ownership to Petitioner. Medicaid rules prohibited the payment of rent by a provider to a landlord that was a related-party. B & K and Petitioner were related sibling corporations. The stock of the two corporations was owned by a common parent. Respondent disallowed the reimbursement of expenses for rent paid to a related party, and & K requested a formal hearing. The issue was resolved in the same formal hearing that was conducted to resolve the issue of whether B & K should be reimbursed for payment of real property taxes owed by Wilson. In HRS v. B & K, it was determined that. B & K should not be reimbursed for expenses incurred for rental payments to a related party. All of the stock of B & K was sold to an unrelated party to eliminate any conflict with Medicaid rules. The B & K stock was sold to Crestwood Care Centers of Florida, Inc. ("Crestwood") in an arms-length transaction completed on August 31, 1977. Respondent executed a conditional provider agreement for the operation of Krestview on November 14, 1977. An unconditional provider agreement for the operation of Krestview was executed by Respondent on December 19, 1978. 4/ The provider agreements authorized the operation of the two facilities pursuant to a Medicaid plan developed by the state and approved by the federal government (the "Medicaid plan"). Respondent amended its Medicaid plan on October 1, 1977. The amended plan adopted a "prospective" method of reimbursement and repealed the "retrospective" method of reimbursement previously applied by Respondent. /5 The provider agreements executed by Respondent after it amended its Medicaid plan specifically authorized the retroactive method of reimbursement. /6 The relationship between B & K and Respondent became increasingly strained. A medicaid audit evaluation and review analyst for Respondent speculated that, ". . . the Ohio group would get out of the business in Florida.' Respondent had complete control of B & K's sole source of cash flow for the operation of Krestview and Towne House. 7/ Respondent substantially affected B & K's cash flow by setting reimbursement rates inconsistently during 1978 and 1979, and by withholding Medicaid reimbursement payments of approximately $700,000 between July 1, 1979, and August 31, 1979. B & K sought protection in bankruptcy court in an emergency proceeding precipitated by Respondent. B & K filed a petition in bankruptcy on August 3, 1979. The primary asset of B & K was the money allegedly due from Respondent for unreimbursed Medicaid expenses. The bankruptcy trustee determined that cost reports required by Respondent for reimbursement of such expenses should be submitted if they could be prepared. For numerous reasons, the cost reports required considerable time and effort to prepare. They were eventually filed on February 7, 1983, for review and audit by Respondent. Respondent returned the cost reports submitted by Petitioner for the reasons stated in Respondent's letter dated March 25, 1983. First, Respondent alleged that the cost reports were filed after the end of the fiscal year of B & K. Second, Respondent claimed that the cost reports could only be used to set a new rate for the month following the filing of the cost report. Third, a retroactive payment allegedly could not be made to a facility with costs exceeding annual payments. Finally, the cost reports allegedly had been subject to a final audit by Respondent and the provider or bankruptcy trustee failed to timely file its request for hearing after the final audits were issued. The bankruptcy trustee desired to close the bankruptcy proceeding and assigned its interest in the claim for unpaid Medicaid reimbursements to Petitioner. Petitioner requested a formal hearing to contest Respondent's refusal to review and audit the cost reports. A formal hearing was conducted by Hearing Officer Sharyn L. Smith on October 14, 1983, to determine whether Respondent should accept the cost reports for review and audit. The Recommended Order in Division of Administrative Hearings Case No. 83-1769 entered on February 6, 1984, recommended that Respondent should accept the cost reports for review and audit. The findings of fact and overall recommendation of the Hearing Officer were adopted by Respondent in the Final Order in G & J Invs. Corp. v. Department of Health & Rehabilitative Servs., 6 F.A.L.R. 3788 (Fla. Dept. of Health & Rehabilitative Servs.), appeal dismissed, No. BA-57 (Fla. 1st DCA Nov. 5, 1984) [hereinafter "G & J v. HRS"]. The Final Order stated that all other conclusions of law were rejected. The parties in G & J v. HRS and in this proceeding are identical. On August 22, 1984, all of the cost reports were submitted for review and audit by Respondent in accordance with the Final Order entered in G & J v. HRS. Three cost reports were submitted for Krestview for the fiscal years ending May 31, 1978, and May 31, 1979, and for the three month period ending August 31, 1979. Two cost reports were submitted for Towne House for the fiscal year ending May 31, 1979, and for the three month period ending August 31, 1979. The cost report submitted for the fiscal year ending May 31, 1978, replaced the cost report originally submitted for the same period. Respondent reviewed and audited the cost reports for Krestview and Towne House, allowed a substantial portion of the claimed expenses, and made various adjustments and disallowances with regard to the remaining expenses (the "audit adjustments"). The reasons for the audit adjustments and the amount of the audit adjustments are set forth in the final audit reports prepared by Respondent. Audit reports for Krestview for the fiscal years ending May 31, 1978, and May 31, 1979, and for the three month period ending August 31, 1979, are referred hereinafter, respectively, as "EAR 5/31/78", "EAR 5/31/79", "EAR 8/31/79", Audit reports for Towne House for the fiscal year ending May 31, 1979, and for the three month period ending August 31, 1979, are referred to hereinafter, respectively, as "TAR 5/31/79" and "TAR 8/31/79". Amounts At Issue Respondent disallowed expenses in the aggregate amount of $1,748,636. Petitioner claims that it has been underpaid in the aggregate amount of $528,879 after deduction for certain disallowances admitted by Petitioner prior to the formal hearing and after reduction for mandatory limits imposed on Medicaid expenses by applicable law. Respondent claims that an overpayment was made to B & K in the aggregate amount of $1,125,910.10 Respondent asserts the overpayment as a setoff against Petitioner's claim for underpayment in the amount of $528,879. 5.02(a) Property Related Expenses Property related expenses comprised the largest portion of total expenses disallowed in the amount of $1,748,636. Some property related expenses were disallowed for more than one reason. 5.02(a) (1) Section 1122 Property related expenses, including rent, taxes, interest, depreciation, and insurance, were disallowed `by Respondent in the aggregate amount of $962,426. 11/ One of the reasons for disallowing all property related expenses included the alleged use of federal funds for capital expenditures in violation of Section 1122 of Public Law 92-603 (1972) (referred to hereinafter as either "Section 1122" or the "Section 1122 issue"). Section 1122 generally prohibits the use of federal funds by Medicaid providers for capital expenditures in excess of $100,000 without the prior approval of the then Department of Health, Education and Welfare ("HEW"). /12 Property related expenses in the amount of $575,925 /13 were disallowed solely on the basis of the Section 1122 issue. Property related expenses in the amount of $386,501 were disallowed for reasons in addition to the Section 1122 issue. Resolution of the Section 1122 issue in favor of Respondent, therefore, would dispose of a substantial portion of the disallowances involving property related expenses but not all of those disallowances. 5.02(a) (2) Other Disallowances Property related expenses in the amount of $386,501 were disallowed for reasons in addition to the Section 1122 issue. Respondent disallowed $202,680 for the additional reason that there was no actual payment of the individual items comprising that amount. /14 Expenses in the amount of $111,344 were disallowed as payments to a related party. /15 Respondent disallowed expenses in the amount of $42,029 because they were allegedly attributable to a "prior period". /16 The disallowance of this amount is a single entry in KAR 5/31/78. The period prior to the period covered by KAR 5/31/78 was the period of operation by Wilson. The "prior period" in EAR 5/31/78, therefore, refers to the period of operation by the previous provider. Finally, property related expenses in the amount of $30,448 were disallowed as insufficiently documented. /17 Property related expenses that were disallowed for insufficient documentation comprise only a portion of the total expenses disallowed as insufficiently documented. Expenses unrelated to property were also disallowed as insufficiently documented. 5.02(b) Expenses Unrelated To Property Disallowances in the amount of $786,210 involve expenses unrelated to property. Expenses unrelated to property were disallowed either for lack of documentation or for other reasons. 5.02(b) (1) Documentation Expenses unrelated to property were disallowed in the amount of $445,479 on the grounds that they were insufficiently documented. Respondent claims that documentation of expenses in the amount of $274,081 was insufficient with respect to the expenses, their relationship to patient are, or both. /18 Other expenses unrelated to property which were disallowed as insufficiently documented included accrued employee expenses in the amount of $99,163, /19 the allocation of expenses from the home office to the provider in Florida in the amount of /20 $25,311, and various other expenses in the aggregate amount of $46,924. When the amount of property related expenses and expenses unrelated to property are taken into account, expenses in the aggregate amount of $475,927 were disallowed for insufficient documentation. 5.02(b) (2) Other Disallowances Expenses unrelated to property were disallowed in the amount of $340,731 for reasons other than the lack of documentation. The reasons given in the audit reports for such disallowances were varied. Expenses in the amount of $51,310 were disallowed as either not accrued, accrued but not paid, or both. 21 When property related expenses and expenses unrelated to property are taken into account, expenses in the amount of $253,990 were disallowed as either not accrued, accrued but not paid, or both. / 22 Expenses in the amount of $34,456 were disallowed as attributable to the previous "owner" of Krestview and Towne House. /23 However, ownership of the physical assets required to operate Krestview and Towne House, including the land, buildings, and equipment was never transferred from Petitioner. Nor was the stock of Petitioner ever transferred from its parent. The reference in the audit reports to the previous "owner" of Krestview and Towne House, therefore, is construed to mean the previous provider who used the land, buildings, and equipment owned by Petitioner to operate Krestview and Towne House, i.e., Wilson. Legal fees in the amount of $26,804 were disallowed by Respondent as not related to patient /24 Respondent claims that the legal fees were incurred by the provider in connection with a union matter in which the provider was found to be in violation of the National Labor Relations Act. Expenses disallowed in the amount of $42,079 were attributed by Respondent to adjustments to the providers return on equity. /25 Disallowances to adjust the provider's return on equity were made as a result of disallowances based on the Section 1122 issue. Respondent disallowed expenses allocated from the provider's home office in the amount of $67,575 as non-reimbursable even though such expenses were sufficiently documented. /26 Expenses claimed by Krestview in the amount of $37,994 were disallowed as related to Towne House but not otherwise allowable ("allocations between facilities") /27 Expenses in the amount of $34,607 were disallowed as already paid, covered by another program, a previously entered expense, or attributable to a prior period ("already paid or covered by another program") 23 Expenses unrelated to property were disallowed in audit reports other than KAR 5/31/78 as attributable to a "prior period." The periods preceding audit reports subsequent to EAR 5/31/78 do not necessarily include either the period prior to the transfer of operations to B & K or the period prior to the transfer of B & K stock to an unrelated party. The meaning of the reference in the subsequent audit reports to a "prior period," therefore, is ambiguous and is an issue that Petitioner is required to prove. Expenses in the amount of $22,046 were disallowed for the purpose of making adjustments in the cost. /29 Expenses in the amount of $5,446 were disallowed as either personal or imprudent. /30 Expenses in the amount of $3,265 were disallowed as related to depreciation or improvements to /31 property. The audit reports do not state whether the property improved or the property subject to depreciation is real property or personal property. That is an issue Petitioner is required to prove. Expenses in the amount of $5,968 were disallowed as unrelated to the business of the provider. /32 Finally, expenses in the amount of $9,181 were disallowed to offset other income of the provider. /33 Adjustments to expenses in the amount of $204,785 were allowed but reclassified to different cost centers. /34 Those adjustments are not at issue in this proceeding. 5.02(c) Limitation Of Amounts At Issue Petitioner claims that it has been underpaid in the net amount of $528,879. The net amount of underpayment claimed by Petitioner represents the amount of underpayment after total expenses disallowed by Respondent in the amount of $1,748,636 are reduced by the amount of disallowances admitted by Petitioner and by the amount of mandatory limits on Medicaid expenses. Petitioner's failure to address certain issues during the formal hearing further limited the issues and the amounts of the issues to be determined in this Recommended Order. 5.02(c) (1) Disallowances Admitted By Petitioner Petitioner admitted prior to and during the formal hearing that Respondent properly disallowed expenses in the aggregate amount of $304,305.34. Disallowances admitted by Petitioner are comprised of expenses disallowed for insufficient documentation in the amount of $131,168.34, and other expenses disallowed in the aggregate amount of $173,137. Other expenses in the amount of $173,137 involve both property related expenses and expenses unrelated to property. Petitioner admitted that property related expenses in the amount of $111,344 were properly disallowed as payments to a related party and that expenses in the amount of $42,029 were properly disallowed as attributable to a prior period. Petitioner admitted that expenses unrelated to property in the amount of $19,764 were properly disallowed. /35 5.02(c) (2) Mandatory Limitations On Medicaid Expenses The net amount of underpayment claimed by Petitioner was determined after reductions for mandatory limits on Medicaid expenses. The actual gross amount of underpayment claimed by Petitioner is $698,875. Petitioner admits, however, that the gross amount of underpayment should be reduced by $169,996 as a result of "ceilings" or "caps" imposed by applicable statutes and rules. The net amount of underpayment claimed by Petitioner after reduction for such mandatory limits on Medicaid expenses is $528,879. 5.02(c) (3) Pretermitted Issues The issues to be determined in this Recommended Order and the amounts of those issues are limited to issues which satisfy two conjunctive tests. First, the issues must not have been admitted prior to the formal hearing. Second, the issues must have been addressed by Petitioner during the formal hearing. Issues not addressed by Petitioner during the formal hearing need not be determined on their merits but may be determined summarily as a threshold matter ("pretermitted issues") /36 Petitioner admitted prior to the formal hearing that disallowances in the amount of $304,305.34 were proper. Disallowances in the amount of $1,444,330.66 were not admitted prior to the formal hearing and formed the basis for the underpayment claimed by Petitioner in gross and net amounts of $698,875 and $528,879. /37 Pretermitted issues involved only expenses unrelated to property disallowed in the aggregate amount of $81,405.66. The aggregate amount of pretermitted issues is comprised of the following individual amounts and disallowances: (a) $14,692 disallowed as attributable to the previous owner; /38 (b) $20,807.66 disallowed as already paid or covered by another /39 program; (c) $22,046 disallowed as adjustments to cost reports; (d) $5,446 disallowed as personal or imprudent; (e) $3,265 disallowed as depreciation and improvements; (f) $5,968 disallowed as unrelated to the business of the provider,; and (g) $9,181 disallowed as an offset against other income. 5.02(d) Expenses At Issue The issues remaining to be determined in this Recommended Order involve both property related expenses and expenses unrelated to property in the aggregate amount of $1,362,925. That amount is comprised of the following individual amounts and disallowances (the "expenses at issue"): (a) property related expenses and expenses unrelated to property disallowed in the amount of $344,758.66 as insufficiently documented; (b) expenses unrelated to property disallowed in the amount of $67,575 as improper allocations from the home office; (c) expenses unrelated to property disallowed in the amount of $37,994 as improper allocations between facilities; (d) expenses unrelated to property which were disallowed in the amount of $13,799.34 as already paid or covered by another program; /40 (e) legal fees unrelated to property disallowed in the amount of $26,804; (f) property related expenses disallowed in the amount of $575,925 solely on the basis of Section 1122; (g) expenses unrelated to property disallowed in the amount of $42,079 as adjustments to return on equity; and (h) property related expenses and expenses unrelated to property disallowed in the amount of $253,990 as either not accrued, accrued but not paid, or both. Bankruptcy B & K filed a petition in bankruptcy on August 3, 1979, in the United States District Court for the Southern District of Florida, Bankruptcy No. 79- 925-BK-JE-B (the "bankruptcy proceeding"). The bankruptcy proceeding was conducted pursuant to Chapter 7 of the Bankruptcy Code of 1978 (the "Bankruptcy Code") /41 A Discharge of Bankrupt was entered on November 15, 1979. A final decree closing the bankruptcy file was entered on August 26, 1987. 5.03(a) The Bankrupt Estate Claims against the bankrupt estate included claims filed by Respondent and Petitioner. Respondent filed proof of claim in the amount of $1,179,278.51. Petitioner filed a proof of claim for administrative expenses in the amount of $35,000, a priority claim for unpaid rent in the amount of $105,000, and a non-priority claim for unpaid rent in the amount of $292,750.65. No objection was made to any of the unsecured claims. Funds in the bankrupt estate were sufficient to pay only priority claims. The bankrupt estate included two assets. One asset consisted of the bankrupt's interest in two nursing homes that housed approximately 320 Medicaid patients i.e., Krestview and Towne House. The other asset consisted of the bankrupt's claim for monies due and owing from Respondent for the underpayment of Medicaid reimbursement payments.. All right, title, and interest of B & K in the assets of the estate passed to the bankruptcy trustee when the petition in bankruptcy was filed. The claim against Respondent for unreimbursed Medicaid expenses became the property of the estate. B & K ceased to be the real party in interest for purposes of enforcing the claim against Respondent. The bankruptcy trustee had the duty of enforcing B & K's claim against Respondent. /42 The bankrupt's interest in Krestview and Towne House was abandoned by Order of Abandonment entered by the bankruptcy court on August 31, 1979. The trustee was relieved of all further responsibilities for the custody and operation of both nursing homes. The claim for monies due from Respondent was retained as the sole asset of the bankrupt estate. The amount of that claim required approximately three years to document and determine. 5.03(b) Preparation Of Cost Reports The bankruptcy trustee determined that cost reports required by Respondent for Krestview and Towne House should be submitted if they could be prepared. The bankruptcy trustee was unable to make sense of the books and records of the bankrupt to the point where the trustee felt she could make a claim for monies due from Respondent. B & K was unable to pay its accountant to prepare the cost reports required by Respondent. The bankruptcy trustee recommended to the court that the cost reports should be prepared on a contingency fee basis by Nursing Home Consultants, Inc. ("Consultants"). Consultants is an Ohio corporation engaged in the business of providing accounting services to health care organizations and a wholly owned subsidiary of Suburban. /43 The proposal to have Consultants prepare. the cost reports on a contingent basis was accepted by the bankruptcy court. An order appointing Consultants to prepare the cost reports was entered on January 11, 1980. Faced with court action, B & K's accountant eventually relinquished his work papers in December, 1980. In the words of the bankruptcy court, ". . . this pile of books . . ." was turned over to Consultants ". . . to audit the books and file the claims and press the claims." Preparation of the cost reports required by Respondent was a long and arduous task. It required checks to be matched to invoices and patient records to be verified. The first cost report was completed by Consultants in July, 1981, forwarded to the bankruptcy trustee, and filed with Respondent. Respondent returned the cost report to Consultants because the signatory of the cost report was not a certified public accountant in Ohio. Consultants obtained the required signature and returned the cost report to Respondent. 5.03(c) Assignment To Petitioner All of the cost reports had not been completed in July, 1982. Both the bankruptcy trustee and the bankruptcy judge desired to close the bankruptcy estate and ascertain what, if any, assets were available. Petitioner offered to purchase the interest of the bankruptcy trustee in the claim of the bankrupt against Respondent for unreimbursed Medicaid expenses. Petitioner's offer was accepted by the trustee and ratified and approved by the bankruptcy court on September 24, 1982. 5.03(c)(1) Consideration Paid The consideration paid by Petitioner to acquire the interest of the bankruptcy trustee included both cash and non-cash elements. Petitioner paid $5,000 in cash and agreed not to exercise its legal right to take action in the bankruptcy proceeding to recover priority claims for unpaid rent in the amount of $105,000 and administrative expenses in the amount of $35,000. Petitioner also agreed not to exercise its legal right to take action in the bankruptcy proceeding to recover the non-priority claim for unpaid rent in the amount of $292,750.65. Petitioner's offer was approved by the bankruptcy court, and Petitioner's claims were stricken by Order On Objections To Claims entered on March 11, 1983. 5.03(c) (2) Asset Acquired The asset acquired by Petitioner is reflected in the five cost reports submitted for review and audit by Respondent. Petitioner's written offer to the bankruptcy trustee stated that: the cost reports, and figures extrapolated therefrom, reflect an `asset' of the bankrupt in the form of monies dub and owing from the State of Florida. The bankruptcy trustee filed a Motion For Rule To Show Cause on or before August 25, 1982 (the "Motion"). The Motion requested the bankruptcy court to enter an order to show cause why the offer by Petitioner should not be accepted by the bankruptcy trustee. The Motion expressly incorporated by reference the terms of Petitioner's written offer and made the written offer part of the Motion. The Motion was approved by the bankruptcy court by Order On Rule To Show Cause entered on September 24, 1982. The Order On Rule To Show Cause expressly incorporated the terms of Petitioner's written offer attached to the Motion. The Order On Rule To Show Cause, in relevant part, provides: That the offer made by [Petitioner], a copy of said offer more specifically detailed and attached to the Trustee's . . . Motion, be and the same is hereby ratified and approved. 5.03(c)(3) Respondent And The Bankruptcy Court Respondent appeared at a hearing conducted on September 23, 1982, to determine whether Petitioner's offer should be accepted. Respondent's objection to the assignment was specifically denied, and Respondent did not appeal the order approving the assignment. The transcript of the hearing reveals that Respondent urged the bankruptcy court to retain the claim for the benefit of all creditors. The bankruptcy court noted that the only asset of the bankrupt was the claim for unreimbursed Medicaid payments. In an exchange between counsel for Respondent and the court, the court said: a claim is a puff of wind until it is translated by a capable attorney into proof and argument, against a solvent Defendant, to the point where it becomes money. . The [Petitioner] has . . . an administrative claim . . . for some $35,000, and . . . a priority rent claim of $105,000. /44 [The Petitioner] is willing to cancel those two and also pay $5,000 to the estate. In other words, the estate has a $145,000 bird in the hand. You urge me to tell this trustee to let that bird fly away and attempt, perhaps for the next two years, to see if this trustee can get anything on these accounts You give me a very hard choice. /45 The hard choice presented by Respondent in that case was rejected by the bankruptcy court. 5.03(d) Continued Preparation Of Cost Reports After the first cost reports were submitted to Respondent, Respondent notified Consultants that the cost reports were not in acceptable form and that additional information would be required, including balance sheets and revenues for Crestwood. Consultants began again to gather the additional information requested by Respondent. Petitioner filed cost reports containing the additional information on February 7, 1983. Respondent declined to accept the cost reports for review and audit. An administrative proceeding was conducted to determine whether Respondent should accept the cost reports. Respondent agreed to accept the cost reports in G & J v. HRS. The cost reports claimed an underpayment in the gross amount of $745,037 and an underpayment in the net amount of $359,229, after taking into account applicable ceilings on allowable expenses. Neither the gross nor the net amounts of the claimed underpayment included the cost report for Krestview for the fiscal year ending on May 31, 1978. Petitioner prepared a revised cost report to replace the original cost report submitted by B & K on November 1, 1978. /46 Documentation Petitioner sufficiently documented expenses disallowed by Respondent in the aggregate amount of $344,758.66. Documented expenses consisted of those disallowed in the amount of $25,990.66 in KAR 5/31/78, $140,329 in KAR 5/31/79, $128,006 in KAR 8/31/79, $26,330 in TAR 5/31/79, and $24,103 in TAR /47 8/31/79. Petitioner documented the amount of the expense, its relation to patient care, and the record of payments from Respondent /48 5.04(a) Amount Of The Expense Petitioner documented the amount of the disallowed expenses with records that included either original invoices, cancelled checks, or both. The records also included supporting information such as delivery receipts and receiving reports signed by employees of Krestview and Towne House. The delivery receipts and receiving reports showed that goods and services issue in this proceeding were received. The delivery receipt also contained the number of the cancelled check used to pay for the goods or services delivered. The cancel led check was verified against paid invoices. Many invoices were not located at the time the records were reviewed by field auditors because they were misfiled or filed in accordance with an unknown filing system. The records were voluminous and filled approximately 50 boxes. The records included books of original entry, original invoices, cancelled checks, personnel records, payroll records, payroll journals, pay claim listings, and other supporting documentation from which costs of operation were determined. The records originally obtained from the bankruptcy trustee were in such a state that Consultants had to completely reconstruct the operation of Krestview and Towne House. The records were first sorted into logical groups. Then cash accounts were reconciled to each account for each reporting period covered in each cost report. Each check was listed by number, amount, identity of vendor, and category. Consultants contacted the suppliers and purveyors for each facility to review their records for the years in question. Information was also obtained from federal, state, and county agencies, including the Medicare/Medicaid intermediary. The information obtained from government agencies included: computer printouts of reimbursement checks, vendor payment checks, and patient activity records from Respondent; all invoices from the Dade County Department of Human Resources, Health Services Division; and B & K's banking records. The records and the cost reports prepared from those records were reviewed and tested by certified public accountants in accordance with generally accepted auditing standards ("GAAS"). The examination included tests of the accounting records and other auditing procedures considered necessary under the circumstances. /49 Petitioner is the custodian of the records used to document the expenses claimed in the cost reports pursuant to the order of the bankruptcy court. The records were delivered to Mrs. Ruth Eldridge at Consultants by the CPA for B & K pursuant to the order of the bankruptcy court. Mrs. Eldridge has over 30 years of experience in the health care industry and has prepared hundreds of cost reports for various nursing homes subject to Medicaid and Medicare requirements. Mrs. Eldridge was personally responsible for preparing and verifying the records and cost reports. Her testimony at the formal hearing was credible and persuasive. 5.04(b) Relation To Patient Care Disallowed expenses documented by Petitioner were related to patient care. The expenses were reasonable in amount and in line with amounts paid by other providers in the same geographic area. The goods and services purchased were of the same kind and character as that provided to other providers in the same geographic area. The population of patients in Krestview and Towne House was monitored by daily census records taken by nurses at each nursing station within each facility. The names of patients appearing on the daily census reports corresponded to names of patients appearing on the nurses daily activity reports. The expenses listed in the five cost reports correlated to the patient days listed in the record of payments from Respondent. 5.04(c) Payment Petitioner sufficiently documented the record of payments from Respondent to B & K. Respondent withheld all payments to B & K from July 1, 1979, through August 31, 1979. Respondent withheld payments in the approximate aggregate amount of $700,000. Petitioner documented the record of payment with the paid claim listing provided to Petitioner by Respondent's agent. Respondent entered into a contract with Systems Development Corporation of Tallahassee, Florida ("SDC") to process Medicaid claims and issue reimbursement checks to providers. Pursuant to that contract, SDC maintained a paid claim listing and backup documentation for reimbursement payments made to providers. The paid claim listing is a computer printout containing the names of each individual Medicaid recipient in Krestview and Towne House for the periods at issue in this proceeding. In addition to the name of each Medicaid patient, the paid claim listing shows the identification number of each patient, the months that each patient was in the facility, the date of service rendered by month, the amount of payment from other sources, including patient contributions, and the net amount remitted by Respondent. Paid claim listings were audited by Respondent each month. Petitioner was directed by Respondent to obtain the paid claim listing from SDC for the purpose of determining the record of payments made by Respondent to B & K. When Petitioner asked Respondent how to obtain information evidencing such payments, Respondent instructed Petitioner to contact SDC. Mrs. Eldridge wrote to SDC asking for a paid claim listing. SDC responded by mailing a computer printout to Mrs. Eldridge containing the paid claim listings for Krestview and Towne House. Paid claim listings were audited by Respondent to assure that rates established by Respondent were properly input by SDC into the computer system. The reimbursement rate for B & K was adjusted downward by Respondent effective June 19, 1979. While the paid claim listing shows that the rate adjustment was never implemented, it also shows that no payments were made to B & K after June 30, 1979. Allocations From The Home Office Expenses in the amount of $67,575 were properly allocated from the home office. The method of allocation was reasonable and sufficiently documented. Expenses incurred by Krestview and Towne House for services provided to each facility by the home office were allocated based upon the number of patient days for each facility. Allocating expenses based upon the number of patient days is the generally accepted method used for allocating expenses in cost reports when more than one facility is operated by the same home office and services are rendered to both facilities. Allocations Between Facilities Expenses in the amount of $37,994 were allocated between Krestview and Towne House. The method of allocating expenses between facilities was reasonable and sufficiently documented. The expenses were allocated between facilities based upon a case-by-case determination of which individual expense was actually incurred by each facility. Expenses incurred by one facility but paid by a check from the other facility were allocated to the facility that incurred the expense. All of the expenses allocated between facilities were related to patient care. Already Paid Or Covered By Another Program Expenses in the amount of $13,799.34 were proper expenses and were not already paid or paid under alternative programs. These expenses included pharmaceutical and nursing home supplies actually purchased by Krestview and Towne House. The expenses were disallowed because another program generally paid for that type of expense. The amount of expenses paid by other programs, however, was limited. The excess of the actual expense over that paid by the other program was a proper expense incurred by the facility. If the amount of prescription order by the physician, for example, exceeded the amount paid by the alternative program or if the amount of the supplies needed by the facility exceeded the maximum paid by the alternative program, then the facility had to pay the difference. The amount of the difference ended up as an actual expense of each nursing home Legal Fees Legal fees in the amount of $26,804 are allowable expenses. They are reasonable expenses incurred as a precondition for the delivery of health services. The legal fees were not incurred in violation of the National Labor Relations Act. Local 1115. The legal fees were incurred in connection with activities related to collective bargaining, contract negotiations, and procedures which flow from enforcement of the terms of a collective bargaining contract either in a collective or individual setting. The legal fees were necessary to maintain operations by the provider and were a precondition of the delivery of health services. The legal fees at issue were incurred by the provider in connection with activities related to the enforcement of the terms of a collective bargaining contract. A labor union attempted to prevent the transfer of management operations to B & K unless B & K agreed to assume the obligations of the collective bargaining agreement between the union and B & K's transferor. The labor union's attempt resulted in litigation in federal district court. Local 1115. The court specifically found that the case began as an attempt by the labor union to prevent the transfer of the management operation of Krestview and Towne House unless the transferee agreed to assume the obligations of the collective bargaining agreement between the labor union and the transferor. The court did not find that B & K was in violation of the National Labor Relations Act. Respondent improperly characterized a portion of the legal fees as organizational or start-up costs associated with the transfer of ownership to B & K. Respondent improperly required the legal fees to be capitalized and amortized rather than currently deductible. Section 1122 Property related expenses in the aggregate amount of $809,053 /50 are ordinary expenses which are properly allowable as current deductions against ordinary income. They are related to patient care and are reimbursable Medicaid expenses. Respondent's determination that the expenses at issue were capital expenditures was incorrect and was made in a procedurally deficient manner. The expenses at issue are not capital expenditures that must be capitalized and either amortized or depreciated over time. Respondent's determination that such expenses were capital expenditures failed to comply with applicable federal and state requirements for making determinations, findings, and recommendations upon which the federal government made the decision to deny reimbursement of expenses on the basis of the Section 1122 issue. 5.09(a) Unauthorized Review Of Leases Federal law enacted in 1975 required states to have either a program for granting or denying certificates of need ("CON") or a program that required prior approval for capital expenditures in excess of $100,000 in accordance with Section 1122. The certificate of need program was purely a state program. The Section 1122 program was a federal program administered by states pursuant to contract between the state and federal governments. States were authorized under the federal legislation to establish and administer both a CON program and a Section 1122 program. HEW had exclusive authority to determine. whether a capital expenditure had occurred without prior approval, whether to impose sanctions, and what sanctions to impose, if any. The HEW determination was based on findings and recommendations of the state agency administering the plan. The state agency was required to give the provider an opportunity for a fair hearing before presenting findings and recommendations to HEW. Both types of programs were established and administered in Florida by Respondent until sometime in June, 1978. The Office of Community Medical Facilities was the office responsible for administering the Section 1122 program for Respondent. In June, 1978, the contract under which Respondent administered the Section 1122 program for HEW expired. The contract under which Respondent administered the Section 1122 program expired prior to the time any action was taken by Respondent in connection with B & K and Section 1122. Respondent first requested that it be permitted to review the two leases for Krestview and Towne House pursuant to Section 1122 on March 2, 1979. Respondent's request was made to B & K approximately eight months after Respondent's contract to administer the federal program expired. Respondent's Office of Community Medical Facilities notified the president of B & K by separate letters dated March 2, 1979, that a "capital expenditure" in the form of the leases for Krestview and Towne House had "occurred." The separate letters stated that the lease agreements had not been reviewed ". . . as required by Section 1122, P.L. 92-603. Acting as the Designated Planning Agency (DPA) in the Section 1122 review program . . .," Respondent offered to ". . . review the . . . capital expenditure[s] under the Section 1122 program for conformity with standards, plans and criteria." Respondent had no contractual authority on March 2, 1979, to conduct a review of the leases for Krestview and Towne House on behalf of the federal government. Even if Respondent had authority to review the leases, that authority was limited to a review of the leases for the purpose of determining whether lease payments made from May 5, 1977, until sometime in June, 1978, constituted capital expenditures. Respondent withheld reimbursement of all Medicaid expenses after June 30, 1979, in an effort to recoup all lease payments irrespective of when they were made. 5.09(b) Previous Authorized Review Of Leases The two leases for the operation of Krestview and Towne House were net leases entered into between B & K and Petitioner on May 5, 1977. HRS v. B & K. The terms of the net leases required the lessee to pay property related expenses including taxes and insurance on real and personal property. Id. The leases contained substantially the same terms and conditions as those by which the previous provider had operated the two facilities prior to the time B & K assumed operations at the request of Respondent. Id. The two leases for Krestview and Towne House were included in a review by Respondent's Office of Community Medical Facilities in 1978, prior to the expiration of the contract to administer the Section 1122 program. The purpose of tile review was to determine if there was ". . . a purchase made of the nursing facilities. . . " and if there was ". . . any action to be taken under Section 1122, Public Law 92-603. See Joint Exhibit 27. Respondent's review focused on transactions between B & K and its parent company and the stock purchase agreement between B & K's parent and Petitioner as the transferor of the stock. The stock purchase agreement expressly incorporated the two leases between B & K and Petitioner. On April 11, 1978, Respondent's Office of Community Medical Facilities notified the president of B & K that the ". . stock transfer . . . is not reviewable . . . under Section 1122, . . . as it will have no effect on depreciation, interest or fair return on investment for reimbursement purposes." See Joint Exhibit 28. 5.09(c) No Capital Expenditure Occurred Lease payments made by B & K to Petitioner for use of the Krestview and Towne House facilities did not constitute capital expenditures within the meaning of Section 1122. The lease payments were properly chargeable as a currently deductible expense of operation and maintenance based on GAAP. Lease payments could be treated as capital expenditures if lease payments were made pursuant to a transaction which was cast in the form of a lease but which in substance was an installment sale (a "virtual purchase"). A lease could be recharacterized as a virtual purchase if the lease payments exceeded the fair rental value in the geographic area, the term of the lease was less than the useful life of the facility, and the provider had either an option to renew the lease at a significantly reduced rental rate or an option to purchase at a price significantly less than the fair market value of the facility. The terms of the two leases for Krestview and Towne House did not satisfy any one of the requirements of a virtual purchase. The lease payments individually and in the aggregate did not exceed fair rental value for the geographic area. The terms of the leases did not exceed the useful life of the facilities. The terms of the leases included neither an option to renew at a rental rate significantly less than the fair rental value nor an option to purchase at a price significantly less than the fair market value of the facilities. There is nothing in either of the two leases to suggest that the agreements were anything but a straight lease or that the payments were anything but bona fide lease payments. Respondent's determination in 1978 that the rental rate for Krestview and Towne House exceeded the fair rental value of the two facilities was dismissed by Respondent prior' to a formal hearing in 1979. HRS v. B & K at 2. A desk review by Respondent's Office of Audit Service disallowed an increase in rent on May 31, 1976, prior to the time B & K began operations of the two facilities. Respondent's field audit allowed the rental increase. Petitioner requested a formal hearing to determine ". . . `an appropriate and acceptable rental amount'. . ." Respondent's Office of Audit Service received a copy of each of the leases for the two facilities on February 19, 1979. The issue of the whether the rental rate was reasonable was dismissed prior to the formal hearing. Id. 5.09(d) Agency Determinations, Findings, And Recommendation Respondent determined the substantial interests of B & K in two separate determinations. First, Respondent made a threshold determination that a "capital expenditure" had occurred in the form of lease payments made under two leases far Krestview and Towne House. Second, Respondent determined that B & K failed to submit a proposal for review of a "capital expenditure." Both of Respondent's determinations constituted findings without an opportunity for a fair hearing in violation of state and federal law. Based upon those findings, Respondent submitted recommendations to HEW that led to the exclusion of amounts attributable to such "capital expenditures" in determining Medicaid reimbursement payments to B & K. 5.09(d) (1) Determinations Respondent's first determination of B & K's substantial interests took the form of separate "implicit" determinations made on March 2, 1979. /51 Respondent's Office of Community Medical Facilities stated in separate letters to B & K dated March 2, 1979, that correspondence had been received from Respondent's Office of Audit Service ". . . indicating that a capital expenditure . . . [had] occurred . . . ." See Joint Exhibit 20 (emphasis added). In the next paragraph, Respondent offered ". . . to review the above mentioned capital expenditure under the Section 1122 program . . . ." (emphasis added) The next paragraph advised B & K that it had only 30 days to initiate a request for review . . ." of the capital expenditure or risk the withholding of payments Respondent explicitly determined on April 10, 1979, that a "capital expenditure" had occurred in the form of lease payments for Krestview and Towne House. On April 10, 1979, Respondent's Office of Community Medical Facilities stated in a letter to counsel for Petitioner that ". . . it is the determination of [Respondent] and this office that the lease transactions were a capital expenditure and subject to review under Section 1122 of P.L. 92-603." See Joint Exhibit~22. Respondent's second determination of B & K's substantial interests took the form of separate written determinations on May 15 and 16, 1979, that B & K had failed to submit a proposal for review of a capital expenditure. On May 15 and 16, 1979, Respondent's Office of Community Medical Facilities made numerous findings in written correspondence to HEW. Respondent found, in relevant part, that B & K had undertaken action under Section 1122 involving the acquisition of two nursing homes at an aggregate cost of $8,300,000 without submitting a proposal for review of such costs. 5.09(d) (2) Findings And Recommendations Respondent's determinations that a "capital expenditure" had occurred and that B & K had not submitted a proposal for review of such "capital expenditures" constituted findings under applicable federal law. HEW notified the president of B & K on May 25, 1979, that HEW had ". . reviewed the findings and recommendations of [Respondent] with respect to the proposed capital expenditure [of $8,300,000] . . ." (emphasis added). See Respondent's Exhibit 6. Respondent recommended to the federal government that amounts attributable to "capital expenditures" be excluded in determining Medicaid reimbursement payments to B & K. On May 15 and 16, 1979, Respondent's Office of Community Medical Facilities recommended to the appropriate office of HEW that " . . . amounts attributable to this capital expenditure be excluded in determining payments to the proponent under Titles V, XVIII and XIX of the Social Security Act for services furnished." See Joint Exhibits 23 and 24, Part IV, D, of attached Record Of State And Local Action Under Section 1122 Of The Social Security Act. The letter of transmittal from Respondent to HEW represented that the correspondence contained Respondent's "recommendation." The findings and recommendations made by Respondent to HEW formed the basis for HEW's decision to withhold reimbursements for capital expenditures. On May 25, 1979, HEW notified Respondent that HEW had ". . . reviewed the bindings and recommendations of [Respondent] with respect to the proposed capital expenditure [of $8,300,000] . . . ." Based upon Respondent's findings and recommendations, HEW determined that reimbursement would be indefinitely withheld for the "capital expenditure." 5.09(e) Procedural Defects Respondent determined the substantial interests of B & K without giving B & K an opportunity for a fair hearing. Respondent's notice to B & K on March 2, 1979, did not clearly state that a determination had been made of the occurrence of a capital expenditure. That determination was only "implied" /52 Respondent did not explicitly state that a determination had been made of the occurrence of a capital expenditure until Respondent made that disclosure in its letter to counsel for Petitioner on April 10, 1979. That disclosure, however, was addressed by Respondent to counsel for Petitioner and was not addressed to B & K. Neither notice included a statement of B & K's appeal rights with respect to either Respondent's "implicit" or explicit determinations that a "capital expenditure" had occurred. 5.09(e)(1) Determinations That Capital Expenditure Had Occurred Respondent's notice to B & K on March 2, 1979, failed to disclose B & K's appeal rights concerning Respondent's "implicit" determination that a "capital expenditure" had occurred. Respondent's notice offered to ". . review the . capital expenditure . . . . [,] stated that B & K had 36 days to " . . . initiate a request for review [of the capital expenditure] in compliance with DHRS Rule 10-5 . [,]" and further stated that failure to ". . . initiate such a request for review leaves no basis for a finding of conformity and may be grounds for indefinite withholding of Medicare/Medicaid reimbursements by DHEW." The copies of administrative rules attached to the notice on March 2, 1979, addressed neither B & K's rights to appeal Respondent's implicit determination that a capital expenditure had occurred nor the procedures for such appeals. See Joint Exhibit 20. The notice to counsel for Petitioner on April 10, 1979, of Respondent's explicit determination that a "capital expenditure" had occurred contained no statement of appeal rights available to B & K. The notice merely stated that Respondent had determined that the lease payments ". . . were capital expenditures . . ." and referred counsel for Petitioner to state and federal laws relied upon by Respondent for its determination. 5.09(e) (2) Determination Of Failure To Submit Proposal For Review Of A Capital Expenditure The first written notice of Respondent's determination that B & K had failed to submit a proposal for review of a capital expenditure was given to B & K in the form of copies of Respondent's written correspondence to the federal government. That written notice was received by B & K after Respondent mailed its findings and recommendations to HEW. The notice of determination failed to inform B & K of any appeal rights concerning Respondent's determination of B & K's substantial interests. The notice of determination also made findings and recommendations relied upon by HEW without- first giving B & K an opportunity for a fair hearing. B & K was not given 30 days to request a formal hearing. The notices of March 2, 1979, were received ) by B & K on March 21, 1979. The time to submit a proposal for review of a "capital expenditure" expired on or about April 21, 1979. April 22, 1979, was the first day that Respondent could have determined that B & K had not timely filed a proposal for review of a "capital expenditure." There is no evidence in the record that Respondent made such a determination on April 22, 1979. Even if Respondent determined in free form agency action conducted on April 22, 1979, that a proposal for review of a "capital expenditure" had not been timely filed, B & K would have had 30 days under applicable federal regulations, or until May 22, 1979, to request a formal hearing concerning Respondent's determination. Respondent, however, notified the federal government on May 15 and 16, 1979, that Respondent had determined that no proposal for review of a "capital expenditure" had been timely filed. Respondent's notice to the federal government was dated approximately six to seven days prior to the last day of the 30 day period in which B & K was entitled to request a formal hearing. May 15, 1979, was the first day that the failure to timely file a proposal for review of a capital expenditure could have been determined by Respondent in any manner other than free form agency action. May 15 and 16, 1979, were the dates of Respondent's written notices to the federal government that no proposal for review of a capital expenditure had been filed. The notices of Respondent's determinations were also mailed to B & K on May IS and 16, 1979. The last days to request a formal hearing concerning Respondent's determinations were Jane 15 and 16, 1979. A formal hearing was requested by counsel for Petitioner on May 29, 1979. The request for a formal hearing from counsel for Petitioner was sufficient to put Respondent on notice that its proposed agency action was being contested. In any event, the issue of who requested the formal hearing and his or her authority to represent B & K is a moot point. The federal government instructed Respondent to withhold Medicaid reimbursements for capital expenditures before the request for formal hearing could be made. On May 21, 1979, the federal government received Respondent's notices of May 15 and 16, 1979. On May 25, 1979, HEW notified Respondent that HEW had determined that B & K failed to submit a review for proposal and that reimbursement would be indefinitely withheld for the `capital expenditure [of $8,300,000] . . . ." See Respondent's Exhibit 6. /53 Even if a point of entry had been provided to B & K, it was not a clear point of entry. The point of entry provided to B & K on March 2, 1979, was a 30 day window of time to submit an application for review of a "capital expenditure." Respondent never informed B & K of its appeal rights concerning either Respondent's threshold determination that a capital expenditure had occurred or Respondent's determination that ". . . no proposal [had been] submitted. . ." for review of a "capital expenditure." The manner in which Respondent determined B & K's substantial interests and the manner in which Respondent attempted to fulfill its due process obligations was, at best, confusing and unclear. Respondent's conduct precipitated more than one attempt by more than one law firm to ascertain what action had in fact been taken by Respondent. See Joint Exhibits 21, 25, 26. Accrual And Payment Expenses in the amount of $253,990 were either properly accrued and properly paid. A portion of those expenses were discharged in bankruptcy. The remaining portion was assigned to Petitioner for payment. 5.10(a) Accrual An invoice for each expense claimed in the cost reports was received at the time the goods or services were delivered. The provider had knowledge of the amount due for such goods or services. The obligation to pay for the goods or services was incurred in the ordinary course of business. The amount of the obligation and time for payment gas fixed and determined between the parties to each transaction. The provider either paid the obligation or intended to pay the obligation at the time the provider received the invoice. B & K, the bankruptcy trustee, and Petitioner have always intended to pay expenses disallowed as not properly accrued. Petitioner never abandoned the claim for reimbursement of expenses. Pursuant to the assignment approved by the bankruptcy court Petitioner prepared the needed cost reports and "pressed" the claim against Respondent for reimbursement of Medicaid expenses. Pursuant to the Final Order in G & J v. HRS, Petitioner submitted the cost reports required by Respondent for review and audit on August 22, 1984. More than four years later, Respondent completed its review and audit of the cost reports. Petitioner has consistently pursued the payment of expenses disallowed by Respondent. 5.10(b) Payment Expenses disallowed in the audit reports in the amount of $253,990 were properly paid within the meaning of applicable Medicaid rules. /54 Applicable Medicaid rules require payment within one year after the end of the cost reporting period in which the liability was incurred. Payment may occur up to three years after the end of the cost reporting period in which the liability was incurred if there is valid justification for the delay. Valid justification includes cash flow difficulties and accounting errors in the receipt and processing of bills. See discussion at Conclusions of Law, Sac. 6.07(d), infra. Valid justification existed for not paying expenses disallowed as unpaid within one year after the end of the cost reporting period in which the liabilities were incurred. B & K encountered cash flow difficulties when Respondent cut off the sole source of cash flow required to pay expenses disallowed by Respondent as unpaid. B & K also encountered accounting errors in the receipt and processing of bills for the cost of goods and services when Respondent adjusted the reimbursement rate to be paid to B & K to recoup expenses disallowed retroactively to May 5, 1977. The cash flow difficulties and accounting errors experienced by B & K were caused by action undertaken by Respondent without reasonable care. 55/ The lease payments from B & K to Petitioner were made pursuant to leases that here substantially the same as those under which the previous provider operated Krestview and Towne House. The leases under which B & K operated the two facilities had been included in a review conducted by Respondent the previous year. When Respondent incorrectly determined that the lease payments were capital expenditures, Respondent did so pursuant to a contract with the federal government that had previously expired. Respondent made recommendations to the federal government based upon findings that were substantively incorrect and that were procedurally deficient. Notices to B & K of action taken or to be taken by Respondent were untimely, deficient, and unclear. When Respondent explicitly stated what action it had taken, the notice of that action was not mailed to B & K. Liabilities for expenses disallowed as unpaid were incurred in the period covered by cost reports for the fiscal year ending May 31, 1979, and for the three month period ending August 31, 1979. See, KAR 8/31/79, TAR 5/31/79, and TAR 8/31/79. An automatic stay was imposed by applicable bankruptcy law when the petition in bankruptcy was filed on August 3, 1979; within one year after the end of the cost reporting period in which the liabilities were incurred. The automatic stay enjoined any action for the payment of expenses until the bankruptcy proceeding was closed. The three year period allowed for payment of expenses under applicable Medicaid rules was tolled upon the filing of the petition in bankruptcy. The three year period ran from May 31, 1979, to August 3, 1979, when the petition in bankruptcy was filed. The automatic stay enjoined further action until the bankruptcy file was closed. The bankruptcy file was closed on August 27, 1987. This proceeding began on July 9, 1987, during the pendency of the automatic stay imposed under applicable bankruptcy law. /56 The three year period allowed under applicable Medicaid rules for payment of Medicaid expenses will not begin to run again until the conclusion of this proceeding. 57/ Return On Equity Expenses unrelated to property in the amount of $42,079 were improperly disallowed by Respondent as adjustments to return on equity. The adjustments to return on equity were made as a result of the lease payments disallowed as "capital expenditures." One of the purposes of a review under Section 1122 is to determine whether a particular expenditure will have an affect on ". . . depreciation, interest or fair return on investment for reimbursement purposes." See Respondent's letter to B & K on April 11, 1978 in Joint Exhibit 28. Retroactive And Prospective Methods Of Reimbursement Two methods of reimbursement for Medicaid expenses were used by Respondent from May 5, 1977, through August 31, 1979. The retrospective method of reimbursement was issued prior to October 1, 1977. The prospective system was used effective October 1, 1977. Application for approval of the change in methods of reimbursement was submitted by Respondent to the appropriate office of HEW on December 12, 1977, received by HEW on December 15, 1977, and approved by HEW on April 26, 1978. The effective date of the change was October 1, 1977. The adoption of the prospective method of reimbursement was merely a continuation of the previously existing Medicaid program with no new or additional economic impact to the state, private persons, or others. G & J v. HRS at 10. 5.12(a) Final Rate And Rate Application Period Both methods of reimbursement are used to establish a per diem rate of reimbursement ("final rate"). The final rate is determined under both methods of reimbursement for a particular provider by dividing allowable costs by allowable Medicaid patient days. 58/ Allowable costs are those costs reported by providers on annual cost reports submitted to Respondent after upward or downward adjustments, if any, are made by Respondent and agreed to by the provider. The final rate established under the retrospective method of reimbursement is applied backward over the period covered by the cost report. The final rate is also used as the interim rate to be paid until the next cost report is filed by the provider. The final rate established under the prospective method of reimbursement is applied forward during the period covered by the next cost report to be filed. The final rate includes an inflation factor to compensate the provider for the fact that the final rate is calculated prior to the rate application period. 5.12(b) Settlement Of Overpayment And Underpayment An overpayment occurs when the actual annual payments received by a provider exceed the actual annual allowable costs included in the cost report filed by the provider. An underpayment occurs when the actual annual allowable costs included in the cost report filed by the provider exceed the actual annual payments received by the provider during the period covered by the cost report. An overpayment and an underpayment are generally settled in the same process in which final rates and interim rates are determined. The customary method of settling an overpayment and an underpayment assumes that the provider is an ongoing business. The customary method of settlement does not address a provider who terminates its operations as a result of bankruptcy or otherwise. 5.12(b) (1) Overpayment The customary method of settling an overpayment is different under the retrospective and prospective methods of reimbursement. Under the retrospective method of reimbursement, an overpayment is recovered by Respondent either by a mutually acceptable plan negotiated between Respondent and the provider or by withholding regular payments to the provider. Recovery by withholding of payments, however, can be used only after the provider is offered an opportunity for a fair hearing and, if requested, a fair hearing is completed and a final decision is entered. Under the prospective method of reimbursement, an overpayment is not recovered retrospectively. Instead, the amount of overpayment is excluded from the allowable costs used in calculating the final rate to be applied subsequently during the rate application period. The exclusion of an from allowable costs has the effect of reducing the final rate subsequently received by the provider during the rate application period. 5.12(b) (2) Underpayment An underpayment is treated similarly under the retrospective and prospective methods of reimbursement. When a provider's actual annual allowable costs included in the cost report filed under the retrospective method of reimbursement exceed the actual annual payment from Respondent, the interim rate paid until the next cost report is filed is increased by an allowance of nine percent in lieu of retroactive payments. When a provider's actual annual allowable costs included in the cost report filed under the prospective method of reimbursement exceed the actual annual payment from Respondent, the final rate to be applied during the next rate application period is increased in proportion to the actual annual allowable costs included in the cost report. 5.12(c) Reimbursement For Underpayment Petitioner is entitled to reimbursement of an underpayment under either the retrospective or prospective methods of reimbursement. Some of the findings of fact that are relevant to this factual issue were made in the Recommended Order in G & J v. HRS. The findings of fact in the Recommended Order were adopted in Respondent's final order. Other findings of fact that are relevant to this factual issue are made in this proceeding. 5.12(c) (1) Prior Proceeding The Recommended Order in G & J v. HRS found that underpayment could be recovered by a provider upon receipt of a properly completed claims document. The Recommended Order found that a claims document included a cost report. The Recommended Order in G & J v. HRS rejected Respondent's assertion that cost reports can only be used to set a new rate and cannot be used to establish the amount of retroactive payments. The Recommended Order found that the purpose of the cost reports was not limited to the establishment of a new rate. Respondent was aware that Petitioner was preparing cost reports for audit and that B & K was out of business. The establishment of a new rate for an ongoing business is not the only purpose for filing cost reports. Cost reports may also be filed to obtain retroactive payments if such payments are not otherwise prohibited. G & J v. HRS. Florida Administrative Code Rule 10C-7.48(6) (i) does not prevent retroactive reimbursement for an underpayment. The Recommended Order based its determination upon four findings of fact. Most importantly, the Recommended Order found that retroactive reimbursement for an underpayment was specifically contemplated in the provider agreement entered into between B & K and Respondent. 60/ Any rights to such reimbursement were assigned to Petitioner by the bankruptcy trustee pursuant to the order of the bankruptcy court. Second, Retroactive reimbursement of underpayment was contemplated in Respondent's "Instructions to Cost Reports for Nursing Homes Participating in the Florida Medicaid Program." Florida Administrative Code Rule 10C-7.48 provides that cost reports are to be completed in accordance with Respondent's instructions. Third, retroactive reimbursement of an underpayment was not eliminated by the adoption of a "totally new prospective system of payment." The adoption of the prospective system of payment was merely a continuation of the Medicaid program with no new or additional economic impact to the state, private persons, or others. Fourth, Florida Administrative Code Rule 10C-7.48(6) (i) does not prohibit all retroactive payments bat rather only retroactive reimbursement of those costs which exceed annual payment." A definition of "annual payment" could not be established by Respondent. B & K never experienced an established and consistently applied rate during 1978 and 1979. Instead, B & K experienced a series of eight different crates in less than 12 months. The policy of Respondent was that rates became effective on the first day of each month after a cost report was filed. The Respondent's policy, however, was inapplicable because rates for B & K were not set with any consistent pattern or principle in mind. 5.12(c) (2) This Proceeding Both the retrospective and prospective methods of reimbursement authorize the recovery of an underpayment by a provider under two sets of circumstances. First, underpayment can be recovered by the provider if an audit determines that there were errors on the cost reports and actual costs were greater than reported costs. Second, the provider agreement expressly states that "[i]n instances of nonpayment or under- payment . . . the [Respondent] shall make payment to the Provider upon receipt of properly completed claims documents." (emphasis added) Both sets of circumstances required to recover an underpayment are satisfied in this proceeding. First, actual costs incurred by B & K exceeded reported costs as adjusted by Respondent. The excess of actual costs over adjusted reported costs was caused by errors made in the audit reports prepared by Respondent. Second, the provider agreement executed by Respondent after it adopted the prospective method of reimbursement requires payment to Petitioner upon the receipt of properly completed claims documents. A cost report is a properly completed claims document. Respondent's claim that the prospective method of reimbursement must be used in this proceeding is inconsistent with Respondent's actions in two respects. First, Respondent executed provider agreements with B & K which authorized the use of the retrospective method of reimbursement after Respondent amended its plan and adopted the prospective method of reimbursement. Second, when Respondent adjusted B & K's rate to recoup capital expenditures, Respondent did not base the adjustment on the prior cost reporting period as is done in the prospective method of reimbursement. Rather, Respondent went back retrospectively and based the adjustment on all cost reporting periods since B & K began operation of Krestview and Towne House. Once it has been determined that Petitioner is entitled to recovery of an underpayment, the only issues to be determined are the form and amount of such recovery. The customary form of recovering an underpayment under either the retrospective or prospective method of reimbursement is an increase in the final rate. The customary form of recovering an underpayment is ineffectual whenever the provider has terminated business operations through bankruptcy or otherwise. A provider that has terminated business operations does not lose its right to recover underpayment merely because the customary form of recovering underpayment is no longer an effectual form of recovery. Such a provider remains entitled to recover an underpayment through an effectual form of payment. The most effectual form of recovering an underpayment for a provider that has terminated its business is a lump sum payment determined in a final accounting. 5.12(c) (3) Final Accounting Expenses at issue in the amount of $1,362,925 are allowable and properly included in the five cost reports reviewed and audited by Respondent. Adjustments to reported costs made in the five audit reports disallowed expenses in the aggregate amount of $1,748,636. Petitioner admitted prior to the formal hearing that disallowances by Respondent in the aggregate amount of $304,305.34 were proper. Of the remaining $1,444,330.66 to be determined at the formal hearing, Petitioner failed to present evidence with respect to $81,405.66. The remaining expenses disallowed in the audit reports are expenses at issue in this proceeding. All of the expenses at issue are allowable and properly included in the five cost reports reviewed and audited by Respondent. Allowable expenses are not reduced by any setoff claimed by Respondent. Respondent determined as a result of KAR 5/31/78 that overpayment had been made to B & K in the aggregate amount of $1,125,910. No overpayment was determined from Respondent's audit of the other cost reports. Respondent determined that the other cost reports served only to set the prospective final rate for the subsequent periods of operation. Approximately $620,724 of the alleged overpayment resulted from Respondent's determination that the interim Medicaid per diem payment rate for Krestview's first period of operation by B & K was greater than the retrospectively determined Medicaid per diem payment rate for the same period. Approximately $505,186 of the aggregate amount of overpayment resulted from Respondent's determination that inaccuracies in original cost report for 5/31/78 caused an additional overpayment in the prospective Medicaid per diem payment rate for Krestview following Krestview's first period of operation. A major portion of the aggregate amount of claimed overpayment resulted from rent payments which were disallowed by HEW on the basis of the Section 1122 issue. /61 The net amount of underpayment due from Respondent to Petitioner is $447,473.34. The net amount of underpayment has been determined by reducing the net underpayment claimed by Petitioner in the amount of $528,879 by pretermitted issues in the amount of $81,405.66. Some of the limitations applicable to the gross underpayment claimed by Petitioner may have been applicable to some or all of the pretermitted issues. The burden of proof, however, is on Petitioner to show the proportion of the limitations applicable to the pretermitted issues. Petitioner presented no evidence to show what proportion of the limitations applied to the pretermitted issues.
Conclusions Reserved Rulings 70 6.01(a) Authenticity 70 6.01(b) Hearsay 72 6.01(b) (1) Other Rulings 77 6.01(b) (2) The Public Records Exception 78 6.01(c) Unfair Surprise 78 6.01(d) Respondent Is Bound By Res Judicata 80 6.01(e) No Waiver Of Objections Not Raised In The Prehearing Stipulation 83 6.02 No Waiver Of The Claim Against Respondent 83 6.02(a) No Waiver Under Bankruptcy Law 85 6.02(b) No Waiver Under State Law 88 6.03 Petitioner Is Not Barred By Collateral Estoppel 90 6.04 Petitioner Is Not Barred By Res Judicata 91 6.05 Setoff 94 6.05(a) Right To Assert Setoff Under Bankruptcy Law . . 94 6.05(b) Right To Assert Setoff Under State Law 97 6.06 Merits Of Respondent's Setoff 98 6.07 Petitioner's Claim 100 6.07(a) Documentation 102 6.07(b) Legal Fees 105 6.07(c) Section 1122 105 6.07(d) Accrual And Payment 107 7. RECOMMENDATION 111 APPENDIX 113 Petitioner's Proposed Findings of Fact 113 Respondent's Proposed Findings of Fact 114
The Issue The issue for determination is whether Intervenors are entitled to reasonable attorney fees and costs pursuant to Section 120.595, Florida Statutes (2003).1
Findings Of Fact Petitioner is an insurer and carrier within the meaning of Subsections 440.02(4) and 440.02(38), Florida Statutes (2005), and Florida Administrative Code Rule 69L-7.602(1)(w).2 Petitioner is licensed in the state as a workers' compensation insurance carrier (carrier).3 Respondent is a state agency within the meaning of Subsection 440.02(3), Florida Statutes (2005), and Florida Administrative Code Rule 69L-7.602(1)(b). In relevant part, Respondent is responsible for resolving reimbursement disputes between a carrier and a health care provider. Intervenors are health care providers within the meaning of Subsection 440.13(1)(h), Florida Statutes (2005), and Florida Administrative Code Rule 69L-7.602(1)(u). Each Intervenor is a health care facility within the meaning of Subsection 440.13(1)(g), Florida Statutes (2005). Intervenors seek an award of attorney fees and costs against Petitioner pursuant to Sections 57.105 and 120.595, Florida Statutes (2003). The proceeding involving Section 57.105, Florida Statutes (2003), is the subject of a separate Final Order entered on the same date as this Recommended Order. The scope of this Recommended Order is limited to Section 120.595, Florida Statutes (2003). Intervenors allege that Petitioner is the "non- prevailing adverse party" in an underlying proceeding and participated in the underlying proceeding for an "improper purpose" as the quoted terms are defined, respectively, in Subsections 120.595(1)(e)3. and 120.595(1)(e)1., Florida Statutes (2003). The underlying proceeding involves eight consolidated Petitions for Administrative Hearing. Petitioner filed each Petition for Administrative Hearing after Respondent determined Petitioner had improperly discounted the amount of reimbursement Petitioner paid for hospital services that Intervenors provided to eight patients from March 13, 2004, through February 11, 2005. From April 13 through May 23, 2005, Respondent issued separate orders directing Petitioner to pay the disputed amounts pursuant to Subsection 440.13(7), Florida Statutes (2005). From June 1 through June 21, 2005, Petitioner filed eight separate Petitions for Administrative Hearing. The eight petitions were subsequently consolidated into one underlying proceeding. Petitioner is the non-prevailing adverse party in the underlying proceeding. On December 8, 2005, Petitioner filed a Notice of Voluntary Dismissal in the underlying proceeding. On December 9, 2005, Intervenors filed their motion for attorney fees based on Section 120.595, Florida Statutes (2003). The formal hearing in the underlying proceeding was set for January 18, 2006. The ALJ amended the issue for the formal hearing to exclude the original reimbursement dispute and to limit the scope of the formal hearing to the fee dispute. The ALJ did so to avoid delay in the resolution of the proceeding. The fee dispute at issue in this proceeding includes only six of the original eight reimbursement disputes because Intervenors were not the medical providers in two of the original eight disputes.4 In the six reimbursement disputes involving Intervenors, Respondent ordered Petitioner to pay additional reimbursements in the aggregate amount of $54,178.52. Approximately $51,489.27 of the $54,178.52 in additional reimbursement involved inpatient hospital services provided to one patient.5 The remaining $2,689.25 in additional reimbursement involved outpatient hospital services in the emergency room.6 Subsection 440.13(12), Florida Statutes (2005), mandates that a three-member panel must determine statewide schedules for reimbursement allowances for inpatient hospital care. The statute requires hospital outpatient care to be reimbursed at 75 percent of "usual and customary" charges with certain exceptions not relevant to this proceeding. Notwithstanding the statutory mandate to schedule reimbursement rates for hospital inpatient services, the inpatient services at issue in the underlying proceeding were apparently unscheduled inpatient services. By letter dated April 13, 2005, Respondent ordered Petitioner to pay Intervenor, Holmes Regional Medical Center, Inc. (Holmes), an additional reimbursement in the amount of $51,489.27. The total reimbursement to Holmes was 75 percent of the charges that Holmes submitted to Petitioner for reimbursement.7 Respondent interprets Subsection 440.13(12), Florida Statutes (2005), to authorize reimbursement of both unscheduled inpatient hospital services and outpatient hospital services at the same rate. There is no dispute that Respondent reimburses unscheduled inpatient hospital services and outpatient hospital services at 75 percent of the "usual and customary" charges. The dispute in the underlying proceeding was over the meaning of the phrase "usual and customary" charges. Petitioner challenged the interpretation asserted by Respondent and Intervenors. Respondent and Intervenors contended that the quoted statutory phrase means Intervenors' usual and customary charges evidenced in a proprietary document identified in the record as the "charge master." Each Intervenor maintains its own charge master, and the information in each charge master is proprietary and confidential to each Intervenor. Petitioner asserted that the statutory phrase "usual and customary" charges means the usual and customary charges imposed by other hospitals in the community in which Intervenors are located. Petitioner maintains a data base that contains information sufficient to determine the usual and customary charges in each community. Petitioner did not participate in the underlying proceeding for an improper purpose within the meaning of Subsection 120.595(1)(e)1., Florida Statutes (2003). Rather, Petitioner presented a good faith claim or defense to modify or reverse the then-existing interpretation of Subsection 440.13(12), Florida Statutes (2005). Petitioner had a reasonable expectation of success. The statutory phrase "usual and customary" charges is not defined by statute. Nor has the phrase been judicially defined. Respondent bases its interpretation of the disputed phrase on two agency final orders and relevant language in the Florida Workers' Compensation Reimbursement Manual for Hospitals (2004 Second Edition) (the Manual). The Manual is developed by the Florida Department of Financial Services (DFS).8 The Manual interprets the quoted statutory phrase to mean the "hospital's charges." However, after the effective date of the Manual in 2004, DFS developed a proposed change to the Manual that, in relevant part, interprets "usual and customary" charges to mean the lesser of the charges billed by the hospital or the median charge of hospitals located within the same Medicare geographic locality.9 The trier of fact does not consider the new interpretation of the disputed statutory phrase as evidence relevant to a disputed issue of fact. As Respondent determined in an Order to Show Cause issued on February 16, 2006, and attached to Intervenors' PRO, "what constitutes 'usual and customary' charges is a question of law, not fact." The ALJ considers the new interpretation proposed by DFS for the purpose of determining the reasonableness of the interpretation asserted by Petitioner in the underlying proceeding. The ALJ also considers the new DFS interpretation to determine whether the interpretation asserted by Petitioner presented a justiciable issue of law. Intervenors assert that Petitioner's improper purpose in the underlying proceeding is evidenced, in relevant part, by Petitioner's failure to initially explain its reduced reimbursement to Intervenors with one of the codes authorized in Florida Administrative Code Rule 69L-7.602(5)(n) as an explanation of bill review (EOBR). None of the EOBR codes, however, contemplates a new interpretation of the statutory phrase "usual and customary" charges. Intervenors further assert that Petitioner's improper purpose in the underlying proceeding is evidenced, in relevant part, by Petitioner's failure to respond to discovery. However, responses to discovery would not have further elucidated Petitioner's rule-challenge. Petitioner stated eight times in each Petition for Administrative Hearing that Florida Administrative Code Rule 69L-7.501, the DFS rule incorporating the Manual by reference: [S]hould be read to allow recovery of 75% of the usual and customary fee prevailing in the community, and not 75% of whatever fee an individual provider elects to charge. Respondent and Intervenors were fully aware of the absence of statutory and judicial authority to resolve the issue. Petitioner did raise at least one factual issue in each Petition for Administrative Hearing. Petitioner alleged that Respondent's decision letters ordering Petitioner to pay additional reimbursement amounts had no legal effect because Respondent acted before each provider requested and received the carrier's reconsidered reimbursement decision. The absence of a formal hearing in the underlying proceeding foreclosed an evidential basis for a determination of whether each provider in fact requested and received a reconsidered reimbursement decision before the date Respondent ordered Petitioner to pay additional reimbursements. In this fee dispute, Petitioner presented some evidence to support the factual allegation and thereby established the presence of a justiciable issue of fact. It is not necessary for Petitioner to present enough evidence to show that Petitioner would have prevailed on that factual issue in the underlying proceeding. If the letters of determination issued by Respondent were without legal effect, Petitioner would not have waived its objections to further reimbursement within the meaning of Subsection 440.13(7)(b), Florida Statutes (2005). A determination that Petitioner did, or did not, submit the required information is unnecessary in this proceeding. During the formal hearing in this proceeding, Petitioner called an expert employed by a company identified in the record as Qmedtrix. The testimony showed a factual basis for the initial reimbursement paid by Petitioner. It is not necessary for Petitioner to show that this evidence was sufficient to prevail on the merits in the underlying case. The evidence is sufficient to establish justiciable issues of fact in the underlying case. In this proceeding, Petitioner submitted some evidence of justiciable issues of fact in the underlying proceeding. Petitioner need not submit enough evidence in this fee dispute to show Petitioner would have prevailed on these factual issues in the underlying proceeding. Intervenors are not entitled to a presumption that Petitioner participated in this proceeding for an improper purpose in accordance with Subsection 120.595(1)(c), Florida Statutes (2003). Although Petitioner was the non-prevailing party in two previous administrative hearings involving the same legal issue, the two proceedings were not against the same prevailing hospital provider and did not involve the same "project" as required in the relevant statute. Intervenors seek attorney fees in the amount of $36,960 and costs in the amount of $2,335.37 through the date that Petitioner voluntarily dismissed the underlying proceeding. Absent a finding that Petitioner participated in the underlying proceeding for an improper purpose, it is unnecessary to address the amount and reasonableness of the attorney fees and costs sought by Intervenors. If it were determined that Petitioner participated in the underlying proceeding for an improper purpose, the trier of fact cannot make a finding that the proposed attorney fees and costs are reasonable. Such a finding is not supported by competent and substantial evidence. The total attorney fees and costs billed in the underlying proceeding were charged by six or seven attorneys or paralegals employed by the billing law firm. However, the fees and costs at issue in this proceeding exclude any time and costs charged by paralegals and include only a portion of the total fees and costs charged by the attorneys. The total amount of time billed and costs incurred in the underlying proceeding is evidenced in business records identified in the record as Intervenors' Exhibits 20-23. However, those exhibits do not evidence the reasonableness of the fees and costs billed by the attorneys.10 Either the testimony of the billing attorneys or the actual time slips may have been sufficient to support a finding that the attorney fees and costs are reasonable. However, Intervenors pretermitted both means of proof. Intervenors asserted that the time slips contain information protected by the attorney-client privilege. However, Intervenors neither submitted redacted time slips nor offered the actual time slips for in-camera review. Nor did Intervenors allow the attorneys to testify concerning unprivileged matters. The absence of both the testimony of the attorneys and the time slips is fatal. The fact-finder has insufficient evidence to assess the reasonableness of the fees and costs, based on the novelty and difficulty of the questions involved. Intervenors' expert opined that the attorney fees and costs are reasonable. The expert based her opinion, in relevant part, on her review of the actual time slips maintained by each attorney. However, Petitioner was unable to review the time slips before cross-examining the expert. In lieu of the actual time slips, Intervenors submitted a summary of the nature of the time spent by each attorney. The summary is identified in the record as Intervenors' Exhibit 2. Petitioner objected to Intervenors' Exhibit 2, in relevant part, on the ground that it is hearsay. The ALJ reserved ruling on the objection and invited each side to brief the issue in its respective PRO. The paucity of relevant citations in the PROs demonstrates that neither side vigorously embraced the ALJ's invitation. Intervenors' Exhibit 2 is hearsay within the meaning of Subsection 90.801(1)(c), Florida Statutes (2005).11 The author of Intervenors' Exhibit 2 summarized the unsworn statements of attorneys from their time slips and submitted those statements to prove the truth of the assertion that the time billed was reasonable. Intervenors made neither the attorneys nor their time slips available for cross examination.12 Even if the summary were admissible, the summary and the testimony of its author are insufficient to show the attorney fees and costs were reasonable. The insufficiency of the summary emerged during cross-examination of its author. The author is the lone attorney from the billing law firm who testified at the hearing. Q. What other information did you look at to decide what time to actually bill . . .? A. The information I used was the information from the actual bill. Q. If we look at the first entry . . . were you the person that conducted that telephone conference? A. No, I wasn't. Transcript (TR) at 510-511. Q. In other words, [the entries] go with the date as opposed to the event [such as a motion to relinquish]? A. That's correct. Q. So if I wanted to know how much time it took you to actually work on the motion to relinquish, I would have to look at each entry and add up all the hours to find out how long it took you to do one motion. Is that how I would do that? A. It would be difficult to isolate that information from this record, we bill and explain in the narrative what work is performed each day, and unless that was the single thing worked on for several days, there would be no way to isolate the time, because we don't bill sort of by motion or topic. . . . Q. Well, if I'm trying to decide whether the time billed is reasonable, wouldn't I need to know how much time was spent on each task? A. I'm not sure how you would want to approach that. . . . Looking at this document, it does not give you that detail. It doesn't provide that breakout of information. Q. Is there a way for us to know who you spoke with on those entries? A. The entry . . . doesn't specify who participated in the conference. I don't recall what the conference entailed . . . . And many of these entries are from months ago, and I can't specifically recall on that date if I was involved in a conference and who else might have been there. . . . And so my guess is where the conference is listed on a day when lots of activity was performed on behalf of the client, most of it in this case was research. TR at 516-521.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Respondent enter a final order denying the motion for attorney fees and costs. DONE AND ENTERED this 27th day of April, 2006, 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 27th day of April, 2006.
The Issue What amount of appellate fees and costs in accordance with Phillips v. Department of Business and Professional Regulation, 1st DCA Case No. 97-0356, are to be awarded to Petitioner? Is Petitioner entitled to attorney's fees and costs incurred in the instant proceeding before the Division of Administrative Hearings for the period January 6, 1999, through April 1999, and if so, in what amounts?
Findings Of Fact This is not an appeal of a non-final order wherein the Petitioner must also prevail on the merits in a trial upon remand in order to be entitled to recover appellate attorney's fees and costs. This Petitioner prevailed on the merits at the appellate level, so no remand for retrial on the merits was necessary. The District Court has already determined that Petitioner is entitled to appellate attorney's fees and costs and has delegated to the Division the task of determining the amount thereof. Petitioner's attorney's affidavit and itemization claims $16,221.00 in appellate fees and $1,171.81 in appellate costs. Regardless of Respondent's failure to challenge or refute Petitioner's $16,221.00 itemization and affidavit of appellate fees, the undersigned understands the August 28, 1998, Order of the First District Court of Appeal to only permit the undersigned to determine the amount of the claimed appellate fees as appropriate under the rules and case law. Petitioner's affidavit and itemization of appellate attorney's fees is in order and complies with all necessary rules. All amounts claimed appear reasonable and necessary to the successful appeal, with the exception of those attorney's fees claimed for work performed prior to August 25, 1997. Apparently, work solely directed to the appeal began on that date. Paragraphs 3 and 4 of the affidavit address legal work done prior to August 25, 1997. This legal work involved Petitioner's Motion for Rehearing, Reconsideration, and Dismissal and Alternative Request for Referral for Administrative Proceeding and Alternative Motion for Stay Pending Appeal and an appearance by counsel before the Florida Real Estate Commission. All such legal work predates any time devoted to the Notice of Appeal to the First District Court of Appeal. This legal work, while valuable to the Petitioner, is not appellate in nature and was not performed before the First District Court. Therefore, the attorney's fee charges totaling $3,045.00 for this period of time must be disallowed. The remaining $13,026.00 in claimed appellate attorney's fees should be allowed and is both reasonable and necessary within the parameters established by Rule 4-1.5 of the Rules of Professional Conduct of The Florida Bar and the test established in Florida Patient's Compensation Fund v, Rowe, 472 So. 2d 1145 (Fla. 1985). Regardless of Respondent's failure to challenge or refute Petitioner's $1,171.81 itemization and affidavit of appellate costs, the undersigned understands the August 28, 1998, Order of the First District Court of Appeal to only permit the undersigned to determine the amount of the recoverable appellate costs as appropriate under the limitations of Rule 9.400 Fla.R.App.P. Rule 9.400 Fla.R.App.P. provides, in pertinent part: . . . Taxable costs shall include fees for filing and service of process; charges for preparation of the record; bond premiums; and other costs permitted by law Petitioner has cited no statutes specifically authorizing the itemized costs. Applying the foregoing rule to Petitioner's itemization and affidavit of appellate costs, I find that the only cost claims that are recoverable appellate costs are: 09/04/97 Stenographer/Court Reporter August Mtg. of FREC $ 77.00 09/30/97 Filing Fee $250.00 11/01/97 Printing (presumably of appellant's initial brief) $ 11.25 03/04/97 Printing (presumably of appellant's reply brief) $ 73.00 $411.25 Petitioner has also asserted a claim of $1,950.00 in attorney's fees and $69.12 in costs accrued between January 6, 1999, and April 1999, before the Division in this instant proceeding to determine the amount of appellate fees and costs. Respondent has been on notice that such a claim for this proceeding before the Division has been pending since the January 6, 1999, Motion. That Motion stated that Petitioner "continues to compensate his attorneys at the rate of $150.00 per hour, plus costs, for efforts in attempting to establish the amount of attorney's fees and costs recoverable by him and seeking recovery thereof from DBPR." I infer therefrom that the benefits of this "collection" proceeding ultimately inures to Petitioner. Petitioner only filed his attorney's affidavit and itemization of amounts claimed on May 11, 1999, when they were included with Petitioner's Response to Respondent's Reply to the April 21, 1999, Order herein, together with notice to the Department of Insurance of the claim for fees and costs for this "collection" proceeding. Respondent has not filed any objection or challenge to the affidavit and itemization for legal work and costs before the Division. The Department of Insurance has never attempted to intervene herein. Upon consideration of the pleadings, affidavit, itemization and record, I find that the amounts claimed for this "collection" proceeding before the Division are reasonable and, apparently, unopposed, even by the Department of Insurance, which has had 30 days in which to intervene but which has not done so. Petitioner is entitled to $1,950.00 in attorney's fees and $69.12 in costs for this proceeding to collect appellate attorney's fees and costs.
The Issue Whether the Petitioner is entitled to an award for attorney's fees for litigating the attorney's fees issue where the appellate court has determined the Petitioner is entitled to attorney's fees and costs under the provisions of Section 120.57(1)(b)10., Florida Statutes. Whether the Petitioner is entitled to a multiplier enhancement to the lodestar in an award of attorney's fees and costs under Section 120.57(1)(b)10., Florida Statutes.
Findings Of Fact In March, 1989, the Respondent, Department of Health and Rehabilitative Services sought bids for 17,500 square feet of office space in central Orlando, for a period of seven years beginning in December, 1989, with two three-year option extensions. Petitioner and two others submitted bids. After committee review, the bid was awarded to another bidder on or about June 26, 1989. Petitioner timely filed his informal and formal bid protests, and the matter was heard at length before the Division of Administrative Hearings in August, 1989. The Hearing Officer found that Petitioner had sustained the burden of proof and demonstrated that the Department had acted arbitrarily and capriciously in the bid process, and recommended that the lease be re-bid. The Secretary for the Department adopted the Recommended Order but also added an additional condition that the lease be re-bid only if necessary. Petitioner appealed to the Fifth District Court of Appeal which sustained the position of the Petitioner and, although disputed by the Department, granted attorney's fees and costs for all stages of the proceedings. This matter was remanded to the Department for re-bidding and to the Division for the determination of the amount of fees and costs to be awarded. Courtenay v. Department of Health and Rehabilitative Services, 581 So.2d 621 (Fla. 5th DCA 1991). The Law Office of Terrence William Ackert represented Petitioner through all stages of the administrative bid protest and appeal pertaining to the Invitation to Bid for 17,500 square feet of professional office space in the central Orlando, Florida area. Petitioner, a long time client of counsel of record, agreed to pay counsel at the rate of one hundred twenty-five Dollars, and later at one hundred thirty-five Dollars, per hour and for legal assistant charges ranging from twenty-five Dollars an hour to sixty Dollars an hour, and for costs. The Petition for Costs and Attorneys' Fees was timely filed on July 19, 1991. The parties were unable to reach a stipulation regarding the amount of reasonable attorney's fees to be awarded. A fair and reasonable fee for attorney and legal assistant time is as follows: For the period: 6/27/89-2/27/90 Trial attorney time...141.9hrs at $125.00hr =$17,737.50 Legal assistant time...66.0hrs at $45/50hr = $2,990.00 Total. $20,736.50 For the period: 2/27/90-6/30/91 Post-hearing appellate attorney time...92.4hrs at $125.00 =$11,550.00 Post-hearing appellate attorney time...50.6hrs at $135.00 = $6,871.50 Total. $18,421.50 Post-hearing appellate time for various legal assistants at $25/35/50/60hr. =$4,980 Total. $23,401.50 For the period: 7/1/91-to present Post-remand attorney time...48.2hrs at $135.00 = $6,489 Post-remand legal assistant time...50.1hrs at $25/35/60hr =$2,013.00 Total. $8,502 Costs expended for hearing, appeal and remand hearing Total. $8,548.10 Total due for reasonable attorneys' fee and costs. $61,188.10 During the administrative appeal, the Respondent vacated space previously leased from Petitioner and the consequent loss of income rendered Petitioner unable to make payments to counsel. Total payments to counsel of record have been limited to $5,785. Petitioner remains liable for all fees and costs, and has been billed regularly for the total due and owing. Challenge of a proposed award of bid by an agency is complicated, difficult and time consuming process because the litigation is focused primarily in the administrative arena, where few attorneys are willing to accept cases of this type. In order to attain a successful result, it required considerable skill by counsel to properly perform the service. Acceptance by counsel of this matter precluded the acceptance of other litigation because of the three stage administrative process in order to secure relief for his client.
