The Issue The issues in this case are as follows: Whether a refund request submitted by Petitioner, FICURMA, Inc. (Petitioner or FICURMA), to Respondent, Department of Financial Services, Division of Workers' Compensation (Respondent or Department), on January 21, 2010, requesting a refund of assessments paid during 2005 and 2006, is barred pursuant to section 215.26(2), Florida Statutes (2009),1/ because the refund request was not submitted within three years after the assessment payments were made. Whether the doctrine of equitable estoppel can be raised to allow a refund that would otherwise be time-barred by section 215.26(2), and, if so, whether the facts show the sort of rare circumstances that would justify application of that doctrine against a state agency.
Findings Of Fact The Department is the agency that has been statutorily designated as the administrator of the SDTF (§ 440.49, Fla. Stat.) and as the administrator of the WCATF (§ 440.51). The Department's administration of these two funds includes making the requisite assessments to the entities required to pay the assessments and ensuring payment by the assessable entities for deposit into the state Treasury. §§ 440.49, 440.51. As the state agency with the responsibility for the collection of these assessments, the Department is charged with the authority to accept applications for refunds pursuant to section 215.26, for overpayments of assessments, for payment of assessments when none are due, or for payments of assessments made in error. The Department is responsible for making determinations on applications for refunds of SDTF and WCATF assessments. "FICURMA" stands for Florida Independent Colleges and Universities Risk Management Association. FICURMA, Inc., is an independent educational institution self-insurance fund that was established in December 2003, pursuant to the authority of section 624.4623, Florida Statutes (2003). FICURMA was approved as a Florida workers' compensation self-insurer meeting the requirements of section 624.4623, effective December 10, 2003. FICURMA's members self-insure their workers' compensation claims under chapter 440. On November 16, 2004, Evelyn Vlasak, the assessments coordinator for the SDTF and WCATF assessments, wrote to Ben Donatelli, FICURMA's executive director, to advise that the assessments unit of the Department's Division of Workers' Compensation (Division) received notice that FICURMA had been approved to write workers' compensation insurance in Florida, effective December 10, 2003. Therefore, Ms. Vlasak informed FICURMA that it was required to register with the Division; it was required to pay assessments to the WCATF and SDTF, calculated on the basis of premiums paid to FICURMA by its members; and it was required to submit quarterly premium reports to the Division. Ms. Vlasak enclosed quarterly report forms for FICURMA to catch up on its premium reports for the last quarter of 2003 and the first three quarters of 2004. Ms. Vlasak also enclosed Bulletin DFS-03-002, dated June 26, 2003, which attached two Orders Setting Assessment Rates, one for the WCATF for calendar year 2004, and the other for the SDTF for fiscal year 2003-2004. The two orders, issued by E. Tanner Holloman, then-director of the Division, included a Notice of Rights. This notice advised of the right to administrative review of the agency action pursuant to sections 120.569 and 120.57, Florida Statutes, by filing a petition for hearing within 21 days of receipt of the orders. In bold, the Notice of Rights concluded with the following warning: "FAILURE TO FILE A PETITION WITHIN THE TWENTY-ONE (21) DAYS CONSTITUTES A WAIVER OF YOUR RIGHT TO ADMINISTRATIVE REVIEW OF THIS ACTION." Mr. Donatelli testified that Ms. Vlasak's letter came as a surprise, because he and the others involved in lobbying for the passage of section 624.4623 and setting up FICURMA, pursuant to the new law, believed that FICURMA was not subject to SDTF and WCATF assessments. Mr. Donatelli said that he called Ms. Vlasak to ask why FICURMA had to pay when according to their interpretation of the statute authorizing FICURMA to be created, FICURMA was not subject to the assessment requirements. Mr. Donatelli said that in response to his question, Ms. Vlasak stated that it was her interpretation of the statute that FICURMA was required to pay assessments. She stated that she would have that confirmed by "Legal," but that FICURMA should be prepared to start paying in order to avoid penalties for late payment. Mr. Donatelli testified that "obviously with her response, then we started to think hard about reading [section 624.4623] again, and we did, and didn't see any reason that we needed to pay this." But he also testified that when Ms. Vlasak said she would confirm her interpretation with the legal department, he began calculating what the assessments might cost, because they had not been collecting funds to cover the assessments from its members, since they did not know they had to pay the assessments. The next communication received by FICURMA from Ms. Vlasak came by way of a December 20, 2004, memorandum to all carriers and self-insurance funds, providing information to assist with computation of premiums to be reported for the fourth quarter 2004 SDTF and WCATF assessments. At around the same time, FICURMA received Bulletin DFS 04-044B. This bulletin attached copies of the two Orders Setting Assessment Rates signed by Tom Gallagher, then-Chief Financial Officer. One order was for the WCATF for calendar year 2005 and the other order was for the SDTF for fiscal year 2004-2005. As with the previous bulletin attaching two orders for the prior year, this mailing included a Notice of Rights, which provided a clear point of entry to contest the action by filing a petition for administrative hearing within 21 days of receipt. Mr. Donatelli acknowledged that the two Holloman orders and the two Gallagher orders all ordered FICURMA to pay the SDTF and WCATF assessments. Mr. Donatelli testified that after reviewing the second set of orders received, FICURMA did not believe it had any alternative but to pay the assessments. However, because there was a reference to some "legal stuff," he "asked the legals" to take a second look, because this was not an insignificant payment. In fact, the calculation of assessments to catch up for the prior quarters of missed payments was more than $104,000. When asked why, if he believed FICURMA was not assessable, Mr. Donatelli did not direct "the legals" to file a petition for an administrative hearing on FICURMA's behalf to contest the assessment rate orders, Mr. Donatelli's response was: "Basically, it was our respect of the opinion of the Office Of Insurance Regulations [sic: Division of Workers' Compensation] that said that we had to pay that. I mean--we were basically trying to--being good citizens." Accordingly, FICURMA chose to not challenge the assessments, or otherwise object to paying the assessments. Instead, FICURMA transmitted payment on December 26, 2004, for SDTF and WCATF assessments calculated to be due for the fourth quarter of 2003 and the first three quarters of 2004, totaling $104,282.11. Neither this payment, nor subsequent FICURMA assessment payments were made "under protest." Mr. Donatelli's question to Ms. Vlasak sometime in late 2004--whether FICURMA was assessable under either section 440.49 (for the SDTF) or section 440.51 (for the WCATF)--was never put in writing. However, FICURMA's general counsel wrote to Ms. Vlasak on January 7, 2005, to raise a different assessment question: "whether [FICURMA] is assessed and therefore required to pay into the [SDTF] as it was established within the past year and as such none of the group's claims would be eligible for reimbursement from the Fund." This question, limited to the SDTF assessments, was not based on the status of FICURMA as an entity authorized by section 624.4623 but, rather, was based on the fact that the SDTF had been closed for certain new claims before FICURMA was established. After no response was received, FICURMA's general counsel wrote a second time on February 14, 2005, attaching another copy of the January 7, 2005, letter. Neither of these letters asked about Mr. Donatelli's prior telephonic inquiry regarding whether FICURMA was assessable at all because of its status as an entity formed under section 624.4623. Ms. Vlasak responded in writing after the second written inquiry by FICURMA's general counsel that addressed the propriety of the SDTF assessments. Ms. Vlasak stated the Department's position that assessments were to continue to all assessable entities, even though the SDTF was being prospectively abolished. Ms. Vlasak concluded, therefore, that FICURMA "is not exempt" from the SDTF assessments. Ms. Vlasak's letter dated February 16, 200[5],4/ responded only to the written inquiry in the January 7, 2005, letter and February 14, 2005, reminder letter and, thus, addressed only the limited question about SDTF assessments. Thereafter, until 2009, FICURMA had no further telephonic or written communications with the Division about FICURMA's assessability. Instead, FICURMA fell into the pattern of making quarterly premium reports and assessment payments, pursuant to notice by the Department. In total, FICURMA's payments received by the Department in 2005 and 2006 add up to $288,607.32 in SDTF assessments and $63,164.70 in WCATF assessments. The breakdown of assessment payments credited by quarter is as follows: 2003, Q 4 (received 1-11-05) SDTF: $7,652.36 WCATF: $2,962.75 2004, Q 1 (received 1-11-05) SDTF: $22,957.34 WCATF: $ 7,618.49 2004, Q 2 (received 1-11-05) SDTF: $23,685.39 WCATF: $ 7,860.20 2004, Q 3 (received 1-11-05) SDTF: $23,685.39 WCATF: $ 7,860.19 2004, Q 4 (received 2-10-05) SDTF: $25,543.10 WCATF: $ 8,476.00 2005, Q 1 (received 5-2-05) SDTF: $29,258.54 WCATF: $ 4,854.45 2005, Q 2 (received 7-29-05) SDTF: $29,258.54 WCATF: $ 4,854.45 2005, Q 3 (received 11-1-05) SDTF: $29,350.54 WCATF: $ 4,854.85 2005, Q 4 (received 2-2-06) SDTF: $27,193.93 WCATF: $ 4,527.53 2006, Q 1 (received 5-1-06) SDTF: $23,340.73 WCATF: $ 3,098.33 2006, Q 2 (received 7-26-06) SDTF: $23,340.73 WCATF: $ 3,098.33 2006, Q 3 (received 10-27-06) SDTF: $23,340.73 WCATF: $ 3,098.33 In 2007, 2008, and part of 2009, FICURMA continued these quarterly payments pursuant to notice by the Department, paying quarterly assessments to the SDTF totaling $363,441.86 and to the WCATF totaling $31,132.88. In the 2009 legislative session, the adoption of a new law authorizing another type of self-insurance fund contained language that caused Ms. Vlasak to question whether certain other self-insurance funds authorized under different statutes were assessable under sections 440.49 and 440.51. The 2009 law, codified in section 624.4626, Florida Statutes (2009), specifically provided that a "self-insurance fund that meets the requirements of this section is subject to the assessments set forth in ss. 440.49(9), 440.51(1), and 624.4621(7), but is not subject to any other provision of s. 624.4621 and is not required to file any report with the department under s. 440.38(2)(b) which is uniquely required of group self-insurer funds qualified under s. 624.4621." (Emphasis added). In contrast, section 624.4623, the statute under which FICURMA was formed, contained the following language: "An independent education institution self-insurance fund that meets the requirements of this section is not subject to s. 624.4621 and is not required to file any report with the department under s. 440.38(2)(b) which is uniquely required of group self-insurer funds qualified under s. 624.4621." (Emphasis added). Ms. Vlasak asked the Division's legal office to analyze the legal question and give advice. Meanwhile, Ms. Vlasak and her supervisor, Mr. Lloyd, agreed that the standard quarterly assessment notices would not be sent to FICURMA, so that the Department could consider the question of its assessability after receiving advice from its legal office. By not sending the notices, the clock would not start on the deadlines for FICURMA to pay the assessments without imposition of a statutory penalty for late payment. FICURMA, however, had been well-conditioned to expect those quarterly notices and became concerned when the expected notices did not arrive. Mr. Donatelli and his assistant, Joanne Hansen, called Ms. Vlasak several times to ask why nothing had been received yet. They ultimately spoke with Ms. Vlasak, who advised that the Department was reviewing whether FICURMA was assessable, and it did not have to worry about not receiving the notices because payments would not be due until after the notices were received. On October 1, 2009, the Department's legal staff issued a Memorandum of Opinion regarding independent education institution self-insurance funds (like FICURMA), authorized by section 624.4623. This opinion analyzed section 624.4623, as well as the statutory terms used to identify which entities are subject to assessments in section 440.49 (for the SDTF) and section 440.51 (for the WCATF). Based on that analysis, the opinion concluded that self-insurance funds qualifying under section 624.4623 (like FICURMA), are not subject to SDTF or WCATF assessments. Although the analysis was prompted by a different self-insurance fund statute adopted in 2009, the conclusion reached as to section 624.4623 entities would apply to the entire time period since the adoption of section 624.4623 in 2003. The Department witnesses testified unequivocally that the legal opinion was advisory only, and it was up to the administration to make the policy decision to follow the advice given. However, it is difficult to discern any "policy" choice to be made, since the plain import of the opinion was that the statutes were not susceptible to any different interpretation other than that section 624.4623 entities were not subject to SDTF or WCATF assessments. Nonetheless, the legal opinion was reviewed, and, ultimately, the Department agreed with the advice. On November 14, 2009, Ms. Vlasak and Mr. Lloyd called Mr. Donatelli to advise that FICURMA was not required to pay SDTF or WCATF assessments anymore. In addition, they discussed how FICURMA could go about requesting refunds of assessments previously paid. However, they alerted FICURMA to the fact that section could present a problem with respect to requests for refunds of payments made more than three years ago. At the time of this conversation, all of the assessments paid in 2005 and 2006 had been made more than three years ago, while the payments made in 2007-2009 were within the three-year window. On January 12, 2010, Ms. Vlasak wrote to FICURMA, sending the forms for applying for refunds. In the letter, she reiterated the potential problem for refund requests of payments made more than three years ago. Accordingly, she recommended that FICURMA submit separate requests for payments made within the last three years versus those made more than three years ago, as the former would be able to go through more easily. FICURMA completed four separate refund application forms: one for SDTF payments made in 2005 and 2006; one for WCATF payments made in 2005 and 2006; one for SDTF payments made in 2007-2009; and one for WCATF payments made in 2007-2009. The refund forms state that the refund requests are submitted pursuant to section 215.26; FICURMA did not fill in the blank that is required to be filled in if the refund requests were being submitted under any other statute besides section 215.26. The applications were dated January 20, 2010, and were received by the Department on January 21, 2010. The Department approved the refund applications for payments made in 2007-2009 and caused warrants to be issued to FICURMA to refund $363,441.86 for SDTF assessments and $31,132.88 for WCATF assessments. By authorizing refunds of assessments paid in 2007, 2008, and 2009, the Department has acknowledged that FICURMA should never have been assessed under sections 440.49 and 440.51 and should never have been served annually with the Orders Setting Assessment Rates or quarterly with assessment notices. The Department acknowledged FICURMA's entitlement to refunds despite FICURMA's failure to challenge the assessments in 2007, 2008, and 2009 pursuant to the Notice of Rights provided annually. However, as warned, on May 12, 2010, the Department issued a Notice of Intent to Deny Applications for refund of the 2005 and 2006 payments to the SDTF and the WCATF. The sole reason for the denial was that section 215.26(2) required that refund applications be filed within three years after the right to the refund accrued "or else the right is barred." The Department noted--as stated on the refund application form--that the three-year period normally commences when the payments are made. No evidence was presented regarding what are considered "normal" circumstances or what sort of not-normal circumstances would have to be shown to establish that the three-year period in section 215.26(2) would commence at some other point in time, rather than when payments are made.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is hereby RECOMMENDED that Respondent, Department of Financial Services, Division of Workers' Compensation, enter a final order denying the requests for refunds of SDTF and WCATF assessments paid by Petitioner, FICURMA, Inc., in 2005 and 2006, because Petitioner's requests are time-barred by section 215.26(2) and because Petitioner has not met its burden of proving that equitable estoppel should be applied against Respondent. DONE AND ENTERED this 8th day of July, 2011, in Tallahassee, Leon County, Florida. S ELIZABETH W. MCARTHUR Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 8th day of July, 2011.
Findings Of Fact The Petitioners James I. McKee and James Cone are registered physical therapists licensed in Florida under Chapter 486, Florida Statutes. Petitioners McKee and Cone are engaged in the private practice of providing physical therapy services. Physical therapy is the treatment of injured or crippled individuals through physical agents such as heat, ultrasound and electrical stimulation treatments, and therapeutic exercise. Physical therapy patients are referred to private practitioners such as Petitioners by prescription from physicians. Petitioners, as a substantial part of their practices, treat workers who have been injured in job-related accidents and receive payment for their services from workers' compensation insurance carriers. Respondent is the state agency responsible for administering the workers' compensation program in Florida. Respondent has proposed Rules 38F- 7.01 through 38F-7.03 and 38F-7.10 through 38F-7.13 for adoption. These proposed rules constitute the proposed fee schedule for the workers' compensation program, and include a proposed fee schedule for physical therapy services. The proposed fee schedule was presented to the Respondent by a three- member panel consisting of the Secretary of Labor and Employment Security, the State Insurance Commissioner, and the State Medical Consultant of the Division of Workers' Compensation. Respondent's rules have not in the past included a fee schedule for physical therapy services provided by practitioners such as Petitioners McKee and Cone. Rather, such services have been compensated on the basis of a case- by-case determination of the charges that prevail in the same community for similar treatment of injured persons of like standard of living. The proposed fee schedule would set maximum limits for such fees. The proposed fee schedule would have applicability statewide. Different fee schedules for different geographic locations have not been proposed. Petitioners McKee and Cone presently charge higher fees for injured workers and receive more compensation than they would receive under the fee schedule set out in the proposed rules. Furthermore, prevailing fees charged by physical therapists are generally higher than the maximum fees set out in the proposed rules. There is a statistically significant difference in fees for physical therapy services that are charged in different areas of the state. Fees for services in Southeast Florida are uniformly higher than fees for the same services in other areas of the state. The three-member panel which proposed the fee schedule for physical therapy services considered the present fee schedule, which does not set maximum charges for physical therapy services; a schedule utilized under the medicare program for physical therapy services; and a schedule set out in a document prepared by the Florida Medical Association, Inc., entitled "1975 Florida Relative Value Studies." No consideration was given to setting different fees in different areas of the state. The medicare schedule considered by the panel sets different rates for different areas of the state. The panel utilized a schedule in the mid-range from the medicare schedule in arriving at its proposed schedule. Respondent promulgated an economic impact statement in support of the proposed rules. The economic impact statement does not contain any estimate of the economic impact of the proposed fee schedules upon physical therapists such as Petitioners . The panel which proposed the schedules did hear objections from various physical therapists, but did not change its proposed schedule in response. The proposed schedule has a significant economic impact upon physical therapists because there has not been a maximum fee schedule applied to physical therapists in the past. Furthermore, the schedule would allow less compensation to such therapists than has typically been allowed in the past.
The Issue Whether the agency's audit adjustment of an interim rate should be sustained.
Findings Of Fact The Petitioner is a licensed nursing home located in Chipley, Washington County, Florida. The Petitioner is located in a rural county in Florida's panhandle with high numbers of Medicaid- eligible patients. The Petitioner participates in the Florida Medicaid Program and has agreed to provide skilled or intermediate nursing care services for Medicaid patients. The Respondent is the state agency responsible for administering the Florida Medicaid Program. The parties have entered into an agreement that governs the provision of Medicaid services and the reimbursement to the provider (Petitioner). Such plan authorizes reimbursement based upon rates agreed between the parties and limited by rules and regulations applicable to the Medicaid Program. In this regard, Medicaid reimbursements are made in accordance with the Florida Title XIX Long-Term Care Reimbursement Plan (the Plan). The Plan was adopted and incorporated by reference in Rule Chapter 59G, Florida Administrative Code. To set a reimbursement rate, cost reports are reviewed by AHCA to determine the actual Medicaid allowable costs incurred by the provider. The allowable costs are used to set a prospective rate for the provider. Payments to the provider in subsequent periods are then based upon the rate adjusted for inflation. There are limits on costs and reimbursements. If a provider incurs an expense above the allowed level, it will not be reimbursed. In this regard the approved rate for the provider may not compensate the provider for expenses that were more than anticipated. Medicaid is not intended to pay for luxury care. The Medicaid Program covers rates for providers that are efficiently operated. The providers are not compensated for luxury services, excessive charges, or operating costs that exceed what a prudent, efficiently operated facility would incur. Once the reimbursement rate is set it continues until the next rate-setting period. If circumstances change such that the rate unfairly impacts the provider's ability to provide care, an interim rate adjustment may be requested. An increased interim rate could assist the provider until the regular rate is re-calculated. Nursing homes are subject to inspections or surveys that are performed by AHCA to assure compliance with all applicable standards of operation. The standards are to assure that patients receive a quality of care at or above minimum levels. Pertinent to this case was a survey that found Petitioner deficient due to inadequate staffing levels. Inadequate staffing directly impacts the quality of care a facility is able to provide. Given its rural location and the wages it was offering, the Petitioner could not offer competitive opportunities in order to recruit and retain qualified staff. For entry level employees the Petitioner found itself competing against even McDonald's restaurant for employees. As a result, when a survey found the facility deficient, the Petitioner sought financial relief through a request for an interim rate increase. The provider faced a financial loss if the deficiency were corrected without a corresponding increase in its rate as it would not be able to cover the additional costs within its reimbursement rate. To correct the deficiencies Petitioner sought six additional Certified Nursing Assistants and wage enhancements. As a result, it sought an interim rate increase of $3.56 per day in patient care and $.12 per day in operating cost. The interim reimbursement rate was approved by AHCA in 1996. The reimbursements to this provider then continued based upon the new rate. It then became the facility's objective to follow the plan of correction to assure that the deficiency was, in fact, alleviated. In November of 1997, new rates were established for the Petitioner which became the settled rate. Based upon the cost reports filed with AHCA, the Petitioner's rate was settled with increases of $3.91 per day in patient care and $1.62 in the operating category. The instant case resulted from an audit conducted at the facility. The audit was to verify that the expenses reported were correct and allowable. An audit should also confirm that the statistical information reported by the provider was correct. The auditors used $3.56 instead of $3.91 as the starting point for the cost report figures. The Petitioner had relied on the higher number as the cost- settled figure for the audit. More important, the Petitioner relied on the same accounting methodology it had relied on for the interim rate request. The auditors, an independent accounting firm, did not accept the prior methodology. Subsequent to the audit, the Respondent issued a letter to the Petitioner claiming it was owed $364,621.12 for Medicaid over-payments. The Respondent maintains it is entitled to recoup the over-payments as part of the future reimbursements to the provider. The Petitioner argues that such action will adversely impact the provider's ability to provide the quality of care expected by AHCA. All of the costs reported by this Petitioner are allowable under the Medicaid guidelines. The crux of the issue in the case results from the settled interim rate not being accepted and carried forward by the independent auditors. Because some amounts exceeded the "budgeted" estimates, the auditors disallowed the additional expenses. The amounts, all within the category of wage or salary enhancements, were not deemed proper because they exceeded or altered the granted 50- cent-an-hour pay raise within the original request. Although allowable, the expenditures fell outside the parameters of the budget that support the interim rate increase. Bonuses and wage enhancements paid by the Petitioner during the audited period were not one-time expenses but are on-going programs to encourage and support the retention of qualified employees. This was within the parameter of curing the deficiency that the interim rate sought to address. None of the expenses fell outside of operation and patient care costs. It is anticipated that the reduction in Petitioner's rate will result in reduced staffing. Otherwise, the facility will not be a financially feasible operation. The reimbursement rate for this provider is not higher than other rates for the other providers serving the geographical region served by the Petitioner. When a provider goes through the cost settlement process, AHCA is authorized to and may seek additional information to clarify any form submitted by a Medicaid provider. In this case, the rate was cost- settled without additional information being sought by AHCA. The allowable expenses incurred by the Petitioner support the reimbursement rate paid to this provider.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency for Health Administration enter a Final Order reinstating the provider's Medicaid rate to include the interim rate as previously settled and accepted by the Respondent. AHCA should affirm the interim rate established and committed by the cost report allowing $3.91 for patient care and $1.62 for operating costs. DONE AND ENTERED this 30th day of July, 2001, in Tallahassee, Leon County, Florida. _____________________________ 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, 2001. COPIES FURNISHED: Theodore E. Mack, Esquire Powell and Mack 803 North Calhoun Street Tallahassee, Florida 32303 Steven A. Grigas, Esquire Agency for Health Care Administration 2727 Mahan Drive Building 3 Tallahassee, Florida 32308 Ruben J. King-Shaw, Jr., Director Agency for Health Care Administration 2727 Mahan Drive Fort Knox Building, Suite 3116 Tallahassee, Florida 32308 Julie Gallagher, General Counsel 2727 Mahan Drive Fort Knox Building Three, Suite 3431 Tallahassee, Florida 32308
The Issue The issue is whether Florida Administrative Code Rule 25-6.109(4)(a), constitutes an invalid exercise of delegated legislative authority as defined in Sections 120.52(8)(b) and 120.52(8)(c), Florida Statutes.
Findings Of Fact Ocean Properties is one of FPL's commercial retail electric customers. FPL, Progress, TECO, and Gulf are public utilities and electric utilities within the meaning of Section 366.02, Florida Statutes. They are extensively regulated by PSC. Ocean Properties has challenged Florida Administrative Code Rule 25-6.109(4)(a), which provides as follows: (4) Interest. (a) In the case of refunds which the Commission orders to be made with interest, the average monthly interest rate until the refund is posted to the customer's account shall be based on the thirty (30) day commercial paper rate for high grade, unsecured notes sold through dealers by major corporation in multiples of $1,000 as regularly published in the Wall Street Journal. PSC adopted Florida Administrative Code Rule 25-6.109(4) in 1983 and has never amended it. At the time that Ocean Properties filed the petition at issue here, Ocean Properties was a party to a proceeding before PSC concerning alleged inaccuracies in certain thermal demand meters owned and installed by FPL. Ocean Properties and several of FPL's other customers filed complaints with PSC, alleging that that the meters over-registered their electric service demand and that they were overcharged for retail electric service. The customers asked PSC to order FPL to refund the overcharges. On November 19, 2003, PSC issued a Proposed Agency Action Order, ordering refunds for the overcharges and stating that the interest rate rule would apply to determine the amount of interest to be paid by FPL to the customers. Ocean Properties, among others, challenged the Proposed Agency Action Order in a Petition for Formal Administrative Hearing Pursuant to Sections 120.569 and 120.57(1), Florida Statutes. On June 25, 2004, Ocean Properties filed its rule challenge petition in the instant case. In a letter dated July 6, 2004, PSC requested the Bureau of Administrative Code to add Section 366.05(1), Florida Statutes, as additional Specific Authority and Section 366.07, Florida Statutes, as additional Law Implemented for the interest rate rule. On July 8, 2004, Ocean Properties, PSC, and FPL filed a motion to place the instant case in abeyance, stating as follows in relevant part: In the event that Ocean chooses to proceed with this rule challenge following the issuance of a final order in Docket No. 030623-EI, and also files with the Commission a timely motion for reconsideration of that final order, the Commission will defer ruling on Ocean's motion for reconsideration until after the entry of a final order in this rule challenge proceeding and FPL will not object to such deferral. Without conceding its relevance or potential effect, FPL agrees that the Commission is entitled to consider the final order in the rule challenge case in resolving any such motion for reconsideration. The Commission staff agrees to address the potential effect of a final order in the rule challenge case in making its recommendation on the motion for reconsideration. By joining in this motion, none of the parties waives any position or argument that is otherwise available to it in this proceeding, in Docket No. 030623-EI, or on appeal of the final order in either proceeding; provided, however, that if the Commission's final order applies the challenged rule to Ocean, and the challenged rule is subsequently invalidated in [DOAH] Case No. 04-2250RX, neither the Commission nor FPL will assert on appeal that Ocean is nevertheless bound by the invalidated rule based on the fact that the determination of invalidity came after the Commission's final order as opposed to having been issued in July 2004. On November 4, 2004, PSC conducted a formal administrative hearing. During the hearing, Ocean Properties argued, among other things, that Section 687.01, Florida Statutes, which governs rates of interest in commercial relationships when there is no contract, should apply to the refunds. Ocean Properties argued that the statutory interest rate should apply because Florida Administrative Code Rule 25-6.109(4)(a) is an invalid exercise of delegated legislative authority. Additionally, Ocean Properties argued to the PSC that Kissimmee Utility Authority v. Better Plastics, Ins., 526 So. 2d 46 (Fla. 1988) should control. In that case, the Florida Supreme Court decided that Section 687.01, Florida Statutes, is applicable when calculating interest on utility overcharge refunds. See Kissimmee Utility Authority v. Better Plastics, Ins., 526 So. 2d at 47. In a Final Order Resolving Complaints dated February 25, 2005, PSC ordered FPL to refund to its customers the overcharges that resulted from use of the thermal demand meters. PSC also ordered FPL to pay interest on the amount refunded based on the interest rate rule. PSC distinguished Kissimmee Utility Authority as involving a municipal utility that was not subject to PSC's broad ratemaking authority under Chapter 366, Florida Statutes. On March 14, 2005, Ocean Properties and other customers filed a Motion for Reconsideration of PSC's Final Order Resolving Complaints. The motion references the instant case and asks the Commission to reconsider its decision concerning the proper interest to be applied to the refunds. On March 21, 2005, FPL filed a Response in Opposition to Customers' Motion for Reconsideration with PSC. The response refers to FPL's current tariff that is titled "Florida Power & Light Company, General Rules and Regulations for Electric Service." The tariff referenced in the response is the official and effective tariff on file with PSC. In a letter dated March 24,2005, PSC requested the Bureau of Administrative Code to add Section 366.04(1), Florida Statutes, as additional Law Implemented for the interest rate rule. FPL's General Rules and Regulations for Electric Service state as follows in pertinent part:
The Issue The facts as presented indicate that AAA published a newspaper advertisement stating in pertinent part regarding fees: "Fee: 1 Weeks Salary Upon Acceptance." The Department alleged this ad was a misrepresentation of the fees charged because it departed from the fee schedule filed with the Department by (1) failing to include the word "cash" relating to the one week's salary, and failing to include the alternative term payment option. Therefore, the issue is whether the ad as published departs from the fee schedule filed with the Department of State.
Findings Of Fact AAA Employment is organized as a partnership and licensed by the Department of State as a private employment agency. AAA caused to be published the newspaper advertisement received as Exhibit 2. This advertisement states with regard to fees: "Fee: 1 Weeks Salary Upon Acceptance." The complaint upon which the Department of State acted was received from a competitive agency. No evidence was presented concerning AAA's contracts with its customers. No evidence was presented concerning AAA's practices with regard to its customers. The fee schedule filed by AAA with the Department of State was introduced as Exhibit 1. This exhibit provides regarding the fee schedule as follows: FEE: 1 WEEKS SALARY--CASH PAYABLE: Upon acceptance or FEE: 2 WEEKS SALARY--TERMS PAYABLE: 1/4 upon acceptance, before starting of work. Remainder of fee to be paid in 3 weeks, in 3 equal weekly installments. Temporary work: 1/2 weeks salary, cash Daywork: 15 percent of gross salary Waiters & Waitresses: $40.00 cash All commission jobs: $200.00 cash All seasonal jobs are considered permanent work. A letter dated May 29, 1979, from the Department of State to AAA advised that the Department felt that advertisement of the agency's cash fee without advertisement of its two term fee was a violation of Rule 1C-2.08(10), Florida Administrative Code. Subsequently, AAA filed an amended fee schedule which was introduced as Exhibit 1 (see Paragraph 4 above). This amendment substantially altered the fee schedule and provided for both cash and term payments. The annual licensing fee paid by AAA is $100.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law the Hearing Officer recommends that no civil penalty be levied against the AAA Employment Agency. DONE and ORDERED this 22nd day of April, 1980, in Tallahassee, Leon County, Florida. STEPHEN F. DEAN Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 22nd day of April, 1980. COPIES FURNISHED: W. J. Gladwin, Jr., Esquire Assistant General Counsel Department of State The Capitol Tallahassee, Florida 32301 Mr. John DeHaven AAA Employment Agency 500 East Central Avenue Winter Haven, Florida 33880
The Issue Is the practice of the Respondent, Agency for Health Care Administration (Agency), to decline Medicaid-funded compensation for emergency medical services provided to undocumented aliens once the patients have reached a point of stabilization an unpromulgated rule? The Petitioners' Proposed Final Order identifies the Agency's use of limited InterQual criteria to determine medical necessity as an issue in this proceeding. But the Petition for Determination of Invalidity of Non-Rule Policy does not raise this issue. Neither party's pre-hearing statement identifies it as an issue. Consequently, this Order does not consider or determine whether the Agency's limitation on the use of InterQual criteria is an "unpromulgated rule."
Findings Of Fact Proceedings Before the Division of Administrative Hearings and the First District Court of Appeal In the beginning this was an action by the Hospitals aimed at stopping Agency efforts to recoup reimbursement of Medicaid payments to the Hospitals for emergency services provided to undocumented aliens once the patients have reached a point of “stabilization.” The issue of whether the Agency could apply the “stabilization” standard to the Hospital claims for Medicaid payment for services provided indigent aliens recurred in Agency claims against hospitals throughout the state to recoup Medicaid payments. Hospitals challenged Agency claims in individual proceedings under section 120.569, which the Agency referred to the Division for disputed fact hearings. Duane Morris, LLP (Duane Morris), led by Joanne Erde, represented the hospitals in the individual proceedings. The Hospitals collectively engaged Duane Morris to represent them in this proceeding challenging the Agency’s stabilization standard as an unpromulgated rule. Joanne B. Erde, Donna Stinson, and Harry Silver were the Hospital’s lawyers in this proceeding. Ms. Erde is an experienced lawyer who has focused her practice in health care. Ms. Stinson is an experienced lawyer who concentrated her practice in health care and administrative law litigation before the Division. The Agency does not question their expertise. Mr. Silver is an experienced lawyer with no Florida administrative law experience. His role in the case was minimal. Depositions taken in one of the individual reimbursement cases were significant evidence in this proceeding. Those depositions make it clear that the Hospitals’ counsel was tuned into the unpromulgated rule issue and using discovery in that case to gather and identify the evidence that they would need in this case. Representation of the Hospitals in individual reimbursement actions provided Hospitals’ counsel the advantage of preparing with level of detail before filing the petition. The engagement letters recognize this stating: “We have an understanding of the facts underlying this matter and have substantial knowledge concerning the law governing the issues in this case.” This well-developed understanding of the facts should have minimized the need for discovery and preparation in this proceeding. Counsel were well positioned to prosecute this matter efficiently. Likewise, counsel’s “substantial knowledge concerning the law governing the issues in this case” should have minimized the need for time spent in research. This is not what happened. The pre-existing representation in the reimbursement cases provided another obvious and significant benefit to the Hospitals and their counsel. Since counsel represented the individual hospital in the separate reimbursement matters, the Hospitals could band together to jointly finance one case that would resolve the troublesome point of “stabilization” issue more consistently and more cheaply than if they litigated it in each and every case. As the basically identical engagement agreements between each hospital and counsel state: “Because many hospitals’ interests in [sic] are similar or identical as it relates to the Alien Issue and in order to keep legal costs to a minimum, each of the participants in the [hospital] Group will [sic] have agreed that it wishes this firm to represent them in a Group.” Because of counsel’s pre-existing relationships with the Hospitals, litigating this matter should have continued or enhanced the client relationships. The time required for this matter could not result in lost business opportunities. In fact, by consolidating the issues common to all the clients and their cases, counsel freed up time to work on other matters. Presentation of the issue for resolution in a single case also saved the Hospitals the greater cost of disputing the issue in each case where the Agency sought reimbursement. The Hospitals and counsel dealt with the only possible downside of the representation by including disclosures about joint representation and a waiver of conflict claims in the engagement letters. This was not a contingent fee case. The agreement provided for monthly billing and payment from counsel’s trust account. Each group member made an initial payment of $10,000 to the trust account. Any time the trust account balance dipped below $15,000, each group member agreed to contribute another $10,000 to the trust account. For counsel, this representation was about as risk free as a legal engagement can be. The Hospitals and their counsel knew from the outset that they would have to prove their reasonableness of their fees and costs if they prevailed and wanted to recover fees. The Petition for Determination of Invalidity of Non-Rule Policy seeks an award of fees and costs. They could have adjusted their billing practices to provide more detail in preparation for a fees dispute. An "unpromulgated rule challenge" presents a narrow and limited issue. That issue is whether an agency has by declaration or action established a statement of general applicability that is a "rule," as defined in section 120.52(16), without going through the required public rulemaking process required by section 120.54. The validity of the agency's statement is not an issue decided in an "unpromulgated rule challenge." Courts have articulated the legal standards for unpromulgated rule challenges frequently. See, e.g., Coventry First, LLC v. Off. of Ins. Reg., 38 So. 3d 200, 203 (Fla. 1st DCA 2010); Dep’t of Rev. v. Vanjaria Enters., 675 So. 2d 252 (Fla. 5th DCA 1996); and the cases those opinions cite. The facts proving the “stabilization” standard were easy to establish. Many Agency documents stated the shift to the “stabilization” standard. Documents of Agency contractors did also. Two examples of how clear it was that the Agency was applying a new standard were the Agency’s statements in its 2009-2010 and 2010-2011 reports to the Governor on efforts to control Medicaid fraud and abuse. The reports describe the “stabilization” standard as “more stringent” and certain to recover millions of dollars for the Agency. As the Agency’s reports to the Governor indicate, the stakes were high in this matter. For the Hospitals and other hospitals collectively affected by the Agency’s effort to recoup past payments by applying the “stabilization” standard, $400,000,000 was at stake. This matter did not present complex or difficult issues, legally or factually. The Order of Pre-Hearing Instructions requiring parties to disclose documents and witnesses and update the disclosures alleviated the discovery demands present in other litigation. The Agency’s failure to fully comply with the pre- hearing instructions and unfounded Motion in Limine added some additional time demands for the Hospital’s counsel. Nonetheless the issues were narrow, and the facts were essentially undisputed, if not undisputable. This matter did not require extraordinary amounts of time for discovery or preparation. Ordinarily challenges to rules or unpromulgated rules impose time pressures on the attorneys because of the requirement in section 120.56 that the hearing commence within 30 days of assignment to the Administrative Law Judge. The time constraint was not a factor in this case. The Hospitals requested waiver of the time requirement to permit more time for discovery. The Agency agreed, and the undersigned granted the request. Thus the Hospitals had the time their counsel said they needed to prepare for the hearing. The appeal imposed no time constraints. Both parties received extensions of time for their filings. Seventeen months passed between filing the notice of appeal and oral argument. Time for the Administrative Proceeding The total number of hours claimed for the services of the three lawyers, their claimed hourly rate, and the total fees claimed appear below. Joanne B. Erde 458.20 hours $550.00 rate $252,010.00 Donna Stinson 136.20 hours $455.00 rate $61,971.00 Harry Silver 93.40 hours $550.00 rate $51,370.00 Total 687.80 hours $365,351.00 The Hospitals’ counsel’s billing records are voluminous. For the proceeding before the Division, the Hospitals’ counsel’s invoices list 180 billing entries for the work of three lawyers. A substantial number of the entries are block billing. In block billing, all of a lawyer’s activities for a period of time, usually a day, are clumped together with one time total for the entire day’s service. It is an acceptable form of billing. But block billing presents difficulties determining the reasonableness of fees because a single block of time accounts for several different activities and the invoice does not establish which activity took how much time. Here are representative examples of the block billing entries from the Division level invoices: August 20, 2012 (Erde) – Conference call with ALJ; telephone conference with AHCA attorney; telephone conference with newspaper reporters – 2.0 hours September 16, 2012 (Erde) – Review depositions; prepare opening remarks; develop impeachment testimony – 5.50 September 27, 2012 (Erde) – Intra-office conference; finalize interrogatories; work on direct – 8.50 October 2, 2012 (Stinson) – Review and revise Motion in Limine; Telephone conferences with Joanne Erde and Harry Silver; review emails regarding discovery issues - `2.60 October 19, 2012 (Erde) – Intra-office conference to discuss proposed order; Research Re: other OIG audits; research on validity of agency rules – 2.10 hours November 9, 2012 (Erde) – Conference with ALJ; Intra-Office conference to discuss status; further drafting of proposed order – 7.70 hours. November 19, 2012 (Stinson) – Final Review and Revisions to Proposed Final order; Telephone conferences with Joanne Erde to Review final Changes and comments; Review AHCA’s proposed order and revised proposed order – 3.20 hours. Many of the entries, block or individual, do not provide sufficient detail to judge the reasonableness of the time reported. “Prepare for deposition and hearing,” “review depositions,” “review new documents,” “review draft documents,” “intra-office conference” and “attention to discovery” are recurrent examples. Senior lawyers with more expertise and higher billing rates are expected to be more efficient. This, the fact that the matter was not complicated, the relative simplicity of the issue, and the fact that the Hospitals’ counsel already had a great deal of familiarity with the facts and law involved, all require reducing the number of hours compensated in order for them to be reasonable. For this matter, in these circumstances, the claimed number of hours is quite high. The claimed 687.80 hours amounts to working eight hours a day for 86 days, two of which were the hearing. This is not reasonable. A reasonable number of hours for the proceedings before the Division is 180. That is the equivalent of 22.5 eight-hour days. That is sufficient to handle the matter before the Division from start to finish. The number includes consideration of the worked caused by the needless difficulties presented by the Agency in discovery and with its Motion in Limine. Time for the Appellate Proceeding The fees that the Hospitals seek for the appeal are broken down by hours and rates as follows: Joanne B. Erde 255.10 hours $560.00 $142,856.00 Joanne B. Erde 202.80 hours $580.00 $117,624.00 Donna Stinson 88.50 hours $460.00 $40,710.00 Donna Stinson 67.10 hours $500.00 $33,550.00 W.D. Zaffuto 48.30 hours $435.00 $21,010.50 Rob Peccola 10.90 hours $275.00 $2,997.50 Rob Peccola 17.50 hours $300.00 $5,250.00 L. Rodriguez- Taseff 6.20 hours $520.00 $3,224.00 L. Rodriguez- Taseff 19.50 hours $545.00 $10,627.50 Rachel Pontikes 38.20 hours $515.00 $19,673.00 Total 754.10 hours $397,522.50 For the appellate proceeding, the invoices present 341 entries, a substantial number of which are block billing for work by six lawyers. Here are representative examples from the appellate level invoices: May 16, 2013 (Erde) – Reviewed AHCA’s initial brief; intra- office conference to discuss; preliminary review of record – 2.90 May 24, 2013 (Erde) – Intra-office conference to discuss response to brief; preparation to respond to brief – 2.50 May 30, 2013 (Erde) – Attention to Appeal issues; finalize request for extension; brief research re jurisdictional issues – 1.60 June 18, 2013 (Peccola) – Strategy with J. Erde regarding research needs; review/analyze case law cited in answer brief; conduct legal research regarding documentary evidence and exhibits on appellate review; write email memo to J. Erde regarding same – 2.00 July 19, 2013 (Zaffuto) – Revise/draft Answer Brief; discuss extension of time with H. Gurland; research appellate rules regarding extension of time and staying proceedings pending ruling on motion; review appendix to answer brief; instructions to assistant regarding edits and filing of answer brief and appendix prepare answer brief for filing; call to clerk regarding extension of time review initial brief by AHCA and final order by ALJ – 5.50 August 14, 2013 (Erde) – Intra-office conference to discuss brief; further revised brief – 5.80 August 15, 2013 (Stinson) Reviewed appellees' answer brief; discussed language in answer brief with Joanne Erde – 2.50 October 9, 2013 (Stinson) – Review draft motion to relinquish regarding admission of exhibit; exchange e-mails with Joanne Erde; telephone conference with Joanne Erde – 1.60 October 10, 2013 (Erde) – Attention to new motion re relinquishing jurisdiction; review of revisions; further revisions – 6.00 October 30, 2013 (Erde) – Research re: AHCA’s current behavior; intra-office conference to discuss status of action at DOAH - .70 November 7, 2013 (Peccola) – Strategy with J. Erde regarding Appellees’ response in opposition to Appellant’s motion for supplemental briefing; conduct research regarding same; draft same; look up 1st DCA local rule on appellate motions and email same to J. Erde – 3.60 December 5, 2013 (Erde) – Research Re: supplemental briefing issues; research to find old emails from AHCA re: inability to produce witnesses -.90 January 21, 2014 (Rodriguez-Taseff) – Working on Supplemental Answer Brief – legal argument re authentication and cases distinguishing marchines [sic]; editing facts – 6.70 February 3, 2014 (Erde) – Review and revise response to motion for further briefing; intra-office conference to discuss same – 2.20 May 2, 2014 (Pontikes) – Continue to review relevant case law regarding the definition of an unpromulgated rule; continue to analyze the briefs and the arguments; continue to draft an outline of the argument discussed – 5.00 June 5, 2014 (Erde) – draft email to group regarding AHCA’s settlement offer; reviewed supplemental settlement offer from AHCA; draft email to group re same – 1.70 June 11, 2014 (Erde) – Attention to finalizing response to AHCA’s notice of dismissal and filing of fee petition; memo to members of group – 8.00 July 21, 2014 (Erde) – completed motion for rehearing re: fees as sanctions; drafted status report for DOAH regarding status of DCA opinion; drafted status report in companion case; emails with AHCA re: withdrawing pending audits – 6.90 July 21, 2014 (Peccola) – Strategy with D. Stinson and J. Erde regarding motion for rehearing; revise/edit same; review/revise edit notices in trial court 1.20. The descriptive entries in the invoices for the appellate representation also lack sufficient detail. Examples are: “begin preparation to respond to AHCA”s brief,” “attention to appeal issues,” “preparation to draft answer brief,” and “research and draft answer brief.” For the appellate proceedings, Duane Morris added four lawyers, none with experience in Florida administrative or appellate matters. W.D. Zaffuto, L. Rodriguez-Taseff, and Rachel Pontikes are senior level lawyers in Duane Morris offices outside of Florida. Rob Peccola is a junior level lawyer from a Duane Morris office outside of Florida. The apparent result is those lawyers spending more time on issues than the more experienced Ms. Erde and Ms. Stinson would. One example of this is a July 19, 2013, billing entry where a lawyer spent time researching “appellate rules regarding extension of time and staying proceedings pending ruling on motion.” The two lawyers primarily responsible for this matter, both laying claim to Florida appellate expertise, would only need to quickly check the Florida Rules of Appellate Procedure to confirm their recollection of the rules, something that would probably take less time than it took to make the time entry and review the draft bill. Hospitals’ also filed a puzzling motion that presents a discreet example of needless attorney time billed in this matter. The Hospitals expended 21.8 hours on a Motion for Rehearing of the court’s order awarding them fees and costs. The court’s opinion and the Final Order stated that fees and costs were awarded under section 120.595(4)(a), Florida Statutes. Yet the Hospitals’ motion fretted that fees might be assessed under section 120.595(4)(b), which caps fees at $50,000. The court denied the motion. Two things stand out when reviewing the invoices for the appellate proceeding. The first is that the appeal took more hours than the trial proceeding. A trial proceeding is generally more time-consuming because of discovery, a hearing much longer than an oral argument, witness preparation, document review, and preparing a proposed order. The second is the sheer number of hours. Hospitals’ counsel seeks payment for 754.10 hours in the appellate proceeding. This is 66.3 more than for the Division proceeding. It included a two day hearing, trial preparation, research, and preparing a 37 page proposed final order. In eight-hour days the claimed hours amount to a staggering 94.26 days. That amounts to one lawyer working on the appeal for eight hours a day for three months. Of this time, 613.5 hours were spent by Ms. Erde and Ms. Stinson, lawyers with expertise in the subject area, who had prepared the case for hearing, who participated in the hearing, who closely reviewed the entire record for preparation of their proposed final order, who researched the issues before the hearing and for the proposed final order, and who wrote the proposed final order. With all this knowledge and experience with the record and the law, handling the appeal should have taken less time than the proceeding before the Division.2/ One factor supports the appellate proceeding taking as many hours, or a few more hours, than the administrative proceeding. It is the Agency’s disputatious conduct over a scrivener’s error in the Final Order which erroneously stated that the Agency’s Exhibit 1 had been admitted. The Agency’s conduct increased the time needed to represent the Hospitals in the appeal. The Agency relied upon the exhibit in its initial brief, although it twice cited page 359 of the transcript where the objection to the exhibit was sustained. Also the Agency’s and the Hospitals’ proposed final orders correctly stated that Agency Exhibit 1 had not been admitted. The Hospitals’ Answer Brief noted that Agency Exhibit 1 had not been admitted. The transcript of the final hearing and both parties’ proposed final orders were clear that the exhibit had not been admitted. Yet the Agency argued in its Reply Brief that it had been. This required the Hospitals to move to remand the case for correction of the error. The Agency opposed the motion. The court granted the motion. The Final Order was corrected and jurisdiction relinquished back to the court. The Agency used this as an opportunity to trigger a new round of briefing about whether Exhibit 1 should have been admitted. This has been considered in determining the reasonable number of hours for handling the appeal. A reasonable number of hours for handling the appeal is 225. Converted to eight-hour days, this would be 28.13 days. For the appeal, Duane Morris attributes 28.4 hours of the work to a junior lawyer. This is 3.8 percent of the total time claimed. Applying that percentage to 225 hours, results in 8.6 hours attributed to the junior lawyer with the remaining 216.45 hours attributed to senior lawyers. Attorneys and Fees Each party presented expert testimony on the issues of reasonable hours and reasonable fees. The Agency presented the testimony of M. Christopher Bryant, Esquire. The Hospitals presented the testimony of David Ashburn, Esquire. As is so often the case with warring experts, the testimony of the witnesses conflicts dramatically. Mr. Bryant opined that a reasonable rate for senior lawyers, such as Ms. Erde and Ms. Stinson, ranged between $350 and $450 per hour. The reasonable rate for junior lawyers was $200 per hour. Mr. Ashburn opined that the reasonable hourly rate for senior lawyers ranged between $595 and $700 and the reasonable rate for junior lawyers was between $275 and $300. The contrast was the same for the opinions on the reasonable number of hours needed to handle the two stages of this litigation. Mr. Bryant testified that the administrative proceeding should have taken 150 to 170 hours and that the appeal should have taken 175 to 195 hours. Mr. Ashburn testified that the Hospitals’ claimed 687 hours for the proceeding before the Division and 754.10 hour for the appellate proceeding were reasonable. The Hospitals argue that somehow practicing in a large national law firm, like Duane Morris justifies a higher rate. The theory is unpersuasive. A national law firm is nothing special. There is no convincing, credible evidence to support a conclusion that lawyers from a national firm in comparison to smaller state or local firms provide better representation or more skilled and efficient lawyering that justifies a higher rate. Based upon the evidence presented in this record, a reasonable rate for the senior lawyers participating in this matter is $425 per hour. A reasonable rate for the junior lawyer participating in this matter is $200.00. Fee Amounts A reasonable fee amount for representation in the proceeding before the Division of Administrative Hearings is $76,500. A reasonable fee amount for the proceeding before the First District Court of Appeal is $93,701.25. Costs Hospitals seek $6,333.63 in costs. The evidence proves these costs are reasonable. The Agency does not dispute them.
The Issue The issue for determination at final hearing is whether Petitioner should be granted interim rate adjustments.
Findings Of Fact Sunrise Community, Inc. (Petitioner) is a charitable organization which serves individuals with developmental disabilities. Petitioner is a licensed Medicaid provider which owns, and/or operates Intermediate Care Facilities for the Mentally Retarded and Developmentally Disabled (ICF/MR-DD). The Agency for Health Care Administration (Respondent) is the state agency responsible for the administration and implementation of the Florida Medicaid Program. In August 1995, Petitioner submitted interim rate requests, i.e., requests for interim changes in its Medicaid reimbursement rate, for costs incurred associated with several of its facilities. The costs were incurred to comply with existing state and federal regulations. Petitioner submitted requests for the following Intermediate Care Facilities (ICFs): Sunrise Main Facility Number 285013, St. Petersburg Cluster Number 280186-01, Greentree Court Cluster Number 280283-01, McCauley Cluster Number 280208-1, Mahan Cluster Number 280291-01, Bayshore Cluster Number 280313- 01, Dorchester Cluster Number 280496-01, Cape Coral Cluster Number 285331-01, 26th Terrace (Number 12) Number 285528, County Meadows (Number 13) Number 285536, 138th Court Number 285480-00, 62nd Place Number 285471-00, 55th Court Number 285609-00, 53rd Court Number 285595-00, Wentworth Number 285617-00, Oakmont Number 285587-00, and 148th Court Number 285579-00. Reimbursement to participating ICF/MR-DD for services provided must be in accordance with Florida Title XIX ICF/MR-DD Reimbursement Plan, Version VI, dated November 15, 1994 (Reimbursement Plan). Respondent timely denied Petitioner's interim rate requests. 2/ Section III.G.7 of the Reimbursement Plan provides: After June 30, 1984, additional costs incurred after enrollment in the program that are due to capital additions or expansions must have prior approval by the HRS Office of Developmental Services if such costs exceed 1 percent of the provider's current total reimbursement rate, with the exception of the addition of new beds which are approved through the state's Certificate of Need process. Costs for specific expansion or additions that exceed the 1 percent limit shall not be reimbursable if not previously approved. Further, financing costs for approved expansions or additions shall be limited by the prudent buyer limits established in Section III.G.4. above. Section IV.G of the Reimbursement Plan provides in pertinent part: Requests for rate adjustments for increases in property-related costs due to capital additions, expansion, replacements or repairs shall not be considered in the interim between cost report submissions, except for the addition of new beds or if the cost of the specific expansion, addition, repair, or replacement would cause a change of 1 percent or more in the provider's total per diem reimbursement rate. Requests for interim rate changes reflecting increased costs occurring as a result of resident care or administration changes or capital replace- ment other than that specified in (1) above shall be considered only if such changes were made to comply with existing state or federal rules, laws, or standards, and if the change in cost to the provider is at least $5000 and would cause a change of 1.0 percent or more in the provider's current total per diem rate. The provider must submit documentation showing that the changes made were necessary to meet existing state or federal requirements. Around February or March 1993, Petitioner's representatives discussed with the then Assistant Secretary of Development Services (DS) its plans for the ICFs, including the day centers, six-bed facilities, and office building. No costs were discussed because only the approximate costs, not the actual costs, for the projects were known at that time. The then Assistant Secretary verbally gave Petitioner's representatives approval to proceed with their plans. Following numerous public hearings, Petitioner executed leases for properties from Regional Properties, Inc., which acquired the properties through its tax exempt bond issue in October 1993. Regional Properties is a not-for- profit corporation, exempt from taxation under Section 501(c)(3) of the Internal Revenue Code. Subsequently, a new Assistant Secretary took the helm of DS. Around March 1994, Petitioner representatives met with the new Assistant Secretary and discussed the ICF projects with him. He advised Petitioner's representatives to continue with the projects. Respondent required that the costs be incurred before requesting reimbursement. Petitioner submitted interim rate adjustment requests for the costs associated with the ICF projects. Medicaid had received approval from DS for the property items in the interim rate requests. Since the requests involved items which were required as part of the ICF/MR-DD program, DS took the position that it could not disapprove the requests. The Assistant Secretaries of DS did not give Petitioner written prior approval for the costs associated with the projects. However, although not written, the new Assistant Secretary did give prior approval for the costs. This finding is consistent with the approval of all of Petitioner's requests for interim rate adjustments (for reimbursement) of the costs associated with the projects submitted during the tenure of the new Assistant Secretary. In 1995, the new Assistant Secretary of DS was replaced by the present Acting Assistant Secretary. The present 1995 interim rate adjustment requests are a continuation of costs associated with the ICF projects which have already been approved. The identification of costs, as for capital additions or expansions, by a provider is accepted and not questioned or challenged by DS. The costs in the 1995 interim rate requests were accepted by DS. The costs in the 1995 interim rate change requests were considered by DS to be a continuation of costs for the ICF projects previously approved. As a result, the Acting Assistant Secretary of DS took the position that DS could not disapprove the requests. Written prior approval was not required by DS prior to Petitioner's 1995 interim rate change requests. Petitioner was entitled to rely upon the terms of the Reimbursement Plan and the past practice of Medicaid, DS, and Respondent regarding prior approval. In reliance on the past practice, Petitioner proceeded and continued with the ICF projects and incurred costs associated with the projects. Petitioner leases properties from Regional Properties, Inc. The Phineas Corporation controls both Petitioner and Regional Properties. Petitioner leases the properties from a "related" party or organization. The lease payments are not costs for capital additions or expansions under the Reimbursement Plan. Repairs and replacements are not capital additions or expansions under the Reimbursement Plan. Each facility must be evaluated separately regarding capital additions or expansions in terms of the 1 percent requirement of Section III.G.7 of the Reimbursement Plan. In the 1995 interim rate adjustment requests, there are no capital additions or expansions beyond those identified by Petitioner in its requests. The 1 percent requirement of Section III.G.7 does not apply to any of Petitioner's 1995 interim rate adjustment requests. The costs submitted by Petitioner in the 1995 interim rate adjustment requests are reasonable and necessary and are, therefore, allowable subject to audit.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency for Health Care Administration enter a final order granting Petitioner's interim rate adjustment requests submitted in August 1995, subject to auditing. DONE AND ENTERED this 5th day of August 1996, in Tallahassee, Leon County, Florida. ERROL H. POWELL, Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 5th day of August 1996.
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 The issues in this case are the amount of attorney’s fees and costs to be awarded to Petitioners pursuant to Section 120.595, Florida Statutes (2007);1 whether Petitioners are entitled to fees and costs pursuant to Subsections 57.105(5), 120.569(2)(e), and 120.595(4), Florida Statutes; and, if so, what amount should be awarded.
Findings Of Fact Each of the 14 Petitioners filed separate rule challenges, challenging the validity of Florida Administrative Code Rule 64B16-26.2031 and challenging eight statements of policy of the Board of Pharmacy, which statements had not been adopted as rules. Prior to the filing of his or her rule challenge, each Petitioner had graduated from a pharmacy school located outside the United States and had taken and passed the Foreign Pharmacy Graduate Equivalency Examination, the Test of Spoken English, and the Test of English as a Foreign Language. Petitioners had been issued Intern Registrations by the Board of Pharmacy. All but two of the Petitioners had submitted an application to be admitted to the professional licensure examination. Those applications had been denied. All Petitioners, including the two Petitioners who had not submitted an application, had applied to the Board of Pharmacy for a variance or waiver to allow them to sit for the professional licensure examination. The Board of Pharmacy denied each Petitioner’s application for a variance or waiver. Each Petitioner had been represented by The Health Law Firm in their applications for a variance or waiver and wanted The Health Law Firm to continue to represent them in the rule challenge. When asked why the Petitioners had contacted The Health Law Firm to represent them, an attorney for The Health Law Firm stated: I think they have a network where word just gets around. And they-–I believe they even had some sort of list serve or Web site where they had all noted that they were being treated unfairly, and so they knew each other. And maybe our name got out on that or something. But they-–they all seemed to know each other-–seemed to know each other. Additionally, The Health Law Firm had sent out letters soliciting the foreign pharmacy graduates to join the rule challenge. An attorney for The Health Law Firm was not sure whether the letter had been posted on the web site for the foreign pharmacy graduates. In several of the invoices submitted by The Health Law Firm, there was a charge of $20.00 for a “[t]elephone conference with client’s colleagues who are in the same situation and interested in filing petitions for waivers and joining the rule challenge.”2 Thus, the circumstances surrounding the representation of Petitioners by The Health Law Firm do not demonstrate that it was a coincidence that Petitioners just happened to pick The Health Law Firm to represent them in the rule challenges. The Health Law Firm decided to file 14 separate petitions instead of one petition with 14 petitioners. The reason for the filing of the separate petitions was to increase the amount of attorney’s fees which could be awarded. Given the inexperience of attorneys at The Health Law Firm with rule challenges and the difficulty in understanding the speech of Petitioners, who received their pharmacy training in countries other than the United States, The Health Law Firm felt that it was not economically feasible to pursue the rule challenge for $15,000.00. Petitioners had a common goal, i.e. to be allowed to sit for the professional licensure examination. The wording of each of the petitions was essentially the same except for the names of the individual Petitioners. Because the issues were the same for all the rule challenges, the rule challenges were consolidated for final hearing. No final hearing was held in the consolidated cases. The parties agreed that, based on the parties’ Joint Pre-hearing Stipulation, there were no disputed issues of material fact and agreed to file proposed final orders addressing each party’s position regarding the application of the law to the stipulated facts. The Board of Pharmacy conceded that Florida Administrative Code Rule 64B16-26.2031 was an invalid exercise of delegated legislative authority, and Petitioners were determined to prevail on the issue of the invalidity of the existing rule. On the challenge to the Board of Pharmacy’s policy statements, four statements were determined to meet the definition of a rule. The Board of Pharmacy conceded in the parties’ pre-hearing stipulation that the instructions in the Foreign Pharmacy Graduate Application for Licensure by Examination, directing applicants not to apply prior to obtaining all the required internship hours, constituted a non-rule policy. On August 1, 2008, in response to its concession that some of the statements or policies at issue were invalid non-rule policies, the Board of Pharmacy had published, in the Florida Administrative Law Weekly, a Notice of Rule Development for Florida Administrative Code Rule 64B16-26.2031. On August 21, 2008, the Board of Pharmacy approved changes to Florida Administrative Code Rule 64B16- 26.2031, eliminating the Foreign Pharmacy Graduate Examination Committee (FPGEC) requirement, incorporating by reference the Foreign Graduate Examination Application, and stating the time frames for the application of Florida Administrative Code Rule 64B16-26.2031. Pursuant to Subsection 120.56(4)(e), Florida Statutes, the portion of the petitions dealing with the statements on which the Board of Pharmacy did not prevail was abated pending the rulemaking process. Petitioners did not prevail on four of the policy statements they challenged. These were the policy statements which the Board of Pharmacy contested. Based on the invoices submitted, the parties attempted to settle the case. Essentially, the Board of Pharmacy had started rule development which eliminated the requirement in the existing rule which caused it to be invalid and which dealt with the unpromulgated rule issues that the Board of Pharmacy had conceded in the Joint Pre-hearing Stipulation. Petitioners wanted to be able to sit for the National Association of Pharmacy Licensure Examination (NAPLEX) and the Multistate Pharmacy Jurisprudence Examination (MPJE). All Petitioners who had a Foreign Pharmacy Graduate Application for Licensure by Examination pending on August 21, 2008, were approved by the Board of Pharmacy to sit for the NAPLEX and the Florida version of the MPJE. Thus, by August 21, 2008, those Petitioners had reached their goal. The impediment to settling the cases was the amount of attorney’s fees that should be awarded to Petitioners. There was no undue delay by the Board of Pharmacy or anything which could be attributed to the Board of Pharmacy as needlessly increasing the cost of litigation. The Board of Pharmacy correctly contended that the amount of fees requested by Petitioners was unreasonable. The Partial Final Order entered in the underlying rule challenges held that Petitioners are entitled to an award of attorney’s fees and costs pursuant to Subsection 120.595(3), Florida Statutes. The Board of Pharmacy was not substantially justified in promulgating the challenged rule in the underlying case and did not demonstrate that special circumstances existed to warrant the promulgation of the challenged rule. The Board of Pharmacy did not demonstrate that the statements which constituted unpromulgated rules are required by the Federal Government to implement or retain a delegated or approved program or to meet a condition to receipt of federal funds. Each Petitioner entered into a contingency fee contract3 with The Health Law Firm to represent him or her in a rule challenge. The parties have agreed that the hourly rate of $350.00 per hour for the services of George F. Indest, III, Esquire, is reasonable and fair under the circumstances. The parties have agreed that some of the hourly rates being claimed for the other attorneys and employees of The Health Law Firm are reasonable and fair under the circumstances. Those fees are $200.00 and $150.00 per hour for the associate attorneys, $80.00 per hour for the paralegals, and $70.00 per hour for the legal assistants. There were a few entries in the invoices made by senior attorneys for whom the rate charged is $300.00 per hour. Based on the rates charged for the senior partner and the associate attorneys, an hourly rate of $300.00 for a senior attorney is reasonable. The names of the attorneys and staff and the respective hourly rate amount for each are listed below. In discussing the reasonableness of the fees claimed in the various invoices, the attorneys and staff will be referred to by their initials as listed in the invoices. Initials Name Hourly Rate GFI George F. Indest, III, Senior Partner $350.00 MLS Michael L. Smith, Senior Attorney $300.00 JK Joanne Kenna, Senior Attorney $300.00 TJJ Teresa J. James, Attorney $200.00 MRG Matthew R. Gross, Attorney $150.00 JP Justin Patrou, Law Clerk $100.00 GJ Gail Joshua, Senior Paralegal $80.00 PD Pamela Dumas, Litigation Clerk $80.00 SF Sandra Faiella, Paralegal $80.00 RS Rebecca Simmons, Paralegal $80.00 AE Alexa Eastwood, Legal Assistant $70.00 SE Shelly Estes, Legal Assistant $70.00 The amount of fees claimed by each Petitioner for representation by The Health Law Firm for the rule challenge is listed below. These amounts are based on the individual invoices and the first consolidated invoice:4 Name Amount Vipul Patel $15,212.36 Miriam Hernandez $15,683.36 Mirley Aleman-Alejo $11,469.36 Valliammai Natarajan $5,074.36 John H. Neamatalla $11,215.36 Samad Mridha $13,650.36 Se Young Yoon $12,292.36 Saurin Modi $10,093.36 Deepakkumar Shah, M.Ph. $11,764.36 Mijeong Chang $12,528.36 Nabil Khalil $10,272.36 Hadya Alameddine $5,313.36 Balaji Lakshminarayanan $4,585.36 Anand Narayanan $4,218.36 Total $143,372.04 Sandra Ambrose testified as an expert witness on behalf of Petitioners. Her opinion is that the amounts claimed are based on a reasonable number of hours expended in the litigation of the rule challenge. However, Ms. Ambrose has never represented a client in a rule challenge. It was Ms. Ambrose’s opinion that the difficulty in the cases was a result of the number of Petitioners not the issues to be litigated. Having reviewed all the invoices submitted in these cases, the undersigned cannot credit Ms. Ambrose’s testimony that the fees are reasonable. The Board of Pharmacy argues that the amount of fees and costs should be limited to the amount expended in the petition brought by the first Petitioner, Vipul Patel. The expert who testified for the Board of Pharmacy did not give a definite amount that he considered to be a reasonable fee in these cases. Prior to the final consolidation of all 14 rule challenges, The Health Law Firm invoiced for its services and costs by individual Petitioner. After all 14 rule challenges were consolidated, The Health Law Firm invoiced for its time and costs via a consolidated invoice. The undersigned has painstakingly reviewed all the invoices that were submitted to support Petitioners’ claims for fees and costs in the rule challenges and finds the fees requested are not reasonable. On May 15, 2008, the invoices for Case Nos. 08-2733RX contained the following entry for MRG. “Review/analyze final order. Strategize regarding final order.” The final order appears to be related to a petition5 for a waiver or variance before the Board of Pharmacy, and the entry is deleted. This conclusion is supported by the entry in the invoice dated May 29, 2008, relating to a telephone conference with the client relating to a re-petition for waiver. In Case No. 08-2730RX, there is an entry on May 27, 2008, for .10 hours for MRG, but no service is listed. That entry is deleted. On June 6, 2008, MRG entered .50 hours each in Case Nos. 08-2728RX, 08-2729RX, 08-2732RX, 08-2733RX, 08-2734RX, 08-2821RX, 08-2823RX, 08-2824RX, and 08-3298RX. The entry stated: “Continue preparing rule challenge and waiver.” The Health Law Firm represented the Petitioners in four of these cases before the Board of Pharmacy on June 10, 2008, on their petitions for a wavier or variance. The invoice does not delineate the amount of time that was spent on the rule challenge and the amount of time that was spent on the waiver cases. Therefore, the time is divided equally and .25 hours in each case is charged toward the rule challenge. 23. On June 9, 2008, in Case Nos. 08-2733RX, 08-2730RX, 08-2731RX, 08-2734RX, 08-2729RX, and 08-2732RX, the senior partner of The Health Law Firm entered .30 hours for each case, which stated: “Prepare letter to Division of Administrative Hearings forwarding Petition for Rule Challenge to be filed.” The letter which accompanied the petitions in these cases stated: Dear Clerk: Attached for filing, please find a separate Petition to Determine the Invalidity of an Existing Agency Rule and the Invalidity of Agency Policy and Statements defined as Rules, for each of the individuals listed below: Miriam L. Hernandez Mirley Aleman-Alejo Se Young Yoon John H. Neamatalla Valliammai Natarajan Md. A. Samad Mridha Thank you for your assistance in this matter. For this letter, Petitioners are claiming 1.8 hours or $630.00. This is not reasonable. On the same date, GFI prepared a similar transmittal letter in Case No. 08-2728RX and listed .3 hours, which is a reasonable amount for the preparation of such a letter. Thus, the preparation of the transmittal letter on June 9th for Case Nos. 08-2733RX, 08-2730RX, 08-2731RX, 08-2734RX, 08-2729RX, and 08-2732RX is reduced to .3 hours, which is prorated to .05 hours for those cases. The senior partner in The Health Law Firm claims 23.6 hours during June 3 through 5, 2008, for the following service which was entered on the invoices for Case Nos. 08-2730RX, 08-2729RX, 08-2731RX, 08-2823RX, 08-3298RX, 08-2821RX, 08-2728RX, 08-2734RX, 08-2733RX, and 08-2824RX. Conduct legal research, review statutes, cases (approximately 28 cases reviewed and analyzed) and two (2) different Florida Administrative Law legal treatises regarding rule challenges and challenging agency statements not adopted as rules, in order to properly prepare Petition for Formal Rule Challenge in case. Research legal issues including administrative agency rules exceeding authority granted in statutes, retroactive applications of agency rules, adding requirements to licensure requirements through administrative rules when those requirements are not contained in the statute. Review Rules of Procedure and Chapter 120 to determine contents of Rule Challenge Petition. Begin reviewing and revising draft for Rule Challenge in case. (Note: Only pro-rata portion of this time charged to each case.) The total amount of fees claimed for this research is $8,260.00. GFI testified that he had never done a rule challenge prior to filing the petitions in the instant cases. His fees for research due to his lack of knowledge of the basics of a rule challenge should not be assessed against the Board of Pharmacy. A reasonable amount of time for his research is four hours. Thus, the amount for this legal research prorated among the ten cases for which it was listed is .4 hours. On July 19, 2008, the senior partner of The Health Law Firm entered .60 hours in ten of the rule challenges for reviewing the Transcripts of the Board of Pharmacy meetings for February 8 and April 5, 2008, and preparing a notice of filing the Transcripts with the Division of Administrative Hearings. Six hours to review the Transcripts and prepare a notice of filing is not reasonable. Three hours is determined to be a reasonable amount of time for this task, and that amount is prorated among the ten cases in which the charge was made. On June 10, 2008, members of The Health Law Firm attended a Board of Pharmacy meeting at which they represented foreign pharmacy graduates who had petitioned the Board of Pharmacy for a waiver or variance. In Case Nos. 08-2821RX, 08-3298RX, and 08-2733RX, the senior partner listed .90 hours for each case for preparation for the June 10th Board of Pharmacy meeting. The preparation related to the petitions for variances or waivers and should not be assessed for the instant cases. For June 10, 2008, JP listed .70 hours each in Case Nos. 08-2823RX, 08-2732RX, 08-2821RX, and 08-2733RX for attendance at the Board of Pharmacy meeting. For June 10, 2008, GFI entered 1.4 hours for attendance at the Board of Pharmacy meeting. The entries for attending the Board of Pharmacy meeting related to the petitions for waivers and should not be assessed in the instant cases. For June 19, 2008, the senior partner made the following entry in the invoices for Case Nos. 08-2728RX, 08-2729RX, 08-2732RX, 08-2733RX, 08-2734RX, 08-2821RX, 08-2823RX, and 08-2824RX: Travel to Boca Raton to meet with other health care lawyers and discuss issues in common on these cases and others. Discuss legal strategies that worked in the past and legal strategies to be avoided. Return from Boca Raton. Each entry was for one hour, for a total of eight hours claimed for a trip to Boca Raton, which equates to $2,880.00. Based on the entry, it seems that the trip included discussions of other cases that The Health Law Firm was handling or that other attorneys were handling. Additionally, there was no rationale for having to travel to Boca Raton to discuss the issues, and fees for such travel should not be awarded. A reasonable amount of time for discussion of the case with other attorneys by telephone would be .80 hours. The prorated amount of time for each case listed is .10 hours. On May 27, 2008, SF made a .30-hour entry in Case No. 08-2824RX for reviewing the agenda of the June 10th Board of Pharmacy meeting as it related to the client in Case No. 08-2824RX. The entry related to the client’s petition for a waiver, which was heard at the June 10th meeting and should be deleted. On May 30, 2008, in Case No. 08-2824RX, SF made a .40-hour entry for drafting a letter to client with retainer agreement. The entry is clerical and should be deleted. On June 18, 2008, an entry was made in the invoice in Case No. 08-2731RX, which stated: “Telephone call from husband of our client indicating that they want us to close this matter and that they do not wish to pursue it any further; follow-up memorandum to Mr. Indest regarding this.” Charges continued to be made to the client through July 16, 2008. Based on the entry to the invoice on June 18, 2008, no further charges should have been made to the client except for the filing of a voluntary dismissal of the rule challenge for the client. However, no voluntary dismissal was filed. Based on the absence of any further charges to the client after July 18, 2008, it is concluded that the client did wish not to proceed with her rule challenge. Any charges by The Health Law Firm after June 18, 2008, in Case No. 08-2731RX will not be assessed against the Board of Pharmacy as it relates to the rule challenge. On June 19, 2008, TJJ made the following .10-hour entry in ten of the cases: “Review June 10, 2008, Board of Pharmacy Agenda. Telephone conference with Court Reporter, Ms. Green, ordering transcript of the June 10, 2008, meeting.” An hour for reviewing an agenda and ordering a transcript is not reasonable. A reasonable amount of time is .40 hours, and such time is prorated to the ten cases in which it is charged. 33. On June 20, 2008, in Case Nos. 08-2823RX and 08-2824RX, TJJ made a .80-hour entry which stated: “Prepare draft motion for consolidation.” No motion was ever filed and would not have been necessary since the parties had agreed at the pre-hearing conference that the rule challenges would be consolidated. The time for this service should be deleted. 34. On July 10, 2008, TJJ made the following .10-hour entry in several of the cases: “Review prehearing instruction orders and amended orders to determine respondent’s deadline to serve discovery responses.” The entry is duplicative of services provided by MRG on July 8, 2008, and should be deleted. 35. On July 15, 2008, in Case Nos. 08-2729RX, 08-2728RX, 08-2730RX, 08-2732RX, 08-2733RX, 08-2734RX, 08-2821RX, 08-2823RX, 08-2824RX, and 08-3298RX, TJJ had .40 hours for a total of 4.00 hours for the following entry: Prepare Petitioners’ Motion to Compel Discovery and assemble and copy documents to be attached to Motion. Prepare facsimile coversheets and transmit the Motion to the attorney for the Board of Pharmacy, Ms. Loucks, and to the clerk for the Division of Administrative Hearings. The copying, preparing facsimile coversheets, and transmitting the motion are clerical tasks. The entries are reduced to .20 hours due to the clerical nature of the tasks, which leaves a total of two hours for preparing a simple motion to compel. The time for the preparation of the motion to compel is not reasonable and is reduced to .10-hour for each entry. On July 22, 2008, the last Order consolidating all the cases was filed. The Order consisted of four paragraphs. On July 29, 2008, TJJ entered .10 hours in Case Nos. 08-2733RX, 08- 2730RX, 08-2734RX, 08-2728RX, 08-2729RX, 08-2732RX, 08-2824RX, 08-3510RX, 08-3488RX, 08-3347RX, 08-2823RX, 08-3298RX, and 08- 2821RX, and each entry stated: “Review order of consolidation filed on July 22, 2008, for common information needed for all cases.” Thus, Petitioners are claiming a total of 1.3 hours or $260.00 to review a four-paragraph Order of Consolidation. This claim is not reasonable. A reasonable amount of time to review the Order was .10 hours, and the time shall be prorated among the cases for which it was claimed at .08 hours each. On July 24, 2008, TJJ made an entry of .10 hours in ten of the cases which stated: Telephone conference with the clerk of the District Court of Appeal, First District to find out the start time of oral arguments on Custom Mobility (rule challenge case). Request information from clerk regarding how to listen to oral arguments online. Observing this oral argument will allow us to better prepare our case for possible appeal. First, a one-hour telephone conversation with the Clerk of District Court of Appeal to ascertain the time for an oral argument and to learn how to listen to oral arguments online is not reasonable. Second, it is not reasonable to charge the Board of Pharmacy with a call to the District Court of Appeal in the instant cases, even if the amount of time for the call had been reasonable. The one-hour charge for $200.00 for a telephone call is deleted. On July 30, 2008, TJJ made an entry of .10 hours in 13 of the rule challenges. The entry stated: “Listen to oral arguments presented before District Court of Appeals, First District, in Custom Mobility case (rule challenge case).” The oral argument was not related to the instant rule challenges and should not be charged to the Board of Pharmacy. The 1.3 hours or $260.00 claim for listening to an oral argument is deleted. On August 4, 2008, TJJ made the following .10-hour entry in 13 of the cases: “Review Joint Motion for Abeyance and Order Canceling Hearing and Placing Cases in Abeyance. Calendar deadlines regarding same.” The time of 1.3 hours for reviewing the simple motion and Order is not reasonable. Calendaring is a clerical task. The time for this service is reduced to .01 hours for each entry. On August 5, 2008, TJJ made the following .10-hour entry in 13 of the cases: “Review Respondent’s Objections and Responses to Petitioners’ Second Set of Interrogatories and Respondent’s Objections to Petitioners’ Second Set of Requests for Admissions.” The objections were that the interrogatories and requests for admissions exceeded 30. The time of 1.3 hours for reviewing the pleadings is not reasonable. The time for this service is reduced to .04 for each entry. Petitioners had scheduled the depositions of Rebecca Poston and Daisy King for July 18, 2008. On July 17, 2008, Petitioners filed notices canceling the depositions. On July 17, 2008, PD entered .10 hours in ten of the rule challenges for the following entry: Telephone conference with Accurate Stenotype Reporters regarding cancellation of depositions of Daisy King and Rebecca Poston on July 18, 2008 and delay transcription of depositions of Erika Lilja and Elizabeth Ranne due to potential settlement. It is not reasonable to charge an hour to cancel depositions with the court reporter. A reasonable amount of time would be .10 hours, which is prorated to the ten cases to which it is charged. PD prepared the notice of the canceling of the deposition of Ms. Poston and the notice of the canceling of the deposition of Ms. King. Entries were made in ten of the cases for time for preparing the notices. The total time for preparing the two notices by PD was 1.45 hours. The time is not reasonable. A reasonable time to prepare two notices of canceling depositions would be .40 hours, which is prorated among the ten cases in which it was charged. One of the issues on which Petitioners did not prevail in the rule challenges was the issue of retroactive application of the rule. There are entries totaling 3.4 hours for JP for preparation of a memorandum dealing with the retroactive application of a rule issue. GFI entered .30 hours for the same issue. The time relating to the retroactive application issue is deleted. On April 19, 2008, MRG entered .20 hours each in several cases, which related to the rule challenge and retroactive application issue. That time is reduced by half. On May 6, 2008, MRG made .60-hour entries in Case Nos. 08-2728RX, 08-2729RX, 08-2730RX, 08-2732RX, 08-2733RX, 08-2734RX, 08-2821RX, 08-2823RX, 08-2824RX, and 08-3298RX, which showed the preparation of three sections of the petition. One of the sections dealt with the retroactive application issue, and the entries are reduced by .20 hours for that issue. The invoices demonstrated that a considerable amount of time was charged for legal assistants and paralegals. Much of this time was for clerical tasks. SE is identified in Petitioners’ exhibits as a legal assistant. The majority of the entries by SE dealt with the photocopying, labeling, organizing, indexing, and filing documents. These services performed by SE are clerical and, as such, cannot be included in an award of attorney’s fees. RS is identified in Petitioners’ exhibits as a paralegal/legal assistant. The majority of the entries in the invoices for RS deal with receiving, reviewing, labeling, indexing, scanning, summarizing, and calendaring pleadings and orders that were received in the cases. These services are clerical and, as such, cannot be included in an award of attorney’s fees. Petitioners in Case Nos. 08-2728RX, 08-2732RX, and 08-2733RX each claimed .30 hours for RS for the following service on April 30, 2008: Received and reviewed letter from Department of Health regarding our Public Records Request dated April 28, 2008 relating to client’s case. Index document for filing and scanning for use of attorneys at hearing. However, .90 hours for reviewing and indexing a letter is not reasonable and is clerical in nature. On June 17, 2008, in Case No. 08-2730RX, RS entered .60 hours for preparing, copying, and sending a letter to the client forwarding a copy of the Order of Assignment. That entry is reduced to .30 hours, since at least half of the time appeared to be for clerical tasks. AE, who is identified as a legal assistant in Petitioners’ exhibits, has numerous entries in the invoices for receiving, indexing, filing, calendaring, and providing pleadings and orders to clients. Those services are clerical and, as such, cannot be included in an award of attorney’s fees. In Case No. 08-2728RX, PD, identified in Petitioners’ exhibits as a paralegal, made entries on June 16 and June 25, 2008, for .30 hours each. These entries were to update the litigation schedule with the hearing date. The entry is clerical and, as such, cannot be included in an award of attorney’s fees. SF, who is identified in Petitioners’ exhibits as a paralegal/legal assistant, made an entry for .30 hours in Case No. 08-2728RX on June 26, 2008, and in Case No. 08-2732RX on June 11, 2008, for forwarding orders to the client. An entry was made on July 10, 2008, in Case No. 08-2728RX and on June 18, 2008, in Case No. 08-2730RX for .30 hours for processing the retainer package. Additionally, SF had entries for organizing and filing transcripts and orders. Such services are clerical and, as such, cannot be included in an award of attorney’s fees. In Case No. 08-3488RX, SF made a .30-hour entry on June 30, 2008, for updating the parties list and document file and a .50-hour entry on June 26, 2008, for completing opening procedures. In the same case, SF made two entries on July 7, 2008, for a total of 1.5 hours for preparing a retainer package and sending it to the client. These tasks are clerical. On June 24, 2008, SF made the following .30-hour entry in 11 of the cases: “Finalize and forward Joint Motion for Continuance of Final Hearing to client in this matter.” These entries are deleted; as they represent clerical tasks and an unreasonable amount of time to finalize a motion for continuance for which GFI had charged 1.1 hours for preparing the motion. In several cases JP, identified as a law clerk, made entries on July 15, 2008, for .30-hour for creating, numbering, and copying exhibits. Such service is clerical. On July 30, 2008, PD made the following .20-hour entry in 13 of the cases: Prepare Petitioners’ Notice of Service of Second Set of Interrogatories and Certificate of Filing and Service. Prepare correspondence to Debra Loucks, attorney for Board of Pharmacy regarding filing and Service of Petitioners’ Fourth Set of Request to Produce and Second Set of Interrogatories. However, 2.6 hours is not a reasonable amount of time to prepare a notice of service of discovery and a transmittal letter to opposing counsel. A reasonable amount of time to prepare such documents is .50 hours, and the time is prorated among the 13 cases. On July 28, 2008, PD made the following .10-hour entry in 13 of the cases: Prepare Notice of Filing Videotaped Depositions of Elizabeth Ranne and Erika Lilja. Prepare draft of Notice of Filing Deposition Transcript of Elizabeth Ranne. However, 1.3 hours is an unreasonable amount of time to prepare two notices of filing depositions. A reasonable amount of time is .40 hours, and that amount is prorated among the 13 cases. On June 17, 2008, PD made the following .20-hour entry in each of the 11 cases: Prepare Petitioners’ Notice of Service of First Set of Interrogatories to Respondent and Certificate of Filing and Service. Prepare correspondence to Debra Loucks, attorney for Board of Pharmacy, regarding filing and service of Petitioners’ First Set of Request to Produce, Petitioners’ First Set of Request for Admissions and Petitioners’ First Set of Interrogatories. However, 2.2 hours is an unreasonable amount of time to prepare a notice of service of discovery and a transmittal letter to opposing counsel. A reasonable amount of time is .50, which is prorated among the 11 cases. 58. On June 21, 2008, in Case Nos. 08-2821RX, 08-2823RX, and 08-2824RX, there is a .30-hour entry for SF for finalizing and forwarding a petition for formal hearing to the Department of Health for filing. This entry does not appear to be related to the rule challenges and is deleted. In Case No. 08-3298RX, MRG made an entry of .50 hours for a telephone conference regarding the date of rule challenge and petition for rehearing. The petition for rehearing dealt with the client’s petition for waiver and should not be included. Thus, the entry is reduced to .25 hours. After all the cases were consolidated The Health Law Firm began to make entries for all cases in the first consolidated invoice. On July 28, 2008, GFI made an entry of 2.8 hours, which related exclusively to the issue of retroactive application of the rule. This entry is deleted. RS made entries in the first consolidated invoice for August 12, 14, 28, and 29, 2008, and September 2, 5, 10, and 18, 2008, relating to filing, indexing, copying, and forwarding documents. There are similar entries for SF on August 26, 2008, and September 4 and 9, 2008, and for AE on September 8, 2008. Those entries are for clerical tasks. PD had entries for reviewing, organizing, and indexing documents on September 4, 8, 11, and 17, 2008, and October 8, 2008. Those entries are for clerical tasks. There were numerous entries in August 2008 relating to a Board of Pharmacy meeting on August 21, 2008, in which the Board of Pharmacy heard motions for reconsideration of orders denying Petitioners’ petitions for waivers. Those entries are related to the petitions for waiver and not to the rule challenges. Although, The Health Law Firm makes reference to a settlement agreement in which the Board of Pharmacy agreed to grant the waivers, there was no settlement agreement of the rule challenges because the parties proceeded to litigate the issues by summary disposition. Thus, the references to attending and preparing for the August 21, 2008, Board of Pharmacy meeting as well as advising the clients of the outcome of the meeting on August 20 and 21, 2008, are deleted. Additionally, an entry by MRG on August 20, 2008, which included reviewing the August 21st agenda is reduced to .75 hours. On August 25, 2008, MRG made an entry which included a telephone conference with Mr. Bui and a telephone conference with Ms. Ranne regarding Mr. Bui. Mr. Bui is not a Petitioner, and the entry is reduced to .55 hours. Based on the invoices, it appears that Mr. Bui and Ms. Ranne were also foreign pharmacy graduates seeking waivers from the Board of Pharmacy. On August 29, 2008, MRG made another entry which included the preparation of an e-mail to Mr. Bui. The entry is reduced to two hours. On August 6, 2008, MRG made a 1.80-hour entry which included preparing e-mail to Mr. Bui and a telephone conference with Mr. Sokkan regarding the rule challenge and settlement negotiations. Neither of these persons is a Petitioner; thus, the entry is reduced to .60 hours. On August 28, 2008, TJJ made a 3.60-hour entry for researching and preparing Petitioners’ second motion to compel discovery. No such motion was filed. Thus, the entry is deleted. Another entry was made on September 2, 2008, which included, among other things, the revision of the motion to compel. That entry is reduced to .80 hours. On August 8, 2008, MRG made a 1.00-hour entry which included a telephone conference with Ms. Alameddine regarding her passing the MPJE and being licensed in Michigan. Those issues relate to the petition for reconsideration of the waiver. The entry is reduced to .50 hours. On September 4, 2008, TJJ made a .80-hour entry for preparing a letter to Mr. Modi regarding his approval to take the examination, a 1.00-hour entry dealing with Mr. Lakshminarary’s application, a .90-hour entry dealing with Petitioner Narayanan’s application, a .70-hour entry dealing with Mr. Shah’s application, and a .60-hour entry dealing with Ms. Hernandez’s application. The entries deal with the petitions for a waiver and are deleted. On September 4, 2008, MRG made an entry which included, among other tasks, time for determining if the Board of Pharmacy had sufficient funds to pay Petitioners’ attorney’s fees. This entry is reduced to two hours. On October 10, 2008, MRG made a 1.20-hour entry which included, among other things, analyzing pleadings to determine if persons who were not Petitioners should file petitions for attorney’s fees. The entry is reduced to .60 hours. On July 16, 2008, MRG and JP made entries in ten of the cases for traveling to Tallahassee and attending the depositions of Elizabeth Ranne and Erika Lilja. The total hours for MRG was 16.9 hours and for JP the total was 17 hours. These total hours are reduced by ten hours each for travel time. On August 12 and 13, 2008, MRG made entries which included travel time to attend Board of Pharmacy meetings.6 Those entries are reduced each by one hour to account for travel time. The following is a listing of the amount of hours and dollar amount for fees, which are considered to be reasonable for the rule challenges. Individual and First Consolidated Invoice Hours Rate Amount GFI 146.10 $350.00 $51,135.00 MLS 3.70 $300.00 $1,110.00 JK 1.40 $300.00 $420.00 TJJ 80.13 $200.00 $16,026.00 MRG 210.16 $150.00 $31,824.00 JP 37.80 $100.00 $3,780.00 PD 39.053 $80.00 $3,124.24 SF 16.80 $80.00 $1,344.00 GJ .40 $80.00 $32.00 RS 1.3 $80.00 $104.00 $108,899.24 The Partial Final Order found that Petitioners were entitled to an award of attorney’s fees pursuant to Subsection 120.595(3), Florida Statutes. Thus, the issue of entitlement to fees and costs pursuant to Subsection 120.595(3), Florida Statutes, was not an issue that was litigated in the instant fee cases. The issue of whether Petitioners were entitled to fees and costs pursuant to Subsections 57.105(5), 120.569(2)(e), and 120.595(4), Florida Statutes, were entitlement issues which were litigated in the instant fee cases.7 Most of the charges dealing with the petitions for fees and costs are related to the amount of fees that are to be awarded and not to the entitlement to fees. In Petitioners’ second consolidated invoice (Petitioners’ Exhibit 4), there is a two-hour entry by MLS on November 3, 2008, for research of entitlement to fees pursuant to Subsection 120.595(3), Florida Statutes. This entry is deleted since the issue of entitlement to fees pursuant to Subsection 120.595(3), Florida Statutes, had already been determined. The following entries in the second consolidated invoice relate to the litigation of the amount of fees to be awarded and are deleted: 11-5-08 GFI 6.90 hours 11-6-08 SF 7.00 hours 11-6-08 GFI 7.40 hours 11-7-08 SF 7.00 hours 11-7-08 MLS 1.00 hour 11-7-08 JCP 7.00 hours 11-8-08 JCP 1.00 hours 11-8-08 GFI 7.10 hours 1-26-09 GFI 1.00 hour 2-9-09 GFI .60 hours 2-10-09 GFI .30 hours 2-12-09 GFI .60 hours 2-17-09 GFI .30 hours 2-17-09 GFI .60 hours 2-19-09 GFI .60 hours The following entries were made in the second consolidated invoice for clerical tasks performed by paralegals and legal assistants: 11-3-08 RAS .30 hours 2-9-09 RAS .30 hours 2-10-09 RAS .30 hours 2-12-09 ACE .40 hours The issue of entitlement to fees pursuant to statutes other than Subsection 120.595(3), Florida Statutes, was a small portion of the litigation relating to attorney’s fees and costs. The major areas of litigation dealt with the amount of fees and costs that should be awarded. The invoices do not specifically set forth the amount of time that was spent on the issue of entitlement to fees on statutes other than Subsection 120.595(3), Florida Statutes. Based on a review of the pleadings in these fee cases and a review of the invoices submitted for litigation of attorney’s fees and costs, it is concluded that ten percent of the time should be allocated to the issue of entitlement to fees. The percentage is applied to the fees after the fees listed in paragraphs 76, 77, and 78, above, have been deleted. Thus, the following entries in the second consolidated invoice are reduced to the following amount of hours: 11-1-08 JCP .26 hours 11-3-08 MLS .10 hours 11-4-08 MLS .40 hours 11-8-08 JCP .32 hours 12-22-08 GFI .04 hours 12-30-08 MLS .03 hours 1-7-09 GFI .02 hours 1-14-09 GFI .04 hours 1-15-09 GFI .07 hours In the third consolidated invoice (Petitioners’ Exhibit 5), the following entries relate to the amount of fees to be awarded and are deleted: 3-4-09 SME 4.80 hours 3-4-09 GFI 1.20 hours 4-3-09 GFI 3.20 hours 4-7-09 GFI .50 hours 4-7-09 GFI .60 hours 4-7-09 GFI .30 hours 4-8-09 GFI 4.20 hours 4-8-09 GFI 1.00 hour 4-9-09 MRG 1.50 hours 4-9-09 GFI 3.20 hours 4-11-09 GFI .60 hours 4-15-09 GFI 4.40 hours On April 14, 2009, GFI made an entry which included time for travel to the expert witness’ office. The entry is reduced by .75 hours for travel time. Ten percent of the time not excluded or reduced above related to the issue of entitlement of fees pursuant to statutes other than Subsection 120.595(3), Florida Statutes. The following entries are reduced to that percentage: 3-31-09 GFI .05 hours 4-1-09 GFI .20 hours 4-6-09 GFI .19 hours 4-6-09 GFI .03 hours 4-7-09 MRG .05 hours 4-7-09 GFI .07 hours 4-7-09 GFI .19 hours 4-7-09 GFI .27 hours 4-9-09 GFI .10 hours 4-13-09 GFI .50 hours 4-14-09 GFI .48 hours 4-14-09 GFI .275 hours The following is a list of the fees in the second and third consolidated invoices which are related to entitlement of fees pursuant to Florida Statutes other than Subsection 120.595(3), Florida Statutes. Second and Third Consolidated Invoice Hours Rate Amount GFI 2.525 $350.00 $883.75 MLS .43 $300.00 $129.00 MRG .05 $150.00 $7.50 JCP .32 $100.00 $32.00 $1,052.25 With the exception of the costs related to the Transcripts of the Board of Pharmacy meetings of April 8 and 9, 2008, and June 10, 2008, Respondent, as stipulated in the parties’ Joint Pre-hearing Stipulation, does not dispute that the amounts of costs set forth in the invoices submitted by Petitioners are fair and reasonable.8 The cost of the Transcripts of the Board of Pharmacy meetings on April 8 and 9, 2008, was $1,476.00. The cost of the Transcript of the Board of Pharmacy meeting on June 10, 2008, was $524.00. At the final hearing, the Board of Pharmacy’s objection appeared to be based on the timing of the payment of the court reporter’s fees related to the transcribing of those meetings. The Transcripts were filed with the Division of Administrative Hearings prior to the issuance of the Partial Final Order. Thus, the costs of the transcribing of the Board of Pharmacy meetings are properly included in the amount of costs to be awarded to Petitioners. The amounts of the costs claimed for the rule challenges in the individual and first consolidated invoice are reasonable. The costs incurred by Petitioners for the rule challenges as set forth in the individual and first consolidated invoices are listed below: Name Amount Vipul Patel $1,773.62 Miriam Hernandez $1,801.41 Mirley Aleman-Alejo $1,213.80 Valliammai Natarajan $321.17[9] John H. Neamatalla $1,118.72 Samad Mridha $975.12 Se Young Yoon $1,097.07 Saurin Modi $1,168.75 Deepakkumar Shah, M.Ph. $1,119.24 Mijeong Chang $1,213.16 Nabil Khalil $961.32 Hadya Alameddine $464.60 Balaji Lakshminarayanan $509.71 Anand Narayanan $461.87 The total amount of costs to be awarded for the challenge to the existing rule and to the policy statements is $14,199.56. The parties stipulated to the reasonableness of the costs contained in the second consolidated invoice. The second consolidated invoice lists the total costs as $2,096.12. Therefore, the costs for the second consolidated invoice are reduced to $209.61,10 which represents the amount attributable to litigation of entitlement of fees, ten percent of the total costs. The parties stipulated to the reasonableness of the costs contained in the third consolidated invoice. The third consolidated invoice lists the total costs as $580.62. Therefore, the costs for the third consolidated invoice are reduced to $58.06,11 which represents the amount attributable to litigating the entitlement of fees, ten percent of the total costs. Petitioners incurred costs in the litigation of the amount of attorney’s fees to be awarded. Petitioners retained an expert witness, Sandra Ambrose, Esquire. Ms. Ambrose’s fee relating to the issue of attorney’s fees is $5,200.00. Her fee is reasonable; however, Ms. Ambrose’s testimony was related to the amount of the fees not to the entitlement to fees and are, therefore, not awarded as part of the costs. The total costs to be awarded for the litigation of the fees is $267.67.
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found: Petitioner GDU is a wholly-owned subsidiary of General Development Corporation and has eight operating divisions. At the end of the 1979 test year, the petitioner's Port Malabar Division had 3,899 water connections and 3,760 sewer connections. At the end of July, 1981, the system was serving 4,852 water customers and 4,332 sewer customers. During the test year, petitioner's Port Malabar water system consisted of 16 shallow wells, 47 miles of distribution and transmission lines, and a three million gallon per day lime softening treatment plant with two storage facilities. The sewer system consisted of 17 lift stations, about 44 miles of collection and force mains and a treatment plant-rated at two million gallons per day. During the test year, 28 employees were assigned to the water and sewer operations. At the time of the August hearing, petitioner had 34 employees. Quality of Service The water and sewer service customers of petitioner who testified at the hearing were primarily concerned about the magnitude of the proposed rate increase and its impact upon persons with fixed incomes. Many customers testified that they were satisfied with the water and sewer service provided to them. The few complaints voiced about service included odor from a new lift station, the high mineral content of the water, water lost during construction projects, interruptions in service without notice, and, on occasion, dirty water. Petitioner maintains a customer service and local billing office in the Port Malabar area. It is the customary practice of petitioner to give its customers advance notice of any interruption in service. Water utilized for construction purposes is metered and billed to the individual contractors. The odor problem from the recently installed lift station has been resolved. Petitioner has an ongoing program for monitoring water quality and compliance with state and federal water quality standards. All drinking water requirements and standards for sewage treatment plant effluent have been complied with by petitioner. Petitioner presently has 3 sewage treatment plant operators and is attempting to secure one more operator to meet the Department of Environmental Regulation's requirement of four. Used and Useful The term "used and useful" is a ratemaking term to establish that portion of investment upon which a utility is entitled to earn a return. Facilities which are used and useful are those used to serve present customers, with a reasonable reserve added for future customers. A knowledge of engineering principles is necessary to perform a used and useful analysis. The used and useful analysis performed by petitioner resulted in a determination that the water treatment plant is 100 percent used and useful. The methodology utilized was to take the maximum day's water production during the test year and add an allowance for 18 months' growth based on an average of the prior three years growth rates. The actual growth rate of 953 water customers between the end of the test year and July, 1981, a 24.4 percent increase, closely matched the increase used in petitioner's calculations. The eighteen month period is representative of the period of time required for a utility to design, receive approval, complete construction and place the facility in usage. The utility's methodology made no allowance for fire demand and thus the results are conservative. Using a similar methodology, the PSC engineering expert also found the water plant to be 100 percent used and useful. The Office of Public Counsel's accounting expert determined that the petitioner's water plant was only 81 percent used and useful. His methodology utilized a peak day flow different than that utilized by petitioner for the reasons that he felt it was more representative of actual customer demand and did not reflect excess water loss. This witness also felt that the use of the marginal reserve or growth factor resulted in the inclusion of plant associated with future customers and allowed the utility to over-recover its depreciation expenses. Petitioner's used and useful analysis of water distribution mains resulted in the determination that $162,501 should be deemed held for future use and therefore excluded from rate base. For purposes of this calculation, petitioner utilized as-built plans and excluded those mains in sparsely settled areas unless they fronted on an occupied lot or on a fire hydrant located within 500 feet of an occupied lot. The PSC expert witness determined that the water distribution system was 100 percent used and useful. The OPC's witness determined that the used and useful portion of the water distribution system was 80.96 percent. His analysis was apparently based on the actual billings during the test year as compared to the total potential connections. By averaging the average daily flow and the average maximum flow days, and then adding an eighteen month allowance for future growth, the petitioner determined that the sewage treatment plant was 60.5 percent used and useful. Maximum flow days are more significant than average days from an engineering design perspective, and thus petitioner's calculations are quite conservative. The PSC witness determined that the sewage treatment plant was 100 percent used and useful. Based upon average daily flow and making no allowance for growth, the OPC's witness determined that the sewer plant was only 40 percent used and useful. His rationale for using the average daily flow was not adequately explained. Comparing the actual connections plus an eighteen month allowance for growth to potential connections, petitioner determined that the sewage collection and distribution mains are 100 percent used and useful. The PSC witness agreed. The witness for the OPC calculated the sewage collection line system as being only 73.4 percent used and useful, apparently giving no weight to a growth allowance. Water Loss Petitioner calculates its unaccounted for water loss at 9 percent, though a little over 1 percent is due to meter slippage because of mechanical design. Petitioner's meters are read on a monthly basis and are calibrated by a private firm once a year for the water meters and twice a year for the sewer meters. A range for water loss between 10 percent and 15 percent is considered reasonable in the industry. Pointing to the facts that many Florida water utilities have water losses at 5 percent or lower and that petitioner's own water losses were less in 1980, the OPC witness felt that the unaccounted for water should be calculated at a 5 percent rate. Construction Work in Progress A portion of the assets carried on the petitioner's books as construction work in progress (CWIP) were actually completed, paid for, in service and generating revenues during the test year. These assets--$246,9l6 of water mains and $1,053,476 of sewer mains--were reflected as CWIP because the bookkeeping process of classifying them to the proper plant accounts had not been completed. The assets were subjected to the petitioner's used and useful analysis, and they should be reclassified as utility plant in service. A utility is entitled to recover the cost of carrying its construction program. The two alternative methods of recovery are to allow the average balance of CWIP to be included in rate base or to allow the interest or other return on the construction balances to be capitalized as part of the cost of the asset and amortized over its useful life. This latter method is referred to as allowance for funds used during construction (AFUDC). If AFUDC is not added to the rate base and if the amount of construction is reasonable based upon engineering standards, CWIP should be includable in rate base. Over the long run, this method is less costly to customers than charging AFUDC. Petitioner did not charge AFUDC on the assets claimed as CWIP and the amounts claimed were less than in previous years and met the standard of reasonableness. The witness for the OPC was of the opinion that CWIP should be excluded from rate base because the assets benefited the utility rather than the current customers, and current ratepayers should not be required to finance the utility's investments. He further felt that if these funds were included in rate base, the result would be a mismatch between rate base and the utility's income statement. Contributions-in-Aid-of-Construction Petitioner has properly excluded from its rate base those moneys which represent CIAC. However, it has included in rate base accumulated depreciation on CIAC. Petitioner has done this by adding back to rate base that portion of total accumulated depreciation associated with CIAC after subtracting both total accumulated depreciation and CIAC from plant in service. The PSC method reaches the same result by subtracting from plant in service both total accumulated depreciation and net CIAC (CIAC less accumulated depreciation on CIAC). If the depreciation expense on contributed property has already been included as an above-the-line expense and re- covered through rates, accumulated depreciation corresponding to such expenses should be removed from rate base. Petitioner has never recovered depreciation on contributed property as an expense for ratemaking purposes. Working Capital An allowance for working capital should be included in rate base. Petitioner utilized the formula approach for calculating its working capital needs. This methodology is recognized by PSC rule and is a simplistic, rule-of- thumb approach. It is calculated by taking one-eighth or 12 1/2 percent of the utility's annual operation and maintenance expenses. It does not reflect some items which provide a source of working capital and it does not necessarily measure the actual working capital requirements or investment of any particular company, The result obtained from using the formula approach must be reduced by an amount for federal income tax lag. The balance sheet approach to determine working capital requirements is generally preferred by the PSC staff and its use is urged by the Office of Public Counsel in this proceeding. This method involves deducting current liabilities from current assets to determine the amount of funds the utility has currently available to meet its working capital needs. The balance sheet approach more accurately addresses the specific working capital variables of the company to which it is applied. The PSC's accounting witness recommended use of the formula approach in this case because of the absence of a staff audit of the petitioner's balance sheet, In actuality, the difference in terms of dollars between the two approaches, as calculated by the petitioner and the OPC, is an immaterial amount. On cross-examination and rebuttal, the intervenor's calculation of working capital requirements by use of the balance sheet approach was shown to be incorrect and the result obtained was therefore understated. Federal Income Tax Petitioner GDU is a wholly-owned subsidiary of General Development Corporation which is a wholly-owned subsidiary of GDV, Inc. GDU files its federal income tax returns as part of the consolidated group which contains no other public utilities. Using this subsidiary approach, each member of the group computes its tax liability as if it were a freestanding company. Petitioner computed its federal income tax liability at the full statutory rate of 46 percent. While the petitioner's actual capital structure is almost 100 percent equity, its tax was computed by recognizing its parent company's capital structure. Petitioner did not contribute any tax losses that could be used by the group on its consolidated return. A certified public accountant with the PSC staff agreed with the petitioner's use of the subsidiary approach and the 46 percent statutory rate for calculation of petitioner's federal income tax expense. During the 1979 test year, the consolidated group actually paid taxes to the Internal Revenue Service at less than the 46 percent statutory rate. This was the result of losses at the parent company level. The witness for the OPC was of the opinion that the petitioner's tax expense should be calculated so as to recognize the actual tax expense of the corporation as a whole and that only those taxes which are eventually flowed through to the Internal Revenue Service should be claimed. He would calculate petitioner's effective tax rate by use of a "payout ratio" methodology which involves adjusting the statutory rate by the ratio of taxes actually paid to the IRS to the total taxes paid by all subsidiaries. Depreciation Rate On the basis of an estimation of the average service lives for each of its primary plant accounts, petitioner has calculated an overall depreciation rate of 3.43 percent for water assets and 3.11 percent for sewer assets. This component method of depreciation has been used by petitioner for over twenty years. In estimating the service lives of its assets, petitioner relied upon its experience with its own water and sewer assets in Florida and recognized that such assets are affected by Florida's high temperatures and humidity levels and the flat topography. The composite 2.5 percent depreciation rate customarily utilized by the PSC assumes a forty year service life of assets. In actuality, petitioner has retired two of its wells in less than twenty years and most of its meters have been replaced. The service lives used by petitioner are comparable with other depreciation data from the PSC, a National Association of Regulatory Utility Commissioner's (NARUC) survey and a Texas Public Service Commission survey on average service lives. The petitioner's witnesses were of the opinion that the 2.5 percent rate or forty year composite service life is not appropriate because it does not consider the unique physical characteristics of water and sewer systems in Florida. The OPC urges the application of the 2.5 percent overall depreciation rate on the basis that petitioner did not produce sufficient evidence that a change from Commission policy was necessary. Inflation Adjustment Petitioner proposes to adjust certain operating and maintenance expenses upward by 8.3 percent as an allowance for the effect of inflation on those expenses. No adjustment is proposed for those items which were the subject of other adjustments or for those items not expected to increase directly with inflation. The figure of 8.3 percent was derived from a three- year average of percentage increases in the Consumer Price Index (CPI) from 1976 through 1979. The CPI is a "market basket" approach to measuring inflation on the average consumer, and includes such items as foodstuffs and home mortgages. Based upon its 1980 expense figures and discounting increases in expenses attributable to growth in customers, petitioner experienced a 10 percent inflationary increase for water operations and a 9 percent increase for sewer operations for 1980 over 1979. Since at least 1976, petitioner has never earned its authorized rate of return, primarily due to the effects of inflation. The PSC staff has not audited the petitioner's 1980 expense figures. Such figures have been audited by an outside CPA firm for financial purposes, but not for regulatory purposes. The 10 percent and 9 percent increases in water and in sewer operations measure only increased costs and do not account for increased revenues. Pursuant to a 1980 amendment to Chapter 367, Florida Statutes, public utilities are now entitled to automatically adjust their major categories of operating costs incurred during the previous calendar year by applying a price increase or decrease index to those costs. Section 367.081(4)(a), Florida Statutes. The PSC has established an 8.99 percent index for application by utilities in 1981. Highland Shores/Knecht Road Adjustments It is anticipated that the City of Palm Bay will purchase petitioner's water distribution system serving one commercial and 54 residential customers in the Highland Shores subdivision and 8 customers on Knecht Road. Petitioner eliminated certain amounts from its revenues, variable expenses and rate base to reflect this transaction, but did not adjust non-variable fixed costs which would not be affected by loss of these customers. Adjustments were made to chemical and electrical expenses and depreciation and property taxes associated with the plant serving those areas. No adjustments were made to payroll or other labor expenses. Petitioner presented evidence that the loss of those customers would not reduce personnel requirements or labor costs. The witness for the OPC proposed across-the-board adjustments for all operating and maintenance expenses based upon percentages of consumption and usage figures associated with these areas. Cost of Capital In actuality, the capital structure of petitioner consists almost entirely of equity invested in the utility by its parent, General Development Corporation. With adjustments for funds not available to petitioner, petitioner used its parent's capital structure in performing its cost of money analysis since the ultimate source of its equity funding consists of a mixture of debt and equity at the parent company level. All parties agreed that the proper capital structure to use in this case is that of petitioner's parent, General Development Corporation. Employing a discounted cash flow method and a risk premium analysis, petitioner has determined tat its cost of equity capital ranges from 18.06 percent to 22.32 percent, with a midpoint of 20.19 percent. Under the discounted cash flow method, the five year annual growth rates of ten water utilities were averaged and added to the average dividend yield for those utilities, to obtain an 18.06 percent return on equity. Under the risk premium analysis, petitioner analyzed utility debt costs by considering the current costs and yields of bonds, and then added a 4 percent risk premium to reflect the higher yield associated with equity as compared to debt. This analysis resulted in equity ranges between 20.59 percent and 22.32 percent. These figures are comparable to the combination of dividend yield and price appreciation of the Fortune 500 companies. The OPC witness concluded that a reasonable return on equity for petitioner would be between 14 percent and 14.5 percent. In measuring this cost of equity for petitioner, the comparable earnings method and a discounted cash flow method was employed. The former method involves an observation of the equity returns achieved by companies of comparable risks. Mr. Parcell examined the earnings of unregulated companies and large public utilities. His discounted cash flow method combined dividend yield and growth in retained earnings for nine water companies. The petitioner presented evidence that its current cost of debt is 15.3 percent instead of the 10.89 percent originally indicated in its application. Rate Case Expenses Petitioner originally estimated its rate case expenses at $25,000 based upon the assumption that there were only two issues in dispute between the utility and the PSC staff and that the proceedings could be handled by in-house personnel. Following the intervention of the Office of Public Counsel, the corresponding increase in the number of issues to be litigaged and the six additional days of actual hearing, petitioner is claiming that rate case expenses are $105,787. This figure is based upon the hourly rates of various professionals and the actual expenses incurred for the hearings. Petitioner expects the rates which will result from these proceedings to be in effect for no more than two years. This is consistent with petitioner's past history. Petitioner therefore seeks to amortize its rate case expenses over a two-year period and to divide them equally between the water and sewer operations. The OPC presented testimony expressing the opinion that the expenses claimed by petitioner in this proceeding were unreasonable and entirely out of line. It was pointed out that the expenses requested amount to about 20 percent of the total proposed revenue increase. It is contended that the hourly rates charged by petitioner's witnesses are excessive and that it was unreasonable to engage more than one witness per issue in a case of this magnitude. The hourly rates charged by the OPC's witnesses were set pursuant to an annual contract between those witnesses and the Office of Public Counsel. The OPC also believes that rate case expenses should be amortized over a three to five year period to properly take into account the newly enacted automatic pass-through provisions of Chapter 367, Florida Statutes, which should increase the time between rate cases. One witness testifying for the OPC did not feel that rate case expenses should be recovered at all through rates. The PSC staff witness did not feel that the rate case expenses claimed by petitioner were excessive when compared with other utilities of similar size.
Recommendation Based upon the findings of fact and conclusions of law recited above, it is RECOMMENDED that the issues in dispute in this proceeding be resolved as follows: That the quality of water and sewer service provided by petitioner to its customers be found satisfactory; That 100 percent of petitioner's water treatment plant, 60.5 percent of its sewage treatment plant and 100 percent of its sewage collection and distribution system be found to be used and useful in the public service and that $162,501 attributable to petitioner's water distribution lines be excluded from rate base; That petitioner's water loss of 9 percent is not excessive; That those assets in service during the test year carried on the utility's books as construction work in progress be transferred to utility plant in service and the remaining amount of CWIP proposed by petitioner for inclusion in rate base is reasonable; That accumulated depreciation on contributions-in-aid-of-construction not be excluded from petitioner's rate base; That the formula approach utilized by petitioner in determining its working capital requirements is appropriate in this case; That the petitioner's federal tax expenses be calculated at the 46 percent statutory rate; That the composite rates of depreciation of 3.11 percent on petitioner's sewer division and 3.43 percent on its water division be adopted; That petitioner's proposed 8.3 percent inflation adjustment for certain operation and maintenance expenses be rejected; That the adjustments proposed by petitioner for loss of its Highland Shores/Knecht Road customers are appropriate; That the capital structure of General Development Corporation be utilized to determine petitioner's cost of capital; that petitioner's cost of debt is 15.3 percent and that petitioner's cost of equity is 18.06 percent; and That rate case expenses in the amount of $105,787 are reasonable. Respectfully submitted and entered this 8th day of December, 1981, in Tallahassee, Florida. DIANE D. TREMOR Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 8th day of December, 1981. COPIES FURNISHED: Gary P. Sams, Esquire and Richard D. Melson, Esquire Hopping, Boyd, Green & Sams Suite 420 Lewis State Bank Building Tallahassee, Florida 32301 Nancy H. Roen, Esquire General Development Utilities, Inc. 1111 South Bayshore Drive Miami, Florida 33131 Gregory J. Krasovsky, Esquire Florida Public Service Commission 101 East Gaines Street Tallahassee, Florida 32301 Jack Shreve, Esquire Stephen C. Burgess, Esquire and Suzanne S. Brownless, Esquire Room 4, Holland Building Tallahassee, Florida 32301 Steve Tribble, Clerk Florida Public Service Commission 101 East Gaines Street Tallahassee, Florida 32301
