The Issue Whether Petitioner has defaulted on student loans and, if so, the principal amounts due on the loans, as well as accrued interest, and collection costs. Whether Petitioner's employer should be required to withhold payments from Petitioner's pay pursuant to Section 112.175, Florida Statutes.
Findings Of Fact Petitioner is Johnny Martin. Petitioner's mailing address is 11431 Quailhollow Drive, Jacksonville, Florida. Respondent is the Florida Department of Education. The Department's business address is 325 West Gaines Street, Tallahassee, Florida. The Department is a guarantee agency which holds the loan account in question after paying the claim of the lender on July 28, 1994. All loans in this proceeding are Supplemental Loan(s) for Students (SLS), also known as Florida Auxiliary Loans. SLS loans are not subsidized by the federal government. Therefore, the federal government has no responsibility for payment of interest during periods of deferment or forbearance and there is no grace period for SLS loans. During any period of deferment or forbearance, such as when a borrower is unemployed, the borrower's repayment obligation may be suspended; however, interest accrues to the account for which the borrower is responsible. When the deferment or forbearance ends, the outstanding interest is capitalized on the loan. SLS loans accrue interest at the rate of 12 percent per year from the date of disbursement. Persons eligible to receive SLS loans include parents of dependent undergraduate students. As set forth below, Petitioner, as parent of an eligible dependent undergraduate student, received four SLS loans. Loan 1: Petitioner applied for and received Loan A000000442 in 1983. This loan, in the amount of $3,000.00, will be referred to as Loan 1. Although the Department is the guarantor of Loan 1, the lender never declared the loan in default or sold it to the Department. Therefore, Loan 1 is not at issue in this proceeding. Loan 2: Petitioner applied for and received Loan A000001064 in 1984. This loan, in the amount of $3,000.00, will be referred to as Loan 2. The lender declared Petitioner in default and sold Loan 2 to the Department as guarantor. Because Loan 2 was in repayment status for more than seven years, exclusive of suspensions of the repayment period, Loan 2 was discharged in bankruptcy. Therefore, Loan 2 is not at issue in this proceeding. Loan 3: Petitioner applied for and received Loan A000003767 in 1985. This loan, in the amount of $3,000.00, will be referred to as Loan 3. The lender declared Petitioner in default and transferred Loan 3 to the Department as guarantor. Because Loan 3 was in repayment status for more than seven years, exclusive of suspensions of the repayment period, Loan 3 was discharged in bankruptcy. Therefore, Loan 3 is not at issue in this proceeding. Loan 4: On or about August 5, 1986, Petitioner executed an Auxiliary (SLS) Loan application on behalf of his daughter, Kelly Aleta Martin, an eligible dependent undergraduate student. On or about September 8, 1986, Petitioner executed the promissory note for this loan. This SLS Loan was in the amount of $3,000.00. This loan was disbursed on or about October 9, 1986. The Department guaranteed this loan. Throughout exhibits presented by the Department, the loan number for this SLS Loan is A000007005; however, for convenience, herein this loan will be referred to as Loan 4. Loan 4 is the only loan at issue in this proceeding. Petitioner's first payment for Loan 4 was due October 25, 1986. The payment due date later changed to the 20th of each month. Petitioner's last payment to the lender was made on July 17, 1990. However, as Petitioner was behind in his payments, this payment was applied to the payment due May 20, 1990. The Petitioner is considered in repayment status for 44 months, from October 1986 through May 1990. A borrower is not considered in repayment status during any suspension of the repayment period, including any period of forbearance or deferment. Petitioner applied for and received an unemployment deferment on September 18, 1990. This deferment was for the period from July 21, 1990 through December 28, 1990. Because Petitioner was not current in his payments, he requested and received a forbearance from the lender for the payments due on June 20 and July 20, 1990, in order to qualify for the unemployment deferment. The forbearance together with the unemployment deferment brought Petitioner current in his payments; however, they suspended the repayment period for Loan 4 for seven months (two months for the forbearance and five months for the deferment). Petitioner failed to make any payments following the deferment period ending December 28, 1990. Petitioner applied for and received an unemployment deferment on April 23, 1991. This deferment was for the period from February 24 through July 23, 1991. Because Petitioner failed to make any payments following the deferment ending December 28, 1990, he again requested and received a forbearance for the payments due January 20 and February 20, 1991. The forbearance and unemployment deferment brought Petitioner current in his payments; however, they again suspended the repayment period for Loan 4 by another seven months (two months for the forbearance and five months for the deferment). Following Petitioner's unemployment deferment ending July 1991, he failed to resume payment to the lender beginning August 20, 1990. Thereafter, the lender declared Petitioner in default and made application to the Department for claim payment based on the guarantee. However, the Department refused to pay the lender's claim citing due diligence violations, and as a result, Petitioner is considered in repayment status from August 20, 1991 through April 20, 1992, or nine months, even though no payments were actually received by virtue of his Fresh Start Application. Petitioner submitted a Fresh Start Application to the lender dated May 13, 1992. This document reaffirmed the student loan obligation and, when received by the lender on May 19, 1992, reinstated the Department's guarantee of Loan 4. In an application dated May 24, 1992, Petitioner requested another unemployment deferment. The lender refused Petitioner's request for an unemployment deferment due to the fact that Petitioner was working at the time. However, the lender granted Petitioner a forbearance. This forbearance covered payments due from May 20 through December 20, 1992. Thereafter, Petitioner again requested and was granted forbearance of payments due through June 20, 1993. These forbearances, from May 20, 1992 through June 20, 1993, suspended the period Loan 4 is in repayment status by 14 months. Petitioner failed to resume payments beginning July 20, 1993, the final due date at default. In 1994, the lender declared Petitioner in default on Loan 4 and made application to the Department for claim payment based on the guarantee. The Department paid the default claim on Loan 4 on July 28, 1994. Although no payments were received from July 20, 1993 through July 20, 1994, or 13 months, Petitioner is considered in repayment status for that time because there was no forbearance or deferment in place. When the Department acquired Loan 4, Petitioner owed $2,195.68 in principal and $290.19 in accrued (claim) interest. These figures were capitalized by the Department and yield the figure of $2,484.18 in capitalized principal which is subject to interest at the rate of 12 percent per year. Beginning in 1995, Petitioner entered into a voluntary wage garnishment agreement with the Department. Under this agreement and through the period Petitioner was under the bankruptcy court's jurisdiction, a total of $383.95 was received by the Department and applied to Petitioner's account in accordance with Title 34, Code of Federal Regulations Section 682.404(f), relating to how borrower payments will be applied. The entire amount received was applied to outstanding interest. Prior to filing bankruptcy, Petitioner's Loan 4 was considered in repayment status from July 29, 1994 through January 5, 1995, during the time it was held by the Department. The Petitioner was credited for being in repayment status for five months, even though he made no payments. Additionally, Petitioner was credited for being in repayment status for 12 months in 1995, whether or not regular payments were received under Petitioner's voluntary wage garnishment agreement. Because Petitioner filed for bankruptcy prior to the January 20, 1996, the payment due date, the month of January 1996 cannot be counted as being in repayment status. Petitioner filed for Chapter 13 bankruptcy protection on January 11, 1996. The Department filed a proof of claim with the bankruptcy court for Loans 2, 3, and 4 in the principal amount of $5,571.91, the amount of capitalized principal due on the accounts. The Department filed with the court the claim of $5,647.02 due on the accounts through date of filing the case. See item 5 on page 2 of Department's Exhibit 5. This amount was the capitalized principal and interest due. On February 4, 1999, the United States Bankruptcy Court for the Middle District of Florida, Jacksonville Division, issued an "Order Discharging Debtor After Completion of Chapter 13 Plan" in Petitioner's case, number 96-00175-3F3. That order provides in pertinent part, "The debtor is discharged for all debts provided for by the plan or disallowed under 11 U.S.C. [Section] 502, except any debt . . . for a student loan or educational benefit overpayment as specified in 11 U.S.C.[Section]523(a)(8)." In 1996, Title 11 United States Code Section 523(a) provided in pertinent part: A discharge under . . . this title does not discharge an individual debtor from any debt-- for an educational benefit overpayment or loan made, insured or guaranteed by a governmental unit, or made under any program funded in whole or part by a governmental unit or nonprofit institution, or for an obligation to repay funds received as an education benefit, scholarship or stipend, unless-- such loan, benefit, scholarship, or stipend overpayment first became due more than 7 years (exclusive of an applicable suspension of the repayment period) before the date of the filing of the petition . . . Pursuant to this order, Petitioner's debt to the Department for Loans 2 and 3 was discharged. The first payment for Loan 4 was due October 25, 1986. Petitioner filed for bankruptcy on January 11, 1996, nine days prior to the payment due date of January 20, 1996. There were 111 months from the month the first payment of Loan 4 was due through the month prior to the filing of bankruptcy (the month that bankruptcy was filed cannot be counted if the payment due date was after the date Petitioner filed for bankruptcy). Petitioner was in forbearance or deferment status for 28 months which suspends the period Loan 4 is considered in repayment status. Petitioner was in repayment status on Loan 4 for 83 months regardless of whether he actually made payments on the account. Therefore, Loan 4 was not discharged. Section 682.410(b)(2) of Title 34, Code of Federal Regulations, provides that the Department shall impose collection costs as follows: Collection charges. Whether or not provided for in the borrower's promissory note and subject to any limitation on the amount of those costs in that note, the guarantee agency shall charge a borrower an amount equal to reasonable costs incurred by the agency in collecting a loan on which the agency has paid a default or bankruptcy claim. These cost may include, but are not limited to, all attorneys fees, collection agency charges, and court costs. Except as provided in [Sections] 682.401(b)(27) and 682.405(b)(1)(iv), the amount charged borrower must equal the lesser of -- The amount the same borrower would be charged for the cost of collection under the formula in 34 CRF 30.60; or The amount the same borrower would be charged for the cost of collection in the loan was held by the U.S. Department of Education. The Department established that the amount of the annual collection cost mandated by Title 34 Code of Federal Regulations Section 682.410(b)(2) for the loan at issue in this proceeding should be calculated at least annually at the rate of 25 percent of the outstanding principal and accrued interest. Petitioner agreed to pay these costs in the application and promissory note he executed. Petitioner is employed by the Duval County School Board, a political subdivision of the State of Florida. As an employee of a political subdivision of the State of Florida, Petitioner is subject to the provisions of Section 112.175, Florida Statutes, and Chapter 28-40, Florida Administrative Code. These provisions pertain to employees of the State of Florida or its political subdivisions who have defaulted on an education loan made or guaranteed by the State of Florida. The Department notified Petitioner by letter dated August 13, 1999, that he had one or more student loans in default and offered him the opportunity to make voluntary payments on the loans. The letter also advised Petitioner that the Department would seek to make involuntary withholdings if he did not make voluntary payments. Petitioner elected to request the formal hearing which triggered this proceeding. As stated above, the capitalized principal due the Department for Loan 4 is $2,485.87. This amount reflects the principal due and the outstanding interest accrued on the account at the time the Department acquired the loan from the lender. All payments received by the Department were applied to outstanding interest which accrued on the account after the loan was bought by the Department, and no payment was applied to the capitalized principal. The capitalized principal accrues interest at the rate of 12 percent per year of $.82 per day. As of February 4, 1999, after taking into consideration the $383.95 received by the Department, the unpaid accrued interest for Loan 4 was $881.74. Pursuant to federal regulations collection costs assessed at the rate of 25 percent of principal and interest due as of February 4, 1999, were $867.08. Therefore, as of February 4, 1999, the total principal, interest, and collection costs due for Loan 4 totaled $4,234.69. Interest continues to accrue to the account as provided by law and collection costs may be reassessed as provided by law.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department enter a final order that adopts the findings of fact and conclusions of law contained herein, finds that Petitioner, as of February 4, 1999, owes the sum of $4,234.69, and orders the involuntary wage withholding of Petitioner's pay through his employer, Duval County School Board, pursuant to Section 112.175, Florida Statutes, and Chapter 28-40, Florida Administrative Code. DONE AND ENTERED this 22nd day of December, 2000, in Tallahassee, Leon County, Florida. STEPHEN F. DEAN 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 22nd day of December, 2000. COPIES FURNISHED: Johnny Martin 11431 Quailhollow Drive Jacksonville, Florida 32218-3621 Ronald G. Stowers Assistant General Counsel Department of Education The Capitol, Suite 1701 Tallahassee, Florida 32399-0400 Honorable Tom Gallagher Commissioner of Education The Capitol, Plaza Level 08 Tallahassee, Florida 32399-0400 Michael H. Olenick, General Counsel Department of Education The Capitol, Suite 1701 Tallahassee, Florida 32399-0400
The Issue The issues to be resolved in this proceeding concern whether the Emergency Rule 53ER99-48, Florida Administrative Code, constitutes an invalid exercise of delegated legislative authority, whether it was promulgated pursuant to a true emergency and whether certain agency statements contained in letters promulgated by the agency constitute an unadopted rule, in purported violation of Section 120.54(1)(a), Florida Statutes.
Findings Of Fact The Petitioner is a corporation incorporated in the Commonwealth of Virginia as a "not-for-profit" corporation. It is registered to do business in the State of Florida. NALP is an association of six member companies. It became organized following the passage of a change to the Internal Revenue Service (IRS) tax code enacted on October 21, 1998. That provision, I.R.C. Section 451(h), the so called "transitional rule" provided that if state lotteries offered to "cash-out" previous prize winners on a limited basis, then the tax payer would not be subject to the so called "constructive receipt doctrine." NALP's members purchase large lottery payment streams in every state that has a lottery, including Florida. The winners assign their right to the annual payments in return for a lesser amount than their payments would total over, in Florida, the twenty-year time span for pay-outs, in return for receiving the immediate cash lump-sum. In Florida this is accomplished pursuant to Section 24.1153, Florida Statutes (1999). One of NALP's main purposes is to protect the interests of its member companies through monitoring and participating in the formulation of federal legislation as well in rulemaking before various state agencies including the Florida department, as well as to provide educational materials and functions for members and for the various state lottery agencies. Each of the member companies owns at least one Florida Lottery prize and in the aggregate they own dozens of Florida large lottery prize payment streams worth over fifty million dollars. The Respondent is the Florida Department of The Lottery (Respondent or Department). It is a state agency authorized under Chapter 24, Florida Statutes, to organize, regulate and administer the operation of the state lottery and to properly account for, deposit in trust and invest lottery ticket sale proceeds and to pay related prizes from funds received from ticket sales and through investments of such lottery department revenues, all pursuant to Chapter 24, Florida Statutes, and related rules. Petitioner's Standing: The Petitioner has standing to pursue its challenge to the rule and agency statements in this case. Each of its members owns Florida lottery prizes. That is, by operation of assignment under Section 24.1153, Florida Statutes, they have assumed the interests of the actual lottery prize winners who have assigned their prizes to the members of NALP by assignment agreements enacted pursuant to the terms of this statute. The prize winners (winning ticket holders) received discounted amounts, lump-sum settlements, in lieu of prizes paid in equal annual installments over twenty years. Therefore, each of the companies who are members of NALP and hold assignment rights to the lottery prizes, are eligible for the lottery's one-time, cash-out opportunity under the subject Emergency Rule 53ER99-48, Florida Administrative Code. The Emergency Rule applies by its own terms to the Petitioner's members, as they are assignees of the prizes involved. Through the Emergency Rule as well, the Department, in effect, is competing for the same clientele, that is, past lottery prize winners who won the lottery during the relevant time period, and the same cash flow from the prize winners' annual payments as are all of the Petitioner's members by virtue of the above-referenced assignment statute. The only real difference is that the Department, by the terms of the rule, does not have to comply with the extensive "Consumer Protection" provisions of the statute which include court proceedings, explicit disclosures of purchase price and discount rate and the ultimate mandate of court orders on proposed assignments, all of which is required by Section 24.1153, Florida Statutes, of private assignment companies. In short, the Petitioner has established a sufficient substantial interest "injury and fact" which occurs within the zone of interest carved out by the lottery prize payment, revenue investment and trust fund management scheme established by Chapter 24, Florida Statutes. Emergency Rule 53ER99-48 and Agency statements Purported To be Rules. Prior to October of 1998, all large lottery prize winners could receive their prize only in equal annual installments over a period of twenty years. They were not given the choice of an immediate lump-sum, cash settlement. This was because, under the federal tax law prevailing at the time, the ability to make a choice of receiving a lump-sum prize award or payments over time automatically triggered the "constructive receipt doctrine" which thereupon allowed the Internal Revenue Service (IRS) to assume the taxpayer had constructive receipt over the entire prize money and therefore, owed income tax on the entire prize in one year. However, assignments of prize payment streams to private investment companies for a cash lump-sum settlement in return were allowed through the aegis of state circuit court orders without violating the constructive receipt doctrine. Section 24.1153, Florida Statutes (1999), was enacted to provide for such assignments to third-party, private investment companies with court approval. On October 21, 1998, Congress passed an amendment to Section 451(h) of the I.R.C., henceforth called the "transitional rule." This amendment provided that if state lotteries offered, on a limited basis, to "cash-out" past prize winners, the taxpayer would not be subject to the constructive receipt doctrine for IRS tax purposes. This federal tax exception provision is only effective for a limited period of time, however, from July 1, 1999 through December 31, 2000. This change in the federal tax law does not itself authorize the Department to do anything, rather it only changes the tax consequences to individual tax payers who are lottery winners. When change in the tax code allowing state lotteries to cash-out past winners became known, Mr. Shapiro, General Counsel for a NALP member company, met with attorneys for the Florida Department in 1998 to discuss the Florida Lottery's intentions following passage of Section 451(h) (the amendment in question). In November of 1998, the Department began its examination of the federal transition rule in order to determine whether it would adopt a rule regarding cash-outs of past prize winners. There is no federal or state requirement that the Department adopt such a rule. There is no testimony of any need created by changing market conditions to adopt such a rule. The NALP sent information regarding the transition rule including memoranda and legal analysis to all the state lotteries in January of 1999. Many months elapsed during which time the Department was apparently contemplating whether or not to adopt a rule accommodating the above-referenced federal tax law change. On September 13 and September 28, 1999, letters were issued by the Department which offered a cash-out option and announced a methodology available to all previous large lottery prize winners as an alternative to the normal twenty-year, equal annual installment method of payment of prizes. These letters were sent to all eligible winners and predated the issuance of the Emergency Rule adopted by the Department and under consideration in this case. Even though the Emergency Rule was adopted after the mailing of the letters, the Department still takes the position that it relied on the letters as supplemental to the terms of the offers contained in the Emergency Rule itself. Thereafter, and almost one year after it first considered adopting a rule to accommodate the advent of the federal transitional rule, and almost a month after the first cash-out option letter went to previous lottery winners, the Department, on October 8, 1999, published its Emergency Rule 53ER99-48, entitled "Florida Lottery Prize Payment Option Election." That rule provides in pertinent part as follows: From October 1, 1999 through November 30, 1999, the Florida Lottery is providing a one-time opportunity for eligible prize winners to elect to voluntarily cash out their remaining annual installment payments and receive a single lump-sum cash payment. In order to be eligible for this opportunity, the prize winner must have won a Florida Lottery prize before October 22, 1998, which is payable over a period of at least ten years, and the prize winner must not have assigned the prize to another person or entity pursuant to Section 24.1153, Florida Statutes (1999). * * * All prize winners who elect to cash out will be paid in one lump-sum cash payment and the payment shall be calculated as follows: For all prizes, other than WIN FOR LIFE prizes, the lump-sum payment amount will be the accreted value of the Lottery's investment (original cost plus accrued interest) as determined on a date certain (the "trade date"), unless the market value of the investment is less than the accreted value determined on the trade date. In that case, the market value of the investment will be paid. If a prize winner elects to cash out, the Lottery's investment will be liquidated. . . . According to department witnesses, the delays in adopting the subject Emergency Rule were attributable to changes in the executive administration of the state due to the 1998 election of the Governor and concomitant changes in the person of the Secretary of the Lottery as well as changes in the prize payment process for new lottery winners (as opposed to past lottery winners), embodied in Rule 53-28.007, Florida Administrative Code (not here under challenge). The Department conceded that it did not make the promulgation of the Emergency Rule its highest priority and took almost a year, from October 21, 1998 to October 8, 1999, for adoption of the rule even as an Emergency Rule. No market conditions were described in the evidence which would have prevented the adoption of a regular rule proposed in the normal fashion rather than an Emergency Rule. No evidence propounded by the Department explains why regular rulemaking would not have been practicable in this matter and in dealing with the subject matter of the Emergency Rule. No reason stated by the Department at hearing will support a factual finding of any emergency existing which required the promulgation of the prize payment option election as an Emergency Rule rather than in a regularly proposed and enacted rule proposed in accordance with Section 120.53, Florida Statutes. In fact, the Internal Revenue Code transition rule option which gave rise to the purported Emergency Rule is valid through December 31, 2000, almost thirteen months after actual promulgation of the Emergency Rule. Any urgency perceived by the Department at this point was not shown to be anything other than a sense of urgency in the perceived need to adopt the past prize winner cash pay-out "Emergency Rule" caused by the Department's own delay since October 21, 1998, in promulgating a rule on the subject, emergency or otherwise. While this delay might be for legitimate, understandable reasons, the fact remains that the delay was the Departments' own responsibility and does not militate in favor of a finding that there is any emergency necessitating the adoption of an emergency rule because of changes in market conditions or for other reasons. Once a large lottery drawing produces a winner or winners and a monetary prize, the Department transfers the prize funds to the State Board of Administration (SBA) for investment pursuant to Section 24.120(2), Florida Statutes, and in accordance with a Trust Agreement executed between the Department and the SBA. The Department and the SBA hold those past funds in trust pursuant to Section 24.120(2), Florida Statutes, for the benefit of that Lottery prize winner so that the winner will be assured of receiving the prize payments in equal amounts over a twenty-year period. Under the statutorily required payments system, when a prize is awarded, the Department and the SBA calculate the amount of money needed to purchase U.S. Treasury Securities (Treasury Strips) which will generate enough funds to meet the prize payment requirements for each year of the pay-out period. The investment is then done in a manner designed to preserve capital and to ensure the integrity of the lottery disbursement system by eliminating risk of payment of funds when due and to produce annual sums of money over the required term of investments. Once the prize monies are in the Section 24.120(2), Florida Statutes, trust fund, the prize is deemed awarded and paid by the Department. Thereafter, the annual payments to the lottery winner are a matter of privity between that winner and the trust fund. Section 24.120(2), Florida Statutes, was enacted at a time when only annual payments were statutorily authorized. Section 24.120, Florida Statutes, has not been amended since new lottery winners (post October 1998) were given the choice of annual payments or a lump-sum payment pursuant to Rule 53-28.007, Florida Administrative Code. Moreover, money for those lump-sum prize payments pursuant to that rule do not get deposited into the Section 24.120(2), Florida Statutes, trust fund, but are always deposited in the trust fund called the Administrative Trust Fund pursuant to Section 24.120(1), Florida Statutes. They are not deposited in the Section 24.120(2), Florida Statutes, trust because that trust was designed by the Legislature to provide investment instruments securing only equal annual installment prize payments. The Emergency Rule 53ER99-48 does not actually effectuate payment of a prize. Rather, it has the effect of changing Lottery prizes already first awarded and already transferred to the Section 24.120(2), Florida Statutes, trust fund. Winners of large Lottery prizes prior to October 1998, were entitled to equal annual prize payments over a twenty-year period. The Department's Emergency Rule has the effect of changing that prize to allow a single cash payment of the funds produced from the sale of the investment held and designed by the Legislature to fund only the annual prize payments. The Department thereby would instruct the SBA to liquidate the "Treasury Strips" held in trust for the benefit of the Lottery prize winner and designed to secure payment of equal annual installments to the prize winner over twenty-years, in order to fund the lump-sum payment provided for under the Emergency Rule at issue. The Emergency Rule allows the Department to sell the trust investment which supports the twenty-year pay-out of a prize, on a "trade date" before the required term of the investments lapses. The "trade date", while it might presumably be the date of sale of the trust investment which supported installment payments of the prize in question, is not clearly defined in the rule as to what the trade date is or how it is determined. The Department would then pay the prize winner the lesser of the "market value" or the "accreted value." This lump- sum amount is not the same as the total amount of the installments the prize winner would be entitled to over the entire twenty-year period calculated as the winner's entitlement when the prize is initially awarded. The lump-sum also does not represent the liquidated value of the investment held in trust for the winner. If the accreted value is less than the market value on the trade date then the lottery winner would only get the accreted value and the Department would get the balance, presumably the difference between accreted value and market value. Thus, through this Emergency Rule the Department proposes to sell the investments before the required term lapses and potentially pay the winner only a portion of that money, thus retaining additional proceeds for the Lottery. The Emergency Rule does not specify how the Department would determine what the winner's share would be under the lump-sum arrangement, nor how much the Department would keep after payment of the lump-sum amount when the supporting investments in the trust are liquidated for a given prize winner. In this connection the Emergency Rule does not clearly define certain critical terms necessary for a lay person to be able to understand the cash-out offer from the Department. The terms include "accreted value", "original cost" and "accrued interest." Accreted value is described as being the difference in the sum of the original cost of the investment and the accrued interest earned thereon. How one determines "original cost" and "accrued interest" is not specified in the rule, however. While financial experts might easily determine how to define those terms and determine the relevant sums attributable to them, the rule is vague in these particulars in terms of adequately defining how these critical terms relate to the amount a lottery prize winner could expect from a lump-sum pay-out and in providing such a prize winner a clear understanding of how the lump-sum is calculated. Thus the rule has not been shown to be engendered by a true emergency and, in the particulars referenced last above, it is vague. Agency statements Defined As A Rule: On September 13 and 28, 1999, the Department issued letters to previous lottery prize winners setting forth the terms and conditions concerning the formulae and method in which the pricing, timing and other terms and conditions of cash pay-outs would be determined. Those letters pre-dated the promulgation of the subject Emergency Rule. Several of the Petitioner's member companies received the cash-out offer letters similar to those attached to the Petitioner's petition. The letter stated, in pertinent part: If you elect to cash out, however, you will receive a single, smaller lump-sum payment. This amount will be the accreted value of the Lottery's investment (original cost plus accrued interest) as determined on a date certain (the "trade date"), unless the market value of the investment is less than the accreted value determined on the trade date. In that case, you will receive the market value of the investment. . . . The Department's letters thus contain a formula for determining the amount of the cash-out offer. That formula is not disclosed or contained in the Emergency Rule, even though it purports to apply to all previous lottery winners eligible under the rule. Be that as it may, the Respondent has asserted in its Proposed Final Order that the Petitioner's challenge to the letters as agency statements amounting to a rule is now moot with the enactment of the subject Emergency Rule. This appears to amount to a recession by the Department from reliance on the statements and content of those letters in defining and implementing its cash pay-out program for previous Lottery winners. Nevertheless, in the context of resolving all issues raised by the Petitioner, the question of those letters having the quality of an unpromulgated rule will be addressed below. The Department has cited Sections 24.105(10)(j), 24.115(1) and 24.109(1), Florida Statutes, as the source of its rule-making authority. Section 24.105(10)(j), Florida Statutes, provides the Department with authority to adopt rules concerning the manner of payment of prizes to holders of winning tickets and such other matters necessary or desirable for the efficient or economical operation of the lottery or for the convenience of the public. See also Section 24.105(10)(e), Florida Statutes. Section 24.105(10)(j), Florida Statutes, however, does not specifically authorize cash pay-outs to previous lottery winners already determined to be eligible to receive payment as holders of winning tickets and who have already received awards of payments in equal annual installments pursuant to Section 24.120(2), Florida Statutes. Section 24.115(1), Florida Statutes, authorizes the Department to adopt rules "to effect payment of . . . prizes." However, the payment of prizes to the relevant past winners was effected when the Department made its initial one-year payment to the pertinent prize winners and then paid the remaining cash represented by the winning tickets to the SBA in the trust established by the Legislature for the lottery winners, for investment in securities supportive of equal annual installment payments to the winners pursuant to the trust arrangement established in Section 24.120(2), Florida Statutes. Section 24.109(1), Florida Statutes, while it authorizes the Department to adopt emergency rules in general when such emergency rulemaking power " . . . is necessary for the preservation of the rights and welfare of the people in order to provide additional funds to benefit the public . . . " does not specifically authorize any particular emergency rule subject matter, including cash pay-outs to prior Lottery winners already determined eligible to receive prize payments in equal annual installments pursuant to Section 24.120(2), Florida Statutes. The Department, pursuant to Section 24.104(2), Florida Statutes, and Section 24.121(2), Florida Statutes, has a mandate "to maximize revenues consistent with the dignity of the state and the welfare of its citizens" in order to provide, among other things, improvement of the Educational Enhancement Trust Fund each year. The Department has not shown any specific authority to adopt a rule which changes a prize previously awarded, even though it might create new revenues as a result of the difference between lump-sum awarded to a past winner and the accreted value of the investment supportive of the prize, or the market value as the case may be. There is no specific authority to have such funds previously invested to support annual installment payments of prize money being diverted from the trust fund set up by the Legislature by Section 24.120(2), Florida Statutes, instead of, for instance, the "Administrative Trust Fund," constituted under Section 24.120(1), Florida Statutes. These findings in conjunction with the reasons given in the Conclusions of Law below show that the Department exceeded its rulemaking authority in enacting the Emergency Rule and the agency statements at issue. Enlargement Modification or Contravention of the Implemented Law: Section 24.120(2), Florida Statutes (1999), provides for a payment of prizes on a deferred basis and for the safe investment of the prize monies set aside in the trust fund under that section for payment of deferred prize payments. That section also provides for production of equal annual sums of money over the required term of the investment (twenty years). The Emergency Rule and the agency statements at issue depart from the terms of the trust relationship set up by the Legislature through Section 24.120(2), Florida Statutes, by changing the prize awarded to allow the early liquidation of prize monies invested on behalf of the prize winners in the trust fund constituted under that section. Such a change in the prize awarded and manner of award is not authorized by the terms of that statute. The Emergency Rule and agency statements thus enlarge, modify and contravene Section 24.120(2), Florida Statutes, by departing from the terms of the trust created by the Florida Legislature designed to ensure a safe investment of lottery monies so as to produce annual prize payments over twenty years. The Emergency Rule, by allowing a liquidation of trust investments before the statutorily required term and by allowing the trustee of the Section 24.120(2), Florida Statutes, trust (the Department) to intentionally profit from liquidation of the trust investments and concomitant change in the prize awarded departs from the conditions of the Section 24.120(2), Florida Statutes, trust, and the purposes for which it was established. In the enactment of this rule, the Department stands in the position of a trustee varying the terms of a trust in terms of the benefits to be afforded the beneficiary of that trust and the method of calculation and payment. While the beneficiary (the prize winner) in the trust analogy might agree with that course of action, the settlor has not assented to variance from the terms of the trust arrangement. The Florida Legislature is in a position analogous to the settlor of the trust created pursuant to Section 24.120(2), Florida Statutes. Since that law, implemented purportedly by the Emergency Rule and agency statements, does not itself provide authority for the change in the award of prizes and methods of paying prizes embodied in the rule and in the agency statements, it would appear that the settlor, the Legislature, must first assent to the new arrangement (ipso facto by an amendment to the statute). Moreover, it should be pointed out that the new arrangement contemplated by the Emergency Rule would be accomplished without any disclosure to a lottery winner of the discount rate or dollar amount that the state would retain, in the sense that the terms in the rule of "trade date," "market value," "original cost" plus accrued interest or "accreted value" are not adequately defined on the face of the rule. They are thus amenable to varying interpretations, leading potentially to ad hoc policy decisions by the agency or necessitating further illumination by the agency through an additional rule enactment, thus rendering the rule, in the sense of the employment of these terms and any disclosure to the lottery winner, vague. There are various "consumer protection" standards set forth in Section 24.1153, Florida Statutes (1999), which are directed to the third-party assignment arrangement whereby lottery winners may assign their right to the annual installment payments of their prizes to third-party entities and thus obtain from those entities a discounted, lump-sum payment of a prize. Those standards or restrictions include oversight by a circuit court and include the necessity of approval of the assignments and lump-sum payments through third-party entities by an appropriate circuit court order. They also include a provision allowing the prize winner a three-day cancellation period opportunity. The Emergency Rule and agency statements at issue in this case modify, contravene or depart from the provisions of that law because the Department in the so-called emergency cash pay-out provision in the subject rule is not required to adhere to the "consumer protection restrictions" mandated by Section 24.1153, Florida Statutes (1999). Although the end result of what the Department proposes by the Emergency Rule achieves a lump-sum, cash payment to the lottery winner, unlike the arrangement to be set up by the Emergency Rule, the "cash-out" assignment arrangement authorized by Section 24.1152, Florida Statutes, was mandated by the Legislature. The Emergency Rule is potentially arbitrary and capricious (meaning not adequately supported by facts or enacted without adequate support as to reason or rationale) 1/ The impetus for the Emergency Rule, as found above was a change in the Internal Revenue Code concerning the "constructive receipt doctrine". The relevant I.R.C. provision Section 451(h), contains the "qualified prize option" test. The Emergency Rule purports to meet that test but does not. A qualified prize option must contain three things: (1) A clear statement that it is only an offer; (2) A statement of the offer methodology; and (3) A disclosure of the discount rate that makes equivalent the present value of the prize previously awarded and the Department's new offer (lump-sum pay-out). The Emergency Rule does not adequately disclose the methodology of the offer since critical terms enabling a lay prize winner to understand the offer are not clearly defined, as referenced in the Findings of Fact above. The Emergency Rule does not require, on its face, any disclosure of the discount or amount of the prize valued as of an identified date. In its Executive Summary regarding its decision to adopt the Emergency Rule, the Department stated that it would meet the requirements of Section 451(h), by providing full and clear disclosure "as described in the Federal Tax Conference Report on Section 451(h)." The rule has the potential of being arbitrary and capricious in its operation since it does not in fact meet the qualified prize option test in the I.R.C. provision by clearly disclosing the discount rate or the methodology used in arriving at the offer, even though it purports to disclose those matters. Agency statements As Rules: The agency statements, the letters mailed to each prior prize winner contain financial information specific to each individual prize winner but they also contain general formulae to be applied by the Department to all eligible winners in cashing out prizes under the Emergency Rule. Thus the letters expand the cash-out procedure by providing cash-out formulae and other critical conditions beyond those which are stated and disclosed in the rule itself. This is necessary information for the prize winners to make decisions on accepting the Department offers but was not adopted as a rule and is not contained in the Emergency Rule. It is meant by the Department to apply to the entire universe of eligible prior prize winners.
Findings Of Fact On September 20, 1977, Victor Sosa, at the time an employee of petitioner, and Leroy Patten, then as now a field agent for the Department of Commerce, visited respondent's premises. A Mr. Chavez told the investigators that Jose Isidro Guillamo, respondent's sole corporate officer, was not on the premises and could not be reached. In response to Mr. Patten's questions, Mr. Chavez said he was ignorant of details about respondent's workmen's compensation insurance. Mr. Sosa asked Mr. Chavez to produce invoices reflecting purchases of alcoholic beverages. Mr. Chavez replied that most of the invoices were at an accountant's office, but joined Mr. Sosa in looking for invoices behind a counter at which customers sat. In the course of the search, Mr. Sosa noticed a clipboard hanging from a nail. The clipboard contained guest checks used as lottery slips. Nearby drawers yielded paper napkins similar employed. The search never uncovered any invoices on the premises. At no time did petitioner give respondent permission to store invoices off the premises. On September 20, 1977, and continuously until March 20, 1978, respondent did not maintain in force workmen's compensation insurance for its employees. On September 20, 1977, no notice of workmen's compensation insurance coverage was posted on the premises.
Recommendation Upon consideration of the foregoing, it is RECOMMENDED: That petitioner suspend respondent's license for thirty days and thereafter until respondent shall secure compensation for its employees in accordance with Section 440.38 (1), Florida Statutes (1977). DONE and ENTERED this 26th day of June, 1978, in Tallahassee, Florida. ROBERT T. BENTON, II Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Dennis E. LaRosa, Esquire The Johns Building 725 South Bronough Street Tallahassee, Florida 32304 La Dominicana Corporation d/b/a La Dominicana Restaurant c/o Jose Isidro Guillama and Mario Cartas 1416 San Marco Coral Gables, Florida 33134
The Issue Whether Leroy Smith and/or Alice Longwood are entitled to the $5,000.00 prize for a winning lottery ticket presented by Leroy Smith to the Lottery for collection?
Findings Of Fact On March 7, 1988, Mr. Smith completed a Lottery Winner Claim Form (hereinafter referred to as the "Form") and submitted the Form and a Cool Million instant-winning lottery ticket (hereinafter referred to as the "Ticket"), number 02-114569-303, good for a prize of $5,000.00 for collection. On the back of the Ticket Mr. Smith listed his name and address on the spaces provided for the person claiming the prize and signed the Ticket. The space on the back of the Ticket where the first name of the person claiming the prize was to be listed had been covered with a "white-out" material and "Leroy" written in. At the bottom of the Form Mr. Smith indicates that this was done to replace his first name for a nickname that had previously been entered on the ticket. Mr. Smith also listed his name, Social Security Number, address and phone number on the Form. Mr. Smith signed the Form as the "Claimant." In a letter dated March 8, 1988, DHRS notified the Lottery that Mr. Smith owed $7,478.20 in Title IV-D child support arrearages and $150.00 in court-ordered costs, a total of $7,628.20, as of March 8, 1988. By letter dated March 18, 1988, Mr. Smith was notified that the $5,000.00 prize for the Ticket he submitted was being transferred to the Comptroller for possible payment of his Title IV-D child support arrearages and court costs. The $5,000.00 prize was forwarded from the Lottery to the Comptroller on March 22, 1988. Mr. Smith was notified by the Comptroller by letter dated March 23, 1988, that the Comptroller intended to apply the $5,000.00 prize toward his unpaid obligation. Mr. Smith requested a hearing to contest the proposed action of the Comptroller. The Title IV-D child support arrearages and court costs owed by Mr. Smith are related to two child support cases involving Mr. Smith. First, on December 1, 1981, Mr. Smith was ordered to pay child support to Deidah Brown in an Order of Dependency and Support issued by the Circuit Court, Seventh Judicial Circuit, in and for Flagler County, Florida. On November 6, 1984, Mr. Smith was ordered to pay child support to Patti Victoria Smith by the same court. Mr. Smith's total obligation as of the date of the formal hearing was $7,348.20: $3,578.20 in public assistance arrearage, $3,620.00 in non-public assistance arrearage and $150.00 in court-ordered costs.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, It is RECOMMENDED that a final order be Issued providing for payment of the $5,000.00 prize attributable to the Ticket to DHRS. DONE and ENTERED this 22nd day of November, 1988, in Tallahassee, Florida. LARRY J. SARTIN Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 22nd day of November, 1988. APPENDIX TO RECOMMENDED ORDER, CASE NO. 88-1743 The Petitioners have submitted proposed findings of fact. It has been noted below which proposed findings of fact have been generally accepted and the paragraph number(s) in the Recommended Order where they have been accepted, if any. Those proposed findings of fact which have been rejected and the reason for their rejection have also been noted. The Petitioners' Proposed Findings of Fact Proposed Finding Paragraph number in Recommended Order of Fact Number of Acceptance or Reason for Rejection 1-2 1. 3 1-4. 4 5. 5 6. 6 7-8. 7 10. 8 Statement of law COPIES FURNISHED: Jo Ann Levin Senior Attorney Office of the Comptroller The Capitol, Suite 1302 Tallahassee, Florida 32399-0350 Leroy Smith Post Office Box 1465 Bunnell, Florida 32010 Patrick Loebig, Esquire Department of Health and Rehabilitative Services 1317 Winewood Boulevard Tallahassee, Florida 32399-0700 Louisa Hargrett, Esquire Department of the Lottery 250 Marriott Drive Tallahassee, Florida 32301 Alice Longwood Post Office Box 1753 Bunnell, Florida 32010 Rebecca Paul, Secretary Department of the Lottery 250 Marriott Drive Tallahassee, Florida 32301 Tom Bell, General Counsel Department of the Lottery 250 Marriott Drive Tallahassee, Florida 32301
Findings Of Fact On January 7, 1994, the Petitioner, Idarue Pearl Jackson, executed and submitted a Winner Claim Form to the Respondent, the Department of the Lottery (hereinafter referred to as the "Lottery"). Ms. Jackson filed a lottery ticket with the Winner Claim Form worth a cash prize of $2,500.00. On January 7, 1994, the Respondent, the Department of Health and Rehabilitative Services (hereinafter referred to as "DHRS"), informed the Lottery that Ms. Jackson owed the State of Florida $3,237.00 for excessive Aid to Families with Dependent Children (hereinafter referred to as "AFDC"), payments she had previously received. On or about January 26, 1994, Ms. Jackson was informed that the $2,500.00 prize would be applied in payment of her outstanding AFDC debt. On or about January 31, 1994, Ms. Jackson requested a formal administrative hearing to contest the decision of the Respondents. Prior to August of 1987 Ms. Jackson, then known as Idarue Shepard, began receiving AFDC payments from the Department of Health and Rehabilitative Services. Ms. Jackson signed an information and consent form provided by DHRS prior to receiving AFDC payments. In executing the form, Ms. Jackson agreed, among other things, to the following: C. I KNOW PUBLIC ASSISTANCE RECIPIENTS (APPLICANTS) HAVE THE RESPONSIBILITY TO: . . . . Repay the Department for any assistance received for which they are ineligible. The assistance owed will be deducted for each monthly grant amount until the entire amount is paid back. Ms. Jackson also agreed by executing the DHRS exhibit 3, to inform DHRS of any changes in her employment status which would impact her entitlement to AFDC payments. Beginning in August of 1987 Ms. Jackson began employment for which she earned a sufficient amount that she was no longer eligible for AFDC payments. Whether Ms. Jackson informed DHRS of this change is not clear. From August of 1987 through December of 1988 (excluding June of 1987), Ms. Jackson, continued to receive AFDC payments. Because of her employment, she was not entitled to the payments she received from August of 1987 to December of 1988. Ms. Jackson received a total of $3,336.00 in AFDC payments for which she was not eligible. Whether she received these payments because she failed to inform DHRS of her employment or because DHRS made an error in continuing to send her the payments is not relevant. What is relevant is that Ms. Jackson received the payments by check and that she cashed the checks. DHRS investigated the payments made to Ms. Jackson between August of 1987 and December of 1988 and determined that Ms. Jackson was not eligible for the amounts she received during that period of time. By letter dated November 4, 1989, DHRS informed Ms. Jackson that she owed DHRS for the payments she improperly received. In May of 1993, DHRS began withholding a part of other benefits Ms. Jackson was receiving in payment of the excessive AFDC payments she had received. As of the date of the final hearing of this case, Ms. Jackson still owed $3,192.00 to DHRS.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered dismissing Ms. Jackson's petition and transferring Ms. Jackson's $2,500.00 lottery prize to the Department of Health and Rehabilitative Services in partial satisfaction of Ms. Jackson's debt to the Department of Health and Rehabilitative Services. DONE AND ENTERED this 24th day of May, 1994, in Tallahassee, Florida. LARRY J. SARTIN 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 24th day of May, 1994. APPENDIX Case Number 94-0772 Ms. Jackson and DHRS have submitted proposed findings of fact. It has been noted below which proposed findings of fact have been generally accepted and the paragraph number(s) in the Recommended Order where they have been accepted, if any. Those proposed findings of fact which have been rejected and the reason for their rejection have also been noted. Ms. Jackson's Proposed Findings of Fact The first paragraph (other than the first sentence) is not supported by the weight of the evidence. The first sentence is a statement of the position of the Respondents. The first three sentences of the second paragraph are statements of law. The fourth sentence of the second paragraph is not supported by the weight of the evidence. See finding of fact 13. The fifth sentence of the second paragraph is a statement of law. The sixth sentence of the second paragraph is not supported by the weight of the evidence. The third paragraph is argument. DHRS' Proposed Findings of Fact Accepted in 1 and 2. Accepted in 3. Accepted in 4. Accepted in 6. Accepted in 13 and hereby accepted. Accepted in 7 and 8. See 9 and 11. Accepted in 14 and 15. Accepted in 11. 10-11 Hereby accepted. COPIES FURNISHED: Idarue Pearl Jackson 17011 NW 37th Avenue Miami, Florida 33054 Honorable Gerald Lewis Comptroller, State of Florida Department of Banking and Finance The Capitol, Plaza Level Tallahassee, FL 32399-0350 William G. Reeves, Esquire General Counsel Department of Banking and Finance Room 1302, The Capitol Tallahassee, FL 32399-0350 Kim Tucker, Esquire General Counse Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, FL 32399-0700 Scott C. Wright Assistant General Counsel Office of the Comptroller The Capitol, Suite 1302 Tallahassee, Florida 32399-0350 Louisa Warren Senior Attorney Department of the Lottery Capitol Complex Tallahassee, Florida 32399-4011 Katrina Saggio, Esquire Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700
Findings Of Fact Respondents hold license 23-3237 COP and at all times here relevant were so licensed. On 7 November, 1977, Respondent, Juan Rodriguez, sold less than five grams of marijuana to Rocco Delio, an undercover policeman, on the licensed premises. Delio paid Rodriguez $11 for the marijuana and two beers. When arrested in December 1977 on a warrant charging him with the sale of marijuana, Rodriguez had an old lottery ticket in his possession as well as a list of numbers which the arresting officers thought to be lottery numbers. Rodriguez testified that the lottery ticket was an old one he bad obtained in Puerto Rico and that he had forgotten the ticket was in his wallet. He further identified the list of numbers as measurements he had taken for a building. Rodriguez denied ever selling any lottery tickets. At his trial on the charge of possession and sale of marijuana and possession of lottery paraphernalia Rodriguez pleaded guilty, upon the advice of counsel, to unlawful sale of marijuana, and adjudication of guilt was withheld. (Exhibit 1). Rodriguez testified that he paid a $300 fine and was told by his attorney that the plea and subsequent withholding adjudication of guilt would not affect his business. At this hearing Rodriguez denied selling marijuana to the policeman who had testified to the contrary. The Petitioner's witness is deemed a much more credible witness and it was this testimony, plus the guilty plea entered in Circuit Court that resulted in the finding that Respondent possessed and sold marijuana on the licensed premises. No evidence was submitted with respect to Counts 3, 4 and 7 of the Notice to Show Cause. The admissions of Respondent with respect to the facts alleged in Counts 5 and 6 were rebutted by Respondent's testimony, which was not contradicted by Petitioner's witness, that the lottery ticket was old and that the list of numbers found on Rodriguez' person was not a list of lottery numbers.
