The Issue The issue in this case is whether Respondent failed to execute a written agreement with the owner of property to be auctioned and, if so, what penalty should be imposed.
Findings Of Fact Respondent is a licensed auctioneer, holding license number AU 0000415. Respondent and Danny Mitchell are coworkers at a County mosquito control agency. Mr. Mitchell and his wife Joan were selling their house and moving out of town. Wanting to sell their personal possessions fast, they agreed that Mr. Mitchell would contact Respondent and ask him about conducting an auction. In late March 1993, Respondent visited the Mitchells at their home to view the property to be auctioned. Based on the number and quality of the property available for auction, Respondent realized that the auction would not raise much money. He estimated the value of the property to be auctioned at $1200 to $2000. Respondent did not require the Mitchells to sign a contract right away. Because of the friendship between Mr. Mitchell and Respondent, Respondent allowed the Mitchells to sell or give away items without Respondent's approval prior to the auction, and they sold $525 worth of items in the interim. Even the auction date was left open. The Mitchells did not want the auction to take place until they were closing on the sale of their house. For the next three months, the Mitchells sold and gave away what property they could. Then, without much notice, they told Respondent that they wanted the auction to take place. The Mitchells and Respondent agreed that the auction would take place July 24, 1993. Respondent discussed with Mr. Mitchell the need for advertising, which would come out of the Mitchells' share of the proceeds. The Mitchells agreed on fairly modest advertising. Respondent never obtained a written contract in the days prior to the auction. Although he was in frequent contact with Mr. Mitchell at work, there was some awkwardness in presenting the contract to him because Mr. Mitchell does not read or write. Respondent instead agreed to meet the Mitchells at their house on the morning of the auction, and he intended to present them a contract at that time to sign. Respondent appeared at their house at the agreed-upon time with a contract to be signed. However, he did not insist that they read and sign the contract because, as Respondent arrived, the Mitchells were rushing out of the house to take care of other matters. Consistent with their intent all along, the last instructions that the Mitchells gave Respondent was that he had to sell everything so the new homeowners could get into the house and the Mitchells would not have to move anything. Only about ten bidders appeared for the auction. Bidding was low. Respondent wanted to stop the auction, but had no way to contact the Mitchells, who did not try to contact him that day. Recalling the final instructions about selling everything, Respondent continued with the auction. After about an hour and a half, the auction ended with everything sold. Respondent claims that he received $499.50 in sale proceeds. It is unnecessary to determine whether this testimony should be credited. Respondent did not hear from the Mitchells for two weeks after the auction. One day, Mr. Mitchell returned to work from his vacation and asked for his money. Bringing the money the next day to work, Respondent gave the Mitchells a check for $200 with a settlement sheet itemizing the expenses. Upon the insistence of Mrs. Mitchell for documentation of the auction sales, Respondent later provided the Mitchells with copies of the clerking tickets. The estimated value of the auctioned property exceeded $500.
Recommendation It is RECOMMENDED that the Board of Auctioneers enter a final order reprimanding Respondent. ENTERED on July 28, 1995, in Tallahassee, Florida. ROBERT E. MEALE 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 on July 28, 1995. COPIES FURNISHED: Linda Goodgame, General Counsel Department of Business and Professional Regulation 1940 North Monroe Street Tallahassee, FL 32399-0792 Susan Foster, Executive Director Board of Auctioneers Northwood Centre 1940 North Monroe Street Tallahassee, FL 32399-0792 Charles F. Tunnicliff, Chief Attorney Department of Business and Professional Regulation 1940 North Monroe Street Tallahassee, FL 32399-0792 Bruce C. Scott 2424 McGregor Boulevard Ft. Myers, FL 33901
Findings Of Fact Nelson Martinez together with others purchased the truck distributorship known as Ocala Mack Sales, Inc. It was bought from George Raney on or about March 1, 1985. In January, 1989, Respondent still owed Raney $370,000 for that purchase. In furtherance of the purchase Martinez on behalf of the Respondent entered into a Floor Plan Financing Agreement with Mack Financial Corporation (MFC), a subsidiary to the Petitioner. Martinez also executed two distributor agreements with Petitioner. These events took place on March 26, 1985. Petitioner is a corporation which has its principal place of business in Allentown, Pennsylvania. That business involves the manufacture and sale of Mack trucks and related products. MFC is the credit administration arm of the Petitioner. It has its principal place of business in Allentown, Pennsylvania. The credit arm, at its discretion, serves as a lender to the several distributors, to include Respondent, in the financing of new and used trucks, parts and other Mack products. In accordance with his agreements, Respondent sells new Mack trucks, used trucks, Mack parts and products as well as servicing the vehicles. The geographical area which constitutes the principal territory which Respondent is responsible for consists of Marion, Gilchrist, Levy, and Dixie Counties in Florida. The Distributor Agreements entered into between Petitioner and Respondent do not prohibit sales in the international market or outside the assigned geographical area in Florida. At the inception of the distributorship Martinez signed a $375,000 promissory note in April, 1985. That obligation is referred to as the capitol loan. Its terms call for the repayment of the principal in five years under monthly installments of $6,250. Although the terms of the note call for the payment on the 15th of each month, by oral agreement during the life of the note Respondent was allowed to remit payment by the end of each month. It is specified in the agreement that Respondent upon default is obligated to pay the entire unpaid balance immediately. In Paragraph 1 to the Floor Plan Financing Agreement, MFC has reserved to itself the ability to refuse or limit Floor Plan Financing when in its judgment the credit standing or financial condition of the distributor, such as the Respondent, would not warrant an extension of credit. These limitations can occur in those instances where the distributor carries excessive inventory for a two-month period. Finally, should the distributor default on payment of any obligation owed to the Petitioner or MFC, MFC may refuse or limit the Floor Plan Financing. Respondent's Floor Plan Financing Agreement with MFC, at Paragraph 6, obligates the Respondent to keep the floor plan vehicles free of all taxes, liens and encumbrances. Paragraph 7 to the Floor Plan Financing Agreement between Respondent and Petitioner requires that the distributor keep cash received from the disposition of vehicles that were subject to the floor plan obligations separate from the other funds and property of the dealership. That same paragraph requires the Respondent to immediately remit the proceeds from the sales of any vehicle under the floor plan to MFC. Notwithstanding remarks by Mr. Martinez that he is not particularly familiar with the details of the Floor Plan Financing Agreement, he and other members of Respondent corporation would be subject to the Floor Plan Financing Agreement terms throughout the history of the dealership absent written amendments or oral agreements which restructured those terms. In executing the Distributor Agreements for sale of "Mack vehicles" and "Mack mid-liner vehicles," Respondent subjected itself to the possible termination of those agreements should the Respondent default on the payment obligations to Petitioner or MFC. George Brigman who was the district manager for MFC in the period 1980 through 1990 had explained the nature of the policies and procedures of Petitioner and MFC as it spoke to the Floor Plan Financing Agreement and Distributor Agreements executed between Petitioner/MFC and Respondent concerning payment of the floor plan, capitol loan and parts accounts. From the inception of Respondent's dealership until notice was given concerning the termination, Brigman was conversant with Respondent's financial position vis-a-vis its obligations to Petitioner and MFC. There is some question concerning Respondent's capitol position at the inception of its business. Nonetheless it chose to pursue the enterprise. Within six months its capitol position was weak and it continued to be weak until December, 1989, when Petitioner gave the Respondent the termination notice. Respondent's business practices contributed to this under capitalization. Concerning the related topic of repayment of the capitol loan, Respondent did not make the payment due on September 31, 1989. Thus, by October, 1989, it was in default. In particular, it was in default on October 5, 1989 when Petitioner took control of Respondent's truck inventory of new and used vehicles in an action in replevin. The cash flow problems which Respondent experienced over time were especially grave in that period January 1988, through October 1989. Concerning the inventory, MFC had established a $150,000 floor plan financing limit on used trucks which Respondent held in its inventory. In this connection Respondent participated in the evaluation of used inventory by submitting its opinion of the appraised value of a used truck as a predicate to the decision by MFC on the amount of floor plan financing to be assigned that truck. Respondent also pursued in-house financing of used trucks held in inventory. That practice had an adverse affect on cash flow and the ability to meet financial obligations incumbent upon Respondent. On October 1988 Respondent's used truck floor plan financing balance was $294,000. From that point forward it did not fall below the $150,000 limit, although there were occasions when some improvement was shown in Respondent's attempts to comply with the credit ceiling. Commencing November 1988, MFC in cooperation with the Respondent made a conscientious attempt to reduce the floor plan financing debt below the $150,000 credit limit. As an incentive, in January 1989 MFC imposed the requirement that Respondent sell a used truck before an additional used truck would be included within MFC Floor Plan Financing Agreement for used trucks. MFC also called for an assessment of each additional truck to be placed in the used truck inventory and floor planned by MFC. MFC went so far as to advise Respondent that should it not reduce the used truck inventory that it might be required to pay curtailments on the existing inventory. The concept of curtailment is one calling for the dealership to pay off a vehicle in inventory to reduce the floor plan debt. MFC in this time frame was particularly concerned about used trucks that had been held in Respondent's inventory for a long period of time. The range of financing of the used truck floor plan held by MFC in the January through June 1989 period was as follows: January, $281,956.45; February, $168,627.79; March, $162,673.63; April, $215,861.20; May, $236,863.54, and June, $274,841.73. In addition to the problems with control of used truck inventory, Respondent also had tax problems. In late 1988 Respondent owed the United States Government $190,000 in unpaid Federal Excise Tax. It also owed the State of Florida under a tax warrant issued in Alachua County, Florida, on July 24, 1989. That amount was $155,916.61, related to unpaid sales tax. Respondent had been aware of that obligation in early 1989. This refers to the fact that Respondent had consciously sold trucks, collected sales tax for those sales, and failed to remit to the State of Florida in the subject period. Nelson Martinez as the person responsible for Respondent's business affairs recognized the legal requirement to remit the sales and excise taxes to the respective governments. Although Martinez arranged a payment schedule to satisfy the tax warrant issued by the State of Florida, and met the payment schedule, that encumbrance still affected Petitioner's financial position as well as that of Respondent. Petitioner was aware of the arrangement to pay the tax lien and compliance by Respondent with the payment schedule, but this did not prohibit the Petitioner from taking the actions it did in view of the existence of that lien. Nelson Martinez had made no mention of the existence of the two tax obligations to either Petitioner or MFC with the exception that information about the tax was included in the June 1989 financial statement from Respondent to Petitioner. In view of the tax lien held by the State of Florida, Petitioner in the person of MFC notified Respondent that floor plan financing would not be extended for future new, and by inference used trucks, placed in inventory and that the sale of new trucks and parts from Petitioner to Respondent would be on a C.O.D. (collect on delivery) basis. This notification took place on September 20, 1989. When Respondent became a franchisee it was extended a $250,000 credit limit on its parts account. That credit limit was increased to $330,000 in May 1988. In the history of the parts account, Mr. Martinez had been informed by Brigman through correspondence of December 6, 1985, concerning the necessity to pay $172,000 outstanding on that account by December 16, 1985, or be placed on a C.O.D. basis. This was followed by correspondence of December 23, 1985, Brigman to Martinez concerning the payment of outstanding indebtedness on the parts account by January 15, 1986. Correspondence of February 20, 1987, from Brigman to Martinez continued to discuss the problem of payment on the parts account. That correspondence followed a letter of February 13, 1987, from Brigman to Martinez referring to the then outstanding balance of $548,321.53 effective January 30, 1987. Martinez was reminded that on February 2, 1987, the parts account had been credited in the amount of $49,612.77, leaving a balance of $498,808.76. The aging of that account was a current balance of $242,809.50 with $255,999.26 in the 1 to 30 day past due section. The correspondence called for a payment of $100,000 of that 1 to 30 day balance by February 16, 1987, with that 1 to 30 day balance to be paid by February 27, 1987. Similarly, during the year 1986, Respondent's parts account had been routinely 30 days past due and the practice by Respondent was to pay the 1 to 30 day amount when the following statement was received which was around the tenth of the month. Given credit problems on the parts account, Respondent was eventually placed on a C.O.D. payment basis from August through November, 1987 based upon its failure to pay the amounts owed that were over thirty days past due. In early 1988 Respondent arrived at an arrangement with MFC which made it responsible to pay only those amounts which were 31 to 60 days overdue by remitting payment by the end of each month. In August 1989 the amount over 30 days past due, or in the 31 to 60 category, which had not been paid was $69,000, and in September of that year the amount over 30 days past due was $165,000. The business practices of Respondent had led to problems with paying the parts bill as well as paying the taxes. In particular, some of the decisions on in-house financing of used trucks had promoted these problems. About $400,000 of this financing was on the books in the spring of 1989 attributed to persons who were poor credit risks that had been turned down by other lending institutions. Although Respondent had placed uncollected judgements against "an awful lot of the folks" that had bought the used trucks, the trucks themselves were not worth repossessing in the estimation of Respondent's General Manager Theordore D. Steele as an alternative means of collecting the debt. In addition to its indebtedness to Petitioner, Respondent had considerable other debt obligations for operating its dealership in the period in question. Notwithstanding Respondent's debt position, Petitioner during the history of the relationship with Respondent did not place undue pressure on the Respondent to honor its debt obligations to the Petitioner. When it was finally necessary to take the drastic action that occurred in September 1989 to protect its financial interest, Petitioner was justified in that course of conduct. Another problem experienced with the Respondent concerning its financial obligations to the Petitioner involved what is referred to as "sales out of trust." That condition occurs, generally stated, when a truck is not on the distributor's lot and payment has been received by the distributor but not remitted to MFC. The custom and practice calls for Respondent to remit to MFC upon payment from a customer; however, three or four days are allowed from receipt of the customer's payment until MFC receives its funds. Under those circumstances the transaction would not be considered a sale out of trust. MFC had made the Respondent mindful of the payment procedures on a number of occasions to include written explanations by correspondence of April 23, 1985; September 25, 1985, and July 21, 1987. Although these explanations were clearly understood by the Respondent, it made sales out of trust numerous times. It also failed to segregate the proceeds from sales of trucks in violation of the Floor Plan Financing Agreement. By a conversion report of January 1986, prepared for Petitioner, references were made to sales of out trust from November 27, 1985 to January 2, 1986. There were nine trucks involved, one of which was worth $18,000, three of which were valued in the $20,000 range and the remainder of which were in the mid $50,000 bracket. As a consequence, MFC picked up the Manufactures Statements of Origin (MSO) for new trucks and titles to all used trucks in Respondent's inventory to be released as the units were sold. This is in contrast to the usual practice of having the distributor control the MSOs and titles pending sales. The inability of Respondent to control the MSOs and titles remained in effect until October 1986. When an audit was conducted by MFC concerning the Respondent's operation effective July 21, 1989, it was discovered that a truck sale had been made on June 23, 1989, for which no payment had been made. The truck sold on June 23, 1989, was paid for at the time of the July 21, 1989, audit. A further audit on July 31, 1989, revealed that five trucks had been exported to Puerto Rico without the authorization of MFC. The trucks exported to Puerto Rico were paid for on August 3, 1989. Based on these events, Respondent was advised not to export trucks without payment being received. On August 18, 1989 another audit was made. MFC discovered that Ocala Mack had exported units to the Dominican Republic and Puerto Rico. The letters of credit on these units had expired. Respondent did not pay for the subject trucks at the time of the audit. Instead, Respondent indicated that payment would be made when the letters of credit were cashed. Respondent was again advised that if this practice of export and no arrangement for payment persisted restrictions would be placed on dealership sales. At the time of the September 8, 1989, audit by MFC, payment on the above described units had not been received. As a consequence, the MSOs and titles for vehicles in inventory were picked up with the exception of two MSOs which the Respondent requested be retained because they had acquired purchasers for those units. Respondent committed itself to immediately pay MFC for those two units when the sells were consummated. By correspondence of September 15, 1989, directed from Brigman to the attention of Martinez, payment was requested for the sale of a unit to Shell Company in the West Indies which had been previously sold. When an audit was performed on October 2, 1989, Respondent was found to be out of trust relating to the sales of the two vehicles for which the MSOs had been left with the Respondent following the September 8, 1989, audit. Respondent understood pursuant to the terms of its contractual arrangements with MFC that money received for sales, such as those described, belonged to MFC and not to Respondent and that Respondent was not in a position to use the proceeds from those sales at its discretion. Moreover, the circumstances concerning the sales did not fall into the category of exceptions related to trucks missing from the dealership which were away for preparation at a body builder with proof of that arrangement through a receipt at the dealership issued from the body builder; away from the dealership pursuant to a demonstration agreement with a copy of that agreement available at the dealership or based upon a deferred billing and assignment that had been agreed to by MFC. In the audit that took place on October 2, 1989, MFC demanded that all new and used vehicles be turned over to its control. Respondent was not willing to comply with that request without a court order. On that same date, October 2, 1989, Respondent shipped four 1989 model trucks to Cementos Nacionales in the Dominican Republic. The value of those trucks was $236,744. Respondent received payment for those trucks in October 1989, but never remitted payment to MFC as required. Instead, Respondent used the proceeds from the sale to pay $102,000 for the two previously described trucks, whose sale out of trust was noted at the October 2, 1989, audit, with a balance of the proceeds from the $236,744 being used to pay C.O.D. for parts and to pay other suppliers. At the time Respondent sold the four trucks in question, it had no other arrangements for independent financing of its dealer operations which would have allowed it to meet its obligations to MFC. Respondent had made attempts to secure alternate means of floor plan financing separate and apart from its arrangement with MFC but without success. Respondent had also attempted to secure working capital from Petitioner in the amount of approximately $300,000 in April of 1989. The request was not granted. When Respondent chose to distribute the proceeds from the sale of the four trucks in the manner described, that was a decision reached in exercising its discretion and business judgment unrelated to the advice of others. On September 29, 1989, when Respondent sold the two trucks which were found out of trust in the audit of October 2, 1989, it had anticipated being able to pay for those trucks based upon proceeds realized in the floor planning of five used trucks taken in trade. It held this opinion in spite of the fact that effective September 20, 1989, the Floor Plan Financing Agreement for new and used trucks to be obtained in the future had been terminated. Consequently, MFC refused to floor plan the five used trucks. Being unable to gain financing, Respondent advised Petitioner it would be unable to pay for the two new trucks and it did not pay for them until it misappropriated the funds from the sale of the Cementos Nacionales trucks. Having discovered that the two new trucks were missing from the dealership on October 2, 1989, MFC requested immediate payment for those trucks and that request was met with the offer of a postdated check but no guarantee was stated as to the date upon which that check would clear in extinguishing the debt for the two trucks. This eventuated in the request from Petitioner to Respondent to have the Respondent surrender possession of the truck inventory under financing by MFC. Respondent, having refused to surrender those items on October 2, 1989, Petitioner obtained a Writ of Replevin which was served on the distributorship on October 5, 1989. At that time, Petitioner took position of the new and used truck inventory in accordance with the collateral security provisions set forth in the Floor Plan Financing Agreement. Petitioner left Respondent with the parts inventory. In pursuing the Writ of Replevin, Petitioner had in mind the existence of the tax lien to the State of Florida, delinquencies associated with the parts account and capital loan, the out of trust situation with the two trucks which have been mentioned and Respondent's previous history concerning delinquent payment for trucks which Respondent sold. From that point forward sales to the Respondent by Mack and MFC associated with parts and new vehicles has been on a C.O.D. basis. On December 11, 1989, Petitioner gave notice of termination to Respondent. The basis for the termination concerns defaults in the payment obligations from Respondent to Petitioner associated with floor plan indebtedness, parts account indebtedness, capital loan account indebtedness, and in particular the failure to make payment for the Cementos Nacionales trucks. That termination notice was in accordance with and authorized by paragraphs 22e(1) and 25(D)(1) of the Distributor Agreements between the Petitioner and Respondent that had been entered into on March 26, 1985. In addition to concerns about the viability of the Respondent, Petitioner had concerns of its own associated with its financial position. Petitioner had lost $185,000,000 in the calendar year 1989. It caused the Petitioner to be more cautious in its financial dealings to include the business conducted with its distributors. Paul Ritter, a Senior Vice President of Sales with Petitioner, made the decision to terminate. He had adequate cause for the termination. Respondent's attempts to minimize the significance of its shortcomings that led Petitioner to take the action calling for termination and to ascribe motives to the Petitioner which Respondent deems to be a matter of pretext are unavailing. As to the latter, pursuant to Section 320.641(3), Florida Statutes, Respondent alleges that the reason for termination is unfair and that Petitioner took the action of termination as part of Petitioner's attempt to interfere with the export business which Respondent conducted and as an overall pattern of discriminatory treatment of Respondent by Petitioner that would include threats and intimidation directed from Petitioner to Respondent. Although the Distributor Agreements did not prohibit sales in the international market, Petitioner regarded this as contrary to its policy and adverse to Mack International, a subsidiary to the Petitioner which conducted sales in the international market place. Mr. Martinez made known to the Petitioner that he intended to conduct sales in the international market place at the inception of his franchise. Indeed, in the history of the franchise approximately a third of the sales were in the international market place. Petitioner was not pleased with these activities and monitored them over time. Respondent, through the knowledge of its principal officer, Mr. Martinez, was conversant with the truck business in Central and South America where it conducted sales. One of the reasons for Petitioner's concern about the sales activities by Respondent in the international market place was the adverse economic impact that would occur to Mack International in that the price structure by Respondent was cheaper than that of Mack International. Petitioner requested Respondent to stop doing business in the international market place and tried to discourage Respondent's customers from buying from Respondent in the international market place. Petitioner even went so far as to tell the Respondent that these activities might jeopardize the franchise. In spite of this friction over sales activities in the international market place, the facts presented do not lead to the conclusion that Petitioner's resistance to Respondent's sales activities in that market lead to the inability to meet debt obligations referred to before or that Petitioner used the nonpayment of those debt obligations as a ruse for terminating Respondent when Respondent's activities in the international market place was the true reason for termination. Likewise, although Petitioner was not pleased with some of the sales activities by Respondent outside of its domestic territory in territories of other domestic dealers, this was not the reason for terminating the distributorship. Nor did the Petitioner terminate the Respondent's dealership based upon a disagreement over the distribution of sales effort discounts for sales to out of territory customers. Over the history of the franchise, Respondent sold approximately one third of its vehicles in domestic territory not specifically assigned to it, and which it was allowed to do. Petitioner became aware in 1989 that Respondent had taken on the sale of Western Star Trucks which competed with sales of Petitioner's product and it also had undertaken the sale of U.D. (Nissan) vehicles. This was a matter of concern to the Petitioner, but did not influence its decision to terminate Respondent's franchise for failure to honor financial obligations. Any suggestion by Respondent that the basis for termination was related to ethnic discrimination against Hispanics is rejected.
Recommendation Based upon the consideration of the facts found and the conclusions of law reached, it is, RECOMMENDED: That a Final Order be entered which upholds the decision to terminate/cancel Respondent's franchise. DONE and ENTERED this 10th day of July, 1991, in Tallahassee, Florida. CHARLES C. ADAMS, 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 10th day of July, 1991. APPENDIX TO RECOMMENDED ORDER The following discussion is given concerning the fact proposals of the parties. Petitioner's Facts Paragraph 8 is not necessary to the resolution of the dispute. Paragraph 24 is a incorrect portrayal of the transcript pages cited to. Paragraph 26 is not necessary to the resolution of the dispute. Paragraph 41 is rejected. Paragraph 42 is rejected with the exception of the reference to placement on C.O.D. on September 20, 1989. Paragraph 65 is not necessary to the resolution of the dispute. The last sentence of Paragraph 87 is not necessary to the resolution of the dispute. Respondent's Facts Paragraph 3 is not necessary to the resolution of the dispute. In Paragraph 10 the impression of one witness concerning what another witness thought is rejected. Paragraphs 18 through 26 are not necessary to the resolution of the dispute. Paragraph 27 is rejected in that aspect which attempts to report one witness's impression of the attitude of another witness concerning mental state. Paragraph 38 is rejected. Paragraph 39 is not necessary to the resolution of the dispute. Concerning Paragraph 41, the agreements between the parties did not require that Respondent be made aware of the Petitioner's choices before those choices were carried out. Paragraphs 43 and 44, see above. The matters set forth in Paragraph 45 do not excuse Respondent's nonpayment. Paragraph 52 is rejected. Paragraph 53 constitutes argument. Paragraphs 57 and 58 are not necessary to the resolution of the dispute. Paragraph 59 is rejected as is Paragraph 62. Paragraph 66 is accepted but it does not lead to a different result in the case. Paragraphs 67 and 68 are irrelevant. Paragraph 69 is rejected in the last sentence. Concerning Paragraph 70, the change in policy of September 29, 1989 did not relate to existing inventory but it did relate to inventory to be gained beyond that point, to include used inventory. As to Paragraph 71 it can be inferred that the used truck floor plan was affected by the September 20, 1989 decision, especially given existing problems with used truck inventory. As to Paragraph 72 it is accepted but the choice of placement on C.O.D. was justified. Paragraph 73 is not necessary to the resolution of the dispute. As to Paragraph 74 the suggestion that the parts account was current is rejected. The balance of the paragraph is accepted. As to Paragraphs 77 and 78 this is not an accurate statement of the present case. Paragraph 79 is rejected. Paragraph 81 is accepted but it is not sufficient to cover the two out of trust sales which amounted to $102,000, more importantly, Respondent owed Petitioner for the two new trucks aside from the attempt to floor plan the five units as a means of paying for the two new trucks. Paragraph 82 is rejected. Paragraphs 83 and 84 are accepted. Paragraph 85 is rejected. As to Paragraph 86, see discussion for Paragraph 81. Paragraph 90 is accepted but does not change the outcome. Paragraph 91, see above. Paragraph 92 is irrelevant. Paragraph 93 is rejected. Paragraphs 94 and 95 are accepted. Paragraph 98 is accepted but does not change the outcome. Paragraph 99 is accepted. Paragraph 101 is accepted with the exception of the value of receivables and value of used truck inventory which is rejected. Paragraph 103 is rejected in that the parts were not taken. Paragraphs 104 and 105 are irrelevant. Paragraph 106 is accepted. Paragraphs 109 and 110 are accepted. Paragraph 111 is rejected. Paragraph 115 is irrelevant. That portion of Paragraph 116 attributable to the position of the Associates is rejected as hearsay. Paragraph 118 is irrelevant. Paragraphs 119 through 123 are not necessary to the resolution of the dispute. Paragraph 128 is rejected. Paragraph 129 is accepted as is Paragraph 131. Paragraphs 132 through 134 are irrelevant. Paragraph 136 is irrelevant. Paragraph 137 does not establish ethnic discrimination as a basis for termination. Paragraphs 138 and 139 are rejected. Concerning Paragraph 140, the December 11, 1989 letter constituted notice of termination. Paragraphs 141 and 142 are irrelevant. The balance of the suggested fact finding by the Petitioner and Respondent is subordinate to facts found in the Recommended Order. COPIES FURNISHED: Dean Bunch, Esq. Robert L. Hessman, Esq. RUMBERGER, KIRK, ET AL. 106 E. College Avenue, Suite 700 Tallahassee, FL 32301 Roy Cohn, Esq. GIBBONS, SMITH, COHN & ARNETT 501 E. Kennedy Boulevard, Suite 906 Tampa, FL 33602 Irwin J. Weiner, Esq. 50 S.E. First Avenue Ocala, FL 32671 Scott R. Corbett, Esq. 550 N. Bumby Avenue, Suite 280 Orlando, FL 32803 Michael J. Alderman, Esquire Department of Highway Safety and Motor Vehicles Neil Kirkman Building Tallahassee, FL 32399-0500 Charles J. Brantley, Director Division of Motor Vehicles Department of Highway Safety and Motor Vehicles Neil Kirkman Building, Room B439 Tallahassee, FL 32399-0500
Findings Of Fact American Asphalt, Inc., a bidder fully qualified to bid on this project, did not include a printed hard copy (paper copy) along with its bid diskettes when it timely submitted its bid on State Project No. 92130-3423 before 10:30 a.m. on July 28, 1993. (Prehearing Stipulation) The bid blank included with this bid (Exhibit R8) showed on the front of the document the total amount of the bid as $2,526,335.16 which is $201,662.70 below the next lowest bid. However, the various items to be included in the bid which totalled the amount shown on the front were left blank on Exhibit R8. A hard copy run from the bid diskette included with the bid package was filed with the Department at 10:38 a.m. on July 28, 1993, eight minutes after the deadline for bid submissions, and a copy was admitted into evidence as Exhibit P1. The total of the items listed on Exhibit P1 and on the diskette is $2,526,335.16, the same as shown on the front page of Exhibit R8 timely submitted with the bid. In October 1988, the Department instituted Contract Electronic Bidding (CEB) where the Department supplies bid proposal forms and a computer diskette designed to operate on IBM personal computers or IBM compatible computers. The only entries into the CEB program by the bidder that are permitted are the company name, vendor number, base codes, reason code, addendum number, and the unit or lump sum prices for items that must be bid in order to produce an official bid item list (Exhibit R2 Section 2-2). The CEB program is intended to simplify the bidding process for both the Department and bidder. Changes made in unit prices while using this program are immediately reflected in the overall bid. Diskette Bidding Instructions (Exhibit R6) was received by Petitioner with its bid package. Item 1 under instructions for submission of computer generated bids provides: The printed hard copy returned form (sic) contractor is the only acceptable bid and must be accompanied by the diskette from which it was printed. Supplemental Specifications (Exhibit R4) which accompanied the standard bid specifications submitted with the bid package provides in pertinent part: The computer-generated bid item sheets that are submitted must be printed from the diskette that is returned. When a diskette other than the one furnished by the Department is utilized to generate the official bid, the diskette submitted must have a label attached indicating the Contractor's Name, Vendor Number, Letting Date, Revision Date (if applicable) and the State Project Number. When a bid is submitted with hard copy but without a diskette or a diskette unreadable or containing a virus, the Department prepares a diskette from the hard copy which can be entered into the Department's mainframe computer. Last minute changes to a bid may be made by the bidder on the hard copy by interlining or whiting out the changed figure and writing in the new figure which must be initialled by the bidder. When such an altered bid is received, both of the Department's first and second checkers of the bid initial the change. Because the bid submitted by Petitioner did not contain a completed hard copy at the time specified for bid opening the Technical Review Committee voted unanimously and the Contract Awards Committee voted two to one to recommend the apparent low bid submitted by American Asphalt, Inc. be declared irregular for failure to turn in a completed computer generated bid item sheet with their bid package; and that the bid be awarded to the next lowest bidder (Exhibit R9 and R10). Item 3-1 of the standard bid specification (Exhibit R3) provides in pertinent part: Until the actual award of the contract, however, the right will be reserved to reject any and all proposals and to waive technical errors as may be deemed best for the interest of the State.
Recommendation Based on the foregoing, it is, hereby, RECOMMENDED: That a final order be entered rejecting American Asphalt, Inc.'s challenge to the award of State Project No. 92130-3423 to Hubbard Construction Company. DONE AND RECOMMENDED this 2nd day of December, 1993, in Tallahassee, Leon County, Florida. K. N. AYERS 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 2nd day of December, 1993. APPENDIX TO RECOMMENDED ORDER, CASE NO. 93-5855BID Petitioner's proposed findings are accepted except: 15. Rejected. See Hearing Officer Conclusion of Law #20.-21. 17. Rejected. See Hearing Officer Conclusion of Law #22. Respondent's proposed findings are accepted. COPIES FURNISHED: Charles G. Gardner Assistant General Counsel Department of Transportation 605 Suwannee Street Tallahassee, Florida 32399-0450 James W. Anderson, Esquire SAVLOV & ANDERSON, P.A. Post Office Drawer 870 Tallahassee, Florida 32302 Ben G. Watts, Secretary Attn: Eleanor F. Turner, Mail Station #58 Department of Transportation Haydon Burns Building 605 Suwannee Street Tallahassee, Florida 32399-0458 Thornton J. Williams, General Counsel Department of Transportation 562 Haydon Burns Building 605 Suwannee Street Tallahassee, Florida 32399-0458
Findings Of Fact Horacio A. Sotolongo (Respondent) is, and at all times involved in the Administrative Complaint was, a real estate broker registered with the FREC. Respondent was served with a copy of the Administrative Complaint and requested a hearing on the charges. Thereafter Respondent was notified of the time and place of the scheduled hearing by Registered/Certified Mail sent to the last address registered with the FREC. In May, 1974 Respondent negotiated the sale of a tract of land near Stuart, Florida between Hypoloxo Enterprises, Inc. seller, and Harry Soccorso, buyer. When the buyer was unable to close the transaction Respondent procured another buyer to whom the contract was assigned by the original buyer. Respondent told the seller that the new buyer (Enrique Torres) was the owner of the Florida Lumber Company located in Miami and that Torres could not speak English. The property was deeded to Torres in accordance with the contract. Subsequent thereto Torres became delinquent in his mortgage payments and quitclaimed the property back to the seller in satisfaction of the mortgage. At no time was Torres more than an employee of Florida Lumber Company and he owned no stock and held no corporate office in this company. Torres is fluent in English and was so fluent at the time of the transaction. On August 29, 1974 Respondent produced a potential buyer for property owned by Ft. Pierce Sand and Minerals, Inc. and presented an offer to purchase the property for $150,000 under terms specified in the offer. Although the contract recited an earnest money deposit by buyer of $5,000, only $2,500 was received by Respondent. The offer was not accepted by the seller and buyer demanded return of his deposit. Upon receipt of the check representing the earnest money deposit Respondent did not deposit it in his escrow account but cashed the check at the First National Bank and Trust Company of Tequesta on which the check had been drawn. At the time of receipt of the $2,500 deposit Respondent's escrow account balance was zero and there has been no activity in the account since that time. The $2,500 deposit was returned to the buyer some two months after the offer had been refused by the seller.
Findings Of Fact K & B Enterprises, Respondent, purchased plants from Roy Amerson, Inc., Petitioner, and they were delivered to Respondent on February 19, 1980. Respondent had ordered Bottlebrush and Cuban laurel (Ficus Nitida) packaged in wire baskets to protect root ball in shipment. Upon arrival Respondent noted that the wires were mangled and some root balls appeared separated from the roots. Before the trees were unloaded Mrs. Benway telephoned the salesman for Petitioner and told him about the condition of the trees. The salesman advised her to accept the trees, water them, and they (Amerson) would make an allowance for the damage. This, he said, would be better and cause less damage to the trees than if they were sent back on the truck that brought them. The driver was requested by Mr. Benway to note the condition of the trees on the invoice accompanying the shipment (Exhibit 1). No such notation was made. The driver did note the date of delivery. Respondent Benway acknowledged receipt of the merchandise by signing Exhibit 1 below the following statement printed near the bottom of Exhibit 1: STOCK MAY BE REFUSED AT TIME OF DELIVERY FOR A DEFINITE REASON, BUT ONCE SIGNED FOR CUSTOMER ASSUMES RESPONSIBILITY FOR TOTAL AMOUNT OF INVOICE. OPEN ACCOUNTS PAYABLE BY THE 10TH OF THE MONTH. 1 1/2 PERCENT CHARGE ADDED IF NOT PAID BY THE 25TH WHICH IS ANNUAL RATE OF 18 PERCENT. Respondent is a plant retailer and landscape contractor. After accepting the February 19, 1980 delivery the Cuban laurel was planted as were the other plants. Attempts to settle the dispute with Petitioner's salesman were unsuccessful. Nine of the Bottlebrush died but all of the Cuban laurel have survived. At the instruction of the salesman these plants were watered but not trimmed or fertilized. Respondent paid for the other plants received on this invoice and for the damaged plants as they have been sold. As of the date of the hearing the balance owed on the stock delivered on Exhibit 1 was $1,494.90.
The Issue The issues in this case are: Whether computer software purchases by the Charlotte County School District (District or Petitioner) in fiscal year 2008-09, paid for with capital outlay millage funds or interest earned on capital outlay millage funds, were authorized equipment purchases under the version of section 1011.71(2)(d), Florida Statutes (2008), existing at the time of the purchases;1 Whether interest earnings on capital outlay millage proceeds are subject to the same expenditure restrictions as the millage proceeds; and Whether the Department of Education's (Department or Respondent) position that the District violated the expenditure restrictions in section 1011.71(2) is impermissibly based on an unadopted rule. See § 120.57(1)(e), Fla. Stat. (2010).
Findings Of Fact The District constitutes the unit for the control, organization, and administration of all public schools in Charlotte County, Florida. The Department is an agency of the State of Florida responsible for ensuring a uniform, efficient, safe, secure, and high-quality system of free public schools that allows students to obtain a high-quality education. The Department's responsibilities include administering the Florida K-20 Education Code (Education Code) set forth in chapters 1000 through 1013, Florida Statutes. The Auditor General is appointed by the Legislature pursuant to Article III, section 2 of the Florida Constitution, and section 11.42, Florida Statutes, to audit public records as prescribed by law. The Auditor General's statutory responsibilities include conducting audits of the financial statements of district school boards. In March 2010, the Auditor General issued its audit report on the District's financial statements for fiscal year 2008-09. The audit report, designated Report No. 2010-136, was entitled, "Financial, Operational, and Federal Single Audit for the Fiscal Year Ended June 30, 2009" (Auditor General Report). Finding No. 1 of the Auditor General Report included a finding that purchases by the District of instructional computer software, software licenses, and Microsoft Office licenses (collectively, the disputed software purchases) were not "specifically included" as allowable uses of capital outlay millage funds under the provisions of section 1011.71(2), Florida Statutes (2009).3/ The Auditor General noted that District personnel had expressed their belief that these expenditures were allowable uses of capital outlay millage proceeds under section 1011.71, but the Auditor General found that "[t]hese expenditures totaling $137,315 represent questioned costs." The Auditor General's finding ended by recommending that the District "should document to the [Department] the allowability of the instructional software, software licenses, and Microsoft Office licenses, or these costs should be restored to the Capital Projects-Local Capital Improvement Fund." The next step was for the Department to review the Auditor General Report. As described by the Department in an April 23, 2010, letter to the District, the Department "is responsible for reviewing reports of the Auditor General on audits of the school districts and following up on findings to determine what corrective action . . . is required to be taken."4/ With regard to the audit finding calling into question the disputed software purchases, the Department stated: Computer software was not a listed use of Section 1011.71(2), F.S., until the 2009 Legislature amended Section 1011.71(2)(d), F.S., effective July 1, 2008, regarding computer software to include only, ". . . enterprise resource software applications that are classified as capital assets in accordance with definitions of the Governmental Accounting Standards Board, have a useful life of at least 5 years, and are used to support district-wide administration or state mandated reporting requirements." The items stated in the finding do not meet this definition. The Department's April 23, 2010, letter informed the District that the District had violated the expenditure restrictions of section 1011.71 and that the District was required to restore $137,315 to the District's Local Capital Improvement Fund by June 30, 2010, or else the Department would impose a penalty of a dollar-for-dollar reduction of the District's allocation of state FEFP funds. This letter did not advise the District of its right to an administrative hearing to challenge the Department's determination. The District wrote back to the Department on June 2, 2010, to point out, as had been explained to the Auditor General, that although the disputed software purchases were recorded in the Local Capital Improvement Fund, no actual ad valorem tax collections were used for the disputed purchases. Instead, the expenditures were made using interest earned on the tax collections. The District argued that the expenditure restrictions in section 1011.71(2) only applied to actual ad valorem tax dollars collected from District taxpayers and did not extend to interest earned on the tax proceeds. The Department responded to the District in a June 18, 2010, letter. The Department rejected the District's argument for unrestricted interest and provided references to the authority relied on, including a 1988 Attorney General opinion concluding that interest earned by a school district on proceeds from the tax levied, pursuant to the predecessor to section 1011.71(2), was subject to the same usage restrictions as the tax proceeds themselves. The Department reiterated that the District was required to take corrective action to avoid the penalty of reduced FEFP funding, but still provided no clear point of entry advising of the District's right to an administrative hearing. On June 29, 2010, the District restored the questioned amount to its Local Capital Improvement Fund, but explicitly did so under protest and without waiving its rights to dispute the legal validity and factual accuracy of the Department's determination regarding the disputed software purchases. The District asked the Department to provide a clear point of entry so that the District could challenge the Department's determination in an administrative hearing. In completing the financial transfer required by the Department, the District was adversely affected because the transfer converted general operating funds to more restricted funds limited in their use to specified categories of capital outlays, pursuant to the capital outlay millage statute. The transfer reduced the amount of general operating funds available for the District to spend, with a greater degree of flexibility, on educational programs or other expenditures. On July 7, 2010, the Department wrote to the District to acknowledge that the District had taken the required corrective action. As requested, the Department provided notice in this letter of the District's right to petition for an administrative hearing pursuant to sections 120.569 and 120.57, Florida Statutes (2010). On July 30, 2010, the District timely filed its Petition for Formal Administrative Hearing to challenge the Department's determination regarding the District's disputed software purchases. This petition generally challenged the determination of unauthorized expenditures and specifically raised the issue of whether interest earned on capital outlay millage proceeds levied, pursuant to section 1011.71(2), was subject to the same restrictions as the millage proceeds themselves. The petition alleged a disputed issue of material fact with regard to the source of funds used by the District for the disputed software purchases. On August 13, 2010, the Department referred this matter to DOAH. The Department acknowledged that the District sought an administrative hearing pursuant to sections 120.569 and 120.57(1), and the Department asked DOAH to assign an Administrative Law Judge to conduct the requested hearing. On October 11, 2010, the District sought leave to file an amended petition to set forth additional grounds identified in discovery for challenging the Department's determination. The District was allowed to file its amended petition, which asserted disputed issues of material fact regarding the Department's prior practice and interpretation of section 1011.71(2), and how that statute had been applied to other school districts using capital outlay millage funds for computer software purchases. The amended petition alleged that the Department had changed its interpretation of section 1011.71(2) in this regard and that the new interpretation that the Department was attempting to apply to the District constituted an unadopted rule. Evolution of Section 1011.71(2) To put this controversy into proper context, it is necessary to consider the statutory framework, as it has evolved, before moving on to a review of the Department's rules, interpretations, and prior practice applying the statute. Section 1011.71 implements Article VII, section 9 of the Florida Constitution, by providing authority for school districts to levy ad valorem taxes. Subsection (2) of the statute gives school districts discretionary authority to levy ad valorem taxes against the taxable value in their districts for school purposes. The authorized amount of this tax has varied from time to time--it was two mills for many years, reduced to 1.75 mills in 2008, and reduced further to 1.5 mills in 2009. This tax is commonly referred to as the "two-mill levy," still, even though it is no longer a two-mill levy. The tax levied must not only be "for school purposes," but it must also be for the purpose of funding items categorized in the statute. In general, the categories involve capital outlays, such as new construction or remodeling projects, acquisition of school buses by purchase or lease, and, the category subject to much attention in this case, the "purchase, lease-purchase, or lease of new and replacement equipment" (the "equipment" category). § 1011.71(2)(d). That the authorized expenditures are, by and large, capital outlays, explains another commonly used description of this tax--"capital outlay millage"--even though section 1011.71(2) does not expressly limit expenditures to capital outlays or capital projects. Section 1011.71 is frequently amended. It was amended multiple times in 2002; in 2003 and 2004; multiple times in 2006; in 2007, 2008, 2009, 2010, and, again, in 2011. Before the substantial reorganization, amendment, and renumbering of the Education Code in 2002, the same statute existed as section 236.25, Florida Statutes (2001), and its history shows similar frequent amendments. However, the particular category of authorized expenditure at issue in this case--the "equipment" category--has been relatively stable over the years, until 2009, when it was first amended in a special session in the beginning of the year and was amended again in 2010. Before 2009, the "equipment" category in section 1011.71(2)(d) remained essentially unchanged. An additional limitation, external to the "equipment" category and the other authorized expenditure categories listed in section 1011.71(2), was imposed for a period of time before 2007, in what was then subsection (5) of the same statute. This additional limitation, in effect for a number of years until it was repealed in mid-2007, restricted expenditures of capital outlay millage proceeds for equipment and other categories listed in subsection (2) by imposing the additional requirement that the expenditure had to be "directly related to the delivery of student instruction[.]" See, e.g., §1011.71(5), Fla. Stat. (2005). Thus, while the "equipment" category remained unchanged in subsection (2), the additional restriction imposed for a time by subsection (5) limited authorized equipment expenditures to only those purchases of equipment that were directly related to the delivery of student instruction. When the District went through its budget process in 2008 and when the District spent $105,815 later in 2008 for most of the disputed software purchases, the version of section 1011.71(2) on the books provided: In addition to the maximum millage levy as provided in subsection (1), each school board may levy not more than 1.75 mills against the taxable value for school purposes for district schools, including charter schools at the discretion of the school board, to fund: New construction and remodeling projects, as set forth in s. 1013.64(3)(b) and (6)(b) and included in the district's educational plant survey pursuant to s. 1013.31, without regard to prioritization, sites and site improvement or expansion to new sites, existing sites, auxiliary facilities, athletic facilities, or ancillary facilities. Maintenance, renovation, and repair of existing school plants or of leased facilities to correct deficiencies pursuant to s. 1013.15(2). The purchase, lease-purchase, or lease of school buses. The purchase, lease-purchase, or lease of new and replacement equipment. Payments for educational facilities and sites due under a lease-purchase agreement entered into by a district school board pursuant to s. 1003.02(1)(f) or s. 1013.15(2), not exceeding, in the aggregate, an amount equal to three-fourths of the proceeds from the millage levied by a district school board pursuant to this subsection. Payment of loans approved pursuant to ss. 1011.14 and 1011.15. Payment of costs directly related to complying with state and federal environmental statutes, rules, and regulations governing school facilities. Payment of costs of leasing relocatable educational facilities, of renting or leasing educational facilities and sites pursuant to s. 1013.15(2), or of renting or leasing buildings or space within existing buildings pursuant to s. 1013.15(4). Payment of the cost of school buses when a school district contracts with a private entity to provide student transportation services if the district meets the requirements of this paragraph. The district's contract must require that the private entity purchase, lease- purchase, or lease, and operate and maintain, one or more school buses of a specific type and size that meet the requirements of s. 1006.25. Each such school bus must be used for the daily transportation of public school students in the manner required by the school district. Annual payment for each such school bus may not exceed 10 percent of the purchase price of the state pool bid. The proposed expenditure of the funds for this purpose must have been included in the district school board's notice of proposed tax for school capital outlay as provided in s. 200.065(10). Payment of the cost of the opening day collection for the library media center of a new school. (Emphasis added). A special legislative session in the beginning of 2009 resulted in the passage of chapter 2009-3, Laws of Florida. This law included two sections pertinent to the "equipment" category. In section 12, section 1011.71(2)(d) was amended as follows: Effective July 1, 2008, the purchase, lease- purchase, or lease of new and replacement equipment, and enterprise resource software applications that are classified as capital assets in accordance with definitions of the Governmental Accounting Standards Board, have a useful life of at least 5 years, and are used to support district-wide administration or state mandated reporting requirements. § 12, Ch. 2009-3, Laws of Fla. In addition, section 16 of this special session law provided: If the Commissioner of Education determines that a school district acted in good faith, he or she may waive the equal- dollar reduction [of FEFP funding] required in s. 1011.71(5), Florida Statutes, . . . for the audit findings for the 2006-2007 fiscal year related to the purchase of software. This section shall take effect upon this act becoming a law, but only if the School Board of Miami-Dade County dismisses the lawsuit entitled “School Board of Miami- Dade County v. State of Florida Board of Education,” case number 09-00507CA20, which is pending in the Circuit Court of the Eleventh Judicial Circuit. § 16, Ch. 2009-3, Laws of Fla. Chapter 2009-3 became law in late February 2009, prior to the District's expenditure of $31,500 on March 31, 2009, for the remainder of the disputed software purchases. Meanwhile, in the 2009 regular session, section 1011.71(2)(d), as amended in the earlier special session, was not amended further. However, pertinent to that provision, the following language appeared in section 34 of chapter 2009-59, Laws of Florida: If the Commissioner of Education determines that a school district acted in good faith, he or she may waive the equal-dollar reduction, required in s. 1011.71, Florida Statutes, for audit findings during the 2007-2008 fiscal year which were related to the purchase of software. Chapter 2009-59 was adopted in May 2009, with an effective date of July 1, 2009. In 2010, section 1011.71(2)(d) was again amended to provide: The purchase, lease-purchase, or lease of new and replacement equipment; computer hardware, including electronic hardware and other hardware devices necessary for gaining access to or enhancing the use of electronic content and resources or to facilitate the access to and the use of a school district’s electronic learning management system pursuant to s. 1006.281, excluding software other than the operating system necessary to operate the hardware or device; and enterprise resource software applications that are classified as capital assets in accordance with definitions of the Governmental Accounting Standards Board, have a useful life of at least 5 years, and are used to support districtwide administration or state-mandated reporting requirements. The 2010 amendment did not include any provision similar to the two 2009 laws that would apply a similar grace period or extend the prior laws' "good faith" provisions to audit findings for the 2008-2009 fiscal year related to computer software. See Ch. 2010-154, Laws of Fla. Department's Rules, Interpretations, and Prior Practice Like all school districts, the District is required to prepare and maintain its financial records and accounts in accordance with the uniform classification of accounts required to be promulgated by the Department in rules. § 1010.01, Fla. Stat. The Department has established the requisite uniform system of accounts in a publication known as the "Red Book." The 2001 edition of the Red Book is the most recent version promulgated and incorporated by reference as a rule. Fla. Admin. Code R. 6A-1.001. The Red Book is generally consistent with generally accepted accounting principles and the accounting standards for government accounting adopted by the Government Accounting Standards Board. The accounting structure of the Red Book is premised on fund, revenue, and expenditure classifications, to which account code numbers are assigned for uniformity and ease of reporting. The Red Book provides the following definition of a "fund": A fund is defined as a fiscal and accounting entity with a self-balancing set of accounts recording cash and other financial resources, together with all related liabilities and residual equities or balances, and changes therein, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations. The Red Book provides a "basic fund structure for Florida School districts [that] follows generally accepted accounting principles for governments." This fund structure utilizes three broad categories of funds: governmental funds, proprietary funds, and fiduciary funds. Within each fund category, there may be multiple funds established as needed to comport with the definition of "fund," that is, when it is appropriate to segregate financial resources for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations. The main fund type used by the District is the governmental fund. The District's governmental funds include a general fund, several debt service funds, and several capital projects funds. The "general fund" (account code 100) is described in the Red Book as the fund used to account for all financial resources, except those required to be accounted for in another fund. Therefore, a variety of revenue sources are accounted for under the broad umbrella of the general fund. The Red Book establishes account codes for a number of different debt service funds and capital projects funds. Germane to this case is capital projects fund 370, called the District or Local Capital Improvement Fund, for capital projects financed through the two-mill levy authorized by section 1011.71(2). Fund 370 is unique in that it is actually described by citation to the capital outlay millage statute (section 236.25(2), section 1011.71(2)'s predecessor, in effect when the Red Book was promulgated in 2001). The Red Book also establishes revenue account codes used to identify revenue sources that are accounted for by fund. Revenue account code 3413 is used for capital outlay millage proceeds. As the two-mill levy is collected, the revenues are identified by the revenue account code (3413), and those revenues are accounted for in fund 370. If capital outlay millage proceeds are not immediately spent, they are invested in some kind of interest-bearing vehicle. The resulting interest revenue would be assigned a different revenue account code than the revenue code used for the tax proceeds to identify the revenue source as interest. Revenue account code 3430 is the umbrella code that can be used for all interest and profits on investments, or the more precise revenue codes with the same three-digit prefix can be used to pinpoint the revenue source more specifically. For example, revenue account code 3431 is specific to interest earnings on investments, while 3432 is for gain on sale of investments. Therefore, interest earnings would be identified by revenue code 3430 or 3431. While all interest earnings receive the same revenue codes (either 3430 or 3431), the interest must be recorded in and credited to the fund whose proceeds generated the interest. For example, interest earnings on revenues that are accounted for in the general fund are assigned an interest revenue code and recorded in the general fund. Interest earnings on capital outlay millage proceeds are assigned an interest revenue code and recorded in the Local Capital Improvement Fund, fund 370. The Red Book also establishes account codes for expenditures. As with revenue sources, expenditures are assigned account codes and allocated to the fund from which the expenditure was made. Expenditures are classified in the Red Book by object and function. Object classifications indicate the type of goods or services obtained as a result of a specific expenditure. Function classifications indicate the overall purpose or objective of an expenditure (e.g., instruction). The Red Book groups together series of object codes, with each series representing like kinds of expenditures. The 100s are used for salaries (account code 110 is for administrators; 120 is for classroom teachers, and so forth). The 200s are used for employee benefits; the 300s are used for purchased services; the 400s are used for energy services; the 500s are used for materials and supplies; the 600s are used for capital outlays; the 700s to 800s are used for "other expenses"; and the 900s are used for transfers between funds. The Red Book gives the following description of capital outlay expenditures in the 600 object code series: These are expenditures for land or existing buildings, improvements of grounds, construction of buildings, additions to buildings, remodeling of buildings, initial equipment, and additional equipment. This description resembles the categories of authorized expenditures of capital outlay millage funds listed in section 1011.71(2). The capital outlay object code titles in the 600 series, broken down by categories and subcategories, are as follows: 610 Library Books 620 Audio-Visual Materials (Non-Consumable) 621 Capitalized AV Materials 622 Noncapitalized AV Materials 630 Buildings and Fixed Equipment 640 Furniture, Fixtures and Equipment 641 Capitalized Furniture, Fixtures and Equipment 642 Noncapitalized Furniture, Fixtures and Equipment 643 Capitalized Computer Hardware 644 Noncapitalized Computer Hardware 650 Motor Vehicles 651 Buses 660 652 Other Motor Vehicles Land 670 Improvements Other Than Buildings 680 Remodeling and Renovations 690 Computer Software 691 Capitalized Software 692 Noncapitalized Software The Red Book contains a description of each capital outlay object code in the 600 series. Germane to this case--and a focal point for both parties--were the detailed descriptions given for object code 643 (capitalized computer hardware) and object code 690 (computer software). The Red Book describes these two categories as follows: 643 Capitalized Computer Hardware. A computer is a digital, electronic device capable of reading, processing and executing software designed for administrative and instructional uses. The term computer includes not only the main processing unit, but also expansion cards, upgrade devices and peripherals such as: operating system software (ROM based), installable memory, processor upgrades, video boards, sound cards, network connectivity boards or cards, other expansion and upgrade devices, monitors, printers, scanners, internal and external hard drives, floppy disk drives, CD-ROM drives, plotters, modems, computer projection devices, adaptive hardware and other peripherals that attach to the main unit. 690 Computer Software. The set of programs and associated documentation used to control the operation of a computer. The two primary types of software are (1) systems software which includes operating systems, programming languages, and utility programs; and (2) application programs that are designed to perform tasks such as data base management, spreadsheet functions, instruction, and word processing. Generally, when software is acquired with computer hardware for a single purchase price and relative value of the software is material to the total cost, it is necessary to allocate the acquisition cost to both the software and hardware in accordance with generally accepted accounting principles for lump-sum or basket purchases. However, systems software acquired in conjunction with computer hardware may be recorded as part of the equipment purchase (no allocation of cost to the software) when the software will not be removed, transferred, or in any way separated from the original hardware. In the event that software which was originally recorded as equipment is subsequently removed, transferred, or detached from the original hardware, it would be necessary to retroactively allocate a portion of the original cost, if material, to the software for proper recording of the removal or transfer. (Emphasis in original.) The Department's position is that even before the "equipment" category in section 1011.71(2)(d) was amended in 2009 and 2010 to ultimately specify which computer-related purchases are included and which are excluded, the Red Book's detailed descriptions of computer hardware and computer software made clear to school districts that only certain kinds of computer-related purchases can be considered "equipment"--only computer hardware and operating systems software purchased with the hardware and treated by the school district as part of a single equipment purchase. Therefore, according to the Department's witness, the Department's consistent position has been that purchases of computer hardware are allowable under the "equipment" category and that purchases of operating systems software along with computer hardware, when those software purchases are treated as part of the equipment purchase, are allowable under the "equipment" category in section 1011.71(2)(d). However, according to the Department's witness, purchases of application software, whether used for instruction or for administration, were never allowable under the "equipment" category in section 1011.71(2)(d) until the 2009 Legislature created a limited authorization for enterprise resource software applications. In addition, according to the Department's witness, purchases of systems software not made at the same time as purchases of the computer hardware or systems software purchased at the same time as computer hardware, but not treated as part of a single equipment purchase under account code 643, were not allowable under the "equipment" category in section 1011.71(2)(d). This, according to the Department, was always clear from the Red Book descriptions of account codes 643 and 690. The District counters the Department's explanation of how the Red Book categories define the contours of permissible capital outlay millage expenditures for computer-related "equipment" by pointing out that it was the Department's choice to adopt object code 690 for computer software as part of the 600 capital outlay series. The District points to the Red Book's description of the entire 600 series of capital outlays to broadly include expenditures for land, building construction, renovation, and equipment, strikingly similar to the categories in section 1011.71(2). The District makes a good point. The Department's response to the District's good point is that the account codes in the Red Book, including those in the 600 "capital outlay" series, apply across-the-board to all kinds of funds, revenues, and expenditures and not just to section 1011.71(2). While true enough, the Department's counterpoint is inconsistent with its original point that the Red Book account descriptions have provided the necessary guidance all along, and well before the 2009 and 2010 legislative changes, to put school districts on notice as to which computer-related expenditures are permissible using capital outlay millage funds. The District reasonably understood computer software purchases to be permissible under the pre-2009 version of section 1011.71(2), in part, because the Red Book itself classified computer software, account code 690, as part of the 600 series of "capital outlay" expenditures. Looking at the Red Book's description of the types of expenditures provided for in the 600 series, the only expenditure category that computer software could possibly fall under is "equipment." The District's reasonable impression that computer software purchases were permissible expenditures under section 1011.71(2)(d) was reinforced by the way the Department used the Red Book account codes in Department-created forms that school districts are required to use to annually report their summary budgets and their actual financial results to the Department. Each year, school districts prepare their budgets, going through a local process by which tentative budgets are first adopted and then aired publicly through notice and hearings, before the budgets are finalized. After the budgets are finalized through the local process, school districts are required to prepare and electronically transmit their summary budgets to the Department on an electronic spreadsheet form created by the Department. The Department's summary budget form, designated Form ESE-139, is promulgated as a rule. Fla. Admin. Code R. 6A-1.002(3). The summary budget form utilizes the Red Book account codes to summarize a district's planned revenues, by revenue code, allocated to the appropriate funds, by fund code, in which those revenues must be recorded. The summary budget form similarly uses the Red Book account codes to summarize a district's planned expenditures, by object code, allocated to the appropriate funds from which those expenditures will be made. Section VII of the summary budget form shows the budgeted revenues and expenditures for capital projects funds. The columns of this section are labeled for each capital projects fund account code set forth in the Red Book. For example, the column for fund 370 is labeled in the Department's form as "370 Cap Improvements Sect 1011.71(2) FS." There are two parts to the rows of the capital projects section: the first part lists revenues by revenue code and title; the second part lists expenditures by object code and title. The District presented evidence that it utilized the Department-prepared summary budget form ESE 139 to annually report its summary budget to the Department. In the capital projects section of each annual summary budget from 2005-06 through 2008-09, the District reported its estimated capital outlay millage revenue in the box where the row labeled for revenue code 3413 (District Local Capital Improvement Tax) meets the column for "[fund] 370 Cap Improvements Sect 1011.71(2), FS." And in the second part of the capital projects section of each annual summary budget from 2005-06 through 2008-09, the District reported its budgeted expenditures for computer software in the box where the row labeled for object code 690, computer software, meets the column "370 Cap Improvements Sect 1011.71(2), FS." Thus, the District's annual summary budgets, which were prepared on the Department's form and submitted to the Department each August in 2005, 2006, 2007, and 2008, plainly announced the District's plans to spend capital outlay millage proceeds (revenue source 3413, in fund 370) on computer software (capital outlay object code 690, from fund 370). The Department does not dispute that it created the summary budget form and labeled the rows and columns that allowed the District to budget capital outlay millage funds for planned expenditures of computer software. The Department's own form provides a specific row for school districts to budget expenditures for computer software (capital outlay object code 690). That row carries across to meet with a specific column labeled by the Department, "[Fund] 370 Cap Improvements Sect 1011.71(2) FS." Nor does the Department dispute that the District has reported annually for years that it planned to purchase computer software (object code 690) using revenues in fund 370, the local capital improvement fund specifically designated for section 1011.71(2) proceeds. The Department contends that it does not scrutinize these summary budget forms to ensure compliance with expenditure restrictions. That may be true, even though, by rule, the Department is required to "review" school district budgets. Fla. Admin. Code R. 6A-1.004 ("Commissioner to Review Budgets. The Commissioner shall establish procedures and prepare plans so that the budget is reviewed by authorized representatives in his or her office."). However, the Department's failure to actually review school district summary budgets does not mean that school districts are aware that the Department does not conduct reviews as its rule requires. Moreover, the Department's failure to review summary budgets in any meaningful way does take away from the fact that the Department created and labeled the summary budget form in a way that represented to school districts permissible categories of expenditures from capital outlay millage proceeds. The District was not alone in taking the Department up on the invitation in Form ESE 139 to budget for computer software expenditures using capital outlay millage proceeds collected pursuant to section 1011.71(2). The District presented evidence of summary budgets submitted annually by other school districts, from 2001-02 through 2008-09, in which other school districts budgeted for expenditures in the box where the row provided for object code 690 (computer software) meets the column provided for fund 370, the Local Capital Improvements Fund used for proceeds of the section 1011.71(2) two-mill levy. The Department contends that the fact that summary budgets of other school districts show planned expenditures of capital outlay millage funds from fund 370 for computer software under object code 690, does not establish that those school districts planned unauthorized expenditures. Instead, the Department argues that it is possible that all of the budgeted expenditures for computer software using code 690 might have been for allowable systems software, and not for unauthorized application software. However, this argument ignores the testimony of the Department's own witness that capital outlay millage proceeds could only be used to purchase systems software when that software was purchased together with computer hardware and allocated by the school district to a single purchase of equipment. The Red Book would require that a single purchase of computer hardware with systems software be assigned object code 643, not object code 690. In other words, according to the Department's witness, capital outlay millage proceeds can only be used to purchase systems software classified under object code 643; capital outlay millage proceeds could not be used for system software if the school district did not elect to treat the software purchase as part of the computer hardware equipment purchase. And yet, the Department's own form was created to allow school districts to budget for such expenditures. In addition, the Department's contention was contradicted by the testimony of the Department's own witness, designated as an expert in school board accounting and fiscal reporting, that as a practical matter, account code 690 is used for application software and not for systems software. Ms. Champion testified that as far as she is aware, districts purchasing systems software, at the same time as they purchase computer hardware, choose to treat the software purchase as part of a single purchase of equipment under object code 643, rather than to separately allocate the costs between the computer hardware (code 643) and the systems software (code 690): Q: My question is, if the operating software is to be part of the hardware, that's contemplated under object code 643; correct? A: Yes. . . . Q: Under 690 you testified that there is a distinction set out there for application programs and -- it says systems software or operating software? A: That's true. Q: So why would systems software or operating software have to be addressed under 690 if it's covered under 643? A: I believe that--again, this is allowing operating software that's purchased in conjunction with hardware to be considered equipment, or there is the option to allocate costs on that initial purchase between the operating software and the hardware if the district chose to do that. I'm not aware of a district ever having done that . . . Q: Is it the department's position that if operating software was being purchased independently of computer hardware, it could be purchased using the section 1011.71(2) levy? A: I don't believe it could be . . . Q: It could be or couldn't be? A: Could not be. Q: Okay. And why is that? A: Operating software is considered, when purchased with the hardware, is considered equipment, in essence, and therefore, meets the allowability for use of the 1011.71(2) funds, because that is specifically authorized in that statute. A: Then why have a separate object code for computer software here? Q: Well, we do have an object code for application software, and that's I think, it's used for application software. (Emphasis added.) Tr. 287-289. Even if the Department's position was that capital outlay millage expenditures for systems software classified under object code 690 is permissible, while such expenditures for applications software is not permissible, the fact remains that the Department chose to create the Red Book expenditure categories, and the Department chose how those expenditure categories are used in the summary budget form. If the Department's budget form allows school districts to budget for expenditures of capital outlay millage proceeds for computer software (object code 690), as it does, then the Department has communicated to the school districts that such expenditures, for the software described in object code 690, are permissible. If only some of those purchases were permissible (i.e., systems software, the type which the Department's witness admitted is not as a practical matter reported under expenditure code 690), then the Department should not have grouped both kinds of software under the same object code. If the Department required a breakdown of computer software purchases by type of software to determine whether an expenditure was a permissible use of capital outlay millage funds, then the Department's account codes and forms needed to provide that breakdown to avoid the misimpression otherwise created. The District also presented evidence that after the close of each fiscal year, it is required to prepare its financial reports showing the actual results for the year, with statements of revenues, expenditures, and changes in fund balance, by fund, on a Department-prepared form to transmit to the Department for its review. This form, designated Department form ESE 348 and promulgated in rule 6A-1.0071(2), is similar to the summary budget form, but with even greater detail. The similarity is that the financial report form was created by the Department to provide, in the capital projects section, specific rows with account codes and titles, including account code 690 for computer software; that specific row carries across to meet up with a column labeled by the Department as "[Fund] 370 Cap. Improvements Sec. 1011.71(2)." The District put into evidence its actual ESE 348 reports to the Department for each year from 2005-06 through 2008-09. Each year, the District's completed ESE 348 forms reported to the Department that the District had used capital outlay millage funds from fund 370 to purchase computer software (object code 690). Just as with the summary budget form, the Department does not dispute that it created financial reporting form ESE 348 with labeled rows and columns that allow school districts, including the District, to report expenditures of capital outlay millage funds to purchase computer software. However, just as with the summary budget form, the Department contends that it does not scrutinize these financial reports to ensure compliance with expenditure restrictions. The District also presented evidence that other school districts annually reported on their forms ESE 348 that they had purchased computer software, designated under object code 690, using section 1011.71(2) capital outlay millage proceeds from fund 370. The Department downplayed the significance of this pattern in the same manner as for the summary budgets. The Department offered no explanation for why its own forms were created to allow school districts to fill in capital outlay millage fund columns to report budgeted and actual expenditures for computer software, if that was not a permissible use of capital outlay millage funds. If the Department wanted to make clear to school districts that certain categories of expenditures were not allowed under a certain fund, it could have blocked off those expenditure codes from being a permissible entry under the particular fund. The District also presented evidence that as part of the required annual local budget process, the District complies with "Truth in Millage" (TRIM) requirements to locally publish notices of the District's plans to levy the capital outlay ad valorem tax on the assessed value within the district. The notices are prepared in a required format, using large print, with a description of how the District is planning to spend the tax proceeds, by category of planned expenditure. The District presented evidence that each year in late July, the District followed the TRIM requirements by publishing the required notices of its plans to levy and use capital outlay millage proceeds. Each of these annual notices, back to July 2000, informed the District taxpayers that the District planned to levy the two-mill tax to use for specified categories of purchases, including the following category and subcategories: New and Replacement Equipment: Furniture and equipment for school and ancillary locations Computer software for school and ancillary locations The Department accurately points out that the TRIM requirements and the details of the required notices are administered and overseen by a different state agency: the Department of Revenue. However, the District is required to submit its TRIM notices to the Department along with its summary budgets each year, and there is no mistaking the parallel between the categories of expenditures shown on the TRIM notices and the categories of permissible expenditures in section 1011.71(2). With the enlarged print required to meet TRIM notice specifications, anyone glancing at the District's notices would see that the District was under the impression that computer software was a permissible item to purchase using capital outlay millage proceeds, as the District annually informed the District taxpayers. Indeed, the District's usage of "equipment" as a broad umbrella category, which includes a narrower subcategory of "furniture and equipment," as well as the subcategory "computer software," parallels the Department's own Red Book account codes in the 600 series. Other evidence, besides summary budget and financial reporting, confirmed that the District was not alone in its understanding that expenditures for computer software described in object code 690 were permissible capital outlay expenditures for equipment pursuant to section 1011.71(2)(d). The view shared by other districts was shown by submittals in evidence from school districts seeking to qualify for the "good faith" provisions in the 2009 legislation. These "good faith" provisions allowed the Department to waive the penalty of reduced FEFP funding for school districts acting in good faith regarding "computer software" expenditures flagged by the Auditor General in audits for the 2006-07 and 2007-08 fiscal years.5/ For example, in February 2008, the Auditor General issued an audit report for the Duval County District School Board (Duval) for the 2006-07 fiscal year. An audit finding questioned Duval's purchase of "instructional software" using capital outlay millage proceeds. Just as in the audit at issue in this case, the Auditor General pointed out that "instruction software is not specifically included as an allowable use of capital outlay millage proceeds." Duval initially responded to the Department's demand for corrective action by transferring the amount spent on instructional software from the district's general operating account to the Local Capital Improvement Fund (370) to replenish that fund. However, after the 2009 legislative special session, the school district wrote to the Department on March 13, 2009, to request permission to transfer the money back from the Local Capital Improvement Fund to the operating account, under the "good faith" waiver provision. Duval asserted that it acted in "good faith" using capital outlay millage funds to purchase instructional software, "as it had done in previous fiscal years." Duval pointed to the support for its actions in the Red Book: [I]n 1991, when the [Department] created a separate "object code" for software, it was coded in the 600 series. The 600 object series, as defined by Red Book, is titled Capital Outlay. Furthermore, the District's determination that software is equipment is evidenced by a specific line item in its annual TRIM notice under how it will spend Capital Outlay funds. The District has included software in its TRIM notice since 1995. The Department agreed that Duval demonstrated good faith in treating its instructional software purchase as equipment. Accordingly, the Department authorized the re-transfer of funds back from the operating account to Capital Improvement Fund 370 and waived the penalty of reduced FEFP funding. As another example, the School District of Lee County (Lee) sought and received a "good faith" waiver to allow its expenditure of capital outlay millage funds for enterprise resource planning (ERP) software applications during fiscal year 2007-08, which was the fiscal year preceding the effective date of the 2009 specific statutory authorization for such expenditures. Lee demonstrated its good faith to the Department's satisfaction with the following in a letter dated June 19, 2009: When we made the purchase of the ERP software from capital outlay millage funds, we believed that we were acting within the statute. Our financial departments conferred with our board attorney, our bond attorney, and other districts across the state that had use the same funding source for similar projects. All were of the opinion the expenditure was allowed by statute. In addition, our capital outlay millage advertisement (required by law) and our Five Year work plan had the purchase of the software listed in each, as we were confident that our purchase was lawful and acceptable. We were quite surprised at the auditor's findings. We acted in good faith, as we believed our expenditures were compliant with the law. Again, the Department agreed, and pursuant to the "'good faith' rationale cited in" Lee's letter, the Department waived the penalty of reduced FEFP funding. The Department contends that the "equipment" category was always clear in section 1011.71(2)(d) and was always consistently applied by the Auditor General and by the Department, even before the series of amendments in 2009 and 2010 to delineate what was permissible and what was not permissible. This effort to establish clarity and consistency by the Department and the Auditor General failed. At times, the witnesses for the Department and the Auditor General tried to support the proposition that they have always interpreted and applied the capital outlay expenditure statute in a simple and straightforward manner: if something was not "specifically" listed in the statute, it was not allowed. That simple assertion was simply not true. For example, both witnesses for the Department and the Auditor General admit that they have always considered computer hardware purchases to be an allowable use of capital outlay millage proceeds, even though the capital outlay millage statute never specifically listed computer hardware until 2010. The Department considers computer hardware to be equipment, consistent with its Red Book accounting that treats computer hardware as a subcategory of equipment, or more accurately, as a subcategory of the account called "furniture, fixtures, and equipment." Indeed, furniture is another example of an item that is not specifically listed in the statute, but is considered authorized under the "equipment" category. In short, because the undefined statutory term "equipment" has a broad common meaning, it is necessary to interpret the specifically listed item to determine which specific items are equipment and which are not. See testimony of Department's witness, paragraph 59, supra ("Operating software . . . when purchased with computer hardware, is considered equipment, in essence, and therefore meets the allowability for use of 1011.71(2) funds, because that is specifically authorized by statute.") (Emphasis added). The Department's witness made clear that through its practice, the Department has made a number of distinctions, based on such issues as functionality and usage, to determine if items are equipment or not. Yet, before the 2009 and 2010 amendments, these distinctions were not hinted at in the statute. For example, as explained above, the Department has always considered certain computer systems software to be equipment on the rationale that such software is necessary to make the equipment functional. If functionality were the actual test, one could certainly quibble with how far that logic goes for computer-related items. Is a computer really functional without application software that enables a computer to be used for spreadsheets or word processing or electronic mail or anything else computers are actually used for? Would such application software be considered necessary to make the computer functional as a practical matter? But putting that debate to the side, the real point is that this test is a very different test than the "specifically-listed" test given lip service by both the Department and the Auditor General's witness. Indeed, the evidence showed that both the Auditor General and the Department were inconsistent in how broadly or narrowly they interpreted "equipment" as used in section 1011.71(2)(d) before the 2009 statutory amendment. The unrebutted testimony of the District's CFO was that school districts have been purchasing computer software since the mid-1990s to keep up with technology and the use of that technology for districts' information management and state reporting requirements. That testimony was corroborated by the Duval "good faith" letter quoted in paragraph 69 above. However, the earliest example in evidence of an Auditor General Report questioning a computer-related expenditure from capital outlay millage funds was for Highlands County District School Board (Highlands) for its fiscal year 2002-03. At that time, section 1011.71(5) contained the additional restriction that expenditures of capital outlay millage proceeds for equipment and other items listed in (2), had to be directly related to the delivery of student instruction. The Auditor General questioned a number of capital outlay millage expenditures, because they were for "purposes not directly related to the delivery of student instruction." The audit finding listed the questioned expenditures under the heading "Expenditures Not Directly Related to Student Instruction." One expenditure category listed in this table was "MIS Computers (hardware and software) and Other Equipment" (emphasis added). The Auditor General's witness confirmed that the only reason this expenditure category was questioned was because Highlands did not document that these capital outlay millage purchases were directly related to student instruction. The Department reviewed the Auditor General's Report and issued a letter to Highlands to require additional documentation or corrective action. Regarding the questioned purchases of "MIS Computer (hardware and software) and Other Equipment" totaling $103,480.47, the Department stated: The information provided is not adequate to make a determination on this item. While the purchases were detailed, their use in providing delivery of instruction is unknown. Some portion of these expenditures probably could be identified with delivery of instruction as required by the statute versus ineligible expenditures for administrative and support uses. (Emphasis added.) The Department did not suggest that the purchase of computer software would be ineligible in any event, even if the software was purchased for student instruction. Thus, the implication of Respondent's determination on Highlands' 2003 Audit Report was that computer software purchases would be authorized expenditures if used in the delivery of student instruction, but would be unauthorized expenditures if used for administration and support. The Department's witness attempted to explain the Highlands audit finding and action thereon as only addressing the failure of the cited expenditures to pass the new "directly related to student instruction" test then in place in section 1011.71(5) and that those expenditures would still have to pass the test of whether they were authorized equipment purchases under section 1011.71(2)(d). The Department's attempted explanation is not credible. Neither the Auditor General Report, nor the Department, in addressing the Highlands 2003 expenditures, raised the threshold question of whether the questioned expenditures would have been unauthorized under the "equipment" category regardless of whether they were for student instruction. Indeed, the Auditor General's audit report described the category of questioned expenditures as being for "MIS Computers (hardware and software) and Other Equipment" (emphasis added), suggesting that at least in March 2004, in the context of addressing allowable capital outlay millage expenditures, the Auditor General considered computer hardware and software to be types of equipment. The Department agreed with the Auditor General's finding that questioned only whether the expenditures were directly related to the delivery of student instruction. No evidence was presented of any audit finding questioning computer-related purchases for the next three fiscal years, ending in 2004, 2005, and 2006, despite evidence that such purchases were being budgeted and made from capital outlay millage proceeds by the District and other school districts and reported to the Department both before and after the expenditures occurred. The next documented example of an Auditor General Report questioning a school district's computer- related expenditures of capital outlay millage proceeds was not until the Miami-Dade County District School Board (Miami-Dade) Audit Report for fiscal year ended June 30, 2007. In this report, as for Highlands four years earlier, the Auditor General's findings stated that Miami-Dade's use of capital outlay millage funds to purchase computer software for Informational Technology Services did not appear allowable as the purchase of equipment directly related to the delivery of student instruction as required by section 1011.71(5)(a), Florida Statutes (2006). The report also noted that section 1011.71(5) had been repealed, effective June 19, 2007, which was after the questioned expenditures occurred. The Department's witness acknowledged that the computer software purchased by Miami-Dade was enterprise resource software applications intended for district-wide use and that it was Miami-Dade's vigorous opposition to the disallowance and vigorous lobbying campaign that were instrumental in the passage in the 2009 special session of the amendment to section 1011.71(2)(d) to expressly add authorization for the purchase of enterprise resource software applications. This fact is further confirmed by the legislative grace period that would, in effect, allow computer software purchases questioned in audit findings for fiscal year 2006-07, which grace period would only take effect after Miami-Dade dismissed its lawsuit against the Department. §§ 12, 13, Ch. 2009-3, Laws of Fla. The Department asserts that the amended section 1011.71(2)(d), resulting from the 2009 special legislative session, contained a completely new category of authorized expenditure, one that had not been previously authorized under the general "equipment" category. However, in a 2000 legal opinion interpreting a related statute, the Department approved a proposal by St. John's County School District (St. John's) to get a loan to finance the purchase of a computer system and related components, because the described purchase "constitutes a purchase of equipment for educational purposes" pursuant to section 237.161(1), Florida Statutes (2000). The statute interpreted in the 2000 legal opinion, section 237.161(1), was renumbered section 1011.14(1) as part of the 2002 Education Code reorganization. Then and now, this statute authorized a school district to obtain loans for certain expenditures, similar to the list of authorized expenditures in section 1011.71(2), such as for construction of educational facilities or the purchase of school buses, land, or equipment for educational purposes. The relationship between these two statutes is that capital outlay millage proceeds may be used, pursuant to section 1011.71(2)(f), to repay loans approved pursuant to what is now section 1011.14. By liberally construing the Education Code (as required, then and now, by section 1000.01(2) and its predecessor), the Department's general counsel was able to conclude that the purchase of the computer system and related components, including enterprise resource software,6/ software licenses, and computer hardware constituted the purchase of equipment for educational purposes for which St. John's could obtain a loan pursuant to what is now section 1011.14(1). As provided by what is now section 1011.71(2)(f), the loan to purchase that "equipment" could then be repaid from capital outlay millage proceeds. A number of school districts have pointed to the Department's 2000 legal opinion issued to St. John's to show the Department's appropriately broad prior interpretation of "equipment." One such example in evidence is from Lee County school district, for the 2007-08 audit findings for which it ultimately obtained a "good-faith" penalty waiver. In a candid admission by the Auditor General's witness, this whole murky area of computer-related purchases under the "equipment" category in section 1011.71(2)(d) "started to be clarified" by the Legislature in 2009. Following the adoption of the "enterprise resource software" addition to the equipment category in the 2009 special session, two things occurred that should have happened a long time ago. The first thing that should have happened a long time ago, perhaps in a different form such as an amendment to the Red Book, was that the Department communicated to the school districts how the Department interpreted the newly amended "equipment" category in section 1011.71(2)(d), Florida Statutes (2009). In August 2009, the Department issued a memorandum to all school district financial officers regarding the new enterprise resource software addition to the "equipment" category. The Department offered the school districts a definition that it had "developed" for what was included in, and what was excluded from, the new statutory term: The following definition of "enterprise resource software" has been developed to assist school districts in complying with the amended statute: Qualified software consists of programs and applications used district-wide for administration of the school district or used to comply with state-mandated reporting requirements. Such software includes software used district-wide to account and coordinate for resources and information related to items such as financial data, human resource information, student and asset records, but does not include instructional software. Qualified software must be classified as a capital asset in accordance with Governmental Accounting Standards Board (GASB) Statement No. 5, and have a useful life of at least 5 years determined in accord with Florida Department of Education GASB 34 Guide. (Emphasis added.) As a follow-up to the August 2009 memorandum, the second noteworthy event, long overdue, was a discussion held in September 2009 between an accountant in the Auditor General's Office and a Department representative, in which the Department representative cataloged which computer-related purchases the Department believed were included in, and which were excluded from, the newly amended "equipment" category. This discussion was memorialized in a September 28, 2009, memorandum, in which the accountant with the Auditor General's Office summarized his "productive conversation" with a Department representative regarding computer-related purchases from capital outlay millage funds. The memorandum was directed to Mr. Centers, the audit manager over school boards, who then forwarded the memorandum to many others in the Auditor General's Office. The summary of the September 2009 "productive conversation" was as follows: FDOE defines allowable [enterprise resource software] as a system that fulfills state-mandated reporting requirements (AFR, FTE surveys, etc.) comprised of Financial, HR, and student records (see attached) [copy of August 2009 Department memo to districts]. Instructional s/ware is not allowable (ex. Math and Reading s/ware); Only software installed on computer to make operating system run (ex. Windows, DOS) are [sic] allowable. Microsoft Office, Photoshop, etc. are not allowable. Putting these types of programs on a server as opposed to individual computers does not make the maintenance allowable. Software to operate routers and maintain the network as a whole, including anti-virus and firewall software, is allowable. However, as indicated above, maintaining non-[enterprise resource] application software installed on the network is not allowable. Some computer maintenance is allowable: Centralized computer repair shop, in which computers are hooked up and repaired (ex. Replace hard drive, install more memory) is allowable. Maintenance of [enterprise resource software] is allowable. Installation or maintenance of non- [enterprise resource] software is not allowable (ex. Install MS Office). Data base maintenance or other data management is unallowable. Technical assistance and/or trouble- shooting for end users involving network connectivity, e-mail, or other software issues is unallowable. The interpretations set forth in the Department's August 9, 2009, definition that it "developed" and communicated by memorandum to the school districts, plus the Department's clarification to the Auditor General's Office detailing which computer-related purchases were authorized capital outlay millage expenditures and which were not authorized expenditures, did not appear in statute or rule until the 2010 legislative amendment to section 1011.71(2)(d). Interest Earnings By pre-hearing stipulation, the parties agreed that during the fiscal year ending June 30, 2009, the District earned sufficient interest in its Local Capital Improvement Fund to pay for the disputed software purchases and that the District used the interest earnings from its Local Capital Improvement Fund to pay for the disputed software purchases. The Red Book provides as follows with respect to interest earnings: Interest or profit should be recorded in the fund that produced the earnings unless specified otherwise by bond resolution or legal documents. This Red Book rule is consistent with the statutory requirement in section 1011.09(1), which states that "[a] district school board shall credit interest or profits on investments in the specific budgeted fund, as defined by the accounting system required by s. 1010.01, that produced the earnings unless otherwise authorized by law or rules of the State Board of Education." The District did not identify any law or rule that "otherwise authorizes" interest earned on capital outlay millage proceeds to be credited anywhere other than in the fund that produced the earnings, i.e., in fund 370. The District's position is that this general requirement that interest be "recorded in" and "credited to" the fund that produced the earnings is satisfied by the accounting function of recording interest in the fund whose revenues produced the interest. The District asserts that this requirement does not mean that the use of interest, recorded in the proper fund, is actually restricted in the same manner that the fund is restricted. The District's petition asserted that there was a dispute regarding the Department's practice in permitting unrestricted use of interest proceeds by other school districts. However, the District presented no evidence that the Department has permitted any other school district to use interest earned on capital outlay millage proceeds in a manner that was inconsistent with the expenditure restrictions for the capital outlay millage proceeds themselves. The District did present evidence that the Department allowed unrestricted use of interest earned on certain categories of revenue in school districts' general funds, despite restrictions in the districts' usage of the those categories of revenue. The difference, though, is that this practice is limited to categories of revenue that are permitted to be pooled and accounted for, in accordance with the Red Book, in the residual "general fund." The District has not shown that the Department's practice in this regard is applicable to the circumstances here, such that it would constitute precedent that would apply to the District's case.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered by Respondent, Department of Education, determining as follows: That Petitioner, Charlotte County School District, violated the expenditure restrictions in section 1011.71(2), Florida Statutes (2009), by spending $31,500 in 2009 for computer software and that the corrective action previously required by Respondent, and previously accomplished by Petitioner, was correct with respect to this $31,500 expenditure; That Petitioner did not violate the expenditure restrictions in section 1011.71(2), Florida Statutes (2008), by spending $105,815 in 2008 for computer software; That Petitioner is authorized to re-transfer $105,815 from its Local Capital Improvement Fund to its general operating account to reverse the corrective action previously required by Respondent, and previously accomplished by Petitioner, with respect to this $105,815 expenditure; and That provided the recommendations in (2) and (3) above are adopted, Respondent's agency action is not based on an unadopted rule. Jurisdiction is reserved for the purpose of ruling on Respondent's motion for attorney's fees. DONE AND ENTERED this 16th day of June, 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 16th day of June, 2011.
The Issue Whether Respondent, Manuel Antonio Diaz, violated Sections 475.42(1)(a) and (b), Florida Statutes, and if so, what penalty should be imposed. Whether Respondent, David Anthony Moliver, violated Sections 475.42(1), (a), (c), and 475.25 (1)(b), Florida Statutes, and if so, what penalty should be imposed. Whether Respondent, Acquire Realty Company, t/a Buyer's Resource Acquire Realty violated Sections 475.42(1)(c) and 475.25(1)(b), Florida Statutes, and if so, what penalty should be imposed.
Findings Of Fact Petitioner, Department of Business and Professional Regulation, Division of Real Estate (Department), is a state licensing and regulatory agency charged with the responsibility and duty to prosecute administrative complaints pursuant to the laws of the State of Florida, in particular, Section 20.30, Florida Statutes, and Chapters 120, 455 and 475, Florida Statutes. Respondent, Manuel Antonio Diaz (Diaz), is a licensed Florida real estate salesperson, having been issued license number 0604069. The most recent license issued was as a salesperson in association with Acquire Realty Company (Acquire Realty), a brokerage corporation trading as Buyers Resource Acquire Realty. Respondent, David Anthony Moliver (Moliver), is a registered real estate broker, having been issued license number 0465652 in April 1987, as an active broker of Acquire Realty. Respondent, Acquire Realty, is and was at all times material hereto, a corporation registered as a Florida real estate broker having been issued registration number 0249708. Moliver was the founding broker and officer of Acquire Realty and has continued through the time of the final hearing to operate as a broker and officer of Acquire Realty. Diaz became employed with Acquire Realty as a real estate salesperson in 1993. When Diaz became employed with Acquire Realty, he sent by regular mail to the Department a standard form on which he wrote that his current employer was Acquire Realty. For some unknown reason, the Department did not receive the form or did not process the form. Thus, there was no record in the Department of Diaz's current employer. In March 1995, Diaz renewed his salesperson's license and sent a check dated March 6, 1995, for $65 for the renewal fee. Diaz received a physical license from the Department dated March 15, 1995, stating that Diaz was a licensed salesperson pursuant to Chapter 475, Florida Statutes, effective April 1, 1995, and expiring March 31, 1997. At the bottom of the license were the words "DISPLAY IN A CONSPICUOUS PLACE," which had been typed over with X's. Diaz did not know what the typing of X's over the words meant. No evidence was presented explaining the significance of the typed X's. The language of the license did not indicate that the license was inactive. Diaz did not contact the Department to confirm that they had received the notification of the identity of his employer. Nor did Diaz inquire whether his license was active. His license was displayed at Acquire Realty along with the other salespersons' licenses. Believing that he possessed an active salesperson's license, he continued to operate as a salesperson for Acquire Realty as evidenced by his participation as the buyer's agent in a contract dated October 4, 1996, for the purchase of a condominium by Penny Garcia. The agency disclosure form accompanying the contract advised that Diaz and Acquire Realty were the buyer's agents. Moliver signed the contract on behalf of Acquire Realty, agreeing to equally split the commission with the seller's agent. Moliver supervised Diaz during the transaction. The contract failed to close and each party signed a release of contract, which stated that Diaz and Acquire Realty were the buyer's agents. Sometime prior to September 30, 1996, Moliver moved and changed his mailing address, but did not advise the Department of his new mailing address. Consequently, he did not receive the renewal notice of his broker's license prior to the license's expiration date. Once he realized that he had not renewed his license, either by receiving the renewal notice through the forwarding of his mail or by looking at his license and seeing that it had expired, he called the Department and sent in his license fee. Moliver's license was on inactive status from September 30, 1996, until November 12, 1996. From March 28, 1995, through the date of the final hearing, Thomas Mathew was an active broker/officer of Acquire Realty, holding multiple license number 3002650. Moliver continued to act as a broker for Acquire Realty during the time that his license was inactive. Diaz renewed his salesperson's license effective January 14, 1997. The Department issued him an active salesperson's license which expires on March 31, 1999.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered finding that: Manuel Antonio Diaz violated Section 475.42(1)(a), Florida Statutes, as alleged in Count I of the Administrative Complaint, and reprimanding Respondent Diaz for said violation. Manuel Antonio Diaz violated Section 475.42(1)(b), Florida Statutes, as alleged in Count II of the Administrative Complaint, and reprimanding Respondent Diaz for said violation. David Anthony Moliver violated Section 475.42(1)(c), Florida Statutes, as alleged in Count III of the Administrative Complaint, and reprimanding Respondent Moliver for said violation. David Anthony Moliver did not violate Section 475.25(1)(b), Florida Statutes, as alleged in Count IV of the Administrative Complaint. Acquire Realty Company, t/a Buyers Resource Acquire Realty, violated Section 475.42(1)(c), Florida Statutes, as alleged in Count V of the Administrative Complaint, and reprimanding Respondent Acquire Realty Company for said violation. Acquire Realty Company, t/a Buyers Resource Acquire Realty, did not violate Section 475.25(1)(b), Florida Statutes, as alleged in Count VI of the Administrative Complaint. David Anthony Moliver violated Section 475.42(1)(a), Florida Statutes, as alleged in Count III of the Administrative Complaint, and imposing an administrative fine of $150.00 for said violation. DONE AND ENTERED this 29th day of January, 1998, in Tallahassee, Leon County, Florida. SUSAN B. KIRKLAND 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 COPIES FURNISHED: Filed with the Clerk of the Division of Administrative Hearings this 29th day of January, 1998. Henry M. Solares, Division Director Division of Real Estate 400 West Robinson Street Post Office Box 1900 Orlando, Florida 32802-1900 Lynda L. Goodgame, General Counsel Department of Business and Professional Regulation 1940 North Monroe Street Tallahassee, Florida 32399-0792 Christine M. Ryall, Esquire Department of Business and Professional Regulation Division of Real Estate Post Office Box 1900 Orlando, Florida 32802-1900 Alexander Kapetanakis, Esquire 2655 LeJeune Road, Suite 807 Coral Gables, Florida 33143
Findings Of Fact Respondent is licensed as a real estate broker and was so licensed at all times relevant hereto. He has taught real estate salesman courses at Hillsborough Junior College for about eight years. In February, 1982, Thomas E. Webb and Johnnie M. Webb, husband and wife, signed an offer to purchase real estate owned by Ruby Carline (Exhibit 1). This document was prepared by Respondent as broker and signed by him as witness and escrow agent. The offer was not accepted by the seller. Respondent had a listing agreement (Exhibit 6) on property owned by Ruby Carline in Seffner, Florida, giving him exclusive right to sell this property until June 12, 1982, at a price of $65,800, with buyer assuming an existing mortgage of $27,000 at ten (10) percent. There was also a second mortgage on the property in the amount of $10,000 at eighteen (18) percent. Shortly after Exhibit 1 was not accepted by Carline, the Webbs' trailer burned and they needed a residence quickly. Respondent inquired of Carline how much she would take to move out of her house and she told him $10,000, but needed $2,000 to actually relocate her furniture. On March 5, 1982, Respondent acknowledged receipt of $2,000 from Webb (Exhibit 7). Shortly thereafter, this money was paid to Carline and she vacated her house. Webb moved in during the latter part of March and commenced paying rent. Following this, Respondent prepared an updated contract for sale and purchase which was signed by Thomas Webb and Ruby Carline in early May (Exhibit 3). This contract provided for a purchase price of $59,900, with 7,000 deposit held in escrow by Respondent, and the balance of the purchase price comprising the existing first mortgage of $27,000 to be assumed by the buyer; a purchase money mortgage in the amount of $15,900 to be obtained; and the second mortgage in the amount of $10,000. Special Clause XII provided: Buyer shall rent property for $560 per month with an option to purchase by June 12, 1982, which shall be extended an additional 90 days at time of purchase. Buyer shall assume first mortgage and pay balance to seller. At the time this contract was executed Webb had paid Respondent $7,000. The additional $5,000 cashier's check was given to Respondent by Webb on April 27, 1982 (Exhibit 7) and Exhibit 3 was thereafter prepared. The $5,000 was not placed in escrow but in Respondent's operating account. By check dated May 1, 1982, Respondent disbursed $2,666 to Carline from the proceeds of this down payment plus some rent moneys collected from Webb and claimed the balance of $3,594 as commission on the sale of the property. Carline testified that she received only $1,000 from Respondent in the form of a check when she moved out of the house. Respondent actually paid her $2,000, of which $1,000 was in cash. In her letter to Respondent dated January 1, 1983 (Exhibit 11), Carline acknowledged the $2,000 as a gratuitous payment to her vacating the property and resettling elsewhere. Webb was expecting fire insurance money on his trailer which was to provide funds necessary to pay off the second mortgage. They expected to get additional financing either from a bank or from the seller, or both. When it became evident Webb was experiencing difficulty obtaining financing, Respondent prepared Exhibit 2, another contract for sale and purchase, executed by seller October 22, 1982, which, in Special Clause XII stated: This is a lease option contract, buyer has 30 days to close on property. Rent shall be $560 per month until property is transferred. Property is being purchased "as is". Commission has been paid by seller. This contract also provided for purchase price of $59,900. Deposit (paid to owner-seller Ruby Carline) of $7,000, buyer to assume existing first mortgage of $27,000, the second mortgage to General Finance Corporation in the amount of $10,000 to be paid off and balance to close of $25,900. Clause III provided that if any part of the purchase price is to be financed by third party loan, the contract is contingent upon the buyer obtaining a firm commitment for said loan within 30 days at a rate not to exceed 18 percent for 15 years in the principal amount of $25,000. At the time this contract was signed, all parties knew the buyer needed additional financing to close. While the Webbs occupied the house, Respondent collected the rent, usually in cash, and remitted same to Carlile in the manner received. By the time the closing date of September 12, 1982, arrived, it became evident Webb was having difficulty obtaining financing and would be unable to close. Webb demanded return of the $7,000 deposit from Respondent and Carline. Carline demanded Respondent pay her all of the moneys received by him from Webb; and Respondent claimed a set-off of fees paid by him for appliance repairs, for the institution of eviction proceedings against Webb and for services in collecting the rent for Carline. Respondent paid Webb some $1,200 and attempted to get Carline to release him from liability for further payment to Carline (Exhibit 15). Carline reported the incident to the Real Estate Commission.
