Findings Of Fact Felicia Katz, a resident of the State of New York, and operator of a cigarette business in that State, filed an application with the petitioner for licensure as a cigarette wholesale dealer in Florida. According to the application, she was the sole stockholder and officer of Respondent, Yoth, Inc. Petitioner's Cigarette Wholesale Dealer's License No. 23-230 was subsequently issued to Yoth, Inc., and that corporation began doing business as Merchants Tobacco & Candy Company in January of 1970 in Dade County, Florida. Katz had determined that her friend, David Valancy, would run her Florida business for her; and after it began its operation, the corporation was structured so that Felicia Katz served as the President, Alan Edelstein served as the Vice President, and David Valancy served as the Secretary-Treasurer. Additionally, the corporate stock was issued so that Katz held fifty percent, Edelstein held twenty-five percent, and Valancy held twenty-five percent. Katz visited her Florida business during the months of January and February, 1979. On February 8, Katz signed under oath the Petitioner's Cigarette Wholesale Dealer's Report for the mouth ending January 31, 1979, certifying that the report contained true and correct information. On February 11, David Valancy contacted Gary Levy, an auditor with the Division, to request Levy's assistance regarding information required to be contained within the January report. Levy, who had visited the business premises on January 19, accordingly reappeared at the premises on February 12, 1970. He met with Valancy and reviewed with him certain business records. One of the items discussed was an invoice from American Brands, Inc., reflecting the purchase of 21,000 packs of cigarettes. Levy initialed the invoice and instructed Valancy to report that purchase. That purchase was not so included in the January report filed on February 13. The failure to include that purchase in the January or any other report thereby affected carry-over figures and rendered each subsequent report through the last report filed for the month of November, 1979, inaccurate. The period of time involved in this proceeding is from January, 1979, when the Respondent began operating its business, through December, 1979, when the November report was filed and the Division began its investigation of Respondent's activities. Felicia Katz signed and swore to the accuracy of the reports filed with the Petitioner for the months of January and February. Thereafter, Valancy signed and filed the Respondent's reports for the months of March through and including November. On the August report, Valancy reported purchases of 12,008 packs of cigarettes from R. J. Reynolds on August 29, and 608 packs of cigarettes from Philip Morris on August 22. He failed to report purchases of 600 packs of cigarettes from French Tobacco, Inc., on August 14, and an additional 450 packs from French Tobacco, Inc., on August 31. When Maria D. Sanchez, an auditor for the Petitioner, reviewed the Respondent's August report, she determined that the report was inconsistent with the final reading of the meter utilized for marking packs of cigarettes for resale to Indians. She contacted Valancy to inquire whether there might be an error on the report, and Valancy replied by submitting replacement pages for the August report. The revised August report failed to report the purchases from R. J. Reynolds and from Philip Morris in addition to continuing to fail to report the two purchases from French Tobacco, Inc. On July 17, Harold Wasserman, General Manager of both Seminole Indian Plaza Store No. 1 and Store No. 2, purchased cigarettes for Store No. 2 from the Respondent in the amount of $30,226.00, according to Respondent's Invoice No. PC 2-514, which amount was paid by Seminole's Check No. 180. Respondent's copy of that invoice, which provides no information as to the location of the purchaser and which was attached to the monthly report from July, contains an additional eighty cartons of Vantage cigarettes, reflecting an additional sales price of $252.00. Those additional cartons were neither received, nor paid for, by Seminole Indian Plaza. On July 18, Wasserman purchased, on behalf of Seminole Indian Plaza Store No. 1, cigarettes from Respondent in the amount of $70,702.60, according to Respondent's Invoice No. PO 1-114, which amount was paid for by Seminole's Check No. 225. Respondent's copy of that Invoice, which provides no information as to the location of the purchaser and which was attached to the monthly report for July, contains an additional two hundred cartons of Salem cigarettes and increases the price by $630.00. Those additional cartons were neither received, nor paid for, by Seminole Indian Plaza. On July 25, Seminole Smokes, owned by Theodore Scott Nelson, purchased cigarettes from Respondent in the amount of $35,263.20, according to Seminole Smokes' copy of Respondent's invoice marked only "Nelson's" and paid for in that amount by Check No. 1794. That invoice not only fails to correctly identify the purchaser, but also fails to provide information as to the purchaser's location. The Respondent's copy of that Invoice which it filed with its July report reflects an additional purchase of forty-six cartons of Winston, for an additional charge of $144.90. Those additional cigarettes were neither received, nor paid for, by Seminole Smokes. Respondent's monthly report for September has attached to it Respondent's Invoice No. 3719, dated September 21, 1070, reflecting a sale in the amount of $474.02 to Seminole Indian Plaza without providing information regarding that purchaser's location. This invoice reflects that 137 cartons of "Kings" cigarettes were received by "R. Kaplan." The signature on the invoice is not the signature of Robert Kaplan, a shift manager for Seminole Indian Plaza, and Seminole has no record of this transaction. Likewise, attached to Respondent's October report is its Invoice No. 5331, dated October 20, reflecting a sale of 12,419 cartons of "Kings" cigarettes to Seminole Indian Plaza without any address in formation in the amount of $42,969.74. The signature on that Invoice purporting to be that of Harold Wasserman, the General Manager, is not the signature of Wasserman, and Seminole Indian Plaza has no record of this transaction either. The records of Marcellus Osceola Trading Post contain a copy of an invoice of Respondent, dated July 10, reflecting as the sole information regarding the purchaser "Marcellus Osceola," and showing a sale by Merchants of 1,530 cartons of cigarettes for a purchase price of $4,897.50. This purchase was paid for by Check No. 1093. This sale is not reported on Schedule "L" of the Respondent's July report, nor is a copy of this invoice attached to that report. Additionally, the purchaser's name is spelled Incorrectly, and no address is provided on the invoice. Respondent's August report contains information on Schedule "L" of certain sales made to Marcellus Osceola, without giving any information as to the address or county of residence of that business. Attached to that same report is Respondent's Invoice No. 263 dated August 16, showing only the purchaser as Marcellus Osceola Trading Post with no address information. Although marked "refused," the invoice indicates the sale took place by virtue of its attachment to the monthly report. Yet, this invoice is not reflected in Schedule "L" wits the other sales to "Marcellus Osceola."
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED THAT: Respondent's Cigarette Wholesale Dealer's License no. 23-230 be revoked. RECOMMENDED this 17th day of September, 1980, in Tallahassee, Florida. LINDA M. RIGOT, Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301 (904) 488-9675 COPIES FURNISHED: Harold F. X. Purnell, Esquire General Counsel Department of Business Regulation 25 South Bronough Street Tallahassee, Florida 32301 William A. Hatch, Esquire Staff Attorney Department of Business Regulation 725 South Bronough Street Tallahassee, Florida 32301 Charles L. Curtis, Esquire 1177 S.E. Third Street Fort Lauderdale, Florida 33316 Mr. John Harris Division of Alcoholic Beverages and Tobacco Department of Business Regulation Post Office Box 015269 Miami, Florida 33101 Mr. Charles A. Nuzum, Director Division of Alcoholic Beverages and Tobacco Department of Business Regulation 725 South Bronough Street Tallahassee, Florida 32301
The Issue Whether the applications of Fana Holtz, Daniel Holtz, and Javier Holtz to acquire and/or maintain control of Capital Bank, Miami, Florida should be approved.
Findings Of Fact Applicants, Daniel Holtz, Javier Holtz, and Fana Holtz have applied to the Department of Banking and Finance (Department) for approval pursuant to Section 658.28, Florida Statutes, to acquire and/or maintain a controlling interest in Capital Bank, through their share ownership in Capital Bank’s holding company, Capital Bancorp (Bancorp). Section 658.28(1) Florida Statutes, provides: . . . The department shall issue a certificate of approval only after it has made an investigation and determined that the proposed new owner or owners of the interest are qualified by reputation, character, experience, and financial responsibility to control and operate the bank . . . in a legal and proper manner and the interests of the other stockholders, if any, and the depositors and creditors of the bank . . and the interests of the public generally will not be jeopardized by the proposed change in ownership, controlling interest, or management. Capital Bank is a $1.6 billion financial institution headquartered in Miami, Florida. It is the largest independent bank in South Florida and the largest minority-owned bank in the United States. Capital Bank was formed under the laws of the State of Florida in 1976 from the merger of three banks. Its holding company, Bancorp, was formed in 1981. From the outset, Abel Holtz served as the President, Chief Executive Officer and Chairman of both Capital Bank and Bancorp, until his resignations in 1991 and 1994. In 1981, he personally held voting power over sixty percent of Bancorp’s outstanding common stock. A substantial portion of Abel Holtz’s voting power stemmed from shares he voted pursuant to shareholder agreements and proxies but did not own. From 1981 until 1994, the percentage of Bancorp shares controlled by Abel Holtz fluctuated, but at no time prior to the end of 1993 did he ever control less than 40.48 percent of Bancorp’s common stock. Capital Factors (Factors) is a subsidiary of Capital Bank. Its principal business is the purchasing or financing of receivables generated by manufacturing companies, and to a lesser extent, receivables generated by health care providers and employment service agencies. John Kiefer is the president and chief executive officer of Factors. By fiscal year ended December 31, 1995, Factors generated over fifty percent of the income of Bancorp, using less than twenty-five percent of Bancorp’s assets. Applicant, Fana Holtz, 62, is the wife of Abel Holtz of forty years. She is and has been a director and Vice Chairman of Bancorp since its inception. Following her graduation from the University of Havana with a Doctor of Pharmacology degree, Fana Holtz owned and operated her own pharmacy in Cuba from 1957 until 1961, when she orchestrated her husband’s release from prison and her family’s escape to the United States. Since arriving in the United States Fana Holtz has successfully managed a number of different real estate and retail ventures. Fana Holtz became involved in the real estate business in the mid-1960’s, when she and Abel Holtz purchased a 24-unit apartment building which they called Fanita Apartments. Fana Holtz was in charge of all aspects of the building management, from collecting the rent to preparing the books to remodeling the apartments. Fana Holtz became involved in the management of additional apartment buildings, some of which she purchased with Abel Holtz and others of which she purchased with other individuals. Fana Holtz assumed principal responsibility for managing each of these different apartment buildings. In the early 1980’s, Fana Holtz invested in a retail furniture business, Casa Bella of New York. She was a partner in the business venture with Barbara Castillo. Fana Holtz assumed principal responsibility over the business side of the partnership, including bookkeeping, budgeting and personnel functions. Over the six years of its existence prior to the termination of its lease, Casa Bella of New York grew to [text omitted] and enjoyed steadily increasing profits. Fana Holtz has also been a leader in the Miami community. She has played a central role in the leadership and fundraising efforts of a large number of charitable organizations, including the National Parkinson Foundation, the National Foundation of Ileitis and Colitis, the Juvenile Diabetes Research Foundation, the American Suicide Foundation, Project Newborn, and the Wien Alzheimer Center at Mount Sinai Medical Center. The Director of the National Parkinson Foundation, Emilio Alonso Mendoza, described Fana Holtz as one of the Foundation’s chief assets and explained that her active involvement on behalf of the National Parkinson Foundation is crucial to the Foundation’s success. Mr. Mendoza estimated that Fana Holtz has raised at least $2 million for the National Parkinson Foundation. The South Florida Region of the Weizmann Institute of Science, a research institute based in Israel, has named Fana Holtz as a distinguished woman in philanthropy. Fana Holtz’s personal financial affairs are inextricably intertwined and are commingled with Abel Holtz’s. She has little or no substantive knowledge of her personal finances or the state of her personal finances. She has little involvement in managing her personal financial affairs, relying on Abel Holtz. Fana Holtz [text omitted]. A secretary shared with Abel Holtz prepares and signs checks [text omitted] to pay Fana Holtz's personal bills. Fana Holtz presently asserts voting control over 39.7% of the outstanding common stock of Bancorp. She obtained control of most of those shares in 1994 through a series of gifts and conveyances from her husband. Abel Holtz helped to prepare Fana Holtz’s application to acquire or maintain a controlling interest in Capital Bank, which application is the subject of this proceeding. Applicant Daniel M. Holtz, 37, is the elder son of Abel and Fana Holtz. He is the Chief Executive Officer and Chairman of Capital Bank and Bancorp, positions he assumed in October 1994 upon his father’s resignation. Daniel Holtz has been the President of Capital Bank since 1991 and the president of Bancorp since October 1994. He is a director of Capital Bank (1982 to 1988 and 1991 to the present) and a director of Bancorp from 1988 to the present. Capital Bank of California (CBCA) was a federally insured commercial bank located in Los Angeles, California. CBCA was formed by three failed or failing banks. Daniel Holtz was Executive Vice President of Capital Bank of California from 1985 to 1987 and President and Chief Executive Officer from 1987 to November 1991. Unsatisfactory conditions found at CBCA as of December 31, 1989, led to the entry of a Memorandum of Understanding (MOU) by CBCA, the FDIC, and the Superintendent of Banks for the State of California on January 24, 1991. The MOU was followed by an Order of Cease and Desist entered against CBCA on March 31, 1992. CBCA was closed by the California Superintendent of Banking and taken over by the FDIC on June 18, 1993. In 1986 Daniel Holtz became President of Capital Trading, Group, Inc. (Trading), a subsidiary of Bancorp. Trading was established to “act as a catalyst between buyer and seller in making trade arrangements.” In other words, Trading was to be the middleman between buyers and sellers and not to buy and retain merchandise in hopes of finding a buyer for the goods. During Daniel Holtz’s administration of Trading and contrary to its business purpose, Trading acquired and stored a significant inventory of merchandise resulting in substantial losses. [text omitted]. Trading was liquidated during 1990 and 1991. In 1988, with the support of Fana and Javier Holtz, Daniel Holtz convinced then-President Abel Holtz to agree to a reorganization of Capital Bank along four primary business lines -- retail banking, international banking, commercial credit, and finance -– with executive vice presidents to assume specific responsibility and accountability for the various parts of Capital Bank’s business. Following the reorganization, Daniel Holtz became Executive Vice President in charge of the Retail Division. In this position, again with the support of Fana and Javier Holtz, Daniel Holtz implemented a number of initiatives including a mystery shopper program, employee training, and a formalized salary administration process. These initiatives in the retail area resulted in improved customer service, improved productivity, increased consumer lending, and substantial cost savings. Daniel Holtz became President of Capital Bank in late 1991. Upon assuming the presidency, he began to imprint his own management style on Capital Bank and brought in a new management team. Over the following three years, he appointed new Executive Vice Presidents to head up each of the Bank’s six divisions: Administration (Charles Boyce), Credit (Javier Holtz), Finance (Tim Harris), International (David Konfino), Legal (Tim Kish) and Retail (Tom Flood). Daniel Holtz established strong working relationships with his executive officers and cultivated a strong team spirit throughout Capital Bank. As President, Daniel Holtz focused his efforts on establishing and achieving the overall business goals for Capital Bank. Under the prior regime, Capital Bank had little in the way of long term planning, and Capital Bank’s earning and operational performance had been unpredictable. To reverse this trend, Daniel Holtz initiated strategic reviews of the Bank’s activities, developed a five-year rolling budget process, and initiated responsibility center reporting down to the individual branch level, thus providing each area of Capital Bank with objective criteria by which to judge its performance as compared to budget and to the prior year’s results. Daniel Holtz also took a number of steps to reduce Capital Bank’s risk profile. Under the prior regime, Capital Bank had focused on higher risk business strategies, including highly leveraged commercial and real estate lending international transactions avoided by other banks. Daniel Holtz redirected Capital Bank’s business towards smaller retail transactions with more established, top-tier correspondent banks and a more diversified loan portfolio with a greater emphasis on consumer lending and factoring transactions. To implement this change in direction, Daniel instituted a series of employee training and incentive programs designed to improve employee performance and customer service. He also expanded the formal employee review process that he had previously introduced in the retail division, thus enabling employees company-wide to have a clearer understanding of their job responsibilities and to be rewarded based upon objective criteria. Daniel Holtz also spearheaded a number of capital strategies that improved Capital Bank’s liquidity and capital ratios, while at the same time reducing the Bank’s credit exposure in its factoring subsidiary. These measures included the securitizations of Factors’ receivables, an initial public offering of nineteen percent of the shares of Factors, and the listing of Bancorp on NASDAQ. At Daniel Holtz’s direction, Capital Bank hired an outside consultant to review the bank’s internal controls and develop specific recommendations to improve Capital Bank’s regulatory compliance; introduced compliance training throughout the organization; instituted new procedures and controls to ensure compliance with Regulation O restriction on loans to insiders; established a full-time compliance officer position to monitor Capital Bank’s regulatory performance; charged the bank’s general counsel with ensuring that no proposal be brought before the Board of Directors that would violate applicable laws or regulations; and increased the frequency of the bank’s contacts with its primary regulators to improve relations and facilitate early identification and correction of any future compliance issues. Daniel Holtz also strengthened the role of the Board of Directors by creating and enhancing the role of a directors’ planning committee, compensation and benefits committee, conflicts of interest committee, and directors’ nominating committee; and by significantly expanding the information provided to directors in Board of Directors’ reports and distributing such reports in advance of board meetings. In 1995, Daniel Holtz, with the help of an outside consultant, initiated the Capital 2000 project which is expected to streamline Capital Bank’s operations in light of its new retail banking focus, redirect Capital Bank’s resources to their most effective use, and significantly lower the bank’s operating expenses while simultaneously enhancing key revenue sources. [text omitted]. Daniel Holtz owns approximately 4 percent of the total outstanding common stock of Bancorp. To acquire a 25 percent controlling interest in Bancorp, Daniel Holtz would have to acquire an additional 1,559,000 shares, which would cost approximately $41 million. Daniel Holtz does not have the financial wherewithal to a acquire a controlling interest in Bancorp. [text omitted]. Daniel Holtz has presented no plan by which he intends to acquire a 25 percent controlling interest in Bancorp. [text omitted]. Daniel Holtz is active in a variety of charitable organizations, including Habitat for Humanity, the Alelph Institute (a non-profit religious organization that works with Jews in the military and in penal institutions), and the United Foundation for AIDS. Applicant Javier J. Holtz, 35, is the son of Abel and Fana Holtz. He is currently the Executive Vice President and Chief Credit Officer of Capital Bank and a Senior Vice President of Bancorp. Javier Holtz has been a director of Capital Bank since 1982 and is Chairman of the Board of Factors. Javier Holtz currently owns approximately 2.2 percent of the outstanding shares of Bancorp stock. He does not have the financial means by which he could acquire a controlling interest in Bancorp. [text omitted]. Javier has presented no plan by which he intends to acquire a 25 percent interest in Bancorp. From 1988 to March 1992, Javier Holtz served as a senior vice president in Capital Bank’s Retail Division. In March, 1992, he became Assistant Division Head of the Credit Division, with the principal responsibility for addressing Capital Bank’s asset quality problems. [text omitted]. As Assistant Division Head, Javier Holtz implemented a series of new policies and procedures which have succeeded in improving Capital Bank’s asset quality, including new underwriting policies, a revised risk rating system, a perpetual review system for Bank loans, a loan review committee made up of executive vice presidents of Capital Bank, and an increased role for the special assets department. In March 1994, Javier Holtz became acting Division Head of Credit upon the resignation of Simon Portnoy. Javier Holtz was promoted to Executive Vice President and Chief Credit Officer of Capital Bank in September 1994. Since then, Javier Holtz has focused his energies as Chief Credit Officer on building Capital Bank’s loan portfolio through targeted business development efforts and a reengineering of the commercial lending function. Javier Holtz has been involved in the credit function for Factors since the mid-1980’s and was promoted to the level of Executive Vice President in charge of credit in November, 1994. He has final authority over all credit matters and provides essential independent oversight to Factors’ credit analysis. Javier Holt has served as a director of Factors since 1987, as Vice Chairman of the Board from January 1991 to November 1994, and as Chairman of Factors' Board of Directors since November 1994. In the latter capacity, he serves as a liaison between Factors and Capital Bank and is involved on an almost daily basis in strategic decision making, staffing decisions, and consideration of new business lines and opportunities. He has been involved in Factors’ recent efforts to diversify its business both geographically and through new lines of business, such as asset-based lending, health care receivables, and temporary employment receivables. Javier Holtz played a key role, both as Board Chairman and as Chief Credit Officer, in the planning and due diligence process for Capital Factors’ recent financing efforts – its $175 million in securitizations in 1994-95, the receipt of a new line of credit from Fleet Capital in 1996, and the recent initial public offering in July 1996. Javier Holtz is active in a number of charitable activities, including the National Parkinson’s Foundation, Temple Emanuel of Greater Miami, and the Lehrman Day School. Applicants acted in concert with Abel Holtz as shareholders in connection with a shareholder action by written consent in 1992, in which four directors were not re-elected to the Capital Bank Board of Directors. The shareholder action was taken in the midst of an investigation that two of these four directors, Stanley Worton and Alex Halberstein, had initiated against Abel Holtz. The origin of the 1992 dispute was the settlement of two sexual harassment complaints filed with the Equal Employment Opportunity Commission against Capital Bank and Abel Holtz. One of the complaints had been filed by the general counsel of Capital Bank. The settlements were authorized by Abel Holtz on the advice of outside counsel, Elizabeth DuFresne, a partner at Steel, Hector and Davis. Ms. DuFresne advised Abel Holtz to have the Bank prepare the settlement check to show that the amount of the check was for attorney’s fees, costs, and settlement of labor related claims and training of Capital Bank personnel. The purpose of preparing the check in this manner was to avoid other complaints of a similar nature. [text omitted]. Ms. DuFresne also advised Abel Holtz that the settlement was confidential and that he should not discuss the terms of the settlement with anyone, including bank directors, until she had had an opportunity to make a presentation to the Board of Directors. On the day that Abel Holtz signed the settlement agreements, he left for Spain. Abel Holtz requested that Ms. DuFresne make a presentation to the Capital Bank Board of Directors in August, 1992. The regularly scheduled board meeting was to be held on August 27, 1992. Ms. DuFresne was to be in Ireland at that time and advised that she would participate by telephone. On August 24, 1992, Hurricane Andrew hit Miami, resulting in the cancellation of the August 27 board meeting. [text omitted]. But for the cancellation of the August 27 board meeting, the Board of Directors would have been advised of the settlement of the sexual harassment claims at that meeting. There was no attempt by Fana, Daniel, or Javier Holtz to prevent the board members from learning of the settlement of the sexual harassment claims. Prior to the settlement of the sexual harassment claims, Abel Holtz had been keeping Alex Halberstein informed on a daily basis as to the progress of the settlement discussions. Following the settlement, Abel Holtz did not advise Mr. Halberstein of the terms of the settlement agreement, thinking that he was following advise of counsel not to disclose the terms to the directors until she could make a presentation to the board. Mr. Halberstein viewed Abel Holtz’s position as a personal affront and began investigating the matter on his own. Mr. Halberstein discovered the settlement check and certain other bank checks which he believed related to Abel Holtz’s travel and entertainment expenses and Capital Bank’s charitable donations. In early September 1992, Mr. Halberstein confronted Abel Holtz with the checks, and Abel Holtz denied any wrongdoing. Mr. Halberstein then contacted Dr. Worton, who was a member of Capital Bank’s Audit Committee. Shortly thereafter, the Audit Committee began investigating Abel Holtz for misappropriating Capital Bank funds through the sexual harassment settlement and various travel and expense expenditures and charitable donations. The Audit Committee was comprised of three outside directors, Chairman Alan Weiselberg, Dr. John Brown and Dr. Stanley Worton. The Audit Committee advised Abel Holtz that it would be investigating these allegations. Abel Holtz agreed to cooperate with the investigation, as did Daniel Holtz who was, at this point, President of Capital Bank. The Audit Committee retained the law firm of Bailey Hunt Jopes and Busto as outside counsel and enlisted the assistance of the bank's internal auditor in the investigation. [text omitted]. [text omitted]. [text omitted]. A majority of the Board of Directors of Capital Bank and Bancorp (excluding Holtz members) concurred with and supported the Audit Committee's actions. On October 16, 1992, a notice of special meeting of Capital Bank's board was issued. The bylaws of Capital Bank required that either the cashier or the president of Capital Bank sign the notice; however, neither the president nor the cashier could be located on October 16, so Alex Halberstein as Executive Vice President signed the notice. The purpose of the special meeting was to consider the interim report of the Audit Committee and to take appropriate action with respect to the report including removal of certain officers of the Board and/or Capital Bank. The special meeting was scheduled for October 19, 1992, at 4:00 p.m. at Capital Bank's boardroom. Abel, Daniel, Javier and Fana Holtz were aware of the directors' and Audit Committee's investigation and activities. They characterized the investigation of the sexual harassment settlement, travel expenses, and charitable contributions as a "witch hunt." Abel, Fana, Daniel, and Javier Holtz decided to increase control of Bancorp so that they could remove directors and restructure the boards of Bancorp and Capital Bank without a regular shareholders meeting. Daniel and Abel Holtz consulted the law firm of Greenberg Traurig Hoffman Lipoff Rosen and Quentel (Greenberg Traurig) regarding these matters. To facilitate their objectives, Abel, Fana, Daniel and Javier Holtz acquired additional shares of Bancorp between October 14 and October 19, 1992. [text omitted]. Abel, Fana, Daniel, and Javier Holtz also began soliciting proxies from other shareholders. [text omitted]. He also knew that Florida law prohibited such actions but took no action to prevent it. On October 19, 1992, prior to the scheduled special meeting of Capital Bank's board, Abel, Fana, Daniel and Javier Holtz and other Bancorp shareholders (whose combined shares amounted to 70% of the total outstanding shares) took corporate action by written consent in lieu of a shareholders meeting. The following actions were taken: increased the number of directors to ten; elected Fred Hirt, Timothy Kish and Alan Weiselberg to the Bancorp board; and authorized the president of Bancorp (Abel Holtz) to vote all shares that Bancorp owned in any subsidiary (Capital Bank). As a result of these actions, Abel Holtz reduced the number of directors on the Capital Bank board from ten to six. The directors eliminated were Raymond Clark, Alex Halberstein, Edwin Rosenthal, and Stanley Worton. Ironically, Abel Holtz voted proxies given to him by Alex Halberstein and Stanley Worton, to oust them from the Capital Bank board. The actions taken by the applicants in the October 19 meeting were to protect the interests of Abel Holtz and the Holtz family and to eliminate individuals from the Capital Bank Board who were questioning Abel Holtz’ actions. Rather than wait for the Audit Committee to complete its investigation, the Holtz family took matters into their own hands. On October 19, 1992, at 4:00 p.m. the following directors of Capital Bank arrived at the Brickell Avenue offices of Capital Bank to hold the noticed special meeting: Alex Halberstein, Simon Portnoy, Edwin Rosenthal, Stanley Worton, John Brown, and Alan Weiselberg. The directors were not allowed to get to the 12th floor by normal means of access and had to get to the 12th floor boardroom by taking the fire escape from the 11th floor. When they got to the 12th floor they were asked by Capital Bank security personnel and a city policeman to leave the building. The directors were given letters in which they were advised that it was the legal opinion of counsel for Capital Bank that the special meeting was improperly called and that four of the directors had been removed from the board. The directors left the bank building and reconvened the special meeting at another location. The directors voted to ratify the actions of the Audit Committee, remove Abel Holtz as chief executive officer of Capital Bank and as Chairman of the Board of Capital Bank, and to initiate legal action against Abel Holtz for reimbursement of the money paid to settle the sexual harassment claims. Capital Bank did not recognize the actions taken at the special meeting. [text omitted]. Additionally, three of the directors who had participated in the special meeting had been removed from the board by Abel Holtz shortly before the special meeting convened. [text omitted]. On October 30, 1992, Capital engaged the accounting firm of Arthur Andersen and Company (Arthur Andersen) to perform certain agreed upon procedures relating to the settlement of the sexual harassment claims, the travel and entertainment expenses of Abel Holtz, and charitable contributions made by Capital Bank. The agreement with Arthur Andersen was negotiated by the Greenberg Traurig firm on behalf of Capital Bank. Arthur Andersen issued a report on December 8, 1992. The accounting firm found Abel Holtz's settlement of the sexual harassment claims posed a conflict of interest, inadequate documentation for numerous travel and entertainment expenditures violated bank policy, and instances of expenditures by Abel and/or Fana Holtz for charitable contributions and travel and entertainment that appeared to be personal in nature. [text omitted]. Arthur Andersen recommended that Capital Bank's Board of Directors review the sexual harassment settlement, certain travel and entertainment expenses, and certain pledges to determine whether reimbursement by Abel Holtz was needed. John Kiefer was selected to replace Stanley Worton on the Audit Committee. Prior to his appointment to the Audit Committee, John Kiefer and the internal auditor who was working with the Audit Committee had a "run-in,” resulting in an acrimonious relationship between the two. John Kiefer was loyal to the Holtz family. As President of Factors, John Kiefer was not considered an independent director. His appointment to the Audit Committee violated the Audit Committee charter, which required three independent directors. The Audit Committee, now composed of Weiselberg, Kiefer and Brown, recommended that the Board of Directors of Capital Bank adopt resolutions which ratified the settlement of the sexual harassment claims, determined that there was no basis for requiring Abel Holtz to reimburse Capital Bank for the settlement and that the travel and entertainment expenses and charitable contributions specified in the Arthur Andersen report were ordinary and necessary business expenses of Capital Bank. Daniel and Javier Holtz voted at the board meeting in favor of these actions [text omitted]. In April 1994, [text omitted]. This transaction effectively shifted control of Capital Bank from Abel Holtz to Fana Holtz. A federal grand jury investigation was commenced concerning the activities of Abel Holtz in connection with Capital Bank. The grand jury investigation led to a negotiated plea by Abel Holtz on October 25, 1994, in which the potential criminal actions against Abel Holtz were not pursued in exchange for Abel Holtz's agreement to plead guilty to the charge that he knowingly and willfully endeavored to influence and impede the due administration of justice by giving misleading testimony to a federal grand jury about his relationship with Alex Daoud and about the nature of the services he was asked to perform, in violation of 18 U.S.C., Section 1503. The legal effect of the guilty plea is to bar Abel Holtz from directly or indirectly, owning, controlling or otherwise participating in the affairs of Bancorp and Capital Bank. On October 7, 1994, Abel Holtz resigned from all positions with Bancorp, Capital Bank and Capital Factors. In connection with his resignation, [text omitted]. [text omitted]. On February 8, 1995, Abel Holtz and his family’s control and operation of Bancorp and Bank were challenged in a shareholder’s derivative lawsuit filed against the Holtz family by Nathan Esformes, Stanley Worton, and Leonard Wein. Shortly after the filing of the lawsuit, Fana, Daniel, and Javier Holtz privately decided to and did solicit proxies so that they could restructure the board of directors of Bancorp without a regular shareholders meeting. On February 27, 1995, Fana, Daniel, and Javier Holtz and Leon Simkins carried out a corporate action in lieu of an annual shareholders meeting. At this meeting they removed Nathan Esformes and Alex Halberstein from the board of directors of Bancorp. Fana Holtz voted Stanley Worton’s and Alex Halberstein’s shares to eliminate Messers. Esfromes and Halberstein from the board. Again the applicants were protecting their own interests by eliminating individuals who were critical of the Holtz family from the Bancorp Board. [text omitted]. Abel Holtz knew about and participated in the corporate action and proxy solicitation in February 1995. Abel Holtz reported to prison on February 28, 1995, to begin serving his sentence. On February 28, 1995, the Board of Directors of Bancorp appointed an independent committee to investigate the claims made in the shareholders derivative action. The Independent Committee members were Russell Galbut, Leon Simpkins, Jeffrey Porter, and Craig Platt. Messrs. Porter and Platt were long standing friends of Daniel Holtz. At the time Leon Simpkins was appointed to the Independent Committee, [text omitted]. In March 1995, the Independent Committee hired the law firm of Zack Sparber Kosnitzky Spratt and Brooks to assist in the investigation. Counsel for the Independent Committee removed Jeffrey Porter and Craig Platt from the committee in order to avoid the appearance of conflict. [text omitted]. Mr. Simkins resigned from the Independent Committee shortly thereafter. The Independent Committee retained the accounting firm of Coopers and Lybrand to assist in the investigation of the allegations of the shareholders’ derivative suit. On May 29, 1995, the independent committee issued its report, which recommended that that the shareholders’ derivative action be dismissed. In May, 1992, Regulation O was extended to cover state banks, like Capital Bank, that are not members of the Federal Reserve. Accordingly, executive officers of these banks were no longer allowed to borrow in excess of $100,000 from their banks, subject to certain exceptions. [text omitted]. [text omitted]. [text omitted]. [text omitted]. The Internal Revenue Service has determined that Fana and Abel Holtz failed to report income totaling $1,417,128 from Bancorp for the taxable years 1989 and 1990. [text omitted]. In the early 1990’s Capital Bank was a troubled financial institution in terms of both regulatory compliance and financial performance. [text omitted] [text omitted]. [text omitted]. [text omitted]. [text omitted] [text omitted]. [text omitted]. [text omitted]. [text omitted]. [text omitted]. [text omitted]. [text omitted]. Since the 1992 Exam, Daniel Holtz has replaced Abel Holtz’s centralized management structure with a new team of executive officers who are responsible for specific business areas. [text omitted]. During the 1980’s Capital Bank experienced erratic earnings. Since Daniel Holtz became President, Capital Bank has experience steady and significant earnings growth. [text omitted]. Capital Bank has taken a number of significant and innovative steps to improve its liquidity position in recent years. Capital Bank has successfully pursued outside funding vehicles for its subsidiary, Factors, through three securitizations of Factors’ advances against receivables, a $40 million credit facility with Fleet Capital, and an initial public offering of nineteen percent of Factors’ stock. These financing measures have allowed Capital Bank to decrease significantly the amount of its lending to Factors, thereby increasing Capital Bank’s liquidity. 113. [text omitted]. 114. [text omitted]. 115. [text omitted]. Although Daniel Holtz became President of Capital Bank in 1991, Abel Holtz retained his positions of Chairman of the Board and Chief Executive Officer of Capital Bank and Bancorp and President of Bancorp until 1994. The evidence is clear that Abel Holtz was in control of Bancorp and Capital Bank until his resignations in 1994. He made the final decisions concerning the institutions and tolerated little or no criticism of himself by directors. He essentially “ran the show.” As a result of his conviction, Abel Holtz was prohibited from directly or indirectly participating in the affairs of Capital Bank and Bancorp. However, based on the testimony at the hearing, it is evident that Abel Holtz has been unable to distance himself from the affairs of Bancorp and Capital Bank. Abel Holtz’s continued involvement in Bancorp is exhibited by his participation in filling out Fana Holtz’s application for control which is at issue in this proceeding. Although both Fana Holtz and Abel Holtz denied that he assisted in the preparation of the application, the testimony of Omara Gonzalez is to the contrary. There would be no reason for Ms. Gonzalez to testify falsely about Abel Holtz’s involvement. By allowing Abel Holtz to assist in the preparation of the application, Fana Holtz exhibited a disregard for the prohibition of Abel Holtz’s participation in the affairs of Capital Bank and demonstrated that she continues to be dependent on Abel Holtz in the affairs of Capital Bank. As recently as the time of the hearing in this proceeding, Fana Holtz has discussed with Abel Holtz the potential sale of his shares of Bancorp. Abel Holtz continues to manage all of Fana Holtz’s financial affairs. He controls the joint checking account, arranges for all of their substantial joint debts and in all respects is the dominant partner in their marriage partnership. From December 1983 to April 1990, Abel Holtz arranged for monthly payments of $1,000 and later, $1,500 to be made to Alex Daoud (Daoud) through Capital Bank, then Sommerset Corporation, and then Factors. For the entire duration of this relationship, Daoud was an elected official of the City of Miami Beach, serving as a Commissioner and then as the Mayor beginning in 1985. The payments to Daoud were in part for political favors and influence. Both Javier and Daniel Holtz knew that Daoud was receiving money as a “retainer” and both attended meetings with Daoud in which the retainer was discussed in connection with their appointments to city boards. While Daoud was an elected official he assisted in getting Daniel Holtz appointed to the zoning board and in getting Javier Holtz appointed to the Visitors Convention Authority (VCA). Daniel and Javier Holtz, along with the rest of the executive management team, have entered into employment contracts that include standard change-of-control provisions. Pursuant to these contracts, if there is a change in the ownership of Capital Bank and the executive officer is removed from his position with the bank, he is entitled to receive a payment equal to no more than two times his annual compensation. The contracts were prepared at the recommendation of outside consultants working with outside directors on the Compensation and Benefits Committee. These types of contracts are standard in the banking industry and are viewed favorably by the securities market. The level of stock options which the Applicants have been awarded is not excessive. [text omitted]. The Applicants have not received an excessive amount of stock options, given their management roles and years of service with the bank. [text omitted]. [text omitted]. The evidence does not support a finding that Fana, Daniel and Javier Holtz as a group have the character, reputation, experience and financial responsibility to control and operate Bancorp and Capital Bank in a legal and proper manner. The evidence does not support a finding that Fana Holtz, individually, has the character, reputation, experience and financial responsibility to control and operate Bancorp and Capital Bank in a legal and proper manner. The evidence does not support a finding that Daniel Holtz, individually, has the character, reputation, and financial responsibility to control and operate Bancorp and Capital Bank in a legal and proper manner. Currently, Daniel Holtz does not have control of 25 percent of the shares of Bancorp. The evidence does not support a finding that Javier Holtz, individually, has the character, reputation, and financial responsibility to control and operate Bancorp and Capital Bank in a legal and proper manner. Currently, Javier Holtz does not have control of 25 percent of the shares of Bancorp. The evidence does not support a finding that it would be in the best interests of Capital Bank’s shareholders (other than the Holtz shareholders), depositors, and creditors for the applicants ,either as a group or individually, to control Bancorp and Capital Bank. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 16th day of May, 1997. SUSAN B. KIRKLAND Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (904) 488-9675 SUNCOM 278-9675 Fax Filing (904) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 16th day of May, 1997. COPIES FURNISHED: John B. Fretwell, Esquire Michael C. Gold, Esquire Department of Banking and Finance Comptroller's Legal Office 101 East Gaines Street Suite 526, The Fletcher Building Tallahassee, Florida 32399-0350 Eugene E. Stearns, Esquire Betty Chang Rowe, Esquire 150 West Flagler Street Suite 2200 (Museum Tower) Miami, Florida 33130 D. Jean Veta, Esquire Eric G. Lasker, Esquire Post Office Box 7566 Washington, DC 20044-7566 Mark A. Dresnick, P.A. Grand Bay Plaza, Suite 201 2665 South Bayshore Drive Miami, Florida 33133 Alex Halberstein 20185 Country Club Drive Apartment 2501 Adventura, Florida 33180 Honorable Robert F. Milligan Comptroller, State of Florida The Capitol, Plaza Level Tallahassee, Florida 32399-0350 Harry Hooper, General Counsel The Capitol, Room 1302 Tallahassee, Florida 32399-0350
The Issue The issue in this case is whether Respondent, Department of Business and Professional Regulation, Division of Alcoholic Beverages and Tobacco (the “Department”), appropriately and correctly assessed the taxes owed by Petitioner, Global Hookah Distributors, Inc. (“Global Hookah”), on other tobacco products (“OTP”) for the period January 1, 2013, through June 30, 2013. Global Hookah also asserts as an issue in this case whether it has a “substantial nexus” with Florida such that the Department may assess and collect taxes under the Commerce Clause of the United States Constitution. See Art. I, § 9, U.S. Const. Unless otherwise stated herein, all references to Florida Statutes shall be to the 2016 codification.
Findings Of Fact Global Hookah was formed as a Florida corporation on June 9, 2005, with its principal place of business in Melbourne, Florida. After graduation from college, Global Hookah’s owner and 100 percent shareholder, Brennan Appel, decided to move his company to North Carolina. Global Hookah was re-formed as a North Carolina corporation on June 14, 2007. Appel then moved all of his inventory and business equipment to a 10,000-square- foot warehouse in Charlotte, North Carolina. Each corporate annual report filed since 2007 reflects the Charlotte, North Carolina, address. All annual meetings and corporate tax returns indicate North Carolina as the situs for the corporation. Mr. Appel, sole shareholder of Global Hookah, has resided in North Carolina continuously since 2007. At all times pertinent hereto, Global Hookah was conducting its business from North Carolina. When the North Carolina corporation was formed, Mr. Appel mistakenly failed to convert the Florida Global Hookah corporation into a foreign for-profit corporation. That oversight was corrected on May 31, 2016, by way of a filing with the Florida Division of Corporations. Global Hookah does not currently have a physical place of business in Florida; its only connection to the State is the sale and delivery (by unaffiliated carriers) of the products it sells. When the company was still operating out of its Florida offices, Mr. Appel’s mother, Jennifer Appel, worked as an employee and was an officer of the Florida corporation. After the move to North Carolina, Mrs. Appel became a part-time employee, performing quality assurance checks in the North Carolina warehouse. She was paid for her services by way of a direct deposit into her checking account in Florida. Mrs. Appel continues to reside permanently in Florida, traveling to North Carolina when working for Global Hookah. Mrs. Appel is not an officer of the North Carolina corporation. When Global Health was located in Melbourne, Florida, the Department’s Orlando office conducted its semiannual tax audits. The Department’s office in Margate, Florida, conducts audits of out-of-state licensees, and the audit at issue was therefore conducted by the Margate office. Global Hookah sells about 3,500 different tobacco- related products to customers in many jurisdictions, including Florida. Its customers are primarily businesses, such as hookah lounges, night clubs, bars, restaurants, and cigar stores, but also other tobacco distributors. Some products are also sold by Global Hookah directly to consumers. The products are sent to customers via U.S. Mail or third-party carriers. The Department is the government agency responsible for, inter alia, monitoring and collecting taxes on the sale of tobacco and OTP in Florida. As part of its duties, the Department audits on a regular basis (from every six months to every two years) each entity which distributes tobacco and OTP in Florida. In July 2013, the Department notified Global Hookah that an audit would be performed on that company for the period January 1, 2013, through June 30, 2013. The primary purpose of the audit was to determine the wholesale sales price of the OTP sold by Global Hookah in Florida during the audit period, determine the amount of products sold, and assess a tax on the total. How that audit actually transpired is a matter of dispute between the parties. The parties agree that an auditor from the Department, Deborah Spady, contacted Mr. Appel and requested certain records so that she could conduct the audit. Beyond that, the parties completely disagree as to what transpired. The Department’s position, based almost entirely on unsubstantiated hearsay testimony from Mr. Torres, is as follows: Ms. Spady asked for certain company records to be sent to her via U.S. Mail, but Global Hookah refused to comply with the request. Ms. Spady then scheduled a visit to the Global Hookah offices in North Carolina to obtain the records she needed. She was provided numerous boxes of documents to review, but was not allowed to use the company’s copier to make copies. She called her supervisor, Mr. Torres, who told her to purchase a hand-held scanner and to scan all the documents so they could be printed on her return to Florida. Ms. Spady purchased a scanner and returned to Global Hookah. At that point she was told that she could not scan the documents. Discussions between the Department and attorneys for Global Hookah ensued, resulting in Ms. Spady being allowed to scan the documents. She allegedly scanned an amazingly large number of documents in just a day and a half at the Global Hookah offices. Ms. Spady brought the scanned documents back to Florida so they could be printed and an audit could be performed for the audit period. At that point, Ms. Spady commenced the audit. According to Mr. Appel, the audit happened like this: Mr. Appel was informed by Mr. Torres that Ms. Spady would be conducting an audit for the aforementioned time period. Mr. Torres said that Ms. Spady preferred to come to North Carolina to do the audit. Upon her arrival at the Global Hookah offices in North Carolina, Mr. Appel gave Ms. Spady a CD containing all the requested documents, i.e., purchase invoices showing the cost of the tobacco and OTP, sales documents showing the products were sold in Florida, and the monthly returns filed by the taxpayer pursuant to Florida requirements. The monthly returns are a self-reporting summarization of products shipped to and sold in Florida by a distributor (minus some allowed exemptions). Compilation of those records on a CD was Mr. Appel’s normal procedure for the semiannual audits conducted by the Department. Ms. Spady reviewed the CD on her computer when she went to lunch. When she returned to Global Hookah’s offices after lunch, she reported that some of the files on the CD would not open properly. Mr. Appel converted the documents on the CD into another format and verified that Ms. Spady could open the files. Ms. Spady said she was satisfied with the results and left the Global Hookah offices. Mr. Appel never saw Ms. Spady again. The parties basically agree only that an audit was initiated by the Department, it was commenced by Ms. Spady, and that someone else ultimately completed the audit. Just about everything else about the pre-audit process is disputed. It is as if the parties were talking about two completely different audits, which is what Global Hookah suggests happened. There was a subsequent audit performed by the Department where the auditor did scan some documents. There was allegedly some dispute in the latter audit concerning the auditor attempting to scan documents relating to sales in states other than Florida. A letter was supposedly sent to the auditor addressing that issue, but no such evidence was presented at final hearing. The Department says there was a subsequent audit, but Global Hookah “refused to provide records” so it was not completed. Nonetheless, at some point in time, another auditor, Robert Lerman, took over the Global Hookah audit from Ms. Spady. None of Ms. Spady’s audit notes were preserved and so were not available for review at final hearing to substantiate Mr. Torres’ hearsay testimony concerning how the audit was initiated. Ms. Spady, who no longer works for the Department, was not called as a witness at final hearing. On November 24, 2014 (about four month after Ms. Spady commenced the audit), Mr. Lerman set up an audit file. At the commencement of his work, Mr. Lerman was advised by Mr. Torres that the records obtained from Global Hookah could not be trusted. This was due to the fact that Global Hookah had produced documents entitled “sales order” rather than traditional “invoices,” even though the Department had accepted the same kinds of documents from Global Hookah in the past. The Department believed that the sales orders could be altered, while the invoices would be more precise and final. Faced with its unease using the sales orders, the Department contacted Mr. Appel and requested that he submit invoices instead of sales orders for the audit period. Global Hookah contacted its supplier in California, Fantasia Distributors, Inc. (“Fantasia”), to obtain invoices to submit to the Department. The only difference between the sales orders and invoices–- besides the title of the documents--was that some charges had been zeroed out, presumably because the amount had been paid when the invoice was issued. Mr. Appel provided the Department with 40 pages of invoice documents marked as “invoiced in full.” The Department compared the new Fantasia invoices with the Global Hookah sales orders and determined that some of the information contained therein did not match up appropriately. There were some missing numbers, some invoices were not in logical number sequence, and there appeared to be other discrepancies. At that point, Mr. Torres got more involved in the Global Hookah audit. From the documents supplied by Global Hookah, Torres prepared a spreadsheet identifying 18 separate dates of transactions between Global Hookah and Fantasia during the audit period. He found, however, that there were really only about 15 actual purchases; some of the costs relative to a single purchase were divided and appeared on invoices with different dates. Some of the invoices had five-digit identification numbers that did not seem to match up with the sales orders previously provided. Based upon his review and findings, Mr. Torres deemed the invoices from Fantasia (which had been provided by Global Hookah) to be less than credible. Mr. Torres in fact concluded, unilaterally, that Global Hookah was attempting to hide purchases and to “deceive” the Department. It is noted that the Department made no attempt to contact Fantasia, with whom it was very familiar, to ascertain why the documents did not match up. Once Mr. Torres reached that conclusion, he decided to ascertain the actual purchase amounts by way of “best available information.” According to his audit notes, Mr. Lerman was directed by Mr. Torres to determine the “best available information” as follows: He was to make a schedule of all products purchased by Global Hookah from Fantasia. Inasmuch as the Department was familiar with Fantasia and knew that company supplied many distributors in Florida, Mr. Lerman was told to compare the cost of each product Global Hookah had bought from Fantasia with the cost other providers had paid for the same products. An average unit price for the products was thus calculated by the Department. The Department determined that Global Hookah was paying far less for some products than Fantasia was charging some of its other distributor customers. No competent evidence was produced as to why this disparity existed. The Department simply surmised that Global Hookah was apparently misstating the amounts it had paid Fantasia for the products. The Department, based on its comparison of Fantasia’s other non-related invoices, determined that Global Hookah was understating those product costs amounts by 454 percent. The Department thereupon applied a factor of 4.54 to all of Global Hookah’s purchases and Florida sales for the entire audit period. Although less than 20 percent of Global Hookah’s purchases for that audit period were with Fantasia, the factor was applied to all Florida sales in order to make the tax assessment.1/ The tax assessment on Global Hookah using the revised cost figures was determined to be $305,374.76, plus $152,687.37 of penalties, and $58,419.43 in interest, for a total tax assessment of $516,481.53. The Department had taken the purchases reported by Global Hookah on the monthly returns filed during the audit period, multiplied that figure by 4.54 to arrive at an adjusted figure, took the difference between the reported amount and the adjusted figure, and made a tax assessment on that amount. Later, the Department decided to revise its assessment by removing some of the non-Fantasia purchases, resulting in a tax assessment of $170,292.42 in tax, plus 1 percent interest per month, plus a penalty in the amount of 50 percent of the assessment, for a total tax assessment of $241,818.77. The basis for this reduction in tax assessment was that the Department determined that the 454 percent mark-up based on the Fantasia invoices should not necessarily be applied to the other 80 percent of Global Hookah’s purchases from other suppliers. Contrary to the Department’s position regarding the Fantasia purchases, Mr. Appel’s unrefuted testimony was that the prices shown on the sales orders were the actual amounts paid by Global Hookah to Fantasia. An affidavit dated April 2, 2016, from Fantasia’s president, Randy Jacob, corroborated Mr. Appel’s testimony.2/ That evidence is contrary to Mr. Torres’ contention that Global Hookah was falsifying its purchase price as to products purchased from Fantasia. The Department presented no competent evidence as to the basis for the prices Fantasia charged Global Hookah for products. The Department’s position, though based on logical reasoning in the abstract, was still entirely speculative and unpersuasive.3/ The Department’s decision to rely upon “best available information” is a new, unique way of conducting its review of records for an audit. Mr. Torres stated that in 30 years, he had not had to resort to such a process. The Department relied upon the “best available information” policy only in the instant case. There is no evidence that the policy was to be used in any other case or as a regular or appropriate method of dealing with less than acceptable records. It was used in the case at issue because Mr. Torres felt no other means would suffice. Global Hookah also contends that the Department’s inclusion of federal excise tax, shipping costs and other items in the taxable base for distributors constitutes an unpromulgated rule. That issue, however, has already been decided in DOAH Case No. 15-6108, Florida Bee Distributors, Inc. v. Department of Business and Professional Regulation, Case No. 15-6108 (DOAH Mar. 3, 2016)(“Florida Bee”), and will not be addressed in this Recommended Order. The Final Order in Florida Bee has been stayed and is currently under appeal at the First District Court of Appeal, Case No. 1D16-1064, meaning that the Department is free to rely on the policy pending a decision by the appellate court.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered by the Department of Business and Professional Regulation, Division of Alcoholic Beverages and Tobacco, that the tax assessment imposed against Petitioner, Global Hookah Distributors, Inc., is not correct and that the wholesale sales price set forth in the taxpayer’s invoices and sales orders are the correct bases for calculating the tax assessment. It is FURTHER RECOMMENDED that no award of attorneys’ fees or costs is warranted in this matter. DONE AND ENTERED this 20th day of October, 2016, in Tallahassee, Leon County, Florida. S R. BRUCE MCKIBBEN 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 20th day of October, 2016.
The Issue Whether Respondent, Xencom Facility Management, LLC (Xencom), terminated the employment of Petitioners solely because the contract under which they were working ended.
Findings Of Fact Xencom provides general maintenance, landscaping, housekeeping, and office cleaning services to retail facilities. In September of 2015, Xencom entered three contracts for services with CREFII Market Street Holdings, LLC (CREFII). The contracts were to provide maintenance, landscaping, and office cleaning services for a mall known as Market Street @ Heathbrook (Market Street) in Ocala, Florida. Michael Ponds, Xencom’s president, executed the contracts on behalf of Xencom. Two individuals executed the contracts on behalf of CREFII. One was Gar Herring, identified as manager for Herring Ocala, LLC. The other was Bernard E. McAuley, identified as manager of Tricom Market Street at Heathbrook, LLC. MG Herring was not a party or signatory to the contracts. MG Herring does not own or operate Market Street. A separate entity, The MG Herring Property Group, LLC (Property Group), operated Market Street. The contracts, in terms stated in an exhibit to them, established a fixed price for the year’s work, stated the scope of services, and detailed payment terms. They also identified labor and labor-related costs in detail that included identifying the Xencom employees involved, their compensation, and their weekly number of hours. The contract exhibits also identified operating costs, including equipment amortization, equipment repairs, fuel expenses, vacation costs, health insurance, and storage costs. The contracts ended December 31, 2016. The contracts specify that Xencom is an independent contractor. Each states: “Contractor is an independent contractor and not an employee or agent of the owner. Accordingly, neither Contractor nor any of Contractor’s Representatives shall hold themselves out as, or claim to be acting in the capacity of, an agent or employee of Owner.” The contracts also specify that the property manager may terminate the contract at any time without reason for its convenience. The contracts permit Xencom to engage subcontractors with advance approval of the property manager. They broadly describe the services that Xencom is to provide. Xencom has over 80 such contracts with different facilities. As the contracts contemplate, only Xencom exerted direct control of the Petitioners working at Market Street. Property Group could identify tasks and repairs to be done. Xencom decided who would do them and how. In 2013, Xencom hired Michael Harrison to work as its Operations Manager at Market Street. He was charged with providing services for which Property Group contracted. His immediate supervisor was Xencom’s Regional Manager. In 2016, that was David Snell. Mr. Snell was not located at Market Street. Property Group also did not have a representative on site. Before Xencom hired him, Mr. Harrison worked at Market Street for Property Group. Xencom hired the remaining Petitioners to work at Market Street under Mr. Harrison’s supervision. Each of the Petitioners completed an Application for Employment with Xencom. The application included a statement, initialed by each Petitioner, stating, “Further, I understand and agree that my employment is for no definite period and I may be terminated at any time without previous notice.” All of the Petitioners also received Xencom’s employee handbook. As Xencom’s Operations Manager and supervisor of the other Petitioners, Mr. Harrison was responsible for day-to-day management of Petitioners. He scheduled their work tasks, controlled shifts, established work hours, and assigned tasks. Mr. Harrison also decided when Petitioners took vacations and time off. His supervisor expected him to consult with Property Group to ensure it knew what support would be available and that he knew of any upcoming events or other considerations that should be taken into account in his decisions. As Operations Manager, Mr. Harrison was also responsible for facilitating payroll, procuring supplies, and managing Xencom’s equipment at the site. Xencom provided Petitioners work uniforms that bore Xencom’s name. Xencom required Petitioners to wear the uniforms at work. Xencom provided the supplies and equipment that Petitioners used at work. Only Xencom had authority to hire or fire the employees providing services to fulfill its contracts with the property manager. Only Xencom had authority to modify Petitioners’ conditions of employment. Neither MG Herring, Property Group, nor Xencom held out Petitioners as employees of MG Herring or Property Group. There is no evidence that MG Herring or Property Group employed 15 or more people. Property Group hired Tina Wilson as Market Street’s on- site General Manager on February 1, 2016. Until then there was no Property Group representative at the site. The absence of a Property Group representative on-site left Mr. Harrison with little oversight or accountability under the Xencom contracts for Market Street. His primary Property Group contact was General Manager Norine Bowen, who was not located at the property. Ms. Wilson’s duties included community relations, public relations, marketing, leasing, litigation, tenant coordination, lease management, construction management, and contract management. She managed approximately 40 contracts at Market Street, including Xencom’s three service agreements. Ms. Wilson was responsible for making sure the contracts were properly executed. Managing the Xencom contracts consumed less than 50 percent of Ms. Wilson’s time. During the last weeks of 2016, Mr. Harrison intended to reduce the hours of Kylie Smithers. Ms. Wilson requested that, since Ms. Smithers was to be paid under the contract for full- time work, Ms. Smithers assist her with office work such as filing and making calls. Mr. Harrison agreed and scheduled Ms. Smithers to do the work. This arrangement was limited and temporary. It does not indicate Property Group control over Xencom employees. Ms. Wilson was Xencom’s point of contact with Property Group. She and Mr. Harrison had to interact frequently. Ms. Wilson had limited contact with the other Xencom employees at Market Street. Friction and disagreements arose quickly between Mr. Harrison and Ms. Wilson. They may have been caused by having a property manager representative on-site after Mr. Harrison’s years as either the manager representative himself or as Xencom supervisor without a property manager on-site. They may have been caused by personality differences between the two. They may have been caused by the alleged sexual and crude comments that underlie the claims of discrimination in employment. They may have been caused by a combination of the three factors. On November 21, 2016, Norine Bowen received an email from the address xencomempoyees@gmail.com with the subject of “Open your eyes about Market Street.” It advised that some employees worked at night for an event. It said that Ms. Wilson gave the Xencom employees alcohol to drink while they were still on the clock. The email said that there was a fight among Xencom employees. The email also said that at another event at a restaurant where Xencom employees were drinking, Ms. Wilson gave Ms. Smithers margaritas to drink and that Ms. Smithers was underage. The email claimed that during a tree-lighting event Ms. Wilson started drinking around 3:30 p.m. It also stated that Ms. Wilson offered a Xencom employee a drink. The email went on to say that children from an elementary school and their parents were present and that Ms. Wilson was “three sheets to the wind.” The email concludes stating that Ms. Wilson had been the subject of three employee lawsuits. On December 14, 2016, Ms. Wilson, Ms. Bowen, and Mr. Snell met at Property Group’s office in Market Street for their regular monthly meeting to discuss operations at Market Street. Their discussion covered a number of management issues including a Xencom employee’s failure to show up before 8:00 to clean as arranged, security cameras, tenants who had not paid rent, lease questions, HVAC questions, and rats on the roof. They also discussed the email’s allegations. The participants also discussed a number of dissatisfactions with Mr. Harrison’s performance. Near the end of a discussion about the anonymous email, this exchange occurred:2/ Bowen: Okay, so I know that David [Snell], I think his next step is to conduct his own investigation with his [Xencom] people, and HR is still following up with John Garrett, and you’re meeting with Danny [intended new Xencom manager for Market Street] tonight? David Snell: Yes. Bowen: To finish up paperwork, and, based on his investigation, it will be up to Xencom to figure out what to do with people that are drinking on property, off the clock or on the clock, you know, whatever, what their policy is. * * * Bowen: So, I don’t know what to make of it. I’m just here to do an investigation like I’m supposed to do and David is here to pick up the pieces and meet with his folks one-on- one, and we’ll see where this takes us. This exchange and the remainder of the recording do not support a finding that Property Group controlled Xencom’s actions or attempted to control them. The participants were responsibly discussing a serious complaint they had received, their plan to investigate it, and pre-existing issues with Mr. Harrison. The exchange also makes clear that all agreed the issues involving Xencom employees were for Xencom to address, and the issues involving Property Group employees were for Property Group to address. At the time of the December 14, 2016, meeting, the participants were not aware of any complaints from Mr. Harrison or Mr. Smithers of sexual harassment or discrimination by Ms. Wilson. On December 15, 2016, Gar Herring and Norine Bowen received an email from Mr. Harrison with an attached letter to Xencom’s Human Resources Manager and others. Affidavits from Petitioners asserting various statements and questions by Ms. Wilson about Mr. Harrison’s and Mr. Smithers’ sex life and men’s genitalia and statements about her sex life and the genitalia of men involved were attached. Xencom President Michael Ponds received a similar email with attachments on the same day. On December 21, 2016, Mr. Ponds received a letter from Herring Ocala, LLC, and Tricom Market Street at Heathbrook, LLC, terminating the service agreements. Their agreements with Xencom were going to expire December 31, 2016. They had been negotiating successor agreements. However, they had not executed any. Xencom terminated Petitioners’ employment on December 21, 2016. Xencom no longer needed Petitioners’ services once MG Herring terminated the contract with Xencom. This was the sole reason it terminated Petitioners.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Florida Commission on Human Relations issue a final order denying the petitions of all Petitioners. DONE AND ENTERED this 15th day of May, 2018, in Tallahassee, Leon County, Florida. S JOHN D. C. NEWTON, II 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 15th day of May, 2018.
The Issue Whether Respondent, John B. Riley ("Respondent"), willfully violated sections 106.11(4) and 106.19(1)(d), Florida Statutes (2016), with regard to a check drawn on his campaign account in the amount of $316.00, made payable to the City of Opa-Locka, without sufficient funds on deposit to pay the $316.00 fee to run in a special election for a seat on the City of Opa-Locka City Commission; or willfully violated section 106.07(5) and willfully and knowingly violated section 106.19(1)(c), with regard to accurately reporting information on his September 12, 2016, M8 Campaign Treasurer's Report ("M8 Report"); and, if so, what civil penalties are appropriate.
Findings Of Fact Respondent is a retired, disabled veteran and currently serves part time as an elected city commissioner for the City of Opa-Locka, Florida. Respondent previously ran for public office on multiple occasions beginning in 1976. He was elected and served as a city commissioner for the City of Opa-Locka in 1982 and as mayor in 1984. This case concerns Respondent's candidacy in 2016 for Opa-Locka city commissioner. On August 11, 2016, Respondent became a candidate in a special election scheduled for November 8, 2016, to fill the un- expired term of former City Commissioner Terence Pinder, who died on May 24, 2016. The qualifying period for the November 8, 2016, special election began on August 1, 2016, and ended on Friday, August 12, 2016, at 12:00 p.m. Respondent appointed himself as treasurer of his campaign and accepted his appointment as campaign treasurer on August 10, 2016. On August 10, 2016, Respondent opened his campaign account with Wells Fargo bank. On that same date, Respondent made an initial cash contribution (loan) deposit into his campaign account in the amount of $250.00. According to the City of Opa-Locka charter, the qualifying fee for the Opa-Locka City Commission seat was $250.00. A separate state assessment fee in the amount of $66.00 was also required to be paid, for a total fee of $316.00. Respondent signed and issued Check No. 100 (dated August 9, 2016) from his Wells Fargo campaign account to the City of Opa-Locka in the total amount of $316.00, for the qualifying fee of $250.00 and state assessment fee of $66.00. At the time he wrote the check, Respondent did not know how much money was in his campaign account. Respondent had a finance committee of five volunteers collecting campaign contributions. Respondent gave the committee members deposit slips, and he instructed them to directly deposit the campaign contributions they received into the Wells Fargo bank campaign account. However, members of the committee bundled and held onto contributions, failing to deposit the contributions into the bank account. The $316.00 check was tendered by Respondent to the City of Opa-Locka on August 11, 2016. The $316.00 check was not paid from the campaign account and was returned unpaid due to insufficient funds. On August 19, 2016, Respondent made an expenditure to Wells Fargo bank in the amount of $35.00, which represented a returned check fee. As indicated in the Commission's Exhibit 18, the returned $316.00 check and $35.00 returned check fee are reflected in a Wells Fargo Bank Statement covering the period of August 10, 2016, through August 22, 2016. However, when the statement was sent by the bank to Respondent, and when Respondent received the statement, is unclear based on the evidence adduced at hearing. On Tuesday, September 6, 2016, Joanna Flores, CMC, city clerk, and supervisor of elections for the City of Opa-Locka (Respondent's filing officer), was informed by the City of Opa- Locka Finance Department that Respondent's $316.00 check was returned because of insufficient funds. On September 7, 2016, Ms. Flores sent Respondent a letter via certified mail and electronic mail informing him that he was disqualified as a candidate for city commissioner on the November 8, 2016, ballot pursuant to section 99.061(7)(a)1., Florida Statutes, because of the returned check and Respondent's failure to pay the $316.00 fee by the end of the qualifying period. After Respondent was disqualified, he had the committee members who had been holding the contribution checks return the checks to the donors. Prior to his disqualification, Respondent never made any additional deposits into his campaign account, and he never had a balance of at least $316.00. Between the submission of his $316.00 check to Ms. Flores and his disqualification, Respondent never checked his campaign account balance to determine the amount of funds available. On September 12, 2016, after he had already been disqualified, Respondent filed his M8 Report for the period of August 1, 2016, to August 31, 2016. Respondent signed the report certifying that he examined the report and that it was true, correct, and complete. On the first page of the September 12, 2016, M8 Report, included within the Commission's Exhibit 5, Respondent indicated a monetary expenditure in the amount of $316.00, the same amount as the required fee. However, Respondent did not identify the $316.00 fee on the third page of the report, which requested a list of "itemized" expenditures. Respondent testified he did not identify the $316.00 check on the list of itemized expenditures because the check had not cleared the bank. Respondent also reported that on August 10, 2016, he made a contribution (loan) to his campaign in the amount of $325.00. Respondent also reported as an itemized expenditure, that on August 20, 2016, he made an expenditure to Wells Fargo bank in the amount of $35.00 for a bank fee. On September 15, 2016, the Florida Supreme Court issued its opinion in Wright v. City of Miami Gardens, 200 So. 3d 765 (Fla. 2016). In Wright, the Supreme Court held section 99.061(7)(a)1., as amended by the Florida Legislature in 2011, facially unconstitutional. The 2011 version of section 99.061(7)(a)1., in effect at the time of Ms. Flores' decision to disqualify Respondent, provided in pertinent part: (7)(a) In order for a candidate to be qualified, the following items must be received by the filing officer by the end of the qualifying period: A properly executed check drawn upon the candidate's campaign account payable to the person or entity as prescribed by the filing officer in an amount not less than the fee required by s. 99.092, unless the candidate obtained the required number of signatures on petitions pursuant to s. 99.095. The filing fee for a special district candidate is not required to be drawn upon the candidate's campaign account. If a candidate's check is returned by the bank for any reason, the filing officer shall immediately notify the candidate and the candidate shall have until the end of qualifying to pay the fee with a cashier's check purchased from funds of the campaign account. Failure to pay the fee as provided in this subparagraph shall disqualify the candidate. § 99.061(7)(a)1., Fla. Stat. (2011) (emphasis added). Respondent was disqualified by the City of Opa-Locka based on the 2011 version of section 99.061(7)(a)1., because the $316.00 check was returned, and Respondent failed to pay the required fee before the end of the qualifying period. After striking down the aforementioned version of the statute as unconstitutional, however, the Supreme Court, in Wright, went on to revive the prior version of section 99.061(7)(a)1., in existence before the 2011 amendments. Wright, 200 So. 3d at 779. The prior version provided, in pertinent part, that if a candidate's qualifying check was returned, the candidate was allowed 48 hours after being notified of that fact by the filing officer to pay the fee by cashier's check, "the end of the qualifying period notwithstanding." § 99.061(7)(a)1., Fla. Stat. (2010); Wright, 200 So. 3d at 768. Based on the Supreme Court's decision in Wright and upon advice from the City of Opa-Locka city attorney, on September 15, 2016, Ms. Flores informed Respondent that he could resubmit a check and be allowed to qualify for the special election. On September 16, 2016, Respondent tendered to the City of Opa-Locka two personal money orders issued by Wells Fargo bank in the amount of $316.00 and $20.00, respectively. Accordingly, Ms. Flores, once again, qualified Respondent as a candidate.1/ Against this backdrop, on September 23, 2016, Anna M. Alvarado, an opponent of Respondent in the special election for the City Commissioner seat, filed a sworn complaint with the Commission, alleging that Respondent committed certain campaign finance law violations. On September 28, 2016, the City of Opa-Locka adopted Resolution 16-9249, resetting the special election that had been set for November 8, 2016, and calling for a special election to be held on November 29, 2016, to fill the unexpired term of Commissioner Pinder. Respondent filed another Campaign Treasurer's Report on October 11, 2016, for the period of September 1, 2016, through September 30, 2016. In this report, Respondent reported as an itemized expenditure the $316.00 qualifying fee. Respondent filed an amended M8 Report on October 17, 2016, for the period of August 1, 2016, through August 30, 2016. In the itemized contributions section of the amended report, Respondent deleted the August 10, 2016, $325.00 loan and added the August 10, 2016, $250.00 loan. In the itemized expenditures section of the amended report, Respondent deleted the August 20, 2016, $35.00 bank fee and added the August 19, 2016, $35.00 bank fee. Respondent knew that he was required to report all contributions received and all expenditures made by the campaign on his Campaign Treasurer's Report. Respondent's filing officer notified Respondent that he was required to certify to the correctness of each Campaign Treasurer's Report and that he bears the responsibility for the accuracy and veracity of each report. Respondent's filing officer provided him with a copy of chapter 106 and The Candidate and Campaign Treasurer's Handbook. Respondent read chapter 106. In sum, the Commission failed to demonstrate, by clear and convincing evidence, that Respondent willfully violated sections 106.11(4) and 106.19(1)(d), when he signed the $316.00 check drawn on his campaign account without sufficient funds on deposit to pay the amount of the fee. Respondent did not voluntarily and intentionally bounce the $316.00 filing fee check to the City of Opa-Locka with specific intent and bad purpose to violate or disregard the requirements of the law. Respondent credibly and persuasively testified that he had a committee of volunteers collect campaign contributions; he instructed the committee members to directly deposit the contributions into the Wells Fargo bank account; the committee members failed to deposit contributions into the account; and he was unaware of the account balance when he tendered the fee to Ms. Flores on August 11, 2016. Respondent's testimony was unrefuted. Moreover, it makes no sense that Respondent would intentionally bounce his filing fee check he tendered to Ms. Flores on the last day of the qualifying period, knowing that the consequence of such action would disqualify him from the race under the law existing at that time. The Commission also failed to demonstrate, by clear and convincing evidence, that Respondent willfully and knowingly omitted information from his September 12, 2016, M8 Campaign Treasurer's Report. The Commission contends Respondent failed to disclose the $316.00 filing fee on the report. As detailed above, that check bounced. Nevertheless, Respondent, in fact, reported the $316.00 filing fee check as an expenditure on the first page of the report, although Respondent did not identify the check on the third page of the report as an "itemized" expenditure. Respondent also filed another Campaign Treasurer's Report on October 11, 2016, for the period of September 1, 2016, through September 30, 2016. In this report, Respondent reported as an itemized expenditure the $316.00 qualifying fee. The Commission also contends that although Respondent made a contribution (loan) to his campaign account in the amount of $250.00 on August 10, 2016, he willfully and knowingly reported the amount as $325.00. The Commission further contends that although Respondent made an expenditure to Wells Fargo bank on August 19, 2016, in the amount of $35.00, he willfully and knowingly reported that the expenditure had been made on August 20, 2016. As detailed above, Respondent corrected these errors in an amended report. The Commission also failed to demonstrate, by clear and convincing evidence, that Respondent willfully certified that the campaign's September 12, 2016, M8 Report was true, correct, and complete, when it was not.
The Issue The issues are framed by a notice to show cause/administrative complaint brought by Petitioner against Respondent charging Respondent with violations under 561.29(1)(a) and (c) and 561.58, Florida Statutes. These alleged violations pertain to alleged drug activities on or about the premises for which Respondent holds a license issued by the Petitioner allowing Respondent to sell alcoholic beverages at that licensed premises. Respondent is also accused of maintaining the licensed premises for purposes of illegal drug activities. More particularly Respondent is held accountable for any violations associated with Sections 823.10, 893.03, 893.13(1)(a) and (f), and 893.13(2)(a)5., Florida Statutes.
Findings Of Fact Petitioner regulates the alcoholic beverage industry in Florida pursuant to Chapter 561, Florida Statutes. Among its functions Petitioner issues various licenses which allow alcoholic beverages to be sold. The license number 34-00017, series 1-COP has been issued to Respondent by Petitioner allowing on-premises sales and consumption at Respondent's premises in Jasper, Florida. Petitioner seeks to discipline Respondent's beverage license for reasons discussed in these facts and the conclusions of law section within the recommended order. Randall R. West is a beverage agent employed by the Petitioner. He was assigned to conduct an undercover investigation at Respondent's licensed premises. That investigation commenced in May, 1991 and was concluded in August, 1991. Over that period West tried to ascertain to what extent drug activities were occurring on or about the licensed premises. West talked to a patron in the licensed premises on May 10, 1991. That patron was Gary Cribbs. The discussion concerned the purchase of cocaine. Cribbs told West that he could get one-half gram of cocaine for $50.00. This discussion took place in the main bar area of the licensed premises in an area near the back pool table. After the arrangement for purchase had been made Cribbs approached West in the licensed premises and told West to follow him to the men's bathroom which was located outside the main bar area. To get there one walks out the back door across an open area to the bathroom which is attached to and part of the building proper. Only a few steps separate the back door from the bathroom. Once inside the men's bathroom, which is lighted, Cribbs produced a small container from his wallet. He asked West if he, Cribbs, could use some of the cocaine that he had produced from the wallet. Cribbs took some of the substance and poured it on the top of the toilet lid, chopped it up and snorted it up his nostrils. Then Cribbs' wife came into the men's bathroom and both Cribbs and his wife consumed the cocaine. The balance of the cocaine was turned over to West. On May 10, 1991 at different times the odor of marijuana could be detected in and around the licensed premises but West was uncertain of its origin. On May 15, 1991 West encountered Lou Brown and Charles Burnett at the licensed premises. Lou Brown arrived on a motorcycle in an area behind the premises. While in this area on a concrete foundation five feet from the building, Brown and Burnett smoked marijuana. West returned to the licensed premises on May 17, 1991 and once inside spoke to Charles Burnett. Burnett had approached the beverage agent reference a purchase of marijuana. This was a follow-up to a previous conversation about purchasing marijuana. Burnett asked West if West was still interested in purchasing marijuana and West replied in the affirmative. Burnett asked West to step outside the bar. Burnett said that he could get marijuana inside that was already weighed for a price of $40.00. West gave Burnett $40.00 while they were standing behind the building. Burnett went back inside the bar proper. West could not see where Burnett went in the bar. In a few minutes Burnett approached West in the bar and asked West to go outside. They went to West's vehicle which was approximately 20 feet from the entrance to the establishment. There Burnett produced a bag of marijuana. On May 17, 1991 when Burnett and West had walked through the premises in the direction of the men's bathroom at the back of the building they had observed several people standing outside the back door smoking a marijuana cigarette. When West attempted to gain entry into the men's bathroom the door was partially opened and he observed two additional persons smoking marijuana in the bathroom. On the evening of May 17, 1991 the Respondent was in the licensed premises. West returned to the licensed premises on May 22, 1991 and engaged in a conversation with Charles Burnett. Burnett asked West if West had a marijuana cigarette and West stated that he did not. Burnett asked West if he wanted to buy some marijuana and West said that he did. Burnett asked how much marijuana West wanted to purchase. West said he wanted a quarter of an ounce. This conversation took place while they were standing at the bar counter and it resulted in a purchase of marijuana off premises. On May 22, 1991 while at the licensed premises while going to use the men's bathroom West observed patrons standing just outside the back door of the building engaged in smoking marijuana. During most of that evening the smell of marijuana pervaded the inside of the premises. On two occasions Frank Bell who was the bar manager on duty was observed going out the back door of the premises and smoking marijuana with patrons while standing in back of the building. At this time the front door and back door to the building were propped open. When West returned to the licensed premises on May 24, 1991 he observed that the Respondent was present. Throughout that evening West observed patrons smoking marijuana behind the building outside the back door. Because of the ventilation system that was within the licensed premises the marijuana smoke from outside was being drawn into the premises such that anyone inside could have detected the marijuana smell if familiar with that aroma. On May 24, 1991 West observed three persons outside the rear door of the premises smoking a marijuana cigarette. Those persons were Greg Sapp, Jeff Gritzs and Jack Walker. On May 24, 1991 West was approached by Burnett and asked if West wanted to buy some marijuana. This conversation took place while West was seated at the bar area within the licensed premises. After that conversation West watched Burnett engage in a conversation with Jack Walker. After Burnett and Walker talked Burnett came back to West and told West that he could get a bag of marijuana for $25.00. This second conversation between Burnett and West took place at the bar within the licensed premises. West gave Burnett $25.00 in furtherance of the discussion they had at the bar and Burnett walked around inside the premises and started to exit the rear of the premises. Believing that Burnett was looking for Jack Walker, West went to Jack Walker who was playing a pinball machine within the licensed premises near the front and told Jack Walker that Charlie was looking for him. Charlie refers to Charles Burnett. Walker and West stepped out the rear of the premises and went to a vehicle that was parked directly behind the premises in an alley. That vehicle was parked about 50 feet away from the licensed premises. Walker got into that vehicle and retrieved a bag of marijuana. Walker than handed the bag of marijuana to Burnett, West handed $25.00 to Burnett and then Burnett handed the $25.00 to Walker. Then a marijuana cigarette was rolled at which time while standing in this area Burnett and Walker smoked a marijuana cigarette. West returned to the licensed premises on June 6, 1991. While there he observed a patron, who was determined to be James Alford, engaged in a drug transaction with another patron, Michael Brooks. This transaction took place in the dance floor area of the licensed premises near the front in which Alford passed Brooks a bag of what by appearance was marijuana. Brooks then came over to the area where West was seated and while standing up and speaking in a somewhat loud voice told another person that he had "a big bag of pot" (pot is a slang expression for marijuana) and he then pulled it halfway out of his pants pocket. Subsequent to the events between Brooks and Alford, West approached Alford and asked Alford if Alford had another bag of marijuana for sale. Alford responded that he did for $35.00. West asked if the purchase could be made for $25.00 and Alford said that he would try. This conversation between West and Alford occurred in the licensed premises near the front door in the area of the front pool table. As a result of this conversation Alford gave West a bag of marijuana while they were standing within 20 feet of the front entrance of the building that is the licensed premises. This exchange took place in plain view of anyone coming in or out of the building. On June 6, 1991 Burnett invited West to smoke a marijuana cigarette with him. In furthering the invitation West followed Burnett to the men's room associated with the licensed premises. When they reached the men's room they encountered a Billy Willis and Kevin Mercer. (In the investigation West had observed Billy Willis play records and tapes in the licensed premises in the manner of a disc jockey and had seen Willis turn off the lights at the licensed premises. This does not lead to the conclusion that Willis was an employee there.) The back door was open and Willis was holding a plastic bag with what appeared to West to be marijuana. Willis was putting this substance in a rolling paper. Burnett produced something that he referred to as hash or hashish and this substance was put together with Willis's apparent marijuana and formed into a cigarette by Mercer. The marijuana cigarette that was then passed around and smoked by Burnett, Willis and Mercer, all standing at the back door of the premises just outside, within two feet of the building. On June 6, 1991 while inside the licensed premises Burnett approached West and again asked West if he wanted to step outside and smoke another marijuana cigarette. Burnett and West exited the rear of the premises and encountered a man identified as Austin. Austin produced a marijuana cigarette at which time the cigarette was smoked by Austin, Burnett, Willis and a person named Doug Parr. This occurred within twenty feet of the rear door of the licensed premises. On June 7, 1991 West returned to the licensed premises and engaged in a conversation with Kevin Mercer about purchasing a bag of marijuana and Mercer advised that he could get the marijuana but it would be later before he could obtain it. This conversation took place while the two were standing near the front pool table of the licensed premises. West was then approached by a white male patron who introduced himself as Bruce Adams. At this time West was seated on a stool inside the dance floor area of the licensed premises. Adams told West that he had a marijuana cigarette and invited West to go out and smoke it with him, assuming that West had rolling paper. After this conversation West and Adams stepped out the back door of the premises. Adams produced a plastic bag of marijuana. A marijuana cigarette was rolled at which time Adams smoked the marijuana cigarette and there were several other unidentified persons all standing around that engaged in smoking the marijuana cigarette. This event between Adams and the other patrons took place approximately three feet from the door of the premises. On June 7, 1991 Kevin Mercer approached West while West was standing near the front pool table and asked West if West still wanted a bag of marijuana that had been discussed earlier that evening. West replied in the affirmative. West and Mercer then stepped outside the front entrance at which time Mercer produced a bag of marijuana and handed it to West and West paid Mercer $20.00 for the marijuana. This took place within ten feet of the front door on the sidewalk adjacent to the licensed premises. This transaction was in plain view. On June 8, 1991 West returned to the licensed premises and while there stepped out back to a car that was parked behind the licensed premises in the alley. Approximately nine people were seated in that car. They were engaged in smoking a substance that was said to be hash or hashish. They were using a coke can converted into a pipe. There was a conversation that went on in which Jack Walker said the cost of a block of this substance being described as hash would be $150.00. After the events outside with the nine persons in the automobile West returned to the licensed premises where Billy Willis was sitting at the disc jockey booth playing records and tapes. West engaged in a conversation with Willis and asked if he had any hash for sale. Willis advised that he had a small amount which he produced while seated at the D.J. booth and sold to West for $10.00. Later a conversation took place between West and Michael Brooks while seated in a booth across from a bar in reference to hash. West asked Brooks if he had any hash for sale and West advised that he did and directed West to follow him to the men's bathroom. While in the bathroom Brooks produced a block of suspect hash and West told him he would take $20.00 worth. Brooks took West's knife and cut off a chunk of the suspect hash and handed it to West. Willis and Brooks had been among the nine persons in the vehicle located out behind the licensed premises earlier in the evening. That's how West became familiar with the idea of hash and its possible availability for sale. Later laboratory testing of the substances which Willis and Brooks sold to West did not reveal that the substances were hashish. Later on June 8, 1991 West engaged in a conversation with Kevin Mercer while standing near the pool table. This conversation was about the purchase of marijuana. West gave Mercer $60.00 in advance to buy marijuana which Mercer said he could get. Subsequently Mercer delivered marijuana to West outside the front door of the licensed premises within a foot of the door. On June 8, 1991 West spoke to Jack Walker about purchasing marijuana. They went out back within ten feet of the back door and West paid $80.00 to Walker for the purchase of marijuana. West went back in the licensed premises on June 8, 1991 and engaged in a conversation with Michael Brooks. This conversation took place while seated in a booth across from the bar area. Brooks invited West to go and smoke hash with him. They exited the back door along with another patron named Robert Corey. They stood directly behind the men's room where the roof overhangs. Brooks had a coke can stashed in the rafters above the woodwork of this overhang. That coke can had been converted into a pipe. At that point Corey and Brooks smoked suspect hash. West had been advised that it was hash and it had that appearance. In addition to the events that have already been described concerning June 8, 1991, West made observations of several groups of people at different times smoking marijuana behind the licensed premises and during these occasions the aroma of the marijuana could be detected inside the licensed premises proper. West returned to the licensed premises on June 13, 1991. While there he observed Billy Willis standing out back near the men's bathroom. Willis advised West that he had enough marijuana for a marijuana cigarette and asked West if he had rolling paper. West gave Willis rolling paper at which time a marijuana cigarette was rolled and Willis smoked it. While Willis was engaged in smoking the marijuana cigarette, Frank Bell, the bar manager, exited the back door of the premises and looked over at West and Willis. West and Willis greeted Bell and Bell stepped back into the premises. Later on June 13, 1991 while inside the licensed premises seated at the bar, Charles Burnett advised West that he had marijuana. West and Burnett went outside near the men's bathroom and Burnett rolled a marijuana cigarette and smoked it. West observed the smoke from the marijuana cigarette wafting into the licensed premises. On June 13, 1991 while in the licensed premises West asked Jack Walker if Walker had marijuana to sell and Walker replied in the affirmative. Walker said that the marijuana had to be weighed. Later Walker was seated at the bar and West approached Walker and asked about the marijuana purchase. Walker advised West to step out back. Walker and West went into the men's bathroom where Walker produced the plastic bag of marijuana and a set of handscales. Walker weighed the bag of marijuana and advised West that it would cost $45.00. West paid Walker $40.00 and gave him the balance of the money later. On June 13, 1991 while seated at the bar next to Amy West, a patron, the female patron advised West that she had some "speed" also known as amphetamines. West asked the patron how much it would cost. The patron said it would be free. She put her purse on top of the bar and retrieved a pill bottle and produced a couple of white pills. She handed West four of the pills and told him that they were "white crosses". Later laboratory testing revealed that this was not a controlled substance. The pills were epherdrine. In a further conversation on June 13, 1991 between West and Amy West while seated at the bar, discussion was made about cocaine. Amy West asked the beverage agent if the beverage agent would sponsor half the money necessary to buy half a gram of cocaine. The beverage agent said that he would and was told by Amy West that the beverage agent's share would cost $50.00. West, the beverage agent, put three twenty-dollar bills on top of the bar and asked Frank Bell for change for one of those twenty-dollar bills and then slid $50.00 across the bar to Amy West. She took the money and handed it to Gary Wayne Boyd who was seated next to her. Later Boyd asked beverage agent West to step out front with him. Beverage agent West, Amy West and Boyd then went out front to a pickup truck that was parked there. Boyd and Amy West were seated in the pickup truck and Boyd produced a quantity of suspect cocaine. Boyd divided the cocaine and delivered approximately half of that cocaine to beverage agent West. This took place within 40 or 50 feet of the front door. On June 14, 1991 West returned to the licensed premises and while in the premises seated at the bar engaged in a conversation with Kevin Mercer about the purchase of marijuana. He gave $40.00 to Mercer to purchase the marijuana. Later Mercer delivered the marijuana to West while standing outside the front door of the licensed premises within about 40 feet of that door. The delivery took place in a corridor between the licensed premises and another building. Later on June 14, 1991 West engaged in a conversation with Jack Walker while seated at the bar counter. Walker had squeezed between West and the Respondent at the bar. At that time Walker told West that he had a few bags of marijuana for sale at $50.00. West and the Respondent were seated and Walker placed himself between those two individuals. Walker was not seated. West had a further conversation with Walker at the back pool table and they departed to an area behind the men's bathroom at the licensed premises. There they encountered a man named Bart Harvey. Harvey gave two bags of marijuana to Walker who in turn gave the marijuana to West and West paid Walker $50.00. On June 14, 1991 during the course of the evening West observed the odor of marijuana inside the licensed premises and he observed persons outside the premises smoking marijuana. The aroma of marijuana was even noticeable in the lobby of the licensed premises because of the ventilation system and during this time Respondent and his wife were present in the licensed premises. On June 15, 1991 West returned to the licensed premises and engaged in a conversation with James Thomas Alford concerning the purchase of marijuana. This conversation took place in front of the premises between two parked cars. West gave Alford $50.00. Alford later approached West while West was in the licensed premises and asked West to step outside with him. Alford and West stepped outside to an area between two cars parked in front of the premises at which time Alford delivered a bag of marijuana to West. This location was within 30 feet of the front entrance to the licensed premises. A patron saw this delivery being made and asked if he could purchase marijuana from the beverage agent. On June 19, 1991 West returned to the licensed premises and engaged in a conversation with Amy West. Amy West asked the beverage agent if he wanted to smoke a marijuana cigarette with her at which time Amy West, Charlie Burnett, Gary Wayne Boyd, and the beverage agent exited to the rear of the premises. They walked around behind the men's bathroom. They then came back in the licensed premises and went to the dance floor area side. When they entered the area of the dance floor inside the premises, Frank Bell, Jack Walker, and another unidentified white female and an unidentified white male were there smoking marijuana. Another marijuana cigarette was rolled by the unidentified white male and it was smoked. While they were in this location a patron Bobby Don Staten banged on the door and hollered out "Everybody put your hands on top of the bar." This person Staten was pretending to be a police officer. On June 20, 1991 West went back to the licensed premises. While there he stepped out the back door near the men's bathroom and observed Frank Bell and Lou Brown engaged in smoking a marijuana cigarette. This was approximately three feet from the exit at the back. On June 20, 1991 West engaged in a conversation with Kevin Mercer reference the purchase of marijuana. This was related to a purchase of marijuana off premises. This conversation with Kevin Mercer took place in the area where Lou Brown and Frank Bell had been observed smoking marijuana. The conversation between West and Mercer was overheard by Frank Bell, the bar manager. On June 24, 1991 West returned to the licensed premises and while seated at the bar was approached by Gary Wayne Boyd. Boyd told West that he had cocaine for sale. Later Boyd came back to the bar where West was seated and motioned for West to follow him outside. They went to the men's bathroom. There West observed Robert Corey and Charles Burnett. Burnett was sitting backwards on the toilet making lines of what appeared to be cocaine on the tank lid to the toilet. West considered this to be cocaine given its appearance. While Burnett was conducting this activity Boyd and West were standing at the doorway. Boyd produced a white powdery substance and West asked him how much it would cost to purchase that substance. Boyd said that a gram would cost $100.00. West told Boyd that he wanted to buy a gram and gave Boyd $100.00 to purchase the cocaine Boyd handed him. On June 25, 1991 West returned to the licensed premises and was approached by Billy Willis while seated at the bar. Willis advised that he had a joint, meaning a marijuana cigarette. He invited West to step out back with him for the purpose of smoking marijuana. While standing just outside the back door of the premises Willis, Charles Burnett and another patron identified as Farmer smoked the marijuana cigarette. At that time the back door was closed; however, patrons were exiting the back door to use the men's bathroom. West returned to the licensed premises on July 17, 1991. During that evening West and Jack Walker stepped out the back door of the premises. On the way out Walker made a motion for Walt the bartender on duty to come with West and Walker. While standing just outside the back door Walker produced a small amount of marijuana, rolled a marijuana cigarette and Walt and Walker engaged in smoking the marijuana. They were within three feet of the back door. On July 18, 1991 while at the licensed premises West went to the men's bathroom and observed Robert Corey and an unidentified white female behind the premises engaged in smoking marijuana. Corey and this woman were within fifteen feet of the door. The odor of the marijuana being smoked could be detected inside of the premises. Corey and the woman were not trying to hide their activities in smoking the marijuana. West returned to the licensed premises on July 19, 1991. He engaged in conversation with Jack Walker about the purchase of a quarter pound of marijuana while standing at the front pool table of the licensed premises. Later, while seated in the dance floor area of the bar, Walker asked West if he had a pocket knife. West replied in the affirmative and was told to follow Walker outside that he had something to share with him. They went into the men's bathroom at the licensed premises and while there Walker produced a quantity of what appeared to be cocaine and made it into lines on the toilet lid. Walker told West that this substance was cocaine. Walker snorted the suspect cocaine up his nose and they reentered the licensed premises. On July 20, 1991 West returned to the licensed premises and went with Charles Burnett, Corey and Farmer out back. While outside near the back door Corey produced a marijuana cigarette while standing near the air conditioned compressor. Lou Brown and two other unidentified persons were already in the area. Those three individuals were engaged in passing a marijuana cigarette between them and were smoking it. While these activities were occurring other patrons stepped out of the back door of the premises either to use the bathroom or just to look around. The patrons were in a position to observe the marijuana being smoked. The back door was also propped open. On July 22, 1991 West returned to the licensed premises. He was seated at the bar and there were only about five patrons present at that time. The patron known as Butch Brown entered the premises with his wife and hollered out "Who's got the best dope around." Jack Walker walked up to Butch Brown and produced a marijuana cigarette from his shirt pocket. This action by Walker could be clearly observed. Brown then produced his own marijuana cigarette from his shirt pocket. Brown and Walker compared the marijuana cigarettes while standing at the bar. Walker then said in a voice loud enough to be heard that when this "joint was gone he had a bag that he would smoke." These events took place in the licensed premises standing at the corner of the bar near the front pool table. Shortly thereafter West, Walker, Brown and Burnett went out behind the men's bathroom at which time the marijuana cigarette that Brown had earlier and the marijuana cigarette that Walker had earlier were smoked by Walker, Brown and Burnett. They were standing under the roof overhang near the bathroom. On July 23, 1991 West returned to the licensed premises and while standing out back he engaged in a conversation with Jack Walker. Charles Burnett approached them and produced a marijuana cigarette and smoked it. This was within ten feet of the rear entrance to the licensed premises. Later on July 23, 1991 West and Burnett were seated at the bar when they were approached by Walker who asked them to step out back with him. The three of them entered the men's bathroom at which time Walker produced a quantity of suspect cocaine. Walker put the suspect cocaine on the back of the toilet at which time Burnett began chopping the suspect cocaine into a finer powder and putting it into lines. Walker and Burnett inhaled the suspect cocaine up their nostrils. While this was occurring the door to the bathroom was closed. While in there someone banged on the door and said, "Hey, now ya'll get out of there with them drugs." On July 23, 1991 while back inside the licensed premises Jack Walker was seated at the corner of the bar near the front pool table Walker motioned West to come over to him at which time Walker handed West a bag of marijuana in an open manner. This was done by pulling the bag of marijuana out of his pants pocket and handing it to West. This transfer occurred at the corner of the bar near the front pool table. West then stepped out back of the licensed premises with the bag of marijuana at which time Charles Burnett rolled a marijuana cigarette from that bag. Kevin Mercer and Charles Burnett engaged in smoking the marijuana cigarette. This took place within ten feet of the back door of the licensed premises. On July 23, 1991 when West reentered the licensed premises Burnett had the previously described bag of marijuana that belonged to Jack Walker. Burnett was seen to walk over to where Walker was seated and in an open manner handed the bag to Walker. On July 31, 1991 West returned to the licensed premises and was seated at the bar with Charles Burnett on his right and Jack Walker to Burnett's right. West overheard a conversation between Burnett and Walker in which Burnett was asking Walker about where something was. He observed Burnett walk to the dance floor area of the premises which was closed. Burnett then came back from the dance floor area and handed the person attending the bar a package wrapped up with a wrapper made of a brown paper bag. He asked the person tending bar to put it in the microwave for ten seconds. The bartender placed the package in the microwave in the bar area for ten seconds. After ten seconds he opened the door and smoke rolled out of the microwave and the smoke revealed the presence of marijuana which pervaded the licensed premises. Burnett then took possession of the marijuana. Burnett stated that a hole needed to be bored into the package of marijuana until his hands could cool down and then Burnett placed the package in his pants pocket. Frank Bell, who was the bar manager, was present playing the pinball machine. When the odor of marijuana started he made a comment to Burnett to not be cooking that marijuana in his microwave anymore. On August 2, 1991 West went back to the licensed premises and noticed that Respondent was present. On that evening Walker approached West while West was standing at the pinball game and asked West if he wanted to buy an ounce of marijuana. West replied in the affirmative. Later Walker and West stepped out back of the licensed premises and while standing there Walker produced a plastic bag containing suspect marijuana and West purchased it from him for $65.00. There was a pickup truck parked next to the back door and the purchase was made while standing at the back of the pickup truck. On August 3, 1991 West returned to the licensed premises. He saw Lou Brown, a patron, arrive at the premises on his motorcycle. Several other patrons and West stepped outside to take a look at the motorcycle Brown was riding. The motorcycle was parked directly in front of the premises. At that time Lou Brown produced a marijuana cigarette and lit it and began smoking it and passing it to Charlie Burnett to smoke as well as Farmer. Farmer was squatting down next to the front door. Frank Bell opened the door, poked his head out, looked at the motorcycle and said "nice bike." When Bell did this, Farmer who was engaged in smoking the marijuana cigarette, had his head turned toward Frank Bell and blew marijuana smoke in the direction of Bell. On August 3, 1991 West went to the men's bathroom and saw several patrons smoking marijuana just outside the back door. He made a similar observation when going to the men's bathroom later on that evening. West returned to the licensed premises on August 8, 1991. Burnett invited West to step out back of the premises to smoke marijuana with him. Once out back Burnett produced a bag of marijuana and a marijuana cigarette was rolled. Farmer and a white female identified as "Ditty-Bop" joined in with Burnett in smoking marijuana. They were within ten feet of the back door. On August 8, 1991 Michael Brooks invited West to step out back of the premises to smoke marijuana with him. They were accompanied by Billy Willis and once outside Willis and Brooks went in the men's bathroom and with the door opened rolled a marijuana cigarette. Once the cigarette was rolled Brooks and Willis while standing behind the premises just outside the back door smoked the marijuana cigarette. They were within two or three feet of the back door when smoking the marijuana. On August 9, 1991 West returned to the licensed premises. At that time he saw the Respondent and the Respondent's wife present. He also observed Frank Bell open the front and back doors and turn on the ventilating fans. When this was done West observed people standing outside the back door. He also observed that the smell of marijuana was sucked into the premises by the ventilating fans. On August 9, 1991 West and Burnett went to the rear of the premises near the men's bathroom. Burnett produced a plastic bag of marijuana. A cigarette was rolled and Burnett smoked it. While Burnett and West were standing right at the corner of the men's bathroom, West observed the Respondent exit the premises. The Respondent entered the men's bathroom, exited the bathroom and looked back at West and Burnett. When the Respondent looked back Burnett was engaged in smoking the marijuana cigarette. Burnett was smoking the cigarette in an open manner. When Burnett would exhale the smoke of the marijuana it entered in through the back door of the premises. Respondent took no action to stop Burnett from smoking marijuana. On August 9, 1991 while West was standing in front of the licensed premises, he ordered a bag of marijuana from Kevin Mercer and paid $25.00 in advance. Back inside the licensed premises seated near the lift windows inside the dance floor area Mercer approached West and asked him to step out back. They went out the back of the licensed premises and near the back door Mercer delivered a bag of marijuana to West. The delivery was made in an open manner within one foot of the exit on the side of the licensed premises where the D.J. booth is located. On August 10, 1991 West entered the licensed premises and engaged in a conversation with Walker while standing next to the pool table. This discussion involved the purchase of marijuana. Walker told West that he had a bag of marijuana in his pocket and would have to look at it and see what it was worth. Walker and West stepped out back of the premises just outside the door. Walker produced a plastic bag of marijuana and told West that it would cost $20.00. West paid $20 for the marijuana. They were within two feet of the back door at that time. Later on August 10, 1991 Burnett asked West to go outside and smoke a marijuana cigarette with him. As they were exiting West leaned over and told Frank Bell, bar manager, that West and Burnett were going outside to smoke a joint, meaning marijuana. Bell replied "good, I'll be right out". Later Burnett, Robert Corey and Frank Bell engaged in smoking a marijuana cigarette outside. West returned to the bar on August 15, 1991. When he entered the bar the man named Walt was tending the bar. There were approximately eight patrons present. West ordered a beer and asked Walt where everybody was located. Walt explained that people were in the other portion of the licensed premises known as the dance floor, which was shut off and the door closed and the windows that separate the dance floor from the other part of the licensed premises were pulled down. West entered the dance floor area and saw several patrons. Those patrons were at the back of the dance floor near a service bar. Among them was Jack Walker. He commented that he had a bag of "pot," meaning marijuana, to smoke a joint from. Walker was trying to explain to Charlie Burnett where the bag of "pot" was. He explained that it was in a Budweiser beer box next to the bar on the other side, that is the main part of the premises. Burnett was having difficulty understanding Walker's directions and West offered to go get the marijuana. He walked over to the main part of the bar where approximately six patrons were present. He went to the boxes that were stacked in the area of the bar in the main part of the licensed premises. The box that he was looking for was among boxes where empty beer bottles are kept. He found the marijuana in a baggie and removed it and observed Walt the bartender watching what he was doing. He retrieved the bag of marijuana with his left hand and carried it around the main bar area back to the dance floor area. Once back in the dance floor area a white female patron named Sherry rolled a marijuana cigarette on top of the service bar in the dance floor area. That cigarette was then passed around and smoked. Eventually the persons in the dance floor area went back to the main part of the bar. At that time, Walt the bartender commented that the smell of marijuana was stinking up the bar. His reference was to "pot" smelling up the bar, meaning marijuana. Walt then went and turned the big ventilating fan on located in the wall and this cleared the marijuana smoke out. Later Burnett asked West to go smoke a marijuana cigarette with him at which time Burnett and West went through a door at the back of the dance floor area. Walt opened the door behind them in the dance floor area and told West and Burnett not to smoke any more dope back there. He said that if you want to roll one back there you can roll it but don't smoke it back there. Burnett could not find any rolling papers to prepare a marijuana cigarette so West and Burnett exited the dance floor area and went back to the main area of the bar. Subsequently, Burnett, Walker, Billy Willis, Sherry and West entered the dance floor area of the premises and Burnett produced a marijuana cigarette and rolling papers and a marijuana cigarette was rolled and smoked. There were times other than the dates described when beverage agent West entered the licensed premises in the period May through August, 1991 and nothing irregular occurred. On the Friday nights when Respondent would be in attendance there was a great deal of noise inside the licensed premises. Concerning an awareness of the possible problems with drugs in the licensed premises, on April 19, 1990 Chief of Police John Franklin Osborn of Jasper, Florida spoke with the Respondent at Respondent's instigation. Chief Osborn also spoke with the sheriff's office of Hamilton County about getting an undercover officer to examine that potential problem. Osborn had previously spoken with the Respondent in November or December, 1990 about having an undercover person in the bar to look at the issue of possible drug activities there. At that time Osborn checked with the Hamilton County Sheriff's Office about an undercover officer doing surveillance. An undercover surveillance or investigation by the sheriff's office was not conducted. In conversation Respondent had told Osborn that if sales of drugs were going on in the licensed premises the Respondent wanted to do something about it. Osborn described the alley behind the licensed premises as one in which lighting is available at the local telephone office at the opposite end of the alley from the licensed premises. Osborn is also aware that a light exists in the men's bathroom of the licensed premises which provides light immediately outside that convenience. There are no lights in the alley proper. His description of the lighting is that it is medium quality lighting and that at night you can identify people if you are in the alley but if you are outside the alley you cannot look into the alley and identify who the people are. Osborn established that no drug arrest had been made in the licensed premises other than arrests associated with the case that has been described here. Osborn heard the Respondent tell Jack Walker to leave the licensed premises on one occasion, but the Respondent allowed Jack Walker back into the bar at a later date. The nature of the patrol activity around the bar area was once on Friday and once on Saturday night. This refers to patrol activity by the Jasper, Florida Police Department. Margaret Bell, who is the sister-in-law of Frank Bell, had managed the licensed premises in the past, as recently as the summer of 1990. She describes the Respondent's instructions to her were that she not allow drugs, unauthorized liquor, or fighting, and to call Respondent if problems occurred. In her experience the Respondent would be at the bar on Friday night. Respondent would return on Sunday or Monday morning to check up on the week's business. Frank Bell who worked at the bar with his sister-in-law, Margaret Bell, had been informed of Respondent's conditions about misconduct in the bar. Frank Bell was recommended to replace his sister-in-law as bar manager and was the manager in the period of the subject investigation. The recommendation came from Margaret Bell. Margaret Bell worked on July 5 and 6, 1991 as an employee under the management of Frank Bell and did not observe any problems in the bar. She established that Billy Willis is not an employee of the bar but someone who was allowed to play the records and tapes as disc jockey and would be given chips and cokes in return for his service. Margaret Bell identified that on Friday and Saturday night with the noise level up you might have to yell at the person next to you to be heard above the din. Margaret Bell identified that to get the kind of ventilation necessary to deal with the number of people in the bar in the summer that the employees would open the front door in the dance area and the back door on the main bar side. Margaret Bell states that she has smelled marijuana in the bar when the exhaust fans were on and had told patrons to leave from the area behind the bar. She also told persons out front who were smoking marijuana to leave. These requests to have these persons leave were in accordance with the Respondent's instructions to her. Margaret Bell has also seen Frank Bell ask patrons to leave five or six times. Margaret Bell did not call law enforcement when she smelled marijuana out back which had occurred on seven to nine occasions. Additionally, she did not post signs about drug usage or receive any specific instructions about drug matters beyond those described before concerning Respondent's remarks to her. Margaret Bell was told that Frank Bell had smoked marijuana during the period when she and her husband had first been married but she had not witnessed this personally. Frank Bell was the bar manager from August, 1990 to August 23, 1991. His instructions as bar manager, based upon what the Respondent told him about management, was that no drugs and no unauthorized liquor would be allowed in the bar. Respondent made mention of those basic rules on many occasions. Frank Bell identified the fact that he had told people to leave the outside area who were smoking marijuana. In this connection Frank Bell had asked people to leave the back door area on many occasions. The record does not reveal that he had called for law enforcement assistance to deal with this problem. Frank Bell didn't post signs concerning prohibition against drug usage in the licensed premises. Frank Bell's arrangement with the Respondent concerning his employment status was that he would share 50% of the net profits for his work as manager. Frank Bell identified that Jack Walker, Gary Wayne Boyd, Billy Willis, Kevin Mercer, and Charles Burnett are customers of the licensed premises. Frank Bell has also experienced the exhaust fans pulling marijuana smoke into the licensed premises. Frank Bell was arrested based upon facts that are described, and charged with a criminal law violation based on those facts. Respondent has been associated with the establishment for 33 years and has been the licensee since 1977. His practice in the past has been to hire someone to run the licensed premises and to split the profits with them. He is typically at the licensed premises on Friday. His instructions for management are no drugs, unauthorized liquor, fighting or card games. Respondent corroborates that the noise level on Friday night is loud and that you need to be close to the person that you are conversing with to hear and be heard. Respondent has never overheard people discussing drug transactions inside the bar. In the one instance where a transaction was discussed in his presence he did not hear because he has impaired hearing. Respondent in describing his conversations with Chief Osborn spoke in terms of having the Chief check on the possibility of drugs at the licensed premises, although Respondent says he has never seen drugs in his business. He has smelled the marijuana smoke in the place. Respondent has smelled the odor of marijuana on three or four occasions and that led him to tell Frank Bell or the person running the bar to tell people to leave who were smoking the marijuana. Again, the record does not reveal that Respondent sought the assistance of law enforcement on these occasions. Respondent has never seen a drug transaction on or about the premises. Respondent's attendance at the bar is usually from 7:00 p.m. until closing on Friday nights. Otherwise he just drops in occasionally. Respondent has not put up lights out back so that patrons could be seen more clearly and their activities monitored, nor has he put signs up concerning the prohibition against drugs and he has not asked the Petitioner, local police department, or sheriff's office to talk to employees about drug problems.
Recommendation Based upon a consideration of the facts found and conclusions of law reached, it is recommended that a final order be entered which revokes license no. 34-00017, Series 1-COP held by the Respondent. RECOMMENDED this 2nd day of October, 1991, in Tallahassee, Florida. CHARLES C. ADAMS Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 2nd day of October, 1991. APPENDIX TO RECOMMENDED ORDER, CASE NO. 91-5349 The following discussion is given concerning the proposed facts of the parties. Petitioner's Facts Paragraphs 1-5 are subordinate to facts found. Paragraph 6 is subordinate to facts found, except with the reference to Billy Willis as being an employee of the Respondent. That reference and others that suggest that Willis was an employee is incorrect. Paragraphs 7-37 are subordinate to facts found. Paragraph 38 is subordinate to facts found with the exception that the facts were not presented to show that the odor of burning marijuana was prevalent inside the licensed premises. Paragraphs 39-47 are subordinate to facts found as is Paragraph 48 with the exception of the proposed fact that Respondent did a "double take when he came out of the men's restroom." That is rejected. Paragraphs 49-51 are subordinate to facts found. Paragraph 52 is rejected. Paragraphs 53-57 are not necessary to the resolution of the dispute. Paragraph 58 is subordinate to facts found. Paragraphs 59 and 60 are not necessary to the resolution of the dispute. Paragraphs 61-63 are subordinate to facts found. Paragraph 64 is not necessary to the resolution of the dispute. Paragraphs 65-69 are subordinate to facts found. Paragraph 70 is not necessary to the resolution of the dispute. Respondent's Facts Paragraph 1 in the initial sentence is subordinate to facts found. The balance of that paragraph is not necessary to the resolution of the dispute. As to Paragraph 2 while the 1977 sketch of the licensed premises that was filed with the application did not show the men's bathroom in the same location as it was in 1991, the men's bathroom in 1991 is still considered part of the licensed premises. Paragraphs 3-11 are subordinate to facts found. Paragraph 12 is rejected. Paragraph 13 is subordinate to facts found. Paragraph 14 is rejected in that Chief Osborn described the available lighting behind the licensed premises as moderate. Paragraphs 15-18 are subordinate to facts found. Paragraph 19 is rejected in that Respondent indicated that he had some belief that marijuana was used outside the premises on occasion based upon its odor. Paragraph 20 is subordinate to facts found. Paragraph 21 is rejected. COPIES FURNISHED: Nancy C. Waller, Esquire Department of Business Regulation 725 S. Bronough Street Tallahassee, FL 32399-1007 Donald K. Rudser, Esquire Post Office Drawer 1011 Jasper, FL 32052 Richard W. Scully, Director Division of Alcoholic Beverages and Tobacco 725 S. Bronough Street Tallahassee, FL 32399-1000 Donald D. Conn, General Counsel Department of Business Regulation 725 S. Bronough Street Tallahassee, FL 32399-1000
