The Issue The issues presented are whether Respondent properly terminated Petitioner from his employment as a deputy sheriff for alleged insubordination in violation of Chapter 89-404, Section 8, Laws of Florida, as amended by Chapter 90-395, Section 8, Laws of Florida (the Civil Service Act) and Respondent's General Order Section 3-1.1, Rule and Regulation 5.17(a), and, if not, whether Respondent should reinstate Petitioner to his former position with back pay, benefits, and seniority.
Findings Of Fact Respondent is a constitutional officer of the State of Florida. Respondent is responsible for providing law enforcement and correctional services within Pinellas County, Florida. At all times pertinent to this case, Respondent employed Petitioner as a deputy sheriff, and Petitioner was subject to relevant rules and regulations identified in the record as General Orders and Rules. Sometime in July 2004, Ms. Caroline Hart, a private citizen, communicated to Petitioner that she had previously been the subject of inappropriate sexual misconduct from Deputy Sheriff Gerald Akins when Deputy Akins responded to a call from Ms. Hart within the city of Dunedin, Florida. Ms. Hart knew Petitioner from a previous relationship. Petitioner was uncertain of the procedure he should follow, and sought advice from Corporal James Cooper, Petitioner's immediate supervisor. Corporal Cooper was the acting sergeant for their squad. No sergeant was scheduled to be on duty that night when the squad was to begin its shift. Petitioner telephoned Corporal Cooper and reported the accusations by Ms. Hart. Corporal Cooper assured Petitioner that Petitioner had followed the correct procedure and that Corporal Cooper would report the information to Sergeant Michael Rogers, the shift commander for the shift that included their squad and that of Sergeant Rogers. During the conversation between Corporal Cooper and Petitioner, Corporal Cooper stated that Petitioner should not discuss the matter with Deputy Akins. Petitioner subsequently telephoned Deputy Akins and told him about the accusations by Ms. Hart. Respondent alleges that when Petitioner communicated with Deputy Akins Petitioner committed insubordination by "refusing to obey a lawful order" from Corporal Cooper within the meaning of General Order Section 3-1.1, Subsection 5.17(a)(the rule). Petitioner asserts that the statement by Corporal Cooper was advice, rather than an order, and that Petitioner did not commit insubordination. The factual issue presented is whether Corporal Cooper ordered Petitioner not to speak to Deputy Akins. A finding of insubordination requires a preponderance of evidence to show that Corporal Cooper intended to issue an order, that the express words used by Corporal Cooper clearly stated an order, that Petitioner understood the statement to be an order, and that Petitioner intentionally refused to follow an order. Relevant rules do not define terms such as an "order" or "refusing an order" and do not distinguish an "order" or an "instruction" from "advice." The trier of fact defines relevant terms based on the plain and ordinary meaning of relevant terms as they are defined in The American Heritage Dictionary of the English Language, 4th ed., at 25, 1238, and 1469 (Boston 2000), and as explained in relevant testimony during the hearing. As the Chief Deputy explained during his testimony: The terminology that we use is a lawful order. I'm not certain that there is a specific definition within the policies. My understanding of the . . . the term order . . . in the context of our rules and regulations is basically the definition that I guess you would refer to in a dictionary in terms of when an order is given. Transcript (TR) at 220. Corporal Cooper clearly intended to order Petitioner to refrain from talking to Deputy Akins. Corporal Cooper assumed in his own mind there was a possibility for either a criminal or internal investigation, or both. Consistent with standard operating procedures in either type of investigation, Corporal Cooper intended to preserve the opportunity for investigators to "blind side" Deputy Akins by not giving him a head's up before questioning him. A preponderance of evidence does not support a finding that Corporal Cooper ever articulated the disputed order. The words used by Corporal Cooper to articulate the alleged order are not in evidence. Corporal Cooper does not recall what he said to Petitioner. The words used to communicate an order are essential to the existence of an order and to an understanding in the mind of a recipient, such as Petitioner, that he is receiving an order. As the Chief Deputy explained during his testimony: Obviously you need to be clear as to what words were used at the time when Corporal Cooper spoke with Deputy Collinsworth as it related to any communication with Deputy Akins. TR at 221-222. Corporal Cooper does not recall the exact words he used to communicate with Petitioner. Petitioner understood Corporal Cooper to advise Petitioner not to contact Deputy Akins. Corporal Cooper and Petitioner were the only parties to their conversation. The exact words used by Corporal Cooper, if they were in evidence, must also be interpreted in the context of the conversation with Petitioner. In response to a question from the trier of fact concerning the distinction between an order and advice, the Chief Deputy explained: And I think that the best way to describe that is in the context of . . . the words used. . . . [T]here would be some question as to the specific verbiage that was used and putting that into context as you made your decision. TR at 221-222. The conversation between Corporal Cooper and Petitioner arose in the context of Petitioner soliciting advice from Corporal Cooper. Corporal Cooper gave Petitioner advice in the same conversation in which he intended to "instruct" Petitioner to refrain from talking with Deputy Akins. However, Corporal Cooper did not verbally distinguish the advice from the instruction or clearly segue from advice to an order. Conflict testimony from Corporal Cooper during direct and cross examination elucidates the ambiguous context of the conversation with Petitioner. During direct examination by counsel for Respondent, Corporal Cooper testified that he gave Petitioner an instruction in response to Petitioner's request for advice: Deputy Collinsworth had called. He was upset. He stated he needed some advice. Q. Did you give Mr. Collinsworth some advice regarding his dealings with Ms. Hart? A. Yes. I told him not to talk with her any further, ignore her phone calls and not to have any personal contact with her. Q. And what did you tell Mr. Collinsworth about the allegations that Ms. Hart had made pertaining to Deputy Akins? A. Well . . . I told him that he started at the right spot and that I was going to have to get with Sergeant Rogers, because he was our shift commander at the time, and present the information to him and see where it goes from there. Q. And did you give . . . Deputy Collinsworth any other instructions about how he should deal with this information? A. I did tell him not to contact Akins, so I wanted to get a word for word from Akins. I didn't want him to have a head's up. (emphasis supplied) TR at 53-55. On cross-examination, Corporal Cooper did not recall the exact words he used to communicate with Petitioner and cast the conversation with Petitioner in a different light. In relevant part, Corporal Cooper testified: Q. And Shane was off duty to the best of your knowledge? A. Yes. Q. 'Cause he worked with you on the same shift, is that correct? A. Yes. Q. And you gave advice to Deputy Collinsworth about this whole situation, didn't you? A. Yes. Q. And some of your advice was to terminate all the phone calls with Ms. Hart and all the communication and all that, is that correct? A. Yes. Q. And that wasn't an order, was it? A. No. Q. Now when you were testifying on direct you mentioned that you went into the conversation about what to do with Akins, is that correct? A. Yes. Q. Did you preface anything in between the conversation about Hart and now talking about Akins, did you preface it with anything such as, well, now this is an order? Did you make any suggestion that you were changing from advice to an order? A. Not in that manner, no. Q. And as a matter of fact you don't remember what you said verbatim, is that correct? A. That's correct. Q. As a matter of fact you could have said I don't think you should call him. Could you have said that? A. Yes. Q. And that wouldn't be an order, would it? A. No. Q. And you could have also said I don't think it's a good idea to call him. Could you have said that? A. Yes. Q. And if you did indeed say that, that wouldn't be an order, would it? A. No. Q. And you could have also said, no, I wouldn't. Why get him upset? You could have said that, couldn't you? A. Yes. Q. And had you said that, that wouldn't be an order, would it? A. No. Q. Deputy Collinsworth has never disobeyed your orders in the past, is that correct? A. Correct. (emphasis supplied) TR at 69-71. Petitioner's understanding that Corporal Cooper advised, rather than ordered, Petitioner not to talk to Deputy Akins was corroborated by Deputy Akins. At a time more proximate to the incident, Petitioner asked Deputy Akins not to tell anyone about their conversation because Corporal Cooper had "advised" Petitioner not to discuss the matter with Deputy Akins. In relevant part, Deputy Akins testified: Q. Did Deputy Collinsworth tell you whether you should expect a call from Corporal Cooper? A. No, he did not. Q. Do you recall how this conversation concluded with Deputy Collinsworth? A. He stated that if anyone asked if we had spoken, to say no, we had not. Q. And did you ask him why he was asking you to do that? A. Yes. Q. And what did he say in response to that? A. Because he was advised by Corporal Cooper not to talk to me. . . . I don't remember verbatim word by word how the conversation went, but . . . I'm absolutely positive of the context of the conversation and how it was said. (emphasis supplied) TR at 112 and 116-117. It is undisputed that advice is not an order. Advice is a recommendation or suggestion. An order is a command or instruction given by a superior to a subordinate to act or to refrain from an act. The words used by Corporal Cooper and the context of the conversation with Petitioner did not create an understanding in the mind of Petitioner that he had received an order not to contact Deputy Akins. Petitioner lacked the requisite intent to refuse to follow an order. Respondent urges that Petitioner should have understood he was receiving an order from Corporal Cooper. As the Chief Deputy explained during his testimony: But I would also tell you that Corporal Cooper and Deputy Collinsworth were both aware of the fact that an allegation is made, that there is potential for an administrative investigation, and in the context of their discussion if Corporal Cooper was clear that there was the possibility of an administrative investigation, then at that point by general order there is no discussion with the principal. (emphasis supplied) TR at 222. Corporal Cooper was not clear that there was the possibility of an administrative investigation. Corporal Cooper advised Petitioner that he had started at the right place and that Corporal Cooper would report to the shift commander and see where it goes from there. Even if Corporal Cooper clearly stated that an administrative investigation were possible, Respondent did not terminate Petitioner from his employment on the alleged ground that Petitioner violated Respondent's written policy. The synopsis of the charge against Petitioner states: You were ordered by Corporal Cooper not to call or speak to Deputy Akins regarding an allegation concerning him. You disregarded this order and then you told Deputy Akins not to tell Corporal Cooper that you called him concerning the allegation. (emphasis supplied) Inter-Office Memorandum dated May 13, 2005. The expression, "see where it goes from there" is not synonymous with an administrative investigation. The matter could have been resolved through informal investigation by a front line supervisor. As Sergeant Rogers explained during cross-examination by counsel for Respondent: Q. If Akins was making improper comments to a member of the public, particularly someone that was a victim of a crime that he was involved in investigating, that would be improper? A. Yes, sir. Q. That would be subject to an investigation? A. Depends on what type of investigation you mean. Whether it would be a formal investigation or one done by a front line supervisor. That was my intent, I was going to have a front line supervisor look into it. TR at 247. Sergeant Rogers did not request an administrative investigation. When Corporal Cooper reported the allegations against Deputy Akins to Sergeant Rogers, the shift commander told Corporal Cooper to refer the matter to a sergeant identified in the record as either Sergeant Hubbard or Marshall (Sergeant Marshall). Sergeant Marshall was the shift commander for the squad or squads assigned to the city of Dunedin, Florida, the situs of the alleged violation. Sergeant Rogers ordered Corporal Cooper to refer the matter to Sergeant Marshall for investigation the next day. Sergeant Rogers received the report from Corporal Cooper at about 4:00 a.m. Ms. Hart was "extremely drunk," according to the information available to Sergeant Rogers, when Ms. Hart made the allegations against Deputy Akins. As Sergeant Rogers explained during cross-examination by counsel for Respondent: [T]he woman was extremely drunk. Why would I call her back at four or five in the morning when she's probably passed out? Let her sober up and let another supervisor talk to her later. TR at 248. Respondent did not undertake an administrative investigation of the allegations by Ms. Hart against Deputy Akins until months later when Respondent discovered those allegations during the administrative investigation of Petitioner that led to this proceeding. The investigation of the allegations by Ms. Hart exonerated Deputy Akins. Even if the words used by Corporal Cooper to communicate his intended order to Petitioner were in evidence, the disclosure by Petitioner to Deputy Akins of the allegations by Ms. Hart did not defeat the purpose of the alleged order from Corporal Cooper. As the Chief Deputy explained during his testimony: Q. Did the basis for exonerating Deputy Akins, if you know, have any relationship with the potential harm created by the disclosure of the allegations by petitioner to Deputy Akins? A. [I]n fact I don't believe it would have changed the final outcome. It [exoneration] probably still would have been followed . . . . The primary concern was the [lack of] veracity of the [alleged] victim. TR at 226-227. The refusal of Petitioner to follow the advice of Corporal Cooper arguably may have been disrespectful. The refusal arguably may have been made contemptuous by the efforts of Petitioner to conceal his conversation with Deputy Akins. However, disrespectful and contemptuous disregard of advice is not insubordination. Corporal Cooper did not treat the disclosure by Petitioner to Deputy Akins as insubordination. Respondent's written policies require Corporal Cooper to report insubordination to his superior. Corporal Cooper neither reported the alleged insubordination to Sergeant Rogers nor filed a written report of insubordination. Corporal Cooper explained, in substance, that he routinely does not write up subordinates because he needs to maintain a working relationship with his deputies. Corporal Cooper thinks he may have filed a verbal report with the shift commander but, again, does not recall the exact words in his verbal report. The shift commander does not recall such a report. When Deputy Akins informed Corporal Cooper that Petitioner had disclosed the allegations by Ms. Hart earlier that evening, Corporal Cooper did not respond in a manner consistent with a perception that Petitioner had committed insubordination. As Deputy Akins explained during direct examination by counsel for Respondent: Q. And what did Corporal Cooper tell you in that conversation? A. He asked me if I had spoken with Deputy Collinsworth and I advised him yes. Q. Did he say anything in response to that? A. He stated he had a feeling that Collinsworth might have called me. TR at 113. Corporal Cooper had no reason to believe that Petitioner "might" commit insubordination. Petitioner had never disobeyed orders from Corporal Cooper in the past.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Respondent enter a final order finding Petitioner not guilty of insubordination, rescinding the termination of employment, and reinstating Petitioner to his former position of employment with back pay, benefits, and seniority. DONE AND ENTERED this 7th day of October, 2005, in Tallahassee, Leon County, Florida. S DANIEL MANRY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 7th day of October, 2005. COPIES FURNISHED: Kenneth J. Afienko, Esquire Kenneth J. Afienko, P.A. 560 First Avenue, North St. Petersburg, Florida 33701 Keith C. Tischler, Esquire Jolly & Peterson, P.A. 2145 Delta Boulevard, Suite 200 Post Office Box 37400 Tallahassee, Florida 32315 Aaron C. French, Esquire 4600 North Habana Avenue, Suite 17 Tampa, Florida 33614 William C. Falkner, Esquire Pinellas County Attorney's Office 315 Court Street Clearwater, Florida 33756
The Issue The issues for consideration here are raised through the process of an Administrative Complaint filed by the Petitioner against the Respondent. In particular, by Amended Administrative complaint, Respondent is alleged to have been arrested for his involvement in illegal sale and/or delivery of a controlled substance, namely cocaine, to an undercover agent of the Jacksonville Sheriffs Office and that Respondent entered a plea of nolo contendere to the crime of possession of cocaine, and was placed on five (5) years probation and sentenced to serve three hundred sixty-four (364) days in the Duval County, Florida, jail. For these matters, Respondent is accused of violating Subsection 468.106(1)(i), Florida Statutes, by distributing a controlled substance other than in the course of professional practice of pharmacy and/or Section 893.13, Florida Statutes, by selling, manufacturing, delivering or possessing with intent to sell, manufacture, or deliver, a controlled substance. It is further asserted that Respondent has violated Subsection 465.016(1)(f), Florida Statutes, by having been convicted or found guilty, regardless of adjudication, in a court of this state of a crime directly related to his ability to practice pharmacy or to the practice of pharmacy, in that the plea of nolo contendere constitutes a conviction for purposes of this provision. EXHIBITS AND WITNESSES This case was presented upon the factual stipulation entered into between the parties and upon the agreement that the matter be considered as a formal Subsection 120.57 (1), Florida Statutes, hearing, notwithstanding a lack of disputed facts. Petitioner offered four (4) exhibits which were received into evidence.
Findings Of Fact Michael Anthony Norman, Respondent, is licensed by the State of Florida, Department of Professional Regulation, Board of Pharmacy, to practice pharmacy in Florida. On June 15, 1981, Respondent was arrested for sell or possession of a controlled substance, namely cocaine. Following this arrest by information in the Circuit Court, Criminal Division, in and for Duval County, Florida,, Case No. 81-5654-CF, Division Q, Respondent was charged with selling, manufacturing, delivering, bringing into the state or knowingly being in actual or constructive possession of twenty-eight (28) grams or more of cocaine or a mixture containing cocaine, to wit: twenty-eight (28) grams or more but less than two hundred (200) grams, contrary to the provisions of Subsection 893.135(1)(b)1, Florida Statutes. See Petitioner's Exhibit No. 3, admitted into evidence. On January 18, 1982, Respondent entered a plea of nolo contendere to knowingly or being in actual or constructive possession of cocaine or a mixture containing cocaine, contrary to the provisions of Subsection 593.13(1)(a), Florida Statutes, and Subsection 893.03(2)(a)2, Florida Statutes. The Court withheld adjudication of guilt and placed the Defendant on probation for a period of five (5) years upon condition that Defendant, among other requirements, serve three hundred sixty-four (364) days in the Duval County jail, with credit for two (2) days time served. See Petitioner's Exhibit No. 3, admitted into evidence. At present, Petitioner is serving the condition of probation related to jail time by his participation in a work release program known as Fairfield House, in which Petitioner works each day at a job other than as a pharmacist and is required to remain at that facility at night. The anticipated date of release from this obligation at Fairfield House is October 29, 1982, at the latest. During the period of Respondent's stay at Fairfield House, he has sought continuing education credits related to his profession through courses found in Pharmacy Times magazine. This action on the part of Respondent was through the mailing of certain course work. This hearing was occasioned by an Administrative Complaint and subsequent amendment to the Administrative Complaint, for which Respondent requested a formal Subsection 120.57(1), Florida Statutes, hearing. The amended Administrative Complaint, which is the complete statement of present claims against Respondent was signed April 28, 1982.
The Issue Whether Petitioner should be given an exemption from employment disqualification pursuant to Section 435.07, Florida Statutes.
Findings Of Fact At the age of twenty-eight, Petitioner, Alexander Fonseca (Fonseca), was arrested for felony possession of marijuana on February 21, 1989. For this charge, adjudication was withheld, and Fonseca was credited for time served. Petitioner's other criminal history includes a 1983 arrest for misdemeanor possession of marijuana for which he was credited for time served; a 1988 arrest for driving with a suspended license for which adjudication was withheld; a 1988 arrest for driving with a suspended license for which he was found guilty; and a 1991 arrest for reckless driving for which adjudication was withheld. In April 1999, Fonseca sought employment as a Juvenile Probation Officer with the Department. In conjunction with his application for employment, Fonseca was required to submit to the Department's background screening process since he would be working with juveniles. Fonseca was told by a receptionist with the Department that if he had a criminal record he would not be hired. As part of the application and background screening process, Fonseca submitted a State of Florida application and an Affidavit of Good Moral Character. Fonseca failed to disclose on both of these documents his felony arrest for and adjudication withheld on felony possession of marijuana. The affidavit contained Fonseca's notarized signature dated April 27, 1999, attesting to the following statement: I attest that I have read the above carefully and state that my attestation here is true and correct that neither my adult nor juvenile record contains any of the listed offenses. I understand that it is my responsibility to obtain clarification on anything contained in this affidavit which I do not understand. I am aware that any omissions, falsifications, misstatements or misrepresentations may disqualify me from employment consideration and, if I am hired, may be grounds for termination at a later date. Fonseca did not disclose his criminal history because, based on what the receptionist told him, he did not believe that he would get the job if he revealed that he had a criminal history. His failure to disclose his criminal history was not an error or oversight. It was intentional. A Florida criminal history conducted by the Department revealed Fonseca's 1989 arrest for felony possession of marijuana. As a result, on May 6, 1999, Fonseca was determined to be disqualified and ineligible for a position in the Department working with juveniles. In a letter dated June 1, 1999, the Department advised Fonseca that he could request a desk review to pursue an exemption from employment disqualification. Fonseca was required to submit specified documentation, which he did. As Inspector General for the Department, Perry Turner makes the final departmental decision on exemption requests. In an interoffice memorandum dated July 29, 1999, Fonseca's exemption request was forwarded to Mr. Turner along with Fonseca's complete background screening file. In a desk review, Mr. Turner does not interview the applicant's seeking an exemption. Each applicant has an opportunity to submit to the Department documentation, which he desires the Department to consider in determining whether an exemption should be granted. In reaching his decision, Turner reviewed Fonseca's background screening file and the documentation submitted by Fonseca. On July 30, 1999, Turner denied Fonseca's request for an exemption. The denial was based upon the totality of the circumstances surrounding Fonseca's prior criminal history and his falsification of the notarized Affidavit of Good Moral Character. Mr. Turner notified Fonseca of the denial in a letter dated August 1, 1999. From his early teens until approximately ten years ago, Fonseca was heavily involved with drug and alcohol use and was chemically dependent. He sought help for his dependency and has been clean and sober since 1991. Fonseca is actively involved in the 12-Step Programs of Alcoholics Anonymous and Narcotics Anonymous. In 1992, Fonseca decided to go back to school. He graduated with a degree in criminal justice in 1998. Fonseca did not present any information to the Department concerning his addiction prior to the denial of his exemption request.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered denying Alexander Fonseca's application for an exemption from disqualification from employment pursuant to Section 435.07, Florida Statutes. DONE AND ENTERED this 27th day of April, 2000, in Tallahassee, Leon County, Florida. SUSAN B. KIRKLAND Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 27th day of April, 2000. COPIES FURNISHED: William G. "Bill" Bankhead, Secretary Department of Juvenile Justice 2737 Centerview Drive Tallahassee, Florida 32399-3100 Robert N. Sechen, General Counsel Department of Juvenile Justice 2737 Centerview Drive Tallahassee, Florida 32399-3100 Alan K. Marcus, Esquire 7300 North Kendall Drive, Suite 540 Miami, Florida 33156 Lynne T. Winston, Esquire Department of Juvenile Justice Inspector General's Office 2737 Centerview Drive Tallahassee, Florida 32399-3100
The Issue The issue in this case is whether disciplinary action should be taken against Respondent's license to practice medicine based upon the alleged violation of Section 458.331(1)(c), Florida Statutes, set forth in the Administrative Complaint filed by Petitioner.
Findings Of Fact At all times pertinent to this proceeding, Respondent was a licensed physician in Florida having been issued license number ME 0004260. It is clear that Respondent was licensed to practice medicine in the State of Florida sometime prior to 1973. There are some indications in the record that Respondent has been licensed since approximately 1949. However, no conclusive evidence was presented on this point. There is no evidence of any prior disciplinary action against Respondent's medical license except for the charges in DOAH Case No. 93-2858 which was heard immediately after the hearing in this case. A Recommended Order in that case has been issued this same date. Although no conclusive evidence was presented in this case, the record in Case No. 93-2858 established that Respondent is certified by the American Board of Psychiatry and Neurology and that he also holds a Ph.D. in psychology and is a licensed psychologist. During 1989 and 1990, Respondent encountered a number of personal problems, including the loss of two brothers, the diagnosis of a sister with cancer, involvement in a number of bad business deals and significant tax problems with the IRS. From late 1989 until approximately February, 1990, Respondent treated a patient named Dale Bowlin for migraine headaches. During this period, Respondent saw Mr. Bowlin approximately thirty times in a professional capacity. Respondent knew that Dale Bowlin was an Assistant Director of the Metro-Dade Police Department. On or about August 23, 1990, Respondent called Dale Bowlin and asked Mr. Bowlin to come to his office to discuss an urgent matter. Pursuant to Respondent's request, Mr. Bowlin met with Respondent on or about August 24, 1990 at Respondent's office located at N.W. 31st Avenue and 7th Street, Miami, Florida. During that meeting, Respondent asked Mr. Bowlin to find someone to "plant" illegal narcotics on a local attorney, later identified as Arthur Spiegel, in order to have him arrested. Respondent indicated that Mr. Spiegel was married to the daughter of a social acquaintance of Respondent and stated that he had provided marriage counseling to Mr. Spiegel and his former wife. Respondent expressed a great deal of concern that Mr. Spiegel's alleged ability to manipulate the legal system during a difficult custody battle that occurred when the Spiegels dissolved their marriage. Respondent felt that Mr. Spiegel had been abusive during the marriage and was not a very good father. The evidence presented in this case established that Respondent was obsessed with finding some way to correct what he perceived to be the deferential or favored treatment that Mr. Spiegel received in the custody dispute. Respondent even hinted that Mr. Spiegel should be severely injured or killed. However, the evidence did not establish that Respondent ever seriously pursued those goals. Instead, he focused on having Mr. Spiegel "set up" and arrested. After returning to his office, Mr. Bowlin discussed Respondent's expressed desires with other members of the police department. A plan was devised to send another police officer, Kennedy Rosario, to meet with Respondent and pretend to cooperate with Respondent's requests. All of the subsequent meetings between Respondent and Detective Kennedy Rosario were recorded on audio tape and/or videotapes. Tapes of those meetings have been accepted into evidence. On or about August 27, 1990, Detective Kennedy Rosario of the Metro- Dade Police Department went to Respondent's office. During that meeting, Respondent offered Detective Rosario five thousand dollars ($5,000.00) to falsely arrest Mr. Spiegel for possession of drugs, specifically cocaine. Respondent wrote Mr. Spiegel's name and address on a page of Respondent's prescription pad and gave it to Detective Rosario. Respondent met for a second time with Detective Rosario at approximately 6:30 p.m. on August 27, 1990, at which time Respondent gave Detective Rosario additional information on Arthur Spiegel. Respondent's last meeting with Detective Rosario took place at approximately 4:00 p.m. on August 28, 1990, at which time Respondent told Detective Rosario that the drugs should be found on Mr. Spiegel and Mr. Spiegel should be arrested while Mr. Spiegel had his child with him. During that final meeting, Respondent gave Detective Rosario two thousand dollars ($2,000.00) as partial payment for setting up Mr. Spiegel to be arrested for possession of cocaine. At the conclusion of the August 28, 1990 meeting, Respondent was arrested and subsequently charged in the Eleventh Judicial Circuit in and for Dade County with two felony counts of bribery of a public official: one count was for allegedly offering money to Dale Bowlin to falsely arrest Arthur Spiegel, the second count was for allegedly offering money to Kennedy Rosario to falsely arrest Arthur Spiegel. Respondent's arrest and the subsequent criminal proceedings received a great deal of media coverage and notoriety. A jury trial was conducted on the criminal charges following which Respondent was acquitted of the first bribery count involving Dale Bowlin, and found guilty of the second bribery count involving Detective Rosario. The jury did not find that Respondent was insane at the time of the alleged offense. The conviction on the second count was subsequently reversed by an appellate court because the trial judge had incorrectly failed to dismiss a juror for cause. The Dade County State Attorney's Office sought to retry Respondent on the second bribery count. Respondent claimed that any such retrial was precluded because, among other things, it would constitute double jeopardy. Ultimately, the prosecutor's office and Respondent's counsel agreed to a plea bargain pursuant to which the felony bribery count was nolle prossed and Respondent agreed to pled nolo contendere to a misdemeanor charge of solicitation which was set forth in an Amended Information. Respondent claims that he only agreed to the plea bargain because the felony charges were dropped and he did not want to subject himself or his family to another trial. In respect to Respondent's motivation for entering the plea, the evidence presented in this case, including the audio and video tapes, conclusively established the facts set forth herein. Respondent formally entered the plea on or about February 23, 1993 in Case No. 90-34903-05 in the Circuit Court of the Eleventh Judicial Circuit in and for Dade County. Specifically, Respondent pled nolo contendere to one count of violating Section 777.04(4)(d), Florida Statutes, for requesting Kennedy Rosario to "falsify an official record or official document of the Metro-Dade Police Department with corrupt intent to ... cause unlawful harm to another". Section 777.04(4)(d), Florida Statutes, provides as follows: Whoever commits the offense of criminal attempt, criminal solicitation, or criminal conspiracy shall be punished as follows: * * * (d) If the offense attempted, solicited, or conspired to is a felony of the third degree, the person convicted is guilty of a misdemeanor of the first degree, punishable as provided in s.775.082 or s.775.083. The basis for the plea agreement was Respondent's alleged solicitation of Kennedy Rosario of the Metro-Dade Police Department to violate Section 839.25, Florida Statutes. Section 839.25, Florida Statutes, provides as follows: "Official misconduct" means the commission of the following act by a public servant, with corrupt intent to obtain a benefit for himself or another or to cause unlawful harm to another: (b) knowingly falsifying or causing another to falsify any official record or official document. * * * "Corrupt" means done with knowledge that act is wrongful and with proper motives. Official misconduct under this section is a felony of the third degree, punishable as provided in s. 775.082, s.775.083 or s.775.084. The "official document" referred to in the solicitation count was the arrest warrant for Arthur Spiegel. The "unlawful harm to another" described in the solicitation count referred to the harm Respondent intended to cause to Arthur Spiegel by having him falsely arrested. Respondent points out that the Court accepted the plea agreement without any inquiry and without making any specific findings as to the factual or legal basis for the plea. Respondent was not present at the time the plea agreement was accepted by the Court and Respondent did not give any oral allocution as to the factual basis for the plea. The plea agreement was presented to and accepted by the same judge who presided over Respondent's criminal jury trial. After the entry of the plea, the remaining felony count of bribery against Respondent was dismissed and Respondent was released without further conditions as he had already served over a year on house arrest. During the course of the hearing in this case, there were suggestions by the attorneys that at some point in January 1991, Petitioner initiated proceedings against Respondent to determine his sanity as a result of some of the matters that came to light in the criminal case. Respondent was apparently examined by a psychiatrist appointed by Petitioner. The results of that examination are not part of the record of this proceeding. However, it appears that Respondent has been permitted to continue practicing medicine. As a result of the jury verdict in the initial criminal proceeding, Petitioner filed an Administrative Complaint against Respondent on August 27, 1991, seeking to impose disciplinary action against Respondent on the grounds that Respondent had violated Section 458.331(1)(c), Florida Statutes. After Respondent's conviction was reversed, Petitioner issued a Closing Order on May 23, 1992, dismissing the original Administrative Complaint. This present case was initiated on July 23, 1993 when Petitioner filed a new Administrative Complaint against Respondent following the entry of the nolo contendere plea to the misdemeanor charge.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered finding Respondent guilty of violating Section 458.331(1)(c), Florida Statutes, as alleged in the Administrative Complaint. As a penalty for the violation, Respondent's license to practice medicine should be suspended for one (1) year followed by a three- year term of probation. The suspension should be stayed if and when Respondent can demonstrate to the Board that he is currently of good moral character and emotionally stable enough to safely practice medicine. In addition, an administrative fine in the amount of two thousand dollars ($2,000) should be imposed. DONE AND RECOMMENDED this 24th day of May, 1995, in Tallahassee, Leon County, Florida. J. STEPHEN MENTON Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 24th day of May, 1995.
Findings Of Fact The Respondent Michael Rush is a Doctor of Podiatry having been issued license number PO 0000529. The Respondent Rush was charged with and convicted of conspiracy to possess and import marijuana, Title 21 USC 841(a)(1), in the United States District Court, Connecticut. On March 30, 1981, the Respondent's conviction was affirmed, United States v. Rush, 666 F.2d 10 (2nd Cir. 1981). The Respondent Rush was incarcerated for a period of fourteen months, paid a fine of $15,000 and forfeited $33,000 from his savings account to the federal government pursuant to 21 USC 881(a)(6)(1976). The Respondent Rush is a resident of Broward County, Florida and maintains a professional office at 4700 Sheridan Street, Hollywood, Florida. Prior to the instant conviction, the Respondent Rush had never been charged with or convicted of any crime. The Respondent Rush has been active in community affairs, having participated in Little League, Boy Scouts, the Broward County Fair, and has received character references from a variety of local community leaders. The Respondent Rush is currently practicing his profession, has obtained professional liability insurance through the Podiatry Trust and is on the staff of Community Hospital of North Broward and Hollywood Pavillion.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED: That the Administrative Complaint filed against Michael Rush by the Board of Podiatry be dismissed. DONE and ORDERED this 30th day of December, 1982, in Tallahassee, Florida. SHARYN L. SMITH, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 30th day of December, 1982.
Findings Of Fact Petitioner Victor Rudolph Cobham made application for filing for examination as a Life and Health Agent on February 12, 1987, (hereafter, "application"). Question 8 of that application and Petitioner's answers thereto read as follows: Have you ever been charged with a felony? Yes If YES, give date(s): Dec. 16, 1983 What was the crime? Possession of cocaine & cannabis Where and when were you charged? Dade County, Dec. 16, 1983 Did you plead guilty or nolo contendere? Nolo Contendere on Appeal Were you convicted? Yes - Conviction reversed by 3rd District Court of Appeal Was adjudication withheld? See attachments to application Please provide a brief description of the nature of the offense charged. See attachments to application If there has been more than one felony charge, provide an explanation as to each charge on an attachment. Certified copies of the Information or Indictment and Final Adjudication for each charge is required. In response to the above question 8 Petitioner listed no other charges, convictions, or pleas, however he had, in fact, been charged on at least three other occasions. Petitioner was charged by an August 3, 1978 Information with possession of a controlled substance (cocaine), possession of cannabis in a felony amount, and possession or sale of a controlled substance implement (paraphernalia) in Case No. 78-7960 in the Circuit Court of the Eleventh Judicial Circuit in and for Dade County, Florida. All of these charges were felony charges. Petitioner plead guilty to all charges. Adjudication of guilt was withheld. Petitioner was also charged by a September 18, 1978 Information with failure to redeliver a hired vehicle (rental car) in Case No. 78-10543 in the Circuit Court of the Eleventh Judicial Circuit in and for Dade County, Florida, which charge constitutes a felony. Petitioner pled guilty. Adjudication was withheld. In 1967, Petitioner was also charged with passing a worthless bank check but the charges were dropped because the check was paid. Whether this was a felony or misdemeanor charge is not clear. On March 31, 1987, the Insurance Commissioner denied Petitioner's application to sit for the insurance agent's examination due to this failure to divulge in his responses to question 8 of his application the facts contained in findings of fact 4-6, supra. Petitioner's position was that he had subconsciously omitted the information on the two 1978 charges due to the lapse of time and that since these charges did not result in any "convictions" no fraud was committed by him in failing to disclose them in response to question 8 of the application. He further asserted that because the Third District Court of Appeal reversed his conviction in the 1983 case, he had a "clean record." He offered no specific explanation for failing to reveal the 1967 charges except that with respect to all charges, he also asserted that he had assumed the agency would do an extensive background check as a result of his admission concerning the 1983 charge and would therefore discover all the charges prior to 1983 as well. Having weighed the credibility of Petitioner's testimony; the undersigned finds that Petitioner committed a material misstatement, misrepresentation, and fraud upon his application and that his reasons for his misstatement, misrepresentation and fraud are neither logical nor credible as mitigation therefor. Petitioner was previously a licensed insurance agent but has allowed his licensure to lapse. He has worked in insurance in one way or another for most of his adulthood. He is now an articulate 56 year old man who has completed two years of college. By education, training, and experience, Petitioner knows the difference between a charge and a conviction. Question 8 on the application requested that he list and explain all charges, not just convictions. It asked for types of pleas entered and whether adjudication had been withheld, thereby giving Petitioner every opportunity to explain the status of his record. Petitioner is knowledgeable about the various nuances of the judicial dispositions of each of the charges brought against him, and his failure to reveal them on his application can only be construed as deliberate misstatement, misrepresentation, and fraud.
Recommendation Upon the foregoing findings of fact and conclusions of law, it is, RECOMMENDED that the Department of Insurance and Treasurer enter a final order denying Petitioner's application for filing for examination as a Life and Health Agent. DONE and RECOMMENDED this 10th day of September, 1987, at Tallahassee, Florida. ELLA JANE P. DAVIS, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 10th day of September, 1987. COPIES FURNISHED: William Gunter Commissioner Department of Insurance and Treasurer The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Angelo A. Ali, Esquire 400 Roberts Building 26 West Flagler Street Miami, Florida 33130 Lealand L. McCharen, Esquire Department of Insurance and Treasurer Larson Building Tallahassee, Florida 32399-0300 =================================================================
The Issue The issue presented for decision in this case is whether the Petitioner is eligible for an exemption from disqualification to work in a position of special trust pursuant to the terms of Section 435.07, Florida Statutes.
Findings Of Fact Based on the oral and documentary evidence adduced at the final hearing, and the entire record in this proceeding, the following findings of fact are made: Petitioner has worked as a certified nursing assistant at Highland Pines Rehabilitation and Nursing Center in Clearwater for the past six years. A recommendation letter from the Director of Nursing characterizes Petitioner as an excellent, reliable, and trustworthy employee. Petitioner is disqualified from working in a position of special trust as a result of a 1991 conviction for grand theft under Section 812.014, Florida Statutes. Petitioner was also been convicted of petit theft in the same case. Both crimes involved passing forged checks. She was initially given a sentence of four years probation, but was imprisoned in 1992 for violation of her probation conditions. In 1996, Petitioner was found guilty of welfare fraud in violation of Section 409.325(1), Florida Statutes (1995). She was placed on community control for a period of one year, to be followed by three years of probation. A letter from the Department of Corrections indicates that Petitioner’s probation is now scheduled to terminate on April 18, 2000, with a possibility of early termination provided all conditions have been satisfied. Petitioner has not violated the terms of her probation on this conviction. Petitioner testified that her criminal activities were due to “financial difficulties” and drug use. She testified that she now believes herself to be rehabilitated and ready to put her past behind her. Petitioner testified that she has not entered into any sort of structural rehabilitation program or received counseling in connection with her rehabilitation efforts. Her testimony was essentially that she has turned her life around on her own. Petitioner applied to Respondent for an exemption. A hearing was held by the Exemption Review Committee on February 17, 1998. The Exemption Review Committee recommended to the District Administrator that the requested exemption be denied. After reviewing the record and the Exemption Review Committee’s recommendation, the District Administrator concurred with the committee’s recommendation and denied Petitioner’s request by letter dated March 18, 1998. Upon consideration of all available information and the record of Petitioner’s adjudication for felony theft and her current placement on probation for welfare fraud, the District Administrator concluded that, due to the serious nature of the adjudications and her current probationary status, there has not been sufficient opportunity for Petitioner to demonstrate rehabilitation. Petitioner failed to offer any evidence of her rehabilitation, beyond her testimony that she has changed her ways and the fact that she has thus far served her current probation without incident. While several years have passed since the grand theft conviction that compelled disqualification, Petitioner’s subsequent history is also relevant to Respondent’s decision. Petitioner’s conviction in 1996 of welfare fraud certainly provided Respondent with reason to believe that Petitioner had not demonstrated rehabilitation.
Recommendation Upon the foregoing findings of fact and conclusions of law, it is recommended that the Department of Children and Family Services enter a Final Order denying Petitioner an exemption to work in a position of special trust. DONE AND ENTERED this 19th day of August, 1998, in Tallahassee, Leon County, Florida. LAWRENCE P. STEVENSON Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 19th day of August, 1998. COPIES FURNISHED: Linda Susan Floyd, pro se 13149 119th Street North Largo, Florida 33778 Amy V. Archibald, Esquire Department of Children and Family Services 11351 Ulmerton Road, Suite 100 Largo, Florida 33778-1630 Gregory D. Venz, Agency Clerk Department of Children and Family Services 1317 Winewood Boulevard Building Two, Room 204 Tallahassee, Florida 32399-0700
The Issue Whether the Respondent, a licensed physician, should be subject to discipline under section 458.331(1)(x), Florida Statutes (2016),1/ for violating the Final Order entered by the Board of Medicine in case DOH-15-0017-FOF-MQA by failing to pay the administrative fine and costs, as required; and, if so, the appropriate discipline.
Findings Of Fact On January 8, 2015, the Florida Board of Medicine rendered Final Order DOH-15-0017-FOF-MQA. The Final Order resolved charges against the Respondent, a licensed physician who holds license ME 59800, in the administrative complaints in DOH cases 2009-13497, 2011-06111, and 2011-17799. The Final Order suspended Respondent's license for six months and required her to: pay a $10,000 administrative fine and $74,323.56 of costs within a year from reinstatement of her license; and document completion of a medical records course sponsored by the Florida Medical Association and five hours of continuing medical education in the area of ethics within a year from the filing of the Final Order. The Final Order also placed the Respondent on probation for two years, subject to specific supervision and board appearance requirements, and included the following tolling provision: In the event the Respondent leaves the State of Florida for a period of 30 days or more or otherwise does not or may not engage in the practice of medicine in the state of Florida, then certain provisions of the requirements in the Final Order shall be tolled and shall remain in a tolled status until Respondent returns to the active practice of medicine in the state of Florida. * * * Unless otherwise set forth in the Final Order, the following requirements and only the following requirements shall be tolled until the respondent returns to active practice: The time period of probation shall be tolled. The provisions regarding supervision whether direct or indirect by the monitor/supervisor, and required reports from the monitor/supervisor shall be tolled. It is clear from the language of the tolling provision that it did not apply to: the requirement to pay an administrative fine and costs within a year of license reinstatement; or the requirement to document completion of the medical records course and five hours of continuing medical education in ethics within a year of license reinstatement. After entry of the Final Order, the Respondent left Florida and moved to New York. Initially, she practiced medicine in New York, using her New York license, and earned income doing so. However, New York initiated license disciplinary proceedings based on the Florida Final Order, and she was unable to continue to practice medicine in New York. She also had health issues that inhibited her practice of medicine. By the terms of the Final Order, the Respondent's medical license was reinstated on July 8, 2015, and the fine and costs were due to be paid on July 7, 2016. The fine and costs were not paid by the due date. Towanda Burnett, medical compliance officer employed by the Petitioner, contacted the Respondent in July and August 2017 concerning her apparent failure to comply with the terms of the Final Order. As to the obligation to take approved courses of education, the Respondent took the position that she had taken the required courses, or had tried to take them, but was prevented from doing so by the Petitioner. However, she did not document her completion of the required courses, which resulted in one of the charges in the Administrative Complaint filed on November 6, 2017. Eventually, during preparation for the hearing in this case, the Petitioner determined that the Respondent was in compliance with that obligation, and that charge was dropped. As to the fine and costs, the Respondent took the position that her obligation to pay was stayed because she filed for bankruptcy. Information regarding the Respondent’s bankruptcy proceedings was reviewed by attorneys in the Petitioner’s Prosecution Services Unit, who determined that the Respondent’s obligation to pay was not stayed. The Respondent disagreed and declined to make any payments. One of the Respondent’s defenses relies on her direct appeals from the Final Order in the Florida courts. However, at no time did any of the appellate courts stay the Final Order. Ultimately, the direct appeals were denied. The Respondent also argues that the Final Order is “void,” “invalid,” or “moot” for “non-compliance of the mandate” issued by the Second District Court of Appeal after her appeals were denied. This argument is confusing and unpersuasive. At times, the Respondent seems to be arguing that the tolling provision applied to the fine and costs and that the “mandate of the Final Order” was violated by the Petitioner by its attempt to enforce the fine and costs assessment in the Final Order before the Respondent resumed the practice of medicine in Florida. This argument has no merit because the tolling provision clearly only applies to her probation--i.e., her two- year probation runs from the time she resumes the practice of medicine in the state of Florida. At other times, the Respondent seems to be saying her two-year probation was not tolled, but rather began when she resumed the practice of medicine in New York for a period of time, and was already over, placing the Petitioner in violation of the “mandate of the Final Order” by taking the position that the Respondent was still on probation. This argument also has no merit. It is possible that the Respondent’s argument relates to her testimony that an employee of the Petitioner prevented her from taking a continuing education course required by the Final Order. However, the charge of failure to document the required course has been resolved and dropped. In any event, whatever happened with regard to the Respondent’s attempts to take the course did not “void” or “moot” the Final Order. The Respondent also attempted to attack the Final Order in litigation she filed as case 1:16-cv-03038-VSB in federal district court in New York on April 25, 2016. The Respondent’s complaint named the Florida Board of Medicine and the Florida Department of Health as defendants, along with the New York Department of Health. The Florida agencies contested the court’s jurisdiction over them, and an amended complaint filed on September 22, 2016, dropped the Florida Department of Health and Florida Board of Medicine as parties. On February 14, 2017, the Respondent sought a stay and injunctive relief against the remaining defendant in that case, but the New York court denied the request on September 30, 2017. On October 16, 2017, the Respondent appealed this ruling to the United States Court of Appeals, Second Circuit, in case 17-3358, listing the Florida Department of Health and the Florida Board of Medicine as appellees. (At the hearing in this case, the Respondent expressed that she was surprised to learn that the Florida agencies had been dropped from this litigation and that she intended to further amend to add them back.) The Respondent has repeatedly requested extensions of time, and the matter was still in court at the time of the hearing in this case. Neither federal court ever stayed the Final Order. This federal litigation is not an impediment to enforcement of the Final Order by the Petitioner. The Respondent also defends against the charges in this case based on various bankruptcy filings she has made. In 2015, the Respondent filed for chapter 13 bankruptcy in the United States Bankruptcy Court, Middle District of Florida, Tampa Division, in case number 8:15-bk-00594-CPM. She listed the Department of Health as a creditor. On June 3, 2015, the case was dismissed on motion of the trustee, and any funds held by the trustee were ordered to be returned to the debtor. On August 15, 2016, the Respondent filed for bankruptcy under chapter 13 in United States Bankruptcy Court for the Southern District of New York (Manhattan Division) in case 16- 12356-cgm. The Respondent again listed the Department of Health as a creditor, and the Respondent believed the bankruptcy automatically stayed her obligations to pay the fine and costs under the Final Order, as she told the Petitioner’s compliance officer, Ms. Burnett, when she contacted the Respondent in the summer of 2017. The Petitioner points to filings the Respondent made in in case 16-12356-cgm as evidence of the Respondent’s supposed knowledge that no automatic stay was in effect. Specifically, on September 13, 2017, the Respondent filed an Emergency Motion for Stay Pending Appeal, or in the alternative for temporary Administrative stay, which was denied by the bankruptcy court on September 19, 2017. However, the docket entries introduced into evidence in this case are difficult to decipher, and it is not clear that they refer to a stay of the collection of the fine and costs imposed by the Final Order. On November 22, 2017, the New York bankruptcy court dismissed the Respondent’s case 16-12356-cgm. On November 27, 2017, the Respondent appealed the dismissal to the United States District Court for the Southern District of New York. The appeal was assigned case number 1:17-cv-09429-JGK. On December 1, 2017, the Respondent filed in case 16-12356-cgm for a stay pending appeal, which was denied by the bankruptcy court on December 21, 2017. On February 6, 2018, the Respondent moved in district court for a stay pending appeal, or in the alternative, for a temporary administrative stay. On March 21, 2018, the district court affirmed the dismissal of the bankruptcy case, and denied the motion for a stay pending appeal as moot. On March 30, 2018, the Respondent sought review of the district court’s affirmance in the federal Second Circuit Court of Appeals. The case number of the circuit court appeal is 18- 890. On March 30, 2018, the Respondent filed in case 18-890 for an emergency injunction and stay; the filing was defective, for unspecified reasons, according to a court docket entry. On April 6, 2018, the Respondent filed in case 18-890 for a stay pursuant to 11 United States Code section 362(c)(4)(c); this filing also was defective, for unspecified reasons, according to the docket. In December 2017, after the New York bankruptcy court dismissed case 16-12356-cgm, the Respondent filed a second bankruptcy case in the United States Bankruptcy Court for the Middle District of Florida, Tampa Division. That filing was designated case 8:17-bk-10140. On January 11, 2018, the Florida bankruptcy court dismissed case 8:17-bk-10140 with prejudice; labeled the Respondent an “abusive serial bankruptcy filer”; “enjoined, barred, and prohibited [the Respondent] from commencing any bankruptcy petition” for a period of two years; and caused notice to be given that state courts should not halt debt collection proceedings based on any bankruptcy petition the Respondent attempted to file in violation of the court’s injunction against her. On January 31, 2018, the Florida bankruptcy court denied the Respondent’s motion for reconsideration. The Respondent’s bankruptcy filings are not a complete defense against the Petitioner’s charges. The Respondent was in violation of the Final Order for failure to pay the fine and costs as of July 7, 2016. No bankruptcy stay was in effect at that time. However, the Petitioner’s collection of those debts was stayed from August 8, 2016, through November 22, 2017. See 11 U.S.C. § 362(a) (2016). The Petitioner’s compliance office has a procedure for a payment plan when fines and costs cannot be paid at once. In order to obtain a payment plan, the licensee must propose a payment plan, with specific amounts and due dates, and submit documentation, including: two denial letters from any financial or loan institutions; a copy of the 1040 tax return; copies of bank statements; and any other relevant financial information. Once that information is received, it is sent to the chairperson of the Probation Committee of the Board of Medicine, who either approves or denies the payment plan. The Respondent did not submit the required information, pay anything towards the fine and costs, or express her intention to pay.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Board of Medicine enter a final order: finding that the Respondent violated section 458.331(1)(x), Florida Statutes (2016), by failing to pay the administrative fine and costs imposed, as required by Final Order DOH-15-0017-FOF-MQA; issuing a reprimand against the Respondent’s Florida medical license; imposing an administrative fine of $1,000 (in addition to the administrative fine imposed by Final Order DOH-15-0017- FOF-MQA); and suspending the Respondent’s Florida medical license until such time as she pays all outstanding administrative fines and costs in full, or until the chairperson of the Board’s Probation Committee approves a payment plan. DONE AND ENTERED this 19th day of June, 2018, in Tallahassee, Leon County, Florida. S J. LAWRENCE JOHNSTON 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 19th day of June, 2018.
The Issue The issue for determination in this proceeding is whether Petitioner is entitled to reimbursement for underpayment of Medicaid expenses, and, if so, the amount of such underpayment.
Findings Of Fact Some of the findings of fact relevant to this proceeding have been determined in two previous administrative proceedings, a federal district court case, and a federal bankruptcy action. The findings of fact made in the prior administrative and civil cases are discussed in the background of this proceeding. Background Petitioner is a wholly owned subsidiary of Suburban Nursing and Mobile Homes, Inc., of Ohio ("Suburban"). Suburban is a holding company which owns the stock of numerous corporations engaged in the operation of nursing homes or mobile home parks. At all times material to this proceeding, the stock of Suburban was owned or controlled by the late Gerald D. Keller and members of his family ("Keller"). Petitioner's assets include the land, buildings, and equipment used in the operation of Krestview Nursing Home ("Krestview") and Towne House Convalescent Center ("Towne House"). Krestview and Towne House are located in the greater metropolitan area of Miami, Florida. Prior to May 5, 1977, Krestview and Towne House were operated by the Wilson management group ("Wilson"). Wilson fell on dire financial straits. Criminal charges were pending against Wilson, and the closure of Krestview and two other nursing homes managed by Wilson was imminent. In an effort to avoid closure of the nursing homes, Respondent contacted Keller and asked if Keller would operate the nursing homes threatened with closure until a qualified operator could be located. A primary consideration underlying Respondent's request was the high mortality rate that could be expected if large numbers of elderly patients were relocated to other nursing homes. B & K Investments, Inc. ("B & K") was a Florida corporation wholly owned by Suburban on May 5, 1977. B & K had a current registration, a federal tax number, and the qualified personnel required to operate the nursing homes. At tile request of Respondent, B & K became the licensed provider for Krestview and Towne House. The land, buildings, and equipment used to operate Krestview and Towne House were leased to B & K by Petitioner. The lease to Wilson was terminated and new lease was executed by B & K and Petitioner. B & K agreed to a net lease containing substantially the same terms as the lease to Wilson. Under the terms of the net lease, the lessee in possession was required to pay all taxes and insurance premiums on real and personal property used in the operation of Krestview and Towne House. B & K incurred expenses for legal fees in the successful defense of an action brought by a labor. The labor union brought the action to prevent B & K from taking over the operation of Krestview and Towne House unless B & K assumed the collective bargaining obligations of its predecessor. Local 1115 Joint Bd. Nursing Home v. B & K Investments, 436 F.Supp 1203 (S.D. Fla. 1977) [hereinafter, "Local 1115"]. An agreement was entered into between B & K and Respondent for the operation of the nursing homes by B & K. The agreement provided that B & K would have no liabilities for debts or obligations attributable to the prior period of operation by Wilson. B & K paid the real property taxes for 1976 and the allocable portion of real property taxes for 1977 that were owed by Wilson for the prior period of operation. Respondent refused to reimburse B & K for those expenses even though the lease required a lessee in possession to pay property taxes and even thought payment of such taxes was a practical necessity to prevent a tax sale and subsequent redemption of the tax certificate. A formal hearing was conducted by Hearing Officer Ken Ayers to determine whether B & K should be reimbursed for the payment of real property taxes for 1976 and 1977. A Recommended Order in Division of Administrative Hearings Case No. 79-720 was entered on November 27, 1979. The Order recommended that B & K should not be reimbursed for real property taxes attributable to the prior period of operation by Wilson. The findings of fact and conclusions of law in the Recommended Order were adopted by Respondent in a Final Order entered on December 13, 1979, in Department of Health and Rehabilitative Services v. B & K Investments, Inc. d/b/a Krestview Nursing Home, and G & J Investments Corp., 2 F.A.L.R. 111-A (Fla. Dept. of Health and Rehabilitative Servs.) [hereinafter, "HRS v. B & K"]. B & K operated Krestview and Towne House from May 5, 1977, through August 31, 1977, while it was related by stock ownership to Petitioner. Medicaid rules prohibited the payment of rent by a provider to a landlord that was a related-party. B & K and Petitioner were related sibling corporations. The stock of the two corporations was owned by a common parent. Respondent disallowed the reimbursement of expenses for rent paid to a related party, and & K requested a formal hearing. The issue was resolved in the same formal hearing that was conducted to resolve the issue of whether B & K should be reimbursed for payment of real property taxes owed by Wilson. In HRS v. B & K, it was determined that. B & K should not be reimbursed for expenses incurred for rental payments to a related party. All of the stock of B & K was sold to an unrelated party to eliminate any conflict with Medicaid rules. The B & K stock was sold to Crestwood Care Centers of Florida, Inc. ("Crestwood") in an arms-length transaction completed on August 31, 1977. Respondent executed a conditional provider agreement for the operation of Krestview on November 14, 1977. An unconditional provider agreement for the operation of Krestview was executed by Respondent on December 19, 1978. 4/ The provider agreements authorized the operation of the two facilities pursuant to a Medicaid plan developed by the state and approved by the federal government (the "Medicaid plan"). Respondent amended its Medicaid plan on October 1, 1977. The amended plan adopted a "prospective" method of reimbursement and repealed the "retrospective" method of reimbursement previously applied by Respondent. /5 The provider agreements executed by Respondent after it amended its Medicaid plan specifically authorized the retroactive method of reimbursement. /6 The relationship between B & K and Respondent became increasingly strained. A medicaid audit evaluation and review analyst for Respondent speculated that, ". . . the Ohio group would get out of the business in Florida.' Respondent had complete control of B & K's sole source of cash flow for the operation of Krestview and Towne House. 7/ Respondent substantially affected B & K's cash flow by setting reimbursement rates inconsistently during 1978 and 1979, and by withholding Medicaid reimbursement payments of approximately $700,000 between July 1, 1979, and August 31, 1979. B & K sought protection in bankruptcy court in an emergency proceeding precipitated by Respondent. B & K filed a petition in bankruptcy on August 3, 1979. The primary asset of B & K was the money allegedly due from Respondent for unreimbursed Medicaid expenses. The bankruptcy trustee determined that cost reports required by Respondent for reimbursement of such expenses should be submitted if they could be prepared. For numerous reasons, the cost reports required considerable time and effort to prepare. They were eventually filed on February 7, 1983, for review and audit by Respondent. Respondent returned the cost reports submitted by Petitioner for the reasons stated in Respondent's letter dated March 25, 1983. First, Respondent alleged that the cost reports were filed after the end of the fiscal year of B & K. Second, Respondent claimed that the cost reports could only be used to set a new rate for the month following the filing of the cost report. Third, a retroactive payment allegedly could not be made to a facility with costs exceeding annual payments. Finally, the cost reports allegedly had been subject to a final audit by Respondent and the provider or bankruptcy trustee failed to timely file its request for hearing after the final audits were issued. The bankruptcy trustee desired to close the bankruptcy proceeding and assigned its interest in the claim for unpaid Medicaid reimbursements to Petitioner. Petitioner requested a formal hearing to contest Respondent's refusal to review and audit the cost reports. A formal hearing was conducted by Hearing Officer Sharyn L. Smith on October 14, 1983, to determine whether Respondent should accept the cost reports for review and audit. The Recommended Order in Division of Administrative Hearings Case No. 83-1769 entered on February 6, 1984, recommended that Respondent should accept the cost reports for review and audit. The findings of fact and overall recommendation of the Hearing Officer were adopted by Respondent in the Final Order in G & J Invs. Corp. v. Department of Health & Rehabilitative Servs., 6 F.A.L.R. 3788 (Fla. Dept. of Health & Rehabilitative Servs.), appeal dismissed, No. BA-57 (Fla. 1st DCA Nov. 5, 1984) [hereinafter "G & J v. HRS"]. The Final Order stated that all other conclusions of law were rejected. The parties in G & J v. HRS and in this proceeding are identical. On August 22, 1984, all of the cost reports were submitted for review and audit by Respondent in accordance with the Final Order entered in G & J v. HRS. Three cost reports were submitted for Krestview for the fiscal years ending May 31, 1978, and May 31, 1979, and for the three month period ending August 31, 1979. Two cost reports were submitted for Towne House for the fiscal year ending May 31, 1979, and for the three month period ending August 31, 1979. The cost report submitted for the fiscal year ending May 31, 1978, replaced the cost report originally submitted for the same period. Respondent reviewed and audited the cost reports for Krestview and Towne House, allowed a substantial portion of the claimed expenses, and made various adjustments and disallowances with regard to the remaining expenses (the "audit adjustments"). The reasons for the audit adjustments and the amount of the audit adjustments are set forth in the final audit reports prepared by Respondent. Audit reports for Krestview for the fiscal years ending May 31, 1978, and May 31, 1979, and for the three month period ending August 31, 1979, are referred hereinafter, respectively, as "EAR 5/31/78", "EAR 5/31/79", "EAR 8/31/79", Audit reports for Towne House for the fiscal year ending May 31, 1979, and for the three month period ending August 31, 1979, are referred to hereinafter, respectively, as "TAR 5/31/79" and "TAR 8/31/79". Amounts At Issue Respondent disallowed expenses in the aggregate amount of $1,748,636. Petitioner claims that it has been underpaid in the aggregate amount of $528,879 after deduction for certain disallowances admitted by Petitioner prior to the formal hearing and after reduction for mandatory limits imposed on Medicaid expenses by applicable law. Respondent claims that an overpayment was made to B & K in the aggregate amount of $1,125,910.10 Respondent asserts the overpayment as a setoff against Petitioner's claim for underpayment in the amount of $528,879. 5.02(a) Property Related Expenses Property related expenses comprised the largest portion of total expenses disallowed in the amount of $1,748,636. Some property related expenses were disallowed for more than one reason. 5.02(a) (1) Section 1122 Property related expenses, including rent, taxes, interest, depreciation, and insurance, were disallowed `by Respondent in the aggregate amount of $962,426. 11/ One of the reasons for disallowing all property related expenses included the alleged use of federal funds for capital expenditures in violation of Section 1122 of Public Law 92-603 (1972) (referred to hereinafter as either "Section 1122" or the "Section 1122 issue"). Section 1122 generally prohibits the use of federal funds by Medicaid providers for capital expenditures in excess of $100,000 without the prior approval of the then Department of Health, Education and Welfare ("HEW"). /12 Property related expenses in the amount of $575,925 /13 were disallowed solely on the basis of the Section 1122 issue. Property related expenses in the amount of $386,501 were disallowed for reasons in addition to the Section 1122 issue. Resolution of the Section 1122 issue in favor of Respondent, therefore, would dispose of a substantial portion of the disallowances involving property related expenses but not all of those disallowances. 5.02(a) (2) Other Disallowances Property related expenses in the amount of $386,501 were disallowed for reasons in addition to the Section 1122 issue. Respondent disallowed $202,680 for the additional reason that there was no actual payment of the individual items comprising that amount. /14 Expenses in the amount of $111,344 were disallowed as payments to a related party. /15 Respondent disallowed expenses in the amount of $42,029 because they were allegedly attributable to a "prior period". /16 The disallowance of this amount is a single entry in KAR 5/31/78. The period prior to the period covered by KAR 5/31/78 was the period of operation by Wilson. The "prior period" in EAR 5/31/78, therefore, refers to the period of operation by the previous provider. Finally, property related expenses in the amount of $30,448 were disallowed as insufficiently documented. /17 Property related expenses that were disallowed for insufficient documentation comprise only a portion of the total expenses disallowed as insufficiently documented. Expenses unrelated to property were also disallowed as insufficiently documented. 5.02(b) Expenses Unrelated To Property Disallowances in the amount of $786,210 involve expenses unrelated to property. Expenses unrelated to property were disallowed either for lack of documentation or for other reasons. 5.02(b) (1) Documentation Expenses unrelated to property were disallowed in the amount of $445,479 on the grounds that they were insufficiently documented. Respondent claims that documentation of expenses in the amount of $274,081 was insufficient with respect to the expenses, their relationship to patient are, or both. /18 Other expenses unrelated to property which were disallowed as insufficiently documented included accrued employee expenses in the amount of $99,163, /19 the allocation of expenses from the home office to the provider in Florida in the amount of /20 $25,311, and various other expenses in the aggregate amount of $46,924. When the amount of property related expenses and expenses unrelated to property are taken into account, expenses in the aggregate amount of $475,927 were disallowed for insufficient documentation. 5.02(b) (2) Other Disallowances Expenses unrelated to property were disallowed in the amount of $340,731 for reasons other than the lack of documentation. The reasons given in the audit reports for such disallowances were varied. Expenses in the amount of $51,310 were disallowed as either not accrued, accrued but not paid, or both. 21 When property related expenses and expenses unrelated to property are taken into account, expenses in the amount of $253,990 were disallowed as either not accrued, accrued but not paid, or both. / 22 Expenses in the amount of $34,456 were disallowed as attributable to the previous "owner" of Krestview and Towne House. /23 However, ownership of the physical assets required to operate Krestview and Towne House, including the land, buildings, and equipment was never transferred from Petitioner. Nor was the stock of Petitioner ever transferred from its parent. The reference in the audit reports to the previous "owner" of Krestview and Towne House, therefore, is construed to mean the previous provider who used the land, buildings, and equipment owned by Petitioner to operate Krestview and Towne House, i.e., Wilson. Legal fees in the amount of $26,804 were disallowed by Respondent as not related to patient /24 Respondent claims that the legal fees were incurred by the provider in connection with a union matter in which the provider was found to be in violation of the National Labor Relations Act. Expenses disallowed in the amount of $42,079 were attributed by Respondent to adjustments to the providers return on equity. /25 Disallowances to adjust the provider's return on equity were made as a result of disallowances based on the Section 1122 issue. Respondent disallowed expenses allocated from the provider's home office in the amount of $67,575 as non-reimbursable even though such expenses were sufficiently documented. /26 Expenses claimed by Krestview in the amount of $37,994 were disallowed as related to Towne House but not otherwise allowable ("allocations between facilities") /27 Expenses in the amount of $34,607 were disallowed as already paid, covered by another program, a previously entered expense, or attributable to a prior period ("already paid or covered by another program") 23 Expenses unrelated to property were disallowed in audit reports other than KAR 5/31/78 as attributable to a "prior period." The periods preceding audit reports subsequent to EAR 5/31/78 do not necessarily include either the period prior to the transfer of operations to B & K or the period prior to the transfer of B & K stock to an unrelated party. The meaning of the reference in the subsequent audit reports to a "prior period," therefore, is ambiguous and is an issue that Petitioner is required to prove. Expenses in the amount of $22,046 were disallowed for the purpose of making adjustments in the cost. /29 Expenses in the amount of $5,446 were disallowed as either personal or imprudent. /30 Expenses in the amount of $3,265 were disallowed as related to depreciation or improvements to /31 property. The audit reports do not state whether the property improved or the property subject to depreciation is real property or personal property. That is an issue Petitioner is required to prove. Expenses in the amount of $5,968 were disallowed as unrelated to the business of the provider. /32 Finally, expenses in the amount of $9,181 were disallowed to offset other income of the provider. /33 Adjustments to expenses in the amount of $204,785 were allowed but reclassified to different cost centers. /34 Those adjustments are not at issue in this proceeding. 5.02(c) Limitation Of Amounts At Issue Petitioner claims that it has been underpaid in the net amount of $528,879. The net amount of underpayment claimed by Petitioner represents the amount of underpayment after total expenses disallowed by Respondent in the amount of $1,748,636 are reduced by the amount of disallowances admitted by Petitioner and by the amount of mandatory limits on Medicaid expenses. Petitioner's failure to address certain issues during the formal hearing further limited the issues and the amounts of the issues to be determined in this Recommended Order. 5.02(c) (1) Disallowances Admitted By Petitioner Petitioner admitted prior to and during the formal hearing that Respondent properly disallowed expenses in the aggregate amount of $304,305.34. Disallowances admitted by Petitioner are comprised of expenses disallowed for insufficient documentation in the amount of $131,168.34, and other expenses disallowed in the aggregate amount of $173,137. Other expenses in the amount of $173,137 involve both property related expenses and expenses unrelated to property. Petitioner admitted that property related expenses in the amount of $111,344 were properly disallowed as payments to a related party and that expenses in the amount of $42,029 were properly disallowed as attributable to a prior period. Petitioner admitted that expenses unrelated to property in the amount of $19,764 were properly disallowed. /35 5.02(c) (2) Mandatory Limitations On Medicaid Expenses The net amount of underpayment claimed by Petitioner was determined after reductions for mandatory limits on Medicaid expenses. The actual gross amount of underpayment claimed by Petitioner is $698,875. Petitioner admits, however, that the gross amount of underpayment should be reduced by $169,996 as a result of "ceilings" or "caps" imposed by applicable statutes and rules. The net amount of underpayment claimed by Petitioner after reduction for such mandatory limits on Medicaid expenses is $528,879. 5.02(c) (3) Pretermitted Issues The issues to be determined in this Recommended Order and the amounts of those issues are limited to issues which satisfy two conjunctive tests. First, the issues must not have been admitted prior to the formal hearing. Second, the issues must have been addressed by Petitioner during the formal hearing. Issues not addressed by Petitioner during the formal hearing need not be determined on their merits but may be determined summarily as a threshold matter ("pretermitted issues") /36 Petitioner admitted prior to the formal hearing that disallowances in the amount of $304,305.34 were proper. Disallowances in the amount of $1,444,330.66 were not admitted prior to the formal hearing and formed the basis for the underpayment claimed by Petitioner in gross and net amounts of $698,875 and $528,879. /37 Pretermitted issues involved only expenses unrelated to property disallowed in the aggregate amount of $81,405.66. The aggregate amount of pretermitted issues is comprised of the following individual amounts and disallowances: (a) $14,692 disallowed as attributable to the previous owner; /38 (b) $20,807.66 disallowed as already paid or covered by another /39 program; (c) $22,046 disallowed as adjustments to cost reports; (d) $5,446 disallowed as personal or imprudent; (e) $3,265 disallowed as depreciation and improvements; (f) $5,968 disallowed as unrelated to the business of the provider,; and (g) $9,181 disallowed as an offset against other income. 5.02(d) Expenses At Issue The issues remaining to be determined in this Recommended Order involve both property related expenses and expenses unrelated to property in the aggregate amount of $1,362,925. That amount is comprised of the following individual amounts and disallowances (the "expenses at issue"): (a) property related expenses and expenses unrelated to property disallowed in the amount of $344,758.66 as insufficiently documented; (b) expenses unrelated to property disallowed in the amount of $67,575 as improper allocations from the home office; (c) expenses unrelated to property disallowed in the amount of $37,994 as improper allocations between facilities; (d) expenses unrelated to property which were disallowed in the amount of $13,799.34 as already paid or covered by another program; /40 (e) legal fees unrelated to property disallowed in the amount of $26,804; (f) property related expenses disallowed in the amount of $575,925 solely on the basis of Section 1122; (g) expenses unrelated to property disallowed in the amount of $42,079 as adjustments to return on equity; and (h) property related expenses and expenses unrelated to property disallowed in the amount of $253,990 as either not accrued, accrued but not paid, or both. Bankruptcy B & K filed a petition in bankruptcy on August 3, 1979, in the United States District Court for the Southern District of Florida, Bankruptcy No. 79- 925-BK-JE-B (the "bankruptcy proceeding"). The bankruptcy proceeding was conducted pursuant to Chapter 7 of the Bankruptcy Code of 1978 (the "Bankruptcy Code") /41 A Discharge of Bankrupt was entered on November 15, 1979. A final decree closing the bankruptcy file was entered on August 26, 1987. 5.03(a) The Bankrupt Estate Claims against the bankrupt estate included claims filed by Respondent and Petitioner. Respondent filed proof of claim in the amount of $1,179,278.51. Petitioner filed a proof of claim for administrative expenses in the amount of $35,000, a priority claim for unpaid rent in the amount of $105,000, and a non-priority claim for unpaid rent in the amount of $292,750.65. No objection was made to any of the unsecured claims. Funds in the bankrupt estate were sufficient to pay only priority claims. The bankrupt estate included two assets. One asset consisted of the bankrupt's interest in two nursing homes that housed approximately 320 Medicaid patients i.e., Krestview and Towne House. The other asset consisted of the bankrupt's claim for monies due and owing from Respondent for the underpayment of Medicaid reimbursement payments.. All right, title, and interest of B & K in the assets of the estate passed to the bankruptcy trustee when the petition in bankruptcy was filed. The claim against Respondent for unreimbursed Medicaid expenses became the property of the estate. B & K ceased to be the real party in interest for purposes of enforcing the claim against Respondent. The bankruptcy trustee had the duty of enforcing B & K's claim against Respondent. /42 The bankrupt's interest in Krestview and Towne House was abandoned by Order of Abandonment entered by the bankruptcy court on August 31, 1979. The trustee was relieved of all further responsibilities for the custody and operation of both nursing homes. The claim for monies due from Respondent was retained as the sole asset of the bankrupt estate. The amount of that claim required approximately three years to document and determine. 5.03(b) Preparation Of Cost Reports The bankruptcy trustee determined that cost reports required by Respondent for Krestview and Towne House should be submitted if they could be prepared. The bankruptcy trustee was unable to make sense of the books and records of the bankrupt to the point where the trustee felt she could make a claim for monies due from Respondent. B & K was unable to pay its accountant to prepare the cost reports required by Respondent. The bankruptcy trustee recommended to the court that the cost reports should be prepared on a contingency fee basis by Nursing Home Consultants, Inc. ("Consultants"). Consultants is an Ohio corporation engaged in the business of providing accounting services to health care organizations and a wholly owned subsidiary of Suburban. /43 The proposal to have Consultants prepare. the cost reports on a contingent basis was accepted by the bankruptcy court. An order appointing Consultants to prepare the cost reports was entered on January 11, 1980. Faced with court action, B & K's accountant eventually relinquished his work papers in December, 1980. In the words of the bankruptcy court, ". . . this pile of books . . ." was turned over to Consultants ". . . to audit the books and file the claims and press the claims." Preparation of the cost reports required by Respondent was a long and arduous task. It required checks to be matched to invoices and patient records to be verified. The first cost report was completed by Consultants in July, 1981, forwarded to the bankruptcy trustee, and filed with Respondent. Respondent returned the cost report to Consultants because the signatory of the cost report was not a certified public accountant in Ohio. Consultants obtained the required signature and returned the cost report to Respondent. 5.03(c) Assignment To Petitioner All of the cost reports had not been completed in July, 1982. Both the bankruptcy trustee and the bankruptcy judge desired to close the bankruptcy estate and ascertain what, if any, assets were available. Petitioner offered to purchase the interest of the bankruptcy trustee in the claim of the bankrupt against Respondent for unreimbursed Medicaid expenses. Petitioner's offer was accepted by the trustee and ratified and approved by the bankruptcy court on September 24, 1982. 5.03(c)(1) Consideration Paid The consideration paid by Petitioner to acquire the interest of the bankruptcy trustee included both cash and non-cash elements. Petitioner paid $5,000 in cash and agreed not to exercise its legal right to take action in the bankruptcy proceeding to recover priority claims for unpaid rent in the amount of $105,000 and administrative expenses in the amount of $35,000. Petitioner also agreed not to exercise its legal right to take action in the bankruptcy proceeding to recover the non-priority claim for unpaid rent in the amount of $292,750.65. Petitioner's offer was approved by the bankruptcy court, and Petitioner's claims were stricken by Order On Objections To Claims entered on March 11, 1983. 5.03(c) (2) Asset Acquired The asset acquired by Petitioner is reflected in the five cost reports submitted for review and audit by Respondent. Petitioner's written offer to the bankruptcy trustee stated that: the cost reports, and figures extrapolated therefrom, reflect an `asset' of the bankrupt in the form of monies dub and owing from the State of Florida. The bankruptcy trustee filed a Motion For Rule To Show Cause on or before August 25, 1982 (the "Motion"). The Motion requested the bankruptcy court to enter an order to show cause why the offer by Petitioner should not be accepted by the bankruptcy trustee. The Motion expressly incorporated by reference the terms of Petitioner's written offer and made the written offer part of the Motion. The Motion was approved by the bankruptcy court by Order On Rule To Show Cause entered on September 24, 1982. The Order On Rule To Show Cause expressly incorporated the terms of Petitioner's written offer attached to the Motion. The Order On Rule To Show Cause, in relevant part, provides: That the offer made by [Petitioner], a copy of said offer more specifically detailed and attached to the Trustee's . . . Motion, be and the same is hereby ratified and approved. 5.03(c)(3) Respondent And The Bankruptcy Court Respondent appeared at a hearing conducted on September 23, 1982, to determine whether Petitioner's offer should be accepted. Respondent's objection to the assignment was specifically denied, and Respondent did not appeal the order approving the assignment. The transcript of the hearing reveals that Respondent urged the bankruptcy court to retain the claim for the benefit of all creditors. The bankruptcy court noted that the only asset of the bankrupt was the claim for unreimbursed Medicaid payments. In an exchange between counsel for Respondent and the court, the court said: a claim is a puff of wind until it is translated by a capable attorney into proof and argument, against a solvent Defendant, to the point where it becomes money. . The [Petitioner] has . . . an administrative claim . . . for some $35,000, and . . . a priority rent claim of $105,000. /44 [The Petitioner] is willing to cancel those two and also pay $5,000 to the estate. In other words, the estate has a $145,000 bird in the hand. You urge me to tell this trustee to let that bird fly away and attempt, perhaps for the next two years, to see if this trustee can get anything on these accounts You give me a very hard choice. /45 The hard choice presented by Respondent in that case was rejected by the bankruptcy court. 5.03(d) Continued Preparation Of Cost Reports After the first cost reports were submitted to Respondent, Respondent notified Consultants that the cost reports were not in acceptable form and that additional information would be required, including balance sheets and revenues for Crestwood. Consultants began again to gather the additional information requested by Respondent. Petitioner filed cost reports containing the additional information on February 7, 1983. Respondent declined to accept the cost reports for review and audit. An administrative proceeding was conducted to determine whether Respondent should accept the cost reports. Respondent agreed to accept the cost reports in G & J v. HRS. The cost reports claimed an underpayment in the gross amount of $745,037 and an underpayment in the net amount of $359,229, after taking into account applicable ceilings on allowable expenses. Neither the gross nor the net amounts of the claimed underpayment included the cost report for Krestview for the fiscal year ending on May 31, 1978. Petitioner prepared a revised cost report to replace the original cost report submitted by B & K on November 1, 1978. /46 Documentation Petitioner sufficiently documented expenses disallowed by Respondent in the aggregate amount of $344,758.66. Documented expenses consisted of those disallowed in the amount of $25,990.66 in KAR 5/31/78, $140,329 in KAR 5/31/79, $128,006 in KAR 8/31/79, $26,330 in TAR 5/31/79, and $24,103 in TAR /47 8/31/79. Petitioner documented the amount of the expense, its relation to patient care, and the record of payments from Respondent /48 5.04(a) Amount Of The Expense Petitioner documented the amount of the disallowed expenses with records that included either original invoices, cancelled checks, or both. The records also included supporting information such as delivery receipts and receiving reports signed by employees of Krestview and Towne House. The delivery receipts and receiving reports showed that goods and services issue in this proceeding were received. The delivery receipt also contained the number of the cancelled check used to pay for the goods or services delivered. The cancel led check was verified against paid invoices. Many invoices were not located at the time the records were reviewed by field auditors because they were misfiled or filed in accordance with an unknown filing system. The records were voluminous and filled approximately 50 boxes. The records included books of original entry, original invoices, cancelled checks, personnel records, payroll records, payroll journals, pay claim listings, and other supporting documentation from which costs of operation were determined. The records originally obtained from the bankruptcy trustee were in such a state that Consultants had to completely reconstruct the operation of Krestview and Towne House. The records were first sorted into logical groups. Then cash accounts were reconciled to each account for each reporting period covered in each cost report. Each check was listed by number, amount, identity of vendor, and category. Consultants contacted the suppliers and purveyors for each facility to review their records for the years in question. Information was also obtained from federal, state, and county agencies, including the Medicare/Medicaid intermediary. The information obtained from government agencies included: computer printouts of reimbursement checks, vendor payment checks, and patient activity records from Respondent; all invoices from the Dade County Department of Human Resources, Health Services Division; and B & K's banking records. The records and the cost reports prepared from those records were reviewed and tested by certified public accountants in accordance with generally accepted auditing standards ("GAAS"). The examination included tests of the accounting records and other auditing procedures considered necessary under the circumstances. /49 Petitioner is the custodian of the records used to document the expenses claimed in the cost reports pursuant to the order of the bankruptcy court. The records were delivered to Mrs. Ruth Eldridge at Consultants by the CPA for B & K pursuant to the order of the bankruptcy court. Mrs. Eldridge has over 30 years of experience in the health care industry and has prepared hundreds of cost reports for various nursing homes subject to Medicaid and Medicare requirements. Mrs. Eldridge was personally responsible for preparing and verifying the records and cost reports. Her testimony at the formal hearing was credible and persuasive. 5.04(b) Relation To Patient Care Disallowed expenses documented by Petitioner were related to patient care. The expenses were reasonable in amount and in line with amounts paid by other providers in the same geographic area. The goods and services purchased were of the same kind and character as that provided to other providers in the same geographic area. The population of patients in Krestview and Towne House was monitored by daily census records taken by nurses at each nursing station within each facility. The names of patients appearing on the daily census reports corresponded to names of patients appearing on the nurses daily activity reports. The expenses listed in the five cost reports correlated to the patient days listed in the record of payments from Respondent. 5.04(c) Payment Petitioner sufficiently documented the record of payments from Respondent to B & K. Respondent withheld all payments to B & K from July 1, 1979, through August 31, 1979. Respondent withheld payments in the approximate aggregate amount of $700,000. Petitioner documented the record of payment with the paid claim listing provided to Petitioner by Respondent's agent. Respondent entered into a contract with Systems Development Corporation of Tallahassee, Florida ("SDC") to process Medicaid claims and issue reimbursement checks to providers. Pursuant to that contract, SDC maintained a paid claim listing and backup documentation for reimbursement payments made to providers. The paid claim listing is a computer printout containing the names of each individual Medicaid recipient in Krestview and Towne House for the periods at issue in this proceeding. In addition to the name of each Medicaid patient, the paid claim listing shows the identification number of each patient, the months that each patient was in the facility, the date of service rendered by month, the amount of payment from other sources, including patient contributions, and the net amount remitted by Respondent. Paid claim listings were audited by Respondent each month. Petitioner was directed by Respondent to obtain the paid claim listing from SDC for the purpose of determining the record of payments made by Respondent to B & K. When Petitioner asked Respondent how to obtain information evidencing such payments, Respondent instructed Petitioner to contact SDC. Mrs. Eldridge wrote to SDC asking for a paid claim listing. SDC responded by mailing a computer printout to Mrs. Eldridge containing the paid claim listings for Krestview and Towne House. Paid claim listings were audited by Respondent to assure that rates established by Respondent were properly input by SDC into the computer system. The reimbursement rate for B & K was adjusted downward by Respondent effective June 19, 1979. While the paid claim listing shows that the rate adjustment was never implemented, it also shows that no payments were made to B & K after June 30, 1979. Allocations From The Home Office Expenses in the amount of $67,575 were properly allocated from the home office. The method of allocation was reasonable and sufficiently documented. Expenses incurred by Krestview and Towne House for services provided to each facility by the home office were allocated based upon the number of patient days for each facility. Allocating expenses based upon the number of patient days is the generally accepted method used for allocating expenses in cost reports when more than one facility is operated by the same home office and services are rendered to both facilities. Allocations Between Facilities Expenses in the amount of $37,994 were allocated between Krestview and Towne House. The method of allocating expenses between facilities was reasonable and sufficiently documented. The expenses were allocated between facilities based upon a case-by-case determination of which individual expense was actually incurred by each facility. Expenses incurred by one facility but paid by a check from the other facility were allocated to the facility that incurred the expense. All of the expenses allocated between facilities were related to patient care. Already Paid Or Covered By Another Program Expenses in the amount of $13,799.34 were proper expenses and were not already paid or paid under alternative programs. These expenses included pharmaceutical and nursing home supplies actually purchased by Krestview and Towne House. The expenses were disallowed because another program generally paid for that type of expense. The amount of expenses paid by other programs, however, was limited. The excess of the actual expense over that paid by the other program was a proper expense incurred by the facility. If the amount of prescription order by the physician, for example, exceeded the amount paid by the alternative program or if the amount of the supplies needed by the facility exceeded the maximum paid by the alternative program, then the facility had to pay the difference. The amount of the difference ended up as an actual expense of each nursing home Legal Fees Legal fees in the amount of $26,804 are allowable expenses. They are reasonable expenses incurred as a precondition for the delivery of health services. The legal fees were not incurred in violation of the National Labor Relations Act. Local 1115. The legal fees were incurred in connection with activities related to collective bargaining, contract negotiations, and procedures which flow from enforcement of the terms of a collective bargaining contract either in a collective or individual setting. The legal fees were necessary to maintain operations by the provider and were a precondition of the delivery of health services. The legal fees at issue were incurred by the provider in connection with activities related to the enforcement of the terms of a collective bargaining contract. A labor union attempted to prevent the transfer of management operations to B & K unless B & K agreed to assume the obligations of the collective bargaining agreement between the union and B & K's transferor. The labor union's attempt resulted in litigation in federal district court. Local 1115. The court specifically found that the case began as an attempt by the labor union to prevent the transfer of the management operation of Krestview and Towne House unless the transferee agreed to assume the obligations of the collective bargaining agreement between the labor union and the transferor. The court did not find that B & K was in violation of the National Labor Relations Act. Respondent improperly characterized a portion of the legal fees as organizational or start-up costs associated with the transfer of ownership to B & K. Respondent improperly required the legal fees to be capitalized and amortized rather than currently deductible. Section 1122 Property related expenses in the aggregate amount of $809,053 /50 are ordinary expenses which are properly allowable as current deductions against ordinary income. They are related to patient care and are reimbursable Medicaid expenses. Respondent's determination that the expenses at issue were capital expenditures was incorrect and was made in a procedurally deficient manner. The expenses at issue are not capital expenditures that must be capitalized and either amortized or depreciated over time. Respondent's determination that such expenses were capital expenditures failed to comply with applicable federal and state requirements for making determinations, findings, and recommendations upon which the federal government made the decision to deny reimbursement of expenses on the basis of the Section 1122 issue. 5.09(a) Unauthorized Review Of Leases Federal law enacted in 1975 required states to have either a program for granting or denying certificates of need ("CON") or a program that required prior approval for capital expenditures in excess of $100,000 in accordance with Section 1122. The certificate of need program was purely a state program. The Section 1122 program was a federal program administered by states pursuant to contract between the state and federal governments. States were authorized under the federal legislation to establish and administer both a CON program and a Section 1122 program. HEW had exclusive authority to determine. whether a capital expenditure had occurred without prior approval, whether to impose sanctions, and what sanctions to impose, if any. The HEW determination was based on findings and recommendations of the state agency administering the plan. The state agency was required to give the provider an opportunity for a fair hearing before presenting findings and recommendations to HEW. Both types of programs were established and administered in Florida by Respondent until sometime in June, 1978. The Office of Community Medical Facilities was the office responsible for administering the Section 1122 program for Respondent. In June, 1978, the contract under which Respondent administered the Section 1122 program for HEW expired. The contract under which Respondent administered the Section 1122 program expired prior to the time any action was taken by Respondent in connection with B & K and Section 1122. Respondent first requested that it be permitted to review the two leases for Krestview and Towne House pursuant to Section 1122 on March 2, 1979. Respondent's request was made to B & K approximately eight months after Respondent's contract to administer the federal program expired. Respondent's Office of Community Medical Facilities notified the president of B & K by separate letters dated March 2, 1979, that a "capital expenditure" in the form of the leases for Krestview and Towne House had "occurred." The separate letters stated that the lease agreements had not been reviewed ". . . as required by Section 1122, P.L. 92-603. Acting as the Designated Planning Agency (DPA) in the Section 1122 review program . . .," Respondent offered to ". . . review the . . . capital expenditure[s] under the Section 1122 program for conformity with standards, plans and criteria." Respondent had no contractual authority on March 2, 1979, to conduct a review of the leases for Krestview and Towne House on behalf of the federal government. Even if Respondent had authority to review the leases, that authority was limited to a review of the leases for the purpose of determining whether lease payments made from May 5, 1977, until sometime in June, 1978, constituted capital expenditures. Respondent withheld reimbursement of all Medicaid expenses after June 30, 1979, in an effort to recoup all lease payments irrespective of when they were made. 5.09(b) Previous Authorized Review Of Leases The two leases for the operation of Krestview and Towne House were net leases entered into between B & K and Petitioner on May 5, 1977. HRS v. B & K. The terms of the net leases required the lessee to pay property related expenses including taxes and insurance on real and personal property. Id. The leases contained substantially the same terms and conditions as those by which the previous provider had operated the two facilities prior to the time B & K assumed operations at the request of Respondent. Id. The two leases for Krestview and Towne House were included in a review by Respondent's Office of Community Medical Facilities in 1978, prior to the expiration of the contract to administer the Section 1122 program. The purpose of tile review was to determine if there was ". . . a purchase made of the nursing facilities. . . " and if there was ". . . any action to be taken under Section 1122, Public Law 92-603. See Joint Exhibit 27. Respondent's review focused on transactions between B & K and its parent company and the stock purchase agreement between B & K's parent and Petitioner as the transferor of the stock. The stock purchase agreement expressly incorporated the two leases between B & K and Petitioner. On April 11, 1978, Respondent's Office of Community Medical Facilities notified the president of B & K that the ". . stock transfer . . . is not reviewable . . . under Section 1122, . . . as it will have no effect on depreciation, interest or fair return on investment for reimbursement purposes." See Joint Exhibit 28. 5.09(c) No Capital Expenditure Occurred Lease payments made by B & K to Petitioner for use of the Krestview and Towne House facilities did not constitute capital expenditures within the meaning of Section 1122. The lease payments were properly chargeable as a currently deductible expense of operation and maintenance based on GAAP. Lease payments could be treated as capital expenditures if lease payments were made pursuant to a transaction which was cast in the form of a lease but which in substance was an installment sale (a "virtual purchase"). A lease could be recharacterized as a virtual purchase if the lease payments exceeded the fair rental value in the geographic area, the term of the lease was less than the useful life of the facility, and the provider had either an option to renew the lease at a significantly reduced rental rate or an option to purchase at a price significantly less than the fair market value of the facility. The terms of the two leases for Krestview and Towne House did not satisfy any one of the requirements of a virtual purchase. The lease payments individually and in the aggregate did not exceed fair rental value for the geographic area. The terms of the leases did not exceed the useful life of the facilities. The terms of the leases included neither an option to renew at a rental rate significantly less than the fair rental value nor an option to purchase at a price significantly less than the fair market value of the facilities. There is nothing in either of the two leases to suggest that the agreements were anything but a straight lease or that the payments were anything but bona fide lease payments. Respondent's determination in 1978 that the rental rate for Krestview and Towne House exceeded the fair rental value of the two facilities was dismissed by Respondent prior' to a formal hearing in 1979. HRS v. B & K at 2. A desk review by Respondent's Office of Audit Service disallowed an increase in rent on May 31, 1976, prior to the time B & K began operations of the two facilities. Respondent's field audit allowed the rental increase. Petitioner requested a formal hearing to determine ". . . `an appropriate and acceptable rental amount'. . ." Respondent's Office of Audit Service received a copy of each of the leases for the two facilities on February 19, 1979. The issue of the whether the rental rate was reasonable was dismissed prior to the formal hearing. Id. 5.09(d) Agency Determinations, Findings, And Recommendation Respondent determined the substantial interests of B & K in two separate determinations. First, Respondent made a threshold determination that a "capital expenditure" had occurred in the form of lease payments made under two leases far Krestview and Towne House. Second, Respondent determined that B & K failed to submit a proposal for review of a "capital expenditure." Both of Respondent's determinations constituted findings without an opportunity for a fair hearing in violation of state and federal law. Based upon those findings, Respondent submitted recommendations to HEW that led to the exclusion of amounts attributable to such "capital expenditures" in determining Medicaid reimbursement payments to B & K. 5.09(d) (1) Determinations Respondent's first determination of B & K's substantial interests took the form of separate "implicit" determinations made on March 2, 1979. /51 Respondent's Office of Community Medical Facilities stated in separate letters to B & K dated March 2, 1979, that correspondence had been received from Respondent's Office of Audit Service ". . . indicating that a capital expenditure . . . [had] occurred . . . ." See Joint Exhibit 20 (emphasis added). In the next paragraph, Respondent offered ". . . to review the above mentioned capital expenditure under the Section 1122 program . . . ." (emphasis added) The next paragraph advised B & K that it had only 30 days to initiate a request for review . . ." of the capital expenditure or risk the withholding of payments Respondent explicitly determined on April 10, 1979, that a "capital expenditure" had occurred in the form of lease payments for Krestview and Towne House. On April 10, 1979, Respondent's Office of Community Medical Facilities stated in a letter to counsel for Petitioner that ". . . it is the determination of [Respondent] and this office that the lease transactions were a capital expenditure and subject to review under Section 1122 of P.L. 92-603." See Joint Exhibit~22. Respondent's second determination of B & K's substantial interests took the form of separate written determinations on May 15 and 16, 1979, that B & K had failed to submit a proposal for review of a capital expenditure. On May 15 and 16, 1979, Respondent's Office of Community Medical Facilities made numerous findings in written correspondence to HEW. Respondent found, in relevant part, that B & K had undertaken action under Section 1122 involving the acquisition of two nursing homes at an aggregate cost of $8,300,000 without submitting a proposal for review of such costs. 5.09(d) (2) Findings And Recommendations Respondent's determinations that a "capital expenditure" had occurred and that B & K had not submitted a proposal for review of such "capital expenditures" constituted findings under applicable federal law. HEW notified the president of B & K on May 25, 1979, that HEW had ". . reviewed the findings and recommendations of [Respondent] with respect to the proposed capital expenditure [of $8,300,000] . . ." (emphasis added). See Respondent's Exhibit 6. Respondent recommended to the federal government that amounts attributable to "capital expenditures" be excluded in determining Medicaid reimbursement payments to B & K. On May 15 and 16, 1979, Respondent's Office of Community Medical Facilities recommended to the appropriate office of HEW that " . . . amounts attributable to this capital expenditure be excluded in determining payments to the proponent under Titles V, XVIII and XIX of the Social Security Act for services furnished." See Joint Exhibits 23 and 24, Part IV, D, of attached Record Of State And Local Action Under Section 1122 Of The Social Security Act. The letter of transmittal from Respondent to HEW represented that the correspondence contained Respondent's "recommendation." The findings and recommendations made by Respondent to HEW formed the basis for HEW's decision to withhold reimbursements for capital expenditures. On May 25, 1979, HEW notified Respondent that HEW had ". . . reviewed the bindings and recommendations of [Respondent] with respect to the proposed capital expenditure [of $8,300,000] . . . ." Based upon Respondent's findings and recommendations, HEW determined that reimbursement would be indefinitely withheld for the "capital expenditure." 5.09(e) Procedural Defects Respondent determined the substantial interests of B & K without giving B & K an opportunity for a fair hearing. Respondent's notice to B & K on March 2, 1979, did not clearly state that a determination had been made of the occurrence of a capital expenditure. That determination was only "implied" /52 Respondent did not explicitly state that a determination had been made of the occurrence of a capital expenditure until Respondent made that disclosure in its letter to counsel for Petitioner on April 10, 1979. That disclosure, however, was addressed by Respondent to counsel for Petitioner and was not addressed to B & K. Neither notice included a statement of B & K's appeal rights with respect to either Respondent's "implicit" or explicit determinations that a "capital expenditure" had occurred. 5.09(e)(1) Determinations That Capital Expenditure Had Occurred Respondent's notice to B & K on March 2, 1979, failed to disclose B & K's appeal rights concerning Respondent's "implicit" determination that a "capital expenditure" had occurred. Respondent's notice offered to ". . review the . capital expenditure . . . . [,] stated that B & K had 36 days to " . . . initiate a request for review [of the capital expenditure] in compliance with DHRS Rule 10-5 . [,]" and further stated that failure to ". . . initiate such a request for review leaves no basis for a finding of conformity and may be grounds for indefinite withholding of Medicare/Medicaid reimbursements by DHEW." The copies of administrative rules attached to the notice on March 2, 1979, addressed neither B & K's rights to appeal Respondent's implicit determination that a capital expenditure had occurred nor the procedures for such appeals. See Joint Exhibit 20. The notice to counsel for Petitioner on April 10, 1979, of Respondent's explicit determination that a "capital expenditure" had occurred contained no statement of appeal rights available to B & K. The notice merely stated that Respondent had determined that the lease payments ". . . were capital expenditures . . ." and referred counsel for Petitioner to state and federal laws relied upon by Respondent for its determination. 5.09(e) (2) Determination Of Failure To Submit Proposal For Review Of A Capital Expenditure The first written notice of Respondent's determination that B & K had failed to submit a proposal for review of a capital expenditure was given to B & K in the form of copies of Respondent's written correspondence to the federal government. That written notice was received by B & K after Respondent mailed its findings and recommendations to HEW. The notice of determination failed to inform B & K of any appeal rights concerning Respondent's determination of B & K's substantial interests. The notice of determination also made findings and recommendations relied upon by HEW without- first giving B & K an opportunity for a fair hearing. B & K was not given 30 days to request a formal hearing. The notices of March 2, 1979, were received ) by B & K on March 21, 1979. The time to submit a proposal for review of a "capital expenditure" expired on or about April 21, 1979. April 22, 1979, was the first day that Respondent could have determined that B & K had not timely filed a proposal for review of a "capital expenditure." There is no evidence in the record that Respondent made such a determination on April 22, 1979. Even if Respondent determined in free form agency action conducted on April 22, 1979, that a proposal for review of a "capital expenditure" had not been timely filed, B & K would have had 30 days under applicable federal regulations, or until May 22, 1979, to request a formal hearing concerning Respondent's determination. Respondent, however, notified the federal government on May 15 and 16, 1979, that Respondent had determined that no proposal for review of a "capital expenditure" had been timely filed. Respondent's notice to the federal government was dated approximately six to seven days prior to the last day of the 30 day period in which B & K was entitled to request a formal hearing. May 15, 1979, was the first day that the failure to timely file a proposal for review of a capital expenditure could have been determined by Respondent in any manner other than free form agency action. May 15 and 16, 1979, were the dates of Respondent's written notices to the federal government that no proposal for review of a capital expenditure had been filed. The notices of Respondent's determinations were also mailed to B & K on May IS and 16, 1979. The last days to request a formal hearing concerning Respondent's determinations were Jane 15 and 16, 1979. A formal hearing was requested by counsel for Petitioner on May 29, 1979. The request for a formal hearing from counsel for Petitioner was sufficient to put Respondent on notice that its proposed agency action was being contested. In any event, the issue of who requested the formal hearing and his or her authority to represent B & K is a moot point. The federal government instructed Respondent to withhold Medicaid reimbursements for capital expenditures before the request for formal hearing could be made. On May 21, 1979, the federal government received Respondent's notices of May 15 and 16, 1979. On May 25, 1979, HEW notified Respondent that HEW had determined that B & K failed to submit a review for proposal and that reimbursement would be indefinitely withheld for the `capital expenditure [of $8,300,000] . . . ." See Respondent's Exhibit 6. /53 Even if a point of entry had been provided to B & K, it was not a clear point of entry. The point of entry provided to B & K on March 2, 1979, was a 30 day window of time to submit an application for review of a "capital expenditure." Respondent never informed B & K of its appeal rights concerning either Respondent's threshold determination that a capital expenditure had occurred or Respondent's determination that ". . . no proposal [had been] submitted. . ." for review of a "capital expenditure." The manner in which Respondent determined B & K's substantial interests and the manner in which Respondent attempted to fulfill its due process obligations was, at best, confusing and unclear. Respondent's conduct precipitated more than one attempt by more than one law firm to ascertain what action had in fact been taken by Respondent. See Joint Exhibits 21, 25, 26. Accrual And Payment Expenses in the amount of $253,990 were either properly accrued and properly paid. A portion of those expenses were discharged in bankruptcy. The remaining portion was assigned to Petitioner for payment. 5.10(a) Accrual An invoice for each expense claimed in the cost reports was received at the time the goods or services were delivered. The provider had knowledge of the amount due for such goods or services. The obligation to pay for the goods or services was incurred in the ordinary course of business. The amount of the obligation and time for payment gas fixed and determined between the parties to each transaction. The provider either paid the obligation or intended to pay the obligation at the time the provider received the invoice. B & K, the bankruptcy trustee, and Petitioner have always intended to pay expenses disallowed as not properly accrued. Petitioner never abandoned the claim for reimbursement of expenses. Pursuant to the assignment approved by the bankruptcy court Petitioner prepared the needed cost reports and "pressed" the claim against Respondent for reimbursement of Medicaid expenses. Pursuant to the Final Order in G & J v. HRS, Petitioner submitted the cost reports required by Respondent for review and audit on August 22, 1984. More than four years later, Respondent completed its review and audit of the cost reports. Petitioner has consistently pursued the payment of expenses disallowed by Respondent. 5.10(b) Payment Expenses disallowed in the audit reports in the amount of $253,990 were properly paid within the meaning of applicable Medicaid rules. /54 Applicable Medicaid rules require payment within one year after the end of the cost reporting period in which the liability was incurred. Payment may occur up to three years after the end of the cost reporting period in which the liability was incurred if there is valid justification for the delay. Valid justification includes cash flow difficulties and accounting errors in the receipt and processing of bills. See discussion at Conclusions of Law, Sac. 6.07(d), infra. Valid justification existed for not paying expenses disallowed as unpaid within one year after the end of the cost reporting period in which the liabilities were incurred. B & K encountered cash flow difficulties when Respondent cut off the sole source of cash flow required to pay expenses disallowed by Respondent as unpaid. B & K also encountered accounting errors in the receipt and processing of bills for the cost of goods and services when Respondent adjusted the reimbursement rate to be paid to B & K to recoup expenses disallowed retroactively to May 5, 1977. The cash flow difficulties and accounting errors experienced by B & K were caused by action undertaken by Respondent without reasonable care. 55/ The lease payments from B & K to Petitioner were made pursuant to leases that here substantially the same as those under which the previous provider operated Krestview and Towne House. The leases under which B & K operated the two facilities had been included in a review conducted by Respondent the previous year. When Respondent incorrectly determined that the lease payments were capital expenditures, Respondent did so pursuant to a contract with the federal government that had previously expired. Respondent made recommendations to the federal government based upon findings that were substantively incorrect and that were procedurally deficient. Notices to B & K of action taken or to be taken by Respondent were untimely, deficient, and unclear. When Respondent explicitly stated what action it had taken, the notice of that action was not mailed to B & K. Liabilities for expenses disallowed as unpaid were incurred in the period covered by cost reports for the fiscal year ending May 31, 1979, and for the three month period ending August 31, 1979. See, KAR 8/31/79, TAR 5/31/79, and TAR 8/31/79. An automatic stay was imposed by applicable bankruptcy law when the petition in bankruptcy was filed on August 3, 1979; within one year after the end of the cost reporting period in which the liabilities were incurred. The automatic stay enjoined any action for the payment of expenses until the bankruptcy proceeding was closed. The three year period allowed for payment of expenses under applicable Medicaid rules was tolled upon the filing of the petition in bankruptcy. The three year period ran from May 31, 1979, to August 3, 1979, when the petition in bankruptcy was filed. The automatic stay enjoined further action until the bankruptcy file was closed. The bankruptcy file was closed on August 27, 1987. This proceeding began on July 9, 1987, during the pendency of the automatic stay imposed under applicable bankruptcy law. /56 The three year period allowed under applicable Medicaid rules for payment of Medicaid expenses will not begin to run again until the conclusion of this proceeding. 57/ Return On Equity Expenses unrelated to property in the amount of $42,079 were improperly disallowed by Respondent as adjustments to return on equity. The adjustments to return on equity were made as a result of the lease payments disallowed as "capital expenditures." One of the purposes of a review under Section 1122 is to determine whether a particular expenditure will have an affect on ". . . depreciation, interest or fair return on investment for reimbursement purposes." See Respondent's letter to B & K on April 11, 1978 in Joint Exhibit 28. Retroactive And Prospective Methods Of Reimbursement Two methods of reimbursement for Medicaid expenses were used by Respondent from May 5, 1977, through August 31, 1979. The retrospective method of reimbursement was issued prior to October 1, 1977. The prospective system was used effective October 1, 1977. Application for approval of the change in methods of reimbursement was submitted by Respondent to the appropriate office of HEW on December 12, 1977, received by HEW on December 15, 1977, and approved by HEW on April 26, 1978. The effective date of the change was October 1, 1977. The adoption of the prospective method of reimbursement was merely a continuation of the previously existing Medicaid program with no new or additional economic impact to the state, private persons, or others. G & J v. HRS at 10. 5.12(a) Final Rate And Rate Application Period Both methods of reimbursement are used to establish a per diem rate of reimbursement ("final rate"). The final rate is determined under both methods of reimbursement for a particular provider by dividing allowable costs by allowable Medicaid patient days. 58/ Allowable costs are those costs reported by providers on annual cost reports submitted to Respondent after upward or downward adjustments, if any, are made by Respondent and agreed to by the provider. The final rate established under the retrospective method of reimbursement is applied backward over the period covered by the cost report. The final rate is also used as the interim rate to be paid until the next cost report is filed by the provider. The final rate established under the prospective method of reimbursement is applied forward during the period covered by the next cost report to be filed. The final rate includes an inflation factor to compensate the provider for the fact that the final rate is calculated prior to the rate application period. 5.12(b) Settlement Of Overpayment And Underpayment An overpayment occurs when the actual annual payments received by a provider exceed the actual annual allowable costs included in the cost report filed by the provider. An underpayment occurs when the actual annual allowable costs included in the cost report filed by the provider exceed the actual annual payments received by the provider during the period covered by the cost report. An overpayment and an underpayment are generally settled in the same process in which final rates and interim rates are determined. The customary method of settling an overpayment and an underpayment assumes that the provider is an ongoing business. The customary method of settlement does not address a provider who terminates its operations as a result of bankruptcy or otherwise. 5.12(b) (1) Overpayment The customary method of settling an overpayment is different under the retrospective and prospective methods of reimbursement. Under the retrospective method of reimbursement, an overpayment is recovered by Respondent either by a mutually acceptable plan negotiated between Respondent and the provider or by withholding regular payments to the provider. Recovery by withholding of payments, however, can be used only after the provider is offered an opportunity for a fair hearing and, if requested, a fair hearing is completed and a final decision is entered. Under the prospective method of reimbursement, an overpayment is not recovered retrospectively. Instead, the amount of overpayment is excluded from the allowable costs used in calculating the final rate to be applied subsequently during the rate application period. The exclusion of an from allowable costs has the effect of reducing the final rate subsequently received by the provider during the rate application period. 5.12(b) (2) Underpayment An underpayment is treated similarly under the retrospective and prospective methods of reimbursement. When a provider's actual annual allowable costs included in the cost report filed under the retrospective method of reimbursement exceed the actual annual payment from Respondent, the interim rate paid until the next cost report is filed is increased by an allowance of nine percent in lieu of retroactive payments. When a provider's actual annual allowable costs included in the cost report filed under the prospective method of reimbursement exceed the actual annual payment from Respondent, the final rate to be applied during the next rate application period is increased in proportion to the actual annual allowable costs included in the cost report. 5.12(c) Reimbursement For Underpayment Petitioner is entitled to reimbursement of an underpayment under either the retrospective or prospective methods of reimbursement. Some of the findings of fact that are relevant to this factual issue were made in the Recommended Order in G & J v. HRS. The findings of fact in the Recommended Order were adopted in Respondent's final order. Other findings of fact that are relevant to this factual issue are made in this proceeding. 5.12(c) (1) Prior Proceeding The Recommended Order in G & J v. HRS found that underpayment could be recovered by a provider upon receipt of a properly completed claims document. The Recommended Order found that a claims document included a cost report. The Recommended Order in G & J v. HRS rejected Respondent's assertion that cost reports can only be used to set a new rate and cannot be used to establish the amount of retroactive payments. The Recommended Order found that the purpose of the cost reports was not limited to the establishment of a new rate. Respondent was aware that Petitioner was preparing cost reports for audit and that B & K was out of business. The establishment of a new rate for an ongoing business is not the only purpose for filing cost reports. Cost reports may also be filed to obtain retroactive payments if such payments are not otherwise prohibited. G & J v. HRS. Florida Administrative Code Rule 10C-7.48(6) (i) does not prevent retroactive reimbursement for an underpayment. The Recommended Order based its determination upon four findings of fact. Most importantly, the Recommended Order found that retroactive reimbursement for an underpayment was specifically contemplated in the provider agreement entered into between B & K and Respondent. 60/ Any rights to such reimbursement were assigned to Petitioner by the bankruptcy trustee pursuant to the order of the bankruptcy court. Second, Retroactive reimbursement of underpayment was contemplated in Respondent's "Instructions to Cost Reports for Nursing Homes Participating in the Florida Medicaid Program." Florida Administrative Code Rule 10C-7.48 provides that cost reports are to be completed in accordance with Respondent's instructions. Third, retroactive reimbursement of an underpayment was not eliminated by the adoption of a "totally new prospective system of payment." The adoption of the prospective system of payment was merely a continuation of the Medicaid program with no new or additional economic impact to the state, private persons, or others. Fourth, Florida Administrative Code Rule 10C-7.48(6) (i) does not prohibit all retroactive payments bat rather only retroactive reimbursement of those costs which exceed annual payment." A definition of "annual payment" could not be established by Respondent. B & K never experienced an established and consistently applied rate during 1978 and 1979. Instead, B & K experienced a series of eight different crates in less than 12 months. The policy of Respondent was that rates became effective on the first day of each month after a cost report was filed. The Respondent's policy, however, was inapplicable because rates for B & K were not set with any consistent pattern or principle in mind. 5.12(c) (2) This Proceeding Both the retrospective and prospective methods of reimbursement authorize the recovery of an underpayment by a provider under two sets of circumstances. First, underpayment can be recovered by the provider if an audit determines that there were errors on the cost reports and actual costs were greater than reported costs. Second, the provider agreement expressly states that "[i]n instances of nonpayment or under- payment . . . the [Respondent] shall make payment to the Provider upon receipt of properly completed claims documents." (emphasis added) Both sets of circumstances required to recover an underpayment are satisfied in this proceeding. First, actual costs incurred by B & K exceeded reported costs as adjusted by Respondent. The excess of actual costs over adjusted reported costs was caused by errors made in the audit reports prepared by Respondent. Second, the provider agreement executed by Respondent after it adopted the prospective method of reimbursement requires payment to Petitioner upon the receipt of properly completed claims documents. A cost report is a properly completed claims document. Respondent's claim that the prospective method of reimbursement must be used in this proceeding is inconsistent with Respondent's actions in two respects. First, Respondent executed provider agreements with B & K which authorized the use of the retrospective method of reimbursement after Respondent amended its plan and adopted the prospective method of reimbursement. Second, when Respondent adjusted B & K's rate to recoup capital expenditures, Respondent did not base the adjustment on the prior cost reporting period as is done in the prospective method of reimbursement. Rather, Respondent went back retrospectively and based the adjustment on all cost reporting periods since B & K began operation of Krestview and Towne House. Once it has been determined that Petitioner is entitled to recovery of an underpayment, the only issues to be determined are the form and amount of such recovery. The customary form of recovering an underpayment under either the retrospective or prospective method of reimbursement is an increase in the final rate. The customary form of recovering an underpayment is ineffectual whenever the provider has terminated business operations through bankruptcy or otherwise. A provider that has terminated business operations does not lose its right to recover underpayment merely because the customary form of recovering underpayment is no longer an effectual form of recovery. Such a provider remains entitled to recover an underpayment through an effectual form of payment. The most effectual form of recovering an underpayment for a provider that has terminated its business is a lump sum payment determined in a final accounting. 5.12(c) (3) Final Accounting Expenses at issue in the amount of $1,362,925 are allowable and properly included in the five cost reports reviewed and audited by Respondent. Adjustments to reported costs made in the five audit reports disallowed expenses in the aggregate amount of $1,748,636. Petitioner admitted prior to the formal hearing that disallowances by Respondent in the aggregate amount of $304,305.34 were proper. Of the remaining $1,444,330.66 to be determined at the formal hearing, Petitioner failed to present evidence with respect to $81,405.66. The remaining expenses disallowed in the audit reports are expenses at issue in this proceeding. All of the expenses at issue are allowable and properly included in the five cost reports reviewed and audited by Respondent. Allowable expenses are not reduced by any setoff claimed by Respondent. Respondent determined as a result of KAR 5/31/78 that overpayment had been made to B & K in the aggregate amount of $1,125,910. No overpayment was determined from Respondent's audit of the other cost reports. Respondent determined that the other cost reports served only to set the prospective final rate for the subsequent periods of operation. Approximately $620,724 of the alleged overpayment resulted from Respondent's determination that the interim Medicaid per diem payment rate for Krestview's first period of operation by B & K was greater than the retrospectively determined Medicaid per diem payment rate for the same period. Approximately $505,186 of the aggregate amount of overpayment resulted from Respondent's determination that inaccuracies in original cost report for 5/31/78 caused an additional overpayment in the prospective Medicaid per diem payment rate for Krestview following Krestview's first period of operation. A major portion of the aggregate amount of claimed overpayment resulted from rent payments which were disallowed by HEW on the basis of the Section 1122 issue. /61 The net amount of underpayment due from Respondent to Petitioner is $447,473.34. The net amount of underpayment has been determined by reducing the net underpayment claimed by Petitioner in the amount of $528,879 by pretermitted issues in the amount of $81,405.66. Some of the limitations applicable to the gross underpayment claimed by Petitioner may have been applicable to some or all of the pretermitted issues. The burden of proof, however, is on Petitioner to show the proportion of the limitations applicable to the pretermitted issues. Petitioner presented no evidence to show what proportion of the limitations applied to the pretermitted issues.
Conclusions Reserved Rulings 70 6.01(a) Authenticity 70 6.01(b) Hearsay 72 6.01(b) (1) Other Rulings 77 6.01(b) (2) The Public Records Exception 78 6.01(c) Unfair Surprise 78 6.01(d) Respondent Is Bound By Res Judicata 80 6.01(e) No Waiver Of Objections Not Raised In The Prehearing Stipulation 83 6.02 No Waiver Of The Claim Against Respondent 83 6.02(a) No Waiver Under Bankruptcy Law 85 6.02(b) No Waiver Under State Law 88 6.03 Petitioner Is Not Barred By Collateral Estoppel 90 6.04 Petitioner Is Not Barred By Res Judicata 91 6.05 Setoff 94 6.05(a) Right To Assert Setoff Under Bankruptcy Law . . 94 6.05(b) Right To Assert Setoff Under State Law 97 6.06 Merits Of Respondent's Setoff 98 6.07 Petitioner's Claim 100 6.07(a) Documentation 102 6.07(b) Legal Fees 105 6.07(c) Section 1122 105 6.07(d) Accrual And Payment 107 7. RECOMMENDATION 111 APPENDIX 113 Petitioner's Proposed Findings of Fact 113 Respondent's Proposed Findings of Fact 114
