09-003367 Stephen Pazian vs. Florida Prepaid College Board Status: Closed Recommended Order on Tuesday, March 9, 2010.

Summary: Petitioner failed to prove that Respondent is liable for its failure to follow Petitioner's investment instructions.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

STEPHEN E. PAZIAN, )

)

Petitioner, )

)

vs. ) Case No. 09-3367

)

FLORIDA PREPAID COLLEGE BOARD, )

)

Respondent. )

)

RECOMMENDED ORDER

An administrative hearing was conducted in this case on

December 8, 2009, in Tallahassee, Florida, before

James H. Peterson, III, Administrative Law Judge with the

Division of Administrative Hearings.

APPEARANCES

For Petitioner: Stephen E. Pazian, pro se

11987 West Timberlane Drive

Homosassa, Florida 34448-7311

For Respondent: Robert J. Winicki, Esquire

Debbie K. Winicki, Esquire

The Winicki Law Firm, P.A.

4745 Sutton Park Court, Suite 401

Jacksonville, Florida 32224

STATEMENT OF THE ISSUE

Whether the Florida Prepaid College Board (Respondent) is

liable to Stephen E. Pazian (Petitioner) under the Participation

Agreement for losses incurred in his investments in the Florida

Prepaid College Plan as a result of Respondent’s failure to

follow Petitioner’s investment instructions.

PRELIMINARY STATEMENT

In January 2009, by letter to the Chairman of the Florida

College Prepaid Board, Petitioner requested retroactive

adjustments in the allocation of his investments in the Florida

College Investment Plan in accordance with allocation transfer

forms Petitioner claimed were faxed to Respondent on February 5,

2007. After investigation, Respondent, through its Executive

Director Thomas J. Wallace, sent a letter to Petitioner dated

April 27, 2009, advising Petitioner that the Board was unable to

approve his request. Thereafter, on June 3, 2009, Petitioner

filed an “Amended Petition for Formal Hearing Pursuant to

Section 120.57 Florida Statutes Applicable to Hearings Involving

Disputed Issues of Material Fact” (Amended Petition),

challenging Respondent’s denial of his request and seeking,

among other things, “consequential damages arising from

Respondents’ failure to execute Petitioner’s investment

instructions . . . .” Respondent referred the Amended Petition

to the Division of Administrative Hearings (DOAH) on or about

June 18, 2009. While the Amended Petition names a number of

parties as respondents in addition to Respondent, at the

administrative hearing in this case, Petitioner explained his

understanding that, in this proceeding, he was only claiming

against Respondent.

At the administrative hearing held on December 8, 2009,

Petitioner presented the testimony of six witnesses, testified

on his own behalf, and offered 48 pre-marked exhibits received

into evidence as Exhibits P-1 through P-48 without objection.

Respondent presented the testimony of two witnesses, read

portions of the deposition of Petitioner’s wife into the record,

played portions of Petitioner’s video deposition, and offered 33

pre-marked exhibits received into evidence as Exhibits R-2

through R-34 without objection. In addition, the parties

offered four joint exhibits which were received into evidence as

Exhibits A through D. The proceedings were recorded and

transcribed. The hearing concluded on December 8, 2009, 1 / and

the parties were given 30 days from the filing of the transcript

within which to file their proposed recommended orders. The

transcript of the administrative hearing was filed on January 4,

2010. Petitioner and Respondent timely filed their respective

Proposed Recommended Orders on February 3, 2010, which have been

considered in the preparation of this Recommended Order.

FINDINGS OF FACT

1. Respondent is a corporate entity created by Section

1009.971, Florida Statutes, 2 / responsible for administering the

Florida College Savings Program, also known as the Florida

College Investment Plan (the Plan).

2. Petitioner is an individual with a Master’s degree in

Business Administration from the University Georgia. Petitioner

and his wife have been residents of Homosassa, Florida, since

2003.

3. In October 2003, Petitioner opened two accounts with

Respondent under the Plan and directed that the funds for both

accounts be 100 percent invested in the U.S. Equity Investment

Option. Petitioner opened the first account with an initial

investment of $50,000 for his daughter, Jordan S. Pazian,

Account Number 0079456. The other account Petitioner opened was

for his son, Benjamin W. Pazian, Account Number 0079484, also

with an initial investment of $50,000.

4. The contract between Respondent and an account owner

under the Plan is the Participation Agreement. The

Participation Agreement is incorporated by reference into

Florida Administrative Code Rule 19B-16.003.

5. Respondent agreed to the terms of the Participation

Agreement when he signed the applications opening the two

accounts. In turn, Section 1 of the Participation Agreement

provides that “the Florida College Investment Plan Application

(the ‘Application’) that I completed, signed and submitted to

the Board and the Disclosure Statement is incorporated by

reference and made a part of this Participation Agreement.”

6. The Disclosure Statement provided to Petitioner at the

time he opened the subject accounts, explained on page 28, that

the Board “will mail to the Account Owner quarterly statements

indicating: Contributions to each selected Investment Option

made to your Account during the period. Withdrawals from each

selected Investment Option from your Account made during the

period. The total value of your Account at the end of the

period.” In addition, the Disclosure Statement explained that

the fourth-quarter, year-end account statement would provide the

same information for the preceding calendar year and the

investment performance for each investment option.

7. The Application forms completed by Petitioner required

Petitioner, as account owner, to provide “Contact Information”

to the Board as part of the Application. Petitioner listed his

address as “11987 W. Timberlane Dr., Homosassa, FL 34448-7311,”

on both Applications.

8. On October 13, 2003, Petitioner signed both

Applications and initialed the following two paragraphs

contained on the final page of the Applications:

I have read and understand the Florida College

Investment Plan Disclosure Statement and the

Participation Agreement, and consent to the

policies, terms, and conditions of the Florida

College Investment Plan, and the Participation

Agreement. I understand that the Participation

Agreement, which is incorporated into this

application by reference, as it relates to

enrollment in the Florida College Investment Plan,

constitutes a legally binding agreement between me

and the Florida Prepaid College Board. I

understand that the policies, terms and conditions

of the Florida College Investment Plan and

Participation Agreement may be amended from time

to time without prior notice, and I understand and

agree that I will be subject to those amendments.

I understand that enrolling in the Florida College

Investment Plan and investing my funds in the

investment options involves a high degree of risk,

account values may fluctuate and there is no

guarantee. I understand that I could lose all

funds, including any earnings on those funds,

deposited in the account, and investments in the

Florida College Investment Plan are not deposits

or obligations of, or insured or guaranteed by the

State of Florida, the United States government,

the Florida Prepaid College Board, the Federal

Deposit Insurance Corporation, or any other

governmental agency or financial institution.

9. Intuition Systems, Inc., is Respondent’s contract

provider of certain administrative services with respect to the

Florida College Investment Plan, including processing forms from

account owners that direct changes in the selection of

investment options within the Plan.

10. On January 10, 2007, Petitioner telephoned Respondent.

The call was answered by Intuition Systems, Inc. During the

telephone call, Petitioner asked for a personal identification

number (PIN) for online access to his two accounts. Petitioner

also asked about the process for changing the direction of his

investments in the Plan.

11. In his testimony, Petitioner recalled, or thought he

recalled, receiving Respondent’s facsimile number during the

telephone call on January 10, 2007. That testimony, however, is

not credited because, although Intuition Systems, Inc.’s

business records reflect telephone contact from Petitioner on

January 10, 2007, and that Petitioner ordered a PIN number and

asked about changing his investments, there is no indication in

the records that Petitioner asked for or received a facsimile

number. Petitioner more likely received Respondent’s facsimile

number from either its appearance on the first page of quarterly

statements of the accounts mailed to Petitioner’s Florida

residence, or from Petitioner’s wife, who received the mail and

opened the quarterly statements.

12. Petitioner testified that he did not personally

receive his PIN, but conceded that it was probably sent to his

home. Based upon Petitioner’s testimony and Intuition Systems,

Inc.’s records reflecting Petitioner’s request for a PIN and

that a PIN number was mailed to Petitioner’s residence in

Homosassa, it is found that, within five-to-seven days from

January 10, 2007, until Petitioner closed the accounts in 2009,

Petitioner had access to a PIN number for online, computer

access to investment information to the Plan accounts he opened

for his children.

13. Around the same time period (middle January 2007),

Petitioner also received either online access to, or one or more

copies in the mail of, a document entitled “Florida College

Investment Plan Allocation Transfer Form” (Allocation Transfer

Forms). Based upon Intuition System, Inc.’s records reflecting

the January 10, 2007, telephone call, it is found that

Petitioner was “advised of web-for-transfer form,” and the most

likely scenario is that Petitioner printed Allocation Transfer

Forms from Respondent’s website and provided copies of the forms

to his wife.

14. Petitioner left Florida in late January 2007 to live,

temporarily, in California to work as president and chief

executive officer for Prismedical Corporation. While in

California, Petitioner stayed in a large motor home near his

work in Napa, California, from approximately late January 2007

until returning to Florida in the fall of 2008. During that

time period, Petitioner made several trips back to his residence

in Homosassa, Florida.

15. Petitioner is unaware of the exact dates he was in

Florida during 2007 and 2008, but estimates he was in Florida on

approximately the following dates: January 1 through January 28,

2007, May 31 through June 2, 2007, August 25 through

September 3, 2007, September 28, 2007, October 7, 2007,

November 21 through November 24,2007, December 23 through

December 31, 2007, January 1 through January 2, 2008, February 9

through February 17, 2008, and November 10, 2008, through the

end of 2008.

16. During the time period that Petitioner was staying in

California, Petitioner never updated his address on file with

Respondent from Homosassa, Florida, as set forth in his

Applications for the accounts, and there is no evidence that

Petitioner otherwise advised Respondent or its administrator of

an address change.

17. Prior to February 4, 2007, Respondent’s wife, Barbara

Pazian, filled out the top portion of two Allocation Transfer

Forms for Petitioner’s two Plan accounts: one for the investment

account for their daughter, Jordan, and the other for the

investment account for their son, Benjamin. The information

Ms. Pazian wrote into the top portion of each of the two

Allocation Transfer Forms included Stephen E. Pazian’s name as

the account owner, a daytime telephone number in Homosassa,

Florida, the names of their two children as beneficiaries of the

accounts, and the respective account numbers for the two

accounts.

18. Petitioner obtained the two partially completed

Allocation Transfer Forms from his wife either before or after

he left for California.

19. On Sunday, February 4, 2007, while in his motor home

in California, Respondent completed and signed the bottom

portion of each of the two Allocation Transfer Forms. The

Allocation Transfer Form Petitioner completed for the account in

Jordan Pazian’s name authorized Respondent to move 100 percent

of the equity balance to the fixed income investment option.

The Allocation Transfer Form Petitioner filled out for the

account in Benjamin Pazian’s name authorized Respondent to move

50 percent of the equity balance into the fixed income option.

20. The top pre-printed paragraph of the Allocation

Transfer Forms provides:

Return this form to:

Florida College Investment Plan

P.O. Box 6587 Tallahassee, Florida 32314-6567

21. Respondent’s facsimile number is not provided on the

pre-printed Allocation Transfer Forms.

22. Instead of mailing the Allocation Transfer Forms,

Petitioner prepared a facsimile transmittal cover sheet on his

computer and dated it February 5, 2007. The facsimile cover

sheet was on Prismedical Corporation letterhead and was signed

by Petitioner with a message to the Florida College Investment

Plan Finance Department from Petitioner stating, “Please find

attached two Investment Fund transfer requests for you to

process. Please call me should there be any questions.”

23. On Monday, February 5, 2007, Petitioner instructed

Jennifer Teixeira, an office assistant at Prismedical

Corporation in California, to transmit by facsimile the two

completed Allocation Transfer Forms and the facsimile cover

sheet Petitioner had prepared to Respondent at fax number 850-

309-1766.

24. As shown by telephone records, Ms. Teixeira completed

the task of transmitting by facsimile the three pages as

instructed on February 5, 2007, at 9:28 a.m.

25. While there was evidence adduced at the final hearing

that Respondent has acted upon investment instructions received

by fax, it is clear that the instructions on the Allocation

Transfer Forms require mailing and that it was Petitioner who

decided to transmit the forms by facsimile instead of mail.

26. Petitioner received a printout from the transmitting

facsimile machine in California indicating that the three pages

faxed to Respondent on February 5, 2007, were received by

Respondent. Other than review of that printout, Petitioner did

not try to confirm with Respondent that his investment

instructions were received and Petitioner did not communicate

with Respondent regarding his faxed instructions for over one

year and nine months.

27. The instructions contained in the two Allocation

Transfer Forms transmitted to Respondent in that February 5,

2007, facsimile were never acted upon by Respondent or its

administrator, Intuition Systems, Inc.

28. There are a number of possible explanations for

Respondent’s failure to follow the investment instructions on

the two Allocation Transfer Forms. First, while telephone

records show that three pages were transmitted, there could have

been a problem with Respondent’s fax machine which prevented

actual receipt of the transmission.

29. It is also possible that the transmission was

received, but the pages were never printed because of error or

because of a confidentiality code on the sending machine in

California.

30. Another plausible explanation is that the pages were

received and printed out, but then lost or misplaced.

31. A possible, but less likely, 3 / scenario is that the

three pages were transmitted upside down so that only blank

pages were transmitted.

32. The person in charge of document management operations

for Intuition Systems, Inc., went through all of the images of

incoming correspondence, including faxes, received from

February 2, 2007 through February 8, 2007, by Intuition Systems,

Inc., on behalf of Respondent, and could not find the fax

transmitted by Petitioner to Respondent on February 5, 2007.

33. Regardless of the actual reason, it is clear that the

investment instructions contained in the Allocation Transfer

Forms for Petitioner’s accounts transmitted to Respondent on

February 5, 2007, were never followed.

34. The quarterly account statements for both of

Petitioner’s accounts with Respondent for the four quarters of

2007 and first three quarters of 2008 were mailed to

Petitioner’s residence in Homosassa, Florida, no later than the

following dates:

Quarter Mailing Dates

1) First Quarter 2007 May 1, 2007;

2) Second Quarter 2007 August 9, 2007;

3) Third Quarter 2007 November 7, 2007;

4) Fourth Quarter 2007 February 13, 2008;

5) First Quarter 2008 May 12, 2008;

6) Second Quarter 2008 July 31, 2008;

7) Third Quarter 2008 November 6, 2008.

35. Petitioner’s wife, Ms. Barbara Pazian, received all of

the above-listed quarterly statements and filed them away at the

Pazian’s home in Homosassa.

36. The first paragraph of each quarterly statement mailed

to Petitioner’s residence specifically states:

This statement summarizes your account

activity for the previous quarter. Please

review the information carefully. Changes

to the account, including a change of

address , must be in writing and be signed by

the account owner. You may mark your

changes directly on this statement, sign the

statement and mail it to the address below

or FAX to [phone]. Additional

information about your account is available

at www.florida529plans.com , Florida College

Investment Plan, “Access My Account.” If

you have any questions, please call 1-800-

552-GRAD (4723). (Emphasis added).

37. On May 8, 2007, Petitioner’s wife called the Florida

College Prepaid Board, through Intuition Systems, Inc., to

inquire whether she could use some of the investment funds to

purchase a new car for their daughter, Jordan, and was told that

she could not. Ms. Pazian wrote a handwritten note stating “car

not” on the original first 2007 quarterly report for Jordan’s

account.

38. If Petitioner had reviewed any of the above-listed

quarterly statements or accessed the accounts on a computer

using his PIN number, Petitioner would have seen that the

instructions contained in the Allocation Transfer Forms he

signed, dated February 4, 2007, had not been followed. The

account summaries on the first page of each of the quarterly

statements listed above clearly indicate that the only funded

investment option in both accounts throughout the time period

from 2007 through October 31, 2008, was the “U.S. Equity

Investment Option.”

39. According to Petitioner, however, he never bothered to

review the quarterly statements or access the accounts by

computer from January 2007 through October 2008. During the

same time period, however, Petitioners regularly reviewed the

performance of his non-Plan investments via online computer

access.

40. At the final hearing, Petitioner explained that he did

not follow his investments in the Plan because it was his

understanding that he could only make investment changes in his

Plan accounts once a year. Petitioner further testified that

since his Plan investments could not be actively traded like his

other investment accounts, he considered them “sort of set-it-

and-forget-it accounts.”

41. According to Petitioner, the first time he noticed

that his investment instructions had not been followed and that

all of his investments under the Plan were still invested in the

U.S. Equity Investment Option was when he returned home in

November 2008 and decided to review the quarterly statements

that his wife had filed away.

42. In contrast, according to the testimony of

Respondent’s General Counsel Thomas McSwain, during a telephone

conference with Petitioner in February 2009, Petitioner told him

that, while Petitioner was in California, Ms. Pazian kept him

informed of his Plan account balances each quarter from the

quarterly statements. Contemporaneous notes taken by

Mr. McSwain are consistent with his recollection of that

conversation with Petitioner in February 2009.

43. Based upon Mr. McSwain’s testimony and corroborating

notes, as well as Petitioner’s self-reported practice of

regularly following his other investments, the undersigned

credits Mr. McSwain’s testimony over that of Petitioner and

finds that during the period of time that Petitioner was in

California, Petitioner’s wife kept him informed of the account

balances of his Plan investments when she received quarterly

statements for those accounts mailed to Petitioner’s home in

Homosassa, Florida.

44. While Petitioner might not have actually reviewed his

quarterly statements for his Plan investments from 2007 through

the third quarter of 2008, the fact that he was kept apprised of

the account balances on a quarterly basis demonstrates that

Petitioner had sufficient information to know that his

investment instructions faxed to Respondent on February 5, 2007,

had not been followed. If Petitioner’s investment instructions

had been followed, the quarterly statements would have revealed

different account balances between his two Plan accounts.

Instead, the account balances reflected on the quarterly

statements for both accounts remained exactly the same

throughout the time that Petitioner was in California.

45. A change of the investment option for Petitioner’s

Plan account for his daughter Jordan from a 100 percent

allocation in the U.S. Equity Investment Option on February 5,

2007 to a 100 percent allocation in the Fixed Income Investment

Option would have resulted as follows:

Account Number: 0079456

Beneficiary: Jordan S. Pazian

[Actual] [Adjusted]

U.S.EQUITY OPTION FIXED INCOME OPTION

Date S h a r e s P r i c e Balance 4 / S h a r e s P r i c e Balance 5 /

2/5/2007 4 , 3 6 3 . 7 3 0 2 $ 1 5 . 8 3 $ 6 9 , 0 8 3 . 8 2 6,083.7900 $ 1 1 . 3 6 $ 6 9 , 0 8 3 . 8 2

3/31/2007 4 , 3 6 3 . 7 3 0 2 $ 1 5 . 6 7 $ 6 8 , 3 6 0 . 8 9 6,083.7900 $ 1 1 . 5 0 $ 6 9 , 9 8 9 . 4 0

6/30/2007 4 , 3 6 3 . 7 3 0 2 $ 1 6 . 5 1 $ 7 2 , 0 5 9 . 8 7 6,083.7900 $ 1 1 . 4 3 $ 6 9 , 5 3 3 . 1 8

9/30/2007 4 , 3 6 3 . 7 3 0 2 $ 1 6 . 6 3 $ 7 2 , 5 7 9 . 5 3 6,083.7900 $ 1 1 . 7 6 $ 7 1 , 5 3 0 . 6 5

12/31/2007 4 , 3 6 3 . 7 3 0 2 $ 1 6 . 1 1 $ 7 0 , 2 9 2 . 9 7 6,083.7900 $ 1 2 . 1 1 $ 7 3 , 6 6 0 . 7 6

3/31/2008 4 , 3 6 3 . 7 3 0 2 $ 1 4 . 9 3 $ 6 5 , 1 2 9 . 0 7 6,083.7900 $ 1 2 . 2 9 $ 7 4 , 7 6 1 . 0 0

6/30/2008 4 , 3 6 3 . 7 3 0 2 $ 1 4 . 5 9 $ 6 3 , 6 4 7 . 6 5 6,083.7900 $ 1 2 . 1 5 $ 7 3 , 9 4 7 . 4 1

9/30/2008 4 , 3 6 3 . 7 3 0 2 $ 1 3 . 6 5 $ 5 9 , 5 5 9 . 5 7 6,083.7900 $ 1 2 . 1 2 $ 7 3 , 7 3 7 . 6 8

12/31/2008 4 , 3 6 3 . 7 3 0 2 $ 1 0 . 7 6 $ 4 6 , 9 4 6 . 0 7 6,083.7900 $ 1 2 . 6 7 $ 7 7 , 0 9 4 . 0 4

3/31/2009 4 , 3 6 3 . 7 3 0 2 $ 9 . 5 6 $ 4 1 , 7 1 4 . 7 4 6,083.7900 $ 1 2 . 7 8 $ 7 7 , 7 5 6 . 0 3

4/30/2009 4 , 3 6 3 . 7 3 0 2 $ 1 0 . 5 8 $ 4 6 , 1 8 8 . 9 8 6,083.7900 $ 1 2 . 8 5 $ 7 8 , 2 0 3 . 3 1

6/30/2009 4 , 3 6 3 . 7 3 0 2 $ 1 1 . 1 2 $ 4 8 , 5 1 5 . 4 0 6,083.7900 $ 1 3 . 0 3 $ 7 9 , 2 9 0 . 5 8

7/10/2009 4 , 3 6 3 . 7 3 0 2 $ 1 0 . 6 2 $ 4 6 , 3 4 2 . 0 1 6,083.7900 $ 1 3 . 2 0 $ 8 0 , 3 2 7 . 8 7

46. A change of the investment option for Petitioner’s

Plan account for his son Benjamin from a 100 percent allocation

in the U.S. Equity Investment Option on February 5, 2007, to a

50 percent allocation in the Fixed Income Investment Option and

a 50 percent allocation in the U.S. Equity Investment Option

would have resulted as follows:

Account Number: 0079484

Beneficiary: Benjamin W. Pazian

[Actual] [Adjusted]

U.S.EQUITY OPTION 50% U.S. EQUITY OPTION 50% FIXED

INCOME OPTION

Date Balance 6 / Balance Balance 7 /

Shares (prices U.S. (prices Fixed (prices

same as Equity Shares same as above) Income Shares same as Total

above) above)

2/5/2007 4 , 3 6 3 . 7 3 0 2 $ 6 9 , 0 8 3 . 8 2 2 , 1 8 1 . 8 6 5 0 $ 3 4 , 5 4 1 . 9 1 3 , 0 4 1 . 8 9 5 0 $ 3 4 , 5 4 1 . 9 1 $ 6 9 , 0 8 3 . 8 2

3/31/2007 4 , 3 6 3 . 7 3 0 2 $ 6 8 , 3 6 0 . 8 9 2 , 1 8 1 . 8 6 5 0 $ 3 4 , 1 8 0 . 4 4 3 , 0 4 1 . 8 9 5 0 $ 3 4 , 9 9 4 . 7 0 $ 6 9 , 1 7 5 . 1 5

6/30/2007 4 , 3 6 3 . 7 3 0 2 $ 7 2 , 0 5 9 . 8 7 2 , 1 8 1 . 8 6 5 0 $ 3 6 , 0 2 9 . 9 3 3 , 0 4 1 . 8 9 5 0 $ 3 4 , 7 6 6 . 5 9 $ 7 0 , 7 9 6 . 5 2

9/30/2007 4 , 3 6 3 . 7 3 0 2 $ 7 2 , 5 7 9 . 5 3 2 , 1 8 1 . 8 6 5 0 $ 3 6 , 2 8 9 . 7 6 3 , 0 4 1 . 8 9 5 0 $ 3 5 , 7 6 5 . 3 3 $ 7 2 , 0 5 5 . 0 9

12/31/2007 4 , 3 6 3 . 7 3 0 2 $ 7 0 , 2 9 2 . 9 7 2 , 1 8 1 . 8 6 5 0 $ 3 5 , 1 4 6 . 4 8 3 , 0 4 1 . 8 9 5 0 $ 3 6 , 8 3 0 . 3 8 $ 7 1 , 9 7 6 . 8 6

3/31/2008 4 , 3 6 3 . 7 3 0 2 $ 6 5 , 1 2 9 . 0 7 2 , 1 8 1 . 8 6 5 0 $ 3 2 , 5 6 4 . 5 3 3 , 0 4 1 . 8 9 5 0 $ 3 7 , 3 8 0 . 5 0 $ 6 9 , 9 4 5 . 0 3

6/30/2008 4 , 3 6 3 . 7 3 0 2 $ 6 3 , 6 4 7 . 6 5 2 , 1 8 1 . 8 6 5 0 $ 3 1 , 8 2 3 . 8 3 3 , 0 4 1 . 8 9 5 0 $ 3 6 , 9 7 3 . 7 0 $ 6 8 , 7 9 7 . 5 3

9/30/2008 4 , 3 6 3 . 7 3 0 2 $ 5 9 , 5 5 9 . 5 7 2 , 1 8 1 . 8 6 5 0 $ 2 9 , 7 7 9 . 7 8 3 , 0 4 1 . 8 9 5 0 $ 3 6 , 8 6 8 . 8 4 $ 6 6 , 6 4 8 . 6 3

12/31/2008 4 , 3 6 3 . 7 3 0 2 $ 4 6 , 9 4 6 . 0 7 2 , 1 8 1 . 8 6 5 0 $ 2 3 , 4 7 3 . 0 3 3 , 0 4 1 . 8 9 5 0 $ 3 8 , 5 4 7 . 0 2 $ 6 2 , 0 2 0 . 0 5

3/31/2009 4 , 3 6 3 . 7 3 0 2 $ 4 1 , 7 1 4 . 7 4 2 , 1 8 1 . 8 6 5 0 $ 2 0 , 8 5 7 . 3 7 3 , 0 4 1 . 8 9 5 0 $ 3 8 , 8 7 9 . 0 2 $ 5 9 , 7 3 5 . 3 8

4/30/2009 4 , 3 6 3 . 7 3 0 2 $ 4 6 , 1 8 8 . 9 8 2 , 1 8 1 . 8 6 5 0 $ 2 3 , 0 9 4 . 4 9 3 , 0 4 1 . 8 9 5 0 $ 3 9 , 1 0 1 . 6 5 $ 6 2 , 1 9 6 . 1 4

6/30/2009 4 , 3 6 3 . 7 3 0 2 $ 4 8 , 5 1 5 . 4 0 2 , 1 8 1 . 8 6 5 0 $ 2 4 , 2 5 7 . 7 0 3 , 0 4 1 . 8 9 5 0 $ 3 9 , 6 4 5 . 2 9 $ 6 3 , 9 0 2 . 9 9

7/10/2009 4 , 3 6 3 . 7 3 0 2 $ 4 6 , 3 4 2 . 0 1 2 , 1 8 1 . 8 6 5 0 $ 2 3 , 1 7 1 . 0 0 3 , 0 4 1 . 8 9 5 0 $ 4 0 , 1 6 3 . 9 3 $ 6 3 , 3 3 4 . 9 4

47. Although Petitioner had sufficient information since

at least May 2007, to know that his February 2007 investment

instructions had not been followed, the first time that

Petitioner contacted Respondent regarding those investment

instructions was on November 13, 2008, when Petitioner made a

telephone call to Respondent through Intuition Systems, Inc.

48. During that telephone call, Petitioner complained that

he sent the Allocation Transfer Forms in February 2007, but that

the accounts were never updated. The Intuition Systems, Inc.,

representative who took the call advised Petitioner that the

forms were never received and therefore, the Plan accounts could

not be updated. Petitioner then spoke to a supervisor at

Intuition Systems, Inc., who advised Petitioner that there was

no record that the Allocation Transfer Forms had been received.

49. In January 2009, Petitioner sent a letter addressed to

Mr. Hoepner, Chairman of the Florida College Prepaid Board,

which was received by Respondent on January 12, 2009. In that

letter, Petitioner requested that his investments be

retroactively changed to reflect the investments and earnings as

they would have been for each of the accounts had his investment

instructions dated February 5, 2007, been followed.

50. Petitioner’s January 2009 letter also stated, in

reference to his investment instructions transmitted February 5,

2007, “The cover sheet for this request as well as the request

forms and other relevant documents are attached for your

reference.” The attached fax cover sheet was in color, was

dated February 5, 2007, and signed by Petitioner, but had no

initials of Ms. Teixeira, who had sent the original fax cover

sheet on February 5, 2007. Later, during his November 19, 2009,

deposition, Petitioner admitted that he had printed out that fax

cover sheet in color from his computer and signed it in late

2008 or early 2009, but backdated it to February 5, 2007.

51. Later, Petitioner produced the original fax cover

sheet which he had sent on February 5, 2007, which had the

initials of Ms. Teixeira on the front. According to Petitioner,

his wife found the original. Petitioner’s wife, however, did

not remember finding it.

52. Regardless of who found the original, the fact that

Petitioner was able to print out, back-date, and sign a copy

that appears to be the original fax cover sheet demonstrates the

mischief that could be achieved had Petitioner desired to

misrepresent the facts regarding his February 5, 2007,

facsimile. The undersigned finds that Petitioner did not intend

to misrepresent the facts regarding that facsimile, but rather

finds that Petitioner was overenthusiastic in his attempt to

demonstrate to Respondent what had happened on February 5, 2007,

through use of identical copies of the original fax cover

resident in his computer. This incident, however, was

considered in assessing the credibility of Petitioner’s other

assertions in this case.

53. As indicated above, Petitioner spoke to Mr. McSwain on

the telephone in February 2009. During that call, Petitioner

told Mr. McSwain that he did not want the February 5, 2007,

Allocation Transfer Forms implemented until the matter was

resolved.

54. Respondent’s executive director sent Petitioner a

letter dated April 27, 2009, informing Petitioner that

Respondent was unable to approve his request, and offering

Petitioner another opportunity to implement changes to his Plan

accounts and including forms for that purpose. Petitioner never

submitted the forms and no allocation changes took place.

55. After filing the Amended Petition for Formal Hearing

dated June 1, 2009, initiating this case, Petitioner’s Plan

accounts were closed and rolled over into another 529 college

investment plan at his request on or about July 10, 2009. On

that date, the balance of each account was $46,292.01, after

deduction of a $50.00 rollover fee for each account.

CONCLUSIONS OF LAW

56. The Division of Administrative Hearings has

jurisdiction over the parties to and subject matter of this

proceeding. See §§ 120.569, 120.57(1), Fla. Stat.; see also

§ 120.52 (definition of “agency” under the Administrative

Procedure Act includes departmental units described in § 20.04,

Fla. Stat.); § 20.04, Fla. Stat. (includes State Board of

Administration); § 1009.971, Fla. Stat. (Florida Prepaid

College Board administratively housed within the State Board of

Administration).

57. While contract disputes between private parties and a

state agency are traditionally settled in circuit courts, see ,

for example, State Road Dept. v. Cone Brothers Contracting , 207

So. 2d 489 (Fla. 1st DCA 1979), in this case, as in Dept. of

Heath & Rehabilitative Servs. v. E.D.S. Federal Corp. , 631 So.

2d 353 (Fla. 1st DCA 1994), the applicable statute expressly

gives the contracting state agency the power to contract, and

the contractual agreement between the parties contains a clause

subjecting contract disputes to administrative resolution under

Chapter 120, Florida Statutes. Id. at 355; § 1009.971(4)(d),

Fla. Stat. (Florida Prepaid College Board has power to “[m]ake

and execute contracts and other necessary instruments”);

Participation Agreement, ¶ 16.

58. Specifically, paragraph 16 of the Participation

Agreement provides:

Any controversy or claim arising out of or

relating to this Participation Agreement, or

the breech, termination or validity thereof,

shall be resolved in an administrative

proceeding conducted pursuant to the

provisions of Chapter 120, Florida Statutes.

59. Petitioner, as the party asserting the affirmative in

this proceeding, has the burden of proof. See , e.g. , Balino v.

Dept. of Health & Rehabilitative Services , 348 So. 2d 349 (Fla.

1st DCA 1977). And, as is usual for the standard of proof

applicable to questions of fact in administrative hearings, the

standard of proof which Petitioner must meet in this case is a

preponderance of the evidence. See § 120.57 (1)(j), Fla. Stat.;

Haines v. Dept. of Children & Families , 983 So. 2d 602 ( Fla. 5th

DCA 2008). Therefore, the issue is whether Petitioner

established by a preponderance of the evidence that Respondent

is liable to Petitioner under the Participation Agreement for

losses incurred in his investments as a result if Respondent’s

failure to follow Petitioner’s investments instructions. 8 /

60. A review of the terms of the Participation Agreement,

in light of the facts and law, demonstrates that Petitioner

failed to meet his burden in this case.

61. The Participation Agreement requires Respondent to

provide Petitioner with quarterly reports for his Plan accounts

to the address provided by Petitioner. The Participation

Agreement also requires Petitioner to provide his address to

Respondent. The initial paragraph of each quarterly statement

sent to Petitioner instructed Petitioner to “review the

information carefully” and provided the manner in which

Petitioner could update his address. Respondent fulfilled its

contractual obligation to send quarterly reports to Respondent’s

reported address. Petitioner never updated his address.

62. It is also evident that the Participation Agreement

requires Respondent to carry out investment instructions

received from Petitioner. While Petitioner established by a

preponderance of the evidence that he transmitted investment

instructions by facsimile to Respondent on February 5, 2007, the

evidence was insufficient to show that Respondent is liable to

Petitioner under the Participation Agreement for its failure to

carry out those instructions.

63. As noted above, there are a number of possible

scenarios that could explain why Petitioner’s investment

instructions were not carried out, including loss or

misplacement of the instructions, equipment failure, a

confidentiality code on the sending machine, or even error in

the manner the pages were transmitted. While Petitioner proved

that he transmitted the instructions, he failed in his burden to

show that they were received by Respondent.

64. Whatever the reason that Respondent did not act on the

instructions, it is evident that Petitioner was the one who

decided to send the Allocation Transfer Forms to Respondent by

facsimile, a manner contrary to the instructions on the form,

and without any follow-up for over a year and a half.

Therefore, Petitioner bore the risk that the transmittal would

not be received by Respondent. As noted by the United States

Sixth Circuit Court of Appeals in Clow Water Systems Co. v.

National Labor Relations Bd. , 92 F.3d 441 (6th Cir. (1996), in

finding that a facsimile transmission did not provide timely

notice:

Communication by facsimile has simplified

and streamlined the way in which business is

conducted in this country. This

technological advance provides a valuable

service and benefit, and our holding should

not be taken as an indication that parties

should not use facsimiles to conduct their

affairs. Certain attributes of facsimiles

warrant precautionary measures to ensure

that the intended recipient actually

receives the transmission, however. Unlike

mail or courier deliveries, which generally

arrive predictably at certain times during

the work day, facsimiles can arrive,

unsolicited and unnoticed, at any time, day

or night.

92 F.3d at 446. In that case, the Sixth Circuit found that,

even though a union’s unconditional offer to return to work

generally does not require actual notice on the part of an

employer when delivered by conventional means, such offer

required actual notice and therefore was not effective when sent

by facsimile to the employer because that mode of communication

was different than normally used between the parties. The court

explained:

In the end, however, the key to this case is

not the fact that a facsimile transmission

was used. The key to this case is, simply,

fair notice. If the parties expressly or by

conduct, agree to a method of communication,

and use the agreed-upon method, we will not

require actual knowledge of the

communication on the part of the recipient.

If the parties did not agree to the method

of communication utilized, and if there is

no pattern of conduct reflecting

acquiescence to the method of communication

utilized, we will not impute notice of the

communication to the recipient. This is the

situation presented here. [Appellee]

departed from the course of conduct he had

established with [appellant] in several

ways. His use of an unannounced facsimile,

without additional communication by the

methods regularly utilized by him in the

past, does not allow us reasonably to infer

that the offer to return to work was

effectively communicated to [appellant].

Under the circumstances, therefore, the

union’s unconditional offer to return to

work was not timely communicated prior to

[appellant’s] hiring of permanent

replacements.

Id. In Clow Water Systems Co. , quoted supra , as in the facts of

this case, the parties had previously communicated by telephone

and U.S. mail, not facsimile. And, as was the case for the

appellee in Clow Water Systems Co. , supra , there is no evidence

that Petitioner attempted “additional communication by the

methods regularly utilized by him in the past,” Id. , to verify

that Respondent had received the facsimile. In fact, there is

no evidence that Petitioner made any effort whatsoever for over

20 months to confirm whether Respondent received his investment

instructions.

65. The conclusion that Petitioner bore the risk of

assuring that Respondent received his faxed instructions is also

consistent with the risk allocation for facsimile filings found

in Florida Administrative Code Rule 28-106.104(7)(b), which

provides:

Any party who elects to file any document by

electronic mail or facsimile transmission

shall be responsible for any delay,

disruption, or interruption of the signals

and accepts the full risk that the document

may not be properly filed with the clerk as

a result.

66. Moreover, long before any investment losses were

incurred by Petitioner as a result of his investment

instructions not being carried out, Petitioner was provided with

information sufficient to notify him that Respondent had not

acted upon his instructions. Throughout the time Petitioner was

in California, he had actual notice of the quarter-end balances

of his Plan accounts through his wife, had the ability to obtain

online access to his accounts, and had numerous quarterly

statements mailed to his home address, each of which indicated

that no investment allocation changes to his Plan accounts had

been made.

67. Under analogous circumstances, both Florida and

federal law would impute knowledge to Petitioner of the

information contained in the quarterly account statements, thus

insulating Respondent from liability for Petitioner’s investment

losses. For example, in affirming summary judgment denying

recovery under a fire insurance policy, the Florida Third

District Court of Appeal in Foerch v. Atlantic Mutual Fire

Insurance Co. , 303 So. 2d 345 (Fla. 3d DCA 1974), found that an

insurance company had given proper notice of policy cancellation

by mailing a copy of the notice to the policy holder’s Florida

address. In that case, the policy holder had moved to New

Jersey more than three months before without arranging to have

her mail forwarded or notifying the insurance company of her new

address.

68. Similarly, in affirming summary judgment against the

plaintiff in a securities fraud case on statute of limitations

grounds, the United States Eighth Circuit Court of Appeals found

that confirmation slips and monthly account statements sent to

the plaintiff “were sufficient to require the initiation of an

inquiry,” and therefore the two-year statute of limitations

period was triggered when the plaintiff received those

statements. See Koke v. Stifel, Nicolas & Co. , 620 F.2d 1340,

1343 (8th Cir. 1980). 9 / Although the plaintiff did not

understand the statements, the Eighth Circuit found, “[e]ven if

[the plaintiff] did not understand them, she was not free to

ignore them, and that is what she did; she did not examine them

carefully and did not ask anyone to explain them.” Id. at 1344.

The Eighth Circuit further found:

[The plaintiff] simply did not exercise the

care and diligence reasonable under the

circumstances to understand what was

happening to her account. Had she examined

the confirmation slips and compared them

with each other, she would have discovered

that bonds were being sold at substantial

losses . . . . The same kind of simple

comparison and examination of the monthly

account statements would have revealed the

same information.

Id.

69. As observed in The Jordan (Bermuda) Investment Co. v.

Hunter Green Investments, LLC , No. 00 Civ 9214, slip op. at 56-

57 (S.D.N.Y. Oct. 3, 2007), in dismissing an action against

investment firms because the loss could have been avoided by

review of account statements:

In this case, plaintiff’s injury was

proximately caused by the Trust’s own

failure to review its monthly account

statements, not by any purported

misrepresentation made by the any

defendants. Indeed, by Plaintiff’s own

admission, had the Trust read the

statements, it immediately would have

redeemed its Class J shares and avoided the

loss it suffered on its investments.

70. Likewise, if Petitioner had bothered to review his

quarterly statements, or taken the time to consider the

implication of identical account balances in his Plan accounts

while he was in California, he could have averted any loss he

now attributes to the fact that his investment instructions were

not followed.

71. In sum, it is concluded that Petitioner failed to

prove by a preponderance of the evidence that Respondent is

liable to Petitioner under the Participation Agreement for

failure to follow Petitioner’s investments instructions

regarding funds invested in the Florida Prepaid College Plan.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of

Law, it is

RECOMMENDED that the Florida Prepaid College Board enter a

Final Order finding that the Florida Prepaid College Board is

not liable to Petitioner, Stephen E. Pazian, under the

Participation Agreement and dismissing Petitioner’s Amended

Petition with prejudice.

DONE AND ENTERED this 9th day of March, 2010, in

Tallahassee, Leon County, Florida.

S

JAMES H. PETERSON, III

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

[phone]

Fax Filing [phone]

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 9th day of March, 2010.

ENDNOTES

1 / After the hearing, another short hearing was held on

January 25, 2010, during which, by agreement of the parties,

redacted copies of certain exhibits were exchanged for original

exhibits to protect from disclosure social security numbers or

other confidential information in the original exhibits. The

original exhibits which were replaced include exhibits “R-7,”

replaced with redacted copies.

2 / Unless otherwise indicated, all references to the Florida

Statutes are to the 2007 version.

3 / The scenario of faxing blank pages is less likely because the

fax time of one minute twenty-four seconds reflected on the

telephone records for the subject transmission corresponds to

the time required to fax three typed pages as opposed to blank

pages, which would require less transmission time.

4 / The balances reflected herein are not derived by merely

multiplying the number of shares times the share price as one

might expect. Rather, the balances are the result of stipulated

facts that apparently take into consideration other factors.

5 / See endnote 3, supra .

6 / See endnote 3, supra .

7 / See endnote 3, supra .

8 / In addition to investment losses under the Participation

Agreement, Petitioner’s Amended Petition also seeks punitive

damages, interest, costs and attorney fees. Those remedies,

however, are beyond the scope of the Participation Agreement,

and not otherwise cognizable in this proceeding. See , e.g. ,

Avallone v. Board of County Commissioners of Citrus County , 493

So. 2.d 1002, 1004 (Fla. 1986)(§ 768.28(5), Fla. Stat.,

precludes punitive damages and interest before judgment against

state agency). While Section 57.111, Florida Statutes,

authorizes costs and attorney fees to be awarded to prevailing

small business parties in administrative cases, the statute does

not apply to individuals. See Daniels v. Fla. Dept. of Health ,

898 So. 2d 61 (Fla. 2005); see also § 1009.981(7), Fla. Stat.

(“All amounts obligated to be paid from the savings fund are

limited to amounts available for such obligation”).

9 / Florida courts have looked to federal decisions for guidance

in cases involving Florida securities law. See , e.g. , Ward v.

Atlantic Security Bank , 777 So. 2d 1144, 1147 (Fla. 3d DCA

2001). While there are no actual securities law issues

presented in this proceeding, securities cases relating to the

effect of receipt of periodic statements or owner account

information are analogous and were useful in this analysis.

COPIES FURNISHED :

Stephen E. Pazian

11987 West Timberlane Drive

Homosassa, Florida 34448

Robert Winicki, Esquire

Debbie K. Winicki, Esquire

The Winicki Law Firm, P.A.

4745 Sutton Park Court, Suite 401

Jacksonville, Florida 32224

Thomas J. Wallace, Executive Director

Florida Prepaid College Board

1801 Hermitage Boulevard, Suite 210

Tallahassee, Florida 32308-7743

Ash Williams, Executive Director

Chief Investment Officer

State Board of Administration

1801 Hermitage Boulevard, Suite 100

Tallahassee, Florida 32308

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

15 days from the date of this Recommended Order. Any exceptions

to this Recommended Order should be filed with the agency that

will issue the Final Order in this case.