96-004643 Florida Land Sales, Condominiums, And Mobile Homes vs. Leonard W. Tanner, O/B/O Zephyr Springs Member`s Association, Inc., Zephyr Springs Member`s Association, Status: Closed Settled and/or Dismissed prior to entry of RO/FO on Wednesday, March 4, 1998.

Summary: Petitioner failed to show that father of two sons who developed mobile home park was subdivider, participated in offer or disposition of an interest in land, or otherwise acted in any capacity other than that of a creditor or limited partner.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF BUSINESS AND )

PROFESSIONAL REGULATION, )

DIVISION OF FLORIDA LAND SALES, )

CONDOMINIUMS, AND MOBILE HOMES, )

)

Petitioner, )

)

vs. ) Case No. 96-4643

)

LEONARD W. TANNER, individually )

and as PRESIDENT of ZEPHYR SPRINGS )

VALLEY, INC.; ZEPHYR SPRINGS )

MEMBERS' ASSOCIATION, INC.; and )

SUN VALLEY BEACH, INC., )

)

Respondents. )

)

RECOMMENDED ORDER

An administra tive hearing was conducted in this proceeding

on November 21, 1997, in Sanford, Florida, before Daniel Manry,

Administrative Law Judge, Division of Administrative Hearings.

APPEARANCES

For Petitioner: Robin Suarez

Chief Assistant General Counsel

Department of Business and

Professional Regulation

Northwood Center

1940 North Monroe Street, Suite 60

Tallahassee, Florida 32399-1007

For Respondents: Clayton D. Simmons, Esquire

Stenstrom, McIntosh, Colbert,

Whigham and Simmons, P.A.

Suite 22

200 West First Street

Sanford, Florida 32772-4848

STATEMENT OF THE ISSUES

The issues in this case are whether Respondents violated

Sections 498.023(1)(a), 498.023(2)(a), 498.035(1), and

498.049(5), Florida Statutes (1997), and Florida Administrative

Code Rule 61B-9.003(1), by participating in the offer or

disposition of subdivided lands that are neither exempt,

registered, nor approved for the taking of reservation deposits,

by failing to deliver a current public offering statement to each

purchaser, and by disseminating advertising materials prior to

filing for approval by Petitioner for the subdivided lands and

what, if any, penalty should be imposed. (All references to

chapters and sections are to Florida Statutes (1997) unless

otherwise stated. Unless otherwise stated, all references to

rules are to rules promulgated in the Florida Administrative Code

in effect as of the date of this Recommended Order.)

PRELIMINARY STATEMENT

Petitioner filed a Notice To Show Cause against Respondents

on September 5, 1996. The Notice To Show Cause contained 466

counts against Respondents. Petitioner filed a separate Notice

To Show Cause against Mr. Bruce Hancock containing a similar

number of counts against Mr. Hancock.

Respondents and Mr. Hancock requested a n administrative

hearing. The matters were referred to the Division of

Administrative Hearings ("DOAH") to conduct a hearing.

Petitioner named Respondent, Leonard Tanner ("Tanner"), and Mr.

Hancock individually and as President of Zephyr Springs Member's

Association. The separate matters were consolidated on

January 10, 1997.

At the hearing, Petitioner's motion to sever the case

against Mr. Hancock was granted without objection. Mr. Hancock

had previously filed for bankruptcy, and Petitioner did not wish

to pursue the administrative proceeding during the pendency of

the bankruptcy proceeding.

Neither Petitioner nor Mr. Hancock timely filed a status

report ordered in the case against Mr. Hancock. The DOAH file

was closed and referred to the referring agency for final

disposition.

At the administrative hearing involving Tanner; Respondent,

Zephyr Springs Valley, Inc. ("Zephyr Valley"); Respondent, Sun

Valley Beach, Inc. ("Sun Valley"); and Respondent, Zephyr Springs

Members' Association, Inc. ("Members"), Petitioner presented the

testimony of seven witnesses and submitted 25 exhibits for

admission in evidence. Tanner testified in his own behalf,

called one witness, and submitted no exhibits for admission in

evidence.

The identity of the witnesses and exhibits, and the rulings

regarding each, are set forth in the transcript of the hearing

filed with the undersigned on January 15, 1998. Respondents'

motion for extension of time was granted without opposition. The

parties timely filed their proposed recommended orders ("PROs")

on February 9, 1998.

FINDINGS OF FACT

1. Petitioner is the state agency responsible for

regulating the disposition of any interest in subdivided lands

within the meaning of Sections 498.003 and 498.004. Tanner is a

Florida resident and the sole shareholder of Zephyr Valley, Sun

Valley, and Members.

2. Petitioner charges that between 1993 and 1995

Respondents violated Sections 498.023(1)(a) and (2)(a) and

Section 498.049(5) by participating in an offer or disposition of

any interest in subdivided lands located in the state without a

valid order of registration for the subdivided lands and without

delivering a public offering statement to the purchasers prior to

the disposition of any interest in subdivided lands. Petitioner

also charges that Respondents violated Section 498.035(1) in

connection with the advertising used for the disposition of any

interest in subdivided land.

3. Respondents assert that they did not participate

directly or indirectly in any offer or disposition of any

interest in subdivided lands located in the state. Respondents

assert that their role in the land at issue is limited to that of

a creditor of the subdivider.

4. If Respondents limited their role to that of a creditor

of the subdivider, Respondents are exempt under Section

498.049(5) from joint and several liability with the subdividers

unless Respondents assumed managerial or fiduciary responsibility

in a manner related to the basis for which the subdividers are

liable. In relevant part, Section 498.049(5) provides:

Each person who materially participates in

any offer or disposition of any interest in

subdivided lands in violation of this chapter

. . . and who directly or indirectly controls

a subdivider or who is a general partner,

officer, director, agent, or employee of a

subdivider shall also be liable under this

subsection jointly and severally with and to

the same extent as the subdivider unless that

person did not know, and in the exercise of

reasonable care could not have known, of the

existence of facts creating the alleged

liability. . . except that a creditor of a

subdivider shall not be jointly and severally

liable unless the creditor has assumed

managerial or fiduciary responsibility in a

manner related to the basis for the liability

of the subdivider . . . . (emphasis supplied)

5. Sometime in 1993, Tanner, Mr. Gary Tanner, and Mr. John

Tanner, Tanner's two sons, undertook to acquire approximately 300

acres of land (the "land") in Pasco County, Florida ("Pasco

County") and to develop the land into an adult mobile home park

to be known as Zephyr Springs Mobile Home Park (the "mobile home

park"). The three individuals formed a joint venture to develop

the mobile home park.

6. Petitioner did not submit any evidence that the Tanners

formed any business entity other than a joint venture to develop

the mobile home park. For example, there is no evidence that the

Tanners formed a corporation, limited liability company, or trust

to develop the mobile home park.

7. Petitioner di d not submit any documentary evidence of a

written joint venture agreement or of the terms of the joint

venture agreement. Evidence of the joint venture agreement

consists solely of the testimony of Tanner.

8. The joint venture agreement called for development of

the mobile home park in six phases referred to as Phases I-VI.

Proposed amenities included lighted streets and an 18-hole golf

course in Phase I. Phases II-VI contemplated lighted streets, a

club house, swimming pool, jacuzzi, four tennis courts,

shuffleboard, horse shoes, bocci board and court, and a lake with

a dock.

9. The joint venture agreement called for Tanner to

function solely as a creditor for the development of the mobile

home park. Tanner would finance the land acquisition and the

improvements to the land in Phase I. Phases II-VI would be sold

and developed by others.

10. John Tanner was to be responsible for horizontal

improvements to Phase I, including site plan, site clearing,

streets, gutters, curbs, sewer, water, electric, other utilities,

and an 18-hole golf course. Gary Tanner was to sell and market

the mobile home sites in Phase I to the public.

11. The joint venture agreement between the Tanners was a

partnership (the "partnership"). Rather than paying each joint

venturer a percentage of gross revenues, the agreement provided

each partner with a percentage of the net profits derived from

the development of the mobile home park (a "net profits

interest").

12. The mobile home park consisted of 994 sites. T he

projected sale price for a site ranged from $25,000 to $40,000.

Tanner projected gross revenues from the sale of all 994 sites to

be approximately $20-$30 million. Expenses included

approximately $1.75 million in land acquisition costs, debt

service on the purchase-money mortgage, $90,000 in impact fees

due on the land at the time of acquisition, back-taxes for three

years, $750,000 in horizontal improvements to Phase I, and

possibly some or all of the development costs for Phases II-VI.

13. Petition er failed to submit any testimony or

documentary evidence that explained how the partnership

structured the sale of Phases II-VI for development by others and

retained an interest in either the gross income or net profits

from the sale of the sites in those phases. Petitioner also

failed to submit any evidence of the nature and scope of the

partnership's continuing obligation, if any, for the development

costs for Phases II-VI after those phases were sold. The

testimony of Tanner and John Tanner also failed to address these

issues.

14. Petitioner also failed to submit any evidence showing

that Tanner was a general partner in the partnership or otherwise

had any management control of the partnership. The testimony of

Tanner and John Tanner was the sole evidence on this issue. It

showed that Tanner had no management or operational control over

the partnership. Tanner's partnership capacity was that of a

limited partner, capital partner, financier, or creditor.

15. Prior to September 9, 1993, the land wa s owned by the

Living Trust of Eva Stanley (the "Stanley Trust"). On

September 9, 1993, Sun Valley contracted with Ms. Shirley A.

Lanier for the purchase of the land.

16. Petitioner failed to submit evidence explaining the

authority of Ms. Lanier to sell the land, including a copy of the

contract for sale. Evidence of the contract for sale consists

solely of the testimony of witnesses.

17. The contract for sale of the land called for Sun Valley

to make a down payment of $250,000, execute a purchase money

mortgage of $1.5 million dollars, pay impact fees of

approximately $90,000, and pay back-taxes for three years. The

terms of the debt service on the purchase-money mortgage,

including the term of the mortgage, the interest rate, and

payment amount and intervals, are not evidenced in the record.

18. Sun Valley never took title to the land. In July 1994,

Sun Valley assigned its interest in the contract for sale of the

land to Zephyr Valley. Zephyr Valley closed on the land and took

title to the land. Sun Valley financed the land acquisition by

Zephyr Valley.

19. Tanner borrowed approximately $1.4 million from Ms.

Beverly Wibeck to finance the land acquisition and development of

the mobile home park. He executed a promissory note for the loan

and transferred the money to Sun Valley.

20. Sun Valley used over $340,000 to finance the down

payment, impact fees, and back taxes needed by Zephyr Valley to

acquire the land from the Stanley Trust. Sun Valley loaned the

remainder of the money to corporations owned by Gary Tanner and

Bruce Hancock to fund improvements to the land and to fund the

sales and marketing of the park.

21. Sometime between July 1994 and the end of November

1994, Zephyr Valley entered into three conveyances of separate

parcels of the land. First, Zephyr Valley sold the land for

Phase I to Zephyr Springs Homeowners Association, Inc., a Florida

Corporation wholly owned by Gary Tanner ("Homeowners").

22. Most of the terms of the sale to Homeowners are not

evidenced in the record, including the purchase price and the

terms of the note. From the testimony of Tanner, however, the

evidence shows that Zephyr Valley placed a deed to the land for

Phase I in escrow. Homeowners executed a promissory note for the

purchase price.

23. The note from Homeowners was a demand note. It

required payment in full when all of the sites were sold and no

debt service in the interim. Although arguably a "sweetheart"

loan for Homeowners, the loan was not without economic reality or

a legitimate business purpose for a creditor who was a limited

partner with a net-profits interest in the partnership. To the

extent Zephyr Valley decreased interest charges and other costs

of the loan to Homeowners, Tanner, as the individual creditor of

the partnership, enjoyed the potential for an increase in the

dollar value of his eventual distributive share of net profits

from the partnership.

24. In November 1994, Zephyr Valley completed a second

conveyance. It sold the land for phases II-VI to Five Star

Development Trust ("Five Star").

25. Five Star is controlled and operated by Mr. Bruce

Hancock ("Hancock"). Zephyr Valley and Five Star entered into an

agreement for deed. Five Star was to pay $2.5 million for the

land for phases II-VI. Other terms of the agreement for deed are

not evidenced in the record.

26. On November 30, 1994, Zephyr Valley completed the third

conveyance. It sold 25 acres of the land for the golf club to

Zephyr Springs Golf Club, L.P., a Delaware limited partnership

("Golf Club, L.P."), and International Golf Group, Inc. ("Golf

Group, Inc."), a Delaware Corporation and the general partner in

Golf Group, L.P.

27. The sale price for the golf club site was approximately

$675,000. Other terms of the sale are not in evidence.

28. None of the foregoing land transactions are the subject

of Petitioner's administrative action against Respondents. The

initial land acquisition from the Stanley Trust and the

subsequent conveyances to Homeowners, Five Star, and Golf Group,

L.P., and Golf Group, Inc., are each exempt from the provisions

of Chapter 498. Each transaction is a single transaction for a

purchase price of at least $50,000, 20 acres, or both, within the

meaning of Sections 498.025(1)(e) and (i).

29. The land at issue in this proceeding is the land

encompassing the 994 mobile home sites in the mobile home park

(the "mobile home sites"). The mobile home sites comprise land

that is situated in Pasco County and located "in this state"

within the meaning of Section 498.023(1)(a).

30. The mobile home sites are subdivided land within the

meaning of Section 498.005(21). In relevant part, Section

498.005(21) defines subdivided land to include:

(a) . . . contiguous land which is divided

. . . for the purpose of disposition into 50

or more lots, parcels, units, or interests;

or

(b) Any land, whether contiguous or not, which is

divided or proposed to be divided into 50 or

more lots, parcels, units, or interests which

are offered as a part of a common promotional

plan.

31. Petitioner failed to submit any evidence, including a

plat map, other documentary evidence, or sworn testimony showing

that 50 or more of the mobile home sites are contiguous. In the

absence of such evidence, the mobile home sites fail to satisfy

the definitional requirement for contiguity in Section

498.005(21)(a).

32. Irrespective of whether the mobile home sites are

contiguous for purposes of Section 498.005(21)(a), they are

subdivided land within the meaning of Section 498.005(21)(b).

The mobile home sites were divided into 50 or more lots, parcels,

units, or interests and offered as part of a common promotional

plan within the meaning of Section 498.005(22).

33. The sale and marketing of the mobile home sites satisfy

substantially all of the elements prescribed in Section

498.005(22) as relevant to the definition of a common promotional

plan. Even if the mobile home sites were not contiguous, they

were proximate to each other. They were located within the same

300-acre tract of land. In addition, the mobile home sites were

known, designated, and advertised as a common unit or by the

common name of Zephyr Springs Mobile Home Park.

34. At least some of the mobile home sites were recorded as

a subdivision in the official records of Pasco County. Pasco

County determined that those mobile home sites are subdivided

land. The number of mobile home sites included in the recorded

subdivision is not evidenced in the record.

35. Only 210 of the 994 mobile home sites planned for the

mobile home park were acquired by the public. All 210 mobile

home sites were acquired between December 12, 1993, and

December 31, 1994. No mobile home sites were acquired after

1994.

36. On June 1, 1995, Petitioner obtained an injunction in

circuit court that prohibited any further sales of mobile home

sites. The court ordered that monthly payments on mobile home

sites already sold must be paid into an escrow account.

37. Without the revenues from monthly payments on mobile

home sites, Five Star was unable to service the debt to Zephyr

Valley. In turn, Zephyr Valley, Tanner, and Sun Valley were

unable to service the debt to the Stanley Trust or to finance any

further improvements to the land. In addition, Tanner defaulted

on his note to Ms. Wibeck.

38. The Stanley Trust sold its mortgage to Russo and

Company ("Russo"). Russo foreclosed against Respondents, Five

Star, and the individual owners of the mobile home sites.

39. Russo agreed not to disturb the individual owners of

the mobile home sites. Petitioner agreed to pay the debt service

on the mortgage purchased by Russo out of the escrow account

required by the circuit court when the court enjoined any further

sales of mobile home sites.

40. Ms. Wibeck has filed a civil action against Tanner to

recover the $1.4 million she loaned him to finance the mobile

home park. That action was pending at the time of the hearing.

41. Of the 210 mobile home sites acquired by the public,

Petitioner submitted evidence concerning the sales and marketing

of only 48 mobile home sites. The sales and marketing of the

other 162 mobile home sites is not evidenced in the record.

42. The 48 mobile home sites evidenced in this proceeding

were acquired by the public pursuant to a common promotional plan

carried out by Homeowners and Members. Between December 12,

1993, and October 4, 1994, the public acquired 30 mobile home

sites from Homeowners. Between April 1 and December 31, 1994,

the public acquired 18 mobile home sites from Members.

43. Homeowners and Member s offered mobile home sites to the

public as part of a common promotional plan. They utilized

common sales personnel, common sales offices, and common sales

promotional methods to market mobile home sites to the public.

44. Homeowners and Members employed common sales staff and

housed them in a common sales center located on the mobile home

park. The sales center was known by the singular name of Zephyr

Springs Mobile Home Park Sales Center.

45. Homeowners and Members offered mobile home sites in a

similar plan of disposition. In relevant part, Section

498.005(4) defines a disposition to mean:

. . .any transaction involving any interest

in subdivided lands entered into for profit,

including any sale, resale, lease for more

than 5 years, assignment, or award by

lottery.

46. Homeowners and Members offered mobile home sites to the

public in a similar plan of disposition. The written instrument

of disposition was entitled a Membership Agreement. Each

Membership Agreement purported to convey a membership in the

homeowners' association and a license to use the premises

described in each agreement.

47. It is uncontroverted that Homeowners and Members

entered into each Membership Agreement for profit within the

meaning of Section 498.005(4). However, the parties disagree

over whether the execution of each Membership Agreement was a

transaction that involved any interest in land.

48. Petitioner asserts that the execution of each

Membership Agreement was a transaction "involving any interest in

land" within the meaning of Section 498.005(4). Respondents

claim that the execution of each Membership Agreement was a

transaction that did not involve an interest in land.

Respondents argue that each Membership Agreement involved only a

membership in the homeowners' association and a license to use

the mobile home site.

49. The term "interest in land" is not defined in Chapter

498. The issue of whether a transaction involves any interest in

land must be determined based on the facts and circumstances

evidenced in each case.

50. The facts and circumstances evidenced in this case show

that the execution of each Membership Agreement was a transaction

"involving any interest in land" within the meaning of Section

498.005(4). On balance, the bundle of rights conveyed in each

Membership Agreement conveys a lease rather than a license.

51. Each Membership Agreement conveys an exclusive

possessory interest in a specific mobile home site described in

the paragraph captioned "Premises." The premises described in

each Membership Agreement is a specific mobile home site

described by reference to lot and block number and more

specifically by a legal description unique to each mobile home

site. The fact that the premises described in each Membership

Agreement also include a "non-inclusive right to use" common

areas with others does not obviate the conveyance of an exclusive

possessory interest in each mobile home site.

52. Each Membership Agreement conveys an exclusive

possessory interest in a specific mobile home site for a term of

99 years for a "purchase price" that ranges from $25,000 to

$40,000 depending on the specific mobile home site described as

the premises. The purchase price is paid in the form of a

negotiable down payment plus $75 a month until the balance of the

purchase price is paid in full.

53. The balance of the purchase price is characterized in

each Membership Agreement as an "annual membership fee" of $900

payable in equal monthly installments of $75. However, the

"annual membership fee" terminates before the expiration of the

99-year term of the Membership Agreement.

54. The "annual membership fee" terminates on different

dates in each Membership Agreement depending on the original

purchase price, the original date of purchase, and the down

payment. For example, the "annual membership fee" for a mobile

home site purchased for $40,000 on July 1, 1994, with a $5,000

down payment terminates on May 1, 2033. In contrast, the "annual

membership fee" for a mobile home site purchased for $25,000 on

June 17, 1994, with a $4,000 down payment terminates on

October 1, 2017.

55. The 99-year term in each Membership Agreement is not

revocable at will. The agreement prescribes specific terms and

procedures for revocation.

56. Each Membership Agreement provides that each member's

interest in the premises is assignable without the prior consent

of the homeowners' association. In each Membership Agreement,

the homeowners' association covenants and warrants the member's

quiet, exclusive, and peaceable enjoyment of the premises.

57. Each member is responsible for paying the real estate

taxes for the specific mobile home site described in the

Membership Agreement. Each member is also responsible for any

construction costs for improvements to the site.

58. The premises are subject to covenants, restrictions,

and rules promulgated by the homeowners' association. Each

Membership Agreement provides that these conditions run with the

land.

59. Homeowners and Members "offered" mobile home s ites to

the public within the meaning of Section 498.005(13). Homeowners

and Members induced, solicited, and attempted to encourage

individuals to acquire an interest in subdivided lands.

60. Homeowners and Members "offered" mobile home sites to

the public in violation of Section 498.023(1). It is

uncontroverted that neither Homeowners nor Members obtained a

valid order of registration for the subdivided lands and that

neither the subdivided lands nor the transactions entered into by

Homeowners and Members were exempt pursuant to Section 498.025.

61. Both Homeowners and Members were required to obtain a

valid order of registration in order to sell interests in the

mobile home sites. Homeowners derived its title in the mobile

home sites from the deed placed in escrow when Zephyr Valley sold

the land for Phase I to Homeowners. Members derived its

authority to sell mobile home sites from its apparent agency for

Five Star. Five Star derived its title in the mobile home sites

from the agreement for deed between Five Star and Zephyr Valley

for the land for Phases II-VI. Bruce Hancock managed and

controlled Five Star and Members as the sole officer and director

for Members during the time Members sold memberships.

62. Homeowners and Members violated Section 498.023(2).

Each time Homeowners and Members entered into a Membership

Agreement with a member, they disposed of an interest in

subdivided lands without delivering a public offering statement

to the purchaser prior to the disposition. Neither Homeowners

nor Members ever provided a public offering statement for the

mobile home park to any member of the public.

63. Petitioner failed to submit evidence that Homeowners,

Members, or Respondents violated Section 498.035. While

Petitioner submitted evidence of the advertising used in the sale

and marketing of the mobile home sites, Petitioner failed to show

that either Homeowners or Respondents placed the advertisements.

64. Petitioner did not show that Tanner, Sun Valley, or

Zephyr Valley violated Section 498.023(1)(a) by offering or

disposing of any interest in the mobile home sites. Although

Tanner was the sole shareholder of Members and Members offered

and disposed of 18 mobile home sites, Tanner was not an officer

or director of Members and did not exercise any management

control over Members prior to February 5, 1995. Members offered

and disposed of all 18 mobile home sites prior to February 5,

1995.

65. Members was incorporated by Bruce Hancock on April 1,

1994. Bruce Hancock was the sole director and officer until

February 5, 1995, when Tanner became an officer and director.

Members did not offer or dispose of any of the 18 mobile home

sites after February 5, 1995.

66. Neither Tanner, Sun Valley, nor Zephyr Valley owned any

stock in Homeowners. On October 4, 1994, however, Tanner

exercised management control over Homeowners pursuant to a letter

agreement with Gary Tanner. Homeowners offered and disposed of

all 30 mobile home sites in evidence in this proceeding prior to

October 4, 1994.

6 7. The letter agreement did not alter the stock ownership

of Homeowners or its officers or directors but operated as a

management agreement between Tanner and Gary Tanner. The letter

agreement required Tanner to pay Gary Tanner $1,000 a month in

consideration for Tanner's exclusive right to manage Homeowners.

Tanner entered into the letter agreement because he believed Gary

Tanner was stealing money from Homeowners.

68. Petitioner claims that Tanner, Sun Valley, or Zephyr

Valley violated Section 498.023(1)(a) by participating, either

directly or indirectly, in the offer and disposition of the 48

mobile home sites in evidence in this proceeding. There is no

evidence that Sun Valley or Zephyr Valley ever participated in

any way in the offer and disposition of mobile home sites.

69. A determination of whether Tanner participated in the

offer and disposition of 48 mobile home sites is made more

difficult by the absence of a statutory definition in Chapter 498

of the term "participate." The American Heritage Dictionary

(Second College Edition 1982) at 905 states that the term

"participate" means, "To take part; join or share with others

. . . . To share in; partake of."

70. Although the joint venture agreement between Tanner and

his sons entitled Tanner to a share of the net profits of the

venture, Tanner testified that he never in fact participated in

the net profits. All of the gross revenues from the mobile home

park were used for improvements to Phase I, debt service on the

purchase money mortgage given by Zephyr Valley to the Stanley

Trust, and the purchase money mortgage from Five Star that

resulted from the agreement for deed for Phases II-VI. There was

no debt service on the demand note given by Gary Tanner for the

purchase of Phase I.

71. Petitioner submitted no evidence that gross revenues

from the mobile home park were used for any purpose other than

the purposes evidenced by Tanner's testimony. There are no bank

records in evidence showing the use of gross revenues by Tanner,

Sun Valley, Zephyr Valley, and Members, for purposes other than

debt service and financing the costs of development, sales, and

promotion. No representative of the Stanley Trust testified that

the Trust did not receive loan payments from Sun Valley on behalf

of Zephyr Valley or that Zephyr Valley was in default on the

purchase-money mortgage before Petitioner obtained an injunction

in 1995. No evidence enabled a comparison of gross revenues with

the cash flow required to service the debt in exempt transactions

involving the agreement for deed between Zephyr Valley and Five

Star and the purchase money mortgage from Zephyr Valley to the

Stanley Trust.

72. Petitioner did not show that Tanner directly

participated in the offer and disposition of the 48 mobile home

sites at issue in this proceeding. Neither Homeowners nor

Members offered or disposed of any of the 48 mobile home sites

after Tanner exercised management control over either

corporation.

73. Petitioner did not show that Tanner indirectly

participated in the offer and disposition of the 48 mobile home

sites at issue in this proceeding. Petitioner showed that Tanner

had the authority to sign checks for Homeowners and Members and

in fact signed several checks for both companies from

February 25, 1994, through January 18, 1995. However, Petitioner

failed to show that Tanner signed any checks for any purpose

other than the repayment of loans.

74. With one de minimis exception, all of the checks signed

by Tanner were payable to Sun Valley and deposited to Sun

Valley's account. Sun Valley was the creditor of Zephyr Valley.

Zephyr Valley was the creditor of Five Star and Members. Five

Star and Members were managed and operated exclusively by Mr.

Hancock. Assuming arguendo that there was an evidentiary basis

for disregarding the corporate form of each separate entity and

that all of the checks flowed through to Tanner, Petitioner

failed to show that Tanner signed the checks in any capacity, or

for any purpose, other than the collection of debt by a creditor.

75. Tanner signed two checks for Homeowners in the

aggregate amount of $360,000. He signed one check on

February 25, 1994, for $250,000 and the other check on

March 24, 1994.

76. The second check stated that it was for the partial

repayment of a loan. The first check stated no purpose, but

Tanner testified that it was for the repayment of a loan.

Petitioner submitted no evidence to the contrary.

77. Tanner signed 19 checks for Members in the aggregate

amount of $240,730. Tanner testified that he signed all of the

checks from Members to repay loans, and Petitioner submitted no

evidence to the contrary. Of the 19 checks signed by Tanner on

the Members account, 18 were made payable to Sun Valley and

deposited to the Sun Valley account. One check in the de minimis

amount of $230 was payable to Homeowners without explanation.

78. The cancelled checks and Tanner's testimony show that

Tanner's participation was limited to the repayment of

development and sales costs financed by Tanner, as a creditor, or

the repayment of loans owed either to Zephyr Valley by Five Star

or to Sun Valley by Zephyr Valley. Petitioner did not show that

Tanner used any of the checks to participate in the offer and

disposition of mobile home sites by Homeowners and Members.

79. Petitioner submitted no evidence that Tanner used funds

evidenced by the cancelled checks for any purpose other than

payments to Sun Valley as a creditor. No bank records of Sun

Valley are in evidence showing that either Sun Valley or Tanner

failed to use the check proceeds to service the debt Zephyr

Valley owed to the Stanley Trust, to finance development and

sales costs, to repay previously financed development and sales

costs, or all three; or that Tanner or Sun Valley diverted any

portion of the $600,500 for personal use, for operational or

management purposes, or to fund a distributive share of any net-

profits interest. There was no testimony from a representative

of the Stanley Trust showing that debt service due on the

purchase-money mortgage was not timely paid to the Trust on

behalf of Zephyr Valley or that Zephyr Valley was in default

before Petitioner obtained an injunction in 1995.

80. By signing checks from Homeowners and Members to Sun

Valley, Tanner collected loan payments in a manner that is the

functional equivalent of the method used by an institutional

lender when it is authorized to collect payments electronically

by automatic debit to the customer's account. Instead of writing

three separate checks from Members to Five Star to Zephyr Valley

to Sun Valley, Tanner wrote one check from Members to Sun Valley.

Similarly, Tanner wrote one check from Homeowners to Sun Valley

instead of preceding it with an additional check from Homeowners

to Zephyr Valley.

81. The role of Tanner, Sun Valley, or Zephyr Valley was

limited to that of a creditor within the meaning of Section

498.049(5). For reasons previously stated and not repeated here,

Petitioner did not show that Respondents materially participated

in any offer or disposition of any interest in the 48 mobile home

sites or assumed managerial or fiduciary responsibility in a

manner related to the basis of the liability of Homeowners and

Members for offering or disposing of an interest in the 48 mobile

home sites. Therefore, Respondents are not jointly and severally

liable with Homeowners and Members for violating Sections

498.023(1)(a) and (2)(a).

82. Petitioner asserts that Respondents should have known

of the acts committed by Homeowners and Members in violation of

Sections 498.023(1)(a) and (2)(a). However, Tanner required his

two sons to obtain all necessary state approvals before he would

finance any portion of the development. Tanner's two sons sought

legal counsel to assist them in obtaining the required state

approvals and relied on that legal advice. Petitioner did not

call any members of the law firm named by Tanner to refute

Tanner's testimony.

83. Gary and John Tanner obtained letters from the Division

of Mobile Homes and the law firm. They represented to Tanner

that those documents satisfied his requirement for state

approvals, and Tanner relied on their representations.

Petitioner did not submit any documentary evidence from the law

firm to refute Tanner's testimony.

84. When Tanner learned of the problems confronting

Homeowners and Members, Tanner engaged in reasonable efforts to

intervene in the management and operation of Homeowners and

Members. On October 4, 1994, Tanner executed a management

agreement with Gary Tanner for operating control of Homeowners.

On February 5, 1995, Tanner took over management of Members as an

officer and director. Neither Homeowners nor Members sold any of

the 48 mobile home sites after Tanner assumed management control

of the two companies.

CONCLUSIONS OF LAW

85. The Division of Administrative Hearings has

jurisdiction over the subject matter and parties. The parties

were duly noticed for the administrative hearing.

86. Respondents' motion to dismiss for lack of jurisdiction

is denied. For reasons previously stated in the Findings of Fact

and based on the authority cited in Petitioner's legal

memorandum, the Membership Agreements offered and disposed of an

interest in subdivided land for the purposes of Chapter 498.

87. Petitioner has the burden of proof in this proceeding.

Petitioner must show by clear and convincing evidence that

Respondents committed the acts alleged by Petitioner and the

reasonableness of any proposed penalty. Department of Banking

and Finance, Division of Securities and Investor Protection vs.

Osborne Stern and Company , 670 So. 2d 932, 935 (Fla. 1996).

88. Respondents assert that the Petitioner must prove its

case by a preponderance of evidence. Respondent's PRO at

paragraph 13, page 4. Petitioner's PRO does not address the

applicable standard of proof in this case.

89. The general rule regarding the applicable standard of

proof is that an agency must prove its case by a preponderance of

the evidence. Florida Department of Transportation vs. J.W.C.

Company, Inc. , 396 So.2d 778 (Fla. 1st DCA 1981); Balino vs.

Department of Health and Rehabilitative Services , 348 So.2d 349

(Fla. 1st DCA 1977). However, an agency such as Petitioner,

which seeks to impose an administrative fine against an

unregistered or unlicensed person, must prove its case by clear

and convincing evidence. Osborne , 670 So. 2d at 934-935.

90. Petitioner seeks administrative fines against

Respondents in the aggregate amount of $715,000. In Osborne , the

court explained that an administrative fine is penal because:

. . .an administrative fine deprives the

person fined of substantial rights in

property. Administrative fines . . . are

generally punitive in nature. . . . Because

. . .administrative fines . . . are penal in

nature and implicate significant property

rights, the extension of the clear and

convincing standard to justify . . . such a

fine is warranted. Accordingly, we agree with

the district court that, because the

Department's final order imposing a $5,000

fine . . . does not indicate that it was

based upon a clear and convincing evidence

standard, the case must be remanded for the

application of the proper burden of proof

. . .While there is substantial evidence in

the record to support the violations charged

by the Department, the district court

correctly noted that the existence of

evidence in the record supporting the hearing

officer's findings is irrelevant to whether

the fact-finder held the Department to the

correct standard of proof. . . .

Osborne , 670 So. 2d at 935.

91. Petitioner failed to sati sfy its burden of proof. The

charges against Respondents are penal in nature and must be

proven by clear and convincing evidence. Osborne , 670 So. 2d at

935.

92. Each charge requires proof of essential elements

required as part of the statutory definition of the violation.

Petitioner must prove each element by clear and convincing

evidence.

93. In order for evidence to be clear and convincing:

. . .evidence must be found to be credible,

facts to which witnesses testify must be

distinctly remembered, testimony must be

precise and explicit, and witnesses must be

lacking in confusion . . . .

The evidence must be of such weight that it

produces in the mind of the trier of fact a

firm . . . conviction, without hesitancy, as

to the truth of the allegations sought to be

established.

Slomowitz vs. Walker , 429 So. 2d 797, 799 (Fla. 4th DCA 1983).

94. The evidence was clear and convincing regarding most of

the essential elements in the charges against Respondents. For

example, the land is located in the state and is subdivided land.

Each membership agreement disposed of an interest in land.

95. Evidence was clear and convincing regarding the

corporate entities, trusts, and individuals involved in

developing the mobile park, the injury to the public caused by

the financial defaults, the foreclosure by Russo, and the

injunction obtained by Petitioner. Petitioner also showed by

clear and convincing evidence that Homeowners and Members were

involved in a common promotional plan in which they failed to

provide a public offering statement in connection with the offer

or disposition of an interest in land.

96. The evidence was not clear and convincing for other

elements essential to the charges against Respondents.

Petitioner failed to show, even by a preponderance of the

evidence, that Respondents were "subdividers", or that

Respondents "participated" in the offer or disposition of any

interest in land. Similarly, Petitioner failed to show by a

preponderance of the evidence that Respondents "materially

participated" in any activity which precluded them from the

statutory exemption for a "creditor."

97. The terms "participation," "material participation,"

and a "creditor" are not defined by statute. Any ambiguity in a

statute that is penal in nature should be strictly construed in

favor of Respondents. Lester vs. Department of Professional and

Occupational Regulations, State Board of Medical Examiners , 348

So. 2d 923 (Fla. 1st. DCA 1977).

98. Zephyr Valley participated in the disposition of

interests in land that were expressly exempt from the provisions

of Chapter 498. Sun Valley's role in the development of the

mobile home park was limited to that of a creditor.

99. While it is clear that Homeowners and Members

participated in the offer and disposition of interests in land,

Petitioner failed to show, even by a preponderance of evidence,

that Tanner expanded his role in the development of the mobile

home park beyond that of a creditor prior to the time he assumed

management control over Homeowners and Members on October 4,

1994, and February 5, 1995, respectively. From that point

forward, neither Homeowners nor Members offered or disposed of

any interest in the 48 mobile home sites in evidence.

100. Petitioner presented the testimony of six interested

witnesses other than Tanner. Four witnesses were individuals who

purchased mobile home sites. Two were Petitioner's

investigators.

101. The testimony of one interested witness does not begin

to approach the level of competent and substantial evidence.

Robinson vs. Florida Board of Dentistry, Department of

Professional Regulation, Division of Professions , 447 So. 2d 930,

932 (Fla. 3d DCA 1984). In this proceeding, the testimony of six

interested witnesses and Petitioner's exhibits do not provide a

preponderance of evidence to prove the essential elements of

"subdividers," "participation," "material participation," and the

loss of the statutory exemption for a "creditor."

102. Petitioner did not submit the testimony of a

representative of the Stanley Trust, or of Russo for that matter,

to show that Sun Valley, on behalf of Zephyr Valley, did not make

payments to the Trust as required by the purchase-money mortgage

or that Zephyr Valley was in default before Petitioner obtained

an injunction in 1995. Petitioner did not submit bank records

showing the misuse of gross revenues by Sun Valley, Zephyr

Valley, or Members. Petitioner did not submit copies of the

purchase-money mortgage from Zephyr Valley to the Stanley Trust

or the agreement for deed between Zephyr Valley and Five Star so

that the checks signed by Tanner on the account of Homeowners and

Members could be compared, respectively, to either: the timing

and amount of debt service required by the purchase-money

mortgage and by the agreement for deed; or the financing of

development and sales costs incurred by Homeowners and Members.

103. The lack of a preponderance of evidence regarding

essential elements in the charges against Respondent is reflected

in Petitioner's legal arguments during the hearing. Petitioner

argued that the lines between the separate entities involved in

the development of the mobile home park began "blurring," that

the management agreement between Tanner and Gary Tanner

effectuated a "de facto merger" of the corporations owned by the

two, that one can "deduce . . . who the senior partner is," and

that Tanner controlled the entire operation as the father and the

man with the money. However, Petitioner failed to support such

inferences with either a preponderance of evidence or with

statutory or judicial precedent authorizing such inferences, even

if such inferences were supported by the applicable standard of

proof.

104. Petitioner submitted no evidence that Respondents

engaged in any acts that would allow the corporate veil of each

corporate entity to be pierced. Petitioner cited no authority

for disregarding the corporate veil of each corporate entity or

for attributing the stock of Homeowners to Tanner. Petitioner

cited no authority for concluding that the management agreement

operated as a "de facto" merger. See , e.g., Florida Real Estate

Commission vs. Shealy , 647 So. 2d 151, 152 (Fla. 1st DCA 1994)

(holding that the corporate form cannot be disregarded even

though the sole individual shareholder and corporation were found

to be "one and the same entity").

105. Respondent, Tanner's, Motion To Tax Attorney's Fees

and Costs, filed on February 2, 1998, is denied. As a threshold

matter, Tanner's motion is not ripe for determination because

Tanner is not the prevailing party in this proceeding until a

decision is final. Even if Tanner is the prevailing party in

Petitioner's Final Order, Petitioner did not participate in this

proceeding for an improper purpose within the meaning of Section

120.595.

106. Tanner, as the moving party, failed to establish the

evidentiary requirements for the rebuttable presumption

authorized in Section 120.595. Tanner did not show that

Petitioner participated in this proceeding to harass Respondents,

to cause unnecessary delay, or for a frivolous purpose. For

reasons previously discussed in paragraphs 94-104, there were

justiciable issues of law and fact in this case.

107. The terms "not guilty" and "innocent" are not

synonymous. The term "not guilty" means that Petitioner did not

satisfy its burden of proof. The term "innocent" means there is

sufficient evidence to show that Respondents did not commit the

alleged violations. A finding of not guilty in this proceeding

does not mean that Respondents are innocent, or that there were

no justiciable issues of law or fact.

RECOMMENDATION

Based upon the foregoing Findings of Fact and Conclusions of

Law, it is

RECOMMENDED that Petitioner enter a Final Order finding

Respondents not guilty of violating Sections 498.023(1)(a) and

(2)(a), Section 498.035, and Section 498.049(5).

DONE AND ENTERED this 16th day of April, 1998, in

Tallahassee, Leon County, Florida.

___________________________________

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 [phone]

Filed with the Clerk of the

Division of Administrative Hearings

this 16th day of April, 1998.

COPIES FURNISHED:

Richard T. Farrell, Secretary

Department of Business and

Professional Regulation

1940 North Monroe Street

Tallahassee, Florida 32399-0792

Lynda Goodgame

General Counsel

Department of Business and

Professional Regulation

Northwood Center

1940 North Monroe Street

Tallahassee, Florida 32399-0792

Robin Suarez

Chief Assistant General Counsel

Department of Business and

Professional Regulation

Northwood Center

1940 North Monroe Street, Suite 60

Tallahassee, Florida 32399-1007

Clayton D. Simmons, Esquire

Stenstrom, McIntosh, Colbert,

Whigham and Simmons, P.A.

Suite 22

200 West First Street

Sanford, Florida 32772-4848

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.