96-004967 Board Of Employee Leasing Companies vs. Susan Jan Haggerty Status: Closed Recommended Order on Thursday, June 5, 1997.

Summary: Suspension of license of controlling person where employee leasing company failed to meet minimum net worth requirement.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF BUSINESS AND )

PROFESSIONAL REGULATION, )

)

Petitioner, )

)

vs. ) CASE NOS. 96-4967

) 96-4968

SUSAN JAN HAGGERTY and )

SUNCOAST RESOURCE MANAGEMENT, )

INC., )

)

Respondents. )

______________________________)

RECOMMENDED ORDER

Robert E. Meale, Administrative Law Judge of the Division of

Administrative Hearings, conducted the final hearing in Port

Charlotte, Florida, on March 12, 1997.

APPEARANCES

For Petitioner: Mary Ellen Clark

Senior Attorney

Department of Business and

Professional Regulation

1940 North Monroe Street

Suite 60

Tallahassee, Florida 32399-0792

For Respondents: Attorney Frank M. Gafford

Post Office Box 1789

Lake City, Florida 32506-1789

STATEMENT OF THE ISSUE

The issue is whether Respondents failed to file four

quarterly and one annual financial statements and failed to

maintain minimum amounts of net worth and working capital. If

so, an additional issue is what penalty should be imposed.

PRELIMINARY STATEMENT

By Administrative Complaint dated April 29, 1996, in DOAH

Case No. 96-4967, Petitioner alleged that Respondent Haggerty is

the licensed controlling person of Suncoast Resource Management,

Inc., which was not named as a respondent in DOAH Case No. 96-

4967.

Count I of the Administrative Complaint alleges that

employee leasing companies must annually file audited financial

statements, pursuant to Rule 61G7-5.0031(2), Florida

Administrative Code; financial statements reflecting a positive

working capital and tangible accounting net worth, pursuant to

Rule 61G7-10.0011, Florida Administrative Code; and reviewed or

audited financial statements (depending on the gross payroll of

the company), pursuant to Section 468.525(3)(e), Florida

Statutes.

The Administrative Complaint alleges that Sections

468.532(1)(i) and (r), Florida Statutes, authorize the Board of

Employee Leasing Companies to impose discipline for violation of

any provision of Chapter 468 or failure to meet any licensing

requirements.

The Administrative Complaint alleges that Suncoast Resource

Management, Inc. was required to file financial statements on or

about April 30, 1995, for fiscal year ending December 31, 1994.

Count II of the Administrative Complaint alleges that Suncoast

Resource Management, Inc. failed to file the financial statements

by the deadline, thereby causing Respondent Haggerty to violate

Sections 468.532(1)(i), 468.525(3)(e), and 468.532(1)(r) and Rule

61G7-5.0031(2).

Count II of the Administrative Complaint alleges that each

employee leasing company must maintain an accounting net worth

and positive working capital or have security in sufficient

amounts to offset any deficiency, pursuant to Section

468.525(3)(d), Florida Statutes.

The Administrative Complaint alleges that Respondent

Haggerty submitted the financial statements for year ending

December 31, 1994, on or about March 14, 1996. The

Administrative Complaint alleges that the financial statements

were not audited or reviewed, as required by Rules 61G7-5.0031(2)

and 61G7-10.0011 and Section 468.525(3)(e). The Administrative

Complaint alleges that the financial statements disclosed a

deficiency in tangible accounting net worth of about $180,885.

Count III of the Administrative Complaint alleges that

Section 468.526(3)(a), Florida Statutes, requires each employee

leasing company to pay Petitioner a license fee and an annual

assessment sufficient to cover the costs of regulation. The

Administrative Complaint alleges that Rule 61G7-5.002(1), Florida

Administrative Code, requires Petitioner to assess each employee

leasing company an annual assessment fee based on the company’s

gross Florida payroll. The Administrative Complaint alleges that

Rule 61G7-5.002(2), Florida Administrative Code, requires each

employee leasing company to submit annually a statement of gross

Florida payroll.

Count III of the Administrative Complaint alleges that

Respondent Haggerty failed to pay the annual assessment fee due

April 1, 1995, by April 30, 1995, and thus violated Sections

468.532(1)(i), 468.526(3)(a) and 468.532(1)(r) and Rules 61G7-

5.002(1) and (2).

Count IV of the Administrative Com plaint alleges that Rule

61G7-10.001 requires each employee leasing company to submit

quarterly a statement that it is in compliance with the

requirement of a positive working capital and has had adequate

reserves to pay all payroll taxes, workers compensation and

health insurance premiums, and amounts due under any self-

insurance program.

The Administrative Complaint alleges that Respondent

Haggerty failed to submit the quarterly report for the quarter

ending December 31, 1994, by the deadline of March 16, 1995.

Count IV alleges that Respondent Haggerty thus violated Section

468.532(1)(i) and Rule 61G7-10.001.

Counts V, VI, and VII of the Administrative Complaint make

the same allegations for the quarters ending March 31, June 30,

and September 30, 1995.

Following the hearing, Petitioner abandoned its allegations

that Respondents failed to pay the annual assessment. Thus,

Petitioner has withdrawn Count III of both administrative

complaints.

By Administrative Complaint dated April 29, 1996, in DOAH

Case No. 96-4968, Petitioner alleged that Respondent Suncoast

Resource Management, Inc. violated the same provisions as alleged

in DOAH Case No. 96-4967.

Respondents denied the material allegations and demanded a

formal hearing.

At the hearing, Petitioner called two witnesses and offered

into evidence three exhibits. Respondent called one witness and

offered into evidence four exhibits. All exhibits were admitted

except Respondent Exhibits 1-3.

On the grounds of relevance, the administrative law judge

sustained objections to Respondent Exhibits 1-3 and an objection

to Respondent calling former Secretary of the Department of

Business and Professional Regulation, George Stuart. Respondent

sought to solicit evidence showing that the Board of Employee

Leasing Companies had unreasonably delayed approving the initial

applications of Respondents and this delay, with the attending

expense of administrative litigation to obtain approval of the

initial applications, left Respondent Suncoast Resource

Management, Inc. in a financially weakened position. The

administrative law judge ruled that such evidence did not

constitute a good defense to any of the charges, including most

directly the allegation that Respondent Suncoast Resource

Management, Inc. failed to maintain the net worth and working

capital requirements.

The court reporter filed the transcript on April 16, 1997.

The parties filed their proposed recommended orders on April 28,

1997.

FINDINGS OF FACT

1. At all material times, Respondent Susan Jan Haggerty

(Haggerty) was the controlling person of Respondent Suncoast

Resource Management, Inc. (Suncoast). The Board of Employee

Leasing Companies (Board) licensed Suncoast as an employee

leasing company, holding license number EL 0000055, and Haggerty

as the company’s controlling person, holding license number CO

0000125.

2. Haggerty is also the licensed controlling person for

Suncoast Management Group, Inc., an employee leasing company

licensed since January 1994.

3. Respondents applied for their licenses in July 1992.

Suncoast was first licensed on March 22, 1994, and Haggerty was

first licensed on January 13, 1994.

4. Haggerty’s license remains currently in effect.

However, following its surrender, as described below, Suncoast’s

license became null and void on September 12, 1995.

5. During 1994--its first year of licensed operation--

Suncoast encountered financial problems. At some point prior to

December 31, 1994, a workers’ compensation carrier won a judgment

of about $200,000 against Suncoast for unpaid workers’

compensation premiums.

6. During 1994, Haggerty decided to close Suncoast. She

instructed the company’s independent accountant to contact Board

staff and find out how to close down the company, from a

regulatory standpoint.

7. An unidentified male staffperson employed by the Board

informed the accountant by telephone that all the Respondents had

to do was to write the Board a letter informing it of what was

happening and to submit the quarterly compiled financial

statement. The accountant conveyed these instructions to

Haggerty in October or November 1994.

8. Suncoast ceased doing business effective December 31,

1994. During this month, Suncoast terminated its last employee.

During 1994, Suncoast had a gross Florida payroll of less than

$2.5 million.

9. During 1995, an investigator for Petitioner contacted

Haggerty and discussed some of the unfiled financial statements

that are the subject of these cases. In an effort to resolve

this matter, Suncoast formally surrendered its license on August

2, 1995.

10. The Administrative Complaints allege that Respondents

failed to file five financial statements with the Board. These

are four quarterly financial statements due for the quarters

ending December 31, 1994, and following, and the 1994 annual

financial statement. There are also allegations of failure to

maintain minimum requirements of net worth and working capital.

11. It appears that Suncoast did not file any quarterly

financial statements prior to the one due for December 1994.

However, Petitioner did not elect to allege violations of the law

for these failures to file.

12. For the relevant period, Suncoast only filed two

statements with the Board of Employee Leasing Companies. The

first statement was a quarterly financial statement for the last

quarter of 1994, which was filed in March 1996--well after the

ordinary deadline for such quarterly statements.

13. The second statement was an annual financial statement

for 1994. The accountant prepared this statement, dated June 4,

1995, and Haggerty filed it with the Board of Employee Leasing

Companies on July 10, 1996--also well after the ordinary deadline

for such annual statements.

14. The 1994 financial statement is compiled, not audited

or reviewed. The 1994 financial statement reveals that Suncoast

had a tangible accounting net worth deficiency of about $180,000

and a positive working capital of $28,737, which reflects current

assets and current liabilities and treats the $200,000 judgment

as a long-term liability. Suncoast never obtain Board-approved

security to offset the $180,000 deficiency in its net worth.

CONCLUSIONS OF LAW

15. The Division of Administrative Hearings has

jurisdiction over the subject matter. Section 120.57(1), Florida

Statutes. (All references to Sections and Chapters are to

Florida Statutes (Supp. 1994). All references to Rules are to

the Florida Administrative Code.)

16. Section 468.532(1)(i) authorizes the Board to impose

discipline against a licensee for any violation of Chapter 468,

Part XI, or any lawful order or rule issued under the provisions

of Chapter 468, Part XI, and Chapter 455.

17. Section 468.532(1)(r) authorizes the Board to impose

discipline against a licensee for failing to “meet or maintain

the requirements for licensure as an employee leasing company or

a controlling person.”

18. Section 468.525(3)(d) requires each employee leasing

company to “maintain an accounting net worth and positive working

capital . . . or shall have . . . security acceptable to the

board in sufficient amounts to offset any deficiency.”

19. Section 468.525(3)(e) requires each employee leasing

company to submit annual financial statements within 120 days

after the end of each fiscal year. Companies, such as Suncoast,

with gross Florida payrolls of less than $2.5 million may file

reviewed statements; other companies must file audited

statements.

20. Upon a violation of Section 468.532(1), Section

468.532(2) authorizes the Board to revoke, suspend, restrict, or

not renew the license; place the licensee on probation; impose an

administrative fine of not more than $5000 per offense; issue a

reprimand to the licensee; and assess costs for the investigation

and prosecution.

21. Petitioner must prove the material allegations by clear

and convincing evidence. Department of Banking and Finance v.

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

Ferris v. Turlington , 510 So. 2d 292 (Fla. 1987).

22. The most important issue in this case is whether

Suncoast maintained the minimum net worth and positive working

capital requirements while licensed. The issue whether Suncoast

filed the necessary financial statements following its cessation

of business, for periods prior to its cessation of business,

raises difficult factual and legal questions of estoppel and

statutory interpretation concerning whether these licensee

responsibilities extend past the point at which a licensee is a

going concern. It is unnecessary to resolve these difficult

issues.

23. At the close of 1994, Suncoast met the requirement of

positive working capital, but not the requirement of minimum net

worth. Nothing in the record suggests that the deficiency in net

worth arose abruptly on the last day of the year; instead, the

deficiency existed for some period prior to the end of the year--

largely attributable to the $200,000 judgment in favor of the

workers’ compensation carrier.

24. Section 468.525(3)(d) requires that companies maintain

an accounting net worth. This requirement is violated if a

company falls below the minimum net worth requirement between

financial statements. The net worth requirement does not require

only that a company’s financial statements reflect a positive net

worth; it requires that the company actually have a positive net

worth at all times, not just at those several points during a

year that financial statements describe.

25. Section 468.525(3)(d) offers leasing companies and

their controlling persons an alternative to revocation, if the

company’s net worth is no longer positive. The leasing company

and controlling person may obtain security, such as a personal

guarantee from the controlling person, to offset the deficiency.

Respondents did not avail themselves of this opportunity and

instead allowed Suncoast to continue to operate over some period

of time with a negative net worth--a fact well known to Haggerty,

who had decided to liquidate Suncoast due to its precarious

financial condition and transfer her operations to another

employee leasing company.

26. The parties stipulated that Suncoast’s license became

"null and void" seven months before Petitioner filed the

Administrative Complaints. The license was not inactive or

surrendered, so as to leave it capable of reactivation. Section

468.532 authorizes the Board to impose discipline against a

"licensee." Petitioner therefore has no jurisdiction to

discipline Suncoast's nonexistent license.

27. Haggerty’s license remains valid. The record is devoid

of evidence detailing the extent of any injury to the public. It

is unclear whether Suncoast or Haggerty has yet satisfied the

workers’ compensation judgment. It is clear that the judgment is

the cause of Suncoast’s net worth deficiency. The 1994 financial

statement, which was prepared in mid-1996, states that Suncoast

and Haggerty are still contesting the liability. If resolved in

their favor, or if the judgment were paid, the violation proved

in this case would be less serious than if the judgment is

affirmed and unpaid. The Board should impose discipline to

accommodate these contingencies.

RECOMMENDATION

It is

RECOMMENDED that the Board of Employee Leasing Companies

enter a final order dismissing the administrative complaint

against Suncoast Resource Management, Inc. and suspending Susan

Jan Haggerty’s license for a period equal to the earlier of five

years or until she proves to the reasonable satisfaction of the

Board that the $200,000 judgment in favor of the workers’

compensation carrier has been satisfied or vacated with all

judicial review concluded; but in no event shall the term of the

suspension be less than one year.

ENTERED in Tallahassee, Florida, on June 5, 1997.

___________________________________

ROBERT E. MEALE

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

[phone] SUNCOM 278-9675

Fax Filing [phone]

Filed with the Clerk of the

Division of Administrative Hearings

on June 5, 1997.

COPIES FURNISHED:

Mary Ellen Clark

Senior Attorney

Department of Business and

Professional Regulation

1940 North Monroe Street

Suite 60

Tallahassee, Florida 32399-0792

Attorney Frank M. Gafford

Post Office Box 1789

Lake City, Florida 32506-1789

Isla Jones

Executive Director

Board of Employee Leasing Companies

1940 North Monroe Street

Tallahassee, Florida 32399-0792

Lynda L. Goodgame

General Counsel

Department of Business and

Professional Regulation

1940 North Monroe Street

Tallahassee, Florida 32399-0792

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 must be filed with the agency that will

issue the final order in this case.