98-005073RU Richard L. Windsor vs. Department Of Insurance Status: Closed DOAH Final Order on Monday, March 1, 1999.

Summary: Risk management decided it would not reimburse Petitioner`s attorney`s fees at more than $85 an hour, "which is the maximum paid for routine defense cases." Statement was not generally applicable and was not a rule.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

RICHARD L. WINDSOR, )

)

Petitioner, )

)

vs. ) Case No. 98- 5073RU

)

DEPARTMENT OF INSURANCE, )

DIVISION OF RISK MANAGEMENT, )

)

Respondent. )

___________________________________)

FINAL ORDER

On December 23, 1998, a formal administrative hearing was

held in this case in Tallahassee, Florida, before J. Lawrence

Johnston, Administrative Law Judge, Division of Administrative

Hearings.

APPEARANCES

For Petitioner: Richard L. Windsor, Esquire

1622 Rankin Avenue

Tallahassee, Florida 32310

For Respondent: Edwin R. Hudson, Esquire

Henry, Buchanan, Hudson,

Suber & Williams, P.A.

117 South Gadsden Street

Tallahassee, Florida 32302

David Busch, Esquire

Department of Insurance

The Capitol, Lower Level 26

Tallahassee, Florida 32399-0300

STATEMENT OF THE ISSUE

The issue in this case is whether the Respondent, the

Department of Insurance (the Department), has an unpromulgated

agency rule not to reimburse routine defense fees at more than

$85 per hour when providing for the defense of civil actions

against state employees.

PRELIMINARY STATEMENT

On November 13, 1998, the Petitioner, Richard L. Windsor

(Windsor), filed a Petition to Determine the Invalidity of an

Agency Statement Defined as a Rule. The case was assigned on

November 23 and set for final hearing on December 23, 1998.

At final hearing, the Petitioner called R.J. Castellanos,

who is the Director of the Department's Division of Risk

Management (the Risk Management), and testified in his own

behalf. Mr. Castellanos testified again in the Department's

case-in-chief.

At final hearing, the Petitioner had Petitioner's Exhibits 1

through 3, and 5 through 16 admitted in evidence. Ruling was

reserved on objections to Petitioner's Exhibits 4 and 17. It is

now ruled that the hearsay objections to those exhibits are

sustained. The Respondent had Respondent's Exhibits 1 through 3

admitted in evidence.

At the conclusion of the evidentiary presentations, the

Respondent ordered a transcript of the final hearing, and the

parties requested and were given 20 days from the filing of the

transcript in which to file proposed final orders. The

transcript was filed on January 25, 1999. On February 15, 1999,

Windsor filed a Request for Extension of Time for Filing Proposed

Final Order; the motion was not opposed, and it is granted. The

parties' proposed final orders have been considered.

FINDINGS OF FACT

1. The Petitioner, Richard L. Windsor (Windsor), was an

attorney employed by the Department of Environmental Regulation

( DER, now called the Department of Environmental Protection, or

DEP) when he and another DER employee were named along with the

DER as defendants in a counterclaim filed in 1995 in a lawsuit

(the Coxwell case) that had been brought by DER, through Windsor

as its attorney of record, in state circuit court in Okaloosa

County to remedy alleged intentional violations of state

environmental laws and regulations. The "counterclaim" initially

was not served on Windsor, and DER declined Windsor's request to

defend him at that time. Instead, it was decided to ignore the

"counterclaim" against Windsor until it was served on him.

2. In 1996, after Windsor terminated his employment with

DEP, the "counterclaim" was served on him. Windsor requested

that DEP defend him, and DEP agreed to refer the matter to Risk

Management. Risk Management agreed to defend Windsor and in

September 1996 assigned the defense to an Okaloosa County

attorney named Jim Barth, who agreed to an hourly rate of $75.

3. Barth telephoned Windsor to discuss the case, and

Windsor suggested that Barth investigate an out-of-state property

rights organization Windsor said was sponsoring and financing the

claim against him and the other DEP employee. Barth rejected

Windsor's suggestion. Windsor was discomforted from Barth's

decision but decided not to press the issue.

4. In a subsequent meeting with Barth, Windsor suggested

that Barth should assert the government employee defense of

qualified immunity from suit. It seemed to Windsor that Barth

accepted the idea.

5. In May 1997, with trial set for July, Barth telephoned

Windsor to tell him that trial was set for July 1997, and a

court-ordered mediation conference was scheduled for June 1997.

Windsor asked about the immunity defense and felt that Barth

tried to avoid answering the question.

6. At the mediation conference in June 1997, Barth and Risk

Management made a nominal settlement offer, while DEP's lawyer

refused to make any offer of settlement on the ground that the

counterclaim was frivolous. Although Barth's settlement offer

was rejected, Windsor became very concerned about the quality of

Barth's representation. He also established through conversation

during the course of the day that Barth had not asserted the

immunity defense on his behalf.

7. With trial set for July 1997, Windsor decided that he no

longer could rely on Barth but would have to raise the defense on

his own. Windsor consulted Davisson F. Dunlap, Jr., a

Tallahassee attorney with the Carlton Fields law firm. Windsor

knew Dunlap from Dunlap's representation of another DER employee

who had been named along with DER as a defendant in a

counterclaim filed in a previous lawsuit that had been brought by

DER, through Windsor as its attorney of record (the Dockery

case). Windsor was impressed with Dunlap's work on the Dockery

case, including his filing of a motion for summary judgment on

behalf of his client on the defense of qualified governmental

immunity. Dunlap explained that his hourly rate at Carlton

Fields was $175, and Windsor agreed to hire Dunlap at that rate

to help get Windsor's defense where Windsor and Dunlap thought it

should be. Based on this understanding, Dunlap immediately began

preparing a motion for summary judgment.

8. At Windsor's request, Dunlap presented his work product

to Barth, who agreed to use it to file a motion for summary

judgment. When Windsor learned that Barth missed the court's

deadline for filing motions, Windsor became completely

dissatisfied with Barth and eventually requested that Risk

Management reassign his case from Barth to Dunlap.

9. Risk Management agreed, contacted Dunlap, and entered

into a Legal Services Contract with Dunlap's new law firm at the

same $85 hourly rate in the Pennington law firm's contract. At

some point (probably before Dunlap and the Carlton firm actually

entered into the Legal Services Contract with Risk Management),

Dunlap reported to Windsor that the contract would be for $85 an

hour and that the Carlton firm would not allow Dunlap to

undertake representation at that rate of pay. Windsor, who was

happy just to have gotten Dunlap substituted for Barth, assured

Dunlap that Dunlap would receive his full $175 an hour, as

initially agreed between them, and that Windsor would pay Dunlap

the difference of $90 an hour after payment of $85 an hour from

Risk Management under the Legal Services Contract.

10. Neither Dunlap nor Windsor advised Risk Management of

the agreement for the payment of Dunlap's full $175-an-hour fee

after Risk Management's Legal Services Contract with the Carlton

firm at $85 an hour. However, Windsor had in mind that, at some

point in the future, he would raise the issue and be able to

persuade Risk Management to contribute more towards the payment

of Dunlap's $175-an-hour fee.

11. In October 1997, Windsor began an exchange of

correspondence with Risk Management that went on for several

months. While touching on a number of different topics,

Windsor's primary initial concern in this correspondence was the

payment of Dunlap's fees for work done on Windsor's case before

Dunlap's Legal Services Contract with Risk Management. Risk

Management agreed without much question (notwithstanding Windsor

having retained Dunlap without notice to Risk Management), since

Risk Management determined that Dunlap's work did not duplicate

much of Barth's. When Risk Management indicated its intent to

pay Dunlap for the work at the contract rate of $85 an hour,

Windsor advised Risk Management for the first time that Windsor

was obligated to pay Dunlap for the work at the rate of $175 an

hour; Windsor requested that Risk Management "make him whole" by

paying Dunlap's full fee of $175 an hour. However, Windsor did

not make it clear to Risk Management in this correspondence that

he also wanted Risk Management to pay Dunlap $175 an hour for

work done after Dunlap's Legal Services Contract with Risk

Management. Neither Windsor nor Dunlap made it clear to Risk

Management either that Dunlap also had a contract with Windsor,

in addition to the Legal Services Contract, for work done by

Dunlap after Dunlap's Legal Services Contract with Risk

Management, or that the additional contract was for $175 an hour,

which obligated Windsor to pay Dunlap the difference of $90 an

hour after payment of $85 an hour from Risk Management under the

Legal Services Contract.

12. By letter dated July 1, 1998, Risk Management's

Director, R.J. Castellanos, advised Windsor that Risk Management

would not pay Dunlap more than $85 an hour for the work done

before the Legal Services Contract. The letter explained that

review did not disclose support for Windsor's contention in

correspondence that Risk Management was negligent, requiring

Windsor to retain Dunlap at $175 an hour prior to the Legal

Services Contract. It pointed out that Windsor retained Dunlap

at the time without any notice to Risk Management and that Risk

Management was "deprived of any opportunity to contract with a

firm at a negotiated rate" for those services (as it was able to

do for subsequent services when it entered into the Legal

Services Contract with Dunlap's firm). For those reasons, the

letter explained, Risk Management "reimbursed you at an $85.00

rate, which is the maximum amount we pay as routine defense

fees." Windsor contends that the latter quotation is, or is

evidence of, an unpromulgated Division rule.

13. The intent of the statement in Castellanos' letter was

to explain why, under the circumstances, Risk Management would

not reimburse Windsor more than $85 an hour for the fees he

incurred for work Dunlap did before the Legal Services Contract;

it was not intended to even address Dunlap's fees after the Legal

Services Contract. At the time the statement was made,

Castellanos did not realize there was any issue as to payment of

Dunlap's fees for work done after the Legal Services Contract.

14. The statement in Castellanos' letter was not a

statement of general applicability. Risk Management generally

does not reimburse defense fees; rather, it negotiates contracts

directly with lawyers to provide those services and pays the fees

directly to the lawyer under contract. Rather, the statement in

Castellanos' letter was intended to explain that, under the

circumstances, Risk Management was not going to reimburse more

than maximum amount it pays attorneys with whom Risk Management

contracts directly. As a matter of fact, Risk Management has

approximately 250 open-ended contracts for legal services with

law firms all over Florida. (It is not clear from the evidence

when these contracts were negotiated, or which are still in use.)

The hourly rates for those contracts range from a low of $65 an

hour to a high (in approximately five or six of the 250

contracts) of $85 an hour for routine defense cases. (Hourly

rates for trademark and copyright specialties are $150 an hour.)

These included the $85-an-hour legal services contracts with

Dunlap, once as a member of the Pennington firm and again as a

member of the Carlton Fields firm.

15. The evidence also did not prove that Risk Management

has an unpromulgated rule not to exceed a fee of $85 an hour in

negotiating directly with attorneys for legal services contracts

for routine defense cases. The evidence was that Risk Management

considers itself to be bound by Section 287.059(7), Florida

Statutes (1997), and Florida Administrative Code Rule Chapter 2-

37 when contracting with attorneys for legal services. The

maximum fees allowed by the statute and those rules exceed $85 an

hour for routine defense cases. In addition, the statute and

rules allow agencies such as Risk Management to exceed the

maximum standard fees under certain circumstances. See

Conclusion of Law 21, infra .

16. Risk Management interprets Section 287.059(7), Florida

Statutes (1997), and Florida Administrative Code Rule Chapter 2-

37 to require it to negotiate fees below the maximum standard

fees. Id. When negotiating with a lawyer or law firm, Risk

Management attempts to utilize the leverage it enjoys from the

ability to offer lawyers an open-ended contract with the

possibility of volume business contract to negotiate for the

lowest possible fee for quality services. To date, these legal

services contracts have been for $85-an-hour or less for routine

defense cases. But it was not proven that Risk Management has

established an $85-an-hour maximum for routine defense in

conflict with the maximum standard fees established in Rule

Chapter 2-37.

17. Windsor seems to make a vague argument that Section

111.07, Florida Statutes (1997), which requires an agency such as

Risk Management to reimburse a prevailing employee a "reasonable"

attorney fee when the agency declines to provide legal

representation to defend the employee, and common law (which

Windsor does not elaborate), requires Risk Management to

reimburse him for Dunlap's services and that such reimbursement

is not limited by Section 287.059(7), Florida Statutes (1997),

and Florida Administrative Code Rule Chapter 2-37. Windsor seems

to further argue that the statement in Castellanos' letter was

generally applicable to establish the amount of reasonable

attorney fees reimbursable under Windsor's legal arguments. But

it was not apparent that Windsor was making these arguments until

post-hearing submissions in this case. Clearly, Risk Management

does not agree with Windsor's arguments (the merits of which are

not subject to determination in this proceeding); more germane to

this proceeding, Risk Management never understood or considered

such arguments at the time of the statement in Castellanos'

letter, and Castellanos clearly did not intend the statement in

his letter to be generally applicable to establish the amount of

reasonable attorney fees reimbursable under Windsor's legal

arguments.

CONCLUSIONS OF LAW

18. The law is clear that: "Each agency statement defined

as a rule by s. 120.52 shall be adopted by the rulemaking

procedure provided by this section [120.54, Florida Statutes] as

soon as feasible and practicable." Section 120.54(1)(a), Florida

Statutes ( Supp. 1998). "Any person substantially affected by an

agency statement may seek an administrative determination that

the statement violates s. 120.541(1)(a)." Section 120.56(2),

Florida Statutes (1997). The statement in Castellanos' July 1,

1998, letter substantially affected Windsor in that it was part

of the explanation why Risk Management would not reimburse

Windsor for some of Dunlap's fees for services rendered before

the Legal Services Contract between Dunlap and Risk Management.

19. Section 12 0.52(15), Florida Statutes ( Supp. 1998),

provides in pertinent part:

(15) "Rule" means each agency statement of

general applicability that implements,

interprets, or prescribes law or policy or

describes the procedure or practice

requirements of an agency and includes any

form which imposes any requirement or

solicits any information not specifically

required by statute or by an existing rule.

Under this definition, the statement in Castellanos' July 1,

1998, letter is not a rule. See Finding of Fact 14, supra .

20. The statement in Castellanos' July 1, 1998, letter also

does not reflect an unpromulgated rule not to exceed a fee of $85

an hour in negotiating directly with attorneys for legal services

contracts for routine defense cases. Rather, the evidence was

that Risk Management uses its bargaining power to negotiate the

lowest possible fee for quality representation in accordance with

applicable statutes and rules. See Finding of Fact 16, supra .

21. Florida Administrative Code Rule 2-37.030, promulgated

by the Florida Attorney General under the authority of Section

287.059(6), Florida Statutes (1997), establishes a standard

attorney fee schedule, and subsection (7) of the statute requires

all agencies, including Risk Management, to comply with them.

See also Florida Administrative Code Rule 2-37.020. (Subsection

(2) exempts Risk Management from the requirement to notify the

Attorney General when it contracts for legal services, but there

is no exemption from the standard fee schedule under subsections

(6)-(7).) Florida Administrative Code Rule 2-37.030(2)

establishes $125 an hour as the maximum standard attorney fee for

legal services other than certain specialties. Under section (1)

of the rule, the maximum standard fee for the specialties

(including trademark

and copyright, among others) is $175 an hour. Under

Rule 2-37.020, these maximum fees

are intended only as a cap and not as the

standard fee for any particular type of

attorney services. Good fiscal management

requires agencies to negotiate fees below the

maximum allowed in the standard fee schedule

whenever possible.

Under certain circumstances, the maximum standard fees can be

exceeded. See Section 287.059(7), Florida Statutes (1997);

Florida Administrative Code Rule 2-37.040. But the evidence was

that Risk Management has had no occasion to exceed the maximum

standard fees; Risk Management has been able to negotiate fees

below the maximum.

22. Finally, regardless of the merits of Windsor's

arguments under Section 111.07, Florida Statutes (1997), or under

common law, it is clear that Risk Management has no rule as to

what would constitute a "reasonable" fee under that statute or

under common law. See Finding of Fact 17, supra .

DISPOSITION

Based on the foregoing Findings of Fact and Conclusions of

Law, Windsor's Petition to Determine the Invalidity of an Agency

Statement Defined as a Rule is denied.

DONE AND ORDERED this 1st day of March, 1999, in

Tallahassee, Leon County, Florida.

_________________________________ __

J. LAWRENCE JOHNSTON

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

[phone] SUNCOM 278-9675

Fax Filing [phone]

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 1st day of March, 1999.

COPIES FURNISHED:

Richard L. Windsor, Esquire

1622 Rankin Avenue

Tallahassee, Florida 32310

Edwin R. Hudson, Esquire

Henry, Buchanan, Hudson,

Suber & Williams, P.A.

117 South Gadsden Street

Tallahassee, Florida 32302

David Busch, Esquire

Department of Insurance

The Capitol, Lower Level 26

Tallahassee, Florida 32399-0300

Bill Nelson, Commissioner

Department of Insurance

The Capitol, Plaza Level 11

Tallahassee, Florida 32399-0300

Daniel Y. Sumner, General Counsel

Department of Insurance

The Capitol, Lower Level 26

Tallahassee, Florida 32399-0300

Carroll Webb, Executive Director

Administrative Procedures Committee

120 Holland Building

Tallahassee, Florida 32399-1300

NOTICE OF RIGHT TO JUDICIAL REVIEW

A party who is adversely affected by this Final Order is entitled

to judicial review pursuant to Section 120.68, Florida Statutes.

Review proceedings are governed by the Florida Rules of Appellate

Procedure. Such proceedings are commenced by filing one copy of

a notice of appeal with the Clerk of the Division of

Administrative Hearings and a second copy, accompanied by filing

fees prescribed by law, with the District Court of Appeal, First

District, or with the District Court of Appeal in the Appellate

District where the party resides. The notice of appeal must be

filed within 30 days of rendition of the order to be reviewed.