99-004165F Associated Marine Institutes, Inc. vs. Department Of Revenue Status: Closed DOAH Final Order on Thursday, October 28, 1999.

Summary: Department of Revenue was substantially justified in defending a rule that exempted purchases, but not sales, by certain organizations providing certain services to minors.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

ASSOCIATED MARINE INSTITUTES, )

INC., )

)

Petitioner, )

)

vs. ) Case No. 99-4165F

)

DEPARTMENT OF REVENUE, )

)

Respondent. )

______________________________)

FINAL ORDER

P etitioner has presented this case to Robert E. Meale,

Administrative Law Judge of the Division of Administrative

Hearings, through a Motion for Attorneys' Fees and Costs filed on

October 1, 1999.

APPEARANCES

For Petitioner: Emily S. Waugh

Ausley & McMullen

Post Office Box 391

Tallahassee, Florida 32302-0391

For Respondent: Kevin J. ODonnell

Ruth Ann Smith

Assistant General Counsels

Department of Revenue

Post Office Box 6668

Tallahassee, Florida 32399-6668

STATEMENT OF THE ISSUE

The issue is whether Petitioner is entitled to its

attorneys' fees and costs associated with this case and an

associated case, DOAH Case No. 99- 1679RX, in which Petitioner

obtained a final order from the same Administrative Law Judge

invalidating two rules promulgated by Respondent.

PRELIMINARY STATEMENT

After prevailing in a rule challenge, Petitioner has

commenced the present proceeding for attorneys' fees and costs

under Section 120.595(3), Florida Statutes. The final order

invalidating the challenged rules determined that the rules,

which provided an exemption from the sales and use tax, were

invalid exercises of delegated legislative authority because the

exemption rules were narrower than the exemption statute on which

they were based.

Petitioner has requested a hearing, but only for the purpose

of presenting "oral argument." Respondent has not requested a

hearing of any sort. The parties do not dispute the basic facts

of the case. Although they dispute the ultimate facts and

inferences to be drawn from the basic facts, the parties have not

requested an evidentiary hearing, evidently in recognition of the

fact that such a hearing would serve no useful purpose. The

parties have filed a motion, response, and reply concerning the

claim for attorneys' fees and costs. Concluding that a hearing

for the presentation of legal argument is unnecessary, the

Administrative Law Judge denies Petitioner's request for such a

hearing.

FINDINGS OF FACT

1. Petitioner was the prevailing party in DOAH Case

No. 99- 1679RX. In that case, Petitioner proved that Rules

12A-1.001(3)(b) and 12A-1.001(3)(q), Florida Administrative Code,

which provided an exemption from the sales and use tax for

certain organizations providing certain services to minors (Minor

Organizations), were an invalid exercise of delegated legislative

authority because the exemption in the rule covered only

purchases by Minor Organizations and the exemption in the

statutes covered purchases and sales by Minor Organizations.

2. The sole issue in this case is whether Respondent's

position in defending the challenged rules was substantially

justified. Among other things, Respondent has conceded that

Petitioner's claim exceeds $15,000.

3. In the rule challenge, the Administrative Law Judge

reviewed the language chosen by the legislature to create

exemptions based on a sale, a purchase, the identity of the

purchaser, the identity of the seller, and the identity of the

item purchased or sold. The Administrative Law Judge concluded

that the "plain meaning" of the statute was to exempt purchases

and sales by Minor Organizations.

4. As Petitioner notes in its motion, Respondent had

already promulgated a rule conferring the broader exemption for

purchases and sales by certain nursing homes, which were the

beneficiary of a statutory exemption stated in the same language

as that applying to Minor Organizations.

5. However, several other rules, construing the same

statutory language governing other types of entities, recognized

only the narrower exemption extended to Minor Organizations.

6. In one instance, the legislature exempted the purchases

and sales by one type of entity in different, arguably stronger

language. Additionally, Respondent defended its interpretation

in the rule challenge largely in reliance upon legislative

history, which, at least by negative implication, was not

inconsistent with Respondent's position.

CONCLUSIONS OF LAW

7. The Division of Administrative Hearings has jurisdiction

over the subject matter. Sections 120.57(1) and 120.595(3),

Florida Statutes. (All references to Sections are to Florida

Statutes.)

8. Petitioner is entitled to its attorneys' fees and costs,

pursuant to Section 120.595(3), unless Respondent can show that

its actions were "substantially justified." Respondent has made

such a showing in this case, so Petitioner is not entitled to its

attorneys’ fees and costs.

9. Recent case law rejecting defenses of substantial

justification involve agency action much less justifiable than

Respondent’s action in the rule challenge. In Helmy v.

Department of Business and Professional Regulation , 707 So. 2d

366 (Fla. 1st DCA 1998), which is cited by Petitioner, the

probable cause panel of the Board of Veterinary Medicine found

probable cause against a veterinarian who was working at a

veterinarian's office while his license was suspended. In a

discussion that the court labeled "cursory" and demonstrating "no

meaningful inquiry into the applicable facts and law," the panel

inexplicably omitted any mention of the statutory definition of

"immediate supervision" or the effect of the presence of a

licensed veterinarian on the same premises. In rejecting the

agency's substantial justification defense, the court noted the

evident preoccupation of the panel with the appropriate penalty,

at the expense of any consideration of liability.

10. In Department of Health and Rehabilitative Services v.

South Beach Pharmacy, Inc. , 635 So. 2d 117 (Fla. 1st DCA 1994),

the agency prosecuted a Medicaid reimbursement case against a

pharmacy in reliance upon the findings of an independent auditor,

but without first confirming with a single Medicaid patient if

the medication had been dispensed or with a single physician if

the medication had been prescribed. The court also rejected this

agency's substantial justification defense.

11. The cited cases involve facts that do not rise to

substantial justification. The facts in this case involve not

merely much greater justification than the facts in the cited

decisions, but they reveal substantial justification because

Respondent defended its rules with a reasonable basis in fact and

law.

12. Petitioner's argument in reliance upon the "plain

meaning" language in the final order invalidating the rules

overlooks the judicial rule of statutory construction favoring

legislative intent over plain meaning. In Dreason v. Florida

Department of Corrections , 705 So. 2d 1374 (Fla. 1998), the

Florida Supreme Court recently expressed this rule of

construction as follows:

the primary and overriding consideration in

statutory interpretation is that a statute

should be construed and applied so as to give

effect to the evident intent of the

legislature regardless of whether such

construction varies from the statute's

literal meaning.

13. Thus, the "plain meaning" of the statutory exemption

did not necessarily deprive Respondent of substantial

justification for its position, especially given the previously

mentioned legislative history. In addition to this legislative

history and the other textual reasons already noted in support of

Respondent's position, the language of the statutory exemptions

in the exemption subsection at issue resists easy interpretation

at times. Reflective of the patchwork quality of the

draftsmanship that has evolved over 50 years of legislative

additions, deletions, and modifications to the Florida Revenue

Act of 1949, especially awkward features of the statutory

exemptions to the sales and use tax are their haphazard

organization and use of different language to confer the same

type of exemption to different entities or items.

14. Based on all of the circumstances, Respondent had

substantial justification to construe the statute so as not to

extend the exemption to sales by Minor Organizations.

15. This order is not intended to provide Respondent with

future immunity from claims for attorneys' fees and costs

following unsuccessful attempts to defend similar exemption rules

that invalidly restrict similar exemption statutes. Absent

judicial intervention to reverse erroneous administrative

determinations of the invalidity of particular exemption rules or

legislative intervention to restore the narrower scope of

specific exemptions, Respondent's future defense of such

exemption rules may or may not be substantially justified,

depending upon consideration of all relevant circumstances,

including what may reasonably be expected in terms of

Respondent's evolving understanding of the scope of specific

exemption statutes.

ORDER

It is

ORDERED that the Motion for Attorneys' Fees and Costs is

denied and the case is dismissed.

DONE AND ORDERED this 28 th day of October, 1999, in

Tallahassee, Leon County, Florida.

___________________________________

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]

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 28th day of October, 1999.

COPIES FURNISHED:

Emily S. Waugh

Ausley & McMullen

Post Office Box 391

Tallahassee, Florida 32302-0391

Kevin J. ODonnell

Ruth Ann Smith

Assistant General Counsels

Department of Revenue

Post Office Box 6668

Tallahassee, Florida 32399-6668

Linda Lettera, General Counsel

Department of Revenue

Post Office Box 6668

Tallahassee, Florida 32314-6668

Larry Fuchs, Executive Director

Department of Revenue

Post Office Box 6668

Tallahassee, Florida 32314-6668

NOTICE OF RIGHT OF JUDICIAL REVIEW

A party who is adversely affected by this final order is entitled

to judicial review. 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

agency 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.