02-000469 My Oil Company, Inc. vs. Department Of Revenue Status: Closed Recommended Order on Wednesday, July 3, 2002.

Summary: Applicant failed to demonstrate its entitlement to fuel license; however, agency`s allegations of fraud in application process were unproven, and applicant should receive opportunity to cure defects in application.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

MY OIL COMPANY, INC., )

)

Petitioner, )

)

vs. ) Case No. 02 - 0469

)

DEPARTMENT OF REVENUE, )

)

Respondent. )

_____________________________)

RECOMMENDED ORDER

Pursuant to notice, a formal hearing was held in this case

on March 29, 2002, via video teleconference in T allahassee and

Fort Myers, Florida, before Lawrence P. Stevenson, a duly -

designated Administrative Law Judge of the Division of

Administrative Hearings.

APPEARANCES

For Petitioner: E. Raymond Shope, II, Esquire

1404 Goodlette Road, North

Naples, Florida 34102

For Respondent: Robert F. Langford, Jr., Esquire

Office of the Attorney General

The Capitol - Tax Section

Tallahassee, Florida 32399 - 1050

STATEMENT OF TH E ISSUE

Whether the Department of Revenue's denial of Petitioner's

application for a Florida fuel license should be upheld.

PRELIMINARY STATEMENT

On June 20, 2001, the Department of Revenue received a

Florida Fuel Tax Application for a fuel license in the name of

My Oil Company, Inc., the sole owner and operator of which was

Maria Yzaguirre. On January 18, 2002, the Department issued a

Notice of Intent to Deny the application. The stated basis for

the denial was the application of Section 206.026(1)( a)9,

Florida Statutes, which provides that a corporation may not hold

a fuel license if an owner of any interest in the corporation,

including an immediate family member of the owner, has been

convicted of a felony. Maria Yzaguirre's husband, Armando

Yzag uirre, had attested in a separate fuel license application,

filed on behalf of his company, Yzaguirre Oil Company, Inc.,

that he had been convicted of a felony. Also on January 18,

2002, the Department denied Yzaguirre Oil Company's application

because of Mr. Yzaguirre's admission of a felony conviction.

On January 28, 2002, My Oil Company timely filed a Petition

for Administrative Hearing, requesting an evidentiary hearing to

contest the Department's denial of its application. On

February 7, 2002, the D epartment forwarded the matter to the

Division of Administrative Hearings for assignment of an

Administrative Law Judge. The final hearing was scheduled for

March 29, 2002, and was held on that date.

At the hearing, the Department presented the testimon y of

Larry Gowen, supervisor of the Department's motor fuel

registration unit; Maria Yzaguirre, the principal of My Oil

Company; and Armando Yzaguirre, principal of Yzaguirre Oil

Company. The Department's Exhibits A through J were offered and

received int o evidence. My Oil Company presented the testimony

of Armando B. Yzaguirre, the son of the principal of Yzaguirre

Oil Company, and stepson of Maria Yzaguirre. My Oil Company's

Exhibits 1 through 11 were offered and received into evidence.

A Transcript of the final hearing was filed with the

Division of Administrative Hearings on April 30, 2002. The

parties' joint motion for extension of time to file proposed

recommended orders was granted by an order entered on May 2,

2002. The parties timely filed thei r Proposed Recommended

Orders on May 20, 2002.

FINDINGS OF FACT

Based on the oral and documentary evidence presented at the

final hearing and on the entire record of this proceeding, the

following findings of fact are made:

1. On or about May 22, 2001, A rmando Yzaguirre submitted

to the Department a completed Florida Fuel Tax Application, Form

DR - 156, seeking licensure as a private carrier and wholesaler on

behalf of Yzaguirre Oil Company, Inc. ("Yzaguirre Oil"). The

application listed Mr. Yzaguirre as t he president and sole

stockholder of Yzaguirre Oil.

2. Form DR - 156 requests information about the applicant

business and its principals, including a list of 33 questions

requiring a "yes" or "no" answer from the applicant. Question

number 33 asks:

Ha ve you or other owners, officers,

directors, or stockholders with a

controlling interest, been convicted of, or

entered a plea of guilty or nolo contendere

to, a felony committed against the laws of

any state or the United States?

Mr. Yzaguirre's sworn an swer to Question number 33 was "yes."

Mr. Yzaguirre provided the Department with no elucidation as to

the circumstances of his admitted felony conviction.

3. On or about June 22, 2001, Maria Yzaguirre, the wife of

Armando Yzaguirre, submitted to the Depa rtment a completed

Florida Fuel Tax Application, Form DR - 156, seeking licensure as

a private carrier and wholesaler on behalf of My Oil Company,

Inc. ("My Oil"). The application listed Mrs. Yzaguirre as the

president and sole stockholder of My Oil.

4. On June 29, 2001, Mrs. Yzaguirre filed with the

Department articles of incorporation for My Oil. On July 5,

2001, Mrs. Yzaguirre filed these articles of incorporation with

the Secretary of State to obtain registration as a Florida

domiciled corporation.

5. Aaron Hood, a revenue specialist in the Department's

motor fuel registration unit, was assigned to process both the

Yzaguirre Oil application and the My Oil application.

6. Mr. Hood conducted a standard background investigation

of both applicants, se curing investigative reports from the

Federal Bureau of Investigation and the Florida Department of

Law Enforcement on the criminal histories of Armando and Maria

Yzaguirre.

7. The reports revealed that Maria Yzaguirre had no

criminal record, either of ar rest or conviction.

8. The reports revealed a lengthy list of arrests for

Armando Yzaguirre. The reports included a 1980 arrest for

felony arson of a structure in Collier County, and a 1990 arrest

and conviction for marijuana possession in Texas. The re ports

were inconclusive as to whether the Collier County felony charge

resulted in conviction, or whether the Texas conviction was a

felony.

9. Having difficulty determining the precise nature of the

felony to which Mr. Yzaguirre admitted in his applicati on,

Mr. Hood enlisted the aid of Pete Welch, a Department

investigator.

10. On January 3, 2002, Mr. Welch reported to Mr. Hood

that information received from the Clerk of the Circuit Court of

Collier County confirmed that Mr. Yzaguirre had been convicted

by a jury of the 1980 felony charge. However, aside from

Mr. Welch's e - mail report to Mr. Hood, the Department offered no

evidence confirming this felony conviction.

11. Mr. Welch's investigation also obtained details of the

Texas marijuana possession charge. In December 1990,

Mr. Yzaguirre's plea of nolo contendere to a second - degree

felony charge of possession of more than five but not more than

50 pounds of marijuana was accepted by the court.

Mr. Yzaguirre's ten - year sentence was suspended in fa vor of

eight years' probation and a $5,000 fine.

12. No evidence was presented to show that Mr. Yzaguirre

failed to comply with the terms of probation. Neither was

evidence presented that Mr. Yzaguirre has been pardoned or that

his civil rights have be en restored. At the hearing,

Mr. Yzaguirre indicated that he is taking steps to seek

restoration of his civil rights.

13. In his review of the Yzaguirre Oil and My Oil

applications, Mr. Hood discovered that the companies claimed

many of the same assets. Each company listed the same two

tanker trucks to be used in transporting fuel. Each company

listed 211 New Market Road, East, in Immolakee as its principal

business address. Each company claimed exactly $1 million in

accounts receivable.

14. The timi ng of the filings and the common assets led

Mr. Hood to suspect that the later My Oil application was

submitted under Maria Yzaguirre's name to evade the possible

disqualification of the Yzaguirre Oil application because of

Mr. Yzaguirre's felony convicti ons. In short, Mr. Hood

suspected that My Oil was a "front" corporation over which

Mr. Yzaguirre would exercise control.

15. The common assets also led Mr. Hood to suspect the

truthfulness and accuracy of the financial affidavits filed by

Maria Yzaguirr e on behalf of My Oil. While it investigated the

criminal history of Mr. Yzaguirre, the Department also

investigated the extent of Mr. Yzaguirre's possible control over

My Oil's business activities.

16. Armando B. Yzaguirre is the 25 - year - old son of Arma ndo

Yzaguirre and the stepson of Maria Yzaguirre. Testimony at the

hearing established that Armando B. Yzaguirre completed both

license applications and was the driving force behind the

creation of both Yzaguirre Oil and My Oil.

17. The elder Armando Yza guirre's chief business is

farming. His tomato and melon operation earns over $1 million

per year. To save money on transporting the large amounts of

fuel needed for his farming operations, Mr. Yzaguirre purchased

two sizable tanker trucks in 2001, a new Peterbilt with a

capacity of 9,200 gallons, and a 1998 Ford with a 2,500 gallon

capacity.

18. If these trucks were used only for Mr. Yzaguirre's

farm, they would sit idle much of the time. This idle capacity

gave Armando B. Yzaguirre the idea of going i nto the fuel

transport business, using his father's tankers to deliver fuel

to other farms and businesses in the area.

19. Yzaguirre Oil was incorporated to operate as a fuel

transport business. The business would be operated entirely by

Armando B. Yzagu irre, who was the only member of the family

licensed to drive the large tanker truck. The trucks were owned

by and licensed to Yzaguirre Oil.

20. Armando B. Yzaguirre was going through a divorce at

the time Yzaguirre Oil was established. He was concerne d that

his wife would have a claim to half of any business he owned,

and wished to ensure that ownership of Yzaguirre Oil would

remain in his family. Thus, Armando B. Yzaguirre placed all

ownership of Yzaguirre Oil in the name of his father, though his

fa ther would have no connection with the operation of the

company's business.

21. Subsequent to incorporating Yzaguirre Oil, Armando B.

Yzaguirre discussed his prospective business with his

stepmother, Maria Yzaguirre. Mrs. Yzaguirre was pleased that

young Armando was establishing a business for himself. They

discussed the future of the six younger Yzaguirre children and

ideas for businesses that could be established to eventually be

taken over by the children.

22. Ultimately, the younger Armando and Ma ria Yzaguirre

settled on the idea of a convenience store and filling station

that could be established on part of a city block in Immolakee

that the senior Mr. Yzaguirre already owned. This would be the

type of business that the children could learn and w ork at while

they were still in school, then take over after their

graduation. This was the genesis of My Oil.

23. Mrs. Yzaguirre contacted a lawyer to draft articles of

incorporation and later transferred $100,000 from her personal

money market account into a My Oil bank account to provide

start - up money.

24. The younger Armando Yzaguirre filled out the fuel

license application, using his earlier application for Yzaguirre

Oil as a model. As with the earlier application, the younger

Armando Yzaguirre kept his name off the corporate documents and

the fuel license application to avoid any claim by his soon - to -

be ex - wife to the company's assets. He anticipated that My Oil

would lease the two tanker trucks from Yzaguirre Oil, and thus

listed them on the a pplication as assets of My Oil.

25. At the hearing, Mr. Yzaguirre conceded that he made

mistakes on both applications. As noted above, he listed

$1 million in accounts receivable for each of the companies.

These were actually accounts receivable for his father’s farming

operation, and should not have been included as assets for

either Yzaguirre Oil or My Oil.

26. Testimony from witnesses for both parties indicated

that communications between the Yzaguirres and the Department

were poor during the appl ication review process. The Yzaguirres

often telephoned Mr. Hood to learn the status of their

applications, so often that Mr. Hood felt harassed. From their

standpoint, the Yzaguirres could not understand why the

applications were taking months to proces s, and felt that

Mr. Hood was continually placing obstacles in their path and

avoiding their queries.

27. As noted above, early in the review process, the

Department began to suspect that My Oil was a front for

Yzaguirre Oil. At the hearing, however, t he Department was

unable to establish that the Yzaguirres knew of the likely

rejection of the Yzaguirre Oil application in the month before

they filed the My Oil application. Due to illness, Mr. Hood was

unable to testify at the hearing as to his conversa tions with

the Yzaguirres.

28. For their part, the Yzaguirres adamantly denied any

prior knowledge that the elder Mr. Yzaguirre’s criminal record

would disqualify his application. Armando B. Yzaguirre, who was

the Yzaguirres' point person in dealing wi th the Department,

testified that no one at the Department made him aware that his

father's criminal history was a problem until December 2001.

The Yzaguirres also denied that the elder Mr. Yzaguirre would

have any connection with the operation of My Oil.

29. The Department pointed to several alleged

discrepancies in the My Oil application as grounds for its

suspicion that the company was a "front" for Yzaguirre Oil.

First, the My Oil application, filed June 20, 2001, lists a

corporate asset of $100,000 in cash on deposit at an unnamed

bank, when in fact the cash was not deposited in a My Oil

account at Florida Community Bank until September 10, 2001.

30. Second, the My Oil application lists the two tanker

trucks as corporate assets as of the date of a pplication, when

in fact the trucks were titled in the name of Yzaguirre Oil and

the anticipated lease arrangement had yet to be consummated.

31. Third, the My Oil application claimed the property at

211 New Market Road, East, as a corporate asset as of t he date

of application, when in fact the property was titled in the name

of the elder Mr. Yzaguirre.

32. Fourth, the My Oil application listed $1 million in

accounts receivable as a corporate asset. As noted above,

Armando B. Yzaguirre admitted at the he aring that these

receivables were from his father's farming operation and should

not have been listed on the application as assets of My Oil.

33. Armando B. Yzaguirre plausibly explained that My Oil

anticipated leasing the trucks, but that there was no re ason to

spend the money to finalize that arrangement until the fuel

license was obtained and My Oil could actually commence

operations. Similarly, Mrs. Yzaguirre clearly had on hand the

$100,000 in cash claimed as a My Oil asset, and the timing of

her act ual transfer of that money into a My Oil account would

not alone constitute cause for suspicion, given that My Oil had

yet to commence operations when the application was filed.

34. Armando B. Yzaguirre also convincingly explained that

leasing the tanker trucks from his father's company would not

give Yzaguirre Oil effective control over My Oil's business.

The younger Mr. Yzaguirre contemplated that the lease agreement

would be an arms - length arrangement between the two companies.

If the companies could not arrive at a mutually satisfactory

lease agreement, or if the lease agreement should later fall

through, My Oil could lease trucks from another company and

continue doing business.

35. However, no witness for My Oil offered a satisfactory

explanation a s to how the elder Mr. Yzaguirre's ownership of the

real property would not give him some degree of control over My

Oil's business. At the time of the hearing, title to the

property at 211 New Market Road, East, was in the name of

Armando Yzaguirre. A wa rranty deed for at least a portion of

the property, executed by the prior owners on July 16, 1998, was

in the name of Armando Yzaguirre.

36. The Yzaguirres did not explain whether My Oil would

purchase or lease the property from the elder Mr. Yzaguirre.

The structure of the arrangement is critical to the issue of the

elder Mr. Yzaguirre's control over My Oil. Substitutes for the

tanker trucks could be obtained in short order with little or no

disruption of My Oil's business. However, the physical loca tion

of the convenience store and filling station could not be

changed so readily, and the elder Mr. Yzaguirre's position as

owner of that property could give him great leverage over the

operation of the business.

37. The Department also raised the issue of the

undisclosed participation of Armando B. Yzaguirre in the

business affairs of My Oil. The testimony of Maria Yzaguirre

and of her stepson strongly indicated that the younger

Mr. Yzaguirre would have substantial control over the business

activities of My Oil. However, because Armando B. Yzaguirre's

identity was not disclosed on My Oil's application, the

Department had no opportunity to conduct a review of his

background and character to determine whether he met the

standard set by Section 206.026, F lorida Statutes.

38. In summary, there was no direct evidence that the

Yzaguirres deliberately attempted to deceive the Department or

that My Oil was established as a front to obtain licensure for

the presumptively ineligible Yzaguirre Oil. The evidenc e did

establish that Armando Yzaguirre has been convicted of at least

one felony, and that his ownership of the real property on which

My Oil would conduct business could provide him with control of

My Oil's business activities. The evidence further estab lished

that Armando B. Yzaguirre will have control over My Oil's

business, and that the Department should have had the

opportunity to conduct a background review to determine his

fitness under Section 206.026, Florida Statutes.

39. In conclusion, the fact s established at the hearing

support the Department's denial of My Oil's application as

filed, but also establish that such denial should be without

prejudice to My Oil's ability to file a subsequent application

curing the defects of its initial applicatio n.

CONCLUSIONS OF LAW

40. The Division of Administrative Hearings has

jurisdiction over the subject matter of this proceeding and of

the parties thereto pursuant to Section 120.569 and Subsection

120.57(1), Florida Statutes.

41. As the applicant for a f uel license, My Oil bears the

burden of proving its entitlement to licensure. Department of

Banking and Finance v. Osborne Stern and Company , 670 So. 2d

932, 934 (Fla. 1996); Department of Transportation v. J.W.C.

Co., Inc. , 396 So. 2d 778, 787 - 788 (Fla. 1st DCA 1981).

42. Section 206.026, Florida Statutes, provides in

relevant part:

(1) No corporation . . . shall hold a

terminal supplier, importer, exporter,

blender, carrier, terminal operator, or

wholesaler license in this state if any one

of the p ersons or entities specified in

paragraph (a) has been determined by the

department not to be of good moral character

or has been convicted of any offense

specified in paragraph (b):

(a)1. The licenseholder.

2. The sole proprietor of the

license holder.

3. A corporate officer or director of

the licenseholder.

4. A general or limited partner of the

licenseholder.

5. A trustee of the licenseholder.

6. A member of an unincorporated

association licenseholder.

7. A jo int venturer of the

licenseholder.

8. The owner of any equity interest in

the licenseholder, whether as a common

shareholder, general or limited partner,

voting trustee, or trust beneficiary.

9. An owner of any interest in the

license or lice nseholder, including any

immediate family member of the owner, or

holder of any debt, mortgage, contract, or

concession from the licenseholder, who by

virtue thereof is able to control the

business of the licenseholder.

(b)1. A felony in this state.

2. Any felony in any other state which

would be a felony if committed in this state

under the laws of Florida.

3. Any felony under the laws of the

United States.

(2)(a) If the applicant for a license as

specified under subsection (1) or a

l icenseholder as specified in paragraph

(1)(a) has received a full pardon or a

restoration of civil rights with respect to

the conviction specified in paragraph

(1)(b), then the conviction shall not

constitute an absolute bar to the issuance

or renewal of a license or ground for the

revocation or suspension of a license. . . .

43. In December 1990, Armando Yzaguirre entered a no

contest plea to a second - degree felony charge of possession of

more than five but not more than 50 pounds of marijuana in a

Texas court. At the time of Mr. Yzaguirre's Texas conviction,

Florida law listed cannabis as a Schedule I substance. Section

893.03(1)(c)4, Florida Statutes (1990). Absent licensure or

other authorization, bringing cannabis into the state was a

third - degree felony in 1990. Section 893.13(1)(d)2, Florida

Statutes (1990). Possession of more than 20 grams of cannabis

was a third - degree felony in 1990. Section 893.13(1)(f) and

(g), Florida Statutes (1990). There can be little question that

Mr. Yzaguirre's fel ony in Texas would have constituted at least

one felony under Florida law, and thus that Mr. Yzaguirre has

been convicted of an offense specified in Section 206.026(1)(b),

Florida Statutes.

44. Mr. Yzaguirre has not received a full pardon or

restoration o f civil rights, thus mooting any potential

application of Section 206.026(2)(a), Florida Statutes, to this

case.

45. Mr. Yzaguirre's ownership of the real property that

would hold My Oil's principal place of business would give him

the ability to control the business of the licenseholder. This

conclusion might have been different had My Oil presented

evidence of the business relationship under which it would

operate the facility on Mr. Yzaguirre's property.

46. The extent of Armando B. Yzaguirre's involv ement in My

Oil was not disclosed to the Department. Testimony at the

hearing established that the younger Mr. Yzaguirre would be the

principal operator of My Oil for the foreseeable future. Due

diligence under Section 206.026, Florida Statutes, requires the

Department to conduct a background investigation of Armando B.

Yzaguirre prior to the issuance of a fuel license to My Oil.

47. In conclusion, My Oil has failed to demonstrate its

entitlement to a Florida fuel license on the merits of the

application it filed on June 20, 2001.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of

Law, it is RECOMMENDED that the Department of Revenue enter a

final order denying the application of My Oil Company, Inc. for

a Florida fuel license, wit hout prejudice to the ability of My

Oil Company, Inc., to file a new application curing the defects

addressed in this Recommended Order.

DONE AND ENTERED this 3rd day of July, 2002, in

Tallahassee, Leon County, Florida.

__________ _________________________

LAWRENCE P. STEVENSON

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

12 30 Apalachee Parkway

Tallahassee, Florida 32399 - 3060

(850) 488 - 9675 SUNCOM 278 - 9675

Fax Filing (850) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 3rd day of July, 2002.

COPIES FURNISHED:

E. Raymond Shope, II, Esquire

1404 Goodlette Road, North

Naples, Florida 34102

Robert F . Langford, Jr., Esquire

Office of the Attorney General

The Capitol - Tax Section

Tallahassee, Florida 32399 - 1050

Bruce Hoffmann, General Counsel

Department of Revenue

204 Carlton Building

Tallahassee, Florida 32399 - 0100

James Zingale, Executive Direc tor

Department of Revenue

104 Carlton Building

Tallahassee, Florida 32399 - 0100

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

15 days from the date of this R ecommended O rder. Any exceptions

to this R ecommended O rder should be filed with the agency that

will issue the F inal O rder in this case.