03-002754F Discovery Tours Wholesalers, Inc. vs. Department Of Health Status: Closed DOAH Final Order on Wednesday, January 5, 2005.

Summary: Petitioner was not entitled to attorney`s fees, even though it was a prevailing small business party, where Respondent was substantially justified in initiating the underlying proceeding.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DISCOVERY TOURS WHOLESALERS, )

INC., )

)

Petitioner, )

)

vs. ) Case No. 03 - 2754F

)

DEPARTMENT OF HEALTH, )

)

Respondent. )

)

FINAL ORDER

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

in Tampa, Florida on August 19, 2004, before Carolyn S.

Holifield, a duly - designated Administrative Law Judge of the

Division of Administrative Hearings.

APPEARANCES

For Petitioner: Brandon L. Kolb, Esqu ire

Discovery Tours

Legal Department

35202 State Road 54

Zephyrhills, Florida 33541

For Respondent: Robert Daniti, Esquire

Department of Health

4052 Bald Cypress Way, BIN A02

Tallahassee, Florida 32399 - 1703

STATEMENT OF THE ISSUE

The issue is whether Petitioner is entitled to an award of

attorney's fees and costs pursuant to Section 57.111, Florida

Statute (2003), and, if so, what amount of attorney's f ees and

costs is recoverable by Petitioner.

PRELIMINARY STATEMENT

On July 28, 2003, Petitioner, Discovery Tours Wholesalers,

Inc. ("Petitioner" or "Tours"), filed a Petition for Award of

Attorney Fees and Costs ("Petition" or "Petition for Attorney

Fe es") and the Affidavits of Josephine Kimball and Rolando J.

Santiago in support of Tours' Petition for Attorney Fees

pursuant to Section 57.111, Florida Statutes (2003). The

Petition seeks attorney's fees and costs incurred by Petitioner

in litigating Dep artment of Health v. Discovery Experimental,

et. al. , Case No. 93 - 6184 (DOAH April 18, 2003), which

consolidated four cases, DOAH Case Nos. 93 - 6184, 95 - 2255,

97 - 3836, and 98 - 4364. The Administrative Complaint filed by the

Department of Health ("Department ") and which was the subject of

DOAH Case No. 97 - 3836, named several Respondents, in addition to

Tours. With regard to Tours, the allegations in the

Administrative Complaint were as follows:

Respondent, Discovery Tour Wholesalers,

Inc. (Tours) is a Flor ida Corporation whose

principal place of business is 29949 S.R. 54

West, Wesley Chapel, Florida, Pasco County,

Florida. Tours is really the alter ego of

James T. Kimball in that Mr. Kimball

utilizes Tours on a continuing basis to

launder money he receives for the

manufacture, promotion, advertisement, sale

and other distribution of his drug products,

which are not approved by FDA and which are

misbranded and adulterated. Tours, on paper

is controlled by Respondent, Josephine

Kimball, spouse of Respondent, James T.

Kimball. Mrs. Kimball owns more than a

majority of stock in Tours, a closely held

corporation. Tours maintains all or a vast

majority of the accounting, books, check

registers and other financial records of

each of the corporate respondents, an d is

paid consultant fees for this and other

activities which support the unlawful drug

enterprise. Tours owns the real estate

where the unlawful drug enterprise which is

the subject of this complaint is

headquartered at 29949 S.R. 54 West, Wesley

Chapel, Florida, and DEDI [Discovery

Experimental and Development, Inc.], DDI

[Discovery Distributing, Inc.], ASTAK, and

B&B [B&B Freight Forwarding, Inc.],

currently pay rent, or have at times in the

past material to this complaint paid rent,

as tenants of Tours .

The Administrative Complaint also alleged that the

complaint was an action to enforce applicable laws and rules

promulgated thereunder against "an enterprise or enterprises

under the direction and control of Respondent James T. Kimball

to manufactu re, promote, advertise, or sell or otherwise

distribute misbranded, adulterated drugs" in violation of

Section 499.023, Florida Statutes (1997).

After the conclusion of the final hearing, the undersigned

issued a Recommended Order in the underlying proceed ing on

April 18, 2003. The Recommended Order in the underlying

proceeding recommended that the Department dismiss the

Administrative Complaint against Tours. The Department's Final

Order, executed May 23, 2003, approved, adopted, and

incorporated by refe rence the Recommended Order in the

underlying proceeding.

In this case, the Department challenged Tours' assertion

that it is a small business party within the meaning of Section

57.111, Florida Statutes (2003), and is entitled to attorney's

fees and costs . Moreover, the Department asserted that it was

substantially justified in filing the administrative action in

the underlying proceeding.

By Amended Notice of Hearing issued September 3, 2003, the

hearing in this case was set for October 24, 2003. Pr ior to

that date, the parties requested and were granted several

continuances for good cause shown. Thereafter, the final

hearing was held on August 19, 2004.

On March 10, 2004, this case was consolidated with Global

Health Information/Medical Resear ch Institute, Inc. v.

Department of Health , DOAH Case No. 03 - 2806; and Josephine

Kimball v. Department of Health , DOAH Case No. 03 - 2807, solely

for the purpose of the final hearing because the three cases

involved identical witnesses and documentary eviden ce. However,

the parties and the undersigned agreed that a separate final

order would be issued in each case.

Prior to the evidentiary part of the hearing, the

undersigned denied two pending motions, the Department's Motion

in Limine and/or the Depar tment's Motion for Partial Judgment as

to the maximum amount of attorney's fees that can be awarded to

Tours and Petitioner, Global Health Information/Medical

Research, Inc.

At hearing, Petitioner presented the testimony of five

witnesses: Josephine Kimball; Toni Kimball; Joy Young;

Rolando J. Santiago, Esquire; and Jon Pellet, Esquire. The

Department stipulated that Mr. Pellett was as an expert witness

for purposes of this hearing. Petitioner offered and had ten

exhibits received into evidence. Th e Department presented the

testimony of two witnesses: Jerry Hill, R. Ph., Bureau Chief of

the Department's Bureau of Statewide Pharmaceutical Services;

and Deborah Orr, a former drug agent and investigator with the

Department. The Department offered and had 12 exhibits received

into evidence. The parties had five joint exhibits received

into evidence. 1/

A Transcript of the proceeding was filed on September 3,

2004. At the conclusion of the hearing, the time for filing

proposed final orders was set for ten days from the filing of

the Transcript. Prior to that date, upon motion filed by the

Department, the time for filing proposed orders was extended

until September 23, 2004. On September 22, 2004, the parties

filed an agreed motion to extend the t ime for filing proposed

orders. The agreed motion was granted and the time for filing

proposed final orders was extended until October 8, 2004.

The Department and Petitioner filed their Proposed Final

Orders on October 8, 2004, and October 12, 2004, respe ctively.

Both Proposed Final Orders have been considered in preparation

of this Final Order.

FINDINGS OF FACT

Based on the oral and documentary evidence presented at

hearing and on the entire record of this proceeding, the

following Findings of Fact are m ade.

1. The Department, through its Bureau of Statewide

Pharmaceutical Services (formerly Bureau of Pharmacy Services),

is, and was at all times relevant to this proceeding, the state

agency responsible for administering and enforcing the Florida

Drug an d Cosmetic Act, Chapter 499, Florida Statutes (1997),

which included the regulation of the manufacture, promotion, and

distribution of prescription drugs.

2. In late 1990, the Department began investigating the

unlawful advertising, manufacture, and sale of prescription

drugs that were not approved in commerce by the United States

Department of Health and Human Services, Food and Drug

Administration (FDA), by an establishment located at 29949 State

Road 54 West, Wesley Chapel, Florida ("29949 State Road 5 4 West"

or "business establishment"). The business establishment was

the primary business address of several closely held

corporations owned and operated by James T. Kimball, and his

wife, Josephine Kimball.

3. In or about 1991, the Department initiated and settled

an enforcement action against Discovery Distributing, Inc.

(Discovery Distributing), located at 29949 State Road 54 West

and its president, Mr. Kimball. The enforcement action related

to Discovery Distributing's promotion of an unlawful produ ct

called Kimballac. Pursuant to the settlement in the

aforementioned enforcement action, Mr. Kimball agreed not to

manufacture or distribute drugs that had not been approved by

FDA. The drug referenced in the Stipulation for Settlement

(Settlement) in t hat case (DOAH Case No. 91 - 2420) was

Seligiline HCL.

4. Notwithstanding the terms of the Settlement, the

Department learned that soon after the Settlement was signed,

the unlawful activities resumed with the same type of products

being sold to the citiz ens of Florida. Accordingly, the

Department continued its investigation of the unlawful

activities related to the manufacture and distribution of drugs

not approved by the FDA at 29949 State Road 54 West.

5. The Department initiated an Administrative Com plaint in

August 1993 (1993 Administrative Complaint), while in the middle

of its investigation and after participating in a federal and

state force of agencies that executed a search and seizure of

the Kimballs' business establishment at 29949 State Road 54 West

and their home located in Wesley Chapel, as well as other

locations. The search and seizure took place on May 12, 1993,

pursuant to federal warrants.

6. The 1993 Administrative Complaint was issued to

Discovery Experimental and Development, Inc. ("DEDI"), located

at 29949 State Road 54 West and related to that company's

alleged sale of drugs that were not approved by the FDA. After

the 1993 Administrative Complaint was filed, the Department

continued to investigate the activities of DEDI.

7. M s. Deborah Orr (Agent Orr) began working for the

Department as a drug agent in or about 1993 and was assigned to

investigate the underlying case until the case culminated.

8. During the investigation, Agent Orr and other

Department agents, investigato rs, and officials reviewed

documents and other evidence seized during the search of the

business establishment and the home of the Kimballs that tied

both Mr. and Mrs. Kimball to several corporations that appeared

to be connected to the manufacture and sal e of certain

unapproved drugs.

9. Among the documents found and seized from the Kimballs'

home, pursuant to the 1993 warrant and reviewed by Agent Orr,

was the financial statement of James and Josephine Kimball dated

April 14, 1992. According to that do cument, James and Josephine

Kimball were 90 - percent owners of DEDI, which "develops

pharmaceuticals and chemicals for manufacturing" and had an

assessed value of $1,000,000; James and Josephine Kimball were

90 - percent owners of ASTAK, Inc. ("ASTAK"), a com pany that

"manufactures custom order vitamins"; James Kimball was a 100 -

percent owner of Discover Experimental and Development, Mexico

N.A. (DEDI of Mexico), a company that "manufacture[s]

pharmaceuticals" and ships to 12 countries; and James and

Josephine Kimball were 83 - percent owners of Tours, which owned

the real property located at 29949 State Road 54 West.

10. The Department's investigation indicated that several

companies controlled by the Kimballs had separate and distinct

functions related to the unlawful drug enterprise. For example,

it appeared that one company manufactured the unlawful drugs,

another took and filled orders from customers for the unlawful

drugs, and another put out promotional information and

literature about the unlawful drugs . In the case of Tours, the

Department believed that funds from the unlawful drug enterprise

were being transferred to or deposited in Tours' accounts.

11. During the investigation, the Department determined

that most of the corporations involved in the u nlawful drug

enterprise had common ownership and operated from 29949 State

Road 54 West, which was owned by Tours. Although Tours, a

travel agency, appeared to be operated by Mrs. Kimball,

documentation seized from the Kimball residence indicated that

Mr. Kimball was also an owner of Tours.

12. The Department's investigation revealed that Tours

rented space to the corporate Respondents in the underlying

proceeding that were alleged and found to have been involved in

unlawful drug activity. Tours, throug h Mrs. Kimball, also was

determined to have provided administrative and secretarial

services, as well as "consultant services" for these companies.

However, upon review of documentation seized from the business

establishment, the Department investigators determined that

Tours' relationship with the companies involved in the unlawful

drug activity was not limited to that of a landlord or a

secretary.

13. The Department investigator, Agent Orr, received and

reviewed several checks written to Tours by compani es operating

out of the 29949 State Road 54 West location, specifically DEDI

and ASTAK, both of which were involved in the manufacture and

distribution of drugs that were not approved by the FDA. From a

review of these checks, it appeared that Tours, thro ugh Mrs.

Kimball, had signature authority on those corporate bank

accounts because some of the checks written to Tours by DEDI and

by ASTAK, on their respective bank accounts, were actually

signed by Mrs. Kimball. Therefore, in those instances, Mrs.

Kimba ll, as the person operating Tours, was the payee on those

checks and also signed the checks as the payor.

14. Although the Department's investigation revealed that

Tours, through Mrs. Kimball, provided consultant services, as

well as secretarial services, it was unclear what services were

deemed to be and provided as consultant services. Nonetheless,

during the Department's investigation, checks seized from the

business establishment indicated that one or more of the

corporations involved in the illegal dr ug activity had paid

"consultant fees" to Tours. Based on the Department's review of

the seized records, the amount of money paid by these companies

to Tours as unspecified "consultant fees" appeared to be

unreasonably high.

15. Prior to issuance of the 1997 Administrative Complaint

in the underlying proceeding, Agent Orr wrote a report of her

findings based on her multi - year investigation and sent them to

her supervisor, who forwarded the report to Jerry Hill, R.Ph.,

Bureau Chief of the Department's Bure au of Statewide

Pharmaceutical Services. Mr. Hill reviewed Agent Orr's report

and other information and evidence obtained during the

investigation. He also talked to some of the Department agents

and/or investigators who participated in the investigation at

various times during the years the investigation was on - going.

16. Based on his review of Agent Orr's report and related

information and evidence, Mr. Hill believed there were several

companies involved in promoting and/or advertising,

manufacturing, a nd distributing prescription drugs that were not

approved by the FDA. The specific unapproved drugs were

selegiline citrate (deprenyl) and some silvicidal products, some

of which had been found during inspections of the premises at

29949 State Road 54 Wes t prior to issuance of the 1997

Administrative Complaint in the underlying proceeding. After

reviewing all of the information provided to him, Mr. Hill

believed that some of the companies were more involved in the

illegal drug operation than others. Howe ver, he also believed

that all of the principals had some involvement in the illegal

activity.

17. Based on the information Mr. Hill obtained prior to

issuing the 1997 Administrative Complaint, he believed that

ASTAK, a company owned by the Kimballs, manuf actured the

unapproved drugs and operated in the building owned by Tours.

18. A review of the documentation provided to Mr. Hill

indicated Mrs. Kimball, the person who operated Tours, had full

signature authority on the checking accounts of several of the

corporations that the Department determined were involved in the

illegal drug activity. Based on checks seized pursuant to the

federal search warrants, Mr. Hill determined that checks from

DEDI, written to Tours for consulting fees, were signed by

Mrs. K imball. There was also documentation that Mrs. Kimball

signed checks from ASTAK that were written to Tours.

19. Based on the information and evidence Mr. Hill had

received, he believed that the corporations that were engaging

in the illegal drug activitie s involved two principal natural

persons, James and Josephine Kimball.

20. Mr. Hill believed that he had sufficient evidence to

tie several of the companies together, including DEDI, DEDI of

Mexico, ASTAK, and Tours. Given the companies' common

ownersh ip, Mr. Hill was concerned that if the Department did not

tie the companies together and prosecute all the entities that

were involved in the operation, the illegal activity would

continue through some other company and the unapproved drugs

would get into commerce.

21. Based on the information that he was provided,

Mr. Hill believed that Tours was really just another company

that was supported by and involved in the unlawful and criminal

activity and that the whole purpose of the corporations was to

promo te, manufacture, and sell unapproved drugs. Moreover, it

was Mr. Hill's belief that there was a scheme to hide the

illegal activity by putting money from the sales of the

unapproved drugs into accounts of the various corporations owned

by Mr. and Mrs. Kim ball, including Tours.

22. After careful consideration of all the information and

evidence provided to him by Department investigators, agents,

and other Department officials familiar with and involved in the

investigation, Mr. Hill concluded that Tours pa rticipated in the

illegal drug enterprise and was, therefore, in violation of

Chapter 499, Florida Statutes (1997). Having made that

determination, on or about June 24, 1997, Mr. Hill issued the

1997 Administrative Complaint in the underlying proceeding,

which was later assigned DOAH Case No. 97 - 3836.

23. Pursuant to a Delegation of Authority dated

February 19, 1997, Mr. Hill was authorized to initiate and

pursue to conclusion any legal or administrative action

authorized by Chapter 499, Florida Statutes (1997).

24. In the underlying administrative proceeding, after

taking and considering testimony and documentary evidence, the

Administrative Law Judge issued a Recommended Order finding that

the Department failed to establish by clear and convincing

e vidence that Tours violated the provisions of Chapter 499,

Florida Statutes (1997), as alleged by the Department. That

Recommended Order was adopted in the Department's Final Order.

25. At all times relevant to this proceeding, Tours was a

Flor ida corporation with its primary office in Florida and had

less than 25 employees and a net worth of less than $2,000,000.

26. Tours was represented by Elliot Dunn, Esquire, in the

underlying proceeding, including and through the final hearing.

Mr. Dunn withdrew from the case prior to the parties' filing

their Proposed Recommended Orders.

27. Mr. Dunn did not testify at this proceeding and no

time records related to his representation of Tours or any of

the other Petitioners in the underlying proceeding were

available for review, inspection, or consideration.

28. Tours did not pay Mr. Dunn for the legal services that

he provided. Instead, he was paid by ASTAK, one of the non -

prevailing parties in the underlying proceeding, and later, by

Strictly Supplem ents. There was never a contract between Tours

and Mr. Dunn that defined the terms and conditions of Mr. Dunn's

legal representation on behalf of Tours. However, during the

time Mr. Dunn represented Tours, he was in - house counsel for

ASTAK and/or DEDI, a job for which his annual salary was about

$52,000.

29. Petitioner's expert witness opined that a reasonable

hourly rate for attorneys representing each of the Petitioners,

including Tours, was $175 to $350.

30. Petitioner's expert did not form an opinion as to the

total number of hours reasonably spent by Mr. Dunn representing

Tours in the underlying proceeding. Rather, the expert

testified that he utilized Rule Regulating Florida Bar 4 - 1.5,

which deals with the reasonableness of fees. Based on the

fact ors in that Rule, Petitioner's expert opined that reasonable

attorney's fees incurred by Tours in the defense of the

underlying case are $50,000, assuming the hourly rate of $175.

31. Rolando J. Santiago, Esquire, provided legal services

to Tours in the po st - hearing phase of the underlying proceeding.

Specifically, Mr. Santiago reviewed the case file and the record

in the underlying case and prepared the Proposed Recommended

Order and related pleadings for Tours.

32. Mr. Santiago's hourly rate is $175 an d he spent 157

hours providing legal services to Tours in the underlying

proceeding. Therefore, Mr. Santiago's fee for the legal work he

performed for Tours is $27,475.

33. In light of the findings and conclusions reached in

this Final Order, no findings are made or necessary regarding

issues related to the reasonableness of the attorney's fees, the

quality of the evidence presented on that issue or any other

issues related to attorney's fees.

CONCLUSIONS OF LAW

34. The Division of Administrative Hearings has

jurisdiction over the subject matter and parties to this

proceeding. §§ 57.111 and 120.57, Fla. Stat. (2004).

35. In proceedings to establish entitlement to an award of

attorney's fees and costs pursuant to Section 57.111, Florida

Statutes (2003), th e initial burden of proof is on the party

requesting the award to establish by a preponderance of the

evidence that it prevailed in the underlying action and that it

was a small business party at the time the action was initiated.

36. Petitioner proved tha t it is a small business party

within the meaning of Subsection 57.111(3)(d)1.b., Florida

Statutes (2003). Furthermore, Petitioner established that the

underlying action was initiated by the Agency. Therefore,

Petitioner has met its burden of establishin g that it is a

prevailing small business party.

37. Because Petitioner met its burden, the burden shifts

to the Department to demonstrate that its actions were

substantially justified or that special circumstances exist,

which would make an award of attorn ey's fees and costs unjust.

Subsection 57.111(4)(a), Florida Statutes (2003), provides that

unless the actions of the Respondent were substantially

justified or there are special circumstances that would make an

award unjust, an award of fees and costs sh all be made to

Petitioner.

38. In this case, the Department was substantially

justified in initiating the underlying administrative action

against Tours. The evidence established that at the time the

Department initiated the underlying administrative acti on

against Tours, the Department had a reasonable basis in law and

fact to believe that Tours violated provisions of Chapter 499,

Florida Statutes (1997).

39. The purpose of Section 57.111, Florida Statutes

(2003), is to diminish the deterrent effect of d efending against

unreasonable government action because of the expense of civil

actions and administrative proceedings. The Department

satisfied its burden of showing that the governmental action

against Tours was not unreasonable at the time the Departme nt

initiated the action.

40. The fact that Respondent failed to prove the

allegations in the Administrative Complaint by clear and

convincing evidence does not raise a presumption that the

Department was not substantially justified in initiating the

admin istrative action against Tours.

ORDER

Based upon the foregoing Findings of Fact and Conclusions

of Law, it is

ORDERED that Petitioner Discovery Tours Wholesalers, Inc.'s

Petition for Attorney Fees and Costs be DISMISSED.

DONE AND ORDERED this 5th day of January, 2005, in

Tallahassee, Leon County, Florida.

S

CAROLYN S. HOLIFIELD

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 (850) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 5th day of January, 2005.

ENDNOTE

1/ The record in this case will be retained with the Final Order

in DOAH Case No. 03 - 2807F.

COPIES FURNISHED :

Robert Daniti, Esquire

Department of Health

4052 Bald Cypress Way, Bin A02

Tallahassee, Florida 32399 - 1703

Brandon L. Kolb, Esquire

Discovery Tours, Legal Department

35202 State Road 54

Zephyrhills, Florida 3 3541

R.S. Power, Agency Clerk

Department of Health

4052 Bald Cypress Way, BIN A02

Tallahassee, Florida 32399 - 1701

Quincy Page, Acting General Counsel

Department of Health

4052 Bald Cypress Way, BIN A02

Tallahassee, Florida 32399 - 1701

NOTICE OF RIGH T 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 com menced by

filing the original Notice of Appeal with the agency Clerk of

the Division of Administrative Hearings and a copy, accompanied

by filing fees prescribed by law, with the District Court of

Appeal, First District, or with the District Court of Appea l 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.