07-004547 Southern Gear Company Of Florida, Inc. vs. Department Of Transportation Status: Closed Recommended Order on Wednesday, May 21, 2008.

Summary: Petitioner showed that storage expense for inventory and equipment was reasonable and necessary for period in excess of normal 12-month period provided in the statute and rule after loss of the business site due to eminent domain.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

SOUTHERN GEAR COMPANY OF )

FLORIDA, INC., )

)

Petitioners, ) )

vs. ) Case No. 07-4547

)

DEPARTMENT OF TRANSPORTATION, )

) )

Respondent.

)

RECOMMENDED ORDER

Pursuant to notice this cause came on for formal proceeding

and hearing before P. Michael Ruff, a duly-designated

Administrative Law Judge of the Division of Administrative

Hearings. The hearing was conducted in Tallahassee, Florida, on

February 22, 2008. The appearances were as follows:

APPEARANCES

For Petitioner: Garvin B. Bowden, Esquire

Gardner, Wadsworth, Duggar, Bist

& Wiener, P.A.

1300 Thomaswood Drive

Tallahassee, Florida 32308

For Respondent: Kimberly Clark Menchion, Esquire

Department of Transportation

605 Suwannee Street, Mail Station 58

Tallahassee, Florida 32399-0450

STATEMENT OF THE ISSUES

The issues to be resolved in this proceeding concern whether reimbursement should be paid to the Petitioner for storage expenses for personal property, under the Florida

Uniform Relocation Assistance Program and, if so, the amount of

such reimbursement.

PRELIMINARY STATEMENT

This cause arose when the Petitioner was informed by the

Department of Transportation, (Department) the Respondent, by

letter of August 27, 2007, that it would not pay the

Petitioner's claim for storage expenses, based upon an alleged

lack of proper documentation to support the claim. The denial

letter acknowledged that the Petitioner had submitted copies of

checks and other documentation for storage expenses, written on

the Petitioner corporation's bank account, payable to Kenneth

Farmer and the Petitioner, but the letter stated that such

documentation, showing apparent payments from an entity to

itself, would not qualify as proof of reimbursement under the

relevant state and federal regulations.

Upon receipt of the denial letter the Petitioner timely

requested a formal proceeding and hearing to contest this

determination. In the Petition, the Petitioner claimed that it

was not paying itself for such storage fees, but that the

payments were a bonafide payment from the Petitioner corporation

to Kenneth Farmer as landlord and owner of the property and

warehouse where the storage was made. The Petitioner is

claiming reimbursement for storage fees from October 2006

through September 2007 in the amount of $15,000.00 per month as

well as for reimbursement for storage fees paid beyond that

normal 12 month storage period.

The cause was transmitted to the Division of Administrative

Hearings, and ultimately to the undersigned Administrative Law

Judge, for formal proceeding and hearing. The hearing was set

for February 22, 2008, and conducted on that day. During the

formal hearing, the Petitioner presented the testimony of

Kenneth Farmer and Durwood Pearce, as well as offering 18

exhibits which were admitted into evidence, (Petitioner's

Exhibits A-R). The Respondent presented the testimony of Robert

Knight and Steve Carlton and offered six exhibits into evidence,

all of which were admitted.

Upon conclusion of the proceeding the parties elected to

have it transcribed and to submit proposed recommended orders.

Proposed Recommended Orders were timely submitted March 17,

2008, and have been considered in the rendition of this

Recommended Order.

FINDINGS OF FACT

1. The Petitioner, at times pertinent hereto, was and is a

Florida corporation. Its principal place of business at the

outset of the factual events related to this dispute was at 4907

Carder Road, Orlando, Florida. The Petitioner at that location

was in the business of rebuilding automobile transmissions and

transfer cases, using and storing substantial amounts of

machined gears and gear sets and other related parts and

materials necessary to that commercial operation. The

Petitioner leased a portion of that Orlando property at that

address (Orlando property) from Mr. Kenneth Farmer who is a

shareholder of the Petitioner corporation and who also owned, as

fee simple owner, the Orlando property (individually).

2. The Respondent is an Agency of the State of Florida

charged with administering the Florida Uniform Relocation

Assistance Program, which is a program designed to reimburse

certain expenses to persons or entities who are, or have been,

property owners of businesses subject to Department of

Transportation condemnation proceedings. It assists them with

required expenses, necessitated by relocation of businesses or

residences. See §§ 339.09(2)(3) and 421.55, Fla. Stat. and Fla.

Admin. Code R. 14-66.007.

3. The Orlando property involved in the facts of this

case, became subject to a condemnation proceeding initiated by

the Department. The Petitioner leased a portion of that

property from Mr. Farmer, its shareholder, which is where it

conducted its commercial business, referenced above. Mr. Farmer

rented the balance of the Orlando property to various other

commercial tenants who also paid rent to Mr. Farmer, as did the

Petitioner corporation.

4. The Department's agent, Steve Carlton, by letter of

July 19, 2005, notified Mr. Farmer as the property owner, of the

Department's intent to acquire the Orlando property. The

Department also informed the Petitioner corporation that funds

were available to the Petitioner under the Florida Uniform

Relocation Assistance Program for relocation-related expenses

(which include storage) caused by the consummation of the

condemnation proceeding. That written notification listed the

reimbursable expenses the Petitioner might be eligible to

recover under that program, and stated that expenses for the

storage of personal property for up to 12 months are usually

reimbursable.

5. Through the eminent domain efforts, the Department and

the owner, Mr. Farmer, ultimately resolved the condemnation

action, with regard to the Orlando property, as a full taking of

that property, rather than a partial taking. Such a full taking

required removal of all the tenants, including the Petitioner

corporation, by September 30, 2006. The Petitioner's only

option to recover damages caused by the relocation and storage

of personal property related to its business, was through the

Florida Uniform Relocation Assistance Program.

6. Due to the nature of its business, the Petitioner

possessed a large amount of equipment including forklifts,

cleaning machines, work benches, and presses, as well as a very

large amount of inventory. Because of financial limitations and

the lack of a viable replacement location for the business, the

Petitioner was unable to relocate its business in the Orlando

area and was required to place all inventory and equipment into

storage. The storage effort required the transportation of the

inventory and equipment, in the amount of approximately 57

tractor-trailer loads. This was necessary to transport the

inventory and equipment to a location at 1730 Bankhead Highway,

in Carrolton, Georgia. This Carrolton property was also owned

by Mr. Farmer.

7. Mr. Farmer had purchased the Carrolton property to hold

for rental income and investment purposes in December of 2004.

The Carrolton property consists of approximately two acres with

a 15,000 square foot building and a 10,000 foot building. Prior

to the Petitioner's inventory and equipment being transported to

the Carrolton property, that property was occupied by two other

commercial tenants. One of those commercial tenants had to be

removed by Mr. Farmer, the landlord, in order to make space for

storage of the Petitioner's inventory and equipment. Once that

inventory and equipment was moved to the Carrolton property, in

October of 2006, the inventory and equipment occupied

approximately 80 percent of the space on the property. Through

the date of the formal hearing the inventory and equipment

remained stored on the Carrolton property.

8. The Petitioner paid storage fees to Mr. Farmer for the

year 2006 in the amount of $45,000.00. That was at the rate of

$15,000.00 per month for October through December of 2006. The

$15,000.00 per month figure is undisputed as being a reasonable

storage fee amount. Mr. Farmer paid both the state and federal

income taxes on that amount of rental income. The Petitioner

paid the storage fees to Mr. Farmer in the total amount of

$180,000.00, at that monthly rate, for the period of January

through December 2007. Although the checks for the monthly

payments of the storage fees were payable to both the Petitioner

and Mr. Farmer, Mr. Farmer and Mr. Pearce's un-refuted testimony

shows that the net proceeds from those storage fees were

ultimately paid over to Mr. Farmer for his personal use. Those

monthly payments were written on a checking account identified

by Mr. Pearce as the Petitioner's "operating account." As the

checks were written from the Petitioner's operating account they

were deposited into what Mr. Farmer and Mr. Pearce identified as

the "rental account." Mr. Pearce is an accountant and an

Internal Revenue Service "enrolled agent." He has provided

accounting services for the Petitioner's companies since their

inception in 1995. He is also Mr. Farmer's personal accountant.

9. Although the rental account was created in the

corporate name of the Petitioner, the un-refuted evidence at

hearing shows that the rental account was set up in that fashion

at the request of Mr. Farmer's mortgage lender and the account

was utilized solely to accumulate rental income from the

Petitioner and the other tenants that had previously occupied

the Orlando property. As the funds accumulated in the rental

account, Mr. Farmer would withdraw the net accumulated rental

payments for his personal use, as he did through those three

checks entered into evidence as Petitioner's Exhibit One. In

essence, the rental account was treated as a personal account of

Mr. Farmer's for the purpose of collecting rent from the tenants

at the Orlando property, including the Petitioner. When the

Petitioner relocated its inventory and equipment to the

Carrolton property and started paying storage expenses to

Mr. Farmer, instead of operating rent, the same procedure was

followed and that account was used to collect the storage fee

payments from the Petitioner.

10. The testimony of Mr. Pearce establishes the situation

related to the 2006 federal tax returns for both Mr. Farmer and

the Petitioner. Clearly the Petitioner claimed, as a deductible

expense, the $45,000.00 in storage fees it paid to Mr. Farmer in

2006. Mr. Farmer and his wife correspondingly claimed that

$45,000.00 as rental income in 2006 and paid state and federal

income tax on that income, as reported on their 2006 federal tax

return. The testimony of Mr. Farmer and Mr. Pearce establishes

that the $180,000.00 in storage fees paid in 2007 would be

treated in the same manner on both the Petitioner's and

Mr. Farmer's 2007 income tax returns. Mr. Knight, testifying

for the Department, conceded that it would be unreasonable for

Mr. Farmer to pay income tax on storage fees or rental income,

if he did not actually receive it from the Petitioner.

11. Copies of checks from the Petitioner, copies of checks

to Mr. Farmer, the 2006 income tax return of the Petitioner, and

the 2006 return of Mr. Farmer's, and a deed establishing

Mr. Farmer's ownership of the Carrolton property, were all

admitted into evidence. Additionally, a ledger for 2006 storage

fees paid by the Petitioner, a ledger for 2007 storage fees paid

by the Petitioner, as well as copies of bank statements for the

Petitioner's operating accounts, and bank statements for the

rental account, as well as copies of receipts covering storage

fees from October 2006 through December 2007, were admitted into

evidence. Those receipts were prepared at the Department's

request and are consistent with the figures and the other

documents offered into evidence by the Petitioner.

12. The preponderant weight of the persuasive evidence

establishes that the Petitioner paid storage fees to Mr. Farmer

for the 12-month period beginning October 2006 through September

2007. This totaled $180,000.00. The Petitioner also paid such

storage fees to Mr. Farmer for the period of October, November,

and December of 2007, for an additional $45,000.00 dollars.

Thus, through the date of hearing, the Petitioner had paid

Mr. Farmer a total of $225,000.00 in storage fees. The

Petitioner also maintains that the storage fee for the first

three months of 2008 will come due in March of 2008 for another

$45,000.00 dollars of storage fees due. Thus, beyond the

$180,000.00 in storage fees paid for the first year of storage,

the Petitioner incurred an obligation of an additional

$90,000.00 to pay Mr. Farmer in storage fees.

13. The Petitioner was informed by the Department that the

Petitioner would have to incur the storage expenses and later

apply for reimbursement from the Department. In other words,

the Petitioner would incur the financial burden of storing its

inventory and equipment in the hopes that the Department would

reimburse the Petitioner later for such expenses. Advance

payments were discussed with the Department's Agent, Steve

Carlton, but no advance payments were ever remitted to the

Petitioner.

14. Due to the forced relocation and storage of the

inventory and property, the Petitioner maintains that it has not

been able to operate its business and has not been able to

produce income since September of 2006. Without income or

necessary capital to place its inventory and equipment back into

production, the Petitioner has had to maintain the property in

storage and incur the expenses, which the Petitioner maintains

was beyond its control.

15. The testimony of Mr. Farmer and Mr. Pearce to the

effect that the Petitioner actually incurred the storage

expenses it now seeks to recover has not been refuted by

persuasive evidence by the Respondent. Thus, the Petitioner is

entitled to be reimbursed for the storage fees as found and

concluded herein.

CONCLUSIONS OF LAW

16. The Division of Administrative Hearings has

jurisdiction of the subject matter of and the parties to this

proceeding. §§ 120.569 and 120.57, Fla. Stat. (2007).

17. The Department is authorized to pay funds for

"relocation assistance" for persons or business who must

relocate due to losing ownership or access to property through

the eminent domain procedure conducted by the Department. See

§§ 339.09(2) and 421.55(3), Fla. Stat. (2007).

18. The Petitioner bears the burden of proof to establish

that it properly incurred the relevant storage and relocation

expenses, and that it is due to be reimbursed for those expenses

by the Department. See Department of Transportation v. J.W.C.

Company, Inc. , 396 So. 2d 778 (Fla. 1st DCA 1981).

19. Payment of relocation assistance and moving cost to

persons displaced by transportation facilities or related

projects, is provided for in Florida Administrative Code Rule

14-66.007, which incorporates by reference 49 Code of Federal

Regulation Part 24. As provided in 49 C.F.R. Section

24.301(a)(1), "any owner-occupant or tenant who qualifies as a

displaced person . . . who moves from a business . . . is

entitled to payment of his or her actual moving and related

expenses, as the Agency determines to be reasonable and

necessary ." (Emphasis supplied.)

20. The amount of $15,000.00 per month as storage expenses

has been stipulated by the parties to be reasonable regarding

storage of the inventory, equipment, and personal property of

the Petitioner. It has been stipulated to be necessary.

Pursuant to that stipulation there is no issue as to whether the

expenses were reasonable and necessary and the sole matter in

dispute is whether the expenses were actual, in other words,

whether the Petitioner actually paid storage fees to Mr. Farmer

at the rate of $15,000.00 per month and for how long they were

reasonable and necessary.

21. The Department took the position that the Petitioner

had failed to provide adequate documentation to prove the actual

incurrence of storage expenses. This is a de novo proceeding

and the documentation which is determinative, once the de novo

proceeding is initiated, is what is provided in the evidence

offered by the Petitioner versus that offered by the Department.

The evidence submitted, upon which the above Findings of Fact

are based, shows that the storage expenses were incurred at the

rate of $15,000.00 per month, from October 2006 forward. The

manner of payment did not clearly show this to be the case

during the free form stage of this dispute and it was reasonable

for the Department to make an initial determination that

adequate evidence of payment of the fees had not been made. The

explanation provided at hearing, however, through the testimony

of Mr. Pearce, Mr. Farmer, as well as the documentary evidence

referenced above, shows that a bonafide payment arrangement

between the Petitioner corporation and Mr. Farmer was made, and

the $15,000.00 per month storage fees indeed were paid to

Mr. Farmer in a bonafide, "arm's length" transaction. That

evidence was unrefuted and it established that the Petitioner

paid the storage fees to Mr. Farmer.

22. The requirement for documentation to support a claim

for reimbursement for such relocation/storage expenses is set

forth in 49 C.F.R. Section 24.207(a). That subsection provides

as follows:

(a) Documentation. Any claim for a

relocation payment shall be supported by

such documentation as may be reasonably

required to support expenses incurred, such

as bills, certified prices, appraisals, or

other evidence of such expenses. A

displaced person must be provided reasonable

assistance necessary to complete and file

any required claim for payment.

23. The Petitioner has met the standard by submitting

copies of relevant checks from the Petitioner, copies of checks

to Mr. Farmer, the income tax returns of the Petitioner as well

as Mr. Farmer, Mr. Farmer's deed to the Carrolton, Georgia,

property, and the ledgers referenced in the above findings of

fact. The Petitioner has also placed in evidence copies of the

bank statements from the two bank accounts involved, and the

receipts from Mr. Farmer covering the period of storage from

October 2006 through December 2007. This documentary evidence

together with Mr. Farmer's and Mr. Pearce's testimony, which is

accepted, shows the storage fees were paid for the period

including and between those two dates.

24. The evidence shows that relevant checks were deposited

in the rental account and that the rental account was treated as

a personal account by Mr. Farmer for accumulation of rental

income. The evidence shows that Mr. Farmer and his wife paid

federal income tax on the amount of storage fees as rental

income for the year 2006 and the unrefuted testimony shows that

such would be the treatment of it for the year 2007, as to the

2007 tax return of Mr. Farmer and his wife. Similarly, the tax

return for the Petitioner for 2006 shows that the storage fees

paid to Mr. Farmer were expensed for tax purposes by the

Petitioner corporation, and that such treatment would be

accorded for the Petitioner's 2007 tax return. Again, the

preponderant evidence has established that the checks paid to

Mr. Farmer as rental income were for the storage fees and were

paid by the Petitioner corporation.

25. The Department's own witness and State Relocation

Administrator, Mr. Robert Knight, conceded that, if a displaced

business stores inventory on property owned by a shareholder of

the displaced company, that the company would be entitled to

storage expenses, so long as the company actually incurred those

expenses. This is the case with the Petitioner and Mr. Farmer.

The storage fees were actually incurred by the Petitioner, were

paid to Mr. Farmer and are properly reimbursable by the

Department through the referenced program.

26. The Petitioner established at the hearing that it had

paid the storage fees for the 12-month period beginning October

2006 through September 2007 for a total of $180,000.00. The

Petitioner also established that it had paid for the period

October through December of 2007 and was contractually obligated

to pay the fee through March 2008.

27. As concluded above, there is no dispute as to the

reasonableness and the necessity of the storage fees or expenses

the Petitioner has been obligated to pay, as to monthly amount

and as to the twelve month period. In the "free-form" stage of

this proceeding, however, the Department took the position that

the Petitioner had not adequately documented the actual payment

of storage expenses and the necessity for it, with which

position the Petitioner obviously differed. The Petitioner

availed itself of its right to a formal proceeding, which

engendered the subject dispute and proceeding. The matter was

not unduly delayed because the case was filed before the

undersigned in October of 2007, and proceeded to hearing

approximately three months thereafter. Neither party is

blameworthy for any inordinate delay once the proceeding before

the Division of Administrative Hearings was initiated.

28. Although the Petitioner contended in its request for

hearing that the Agency had been negligent in failing to abide

by a February 14, 2006, settlement agreement, thus causing the

necessity to extend the period requested for storage

reimbursement, the Petitioner has not adduced persuasive

evidence that a settlement agreement was violated by the

Department to the extent that the Department is solely at fault

in any delay since that time in the provision of storage expense

funds to the Petitioner. The evidence indicates that the

Department had a good faith basis for its belief that inadequate

documentation for proof of payment of the storage fees had been

provided it in the free-form stage of the dispute. The

Petitioner had a good faith basis for its belief that indeed it

was entitled to the payment of such funds representing storage

expenses and that it had provided a sufficient documentary basis

to prove it to the satisfaction of the Department.

Consequently, the dispute arising in this proceeding was based

on a good faith difference of opinion and view of the facts

concerning the issue of storage expenses between the parties.

29. Accordingly, the Petitioner having shown, and their

being no dispute, that the monthly amount of the storage

expenses and the necessity for them was reasonable, the evidence

shows that some additional reasonable, brief delay beyond the

relevant 12-month period, ending in September 2007, was

inevitably occasioned by the filing and litigating of the formal

proceeding and is also necessary and reasonable. Indeed, the

Petitioner had already paid the expenses through December 31,

2007.

30. Such storage expenses obviously cannot be incurred

indefinitely, even though the Petitioner may not, as a matter of

fact, have the capital or credit available in order to re-

institute its transmission repair business for some period of

time after the hearing, or after March 2008, the month through

which it claims expenses. Based upon the totality of the

persuasive evidence, however, it is established that it is

reasonable and necessary for the expenses to be reimbursed

beyond the initial 12-month period referenced in the above legal

authority. They should be reimbursed through and including the

date of the subject hearing, at which the justification for the

storage expense claim was finally proven.

RECOMMENDATION

Having considered the foregoing Findings of Fact,

Conclusions of Law, the evidence of record, the candor and

demeanor of the witnesses, and the pleadings and arguments of

the parties, it is, therefore,

RECOMMENDED that a final order be entered by the Florida

Department of Transportation reimbursing the Petitioner for the

subject storage expenses beginning in October 2006 through

February 22, 2008, at the rate $15,000.00 per month and on a pro

rata daily basis for the partial month of February 2008, at the

daily rate of $535.72, for a total of $251,785.84.

DONE AND ENTERED this 21st day of May, 2008, in

Tallahassee, Leon County, Florida.

S

___________________________________

P. MICHAEL RUFF

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 Clerk of the

Division of Administrative Hearings

this 21st day of May, 2008.

COPIES FURNISHED :

Garvin B. Bowden, Esquire

Gardner, Wadsworth, Duggar, Bist

& Wiener, P.A.

1300 Thomaswood Drive

Tallahassee, Florida 32308

Kimberly Clark Menchion, Esquire

Department of Transportation

605 Suwannee Street, Mail Station 58

Tallahassee, Florida 32399-0450

James C. Myers

Clerk of Agency Proceedings

Department of Transportation

Haydon Burns Building

605 Suwannee Street, Mail Station 58

Tallahassee, Florida 32399-0450

Stephanie Kopelousos, Secretary

Department of Transportation

Haydon Burns Building

605 Suwannee Street, Mail Station 57

Tallahassee, Florida 32399-0450

Alexis M. Yarbrough, General Counsel

Department of Transportation

Haydon Burns Building

605 Suwannee Street, Mail Station 58

Tallahassee, Florida 32399-0450

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 should be filed with the agency that

will issue the Final Order in this case.