08-000997 Wesley T. Small And First Commercial Bank Of Tampa Bay vs. Office Of Financial Regulation Status: Closed Recommended Order on Friday, March 20, 2009.

Summary: Respondent properly issued a Notice of Disapproval regarding the Bank`s proposed new executive officer.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

WESLEY T. SMALL AND FIRST )

COMMERCIAL BANK OF TAMPA BAY, )

)

Petitioners, )

)

vs. ) Case No. 08-0997

)

OFFICE OF FINANCIAL REGULATION, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, a final hearing was conducted in this

case on January 22 and 23, 2009, in Tampa, Florida, before

Administrative Law Judge R. Bruce McKibben of the Division of

Administrative Hearings.

APPEARANCES

For Petitioner: Mark Freund, Esquire

Igler & Dougherty, P.A.

2457 Care Drive

Tallahassee, Florida 32308

For Respondent: Janet Massin Anderson, Esquire

Lynne A. Quimby-Pennock, Esquire

Office of Financial Regulation

Fletcher Building, Suite 526

200 East Gaines Street

Tallahassee, Florida 32399

STATEMENT OF THE ISSUE

The issue in this case is whether Petitioner, Wesley T.

Small's, appointment as executive vice-president and chief

operating officer for Petitioner, First Commercial Bank of Tampa

Bay, should be approved by Respondent; and, more specifically,

whether Respondent properly issued the Notice of Disapproval

concerning that appointment.

PRELIMINARY STATEMENT

On November 21, 2007, Respondent, Office of Financial

Regulation, received from Petitioner, First Commercial Bank of

Tampa Bay (the "Bank"), notice of the proposed appointment and

employment of Petitioner, Wesley T. Small ("Small"), as the

executive vice-president and chief operating officer ("COO") for

the Bank. The Bank, subsequently, submitted supplemental

information to Respondent, along with a request that Small be

approved on an interim basis for the COO position.

Respondent denied the request for an interim appointment.

Then, on January 23, 2008, Respondent issued its Notice of

Disapproval, denying the Bank's request to appoint Small as

executive vice-president and COO. Petitioners Small and the

Bank timely filed a Petition for Formal Administrative Hearing.

The matter was forwarded to the Division of Administrative

Hearings ("DOAH") and assigned to the undersigned.

Respondent filed a Motion to Relinquish Jurisdiction on the

basis that the Petition for Formal Administrative Hearing did

not allege disputed issues of material fact. Petitioners filed

a response to the motion; the motion was denied.

Pursuant to notice, a final hearing was held in this matter

in Tampa, Florida, on January 22 and 23, 2009. At the final

hearing Petitioners called the following witnesses: A. George

Igler, Esquire; Wesley T. Small; Linda Charity, director of the

Office of Financial Regulation; and John Alcorn, bureau chief of

the Office of Financial Regulation. Petitioners' Exhibits 3, 5

through 24, and 28 were admitted into evidence. Respondent

called three witnesses: John Alcorn; William C. Weyburne,

compliance manager for Apex Lending, Inc.; and Linda Charity.

Respondent's Exhibits 1 through 5 were admitted into evidence.

Official Recognition was taken of Section 655.0385, Florida

Statutes (2007). 1

Upon completion of the formal hearing, the parties advised

that a transcript of the proceeding would be ordered. The

parties asked and were given 20 days to submit post-hearing

proposed findings of fact and conclusions of law. The

Transcript of the proceeding was filed at DOAH on February 13,

2009. Each party timely submitted a Proposed Recommended Order

which was given due consideration in the preparation of this

Recommended Order.

FINDINGS OF FACT

1. Petitioner, Wesley T. Small, has approximately 40 years

in the banking industry, including experience in director and

executive officer positions. He has never been charged with any

regulatory violations or mismanagement concerning his

professional activities. Small has applied to become the

executive vice-president and COO of the Bank.

2. Petitioner, First Commercial Bank of Tampa Bay, is a

Florida state-chartered bank subject to the Florida Financial

Institutions Code, Subsection 655.005(1)(j), Florida Statutes.

3. Respondent is the state agency responsible for, inter

alia, approval of appointment or employment by a banking

institution of an individual as executive officer or equivalent

position. Respondent is responsible for providing general

regulatory oversight through the Florida Financial Institutions

Code, which applies to all state-authorized or state-chartered

financial institutions and to enforce all related laws.

4. On November 21, 2007 the Bank, in accordance with

Section 655.0385, Florida Statutes, notified Respondent of its

intent to appoint Small as its executive vice-president and COO.

Respondent requested of Small an authorization for release of

confidential information so that it might commence the

obligatory investigation. Small immediately complied with the

request.

5. The Bank submitted supplemental information concerning

its intent to appoint Small on at least two occasions,

December 3 and 7, 2007. On the latter date, the Bank also

requested that Small be appointed on an interim basis for the

COO position pending completion of Respondent's investigation.

6. By telephone call on December 14, 2007, Respondent

notified the Bank that the request for interim appointment was

being denied. During that telephone call, Alcorn told

Petitioners' correspondent, Igler, that his superiors at the

Office of Financial Regulation were also disinclined to approve

Small's permanent appointment as well. (The reasons for the

disapproval will be discussed more fully below.) When talking

to Igler, Alcorn was relying upon a draft letter (from another

person in his office) which stated Respondent's intent to deny

the application filed by the Bank and Small.

7. Alcorn told Igler that once Small's issues with the IRS

were resolved and Small had repaid his debt, Respondent would

consider an application for Small. However, as of the date of

the telephone conversation, Small was not approvable, and Alcorn

is certain he made that fact clear to Igler.

8. During the telephone conversation, Alcorn used the

following language: "My superiors [or, possibly, 'higher-ups'

in the office] are not inclined to approve Mr. Small's

application." At that time, Linda Charity had not issued or

caused to be issued a final statement as to Respondent's

position regarding Small, but the intent of the office had been

firmly established, i.e., that Small was not approvable until

his debt to the IRS had been paid in full, and Small had taken

appropriate steps to indicate rehabilitation. Alcorn was in a

position to be very aware of Respondent's intentions.

9. It appears the Bank then commenced a search for a new

COO, starting, according to its then-serving CEO, in "late

December, 2007, after receiving preliminary information from

counsel that the OFR had indicated it may not approve Small."

10. The Bank, by letter dated January 14, 2008, then

submitted additional information concerning the proposed

appointment of Small. None of the information submitted in the

January 14 letter was new information. Respondent was already

aware of the facts set forth in that letter, so it was not

considered to change Respondent's position.

11. Respondent did not respond to the January 14 letter

because (1) the Bank's counsel was already aware of the

impending disapproval, and (2) the letter did not address any

new information which needed to be discussed.

12. Small has been in the banking business since

graduating from high school in 1961. He started out as a teller

and worked his way up to branch manager, then supervisor, then

vice-president, executive vice-president, and, finally,

president and chief executive officer in 1984. Small's

experience has been in Florida since 1979, where he has worked

for a number of banks, including: Madison Bank in Palm Harbor,

First Federal Savings Bank of Citrus County, and First Federal

Savings and Loan Association of Lake Wales.

13. Small was employed as the president of Peoples State

Bank, Lake City, Florida, from November 1999 through August

2005. Small resigned his position with Peoples State Bank

effective August 9, 2005. Small resigned because of the

following issue (which is the primary reason for Respondent's

refusal to approve Small's application to become executive vice-

president and COO of the Bank). As stated in paragraph 12 of

the Notice of Disapproval:

Small filed or authorized to be filed on his

behalf federal tax returns with the Internal

Revenue Service (IRS) for tax years 1999,

2000, 2001, 2002, 2003 and 2004 which

reported zero income and zero taxes due.

Peoples State Bank apparently felt that Small's continued

service at the financial institution would be viewed negatively

by the local community, a fairly small city in North Florida.

14. The reason Small failed to claim taxable income for

those tax years is both simple and complicated. The simple

reason is that Small heeded the advice of a seemingly legitimate

organization that a loophole existed in federal law that, if

relied upon, would not require a person to pay federal income

tax. The loophole was essentially this: That by claiming to be

an "American" citizen on your tax return (as opposed to a United

States citizen), your income was not taxable.

15. The organization called Administrative Educational

Services for American Citizens Regarding the Federal Income Tax

(the "Tax Advisors"), operated out of Las Vegas, Nevada. Small

was made aware of this group by members of his church and agreed

to attend seminars to listen to their tax advice.

16. Once Small accepted the advice of the Tax Advisors, he

ceased paying taxes to the IRS for a period of six consecutive

years (1999-2004). 2 Small believed at that time that the

nonpayment of taxes was legitimate and legal. He did not

consider any negative ramifications to government revenue

collection or the on-going ability of the government to function

if he, and others, did not pay taxes.

17. At some point after or around the time of his

resignation from Peoples State Bank, Small contacted the IRS to

admit his error and negotiate a resolution.

18. The IRS filed tax liens against Small totaling

approximately $110,000 (although it is unclear from the record

what the exact amount was or how much of that amount was unpaid

taxes and how much constituted fines or penalties). The IRS

seized $27,132.02 from Small's deposit accounts in October 2005

as partial payment for some of the back taxes. In March 2006,

the IRS seized $48,040.04 from the proceeds of the sale of

Small's house.

19. In September 2007, Small entered into an installment

payment agreement with the IRS, agreeing to make payments of

$1,361 per month to the IRS. Small has made each of the

payments when it became due and owing. 3 The balance owed to the

IRS as of September 2008 (the latest Monthly Statement

introduced into evidence) appears to be approximately $83,000,

i.e., $18,592.84 from the 2003 tax year; $40,185.73 for the 2004

tax year; $2,753.60 from the 2001 tax year; and $22,495.47 for

"liabilities not shown." Small has continued to reduce that

debt each month by paying $1,361 to the IRS.

20. Small's failure to pay income taxes and his

outstanding debt to the IRS create issues of integrity,

credibility, and character for Respondent. Additionally, there

has been, in Respondent's estimation, insufficient time for or

evidence of rehabilitation.

21. For example, Respondent wonders how Small would be

able to review the tax return information of an applicant for a

loan at the Bank in light of his cavalier attitude about his own

tax returns for six consecutive years. And, Respondent worries

that Small's admittedly "bone-headed" mistake in not paying

taxes may be indicative of his judgment in business decisions

for the Bank.

22. Respondent is also concerned about Small's failure to

list one of his places of employment, Apex Lending, Inc.

(hereinafter "Apex"), on the resume he submitted to Respondent.

Small was indeed employed by Apex from September 2005 until

September 2006 in a mortgage broker position and as a branch

manager of an Apex branch office. However, the resume Small

submitted with his application to become COO at the Bank did not

include the Apex employment. Small said that the omission was

because Apex was not a "banking" job, and he had never produced

a mortgage or made any money at Apex as of the date of his

application. At some point Small did close two loans for Apex

for which he was paid a commission and compensation (a

percentage of the origination fees).

23. While it is clear Small did not include Apex in his

application resume, there is no evidence of intent to hide the

position or to mislead Respondent. Rather, the brevity of the

employment and its non-banking nature made the position

irrelevant in Small's mind.

CONCLUSIONS OF LAW

24. The Division of Administrative Hearings has

jurisdiction over the parties to and the subject matter of this

proceeding pursuant to Section 120.569, Subsection 120.57(1),

and Chapter 655, Florida Statutes (2008).

25. The burden of proof is on the petitioner as it is the

party asserting the affirmative of the issue. Department of

Banking and Finance, Division of Securities and Investor

Protection v. Osborne Stern and Company , 670 So. 2d 932, 934

(Fla. 1996), citing Florida Department of Transportation v.

J.W.C. Company , 396 So. 2d 778 (1st DCA 1978).

26. The standard of proof in this case is a preponderance

of the evidence. Ferris v. Turlington , 510 So. 2d 292 (Fla.

1987); § 120.57(1)(j), Fla. Stat.

27. Section 655.0385, Florida Statutes, is entitled,

"Disapproval of Directors and Executive Officers." It states in

pertinent part:

(2) A state financial institution may not

appoint any individual to the board of

directors, or employ any individual as an

executive officer or equivalent position, if

the office issues a notice of disapproval

with respect to that person.

(3) The office shall issue a notice of

disapproval if the competence, experience,

character, or integrity of the individual to

be appointed or employed indicates that it

is not in the best interests of the

depositors, the members, or the public to

permit the individual to be employed by or

associated with the state financial

institution.

* * *

(5) The commission may adopt rules to

implement this section.

28. Florida Administrative Code Rule 69U-100.03852(5)(b),

promulgated pursuant to Section 655.0385(5), Florida Statutes,

mirrors the statute. It states:

OFR shall issue a notice of disapproval if

the competence, experience, character, or

integrity of the proposed individual to be

appointed or employed indicates that it is

not in the best interests of the depositors,

the members, or the public to permit the

individual to be employed by or associated

with the state financial institution.

29. Respondent issued a Notice of Disapproval on the basis

of its belief that Small did not have the character or integrity

to be a COO of a state-regulated financial institution.

Respondent expressed its concern for the financial institution

and for the public at large should Small be placed in the

requested position at the Bank.

30. Neither Small, nor the Bank, met its burden of proof

to establish that Small's integrity and character were

sufficient to overturn Respondent's stated concerns. Small

admittedly had a very serious lapse of judgment by attempting to

avoid federal income taxes. Small knows that an individual's

tax return information is critical to a review of that person's

financial condition, but intentionally attempted to avoid filing

a tax return or filing one with no stated income despite being

gainfully employed. His admission of the mistake, which

apparently came about only because his employer raised a

concern, is not tantamount to proving that he would use better

judgment in the future. Further, although the IRS was able to

obtain portions of the indebtedness by way of liens and other

legal actions and despite the fact that Small is repaying the

debt on a monthly basis, the passage of time since Small's

mistake is not sufficient to establish rehabilitation.

31. There is no competent evidence that Respondent failed

to satisfy its unwritten policy of contacting applicants prior

to issuance of a Notice of Dismissal. Clearly, Small and the

Bank's representative talked with Respondent's agent and learned

of the intent to deny (even though a final denial had not been

completed) on December 14, 2007. The most credible evidence in

that regard is that the December 14 telephone conference

constituted sufficient pre-notification. The Notice of Denial

was not finalized until January 23, 2008, some 40 days later.

32. It should be noted that Small is clearly remorseful

for his actions and knows, in retrospect, that following the

advice of the Tax Advisors was not a wise decision. However, he

did not establish by a preponderance of the evidence that, faced

with a similar choice in some other aspect of his private life,

he would not make a similar mistake. His professional judgment

in the business of banking, notwithstanding Small's mistake

concerning his federal income tax payments, is a significant

error in judgment warranting Respondent's dismissal of his

application.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of

Law, it is

RECOMMENDED that a final order be entered by Respondent,

Office of Financial Regulation, finding that the Notice of

Disapproval was properly entered and should be upheld. Whether

Respondent wishes to allow Petitioners, Wesley T. Small and

First Commercial Bank of Tampa Bay, to retroactively withdraw

its Interagency Notice of Change in Director or Senior Executive

Officer is within the sole discretion of Respondent.

DONE AND ENTERED this 20th day of March, 2009, in

Tallahassee, Leon County, Florida.

R. BRUCE MCKIBBEN

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

[phone]

Fax Filing [phone]

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 20th day of March, 2009.

ENDNOTES

1/ Unless otherwise stated herein, all references to Florida

Statutes are to the 2007 version.

2/ For some of the years in question, Small reported zero income

on his tax return. For other years, Small simply did not file a

tax return. In either case, the result was the same; no taxes

were paid.

3/ Small did not provide Respondent proof or evidence of his

monthly payments during his application process.

COPIES FURNISHED :

Alex Hager, Acting Commissioner

Office of Financial Regulation

200 East Gaines Street

Tallahassee, Florida 32399-0350

Robert Beitler, General Counsel

Department of Financial Services

200 East Gaines Street, Suite 526

Tallahassee, Florida 32399-0350

Janet Massin Anderson, Esquire

Lynne A. Quimby-Pennock, Esquire

Office of Financial Regulation

Fletcher Building, Suite 526

200 East Gaines Street

Tallahassee, Florida 32399

Mark Freund, Esquire

Igler & Dougherty, P.A.

2457 Care Drive

Tallahassee, Florida 32308

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.