09-002837 Colorcars Experienced Automobiles, Inc. vs. Department Of Revenue Status: Closed Recommended Order on Thursday, April 29, 2010.

Summary: Petitioner failed to show that the Notice of Intent to Levy was improper because either the bank funds belonged to third parties or collection was barred by equitable estoppel.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

COLORCARS EXPERIENCED ) )

AUTOMOBILES, INC., )

)

Petitioner, )

vs. ) Case No. 09-2837

)

DEPARTMENT OF REVENUE, )

)

Respondent. )

)

RECOMMENDED ORDER

Administrative Law Judge (ALJ) Daniel Manry conducted the

final hearing of this case for the Division of Administrative

Hearings (DOAH) on March 22, 2010. The ALJ conducted the

hearing by video teleconference in Tallahassee and Sarasota,

Florida.

APPEARANCES

For Petitioner: John T. Early, III

Qualified Representative

Colorcars Experienced Automobiles, Inc.

2311 Tamiami Trail

Nokomis, Florida 34275

For Respondent: Jeffrey M. Dikman, Esquire

Office of the Attorney General

The Capitol, Plaza 01

Tallahassee, Florida 32399

STATEMENT OF THE ISSUE

The issue is whether a Notice of Intent to Levy that

Respondent issued pursuant to Section 213.67, Florida Statutes

(2008), 1 is improper because either the $62,482.96 in

Petitioner's four bank accounts belongs to third parties or the

doctrine of equitable estoppel prevents collection.

PRELIMINARY STATEMENT

This proceeding is the second of two cases involving the

same parties. The two cases are more fully described in the

Findings of Fact.

In this proceeding, Respondent has issued a Notice of

Intent to Levy (the Notice) and has effectively frozen four of

Petitioner's bank accounts pursuant to Section 213.67.

Petitioner concedes that one of the four accounts, containing a

balance of $4,050.19 at the time of the Notice, was properly

subject to the Notice. 2

The remaining three accounts are the disputed accounts in

this proceeding. Petitioner makes two allegations in an attempt

to defeat the Notice. First, Petitioner alleges that the three

accounts contain funds belonging solely to third parties.

Second, Petitioner raises an estoppel argument. The argument

alleges that an employee of Respondent gave Petitioner

assurances that no collection activity would take place while

alleged settlement negotiations were ongoing.

At the final hearing, Petitioner presented the testimony of

five witnesses and submitted 26 exhibits for admission into

evidence. Respondent called one witness, submitted 13 exhibits,

and requested official recognition of another exhibit.

The identity of the witnesses and exhibits and the rulings

regarding each are reported in the official record of the

hearing and a partial Transcript of the hearing that Respondent

filed with DOAH on April 5, 2010. Respondent timely filed its

Proposed Recommended Order on April 15, 2010. Petitioner did

not file a PRO.

FINDINGS OF FACT

1. Petitioner is engaged in the used car business in

Florida. Petitioner's principal place of business is in

Sarasota, Florida.

2. Petitioner’s principal and qualified representative is

Mr. John T. Early, III. Mr. Early is a licensed attorney in the

State of Connecticut, but Mr. Early engages in the used car

business rather than the practice of law.

3. Respondent is the state agency responsible for

administering the sales and use tax in Florida. The instant

proceeding is the second of two cases between Petitioner and

Respondent.

4. The first case between the parties is identified in the

record as Colorcars Experienced Automobiles, Inc. vs. Department

of Revenue , DOAH Case No. 08-005442 (Colorcars 1). On June 15,

2005, Respondent issued a tax assessment against Petitioner for

$245,057.07. The assessment was for tax, penalty, and accrued

interest as of the date of the assessment.

5. Colorcars 1 began when Petitioner requested an

administrative hearing to contest the tax assessment, and

Respondent referred the request to DOAH to conduct the hearing.

Colorcars 1 became final and non-reviewable on February 13,

2009, when Petitioner voluntarily dismissed its challenge, “with

prejudice.” 3

6. After Colorcars 1 became final agency action,

Respondent recorded a tax warrant for $319,512.05, including

penalties and additional accrued interest. 4 Petitioner admits it

owes taxes, penalties, and interest in an amount that exceeds

the funds in the bank accounts evidenced in this proceeding.

7. The procedure Respondent utilized to freeze the bank

accounts of Petitioner was appropriate, including the decision

not to provide Petitioner with prior notice of the collection

process. On April 21, 2009, Respondent sent a letter to Liberty

Savings Bank, in accordance with Subsection 213.67(1), directing

the bank to freeze any accounts belonging to Petitioner.

8. On April, 28, 2009, Liberty Savings Bank responded that

four accounts were frozen with an aggregate balance of

$62,482.96. The four frozen account balances are identified

below by account number and by the account title as they appear

on the bank account statements:

(a) CKG Acct. #2844006582

(Named “Colorcars Experienced Automobiles

Acquisition Account”) $53,114.37

(b) CKG Acct. #2844006604

(Named “Colorcars Experienced Automobiles

Management Account”) $4,050.19

(c) CKG Acct. #2844006671

(Named “Colorcars Experienced Automobiles

Client Funds”) $5,243.03

(d) CKG Account #2844006817

(Named “Colorcars Experienced Automobiles

Merchant Account”) $75.37

9. On April 29, 2009, Respondent served Petitioner with

the Notice pursuant to Section 213.67. Respondent did not

notify Petitioner in advance of the account freeze because

Respondent had a reasonable basis to believe prior notice would

jeopardize Respondent's ability to collect the unpaid funds.

The assessment had not been paid even though the assessment had

already become final and non-reviewable. Respondent was

legitimately concerned that the money could be withdrawn if

advance notice were given. Apart from the particular facts and

circumstances in this case, prior notice is inconsistent with

Respondent's administrative policy.

10. Mr. Early made attempts to remove the freeze from the

accounts. Mr. Early informed Mr. Michael David, Respondent’s

collections agent: (a) that three of the frozen accounts in

controversy were “trust accounts”; and (b) that the three

accounts contained money that did not belong to Petitioner.

11. Mr. David consulted with his supervisor, Mr. Kenneth

Sexton. The two agents did not consider Petitioner’s

allegations to be sufficiently documented. Respondent kept the

collection freeze in effect.

12. The parties have since stipulated on the record that

none of the four frozen accounts are “trust accounts.” The

account registration statements show that the accounts were

opened as “For-Profit Business/Corporation” accounts rather than

as “trust” or “fiduciary” accounts. 5

13. Prior to commencement of the collection action,

Mr. Early had discussed payment of the tax assessment in

Colorcars 1. Mr. Early alleges that Mr. David promised not to

proceed with collection action while settlement discussions were

ongoing in Colorcars 1. Mr. David denies having made that

statement. Mr. Sexton is without knowledge of any such

statement or agreement.

14. The fact-finder finds the testimony of Mr. David and

Mr. Sexton to be credible and persuasive. The testimony is

supported by the notes of the meetings. Petitioner made no

payments toward the obligation due in Colorcars 1, and the tax

due was in jeopardy when Respondent began collection.

Collection without prior notice to Petitioner was reasonably

justified under the circumstances and is consistent with

Respondent's administrative policy.

15. Petitioner stipulates in its signed response to the

Second Requests for Admissions that the funds in the disputed

accounts are “commingled” and that the commingling is

“extensive.” Petitioner failed to provide a sufficient

accounting. A preponderance of the evidence does not provide

sufficient source records to enable Respondent's expert or the

trier of fact to make a determination that discrete and

identifiable client funds might remain within the extensively

commingled accounts that are in dispute.

16. Petitioner has had ample time and discovery to satisfy

its factual burden of proof in this case. In the February 5,

2010, Order granting Respondent’s motion to compel, as evidenced

in the motion hearing Transcript, the ALJ ordered Petitioner to

produce legible documents during a defined six-month period that

included portions of two tax years (the six-month period). The

Order granting the motion to compel was cobbled together in a

lengthy hearing with the parties, as was the six-month period,

and was intended to enable the trier of fact to identify

discrete client funds in the three disputed accounts and to

promote an amicable settlement of this case between the parties

so as to avoid the need for a hearing. Petitioner has failed to

provide legible documents or factually complete documents that

promote either intended purpose of the motion hearing. 6

17. Petitioner provided some evidence that client funds,

from five of Petitioner’s customers, were deposited at various

times into extensively commingled accounts. However, a

preponderance of the evidence does not show that identifiable

funds belonging to those clients remain in the extensively

commingled accounts.

18. The fact-finder finds the testimony of the

Respondent's expert to be credible and persuasive. The funds

have been so completely and extensively commingled, and the

account records produced by Petitioner were so lacking, that no

discrete funds can be identified.

19. Only a small percentage of the deposits shown on the

bank statements for the six-month period are from sources that

can be identified . For example, the “Acquisition Account,”

which contains most of the frozen funds in dispute, lists 152

deposits. However, only three deposits can be identified by

source. The three identified deposits total $46,725. By

contrast, the unidentified deposits total $1,625,634.06.

20. Petitioner’s pattern of only identifying the source of

a small percentage of the deposits is consistent for each

account. Of the $37,711.56 deposited into the “Merchant

Account” during the six-month period, not one of the deposits

was from an identifiable source. Of the $166,294.27 deposited

into the “Client Funds” Account during the six-month period,

only $38,146 was from identifiable sources. None of the funds

contained in the frozen bank accounts can be separately

identified by a preponderance of the evidence as belonging to

any party other than Petitioner.

CONCLUSIONS OF LAW

21. Petitioner argues that Respondent is equitably

estopped from any collection action against Petitioner. Equity

is the exclusive province of the courts in Florida. Art. V,

Fla. Const. Neither DOAH nor its ALJs constitute a court with

equitable jurisdiction. See Florida Department of Revenue v.

WHI Limited Partnership, d/b/a Wyndham Harbor Island Hotel , 754

So. 2d 205, 206 (Fla. 1st DCA 2000); Florida State University v.

Hatton , 672 So. 2d 576, 579 (Fla. 1st DCA 1996).

22. The jurisdiction of DOAH with respect to Petitioner's

equitable estoppel issue is limited to relevant findings of

stated in the Findings of Fact, a preponderance of the evidence

does not show that Respondent represented it would refrain from

collection activity under the facts and circumstances evidenced

in the record.

23. DOAH has jurisdiction over the remaining subject

matter in this proceeding, as well as the parties to this

provided the parties with adequate notice of the final hearing.

24. Once the assessment of taxes against Petitioner became

final, Respondent had authority under Section 213.67 to issue

the Notice. The Notice operated as a freeze of the bank

accounts at issue in this proceeding during the statutory 60-day

period prescribed in Subsection 213.67(1), as extended by the

pendency of this administrative proceeding.

25. Petitioner does not contest that Respondent has the

legal authority to issue the Notice and concedes that one of the

four accounts is uncontested. Rather, Petitioner maintains that

three of the four bank accounts contain funds belonging solely

to third parties.

26. The burden of proof is on Petitioner. Petitioner must

show by a preponderance of the evidence that a deposit into a

general account was made for a specific purpose or subject to

special terms and conditions. Carl v. Republic Security Bank ,

282 F. Supp. 2d 1358 (S.D. Fla. 2003); Southeast First National

Bank of Miami v. Scutieri , 396 So. 2d 859 (Fla. 3d DCA 1981);

Coyle v. Pan American Bank Of Miami , 377 So. 2d 213 (Fla. 3rd

DCA 1979).

27. Under Florida law, an accounting is a factual

determination for the fact-finder. William R. Smith v. American

Motor Inns of Florida , 538 F.2d 1090 (5th Cir. 1976). When

funds are commingled, the burden is on Petitioner, acting as the

functional equivalent of a fiduciary for alleged third-party

beneficiaries, to adequately account for funds belonging to the

beneficiaries. Cf. Rasmussen v. Central Florida Council Boy

Scouts of America, Inc. , 2009 Lexis 14272 (M.D. Fla. April 15,

2009)(involving fiduciary accounting); Technical Acoustics v.

Enterprise National Bank , 672 So. 2d 596 (Fla. 1st DCA

1996)(involving contract accounting).

28. The records evidenced in the final hearing were

insufficient to make an independent determination that a

discrete portion of the funds belonged to a third party.

Rather, a preponderance of the evidence showed that the funds

were so extensively commingled, and Petitioner’s record-keeping

so poor, that any individual identity of the funds has been

lost.

29. Petitioner has failed to meet its burden of proof. A

preponderance of the evidence does not show that any portion of

commingled funds remain identifiable in the account as belonging

to a third party.

30. The authority of DOAH is limited to a recommendation

that Respondent enter a final order finding that all of the

funds in the three disputed accounts, as well as the funds in

the fourth undisputed account, belong to Petitioner and that

none of the funds belong to third parties. Therefore, the funds

in all four accounts are properly subject to the Notice dated

April 29, 2009.

31. DOAH cannot issue a writ of garnishment that would

enable Respondent to garnish the funds on deposit in the four

bank accounts. The Florida Constitution reserves to the courts

the power to issue writs. Art. V, Fla. Const. DOAH is not a

court. Wyndham Harbor , 754 So. 2d at 206; Hatton , 672 So. 2d at

579. DOAH is part of the executive branch of government rather

than the judicial branch of government. If a member of the

executive branch of the government were to exercise power

reserved to the judicial branch, the result would violate the

separation of powers act. Art. II, § 3, Fla. Const.

RECOMMENDED ORDER

Based upon the foregoing Findings of Fact and Conclusions

of Law, it is

Recommended that Respondent enter a final order finding

that all of the funds in the four bank accounts in evidence in

this proceeding belong to Petitioner and are subject to the

Notice of Intent to Levy that Respondent issued on April 29,

2009, in accordance with Section 213.67.

DONE AND ENTERED this 29th day of April, 2010, in

Tallahassee, Leon County, Florida.

S

DANIEL MANRY

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 29th day of April, 2010.

ENDNOTES

1/ References to subsections, sections, and chapters are to

Florida Statutes (2008), unless otherwise stated.

2/ The undisputed account is bank account number . It is

labeled on all account statements as “Management Account.” See

Respondent’s Exhibit 9.

3/ Section 72.011 provides a 60-day jurisdictional time limit

for challenging a tax assessment.

4/ A separate tax warrant was also recorded in the amount of

$12,869.28 for other unpaid taxes that are unrelated to the

Assessment Challenge.

5/ During the collection action, Mr. Early and Mr. David

discussed settlement of the freeze without settling the

underlying tax liabilities or warrants. Those settlement

discussions came to an impasse, and the bank account freeze

continued.

6/ Petitioner produced deposit slips for approximately 13 of 335

deposits made during the six months covered in the Order

compelling discovery. Petitioner produced approximately 716

canceled checks for the six-month period, but the copies of the

checks were miniaturized, illegible copies.

COPIES FURNISHED :

John T. Early, III, Esquire

Colorcars Experienced Automobiles, Inc.

2311 Tamiami Trail

Nokomis, Florida 34275

Jeffrey M. Dikman, Esquire

Office of the Attorney General

The Capitol, Plaza 01

Tallahassee, Florida 32399

Marshall Stranburg, General Counsel

Department of Revenue

The Carlton Building, Room 204

501 South Calhoun Street

Post Office Box 6668

Tallahassee, Florida 32314-6668

Lisa Echeverri, Executive Director

Department of Revenue

The Carlton Building, Room 104

501 South Calhoun Street

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 Recommended Order. Any exceptions

to this Recommended Order should be filed with the agency that

will issue the Final Order in this case.