12-001357RX Peter R. Brown Construction vs. Department Of Financial Services Status: Closed DOAH Final Order on Monday, June 25, 2012.

Summary: Rule 69I-40.103, which determines restrictions on expenditures, is an invalid exercise of delegated legislative authority in violation of sections 120.53(8)(b) and (d).

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

PETER R. BROWN CONSTRUCTION , )

)

Petitioner , )

)

vs. ) Case No. 12 - 135 7RX

)

DEPARTMENT OF FINANCIAL )

SERVICES , )

)

Respondent . )

__ )

FINAL ORDER

On May 15, 2012, a hearing was held in Tallahassee, Florida,

pursuant to the authority granted in sections 120.56, 120.569 and

120.57(1), Florida Statutes. 1 / The case was considered by June C.

McKinney, Administrative Law Judge .

APPEARANCES

For Petitioner: Robert H. Buesing, Esquire

Gregg E. Hutt, Esquire

Trenam Kemker

101 E ast Kennedy Boulevard , S ui te 2700

P ost Office Box 1102

Tampa, Florida 3 3601

For Respondent: Michael H. Davidson, Esquire

Jacek P. Stramski, Esquire

Florida Department of Financial Services

200 E ast Gaines Street, Suite 612

Tallahassee, Florida 32399 - 6502

STAT EMENT OF THE ISSUE

Whether Florida Administrative Code Rule 69I - 40.103 is an

invalid exercise of legislatively delegated authority in

violation of section 120.52(8), Florida Statutes.

PRELIMINARY STATEMENT

On April 16, 2012, a Petition to Determ ine the Invalidity of

Existing Administrative Rule 69I - 40.103 was filed on behalf of

Petitioner, Peter R. Brown Construction, Inc., ( " Peter Brown " or

" Petitioner " ). The case was assigned to the undersigned on

April 17, 2012, and a Notice of Hearing was issued setting the

final hearing for May 15, 2012, in Tallahassee, Florida. The

case proceeded to hearing as scheduled.

On April 27, 2012, the Department of Financial Services

( " Department " or " Respondent " ) filed a Motion to Dismiss

( " Motion " ). On May 7 , 2012, Petitioner filed Petitioner ' s

Memorandum of Law in Opposition to Respondent ' s Motion to

Dismiss. On May 8, 2012, the undersigned denied the Motion.

No witnesses were presented by either party at hearing.

Exhibits numbered 1 through 13 and 15 and 16 were admitted for

Pe titioner , and Department ' s Exhibits numbered 1 through 3 were

admitted. The parties were given until June 8, 2012, to file

their proposed final orders. All submissions were timely filed

and have been considered in the preparation o f this Final Order.

FINDING S OF FACT

1. The Department is an agency of the State of Florida.

2. The Department adopted Florid a Administrative Code Rule

69I - 40.103, which became effective October 21, 1975. The rule

was amended on January 8, 1995.

3. On or about January 7, 2008, the Department of

Management Services ( " DMS " ), on behalf of the State of Florida,

and Peter Brown entered into a contract ( " General Contract " ).

4. The General Contract is a valid and enforceable contract

pursuant to which Petit ioner agreed to manage the construction of

the First District Court of Appeal project.

5. The General Contract was amended on March 13, 2009.

6. On or about December 28, 2009, DMS issued Petitioner a

Change Order for the new courthouse project.

7. The Change Order incorporate d the services of Signature

Art Gallery, Inc. ( " Signature " ) to reproduce photographs from the

Florida Archives, enlarge, matte, frame, caption, deliver, and

perman ent ly install the framed historical reproduced photographic

images in the new courthouse.

8 . On or about January 19, 2010, Signature entered into a

subcontract with Petitioner for the services delineated in the

Change Order.

9 . All of Petitioner ' s payment requests submitted to

Respondent were approved by DMS. Payments t o Petitioner for

construction services performed under the General Contract were

made directly to Peter Brown by DFS.

10 . Respondent denied payment of funds to Petitioner

associated with the Change Order and the subcontract work of

Signature.

11 . Resp o ndent has relied in part upon r ule 69I - 40.103 to

deny payment of funds to Petitioner associated with the Change

Order and subcontract related to Signature for the reproduction

and installation of the historical photographic images.

1 2 . As a direct result of DFS ' denial of payment, Peter

Brown is a defendant in a lawsuit pending in the Circuit Court of

the Second Judicial Circuit, in and for Leon County, Florida. By

court order in that action, Petitioner was deemed indispensable,

and made a party to the la wsuit.

CONCLUSIONS OF LAW

13. The Division of Administrative Hearings has

jurisdiction over the subject matter and the parties to this

action in accordance with sections 120.56, 120.569 and 120.57(1),

Florida Statutes.

14. Petitioner has standing pursuan t to section 120.56 to

bring this rule challenge.

15. As Petitioner, Peter Brown " has the burden of proving

by a preponderance of the evidence that the existing rule is an

invalid exercise of delegated legislative authority as to the

objections raised. " § 120.56(3)(a), Fla. Stat. The standard of

review is de novo. § 120.56(1)(e), Fla. Stat.

16. The challenged rule states in pertinent part:

Expenditures from state funds for items as

listed below are prohibited unless " expressly

provided by law. " (See Attorney General

opinion [0] 71 - 28):

(1) Congratulatory telegrams;

(2) Flowers and/or telegraphic

condolences;

(3) Presentment of plaques for outstanding

service;

(4) Entertainment for visiting

dignitaries;

(5) Refreshments such as coffee and

doughnuts ; and

(6) Decorative items (globes, statues,

potted plants, picture frames, etc.).

17. Rule 69I - 40.103 identifies as specific authority

section 17.29. Section 17.29 states:

17.29 Authority to prescribe rules. Ï The Chief

Financial Officer may adopt rules pursuant to

ss. 120.536 (1) and 120.54 to implement this

chapter and the duties assigned by statute or

the State Constitution. Such rules may

include, but are not limited to, the

following:

(1) Procedures or policies relating to the

processing of payment s from salaries, other

personal services, or any other applicable

appropriation.

(2) Procedures for processing interagency and

intraagency payments that do not require the

issuance of a state warrant.

(3) Procedures or policies requiring that

payments made by the state for goods,

services, or anything of value be made by

electronic means, including, but not limited

to, debit cards, credit cards, or electronic

funds transfers.

(4) A method that reasonably accommodates

persons who, because of technological,

f inancial, or other hardship, may not be able

to receive payments by electronic means. The

Chief Financial Officer may make payments by

state warrant if deemed administratively

necessary.

18. The challenged r ule lists as " Law Implemented " sections

17.001 , 17.03, and 215.42.

19. Section 17.001 provides:

17.001 Chief Financial Officer. Ï As provided

in s. 4(c), Art. IV of the State

Constitution, the Chief Financial Officer is

the chief fiscal officer of the state and is

responsible for settling and approving

accounts against the state and keeping all

state funds a nd securities.

20. Section 17.03 provides:

17.03 To audit claims against the state. Ï

(1) The Chief Financial Officer of this

state, using generally accepted auditing

procedures for testing or sampling, shall

examine, audit, and settle all accounts,

clai ms, and demands, whatsoever, against the

state, arising under any law or resolution of

the Legislature, and issue a warrant

directing the payment out of the State

Treasury of such amount as he or she allows

thereon.

(2) The Chief Financial Officer may esta blish

dollar thresholds applicable to each invoice

amount and other criteria for testing or

sampling invoices on a preaudit and postaudit

basis. The Chief Financial Officer may

revise such thresholds and other criteria for

an agency or the unit of any age ncy as he or

she deems appropriate.

(3) The Chief Financial Officer may adopt and

disseminate to the agencies procedural and

documentation standards for payment requests

and may provide training and technical

assistance to the agencies for these

standards.

(4) The Chief Financial Officer shall have

the legal duty of delivering all state

warrants and shall be charged with the

official responsibility of the protection and

security of the state warrants while in his

or her custody. The Chief Financial Officer

may delegate this authority to other s tate

agencies or officers.

21. Section 215.42 provides:

215.42 Purchases from appropriations, proof

of delivery. Ï The Chief Financial Officer may

require proof, as he or she deems necessary,

of delivery and receipt of purchases before

honoring any voucher for payment from

appropriations made in the General

Appropriati ons Act or otherwise provided by

law.

22. Petitioner challenges the proposed rule in accordance

with the definition of " invalid exercise of delegated legislative

au thority " in section 120.52(8) , which states:

(8) " Invalid exercise of delegated

legislati ve authority " means action that goes

beyond the powers, functions, and duties

delegated by the Legislature. A proposed or

existing rule is an invalid exercise of

delegated legislative authority if any one of

the following applies:

(a) The agency has mater ially failed to

follow the applicable rulemaking procedures

or requirements set forth in this chapter;

(b) The agency has exceeded its grant of

rulemaking authority, citation to which is

required by s. 120.54 (3)(a)1.;

(c) The rule enlarges, modifies, or

co ntravenes the specific provisions of law

implemented, citation to which is required by

s. 120.54 (3)(a)1.;

(d) The rule is vague, fails to establish

adequate standards for agency decisions, or

vests unbridled discretion in the agency;

(e) The rule is arbitr ary or capricious. A

rule is arbitrary if it is not supported by

logic or the necessary facts; a rule is

capricious if it is adopted without thought

or reason or is irrational; or

(f) The rule imposes regulatory costs on the

regulated person, county, or c ity which could

be reduced by the adoption of less costly

alternatives that substantially accomplish

the statutory objectives.

A grant of rulemaking authority is necessary

but not sufficient to allow an agency to

adopt a rule; a specific law to be

impleme nted is also required. An agency may

adopt only rules that implement or interpret

the specific powers and duties granted by the

enabling statute. No agency shall have

authority to adopt a rule only because it is

reasonably related to the purpose of the

e nabling legislation and is not arbitrary and

capricious or is within the agency ' s class of

powers and duties, nor shall an agency have

the authority to implement statutory

provisions setting forth general legislative

intent or policy. Statutory language gr anting

rulemaking authority or generally describing

the powers and functions of an agency shall

be construed to extend no further than

implementing or interpreting the specific

powers and duties conferred by the enabling

statute.

23. Specifically, Petitio ner contends that rule 69I - 40.103

violates the requirements of sections 120.52(8) (b), (d), and (e).

Whether the Department Has Exceeded Its Authority

24. The First District set the standard for determining if

a rule is authorized or not in Southwest Fla. Water Mgmt. Dist.

v . Save the Manatee Club, Inc. 773 So. 2d 594 (Fla. 1st DCA

2000). In Save the Manatee , the court affirmed a decision

invalidating portions of rule 40D - 4.051, because the exemptions

from permitting requirements created within the rule ha d no

specific statutory authority. Ultimately, the First District

determined that the question to be answered is " whether the

statute contains a specific grant of authority for the rule, not

whether the grant is specific enough. Either the enabling

statu te authorizes the rule at issue or it does not. " Id. at

599.

25. The First District also set the parameters for a

specific grant of authority in Fla. Dep ' t of Highway Safety &

Motor Vehicles v. JM Auto, Inc . 977 So. 2d 733 , 734 (Fla. 1st DCA

2008). The court reiterated its view that " the legislature ' s

intent to restrict the scope of agency rulemaking [requires that

the court] approve a rule only when there is statutory language

authorizing the agency to adopt rules to implement the subject

matter of the statute. " Id. at 7 3 4 .

26. Petitioner ' s reli ance on JM Auto, Inc . and the

conten tion that rule 69I - 40.103 exceeds the Department ' s

authority in that the enabling statute, section 17.29 , only

provides a general grant of authority and such authority is

ins ufficient because there needs to be specific statutory

authority is proper .

27. The Department ' s arguments asserted in its Proposed

Final Order do not change the lack of specificity in the enabling

statute for rule 69I - 40.103 . Section 17.29 confers broa d powers

and duties on the Chief Financial Officer ' s ( " CFO " ) role to

process day to day payments but makes no mention of restricting

expenditures. The four subparts of section 17.29 are set forth

at paragraph 17 above. When a ddressing each of the four su bparts

of the enabling statute , n one of the subparts explicitly

authorize s the CFO to prepare and enforce the specific list of

restricted expenditures provided in the challenged rule.

28. Respondent ' s argument that subpart (1) authorizes the

adoption of the rule because the challenged rule fits within the

category of subpart (1) is not persuasive. Reimbursements might

be reasonably related to the purpose of the enabling statute , but

section 17.29 (1) specifically authorizes the CFO only to process

expendi tures, not to prohibit them. Section 17.29(2) only

relates to procedures for processing interagency and interagency

payments, which is not related to the challenged rule.

Additionally, subsections 17.29(3) and (4), deal with electronic

means for payments , which are not issues relating to what is

reimbursable as an expenditure .

29. Further, the Department ' s contention that the

challenged rule was promulgated pursuant to explicit duties and

powers assigned to the CF O by two statutes, sections 17.29(1) and

17.03 , is rejected. L ike section 17.29, section 17.03 also fails

to make any mention of restricting expenditures. The bottom line

is that when the Department promulgated rule 69I - 40.103, section

17.03 was utilized as one of the law s implemented 2 / not as

specific authority for the challenged rule . The First District

specifically stated in Dep ' t of Children & Family Ser v s . v. I.B.

891 So. 2d 1168, 1172 (Fla. 1 st DCA 2005) , that the Department

may not rely on statutory provisions not cited in the proposed

rule as statutory authority. Accordingly, section 17.03 can no t

be used in this matter to confer specific authority for rule 69I -

40.103 when it was cited as law implemented. Moreover, w ith the

test of Save the Manatee in mind, section 17.03 cannot be

cons idered authority in that it is not the enabling statute for

the challenged rule and therefore cannot provide specific

authority.

30. It is concluded that there is simply no language within

the text of section 17.29 which suggest s that the CFO is

authorize d to adopt rules restricti ng expenditures . Therefore,

rule 69I - 40.103 does not implem ent or interpret any specific

po wer or duty granted by section 17.29. Under these

circumstances, rule 69I - 40.103 is invalid because the Department

has exceeded its rulem aking authority in violation of section

120.52(8) (b).

Whether the Rule is V ague

31. Petitioner also asserts that rule 69I - 40.103(6) is an

invalid exercise of delegated legislative authority because it is

vague under section 120.52(8)(d). In support of t his contention,

Petitioner asserts that the term " decorative items " is never

defined by statute or administrative rule and no standards are

given as to how or when the Department will apply the phrase.

32. An administrative rule is invalid under section

120.52(8)(d) if it requires the performance of an act in terms

that are so vague that men of common intelligence must guess at

its meaning. See Cole Vision Corp. v. Dep ' t of Bus. & Prof ' l

Reg . , Bd. of Optometry , 688 So. 2d 404 (Fla. 1st DCA 1997 ) ;

Witmer v . Dep ' t of Bus. & Prof ' l Reg . 662 So. 2d 1299 (Fla. 4th

DCA 1995). The general rule is that where the legislature has

not defined words or phrases u sed in a statute, they must be

" construed in accordance with [their] common and ordinary

meaning. " Donato v. AT&T , 767 So. 2d 1146, 1154 (Fla. 2000).

" [T]he plain and ordinary meaning of [a] word can be ascertained

by reference to a dictionary. " Green v State , 604 So. 2d 471 ,

473 (Fla. 1992).

33. Even though rule 69I - 40.103(6) provides examples of

" globes, st a tues, potted plants, picture frames, etc. " as set

forth in paragraph 16 above, subpart ( 6 ) is still vague because

no qualifying language is availab le as a standard to determine

what items are covered and what items are not based on the

examples . A wide ra nge of things can be considered and different

people can guess at its meaning or come up with various

interpretations for " decorative items . "

34. The Department's contention that Signature's contract

for "framed pictures" falls within the interpretation of rule

69I - 40.103(6) is not persuasive. First, it is important to note

that the Department does not use the terminology in the rule,

"picture fr ames," in its argument but transposes the phraseology

to "framed pictures," 3 / which has a different common

interpretation. Additionally, one definition of " picture frame "

is " a framework in which a picture is mounted. " Dictionary.com,

available at http: //www.dictionary.reference.com (last visited

June 18, 2012). Therefore, c ontrary to the Department ' s

argument, even " picture frame s " in the example portion of the

rule plainly means something different from "framed picture s . "

35. Additionally, t he subcon tract between Petitioner and

Signature was also for the reproduction and permanent

installation of historical photographic images. DMS ' approv al of

the subcontract payment and the Department ' s contrary denial of

the payment , both of which decisions were t aken in reliance of

rule 69I - 40.103, shows that the restricted items are not clearly

defined. If the definition were clear, both agencies would have

reached the same conclusion. Additionally, h ad the rule provided

a specific standard then no differing in terpretations could be

made when deciding the meaning of " decorative item. "

36. The undersigned also finds that by the challenged r ule

listing " e tcetera " in the example portion , no adequate standards

are established for the Department to make a decision a bout

" decorative items. "

37. Therefore, since there are no sufficient explicit

standards for applying rule 69I - 40.103(6), the challenged rule is

subject to inconsistent application and leaves the Department

with unbridled discretion. Consequently, rule 69I - 40.103( 6) is

vague and an invalid exercise of delegated legislative authority

in violation of section 120.52(8)( d ).

Whether the Rule is Arbitrary and C apricious

38. Finally, Petitioner assert s that the r ule 69I - 40.103 is

an invalid exercise of deleg ated legislative authority because it

is arbitrary and capricious.

39. The analysis for whether a rule is arbitrary and

capricious is (1) whether the rule is supported by logic or the

necessary facts; and (2) whether the rule was adopted without

thought or is irrational. Las Mercedes Home Care Corp v. Ag. for

Health Care Admin. , Case No. 10 - 0860RX (Fla. DOAH F.O. July 23,

2010) ; See § 120.52(8)(e), Fla. Stat.

40. The First District defined the arbitrary and capricious

standard in Agrico Chem . Co . v. D ep ' t of Envtl. Prot. , 365 So. 2d

759 (Fla. 1st DCA 1979). As explained in Agrico Chem . :

A capricious action is one which is taken

without thought or reason and irrationally.

An arbitrary decision is one not supported by

facts or logic, or despotic. Admin istrative

discretion must be reasoned and based upon

competent substantial evidence. Id. at 763.

41. As set forth at paragraph 16 above, the challenged rule

references AGO 071 - 28. 4 / The Department maintains that at the

time of the challenged rule ' s pro mulgation, the Department relied

upon AGO 071 - 28 , which placed restrictions on discretionary

spending as referenced in the opinion , as the rationale for the

challenged rule . In its Proposed Final O rder, the Department

further explained that:

Petitioner ov erlooks, however, that

apparently in direct response to AGO 071 - 28,

the legislature enacted in Chapter 71 - 84,

Laws of Florida, later codified as Section

216.231, Florida Statutes, which specifically

appropriated monies for the governor ' s

discretionary expe nditures as long those

expenditures fell under the general functions

of his office. The fundamental requirement

for effecting public expenditures by the

State of Florida, namely that funds must be

appropriated for such expenditures by the

legislature and not at the sole discretion of

the executive branch, was simply highlighted

by AGO 071 - 28. The legislature, mindful of

this requirement, enacted Chapter 71 - 84 Laws

of Florida, which specifically appropriated

monies for the governor ' s " discretionary

conting encies.

42. Petitioner ' s position that the subsequent Attorney

General Opinion, AGO 0 71 - 160, significantly receded from the

rational of AGO 071 - 28 is not persuasive. It is important to

note, AGO 0 71 - 160 went into effect on June 17, 1971, prior to the

challenged rule ' s adoption on October 21, 1975 , and was available

for use by the Department had it wanted to use the restricted

rationale of AGO 0 71 - 160 .

43. Moreover , the Department ' s use of AG O 071 - 28 as the

rationale for rule 69I - 40.103 is logical in that it limited the

grant of discretionary expenditure authority to a match ing

appropriation by the legislature. The same rationale used when

the challenged rule was adopted in 1975 is supported by lo gic and

reason today in that all expenditures by state executive agencies

mu s t be authorized by a legislative appropriat ion . Therefor e,

the continued use AGO 071 - 28 by the Department is a rational

explanation of how the Department determines current need s for

restrictions on expenditures. Hence the rule is not arbitrary or

capricious in violation of section 120.52(8)(e).

ORDER

Based on the foregoing, Findings of Fact and Conclusions of

Law, it is ORDERED that rule 69I - 40.103 constitutes an invalid

exerci se of delegated legislative authority in violation of

sub sections 120.52(8)(b) and (d) .

DONE AND ORDERED this 25th day of June , 2012 , in

Tallahassee, Leon County, Florida.

S

JUNE C. MCKINNEY

Administrative Law Judge

Divis ion of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399 - 3060

(850) 488 - 9675

Fax Filing (850) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 25th day of June , 2012 .

ENDNOTE S

1 All references to the Florida Statutes are to the 2012 edition,

unless otherwise noted.

2 Law i mplemented is defined in section 120.52(9) and provides in

pertinent part:

(9) " Law implemented " means the language of

the enabling statute being carried out or

interpreted by an agency through rulemaking.

3 Department's Proposed Final Order paragraph 30 .

4 Of note, the undersigned rejects any proposition that AGO 071 -

28 provid es authority f or the challenged rule. However, to the

extent that AGO 071 - 28 is incorporated by reference to interpret

the law, such would be appropriate.

COPIES FURNISHED:

Robert H. Buesing, Esquire

Trenam, Kemker, Scharf, Barkin, Frye,

O`Neil and Mullis, P.A.

Post Office Box 1102

Tampa, Florida 33601

Michael H. Davidson, Esquire

Department of Financial Services

612 Larson Building

200 East Gaines Street

Tallahassee, Florida 32399 - 0333

Liz Cloud, Program Administrator

Administrative Code

De partment of State

R. A. Gray Building, Suite 101

Tallahassee, Florida 32399

([e-mail] - e - Served)

Ken Plante, Coordinator

Joint Administrative Procedures Committee

Room 680, Pepper Building

111 West Madison Street

Tallahassee, Florida 32399 - 1400

([e-mail] - e - Served)

P. K. Jameson , General Counsel

Department of Financial Services

The Capitol, Plaza Level 11

Tallahassee, Florida 32399 - 0 307

( pk.jameson@myflori d acfo.com - e - Served)

Julie Jones, Agency Clerk

Department of Financi al Services

Division of Legal Services

200 East Gaines Street

Tallahassee, Florida 32399 - 0 390

( juliejones@myflori d acfo.com - e - Served)

NOTICE OF RIGHT TO JUDICIAL REVIEW

A party who is adversely affected by this Final Order is

entitled to judicial r eview pursuant to section 120.68, Florida

Statutes. Review proceedings are governed by the Flori da Rules

of Appellate Procedure. Such proceedings are commenced by filing

the original notice of administrative appeal with the agency

clerk of the Division of Administrative Hearings within 30 days

of rendition of the order to be reviewed, and a copy of the

notice, accompanied by any filing fees prescribed by law, with

the clerk of the District Court of Appeal in the appellate

district where the agency maintains its headquarters or where a

party resides or as otherwise provided by law.