95-000343RU American Factors Group, Inc., And The Environmental Trust vs. Department Of Environmental Protection Status: Closed DOAH Final Order on Monday, July 24, 1995.

Summary: Agency statement was not a rule.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

AMERICAN FACTORS GROUP, INC., and )

THE ENVIRONMENTAL TRUST, )

)

Petitioner, )

)

vs. ) CASE NO. 95-0343RU

)

DEPARTMENT OF ENVIRONMENTAL )

PROTECTION, )

)

Respondent. )

__________________________________)

FINAL ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly

designated Hearing Officer, Susan B. Kirkland, held a formal hearing in this

case on May 15, 1995, in Tallahassee, Florida.

APPEARANCES

For Petitioner: E. Gary Early, Esquire

Akerman, Senterfitt & Eidson, P.A.

216 South Monroe Street

Tallahassee, Florida 32301

For Respondent: W. Douglas Beason, Esquire

Mary Stuart, Esquire

Assistant General Counsels

Department of Environmental Protection

2600 Blair Stone Road

Twin Towers Office Building

Tallahassee, Florida 32399-2400

STATEMENT OF THE ISSUES

1. Whether the challenged agency statement is a rule as defined under

Section 120.52(16), Florida Statutes.

2. If the agency statement is a rule, whether Respondent has violated

Section 120.535(1), Florida Statutes, by failing to adopt the alleged agency

statement as a rule.

3. If the agency statement is a rule, whether it is an invalid exercise of

delegated legislative authority.

PRELIMINARY STATEMENT

On January 26, 1995, the Petitioners, American Factors Group, Inc. (AFG)

and The Environmental Trust (TET), filed a Petition for Administrative

Determination of Agency Statement pursuant to Section 120.535(1), Florida

Statutes, for Administrative Determination of the Invalidity of a Rule pursuant

to Section 120.56, Florida Statutes, and for Administrative Hearing pursuant to

Section 120.57(1)(b)15, Florida Statutes. With regard to the use of "factoring"

within the context of the Department's review of a reimbursement application

under Chapter 62-773, Florida Administrative Code, the petition alleges the

Department of Environmental Protection (Department) has issued the following

agency statement:

The difference between the face value of an invoice for services and the

purchase price of a related receivable shall be deemed to be a "carrying charge"

regardless of the relationship between the parties, regardless of whether the

"carrying charge" is itemized as a reimbursable charge in an application for

reimbursement and regardless of whether the "carrying charge" affects the

allowability of the costs incurred for the cleanup or the reasonableness of the

rates charged for such costs. The difference between the face value of an

invoice and the purchase price of the related receivable, negotiated at arms

length in a transaction as described herein, shall be deducted from the amount

sought in reimbursement.

The final hearing was scheduled for February 21, 1995. By order dated

February 9, 1995, the parties' ore tenus motion for continuance was granted.

On April 28, 1995, the Department filed a Motion for Summary Final Order.

On May 9, 1995, the motion was heard and the Petition for Administrative Hearing

pursuant to Section 120.57(1)(b)15, Florida Statutes, was dismissed.

At the final hearing Petitioner presented the following witnesses: Steve

Parrish, Charles Williams, Dr. Jerome S. Osteryoung and Robert Beard.

Petitioners' Exhibits 1, 3-6 and 8-11 were admitted in evidence.

At the final hearing, the Department called Charles Williams as its

witness. Department's Exhibits 1-8 were admitted in evidence. Petitioner

introduced the deposition of Charles Williams as rebuttal evidence. The parties

submitted posthearing those portions of the deposition which were designated as

rebuttal testimony and any objections to those portions. By Order dated June

16, 1995, the Hearing Officer ruled on the admissibility of the designated

portions of the deposition.

FINDINGS OF FACT

1. Respondent, Department of Environmental Protection (DEP), is the

administrative agency of the State of Florida which administers the relevant

portions of Chapter 376, Florida Statutes, and the rules pertaining thereto with

regard to the reimbursement of actual and reasonable costs of cleanup of

petroleum sites.

2. Petitioner, American Factors Group, Inc. (AFG), is engaged in the

business of financing storage tank clean-ups eligible for reimbursement

pursuant to Section 376.3071(12), Florida Statutes.

3. Petitioner, The Environmental Trust (TET), is affiliated with AFG.

Certain principals of AFG are also trustees of TET. TET acts as the funder of

the contractors and subcontractors performing rehabilitation activities at

petroleum sites.

4. Environmental Factors, a division of AFG, negotiates and enters into

the financing contracts with the contractors and subcontractors.

5. American Environmental Enterprises, which is affiliated with AFG,

handles the financial transactions relative to the contracts in which

Environmental Factors enters as a division of AFG. In other words, American

Environmental implements the contracts on behalf of AFG.

6. Under the reimbursement program, the invoices are submitted to DEP

after the program task is completed or not more than once every six months for

remedial actions. DEP will reimburse the applicant for the actual and

reasonable costs incurred for site rehabilitation. The application is reviewed

by DEP within sixty days of receipt. If additional information is needed, DEP

will advise the applicant. DEP is required to deny or approve the application

for reimbursement within ninety days of the date the additional information is

submitted or at the end of the sixty-day review period if no additional

information is requested. Because of backlogs in the past, DEP has taken longer

than the statutory time frames to make a payment for reimbursement.

7. In the financial arrangements between a contractor and AFG, the

contractor is required to submit invoices to AFG upon the completion of the

contractor's services. AFG advances the contractor a discounted amount based

upon a percentage of the face value of the invoice. The contractor is also

required to contribute a certain percentage of the invoice amount to a reserve

trust account.

8. The turn around time between AFG's receipt of the contractor's invoice

and the advance of the discounted amount to the contractor is typically five to

ten days.

9. This financial arrangement between AFG and the contractors is known as

factoring. Factoring is generally construed as the purchase of an asset, which

may include an account receivable, from another person at a discount.

10. An account receivable reflects the costs that a company charges for

its service after that service has been rendered but has not been paid by the

entity responsible for payment. Thus, when a contractor completes his

rehabilitation task, the amount of his invoice that would be submitted to DEP

for reimbursement is an account receivable.

11. In determining how much the invoice is to be discounted, AFG will take

into consideration the time value of the funds. In other words, AFG uses how

long will it take for AFG to receive the invoice amount from DEP as a component

in determining the percentage of discount.

12. In the instant case, AFG is not actually buying the account

receivable, but is buying the right to receive the payment for the account

receivable when it is paid. AFG has recourse against the contractor through an

indemnity and such recourse is secured by the contractor's contribution to a

reserve trust account.

13. AFG has been using this type of financing in Florida in the context of

clean ups of petroleum sites since 1993. By letter dated September 10, 1993,

Paul DeCosta, an attorney representing AFG, requested Lisa Duchene of the DEP to

advise him how certain activities contemplated by AFG in financing expenses for

reimbursable environmental cleanups would be treated by DEP pursuant to Section

376.3071, Florida Statutes.

14. By letter dated November 4, 1993, E. Gary Early, counsel for AFG,

advised Bill Sittig of DEP of his understanding of a discussion between Mr.

Sittig and representatives of AFG on October 21, 1993. The discussion concerned

DEP's position on certain aspects of the financing arrangements that AFG

contemplated using for the environmental cleanups.

15. On January 18, 1994, Mr. Early wrote to Lisa Duchene, outlining AFG's

plan for providing capital for site rehabilitation, and requesting that she

advise him if there were any obvious problems with the proposed financing

structure.

16. Rule 62-773.350(4)(e), Florida Administrative Code prohibits the

reimbursement of costs associated with interest or carrying charges of any kind

with the exception of those outlined in Rule 62-773.650(1), Florida

Administrative Code.

17. In November, 1994, Mr. Early, Ms. Duchene, and Charles Williams,

Environmental Administrator for DEP's Bureau of Waste Cleanup, had a telephone

conversation concerning factored invoices. Mr. Early was advised the following

by DEP staff:

That the difference between the amount that

a contractor accepted in payment for his

services, which was a discounted amount after

factoring, the difference between that and

the face value of the invoice which was claimed

and marked up in the application was determined

to be a carrying charge or interest, which is

specifically disallowed for reimbursement in

the reimbursement rule.

This position had been formulated at meeting of DEP representatives prior to the

telephone call. The statement was limited to the scenario that Will Robbins of

AFG had outlined in an earlier meeting with DEP staff. The statement of DEP was

an informal opinion of how DEP would propose to deal with an application

involving AFG and the scenario described if such an application should be

submitted to DEP. In determining whether DEP would also treat the discounted

amount as a carrying charge in other transactions of other entities involving

factoring, DEP would have to deal with it on a case by case basis.

18. By memorandum dated April 21, 1995, Bruce French, an Environmental

Manager with DEP, set forth DEP's policy regarding factored and/or discounted

reimbursement applications. The memorandum was issued to provide guidance to DEP

reviewers when considering applications that involve factoring and reimbursement

fees. The memorandum provided:

Regarding reimbursement applications where

the program task organization structure of

the applicants may involve any combination

of a general contractor, management company,

funder and responsible party and any other

parties with claims in applications from

these entities, only incurred costs of the

general contractor and subcontractors including

allowable markups are to be considered for

reimbursement.

Specifically, invoices from subcontractors,

vendors, suppliers, and/or the general contractor

which were paid a factored (e.g., discounted)

amount by a third party capital participant (e.g.,

funder) represents the actual amount incurred by

that entity and subsequently by the general

contractor.

Additionally, the memorandum gave an example of factoring involving the payment

of factoring fees, and explained what amounts would be allowed in the scenario.

The factoring scenario described in the memorandum was not the same scenario

that AFG representatives described to DEP. Petitioners have not challenged the

validity of the April 25, 1995, memorandum as a rule.

CONCLUSIONS OF LAW

19. The Division of Administrative Hearings has jurisdiction over the

subject matter of and the parties to this proceeding.

20. Petitioners have challenged the agency statement pursuant to Sections

120.535 and 120.56, Florida Statutes. In order to prevail under either statute,

Petitioners must establish as a threshold requirement that the oral

communication constitutes a rule as defined in Section 120.56, Florida Statutes.

21. Section 120.52(16), Florida Statutes, defines rule as "each agency

statement of general applicability that implements, interprets, or prescribes

law or policy or describes the organization, procedure, or practice requirements

of an agency."

22. Statements of "general applicability" as that term is used in Section

120.52(16), Florida Statutes, are "statements which are intended by their own

effect to create rights, or to require compliance, or otherwise to have the

direct and consistent effect of law." McDonald v. Department of Banking and

Finance, 346 So.2d 569, 581 (Fla. 1st DCA 1977).

23. The oral communication to AFG was limited to DEP's position as it

related only to the scenario described by Will Robbins in a meeting with DEP

staff. It was not to apply generally to all applicants for reimbursement.

Charles Williams testified that DEP would have to consider each case

individually in order to determine whether the difference in the original

invoice and the discounted invoice would be considered interest or a carrying

charge. Thus, the oral communication did not have general applicability and is

not a rule as defined by Section 120.52(16), Florida Statutes. See Citifirst

Mortgage Corp. v. Department of Banking and Finance, 15 F.A.L.R. 1735 (Final

Order dated April 1, 1993).

Based on the foregoing Findings of Fact and Conclusions of Law, it is

ORDERED that Petitioners challenge to the agency statement pursuant to

Sections 120.535, 120.56, and 120.57(1)(b)(15) are hereby DISMISSED.

DONE AND ORDERED this 24th day of July, 1995, in Tallahassee, Leon County,

Florida.

___________________________________

SUSAN B. KIRKLAND

Hearing Officer

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

[phone]

Filed with the Clerk of the

Division of Administrative Hearings

this 24th day of July, 1995.

APPENDIX TO RECOMMENDED ORDER, CASE NO. 95-343RU

To comply with the requirements of Section 120.59(2), Florida Statutes

(1993), the following rulings are made on the parties' proposed findings of

fact:

Petitioner's Proposed Findings of Fact.

1. Paragraphs 1-4: Accepted in substance.

2. Paragraphs 5-6: Rejected as irrelevant.

3. Paragraph 7: Accepted in substance except for the fifth

sentence which is rejected as irrelevant.

4. Paragraph 8: The last sentence is accepted in

substance. The remainder is rejected as irrelevant.

5. Paragraph 9: Accepted in substance.

6. Paragraph 10: Rejected as irrelevant.

7. Paragraph 11: Accepted in substance.

8. Paragraph 12: The first sentence is accepted in

substance. The remainder is rejected as irrelevant.

9. Paragraphs 13-14: Rejected as irrelevant.

10. Paragraph 15: Accepted.

11. Paragraph 16: Rejected as irrelevant.

12. Paragraph 17: Accepted to the extent that the

statement was made to AFG as DEP's policy on the

scenario described by AFG.

13. Paragraph 18: The first sentence is accepted in

substance. The second sentence is rejected as not

supported by the greater weight of the evidence. At the

time of the oral communication, DEP had not had claims

that involved the factoring scenario that was described

by AFG.

14. Paragraph 19: The first sentence is accepted to the

extent that each application would have to be evaluated

on a case by case basis to determine whether the

discount would be considered a carrying charge or

interest. The second sentence is rejected as

irrelevant since AFG does not use reservation fees.

The last two sentences are rejected as irrelevant since

Petitioners have not challenged the memorandum and the

memorandum contemplates scenarios which may differ from

the scenario on which the oral communication was based.

15. Paragraph 20: Rejected as not supported by the greater

weight of the evidence.

16. Paragraph 21: Rejected as constituting a conclusion of law.

17. Paragraph 22: The first sentence is rejected as

constituting a conclusion of law. The second and third

sentences are accepted in substance. The fourth

sentence is accepted as it relates to what DEP's

position would be as it related to the specific

scenario described by AFG. The fifth sentence is

accepted in substance. The sixth sentence is accepted

in substance to the extent that DEP would have to look

at each application on a case by case basis to

determine whether the discount in its financing scheme

would be the equivalent to a carrying charge or

interest. The remainder is rejected as irrelevant.

18. Paragraph 23: The first sentence is accepted as it

pertains to only to AFG's specific scenario of

financing. The remainder is irrelevant given the

finding that the oral communication is not a rule.

19. Paragraphs 24-55: Rejected as irrelevant given the

finding that the oral communication is not a rule.

Respondent's Proposed Findings of Fact.

1. Paragraphs 1-7: Accepted in substance.

2. Paragraphs 8-9: Rejected as subordinate to the facts found.

3. Paragraphs 10-11: Accepted in substance.

4. Paragraph 12: Rejected as unnecessary.

5. Paragraph 13: Accepted in substance.

6. Paragraphs 14-17: Rejected as unnecessary.

7. Paragraph 18: Accepted in substance.

8. Paragraphs 19-25: Rejected as irrelevant.

9. Paragraph 26: Accepted in substance.

10. Paragraphs 27-66: Rejected as irrelevant given the

finding that the statement does not constitute a rule.

COPIES FURNISHED:

E. Gary Early, Esquire

Akerman, Senterfitt & Eidson, P.A.

Post Office Box 10555

Tallahassee, Florida 32302-2555

W. Douglas Beason, Esquire

Lisa M. Duchene, Esquire

Mary Stewart, Esquire

Department of Environmental

Protection

2600 Blair Stone Road

Tallahassee, Florida 32399-2400

Carroll Webb, Executive Director

Administrative Procedures Committee

Holland Building, Room 120

Tallahassee, Florida 32399-1300

Liz Cloud, Chief

Bureau of Administrative Code

The Capitol, Room 1802

Tallahassee, Florida 32399-0250

Virginia B. Wetherell, Secretary

Department of Environmental Protection

Douglas Building

3900 Commonwealth Boulevard

Tallahassee, Florida 32399-3000

Kenneth J. Plante, Esquire

General Counsel

Department of Environmental Protection

3900 Commonwealth Boulevard

Tallahassee, Florida 32399-3000

NOTICE OF RIGHT 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

commenced by filing one copy of a Notice of Appeal with agency clerk of the

Division of Administrative Hearings and a second copy, accompanied by filing

fees prescribed by law, with the District Court of Appeal in the appellate

district where the agency maintains its headquarters or where a party resides.

The Notice of Appeal must be filed withing 30 days of rendition of the order to

be reviewed.