Raymond O. McDONALD, Jr., et al., Petitioners, v. DEPARTMENT OF BANKING AND FINANCE, State of Florida, Respondent.
No. DD-375.
District Court of Appeal of Florida, First District.
May 10, 1977.
Rehearing Denied May 31, 1977.
346 So. 2d 569
Edward E. Kuhnel, Gen. Counsel, and William B. Corbett, Jr., Asst. Gen. Counsel, Tallahassee, for respondent.
SMITH, Judge.
Petitioners unsuccessfully applied to the Department of Banking and Finance, Division of Banking, for authority to organize and operate First Bank of Port Richey. Here they seek judicial review of the Department‘s final order which denied their application after formal proceedings were conducted under the Administrative Procedure
ISSUES
We are required to reconcile the competing purposes of two statutes, one substantive, one procedural, which now affect awards of State banking authority. On the one hand, discretionary power to grant or deny banking authority is committed by
“(a) Public convenience and advantage will be promoted by the establishment of the proposed bank or trust company.
“(b) Local conditions assure reasonable promise of successful operation for the proposed bank or the principal office of the proposed trust company and those banks or trust companies already established in the community.
“(c) The proposed capital structure is adequate.
“(d) The proposed officers and directors have sufficient banking or trust experience, ability and standing to assure reasonable promise of successful operation.
“(e) The name of the proposed bank or trust company is not so similar as to cause confusion with the name of an existing bank.
“(f) Provision has been made for suitable banking house quarters in the area specified in the application.”
Section 659.03(2) .
In counterpoise to that broad grant by
The applicants’ petition for review asserts the Comptroller erroneously discarded the hearing officer‘s findings of fact which are supported by competent substantial evidence
AGENCY PROCEEDINGS
In August 1973, applicants McDonald, Blackwood (since replaced by Prentice), Clark, Boyce and Scheer petitioned the Department for authority to organize and operate First Bank of Port Richey near a shopping center on a major highway in Port Richey, Pasco County, Florida. Six banks in the vicinity protested the application on various grounds. On April 24, 1974, State banking examiner Hieronymus, after a joint investigation with a Federal Deposit Insurance Corporation examiner, reported unfavorably to Comptroller Dickinson. Notwithstanding other internal recommendations of disapproval, Comptroller Dickinson on December 20, 1974, entered an order approving petitioners’ application on stated conditions. When Comptroller Lewis took office in January 1975, the Department adopted an emergency rule authorizing revocation of conditional approval orders, and Comptroller Lewis revoked the conditional approval granted petitioners. On March 22, 1975, after a further investigation, examiner Hieronymus submitted an updated report reciting need for additional field examination time but recommending Comptroller disapproval of the application on grounds “the opportunity for return on investment of an amount to meet the criteria of the Division of Banking is less than probable,” proposed management is inadequate and, because of unfavorable economic conditions, local convenience and needs would not be served by the new bank.
In April 1975, in accordance with Department rules, a “Comptroller‘s conference” was held where applicants, protestants and others presented evidence and argument. In October 1975, the Comptroller entered an order denying the application on the ground local conditions did not assure reasonable promise of successful operation for the proposed bank, as required by
Petitioners thereupon requested that formal proceedings be conducted as required by the APA when a party‘s substantial interests are to be determined and there is a disputed issue of material fact.
Comptroller Lewis, though authorized as agency head to conduct formal proceedings under
(a) Public convenience and advantage. The proposed bank is to be located on a busy corner of Ridge Road and U.S. Highway 19 at the Port Richey Shopping Village, near large residential areas and a junior college site. Though the owners of the shopping center are experiencing financial difficulty, the center is 93 percent occupied. Three savings and loan institutions are nearby, but the nearest banks are 2.3 and 3.5 miles from the proposed location. Most of the seven existing banks in the area are closer to each other than the proposed bank would be to them.
(b) Reasonable promise of success. Pasco County is one of Florida‘s faster growing areas. More than 16,000 persons reside in the 14 square miles constituting the proposed bank‘s trade area, as compared with the average of 12,000 residents in a typical trade area. Although existing Pasco County banks suffered substantially from the effects of inflation and recession for two years before the April 1975 hearing, economic conditions are “now beginning to pick up” and area banks gained substantial deposits in 1975. Pasco County banks increased deposits 8.1 percent in 1975, as contrasted to substantially poorer performances by banks in Duval, Polk and Hillsborough counties, where the Department nevertheless granted banking authority in 1975. While the proposed bank might operate at a loss in its first year, as is the common experience, projections of both deposits and profits for the second and third years indicate, as former examiner Hieronymus stated on petitioners’ cross-examination, a reasonable promise of a profitable operation. No existing bank apprehended adverse effects other than normal competition.
(c) Capitalization. $1,500,000 is adequate, as found by examiner Hieronymus in his reports and testimony.
(d) Management. The proposed officers and directors represent a cross section of the community. Each has prior business experience and three have banking experience with new and established banks. Mr. McDonald, the proposed president and chief executive officer, was executive vice president of a Tampa bank and director of a Lakeland bank and thus was not without experience, as erroneously reported in the Department‘s original and updated examiner‘s reports.
(e) Name confusion. Although numerous banks in Florida use the word “First” in their names, the proposed name of First Bank of Port Richey should cause no conflict or confusion with any existing bank.
(f) Facilities. The applicants propose a 14,000 square foot building as a permanent banking facility, built at a reasonable cost, and temporary facilities in a modular unit adjacent to the construction site. “The temporary unit will be leased and will comply with federal security and bonding requirements.”
In stating the above “findings of fact,” the recommended order also recorded the hearing officer‘s reason for overruling the Department‘s objection to admission of petitioners’ evidence of improved banking and economic conditions after October 1975, when the Comptroller acted unfavorably on the application:
“This [is] a fact-finding adversary hearing . . . to determine the issue of whether petitioner[s] should be granted authority to organize and operate a general banking business at the proposed location; and considering the long delay between the Comptroller‘s conference, the Comptroller‘s order of denial and the date of the present hearing, as well as the fact that the Comptroller declined to reach any conclusion as to four of the six criteria required to be met for a charter, the parties were permitted to present all relevant evidence to date concerning the issues in dispute.”
On these findings, the hearing officer entered “conclusions of law” stating: (a) the proposed bank would promote public convenience and advantage; (b) local conditions
In September 1976 Comptroller Lewis entered a final order rejecting many of the hearing officer‘s findings of fact as not based on competent substantial evidence, rejecting several of the hearing officer‘s conclusions of law, and holding (a) the proposed bank would promote to some degree the public convenience in the area; (b) local conditions do not assure reasonable promise of a successful operation; (c) the proposed capital structure is adequate; (d) the proposed officers and directors are not shown to be qualified; (e) petitioners failed to show there would be no confusion between the proposed name of the bank and other existing banks; and (f) there is no substantial competent evidence that the proposed banking quarters would be adequate.
While the Comptroller‘s order stated that in his opinion the hearing officer erred in considering economic and other circumstances since “the original application or its up-date,” the Comptroller‘s findings did not ignore the improvement in economic conditions between October 1975, when the Comptroller initially acted on the application, and April 1976, when the hearing was conducted.
DISCUSSION
The legislature has committed to the Department and Comptroller wide discretion in determining applications for banking authority. Judicial decisions under prior administrative law recognized the breadth of that discretion. Bay Nat‘l Bank & Trust Co. v. Dickinson, 229 So. 2d 302, 304 (Fla. 1st DCA 1969); National Bank of Tampa v. Green, 175 So. 2d 545 (Fla. 1st DCA 1965). Under prior law the Comptroller‘s responsibility was to conduct some investigation in the several areas of statutory concern for an applicant‘s qualifications and then to decide the matter “with discretion.” Unless the Comptroller “wholly fail[ed]” to investigate or could be shown by suit for injunction to have acted “capriciously, arbitrarily, fraudulently or in such manner as to amount to a gross abuse of discretion,” there was no administrative or judicial remedy either for the applicant whose application was denied or for any protestant. Bay Nat‘l, 229 So. 2d at 304; National Bank of Tampa, 175 So. 2d at 550-51; Dickinson v. Judges of District Court of Appeal, 282 So. 2d 168 (Fla. 1973).
The APA does not compromise the Department‘s ultimate authority over banking applications. Nor does it strip the Comptroller, a constitutional officer who is head of the Department, of the discretion in such matters which is finally his. In three important respects, however, the APA affects the scope and manner of exercise of agency discretion: (1) the APA prescribes the process by which disputed facts are found; (2) it requires that the agency adopt as rules its policy statements of general applicability, requires agency proof of incipient policy not expressed in rules and permits countervailing evidence and argument; and (3) it requires an agency to explain the exercise of its discretion and subjects that explanation to judicial review.
1. When the facts are disputed,
We recently held that every agency action is “a recognizable rule or an order” under the APA or is “incipiently a rule or order.” State ex rel. Dep‘t of Gen. Serv. v. Willis, 344 So. 2d 580, 584 (Fla. 1st DCA 1977). Except when an agency acts by formal rulemaking (
In consequence, the Department was required to honor the hearing officer‘s findings of fact unless “not based upon competent substantial evidence.”
Judges Learned Hand, Swann and Frank of the Second Circuit addressed the same question in NLRB v. Universal Camera Corp., 179 F.2d 749 (2d Cir. 1950). Confronted with NLRB findings rejecting those of an examiner, the court was required by federal law both to respect the Board‘s substituted findings and to enforce Board respect for the examiner‘s findings. The court chose to honor the Board‘s findings without regard for the examiner‘s. Judge Hand‘s opinion measured the imbroglio:
“We hold that, although the Board would be wrong in totally disregarding his findings, it is practically impossible for a court, upon review of those findings which the Board itself substitutes, to consider the Board‘s reversal as a factor in the court‘s own decision. This we say, because we cannot find any middle ground between doing that and treating such a reversal as error, whenever it would be such, if done by a judge to a master in equity.” 179 F.2d at 753.
Reversing, the Supreme Court held that reviewing courts should not become “pinioned between the horns of his [Hand‘s] dilemma,” that they need not choose exclusively between the examiner‘s findings and the Board‘s substituted findings. Universal Camera Corp. v. NLRB, 340 U.S. 474, 493, 71 S. Ct. 456, 467, 95 L. Ed. 456, 470 (1951). Justice Frankfurter‘s opinion for the Court conceded the difficulty of completely reconciling the competing principles, but held it is possible and desirable for a reviewing court to give weight to the examiner‘s discarded findings while determining whether “substantial evidence” supports the Board‘s decision. Finding “substantial evidence,” the Court held, is not done by mechanically
Florida‘s APA does not require that the reviewing court ignore the hearing officer‘s findings to the extent they are displaced by agency findings. We are therefore free to reconcile the potentially conflicting statutory demands by adopting Universal Camera‘s standard of judicial review. The Florida APA, like the federal, makes the hearing officer‘s recommended order part of the record in the reviewing court.
In determining whether substantial evidence supports the agency‘s substituted findings of fact, a reviewing court will naturally accord greater probative force to the hearing officer‘s contrary findings when the question is simply the weight or credibility of testimony by witnesses, or when the factual issues are otherwise susceptible of ordinary methods of proof, or when concerning those facts the agency may not rightfully claim special insight. Within
At the other end of the scale, where the ultimate facts are increasingly matters of opinion and opinions are increasingly infused by policy considerations for which the agency has special responsibility, a reviewing court will give correspondingly less weight to the hearing officer‘s findings in determining the substantiality of evidence supporting the agency‘s substituted findings. The issues framed by subsection (b) and (d) of
Thus, the substantiality of evidence supporting an agency‘s substituted finding of fact depends on a number of variables: how susceptible is the factual issue to resolution by credible witnesses and other evidence, how substantially the hearing officer‘s discarded findings are supported by such evidence, how far the factual issue tends to be one of opinion, how completely agency policy occupies a field otherwise open to different opinion. Judicial review of the Department‘s substituted findings of fact is therefore inseparable from review of agency “determinations of . . . policy within the agency‘s exercise of delegated discretion.”
2. Sections 120.52(14) and .54 require that agency policy statements of general applicability be adopted as rules and
“No agency has inherent rulemaking authority,”
As required by the APA‘s
The APA‘s rulemaking provisions affect the substance of agency policy as well as agency procedures. For the term “rule” is defined by
“. . . each agency statement of general applicability that implements, interprets, or prescribes law or policy. . . .”
So defining “rule,” Florida‘s APA has the purpose, uniformly endorsed by students of the modern administrative process, of encouraging agencies by rulemaking “to close the gap between what the agency and its staff know about the agency‘s law and policy and what an outsider can know.” K. Davis, Discretionary Justice 102 (1969). The APA does not in terms require agencies to make rules of their policy statements of general applicability, nor does it explicitly invalidate action taken to effectuate policy statements of that character which have not been legitimated by the rulemaking process. But that is the necessary effect of the APA if the prescribed rulemaking procedures are not to be atrophied by nonuse. See Straughn v. O‘Riordan, 338 So. 2d 832, 834 (Fla. 1976). Compare NLRB v. Wyman-Gordon Co., 394 U.S. 759, 764, 89 S. Ct. 1426, 1429, 22 L. Ed. 2d 709, 714 (1969).6 Therefore we have recognized the availability of an administrative remedy against any agency policy statement of general applicability which has not been adopted through rulemaking.
The APA does not chill the open development of policy by forbidding all utterance of it except within the strict rulemaking process of
“To insure a reasonable promise of successful operation, the total state banking picture must be taken into consideration in considering a bank application. Consideration of a charter for a new state bank cannot exclude the economic health of the state-wide banking system because once chartered the new bank becomes a part of that system and assumes some of the characteristics of the larger body.”
In a pedantic sense, the Comptroller‘s statement is a “rule” — and therefore an illicit one — because it has the appearance of an
“agency statement of general applicability that implements, interprets, or prescribes law or policy . . . .” Section 120.52(14) .
It would immediately stifle Department policymaking and ultimately destroy the APA to label the Comptroller‘s statement a “rule” concerning which
Florida‘s APA does not have those bizarre effects. For the
While the Florida APA thus requires rulemaking for policy statements of general applicability, it also recognizes the inevitability and desirability of refining incipient agency policy through adjudication of individual cases. There are quantitative limits to the detail of policy that can effectively be promulgated as rules, or assimilated;8 and even the agency that knows its policy may wisely sharpen its purposes through adjudication before casting rules. Shapiro, The Choice of Rulemaking or Adjudication in the Development of Administrative Policy, 78 Harv. L. Rev. 921, 927 (1965). The Law Revision Council, sponsor of the proposed 1974 APA, had no intention of building an impenetrable wall between policymaking and adjudication. On the contrary, the APA reflects the Council‘s conviction that:
“In fact, agency proceedings frequently affect individual rights and create general policy at the same time, so that they
partake of adjudication and rule-making at the same time.”9
The APA‘s provision for agency policymaking by adjudication has significant effect on
“The hearing officer shall complete and submit . . . a recommended order consisting of his findings of fact, conclusions of law, interpretation of administrative rules . . . and any other information required by law or agency rule to be contained in the final order.”
Section 120.57(1)(b)8 (emphasis added).
It follows that both the agency‘s final order and the hearing officer‘s recommended order must in all respects — in dealing with emerging agency policy as well as in finding the facts — have a predicate in the record, namely, the “short and plain statement of the matters asserted by the agency and by all parties,” the evidence, the argument, the “proposed findings of facts and orders” and the exceptions thereto.
In the case before us, the Department properly adduced testimony of the Director of its Division of Banking evaluating the petition and to a limited extent expressing Department rationale for disapproving it. To the extent the agency may intend in its final order to rely on or refer to emerging policy not recorded in rules or discoverable precedents,
Thus the APA infuses
3.
Judicial review proceedings under
“Three due process checks to prevent arbitrary agency action are the requirements that reasons be stated for all action taken or omitted, that reasons be supported by ‘the record‘, and that specific judicial review procedures allow the courts to remedy defects of substance.”
Failure by the agency to expose and elucidate its reasons for discretionary action will, on judicial review, result in the relief authorized by
Having in mind the APA‘s purposes concerning findings of fact, rulemaking and evidentiary exposure of agency policy, and judicial review of the exposition of agency discretion, we turn to the Department order at hand.
The hearing officer‘s decision to permit evidence of circumstances as they existed at the time of the hearing was correct. The agency may appropriately control the number and frequency of amendments to licensing applications and may by rule prevent substantial amendment of the application in midproceeding.14 But the hearing officer or agency head conducting
Public convenience and advantage. The Department did not contest, either before the
Reasonable promise of success. The final order states that local conditions do not assure reasonable promise of a successful operation for First Bank of Port Richey. Because the matter in issue is less one of fact than of opinion which is highly charged with policy considerations for which the Department is responsible, the hearing officer‘s discarded findings of fact have comparatively little weight in our determination whether substantial competent evidence supports the Department‘s substituted findings. The Department‘s order emphasizes marginal economic conditions in western Pasco County, unemployment rates, delinquent loan rates and other economic factors. The record contains substantial testimony supporting those findings of the Department concerning “reasonable promise of successful operation.” Yet in two respects the Department‘s final order is insufficient. The order does not explain the apparent inconsistency in the Department‘s 1975 decisions on banking applications in counties having less favorable deposit rates than Pasco, as recorded in the hearing officer‘s recommended order:
“The February, 1976, Comparative Figures Report published by the Florida
Bankers Association, which is relied upon in part by respondent in determining whether to grant banking charters, shows Pasco County to have an 8.1 percent increase in deposits from 1974 to 1975 year ends. Since January of 1975, respondent has granted bank charters to banks located in Duval County with a deposit growth of minus .1%; in Polk County with a deposit growth of 1.5%; and in Hillsborough County with a deposit growth of minus 1.5%.”
And, after brushing aside the testimony of former bank examiner Hieronymus that Pasco County conditions in 1975 would produce a reasonable promise of profit for the proposed bank, the Department‘s final order stated simply and without elucidation:
“. . . It does not follow that the proposed bank would be assured a reasonable promise of successful operation” (emphasis added).
In these respects the Department‘s final order does not sufficiently explicate “policy within the agency‘s exercise of delegated discretion” and explain its deviation from prior agency practice.
Capitalization. Here the recommended and final orders do not conflict, and the Department does not contend that the proposed capitalization of First Bank of Port Richey is inadequate.
Management. Although the competence of proposed management is an issue concerning which the Department‘s putative expertise and experience should carry great weight, neither the Department nor any protestant adduced substantial evidence on this issue contrary to the hearing officer‘s finding of fact, which was supported by competent substantial evidence. One significant statement in the Department‘s final order, to the effect that a proposed officer has “not done a satisfactory job in running” another bank, was based entirely on hearsay testimony which standing alone is incompetent to support the Department‘s finding.
Name confusion. Some testimony by the Director of the Division of Banking tends to suggest confusion in use of the word “First” in a banking name. But there is no competent substantial evidence in the record tending to show that the name “First Bank of Port Richey” would produce perceptibly more or different confusion than already exists. The conflict between the hearing officer‘s recommended order and the Department‘s final order is not essentially one of fact, but one of policy. If the Comptroller‘s purpose is to establish as policy that no bank shall be now authorized to use “First” in its name because of likely confusion, that is a policy statement of general applicability which must be subjected to rulemaking under
“. . . I am unable to agree with the hearing officer‘s conclusion that the applicants carried their burden of proof relating to the lack of confusion between the name of the proposed bank and any existing bank for the reason that the hearing officer‘s conclusion on this point is not supported by competent substantial evidence.”
The Department‘s observations concerning the proposed name are insufficient to justify rejecting the hearing officer‘s recommended order and denying the petition.
Facilities. There is competent substantial evidence supporting the hearing officer‘s findings concerning the adequacy of the proposed banking quarters. The testimony and reports of examiner Hieronymus found no objection to the proposed quarters. Yet the Department‘s final order discarded
The stated deficiencies in the Department‘s final order require it be vacated. Yet it does not follow that petitioners must in all events be granted the banking authority they seek.
The order of which review is sought is vacated and the proceeding REMANDED.
RAWLS, Acting C.J., and McCORD, J., concur.
Notes
“(b) The need for banking or trust facilities or additional banking or trust facilities, as the case may be, in the community where the proposed bank or the principal office of the proposed trust company is to be located, giving particular consideration to the adequacy of existing banking or trust facilities and the need for further banking or trust facilities in the locality.
“(c) The present and future ability of the community to support the proposed bank or the principal office of the proposed trust company and all other existing banking or trust facilities in the community.
“(d) The character, financial responsibility, banking experience, and business qualifications of the proposed officers.
“(e) The character, financial responsibility, business experience, and standing of the proposed stockholders and directors.” Sec. 659.03(1).