Pinnacle Housing Group, LLC v. Florida Housing Finance Corp. , 239 So. 3d 722 ( 2017 )

Third District Court of Appeal
State of Florida
Opinion filed August 10, 2017.
Not final until disposition of timely filed motion for rehearing.
________________
No. 3D17-1244
Lower Tribunal No. FHFC No. 2017-029GA
________________
Pinnacle Housing Group, LLC, et al.,
Petitioners,
vs.
Florida Housing Finance Corporation,
Respondent.
A Case of Original Jurisdiction – Petition for Review.
Carlton Fields, and Peter D. Webster (Tallahassee); Alan Rosenthal, Natalie
J. Carlos, and David L. Luck, for petitioners.
Ausley McMullen, Michael J. Glazer, and Erik M. Figlio, (Tallahassee);
Marisa G. Button, Assistant General Counsel (Tallahassee), for respondent.
Before ROTHENBERG, C.J., and LOGUE and LUCK, JJ.
LOGUE, J.
Pinnacle Housing Group, LLC, PHG Builders, LLC, and their principals,
Felix Braverman, David O. Deutch, Mitchell M. Friedman, Michael M. Friedman,
and Louis Wolfson, III (the Companies and their Principals) seek review of a
temporary order of suspension entered by the Florida Housing Finance Corporation
(the Agency). The order suspends the ability of the Companies and their Principals
to participate in the Agency’s funding programs until entry of a final order in the
Agency’s administrative action charging the Companies and their Principals with
misrepresentation and fraud. We deny the petition.
Facts
The Companies and their Principals are in the business of developing
affordable housing by obtaining funding from government sources. The Agency, a
corporation created by the State of Florida and subject to the Administrative
Procedures Act, is in the business of providing such funding for affordable
housing. The temporary order of suspension bars the Companies from receiving
funding from the Agency.
The temporary order of suspension stems from the circumstances in which
the Companies and their Principals created and used a related company, DAXC,
LLC, in its contracts with the Agency. In March 2017, the United States Attorney
for the Southern District of Florida filed an indictment against DAXC. The
indictment charged that DAXC “did knowingly and willfully embezzle, steal,
purloin, and convert to its own use” Agency money by submitting inflated
construction estimates.
2
In February 2017, DAXC entered into a deferred prosecution agreement
with the U.S. Attorney in which DAXC agreed to pay a fine of $1 million and
forfeit $4,212,825. In the agreement, DAXC admitted it “was a shell construction
subcontractor, which was set up to inflate the cost of four low-income housing
contracts and obtain excess federal funds that ultimately went for the personal
benefit of five individuals associated with DAXC and its affiliates.”
Upon learning of these circumstances, the Agency conducted a meeting
pursuant to Florida Administrative Code Rule 67-48.004(2)(a), which provides that
applicants for funding to the Agency will be ineligible if “the Applicant or any
Principal, Financial Beneficiary, or Affiliate of the Applicant has made a material
misrepresentation or engaged in fraudulent actions in connection with any
Application for a[n Agency] program.” The Rule further provides:
Before any such determination can be final or effective, the
Corporation must serve an administrative complaint that affords
reasonable notice to the Applicant of the facts or conduct that warrant
the intended action, specifies a proposed duration of ineligibility, and
advises the Applicant of the opportunity to request a proceeding
pursuant to Sections 120.569 and 120.57, F.S. Upon service of such
complaint, all pending transactions under any program administered
by the Corporation involving the Applicant, or any Principal,
Financial Beneficiary or Affiliate of the Applicant shall be suspended
until a final order is issued or the administrative complaint is
dismissed.
Fla. Admin. Code R. 67-48.004(2)(b).
3
At the meeting, the Companies and their Principals appeared through David
Deutch, Mitchell M. Friedman, and Louis Wolfson, III. Mr Deutch spoke at length.
Mr. Deutch conceded the existence of the deferred prosecution agreement, but
indicated he merely conceded to inflating costs – not stealing money. At the end of
the meeting, the Agency entered the temporary order of suspension at issue and
filed and served the required administrative complaint. In addition to contesting the
administrative complaint, the Companies and their principals filed the instant
petition for review.
Analysis
The Companies and their Principals seek review of the temporary order of
suspension under section 120.68(1)(b), Florida Statutes, which provides that a
“preliminary, procedural, or intermediate order of the agency or of an
administrative law judge of the Division of Administrative Hearings is
immediately reviewable if review of the final agency decision would not provide
an adequate remedy.”
The Companies and their Principals first argue that the temporary order of
suspension is fundamentally flawed because the suspension includes five named
projects already in the pipeline that the Agency Board expressly voted to exclude
from the suspension. While the order was stayed and this matter was pending, the
Agency requested that jurisdiction be relinquished so this issue could be addressed.
4
We granted the motion and the Agency entered an amended temporary suspension
order which removed from the suspension those five projects. The Companies and
their Principals nevertheless argue that this change itself was irregular. We decline
to review their complaint in this regard because the pending administrative
procedure provides an adequate forum to address those concerns.
The Companies and their Principals next argue that Rule 67-48.004(2) is
facially unconstitutional because it “provides no procedural safeguards.” “A facial
challenge to a legislative Act is . . . the most difficult challenge to mount
successfully, since the challenger must establish that no set of circumstances exist
under which the Act would be valid.” Fla. Dep’t of Revenue v. DIRECTV, Inc.,
215 So. 3d 46, 50 (Fla. 2017) (quoting United States v. Salerno, 481 U.S. 739, 745
(1987)). In making their facial challenge, the Companies and their Principals fail to
demonstrate that no set of circumstances exist under which the Rule would be
valid.
“[U]nlike some legal rules, due process is not a technical concept with a
fixed content unrelated to time, place and circumstances.” Keys Citizens for
Responsible Gov’t, Inc. v. Fla. Keys Aqueduct Auth., 795 So. 2d 940, 948 (Fla.
2001) (citation omitted). “Instead, due process is flexible and calls for such
procedural protections as the particular situation demands.” Id. (citation and
internal quotations omitted). “Three factors are relevant in determining what
5
process is constitutionally due: (1) the private interest that will be affected by the
official action; (2) the risk of an erroneous deprivation of such interest through the
procedures used, and the probable value, if any, of additional or substitute
procedural safeguards; and (3) the government’s interest.” Id. at 948-49.
Regarding these factors, the government’s interest here is heightened. Its
interest is to prevent government funds and tax credits dedicated to promoting
affordable housing from being waylaid by a person or the person’s affiliates after a
preliminary finding has been made that the person or the affiliates have already
made misrepresentations or engaged in fraud regarding affordable housing
programs. The interest of the person suspended in these circumstances is
commensurately reduced: his interest is to continue to be eligible to apply for such
funding after he has been preliminarily determined to have engaged in
misrepresentation or fraud in prior applications.
With this background in mind, we turn to a review of the procedures in
Florida Administrative Rule 67-48.004(2). In the first place, the Rule has a
significant pre-deprivation safeguard to protect a person from being wrongfully
made ineligible. A person cannot be suspended unless “[t]he Board determines
that the Applicant or any Principal, Financial Beneficiary, or Affiliate of the
Applicant has made a material misrepresentation or engaged in fraudulent actions
in connection with any Application for a Corporation program.” Fla. Admin. Code
6
R. 67-48.004(2)(a). The requirement that such a determination be made by the
Agency before any suspension serves to limit or prevent wrongful suspensions.
Moreover, a process that allowed a suspension only after a full trial and hearing
would create a substantial risk that the party might embezzle more money in the
interim. Here, the Agency made this determination at a meeting at which the
Companies and their Principals appeared and had input.
Moreover, due process can be provided by post-deprivation procedures in
the proper circumstances. Massey v. Charlotte Cty., 842 So. 2d 142, 146 (Fla. 2d
DCA 2003) (“Procedural due process does not always require a predeprivation
hearing. In some cases, a postdeprivation hearing is sufficient. This is particularly
so in cases where there has been some initial predeprivation procedure.”). Rule 67-
48.004(2)’s substantial pre-deprivation safeguard is bolstered by its substantial
post-deprivation safeguards.
The Rule provides that, even after this determination is made, no suspension
will take effect unless and until the Agency files “an administrative complaint that
affords reasonable notice to the Applicant of the facts or conduct that warrant the
intended action, specifies a proposed duration of ineligibility, and advises the
Applicant of the opportunity to request a proceeding pursuant to Sections 120.569
and 120.57[, Florida Statutes].” Fla. Admin. Code R. 67-48.004(2)(b). This
7
portion of the Rule provides parties who are suspended an immediate forum to
litigate the merits of the suspension.
In order for these safeguards to be facially invalid, it must be shown they
have no legitimate or constitutional application. But these safeguards would
obviously be adequate to prevent undue wrongful deprivations where, for example,
the pre-deprivation determination was based on a party’s own admission that it had
engaged in fraudulent actions in connection with its application. Frankly, another
example would appear to be what occurred here—where an affiliated company
paid fines, submitted to asset forfeiture, and admitted in an agreement with federal
prosecutors that it had served as a shell in order to obtain the Agency’s funds by
inflating construction costs. And one can easily envision examples of where the
pre- and post-deprivation procedures would also serve to prevent undue wrongful
deprivations and immediate remedies in the form of administrative or judicial
stays. Thus, while there might be instances in which these provisions do not
provide adequate due process when applied to particular facts, we have no
difficulty finding there are circumstances in which these procedures are adequate.
We therefore uphold Rule 67-48.004(2) against the Companies’ and their
Principals’ challenge that it is facially unconstitutional.
Finally, the Companies and their Principals contend Rule 67-48.004(2)(b)
constitutes an invalid exercise of delegated legislative authority. We decline to
8
review this claim as section 120.56, Florida Statutes, provides a fully adequate, and
therefore required, administrative forum to raise this claim.
Petition denied.
9