Case Name: OSBORNE STERN AND COMPANY, INC., and Douglas W. Osborne, Appellants, v. DEPARTMENT OF BANKING AND FINANCE, DIVISION OF SECURITIES AND INVESTOR PROTECTION, Appellee
Court: Florida District Court of Appeal
Jurisdiction: Florida
Decision Date: 1994-11-18
Citations: 647 So. 2d 245
Docket Number: No. 91-488
Parties: OSBORNE STERN AND COMPANY, INC., and Douglas W. Osborne, Appellants, v. DEPARTMENT OF BANKING AND FINANCE, DIVISION OF SECURITIES AND INVESTOR PROTECTION, Appellee.
Judges: ALLEN, J., concurs.
Reporter: Southern Reporter, Second Series
Volume: 647
Pages: 245–251

Head Matter:
OSBORNE STERN AND COMPANY, INC., and Douglas W. Osborne, Appellants, v. DEPARTMENT OF BANKING AND FINANCE, DIVISION OF SECURITIES AND INVESTOR PROTECTION, Appellee.
No. 91-488.
District Court of Appeal of Florida, First District.
Nov. 18, 1994.
R. David Prescott and Edward W. Dough-erty, Jr., of Mang, Rett & Collette, P.A., Tallahassee, for appellants.
William G. Reeves, Gen. Counsel, and Gary L. Printy, Asst. Gen. Counsel, Office of the Comptroller, Tallahassee, for appellee.

Opinion:
REVISED OPINION
PER CURIAM.
This is an appeal from a final cease and desist order of the Department of Banking and Finance (the Department), which also denies applications for registration to deal in securities and imposes administrative fines. We reverse and remand for further proceedings because the hearing officer erred in excluding evidence of mitigating circumstances as to three of the four statutes appellants were accused of violating and because the hearing officer applied an improper burden of proof.
Appellants applied for registration with the Department to deal in securities. By letter of December 5, 1989, the Department notified appellants of its intent to deny the registration applications under section 517.161, Florida Statutes (1989), based upon appel lants' having violated sections 517.12(1), 517.07, 517.301(l)(a)2, and 517.301(l)(c), Florida Statutes (1989). Appellants filed a petition for formal hearing, and the matter was referred to the Division of Administrative Hearings and assigned case number 90-873. On May 3, 1990, the Department issued a notice of intent to issue a cease and desist order and impose administrative fines against appellants and others under section 517.221. As to appellants, the notice was based upon the same facts and circumstances alleged in the prior notice of intent to deny the registration applications. Appellants petitioned for a formal hearing, and the matter was referred to DOAH, assigned case number 90-4584, and consolidated with case number 90-873.
Prior to the hearing, the Department filed a motion in limine as to both cases to preclude appellants from introducing evidence of mitigating circumstances as to the alleged violations of sections 517.12(1), 517.07, and 517.301(l)(a)2, Florida Statutes, on the ground that these sections impose strict liability. The Department did not seek to preclude such evidence as to the alleged violations of section 517.301(l)(c), Florida Statutes, which imposes liability based upon a "knowingly and willfully" standard. By written pro-se response, appellants argued that evidence of mitigating circumstances would be relevant, even under the strict liability statutes, to the exercise of the Department's discretion "to properly assess what damages, if any, [appellants] are responsible for." The hearing officer granted the motion.
The hearing officer ruled that appellants had the burden of proving their entitlement to registration by a preponderance of the evidence, citing Florida Department of Transportation v. J.W.C. Company, 396 So.2d 778 (Fla. 1st DCA 1981), and Balino v. Department of Health & Rehabilitative Services, 348 So.2d 349 (Fla. 1st DCA 1977), and farther ruled that the Department, in seeking to impose civil penalties upon appellants, likewise had to prove the allegations in the cease and desist proceeding by a preponderance of the evidence, citing Florida Department of Transportation v. J.W.C. Company. The Department's final order approved this ruling.
At the hearing, Douglas W. Osborne appeared pro se and on behalf of Osborne Stem. Although Osborne admitted generally to having violated unspecified security laws, he denied fraudulent intent. The hearing officer sustained the Department's objections to parts of Osborne's testimony on the ground that such testimony was irrelevant mitigating evidence. The Department's representative testified that she contacted appellants and told them they were not to trade in Florida until registered. The representative then offered as proof of appellants' misconduct a series of letters and affidavits from Florida investors with whom appellants had traded.
In his recommended order of December 5, 1990, the hearing officer found that appellants had violated each of the four predicate statutes. The hearing officer recommended imposition of a $5,000 fine as to each violation, denial of appellants' applications for registration, and entry of a final cease and desist order. The Department denied the applications for registration, entered a final cease and desist order, and imposed a $5,000 fine for each of the four statutes appellants were found to have violated.
We turn, then, to the issues raised by appellants. Section 517.161, Florida Statutes, under which the Department denied the applications for registration, permits, but does not require, the Department to deny an application upon proof that an applicant has violated one or more of the provisions of chapter 517. The Department is required to make a determination as to whether an applicant has demonstrated worthiness to transact business as a dealer of securities in this state. The statutory scheme contemplates that an applicant be permitted to explain and mitigate the circumstances of any violations of chapter 517 found to have occurred. Castleman v. Office of the Comptroller, Dept. of Banking & Finance, 538 So.2d 1365, 1367 (Fla. 1st DCA 1989). Section 517.221, Florida Statutes, under which the Department issued its cease and desist order and under which the Department imposed administrative fines upon appellants, also requires the Department to exercise its discretion. Under the circumstances of this ease, the refusal to permit appellants to present evidence of mitigating circumstances before denying appellants' applications for registration and before entering the final cease and desist order and assessing $20,000 in penalties, was a material error which impaired the fairness of the proceedings below. See section 120.68(8), Florida Statutes (1989). Accordingly, we must reverse on this point.
The hearing officer correctly ruled that an applicant for licensure or registration to engage in a particular profession or occupation bears the burden of showing entitlement thereto by a preponderance of the evidence. However, that does not mean that the applicant must disprove that violations occurred as alleged by the Department; the Department had the burden of proving the alleged violations actually occurred if the registration is to be denied on that ground.
In Ferris v. Turlington, 510 So.2d 292 (Fla.1987), the supreme court explained:
The correct standard for the revocation of a professional license such as that of a lawyer, real estate broker, or, as in this instance, a teacher, is that the evidence must be clear and convincing. We agree with the district court in Reid v. Florida Real Estate Commission, 188 So.2d 846, 851 (Fla. 2d DCA 1966), that:
The power to revoke a license should be exercised with no less careful circumspection than the original granting of it.
And the penal sanctions should be directed only toward those who by their conduct have forfeited their right to the privilege, and then only upon clear and convincing proof of substantial causes justifying the forfeiture.
In a case where the proceedings implicate the loss of livelihood, an elevated standard is necessary to protect the rights and interests of the accused.
510 So.2d at 294-95. We construe the supreme court's explanation to mean that the same clear and convincing standard is applicable to disputes over the granting of a license as it is to the revocation or suspension of a license.
Following Ferris v. Turlington, this court has approved the application of the clear and convincing evidence standard where only a civil fine was imposed, although the sanction of suspension or revocation of the respondent's harbor pilot license was a potential penalty. McDonald v. Department of Professional Regulation, 582 So.2d 660, 663 (Fla. 1st DCA 1991). We have likewise applied that standard to the suspension of a real estate broker's license, Munch v. Department of Professional Regulation, 592 So.2d 1136, 1143 (Fla. 1st DCA 1992), and a license to operate as a citrus fruit dealer, Evans Packing Co. v. Department of Agriculture, 550 So.2d 112 (Fla. 1st DCA 1989).
We see no legally significant difference between the licensure of real estate brokers and the registration of a securities broker or associated person under chapter 517; one cannot engage in either occupation without holding a valid license or registration. Therefore, we hold that the clear and convincing evidence standard is applicable in a proceeding whereby the Department of Banking and Finance undertakes either to revoke an outstanding securities registration or to deny the issuance of a registration based on alleged violations of statutory provisions regulating that occupation, so long as the applicant is otherwise shown to be qualified. Thus, once the applicant has established qualification for registration by a preponderance of the evidence, the Department's denial of such registration or imposition of a civil penalty based on asserted violations of the regulatory statute should be proved by clear and convincing evidence.
Since the appealed order was not based on the correct burden of proof, it must be reversed and remanded for the application of the proper burden of proof. While there is substantial evidence in this record establishing the violations charged by the Department, it is not for this court to initially decide whether such evidence meets the clear and convincing standard.
We certify the following question of great public importance to the supreme court:
IN DENYING AN APPLICATION FOR REGISTRATION TO SELL SECURITIES AND IMPOSING CIVIL FINES FOR ALLEGED VIOLATIONS OF PROVISIONS IN CHAPTER 517 REGULATING THE SALE OF SECURITIES, IS THE DEPARTMENT OF BANKING AND FINANCE REQUIRED TO PROVE SUCH ALLEGATIONS BY CLEAR AND CONVINCING EVIDENCE?
The order appealed from is reversed, and this cause is remanded for proceedings consistent with this opinion.
ALLEN, J., concurs.
BOOTH, J., concurs and dissents with written opinion.
ZEHMER, C.J., concurs with written opinion.
. Both appellants were required by section 517.12, Florida Statutes (1989), to register with the Department before engaging in the securities business in this state. This registration process is closely akin to, if not in fact, a licensure proceeding, because one is precluded from engaging in certain business activities unless validly registered by the state to do so.
. Section 517.161, Florida Statutes (1989), in pertinent part:
Revocation, denial, or suspension of registration of dealer, investment adviser, associated person, or branch office.—
(1) Registration under s. 517.12 may be denied or any registration granted may be revoked, restricted, or suspended by the department if the department determines that such applicant or registrant:
(a) Has violated any provision of this chapter or any rule or order made under this chapter.
(c) Has been guilty of a fraudulent act in connection with any sale of securities, has been or is engaged or is about to engage in making fictitious or pretended sales or purchases of any such securities, or has been or is engaged or is about to engage in any practice or sale of securities which is fraudulent or in violation of the law;
(d) Has made a misrepresentation or false statement to, or concealed any essential or material fact from any person in the sale of a security to such person;
(h) Has demonstrated his unworthiness to transact the business of dealer, investment adviser, or associated person;
(l) Is of bad business repute.
(4) It shall be sufficient cause for denial of an application or revocation of registration, in the case of a partnership, corporation, or unincorporated association, if any member of the partnership or any officer, director, or ultimate equitable owner.... has been guilty of an act or omission which would be cause for denying or revoking the registration of an individual dealer, investment adviser, or associated person.
. Section 517.12(1), Florida Statutes (1989), provides in pertinent part:
No dealer, associated person, or issuer of securities shall sell or offer for sale any securities in or from offices in this state, or sell securities in this state to persons of this state from offices outside this state . unless the person has been registered with the department pursuant to the provisions of this section.
Section 517.07 (1989), Florida Statutes, provides in pertinent part:
Registration of securities. — No securities except of a class exempt . shall be sold or offered for sale within this state unless such securities have been registered, as hereinafter defined, and unless prior to each sale the purchaser is furnished with a prospectus meeting the requirements of rules adopted by the department.
Section 517.301 (1989), Florida Statutes, provides in pertinent part:
517.301 Fraudulent transactions; falsification or concealment of facts.—
(1) It is unlawful and a violation of the provisions of this chapter for a person:
(a) In connection with the offer, sale, or purchase of any investment or security, . directly or indirectly:
(c) In any matter within the jurisdiction of the department, to knowingly and willfully falsify, conceal, or cover up, by any trick, scheme, or device, a material fact, make any false, fictitious, or fraudulent statement or representation, or make or use any false writing or document, knowing the same to contain any false, fictitious, or fraudulent statement or entry.
. Section 517.221, Florida Statutes (1989), provides in pertinent part:
(1) The department may issue and serve upon a person a cease and desist order whenever the department has reason to believe that such person is violating, has violated, or is about to violate any provision of this chapter, any rule or order promulgated by the department, or any written agreement entered into with the department.
(3) The department may impose and collect an administrative fine against any person found to have violated any provision of this chapter, any rule or order promulgated by the department, or any written agreement entered into with the department in an amount not to exceed $5,000 for each such violation. All fines collected hereunder shall be deposited as received in the Anti-Fraud Trust Fund.
. Section 517.12(11), Florida Statutes (1989), provides in pertinent part:
If the department finds that the applicant is of good repute and character and has complied with the provisions of this chapter and the mies made pursuant hereto, it shall register the applicant.
. Adherence to the preponderance of the evidence standard applied in federal administrative law cases for revocation of a license to engage in a particular occupation is inappropriate under Florida law. See McDonald, 582 So.2d 660, 674-75 (Fla. 1st DCA 1991) (Zehmer, J, concurring).