Pinnacle Housing Group, LLC v. Florida Housing Finance Corp.

239 So. 3d 722

• Court: District Court of Appeal of Florida
• Decided: August 10, 2017
• Docket: 17-1244
• Status: Published

Opinion

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.