Castleman v. Office of Comptroller, Dept. of Banking and Finance, Div. of Securities and Investor Protection, 87-2054

• Citation: 14 Fla. L. Weekly 551,538 So.2d 1365
• Decision Date: 28 February 1989
• Docket Number: No. 87-2054,87-2054
• Parties: 14 Fla. L. Weekly 551 Owen T. CASTLEMAN, Appellant, v. OFFICE OF COMPTROLLER, DEPARTMENT OF BANKING AND FINANCE, DIVISION OF SECURITIES AND INVESTOR PROTECTION, Appellee.
• Court: Court of Appeal of Florida (US)

Page 1365

538 So.2d 1365

14 Fla. L. Weekly 551

Owen T. CASTLEMAN, Appellant, v. OFFICE OF COMPTROLLER, DEPARTMENT OF BANKING AND FINANCE, DIVISION OF SECURITIES AND INVESTOR PROTECTION, Appellee.

No. 87-2054.

District Court of Appeal of Florida First District.

Feb. 28, 1989.

Thomas L. Neilson, Panama City Beach, for appellant.

Charles L. Stutts, Gen. Counsel and H. Richard Busbee, Asst. Gen. Counsel, Florida Dept. of Banking and Finance, Office of Comptroller, Tallahassee, for appellee.

ZEHMER, Judge.

Owen Castleman appeals the final order of the Comptroller denying his application for registration as an associated person with First United Securities Group of California under section 517.12, Florida Statutes (1987). He raises two points, one of which requires that we reverse and remand for a new hearing.

On October 13, 1986, Castleman filed a form U-4 Application for Securities Industry Registration or Transfer with the Comptroller, as head of the Florida Department of Banking and Finance (the Department). The application sought registration as an associated person to sell or offer to sell securities in Florida under chapter 517, Florida Statutes. The application revealed Castleman's employment history, as well as his disciplinary history. The disciplinary history reflected administrative action by the states of Arkansas and Tennessee while Castleman was in the securities business in those states. The Department denied the application for registration on the grounds that Castleman had demonstrated prima facie evidence of unworthiness to transact the business of an associated person in Florida and that he was of bad business repute. ¹ Castleman then petitioned for a section 120.57(1) hearing, which was conducted on August 20 and 21, 1987. The purpose of the hearing was to afford petitioner an opportunity to prove his entitlement to licensure under the registration statute. The parties conducted extensive discovery over the ensuing six months, and approximately three days before the scheduled final hearing, Castleman moved for leave to file an amended petition asserting that the Department was estopped to deny his application for registration. The estoppel theory was based on allegations that the Department previously had approved Castleman's June 1985 application for registration with knowledge of the Tennessee cease and desist order and the Arkansas suspension order, that the Department's denial of the current application was not based on any facts occurring after it had approved the June 1985 application, and that Castleman had relied on that June 1985 approval, which included the expenditure of large sums of money and effort in moving to Florida in 1986 to work as an associated person. The hearing officer denied Castleman leave to file the amended petition based on the "close proximity of the proposed amendment and the date of the hearing."

During the hearing, petitioner presented evidence in support of his application. The Department then offered evidence of Castleman's unworthiness and bad reputation, including the certified copies of the Tennessee and Arkansas disciplinary orders, and that evidence was received without objection. Thereafter, Castleman undertook to testify in rebuttal about the circumstances underlying each of those disciplinary orders and his limited participation in the transactions. The purpose of this testimony was to mitigate or overcome the inference that the disciplinary orders demonstrated his unworthiness to transact the business of an associated person in this state. The Department objected on the ground that the decisions the orders represented could not be relitigated in this proceeding. The hearing officer sustained the objection and excluded such testimony.

After the hearing, the hearing officer entered a recommended order sustaining the Department's denial of the registration on the stated grounds. Neither party filed any exceptions to the recommended order and the Department accepted the findings of fact and, with but one modification, the conclusions of law, which read in part:

Having considered the provisions of Chapter 517, Florida Statutes, and Chapter 3E-600, Florida Administrative Code, it is concluded that upon each application for initial or reaffiliation registration, the Respondent has the opportunity and obligation to examine the application and substance and where, as here, the applicant is rejected, he must establish his entitlement to registration. Petitioner fails to establish his entitlement to registration in the face of proof concerning his background in Tennessee and Arkansas where disciplinary action was taken against him.

(R. 534).

Castleman raises two issues on this appeal. First, he contends that the hearing officer erred in failing to permit him to testify regarding the facts and circumstances underlying the Arkansas and Tennessee disciplinary orders. Second, he contends that the hearing officer acted improperly by failing to rule that affiliation of appellant's license was not subject to discretionary denial. In connection with the second point, appellant also argues error in the denial of his motion to file the amended petition alleging estoppel.

Addressing the second issue first, we do not agree that Castleman's application for reaffiliation as an associated person was not subject to discretionary review and denial. In State Department of Banking and Finance v. Evans, 540 So.2d 884 (Fla. 1st DCA 1988), we held that the provisions in section 517.12, both before and after the amendment to that section by chapter 88-187, Laws of Florida, indicate a legislative intent that reaffiliation registrations of associated persons are to be dealer specific and self-terminating. This means that an application for re-registration after a person's registration has terminated may be treated by the Department as an initial registration, subject to all of the discretionary review authorized by chapter 517.

We decline to consider appellant's arguments regarding the merits of the alleged estoppel because the hearing officer and the Department rejected appellant's attempt to raise those issues based on a procedural ruling without reaching the merits of appellant's allegations. Since, for the reasons hereinafter stated, the case must be remanded for further hearing, it would be appropriate for the hearing officer to allow the proposed amendment and consider the estoppel issue on its merits.

With respect to appellant's first issue, we hold that the hearing officer erred in excluding evidence offered by Castleman regarding the facts underlying the Tennessee and Arkansas disciplinary orders. We do so on the rationale that the applicable provisions in chapter 517 do not direct denial of the application merely upon proof that such disciplinary adjudications have occurred. Rather, those provisions require the Department to make a discretionary determination that the applicant is not of good repute and has demonstrated his unworthiness to transact the business of an associated person in order to deny the application. The applicable statutes and rules contemplate that an applicant previously disciplined pursuant to administrative orders may explain...