ALJDEC decisions subject to certification as final

18A-033-INS · Department of Insurance · 2018-07-12

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

In the Matter of:

BLACK DOG BAIL BONDS LLC,

(Unlicensed)

MALLEN, MATTHEW JOHN

(License Number 15767749)

(Legacy License ID 966246)

and

ROSENTHAL, STACIE LYNNE

(Unlicensed)

Respondents.

No. 18A-033-INS

ADMINISTRATIVE LAW JUDGE DECISION

HEARING: July 3, 2018, at 1:00 p.m.

APPEARANCES: The Arizona Department of Insurance (“the Department”) was represented by Lynette Evans, Esq., Assistant Attorney General; Respondents Black Dog Bail Bonds LLC (“Black Dog”) and Matthew John Mallen (“Mr. Mallen”) were represented by Marc A. Adair, Esq.

ADMINISTRATIVE LAW JUDGE: Diane Mihalsky

_____________________________________________________________________

FINDINGS OF FACT

Background and Procedure

Black Dog was licensed as an Arizona resident bail bond agent on October 9, 2009, Legacy License Number 95925. Black Dog’s business and mailing addresses of record with the Department were both 1010 E. Indian School Road, Phoenix, Arizona 85014.

Black Dog’s license expired on October 31, 2017. When Black Dog’s license expired, Stacy Lynne Rosenthal a/k/a Stacie Lynne Mallen (“Ms. Rosenthal”) was listed on the Department’s records as Black Dog’s Designated Responsible Licensed Producer.

Ms. Rosenthal became licensed as an Arizona resident bail bond agent on October 1, 2009, National Producer Number 15018839. Ms. Rosenthal’s business and mailing addresses of record with the Department were both 6 E. Palo Verde Street, Suite 3, Gilbert, Arizona 85296-1020. Ms. Rosenthal’s license expired on October 31, 2017, and on March 1, 2018, her license became inactive.

Mr. Mallen became licensed as an Arizona resident bail bond agent on May 14, 2010, National Producer Number 15767749. Mr. Mallen’s business and mailing addresses of record with the Department were both 6 E. Palo Verde Street, Suite 3, Gilbert, Arizona 85296-1020 and [email redacted] (business email). His license will expire on October 31, 2021.

On April 11, 2018, the Department issued an order summarily suspending Mr. Mallen’s license and ordering Black Dog to cease and desist acting as a bail bond agent in the State of Arizona without a valid license.

On or about May 10, 2018, Black Dog and Mr. Mallen’s attorney filed a request for hearing on the order.

The Department referred the matter to the Office of Administrative Hearings (“the OAH”), an independent state agency, for an evidentiary hearing on whether cause existed to discipline Black Dog’s and Mr. Mallen’s Arizona bail bond agent’s licenses.

On or about May 25, 2018, the Department issued a Notice of Hearing. The Notice of Hearing alleged the following grounds to support summarily suspending Mr. Mallen’s license and ordering Black Dog to cease and desist from engaging in bail bond business in the State of Arizona:

Their failure to file a Form L-177 to comply with a May 16, 2017 Consent Order in Case No. 17A-040-INS, in violation of A.R.S. §§ 20-286(C)(1) and (2), and 20-295(A)(2), made applicable to bail bond agents by A.R.S. § 20-340.06;

Their failure to comply with the Department’s January 23, 2018 subpoena to produce its bond log on or before February 9, 2018, in violation of A.R.S. § 20-295(A)(2), made applicable to bail bond agents by A.R.S. § 20-340.06; and

Black Dog’s conduct of the business of a bail bond agent after its license expired, constituting unlicensed activity under A.R.S. § 20-282, made applicable to bail bond agents under A.R.S. § 20-340.06 and providing support for the cease and desist order under A.R.S. § 20-292.

On July 3, 2018, a hearing was held before the OAH. The Department’s attorney submitted fifteen exhibits, presented the testimony of its Administrative Enforcement Investigator, Wendy Greenwood, and made legal argument on its behalf. Black Dog and Mr. Mallen’s attorney cross-examined Ms. Greenwood, asserted certain facts, and made legal argument on their behalf.

Additional Hearing Evidence

On or about September 4, 2014, the Department issued a Consent Order In Case No. 14A-095-INS against Ms. Rosenthal and Black Dog based Black Dog’s conduct of its insurance business after its resident bail bond agent license expired, failure to comply with the Department’s subpoena, and failure to return cash collateral to a client. As a result, Ms. Mallen and Black Dog agreed to pay a civil penalty in the amount of $4,950.00 and to return cash collateral to the client in the amount of $2,200.00.

No evidence was submitted that Ms. Rosenthal and Black Dog failed to comply with the Consent Order in Case No. 14A-095-INS. Because the Consent Order was based on similar factual allegations as the charges against Black Dog and Mr. Mallen in this matter, the consent order is considered as a potential factor in aggravation of the penalty.

Violation of A.R.S. § 20-286(C) and May 11, 2017 Consent Order

According to the records of the Arizona Corporation Commission (“ACC”), Black Dog was incorporated on August 19, 2009. Black Dog’s domestic address on the ACC’s records is 6 E. Palo Verde Street, Suite 3, Gilbert, Arizona 85296.

Ms. Rosenthal was the sole Member/Manager of Black Dog on the articles of incorporation filed with the ACC. On or about July 25, 2014, Black Dog submitted an Article of Amendment to the ACC removing Ms. Rosenthal as the sole Manager/Member of Black Dog and adding Mr. Mallen as the sole Manager/Member of Black Dog.

Black Dog and Ms. Rosenthal failed to notify the Department of the substitution within 30 days, as required by A.R.S. § 20-286(C)(2). Black Dog also never updated its business and mailing addresses of record, as required by A.R.S. § 20-286(C)(1). A different bail bond company occupies the premises at 1010 E. Indian School Road, Phoenix, Arizona 85014.

On or about May 16, 2017, the Department issued a Consent Order in Case No. 17A-040-INS, in which Ms. Rosenthal and Mr. Mallen on behalf of Black Dog admitted that their violation of A.R.S. § 20-286(C)(2) furnished grounds for the Department to deny, suspend, revoke, or refuse to renew their insurance producer’s licenses under A.R.S. § 20-295(A) and (B).

As a result of Ms. Rosenthal’s and Black Dog’s admitted violation of applicable statutes, in the May 11, 2017 Consent Order, they agreed to pay a $250.00 civil penalty and to immediately submit to the Department the following documents:

Form L-177 – Report of a Change to Members, Officers, or Directors;

Form L-CHG – License Information Change;

Fingerprints for Mr. Mallen;

$22.00 for fingerprint processing fee; and

Form L-FPV – Fingerprint Verification from Mr. Mallen.

Ms. Greenwood testified that Mr. Mallen and Black Dog had submitted all documents required to comply with the May 11, 2017 Consent Order except the Form L-177 to report a Change to Members, Officers, or Directors.

Mr. Mallen’s and Black Dog’s attorney asserted that Mr. Mallen’s position was that he had submitted the Form L-177 to the Department. As noted above, Mr. Mallen did not testify at the hearing.

Ms. Greenwood acknowledged that the Department provided the forms to comply with the May 11, 2017 Consent Order to Mr. Mallen and Black Dog on or about April 10, 2017. Ms. Greenwood testified that she checked the Department’s electronic records and did not find a completed Form L-177 for Black Dog.

Ms. Greenwood acknowledged that before April 20, 2017, the Department was accepting hard copies of documents while it was converting to a paperless web-based record system. Ms. Greenwood testified that during the transition, Department staff scanned hard copies of documents it received to be entered into the electronic records.

Ms. Greenwood testified that because the Department only has two Enforcement Investigators, it is not possible to contact licensees multiple times about documents that are missing from the Department’s files.

Black Dog’s Violation of A.R.S. § 20-295(A)(2) by Failing to Comply with Department’s January 23, 2018 Subpoena

At all relevant times, Ms. Rosenthal has remained as Black Dog’s statutory agent on the ACC’s records.

On January 23, 2018, the Department issued a subpoena to Ms. Rosenthal to appear before the Department on February 9, 2018, and produce Black Dog’s bond log for the dates of February 28, 2017, through January 30, 2018.

The Department served the subpoena by certified mail on Ms. Rosenthal at her business and mailing address of record with the Department and Black Dog’s domestic address of record with the ACC, 6 E. Palo Verde Street, Suite 3, Gilbert, Arizona 85296. The certified mail receipt was signed on January 30, 2018; although the signature is illegible, Ms. Rosenthal’s printed name appears beneath the signature.

Neither Black Dog nor Ms. Rosenthal complied with the Department’s subpoena to produce Black Dog’s bond log.

Mr. Mallen and Black Dog’s attorney argued that because the subpoena was addressed to Ms. Rosenthal, the Department had failed to establish that Mr. Mallen or Black Dog ever received the subpoena.

Black Dog’s Violation of A.R.S. § 20-282 by Continuing to Engage in Insurance Business after its License Expired

As noted above, Black Dog’s bail bond agent’s license expired on October 31, 2017. On or about January 30, 2018, Mr. Mallen sent an email to Daniel W. Ray, the Department’s Enforcement Investigator assigned to the case at the time, from the email address [email redacted]. Mr. Mallen stated that, “So there is no confusion though, we are still open and nobody is looking for any collateral from us that I’m aware of.”

On or about March 26, 2018, Black Dog’s client/indemnitor, Laura Heath, filed a Request for Assistance with the Department against Black Dog, alleging that she had retained Mr. Mallen’s and Black Dog’s services on November 18, 2017, that she had difficulty contacting Mr. Mallen, that he had understated the collateral that she provided to him, and that he was overcharging her for fees for Black Dog’s bail bond agent services. Ms. Heath attached to her Request for Assistance a receipt from Black Dog dated November 18, 2018, in the amount of $2,700.00, and an unsigned, undated letter on Black Dog’s letterhead stating that Ms. Heath’s son Kevin was bonded out on November 18, 2017, and showing the collateral of $2,430.00, various charges, and a refund in the amount of $963.00.

Ms. Heath’s Request for Assistance was pending as of the date of the hearing and the merits of her complaints had not yet been determined.

The Department submitted a printout dated May 23, 2018, from Black Dog’s website that solicited bail bond business by advertising its services, stating in relevant part as follows:

We are a licensed Bail Bond Agent Organization. We specialize in Arizona [. We] understand that is a difficult process for you! Black Dog is a Woman-Owned business and is registered with the Arizona Department of Insurance with License #952925. . . .

Ms. Greenwood pointed out that Black Dog is no longer a woman-owned business.

Ms. Greenwood testified that if a person chooses to do business through a business entity registered with the ACC, the business entity as well as the responsible officers or managers must be licensed.

Ms. Greenwood acknowledged that if Mr. Mallen had chosen to do business through Black Dog as an individual doing business as (“DBA”) Black Dog, rather having Black Dog registered with the ACC as a business entity, Black Dog would not have needed a separate license as long as Mr. Mallen was licensed as a bail bond agent. If Black Dog were Mr. Mallen’s DBA, since Mr. Mallen’s license was current, Black Dog would not have needed its own license to engage in insurance business and would not have committed unlicensed activity by continuing to conduct insurance business after its license expired.

Ms. Greenwood testified that if Mr. Mallen had chosen to do business through Black Dog as a DBA, he would have had to register the DBA by submitting a completed Form L-193 to the Department. Ms. Greenwood testified that some bail bond agents use multiple DBAs. Ms. Greenwood testified that Mr. Mallen had not submitted a completed Form L-193 to the Department.

Mr. Mallen and Black Dog’s attorney argued that because everyone knew that Black Dog was Mr. Mallen, Mr. Mallen’s license should not be penalized due to Black Dog’s unlicensed activity.

CONCLUSIONS OF LAW

This matter lies within the Department’s jurisdiction.

The Department bears the burden to establish cause to discipline Mr. Mallen’s bail bond agent’s license and to order Black Dog to cease and desist from conducting insurance business by a preponderance of the evidence. Mr. Mallen and Black Dog bear the burden to establish affirmative defenses and factors in mitigation of the penalty by the same evidentiary standard.

“A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.” A preponderance of the evidence is “[t]he greater weight of the evidence, not necessarily established by the greater number of witnesses testifying to a fact but by evidence that has the most convincing force; superior evidentiary weight that, though not sufficient to free the mind wholly from all reasonable doubt, is still sufficient to incline a fair and impartial mind to one side of the issue rather than the other.”

The Department established that Mr. Mallen and Black Dog failed to file a Form L-177 to comply with the May 16, 2017 Consent Order in Case No. 17A-040-INS. No sworn testimony was given or receipt from the Department for the Form L-177 was submitted. Therefore, the Department established cause to discipline Mr. Mallen’s insurance license under A.R.S. §§ 20-286(C)(1) and 20-295(A)(2), as made applicable to bail bond agents by A.R.S. § 20-340.06.

The Department established that it sent the January 23, 2018 subpoena to Black Dog’s statutory agent at Black Dog’s address of record with the ACC, which is the same as the statutory agent’s and Mr. Mallen’s business and mailing addresses with the Department and that the statutory agent or Mr. Mallen signed the certified mail receipt. That is all that it is required to do. Since Black Dog failed to comply with the subpoena and Mr. Mallen is the only licensed bond agent listed as Black Dog’s owner with the ACC and, if Mr. Mallen and Black Dog had complied with the May 16, 2017 Consent Order by filing a Form L-177, listed on the Department’s records, the Department established additional cause to discipline Mr. Mallen’s bail bond agent’s license under A.R.S. § 20-295(A)(2), as made applicable to bail bond agents by A.R.S. § 20-340.06.

The Department established that because Black Dog was a business entity and Mr. Mallen never filed a completed Form L-193 with the Department, Black Dog was required to be licensed and that Black Dog continued to do business as a bail bond agent after its license expired on October 31, 2017. As noted above, Mr. Mallen is Black Dog’s only owner and is responsible for its unlicensed activity. Therefore, the Department established cause to discipline Mr. Mallen’s bail bond agent’s license and to order Black Dog to cease and desist from engaging in unlicensed activity under A.R.S. § 20-282, as made applicable to bail bond agents by A.R.S. § 20-340.06.

Mr. Mallen and Black Dog’s primary defenses are that the Department did not establish that any consumer has been harmed by Mr. Mallen’s and Black Dog’s statutory violations at this time. Mr. Mallen and Black Dog argued that the charged violations were only technical, since the Department eventually became aware of the ACC’s records that showed Mr. Mallen had been substituted for Ms. Rosenthal as Black Dog’s only member and Black Dog’s current address and that Black Dog would not have needed its own license if Mr. Mallen had filed a form to register it as a DBA.

The Arizona legislature created the Department “to administer the state insurance laws, protect the citizens of this state who purchase insurance, [and] provide a better response to the needs of persons who purchase insurance . . . .” These purposes would not be served by ignoring licensees’ repeated failure to comply with applicable statutes until a member of the public is shown to have been harmed by the licensees’ violations. Until 2017, when the Department became aware of the ACC’s records, neither the Department nor any member of the public who consulted the Department’s records would have been aware who controlled Black Dog or what its business and mailing addresses were. It is not clear on this record whether Mr. Mallen can be regulated. At a minimum, at this time, Mr. Mallen’s cavalier attitude toward the Department’s regulation of his bail bond agent business justifies discipline to protect the public in the future.

RECOMMENDED ORDER

Based on the foregoing, IT IS ORDERED affirming the Department’s April 11, 2018 Order Summarily Suspending Matthew John Mallen’s bail bond agent’s License No. 15767749 and Ordering Black Dog Bail Bonds LLC to immediately cease and desist from conducting business in Arizona as a bail bond agent.

IT IS FURTHER ORDERED that Mr. Mallen’s bail bond agent’s License No. 15767749 shall be placed on probation for a period of three years, subject to the following terms:

Mr. Mallen shall not use Black Dog to conduct bail bond business in Arizona until he either submits an application to renew Black Dog’s bail bond agent’s license or submits a Form L-193 to make Black Dog his DBA and the Department either grants the license renewal or processes the Form L-193;

Within ten business days of the effective date of the final order in this matter, Mr. Mallen shall submit a completed Form L-177 for Black Dog;

With ten business days of the effective date of the final order in this matter, Mr. Mallen shall submit Black Dog’s Bail Bond Log from February 28, 2017, through July 12, 2018.

Thereafter, on or before October 5, January 5, April 5, and July 5 of every year that he is on probation, Mr. Mallen shall submit Black Dog’s Bail Bond Log for every quarter during the period of his probation, beginning July 12, 2018, through September 30, 2018, and every three-month period thereafter;

If Mr. Mallen fails to comply with the terms of his probation or the Department receives information that it deems credible that Mr. Mallen has violated any statutes that govern bail bond agents, the Department shall summarily suspend Mr. Mallen’s bail bond agent’s license and refer the matter to the Office of Administrative Hearings for an expedited evidentiary hearing pursuant to A.R.S. § 41-1064(C) for revocation of the license.

In the event of certification of the Administrative Law Judge Decision by the Director of the Office of Administrative Hearings, the effective date of the Order will be five days from the date of that certification.

/ / / /

Done this day, July 12, 2018.

/s/ Diane Mihalsky

Administrative Law Judge

Transmitted electronically to:

Keith A. Schraad, Interim Director

Arizona Department of Insurance