The Commissioner of the Indiana Department of Insurance, Appellant,
Jeffrey A. Schumaker, Appellee.
from the Marion Superior Court The Honorable Patrick J.
Dietrick, Judge Trial Court Cause No. 49D12-1703-MI-11747
ATTORNEYS FOR APPELLANT Curtis T. Hill, Jr. Attorney General
of Indiana Frances Barrow Deputy Attorney General
ATTORNEY FOR APPELLEE Arend J. Abel Cohen & Malad, LLP
The Commissioner (the "Commissioner") for the
Indiana Department of Insurance (the "Department")
appeals the trial court's order vacating its decision to
not renew Jeffrey A. Schumaker's insurance producer
license. We affirm.
and Procedural History
Schumaker has held an insurance producer license since 1990
and concentrates his business in life, health, disability,
and Medicare supplement insurance. He also held a license
with the Financial Industry Regulatory Authority
("FINRA") permitting him to sell securities. In
2011, Mr. Schumaker experienced financial
difficulties and took $8, 300 from his homeowners
association, for which he volunteered as the treasurer. In
March 2014, Schumaker repaid the money he had taken from the
homeowners association along with two years of dues he owed
and one year of future dues. He disclosed his actions to the
homeowners association and resigned as treasurer, and the
association elected not to pursue charges. Schumaker reported
his actions to his broker-dealer, the broker-dealer in turn
communicated with FINRA, and Schumaker elected not to
challenge the suspension issued by FINRA. Schumaker believed
FINRA communicated with the Commissioner, and when completing
his license renewal application, he disclosed his FINRA
On August 12, 2016, the Commissioner issued an Administrative
Order Notice of Nonrenewal of License which stated the
enforcement division of the Department received untimely
notification of Schumaker's securities license suspension
and permanent bar, stated Schumaker had disclosed that he
misappropriated funds for personal use as treasurer of his
homeowners association, cited Ind. Code §
27-1-15.6-17(a) and Ind. Code § 27-1-15.6-12(b)(8),
stated that Schumaker's producer license would not be
renewed. At Schumaker's request, a hearing was scheduled
before an administrative law judge (the "ALJ").
On September 14, 2016, the ALJ held a hearing. In November
2016, the ALJ issued Findings of Fact, Conclusions of Law and
Order. The ALJ found, "[i]n response to Question 2, of
his application for renewal to [the Department] Schumaker
made a full and complete disclosure of the FINRA bar and the
circumstances leading thereto." Appellant's Appendix
Volume II at 35. The ALJ found that no evidence was presented
that Schumaker has ever committed any conduct that is
fraudulent, coercive, dishonest, incompetent, untrustworthy,
or financially irresponsible in the conduct of his insurance
business or any other business venture. The ALJ also found
"the evidence in this case demonstrates that Schumaker
took $8300 from the homeowners' association bank account
with the intent to repay it" and "[w]hile
dishonest, all evidence presented at the hearing was that
this was a singular issue, out of character for Schumaker,
and not part of a pattern of deceit or a series of
'practices' in either his personal or professional
life." Id. at 37. The ALJ recommended that the
order of nonrenewal be reversed on the conditions that
Schumaker's license be granted on a two-year probationary
basis and that he pay a civil penalty of $1, 000.
On February 20, 2017, the Commissioner issued Findings of
Fact, Conclusions of Law, and Final Order. The Commissioner
stated that the Department filed an objection to the
ALJ's recommended order and challenged, in relevant part,
the ALJ's conclusions relating to Ind. Code §
27-1-15.6-12(b)(8). The Commissioner found that Schumaker
violated subsections (1) and (8) of Ind. Code §
27-1-15.6-12(b) and ordered that his insurance producer
license not be renewed.
On March 22, 2017, Schumaker filed a petition for judicial
review with the trial court. The parties submitted
briefs and on February 1, 2018, the court held
argument. On March 19, 2018, it issued its Findings of Fact,
Conclusions of Law and Order which vacated the
Commissioner's February 20, 2017 order and provided:
1. Mr. Schumaker concentrates his business in life and health
insurance, disability and Medicare supplement insurance. Ex.
5. In his insurance business, Mr. Schumaker does not handle
any cash for insureds. Tr. 35. Instead, the insured pays all
premiums directly to the insurance company. Id. The
only funds Mr. Schumaker deals with are his own commission
checks from which he pays his salary and his office expenses.
2. At the time of the administrative hearing, Mr. Schumaker
had held a license from the Department for 26 years and was
serving about 300 customers. Ex. 5. He has never [had] a
complaint relating to [the] manner in which he conducted his
3. Mr. Schumaker also served as treasurer of his
homeowners' association, an unpaid, volunteer position
that was neither elected nor appointed. Mr. Schumaker held
the position because the association needed volunteers for
various positions due to its small size. Tr. 24-25.
4. In 2011, Mr. Schumaker experienced significant personal
issues. At a school sporting event on a rainy evening, two
young girls ran out in front of his car and, because one
stopped and the other ran, Mr. Schumaker could not avoid
hitting one of them and injuring her. Tr. l6. The accident
exacted a heavy emotional toll on Mr. Schumaker and his
family. Tr. l6, Tr. 55. It also had a big impact on his
business. Tr. 16. In addition to the emotional turmoil the
event caused, Mr. Schumaker incurred expenses because he was
sued over the accident. Id; Ex. 5.
5. Mr. Schumaker was expecting a substantial commission check
and wrote an equally substantial check to pay a medical bill.
Tr. l7. When the commission check did not arrive, Mr.
Schumaker took $8300 in homeowner's association funds for
his own use, without authorization. Tr. 41. He always
intended to pay the money back, and no one with the
homeowners' association discovered his actions. TR. 17;
6. In 2014, the homeowners' association had bills coming
due and needed funds. Tr. 18. Mr. Schumaker returned the
funds he had taken, depositing $9000, which included the
$8300 and his own dues. Tr. 19-20. He disclosed to the
association what he had done and how he had corrected it. Tr.
22. He also resigned as treasurer. Id.
7. After hearing Mr. Schumaker's disclosures, the other
members of the homeowners' association deliberated.
Id. Tom Mack, a neighbor who was present when Mr.
Schumaker told the homeowners what he had done, noted that
Mr. Schumaker was very remorseful. Ex. 2. Mr. Mack and the
other home owners concluded Mr. Schumaker made a bad
decision, but that because he informed them, repaid the
funds, and was being investigated at work, they would not
pursue charges. Tr. 22; Ex. 2. According to Mr. Mack
"Jeff is a very reliable, honest and kind person that
had made a bad choice." Ex. 2. Mr. Schumaker's wife
testified how out of character the actions were for her
husband, describing them as "an aberration." Tr.
8. One association member was a former registered
representative (a person who buys or sells securities for a
registered broker-dealer) and said Mr. Schumaker should
report the incident to his broker-dealer, so he did. Tr.
24-25. The broker-dealer reported the incident to the
Financial Industry Regulatory Authority, also known as FINRA,
a private self-regulatory entity in the securities business.
9. FINRA began an investigation, which its attorneys pursued
aggressively. Tr. 27. Mr. Schumaker learned that even if [he]
avoided being barred from association with FINRA, the process
would be expensive. Id. He heard from one individual
who spent approximately $100, 000.00 in attorneys' fees,
costs, and fines. Id. Accordingly, Mr. Schumaker did
not contest or otherwise participate in the investigation.
Ex. 5. Under FINRA' rules, non-participation leads to a
bar against further association with FINRA. Id.
FINRA's attorneys and his own counsel assured him he
could continue in his insurance business, he just could no
longer sell securities. Tr. 27-28.
10. After Mr. Schumaker could no longer serve his
broker/dealer clients, another registered representative,
William Novack began serving them. Tr. 50. Novack testified
Mr. Schumaker's clients "spoke very highly of
him." Id. Novack further testified to his own
assessment that Mr. Schumaker "did quite well" and
"did a very nice job in putting things together for his
clients." Id. Novack also testified Mr.
Schumaker's clients could be negatively affected if Mr.
Schumaker could not assist them with their insurance needs.
Id. at 51.
11. Mr. Schumaker did not know he was supposed to disclose
the FINRA bar to the Department until he was in the process
of renewing his producer's license. Tr. 31. Question 2 of
the application asked "Have you been named or involved
as a party in an administrative proceeding, including a FINRA
sanction or arbitration proceeding regarding any professional
or occupational license or registration, which has not been
previously reported to this insurance department?"
Filing No. 10 (ALJ's Order) p. 2, ¶ 3. Mr. Schumaker
disclosed the FINRA bar and the circumstances leading to it.
12. On August 12, 2016, the Department notified Mr. Schumaker
his license would not be renewed in an "Administrative
Order - Notice of Nonrenewal of License." Record Doc.
16. The reasons given for the non-renewal were that Mr.
Schumaker failed to report the FINRA suspension within 30
days of its final disposition and that he allegedly used
"fraudulent, coercive, or dishonest practices, or
demonstrate[d] incompetence, untrustworthiness, or financial
irresponsibility in the conduct of business in Indiana or
elsewhere," which Ind. Code § 27-1-15.6-12(b)(8)
lists as a basis for discipline. Id.
13. Mr. Schumaker timely sought administrative review.
14. Mr. Schumaker acknowledged his personal use of
association funds was wrong, but stated the events were
caused by extreme circumstances not likely to recur and had
no relationship to his blemish-free, 26-year record in
providing services under his Indiana insurance producer's
license. He denied the conduct amounted to "fraudulent,
coercive, or dishonest practices, or demonstrate[d]
incompetence, untrustworthiness, or financial
irresponsibility in the conduct of business in Indiana or
elsewhere" within the meaning of Ind. Code §
15. Mr. Schumaker further argued it was arbitrary and
capricious to refuse to renew his insurance producer's
[license] based on the belated disclosure of the FINRA
16. Mr. Schumaker's Indiana producer's license
expired on June 30, 2016, while his application was pending.
Record Doc. l6 (Administrative Order - Notice of Nonrenewal)
17. The Honorable Reuben B. Hill, Administrative Law Judge,
held an evidentiary hearing. Mr. Schumaker presented his own
testimony, his wife's, and that of the homeowner and
registered representative described above. He also presented
evidence of his most recent Field Office Review Worksheet and
a post-audit letter stating, "Congratulations! I would
like to commend you on how well you have been managing the
affairs of your branch office. I am pleased to inform you
that there were no material exceptions found during the audit
of your branch office. This is a great accomplishment and a
direct reflection of your commitment to excellence." Ex.
3. Mr. Schumaker also testified he has made changes to his
business to avoid the extreme financial pressures that led to
his actions. Tr. 36-37.
18. Mr. Schumaker is the sole financial supporter for his
family, which includes his wife, two sons in college, his
mother-in-law who lives with him, and a young family member
placed in their home by family services. Tr. l l-12; Tr. 53.
Losing his producer income would be devastating to the
family, Ex. 5; And, at age 53 with 26 years in the insurance