STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL SERVICES, DIVISION OF WORKERS' COMPENSATION,

Petitioner,

vs.

MATT'S QUALITY PAINTING, INC.,

Respondent.

/

Case No. 16-7591

RECOMMENDED ORDER

Pursuant to notice, this cause came on for a formal hearing before Lawrence P. Stevenson, a duly-designated Administrative Law Judge, via video teleconference from sites in Jacksonville and Tallahassee, Florida, on March 8, 2016.

APPEARANCES

For Petitioner: Trevor S. Suter, Esquire

Department of Financial Services

200 East Gaines Street Tallahassee, Florida 32399-4229

For Respondent: No appearance

STATEMENT OF THE ISSUES

The issues in this proceeding are whether Respondent, Matt’s Quality Painting, Inc. ("Respondent"), failed to abide by the coverage requirements of the Workers' Compensation Law, chapter 440, Florida Statutes, by not obtaining workers'

compensation insurance for its employees; and whether Petitioner properly assessed a penalty against Respondent pursuant to section 440.107, Florida Statutes.

PRELIMINARY STATEMENT

Pursuant to the Workers' Compensation Law, chapter 440, the Department of Financial Services, Division of Workers' Compensation (“Department”), seeks to enforce the statutory requirement that employers secure the payment of workers' compensation for their employees.

On April 28, 2016, the Department issued a Stop-Work Order ("SWO") that included an Order of Penalty Assessment. The SWO alleged that Respondent failed to abide by the coverage requirements of the Workers' Compensation Law on that date. The order directed Respondent immediately to cease business operations and pay a penalty equal to two times the amount Respondent would have paid in premium to secure workers' compensation during periods within the preceding two years when it failed to do so, or $1,000, whichever is greater, pursuant to section 440.107(7)(d).

The Department also requested business records from Respondent in order to determine the exact amount of the penalty. Respondent provided records, but these were insufficient to allow the Department to calculate an appropriate penalty. Therefore, the Department calculated a penalty based

upon an imputation of Respondent's payroll, pursuant to section 440.107(7)(e). The Department issued an "Amended Order of Penalty Assessment" ("Amended Order") on June 23, 2016, that assessed a penalty of $46,692.64 against Respondent. The Amended Order was served on Respondent on June 28, 2016.

Respondent later provided business records sufficient for the calculation of the exact amount of the penalty. On November 8, 2016, the Department issued a “2nd Amended Order of Penalty Assessment” (“Second Amended Order”) that assessed a penalty of $22,282.46 against Respondent. This is the amount at issue in this proceeding.

Respondent timely requested a formal administrative hearing to contest the penalty assessment, and on December 23, 2016, the Department forwarded Respondent's request to the Division of Administrative Hearings ("DOAH"). The case was set for hearing at 9:30 a.m. on March 8, 2017, at which date and time it was convened.

Respondent did not appear at the final hearing, the commencement of which was delayed by 15 minutes to allow Respondent every opportunity to be heard. The hearing proceeded in order to allow the Department to present its prima facie case. The hearing adjourned at approximately 11:00 a.m.

Respondent had not arrived, nor had he contacted the Department or DOAH to explain his absence from the scheduled hearing.

On March 8, 2017, the undersigned entered an Order to Show Cause directing Respondent to provide, within 10 days, reasons why the record in the case should not be closed and the recommended order entered based on the current record.

Respondent did not respond to the Order to Show Cause, and an Order closing the record was entered on March 24, 2017.

At the hearing, the Department presented the testimony of its investigator, Michael Robinson; of its facilitator, Pete Vallejo; and of its penalty audit supervisor, Anita Proano. The Department's Exhibits 1 through 7 and 10 through 14 were admitted into evidence.

A one-volume Transcript of the final hearing was filed at DOAH on March 24, 2017. On or about April 26, 2017, the Department contacted the undersigned’s legal assistant to explain that it had only just received its copy of the Transcript and had been unaware that the time for filing proposed recommended orders had expired. Under the circumstances, the undersigned gave the Department permission to file its proposed recommended order on April 27, 2017. The Department filed a Proposed Recommended Order on April 27, 2017. Respondent did not file a proposed recommended order.

Unless otherwise stated, all statutory references are to the 2016 edition of the Florida Statutes.

FINDINGS OF FACT

Based on the oral and documentary evidence adduced at the final hearing, and the entire record in this proceeding, the following Findings of Fact are made:

1. The Department is the state agency responsible for enforcing the requirement of the Workers' Compensation Law that employers secure the payment of workers' compensation coverage for their employees and corporate officers. § 440.107(3), Fla. Stat.

2. Respondent operates a painting business located in Jacksonville, and is therefore engaged in the construction industry.

3. On April 28, 2016, the Department's compliance investigator, Michael Robinson, observed three individuals painting the exterior of a residence in the Hidden Hills subdivision of Jacksonville.

4. Mr. Robinson approached one of the painters, an individual later identified as Ismet "Matt" Rapi, who told Mr. Robinson that he was the owner of the business. Mr. Rapi told Mr. Robinson that the other two men on the job were his

   employees. Mr. Rapi stated that he was exempt from the workers' compensation coverage requirements, but his two employees were not covered.

   
   

5. Mr. Robinson researched the database maintained by the Department of State, Division of Corporations (accessible at www.sunbiz.org) and learned that Matt’s Quality Painting, Inc., was an active corporation and that Mr. Rapi was the sole corporate officer.

6. Mr. Robinson consulted the Department's Coverage and Compliance Automated System ("CCAS") database, which lists the workers' compensation insurance policy information for each business as provided by the insurance companies, as well as any workers' compensation exemptions for corporate officers. CCAS indicated that Mr. Rapi had an active exemption but that Respondent did not have a workers' compensation insurance policy or an employee leasing policy for its two employees, neither of whom was exempt.

7. Mr. Robinson concluded that Respondent had failed to secure workers' compensation insurance coverage that met the requirements of chapter 440. Mr. Robinson therefore issued an SWO to Respondent on April 28, 2016, and personally served the SWO on Mr. Rapi on the same date.

8. Also on April 28, 2016, Mr. Robinson served Respondent with the Request for Production of Business Records for Penalty Assessment Calculation. The purpose of this request was to obtain the business records necessary to determine the appropriate penalty to be assessed against Respondent for

   
   

   violating the coverage requirements of chapter 440. Because section 440.107(7)(d)1. provides that the Department's assessment of a penalty covers the preceding two-year period, the request for production asked for Respondent's business records from April 29, 2014, through April 28, 2016.

9. If an employer fails to produce business records sufficient to allow for the calculation of the appropriate penalty, the Department must calculate the applicable penalty by imputing the employer's payroll using the statewide average weekly wage for the type of work performed by the employee and multiplying that payroll by two.

10. The statewide average wage is derived by use of the occupation classification codes established by the proprietary Scopes Manual developed by the National Council on Compensation Insurance, Inc. ("NCCI"). The Scopes Manual has been adopted by reference in Florida Administrative Code Rule 69L-6.031(6). For Respondent's employees, Mr. Robinson applied the occupation classification code 5474, for painting. Fla. Admin. Code R.

    69L-6.031(6)(b)9.

    
    

11. The Department's Amended Order, assessing an imputed penalty in the amount of $46,692.64 against Respondent, was issued on June 23, 2016, and served on Mr. Rapi by hand on June 28, 2016.

    
    

12. Following service of the Amended Order, Respondent supplied the Department with additional business records sufficient for the Department to calculate a penalty. The Department assigned penalty audit supervisor, Anita Proano, to recalculate and approve the penalty assessed against Respondent.

13. Ms. Proano reviewed the business records produced by Respondent and identified Respondent's uninsured payroll. Payments to Mr. Rapi were not included in the penalty because he had an active exemption. Respondent's penalty period was less than two years because Respondent’s record included a prior SWO.1/

14. Ms. Proano identified numerous cash withdrawals in Respondent's business records. Based on the lack of business records and receipts to validate the cash expenses, Ms. Proano included 80 percent of the cash withdrawals as uninsured labor in assessing the penalty, pursuant to rule 69L-6.035(1)(k).

15. Ms. Proano consulted the classification codes listed in the Scopes Manual and confirmed that Respondent’s employees should be assigned class code 5474. Ms. Proano then utilized the corresponding approved manual rates for that classification code and the related periods of non-compliance.

16. Ms. Proano applied the correct approved manual rates and correctly utilized the methodology specified in section

    
    

    440.107(7)(d)l. and rules 69L-6.027, 69L-6.028, and 69L-6.035,

    
    

    to determine the penalty of $22,282.46.

    
    

17. The Department issued the Second Amended Order on November 8, 2016, lowering the penalty assessment to $22,282.46.

18. The Department utilized the correct occupation classification code for the two employees.

19. The Department correctly utilized the procedure set forth by section 440.107(7)(d) and (e), and the penalty calculation worksheet incorporated by reference into rule 69L- 6.027(1), to calculate the penalty assessed against Respondent by the Second Amended Order.

    CONCLUSIONS OF LAW

    
    

20. The Division of Administrative Hearings has jurisdiction of the subject matter of and the parties to this proceeding. §§ 120.569 and 120.57(1), Fla. Stat.

21. Employers are required to secure payment of compensation for their employees. §§ 440.10(1)(a) and 440.38(1), Fla. Stat.

22. "Employer" is defined, in part, as "every person carrying on any employment." § 440.02(16), Fla. Stat. "Employment . . . means any service performed by an employee for the person employing him or her" and includes, "with respect to the construction industry, all private employment in which one

    
    

    or more employees are employed by the same employer."

    
    

    §§ 440.02(17)(a) and (b)(2), Fla. Stat.

    
    

23. "Employee" is defined, in part, as "any person who receives remuneration from an employer for the performance of any work or service while engaged in any employment under any appointment or contract for hire or apprenticeship, express or implied, oral or written . . . ." § 440.02(15)(a), Fla. Stat. "Employee" also includes "any person who is an officer of a corporation and who performs services for remuneration for such corporation within this state . . . ." § 440.02(15)(b), Fla. Stat. Certain corporate officers may elect to exempt themselves from the coverage requirements of chapter 440. §§ 440.02(15)(b) and 440.05, Fla. Stat. In this case, Mr. Rapi had a workers' compensation exemption, but neither of Respondent's two employees had an exemption.

24. The Department has the burden of proof in this case and must show by clear and convincing evidence that the employer violated the Workers' Compensation Law and that the penalty assessments were correct under the law. See Dep’t of Banking

    and Fin. v. Osborne Stern and Co., 670 So. 2d 932 (Fla. 1996); and Ferris v. Turlington, 510 So. 2d 292 (Fla. 1987).

25. In Evans Packing Co. v. Department of Agriculture and Consumer Services, 550 So. 2d 112, 116 n.5 (Fla. 1st DCA 1989),

    the Court defined clear and convincing evidence as follows:

    
    

    [C]lear and convincing evidence requires that the evidence must be found to be credible; the facts to which the witnesses testify must be distinctly remembered; the evidence must be precise and explicit and the witnesses must be lacking in confusion as to the facts in issue. The evidence must be of such weight that it produces in the mind of the trier of fact the firm belief of conviction, without hesitancy, as to the truth of the allegations sought to be established. Slomowitz v. Walker, 429 So.

    2d 797, 800 (Fla. 4th DCA 1983).

    
    

26. Judge Sharp, in her dissenting opinion in Walker v.

    
    

    Florida Department of Business and Professional Regulation, 705 So. 2d 652, 655 (Fla. 5th DCA 1998)(Sharp, J., dissenting), reviewed recent pronouncements on clear and convincing evidence:

    Clear and convincing evidence requires more proof than preponderance of evidence, but less than beyond a reasonable doubt. In re Inquiry Concerning a Judge re Graziano, 696 So. 2d 744 (Fla. 1997). It is an intermediate level of proof that entails both qualitative and quantative [sic] elements. In re Adoption of Baby E.A.W., 658 So. 2d 961, 967 (Fla. 1995), cert.

    denied, 516 U.S. 1051, 116 S. Ct. 719, 133

    L.Ed.2d 672 (1996). The sum total of evidence must be sufficient to convince the trier of fact without any hesitancy. Id.

    It must produce in the mind of the trier of fact a firm belief or conviction as to the truth of the allegations sought to be established. Inquiry Concerning Davey, 645 So. 2d 398, 404 (Fla. 1994).

    
    

27. The Department established by clear and convincing evidence that Respondent was an "employer" for workers' compensation purposes because it was engaged in the construction

    
    

    industry and had one or more employees working for the company during the penalty period. §§ 440.02(16)(a) and (17)(b)2., Fla. Stat. Respondent was therefore required to secure the payment of workers' compensation. §§ 440.10(1)(a) and 440.38(1), Fla.

    Stat.

    
    

28. Section 440.107(7)(a) provides in relevant part:

    
    

    Whenever the department determines that an employer who is required to secure the payment to his or her employees of the compensation provided for by this chapter has failed to secure the payment of workers' compensation required by this chapter . . . such failure shall be deemed an immediate serious danger to public health, safety, or welfare sufficient to justify service by the department of a stop-work order on the employer, requiring the cessation of all business operations. If the department makes such a determination, the department shall issue a stop-work order within

    72 hours.

    
    

29. Thus, the Department's SWO was mandated by statute.

As to both the Amended Order and the Second Amended Order, the Department applied the proper methodology in computing the penalty, pursuant to the Penalty Calculation Worksheet adopted by reference in rule 69L-6.027.

RECOMMENDATION

Having considered the foregoing Findings of Fact, Conclusions of Law, the evidence of record, the candor and demeanor of the witnesses, and the pleadings and arguments of the parties, it is, therefore,

RECOMMENDED that a final order be entered by the Department of Financial Services, Division of Workers' Compensation, assessing a penalty of $22,282.46 against Matt’s Quality Painting, Inc.

DONE AND ENTERED this 24th day of May, 2017, in Tallahassee, Leon County, Florida.

S

LAWRENCE P. STEVENSON

Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(850) 488-9675

Fax Filing (850) 921-6847 www.doah.state.fl.us

Filed with the Clerk of the Division of Administrative Hearings this 24th day of May, 2017.

ENDNOTE

1/ Where there has been a prior SWO during the relevant two-year period, the Department calculates the penalty period for the subsequent SWO as beginning on the day after the business was released from the prior SWO.

COPIES FURNISHED:

Ismet Matt Rapi

Matt's Quality Painting, Inc. 14514 Basilham Lane

Jacksonville, Florida 32258

Trevor S. Suter, Esquire Department of Financial Services

200 East Gaines Street Tallahassee, Florida 32399-4229 (eServed)

Julie Jones, CP, FRP, Agency Clerk Division of Legal Services Department of Financial Services

200 East Gaines Street Tallahassee, Florida 32399-0390 (eServed)

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

15 days from the date of this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the Final Order in this case.

Docket for Case No: 16-007591

Orders for Case No: 16-007591