STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL SERVICES, DIVISION OF WORKERS' COMPENSATION,

Petitioner,

vs.

ROBERT CONRAD, LLC,

Respondent.

/

Case No. 17-6471

RECOMMENDED ORDER

Pursuant to notice, a final hearing was conducted in this case on March 28, 2018, via video teleconference at sites in Tallahassee and Jacksonville, Florida, before Garnett W. Chisenhall, a duly-designated Administrative Law Judge (“ALJ”) of the Division of Administrative Hearings (“DOAH”).

APPEARANCES

For Petitioner: Taylor Anderson, Esquire

Department of Financial Services

200 East Gaines Street Tallahassee, Florida 32399

For Respondent: Robert Conrad, pro se

Robert Conrad, LLC 3368 Citation Drive

Green Cove Springs, Florida 32043 STATEMENT OF THE ISSUE

The issue is whether Petitioner correctly calculated the penalty to be imposed on Respondent for failing to have a

sufficient amount of workers’ compensation coverage during the time period in question.

PRELIMINARY STATEMENT

On June 5, 2017, the Department of Financial Services, Division of Workers’ Compensation (“the Department”), served a Stop-Work Order and Order of Penalty Assessment on Robert Conrad, LLC.

The Department issued an Amended Order of Penalty Assessment on October 25, 2017, requiring Robert Conrad, LLC, to pay a $103,369.58 penalty.

On November 8, 2017, Robert Conrad, the owner of Robert Conrad, LLC, filed a letter with the Department taking issue with the calculation of the penalty:

This is in response to the balance due on DWC case #17-219-D1 in the amount of [$103,369.58]. I feel there were several important items that were overlooked.

According to the audit the initial

25 percent off that was guaranteed to me if all information was submitted on time was not applied.

If Mr. Vallejo and I were made aware at the time the requested information was being reviewed we could have provided the missing checks immediately. The missing checks 1208, 1238, 1232, and 1231 in the amount

of $20,203.61 were not made out to one individual however, was made out to several businesses which are listed in the folder (copies included.)[.]

The $366,817.10 my book keeper showed all tax forms however you still tried to charge

me double for this payroll. This money was for payroll and subs minus $800 a week for me the included papers will show this.

Starting November 3, 2017, everyone that works for me will be paid by checks. This will help in the future to obtain a true payroll (copies are included).

On November 30, 2017, the Department referred the instant case to DOAH for a formal administrative hearing.

Via a Notice of Hearing issued on December 7, 2017,

ALJ Bruce McKibben scheduled a final hearing for February 14, 2018.

After evaluating records provided by Robert Conrad, LLC, and receiving leave from ALJ McKibben, the Department issued a 2nd Amended Order of Penalty Assessment on December 22, 2017, reducing the aforementioned penalty to $95,601.98.

On January 31, 2018, the Department filed a “Motion for Continuance” asserting that Robert Conrad, LLC, might be able to provide information leading to further reduction of the penalty. Accordingly, the Department requested that the February 14, 2018, final hearing be continued to a date in March or April, 2018.

ALJ McKibben issued an Order on February 1, 2018, continuing the final hearing to March 28, 2018.

On February 13, 2018, the instant case was transferred to the undersigned.

The final hearing was convened as scheduled on March 28, 2017. During the course of the final hearing, the Department presented the testimony of Ann Johnson and Christopher Richardson. The Department offered Exhibits 1 through 16 and

18 through 20, and all of the aforementioned exhibits were accepted into evidence. Robert Conrad, LLC, presented the testimony of Mr. Conrad and offered no exhibits.

The Transcript was filed with DOAH on April 11, 2018.

The parties’ Proposed Recommended Orders were timely filed, and the undersigned considered those Proposed Recommended Orders in the preparation of this Recommended Order.

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 in chapter 440, Florida Statutes (2016),1/ that employers in Florida secure workers’ compensation coverage for their employees.

2. While an exemption can be obtained for up to three corporate officers, any employer in the construction industry with at least one employee must have workers’ compensation coverage. § 440.02(15), Fla. Stat.

   
   

3. The Department fulfills its enforcement duty by conducting compliance investigations, and a compliance investigation can begin with a Department investigator visiting a worksite.

4. Robert Conrad, LLC, is a construction company based in Green Cove Springs, Florida. It has been an active corporation in Florida since September of 2014, and Robert Conrad is the sole corporate officer.

5. Anne Johnson is employed in Jacksonville, Florida, as a compliance investigator for the Department.

6. On June 5, 2017, Ms. Johnson visited a worksite at

   
   

   213 Charlemagne Circle, Ponte Verde Beach, Florida, where a house was being remodeled.

7. Ms. Johnson approached the two men working on the house, Paul Zsizsek and Gary Day, and identified herself as a compliance investigator for the Department.

8. When Ms. Johnson inquired about their employer, Mr. Day identified GLD Exclusive Home Renovation, LLC, and stated that he had an exemption from workers’ compensation coverage.

9. Mr. Zsizsek stated that he worked for Robert Conrad, LLC, and gave Mr. Conrad’s phone number to Ms. Johnson.

10. Ms. Johnson called Mr. Conrad, who stated that he did not have workers’ compensation coverage for Robert Conrad, LLC.

    
    

    Mr. Conrad also stated that he had an insurance agent and was in the process of attempting to acquire coverage.

11. Ms. Johnson called the insurance agent identified by Mr. Conrad, and the agent reported that an application for workers’ compensation coverage had not yet been prepared and that Mr. Conrad had not remitted a down payment for coverage.

12. After her conversations with Mr. Conrad and his insurance agent, Ms. Johnson looked for any records pertaining to Robert Conrad, LLC, within the Coverage and Compliance Automated System (“CCAS”) and the Division of Corporations.

13. CCAS is a database maintained by the Department, and it houses all active workers’ compensation policies and exemptions. Insurance carriers in Florida are required by statute to report that information to the Department.

14. CCAS indicated that Robert Conrad, LLC, had an exemption from workers’ compensation insurance that applied only to Mr. Conrad. There was no coverage for employees of Robert Conrad, LLC.

15. After conferring with her supervisor, Ms. Johnson received authorization to issue a Stop-Work Order.

16. Ms. Johnson served the Stop-Work Order and an Order of Penalty Assessment on Mr. Conrad via hand-delivery on June 5, 2017.

    
    

17. The Stop-Work Order required Robert Conrad, LLC, to “cease all business operations for all worksites in the state” and was to remain in effect until lifted by the Department.

18. A Stop-Work Order ceases a business’s operations until it obtains workers’ compensation coverage.2/

19. The Order of Penalty Assessment notified Robert Conrad, LLC, that it was required to pay an amount:

    [e]qual to 2 times the amount the employer would have paid in premium when applying approved manual rates to the employer’s payroll during periods for which it has failed to secure the payment of compensation within the preceding 2-year period.

    Employers who have not been previously issued a Stop-Work Order will receive a credit to be applied towards the penalty for: 1) the initial payment of the estimated annual workers’ compensation policy premium for coverage obtained subsequent to issuance of the Stop-Work Order, or 2) if coverage is secured through an employee leasing contract with a licensed employee leasing company, the dollar or percentage amount attributable to the initial payment of the estimated workers’ compensation expense for coverage obtained subsequent to issuance of the Stop-Work Order.

    
    

20. On June 5, 2017, Ms. Johnson personally served on Robert Conrad, LLC, a “Request for Production of Business Records for Penalty Assessment Calculation” (“the Request for Production”).3/

21. Through the Request for Production, the Department sought various types of financial documents pertaining to Robert

    
    

    Conrad, LLC’s, payroll during the period between June 6, 2015, and June 5, 2017 (“the noncompliance period), so that it could calculate the penalty to be imposed on Robert Conrad, LLC.

22. The business records requested by the Department consisted of payroll documents such as time sheets, check stubs, earnings records, and federal income tax documents; account documents such as all business check journals and statements, including cleared checks for all open and closed business accounts; check and cash disbursements; proof of any workers’ compensation insurance or exemptions; and subcontractor information.

23. The Request for Production required Robert Conrad, LLC, to provide the aforementioned records within 10 business days of receiving the Request for Production.

24. Along with the Request for Production, Ms. Johnson provided Mr. Conrad with a letter explaining how the penalty could be reduced. According to Ms. Johnson, the letter stated the following:

    There’s two ways to reduce a penalty. The first way is if they do a workers’ compensation policy, we give them credit towards the total penalty. The more down payment that they put towards the new

    policy, the better. We actually give them credit. If they give us proof of that credit – or proof of that down payment, we give them credit.

    
    

    And the second way is if they can get their business records to us within ten business days, we give them a 25-percent reduction towards the total penalty.

    
    

25. On June 6, 2017, Mr. Conrad visited Ms. Johnson’s office and provided proof that he had acquired a new workers’ compensation policy for Robert Conrad, LLC.

26. Mr. Conrad made a down payment of $1,416.40 on that policy, and the Department gave Robert Conrad, LLC, a dollar- for-dollar reduction on the penalty.

27. As for the records that Mr. Conrad provided in response to the Request for Production, Ms. Johnson testified as

    follows:

    
    

    Q: What records did the Department receive from Mr. Conrad?

    
    

    A: We received partial records. There were a couple of items missing. We were missing check images.

    
    

    Q: Okay. And when the Department received these records from the employer, what date did it receive these records?

    
    

    A: On June 15th, the Department received the initial business records: bank statement, certificate of insurance, exemptions, 1099 proof, 1040 tax returns for 2015 and 2016, and there were several cash withdrawals. And we also needed to see the checks that were missing.

    
    

    Q: Okay. Was Mr. Conrad made aware of the missing checks and the case withdrawals?

    
    

    A: Yes.[4/]

    
    

    Q: Did Mr. Conrad – or were these records provided within the ten business day deadline to receive the 25-percent credit?

    
    

    A: No.

    
    

    Q: When was – so when it was time to calculate the penalty, had Mr. Conrad brought the checks in by that time frame?

    
    

    A: Not within the ten business days.

    
    

    Q: Were there any other times that the employer brought in additional records?

    
    

    A: On June 20th and June 23rd additional records were submitted.

    
    

    Q: Okay. And in order to be eligible for the 25-percent credit, when would the tenth business day – what day would that have fallen on?

    
    

    A: June 19th, 2017.

    
    

    Q: Okay. And after the employer brought more records in on June 20th and June 23rd, were the records complete then?

    
    

    A: The penalty auditor reviewed the records, and there were some missing checks and subcontractors. So I was asked to follow up [with] Mr. Conrad and ask him for that missing information. On

    September 15th, 2017, I contacted Mr. Conrad and Mr. Conrad said he would get that information that was missing.

    
    

    * * *

    
    

    A: I was going to say Mr. Conrad called on September 18th, 2017, and he said he was hopeful in getting the missing records and would get them to us as soon as possible.

    And then on the 20th, September 20th, 2017, he came into the office with the missing checks and spoke with the auditor.

    
    

28. The checks missing from Mr. Conrad’s initial submission of business records on June 15, 2017, were significant because knowing the payees of those checks would enable the Department to ascertain if the payments were for payroll. While a bank statement would note that checks were issued during a particular month, a bank statement would not identify the payees and would be of no use in ascertaining whether the checks were for payroll.

29. On September 15, 2017, Ms. Johnson conferred with Mr. Conrad about information that was still missing.

30. Based on the documentation that had been provided by Robert Conrad, LLC, the Department issued an Amended Order of Penalty Assessment on October 25, 2017, stating that the Department would be seeking to impose a penalty of $103,369.58.

31. On November 7, 2017, Mr. Conrad provided additional documents to the Department. The four missing checks may have been among those documents.5/ One check was for $2,800.00 to a cement company. Another was to a contractor for $350.00. A third check was to Lowe’s for $3,678.61, and a fourth was to the United States Treasury for $13,375.00.

32. This new documentation resulted in the Department issuing on December 22, 2017, a 2nd Amended Order of Penalty Assessment indicating the Department was seeking to impose a penalty of $95,601.98.

    
    

33. More information provided by Mr. Conrad led to the Department issuing a 3rd Amended Order of Penalty Assessment of

    $66,989.10.

    
    

34. Chris Richardson, a penalty auditor employed by the Department, calculated the aforementioned penalty based on the business records provided by Mr. Conrad.

35. For each person for whom Robert Conrad, LLC, failed to obtain workers’ compensation coverage during the noncompliance period, Mr. Richardson determined how much money Robert Conrad, LLC, paid each person during that period.

36. The gross payroll amount for each person is divided by

    
    

    100 in order to create a percentage, and the percentage associated with each person is then multiplied by an “approved manual rate.”

37. An approved manual rate is associated with a particular class code.

38. A class code describes an employee’s scope of work based on the type of work he or she performs on a daily basis.

39. The National Council on Compensation Insurance publishes the Scopes Manual, and the Scopes Manual sets forth class codes for numerous types of work.

40. Multiplying the gross payroll percentage by an approved manual rate results in a workers’ compensation insurance premium for a particular employee.

    
    

41. As required by section 440.107(7)(d)1., Florida Statutes, each premium amount is multiplied by two in order to calculate a penalty associated with each employee for whom workers’ compensation insurance was not obtained.

42. Mr. Richardson then added the individual penalties associated with each employee of Robert Conrad, LLC, in order to calculate the total penalty.

43. The final penalty calculated by Mr. Richardson (and set forth in the 3rd Amended Order of Penalty Assessment) is

    $66,989.10.

    
    

44. During the final hearing, Mr. Conrad did not dispute that Robert Conrad, LLC, did not have sufficient workers’ compensation coverage during the noncompliance period. Also, he did not dispute the method by which the Department calculated the penalty set forth in the 3rd Amended Order of Penalty Assessment.

45. Mr. Conrad did take issue with the penalty being double the amount that he should have been paying in workers’ compensation premiums between June 6, 2015, and June 5, 2017.6/

46. Mr. Conrad also asserted that he was unaware that he was required to obtain workers’ compensation coverage for employees of Robert Conrad, LLC.

47. In addition, Mr. Conrad asserted that the penalty should be reduced by 25 percent because he timely provided the

    
    

    Department with all of the required documentation except for

    
    

    four checks.

    
    

    CONCLUSIONS OF LAW

    
    

48. DOAH has jurisdiction over the parties to and the subject matter of this proceeding pursuant to sections 120.569 and 120.57(1), Florida Statutes.

49. Chapter 440 is known as the “Workers’ Compensation Law.” § 440.01, Fla. Stat.

50. Every employer is required to secure the payment of workers' compensation for the benefit of its employees, unless the employee is exempted or excluded under chapter 440. See Bend v. Shamrock Servs., 59 So. 3d 153, 157 (Fla. 1st DCA 2011).

    Indeed, the Legislature has declared that “the failure of an employer to comply with the workers’ compensation coverage requirements under [chapter 440] poses an immediate danger to public health, safety, and welfare.” § 440.107(1), Fla. Stat.

51. Accordingly, section 440.107(7)(a) states, 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.

    
    

52. The Department is required to assess against any employer that has failed to secure the payment of workers' compensation "a penalty equal to" the greater of $1,000 or

    "2 times the amount the employer would have paid in premium when applying approved manual rates to the employer's payroll during periods for which it failed to secure the payment of workers'

    compensation . . . within the preceding 2-year period." (emphasis added). § 440.107(7)(d)1., Fla. Stat. This is a penal statute that, if ambiguous, must be construed against the Department. See Lester v. Dep't of Prof'l & Occ. Reg., 348 So.

    2d 923, 925 (Fla. 1st DCA 1977).

    
    

53. Because the Department seeks to impose an administrative penalty or fine against Robert Conrad, LLC, the Department has the burden of proving the material allegations by clear and convincing evidence. Dep't of Banking & Fin. v.

    Osborne Stern & Co., 670 So. 2d 932, 935 (Fla. 1996). Clear and convincing evidence must make the facts "highly probable" and produce in the mind of the trier of fact "a firm belief or conviction as to the truth of the facts sought to be established," leaving "no substantial doubt." Slomowitz v.

    Walker, 429 So. 2d 797, 799 (Fla. 4th DCA 1983).

    
    

54. In order to meet its burden in the instant case, the Department must demonstrate that: (a) Robert Conrad, LLC, was required to comply with the Workers' Compensation Law; (b) that Robert Conrad, LLC, failed to comply with the requirements of the Workers' Compensation Law; and that (c) the penalty assessed by the Department is appropriate.

55. There is no dispute that Robert Conrad, LLC, was required to comply with the Workers’ Compensation Law and that Robert Conrad, LLC, failed to do so.

56. As noted above, Mr. Conrad takes issue with: (a) the penalty being double the amount that he should have been paying in workers’ compensation premiums between June 6, 2015, and June 5, 2017; (b) paying a penalty when he was unaware that Robert Conrad, LLC, was required to obtain workers’ compensation coverage for its employees; and (c) having to pay the penalty without a 25-percent reduction.

57. With regard to Mr. Conrad’s first objection, section 440.107(7)(d)1. clearly states that the Department is required to assess against any employer that has failed to

    secure the payment of workers' compensation "a penalty equal to" the greater of $1,000 or "2 times the amount the employer would have paid in premium when applying approved manual rates to the

    employer's payroll during periods for which it failed to secure

    
    

    the payment of workers' compensation . . . within the preceding 2-year period." (emphasis added).

58. In light of the clear language in section 440.107(7)(d)1., there is no merit to Mr. Conrad’s first objection. See generally Wilder v. State, 194 So. 3d 1050,

    1052 (Fla. 1st DCA 2016)(noting that the resolution of the case began and ended with the plain language of the relevant statutes).

59. As for Mr. Conrad’s second objection, ignorance of the law is no defense. See Morey’s Lounge v. Dep’t of Bus. & Prof’l

    Reg., Div. of Alcoholic Beverages & Tobacco, 673 So. 2d 538,

    
    

    540 (Fla. 4th DCA 1996)(stating that “[w]e are all charged with knowledge of existing laws and that is all that this statute requires.”).

60. With regard to Robert Conrad, LLC, not being afforded a 25-percent reduction on the penalty, section 440.107(7)(d)1.b. provides that:

    For employers who have not been previously issued a stop-work order or order of penalty assessment, the department must reduce the final assessed penalty by 25 percent if the employer has complied with administrative rules adopted pursuant to subsection (5) and has provided such business records to the department within 10 business days after the

    
    

    employer’s receipt of the written request to produce business records.

    
    

    (emphasis added).

    
    

61. As discussed above, June 19, 2017, was the last day that Robert Conrad, LLC, could submit business records and still be eligible for a 25-percent reduction in the penalty. However, the evidence demonstrates that Robert Conrad, LLC, provided additional business records on multiple occasions after June 19, 2017. Therefore, Robert Conrad, LLC, was not entitled to a

25-percent reduction in the penalty assessment.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Financial

Services, Division of Workers’ Compensation, enter a final order imposing a penalty of $66,989.10 on Robert Conrad, LLC.

DONE AND ENTERED this 14th day of May, 2017, in Tallahassee, Leon County, Florida.

S

G. W. CHISENHALL 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 14th day of May, 2017.

ENDNOTES

1/ Unless stated otherwise, all statutory citations will be to the 2016 version of the Florida Statutes.

2/ Section 440.107(7)(a), Florida Statutes, provides that 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 or to produce the required business records under subsection

(5) within 10 business days after receipt of the written request of the department, such failure shall be deemed an immediate serious danger to the 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. The order shall take effect when served upon the employer or, for a particular employer worksite, when served at that worksite.”

Section 440.107(7)(a) further provides that a stop-work order “shall remain in effect until the department issues an order releasing the stop-work order upon a finding that the employer has come into compliance with the coverage requirements of this chapter and has paid any penalty assessed under this section. The department may issue an order of conditional release from a stop-work order to an employer upon a finding that the employer has complied with the coverage requirements of this chapter, paid a penalty of $1,000 as a down payment, and agreed to remit periodic payments of the remaining penalty amount pursuant to a payment agreement schedule with the department or pay the remaining penalty amount in full.”

After Robert Conrad, LLC, paid $1,000 to the Department, the Department issued an “Agreed Order of Conditional Release from Stop-Work Order” on June 6, 2017.

3/ Florida Administrative Code Rule 69L-6.015 requires employers to maintain many different types of records, including records relating to employee compensation and disbursements, “for the

current calendar year to date and for the preceding two calendar years ”

4/ Department employees maintained a log regarding their work on the instant case. A note from Pete Vallejo, III, regarding a June 15, 2017, meeting between himself and Mr. Conrad stated the following:

Employer came into the office with his business records. The records consist of bank statements. Certificate[s] of Insurance, exemptions, 1099’s, 1040 tax returns for 2015 and 2016. I reviewed the records with Mr. Conrad and showed him that there were checks written and cash withdrawals. I mentioned to him that we were going to need the checks and if he had

a cash ledger. He said no to the ledger and that the bank had told him that they would have to charge him $5 for each image [and] he told me that was too much money to pay.

I mentioned that I understood but that without the checks the audit would be deemed incomplete and that would not be in his favor.

5/ Ms. Johnson’s testimony that the four missing checks were received by the Department on September 20, 2017, conflicts with documentary evidence indicating the checks were received by the Department on November 7, 2017. Regardless of which date is accurate, both dates were well after the 10-day deadline for Robert Conrad, LLC, to submit records and be entitled to a

25-percent reduction of the penalty.

6/ Mr. Conrad asserted during the final hearing that a Department employee stated to him that the penalty to be imposed on Robert Conrad, LLC, would be no more than what should have been paid in workers’ compensation premiums during the noncompliance period. Even if such a statement had been made to Mr. Conrad by a Department employee, that would not be a basis for estopping the Department from imposing the penalty set forth in the 3rd Amended Order of Penalty Assessment. Because section 440.107(7)(d)1. requires that the Department impose a penalty equal to the greater of $1,000 or twice the amount an employer would have paid in premiums, the statement allegedly

made by a Department employee is a mistake of law. As a result, equitable estoppel does not apply. See Salz v. Dep’t of Admin.,

Div. of Ret., 432 So. 2d 1376, 1378 (Fla. 3rd DCA 1983)(noting that equitable estoppel will only be applied against state agencies under exceptional circumstances and that “[t]he state may not be estopped for conduct resulting from a mistake of law.”).

COPIES FURNISHED:

Taylor Anderson, Esquire Department of Financial Services

200 East Gaines Street Tallahassee, Florida 32399 (eServed)

Robert Conrad Robert Conrad, LLC 3368 Citation Drive

Green Cove Springs, Florida 32043

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: 17-006471

Orders for Case No: 17-006471