STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL SERVICES, DIVISION OF WORKERS' COMPENSATION,

Petitioner,

vs.

ALPHA AND OMEGA BUILDER OF JACKSONVILLE, INC.,

Respondent.

/

Case No. 18-5545

RECOMMENDED ORDER

On February 20, 2019, Administrative Law Judge Robert J. Telfer III, of the Florida Division of Administrative Hearings (Division), conducted a duly-noticed hearing in Tallahassee and Jacksonville, Florida, by video teleconference, pursuant to sections 120.569 and 120.57(1), Florida Statutes (2018).

APPEARANCES

For Petitioner: Kyle Christopher, Esquire

Florida Department of Financial Services Office of the General Counsel

Hartman Building

2012 Capital Circle Southeast Tallahassee, Florida 32399

For Respondent: Adrian Shawn Middleton, Esquire

Middleton & Middleton, P.A. 1469 Market Street

Tallahassee, Florida 32312

STATEMENT OF THE ISSUES

The issues to determine in this matter are whether Respondent Alpha and Omega Builders of Jacksonville, Inc., failed to secure workers’ compensation coverage for its employees; and, if so, whether Petitioner Department of Financial Services, Division of Workers’ Compensation (Department), correctly calculated the penalty assessment it imposed against Respondent.

PRELIMINARY STATEMENT

On January 30, 2018, the Department served a Stop-Work Order and Order of Penalty Assessment on Respondent, pursuant to chapter 440, Florida Statutes, for failing to secure workers’ compensation insurance for its employees. On February 6, 2018, the Department issued an Agreed Order of Conditional Release from the Stop-Work Order to Respondent. On April 23, 2018, the Department served an Amended Order of Penalty Assessment (Amended Order) on Respondent.

On May 11, 2018, Respondent filed a petition for hearing, disputing whether the Department correctly evaluated records it provided and whether the Department correctly calculated the penalty for violation of chapter 440.

On October 19, 2018, the Department referred the matter to the Division, which assigned this matter to the undersigned. The undersigned scheduled the final hearing for December 17, 2018.

On December 4, 2018, the Department filed its Motion to Continue

Final Hearing, which the undersigned granted. The undersigned, thereafter, entered an Order Rescheduling Hearing by Video Teleconference, setting the final hearing for February 20, 2019.

The final hearing proceeded as scheduled. The Department presented the testimony of Lynise Beckstrom, Jacksonville supervisor for workers’ compensation compliance, and Lynn Murcia, penalty auditor. The undersigned admitted Department Exhibits 1, 3, 5 through 12, and 15. Respondent presented the testimony of Sherman Jessie, the corporate representative and owner of Respondent.

The one-volume Transcript of this final hearing was filed with the Division on March 5, 2019. Petitioner timely filed a proposed recommended order that the undersigned considered in the preparation of this Recommended Order. Respondent, represented by counsel, inexplicably failed to file a proposed recommended order.

All statutory references are to the 2018 codification of the Florida Statutes unless otherwise indicated.

FINDINGS OF FACT

1. The Department is the state agency charged with enforcing the requirement of chapter 440 that employers in Florida secure workers’ compensation insurance coverage for their employees. See § 440.107(3), Fla. Stat.

   
   

2. Respondent is a corporation located in Jacksonville, Florida, engaged in the roofing industry.

3. Ms. Beckstrom, the Jacksonville supervisor for workers’ compensation compliance investigators, testified at the final hearing. Ms. Beckstrom largely read from the January 30, 2018, investigative report and narrative completed by Investigator Frank Odom, who did not testify at the final hearing.1/

   Ms. Beckstrom did not perform the investigation of Respondent, but authorized Mr. Odom to do so.

4. On January 30, 2018, Mr. Odom investigated the worksite at 5065 Soutel Drive, Jacksonville, Florida, which is the

   J. Fralin Funeral Home, a commercial business (the Soutel Drive site).

5. Mr. Odom’s narrative stated, “[a]s I approached the site I observed 3 individuals on the roof installing shingles.”

6. Much of the remaining portions of Mr. Odom’s narrative, which ultimately led to his determination that Respondent employed these three individuals without workers’ compensation insurance, is inadmissible hearsay. Although Ms. Beckstrom testified extensively on what Mr. Odom wrote in the investigative report and narrative, the undersigned cannot base findings of fact on inadmissible hearsay unless it explains or supplements other evidence.

   
   

7. In contrast, Mr. Jessie, the owner of Respondent, testified at the final hearing that Mr. Odom contacted him the morning of January 30, 2018, by telephone. When Mr. Odom asked if Respondent had three individuals working on the Soutel Drive site, Mr. Jessie testified that he told Mr. Odom that these individuals were not supposed to be working.2/

8. Mr. Jessie stated that when he arrived at the Soutel Drive site after receiving the call from Mr. Odom, the three individuals had left. On cross-examination, Mr. Jessie did not recognize the names of Roberto Flores, Alex Alvarado, or Dagoberto Lopez, who Mr. Odom identified in the investigative report and narrative as the three individuals working on the roof at the Soutel Drive site.

9. Mr. Jessie testified that he normally employs workers through an organization called Action Labor, who in turn secures the applicable workers’ compensation insurance for them.

   Mr. Jessie testified that he had arranged, through Action Labor, for three individuals to work on the Soutel Drive site, and that Action Labor had provided him a “ticket” for three individuals to work at the site. His testimony is credited. Although not crystal clear from his testimony, the undersigned understood

   Mr. Jessie to refer to Action Labor as an employee leasing company.3/

   
   

10. Mr. Jessie further testified that after meeting with Mr. Odom at the Soutel Drive site, he received a Stop-Work Order and Order of Penalty Assessment, as well as a Request for Production of Business Records for Penalty Assessment Calculation (Request for Production).

11. The Request for Production requested several categories of business records from Respondent, for the time period of January 31, 2016, through January 30, 2018, to determine Respondent’s payroll during that time period (audit period).

12. The Request for Production requested that Respondent provide all payroll documents, account documents, disbursements, workers’ compensation coverage, temporary labor service and day labor service records, subcontractors, and documentation of subcontractors’ workers’ compensation insurance coverage.

13. At the final hearing, Ms. Murcia, the Department’s penalty auditor, testified that because Respondent had not timely provided sufficient records in response to the Request for Production, the Department issued the Amended Order.

14. Ms. Murcia testified that the Department received some records requested pursuant to the Request for Production in February 2019 (which was well after the response deadline of 10 business days), but that they were incomplete and thus not sufficient to calculate a penalty.

    
    

15. Because Respondent failed to provide sufficient records in response to the Request for Production, the Department calculated the Amended Order based on a completely imputed payroll. Ms. Murcia explained that the Department calculates a gross payroll for an employer (who provides insufficient records) at the statewide average weekly wage multiplied by 1.5 for each employee for the period requested for the calculation of the penalty.

16. Based on this imputation calculation, the Amended Order imposed a penalty in the amount of $166,791.18.

17. The evidence presented at the final hearing was insufficient to establish that the three individuals observed at the Soutel Drive site on January 30, 2018, were Respondent’s employees or subcontractors on that day or at any time during the audit period.

18. The evidence presented at the final hearing established that Respondent failed to timely present sufficient records pursuant to the Request for Production.

    CONCLUSIONS OF LAW

    
    

19. The Division has jurisdiction over the subject matter and the parties to this proceeding in accordance with sections 120.569 and 120.57(1).

20. Because the Department seeks to impose an administrative penalty against or fine against Respondent, it has

    
    

    the burden of proving the material allegations by clear and convincing evidence. See 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).

    
    

21. Chapter 440 is known as the “Workers’ Compensation Law.” § 440.10, Fla. Stat.

22. The State of Florida requires every employer to secure the payment of workers’ compensation for the benefit of its employees, unless the employee is exempt or excluded under chapter 440. See Bend v. Shamrock Servs., 59 So. 3d 153, 157

    (Fla. 1st DCA 2011). The Florida 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.

    
    

23. Under sections 440.10 and 440.38, all employers must secure the payment of workers’ compensation insurance for their employees. Section 440.10(1)(a) provides, “[e]very employer coming with the provisions of this chapter shall be liable for,

    
    

    and shall secure, the payment to his or her employees . . . of the compensation.”

24. Florida law defines “employer,” in part, as “every person carrying on any employment.” § 440.02(16), Fla. Stat.

25. Florida law defines “employment” as “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)(b)2. and 440.10(1)(b), Fla. Stat.

26. Florida law defines “employee,” 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.

27. Florida law also defines “employee” as “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.

    
    

28. The Department did not prove, by clear and convincing evidence, that the three individuals identified in the investigative report and narrative, were “employees” of Respondent on January 30, 2018, or during the audit period. The only admissible non-hearsay evidence presented at the final

    
    

    hearing concerning this issue was the testimony of Mr. Jessie, who testified that he did not recognize the names of these three individuals and had not employed them. Rather, he testified convincingly that he had arranged, through Action Labor, for three individuals to work on the Soutel Drive site.

29. Because the undersigned concludes that the Department did not prove, by clear and convincing evidence, that the three individuals were employees of Respondent, the undersigned further concludes that the Department did not prove, by clear and convincing evidence, that it properly issued a Stop-Work Order and Order of Penalty Assessment, and an Amended Order of Penalty Assessment, to Respondent.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of Law, the undersigned recommends that the Department enter a final order dismissing the Stop-Work Order and Order of Penalty Assessment, and the Amended Order of Penalty Assessment, against Respondent.

DONE AND ENTERED this 3rd day of April, 2019, in Tallahassee, Leon County, Florida.

S

ROBERT J. TELFER III

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 3rd day of April, 2019.

ENDNOTES

1/ The investigative report and narrative (as well as the field interview worksheet that the Department introduced) constitute hearsay. Though hearsay is admissible in administrative proceedings, it can only be used to explain or supplement other admissible evidence; an ALJ cannot base a finding of fact on hearsay alone unless that evidence would be admissible in a civil action over objection. See § 120.57(1)(c), Fla. Stat.; Fla.

Admin. Code R. 28-106.213(3); see also Harris v. Game & Fresh Water Fish Comm’n, 495 So. 2d 806, 808-09 (Fla. 1st DCA 1986)(explaining that in administrative hearings, hearsay evidence may be used for the purpose of supplementing or explaining other evidence, but it shall not be sufficient in itself to support a finding unless it would be admissible over objection in civil actions).

The Department, through Ms. Beckstrom, established that the investigative report and narrative was admissible under the business records and public records exceptions to the hearsay rule; see §§ 90.803(6)(a) and (8), Fla. Stat. However, the undersigned warned at the final hearing (and in response to counsel for Respondent’s hearsay objection) that this document contained hearsay-within-hearsay, and that the undersigned could not base a finding of fact on such double hearsay unless it

supplemented or explained other evidence, or was separately admissible over objection. The undersigned further cautioned the parties of this evidentiary issue in the March 7, 2019 Order Granting Petitioner’s Motion for Clarification, which corrected a scrivener’s error in the transcript.

In Harris, the court, in examining a report that the agency’s internal investigator generated, held that “[t]he general rule is that a hearsay statement which includes another hearsay statement is admissible only when both statements conform to the requirements of a hearsay exception.” Harris, 495 So. 2d at 809 (citing Ehrhardt, Florida Evidence, § 90.805, at 563 (2d ed. 1984)). The Harris court went on to hold:

In the present case, the information contained in the investigator’s report was hearsay. The investigator indicated in his report that his findings were based on his discussions with various persons associated with the appellant’s arrest and conviction. Such information is hearsay and does not fall within any hearsay exception. Thus, the material contained in the investigator’s report could not be relied upon by the Commission to support its findings.

Id. See also Bellsouth Advertising & Publishing Corp. v. Unemployment Appeals Comm’n, 654 So. 2d 292, 294-95 (Fla. 1st DCA 1995)(holding that information contained in an investigative report was inadmissible pursuant to Harris).

Under the public records exception to the hearsay rule, see section 90.803(8), Florida Statutes, two types of public records are excepted from the hearsay rule: (1) those that set forth the activities of the agency; and (2) those that set forth “matters observed” that are based on “a public official’s first-hand observation of an event.” See Yisrael v. State, 993 So. 2d 952, 959 (Fla. 2008).

The undersigned has reviewed the investigative report and narrative, and bases the findings of fact on those “matters observed” that are based on Mr. Odom’s “first-hand observation of an event[,]” or on double hearsay that explains or supplements other admissible evidence.

2/ In its Proposed Recommended Order, the Department suggests that Mr. Jessie admitted that these three individuals were

working for Respondent. The undersigned finds that Mr. Jessie did not admit that these three individuals were working for him; in response to a question from the Department’s lawyer,

Mr. Jessie denied recognizing the names of any of these three individuals, and instead said that Respondent employed three individuals to work on the Soutel Drive site through Action Labor.

3/ Florida Administrative Code Rule 69L-6.032(3) provides that a contractor need not secure workers’ compensation insurance if a subcontractor is a client company of an employee leasing company, and the employee leasing company provides specified documentation concerning evidence of workers’ compensation insurance. The parties presented little in the way of admissible evidence, other than Mr. Jessie’s testimony, concerning whether Action Labor was an employee leasing company, and counsel did not question

Mr. Jessie further to clarify the status of Action Labor. However, as discussed further in the findings of fact and conclusions of law, the Department failed to establish, through clear and convincing evidence, that Respondent employed these three individuals, and, thus, it is not necessary to make a finding concerning the status of Action Labor.

COPIES FURNISHED:

Adrian Shawn Middleton, Esquire Middleton & Middleton, P.A.

1469 Market Street

Tallahassee, Florida 32312 (eServed)

Kyle Christopher, Esquire

Florida Department of Financial Services Office of the General Counsel

Hartman Building

2012 Capital Circle Southeast Tallahassee, Florida 32399 (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: 18-005545

Orders for Case No: 18-005545