07-002041 2 Friends, Inc., D/B/A La Paz Mexican Grill vs. Department Of Financial Services, Division Of Workers' Compensation Status: Closed Recommended Order on Wednesday, July 30, 2008.

Summary: Respondent established that the stop work order was properly served and that Petitioner was on notice of need to stop work until workers` compensation obtained. Petitioner failed to do so. The fine calculation was shown to be proper.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

2 FRIENDS, INC., d/b/a LA PAZ )

MEXICAN GRILL, )

)

Petitioner, )

)

vs. ) Case No. 07-2041

)

DEPARTMENT OF FINANCIAL SERVICES, DIVISION OF WORKERS' )

COMPENSATION, )

)

)

Respondent. )

)

RECOMMENDED ORDER

This case was heard by P. Michael Ruff, duly-designated

Administrative Law Judge of the Division of Administrative

Hearings, in accordance with duly issued notice, on April 16,

2008, in Inverness, Florida. The appearances were as follows:

APPEARANCES

For Petitioner: Leon M. Boyajan, II, Esquire

Leon M. Boyajan, II, P.A.

2303 West Highway 44

Inverness, Florida 34453-3809

For Respondent: Thomas H. Duffy, Esquire

Department of Financial Services

200 East Gaines Street, 6th Floor

Tallahassee, Florida 32399

STATEMENT OF THE ISSUES

The issues to be resolved in this proceeding concern whether the Petitioner was operating its restaurant business in

violation of Chapter 440, Florida Statutes, the Florida Workers'

Compensation Law, by failing to have required workers'

compensation coverage. The related issues are whether the

Department should therefore issue a Stop Work Order, whether a

penalty should be imposed for so operating and what the correct

penalty should be.

PRELIMINARY STATEMENT

This dispute commenced when the Respondent, the Department

of Financial Services, Division of Workers' Compensation

(Department) issued a stop work order to Petitioner, 2 Friends,

Inc., d/b/a La Paz Mexican Grill (Petitioner). The Stop Work

Order was issued because of a requirement in Chapter 440,

Florida Statutes, which mandates that employers secure payment

of workers' compensation insurance coverage for their workers.

The Petitioner's business is a restaurant, he was therefore

required to secure such coverage if he had four or more

employees. Two Orders of Penalty Assessment were issued and

amended. Thereafter, a Third Amended Order of Penalty

Assessment was issued on April 3, 2007, concerning which the

Petitioner filed a timely Petition for Administrative Hearing.

The matter was ultimately referred to the Division of

Administrative Hearings on May 9, 2007. After granting an

agreed-upon extension for response to Initial Order, Initial

Order responses were filed on or about May 29, 2007. The matter

was originally scheduled for hearing for August 2, 2007.

Shortly prior to the hearing, by Motion, the hearing was

continued and the case was placed in abated status because of an

agreement by the parties that it be so due to a pending and

related criminal proceeding. The abatement period was

thereafter extended, by Order, at the request of both parties

and, with the criminal matter being resolved, the case was

scheduled for hearing for April 16, 2008. The hearing was

conducted that day.

When the cause came on for hearing as noticed, the

Department presented the testimony of one witness and had 14

documents introduced into evidence. The Petitioner called one

witness and also introduced 14 exhibits into evidence. A

transcript was thereafter ordered and duly filed and the parties

were given an opportunity to submit proposed recommended orders.

The Proposed Recommended Orders have been considered in the

rendition of this Recommended Order.

FINDINGS OF FACT

1. The Department is an Agency of the State of Florida

charged with enforcing the statutory requirement, specifically

Section 440.107, Florida Statutes, which mandates that employers

in Florida secure the payment of workers' compensation insurance

coverage for the benefit of employees. The Petitioner is a

restaurant operating in the vicinity of Crystal River, Florida,

which opened for business sometime in the year 2005. At certain

times during its operation, which are those times relevant to

this proceeding, the restaurant had four or more employees, and

was thus subject to the requirement to secure payment of

workers' compensation for those employees.

2. Wanda Rivera is an investigator for the Division's

Bureau of Compliance. On January 12, 2007, she was referred to

investigate a restaurant in Crystal River, Florida. There was

another restaurant nearby, the La Paz Mexican Grill, the

Petitioner's business. Because she was in the area she made a

routine visit to that restaurant as well. When Ms. Rivera

entered the restaurant she saw two waitresses as well as another

employee and the owner of the restaurant. She made a report of

her visit as well as other events and observed facts from her

investigation and included them as part of a narrative in her

initial investigative report.

3. Ms. Rivera checked the Department's Coverage and

Compliance Automated System (CCAS) data base by first looking up

the name La Paz Mexican Grill. She spoke to the restaurant's

owner, Aswaldo Vazquez, and learned that the actual corporate

name was 2 Friends, Inc. She researched that name in the

Division's data base and found no indication of workers'

compensation coverage for that corporation. She also

interviewed workers present at the restaurant.

4. Mr. Vazquez told Ms. Rivera that there were five

employees and that the restaurant did not have workers'

compensation coverage. Ms. Rivera also checked the CCAS data

base, as well as the Department of State, Division of

Corporation's data base. She thereby discovered that

Mr. Vazquez was an officer of the corporation, but that he did

not have an exemption from workers' compensation coverage which

corporate officers may apply for and obtain.

5. Ms. Rivera presented her investigative findings to her

supervisor and after having done so issued a Stop Work Order,

Number 07-012-D3, and served it upon Mr. Vazquez. She hand

wrote the Stop Work Order Number on that form, having received

that number from her supervisor. She served it on Mr. Vazquez

personally on that same day, January 12, 2007.

6. Part of her training as an investigator had emphasized

serving documents personally on employers. The Stop Work Order

was a three part form; she gave the yellow carbon copy of the

Stop Work Order to Mr. Vazquez by hand delivery and, in checking

her official file in the case in preparation for hearing, she

found that her file contained no yellow copy of the Stop Work

Order Form, corroborating her testimony that she had personally

served the yellow copy of the Stop Work Order on Mr. Vazquez on

January 12, 2007.

7. The Stop Work Order specifically stated that all

business operations had to cease immediately and could not

resume until the Department issued an order releasing the Stop

Work Order. The Order also stated that a penalty of $1,000.00 a

day would be assessed the employer who conducted business

operations in violation of the Stop Work Order.

8. Ms. Rivera and Mr. Vazquez are fluent Spanish speakers.

Ms. Rivera therefore conducted her interview with Mr. Vazquez in

Spanish to assure that he understood all facets of the

Division's position in his situation. She answered his

questions and explained to him that the Stop Work Order was to

take effect immediately and that there would be a $1,000.00

dollar per day fine for working in violation of the Stop Work

Order.

9. She also issued and served a Request for Production of

Business Records for Penalty Assessment Calculation. The

records were to be produced within five business days. Two

types of records were requested: those that would show how much

payroll the establishment had paid over the previous three years

and those that would show exemptions.

10. The request for records allows the employer five days

to provide the documents; if no records were received within 15

days of the request, the Department could impute the gross

payroll. Three weeks after serving the request on Mr. Vazquez,

Ms. Rivera received some records by mail on February 2, 2007.

They were insufficient for her investigation. Thus, not having

received records from which she could calculate payroll and

determine when the restaurant had four or more employees,

Ms. Rivera, in accordance with statute, imputed the payroll and

thereupon calculated a penalty of $34,240.30 based upon the

imputed amount. She issued an Amended Order of Penalty

Assessment to that effect on February 5, 2007, and it was served

by certified mail on Mr. Vazquez on February 7, 2007. It was

also served by a process server on February 13, 2007.

11. That Amended Order of Penalty Assessment did not

reference the Stop Work Order Number nor did it reflect the date

it was issued. Ms. Rivera forgot to include this information

when she filled out the Order. The Amended Order of Penalty

Assessment did, however, have the following language:

The Stop Work Order issued in this case

shall remain in effect until either (a) the

Division issues an order releasing the Stop

Work Order upon finding that the employer

has come into compliance with the coverage

requirements of the workers' compensation

law and pays the total penalty in full, or

(b) the Division issues an Order of

Conditional Release from Stop Work Order

pursuant to the employer coming into

compliance with the coverage requirements of

the workers' compensation law and entering

into a payment agreement schedule for

periodic payment of penalty.

12. On February 7, 2007, Mr. Vazquez phoned Ms. Rivera

asking why his penalty was that high, stating that his

accountant could provide additional records. Ms. Rivera had

telephone contact at least twice with Mr. Vazquez between

February 7, and March 29, 2007. When she contacted him at the

restaurant, a voice would answer, "La Paz Mexican Restaurant,

how may I help you?" She asked Mr. Vazquez if the restaurant

was actually operating, and told him that he could not open for

business while a Stop Work Order was in effect. She was assured

that the restaurant was not working. Mr. Vazquez also told her

that more records would be produced.

13. On March 29, 2007, however, Ms. Rivera had not

received any new records, so she visited the restaurant and

found that it was open for business in violation of the Stop

Work Order. Because the restaurant is open seven days a week,

Ms. Rivera assessed an additional penalty of $1,000.00 per day

since the Stop Work Order had been issued. She thus issued a

Second Amended Order of Penalty Assessment for the sum of

$110,240.30. The Second Amended Order of Penalty Assessment

referred to Stop Work Order Number 07-012-D3, stating that the

Stop Work Order had been filed on January 12, 2007, and noting

that the Amended Order of Penalty Assessment was dated

February 5, 2007, and the Order showed an issuance date of

March 29, 2007.

14. On the next day, March 30, 2007, Ms. Rivera received

more business records, from which she could calculate a penalty

without imputing the payroll. Ms. Rivera calculated the new

penalty at $79,690.36. Before she could issue a new penalty

order, however, Mr. Vazquez contacted her and said that his

restaurant had been closed for several days while he was

traveling. He subsequently provided documents to Ms. Rivera

that showed that he was out of the country for nine days. While

76 days had elapsed between the date the Stop Work Order was

issued and the date Ms. Rivera found the restaurant had been

open, Ms. Rivera determined that she would assess the penalty

for only 67 days of that period. This decision was based upon

Mr. Vazquez's documentation and her giving him the benefit of

the doubt in accepting his representation that he had been out

of the country for nine days and not operating.

15. She then re-calculated the penalty as being $70,060.36

and issued a Third Amended Order of Penalty Assessment to that

effect. The Third Amended Order of Penalty Assessment made

reference to Stop Work Order Number 07-012-D3, and notes that

the Stop Work Order was issued on January 12, 2007. The Third

Amended Order has "February 5, 2007," in the line on the order

for "issuance date." The entry for "issuance date" on the Third

Amended Order of Penalty Assessment is incorrect and it should

have been April 3, 2007, the date the Amended Order of Penalty

Assessment was issued.

16. The penalty worksheet for the Third Amended Order of

Penalty Assessment shows that there was $25,793.55 in payroll

for the relevant portions of 2005; $8,635.30 for relevant

portions of 2006 during which times the restaurant had four

employees. There was $1,370.21 in payroll for the relevant

first 12 days of 2007, which was up until the time the Stop Work

Order was issued. Ms. Rivera did not include the payroll for

periods of time when the record showed the restaurant did not

have four employees and her work papers so reflect. The payroll

was calculated from 2005 forward because the business opened

that year.

17. On April 4, 2007, Mr. Vazquez brought his restaurant

into compliance by reducing his staff to less than four

employees and he entered into an agreement with the Department

whereby he would pay down 10 percent of the penalty and agree to

pay the remainder in 60 interest free monthly payments.

18. Mr. Vazquez, in effect, does not contest the

Division's position that he was required to carry workers'

compensation coverage during the pertinent time periods and that

he did not have such coverage. In actuality he disputes the

amount of the penalty because he maintains that he did not

receive the Stop Work Order until March 29, 2007. Mr. Vazquez

is the president of the 2 Friends, Inc., Corporation. He speaks

English and opined during his testimony that he reads 60 to 70

percent of English text. He knows people who are fluent in

English and has people to whom he can show documents written in

English if he does not understand any part of such.

CONCLUSIONS OF LAW

19. 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. (2007).

20. Cases in which the Agency attempts an administrative

fine have been deemed to be penal in nature. See Department of

Banking and Finance, Division of Securities and Investor

Protection v. Osborne Stern and Co. , 670 So. 2d 932, 935 (Fla.

1996); L and W Plastering and Drywall Services, Inc. v.

Department of Financial Services, Division of Workers'

Compensation , Case No. 06-3261 (DOAH, March 16, 2007). See also

§ 120.57(1)(j), Fla. Stat. which provides that:

Findings of fact shall be based upon a

preponderance of the evidence, except in

penal or licensure disciplinary proceedings

or except as otherwise provided by statute .

. . (Emphasis supplied.)

21. The Agency is asserting the affirmative of the issue

before this forum and thus has the burden of proof. Balino v.

Dept. of Health and Rehabilitative Services , 348 So. 2d 349 (Fla.

1st DCA 1977); Florida Dept. of Transportation v. J.W.C. Co.,

Inc. , 396 So. 2d 778, 788 (Fla. 1st DCA 1981). The Agency takes

the position that the proof standard is "clear and convincing"

evidence in this penal proceeding. It acknowledges the holding

in Olender Construction, Inc. v. Dept. of Financial Services,

Division of Workers' Compensation , Case No. 06-5023 (DOAH March

14, 2008), finding the standard to be preponderance of evidence,

however.

22. The Agency has established, by either measure with

unrefuted, persuasive evidence that the Stop Work Order and Third

Penalty Assessment were properly issued and calculated, however.

Sections 440.10 and 440.38, Florida Statutes, impose upon all

employers the obligation to secure the payment of workers'

compensation. This obligation is governed by Section 440.107(2),

Florida Statutes, which reads, in relevant part:

For purposes of this section, 'securing the

payment of workers' compensation 'means

obtaining coverage that meets requirements

of this chapter and the Florida Insurance

Code . . .'

23. The Department has established that the Petitioner

violated Sections 440.10 and 440.38, Florida Statutes. The

Petitioner was an "employer" for workers' compensation purposes

because it was not in the construction industry and it regularly

employed at times pertinent to this prosecution, at least four

employees. See §§ 440.02(16)(a), and 440.02(17)(b)2. Fla. Stat.

25. The Department's duties and power to enforce compliance

with the requirement to provide payment of workers' compensation

is provided at Section 440.107, Florida Statutes. Section

440.107(3)(g), Florida Statutes, authorizes the Division to issue

Stop Work Orders and Penalty Assessment Orders in enforcement of

its coverage requirements and Section 440.107(3)(c), Florida

Statutes, authorizes the Department to examine and copy

employers' business records. Section 440.107(7)(a), Florida

Statutes, provides in pertinent 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 or to

produce the required business records under

subsection (5) within five business days

after receipt of the written request of the

department, 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.

Thus the Stop Work Order in this case was mandated by the above

statute.

26. Section 440.107(7)(d)1. provides:

In addition to any penalty, Stop-Work Order,

or injunction, the department shall assess

against any employer who has failed to

secure payment of compensation as required

by this chapter a penalty equal to 1.5 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 required by this

chapter within the preceding three-year

period or $1,000.00, whichever is greater.

Thus, the Department has a statutory mandate to use and the

established formula to calculate the penalty and on that basis

calculated an amount equal to one and one-half times the

workers' compensation premium the Petitioner employer evaded

since its business opened in 2005.

27. Florida Administrative Code Rule 69L-6.025 provides

for a penalty calculation worksheet for the Department

investigators to employ. An analysis of that worksheet shows

that the important calculation is to establish the premium that

should have been paid. Premium is equal to one hundredth of

each employee's pay, the gross payroll, which is then multiplied

by an established rate based on the risk of injury, known as the

"approved manual rate." The Department properly assessed the

penalty of $67,000.00 for working in violation of the Stop Work

Order. Testimony established that the restaurant was open seven

days a week and that on at least 67 days between February and

March 29, 2007, the restaurant conducted regular business

operations. Mr. Vazquez, in fact, did not dispute the

Department's contention that he did not close the restaurant

after being served with a Stop Work Order. Rather, his defense

was predicated on his purported lack of understanding that he

was required to close. That defense is not persuasive for the

reasons delineated below.

28. First, Ms. Rivera credibly testified that she fully

explained to Mr. Vazquez, at the time she issued the Stop Work

Order and more than once thereafter, that his restaurant had to

close and remain closed until a penalty was paid and he became

compliant with the workers' compensation coverage law, either by

acquiring coverage or by reducing his staff below the staff

level for which coverage is required. Secondly, the Stop Work

Order itself notified him: "If the employer conducts any

business operations in violation of this Stop Work Order, a

penalty of $1,000.00 for each day of violation shall be

assessed." Mr. Vazquez was told this in Spanish, his native

language, and in English, which he can read. He also

acknowledged he has persons available who can read English to

him if that were required. He was thus given to understand that

his business would be fined for every day he was open in

violation of the Stop Work Order.

29. Mr. Vazquez testified that it was his understanding

that the matter had been resolved, but that testimony is refuted

by other evidence. Ms. Rivera for instance credibly testified

that she never told him that the Stop Work Order had been

rescinded and as noted above, she repeatedly told him his

restaurant could not be opened until a penalty was paid.

Secondly, he received, as early as February 7, 2007, an Amended

Order of Penalty Assessment that made reference to the Stop Work

Order.

30. Mr. Vazquez also testified that he never received a

copy of the Stop Work Order and therefore did not know that it

was in effect. This is contrary to other credible evidence,

however. First of all there is a copy of such a document

admitted as Department's Exhibit Five. Secondly, Ms. Rivera

testified that she served a yellow carbon copy of the Stop Work

Order on Mr. Vazquez on January 12, 2007, by placing it in his

hand. Service of such papers is strongly emphasized by the

Department in its investigator training, and as Ms. Rivera had

only been recently trained, her testimony on this point is

deemed credible. Moreover, she testified that there was no

yellow copy remaining in her file, which tends to corroborate

her testimony that she had given the yellow copy to Mr. Vazquez

in accordance with her training. Third, Ms. Rivera made a

contemporaneous narrative account of her actions, which is

depicted in Department's Exhibit One. That narrative recounts

her issuance and serving of the Stop Work Order SWO07-012-D3.

There was no objection at trial to this document being admitted,

even though it is hearsay. Because of the lack of objection it

was admitted, and, in any event, if nothing else constitutes

corroborative or explanatory hearsay for purposes of Section

120.57(1)(c), Florida Statutes. The Petitioner noted in its

Petition that the Amended Order of Penalty Assessment did not

actually make reference to a Stop Work Order. Although it is

true that the lines were mistakenly left blank concerning the

Stop Work Order by the investigator on the Third Amended Order

of Penalty Assessment, that is still not proof that the Stop

Work Order was not issued, served, and operative.

31. The Department has established that it issued the Stop

Work Order and served it personally upon Mr. Vazquez on

January 12, 2007. The Petitioner was properly put on notice

that it was required to cease business operations on that date

and could not reopen until the release of the Stop Work Order by

the Department.

32. The Department is required by statute to impose the

penalty for working in violation of the Stop Work Order.

Section 440.107(7)(c), Florida Statutes, is unequivocal:

The department shall assess of $1,000.00 per

day against an employer for each day that

the employer conducts business operations

that are in violation of a stop work order.

The Department was therefore required to issue the Order and to

penalize the Petitioner for not having secured payment of

workers' compensation. The relevant calculations resulted in

the imposition of a $67,000.00 penalty for working in violation

of the Stop Work Order.

33. The Department did exercise discretion insofar as it

could in order to give the Petitioner the benefit of the doubt.

That is, Ms. Rivera accepted at fact value that Mr. Vazquez's

assertion that his restaurant was closed for nine days while he

was out of the country was true. Moreover, the Department

accepted, and calculated the penalty from business records that

were provided well after the time the Department was required to

accept such records. Two subsections of Florida Administrative

Code Rule 69L-6.028 provide pertinently as follows:

(1) In the event that an employer fails to

provide business records sufficient for the

department to determine the employers

payroll for the period requested for the

calculation of the penalty pursuant to

Section 440.107(7)(e), Florida Statutes, the

department shall impute payroll at any time

after the expiration of 15 business days

after receipt by the employer of a written

request to produce such business records.

Under this subsection, the Department must impute payroll after

15 days if it has received no records, or insufficient records,

from which it can calculate a penalty. Subsection (3) also

states:

If subsequent to imputation of weekly

payroll pursuant to subsection (2) herein,

but before and only until the expiration of

45 calendar days from receipt by the

employer of written request to produce

business records, the employer provides

business records sufficient for the

department to determine the employer's

payroll for the period requested for the

calculation of the penalty pursuant to

Section 440.107(7)(e), Florida Statutes, the

department shall recalculate the employer's

penalty to reflect the payroll information

provided in such business records. Thus,

under this subsection, the department must

not impute the payroll for purposes of

calculation if the employer provides records

within 45 days of the request.

34. The rule does not require the Department to impute

payroll if records are received after 45 days, and does not

prohibit the Department from doing what it did here: to accept

the records 77 days from service of the request. The Department

would have been within its authority to refuse to accept the

more complete payroll records and in proceeding with the Second

Amended Order of Penalty Assessment, which would result in a

penalty of $110,240.30. Instead, the Department exercised

discretion and accepted the records, although filed 77 days

after service of the records request, thereby calculating the

penalty at $70,060.36. The Petitioner thereby avoided more than

$40,000.00 in additional penalty.

35. In summary, the Department has established its

position in this case by unrefuted, credible persuasive

evidence. It is thus established that an appropriate penalty

for the Petitioner's failure to maintain required workers'

compensation coverage, during the times pertinent to this case,

delineated in the above findings of fact, is $70,060.36.

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 finding that the Petitioner, 2 Friends

Inc., d/b/a/ La Paz Mexican Grill, has failed to secure required

workers' compensation coverage for its employees in violation of

Sections 440.10(1)(a) and 440.38(1), Florida Statutes (2007),

and that a penalty against that entity be accessed in the amount

of $70,060.36, and that said final order provide for an

acceptable installment payment arrangement whereby the amount

may be paid over a period of at least 60 months at no interest.

DONE AND ENTERED this 30th day of July, 2008, in

Tallahassee, Leon County, Florida.

S

___________________________________

P. MICHAEL RUFF

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

[phone] SUNCOM 278-9675

Fax Filing [phone]

www.doah.state.fl.us

Filed with Clerk of the

Division of Administrative Hearings

this 30th day of July, 2008.

COPIES FURNISHED :

Leon M. Boyajan, II, Esquire

Leon M. Boyajan, II, P.A.

2303 West Highway 44

Inverness, Florida 34453-3809

Thomas H. Duffy, Esquire

Department of Financial Services

200 East Gaines Street, 6th Floor

Tallahassee, Florida 32399

Honorable Alex Sinks

Chief Financial Officer

Department of Financial Services

The Capitol, Plaza Level 11

Tallahassee, Florida 32399-0300

Daniel Sumner, General Counsel

Department of Financial Services

The Capitol, Plaza Level 11

Tallahassee, Florida 32399-0300

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.