07-003837 Versa-Tile And Marble, Inc. vs. Department Of Financial Services, Division Of Workers' Compensation Status: Closed Recommended Order on Friday, January 25, 2008.

Summary: Although Petitioner was entitled to an exemption for two of its officers, it failed to obtain an exemption, and therefore, must pay workers` compensation premiums enhanced by the statutory penalty.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

VERSA-TILE AND MARBLE, INC., ) )

)

Petitioner, )

) Case No. 07-3837

vs. )

)

DEPARTMENT OF FINANCIAL )

SERVICES, DIVISION OF WORKERS' )

COMPENSATION, )

)

Respondent. )

RECOMMENDED ORDER

This cause came on for final hearing before Harry L.

Hooper, Administrative Law Judge with the Division of

Administrative Hearings, on November 30, 2007, in Pensacola,

Florida.

APPEARANCES

For Petitioner: Michael James Rudicell, Esquire

Michael J. Rudicell, P.A.

4303 B Spanish Trail Road

Pensacola, Florida 32504

For Respondent: Kristian E. Dunn, Esquire

Department of Financial Services

Division of Workers' Compensation

200 East Gaines Street

Tallahassee, Florida 32399-4229

STATEMENT OF THE ISSUE

The issue is whether the Stop Work Order issued on July 27,

2007, and the Amended Order of Penalty Assessment were lawful.

PRELIMINARY STATEMENT

Petitioner Versa-Tile and Marble, Inc. (Versa-Tile) was

served a Stop Work Order (SWO) on July 27, 2007, by the Division

of Workers' Compensation (Division), which is a subordinate unit

of the Department of Financial Services (Department). The

Division subsequently provided an Amended Order of Penalty

Assessment to Versa-Tile. Versa-Tile filed a Petition for

Administrative Hearing on August 17, 2007. The matter was

forwarded to the Division of Administrative Hearings in a letter

filed on August 27, 2007.

A hearing was scheduled for October 30, 2007, in Pensacola,

Florida. Pursuant to Versa-Tile's Motion for Continuance, the

hearing was re-scheduled for November 30, 2007, and was heard in

Pensacola as scheduled.

At the hearing, the Department presented the testimony of

two witnesses. Four Joint Exhibits were accepted into evidence.

Versa-Tile presented the testimony of three witnesses and

offered two exhibits that were accepted into evidence.

At the request of the parties, 20 days subsequent to the

filing of the transcript were allowed for the filing of proposed

recommended orders. The one-volume Transcript of the final

hearing was filed on December 26, 2007. After the hearing,

Petitioner and Respondent timely filed their proposed findings

of fact and conclusions of law on January 15, 2008.

Although Versa-Tile is listed as Petitioner in this cause,

it was the Division that had the burden of proof and the burden

of going forward with the evidence in this case.

References to statutes are to Florida Statutes (2006)

unless otherwise noted.

FINDINGS OF FACT

1. The Division is a component of the Department of

Financial Services. The Department is charged with the

administration of portions of the "Workers' Compensation Law."

2. Versa-Tile is a corporation headquartered in Mary

Esther, Florida. Versa-Tile is engaged in flooring, which is a

construction activity.

3. Michelle Newcomer is an Insurance Analyst II with the

working title of Workers' Compensation Compliance Investigator.

She maintains an office in Pensacola, Florida. It is her job to

travel to work sites and to verify compliance with the Workers'

Compensation Law. She is authorized by the Division to issue an

SWO and to calculate and assess penalties.

4. On July 24, 2007, Ms. Newcomer was conducting

compliance investigations at random sites in the Alys Beach area

of Walton County, Florida. While doing so she noticed three

individuals in the garage at the rear of a house at 23 Whitby.

They were removing tools from a toolbox and "working."

5. Ms. Newcomer identified the men as Adrian Womack and

Kent Degallerie. The third man on the site was named "Barker."

Barker asserted that he was not doing any work, but was there

just to give the men a ride. He was deemed not involved in the

work being accomplished at the site.

6. Ms. Newcomer interviewed Adrian Womack and Kent

Degallerie. They both told her that they were exempt officers

of Versa-Tile. It is found as a fact that the 2006 For Profit

Corporate Annual Report of Versa-Tile signed on April 26, 2006,

and filed with the Department of State on May 1, 2006, listed

Adrian Womack and Kent Degallerie as corporate officers of

Versa-Tile. They were not corporate officers of Versa-Tile

prior to April 26, 2006.

7. Adrian Womack worked for Versa-Tile from July 29, 2005,

until April 25, 2006, as an employee. He was not an officer and

was not, and could not be, exempt. Kent Degallerie worked for

Versa-Tile from May 6, 2005, until April 25, 2006, as an

employee. He was not an officer and was not, and could not be,

exempt. Nicholas Womack, who was not present at the Alys Beach

site, is listed therein as president of Versa-Tile and has been

exempt during all times pertinent.

8. As corporate officers, Adrian Womack and Kent

Degallerie could be exempt from the usual requirement that

workers be covered by workers' compensation insurance even

though they were also employees of Versa-Tile who were paid

wages. Ms. Newcomer obtained their full names and social

security numbers so that she could verify their claimed

exemption. She determined from the Department's Coverage and

Compliance Automated System that there were no records of

exemption being obtained for them.

9. Ms. Newcomer confirmed with an examiner in the

Pensacola office that Adrian Womack and Kent Degallerie were not

on the list of exempt persons. She issued a Request for

Production of Business Records dated July 24, 2007. She

personally served these documents on Adrian Womack and Kent

Degallerie. She issued an SWO, dated July 27, 2007, and

personally served it on Nicholas Womack.

10. If a person is a ten percent owner of a corporation or

limited liability company they are entitled to obtain an

exemption from the Department. An exemption is obtained by

completing the "Notice of Election to be Exempt" form. This

form when properly completed and accompanied by certain required

documents, a $50 application fee, and submitted to the Division,

will cause the Division to grant an exemption.

11. If the Department determines that a person is exempt

upon receiving a properly submitted form and payment, the

Department will issue a card reflecting exemption. Neither

Adrian Womack nor Kent Degallerie had such a card on July 24,

2007. During all times pertinent, the Department had no record

indicating it had received any payment from Nicholas Womack,

Adrian Womack, or Kent Degallerie that would have been tendered

on behalf of Adrian Womack or Kent Degallerie.

12. On July 27, 2007, Ms. Newcomer met with Nicholas

Womack, president of Versa-Tile in her office in Pensacola and

personally served him a Request for Production of Business

Records. Later, Nicholas Womack provided employment records to

Ms. Newcomer. On July 30, 2007, the Department and Versa-Tile

entered into an agreement that permitted Versa-Tile to go back

to work.

13. Using workers' compensation class code 5348 for

employees Adrian Womack and Kent Degallerie, Ms. Newcomer

correctly calculated the premium that should have been paid, if

they were mere employees, as $8,455.56, and multiplied that

figure by the statutory penalty of 1.5. She correctly

determined the total to be $12,683.35. The parties stipulated

that to the extent the figure applies, it is correct.

14. Nicholas Womack at all times pertinent had an

exemption. Adrian Womack and Kent Degallerie were granted

exemptions by the Department on July 30, 2007. These were the

first exemptions from workers' compensation coverage that they

had ever received while in a business relationship with Versa-

Tile.

15. The Division receives from 90,000 to 96,000

construction exemption applications yearly. They also receive

between 30,000 to 35,000 non-construction exemption applications

annually. The applications may be provided by applicants to the

Department by hand-delivery at a field office or to the

Department headquarters in Tallahassee, or by mail to a field

office or to the Department headquarters in Tallahassee.

16. Errors may occur in this process because of mistakes

or omissions in the applications filed by the applicant or

because of data entry errors by personnel in the Department.

However, the process is sufficiently simple and automated that

usually, when a complete application is filed, the exemption

issues, and the applicant is, thereafter, provided a card

reflecting the exemption via mail.

17. There are ten field offices in the state to which

applicants may file applications for exemptions. The field

office in Panama City, Florida, at least the portion that

accepted exemption applications, closed in 2005. However, the

forms still listed Panama City as an address to which one might

mail an application for exemption.

18. The president of Versa-Tile, Nicholas Womack, has

filed for and obtained three exemptions since he created Versa-

Tile. Prior to incorporating Versa-Tile, he owned another

business by the name of Nicholas Womack Flooring, Inc. He

previously had two officers, Michael Smith and Mitchell Smedley,

working with him at Versa-Tile, but he removed them as corporate

officers so that Adrian Womack and Kent Degallerie could be

corporate officers. Mr. Smith's exemption was revoked April 27,

2006, by the filing of a Notice of Revocation of Election to be

Exempt with the Department. This roughly coincided with the

naming of Adrian Womack and Kent Degallerie as corporate

officers.

19. Department of State corporate records, as of May 1,

2006, reflected that Versa-Tile had three officers: Nicholas

Womack, Adrian Womack, and Kent Degallerie.

20. In order to obtain a certificate of exemption,

Nicholas Womack filed the appropriate form with the Department,

along with proof that he held a contractor's license, stock

certificates, and $50.00. He followed this process on three

occasions while president of Versa-Tile. The evidence of record

reveals exemptions granted to Nicholas Womack on January 25,

2005, and May 18, 2006, while president of Versa-Tile. He

claims not to ever have received a certificate evidencing

exemption from the Department while president of Versa-Tile.

21. Nicholas Womack testified that on only one of the

occasions, when he was operating Nicholas Womack Flooring, Inc.,

did the Department mail him a card reflecting his exemption and

stated that occurred in 2001 or 2002.

22. Nicholas Womack understands that by not obtaining

coverage under workers' compensation insurance he and the other

two corporate officers of Versa-Tile would not be compensated

should they be injured on the job.

23. Nicholas Womack explained to Adrian Womack and Kent

Degallerie that they were eligible for an exemption, and if they

got an exemption and were injured, they would not be covered by

workers' compensation insurance. Nicholas Womack testified that

thereafter he helped the two men fill out the appropriate forms

and ensured that all necessary attachments, including two money

orders in the correct amount, were present and then mailed the

applications, one in each envelope, to the Department's Panama

City office.

24. As soon as the applications were mailed, Nicholas

continued allowing the men to work for Versa-Tile without

waiting for the exemptions to be granted. Adrian Womack and

Kent Degallerie first received exemption on July 30, 2007.

Subsequent to July 30, 2007, Nicholas asked Adrian Womack if he

had received an exemption card. Adrian Womack said that he had

not. Adrian Womack and Kent Degallerie both stated that they

had not received an exemption card after filing for exemption in

July 2007.

25. Nicholas Womack's testimony that he only received one

certificate of exemption in seven years of enjoying an exempt

status lacks credibility. Even considering that the Department

is large and it annually processes huge amounts of paperwork, it

is quite improbable that on six occasions they would fail to

send Nicholas Womack a certificate. That being the case,

Nicholas Womack's testimony that he mailed completed

applications for Adrian Womack and Kent Degallerie to the

Department's Panama City office and never received any type of

response, when considered in concert with his other testimony,

is not credible.

26. It is a fact that Nicholas Womack, Adrian Womack, and

Kent Degallerie were eligible for an exemption subsequent to

April 26, 2006. If exempt, they were responsible for their own

expenses should they suffer an injury while on the job. If they

failed to get an exemption, they were likewise responsible for

their own expenses should they suffer an injury while on the

job. This situation is very different from that where an

employer fails to obtain coverage for workers not having an

ownership interest in the employer, as was the case with Versa-

Tile prior to April 26, 2006.

CONCLUSIONS OF LAW

27. The Division of Administrative Hearings has

jurisdiction over the subject matter of and the parties to this

proceeding. § 120.57(1), Fla. Stat.

28. Because administrative fines are penal in nature, the

Department has the burden to prove by clear and convincing

evidence that Versa-Tile failed to be in compliance with the

coverage requirements set forth, by not securing the payment of

workers' compensation or a certificate of exemption for Adrian

Womack and Kent Degallerie, both of whom were entitled to a

certificate of exemption for the period April 26, 2006 through

the time they were designated exempt on July 30, 2007.

Department of Banking and Finance, Division of Securities and

Investor Protection v. Osborne Stern, Inc. , 670 So. 2d 932 (Fla.

1996) and 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).

29. The Florida Legislature has determined that the

failure of an employer to comply with the requirement to provide

workers' compensation coverage to employees ". . . poses an

immediate danger to public health, safety, and welfare."

§ 440.107(1), Fla. Stat.

30. Subsections 440.10(1) and 440.38(1), Florida Statutes,

require every employer coming within the provisions of Chapter

440 to secure coverage under that Chapter.

31. Section 440.107, Florida Statutes, authorizes the

Department to issue stop-work orders and penalty assessment

orders in its enforcement of workers' compensation coverage

requirements, and reads in pertinent part:

* * *

(2) For purposes of this section, 'securing

the payment of workers' compensation' means

obtaining coverage that meets the

requirements of this chapter and the Florida

Insurance Code. . . .

* * *

(7)(d)1. In addition to any penalty, stop-

work order, or injunction, the department

shall assess against any employer who has

failed to secure the 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 3-year period or $1,000, whichever

is greater.

32. The definition of employee and the status of corporate

officers as employees for purposes of workers' compensation is

outlined in Subsections 440.02(15)(a) and (b), Florida Statutes,

which provides in part:

440.02. Definitions --When used in this

chapter, unless the context clearly requires

otherwise, the following terms shall have

the following meanings:

* * *

(15)(a) "Employee" means 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, whether lawfully or unlawfully

employed, and includes, but is not limited

to, aliens and minors.

(b) "Employee" includes any person who

is an officer of a corporation and who

performs services for remuneration for such

corporation within this state, whether or

not such services are continuous.

1. Any officer of a corporation may

elect to be exempt from this chapter by

filing written notice of the election with

the department as provided in s.440.05.

2. As to officers of a corporation

who are engaged in the construction

industry, no more than three officers of a

corporation or of any group of affiliated

corporations may elect to be exempt from

this chapter by filing written notice of the

election with the department as provided in

s. 440.05. Officers must be shareholders,

each owning at least 10 percent of the stock

of such corporation and listed as an officer

of such corporation with the Division of

Corporations of the Department of State, in

order to elect exemptions under this

chapter. For purposes of this subparagraph,

the term "affiliated" means and includes one

or more corporations or entities, any one of

which is a corporation engaged in the

construction industry, under the same or

substantially the same control of a group of

business entities which are connected or

associated so that one entity controls or

has the power to control each of the other

business entities. The term "affiliated"

includes, but is not limited to, the

officers, directors, executives,

shareholders active in management,

employees, and agents of the affiliated

corporation. The ownership by one business

entity of a controlling interest in another

business entity or a pooling of equipment or

income among business entities shall be

prima facie evidence that one business is

affiliated with the other.

3. An officer of a corporation who

elects to be exempt from this chapter by

filing a written notice of the election with

the department as provided in s. 440.05 is

not an employee.

Services are presumed to have been

rendered to the corporation if the officer

is compensated by other than dividends upon

shares of stock of the corporation which the

officer owns.

33. Section 440.05, Florida Statutes, provides the

procedure for corporate officers to exempt themselves from

workers' compensation coverage. It provides in relevant part,

as follows:

§ 440.05. Election of exemption; revocation

of election; notice; certification

(1) Each corporate officer who elects

not to accept the provisions of this chapter

or who, after electing such exemption,

revokes that exemption shall mail to the

department in Tallahassee notice to such

effect in accordance with a form to be

prescribed by the department.

* * *

(3) Each officer of a corporation who is

engaged in the construction industry and who

elects an exemption from this chapter or

who, after electing such exemption, revokes

that exemption, must mail a written notice

to such effect to the department on a form

prescribed by the department. The notice of

election to be exempt from the provisions of

this chapter must be notarized and under

oath. The notice of election to be exempt

which is submitted to the department by the

officer of a corporation who is allowed to

claim an exemption as provided by this

chapter must list the name, federal tax

identification number, social security

number, all certified or registered licenses

issued pursuant to chapter 489 held by the

person seeking the exemption, a copy of

relevant documentation as to employment

status filed with the Internal Revenue

Service as specified by the department, a

copy of the relevant occupational license in

the primary jurisdiction of the business,

and the registration number of the

corporation filed with the Division of

Corporations of the Department of State

along with a copy of the stock certificate

evidencing the required ownership under this

chapter. The notice of election to be

exempt must identify each corporation that

employs the person electing the exemption

and must list the social security number or

federal tax identification number of each

such employer and the additional

documentation required by this section. In

addition, the notice of election to be

exempt must provide that the officer

electing an exemption is not entitled to

benefits under this chapter, must provide

that the election does not exceed exemption

limits for officers provided in s. 440.02,

and must certify that any employees of the

corporation whose officer elects an

exemption are covered by workers'

compensation insurance. Upon receipt of the

notice of the election to be exempt, receipt

of all application fees, and a determination

by the department that the notice meets the

requirements of this subsection, the

department shall issue a certification of

the election to the officer, unless the

department determines that the information

contained in the notice is invalid. The

department shall revoke a certificate of

election to be exempt from coverage upon a

determination by the department that the

person does not meet the requirements for

exemption or that the information contained

in the notice of election to be exempt is

invalid. The certificate of election must

list the name of the corporation listed in

the request for exemption. A new

certificate of election must be obtained

each time the person is employed by a new or

different corporation that is not listed on

the certificate of election. A copy of the

certificate of election must be sent to each

workers' compensation carrier identified in

the request for exemption. Upon filing a

notice of revocation of election, an officer

who is a subcontractor or an officer of a

corporate subcontractor must notify her or

his contractor. Upon revocation of a

certificate of election of exemption by the

department, the department shall notify the

workers' compensation carriers identified in

the request for exemption.

34. A letter properly addressed, stamped, and mailed is

presumed to have been received by the addressee. Brown v.

Griffen Industries, Inc. , 281 So. 2d 897 (Fla. 1973) (on

rehearing); Home Insurance Co. v. C & G Sporting Goods, Inc. ,

453 So. 2d 121 (Fla. 1st DCA 1984); Berwick v. Prudential

Property & Casualty Assurance Co. , 436 So. 2d 239 (Fla. 3d DCA

1983). Conversely, if a letter has not been received that one

claims was properly addressed, stamped, and mailed, it may be

presumed that it was not properly mailed. Accordingly, and in

conjunction with other testimony provided by Nicholas Womack, it

is found that he did not submit an application on behalf of

Adrian Womack and Kent Degallerie.

35. Even though a person meets all of the requirements for

an exemption, that person does not become exempt until the

process outlined by Subsection 440.05(3), Florida Statutes, has

been accomplished. Accordingly, Adrian Womack and Kent

Degallerie were employees during all times pertinent, and Versa-

Tile was required to obtain coverage and failed to do so.

36. However, subsequent to April 25, 2006, Adrian Womack

and Kent Degallerie were eligible for exemption and in terms of

carrying out the legislative intent set forth in Subsection

440.107(1), nothing is gained by the Department in assessing

penalties. In other words, if they were exempt and were injured

on the job, they would have no coverage. Likewise, if they

failed to obtain exemption, and were injured on the job, they

would have no coverage. Applying the maximum penalties set

forth in Subsection 440.107(7)(d)1., Florida Statutes, for the

time they worked from April 26, 2006, going forward, is too

harsh and does not further the purposes of Chapter 440.

37. Nevertheless, the "shall" language found in Subsection

440.107(7)(d)1., Florida Statutes, prevents the Department from

mitigating the penalty. Accordingly, the SWO issued on July 27,

2007, and the Amended Order of Penalty Assessment were lawful.

RECOMMENDATION

Based upon the forgoing Findings of Fact and Conclusions of

Law, it is

RECOMMENDED that the Department of Financial Services enter

a final order requiring Versa-Tile and Marble, Inc., to pay a

penalty of $12,683.35.

DONE AND ENTERED this 25th day of January, 2008, in

Tallahassee, Leon County, Florida.

S

HARRY L. HOOPER

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 the Clerk of the

Division of Administrative Hearings

this 25th day of January, 2008.

COPIES FURNISHED :

Kristian E. Dunn, Esquire

Department of Financial Services

Division of Workers' Compensation

200 East Gaines Street

Tallahassee, Florida 32399-4229

Michael James Rudicell, Esquire

Michael J. Rudicell, P.A.

4303 B Spanish Trail Road

Pensacola, Florida 32504

Daniel Sumner, General Counsel

Department of Financial Services

Division of Legal Services

200 East Gaines Street

Tallahassee, Florida 32399

Honorable Alex Sink

Chief Financial Officer

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.