07-002463 Chaman Ti, Inc., D/B/A D.J. Discount Market vs. Department Of Financial Services, Division Of Workers' Compensation Status: Closed Recommended Order on Wednesday, August 22, 2007.

Summary: Petitioner did not have workers` compensation insurance, and Respondent was required to impose a penalty. There is no authority to mitigate the penalty, but it should be reduced to $68,922.18 to correct a calculation error.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

CHAMAN TI, INC., d/b/a D.J. )

DISCOUNT MARKET, )

)

Petitioner, )

)

vs. ) Case No. 07-2463

)

DEPARTMENT OF FINANCIAL )

SERVICES, DIVISION OF WORKERS' )

COMPENSATION, )

)

Respondent. )

)

RECOMMENDED ORDER

A duly-noticed final hearing was held in this case by

Administrative Law Judge T. Kent Wetherell, II, on July 18,

2007, in Orlando, Florida.

APPEARANCES

For Petitioner: Todd Baldwin

Baldwin Accounting, CPA

5728 Major Boulevard, Suite 501

Orlando, Florida 32819

For Respondent: Thomas H. Duffy, Esquire

Department of Financial Services

200 East Gaines Street, 6th Floor

Tallahassee, Florida 32399

STATEMENT OF THE ISSUE

The issue is whether Petitioner violated Chapter 440,

Florida Statutes, by not having workers’ compensation insurance

coverage, and if so, what penalty should be imposed.

PRELIMINARY STATEMENT

On November 2, 2006, the Department of Financial Services,

Division of Workers’ Compensation (Department), served

Petitioner with a Stop-Work Order and Order of Penalty

Assessment. On November 6, 2006, the Department served an

Amended Order of Penalty Assessment that imposed a penalty of

$70,599.78 on Petitioner.

On November 6, 2006, the parties entered into a Payment

Agreement Schedule for Periodic Payment of Penalty, and the

Department issued an Order of Conditional Release from Stop-Work

Order. On November 27, 2006, Petitioner requested a hearing on

the Amended Order of Penalty Assessment.

Petitioner’s request for a hearing was initially assigned

to a Department hearing officer for an informal hearing pursuant

to Section 120.57(2), Florida Statutes. However, on May 31,

2007, the case was referred to the Division of Administrative

Hearings (DOAH) for a hearing pursuant to Section 120.57(1),

Florida Statutes, because of disputed issues of fact raised by

Petitioner prior to the informal hearing.

The final hearing was scheduled for and held on July 18,

2007. Petitioner was represented at the hearing by Todd

Baldwin, a non-lawyer. Mr. Baldwin was authorized to serve as

Petitioner’s qualified representative.

At the final hearing, the Department presented the

testimony of Margaret Cavazos, and Petitioner presented the

testimony of Mohammad Sultan and Mr. Baldwin. The Department’s

Exhibits 1 through 11 were received into evidence, as was

Petitioner’s Exhibit 1.

The Transcript of the final hearing was filed on July 27,

2007. The parties were initially given 10 days from that date

to file proposed recommended orders (PROs), but the deadline was

subsequently extended to August 17, 2007, upon Petitioner's

unopposed motion. The PROs were timely filed and have been

given due consideration.

FINDINGS OF FACT

1. Petitioner operates a gas station and convenience store

in Winter Garden. Mohammad Sultan is Petitioner’s owner and

president.

2. On November 2, 2006, Margaret Cavazos conducted an

unannounced inspection of Petitioner’s store. Ms. Cavazos is a

workers’ compensation compliance investigator employed by the

Department.

3. Petitioner had nine employees, including Mr. Sultan and

his wife, on the date of Ms. Cavazos' inspection.

4. Petitioner had more than four employees at all times

over the three-year period preceding Ms. Cavazos' inspection.

5. Petitioner did not have workers’ compensation insurance

coverage at the time of Ms. Cavazos’ inspection, or at any point

during the three years preceding the inspection.

6. On November 2, 2006, the Department served a Stop-Work

Order and Order of Penalty Assessment on Petitioner, and Ms.

Cavazos requested payroll documents and other business records

from Petitioner.

7. On November 6, 2006, the Department served an Amended

Order of Penalty Assessment, 1 which imposed a penalty of

$70,599.78 on Petitioner. The penalty was calculated by Ms.

Cavazos, using the payroll information provided by Petitioner

and the insurance premium rates published by the National

Council on Compensation Insurance.

8. The parties stipulated at the final hearing that the

gross payroll attributed to Mr. Sultan for the period of

January 1, 2006, through November 2, 2006, should have been

$88,000, rather than the $104,000 reflected in the penalty

worksheet prepared by Ms. Cavazos.

9. The net effect of this $16,000 correction in the gross

payroll attributed to Mr. Sultan is a reduction in the penalty

to $68,922.18. 2

10. On November 3, 2006, Mr. Sultan filed a notice

election for exemption from the Workers’ Compensation Law. His

wife did not file a similar election because she is not an

officer of Petitioner. The election took effect on November 3,

2006.

11. On November 6, 2006, Petitioner obtained workers’

compensation insurance coverage through American Home Insurance

Company, and Petitioner also entered into a Payment Agreement

Schedule for Periodic Payment of Penalty in which it agreed to

pay the penalty imposed by the Department over a five-year

period. On that same date, the Department issued an Order of

Conditional Release from Stop-Work Order.

12. Petitioner made the $7,954.30 “down payment” required

by the Payment Agreement Schedule, and it has made all of the

required monthly payments to date.

13. The payments required by the Payment Agreement

Schedule are $1,044.09 per month, which equates to approximately

$12,500 per year.

14. Petitioner was in compliance with the Workers’

Compensation Law at the time of the final hearing.

15. Petitioner reported income of $54,358 on gross

receipts in excess of $3.1 million in its 2005 tax return.

Petitioner reported income of $41,728 in 2004, and a loss of

$8,851 in 2003.

16. Petitioner had total assets in excess of $750,000

(including $540,435 in cash) at the end of 2005, and even though

Petitioner had a large line of credit with Amsouth Bank, its

assets exceeded its liabilities by $99,041 at the end of 2005.

17. Mr. Sultan has received significant compensation from

Petitioner over the past four years, including 2003 when

Petitioner reported a loss rather than a profit. He received a

salary in excess of $104,000 in 2006, and he was paid $145,333

in 2005, $63,750 in 2004, and $66,833 in 2003.

18. Mr. Sultan’s wife is also on Petitioner’s payroll.

She was paid $23,333.40 in 2006, $25,000 in 2005, and $12,316.69

in 2004.

19. Mr. Sultan characterized 2005 as an “exceptional

year,” and he testified that his business has fallen off

recently due to an increase in competition in the area. Todd

Baldwin, Petitioner’s accountant, similarly testified that 2006

was not as good of a year as 2005, but no corroborating evidence

on this issue (such as Petitioner’s 2006 tax return) was

presented at the final hearing.

20. Mr. Sultan testified that payment of the penalty

imposed by the Department adversely affects his ability to run

his business. The weight given to that testimony was

significantly undercut by the tax returns and payroll documents

that were received into evidence, which show Petitioner’s

positive financial performance and the significant level of

compensation paid to Mr. Sultan and his wife over the past

several years.

21. The effect of the workers’ compensation exemption

elected by Mr. Sultan is that his salary will no longer be

included in the calculation of the workers’ compensation

insurance premiums paid by Petitioner. If his salary had not

been included in Ms. Cavazos’ calculations, the penalty imposed

on Petitioner would have been $40,671.36.

22. Ms. Cavazos properly included Mr. Sultan’s salary in

her penalty calculations because he was being paid by Petitioner

and he did not file an election for exemption from the Workers'

Compensation Law until after her inspection.

CONCLUSIONS OF LAW

23. DOAH has jurisdiction over the parties to and subject

matter of this proceeding pursuant to Sections 120.569 and

120.57(1), Florida Statutes (2006). 3

24. The Department is the state agency responsible for

enforcing the coverage requirements of the Workers’ Compensation

Law. See § 440.107, Fla. Stat.

25. The Department has the burden of proof in this case

even though it is identified as the Respondent, and the

applicable standard of proof is clear and convincing evidence.

See Dept. of Banking & Finance v. Osborne, Stern & Co. , 670 So.

2d 932, 935 (Fla. 1996); Dept. of Financial Servs. v.

Whitehurst , 2007 Fla. Div. Adm. Hear. LEXIS 164, at ¶ 12 (DOAH

Mar. 22, 2007), adopted , Case No. 86357-06-WC (DFS May 11,

2007); Department's PRO, at ¶ 13.

26. Generally, every non-exempt employer subject to the

Workers’ Compensation Law is liable for and is required to

secure the payment of benefits due to its employees under the

law by obtaining workers’ compensation insurance coverage. See

§§ 440.10, 440.107(2), 440.38(1), Fla. Stat.

27. The evidence establishes that Petitioner is subject to

the Workers’ Compensation Law; that it is not exempt from the

insurance coverage requirements in the law; and that Petitioner

did not have workers’ compensation insurance on the date of Ms.

Cavazos’ inspection or at any point during the three years

preceding the inspection.

28. Section 440.107(7)(a), Florida Statutes, authorizes

the Department to issue a stop-work order when it determines

that an employer subject to the Workers’ Compensation Law has

failed to secure the required workers’ compensation insurance

coverage, and Section 440.107(7)(d)1., Florida Statutes,

requires the Department to impose a penalty on the employer in

such circumstances.

29. Section 440.107(7)(d)1., Florida Statutes, provides:

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. (Emphasis supplied)

30. Application of the statutory formula in this case

results in a penalty of $68,922.18.

31. Petitioner argues that the penalty is excessive and

imposes “an extreme burden” on Petitioner and Mr. Sultan, and

that the penalty should be reduced to reflect the exemption

elected by Mr. Sultan. These arguments are rejected.

32. First and foremost, there is no statute or rule that

authorizes mitigation of the penalty required by Section

440.107, Florida Statutes, and absent such, DOAH and the

Department cannot deviate from the statutory penalty. Second,

the exemption elected by Mr. Sultan is prospective in nature and

cannot be applied retroactively to reduce the Petitioner’s gross

payroll upon which the penalty was calculated. Finally, the

evidence was not persuasive that Petitioner is unable to pay the

penalty imposed by the Department or that the monthly penalty

payments agreed to by Petitioner in the Payment Agreement

Schedule impose an undue hardship on Petitioner or Mr. Sultan.

RECOMMENDATION

Based upon the foregoing findings of fact and conclusions

of law, it is

RECOMMENDED that the Department issue a final order

imposing a penalty of $68,922.18 on Petitioner to be paid in

accordance with a modified payment schedule reflecting the

reduced penalty and the payments made through the date of the

final order.

DONE AND ENTERED this 22nd day of August, 2007, in

Tallahassee, Leon County, Florida.

S

T. KENT WETHERELL, II

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 22nd day of August, 2007.

ENDNOTES

1 / The Amended Order of Penalty Assessment received into

evidence as Department Exhibit 7 was actually the second Amended

Order issued by the Department. The first Amended Order

incorrectly calculated the penalty based upon Mr. Sultan’s

actual salary in 2005 and 2006, instead of capping his salary at

$104,000 per year, or $2,000 per week, as required by the

National Council on Compensation Insurance guidelines.

2 / The reduction is calculated as follows: $16,000 ÷ 100 x 6.99

x 1.5 = $1,677.60. Thus, the correct penalty is $70,699.78 less

$1,677.60, or 68,922.18.

3 / All statutory references in this Recommended Order are to the

2006 version of the Florida Statutes.

COPIES FURNISHED :

Honorable Alex Sink

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 32399-0307

Thomas H. Duffy, Esquire

Department of Financial Services

200 East Gaines Street, 6th Floor

Tallahassee, Florida 32399

Todd Baldwin

Baldwin Accounting CPA

5728 Major Boulevard, Suite 501

Orlando, Florida 32819

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.