08-004865F Charles Demoss Enterprises, Llc vs. Department Of Financial Services, Division Of Workers' Compensation Status: Closed DOAH Final Order on Thursday, May 21, 2009.

Summary: Petitioner's waiver in a settlement agreement of its right to seek reimbursement for its attorney's fees and costs prevents such an award in this proceeding, even though Petitioner was the prevailing small business party.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

CHARLES DEMOSS ENTERPRISES, )

LLC, )

)

Petitioner, )

)

vs. ) Case No. 08-4865F

)

DEPARTMENT OF FINANCIAL SERVICES, DIVISION OF WORKERS' )

COMPENSATION, )

)

)

Respondent. )

)

FINAL ORDER

Pursuant to notice, this cause was heard by Linda M. Rigot,

the assigned Administrative Law Judge of the Division of

Administrative Hearings, on February 27, 2009, in Tallahassee,

Florida.

APPEARANCES

For Petitioner: Bruce Alexander Minnick, Esquire

The Minnick Law Firm

Post Office Box 15588

Tallahassee, Florida 32317

For Respondent: Timothy L. Newhall, Esquire

Department of Financial Services

200 East Gaines Street

Tallahassee, Florida 32399-0390

STATEMENT OF THE ISSUES

The issues presented are (1) whether Petitioner is entitled

to recover its attorney's fees and costs from the Department,

and (2) whether the Department is entitled to recover its

attorney's fees and costs from Petitioner.

PRELIMINARY STATEMENT

Petitioner's Application for an Award of Attorney Fees and

Costs Pursuant to Chapter 57.111, Florida Statutes, was filed on

September 11, 2008. On October 10, 2008, the Department filed

its Defenses.

On December 24, 2008, the Department filed a Motion for

Summary Final Order, which necessitated a postponement of the

final hearing as previously scheduled. That Motion was denied

by Order entered January 20, 2009.

On February 12, 2009, the Department filed its Motion for

Attorney's Fees under Section 57.105, Florida Statutes. No

response or opposition to that Motion was filed.

At the commencement of the re-scheduled final hearing, the

Department's Motion in Limine was denied but the Department's

Motion to Quash Subpoenas Duces Tecum was granted.

Petitioner presented the testimony of Charles DeMoss and

Thomas H. Duffy. The Department presented no witnesses. Joint

Exhibit numbered 1, Petitioner's Exhibits numbered 1-11, and the

Department's Exhibit numbered 1 were admitted in evidence.

The Transcript of the final hearing was filed on March 5,

2009. Pursuant to agreed motions for extensions of time, the

parties were afforded up to and including April 28, 2009, by

which to file their proposed final orders. Both parties filed

their proposed final orders on April 29, 2009. Those documents

have been considered in the entry of this Final Order.

FINDINGS OF FACT

1. Petitioner Charles DeMoss Enterprises, LLC, is in the

business of digging trenches and installing telephone cables.

During the time relevant hereto, Petitioner was a sub-contractor

of Cornerstone Construction Company, which had contracted with

Embarq, a telephone company, for the installation of telephone

lines.

2. Charles DeMoss, the owner of Petitioner, had applied

for and received an exemption from the requirement that he

secure the payment of workers' compensation insurance for

himself. In completing the exemption application form, DeMoss

checked the box indicating that he was in the construction

industry and paid $50 as required for a two-year construction

exemption.

3. On October 8, 2007, Petitioner had sub-contracted some

of its installation work to Kenny Smith Enterprises, LLC.

Kenny Smith, owner of Kenny Smith Enterprises, LLC, had not

obtained an exemption from the requirements of workers'

compensation coverage.

4. On that date, Vicki Chamelin, an investigator with the

Department came to Smith's job site and issued a Stop-Work

Order. She later requested Petitioner to produce business

records for the calculation of a penalty assessment for its

failure to obtain workers' compensation coverage for its sub-

contractor Kenny Smith Enterprises, LLC.

5. In issuing the Stop-Work Order, Chamelin concluded that

Petitioner was engaged in the construction industry and assigned

class code 7611, as set forth in the Scopes Manual published by

the National Council on Compensation Insurance, Inc. (NCCI).

Class code 7611 is a construction classification applicable to

the installation, replacement, removal, and maintenance of

underground telephone and cable TV main lines by contractors.

As Petitioner was deemed to be working in the construction

industry, Kenny Smith was deemed to be Petitioner's statutory

employee by operation of law.

6. In October 2007, NCCI class code 7611 was applicable in

the state of Florida, although the last sentence of the

classification stated: "In the state of Florida, a contractor

laying cable under contract with a telephone company shall be

classified as Code 7600." NCCI class code 7600 is a non-

construction classification, meaning that an individual or

entity engaged in work falling within that classification is

exempt from the requirements of workers' compensation coverage

unless he or it has four or more employees.

7. Charles DeMoss' possession of a construction exemption

from the requirements that he be protected by workers'

compensation coverage influenced the Department's initial

decision to assign Petitioner construction class code 7611 based

upon the work being performed by its sub-contractor Kenny Smith

Enterprises, LLC.

8. On October 10, 2007, based upon business records

produced by Petitioner, the Department issued and served upon

Petitioner an Amended Order of Penalty Assessment, assessing a

penalty of $12,899.80 against Petitioner for failing to secure

the payment of workers' compensation for its employees.

9. On that same day, Petitioner entered into an agreement

with the Department to make a down-payment of 10% of the

assessed penalty and to pay the remaining penalty amount in 60

monthly payments. After receiving Petitioner's down-payment,

the Department released its Stop-Work Order, conditioned upon

the continued payment of the agreed monthly payments, thus

allowing Petitioner to resume working.

10. Petitioner timely requested an administrative hearing

regarding the Department's Stop-Work Order and penalty

assessment, and the matter was transferred by the Department to

the Division of Administrative Hearings (DOAH) to conduct the

evidentiary proceeding. The dispute was assigned DOAH Case No.

07-5237 and was scheduled for final hearing. For purposes of

this Final Order, DOAH Case No. 07-5237 will be referred to as

the underlying action.

11. In the underlying action, Petitioner's petition for an

administrative hearing challenged the amount of the penalty

assessment and the method of calculating it. It also challenged

the employment status of those persons the Department considered

to be employees of Petitioner in calculating the penalty

assessment. It alleged that Petitioner is a "small business

enterprise" entitled to be reimbursed for its attorney's fees

and costs.

12. The parties began preparing for final hearing in the

underlying action, and the final hearing was continued twice at

the parties' request. On April 2, 2008, the parties filed their

Pre-hearing Stipulation. That Stipulation expanded Petitioner's

allegations to include an issue regarding the form utilized by

Petitioner to obtain the construction exemption from workers'

compensation coverage for its owner Charles DeMoss, alleging

that the form caused DeMoss to erroneously state that he was in

the construction business. An issue still not raised at that

time by either party was the correctness of class code 7611.

13. While preparing for the imminent final hearing, the

Department's attorney became concerned about the meaning of the

last sentence of class code 7611 and its cross-reference to

class code 7600. He wondered if the exception in Florida for a

contractor laying cable under contract with a telephone company

required contractual privity with the telephone company, in

which case class code 7611 would apply to Petitioner, or whether

it referred to all sub-contractors in a contractual chain

emanating from a telephone company, in which case class code

7600 would apply to Petitioner.

14. The Department's attorney initiated discussions with

other Department personnel and then contacted NCCI, the

promulgator of the Scopes Manual. The Department's initial

contacts with NCCI did not help resolve the question of whether

Petitioner's work activities were construction or non-

construction in nature. Eventually, NCCI concluded that

Petitioner's work activities fell within class code 7600 even

though Petitioner was not in direct contractual privity with

Embarq. This conclusion meant that Petitioner was not engaged

in construction work and that Petitioner, therefore, had no

obligation to secure the payment of workers' compensation for

its sub-contractor Kenny Smith.

15. Thereafter, the Department made a settlement offer to

Petitioner, pursuant to which all penalties paid to date would

be returned, all future penalty payments would be waived, and

the Stop-Work Order would be fully released, in return for

Petitioner's waiver of any right to recover attorney's fees.

The Department's settlement offer was essentially identical to a

settlement demand previously made by Petitioner and rejected by

the Department.

16. The Department's attorney drafted the written

Settlement Agreement, which included a specific waiver of all of

Petitioner's rights to recover attorney's fees and costs, and

forwarded it to Petitioner's attorney. Petitioner's attorney

requested some changes to the wording of the Settlement

Agreement, which changes were agreeable to the Department. At

no time during the negotiation of the Settlement Agreement did

Petitioner or Petitioner's attorney express to the Department

any disapproval of the provision setting forth Petitioner's

waiver of attorney's fees and costs.

17. The written Settlement Agreement, including

Petitioner's waiver of all rights to claim reimbursement for its

attorney's fees and costs, was clear and unambiguous to

Petitioner. Charles DeMoss specifically discussed the waiver of

the right to claim attorney's fees with Petitioner's attorney,

and based upon the attorney's advice, signed the Settlement

Agreement.

18. On August 5, 2008, Petitioner filed its Notice of

Settlement and Voluntary Dismissal of the underlying action.

19. The waiver of attorney's fees provision in the signed

Settlement Agreement reads as follows: "Each party hereto

agrees that it shall bear its own costs and attorney fees in

this matter. DeMoss Enterprises expressly waives any rights to

claim attorney fees or costs under Sections 57.041, 57.061,

57.105, 57.111, 120.595, Florida Statutes, or any other statute

or other authority."

20. On September 11, 2008, Petitioner's Application for an

Award of Attorney Fees and Costs Pursuant to Chapter 57.111,

Florida Statutes, was filed and assigned the above-captioned

style and case number. In its Defenses filed October 10, 2008,

the Department noted that it was considering filing a motion to

recover from Petitioner the Department's attorney's fees and

costs incurred in defending against Petitioner's Application,

pursuant to Section 57.105, Florida Statutes, unless Petitioner

withdrew its Application.

21. Petitioner did not withdraw its Application, and on

February 12, 2009, the Department filed its Motion for

Attorney's Fees under Section 57.105, Florida Statutes.

22. In conjunction with filing Petitioner's Application,

Petitioner's attorney filed an Affidavit asserting that he had

earned a fee, based upon the number of hours involved, of $1,935

and had expended costs of $48 in the underlying case. However,

at the final hearing in this cause, neither party offered any

evidence as to the amount or the reasonableness of the

attorney's fees and costs it was seeking in this proceeding.

23. Although Petitioner's business records were somewhat

unclear, those records did not show that Petitioner had four or

more employees at the same time, the number necessary for

workers' compensation coverage to be required for a non-

construction employer.

CONCLUSIONS OF LAW

24. The Division of Administrative Hearings has

jurisdiction over the subject matter and the parties hereto

pursuant to Sections 57.105, 57.111, 120.569, and 120.57(1),

Florida Statutes.

25. Petitioner relies upon Section 57.111, Florida

Statutes, in seeking reimbursement for its attorney's fees and

costs. In proceedings to establish entitlement to an award of

attorney's fees and costs pursuant to that Section, the initial

burden of proof is on the party requesting the award to

establish by a preponderance of the evidence that it prevailed

in the underlying action and that it was a small business party

at the time the action was initiated by the state agency. Once

the party requesting the award has met this burden, the burden

of proof then shifts to the state agency to establish that it

was substantially justified in initiating the underlying action

or that the award of attorney's fees and costs would be unjust.

Helmy v. Department of Business and Professional Regulation , 707

So. 2d 366 (Fla. 1st DCA 1998); Department of Professional

Regulation, Division of Real Estate v. Toledo Realty, Inc. and

Ramiro Alfert , 549 So. 2d 715 (Fla. 1st DCA 1998).

26. Section 57.111(4)(a), Florida Statutes, provides as

follows:

Unless otherwise provided by law, an award

of attorney's fees and costs shall be made

to a prevailing small business party in any

adjudicatory proceeding or administrative

proceeding pursuant to chapter 120 initiated

by a state agency, unless the actions of the

agency were substantially justified or

special circumstances exist which would make

the award unjust.

27. Section 57.111(3)(c), Florida Statutes, provides the

definition of a "prevailing small business party" and includes

the circumstance wherein a settlement has been obtained by the

small business party which is favorable on the majority of

issues raised by that party. Since the settlement provided that

Petitioner owed no monies to the Department and provided for the

return of monies already paid, Petitioner has proven that it

prevailed in the underlying action.

28. Petitioner has also proven that it meets the

definition of small business party. Since the Petitioner is not

a sole proprietor of an unincorporated business or an

individual, and since the underlying action was not brought

pursuant to Section 72.011, Florida Statutes, Petitioner was

required to prove that it met the definition applicable to a

corporation, including a professional practice, as defined in

Section 57.111(3)(d), Florida Statutes. That Subsection

requires Petitioner to prove that, at the time the action was

initiated by the Department, Petitioner had not more than 25

full-time employees or a net worth of not more than $2,000,000.

Although Petitioner offered no evidence as to its net worth, the

Department's attorney in the underlying action testified in this

proceeding that Petitioner's business records did not reflect

that Petitioner ever had four or more employees at any time.

29. The burden of proof, therefore, shifts to the

Department to prove that its actions were substantially

justified or that special circumstances exist which would make

unjust an award of attorney's fees and costs to Petitioner. The

Department has met its burden.

30. The Department was substantially justified in

initiating the underlying action because it had a reasonable

basis in law and fact at the time it did so. At the time that

the Department issued its Stop-Work Order and the resultant

penalty assessment, the investigator applied a class code from

the Scopes Manual that applied to Florida at the time, which

class code was a construction industry class code. Further, the

Department's own records revealed that Petitioner's owner had

applied for and obtained a construction industry exemption from

workers' compensation coverage for himself.

31. Although the class code chosen by the investigator

turned out to be erroneous, that subsequent determination arose

from the Department's own efforts. The evidence indicates that

the Department did not provide Petitioner's attorney with a copy

of the Scopes Manual but did make it available to him to view,

which invitation he declined. The Department's subsequent

determination based upon the guidance it obtained from the NCCI

which, in turn, caused the Department to use a different, non-

construction industry class code to describe Petitioner's

business activities did not change the fact that the Department

was substantially justified in its action at the time it issued

the Stop-Work Order and the penalty assessment.

32. In addition, the Department has proven that an award

of attorney's fees and costs to Petitioner would be unjust. The

Settlement Agreement between the parties in the underlying

action contained a specific waiver of Petitioner's right to

claim attorney's fees and costs pursuant to the very statute it

invokes in this proceeding. The waiver provision was clear and

unambiguous, Petitioner's owner understood the waiver before he

executed the Settlement Agreement on behalf of Petitioner, and

Petitioner's attorney advised him to enter into that agreement.

To allow Petitioner to recover its attorney's fees and costs in

this proceeding after voluntarily and knowingly entering into a

contract wherein it waived its right to do so would be

manifestly unjust.

33. The Department's Motion for Attorney's Fees incurred

defending this proceeding relies upon Section 57.105, Florida

Statutes. Subsection (5) requires an administrative law judge

to award a reasonable attorney's fee and damages to a prevailing

party when the losing party or the losing party's attorney knew

or should have known that the claim being presented by the

losing party or the losing party's attorney was not supported by

the material facts necessary to establish the claim or was not

supported by then-existing law applied to those material facts.

§ 57.105(1), Fla. Stat.

34. The Department is the prevailing party in this

proceeding. The evidence is clear that both Petitioner and

Petitioner's attorney knew that Petitioner had, in the

underlying action, clearly and unambiguously waived Petitioner's

right to seek attorney's fees and costs under the very statute

on which Petitioner relies in this proceeding. The initiation

of this proceeding when Petitioner had waived its right to do so

is the very kind of conduct for which Section 57.105, Florida

Statutes, authorizes sanctions against the losing party and the

losing party's attorney.

35. The Department followed the condition precedent to

making a claim for attorney's fees under Section 57.105 by

serving Petitioner with a copy of its motion for attorney's fees

and allowing Petitioner 21 days to withdraw Petitioner's

Application which initiated this proceeding before the

Department filed with DOAH its motion for attorney's fees.

36. Even though the Department has proven its entitlement

to attorney's fees and damages in this proceeding since there

was no basis in material fact or in existing law for Petitioner

to initiate this proceeding, the Department's motion for

attorney's fees is denied. Although the Department properly

filed its motion, the Department failed to offer any evidence as

to the amount of or reasonableness of the fee it seeks in this

proceeding and failed to offer any evidence as to the damages it

has suffered. Further, the Department's Proposed Final Order

filed in this cause makes no mention of its motion for

attorney's fees, not even listing it as an issue to be resolved

in this proceeding. It may well be that the Department only

filed its motion in the hope that Petitioner would dismiss this

proceeding so as to not cause either party to incur additional

fees and costs.

Based upon the foregoing Findings of Fact and Conclusions

of Law, it is, therefore,

ORDERED that:

1. Petitioner's Application for an Award of Attorney's

Fees and Costs Pursuant to Chapter 57.111, Florida Statutes, is

denied with prejudice.

2. The Department of Financial Services' Motion for

Attorney's Fees under Section 57.105, Florida Statutes, is

denied with prejudice.

DONE AND ORDERED this 21st day of May, 2009, in

Tallahassee, Leon County, Florida.

S

LINDA M. RIGOT

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

[phone]

Fax Filing [phone]

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 21st day of May, 2009.

COPIES FURNISHED :

Bruce Alexander Minnick, Esquire

The Minnick Law Firm

Post Office Box 15588

Tallahassee, Florida 32317

Timothy L. Newhall, Esquire

Department of Financial Services

200 East Gaines Street

Tallahassee, Florida 32399-0390

Honorable Alex Sink

Chief Financial Officer

Department of Financial Services

The Capitol, Plaza Level 11

Tallahassee, Florida 32399-0300

Benjamin Diamond, General Counsel

Department of Financial Services

The Capitol, Plaza Level 11

Tallahassee, Florida 32399-0307

Tracey Beal, Agency Clerk

Department of Financial Services

200 East Gaines Street

Tallahassee, Florida 32399-0390

NOTICE OF RIGHT TO JUDICIAL REVIEW

A party who is adversely affected by this Final Order is entitled

to judicial review pursuant to Section 120.68, Florida Statutes.

Review proceedings are governed by the Florida Rules of Appellate

Procedure. Such proceedings are commenced by filing the original

Notice of Appeal with the agency clerk of the Division of

Administrative Hearings and a copy, accompanied by filing fees

prescribed by law, with the District Court of Appeal, First

District, or with the District Court of Appeal in the Appellate

District where the party resides. The notice of appeal must be

filed within 30 days of rendition of the order to be reviewed.