09-000959 Department Of Financial Services, Division Of Workers&Apos; Compensation vs. Ron`s Custom Screen, Inc. Status: Closed Recommended Order on Tuesday, November 24, 2009.

Summary: The penalty for unpaid loans from the employer is upheld, but the remainder of the penalty is not shown by clear and convincing evidence.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL )

SERVICES, DIVISION OF WORKERS' )

COMPENSATION, )

)

Petitioner, )

)

vs. ) Case No. 09-0959

)

RON'S CUSTOM SCREEN, INC., )

)

Respondent. )

)

RECOMMENDED ORDER

Administrative Law Judge (ALJ) Daniel Manry conducted the

final hearing of this case for the Division of Administrative

Hearings (DOAH) by video teleconference on September 18, 2009,

in Tallahassee and Ft. Myers, Florida.

APPEARANCES

For Petitioner: Kristian E. Dunn, Esquire

Department of Financial Services

Division of Workers’ Compensation

200 East Gaines Street

Tallahassee, Florida 32399-4229

For Respondent: Ludwig J. Abruzzo, Esquire

Park Central Law Building

5425 Park Central Court

Naples, Florida 34109-5934

STATEMENT OF THE ISSUE

The issue is whether Respondent is liable for a penalty of

$265,604.81 based on payroll records for the period from

October 28, 2008, through October 27, 2008, pursuant to

Subsection 440.107(7), Florida Statutes (2008). 1

PRELIMINARY STATEMENT

On October 27, 2008, Petitioner issued a stop-work order

and proposed penalty assessment. The penalty assessment was

reduced seven times to the amount at issue in this hearing.

At the hearing, Petitioner presented the testimony of one

expert witness and submitted three exhibits for admission into

evidence. Respondent presented the testimony of two witnesses

and submitted 26 exhibits. The identity of the witnesses and

exhibits and the rulings regarding each are reported in the one-

volume Transcript of the hearing, which was filed with DOAH on

October 5, 2009. The parties timely filed their respective

proposed recommended orders on October 23, 2009.

FINDINGS OF FACT

1. Petitioner is the state agency responsible for

enforcing the statutory requirement that employers secure the

payment of workers’ compensation insurance for the benefit of

their employees in accordance with Section 440.107. Respondent

is a Florida corporation engaged in the construction business.

2. On October 27, 2008, a compensation compliance

investigator and other investigators for Petitioner conducted a

targeted investigation of Respondent’s business based on reports

from a confidential informant that Respondent was not in

compliance with Chapter 440 and the Insurance Code. The

compliance investigator met two relatives of the sole

shareholder of the company, who identified themselves as

employees. The compliance investigator also identified

construction work being conducted by two workers, who, it is

undisputed, were not in compliance with Chapter 440.

3. The disputed issues of fact are comprised of two

issues. The first issue is whether payments to relatives of the

sole shareholder are compensation or loans. The second issue is

whether cash payments to the sole shareholder are compensation

or business expenses.

4. None of the loans to family members were repaid to the

employer at the time of the hearing. Loans that have not been

repaid to the employer are defined as payroll by Florida

Administrative Code Rule 69L-6.035, and Respondent owes that

portion of the penalty assessment allocable to the first issue.

5. Respondent provided ample evidence to demonstrate that

the disputed transactions were loans rather than compensation

for employment. One relative is disabled and unable to work at

the level for which he is allegedly compensated. He will repay

the loans out of the sale proceeds of his home upon his death.

Other family members have less tragic but similarly sad stories.

However, deviation from Florida Administrative Code Rule 69L-

6.035 would merely invite remand pursuant to Section 120.69.

6. The remaining issue is whether cash payments by

Respondent to its sole shareholder are properly characterized as

compensation or business expenses. Florida Administrative Code

Rule 69L-6.035(1)(f) defines payroll to include expense

reimbursements to the extent the business records do not confirm

the expense was incurred as a valid business expense. For the

reasons stated hereinafter, it is less than clear and convincing

that the disputed cash payments are payroll within the meaning

of Florida Administrative Code Rule 69L-6.035(1)(f).

7. The sole shareholder explained under oath at the

hearing that the cash payments at issue were for business

expenses, including the payment of construction materials. He

does not give workers charge cards to buy construction

materials. He gives them cash. They do not always bring him

receipts. The witness submitted detailed tabulations of

approximately $77,002.46 in such expenses during the audit

period, and the trier of fact found the testimony and supporting

documentation to be credible and persuasive.

8. The sole shareholder also testified that he incurred

cash office expenses during the audit period of approximately

$22,500.00 and submitted documentation to support that

testimony. He also purchased three trucks for the business and

made cash down payments on each truck with documentation to

support the cash payments. The trier of fact finds that

testimony and supporting documentation to be credible and

persuasive.

9. Based on the evidence through the date of the hearing,

it is less than clear and convincing that the disputed cash

payments to the sole shareholder were not incurred as valid

business expenses within the meaning of Florida Administrative

Code Rule 69L-6.035(f). The testimony of the sole shareholder

and the supporting documentary evidence also shows that the

disputed amounts were not cash payments to the sole shareholder

in his capacity as an employee within the meaning of Florida

Administrative Code Rule 69L-6.035(1)(b).

CONCLUSIONS OF LAW

10. DOAH has jurisdiction over the parties to and subject

(2009). DOAH provided the parties with adequate notice of the

final hearing.

11. An administrative fine deprives Respondent of

substantial rights in property and is punitive in nature.

Petitioner has the burden of proof. Petitioner must show by

clear and convincing evidence that Respondent violated the

Workers’ Compensation Law and the reasonableness of the proposed

penalty assessment. Department of Banking and Finance Division

of Securities and Investor Protection v. Osborne Stern and Co. ,

670 So. 2d 932 (Fla. 1996); Dept. of Financial Services,

Division of Workers’ Compensation v. U&M Contractors, Inc. , Case

No. 04-3041 (DOAH April 27, 2005); Triple M Enterprises, Inc. v.

Department of Financial Services, Division of Workers’

Compensation , Case No. 94-2524 (DOAH January 13, 2005).

12. The requirement for clear and convincing evidence

imposes an intermediate level of proof on Petitioner.

Petitioner must prove material factual allegations by more than

a preponderance of the evidence, but the proof need not be

beyond and to the exclusion of a reasonable doubt. Inquiry

Concerning a Judge No. 93-62 , 645 So. 2d 398, 404 (Fla. 1994);

Lee County v. Sunbelt Equities, II, Limited Partnership , 619 So.

2d 996, 1006 n. 13 (Fla. 2d DCA 1993).

13. The Florida Supreme Court has addressed the clear and

convincing standard of proof with attention to detail. In

relevant part, the court stated:

This intermediate level of proof entails

both a qualitative and quantitative

standard. The evidence must be credible;

the memories of witnesses must be clear and

without confusion; and the sum total of the

evidence must be of sufficient weight to

convince the trier of fact without

hesitancy. . . . [T]he facts to which

witnesses testify must be distinctly

remembered; the testimony must be precise

and explicit and the witness must be lacking

in confusion as to the facts in issue. The

evidence must be of such weight that it

produces in the mind of the trier of fact a

firm belief or conviction, without

hesitancy, as to the truth of the

allegations sought to be established.

Inquiry Concerning a Judge , 645 So. 2d at 404 ( quoting , in part,

from Slomowitz v. Walker , 429 So. 2d 797, 800 (Fla. 4th DCA

1983)).

14. In order to satisfy the qualitative standard for clear

and convincing evidence, incriminating evidence must be

credible, precise, and explicit. This qualitative standard has

been adopted by each District Court of Appeal in the state.

E.F. v. State , 889 So. 2d 135, 139 (Fla. 3d DCA 2004); K-Mart

Corporation v. Collins , 707 So. 2d 753, 757 n.3 (Fla. 2d DCA

1998); McKesson Drug Co. v. Williams , 706 So. 2d 352, 353 (Fla.

1st DCA 1998); Kingsley v. Kingsley , 623 So. 2d 780, 786-787

(Fla. 5th DCA 1993); Slomowitz v. Walker , 429 So. 2d 797, 800

(Fla. 4th DCA 1983).

15. Petitioner satisfied its burden of proof concerning

the issue of whether payments to relatives of the sole

shareholder are compensation, for which workers’ compensation

payments are owed, or loans. By rule, unpaid loans are

compensation, and the evidence is clear and convincing that

Respondent owes the portion of penalty allocable to that issue.

16. For reasons stated in the Findings of Fact, the

evidence is less than clear and convincing that the disputed

cash payments to the sole shareholder of Respondent are

compensation. Clear and convincing evidence does not support

the penalty assessment allocable to that issue.

17. The fact-finder must resolve conflicts in the evidence

and decide the question one way or the other. Dunham v.

Highlands County School Board , 652 So. 2d 894, 896 (Fla. 2d DCA

1995); Heifetz v. Department of Business Regulation, Division of

Alcoholic Beverages & Tobacco , 475 So. 2d 1277, 1281 (Fla. 1st

DCA 1985); Department of Professional Regulation v. Wagner , 405

So. 2d 471, 473 (Fla. 1st DCA 1981).

18. As to the second factual issue, the trier of fact

resolved the evidential conflict in favor of Respondent. The

fact-finder is the sole arbiter of credibility. Bejarano v.

State, Department of Education, Division of Vocational

Rehabilitation , 901 So. 2d 891, 892 (Fla. 4th DCA 2005); Hoover,

M.D. v. Agency for Health Care Administration , 676 So. 2d 1380,

1384 (Fla. 3d DCA 1996); Goss v. District School Board of St.

Johns County , 601 So. 2d 1232, 1234 (Fla. 5th DCA 1992).

19. This is a de novo , or new proceeding, conducted to

formulate final agency action rather than to review final agency

action previously taken. McDonald v. Department of Banking and

Finance , 346 So. 2d 569, 584 (Fla. 1st DCA 1977). In a de novo

proceeding, the ALJ correctly considers evidence as it exists at

the time of the final hearing. The ALJ is not limited to the

evidence that was available to Petitioner when Petitioner

proposed the assessment.

The [ALJ's] decision to permit evidence of

circumstances as they existed at the time of

hearing [rather than limiting evidence to

that available to the agency when it

proposed agency action] was correct. . . .

Section 120.57 proceedings are intended to

formulate final agency action, not to review

action taken earlier and preliminarily.

See McDonald , 346 So. 2d at 584.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of

Law, it is

RECOMMENDED that Petitioner enter a final order imposing a

fine consistent with the amount attributable to unpaid loans.

DONE AND ENTERED this 24th day of November, 2009, in

Tallahassee, Leon County, Florida.

S

DANIEL MANRY

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 24th day of November, 2009.

ENDNOTE

1/ References to chapters, sections, and subsections are to

Florida Statutes (2008), unless otherwise stated.

COPIES FURNISHED :

Ludwig J. Abruzzo, Esquire

Park Central Law Building

5425 Park Central Court

Naples, Florida 34109-5934

Kristian E. Dunn, Esquire

Department of Financial Services

Division of Workers’ Compensation

200 East Gaines Street

Tallahassee, Florida 32399-4229

Julie Jones, CP, FRP, Agency Clerk

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

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.