10-003107F P.A.T. Auto Transport, Inc. vs. Department Of Financial Services, Division Of Workers' Compensation Status: Closed DOAH Final Order on Tuesday, November 16, 2010.

Summary: Petitioner is entitled to attorneys' fees and costs due to Respondent's failure to determine Petitioner's compliance.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

P.A.T. AUTO TRANSPORT, INC. , )

)

Petitioner , )

)

vs. ) Cas e Nos. 10 - 3106F

) 10 - 3107F

DEPARTMENT OF FINANCIAL )

SERVICES, DIVISION OF WORKERSÓ )

COMPENSATION , )

)

Respondent . )

)

FINAL ORDER

A formal hearing was cond ucted in this case on

September 21, 2010, in Tallahassee, Florida, before Suzanne F.

Hood, Administrative Law Judge with the Division of

Administrative Hearings.

APPEARANCES

For Petitioner: Douglas F. Miller, Esquire

Clark, Partington, Hart, Larry,

Bond & Stackhouse

125 West Romana Street, Suite 800

Pensacola, Florida 32591 - 3010

For Respondent: Kristian E. Dunn, Esquire

Department of Financial Services

Division of Workers Ó Compensation

200 East Gaines Street

Tallahassee, Florida 32399 - 4229

STATEMENT OF THE ISSUES

The issue s are whe ther Respondent was substantially

justified in issuing an initial Stop Work Order and Order of

Penalty Assessment against Petitioner for failing to comply with

a Business Records Request, followed by an Amended Stop - Work

Order and an Amended Order of Penal ty Assessment to Petitioner

for all eged noncompliance with workersÓ compensation coverage

requirements , and if so, is an award of attorneysÓ fees and

costs appropriate .

PRELIMINARY STATEMENT

On June 4, 2010, Petitioner P.A.T. Auto Transport, Inc.

(Petit ioner), filed Motions for Entitlement to an Award of

Attorneys Ó Fees and Cost Pursuant to Section 57.111, Florida

Statutes, in the underlying consolidated cases, Department of

Financia l Services, Division of WorkersÓ Compensation v. DTS,

LLC. , Division of Administrative Hearings (DOAH) Case No.

09 - 3484, and Department of Financia l Services, Division of

WorkersÓ Compensation v. P.A.T. Auto Transport, Inc. , DOAH

09 - 3486 (Recommended Order entered January 29, 2010 ) .

Affidavits with respect to fees and costs, together with time

logs, were attached to the motions.

On June 7, 2010, DOAH assigned Case No. 10 - 3106F to the

motion filed in DOAH Case No. 09 - 3484 and Case No. 10 - 3107F to

the motion filed in DOAH Case No. 09 - 3486. DOAH then issued

Initial Orders in both cases.

On June 28, 2010, Respondent Department of Financia l

Services, Division of WorkersÓ Compensation (Respondent) filed

its Response to Initial Order and Request for Evidentiary

Hearing in DOAH Case Nos. 10 - 3106F and 10 - 3107F. In the

respons e, Respondent acknowledged the following: (a) Respondent

does not dispute the amount of fees and costs claimed by

Petitioner; (b) Petitioner i s the prevailing party; and

(c) Petitioner is a small busin ess based on the number of full -

time employees.

On Ju ly 1, 2010, Administrative Law Judge W. David Watkins

issued an Order of Consolidation for DOAH Case Nos. 10 - 3106F and

10 - 3107F. That same day, Judge Watkins issued a Notice of

Hearing, scheduling the hearing for July 22, 2010.

On July 6, 2010, Petitio ner filed its Response to Initial

Order of June 7, 2010.

On July 7, 2010, Respondent filed an Unopposed Motion to

Continue Hearing. The nex t day, Judge Watkins issued an O rder

Granting Continuance and Re - scheduling Hearing for September 21,

2010.

On S eptember 17, 2010, the consolidated cases were

transferred from Judge Watkins to the undersigned.

During the hearing, Petitioner presented the testimony of

one witness. Petitioner offered two exhibits that were admitted

as evidence.

Respondent presen ted the testimony of two witnesses.

Respondent offered seven exhibits that were accepted as

evidence.

The Transcript was filed on October 5, 2010. Petitioner

filed a Proposed Final Order on October 18, 2010. Respondent

filed a Proposed Final Order on October 25, 2010.

Hereinafter, all references shall be to Florida Statutes

(2010), except as otherwise noted.

FINDINGS OF FACT

1. Respondent is the state agency charged with enforcing

the requirements of Section 440.107, Florida Statutes, requiring

t hat employers in Florid a secure the payment of workersÓ

compensation insurance coverage for their employees.

2. Petitioner is a Florida corporation that conducts

business in Florida, with headquarters in Pensacola, Florida.

PetitionerÓ s business involv es the transportation of vehicles,

utilizing a fleet of approximately 61 tractor - trailers and

accompanying auto transport trailers.

3. Michelle Newcomer is a compliance investigator for

Respondent. Her duties focus on conducting

inspections/investigati ons of Florida businesses to ensure

compliance with FloridaÓ s wor kersÓ compensation coverage

requirements. She also issues Stop Work Orders (SWOs) and

Orders of Penalty Assessment (OPAs) when Respondent believes a

busines s is non - compliant with FloridaÓs workersÓ compensation

law.

4. Ms. Newcomer and her supervisors are familiar with the

definition of "independent contractor" set forth in Sections

440.02(15)(d)1a and 440.02(15)(d)1b, Florida Statutes. Howeve r,

they never tested PetitionerÓ s claim that its truck drivers were

independent contractors and not employees against the criteria

in that definition.

5. On March 16, 2009, Ms. Newcomer received information

from an anonymous source that Petitioner was not in compliance

with the workersÓ compensat ion laws in Florida. The anonymous

source asserted that PetitionerÓ s drivers were being

misclassified as independent contractors.

6. Ms. Newcomer p erformed a search of RespondentÓ s

database. She learned that Tracie Hedges and George Hedges, as

corpora te officers, were exempt from having workersÓ

compensation insurance. She found that Petitioner had no

workersÓ compensation coverage for any employees.

7. On March 18, 2009, Ms. Newcomer visited Petitioner Ó s

office. Upon arrival, she met Ms. Hedges. During the meeting,

Ms. Newcomer inquired about the company, its operations, and its

truck drivers. Ms. Hedges told Ms. Newcomer that Petitioner had

about 50 to 60 truck drivers who were independent contractors.

Seeing only one other employee, Ms. Newco mer left and terminated

her investigation.

8. On April 8, 2009, Ms. Newcomer rece ived a referral from

RespondentÓ s Employee Assistance Office. The referral i ndicated

that one of PetitionerÓ s former drivers, Mike Borders, had

suffered an injury while w orking for Petitioner , but was not

receiving workersÓ compensation benefits. The referral includ ed

a copy of one of Mr. BordersÓ pay stubs.

9. Upon reviewing Mr. Borders Ó pay s tub, Ms. Newcomer

noticed that f ederal income tax withholding was deducted a long

with various deductions for Social Security and Medicare. The

f ederal pay roll deductions were identical to those any employe r

would deduct from an employeeÓ s wages.

10. Ms. Newcomer perform ed another search of RespondentÓ s

database, find ing that Petitioner had workersÓ compensation

insurance through Allstates Emp loyer Services, effective

March 17, 2009. Ms. Newcomer then contacted Allstates Employer

Services and requested a copy of PetitionerÓ s employee roster.

When she r eceived the roster, Mr. BordersÓ name was not on the

roster.

11. Ms. Newcomer next interviewed Mr. Borde rs, inquiring

about Mr. BordersÓ relationship with Petitioner. She wanted to

know the following: (a) whether he drove PetitionerÓ s vehicle;

(b) whether he signed any empl oyment contracts; and (b) whether

he considered himself Petitioner Ó s employee.

12. Mr. Borders responded as follows: (a) he considered

himself an employee of Petitioner; (b) he had signed an

employment application; (c) he dr ove PetitionerÓ s truck; and

(d) he took orders from Petitioner as to when and where to pick

up the cars that needed to be transported.

13. After speaking with Mr. Borders, Ms. Newcomer

conducted further review via various state databases. She

researched the database maintained b y the Florida Department of

State, Division of Corporations, to determine the relationship

of Petitioner to Transport TK 131, LLC, anothe r company listed

on Mr. BordersÓ pay stub. This search revealed 21 limited -

liability companies using the Transport TK name.

14. Ms. Newcome r learned that Transport TK 131Ó s managing

member was Gary Hedge. Ms. Newcomer believed that Mr. Hedge

also was a principal of Petitioner.

15. Ms. Newcomer also reviewed the database maintained by

the Florida Department of Rev enue to determine who was paying

the unemployment compensation tax for Petitioner Ó s drivers. She

learned that Transport TK 131, LLC, listed two to three

employees for purposes of unemployment withholdings. The same

was true for all of the other Transport TK companies.

16. Ms. Newcomer believed her investigation presented

numerous inconsistencies with sta tements made by Ms. Hedge.

Ms. Newcomer presented her findings to her supervisors. They

gave her approval to investigate Petitioner.

17. Ms. Newc omer prepared a Business Records Request Form

1 (BRR#1) for Petitioner and Transport TK 131, LLC. Both BRRs

requested the companies to provide payroll information for

emp loyees and any forms of workersÓ compensation coverage for

its employees for the peri od January 21, 2009, through April 21,

2009. The BRRs also made the following request:

Record Category #12 -- For each independent

contractor who performs any service with

regard to the completion of a contractual

obligation of the employer listed above, at

any time during the period specified above:

all contracts for work, licenses, invoices,

ledgers, payments made pursuant to that

contract, and any other documents that

support the status of an independent

contractor under section 440.02(15)(d), F.S.

The request for records did not give the companies the

option of creating and providing affidavits or other documents

to support the status of independent contractors if no written

contracts for work existed. The BRRs were sent to Petitioner

and Transport TK 131, LLC, by certified mail on April 22, 2009.

18. Petitioner failed to provide all of the requested

records within the required five - day time period. Accordingly,

Respondent issued a SWO and an OPA to Petitioner. Ms. Newcomer

posted the SWO and O PA at the worksite on May 5, 2009.

19. While Ms. Newcomer was at Petitioner Ó s headquarters,

Ms. Hedges provided her with some records, inc luding

Petitioner Ó s QuickBooks r egistry, showing all checks written for

a three - month period. Ms. Hedges also ans w ered Ms. NewcomerÓ s

questions about the records, including questions about DTS, LLC,

a company described by Ms. Hedges as a payroll account.

20. Ms. Hedges explained that before August 2008,

Petitioner paid DTS, LLC, for work performed by Ð employees Ñ o f

the Transport TK companies. DTS, LLC, would then pay the truck

drivers. However, when DTS, LLC, ran out of checks in August

2008, Petitioner began paying the Transport TK employees

directly.

21. The documentation and information provided by

Ms. Hedg es, resulted in the SWO being revoked for Transport TK

131, LLC. The revocation was based on a showing that Transport

TK 131, LLC, and other Transport TK companies did not have bank

accounts.

22. The SWO against Petitioner, for failing to produce

suffi cient records, remained in place, pending further review.

Ms. Newcomer continued to have discussions with Ms . Hedges

relative to PetitionerÓ s business.

23. Ms. Newcomer discussed the case again with one of her

supervisors. She explained that Petition er was paying

individuals that were reported as employees of the Transport TK

companies. She also stated that Petitioner pays its corporate

officers, Bradley Hedges, Gregory Hedges and Teri F orret, who

did not have workersÓ compensation exemptions and wer e not

covered by Alls tates Employer Services workersÓ compensation

coverage. Ms. Newcomer and her supervisor decided to amend the

SWO to add the charg e of failure to provide workersÓ

compensation coverage for employees.

24. On May 6, 2009, Respondent sent the SWO, the Amended

Stop Work Order (ASWO,) and a Business Records Request Form 2

(BBR#2) to Petitioner by certified mail. Petitioner received

the documents the next day.

25. Ms. Newcomer had a meeting with Ms. Hedges on May 8,

2009. During the meeting, Ms. Hedges explained that DTS, LLC,

is just a bank account, used to pay the employees of the

Transport TK companies. Ms. Hedges also stated that Petitioner

has full control of its customer contracts and directs the

drivers where to go for work.

26. On May 11, 2009, Ms. Newcomer received Petitioner Ó s

Quickbook report for the period of the BBR#2 records request.

27. On May 13, 2009, Ms. Newcomer staffed the case with

Respondent Ó s legal counsel.

28. On May 14, 2009, Ms. Newcomer received som e contracts

between Petitioner and truck drivers who owned and operated

their own trucks.

29. R espondent calculated PetitionerÓ s penalty using the

Quickbooks report, in conjunction with W - 2 documents provided

for tax years 2007 and 2008. As of May 18, 2009, PetitionerÓ s

penalty was $1,496,680.40. Ms. Newcomer requested and received

approval to issue an Amended Order of Penalty Assessment (AOPA)

for that amount. The AOPA was served on Petitioner by hand

delivery on May 19, 2009.

30. Ms. Newc omer di d not include PetitionerÓ s office

staff/dispatchers, including Ms. Hedges, in calculating

Petitioner Ó s penalty. Ms. Newcomer was able to confirm tha t

those individuals had workersÓ compensation coverage through the

employee leasing company.

31. Ms. Ne wcomer did not include the owner/operator truck

drivers in calcula ting PetitionerÓ s penalty. Ms. Newcomer had

copies of contracts indicating that they were independent

contractors.

32. Ms. Newcomer did include the 50 to 60 tru ck drivers

who drove Petit ionerÓ s trucks i n calculating the penalty.

Ms. Newcomer knew that Petitioner was paying those individuals

by check and that their pay - stubs showed various deductio ns,

including withholdings for f ederal income taxes, Social

Security, Medicare, and even ded uction options for various forms

of Individual Retirement Accounts, both standard and Ð Roth Ñ

versions. For some of the drivers, Petitioner deducted child

support payments.

33. If Ms. Newcomer had asked more questions or talked to

more drivers, she wou ld have learned that Petitioner made the

deductions from the checks of drivers who drove PetitionerÓ s

trucks at their request and in exchange for a smaller

commission. Petitioner did not make the deductions as an

employer.

34. Ms. Newcomer also learne d that all individuals driving

PetitionerÓ s trucks signed employment applications. Apparently,

Ms. Newcomer did not believe Ms. Hedges when she explained that

the employment applications were used as forms to comply with

the Federal Motor Vehicle Carrier Safety Act for dr ivers of

trucks with PetitionerÓ s name.

35. Ms. Newcomer never attempted to find out wh ether the

drivers of PetitionerÓ s trucks were independent contractors

pursuant to oral contracts. She did not ask Ms. Hedges

questions that track t he definition of Ð independent contractor Ñ

status in Sections 440.02(15)(d)1a and 440.02(15)(d)1b, Florida

Statutes. In other words, Ms. Newcomer did not try to ascertain

whether and/or to what extent Petitioner or the truck drivers

controlled or directed the manner in which the work was done.

36. Ms. Hedges told Ms. Newcomer that PetitionerÓ s

corporate officers had filed for workersÓ compensation exempt

status by delivering exemption applica tion forms to one of

RespondentÓ s offices in 2005. Ms. Hedges di d not have a receipt

showing delivery of the forms.

37. Ms. Newcomer could not find the names of two of these

officers in the stateÓ s database of corporate officers electing

exempt status. Therefore, Ms. Newcomer included the two

corporate officers in the penal ty calculation. Apparently ,

Ms. Newcomer never considered that Ms. Hedges was telling the

truth about the exemption forms and that, pursuant to statute,

the exemptions became effective 30 days after Ms. Hedges

delivered them to Respondent even t hough Respondent never

processed them.

38. Ms. Newcomer also did not go back to Mr. Borders to

question him about his claim of being Petitioner Ó s employee as

opposed to an independent contractor, using the definition of

independent contractor set forth in Sections 440.02(15)(d)1a and

440.02(15)(d)1b, Florida Statutes. Additionally, Ms. Newcomer

did not attempt to interview any other in dividuals that drove

PetitionerÓ s vehicles to determine whether they considered

themselves employees or independent cont ractors.

39. On or about June 5, 2009, Petitioner requested an

administrative hearing to challenge the ASWO and AOPA. The

hearing was held on November 3, 2009. On January 29, 2010,

Administrative Law Judge P. Michael Ruff issued a Recommended

Order, f inding that Petitioner was c ompliant with Florida Ó s

workersÓ compensation coverage and recommending that a final

order be entered dismissing the ASWO and AOPA. On April 28,

2010, Respondent entered a Final Order adopting Judge Ruff Ó s

legal and factual fin dings.

40. The parties stipulate as follows: (a) Petitioner is

the prevailing party in the underlying case; (b) Petitioner was

a small business at the time the ASWO and AOPA were served; and

(c) The reasonableness of the amount of a ttorney Ó s fees and

costs claimed by Petitioner , namely $50,000 , is not in dispute.

CONCLUSIONS OF LAW

41. The Division of Administrative Hearings has

jurisdiction over the subject matter and the parties of this

proceeding pursuant to Sections 120.569 and 120.57(1), Florid a

Statutes.

42. This action for attorney Ó s fees and costs is brought

pursuant to Section 57.111, Florida Statutes, which states as

follows in relevant part:

(1) This section may be cited as the

Ð Florida Equal Access to Justice Act. Ñ

* * *

(3) As used in this section:

* * *

(e) A proceeding is Ðsubstantially

justifiedÑ if it had a reasonable basis in

law and fact at the time it was initiated by

a state agency.

* * *

(4)(a) Unless otherwise provid ed by

law, an award of atto rneyÓ 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 speci al

circumstances exist which would make the

award unjust.

(d) The court, or the administrative

law judge in the case of a proceeding under

chapter 120, shall promptly conduct an

evidentiary hearing on the appli cation for

an award of attorneyÓ s fee s and shall issue

a judgment, or a final order, in the case of

an administrative law judge. . . .

* * *

2. No award of attorneyÓ s fees and

costs for an action initiated by a state

agency shall exceed $50,000.

43. The only issue is whether Resp ondent had a substantial

basis in law and fact to issue the initial SWO and OPA, followed

by the ASWO and AOPA. Respondent has the burden of proving, by

a preponderance of the evidence, that it was Ð substantially

justified Ñ in taking the underlying action against Petitioner.

See Helmy v. Department of Business and Professional Regulation ,

707 So. 2d 366, 368 (Fla. 1st DCA 1998)

44. In Helmy v. Depa rtment of Business and Professi onal

Regulation , 707 So. 2d at 368, the c ourt stated as follows:

Accordingl y, in terms of Florida law, the

Ð substantially justified Ñ standard falls

somewhere between the no justiciable issue

standard of section 57.105, Florida Statutes

(1991), and an automatic award of fees to a

prevailing party.

45. In this case, Respondent was substantially justified

in issuing the initial SWO and OPA because Petitioner was

untimely in providing all of the records requested in BBR#1.

After taking that action, and receiving Petitioner Ó s payroll

records, Respondent was justified in leaving t he SWO in place

pending further review of Petit ioner Ó s compliance with workersÓ

compensation coverage requirements.

Independent Contractors

46. During the on - going investigation, Ms. Newcomer

focuse d almost entirely on Mr. BorderÓ s statement that he

bel ieved he was Petitioner Ó s employee, on a review of

Mr. BordersÓ pay stub, on a review of Pe titionerÓ s payroll

records, and a review of some contracts between Petitioner and

independent operators. She did not question Mr. Borders or

Ms. Hedges regarding th e work being performed against the

statutory definition of independent contractors. The first time

that Ms. Hedges was asked to explain the relationship between

Petitioner and the drivers using the statutory definition of

independent contractor status was at the compliance hearing.

47. Respondent was not substantially justified in issuing

the ASWO and AOPA because Ms. Newcomer did almost nothing to

resolve the conflicting stories of Mr. Borders and Ms. Hedges.

A reasonable person faced with such a con flict, and knowing the

statutory definition of an independent contractor, would or

should have inquired about the criteria that define an

individual as an independent contractor. If she had done so,

Ms. Newcomer would have known that the drivers of Petiti onerÓ s

trucks were independent contractors.

Corporate Officers

48. Respondent was not substantially justified in

penalizing Petitio ner for failing to have workersÓ compensation

coverage for all of the corpor ate officers. According to

Ms. Hedges, she pe rsonally delivered the exemption application

forms to RespondentÓ s office in 2005. Ms. Hedges did not know

why Respondent had not processed all of them.

49. Ms. Newcomer did not hing more than check RespondentÓ s

databas e to confirm or deny PetitionerÓ s claim that all

corporate officers had applied for an exemption. A reasonable

person with knowledge of Section 440.05(5), Florida Statutes,

would have tried to determine whether the forms were delivered

but never processed, and therefore, effective in 30 days after

delivery.

ORDER

Based on the foregoing Findings of Fact and Conclusions of

Law, it is

ORDERED:

That the Department of Financia l Services, Division of

WorkersÓ Compensation shall pay P.A.T. Auto Transport, Inc. , an

award of attorney Ó s fees an d c osts in the amount of $50,000.

DONE AND ORDERED this 16th day of November, 2010 , in

Tallahassee, Leon County, Florida.

S

SUZANNE F. HOOD

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399 - 3060

(850) 488 - 9675

Fax Filing (850) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 16th day of November , 2010 .

COPIES FURNISHED :

Kristian E. Dunn, E squire

Department of Financial Services

Division of WorkersÓ Compensation

200 East Gaines Street

Tallahassee, Florida 32399 - 4229

Douglas F. Miller, Esquire

Clark, Partington, Hart, Larry

Bond & Stackhouse

125 West Romana Street, Suite 800

Pensacola, F lorida 32591

Julie Jones, CP, FRP

Agency Clerk

Department of Financial Services

Division of Legal 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

NOTICE OF RIGHT TO JUDICIAL REVIEW

A party who is adversely affected by this Fina l 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 one copy of a Notice of Administrative Appeal with the

agency clerk of the Division of Administrative Hearings and a

second 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 r esides. The Notice of Administrative Appeal must be

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