12-001564 Department Of Financial Services, Division Of Workers&Apos; Compensation vs. That's Right Enterprises, Llc Status: Closed Recommended Order on Friday, August 31, 2012.

Summary: Respondent failed to secure and maintain Workers' Compensation insurance for its employees. Petitioner's assessment of a penalty in the amount of $5,436.64 was warranted.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL )

SERVICES, DIVISION OF WORKERSÓ )

COMPENSATION , )

)

Petitioner , )

)

vs. ) Case No. 1 2 - 1564

)

THATÓS RIGHT ENTERPRISES, LLC , )

)

Respondent . )

)

RECOMMENDED ORDER

Pursuant to notice, a final hearing was held in this case

on July 27, 2012, by video teleconference at sites in

Tallahassee, Florida , and Daytona Beach, Florida, before

E. Gary Early, a designated Administrative Law Judge of the

Division of Administrative Hearings.

APPEARANCES

For Petitioner: Michael T. McGuckin, Esquire

Departme nt of Financial Services

Division of Legal Services

WorkersÓ Compensation Section

200 East Gaines Street

Tallahassee, Florida 32399 - 4229

For Respondent: Edward P. Kraher

ThatÓs Right Enterprises, LLC

302 Grant Street

Port Orange, Florida 32127

STATEMENT OF THE ISSUE

W hether Pe titioner properly issued a Stop - Work Order and

Penalty Assessment against Respondent for failing to obtain

workers' compensation insurance that meets the requirements of

c hapter 440, Florida Statutes.

PRELIMINARY STATEMENT

On March 8 , 201 2 , Petitioner, the Department of Financial

Services, Division of WorkersÓ Compensation , issued a Stop - Work

Order and Order of Penalty Assessment, alleging that Respondent

was not in compliance with the workersÓ compensation coverage

requirements of c hapter 440, Florida Statutes. The Stop - Work

Order was hand - delivered to Respondent, and ordered Respondent

to cease all business operations for all worksites in the state.

The Order of Penalty Assessment established a general penalty of

1.5 times the amount that the employer would have paid in

premiums had workersÓ compensation insurance been procured.

On March 27, 2012 , Petitioner issued an Amended Order of

Penalty Assessment (hereinafter "Amended Order") which was

served by hand - delivery on Respondent on March 28, 2012 . The

Amended Order calculated a specific monetary penalty of

$ 39,843.18 . The Amended Order included a notice to Respondent

of its right to challenge the agencyÓs proposed action by filing

a petition pursuant to s ections 120.569 and 120.57.

On April 9, 2012, Respondent filed an election of

proceeding by which it requested a formal administrative

heari ng.

On April 13, 2012, Pet itioner filed a 2nd Amended Order of

Penalty Assessment, by which it reduced the assessed penalty

from $ 39,843.18 to $ 5,436.64 . The 2nd Amended Order of Penalty

Assessment forms the basis for this proceeding.

On April 30, 2012 , t he Stop - Work Order, 2nd Amended Order,

and Election of Proceeding were transmitted to the Division of

Administrative Hearings for a formal administrative hearing, and

assigned to the undersigned. The case was set for h earing to

convene on July 27, 2012.

The case was held by video hearing as scheduled at sites in

Tallahassee, Florida , and Daytona Beach , Florida. P etitioner

presented the testimony of Carolyn Martin , an In surance Analyst

II with the Division of WorkersÓ Compensation Bureau of

Complia nce , and Lynne Murcia , a Penalty Auditor for the Division

of WorkersÓ Compensation. Petitioner introduced Exhibits 1

through 1 2 , each of which was admitted into evidence.

Respondent testified in his own behalf.

The one - volume Transcript was filed on A ugust 1 4 , 2012.

Petitioner timely filed a Proposed Recommended Order , which ha s

been considered in the preparation of this Recommended Order.

Respondent did not file a post - hearing submittal.

References to statutes are to Florida Statutes (2011)

unless otherwise noted.

FINDINGS OF FACT

1. Petitioner is the state agency responsible for

enforcing the Flor ida Workers' Compensation Law, c hapter 440,

Florida Statutes, including those provisions that require

employers to secure and maintain payment of workers Ó

compensation insurance for their employees who may suffer work -

related injuries.

2. Respondent is an active Florida limited liability

company , having been organized in 2006 .

3 . HowardÓs Famous Restaurant is a diner - style restaurant

located at 488 South Yonge Street, Ormond Beach, Florida. It

seats approximately 60 customers at a time, and is open for

breakfast and lunch.

4 . In 2006, Edward Kraher and Thomas Baldwin jointly

purchased HowardÓs Famous Restaurant. They were equal partners.

Mr. Baldwin generally handled the business aspects of the

restaurant, while Mr. Kraher was responsible for the food.

5 . At the time the restaurant was pu rchased, Mr. Baldwin

organized ThatÓs Right Enterprises, LLC , to hold title to the

restaurant and conduct the business of the restaurant .

Mr. Baldwin and Mr. Kraher were both identified as managing

members of the company. 1/

6 . On June 27 , 2007, a 2007 L imited Liability Company

Annual Report for ThatÓs Right Enterprises, LLC , was filed with

the S ecretary of State . The Annual Report bore the signature of

Mr. Kraher , and contained a strike - through of the letter that

caused the misspelling of Mr. KraherÓs name. Mr. Kraher

testified that the signature on the report appeared to be his,

but he had no recollection of having seen the document, or of

having signed it. He suggested that Mr. Baldwin may have forged

his signature, but offered no explanation of why he might have

done so. Although Mr. Kraher could not recall having signed the

annual report, and may have had little understanding of its

significance, the evidence supports a finding that Mr. Kraher

did , in fact, sign the annual report for ThatÓs Right

Enterprises, LLC , as a managing member of the b usiness entity .

7 . From March 9, 2009 , through March of 2011 , Mr. Kraher

and Mr. Baldwin received salaries as officers, rather than

employees, of ThatÓs Right Enterprises, LLC. Their pay was

substantially e quivalent during that period. The paychecks were

issued by the companyÓs accountant . M r. Kraher denied having

specific knowledge that h e was receiving a salary as an officer

of ThatÓs Right Enterprises, LLC.

8 . Since Mr. Baldwin left the company, Mr. Kraher has

continued to use the same accountant, and has continued to

receive his salary as an officer of ThatÓs Right Enterprises,

LLC .

9 . On March 2 4 , 2011, after having bought out

Mr. Baldwin Ós interest in th e company by paying certain company -

related debt owed by Mr. Baldwin, Mr. Kraher filed an annual

report for ThatÓs Right Enterprises, LLC . In the annual report,

which was prepared and filed at his request, Mr. Kraher assumed

control as the sole member and registered agent of the company .

Mr. Baldwin was removed as a managing member and registered

agent , and other changes were made consistent therewith.

Mr. Kraher denied any understanding of the significance of his

operating as the same corporate entity, but rather thought he

was Ðbuying a new LLC.Ñ

10 . On March 8, 2012 , Petitioner's investigator, Carolyn

Martin , conducted a n i nspection of HowardÓs Famous Restaurant .

M s. Martin introduced herself to one of the waitresses working

at the restaurant . The waitress called Mr. Kraher from the

kitchen to speak with Ms. Martin. Mr. Kraher identified himself

as the owner of the restaurant for the past six years.

11 . Ms. Martin asked Mr. Kraher for evidence that

RespondentÓs employees were covered by worke rs Ó compensation

insurance. Mr. Kraher retrieved a folder containing the

restaurantÓs insurance policies and information. Ms. Martin

reviewed the folder, and determined that Respondent did not have

workersÓ compensation insurance.

12 . Mr. Kraher , who w as very cooperative with Ms. Martin

throughout the inspection, was genuinely surprised that the

restaurant employees were not covered by workersÓ compensation

insurance. He had taken out Ða million - dollar insurance policyÑ

that he thought covered everythi ng he needed to have. While

Ms. Martin was at the restaurant, Mr. Kraher called his

insurance agent who , after reviewing his file, confirmed that

Respondent did not have workersÓ compensation insurance.

Mr. Kraher immediately asked his agent to bind a policy, and

paid his first six - month premium using a business credit card.

A copy of the policy was quickly faxed by the agent to

Ms. Martin.

13 . Ms. Martin took the names of RespondentÓs employees,

which included two kitchen staff and four wait staff. Some of

the employees worked in excess of 30 hours per week, while

others w orked part - time.

14 . Ms. Martin went to her vehicle and completed a Field

Interview Worksheet. Ms. Martin reviewed the Coverage and

Compliance Automated System (CCAS), which is the statewide

database for workersÓ compensation information, to confirm

RespondentÓs status in the workersÓ compensation system. Using

the CCAS, Ms. Martin confirmed that Respondent had no workersÓ

compensation coverage on file for any employee of the co mpany.

She also accessed the Florida Division of Corporations website

to ascertain RespondentÓs corporate status.

15 . After having gathered the information necessary to

determine RespondentÓs status, Ms. Martin contacted her

supervisor and received authorization to issue a consolidated

Stop - Work Order and Order of Penalty Assessment. The Stop - Work

Order required Respondent to cease all business operations

statewide. The Order of Penalty Assessment assessed a p enalty ,

pursuant to section 440.107(7)(d) , equal to 1.5 times the amount

the employer would have paid in premium when applying the

approved manual rates to the employer's payroll for the

preceding three - year period. The consolidated order was hand -

deliver ed to Mr. Kraher on behalf of Respondent at 11:00 a.m. on

March 8 , 2012.

16 . At the time she delivered the consolidated Stop - Work

Order and Order of Penalty Assessment, Ms. Martin also hand -

delivered a Request for Production of Business Records for

Penal ty Assessment Calculation. The Request required that

Respondent produce business records for the preceding three - year

period, from March 9, 2009 , through March 8, 2012. Respondent

was given five days in which to provide the records.

17 . On or about M arch 12, 2012, Mr. Kraher produced three

boxes of business records to Ms. Martin. Those records were

forwarded by Ms. Martin, and placed in the queue for review by

the penalty auditor.

18 . The records were reviewed by PetitionerÓs penalty

auditor , Lynne Murcia, and were found to be insufficient t o

establish the actual compensation paid to RespondentÓs employees

for the preceding three year period. Therefore, pursuant to

section 440.107(7)(e) , salaries were imputed for each of the six

employees based on the statewide average weekly wage.

19 . Ms. Murcia us ed the ÐScopes ManualÑ published by the

National Council on Compensation Insurance to ascertain the

classification of RespondentÓs business, based upon the nature

of the goods and services it provided. Class code 9082 , titled

Ð Restaurant NOC, Ñ is described as Ðthe ÒtraditionalÓ restaurant

that provides wait service.Ñ Ms. Murcia correctly determined

that HowardÓs Famous Restaurant fell within class code 9082 .

20 . The salaries of RespondentÓs six employees , as

employees of a c lass code 9082 restaurant, were imputed as

though they worked full - time for the full three - year period from

March 9 , 200 9 , to March 8, 201 2, pursuant to section

440.107(7)(e) . The total imputed gross payroll amounted to

$1 ,13 0,921.64 .

21 . T he penalty for RespondentÓs failure to maintain

workersÓ compensation insurance for its employees is calculated

as 1.5 times the amount Respondent would have paid in premium

for the preceding three - year period .

22 . The National Council on Compensation Insurance

periodically issues a schedule of workersÓ compensation rates

per $100 in salary, which varies based on the Scopes Manual

classification of the business.

23 . The workersÓ compensation insurance premium w as

calculated by multiplying one percent of the imputed gro ss

payroll ($11,309.21) by the approved manual rate for each

quarter (which varied from $2.20 to $2.65, depending on the

quarterly rate) , which resulted in a calculated premium of

$ 26,562.06 .

24 . The penalty was determined by multiplying the

calculated premium by 1.5, resulting in the final penalty of

$ 39,843.18 .

25 . On March 28, 2012 , Petitioner issued an Amended Order

of Penalty Assessment assessing a monetary penalty amount of

$ 39,843.18 against Respondent.

26 . Respondent subsequently provided Petitioner with

additional payroll records regarding the six employees . The

records had been in the possession of RespondentÓs accountant .

The records , which included RespondentÓs bank statemen ts and

payroll records for the six employees, were determined to be

adequate to calculate the actual employee salaries for the

preceding three - year period.

27 . Ms. Murcia revised her penalty worksheet to reflect

that payroll was now based on records, rat her than being

imputed. 2/ RespondentÓs t otal payroll for the th ree - year period

in question was determined to be $1 54,079.82 . Applying the same

formula as that applied to determine the penalty amount

reflected in the Amended Penalty Assessment, the premium was

calculated to have been $ 3,624.33 , with a resulting penalty of

$ 5,436.64 .

28 . On A pril 24, 2012 , Petitioner issued a 2 nd Amended

Order of Penalty Assessment reducing Respondent's penalty from

$ 39,843.18 to $ 5,436.64 .

CONCLUSIONS OF LAW

29 . The Division of Administrative Hearings has

jurisdiction over the subject matter and parties pursuant to

sections 120.569 and 120.57(1), Florida Statutes.

30 . Petitioner is the agency of the State o f Florida

charged, pursuant to section 440.107(3) , with the duty to:

. . . enforce workers' compensation coverage

requirements, including the requirement that

the employer secure the payment of workers'

compensation . . . . In addition to any

other powers under this chapter, the

department shall have the power to:

(a) Conduct investigations for the

purpose of ensuring employer compliance.

(b) Enter and inspect any place of

business at any reasonable time for the

pu rpose of investigating employer

compliance.

(c) Examine and copy business records.

* * *

(g) Issue stop - work orders, penalty

assessment orders, and any other orders

necessary for the administration of this

section.

(h) Enforce the terms of a stop - work

order.

(i) Levy and pursue actions to recover

penalties.

(j) Seek injunctions and other

appropriate relief.

31 . Petitioner has the burden of proof in this case , and

must show by clear and convincing evidence , that Respondent

violated the Chapter 440 and the rules promulgated thereunder

during the relevant period , and that the penalty assessments are

correct. § 120.57(1)(j), Fla. Stat.; DepÓt of Bankin g & Fin.,

Div. of Securities and Investor Protection v. Osb orne Stern &

Co. , 670 So. 2d 932 (Fla. 1996); Ferris v. Turlington , 510 So.

2d 292 (Fla. 1987); Pou v. DepÓt of Ins. , 707 So. 2d 941 (Fla.

3d DCA 1998). Clear and convincing evidence Ðrequires more

proof than a Òpreponderance of the evidenceÓ but less tha n

Òbeyond and to the exclusion of a reasonable doubt.ÓÑ In re

Graziano , 696 So. 2d 744, 753 (Fla. 1997).

32 . The workersÓ compensation law is a creation of

statute, and was unknown to the common law . Summit Claims Mgmt.

v. Lawyers Express Trucking , Inc . , 913 So. 2d 1182, 1184 (Fla.

4th DCA 2005); Shaw v. Cambridge Integrated Servs. Group, Inc. ,

888 So. 2d 58, 62 (Fla. 4th DCA 2004). As a statute in

derogation of the common law, the workersÓ compensation statute

requires strict compliance with its provisions by the person

seeking its benefits. See Florida Steel Corp. v. Adaptable

Dev., Inc. , 503 So. 2d 1232 (Fla. 1986); Anderson Columbia, Inc.

v. Brewer , 994 So.2d 419, 421 (Fla. 1st DCA 2008); Edwards v.

C.A. Motors, Ltd. , 985 So. 2d 1147 (Fla. 1st DCA 2008).

33 . The evidence is clear and convincing that Respondent,

ThatÓs Right Enterprises, LLC, has been in continuous, active

existence since 2006. Respondent is the entity that was

responsible for the operation of HowardÓs Famous Restau rant for

the period from March 9, 2009 , through March 8, 2012. 3/

34 . Pursuant to sections 440.10 and 440.38, every employer

is required to secure the payment of workers' compensation for

the benefit of its employees unless exempted or excluded under

chap ter 440.

35 . Section 440.02(16)(a), in pertinent part, defines an

ÐemployerÑ to be Ðevery person carrying on any employment.Ñ

36 . Section 440.02(17)(b)2. , defines ÐemploymentÑ to mean

Ðany service performed by an employee for the person employing

him or her,Ñ and includes Ð [a]ll private employments in which

four or more employees are employed by the same employer . . .Ñ

37 . Section 440.02( 15 )( a ) broadly defines Ðemploy ee Ñ to

mean Ð any person who receives remuneration from an employer for

the perf ormance 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 minor s. Ñ

38 . Petitioner established by clear and convincing

evidence that Respondent was an employer for workers'

compensation purposes because it was conducting business , and

engaged four or more employees to perform se rvices on its behalf

from March 9 , 200 9 , to March 8, 201 2 . Therefore, Respondent was

required to secure and maintain compensation for its employees

pursuant to s ection 440.10.

39 . Petitioner established by clear and convincing

evidence that the employees identified in the penalty worksheets

were not covered by a valid workers' compensation insurance

policy during the assessment period.

40 . Section 440.107(7)(a) provides in pertinent part that:

Whenever the department determines that an

employer who is required to secure the

payment to his or her employees of the

compensation provided for by this chapter

has failed to secure the payment of workers'

compensation . . . such failure shall be

deemed an immediate serious danger to public

health, safety, or welfare sufficient to

justify service b y the department of a stop -

work order on the employer, requiring the

cessation of all business operations . . . .

As a result of the foregoing, PetitionerÓs Stop - Work Order was

authorized and appropriate.

41 . The evidence demonstrates that upon being notified

that Respondent did not have workersÓ compensation for its

employees -- a fact that was a ÐrevelationÑ to Mr. Kraher --

Mr. Kraher immediately secured workersÓ compensation for

RespondentÓs employees , e ffective on the March 8, 2012 , date of

the inspection. PetitionerÓs representative was advised of that

fact prior to her leaving HowardÓs Famous Restaurant.

42 . Section 44 0.107(7)(d)1. provides that:

In addition to any penalty, stop - work order,

or in junction, 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 $1,000.00,

whichever is greater.

43 . Business records provided to Petitioner demo nstrate

that Respondent's total payroll for preceding three - year period ,

from March 9 , 200 9 , through March 8, 201 2 , was $1 54,079.82 .

Petitioner established by clear and convincing evidence that t he

total workers' compensation premium that Respondent should have

paid for its employees for that period was $ 3,624.33 .

Multiplying that amount by the statutory factor of 1.5 results

in a penalty assessment in the amount of $ 5,436.64 .

44 . Based on the foregoing, Respondent is liable for

payment of a penalty in the amount of $ 5,436.64 for its failure

to secure and maintain compensation for its employees as set

forth in the Stop - Work Order and the 2nd Amended Penalty

Assessment.

RECOMMENDATION

Based on the findings of fact and conclusions of law, it is

RECOMMENDED that the Department of Financial Services,

Division of WorkersÓ Compensation, enter a final order assessing

a penalty of $ 5,436.64 against Respondent, ThatÓs Right

Enterprises, LLC , f or its failure to secure and maintain

required workersÓ compensation insurance for its employees .

DONE AND ENTERED this 31st day of August , 201 2 , in

Tallahassee, Leon County, Florida.

S

E. GARY EARLY

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 3 1st day of August , 201 2 .

ENDNOTE S

1/ The corporate records identified one of the managing member s

as ÐEdward P. Kracher. Ñ The address, 302 Grant Street, Port

Orange , Florida 32127, is that of Mr. Kraher. It is clear that

the reference to Mr. ÐKracherÑ is the result of a scrivenerÓs

error, and was not intended to refer to a person other than

Edward P. Kraher.

2/ The records provided by Respondent provided payroll

in formation through March 7, 2012. Therefore, Ms. Murcia

imputed the salary for March 8, 2012 , as though each of the six

employees worked on that day . The total imputed salary for that

date was $1,031.88. Using the formula described herein, the

total premium for that salary amount would have been $25.50,

with a penalty derived for that date of $38.28. Although the

evidence suggests that, as a rule, only three employees were on

duty at any given time, the penalty difference attributable to

that fact is de minim i s and not material.

3 / Mr. Kraher testified that he had no specific knowledge that

Respondent had been formed in 2006 to be the legal ent ity

responsible for the operation and control of HowardÓs Famous

Restaurant. He further testified that he believed the current

iteration of ThatÓs Right Enterprises, LLC, which he admitted

was the current legal entity responsible for the operation and

con trol of HowardÓs Famous Restaurant, was a Ðnew LLC.Ñ Even if

that were true, Respondent would not be relieved of liability

for the stop - work order and order of penalty assessment.

Section 440.107(7)(b) provides that:

Stop - work orders and penalty assessm ent

orders issued under this section against a

corporation, partnership, or sole

proprietorship shall be in effect against

any successor corporation or business entity

that has one or more of the same principals

or officers as the corporation or

partnershi p against which the stop - work

order was issued and are engaged in the same

or equivalent trade or activity.

Consistent therewith, r ule 69L - 6.031 provides, in pertinent

part, that:

(1) Under s ection 440.107(7)(b), F.S., stop

work orders or orders of penalty assessment

issued against a corporation, partnership,

or sole proprietorship shall be in effect

against any successor corporation or

business entity that has one or more of the

same principa ls or officers as the

predecessor corporation or business entity

against which the stop work order was issued

and are engaged in the same or equivalent

trade or activity.

(b) For employers engaged in the non -

construction industry, a corporation,

partnership, or sole proprietorship and the

successor corporation or business ent ity

that has been issued a stop - work order or

order of penalty assessment, are engaged in

the same or e quivalent trade or activity if

they each perform or have performed business

operations that include operations described

in at least one classification code that is

in the manufacturing, goods and services, or

the office and clerical industry group

listed in subsection (6) of this rule.

(2) A stop - work order or order of penalty

assessment issued against a corporation,

partnership, or sole proprietorship becomes

effective against a successor corporation or

business entity that has one or more of the

same p rincipals, directors, officers,

partners, or shareholders with a 10 percent

or greater interest, including any

Ðaffiliated personÑ as defined in s ection

440.05(15), F.S., in common with the

predecessor corporation or business entity

against which the origi nal stop work order

or order of penalty assessment was issued

and is engaged in the same or equivalent

trade or activity, through service on the

successor corporation or business entity of

an order applying a stop work order or order

of penalty assessment to successor

corporation or business entity. The order

applying a stop work order or order of

penalty assessment to successor corporation

or business entity remains in effect until

withdrawn by the department.

HowardÓs Famous Restaurant is engaged in bus iness d escribed in

the goods and services classification code for Restaurant NOC

listed in Rule 69L - 6(6)(d)111. Thus, even if Respondent had

been reorganized by Mr. Kraher as a new LLC in 2011 -- which it

was not -- Respondent would be the successor busin ess entity

engaged in the same or equivalent trade or activity responsible

for the actions of the predecessor business entity.

COPIES FURNISHED :

Edward P. Kraher

ThatÓs Right Enterprises, LLC

302 Grant Street

Port Orange, Florida 32127

Michael Thomas McGuckin, Esquire

Department of Financial Services

200 East Gaines Street

Tallahassee, Florida 32399 - 4229

[e-mail]

Julie Jones, CP, FRP, Agency Clerk

Department of Financial Services

Division of Legal Services

200 East Gaines Street

Tallahassee, Florida 32399 - 0390

[e-mail]

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.