13-000799 Department Of Financial Services, Division Of Workers&Apos; Compensation vs. Custom Granite Kitchens And Baths, Llc Status: Closed Recommended Order on Tuesday, July 23, 2013.

Summary: Petitioner proved the violation of requirements of chapter 440, Florida Statutes, as to one employee, but failed to prove violations as to other alleged employees, and failed to prove the alleged violation of the Stop-Work Order.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL

SERVICES, DIVISION OF WORKERSÓ

COMPENSATION ,

Petitioner ,

vs. Case No. 1 3 - 0799

CUSTOM GRANITE KITCHENS AND

BATHS, LLC ,

Respondent .

/

RECOMMENDED ORDER

On June 13, 2013, a duly - noticed hearing was held via video

teleconference with sites in Jacksonville, Panama City, and

Tallahassee, Florida, before F. Scott Boyd, an administrative

law judge assigned by the Division of Admin istrat ive Hearings.

APPEARANCES

For Petitioner: Jesse A. Haskins, Esquire

Department of Financial Services

200 East Gaines Street

Tallahassee, Florida 32399

For Respondent: Michael J. Rudicell, Esquire

Michael J. Rudicell, PA

4309 B Spanish Trail

Pensacola, Florida 32504

STATEMENT OF THE ISSUE

The issue in this case is whether Respondent violated the

provisions of chapter 440, Florida Statutes, by failing to

secure the payment of workersÓ compensation, as alleged in the

St op - Work Order and Third Amended Order of Penalty Assessment,

and if so, what penalty is appropriate.

PRELIMINARY STATEMENT

On July 20, 2012, following investigation and site

inspection, Petitioner hand - delivered to Mr. Sherman Yarbrough a

Stop - Work Order a nd an Order of Penalty Assessment addressed to

Custom Granite Kitchens and Baths, LLC (Respondent or the LLC).

On August 9, 2012, an Amended Order of Penalty Assessment was

served on Respondent, assessing a penalty of $1 , 005.66. On

August 10, 2012, Petit ioner received a letter from Respondent ,

signed by Mr. Sherman Yarbrough, stating that the LLC had just

been formed and had Ðno activity of any kindÑ in Florida.

Petitioner also received an Election of Proceeding form

requesting an administrative hear ing to contest disputed facts.

A Second Amended Order of Penalty Assessment in the amount

of $2 , 005.66, addin g a fine for working on October 26, 2012, in

violation of the Stop - Work Order, was s erved on Respondent on

February 15, 2013. The matter was referred to the Division of

Administrative Hearings for assignment of an ad ministrative law

judge on March 5, 2013. Following deposition of a witness,

Petitioner sought to file a Third Amended Order of Penalty

Assessment imposing a total fine of $2 ,508.49.

Pursuan t to notice, the fina l hearing was conducted on

June 13, 2013. No prejudice was found to Respondent and the

pending Motion to Amend Order of Penalty Assessment was granted

at hearing. The parties entered into a written Stipulation of

Facts, as well as an oral stipulation that if the charged

violations were proven, the penalty amounts calculated by

Petitioner in the Penalty Assessments were accurate. These

stipulated facts are included among the findings of fact set out

below.

Petitioner presented the tes timony of four witnesses:

Mr. Don Hurst, Compliance Investigator; Mr. Calvin Johnson,

construction worker and , later , purchaser of the LLC;

Mr. Sherman Yarbrough, construction company owner and owner of

the LLC at the time of the alleged violations; and M s. Betty Jo

Laws, Office Manager for Payroll Services, Inc. Petitioner

introduced 20 exhibits: P - 1 through P - 15 and P - 18 through P - 22.

Respondent presented the tes timony of Mr. Yarbrough and

Ms. Marion Tucker, Secretary of the LLC. Respondent introduced

nine exhibits: R - 1 through R - 5, R - 7, R - 8, R - 10, and R - 12.

The two - volume Transcript was filed on July 1, 2013. The

parties timely filed Proposed Recommended Orders which were

considered in the preparation of this Recommended Order. A

Reply to Responden tÓs Proposed Recommended Order was also filed

by Petitioner. Under Florida Administrative Code R ule 28 -

106.215, parties are authorized to file post - hearing submittals

within a time period designated by the presiding officer. At

hearing , the undersigned o nly authorized the filing of Proposed

Recommen ded Orders within 10 days. No m otion was filed

r equesting permission to file a r eply or pleading other than the

Proposed Recommended Orders, and the Reply to RespondentÓs

Proposed Recomm ended Order was not con sidered.

FINDINGS OF FACT

1. The Department of Financial Services (Petitioner or the

Department) is the state agency responsible for enforcing the

statutory requirement that employers secure the payment of

workers' compensation for their employees and cor porate

officers.

2. Mr. Donald Hurst is a w orkersÓ c ompensation compliance

i nvestigator for the Department of Financial Services , Di vision

of WorkersÓ Compensation . He has been employed in that capacity

for about nine years and has conducted app roximatel y 7 , 000

investigations.

3. On December 20, 2007, Mr. Sherman Yarbrough registered

the fictitious name of Custom Granite Kitchens and Baths (CGKB)

with the Florida Department of State, showing the mailing

add ress for the business as 1210 West 15th Street, Panama City,

Florida. Department of State records show Mr. Yarbrough as the

owner of the fictitious name, and show that it was in ef fect

until December 31, 2012.

4. Payroll Services, Inc. (Payroll Services) , is a broker

for employee leasing compan ies. Ms. Betty Jo Laws is the office

m anager. Ms. Laws performs bookkeeping duties, and , at all

times relevant here, sold employee leasing services to

employers. When clients came in seeking employee leasing

services, she would take down all of the informatio n, find an

appropriate leasing company from among the several that Payroll

Services represented, and assist the client in completing all of

the required paperwork.

5. American Staff Management (ASM) , a Florida corporation

engaged in employee leasing, assi gns its employees to vario us

clients as Ðco - employers.Ñ ASM provides those employees with

workers Ó compensation coverage and payroll and tax services,

while allocating to the client extensive direction and control

over the day - to - day work activities of th e as signed employees.

6. On or about October 6, 2011, CGKB entered into a

Service Agreement through Payroll Services under which ASM would

provide it employee leasing services. Under the agreement, ASM

would co - employ certain employees and provide them w ith workersÓ

compensation and other benefits of employment. ASM would issue

the payroll checks and be responsible for meeting tax accounting

and reporting requirements related to the employment. The

agreement provided that ASM would not be considered the employer

for any individual until ASMÓs new hire paperwork, a n I - 9 form

( if required ) , and a W - 4 tax withholding form were received by

ASM. It further provided that ASM would not be considered the

employer until CGKB had been notified by ASM that the emp loyee

had been hired by ASM as an assigned employee. CGKB would pay

ASM the regular rate of pay for the employees along with an

additional fee of 19.68 per cent of t he payroll for these

services.

7. In December of 2011, Mr. Charles Burchell, representing

SSI Management (SSI) , came down from Brentwood, Tennessee, to

look at the VUE, a condominium that SSI was constructing at

2303 Highway 98, Mexico Beach, Florida . Mr. Yarbrough walked

onto the site, gave Mr. Burchell a card from CGKB, and told

Mr. Burchell that he did tile and cab inet work.

8. Sometime in the middle of June 2012, SSI entered into a

contract with CGKB for construction work at the VUE.

9. Mr. BurchellÓs testimony indicated that he was not sure

if SSIÓs contract was with the LLC or CGKB:

Q: So in the c ourse of your dealings with

Mr. Yarbrough, did he ever Î - do you remember

what he said about the LLC?

A: No.

Q: Do you recall him saying anything about the

LLC?

A: You know, I just know when we wrote checks,

we wrote it to his personal name. I donÓt know

about the LLC.

Q: So youÓre not sure?

A: No, IÓm not sure.

Q: Okay.

A: I just know his business card said Custom

Granite Kitchens and Baths. I donÓt have any

idea, you know, the status of the company or

anything else.

10. Mr. Burchell testified that he asked Mr. Yarbrough for

proof of insurance when he started the job and several times

afterwards, but did not receive any information from him.

11. Mr. Burchell testified that SSI distributed its first

check for the Mexico Beach project, made out to Sherman

Yarbrough, on or about June 22, 2012. The contract for the

construction work had to have been entered into sometime before

this, and Custom Granite Kitchens and Baths, LLC, was not yet in

existence.

12. Custom Granite Kitchens and Ba ths, LLC, was created on

June 29, 2012. The registered agent was listed a s Mr. Sherman

Yarbrough, 1210 West 15th Stre et, Panama City, Florida .

Mr. Yarbrough testified that he was aware his ownership of the

fictional name of Custom Granite Kitchens and Ba ths was due to

expire at the end of the year . He testified that he was

planning to sell the company and so decided not to renew the

fictional name but instead create an LLC and convert the

existing business into that.

13. Mr. Sherman Yarbrough is the sol e own er of Custom

Granite Kitchens and Baths, LLC. Mr. Yarbrough is a managing

member of the LLC and is the party in actual control of the LLC.

14. On July 3, 2012, Mr. Yarbrough obtained a notice from

the Internal Revenue Service assigning the LLC an Em ployer

Identification Number. On this same date, Mr. Calvin Johnson

filled out the following employment paperwork: a W - 4 f orm for

tax withholding allowances; portions of the Department of

Homeland SecurityÓs Employment Eligibility I - 9 f orm; an ASM

Employ ee Enrollment Paperwork form, and an ASM Employment

Agreement. The bottom p ortion of the I - 9 form indicated the

ÐBusiness or Organization NameÑ as ÐCustom Granite Kitchens and

Baths, LLC , Ñ but wa s not signed in the space provided for the

signature of an a uthorized representative of the employer. At

the bottom of the ASM Employee Enrollment Paperwork form , in a

box indicating that it wa s ÐTo be completed by Super visor,Ñ the

worksite employer wa s identified as ÐCustom Gra nite Kitchens and

Baths, LLC.Ñ

15. Mr. Johnson began construction work at the Mexico

Beach property on July 3, 2012, working alongside employees of

CGKB. Mr. Johnson was paid on Frid ays in cash for his work by

Mr. Yarbrough. Beginning with an ASM check dated July 2 4, 2012,

he was paid by check.

16. On July 11, 2012, Mr. Nicholas Tucker, who had worked

for Mr. Yarbrough previously, started to work on th e Mexico

Beach property. On his AS M Employee Enrollment Paperwork form,

the ÐWorksite EmployerÑ wa s listed as ÐCustom Granite Kitchens

and Baths.Ñ Mr. Tucker signed the ASM Employment Agreement, the

W - 4 form, and the I - 9 f orm on July 20, 2012. T he bottom portion

of the I - 9 form, which had a space for ÐBusiness or Organization

Name ,Ñ wa s left incomplete .

17. On or about July 14, Mr. Yarb rough told Ms. Laws at

Payroll Services that Ms. Marion Tucker would be bringing

Payroll Services two new employment applications. Ms. Tucker

worked fo r Mr. Yarbrough at CGKB as the s ecre tary, and was also

listed as a m anaging m ember of the new LLC.

18. On or about July 17, 2012, Mr. Michael Chapman began

work at the Mexico Beach property. On the ASM Employee

Enrollment Paperwork form, the ÐWorksite EmployerÑ wa s listed as

ÐCustom Granite Kitchens and Baths.Ñ Mr. Tucker signed the ASM

Employment Agreem ent, the W - 4 form, and the I - 9 form on July 18,

2012. T he bottom portion of the I - 9 form , which had a space for

ÐBusines s or Organization Name , Ñ wa s left incomplete .

19. On July 20, 2012, Mr. Hurst conducted a site visit at

2303 Highway 98, Mexico Beach, Florida. He observed a worker

cutting tile in the parking area. The worker identified himself

as Mr. Eulalio Galindo and he produced a business card for CGKB.

The card indicated that Mr. Sherman Yarbrough was the owner.

Mr. Galindo indicated the emplo yees were paid through an

employee leasing company, but he did not know the name of it.

20. Mr. Hurst interviewed three other workers at the

worksite. Mr. Charles Rustad and Mr. Nick Tucker were sanding

down drywall. Mr. Rustad s aid he had been working for

Mr. Yarbrough for about 10 months. Mr. Tucker said he had been

working about a week. In another room, Mr. Chapman was

painting. He said he had been working for Mr. Yarbrough for

only about three days.

21. Mr. Johnson was also on the worksite on Ju ly 20, 2012,

doing tile edging in a bathroom. He and Mr. Hurst did not meet,

and Mr. Johnson only learned of Mr. HurstÓs visit later, when he

came down for another load of tiles.

22. Mr. Johnson, Mr. Tucker, and Mr. Chapman were engaged

in construction a ctivity at the Mexico Beach property.

23. Mr. Hurst checked the Department of StateÓs website

for information on Custom Granite Kitchens and Baths, and when

he did his search he came up with Custom Granite Kitchens and

Baths, LLC. It showed that the LLC had been an active entity

since June 29, 2012, and listed Mr. Yarbrough as the registered

agent.

24. Mr. Hurst completed a Field Interview Worksheet, on

which he listed the time as 11:30 a.m. on July 20. He listed

the business name as Custom Granite Kitc hens and Baths, LLC, and

wrote down the names and contact information for the four

workers with whom he had talked.

25. Mr. Hurst checked the Coverage and Compliance

Automated System (CCAS) maintained by the Department to see if

an insurance company had provided information regarding workersÓ

compensation insurance. CCAS did not show any workersÓ

compensation coverage for the LLC. CCAS also did not show any

exemptions for the LLC on file.

26. On July 20, 2012, Mr. Yarbr ough went to Payroll

Services and told Ms. Laws that he wanted to obtain workersÓ

compensation coverage for the LLC. He provided her with the

notice from the Internal Revenue Service dated July 3, 2012,

assigning the LLC an Emplo yer Identification Number.

Mr. Yarbrough watched Ms. Laws complete a Service Agreem ent

between ASM and the LLC, which Mr. Yarbrough then signed and

dated . Based on information provided to her by Mr. Yarbrough

and a printout of information he gave her from the ÐSunbizÑ web

site, Ms. Laws also completed the Payrol l Services Client

Information Form for the LLC , indicating the Ðdesired effective

dateÑ of coverage to be July 20 , 2012. Mr. Yarbrough gave

Ms. Laws the employment papers for Mr. Johnson to submit to ASM

as an employee of the LLC. Although Mr. Yarbrough maintained he

did not take action on July 20, 2012, to obtain workers Ó

compensation for Mr. Johnson on behalf of the LLC, Mr. Yarbrough

was evasive and nonresponsive in his testimony, and generally

not at all credible.

27. Mr. Yarbrough also gave Ms. Laws the employment

application papers that had been completed by Mr. Johnson.

Mr. Yarbrough said that ÐMarionÑ (Ms. Tucker) would be bringing

a couple more new employment applications later. After

Mr. Yarbrough left, Ms. Laws noted that there was no signatu re

of employer in the bottom portion of the I - 9 form, so she signed

Mr. JohnsonÓs name to it. Mr. Yarbrough did not take any steps

on June 20, 2012, to transfer any of the four people who were

already covered em ployees of CGKB to the new LLC.

28. Mr. Hur st called Ms. Tucker and asked about workersÓ

compensation coverage. Ms. Tucker referred him to Ms. Laws.

When Mr. Hurst contacted Ms. Laws, she explained that Payroll

Services was a broker for leasing companies, and that the

leasing company for CGKB was ASM . When Mr. Hurst asked about

any new employees, Ms. Laws stated she had a new application for

Mr. Johnson. She provided Mr. JohnsonÓs documentation to

Mr. Hurst by e - mail. She told Mr. Hurst that it was her

understanding that Mr. Yarbrough was trans ferrin g the company

over to the LLC.

29. Mr. Hurst then called ASM . He was told that ASM

provided no coverage to the LLC, but covered four employees --

Mr. Yarbrough, Ms. Tucker, Mr. Rustad, and Mr. Galindo Î - under

Sherman Yarbrough as employe r. Mr. Hu rst was told that

Mr. Tucker and Mr. Chapman were not covered by ASM.

30. Based upon the infor mation provided to him that

Mr. Tucker and Mr. Chapman had no coverage, Mr. Hurst contacted

his supervisor. She authorized issuance of a Stop - Work Order

and an Order of Penalty Assessment, which were served on the LLC

on July 20, 2012. No Stop - Work Order or Order of Penalty

Assessment was served on CGKB.

31. The LLC also received a Request for Production of

Business Records for Penalty Assessment Calculatio n from the

Department on July 20, 2012. The Department requested busin ess

records from June 29, 2012 ( the date the LLC was made active

with the Department of State ), until July 20, 2012.

32. Mr. Hurst testified that he issued the Stop - Work Order

to Custo m Granite Kitchens and Baths, LLC, instead of Sherman

Yarbrough because , in addition to the information from Ms. Laws,

Ðthe business card I was given stated Custom Granite Kitchens

and Baths, and I verified on the corporate website that Custom

Granite Kitc hens and Baths, LLC, was an active company.Ñ

Department of State records also indicated that ÐCustom Granite

Kitchens and BathsÑ was registered as a fictitious name owned by

Mr. Yarbrough, but there was no evidence as to whether Mr. Hurst

was aw are of tha t fact at the time.

33. Shortly after Mr. Yarbrough left the Payroll Services

office on July 20, 2012, Ms. Tucker delivered the employment

documents of Mr. Tucke r and Mr. Chapman to Ms. Laws.

34. Ms. Laws filled in the bottom portion of Mr. TuckerÓs

I - 9 form. She indicated the ÐBusiness or Organization NameÑ as

ÐCustom Granite Kitchens and Baths, LLC, Panama City.Ñ Ms. Laws

testified that she did this b ased upon the statements of

Mr. Yarbrough earlier that day that he was transferring CGKB

into the LLC. She stated that Mr. Yarbrough did not

sp ecifically tell her that the LLC was Mr. TuckerÓs employer and

that this was an assumption on her part. Ms. Laws did not have

the Florida driverÓs license information and social security

number filled out on Mr. T uckerÓs I - 9 form, and so his paperwork

was not immediately faxed to ASM. Ms. Tucker gave that

information to Ms. Laws the following Monday, and Ms. Laws then

completed the form and faxed it to ASM on July 23, 2012.

35. Ms. Laws also filled in the bot tom portion of

Mr. ChapmanÓs I - 9 form. She filled in the ÐBusiness or

Organization NameÑ information with ÐCustom Granite Kitchens and

Baths, Panama City.Ñ Ms. Laws did not explain why she did not

put the LLC as the business on Mr. ChapmanÓs form as she had on

Mr. TuckerÓs. Mr. ChapmanÓs forms were faxed to ASM shortly

after Ms. Tucker dropped them off.

36. On July 23, 2012, Mr. Hurst called Ms. Laws to see if

she had received any new employee paperwork. She stated that

she had, and sent him the documenta tion. ASM later confirmed to

Mr. Hurst that they had received the paperwork for Mr. Tucker

and Mr. Chapman, and that they were now covered as employees.

The employee list from ASM dated July 23, 2012, shows

Mr. Johnson, Mr. Tucker, and Mr. Chapman all li sted as employees

of Sherman Yarbrough, all with a ÐHire DateÑ of July 23, 2012.

Mr. Galindo, Mr. Rustad, Ms. Tucker, and Mr. Yarbrough also

continued to be shown as empl oyees of Sherman Yarbrough.

37. In checks prepared by ASM on Monday , July 23, 2012,

and dated July 24, 2012, Mr. Johnson was paid for 36 hours of

work, Mr. Tucker was paid for 27 hours of work, and Mr. Chapman

was paid for 20 hours of work. As the president of ASM,

Mr. James Moran, testified, ASM would pay employees retroactive

wages to make sure the taxes were accounted for properly. He

attributed the work hours to days prior to July 23, 2012, and

testified that because of the number of hours , it was reasonable

to assume that these three men were working on July 20, 2012, or

before. Mr . Moran testified that he received payment for ASMÓs

services for these hours from Mr. Yarbrough, and that insurance

premiums were paid to the workersÓ compensation carrier, Castle

Point, for this period of time. He also testified, however,

that all three men were only ac cepted as ASM employees on

July 23, 2012.

38. CGKB did not meet its responsibility to secure

workersÓ compensation for Mr. Tu cker and Mr. Chapman until

July 23, 2012.

39. The LLC did not meet its responsibility to secure

workersÓ compen sation for Mr. Johnson until July 23, 2012.

40. On July 26, 2012, Mr. Yarbrough signed the Election of

Proceeding Form on behalf of the LLC, stating that there was a

dispute of the material facts a lleged in the Stop - Work Order.

41. Respondent did not res pond to the Request for Business

Records for Penalty Assessment Calculation. Mr. Hurst referred

the file on the LLC to the DepartmentÓs Pe nalty Audit Section so

that the penalty could be imputed.

42. A letter on ASM letterhead dated August 3, 2012, and

a ddressed to Mr. Michael Chapman indicated that ASM had been

notified that Mr. Chapman was Ðno longer employed at Sherman

Yarbrough as of 7/17/2012.Ñ This was the same date that had

been indicated as the ÐOriginal Date of HireÑ on Mr. ChapmanÓs

ASM Employe e Enrollment Paperwork form. There was no testimony

explaining how he could have been terminated on a date prior to

his acceptance as an ASM employee on July 23, 2012, or the

reasons for his termination.

43. Mr. Yarbrough submitted the Election of Procee ding

form and a letter to the Department stating:

The company in question, Custom Granite

Kitchens and Baths, LLC has no employees.

This company was just founded and has no

activity of any kind in the State of

Florida. This matter has been a mistake.

Th e Election form and letter were received by the Department on

August 9, 2012.

44. Respondent was served with an Amended Order of Penalty

Assessment from the Department on August 9, 2013.

45. Mr. Yarbrough filed another Election of Proceeding

dated August 10, 2012, again requesting a formal hearing, which

was received on August 16, 2012, by the Department.

46. Sometime in August , Mr. Burchell asked Mr. Yarbrough

not to come back to the Mexico Beach property and SSI hired

someone else to finish the job. M r. Burchell testified that he

believed Mr. Yarbr ough and his company were no t large enough to

handle a project of the size SSI was pursuing. He said the

termination had to do with timeliness more than any failure to

obtain workersÓ compens ation coverage.

47. A check dated August 17, 2012, made out to the order

of Sherman Yarbrough and drawn on the account of SSI - MDI Mexico

Beach, LLC, was received as final payment for the construction

work CGKB performed on the Mexico Beach property. The name and

address shown on the check were Sherman Yarbrough, Custom

Gra nite Kitchens and Baths, 1210 West 15 th Street, Panama City,

Florida .

48. In a letter dated Au gust 24, 2012, ASM notified

Mr. Yarbrough that the agreement between ASM and CGKB was

terminated as of Augu st 7, 2012, Ðfor failure to report, run,

and/or pick up payroll.Ñ It went on to say that all

certificates of insurance issued on CGKBÓs behalf had been

cancelled. Separate letters on ASM letterhead with the same

date and addressed to Mr. Nick Tucker and Ms. Marion Tucker

indicate that the Ðleasing agreement between American Staff

Management IV, Inc., (ASM) and Sherman Yarbrough dba Custom

Granite Kitchens has ended.Ñ The letter goes on to explain that

the recipients of the letter we re no longer covered u nder ASMÓs

workersÓ compensation policy.

49. On October 26, 2012, Mr. Yarbrough and Mr. Johnson

entered into a Lease/Purchase Agreement. Mr. Yarbrough leased

Mr. Johnson ÐCustom Granite Kitchens and Baths dba and Custom

Granite Kitchens and Baths, LLC.Ñ The Agreement provided for

the transfer of equipment and supplies , as well as arrangements

for Mr. Johnson to pay Mr. Yarbrough $300. 00 per job, with a

minimum of six jobs per month, for a period of 36 months. After

this lease period of three years, Mr. Johnson would become the

owner. The agreement itemized several items of equipment and

stated, ÐSherman Yarbrough will maintain the Cabinet Division of

Custom Granite Kitchens & Baths, LLC.Ñ It also provided,

ÐSherman Yarbrough will continue to sell grani te for the Granite

Division during promotion of the Cabinet Division at no

commission other than the $300.00 per job as set forth in this

agreement.Ñ

50. Respondent received the Second Amended Order of

Penalty Assessment from the Department on February 26 , 2013,

assessing a penalty for violati on of the Stop - Work Order.

Mr. Hurst had concluded from the Lease/Purchase Agreement that

the LLC was in violation of the order because it conducted

several activities. Mr. Hurst testified, ÐIt wrote the contract

up , he signed the contract, and it also stated in the contract

that the division of the Î - the Granite Division and the Cabinet

Division of Custom Granite Kitchens and Baths, LLC , was active

and was continuing to remain active.Ñ

51. The Department referred this matter to the Division of

Administrative Hearings on March 5, 2013, about seven and a half

months after the Stop - Work Order was served.

52. After taking a telephonic deposition of Mr. Johnson,

the Department determined that he had been employed by th e LLC

and did not have workersÓ compensation coverage. The Department

prepared a Third Amende d Order of Penalty Assessment.

53. Respondent was provided with a copy of the proposed

Thi rd Amended Order of Penalty Assessment on June 5, 2013.

54. None of th e employees listed in the penalty worksheets

included with any of the Orders of Penalty Assessment can be

classified as independent con tractors, as defined in

section 440.02, Florida Statutes.

55. Mr. Johnson was an employee of the LLC on July 20,

2012, a nd before .

56. The Department did no t prove that Mr. Chapman or

Mr. Tucker were employees of t he LLC at any time between

June 29, 2012, and July 20, 2012. Evidence showed that

Mr. Chapman and Mr. Tucker were instead employees of CGKB on

July 20, 2012, an d before .

57. The LLC did not secure workersÓ compensation coverage

for Mr . Johnson before July 23, 2012.

58. The LLC did not engage in business operations on

October 26, 2012.

59. The parties stipulated that the Department assigned

the appropriate clas s code and manual rates from the National

Council on Compensation Insurance, Inc. , SCOPES Manual.

60. The parties stipulated that if the charged violations

were proven, the penalty amounts calculated by Petitioner in the

Penalty Assessments were accurate.

CONCLUSIONS OF LAW

61. The Division of Administrative Hearings has

jurisdiction over the parties and subject matter in this

proceeding pursuant to sections 120.569 and 120.57(1), Florida

Statutes (2012). 1/

62. Petitioner has the responsibility to enfor ce the

requirement that employers secure the payment of workersÓ

compensation for the benefit of e mployees as required by

chapter 440, Florida Statutes.

63. Petitioner seeks to penalize Respondent for failure to

secure the payment of workers' c ompensatio n pursuant to

section 440.107(7).

64. Petitioner has the burden of proof to show, by clear

and convincing evidence, that Respondent committed the

violations alleged in the Administrative Complaint. Ferris v.

Turlington , 510 So. 2d 292 (Fla. 1987).

65. The clear and convincing standard of proof has been

described by the Florida Supreme Court:

Clear and convincing evidence requires that

the evidence must be found to be credible;

the facts to which the witnesses testify

must be distinctly remembered; the testimony

must be precise and explicit and the

witnesses 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 allegat ions sought to be

established.

In re Davey , 645 So. 2d 398, 404 (Fla. 1994)(quoting Slomowitz

v. Walker , 429 So. 2d 797, 800 (Fla. 4th DCA 1983)).

66. Respondent is a Florida Limited Liability Company

subject to the provisions of ch apter 440, Florida Statutes.

Failure to Secure Payment of WorkersÓ Compensation

67. Section 440.10(1)(a) provides in relevant part:

Every employer coming within the provisions

of this chapter shall be liable for, and

shall secure, the payment to his o r her

employees, or any physician, surgeon, or

pharmacist providing services under the

provisions of s. 440.13 , o f the compensation

payable under ss. 440.13 , 440.15 , and

440.16 .

68. Under sectio n 440.02(16)(a), an ÐemployerÑ includes

every person carrying on any employment. Th is section goes on

to provide:

If the employer is a corporation, parties in

actual control of the corporation,

including, but not limited to, the

president, officers who e xercise broad

corporate powers, directors, and all

shareholders who directly or indirectly own

a controlling interest in the corporation,

are considered the employer for the purposes

of ss. 440.105 , 440.106 , and 440.107 .

69. Assuming that this statute is applicable to a Limited

Liability Company, 2/ if the LLC is carrying on any empl oyment,

Mr. Yarbrough, as the party in actual control of the LLC, is

considered the employer for purposes of section 440.107. This

Ðstrict liabilityÑ provision would create legal accountability

for purposes of the workersÓ compensation law without the

fin ding of fraudulent or improper use of the corporate form that

normally is necessary to Ðpierce the corporate veil.Ñ 3/

70. However, this case does not involve any Ðpiercing of

the corporate veilÑ through section 440.02(16)(a) or otherwise.

The key issue here is not whether Mr. Yarbrough statutorily

becomes the employer for any employment carried on by the LLC.

Rather, the issue is whether the LLC in fact carried on any

employment in the first place. The suggestion by Petitioner

that the statute should be read loosely in a reciprocal fashion

so as to impute employments carried on by Mr. Yarbrough to the

LLC is not supported by the language of th e statute, and is not

accepted.

71. Section 440.02(15)(a) provides:

ÒEmployeeÓ means any person who receives

r emuneration from an employer for the

performance 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 minors.

Petitioner must show, then, that there was an appointment or

contract for hire, express or implied, oral or written, between

the LLC and the alleged empl oyees here: Mr. Johnson,

Mr. Tucker, and Mr. Chapman.

72. The arguments of both Petitioner and Respondent

suggest that the conversion of CGKB into the LLC was an act that

took place, or would take place, at a single point in time.

Petitioner argues that this occurred on June 29, 2012, while

Respondent argues t hat Mr. Yarbrough intended to eventually do

this, but took no action until after July 20 , 2012, if at all.

The evidence does not support either contention. It is clear

that Mr. Yarbrough was neither careful nor systematic in

maintaining the legal distinc tion between the sole

proprietorship and the LLC. The LLC and CGKB existed at the

same time. The resulting confusion was compounded by the

actions of Payroll Services and ASM.

73. Petitioner proved by clear and convincing evidence

that there was a con tract for hire between Mr. Johnson and the

LLC. The bottom of his ASM Employee Enrollment Paperwork form,

in the space labeled ÐTo be completed by Supervisor , Ñ was filled

in to indicate that the Worksite employer was ÐCustom Granite

Kitchens and Baths LLC .Ñ The bottom of the I - 9 form also

indicated ÐCustom Granite Kitchens and Baths LLCÑ under

ÐBusiness or Organization Name.Ñ Mr. Yarbrough obtained an

Employer Identification Number from the Internal Revenue Service

on the day that Mr. Johnson filled out this paperwork.

Mr. Yar brough personally delivered Mr. JohnsonÓs documents and

the Inter nal Revenue Service form to Ms. Laws at Payroll

Services on July 20, 2012, w here he told Ms. Laws he would be

converting C GKB to the LLC. He watched Ms. Laws fill out a new

agreement between the LLC and ASM and he signed it. The

contract of emp loyment between the LLC and Mr. Johnson was clear

even without the signature of Mr. Yarbrough on the I - 9 form,

which was added by Ms. Laws.

74. Mr. Johnson began construction w ork on July 3, 2012,

and was paid in cash for that work by Mr. Yarbrough, managing

member of the LLC. Mr. Johnson was working on July 20, 2012.

Beginning with the ASM check dated July 24, 2012, he was paid by

check. ASMÓs action in classifying Mr. John son as a co - employee

of CGKB as opposed to the LLC did not affect Mr. JohnsonÓs

actual st atus as an employee of the LLC.

75. On the other hand, Petitioner failed to prove t hat

Mr. Tucker or Mr. Chapman ever performed any work for the LLC or

were its emplo yees. While the LLC was in existence at the time

each was hired, so was CGKB. Mr. Yarbrough took no action to

transfer his existing employees to the LLC, but continued to

operate as a sole proprietor under the name CGKB. Unlike the

ASM Employee Enrollme nt Paperwork form of Mr. Johnson, which had

the new LLC designated as the ÐWorksite Employer,Ñ the ASM

Employee Enrollment Paperw ork forms of Mr. Tucker and

Mr. Chapman each showed the employer as CGKB.

76. Employment by C GKB is simply employment by

Mr. Y arbrough, not the LLC. Doing business under a fictitious

name does not create an entity distinct from the person

operating the business; the fictitious name and the sole

proprietor's name are simply two different names for one legal

person. In fact, the single reference to the LLC in the

paperwork of Mr. Tucker or Mr. C hapman was on the bottom of

Mr. TuckerÓs I - 9 form, which Ms. Laws admitted she later added

to the form without specific direction to do so. There was no

testimony from either Mr. Tucker or Mr. Chapman at hearing, and

no other evidence to connect them to the LLC as opposed to CGKB.

This does not constitute clear and convincing evidence.

77. Respondent argues that even if it is found to be an

employer, the evidence shows that workersÓ compe nsation insurance

was in effect on July 20, 2013. Mr. MoranÓs testimony did

indicate that although Mr. Johnson, Mr. Tucker, and Mr. Chapman

were not accepted as employees u ntil July 23, 2012, they were all

paid retroactively. Mr. Moran further testified that not only

did ASM collect its service fees for several work hours prior to

the actual hire date, but that it also forwarded insurance

premiums to the carrier for these hours. Respondent therefore

maintains that coverage w as in effect on July 20, 2012.

78. However, retroactive coverage put into place by ASM on

July 23, 2012, well after the determination on July 20, 2012,

that t here was no coverage in effect, does not vitiate that

determination or meet an employerÓs responsibilities under

FloridaÓs work ersÓ compensation law. U.S. Builders, L.P. v.

DepÓt of Fin. Servs. , Case No. 07 - 4428 (Fla. DOAH Jan. 14, 2009;

Fla. DFS Feb. 23, 2009)(Ðback - datedÑ coverage not material

because Florida law does not recognize retroactive compliance

with workersÓ compensat ion requirements); DepÓt of Fin. Servs. v.

H.R. Elec. , Case No. 04 - 2965 (Fla. DOAH Jun. 8, 2006; Fla. DFS

Aug. 22, 2006)(retroactive coverage obtained after issuance of

stop - work order does not satisfy employerÓs obligation); DepÓt of

Labor & Emp. Sec. v. E. Pers. Servs., Inc. , Case No. 99 - 2048

(Fla. DOAH Oct. 12, 1999; Fla. DLES Nov. 30, 1999)(obtaining

coverage after compliance investigator visits site and determines

no coverage in effect is no defense to stop - wor k order or penalty

assessment).

Violation of the Stop - Work Order

79. In addition to the assessed penalty for failure to

obtain workersÓ compensation coverage, Petitioner assessed a

$1000. 00 penalty against the LLC for violating the Stop - Work

Order. Section 440.107(7)(c) provides:

The department shall assess a penalty of

$1,000 per day against an employer for each

day that the employer conducts business

operations that are in violation of a stop -

work order.

80. The term Ðbusiness operationsÑ is not defined by the

statute, but in the context of t he construction industry the

term has been interpreted by the Department to include not only

construction work per se, but also other activities related to

the course of business. DepÓt of Fin. Servs. v. William R. Sims

Roofing, Inc. , Case No. 06 - 1169 (Fl a. DOAH Nov. 30, 2006; Fla.

DFS Feb. 15, 2007)(act of pulling a permit to perform roofing

services is "conducting business operations" when a Stop - Work

Order is in effect); DepÓt of Fin. S erv s v. Snyder Martin, d/b/a

Affordable Fencing , Case No. 05 - 2325 (F la. DOAH Sept. 15, 2005;

Fla. DFS March 7, 2006)(placing a bid on a job as well as

completing it constituted violations of a Stop - Work Order).

81. Petitioner alleges that the Lease/Purchase Agreement

executed on October 26, 2012, proves that the LLC was c onducting

business operations on that date. Mr. Hurst stated that the

Agreement was evidence of the LLCÓs business operations for

three reasons: the LLC wrote the contract up; Mr. Yarbrough

signed the contract; and the terms of the contract indicated

tha t the LLC was active and was continuing to remain active.

82. However, the act of selling the LLC to another owner

cannot reasonably be said to be a violation of the Stop - Work

Order by the LLC. A legally active LLC which had been

conducting ab solutely no business operations but had the

potentia l to conduct them in the future might easily be sold,

especially in conjunction with the sole proprietorship and the

personal property that were part of the sale. Its owner, in

this case Mr. Yarbrough, would be the logical person to prepare

the documents transferring the entities he owned, and to sign

them. The sale itself, apart from any business operations

indicated by the terms of the contract, was clearly not an

operation in the course of the trade, business, a ctivity , or

occupation that the LLC was formed to conduct, and so would not

constitute a Ðbusiness operationÑ of the LLC under the statute. 4/

83. Further, the terms of the statute contemplate that a

change of ownership may take place, for they describe the

circumstances under which a Stop - Work Order applies to successor

corporations or business entities. Section 440.107(7)(b)

provides:

Stop - work orders and penalty assessment

orders issued under this section against a

corporation, partnership, or sole

pr oprietorship 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

partnership against which the stop - work

order was issued and are engaged in the same

or equiv alent trade or activity.

If the transfer of ownership of a corporation, partnership, or

sole proprietorship was prohibited when a Stop - Work Order was in

effect, there would be no need for this rule. 5/

84. The fact that the Lease/Purchase Agreement was

p repared by Mr. Yarbrough and signed by him provides no evidence

of Ðbusiness operation sÑ being conducted by the LLC.

85. Mr. Hurst also suggested that the terms of the

Lease/P urchase Agreement indicated that business operations were

being conducted by the LLC. The Agreement does not generally

indicate that business has been conducted by the LLC, but only

reflects the intention that business ÐwillÑ be conducted by it

in the future. Only two phrases could be construed otherwise,

and they are ambiguous. Th e first is that ÐSherman Yarbrough

will maintain the Cabinet Division of Custom Granite Kitchens &

Baths, LLC.Ñ While the word ÐmaintainÑ might well be construed

to refer to the maintenance of some operations that the ÐCabinet

DivisionÑ had been conductin g after the date of the Stop - Work

Order, it might just as easily refer to maintenance of the

structure and capabilities of the LLC and to proposed future

activity that had been discussed between the parties to the

Agreement.

86. The second provision state s that ÐSherman Yarbrough

will continue to sell granite for the Granite Division during

promotion of the Cabinet Division at no commission other than

the $300.00 per job as set forth in this agreement.Ñ Again,

this could mean that the Granite Division had been selling

granite in the past, or , alternatively, it might mean only that

Sherman Yarbrough had b een selling granite in the past and would

continue to do so in the future on behalf of the Granite

Division during the promotion. These two provisions are thus

ambiguous and do not provide clear and convincing evidence of

business operations on the part of the LLC. 6/

87. Petitioner failed to prove by clear and convincing

evidence that the LLC was engaged in business operations on

October 26, 2012, as alleg ed.

Penalty Calculations

88. Section 440.107(7)(d)1. 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 employerÓs payroll

during periods for which it failed to secure

the payment of workersÓ compensation

required by this chapter within t he

preceding 3 - year period or $1,000, whichever

is greater.

89. Florida Administrative Code Rule 69L - 6.021(1),

effective October 11, 2011, incorporates by reference the

classification codes and descriptions specified in the Florida

Contracting Classific ation Premium Adjustment Program, and

published in the Florida exception pages of the National Council

on Compensation Insurance, Inc. (NCCI), Basic Manual (2001

edition ), including updates through January 1, 2011. Rule 69L -

6.021(2)(jj) references classif ication code number 5474,

covering painting not otherwise classified in the NCCI Manual,

which was used by the Department in com puting the assessed

penalties.

90. Rule 69L - 6.028(3)(d) states that when an employer

fails to produce records sufficient to est ablish payroll, the

imputed weekly payroll for each employee is calculated using the

highest - rated workers' compensation classification code for an

employee based upon records or the investigatorÓs physical

observation of that employeeÓs activities. There was no

evidence that Mr. Hurst ever observed Mr. Johnson painting.

91. ASM records showed only classification code 5348

pertaining to c eramic tile, indoor stone, marble, or mosaic work

for CGKB employees other than Mr. Yarbrough and Ms. Tucker, and

of co urse no codes associated with the LLC. The parties

stipulated that the Department assigned the appropriate

classification codes and manual rates from the NCCI S COPES

Manual. 7/

92. Notwithstanding th e testimony at hearing that

Mr. Johnson began his employ ment on July 3, 2012, the LLCÓs

failure to produce requested records to indicate the period of

noncompliance dictates that an earlier date be used when

computing the penalty. When an employer refuses to provide

required business records, the Department mu st impute the

missing payroll for the period of time specified in the request

to produce when assessing the penalty. Twin City Roofing

Constr. v. DepÓt of Fin. S erv s. , 969 So. 2d 563, 566 (Fla. 1st

DCA 2007); Olender Const. Co. v. DepÓt of Fin. S erv s. , Ca se

No. 06 - 5023 (Fla. DOAH July 29, 2008), rejected in part , Case

No. 86845 - 06 - WC (Fla. DFS Sept. 16, 2008). The records

requested here were for the per iod June 29, 2012, through

July 20, 2012. The parties stipulated that the penalty of

$502.83 for the em ployment of Mr. Johnson was correctly computed

in this case. As that amount is less than the statutory

minimum, a penalty of $1000.00 should be imposed.

RECOMMENDATION

Upon consideration of the above findings of fact and

conclusions of law, it is

RECOMME NDED:

That the Department of Financial Services, Division of

WorkersÓ Compensation, enter a f inal o rder determining that

Custom Granite Kitchens and Baths, LLC, violated the requirement

i n chapter 440, Florida Statutes, that it secure workers'

compensatio n coverage for Mr. Calvin Johnson, and imposing upon

it a total penalty assessment of $1 ,000 . 00.

DONE AND ENTERED this 23rd day of July , 2013 , in

Tallahassee, Leon County, Florida.

S

F. SCOTT BOYD

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 23 rd day of July , 2013 .

ENDNOTES

1/ All other references to statutes and rules are to the

versions in effect during the relevant period of June and July

2012, except as otherwise indicated.

2/ In another context, Florida Administrative Code Rule 69L -

6.012(1)(a), governing notice of elect ion to be exempt from

coverage, states in part that Ð a limited liability company

created and approved under Chapter 608, F.S., is not a

corporation for purposes of Chapter 440, F.S.Ñ

3/ A general principle of corporate law is that a corporation is

a sepa rate legal entity, distinct from the individual persons

comprising it, and that there is no basis for imposing liability

upon the owners. See Gasparini v. Pordomingo , 972 So. 2d 1053,

1055 (Fla. 3d DCA 2008). Aside from statutory mandate, three

factors h ave been cited as justifying the Ðpiercing of the

corporate veil" to hold individuals liable: (1) the shareholder

dominated the corporation to such an extent that the shareholder

was in fact the alter ego of the corporation; (2) the corporate

form was use d fraudulently or for an improper purpose; and (3)

the fraudulent or improper use caused injury to the claimant.

See § 608.701 , Fla. Stat.

4/ Although not directly applicable here, a similar approach has

been taken by the Department in determining when a successor

entity is engaged in business operations prohibited by a Stop -

Work Order . Florida Administrative Code R ule 69L - 6.031(1)(a)

provides that successor entities are Ð engaged in the same or

equivalent trade or activity if they each perform or have

p erformed business operations that include operations described

in at least one classification code listed in r ule 69L - 6.021,

F.A.C.Ñ

5/ Whether Mr. JohnsonÓs ÐleaseÑ of the LCC could be construed

as a successor business entity or whether the LLC conducte d

business operations after the date of the Lease/Purchase

Agreement in violation of the Stop - Work Order are not at issue

in the instant case.

6/ Petitioner correctly notes in its Proposed Recommended Order

that Mr. Yarbrough admitted painting on behalf of the ÐCabinet

DivisionÑ of Respondent after the Stop - Work Order was issued.

Contrary to the assertion of Petitioner, however, Mr. Yarbrough

specifically denied that this took place at the time of the

agreement. This leaves no evidence to support a fin ding that

that work took place on or about October 26, 2012. Mr. Johnson

also testified that he worked at the Mexico Beach property after

the Stop - Work Order, but ther e is credible evidence from

Mr. Burchell that work by CGKB and the LLC at the Mexico Bea ch

property ended sometime in August. While i t is well settled

that an Administrative Complaint need not be cast with the same

degree of Ðtechnical nicetyÑ required for a criminal

prosecution, the allegations must state the acts complained of

with suffici ent specificity to allow the Respondent a fair

chance to prepare a defense. Libby Investigations v. Dep Ó t of

State , 685 S o . 2d 69 (Fla. 1 st DCA 1996); Davis v. DepÓt of

Prof. Reg. , 457 So. 2d 1074 (Fla. 1 st DCA 1984). Admissions of

conduct different than that alleged by Petitioner, taking place

at different times than alleged by Petitioner, do not constitute

clear and convincing evidence of the allegation in this case.

7/ Petitioner offered no citation to any rule incorporating the

applied manual rates . Florida Administrative Code R ules 69L -

6.021 and 69L - 6.031 incorporate classification codes of versions

of the SCOPES Manual without mention of periodic updates to the

manual rates established by NCCI.

COPIES FURNISHED :

Jesse Abraham Haskins, Esquir e

Division of Financial Services

Division of Legal Services

200 East Gaines Street

Tallahassee, Florida 32399

Michael James Rudicell, Esquire

Michael J. Rudicell, PA

4309 B Spanish Trail

Pensacola, Florida 32504

Julie Jones, CP, FRP, Agency Clerk

Div ision of Legal Services

Department of Financial Services

200 East Gaines Street

Tallahassee, Florida 32399

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

15 days from the date of this Recommended Ord er. Any exceptions

to this Recommended Order should be filed with the agency that

will issu e the Final Order in this case.