14-003106 Department Of Financial Services, Division Of Workers&Apos; Compensation vs. Sunburst Construction, Inc. Status: Closed Recommended Order on Monday, January 5, 2015.

Summary: The Department did not prove that there were employees who were not covered by Respondent's workers' compensation insurance.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL

SERVICES, DIVISION OF WORKERS'

COMPENSATION,

Petitioner,

vs. Case No. 14 - 3106

SUNBURST CONSTRUCTION, INC.,

Respondent.

_______________________________/

RECOMMENDED ORDER

Pursuant to notice to all parties, a final hearing was

conducted in this case on October 28, 2014, in Tallahassee,

Florida, before Administrative Law Judge R. Bruce McKibben of the

Division of Administrative Hearings. The parties were

r epresented as set forth below.

APPEARANCES

For Petitioner: Alexander Brick, Esq uire

Assistant General Counsel

Department of Financial Services

200 E ast Gaines Street

Tallahassee, Florida 32399 - 6502

For Respondent: Kristian E. Dunn, Esquire

Dunn & Miller, P.A.

1606 Redwood Drive

Tallahassee, Florida 32301

STATEMENT OF THE ISSUE

The issue in this case is whether Respondent , Sunburst

Construction, Inc. ("Sunburst"), failed to properly maintain

workers' compensation insurance coverage for his employees and,

if so, what penalty should be assessed.

PRELIMINARY STATEMENT

On April 30, 2014, Petitioner , Department of Financial

Services, Division of Workers' Compensation (the "Department")

issued a Stop Work Order (SWO) against Respondent. Respondent

requested an administrative hearing to contest the SWO and the

Amended Order of Penalty Assessment (OPA) issued pursuant

thereto. Petitioner's request was forwarded to the Division of

Administrative Hearings so that a formal administrative hearing

could be conducted. The hearing was held on the date set forth

above, and both parties were in attendance.

At the final hearing, Petitioner called two witnesses:

Stephanie Scarton, workers ' compensation investigato r for the

Department; and Chad Mason, penalty auditor for the Department.

PetitionerÓs E xhibits 1, 3, 5 - 7, and 10 - 14 were admitted into

evidence. Respondent called five witnesses: Cecil Moore, owner

of Sunburst; Carlos Barbecho, foreman; Edlezar Cano - Lo pez;

Robert Raley; and Jose Antonio Pillo. RespondentÓs E xhibits 3 - 8

were admitted into evidence.

A transcript of the final hearing was ordered by the

Department. The T ranscript was filed at the Division of

Administrative Hearings on November 2 4 , 2014 . By rule, parties

were allowed ten days, i.e., until December 6 (a Saturday, so

actually until December 8) to submit proposed recommended orders.

A motion was filed on December 5 requesting additional time for

submitting the proposed recommended order; the motion was

granted. Petitioner and Respondent each timely submitted a

P roposed R ecommended O rder and each was duly considered in the

preparation of this Recommended Order.

FINDINGS OF FACT

1. The Department is the state agency responsible for

ensur ing that all employers maintain workers' compensation

insurance for themselves and their employees. It is the duty of

the Department to make random inspections of job sites and to

answer complaints concerning potential violations of workers'

compensation rules.

2. Sunburst is a business created by Cecil Moore and has

been in operation for 35 years in the construction industry. At

all times relevant hereto, Sunburst was duly - licensed to do

business in the State of Florida. Construction work is assigned

a Class Code of 5651 for purposes of calculating workers'

compensation insurance coverage.

3. On April 30, 2014, the DepartmentÓs investigator,

Stephanie Scarton, was driving on South Peninsula Drive in

Daytona Beach, Florida, when she noticed what appear ed to be

construction activity going on. As she is charged with doing,

Scarton went to find out whether people working at the

construction site were legally covered by workersÓ compensation

insurance. She talked to four people at the job site and made a

determination that workersÓ compensation coverage was missing.

ScartonÓs and SunburstÓs statement s of the facts surrounding the

coverage are significantly different in detail. Each will be set

forth below.

ScartonÓs Version of the Facts

4. Accordi ng to Scarton, she observed three people working

at the site: Two men were engaged in carpentry, specifically,

securing bolts to beams on a form used for pouring concrete. One

man was grinding a screw or some other metal object.

5. Scarton identified he rself to the man who was grinding

the metal object. The man was Carlos Barbecho. The man did not

speak English very well, but conversed with Scarton, telling her

that he (Barbecho) worked for Sunburst. According to Scarton,

Barbecho also told her that t he other two men, Edlezar ÐEddieÑ

Cano - Lopez and Jeronimo Cano - Lopez, also worked for Sunburst.

Neither of the two men (who were brothers) spoke English.

Barbecho acted as an interpreter for Scarton as she asked the

brothers if they worked for Sunburst. They allegedly Ðshook

their heads up and down,Ñ i.e., they nodded affirmation.

However, Scarton could not verify exactly what question Barbecho

posed to the brothers in Spanish.

6. Meanwhile, another man, Raley, showed up at the site on

his bicycle. He reported that he was an independent contractor

and was not related to Sunburst. He was doing some pressure

washing on the house located at the site.

7. The investigator then went to her vehicle to research

Sunburst, finding it to be a duly - registered Fl orida corporation.

She checked the building permit which had been issued by the City

of Daytona Beach and found that it had been pulled by Sunburst.

She then checked the Coverage and Compliance Automated System

(CCAS) used by the Department to track work ersÓ compensation

coverage by businesses and individuals. According to CCAS, there

was no coverage for Sunburst but Moore had a personal exemption.

8. When she found there was no coverage for Sunburst but

that its employees were working at the job site, Scarton

contacted Moore directly via telephone. Barbecho had provided

Scarton with MooreÓs number. Scarton testified that Moore

admitted the men were his employees, but that he believed he had

up to 24 hours to obtain workersÓ compensation coverage for them.

9. Scarton eventually ascertained that Sunburst did have

appropriate workersÓ compensation coverage for Barbecho through a

leasing company, but neither of the Cano - Lopez brothers was on

the policy.

SunburstÓs Version of the Facts

10. Moore has owne d Sunburst for over 35 years. He has

always maintained workersÓ compensation coverage for his

employees and has never been cited for failing to do so.

11. In April 2014, Sunburst was in the midst of renovations

at the South Peninsula Drive job site. Bar becho was the foreman

on the job. He had been working for Sunburst for about two years

as a foreman or job manager. Moore had obtained workersÓ

compensation coverage for Barbecho through a leasing company.

12. On April 30, 2014, Barbecho was working at the job site

when the Cano - Lopez brothers came up and asked if there was work

for them to do. They had been referred to the site by Pillo, a

man who had worked with Moore for many years and often found

laborers for him. Barbecho called Moore to see if he wanted to

hire the brothers or not. Meanwhile, the men stood around

talking as they waited for a determination from Moore.

13. Raley had also been at the site on that date. He was

preparing to pressure - wash the outside of the house so that it

could be painted. Just about the time he was leaving on his

bicycle to retrieve a chair from his nearby home, the Cano - Lopez

brothers arrived. Raley paid them no mind as he had never seen

them before at the job site. When he returned with his chair,

Raley met Sc arton, who identified herself as an investigator for

the Department. Although Raley told Scarton that he was an

independent contractor, he was actually doing the pressure -

washing because he owed a favor to Moore. Raley watched Scarton

talk to the brother s and could see that there was a large

communication problem based upon language. Scarton then began

talking more to Raley because he spoke English much better than

the other men there.

14. Barbecho says he only met the Cano - Lopez brothers the

morning th at Scarton showed up at the work site. He did not have

authority to hire them on behalf of Sunburst, but put a call into

Moore to see if he wanted to hire the men.

15. Barbecho maintains that he never told Scarton the men

were employees of Sunburst. He does not remember being asked to

ask the brothers, in Spanish, whether they were employees of

Sunburst. The men had arrived on the job site just minutes prior

to ScartonÓs arrival, and Barbecho had not really talked to them

at all other than to give a ca sual greeting.

16. Edlezar Cano - Lopez says he is not now nor has he ever

been an employee of Sunburst. He has never done any work for or

received any money from Moore or Sunburst. (He was hoping that

Moore would pay him for his time traveling to Tallaha ssee and

appearing at the final hearing, but there was no specific

agreement in that regard.)

17. When Moore got a call from Scarton, he told her that he

did not know who the Cano - Lopez brothers were, that they were not

his employees, and that he had cov erage for all of his bona fide

employees. He has no recollection of telling Scarton that he

believed he had 24 hours to get the workers covered by insurance.

18. Scarton asked Moore to come to the job site and he

complied with her request. At the job s ite, Scarton served Moore

with a Stop Work Order (SWO) and explained that he needed to

cease doing business until it was addressed. The basis of the

SWO was that two putative employees, the Cano - Lopez brothers, did

not have workersÓ compensation insurance coverage.

The Stop Work Order and Penalty Assessment

19. At the same time, Scarton made a request for business

records in order to determine what penalty should be assessed.

The request had a list of various types of documents needed by

the Department to make its penalty assessment. Moore was given

20 days to produce the records to the Department.

20. Moore contacted his bank about obtaining the requested

records. He was told that it would take five to seven days to

pull the records together, but i n fact it took more than three

weeks. The records were therefore not timely submitted to the

Department.

21. Based upon the absence of business records, the

Department calculated a penalty assessment which imputed income

to the Cano - Lopez brothers for a period of three years. This

assessment was in accordance with the DepartmentÓs rules and

guidelines. A penalty assessment of $61,568.36 was imposed on

Sunburst.

22. After the penalty assessment was calculated by the

Department, the requested business r ecords were eventually

received from the bank by Moore. The records contained summaries

of statements, but did not include check images. The check

images were provided at a later date. However, the check images

showed a large number of checks made out t o ÐcashÑ so the

Department could not really ascertain whether any of them were

for payroll or not. Moore explained that his employee leasing

company required cash, so each week he would find out what amount

was needed and issue a check made payable to Ðca shÑ and obtain

the needed funds. MooreÓs explanation is plausible.

23. The Department did not take heed of the business

records provided by Moore because they did not arrive within the

prescribed 20 - day window. The DepartmentÓs auditor did, however,

cre ate a draft penalty assessment based upon the records. 1/

The Cano - Lopez Brothers

24. The dispositive issue in this case appears to be the

employee status of Eddie and Jeronimo Cano - Lopez. Eddie

testified at final hearing (through an interpreter) that he has

never been an employee of Sunburst. He and his brother were at

the job site on April 30 for the purpose of obtaining employment,

but they were never hired and have never been paid for doing any

work for Sunburst.

25. There are no check images o r other business records

that reflect Sunburst ever paid the Cano - Lopez brothers for doing

work. Moore did not hire them and did not know they were at the

work site on April 30 until advised by Barbecho and Scarton that

very day. MooreÓs denial that he t old Scarton he was intending

to add the Cano - Lopez brothers to his insurance coverage within

24 hours is credible. Scarton inspects 45 to 55 business sites

per month and could easily be confused about who told her they

were adding employees. After 35 yea rs in the industry, it is

unlikely Moore would be confused about the requirements for

coverage of his employees.

26. The foreman, Barbecho, met the Cano - Lopez brothers for

the first time on April 30 at the job site. He knew that in

order to work for Sun burst, the brothers would first have to fill

out an application. In fact, the Cano - Lopez brothers filled out

an application after the SWO had been entered. The applications

were delivered to SunburstÓs employee leasing company the next

day in hopes of al leviating the SWO. But as the SWO was still in

place, the Cano - Lopez brothers never engaged in work for

Sunburst, and have not to this day. And in the words of the

DepartmentÓs investigator, ÐAn employee is someone who is being

paid by the business.Ñ Sc arton testimony, transcript page 46.

27. The Department calculated its penalty assessment as

follows: It ascertained the average wage for construction

laborers and assigned that figure to each of the Cano - Lopez

brothers. The appropriate class code was assigned. A period of

three years of non - compliance was imputed, per rule. The gross

payroll for that three - year period was assigned to each of the

brothers. The gross payroll amount was divided by 100. The

resulting sum was multiplied by the manual ra te, resulting in a

premium. The premium was then multiplied by 1.5 to reach the

penalty amount.

28. The calculation of the penalty was based upon the

mistaken presumption that the Cano - Lopez brothers were employees

of Sunburst. It is clear from the evi dence presented that

neither Eddie nor Jeronimo Cano - Lopez were ever employees of

Sunburst. ScartonÓs recollection of the events (without the

benefit of any contemporaneous note) was refuted by the testimony

of Moore, Barbecho, Raley , and Eddie Cano - Lopez , thus her

testimony does not constitute clear and convincing evidence.

CONCLUSIONS OF LAW

29. The Division of Administrative Hearings has

jurisdiction over the parties to and the subject matter of this

proceeding pursuant to s ections 120.569 and 120 .57(1), Florida

Statutes (2014).

30. The burden of proof in this matter is on the Department

because it is asserting the affirmative of the issue. Ferris v .

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

31. The administrative fines being proposed by the

Depar tment are penal in nature. The standard of proof for such

cases is clear and convincing evidence. See Dep ' t of Banking and

Fin . Div . of Sec . and Investor Prot . v. Osborne Stern and Co. ,

670 So. 2d 932 (Fla. 1996).

32. Clear and convincing evidence is an intermediate

standard of proof which is more than the "preponderance of the

evidence" standard used in most civil cases, but less than the

"beyond a reasonable doubt" standard used in criminal cases. See

State v. Graham , 240 So. 2d 486 (Fla. 2nd DCA 1970 ). Further,

clear and convincing evidence has been defined as evidence which:

[R]equires 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 allegations sought to be

est ablished.

Slomowitz v. Walker , 429 So. 2nd 797, 800 (Fla. 1st DCA 1983)

(c itations omitted ) .

33. The clearest and most convincing evidence presented at

final hearing established only that the Cano - Lopez brothers were

physically present at the job site on April 30, 2014. The

DepartmentÓs investigator relied upon non - verbal communication

and interpretations to ascertain that the Cano - Lopez brothers

were employees of Sunburst. Her testimony, while received as

honest and forthright, was not of such weight t o produce a firm

belief or conviction in the mind of the undersigned.

34. Pursuant to s ections 440.10 and 440.38, Florida

Statutes, every employer is required to secure the payment of

workersÓ compensation for the benefit of its employees unless the

empl oyee is exempted or excluded under Chapter 440, Florida

Statutes. Strict compliance with the Workers' Compensation Law

is required by the employer. See C&L Trucking v. Corbitt , 546

So. 2d 1185, 1187 (Fla. 5th DCA 1989). The evidence in this

case, is tha t Sunburst had workersÓ compensation coverage for

each of its bona fide employees.

35. Section 440.107(7)(a) states, in relevant part:

Whenever the department determines that an

employer who is required to secure the

payment to his or her employees of th e

compensation provided for by this chapter has

failed to secure the payment of workers'

compensation required by this chapter . . .

such failure shall be deemed an immediate

serious danger to public health, safety, or

welfare sufficient to justify service by the

department of a stop - work order on the

employer, requiring the cessation of all

business operations. If the department makes

such a determination, the department shall

issue a stop - work order within 72 hours.

36. The Department properly issued a SWO upon finding that

Respondent did not have the appropriate coverage. Although the

evidence at final hearing indicates the Department's finding was

ultimately in error, the Department was still within its rights

to have issued the SWO based on its bona fide belief that no

coverage existed.

37. As to penalties, s ection 440.107(7)(d)1. states:

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

the 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 payment of worker's

compensation required by this chapter within

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

whichever is greater.

38. No penalty is warranted in this matter due to the

Department's failure to meet its burden of proof as stated above.

RECOMMENDATION

Based on the foregoing Findings o f Fact and Conclusions of

Law, it is

RECOMMENDED that a final order be entered by the Department

of Financial Services rescinding the Stop - Work Order and Amended

Penalty Assessment.

DONE AND ENTERED this 5th day of January , 2015 , in

Tallahassee, Leon Co unty, Florida.

S

R. BRUCE MCKIBBEN

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 5th day of January , 2015 .

ENDNOTE

1/ The Department objected to discussion of the draft penalty

assessment on the basis that it was part of a settlement

discussion. Sun burstÓs attorney had not been advised of a

settlement, so discussion of the draft was not precluded. One

cannot have a settlement conference unless both parties are

involved.

COPIES FURNISHED:

Alexander Brick, Esquire

Department of Financial Services

2 00 East Gaines Street

Tallahassee, Florida 32399 - 6502

(eServed)

Kristian E . Dunn, Esquire

Dunn and Miller, P.A.

1606 Redwood Drive

Tallahassee, Florida 32301

(eServed)

Julie Jones, CP, FRP, Agency Clerk

Department of Financial Services

200 East Gaine s Street

Tallahassee, Florida 32399 - 6502

(eServed)

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.