16-000711 Department Of Financial Services, Division Of Workers&Apos; Compensation vs. Sunshine Rental Of Citrus, Llc Status: Closed Recommended Order on Thursday, July 7, 2016.

Summary: Respondents did not have workers' compensation insurance in place. The Department proved by clear and convincing evidence that Respondents should pay a penalty.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL

SERVICES, DIVISION OF WORKERS'

COMPENSATION,

Petitioner,

vs. Case No. 16 - 07 11

SUNSHINE RENTAL OF CITRUS, LLC ,

Respondent.

_______________________________/

RECOMMENDED ORDER

Pursuant to notice to all parties, a final administrative

hearing was held in this matter before the Hon orable R. Bruce

McKibben, A dministrative L aw J udge for the Division of

Administrative Hearings (ÐDOAHÑ) , in Crystal River , Florida , on

May 20, 2016.

APPEARANCES

For Petitioner: Thomas Nemecek, Esquire

Department of Financial Services

Division of Workers' Compensation

200 East Gaines Street

Tallahassee, Florida 3239 9

For Respondent: Kristian Eiler Dunn, Esquire

Dunn and Miller, P.A.

215 East Tharpe Street

Tallahassee, Florida 32303

STATEMENT OF THE ISSUE

The issue in this case is whether Respondent, Sunshine

Rental of Citrus, LLC (Ð Sunshine Ñ ), should have a penalty

assessed against it by Petitioner, Department of Financial

Services, Division of WorkersÓ Compensation (the Ð DepartmentÑ),

and, if so, the amount of such penalty or assessment.

PRELIMINARY STATEMENT

On January 1 6 , 2016, the Department issued a Stop Work

Order (ÐSWOÑ) and Order of Penalty Assessment , requiring

Sunshine to immediately cease all business activities based upon

the DepartmentÓs finding that Sunshine was operating without

valid workersÓ co mpensation insurance coverage. Sunshine timely

filed a request for a formal administrative hearing . At the

final hearing conducted in this matter , the Department called

t wo witnesses: Dale Russell , compliance investigator; and

Lawrence Pickle, penalty a uditor . The Department Ós Exhibits

P - 1 , P - 2, P - 4 through P - 12, P - 14 through P - 17, P - 19 and

P - 20 were admitted into evidence. Sunshine called two

witnesses: Joseph Melchiore and Margaret Melchiore, owners of

the business at issue in this proceedi ng . Su nshineÓs E xhibits

R - 1 through R - 3 and R - 5 through R - 7 were admitted.

A Transcript was filed on June 13, 2016.

The parties are allowed by rule to submit p roposed

r ecommended o rders (PROs) to the Administrative Law J udge within

10 days of the filing of the transcript at DOAH. Sunshine,

however, requested additional time to file its PRO and the

parties were given until June 30. Each party timely filed a PRO

and each was considered in the preparation of this Recommended

Order.

FINDING S OF FACT

1. Th e Department is the State agency responsible for ,

inter alia, e nsuring that all businesses operating in this State

have workersÓ compensation insurance coverage.

2. Sunshine is a validly - existing limited liability

company in the State of Florida. It wa s formed on April 18,

2007 , for the purpose of conducting any and all lawful business.

The company is primarily engaged in the business described in

its website as Ða family - owned nursery, rock yard, stone yard

and landscaping company.Ñ The principal add ress of the company

is listed in the Florida Division o f CorporationsÓ records as

6658 W est Sunripe Loop, Crystal River, Florida .

3. On January 26 , 2016, Dale Russell , a compliance

investigator with the Department, conducted an investigation at

7045 Nort h Walden Woods Drive, Homosassa , Florida. Upon arrival

at the site , Mr. Russell observed two men installing driveway

paver stones at a residence . Mr. Russell identified himself as

an investigator for the Department and asked the men for whom

they were wo rking, i.e., by whom were they employed. The men

allegedly advised Mr. Russell that they were employed by

Sunshine. Mr. Russell asked their names and was told they were

Mike Stevens and Carlos Esptri. Inexplicably, Mr. Russell did

not obtain any further information from the men such as phone

numbers, addresses, or driverÓs license numbers. The men then

gave Mr. Russell the telephone number for Sunshine.

4. Mr. Russell checked the DepartmentÓs compliance and

coverage automated system (CCAS) to verify wo rkersÓ compensation

insurance coverage for the men under SunshineÓs name. According

to CCAS, there was no coverage for the two men.

5. Mr. Russell called the number the men had provided, but

there was no answer even though he called during normal busines s

hours. So, Mr. Russell drove from Homosassa to Crystal River

and went to SunshineÓs business location, 6658 Gulf to Lake

Highway. When he went inside the business premises , Mr. Russell

spoke with Joseph and Margaret Melchiore, who identified

themselves as the owners of Sunshine. The Melchiores initially

told Mr. Russell that they did not have workersÓ compensation

insurance because they did not need it . According to

Mr. Russell, Mrs. Melchiore told him that the two workers he had

identified were actua lly subcontractors , ostensibly operating

under their own insurance . Mr. Russell explained that since the

two workers were not working under any particular company of

their own but were installing pavers for Sunshine , they we re

deemed employees of Sunshine and needed to be covered by

SunshineÓs insurance.

6. Based upon this discussion, Mr. Russell issued a S WO

and made a formal request for production of business records

upon Sunshine . The SWO and records request were hand - delivered

to the Melchiores at th e business location on the same day

Mr. Russell first talked with them.

7. The day after Mr. Russell served th e SWO on Sunshine,

Mr. and Mrs. Melchiore went to the workersÓ compensation

compliance office in Tampa and applied for exemptions from

workersÓ compensation insurance coverage for themselves . In the

applications for exemption , applicants were given the option of

selecting construction industry or non - construction industry as

their area of employment . T he Melchiores both check ed the

construction industry boxes and identified themselves as members

of a limited liability company . At final hearing, they could

not explain why they made that selection when seeking an

exemption . They indicated on the exemption request forms that

the scope of work to be done as Ðnursery, stone, paversÑ without

further explanation. The Melchiores also entered into an Agreed

Order for the purpose of lifting the SWO so they could continue

to make a living. They made an initial payment of $1 ,000 with

the agreement to ent er into a ÐPayment Agreement Schedule for

Periodic Payment of Penalty.Ñ No such agreement was entered

into betw een Sunshine and the Department and no further payments

were made.

8 . At final hearing the Melchiores stated the company does

not provide any p hysical labor or other construction work ; they

only sell materials. This testimony is contradicted by the

pictures and statements in their website, including: ÐWe

deliver and install at a reasonable price , Ñ and Ð[W]e can

provide you with our installation services.Ñ Likewise, the

signage at their business location sa id at one point in time ,

Ð PAVERS INSTALLED.Ñ The fact that the Melchiores applied for an

exemption and entered into an Agreed Order is strongly

suggestive that they were aware of their need f or and failure to

maintain workersÓ compensation insurance.

9 . However, the Department could not prove by clear and

convincing evidence that the Melchiores were engaged in physical

labor in the construction industry. They were only observed (by

Mr. Russe ll) performing clerical or retail sales - type work.

10 . The Department calculated the amount of the penalty

based on the Melchiores apparent and seemingly admitted

involvement in the construction industry. A n Amended Order of

Penalty Assessment Î in the amount of $91,211.04 Î was served on

Sunshine. Sunshine did not timely provide the Department with

complete business records, so the penalty amount had been

established by way of imputing income for SunshineÓs employees.

Sunshine eventually provided the Department with most, but not

all, of the requested records. Inasmuch as the records were not

complete, the Department auditors were not able to make an

absolute determination of SunshineÓs payments to employees. For

example, there were numerous checks missing from the records;

the October 2014 records are missing in their entirety; and the

2016 records Î from the period of time around the disputed

construction in Homosassa Î are missing a page. The Department

had asked for the financial records immedia tely upon issuing the

SWO, but Sunshine did not do so because they were Ðlooking for

an attorney.Ñ As a result, the records were not timely received

by the Department and were not complete when ultimately provided

(and were never totally complete, even at final hearing) .

11 . Mr. Russell never spoke to the two workers from the

Homosassa site again and they did not appear at the final

hearing in this matter. Their hearsay statements (i.e., that

they were employed by Sunshine) were never completely confir med

by other competent and substantial evidence. However,

Mrs. MelchioreÓs claim that she did not know the two men was not

entirely believable . Based on the fact that the men gave

SunshineÓs number to Mr. Russell, and that Mrs. Melchiore

initially admitt ed knowing them but stated they were

subcontractors, it is more likely than not that the men were at

least known to Sunshine. Mrs. Melchiore testified at final

hearing that when she and Mr. Russell talked, she disavowed

knowing of the two workers at all . Mr. RussellÓs testimony was

more credible , but there remains a legitimate question as to

what was actually said .

12 . The one instance of paver installation addressed by

the Department (other than the Hom o sa s sa site discussed above)

allegedly occurred at a business known as First Fruit Markets,

also located in Homosassa. It is undisputed that Mr. Melchiore

installed pavers in front of that business establishment. He

did so, however, reputedly as a gift to the young couple who had

recently opened the bus iness. Mr. Melchiore claimed that he was

not paid for the work he performed, that it was done on a Sunday

afternoon when he was not working for Sunshine , and it was a

gift . The owners of the business were not called a s witnesses

to substantiate Mr. Melch ioreÓs claim. The evidence shows that

there is a sign at the fruit market identifying the pavers as

being from Sunshine. Whether that sign indicates the work was

done by Sunshine or was just appreciation shown by the owners of

the business was not establ ished by the evidence.

13 . Sunshine introduced into evidence several 1099 - MISC

forms showing payments by the company to John Gray, the

Melchiores son. The pu rpose of those 1099s was to show that

Sunshine used independent contractors to do work for them.

Further, the 1099s were meant to suggest that the Melchiores did

not pay anyone, including their son, in cash. Again, Mr. Gray

did not testify to substantiate that suggestion.

14 . The evidence established that Sunshine owned trucks

used in the busines s . There was, unfortunately, no evidence

presented as for what purpose the trucks were used by the

business . One picture on the Sunshine website shows a front - end

loader putting materials into the back of a truck with a

Sunshine decal on the door, but wh ether the truck was used for

delivery only (and whether such work required workersÓ

compensation covera g e) was not established by evidence in the

record.

15 . SunshineÓs failure to timely provide its business

records resulted in the imputed method being employed to

determine the amount of the penalty to be assessed. First, the

payroll was calculated by using the average weekly wage in

effect at the time of the issuance of the SWO and, per statute,

multipl ying by two. Class Code 5221 Î under the construc tion

umbrella Î was assigned to the work being done by Sunshine . The

period of non - compliance was set at January 27, 2014 through

December 31, 2014; January 1, 2015 through December 31, 2015;

and January 1, 2016 through Jan uary 26, 2016 . Those are the

da tes within the DepartmentÓs two - year audit period that

Sunshine was deemed to be out of compliance.

16. The imputed gross payroll amount was $ 334,161.00 for

the first period of non - compliance , $ 359,789.88 for the second

period , and $ 12,814.44 for the th ird . By comparison, t he gross

payroll relating to the Melchiores only was: $ 167,080.05 for

the first period; $ 89,947.47 for the second period; and

$ 12,814.44 for the third period (the ÐMelchiore payrollÑ) .

17. The total payroll figures, divided by 100 , resulted in

the amounts of $ 3,341 .61 , $ 3,597.89 and $ 1,281.44 , respectively.

Comparatively, t he Melchiore payroll figures, divided by 100,

equal s $ 1,670.80 , $ 8,994.74 , and $ 128.14 , respectively.

18. The approved manual rate s set for the t hree periods

w ere 6.38, 6.25, and 7.02 , reflecting the rates for Class Code

5 221 .

19. The premium owed by the employer on the total

payroll for the first period was calculated at $21,315.58;

$22,486.81 for the second; and $1,799.08 for the third . For the

Melchiore payroll only, the calculated amounts would be

$10,659.70, $5,621.68, and $899.54, respectively . The premium

amounts, multiplied by two, resulted in assessed penalties for

the total payroll of $42,631.16; $44,973.6 2 for the second; and

$3,598.16 for the t hird , for a total penalty of $ 91,211.04 . For

the Melchiore s - only payroll, the penalty amounts would be

$21,319.40; $11,243.36; and $1,799.08 , for a total penalty of

$ 34,362.56 .

20. There was not sufficient evidence presented at final

hearing to establi sh what the total penalty would have been had

a non - construction Class Code been assigned to the Melchiores .

CONCLUSIONS OF LAW

21 . The Division of Administrative Hearings has

jurisdiction over this matter pursuant to sections 120.569 and

120.57(1), Flo rida Statutes. Unless otherwise stated

specifically herein, all references to Florida Statutes will be

to the 201 6 version.

22 . The burden of proof in matters such as this is on the

Department because it is asserting the affirmative of the issue ,

i.e., t hat Sunshine did not have workersÓ compensation insurance

in place for its employees or ha ve a valid exemption in place .

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

23 . The administrative fines being proposed by the

Department are penal in natu re. The standard of proof for such

cases is clear and convincing evidence. See Dep Ó t of Banking

and Fin . Div . of Secs . and Investor Prot . v. Osborne Stern and

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

24 . Clear and convincing evidence is an intermediate

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

evidence" standard used in most civil and administrative 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 th e 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 establ ished.

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

( Citations omitted ) .

25 . P ursuant to Sections 440.10 and 440.38, Florida

Statutes, every employer is required to secure the payment of

workersÓ compensation for the benefit of its emp loyees unless

the employee is exempted or excluded under Chapter 440. 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).

26 . The alleged admissions by Mrs. Melchiore during her

interview with Mr. Russell would be statements that constitute

e xcep tions from the hearsay rule , if such statements had

actually been made . See § 90.803(18), Fla. Stat. However, the

inferences which could be drawn from her te stimony and the

hearsay statements of the reputed employees fall far short of

clear and convincing evidence. Thus, only the Melchiores are

proven to be employees of Sunshine for purposes of this matter.

27 . The Department was unable to estimate the amoun t of

penalty for Sunshine Ós failure to have workersÓ compensation

insurance in place , as Sunshine never produced a complete set of

its business records. The Department therefore was required to

impute the income and calculate a penalty in accordance with

section 440.107 .

28 . 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 the

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, requiri ng the cessation of all

business operations. If the department

makes such a determination, the department

shall issue a stop - work order within

72 hours.

The Department properly issued a SWO upon finding that Sunshine

did not have the appropriate coverage .

29 . As to penalti es, Section 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 penal ty 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 precedi ng 3 - year

period or $1,000, whichever is greater.

30 . The penalty for the Melchiores when using the

construction Class Code would be $34,362.56. The penalty when

using a non - construction Class Code would presumably be less,

but would depend on the Class Code assigned and applied to the

imputed payroll amounts .

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of

Law, it is RECOMMENDED that the Department of Financial

Services, Division of Wo rkersÓ Compensation enter a Final Order

a ssessing a penalty against Respondent, Sunshine Rental of

Citrus, LLC , based upon the imputed income amounts for Joseph

and Margaret Melchiore and applying the appropriate Class Code .

DONE AND ENTERED this 7 th day of July, 2016, in

Tallahassee, Leon County , 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.sta te.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

This 7 th day of J uly , 2016 .

COPIES FURNISHED:

Kristian Eiler Dunn, Esquire

Dunn and Miller, P.A.

215 East Tharpe Street

Tallahassee, Florida 32303

(eServed)

Thomas Nemecek, Esqu ire

Department of Financial Services

Division of Workers' Compensation

200 East Gaines Street

Tallahassee, Florida 32399

(eServed)

Joaquin Alvarez, Esquire

Department of Financial Services

200 East Gaines Street

Tallahassee, Florida 32399 - 4229

(eServed)

Bennett M. Miller, Esquire

Dunn and Miller, P.A.

215 East Tharpe Street

Tallahassee, Florida 32303

(eServed)

Julie Jones, CP, FRP, Agency Clerk

Division of Legal Services

Department of Financial Services

200 East Gaines Street

Tallahassee, Florida 323 99 - 0390

(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 i ssue the Final Order in this case.