17-001608 Department Of Financial Services, Division Of Workers&Apos; Compensation vs. Stucco Drywall Contractors, Inc. Status: Closed Recommended Order on Thursday, February 1, 2018.

Summary: Petitioner sufficiently proved that Respondent failed to carry workers' compensation coverage and that penalty was appropriate. Respondent failed to prove entities were independent contractors not working in the construction industry.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL

SERVICES, DIVISION OF WORKERS'

COMPENSATION,

Petitioner,

vs. Case No. 17 - 1608

STUCCO DRYWALL CONTRACTORS,

INC.,

Respondent.

_______________________________/

RECOMMENDED ORDER

This case came before Administrative Law Judge Darren A.

Schwartz of the Division of Administrative Hearings for final

hearing by video teleconference on November 20, 2017, at sites in

Tallahassee and Miami, Florida.

APPEARANCES

For Petitioner: Susan L. Herendeen, Esquire

Department of Financial Services

Division of Workers' Compensation

200 East Gaines Street

Tallahassee, Florida 32399

For Respondent: John Laurance Reid, Esquire

The Law Office of John Reid

Post Office Box 6272

Tallahassee, Florida 32314

STATEMENT OF THE ISSUE S

Whether Respondent, Stucco Drywall C ontractors, Inc.

( " Respondent " ), failed to comply with the coverage requirements

of the WorkersÓ Compensation Law, chapter 440, Florida Statutes;

and , if so, whether Petitioner, Department of Financial Services,

Division of WorkersÓ Compensation ( " Departme nt " ), correctly

calculated the penalty assessed against Respondent.

Respondent does not contest the Stop - Work Order for Specific

Worksite Only ( " SWO " ). Rather, Respondent asserts that the

penalty contained in the 2nd Amended Penalty Assessment

inappropr iately includes two business entities ( " HT Consulting

Contractors " and " NDDS Services " ) that were " independent

contractors " performing non - construction work, rather than

" subcontractors " for whom Respondent has statutory liability.

PRELIMINARY STATEMENT

On November 14, 2016, the Department issued an SWO against

Respondent. On December 5, 2016, Respondent timely requested an

administrative hearing. On January 5, 2017, the Department

served an Amended Order of Penalty Assessment ( " AOPA " ), by email

to Respon dentÓs counsel of record, assessing a penalty of

$117,791.66. On March 20, 2017, the Department referred the

matter to the Division of Administrative Hearings ( " DOAH " ) to

assign an administrative law judge to conduct the final hearing.

On March 23, 2017 , the undersigned set the final hearing for

May 26, 2017. On May 9, 2017, Respondent filed an unopposed

motion to continue the final hearing. On May 10, 2017, the

undersigned entered an Order granting the motion, and reset the

final hearing for July 26, 2017. On July 10, 2017, Respondent

filed another unopposed motion to continue the final hearing. On

July 11, 2017, the undersigned entered an Order granting the

motion, and reset the final hearing for September 18, 2017. On

September 13, 2017, the parti es filed a joint motion to continue

the final hearing. On September 19, 2017, the undersigned

entered an Order granting the motion, and reset the final hearing

for November 20, 2017.

On September 7, 2017, the Department issued a 2nd Amended

Order of Pena lty Assessment, reducing the penalty to $74,042.40.

On October 13, 2017, the Department filed an agreed motion to

amend the order of penalty assessment based on the 2nd Amended

Order of Penalty Assessment. On October 16, 2017, the

undersigned entered an Order granting the motion. The partiesÓ

Joint Pre - hearing Stipulation was filed on November 13, 2017.

The final hearing was held on November 20, 2017, with both

parties present. The Department presented the testimony of Sarah

Beal, penalty auditor. The DepartmentÓs Exhibits 1 through 19

were received in evidence upon stipulation of the parties.

Respondent presented the testimony of Yyheeling Evans, Henry

Torres Castillo, and Bernard Gomez. RespondentÓs Exhibits A, D,

F, L, M, N, O, and P were received in evidence.

The one - volume final hearing Transcript was filed on

December 11, 2017. The parties timely submitted proposed

recommended orders, which were given consideration in the

preparation of this Recommended Order.

The stipulated facts in the parti esÓ Joint Pre - hearing

Stipulation have been incorporated as indicated below. Unless

otherwise indicated, all statutory references refer to the 2016

Florida Statutes.

FINDING S OF FACT

The Parties

1. The Department is the state agency responsible for

enfor cing the requirements of chapter 440 that employers in

Florida secure the payment of workersÓ compensation coverage for

the benefit of their employees and corporate officers.

2. Respondent, a Florida for - profit corporation, does

stucco and drywall work, and was actively engaged in such

business operations in the state of Florida from November 15,

2014 , to November 14, 2016, during the two - year audit period. At

all times material hereto, Respondent was an " employer " within

the meaning of section 440.02(1 6), and Esperanza Duran and

Bernardo Gomez were " corporate officers, " as that phrase is

defined in section 440.02(9). 1/

The Investigation

3. It is the duty of the Department to make random

inspections of jobsites and to answer complaints concerning

pote ntial violations of workersÓ compensation laws.

4. On November 14, 2016, the DepartmentÓs investigator,

Xotchilth Valdivia, commenced a random workersÓ compensation

compliance investiga tion at 12060 Hialeah Gardens Boulev ard ,

Hialeah Gardens, F lorida 330 18, because she noticed two men doing

a plaster job at a commercial construction site. The men said

they worked for Plaster Solutions, Inc., adding that Plaster

Solutions was a subcontractor for Respondent. The owner of

Plaster Solutions, Duval R. Chavez , Sr., came to the worksite and

told the investigator he had an exemption from FloridaÓs workersÓ

compensation laws , but no coverage for his two employees.

Mr. Gomez came to the worksite and told the investigator he

requested proof of workersÓ compe nsation insurance when he hired

Plastic Solutions, but did not receive it.

5. The investigator searched the Compliance and Coverage

Automated System maintained by the Division of WorkersÓ

Compensation and found an exemption for Duval R. Chavez, Sr., but

no workersÓ compensation insurance for employees of Plaster

Solutions. A similar search retrieved an exemption for Mr. Gomez

and an employee leasing policy for Respondent. An employee

leasing roster provided by Howard Leasing identified 10 employees

of R espondent. The two men observed performing plaster work,

Gilberto Reyes and Alexis Jeovany Ramos Jiminez, were not on the

leasing roster and did not have exemptions from FloridaÓs

workersÓ compensation laws.

6. The DepartmentÓs investigator contacted h er supervisor

and received permission to issue SWO 16 - 367 - D5 to Plaster

Solutions, Inc., and SWO 16 - 368 - D5 to Respondent. Both orders

were personally served on the respective business owners at the

worksite.

7. Upon service of the SWO, the investigator personally

served Respondent with a Business Records Request ( " BRR " ),

requesting business records sufficient to determine the amount of

RespondentÓs unsecured payroll for purposes of assessing a

penalty pursuant to section 440.107(7)(d)1 . , for the audit p eriod

of November 15, 2014 , to November 14, 2016.

Penalty Calculation

8. The DepartmentÓs penalty auditor, Sarah Beal, initially

calculated a penalty in the amount of $117,791.66 , based on

business records (bank statements, proof of coverage or exemptio n

for subcontractors) provided by Respondent. The auditor assigned

National Council on Compensation Insurance ( " NCCI " ) class

code 5480, Plastering, based on the investigatorÓs observations

of plastering work on the date of the site visit and records

provided, such as the notations on the memo lines of RespondentÓs

checks. An attorney for the Department, Young Kwon, served the

Amended Order of Penalty Assessment upon RespondentÓs attorney,

by email, on January 5, 2017.

9. The Department issued a 2n d Amended Order of Penalty

Assessment on September 7, 2017, reducing the penalty to

$74,042.40, based on clarifying information provided by

Respondent. The undersigned granted leave to amend the penalty

on October 16, 2017.

10. The 2nd Amended Order of Penalty Assessment calculates

a penalty of $56,170.68 for HT Consulting Contractors and

$12,983.50 for NDDS Services.

11. Respondent concedes it did not secure the payment of

workersÓ compensation coverage for any of the individuals listed

on the penalt y worksheet of the 2nd Amended Order of Penalty

Assessment during the periods of non - compliance listed on the

penalty worksheet.

12. Respondent does not contest the penalties for the

following individuals or entities listed on the 2nd Amended Order

of Pen alty Assessment: Alexis Jeovany Ramoes Jimenez, ANA

Services, Inc., DH Drywall Contractors, Esperanza Duran, Gilberto

Reyes, and YYM Frames Enterprises.

13. The only penalties disputed by Respondent are those

attributable to HT Consulting Contractors and NDDS Services.

H T Consulting Contractors

14. Respondent contends that HT Consulting Contractors

provided non - construction referral services as an independent

contractor, and therefore, no penalty should be attributable to

HT Consulting Contractors. H owever, Respondent failed to present

persuasive and credible evidence at hearing that HT Consulting

Contractors was an independent contractor performing non -

construction referral services. Accordingly, the penalty

attributable to HT Consulting Contractors is appropriate.

15. HT Consulting Contractors incorporated on August 10,

2015, and was administratively dissolved on September 23, 2016.

16. Henry Torres Castillo testified that he was the sole

owner and employee of HT Consulting Contractors, a busin ess which

he operated from his residence for a period of one year up until

just a few months before the hearing , when he closed the

business. At all times material hereto, Mr. Castillo shared his

residence with his wife, Ms. Duran, who is RespondentÓs

pre sident.

17. Mr. Castillo testified that he is a former construction

worker in the areas of roofing, marble, stucco, and drywall, who

only researched and found construction jobs for construction

businesses, including Respondent, for which he was paid a

c ommission.

18. Mr. Castillo testified that he drove his personal

vehicle to construction jobs to generate leads, met clients at

restaurants, traveled to different parts of Florida, and

performed detailed research related to the cost of materials and

lab or for his client construction companies.

19. Bernard Gomez is vice - president of Respondent.

Mr. Gomez likewise testified that HT Consulting Contractors was a

referral company that only provided referral services to

Respondent for which it was pa id a commission.

20. Both Mr. Castillo and Mr. Gomez denied that HT

Consulting Contractors provided any labor or work in the

construction industry.

21. No written contracts, statements, receipts, or invoices

evidencing any services provided by HT Consulting Contractors to

Respondent were presented at hearing.

22. No detailed written description of any of the jobs for

which a referral commission was purportedly paid to HT Consulting

Contractors was presented at hearing.

23. No documents evidenc ing any of the purported detailed

research by Mr. Torres were presented at hearing.

24. No federal income tax returns or IRS 1099 forms for

HT Consulting Contractors were presented at hearing.

25. No business bank account statements for HT Consulti ng

Contractors for the audit period were presented at hearing.

26. Mr. Castillo did not utilize any business cards or

marketing materials on behalf of HT Consulting Contractors.

27. Ms. Duran did not testify at hearing.

28. The Department presente d numerous checks from

Respondent payable to HT Consulting Contractors. These checks

were signed by Ms. Duran as president and on behalf of

Respondent.

29. Many of the checks, included within the DepartmentÓs

Composite Exhibit 14, contradict Responden tÓs position that it

paid HT Consulting Contractors for referral services as an

independent contractor performing non - construction work. In

fact, the checks support the DepartmentÓs position that HT

Consulting Contractors was a subcontractor for whom Resp ondent

has statutory liability.

30. For example, on November 21, 2015, Ms. Duran signed

check number 1319 made payable to HT Consulting Contractors in

the amount of $6,000 .00 . The memo line of the check reads:

" Supervisor. "

31. On November 20, 2 015, Ms. Duran signed check

number 1321 made payable to HT Consulting Contractors in the

amount of $3,800 .00 . The memo line of the check reads:

" Supervisor. "

32. On March 31, 2016, Ms. Duran signed check number 1417

made payable to HT Consulting C ontractors in the amount of

$12,000 .00 . The memo line of the check includes the word

" labor. "

33. On April 20, 2016, Ms. Duran signed check number 1442

made payable to HT Consulting Contractors in the amount of

$10,000 .00 . The memo line of the check re ads: " Pay/employment. "

34. On June 1, 2016, Ms. Duran signed check number 1490

made payable to HT Consulting Contractors in the amount of

$15,000 .00 . The memo line of the check reads: " Employment. "

35. On July 12, 2016, Ms. Duran signed check number 1501

made payable to HT Consulting Contractors in the amount of

$10,000 .00 . The memo line of the check reads: " Pay Employment. "

36. On August 29, 2016, Ms. Duran signed check number 1530

made payable to HT Consulting Contractors in the a mount of

$11,0 00 .00 . The memo line of the check includes the words " sub

labor. "

37. On September 7, 2016, Ms. Duran signed check

number 1534 made payable to HT Consulting Contractors in the

amount of $18,000 .00 . The memo line of the check includes the

words " s ub labor. "

38. On October 21, 2016, Ms. Duran signed check number 1553

made payable to HT Consulting Contractors in the amount of

$11,000 .00 . The memo line of the check includes the words " sub

labor. "

39. Mr. Castillo could not explain the reasons fo r the

notations of the words " labor, " " supervisor, " and " employment " on

the memo lines of checks signed by his wife.

40. However, Mr. Castillo understands that the phrase " sub

labor " " mean[s] a subcontractor provides labor. "

41. Mr. Castillo could not recall any details about the

jobs that generated checks in the amount of $12,000 .00 (check

number 1472); $15,000 .00 (check number 1490); and $10,000 .00

(check number 1501).

42. The undersigned had the distinct opportunity to observe

the demeanor of Mr. C astillo and Mr. Gomez when they testified at

hearing. Mr. CastilloÓs and Mr. GomezÓs testimony that HT

Consulting Contractors provided referral services outside the

construction industry to Respondent as an independent contractor

is rejected as unpersuasi ve and not credible.

43. In sum, the Department correctly applied NCCI class

code 5480 and the penalty attributable to HT Consulting

Contractors is appropriate.

NDDS Services

44. Respondent contends that NDDS Services provided non -

construction referral services as an independent contractor, and

therefore, no penalty should be attributable to NDDS Services.

However, Respondent failed to present persuasive and credible

evidence at hearing that NDDS Services was an independent

contractor performing non - co nstruction work. Accordingly, the

penalty attributable to NDDS Services is proper.

45. Yyheeling Evans testified that she is the sole owner

and member of NDDS Services, LLC, a business which she has

operated from her home since its creation in 2013.

46. Ms. Evans testified that NDDS Services researches and

finds construction jobs for construction businesses, including

Respondent, for which she is paid a commission. Mr. Gomez

likewise testified that NDDS Services is a referral company that

only provided referral services to Respondent for which it was

paid a commission.

47. Both Ms. Evans and Mr. Gomez denied that NDDS Services

provided any labor or work in the construction industry.

48. No written contracts, statements, receipts, or invoices

e videncing any services provided by NDDS Services to Respondent

were presented at hearing.

49. No detailed written description of any of the jobs for

which a referral commission was purportedly paid to NDDS Services

was presented at hearing.

50. No fede ral income tax returns or IRS 1099 forms for

NDDS Services were presented at hearing.

51. No business bank account statements for NDDS Services

for the audit period were presented at hearing.

52. Ms. Evans did not utilize any business cards or

market ing materials on behalf of NDDS Services.

53. The Department presented numerous checks from

Respondent payable to NDDS Services. These checks were signed by

Ms. Duran as president and on behalf of Respondent.

54. Several of the checks, included withi n the DepartmentÓs

Composite Exhibit 14, contradict RespondentÓs position that it

paid NDDS Services for referral services as an independent

contractor performing non - construction work. In fact, the checks

support the DepartmentÓs position that NDDS Servi ces was a

subcontractor for whom Respondent has statutory liability.

55. On November 9, 2014, Ms. Duran signed check number 1165

made payable to NDDS Services in the amount of $7,000 .00 . The

memo line of the check reads: " GV 1 st Floor. "

56. On May 13, 2015, Ms. Duran signed check number 1202

made payable to NDDS Services in the amount of $15,000 .00 . The

memo line of the check reads: " LAN 20550 - As of today. "

57. On June 29, 2015, Ms. Duran signed check number 1220

made payable to NDDS Service s in the amount of $9,450 .00 . The

memo line of the check includes the word " finish. "

58. Ms. Evans could not recall any details about the jobs

that generated the aforementioned checks.

59. Ms. Evans testified that she holds a non - construction

exempti on. However, Ms. Evans sought a construction industry

exemption for NDDS Service s during the applicable audit period

and she did not hold a valid exemption during the audit period.

60. The undersigned had the distinct opportunity to observe

the demeano r of Ms. Evans and Mr. Gomez when they testified at

hearing. Ms. EvansÓs and Mr. GomezÓs testimony that NDDS

Services provided referral services outside the construction

industry to Respondent as an independent contractor is rejected

as unpersuasive and n ot credible.

61. In sum, the Department correctly applied NCCI class

code 5480 and the penalty attributable to NDDS Services is

appropriate.

CONCLUSIONS OF LAW

62 . DOAH has jurisdiction over the parties to and the

subject matter of this proceeding pursu ant to sections 120.569

and 120.57(1), Florida Statutes.

63. Chapter 440 is known as the " WorkersÓ Compensation

Law. " § 440.01, Fla. Stat.

64. Section 440.03 provides: " every employer and employee

as defined in s. 440.02 shall be bound by the provisi ons of this

chapter. "

65. An " employer " is defined, in pertinent part, as

" . . . every person carrying on any employment. § 440.02(16)(a),

Fla. Stat. " Employment . . . means any service performed by an

employee for the person employing him or h er " [and] " includes

. . . with respect to the construction industry, all private

employment in which one or more employees are employed by the

same employer. " § 440.02(17)(a) and (b)2., Fla. Stat.

66. " Employee " is defined, in pertinent part, as " [a] ll

persons who are being paid by a construction contractor as a

subcontractor, unless the subcontractor has validly elected an

exemption as permitted by this chapter, or has otherwise secured

the payment of compensation coverage as a subcontractor,

consist ent with s. 440.10, for work performed by or as a

subcontractor. " § 440.02(15)(c)2., Fla. Stat.

67. " Employee " is also defined, in pertinent part, as " [a]n

independent contractor working or performing services in the

construction industry . " § 440,02(1 5)(c)3., Fla. Stat. (emphasis

added).

68. An " [e]mployee does not include: An independent

contractor who is not engaged in the construction industry . "

§ 440.02(15)(d)1., Fla Stat. (emphasis added).

69. Providing business referrals is not engag ing in the

construction industry.

70. Providing labor is engaging in the construction

industry.

71. The Department is required by section 440.107(7)(d)1.,

to assess:

against any employer who has failed to secure

the payment of compensation as required by

this chapter a penalty equal to 2 times the

amount the employer would have paid in

premium when applying approved manual rates

to the employerÓs payroll during the periods

for which it failed to secure the payment of

workersÓ compensation required by t his

chapter within the preceding 2 - year period or

$1,000 .00 , whichever is greater.

§ 440.107(7)(d)1,. Fla. Stat.

72. This statutory provision mandates that the Department

assess a penalty for non - compliance with chapter 440 and does not

provide a ny authority for the Department to reduce the amount of

the penalty.

73. Florida Administrative Code Rule 69L - 6.027 adopts a

penalty calculation worksheet for the DepartmentÓs penalty

auditors to utilize " for purposes of calculating penalties to be

assessed against employers pursuant to section 440.107, Florida

Statutes. "

74. Because administrative fines are penal in nature, the

Department is required to prove by clear and convincing evidence

that Respondent failed to secure the payment of wor kersÓ

compensation coverage and that it calculated the appropriate

amount of penalty owed by Respondent. DepÓt of Banking & Fin. v.

Osborne Stern & Co. , 670 So. 2d 932, 935 (Fla. 1996).

75. However, the burden of proof to show that the two

entities served as independent contractors not engaged in the

area of construction rests on Respondent. Respondent is required

to prove this defense by a preponderance of the evidence.

§ 440.02(15)(d)1.c., Fla. Stat.

76. Applying the foregoing legal pri nciples to the instant

case, the Department proved, by clear and convincing evidence,

that Respondent was engaged in the construction industry and

failed to secure workersÓ compensation coverage during the audit

period. The Department proved, by clear and convincing evidence,

that it used the correct NCCI class code and properly calculated

the penalty owed by Respondent as a result of RespondentÓs

failure to comply with the coverage requirements of chapter 440.

77. Respondent failed to demonstrate, by a preponderance of

the evidence, that HT Consulting Contractors and NDDS Services

were independent contractors performing non - construction work,

rather than " subcontractors " for whom Respondent has statutory

liability. 2/

RECOMMENDATION

Based on the foregoing 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 against Respondent in the amount of $74,042.40. 3/

DONE AND ENTERED this 1st day of February , 2018 , in

Tallahassee, Leon County, Florida.

S

DARREN A. SCHWARTZ

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399 - 3060

(8 50) 488 - 9675

Fax Filing (850) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 1st day of February , 2018 .

ENDNOTE S

1/ At all times material hereto, Ms. Duran has been the owner and

president of Respond ent, and Mr. Gomez has been the vice

president.

2/ Based on the undersignedÓs determination that Respondent

failed to prove that HT Consulting Contractors and NDDS Services

were independent contractors performing non - construction work, it

is unnecessar y to consider whether HT Consulting Contractors and

NDDS Services were, in fact, independent contractors within the

meaning of the criteria set forth in sections 440.02(15)(d)a.(I)

through (VI) and b. The undersignedÓs findings eliminate any

legal signifi cance in the distinction between an employee and an

independent contractor under the workersÓ compensation laws.

Bend v. Shamrock Servs. , 59 So. 3d 153, 155 (Fla. 1st DCA 2011);

DepÓt of Fin. Servs. v. Cielo Residential Design and Const.,

Inc. , 2015 Fla. Div. Adm. Hear. LEXIS 462, at *12 ( Fla. DOAH

Nov. 24, 2015 ).

Although it is unnecessary for the undersigned to consider

whether HT Consulting Contractors and NDDS Services were, in

fact, independent contractors within the meaning of the criteria

set forth in sections 440.02(15)(d) 1. a.(I) through (VI) and b.,

the undersigned finds, for the reasons detailed above, that

Respondent failed to present persuasive and credible evidence

that at least four of the criteria listed in subparagraph a. and

any of the conditions in subparagraph b were met.

3/ At hearing, Respondent presented profit and loss standards and

a general ledger as Exhibit O. According to Mr. Gomez, these

documents were prepared by an accountant, who did not testify.

In fact, t he custodian of the records did not testify. The

documents are hearsay and do not fall within any exception to the

hearsay rule. They do not supplement or explain other non -

hearsay evidence.

Although hearsay is admissible in administrative pro ceedings,

this does not necessarily mean that the undersigned can use the

documents in resolving a factual dispute. The documents cannot

be used as the sole basis to support a finding of fact because

they do not fall within an exception to the hearsay rul e and they

do not supplement or explain other non - hearsay evidence. See

§ 120.57(1)(c) , Fla. Stat. (201 6 ) ( " Hearsay evidence may be used

for the purpose of supplementing or explaining other evidence,

but it shall not be sufficient in itself to support a finding

unless it would be admissible over objection in civil actions . " )

E ven if the documents could be used by the undersigned,

however, they are unpersuasive, unreliable, and would not support

RespondentÓs position. The profit and loss standar ds indicate

Respondent paid " sales commissions " of $38 5,746.02 in 2015 and

$277,856 .00 in 2016, while RespondentÓs job income was only

$1,009,021 .00 for 2015 and $1,235,522 .00 for 2016. Such a large

percentage of purported sales commissions compared to to tal

income is unbelievable.

COPIES FURNISHED:

John Laurance Reid, Esquire

The Law Office of John Reid

Post Office Box 6272

Tallahassee, Florida 32314

(eServed)

Susan L. Herendeen, Esquire

Department of Financial Services

Division of Workers' Comp ensation

200 East Gaines Street

Tallahassee, Florida 32399

(eServed)

Julie Jones, CP, FRP, Agency Clerk

Division of Legal Services

Department of Financial Services

200 East Gaines Street

Tallahassee, Florida 32399 - 0390

(eServed)

NOTICE OF RIGHT TO S UBMIT 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.