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By Bruce Buchanan, Sebelist Buchanan Law
Although the Office of Chief Administrative Hearing Officer (OCAHO) found Metropolitan Enterprises committed 189 violations and were fined $151,200, it could have been worse as OCAHO dismissed 20 allegations for the failure of ICE to establish employment during the audited period. U.S. v. Metropolitan Enterprises, Inc., 12 OCAHO no. 1297 (March 2017).
The case started in the usual way with Immigration and Customs Enforcement (ICE) serving a Notice of Inspection (NOI), seeking I-9 forms for current and terminated employees for a two-year period. Nine months later, ICE issued a Notice of Intent to Fine with Count I alleging 156 violations for various errors in completion of the I-9 forms – no employee signature, no employer signature, blank section 2, and no status box checked, and Count II – failure to prepare/present 53 Form I-9s.
ICE sought a penalty of $195,649 based upon a baseline penalty of $935 (over 50% of the I-9 forms were in error). It aggravated the penalty by 5% for the seriousness of the violation and mitigated the penalty by 5% for good faith. ICE also alleged five employees were undocumented and aggravated by 5% for those 5 Form I-9s.
Although ICE proffered a company payroll register for the two-year period of the NOI, this document did not provide hiring and termination dates. Without such, it is impossible to determine whether Metropolitan was required to retain the I-9 forms of the terminated employees, (Remember if the employee has worked there for over three years, an employer is only required to retain the I-9 form for a year from termination). The ALJ stated “mind reading is not an accepted tool of judicial inquiry.” Despite this shortcoming, OCAHO could discern the applicable dates for 189 employees out of the 209 employees.
However, OCAHO could not discern the hiring and termination dates of 20 employees; therefore, it could not determine whether Metropolitan was required under the law to retain their I-9 forms. Based on this, OCAHO dismissed 20 of the allegations.
Concerning the mitigation of the penalties, OCAHO did not find good faith based upon “wide spread, fundamental errors, which as a whole, have undermined the purpose of the employment verification system.” Furthermore, OCAHO declined to find five employees were undocumented because the ICE auditor did not identify the databases that he searched nor provided any details regarding how he conducted the searches.
OCAHO concluded the penalties proposed by ICE “while arguably defensible, are slightly disproportionate to the overall extent of the violations.” Thus, OCAHO set the penalties at $800 per violation rather than $935 per violation.
This decision was interesting because it detailed ICE’s failure to provide the appropriate facts to established some of the allegations and OCAHO’s astonishment that ICE considered Metropolitan’s conduct would warrant good faith mitigation.
By Bruce Buchanan, Sebelist Buchanan Law
In another decision involving a small restaurant in Hamburg, the Office of Chief Administrative Hearing Officer (OCAHO) reduced the restaurant’s penalty from $46,657 to $33,725 for four violations of failing to prepare and/or present I-9 forms and 67 violations for failing to properly complete I-9 forms. See U.S. v. 3679 Commerce Place, Inc. d/b/a Waterstone Grill, 12 OCAHO no.1296 (2017).
Since Waterstone Grill admitted liability, the only issue before OCAHO was the amount of the penalties. Immigration and Customs Enforcement (ICE) used $935 as the baseline penalty per violation based on a violation rate of over 50%. In an unusual twist, ICE found a 25% mitigation was warranted based upon the restaurant’s good faith in preparing the I-9 Forms. Normally, the five statutory factors, including good faith, are worth the 5% mitigation or aggravation. ICE also mitigated by 5% each due to the restaurant’s small size and the 67 employees in Court II were determined to be eligible for employment. ICE aggravated by 5% for the seriousness of the violations.
Waterstone Grill asserted it deserved mitigation for three of the four employees in Count I because they were authorized to work and several non-statutory factors, including general public policy of leniency toward small businesses, its cooperation with ICE during the investigation, including enrolling in E-Verify, and its inability to pay the $47,000 penalty.
OCAHO found 25% mitigation for good faith was unwarranted, especially where ICE offered no explanation for the size of the mitigation. However, some mitigation, which was not defined, was warranted. Concerning its inability to pay, OCAHO found it failed to show it could not pay the penalty, but found the proposed penalty should be viewed in light of the company’s financial situation. Although OCAHO found an employer’s post-inspection remedial measures may support mitigation, it declined to find such here.
OCAHO found ICE failed to prove the employees in Count I were unauthorized to work. OCAHO stated “it does not always follow that a factor found not to be aggravating (which is normally where the factor of unauthorized workers is found) must necessarily and automatically be mitigating.” However, in this case, OCAHO decided this was a mitigating factor.
OCAHO determined the proposal penalty should be reduced to $475 each for a total penalty of $33,725. As the facts demonstrate, if Waterstone would have performed an internal I-9 audit before ICE arrived with the NOI, most of the I-9 violations could have been corrected and not subject to a penalty.
By: Bruce Buchanan, Sebelist Buchanan Law
In one of its last decisions of 2016, the Office of Chief Administrative Hearing Officer (OCAHO) reduced the penalty of a restaurant from $96,398 to $58,850 for 107 violations. See U.S. v. Pegasus Family Restaurant, Inc.,12 OCAHO no. 1293 (Dec. 2016).
This case stated almost three years ago – in December 2013 – when Immigration and Customs Enforcement (ICE) served a Notice of Inspection (NOI) on Pegasus, a small restaurant in Hamburg, New York. Pegasus provided approximately 81 Form I-9s. Thereafter, ICE filed a Notice of Intent to Fine (NIF) alleging Pegasus failed to prepare and/or present 31 Form I-9s and failed to properly complete 76 Form I-9s - it failed to record any documents in section 2, only recorded a List B document, a driver’s license or state ID card, or failed to ensure the completion of Section 1 with a signature or attesting to the employee’s status, U.S. citizen, permanent resident, etc. Pegasus admitted liability on all the I-9 violations. Thus, the only issue before OCAHO was the amount of the penalty.
In seeking a penalty of $96,398, ICE used a baseline penalty of $935 per violation due to Pegasus having a violation rate of over 90%. ICE found Pegasus’s small size and the individuals in Count I as eligible for employment to be mitigating factors while the seriousness of the violations to be an aggravating factor. The remaining statutory factors of history of violations and good faith were considered neutral.
Pegasus asserts its lack of history of violations and no conclusive evidence that any of the employees were unauthorized to work were mitigating factors. Furthermore, it asserts the following non-statutory factors warrant mitigation – general public policy of leniency toward small businesses, company’s high turnover rate, its cooperation with ICE during the investigation, including enrollment in E-Verify, and its inability to pay the proposed penalty.
OCAHO agreed with Pegasus that the government failed to prove any of the employees were unauthorized to work. In an unusual finding, OCAHO stated this was a mitigation factor, rather than a neutral factor, although it recognized that it could have been accepted as a neutral factor. However, OCAHO declined to find the lack of a history of I-9 violations as a mitigating factor.
Concerning its inability to pay, OCAHO found it failed to show it could not pay the penalty, but found the proposed penalty was “unduly punitive.” Thus, OCAHO considered the company’s financial situation.
Although OCAHO found an employer’s post – inspection remedial measures may support mitigation, it declined to final such in this case. Furthermore, it declined to view a high turnover rate as a mitigating factor.
In conclusion, OCAHO found the penalty should be reduced from between $888 and $935 per violation to $550 per violation. Thus, this total penalty was $58,850. As the facts demonstrate, if Pegasus would have performed an internal I-9 audit before ICE arrived with the NOI, many of the I-9 violations could have been corrected and not subject to a penalty.
By: Bruce Buchanan, Sebelist Buchanan Law
In new ALJ James McHenry’s first decision, U.S. v. International Packaging, Inc., 12 OCAHO no. 1275a (Nov. 2016), the Office of Chief Administrative Hearing Officer (OCAHO) reduced the penalties proposed by Immigration & Customs Enforcement (ICE) from $88,825 to $38,050 for the 94 Form I-9 violations committed by International Packaging, Inc. (IPI).
Notice of Inspection and NIF
IPI was served with a Notice of Inspection and subpoena on February 17, 2011. On February 23, 2011, IPI produced some but not all its I-9 forms, inadvertently failing to produce 21 Form I-9s. ICE states it did not even learn of the existence of more employees until it examined IPI’s payroll records. After ICE requested nine of the 21 Form I-9s – all current employees – IPI complied.
On August 16, 2011, ICE issued a Notice of Intent to Fine (NIF). ICE alleged in Count I that IPI failed to produce 21 Form I-9s, and in Count II alleged that on 73 occasions, the company failed to enter certain data, such as document title, identification number or expiration date, in Lists A, B or C of Section 2. IPI failed to present any documentation attached to the I-9 forms. Thus, ICE asserts these are substantive errors, not technical ones, citing the Virtue Memorandum. IPI asserts that the supporting documentation was requested in a cover letter, not a subpoena; thus, ICE had “insufficient process” to allege these violations where the documentation, if presented, would have established these errors were technical.
For the 94 Form I-9 violations, ICE asserted a baseline penalty of $935 with a 5% mitigating factor due to IPI’s small size and a 5% aggravating factor for the seriousness of the offenses; the remaining three statutory factors were treated by ICE as neutral.
Earlier OCAHO Decision
In an earlier decision, U.S. v. International Packaging, Inc., 12 OCAHO no. 1275 (Apr. 2016), OCAHO sided with ICE and found nothing in the Virtue Memorandum requires an employer to copy and provide documents; rather, it is simply an affirmative defense. OCAHO found there was no conflict between 8 C.F.R. § 1324a.(b)(3) and the Virtue Memorandum. In this case, the employer did not provide the supporting documentation with the I-9 forms to ICE; therefore, the errors in Lists A, B and C were substantive. Furthermore, OCAHO found ICE is not required to ask for any supporting documentation; it is up to the employer to provide such and raise as an affirmative defense.
IPI asserted it demonstrated good faith before, during and after ICE’s audit. It specifically referenced IPI’s consultation with an immigration attorney several years before the audit on how to ensure compliance with the law. OCAHO found this reliance may have inadvertently caused subsequent confusion in ICE’s investigation – by failure to supply the backup supporting documentation for the I-9 Forms, which contributed to some of the violations. However, such reliance did demonstrate good-faith, which warrants some mitigation of the penalty.
Furthermore, IPI asserted through affidavits and financial documents that it could not afford to pay the proposed penalties and remain in business. Despite unclear financial records regarding the company’s financial condition and conclusory testimony, ALJ McHenry took the company’s finances into account because calculation of penalties is to be sufficiently meaningful for future compliance, not to force an employer out of business. Finally, ALJ McHenry cited IPI’s small size and the public policy of leniency toward small businesses.
Based upon these factors, OCAHO determined the penalty for failure to prepare and/or present I-9 Forms should be set at $500 per violation, rather than $935. As for the 73 substantive paperwork violations, OCAHO assessed those violations at $350 each.
IPI’s willingness to litigate the matter was advantageous from a financial perspective as it reduced the penalties by $50,000 or over 50%. This was despite losing on the initial legal issue of not being required to produce supporting documentation because it was not subpoenaed.
By: Bruce Buchanan, Sebelist Buchanan Law
In an unusual case, the Office of Chief Administrative Hearing Officer (OCAHO) granted a Motion for Summary Judgment filed by Personnel Plus, Inc. in U.S. v. Spectrum Technical Staffing Services and Personnel Plus, Inc., 12 OCAHO no. 1291 (Nov. 2016).
Immigration and Customs Enforcement (ICE) issued a complaint against Spectrum alleging it committed 2,147 substantive and uncorrected technical errors and sought a penalty of over $1.4 million. A few months later, ICE filed a Motion to amend the Complaint to add Personnel Plus as a Respondent. OCAHO granted the motion.
Personnel Plus filed an Answer to the Amended Complaint asserting it was not a successor or alter ego of Spectrum. Thereafter, Personnel Plus filed a Motion to Dismiss/Motion for Summary Judgment seeking to be removed from the case.
The underlying legal arguments and facts were somewhat complicated and centered around any relationship between Spectrum and Personnel Plus, and if such existed, whether liability should attach to Personnel Plus. ICE asserted Personnel Plus was a “mere continuation” of Spectrum and thus met an exception to the general rule that a successor company does not acquire the liabilities and obligations of a predecessor company; thus, it cannot be found liable. ICE stated four factors should be considered: (1) continuity of ownership, (2) time lapse between dissolution and formation of the respective companies, (3) continuation of the business, and (4) the assumption of liabilities by the new entity.
Concerning ownership, Ms. Goslin was the owner of Spectrum while her husband, Mr. McKay, who was divorcing Ms. Goslin, was the owner of Personnel Plus. Although Spectrum initially listed both Ms. Goslin and Mr. McKay as owners, OCAHO accepted corporate documents filed with the state which showed Mr. McKay was not an owner of Spectrum. Second, although Spectrum curtailed its operations after the formation of Personnel Plus, it did not cease to exist as an entity and continued on a scaled-down basis. Finally, there was no evidence of assumption of liabilities by Personnel Plus although ICE stated it was seeking that information in discovery.
One fact that ICE attempted to use in its favor is that the couple’s divorce decree stated Mr. McKay would receive 55% and Ms. Goslin 45% of profits if either Spectrum or Personnel Plus was sold. However, OCAHO did not find this to constitute common ownership. Another fault cited by ICE was that for a short period of time, Spectrum and Personnel Plus shared office space. However, OCAHO did not find this evidence sufficient to find liability on behalf of Personnel Plus.
Personnel Plus argued there was not any significant transfer of assets from Spectrum to Personnel Plus, which is required before addressing a “mere continuation” analysis. ICE asserted there was a transfer of assets, but it was unable to provide proof of such, although it felt its discovery requests would provide such proof.
OCAHO concluded ICE failed to demonstrate a transfer of all or substantially all of Spectrum’s assets to Personnel Plus, which is a prerequisite to establishing corporate successor liability. Assuming arguendo there was a transfer, OCAHO found the record does not show any exception to the general rule that a successor does not acquire the liabilities of the predecessor.
The case will continue with Spectrum as the only Respondent. I will keep you informed of further developments in this case.