OCAHO finds Two Stables did not Win, Place or Show in Race to Achieve I-9 Compliance

Recently, the Office of the Chief Administrative Hearing Officer (OCAHO) has issued several decisions, including U.S. v. Romans Racing Stables and U.S. v. Mott Thoroughbred Stables. Inc., involving employer I-9 compliance failures in the horse racing industry.

In U.S. v. Romans Racing Stables, Inc., 11 OCAHO no. 1230 (2014), the Administrative Law Judge (ALJ) of OCAHO found the employer committed 161 I-9 violations and assessed a penalty of $76,100. On October 23, 2014, the Chief Administrative Hearing Officer (CAHO) affirmed the ALJ’s decision. In the second case, U.S. v. Mott Thoroughbred Stables, Inc., 11 OCAHO no. 1223 (2014), the OCAHO ALJ found Mott committed 81 violations and assessed a fine of $33,500. OCAHO determined the Mott case was a “precedent” decision.

Romans Racing Stables

Romans Racing Stables (RRS) is a small closely-held S corporation, which moves its employees and horses to multiple racetracks in Florida, New York and Kentucky, according to the racing season.

Immigration and Customs Enforcement (ICE) sought a penalty of $150,535 based upon RRS’s failure to prepare an I-9 form for 117 employees/former employees and 44 employees/former employees for whom it did not ensure proper completion of Section 1 of the I-9 form. Since there were 166 workers employed in the applicable period, the baseline penalty was set at $935 per violation. ICE mitigated the penalty by 10% due to the small size of RRS and its lack of bad faith, but aggravated the penalties by 10% due to the seriousness of the violations and employment of a “substantial number” of unauthorized workers.

RRS challenged the amount of the penalties due to its financial condition and its inability to pay the fine assessed, there was no proof of employees’ unauthorized status, it acted in good faith, and the penalty was excessive in comparison with other cases involving small businesses.

ICE argued that RRS, as a closely-held S-corporation, passed its income to owner, Dale Romans, and he failed to provide his individual tax returns. Thus, there was no way to consider the fine’s financial impact on the company. Concerning the inability to pay, OCAHO has repeatedly stated one’s ability to pay is a “matter of equity.” The CAHO agreed with the ALJ that the records submitted were insufficient to “form a clear picture of the company’s real current financial status.” RRS had the burden to present sufficient evidence of its inability to pay and OCAHO found RRS failed to meet its burden.

The ALJ and CAHO found RRS’s argument concerning its good faith was baseless because ICE mitigated the initial penalty assessment by five percent on the basis of good faith.  Thus, RRS’s good faith was properly considered.

The ALJ of OCAHO held that ICE failed to prove the employment of a substantial number of unauthorized workers. Rather, it merely proved there were a number of individuals on the Notice of Suspect Documents, which was not proof of their unauthorized status. ICE did not offer any further evidence of the individuals’ unauthorized status.

Concerning its final argument that the penalties were excessive in comparison to other similar cases, OCAHO has repeatedly held the final penalty in each case depends on the totality of the facts and circumstances of that case.  Thus, comparisons of other cases “do not mandate assessment of an identical penalty in another case.”

In its final analysis, OCAHO found the penalties to be “unduly harsh” and the Small Business Regulating Flexibility Act favored a general policy of leniency for small businesses.  Thus, OCAHO assessed a penalty of $500 each for the 117 violations for failure to prepare an I-9 form and $400 each for the remaining violations for a total of $76,100.

Mott Thoroughbred Stables

Mott Thoroughbred Stables is a New York-based Subchapter S corporation that boards and trains thoroughbred horses at various racetracks.  William Mott owns 95 percent of the stock.

ICE alleged Mott failed to prepare I-9 forms for six individuals and failed to ensure proper completion of the I-9 forms for 70 individuals. ICE sought a penalty of $68,161.50 based upon a baseline fine amount of $935 per violation.  The baseline penalty was based upon 81 violations for 134 workers.  ICE mitigated the penalties by 10 percent based on the small size of the company and the absence of bad faith, while it aggravated the penalties by 10 percent based on the employment of unauthorized workers and the seriousness of the violations.

Mott argued it was unable to pay, citing the fact that it has failed to “turn a profit” in the past three years. ICE responded that Mr. Mott received at least $500,000 in compensation in 2011 and the penalty amounts to less than one-half of one percent of the company’s assets.  OCAHO determined it was difficult to form a clear picture of the company’s real financial status.  Furthermore, it is well established that a corporation’s ability to demonstrate tax losses does not necessarily establish a company’s poor financial condition or its inability to pay.

OCAHO concluded, without consideration of the company’s ability to pay, ICE’s penalties appeared “unduly harsh” and “disproportionate” to the violations, especially related to the company’s failure to ensure the proper completion of the I-9 forms.  Based upon these considerations, OCAHO assessed $500 each for the six failures to prepare I-9 violations and $400 each for the remaining violations for a total of $33,500. Interestingly, OCAHO stated the parties were free to establish a payment schedule.

Lessons

There are three lessons/takeaways from these decisions:

  1. Both stables received approximately a 50 percent reduction in penalties based largely on issues of fairness (namely, that the assessed fines were unduly harsh in light of the record).
  2. ICE continues to assert that individuals are unauthorized to work by being placed on the Notice of Suspect Documents, even though the Notice states that individuals should not be fired without giving them an opportunity to provide other documentation.
  3. OCAHO gave Mott the opportunity to reach an agreement with ICE for a payment schedule, a move which further reinforces the ALJ’s attempts to mitigate the impact of penalties on small employers.