University of Tennessee, Knoxville Trace: Tennessee Research and Creative Exchange Tennessee Department of State, Opinions from the Administrative Procedures Division Law 1-24-2006 Commerce and Insurance vs. MEMPHIS SECURITY, INC., Respondent Follow this and additional works at: http://trace.tennessee.edu/utk_lawopinions Part of the Administrative Law Commons This Initial Order by the Administrative Judges of the Administrative Procedures Division, Tennessee Department of State, is a public document made available by the College of Law Library, and the Tennessee Department of State, Administrative Procedures Division. For more information about this public document, please contact administrative.procedures@tn.gov
BEFORE THE COMMISSIONER OF THE TENNESSEE DEPARTMENT OF COMMERCE AND INSURANCE IN THE MATTER OF: ) ) MEMPHIS SECURITY, INC. ) DOCKET NO. 12.30-070134J Respondent ) ) INITIAL ORDER This contested administrative matter was heard on July 26, 2005, and January 24, 2006, before James A. Hornsby, Administrative Judge, assigned by the Secretary of State, Administrative Procedures Division, and sitting for the Commissioner of the Tennessee Department of Commerce and Insurance in Nashville, Tennessee. Stacey L. Grooms, Staff Attorney for the Department of Commerce and Insurance, was present and represented the State. Cedric Chism was present on behalf of the Respondent, Memphis Security, Inc. He was represented by his attorney, William C. Gosnell. The matter became ready for consideration on March 1, 2006, after the parties filed Proposed Findings of Fact and Conclusions of Law. The subject of the hearing is the proposed revocation of the Respondent s license and the assessment of civil penalties for alleged violations of the State s statutes and rules governing Private Protective Services. After consideration of the entire record and the arguments of counsel, it is ORDERED that the Respondent be ASSESSED a civil penalty in the amount of Five thousand Dollars ($5,000.00) and placed on PROBATION for two years. This determination is based upon the following Findings of Fact and Conclusions of Law:
FINDINGS OF FACT 1. The Respondent, Memphis Security, Inc., was initially licensed by the Tennessee Department of Commerce and Insurance ( the Department ) as a Private Protective Service in 1996. It has been consistently licensed and doing business since that time. 2. The Respondent is a family-owned business with its main office in Memphis Tennessee. Originally, Efrem Chism was the president of the Company, and he was registered with the Department as the Respondent s qualifying agent. Efrem Chism died in December of 1999, and the Respondent began to have significant management problems which are the subject of the Department s allegations in this matter. 3. The problems began to come to light in 2001, after the Department received information that the Respondent employed security guards who were not properly registered with the Department. On October 9, 2001, a Department investigator went to the Chattanooga State Office Building, where the Respondent provided guards by contractual arrangement with the State. The investigator found that 7 of the 10 guards on duty that day did not carry proof that they were registered, or had applied for registration, with the Department. 4. Department Rules do not require a person to be registered with the Department in order to work as a security guard. The Rules do require that the person must have applied for registration, and if the person works without having an approved registration, the person must carry a copy of the registration application and proof that the application has been sent to and received by the Department. 2
5. The investigator returned to the Chattanooga State Office Building on February 13, 2004. She interviewed eight guards on duty that day and found that five were properly registered, one had been denied registration, and two had never been registered. 6. Because the law allows a security guard to work without an approved registration card, determining whether an employer is in violation of the law for allowing unregistered guards to work is complicated. The October 9, 2001, investigation in Chattanooga revealed that of the 19 guards who were employed by the Respondent to work at the Chattanooga State Office Building, 10 were not properly registered with the Department. A February 19, 2004, investigation at the Respondent s main office in Memphis, Tennessee, revealed that of approximately 48 guards employed by the Respondent, 17 were not registered with the Department. However, the proof is unclear as to whether these unregistered guards had applied for registration and were carrying proof of the application while working. If so, they were in compliance with the law. 7. Cedric Chism testified at the hearing that he had tried to get his guards registered with the Department and acknowledged having problems with registration. He blamed Department employees for his registration problems. He said the Department lost and misplaced the applications and the checks for application fees and sent information concerning registrations to Chattanooga instead of to the Memphis office. He provided certified mail receipts showing that he mailed six applications to the Department in August of 2004. 8. As a result of the inspections, other problems with the Respondent company came to light. During the February 19, 2004, inspection, the Department 3
learned that Efrem Chism was deceased. Although Mr. Chism had been dead for approximately four years, he was still listed with the Department as the Respondent s qualifying agent. The Department also learned at that time that the Respondent had been without a required liability insurance policy since August 14, 2003. The Respondent filed to change its qualifying agent in April of 2004, and its insurance was reestablished in August of 2004. 9. The Department subsequently discovered that one of the Chattanooga security guards who was not carrying proof of registration on October 2, 2001, had been arrested for assault in August of 2003. The arrest had not been reported to the Department. Cedric Chism testified that the Respondent s managing officers were not aware of the arrest. CONCLUSIONS OF LAW 1. Tennessee Code Annotated, Section 62-35-115, provides that it is unlawful for any individual to act as an armed or unarmed security guard without having first obtained the appropriate registration card from the Department of Commerce and Insurance. Rule 0780-5-2-.08(1) of the Department allows an individual to work as a security guard pending issuance or denial of a registration card if the individual has filed a sufficient application with the Department and keeps a copy of the completed application on his person while on duty. The rule, at subsection (a), sets out what the Commissioner will accept as proof that an application has been filed (return receipt for certified mail, commercial carrier, etc.) 4
2. At the hearing, Cedric Chism testified that registration applications had been sent in for the guards he employed, but he offered no corroborating proof of the applications having been sent prior to August of 2004, when he sent in six applications by certified mail. 3. The Department s rule allowing an individual to work prior to receiving a registration card may lead to occasional confusion as to when or if an application was received by the Department, but Rule 0780-5-2-.08(1)(a) specifically provides that it is the working applicant s burden to know and carry proof that an application has been sent and received by the Department. Even if there is some question about how many of the Respondent s guards were registered or had applied for registration, the proof is abundantly clear that in 2001 a substantial number of guards who were working for the Respondent were not carrying proof of their registrations or applications as required by law, and also clear that the Respondent had not taken adequate steps to correct the problem prior to 2004. 4. Tennessee Code Annotated, Section 62-25-105(1)(B), provides that a corporation applying for a license to operate a Private Protective Service shall provide the name and address of a qualifying agent for the corporation. Section 62-35-111 provides that if the qualifying agent ceases to perform his duties the licensee shall notify the Department within 30 days and obtain a new agent within three months. The Respondent s qualifying agent, Efrem Chism, died in 1999. The death was not reported to the Department, and a new agent was not appointed until April of 2004, after an inspection brought the problem to light. 5
5. Tennessee Code Annotated, Section 62-35-114, requires all licensees and employers of private security guards to retain a certification of insurance evidencing general liability coverage for the negligent acts of the principal insured and the principal s agents. The Respondent s insurance policy expired in August of 2003 and was not reestablished until August of 2004. 6. Tennessee Code Annotated, Section 62-35-130(a), provides that the Commissioner of the Tennessee Department of Commerce and Insurance may take disciplinary action against a licensee, and may suspend, revoke, or refuse to issue or renew any license. The law lists a number of violations that may be grounds for disciplinary action. The Department alleges that the Respondent violated the following sections of the statute: (1) Violated any provision of this chapter, or any rule promulgated hereunder; (2) Practiced fraud, deceit or misrepresentation; (6) Engaged in dishonorable, unethical, or unprofessional conduct of a character likely to deceive, defraud or harm the public. 7. Tennessee Code Annotated, Section 62-35-130(b), provides that in addition to or in lieu of any other lawful disciplinary action under this section, the Commissioner may assess a civil penalty up to two thousand dollars ($2,000.00) for each statute or rule violation. 8. It is DETERMINED that the State has carried its burden of proving by a preponderance of the evidence that the Respondent, by the conduct set out above, did 6
violate several provisions of the subject statutes and rules, and did engage in unprofessional conduct likely to harm the public. 9. It is more difficult to say whether the Respondent intentionally practiced fraud, deceit or misrepresentation. There is some indication of that, but also indication that the Respondent s officers were simply not good managers. It is a close call, and since the State has the burden of proof, it is DETERMINED that the State did not prove that the Respondent committed fraud, deceit or misrepresentation. 10. However, the inability to manage the company is certainly bad enough. The Respondent provided no proof that it had any procedures in place to properly manage the company or its employees in 2001, and no proof that it has any formal procedures in place today. The proof indicates that the Respondent s managing officers were largely unfamiliar with the law governing the business and unaware of what was going on with its employees. The public s need to have reputable, well-managed persons as security guards is obvious, and the need for an employing company to have liability insurance and a properly identified qualifying agent is equally obvious. The Respondent s managing officers have a duty to establish procedures that will keep them informed as problems arise. 11. It is ORDERED that the Respondent be, and is hereby, assessed civil penalties in the amount of $2,000.00 for failure to ensure that its employee security guards were working with proper proof of registration or application, $1,000.00 for failure to have proper liability insurance, $1,000.00 for failure to have a properly identified qualifying agent, and $1,000.00 for failure to notify the Department that an 7
employee guard had been arrested for assault. Total penalties ASSESSED against the Respondent are $5,000.00. 12. The Department recommends that that the Respondent s license be revoked or suspended. The proof suggests that the Respondent s business is much improved as a result of the Department s investigations. If things had not improved, the Respondent s license would be suspended or revoked at this time because there is a danger to the public for security guards to be working under the circumstances that previously existed. Because of the improvement, it is DETERMINED that the Respondent s license should not be revoked or suspended. 13. However, because the past violations are so egregious, and because the degree of control the Respondent s managing officers have over the business and its employees is still unclear, it is ORDERED that the Respondent s license be, and is hereby, placed under PROBATION for a period of two years from the date of this order. If the Department finds problems with the Respondent s business practices during that time, further penalties up to and including revocation of the Respondent s license may be assessed. This Initial Order entered and effective this 10 th day of April 2006. James A. Hornsby Administrative Judge 8
Filed in the Administrative Procedures Division, Office of the Secretary of State This10th day of April, 2006. Charles C. Sullivan II, Director Administrative Procedures Division 9