18-070f.v15.htm

CADDNAR

[CITE: DNR v. Cruse, 15 CADDNAR 74 (2019)]

[VOLUME 15, PAGE 74]

Cause #: 18-070F

Caption: DNR v. Cruse

Administrative Law Judge: Jensen

Attorneys: DNR (Boyko); Cruse (Koch II)

Date: June 13, 2019

[Editor’s Note: Final Order follows Findings of Fact and Conclusions of Law.]

FINDINGS OF FACT AND CONCLUSIONS OF LAW WITH FINAL ORDER

Case Summary and Jurisdiction:

1. On July 11, 2018, the Claimant, Department of Natural Resources (Department), through its Division of Forestry, by Counsel, Ihor N. Boyko, filed with the Natural Resources Commission (Commission) its “Complaint to Impose Civil Penalty for Violation of Timber Buyer Licensing Law” (Complaint) against the Respondent, Joshua P. Cruse. (Cruse).

2. The Department’s Complaint alleged that Cruse engaged in the business of buying timber while not licensed as a timber buyer or timber agent as required by Indiana Code §§ 25-36.5 et seq. and 312 IAC 14 et seq. The Department sought to have the Commission impose a civil penalty of Ten Thousand Dollars ($10,000) as authorized at Indiana Code § 25-36.5-1-2(a) and 312 IAC 14-3-1(a).

3. The Department, through its Division of Forestry is responsible for administering Indiana Code §§ 25-36.5 et seq. and 312 IAC 14 et seq. pertaining to the licensure and regulation of timber buyers and timber buyers’ agents. Indiana Code § 25-36.5-1-2, 312 IAC 14-1-2.

4. Procedurally this matter is governed by the Administrative Orders and Procedures Act, Indiana Code §§ 4-21.5 et seq. and administrative rules adopted by the Commission at 312 IAC 3 et seq. Id.

5. The Commission is the “ultimate authority” with respect to substantive matters controlled by Indiana Code §§ 14-37 et seq. and 312 IAC 29 et seq. Id.

6. Sandra L Jensen, was appointed to preside as the Administrative Law Judge (ALJ).

7. On July 13, 2018, the ALJ issued a “Notice of Prehearing Conference” scheduling the Prehearing Conference to occur on August 2, 2019, for which Cruse failed to appear.

8. ALJ Jensen issued a “Notice of Proposed Default” (Proposed Default) on August 2, 2019 and following Cruse’s failure to respond as required by 312 IAC 3-1-9(c) a “Final Order of Default” (Default Order) was issued on August 20, 2019.

9. Also on August 20, 2019, Cruse, by Counsel, Glen E. Koch, II, filed a response to the Proposed Default. The Department objected to ALJ Jensen setting aside the Default Order noting that Cruse failed to identify the basis of his claim that service was deficient. ALJ Jensen offered Cruse an opportunity to clarify his contentions with respect to service of the “Notice of Prehearing Conference”. On August 31, 2019, Cruse filed additional notice indicating that service of the “Notice of Prehearing Conference” was made at his parents’ home, where Cruse did not reside.

10. On September 6, 2018, the Default Order was withdrawn.

11. On August 24, 2018, Cruse filed his “Answer to Complaint to Impose Civil Penalty for Violations of Timber Buyer License” (Answer), wherein Cruse admits that he did not possess a timber buyers license or agents license between May 26, 2015 through August 11, 2015. In his Answer, Cruse maintains that he was not engaged in the business of buying timber as alleged by the Department.

12. Notice was provided and a Prehearing Conference was ultimately conducted on October 2, 2018. Subsequently a Status Conference was conducted on December 11, 2018 at which time a Final Status Conference and an Administrative Hearing were scheduled to be conducted. Following continuances, the Final Status Conference was ultimately conducted on February 26, 2019 and the Administrative Hearing was conducted on April 10, 2019.

13. The Commission possesses jurisdiction over the persons of the parties and the subject matter of this proceeding.

14. The Department and Cruse appeared for the Administrative Hearing by counsel, Ihor Boyko and Glen E. Koch, II, respectively.

Findings of Fact and Conclusions of Law:

15. The Department’s evidence was not contested by Cruse. Counsel for Cruse did not cross examine any Department witness. Cruse offered no objection to any testimony or exhibit offered by the Department.

16. Cruse did not appear for the Administrative Hearing and, therefore, was not present to be of assistance to his Counsel. Cruse did not present any witness testimony or exhibits in this proceeding.

17. Sergeant Jon Fennig (Fennig) of the Department’s Division of Law Enforcement and Duane McCoy (McCoy), Timber Buyer Licensing Forester for the Department’s Division of Forestry, offered testimony for the Department.

18. Fennig serves as a Training Specialist assigned to the Training Section of the Department’s Law Enforcement Division. Currently, Fennig is responsible for recruit and in-service training as well as all training requirements for the Division of Law Enforcement’s specialty teams. Fennig has served as a Conservation Officer since 2003 at various locations throughout the State of Indiana and until being assigned to his current responsibilities served as a field officer. Fennig has received specific training in “basic timber investigations”. Prior to Fennig’s career as a Conservation Officer, he was employed by a tree trimming service and was exposed to the business of harvesting timber and became familiar with equipment typically used for both tree trimming and timber harvesting.

19. McCoy has been an employee of the Department’s Division of Forestry since 1996. Over his career he has been responsible for the logger training program; assisted in the development and implementation of the timber buyers best management practices program and is also responsible for administering the timber buyer licensing program within the State of Indiana. McCoy, upon request, also appraises timber and oversees other programs of the Division of Forestry. McCoy holds both a Bachelor Degree and Master Degree in Forest Management from Oregon State University.

20. Fennig became involved in the events that precipitated this proceeding after Cruse had been ordered by another Conservation Officer, not to enter the Langan’s property. Testimony of Fennig. While on routine patrol, Fennig occasionally checked the Langan property and on August 10, 2015 he observed a skidder, a truck loaded with logs and three individuals from Morgan Hardwoods on the Langan property. Testimony of Fennig, Exhibits C, D, and E.

21. Fennig’s identification of Morgan Hardwoods as a licensed sawmill that purchases timber from timber buyers for processing and marketing was not contradicted by Cruse.

22. Morgan Hardwoods had been contacted by Cruse to purchase, skid and haul logs from the Langans’ property. Testimony of Fennig, Exhibits A & I.

23. Cruse expressed to Fennig that he was not “buying timber” he was only “cutting trees.”

24. Fennig obtained a copy of the contract entered into between the Langans and Cruse. Testimony of Fennig; Exhibit B.

25. Fennig also obtained screenshots of text messages between Cruse and a representative of Morgan Hardwoods. Testimony of Fennig; Exhibit I. The communications reveal Cruse providing Morgan Hardwoods with the Langans’ address, advising Morgan Hardwoods to “let me know what you think” and “just make it 2500 then.” Id.

26. Fennig explained that the Langans had chained and locked the gate to the property after Cruse had been ordered to stay off the property, but the chain had been cut in order for Morgan Hardwoods to gain entry. Danny Morgan, one of the three individuals from Morgan Hardwoods, told Fennig that Cruse had cut the chain. Exhibit A.

[VOLUME 15, PAGE 75]

27. Fennig testified; “When I walked the property and looked at everything it was obvious that this was not a tree removal to get dead trees or dangerous trees off the property, he was cutting them in a manner that is consistent with the harvesting of timber.” Fennig based his conclusion upon the statements from Morgan Hardwoods’ representatives and the observation that “everything was dropped whole” and some logs had already been “topped, and were ready to be loaded up.” Testimony of Fennig; Exhibits F, G, and H. The logs were cut to lengths of “sixteen to twenty feet long”, which is consistent with an effort to obtain merchantable logs. Testimony of McCoy. “S” shaped metal pieces, designed to stop logs from splitting, had been driven into the ends of some of the cut logs. Testimony of Fennig and McCoy; Exhibit H. The skidder and the particular type truck located at the site are also pieces of equipment commonly used for harvesting timber for sale. Testimony of Fennig and McCoy.

28. By comparison, tree removal involves the use of a bucket truck. For removal, limbs from the trees are removed first and then the tree is cut in “short, manageable sections and stacked … up like you would firewood.” Testimony of Fennig.

29. Cruse has not held a timber buyers or an agent’s license “since May 26, 2015.” Testimony of McCoy; Exhibit J.

30. Thirteen trees consisting of “5 Tulip Poplar, 2 Black Walnut, 2 Black Cherry, 1 White Oak, 1 Chinkapin Oak, 1 Red Oak, and 1 Hickory” had been cut on the Langan property. Testimony of McCoy; Exhibit K. The timber would have yielded “9,910 board feet with a stumpage value of $5,567.19.” Id.

31. Cruse and the Langans entered into an agreement entitled “Sustainable Hardwoods Managed Forest contract” (the Contract), which contains terms, such as “buyer”, and “seller”. Exhibit B. While the pre-printed portion of the Contract was altered in the heading and on the signature lines to strike-out “buyer” and insert “forester” and to strike-out “seller” and insert “grower”, the agreement overall retains its original language referring to the contracting parties as “buyer” and “seller”. Id. The Contract’s terms, conditions, provisions and general language is consistent with a contract for a timber harvest. Testimony of McCoy.

32. It is irrelevant whether Cruse is identified as a “buyer” or a “forester” or that the Langans are identified as a “grower” as opposed to a “seller” within the Contract.

33. The Contract states that the Langans “agree to sell, and does by the presents, sell, bargain, and grant unto the Buyer, his heirs, assigns and successors the right to harvest all usable timber” followed by the handwritten insertion that provides “Sustainable Hardwoods assumes all liability. $3,500 to be paid at the start of job.” Id. Further down the pre-printed portion of the Contract the following terms are specified:

Seller shall receive 50% of the net proceeds received from the veneer logs.

Seller shall receive 50% of the net proceeds received from grade and rotary logs.

Seller shall receive -0- % of the net proceeds received from the pallet logs by board foot measure and $ -0- per ton from the sale of pallet logs by weight.

Provisions: $7,500 for removal cost approximately. Tree value was estimated approximately $7,670

Exhibit B.

34. The language of the Contract, which is not dated, is reasonably interpreted as an agreement that Cruse, as the buyer (forester), had the right to harvest “all usable timber” from the Langans’ property described in the Contract, the value of which was estimated to be $7,670. As the sellers (growers), the Langans were to receive fifty percent of the net proceeds of veneer, grade and rotary logs received from Cruse’s harvest and a payment of $3,500 was to be made to the Langans before Cruse started the job.

35. A handwritten notation, signed by both parties, appears on the margin of the Contract and reads as follows:

Amended 7/24/2015. To include 8 additional trees to make estimated out of pocket cost (minimum) $0.

36. A second handwritten notation, signed only by Cruse appears on the margin of the Contract and reads”

$3,500 pd at start of job. $1,700 pd. 7/29/15.

37. The notations made on the margins of the Contract, along with other evidence admitted in this proceeding appears somewhat contradictory to the reasonable interpretation of the Contract.

38. The handwritten notation on the Contract, signed only by Cruse, is reasonably interpreted to reflect that the Langans paid Cruse a total of $5,200 between the date the job started, which date is not in evidence, and July 29, 2015. Exhibit B. The handwritten notation signed by both Cruse and Sara Langan on July 24, 2015 reflects and effort on the part of the Langans to minimize costs by selling 8 additional trees to Cruse. Id. Further, Jon Langan told Conservation Officer Lance LaBonte that Cruse was cutting trees to sell but started charging the Langans more money that what had been agreed upon[1]. Exhibit A. Later conversation between Fennig and Cruse reflects Cruse’s admission that he was cutting the Langans’ trees to sell “and split the profits with the Langans…” Id.

39. Cruse’s Counsel, through a closing statement argued that Cruse was not engaged in the business of buying timber, but was, instead, removing trees at the request of the Langans. Counsel argued further that in an effort to minimize the Langans’ expenses Cruse was directed to selling timber cut and apply one half of the proceeds to the cost of the forest management services provided by Cruse. Cruse’s attorney’s statement may present a reasonable explanation of the contradictions that appear between the written language of the Contract, the statements made to the Department’s Conservation Officers and the handwritten marginal notations; however, argument made by Counsel is not evidence.

40. Regardless of any other agreements existing between Cruse and the Langans, the evidence is abundantly clear the Cruse cut the trees from the Langans’ property for the purpose of sale as merchantable timber.

41. The evidence as a whole is viewed as a “sleight of hand” undertaken by Cruse to conceal the fact that he was purchasing timber from the Langans and in so doing acting as a timber buyer.

42. The evidence reveals a conscious effort on the part of Cruse to frustrate the regulatory control of the Department.

Conclusions of Law:

43. The Langans, as the owners of the property from the timber was harvested, are timber growers. 312 IAC 14-2-12.

44. A “timber buyer” is “a person engaged in the business of buying timber from timber growers for sawing into lumber, processing, or resale, but does not include a person who occasionally purchases timber for sawing or processing for his own use and not for resale.” Indiana Code § 25-36.5-1-1.

45. To be “engaged in the business of buyer timber” means either:

(1) The exertion of control over the sale of timber as demonstrated by any of the following occurrences:

(A) The purchase of timber directly or through an agent from a timber grower.

(B) The selection of which or how much timber is cut. This clause does not include a person employed by a timber grower to provide technical expertise concerning timber valuation or management.

(D) The direction of timber to a particular market.

(2) Negotiation with a timber grower for the right to purchase timber.

312 IAC 14-2-8

46. The evidence establishes that Cruse negotiated with the Langans to purchase and cut trees from the Langans’ property for resale with the intention that the net proceeds would be equally divided between Cruse and the Langans.

47. Further, the evidence demonstrates that Cruse determined to sell the logs to Morgan Hardwoods and selected Morgan Hardwoods to skid and haul the logs from the Langans’ property.

[VOLUME 15, PAGE 76]

48. Similar to the facts established in this instance, the Indiana Court of Appeals, in 2016, determined that a person who cut timber, determined where to sell it, directed it to that market and determined who would skid and haul it had “exert[] control over the sale of timber for purposes of 312 IAC 14-2-8(1).” Arnold v. State, 61 N.E.3d 1171 (Ind. App. 2016).

49. The facts proved that Cruse was acting as a timber buyer.

50. It is irrelevant to the decision that Cruse was acting as a timber buyer that the proceeds obtained from the sale of the Langans’ trees was intended to minimize the Langans’ costs for other work being provided to them by Cruse.

51. No person may “engage in the business of timber buying in the state of Indiana without a registration certificate issued by the department.” Indiana Code § 25-36.5-1-2(a).

52. Indiana Code § 25-36.51-13.5 authorizes the Department to impose a civil penalty upon a person who violates Indiana Code §§ 15-36.5 et seq.

53. Imposition of a civil penalty requires the Department’s Division of Forestry to file a complaint under Indiana Code § 4-21.5-3-8, which action was taken by the Department on July 11, 2018 to initiate this proceeding.

54. The maximum penalty that may be imposed for “engaging in business as a timber buyer without securing a timber buyer’s registration certificate” or for “engaging as an agent of a timber buyer without holding an agent’s license” is $10,000. Indiana Code § 25-36.5-1-9(b). However, the “presumptive penalty” to be assessed is $5,000 subject to consideration of expressly stated mitigating and aggravating factors. 312 IAC 14-4-3(c).

55. Mitigating factors required to be considered are stated as follows:

(1) The person assessed a civil penalty has not previously been adjudicated by the commission or a court to have violated IC 25-36.5-1 or this article.

(2) The violation appears to have been unintentional.

(3) The violation was an isolated occurrence.

(4) No timber grower has suffered harm as a result of the violation or, if harm was suffered, full restitution was tendered promptly.

(5) Significant environmental harm was not suffered as a result of the violation.

312 IAC 14-4-3(d).

56. Aggravating factors to be considered include the following:

(1) The person assessed a civil penalty has previously been adjudicated by the commission or a court to have violated IC 25-36.5-1 or this article.

(2) The violation appears to have been intentional.

(3) A pattern of violations has occurred.

(4) A timber grower has suffered harm as a result of the violation, and full restitution for the harm has not been tendered.

(5) Significant environmental harm was suffered as a result of the violation, and the harm has not been mitigated pursuant to a plan approved by the division director.

312 IAC 14-4-3(e).

57. Except as related to 312 IAC 14-4-3(d)(3) and (e)(3), the evidence of record does not address the factors set forth in subsections (d) and (e) of 312 IAC 14-4-3.

58. The fact that Cruse was, prior to May 26, 2015, licensed as a timber buyer, established that Cruse was aware of the licensure requirements of Indiana Code §§ 25-36.5 et seq.

59. Further evidence associated with the intentional nature of Cruse’s actions is his conscious effort undertaken to evade application of Indiana Code §§ 25-36.5 et seq. and 312 IAC 14 by characterizing his actions as the provision of forestry services.

60. The cunning manner by which Cruse attempted to evade required licensing and regulation presents a sufficient basis for finding that aggravating circumstances exist.

Final Order:

61. Joshua P. Cruse is hereby assessed a civil penalty in the amount of Ten Thousand Dollars ($10,000) for the intentional violation of Indiana Code §§ 25-36.5 et seq. and 312 IAC 14 et seq.

[1] The ALJ recognizes that this statement is hearsay; however, Cruse did not object to this evidence.