JON E. DEINES, Employee, v. PATRICK WINKLER d/b/a CUSTOM LOG BLDGS., UNINSURED, Employer, and BLACK BEAR HOMES, INC., and ACUITY MUT. INS. CO., Employer-Insurer/Appellants, and SMDC HEALTH SYS., Intervenor, and the SPECIAL COMP. FUND.
WORKERS= COMPENSATION COURT OF APPEALS
JUNE 6, 2005
EMPLOYMENT RELATIONSHIP - GENERAL CONTRACTOR; INSURANCE - COVERAGE. Where there was no evidence that the parties ever contemplated the possibility that the house that was being built would ever become the personal home of the owner of the insured entity or was ever intended as anything other than a business investment, an investment in which both the insured entity and the uninsured entity were collaborating, and where, as a collaborator in that investment, the insured entity hadBand acted onBvarious contractor-type responsibilities, including the furnishing of the property on which the house was being built for resale, the compensation judge=s conclusion that the insured entity was a general contractor liable for reimbursing the Special Compensation Fund for its payment of benefits in the stead of the uninsured entity/employer was not clearly erroneous and unsupported by substantial evidence.
CONTRIBUTION & REIMBURSEMENT; PRACTICE & PROCEDURE - MATTERS AT ISSUE; PRACTICE & PROCEDURE - REMAND. Pursuant to Minn. Stat. ' 176.371, A[a]ll questions of fact and law submitted to a compensation judge at the hearing shall be disposed of,@ and, where it was uncontested that among the issues to be addressed by the compensation judge was the insured general contractor=s entitlement to reimbursement from the uninsured subcontractor/employer for the former=s reimbursement to the Special Compensation Fund for benefits paid under a temporary order, the compensation judge did not have discretion to avoid deciding the issue, and the matter was remanded to the judge for appropriate findings and order based on the existing record.
Affirmed in part and remanded in part.
Determined By: Pederson, J., Johnson, C. J., and Wilson, J.
Compensation Judge: Gregory A. Bonovetz
Attorneys: David R. Vail, Soderberg & Vail, Minneapolis, MN, for Respondent Employee. Thomas L. Cummings, Jardine Logan & O=Brien, Lake Elmo, MN, for Appellants Black Bear Homes, Inc., and Acuity Mutual Insurance Company. James W. Haskell, Cann, Haskell, D=Albani & Schueppert, Bemidji, MN, for Respondent Custom Log Buildings, Uninsured. John R. Baumgarth, Duluth, MN, for Respondent Special Compensation Fund.
WILLIAM R. PEDERSON, Judge
Employer Black Bear Homes, Inc., and its insurer appeal from the compensation judge's conclusion that Black Bear Homes, Inc., was a general contractor liable for reimbursement to the Special Compensation Fund for the latter=s payment of compensation for an uninsured subcontractor, and from the judge=s refusal, in the alternative, to order reimbursement from uninsured employer Custom Log Buildings to Black Bear Homes, Inc., for the latter=s reimbursement to the Special Compensation Fund. We affirm the finding that Black Bear Homes, Inc., is liable as a general contractor, and we remand for findings and an order the issue of reimbursement from Custom Log Buildings to Black Bear Homes, Inc.
In the summer of 2001, Jon E. Deines [the employee] was hired by Patrick Winkler d/b/a Custom Log Builders [Custom Log Builders], to perform work unspecified in the record. In April of 2002, Mr. Winkler met with Steven Gilbertson, apparently the president and principal owner of Black Bear Homes, Inc. [Black Bear Homes]. The meeting was to discuss the prospect of Mr. Winkler=s working as supervisor of what came to be called the APike Bay Project@ - - the building of a log home under Mr. Winkler=s supervision on property located by Mr. Winkler but purchased and owned by Black Bear Homes, for eventual sale on the real estate market. It was evidently to be Mr. Winkler=s responsibility to oversee nearly all aspects of the project, including pulling the required permits, applying for the septic system, signing real estate documents, hiring and scheduling workers and subcontractors, and confirming arrival of those entities and completion of their work. For his work on the project Mr. Winkler would be paid $30,000 for his own and his workers= carpentry labor and, for his oversight of the project, an additional percentage of the eventual profits, a provision later changed to a flat sum of $15,000. Lumber and log building materials would be obtained from the Itasca Lumber Company and the Kelliher Log Company respectively, both companies owned by Mr. Gilbertson, and would be paid for directly by Black Bear Homes. In the course of these planning discussions, it was also acknowledged that any employees brought in by Mr. Winkler to work on the project would need to be covered by workers= compensation insurance, but the issue was apparently left open-ended.
In May of 2002, about a month after the planning session, Mr. Winkler assigned the employee to work as a carpenter/foreman on the Pike Bay Project. The employee=s accepted practice on the project was to keep track of his own and his crew=s work hours and to present those hours to Mr. Winkler, who paid him in cash. At no time either prior to or after the beginning of the project was the employee ever interviewed by Mr. Gilbertson, at no time was he ever told by Mr. Gilbertson that he was an employee of Black Bear Homes, at no time was he ever paid by Mr. Gilbertson or any other agent of Black Bear Homes, and at no time on the project was he ever directed by Mr. Gilbertson. On July 26, 2002, the employee apparently fractured his low back when he fell from a wall in the course of his work on the Pike Bay Project. At the time of his injury, the employee was forty-eight years old and earning a weekly wage of $720.00, Black Bear Homes was insured against workers= compensation liability by Acuity Mutual Insurance Company, and Custom Log Builders was uninsured against workers= compensation liability. It is uncontested, pursuant to unappealed Findings 12, 14, and 15 of the compensation judge in this case, that, at the time of his work injury, the employee was an employee solely of Patrick Winkler d/b/a Custom Log Buildings and that Black Bear Homes was not a Ajoint employer@ for purposes of Minnesota workers= compensation law.
Subsequent to the employee=s injury, a First Report of Injury was completed by Mr. Gilbertson=s secretary, Tammy Elich, indicating that the employee=s employer was Black Bear Homes, that his supervisor was Mr. Gilbertson, and that the insurer on the case was Acuity Mutual Insurance Company. Eventually, however, on August 7, 2002, Acuity Mutual denied liability for the injury, on grounds that the employee was Anot an employee of our insured, Black Bear Homes, Inc.@ but was instead Aa subcontractor working for a company by the name of Custom Log Buildings.@ On November 20, 2002, the employee filed a claim petition, alleging against Custom Log Buildings and the Special Compensation Fund entitlement to temporary total disability benefits continuing from July 26, 2002, to payment of various medical expenses, and to a rehabilitation consultation, all consequent to his work injury on July 26, 2002. On May 12, 2003, the Special Compensation Fund petitioned for a temporary order, and on May 15, 2003, Compensation Judge Gregory Bonovetz issued a temporary order, pursuant to which the Special Compensation Fund eventually paid to the employee temporary total disability benefits from July 26, 2002, through the date of hearing in this matter, together with various other expenses to or on behalf of the employee. The parties have stipulated that the employee was entitled to all benefits paid to or on his behalf.
On July 15, 2003, the Special Compensation Fund filed a petition for contribution and reimbursement from Black Bear Homes, claiming entitlement to full reimbursement for benefits that it had paid under the temporary order of May 15, 2003, and to a 65% penalty pursuant to Minn. Stat. ' 176.183. The matter came on for hearing on May 13, 2004. Issues at hearing included the following: (1) whether, at the time of the employee=s work injury, Custom Log Buildings was a subcontractor of Black Bear Homes; (2) whether the Special Compensation Fund, having paid benefits under provisions of the May 15, 2003, temporary order, was entitled to reimbursement from Custom Log Buildings and/or from Black Bear Homes and its insurer; and (3) whether, in the event that it should be determined that the employee was an employee of Custom Log Buildings and that Custom Log Buildings was a subcontractor of Black Bear Homes and that Black Bear Homes is liable for reimbursement to the Special Compensation Fund, the compensation judge had Ajurisdiction@ then to direct that Custom Log Buildings reimburse Black Bear Homes and its insurer for amounts that they must reimburse to the Special Compensation Fund.
At the start of the hearing, counsel for the Special Compensation Fund read into the record a stipulation of the parties that in part identified the issues that were to be addressed by the compensation judge. These included the question as to whether, Aif the Special Compensation Fund is entitled to reimbursement from Black Bear Homes, Inc. and Acuity pursuant to Minnesota Statute Section 176.215, then are Black Bear Homes, Inc. and Acuity entitled to reimbursement from Patrick Winkler?@ Although counsel for Custom Log Buildings subsequently indicated that he Adidn=t appreciate@ the inclusion of the issues in the stipulation, all parties eventually agreed that the entitlement of Black Bear Homes and Acuity to reimbursement from Custom Log Buildings was among the issues to be decided by the judge.
Also at hearing, Mr. Gilbertson testified in part that, in previous projects with Mr. Winkler, when they had worked, for example, for a private organization, Black Bear Homes had been the general contractor and Custom Log Buildings had been a subcontractor under it. In the course of his testimony, Mr. Gilbertson also confirmed that he had earlier testified by deposition that it was his view Athat Mr. Winkler and his employees were subcontractors on [the Pike Pay Project], just as the plumber and the electrician and the rest of those folks.@ In that earlier deposition, Mr. Gilbertson had also testified that, whenever Mr. Winkler was working for him, including specifically the Pike Bay Project, A[Mr. Gilbertson is] the general contractor. On the projects that he is doing for me, I am the general contractor and he=s contracted to do the labor.@ Also in that deposition, Mr. Gilbertson had testified that, at the time of the Pike Bay Project planning session, he was aware that Custom Log Buildings did not currently carry workers= compensation insurance on its employees, and he admitted that, at the time that the project moved forward to the actual construction phase, he did not revisit earlier discussions of the necessity of such coverage - - that he, in fact, Adropped the ball.@ Patrick Winkler also testified at the hearing, in part that, on July 26, 2002, the employee herein was in fact an employee of Patrick Winkler d/b/a Custom Log Buildings but that he, Patrick Winkler, was under the impression that both he and his own employees were also employees of Black Bear Homes. He testified also that any workers or subcontractors whom he intended to hire to work on the Pike Bay Project had to be approved by Mr. Gilbertson and that, at one point, Mr. Gilbertson, discontent with the progress and costs of the Pike Bay Project, sent an assistant of his at Black Bear Homes, Pete Martinetto, to the Pike Bay Project construction site to Akick start@ the project.
By findings and order filed August 30, 2004, the compensation judge concluded in part that, although no written contract existed, Black Bear Homes was a general contractor and Custom Log Buildings was a subcontractor of that general contractor. Then the judge concluded that Black Bear Homes, as the general contractor, together with its insurer, was liable under Minn. Stat. ' 176.215 for payment of all compensation due to the employee, in that the employee=s subcontractor employer, Custom Log Buildings, had failed to provide workers= compensation coverage. The judge concluded further that, while Minn. Stat. ' 176.215, subd. 3, does provide that A[t]he workers= compensation division may determine the respective liabilities of persons under this section,@ any statutory authority for the judge to order the reimbursement from Custom Log Buildings to Black Bear Homes that might be therein implicit was permissive rather than obligatory and that Aany claims which Black Bear Homes . . . may have against . . . Custom Log Buildings are more properly addressed before a Court of general jurisdiction.@ Black Bear Homes and its insurer appeal.
STANDARD OF REVIEW
In reviewing cases on appeal, the Workers= Compensation Court of Appeals must determine whether Athe findings of fact and order [are] clearly erroneous and unsupported by substantial evidence in view of the entire record as submitted.@ Minn. Stat. ' 176.421, subd. 1 (1992). Substantial evidence supports the findings if, in the context of the entire record, Athey are supported by evidence that a reasonable mind might accept as adequate.@ Hengemuhle v. Long Prairie Jaycees, 358 N.W.2d 54, 59, 37 W.C.D. 235, 239 (Minn. 1984). Where evidence conflicts or more than one inference may reasonably be drawn from the evidence, the findings are to be affirmed. Id. at 60, 37 W.C.D. at 240. Similarly, A[f]actfindings are clearly erroneous only if the reviewing court on the entire evidence is left with a definite and firm conviction that a mistake has been committed.@ Northern States Power Co. v. Lyon Food Prods., Inc., 304 Minn. 196, 201, 229 N.W.2d 521, 524 (1975). Findings of fact should not be disturbed, even though the reviewing court might disagree with them, Aunless they are clearly erroneous in the sense that they are manifestly contrary to the weight of the evidence or not reasonably supported by the evidence as a whole.@ Id.
1. Black Bear Homes= General Contractor Status
At Findings 17 and 18, the compensation judge concluded that, for purposes of this case, Black Bear Homes was a general contractor liable for payment of compensation in place of an uninsured subcontractor, pursuant to Minn. Stat. ' 176.215. Citing case law precedents, Black Bear Homes and its insurer contend that the judge erred in this conclusion as a matter of law, in that Black Bear Homes was the owner of the construction site and was not under contract with any third party customer. Quoting from the supreme court=s quotation of Professor Larson in that court=s decision in Weme v. Lastavica, they argue that general contractor status does not apply Ato >owners,= entrepreneurs, agents, and governments of whom it could not be said that they had first taken on contractual obligations with a third party, and had then subcontracted out all or part of these obligations.@ Quoting Weme v. Lastivica, 458 N.W.2d 404, 406, 43 W.C.D. 157, 160 (Minn. 1990), quoting 1C A. Larson, The Law of Workmen=s Compensation' 49.13. They go on to argue that this contract-with-a-third-party requirement has since been reiterated in this court=s decision in Trent v. Transport Corporation of America. See Trent v. Transport Corporation of America, 56 W.C.D. 207 (W.C.C.A. 1996). They argue that Athe compensation judge committed an error of law by relying upon Moorhead v. Grassle, [254 Minn. 103,] 93 N.W.2d 678[, 20 W.C.D. 305] (Minn. 1958)[] as precedent to support his finding,@ that such reliance was misplaced because (1) that case was decided prior to enactment of the Special Compensation Fund, (2) it was decided prior to statutory repeal of the doctrine of Aliberal construction@ in favor of injured employees, and (3) its value as precedent is limited by the Weme and Trent decisions. We are not persuaded.
To begin with, we would note that, although he does make reference to the Moorhead case in his memorandum, there is no evidence in his decision that the compensation judge relied importantly or even at all on that case to support his decision. Indeed, the judge appears to expressly acknowledge that, A[a]s [Black Bear Homes] argued in [its] brief, the precedence found in Moorhead vs. Grassle, 20 WCD 305 is no longer applicable since that decision was issued prior to the creation of the Special Compensation Fund.@ The judge=s principal rationale appears instead to be based on a reasonable and thorough assessment of the relationship between Mr. Gilbertson and Mr. Winkler and on a strict reading of current statutory provisions. Having made several detailed findings on the complex business relationship between those two persons and their two companies, the judge concluded that Black Bear Homes was a contractor in the Pike Pay Project. Further, having noted both the fact of the employee=s work injury and the respective insurance statuses of the two contractors, the judge stated,
In such a situation the legislature has specifically provided that where a subcontractor fails to carry workers= compensation insurance on his employees the general contractor shall then step into the shoes of that subcontractor and the general contractor and its insurer shall be responsible. The mere fact that there is now an entity, the Special Compensation Fund, which can immediately serve as a stop gap in order to provide certain basic benefits, does not remove the initial statutory or policy reason behind Minn. Stat. ' 176.215.
We find these conclusions by the judge to be factually reasonable and based on a proper construction of the statute, aside from any reference to the Moorhead case.
Nor do we find the Weme and Trent cases dispositively contrary to the judge=s rationale. The mere facts that Black Bear Homes owned the property on which the Pike Bay Project was located and that no buyer was yet under contract to purchase the log house that was being built by the parties does not in any way change the clear implication that this was a business venture between two parties with business interests in the project. There is no evidence that the parties ever contemplated the possibility that the house that was being built would ever become the personal home of Mr. Gilbertson or was ever intended as anything other than a business investment, an investment in which the parties were collaborating. As a collaborator in that business investment, Black Bear Homes had - - and acted on - - various contractor-type responsibilities, including the furnishing of the property on which the house was being built for resale. We find the compensation judge=s conclusion to that effect not unreasonable, and therefore we affirm the judge=s conclusion that Black Bear Homes was a general contractor liable for reimbursement to the Special Compensation Fund for benefits that it paid under the temporary order of May 15, 2003. See Hengemuhle, 358 N.W.2d at 59, 37 W.C.D. at 239.
2. Reimbursement from Custom Log Buildings
At Finding 22, having found Black Bear Homes to be a liable general contractor in this case, the compensation judge also declined Black Bear Homes= request for an order of reimbursement against Patrick Winkler d/b/a Custom Log Buildings, for Black Bear Homes= reimbursement to the Special Compensation Fund for its payment of benefits to the employee under the Temporary Order of May 15, 2003. The judge acknowledges in that same finding that the Minnesota statute provides that A[t]he workers= compensation division may determine the respective liabilities of persons under this section.@ Finding 22, quoting Minn. Stat. ' 176.215, subd. 3 (emphasis added in the finding). The judge goes on to find also, however, that,
[B]ecause of the quite apparent Ainformality@ of the relationship between Patrick Winkler, Patrick Winkler dba Custom Log Buildings, Steven Gilbertson and/or Black Bear Homes, Inc., the Court specifically finds that any claims which Black Bear Homes, Inc. and its insurer, Acuity Mutual Insurance Company, may have against Patrick Winkler, dba Custom Log Buildings are more properly addressed before a Court of general jurisdiction.
Black Bear Homes and its insurer contend that the judge abused his discretion by failing to decide the issue, arguing that the issue should be remanded back to the compensation judge A[i]n the interest of judicial expedience and economy.@ We agree that the issue should be remanded.
Subdivision 1 of Minnesota Statutes section 176.215 provides that, A[w]here a subcontractor fails to comply with this chapter, the general contractor, or intermediate contractor, or subcontractor is liable for payment of all compensation due an employee of a subsequent subcontractor who engaged in work upon the subject matter of the contract.@ Minn. Stat. ' 176.215, subd. 1. In this case, at the time of the employee=s injury, Custom Log Buildings was ostensibly the injured employee=s employer, but it had failed to comply with the insurance provisions of the chapter, thereby transferring whatever liability it had for benefits under the statute to any entity found to be Athe general contractor, or intermediate contractor, or subcontractor.@ With Black Bear Homes denying liability as a general contractor, the Special Compensation Fund became also potentially liable for payment of benefits, pursuant to Minnesota Statutes section 176.183, subdivision 1, which provides that the Special Compensation Fund shall pay benefits when the injured employee=s employer is uninsured. That same subdivision provides also, however, that A[t]here shall be no payment from [the Special Compensation Fund] if there is liability for the injury under the provisions of section 176.215, by an insurer or self-insurer.@ Pending determination of whether Black Bear Homes or the Special Compensation Fund was liable for payment of benefits otherwise owed by Custom Log Buildings, the Special Compensation Fund was ordered to pay benefits provisionally under a temporary order. Black Bear Homes was ultimately found liable under the statute as a general contractor, and the compensation judge ordered it to reimburse the Special Compensation Fund for benefits that it had paid under the temporary order.
Subdivision 2 of Minnesota Statutes section 176.215 provides that A[a] person who has paid compensation under this section is subrogated to the rights of the injured employee against the employee=s immediate employer, or any person whose liability for compensation payment to the employee is prior to the liability of the person who paid it.@ Minn. Stat. ' 176.215, subd. 2. Respondent Custom Log Buildings argues first that Black Bear Homes and its insurer Acannot utilize that statute in these proceedings. They have not yet paid anything to the employee@ (emphasis in original). We conclude, however, that, for purposes of this provision, the legal obligation to reimburse the Special Compensation Fund for its payment to the employee is tantamount to having paid the employee. Custom Log Homes argues also that subdivision 3 of the same statute provides that the Workers= Compensation Division merely Amay@ determine the respective liabilities of persons under the section and that A[t]his obviously means that it may, but is not required to@ do so (emphasis in original). It is this subdivision that the compensation judge himself cited in declining to address the issue. We conclude, however, that, whether or not subdivision 3 of section 176.215 might otherwise be applicable, and we=re not sure that it is, the compensation judge in this case was affirmatively obligated to decide the issue, given the uncontested fact that Black Bear Homes and Acuity=s entitlement to reimbursement from Custom Log Buildings was clearly at issue before him and given the statutory requirement that A[a]ll questions of fact and law submitted to a compensation judge at the hearing shall be disposed of.@ Minn. Stat. ' 176.371. Therefore, we remand the issue to the compensation judge for findings and order, based on the existing record, on Black Bear Homes and Acuity=s entitlement to reimbursement from Custom Log Homes for amounts reimbursed to the Special Compensation Fund for benefits paid to the employee.
 Subsequent to the work injury here at issue.
 See Minn. Stat. ' 176.071.
 As characterized by the judge in his eventual findings and order.
 In Moorhead, the owners of a hotel were held to be, for purposes of Minn. Stat. ' 176.215, subd. 1, contractors liable for the injury of an employee of an uninsured party that was permitted to perform for the hotel the razing of a building on property adjacent to and owned by the hotel, in exchange for salvage rights.
 See Minn. Stat. ' 176.011, subd. 6.