MICHAEL FLORES, Employee, v. MAXINE L. SHAW d/b/a RYAN ROOFING & CONSTR. OF WOODBURY, INC., UNINSURED, Employer, and ADAM HANEY, UNINSURED, Employer, and CHARLES HAMER, UNINSURED, Employer/Petitioner, and GROUP HEALTH PLAN, REGIONS HOSP., MINNESOTA DEP’T OF HUMAN SERVS./BRS, and WASHINGTON COUNTY CMTY. SERVS. DEP’T, Intervenors, and SPECIAL COMP. FUND.
WORKERS’ COMPENSATION COURT OF APPEALS
FEBRUARY 1, 2011
PRACTICE & PROCEDURE - DEFAULT AWARD. Where the petitioner, an alleged uninsured employer, has shown that he has a reasonable case on the merits and a reasonable excuse for his failure to act, that he acted with due diligence after notice of the entry of judgment, and that there would be no substantial prejudice to the Special Compensation Fund if the petition to set aside the default judgment is granted, the petition is granted.
Petition to vacate default award granted.
Determined by: Rykken, J., Wilson, J., and Stofferahn, J.
Compensation Judge: Harold W. Schultz, II
Attorneys: Mark D. Luther, Mark D. Luther Law Office, St. Louis Park, MN, for the Petitioner. Thaddeus V. Jude, Dep’t of Labor & Indus., St. Paul, MN, for the Special Compensation Fund.
MIRIAM P. RYKKEN, Judge
The petitioner, Charles Hamer, applies to set aside a default judgment. We grant the petition.
On December 8, 2008, Michael Flores, the employee, sustained right hip and femur injuries after falling from a roof while working as a roofer at a job site where Maxine Shaw, doing business as Ryan Roofing & Construction of Woodbury, Inc., (Ryan Roofing) was acting as the general contractor. Ryan Roofing was uninsured for workers’ compensation liability. The employee filed a claim petition, but initially and incorrectly named a different employer not involved in this litigation. The employee’s claim was amended to name Ryan Roofing as the employer and the Special Compensation Fund (the Fund) as the insurer. The Fund filed a petition for reimbursement against Maxine Shaw and/or Ryan Roofing, the general contractor. The Fund later amended the petition to include Adam Haney and Charles Hamer, alleged to have been subcontractors for the roofing job, as uninsured employers. The employee later amended his claim petition to include Mr. Haney and Mr. Hamer. Neither Mr. Haney nor Mr. Hamer filed an answer to the Fund’s petition or to the employee’s claim petition.
A consolidated hearing on the employee’s claim and the Fund’s petition for reimbursement was scheduled for March 3, 2010. Before the hearing, however, the Fund settled with the employee on a full, final, and complete basis for a total of $81,250.00. Under the terms of the settlement, the Fund paid certain amounts to the intervenors and agreed to allow the employee’s claim to remain open for payment, with some exceptions, of future medical expenses related to his work injury. The stipulation related to the settlement of the employee’s claim was finalized after the evidentiary hearing.
According to the Fund, it reached settlement with the general contractor, Ryan Roofing, on the Fund’s petition for reimbursement, and so Ryan Roofing did not participate in the hearing. The terms of that agreement are unknown, as the file available for this court’s review contained no information about the settlement nor a copy of a related stipulation for settlement.
The hearing was held on March 3, 2010, with the Special Compensation Fund as the only party appearing. At the hearing, the Fund claimed reimbursement of $105,932.49 from the uninsured subcontractors; that amount was based on the payments made pursuant to the Fund’s settlement with the employee and intervenors, plus a 65 percent penalty calculated on those benefits. There is no record of the hearing other than the Findings and Order served and filed May 12, 2010; the file available for review by this court includes no exhibits that may have been provided to the compensation judge nor a transcript of the discussions held or arguments presented at the hearing.
The compensation judge addressed the following issues at the hearing: whether Mr. Flores was an employee on the date of injury, whether he had sustained a work-related injury on that day, which party was the employer, and whether the payments made under the stipulation for settlement were reasonable and consistent with the terms of the Minnesota Workers’ Compensation Act. The compensation judge made several findings, including that the employee was employed by Adam Haney and Charles Hamer on December 8, 2008, with Ryan Roofing purportedly acting as general contractor; that he sustained a work-related injury on that date; and that he had required medical treatment and had lost wages as a result of that injury. The judge also found that the general contractor and the subcontractors for the roofing job were uninsured for workers’ compensation liability and were not authorized self-insurers, and that the employee had been employed by the subcontractors, Adam Haney and Charles Hamer. The compensation judge stated that the settlement reached between the Special Compensation Fund and the employee was reasonable, and that the $105,932.49 claimed by the Fund as reimbursement was also reasonable. The compensation judge ordered Adam Haney and Charles Hamer to pay the Fund that amount, in addition to the Fund’s actual and necessary to-date disbursements and future actual and necessary disbursements. The compensation judge ordered that the award constituted a lien in favor of the Fund on all property of the uninsured employers. Minn. Stat. §§ 183 and 514.67; Minn. Stat. ch. 270A.
Charles Hamer, petitioner, learned of the judgment against him when he was served with a copy of the Findings and Order, and consulted an attorney. He then requested an extension of time to appeal, which was granted. On July 12, 2010, within the extended appeal period, the employee filed a petition to set aside the findings and order instead of an appeal.
The petitioner argues that he has shown cause to set aside the default judgment against him by satisfying the factors generally considered when determining whether to vacate a default judgment under the Minnesota Rules of Civil Procedure. See Minn. R. 60.02 (a)(f). Under the Minnesota workers’ compensation act, an adverse party must serve and file an answer to a petition within 20 days after its service. Minn. Stat. § 176.321, subd. 1. In cases involving a single employer and insurer, “if an adverse party fails to file and serve an answer or obtain an extension from the commissioner or the petitioner,” Minn. Stat. § 176.331 provides that “the commissioner shall refer the matter to the chief administrative law judge for an immediate hearing and prompt award or other order.” This portion of the statute did not apply in this case since the matter involved multiple employers, and the matter therefore continued through the regular scheduling process for hearings.
At the time of the hearing, the Fund and Ryan Roofing, the general contractor, had settled the general contractor’s portion of the Fund’s claim for reimbursement, and the two subcontractors, Mr. Hamer and Mr. Haney, had not answered the claim petition or petition for contribution and/or reimbursement, nor had they appeared at the hearing. The Fund was the only party to appear at the hearing. A hearing held where a party does not answer or appear is in effect a default proceeding. See Ford v. Cal Inland, Inc., slip op. (W.C.C.A. May 24, 1993) (proceeding where an answer is not filed under Minn. Stat. § 176.331 is in effect a default proceeding). In a default hearing, a compensation judge may “require proof of any of the allegations of the petition, and may determine the issues in accordance with the evidence presented.” Coners v. Wayne Pankonin, slip op. (W.C.C.A. Oct. 27, 1989) (citing Minn. Stat. § 176.321, subd. 2, which provides that an opposing party’s failure to deny a fact does not preclude the compensation judge from requiring proof of that fact).
“In determining whether to grant an application to set aside a default award, a Minnesota workers’ compensation court exercises judicial discretion of the same kind a trial court exercises in determining whether to vacate a default judgment pursuant to Rule 60.02 of the Minnesota Rules of Civil Procedure.” Martin v. Red Owl Stores, slip op. (W.C.C.A. June 28, 2000) (citing Betts v. M. I. L. Realty Corp., 269 N.W.2d 42, 45, 31 W.C.D. 40, 44 (Minn. 1978) and Kosloski v. Jones, 295 Minn. 173, 179, 203 N.W.2d 401, 403 (1972)). A party seeking relief from a default judgment must show (1) a reasonable case on the merits, (2) a reasonable excuse for the failure to act, (3) that it acted with due diligence after notice of the entry of judgment, and (4) that there would be no substantial prejudice to the opposing party if the motion to vacate is granted. Finden v. Klass, 268 Minn. 268, 271, 128 N.W.2d 748, 750 (1964); Hinz v. Northland Milk & Ice Cream Co., 237 Minn. 28, 30, 53 N.W.2d 454, 455-56 (1952). A strong showing on three factors may offset relative weakness of one factor. Armstrong v. Heckman, 409 N.W.2d 27, 29 (Minn. Ct. App. 1987), pet. for rev. denied (Minn. Sept. 18, 1987). Default judgments are to be “liberally” reopened to promote the resolution of cases on the merits. Galatovich v. Watson, 412 N.W.2d 758, 760 (Minn. Ct. App. 1987).
The first consideration is whether the petitioner, Mr. Hamer, has a reasonable case on the merits. By affidavit, Mr. Hamer attested that he did not hire the employee for the roofing job where the employee was working on the date of injury, and that the employee was hired by Adam Haney. He also asserted that he was not a partner with Mr. Haney at the time of the injury, and that they were working as separate independent contractors at that time. By deposition, the employee testified that Mr. Haney had hired him for the roofing job. He also testified that Mr. Haney paid him $50.00 as wages for his work, four days after the employee was released from the hospital where he had undergone surgery after the work incident. Ms. Shaw, owner of Ryan Roofing, the general contractor, also attested by affidavit that it was her understanding that Mr. Hamer and Mr. Haney were not working together on this roofing job, but that each one was an independent contractor hired by Ryan Roofing. Mr. Hamer questioned how the employee was injured, the severity of the injury, and whether the employee’s girlfriend had actually picked up the employee after the injury or instead that the employee had driven to a nearby gas station to meet her. Neither the girlfriend nor Mr. Haney was deposed in this matter. In view of all the available information, the petitioner has shown that he has a reasonable defense on the merits since there is evidence that the employee was hired by Mr. Haney and that he and Mr. Haney were not partners at the time of the injury.
The next consideration is whether the petitioner had a reasonable excuse for his failure to act. Even though Mr. Hamer, the petitioner, had not filed an answer to the Fund’s petition for reimbursement, he had been given notice of the hearing on March 3, 2010; that notice had also listed Mr. Haney, Ms. Shaw, on behalf of Ryan Roofing, and an attorney who was representing Ms. Shaw and Ryan Roofing. Sometime in February 2010, the petitioner talked to Ms. Shaw and asked her if she was attending the hearing. Ms. Shaw told the petitioner that Ryan Roofing had settled with the Special Compensation Fund and that her attorney had advised her she did not need to attend the hearing. The petitioner then assumed that he also did not need to attend the hearing because of the settlement. While the petitioner was mistaken in his assumption, we cannot say that this mistake was completely unreasonable.
In addition, the petitioner acted with due diligence after receiving notice of the judgment by contacting an attorney and filing a petition to set aside the default judgment within the extended appeal period. Finally, there is no prejudice to the Special Compensation Fund other than the expense of additional proceedings, which is generally not considered substantial prejudice. See Valley View, Inc. v. Schutte, 399 N.W.2d 182, 185 (Minn. Ct. App. 1987), pet. for rev. denied (Minn. Mar. 18, 1987). The petitioner has shown that he has a reasonable case on the merits and a reasonable excuse for the failure to act, that he acted with due diligence after notice of the entry of judgment, and that there would be no substantial prejudice to the Special Compensation Fund if the petition to set aside the default judgment is granted. Accordingly, we grant Mr. Hamer’s petition.
 Ryan Roofing was uninsured for workers’ compensation liability on the injury date, so the Special Compensation Fund was named as a party to the claim. Minn. Stat. § 176.183, subd. 1.
 In its response to the petition to set aside the Findings and Order, the Fund stated that “[a]ny reimbursement recovered from the general contractor will be credited by the Special Compensation Fund to the amount of reimbursement demanded of Employer Charles Hamer.” There is no information, however, in the record as to the amount of reimbursement to be paid by Ryan Roofing, the general contractor.
 Minn. R. Civ. P. 60.02 provides:
On motion and upon such terms as are just, the court may relieve a party or the party’s legal representatives from final judgment . . . and may order a new trial or grant such other relief as may be just for the following reasons: (a) Mistake, inadvertence, surprise, or excusable neglect; . . . or (f) Any other reason justifying relief from the operation of the judgment.
 Mr. Haney originally had been scheduled to appear for a deposition, but requested a continuance to allow him time to retain counsel. There is no information available as to why Mr. Haney’s deposition was not rescheduled for a later date.