The employer and insurer appeal from the compensation judge’s denial of their claim for reimbursement under Minnesota Statutes § 176.179 of $227,352.89 in temporary partial disability benefits paid to the employee between June 21, 1996, and March 24, 2005.  We affirm in part, reverse in part, vacate in part, and remand for reconsideration the issue of the employee’s good faith receipt and entitlement to the benefits at issue.

On February 24, 1984, Charles Jacob [the employee] was employed as a brick mason by Davies, Inc. [the employer].  On that date, the employee, who was forty-five years old, fell from scaffolding and sustained injuries to his head, neck, back, and extremities.  The employer and its workers’ compensation insurer, CNA/Transcontinential Insurance Company [the insurer], accepted liability and commenced payment of workers’ compensation benefits.  The employee underwent anterior fusion surgery at C6-7 of his spine on November 29, 1984, and was disabled from work until February 7, 1986.^[2]

The employee was evidently given work restrictions and found employment with the Fridley VFW on February 7, 1986, and the insurer thereupon commenced payment of temporary partial disability benefits.  About eleven months later, on January 13, 1987, the parties filed a Stipulation for Settlement with the Department of Labor and Industry, agreeing to a compromise of the employee’s claim for permanent partial disability benefits to the extent of 22% of the whole body.  An Award on Stipulation was issued on January 23, 1987.

The employee evidently worked at the Fridley VFW until March of 1992 and then obtained a job at Theilen Printing until he was laid off in June of 1996.  Temporary partial disability benefits paid to the employee between February 1986 and June 1996, a period of approximately 537 weeks, are not in dispute.^[3]

On or about June 21, 1996, the employee started his own business, known as “What’s Up,” providing “hall decorations and delivery.”  Thereafter, at intervals of every three or four weeks, the employee submitted to the insurer what were identified as “check stubs.”  Each check stub identified the employee, his business, and a weekly pay period, and it contained figures asserting his total earnings for that week, his withholding for federal and state taxes, and his net pay.  At the bottom of each check stub was the statement:  “Employee’s Statement of Earnings and Deductions - Detach and Retain.”  For each and every week beginning with the pay period ending June 28, 1996, and ending with the pay period ending February 23, 2001, the employee’s reported “total earnings” were $245.00, and his reported “total deductions” were $45.74.  Beginning with the pay period ending March 2, 2001, and ending with the pay period ending March 11, 2005, the employee reported similarly unvarying weekly earnings of $262.50.  Based on these periodic submissions of the employee, the insurer paid temporary partial disability benefits.

On March 24, 2005, almost nine years after the employee went into business for himself, the insurer served a Notice of Intention to Discontinue the employee’s temporary partial disability benefits, explaining, “Wage information being submitted is questionable and claimant has failed to provide tax records to substantiate the earnings on which temporary partial disability is based.  Tax records have been requested repeatedly with no response.”

About seven weeks later, on May 13, 2005, the employee filed an Objection to Discontinuance together with a copy of his 2004 Federal and State Income Tax Returns, alleging entitlement to temporary partial disability benefits continuing from March 25, 2005.  The matter was scheduled for an expedited hearing on June 23, 2005, but the employee withdrew his objection the day before trial.  By this time, the employee was sixty-six years old.

On November 7, 2005, the employer and insurer filed a Petition for Reimbursement, alleging a “significant discrepancy” between the employee’s tax returns and the payroll information that had been regularly submitted by the employee to support his claim for temporary partial disability benefits.  As an example, the insurer referred to calendar year 2001, in which the employee had reported to the insurer weekly earnings of $245.00 and $262.50 but on his tax returns a total business income of only $335.00 for the entire year, an amount that “does not support the Employee’s claim [for] temporary partial disability benefits.”  The employer and insurer asserted that “[f]rom February 24, 1984 through March 24, 2005, the Employee has been paid $431,713.39 in wage loss benefits, some of which appear to have been fraudulently obtained.”  Therefore they requested an Order requiring the employee to make an immediate 100% reimbursement of all wage loss benefits paid to him for which he could not provide documentation or which he had fraudulently obtained.

On January 17, 2006, the employer and insurer filed a Motion to Compel the employee’s response to a previous Demand for Discovery served on the employee and his attorney, demanding copies of all tax documents concerning income, expenses, and payroll related to his “What’s Up” business since June 1, 1996.  An Order granting the employer and insurer’s motion was issued by a compensation judge on May 17, 2006.

The employer and insurer’s Petition for Reimbursement came on for hearing on January 9, 2007.  The judge identified the issues for her determination as “whether the employee was mistakenly compensated for temporary partial disability benefits from June 21, 1996 through March 24, 2005" and “[i]f so, was the compensation not received in good faith.”  Evidence introduced at hearing included the insurer’s printout entitled “Payment Query Results,” which set forth the insurer’s payments from June 1, 1996, through March 11, 2005, and check stubs submitted by the employee to the insurer between June 1996 and March 2005.  Over objection by the employer and insurer, the judge received also the employee’s Federal and State income tax returns for the years 1997 through 2004.^[4]  The only witness to testify at trial was the employee, who declined to testify with any specificity regarding his self-employment, the documentation that he submitted to the insurer, or his entitlement to temporary partial disability benefits, citing the Fifth Amendment’s protection against self-incrimination.  The record closed on January 31, 2007, upon submission by the parties of written closing arguments and proposed findings.

In a decision issued on March 12, 2007, the compensation judge found in part the following:  (1) at Finding 5, that each “Statement of Earnings and Deductions” [check stub] submitted by the employee to the insurer “appears to represent actual earnings of the employee for his work performed during the stated period” and that “[t]he insurer used each [check stub] to calculate and pay temporary partial disability benefits”; (2) at Finding 6, that “[t]he earnings stated in the employee’s Income Tax Returns are not consistent with the earnings reflected in the [check stubs]” and that “the employee’s Income Tax Returns [are] an accurate representation of his actual earnings,” whereas his check stubs are not; (3) at Finding 7, that, based on his income tax returns, the employee under-reported his actual earnings to the employer in 2002 and 2003, resulting in an overpayment of temporary partial disability benefits of $1,866.00 and $101.33 in those years, respectively, and that he over-reported his actual earnings in all other years, resulting in no overpayment of benefits in any of those other years;^[5] (4) at Finding 8, that “[t]he earning capacity the employee established while working at Theilen Printing was the same as the representation of earnings contained in each [check stub]”; (5) at Finding 9, that “[t]he employee intended the [check stubs] that he filed with the insurer on a regular basis to be statements of his earning capacity rather than a statement of his actual earnings” and “if the employee had reported his actual earnings as indicated on his tax returns, he would have been entitled to a greater payment of temporary partial disability benefits”; (6) at Finding 10, that “[t]he employee submitted to the insurer each [check stub] knowing that each [stub] did not reflect his actual earnings for each week,” that “the insurer made payment of temporary partial disability benefits under the mistaken belief that the [pay stubs represented] the employee’s actual earnings,” but that “[t]here is insufficient evidence to establish that the employee was aware that the insurer was paying temporary partial disability benefits to him under a mistake of fact”; and (7) at Finding 11, that “the insurer has failed to prove, by a preponderance of the evidence, that the benefits paid to the employee were not received in good faith.”  On these findings, the judge awarded an overpayment credit to the employer and insurer for 2002 and 2003, but she denied the employer and insurer’s reimbursement claim under Minnesota Statutes § 176.179.  The employer and insurer appeal.

The employer and insurer contend that substantial evidence in the record as a whole does not support the judge’s finding that the employer and insurer did not prove that the employee’s receipt of temporary partial disability benefits from June 21, 1996, through March 24, 2005, was not in “good faith,” as defined under Minnesota Statutes § 176.179.  They argue that the overwhelming evidence supports a finding of fraud or, at a minimum, the employee’s awareness of a mistake in his compensation such as triggers reimbursement under the statute.  They argue further that the judge committed an error of law by raising the issue of earning capacity where the issues before her were solely related to good faith and reimbursement.  We conclude initially that the employer and insurer may have misunderstood what they needed to prove under the statute.  Other issues eventually warranting our address here are the employee’s earning capacity, the element of good faith under the statute, and the compensation judge’s responsibility with regard to the employee’s Fifth Amendment privilege.

The employer and insurer’s claim for reimbursement in this case is premised upon Minnesota Statutes § 176.179, which provides as follows:

Minnesota Statutes § 176.179 is entitled “Recovery of overpayments.”  Contrary to the insurer’s assertion, we conclude that, before it is entitled to a credit or reimbursement under the statute, an insurer must prove both that there has in fact been an overpayment of benefits and the amount of the overpayment.  The insurer here has improperly merged two issues into one, arguing that all that is required under the statute is to establish that payments were not received in good faith and that reimbursement necessarily follows.  It contends that, because the insurer made payment based on wage information that was clearly inaccurate if not fraudulent, the employee must affirmatively prove that he was entitled to all or some portion of the benefits already paid to him.  We find nothing in Minnesota Statutes § 176.179 that somehow shifts the burden from the insurer to establish an overpayment to the employee to prove the absence of one.  The mere fact that benefits may have been paid based upon a false record does not prove necessarily that benefits have been overpaid.  Moreover, even if the false record were shown to be a deliberately fraudulent misrepresentation, the insurer must still establish that it suffered actual damages - - in the form of an overpayment - - as a result of that misrepresentation.  See Weise v. Red Owl Stores, Inc., 286 Minn. 199, 202, 175 N.W.2d 184, 187 (1970) (the measure of damages for fraudulent misrepresentation is the out-of-pocket loss incurred as a result of the misrepresentation).  Nor do we find anything in the statute that supports the insurer’s suggestion that the filing of false documentation results in a forfeiture of all benefits.

While the insurer’s indignation at the employee’s long-term submission of apparently false check stubs is understandable, and while we by no means condone the submission of false documents, it remains the burden of the insurer to establish an overpayment before a credit or reimbursement may be ordered.  We are charged with determining a remedy authorized under the statute, and a remedy mandating a full refund of all benefits whether overpaid or not does not exist in Minnesota Statutes § 176.179.  Contrary to the insurer’s position, until an overpayment has been proven, an analysis of the employee’s good faith under the statute is premature.

The insurer contends that the judge erred by making a determination of the employee’s earning capacity.  To the contrary, resolving a claim for reimbursement of temporary partial disability benefits requires a determination of the employee’s earning capacity.  The judge could not properly determine whether the employee had received an overpayment of compensation without first determining what, in fact, the employee had been entitled to receive.  Given the sparse record before her, the judge concluded that the employee’s tax returns were an accurate representation of the employee’s actual earnings.  The evidence supporting this finding by the judge is minimally adequate, and the finding is therefore affirmed.^[7]

After finding that the employee’s tax returns were an accurate representation of his actual earnings, the compensation judge issued three findings relative to earning capacity.  At Finding 7, the judge concluded in part, based on the employee’s income tax returns, that the employee under-reported his income in 2002 and 2003, resulting in an overpayment of $1,866.00 and $101.33, respectively.  On the basis of this finding, the judge awarded a credit to the employer and insurer, and we affirm that finding.^[8]  Also at Finding 7 she concluded in part, “In all years except 2002 and 2003 the employee over reported his income to the insurer when compared to income from his business stated on the tax returns.  When he over reported his income he did not received an over payment of the weekly benefit.”  At Finding 8, the judge found, “The earning capacity the employee established while working at Theilen Printing was the same as the representation of earnings contained in each Statement of Earnings and Deductions.”  And at Finding 9, the judge found,

With respect to Finding 8, no evidence was offered regarding the employee’s earnings at Theilen Printing.  Nor was any evidence offered to suggest that what the employee represented to be his earnings in his own business was the same as he earned at Theilen.  Moreover, we note that the concept of earning capacity is not static, and, since the job at Theilen was no longer available to the employee, we find little relevance in what the employee earned at that job.  See Serra v. Hanna Mining Co./National Steel Pellet, 65 W.C.D. 532, 537 (W.C.C.A. 2005) (“[a] job that is no longer available to an employee is of little or no value for purposes of determining entitlement to wage loss benefits”), citing Tottenham v. Eaton Char-Lynn Corp., 43 W.C.D. 71 (W.C.C.A. 1990).  Finding no evidence of record to support it, we reverse Finding 8.

Similarly, with respect to Finding 9, we find no evidence in the record to support the judge’s finding that the employee intended his check stubs to be statements of his earning capacity rather than statements of his actual earnings.  The employee offered absolutely no testimony as to his intention or understanding surrounding his check stubs.  In addition, there is no evidence that the “earnings” represented on the employee’s check stubs bear any resemblance to the employee’s earning capacity.  As the judge noted at Finding 5, “[e]ach [check stub] appears to represent actual earnings of the employee for his work performed during the stated period.”  Nor was the judge necessarily correct when she stated in Finding 9 that, “if the employee had reported his actual earnings as indicated on his tax returns, he would have been entitled to a greater payment of temporary partial disability benefits.”^[9]  Because it is at best speculative and unsupported by the record, we reverse Finding 9.

At Finding 7, based on the employee’s tax returns, the compensation judge determined that, in all years except 2002 and 2003, the employee did not receive an overpayment of the weekly benefit.  In other words, the judge found that the employee’s earnings as stated in his tax returns represented his earning capacity.  In their petition for reimbursement, the employer and insurer suggested that the employee’s business income in 2001 was so insubstantial as to disqualify the employee from receipt of temporary partial disability benefits.  They argue also on appeal, however briefly, that insubstantial income would preclude an award of temporary partial disability benefits.  The compensation judge did not address this argument, but we are reluctant to fault her in that regard, in that counsel for the employer and insurer did not expressly raise such a theory of overpayment at trial.  It is generally inappropriate for a compensation judge to decide a contested issue on grounds not raised or litigated by the parties.  Dawson v. University of Minn., slip op. (W.C.C.A. May 6, 1999), citing Kulenkamp v. Timesavers, Inc., 420 N.W.2d 891, 40 W.C.D. 869 (Minn. 1988) (basic fairness requires notice and reasonable opportunity to be heard).  Nevertheless, there is evidence relevant to this argument in the employee’s tax returns.

In the present case, the employee’s tax returns, according to the respondent’s illustrative Exhibit 2, reflected no earnings for calendar year 1997 and only minimal earnings in other years.  This court has frequently indicated that “employment” such as is required for eligibility for temporary partial disability benefits must generate positive earnings.  See, e.g., Hansford v. Berger Transfer, 46 W.C.D. 303 (W.C.C.A. 1991) (implicit in the requirement that an employee must be working to be eligible for temporary partial disability benefits is the additional requirement that the employee receive a wage or have earnings from that employment; where the self-employed employee performed “real” work but neither paid himself any wage nor had any earnings attributable to his work, denial of temporary partial disability benefits was proper).  See also Johnson v. Laraway Roofing, 66 W.C.D. 71 (W.C.C.A. 2005).

Given the tax return evidence of the employee’s earnings in this case, we reverse the judge’s conclusion in Finding 7 that the employee did not receive an overpayment of weekly benefits in all years other than 2002 and 2003, and we remand for reconsideration the issue of whether that tax return evidence reflects his earning capacity during those years, focusing the analysis solely on the issue of whether the employee’s earnings in all of those years reflected something more than sporadic employment resulting in an insubstantial income.  The judge may elect to receive further evidence or argument on the issue at her discretion.

As stated earlier in this decision, unless there has been an overpayment of benefits, the judge need not address the issue of whether payment was received in good faith by the employee.  At Findings 10 and 11, however, the judge determined that the insurer failed to prove, by a preponderance of the evidence, that the benefits paid to the employee were not received in good faith.  Because we have remanded for reconsideration the issue of overpayment in years other than 2002 and 2003, we vacate Findings 10 and 11 as premature.  Should the judge, upon reconsideration of the issue of earning capacity and overpayment, find that an overpayment occurred in any of those years, she again should consider the issue of whether benefits were received in good faith as defined in Minnesota Statutes § 176.179, explaining the basis for her decision with reference to the evidence.

As we have noted, the record in this matter is extremely sparse.  The record is further complicated by the employee’s refusal to answer questions directed to his employment activities and to his receipt of temporary partial disability benefits.  The compensation judge quite correctly noted in her memorandum that an employee who elects to exercise his Fifth Amendment privilege shall not be sanctioned for doing so.  To the extent that the judge may have felt constrained by the asserted privilege, however, we note that a civil court may draw an adverse inference from a witness’s refusal to answer without the court’s or the witness’s concern that that inference might be used to support a criminal action against the witness.  Parker v. Hennepin County Dist. Court, Fourth Judicial Dist., 285 N.W.2d 81, 83 (Minn. 1979), citing Baxter v. Palmigiano, 425 U.S. 308, 96 S. Ct. 1551, 47 L.Ed,2d 819 (1976).  In Parker v. Hennepin County District Court, Fourth Judicial District, the defendant petitioners, who had been served with requests for admission under the discovery rules, refused to answer on Fifth Amendment grounds.  A court order had been issued deeming the allegations admitted, and the defendants had filed a petition for mandamus to compel the Hennepin County District Court to vacate its order.  In affirming the district court, the supreme court noted that the policy underlying assertion of the Fifth Amendment does not permit use of the privilege “to unfairly prejudice an adversary in a civil case.”  Id.  The court noted that that was especially true where “the plaintiff’s only source of evidence is frequently the defendant himself.”  Id.  The court explained that

To summarize our holding here, we first of all reject the employer and insurer’s theory that they need only prove a lack of good faith in order to receive reimbursement under Minnesota Statutes § 176.179.  The employer and insurer have the burden of proving the amount of any overpayment before consideration may be given to whether the benefits at issue were nevertheless received in good faith.  We hold also that the judge did not err when she addressed the issue of the employee’s earning capacity.  We affirm the judge’s determination that the employee’s income tax returns are an accurate representation of his actual earnings, but we reverse and remand, for further consideration and substantiation in the law and in the evidence of record, that portion of Finding 7 wherein the judge concluded that in all years except 2002 and 2003 the employee over-reported his income and did not receive an overpayment of his entitlement to temporary partial disability benefits.  Should the judge on remand find an overpayment, she must then also address the issue of good faith as defined in Minnesota Statutes § 176.179, with respect to all of the years at issue.  The judge must then determine whether reimbursement or a credit against future compensation is the appropriate remedy, providing an explanation for her decision on this issue.  In the course of our decision, we have reversed Findings 8 and 9, and we have vacated Findings 10 and 11 on grounds that those findings are premature.  If the judge finds no overpayment in addition to that that she has found for calendar years 2002 and 2003, the judge’s finding as to good faith for those two years and her award of a credit to the employer and insurer for those years against future compensation remain the employer and insurer’s sole remedy.