Meno's construction/aig v. Reyes , 246 Ariz. 521 ( 2019 )

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
MENO’S CONSTRUCTION, L.L.C.****, Petitioner/Employer,
AIG INSURANCE COMPANY****, Petitioner/Carrier,
v.
THE INDUSTRIAL COMMISSION OF ARIZONA, Respondent,
VICTOR M. REYES, Respondent Employee,
THE YOUNGER BROTHERS GROUP, INC.*; GENARO’S FRAMING
CONSTRUCTION, L.L.C.***, Respondent Employers,
COPPERPOINT INDEMNITY INSURANCE COMPANY*; TRAVELERS
INSURANCE COMPANY***, Respondent Carriers,
ROBERTO CARLOS NAVARRO PADILLA**; JUAN ESTOPELLAN*****,
Respondent Uninsured Employers,
SPECIAL FUND DIVISION/NO INSURANCE SECTION**, *****,
Respondent Party in Interest.
__________________________________
SPECIAL FUND DIVISION/NO INSURANCE SECTION**, *****,
Petitioner/Party in Interest,
v.
THE INDUSTRIAL COMMISSION OF ARIZONA, Respondent,
VICTOR M. REYES, Respondent Employee,
THE YOUNGER BROTHERS GROUP, INC.*, GENARO’S FRAMING
CONSTRUCTION, L.L.C.***, MENO’S CONSTRUCTION, L.L.C.****,
Respondent Employers,
COPPERPOINT INDEMINTY INSURANCE COMPANY*, TRAVELERS
INSURANCE COMPANY***, AIG INSURANCE COMPANY****,
Respondent Carriers,
ROBERTO CARLOS NAVARRO PADILLA**, JUAN ESTOPELLAN*****,
Respondent Uninsured Employers.
No. 1 CA-IC 18-0041 and 1 CA-IC 18-0042
(Consolidated)
FILED 5-9-2019
Special Action - Industrial Commission
ICA Claim Nos. 20153-6580041**, *****, 20160-420048*, ***, ***
(Consolidated)
Carrier Claim Nos. 15102126*, ***, ****, None**, *****
The Honorable Rachel C. Morgan, Administrative Law Judge
AWARD SET ASIDE
COUNSEL
Jardine Baker Hickman & Houston P.L.L.C., Phoenix
By Stephen C. Baker
Counsel for Petitioner Employer Meno’s Construction, L.L.C. and Petitioner
Carrier AIG Insurance Co.
Industrial Commission of Arizona, Phoenix
By Gaetano J. Testini
Counsel for Respondent
Taylor & Associates P.L.L.C., Phoenix
By Javier C. Grajeda
Counsel for Respondent Employee
CopperPoint Mutual Insurance Company, Phoenix
By Mark A. Kendall
Counsel for Respondent Employer The Younger Brothers Group, Inc. and
Respondent Carrier CopperPoint Indemnity Insurance Co.
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MENO’S CONSTRUCTION/AIG v. REYES
Opinion of the Court
Hendrickson & Palmer, P.C., Phoenix
By Adam P. Palmer
Counsel for Respondent Employer Navarro Padilla
Hoffman Kelley Lopez, L.L.P, Scottsdale
By Michelle D. Lopez
Counsel for Respondent Employer/Carrier Genaro’s Framing Construction L.L.C.
Lundmark Barberich La Mont & Salvin, P.C., Phoenix
By Kirk A. Barberich, Danielle Vukonich
Counsel for Petitioner Party in Interest Special Fund Division/No Insurance
Section
OPINION
Judge Kenton D. Jones delivered the Opinion of the Court, in which
Presiding Judge James B. Morse Jr. and Judge Jon W. Thompson joined.
J O N E S, Judge:
¶1 In this consolidated statutory special action, Meno’s
Construction, L.L.C. and AIG Insurance Co. (collectively, MC) and the
Special Fund Division/No Insurance Section (the Fund) challenge an
Industrial Commission of Arizona (ICA) decision finding MC and Juan
Estopellan were Victor Reyes’s employers at the time of his December 2015
industrial injury. We affirm the factual findings and conclusions of the
administrative law judge (ALJ) with respect to those employers. We also
hold that an ALJ is required to evaluate the liability of each contractor and
subcontractor made a party to a workers’ compensation claim. Because the
ALJ did not do so in this case, we set aside the award.
FACTS AND PROCEDURAL HISTORY
¶2 In 2012, Taylor Morrison contracted with Younger Brothers
Group, L.L.C. (YB) to complete the framing for various new home
construction and lot improvement projects in and around Phoenix,
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MENO’S CONSTRUCTION/AIG v. REYES
Opinion of the Court
including at Lot 31 of a housing development in Gilbert.1 That contract
required YB to provide supervision, labor, materials, and services necessary
to complete the work and provided that “no such subcontracting shall
relieve Younger Brothers from its obligations under th[e] agreement.”
¶3 YB subcontracted the framing work on Lot 31 to a second
framing contractor, Genaro’s Framing Construction, L.L.C. (GFC).
Pursuant to the independent contractor agreement, YB would provide
general guidelines and framing materials for each job, but GFC was
responsible for supplying the labor and tools, carrying workers’
compensation insurance for employees, and controlling the day-to-day
operations of the jobsite. YB did not return to the jobsite until it was
completed, and then only to inspect the work and approve payment.
Because GFC did not employ any actual framers, it subcontracted the Lot
31 job to a third framing contractor, MC, under similar terms.
¶4 In 2015, MC assigned responsibility for completing the
framing on Lot 31 to Estopellan, as it occasionally did when Estopellan
sought additional work. At the time, Estopellan was also employed as a
foreman for YB and responsible for supervising various projects including
one near Lot 31. Nonetheless, Estopellan sometimes accepted other jobs
through his own sole proprietorship. MC did not provide tools, materials,
or labor; did not require any proof Estopellan maintained workers’
compensation insurance; and did not direct or supervise Estopellan’s work.
As with YB and GFC, MC did not pay for a job until it had inspected and
approved the work.
¶5 Estopellan immediately hired Roberto Navarro to help with
Lot 31, as was Estopellan’s practice when working side jobs, and paid
Navarro a lump sum for the job via personal check. Estopellan then
directed workers to Navarro, who provided the day-to-day instruction and
supervision. The framing crew received safety training and t-shirts from
GFC.
¶6 Reyes, the injured worker, met Navarro and Estopellan in
September 2015 when he arrived on a construction site looking for work.
Reyes immediately began to work with the two men, first as an assistant,
and then as a framer, at various locations. Over the next few months,
1 We view the evidence adduced at the hearing in the light most
favorable to upholding the ICA’s findings and award. See Polanco v. Indus.
Comm’n, 214 Ariz. 489, 490-91, ¶ 2 (App. 2007) (quoting Roberts v. Indus.
Comm’n, 162 Ariz. 108, 110 (1989)).
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Navarro told Reyes when and where to work and paid him weekly via cash
or personal check. However, Navarro received a written budget and
instructions from Estopellan, who would visit the jobsites in a YB truck,
deliver tools and materials, and supervise the work.
¶7 On December 21, 2015, Reyes injured his hip and wrist after
falling from a ladder while working at Lot 31. Navarro notified Estopellan,
as he did with all issues that arose at a jobsite. Estopellan then reported the
injury to MC, as MC had requested, and directed Reyes to the specific clinic
MC preferred. Ultimately, YB inspected and approved the framing on Lot
31 but never paid Estopellan directly for any work on that project.
¶8 Reyes reported his injury to the ICA, which resulted in
consolidated claims against five potential employers — Navarro,
Estopellan, MC, GFC, and YB — and their insurers, all of whom denied
liability for the claim. Because neither Navarro nor Estopellan had workers’
compensation insurance, the Fund was also joined in the action. See Ariz.
Rev. Stat. (A.R.S.) §§ 23-907,2 -1065 (governing the creation of and
expenditures from a special fund to compensate employees whose
employers fail to secure required workers’ compensation insurance).
¶9 After a three-day hearing, the ICA issued a consolidated
decision in which the ALJ found Estopellan had employed both Navarro
and Reyes to work on Lot 31 and MC maintained control over the project.
Therefore, the ALJ concluded that Estopellan was Reyes’s direct employer,
MC was Reyes’s statutory employer, and both were responsible for
payment of Reyes’s workers’ compensation claim. The ALJ made no
findings regarding GFC’s or YB’s status or liability. The ICA decision was
affirmed upon review. MC and the Fund separately petitioned for special
action review of the ICA’s award and decision upon review, and the cases
were consolidated for our review. We have jurisdiction pursuant to A.R.S.
§§ 12-120.21(A)(2), 23-951(A), and Arizona Rule of Procedure for Special
Actions 10.
DISCUSSION
I. Estopellan Was Reyes’s Employer.
¶10 The Fund argues Estopellan was not an employer subject to
the Workers’ Compensation Act as defined in A.R.S. § 23-902(A). We will
not disturb the ALJ’s factual findings unless clearly erroneous and will
2 Absent material changes from the relevant date, we cite the current
version of rules and statutes.
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Opinion of the Court
affirm so long as the findings were properly made and support the award.
A.R.S. § 23-951(B); Jenkins v. Indus. Comm’n, 77 Ariz. 377, 386 (1954) (citing
Todaro v. Gardner, 72 Ariz. 87, 91 (1951)). “A finding of fact is not clearly
erroneous if substantial evidence supports it, even if substantial conflicting
evidence exists.” Ramsey v. Ariz. Registrar of Contractors, 241 Ariz. 102, 109,
¶ 22 (App. 2016) (quoting Kocher v. Dep’t of Revenue of Ariz., 206 Ariz. 480,
482, ¶ 9 (App. 2003)). However, Estopellan’s status as an employer is a
conclusion of law subject to de novo review. Faraghar v. Indus. Comm’n, 184
Ariz. 528, 531 (App. 1995) (citing Cent. Mgmt. Co. v. Indus. Comm’n, 162 Ariz.
187, 189 (App. 1989), and Anton v. Indus. Comm’n, 141 Ariz. 566, 569 (App.
1984)).
¶11 The Fund contends Estopellan was not an employer required
to maintain workers’ compensation insurance because he did not have a
“hiring plan” or “own and operate a complex framing company.” But the
Workers’ Compensation Act does not require a formal hiring process or
complex operations. See Putz v. Indus. Comm’n, 203 Ariz. 146, 151, ¶¶ 25-26
(App. 2002) (explaining there is no bright-line rule for determining when a
self-employed employer is subject to the Act). Instead, an employer is
subject to the Workers’ Compensation Act “when he employs at least one
employee in the regular course of his business.” Donahue v. Indus. Comm’n,
178 Ariz. 173, 179 (App. 1993); see also A.R.S. § 23-902(A) (defining an
employer subject to the Act to include “every person who employs any
workers or operatives regularly employed in the same business or
establishment under contract of hire” and defining “regularly employed”
to mean “all employments, whether continuous throughout the year, or for
only a portion of the year, in the usual trade, business, profession or
occupation of an employer”).
¶12 The ALJ found that “Estopellan was operating a side business
known as Juan Estopellan Construction, which includ[ed] framing, at the
time of [Reyes]’s injury and that he hired Roberto Navarro to run the injury
jobsite, to hire men to perform the work, and to oversee the work being
performed.” This finding is supported by the record and justifies the
conclusion that Estopellan employed at least one employee in the regular
course of his business as a sole proprietor. Accordingly, we find no error
in the ALJ’s findings and conclusion that Estopellan was an employer
subject to the Act.
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MENO’S CONSTRUCTION/AIG v. REYES
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II. All Employers Are Jointly Responsible for Payment of an Injured
Worker’s Claim.
¶13 The Fund argues the ICA erred in holding Estopellan and MC
jointly responsible for Reyes’s injuries. In advancing this position, the Fund
relies entirely upon a single line in U.S. Fidelity & Guaranty Co. v. Industrial
Commission, 42 Ariz. 422, 434 (1933), stating that the statutory employer has
“a primary and not a secondary liability for compensation” of an injured
worker’s claim.
¶14 U.S. Fidelity does not support the Fund’s contention that
Estopellan is less liable than other employers. There, the court affirmed the
ICA’s award holding both the direct and statutory employers jointly and
severally liable for the injured worker’s claim. Id. at 435. The line upon
which the Fund relies stands only as a rejection of the statutory employer’s
argument that its liability is secondary to that of the direct employer. See
id. Indeed, our supreme court later clarified:
Where two or more persons are employers of the same
employee engaged, as here, for the common benefit of both,
and so found and determined by the proper tribunal, their
liability is joint and common. The liability of one employer is
not secondary to the other. Both are primarily liable.
Ocean Accident & Guar. Corp. v. U.S. Fid. & Guar. Co., 63 Ariz. 352, 362-63
(1945) (citations omitted). Accordingly, the ICA correctly found that all of
Reyes’s employers were jointly responsible for the claim.
III. The ALJ Must Evaluate the Liability of Each Contractor and
Subcontractor Named in the Action.
¶15 MC and the Fund argue the ALJ erred by failing to consider
whether YB and GFC were also subject to liability for payment of Reyes’s
workers’ compensation claim as statutory employers under A.R.S. § 23-
902(B). Pursuant to this section:
When an employer procures work to be done for the
employer by a contractor over whose work the employer
retains supervision or control, and the work is a part or
process in the trade or business of the employer, then the
contractor[] and the contractor’s employees, and any
subcontractor and the subcontractor’s employees, are, within
the meaning of this section, employees of the original
employer.
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MENO’S CONSTRUCTION/AIG v. REYES
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Id. Thus, a so-called statutory employer “is required to provide workmen’s
compensation [insurance] for its remote employees, just as is required of
direct employers.” Young v. Envtl. Air Prods., Inc., 136 Ariz. 158, 161 (1983)
(citing A.R.S. § 23-902(A)); see also U.S. Fid., 42 Ariz. at 435. The statutory
employer provisions exist to prevent unscrupulous employers from
evading responsibility under the Act “through the aid of various dummy
intermediaries.” Grabe v. Indus. Comm’n, 38 Ariz. 322, 328 (1931); see also
Basurto v. Utah Constr. & Mining Co., 15 Ariz. App. 35, 41 (1971) (explaining
that the purpose of imposing liability upon the statutory employer is “to
prevent evasion of the Act by an employer through the device of
subcontracting its regular operations and thereby avoiding direct
employment relations with the workers and making them dependent on
their immediate employer for compensation”) (quoting Jamison v.
Westinghouse Elec. Corp., 375 F.2d 465, 468 (3d Cir. 1967)).
¶16 Appellants do not dispute the ALJ’s finding that MC was a
statutory employer but argue that this conclusion does not foreclose
consideration of YB’s and GFC’s liability. Whether an employee may have
multiple statutory employers under the Workers’ Compensation Act
requires us to interpret and apply statutes, a task we undertake de novo.
Buehler v. Retzer ex rel. Indus. Comm’n, 227 Ariz. 520, 521, ¶ 4 (App. 2011)
(citing Baker v. Dolphin Beach Rental & Mgmt., L.L.C., 224 Ariz. 523, 524, ¶ 6
(App. 2010)). “Our goal in statutory interpretation is to effectuate the
legislature’s intent.” SolarCity Corp. v. Ariz. Dep’t of Revenue, 243 Ariz. 477,
480, ¶ 8 (2018) (citing State ex rel. Dep’t of Econ. Sec. v. Pandola, 243 Ariz. 418,
419, ¶ 6 (2018)). “The best indicator of that intent is the statute’s plain
language, . . . and when that language is unambiguous, we apply it without
resorting to secondary statutory interpretation principles.” Id. Although
the Act should be construed liberally in favor of protecting the employee,
“[t]he court may ‘not impose burdens and liabilities which are not within
the terms or spirit’ of the Act.” Putz, 203 Ariz. at 150-51, ¶ 24 (citing Ocean
Accident & Guar. Corp. v. Indus. Comm’n, 32 Ariz. 265, 271-72 (1927), and then
quoting Bergstresser v. Indus. Comm’n, 13 Ariz. App. 91, 93 (1970)).
¶17 The Workers’ Compensation Act defines the statutory
employer in terms of the nature of the work procured and the level of
supervision or control retained over the work. See A.R.S. § 23-902(B);
Young, 136 Ariz. at 161. The plain language of the Act does not limit the
classification to a single link in a chain of contractors and subcontractors.
See Faraghar, 184 Ariz. at 532 (“Nothing in [A.R.S. § 23-902(B)] suggests that
the original employer’s responsibility is exclusive, or that the independent
contractor is thereby relieved of liability for benefits.”); Hamrick v. Indus.
Comm’n, 15 Ariz. App. 277, 279 (App. 1971) (“[A] determination by an
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MENO’S CONSTRUCTION/AIG v. REYES
Opinion of the Court
award that a workman is an employee of a subcontractor does not preclude
a subsequent determination that this same workman is an employee of the
original contractor.”). Rather, the Act explicitly contemplates an umbrella
of liability under the statutory employer that covers “the contractor[] and
the contractor’s employees, and any subcontractor and the subcontractor’s
employees” if the criteria set forth in A.R.S. § 23-902(B) are met. A.R.S. § 23-
902(B); see also Basurto, 15 Ariz. App. at 41 (announcing “the general rule of
thumb . . . that the [statutory employer] statute covers all situations in which
work is accomplished which this employer, or employers in a similar
business, would ordinarily do through employees”) (citation omitted).
¶18 The broad language of the statute is consistent with the
overriding purpose of the Workers’ Compensation Act: to protect the
employee. Young, 136 Ariz. at 163 (quoting U.S. Fid., 42 Ariz. at 430); see
also Putz, 203 Ariz. at 150-51, ¶ 24 (describing the Act’s purpose to “hav[e]
industry bear its share of the burden of human injury as a cost of doing
business”) (citing Ocean Accident, 32 Ariz. at 271-72). We accomplish this
goal by liberally construing the Act to impose liability for payment of
benefits, which includes spreading the cost of injury amongst all those who
retain supervision and control over work that is part of their business. See
Young, 136 Ariz. at 163 (citing U.S. Fid., 42 Ariz. at 430). This goal is not
met, however, when an employer retains a level of control over its remote
employees but is relieved of responsibility for their industrial accidents.
¶19 YB nonetheless urges this Court to adopt the “first responsible
contractor” rule, which designates “the lowest insured party on the chain
to be the singular statutory employer.” We decline to do so. Nothing
within Arizona’s Workers’ Compensation Act supports such a rule, and the
jurisdictions that have adopted it have done so under statutory schemes
that, unlike Arizona’s, impose liability for workers’ compensation claims
upon a statutory employer only if the direct employer is un- or
underinsured. See, e.g., Minnaugh v. Topper & Griggs, Inc., 416 N.Y.S.2d 348(App. Div. 1979); Peck v. Delaware Cty. Bd. of Prison Inspectors, 814 A.2d 185(Pa. 2002); Brogno v. W & J Assocs., Ltd., 698 A.2d 191 (R.I. 1997). Adopting
the first responsible contractor rule would also create a disincentive for
employers to secure workers’ compensation insurance to cover remote
employees, which is entirely inconsistent with the obligations imposed by
A.R.S. § 23-902(B).
¶20 The Act requires the ALJ to evaluate the liability of each
contractor and subcontractor made a party to a workers’ compensation
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MENO’S CONSTRUCTION/AIG v. REYES
Opinion of the Court
proceeding under A.R.S. § 23-902(B).3 The ALJ erred in failing to do so here.
Because the record contains conflicting evidence regarding the level of
supervision and control YB and GFC retained over MC, Estopellan, Reyes,
and Lot 31, we cannot resolve the question as a matter of law. See Home Ins.
v. Indus Comm’n, 123 Ariz. 348, 350 (1979) (describing several non-exclusive
factors to consider when determining whether a person or entity is a
statutory employer).
CONCLUSION
¶21 The ICA’s decision and award are set aside.
AMY M. WOOD • Clerk of the Court
FILED: AA
3 Although contractors and subcontractors may choose to require
indemnification via the terms of their contracts, the indemnification
provisions do not control over the rights and duties prescribed by the
Workers’ Compensation Act. See U.S. Fid., 42 Ariz. at 434-35 (holding the
statutory employer responsible for compensating the injured employee
notwithstanding an indemnification clause in the contract between the
statutory and direct employers).
10