Eades v. United States ( 1999 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
RONALD R. EADES,
Plaintiff-Appellant,
v. No. 97-2510
UNITED STATES OF AMERICA,
Defendant-Appellee.
Appeal from the United States District Court
for the District of South Carolina, at Greenville.
G. Ross Anderson, Jr., District Judge.
(CA-96-3809-6-13)
Argued: December 3, 1998
Decided: January 22, 1999
Before LUTTIG, WILLIAMS, and TRAXLER,
Circuit Judges.
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Reversed and remanded by unpublished opinion. Judge Luttig wrote
the opinion, which Judges Williams and Traxler joined.
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COUNSEL
ARGUED: Douglas Franklin Patrick, Sr., COVINGTON, PATRICK,
HAGINS & LEWIS, Greenville, South Carolina, for Appellant. Lee
Ellis Berlinsky, Assistant United States Attorney, Greenville, South
Carolina, for Appellee. ON BRIEF: J. Rene Josey, United States
Attorney, Greenville, South Carolina, for Appellee.
_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
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OPINION
LUTTIG, Circuit Judge:
Ronald Eades appeals a district court judgment that South Carolina
workers' compensation law bars his tort suit against the United States
under the Federal Tort Claims Act. For the reasons that follow, we
agree that South Carolina law controls, but hold that it does not bar
Eades' suit.
I.
Eades was electrocuted while testing the electrical system at a Vet-
erans Administration hospital in Fayetteville, North Carolina. He
alleges that while he was testing a particular circuit, an employee of
the hospital negligently switched it on, transmitting electricity
through the circuit. Eades sued the hospital in tort over this incident.
Instel, Inc., a South Carolina company that performs electrical test-
ing, employed Eades at the time of the incident. Eades is a South Car-
olina resident and performed most of his work for Instel in South
Carolina. His employment contract with Instel was entered into in
South Carolina. The hospital, whose "primary mission . . . is to pro-
vide quality patient care to our nation's veterans," J.A. 200, con-
tracted with Instel to perform the triennial electrical testing required
by Veterans Administration regulations. The regulations require such
testing to be performed by someone certified by the National Electri-
cal Testing Association ("NETA"). Under the hospital's contract with
Instel, Instel was only to test for, not to repair, any defects or deterio-
ration.
Under the contract, Instel also agreed to provide"Workman's
Compensation and employer's Public Liability Insurance in accor-
dance with the laws of the State of North Carolina." Accordingly,
Instel purchased a policy with an insurance agency in South Carolina,
2
which, pursuant to both the testing contract and the requirements of
North Carolina law, provided a certificate of coverage to the hospital.
See N.C. Gen. Stat. § 97-19.
After his injury, Eades filed for and received workers' compensa-
tion benefits in South Carolina through Instel's policy. He then sued
the hospital in South Carolina under the Federal Tort Claims Act
("FTCA"). The district court held that North Carolina's tort law and
choice of law rules governed, pursuant to the FTCA's requirement to
apply "the law of the place where the act or omission occurred," 28
U.S.C. § 1346(b), but further held that North Carolina would look to
South Carolina workers' compensation law to determine whether
Eades could sue the hospital. Applying that law, the district court con-
cluded that the hospital was Eades' "statutory employer" and thus
shielded from suit. It therefore granted the hospital's motion for sum-
mary judgment.
Eades argues on appeal, as he did below, that North Carolina law
applies wholesale -- both because the district court misinterpreted
North Carolina's choice of law rules and because the contract
between Instel and the hospital contemplates that North Carolina
workers' compensation law will apply -- and that, even if South Car-
olina workers' compensation law applies, the hospital is not Eades'
"statutory employer." The parties agree that Eades may sue if North
Carolina workers' compensation law applies.
II.
Eades first argues that North Carolina workers' compensation laws
should govern his right to sue. We disagree, and affirm the district
court's conclusion that North Carolina would look to South Carolina
on this question.
Under the FTCA, the federal government has largely waived its
sovereign immunity from tort liability. In so doing, however, it has
not crafted new tort law, but rather has acquiesced to that of the
States, allowing suits against itself "under circumstances where the
United States, if a private person, would be liable to the claimant in
accordance with the law of the place where the act or omission
occurred." 28 U.S.C. § 1346(b)(1) (emphasis added). See 28 U.S.C.
3
§ 2674 (stating that United States "shall be liable . . . in the same
manner and to the same extent as a private individual under like cir-
cumstances"). The Supreme Court has interpreted"law of the place"
to mean the "whole law of the State where the act or omission
occurred" -- that is, not just its "internal" substantive law but also its
choice of law rules. Richards v. United States, 369 U.S. 1, 11 (1962).
Therefore, because the "act or omission" in this case occurred in
North Carolina, that State's law governs.
Under North Carolina choice-of-law rules, when an employee is
covered by workers' compensation, his right to sue a third party in
tort is governed by the workers' compensation law of the State where
he is based. Braxton v. Anco Electric, Inc., 409 S.E.2d 914, 915 (N.C.
App. 1991). To determine which State that is, North Carolina consid-
ers where that employee usually works, where he resides and is domi-
ciled, where his contract of employment was made, and where he has
received workers' compensation benefits (if he has received such).
This last factor appears to be the most important. See id. at 915-16.
Although the court in Braxton said that it looks "to the law which
guarantees [the worker's] receipt of those benefits" and the State
where the worker is "covered," id. at 915, we find this language
unhelpful, since a worker injured outside his home State usually has
a choice between filing for benefits in his home State or in the State
where he was injured, or both. See N.C. Gen. Stat. § 97-36 (allowing
compensation to person injured outside of North Carolina if employ-
ment is based in North Carolina, and allowing some compensation
even if person has secured compensation in the State of injury). Be
that as it may, in this case the Braxton factors point to South Carolina
law as the governing law: Eades' contract of employment was entered
into there, and he resides there; Instel is based there; Eades did most
of his work there; and he collected benefits there.
We acknowledge that this rule flies in the face of the normal rule
of lex loci delicti for tort suits, a rule to which North Carolina gener-
ally has a "steadfast commitment," Gbye v. Gbye, 503 S.E.2d 434,
435 (N.C. App. 1998). But the court in Braxton was well aware of
this, and consciously bifurcated the choice-of-law question. It
acknowledged that lex loci was a "long established doctrine" and held
that it controls the choice of law for the underlying tort suit. 409
4
S.E.2d at 915. But immediately after so acknowledging, it laid down
the exception for the "exclusive remedy bar" of workers' compensa-
tion, id., and it did so over a dissent that argued for application of lex
loci wholesale. See id. at 917 (Meyer, J., dissenting) (criticizing
majority's reasoning as "circular" and as a"bald, yet unstated, dis-
avowal of our well-settled choice of laws doctrine").
Therefore, we hesitate to conclude, as Eades would have us do, that
any decision subsequent to Braxton has rejected it unless that decision
explicitly so states. In particular, we disagree with his argument that
the two decisions in Frugard v. Pritchard, 434 S.E.2d 620 (N.C. App.
1993), rev'd., 450 S.E.2d 744 (N.C. 1994), implicitly overrule
Braxton.
The relevant issue in Frugard, a tort suit, was whose law governed
the admissibility of a workers' compensation settlement. The Court of
Appeals held that this was procedural and thus that the law of the
forum governed. 434 S.E.2d at 625. It mentioned Braxton only for the
point that the "substantive law" should be that of the State where the
plaintiff had workers' compensation. Id. at 624. This latter point,
besides being wrong -- Braxton retained lex loci delicti for choosing
the substantive law -- also was irrelevant to the evidentiary question,
and therefore dicta.
The Supreme Court agreed that the law of the forum governed the
evidentiary question, but reversed because the exclusion of the settle-
ment was "invited error." 450 S.E.2d at 746. It also corrected the
Court of Appeals' dicta regarding the applicable"substantive law,"
citing Braxton for the proposition that the substantive law of the place
of the accident governed. Id. at 745. Thus the rule of Braxton regard-
ing the workers' compensation bar to suits was irrelevant to Frugard,
and the Supreme Court, by its understandable silence on the issue, did
nothing to draw that holding into doubt. We therefore see no reason
to question the vitality of Braxton, and must conclude that North Car-
olina would apply South Carolina workers' compensation law in
determining whether Eades can sue the Hospital.
Eades argues, however, that notwithstanding Braxton, the contrac-
tual language requiring Instel to secure "Workman's Compensation
5
. . . in accordance with the laws of the State of North Carolina"
requires us to apply North Carolina law. We disagree.
Admittedly, Braxton itself does not bar a contractual choice-of-law
clause on this question; but that is because there was no such contract
at issue there, since the suit was by an employee of one subcontractor
against another subcontractor, rather than, as here, by an employee of
a contractor against the party that let the contract. See 409 S.E.2d at
914. Further, neither the district court nor the hospital has weighed in
on this question, although Eades properly raised it below, see J.A.
204-05, and has reiterated it on appeal. The hospital's chief argument
to the district court was that this language was mere "boilerplate,"
J.A. 221, but choice-of-law clauses are usually boilerplate and are not,
for that reason, any less valid. See Johnston County v. R.N. Rouse &
Co., Inc., 414 S.E.2d 30, 33 (N.C. 1992).
We find guidance in one of the three cases on which Braxton
relied, Liberty Mutual Ins. Co. v. Goode Construction Co., 97 F.
Supp. 316 (E.D. Va. 1951). See Braxton, 409 S.E.2d at 916. The facts
of Goode almost exactly parallel those here, except for the States
involved: a plaintiff who resided, worked, and made his contract of
employment in the District of Columbia for a District employer was
injured in Virginia while working for his employer, who was a sub-
contractor on the Virginia project. He collected workers' compensa-
tion benefits in the District, then sued the general contractor in tort.
The court applied the workers' compensation law of the District to
determine whether to allow the suit. It rejected an argument identical
to Eades' (although there made by the defendant):
The burden of the defendant here is that in preparation for
the performance of the construction contract in Virginia, it
fully complied with the laws of that State relating to com-
pensation for industrial accidents, securing, and by its con-
tract requiring its subcontractor . . . to secure, insurance for
the payment of all such claims; and that consequently its lia-
bility should be restricted to the liability fixed by its com-
pensation laws.
97 F. Supp. at 317. The court responded that the key contract was the
plaintiff's employment contract with his employer, not that between
6
the defendant contractor and the plaintiff's employer. The latter con-
tract could not affect the rights of a non-party. Id. We conclude there-
fore, based on Braxton's reliance on Goode, that North Carolina
would reason likewise, disregard such contractual language, and
apply the rule of Braxton.1
III.
Having determined that South Carolina workers' compensation law
governs Eades' right to sue, we turn to that law and conclude that the
hospital was not Eades' "statutory employer." Because Eades is there-
fore free to bring suit, we reverse the district court's entry of sum-
mary judgment and remand for further proceedings.
South Carolina bars tort suits by an employee against an employer
when workers' compensation covers that employee. S.C. Code
§ 42-1-540. This bar extends to "statutory employers" -- those who
do not employ the plaintiff but are treated as if they did. The rationale
is to prevent evasion of the workers' compensation laws via subcon-
tracting. Glass v. Dow Chemical Co., 482 S.E.2d 49, 50 n.1 (S.C.
1997). When an entity contracts out work, it is a statutory employer
of any employees of the subcontractor who perform work that
involves "part of [the] trade, business or occupation" of that entity.
S.C. Code § 42-1-400. South Carolina courts have interpreted this
provision as covering activities that
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1 The Fourth Circuit has since held that Goode's interpretation of Vir-
ginia's choice-of-law rules "no longer has validity." Garcia v.
Pittsylvania County Service Auth., 845 F.2d 465, 468 (4th Cir. 1988).
But Braxton's key reasoning did not involve Virginia law, even though
it bolstered its holding by looking to Virginia law and applying renvoi,
and in so doing appears to have misinterpreted Virginia law. See Garcia,
845 F.2d at 467 (holding that Virginia now applies lex loci delicti for
determining whether workers' compensation bars a suit). More impor-
tantly, because Braxton was decided well after Garcia, we assume that
the North Carolina Court of Appeals, in deciding to rely on Goode, was
aware of Garcia and the cases on which it relied, but concluded that the
reasoning of Goode had merit for purposes of North Carolina law even
though Virginia law has since changed.
7
(1) are an important part of the trade or business of the
employer, (2) are a necessary, essential, and integral part of
the business of the employer, or (3) have been previously
performed by employees of the employer.
Glass, 482 S.E.2d at 50. (The "employer" in this language is the
alleged statutory employer, not the subcontractor.) The court in Glass
recently further refined the first two tests to require asking whether
the work at issue is part of the entity's "basic operation." See 482
S.E.2d at 51.
The district court held that the hospital satisfied both (1) and
(2) (only one being necessary to qualify), and so it did not consider
(3). The hospital contends that it satisfies all three.
Although each case is fact-sensitive, id. at 51; Raines v. Gould, Inc.
343 S.E.2d 655, 659 (S.C. App. 1986), one can discern some trends
and general categories. First, "construction work," including electrical
installations, is usually not part of the "business of the employer"
under the first two tests, unless that employer maintains a separate
division for such matters or carries out construction "more or less"
perpetually (such as a utility constructing power plants or erecting
transmission lines). See Raines, 343 S.E.2d at 657-58 (holding that
employee of subcontractor installing electrical system at battery plant
being constructed for defendant was not defendant's statutory
employee).
Second, intermittent repairs to physical plant are generally not part
of the "business of the employer," but regular and frequent mainte-
nance is. See Glass, 482 S.E.2d at 52 (distinguishing precedent based
on "the frequency of service and repairs that the[ ] defendant antici-
pated" and noting that activity involved in case"happens only occa-
sionally"). The scope or nature of the repair or maintenance affects
this question: a "major" repair or one requiring "technical knowledge
that was highly specialized" is less likely to be part of the "business
of the employer." Id. at 51. But if the"basic operation" of the business
"is dependent on" the work at issue, or if the work is "related to the
basic operation" of the business, that work is more like regular main-
tenance and thus more important to the business of the employer. See
Glass, 482 S.E.2d at 51; Raines, 343 S.E.2d at 659 ("[The record does
8
not indicate the work being performed by Raines . . . was an integral
part of [battery manufacturer's] operations without which it cannot
function.").
Third, whether the business ever does or could perform such work
with its own employees is relevant to whether that work is part of its
business, even though that is technically a separate (third) test. See
Glass, 482 S.E.2d at 51-52 (stating that "where repairs are . . . of the
sort which the employer is not equipped to handle with its own work
force, they are not part of the business"); Raines, 343 S.E.2d at 657
(citing cases). And just because a company has used its own employ-
ees for work of a lesser degree than that at issue does not make it a
statutory employer. See Raines, 343 S.E.2d at 657, 659. But work
may still be integral to a company's basic operations even if the com-
pany's own employees do not perform it, where the company "cannot
function" without that work. Id. Cf . Woodard v. Westvaco Corp., 433
S.E.2d 890, 895 (S.C. App. 1993) (holding manufacturer to be a statu-
tory employer because transportation of chemical in question was
necessary to continue normal production).
Applying these factors, we are confident that the hospital was not
Eades' statutory employer. The basic operation of the hospital, in the
hospital's own words, is "patient care." J.A. 200. The work of Eades
and Instel is electrical testing, only indirectly related to this basic
operation both in kind and in importance. Had Instel not performed
the electrical testing, the hospital's operations would not have faced
any immediate interruption, or any likely interruption in the foresee-
able future. A power outage due to a hurricane or a bolt of lightning
is more likely to disrupt the hospital's electrical current than is failing
to perform triennial testing. Even had there been a threat of interrup-
tion, Instel's contract barred it from performing the necessary repairs,
so the hospital can hardly argue that the necessity of hypothetical
repairs by a third party shows that Instel's checking for that necessity
is part of the hospital's basic operation.
Further, although this testing does occur regularly, it is surely spo-
radic, occurring only once every three years. This is barely even "oc-
casional[ ]," Glass, 482 S.E.2d at 52. And, again, the basic operation
of the hospital's business does not depend on or relate to this triennial
9
testing. Instel does nothing to affect the day-to-day operations of the
hospital.
Finally, the hospital's employees do not perform this testing nor
are they capable of doing so. The hospital's employees lack the
NETA certification that Veterans Administration regulations require
for performing this testing, and even if they had such certification, the
hospital lacks the financial resources "to invest in the expensive test-
ing equipment" necessary for the testing. In addition, as noted above,
it is not dispositive that hospital employees perform lesser electrical
maintenance or inspection. See Raines, 343 S.E.2d at 657, 659. The
policy behind the statutory employer doctrine, Glass, 482 S.E.2d at
50 n.1, reinforces this point. If the hospital is incapable of performing
this work, for both regulatory and financial reasons, we need not fear
that the hospital, in contracting it out, is attempting to evade the work-
ers' compensation law.
We think it irrelevant, one way or the other, that Veterans Admin-
istration regulations mandate that the hospital have this testing per-
formed. Both the district court and the hospital raise this argument,
but without citing any authority. One could argue, although they did
not, that compliance with legal requirements is a"necessary [or]
essential . . . part of the business of the employer," because failure to
comply may lead to government-mandated termination of operations.
On the other hand, in Glass the work at issue was performed under
legal compulsion of a sort -- to avoid litigation-- and the court did
not even suggest that this pointed toward statutory employer status.
Quite the contrary. See Glass, 482 S.E.2d at 51 ("Workers' activities
were not related to the basic operation of Dow's business. . . . Instead,
[they] stemmed simply from Dow's desire to avoid litigation costs.").
Further, to sanction this argument is to create an incentive for the
government to write its regulations with an eye toward desirable sta-
tus under workers' compensation laws. If this factor were to matter
at all, it would only be where a generally applicable law was at issue,
not where, as here, self-imposed regulations mandate an action.
For these reasons, Instel's work at the hospital, even if we consid-
ered it "part of the business" of the hospital, was neither "an important
part" nor "a necessary, essential, and integral part" of that business.
Likewise, the hospital cannot satisfy the third test, because its
10
employees have not "previously performed" the key testing that Instel
performs. If Instel's electrical testing qualified the hospital as the
"statutory employer" of Instel's employees-- perhaps on the argu-
ment that the hospital needs electricity to perform its basic operation
and without testing it cannot be sure that it will have that electricity
-- we strain to imagine what contracting out of work would not like-
wise qualify. Most any sort of repair or inspection, if neglected long
enough, will eventually impair a business' operation.
The above discussion distinguishes our decision in Singleton v. J.P.
Stevens & Co., Inc., 726 F.2d 1011, 1013 (4th Cir. 1984), on which
the district court relied. We there held that under South Carolina law
repairs of electrical lines for a textile plant, during which the plant
closed completely, were an essential part of the textile company's
business. Raines cited Singleton for exactly this narrow point. Raines,
343 S.E.2d at 658 & n.6 (citing Singleton for the proposition that
work "may be considered a part of [a business's] trade or business if
the work is an integral part of its operations without which it cannot
function"). Singleton, unlike the instant case, involved actual repairs
of damaged lines. Those widespread damages -- to"all of the high
voltage cables" at the plant, 726 F.2d at 1012-- directly threatened
the basic operation of the plant, and the repairs required a halt to that
operation. Further, Singleton predated the South Carolina courts' cre-
ation of the three-fold test for the statutory employer doctrine and the
apparent narrowing of that doctrine in Glass.2
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2 Eades further argues, for the first time at oral argument on appeal, that
the hospital may not avail itself of South Carolina's statutory employer
defense where it has not likewise availed itself of South Carolina's work-
ers' compensation laws, citing Harrell v. Pineland Plantation, Ltd., 494
S.E.2d 123 (S.C. App. 1998), cert. granted (Aug. 20, 1998). Because the
applicability of the statutory employer defense is a jurisdictional ques-
tion, see Glass, 482 S.E.2d at 51, Eades has not waived this argument,
see Trandes Corp. v. Guy F. Atkinson Co., 996 F.2d 655, 665 (4th Cir.
1993). But because we have concluded on other grounds that the hospital
is not Eades' statutory employer, and because an appeal of Harrell is
pending, we see no reason to reach this question.
11
CONCLUSION
Because the hospital is not Eades' statutory employer under South
Carolina law, Eades is free to bring his suit against the hospital. We
therefore reverse the judgment of the district court to the contrary and
remand for further proceedings.
REVERSED AND REMANDED
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