WSI v. Badger Roustabouts ( 2021 )

FILED
IN THE OFFICE OF THE
CLERK OF SUPREME COURT
SEPTEMBER 16, 2021
STATE OF NORTH DAKOTA
IN THE SUPREME COURT
STATE OF NORTH DAKOTA
2021 ND 166State of North Dakota by and through
Workforce Safety and Insurance, Appellant
v.
Badger Roustabouts, LLC, Appellee
No. 20210022
Appeal from the District Court of Burleigh County, South Central Judicial
District, the Honorable Bruce A. Romanick, Judge.
AFFIRMED IN PART, AND REVERSED IN PART.
Opinion of the Court by Jensen, Chief Justice.
Jacqueline S. Anderson, Special Assistant Attorney General, Fargo, ND, for
appellant.
Jonathon Yunker, Devils Lake, ND, for appellee.
WSI v. Badger Roustabouts
No. 20210022
Jensen, Chief Justice.
[¶1] Workforce Safety and Insurance (WSI) appeals from a district court
order and judgment affirming an administrative law judge’s (ALJ) order
reversing a WSI order. The reversed WSI order had determined Badger
Roustabouts was an employer of individuals providing roustabout services. In
addition to affirming the ALJ’s order, the court awarded attorney’s fees to
Badger under N.D.C.C. § 28-32-50. We affirm the judgment affirming the ALJ’s
order and reverse the court’s award of attorney’s fees.
I
[¶2] Badger is a limited liability corporation that has provided roustabouts to
oil drilling companies since 2012. Judd Sturm owns Badger. At the times
relevant to this case, Badger provided roustabouts exclusively to Continental
Resources, Inc. under a Master Service Contract between Badger and
Continental.
[¶3] In October 2018, WSI issued a notice of decision determining an
employer-employee relationship existed between Badger Roustabouts and
Thomas Quandt. The notice also determined Badger was the employer of other
workers similarly situated to Quandt. Badger and Quandt requested
reconsideration.
[¶4] In April 2019, WSI issued an administrative order concluding Badger
was an employer of Quandt and the similarly situated workers, Badger was
liable for payment of worker’s compensation premiums, and Badger’s officers—
Judd Sturm and Michelle Sturm—were personally liable for unpaid workers’
compensation premium, penalties, interest, and costs owed by Badger in the
amount of $3,041.27. Badger requested a hearing before an ALJ.
[¶5] In January 2020, an administrative hearing was held before an ALJ. In
May 2020, the ALJ issued final findings of fact, conclusions of law, and an order
reversing WSI’s April 2019 order. On the evidence presented at the evidentiary
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hearing, the ALJ found Badger had rebutted the statutory presumption that
Quandt was an employee. In applying the twenty common-law factors and the
right to control test, the ALJ concluded Quandt was an independent
subcontractor of Badger, rather than Badger’s employee. The ALJ concluded
Badger is not liable for payment of worker’s compensation premiums for
Quandt or any of the similarly situated workers. The ALJ also reversed the
determination that Badger’s officers were personally liable for unpaid
premiums.
[¶6] WSI appealed the ALJ’s final order to the district court. After a
September 2020 hearing, the court entered an order affirming the ALJ’s
decision. The court concluded the ALJ’s findings are reasonable and not
against the weight of the evidence. Badger applied for an award of attorney’s
fees, to which WSI objected. In January 2021, the court entered an order and
judgment awarding Badger its attorney’s fees and expenses.
II
[¶7] Under the Administrative Agencies Practice Act, N.D.C.C. ch. 28-32,
courts exercise limited appellate review of an administrative agency final
order. State by and through Workforce Safety & Ins. v. Questar Energy Servs.,
Inc., 2017 ND 241, ¶ 6, 902 N.W.2d 757. Under N.D.C.C. §§ 28-32-46 and 28-
32-49, the district court and this Court must affirm an agency order unless:
1. The order is not in accordance with the law.
2. The order is in violation of the constitutional rights of the
appellant.
3. The provisions of this chapter have not been complied with in
the proceedings before the agency.
4. The rules or procedure of the agency have not afforded the
appellant a fair hearing.
5. The findings of fact made by the agency are not supported by a
preponderance of the evidence.
6. The conclusions of law and order of the agency are not supported
by its findings of fact.
7. The findings of fact made by the agency do not sufficiently
address the evidence presented to the agency by the appellant.
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8. The conclusions of law and order of the agency do not sufficiently
explain the agency’s rationale for not adopting any contrary
recommendations by a hearing officer or an administrative law
judge.
N.D.C.C. § 28-32-46.
[¶8] In reviewing an ALJ’s findings of fact, a court may not make independent
findings of fact or substitute its judgment for the ALJ’s findings; rather, the
court must decide only whether a reasoning mind reasonably could have
determined the findings were proven by the weight of the evidence from the
entire record. Questar, 2017 ND 241, ¶ 7 (citation omitted); see also Power
Fuels, Inc. v. Elkin, 283 N.W.2d 214, 220 (N.D. 1979). Similar deference is
given to an independent ALJ’s factual findings because the ALJ has the
opportunity to observe and assess witnesses’ credibility and resolve conflicts in
the evidence. Questar, at ¶ 7. A court reviews the independent ALJ’s legal
conclusions in the same manner as legal conclusions generally, and questions
of law are fully reviewable. Id.[¶9] “Whether a worker is an independent contractor or an employee is a
mixed question of fact and law.” State ex rel. Workforce Safety & Ins. v. Larry’s
On Site Welding, 2014 ND 81, ¶ 14, 845 N.W.2d 310 (quoting Matter of BKU
Enters., Inc., 513 N.W.2d 382, 387 (N.D. 1994)). “In reviewing a mixed question
of fact and law, the underlying predicate facts are treated as findings of fact,
and the conclusion whether those facts meet the legal standard is a question
of law.” Id. “Whether an employer has retained the right to direct and control
the services performed by workers is a finding of fact.” Id.; see also Questar,
2017 ND 241, ¶ 9.
III
[¶10] Section 65-01-03(1), N.D.C.C., provides a presumption that a worker is
an employee: “Each individual who performs services for another for
remuneration is presumed to be an employee of the person for which the
services are performed, unless it is proven that the individual is an
independent contractor under the common-law test.” A party asserting that an
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individual is an independent contractor has the burden of proving that fact. Id.In Larry’s On Site Welding, 2014 ND 81, ¶ 17, this Court further explained:
“[T]he label the parties place on the relationship is not
determinative. It is how the relationship between the parties
actually operates which is important.” Midwest Prop. Recovery,
Inc. v. Job Serv. of N.D., 475 N.W.2d 918, 923 (N.D. 1991). “The
central question in determining whether an individual is an
employee or independent contractor is: Who is in control?” Myers-
Weigel Funeral Home v. Job Ins. Div. of Job Serv. N.D., 1998 ND
87, ¶ 9, 578 N.W.2d 125; see also Matter of BKU Enterprises, Inc.,
513 N.W.2d 382, 385 (N.D. 1994) (stating, “the common law test
focuses upon the employer’s right to direct and control the means
and manner of performing the work”).
[¶11] WSI has promulgated N.D. Admin. Code § 92-01-02-49(1)(a), delineating
the common-law test:
An employment relationship exists when the person for whom
services are performed has the right to control and direct the
individual person who performs the services, not only as to the
result to be accomplished by the work but also as to the details and
means by which that result is accomplished. It is not necessary
that the employer actually direct or control the manner in which
the services are performed; it is sufficient if the employer has the
right to do so. The right to discharge is a significant factor
indicating that the person possessing that right is an employer.
The right to terminate a contract before completion to prevent and
minimize damages for a potential breach or actual breach of
contract does not, by itself, establish an employment relationship.
Other factors indicating an employer-employee relationship,
although not necessarily present in every case, are the furnishing
of tools and the furnishing of a place to work to the person who
performs the services. The fact that the contract must be
performed at a specific location such as building site, does not, by
itself, constitute furnishing a place to work if the nature of the
work to be done precludes a separate site or is the customary
practice in the industry. If a person is subject to the control or
direction of another merely as to the result to be accomplished by
the work and not as to the means and methods for accomplishing
the result, the person will likely be an independent contractor. A
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person performing services as an independent contractor is not as
to such services an employee.
[¶12] Section 92-01-02-49(1)(b), N.D. Admin. Code, contains twenty factors as
a guide for determining whether a worker is an independent contractor or an
employee. Cf. N.D. Admin. Code § 27-02-14-01(5)(b) (“The degree of importance
of each factor varies depending on the occupation and the factual context in
which the services are performed.”). Under N.D. Admin. Code § 92-01-02-49(2),
eight of the factors are given more weight in deciding whether an employer-
employee relationship exists: integration; continuing relationship; significant
investment; realization of profit or loss; working for more than one firm at a
time; making services available to the general public; right to dismissal; and
the right to termination. See Larry’s On Site Welding, 2014 ND 81, ¶ 18.
IV
[¶13] WSI argues that the ALJ misapplied N.D.C.C. § 65-01-03 and N.D.
Admin. Code § 92-01-02-49 in deciding Badger had rebutted the presumption
of employee status of Quandt and other roustabouts. The primary focus of
WSI’s argument is that Quandt was doing the “same type of work” as some of
Badger’s other roustabouts who were treated as employees and that Badger
did not rebut the statutory presumption of employment and prove the
roustabouts who received remuneration for services under Badger’s MSC with
Continental were, in fact, independent contractors. WSI asserts that the
evidence showed no material differences between the work performed by
Badger’s roustabouts, whether designated as an employee or an independent
contractor, and all workers took their direction from the same person at the
worksite, i.e., the “company man.” WSI argues the ALJ’s legal analysis of the
common-law factors is erroneous because there was no material distinction as
to how the services were performed by workers that Badger classified as
employees and those classified as independent contractors. WSI contends
Badger did not meet its burden to rebut the presumption under N.D.C.C. § 65-
01-03.
[¶14] WSI specifically argues on appeal that the ALJ misapplied the law with
respect to factors 3 (integration), 6 (continuing relationship), 15 (significant
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investment), 16 (realization of profit or loss), 17 (working for more than one
firm at a time), 18 (making services available to general public), 19 (right of
dismissal) and 20 (right to terminate). WSI also contends the ALJ erred in
applying the non-weighted factors under N.D. Admin. Code § 92-01-02-
49(1)(b). WSI makes specific arguments that the ALJ erred in analyzing factors
1 (instructions), 2 (training), 4 (services rendered personally), 5 (hiring,
supervising and paying assistants), 7 (set hours of work), 11 (oral and written
reports), 13 (payment of business or traveling expenses), and 14 (furnishing
tools and materials). WSI argues the ALJ erred in applying the factors and the
analysis is not in accordance with the law. WSI contends the ALJ’s findings
are erroneous because they were made without regard to the overall facts of
the case and because there is no material difference between Quandt and
Badger’s other employees. WSI argues that the ALJ’s decision must be
reversed as a matter of law because the ALJ applied the incorrect legal
analysis.
[¶15] WSI further argues the ALJ could not reasonably conclude Badger had
rebutted the presumption under N.D.C.C. § 65-01-03 because no material
distinctions exist between the roustabouts classified as employees and the
independent contractors. WSI asserts the testimony of Quandt, Sturm, and
Badger’s other employees, established no material difference in the work
performed at the site or benefits of the position regardless of whether Badger
considered the worker an “employee” or an “independent contractor.” WSI
contends equivocal or insufficient evidence cannot rebut the presumption of
employee status and the reasoning mind standard of review requires the ALJ’s
decision be based “on the entire record.”
[¶16] Here, WSI’s argument on appeal suggests the ALJ’s decision failed to
make findings regarding the “entire record.” Generally, an agency must
consider the entire record, sufficiently address the evidence, and adequately
explain its reasons for disregarding evidence presented to it by the appellant.
See Swenson v. Workforce Safety & Ins. Fund, 2007 ND 149, ¶ 26, 738 N.W.2d
892; see also N.D.C.C. § 28-32-46(7). Regarding the ALJ’s findings on the
specific predicate facts, however, the standard of review requires only that a
reasoning mind reasonably could have determined the findings were proven by
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the weight of the evidence from the entire record. See Larry’s On Site Welding,
2014 ND 81, ¶ 14.
[¶17] On the basis of our review of the record and the ALJ’s specific findings
on the common-law factors, the ALJ considered the credibility and testimony
of the evidence and witnesses presented at the administrative hearing and
made requisite findings on the predicate facts. Under our deferential review of
the ALJ’s findings, we conclude that the ALJ did not err in the ultimate
conclusion that Quandt is an independent contractor. We therefore affirm the
ALJ’s decision.
V
[¶18] WSI argues the district court erred in awarding attorney’s fees under
N.D.C.C. § 28-32-50. This section provides, in part:
1. In any civil judicial proceeding involving as adverse parties an
administrative agency and a party not an administrative agency
or an agent of an administrative agency, the court must award the
party not an administrative agency reasonable attorney’s fees and
costs if the court finds in favor of that party and, in the case of a
final agency order, determines that the administrative agency
acted without substantial justification.
2. This section applies to an administrative or civil judicial
proceeding brought by a party not an administrative agency
against an administrative agency for judicial review of a final
agency order, or for judicial review pursuant to this chapter of the
legality of agency rulemaking action or a rule adopted by an agency
as a result of the rulemaking action being appealed.
(Emphasis added.)
[¶19] WSI contends, based on the plain language, N.D.C.C. § 28-32-50 does not
apply to this “administrative proceeding.” WSI argues that attorney’s fees are
not payable under N.D.C.C. § 28-32-50(1), contending this is not a “civil judicial
proceeding” because it is an administrative appeal filed by WSI for review of a
final ALJ decision, or under N.D.C.C. § 28-32-50(2), which is limited to appeals
“brought by a party not an administrative agency.” WSI argues alternatively
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that, even if N.D.C.C. § 28-32-50 does apply, the district court erred in
concluding WSI acted without “substantial justification” in pursuing this case.
[¶20] This Court has explained “[N.D.C.C. § 28-32-50] authorizes attorney fees
‘[i]n any civil judicial proceeding’ for ‘judicial review of a final agency order,’ if
the court finds in favor of the nonagency party and, in the case of a final agency
order, determines the agency acted without substantial justification.” Singha
v. N.D. State Bd. of Med. Exam’rs, 1998 ND 42, ¶ 36, 574 N.W.2d 838 (quoting
Medcenter One, Inc. v. N.D. Bd. of Pharm., 1997 ND 54, ¶ 26, 561 N.W.2d 634).
A nonagency party must meet a two-part test under the statute: 1) the non-
administrative agency party must prevail, and 2) the agency must have acted
without substantial justification. Singha, at ¶ 37; see also Carlson v. Workforce
Safety & Ins., 2012 ND 203, ¶ 24, 821 N.W.2d 760; Drayton v. Workforce Safety
& Ins., 2008 ND 178, ¶ 38, 756 N.W.2d 320; Rojas v. Workforce Safety & Ins.,
2006 ND 221, ¶ 14, 723 N.W.2d 403.
[¶21] In Rojas, 2006 ND 221, ¶¶ 11-18, this Court specifically discussed
N.D.C.C. § 28-32-50(1) and concluded the district court erred in determining
N.D.C.C. § 28-32-50 cannot be applied in WSI cases. We held the statute may
be applied to award an employee reasonable attorney’s fees when WSI denies
or reduces an employee’s benefits without substantial justification. Rojas, at ¶
16. “Substantial justification means, justified in substance or in the main—
that is, justified to a degree that could satisfy a reasonable person.” Drayton,
2008 ND 178, ¶ 38 (quoting Rojas, at ¶ 17). “A position is substantially justified
if a reasonable person could think the position is correct, and the position has
a reasonable basis in law and fact.” Rojas, at ¶ 17. “[W]hether the agency acted
with substantial justification is discretionary with the district court, and we
apply an abuse of discretion standard on appeal.” Tedford v. Workforce Safety
& Ins., 2007 ND 142, ¶ 26, 738 N.W.2d 29.
[¶22] Consistent with N.D.C.C. § 28-32-50(1) and our decision in Rojas, we
conclude WSI’s appeal of the ALJ’s order to the district court is a “civil judicial
proceeding” involving a nonagency adverse party, i.e., the employer, for judicial
review of a “final agency order.” Under current law, the administrative law
judge’s order constitutes WSI’s “final agency order” for purposes of appeal to
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the district court. See N.D.C.C. §§ 65-02-22.1 (“Notwithstanding any other
provisions of law, workforce safety and insurance shall contract with the office
of administrative hearings for the designation of administrative law judges
who shall conduct evidentiary hearings and issue final findings of fact,
conclusions of law, and orders.”); 65-04-32(6) (“An employer may appeal a
posthearing administrative order to district court in accordance with chapter
65-10. Chapter 65-10 does not preclude the organization from appealing to
district court a final order issued by a hearing officer under this title.”); see also
N.D.C.C. §§ 28-32-01(2) (“‘Administrative agency’ or ‘agency’ means each
board, bureau, commission, department, or other administrative unit of the
executive branch of state government, including one or more officers,
employees, or other persons directly or indirectly purporting to act on behalf
or under authority of the agency.”); 28-32-39(2) (“If the agency head, or another
person authorized by the agency head or by law to issue a final order, is
presiding, the order issued is the final order.”). Moreover, in reviewing an
independent ALJ’s final order under N.D.C.C. § 65-02-22.1, courts apply the
same deferential standard to review an independent ALJ’s factual findings as
is generally used for agency decisions not involving an independent ALJ. See
Larry’s On Site Welding, 2014 ND 81, ¶ 13.
[¶23] Here, in awarding attorney’s fees and costs, the district court found WSI
had acted without “substantial justification” because WSI’s order did not have
a reasonable basis in law. To support this finding, the court pointed out that
the court had “concluded more than half of the facts listed by WSI favor an
independent contractor status” and, as such, a reasonable person “could not
think a determination of employee status is correct.”
[¶24] This case involves a fact-driven analysis of a multitude of factors to
determine whether a worker is properly classified as an employee or an
independent contractor. The parties’ competing arguments for either
classification could be made in good faith in this case, and the ALJ’s final order,
which WSI appealed to the district court, had reversed WSI’s earlier
administrative order and concluded the factors favored independent contractor
status. While WSI may not have ultimately been correct in its position, this
case does not demonstrate the “rare” instance of an agency acting without
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“substantial justification.” Although WSI did not ultimately prevail, WSI’s
positions have a reasonable basis in law and fact.
[¶25] We conclude the district court abused its discretion in determining WSI
acted without “substantial justification.” See Drayton, 2008 ND 178, ¶ 39;
Peterson v. N.D. Dep’t of Transp., 518 N.W.2d 690, 696 (N.D. 1994); Aggie Invs.
GP v. Pub. Serv. Comm’n, 470 N.W.2d 805, 814 (N.D. 1991). We reverse the
court’s award of attorney’s fees.
VI
[¶26] We affirm the court’s judgment affirming the decision of the ALJ and
reverse the award of attorney’s fees.
[¶27] Jon J. Jensen, C.J.
Gerald W. VandeWalle
Daniel J. Crothers
Lisa Fair McEvers
Jerod E. Tufte
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