Gridiron Mgmt. Group v. Travelers Indemnity Co. ( 2013 )

Nebraska Advance Sheets
GRIDIRON MGMT. GROUP v. TRAVELERS INDEMNITY CO. 901
Cite as 286 Neb. 901
CONCLUSION
I disagree with the majority’s application of the “inexplica-
bly intertwined” exception to the two October 2008 incidents
which, I believe, fall under § 27-404(2). The court erred in
admitting these incidents without a § 27-404(3) hearing. I
conclude, however, that the error was harmless and therefore
concur in the judgment.
Stephan and Miller-Lerman, JJ., join in this concurrence.
Stephan, J., concurring.
To the extent that both of Smith’s statements to Corey in
October 2008 can reasonably be understood as constituting
threats, as the majority characterizes them, I agree with my
concurring colleagues that they were subject to Neb. Rev. Stat.
§ 27-404(2) (Cum. Supp. 2012), but their admission under the
“inexplicably intertwined” exception was harmless error.
I write separately only to note my view that the first of
the statements, which unlike the second did not involve any
display of weapons, was ambiguous and could also be reason-
ably understood to mean that Smith did not wish to have any
involvement with Corey because he was a “snitch.” So con-
strued, I would not regard that statement as “[e]vidence of other
crimes, wrongs, or acts” within the meaning of § 27-404(2).
But its admission at trial would constitute, at worst, harmless
error. Therefore, I concur in the judgment.
Gridiron Management Group, LLC, appellant, v.
Travelers Indemnity Company, appellee.
___ N.W.2d ___
Filed November 15, 2013. No. S-12-1129.
1. Administrative Law: Judgments: Appeal and Error. A judgment or final order
rendered by a district court in a judicial review pursuant to the Administrative
Procedure Act, Neb. Rev. Stat. §§ 84-901 to 84-920 (Reissue 2008, Cum. Supp.
2012 & Supp. 2013), may be reversed, vacated, or modified by an appellate court
for errors appearing on the record.
2. ____: ____: ____. When reviewing an order of a district court under the
Administrative Procedure Act for errors appearing on the record, the inquiry is
whether the decision conforms to the law, is supported by competent evidence,
and is neither arbitrary, capricious, nor unreasonable.
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3. Administrative Law: Appeal and Error. In an appeal under the Administrative
Procedure Act, an appellate court will not substitute its factual findings for
those of the district court where competent evidence supports the district
court’s findings.
4. Administrative Law: Presumptions: Proof. When challenging the decision
of an administrative agency, the presumption under Nebraska law is that the
agency’s decision was correct, with the burden of proof upon the party challeng-
ing the agency’s actions.
5. Contracts. Where the terms of a contract are clear, they are to be accorded their
plain and ordinary meaning.
6. ____. A contract is viewed as a whole in order to construe it.
7. Administrative Law: Appeal and Error. Where a correct result is based upon
facts that have not been found by an administrative agency, an appellate court
may not affirm on different grounds. But an appellate court is without power to
affirm on a different ground only when doing so would usurp the administrative
agency’s role as a finder of fact or as a maker of policy, or would otherwise
intrude upon the domain entrusted to the administrative agency.
Appeal from the District Court for Lancaster County: Karen
B. Flowers, Judge. Affirmed.
Michael J. Mullen, of Burns Law Firm, for appellant.
Justin High, of Taylor, High & Younes, and CeCelia C.
Ibson, of Ibson Law Firm, for appellee.
Heavican, C.J., Wright, Connolly, Stephan, McCormack,
Miller-Lerman, and Cassel, JJ.
Heavican, C.J.
I. INTRODUCTION
The district court, acting as an intermediate court of
appeals under the Administrative Procedure Act, affirmed
the decision of the director of the Department of Insurance.
At issue on appeal is the appropriate experience modifier
(XMod) to be used when calculating the premium owed by
Gridiron Management Group, LLC (Gridiron), for its work-
ers’ compensation insurance. We affirm the decision of the
district court.
II. BACKGROUND
In 2007, Gridiron purchased the assets of the Omaha Beef
indoor football team, owned by Omaha Beef, LLC. The pur-
chase agreement indicated that Gridiron was purchasing
Nebraska Advance Sheets
GRIDIRON MGMT. GROUP v. TRAVELERS INDEMNITY CO. 903
Cite as 286 Neb. 901
[t]he property and other rights . . . including but not
limited to: all trade names; websites; telephone num-
bers; football field and related equipment; merchandise;
football equipment; uniforms and associated peripher-
als; lease assignment; pre-paid sales revenue for the
[United Indoor Football] 2008 season; operating sched-
ules; ticket holder information; advertising informa-
tion; sponsorship information; profit and loss state-
ments; office equipment; software; the United Indoor
Football League franchise rights; furniture; fixtures;
account receivables; leasehold improvements; records;
and goodwill . . . .
Gridiron also agreed to assume a limited number of liabilities
as set forth in an appendix attached to the agreement.
Gridiron is a Nebraska limited liability company formed for
the primary purpose of purchasing and operating the Omaha
Beef indoor football team. Following the purchase, Omaha
Beef, LLC, remained an active corporation according to the
Nebraska Secretary of State’s office, but there is no evidence
in the record as to whether Omaha Beef, LLC, continued to
engage in business activity following the sale of the Omaha
Beef football team.
During the first 3 to 4 months of ownership, Gridiron made
several improvements to the operation of the team. First, it
changed the location where practices were held, moving to a
better-lit, safer facility. Unlike Omaha Beef, LLC, Gridiron
required at least one, if not two, trainers to be at each practice.
Gridiron also hired a full-time team chiropractor, mandated
the use of knee braces at practice, and instituted weight train-
ing and nutrition programs for players. Gridiron hired a new
head coach and increased the size of the coaching staff from
two to five. Only a few of the players from the previous years’
roster made the team for the 2008 season. Note that in addi-
tion to operating the Omaha Beef football team, Gridiron was
involved in other business activities, notably the marketing of
boxing matches.
In February 2008, Gridiron applied for workers’ compensa-
tion insurance under the Nebraska Workers’ Compensation Plan
(NWCP). The NWCP provides a mechanism for purchasing
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workers’ compensation insurance for employers who can-
not obtain such insurance on the open market. The State of
Nebraska has contracted with Travelers Indemnity Company
(Travelers) to act as carrier for the NWCP, and in such capac-
ity, Travelers is required to provide insurance to every eligible
employer who complies with the requirements of the plan and
pays the premium. That premium is determined by the National
Council on Compensation Insurance, Inc. (NCCI), in accord­
ance with its “Manuals of Rules, Classifications, Rates and
Rating Plans.” The NCCI uses the “Experience Rating Plan
Manual” to assign each applicant with an XMod to be used in
calculating the premium. The XMod is based upon an appli-
cant’s workers’ compensation claims experience—the higher
the XMod, the higher the premium. A new business is assigned
an XMod of “1.00,” and an XMod is recalculated based on an
insured’s “eligible experience.”
Gridiron argued that it was entitled to an XMod of “1.00,”
because it was a new entity with no claims experience. But
the NCCI disagreed and determined that under rule 3-C-1(a),
Gridiron was “combinable” with Omaha Beef, LLC, and that
thus, the various XMod’s assigned to Omaha Beef, LLC, for
the relevant time periods must be transferred to Gridiron. An
NCCI panel upheld the NCCI’s decision, though it instead
reasoned that Gridiron was a successor entity to Omaha Beef,
LLC, under rule 3-C-1(a)(4).
Gridiron appealed to the Nebraska Department of Insurance.
The department affirmed, concluding that (1) Gridiron had the
burden of proof; (2) Gridiron was a successor entity to Omaha
Beef, LLC; (3) the NCCI panel’s decision finding “combinabil-
ity in accordance with Rule 3-C” was correct; (4) the evidence
failed to show that Gridiron and Omaha Beef, LLC, were
separate and independent companies; and (5) the NCCI panel’s
determination of the XMod was correct. The department also
found that the issue of unpaid premiums, raised by Travelers
for the first time before the department, should be determined
in a separate civil action.
Gridiron appealed to the district court, which affirmed. The
district court concluded that Gridiron had the burden of proof,
but had failed to meet that burden to show that it was not a
Nebraska Advance Sheets
GRIDIRON MGMT. GROUP v. TRAVELERS INDEMNITY CO. 905
Cite as 286 Neb. 901
successor to Omaha Beef, LLC, under rule 3-C-1(a)(2) and
(4). The district court reasoned that Gridiron was a successor
to Omaha Beef, LLC, and that change in ownership resulted
in the transfer of the workers’ compensation rating for Omaha
Beef, LLC, to Gridiron. Gridiron appeals.
Note that the district court found error in the department’s
determination that Gridiron had failed to show it was a separate
and independent company from Omaha Beef, LLC, and further
found that “this is not about combinability” and that Omaha
Beef, LLC, and Gridiron are not combinable entities. Neither
of these findings has been appealed.
III. ASSIGNMENTS OF ERROR
On appeal, Gridiron assigns, restated and renumbered,
that the district court erred in finding that (1) Gridiron had
the burden of proof to show there was no “‘change in own-
ership’” and (2) a “‘change in ownership’” existed such
that the XMod of Omaha Beef, LLC, should be transferred
to Gridiron.
IV. STANDARD OF REVIEW
[1-3] A judgment or final order rendered by a district court
in a judicial review pursuant to the Administrative Procedure
Act, Neb. Rev. Stat. §§ 84-901 to 84-920 (Reissue 2008,
Cum. Supp. 2012 & Supp. 2013), may be reversed, vacated,
or modified by an appellate court for errors appearing on the
record.1 When reviewing an order of a district court under
the Administrative Procedure Act for errors appearing on the
record, the inquiry is whether the decision conforms to the
law, is supported by competent evidence, and is neither arbi-
trary, capricious, nor unreasonable.2 In an appeal under the
Administrative Procedure Act, an appellate court will not sub-
stitute its factual findings for those of the district court where
competent evidence supports the district court’s findings.3
1
AT&T Communications v. Nebraska Public Serv. Comm., 283 Neb. 204,
811 N.W.2d 666 (2012).
2
Id.
3
Id.
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V. ANALYSIS
1. Burden of P roof
Gridiron first assigns that the district court erred in finding
that it had the burden of proof to show that the NCCI’s XMod
determination was incorrect and that there was no “change in
ownership” under rule 3-C-1(a).
[4] When challenging the decision of an administrative
agency, the presumption under Nebraska law is that the agen-
cy’s decision was correct, with the burden of proof upon the
party challenging the agency’s actions.4 Of course, in this case,
the original decision being challenged was that of the NCCI
and not the department. But we view this as a distinction with-
out a difference. We conclude that the NCCI’s determination,
once affirmed by the department, is entitled to a presumption
of correctness. And, as noted above, it is the burden of the
party challenging that determination—here Gridiron—to show
that the decision was in fact incorrect.5
Gridiron’s first assignment of error is without merit.
2. Rule 3-C-1(a)
Gridiron next assigns that the district court erred in affirm-
ing the determination below that there was a “change in
ownership” under rule 3-C-1(a) supporting the transfer of the
XMod for Omaha Beef, LLC, to Gridiron. Gridiron instead
contends that it is entitled to an XMod of “1.00,” the XMod
assigned to new entities without any claims experience.
Travelers argues that the decision of NCCI transferring the
XMod of Omaha Beef, LLC, to Gridiron was correct because
the sale of the Omaha Beef football team from Omaha Beef,
LLC, to Gridiron was a change in ownership as contemplated
by rule 3-C-1(a).
The insurance policy between Travelers and Gridiron pro-
vides that “[a]ll premium[s] for this policy will be determined
4
See, e.g., In re Application of United Tel. Co., 230 Neb. 747, 433 N.W.2d
502 (1988). See, also, Salem Decorating v. Nat. Coun. on Comp. Ins., 116
Or. App. 166, 840 P.2d 739 (1992) (relying on general burden of proof as
set forth under evidence code); Tex. St. Bd. of Dental Exam. v. Sizemore,
759 S.W.2d 114 (Tex. 1988).
5
See, e.g., In re Application of United Tel. Co., supra note 4.
Nebraska Advance Sheets
GRIDIRON MGMT. GROUP v. TRAVELERS INDEMNITY CO. 907
Cite as 286 Neb. 901
by our manuals of rules, rates, rating plans and classifica-
tions.” And the agreement between Travelers and the State of
Nebraska provides that the “rating systems and policy forms
used by the Contract Carrier shall be those filed by the [NCCI]
for use by all member insurers in Nebraska.”
Rule 3-C-1(a) of the NCCI’s experience rating plan man-
ual states:
For purposes of this Plan, a change in ownership includes
any of the following:
(1) Sale, transfer, or conveyance of all or a portion of
an entity’s ownership interest
(2) Sale, transfer, or conveyance of an entity’s physical
assets to another entity that takes over its operations
(3) Merger or consolidation of two or more entities
(4) Formation of a new entity that acts as, or in effect
is, a successor to another entity that:
(a) Has dissolved
(b) Is non-operative
(c) May continue to operate in a limited capacity
(5) An irrevocable trust or receiver, established either
voluntarily or by court mandate[.]
At issue on appeal are the definitions of change in ownership
as set forth in rule 3-C-1(a)(2) and (4).
(a) Rule 3-C-1(a)(4)
On appeal, Gridiron argues that it is not a successor to
Omaha Beef, LLC, under the principles of corporate law and
that for this reason, there was no change in ownership under
rule 3-C-1(a)(4). For its part, Travelers concedes that Gridiron
is not a successor under the principles of corporate law, but
suggests that Gridiron is framing the issue incorrectly and that
the focus should not be on the corporate entity, but instead
should be on “the risk to be insured.”6
[5,6] Familiar principles guide this court in its interpreta-
tion of the language of the manual, namely that where the
terms of a contract are clear, they are to be accorded their
6
Brief for appellee at 28.
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plain and ordinary meaning.7 A contract is viewed as a whole
in order to construe it.8
Under the terms of the NWCP, the contract carrier, Travelers,
must utilize the ratings plans of the NCCI. And the policy
between Travelers and Gridiron provides that the NCCI man­
uals will be used by Travelers. This court has held that the
NCCI manuals are appropriately incorporated by reference into
policies issued under the NWCP.9
To properly interpret rule 3-C-1(a), we must consider all
of the relevant provisions of the NCCI’s rating manual. Rule
3-E-1 provides that the “experience for any entity undergo-
ing a change in ownership will be retained or transferred
to the experience ratings of the acquiring, surviving or new
entity unless specifically excluded by this Plan.” Change in
ownership is defined in rule 3-C as reprinted above. Rule
3-F-1 is entitled “Evasion of Experience Rating Modification”
and provides:
Some employers may take actions for the purpose
of avoiding an experience rating modification. Other
employers may take actions for otherwise legitimate busi-
ness reasons that nonetheless result in the improper appli-
cation of an experience rating modification. Regardless
of intent, any action that results in the miscalculation or
misapplication of an experience rating modification deter-
mined in accordance with this Plan is prohibited. These
actions include, but are not limited to:
•  ailure to report changes in ownership according to
F
Endorsement WC 00 04 14
•  change in ownership
A
•  change in combinability status
A
•  reation of a new entity
C
•  ransfer of operations from one entity to another entity
T
that is not combinable according to Rule 3-D
7
Pavers, Inc. v. Board of Regents, 276 Neb. 559, 755 N.W.2d 400 (2008).
8
Hearst-Argyle Prop. v. Entrex Comm. Servs., 279 Neb. 468, 778 N.W.2d
465 (2010).
9
Travelers Indemnity Co. v. International Nutrition, 273 Neb. 943, 734
N.W.2d 719 (2007).
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GRIDIRON MGMT. GROUP v. TRAVELERS INDEMNITY CO. 909
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•  isrepresentation on audits or failure to cooperate with
M
an audit[.]
Rule 3-D deals with the combination of entities.
The general rule, then, provides that an experience rating is
retained when an entity undergoes a change in ownership. As
the language of rule 3-E-1 demonstrates, this rule is written
broadly in that the rating transfers to the “acquiring, surviving
or new entity.” A change in ownership is also defined broadly
in rule 3-C-1 to encompass five different scenarios as dispar­
ate as a transfer of ownership interest, the purchase of assets,
merger or consolidation, formation of a new entity, or a trust
or receivership. There is nothing in the language of any of
these rules that would suggest the definition of successor under
corporate law principles comes into play here, as is argued by
Gridiron. Rather, the rules suggest that a change in ownership
is intended to be broadly defined to fit with the general rule
that an experience rating will be retained.
And the language of rule 3-C-1(a)(4) itself lends further
support to this conclusion. That rule provides that there is a
“change in ownership” with the “[f]ormation of a new entity
that acts as, or in effect is, a successor . . . .” (Emphasis sup-
plied.) Plainly, this language does not limit situations involv-
ing a “change in ownership” to those in which one entity
is actually a successor under corporate law. Instead, it also
includes entities that are “in effect” a successor—clearly a
broader definition.
We conclude that the sale of the Omaha Beef football team
to Gridiron by Omaha Beef, LLC, is a “change in ownership”
under rule 3-C-1(a)(4). Omaha Beef, LLC, was still an active
corporation, but there was no evidence that it was conduct-
ing business—and it certainly was not operating the Omaha
Beef football team. And Gridiron was a new entity that was
“in effect . . . a successor” to Omaha Beef, LLC, because, like
Omaha Beef, LLC, before it, Gridiron’s business was operat-
ing the Omaha Beef football team. And because Gridiron was
a successor under rule 3-C-1(a)(4), there was a “change in
ownership” sufficient to permit the transfer of the XMod for
Omaha Beef, LLC, to Gridiron.
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(b) Rule 3-C-1(a)(2)
In addition, we conclude that the district court was cor-
rect in finding there was a change in ownership under rule
3-C-1(a)(2). In its appeal of this finding, Gridiron argues that
the district court erred in finding a change in ownership under
rule 3-C-1(a)(2). Gridiron argues that because the NCCI did
not rely on rule 3-C-1(a)(2), the district court erred in doing
so. Gridiron further argues that even if the district court prop-
erly relied upon rule 3-C-1(a)(2), that definition was not met,
because Gridiron did not take on the operations of Omaha
Beef, LLC.
We disagree with Gridiron that there was no change in
ownership as defined under rule 3-C-1(a)(2). Rather, we find
it clear that under rule 3-C-1(a)(2), there was a change in
ownership. It is undisputed that Gridiron was formed for the
purpose of purchasing and operating the Omaha Beef football
team. The purchase agreement clearly states that Gridiron is
purchasing the assets of Omaha Beef, LLC, and includes a
laundry list of assets, most notably including the United Indoor
Football League franchise, the trade name “Omaha Beef,” and
the goodwill of the Omaha Beef football team. While the pur-
chase agreement does not specifically indicate that Gridiron is
purchasing all assets, it also does not exclude any assets from
the sale and the parties do not contend that some assets were
excluded from the sale. Finally, Gridiron, as a new entity, has
taken over the operations of Omaha Beef, LLC: what Omaha
Beef, LLC, did—running the Omaha Beef football team—is
instead now done by Gridiron. We reject Gridiron’s assertions
to the contrary.
Nor are we persuaded by Gridiron’s assertion that the dis-
trict court, and now this court, cannot rely on rule 3-C-1(a)(2)
to find a change of ownership in this case because the NCCI
failed to do so. Gridiron cites no authority to support this
contention, and accordingly, we reject it. But even if we con-
strue Gridiron’s argument broadly and presume that Gridiron
is arguing that this court and the district court can judge the
administrative record of the department only on the grounds
upon which it was made and not on any other, we still find it
to be without merit.
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GRIDIRON MGMT. GROUP v. TRAVELERS INDEMNITY CO. 911
Cite as 286 Neb. 901
We addressed this issue in Farmland Foods v. State.10 There,
the plaintiffs argued that this court could not affirm the deci-
sion of the State Tax Commissioner on grounds different
than those relied upon by the commissioner in his order. The
plaintiffs contended that to do so would be to violate the
“‘cardinal principle of administrative law,’” as set forth by the
U.S. Supreme Court in Securities Comm’n v. Chenery Corp.,11
namely, that the “‘grounds upon which an administrative order
must be judged are those upon which the record discloses that
its action was based and no others.’”12
[7] But we explained that the plaintiffs were misconstruing
this “‘cardinal principle.’”13 We explained that where the cor-
rect result was based upon facts that had not been found by the
administrative agency, an appellate court could not affirm on
different grounds.14 But,
[s]ubsequent decisions from other courts have held that an
appellate body is without power to affirm on a different
ground only when doing so would usurp the agency’s role
as a finder of fact or as a maker of policy, or would other-
wise intrude upon the domain entrusted to the administra-
tive agency.15
In Farmland Foods, we ultimately declined to reach the
issue of whether we could affirm on grounds different from
those cited by an administrative agency. However, we decided
the case on similar grounds: “No rule of law precludes this
court from affirming an agency decision stating a correct
reason and correct facts simply because a portion of those
facts was not explicitly connected with the agency’s cor-
rect reason.”16
10
Farmland Foods v. State, 273 Neb. 262, 729 N.W.2d 73 (2007).
11
Securities Comm’n v. Chenery Corp., 318 U.S. 80, 63 S. Ct. 454, 87 L. Ed.
626 (1943).
12
Farmlands Foods, supra note 10, 273 Neb. at 268, 729 N.W.2d at 79.
13
Id.
14
Farmland Foods, supra note 10.
15
Id. at 270, 729 N.W.2d at 79.
16
Id. at 270, 729 N.W.2d at 79-80.
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We find Farmland Foods helpful to our disposition here.
The department’s order, while somewhat unclear, made the
correct findings of fact to support a change in ownership under
rule 3-C-1(a)(2), discussed that section, and essentially con-
cluded that it had been met. The order simply failed to note
that finding in its conclusions of law section of the order.
We therefore conclude that in addition to the change in own-
ership under rule 3-C-1(a)(4), there was a change in ownership
under rule 3-C-1(a)(2) due to the asset sale and taking over
of the business operations of Omaha Beef, LLC, by Gridiron.
While this was not a basis for the department’s decision, it is
supported by the findings made by the department.
Gridiron’s second assignment of error is without merit.
VI. CONCLUSION
The decision of the district court is affirmed.
Affirmed.