Bortolotti v. Universal Terrazzo & Tile Co. ( 2019 )

Nebraska Supreme Court Online Library
www.nebraska.gov/apps-courts-epub/
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Nebraska Supreme Court A dvance Sheets
304 Nebraska R eports
BORTOLOTTI v. UNIVERSAL TERRAZZO & TILE CO.
Cite as 304 Neb. 219
Terry Bortolotti, appellee and cross-appellant, v.
Universal Terrazzo and Tile Company and
Acuity Insurance Company, appellants
and cross-appellees, and Columbia
Insurance Group, appellee.
___ N.W.2d ___
Filed October 11, 2019. No. S-17-1024.
1. Workers’ Compensation: Evidence: Appeal and Error. The findings
of fact made by the Nebraska Workers’ Compensation Court will not be
set aside on appeal unless clearly wrong. However, where there is not
sufficient competent evidence to support an award, an appellate court
must modify, reverse, or set aside the award.
2. Workers’ Compensation: Wages: Appeal and Error. The determina-
tion of average weekly wage is a mixed question of fact and law. To
the extent the determination involves a question of fact, the Workers’
Compensation Court’s factual findings will not be set aside unless
clearly wrong; to the extent a question of law is involved, an appellate
court is obligated to make its own determination.
3. Pleadings. An amended pleading supersedes the original pleading,
whereupon the original pleading ceases to perform any office as a
pleading.
4. Pleadings: Proof. The pleadings alone are not proof but mere allega-
tions of what the parties expect the evidence to show.
5. Statutes. Statutory language is to be given its plain and ordinary
meaning.
6. Workers’ Compensation. The Nebraska Workers’ Compensation Act
should be construed liberally to carry out its spirit and beneficent
purposes.
7. Workers’ Compensation: Corporations: Words and Phrases. Net
profits or net income of a subchapter S corporation do not necessarily
qualify as “wages” under Neb. Rev. Stat. § 48-126 (Reissue 2010).
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8. Workers’ Compensation: Corporations: Employer and Employee:
Wages: Words and Phrases. “Wages” under Neb. Rev. Stat. § 48-126
(Reissue 2010) do not include payments received solely because of the
recipient’s status as an S corporation shareholder. Rather, “wages” under
§ 48-126 are compensation for the recipient’s activities as a corpo-
rate employee.
9. ____: ____: ____: ____: ____. The determination of “wages” under
Neb. Rev. Stat. § 48-126 (Reissue 2010) for an employee-shareholder of
a subchapter S corporation is a fact-specific inquiry.
10. Workers’ Compensation: Evidence: Appeal and Error. When test-
ing the sufficiency of the evidence to support findings of fact made
by the Workers’ Compensation Court trial judge, the evidence must be
considered in the light most favorable to the successful party, every
controverted fact must be resolved in favor of the successful party, and
the successful party will have the benefit of every inference reasonably
deducible from the evidence.
11. Workers’ Compensation: Appeal and Error. On appellate review, the
factual findings made by the trial judge of the Workers’ Compensation
Court have the effect of a jury verdict and will not be disturbed unless
clearly wrong.
Petition for further review from the Court of Appeals,
Moore, Chief Judge, and Bishop and A rterburn, Judges, on
appeal thereto from the Workers’ Compensation Court, Julie A.
M artin, Judge. Judgment of Court of Appeals affirmed in part,
and in part reversed and remanded with direction.
John W. Iliff and Adam J. Wachal, of Gross & Welch, P.C.,
L.L.O., for appellants.
John F. Thomas and Jay D. Koehn, of McGrath, North,
Mullin & Kratz, P.C., L.L.O., for appellee Terry Bortolotti.
Heavican, C.J., Miller-Lerman, Cassel, Stacy, Funke,
Papik, and Freudenberg, JJ.
Cassel, J.
I. INTRODUCTION
On appeal from the Nebraska Workers’ Compensation Court’s
award to Terry Bortolotti, the Nebraska Court of Appeals
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BORTOLOTTI v. UNIVERSAL TERRAZZO & TILE CO.
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reduced his weekly income benefit from the maximum to the
minimum and eliminated the award of out-of-pocket medical
expenses.1 On further review, we uphold the reduced weekly
benefit but reinstate the medical expense award.
The income benefit depends on the correct determination
of Bortolotti’s average weekly wage, which the compensation
court erroneously based on a superseded pleading. In a mat-
ter of first impression, we address the definition of “wages”
where the worker is both an employee and a shareholder of a
subchapter S corporation.
Regarding Bortolotti’s medical expenses, the Court of
Appeals failed to give his testimony the inferences mandated
by the deferential standard of review.
II. BACKGROUND
1. Trial Proceedings
Bortolotti worked in a family business, Universal Terrazzo
and Tile Company (Universal), for over 30 years as an installer
of terrazzo tile and fabricator and installer of granite. In 2011,
Bortolotti became the sole stockholder and the president of
Universal—a subchapter S corporation. Universal had at least
15 employees. As president, Bortolotti spent 60 percent of
his time performing office and managerial work as opposed
to physical labor. While he was president, Universal changed
workers’ compensation insurance providers from Columbia
Insurance Group to Acuity Insurance Company.
The injury at issue in this appeal occurred in June 2013.
Bortolotti’s operative petition for workers’ compensation bene-
fits alleged weekly earnings of $3,625 at the time of the injury.
Universal and Acuity Insurance Company denied the allega-
tion. Henceforth, we collectively refer to Universal and Acuity
Insurance Company as “Universal.” We set forth additional
facts in our analysis.
1
Bortolotti v. Universal Terrazzo and Tile Co., No. A-17-1024, 2019 WL
446630 (Neb. App. Feb. 5, 2019) (selected for posting to court website).
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BORTOLOTTI v. UNIVERSAL TERRAZZO & TILE CO.
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The compensation court determined that Bortolotti sustained
a compensable injury. It specifically found Bortolotti to be
a credible witness. The compensation court had difficulty
determining Bortolotti’s average weekly wage due to a lack
of exhibits. Based on an allegation in a superseded plead-
ing, the court held that Bortolotti’s average weekly wage was
$1,399.45, entitling him to the maximum compensation rate of
$728 per week.
With regard to past medical expenses, the compensation
court stated that it was unable to use an exhibit offered by
Bortolotti, because it did not comply with a court rule. But the
court awarded Bortolotti $9,849.38—the amount that he testi-
fied he personally paid for his medical expenses and which was
itemized in greater detail on the exhibit he offered.
Universal appealed, and Bortolotti cross-appealed. Universal
challenged, among other things, the calculation of Bortolotti’s
average weekly wage and the award of out-of-pocket medi-
cal expenses.
2. Court of A ppeals’ Decision
The Court of Appeals affirmed the compensation court’s
award as modified. It noted that documents establishing
Bortolotti’s 2013 income were records in his control and that he
did not produce any such documentation. The Court of Appeals
concluded that the compensation court erred in determining
Bortolotti’s average weekly wage from the allegations in his
petition, noting that Universal denied the allegations. Because
Universal adduced evidence that Bortolotti’s 2013 wages were
$3,950, the Court of Appeals determined that Bortolotti should
have been awarded the minimum income benefit of $49 per
week under Neb. Rev. Stat. § 48-121.01 (Reissue 2010).
The Court of Appeals eliminated the award for Bortolotti’s
out-of-pocket medical expenses. It agreed with Universal that
because the compensation court did not rely on the exhibit
offered by Bortolotti, it had no basis to award the $9,849.38
in expenses.
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Bortolotti filed a petition for further review, which we
granted.
III. ASSIGNMENTS OF ERROR
Bortolotti assigns two errors. He alleges that the Court of
Appeals erred by substituting its own judgment for that of the
compensation court in (1) failing to give him the benefit of all
factual inferences when it reduced his average weekly wage
and (2) finding that he failed to prove entitlement to recover
his out-of-pocket medical expenses.
IV. STANDARD OF REVIEW
[1] The findings of fact made by the compensation court
will not be set aside on appeal unless clearly wrong.2 However,
where there is not sufficient competent evidence to support an
award, an appellate court must modify, reverse, or set aside the
award.3 These standards are central to our review, but we set
forth other standards where applicable.
V. ANALYSIS
1. Average Weekly Wage
(a) Standard of Review
Our case law regarding whether determination of average
weekly wage is a question of law or fact or both is muddled.
Initially, we recognized it as a mixed question of fact and
law.4 In that case, we stated that “[t]he formula for comput-
ing the average weekly wage depends upon whether plaintiff
was engaged in an occupation involving seasonal employ-
ment or nonseasonal employment.”5 When we next considered
determination of average weekly wage, we stated that it was
2
See Hare v. Watts Trucking Service, 220 Neb. 403, 370 N.W.2d 143
(1985). See, also, Neb. Rev. Stat. § 48-185 (Reissue 2010).
3
Hare v. Watts Trucking Service, supra note 2.
4
Elrod v. Prairie Valley, 214 Neb. 697, 335 N.W.2d 317 (1983).
5
Id. at 698, 335 N.W.2d at 318.
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“essentially” a question of fact.6 Unsurprisingly, the next time
the issue arose, we treated it as a factual question, stating that
the trial court’s factual finding as to average weekly wage was
not clearly wrong.7 Nine months later, the Court of Appeals
addressed the question of what is included within the word
“wages” as a factual one.8
Our decision in Hull v. Aetna Ins. Co.9 appears to have cre-
ated confusion. We stated:
We note that the determination of the definition of the
average weekly wage of a self-employed claimant is a
question of law. An appellate court is obligated in work-
ers’ compensation cases to make its own determinations
as to questions of law. [Citations omitted.] Thus, we are
obligated to clarify the meaning of the term “business
expenses” in our previous holding.10
This is a correct statement as to the definition of such wage.
Importantly, we did not say the determination of average
weekly wage is a question of law. The Court of Appeals next
confronted the issue and, without citing Hull, opined that the
trial court’s determination of average weekly wage was a ques-
tion of fact.11
Since then, published Nebraska appellate cases have uni-
formly stated that the determination of how the average weekly
wage of a workers’ compensation claimant should be calcu-
lated is a question of law. It began with Harmon v. Irby Constr.
6
Clifford v. Harchelroad Chevrolet, 229 Neb. 78, 80, 425 N.W.2d 331, 332
(1988).
7
See McGowan v. Lockwood Corp., 245 Neb. 138, 511 N.W.2d 118 (1994).
8
Logan v. Rocky Mountain Rental, 3 Neb. Ct. App. 173, 524 N.W.2d 816
(1994).
9
Hull v. Aetna Ins. Co., 249 Neb. 125, 541 N.W.2d 631 (1996).
10
Id. at 131, 541 N.W.2d at 634-35.
11
See McGinnis v. Metro Package Courier, 5 Neb. Ct. App. 538, 561 N.W.2d
587 (1997).
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Co.,12 where we proclaimed: “The determination of how the
average weekly wage of a workers’ compensation claimant
should be calculated is a question of law. Hull v. Aetna Ins.
Co., 249 Neb. 125, 541 N.W.2d 631 (1996).” But, as set forth
above, that does not accurately recite what we said in Hull. It
snowballed from there. We cited Harmon in Ramsey v. State.13
The Court of Appeals then cited Ramsey in two cases,14 and
we cited Ramsey in Mueller v. Lincoln Public Schools.15 In our
most recent case to address determination of average weekly
wage,16 we cited Mueller.
[2] Having traced the jurisprudential underpinnings regard-
ing the standard of review, we believe our original iteration
to be correct: The determination of average weekly wage is a
mixed question of fact and law. To the extent the determination
involves a question of fact, the compensation court’s factual
findings will not be set aside unless clearly wrong; to the
extent a question of law is involved, we are obligated to make
our own determination.17
(b) Additional Facts
An amended petition alleged an average weekly wage of
$1,399.45 in June 2013. But a second amended petition and
the third amended petition—the operative petition—alleged
weekly earnings of $3,625 at the time of the June 2013 injury.
In Universal’s respective answers to each of these pleadings, it
denied the allegation of average weekly wage.
12
Harmon v. Irby Constr. Co., 258 Neb. 420, 429, 604 N.W.2d 813, 820
(1999).
13
Ramsey v. State, 259 Neb. 176, 609 N.W.2d 18 (2000).
14
See, Griffin v. Drivers Mgmt., Inc., 14 Neb. Ct. App. 722, 714 N.W.2d 749
(2006); Arbtin v. Puritan Mfg. Co., 13 Neb. Ct. App. 540, 696 N.W.2d 905
(2005).
15
Mueller v. Lincoln Public Schools, 282 Neb. 25, 803 N.W.2d 408 (2011).
16
Becerra v. United Parcel Service, 284 Neb. 414, 822 N.W.2d 327 (2012).
17
See Elrod v. Prairie Valley, supra note 4.
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BORTOLOTTI v. UNIVERSAL TERRAZZO & TILE CO.
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During trial, counsel for each party referenced figures con-
tained on a tax return for Bortolotti, but documents contain-
ing such figures are not in our record. Our record contains
only a 2013 “Schedule E,” titled “Income From Passthrough
Statement,” which showed self-employment wages of $3,950
and qualified production activities income of $186,783.
Additional information can be gleaned from the following col-
loquy between Bortolotti and his counsel:
Q [by counsel for Bortolotti]. Okay. All right. Let’s talk
about your average weekly wage.
Now, in looking at your tax return, I see that you were
the —
Did Universal . . . file a 2013 tax return?
A [by Bortolotti]. Yes.
Q. And it shows that the — that under your —
That was a joint tax return with you and your wife;
correct?
A. Yes.
Q. And under Item 17, it shows rental real estate,
royalties, partnerships, S Corporations, trusts, attached
Schedule E. And that number is 198,873.
Is that the income that the corporation would have
received from the work for 2013?
A. Yes.
Later, during cross-examination, the following questions and
answers ensued:
Q [by counsel for Universal]. Now, there was some
questions about your tax return.
On your tax return, there’s also a line for wages;
correct?
A [by Bortolotti]. Yes.
Q. And you and your wife were wage earners at
Universal . . . ?
A. Yes.
Q. And you put on your Form 1040 that you submitted
to the Internal Revenue Service that you and your wife
had wages of $12,000 in 2013.
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BORTOLOTTI v. UNIVERSAL TERRAZZO & TILE CO.
Cite as 304 Neb. 219
Do you recall that?
A. Yes.
Bortolotti believed the $12,000 in wages to be his wife’s
wages. According to Bortolotti, he did not receive a salary and
he considered his wage to be whatever tax returns showed the
corporation’s net amount to be. Bortolotti also testified that he
took a weekly draw of $3,625 from the corporation’s income
of $198,873.
Universal submitted a document containing its calculation
of Bortolotti’s average weekly wage. The document showed
six payments in 2013 totaling $1,350: five made in January
and February in the amount of $250 each and one payment of
$100 in June. Universal thus calculated Bortolotti’s average
weekly wage as “$1,350.00 ÷ 26 weeks = $51.92.” Another
exhibit, summarizing a payroll journal, showed 32 payments
to Bortolotti during 2013 which totaled $3,950. Bortolotti
testified that these exhibits were not accurate records of his
weekly income.
The compensation court recognized that Bortolotti had
the burden to establish his average weekly wage. The court
then explained the difficulty it encountered in determining
Bortolotti’s average weekly wage:
The Court spent a considerable amount of time on
this issue, more time than it should have. The lack of
exhibits left the Court with a formidable and difficult
task. Clearly, [Bortolotti] should have provided better evi-
dence. Without tax returns, the Court was unable to verify
if business expenses had been properly deducted from the
company’s gross earnings he relied upon. . . . A simple
mathematical calculation did not substantiate the weekly
draw testified to ($198,873/52 weeks=$3,824.48), leaving
the Court to question his testimony on this issue. On the
other hand, the Court does not find [Universal’s] calcu-
lation to represent his correct earnings either. The only
consistent figure, to some extent, that the Court found
came from the pleadings. His first two Petitions alleged
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a weekly wage of $1,300.00 and the Third Amended
Petition alleged the more specific number of $1,399.45.
Accepting the allegations in the pleadings as true and not
being sufficiently persuaded the amount is incorrect, the
Court holds that [Bortolotti’s] average weekly wage on
June 13, 20l3, was $1,399.45.
(c) Discussion
An award of the compensation court may be modified if the
findings of fact by the compensation court do not support the
order or award.18 We agree with the Court of Appeals that the
compensation court erred in determining Bortolotti’s average
weekly wage was $1,399.45.
[3,4] No evidence supported this amount. Although one of
Bortolotti’s earlier petitions alleged this amount, Universal’s
answer denied that allegation. Thus, there was no admission
derived from that pleading, and certainly no judicial admis-
sion.19 An amended pleading supersedes the original pleading,
whereupon the original pleading ceases to perform any office
as a pleading.20 Essentially, the allegation of $1,399.45 ceased
to exist upon the filing of subsequent amended petitions. So
when the compensation court found that “the Third Amended
Petition alleged the more specific number of $1,399.45,” it
clearly erred for two reasons. First, the number came from
the ineffective, superseded pleading. But there was a more
fundamental flaw. The pleadings alone are not proof but mere
allegations of what the parties expect the evidence to show.21
Because the finding was based solely upon a pleading, which
was not evidence, the finding had literally no evidence to sup-
port it. This finding was clearly wrong. Thus, the Court of
18
See Martinez v. CMR Constr. & Roofing of Texas, 302 Neb. 618, 924
N.W.2d 326 (2019).
19
See Cook v. Beermann, 202 Neb. 447, 276 N.W.2d 84 (1979).
20
deNourie & Yost Homes v. Frost, 295 Neb. 912, 893 N.W.2d 669 (2017).
21
In re Estate of Radford, 297 Neb. 748, 901 N.W.2d 261 (2017).
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Appeals was required to reverse or modify that portion of the
award. We now review its determination.
In determining average weekly wage, neither the compensa-
tion court nor the Court of Appeals discussed any significance
of Universal’s status as a subchapter S corporation. The com-
pensation court, citing Hull v. Aetna Ins. Co.,22 stated merely
that “[a] self-employed claimant’s average weekly wage under
Neb. Rev. Stat. § 48-121(2) shall be based upon the claimant’s
gross income less business expenses, i.e., net income.” During
oral arguments, counsel for the parties agreed that Hull does
not apply here. The Court of Appeals recognized that Bortolotti
was the sole shareholder and an employee of Universal, but
its analysis did not mention the corporation’s status as an
S corporation.
Universal’s status as an S corporation with Bortolotti as its
sole shareholder is a complicating feature. “Subchapter S is a
tax status designed to tax corporate income on a pass-through
basis to shareholders of a small business corporation.”23 A
subchapter S corporation is not taxed on its earnings; rather,
the income, expenses, and other tax items “‘“pass through”’”
and are taxable to or deductible by shareholders.24 In a child
support case, after recognizing that income for the purpose
of child support is not synonymous with taxable income, we
stated that the owner of a wholly owned S corporation is self-
employed within the meaning of the child support guidelines.25
But for tax purposes, self-employed individuals and S corpora-
tion shareholders are treated differently.
Whether the profits of an S corporation should be included
as wages in determining average weekly wage is an issue of
first impression in Nebraska. A treatise on workers’ compensa-
tion law does not provide clear guidance:
22
Hull v. Aetna Ins. Co., 247 Neb. 713, 529 N.W.2d 783 (1995).
23
Gase v. Gase, 266 Neb. 975, 983, 671 N.W.2d 223, 230 (2003).
24
Id.
25
See Gase v. Gase, supra note 23.
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Generally, profits from a business, whether commer-
cial or farm, are not considered as wages for purposes
of establishing average wage. But close questions have
arisen in connection with corporate officers, who may
also be stockholders, whose remuneration is not fixed but
depends to some extent on the fortunes of the business.
One court has held that the employee’s share of profits
was not the correct measure, but that the test should be
the wage of another employee performing similar duties.26
A different resource states:
If a corporate officer or stockholder is a wage-­earning
corporate employee, and the wages reflect services ren-
dered, presumably the wages paid would normally con-
stitute the basis for computing workers’ compensation
benefits. It has been said that where an officer of a
corporation is injured while performing the duties of an
ordinary employee, compensation for the injury must be
based on wages received by him in the capacity of such
employee. . . .
. . . A stockholder’s share in the corporate profits cannot
be deemed wages for workers’ compensation purposes.27
Legal commentators agree that profits from the injured work-
er’s own business enterprise are not considered in determining
the average wage unless they are almost entirely the direct
result of the worker’s personal management and endeavor.28
Decisions from other jurisdictions provide some insight. In
a case where an injured employee and three others each held a
25-percent interest in a closely held corporation and the injured
employee received no wages from the company, the Tennessee
26
8 Arthur Larson et al., Larson’s Workers’ Compensation Law § 93.01[2][e]
at 93-26 to 93-27 (2017).
27
2 John P. Ludington et al., Modern Workers Compensation § 201:15 at
25-26 (Matthew J. Canavan & Donna T. Rogers eds., 1993).
28
See, 82 Am. Jur. 2d Workers’ Compensation § 411 (2013); 100 C.J.S.
Workers’ Compensation § 592 (2013).
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Supreme Court reasoned that the employee’s earnings should
be based on the compensation paid by the same company to
another employee performing the same or similar duties.29 A
Virginia appellate court held that profits from a sole propri-
etorship or a wholly owned S corporation were not earnings
that could be used to calculate the average weekly wage.30 In
a New York case where the claimant was the owner, president,
and sole shareholder of an S corporation and also performed
work as a mechanic, the court affirmed a determination that the
claimant’s average weekly wage was $500 per week based on
payroll entries indicating those weekly payments.31
In a Pennsylvania workers’ compensation case,32 the com-
monwealth court considered what the term “wage” meant in
the context of an injured worker’s dual role as employee and as
president and sole owner of an S corporate employer. Viewing
the controversy as an issue of fact, the court stated that sub-
stantial evidence supported the findings below: that the net
of the worker’s $96,000 salary and the corporation’s $66,472
net loss represented the worker’s earnings from the business.
The court observed that “[i]n several cases, the compensation
authorities and appellate courts have treated the determina-
tion of an employee’s average weekly wage as a factual issue,
subject to review for support by substantial evidence.”33 And
its discussion of two earlier cases showed that the result was
driven by the substantial evidence standard. In one case,34 the
claimant was the sole proprietor of a home repair business and
it was determined that gross income rather than net profit was
a more accurate reflection of the claimant’s earnings. In the
29
P & L Const. Co., Inc. v. Lankford, 559 S.W.2d 793 (Tenn. 1978).
30
Smith v. Robert W. Smith, 32 Va. App. 242, 527 S.E.2d 463 (2000).
31
Joyce v. European Auto Service, 226 A.D.2d 952, 641 N.Y.S.2d 175
(1996).
32
Mullen v. W.C.A.B. (Mullen’s Truck), 945 A.2d 813 (Pa. Commw. 2008).
33
Id. at 818.
34
Moore v. W.C.A.B., 539 Pa. 333, 652 A.2d 802 (1995).
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other case,35 the claimant was both an employee and an owner
of a small corporation and compensation authorities declined
to rely on corporate income in determining average weekly
wage. The court explicitly recognized that “[a] decision as to
whether a claimant’s gross income or net income most accu-
rately reflects earnings is a question of fact for the [workers’
compensation judge].”36
An Illinois case relied in part on a state statute defin-
ing average weekly wage to mean actual earnings.37 In that
case, an employee sustained an injury while working as a
refuse scavenger for a village. While working for the village,
the employee was also the president and sole shareholder
of a landscaping business, which was an S corporation. The
employee received no wages from the corporation but did
receive income in the form of net profits. The arbitrator did
not include such net profits, stating that salary, wages, or earn-
ings had never been liberally construed to include net profits.
It found that the employee’s earnings during the period of the
injury were $22,679.80 and that his average weekly wage was
$436.15. Both parties appealed to an industrial commission,
which affirmed the judgment as modified. On further appeal,
the employee argued that the commission erred in failing to
include the income generated by his landscaping business in
calculating his average weekly wage. The appellate court held:
“[A] claimant’s business income should not be included in the
calculation of average weekly wage. We would be legislating
from the bench if we were to hold that ‘actual earnings’ should
be construed to include net profit.”38
[5,6] Of course, fundamentally, this is a question of statu-
tory interpretation. Two principles govern. First, statutory
35
Bi-Thor Elec., Inc. v. W.C.A.B., 702 A.2d 1145 (Pa. Commw. 1997).
36
Mullen v. W.C.A.B. (Mullen’s Truck), supra note 32, 945 A.2d at 819.
37
Paoletti v. Industrial Com’n, 279 Ill. App. 3d 988, 665 N.E.2d 507, 216 Ill.
Dec. 447 (1996).
38
Id. at 996, 665 N.E.2d at 512, 216 Ill. Dec. at 452.
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language is to be given its plain and ordinary meaning.39
Second, the Nebraska Workers’ Compensation Act should
be construed liberally to carry out its spirit and beneficent
purposes.40
Thus, we turn to our statutory definition of “wages.” Neb.
Rev. Stat. § 48-126 (Reissue 2010) provides in relevant part:
Wherever in the Nebraska Workers’ Compensation Act
the term wages is used, it shall be construed to mean the
money rate at which the service rendered is recompensed
under the contract of hiring in force at the time of the
accident. . . . In continuous employments, if immediately
prior to the accident the rate of wages was fixed by the
day or hour or by the output of the employee, his or her
weekly wages shall be taken to be his or her average
weekly income for the period of time ordinarily con-
stituting his or her week’s work, and using as the basis
of calculation his or her earnings during as much of the
preceding six months as he or she worked for the same
employer, except as provided in sections 48-121 and
48-122. The calculation shall also be made with reference
to the average earnings for a working day of ordinary
length and exclusive of earnings from overtime, except
that if the insurance company’s policy of insurance pro-
vides for the collection of a premium based upon such
overtime, then such overtime shall become a part of the
basis of determining compensation benefits.
Like the conclusion reached by the Illinois court, we cannot
read “wages” in § 48-126 to include net profit for an employee
of an S corporation.
Bortolotti asks us to find, as the compensation court did,
that he was entitled to the statutory maximum weekly income
benefit 41 of $728. He directs us to the Schedule E showing
39
Christine W. v. Trevor W., 303 Neb. 245, 928 N.W.2d 398 (2019).
40
Krause v. Five Star Quality Care, 301 Neb. 612, 919 N.W.2d 514 (2018).
41
See § 48-121.01(1)(b) and Neb. Rev. Stat. § 48-121.02 (Reissue 2010).
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“Qualified production activities income” of $186,783 and to
his testimony that he took a weekly draw from the corpora-
tion of $3,625 and that his tax return showed a net income
for Universal of $198,873. We note that the compensation
court did not accept this evidence. The court stated that it
was unable to verify if business expenses had been properly
deducted from the company’s gross earnings due to the absence
of tax returns in the record. It also specifically “question[ed]”
Bortolotti’s testimony regarding his weekly draw.
The compensation court also rejected evidence that
Bortolotti’s earnings for 2013 were $3,950. It stated that it did
“not find [Universal’s] calculation to represent [Bortolotti’s]
correct earnings” and that it did “not believe that [Bortolotti]
only earned $3,950.00 in 2013.” This disbelief is understand-
able. After all, he was the president and sole shareholder of a
company that appeared to be profitable.
[7-9] Net profits or net income of a subchapter S corpora-
tion do not necessarily qualify as “wages” under § 48-126.
This statute requires us to focus on the “money rate at which
the service rendered is recompensed.”42 Where both the corpo-
ration and the shareholder-employee expressly treat payments
as wages for all purposes, including for purposes of income
and employment taxes, the evidence may be clear. But, as we
have explained, “wages” under § 48-126 do not include pay-
ments received solely because of the recipient’s status as an
S corporation shareholder. Rather, “wages” under § 48-126
are compensation for the recipient’s activities as a corporate
employee. The determination of “wages” under § 48-126 for
an employee-shareholder of a subchapter S corporation is a
fact-specific inquiry.
Two of our prior decisions provide only limited guidance.
In Bituminous Casualty Corp. v. Deyle,43 the claimant was
the president, general manager, and majority stockholder of a
42
§ 48-126.
43
Bituminous Casualty Corp. v. Deyle, 225 Neb. 82, 402 N.W.2d 859 (1987).
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construction company. The claimant received no cash wages
or bonus from the company, but he kept profits from buying
properties constructed by the company at cost and reselling
or leasing them. The claimant did not report those profits as
income, and the company did not report the benefits as sal-
ary paid to the claimant. We determined that no “wages” were
paid and that thus, the claimant was not entitled to receive any
compensation other than the payment of his medical bills. On
the other hand, in Hull v. Aetna Ins. Co.,44 we stated that a self-
employed claimant’s average weekly wage should be based on
net income. We subsequently affirmed a review panel’s deter-
mination that the self-employed individual’s average weekly
wage was $123.44, based on net business income of $6,419.45
This precedent does not permit us to articulate any bright-
line rule regarding an employee-shareholder of a subchapter
S corporation.
Competent evidence in the record supports the Court of
Appeals’ determination of average weekly wage. The Court
of Appeals determined Bortolotti’s average weekly wage to
be $49—the minimum weekly income benefit provided by
statute46—based on Universal’s evidence that Bortolotti earned
$3,950 in wages in 2013. That amount is supported by the
record—the Schedule E from Bortolotti’s 2013 tax return
showed wages of $3,950, which was the same amount of total
payments to Bortolotti shown on Universal’s payroll journal
for 2013. As the parties recognized, Bortolotti had the burden
to establish his average weekly wage from this S corporation.
Thus, he was required to provide evidence differentiating his
wages as a corporate employee from his profits as a corpo-
rate shareholder. He failed to do so, and Universal presented
competent evidence respecting this distinction. We affirm
44
Hull v. Aetna Ins. Co., supra note 22.
45
See Hull v. Aetna Ins. Co., supra note 9.
46
§ 48-121.01(2).
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the Court of Appeals’ determination that Bortolotti’s average
weekly wage benefit was $49.
2. Out- of-Pocket Medical Expenses
(a) Standard of Review
[10] When testing the sufficiency of the evidence to support
findings of fact made by the Workers’ Compensation Court
trial judge, the evidence must be considered in the light most
favorable to the successful party, every controverted fact must
be resolved in favor of the successful party, and the success-
ful party will have the benefit of every inference reasonably
deducible from the evidence.47
[11] On appellate review, the factual findings made by
the trial judge of the Workers’ Compensation Court have
the effect of a jury verdict and will not be disturbed unless
clearly wrong.48
(b) Additional Facts
Exhibit 41, offered by Bortolotti, was a one-page exhibit
which listed the date, provider, cost, and payer of various med-
ical bills. The court received the exhibit into evidence with-
out objection. During trial, the following colloquy occurred
between Bortolotti and his counsel:
Q. All right. Now, have you then put together in
Exhibit 41 the monies that have been made paid to [a
doctor’s] office by Columbia Insurance, the bills that have
been paid by United Health and then the bills that have
been paid by you for your left shoulder injury?
A. Yes.
Q. And so you’ve paid, according to this, $9,849.38?
A. Yes.
Universal did not inquire about these out-of-pocket expenses
on cross-examination.
47
See Krause v. Five Star Quality Care, supra note 40.
48
Id.
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The compensation court stated that “Although offered
[Bortolotti’s] own itemization of claimed expenses and sum-
maries of payments made by third parties . . . , the Court finds
it is unable to use these for entering an award in favor of
[Bortolotti] as to the payment of medical expenses.” The court
cited Workers’ Comp. Ct. R. of Proc. 10 (2018), which called
for itemized bills. The court’s award stated: “[Bortolotti]
testified that he personally paid $9,849.38 for his medical
expenses, which was itemized in greater detail in Exhibit
41. He should be reimbursed by [Universal] for his out-of-
pocket expenses.”
The Court of Appeals reasoned that because the compensa-
tion court rejected exhibit 41 and Bortolotti “based his answer
‘according to’ exhibit 41,” the compensation court had no basis
to make the award of out-of-pocket medical expenses.49
(c) Discussion
The premise of the Court of Appeals’ conclusion is that the
second question posed to Bortolotti was based solely on exhibit
41. We disagree.
On this issue, the appellate court failed to apply the defer-
ential standard of review, which required it to view the testi-
mony most favorably to Bortolotti and to give him the benefit
of every inference reasonably deducible from the evidence.
The colloquy between Bortolotti and his counsel showed that
Bortolotti “put together” exhibit 41, which raised an infer-
ence that he had personal knowledge of the amounts shown
thereon. In other words, the second question and answer must
be viewed deferentially in the context of the preceding ques-
tion and answer.
The compensation court relied on Bortolotti’s testimony
in finding that he paid $9,849.38 in out-of-pocket medical
expenses. Viewing that testimony most favorably to Bortolotti
and giving him the benefit of every reasonable inference, the
49
Bortolotti v. Universal Terrazzo and Tile Co., supra note 1 at *8.
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compensation court’s factual finding was not clearly wrong.
Accordingly, the Court of Appeals erred in disturbing the com-
pensation court’s award of out-of-pocket expenses.
VI. CONCLUSION
The compensation court’s average weekly wage determina-
tion, based on an allegation in an inoperative pleading, was
clearly wrong. Because the Court of Appeals’ determination of
average weekly wage was supported by competent evidence in
the record, we affirm that determination.
The compensation court was not clearly wrong in find-
ing that Bortolotti paid $9,849.38 in out-of-pocket medical
expenses. We reverse the decision of the Court of Appeals in
part and remand the matter with direction to affirm the com-
pensation court’s award of out-of-pocket medical expenses.
A ffirmed in part, and in part reversed
and remanded with direction.