Opinion
NO. 2015-CA-000059-WC
04-24-2015
KOCH CORPORATION. APPELLANT v. LYNWOOD GASPARD; HON. JANE RICE WILLIAMS, ADMINISTRATIVE LAW JUDGE; AND WORKERS' COMPENSATION BOARD APPELLEES
BRIEF FOR APPELLANT: Kamp T. Purdy Emily Faith Wetmore Lexington, Kentucky BRIEF FOR APPELLEE, LYNWOOD GASPARD: Ched Jennings Louisville, Kentucky
NOT TO BE PUBLISHED PETITION FOR REVIEW OF A DECISION OF THE WORKERS' COMPENSATION BOARD
ACTION NO. WC-10-01064
OPINION
REVERSING AND REMANDING
BEFORE: CLAYTON, D. LAMBERT, AND J. LAMBERT, JUDGES. J. LAMBERT, JUDGE: Koch Corporation has petitioned this Court for review of the portion of the Workers' Compensation Board's (the Board) opinion affirming the Administrative Law Judge's (ALJ) award of benefits enhanced by the 3x multiplier pursuant to Kentucky Revised Statutes (KRS) 342.730(c)1. Koch asserts that the ALJ failed to make findings of fact regarding claimant Lynwood Gaspard's post-injury average weekly wage (AWW) and that the Board overstepped its standard of review by making specific findings on this issue. Because we agree that the Board erred in making its own findings, we reverse the Board's decision.
Gaspard is currently fifty-one years old and lives in Ringgold, Louisiana. During the course and scope of his employment as a carpenter with Koch, Gaspard injured his lower back on October 6, 2008, while working in Houston, Texas, when he caught a large plate of glass. In his Form 101 Application for Resolution of Injury Claim filed September 17, 2010, Gaspard listed his AWW at the time of the injury as $1,300.00, and his current AWW was $870.00. Gaspard indicated that he was self-employed. On Koch's motion, the matter was bifurcated to determine the jurisdictional question of whether Gaspard's employment was principally localized in Kentucky. By interlocutory opinion and order entered September 16, 2011, the ALJ found that Kentucky had jurisdiction over the claim pursuant to KRS 342.670. Gaspard later filed a utilization review regarding Koch's denial of his request for surgery. By interlocutory order entered June 20, 2012, the ALJ found the proposed surgery by Dr. Marco Ramos to be reasonable and necessary, and causally related to his 2008 work injury. The ALJ therefore ordered Koch to immediately pre-authorize payment for the recommended surgery. The ALJ also found that Gaspard was entitled to temporary total disability (TTD) benefits at a rate of $670.02 per week from June 9, 2010, and continuing until he reached maximum medical improvement (MMI) from his surgery. The matter was placed into abeyance until Gaspard reached MMI. Koch petitioned for reconsideration related to the TTD award, citing Gaspard's return to work with Flowers Baking Company and ABM Janitorial Services in 2009. The ALJ ordered that TTD benefits were to begin in December 2010. Gaspard underwent surgery on August 24, 2012.
On January 23, 2013, Koch moved to terminate TTD based upon income statements establishing that Gaspard was earning approximately $2,000.04 per week, which was greater than his pre-injury AWW. Because he had reached a level of improvement that allowed him to work, Koch moved that TTD be terminated pursuant to the statute. Gaspard contended that the income from the bread company constituted "unearned" income because he did not have to physically work. Therefore, the income he brought in would not serve as income in determining TTD. The ALJ passed the motion for determination along with the merits of the claim. Koch continued to dispute this issue based upon Gaspard's tax records and moved to add fraud as an issue based upon Gaspard's representations that he was not working, which were contradicted by his tax information.
Following a benefit review conference (BRC) in July 2013, the ALJ granted Koch's motion to terminate TTD benefits and set a proof schedule. Koch also filed a special answer asserting that it was entitled to a credit for the overpayment of voluntary income benefits. Gaspard had received $91,122.63, excluding interest, in TTD benefits from December 15, 2010, through July 19, 2013. At a subsequent BRC in March 2014, the ALJ removed the claim from abeyance and set forth the stipulations as well as the contested issues that remained to be decided, including benefits per KRS 342.730 (multipliers), exclusion of pre-existing impairment, additional TTD, fraud, sanctions, date of MMI, and physical capacity.
On May 27, 2014, the ALJ entered an opinion, order, and award. Related to his earnings, the ALJ related Gaspard's testimony as follows:
Gaspard answered a host of questions concerning his earnings with Flowers Bakery and the income tax filings. He does not prepare his own tax returns and uses a CPA. He does know he is bound by his signature on the tax return but admitted to paying little to no attention as to how the returns are prepared. It is his testimony he pays his employee (he referred to him as an independent contractor) in cash. He does not report to the IRS the payment on his income tax return and does not deduct what he pays the independent contractor. Earlier, Gaspard testified his income with Flowers Bakery was about $4,000 per year. At the hearing he agreed his income tax return reflected a much higher amount, over $90,000 in one of the years, but the return did not reflect his expenses including what he paid the independent contractor. After expense, his earning was between 20,000 and 25,000 per year.Later in the opinion, the ALJ stated:
The record contains numerous filings by Defendant Employer related to Gaspard's work with the bread route and the earnings. These have all been reviewed but are not summarized. The territorial exhibits and routes he drove have been reviewed as have the tax returns reflecting significant income during the time Gaspard was receiving TTD. As discussed below, how
much Gaspard earned with the bread route and how much he worked in the route do not affect the findings herein.In the findings of fact and conclusions of law section regarding Koch's fraud allegation, the ALJ observed:
It is also noted there are, no doubt, problems with Gaspard's tax filings; he shows earnings from the bread route on the W-2 even though he says he was self-employed; he does not reflect payments made to his independent contractor; and, he has listed himself as an employee of Flowers Bakery instead of the route owner, to name a few. Clearly, his tax filings contain numerous misleading statements. That, however, is not the concern of the Department of Workers' Claims. Allegations of tax fraud are questions for the IRS. None of the alleged misstatements have led to payment to which Gaspard was not otherwise entitled.Related to Gaspard's TTD claim, the ALJ stated:
In a nutshell, Koch argues the amount of income reflected on tax returns precludes TTD. Gaspard says the tax returns are wrong and do not reflect expenses he paid. This is not relevant. No case law stands for the proposition if your earnings from another source are a certain amount, then no TTD.Related to his permanent impairment, the ALJ assigned a 20% impairment and found that he qualified for the 3x multiplier, relying upon Dr. Huhn's 20% impairment assessment and Dr. Morris's opinion to find that "[f]ollowing a third back surgery, lifting restrictions are not unreasonable and seem only appropriate. Gaspard's work at the time of the injury involved heavy lifting, much bending and twisting and the opinion that he should avoid such activities is adopted herein." The ALJ ordered that Gaspard was to recover TTD at a rate of $670.02 per week from December 15, 2010, through July 23, 2013, and the sum of $285.88 per week for 425 weeks from October 6, 2008, in permanent partial disability (PPD) benefits. In addition, the ALJ awarded medical benefits. The ALJ did not find evidence of fraud to support an award of sanctions, and she did not find a basis to carve out any pre-existing active disability.
Gaspard filed a petition for reconsideration related to the rate and start date of PPD benefits the ALJ awarded. The ALJ granted Gaspard's petition and amended the opinion, award and order to reflect that the correct PPD rate was $321.61 per week.
Koch also filed a petition for reconsideration requesting additional findings of fact and the correction of patent errors. Koch argued that the ALJ did not provide sufficient findings to support her findings related to whether Gaspard was working and receiving wages; the amount of his wages he earned at ABM Janitorial Services and Flowers Bakery from 2009 through 2012 as reflected in his W-2s; and regarding each element of fraud. Koch also asserted that the ALJ used the wrong standard in awarding the 3x multiplier by failing to apply the Fawbush v. Gwinn, 103 S.W.3d 5 (Ky. 2003), analysis and that there should have been a carve out for Gaspard's prior active impairment. Gaspard objected to Koch's petition, asserting that it was a re-argument of the merits of the case.
The ALJ denied Koch's petition on July 1, 2014, addressing each of the issues raised in the petition. Regarding findings related to whether Gaspard was working and receiving wages, the ALJ stated:
On pages 19 - 24, this issue is discussed. It is explained that while Plaintiff may have received income and was able to do some work, he did not return to work that would be considered customary. During the period he was entitled to TTD, any self-employment income he received did not preclude entitlement to TTD. The evidence is clear he did some work and brought in some money but neither precludes his entitlement to TTD.Regarding the amount of his wages, the ALJ stated:
Regarding the specific amount of income, on page 24 of the Opinion, after the explanation of why the Flowers Bakery income does not preclude TTD, it is explained that the amount, in this particular instance, is not a determining factor and, therefore, not relevant.Regarding fraud, the ALJ stated that she did not find his work at Flowers Bakery to constitute a "return to work," making his request for TTD, based upon his not having reached MMI or returned to work, to be a true statement, not a misrepresentation. Regarding the standard for the 3x multiplier, the ALJ stated that
Since Gaspard does not retain the physical capacity to return to the type of work he performed at the time of the injury, the 3x multiplier applies. Because he has not returned to work at a weekly wage equal or greater than the average weekly wage at the time of the injury, 342.730(1)(c)(2) does not apply and, therefore, the analysis used in Fawbush v. Gwinn, 103 S.W.3d 5 (Ky. 2003) is not applicable.Finally, the ALJ stated that the carve-out issues had been specifically addressed on page 17.
Koch appealed the ALJ's rulings to the Board, raising the same issues. The Board entered an opinion affirming in part, vacating in part, and remanding on December 12, 2014. Regarding the first argument, that the ALJ failed to provide findings of fact regarding the amount of Gaspard's post-injury AWW, the Board agreed with Koch, stating that the ALJ erred in ruling that his post-injury earnings were not relevant. However, the Board found the "failure to determine the amount of income Gaspard earned from Flowers to be harmless error." The Board stated that because the relevant W-2s and tax returns established that Gaspard was a statutory employee pursuant to federal income tax laws, the amounts of income reflected in his W-2s were not determinative of the issue of whether he returned to work at an equal or higher wage than his pre-injury AWW. The Board then examined federal income tax statutes, based upon which it decided that "the applicable amount for determining whether Gaspard returned to work earning a wage equal to or greater than his pre-injury AWW is that amount shown on line twelve of his tax return which is calculated in the Schedule C attached." He was therefore permitted to deduct his business expenses from the amounts listed on the W-2s to calculate his net income from the bread route for purposes of determining whether KRS 342.730(1)(c)2. applied. Examining the tax returns, the Board stated that "in 2010, 2011, and 2012, Gaspard did not have yearly earnings in excess of his pre-injury AWW of $1,006.23." Gaspard's 2009 tax records were not included in the record. The Board concluded that the ALJ had correctly determined that Gaspard had not returned to work earning a wage that equaled or exceeded his pre-injury AWW and affirmed the award of benefits enhanced by the 3x multiplier without performing a Fawbush v. Gwinn analysis. The Board's ruling on this issue was also dispositive of the second issue: whether substantial evidence supported a finding that Gaspard returned to work at equal or greater wages.
The Board went on to hold that the ALJ had not analyzed Gaspard's entitlement to TTD benefits using the correct standard and had not provided any findings to support her conclusions that he had not returned to his customary work or that his work for Flowers Bakery was not a return to work. The Board stated that "the ALJ must determine when Gaspard reached a level of improvement which permits a return to the type of work which is customary to the injured employee or that which he has been performing prior to being injured." The Board vacated the ALJ's ruling on this issue and remanded "for a determination of the period during which Gaspard is entitled to TTD benefits." Similarly, the Board concluded that the ALJ failed to adequately explain her findings relative to the fraud ruling and remanded the claim for additional findings related to the elements of fraud. Finally, the Board did not find any merit in Koch's argument that the ALJ should have carved out a portion of the 20% impairment due to any pre-existing active impairment.
Koch has petitioned this Court for review solely on the issue addressing the application of the 3x multiplier and the associated arguments about Gaspard's post-injury AWW. Specifically, Koch contends that the Board made independent findings of fact regarding his post-injury AWW, rather than remanding the claim to the ALJ to make specific findings, and disregarded the statutory procedure for determining an employee's AWW; ignored controlling case law; and relied upon evidence that the ALJ had deemed unreliable. We note that Koch has not opted to appeal the portion of the Board's opinion addressing whether a carve-out was appropriate, and therefore that ruling is final and constitutes the law of the case. The remaining issues that were vacated will be addressed by the ALJ upon remand at the conclusion of this appeal process. See Whittaker v. Morgan, 52 S.W.3d 567 (Ky. 2001).
The Court of Appeals' standard of review in workers' compensation appeals is well-settled in the Commonwealth. "The function of . . . review of the [Board] in the Court of Appeals is to correct the Board only where the Court perceives the Board has overlooked or misconstrued controlling statutes or precedent, or committed an error in assessing the evidence so flagrant as to cause gross injustice." Western Baptist Hosp. v. Kelly, 827 S.W.2d 685, 687-88 (Ky. 1992).
Kentucky law is well-settled that "[t]he claimant in a workman's compensation case has the burden of proof and the risk of persuading the board in his favor." Snawder v. Stice, 576 S.W.2d 276, 279 (Ky. App. 1979) (citations omitted). "When the decision of the fact-finder favors the person with the burden of proof, his only burden on appeal is to show that there was some evidence of substance to support the finding, meaning evidence which would permit a fact-finder to reasonably find as it did." Special Fund v. Francis, 708 S.W.2d 641, 643 (Ky. 1986). However, "[i]f the board finds against a claimant who had the burden of proof and the risk of persuasion, the court upon review is confined to determining whether or not the total evidence was so strong as to compel a finding in claimant's favor." Snawder, 576 S.W.2d at 280 (citations omitted). The Francis Court went on to explain:
If the fact-finder finds against the person with the burden of proof, his burden on appeal is infinitely greater. It is of no avail in such a case to show that there was some evidence of substance which would have justified a finding in his favor. He must show that the evidence was such that the finding against him was unreasonable because the finding cannot be labeled "clearly erroneous" if it reasonably could have been made.Francis, 708 S.W.2d at 643 (Ky. 1986).
Thus, we have simply defined the term "clearly erroneous" in cases where the finding is against the person with the burden of proof. We hold that a finding which can reasonably be made is, perforce, not clearly erroneous. A finding which is unreasonable under the evidence presented is "clearly erroneous" and, perforce, would "compel" a different finding.
The present case involves the application of KRS 342.730(1)(c), which provides as follows:
1. If, due to an injury, an employee does not retain the physical capacity to return to the type of work that the employee performed at the time of injury, the benefit for permanent partial disability shall be multiplied by three (3) times the amount otherwise determined under paragraph (b) of this subsection, but this provision shall not be construed so as to extend the duration of payments; or
2. If an employee returns to work at a weekly wage equal to or greater than the average weekly wage at the time of injury, the weekly benefit for permanent partial disability shall be determined under paragraph (b) of this subsection for each week during which that employment
is sustained. During any period of cessation of that employment, temporary or permanent, for any reason, with or without cause, payment of weekly benefits for permanent partial disability during the period of cessation shall be two (2) times the amount otherwise payable under paragraph (b) of this subsection. This provision shall not be construed so as to extend the duration of payments.
3. Recognizing that limited education and advancing age impact an employee's post-injury earning capacity, an education and age factor, when applicable, shall be added to the income benefit multiplier set forth in paragraph (c)1. of this subsection. If at the time of injury, the employee had less than eight (8) years of formal education, the multiplier shall be increased by four-tenths (0.4); if the employee had less than twelve (12) years of education or a high school General Educational Development diploma, the multiplier shall be increased by two-tenths (0.2); if the employee was age sixty (60) or older, the multiplier shall be increased by six-tenths (0.6); if the employee was age fifty-five (55) or older, the multiplier shall be increased by four-tenths (0.4); or if the employee was age fifty (50) or older, the multiplier shall be increased by two-tenths (0.2).
4. Notwithstanding the provisions of KRS 342.125, a claim may be reopened at any time during the period of permanent partial disability in order to conform the award payments with the requirements of subparagraph 2. of this paragraph.
KRS 342.730(b) provides: For permanent partial disability, sixty-six and two-thirds percent (66-2/3%) of the employee's average weekly wage but not more than seventy-five percent (75%) of the state average weekly wage as determined by KRS 342.740, multiplied by the permanent impairment rating caused by the injury or occupational disease as determined by the "Guides to the Evaluation of Permanent Impairment," times the factor set forth in the table that follows [table omitted]. Any temporary total disability period within the maximum period for permanent, partial disability benefits shall extend the maximum period but shall not make payable a weekly benefit exceeding that determined in subsection (1)(a) of this section. Notwithstanding any section of this chapter to the contrary, there shall be no minimum weekly income benefit for permanent partial disability and medical benefits shall be paid for the duration of the disability.
In Fawbush v. Gwinn, the Supreme Court of Kentucky extensively addressed the application of this statute:
KRS 342.730(1)(b) sets forth a method for calculating the income benefit for permanent partial disability under which the benefit is the product of the worker's average weekly wage, AMA impairment, and a statutory factor. As amended effective July 14, 2000, KRS 342.730(1)(c) provides, in pertinent part, as follows:
[KRS 342.730(1)(c)1. and 2. omitted.]
KRS 342.730(1)(c)3 recognizes that "limited education and advancing age impact an employee's post-injury earning capacity" and, in certain instances, enhances the multiplier to be applied under paragraph (c)1. Finally, KRS 342.730(1)(c)4 provides that, notwithstanding KRS 342.125, a claim may be reopened at any time during the period of partial disability to conform the award to KRS 342.730(1)(c)2.
Since December 12, 1996, KRS 342.730 has limited an ALJ's discretion in determining the extent of permanent partial disability. The formula for calculating income benefits that was enacted at that time was weighted to favor more severely impaired workers who were more likely to have a greater occupational disability. Other considerations were the worker's physical capacity to return to the pre-injury employment and post-injury earnings. Those who were the most severely impaired were entitled to benefits for a longer period of time. See Adkins v. R & S Body Co., Ky., 58 S.W.3d 428 (2001).
As amended in 2000, the formula for calculating a permanent partial disability benefit was further refined. The statutory factors in subsection (1)(b) were decreased. In subsection (1)(c), paragraphs (c)1 and 2 were amended, and the word "or" was inserted between them. Furthermore, paragraph (c)3, which contains additional
multipliers based upon age and education, was added. The Board's opinion referred to decisions wherein it determined that the pre-2000 versions of KRS 342.730(1)(c)1 and 2 could be applied concurrently where appropriate. Thus, the legislature presumably knew of those decisions when it inserted the word "or" at the end of paragraph (c)1 and, by doing so, evinced an intent for only one of the provisions [to] be applied to a particular claim. See Whitley County Board of Education v. Meadors, Ky., 444 S.W.2d 890 (1969).Fawbush, 103 S.W.3d at 11-12.
Although the employer maintains that paragraph (c)2 modifies the application of paragraph (c)1 and, therefore, takes precedence, we note that the legislature did not preface paragraph (c)2 with the word "however" or otherwise indicate that one provision takes precedence over the other. We conclude, therefore, that an ALJ is authorized to determine which provision is more appropriate on the facts. If the evidence indicates that a worker is unlikely to be able to continue earning a wage that equals or exceeds the wage at the time of injury for the indefinite future, the application of paragraph (c)1 is appropriate.
Here, the ALJ based the decision to apply paragraph (c)1 upon a finding of a permanent alteration in the claimant's ability to earn money due to his injury. The claimant's lack of the physical capacity to return to the type of work that he performed for Fawbush was undisputed. Furthermore, although he was able to earn more money than at the time of his injury, his unrebutted testimony indicated that the post-injury work was done out of necessity, was outside his medical restrictions, and was possible only when he took more narcotic pain medication than prescribed. It is apparent, therefore, that he was not likely to be able to maintain the employment indefinitely. Under those circumstances, we are convinced that the decision to apply paragraph (c)1 was reasonable.
For its first argument, Koch contends that the Board circumvented appellate procedure by making its own findings regarding Gaspard's post-injury AWW. As Koch points out, the Board agreed with its argument that Gaspard's post-injury AWW was relevant. Rather than remanding the claim to the ALJ for findings, the Board went on to perform its own research, make its own findings related to AWW, and ultimately conclude that Gaspard's post-injury AWW was less than his pre-injury AWW. In doing so, the Board relied extensively upon Gaspard's tax returns, which the ALJ identified as having problems and containing "numerous misleading statements."
"The ALJ, as the finder of fact, and not the reviewing court, has the sole authority to determine the quality, character, and substance of the evidence." Square D Co. v. Tipton, 862 S.W.2d 308, 308 (Ky. 1993), citing Paramount Foods, Inc. v. Burkhardt, 695 S.W.2d 418 (Ky. 1985). The Supreme Court described the new role of the Board in Western Baptist Hosp. v. Kelly, 827 S.W.2d at 678:
The 1988 statutory restructuring of the Workers' Compensation Law intended appeal to the WCB to be the functional equivalent of appellate review in the Court of Appeals. See KRS 342.285-.290. These statutes worked fundamental changes. The ALJs were created and empowered to function the same as a trial court trying a case without a jury. The WCB was divested of the fact-finding function and restructured to carry out the same functions as an intermediate court reviewing the decisions of a court of original jurisdiction, to perform the error correcting function normally assigned to the Kentucky Court of Appeals, lacking only the power of constitutional review.In the present case, we must agree with Koch that the Board far exceeded its scope of appellate review when it deemed harmless the ALJ's failure to make any findings related to Gaspard's post-injury AWW and proceeded to make its own factual findings and apply federal tax laws. Rather, the Board should have remanded the issue to the ALJ as it did with the fraud and TTD issues. Therefore, we must reverse the Board's opinion on this issue.
On remand, in addition to the issues that have already been remanded, the ALJ shall also be directed to make findings related to Gaspard's post-injury earnings, calculate his post-injury AWW pursuant to KRS 342.140 keeping in mind the Supreme Court's opinion in Marsh v. Mercer Transp., 77 S.W.3d 592 (Ky. 2002), and determine whether a Fawbush v. Gwinn analysis is necessary related to the application of KRS 342.730(1)(c). The ALJ should not rely upon federal income tax statutes, but should rather rely upon Kentucky's relevant statutes as set forth in the Workers' Compensation Act.
For the foregoing reasons, the opinion of the Workers' Compensation Board is reversed, and this matter is remanded to the Administrative Law Judge for further proceedings in accordance with this opinion.
ALL CONCUR. BRIEF FOR APPELLANT: Kamp T. Purdy
Emily Faith Wetmore
Lexington, Kentucky
BRIEF FOR APPELLEE,
LYNWOOD GASPARD:
Ched Jennings
Louisville, Kentucky