Uninsured Employers' Fund v. Julian Hoskins

IMPORTANT NOTICE NOT TO BE PUBLISHED OPINION ' I

THIS OPINION IS DESIGNATED "NOT TO BE PUBLISHED." PURSUANT TO THE RULES OF CIVIL PROCEDURE PROMULGATED BY THE SUPREME COURT, CR 76.28(4)(C), THIS OPINION IS NOT TO BE PUBLISHED AND SHALL NOT BE CITED OR USED AS BINDING PRECEDENT IN ANY OTHER CASE IN ANY COURT OF THIS STATE; HOWEVER, _ UNPUBLISHED KENTUCKY APPELLATE DECISIONS, RENDERED AFTER JANUARY 1, 2003, MAY BE CITED FOR CONSIDERATION BY THE COURT IF THERE IS NO PUBLISHED OPINION THAT WOULD ADEQUATELY ADDRESS THE ISSUE BEFORE THE COURT. OPINIONS CITED FOR CONSIDERATION BY THE COURT SHALL BE SET OUT AS AN UNPUBLISHED DECISION IN THE FILED DOCUMENT AND A COPY OF THE ENTIRE DECISION SHALL BE TENDERED ALONG WITH THE DOCUMENT TO THE COURT AND ALL PARTIES TO THE ACTION.

RENDERED: DECEMBER 14, 2017 NOT TO BE PUBLISHED

2015-SC-000637-WC PNINSURED EMPLOYERS~ FUND · APPELLANT

ON APPEAL FROM COURT OF APPEALS v. CASE NO'. 201 l-CA-001322-WC WORKERS' COMPENSATION BOARD NO. 08-WC-96697 ~. :I

l JULIAN HOSKINS; KENTUCKY APPELLEES ' . EMPLOYERS' MUTUAL INSURANCE COMPANY; BEACON ENTERPRISES, INC.; BETTER INTEGRATED SYSTEMS, INC.; FOUR STAR TRANSPORTATION, INC.; KENTUCKY WORKERS' COMPENSATION BOARD; AND HONORABLE R. SCOTT ) BORDERS, ADMINISTRATiVE LAW JUDGE

MEMORANDUM OPINION OF THE COURT

AFFIRMING

Appellant, Uninsured Employers' Fund (UEF), appeals from a decision of the Court of Appeals holding that Appellee, Kentucky Employers' Mutual Insurance Company .(KEMI), was not the insurance carrier at risk for injuries

sustained by Julian Hoskins in the course of his employment as· a truck driver . ' \ for Four Star Transportation, Inc. (Four Star), a Michigan-based tru~k.ing

company with business operations in Louisville.· For reasons set forth below, w.,e affirm the decision of the Court of Appeals.

We addressed this case previously in Kentucky Uninsured Employers' Fund v. Hoskins, 449 S.W.3d 753 (Ky. 2014) (Hoskins J).I In Hoskins I, we determined that the Workers' Compensation Board (the Board) and the Court of Appeals erred by. resolving the case using principles of law applicable to the_ loaned servant doctrine. Specifically, the Board and Court of Appeals held that because Hoskins had no personal knowledge of his employment relationship with the efuployee leasing companies, Better Integrated Services, Inc., or Beacon Enterprises, Inc., those companies and their workers' compensation insurance carrier could not be liable for his workers' compensation award. The result of that ruling left UEF with no recourse.

In Hoskins I, we recognized the Board and the Court of Appeals misconceived the nature of the parties' relationships. We concluded from the evidence, as· did the administrative law judge (AW), that the parties were not engaged in a loaned servant situation, but were instead participating in, or purporting to participate in, an employee· leasing arrangement subject to KRS 342.615. Thus, we determined that Hoskins' ignorance of the fact that his legal employer was an employee leasing company could not eliminate that . company~s liability for his workers' compensation benefits.

1This Court initially rendered I an opinion in this case which is published at 440 . S.W.3d 370 (Ky. 2013). However, we granted a motion for rehearing and subsequently rendered this superseding opinion.

Consequently, we reversed and remanded the case to the Court of·

Appeals for the resolution of other iss1:1es raised on appeal but left unaddressed

by that court's initial opinion. Upon remand, the Court of Appeals again

affirmed the Board's decision, this time based upon its conclusion that the

Board properly rejected the AW's findings material to the imposition of liability

upon KEMI. For the reasons stated below, we affirm.

I. FACTUAL AND PROCEDURAL BACKGROUND The case arises from an intricate web of poorly-documented inter-

corporate arrangements creating a complex shell-game of who, for purposes of

workers' compensation coverage, "employed" Hoskjns at the tirrie of his. injury, · and whether that "employer" had workers' compensation insurance with KEMI.

A summary of the essential facts is in order.

In November of 2007, Julian Hoskins saw a "help wanted" sign at Four

Star's Louisville office on Ralph Avenue at a trucking terminal Four Star shared

with three other trucking companies. Four Star had recently. expanded its

' pperations into .Kentucky. Hoskins applied for the job as a truck driver; he was

hired by Four Star's terminal manager, Sean Green. After traiping and testing

at another Four Star facility, Hoskins began driving trucks marked with Four

Star's signage. His work assignments came from Four Star managers. ·

Hoskins perceived himself to· be an employee of Four Star; he. was aware of no

other entity purporting to be his legal employer.

Hoskins' paychecks came in envelopes imprinted with a ~our Star

address, but like Sean Green's paychecks, they were issued on a bank account

of Better Integrated Services. Hoskins-testified that his health insurance card I may also have had "Better Integrated" on.it, but he.was not sure. He had no

idea who or what Better Integrated was and apparently saw no reason to . \ ' .

inquire about it.

Better Integrated (Better) was an employee leasing company serving

trucking companies in several states, most notably Indiana and\Michigan.

Before expanding into Kentucky, Four Star was a client of Better, using Better's

,employee leasing services to provide workers' compensation iJ'.l.surance for Four (

Star's workforce. Because Four Star "leased" its entire workforce from Better, - ' Four Star did not have its own workers' compensatio~ coverag9.

Better was owned by Vincent Manzo and his son, Salvatore. Each owned

a 50% share of Better, but Vincent ran tpe company. The Manzos were also

involved ip. at least two other employee leasing companies. Beacon Industrial _

Services was owned 49% by Salvatore, 25~5% by V1ncent, and 25.5% by

Vincent's wife, Rosaria.² A third company, Beacon Enterprises (Beacon), was

owned soldy by Salvatore, but Vincent served as its treasurer.· Rosaria held-

the office of president, but apparently, she took no par~ in the operation of the·

company. The overlapping ownership and closely-connected management of

these companies, coupled with their apparent aversion to accurate

documentation, make~ it difficult to parse with confidence the relationship of

each leasing company and. the trucking firms they served.

Better had no Kentucky clients when Four Star decided to expand into Kentucky. Better was nqt registered with the Kentucky Department of Workers' Claims and was not authorized to provide employee leasing services to Kentucky employers. However, Beacon provided employee leasing services to a trucking company in Louisville named Rush Trucking. Beacon had a policy with KEMI to satisfy its obligation to provid.e workers' compensation insurance for the Rush Trucking workforce.

On January 31, 2008, Hoskins sustained a work-related injury. He promptly informed Sean Green at Four Star of his injury arid applied for workers' compensation benefits.

Hoskins' injury and the subsequent filing of his workers' compensation claim exposed the questions of who was Hoskins' true "employer" and how was that employer covering its workers' compensation liability. The UEF covered the claim and reserved its right to be indemnified for those benefits. Four Star

. had no workers' compensation insurance because it relied upon . Better to

provide the coverage for Four Star's workforce. Because Better was not registered to do business in Kentucky and until Four Star's expansion into Kentucky had no Kentucky-based clients, Better had no workers' compensation policy in place for Four Star's Kentucky employees, which numbered from four to twelve persons including Hoskins. To provide the . necessary coverage, Better claims that it leased the Four Star workforce to its kindred business, Beacon, thus securing the required coverage through

Beacon's policy with KEMI.3 KEMI denied that its policy with Beacon included any part of Four Star's'workforce.

Through the testimony -of the Manzos and Charles Gar~vaglia, 4 the consultant and c'!Jrporate representative· for both Beacon and Better, Better claimed that before Hoskins was injured, it had a written employee leasing contract by which Beacon "leased" Hoskins and assumed the obligation to

provide his workers' compensation coverage. No copy of an actual signed ' \..

contract was ever produced, but a blan~ form said to be identical to the one used was put into evidence. No other documents or corporate records were produced to establish when, o~if, Beacon "leased" Hoskins and acquired the responsibility for his workers' compensation coverage.

KEMI's audit records showed that at about the same time as Four Star's ! , . expansion into Kentucky, Beacon's Kentucky payroll substantially increased

from $2,000,000.00 to $5,073,459,00. Correspondingly, Beacon's premium for KEMI's policy increased from about'$300,000.00 to $749,001.72. 'Beacon

a Although withesses spoke in terms of Better "leasing" Hoskins to Beacon, and Beacon, in turn "leasing" him to Four Star, it should be u;nderstood that, consistent with Hoskins' testimony, he was not physically moved from lessor to lessee; in the relevant time frame, he was always .part of Four Star's workforce. What the witnesses mean by "leasing" him is that, through leasing company exchanges, the legal responsibilities for his employment were transferred.from one company to the other. 4 Garavaglia was_ well versed in emp~oyee leasing companies in the trucking industry, having owned a number of such companies, including Better, which he sold to Vincent Manzo sever8.1 years prior to Hoskins' injury. Garavaglia served as a business consultant to the Manzos and others engaged in trucking company employee leasing. Garavaglia was also convicted of mail fraud and conspiracy for his role in a scheme to use his employee leasing firms to defraud workers' compensation insurance companies. See United States v. Garavaglia, 178 F.3d 1297 (6th Cir. 1999).

reported to KEMI that it had taken on "new clients" at a second Louisville address, the same Ralph Avenue terminal from which Four Star operated.

KEMI, however, presented evidence establishing that the calculation of - the premium charged to Beacon never included any employees on Better's payroll and was not based upon claims experience derived from either Better or Four Star. Accqrding to KEMI, the increase in Beacon's premium was based entirely upon Beacon's previous underestimation or underreporting of its payroll. KEMI had no-knowledge of a three-way employee leasing arrangement between Four Star, Better, and Beacon.

KEMI denied any workers' compensation responsibility for the workers at

Four Star's Ralph Averiue terminal subject to lease by Better. Moreover, KEMI / ( 1' -

demonstrated that on three occasions Beacon had expressly sought to include Better as a named insured party under the KEMI-Beacon workers' compensation policy, but each time KEMI refused. KEMI declined the request

because Better was not authorized to do business in Kentucky, because Better tJ

had no corporate presence in Kentucky, and because KEMI had no information upon which to base an accurate evaluation of the risk involved in underwriting Better's workers' compensation exposure and determining the proper premium. KRS 432.615(4) requires that when a workers' compensation insurer (KEMI)- _ provides coverage to ari: employee leasing company (Beac~n), "[tJhe exposure and experience of the lessee (Four Star) shall"be used in determining the premium for the policy and shall include coverage for all leased employees."

From these circumstances, the AW deduced that Better and. Beacon agreed to lease the Four Star·workforce from Better to Beacon, thereby transferring the employer responsibilities for Hoskins from Better to Beacon, bringing Hoskins (and Four Star's other workers) within the coverage afforded by. KEMI's workers' compensatjon policy.

The Board disagreed and reversed the AW's findings. The Board concluded that because "Hoskins' testimony and all the other evidence . establish[ed] he was hired by Four Star in Louisville" and that he "had no interaction with or knowledge of Better Integrated" he could not be a leased employee of either Better or Beacon. The Court of Appeals agreed. On _ discretionary review in Hoskins I, we agreed with the factual premises, but we disagreed with the legal conclusion drawn from those facts. Hoskins could

indeed be a leased employee despite his ignorance of that fact. ,.,.-- . . The Board had also reversed the AW's finding on other g;rounds. .With

respect to KEMI's premium, the Board found "no evidence to support" the AW's findingthat Beacon's payroll increase of over $3 million was due to the addition of Four Star's workforce at Ralph Avenue (which according to Garavaglia was four to twelve workers) and "no evidence to support" the finding

that KEMI collected an . additional $449,-000.00 premium I to cover those

workers. The Board also concluded that no evidence was presented which would reasonably support the. finding of any relationship between Hoskins an~ Beacon giving rise to a workers' compensation obligation. On remand from Hoskins I, the Court of Appeals affirmed those conclusions of the Board.

II. ANALYSIS .

Pur_suant to KRS 342.285, the AW ~n a workers' compensation

proceeding is the finder of fact with exclusive authority. to judge the weight, . credibility, substance, and inferences to be drawn from the evidence. AK Steel .

Corp. v. Adkins, 253 S.W.3d 59, 64 (Ky. 2008) (citation omitted). "Where the

party with the burden of proof fails to prevail before the finder of fact, his j

burden on appeal is to prove that the evidence in his favor was so overwhelming that it compelled a ~nding in his favor a,nd that no reasonable . . person would have failed to be persuaded by it." Bullock v. Peabody Coal Co.,

882 S'.W.2d 676, 678 (Ky. 1994) (citations omitted).

It is acknowledged that KEMI had the burden of proof before the AW to ' ' establish that Hoskins was not covered by the workers' compensation policy

issued by KEMI to Beacon. Having failed to persuade the· AW, KEMI bears the

burden set forth above. We conclude that it met that burden.

KEMI established without contradiction that it had eJtpressly rejected

Beacon's request to add Better's workers' compensation exposure to Beacon's

policy. Neither Better nor Four Star is named as an insured entity in Beacon's

policy. KEMI also demonstrated that the premium increase.of $449,000.00

could. not have been generated by the inclusion of Better's payroll because: 1)

the increase was due to an earlier underestimation of Beacon's payroll; and 2)

KEMI never got the information about Better's Four Star. payroll upon which to

. calculate an added· premium. That was one of the reasons KEMI declined to \ . insure Better; it was not·given the information needed to evaluate the risk and

calculate the cost of und~rwriting Better's exposure. Sine~ KRS 432.615(4)

requires that the premium be based upon the "[t]he exposure and experience of ' I

.., - th~ lessee (Four Star)," KEMI had a right to accurate information about the

true lea,se before agreeing to provide coverage. Beacon's failure to supply that - . . I

information justified KEMI's refusal to add Better's employees working for Four Star.

We can be virtually certain that Four Star's workers were not included in Beacon's payroll for premium assessment purposes be.cause itjs· undisputed that Ho.skins and Sean Green were at all times paid by :J3etter. Had they actually been leased· to Beacon at the time of the ·injury, then Beacon would have been issuing their paychecks. No evidence was presented that any Four _Star worker was ever paid by Beacon. These facts compel the conclusion that,

at the time of hi;:; injury, - neither Hoskins nor the rest of Four Star's . workforce

was leased to Beacon .. Significantly, there was no written documentation in the . . form of employee leasing contracts, assignments, payroll, or tax records to

prove otherwise.

The AW inferred that KEMI had actual knowledge that Beacon had undertaken the workers' compensation responsibility for Four Star's workers at the Ralph Avenue location because that address was mentioned on Beacon's 2007 application to renew its workers' compensation policy. The AW suggested that KEMI's failure to investigate that location to see who was working there undermines~its denial.of coverage for Hoskins. We'acknowledge that KEMI could have investigated further, but it had no duty to do so,

especially when Beacon could easily pr9vide its empl9yee information. In any event, KEMI's failure to inquire about the address does not make it the de facto . workers' compensation insurer for·all the workers at the Ralph Avenue facility ' where four different trucking companies operated.

Certainly, the testimony of Salvatore Manzo and Charles Garavaglia provides "some" evidence to suppo.rt ~he finding that upon starting hisjob at Four Star, Hoskins became an employee of Better, who then leased him to Beacon. However, nothing supports that testimony, and all of the documentary evidence points in the opposite direction. We are well satisfied that the evidence in tot~ compels ·a finding that Hoskins was not covered as a Beacon employee subject to KEMI's p0licy. No reasonable person. could fail to

. be persuaded by it. . ' . KEMI further contends that because neither Beacon nor Better had

-complied with the registration requirements of KRS 342.615 and 803 KAR

25:230, any obligation KEMI might otherwise . have for H'oskins' benefits is ."a

nullity."5 Because we affirm the Board and the Court of Appeals for the reason stated above, we need not determine whether an employee leasing company's

s The cited registration laws require employee leasing companies doing business in Kentucky to provide, among other things; their lessees' corporate and assumed names, contact information, federal employer identification numbers or Social Security numbers, and the company providing the workers' compensation coverage for their. lessees' workers. The employee leasing company must also provide ·its own name and corporate address, business locations within the state, its taxpayer or employer identification number, the effective date of the workers' compensation coverage, the policy number, and the name of the issuer of the policy; and the termination of coverage date.

failure to comply with Kentucky's registration requirements renders an othern!ise valid policy unenforceable. We defer our ruling on that issue for a more appropriate occasion. We note, however, that Beacon's and Better's failure to properly register is. a factor that undermines their claim and lends credence to the belief expressed by the Board and echoed by the Court of Appeals that their purported lease agreement was "not}?.ing more than, a sham concocted to obtain workers' compensation coverage for Hoskins's injury."

III. CONCLUSION

For the'reason stated above, we affirm the 'Opinion of the Court of Appeals, affirming the decision of the Board in this matter. I I_ All sitting. All concur.

\ . COUNSEL FOR APPELLANT:

Dennis Stutsman 1112 Taborlake Drive Lexington, KY 40502-6572

· Andy Beshear Attorney General of Kentucky

COUNSEL FOR APPELLEE JULIAN HOSKINS: Alan Steven Rubin r

231 S. 5th Street, Suite 200 Louisville, KY 40202-3231

COUNSEL FOR APPELLEE KENTUCKY EMPLOYERS' MUTUAL INSURANCE COMPANY:

)

Barry Lewis Lewis and Lewis Law Offices 151 East Main Street, Suite 100 P.O. Box 800 Hazard, KY 41 702-0800

COUNSEL FOR APPELLEES BEACON ENTERPRISES, INC. AND BETTER INTEGRATED SYSTEMS, INC.:

· Terrance J. Janes "Deceased"

COUNSEL_FOR APPELLEE, KENTUCKY WORKERS' COMPENSATION BOARD:

Dwight Taylor Lovan Executive Director Office of Workers' Claims

COUNSEL FOR APPELLEE HONORABLE R. SCOTT BORDERS:

Russell Scott Borders Fogle, Keller, Purdy, PLLC 1655 Burlington Pike, Suite 50 Florence, KY 41042

COUNSEL FOR APPELLEE FOUR STAR TRANSPORTATION:

N/A \ '

Footnotes

[2] Beacon Industrial Services is not a party, and .it has no significant involvement in this case. '