Simmons v. Luba Workers' Comp.

Citations: 206 So. 3d 397; 16 La.App. 3 Cir. 523; 2016 La. App. LEXIS 2037Docket: 16-523

Court: Louisiana Court of Appeal; November 2, 2016; Louisiana; State Appellate Court

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Workers’ compensation insurer LUBA Casualty Insurance Company appeals the denial of its claim for a credit against the benefits owed to claimant James Simmons, based on undistributed income from Simmons Contracting, Inc. (SCI) and rent payments from the corporation to him. Additionally, LUBA contests the award of attorney fees and penalties following its termination of supplemental earnings benefits (SEBs). The appellate court affirms in part, reverses in part, renders in part, and remands one issue for further proceedings.

James Simmons and his wife, Debbie, own and operate SCI. Following an ankle injury in August 2012, which led to surgery in February 2014, LUBA began paying James medical expenses and temporary total disability (TTD) benefits. After being released to light-duty work in May 2014, James received reduced wages from SCI and transitioned to SEBs. LUBA subsequently terminated his SEBs in March 2015, prompting James to file a disputed claim for reinstatement, penalties, and attorney fees. 

In January 2016, the Workers’ Compensation Judge (WCJ) ruled that LUBA failed to justify the termination of SEBs. The WCJ ordered LUBA to reinstate SEBs based on James's average weekly wage of $750, pay back-due SEBs, impose an $8,000 penalty, and award attorney fees of $8,550 and $650 for professional fees. LUBA's appeal includes claims of legal error regarding the SEB calculation, failure to recognize offsets, improper payment to a non-expert witness, and the assessment of penalties and attorney fees.

The standard of review emphasizes that appellate courts assess the reasonableness of the WCJ’s factual findings rather than their correctness, affirming that findings will not be set aside unless manifestly erroneous. Legal errors are reviewed for correctness.

A reversible error of law identified during appellate court review necessitates a de novo examination of the record, leading to a judgment on the merits if feasible. A legal error, defined as the trial court's application of incorrect legal principles, is deemed prejudicial when it materially impacts the outcome, affecting a party's substantial rights.

The key issue presented is whether the Workers' Compensation Judge (WCJ) erred by excluding SCI’s income from James’s calculation of Supplemental Earnings Benefits (SEB). Evidence indicates SCI had $63,116 in taxable earnings and retained $75,950 in cash at the end of 2014. LUBA contends that the WCJ should have classified James as a sole proprietor, attributing SCI's earnings to him for SEB calculations, despite SCI being a corporation, which is legally distinct from its shareholders. 

Generally, a corporation remains a separate legal entity, and a sole or majority shareholder is not liable for corporate debts unless individually bound. Exceptions to this rule include cases of fraud or when the corporation and shareholder are indistinguishable in practice, making the corporation an alter ego of the shareholder. LUBA did not plead fraud, thus needing to demonstrate that the Simmonses’ management of SCI created an exception to the general rule.

Testimony from Brent Cating, a CPA with extensive experience in handling SCI’s and the Simmonses’ finances, revealed that SCI is a sub-chapter S corporation, meaning its income is passed through to the Simmonses for tax purposes. In 2014, SCI reported a gross profit of $168,215 and earnings of $63,116, which were not distributed to the Simmonses. Instead, SCI repaid the Simmonses $76,000 of an $86,000 loan and paid $24,468 in rent for the use of their property. Cating advised retaining the earnings for future construction projects rather than distributing them, which would necessitate further borrowing for upcoming projects.

Mr. Cating detailed SCI's financial instability and the Simmonses' history of funding the corporation through personal loans, recommending that they retain funds within SCI at year-end to avoid future personal loans. His testimony, alongside financial records, demonstrated that the Simmonses do not regard SCI as their alter ego, justifying the WCJ's decision not to allocate SCI’s earnings to James for SEB calculations. In 2014, although SCI’s profits increased, James testified he reduced his salary from $1,000 to $200 weekly post-surgery due to limited capabilities, which necessitated hiring additional labor. The WCJ accepted this reasoning, considering SCI's financial history and the necessity for extra labor. 

LUBA contended that SCI's rent payments of $24,468 for the Simmonses' workshop and equipment should be included as income for James's SEB calculations, citing the Delahoussaye case, which addressed similar circumstances regarding income reporting under the Workers’ Compensation Act. However, the WCJ referenced the France case, determining that since James was not actively operating the rented equipment, the payments constituted a return on capital rather than earnings. Consequently, the WCJ found no error in excluding these rental payments from the SEB calculations. Additionally, LUBA sought a $1,000 weekly credit against James's SEBs, as SCI paid him this salary from his surgery date until his light-duty release; however, the WCJ's decision on this matter remains unaddressed in the given excerpt.

James testified that SCI paid him $1,000 per week post-surgery, but he expressed uncertainty about the accuracy of this claim and suggested that checks could clarify actual payments. He reported a salary of $200 per week on his 1020 forms starting April 30, 2014, and pointed to quarterly tax forms indicating this amount. However, there were no 1020 forms presented for the period from February 11 to May 7, 2014. A check dated March 12, 2014, for $1,500 did not specify its purpose but was associated with rent and loan repayment documentation. The WCJ found no error in denying LUBA's request for a credit based on this evidence.

Regarding the expert witness fee awarded to James for Mr. Cating’s testimony, LUBA contended that the WCJ erred since Mr. Cating was not qualified as an expert and only provided factual testimony. Citing previous cases, LUBA argued that fees should not be awarded without expert qualifications or testimony. The WCJ was found to have erred in granting a $650 fee for Mr. Cating.

LUBA also challenged the WCJ's award of penalties and attorney fees. LUBA’s adjuster, Dana Munson, testified that James’s SEBs were terminated due to his failure to provide income information requested since September 2014. Despite this, she acknowledged that James filed 1020 forms monthly, reporting a consistent income of $200 per week, and had no evidence of other income when terminating his SEBs. James continued submitting forms post-termination. Mr. Simmons did not provide the requested information on the grounds of personal privacy. Additionally, Mr. Cating prepared a chart with 13 years of SCI's financial data, indicating volatility and showing limited distributions to the Simmonses, supporting that their choice not to take distributions in 2014 was typical.

In 2014, SCI had a cash balance of $75,950, the highest year-end amount recorded, compared to $67,409 in 2006. Insurers that arbitrarily or capriciously discontinue claims payments may incur penalties and attorney fees under La.R.S. 23:1201(1). Such behavior is defined as willful and unreasoning actions without regard for relevant facts (Brown v. Texas-LA Cartage, Inc.). Determining penalties in workers' compensation cases is a factual question subject to a manifest error standard (Reed v. Abshire).

Ms. Munson did not reinstate James’s Supplemental Earnings Benefits (SEBs) after receiving SCI's financial information, believing James's submitted 1020 forms were incorrect. LUBA justified Ms. Munson’s termination based on Delahoussaye, but the court found her skepticism about James's wages was reasonable, given SCI's status as a sub-Chapter S corporation. James did not provide the requested financial information until late August 2015, claiming it was personal and unnecessary.

The court determined that LUBA’s failure to reinstate James’s SEBs after receiving the financial information was arbitrary and capricious, entitling James to penalties. James was awarded $8,000 for LUBA’s failure to reinstate his SEBs and affirmed the WCJ’s award of that amount. However, the court could not award attorney fees for the period from September 1, 2015, to trial due to a lack of itemized billing and remanded the case for further evidence on attorney fees for that period.

James also sought additional attorney fees for work performed on appeal, which were awarded at $1,500. The court affirmed the WCJ’s ruling in part, reversed it in part, and remanded for the calculation of attorney fees. All costs were assessed against LUBA. Additionally, La.R.S. 12:93 was repealed and replaced by La.R.S. 12:1-622, with identical content.