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§§upreme Tnurl of Benfuckg

20 16-SC-0001 1 l-WC

COMMONWEALTH OF KENTUCKY,
UNINSURED EMPLOYERS’ FUND

ON APPEAL FROM COURT OF APPEALS
V. CASE NO. 2015-CA-OOO40l-WC
WORKERS’ COMPENSATION NO. OS-WC-OO242

MICHAEL BROCK; GEORGE BRENT
OWEN; MORE POWER DIESEL, INC.;
WINFORD L. BREWER, MARY JO BREWER,
MICHAEL R. CORNWELL, CYNTHIA G.
CORNWELL, WILLIAM L. HANEY, SR.,
SHERRY HANEY, ALL DBA HBC LEASING
COMPANY; O &, O BUILDERS; HONORABLE
THOMAS POLITES, ADMINISTRATIVE LAW
JUDGE; AND WORKERS’ COMPENSATION
BOARD

OPINION OF THE COURT BY JUSTICE VENTERS

AFFIRMING

APPELLANT

APPELLEES

The Kentucky Uninsured Employers’ Fund (UEF) appeals from a decision

issued by the Court of Appeals in a Workers’ compensation proceeding The

decision upheld the conclusions of the Administrative Law Judge (ALJ) and the

Workers’ Compensation Board (Board) that neither More Power Diesel, Inc.

(MPD), HBC Leasing Company (HBC), nor the owners of these companies

individually, Were “up-the-ladder” contractors under KRS 342.610 and KRS

342.700 for the purposes of assigning liability following a Work-related injury

incurred by Michael Brock.

Because the record supports the determinations by the lower tribunals
that Brent Owen was the general contractor on the Livingston County
construction project at issue, and that neither MPD, HBC, nor the companies’
owners individually, were contractors on the project so as to be subject to up-

the-ladder liability, we affirm.

I. FACTUAL AND PROCEDURAL BACKGROUND
In the light most favorable to the ALJ’s findings, the facts are as follows.

MPD is a diesel engine repair shop. lt is owned by diesel mechanics Winford
Brewer, William Haney, Sr., and Michael Cornwell (the Partners). The same
three men, along with their wives, also own HBC, a company they formed for
the purpose of investing in real estate.1 HBC has no employees and in 2007 it
owned three tracts of land, including a tract in Livingston County where
Brock’s Work-related injury occurred.

Brent Owen operated an automobile repair shop situated on part of
HBC’s Livingston County tract. In addition to his auto repair shop, Owen was
also an owner of 0 85 O Builders, a building contractor business. In 2007 ,
Owen planned to open a third business and was looking for an available
location for his new project. After a period of discussions, Owen and HBC

agreed that HBC would arrange for the construction of a new building on the

 

1 HBC Was a partnership comprised of Haney, Brewer, and Cornwell and their
wives until it was restructured as a limited liability corporation (with the same owners)
after Brock filed his claim. This restructuring is not relevant to our review.

2

Livingston County tract near Owen’s auto repair business, and Owen would
lease the new building for his new business.

Because Owen owned a construction company, O & 0 Builders, the
agreement provided that Owen Would assume the role of general contractor for
the new building This approach made sense because, among other things,
none of the MPD partners / HBC owners had any experience as a building
contractor. They agreed that Owen would be paid half of the money for the
construction up front, and the other half upon completion of the building

Owen commenced the construction project in the summer of 2007, He
subcontracted with a second construction company to assist in the
construction of the building He also separately employed Michael Fiers and
Michael Brock to work on the project. In September 2007, Brock and Fiers
were working at the construction site when the shovel of a Bobcat front loader
malfunctioned and dumped a load of gravel on Brock, and then turned over on
him. Brock was gravely injured in the accident; among other things he
suffered bruising to his heart and lungs, a lacerated kidney, and several
injured or broken vertebrae.

At the time of Brock’s injury, neither O &, O Builders nor Owen himself
had workers’ compensation insurance. With no employees, HBC had no
workers’ compensation insurance. Only MPD, the diesel mechanic shop, had
workers’ compensation insurance

Brock filed a timely claim for workers’ compensation benefits. Owen, and

Cornwell and Brewer of HBC and MPD, testified regarding the nature of their

3

respective businesses and the circumstances leading to the construction of the
building Their testimony uniformly supported the fact that Owen was to act
as the contractor on the building construction project.

The ALJ entered an Opinion and Award which concluded that Brock had
suffered a 58% impairment and did not retain the physical capacity to return
to his prior work in construction. The ALJ concluded that Brock was not
permanently totally disabled, and awarded him a benefit of $121.35 per week
for 520 weeks with interest from the date of his injury, The ALJ identified
Owen as the party responsible for payment of Brock’s benefit. Since Owen did
not have workers’ compensation insurance, the burden of compensating Brock
was scheduled to fall upon UEF pursuant to KRS 342.760.2 Anticipating this
result, UEF filed a pleading to add MPD, HBC, and the individuals owning
those businesses as parties to the proceedings and to assign financial
responsibility to them.

UEF argued before the ALJ that pursuant to the up-the-ladder provisions
of KRS 342.610 and KRS 342.700, MPD (Which had workers’ compensation
coverage) was financially responsible for Brock’s benefit award due to its close

ties to HBC, including the commingling of business activities, and its alleged

 

2 “The uninsured employers’ fund shall be responsible for the payment of
compensation when there has been default in the payment of compensation due to the
failure of an employer to secure payment of compensation as provided by this chapter.
Such employer shall be liable for payment into the fund of all the amounts authorized
to be paid therefrom under the authority of this subsection including reimbursement
of_ the special fund of all liability apportioned to it and for the purposes of enforcing
this liability the Labor Cabinet, for the benefit of the fund, shall be subrogated to all
the rights of the person receiving such compensation from the fund.” KRS 342.760(4).

4

participation in the agreement with Owen for construction of the building The
ALJ rejected this argument and concluded that neither MP_D nor HBC were
“contractors engaged in the business of construction” as required to establish
up-the-ladder liability. The ALJ reasoned that the up-the-ladder statutes were
not intended to make every entity that contracts with a general construction
contractor responsible for the contractor’s actions regardless of the nature of
the business that had hired the contractor.

UEF appealed to the Board which affirmed the ALJ’s decision dismissing
HBC and MPD as parties. The Board found no merit in UEF’s efforts to link
MPD or HBC to Owen’s responsibility for providing Brock with Workers’
compensation coverage. The Court of Appeals subsequently affirmed the

Board’s decision. This appeal followed.

II. STANDARD OF REVIEW

“An award or order of the administrative law judge . . . shall be
conclusive and binding as to all questions of fact . . . .” KRS 342.285.
Accordingly, as the statutorily assigned fact-finder in this proceeding the ALJ
has the sole authority to determine the quality, character, and substance of the
evidence. Square D Company v. Tipton, 862 S.W.2d 308, 309 (Ky. 1993)
(citation omitted). Similarly, the ALJ has the sole authority to judge the weight
and inferences to be drawn from the evidence. Miller v. East Kentucky
Beverage/Pepsico, Inc,, 951 S.W.2d 329, 331 (Ky. 1997) (citation omitted);

Luttrell v. Cardinal Aluminum Co., 909 S.W.2d 334 (Ky. App. 1995). Further,

the ALJ, as fact-finder, “may reject any testimony and believe or disbelieve
various parts of the evidence, regardless of whether it comes from the same
witness or the same adversary party’s total proof.” Magic Coal 1). Fox, 19
S.W.3d 88, 96 (Ky. 2000) (citing Caudill v. Maloney’s Discount Stores, 560
S.W.2d 15, 16 (Ky. 1977)); Whittaker v. Rowland, 998 S.W.2d 479, 481 (Ky.
1999); Halls Hardwood Floor Company v. Stapleton, 16 S.W.3d 327, 329 (Ky.
App. 2000). Mere evidence contrary to the ALJ’s decision is not adequate to
require reversal on appeal Whittaker, 998 S.W.2d at 482 (citation omitted). In
order to reverse the decision of the ALJ, it must be shown there was no
evidence of substantial probative value to support his decision. Special Fund v.
Francis, 708 S.W.2d 641 (Ky. 1986).

When reviewing a decision of the Board, we will affirm absent a
finding that the Board has misconstrued or overlooked controlling law or has
so flagrantly erred in evaluating the evidence that a gross injustice has

occurred. Western Baptist Hospital v. Kelly, 827 S.W.2d 685, 687-688 (Ky.

19921

III. UP-THE-LADDER LIABILITY ISSUES
In its appeal to this Court, UEF continues to argue that either MPD,

HBC, and / or the individual Partners and their wives should bear up-the-ladder
financial responsibility under KRS 342.610 and KRS 342.700 for the work-
related injuries incurred by Brock, in light of the failure of Owen and 0 & O

Builders to have workers’ compensation coverage at the time of his injury.

As the proponent of assigning up-the-ladder liability, the burden fell
upon UEF to prove the essential elements of its position. Burton v. Foster
Wheeler Corporation, 72 S.W.3d 925, 929 (Ky. 2002) (citations omitted). Since
UEF was unsuccessful in its burden of proof before the ALJ, the question on
appeal is whether the evidence is so overwhelming upon consideration of the
whole record, as to compel a finding in UEF’s favor. Wolf Creek Collieries v.
Crum, 673 S.W.2d 735, 736 le. App. 1984). Compelling evidence is defined as
evidence that is so overwhelming no reasonable person could reach the same

conclusion as the ALJ, REO Mechanical v. Barnes, 691 S.W.2d 224, 226 (Ky.

App. 1985).

KRS 342.610(2) provides in relevant part as follows:

(2) A contractor who subcontracts all or any part of a contract and
his or her carrier shall be liable for the payment of compensation to
the employees of the subcontractor unless the subcontractor
primarily liable for the payment of such compensation has secured
the payment of compensation as provided for in this chapter. Any
contractor or his or her carrier who shall become liable for such
compensation may recover the amount of such compensation paid
and necessary expenses from the subcontractor primarily liable
therefor. A person who contracts with another: `

(a) To have work performed consisting of the removal,
excavation, or drilling of soil, rock, or mineral, or the cutting
or removal of timber from land; or

(b) To have work performed of a kind which is a regular or
recurrent part of the work of the trade, business, occupation,
or profession of such person

shall for the purposes of this section be deemed a contractor, and
such other person a subcontractor This subsection shall not apply
to the owner or lessee of land principally used for agriculture

(Emphasis added.)

The purpose of KRS 342.610 “is to discourage a contractor from
subcontracting work that is a regular or recurrent part of its business to an
irresponsible subcontractor in an attempt to avoid the expense of workers’
compensation benefits.” General Electric Corporation v. Cain, 236 S.W.3d 57 9,
585 (Ky. 2007). ln the context of this provision “‘[r]ecurrent’ simply means
occurring again or repeatedly. ‘Regular’ generally means customary or normal,
or happening at fixed intervals. However, neither term requires regularity or
recurrence with the preciseness of a clock or calendar.” Id. at 586 (citation
omitted).

The other up-the-ladder statutory provision relied upon by UEF, KRS
342.700(2), provides, in part, as follows:

A principal contractor, intermediate, or subcontractor shall be

liable for compensation to any employee injured while in the

employ of any one (1) of his intermediate or subcontractors and

engaged upon the subject matter of the contract, to the same

extent as the immediate employer.

When a contractor falls within the provisions of KRS 342.610 or KRS
342.700, he may be found liable for an injured worker’s claim even though he
did not directly employ the claimant. However, to be adjudged liable, an entity
must fit those statutes’ descriptions of a “contractor,” and for that to occur he
must be regularly engaged in the same or similar type of work as the work the
subcontractor was hired to perform.

To determine this, a series of factors are taken into consideration,

including the putative “contractor’s” nature, size, and scope, as well as whether

he is equipped with the skilled manpower and tools to handle the task the

8

“subcontractor” was hired to perform. See Cain, 236 S.W.3d at 588 (citation
omitted). Here the ALJ undertook this examination and made a factual finding
that none of the entities to which UEF would assign liability qualify as a
contractor based upon the applicable factors. This finding is supported by the
testimony and other evidence presented into the record, l

The record is replete with largely uncontested testimony regarding the
nature of MPD’s and -HBC’s business operations, and the arrangements they
made with Owen for the construction of the building Cornwell, Brewer, and
Owen all testified that Owen himself originally proposed the construction of the
building on the Livingston property, with the objective that he would take
charge of the construction project and, upon its completion, he would then
lease it for use by his new business venture. There was conflicting evidence
about whether the initial payment to Owen under the construction contract
came from MPD’s bank account, even though HBC was the owner of the
property. However, the manner in which MPD and H'BC may have commingled
their funds has no effect on our determination because neither entity qualifies
as a contractor for purposes of up-the-ladder liability for Brock’s injury. l

The testimony of Cornwell, Brewer, and Owen plainly established that
MPD was a diesel engine repair business and that constructing a building was
not a regular and recurring part of its work. The evidence established with
equal clarity that HBC was in the business of leasing property, that its work
did not include construction of buildings, and that it had no employees, The

ALJ’s findings to that effect were solidly supported by substantial evidence.

9

Uncontested evidence also established that Owen employed l/"iers and
Brock to do the gravel work in connection with the building project, which
further supports the ALJ’s finding that Owen was the exclusive contractor on
the project and that MPD and HBC did not meet the relevant statutory criteria
to qualify as contractors ladened with up-the-ladder liability. Because the ALJ
is the fact finder in a workers’ compensation proceeding we defer to his
assessments of` the weight, credibility, and substance of the evidence and are
constrained to accept his findings because they are supported by the evidence
of record,

UEF argues that HBC and MPD explicitly or implicitly contracted with
Owen to construct the building, and should therefore be regarded as
contractors. We disagree. Entering into a contract with a building contractor
does not convert one into a “contractor” for purposes of “up-the-ladder"
liability. KRS 342.610(2) imposes such liability only when the work for which
on'e contracts is a “regular or recurrent part of the work” of one’s own “trade,
business, occupation, or profession.” For MPD or HBC to qualify as
“contractors” for up~the-ladder liability purposes, the same work they hired
Owen to perform must be a regular or recurrent part of their work. See Cain,
236 S.W.3d at 588. The facts in evidence simply do not bear that out.

We agree with the conclusions of the other tribunals that reviewed this
matter. There is no statutory basis for holding MPD or HBC liable on a claim

for which Owen was solely responsible.

10

IV. CONCLUSICN
The ALJ and the Board properly construed the clear dictates of KRS

342.610 and KRS 342.700, and the application of those statutes to the present '
facts of this matter. Hence, we affirm the Board’s January 30, 2015 decision in
its entirety; and, consistent with that decision, the matter is remanded to the

ALJ for dismissal of HBC and MPD as parties to Brock’s claim.

All sitting All concur.

11

COUNSEL FOR APPELLANT COMMONWEALTH OF KENTUCKY, UNINSURED
EMPLOYERS’ FUND:

Charles Davis Batson

Assistant Attorney General

Uninsured Employers’ Fund

COUNSEL FOR APPELLEE MICHAEL BROCK:

William Pinkston
Denton Law Firm, PLLC

COUNSEL FOR APPELLEE GEORGE BRENT OWEN:
N ot Represented By Counsel
COUNSEL FOR APPELLEE MORE POWER DIESEL, INC.:

Samuel J. Bach
Bach & Armstrong, LLP

COUNSEL FOR APPELLEES WINFORD L. BREWER AND MARY JO BREWER:

David Craig Troutman
Edward 85 Kautz, PLLC

COUNSEL FOR APPELLEES MICHAEL R. CORNWELL, CYNTHIA G.
CORNWELL, WILLIAM L. HANEY, SR., AND SHERRY HANEY, ALL DBA HBC
LEASING COMPANY:

Mark H. Edwards
Edwards & Kautz, PLLC _

COUNSEL FOR APPELLEE O & O BUILDERS:

Not Represented By Counsel

12

