AMS Constr. Co. v. K.H.K. Scaffolding Houston, Inc.

• Decision Date: 25 May 2011
• Docket Number: No. 01–09–00360–CV.,01–09–00360–CV.
• Citation: 357 S.W.3d 30
• Parties: AMS CONSTRUCTION COMPANY, INC., d/b/a AMS Staff Leasing, Appellant, v. K.H.K. SCAFFOLDING HOUSTON, INC., Appellee.
• Court: Texas Court of Appeals

357 S.W.3d 30

AMS CONSTRUCTION COMPANY, INC., d/b/a AMS Staff Leasing, Appellant,

v.K.H.K. SCAFFOLDING HOUSTON, INC., Appellee.

No. 01–09–00360–CV.

Court of Appeals of Texas, Houston (1st Dist.).

April 28, 2011.Rehearing Overruled May 25, 2011.

Alene Ross Levy, Katharine D. David, Lynne Liberato, Haynes & Boone, LLP, Houston, TX, Donald Bradley Dickinson, Dickinson & Bartlett, P.C., William E. Reid, Reid & Dennis, P.C., Dallas, TX, for Appellant.

John M. O'Quinn, The O'Quinn Law Firm, Lloyd E. Kelley, Lloyd E. Kelley & Associates, Pete Mai, Tammy Tran, The Tammy Tran Law Firm, Wanda McKee Fowler, Wright Brown & Close, LLP, Houston, TX, for Appellee.

Panel consists of Chief Justice RADACK and Justices ALCALA and BLAND.

OPINION

JANE BLAND, Justice.

In this case, an employer sues its staff leasing company for its failure to comply with its agreement to provide workers' compensation insurance for one of the employer's injured workers. A jury found that the staff leasing company failed to comply with the agreement, that its failure was not excused, and that it committed fraud. The trial court rendered judgment on the jury's breach of contract findings.

The staff leasing company, AMS Construction Company, Inc. d/b/a AMS Staff Leasing, appeals the jury's verdict in favor of the employer, K.H.K. Scaffolding Houston, Inc. AMS contends that: (1) the trial court lacked subject matter jurisdiction to hear KHK's claims; (2) no evidence supports the jury's findings of breach of contract and fraud; (3) KHK waived its argument that AMS's workers' compensation insurance policy covered the injured worker; and (4) KHK and the injured worker improperly colluded against AMS, and this invalidates the trial court's judgment on public policy grounds. We conclude that the trial court had jurisdiction to hear the suit, legally sufficient evidence supports the jury's breach of contract findings, AMS did not preserve its claim of waiver in the trial court, and no evidence exists of a collusive agreement. We therefore affirm the jury's verdict and the trial court's final judgment.

BACKGROUND

Underlying Facts

In May 1999, AMS and KHK entered into an Employee Leasing Agreement. Jin Yung Kim, as chairman of KHK, signed the agreement on behalf of KHK, and Doug Lowery, as president of AMS, signed on behalf of AMS. The term of the agreement was one year, but it automatically renewed unless either party cancelled it. In relevant part, the leasing agreement provides:

WHEREAS Client Company [i.e. KHK] has contracted with AMS for leased employees on various projects AND

WHEREAS AMS wishes to provide labor on such projects

FOR CONSIDERATION HEREINAFTER THE NAMED PARTIES AGREE AS FOLLOWS:

[....]

ARTICLE 3[ ] INDEMNITY AND INSURANCE

(a) AMS agrees to obtain and pay for Workers' Compensation and Employee Liability Insurance, including Occupational Disease Coverage, providing statutory benefits and with liability limits of not less than $1,000,000 for Employer Liability Coverage. AMS agrees to furnish Client Company with Certificates of Insurance indicating compliance with the above requirements....

(b) AMS agrees to protect, indemnify[,] and hold Client Company harmless against all loss, cost or expense which Client Company may incur or sustain in connection with or in consequence of any claim of occupational injury relating to AMS's employee arising in any manner out of or in any way connected with or a result of performance of this subcontract, or breach thereof, or any activity caused by any negligent act or omission on the part of AMS, no matter by whom or on whose behalf such claim, demand, suit or action may be asserted or brought. In addition, AMS will service any such claim or demand, defend any such suit or action, and judgment, including court costs which may be awarded therein.

Under the agreement, AMS agreed to obtain workers' compensation insurance and to indemnify KHK for any claims of occupational injuries brought against it by leased employees. AMS also took responsibility for handling the payroll for leased employees. In exchange, KHK agreed to pay AMS a service fee plus administrative overhead. The agreement does not define “employee”, “AMS employee”, or “leased employee.”

KHK had the complete authority to hire leased employees. AMS representatives maintained that to be a leased employee, a KHK worker had to submit an AMS employment application to AMS and be counted as a leased employee. In contrast, according to KHK representatives, KHK never required an employee to submit an AMS application to obtain workers' compensation insurance and that it had numerous AMS leased employees who had never completed an AMS application. After the negligence suit, AMS and KHK amended the leasing agreement to require that each new employee submit a completed application to obtain workers' compensation coverage.

AMS representatives admitted at trial that if a KHK worker was on the AMS payroll, then AMS treated him as a leased employee regardless of whether it had his application on file; it also charged KHK a fee to cover that worker with workers' compensation insurance.

To place an employee on the AMS payroll, KHK reported him in a “turnaround report,” which it submitted to AMS. Employees then received their paychecks from AMS one week following the week they worked. The pay period ran from Wednesday to Tuesday. KHK reported payroll by submitting the turnaround report on Thursdays. AMS processed the turnaround report and issued paychecks on Sundays. AMS delivered the paychecks on Thursdays and received a check for reimbursement from KHK in the amount of gross payroll, the administrative overhead, and premiums for workers' compensation insurance for each worker reported on the turnaround report. The more employees KHK leased from AMS, the larger the fee KHK paid to AMS.

In February 2000, Osman Sosa began work at KHK's factory. He worked approximately twenty times at the factory. During the work week of March 22 to March 28 of 2000, Sosa worked twenty-four hours. On March 30, KHK reported Sosa's hours in the turnaround report and submitted it to AMS. AMS charged and received a fee to provide workers' compensation insurance for that work week. AMS issued Sosa a check dated April 6 for the twenty-four hours he worked during the week of March 22 to March 28.

For the work week of March 29 to April 4, KHK reported Sosa's hours in a turnaround report and submitted it to AMS. Sosa severely injured his hand on March 31, the day after KHK first reported Sosa's hours to AMS. AMS charged and received a fee to provide Sosa with workers' compensation insurance for that week. AMS also issued Sosa a paycheck dated April 13 for that week.

KHK reported Sosa's injury to AMS. Andrew Price, AMS's risk manager, confirmed that Sosa was in its payroll system. Price then filed an Employer's First Report of Injury with AMS's insurance company's administrator. The administrator forwarded that report to the Texas Worker's Compensation Commission (the Commission).¹

Proceedings in the trial court

About a week after the accident, Sosa sued KHK for negligence and gross negligence in state district court. KHK notified Price of Sosa's lawsuit. Price contacted Sosa's attorney to tell him that Sosa was a leased employee of AMS and covered by workers' compensation insurance. He advised the attorney to contact the insurance company's administrator. The insurance company's administrator informed the Commission that no coverage existed for Sosa because no employee-employer relationship existed between Sosa and AMS. The Commission then notified Sosa that the insurance company denied his claim.

KHK filed a third party action against AMS, asserting causes of action for breach of the leasing agreement, declaratory judgment, fraud, fraudulent misrepresentation, and negligent misrepresentation. On the first day of trial on Sosa's negligence claims, KHK moved to abate, contending that the exclusive remedy provision of the Texas Workers' Compensation Act barred Sosa's suit because Sosa was an AMS employee and covered by workers' compensation insurance. See Tex. Lab.Code Ann. § 408.001(a) (West 2006) (“Recovery of workers' compensation benefits is the exclusive remedy of an employee covered by workers' compensation insurance coverage or a legal beneficiary against the employer or an agent or employee of the employer for the death of or a work-related injury sustained by the employee.”). The trial court denied the motion and proceeded with the trial. The jury returned a verdict for Sosa on his negligence claims and awarded him actual and punitive damages.

Before it signed the judgment, the trial court allowed KHK to go to the Commission to resolve Sosa's employment status. KHK requested informal dispute resolution and a benefit review conference. The Commission denied the request because: (1) KHK failed to identify a benefit dispute or its request was vague and unclear; (2) insufficient documentary information existed on the benefit dispute; (3) the insurance company denied that an employee/employer relationship existed between AMS and Sosa; and (4) Sosa had not pursued the claim. The Commission advised KHK that once it obtained additional documentation, KHK could submit a new request for informal dispute resolution.

After the Commission declined KHK's request, the trial court signed a final judgment on the jury's verdict awarding Sosa actual and punitive damages. It severed Sosa's claim against KHK from KHK's claim against AMS, thereby according finality to Sosa's claims. The case then proceeded between KHK and AMS. Before the trial, AMS moved to abate, contending that the trial court lacked jurisdiction because neither KHK nor Sosa had exhausted administrative remedies before the Commission. According to AMS, the Commission had exclusive jurisdiction to resolve the issue of whether Sosa was a leased employee of AMS under the leasing agreement. AMS and KHK then stipulated that...