Boggs v. Blue Diamond Coal Co.

Citation590 F.2d 655
Decision Date23 January 1979
Docket NumberNo. 77-1724,77-1724
Parties1979 O.S.H.D. (CCH) P 23,299 Jennifer BOGGS, Carol Combs, Geraldine Coots, Vera Galloway, Libby Gibbs, Madonna Griffith, Diane McKnight, Geraldine McKnight, Phyllis Peavy, Vickie Scott, Celinda Sparkman, Ethel Sturgill, Debbie Turner, Reda Turner, and Charlotte Widner, Administratices of their Decedents and Individually, Plaintiffs-Appellants, v. BLUE DIAMOND COAL COMPANY, Defendant-Appellee.
CourtU.S. Court of Appeals — Sixth Circuit

Gerald M. Stern, George T. Frampton, Jr., Rogovin, Stern & Huge, Washington, D. C., Kelsey E. Friend, Pikeville, Ky., for plaintiffs-appellants.

Eugene Goss, Harlan, Ky., for Galloway and Sparkman.

James D. Asher, Whitisburg, Ky., for Sturgill.

Bert T. Combs, Charles R. Simons, Tarrant, Combs & Bullitt, Robert I. Cusick, Jr., Louisville, Ky., Foster D. Arnett, Arnett, Draper & Hagood, Knoxville, Tenn., Richard C. Ward, Craft, Barrett, Haynes & Ward, Hazard, Ky., L. R. Coulling, Jr., Hudgins, Coulling, Brewster & Morhous, Bluefield, W. Va., Henry D. Stratton, Stratton, May & Hays, Pikeville, Ky., Maxwell P. Barret, Hazard, Ky., for defendant-appellee.

Before MERRITT, Circuit Judge, and CECIL and PECK, Senior Circuit Judges.

MERRITT, Circuit Judge.

In this diversity case, fifteen widows of coal miners killed in a mine disaster appeal the District Court's dismissal of their wrongful death action. The miners worked for a subsidiary corporation owned by the defendant, the parent corporation. Plaintiffs allege acts of negligence of the parent corporation separate and distinct from the conduct of the subsidiary. The case raises serious questions of first impression under Kentucky's Workmen's Compensation Act.

The Act, like other workmen's compensation laws, grants immunity from common law negligence to an "employer" covered by the Act and to "contractors" who provide certain types of services to an "employer." The immunity is given in exchange for the guaranteed insurance benefits payable to injured employees without regard to fault. 1 The principal issue is whether the parent is an "employer" or "contractor" immunized from tort liability under these provisions.

Finding an implied contract for the subsidiary to mine coal for the parent, the District Court concluded that the parent was a "contractor" exempt from tort liability under Kentucky's Workmen's Compensation Act. We hold that the parent should not be characterized as either a "contractor" or an "employer" under the Act. We reverse the District Court's judgment and remand the case for trial.

I.

On March 9, 1976, fifteen coal miners were killed when methane gas exploded in Scotia Mine No. 1 at Oven Fork in Letcher County, Kentucky. The Scotia Mine is owned and operated by Scotia Coal Company, a wholly owned subsidiary of Blue Diamond Coal Company, whose offices and principal place of business are located in Knoxville.

Blue Diamond operates several coal mines and related businesses. It describes itself in its brief as a multi-unit enterprise consisting of a group of wholly owned subsidiary corporations controlled by a central holding company:

Blue Diamond enters into sales contracts based upon coal to be produced from the mines of its wholly owned subsidiaries. . . . All coal produced by Scotia is sold by Blue Diamond and shipped as directed by Blue Diamond. Sales are invoiced to customers by Blue Diamond and deposited in its bank accounts. A sale of coal from Scotia is entered as a credit to Scotia on the accounting records, But all money is retained by Blue Diamond and is used as it chooses. Funds needed to pay expenses at Scotia are furnished by Blue Diamond with an appropriate entry in the intercompany accounts. (Emphasis added.)

The District Court found that within this corporate arrangement the management of Blue Diamond, the parent, had the primary responsibility for "mine safety functions" at the Scotia mine.

Simply stated, the theory of plaintiffs' case is this: Blue Diamond provided management, engineering and safety services to Scotia, including advice and assistance in mine ventilation. Blue Diamond's management recognized that improvements in the ventilation of the Scotia Mine were needed in order to minimize the accumulation of methane gas but negligently delayed construction of these improvements. Blue Diamond authorized removal of existing ventilation and safety devices in order to open a new tunnel of the mine but concealed the changes from federal mine inspectors who would have taken immediate steps to correct the dangerous condition or to close the mine had they known of the changes. The ventilation changes increased the methane gas in the existing tunnel and caused the explosion. Blue Diamond recklessly created a dangerous situation and put the miners' lives at risk in order to increase its profits in a rising market.

The parent corporation moved for summary judgment claiming immunity from tort under the Kentucky's Workmen's Compensation Act on the ground that the parent and subsidiary produce coal as part of an integrated business and should be considered a joint or single "employer." The parent argued, in the alternative, that the subsidiary produces coal for it under an agreement and that the parent should be considered a "contractor" expressly exempt from common law liability under the Act. 2

At the close of plaintiff's case after three days of testimony before a jury, the parent moved for a directed verdict and also renewed its motion for summary judgment. The District Judge sustained its motion for summary judgment. He concluded that the "undisputed course of conduct" evidenced an implied contract "from 1962 to date" for the subsidiary to mine coal for the parent. The parent, he held, should be deemed a "contractor" exempt from common law liability. On this appeal we must decide the extent to which workmen's compensation laws abrogate the common law liabilities of a parent corporation or holding company for injuries to its subsidiary's employees.

II.

Workmen's compensation laws were passed before the multi-unit enterprise became the norm in the American economy and before the accompanying managerial revolution in American business. See Chandler, The Visible Hand 377-498 (1977). For this reason, state workmen's compensation laws, including Kentucky's Workmen's Compensation Act, do not address the question of a parent corporation's immunity from common law tort liability for injuries to its subsidiary's employers, nor does the Kentucky case law interpreting the Act. Few cases from other jurisdictions touch upon the question, and the general legal literature in the field does not deal with it. In the absence of controlling authority, we look to the language of the Act, its history and purpose, and the general concepts underlying workmen's compensation laws in order to find a sound approach to the problem.

The dominant purpose of the movement to adopt workmen's compensation laws in the early decades of this century was Not to abrogate existing common law remedies for the protection of workmen. It was to provide social insurance to compensate victims of industrial accidents because it was widely believed that the limited rights of recovery available under the common law at the turn of the century were inadequate to protect them.

The so-called "unholy trinity" of judicially-created employer defenses, assumption of the risk, contributory negligence and the fellow servant rule, were developed and strictly enforced as legal rules in the last half of the nineteenth century. The result, according to Deans Prosser and Wade, was recovery in less than a quarter of work-related accidents, as injured workmen subsidized economic growth. 3

Employers generally opposed the movement for "reform"; labor generally favored it. Workmen's compensation laws were adopted as a compromise between these contending forces. Workmen were willing to exchange a set of common-law remedies of dubious value for modest workmen's compensation benefits schedules designed to keep the injured workman and his family from destitution.

Since the adoption of workmen's compensation laws, common law tort principles have been modified gradually. Liability has expanded. The defenses of contributory negligence, assumption of the risk and the fellow servant rule have been narrowed or abolished. But workmen's compensation benefits have remained low, and the compromise which extended immunity from common-law liability to employers has remained in place.

Congress, responding to rising public consciousness of the need for occupational safety, has viewed the safety incentives provided by existing laws as inadequate. It has enacted new regulatory arrangements to insure more safety at mines 4 and at work places generally. 5

Courts have responded by liberally construing the coverage provisions of workmen's compensation acts while narrowly construing the immunity provisions. Judge Celebrezze, writing for this Court, described the developments of Kentucky case law in this direction in Bryant v. Old Republic Insurance Co., 431 F.2d 1385 (6th Cir. 1970), a case which held that an employer's workmen's compensation insurance carrier is not an "employer" for purposes of the tort immunity provisions of the Act:

A review of the Kentucky constitution . . . reveals that the personal representatives of an estate have a constitutionally protected right to recover for wrongful death, "unless otherwise provided by law." Constitution of Kentucky § 241. The General Assembly of Kentucky subsequently codified this constitutional right . . . . The Workmen's Compensation Act is an express exception to Kentucky's constitutional and statutory right . . . .

(T)he Kentucky Court of Appeals seems to be narrowing the concept of employer's immunity under its workmen's compensation laws and In the absence of any compelling statutory language or social policy justification . . . we...

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