Meno's Constr., L. L.C. v. Indus. Comm'n of Ariz.

• Decision Date: 09 May 2019
• Docket Number: 1 CA-IC 18-0042 (Consolidated),No. 1 CA-IC 18-0041,1 CA-IC 18-0041
• Citation: 246 Ariz. 521,442 P.3d 828
• Parties: MENO’S CONSTRUCTION, L.L.C.* * * *, Petitioner/Employer, AIG Insurance Company* * * *, Petitioner/Carrier, v. The INDUSTRIAL COMMISSION OF ARIZONA, Respondent, Victor M. Reyes, Respondent Employee, The Younger Brothers Group, Inc.*; Genaro’s Framing Construction, L.L.C. * * *, Respondent Employers, CopperPoint Indemnity Insurance Company*; Travelers Insurance Company* * *, Respondent Carriers, Roberto Carlos Navarro Padilla* *; Juan Estopellan* * * * *, Respondent Uninsured Employers, Special Fund Division/No Insurance Section* *, * * * * *, Respondent Party in Interest. Special Fund Division/No Insurance Section* *, * * * * *, Petitioner/Party in Interest, v. The Industrial Commission of Arizona, Respondent, Victor M. Reyes, Respondent Employee, The Younger Brothers Group, Inc.*, Genaro’s Framing Construction, L.L.C. * * *, Meno’s Construction, L.L.C.* * * *, Respondent Employers, CopperPoint Indeminty Insurance Company*, Travelers Insurance Company* * *, AIG Insurance Company* * * *, Respondent Carriers, Roberto Carlos Navarro Padilla* *, Juan Estopellan* * * * *, Respondent Uninsured Employers.
• Court: Arizona Court of Appeals

246 Ariz. 521

442 P.3d 828

MENO’S CONSTRUCTION, L.L.C.* * * *, Petitioner/Employer,

AIG Insurance Company* * * *, Petitioner/Carrier,

v.The INDUSTRIAL COMMISSION OF ARIZONA, Respondent,Victor M. Reyes, Respondent Employee,

The Younger Brothers Group, Inc.*; Genaro’s Framing Construction, L.L.C. * * *, Respondent Employers,

CopperPoint Indemnity Insurance Company*; Travelers Insurance Company* * *, Respondent Carriers,

Roberto Carlos Navarro Padilla* *; Juan Estopellan* * * * *, Respondent Uninsured Employers,

Special Fund Division/No Insurance Section* *, * * * * *, Respondent Party in Interest.

Special Fund Division/No Insurance Section* *, * * * * *, Petitioner/Party in Interest,

v.The Industrial Commission of Arizona, Respondent,Victor M. Reyes, Respondent Employee,

The Younger Brothers Group, Inc.*, Genaro’s Framing Construction, L.L.C. * * *, Meno’s Construction, L.L.C.* * * *, Respondent Employers,

CopperPoint Indeminty Insurance Company*, Travelers Insurance Company* * *, AIG Insurance Company* * * *, Respondent Carriers,

Roberto Carlos Navarro Padilla* *, Juan Estopellan* * * * *, Respondent Uninsured Employers.

No. 1 CA-IC 18-0041

1 CA-IC 18-0042 (Consolidated)

Court of Appeals of Arizona, Division 1.

FILED May 9, 2019

Jardine Baker Hickman & Houston P.L.L.C., Phoenix, By Stephen C. Baker, Counsel for Petitioner Employer Meno’s Construction, L.L.C. and Petitioner, Carrier AIG Insurance Co.

Industrial Commission of Arizona, Phoenix, By Gaetano J. Testini, Counsel for Respondent

Taylor & Associates P.L.L.C., Phoenix, By Javier C. Grajeda, Counsel for Respondent Employee

CopperPoint Mutual Insurance Company, Phoenix, By Mark A. Kendall, Counsel for Respondent Employer The Younger Brothers Group, Inc. and Respondent Carrier CopperPoint Indemnity Insurance Co.

Hendrickson & Palmer, P.C., Phoenix, By Adam P. Palmer, Counsel for Respondent Employer Navarro Padilla

Hoffman Kelley Lopez, L.L.P, Scottsdale, By Michelle D. Lopez, Counsel for Respondent Employer/Carrier Genaro’s Framing Construction L.L.C.

Lundmark Barberich La Mont & Salvin, P.C., Phoenix, By Kirk A. Barberich, Danielle Vukonich, Counsel for Petitioner Party in Interest Special Fund Division/No Insurance, Section

Judge Kenton D. Jones delivered the Opinion of the Court, in which Presiding Judge James B. Morse Jr. and Judge Jon W. Thompson joined.

JONES, Judge:

¶1 In this consolidated statutory special action, Meno’s Construction, L.L.C. and AIG Insurance Co. (collectively, MC) and the Special Fund Division/No Insurance Section (the Fund) challenge an Industrial Commission of Arizona (ICA) decision finding MC and Juan Estopellan were Victor Reyes’s employers at the time of his December 2015 industrial injury. We affirm the factual findings and conclusions of the administrative law judge (ALJ) with respect to those employers. We also hold that an ALJ is required to evaluate the liability of each contractor and subcontractor made a party to a workers’ compensation claim. Because the ALJ did not do so in this case, we set aside the award.

FACTS AND PROCEDURAL HISTORY

¶2 In 2012, Taylor Morrison contracted with Younger Brothers Group, L.L.C. (YB) to complete the framing for various new home construction and lot improvement projects in and around Phoenix, including at Lot 31 of a housing development in Gilbert.¹ That contract required YB to provide supervision, labor, materials, and services necessary to complete the work and provided that "no such subcontracting shall relieve Younger Brothers from its obligations under th[e] agreement."

¶3 YB subcontracted the framing work on Lot 31 to a second framing contractor, Genaro’s Framing Construction, L.L.C. (GFC). Pursuant to the independent contractor agreement, YB would provide general guidelines and framing materials for each job, but GFC was responsible for supplying the labor and tools, carrying workers’ compensation insurance for employees, and controlling the day-to-day operations of the jobsite. YB did not return to the jobsite until it was completed, and then only to inspect the work and approve payment. Because GFC did not employ any actual framers, it subcontracted the Lot 31 job to a third framing contractor, MC, under similar terms.

¶4 In 2015, MC assigned responsibility for completing the framing on Lot 31 to Estopellan, as it occasionally did when Estopellan sought additional work. At the time, Estopellan was also employed as a foreman for YB and responsible for supervising various projects including one near Lot 31. Nonetheless, Estopellan sometimes accepted other jobs through his own sole proprietorship. MC did not provide tools, materials, or labor; did not require any proof Estopellan maintained workers’ compensation insurance; and did not direct or supervise Estopellan’s work. As with YB and GFC, MC did not pay for a job until it had inspected and approved the work.

¶5 Estopellan immediately hired Roberto Navarro to help with Lot 31, as was Estopellan’s practice when working side jobs, and paid Navarro a lump sum for the job via personal check. Estopellan then directed workers to Navarro, who provided the day-to-day instruction and supervision. The framing crew received safety training and t-shirts from GFC.

¶6 Reyes, the injured worker, met Navarro and Estopellan in September 2015 when he arrived on a construction site looking for work. Reyes immediately began to work with the two men, first as an assistant, and then as a framer, at various locations. Over the next few months, Navarro told Reyes when and where to work and paid him weekly via cash or personal check. However, Navarro received a written budget and instructions from Estopellan, who would visit the jobsites in a YB truck, deliver tools and materials, and supervise the work.

¶7 On December 21, 2015, Reyes injured his hip

and wrist after falling from a ladder while working at Lot 31. Navarro notified Estopellan, as he did with all issues that arose at a jobsite. Estopellan then reported the injury to MC, as MC had requested, and directed Reyes to the specific clinic MC preferred. Ultimately, YB inspected and approved the framing on Lot 31 but never paid Estopellan directly for any work on that project.

¶8 Reyes reported his injury to the ICA, which resulted in consolidated claims against five potential employers — Navarro, Estopellan, MC, GFC, and YB — and their insurers, all of whom denied liability for the claim. Because neither Navarro nor Estopellan had workers’ compensation insurance, the Fund was also joined in the action. See Ariz. Rev. Stat. (A.R.S.) §§ 23-907,² -1065 (governing the creation of and expenditures from a special fund to compensate employees whose employers fail to secure required workers’ compensation insurance).

¶9 After a three-day hearing, the ICA issued a consolidated decision in which the ALJ found Estopellan had employed both Navarro and Reyes to work on Lot 31 and MC maintained control over the project. Therefore, the ALJ concluded that Estopellan was Reyes’s direct employer, MC was Reyes’s statutory employer, and both were responsible for payment of Reyes’s workers’ compensation claim. The ALJ made no findings regarding GFC’s or YB’s status or liability. The ICA decision was affirmed upon review. MC and the Fund separately petitioned for special action review of the ICA’s award and decision upon review, and the cases were consolidated for our review. We have jurisdiction pursuant to A.R.S. §§ 12-120.21(A)(2), 23-951(A), and Arizona Rule of Procedure for Special Actions 10.

DISCUSSION

I. Estopellan Was Reyes’s Employer.

¶10 The Fund argues Estopellan was not an employer subject to the Workers’ Compensation Act as defined in A.R.S. § 23-902(A). We will not disturb the ALJ’s factual findings unless clearly erroneous and will affirm so long as the findings were properly made and support the award. A.R.S. § 23-951(B) ; Jenkins v. Indus. Comm’n , 77 Ariz. 377, 386, 272 P.2d 601 (1954) (citing Todaro v. Gardner , 72 Ariz. 87, 91, 231 P.2d 435 (1951) ). "A finding of fact is not clearly erroneous if substantial evidence supports it, even if substantial conflicting evidence exists." Ramsey v. Ariz. Registrar of Contractors , 241 Ariz. 102, 109, ¶ 22, 384 P.3d 316, 323 (App. 2016) (quoting Kocher v. Dep’t of Revenue of Ariz. , 206 Ariz. 480, 482, ¶ 9, 80 P.3d 287, 289 (App. 2003) ). However, Estopellan’s status as an employer is a conclusion of law subject to de novo review. Faraghar v. Indus. Comm’n , 184 Ariz. 528, 531, 911 P.2d 534, 537 (App. 1995) (citing Cent. Mgmt. Co. v. Indus. Comm’n , 162 Ariz. 187, 189, 781 P.2d 1374, 1376 (App. 1989), and Anton v. Indus. Comm’n , 141 Ariz. 566, 569, 688 P.2d 192, 195 (App. 1984) ).

¶11 The Fund contends Estopellan was not an employer required to maintain workers’ compensation insurance because he did not have a "hiring plan" or "own and operate a complex framing company." But the Workers’ Compensation Act does not require a formal hiring process or complex operations. See Putz v. Indus. Comm’n , 203 Ariz. 146, 151, ¶¶ 25-26, 51 P.3d 979, 984 (App. 2002) (explaining there is no bright-line rule for determining when a self-employed employer is subject to the Act). Instead, an employer is subject to the Workers’ Compensation Act "when he employs at least one employee in the regular course of his business." Donahue v. Indus. Comm’n , 178 Ariz. 173, 179, 871 P.2d 720, 726 (App. 1993) ; see also A.R.S. § 23-902(A) (defining an employer subject to the Act to include "every person who employs any workers or operatives regularly employed in the same business or establishment under contract of hire" and defining "regularly employed" to mean "all employments, whether continuous throughout the year, or for only a portion of the year, in the usual trade, business, profession or occupation of an employer").

¶12 The ALJ found that "Estopellan was operating a side business known as Juan Estopellan Construction, which includ[ed] framing, at the time of [Reyes]’s injury and that he hired Roberto Navarro to...