Winnebago Industries, Inc. v. Haverly

• Decision Date: 01 December 2006
• Docket Number: No. 05-0493.,05-0493.
• Citation: 727 N.W.2d 567
• Parties: WINNEBAGO INDUSTRIES, INC. and Sentry Insurance, Appellees, v. Mark HAVERLY, Appellant.
• Court: Iowa Supreme Court

727 N.W.2d 567

WINNEBAGO INDUSTRIES, INC. and Sentry Insurance, Appellees, v. Mark HAVERLY, Appellant.

No. 05-0493.

Supreme Court of Iowa.

December 1, 2006.

Rehearing Denied February 27, 2007.

Christopher D. Spaulding of Berg, Rouse, Spaulding & Schmidt, P.L.C., Des Moines, for appellant.

Lee P. Hook and Joseph M. Barron of Peddicord, Wharton, Spencer & Hook, LLP, Des Moines, for appellees.

LARSON, Justice.

Mark Haverly, who was employed by Winnebago Industries, Inc., filed a workers' compensation claim under Iowa Code chapter 85 (2001) and won a favorable ruling from the Workers' Compensation Commissioner. On judicial review, however, the district court reversed the commissioner's ruling, and the court of appeals affirmed. On further review, we vacate the decision of the court of appeals, reverse the judgment of the district court, and remand.

I. Facts and Prior Proceedings.

Mark Haverly began working for Winnebago in 1983. In 1992 he suffered a work-related back injury and, in 1997, entered into a settlement of his workers' compensation claim. Winnebago provided ongoing medical care for this back injury. Haverly continued to have back pain and underwent various courses of treatment, including surgery. On November 7, 2000, Haverly went to a doctor complaining of increased back pain, and the doctor recommended conservative treatment. Dissatisfied with the subsequent care provided by Winnebago, Haverly sought medical care from Dr. David Beck in February 2002. Dr. Beck recommended surgery. This surgery, however, was not authorized by Winnebago.

In March 2002 Haverly filed a petition for workers' compensation benefits, alleging that a work-related back injury occurred on November 7, 2000.¹ Winnebago responded that any injury sustained on November 7, 2000, related to Haverly's 1992 injury and, at most, caused a temporary aggravation of his preexisting back condition.

Because Winnebago did not authorize Haverly to proceed with the surgery recommended by Dr. Beck, Haverly filed an application for alternate medical care on May 17, 2002. See Iowa Code § 85.27; Iowa Admin. Code r. 876-4.48. This petition alleged a November 7, 2000 injury date and requested that the surgery be provided by Winnebago. Haverly supported his request with an opinion from Dr. Beck that Haverly's work duties had aggravated his preexisting back condition and that surgery was necessary. Winnebago filed an answer to the request for alternate medical care but, in its answer, did not dispute liability for the November 7 work injury. (A box on the answer form stating "employer denies [the claimant's allegation of liability]" was not checked by Winnebago's attorney.) Moreover, at the hearing on the application for alternate care, Winnebago's attorney confirmed that Winnebago was not disputing liability for the injury. A deputy commissioner granted Haverly's application for alternate care and ordered Winnebago to provide the surgery. Agency rules provide no intra-agency appeal from such orders, and Winnebago did not seek judicial review.

Haverly's claim for benefits proceeded to a hearing in 2003. The deputy commissioner determined, in relevant part, that the issue of liability for the November 7 injury had been previously "litigated" in the alternate-medical-care proceeding and that this prior decision was, therefore, res judicata on the issue of liability. The deputy stated:

[I]njury arising out of and in the course of employment has been established in a prior contested case proceeding entitled to the same preclusive effect as is this arbitration proceeding.

Winnebago appealed the arbitration decision on this and several other grounds. On the intra-agency appeal, the Workers' Compensation Commissioner affirmed the deputy's conclusion that Winnebago's admission of liability in the alternate-medical-care proceeding was res judicata on the issue of liability for benefits. The commissioner also ruled that, even if issue preclusion did not prevent Winnebago from litigating the issue, the record "amply demonstrates" that Haverly suffered a new injury on November 7, 2000.

Winnebago sought judicial review, challenging the agency's res judicata determination, as well as the existence of a new injury. The district court reversed, ruling that issue preclusion did not apply because the issue of liability had not been "raised and litigated" in the prior action. See United Fire & Cas. Co. v. Shelly Funeral Home, Inc., 642 N.W.2d 648, 655 (Iowa 2002). The district court found that Winnebago's admission of liability in the alternate-medical-care proceeding was an admission of liability for medical care only and not an admission of liability for a new injury.

On appeal, the court of appeals affirmed. The court noted, but rejected, Haverly's complaint that the district court's conclusion permitted Winnebago to admit liability for the purpose of controlling medical care, but then deny it for the purpose of determining compensability. The court concluded that the requirements for issue preclusion were not met and that neither law-of-the-case nor judicial-estoppel doctrines could be applied to bar litigation of the liability issue.

Haverly contends Winnebago should not be permitted to admit liability in the alternate-medical-care proceeding when that worked to its advantage (by allowing Winnebago to control Haverly's medical care) and then reverse its position in the arbitration hearing on the issue of liability for benefits. The arbitration decision stated a similar view of the case and questioned Winnebago's motives in admitting liability in the alternate-medical-care proceeding. That decision observed

that, under 876 I.A.C. 4.48(7), the expedited procedure [for alternate medical care] is not available where liability is disputed. Indeed, [Winnebago] filed a formal answer admitting liability on May 29, 2002. At the beginning of the hearing, [Winnebago's] attorney was asked directly whether liability was admitted, and answered just as directly that it was. . . .

The decision in that case [on alternate medical care] constitutes final agency action and has not been appealed. [Winnebago], however, ha[s] experienced a change of heart and now seek[s] to dispute liability. In agency experience, it is not unheard of for certain employers and insurance carriers to "admit" liability when there is something to gain thereby (the right to control medical treatment), yet thereafter attempt to deny liability as to the case in chief. This litigation offers a classic example.

On Winnebago's intra-agency appeal, the commissioner made a similar observation. While the commissioner did not identify the doctrine of judicial estoppel by name, he clearly stated the gist of it in this language:

It would be patently unfair to allow an employer to admit liability and control the medical care for a medical condition and then allow that employer, after the care is completed to deny liability and litigate the liability issue, unless there are good reasons for doing so.

II. The Issues.

Haverly raises a single issue: whether Winnebago is foreclosed from denying its liability for the November 7, 2000 injury by admitting its liability in the earlier alternate-medical-care proceeding. He raises three arguments in support of his appeal: issue preclusion, law of the case, and judicial estoppel.

III. Standard of Review.

Judicial review of a workers' compensation decision by the commissioner is governed by Iowa Code chapter 17A, our Administrative Procedure Act. See Iowa Code § 86.26. A party challenging agency action bears the burden of proving both the invalidity of the agency's action and resulting prejudice. Iowa Code § 17A.19(8)(a); Hill v. Fleetguard, 705 N.W.2d 665, 671 (Iowa 2005).

When a district court exercises its authority on judicial review, it acts in an appellate capacity to correct any errors of law by the agency. Hill, 705 N.W.2d at 669; Heartland Express, Inc. v. Terry, 631 N.W.2d 260, 265 (Iowa 2001). The district court may reverse, modify, or grant other appropriate relief if substantial rights of the petitioner have been prejudiced. Hill, 705 N.W.2d at 669; Heartland Express, Inc., 631 N.W.2d at 265.

On our review of the district court's decision, we apply the standards of chapter 17A to determine if our conclusions are the same as those of the district court. If so, we affirm; otherwise, we reverse or otherwise modify. Hill, 705 N.W.2d at 669.

IV. Issue Preclusion.

Haverly argues, and the commissioner ruled, that the issue of Winnebago's liability for the November 7 claim had been decided in the proceeding on Haverly's application for alternate medical care because Winnebago conceded the point in its answer. Based on the principle of issue preclusion, the agency refused to revisit the issue of liability.

The doctrine of res judicata includes both claim preclusion and issue preclusion. Colvin v. Story County Bd. of Review, 653 N.W.2d 345, 348 (Iowa 2002). In this case, Haverly relies on issue preclusion, also known as collateral estoppel. See Hunter v. City of Des Moines, 300 N.W.2d 121, 123 n. 2 (Iowa 1981). Under issue preclusion, once a court has decided an issue of fact or law necessary to its judgment, the same issue cannot be relitigated in later proceedings. Id. at 123. Issue preclusion serves a dual purpose: to protect litigants from "the `vexation of relitigating identical issues with identical parties or those persons with a significant connected interest to the prior litigation,'" and to further "the interest of judicial economy and efficiency by preventing unnecessary litigation." Am. Family Mut. Ins. Co. v. Allied Mut. Ins. Co., 562 N.W.2d 159, 163 (Iowa 1997) (quoting State ex rel. Casas v. Fellmer, 521 N.W.2d 738, 740-41 (Iowa 1994)). Under our four-part test, the doctrine applies to prevent relitigation if:

(1) the issue determined in the prior action is identical to the present issue; (2) the issue was raised and litigated in the...