Title: Frazier v. Preferred Operators, Inc.

State: vermont

Issuer: Vermont Supreme Court

Document:

Frazier v. Preferred Operators, Inc. (2003-454); 177 Vt. 571; 861 A.2d 1130

2004 VT 95

[Filed 24-Sep-2004]

                                 ENTRY ORDER

                                 2004 VT 95

                      SUPREME COURT DOCKET NO. 2003-454

                            SEPTEMBER TERM, 2004

  Charles Frazier 	               }	APPEALED FROM:
                                       }
                                       }
       v.	                       }	Commissioner of Labor and 
                                       }        Industry
                                       }	
  Preferred Operators, Inc.,           }
  HBH Prestain, Inc., 	               }
  H&H Properties, Inc. and             }
  Valiant Insurance Co.,	       }        DOCKET NO. M-12257
  Carriers for HBH Prestain, Inc.      }	

             In the above-entitled cause, the Clerk will enter:

       ¶  1.  The principal issue in this appeal is whether the
  Commissioner of the Department of Labor and Industry erred in determining
  that HBH Prestain Inc. is the statutory employer of truck driver Charles
  Frazier for purposes of Vermont's workers' compensation law.  We find no
  error and thus affirm the Commissioner's decision granting Frazier's motion
  for summary judgment.

       ¶  2.  The material facts are not in dispute.  On December 9, 1998,
  Charles Frazier was working as a truck driver for Preferred Operators, Inc.
  when he allegedly fell and injured himself while placing a tarp over lumber
  that had been loaded onto his truck trailer by HBH employees.  The accident
  occurred at HBH's yard, which had been leased from H&H Properties, Inc.

       ¶  3.  HBH is engaged in the business of pre-priming and staining
  lumber for wholesalers and retailers.  The company was formed by brothers
  Frederick and Edward Hawley in 1988.  In 1993, the brothers formed H&H to
  acquire property for lease to HBH.  The brothers also formed Preferred
  Operators in 1994 to haul products to and from HBH's plant.  Thus, the
  three businesses-HBH, H&H, and Preferred Operators-were closely held
  corporations with overlapping ownership.
   
       ¶  4.  Frazier filed a superior court action against Preferred
  Operators and its officers because the company had allowed its workers'
  compensation insurance coverage to lapse.  See 21 V.S.A. § 618(b) (allowing
  workers injured on job to bring civil action against employers lacking
  workers' compensation insurance); § 687(b)(1) (imposing personal liability
  for work-related injuries on officers and majority stockholders of
  corporations lacking workers' compensation insurance).  Frazier also made
  claims against HBH, alleging theories of alter ego, undercapitalization,
  and de facto merger, among others.  The superior court proceedings were
  stayed, however, pending a decision by the Commissioner on the issue of
  whether HBH qualified as Frazier's "statutory employer" under 21 V.S.A. §
  601(3).  Before the Commissioner, both Frazier and HBH argued that HBH was
  Frazier's statutory employer, but Valiant Insurance Company, HBH's workers'
  compensation carrier, opposed such a finding.  In response to the parties'
  cross motions for summary judgment, the Commissioner ruled that HBH was
  Frazier's statutory employer because Frazier was engaged in an integral
  part of HBH's work at the time he was injured, and because HBH directed
  Frazier in his work.  The Commissioner certified two questions for this
  appeal: Did the Department have jurisdiction to decide the "statutory
  employer" issue, given the facts in this case?  Assuming jurisdiction
  existed, was HBH Frazier's statutory employer?

       ¶  5.  Valiant first argues on appeal that the Department lacked
  jurisdiction to "pierce the corporate veil" of Preferred Operators and
  determine that HBH was claimant's statutory employer.  According to
  Valiant, by effectively piercing Preferred Operators' corporate veil,
  despite the company's separate identity and business goals, the
  Commissioner considered a common-law legal issue and granted equitable
  relief, thereby exceeding his limited statutory grant of authority over
  administrative matters.  Valiant concedes that the Commissioner is
  empowered to determine whether an employer is a statutory employer under 21
  V.S.A. § 601(3), but contends that in this case the Commissioner acted
  outside the statute by misapplying the common-law principle of "piercing
  the corporate veil" to establish HBH as a statutory employer. (FN1) 
  Valiant further contends that, even if the Department had jurisdiction to
  consider the issue, most courts across the country have refused to pierce
  the corporate veil of companies that have failed to provide workers'
  compensation coverage for their employees.

       ¶  6.  We find no merit to Valiant's jurisdictional arguments.  In
  determining that HBH was Frazier's statutory employer, the Commissioner
  examined the statutory definition of employer contained in § 601(3) and
  considered our case law construing the statute and applying the
  nature-of-the-business and right-to-control tests.  Further, the
  Commissioner explicitly stated that he did not need to consider, in the
  context of this case, issues of corporation law such as piercing the
  corporate veil.  We agree that the concept of piercing the corporate veil
  was not at issue in this case, and therefore we need not consider whether
  the Commissioner has the authority to apply the concept in workers'
  compensation cases.  The term "piercing the corporate veil" refers to a
  common-law equitable remedy by which a court imposes personal liability
  upon otherwise immune corporate officers, directors, or shareholders for a
  corporation's wrongful acts.  Black's Law Dictionary 1168 (7th ed. 1999). 
  In the context of this administrative proceeding, Frazier is not attempting
  to pierce HBH's corporate veil to hold individuals liable for the acts or
  omissions of Preferred Operators.  Rather, he is claiming that HBH is his
  statutory employer under § 601(3) because of the relationship between him
  and HBH.
   
       ¶  7.  That is precisely the relationship that the Commissioner
  considered in determining that HBH was Frazier's statutory employer.  The
  Commissioner neither considered the relationship between the corporations
  and stockholders involved nor ruled that the corporate identity of any of
  those corporations should be pierced to make their officers or stockholders
  personally liable.  Rather, the Commissioner applied the definition of
  employer contained in § 601(3) to find that HBH had legal obligations to
  Frazier under the workers' compensation statute.  Because § 601(3)
  contemplates a broader definition of employer than that established by the
  common law, see King v. Snide, 144 Vt. 395, 400,