NO. 91-197 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1992 

STATE COMPENSATION MUTUAL INSURANCE FUND, 

Petitioner and Respondent, 

-vsLEE ROST LOGGING, 

Employer, Defendant and Appellant. 

APPEAL FROM: In The Workers‘ Compensation Court 

The Honorable Timothy W. Reardon, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

James C. Bartlett, Hash, O’Brien and Bartlett, 

Kalispell, Montana 

For Respondent: 

Richard E. Bach, State Compensation Mutual 

Insurance Fund, Helena, Montana 

Submitted on Briefs: November 8, 1991 

3AN 2 8 1992 Decided: January 28, 1992 

/_, ‘2 -1 Filed: 

Lo! 5millZ 

f ,J CLERK OF SUPREME COUR’I’ 

STATE OF MONTANA < .; ,~, 

Clerk 
Justice Terry N. Trieweiler delivered the opinion of the Court. 

Appellant Lee Rost Logging (Rost) is a logging business in 

Bigfork. A hearing officer for the Department of Labor and 

Industry determined that Rost did not have to pay workers' 

compensation insurance premiums on payments made to employees 

reimbursing them for the use of their pickup trucks. The hearing 

officer also determined that Rost had made excessive payroll 

deductions for payments to employees which reimbursed them for the 

use of their chain saws. On appeal, the Workers' Compensation 

Court reversed the hearing officer on the issue of pickup rentals 

and affirmed on the issue of saw rentals. Rost appeals from the 

decision of the Workers' Compensation Court. We reverse the 

Workers' Compensation Court on the issue of pickup rentals, and 

affirm on the issue of saw rentals. 

Rost raises the following issues: 

1. Did the Workers' Compensation Court err in reversing the 

hearing officer's decision on the issue of pickup rentals? 

2. Should the hearing officer's decision regarding pickup 

rentals be affirmed on the basis of res judicata and collateral 

estoppel? 

3. Did the Workers' Compensation Court err in affirming the 

hearing officer's decision on the issue of saw rentals? 

Appellant Lee Rost runs a small logging business out of his 

home in Bigfork. He has been in the logging business for more than 

20 years. During 1984 and 1985, Rost had several employees working 

for him, including sawyers, skidders, and equipment operators. 

2 
Rost's logging operations were often in remote backwoods areas, 

requiring the use of four wheel drive vehicles to access the 

logging sites. Rost needed to transport equipment, parts, 

supplies, and fuel for machinery to the remote job sites, along 

with his workers. He had found that he suffered a considerable 

expense if he supplied the necessary vehicles to his employees, due 

to the short useful life of vehicles under such adverse driving 

conditions. Rost found it less expensive to reimburse his 

employees for using their own vehicles for travel to and from the 

job sites. 

Like other employers in the logging industry, Rost also 

compensated his employees when they furnishedtheir own chain saws. 

Rost paid his employees a base pay of $60 per day, plus amounts for 

pickup rentals and saw rentals in the range of $20 to $60 per day 

in each category. 

Rost carried workers' compensation insurance with respondent 

State Compensation Mutual Insurance Fund (State Fund). The premium 

for this insurance was based in part on the employer's payroll. 

The employer was required to report wages, commissions, piece work 

payments, and other payments in money or in kind. The employer was 

not required to report travel allowances made to reimburse 

employees for their expenses. The payroll report instructions also 

provided that the employer was to report only 75 percent of the 

total remuneration paid to an employee furnishing his own chain 

saw. 

3 
In September 1985, the Department of Labor and Industry 

informed Rost that it would be auditing his unemployment insurance 

and workers' compensation insurance accounts for periods during 

1984 and 1985. The auditor 

reviewed Rost's payroll records, and the amounts listed as wages, 

pickup rentals, and saw rentals. The auditor felt that Rost had 

insufficient documentation that the payments for pickup rentals 

were related to the employees' actual expenses. The auditor also 

felt that Rost had excluded from his payroll excessive amounts of 

saw rental payments. The auditor concluded that Rost owed $30,616 

in premiums for workers' compensation insurance. 

The audit was performed in early 1986. 

In June 1986, Rost requested an administrative review of the 

audit. Rost attempted to supply documentation for the pickup 

rental amounts by calculating the mileage driven by different 

employees and multiplying the mileage by $0.21 per mile, the 

reimbursement allowed at that time by the Unemployment and Workers' 

Compensation Divisions. However, because these records were 

prepared after the audit, the reviewing administrator was unwilling 

to reduce the assessed premium. 

Rost then sought a hearing before the Department of Labor and 

Industry. This hearing was delayed, and then postponed several 

times at Rost's request. At the same time, Rost was also appealing 

from the additional assessment claimed by the Unemployment 

Insurance Division, based upon the same payroll audit. Rost 

requested the two Divisions to coordinate their appeal procedures. 

4 
On September 29, 1987, the hearing officer in the unemployment 

insurance case ruled that Rost was not allowed to deduct payments 

for pickup rentals from reportable wages. Rost appealed this 

decision to the Board of Labor Appeals. The Board of Labor Appeals 

reversed and determined that the pickup rentals represented a 

reasonable reimbursement for the mileage driven by Rost's 

employees. The Board of Labor Appeals further determined that Rost 

had relied in good faith on a 1980 decision of the Eleventh 

Judicial District Court, Flathead County, which had ruled on a 

similar issue in favor of an employer and against a workers' 

compensation insurer. The Board of Labor Appeals concluded that 

Rost's payments for pickup rentals were not "wages" subject to 

unemployment insurance premiums. 

Rost's contested case in the workers' compensation insurance 

matter was still pending. The hearing was finally held on July 17, 

1990. The hearing officer found that the vehicle payments to 

Rost's employees were based upon Rost's personal review of the 

routes to the logging sites, including the actual mileage and 

quality of the roads. The hearing officer also found that the 

reimbursed travel was for the benefit of the employer because the 

workers transported tools, spare parts to repair the equipment, 

fuel for various machines, and other supplies. The hearing officer 

determined that these travel expenses generally were within the 

guideline of $0.21 per mile, and constituted a reasonable 

reimbursement for employment-related expenses. He found no 

evidence of cheating or misrepresentation. The hearing officer 

5 
noted that Rost had won a favorable decision in his appeal of the 

unemployment insurance matter, and agreed with the Board of Labor 

Appeals that Rost had relied in good faith on the earlier decision 

of the Eleventh Judicial District Court. The hearing officer 

concluded that Rost had provided sufficient documentation of these 

travel expenses, and that the pickup rental payments were properly 

excluded from gross wages in determining the workers' compensation 

premiums. 

The hearing officer also concluded that Rost was entitled to 

deduct 25 percent of gross payroll for sawyers as a business 

expense where the employees furnished their own chain saws. 

Although the Workers' Compensation Court had ruled in June 1989 

that an injured sawyer was entitled to workers' compensation 

benefits based on his gross earnings, without the 25 percent 

deduction for saw rentals, see Guckenberg v. Bill Free Logging, Iiic. (Work. 

Comp. Ct. 1989), NO. 8808-4883, the hearing officer noted that in 

1984 and 1985 the State Fund had allowed the 25 percent deduction 

to other employers. However, the hearing officer found that Rost 

had exceeded the 25 percent allowable deduction for saw rentals in 

certain instances and that Rost should be assessed premiums on that 

excess. 

The hearing officer accordingly reversed the auditor's 

findings on the issue of pickup rentals, concluding that no 

additional premiums were owed. On the issue of saw rentals, the 

hearing officer ordered Rost to pay additional premiums because of 

excessive saw rental deductions. 

6 
Rost and the State Fund both appealed the hearing officer's 

decision to the Workers' Compensation Court. The Workers' 

Compensation Court disagreed with the hearing officer on the issue 

of travel expenses. The court did not feel that Rost had 

adequately demonstrated that the pickup rental payments were 

related to actual expenses. The court found that the hearing 

officer's findings on this issue were not supported by substantial 

evidence, and reversed. The Workers' Compensation Court agreed 

with the hearing officer on the saw rentals issue. The court 

affirmed the hearing officer's determination that 25 percent of the 

gross payroll for sawyers should be deducted from wages and 

considered a business expense. 

Lee Rost Logging appeals from the decision of the workers' 

Compensation Court. 

Did the Workers' Compensation Court err in reversing the 

hearing officer's decision on the issue of pickup rentals? 

Rost contends that the Workers' Compensation Court erred in 

reversing the hearing officer's decision on the issue of pickup 

rentals. We agree. 

The hearing officer determined that pickup rental payments 

constituted a reasonable reimbursement for employment-related 

expenses. The Workers' Compensation Court ruled that this finding 

was not supported by substantial evidence, and reversed on this 

basis. See 5 2-4-704 (2) (a) (v) , MCA, which provides that a reviewing 

court may reverse an agency's decision if it is "clearly erroneous 

7 
in view of the reliable, probative, and substantial evidence on the 

whole record." 

This Court recently explained the application of the "clearly 

erroneous" test in the context of reviewing the findings of a trial 

court sitting without a jury: 

We adopt the following three-part test to determine 

if a finding is clearly erroneous. First, the Court will 

review the record to see if the findings are supported by 

substantial evidence. Second, if the findings are 

supported by substantial evidence, we will determine if 

the trial court has misapprehended the effect of 

evidence. Western Cottonoi~ Co. v. Hodges (C.A. 5th 1954) , 218 

F .2d 158 : Narragansett Improvement Compaity v. United States ( [ 1st 

Cir.] 1961), 290 F.2d 577. Third, if substantial 

evidence exists and the effect of the evidence has not 

been misapprehended, the Court may still find that "[A] 

finding is 'clearly erroneous' when, although there is 

evidence to support it, a review of the record leaves the 

court with the definite and firm conviction that a 

mistake has been committed." U[?tited] Sltates] v. US. Gypsum Co. 

(1948), 68 S.Ct. 525, 333 U.S. 364, 92 L.Ed. 746. 

Interstate Production Credit Ass 11. v. DeSaye (Mont . 19 9 1) , 4 8 St. Rep. 9 8 6, 9 8 7 . 

To the extent that our discussion of the standard for reviewing 

agencies findings of fact in Cily of Billings v. Billings Firefigliters (1982) , 

200 Mont. 421, 651 P.2d 627, is inconsistent with the standard set 

forth above, that case is overruled. Applying this test to the 

hearing officer's findings on the issue of pickup rental payments, 

we conclude that the findings were not clearly erroneous. 

Rost and several of his employees testified before the hearing 

officer on July 17, 1990. The employees testified that they had to 

drive many miles, often more than 100 miles per day, over rough 

logging roads to reach the job sites. In addition to expenditures 

for gasoline and normal highway wear and tear, the workers 

8 
testified that they had extra expenses for servicing their vehicles 

and replacing parts worn out from traveling on bumpy roads in 

dusty, muddy, and snowy conditions. Rost's employees testified 

that they carried extra saws, tools, equipment, spare parts, and 

fuel to the job sites for their employer. The heavy equipment 

operators, in particular, brought extra fuel, as much as 100 

gallons of gasoline, and everything they would need to keep Rost's 

equipment running. 

Rost testified that it was to his benefit to pay his workers 

for the use of their vehicles because it would have cost him more 

to furnish his own trucks. In the past, he had purchased his own 

vehicles for the logging operation, and found it was too expensive. 

Rost testified that when he bid a job he considered the costs of 

getting materials to and from the job site, the quality and 

condition of the roads, and mileage. He drove all of the roads and 

considered what it would cost his employees to travel to the job 

sites. He paid certain employees more if they had to haul more 

materials to the job. Rost stated that he included more in his 

calculations than just the mileage traveled, although mileage was 

one of the factors considered. 

Rost's employees testified that the money they received for 

the use of their pickup trucks was about equal to what it cost them 

to provide the vehicles. 

Based on this and other evidence, the hearing officer made his 

findings of fact. The hearing officer noted that the pickup rental 

payments were based upon Rost's personal review of the job sites 

9 
and his experience in determining vehicle costs. The hearing 

officer found that these travel expenses were incurred for the 

employer's benefit. The hearing officer found that the travel 

expenses generally were within the $0.21 per mile guideline set by 

the state, and were a reasonable approximation of actual expenses. 

The hearing officer concluded from these facts that Rost had paid 

reasonable reimbursement to his employees for employment-related 

expenses, and that these payments were properly excluded from gross 

wages in determining the workers' compensation insurance premiums. 

We conclude, based on the standard of review set forth above, 

that the hearing officer's factual findings on this issue were not 

clearly erroneous. 

I1 

Should the hearing officer's decision regarding pickup rentals 

be affirmed on the basis of resjudicata and collateral estoppel? 

Because we conclude that the hearing officer's decision 

regarding pickup rentals was not clearly erroneous, we need not 

consider the application of res judicata or collateral estoppel. 

I11 

Did the Workers' Compensation Court err in affirming the 

hearing officer's decision on the issue of saw rentals? 

The hearing officer determined that Rost had deducted 

excessive amounts from gross payroll for saw rentals. Rost 

contends the Workers' Compensation Court erred in affirming this 

determination. We disagree. 

10 
At the time of the audit, the State Fund allowed employers in 

the logging industry to deduct from gross payroll 25 percent of the 

total remuneration paid to employees who furnished their own chain 

saws. Although this practice was discontinued following the 

June 1989 decision of the Workers' Compensation Court in Guckenbetg, 

the hearing officer determined that Rost was entitled to take the 

deduction as other employers had in 1984 and 1985. The hearing 

officer determined, however, that Rost had deducted more than 

25 percent of the sawyers' pay. 

Rost contends that there was insufficient evidence to support 

this finding, and complains that it has taken too long for the 

State Fund to determine exactly how much he owes in underpaid 

premiums. These contentions are not persuasive. 

The evidence before the hearing officer included Rost's 

payroll reports, the auditor's payroll calculations, and testimony 

at the hearing and at Rost's deposition. Rost had recorded in one 

notebook the bimonthly wages and withholdings for each employee, 

and in a separate notebook the saw and pickup allowances paid to 

each employee during the same periods. Each employee's wages, 

pickup rentals, and saw rentals can be added together: 25 percent 

of this total represents the allowable deduction for saw rentals. 

It is clear from a review of the payroll records that the saw 

rental payments, in several instances, exceeded 25 percent of gross 

pay. The hearing officer noted that Rost had paid some employees 

more as "saw rental" than as "wages" in certain payroll periods. 

The hearing officer specifically cited the 1985 records as 
exemplifying this problem. There was sufficient evidence to 

support the hearing officer's findings. 

Regarding Rost's claim that it has taken too long to determine 

exactly how much he owes in underpaid premiums, we note that much 

of the delay in reaching a final determination on this question is 

due to the challenges Rost has raised to the State Fund's original 

calculation of the premium owed. We note that Rost, on several 

occasions, requested a delay in these proceedings. Rost has not 

been prejudiced by the delay. 

Since we conclude that there was sufficient evidence to 

support the hearing officer's findings as to both the saw rentals 

and the pickup rentals, we affirm the Workers' Compensation Court 

on the issue of saw rentals, we reverse the Workers' Compensation 

Court on the issue of pickup rentals, and we remand this matter to 

the Workers' Compensation Court for further proceedings consistent 

with this opinion. 

Chief Justice 

12 
IN THE SUPREME COURT OF THE STATE OF MONTANA 

NO. 91-197 

STATE COMPENSATION WTUAL APR 2 199 

V. 

LEE ROST LOGGING, 

1 

Respondent and Appellant. ) 

This Court's opinion was delivered on January 28, 1992. On 

February 3, 1992, the appellant petitioned for rehearing and 

requested that this Court ' s opinion be amended by excluding "pickup 

rentals" from the formula suggested on page 11 of the opinion for 

calculating saw rental deductions. 

On February 6, 1992, the respondent filed its petition for 

rehearing, and among other bases for its petition, requested the 

same modification at page 11 of our opinion. Since that date, the 

appellant has withdrawn his petition and objected to the 

respondent's petition. 

After reviewing the opinion of the hearing examiner for the 

Department of Labor and Industry, which was affirmed by this 

Court's opinion, and the payroll report instruction sheet provided 

by the State Fund to the appellant, which was the basis for the 

hearing examiners opinion, we conclude that there is merit in the 

respondent's petition. 

The general reporting requirements provide that a travel 

allowance need not be reported as earnings. They then provide that 

only 75 percent of "total remuneration" need be reported €or an 

employee who furnishes his own chain saw. It would be inconsistent 

1 
to exclude travel allowances from the earnings that need be 

reported, but then to include those payments in calculation of the 

chain saw allowance. 

For these reasons, this Court's previous opinion of 

The words "pickup rentals" are deleted from line 7 of page 11. 

Except to the extent provided for in the preceding paragraph, 

January 28, 1992, is amended as follows: 

the respondent's petition for rehearing is denied. 

The clerk shall mail true and correct copies of this order to 

all counsel of record and to Timothy W. Reardon, Judge of the 

Workers' 

DATED this 

Justices 

2