Workers compensation exclusivity. Tort liability by label. Holding company owned by employer is not “statutory employer” of worker who died from exposure to hazardous condition on premises, because company is sued in its “capacity as landowner.”

 

Arnold v. Palmer, 2011 VT 8 (mem.) (Morse, J. (Ret.), Specially Assigned, joined by Justice Burgess joins, dissents)

This is a wrongful death and survival action brought by the estate and survivors of a funeral director who died from cancer after exposure to formaldehyde in defendants’ building. The funeral director collected workers’ compensation benefits for this injury from the funeral business.  Defendant Hanley was president and owned 95% of the shares of the funeral business, and was also  the sole member of the defendant limited liability corporation, which owned the building leased to the funeral business.     The trial court granted summary judgment for the defendant landowners, holding that plaintiffs’ exclusive remedy was the workers’ compensation award because landowners were “statutory employers” under 21 V.S.A. § 601(3) and thus immune from suit.  Because we find that landowners are not “statutory employers,” we reverse the trial court’s judgment and reinstate plaintiffs’ action.

A “statutory employer” is one who, although not the direct employer, is nevertheless the “virtual proprietor or operator of the business there carried on.”  Whether defendant landlords were the “virtual proprietors” of the funeral home business is tested by the goal of the statute “to prevent indirect employers from avoiding workers’ compensation liability by hiring out work that they would have otherwise done themselves.”  Thus the critical inquiry in turn becomes, not whether the defendant is a “statutory employer” or whether it is a “virtual proprietor” but instead, whether the type of work being carried out “is the type of work that could have been carried out by the indirect employer’s employees as part of the regular course of the business.”  Vella, 2003 VT 108, ¶ 7

Raymond Palmer and several family members owned a funeral home business, and the property where it operated, for over sixty years.  In 1992, Raymond and his wife Gertrude transferred ownership of the property to two trusts—the Raymond Palmer Trust and the Gertrude Palmer Trust—which leased the property back to the business.  In January 2002, Raymond’s daughter, defendant Pamela Hanley, acquired the business and property and continued the same lease arrangement.  Later that year, Hanley conveyed the property to a separate single member limited liability corporation of which Hanley is the sole member, which maintained the same lease agreement.  

Nothing in the record demonstrates that defendant trusts and limited liability corporations, “in their capacity as property owners,” were ever engaged in the funeral home business.  The fact that the landlord entities and the funeral home business had overlapping personnel is not dispositive.   Nor need we decide under the Vella test whether the funeral director was carrying out regular work of the defendants.  Instead we simply announce our result by saying that that defendants were sued solely “in their capacities as owners and lessor” of the property and “only in their capacities as owners and operators of a wholly separate commercial leasing business.” 

Because defendants, “in their capacities as landowners” were in no way engaged in the funeral home business, we find they are not “in their capacities as landowners” the virtual proprietors of the funeral business and thus not statutory employers.

Justice Morse, dissenting, would hold that Defendants here were decedent’s employer in all but name, and as such should be immune from suit. The goal of the statute has nothing to do with prevention of  hiring out work.  The goal is to prevent double recovery against the employer. By looking solely to the legal form of ownership the majority ignores the substance of authority and control. In fact the owners of the funeral home business and the owners of the funeral home property are “virtually” the same. Defendants are not “distinct, separately owned” entities with “no ties” to the funeral-home employer, but are indistinguishable from, and intertwined with, the funeral home in every respect save for their legal forms. The statutory word “virtual” requires us to ignore mere matters of labels and forms, in order to prevent double recovery.

Vella is distinguishable because there the “defendant [was] not in the busing business” but instead was “a commercial landlord and a distinct, separately owned corporation that leases space to Premier, but otherwise has no ties to Premier and no supervisory control or authority over Premier or its employees.”  Id. ¶ 8.  Unlike Vella, moreover, where the defendant landlord operated a commercial-leasing business entirely independent of its bus-company tenant, nothing in the record here suggests that defendants operated anything.

Defendants are simply legal shells established by the funeral-home employer to collect rent and provide certain tax advantages.  The same trustees and principals that formed and comprise defendants also run the funeral-home business and exercise complete control and authority over its operations.  They are identical in all but form and thus fully meet the definition of virtual employer.

The legal effect of the Court’s holding is to eliminate the fact-based test for determining virtual-employer status set forth in Vella and to substitute instead a shortcut to tort liability by label.