W.C. No. 4-309-179Industrial Claim Appeals Office.
October 14, 1999
ORDER OF REMAND
Respondent William H. Moore (Moore) seeks review of a final order of Administrative Law Judge Rumler (ALJ) holding him personally liable for workers’ compensation benefits owed to the claimant. Moore challenges the sufficiency of the evidence to support the ALJ’s decision to “pierce the corporate veil” and hold Moore liable for benefits previously determined to be the liability of respondent Lickety Split Labor, Inc. (Lickety Split). Because we conclude Moore was given inadequate notice of the evidence to be considered against him, we remand for further proceedings and entry of a new order.
The claimant sustained an injury on August 26, 1996, while performing services for respondent Lickety Split. The claimant sought benefits from Lickety Split as a non-insured employer. Lickety Split defended on grounds that the claimant was a “corporate officer” who elected to reject workers’ compensation coverage under § 8-41-202, C.R.S. 1999.
The matter proceeded to a hearing, and on December 15, 1997, the ALJ entered an order rejecting Lickety Split’s defense and awarding benefits and penalties. The ALJ’s order contains specific findings of fact determining the claimant was not a corporate officer of Lickety Split, but was subjected to a “rather elaborate scheme in an attempt to comply, facially only, with §8-41-202 to avoid the necessity of providing workers’ compensation coverage.” The ALJ also found the claimant, who speaks only Spanish, was never adequately informed that Lickety Split considered him to be a corporate officer without the right to claim worker’s compensation benefits in the event of injury. Therefore, the ALJ concluded the claimant did not make a valid “election” to reject coverage.
In August and July 1998, the claimant filed an application for hearing and motion to add Moore as a respondent. Essentially, the claimant alleged that Moore was an officer of Lickety Split and used the corporate form to evade the Workers’ Compensation Act and deny claimant benefits under the Act. The ALJ granted the claimant’s motion to add Moore as a respondent and the matter proceeded to hearing on December 2, 1998.
At the commencement of the hearing, claimant’s counsel described the issues as “piercing the corporate veil” and penalties for failure to comply with the order of December 15, 1997. Claimant’s counsel also submitted a packet of exhibits which included the ALJ’s 1997 order. Moore’s counsel stated he found “no particular objectionable matters” contained in the claimant’s packet of exhibits. (Tr. pp. 4-5).
Next, the ALJ inquired of claimant’s counsel concerning the identity of the “person that you wish to pierce the corporate veil and reach.” Claimant’s counsel identified Moore. The following colloquy then occurred:
Mr. Mendez: We’ll see if we can summarize it, get you back up to speed. Your honor, the key on this is to review the specific findings of fact and order from before, because you made a number of findings there that will clarify this whole issue.
The Court: What I was — the reason I’m going back over this, who is it that you wish to reach is for the record at this point. I know my order is in here, it was long. Okay, so what you are saying in terms of evidence you have planned, you’re referring me back to the prior hearing and then today you’re going to add more evidence on top of that, that goes to piercing of Mr. Moore, William Moore?
Mr. Mendez: That’s correct, plus the penalty issue. Both of those should be the penalty. Should be fairly short, and I think Mr. Moore, depending, will be fairly short, as well. (Tr. pp. 5-6).
Moore’s counsel then acknowledged that the issues included piercing the corporate veil and penalties, and presented a long factual narrative concerning Moore’s position on the issue of personal liability. The claimant then called Moore as a witness.
On January 12, 1999, the ALJ entered the order currently under review. The ALJ “incorporated” the findings of fact and conclusions of law contained in the December 15, 1997 order, including detailed findings concerning the claimant’s understanding of his relationship and contractual status at Lickety Split. (Findings of Fact 1, 7, 8). Ultimately, the ALJ concluded that Moore was using the corporate form as a sham to avoid workers’ compensation liability and wrongfully deny the claimant’s benefits. Consequently, the ALJ held that Moore is jointly and severally liable with Lickety Split for benefits and penalties mandated by the 1997 order. However, the ALJ concluded Moore cannot be assessed penalties for violating the 1997 order because he was “not held liable by that order.”
On review, Moore argues that the vast majority of the ALJ’s findings of fact are not supported by substantial evidence in the record. As a corollary to this argument, Moore asserts that we may not consider any “evidence from any earlier hearing” because no such evidence was submitted at the December 2, 1998, hearing. For his part, the claimant argues the ALJ’s 1997 order was admitted into evidence without objection. Therefore, the claimant asserts the ALJ properly considered the contents of the order when drafting the January 12, 1999 order. We conclude the matter must be remanded for further proceedings and entry of a new order.
The fundamental tenets of due process require the parties be apprised of the evidence to be submitted or considered, and afforded a reasonable opportunity in which to confront adverse witnesses and present evidence in support of their position Hendricks v. Industrial Claim Appeals Office, 809 P.2d 1076
(Colo.App. 1990); Puncec v. City and County of Denver, 28 Colo. App. 542, 475 P.2d 359 (1970). Further, rules of evidence in administrative proceeding may not be so relaxed that fundamental rights are disregarded. Puncec v. City and County of Denver, supra.
As a general matter, we agree with Moore that it was be improper for the ALJ to consider “evidence” from hearings prior to December 2, 1998. Moore was not a party to any prior hearing, and therefore, was not afforded basic due process rights with respect to evidence presented at such hearings. Consequently, he was in no way bound by evidence introduced at prior hearings. See Hembry v. Industrial Claim Appeals Office, 878 P.2d 114 (Colo.App. 1994) (SIF not bound to by a settlement to which it was not a party). Similarly, the ALJ’s findings of fact contained in the December 1997 order were not binding on Moore. The doctrine of collateral estoppel requires that the party against whom estoppel is asserted was a party to, or in privity with a party to the prior proceeding. Falkenburg v. Sternberg, 154 Colo. 134, 388 P.2d 771
(1964); M M Management Co. v. Industrial Claim Appeals Office, 979 P.2d 574 (Colo.App. 1998).
As the claimant argues, the ALJ’s December 1997 findings of fact and conclusions of law were admitted into evidence at the commencement of hearing without objection by
Moore’s attorney. However, under the circumstances of this case, we cannot interpret counsel’s failure to object to admission of the 1997 order as a tacit agreement that the ALJ could consider the 1997 order as substantive evidence on the issue of piercing the corporate veil. Because the claimant was seeking to hold Moore personally liable for benefits ordered in 1997, and was also seeking to impose penalties for an alleged violation of the 1997 order, proof of the order itself was a necessary element of the claimant’s case. This is true regardless of the specific findings of fact and conclusions of law contained in the order. Consequently, Moore’s failure to object to admission of the order could have been the result of his reasonable understanding that the order was offered for the limited purpose of proving the type and amount of benefits awarded in 1997, rather than for the purpose of proving the truth of the substantive findings of fact.
Neither does the colloquy between claimant’s counsel and the ALJ serve to rectify the problem. First, the colloquy occurre after the report had been admitted into evidence. Thus, Moore’s counsel was not notified of the claimant’s intended use of the 1997 order until after counsel failed to object. Moreover, the colloquy itself did not necessarily serve to notify Moore’s counsel of the purpose for which the order was offered. Claimant’s counsel merely stated that the ALJ should review the 1997 order for purposes of “clarifying” the issue. The ALJ stated that she understood claimant’s counsel was requesting her to refer back to the prior hearing and that additional evidence would be received. These statements are subject to more than one interpretation, and are not so clear that we can say Moore was on notice that the ALJ would consider the contents of the 1997 order as substantive evidence on the issue of piercing the corporate veil.
Consequently, we conclude that Moore was not afforded due process because he was not sufficiently advised the ALJ intended to consider the 1997 order as evidence for any purpose other than establishing the order’s existence. Conversely, counsel for the claimant believed the ALJ would consider the contents of the 1997 order as substantive evidence. Under these circumstances, we conclude the matter should be remanded for an additional hearing at which both parties are afforded the opportunity to present all relevant evidence on the issue of piercing the corporate veil. Once the evidence is received, the ALJ shall enter an appropriate order based on the record.
IT IS THEREFORE ORDERED that the ALJ’s order dated January 12, 1999, is set aside, and the matter is remanded to the ALJ for further proceedings and entry of a new order consistent with the views expressed herein.
INDUSTRIAL CLAIM APPEALS PANEL
____________________________________ Dona Halsey
____________________________________ Robert M. Socolofsky
Examiner Cain would affirm.
Copies of this decision were mailed October 14, 1999 to the following parties:
Rojelio Ybarra Ramos, 2340 Nome St., Aurora, CO 80010
Lickety Split Labor, Inc., P.O. Box 21585, Denver, CO 80221-0585
Pepe J. Mendez, Esq., 700 Broadway, Ste. 1101, Denver, CO 80203 (For Claimant)
James A. Lowe, Esq., c/o Gauntlett Associates, 18400 Von Karman, Ste. 300, Irvine, CA 92612 (For Respondents)
BY: A. Pendroy