In American Cargo Express, Inc. v. Superior Court, 16 Cal. App. 5th 145 (2017), the California Court of Appeal, Third Appellate District denied the writ of mandate and/or prohibition sought by clients of Mainstay Business Solutions (“Mainstay”), a temporary staffing and employee leasing business. The Court determined the California Self-Insurers’ Security Fund (“SISF”), which assumed Mainstay’s workers’ compensation obligations when Mainstay defaulted on its obligations to self-insure, could bring an action under Labor Code section 3744(c) against Mainstay’s clients and that Section 3502(d) did not bar SFIS’s action.
Mainstay is a division of a federally recognized Indian tribe (Blue Lake Rancheria) that operated as a temporary staffing business and as an employee leasing business, “in which employees of Mainstay’s clients were placed on Mainstay’s payroll and leased back to the clients.”
A dispute arose in 2004 between the Department of Industrial Relations (DIR) and the Department of Insurance (collectively, the State), on the one hand, and Blue Lake Rancheria and Mainstay, on the other. The State alleged Mainstay failed to comply with state laws requiring employers to pay workers' compensation and to secure the payment of such compensation by obtaining a certificate of consent to self-insure (certificate) or purchasing insurance through an authorized insurer. Mainstay urged that as a government-sponsored entity of a federally recognized Indian tribe it was not required to comply with state workers' compensation laws. The dispute resulted in a civil action that was ultimately resolved through a settlement agreement.
As part of the settlement agreement, Mainstay agreed to seek, and DIR agreed to issue, a certificate. In addition, Mainstay and Blue Lake Rancheria agreed to unconditionally waive sovereign immunity for “any proceedings under the workers' compensation laws,” including a waiver in favor of SISF for the purpose of enforcing Mainstay's workers' compensation obligations.
DIR issued the certificate effective March 1, 2005. The workers provided by Mainstay had no other connection with Mainstay and they worked off-reservation for nontribal employers throughout the state. The workers agreed to be bound by tribal law and to make claims in tribal court to enforce certain employment rights against Mainstay, with the exception of workers' compensation claims. Agreements between Mainstay, Blue Lake Rancheria and Mainstay's clients provided that Mainstay's certificate would cover workers' compensation benefits for the workers. Mainstay's clients benefitted from the arrangement because they avoided higher insurance premiums and did not need to obtain a certificate in their own name.
Mainstay became insolvent and defaulted on its obligations under the certificate. The Legislature had previously established SISF to provide for the continuation of workers' compensation benefits that are due to injured workers when a private self-insured employer defaults on the payment of its workers' compensation obligations. (§ 3740.) On or about April 19, 2011, DIR ordered SISF to assume the workers' compensation liabilities of Mainstay pursuant to section 3701.5. (§ 3701.5, subds. (a), (b).)
SISF assumed the workers' compensation liabilities of Mainstay and has since administered over 1,000 such workers' compensation claims. SISF received approximately $16.9 million in collateral posted in connection with Mainstay's certificate, but that collateral was exhausted on or about October 4, 2012. As of March 31, 2014, SISF paid and assumed liabilities totaling $49,872,412 for the injured-worker claims, well in excess of the Mainstay collateral.
SISF sued Mainstay, Mainstay's clients and others to recover its excess costs and liabilities. Mainstay's clients obtained summary adjudication of other causes of action, but SISF obtained judgment on the pleadings as to the section 3602, subdivision (d) defense Mainstay’s clients asserted with regard to the third cause of action based on section 3744, subdivision (c) [SISF is authorized to seek reimbursement from Mainstay's clients for the amounts SISF paid and the liabilities it assumed in excess of the security deposit posted for Mainstay's certificate, together with reasonable administrative and legal costs]. The trial court granted the request by Mainstay's clients to certify the order on the third cause of action for immediate review under Code of Civil Procedure section 166.1. [Footnote] Mainstay's clients filed a petition for writ of mandate and/or prohibition in this court challenging the trial court's order. We issued an order to show cause and stayed the trial court proceedings on March 11, 2016.
The Court first addressed the standard of review as to a motion for judgment on the pleadings, determining the Court would “independently determine whether the challenged pleading states a cause of action.”
The Court turned to SISF’s argument that writ review was not appropriate “because the main issue presented has been rendered moot by the enactment of section 3701.9.” The Court determined the enactment of this Section did not render the issue presented (whether Section 3602(d) bars this action) moot.
The Court next considered whether SISF’s claim is subject to the exclusive remedy provisions of the Act as Mainstay’s clients argued, or whether Section 3744(c) authorizes the action, as SIFS argues. The Court determined SISF was correct:
Section 3600 generally provides for workers' compensation liability irrespective of fault. (§ 3600, subd. (a).) When an employer sends an employee to do work for another employer and both have the right to exercise control over the employee, the employee may have two employers, a general employer and a special employer. [Citation.] Both employers are responsible for paying workers' compensation. [Citation.]
With certain exceptions set forth in the Act, the employer liability provided in section 3600 is the exclusive remedy of the employee or his or her dependents against the employer. [Citations.] “The ‘exclusivity rule’ is based upon a presumed compensation bargain: ‘[T]he employer assumes liability for industrial personal injury or death without regard to fault in exchange for limitations on the amount of that liability. The employee is afforded relatively swift and certain payment of benefits’” without having to prove fault, but gives up the damages potentially available in tort. [Citation.]
Section 5300 lists the proceedings that shall be instituted before the Appeals Board and not elsewhere “except as otherwise provided in Division 4.” Division 4 includes section 3744, which provides that SISF has the right to reimbursement from “an insolvent self-insurer” in “any action to collect against the self-insured as debtor.” (§ 3744, subd. (a)(1).) In addition, SISF is a party in interest in “any action to obtain the security deposit for the payment of compensation obligations” of the insolvent self-insurer (§ 3744, subd. (b)) and SISF has “the right to bring an action against any person to recover compensation paid and liability assumed by the fund, including, but not limited to, any excess insurance carrier of the self-insured employer, and any person whose negligence or breach of any obligation contributed to any underestimation of the self-insured employer's total accrued liability as reported to the director.” (§ 3744, subd. (c).)
Section 3744, subdivision (c) expressly provides that SISF can bring “an action” to recover compensation paid and liability assumed by SISF. While the statute does not define the word “action,” that word generally means a judicial proceeding. [Citations.] Consistent with this understanding, section 3744, subdivision (d) refers to an action “seeking damages.” “Damages” means the recovery allowed in an action at law. [Citations.] Other portions of Assembly Bill No. 1285 (1983–1984 Reg. Sess.), which added section 3744 to the Labor Code, refer to “proceedings before the appeals board” [citations] and disputes to be resolved by the director of DIR, followed by an appeal of the director's decision to the appeals board [citations], indicating that when it enacted section 3744, subdivision (c) the Legislature knew how to distinguish between a court and an administrative forum and the Legislature intended to allow SISF to bring a civil action in superior court to recover compensation it had paid.
Section 3744 is an exception to section 5300. A specific provision relating to a particular subject—here, an action by SISF for reimbursement of compensation it has paid—governs with respect to that subject as against the more general provisions of section 5300. [Citations.] SISF is authorized to bring this action against Mainstay's clients.
The Court addressed, and rejected, the clients’ arguments to the contrary: a 1986 amendment to Section 3744(c) is not an exhaustive list limiting the classes of persons against whom SISF may bring a suit; Section 3744(e) (regarding venue) does apply, as it expressly states it applied to then-pending actions; the decision in Charles J. Vacanti, M.D., Inc. v. State Compensation Insurance Fund, 24 Cal. 4th 800 (2001) does not involve a statute like Section 3774(c) which authorizes an action in state court; and the decision in Snyder v. Michael’s Stores, Inc., 16 Cal. 4th 991 (1997) is inapposite as the plaintiff there sought damages for her own injuries, not damages for an employee’s injury and, in addition, the present matter comes within the Legislature’s express exception to exclusivity.
Finally, Mainstay’s clients argued the action is barred as their agreements with Mainstay complied with Section 3602(d). The Court rejected this argument as well, finding Section 3602(d) “protects employers from tort liability and penalties, but SISF’s actions do not seek tort liability or penalties.” The Court found no conflict with these statutes, but, “even if” there was such a conflict, “the more specific provisions of section 3744, subdivision (c) would control.”
The Court did not decide whether SIFS judicially admitted the agreements between Mainstay and its clients complied with Section 3602(d) or whether SISF was judicially estopped from disputing this fact.
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