MERCEDES SANTIAGO HODGE, ET AL., PLAINTIFFS, APPELLEES, v. PARKE DAVIS COMPANY, ET AL., DEFENDANTS, APPELLANTS.
Nos. 86-2135, 87-1461.United States Court of Appeals, First Circuit.Heard June 8, 1988.
Decided July 26, 1990.
Page 629
[EDITORS’ NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.]
Page 630
Donald R. Ware, with whom Steven W. Phillips, Andrew Z. Schwartz, Foley, Hoag Eliot, Charles P. Adams, and Brown, Newsom Cordova, were on brief, for defendants, appellants.
Alvaro R. Calderon, Jr., with whom Jose L. Rodriguez-Mangual and Jose Julian Alvarez-Gonzalez, were on brief, for plaintiffs, appellees.
Appeal from the United States District Court for the District of Puerto Rico
Before Bownes, Circuit Judge, Coffin, Senior Circuit Judge, and Torruella, Circuit Judge.
TORRUELLA, Circuit Judge.
[1] This is an appeal from a judgment entered by the United States District Court for the District of Puerto Rico. Appellants Parke Davis Co. (“Parke Davis”), and two corporate officers of their subsidiary, Partab (“Labs”), claim that the district court erred in its application of Puerto Rico law and its denial of various motions. For the reasons stated below we affirm.
[2] The facts of this case center around claims charging appellants with negligence in failing to provide a safe work place after appellees, employees or ex-employees, of Parke Davis’ contraceptive pill production, suffered from estrogen contamination. These facts are reproduced in more detail i
Santiago Hodge v. Parke Davis Co., 859 F.2d 1026 (1st Cir. 1988).
[3] Appellants raise five issues: (1) whether the parent corporation is a “statutory employer” under Puerto Rico law and therefore immune from liability, (2) whether the officers of the employer corporation are immune from liability under Puerto Rico law, (3) whether the court erred in failing to conduct a thorough poll of the jury to verify the unanimity of the verdict, (4) whether the claims were barred by the applicable statute of limitations and (5) whether the claim of one of the plaintiffs should have been dismissed for failure to exhaust available administrative remedies.
[4] DISCUSSION[5] I. IMMUNITY[6] A. Statutory Employer
[7] Two questions were certified to the Supreme Court of Puerto Rico regarding the application of the statutory employer immunity to Parke Davis. The text of these questions and a detailed description of the Parke Davis and Labs relationship are contained in said certification. Santiago Hodge v. Parke Davis Co., 859 F.2d 1026. Thereafter, in response to our query, on April 27, 1990, the Supreme Court of Puerto Rico issued an opinion, the official English translation of which is attached as an exhibit to this opinion.
[8] Essentially, the Supreme Court of Puerto Rico certified that the “statutory employer” doctrine does not apply in a context where a parent corporation owns all the stock of its subsidiary, but each entity has its own legal identity, and the only agreements between them are to provide license and technical assistance. The court indicated that “for a parent company to be considered statutory employer of its subsidiary’s employees, there must exist a piecework, project or service contract between both corporations
compelling the parent company
to pay the premiums to the State Insurance Fund in the event the subsidiary fails to do so.” The Court found that the contractual relationship between the companies did not render Parke Davis a “statutory employer.”
[9] The district court found that, although Parke Davis had assumed responsibility for employee safety, it never assumed responsibility for paying insurance premiums to the State Insurance Fund (“SIF”). As such, the district court’s denial of Parke
Page 631
Davis’ claim of immunity is consistent with the Puerto Rico Supreme Court’s determination. Therefore, we will not alter the result reached by the district court in that respect.
[10] B.
Corporate Officer’s Immunity
[11] Appellants also argue that corporate officers Charles H. Kupsky and Kenneth W. Larsen, each of whom served as president of Labs, were immune from corporate tort liability. Appellants allege that the workers’ compensation immunity extends to an insured employer’s corporate officers if they are sued for breach of the employer’s nondelegable duty of providing its employees with a safe work-place.
[12] After the jury found that Kupsky and Larsen were personally responsible for, or directly involved with providing employees a safe work environment and that they were negligent in performing this duty, the district court entered judgment against these officers. We agree that the district court applied the proper analysis to determine the corporate officers’ liability.
[13] In
Escude Cruz v. Ortho Pharmaceutical Corp., 619 F.2d 902
(1st Cir. 1980), we clearly stated that a determination of the liability of corporate officers is a “function of tort law and has nothing to do with employer immunity under workmen’s compensation.”
Id. at 907. Thus, the issue to be determined is whether the individuals in question were personally involved or responsible for the injuries.
See also Santiago v. Becton Dickinson, 571 F. Supp. 904 (D.P.R. 1983). Because reasonable minds could differ on the extent of the officers participation or negligence, this question is one that should be left to the trier of fact.
Cf. Springer v. Seaman, 821 F.2d 871,
876 (1st Cir. 1987) (“if reasonable persons might differ, the legal cause issue is determined by the factfinder.”) (quoting
Leboeuf v. Ramsey, 503 F. Supp. 747,
758 (D.Mass. 1980),
rev’d on other grounds, Costa v. Markey, 677 F.2d 158 (1st Cir. 1982)).
[14] In reviewing the denial of a judgment notwithstanding the verdict, this court will examine whether there is a reasonable basis in the record to support the jury’s verdict.
Borras v. Sea Land Service, 586 F.2d 881,
885 (1st Cir. 1978). The transcripts show that these officers were personally involved in making safety matter decisions. Upon review of the record, there is sufficient evidence to support a finding that Kupsky and Larsen were personally involved, hence we agree with the district court’s conclusion.
[15] II. JURY POLLING
[16] Appellants next argue that this court should reverse the district court and order a new trial based upon the district court’s refusal to conduct a thorough poll of the jury. Prior to the return of the verdict, the court received a note from one of the jurors stating she was not in agreement with the “question” of damages and that she was answering the question only for purposes of the record. That note also was signed by the foreperson, who added that she and the other jurors did not share the opinion of the first juror. From a reading of these ambiguous notes it is possible to conclude that at the time they were written, there was lack of unanimity among the jurors. The verdict, however, was reached two hours after these notes were written.
[17] The district court then proceeded to poll the jury. During these proceedings the district court ordered the verdict to be read aloud and instructed the jury to pay:
close attention to the verdicts as they’re going to be published and read aloud in open court. And following publication of the verdict, the jury will be polled. That is each juror will be asked individually whether the verdict as published constitute [sic] his or her, as the case may be, individual verdict.
[18] Thereafter, each and every one of the jurors was individually queried as to their concurrence with the verdict. All expressed their agreement. Appellants challenge the adequacy of this procedure.
[19] To support their contention appellants cite various criminal cases
[1] in which
Page 632
trial courts have been reversed for their actions in polling jurors. United States v. Luciano, 734 F.2d 68, 70 (1st Cir. 1984); Sincox v. United States, 571 F.2d 876 (5th Cir. 1978). All of these are inapposite to the present circumstances. These are cases in which a juror expressed a lingering doubt during or after the polling, notwithstanding which, the judge persisted in treating the juror’s answer as to the polling as unqualified, and hastened to announce a unanimous vote. I Luciano, the court concluded that the judge’s error was that he dominated “the juror and counsel fully as much as if he raced to record a verdict, effectually foreclosing any opportunity to poll jurors.” United States v. Luciano, 734 F.2d at 70. We disagree with appellants’ contention that these cases have any relevance to the record made in the situation at bar.
[20] In the instant case the district court was first confronted with the possibility that the verdict was not unanimous before the verdict was entered and therefore before the polling. Two hours of deliberation took place thereafter, between the receipt of the note and the verdict. Then, during the actual polling there was no representation of lingering doubts or equivocation in the result expressed by any of the jurors. Lastly, the record reveals that in polling the jury the district court, clearly followed
Audette v. Isaksen Fishing Corp., 789 F.2d 956,
958-59
(1st Cir. 1986), and ascertained that the verdict reached by the jurors was untainted and unanimous.
[21] In
Audette, this court stated that the purpose of a jury poll was to make certain that the jury had reached a unanimous and uncoerced verdict, i.e., to eliminate any uncertainty as to unanimity of the verdict.
Id. at 70. In that case we also suggested our preference for individual polling and held that the trial court has “substantial discretion” to decide how to poll the jury.
Audette v. Isaksen Fishing Corp., 789 F.2d at 959-60
(quoting
United States v. Mangieri, 694 F.2d 1270,
1282
(D.C. Cir. 1982). We find that, the district court’s individual polling was within the scope of its discretion.
[22] III. TIME BARRED CLAIMS
[23] Appellants allege that appellees were aware of their injuries and the cause of those injuries several years prior to filing suit; thus the applicable statute of limitations barred their claims. They contend that as a matter of law the statute of limitations was triggered the moment that plaintiffs had the idea that their injuries were work related, and, therefore, the district court erred in denying appellants request for Summary Judgment and its motion for directed verdict.
[24] A.
Error of law
[25] Appellants allege that as a matter of law, the action was time barred. Article 1868 of the Puerto Rico Civil Code provides for a one year statute of limitations which commences on the date the aggrieved party had knowledge of the tort. 31 L.P.R.A. § 5298. However, the one year “term does not start to run from the occurrence of the negligent act or damage, but from the moment the damages is known.”
Barreto Peat, Inc. v. Luis Ayala Sucrs., Inc., 896 F.2d 656,
658 (1st Cir. 1990) (quoting
Rivera Encarnacion v. Estado Libre Asociado de Puerto Rico., 113 D.P.R. 383, 385 (1982)). The issue here is the parties’ opposing views as to when the damage became known by plaintiffs as being caused by defendant.
[26] The Supreme Court of Puerto Rico has held that the statute of limitations starts to run on the date that plaintiff becomes aware of the injury and the person who caused it.
Colon Prieto v. Geigel, 115 D.P.R. 232, 247 (1984). In
Colon Prieto, the Court dealt with the statute of limitations issue in a medical malpractice insurance claim. In that case, defendant alleged the action was time barred because plaintiff
Page 633
knew or had an idea of the cause of the injury.
[27] In
Colon Prieto plaintiff developed an infection in his tongue after a visit to his dental surgeon. Subsequently, he visited the dentist again to inquire as to this condition, suspecting something had gone wrong. He was informed by the dentist that the sore had been self inflicted. After an unsuccessful treatment, he visited another dental surgeon who informed him that his injury was caused by a surgical instrument. In view of these facts the Court established that in order to file an action the victim must know who caused it. Despite plaintiff’s suspicions, it was at this point that plaintiff became aware of
who and
what had caused the damage. This interpretation, it was ruled, was required in situations where the negligent perpetrator benefits from the ignorance or trust of the injured.
Colon Prieto v. Geigel, 115 D.P.R. 232.
[28] The record shows that although appellees may have “had the idea” that their condition was work related, all employment and official sources such as Parke Davis, the State Insurance Fund physicians, as well as the Industrial Commission of Puerto Rico, informed them that their condition was not work-related.
[2]
[29] In the instant case, appellees visited State Insurance Fund physicians who reported that their condition and complaints had no relationship with working with hormones. There is also evidence that their efforts before the Industrial Commission, the appropriate administrative agency that handles worker’s compensation cases, proved fruitless. The Commission also found that the employees specific complaints were not related to estrogen contamination. The facts further demonstrate that plaintiffs’ lack of awareness was not due to their own negligence, carelessness, or lack of diligence,
cf. Rivera Encarnacion v. Estado Libre Asociado de Puerto Rico., 113 D.P.R. at 385, and finally, that Parke Davis was ultimately responsible of employee safety.
[30] Upon review, we find that the jury was properly instructed on the application for the statute of limitations, that jury interrogatories were properly submitted and that the district court in so doing applied the law properly. Furthermore, the record shows that no objections were made to this effect. Because we find no error of law we review the jury’s findings to see if they were supported by the evidence.
[31] The determination of when appellees had knowledge of “both the injury and its connection with the act of defendant,”
Lavellee v. Listi, 611 F.2d 1129,
1131-32 (9th Cir. 1980), is a question of fact.
Cf. Id. As such, it was for the jury to determine when plaintiffs appellees could be charged with having sufficient knowledge to trigger the statute of limitations. Although, allegations of errors of law are reviewed
de novo, jury findings are findings of fact, and findings of fact cannot be set aside unless the evidence is insufficient to support the verdict.
[32] After examining the record we find that it supports the factual findings. While there is evidence that shows appellees “had an idea” or suspected that their condition was work related some time prior to filing suit, there is also evidence that appellees became aware of the actual cause of their injury within the statutory period. Because, the record supports the jury’s finding,
Borras v. Sea Land Service, 586 F.2d at 885, we will not disturb its decision.
[33] B.
Motions for Summary Judgment
[34] Upon motion for summary judgment, the district court must view all facts and reasonable inferences that may be drawn therefrom in the light most favorable to the non-movant.
See, e.g., Celotex Corp. v. Catrett, 477 U.S. 317,
324-25,
106 S.Ct. 2548,
2553-54,
91 L.Ed.2d 265 (1986). Summary judgment is proper when there is no genuine issue as to a material fact, and the moving party is entitled to a
Page 634
judgment as a matter of law. Id.; see also Kennedy v. Josephthal Co. Inc., 814 F.2d 798, 804 (1st Cir. 1987); Fed.R.Civ.P. Rule 56. In the instant case, the district court found that there was an issue as to when the appellees became aware that their condition resulted from estrogen contamination. The affidavits filed by the appellees stated that plaintiffs were never told that they could be affected physically or mentally from exposure to the active ingredients used in the manufacture of oral contraceptives. To the contrary, they were always told that their condition was not related to estrogen exposure. Since knowledge of the cause of their injury is required to file suit, Colon Prieto v. Geigel, 115 D.P.R. at 247, appellee’s affidavits evidence a genuine issue as to a material fact. Thus, the district court committed no error in denying appellants’ request for summary judgment.
[35] C.
Motion for directed verdict
[36] For the same reasons underlying their summary judgment claim, appellants next claim that there was insufficient evidence to support the jury’s finding in reference to the statute of limitations issue and that the district court therefore erred in denying appellants motion for directed verdict.
[37] The standard of review for a motion for directed verdict is similar to that applied to a request for summary judgment. It is well settled that upon the consideration of a motion for directed verdict, the evidence must be viewed in the light most favorable to the non-movant, giving him the benefit of every favorable inference that may be fairly drawn therefrom.
Borras v. Sea Land Service, 586 F.2d 881,
885 (1st Cir. 1978),
quoted in Valedon Martinez v. Hospital Presbiteriano, 806 F.2d 1128,
1134 (1986). If “fair minded” persons could draw different inferences then the matter is for the jury.
Id. Upon review, we find that the record provides an adequate evidentiary basis for the district court’s decision to submit the matter to the jury.
[38] IV. DISMISSAL OF PREMATURE CLAIM
[39] Appellants finally argue that one of the plaintiff’s
[3]
claims should have been dismissed because it was premature. It contends that the Workmen’ Accident Compensation Act mandates dismissal
[4] when there is a State Insurance Fund claim awaiting final adjudication. After careful research of the applicable law, we find that the district court properly declined to dismiss the action. In
Alvarado v. Calaino Romero, 104 P.R.R. 178, 186 (1975), the Supreme Court of Puerto Rico stated that
[w]ith regard to the workman’s action, there is dicta to the effect that if it is brought prematurely it is null and void. Negron v. Industrial Comm’n, 76 P.R.R. 282 (1954). If we were to turn such construction into a final doctrine, however, we would not be fully complying with the purpose of the legislation under our consideration. The declaration of nullity would unduly protect the third party, when what is inferred from our statute is the desire to protect the Fund’s right to subrogation. We consider that to decide that the complaints filed prematurely are voidable, instead of void is more consistent with the law. Only the Fund may, of course, demand its annulment through the filing in due time of its action of subrogation and the corresponding prayer for declaration of nullity.
Page 635
[40]
Alvarado disposes of the instant situation.
See also De Jesus v. Guerra Guerra, 105 P.R.R. 282 (1976). As such, we uphold the district court’s decision because it is clear that the purpose of the statute at issue is to protect the State Insurance Fund’s exclusive right of subrogation and not that of a third party. Appellants do not have standing to contest the action’s ripeness.
[41] For the reasons stated herein, the decision of the district court is
[42]
Affirmed. Costs are granted to appellees.
APPENDIX
EXHIBIT
(Translation)
IN THE SUPREME COURT OF PUERTO RICO
No. CT-88-615 Certification
Mercedes Santiago Hodge et al.,
Plaintiffs and appellees
v.
Parke Davis Co. et al.,
Defendants and appellants.
MR. JUSTICE HERNANDEZ DENTON delivered the opinion of the Court.
San Juan, Puerto Rico, March 21, 1990
Here we will examine important issues concerning employer
immunity from claims by injured workers under the Workmen’s
Accident Compensation Act, No. 45 of April 18, 1935 (11 L.P.R.A.
§ 1 et seq.)
The United States Court of Appeals for the First Circuit has
certified us two questions under Court Rule 27 (4 L.P.R.A., App.
I-A), and Civil Procedure Rule 53.1(c) (32 L.P.R.A., App. III).
We must decide if a parent company may be considered the
“statutory employer” of its subsidiary’s employees and thus be
immune from work-related damage suits. The controversy is novel
in our jurisdiction and those that have entertained the issue are
split in their views. Let us examine the facts that give rise to
the controversy.
I
In 1970, Parke Davis Company (“Parke”), a United States
company engaged in the manufacture, distribution and sale of
pharmaceutical products, established and incorporated a
subsidiary, Parke Davis Labs (“Labs”),[1] with principal
offices in Fajardo, Puerto Rico. Parke wholly owns Labs which was
created as an independent corporation. As such it takes advantage
of Puerto Rico’s tax incentives offered via the Federal Internal
Revenue Code sec. 936.[2] Since it was created, Labs has
manufactured and packaged oral contraceptives.
Parke and Labs signed two agreements: a License and Technical
Assistance Agreement of September 1, 1969; and a Technical
Assistance Agreement of December 1, 1973. In these agreements
Parke licensed Labs to the nonexclusive use of its patents,
discoveries and trademarks in its manufacturing process, and was
committed to providing its subsidiary with the technical
information necessary to manufacture certain products, as well as
the quality control standards, packaging specifications and
similar processing guidelines. Furthermore, Parke would provide
the necessary technical assistance in several operational
aspects, among them, employee safety.
For such license, Labs agreed to pay Parke a royalty of five
percent (5%) of its sales. It likewise assured reimbursement of
the technical service costs plus 15%. On the other hand, Parke
retained the right to conduct on-site inspections of the
manufacturing process and its products.
Page 636
From the subsidiary’s standpoint, the agreements did not bind
Labs to sell its products exclusively to Parke, rather they
allowed Labs to sell to third persons unrestrictively.
Nonetheless, Labs always sold all its production to Parke.
Plaintiffs are mainly Labs employees[3] who suffered a series
of physiological disorders resulting from exposure to hormones in
the course of their employment.[4] They brought suit against
Parke and several Labs officials in the United States District
Court for the District of Puerto Rico. They alleged that the
defendants were negligent in failing to provide adequate work
conditions, failing to supply the adequate clothing and equipment
for on-the-job safety, failing to give adequate instructions and
supervision in the use of safety equipment, and failing to warn
them of the hazards to be encountered in the handling of and
exposure to the substances used in the manufacturing process.
After the evidence was heard, the jury found for plaintiffs and
the court eventually assessed damages in $2,815,000.[5]
The defendants appealed. Among other things they seek reversal
of the judgment of the United States District Court. They allege
that they were covered by the immunity under the Workmen’s
Accident Compensation Act. The appellate court deemed it
necessary to certify the following questions of law to this
Court:
1. Does the statutory employer doctrine apply in
the context of parent-subsidiary corporations, where
the subsidiary is wholly owned by the parent, and the
corporations are bound in the activities relevant to
the case by a licensing agreement?
2. If so, is the determination of statutory
employer status to be made solely on the basis of the
agreement, or may courts consider the de facto
relationship, based, for example, on the corporate
structure of the parent-subsidiary relationship or
the economic nature of the relationship?
Since this case involves questions of Puerto Rican law that are
crucial for the adjudication of the appeal,[6] in the absence
of clear-cut precedents in our case law, and in view of the fact
that we have an adequate statement of the pertinent facts, we
accept the certification. Pan Ame. Comp. Corp. v. Data Gen.
Corp., 112 D.P.R. 780 (1982); Medina Medina v. Country Pride
Foods, 122 D.P.R. ___ (1988).
Given the importance of the controversy, we ordered the State
Insurance Fund to state its position in writing. It has complied.
We have also accepted the amicus curiae brief of Squibb
Manufacturing, Inc. Having exhausted the regulatory procedures,
we are now in a position to decide.
II
According to the workmen’s compensation regime established in
the Workmen’s Accident Compensation Act, when an employee suffers
an injury, illness or is disabled or dies as a result of “any act
or function inherent in [his] work,” and his employer is insured
according to law, his right to compensation is limited to the
statutory compensation offered through the State Insurance Fund.
See arts. 2 and 20 (11 L.P.R.A. §§ 2 and 21).
The worker thus injured lacks a cause of action to sue his
employer for damages, regardless of the employer’s degree of
negligence. De Jesus v. Osorio, 65 P.R.R. 601,
Page 637
604 (1946); Cortijo Walker v. Water Resources Authority, 91 P.R.R.
557, 563 (1964); B.C.R. Co., Inc. v. Superior Court, 100 P.R.R.
753, 756-757 (1972); Admor. F.S.E. v. Flores Hnos. Cement Prods.,
107 D.P.R. 789, 792 (1978).
This system, “integrated . . . on the basis of a social,
objective liability,” Cortijo Walker, supra, at 561, was
implemented to put an end to the state of forsakenness which
engulfed the workers who were injured in work-related accidents
and who had to prove their employer’s negligence in order to
obtain compensation. If the injured worker was lucky, he got a
belated monetary relief; if not, he got nothing. As framed, the
plan compromised the higher compensation available under the
general civil law rules in return for a moderate but reliable
statutory compensation based on dependency. Id. at 562.
However, when a worker’s compensable injury, disease or death
occurs in circumstances where a “third person” may be liable, the
Workmen’s Accident Compensation Act does not affect the civil
liability of the wrongdoer who is a stranger to the
employer-employee relationship. The statute does not seek to
extend immunity from worker’s claims to strangers. See 2A A.
Larson, The Law of Workmen’s Compensation, § 71.10 (1988).
Under such circumstances, the injured worker and the State
Insurance Fund, subrogating itself in the benefits of the
employee, may file an action against a third party. Art. 31 (11
L.P.R.A. § 32.)
To finance the compensation system, the statute establishes a
compulsory insurance system for all employers. See arts. 2 and 18
(11 L.P.R.A. §§ 2 and 19). The statute not only compels employers
to pay their employees’ insurance, but the employer is also
subsidiarily liable for the premium payments (“taxes”) of the
workers of a person who “contracted” with him or the workers of
“a contractor or independent subcontractor” hired by him when the
latter were not insured:
Every insured employer shall, on reporting his
annual payrolls, include in said payrolls the wages
paid to all the workmen and employees working for or
employed by him, whether by the job or under some
person with whom the employer contracted for the job,
or under a contractor or independent subcontractor
employed or contracted by said employer; and all
accounts or taxes collected by the State shall be
based on the employer’s current payroll in which
shall be included the above-mentioned laborers;
Provided, That this provision shall not be applicable
to employers for whom work is done by an independent
contractor who is insured as an employer under the
provisions of this chapter. Art. 19 (11 L.P.R.A. §
20).
This article incorporates the “contractor-under” clause into our
statute. A majority of United States jurisdictions have similar
provisions. See, in general, 1C Larson, supra, §§ 49.00 and
49.11. One of the purposes of this article is to prevent the
potential evasion of the statutory coverage when an employer, to
reduce costs, subcontracts part of his ordinary operations with
uninsured contractors. Id. § 49.00.
The comprehensive wording of the cited provision sees to it
that the State Insurance Fund obtains sufficient information on
payrolls to eventually compute and invoice the premiums. When an
employer does not meet his obligation, the person who contracted
him for the work or service must make up for it.
In construing art. 19 of the Workmen’s Accident Compensation
Act, this Court has stated that it seeks “not only to forestall
the evasion of the Act, but also to protect the workers and
employees of irresponsible and uninsured subcontractors by
imposing liability on the principal contractor, who has it within
his power, in choosing subcontractors, to insist upon appropriate
protection against [work-connected] accidents.” Colon Santiago
v. Industrial Commission, 97 P.R.R. 203, 204 (1969). It was
precisely in Colon Santiago when we first used the term
“statutory employer” to refer to the principal contractor and to
distinguish him from the subcontractor, the real or contractual
employer of an employee who seeks compensation for a work-related
Page 638
accident, when the principal contractor may be protected by the
employer immunity. Id. at 204-205.
In Lugo Sanchez v. A.F.F., 105 D.P.R. 861 (1977), we examined
the propriety of an action seeking damages for work-related
injuries filed by an employee of an insured independent
contractor. The action was brought against the owner of a project
under construction who had contracted the work with the
employee’s real employer. We held that in those cases where the
described contractual relationship arises, the principal
contractor or project owner is not a “third party” within the
meaning of art. 31, but a “statutory employer,” immune from
worker claims by reason of being expressly exempt from the
obligation to carry a policy in those cases where the independent
contractor was insured. Id. at 864-865. See also, Vda de
Costas v. P.R. Olefins, 107 D.P.R. 782, 785 (1978); Rodriguez
v. Union Carb. Grafito, Inc., 107 D.P.R. 848, 849-850 (1978).
Our case law has only recognized the “statutory employer”
within the context of a contract or subcontract for work or
services, and only for project owners, principal contractors or
subcontractors who had, with regard to the injured worker, the
mutual legal obligation to insure him with the State Insurance
Fund. See, Lugo Sanchez, supra, at 866-867; F.S.E. v. E.L.A.,
111 D.P.R. 402, 405 (1981). Therefore, in Ruiz Diaz v. Vargas
Reyes, 109 D.P.R. 761 (1980), we refused to adopt the common
family immunity doctrine, by which all employers taking part in
the same project were immune from claims by workers laboring in
the said project. Id. at 763.
In Ruiz Diaz, supra, at 765, we stated that “[t]he
determinant factor of immunity is the existence of that direct or
indirect link between the workman who suffers the accident and
the employer in the course of whose employment and as consequence
of which the injury takes place.” Absent that legal nexus linking
the worker’s direct employer to the wrongdoer in the “mutual
legal obligation” to insure the employee with the Fund, we would
be facing a “third party” lacking statutory protection against
claims by injured workers.
III
In the case at bar, the contractual relationship of defendant
Parke with Labs, the real employer of the plaintiff workers, does
not correspond to the link “principal contractor-subcontractor”
or “project owner-contractor” in the context of a contract for
work or services. These are the only cases in which we have
applied the statutory employer doctrine.
The license and technical assistance agreements between these
corporations are not project contracts. Neither do the technical
assistance agreements turn Parke into the statutory employer of
Labs’s workers, because although these are service contracts
linked to the principal contractor’s business, according to the
agreement, Parke is the one obliged to offer the services to
Labs. In the best of cases the relationship is just the other way
around. That is, Labs would be the statutory employer of those
Parke employees who offer technical services to the subsidiary.
Under our case law, Parke cannot be considered the statutory
employer of Labs’ employees in the absence of a project or
service contract in which Labs agrees to work for Parke. Only in
this situation would the “mutual legal obligation” to insure
Labs’s employees arise between Parke and Labs.[7]
Parke argues that it should be considered plaintiffs’ statutory
employer because Labs, its subsidiary, is in charge of part of
its production. According to Parke, “a statutory employer is
simply `a person who hires another person to perform part of its
work'” (Appellants’ Brief, at 6), and that, to such ends, the
court may examine the nature of all the economic and the de
facto ties between the parties without having
Page 639
to circumscribe itself to the contract. We do not agree.
The contractual relationship between the actors under the
“statutory employer” doctrine has always been crucial to its
application. See Lugo Sanchez, supra, at 865 (“Within its
contractual relationship with Zachry, the Water Resources
Authority is an employer, principal or `statutory'”) (underscore
supplied); Vda. de Costas, supra, at 785 (“The decision
regarding defendant’s position as statutory employer depends on
the contractual relations between said defendant and the
workmen’s real employer.“) (Underscore supplied.)
Moreover, even if we were to accept the existence of a supply
contract between the two corporations, the consecutive purchases
by Parke of all of Labs’s contraceptive products do not suffice
to trigger the contractor’s immunity clause. The contract
described in art. 19 is not a purchase-sale contract. See,
Atiles, Mgr. v. Industrial Commission, 67 P.R.R. 470, 472
(1947). The simple fact that Labs always sold its entire
production to Parke, when there was no obligation to do so,
cannot grant the buyer immunity as employer of the seller’s
employees.
Likewise, the simple fact that Parke wholly owns Labs does not
trigger the immunity. 2A Larson, supra, § 72.13, at 14-75. That
was our decision in Lopez Rodriguez v. Delama, 102 D.P.R. 254
(1974). In said case we reviewed a dismissal of a damage claim
brought by a company employee who was injured — on her way home
after work — in a traffic accident while traveling as a passenger
in a vehicle driven by one of the company’s shareholders and
officers. Although the accident was covered by law, the employee
did not report it to the State Insurance Fund. Neither did she
sue her employer; rather, she sued the driver of the vehicle and
his insurer. The trial court ruled that since the accident was
work-connected, the plaintiff was solely entitled to receive
compensation from the State Insurance Fund.
In reversing the judgment appealed we stated:
Even though there is no unanimous opinion, the
prevailing doctrine sustains that the immunity the
statute grants to the insured employer does not
extend to the directors, officers, shareholders,
managers, or co-workers of said employer. [Citations
omitted]. In the absence of a legislative expression
with regard to the meaning of the term “third
parties” used in art. 31 of the Act, we shall grant
it its usual meaning assuming that it includes every
person aside from the injured employee and his
insured employer. . . . [T]here is no justification
in extending the immunity granted by law to the
directors, officers, or other employees of the
insured employer who do not contribute personally to
defray the expenses of the Fund when they have
incurred negligence and have caused damages to other
employees.[8] (Citations omitted.) Id. at
258-259.
We thus refused to automatically extend employer immunity to all
those persons who occupy positions in or who are owners of the
corporate entity that employs the injured employee.
Consequently, the relationship between Parke and Labs is not
that described in the contractor’s clause of the Workmen’s
Accident Compensation Act. For a parent company to be considered
statutory employer of its subsidiary’s employees, there must
exist a piecework, project or service contract between both
corporations compelling the parent company to pay the
premiums to the State Insurance Fund in the event the subsidiary
fails to do so. The facts of this case do not trigger the
employer immunity contained in art. 19 of the Workmen’s Accident
Compensation Act.[9]
Page 640
IV
We cannot close this opinion without stating that the employer
immunity grounded on the contractor clause of art. 19 cannot be
confused with the alter-ego doctrine. As appellants[10] have
correctly stated, when the subsidiary’s corporate veil is pierced
and it is shown that it is just the alter ego of the parent
company, both corporations are for all effects treated as one
entity. In this case the parent company would have immunity, not
because it is the injured worker’s statutory employer but because
it is his direct employer. In the case before our consideration,
however, none of the parties has attempted to pierce the
corporate veil.[11]
Finally, we shall not adopt, without any statutory grounds
therefor, the solutions adopted in other jurisdictions to settle
this type of controversy, particularly when a common approach has
not been reached. See, Note: Adopting an Economic Reality Test
when Determining Parent Corporations’ Status for Workers’
Compensation Purposes, 12 J.Corp.L. 569 (1987); Davis,
Workmen’s Compensation — Using an Enterprise Theory of
Employment to Determine Who is a Third Party Tort-feasor, 32
U.Pitt.L.Rev. 289 (1971). It is incumbent upon the Legislature to
take the pertinent measures to correct any possible inequity in
the worker’s compensation regime.
In conclusion, we answer the certified questions as follows:
the “statutory employer” doctrine does not apply in the context
of a parent company that owns all the stock of its subsidiary
when each company has its own legal identity and between them
there only exists some license and technical assistance
agreements. Regardless of the nature of the corporate structure,
the contractual relationship between companies is crucial in
determining the application of the “statutory employer” doctrine.
After all, this is how the manager of the State Insurance Fund
may objectively weigh whether or not the parent company had the
legal obligation to insure its subsidiary’s employees in the
event the latter failed to do so.[12]
Judgment will be rendered accordingly.
JUDGMENT
San Juan, Puerto Rico, March 21, 1990
For the reasons set forth in the opinion, which is made an
integral part of this judgment, we certify that the “statutory
employer” doctrine does not apply in the context of a parent
corporation that owns all the stock of its subsidiary when each
company has its own legal identity and between them there only
exists some license and technical assistance agreements.
Regardless of the nature of the corporate structure, the
contractual relationship between the companies is crucial in
determining the application of the “statutory employer” doctrine.
In view of this answer, there is no need to answer the second
certified question.
We hereby order the Bureau of Translations of this Court to
translate forthwith the present opinion and judgment for its
timely certification to said federal court.
It was so agreed and ordered by the Court and certified by the
Chief Clerk. Justice Negron Garcia issued a concurring opinion.
Justice Rebollo Lopez dissents and states in the judgment that:
“the opinion rendered by a majority of the Court in the present
case in answer to certain `questions’ certified to us by the
United States Court of Appeals for the First Circuit concerning
the application of the `statutory employer’ doctrine in the
context of a parent-subsidiary relationship, is futile and
ineffective inasmuch as it fails to draw up clear legal
guidelines that would aid the courts and the administrative
officers concerned
Page 641
to settle this type of litigation. Furthermore, the `rule of law’
laid down by the majority of the Court in this field can be
`flouted’ and easily circumvented by corporations involved in
similar situations.” Justice Ortiz dissents without a written
opinion.
Francisco R. Agrait Llado
Chief Clerk
JUSTICE NEGRON GARCIA, concurring.
San Juan, Puerto Rico, March 21, 1990.
“The governing view for the situation we are considering should
be detached from facts which may change depending upon the
cleverness of the parties in formulating the conditions of the
juridical relation and rather framed within the determination of
the position of the one in relation to the other with special
stress on the degree of economical dependence. Primordial
attention should be paid to the economic realities rather than to
technical classifications which might prevail in other areas of
the law, but which do not lead to a fair solution when remedial
legislation is involved.” Nazario v. Velez, 97 P.R.R. 447, 453
(1969).
The breadth of these pronouncements require us to focus our
attention on the grounds that pave the way for the fairest
solution in harmony with the letter and original spirit of the
Workmen’s Accident Compensation Act, in keeping with the changing
realities of our industrial society.
I
The present action concerns the application of the statutory
employer doctrine to the particular contractual relationship
between a United States based parent corporation and its local
subsidiary.
Faced with this issue — not expressly addressed by this Court
before — the United States Court of Appeals for the First
Circuit, through the certification procedure laid down in Civil
Procedure Rule 53.1(c) (32 L.P.R.A., App. III) and in our Rule 27
(4 L.P.R.A., App. I-A), certified to us the following questions:
“1) Does the statutory employer doctrine apply in the context of
parent-subsidiary corporations, where the subsidiary is wholly
owned by the parent, and the corporations are bound in the
activities relevant to the case by a licensing agreement?; 2) If
so, is the determination of statutory employer status to be made
solely on the basis of the agreement, or may courts consider the
de facto relationship, based, for example, on the corporate
structure of the parent-subsidiary relationship or the economic
nature of the relationship?” (Underscore supplied.)
Certification, pp. 16-17.
For the reasons we shall state below, we answer the first
question in the negative. Appellant Parke Davis Co. (“Parke”)
does not have employer immunity from claims brought by the
workers of its wholly-owned subsidiary, Parke Davis Labs
(“Labs”). Consequently, the second question becomes academic; we
need not address it.
II
The factual framework clearly arises from the certification.
Pan Ame. Comp. Corp. v. Data Gen. Corp., 112 D.P.R. 780, 790
(1982). The facts were heard and adjudicated before the federal
forum. Therefore, we shall refer to the opinion of the Court. Let
us then focus on the applicable law.
In order to recognize employer immunity as provided by the
Workmen’s Accident Compensation Act, No. 45, April 18, 1935, as
amended, 11 L.P.R.A. § 1 et seq., we should address two crucial
concepts that together reflect the true aim and scope of this
legislation. This requires a brief summary of the insured
employer scheme vis-a-vis a third party that may be sued for
damages, and which we shall call the vulnerable third party.
The Workmen’s Accident Compensation Act establishes a system
through which the injured worker is entitled to compensation —
independently of the identity of the wrongdoer — if and when the
injury is work-related. In exchange for this remedial scheme, the
employer acquires immunity from worker claims by paying the
policy premiums.
Page 642
Now then, art. 31 (11 L.P.R.A. § 32) recognized the third
party’s vulnerability to workers’ damage suits. And art. 19 (11
L.P.R.A. § 20) defines who is the employer obliged to insure his
workers. This obligation not only falls on the employer with
regard to his immediate and direct employees, but covers that
employer who as the principal (statutory employer) enters into an
agreement with a contractor with regard to the latter’s
employees. The key to this “subsidiary” obligation lies in the
fact that if the contractor is insured, the principal employer is
not required to insure the former’s employees.
Hence, the determination of who is the insured employer under
the Workmen’s Accident Compensation Act, shall be effected in the
light of “1) whether or not there is an obligation to insure; and
2) whether the person is actually covered by the Fund, with
respect to the claimant worker.” F.S.E. v. E.L.A., 111 D.P.R.
402, 405 (1981). Only in the event that the contractor has failed
to insure his workers is that the statutory employer is obliged
to cover them through the statutory coverage. Otherwise, if the
statutory employer fails to cover these workers, he will not be
protected by the statutory immunity. As we held when we joined
the dissenting opinion of former Justice Davila in Lugo Sanchez
v. A.F.F., 105 D.P.R. 861, 871 (1977), “[t]his being so, we see
no reason why the immunity granted by the law to the statutory
employer should be extended when, on account of his negligence,
an employee of a contractual employer sustains injuries. We
cannot forget that the third parties who offer the greater risk
to the security of the workers are the employees of the statutory
employers that work in the same project. The obvious purpose of
the provision that permits complaints against third-party
tort-feasors is that the loss be suffered by the tortfeasor and
not by the injured worker or the State Insurance Fund.”
Thus, we must conclude that the statutory employer contemplated
in the immunity clause of the Workmen’s Accident Compensation Act
is the person who, as a question of fact, has insured his
uninsured contractor’s employees. Only thus can we see the legal
relation that binds the statutory employer, the contractors or
direct employer’s worker, and the State Insurance Fund.
Therefore, we see that there are two types of statutory
employers: an immune employer paying the policy premiums of his
contractor’s employees, and another, the vulnerable third
party, who pays no coverage. This was our position in our
dissent in Vda. de Costas v. P.R. Olefins, 107 D.P.R. 782
(1978).
III
Having briefly outlined these principles, let us apply them to
the present case.
Labs, a wholly-owned subsidiary of Parke, is, for purposes of
the present action, a direct insured employer. Hence, it has
the absolute immunity of the Workmen’s Accident Compensation Act.
However, Parke has not paid nor pays the statutory premiums for
Labs’ employees. This evidently places Parke in the position of
a vulnerable third party. Even if it could be a statutory
employer — that is, one who employs workers through others[1a] —
it is an uncontested fact that Parke did not insure Labs’s
workers hence it was not
Page 643
covered by “the protective mantle of immunity.” Lugo Sanchez,
supra, at 872.
IV
The opinion rendered by the Court today, although correct in
its result, leaves a very broad avenue for interpretation. Simple
formalities or contractual agreements could lead to the absurdity
that the immunity be granted to the person who does not pay, just
because he has “the mutual legal obligation to insure” his
contractor’s employees. The mere expectation of this obligation
is not enough. We should avoid the prejudicial effects that case
law extensions not foreseen by the Workmen’s Accident
Compensation Act could have on the workers’ rights.
For the foregoing reasons, we concur.
CHIEF CLERK’S CERTIFICATE
I, Francisco R. Agrait Llado, Chief Clerk of the Supreme Court
of Puerto Rico, DO HEREBY CERTIFY:
That the annexed document is a photocopy of the official
translation from Spanish into English (said translation having
been made under the authority of Act No. 87 of May 31, 1972) of
the opinion rendered by this Court on March 21, 1990, in Case No.
CT-88-615, Mercedes Santiago Hodge, et al., v. Parke Davis Co.
et al., the original of which in Spanish is under my custody in
this Office. The concurring opinion of Mr. Justice Negron Garcia
is attached hereto.
IN WITNESS WHEREOF, and at the request of the interested party,
I issue these presents for official use, fee-free, under my hand
and the seal of this Court in San Juan, Puerto Rico, this 27th
day of April 1990.
/S/ Francisco R. Agrait Llado
Francisco R. Agrait Llado
Chief Clerk
Supreme Court of Puerto Rico
