HERMOGENES CORREA, Applicant
IDEAL PARTS INC, Employer
The applicant submitted a petition for commission review alleging error in the administrative law judge's Findings and Order issued in this matter on August 29, 2003. The employer submitted an answer to the petition and briefs were submitted by the parties. At issue is whether the employer is subject to a bad faith penalty, pursuant to Wis. Stat. § 102.18(1)(bp), for its failure to timely pay increased compensation pursuant to Wis. Stat. § 102.57.
The commission has carefully reviewed the entire record in this matter and hereby reverses the administrative law judge's Findings and Order. The commission makes the following:
The applicant sustained a left middle finger fracture and partial amputation when a punch press he was operating malfunctioned while his left hand was in the punch area. The press was not supposed to cycle unless the operator had his hand on two buttons at the same time. However, for five or six months prior to his accident this particular press (press 90) had been cycling unexpectedly when both buttons were not being pressed. It would do this intermittently due to an unexplained malfunction in the machine. The operators complained and the employer's machine maintenance personnel attempted to correct the problem, but they were unsuccessful. Nevertheless, the employer did not take press 90 out of operation. The applicant's injury occurred on March 23, 2001, and compensation was conceded and paid. Effective July 26, 2001, the employer entered into a settlement agreement with OSHA regarding several safety violations, including the failure to repair press 90 or take it out of service until the hazard had been corrected. The employer conceded that this was a violation and agreed to pay the $3000.00 federal penalty.
On April 18, 2002, the applicant's attorney had written to the employer requesting access to press 90, because the applicant was contemplating a third party action against the press manufacturer. In a letter dated May 1, 2001, the employer's attorney responded that the employer would allow access to the premises if the applicant signed an agreement indicating the results of any inspection would not be used in a claim under Wis. Stat. § 102.57. No further action took place until January 15, 2002, when the employer's attorney sent a letter to the applicant's attorney indicating that press 90 had been disassembled and removed from the premises. The employer's witness at the hearing, Marianne Jaehnke, testified that the press was removed because it was no longer needed. On cross, Jaehnke was evasive as to whether another reason the press was removed was because it had a history of malfunctioning. She ultimately denied knowledge of whether that was one of the reasons it was removed. She stated that she knows general repair costs for the press were considered, but she did not have specific knowledge of what needed to be repaired.
On February 21, 2002, the applicant's attorney wrote a letter to the employer threatening a tort action for the employer's dismantling of press 90. The letter indicated that the dismantling undermined the applicant's third party claim and also pursuit of a claim under Wis. Stat. § 102.57. The letter did not state that a demand was being made under Wis. Stat. § 102.57.
On October 30, 2002, the applicant filed an application for hearing alleging a violation of Wis. Stat. § 102.57, and bad faith for not paying the 102.57 penalty. On April 16, 2003, prior to a notice of hearing being sent out, the employer paid the penalty. The employer indicated in its cover letter that it was doing so "Because this is a relatively small case . . ."
The administrative law judge accepted the employer's argument that its liability under s. 102.57 was not "obvious," and that based on the facts it had a right to wait for hearing on the issue. The commission rejects this argument.
It is undisputed that in July 2001, the employer conceded that its failure to repair press 90 or take it out of operation had constituted a serious violation of 29 C.F.R. 1910.217(e)(1)(ii), and paid the $3,000.00 penalty for this violation. Because the Wisconsin Administrative Code adopts as its own the regulations found in 29 C.F.R. 1910, (1) the employer had also effectively conceded a violation of state law in July 2001. Furthermore, the employer has never asserted any reasonable defense to the applicant's claim under s. 102.57, because it has never asserted any reason for not repairing or removing press 90 before the applicant was severely injured due to its malfunctioning. At the hearing, Ms. Jaehnke acknowledged that she was aware of the settlement admitting an OSHA violation, but asserted that she had no knowledge relative to why the employer decided to make this admission, or why the employer finally removed the press. Neither did she offer an explanation for why the employer paid the penalty amount for the s. 102.57 violation without going to hearing. The only explanation ever offered for that action is the hearsay document (applicant's Exhibit A) indicating the employer was paying the penalty "Because this is a relatively small case . . ."
Even in its brief to the commission, the employer has not offered any defense to the s. 102.57 violation, arguing instead that due process entitled it to a hearing before paying the penalty. In a worker's compensation proceeding, the due process right to a hearing is available for any controversy arising under the statutes. (2) However, when there is no reasonable basis for not paying the statutory claim, there is no controversy. The test for bad faith under Wis. Stat. § 102.18(1)(bp), was set forth in North American Mechanical Inc. v. LIRC, 157 Wis. 2d 801, 808, 460 N.W.2d 835 (Ct. App. 1990):
"We conclude . . . that in order to show bad faith a claimant must make a showing that the employer acted with: (1) a lack of a reasonable basis for the delay which occurred and (2) knowledge or a reckless disregard of the lack of a reasonable basis for the delay."
Wis. Stat. § 102.57 provides for a 15 percent increase in compensation (up to a $15,000.00 maximum) when injury is caused by an employer's failure to comply with any statute or rule of the department. The applicant's testimony, as well as the employer's admission of state and federal rule violation, demonstrate that the applicant's injury was caused by the employer's illegal failure to repair or remove the malfunctioning press 90. Given the uncontroverted facts of the case, the employer had no reasonable basis for not paying the s. 102.57 penalty as soon as it was claimed. The employer was fully aware of the relevant facts, and had knowledge of this lack of a reasonable basis for not paying. Accordingly, its failure to make immediate payment constituted bad faith under Wis. Stat. § 102.18(1)(bp).
No formal demand for payment of the s. 102.57 penalty was made upon the employer until December 12, 2002, and it made voluntary payment four months later on April 16, 2003, before a hearing was scheduled. Given this relatively short delay, the bad faith penalty will be assessed at 100 percent instead of the statutory maximum of 200 percent. The s. 102.57 penalty amount was $1,548.06, and the 100 percent bad faith penalty amount is the same. A 20 percent attorney's fee will be subtracted.
NOW, THEREFORE, this
The Findings and Order of the administrative law judge are reversed. Within 30 days from this date, the employer shall pay to the applicant as a bad faith penalty the amount of one thousand two hundred thirty-eight dollars and forty-five cents ($1,238.45); and to applicant's attorney, Steven Kmiec, fees in the amount of three hundred nine dollars and sixty-one cents ($309.61).
Dated and mailed July 21, 2004
correhe . wrr : 185 : 8 ND § 7.22
/s/ James T. Flynn, Chairman
/s/ David B. Falstad, Commissioner
/s/ Robert Glaser, Commissioner
This decision was based on analysis of the applicable law and uncontroverted facts. The administrative law judge found that the employer could have legitimately waited for a hearing before paying the s. 102.57 penalty, but the commission reversed this finding based on the legal analysis articulated in the above findings.
cc:
Attorney Steven Kmiec
Attorney Bethany C. McCurdy
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