Opinion
No. 5-314 / 04-0503
Filed August 17, 2005
Appeal from the Iowa District Court for Polk County, Glenn E. Pille, Judge.
Star Seeds, Inc. and Employers Mutual Casualty Company appeal from a district court ruling on judicial review that affirmed the workers' compensation commissioner's determination of the weekly compensation rate for the respondent's award of benefits for a work injury. AFFIRMED IN PART; REVERSED IN PART; AND REMANDED.
Michael L. Mock of Bradshaw, Fowler, Proctor Fairgrave, P.C., Des Moines, for appellants.
Charles T. Patterson, Thomas M. Plaza and Sarah Kuehl Kleber of Heidman, Redmond, Fredregill, Patterson, Plaza, Dykstra Prahl, L.L.P., Sioux City, for appellee.
Heard by Mahan, P.J., Zimmer, J., and Hendrickson, S.J.
Senior judge assigned by order pursuant to Iowa Code section 602.9206 (2005).
Appellants Star Seeds, Inc. and Employers Mutual Casualty Company (Star Seeds) appeal from the district court's ruling on judicial review which affirmed the Iowa interim workers' compensation commissioner's calculation of the weekly compensation rate for Charles Brown's award of benefits for a 1993 work injury. Star Seeds claims the commissioner erred in: (1) failing to deduct interest expenses from Brown's self employment income when determining his "earnings from all occupations," (2) determining that Brown's depreciation expenses were less than the amount claimed by Brown on his tax returns, (3) refusing to remand the case back to the commissioner for submission of additional evidence relevant to the issue of depreciation expenses, and (4) granting Brown's motion to enforce judgment and refusing to grant an additional stay of enforcement of agency action. Upon our review, we affirm in part, reverse in part, and remand to the agency for a recalculation of the benefits to which Brown is entitled.
Employers Mutual Casualty Company is Star Seeds, Inc.'s workers' compensation insurance carrier. For convenience, we will refer to both appellants as Star Seeds.
I. Background Facts Proceedings
Star Seeds provided seasonal employment to Charles Brown, who was otherwise self-employed in farming and trucking. While working for Star Seeds in 1993, Brown sustained severe and permanent injuries when his right hand was caught in the stalk ejector rollers of the seed corn husker he was operating. Brown's right hand was surgically amputated after the accident.
Brown filed a claim for workers' compensation benefits. The deputy workers' compensation commissioner determined pursuant to Iowa Code section 85.36(9) (1993) (since repealed) that Brown's compensation rate should be based only on Brown's limited seasonal employment. Brown's self-employment income was excluded for purposes of calculating his workers' compensation benefits. The deputy commissioner's decision was upheld by the industrial commissioner and affirmed on judicial review by the district court. Brown appealed.
Brown also filed an action against the manufacturer of the farm machinery that he was operating when his injury occurred. He settled this third party claim for a payment of $350,000. The Iowa workers' compensation commissioner approved this settlement in 1998.
In Brown v. Star Seeds, Inc., 614 N.W.2d 577, 581 (Iowa 2000), our supreme court determined that pursuant to the statute in effect at the time of Brown's injury, the calculation of Brown's weekly workers' compensation benefits had to be based on his total earnings for all occupations. The supreme court remanded the case to the commissioner for a recalculation of benefits.
On remand, the agency entered a final decision determining Brown had gross weekly earnings in the amount of $934.24 and was entitled to a weekly benefit of $552.86. The agency calculated Brown's gross weekly earnings by taking Brown's reported net income from his business operations, and adding back the depreciation and interest expense which had been deducted on his tax returns. On judicial review, the district court determined "[t]he commissioner erred in mechanically adding depreciation and interest expense back into Brown's earnings." The court remanded the case back to the agency for further proceedings.
Following remand, the agency entered a second remand decision determining Brown had gross weekly earnings of $655.30 and that he was entitled to weekly workers' compensation benefits at the rate of $403.40. In calculating Brown's weekly earnings, the agency did not include any deduction for interest expense, but did include a deduction for depreciation in an amount which was less than the amount of depreciation expense deducted on Brown's tax returns.
The agency did not include an interest expense deduction because it concluded Brown's interest expense was not associated with assets that were "income-producing." The agency also concluded the deduction of business interest expense would be unreasonable because Brown's earnings' calculation would then be largely a result his level of affluence. With regard to depreciation expense, the agency calculated earnings using an amount which was less than the depreciation expense reported on Brown's income tax returns because Brown's tax returns utilized an accelerated method of depreciation. Star Seeds sought judicial review and the district court affirmed the agency's second remand decision.
The commissioner reasoned that an "affluent" business person would be less likely to incur interest expense in the operation of a business.
Star Seeds filed a timely motion to enlarge. The company requested that the district court grant a limited remand to the agency to give Star Seeds the opportunity to present additional evidence on the depreciation issue. The district court denied the motion.
Brown filed an application for entry of a judgment on the agency's decision. Star Seeds resisted the application and filed a motion to stay execution. The district court granted the application for entry of judgment and denied the motion for stay. The court concluded Brown would be financially harmed if a judgment was not entered and that with the resolution of judicial review proceedings in the district court the application should be granted. Star Seeds appeals.
II. Scope and Standards of Review
We review the commissioner's second remand decision for errors of law. IBP, Inc. v. Harpole, 621 N.W.2d 410, 414 (Iowa 2001).
We may reverse, modify, or grant other appropriate relief from agency action if the action was based upon a determination of fact clearly vested by a provision of law in the discretion of the agency that is not supported by substantial evidence in the record before the court when that record is viewed as a whole. Iowa Code § 17A.19(10)(f) (2003). Substantial evidence means the quantity and quality of evidence that would be deemed sufficient by a neutral, detached, and reasonable person, to establish the fact at issue when the consequences resulting from the establishment of that fact are understood to be serious and of great importance. Iowa Code § 17A.19(10)(f)(1).
The adequacy of the evidence in the record to support a particular finding of fact must be judged in light of all the relevant evidence in the record including any determination of veracity by the presiding officer who personally observed the demeanor of the witnesses and the agency's explanation of why the relevant evidence in the record supports its material findings of fact. Iowa Code § 17A.19(10)(f)(3).
We may also reverse, modify, or grant other appropriate relief from agency action if the action was based upon an erroneous interpretation of a provision of law whose interpretation has not clearly been vested by a provision of law in the discretion of the agency. Iowa Code § 17A.19(10)(c).
Finally, the agency action cannot be arbitrary or capricious. Iowa Code § 17A.19(10)(n). An agency action is arbitrary or capricious when it is taken without regard to the law or facts of the case. Arora v. Iowa Bd. of Med. Exam'rs, 564 N.W.2d 4, 7 (Iowa 1997). The burden of demonstrating the required prejudice and the invalidity of agency action is on the party asserting invalidity. Iowa Code § 17A.19(8)(a). With these principles in mind, we now address the appellants' claims on appeal.
III. Discussion
Star Seeds first claims that the commissioner erred as a matter of law in failing to deduct interest expenses from Brown's income when determining his "earnings from all occupations." The company argues that Brown's interest expenses constitute actual expenses incurred by Brown and therefore should be deducted from his gross revenues to determine his earnings. Brown responds that the commissioner correctly determined that deducting his interest expenses would unfairly penalize him for his lack of economic affluence. We believe Star Seeds has the better argument.
The statute in effect at the time of Brown's injury, Iowa Code section 85.36(9), governs the calculation of Brown's workers' compensation benefits. It states:
In occupations which are exclusively seasonal and, therefore, cannot be carried on throughout the year, the weekly earnings shall be taken to be one-fiftieth of the total earnings which the employee has earned from all occupations during the twelve calendar months immediately preceding the injury.
Iowa Code § 385.36(9) (1993). "Earnings" is defined by the American Heritage Dictionary, Second College Edition (1991) as "the profits of a business enterprise." The same dictionary defines "profits" as "the sum remaining after all costs, direct and indirect, are deducted from the income of a business." Id.
Brown's interest expenses were actual expenses he incurred while operating his farming and trucking operations. Brown deducted his interest expenses on his tax returns in order to determine his taxable earnings. Accordingly, we find the commissioner erred in not deducting Brown's interest expenses from his gross revenues when determining his earnings since they were actual expenses that he incurred.
We also conclude that the commissioner erred in finding that "it is not reasonable to deduct interest expense associated with property that is not an independent income producing asset." The commissioner cites no authority for this proposition. Additionally, we find the commissioner's finding is not supported by substantial evidence. Contrary to the commissioner's finding, we believe that Brown's interest expenses were associated with property that produced income. Brown's own expert witness testified that Brown likely would not have been able to generate the earnings that he had in 1992 and 1993 if he did not have interest expenses. We also note that Brown received rent from other individuals for use of his farm equipment and trucks. As a result, we reject the commissioner's finding.
Star Seeds next contends the commissioner erred in determining that Brown's depreciation expenses were less than the amount actually claimed by him on his tax returns. The company maintains the commissioner arbitrarily and capriciously excluded certain depreciation expenses when calculating Brown's income. Upon review of the record, we disagree.
The record reveals that Brown utilized an accelerated form of depreciation on his 1993 tax return for a truck and trailer. In 1992 he used an accelerated form of deprecation for an irrigation system and a farm tractor. The commissioner determined the full amount of depreciation expense taken on Brown's tax returns was not reasonable for purposes of establishing Brown's weekly earnings because the method of depreciation used by Brown for tax purposes did not accurately account for the reasonable exhaustion, wear, and tear of property used in his farming and trucking operations. We conclude the commissioner's decision to adjust Brown's depreciation expenses for workers' compensation purposes is supported by substantial evidence in the record. We further conclude the decision was neither arbitrary nor capricious. Accordingly, we reject this assignment of error.
The commissioner allocated the cost of the assets in issue on a straight-line basis over a ten-year period.
Star Seeds also claims that the district court erred in refusing to remand this case back to the commissioner pursuant to Iowa Code section 17A.19(7) (2003) for submission of additional evidence relevant to the specific issue of depreciation expense. We review the district court's decision for errors of law. Jackson County Pub. Hosp. v. PERB, 280 N.W.2d 426, 429 (Iowa 1979).
Star Seeds asserts a remand was mandatory because the commissioner's method of calculating Brown's self-employment income was novel and unanticipated by the parties. The district court found that a remand was neither mandatory nor proper in this case. The court expressed skepticism that Star Seeds was without sufficient notice that evidence potentially relevant to Brown's depreciation expenses would be necessary at the time of the hearing before the commissioner. We agree. The entire purpose of the hearing conducted on remand was to determine what depreciation and interest expenses should be deducted from Brown's earnings. Star Seeds should have been prepared to proffer any potentially relevant evidence regarding Brown's depreciation expenses. We conclude the district court committed no error in refusing to remand this case back to the commissioner.
Finally, Star Seeds claims that the district court erred in granting Brown's motion to enforce judgment and refusing to grant an additional stay of enforcement of agency action. We review the district court's decision for an abuse of discretion. Glowacki v. State Bd. of Med. Exam'rs, 501 N.W.2d 539, 541 (Iowa 1993).
Star Seeds argues that entry of a stay order to permit the judicial review and appeal process to run its proper course was the reasonable and proper course of action for the district court to take. Brown counters that the petitioners' right to appeal the district court's decision to affirm the commissioner's remand decision was not thwarted by the entry of judgment.
After analyzing the factors of Iowa Code section 17A.19(5)(c), the district court found that Brown would certainly suffer financial harm if judgment was not entered and Star Seeds' request for a stay was not denied. We conclude the district court did not abuse its discretion in granting Brown's motion to enforce judgment and in refusing to grant an additional stay of enforcement of agency action.
We also note that the district court approved the appellants' request for a supersedeas bond.