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Bortolotti v. Universal Terrazzo and Tile Co.

Supreme Court of Nebraska

October 11, 2019

TERRY BORTOLOTTI, APPELLEE AND CROSS-APPELLANT,
v.
UNIVERSAL TERRAZZO AND TILE COMPANY AND ACUITY INSURANCE COMPANY, APPELLANTS AND CROSS-APPELLEES, AND COLUMBIA INSURANCE GROUP, APPELLEE. v.

         1. Workers' Compensation: Evidence: Appeal and Error. The findings of fact made by the Nebraska Workers' Compensation Court will not be set aside on appeal unless clearly wrong. However, where there is not sufficient competent evidence to support an award, an appellate court must modify, reverse, or set aside the award.

         2. Workers' Compensation: Wages: Appeal and Error. The determination of average weekly wage is a mixed question of fact and law. To the extent the determination involves a question of fact, the Workers' Compensation Court's factual findings will not be set aside unless clearly wrong; to the extent a question of law is involved, an appellate court is obligated to make its own determination.

         3. Pleadings. An amended pleading supersedes the original pleading, whereupon the original pleading ceases to perform any office as a pleading.

         4. Pleadings: Proof. The pleadings alone are not proof but mere allegations of what the parties expect the evidence to show.

         5. Statutes. Statutory language is to be given its plain and ordinary meaning.

         6. Workers' Compensation. The Nebraska Workers' Compensation Act should be construed liberally to carry out its spirit and beneficent purposes.

         7. Workers' Compensation: Corporations: Words and Phrases. Net profits or net income of a subchapter S corporation do not necessarily qualify as "wages" under Neb. Rev. Stat. § 48-126 (Reissue 2010).

          [304 Neb. 220] 8. Workers' Compensation: Corporations: Employer and Employee: Wages: Words and Phrases. "Wages" under Neb. Rev. Stat. § 48-126 (Reissue 2010) do not include payments received solely because of the recipient's status as an S corporation shareholder. Rather, "wages" under § 48-126 are compensation for the recipient's activities as a corporate employee.

         9.___:___::___: ___. The determination of "wages" under Neb. Rev. Stat. § 48-126 (Reissue 2010) for an employee-shareholder of a subchapter S corporation is a fact-specific inquiry.

         10. Workers' Compensation: Evidence: Appeal and Error. When testing the sufficiency of the evidence to support findings of fact made by the Workers' Compensation Court trial judge, the evidence must be considered in the light most favorable to the successful party, every controverted fact must be resolved in favor of the successful party, and the successful party will have the benefit of every inference reasonably deducible from the evidence.

         11. Workers' Compensation: Appeal and Error. On appellate review, the factual findings made by the trial judge of the Workers' Compensation Court have the effect of a jury verdict and will not be disturbed unless clearly wrong.

          Petition for further review from the Court of Appeals. Moore, Chief Judge, and Bishop and Arterburn, Judges, on appeal thereto from the Workers' Compensation Court, Julie A. Martin, Judge.

          John W. Iliff and Adam J. Wachal, of Gross & Welch, P.C, L.L.O., for appellants.

          John F. Thomas and Jay D. Koehn, of McGrath, North, Mullin & Kratz, P.C, L.L.O., for appellee Terry Bortolotti.

          Heavican, C.J., Miller-Lerman, Cassel, Stacy, Funke, Papik, and Freudenberg, JJ.

          CASSEL, J.

         I. INTRODUCTION

         On appeal from the Nebraska Workers' Compensation Court's award to Terry Bortolotti, the Nebraska Court of Appeals [304 Neb. 221] reduced his weekly income benefit from the maximum to the minimum and eliminated the award of out-of-pocket medical expenses.[1] On further review, we uphold the reduced weekly benefit but reinstate the medical expense award.

         The income benefit depends on the correct determination of Bortolotti's average weekly wage, which the compensation court erroneously based on a superseded pleading. In a matter of first impression, we address the definition of "wages" where the worker is both an employee and a shareholder of a subchapter S corporation.

         Regarding Bortolotti's medical expenses, the Court of Appeals failed to give his testimony the inferences mandated by the deferential standard of review.

         II. BACKGROUND

         1. Trial Proceedings

         Bortolotti worked in a family business, Universal Terrazzo and Tile Company (Universal), for over 30 years as an installer of terrazzo tile and fabricator and installer of granite. In 2011, Bortolotti became the sole stockholder and the president of Universal-a subchapter S corporation. Universal had at least 15 employees. As president, Bortolotti spent 60 percent of his time performing office and managerial work as opposed to physical labor. While he was president, Universal changed workers' compensation insurance providers from Columbia Insurance Group to Acuity Insurance Company.

         The injury at issue in this appeal occurred in June 2013. Bortolotti's operative petition for workers' compensation benefits alleged weekly earnings of $3, 625 at the time of the injury. Universal and Acuity Insurance Company denied the allegation. Henceforth, we collectively refer to Universal and Acuity Insurance Company as "Universal." We set forth additional facts in our analysis.

         [304 Neb. 222] The compensation court determined that Bortolotti sustained a compensable injury. It specifically found Bortolotti to be a credible witness. The compensation court had difficulty determining Bortolotti's average weekly wage due to a lack of exhibits. Based on an allegation in a superseded pleading, the court held that Bortolotti's average weekly wage was $1, 399.45, entitling him to the maximum compensation rate of $728 per week.

         With regard to past medical expenses, the compensation court stated that it was unable to use an exhibit offered by Bortolotti, because it did not comply with a court rule. But the court awarded Bortolotti $9, 849.38-the amount that he testified he personally paid for his medical expenses and which was itemized in greater detail on the exhibit he offered.

         Universal appealed, and Bortolotti cross-appealed. Universal challenged, among other things, the calculation of Bortolotti's average weekly wage and the award of out-of-pocket medical expenses.

         2. Court of Appeals' Decision

         The Court of Appeals affirmed the compensation court's award as modified. It noted that documents establishing Bortolotti's 2013 income were records in his control and that he did not produce any such documentation. The Court of Appeals concluded that the compensation court erred in determining Bortolotti's average weekly wage from the allegations in his petition, noting that Universal denied the allegations. Because Universal adduced evidence that Bortolotti's 2013 wages were $3, 950, the Court of Appeals determined that Bortolotti should have been awarded the minimum income benefit of $49 per week under Neb. Rev. Stat. § 48-121.01 (Reissue 2010).

         The Court of Appeals eliminated the award for Bortolotti's out-of-pocket medical expenses. It agreed with Universal that because the compensation court did not rely on the exhibit offered by Bortolotti, it had no basis to award the $9, 849.38 in expenses.

         [304 Neb. 223] Bortolotti filed a petition for further review, which we granted.

         III. ASSIGNMENTS OF ERROR

         Bortolotti assigns two errors. He alleges that the Court of Appeals erred by substituting its own judgment for that of the compensation court in (1) failing to give him the benefit of all factual inferences when it reduced his average weekly wage and (2) finding that he failed to prove entitlement to recover his out-of-pocket medical expenses.

         IV. STANDARD OF REVIEW

         The findings of fact made by the compensation court will not be set aside on appeal unless clearly wrong.[2] However, where there is not sufficient competent evidence to support an award, an appellate court must modify, reverse, or set aside the award.[3] These standards are central to our review, but we set forth other standards where applicable.

         V. ANALYSIS

         1. Average Weekly Wage

         (a) Standard of Review

         Our case law regarding whether determination of average weekly wage is a question of law or fact or both is muddled. Initially, we recognized it as a mixed question of fact and law.[4] In that case, we stated that "[t]he formula for computing the average weekly wage depends upon whether plaintiff was engaged in an occupation involving seasonal employment or nonseasonal employment."[5] When we next considered determination of average weekly wage, we stated that it was [304 Neb. 224] "essentially" a question of fact.[6] Unsurprisingly, the next time the issue arose, we treated it as a factual question, stating that the trial court's factual finding as to average weekly wage was not clearly wrong.[7] Nine months later, the Court of Appeals addressed the question of what is included within the word "wages" as a factual one.[8]

         Our decision in Hull v. Aetna Ins. Co.[9] appears to have created confusion. We stated:

We note that the determination of the definition of the average weekly wage of a self-employed claimant is a question of law. An appellate court is obligated in workers' compensation cases to make its own determinations as to questions of law. [Citations omitted.] Thus, we are obligated to clarify the meaning of the term "business expenses" in our previous holding.[10]

         This is a correct statement as to the definition of such wage. Importantly, we did not say the determination of average weekly wage is a question of law. The Court of Appeals next confronted the issue and, without citing Hull, opined that the trial court's determination of average weekly wage was a question of fact.[11]

         Since then, published Nebraska appellate cases have uniformly stated that the determination of how the average weekly wage of a workers' compensation claimant should be calculated is a question of law. It began with Harmon v. Irby Constr. [304 Neb. 225] Co., [12] where we proclaimed: "The determination of how the average weekly wage of a workers' compensation claimant should be calculated is a question of law. Hull v. Aetna Ins. Co., 249 Neb. 125, 541 N.W.2d 631');">541 N.W.2d 631 (1996)." But, as set forth above, that does not accurately recite what we said in Hull. It snowballed from there. We cited Harmon in Ramsey v. State.[13]The Court of Appeals then cited Ramsey in two cases, [14] and we cited Ramsey in Mueller v. Lincoln Public Schools [15] In our most recent case to address determination of average weekly wage, [16] we cited Mueller.

         Having traced the jurisprudential underpinnings regarding the standard of review, we believe our original iteration to be correct: The determination of average weekly wage is a mixed question of fact and law. To the extent the determination involves a question of fact, the compensation court's factual findings will not be set aside unless clearly wrong; to the extent a question of law is involved, we are obligated to make our own determination.[17]

         (b) Additional Facts

         An amended petition alleged an average weekly wage of $1, 399.45 in June 2013. But a second amended petition and the third amended petition-the operative petition-alleged weekly earnings of $3, 625 at the time of the June 2013 injury. In Universal's respective answers to each of these pleadings, it denied the allegation of average weekly wage.

         [304 Neb. 226] During trial, counsel for each party referenced figures contained on a tax return for Bortolotti, but documents containing such figures are not in our record. Our record contains only a 2013 "Schedule E," titled "Income From Passthrough Statement," which showed self-employment wages of $3, 950 and qualified production activities income of $186, 783. Additional information can be gleaned from the following colloquy between Bortolotti and his counsel:

Q [by counsel for Bortolotti]. Okay. All right. Let's talk about your ...

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